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SECURITIES AND EXCHANGE COMMISSION
☐ | ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒ | ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
2023
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐ | ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
001-41180
(Exact name of Registrant as specified in its charter)
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(Translation of Registrant’s name into English)
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Not applicable The Netherlands
(Translation of Registrant’s name into English) (Jurisdiction of incorporation or organization)
Viale Roma 99/100
1383513835 Valdilana loc. Trivero
(Address of principal executive offices)
Gianluca Ambrogio Tagliabue
Viale Roma 99/100, 13835 Valdilana loc. Trivero, Italy
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
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Ordinary Shares, nominal value €0.02 per share | | ZGN | | | |
Warrants, each whole warrant exercisable for one Ordinary Share at an exercise price of $11.50 per share
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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
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
OnAt December 31, 2021,2023, the issuer had 242,343,659250,310,263 ordinary shares, nominal value €0.02 per share, and 154,981,350 special voting shares A, nominal value €0.02 per share, outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T
(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated
filer, or an emerging growth company. See
definitionthe definitions of
“accelerated“large accelerated filer,”
“large accelerated“accelerated filer,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
(Check one):
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Large accelerated filer | | ☐ | ☒ | Accelerated filer | | ☐ |
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Non-accelerated filer | | ☒ | ☐ | Emerging growth company | | ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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U.S. GAAP ☐ | | International Financial Reporting Standards as issued | | | | Other ☐ |
| | �� by the International Accounting Standards Board ☒ | | | | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2
of the Exchange Act). Yes ☐ No ☒
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Table of Contents
In this report, unless otherwise specified, the terms “Zegna”, “”, “”, and the “”, the “” and “” refer to the Registrant, Ermenegildo Zegna N.V., a Dutch public limited liability company (), following(naamloze vennootschap); the Conversionterms “Ermenegildo Zegna Group” and priorthe “Group” refer to the Conversion, to Ermenegildo Zegna Holditalia S.p.A., a joint stock company incorporated under Italian law, in each caseCompany together with its consolidated subsidiaries,subsidiaries. Unless otherwise specified, the terms “we,”“our” and “us,” refer to the Group or any one or more of them,the Company, as the context may require. “” means, with respect to any Person, any other Person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlled” and “controlling” have meanings correlative thereto. “Articles of Association” means the articles of association of the Company.
” means the audit committee of the Zegna Board.“Board” means the Company’s board of directors.
“Board Regulations” means the regulations of the Board, as amended or supplemented from time to time.
“Business Combination
” means the business combination between Zegnathe Company and IIAC, which was completed on December 17, 2021.“Business Combination Agreement
” means that certain Business Combination Agreement, dated as of July 18, 2021, by and among IIAC, Zegna,the Company, and Zegna Merger Sub, as amended or supplemented from time to time. “” means a return of capital distribution under Cayman Islands law whereby, on the Closing Date, immediately following the PIPE Financing and prior to the Share Repurchase, IIAC distributed the Capital Distribution Amount to Zegna.the Company. “Capital Distribution Amount
” means an amount of €191,806,537.10 plus $105,380,150.53. “” means an amount of €455,000,000. “” means the Class A ordinary shares, par value $0.0001 per share, of IIAC prior to the Merger. “” means the Class B ordinary shares, par value $0.0001 per share, of IIAC prior to the Merger. “” means the closing of the Business Combination. “” means December 17, 2021. “” means the compensation committee of the Zegna Board. “” means the cross-border conversion whereby, on December 17, 2021, Zegna,the Company, by means of the execution of a Dutch notarial deed of cross-border conversion and amendment of its articles of association, converted into a Dutch public limited liability company ()(naamloze vennootschap) and transferred its legal seat from Italy to the Netherlands and amended its articles of association, as a result of which Zegnathe Company assumed its current legal name “Ermenegildo Zegna N.V.” “” means the Dutch Corporate Governance Code. “” has the meaning set forth in “Item 5.A—Operating Results—Trends, Uncertainties and Opportunities—Disposition of certain businesses.” “Item 5—Operating and Financial Review and Prospects1
”.
“Director” means an Executive Director or a Non-Executive Director.
” has the meaning set forth in“Item 5—5.A—Operating Results—Trends, Uncertainties and Financial Review and Prospects
Opportunities—Disposition of certain businesses.”.“” means directly operated stores. “”means direct-to-consumer.
“” means the time the Merger became effective on the Closing Date. “” means 50%the portion of the Ordinary Shares that were issued to the IIAC Initial Shareholders in(in exchange for their Class B Shares,Shares) which Ordinary Shares are currently held in escrow subject to the release conditions described in the prospectus.Business Combination Agreement. “” means the Securities Exchange Act of 1934, as amended. “Executive Director” means an executive member of the Board.
” means the transactions contemplated by the Forward Purchase Agreement.“Forward Purchase Agreement
” means the forward purchase agreement between IIAC and the FPA Purchaser, dated as of November 18, 2020, as amended on July 26, 2021. “” means Strategic Holding Group S.à r.l., an affiliate of the IIAC Sponsor. “General Meeting” means the corporate body that consists of the shareholders of the Company and all other Persons with meeting rights and also the meeting in which shareholders of the Company and all other Persons with meeting rights assemble, as the case may be.
“Governance and Sustainability Committee
” means the governance and sustainability committee of the Zegna Board.“” means the hedging positions and arrangements that effectively transfer the economic interest of any member of the Sponsor Group in Zegnathe Company to a third party (e.g., forward sale contracts); provided, that the definition of “Hedged Positions” shall not include hedging positions and arrangements (a) in which the economic interest of any member of the Sponsor Group in Zegnathe Company is retained (e.g., pledges and margin loans), (b) that minimize exposure to certain risks independent of the business operations of Zegnathe Company (e.g., currency exchange swaps) or (c) that marginally cap or limit the upside/downside risk of any member of the Sponsor Group while maintaining material economic exposure (e.g., puts, calls and collars), as determined in good faith by the Zegna Board and such member of the Sponsor Group. “” means Investindustrial Acquisition Corp., a Cayman Islands exempted company. “IIAC Initial Shareholders
”Shareholders” means the FPA Purchaser, Sergio P. Ermotti, Audeo Advisors Limited, Jose Joaquin Guell Ampuero, Dante Roscini and Tensie Whelan. “” means collectively the Class A Shares and the Class B Shares prior to the Merger. “IIAC Private Placement Warrants
” means the warrants that were issued to the IIAC Sponsor in a private placement at the time of the IIAC initial public offering consummated on November 23, 2020, each of which was exercisable for one Class A Share at an exercise price of $11.50 per share.“” means warrants to acquire Class A Shares, issued as part of units in the IIAC initial public offering consummated on November 23, 2020, at an initial exercise price of $11.50 per share. “” means the IIAC Private Placement Warrants and the IIAC Public Warrants. “” means Investindustrial Acquisition Corp. L.P., a limited partnership incorporated in England and Wales.“IIAC SponsorLock-Up
Agreement ” means thelock-up
agreement, entered into at the Closing, by and among Zegna,the Company, IIAC Sponsor and the IIAC Initial Shareholders.
“IIAC Warrants” means the IIAC Private Placement Warrants and the IIAC Public Warrants.
“Insider PIPE Subscribers
” means certain inside subscribers among the PIPE Investors (including the FPA Purchaser, Sergio P. Ermotti and Ermenegildo (Gildo) Zegna di Monte Rubello).“LeadNon-Executive
Director ” means the Zegna Director serving as lead non-executive director. “” means the separate part of Zegna’sthe Company’s shareholder register instrumental to Zegna’sthe Company’s loyalty voting structure. “” means the merger of Zegna Merger Sub with and into IIAC, with IIAC being the surviving company. “Minimum Holding Requirement
”Requirement” means the beneficial ownership (as such term is defined inRule 13d-3 under
the Exchange Act) by the Sponsor Group, of at least 5% of the issued and outstanding Ordinary Shares, excluding (i) any Hedged Positions as evidenced by the IIAC Sponsor in writing and (ii) any Escrowed Shares that have not been released from escrow to the applicable Sponsor Group member.
“” means Monterubello s.s., an Italian.semplice. “Non-Executive Director” means a non-executive member of the Warrant Agreement entered into concurrently with the Closing, by and between Zegna, Computershare Trust Company, N.A., and Computershare Inc.Board. “” means the New York Stock Exchange. “” means the private placement of 12,500,000 Ordinary Shares to the Offset PIPE Investors, for gross proceeds to Zegnathe Company in an aggregate amount of $125,000,000, pursuant to the Offset Subscription Agreements. “” means investors in the Offset PIPE Financing pursuant to the Redemption Offset Agreements and the Offset Subscription Agreements. “Offset Subscription Agreements
” means those certain subscription agreements entered into on December 16, 2021, among IIAC, Zegnathe Company and the Offset PIPE Investors named therein. “” means the ordinary shares, nominal value €0.02 per share, of Zegna.the Company. “” means an individual, partnership, corporation, limited liability company, joint stock company, unincorporated organization or association, trust, joint venture or other similar entity, whether or not a legal entity. “” means the private placement of 25,000,000 Ordinary Shares to the PIPE Investors, for gross proceeds to Zegnathe Company in an aggregate amount of approximately $250,000,000, pursuant to the PIPE Subscription Agreements. “” means the investors (including the Insider PIPE Subscribers) in the PIPE Financing pursuant to the PIPE Subscription Agreements. “” means the 37,500,000 Ordinary Shares that were issued to certain securityholders in connection with the closing of a private placement offering concurrent with the Closing. “” means those certain subscription agreements entered into on July 18, 2021, among IIAC, Zegnathe Company and the PIPE Investors named therein relating to the PIPE Financing.“Private Placement Warrants
” means warrants to acquire Ordinary Shares on the same contractual terms and conditions as the IIAC Private Placement Warrants. “” means warrants to acquire Ordinary Shares on the same contractual terms and conditions as the IIAC Public Warrants. “Redemption Offset Agreements
” means the agreements entered into on December 3, 2021, among IIAC, Zegnathe Company and the Offset PIPE Investors named therein relating to the offset of redemptions of Class A Shares by IIAC public shareholders up to a certain level.
“Registration Rights Agreement
” means the registration rights agreement entered into at Closing, pursuant to which the IIAC Initial Shareholders and the Zegna Initial Shareholders have been granted certain registration rights with respect to their respective equity securities in Zegna,the Company, in each case, on the terms and subject to the conditions in such registration rights agreement.“” means the Sarbanes-Oxley Act of 2002, as amended. “” means the United States Securities and Exchange Commission. “” means the Securities Act of 1933, as amended. “Senior Management Team” means the Group’s senior management.
“Share Repurchase” means the repurchase by the Company of 54,600,000 Ordinary Shares from Monterubello in exchange for the Cash Consideration.
“Shareholders Agreement
” means the shareholders agreement entered into at Closing by and among Zegna,the Company, the IIAC Sponsor, Monterubello and Mr. ErmenegildoGildo Zegna.“Special Voting Shares” means, collectively, the Special Voting Shares A, the Special Voting Shares B and the Special Voting Shares C.
“Special Voting Shares A” means the repurchase by Zegnaspecial voting shares class A, nominal value of 54,600,000 Ordinary€0.02 per share, of the Company.“Special Voting Shares from Monterubello in exchange forB” means the Cash Consideration.special voting shares class B, nominal value of €0.08 per share, of the Company.
“Sponsor
Special Voting Shares C” means the special voting shares class C, nominal value of €0.18 per share, of the Company. ” means the IIAC Sponsor together with its Affiliates.
“” means theZegna Non-Executive Director
to be nominated by the IIAC Sponsor in accordance with the Zegna Articles of Association. “” means IIAC following the Merger. “Terms and Conditions of the Zegna Special Voting Shares
” means the terms and conditions that apply to the issuance, allocation, acquisition, conversion, sale, holding, repurchase and transfer of the Zegna Special Voting Shares and certain aspects of the registration of the Ordinary Shares in the Loyalty Register. “TFI Acquisition”means the acquisition of Tom Ford International (“TFI”), as further described in “Item 4.A—History and Development of the Company—TFI Acquisition.”
Redemption” means the Warrant Agreement,redemption of all our outstanding Warrants, which was completed on February 27, 2023 and as described in the notice of redemption dated as of November 23, 2020, between IIAC and Continental Stock Transfer & Trust Company, as subsequently amended by the Warrant Agreement Amendment and the Warrant Assumption and Amendment Agreement.January 26, 2023.“Warrant Agreement Amendment
” means the Warrant Agreement Amendment, entered into immediately prior to the Effective Time, by and between IIAC and Continental Stock Transfer & Trust Company. “Warrant Assumption and Amendment Agreement
” means the Warrant Assumption and Amendment Agreement, entered into concurrently with the Closing, by and among IIAC, Zegna, Continental Stock Transfer & Trust Company, Computershare Trust Company, N.A. and Computershare Inc.“” means, collectively, the Public Warrants and the Private Placement Warrants.“Zegna Articles of Association
” means the articles of association of Zegna. “” means Zegna’s board of directors.“” means the regulations of the Zegna Board, as amended or supplemented from time to time.“” means a Zegna Executive Director or aZegna Non-Executive Director.
“” means an executive member of the Zegna Board.“” means the corporate body that consists of the shareholders of Zegna and all other Persons with meeting rights and also the meeting in which shareholders of Zegna and all other Persons with meeting rights assemble, as the case may be.“Zegna Initial Shareholders
” means, collectively, Monterubello, Ermenegildo (Gildo) Zegna and the other shareholders of Zegna immediately prior to the Closing.“” means EZ Cayman, a Cayman Islands exempted company. “” meansa non-executive member
of the Zegna Board. “Zegna ShareholdersLock-Up
Agreement ” means thelock-up
agreement, entered into at the Closing, by and among Zegnathe Company and the Zegna Initial Shareholders.“” means, collectively, the Zegna Special Voting Shares A, the Zegna Special Voting Shares B and the Zegna Special Voting Shares C.“Zegna Special Voting Shares A
” means the special voting shares class A, nominal value of €0.02 per share, of Zegna.“Zegna Special Voting Shares B
” means the special voting shares class B, nominal value of €0.08 per share, of Zegna.“Zegna Special Voting Shares C
” means the special voting shares class C, nominal value of €0.18 per share, of Zegna.
Table of Contents
This document includes the consolidated financial statements of Ermenegildo Zegna N.V. as ofat December 31, 20212023 and 2020,2022, and for each of the three years in the period ended December 31, 2021,2023, prepared in accordance with International Financial Reporting Standards (“”) as issued by the International Accounting Standards Board (“”), as well as IFRS as adopted by the European Union. There is no effect on these consolidated financial statements resulting from differences between IFRS as issued by the IASB and IFRS as adopted by the European Union. We refer to these consolidated financial statements collectively as the “Consolidated Financial Statements
.” Basis of Preparation of the Consolidated Financial Statements
As explained in Item 4.A of this report, onOn December 17, 2021 we closed the previously announced Business Combination pursuant to the Business Combination Agreement, dated as of July 18, 2021, as amended, by and among us, IIAC and Zegna Merger Sub, our wholly owned subsidiary. For more information on the Business Combination, see “Item 4.A—History and Development of the Company.
Company” and Note 1 — General information to the Consolidated Financial Statements included elsewhere in this report.The Group’s financial information is presented in Euro. In certain instances, information is presented in U.S. Dollars. All references in this document to “”“Euro” and ““€” refer to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended, and all references to “” “US$” and ““$” refer to the currency of the United States of America (the “”). The language of this document is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.
Certain totals in the tables included in this document may not add due to rounding.
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
This report includes trademarks, tradenamestrade names and service marks, certain of which belong to Zegnathe Group and others that are the property of other organizations. Solely for convenience, some of the trademarks, service marks, logos and trade names referred to in this report are presented without the®
and™
symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. This report contains additional trademarks, service marks and trade names of others. All trademarks, service marks and trade names appearing in report are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies. MARKET AND INDUSTRY INFORMATION
Information contained in this report concerning the market and the industry in which we compete, including our market position, general expectations of market opportunity and market size, is based on information from various third party sources, assumptions made by us based on such sources and our knowledge of the personal luxury goods market. This information and any estimates provided herein involve numerous assumptions and limitations, and you are cautioned not to give undue weight to such information. Third partyThird-party sources generally state that the information contained in such source has been obtained from sources believed to be reliable but that there can be no assurance as to the accuracy or completeness of such information. We have not independently verified any third partythird-party information. The industry in which we operate is subject to a high degree of uncertainty and risk. As a result, the estimates and market and industry information provided in this report are subject to change based on various factors, including those described in the sections entitled “Cautionary Note Regarding Forward-Looking Statements
” and “” and elsewhere in this report. The information relating to the industry contained in the section entitled “Item 4.B—Business Overview—Industry
,”, unless otherwise indicated, has been based on the Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2021,2023, dated November 11, 2021.14, 2023.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. Forward-looking statements provide the current expectations or forecasts of future events of Zegna.the Company. Forward-looking statements include statements about Zegna’sthe Company’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will” and “would,” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Examples of forward-looking statements in this report include, but are not limited to, statements regarding Zegna’s disclosure concerning Zegna’sthe Group’s operations, cash flows, financial position and dividend policy.
Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. The risks and uncertainties include, but are not limited to:
the impact ofCOVID-19
or similar public health crises on Zegna’s business;disruptions arising from political, social and economic instability, geopolitical tensions or civil unrest, including the current conflict in Ukraine;
the effect of the consummation of the Business Combination on Zegna’s business, cash flows, financial condition or results of operations;
•the ability of Zegnathe Group to safeguard the recognition, integrity and reputation of its brands and to identify and respond to new and changing customer preferences;
•the impact of COVID-19 or similar public health crises on the Group’s business;
•disruptions arising from political, social and economic instability, geopolitical tensions or civil unrest, including the current conflict in Ukraine and sanctions imposed onto Russia; •the ability of Zegnathe Group to successfully implement its strategy;
strategy, including with respect to the newly acquired TOM FORD FASHION business;•the ability of the Group to achieve the expected benefits of businesses we may acquire;
•disruptions to Zegna’sthe Group’s manufacturing and logistics facilities, as well as DOSs, including as a result of theCOVID-19
pandemic; DOSs;•risks related to the operation of Zegna’sthe Group’s DOSs, including as a result of difficulties in renewing the existing lease agreements, an increase in rental charges or a decline in sales, and the operation of points of sale by third parties in the wholesale channel;
•fluctuations in the price or quality of, or disruptions in the availability of, raw materials used by Zegnathe Group for its products or of commodities such as energy, which could cause Zegnathe Group to incur increased costs, disrupt its manufacturing processes or prevent or delay Zegnathe Group from meeting its customers’ demand;
•the ability of Zegnathe Group to negotiate, maintain or renew license or co-branding agreements with high end third party brands;
•shifts in travel patterns or declines in travel volumes, including as a result of theCOVID-19
pandemic; volumes;•the ability to attract and retain key senior and skilled personnel and preserve craftmanshipcraftsmanship skills;
Zegna’s•the Group’s ability to protect its intellectual property rights;
•disruptions or breaches compromising Zegna’sin the Group’s information technology systems compromising the Group’s business operations or the personal information of Zegna’s customers;
the Group’s customers, including as a result of cybercrimes;Zegna’s ability to maintain Zegna’s securities’ listing on the NYSE;
•the fact that the market price of Zegna’sthe Company’s securities may be volatile due to a variety of factors;
•the ability to develop and maintain effective internal controls;
•the Company has identified material weaknesses have been identified in Zegna’sits internal control over financial reporting andreporting; if Zegnathe Company fails to remediate these material weaknesses or maintain an effective system of internal controls, it may not be able to produce timely and accuratethis could result in a material misstatement in the Company’s consolidated financial statements or comply with applicable laws and regulations;
may subject us to adverse regulatory
consequences and affect investor confidence in us and, as a result, the price of our securities and our ability to access the capital markets and other forms of financing in the future may be impaired;
•changes in local economic, business, regulatory, social and political conditions, as well as changes in general economic conditions (such as significant inflation) and in demand for luxury goods;
•exchange rate fluctuations, interest rate changes, credit risk and other market risks;
•the high levels of competition in the luxury goods market;
•compliance with laws, including laws and regulation related to intellectual property, competition, product safety, packaging and labeling, import and processing of certain raw materials and finished goods, data protection and privacy, limits on cash payments, workersanctions, workers’ health and safety, human rights and the environment;
•risks related to climate change and other environmental impacts, as well as an increased focus by regulators and stakeholders on environmental, social and governance matters;
•changes in trade policy, the imposition of tariffs, the enactment of tax reforms and other changes in laws and regulations; and
•other factors discussed elsewhere in this report in the section “.”. Actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in the section “” of this report. Accordingly, you should not rely on such forward-looking statements, which speak only as ofat the date of this report. ZegnaThe Company undertakes no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this report or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks Zegnathe Company describes in the reports it will file from time to time with the SEC. Although Zegnathe Company believes the expectations reflected in the forward-looking statements were reasonable at the time made, it cannot guarantee future results, level of activity, performance or achievements. Moreover, neither Zegna,the Company, nor any other person assumes responsibility for the accuracy or completeness of such forward-looking statements. You should carefully consider the cautionary statements contained or referred to in this section in connection with the forward-looking statements contained in this report and any subsequent written or oral forward-looking statements that may be issued by Zegnathe Company or persons acting on its behalf.
Table of Contents
| ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
| ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3 KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Summary of Risk Factors
The following is a summary of the principal risk factors that could have a material adverse effect on our business, results of operations and financial condition. Please carefully consider all of the information discussed in this “Item 3.D—Risk Factors” for a detailed description of such risks.
•Our business depends on the recognition, integrity and reputation of our brands and on our ability to identify and respond to new and changing customer preferences.
•The resurgence of the COVID-19 pandemic or similar public health crises may materially and adversely affect our business.
•Disruptions arising from political, social and economic instability, geopolitical tensions or civil unrest, including the current conflict in Ukraine and sanctions imposed onto Russia, may adversely affect our business.
•We may not be able to successfully implement our strategy, including the further enhancement of the ZEGNA brand, the successful integration of the TOM FORD FASHION business and Thom Browne’s international expansion.
•Disruptions to our manufacturing and logistics facilities, as well as DOSs, may adversely affect our business.
•The sale of our products through our DTC channel and directly operated stores is subject to certain risks, including as a result of difficulties in renewing the existing lease agreements, increases in rental charges or declines in sales, which may adversely affect our business.
•In the wholesale channel, we are subject to certain risks arising from points of sale operated by third parties, and we are dependent on our local partners to sell products in certain markets.
•Fluctuations in the price or quality of, or disruptions in the availability of, raw materials used in our products or of commodities such as energy, could cause us to incur increased costs, disrupt our manufacturing processes or prevent or delay us from meeting our customers’ demands.
•We could be adversely affected if we are unable to negotiate, maintain or renew our license or co-branding agreements.
•The loss or unavailability of certain key senior personnel as well as skilled personnel could adversely affect our business.
•We could be adversely affected by fluctuations in exchange rates.
Risk factors relating to Zegna’sthe Group’s business, strategy and operations
Our business depends on the recognition, integrity and reputation of our brands.
We design, manufacture, promote and sell luxury goods under a number of brands, including ZegnaZEGNA and Thom Browne and, untilBrowne. Pursuant to a long-term license agreement with The Estée Lauder Companies, we also operate the full implementation of our rebranding strategy, our Ermenegildo Zegna, Z Zegna and Ermenegildo Zegna XXX brands.TOM FORD FASHION (“TFF”) business. Our sales and our ability to achieve premium pricing depend on the perception, recognition and reputation of our brands, which, in turn, depend on factors such as product design, the distinctive character and the quality of our products and customer service, the image of our stores and those of our franchisees and other wholesale customers, the success of our advertising and communication activities and our general corporate profile.
The recognition, integrity and reputation of our brands are among our most valuable assets, which are influenced by several factors, some of which are outside of our control. Factors that may adversely affect our brands’ image include our inability to respond adequately to the needs and expectations of our customers with regard to the quality, style and design, as well as the social and environmental sustainability, of our products, the service we provide in our stores, the dissemination by third parties of information that is untrue or defamatory, the commencement of litigation proceedings against us, as well as factors attributable to the parallel distribution and counterfeiting of our products.
As we expand into new marketing channels, we may pursue new collaborations with designers, artists, promoters and influencers to attract new customers and drive engagement with existing customers. Such collaborators could engage in behavior, make statements or use their platforms in a manner that reflects poorly on our brand or otherwise adversely affect us. We may be unable prevent such actions, and the actions we take to address them may not be effective in all cases. Each of these factors could harm the recognition, integrity and reputation of our brands, causing us to lose existing customers or fail to attract new customers, or otherwise having a material adverse effect on our business, results of operations and financial condition.
Our reputation may also suffer as a result of facts depending onfactors or actions attributable to our suppliers. While we closely monitor our suppliers to ensure that they comply with all applicable laws and regulations, if suppliers fail to comply with applicable law, including those relating to labor, social security, health and safety, human rights, or if they deliver products that are defective or differ from our specifications or quality standards or do not comply with applicable law, this could have adverse effects on our production cycle and cause delays in product deliveries to our customers, which in turnand could damage our reputation, with possible adverse effects on our business, results of operations and financial condition.
Our success depends on our ability to anticipate trends and to identify and respond to new and changing consumer preferences.
Our continued success depends in part on our ability to set and define product and fashion trends, and in part on our ability to identify and respond to changing consumer preferences in a timely manner. Our products must appeal to an evolving customer base whose preferences cannot be predicted with certainty and are subject to increasingly rapid change, while preserving the image and recognition of our brands. Although we dedicate considerable resources to market analysis and the identification of new fashion trends, we may not be able to promptly anticipate fashion trends or to quickly adapt to these trends during the design and manufacturing stages. If we fail to identify or promptly respond to new trends or changing consumer preferences, including concerns or perceptions regarding the sustainability and environmental impact of our products, our brands’ reputation may be affected, which could result in unsold products, a decline in sales to customers and could have a material adverse effect on our business, results of operations and financial condition.
Table of Contents
We are subject to risks related to the
COVID-19
pandemic or similar public health crises that may materially and adversely affect our business.
Public health crises such as pandemics could adversely impact our business. The global spread of
COVID-19,
including
more recently the highly transmissible Delta and Omicron variants thereof,
led to governments around the world mandating restrictive measures, including quarantine, social distancing, “shelter in place” or similar orders, travel restrictions and suspension ofnon-essential
business activities. TheCOVID-19
pandemic has caused significant disruption to the global economy, consumer spending and behavior, tourism, supply chains and financial
markets, leadingmarkets.The COVID-19 pandemic, the ensuing government-mandated restrictive measures and the responsive actions adopted by the private sector and individual consumers adversely impacted our business operations, store traffic, employee availability, supply chain, financial condition, liquidity and cash flows, primarily in 2020 at the onset of the pandemic and in 2022 due to a global economic slowdown and a severe recession in severalnew wave of the marketsvirus and the resulting lockdown restrictions in which we operate, whichcertain parts of the Greater China Region, the Group’s largest geographical market. The continuation or reintroduction of these restrictions or any new restrictions may persist even after all restrictions are lifted.adversely affect our business, results of operations and financial condition.
In connection with theCOVID-19
pandemic and related government measures, we experienced suspension or slowdown of our production at our manufacturing and logistics facilities in 2020 and 2021, as well as delays in deliveries of raw materials from suppliers and of our products to wholesale customers, temporary closures of our DOSs and our distribution partners’ stores, as well as running costs related to our workforce, despite furlough or reduced hours schemes we implemented with respect to certain of our employees. While we continued to serve our customers through our remote selling and onlinee-commerce
websites during the periods in which our DOSs were closed, the store closures resulted in a significant decline in our revenues and ability to generate cash flows from operations. For further information on the impact of theCOVID-19
pandemic on our results of operations and liquidity, see “Item 5—5.A—Operating and Financial Review and Prospects—Results—Trends, Uncertainties and Opportunities.”
” TheGlobal trade conditions and consumer trends that originated during the COVID-19
pandemic continue to persist and may also have long-lasting adverse impacts on our business independently of the progress of the pandemic. For instance, the pandemic has alsoled to shifts in tourism patterns and the emerging of new tourist destinations, thus reshaping the geographical landscape of our store and distribution network. These shifts have resulted in a decline inincreased expenditure associated with the levelphysical and logistical expansion of consumer purchases of discretionary itemsour distribution network, as well as the need to adjust distribution strategies and luxury retail products, including our products, caused by lower disposable income levels, travel restrictions, the prevalence oflogistics. Moreover, increasing remote working arrangements may result in lower luxury purchases.Although COVID-19-related restrictions have generally been lifted across the markets where we operate, our businesses may continue to experience impacts from a resurgence of COVID-19 or other widespread public health crises, such as incremental health and
other factors. As a result of storesafety measures and related increased expenses, capacity restrictions and closures,
and lower consumer demand, we experienced abuild-up
of inventory. While the overallCOVID-19
situation appears to have improved in countries that have rolled out vaccination campaigns, our business and operating results may be negatively impacted if the virus worsensas well as new shutdowns or
mutates, if vaccination efforts are unsuccessful or if regions or countries implement further restrictions to contain the virus. We may experience a new shutdown or slowdownslowdowns of all or part of our manufacturing and logistics
facilities,operations and of our stores.
InA resurgence of the
first monthsCOVID-19 pandemic or the occurrence of
2022 we experienced minor delays in production in certain countries where a significant number of our and our suppliers’ employees had to stay at home after becoming infected withCOVID-19.
Since March 2022, dueother widespread public health crises may contribute to a
new wave of the virus in certain parts of the Greater China Regionrecession, depression or global economic downturn, reduce store traffic and
the resulting lockdown restrictions, we have been required to close certain of our DOSs in the Greater China Region, and DOSs that remained open have experienced significantly lower customer traffic. Management time and resources were required to be, and in the future may need to be, spent onCOVID-19
related matters, distracting them from the implementation of our strategy. In addition, the prophylactic measures we are required to adopt at our facilities may be costly and may affect production levels.Our suppliers, customers and other contractual counterparties may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time. TheCOVID-19
pandemic mayconsumer spending, lead to financial distress for our suppliers or wholesale customers, as a result of which they may have to permanently discontinue or substantially reduce their operations. Any of the foregoing could
disrupt our supply chain and/or limit customer demand or our capacity to meet customer demand,
disrupt our supply chain and have a material adverse effect on our business, results of operations and financial condition.
The impact of the
COVID-19
pandemic on our business, results of operations and financial condition will
ultimately depend largely on future events outside of our control, including ongoing developments in the pandemic
(including the appearance of new variants of the virus), the success of containment measures, vaccination campaigns and other actions taken by governments around the world, as well as the overall condition and outlook of the global economy. However, the effects on our business, results of operations and financial condition may be material and adverse.
TheCOVID-19
pandemic or other widespread public health crises may also exacerbate other risks disclosed in this “Item 3.D—3.D.—Risk Factors,
”, including, but not limited to, our competitiveness, demand for our products, shifting consumer preferences, exchange rate fluctuations, and availability and price of raw materials.
We operate in many countries around the world and, accordingly, we are exposed to various international business, regulatory, social and political risks.
We operate in over 80approximately 85 countries worldwide through a direct and indirect distribution network. For the year ended December 31, 2021, 54%2023, 41% of our revenues were generated in APAC, 29%35% were generated in EMEA, 15%22% were generated in North America and 2% were generated in Latin America.
Our operations in various international markets expose us to various risks, including those arising from: competition with local competitors (which may have greater resources and/or more favorable market positions); the diversity of consumers’ tastes and preferences and our ability to anticipate or respond to such tastes and preferences; changes in the political and economic environments in the countries where we operate; changes in regulations, including tax regulations, and the imposition of new duties or other protectionist measures; strict regulations affecting the import and processing of certain
raw materials and finished goods; the occurrence of acts of terrorism or similar events, conflicts,
geopolitical tensions, civil unrest or situations of political instability; parallel imports of goods at terms inconsistent with our guidelines and distribution of our products, in violation of exclusive territorial rights granted to other importers and licensees (the
so-called
“gray “gray market”)
., which may force us to reposition our pricing in certain countries and erode our profitability. These or other factors may harm our business in international markets or cause us to incur significant costs in these markets, which could have a material adverse effect on our business, results of operations and financial condition.
The conflict in Ukraine and sanctions imposed onto Russia may adversely affect our business.
Due toThe ongoing conflict in Ukraine and resulting geopolitical tensions
manyhave had an abrupt impact on the global economy resulting in a sharp increase in energy prices and higher prices for certain raw materials and goods and services, which in turn have contributed to higher inflation around the world. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be material and adverse. Many governments around the world, including those of the United States, the European Union, the United Kingdom and other jurisdictions, have
recently announced the imposition of sanctions on certain industries and parties in Russia,
Belarus and the Ukrainian regions of Donetsk and Luhansk, as well as export controls on certain industries and products,
including luxury goods, and the exclusion of certain Russian financial institutions from the SWIFT system. On March 11, 2022, the President of the United States issued an executive order prohibiting exports to Russia of luxury goods (including,
, apparel, footwear and certain accessories with a per unit wholesale price of $1,000 or more).
Shortly thereafter, onOn March 15, 2022, the Council of the European Union imposed new sanctions on Russia prohibiting the export of luxury goods having a value in excess of €300 per item (including clothing, footwear, leather and fashion accessories). These and any additional sanctions or export controls, as well as any counter responses by the governments of Russia or other countries, are adversely affecting, and will continue to adversely affect, directly or indirectly, our supply chain and customers, as well as the global financial markets and financial services industry.
The Russian market represented 1.5%0.01%, 2.0%0.3% and 1.5% of our revenues in 2021, 20202023, 2022 and 2019,2021, respectively. Our business operations in such market areused to be conducted through franchisees and distribution partners. Pursuant to the aforementioned sanctions, we are required to suspendsuspended indefinitely deliveries to our franchisees and distributors in Russia. Accordingly, we haveeither suspended production of products forstarting with the Fall/Winter 2022 collection ordered by our Russian franchisees and distributors or redirected any products ordered by Russian franchises and itdistributors for the Fall/Winter 2022 collection to our DOSs in other regions or to other franchisees and distributors. It is uncertain whether and when we will be able to resume such production. As we have already purchased raw materials for such production, we may be unable to repurpose all of the excess materials, which may therefore become obsolete. In light of the current crisis there is also no assurance that we will be able to collect from our franchisees and distributors in Russia certain outstanding receivable amounts for completed sales of the Spring/Summer 2022 collection; as of the date of this report, such amounts were not material. Finally, several of the agreements with our wholesale customers in Russia are due to expire during the course of 2022 and 2023. It is uncertain whether, when and at what terms and conditions such agreements will be renewed. Any of the foregoing factors could have a material adverse effect on our business, results of operations and financial condition.
In general, the banking, economic and monetary crisis, as well as the escalating energy prices triggered by the conflict may reduce customers’ interest for, and financial ability to buy, luxury products. An expansion of the conflict to other European countries, the United States or other parts of the world, or the worsening of the world economic situation in terms of inflation, energy costsprices and purchase power, is likely to translate into a lower propensity to spend on luxury good products and potentially impact our business.
Developments in Greater China and other growth and emerging markets may adversely affect our business.
We operate in a number of growth and emerging markets, both directly and through our distribution partners. In particular, a significant proportion of our sales are in the Greater China Region (which for Zegna’sour reporting purposes includes the Chinese mainland, Hong Kong S.A.R., Macau S.A.R. and Taiwan), representing 46%31%, 43%33% and 35%46% of our revenuerevenues in 2021, 20202023, 2022 and 2019,2021, respectively, where we have had a direct retail presence since 1991. While demand in these markets has increased in recent years due to sustained economic growth and growth in personal income and wealth, economic growth in these markets may not be sustained in the future. For example, rising geopolitical tensions and potential slowdown in the rate of growth there and in other emerging markets (such as the recent decline in investments in the real estate market in the Greater China Region) could cause a decline in our sales there, or limit the opportunity for us to increase sales of our products and revenues in those regions in the near term.
Economic and political developments in emerging markets, including economic crises, or political instability or geopolitical tensions, have had and could have in the future material adverse effects on our business, results of operations and financial condition. Government actions may also impact the market for luxury goods in these markets, such as tax changes, measures aiming at limiting the import of foreign goods or the active discouragement of luxury purchases. Consumer
spending habits in these markets may also change due to other factors that are outside of our control. For instance, starting from the end of August 2021, the President of the People’s Republic of China has repeatedly signaled the government’s intention to regulate excessively high incomes and encourage high-income groups and enterprises to return more to society. While noResulting regulatory action has been taken to date,or similar statements by governmental authorities may affect the social acceptability of spending on luxury goods.
Maintaining our position in these growth and emerging markets is a key component of our global strategy. However, initiatives from several global luxury goods manufacturers have increased competitive pressures for luxury goods in several emerging markets. As these markets continue to grow, we anticipate that additional competitors, both international and domestic, will seek to enter these markets and that existing market participants will try to aggressively protect or increase their sales. Increased competition may result in pricing pressure, reduced margins and our inability to increase or maintain our sales levels, which could have a material adverse effect on our results of operations and financial condition. See also “—Risk factors relating to the industry in which Zegnathe Group operates—The markets in which we operate are highly competitive.
competitive.” Failure to implement our strategy could adversely affect our results of operations.
operations.Our ability to increase our revenues, and pursue growth and development objectives and generate profits and cash flows depends, in part, upon our success in carrying out our strategic plan. As part of our strategy, we are pursuing, among other things, the further enhancement of the ZEGNA brand (including through our One Brand strategy), the successful consolidationintegration of the TOM FORD FASHION business and Thom Browne’s international expansion. See “Item 4.B—Business Overview—Strategy” for a description of our shift toward luxury leisurewear,strategy.
If our One Brand strategy proves unsuccessful, the successful designpositioning of the ZEGNA brand may suffer and introductionwe may have to undertake markdown activities, which could impact our prestige and reputation, as well as profitability. In addition, as a result of our ZEGNA brand strategy relating to iconic products, we could become significantly exposed to certain specific products and, should they lose their appeal, it may be difficult to replace the revenues generated therefrom.
Our initiatives to grow the direct to consumers channel through the opening of new iconic products,stores involve significant investments and the preservationselection of the exceptional qualityappropriate locations and personnel. If the execution of the stores roll-out plan is not successful we are known for andmay not realize the use of digital tools to strengthen our processes, attract new customers and retain our existing customer base, andreturn on investment or the growth and profitability that we anticipate.
Our initiatives to develop an increasingly sustainable business and leverage on our Made in Italy textiles and manufacturing platform involve significant investments and possible operational changes. If the implementation of such initiatives is not successful, or we do not realize the Thom Browne brand, which dependsreturn on the brand’s positive momentum and successful customer proposition. See “our investments in these initiatives that we anticipate, our results of operations could be adversely affected.
Item 4—Information on the Company—Strategy.”
Our strategy is premised upon certain assumptions about the global economy and the evolution of demand for luxury goods in various regions of the world in which we operate or seek to operate our competitive position and the ability of our management team to carry out our strategic plan. If we fail to implement our strategic plan, if our assumptions prove to be incorrect or if the geopolitical situation triggers an economic crisis or a conflict situation in the
European Union,regions where we operate, our ability to increase our revenues and profitability could be affected, which could have a material adverse effect on our business, results of operations and financial condition.
We are exposed to risks relating to recent and potential future acquisitions.
Our growth strategy may, from time to time, include acquisitions. Such acquisitions may cause us to face uncertainties concerning the economic and financial outcomes of such transactions. With respect to both past and future acquisitions (including the TFI Acquisition which closed on April 28, 2023), we may be exposed to liabilities (including tax liabilities) not detected during the due diligence process or not covered by contractual provisions. Furthermore, other assessments of the acquired business made at the time of the initial investment could prove to be incorrect. The achievement of the anticipated benefits of an acquisition is subject to a number of uncertainties, including general competitive factors in the marketplace, our ability to integrate the businesses in an efficient and effective manner and establish and implement effective operational principles and procedures. We may also encounter unexpected difficulties and costs if we are unable to retain certain key employees and achieve minimal unplanned attrition, which could increase our hiring and training costs and disrupt our business, or in connection with hiring new senior managers. The process of coordinating and integrating businesses acquired by the Group has required and will continue to require significant management and financial resources that may otherwise have been focused on the ordinary course management of our activities. The integration process also
requires the application of financial reporting and management control systems to the acquired companies, as well as the integration of IT systems, compliance and risk management policies (which may apply different standards, procedures and tools), and the training of new personnel. Each of these needs could require considerable resources from us, entailing significant costs. If we incur liabilities as a result of acquisitions and these liabilities exceed the contractual indemnification caps, or if indemnification is not available for any other reason, this could have a material adverse effect. Furthermore, we are exposed to the risk that the evaluations and assumptions underlying investment decisions could turn out to be incorrect, which could lead to unexpected difficulties in the process of integrating the acquired assets or companies with our business, or costs and other unforeseen liabilities for the Group, and we may not obtain the benefits and synergies expected from such transactions. Any of the above circumstances could have adverse effects on our business, results of operations and financial condition.
Acquisitions of new businesses may also expose us to other risks relating specifically to the business being acquired. For example, pursuant to the arrangements governing the TFI Acquisition (and subject to its closing), Mr. Tom Ford, Founder and CEO of Tom Ford International, served as the brand’s creative visionary until the end of 2023. His departure following many years at the helm of the TOM FORD brand could ultimately have a material adverse effect on the TOM FORD FASHION business, and therefore on our results of operations and financial condition.
We depend on our manufacturing and logistics facilities, which are subject to disruption.
We operate manufacturing and logistics facilities in Italy, Switzerland and Turkey and logistics facilities in the People’s Republic of China, Japan and the United States. These facilities are subject to operational risks, including mechanical and information technology system failure, work stoppage, civil unrest, increases in transportation costs, natural disasters, fire, government imposed shutdowns and disruption to supplies of raw materials.materials or of commodities such as energy. Any interruption of activity in our manufacturing or logistics facilities due to these or other similar events outside of our control could result in disruption to our operations and a reduction in sales, which could have an adverse effect on our business, results of operations and financial condition. See “—“—We are subject to risks related to theCOVID-19
pandemic or similar public health crises that may materially and adversely affect our business.” ” We are subject to certain risks related to the sale of our products through our DTC channel and in particular our directly operated stores.
In our distribution model, the DTC channel consists of single branded stores managed directly by us, or DOSs, outlets, concessions within department stores, as well as a directly managed online boutique and other
e-commerce
platforms through which we sell directly to our customers.
As ofAt December 31,
2021,2023, we operated
245 Zegna DOSs and 52253 ZEGNA, 86 Thom Browne
DOSs.and 51 TOM FORD FASHION DOSs (239 ZEGNA and 63 Thom Browne DOSs at December 31, 2022). The DTC channel generated revenues of
€851€1,265 million in
20212023 (or 66% of our consolidated revenues in such period). The risks related to managing currently existing DOSs mainly relate to possible difficulties in renewing the existing lease agreements, an increase in rental charges and a decline in sales.
Our DOSs are all located in properties that we lease from third parties. There is significant competition among retail operators in our industry to obtain commercial spaces in prestigious locations in major cities, towns and resort destinations worldwide. Accordingly, to renew our lease agreements, we may have to compete with other operators, including those in our same industry, some of which have greater economic and financial resources than ours or otherwise more bargaining power. If we are unable to renew our lease agreements with economic terms consistent or more beneficial than those currently applicable, or if we are forced to accept rental charges which are substantially higher than the existing ones, this could have a material adverse effect on our business, results of operations and financial condition.
Our DOSs have a high level of fixed costs, which affect profits from the retail channel. A reduction in sales or a decrease in revenues from the retail channel could, in light of the high level of fixed costs, have a material adverse effect on our business, results of operations and financial condition.
We analyze the performance of each of our DOSs and market trends in order to assess whether to open new DOSs (or move DOSs to a different location), renew existing leases, or close DOSs that are underperforming. If our analysis is inadequate or based on the wrong assumptions, we could select
sub-optimal
locations for our stores, or keep or open underperforming stores, which could have a material adverse effect on our business, results of operations and financial condition. In the event we decide to close an underperforming DOS, the terms of the lease may not allow us to terminate the lease without significant penalties (such as payment of rent until the expiry of the contractual term).
In addition, although we have adopted internal policies and training initiatives to ensure that the staff in our DOSs operate in a manner consistent with the image and prestige of our brands, there can be no assurance that such staff will abide by such policies or that inappropriate or illicit behavior by certain employees will not occur. If there is any allegation brought against us as a result of negligence or other impermissible conduct by our DOS staff, we may be exposed to legal or other proceedings or increased public scrutiny, which may result in substantial costs, diversion of resources and management’s attention and potential harm to our reputation.
The operations of our retail channel and DOSs are also subject to risks such as information technology system failure, work stoppage, wars, conflicts, civil unrest, natural disasters, fire and government imposed shutdowns. Any interruption of activity in our retail channel and DOSs due to these or other similar events out of our control could result in disruption to our operations and a reduction in sales, which could have an adverse effect on our business, results of operations and financial condition.
In the wholesale channel, we are subject to certain risks arising from points of sale operated by third parties, and we are dependent on our local partners to sell our products in certain markets.
In the wholesale channel, we sell our products to franchisees, specialty stores, department stores and online retailers. InFor the year ended December 31, 2021,2023, revenues attributable to the wholesale channel for the Zegna Branded Products andZEGNA branded products, Thom Browne and TOM FORD FASHION (after the closing of the TFI Acquisition) amounted to €259€458.4 million (or 20%24% of our consolidated revenues in the same period).The termination or loss of existing commercial relationships with our primary wholesale customers, the failure to develop new commercial relationships on economically favorable terms (or at all) or a significant decrease in wholesale channel revenues could have a material adverse effect on our business, results of operation and financial condition. In addition, any failure by retail storesretailers not directly operated by us to manage their stores, or by our local partners to act, in a manner consistent with the image and prestige of our brands or in line with any agreed contractual commitments (including in terms of sale prices), or failure by online retailers to comply with consumer protection laws or provide accurate product descriptions, could damage the competitive position and image of our brand, with potential material adverse effects on our business, results of operations and financial condition. See “—“—Our business depends on the recognition, integrity and reputation of our brands.brands.”
In certain of the geographic markets in which we operate, the distribution of our products is carried out, sometimes exclusively, through franchising agreements with local operators. Although we generally have not experienced significant problems in the past with such wholesale customers, the loss of one or more important commercial relationships with, or the occurrence of material disagreements with, our distribution partners or a failure to renew or develop commercial relationships on economically favorable terms (or at all) with them could have a material adverse effect on our business, results of operations and financial condition.
Our operations are also subject to the risk of insolvency of our wholesale customers. Despite our efforts to mitigate such risk, there can be no assurance that we will be able to do so successfully, and our business, results of operations and financial condition could be materially adversely affected.
Fluctuations in the price or quality of, or disruptions in the availability of, raw materials used in our products could cause us to incur increased costs, disrupt our manufacturing processes or prevent or delay us from meeting our customers’ demands.
We require high quality raw materials in order to produce our products. The market price of the raw materials that we require for our production depends on many factors that are largely out of our control and which are difficult to predict. The primary raw materials we use are fibers and yarns (in particular,of wool, yarns), silk, cotton, linen, cashmere and fabrics andof the same composition, as well as leather. The availability of wool and silk depends on unpredictable factors which are outside our control, including weather conditions in the areas where these raw materials originate (mainly Australia and New Zealand for wool, Greater China and Mongolia for cashmere, Turkey and Egypt for cotton, Europe and the Caribbean for linen and Greater China for silk), as well as diseases and pests affecting livestock.livestock and plants and, as a result, fiber quality. We also use rare raw materials, such as vicuna yarns and fabrics and specially selected calf leather, which are only available in a very limited quantity and subject to strict export and processing regulations, which may change. Possible legislative, political and economic developments, potential social instability or the introduction of export restrictions or tariffs in the countries in which our suppliers operate, or the introduction of import restrictions on products from such countries, could have a negative impact on our procurement activities. These and other factors could affect the availability and price of the raw materials required for our production. For instance, the price of cashmere raised significantly through 2021.
fiber prices continued to grow as a result of various factors, including droughts that reduced the available quantity high quality flax. The price of other raw materials was also recently affected by the global high inflationary environment.
If the supply of such raw materials decreases (including due to shortages or to a decrease in the number of producers or suppliers of raw materials), we may face difficulties in obtaining sufficient supplies of high quality raw materials, and the relevant prices may increase. Thus, we could face supply shortages in the medium term and rising costs of purchasing, which we may be unable to pass on to our customers. In addition, our suppliers could cancel or delay the delivery of raw materials to us, or may fail to provide raw materials that meet our high quality standards.standards or may fail to comply with our increasingly stringent sustainability and traceability requirements. This could delay our manufacturing process or cause us to incur increased costs to obtain raw materials of the quality we require. Any of the foregoing factors could have a material adverse effect on our business, results of operations or financial condition. Suppliers’ actions may also damage our reputation. See “—Our business depends on the recognition, integrity and reputation of our brands”.
We could be adversely affected if we are unable to negotiate, maintain or renew our license or co-branding agreements with high end third party brands.
We are a party to various agreements with third party brands, as licensee or supplier, and license agreements, as licensor.
In particular, we have been acting as licenseeaccordance with the definitive agreements for the productionacquisition of TFI, which closed on April 28, 2023, TFI entered into a license agreement, pursuant to which TFI is the licensee of The Estée Lauder Companies for all TOM FORD men’s and distributionwomen’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile and home design products, for a term of Tom Ford menswear since 200820 years, subject to renewal at TFI’s option for one further 10-year period subject to certain minimum performance conditions (the “TFF License”). Under the TFF License, we are required to pay royalties to the licensor. If we are unable to run the licensed business efficiently (considering the royalties and upon expiryother costs), our profitability may be adversely affected. In addition, the TFF License provides for certain minimum guaranteed royalties payable to The Estée Lauder Companies regardless of the existing license following the completionlevel of the production and distribution activities for the Fall/Winter 2022 collection, we willsales actually achieved.
We act as an exclusive supplier for certain Tom Ford products starting from the Spring/Summer 2023 season. We are also supplier of menswear for several brands such as Dunhill and for Gucci.During the year ended December 31, 2021,2023, we recorded revenues of €75€25.3 million from these agreements with third party brands (after eliminations). See “Item 4—Information on the Company—Brands, Collections and Products—4.B—Business Overview—Zegna Segment—segment—Third Party Brands Product Line
” for further information on our business with third party brands. If we were to fail to comply with our obligations under these arrangements (including with respect to required quality standards and timeliness of deliveries), our third party brand partners may terminate, fail to renew, or amend in a manner adverse to us the existing arrangements, or initiate legal proceedings against the Group, which may have material adverse consequences on our business, results of operations and financial condition. We are also party to certain license agreements whereby we grant, for a certain period of time, the use of our brand to third parties for the production of products in adjacent luxury sectors (including fragrances, glasses and sunglasses, cufflinks, and beachwear and underwear). For the year ended December 31, 2021,2023, royalties relating to these arrangements were €4.5€3.0 million. If any of these licensees were not to perform their obligations towards Zegnathe Group (including by failing to ensure the required quality, sustainability or traceability standards, complynot complying with our directions with respect to distribution channels and after sale services)services, breaching obligations related to our intellectual property rights, or failing to comply with the timeline for product launches), we may be unable, in a commercially reasonable time, to replace such licensee with another producer capable of ensuring equivalent quality and production standards, or procure its services upon the same or substantially the same financial terms. Our inability to maintain a presence in these adjacent luxury sectors or to provide products in these sectors of a quality comparable to that of our other products may reflect negatively on the reputation and integrity of our brands.
We are also pursuing the negotiationsFrom time to time, we enter into co-branding projects with different brands
to enter intoco-branding
projects for the design, production and
marketingsale of certain selected
co-branded
products, as we did
in the past with
Maserati, Leica CameraThe Elder Statesman. We also enter into collaborations with other brands to offer new products lines (as we did with Norda and
Fear of God.Baccarat). If we fail to
conclude the negotiationsnegotiate, enter into or renew such relationships in a mutually satisfactory manner for both brands, in particular with respect to the distribution of the
co-branded
products and the ownership and protection of the intellectual property rights related to these projects, we may be unable to replace the revenues generated in the past from these collaborations.
If any of the foregoing licensing agreements or
agreements orco-branding
projects with third party brands are terminated for any reason, not renewed upon their expiration or renewed but with less favorable terms and conditions, this could have a material adverse effect on our business, results of operations and financial condition.
Our business depends on tourist traffic and demand.
A substantial amount of our sales is generated by customers who purchase products while travelling. Consequently, adverse economic conditions (such as financial crises), global political developments, other social and geopolitical sources of unrest,tensions, instability, disorders, riots, civil wars or military conflicts, natural disasters such as fire, floods, blizzards, global pandemics such as theCOVID-19
pandemic and earthquakes or other events, as well as travel restrictions imposed by governments, which result in a shift in travel patterns or a decline in travel volumes, have had in the past, and may have in the future, an adverse effect on our business, results of operations and financial condition. See also “—“—We are subject to risks related to theCOVID-19
pandemic or similar public health crises that may materially and adversely affect our business. business,”, “—Global economic conditions and macro events may adversely affect us.
” and “—The conflict in Ukraine and sanctions imposed onto Russia may adversely affect our business.business.”
”
Our business success depends on certain key personnel.senior personnel as well as skilled personnel, and their loss or unavailability could adversely affect our business.
The performance of our business depends significantly on the efforts and abilities of some key senior personnel, including, without being limited tolimitation, our Chairperson and Chief Executive Officer, Mr. Ermenegildo (Gildo) Zegna. Such key personnel have substantial experience and expertise in the luxury goods business and have made significant contributions to the success of our business.
If suchAlthough we have a succession planning process in place for certain key roles, if any key personnel were to leave us abruptly, or become otherwise unable or unwilling to continue in their roles, we may not be able to replace them in a timely fashion.fashion or with individuals of equivalent experience and capabilities. The failure to retain or replace such key personnel with other skilled personnel capable of integrating into our operations efficiently could lead to delays in the development of collections, inefficiencies in management of our business, and, accordingly, could have a material adverse effect on our business, results of operations and financial condition.
In addition, our future success depends on our ability to continue to attract, retain and motivate skilled employees. Competition for employees is becoming more intense. The ability to attract, hire and retain skilled personnel depends on our ability to provide meaningful work at competitive compensation. The inability to do so effectively would constrain our ability to timely complete certain projects, which could adversely affect our business, results of operations and financial condition.
We depend on highly specialized craftsmanship and skills.
One of the distinguishing features of certain of our products is the highly specialized craftsmanship involved in their manufacturing, which is also a result of the experience that our specialized employees have acquired over the course of the years.
Although we try to preserve these craftsmanship skills and ensure that they are passed on to the next generations, the number of our specialized employees may decrease in the future and their craftsmanship skills may no longer be readily available. If this were to occur, it could affect our ability to ensure the distinctive quality of certain of our products in the future, which in turn could have a material adverse effect on our business, results of operations and financial condition.
We depend on the protection of our intellectual property rights.
We believe that our intellectual property is essential to the success of our products and to our competitive position. We dedicate significant resources to the protection of our intellectual property assets (including trademarks, designs, production processes and technologies, utility patents and other distinctive marks) in the jurisdictions in which we operate. There can be no assurance, however, that we will succeed in protecting our intellectual property rights.
With respect to patentsdesigns in particular, patentdesign rights do not prevent our competitors from developing products that are substantially equivalent to or better than our products, while not infringing our intellectual property rights. Moreover, any actions we take to establish and protect our designs, trademarks, patents, trademarks and other intellectual property rights may not be
adequate to prevent counterfeiting, imitation of our products by competitors or other third parties or to prevent these persons from asserting rights in, or ownership of, our brand trademarks and other intellectual property rights. We may therefore be forced to spend significant resources to defend our intellectual property from infringement or from third party claims. In addition, should third parties register intellectual property rights which overlap with ours, or should we attempt to enter new markets where third parties have registered intellectual property rights which are similar to those which we would wish to register, we may be constrained from developing our business in such markets. Moreover, changesmarkets or we may have to spend more resources to support our registration. In addition, applications to register intellectual property may face objections from the trademark offices we seek to register them in law or adverseand may not mature into registrations. If we were to face judicial or administrative judgments could deprive us of the ownership or use of one or more ofchallenges involving our registered intellectual property rights, which could require usfor instance requesting cancellation on grounds of non-use, we may not be able to grant licensessuccessfully resolve these types of conflicts to or to obtain licenses from third parties, to pay damages or to cease production of certain merchandise benefiting from such rights.our satisfaction. Each of the above could have a material adverse effect on our business, results of operations and financial condition.
In addition, the laws of certain countries may not protect trademarks, designs, copyrights and other intellectual property rights to the same extent as the laws of the United States or the European Union.
Third parties could make claims or bring legal action against us for an alleged infringement of such third parties’ intellectual property rights. As a result, we may be required to discontinue the sale of certain products, pay damages, incur licensing costs, modify our production processes and/or products, or have the scope or validity of our intellectual property rights determined in court in order to be authorized to sell such products.
For instance, on June 28, 2021 adidasAdidas AG (“adidas”) commenced an action against Thom Browne, Inc. in the Southern District of New York, for, among others,other things, trademark infringement, unfair competition, dilution and various state claims, in connection with the use of Thom Browne’s five color grosgrain ribbon and the four bandsbars on sleeves and pants on its sporting goods, sportswear and athletic wear, allegedly infringing the three stripe marks of adidas. AsThe case was assigned to a jury trial and, on January 12, 2023, the jury found that at no time did Thom Browne, Inc. infringe on any of adidas’s trademarks. Adidas has filed a notice of appeal, following which Thom Browne, Inc. has filed a notice of cross-appeal. In addition, based on evidence submitted in another trial against Thom Browne Inc., adidas has filed a motion requesting a new trial based on discovery phaseflaws. The appeal from the jury verdict remains pending before the Court of Appeals and the parties have been called for oral argument on April 17, 2024. The motion for a new trial is pending before the lower court judge who has been notified of the trial progresses,oral argument before the Court of Appeals; we therefore expect a rapid decision on the pending motion to reopen the case.
Meanwhile, the opposition filed by adidas against several trademarks which Thom Browne Inc. filed a motionfor registration in the European Union was denied, except with respect to dismiss adidas’s claims,one mark which remains pending. Thereafter,has yet to be decided. Thom Browne Inc. has also initiatedcommenced cancellation proceedings in the European Union as well as in the UK against a number of adidas’s trademarks that could be used to restrain access of Thom Browne Inc.’s products to these markets. As a result, adidas has filed counterclaims for infringement of those marks registeredby Thom Browne Inc.’s use of its grosgrain ribbon signature as well as the four bar design. On challenge, adidas has voluntarily cancelled a number of the marks at issue. The first hearing in the European Union,UK is set for July 17, 2024 and trial is expected to conclude during the week of July 24.
In addition, in 2022 adidas commenced a lawsuit before the Nuremberg-Furth District Court in Germany against Thom Browne, Inc. and Thom Browne Retail Italy S.r.l., alleging thatThom Browne’s four-bar signature infringed adidas’s three stripe mark. Counsel’s service of the marks lack distinction.documentation was flawed and formed the basis of default judgments against both Thom Browne, Inc. and Thom Browne Retail Italy Srl. Upon discovery of the defaults, Thom Browne obtained the suspension of both judgments. The parties have submitted various pleadings in such proceedings, which remain pending. their arguments and are now waiting for the judge to decide or for the District Court to assign a trial period.
Thom Browne intends to vigorously defend its position in theseall the aforementioned proceedings. This
These or any other such events may entail significant losses in addition to legal costs, with possible adverse effects on our business, results of operations and financial condition.
Table of Contents For information on legal costs incurred in connection with this matter until December 31, 2023, see “Item 5—Operating and Financial Review and Prospects—Non-IFRS Financial Measures” and Note 5 — Segment reporting to the Consolidated Financial Statements included elsewhere in this document.
A disruption in our information technology, including as a result of cybercrimes, could disrupt our business operations and compromise confidential and sensitive information.
We depend on our information technology and data processing systems to operate our business, and a significant malfunction or disruption in the operation of our systems, human error, interruption to power supply, or a security breach that compromises the confidential and sensitive information stored in those systems, could disrupt our business and adversely impact our ability to operate. Our ability to keep our business operating effectively depends on the functional and efficient operation by us and our third party service providers of our information, data processing and telecommunications systems, including our product design, manufacturing, distribution, sales and marketing, billing and payment systems. We rely on these systems to enable a number of business processes and help us make a variety of
business decisions as well as to track operations, billings, payments and inventory.
SuchRecently, we have also been enhancing our solutions for advanced analytics and customer experience, furthering use of artificial intelligence and machine learning (“AI”) for areas such as marketing, product recommendation and matching, learning customer preferences, customer profiling and segmentation. Generative AI is being introduced to augment creative and content creation processes. The legal and regulatory environment relating to AI in the jurisdictions where we operate is uncertain and rapidly evolving, and includes laws and regulations targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment and other laws applicable to the use of AI. These evolving laws and regulations could require changes in our use of AI and increase our compliance costs and the risk of non-compliance.Our use of AI could also lead to novel and urgent cybersecurity risks, including new or enhanced governmental or regulatory scrutiny, litigation, confidentiality or security risks, ethical concerns or other complications that could adversely affect our reputation, business, results of operations and financial condition.
All of our systems are susceptible to malfunctions and interruptions due to equipment damage, power outages, connection interruption, and a range of other hardware, software and network problems. Those systems are also susceptible to cybercrime, or threats of intentional disruption, which are increasing in terms of sophistication (including through the use of AI technologies) and frequency, with the consequence that such cyber incidents may remain undetected. In addition, the transition of part of our workforce to a hybrid work environment, where our employees are often working remotely, could also increase our vulnerability to risks related to our hardware and software systems, including risks of phishing and other cybersecurity attacks.
For any of thesethe foregoing reasons, we may experience system malfunctions or interruptions. For example, in August 2021 we were subject to a ransomware attack that impacted the majority of our IT systems. As we refused to engage in discussions relating to the payment of the ransom, the responsible parties published certain accounting materials extracted from our IT systems. We publicly announced the IT systems breach and gradually restored our IT systems from secure back up servers during the weeks following the breach.
Although our systems are diversified, including multiple server locations, third party cloud providers and a range of software applications for different regions and functions, and we periodically assess and implement actions to ameliorate risks to our systems, a significant or large scale malfunction or interruption of our systems could adversely affect our ability to manage and keep our operations running efficiently, and damage our reputation if we are unable to track transactions and deliver products to our customers. A malfunction that results in a wider or sustained disruption to our business could have a material adverse effect on our business, results of operations and financial condition. In addition, our recently acquired businesses may use different information technology and data processing systems than those used at a broader group level, which could make it more complex to prevent or timely address any of the foregoing events.
In addition to supporting our operations, we use our systems to collect and store confidential and sensitive data, including information about our business, our customers and our employees. Any unauthorized access to our information systems may compromise the privacy of such data and expose us to claims as well as reputational damage. Ultimately, any significant violation of the integrity of our data security could have a material adverse effect on our business, results of operations and financial condition. See “—We are exposed to the risk that personal information of our customers, employees and other parties collected in the course of our operations may be damaged, lost, stolen, divulged or processed for unauthorized purposes.”
We are exposed to the risk that personal information of our customers, employees and other parties collected in the course of our operations may be damaged, lost, stolen, divulged or processed for unauthorized purposes.
” Our recently acquired businesses may use different information technology and data processing systems than those used at a broader group level, which could make it more complex to prevent or timely address any of the foregoing events.We are exposed to the risk that personal information of our customers, employees and other parties collected in the course of our operations may be damaged, lost, stolen, divulged or processed for unauthorized purposes.
In carrying out our business, we collect, store and process personal data of our customers, employees and other parties with whom we deal, including data we gather for product development and marketing purposes. Therefore we are subject to a variety of strict and ever-changing data protection and privacy laws on a global basis, including the EU General Data Protection Regulation.
Regulation, the Personal Information Protection Law of the People’s Republic of China and the California Invasion of Privacy Act. These laws are complex and subject to continuously evolving interpretations, including as a result of the use of information technology. As a result, we may be subject to claims and investigations with respect to our interpretation and application of such laws.We are exposed to the risk that personal data we store and use may be damaged or lost, stolen, divulged or treated or processed for unauthorized purposes by the individuals responsible for data management or by unauthorized individuals (including third parties and Zegnathe Group’s employees). The destruction, damage to or loss of personal data, as well as its theft, unauthorized treatment or processing or dissemination, could significantly impair our reputation and impact our operations; it could also lead to governmental investigations and the imposition of fines by competent authorities, with possible adverse effects on our business, results of operations and financial condition. See also “—“—A disruption in our information technology, including as a result of cybercrimes, could disrupt our business operations and compromise confidential and sensitive information.information.”
” We are subject to certain risks related to related party transactions.
We have engaged, and continue to engage, in relationships of a commercial nature with related parties. These relationships consist mainly in the provision of industrial services, licensing agreements, financial guarantees, the purchase of raw materials, as well as an interest-bearing loan, and certain contributions to Fondazione Zegna. In addition, in connection with the Demerger,we lease certain of our formerly intercompany lease agreements for the lease of real estate properties have becomefrom related party transactions, since we continue to rent those properties from our former subsidiaries demerged prior to the closing of the Business Combination.parties. See “Item 7.B—Related Party Transactions.”
” We believe that the terms and conditions of our transactions with related parties are at arm’s length and on commercial terms that are normal in the respective markets, considering the characteristics of the goods or services involved. However, there can be no assurance that if such transactions had been concluded between or with third parties, such parties would have negotiated or entered into agreements or carried out such transactions under the same or substantially similar terms and conditions. In addition, there is no assurance that we will be able to renew these agreements at the end of their term at the same terms and conditions.
We are exposed to currency related risks.
We operate in numerous markets worldwide and are exposed to market risks stemming from fluctuations in currency exchange rates. In particular, changes in exchange rates between the Euro and the main foreign currencies in which we operate affect our revenues and results of operations. The exposure to currency risk is mainly linked to the differences in geographic distribution of our sourcing and manufacturing activities from those in our commercial activities, as a result of which our cash flows from sales are denominated in currencies different from those related to purchases or production activities. In particular, we incur a large portion of our capital and operating expenses in Euro while we receive the majority of our revenues in currencies other than Euro (mainly in Chinese Renminbi, U.S. Dollars, Japanese Yen, Canadian DollarHong Kong Dollars and British Pound). Therefore, our results may be adversely affected if these currencies depreciate against the Euro. Such risk is heightened given the extended time period between the moment when the sale prices of a collection are set and the moment when revenues are converted into Euro, which may extend up to 18 months. In addition, foreign exchange fluctuations might also negatively affect the relative purchasing power of our clients, which could also have an adverse effect on our results of operations. See “Item 5—5.A—Operating and Financial Review and Prospects—Results—Trends, Uncertainties and Opportunities.” The year ended December 31, 2023 was characterized by high volatility in exchange rates especially for Chinese Renminbi (going from 7.358 Chinese Renminbi for 1 Euro at December 31, 2022 to 7.851 at December 31, 2023) and Japanese Yen (going from 140.660 Japanese Yen for 1 Euro at December 31, 2022 to 156.330 at December 31, 2023) which recorded a strong devaluation against the Euro compared to the levels at the end of 2022. The U.S. Dollar also depreciated against the Euro compared to the 2022 year-end level (going from 1.067 U.S. Dollars for 1 Euro at December 31, 2022 to 1.105 at December 31, 2023).
An appreciation of the U.S. Dollar against the Euro may adversely affect our results of operations due to certain significant liabilities on our Consolidated Statement of Financial Position which are originally denominated in U.S. Dollars.
In particular, we recognize a financial liability corresponding to the present value of the exercise price in U.S. Dollars of the put option granted to the non-controlling interest in our investment in the Thom Browne Group, which is remeasured at fair value at the end of each period. The remeasurement of the liability at each reporting date is recognized through profit or loss based on the latest available information. For additional information refer to Note 28 — Other current and non-current financial liabilities to the Consolidated Financial Statements included elsewhere in this document. Any appreciation or depreciation in the U.S. Dollar against the Euro results in a corresponding unrealized loss or gain in the Consolidated Statement of Profit and Loss foreign exchange line item. In 2023, the U.S. Dollar depreciation against the Euro resulted in an unrealized gain of €5.4 million for the year ended December 31, 2023.
Exchange rate fluctuation may also adversely affect our competitive position as compared to other operators in the luxury goods market, who may incur costs in other currencies with more favorable exchange rates relative to the currencies of our principal markets.
In the Zegna segment and the Tom Ford Fashion segment, we have historically soughtseek to manage risks associated with fluctuations in currency through financial hedging instruments, mainly forward contracts for the sale of foreign currencies; we are gradually implementing similar policies also incurrencies. For the Thom Browne segment.segment, we are taking steps that will gradually lead to the adoption of similar policies. However, there can be no assurance that we will be able to hedge currency related risks successfully, and our business, results of operations and financial condition could nevertheless be adversely affected by fluctuations in market rates, particularly if such fluctuations are extended over time.
In addition, because the Euro is the functional currency used in our consolidated financial statements, fluctuations in exchange rates used to translate figures in our subsidiaries’ financial statements that were originally expressed in a foreign currency could have a significant impact on results, net financial indebtedness, and consolidated net shareholders’ equity as expressed in Euro in our consolidated financial statements.
We are exposed to risks relating to fluctuations in interest rates and other market risks.
We have entered into Euro-denominated financing agreements and revolving credit facilities providing for a floating interest rate. As of December 31, 2021,2023, floating rate loans represented approximately 66%71% of our total borrowings, for a financed amount of approximately €418€284.6 million. In addition, the Group also had undrawn Euro-denominated revolving, floating rate credit facilities for €295.0 million at December 31, 2023. Although we have entered into derivative financial instruments to hedge part of our exposure to interest rate risk, an increase in interest rates during the term of such financing agreements, which would result in higher interest payments thereunder, could have a material adverse effect on our business, results of operations and financial condition.
In addition an increase in the interest rate in different countries could have a material impact on the hedging cost related to derivatives instruments to hedge our exposure in foreign currencies. See “—We are exposed to currency related risks.”As of December 31,
2021,2023, we had approximately
€334€85.3 million of other current financial assets invested in listed and unlisted financial instruments. We do not enter into investments for trading or speculative purposes. The primary objective of our investment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk of loss. In connection with our investment activities, we may be exposed to market risk,
the risk of loss related to changes in market prices, volatility, counterparty and liquidity of financial instruments, which could have a material adverse effect on our business, results of operations and financial condition.
Risk factors relating to the industry in which Zegnathe Group operates
The markets in which we operate are highly competitive.
The markets for our products are characterized by high levels of competition and the presence of a number of established operators and new entrants, some of which have significant financial resources or well- knownwell-known and fashionable brands. To succeed, we must interpret and anticipate the tastes, preferences and lifestyles of our customers and anticipate changes in those tastes, preferences and lifestyles, as well as identify fashion and luxury market trends, while producing high quality, desirable luxury products. Our competitors may be more successful in interpreting market trends or may be able to produce their products at lower costs. In particular, our larger competitors may be better equipped to changing conditions that affect the competitive market, including transformation in the customer experience supply chain operations and the use of new digital technologies and artificial intelligence in the business, heightening customer expectations. In addition, newer entrants may be viewed as more desirable by fashion-conscious consumers. Our failure to compete effectively in our chosen
markets, including through a failure to identify and respond to new and changing trends and consumer preferences, or through a failure to successfully invest in innovative initiatives, could have a material adverse effect on our business, results of operations and financial condition.
Global economic conditions and macro events may adversely affect us.
Our sales volumes and revenues may be affected by overall general economic conditions within the different countries in which we operate. Deteriorating general economic conditions may affect disposable incomes and reduce consumer wealth impacting client demand, particularly for luxury goods, which may negatively impact our profitability and put downward pressure on our prices and volumes. Furthermore, during recessionary periods, social acceptability of luxury purchases may decrease and higher taxes may be more likely to be imposed on certain luxury goods including our products, which may affect our sales.
We sell our products throughout the world. In particular, we conduct our business in EMEA, North and Latin America and APAC. Our presence in various international markets exposes us to the risks connected, among other things, with the geopolitical and macroeconomic conditions of the countries in which we operate. Sales could be affected by various events, such as, for example, market instability, terrorism, war, natural disasters or socio-political upheavals. In particular, the majority of our current sales are in Greater China and the United States.Therefore, slowing economic conditions in those countries may adversely affect our revenues and results of operations in that region.those regions. We have also recently made investments in new areas, including South Korea (where, first in the Thom Browne segment and then in the Zegna segment, we recently switched from a wholesale distribution model to the direct operation of 17 Thom Browne DOSs and 16 ZEGNA DOSs) and the Middle East. Any macroeconomic, socio-political, natural or other events in such regions (including the conflict between Israel and Hamas, and any escalation and extension thereof to other countries) could adversely affect our revenues and results of operations. See also “—“—Risk factors relating to the Group’s business, strategy and operations—Developments in Greater China and other growth and emerging markets may adversely affect our business.
business” and “—“—Risk factors relating to the Group’s business, strategy and operations—The conflict in Ukraine and sanctions imposed onto Russia may adversely affect our business.”
” If these events, which are difficult to predict, occur, this could have an adverse effect on the demand for luxury goods in a specific country or could cause a contraction in tourist flow, and may have a material adverse effect on our business, results of operations and financial condition.
Significant inflation could adversely affect our results of operations and financial condition.
Economies around the world have generally seenrecently experienced significant inflationary pressures, coupled with government measures to fight inflation and prevent or mitigate economic recessions. While inflation recorded in 2021 and continuing2023 was more moderate than in 2022. For instance, in early 2022, we assisted to a significant increaseif inflation remains elevated or increases in the price of energy. If inflation continues to increase or maintain above levels seen in recent years,future, we could face further increases in costs for raw materials, energy costs, labor costs or other production costs, which could adversely affect our business and results of operations if we are not able to pass on the increased costs to our customers, or successfully implement other mitigating actions. The foregoing could reduce our profit margins, with a material adverse effect on our results of operations and financial condition. Additionally, many central banks have increased, or are considering toand may increase further, interest rates as a result of the recent inflation, which in turn may increase our borrowing costs.
In addition, significant increases in the costs of other products required by consumers, as well as a raise in interest rates may affect consumer spending power and result in overall reduced spending. A significant increase in the price of our products as a result of inflationary pressure could result in a decline in our sales.
We are subject to legal and regulatory risk.
We are required to comply with the laws and regulations applying to our products and operations in the various jurisdictions in which we operate, particularly in relation to the protection of intellectual property rights, competition, product safety and traceability, packaging and labeling, import and processing of certain raw materials and finished goods, data protection and privacy, limits on cash payments, workersanctions, workers’ health and safety, human rights and the environment.environment (such as laws and regulations related to water usage or carbon emissions). New legislation (or amendments to existing legislation) may require us to adopt stricter standards, which could lead to increased costs for adapting product characteristics, performing due diligence across the supply chain and reporting thereon, requiring us to collect external data on which we have little or no control. It could also lead us to change our suppliers or limit our operations, and thiswhich may have a
material adverse effect on our business, results of operations and financial condition. For example, pursuant to the Uyghur Forced Labor Prevention Act entered into force in the United States on June 21, 2022, importers of goods originating in China must demonstrate that such goods were not produced or manufactured, in whole or in part, in Xinjiang and, if they were, provide evidence that they were not manufactured with forced labor. If our suppliers are unable to provide the certificates of origin demanded by the Group in a timely manner, our supply chain and in turn, our deliveries in the United States, could be adversely impacted. See also “—Risk factors relating to the Group’s business, strategy and operations—We are exposed to the risk that personal information of our customers, employees and other parties collected in the course of our operations may be damaged, lost, stolen, divulged or processed for unauthorized purposes” with regards to risks relating to laws on data protection and privacy.
In addition, we are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, and other anti-bribery, anti-corruption and anti-money laundering laws in the countries in which we conduct activities. We and our distribution partners may have direct or indirect interactions with officials and employees of government agencies or state owned or affiliated entities and other third parties where we may be held liable for corrupt or other illegal activities, even if we do not explicitly authorize them. We are also subject to sanctions legislation, which may lead to commercial and economic sanctions, prohibitions and other restrictive measures imposed by the different authorities and governments involved, including the European Union, the United States, the United Nations and other international organizations. See also “—Risk factors relating to the Group’s business, strategy and operations—The conflict in Ukraine and sanctions imposed onto Russia may adversely affect our business.” From time to time, we may conduct some limited activities in countries subject to sanctions or other restrictive measures. While we believe that our activities are in compliance with the applicable laws and sanctions legislation, including embargoes, we cannot exclude the possibility that we or our distribution partners may violate such laws. Any violation of the foregoing laws could lead to regulatory and/or judicial proceedings and sanctions (including civil penalties, denial of export privileges, injunctions, asset seizures and revocations or restrictions of licenses, as well as criminal fines and imprisonment), which may have a material adverse effect on our reputation, business, results of operations and financial condition.
We are subject to risks associated with climate change and other environmental impacts and increased focus by stakeholders on environment, social and governance matters.
Our business is subject to risks associated with climate change, including in particular disruptionboth physical and transitional. The widespread impact of climate-related effects can lead to our supply chain, which may impact the production and distributionreduced availability or quality of our products and availability andcore raw materials, with consequent possible increases in price of raw materials. Increasedor in available volumes for selected top-quality specimen thereby adversely affecting our financial performance. Additionally, the increased frequency and intensity of weatherphysical events (including storms and floods) due to climate change could also lead to business interruptions in our production processes or at our production facilities, supply chain disruption, scarcity of raw materials and more frequent store closures and/of DOSs or lost sales as customers prioritize basic needs.
Finally, the increasing introduction of new national and international laws and regulations with the aim to reduce the potential impacts of climate change may hinder our efforts to enter specific markets and may cause increased costs and complexity to comply with new and evolving climate change regulatory requirements and obligations. Any failure on our part to comply with such laws and regulations could lead to adverse consumer actions and investment decisions by investors, as well as expose us to government enforcement action and private litigation.
There is also increased focus from our stakeholders, including consumers, employees and investors, on corporate responsibility (including environment, social and governance (“”)) matters.matters, including traceability and transparency, sustainability claims and product labeling requirements, carbon emissions, responsible sourcing, deforestation, the use of energy and water, the recyclability or recoverability of product, packaging and raw materials, human rights and diversity, equality and inclusion. We have announced and plan to announce our accomplishments in the near future our sustainability strategy and ESG goals.goals, as well as possibly add new aspirations and commitments. There can be no assurance that our stakeholders will agree with our strategy or will be satisfied with our disclosure,disclosures, or that we will be successful in achieving our goals. If our ESG practices do not meet our stakeholders’ expectations and standards, or if we fail (or are perceived to fail) to implement our strategy or achieve our goals, our reputation could be damaged, causing our investors or consumers to lose confidence in us and our brands, negatively impacting our employee retention and our business, orand having a negative effect on our sales and results of operations. In addition, implementing our ESG strategy and pursuing our ESG goals might involve higher than expectedinvolves costs and investments which mightcould adversely affect our results of operations. In order to honor certain of our sustainability goals, we have been imposing increasingly stringent standards on our suppliers with respect to the traceability of raw materials. If any supplier fails to comply with such requirements, we may be unable, in a commercially reasonable time, to replace such supplier with another supplier capable of ensuring equivalent
quality and quantitative standards, and we may be unable to procure the relevant raw materials on similar or more favorable commercial terms.
Risk factors relating to Tax Matters
Changes in tax, tariff or fiscal policies could adversely affect demand for our products.
Imposition of any additional taxes and levies on our products could adversely affect the demand for our products and our results of operations. Changes in corporate and other taxation policies as well as changes in export and other incentives given by various governments, or import or tariff policies, could also adversely affect our results of operations. Considerable uncertainty surrounds the introduction and scope of tariffs by countries around the world, as well as the potential for trade actions, and the imposition of tariffs and trade restrictions as a result of international trade disputes or changes in trade policies may adversely affect our sales and profitability. The occurrence of any of the above may have a material adverse effect on our business, results of operations and financial condition.
Changes to taxation or the interpretation or application of tax laws could have an adverse impact on our results of operations and financial condition.
Our business is subject to various taxes in different jurisdictions (mainly Italy), which include, among others, the Italian corporate income tax (“”), regional trade tax (“”), value added tax (“”), excise duty, registration tax and other indirect taxes. Our business outside of Italy is subject to corporate income taxes in every country where we do business, through our subsidiaries and or branches; remittances from those subsidiaries back to Italy may be subject to withholding taxes. We are exposed to the risk that our overall tax burden may increase in the future. Changes in tax laws or regulations, or in the position of the relevant Italian and
non-Italian
authorities regarding the application, administration or interpretation of these laws or regulations, particularly if applied retrospectively, could have a material adverse effect on our business, results of operations and financial condition. These changes include the introduction of a global minimum tax at a rate of 15% under the
Two-Pillar
Solution to Address the Tax Challenges of the Digitalisation of the Economy, agreed upon by over 130 jurisdictions under the Organisation for Economic
Co-operation
and Development/G20 Inclusive Framework on Base Erosion and Profit
ShiftingShifting. Pursuant to Council Directive (EU) 2022/2523 (the “Pillar Two Directive”), on December 27, 2023, Italian Legislative Decree No.209/2023 adopted a tax reform in international taxation, including the implementation into Italian domestic law of the Pillar Two legislation. Under the reform, in-scope multinational enterprise groups are subject to a top-up tax of at least 15% via two interlocking global anti-base erosion rules:
(i)the Income Inclusion Rule (Imposta Minima Integrativa), applying to fiscal years beginning on or after December 31, 2023; and
(ii)the Under Taxed Profits Rule (Imposta Minima Suppletiva), applying to befiscal years beginning on or after December 31, 2024.
Additionally, Italy has implemented a Qualified Domestic Minimum Top-up Tax (Imposta Minima Nazionale), applying to fiscal years beginning on or after December 31, 2023 which is intended to meet the requirements for the qualified domestic minimum top-up tax safe harbor. More detailed implementation rules are set forth in Ministerial Decree n° 209 of December 27, 2023.
In light of the current state of regulations in the countries in which the Group is located, and subject to future regulatory specifications, we do not currently expect the Italian legislation implementing the Pillar Two Directive to lead to significant adverse tax consequences for us, however it may have an adverse effect on our tax compliance burden.
In addition, tax laws are complex and subject to subjective valuations and interpretive decisions, and we periodically may be subject to tax audits aimed at assessing our compliance with direct and indirect taxes. The tax authorities may not agree with our interpretations of, or the positions that we have taken or intend to take on, tax laws applicable to our ordinary activities and extraordinary transactions. In case of challenges by the tax authorities to our interpretations, we could face long tax proceedings that could result in the payment of additional tax and penalties, with potential material adverse effects on our business, results of operations and financial condition.
conditions.
Passive Foreign Investment Company tax considerations for US holders
Shares of our stock would be stock ofA non U.S. corporation is treated as a “passive foreign investment company,” or a PFIC,“PFIC,” for U.S. federal income tax purposes with respect to a U.S. holder if for any taxable year in which such U.S. holder held shares of our stock, after the application of applicable “look-through rules” (i) 75 percent or more of our gross income for the taxable year consists of “passive income” (including dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury Regulations), or (ii) at least 50 percent of our assets for the taxable year (averaged over the year and determined based upon value) produce or are held for the production of “passive income.” U.S. persons who directly own, or are treated as indirectly owning, shares of a PFIC are generally subject to aannual reporting requirements and potentially disadvantageous U.S. federal income tax regimetreatment with respect to the income derived by the PFIC, the dividendsany distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition (directly or indirectly) of their shares in the PFIC.
While we believe that shares of our stock are not stock of a PFIC for U.S. federal income tax purposes during the reporting period, this conclusion is based on a factual determination made annually and thus is subject to change. Moreover, our common shares may become stock of a PFIC in future taxable years if there were to be changes in our assets, income or operations. For further discussion, see “—Taxation—Material United States Federal Income Tax Considerations
—Considerations—Passive Foreign Investment Company Rules(“PFIC”) Rules.”
.” We intend to be treated exclusively as a resident of the Republic of Italy for tax purposes, but Dutch or other tax authorities may seek to treat us as a tax resident of another jurisdiction as a result of which we could be subject to increased and/or different taxes.
As a result of the Conversion into a Dutch limited liability company () we are deemed tax resident in the Netherlands for purposes of the Dutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965
) and the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969
). However, weWe intend to maintain our management and organizational structure in such a manner that (i) our place of effective management would be in Italy and we should be regarded as a tax resident of Italy for Italian domestic law purposes; (ii) we should be considered to be exclusively tax resident in Italy for purposes of the applicable tax treaties, including the Convention between the Kingdom of the Netherlands and the Republic of Italy for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (the “Italy-Netherlands Tax Treaty
”); and (iii) we should not be regarded as a tax resident of any jurisdiction other than Italy or the Netherlands either for purposes of the domestic tax laws of such jurisdiction or for the purposes of any applicable tax treaty. However, the determination of our tax residency depends primarily upon our place of effective management, which is largely a question of fact, based on all relevant circumstances. Therefore, no assurance can be given regarding the final determination of our tax residency by tax authorities. In addition, changes to applicable laws and income tax treaties, including a change to the provisional reservation made by Italy under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “”) made at the time of signing the MLI with respect to Article 4 (Dual Resident Entities) of the MLI, or interpretations thereof and changes to applicable facts and circumstances (e.g., a change of board members or the place where board meetings take place), may have a bearing on the determination of our tax residency and the consequent tax treatment.If the competent tax authorities of a jurisdiction other than Italy including the Netherlands, take the position that we should be treated as (exclusively) tax resident of that jurisdiction for purposes of an applicable tax treaty, we would be subject to corporation tax and all distributions made by us to our shareholders would be subject to any applicable dividend withholding tax in such other jurisdiction(s) as well as in Italy. To resolve any dual tax residency issue, we may have access to a mutual agreement procedure and/or dispute resolution mechanisms under an applicable tax treaty and the dispute resolution mechanism under the EU Arbitration Directive (if it is an EU jurisdiction), or we could submit our case for judicial review by the relevant courts. These procedures would require substantial time, costs and efforts, and it is not certain that double taxation issues can be resolved in all circumstances.
If we pay dividends, we may need to withhold tax on such dividends payable to our shareholders in both Italy and the Netherlands.
As a result of the Conversion into a Dutch limited liability company (), but with our place of effective management in Italy (and not in the Netherlands), ourOur dividends are generally subject to Italian dividend withholding tax.
However,We believe that our dividends are not subject to Dutch dividend withholding tax,
in additionregardless to
Italian withholding tax, will be requiredwhom they are made, because the rule based on which a company incorporated under Dutch law is deemed to be
withhelda Dutch tax resident should not apply to a company incorporated under Italian law and converted into a Dutch company, such as the Company. This view has been confirmed by the Dutch tax authorities in a tax ruling, which was obtained in September 2022 and covers the tax years from
dividends if and when paidJanuary 1, 2022 to
Dutch resident shareholders (andnon-Dutch
resident shareholders that have a permanent establishment in the NetherlandsDecember 31, 2026. Any amount relating to
which their shareholding is attributable). We will be required to identify our shareholders in order to assess whether there are Dutch residents (ornon-Dutch
residents with a permanent establishment to which the shares are attributable) in respect of which Dutch dividend withholding tax
hasheld back prior to
the receipt of the ruling will be
withheld. Such identification may not always be possible in practice. If the identity ofrefunded to our
shareholders cannot be assessed upon a payment of dividend, withholding of both Italian and Dutch dividend withholding tax from such dividend may occur. Ournon-Dutch
resident shareholders may apply for a refund of Dutch dividend withholding tax, if withheld on the distribution. For further discussion, see “—Material Dutch Tax Considerations—Zegna Shares and Warrants
—.”shareholders.
The consequences of the loyalty voting program are uncertain.
No statutory, judicial or administrative authority directly discusses how the receipt, ownership or disposition of Zegna Special Voting Shares under the ZegnaCompany’s loyalty voting program implemented in connection with the Business Combination should be treated for Italian or U.S. tax purposes and, as a result, the tax consequences in those jurisdictions are uncertain.
The fair market value of the Zegna Special Voting Shares, which may be relevant for tax purposes, is a factual determination and is not governed by any guidance that directly addresses such a situation. Because, among other things, the Zegna Special Voting Shares will not be transferable (other than, in very limited circumstances, together with the associated Ordinary Shares) and a shareholder will receive amounts in respect of the Zegna Special Voting Shares only if Zegnathe Company is liquidated, we expect to take the position that the fair market value of each Zegna Special Voting Share is minimal. However, the relevant tax authorities could assert that the value of the Zegna Special Voting Shares as determined by Zegnathe Company is incorrect.
The tax treatment of the loyalty voting program implemented in connection with Business Combination is unclear and shareholders are urged to consult their tax advisors in respect of the consequences of acquiring, owning and disposing of Zegna Special Voting Shares. See “Item 10.E—Taxation—Material United States Federal Income Tax Considerations
—Considerations—Loyalty Voting Program and Zegna Special Voting Shares
” for further discussion. We benefit or seek to benefit from certain special tax regimes, which may not be available in the future.
We currently calculate taxes due in Italy based, among other things, on certain tax incentives recognized by Italian tax regulations for research and development expenses. In the past we have received tax benefit for research and development expenses in 2017.
In addition, we benefit from the measures introduced in Italy by art. 110 of Law Decree no. 104/2020, converted into Law no. 126/2020, which
re-opened
the voluntary
step-up
of tangible assets, with the application of a 3% substitutive tax rate.
Furthermore, Italian Law no. 190/2014, as subsequently amended and supplemented, introduced an optional Patent Box regime in the Italian tax system. The Patent Box regime is a tax exemption related to, among others, the use of intellectual property assets. Business income derived from the use of each qualified intangible asset is partially exempted from taxation for both IRES and IRAP purposes. We have applied the Patent Box tax regime for the period from 2015 to 2019 (renewal is pending),2021, in line with applicable tax regulations in Italy. The amount of the related tax benefits that we have received from the tax regime remains subject to limited uncertainty.
The old Patent Box regime has been recently revised. The current one does not provide anymore for a partial exemption of the business income derived from the use of qualified intangible assets. Differently, under the new regime, the amount of qualifying expenses, relevant for both IRES and IRAP purposes, is increased by 110%. Specific rules regulate the transiontransition from the old Patent boxBox regime to the new one.
Special tax regimes and tax incentives may allow us to mitigate our tax burden in Italy. Significant changes in regulations or interpretation thereof might adversely affect the availability of such exemptions and result in higher tax charges, which may result in a material adverse effect on our business, results of operations and financial condition.
We are subject to risks related to the complexity and uncertainty in interpretation of transfer pricing rules.
We operate in over 80approximately 85 countries worldwide with integrated industrial, commercial, stylist and communication functions, trademarks used in different jurisdictions and are subject to taxation in Italy and in other foreign countries in which our subsidiaries are located. Within Zegna,the Group, transactions between related parties located in different countries are carried out in the ordinary course of business and are mainly related to the purchase and sale of goods and the provision of services.
These transactions are subject to transfer pricing rules defined globally by the Organization for Economic andCo-operation
and Development (“”) and local tax laws. In this respect, our intercompany prices are set up consistently with the guidance provided by the OECD Transfer Pricing Guidelines and we and our subsidiaries prepare specific transfer pricing documentation with respect to such transactions.
Although we believe that our transfer pricing is correct,compliant with the international tax laws, due to the complexity of these rules and the uncertainties in their interpretation, the tax authorities might challenge the prices of certain of our intercompany transactions and propose transfer pricing adjustments. Consequently, such adjustments may increase the related taxes and impose penalties and late payment interests, which may result in a material adverse effect on our business, results of operations and financial condition.
Risk factors relating to holding our Ordinary Shares and Warrants
An active and liquid trading market for our Ordinary Shares may not develop,be maintained, the market price may be volatile and investors may suffer a loss.
Prior to the Business Combination, there has been no public market for the shares of Zegna. Our shares were listed on the NYSE on December 20, 2021. However, there can be no assurance that an active and liquid trading market for our Ordinary Shares will be maintained. Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors. The actual market price of the Ordinary Shares may fluctuate because of several factors, including those described in this “,” may not reflect our actual operating performance and may be lower than the price investors paid to purchase the Ordinary Shares.
Substantial sales of the Ordinary Shares and/or Warrants could cause the price of such securities to decline.
Following the Business Combination, the Zegna Initial Shareholders and the IIAC Initial Shareholders are subject to restrictions on share sales for certain periods of time, but will be free to sell once those restrictions expire. See “Item 10.B—Memorandum and Articles of Association—Registration Rights andLock-Up
Arrangements”. In addition, certain Insider PIPE Subscribers are subject to restrictions in connection with the sale of the Ordinary Shares they purchased in the PIPE Financing. The other shareholders, which own the minority of Ordinary Shares following the Business Combination, are not subject to any resale restrictions. A sale of a significant number of Ordinary Shares or Warrants, or the anticipation by the market of a possible sale, particularly sales of Ordinary Shares on the part of any of the shareholders subject tolock-up
obligations, following expiration of thelock-up,
could have the effect of depressing the market price for such securities.The exercise of our Warrants would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
As of December 31, 2021, we had 13,416,667 Public Warrants and 6,700,000 Private Placement Warrants outstanding. To the extent our Warrants are exercised, additional Ordinary Shares will be issued, which will result in dilution to the holders of Ordinary Shares and potentially increase the number of shares eligible for resale in the public market. Sales of substantial numbers of Ordinary Shares in the public market could adversely affect the market price of our Ordinary Shares and Warrants. See “—Substantial sales of the Ordinary Shares and/or Warrants could cause the price of such securities to decline
”.The price of the Ordinary Shares and Warrants may be volatile.
The price of Ordinary Shares and Warrants may fluctuate due to a variety of factors, including:
changes in the industries in which we and our customers operate;
variations in our operating performance and the performance of our competitors in general;
material and adverse impact of the
COVID-19
pandemic on the markets and the broader global economy;
actual or anticipated fluctuations in our annual or interim operating results;
publication of research reports by securities analysts about us or our competitors or our industry;
the public’s reaction to our press releases, other public announcements and filings with the SEC;
our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;
additions and departures of key personnel;
changes in laws and regulations affecting our business;
commencement of, or involvement in, litigation involving us;
mergers, acquisitions or significant corporate restructurings; harm to our reputation, including due to dissemination by third parties of information that is untrue or defamatory; changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
changes in investors’ market risk premium and resulting potential changes in their asset allocation strategies;the volume of Ordinary Shares available for public sale;
general economic and political conditions such as recessions, interest rates, fuel prices, foreign currency fluctuations, inflation, international tariffs, social, political and economic risks and acts of war or terrorism; and
the other factors described in this “
Factors.”.These market and industry factors may materially reduce the market price of Ordinary Shares and Warrants regardless of our operating performance.
In addition, the price of our Ordinary Shares may be depressed in case of substantial sales of our Ordinary Shares by shareholders or the anticipation by the market of a possible sale.
Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our shares.shares.
Securities research analysts may establish and publish their own periodic projections for Zegna.the Company. These projections may vary widely and may not accurately predict the results we actually achieve. Our share price may decline if our actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, our share price could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, our share price or trading volume could decline.
The loyalty voting program may affect the liquidity of the Ordinary Shares and reduce share price.
The implementation of Zegna’sthe Company’s loyalty voting program could reduce the trading liquidity and adversely affect the trading prices of the Ordinary Shares. The loyalty voting program is intended to reward shareholders for maintaining long-term share ownership by granting persons holding Ordinary Shares continuously for at least two years the option to elect to receive Zegna Special Voting Shares. Zegna Special Voting Shares cannot be transferred (except in very limited circumstances) and, if Ordinary Shares participating in the loyalty voting program are transferred they must be deregistered from the Loyalty Register and any corresponding Zegna Special Voting Shares transferred to us for no consideration (). See “Item 10.B—Memorandum and Articles of Association—Loyalty Voting Structure”. This loyalty voting program is designed
to encourage a stable shareholder base and, conversely, it may deter trading by shareholders that may be interested in participating in the loyalty voting program. Therefore, the loyalty voting program may reduce liquidity in Ordinary Shares and adversely affect their trading price.
Our majority shareholders exercise control over Zegna,the Company, which may limit other shareholders’ ability to influence corporate matters and could delay or prevent a change in corporate control. The interests of our majority shareholders may differ from those of our other shareholders.
As ofAt March 30, 2022,23, 2024, Monterubello held approximately 61.8%59.80% of the Ordinary Shares issued and outstanding.outstanding and 73.9% of our voting power. Please see “Item 7.A—Major Shareholders.
Shareholders”. As a result, Monterubello is able to influence our management and affairs and control the outcome of matters submitted to our shareholder meetings for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. In addition, the loyalty voting program established by the Zegna Articles of Association may make it more difficult for a third party to acquire, or attempt to acquire, control of Zegna,the Company, even if a change of control were considered favorably by shareholders holding a majority of Ordinary Shares. As a result of Monturubello’sMonterubello’s ownership and the loyalty voting program, a relatively large proportion of the voting power in Zegnathe Company could be concentrated in a relatively small number of shareholders who would have significant influence over Zegna.the Company. Monterubello and other shareholders participating in the loyalty voting program may have the power effectively to prevent or delay change of control or other transactions that may otherwise benefit Zegna’sthe Company’s shareholders, which may also prevent or discourage shareholder initiatives aimed at changing Zegna’sthe Company’s management or strategy or otherwise exerting influence over Zegna.the Company. In addition, Monterubello will exercise its voting power in its own interest, which may not be in line or even be in conflict with the interests of the remaining shareholders.We incurred and will incur significant costs in connection with the Business Combination.
We have incurred and expect to incur significant costs in connection with consummation of the Business Combination and the transition to becoming a public company. These costs may have an adverse impact on our results of operations. We cannot provide assurance that the benefits of the Business Combination will offset the incremental transaction costs in the near term, if at all.
ZegnaThe Company is a Dutch public company with limited liability, and its shareholders may have rights different to those of shareholders of companies organized in the United States.
The rights of the shareholders of Zegnathe Company may be different from the rights of shareholders of companies governed by the laws of U.S. jurisdictions. Zegnathe Company is a Dutch public company with limited liability (). Its corporate affairs are governed by the Zegna Articles of Association, the Zegna Board Regulations and Dutch law. The rights of Zegna’sthe Company’s shareholders and the responsibilities of members of the Zegna Board may be different from the rights of shareholders and the responsibilities of members of board of directors of companies governed by the laws of other jurisdictions including the United States. The responsibilities of the Zegna Executive Directors and ZegnaNon-Executive
Directors may be different from the rights and obligations of board members in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, the Zegna Board is required by Dutch law to consider Zegna’sthe Company’s interests and the interests of its shareholders, employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties have interests that are different from, or in addition to, the interests of shareholders. There can be no assurance that Dutch law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the U.S., which could adversely affect the rights of investors.
ZegnaThe Company is a “foreign private issuer” under the rules and regulations of the SEC and, thus, is exempt from a number of rules under the Exchange Act and permitted to file less information with the SEC than a company incorporated in the United States.
As a “foreign private issuer” Zegnathe Company is exempt from rules under the Exchange Act, that impose certain disclosure and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of the Ordinary Shares. Moreover, Zegnathe Company is not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, nor required to comply with Regulation FD, which restricts the selective disclosure of material information. Accordingly, there may be less publicly available information concerning Zegnathe Company than there is for U.S. public companies.
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the applicable listing standards of the NYSE. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs compared to thepre-Business
Combination period, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources.The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In particular, Section 404 of the Sarbanes-Oxley Act (“”) will require us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. We will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form20-F,
which we expect to file in 2023 with respect to the fiscal year ending December 31, 2022. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations and financial condition.We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses or if we are unableotherwise fail to develop and maintain an effective system of internal controls, we may not be able to produce timely and accuratethis could result in material misstatements in our consolidated financial statements orand a failure to comply with applicable laws and regulations, which may adversely affect our business and the price of our securities.
Before we became a public company in December 2021, in
In connection with our preparation and the auditsaudit of our consolidated financial statements as ofat December 31, 20202023 and 20192022, and for each of the three years in the period ended December 31, 2020, 2019 and 2018, our management and our independent registered public accounting firm2023 (included elsewhere in this report), we identified material weaknesses in our internal control over financial reporting. We had also previously identified certain material weaknesses in our internal control over financial reporting as of December 31, 2022, certain of which we have been able to remedy during the course of 2023. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
The For a summary of the material weaknesses identified primarily related to: (i) the absence of sufficient resources in the accounting department with appropriate IFRS competencies and SEC reporting experience to provide accurate information in a timely manner; (ii) the lack of an effective risk assessment process to identify and communicate appropriate objectives and fraud, and to identify and assess changes in the business that could affect our system of internal controls; (iii) the inability to generate and provide quality information and communication necessary to support the functioning of internal control (iv) the lack of monitoring controls to ascertain whether the components of internal control are present and functioning as intended; (v) the insufficient design and implementation of effective control activities, including proper segregation of duties and general information technology controls, across substantially all financial statement account balances and disclosures and (vi) the lack of adequately designed and documented management review controls to properly detect and prevent certain accounting errors and omitted disclosures in the consolidated financial statements.
As a consequence of these material weaknesses, accounting errors were identified in our annual consolidated financial statements as of December 31, 20202023, and 2019the steps that we have taken and for each of the three yearsare taking to remedy our remaining material weaknesses and control deficiencies, see “Item 15.—Controls and Procedures—Management’s Annual Report on Internal Control Over Financial Reporting.”
Material weaknesses in the period ended December 31, 2020, which errors primarily related to the application of accounting judgements on complex transactions concerning business combinations, impairment, fair value estimate, classification ofour internal control over financial instruments and classification of tax receivables and liabilities. The principal accounts
concerned are goodwill, intangible assets, right of use, property, plant and equipment, inventories, other current financial assets, tax receivables and tax liabilities, cash and cash equivalents, derivative financial instruments, deferred taxes, depreciation, amortization and impairment of assets and financial income and expenses, which have been restated as included in this report. These material weaknessesreporting could result in a misstatement of our accounts or disclosures, which may result in a material misstatement in our annual or interim consolidated financial statementsstatements. As a result of the material weaknesses in our internal controls over financial reporting, our management concluded that wouldas of December 31, 2023, our disclosure controls and procedures and our internal control over financial reporting were not effective. While we have taken and are continuing to take steps to remedy these material weaknesses and control deficiencies, our remediation plan can only be preventedaccomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. We cannot provide assurance as to when we will be able to complete full remediation or detected.
We are not currently requiredif we will be able to
make a formal assessmentavoid the identification of
additional material weaknesses in the future. In addition, the process of assessing the effectiveness of our internal control over financial reporting
in accordance withmay require the
requirementsinvestment of
Section 404 of the Sarbanes-Oxley Act. Beginning with our second annual report on Form20-F
filed with the SEC (which is expected to be the annual report for the year ending December 31, 2022) we will be required to provide an annual management report on the effectivenesssignificant time and resources, including by members of our
Senior Management Team. As a result, this process may divert internal
control over financial reportingresources and
our independent registered public accounting firm will be requiredtake a substantial amount of time and effort to
attest to the effectiveness of our internal controls over financial reporting.complete.Subsequent to the evaluation made in connection with filing our Registration Statement on FormF-4
we have begun implementing a remediation plan designed to address these material weaknesses and other existing deficiencies, and ensure the intended execution of our Sarbanes-Oxley Act compliance program. As part of this remediation plan, and together with external advisor with expertise in these matters as appropriate, we are focusing on the following areas: (i) performing our risk assessment and scoping to identify relevant controls that will be designed, implemented, and tested by management, (ii) establishing compliant risk and control matrices for applicable processes across our markets, (iii) designing and/or reassessing existing entity-level controls and general information technology controls and, as necessary, implementing enhancements to such controls to improve the effectiveness of the internal control system and our internal control over financial reporting, (iv) implementing appropriate monitoring activities and procedures over internal control and financial reporting, (v) reinforcing of the composition of Finance, Internal Audit and other departments and (vi) providing relevant training over internal controls and financial reporting processes. As our remediation activities remain ongoing, we cannot conclude that these measures fully address the material weaknesses identified in our internal control over financial reporting for the preparation of our consolidated financial statements as of and for the year ended December 31, 2021.We cannot assure that the measures that we are implementing will be sufficient to remediate the control deficiencies that led to these material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. In addition, neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act. Had we or our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified.
If we are unable to remediate the material weaknesses we have identified, or if we identify additional material weaknesses in the future or otherwise fail to develop and maintain an effective system of internal controls, we may not be able to produce timely and accurate consolidated financial statements, which may subject us to adverse regulatory consequences and adversely affect investor confidence in us and, as a result, the price of our securities and our ability to access the capital markets and other forms of financing in the future.
The Warrants are accounted for as liabilities and the changes in value of the Warrants could have a material effect on our financial results.
In accordance with IAS 32 – Financial Instruments: Presentation the 13,416,667 Public Warrants and 6,700,000 Private Placement Warrants are classified as derivative financial liabilities and are measured at fair value, with changes in fair value each period reported in profit and loss.
IAS 32 provides for the remeasurement of the fair value of such liabilities at each balance sheet date, with a resultingnon-cash
gain or loss related to the change in the fair value being recognized in earnings in the statement of profit and loss. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate periodically, based on factors which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognizenon-cash
gains or losses on the Warrants each reporting period and that the amount of such gains or losses could be material. Management measured the Public Warrants at fair value by using the Euro equivalent of the closing price of such warrants on the NYSE. Management estimated the fair value of the Private Placement Warrants by Monte Carlo simulation model, using as key inputs the Company’s
share price, risk-free rate, implied Public Warrant volatility, the Warrants’ maturity, and the Public Warrants’ market price.
Zegna’s ability to pay dividends may be limited and the level of future dividends is subject to change.
PaymentWhile our dividend policy is to target a payout ratio of 25% to 30% of the profit attributable to shareholders of the Parent Company, without reducing dividends on Zegna’s sharesand at least maintaining or increasing dividends each year, the payment of dividends in the future will be subject to business conditions, financial conditions, earnings, cash balances, commitments, strategic plans and other factors that the Zegna Board may deem relevant at the time it recommends approval of the dividend. AnyIn addition, our dividend policy once adopted, will be subject to change based on changes in statutory requirements, market trends, strategic developments, capital requirements and a number of other factors. In addition, underUnder the Zegna Articles of Association and Dutch law, dividends may be declared on the Ordinary Shares only if the amount of equity exceeds the paid up and called up capital plus the reserves that have to be maintained pursuant to Dutch law or the Zegna Articles of Association. Further, even if Zegnathe Company is permitted under the Zegna Articles of Association and Dutch law to pay cash dividends on its shares, it may not have sufficient cash to pay dividends in cash on its shares. ZegnaThe Company is a holding company and its operations are carried out through its subsidiaries. As a result, Zegna’sthe Company’s ability to pay dividends will primarily depend on the ability of its subsidiaries to generate earnings and to provide Zegnathe Company with the necessary financial resources.
The Warrant Agreement and the New Warrant Agreement designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our Warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with us.
Our Warrant Agreement and New Warrant Agreement provide that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to such agreements, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum.
Notwithstanding the foregoing, these provisions do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice of and to have consented to the forum provisions in our Warrant Agreement and New Warrant Agreement. If any action, the subject matter of which is within the scope the forum provisions of the Warrant Agreement or the New Warrant Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “”) in the name of any holder of our warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder.Thisprovision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our Warrant Agreement or New Warrant Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.You may only be able to exercise your Warrants on a “cashless basis” under certain circumstances, and if you do so, you will receive fewer Ordinary Shares from such exercise than if you were to exercise such warrants for cash.
The Warrant Agreement and, with respect to Warrants not then held by the IIAC Sponsor or its permitted transferees, the New Warrant Agreement provide that in the following circumstances holders of Warrants who seek to exercise their warrants will not be permitted to do it for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: if we have so elected and the Ordinary Shares are at the time of any exercise of such Warrant not listed on a national securities exchange such that they satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act. Additionally, holders of Warrants may only be able to exercise their Warrants on a cashless basis in accordance with Section 3(a)(9) of the Securities Act if there is no effective registration statement covering the issuance of Ordinary Shares issuable upon exercise of the Warrants. If you exercise your Warrants on a cashless basis in any of the foregoing circumstances, you will pay the warrant exercise price by surrendering all of the Warrants for that number of Ordinary Shares equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Ordinary Shares underlying the Warrants, multiplied by the excess of the “fair market value” (as defined in the next sentence) of our Ordinary Shares over the exercise price of the Warrants by (y) the fair market value and (B) 0.361. The “fair market value” is the volume-weighted average price of the Ordinary Shares for the 10 trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent. As a result, you would receive fewer Ordinary Shares from such exercise than if you were to exercise such Warrants for cash.
Risks for any holders of Public Warrants
We may redeem your Public Warrants prior to their exercise at a time that is disadvantageous to you, thereby significantly impairing the value of such warrants. We have the ability to redeem outstanding Public Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that: (i) the closing price of the Ordinary Shares equals or exceeds $18.00 per share (as adjusted for sharesub-divisions,
share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading day period ending on the third trading day prior to the date on which a notice of redemption is sent to the warrantholders and (ii) there is an effective registration statement under the Securities Act covering the issuance of Ordinary Shares issuable upon exercise of the Warrants, and a current prospectus relating thereto is available throughout the30-day
redemption period. If and when the Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Public Warrants could force you (i) to exercise your Public Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your Public Warrants at the then-current market price when you might otherwise wish to hold your Public Warrants, or (iii) to accept the nominal redemption price which, at the time the outstanding Public Warrants are called for redemption, is likely to be substantially less than the market value of your Public Warrants.In addition, we have the ability to redeem the outstanding Public Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant if, among other things, the closing price of the Ordinary Shares equals or exceeds $10.00 per share (as adjusted for sharesub-divisions,
share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading day period ending on the third trading day prior to the date on which a notice of redemption is sent to the warrantholders. In such a case, the holders will be able to exercise their Public Warrants on a “cashless basis” prior to redemption for a number of Ordinary Shares determined based on a table in which the number of Ordinary Shares is based on the redemption date and the fair market value of the Ordinary Shares, where fair market value is the volume weighted average price of the Ordinary Shares for the ten (10) trading days immediately following the date on which notice of redemption is sent to the warrantholders.The value received upon exercise of the Public Warrants (1) may be less than the value the holders would have received if they had exercised their Public Warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the Public Warrants.
It may be difficult to enforce U.S. judgments against us.
ZegnaThe Company is a company incorporated under the laws of the Netherlands, and a substantial portion of its assets are outside of the United States. Most of our directorsDirectors and senior managementmembers of the Senior Management Team and independent auditors are resident outside the United States, and all or a substantial portion of their respective assets may be located outside the United States. As a result, it may be difficult for U.S. investors to effect service of process within the United States upon these persons. It may also be difficult for U.S. investors to enforce within the United States judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts outside the United States would recognize or enforce judgments of U.S. courts obtained against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Therefore, it may be difficult to enforce U.S. judgments against us, our directors and officers and independent auditors.
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ITEM 4 INFORMATION ON THE COMPANY |
A.History and Development of the Company
Ermenegildo Zegna N.V., is a Dutch public limited liability company (), results from the cross-border conversion whereby, on the Closing Date of the Business Combination, Ermenegildo Zegna Holditalia S.p.A., an Italian joint stock company (), transferred its legal seat from Italy to the Netherlands and amended its articles of association. Ermenegildo Zegna N.V. is the parent company of the Ermenegildo Zegna group andGroup. It is named after our founder Ermenegildo Zegna (the grandfather of our Chief Executive Officer), who started his business in the Northern Italian town of Trivero in 1910 with the dream of creating the most beautiful and luxurious fabrics in the world. Ermenegildo Zegna
& Giardino snc was initially formed byN.V. results from the cross-border conversion whereby, on December 17, 2021, Ermenegildo
together with his brothers Edoardo and Mario and Mr. Costanzo Giardino Vitri asZegna Holditalia S.p.A., an Italian
joint stock company (società in nome collettivo
(general partnership)per azioni), transferred its legal seat from Italy to produce high-quality fabrics utilizing the Zegna brothers’Netherlands and amended its articles of association. Born as a wool mill, and looms. In 1915, upon the exit of Mr. Giardino Vitri, the company was renamed Fratelli Zegna di Angelo snc. Shortly thereafter, Edoardo Zegna also left the company.
The companyCompany sourced the best quality natural fibers directly from their countries of origin, imported them to Italy to be expertly woven, and subsequently exported these luxury fabrics worldwide. In the late 1920s, the wool mill employed more than 700 workers, growing to more than 1,000 workers in the late 1940s. In 1938,1940s and today the company began to export fabrics in the United States through its subsidiary Zegna Woollens Corporation.Group employs over 7,000 people.
Our founder’s vision, which continues to inspire and guide our business today, was that product quality can only flourish when there is a culture of beauty that must also respect the environment and the well-being of local communities. With that goal in mind, our founder built facilities including a swimming pool, a school, a hospital and a road in order to enrich the lives of people in his town. He also launched an extensive reforestation project in the hills surrounding the Lanificio wool mill, which expanded over the course of the years and is now known as “Oasi Zegna.”
In
1941, Fratelli Zegna di Angelo snc was dissolved by mutual agreementthe mid-1960s under the guidance of
our founder Ermenegildo Zegna and his brother Mario, and Ermenegildo formed a new company named Lanificio Fratelli Zegna di Angelo di Ermenegildo Zegna snc (later renamed Lanificio Ermenegildo Zegna – Trivero). The company was dissolved in 1944, when Ermenegildo Zegna and his son Aldo formed Lanificio Ermenegildo Zegna & Figli snc. In 1945, Ermenegildo’s son Angelo entered this partnership. In themid-1960s,
Ermenegildo’s sons Aldo and Angelo,
took over the partnership. Under their guidance, the label expanded its business to ready-made suits and established new plants and distribution networks abroad. In 1968, the first factory producing sleeve-units and trousers was opened in Novara, Italy, followed by factory openings in Spain, Greece, and Switzerland.
In 1972, the label launched its made-to-measure service called “Su Misura.”Sales and marketing departments were also established in France, Germany, the United Kingdom and the United States.
In 1972, Zegna launched itsservice called “Su Misura.”Zegna’sStates in order to expand the business’s international presence, and the brand internationalization strategy continued with the opening of Zegna’sthe first boutique in Paris (1980), followed by boutiques in Milan (1985), London (1987), Tokyo (1989), Beijing (1991) and Hong Kong (1993), making Ermenegildo Zegna one of the first luxury brands to establish a presence in Greater China.
LanificioThe Company was incorporated as an Italian joint stock company (with the name Ermenegildo Zegna Holditalia S.p.A.) in 1984, being the conversion of a limited partnership called Ermenegildo Zegna e Figli S.a.s. converted into a joint stock company on July 1, 1984, taking the name of Ermenegildo Zegna Holditalia S.p.A.
Between 1979 and the 1990s, the third generation of the Zegna family entered the business. In 1998, Angelo’s son, Ermenegildo
“Gildo”(Gildo) Zegna, and Aldo’s son, Paolo, became the
co-Chief
Executive Officers. In 2006,
Ermenegildo “Gildo”Gildo Zegna became the sole Chief Executive
OfficerOffice and Paolo Zegna was elected Chairman. Under
theirthe CEO’s leadership,
Zegnathe Company began a strategy of brand extension, both organically and
with M&A activity,through strategic acquisitions, as well as full verticalization of its supply chain.
Over the years, the Group acquired equity interests in a number of specialized textiles manufacturers as illustrated in the image below, thus creating its “Made in Italy Luxury Textiles Platform” and full verticalization.enhancing control over its textile supply chain (the percentages indicated in the image refer to the equity interests acquired).
Zegna entered the luxury womenswear business
The Made in 1999 by acquiring the Italian brand Agnona. Italy Luxury Textiles Platform Acquisitions
The
Agnona business was later deconsolidatedGroup’s expansion continued in 2018 with the
sale in January 2021acquisition of
a 70% interest. See “Item 5—Operating and Financial Review and Prospects
” for further information.In 2009, Zegna acquired the business of Tessitura di Novara, which specialized in the production of silk. In 2014, Zegna acquired a majority equity interest in Achill, an Australian wool farm of 2,500 hectares (approximately 6,175 acres), home to about 10,000 Merino sheep in its flock. Achill was demerged on November 1, 2021 prior to the completion of the Business Combination and is now majority owned by Monterubello, but Zegna continues to source raw materials from this wool farm.
In 2016, Zegna acquired a majority stake in Bonotto, ahigh-end
textile manufacturer based in Molvena, Italy, expanding Zegna’s presence into new areas such as furnishing and experimental fabrics.In 2018, Zegna acquired an 85% interest in Thom Browne, a leading and
fast growingfast-growing luxury brand focused on
high-end
menswear and
womenswear. Zegnawomenswear that was founded by Mr. Thom Browne in 2001 and is based in New York. The Company subsequently acquired an additional 5% interest in Thom Browne in June 2021.
Under a put option agreement between Zegna and Mr. Thom Browne, Mr. Thom Browne has the right, but not the obligation, to sell to Zegna up to 550.9674 shares of common stock of Thom Browne Inc. (representing the remaining 10% interest in the company held by Mr. Thom Browne) over the period between 2024 and 2030 (subject to potential deferral until 2032). In 2018, Zegna also acquired Cappellificio Cervo, a historic hatmaker in Biella, Italy with over 150 years of history.In 2019, Zegna acquired a 65% interest in Dondi, an Italianhigh-endThe Business Combination
jersey fabrics manufacturer, enhancing Zegna’s control over its textile supply chain.
In the last two decades, Zegna has also expanded its presence in adjacent luxury markets thanks to partnerships with recognized leaders. In 1999, Zegna entered into a license agreement with Tateossian for the manufacturing and distribution of Zegna-branded cufflinks and jewelry. In 2011, Zegna signed a worldwide licensing agreement with Estée Lauder for the Ermenegildo Zegna fragrance line, with the latest collection launched in the fourth quarter of 2021. Since 2013, Zegna has partnered with Italian luxury vehicle manufacturer Maserati to produce customized interiors, as well as several collections of leather goods, travel-friendly clothing and personal accessories. In 2014, Zegna entered into aten-year
licensing agreement with the Marcolin Group for the manufacture of Zegna-branded luxury eyewear. In 2016 and 2017 respectively, Zegna entered into an exclusive license agreement for underwear and beachwear with Isaseta.During 2021, Zegna further strengthened its presence in the textiles business with the acquisition of a 60% stake in Tessitura Ubertino, a business specialized inhigh-end
fabrics for women based in Pratrivero, Italy, and a 40% stake in Filati Biagioli Modesto, a business specialized in the production of carded yarns based in Montale, Italy. Concurrently with Zegna’s acquisition, the Prada Group also acquired a 40% stake in Filati Biagioli Modesto.On July 18, 2021, Zegnaunder the leadership of its CEO, the Company entered into the Business Combination Agreement and certain ancillary agreements.agreements with IIAC. Also on July 18, 2021, the PIPE Investors that had chosen to participate in the PIPE Financing indicated their final subscription amounts and delivered executed PIPE Subscription Agreements to Zegnathe Company and IIAC.
The Business Combination was consummated on December 17, 2021. On December 17,20, 2021, Zegna closed the previously announced Business Combination pursuant to the Business Combination Agreement, by and among Zegna, IIAC and Zegna Merger Sub. our Ordinary Shares started trading on NYSE.
In connection with the Business Combination, the following transactions occurred pursuant to the terms of the Business Combination Agreement:
Combination:•on the Closing Date prior to the Effective Time, the Company (at the time Ermenegildo Zegna Holditalia S.p.A., an Italian joint stock company) implemented the Conversion and became a Dutch public limited liability company (), upon which Ermenegildo Zegna Holditalia S.p.A.it changed its name to Ermenegildo Zegna N.V.; in connection with the Conversion, Zegna and underwent a share split such that immediately following the Closing (including the Share Repurchase) the then-existing shareholders of Zegna would hold 155,400,000 Ordinary Shares (excluding any Ordinary Shares purchased in connection with the PIPE Financing);
split;•on the Closing Date following the Conversion and prior to the Effective Time, the FPA Purchaser purchased from IIAC and IIAC issued to such FPA Purchaser 22,500,000 Class A Shares for an aggregate purchase price of €191.8 million;
•immediately following the consummation of the Forward Purchase, at the Effective Time, Zegna Merger Sub merged with and into IIAC, with IIAC being the Surviving Company in the Merger;
in connection with the Merger, (a) each share in the capital of Zegna Merger Sub issued and outstanding immediately prior to the Effective Time was automatically cancelled and extinguished and converted into one ordinary share in the share capital of the Surviving Company, (b) each Class A Share and Class B Share of IIAC issued and outstanding immediately prior to the Effective Time (excluding shares tendered for redemption) remained outstanding as one ordinary share of the Surviving Company for further contribution as a contribution in kind, •immediately following the Effective Time, to Zegna in consideration for one Ordinary Share, (c) each IIAC Ordinary Share held immediately prior to the Effective Time by IIAC as treasury shares was cancelled, and no consideration was paid with respect thereto, (d) each outstanding IIAC Public Warrant automatically ceased to represent a right to acquire one Class A Share and automatically was converted and represented, at the Effective Time, a right to acquire one Ordinary Share on the same contractual terms and conditions as were in effect immediately prior to the Effective Time under the terms of the Warrant Agreement, and (e) 5,900,000 IIAC Private Placement Warrants that were outstanding immediately prior to the Effective Time were exchanged, at the Effective Time, for the issuance by Zegna of a Private Placement Warrant representing a right to acquire one Ordinary Share on the same contractual terms and conditions as those of the IIAC Private Placement Warrants as were in effect immediately prior to the Warrant Agreement Amendment, while the remaining 800,000 IIAC Private Placement Warrants were transferred by the FPA Purchaser to Zegna pursuant to the Business Combination Agreement, and Zegna issued a corresponding number of Private Placement Warrants to certain of its directors, namely the directors who were members of the Zegna Board prior to the Conversion, the LeadNon-Executive
Director and the chairperson of the Audit Committee;immediately following the Effective Time, ZegnaCompany consummated the PIPE Financing and the Offset PIPE Financing;
•after the consummation of the PIPE Financing and the Offset PIPE Financing, the Surviving Company distributed an amount of cash equal to €191,806,537.10 plus $105,380,150.53 to the Capital Distribution Amount to ZegnaCompany by way of the Capital Distribution;a return of capital distribution; and
•promptly following the Capital Distribution, Zegna completed the Share Repurchase, acquiringCompany repurchased 54,600,000 Ordinary Shares from Monterubello in exchange for a promissory note in the amount of the Cash Consideration.€455,000,000. Such promissory note was repaid by Zegnathe Company on December 21, 2021.
Warrant Redemption
On January 26, 2023, the Company announced a redemption of all Warrants, following which 19,322,846 Warrants were exercised on a cashless basis and 408,667 Warrants were exercised for cash, resulting in the issuance of an aggregate of 5,761,067 Ordinary Shares. The 385,123 remaining outstanding Warrants were redeemed on February 27, 2023.
TFI Acquisition
On April 28, 2023, the Company completed the acquisition of Tom Ford International (“TFI”) (the “TFI Acquisition”), through which it acquired the company that owns and operates the TOM FORD FASHION business, as part of a transaction in which sole ownership of the TOM FORD brand, its trademarks, and other intellectual property rights have been acquired by The Estée Lauder Companies Inc. (“ELC”) and TFI has become a long-term licensee of ELC for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products, by virtue of a long-term licensing and collaboration agreement with ELC for 20 years subject to renewal at TFI’s option for one further 10-year period subject to certain minimum performance conditions. The Group will be in charge of the end-to-end TOM FORD FASHION business, from collection creation and development to production and merchandising, as well as retail and wholesale distribution. The TOM FORD FASHION business, under the Group, operates a network of 51 directly operated stores globally at December 31, 2023.
Before the completion of the TFI Acquisition, the Group already owned 15% of TFI, through its fully owned subsidiary EZ US Holding Inc., and, through the TFI Acquisition it acquired the remaining 85% equity interest. The transaction implied a value for the acquired 85% stake of TFI at $150 million in cash, on a cash-free and debt-free basis and assuming a normalized working capital. For information relating to the purchase price allocation of the TFI Acquisition, see Note 39 — Business combinations to the Consolidated Financial Statements included elsewhere within this Annual Report.
As a result of the TFI Acquisition, the Group also obtained 100% of Pelletteria Tizeta S.r.l. (“Pelletteria Tizeta”), for which it previously held a 50% interest and accounted for the investment using the equity method, with the remaining 50% interest owned by TFI and being acquired by the Group through the TFI Acquisition.
B. Business Overview
We areThe Group is a
leading global luxury
group,player, leader in the high-end menswear business and internationally recognized for
the distinctive heritage ofits unique textile and manufacturing platform. Heritage, Italian craftsmanship, quality and
design associated with our Zegna andinnovation are key ingredients of its three complementary brands: ZEGNA, Thom Browne
brands and
TOM FORD FASHION. Through them, our reach expands to touch different communities, from the
noble fabrics and fibers of ourin-house
absolute iconic luxury,
textile and knitwear business. Since our foundation in 1910, we have expanded beyond our luxury textile productionwith its eponymous brand ZEGNA, to
products and accessories to become a highly recognized luxury lifestyle group. We design, manufacture, market and distribute luxury menswear, footwear, leather goods and other accessories under the Zegna and the modern tailoring, with Thom Browne,
brands,to luxury glamour, with TOM FORD FASHION. Thanks to Thom Browne and
TOM FORD FASHION, the Group also plays an important and growing role in the luxury womenswear and
childrenswear under the Thom Browne brand. Our product range is complemented by eyewear, cufflinks and jewelry, watches, underwear and beachwear manufactured by third parties under licenses. Our business covers the entire value chain as a result of our design, manufacturing and distribution business. Our goal is to provide customers with excellent products that reflect our tradition of fine craftsmanship with exclusive design content and with a style that preserves the exceptional manufacturing quality we are known for, through the sourcing of superior raw materials, the careful finish of each piece, and the way they are delivered to our customers.leather goods segment.In 2021, 2020 and 2019, Zegna recorded revenues of €1,292,402 thousand, €1,014,733 thousand and €1,321,327 thousand, respectively, (Loss)/Profit for the year of (€127,661) thousand, (€46,540) thousand and €25,439 thousand, respectively, Adjusted EBIT of €149,115 thousand, €20,013 thousand and €107,274 thousand, respectively, and Adjusted Profit/(Loss) of €75,332 thousand, (€4,752) thousand and €43,047 thousand, respectively. For additional information relating to Adjusted EBIT and Adjusted Profit/(Loss), which arenon-IFRS
measures, including a reconciliation of (Loss)/Profit for the year to Adjusted EBIT and Adjusted Profit/(Loss), see “Item 5.—Operating and Financial Review andProspects—Non-IFRS
Financial Measures.”We operate our business in twothree segments: the Zegna segment (comprising three product lines: Zegna Branded Products,ZEGNA branded products, Textile and Third Party Brands (formerly known as Strategic Alliances)) and the Thom Browne segment. Before the deconsolidation of the Agnona business in January 2021, we were also active in the luxury womenswear business through the Agnona product line of the Zegna segment.
With respect to the Zegna Branded Products product line and Thom Browne segment, we operate via ouror DTC channel worldwide through our network of 245 Zegna and 52 Thom Browne DOSs as of December 31, 2021 (255 Zegna DOSs, prior to the transformation of 17 DOSs in Korea into franchised stores, and 38 Thom Browne DOSs as of December 31, 2020). We also distribute our products worldwide through monobrand or multibrand points of sale operated by our wholesale customers. Taking into account our DTC channel and our wholesale distribution channel, we are present in over 80 countries worldwide. Our DTC channel includes monobrand boutiques and outlets, as well as concessions in department stores and multibrande-commerce
marketplaces. In our wholesale channel, we sell our products to franchisees, department stores, multibrand specialty stores and online multi-brande-tailers.
The activities of the Textile product line and Third Party Brands product line (formerly known as the Strategic Alliances product line) follow their own operational phases and logics. Through the Textile product line, we sell our fabrics both to other product lines of the Zegna segment or toBrands), the Thom Browne segment and, to third party customers. Throughfollowing the Third Party Brands product line, we are engaged inTFI Acquisition, the manufacturing and distribution or the supply of menswear to other fashion brands.Tom Ford Fashion segment.
The following tablescharts show our consolidated revenues by segment for the years ended December 31, 2021, 20202023, 2022 and 2019,2021.
Consolidated revenues by segment after eliminations and provide a split by geographic area (€ millions, except percentages)
The Group distributes its products world-wide and segment.
has a well-balanced presence among all its regions, with APAC being the most important area. | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | |
thousand, except percentages) | | | | | | | | | | | | | | | |
| | | 380,325 | | | | 315,879 | | | | 431,384 | | | | 20.4 | % | | | (26.8 | )% |
| | | 158,722 | | | | 121,202 | | | | 140,676 | | | | 31.0 | % | | | (13.8 | )% |
| | | 37,682 | | | | 32,985 | | | | 58,012 | | | | 14.2 | % | | | (43.1 | )% |
| | | 191,283 | | | | 131,049 | | | | 233,327 | | | | 46.0 | % | | | (43.8 | )% |
| | | 176,059 | | | | 114,818 | | | | 205,744 | | | | 53.3 | % | | | (44.2 | )% |
| | | 19,971 | | | | 12,915 | | | | 25,404 | | | | 54.6 | % | | | (49.2 | )% |
| | | 696,344 | | | | 551,650 | | | | 626,059 | | | | 26.2 | % | | | (11.9 | )% |
of which Greater China Region | | | 588,876 | | | | 438,193 | | | | 458,294 | | | | 34.4 | % | | | (4.4 | )% |
| | | 55,479 | | | | 61,523 | | | | 90,240 | | | | (9.8 | )% | | | (31.8 | )% |
| | | 4,479 | | | | 3,240 | | | | 5,153 | | | | 38.2 | % | | | (37.1 | )% |
| | | | | | | | | | | | | | | | | | | | |
The following charts provide a breakdown of consolidated revenues by geographic area for the years ended December 31, 2023, 2022 and 2021.
(1)EMEA comprises Europe, the Middle East and Africa.
(2)North America includes the United States of ContentsAmerica and Canada.
(3)Latin America includes Mexico, Brazil and other Central and South American countries.
(1) | EMEA comprises Europe, the Middle East and Africa.
|
(2) | North America includes the United States of America and Canada.
|
(4)APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
(3) | Latin America includes Mexico, Brazil and other Central and South American countries.
|
(5)Other revenues mainly include royalties.
(4) | APAC includes Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other South East Asian countries.
|
(5) | Other includes royalties fees, certain sales of old seasons products, and exchange rate impact deriving from hedging transactions on revenues.
|
Industry
Industry information contained in this section is based on the Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2023 (the “Bain-Altagamma Study”), unless otherwise indicated.
We operate in the personal luxury goods market, which includes the following product segments: accessories, jewelry, beauty, apparel and watches. By product, we primarily focus on the apparel and accessories segments of the personal luxury goods market. The luxury textiles market, which accounts for less than 10% of the Group’s consolidated revenues after eliminations, is not discussed in this section.
Demand in the personal luxury goods market, especially in the absolute luxury segment, is characterized by a low price-sensitivity. Instead, demand is more likely driven by tangible and intangible factors which fuel a brand’s equity and desirability. Brand equity is made of several important components, including heritage, exclusivity, recognizability, quality, and experience.
According to the Bain-Altagamma Study, the global personal luxury goods market had a total estimated value for the year 2023 of approximately €362 billion and has grown steadily for about two decades with a compound annual growth rate (“CAGR”) of 6% from 1996 to 2019. Over the period from 2019 to 2022, the personal luxury goods market experienced a 7% CAGR, as a result of a V-shaped rebound in 2021 and 2022 following the sharp decline in demand in 2020 due to the COVID-19 pandemic. It continued to increase during 2023, as per the same Bain-Altagamma Study, at an estimated rate of 8% at constant exchange rates and 4% at current exchange rates, compared to 2022.
The chart below sets forth the evolution of sales in the global personal luxury goods market from 1996 to 2022 and the expected evolution for the period from 2023 to 2030. With the exception of 2009 and 2020, the global personal luxury goods market has grown by mid-single-digit annual growth and is expected to have a CAGR of between 5% to 7% from 2023 through 2030.
| | | | | | | | | | | | |
| | | |
thousand, except percentages) | | | | | | | | | |
| | | 1,035,175 | | | | 843,318 | | | | 1,165,911 | |
| | | 264,066 | | | | 179,794 | | | | 161,200 | |
| | | (6,839 | ) | | | (8,379 | ) | | | (5,784 | ) |
| | | | | | | | | | | | |
Personal Luxury Goods Market Evolution – €bn
Source: Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2023, dated November 14, 2023.
The Bain-Altagamma Study estimates that about one-third of personal luxury goods sales will occur online by 2030 (compared to approximately 20% in 2023), Chinese consumers will represent between 35% and 40% of the total global personal luxury goods sales (compared to approximately 22-24% in 2023) and Gen Z and Gen Y and a new Gen Alpha combined will represent approximately 80% of the market (compared to approximately 65% in 2023).
Several recent trends are expected to continue to be the main drivers of growth for the industry in the coming years, including the growing polarization of wealth, the expansion and increasing sophistication of the customer base in search of excellence in products, service and experience, the increasing popularity of casual luxury, a rise in domestic purchases coupled with a gradual return of tourists’ spending and an increasing focus on authenticity, sustainability, ethical and diversity considerations.
The personal luxury goods market is characterized by significant barriers to entry, such as, among others: (i) brand heritage, which is embodied by unreplaceable assets like a brand’s history, values and DNA; (ii) brand equity, which is the perception of the uniqueness and high reputation of a brand, built over time with, among the others, important investments in advertising; (iii) know-how, characterized by many aspects of the “saper fare” (savoir faire) starting from the design and innovation capacity through the ability to provide products with a superior quality and an utmost experience for clients; and (iv) a high-end distribution network, which embraces prime locations in the most important, highly competitive, luxury streets and malls.
Competitive Strengths
We operate in the personal luxury goods market. Although in this arena we compete with other global companies, we believe we have unique advantages to successfully compete and further strengthen its presence and leading position. Heritage, Italian craftsmanship, undisputed legacy along with a portfolio of complementary brands with significant untapped growth potentials represent strong and prime assets for the Group.
We believe that the following key competitive strengths have been the primary drivers of ourthe Group’s historic success and will continue to be the pillars of ourits future growth strategy.
Heritage and Sustainability
Since the foundation of Lanificio Ermenegildo Zegna e Figli S.p.A. (“Lanificio” or “Lanificio Ermenegildo Zegna”) at the Core
. Since its foundation over 110 years ago,beginning of the past century, Zegna has been synonymous with quality,
style and
styleinnovation for
men. We believe that ourmen’s fashion. This has been and continues to be true for the ZEGNA brand and the Ermenegildo Zegna Group.Luxury Menswear Leadership
The Ermenegildo Zegna Group has a consolidated leadership position in luxury menswear, rooted on its more-than-100-year of history. This undisputed legacy, along with a portfolio of unique and complementary brands, and products enjoy strong visibility andconstitutes the Group’s main competitive strength. ZEGNA has evolved from being one of the most recognized brands in men’s tailoring to become an established reputationicon brand in the market associatedmen absolute-luxury leisurewear segment with style,a top class retail network in the most important luxury streets and shopping malls. The addition of Thom Browne in 2018 and TOM FORD FASHION in 2023 has further strengthened the Group’s leadership by capturing distinctive and complementary segments of clientele, while leveraging on the Group’s textile and manufacturing know-how.
Integrated Italian Platform
The Ermenegildo Zegna Group controls an integrated luxury textiles and manufacturing chain, vertically integrated from the sourcing of the finest raw material to the production of high-quality garments. Through the historical Lanificio Ermenegildo Zegna as well as the more recent acquisitions of Dondi, Bonotto, Tessitura Ubertino, and the minority interests in Filati Biagioli Modesto, the Group has built an in-house textiles platform that provides a unique competitive hedge in term of innovation capacity and research of the finest and highest performing fabrics with the best quality. The importance of innovation is also testified by our over 300 employees dedicated to research and development.
The textile platform, integrated with state-of-the-art manufacturing capabilities, represents a key competitive advantage that the Group can offer to the brands in its portfolio. It also offers significant barrier to entry in the strategic Made-to-Measure business. The Group offers Made-to-Measure (Su Misura) and bespoke services (that take customization to a higher level) for its three brands with a best-in-class lead time that goes from 2 weeks (in some key stores) up to 4 or 6 weeks. Management believes that the breadth of the offering and the lead times, as well as the service quality and innovation. Born asthe experience provided to customers, are setting the standards in the industry. These services enable us to cultivate meaningful client relationships, develop a fabric maker,loyal customer base and drive new customer engagement.
Complementary Portfolio of Uniquely Positioned Luxury Brands
Ermenegildo Zegna has grown intoGroup is made of three brands complementary across styles, occasions of use, and aesthetic.
ZEGNA, the Group’s eponym brand, is a worldwideleading brand in the men’s absolute luxury lifestyle group for formalwearsegment. Authenticity represents the brand’s core and luxury leisurewear,true value. The brand’s authenticity stands not only on more than 110 years of unique heritage but also in a responsible vision which started since its foundation and today over 100 years later it remains controlled by the Zegna family. We are rooted in an authentic history: our founder’s vision and business gene has been passed down through the generations, ensuring that the Zegna brand guarantees his legacy based on a sustainable business; giving back, responsibility towards the environment and community well-being areremain key tovalues for the brand development.brand. An expression of this vision is the so called “Oasi Zegna,” a freely accessible natural reserve covering approximately 100 square kilometers from the small village of Trivero, where the Group originated, to the peaks of the Biella Alps in Italy,Italy. This area was created by ourthe Group’s founder over 100 years ago and rebranded “Oasi Zegna” in 1993 with the goal of fostering a positive relationship with the local territory and the community by creating a lasting environment for the public to enjoy.1993. Oasi Zegna has been and continues to be an important source of inspiration for our collections. While Oasi Zegna was disposedthe ZEGNA brand’s collections and for the brand iconic products.
Thom Browne. Distinctive craftsmanship, undisputed tailoring know-how and proud community are the key ingredients of priorthe brand success in both men and womenswear. Thom Browne has a wide range of luxury and fashion clients that appreciate the unique design and quality.
TOM FORD FASHION. Recently added to the closingGroup, TOM FORD FASHION completes the Group’s offering delivering an alluringly modern aesthetic for a client who pursues recognition, product excellence and impeccable fit.
All three brands have untapped growth potential in terms of the Business Combination as part of the Disposition, we concluded an agreement with Oasi Zegnaproducts, countries and channels to continue to pursue our mutually inspiring relationship. At Zegna, sustainability has been part of our ethos since inception. It is as much part of our DNAbe exploited in their respective reference markets. In particular, Thom Browne and history as the quality of our clothes. This carries over into everything that we do, from the technology we use to create our productsTOM FORD FASHION give us exposure to the constant dialogue we have with our customerswomenswear luxury apparel and suppliers.leather goods markets.
Made in Italy Luxury Laboratory Platform35
World-Class Customer Relationship Management (CRM) Capabilities. We benefit from a full verticalization of
The Group’s clienteling business model puts the
supply chain through our historical Lanificio Zegna as well as our recent acquisitions of Dondi, Bonotto, Tessitura Ubertino and Filati Biagioli Modesto. Ourin-house
laboratory platform allows us to focus on innovation and research ofcustomer at the
finest and highest performing fabrics, but also to leverage a modular approach to the manufacturing process depending on production needs, giving us high flexibility and efficiency.center. We believe that
this provides usonly a controlled distribution network, along with a
competitive advantage. Through our long-term relationships with our suppliers, we enjoy privileged access inunique CRM experience, can provide a distinctive, world class experience to its clients. Over the
procurement ofyears, the
finest fibersGroup has developed highly sophisticated and
fabrics and we are able to ensure enhanced traceability and quality control of the raw materials. Thanks to our experiencedin-house
teams, our personnel dedicated to research and development (approximately 280 employees currently) and our leading technological capabilities, we are able to manage the entire production process throughout the various stages, eitherin-house
or through our network of trusted, long standing external manufacturers. The excellence of our output is the reason why we not only serve the needs of our proprietary brands Zegnainnovative CRM tools for ZEGNA and Thom Browne,
but alsoable to connect with clients across multiple touchpoints, offering an expanded range of services, allowing to reach a
numberwider, younger, and increasingly diverse audience while reinforcing the identity, history and values of
top luxury players, which rely on usthe brands. Our DTC network is essential to
supply top quality products.
Globalimplement successfully all CRM tools while embracing a unique clients’ journey. The Group and Pioneer in Greater China Region
. We are a world leading luxury leisurewear and formalwear brand withhas developed a strong,
well balanced, international
footprint. In 2021, we recorded 53.9%network of
our390 Directly Operated Stores (DOS) in approximately 30 countries around the world, accounting for 66% of consolidated
revenues in APAC, 29.4% in EMEA, 14.8% in North America and 1.5% in Latin America. A key to our success has been our presence andrevenues. The Group’s strengthening of the
force of our brand in the Greater China Region, where we have operated directly since the 1990s. The Greater China market, particularly for luxury consumer goods, has grown at an extraordinary pace in the last two decades. We expect this trendDTC channels will continue to remain
dynamic and believe that our longstanding experiencea significant pillar of its future growth strategy for all its brands, ZEGNA being the most advanced in this
region makes us optimally positioned to operate there thanks to our knowledge of the relevant market, market penetration and awareness of our brands by consumers in the Greater China Region.journey.A Platform For GrowthPotential Aggregator in the Luxury Space.Goods Market.
We haveWhile our brands maintain their own identity and unique design flair, the Group has the skills and
the experience to act as a long-term industrial
partner. Ourpartner and as an aggregator of leading luxury brands. The Group’s in-house
laboratory platform
full verticalization ofand manufacturing know-how, its capable management team led by the
supply chain, primaryZegna family, the extensive knowledge of the
Greater Chinaglobal luxury market
and leading technological capabilities, coupled with scalability and industrialin term of, among the others, real estate development and retail expertise, allow
usthe Group to add value to the businesses
we partnerit partners with. A prominent example of this is the performance of Thom Browne following our acquisition in 2018, with revenues growing from €117 million in 2018 to
€264€380 million before eliminations in
2021. Experienced Management Team Combining Family and Outside Talent.
Our management team combines both representatives2023. Similarly, the addition of the
Zegna family such as our Chairperson and Chief Executive Officer Ermenegildo “Gildo” Zegna, and outside talent such as Mr. Alessandro Sartori, who is in charge of Zegna’s creative process, and Mr. Thom Browne,TOM FORD FASHION business represents a further opportunity to leverage the
Founder and Chief Creative Officer of Thom Browne. Our managers have long-standing experience in the luxury fashion market and a deep understanding of market dynamics and evolution.Group’s platform.We intendErmenegildo Zegna Group intends to maintainreinforce and extend ourits leading position in the luxury fashion market by continuing to develop its three brands in their unique and to continue to protect and enhance the value and exclusivity of our brands. We also aim to achieve profitable growth by pursuing the following strategies.
. In recent years, our apparel offer has shifted towards more versatile and technical luxury leisurewear for men in order to meet the needshighly complementary reference markets, while strengthening its one of a
fast-paced world. The evolution from pure formalwear is our new definition of men’s style that we call “luxury leisurewear,”kind Made in Italy textile and manufacturing platform, while always seeking to respect the planet and foster its community. In particular, the Group intends to:
a.Continue nourishing ZEGNA as a new, versatile wardrobe that combines performance and comfort without compromising quality to become a fundamental part of our design philosophy moving forward. Sales of outerwear, knitwear and jersey have been increasing significantlyreference brand in recent years.the absolute luxury menswear business;
We intend to continue to consolidateb.Support the shift toward luxury leisurewear and this new style approachThom Browne international expansion, with a focus on categoriesDTC, womenswear and leather goods accessories, while protecting the brand’s DNA and unique identity;
c.Work on aligning the business of products meetingTOM FORD FASHION to the changing habitsbrand’s world-wide knowledge and preferences of our customers and their demand for greater comfort and a modern aesthetic. We believe that this trend will also allow us to expand our reach to a broader, younger client base.
Create New Iconic Products and Attract New Customers.
We intend to continue to launch new products, in particular focusing on iconic products that can be visually and easily recognized and offer superior growth, asallure in the
caseluxury sector;d.Continue to pursue a sustainable development of our Triple Stitch shoes, while continuing to preserve the exceptionalGroup’s business, leveraging on its superior Made in Italy integrated know-how. Respect for the planet, community and diversity support and traceability are some of the most important pillars for the Group’s future growth. In addition, the Group aims at investing in its directly controlled Made in Italy luxury textiles and manufacturing platform, which represents a strategic competitive advantage fueling quality, we are known for. We believe that there are significant opportunities to capitalize on our brands’ recognitionspeed, and existing customer base by enhancing our current product assortment and introducing new product categories. Additionally, we plan to identify new product categories (e.g. overshirts and5-pocket
pants) that will allow us to attract new customers and increase the appeal of our brands to a younger and more diverse customer base.innovation capacity. ZEGNA brand Strategy
One Brand.
In the fourth quarter of 2021, we announced a rebranding strategy, whereby, starting withWith the Fall/Winter 2022 season, our Ermenegildo Zegna, Z Zegna, and Ermenegildo Zegna XXX brands will behave been consolidated into a single brand, ZEGNA, characterized by a new logo and a distinctive signifier. The new brand, logo, and signifier are designed to be iconic and immediately recognizable, allowing us to focus our collection and enhance our new luxury leisurewear proposition, whichrecognizable. This strategy is proving to be successful both with our new and existing customers. The One Brand strategy, together with the evolution of the collections, as described below, has enabled the brand to enrich its sales mix towards the higher end of the luxury goods pyramid and has offered additional opportunities for a successful brand amplification allowing ZEGNA to expand its reach to a broader and younger client base.
Collections evolution. In recent years, in response to the needs of a fast-paced world, ZEGNA’s collections have evolved from primarily pure formalwear to a new definition of the men’s style that we call “luxury leisurewear”: a new, understated, versatile wardrobe in which the utmost ZEGNA quality is combined with performance and comfort, designed to meet the changing preferences of customers and our existing loyal customers.their demand for greater comfort, modern aesthetic, excellent quality and product and style durability. In the meantime, management has also pursued the creation of iconic timeless products, such as
in the shoes segment with the Triple Stitch family. We believe that there are significant opportunities to capitalize on the brand recognition iconizing our products.
Along with this evolution, management intends to continue to protect and further elevate the leadership of ZEGNA in the formalwear to capitalize on formalwear’s broadening occasions of use, from office to social life, through an increasing elevation of products and customer services including the offering of unique Made to Measure and bespoke services.
As a complement to this, the brand is also pursuing a strategy of selected partnerships for co-branding projects which should allow ZEGNA to amplify its strength and to enter new product categories. Examples of this include the multiyear agreement with Real Madrid for their travel wear, and the collaborations with The Elder Statesman for cashmere knitwear and Norda Run for performance footwear.
The vertical integration of the Group’s supply chain represents a unique enabler for the evolution of ZEGNA collections.
Client-centricity and experience. Management intends to continue to develop a uniquely recognizable ZEGNA retail experience, fully designed around the customer and his/her needs. This places significant emphasis on developing personal relationships with, and dedicated attention to, our customers, through a mix of CRM tools and personal connection aiming at retaining our clients while boosting their spending with the final goal of sustain ZEGNA brand relevance and increase the productivity of its stores. Furthermore, through a deeper knowledge of our customers we are able to develop a more sophisticated merchandising approach and a more dynamic management of our DOSs to support the improvement of our retail KPIs.
Thom Browne Growthbrand Strategy
A distinctive and innovative brand. Thom Browne’s brand is distinctive, innovative and broadly recognized amongst youngera wide range of customers and is perceived as an insurgent brand. We intendThe brand has a loyal and authentic customer base, proud to be part of the Thom Browne community.
Growth Strategy. The Group intends to continue leveraging on the positive momentum around thebrand’s unique proposition strengthening its brand equity in menswear and, its customer proposition, and to remain at the forefront of product innovation. In particular, we intend to grow the Thom Browne business by pursuing the following strategies:
continue the successful development of Thom Browne products, focusing on growth of Thom Browne’seven more, in womenswear and accessories;
significantly expand Thom Browne’s customer base while maintaining the loyalty of its existing customers by taking actions to increase the brand awareness andleather goods, continuing to maintain a creative, thought-provoking design style with strong tailoring aesthetics;
aesthetics and an innovative communication approach.The brand has four main growth levers:
•Protect its unique and distinctive style while enhancing brand awareness in some key regions; •Boost expansion in unpenetrated categories, in particular in womenswear and shoes and leather goods;
Table of Contents•Fuel a selected and balanced DTC expansion, through new openings and a tailored in-store and digital experience;continue to grow Thom Browne’s direct distribution channels, both through physical locations ande-commerce
platforms; andmaintain•Maintain a limited-volumehighly selective presence in the wholesale distribution channel with the aim of developing long-term valuable partnership with tier 1 wholesalers.
TOM FORD FASHION Strategy
Alluringly modern aesthetic Brand. TOM FORD is an iconic brand, perceived as an influential voice in global luxury industry. The TOM FORD FASHION collections enjoy a platformglamour luxury positioning characterized by absolute product excellence and impeccable fit.
Growth Opportunities. The Group ambition is to increasecreate a global luxury lifestyle house that blends innovation with artisan craftsmanship, with the brand’s visibility and awareness.
aim of aligning the business to its extraordinary global recognition. The Group intends to grow the TOM FORD FASHION business by pursuing the following strategies:•Leverage geographic expansion by increasing penetration into new, currently underexplored, markets;
•Enhance retail experience with investments towards directly operated stores to continue to use digital toolsdrive top-line growth and rebalance the channel mix while introducing CRM management tools;
•Amplify marketing and communication to strengthen our processesthe brand identity and brands, attract new customers and retain our existing customer base. In particular for the Zegna brand, we expect that the focus on luxury leisurewear, iconic products and our rebranding strategy will continue to enhance our digital penetration. The Zegna segment’s DTC channel already includes, amongst others, ane-commerce
shop operated directly in several countries through our website www.zegna.com, and othere-commerce
platforms through which we sell directly to our customers (suchstorytelling as TMall Luxury Pavilion, Farfetch and WeChat) and whose sales systems are integrated with Zegna’s sales and warehouse management systems. Other prestigious online multibrand stores in our wholesale channel include SSENSE, Mr. Porter and JD. In addition, the Thom Browne segment’s DTC channel includes ane-commerce
shop operated directly through the website www.thombrowne.com, and Thom Browne is particularly capable of leveraging its customers’ brand awareness and presence in the main digital channels to drive traffic to its physical stores, thereby translating into reality and expanding the omni-channel concept. Moreover, we are enhancing our digital capabilities to offer effective online customer services and direct messaging, to support data driven marketing activities, to intercept consumer needs and develop products meeting customer preferences, improve customer experience, conduct commercial outreach, develop media and social media communication campaigns and offer digital showrooms for both our wholesale customers and retail buyers. We believe that reinforcing our digital tools has permitted, and will continue to permit us to reach a wider, younger, and more diverse audience and transmit our identity, history and values.
Luxury today is service and the personalization of interactions. Our goal is to seamlessly integrate the customer experience into multiple touchpoints. We think of digital more broadly than a sale channel: we also use digital to engage clients and serve them through their preferred channel.
This section describes the trends and dynamicsone of the marketmost important fashion houses;
•Diversify product merchandising by rebalancing the gender mix with the goal of further increasing the contribution of womenswear collections, in which we operate.
particular through enhancement of accessories and shoes;We operate in•Optimize the personal luxury goods market with most of our revenues derived from the apparel and accessories markets. 8%, 9% and 8% of our revenues after eliminations for the years ended December 31, 2021, 2020 and 2019, respectively, were derived from the luxury textiles market, which is not described in this section.
The personal luxury goods market includes the following product segments: accessories, jewelry, beauty, apparel and watches. By product, we primarily operate in the apparel and accessories segments of the personal luxury goods market.
The information relating to the industry contained in this section has been basedsupply chain by leveraging on the
Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2021, dated November 11, 2021 (the “”). The figures included for the year 2021 are estimates (as actual figures for such year were not available as of the date of publication of the Study). See “MarketGroup’s platform and Industry Information
”. The Study describes an industry which is not highly concentrated, and which at the time of publication of the Study was poised for sustained growth in the years from 2021 to 2025 with some identified key drivers. However, the ongoing geopolitical tensions and their repercussions on the global economy and the financial markets, together with the persistence ofCOVID-19
and the related restrictive measures, may create uncertainties for the global luxury goods consumers and reduce their interest for, and financial ability to buy, luxury products. This could negatively affect the reliability of the estimates contained in this section, including by reducing the level of luxury demand development or the growth rate, and actual results may be differ significantly from such estimates. See also “”best practices.Trends and structure of the global personal luxury goods marketErmenegildo Zegna Group Business Model
Demand in the personal luxury goods market, especially in the absolute luxury segment (in which we operate), tends to have a rather low price sensitivity. Demand is driven more by the quality of the products and the extent to which the brand is recognizable and exclusive. The equity of the brand and its intrinsic value are a key factor and usually the products designed, distributed and branded by a luxury company are very distinctive, clearly relatable to their brand and unlikely to be confused with products designed and distributed by lower tier brands or companies.
The global personal luxury goods market had a total estimated value for the year 2021 of approximately €283 billion and has grown steadily for about two decades with a CAGR of 6% from 1996 to 2019. In 2020, the luxury goods market experienced a decline in demand as a result of theCOVID-19
pandemic and changing customer preferences and habits, which has led customers to postpone or reduce the purchase of personal luxury goods. In 2021, the personal luxury goods market experienced aV-shaped
rebound driven, among other things, by consumers shifting from experiences to products.
The chart below sets forth the evolution of sales in the global personal luxury goods market from 1996 to 2020 and the expected evolution for the years from 2021 to 2025. With the exception of 2020, the global personal luxury goods market has shown a continuousmid-single
digit growth path and is expected to have a CAGR of6-8%
from 2021 through 2025.Personal Luxury Goods Market Evolution – €bn
Source: Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2021, dated November 11, 2021
Since the first quarter of 2021, the global personal luxury goods market started to experience a recovery driven primarily by the positive evolution of the pandemic and theroll-out
ofCOVID-19
vaccines and immunization campaigns, which allowed governments to ease restrictions, leading to a partial resumption of shopping and traveling, partial return topre-pandemic
living styles, levels of consumer confidence and rebounding consumption trends especially in Greater China.The trends experienced in 2021 are expected to continue to be the main drivers of growth in the coming years.
Certain trends that started before the spread of theCOVID-19
pandemic and that are expected to continue over the next few years, representing the drivers of the personal luxury goods market, are: (i) the shift from formal apparel to casual luxury, also driven by the adoption of remote or hybrid working arrangements, (ii) increase in domestic purchases everywhere, and notably in Asia (as opposed to tourism-related purchases), (iii) increasing attention to sustainability, diversity and ethical considerations, (iv) increased focus on “hero products,” the iconic best-selling products of a brand, (v) increasing weight of online purchases, as a result of which players in the personal luxury goods market will have to continue the shift to an omnichannel concept, with an increasing integration of the digital and physical shopping experiences, and (vi) strong demographic shift with an increase of “under 40” customers.The chart below sets forth the projected evolution of sales in the personal luxury goods market per quarter in 2020 and 2021 as compared to the corresponding periods in 2019. Beginning from the third quarter of 2020, the personal luxury goods market shows signs of improvement compared to the prior quarters of the same year, and sales for 2021 are expected to be slightly above those of 2019 at current exchange rates (+1%), or showing a 4% increase at constant exchange rates.
Personal luxury goods market evolution per quarter 2020 and 2021E – %| vs. 2019
Note: @K: growth at constant rates
Source: Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2021, dated November 11, 2021
The personal luxury goods market does not appear to be a highly concentrated market. It is characterized by the presence of a small number of global players and a large number of locally-based niche ones. Development strategies adopted by such players have focused on the offer of a wide range of products distinguished by a high degree of innovation and diversification, frequently aiming at offering a “total look” collection.
The personal luxury goods market is characterized by certain barriers to entry, such as: (i) the need to develop or acquire a recognized brand whose reputation must be sustained by high and continuing investments in advertising and communication; (ii) the need to make substantial investments in the development of a distribution network in line with the quality standards required by the industry; (iii) the difficulty to access existing distribution channels, which are closely controlled by the incumbent players; and (iv) the challenge of achieving and maintaining high product quality standards.
Global market trends by geographic area
The chart below sets forth the value of sales in the global personal luxury goods market for 2019 and estimates for the years 2021 and 2025 split by geographic area.
Personal Luxury Goods Market by Geographic Area – €bn
Source: Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2021, dated November 11, 2021. Percentages may not add to 100% because of rounding.
Market trends through 2025 are expected to show a significant increase in the relative weight of sales of personal luxury goods in China and a significant decrease in the relative weight of sales of personal luxury goods in Europe and the Americas.
Global market trends by product category
Menswear and Accessories Luxury Market
In recent years, growth in the global menswear and accessory luxury market has been primarily driven by the accessories product category. Demand for the menswear product category has been relatively stable in recent years, with a decline of formalwear offset by growing demand for casual luxury products.
Womenswear and Accessories Luxury Market
We are also exposed to the womenswear and accessories luxury market through the Thom Browne segment. Both womenswear and accessories are on a growing trajectory, with accessories enjoying a more pronounced growth than apparel.
Global market trends by product style
In recent years, the menswear luxury market recorded growing demand for products characterized by a casual style, particularly for products such as outerwear, jersey and knitwear. The trend of casualization has been accelerated by theCOVID-19
pandemic and the resulting adoption of remote working arrangements and changes in lifestyle.Brands, Collections and Products
Ermenegildo Zegna Group designs, produces, markets and distributes luxury menswear, footwear, leather goods and other accessories under the Zegna andZEGNA, Thom Browne and TOM FORD FASHION brands, luxury womenswear under the Thom Browne and TOM FORD FASHION brands and luxury womenswear and childrenchildren’s clothing under the Thom Browne brand. ZegnaThe three brands also markets eyewear, cufflinks and jewelry, watches, underwear and beachwear manufactured by licensed third parties. Zegna’s businesshave selected third-party license agreements for specific product categories. The Group covers the entire value chain thanks to its textile and knitwear design, manufacturing and distribution business (under the brands Lanificio Ermenegildo Zegna, Dondi, Bonotto, Tessitura di Novara, Tessitura Ubertino, andas well as the minority-owned Filati Biagioli Modesto)Modesto and Luigi Fedeli e Figlio). The acquisition of historic Italian companies, each specialized in its own product sector, has enabled Zegnathe Group over the years to establish a true luxury textile laboratory producing the highest quality fabrics and safeguarding the uniqueness of its Italian supply chain.
ZegnaThe Group carries out its business activities through three reportable segments: the Zegna segment, the Thom Browne segment and the Tom Ford Fashion segment. Prior to the TFI Acquisition, the Ermenegildo Zegna Group was organized in two reportable segments: the Zegna segment and the Thom Browne segment.
The Zegna segment consists of three product lines:
the Zegna Branded ProductsZEGNA branded products product line;
line, the Textile product line; and
the Third Party Brands product line (formerly known as the Strategic Alliances product line).line.
The Thom Browne segment corresponds to the Thom Browne business headed by Zegna’sthe Company’s majority-owned subsidiary Thom Browne Inc.
The Tom Ford Fashion segment corresponds to the fashion business of the TOM FORD FASHION brand, which became part of the Group following the TFI Acquisition, representing a new operating and reporting segment of the Group. The Tom Ford Fashion segment includes all activities related to TOM FORD FASHION, from collection creation and development to merchandising, through to production, as well as retail and wholesale distribution.
Zegna Branded ProductsZEGNA branded products Product Line
For the years ended December 31, 2023, 2022 and 2021, 2020 and 2019, the Zegna Branded ProductsZEGNA branded products product line generated revenues equal to €847,311€1,109,491 thousand, €636,478€923,942 thousand, and €919,545€847,311 thousand, respectively, representing 65.6%58.3%, 62.7%61.9% and 69.6%65.6% of our revenues after eliminations. The Zegna Branded ProductsZEGNA branded products product line includes luxury leisurewear, formalwear, leather accessories and other ZegnaZEGNA branded products.
The Zegna Branded ProductsZEGNA branded products product line offers a complete collection for men.
Over time, ourmen under the ZEGNA brand, evolvedcharacterized by a new logo and adapted tosignifier, which was introduced in July 2022 and replaced the needs of the customers, developing different sensibilities, embodied by three brands:
Ermenegildo Zegna, the iconic, legendary heart of the brand;
Z Zegna, combining activewear and tailoring with a strong focus on technical innovation and performance fabrics; and
Ermenegildo Zegna XXX, the boldest expression of Zegna, which reimagines contemporary style with couture-level tailoring and fabrics.
In the fourth quarter of 2021, Zegna announced a rebranding strategy whereby, starting with the Fall/Winter 2022 season, thepreviously existing Ermenegildo Zegna, Z Zegna, and Ermenegildo Zegna XXX brands will be replaced bybrands. This evolution has further strengthened the single brand Zegna, characterized by a new logo and signifier.
ZEGNA presence in the men absolute luxury segment.Each year ZegnaZEGNA offers
pre-collections
and main collections organized in two seasons (Fall/Winter and Spring/Summer)
for each of the above-mentioned brands, plus
a number of temporaryseveral capsule collections.
TheIn 2024, the brand moved from a traditional approach with seasonal deliveries in store to the offer of monthly drops with a 360 degree activation among all touch points, from communication, windows, and clienteling
actions. ZEGNA collections include both seasonal products (which change from season to season) and continuative products (which(called “Essentials”) which are generally sold across seasons with minimal style changes),cross-season models and capsule collections. Essentials collections increasingly include iconic products. Capsule collectionsproducts, which are temporary collections that are inspired by a certain event (such as the 2021 Chinese New Year capsule collection), concept, or product features (such as the Outdoor Capsule, the first product launch carrying the new logohighly distinctive and signifier and featuring partnerships with top ski and winter sport specialists, and the Techmerino Wash&Go Capsule collection, consisting of garments made of a special merino wool that can be easily washed in cold water, on a delicate setting, without altering the wearability, performance or quality standards).recognizable.
Luxury leisurewear
.Leisurewear. In recent years Zegna’sZEGNA’s apparel has shifted towards more versatile and technical luxury leisurewear for men, anticipating the needs of a fast-paced world. The evolution from pure formalwear is Zegna’sZEGNA’s new definition of men’s style that we call “luxury leisurewear,” a new, versatile wardrobe building on our tradition of excellence. With this new style, ZegnaZEGNA is continuing the process of entering a new era marked by new categories of products meeting the changing habits and preferences of our customers, including the demand for greater comfort. Our luxury leisurewear offeroffering ranges from knits to jeans, jersey and shirts, fabric and leather outerwear and accessories.
Formalwear
. ZegnaFormalwear. ZEGNA is historically renowned for luxury formal menswear and for being at the forefront of men’s tailoring with its iconic suits and tuxedos. Our formalwear offeroffering ranges from formal suits to tuxedos, shirts, blazers, formal overcoats and accessories.Made to Measure.Our offer for both luxury leisurewear and formalwear also includes the Made to Measure () service, whereby customers may, following a meeting with a style advisor, order their custom-made garments with their fabric, style and finish of choice. This service is available not only for suits, but also for outerwear, shirts, pants, knitwear, denim and jersey. Our Bespokebespoke services take customization to a higher level including the full experience of putting together a unique piece, from the sketches and design to the choice of the fabrics. Each piece is made specifically for the customer by our tailors in our ateliers in Milan and in Paris, using time-honored tailoring techniques. Leather accessories
.Accessories. Leather accessories comprise shoes (sneakers and other shoes), bags, belts and small leather accessories. Our shoesshoes’ offer has in recent years shifted from a prevalence of more formal shoes towards the increasing importance of certain highly recognizable casual sneaker models. In particular these includemodels such as the successful Triple Stitch model, the Tiziano and the Claudio sneakers.Stitch. Most of our shoes are produced in Italy, like most other leather accessories. We also provide our customers with the possibility to customize their preferred shoes through our Made to Order service. Several of the leather accessories feature the so called “Pelletessuta,” a soft and lightweight woven leather textile exclusively produced for ZegnaZEGNA by an external manufacturer. Pelletessuta is also used as part of a partnership with Maserati for the interiors of its cars.Other ZegnaZEGNA branded products
. ZegnaZEGNA licenses its brand to third parties for the manufacturing and distribution of eyewear, cufflinks and jewelry, beachwear, underwear and fragrances. We purchase these products from our licensees and the licensees pay fees and royalties to us under such licenses. All licensed products are generally sold by us through our DTC channel and by our licensing partners to wholesale customers and to other prestigious retailers. The table below shows the product categories for which we license the ZEGNA brand as of the date of this report.
| | | | | | | | |
Product category | Licensee | Start Date |
Eyewear | Marcolin Group | Since 2013 |
Cufflinks/Jewelry | Tateossian | Since 1999 |
Underwear and Beachwear | Isaseta | Since 2016 for Underwear Since 2017 for Beachwear |
Fragrances | Give Back Beauty | Since July 26, 2023(1) |
_________________________
. The Marcolin Group has been our exclusive eyewear licensee since 2013 for(1)In 2023, ZEGNA signed the production and worldwide distribution of sunglasses and optical eyewear. The high quality and stylistic standards of Marcolin are combined with the exclusivity and international appeal of our brand, renowned for their “Made in Italy” excellence.. Tateossian has been our exclusive cufflinks and male jewelry licensee since 1999. Our cufflinks and jewelrylicense agreement while products are
complementaryexpected to
our garments and other accessories. Our jewelry products include bracelets, necklaces and rings.launch in 2025.Isaseta has been our exclusive licensee for underwear and beachwear since 2016 and 2017, respectively. Our underwear offer consists oft-shirts,
boxers, trunks and socks. Our beachwear offer consists of swim boxers, beach towels and vacation essentials like polos and shorts, manufactured with lightweight and technically enhanced materials.. Estée Lauder has been our global exclusive fragrances licensee since 2011. Our signature fragrances, made with exotic oils and herbs coupled with the refined finish of rare ingredients, include a range of signature scents.All the agreements governing licensed products provide for obligations for our licensees to comply with high quality standards, to ensure that our licensed products are available at selected prestigious points of sale and that they are timely delivered to the distribution network. The agreements have a fixed term and do not contain an automatic renewal mechanism. See “Item 3.D—Risk Factors—Risk factors relating to Zegna’sthe Group’s business, strategy and operations—We could be adversely affected if we are unable to negotiate, maintain or renew our license or co-branding agreements with high end third party brands.
” In addition to licensed products, we also market certain other Zegna branded products specifically targeted to outlet points of sale.
As part of the activities of the
Zegna Branded ProductsZEGNA branded products product line,
ZegnaZEGNA has also entered into strategic partnerships for
co-branding
projects in order to strengthen the link with other luxury brands and mutually enhance the respective brands’ value. The
co-branding
agreements set forth the terms for the production of certain selected
co-branded
products and the relevant
co-marketing
activities.
Co-branded
products are sold through our DTC channel or through the monobrand stores and distribution networks of our
co-branding
partners.
We started a long-term and evolving partnership with Maserati in 2013, combining our innovative technologies andcentury-old
traditions to bring both the experience of luxury cars and clothing to a new level of luxury. The collaboration features customized interiors for a special edition of Maserati’s sports cars and a seasonal capsule collection of luxury essentials for the modern man. Zegna and Maserati are currently discussing the extension of their relationship to lines of products with enhanced sustainability features.
.We started an exclusive collaboration with Leica Camera to bring together two different expressions of innovation and creativity. The partnership with Leica Camera started with the Ermenegildo Zegna XXX Fall/Winter 2020 Fashion Show and involves the production of certain leather camera accessories distributed both through our DTC channel and Leica’s monobrand stores.. Launched in Paris in early March 2020, Fear of God exclusively for Ermenegildo Zegna was an innovative capsule collection born from two apparently distant worlds, consisting of a contemporary wardrobe for young men whose lifestyle is an expression of elegance and freedom. The capsule collection proved a successful project, with approximately 88% of revenues generated from sales to new customers. We believe that this new model of collaboration has the potential to attract new customers and increase the appeal of our brands to a younger and more diverse customer base.For the years ended December 31, 2021, 20202023, 2022 and 2019,2021, the Textile product line generated revenues after eliminations equal to €102,244€150,986 thousand, €87,615€136,769 thousand and €108,513€102,244 thousand, respectively, representing 7.9%, 8.6%9.2% and 8.2%7.9% of our revenues after eliminations. The Textile product line is engaged in the design, manufacturing and sale of luxury fabrics under the brands Lanificio Ermenegildo Zegna, Dondi, Bonotto, Tessitura di Novara, and the recently acquired Tessitura Ubertino and Filati Biagioli Modesto, the latter specialized in the production of cashmere yarns. These fabrics are both used for production within Zegna and sold to other global luxury brands and tailors.Ubertino. We believe that the exceptional quality of the textiles used in our garments is one of the principal reasons for the success of Zegnathe Group through the years. The Group also holds a minority interest in Filati Biagioli Modesto (40%) and recently acquired a 15% interest in Luigi Fedeli e Figlio S.r.l., the world-renowned maker of fine Italian knitwear and yarns.
The activities of the Textile product line are focused on the research and development of excellence in all of our fabrics, in terms of product quality, style, design, and technical features.
Some of the fabrics are developed exclusively for the ZEGNA brand, including those recently introduced with the Oasi Cashmere and Oasi Lino collections. We otherwise sell our fabrics both to other product lines of the Zegna segment or to the Thom Browne segment,and Tom Ford Fashion segments, and to third party customers, which include other luxury brands, specialized players or tailoring businesses. We regularly take part in textile fairs and exhibitions to market the products of our Textile product line to the industry’s specialized players. In addition, we have a global network of sales representatives that assist us with the marketing of such products to tailors worldwide.
Lanificio Ermenegildo Zegna, the Zegna wool mill founded in 1910 in Trivero, Italy, has been the backbone of Zegna’sthe Company’s success and is renowned internationally for its fine textiles. Three generations of the Zegna family have led textile success by carefully balancing science with nature and craftsmanship with technology. As a result, Lanificio Ermenegildo Zegna has pioneered sophisticated men’s fabrics that are lighter, smoother, more refined, and with improved performance and functionality.
Tessitura di Novara (which we acquired in 2009) is specialized in high quality silk weaving. It is a leading producer of pure silk and otherhigh-end
natural fabrics of unparalleled quality, combining artisan skills and innovative technologies. Tessitura di Novara’s production facilities are located in Trivero, Italy.Bonotto (in which we acquired a 60% interest in 2016) is a textile manufacturer based in Molvena, Italy, that was originally founded in 1912. The brand focuses on handcraftsmanship and traditional techniques and is characterized by the creative and experimental dimensions of theirits fabrics, which take inspiration from the art world. Bonotto is premised on the philosophy of the “slow factory,” which rejects the concepts of industrial standardization and mass production at low cost, in favor of traditional but innovative production techniques allowing to obtainthat create exquisite, precious fabrics.
Dondi (in which we acquired a 65% interest in 2019) is a leader in manufacturing high-quality jersey fabrics for men and women, all Made in Italy. Dondi’s production cycle covers the phases from fabric design to distribution. Dondi counts among its customers not only Zegna’sthe Group’s companies, but also some of the most prestigious brands in the fashion world. Dondi’s production facilities are based in Carpi, Italy.
Tessitura Ubertino (in which we acquired a 60% interest in June 2021) is a boutique weaving mill based in Pratrivero, Italy. Founded in 1981 by Adalgiso Ubertino, Tessitura Ubertino has been creating premium quality fabrics for women, such as tweed and jacquard, for over 30 years and today it supplies fabrics to major fashion brands.
Filati Biagioli Modesto (in which we acquired a 40% interest in July 2021) specializes in the manufacture of carded yarns, integrating the entire process of transformation from fiber to yarn. Founded in the 1960s by Mr. Modesto Biagioli, it carefully selects raw materials (such as cashmere, silk, camel, angora, alpaca, flax and merino wool) that are used for the production of its natural yarns, transformed entirely in Italy and then sold to luxury and fashion brands. In our Consolidated Financial Statements, Filati Biagioli Modesto is accounted for using the equity method, as through our 40% stake we do not exercise control over it.
Third Party Brands Product Line
For the years ended December 31, 2021, 20202023, 2022 and 2019,2021, the Third Party Brands product line (formerly known as the Strategic Alliances product line and renamed in the first quarter of 2022) generated revenues after eliminations equal to €74,957€25,343 thousand, €82,273€97,792 thousand and €91,720€74,957 thousand, respectively, representing 5.8%1.3%, 8.1%6.6% and 6.9%5.8% of our revenues after eliminations. The Third Party Brands product line is engaged in the manufacturing and distribution of menswear under the Tom Ford brand, and the supply of apparel for men to Dunhill and Gucci,Gucci. Until the closing of the TFI Acquisition, the Third Party Brands product line was also involved in each case pursuant to agreements with such third party brands.
the manufacturing (and until the Fall Winter 2022 collection also distribution) of menswear under the TOM FORD brand.Tom Ford
.TOM FORD. We
have acted as an exclusive licensee for the manufacturing and distribution of menswear under the
Tom FordTOM FORD brand
since 2004. Underfrom 2004 until the
relevant license agreement,Fall/Winter 2022 collection. In connection with the
royalty rates we are required to pay, which also include contributions for advertising, are based on net salesclosing of the
licensedTFI Acquisition, the Ermenegildo Zegna Group has become a long-term licensee of The Estée Lauder Companies for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products, by
Tom Ford,virtue of a long-term licensing and collaboration agreement with ELC for 20 years subject to renewal at TFI’s option for one further 10 year period subject to certain minimum
levels. The existing license agreement with Tom Ford will expire withperformance conditions. As a result, as of April 29, 2023 we no longer report TOM FORD in Third Party Brands, but the
completion of the production and distribution activities for the Fall/Winter 2022 collection. Starting with the Spring/Summer 2023 collection, we will actTOM FORD FASHION business is reported as
an exclusive supplier only for certain Tom Ford’s products until at least the Fall/Winter 2025 collection.a separate segment.
Dunhill
. We have acted as a manufacturer and supplier of suits, jackets, blazers and formal overcoats under the Dunhill brand since 1998. Under the relevant agreement, we are required to comply with the designs and specifications supplied by Alfred Dunhill Ltd., as well as certain other restrictions relating to intellectual property and confidentiality. The agreement with Alfred Dunhill Ltd. does not provide for an express expiration date.Gucci
. We have acted as a manufacturer and supplier of jackets and formal overcoats, slacks and knitwear (bothand made to measure) under the Gucci brand since 1990. Under the relevant agreement, which was recently renewed, we are required to comply with the designs and specifications supplied by Gucci, as well as certain other restrictions relating to intellectual property, sustainability and confidentiality. Gucci has agreed, on a best effortbest-effort basis, to place a minimum number of orders for each season for jackets and formal overcoats and granted us an exclusivity for made to measuremade-to-measure products. The agreement with Gucci is set to expire upon completion of the Spring/Summer 2028 collection, unless a renewal is agreed upon between the parties.Until the deconsolidation of the Agnona business in January 2021, we were also active in the luxury womenswear business through the Agnona product line of the Zegna segment. For the years ended December 31, 2021, 2020 and 2019, the Agnona product line generated revenues after eliminations equal to €1,191 thousand, €12,389 thousand and €17,691 thousand, respectively, representing 0.1%, 1.2% and 1.3% of our revenues.
Thom Browne Segmentsegment
For the years ended December 31, 2021, 20202023, 2022 and 2019,2021, the Thom Browne segment generated revenues after eliminations equal to €263,397€378,410 thousand, €179,490€330,014 thousand and €160,595€263,397 thousand, respectively, representing 20.4%19.9%, 17.7%22.1% and 12.2%20.4% and of our revenues, respectively, after eliminations.
Thom Browne is a renowned
fast-growing luxury brand
focused onhigh-end
menswear, womenswear, accessories and childrenswear. The brand was founded by Mr. Thom Browne in 2001
and has since been based in New York. In 2018,
wethe Group completed the acquisition of 85% of Thom Browne Inc., the holding company of the Thom Browne business. In June 2021, we acquired an additional 5% equity interest in Thom Browne Inc.
Under a put option agreement between Ermenegildo Zegna Group and Mr. Thom Browne, Mr. Thom Browne has the right, but not the obligation, to sell to the Company up to 550.9674 shares of common stock of Thom Browne Inc. (representing the remaining 10% interest in the company held by Mr. Thom Browne) over the period between 2024 and 2030 (subject to potential deferral until 2032). The Thom Browne business’s growth since the initial acquisition has been remarkable, with revenues increasing from approximately €117 million in 2018 to
€264€378 million in
20212023 after
eliminations.eliminations, representing a CAGR of 26%.Each year Thom Browne offers
pre-collections
and main collections, organized into two seasons (Fall/Winter and Spring/Summer) for each of men, women and children.
Mr. Browne started designing clothes for friends and family in the early 2000s, and his popularity as a fashion designer has grown ever since. Thom Browne’s signature line of grey suits redefined the concept of the male silhouette, and his collections lean heavily on two main colors: grey and navy. The brand uses the highest quality materials to obtain garments that are beautiful, classic, and durable. Its distinctive traits are the absence of any form of a bold logo, the cropped silhouette of the garments, and the use of visual identifiers as trademarks, such as the four white horizontal bands (uniquely located on the left upper sleeve and/or upper pant leg) and/or a grosgrain ribbon or tab in White, Red, White, Blue, White (also uniquely positioned on the garments). Each Thom Browne piece is designed to be aesthetically perfect, classic and long-lasting, inspired by Mr. Browne’s philosophy that something beautifully made will never be out of fashion.
Tom Ford Fashion segment
For the year ended December 31, 2023, the Tom Ford Fashion segment generated revenues after eliminations equal to €235,531 thousand representing 12.4% of our revenues, after eliminations.
TableThe TOM FORD brand was founded in 2005 and partnerships were established with The Estée Lauder Companies Inc. and Marcolin to develop TOM FORD beauty and eyewear products. In 2008 and 2010 respectively, TOM FORD launched menswear, in collaboration with the Ermenegildo Zegna Group, and womenswear. In April 2023, Peter Hawkings was appointed as new Creative Director of ContentsTOM FORD. On April 28, 2023, the Estée Lauder Companies Inc. completed the acquisition of the TOM FORD brand, its trademarks, and other intellectual property rights. On the same day, the Ermenegildo Zegna Group completed the TFI Acquisition. TFI is consolidated in the Group’s results since April 29, 2023. The Group is now in charge of the end-to-end TOM FORD FASHION business, from collection creation and development to merchandising, through to production, as well as retail and wholesale distribution. In addition, by virtue of a long-term licensing and collaboration agreement with ELC (for a duration of 20 years, with an automatic renewal for one further 10-year period subject to certain minimum performance conditions), the Ermenegildo Zegna Group has become a long-term licensee of ELC for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products.
Our corporate operations are divided among our locations in Trivero and Milan, Italy; Stabio, Switzerland; and New York (where the Thom Browne management is based).
OurBuilding on the TOM FORD FASHION DNA of confidence, vision, and modern luxury glamour, refined elegance and mysterious allure, TOM FORD FASHION has all the cards to be positioned as a global luxury lifestyle house that blends innovation with artisan craftsmanship, delivering an alluringly modern aesthetic across diverse yet unified offerings that prioritize luxury, product excellence, and impeccable fit.
Ermenegildo Zegna Group Activities
The Group’s primary activities consist in
the creation, manufacturedesigning, manufacturing, and
marketing of ourpre-collections
distribute ready to wear, shoes and
main collections, organized into (i) two seasons (Fall/Winter and Spring/Summer) for each of the Zegna brands, plus certain special capsule collections, and (ii) seasonalleather goods collections for
the Thom Browne segment, divided for men, women and children. Each collection takes approximately 12 months from design to delivery of the finished products to our customers.its three brands. Our activitiesActivities can be subdivideddivided into the following major stages, each of which is overseen by differentdedicated functions, in our organization:operating independently at the brand level: (i) design; (ii) brand and merchandising;product development; (iii) sales campaign; (iv) procurement; (v) manufacturing; (vi) logistics and inventory management; andlogistics; (vii) marketing and advertising, as further described below.
advertising; and (viii) distribution. Procurement and manufacturing needs from each brand are partially met through the Textile product line and the Group’s manufacturing facilities.From the first sketch to in-the-store delivery, the preparation of each collection takes approximately 12 months.
The activities of the Textile product line and of the Third PartyThird-Party Brands product line follow their own operational phases and logics.
Design, BrandMerchandising and Merchandising
Product DevelopmentEach new collection isNew collections are created by the Design teamsteam of Zegna and Thom Browne, working in close coordination with their respective Brand and Merchandising team, allowing for a virtuous cross-contamination of ideas. The new collections are therefore created by the designerseach brand, considering the brandeach brand’s identity, market analyses and seasonal fashion trends.
When developing collections, the Design team works in close coordination with the Merchandising team to make sure that the offer is complete with a congruent price structure and in line with the needs and trends of the market.The
BrandDesign and Merchandising
team ofteams then work closely with the
Zegna brands is supported by a team of product developers
and modelers, who
also work in close cooperation with the modelers of the Supply Chain teams, for a total of approximately 100 people involved in this production stage. The modelers transform
the designers’ sketches
first into
paper or 3D models and
then into prototypes,
including through the use of 3D technology. This is a key phase because of our production process, as it allows the Design and Product teams to assess the look, feel and functionality of the
product,products and
allowing the Brand and Merchandising team to
fine-tune the prototypes and the Supply Chain technicians topossibly anticipate any issues that may arise during the manufacturing process. Once the prototypes are approved,
awe develop sample
collection is produced based on such prototypes. Modeling and prototyping are completed almost entirelyin-house
and the Design, Brand and Merchandising and Supply Chain teams closely cooperate and share information and suggestions with each other to ensure that theproducts, and most leather products and accessories of the Zegna brands, are manufactured on time and consistent with the delivery plans for our collections.
In these phases, Thom Browne’s Design team works closely with a number of trusted long standing external players, coordinated by an internal product development team.
TheOnce ready, the sample collections
for the Zegna Branded Products and for Thom Browne, once ready, are presented to wholesale customers and retail buyers at
Zegna’s andZEGNA’s, Thom Browne’s
and TOM FORD FASHION’s respective
showrooms in Milan and New York. The sample collections usually highlight styles and themes and occasions for use, and present a breakdown of products by product category, price range and look. In addition, our showrooms display the full Zegna and Thom Browne offerings across all product categories, simulating the effect ofdisplays. While this process has historically been carried out throughin-person
meetings, as a result of theCOVID-19
pandemic we adopted tools allowing our wholesale customers and retail buyers to view and submit online orders for the sample collections. Similar tools may continue to be used following the lifting of restrictions related to the pandemic as an enhancement of the traditional sales campaign experience.showrooms. During the sales campaign, retail buyers and wholesalers place orders by selecting products in accordance with our buying guidelines, in particular with respect to DOSs, in order to ensureon the consistencybasis of the products’ assortment in the various stores.
brand buying guidelines.
Sales campaigns last approximately two months. During the sales campaign, the Brand and Merchandising and the Supply Chain teams regularly share information on the evolution of the order portfolio to align the initial forecasts for raw material procurement and production planning.
Based on our forecasts and on the order portfolio, we sourceeach brand sources the necessary raw materials, trimmings and finished goods through ourits network of selected suppliers. While the initial purchases are based on forecasts, wethey adjust and supplement such purchases based on actual orders as the sales campaign progresses.
Sourcing activities are separately carried out for our two segments, in the Zegna segment for apparel and leather accessories, on the one hand, and for the Textile product line, on the other hand. Trimmings (such as fabrics, buttons, linings, interlinings and zips) are purchased from selected suppliers for both the Zegna and the Thom Browne segments.
Approximately 40% of the raw materials used by the Zegna segment (excluding the Textile product line), such as wool, cotton, leather, silk, linen and cashmere, are purchased through our Textile product line, while the remaining approximately 60% is sourced from other selected suppliers. Approximately 10% of the raw materials used by the Thom Browne segment, such as wool, cotton, leather, silk, linen and cashmere, are purchased through the Zegna segment’s Textile product line, while the remaining approximately 90% is sourced from other selected suppliers.
In 2021, the Zegna segment (excluding the Textile product line) sourced raw materials, trimmings and finished goods from approximately 603 suppliers, of which around 197 provided raw materials, around 234 provided trimmings and around 172 provided finished goods.
In 2021, the Thom Browne segment sourced its raw materials, trimmings and finished goods from approximately 275 suppliers, of which around 194 provided raw materials, around 40 provided trimmings and around 41 provided finished goods. Many of the suppliers have worked with Thom Browne for over 10 years and are considered among the best in the industry, also working with other major luxury brands, including Zegna. The Thom Browne segment and the Zegna segment work closely together to develop custom fabrics made of cotton, wool, and cashmere.
The table below shows Zegna’s total cost for raw materials and consumables, broken down by category for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | |
| | For the years ended December 31, | |
thousand, except percentages) | | | | | | | | | |
| | | (108,442 | ) | | | (108,130 | ) | | | (139,965 | ) |
| | | (161,731 | ) | | | (130,006 | ) | | | (141,512 | ) |
| | | (12,951 | ) | | | (10,909 | ) | | | (14,067 | ) |
Change in raw materials, consumables and finished goods | | | (24,822 | ) | | | 131 | | | | (9,991 | ) |
| | | (1,663 | ) | | | (1,655 | ) | | | (4,266 | ) |
| | | | | | | | | | | | |
Total cost of raw materials and consumables | | | | | | | | | | | | |
| | | | | | | | | | | | |
Based on the proposition that the very best garments can only come from the best natural resources, we havethe Group has dedicated ourits efforts through the years to the research of only the finest raw materials and fabrics. A crucial role in this context is played by the Textile product line, in particular for the Zegna Branded Products product line of the Zegna segment. In order to produce Zegna and Thom Browne branded apparel, we sourceline. For instance, each brand sources a portion of ourits requirements of fabrics from Lanificio, jersey from Dondi, and printed fabrics from Bonotto.
Bonotto and cashmere from Biagioli.Manufacturing and Logistics
While the sales campaign is still ongoing, we starteach brand starts planning for ourits own manufacturing activities. Production quantities are continuously refined based on the results of the sales campaign allowing us to be efficient. Manufacturing planning is based on several factors, including the type of products to be manufactured (e.g. whether they are seasonal, continuative or made to measure). The manufacturing phase consists of industrializing the samples based on the outcome of the product developers’ research, and recreating them in various sizes and colors for large production.
campaign. A distinctive feature of our manufacturing is
that “MadeMade in Italy” productionItaly represents approximately 70%the large majority of the overall production of all our brands’ products. A portion of such products and approximately 40% of our products areis manufactured directly ininternally at our facilities.
We carefully manage our production, operations and value chain, keeping productionknow-how
and industrial capabilities internally for certain product categories, while relying on a selected network of external long-standing suppliers in Italy and abroad for other product categories. Our sourcing team ZEGNA is
committed to carefully selecting all of our suppliers and managingcurrently the
supply relationships for their entire duration, ensuring the seamless operation of our supply chain. In determining whether to manufacture our products internally or through our network of manufacturers, we take into account a number of factors, such as the ready availability of the requiredknow-how,
product quality, lead time and service levels, compliancebrand with the
“made in” parameters, safety and overall cost efficiency.highest incidence of in-house production.
Excluding our Textile product line’s production facilities described under “—Brands, Collections and Products—Zegna Segment—Textile Product Line,
” our otherThe Group’s production facilities are located in
Mendrisio, Switzerland, for jackets, suits, shirts and the Made to Measure products; Verrone, Italy, for knitwear; San Pietro Mosezzo, Italy for formal
Zegna branded jackets
suits and
products of the Third Party Brands product line;suits; Parma, Italy, for outerwear and leather accessories;
Mendrisio, Switzerland, for jackets, suits, shirts; and Turkey, for shirts.
The manufacturing Each facility produces both ready to wear and Made to Measure products. For products or categories that are not manufactured internally, each brand relies on a selected network of several finished productsexternal long-standing suppliers, largely based in Italy. Each sourcing team is outsourcedcommitted to external manufacturers. We have established long-termcarefully selecting all suppliers and stablemanaging the relationships with mostsuppliers for their entire duration, aiming to ensure that quality and ESG standards are aligned to the Group’s requirements and that timing of them, who are mainly located in industrial districts in Italy, as well as in Turkey, Portugal, Romania, and, to a lesser extent, in Greater China and the United States. External manufacturers are carefully chosen based mainly on the quality of their work and their well-established relationship with Zegna. Costs, efficiency in planning and production, lead time and “made in” parameters are also key drivers in the selection process.
deliveries is adequately met.Contractual relationships with our external manufacturers are generally governed by supply agreements and, in some cases, by purchase orders based on our sourcing needs for each season. The supply agreements with some strategic external manufacturers generally have a term of several seasons. These generally include purchasing commitments on our part and strict quality specifications that our external manufacturers are required to meet.
Depending on the categories of products and other factors such as production lead time, production costs, quantity and ready availability of the relevantknow-how,
ourGroup’s outsourced products are manufactured using two different
approaches: approaches. The most common is the façon manufacturing or(or third-parties production); the second is the “full package” manufacturing.manufacturing process. When using the façon manufacturing model, we only outsourcethe brand outsources to our external manufacturers the confection stage (including(i.e. the Cut-Make-Trim phase including cutting, sewing, washing and pressing), while we remainremains responsible for providing the designs, product specifications and raw materials and coordinatingmaterials. Alternatively, in the “full package” approach, the brand outsources the entire production process throughout the various stages. Conversely, in the full package manufacturing model, we outsourceprocess.Once produced internally or through our partners, products are delivered to our external manufacturers the entire production process, including the procurementdistribution centers to be transferred to each brand’s monobrand stores and to their wholesale customers. The logistics department of raw materials and the coordination of the various production stages, while we purchase the finished products made to our specifications. We usually resort to the façon manufacturing model for our formal garments (such as suits, jackets, blazers and shirts), knitwear and shoes.
Since the acquisition of Thom Browne by Zegna, the production of Thom Browne’s garments has been mostly outsourced using the full package manufacturing model. First, the Thom Browne collections are designedin-house
in New York, then a sample collection is developed in cooperation with external product developers, and subsequently the manufacturing phase is entrusted to Thom Browne’s trusted external manufacturers. These external manufacturers are responsible for procuring the raw materials exclusively from suppliers that have beenpre-approved
by Thom Browne, for coordinating the entire production process and delivering the finished product.Approximately 80% of Thom Browne’s external manufacturing is done in Italy and in the United Kingdom, and the remaining 20% is done in Japan. A portion of Thom Browne’s production is also outsourced to Zegna’s Swiss and Italian production facilities, in particularand tailored products, and a minor part of knit products are sourced from manufacturers based in the United Kingdom.Logistics and Inventory Management
Our logistics departmenteach brand is responsible for organizing and managing the distribution of the finished products, of the Zegna segment and preparing the documentation required for shipment, as well as the management of our warehouseswarehouses.
The Group has several logistics centers in Italy and product inventory.
Our wholly-owned subsidiary Consitex S.A. is responsible for managing our primary distribution center and product inventory, the shipment of our products, and the logistics of the distribution of the finished productsabroad, in all regions except for the European Union and the United Kingdom. For the European Union and the United Kingdom, such logistic activities are carried out by our subsidiary Ezi S.p.A. InSwitzerland, North America, such activities are carried out through our subsidiary Ermenegildo Zegna Corporation, which manages a local secondary distribution center. In China, such activities are carried out through our subsidiary Zegna (China) Enterprise Management Co., Ltd, which also manages a local secondary distribution center. Regarding the products of our Third Party Brands product line, all logistic activities are carried out by our subsidiary Ezi S.p.A.
With respect to the shipment of our products, third party transportation specialists are engaged to transport goods by road, air or sea, based on factors such as distance to destinationJapan and urgency of the shipment.South Korea.
Thom Browne’s logistics department and primary distribution center is located in Switzerland and managed by the subsidiary Thom Browne Trading SA., which is responsible for overseeing Thom Browne’s warehouses and product inventory and for organizing and managing the distribution and shipment of the finished products of the Thom Browne segment.
Thom Browne Trading SA. is responsible for the shipment of products for the Thom Browne segment, and the logistics of the distribution of the finished products in all regions. The Thom Browne segment also has a secondary distribution center in Japan, which is run by its subsidiary Thom Browne Japan Inc., and a secondary distribution center in the United States, which is managed by Thom Browne Inc. directly.
Similarly to the Zegna segment, the logistics department of the Thom Browne segment engages third party transportation specialists to transport goods by road, air or sea, based on factors such as distance to destination and urgency of the shipment.
Marketing and Advertising
Advertising and promotional
support is a crucial toolactivities are critical for luxury companies like us to
influence purchase selection, enhance the brand recognizability,
influence purchase selection, and encourage brand loyalty over time.
We investThe Group invests significant resources in advertising, communication and marketing, which include a full set of activities ranging from pure digital and social media marketing initiatives to events like fashion shows, product collaborations and
co-marketing
projects.
In 2023, 2022 and 2021, marketing expenses amounted to €114,802 thousand, €85,147 thousand and €67,831 thousand, respectively.Zegna’sZEGNA’s marketing strategy is based on an
all-round
approach with the customer at its center. We manage the relationship with our customers from an omni-channel perspective, enhancing the interaction between the digital and physical dimensions. Our customers shop across different channels, and through digital tools we directly and regularly inform them about new campaigns, products, and collaborations using original content we develop and produce for a specific project or collection. We aim to provide tailored content and messages to our customers and, through our presence on social media, we translate our craft and products into a narrative aimed at attracting
themour customers through inspiration. All
of our marketing campaigns focus on storytelling to strategically solidify our values in our customers’ minds.
Our One Brand strategy and repositioning have provided enhanced opportunities for brand amplification, including collaborations such as the multiyear one with Real Madrid launched in August 2022 and advertising campaigns focusing on our iconic products such as the Triple Stitch or our Oasi Cashmere and Oasi Lino collections.
Since our founding in 1910, we have inspired men to define their style identity, ensuring their character couldcan be found in every detail of their outfits. The ZegnaZEGNA brand can count many leaders of business, sports, entertainment, design and culture as friends. Some have even become part of our extended family over the years, acting as testimonialsambassadors for our brands. We also conduct targeted product placement activities on key opinion leaders, celebrities and influencers.
With respect to the Thom Browne segment, Thom Browne presents its seasonal collections in New York or Paris through spectacular, theatrical and conceptual fashion shows during the men’s and women’s fashion weeks. These shows contribute to positioning the brand at the pinnacle of fashion and creativity, are the source of the narrative for each season and help generate significant editorial coverage in fashion, art and culture publications, both on paper and online. This innovative approach makes Thom Browne the brand of choice for a number of VIPs and celebrities worldwide. From highly successful actors and musicians in South Korea, to U.S. athletes, actors and musicians of worldwide fame, the brand has proven to have a very strong appeal.
Dressing LeBron James and the entire team of the Cleveland Cavaliers basketball team in a tailored Thom Browne uniform has brought significant visibility of the brand and its iconic products to a global audience. A three-year partnership with FC Barcelona (which included dressing the entire team in Thom Browne suits from 2019 to 2021) played the same role.43
TheWe are seeking to strengthen the historical customer loyalty enjoyed by the Thom Browne brand is being reinforced through the introduction of new customer relationship management tools and initiatives.
The Tom Ford Fashion segment aims at creating consistent storytelling through lookbooks, editorial and campaign assets, and runway shows that create a unified narrative across men’s, women’s, eyewear and beauty offerings with the goal of establishing the brand as a true global lifestyle icon and further solidifying Peter Hawking’s vision for the brand.
Seasonal collections are unveiled during the Milan Fashion week through sophisticated, elegant, and modern fashion shows that empower the brand to position itself as the pinnacle of true luxury, create engaging content, indulge and entertain top clients and partners, as well as to develop a carefully curated list of VIP attendees that encompass the TOM FORD FASHION man and woman. A tactical focus in marketing is on content creation and an increased, highly strategic investment in media to establish the new codes of the house - glamour, mysterious allure, refined elegance – in order to build awareness, customer loyalty and brand equity.
Each
of the Zegna segment
and the Thom Browne segment havehas internal teams dedicated to marketing and advertising activities, each following slightly different marketing strategies depending on the brand. To better reach a wide but selected consumer target, we use various communication tools, from organic institutional and
productsproduct press coverage to media partnerships, a varied
media-mix
including digital marketing, digital media campaign, print, billboards, direct marketing and ad hoc initiatives in our boutiques where visual merchandising and windows displays are conceived to consistently adhere to the seasonal marketing strategy plan.
In addition to seasonal fashion shows, January Fall/Winter and June Spring/Summer collection presentations, specific shows and events are organized globally to strengthen our brands’ profiles and positioning and increase awareness on the most recent collections in local markets worldwide. Besides presenting new products, these events are planned to promote a direct involvement of the customers, media, celebrities, influencers, and industry key opinion leaders through exclusive events, as well as to reinforce the popularity of the brand and enhance its image.
SalesDistribution Channels
Our sales teams bring our customers into our community, sharing with them our creativity and craft, as well as our story and the journey of each item. These relationships are nurtured
in-store
with respect to our DTC channel and in our showrooms with respect to our wholesale channel, with the aim to deliver a consistent and unique customer experience.
We distribute and sell our products in over 80approximately 85 countries worldwide through a well-established network comprised of our DTC and wholesale distribution channels.
Our monobrand presence includes our DOSs (which are divided into boutiques and outlets)
, directly managed online boutiques and our franchisees’ monobrand stores. Our multi-brand presence includes department stores, specialty stores and
multi- brande-commercee-tailers.
platforms.For the year ended December 31, 2021, about 84%2023, €945.3 million of ourZEGNA branded products revenues from the Zegna Branded Products product line(equal to 85% of total revenues of the Zegna segmentproduct line) were generated through ourthe DTC channel and about 16% was€164.2 million were generated through the points of sale operated by our wholesale distribution channel and royalties.
As of December 31, 2021, we2023, ZEGNA operated 245253 DOSs, of which 126123 were in APAC, 6971 were in EMEA, 3759 were in North America and 13 were in Latin America.the Americas. For the year ended December 31, 2021,2023, the DTC channel generated revenues representing 84%85% of ourthe revenues from the Zegna Branded ProductsZEGNA branded products product line of the Zegna segment. The latest significant store openings and renewals up to December 31, 2021 include Rome (Italy), Boston (United States), Prague (Czech Republic), Shanghai, Chongqing, Ningbo, Wuhan and Shenyang (China) and Bangkok (Thailand). Our DTC channel is distributed throughout the main markets in which we operate. We focus on maintaining a presence in prestigious and strategic locations, and in certain cases we enter into joint ventures with local partners in jurisdictions where ZegnaZEGNA would not be able to operate directly without a local partner or where the presence of a local partner is beneficial due to its knowledge of the local market and regulations. As an example, we have entered into joint ventures in the United Arab Emirates, Vietnam and India.
The aesthetics and customer experience of our DOSs are carefully planned and designed by our Artistic Direction team. Once opened, an internal staff of architects and visual merchandisers who are supported by external professional firms constantly maintain and restyle our DOSs as required. In addition, we have in place specific training programs dedicated to our sales staff, focusing on product knowledge and customer service.
To select the range of products sold in our DOSs, we establish guidelines at the group level based on market potential and the characteristics of the points of sale. Buyers and merchandisers in our regional offices then select the best selection of products in terms of models, materials and color variants.
Our DTC channel also includes ane-commerce
shop operated directly through our website www.zegna.com, outlets, concessions within department stores around the world, certain travel retail stores directly operated by us (including those at Linate and Malpensa airports in Milan) and othere-commerce
platforms through which we sell directly to our customers (such as TMall Luxury Pavilion, Farfetch and WeChat) and whose sales systems are integrated with Zegna’sZEGNA’s sales and warehouse management systems. As of December 31, 2021,2023, our monobrand distribution network included 195151 points of sale operated by our wholesale customers and franchisees, of which 3233 were in APAC, 8955 were in EMEA, 5963 were in North America and 15 were in Latin America. For the year ended December 31, 2021,2023, the wholesale channel, including multibrand stores and royalties, generated revenues representing 16%15% of our revenues from the Zegna Branded ProductsZEGNA branded products product line of the Zegna segment.
Our wholesale distribution channel has developed through agreements with different types of wholesale customers, including in particular:
, which operate monobrand points of sale exclusively under the
Zegna brands,ZEGNA brand, in exchange for the payment of royalty fees to
ZegnaZEGNA based on sales volumes. The franchising agreements governing these relationships typically have a medium term (providing for an automatic renewal or a renegotiation period prior to the term expiry). The contractual arrangements may also provide for minimum purchase obligations by the franchisee, and for the obligation by
ZegnaZEGNA and/or the franchisee to invest certain amounts in marketing activities.
Starting from January 1, 2024 we have internalized our franchising operation in South Korea, which is now operated via DOSs.•Department stores and multibrand specialty stores,
, which purchase
ZegnaZEGNA products for
re-sale
resale in their stores, sometimes in specific
ZegnaZEGNA branded wall units. The contractual arrangements with this type of
customerscustomer vary based on the relevant store’s standard terms.
•Online multibrand stores
. Zegnastores. ZEGNA branded products are also sold via prestigious online multi-brand stores such as SSENSE, Mr. Porter and JD.
As with our DTC channel, we carefully manage and, if necessary, customize our distribution policies for our wholesale customers.
Within the wholesale distribution channel, duty free and travel retail stores operated by specialized players and located at major airports around the world have an important role, ensuring that the Zegna brands areZEGNA brand is present in major airports worldwide and in exclusive hotels, both in duty free and duty paid points of sale. These travel retail stores in the wholesale distribution channel are in addition to travel retail stores directly operated by us.
We believe that our wholesale presence is strategic as it provides constant benchmarking opportunities and external feedback hence allowing a constant monitoring of the positioning of our brand and products vis-à-vis those of our competitors.
Thom Browne Segmentsegment
For the year ended December 31, 2021, about 53%2023, €183.4 million of the Thom Browne segment’s revenues was generated through its DTC channel and about 47% was€195.0 million were generated through the points of sale operated by Thom Browne’s wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2021,2023, Thom Browne operated 5286 DOSs, of which 3870 were in APAC, 9 were in EMEA and 57 were in North America.
As of July 1, 2023, Thom Browne began directly operating its business in South Korea and its network of 17 stores. The business is now wholly owned through our subsidiary Thom Browne Korea, and will be operated in the region with external support from the former franchise partner.
Unlike other luxury fashion brands (including Zegna)ZEGNA), Thom Browne, leveraging its customers’ awareness of the brand and presence in the main digital channels, has DOS locations of comparatively smaller size, which are usually destination stores with highly-trained staff. This allows for more flexibility in negotiations with landlords and alleviates pressure on rental charges, while Thom Browne still benefits from the inflow of loyal customers. Thom Browne’s strategy puts an emphasis on developing customer relationships rather than on positioning in key streets, while actively working to increase the visibility of its DOSs to attract new customers and to establish specific training programs for its DOS staff in order to ensure a consistent and high quality retail experience in the various geographies.
Thom Browne’s DOSs also include ane-commerce
shop operated directly through the website www.thombrowne.com and carefully selected directly operated outlet sale locations. The latest significant store openings up to December 31, 2021 include Vancouver (Canada), London (UK), Milan (Italy), Macau, Shanghai, Shenzhen, Qingdao, Xiamen, Changsha and Ningbo (China). As of December 31, 2021,2023, Thom Browne’s monobrand distribution network included 3825 points of sale, of which 3015 were in APAC, 57 were in EMEA and 3 were in North America.
TheOn top of the wholesale monobrand stores, the Thom Browne segment’s wholesale distribution channel works similarly toalso consists of selected multibrand department and specialty stores globally and e-tailers.
Tom Ford Fashion segment
For the Zegna segment’syear ended December 31, 2023, €136.3 million of the Tom Ford Fashion segment revenues was generated through its DTC channel and €99.2 million were generated through the wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2023, TOM FORD FASHION business operated 51 DOSs, of which 35 were in APAC, 4 were in EMEA and 12 were in North America.
Wholesale Channel
As of December 31, 2023, TOM FORD FASHION’s monobrand distribution network included 70 points of sale, of which 6 were in APAC, 14 were in EMEA and 50 were in the Americas.
The TOM FORD FASHION wholesale distribution channel also consists of a presence in more than 300a selected number of wholesale multibrand stores globally, such as those operated by franchisees, department stores and online multi-brand stores for both men and women.globally.
Intellectual propertyProperty
As of the date of this report, and with an overall trademark portfolio including more than 3,6003,800 registrations, the principal owned trademarks or trade names that we use in the Zegna segment’s business are “Ermenegildo Zegna” and “Zegna”,“Zegna,” and the new logo “Brand Mark” related to the rebranding project, which we have filed or registered in all the relevant products and services classes and in all of the countries in which we operate in the logo version and/or in the word/standard characters version or in versions which are adapted to various local alphabets or ideographs (e.g., Zegna written in Japanese, Katakana syllabary, in Chinese ideographs, Thai characters, or in the Arabic or Georgian alphabet). We have also registered certain other marks used on our products and in our main marketing projects such as our capsule collections. In connection with the implementation of the rebranding project, we expanded the trademark portfolio to the new logo and signifier.
Additionally, we have a portfolio of more than 700800 domain names, including (i) registrations in all the countries in which we operate, (ii) the most common Zegna and Ermenegildo Zegna typos and (iii) early and basic protection for our main business and marketing projects.
Besides trademarks, we invest significant resources in protecting other aspects of our brands’ uniqueness. With more than 500800 design and 9 copyright registrations covering several countries including the European Union, China and the United States, every season we select the most relevant and original products, patterns and, to the extent necessary, protect our rights, labels, and take action to protect their design and defend them against counterfeiting. In addition, we own 1615 patents and one copyright for engineering work (thanks to special protections available in Italy), which are a result of our solid roots in fabric making and our pioneering efforts to improve performance and functionality in our products.
We devote significant resources to the protection and enhancement of our intellectual property assets and actively monitor the market, offline and online, for infringements or abuses of our trademarks, domain names and product designs. We are also active in enforcing our rights against third party infringements. In addition, we monitor third party applications for registration of trademarks that could be confused with our trademarks, and file oppositions against the applications for, or the registration of such trademarks in accordance with the laws and regulations of the relevant jurisdictions and cooperate with competent authorities worldwide to fight the counterfeiting of our products.
Thanks to the long-standing efforts discussed above, judicial and/or administrative decision in countries including China, Turkey, Mexico, Brazil and India have recognized our trademarks as well known and famous, giving Zegna the ability to benefit from a cross-class protection.
For a description of the licenses we grant in our business, please see “—“—Brands, Collections and Products—Zegna Segment—segment—Third Party Brands Product Line.”
” Thom Browne Segmentsegment
As at the date of this report, Thom Browne Inc. and its subsidiary Thom Browne Japan, Inc. own or control approximately 300 trademark registrations worldwide, with a number of additional applications pending. The principal owned trademarks or trade names that are used by Thom Browne are THOM BROWNE, a four-band design, a grosgrain ribbon in White, Red, White, Blue, White, and THOM GREY, which have been registered or for which applications for registration have been submitted, in text form or design form, in virtually all the jurisdictions in which Thom Browne operates.
In addition, the design marks shown as location marks, such as a tab on the back of a collar on a shirt or jacket, have been registered, or an application for registration has been submitted, including in the native language of certain important markets.
Thom Browne has also registered certain other marks used on its products and in its main marketing projects and maintains an ongoing program to constantly review and update filings and protections to extend the registrations to classes of goods for which new products are introduced from time to time.
In addition, Thom Browne has a portfolio of domain names, including a number of domain names featuring the “Thom Browne” name, such as ThomBrowne.com, Thombrowne.uk and similar domain names in the jurisdictions in which Thom Browne operates.
Thom Browne devotes significant resources to the protection of its intellectual property assets worldwide through a highly specialized brand protection program.
In-house
and outside specialists monitor all major markets as well as global social media and websites for misuse of Thom Browne’s intellectual property. To the extent infringements are detected, adequate enforcement steps are taken, including in cooperation with the relevant authorities.
TableAs of Contentsthe date of this report, TFI and its subsidiaries operating the TOM FORD FASHION business do not maintain trademarks, copyrights, patents, or domain names in their own name. Rather, pursuant to the TFF License with The Estée Lauder Companies, TFI is licensed to use the TOM FORD FASHION intellectual property for men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products worldwide.
TOM FORD FASHION cooperates closely with The Estée Lauder Companies to protect against misuse of the licensed TOM FORD FASHION intellectual property. To the extent counterfeiting activities or infringements of the licensed TOM FORD FASHION intellectual property are detected, TOM FORD FASHION cooperates with The Estée Lauder Companies in its enforcement efforts, including in cooperation with the relevant authorities.
Research and Development
Our competitiveness depends on, among other things, our ability to anticipate trends and to identify and respond to new and changing consumer preferences. We therefore devote significant resources to various research and development activities to design, create and develop new products for our collections. As of the date of this report, approximately 280over 300 of our employees were involved in our research and development activities across the Zegna, and Thom Browne and Tom Ford Fashion segments.
Our research and development activities mainly relate to the development of new patterns and designs for our fabrics, the research of innovative and technological materials with specific features, the design, modeling and development of new products and the creation of prototypes.
In recent years, our research and development efforts have focused on the reduction of the overall number of new products launched, with a shift towards the activities for the creation of iconic products characterized by high visibility and superior growth, the creation and launch ofcapsule collections, and significant resources devoted to the development of products for our continuative products (which are generally sold across seasons with minimal style changes). In addition, in our commitment to contribute to address climate change issues, we intend to invest in research and development with the aim of producing in the medium to long-term new highly sustainable materials (e.g., non-oil synthetic materials) with lower environmental impact than traditional animal fibers and leathers. We are requiredOn July 18, 2021, under the leadership of its CEO, the Company entered into the Business Combination Agreement and certain ancillary agreements with IIAC. Also on July 18, 2021, the PIPE Investors that had chosen to complyparticipate in the PIPE Financing delivered executed PIPE Subscription Agreements to the Company and IIAC. The Business Combination was consummated on December 17, 2021. On December 20, 2021, our Ordinary Shares started trading on NYSE.
In connection with the lawsBusiness Combination:
•on the Closing Date prior to the Effective Time, the Company (at the time Ermenegildo Zegna Holditalia S.p.A., an Italian joint stock company) implemented the Conversion and regulations applyingbecame a Dutch public limited liability company (naamloze vennootschap), upon which it changed its name to our productsErmenegildo Zegna N.V. and operationsunderwent a share split;
•on the Closing Date following the Conversion and prior to the Effective Time, the FPA Purchaser purchased from IIAC and IIAC issued to such FPA Purchaser 22,500,000 Class A Shares for an aggregate purchase price of €191.8 million;
•immediately following the consummation of the Forward Purchase, at the Effective Time, Zegna Merger Sub merged with and into IIAC, with IIAC being the Surviving Company in the various jurisdictionsMerger;
•immediately following the Effective Time, the Company consummated the PIPE Financing and the Offset PIPE Financing;
•after the consummation of the PIPE Financing and the Offset PIPE Financing, the Surviving Company distributed an amount of cash equal to €191,806,537.10 plus $105,380,150.53 to the Company by way of a return of capital distribution; and
•promptly following the Capital Distribution, the Company repurchased 54,600,000 Ordinary Shares from Monterubello in exchange for a promissory note in the amount of €455,000,000. Such promissory note was repaid by the Company on December 21, 2021.
Warrant Redemption
On January 26, 2023, the Company announced a redemption of all Warrants, following which 19,322,846 Warrants were exercised on a cashless basis and 408,667 Warrants were exercised for cash, resulting in the issuance of an aggregate of 5,761,067 Ordinary Shares. The 385,123 remaining outstanding Warrants were redeemed on February 27, 2023.
TFI Acquisition
On April 28, 2023, the Company completed the acquisition of Tom Ford International (“TFI”) (the “TFI Acquisition”), through which it acquired the company that owns and operates the TOM FORD FASHION business, as part of a transaction in which we operate, particularly in relation tosole ownership of the protection ofTOM FORD brand, its trademarks, and other intellectual property rights competition, product safety, packaginghave been acquired by The Estée Lauder Companies Inc. (“ELC”) and labeling, importTFI has become a long-term licensee of ELC for all TOM FORD men’s and processing of certain raw materials and finished goods, data protection, limits on cash payments, worker health and safety, environment and economic sanctions. We also use certain rare raw materials, such as vicuña yarns, which are only available in a very limited quantity and subject to strict export and processing regulations. Virtually all of our imported products are subject to custom duties and other taxes, which may impact the price of such products. We maintain compliance procedures and policies to assist in managing our import and export activities and ensure compliance with the laws and regulations of the jurisdictions where we operate.
C. Organizational Structure
Zegna is the parent company of the Zegna group. A list of the subsidiaries of Zegna as of the date of this report is included in Exhibit 8.1 to this report.
D. Property, Plants and Equipment
We operate through manufacturing facilities, corporate offices, showrooms, warehouses, stores, land and other buildings around the world, which are in part owned by us and in part leased from third parties.
Part of the real estate assets used in Zegna’s business operations is owned by EZ Real Estate S.r.l. (“”), a former subsidiary of Zegna which was demerged on November 1, 2021 as part of the Disposition, or by its subsidiaries. Such real estate assets include buildings hosting manufacturing facilities, corporate offices, showrooms, warehouses, land and other buildings, including our main manufacturing plants and offices in Italy (such as Zegna’s headquarter offices in Milan, the manufacturing facilities in Parma, San Pietro Mosezzo, Verrone and Oleggio,women’s fashion as well as
partaccessories and underwear, fine jewelry, childrenswear, textile, and home design products, by virtue of a long-term licensing and collaboration agreement with ELC for 20 years subject to renewal at TFI’s option for one further 10-year period subject to certain minimum performance conditions. The Group will be in charge of the
building locatedend-to-end TOM FORD FASHION business, from collection creation and development to production and merchandising, as well as retail and wholesale distribution. The TOM FORD FASHION business, under the Group, operates a network of 51 directly operated stores globally at December 31, 2023.Before the completion of the TFI Acquisition, the Group already owned 15% of TFI, through its fully owned subsidiary EZ US Holding Inc., and, through the TFI Acquisition it acquired the remaining 85% equity interest. The transaction implied a value for the acquired 85% stake of TFI at $150 million in Valdilana partly occupiedcash, on a cash-free and debt-free basis and assuming a normalized working capital. For information relating to the purchase price allocation of the TFI Acquisition, see Note 39 — Business combinations to the Consolidated Financial Statements included elsewhere within this Annual Report.
As a result of the TFI Acquisition, the Group also obtained 100% of Pelletteria Tizeta S.r.l. (“Pelletteria Tizeta”), for which it previously held a 50% interest and accounted for the investment using the equity method, with the remaining 50% interest owned by Zegna)TFI and Switzerland (includingbeing acquired by the officesGroup through the TFI Acquisition.
B. Business Overview
The Group is a global luxury player, leader in Stabiothe high-end menswear business and internationally recognized for its unique textile and manufacturing platform. Heritage, Italian craftsmanship, quality and innovation are key ingredients of its three complementary brands: ZEGNA, Thom Browne and TOM FORD FASHION. Through them, our reach expands to touch different communities, from the absolute iconic luxury, with its eponymous brand ZEGNA, to modern tailoring, with Thom Browne, to luxury glamour, with TOM FORD FASHION. Thanks to Thom Browne and TOM FORD FASHION, the Group also plays an important and growing role in the luxury womenswear and leather goods segment.
We operate in three segments: the Zegna segment (comprising three product lines: ZEGNA branded products, Textile and Third Party Brands), the Thom Browne segment and, following the TFI Acquisition, the Tom Ford Fashion segment.
The following charts show consolidated revenues by segment for the years ended December 31, 2023, 2022 and 2021.
Consolidated revenues by segment after eliminations and by geographic area (€ millions, except percentages)
The Group distributes its products world-wide and has a well-balanced presence among all its regions, with APAC being the most important area.
The following charts provide a breakdown of consolidated revenues by geographic area for the years ended December 31, 2023, 2022 and 2021.
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(1)EMEA comprises Europe, the Middle East and Africa.
(2)North America includes the United States of America and Canada.
(3)Latin America includes Mexico, Brazil and other Central and South American countries.
(4)APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
(5)Other revenues mainly include royalties.
Industry
Industry information contained in this section is based on the Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2023 (the “Bain-Altagamma Study”), unless otherwise indicated.
We operate in the personal luxury goods market, which includes the following product segments: accessories, jewelry, beauty, apparel and watches. By product, we primarily focus on the apparel and accessories segments of the personal luxury goods market. The luxury textiles market, which accounts for less than 10% of the Group’s consolidated revenues after eliminations, is not discussed in this section.
Demand in the personal luxury goods market, especially in the absolute luxury segment, is characterized by a low price-sensitivity. Instead, demand is more likely driven by tangible and intangible factors which fuel a brand’s equity and desirability. Brand equity is made of several important components, including heritage, exclusivity, recognizability, quality, and experience.
According to the Bain-Altagamma Study, the global personal luxury goods market had a total estimated value for the year 2023 of approximately €362 billion and has grown steadily for about two decades with a compound annual growth rate (“CAGR”) of 6% from 1996 to 2019. Over the period from 2019 to 2022, the personal luxury goods market experienced a 7% CAGR, as a result of a V-shaped rebound in 2021 and 2022 following the sharp decline in demand in 2020 due to the COVID-19 pandemic. It continued to increase during 2023, as per the same Bain-Altagamma Study, at an estimated rate of 8% at constant exchange rates and 4% at current exchange rates, compared to 2022.
The chart below sets forth the evolution of sales in the global personal luxury goods market from 1996 to 2022 and the manufacturing plantexpected evolution for the period from 2023 to 2030. With the exception of 2009 and 2020, the global personal luxury goods market has grown by mid-single-digit annual growth and is expected to have a CAGR of between 5% to 7% from 2023 through 2030.
Personal Luxury Goods Market Evolution – €bn
Source: Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2023, dated November 14, 2023.
The Bain-Altagamma Study estimates that about one-third of personal luxury goods sales will occur online by 2030 (compared to approximately 20% in Mendrisio)2023), Chinese consumers will represent between 35% and certain Zegna stores, namely40% of the total global personal luxury goods sales (compared to approximately 22-24% in Sandigliano2023) and Oleggio (Italy)Gen Z and London (United Kingdom)Gen Y and a new Gen Alpha combined will represent approximately 80% of the market (compared to approximately 65% in 2023). In addition,
Several recent trends are expected to continue to be the main drivers of growth for the industry in the coming years, including the growing polarization of wealth, the expansion and increasing sophistication of the customer base in search of excellence in products, service and experience, the increasing popularity of casual luxury, a rise in domestic purchases coupled with a gradual return of tourists’ spending and an increasing focus on authenticity, sustainability, ethical and diversity considerations.
The personal luxury goods market is characterized by significant barriers to entry, such as, among others: (i) brand heritage, which is embodied by unreplaceable assets like a brand’s history, values and DNA; (ii) brand equity, which is the perception of the uniqueness and high reputation of a brand, built over time with, among the others, important investments in advertising; (iii) know-how, characterized by many aspects of the “saper fare” (savoir faire) starting from the design and innovation capacity through the ability to provide products with a superior quality and an utmost experience for clients; and (iv) a high-end distribution network, which embraces prime locations in the most important, highly competitive, luxury streets and malls.
Competitive Strengths
We operate in the personal luxury goods market. Although in this arena we compete with other global companies, we believe we have unique advantages to successfully compete and further strengthen its presence and leading position. Heritage, Italian craftsmanship, undisputed legacy along with a portfolio of complementary brands with significant untapped growth potentials represent strong and prime assets for the Group.
We believe that the following key competitive strengths have been the primary drivers of the Group’s historic success and continue to be pillars of its future growth strategy.
Heritage
Since the foundation of Lanificio Ermenegildo Zegna e Figli S.p.A. (“Lanificio” or “Lanificio Ermenegildo Zegna”) at the beginning of the past century, Zegna has been synonymous with quality, style and innovation for men’s fashion. This has been and continues to be true for the ZEGNA brand and the Ermenegildo Zegna Group.
Luxury Menswear Leadership
The Ermenegildo Zegna Group has a consolidated leadership position in luxury menswear, rooted on its more-than-100-year of history. This undisputed legacy, along with a portfolio of unique and complementary brands, constitutes the Group’s main competitive strength. ZEGNA has evolved from being one of the most recognized brands in men’s tailoring to become an icon brand in the men absolute-luxury leisurewear segment with a top class retail network in the most important luxury streets and shopping malls. The addition of Thom Browne in 2018 and TOM FORD FASHION in 2023 has further strengthened the Group’s leadership by capturing distinctive and complementary segments of clientele, while leveraging on the Group’s textile and manufacturing know-how.
Integrated Italian Platform
The Ermenegildo Zegna Group controls an integrated luxury textiles and manufacturing chain, vertically integrated from the sourcing of the finest raw material to the production of high-quality garments. Through the historical Lanificio Ermenegildo Zegna as well as the more recent acquisitions of Dondi, Bonotto, Tessitura Ubertino, and the minority interests in Filati Biagioli Modesto, the Group has built an in-house textiles platform that provides a unique competitive hedge in term of innovation capacity and research of the finest and highest performing fabrics with the best quality. The importance of innovation is also testified by our over 300 employees dedicated to research and development.
The textile platform, integrated with state-of-the-art manufacturing capabilities, represents a key competitive advantage that the Group can offer to the brands in its portfolio. It also offers significant barrier to entry in the strategic Made-to-Measure business. The Group offers Made-to-Measure (Su Misura) and bespoke services (that take customization to a higher level) for its three brands with a best-in-class lead time that goes from 2 weeks (in some key stores) up to 4 or 6 weeks. Management believes that the breadth of the offering and the lead times, as well as the service quality and the experience provided to customers, are setting the standards in the industry. These services enable us to cultivate meaningful client relationships, develop a loyal customer base and drive new customer engagement.
Complementary Portfolio of Uniquely Positioned Luxury Brands
Ermenegildo Zegna Group is made of three brands complementary across styles, occasions of use, and aesthetic.
ZEGNA, the Group’s eponym brand, is a leading brand in the men’s absolute luxury segment. Authenticity represents the brand’s core and true value. The brand’s authenticity stands not only on more than 110 years of unique heritage but also in a responsible vision which started since its foundation and has been passed down through the generations, ensuring that giving back, responsibility towards the environment and community well-being remain key values for the brand. An expression of this vision is a freely accessible natural reserve covering approximately 100 square kilometers from the small village of Trivero, where the Group originated, to the peaks of the Biella Alps in Italy. This area was created by the Group’s founder over 100 years ago and rebranded “Oasi Zegna” in 1993. Oasi Zegna has been and continues to be an important source of inspiration for the ZEGNA brand’s collections and for the brand iconic products.
Thom Browne. Distinctive craftsmanship, undisputed tailoring know-how and proud community are the key ingredients of the brand success in both men and womenswear. Thom Browne has a wide range of luxury and fashion clients that appreciate the unique design and quality.
TOM FORD FASHION. Recently added to the Group, TOM FORD FASHION completes the Group’s offering delivering an alluringly modern aesthetic for a client who pursues recognition, product excellence and impeccable fit.
All three brands have untapped growth potential in terms of products, countries and channels to be exploited in their respective reference markets. In particular, Thom Browne and TOM FORD FASHION give us exposure to the womenswear luxury apparel and leather goods markets.
World-Class Customer Relationship Management (CRM) Capabilities.
The Group’s clienteling business model puts the customer at the center. We believe that only a controlled distribution network, along with a unique CRM experience, can provide a distinctive, world class experience to its clients. Over the years, the Group has developed highly sophisticated and innovative CRM tools for ZEGNA and Thom Browne, able to connect with clients across multiple touchpoints, offering an expanded range of services, allowing to reach a wider, younger, and increasingly diverse audience while reinforcing the identity, history and values of the brands. Our DTC network is essential to implement successfully all CRM tools while embracing a unique clients’ journey. The Group has developed a strong, well balanced, international network of 390 Directly Operated Stores (DOS) in approximately 30 countries around the world, accounting for 66% of consolidated revenues. The Group’s strengthening of the DTC channels will continue to remain a significant pillar of its future growth strategy for all its brands, ZEGNA being the most advanced in this journey.
Potential Aggregator in the Luxury Goods Market.
While our brands maintain their own identity and unique design flair, the Group has the skills and the experience to act as a long-term industrial partner and as an aggregator of leading luxury brands. The Group’s in-house laboratory platform and manufacturing know-how, its capable management team led by the Zegna family, the extensive knowledge of the global luxury market in term of, among the others, real estate development and retail expertise, allow the Group to add value to the businesses it partners with. A prominent example of this is the performance of Thom Browne following our acquisition in 2018, with revenues growing from €117 million in 2018 to €380 million before eliminations in 2023. Similarly, the addition of the TOM FORD FASHION business represents a further opportunity to leverage the Group’s platform.
Strategy
Ermenegildo Zegna Group intends to reinforce and extend its leading position in the luxury market by continuing to develop its three brands in their unique and highly complementary reference markets, while strengthening its one of a kind Made in Italy textile and manufacturing platform, while always seeking to respect the planet and foster its community. In particular, the Group intends to:
a.Continue nourishing ZEGNA as a reference brand in the absolute luxury menswear business;
b.Support the Thom Browne international expansion, with a focus on DTC, womenswear and leather goods accessories, while protecting the brand’s DNA and unique identity;
c.Work on aligning the business of TOM FORD FASHION to the brand’s world-wide knowledge and allure in the luxury sector;
d.Continue to pursue a sustainable development of the Group’s business, leveraging on its superior Made in Italy integrated know-how. Respect for the planet, community and diversity support and traceability are some of the most important pillars for the Group’s future growth. In addition, the Group aims at investing in its directly controlled Made in Italy luxury textiles and manufacturing platform, which represents a strategic competitive advantage fueling quality, speed, and innovation capacity.
ZEGNA brand Strategy
One Brand. With the Fall/Winter 2022 season, Ermenegildo Zegna, Z Zegna, and Ermenegildo Zegna XXX brands have been consolidated into a single brand, ZEGNA, characterized by a new logo and a distinctive signifier. The new brand, logo, and signifier are designed to be iconic and immediately recognizable. This strategy is proving to be successful both with new and existing customers. The One Brand strategy, together with the evolution of the collections, as described below, has enabled the brand to enrich its sales mix towards the higher end of the luxury goods pyramid and has offered additional opportunities for a successful brand amplification allowing ZEGNA to expand its reach to a broader and younger client base.
Collections evolution. In recent years, in response to the needs of a fast-paced world, ZEGNA’s collections have evolved from primarily pure formalwear to a new definition of the men’s style that we call “luxury leisurewear”: a new, understated, versatile wardrobe in which the utmost ZEGNA quality is combined with performance and comfort, designed to meet the changing preferences of customers and their demand for greater comfort, modern aesthetic, excellent quality and product and style durability. In the meantime, management has also pursued the creation of iconic timeless products, such as
in the shoes segment with the Triple Stitch family. We believe that there are significant opportunities to capitalize on the brand recognition iconizing our products.
Along with this evolution, management intends to continue to protect and further elevate the leadership of ZEGNA in the formalwear to capitalize on formalwear’s broadening occasions of use, from office to social life, through an increasing elevation of products and customer services including the offering of unique Made to Measure and bespoke services.
As a complement to this, the brand is also pursuing a strategy of selected partnerships for co-branding projects which should allow ZEGNA to amplify its strength and to enter new product categories. Examples of this include the multiyear agreement with Real Madrid for their travel wear, and the collaborations with The Elder Statesman for cashmere knitwear and Norda Run for performance footwear.
The vertical integration of the Group’s supply chain represents a unique enabler for the evolution of ZEGNA collections.
Client-centricity and experience. Management intends to continue to develop a uniquely recognizable ZEGNA retail experience, fully designed around the customer and his/her needs. This places significant emphasis on developing personal relationships with, and dedicated attention to, our customers, through a mix of CRM tools and personal connection aiming at retaining our clients while boosting their spending with the final goal of sustain ZEGNA brand relevance and increase the productivity of its stores. Furthermore, through a deeper knowledge of our industrial building located in Valdilana (Italy), which was also demerged on November 1, 2021customers we are able to develop a more sophisticated merchandising approach and a more dynamic management of our DOSs to support the improvement of our retail KPIs.
Thom Browne brand Strategy
A distinctive and innovative brand. Thom Browne’s brand is distinctive, innovative and broadly recognized amongst a wide range of customers and is perceived as an insurgent brand. The brand has a loyal and authentic customer base, proud to be part of the Disposition. MostThom Browne community.
Growth Strategy. The Group intends to continue leveraging on the brand’s unique proposition strengthening its brand equity in menswear and, even more, in womenswear and leather goods, continuing to maintain a creative, thought-provoking design style with strong tailoring aesthetics and an innovative communication approach.
The brand has four main growth levers:
•Protect its unique and distinctive style while enhancing brand awareness in some key regions;
•Boost expansion in unpenetrated categories, in particular in womenswear and shoes and leather goods;
•Fuel a selected and balanced DTC expansion, through new openings and a tailored in-store and digital experience;
•Maintain a highly selective presence in the wholesale distribution channel with the aim of developing long-term valuable partnership with tier 1 wholesalers.
TOM FORD FASHION Strategy
Alluringly modern aesthetic Brand. TOM FORD is an iconic brand, perceived as an influential voice in global luxury industry. The TOM FORD FASHION collections enjoy a glamour luxury positioning characterized by absolute product excellence and impeccable fit.
Growth Opportunities. The Group ambition is to create a global luxury lifestyle house that blends innovation with artisan craftsmanship, with the aim of aligning the business to its extraordinary global recognition. The Group intends to grow the TOM FORD FASHION business by pursuing the following strategies:
•Leverage geographic expansion by increasing penetration into new, currently underexplored, markets;
•Enhance retail experience with investments towards directly operated stores to drive top-line growth and rebalance the channel mix while introducing CRM management tools;
•Amplify marketing and communication to strengthen the brand identity and storytelling as one of the real estate properties directly or indirectly ownedmost important fashion houses;
•Diversify product merchandising by EZ Real Estate or its subsidiaries are, and will continue to be, leased to us or our subsidiaries. Followingrebalancing the Disposition, we will continue to pay rent to EZ Real Estate or its relevant subsidiaries under the relevant lease agreements. With respect to Lanificio’s real estate assets that form part of the Disposition, appropriate arrangements have been put in place, effective as of November 1, 2021, to ensure the continued use by Zegna of such properties at market terms.
We also own certain real estate assets (manufacturing facilities, warehouses and offices) used by Cappellificio Cervo in Sagliano Micca (Italy), Bonotto in Molvena di Colceresa (Italy) and Dondi in Fossoli di Carpi (Italy) and Novi di Modena (Italy).
Our manufacturing facilities currently have capacity to increase production volumes in case necessary to meet higher demand.
The following table sets forth information relating to owned real estate assets used in the conduct of our business as of the date of this report.
| | | | |
| | | | Approximate Square Meters
|
Italy, Sagliano Micca, Via della Libertà 16
| | Factory, storage and offices | | 5,500 |
Italy, Molvena di Colceresa, Via dell’Artigianato
| | Factory, storage and offices | | 10,000 |
Italy, Fossoli di Carpi, Italy, via Budrione Migliarina 2/A
| | Factory, storage and offices | | 11,470 |
Italy, Novi di Modena, fraz. Rovereto sul Secchia, via Foscolo 11
| | Factory, storage and offices | | 975 |
In addition, we lease space from third-parties, mainly related to our DOSs and other direct points of sale around the world, but also to warehouses, offices and housing for our personnel. As of December 31, 2021, we directly operated 297 DOSs, totaling approximately 80,000 square meters of gross area, pursuant to lease agreements.
The total carrying value of our property, plant and equipment as of December 31, 2021 was €111,474 thousand compared to €244,127 thousand as of December 31, 2020,gender mix with the decrease mainly reflectinggoal of further increasing the Disposition as described above.
contribution of womenswear collections, in particular through enhancement of accessories and shoes;For information on our principal expenditures on property, plant and equipment, see “Item 5—Operating and Financial Review and Prospects —Liquidity and Capital Resources—Capital Expenditure.
” | UNRESOLVED STAFF COMMENTS
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| OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with•Optimize the rest of this document, including the information included under “Note on Presentation”, “Item 4. Informationsupply chain by leveraging on the Company”Group’s platform and the Consolidated Financial Statements included elsewhere in this document. This discussion includes forward-looking statementsbest practices.
Ermenegildo Zegna Group Business Model
Brands, Collections and involves numerous risks and uncertainties, including, but not limited to, those described under “ Cautionary Note Regarding Forward-Looking Statements” and “Item 3.D. Risk Factors”. Actual results may differ materially from those contained in any forward looking statements.
ProductsErmenegildo Zegna
is a leading global luxury group, internationally recognized for the distinctive heritage of craftsmanship, quality and design associated with its Zegna and Thom Browne brands and the noble fabrics and fibers of itsin-house
luxury textile and knitwear business. Since its foundation in 1910, Zegna has expanded beyond luxury textile production toproducts and accessories to become a highly recognized luxury lifestyle group. ZegnaGroup designs,
manufactures,produces, markets and distributes luxury menswear, footwear, leather goods and other accessories under the
ZegnaZEGNA, Thom Browne and
TOM FORD FASHION brands, luxury womenswear under the Thom Browne
and TOM FORD FASHION brands and
luxury womenswear and childrenswearchildren’s clothing under the Thom Browne brand.
Zegna’sThe three brands also have selected third-party license agreements for specific product
range is complemented by eyewear, cufflinks and jewelry, watches, underwear and beachwear manufactured by third parties under licenses. Zegna’s businesscategories. The Group covers the entire value chain
as a result ofthanks to its
textile and knitwear design, manufacturing and distribution
business. Zegna’s goal isbusiness (under the brands Lanificio Ermenegildo Zegna, Dondi, Bonotto, Tessitura di Novara, Tessitura Ubertino, as well as the minority-owned Filati Biagioli Modesto and Luigi Fedeli e Figlio). The acquisition of historic Italian companies, each specialized in its own product sector, has enabled the Group over the years to
provide customers with excellent products that reflectestablish a true luxury textile laboratory producing the highest quality fabrics and safeguarding the uniqueness of its
tradition of fine craftsmanship with exclusive design content and with a style that preservesItalian supply chain. The Group carries out its business activities through three reportable segments: the
exceptional manufacturing quality that Zegna
is known for, throughsegment, the
sourcing of superior raw materials, the careful finish of each piece,Thom Browne segment and the
way they are deliveredTom Ford Fashion segment. Prior to
customers. In 2021, 2020 and 2019,the TFI Acquisition, the Ermenegildo Zegna
recorded revenues of €1,292,402 thousand, €1,014,733 thousand and €1,321,327 thousand, respectively, (Loss)/Profit for the year of (€127,661) thousand, (€46,540) thousand and €25,439 thousand, respectively, Adjusted EBIT of €149,115 thousand, €20,013 thousand and €107,274 thousand, respectively, and Adjusted Profit/(Loss) of €75,322 thousand, (€4,752) thousand and €43,047 thousand, respectively. For additional information relating to Adjusted EBIT and Adjusted Profit/(Loss), which arenon-IFRS
measures, including a reconciliation of Adjusted EBIT and Adjusted Profit/(Loss) to profit/(loss), see“—Non-IFRS
Financial Measures.” Zegna operates its businessGroup was organized in two segments: the Zegna segment (comprising three product lines: Zegna Branded Products, Textile and Third Party Brands (previously referred to as Strategic Alliances)) and the Thom Browne segment.
With respect toThe Zegna segment consists of three product lines: the Zegna Branded ProductsZEGNA branded products product line, the Textile product line; and the Third Party Brands product line.
The Thom Browne segment corresponds to the Thom Browne business headed by the Company’s majority-owned subsidiary Thom Browne Inc.
The Tom Ford Fashion segment corresponds to the fashion business of the TOM FORD FASHION brand, which became part of the Group following the TFI Acquisition, representing a new operating and reporting segment of the Group. The Tom Ford Fashion segment includes all activities related to TOM FORD FASHION, from collection creation and development to merchandising, through to production, as well as retail and wholesale distribution.
Zegna operates via itssegment
ZEGNA branded products Product Line
direct-to-consumerFor the years ended December 31, 2023, 2022 and 2021, the ZEGNA branded products product line generated revenues equal to €1,109,491 thousand, €923,942 thousand, and €847,311 thousand, respectively, representing 58.3%, 61.9% and 65.6% of our revenues after eliminations. The ZEGNA branded products product line includes luxury leisurewear, formalwear, leather accessories and other ZEGNA branded products.
(DTC) channel worldwide throughThe ZEGNA branded products product line offers a network of 245complete collection for men under the ZEGNA brand, characterized by a new logo and signifier, which was introduced in July 2022 and replaced the previously existing Ermenegildo Zegna, Z Zegna, and 52 Thom Browne DOSsErmenegildo Zegna XXX brands. This evolution has further strengthened the ZEGNA presence in the men absolute luxury segment.
ZEGNA offers pre-collections and main collections organized in two seasons (Fall/Winter and Spring/Summer) plus several capsule collections. In 2024, the brand moved from a traditional approach with seasonal deliveries in store to the offer of monthly drops with a 360 degree activation among all touch points, from communication, windows, and clienteling
actions. ZEGNA collections include both seasonal products (which change from season to season) and continuative products (called “Essentials”) which are generally cross-season models and capsule collections. Essentials collections increasingly include iconic products, which are highly distinctive and easily recognizable.
Luxury Leisurewear. In recent years ZEGNA’s apparel has shifted towards more versatile and technical luxury leisurewear for men, anticipating the needs of a fast-paced world. The evolution from pure formalwear is ZEGNA’s new definition of men’s style that we call “luxury leisurewear,” a new, versatile wardrobe building on our tradition of excellence. With this new style, ZEGNA is continuing the process of entering a new era marked by new categories of products meeting the changing habits and preferences of our customers, including the demand for greater comfort. Our luxury leisurewear offering ranges from knits to jeans, jersey and shirts, fabric and leather outerwear and accessories.
Formalwear. ZEGNA is historically renowned for luxury formal menswear and for being at the forefront of men’s tailoring with its iconic suits and tuxedos. Our formalwear offering ranges from formal suits to tuxedos, shirts, blazers, formal overcoats and accessories.
Made to Measure. Our offer for both luxury leisurewear and formalwear also includes the Made to Measure (Su Misura) service, whereby customers may, following a meeting with a style advisor, order their custom-made garments with their fabric, style and finish of choice. This service is available not only for suits, but also for outerwear, shirts, pants, knitwear, denim and jersey. Our bespoke services take customization to a higher level including the full experience of putting together a unique piece, from the sketches and design to the choice of the fabrics. Each piece is made specifically for the customer by our tailors in our ateliers in Milan and in Paris, using time-honored tailoring techniques.
Leather Accessories. Leather accessories comprise shoes (sneakers and other shoes), bags, belts and small leather accessories. Our shoes’ offer has in recent years shifted from a prevalence of more formal shoes towards the increasing importance of certain highly recognizable casual sneaker models such as the successful Triple Stitch. Most of our shoes are produced in Italy, like most other leather accessories. We also provide our customers with the possibility to customize their preferred shoes through our Made to Order service. Several of the leather accessories feature the so called “Pelletessuta,” a soft and lightweight woven leather textile exclusively produced for ZEGNA by an external manufacturer.
Other ZEGNA branded products. ZEGNA licenses its brand to third parties for the manufacturing and distribution of eyewear, cufflinks and jewelry, beachwear, underwear and fragrances. All licensed products are generally sold by us through our DTC channel and by our licensing partners to wholesale customers and to other prestigious retailers. The table below shows the product categories for which we license the ZEGNA brand as of December 31, 2021 (255 Zegna DOSs (priorthe date of this report.
| | | | | | | | |
Product category | Licensee | Start Date |
Eyewear | Marcolin Group | Since 2013 |
Cufflinks/Jewelry | Tateossian | Since 1999 |
Underwear and Beachwear | Isaseta | Since 2016 for Underwear Since 2017 for Beachwear |
Fragrances | Give Back Beauty | Since July 26, 2023(1) |
_________________________
(1)In 2023, ZEGNA signed the license agreement while products are expected to launch in 2025.
All the transformation of 17 DOSs in Korea into franchised stores) and 38 Thom Browne DOSs as of December 31, 2020). Zegna also distributes itsagreements governing licensed products worldwide through monobrand or multibrandprovide for obligations for our licensees to comply with high quality standards, to ensure that our licensed products are available at selected prestigious points of sale operated by its wholesale customers. Takingand that they are timely delivered to the distribution network. The agreements have a fixed term and do not contain an automatic renewal mechanism. See “Item 3.D—Risk Factors—Risk factors relating to the Group’s business, strategy and operations—We could be adversely affected if we are unable to negotiate, maintain or renew our license or co-branding agreements with high end third party brands.”
As part of the activities of the ZEGNA branded products product line, ZEGNA has also entered into account bothstrategic partnerships for co-branding projects in order to strengthen the link with other luxury brands and mutually enhance the respective brands’ value. The co-branding agreements set forth the terms for the production of certain selected co-branded products and the relevant co-marketing activities. Co-branded products are sold through our DTC channel andor through the wholesale distribution channel, Zegna is present in over 80 countries worldwide. Its DTC channel includes boutiques and outlets, as well as concessions in departmentmonobrand stores and multibranddistribution networks of our co-branding partners.
Textile Product Line
For the
wholesale channel,years ended December 31, 2023, 2022 and 2021, the Textile product line generated revenues after eliminations equal to €150,986 thousand, €136,769 thousand and €102,244 thousand, respectively, representing 7.9%, 9.2% and 7.9% of our revenues after eliminations. The Textile product line is engaged in the design, manufacturing and sale of luxury fabrics under the brands Lanificio Ermenegildo Zegna,
sells its products to franchisees, department stores, multibrand specialty storesDondi, Bonotto, Tessitura di Novara, Tessitura Ubertino. We believe that the exceptional quality of the textiles used in our garments is one of the principal reasons for the success of the Group through the years. The Group also holds a minority interest in Filati Biagioli Modesto (40%) and
online multi-brande-tailers.recently acquired a 15% interest in Luigi Fedeli e Figlio S.r.l., the world-renowned maker of fine Italian knitwear and yarns.
The activities of the Textile and Third Party Brands product lines follow their own operational phases and logics. Through the Textile product line Zegna sellsare focused on the research and development of excellence in all of our fabrics, in terms of product quality, style, design, and technical features.
Some of the fabrics are developed exclusively for the ZEGNA brand, including those recently introduced with the Oasi Cashmere and Oasi Lino collections. We otherwise sell our fabrics both to other product lines of the Zegna segment or to the Thom Browne segment, as well asand Tom Ford Fashion segments, and to third party customers. Throughcustomers, which include other luxury brands, specialized players or tailoring businesses. We regularly take part in textile fairs and exhibitions to market the products of our Textile product line to the industry’s specialized players. In addition, we have a global network of sales representatives that assist us with the marketing of such products to tailors worldwide.
Lanificio Ermenegildo Zegna, the wool mill founded in 1910 in Trivero, Italy, has been the backbone of the Company’s success and is renowned internationally for its fine textiles. Three generations of the Zegna family have led textile success by carefully balancing science with nature and craftsmanship with technology. As a result, Lanificio Ermenegildo Zegna has pioneered sophisticated men’s fabrics that are lighter, smoother, more refined, and with improved performance and functionality.
Bonotto (in which we acquired a 60% interest in 2016) is a textile manufacturer based in Molvena, Italy, that was originally founded in 1912. The brand focuses on handcraftsmanship and traditional techniques and is characterized by the creative and experimental dimensions of its fabrics, which take inspiration from the art world. Bonotto is premised on the philosophy of the “slow factory,” which rejects the concepts of industrial standardization and mass production at low cost, in favor of traditional but innovative production techniques that create exquisite, precious fabrics.
Dondi (in which we acquired a 65% interest in 2019) is a leader in manufacturing high-quality jersey fabrics for men and women, all Made in Italy. Dondi’s production cycle covers the phases from fabric design to distribution. Dondi counts among its customers not only the Group’s companies, but also some of the most prestigious brands in the fashion world. Dondi’s production facilities are based in Carpi, Italy.
Tessitura Ubertino (in which we acquired a 60% interest in June 2021) is a boutique weaving mill based in Pratrivero, Italy. Founded in 1981 by Adalgiso Ubertino, Tessitura Ubertino has been creating premium quality fabrics for women, such as tweed and jacquard, for over 30 years and today it supplies fabrics to major fashion brands.
Third Party Brands Product Line
For the years ended December 31, 2023, 2022 and 2021, the Third Party Brands product line Zegnagenerated revenues after eliminations equal to €25,343 thousand, €97,792 thousand and €74,957 thousand, respectively, representing 1.3%, 6.6% and 5.8% of our revenues after eliminations. The Third Party Brands product line is engaged in the manufacturing and distribution or the supply of apparel for men to Dunhill and Gucci. Until the closing of the TFI Acquisition, the Third Party Brands product line was also involved in the manufacturing (and until the Fall Winter 2022 collection also distribution) of menswear under the TOM FORD brand.
TOM FORD. We acted as an exclusive licensee for the manufacturing and distribution of menswear under the TOM FORD brand from 2004 until the Fall/Winter 2022 collection. In connection with the closing of the TFI Acquisition, the Ermenegildo Zegna Group has become a long-term licensee of The Estée Lauder Companies for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products, by virtue of a long-term licensing and collaboration agreement with ELC for 20 years subject to other fashion brands.
renewal at TFI’s option for one further 10 year period subject to certain minimum performance conditions. As a result, as of April 29, 2023 we no longer report TOM FORD in Third Party Brands, but the TOM FORD FASHION business is reported as a separate segment.
Dunhill. We have acted as a manufacturer and Opportunitiessupplier of suits, jackets, blazers and formal overcoats under the Dunhill brand since 1998. Under the relevant agreement, we are required to comply with the designs and specifications supplied by Alfred Dunhill Ltd., as well as certain other restrictions relating to intellectual property and confidentiality. The agreement with Alfred Dunhill Ltd. does not provide for an express expiration date.
Gucci. We have acted as a manufacturer and supplier of jackets and formal overcoats, slacks and knitwear (both ready-to-wear and made to measure) under the Gucci brand since 1990. Under the relevant agreement, which was recently renewed, we are required to comply with the designs and specifications supplied by Gucci, as well as certain other restrictions relating to intellectual property, sustainability and confidentiality. Gucci has agreed, on a best-effort basis, to place a minimum number of orders for each season for jackets and formal overcoats and granted us exclusivity for made-to-measure products. The agreement with Gucci is set to expire upon completion of the Spring/Summer 2028 collection, unless a renewal is agreed upon between the parties.
Thom Browne segment
For the years ended December 31, 2023, 2022 and 2021, the Thom Browne segment generated revenues after eliminations equal to €378,410 thousand, €330,014 thousand and €263,397 thousand, respectively, representing 19.9%, 22.1% and 20.4% and of our revenues, respectively, after eliminations.
Thom Browne is a renowned luxury brand founded by Mr. Thom Browne in 2001 in New York. In 2018, the Group completed the acquisition of 85% of Thom Browne Inc., the holding company of the Thom Browne business. In June 2021, we acquired an additional 5% equity interest in Thom Browne Inc. Under a put option agreement between Ermenegildo Zegna Group and Mr. Thom Browne, Mr. Thom Browne has the right, but not the obligation, to sell to the Company up to 550.9674 shares of common stock of Thom Browne Inc. (representing the remaining 10% interest in the company held by Mr. Thom Browne) over the period between 2024 and 2030 (subject to potential deferral until 2032). The Thom Browne business’s growth since the initial acquisition has been remarkable, with revenues increasing from approximately €117 million in 2018 to €378 million in 2023 after eliminations, representing a CAGR of 26%.
Each year Thom Browne offers pre-collections and main collections, organized into two seasons (Fall/Winter and Spring/Summer) for each of men, women and children.
Mr. Browne started designing clothes for friends and family in the early 2000s, and his popularity as a fashion designer has grown ever since. Thom Browne’s signature line of grey suits redefined the concept of the male silhouette, and his collections lean heavily on two main colors: grey and navy. The brand uses the highest quality materials to obtain garments that are beautiful, classic, and durable. Its distinctive traits are the absence of any form of a bold logo, the cropped silhouette of the garments, and the use of visual identifiers as trademarks, such as the four white horizontal bands (uniquely located on the left upper sleeve and/or upper pant leg) and/or a grosgrain ribbon or tab in White, Red, White, Blue, White (also uniquely positioned on the garments). Each Thom Browne piece is designed to be aesthetically perfect, classic and long-lasting, inspired by Mr. Browne’s philosophy that something beautifully made will never be out of fashion.
Tom Ford Fashion segment
For the year ended December 31, 2023, the Tom Ford Fashion segment generated revenues after eliminations equal to €235,531 thousand representing 12.4% of our revenues, after eliminations.
The TOM FORD brand was founded in 2005 and partnerships were established with The Estée Lauder Companies Inc. and Marcolin to develop TOM FORD beauty and eyewear products. In 2008 and 2010 respectively, TOM FORD launched menswear, in collaboration with the Ermenegildo Zegna Group, and womenswear. In April 2023, Peter Hawkings was appointed as new Creative Director of TOM FORD. On April 28, 2023, the Estée Lauder Companies Inc. completed the acquisition of the TOM FORD brand, its trademarks, and other intellectual property rights. On the same day, the Ermenegildo Zegna Group completed the TFI Acquisition. TFI is consolidated in the Group’s results since April 29, 2023. The Group is now in charge of the end-to-end TOM FORD FASHION business, from collection creation and development to merchandising, through to production, as well as retail and wholesale distribution. In addition, by virtue of a long-term licensing and collaboration agreement with ELC (for a duration of 20 years, with an automatic renewal for one further 10-year period subject to certain minimum performance conditions), the Ermenegildo Zegna Group has become a long-term licensee of ELC for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products.
Building on the TOM FORD FASHION DNA of confidence, vision, and modern luxury glamour, refined elegance and mysterious allure, TOM FORD FASHION has all the cards to be positioned as a global luxury lifestyle house that blends innovation with artisan craftsmanship, delivering an alluringly modern aesthetic across diverse yet unified offerings that prioritize luxury, product excellence, and impeccable fit.
Ermenegildo Zegna Group Activities
The mainGroup’s primary activities consist in designing, manufacturing, and distribute ready to wear, shoes and leather goods collections for its three brands.
Activities can be divided into the following major stages, each of which is overseen by dedicated functions, operating independently at the brand level: (i) design; (ii) product development; (iii) sales campaign; (iv) procurement; (v) manufacturing; (vi) logistics; (vii) marketing and advertising; and (viii) distribution. Procurement and manufacturing needs from each brand are partially met through the Textile product line and the Group’s manufacturing facilities.
From the first sketch to in-the-store delivery, the preparation of each collection takes approximately 12 months.
The activities of the Textile product line and of the Third-Party Brands product line follow their own operational phases and logics.
Design, Merchandising and Product Development
New collections are created by the Design team of each brand, considering each brand’s identity, market analyses and seasonal fashion trends. When developing collections, the Design team works in close coordination with the Merchandising team to make sure that the offer is complete with a congruent price structure and in line with the needs and trends uncertaintiesof the market.
The Design and opportunities affecting ZegnaMerchandising teams then work closely with the product developers and modelers, who transform sketches into models and prototypes, including through the use of 3D technology. This is a key phase because of our production process, as it allows the Design and Product teams to assess the look, feel and functionality of the products and to possibly anticipate any issues that may arise during the manufacturing process. Once the prototypes are summarized below:approved, we develop sample collections.
Sales Campaign
Once ready, the sample collections are presented to wholesale customers and retail buyers at ZEGNA’s, Thom Browne’s and TOM FORD FASHION’s respective showrooms. During the sales campaign, retail buyers and wholesalers place orders on the basis of the brand buying guidelines.
During the sales campaign, the Merchandising and the Supply Chain teams regularly share information on the evolution of the order portfolio to align the initial forecasts for raw material procurement and production planning.
Procurement
Based on forecasts and on the order portfolio, each brand sources the necessary raw materials, trimmings and finished goods through its network of selected suppliers. While the initial purchases are based on forecasts, they adjust and supplement such purchases based on actual orders as the sales campaign progresses.
Based on the proposition that the very best garments can only come from the best natural resources, the Group has dedicated its efforts through the years to the research of only the finest raw materials and fabrics. A crucial role in this context is played by the Textile product line. For instance, each brand sources a portion of its requirements of fabrics from Lanificio, jersey from Dondi, printed fabrics from Bonotto and cashmere from Biagioli.
Manufacturing and Logistics
While the sales campaign is still ongoing, each brand starts planning for its own manufacturing activities. Production quantities are continuously refined based on the results of the sales campaign. A distinctive feature of our manufacturing is
that Made in Italy represents the large majority of the overall production of all our brands’ products. A portion of such products is manufactured internally at our facilities. ZEGNA is currently the brand with the highest incidence of in-house production.
The Group’s production facilities are located in Verrone, Italy, for knitwear; San Pietro Mosezzo, Italy for formal jackets and suits; Parma, Italy, for outerwear and leather accessories; Mendrisio, Switzerland, for jackets, suits, shirts; and Turkey, for shirts. Each facility produces both ready to wear and Made to Measure products. For products or categories that are not manufactured internally, each brand relies on a selected network of external long-standing suppliers, largely based in Italy. Each sourcing team is committed to carefully selecting all suppliers and managing the relationships with suppliers for their entire duration, aiming to ensure that quality and ESG standards are aligned to the Group’s requirements and that timing of deliveries is adequately met.
The Group’s outsourced products are manufactured using two different approaches. The most common is the façon manufacturing (or third-parties production); the second is the “full package” manufacturing process. When using the façon manufacturing model, the brand outsources to external manufacturers the confection stage (i.e. the Cut-Make-Trim phase including cutting, sewing, washing and pressing), while remains responsible for providing the designs, product specifications and raw materials. Alternatively, in the “full package” approach, the brand outsources the entire production process.
Once produced internally or through our partners, products are delivered to our distribution centers to be transferred to each brand’s monobrand stores and to their wholesale customers. The logistics department of each brand is responsible for organizing and managing the distribution of the finished products, as well as the management of warehouses.
The Group has several logistics centers in Italy and abroad, in Switzerland, North America, China, Japan and South Korea.
Marketing and Advertising
Advertising and promotional activities are critical for luxury companies like us to enhance the brand recognizability, influence purchase selection, and encourage brand loyalty over time. The Group invests significant resources in advertising, communication and marketing, which include a full set of activities ranging from pure digital and social media marketing initiatives to events like fashion shows, product collaborations and co-marketing projects. In 2023, 2022 and 2021, marketing expenses amounted to €114,802 thousand, €85,147 thousand and €67,831 thousand, respectively.
ZEGNA’s marketing strategy is based on an all-round approach with the customer at its center. We manage the relationship with our customers from an omni-channel perspective, enhancing the interaction between the digital and physical dimensions. Our customers shop across different channels, and through digital tools we directly and regularly inform them about new campaigns, products, and collaborations using original content we develop and produce for a specific project or collection. We aim to provide tailored content and messages to our customers and, through our presence on social media, we translate our craft and products into a narrative aimed at attracting our customers through inspiration. All of our marketing campaigns focus on storytelling to strategically solidify our values in our customers’ minds. Our One Brand strategy and repositioning have provided enhanced opportunities for brand amplification, including collaborations such as the multiyear one with Real Madrid launched in August 2022 and advertising campaigns focusing on our iconic products such as the Triple Stitch or our Oasi Cashmere and Oasi Lino collections.
Since our founding in 1910, we have inspired men to define their style identity, ensuring their character can be found in every detail of their outfits. The ZEGNA brand can count many leaders of business, sports, entertainment, design and culture as friends. Some have even become part of our extended family over the years, acting as ambassadors for our brands. We also conduct targeted product placement activities on key opinion leaders, celebrities and influencers.
With respect to the Thom Browne segment, Thom Browne presents its seasonal collections in New York or Paris through spectacular, theatrical and conceptual fashion shows during the men’s and women’s fashion weeks. These shows contribute to positioning the brand at the pinnacle of fashion and creativity, are the source of the narrative for each season and help generate significant editorial coverage in fashion, art and culture publications, both on paper and online. This innovative approach makes Thom Browne the brand of choice for a number of VIPs and celebrities worldwide. From highly successful actors and musicians in South Korea, to U.S. athletes, actors and musicians of worldwide fame, the brand has proven to have a very strong appeal.
We are seeking to strengthen the historical customer loyalty enjoyed by the Thom Browne brand through the introduction of new customer relationship management tools and initiatives.
The Tom Ford Fashion segment aims at creating consistent storytelling through lookbooks, editorial and campaign assets, and runway shows that create a unified narrative across men’s, women’s, eyewear and beauty offerings with the goal of establishing the brand as a true global lifestyle icon and further solidifying Peter Hawking’s vision for the brand.
Seasonal collections are unveiled during the Milan Fashion week through sophisticated, elegant, and modern fashion shows that empower the brand to position itself as the pinnacle of true luxury, create engaging content, indulge and entertain top clients and partners, as well as to develop a carefully curated list of VIP attendees that encompass the TOM FORD FASHION man and woman. A tactical focus in marketing is on content creation and an increased, highly strategic investment in media to establish the new codes of the house - glamour, mysterious allure, refined elegance – in order to build awareness, customer loyalty and brand equity.
Each segment has internal teams dedicated to marketing and advertising activities, each following slightly different marketing strategies depending on the brand. To better reach a wide but selected consumer target, we use various communication tools, from organic institutional and product press coverage to media partnerships, a varied media-mix including digital marketing, digital media campaign, print, billboards, direct marketing and ad hoc initiatives in our boutiques where visual merchandising and windows displays are conceived to consistently adhere to the seasonal marketing strategy plan.
In addition to seasonal fashion shows, January Fall/Winter and June Spring/Summer collection presentations, specific shows and events are organized globally to strengthen our brands’ profiles and positioning and increase awareness on the most recent collections in local markets worldwide. Besides presenting new products, these events are planned to promote a direct involvement of the customers, media, celebrities, influencers, and industry key opinion leaders through exclusive events, as well as to reinforce the popularity of the brand and enhance its image.
Distribution Channels
Our sales teams bring our customers into our community, sharing with them our creativity and craft, as well as our story and the journey of each item. These relationships are nurtured in-store with respect to our DTC channel and in our showrooms with respect to our wholesale channel, with the aim to deliver a consistent and unique customer experience.
We distribute and sell our products in approximately 85 countries worldwide through a well-established network comprised of our DTC and wholesale distribution channels.
Our monobrand presence includes our DOSs (which are divided into boutiques and outlets), directly managed online boutiques and our franchisees’ monobrand stores. Our multi-brand presence includes department stores, specialty stores and e-tailers.
Zegna segment
For the year ended December 31, 2023, €945.3 million of ZEGNA branded products revenues (equal to 85% of total revenues of the product line) were generated through the DTC channel and €164.2 million were generated through the wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2023, ZEGNA operated 253 DOSs, of which 123 were in APAC, 71 were in EMEA, 59 were in the Americas. For the year ended December 31, 2023, the DTC channel generated revenues representing 85% of the revenues from the ZEGNA branded products product line of the Zegna segment. Our DTC channel is distributed throughout the main markets in which we operate. We focus on maintaining a presence in prestigious and strategic locations, and in certain cases we enter into joint ventures with local partners in jurisdictions where ZEGNA would not be able to operate directly without a local partner or where the presence of a local partner is beneficial due to its knowledge of the local market and regulations. As an example, we have entered into joint ventures in the United Arab Emirates, Vietnam and India.
The aesthetics and customer experience of our DOSs are carefully planned and designed by our Artistic Direction team. Once opened, an internal staff of architects and visual merchandisers who are supported by external professional firms constantly maintain and restyle our DOSs as required. In addition, we have in place specific training programs dedicated to our sales staff, focusing on product knowledge and customer service.
To select the range of products sold in our DOSs, we establish guidelines at the group level based on market potential and the characteristics of the points of sale. Buyers and merchandisers in our regional offices then select the best selection of products in terms of models, materials and color variants.
Our DTC channel also includes an e-commerce shop operated directly through our website www.zegna.com, outlets, concessions within department stores around the world, certain travel retail stores directly operated by us (including those at Linate and Malpensa airports in Milan) and other e-commerce platforms through which we sell directly to our customers (such as TMall Luxury Pavilion, Farfetch and WeChat) and whose sales systems are integrated with ZEGNA’s sales and warehouse management systems.
Wholesale Channel
As of December 31, 2023, our monobrand distribution network included 151 points of sale operated by our wholesale customers and franchisees, of which 33 were in APAC, 55 were in EMEA, 63 were in America. For the year ended December 31, 2023, the wholesale channel, including multibrand stores and royalties, generated revenues representing 15% of our revenues from the ZEGNA branded products product line of the Zegna segment.
Our wholesale distribution channel has developed through agreements with different types of wholesale customers, including in particular:
•Franchisees, which operate monobrand points of sale exclusively under the ZEGNA brand, in exchange for the payment of royalty fees to ZEGNA based on sales volumes. The franchising agreements governing these relationships typically have a medium term (providing for an automatic renewal or a renegotiation period prior to the term expiry). The contractual arrangements may also provide for minimum purchase obligations by the franchisee, and for the obligation by ZEGNA and/or the franchisee to invest certain amounts in marketing activities. Starting from January 1, 2024 we have internalized our franchising operation in South Korea, which is now operated via DOSs.
•Department stores and multibrand specialty stores, which purchase ZEGNA products for resale in their stores, sometimes in specific ZEGNA branded wall units. The contractual arrangements with this type of customer vary based on the relevant store’s standard terms.
•Online multibrand stores. ZEGNA branded products are also sold via prestigious online multi-brand stores such as SSENSE, Mr. Porter and JD.
As with our DTC channel, we carefully manage and, if necessary, customize our distribution policies for our wholesale customers.
Within the wholesale distribution channel, duty free and travel retail stores operated by specialized players and located at major airports around the world have an important role, ensuring that the ZEGNA brand is present in major airports worldwide and in exclusive hotels, both in duty free and duty paid points of sale. These travel retail stores in the wholesale distribution channel are in addition to travel retail stores directly operated by us.
We believe that our wholesale presence is strategic as it provides constant benchmarking opportunities and external feedback hence allowing a constant monitoring of the positioning of our brand and products vis-à-vis those of our competitors.
Thom Browne segment
For the year ended December 31, 2023, €183.4 million of the Thom Browne segment’s revenues was generated through its DTC channel and €195.0 million were generated through the points of sale operated by Thom Browne’s wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2023, Thom Browne operated 86 DOSs, of which 70 were in APAC, 9 were in EMEA and 7 were in America.
As of July 1, 2023, Thom Browne began directly operating its business in South Korea and its network of 17 stores. The business is now wholly owned through our subsidiary Thom Browne Korea, and will be operated in the region with external support from the former franchise partner.
Unlike other luxury fashion brands (including ZEGNA), Thom Browne, leveraging its customers’ awareness of the brand and presence in the main digital channels, has DOS locations of comparatively smaller size, which are usually destination stores with highly-trained staff. This allows for more flexibility in negotiations with landlords and alleviates pressure on rental charges, while Thom Browne still benefits from the inflow of loyal customers. Thom Browne’s strategy puts an emphasis on developing customer relationships rather than on positioning in key streets, while actively working to increase the visibility of its DOSs to attract new customers and to establish specific training programs for its DOS staff in order to ensure a consistent and high quality retail experience in the various geographies.
Thom Browne’s DOSs also include an e-commerce shop operated directly through the website www.thombrowne.com and carefully selected directly operated outlet sale locations.
Wholesale Channel
As of December 31, 2023, Thom Browne’s monobrand distribution network included 25 points of sale, of which 15 were in APAC, 7 were in EMEA and 3 were in North America.
On top of the wholesale monobrand stores, the Thom Browne segment’s wholesale distribution channel also consists of selected multibrand department and specialty stores globally and e-tailers.
Tom Ford Fashion segment
For the year ended December 31, 2023, €136.3 million of the Tom Ford Fashion segment revenues was generated through its DTC channel and €99.2 million were generated through the wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2023, TOM FORD FASHION business operated 51 DOSs, of which 35 were in APAC, 4 were in EMEA and 12 were in North America.
Wholesale Channel
As of December 31, 2023, TOM FORD FASHION’s monobrand distribution network included 70 points of sale, of which 6 were in APAC, 14 were in EMEA and 50 were in the Americas.
The TOM FORD FASHION wholesale distribution channel also consists of a presence in a selected number of wholesale multibrand stores globally.
Intellectual Property
Zegna segment
As of the date of this report, and with an overall trademark portfolio including more than 3,800 registrations, the principal owned trademarks or trade names that we use in the Zegna segment’s business are “Ermenegildo Zegna” and “Zegna,” and the new logo “Brand Mark” related to the rebranding project, which we have filed or registered in all the relevant products and services classes and in all of the countries in which we operate in the logo version and/or in the word/standard characters version or in versions which are adapted to various local alphabets or ideographs (e.g., Zegna written in Japanese, Katakana syllabary, in Chinese ideographs, Thai characters, or in the Arabic or Georgian alphabet). We have also registered certain other marks used on our products and in our main marketing projects such as our capsule collections.
Additionally, we have a portfolio of more than 800 domain names, including (i) registrations in all the countries in which we operate, (ii) the most common Zegna and Ermenegildo Zegna typos and (iii) early and basic protection for our main business and marketing projects.
Besides trademarks, we invest significant resources in protecting other aspects of our brands’ uniqueness. With more than 800 design and 9 copyright registrations covering several countries including the European Union, China and the United States, every season we select the most relevant and original products, patterns and, to the extent necessary, protect our rights, labels, and take action to protect their design and defend them against counterfeiting. In addition, we own 15 patents and one copyright for engineering work (thanks to special protections available in Italy), which are a result of our solid roots in fabric making and our pioneering efforts to improve performance and functionality in our products.
We devote significant resources to the protection and enhancement of our intellectual property assets and actively monitor the market, offline and online, for infringements or abuses of our trademarks, domain names and product designs. We are also active in enforcing our rights against third party infringements. In addition, we monitor third party applications for registration of trademarks that could be confused with our trademarks, and file oppositions against the applications for, or the registration of such trademarks in accordance with the laws and regulations of the relevant jurisdictions and cooperate with competent authorities worldwide to fight the counterfeiting of our products.
Thanks to the long-standing efforts discussed above, judicial and/or administrative decision in countries including China, Turkey, Mexico, Brazil and India have recognized our trademarks as well known and famous, giving Zegna the ability to benefit from a cross-class protection.
For a description of the licenses we grant in our business, please see “—Brands, Collections and Products—Zegna segment—Third Party Brands Product Line.”
Thom Browne segment
As at the date of this report, Thom Browne Inc. and its subsidiary Thom Browne Japan, Inc. own or control approximately 300 trademark registrations worldwide, with a number of additional applications pending. The principal owned trademarks or trade names that are used by Thom Browne are THOM BROWNE, a four-band design, a grosgrain ribbon in White, Red, White, Blue, White, and THOM GREY, which have been registered or for which applications for registration have been submitted, in text form or design form, in virtually all the jurisdictions in which Thom Browne operates.
In addition, the design marks shown as location marks, such as a tab on the back of a collar on a shirt or jacket, have been registered, or an application for registration has been submitted, including in the native language of certain important markets.
Thom Browne has also registered certain other marks used on its products and in its main marketing projects and maintains an ongoing program to constantly review and update filings and protections to extend the registrations to classes of goods for which new products are introduced from time to time.
In addition, Thom Browne has a portfolio of domain names, including a number of domain names featuring the “Thom Browne” name, such as ThomBrowne.com, Thombrowne.uk and similar domain names in the jurisdictions in which Thom Browne operates.
Thom Browne devotes significant resources to the protection of its intellectual property assets worldwide through a highly specialized brand protection program. In-house and outside specialists monitor all major markets as well as global social media and websites for misuse of Thom Browne’s intellectual property. To the extent infringements are detected, adequate enforcement steps are taken, including in cooperation with the relevant authorities.
Tom Ford Fashion segment
As of the date of this report, TFI and its subsidiaries operating the TOM FORD FASHION business do not maintain trademarks, copyrights, patents, or domain names in their own name. Rather, pursuant to the TFF License with The Estée Lauder Companies, TFI is licensed to use the TOM FORD FASHION intellectual property for men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products worldwide.
TOM FORD FASHION cooperates closely with The Estée Lauder Companies to protect against misuse of the licensed TOM FORD FASHION intellectual property. To the extent counterfeiting activities or infringements of the licensed TOM FORD FASHION intellectual property are detected, TOM FORD FASHION cooperates with The Estée Lauder Companies in its enforcement efforts, including in cooperation with the relevant authorities.
Research and Development
Our competitiveness depends on, among other things, our ability to anticipate trends and to identify and respond to new and changing consumer preferences. We therefore devote significant resources to various research and development activities to design, create and develop new products for our collections. As of the date of this report, over 300 of our employees were involved in our research and development activities across the Zegna, Thom Browne and Tom Ford Fashion segments.
Our research and development activities mainly relate to the development of new patterns and designs for our fabrics, the research of innovative and technological materials with specific features, the design, modeling and development of new products and the creation of prototypes.
In recent years, our research and development efforts have focused on the reduction of the overall number of new products launched, with a shift towards the activities for the creation of iconic products characterized by high visibility and superior growth, the creation and launch of ad hoc capsule collections, and significant resources devoted to the development of products for our continuative products (which are generally sold across seasons with minimal style changes). In addition, in our commitment to contribute to address climate change issues, we intend to invest in research and development with the aim of producing in the medium to long-term new highly sustainable materials (e.g., non-oil synthetic materials) with lower environmental impact than traditional animal fibers and leathers.
The Business Combination
On July 18, 2021, Zegna, IIAC and Zegna Merger Sub signed a business combination agreement that contemplated a seriesunder the leadership of transactions, which were ultimately completed throughits CEO, the Company entered into the Business Combination Agreement and certain ancillary agreements with IIAC. Also on December 17, 2021.
On November 1,July 18, 2021, Ermenegildo Zegna Holditalia S.p.A. completed the disposition of certain of its businesses throughPIPE Investors that had chosen to participate in the statutory demerger under Italian lawPIPE Financing delivered executed PIPE Subscription Agreements to a new company owned by its existing shareholders. The Disposition included, inter alia, Ermenegildo Zegna Holditalia S.p.A.’s real estate business, consisting of its former subsidiary EZ Real Estate, which directlythe Company and indirectly holds substantially all of the real estate assets formerly owned by the Zegna Group, as well as certain properties previously owned by Lanificio, and its 10% equity interest in Elah Dufour S.p.A. Most of the real estate properties directly or indirectly owned by EZ Real Estate were, and continue to be, leased to Zegna also following the Disposition.
IIAC. The Business Combination was completed through a series of transactions executedconsummated on December 17, 2021. On December 20, 2021, including a cross-border conversion wherebyour Ordinary Shares started trading on NYSE.
In connection with the Business Combination:
•on the Closing Date prior to the Effective Time, the Company (at the time Ermenegildo Zegna Holditalia S.p.A., by means ofan Italian joint stock company) implemented the execution of a Dutch notarial deed of cross-border conversionConversion and amendment of its articles of association, converted intobecame a Dutch public limited liability company (naamloze vennootschap) and transferred its legal seat from Italy to the Netherlands and amended its articles of association,(naamloze vennootschap), upon which the Companyit changed its name to Ermenegildo Zegna N.V. and underwent a share split;
•on the Closing Date following the Conversion and prior to the Effective Time, the FPA Purchaser purchased from IIAC and IIAC issued to such FPA Purchaser 22,500,000 Class A Shares for an aggregate purchase price of €191.8 million;
•immediately following the consummation of the Forward Purchase, at the Effective Time, Zegna Merger Sub merged with and into IIAC, with IIAC being the Surviving Company in the Merger;
•immediately following the Effective Time, the Company consummated the PIPE Financing and the Offset PIPE Financing;
•after the consummation of the PIPE Financing and the Offset PIPE Financing, the Surviving Company distributed an amount of cash equal to €191,806,537.10 plus $105,380,150.53 to the Company by way of a return of capital distribution; and
•promptly following the Capital Distribution, the Company repurchased 54,600,000 Ordinary Shares from Monterubello in exchange for a promissory note in the amount of €455,000,000. Such promissory note was repaid by the Company on December 21, 2021.
Warrant Redemption
FollowingOn January 26, 2023, the Company announced a redemption of all Warrants, following which 19,322,846 Warrants were exercised on a cashless basis and 408,667 Warrants were exercised for cash, resulting in the issuance of an aggregate of 5,761,067 Ordinary Shares. The 385,123 remaining outstanding Warrants were redeemed on February 27, 2023.
TFI Acquisition
On April 28, 2023, the Company completed the acquisition of Tom Ford International (“TFI”) (the “TFI Acquisition”), through which it acquired the company that owns and operates the TOM FORD FASHION business, as part of a transaction in which sole ownership of the TOM FORD brand, its trademarks, and other intellectual property rights have been acquired by The Estée Lauder Companies Inc. (“ELC”) and TFI has become a long-term licensee of ELC for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products, by virtue of a long-term licensing and collaboration agreement with ELC for 20 years subject to renewal at TFI’s option for one further 10-year period subject to certain minimum performance conditions. The Group will be in charge of the end-to-end TOM FORD FASHION business, from collection creation and development to production and merchandising, as well as retail and wholesale distribution. The TOM FORD FASHION business, under the Group, operates a network of 51 directly operated stores globally at December 31, 2023.
Before the completion of the Business Combination,TFI Acquisition, the Group already owned 15% of TFI, through its fully owned subsidiary EZ US Holding Inc., and, through the TFI Acquisition it acquired the remaining 85% equity interest. The transaction implied a value for the acquired 85% stake of TFI at $150 million in cash, on December 20, 2021, Zegna’s ordinary sharesa cash-free and public warrants began trading on the NYSE under the symbols “ZGN”debt-free basis and “ZGN WS”, respectively.
assuming a normalized working capital. For additional information relating to the purchase price allocation of the TFI Acquisition, see Note 39 — Business Combinationcombinations to the Consolidated Financial Statements included elsewhere within this Annual Report.
As a result of the TFI Acquisition, the Group also obtained 100% of Pelletteria Tizeta S.r.l. (“Pelletteria Tizeta”), for which it previously held a 50% interest and accounted for the investment using the equity method, with the remaining 50% interest owned by TFI and being acquired by the Group through the TFI Acquisition.
B. Business Overview
The Group is a global luxury player, leader in the high-end menswear business and internationally recognized for its unique textile and manufacturing platform. Heritage, Italian craftsmanship, quality and innovation are key ingredients of its three complementary brands: ZEGNA, Thom Browne and TOM FORD FASHION. Through them, our reach expands to touch different communities, from the absolute iconic luxury, with its eponymous brand ZEGNA, to modern tailoring, with Thom Browne, to luxury glamour, with TOM FORD FASHION. Thanks to Thom Browne and TOM FORD FASHION, the Group also plays an important and growing role in the luxury womenswear and leather goods segment.
We operate in three segments: the Zegna segment (comprising three product lines: ZEGNA branded products, Textile and Third Party Brands), the Thom Browne segment and, following the TFI Acquisition, the Tom Ford Fashion segment.
The following charts show consolidated revenues by segment for the years ended December 31, 2023, 2022 and 2021.
Consolidated revenues by segment after eliminations and by geographic area (€ millions, except percentages)
The Group distributes its products world-wide and has a well-balanced presence among all its regions, with APAC being the most important area.
The following charts provide a breakdown of consolidated revenues by geographic area for the years ended December 31, 2023, 2022 and 2021.
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(1)EMEA comprises Europe, the Middle East and Africa.
(2)North America includes the United States of America and Canada.
(3)Latin America includes Mexico, Brazil and other Central and South American countries.
(4)APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
(5)Other revenues mainly include royalties.
Industry
Industry information contained in this section is based on the Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2023 (the “Bain-Altagamma Study”), unless otherwise indicated.
We operate in the personal luxury goods market, which includes the following product segments: accessories, jewelry, beauty, apparel and watches. By product, we primarily focus on the apparel and accessories segments of the personal luxury goods market. The luxury textiles market, which accounts for less than 10% of the Group’s consolidated revenues after eliminations, is not discussed in this section.
Demand in the personal luxury goods market, especially in the absolute luxury segment, is characterized by a low price-sensitivity. Instead, demand is more likely driven by tangible and intangible factors which fuel a brand’s equity and desirability. Brand equity is made of several important components, including heritage, exclusivity, recognizability, quality, and experience.
According to the Bain-Altagamma Study, the global personal luxury goods market had a total estimated value for the year 2023 of approximately €362 billion and has grown steadily for about two decades with a compound annual growth rate (“CAGR”) of 6% from 1996 to 2019. Over the period from 2019 to 2022, the personal luxury goods market experienced a 7% CAGR, as a result of a V-shaped rebound in 2021 and 2022 following the sharp decline in demand in 2020 due to the COVID-19 pandemic. It continued to increase during 2023, as per the same Bain-Altagamma Study, at an estimated rate of 8% at constant exchange rates and 4% at current exchange rates, compared to 2022.
The chart below sets forth the evolution of sales in the global personal luxury goods market from 1996 to 2022 and the expected evolution for the period from 2023 to 2030. With the exception of 2009 and 2020, the global personal luxury goods market has grown by mid-single-digit annual growth and is expected to have a CAGR of between 5% to 7% from 2023 through 2030.
Personal Luxury Goods Market Evolution – €bn
Source: Bain-Altagamma Luxury Goods Worldwide Market Study, Fall 2023, dated November 14, 2023.
The Bain-Altagamma Study estimates that about one-third of personal luxury goods sales will occur online by 2030 (compared to approximately 20% in 2023), Chinese consumers will represent between 35% and 40% of the total global personal luxury goods sales (compared to approximately 22-24% in 2023) and Gen Z and Gen Y and a new Gen Alpha combined will represent approximately 80% of the market (compared to approximately 65% in 2023).
Several recent trends are expected to continue to be the main drivers of growth for the industry in the coming years, including the growing polarization of wealth, the expansion and increasing sophistication of the customer base in search of excellence in products, service and experience, the increasing popularity of casual luxury, a rise in domestic purchases coupled with a gradual return of tourists’ spending and an increasing focus on authenticity, sustainability, ethical and diversity considerations.
The personal luxury goods market is characterized by significant barriers to entry, such as, among others: (i) brand heritage, which is embodied by unreplaceable assets like a brand’s history, values and DNA; (ii) brand equity, which is the perception of the uniqueness and high reputation of a brand, built over time with, among the others, important investments in advertising; (iii) know-how, characterized by many aspects of the “saper fare” (savoir faire) starting from the design and innovation capacity through the ability to provide products with a superior quality and an utmost experience for clients; and (iv) a high-end distribution network, which embraces prime locations in the most important, highly competitive, luxury streets and malls.
Competitive Strengths
We operate in the personal luxury goods market. Although in this arena we compete with other global companies, we believe we have unique advantages to successfully compete and further strengthen its presence and leading position. Heritage, Italian craftsmanship, undisputed legacy along with a portfolio of complementary brands with significant untapped growth potentials represent strong and prime assets for the Group.
We believe that the following key competitive strengths have been the primary drivers of the Group’s historic success and continue to be pillars of its future growth strategy.
Heritage
Since the foundation of Lanificio Ermenegildo Zegna e Figli S.p.A. (“Lanificio” or “Lanificio Ermenegildo Zegna”) at the beginning of the past century, Zegna has been synonymous with quality, style and innovation for men’s fashion. This has been and continues to be true for the ZEGNA brand and the Ermenegildo Zegna Group.
Luxury Menswear Leadership
The Ermenegildo Zegna Group has a consolidated leadership position in luxury menswear, rooted on its more-than-100-year of history. This undisputed legacy, along with a portfolio of unique and complementary brands, constitutes the Group’s main competitive strength. ZEGNA has evolved from being one of the most recognized brands in men’s tailoring to become an icon brand in the men absolute-luxury leisurewear segment with a top class retail network in the most important luxury streets and shopping malls. The addition of Thom Browne in 2018 and TOM FORD FASHION in 2023 has further strengthened the Group’s leadership by capturing distinctive and complementary segments of clientele, while leveraging on the Group’s textile and manufacturing know-how.
Integrated Italian Platform
The Ermenegildo Zegna Group controls an integrated luxury textiles and manufacturing chain, vertically integrated from the sourcing of the finest raw material to the production of high-quality garments. Through the historical Lanificio Ermenegildo Zegna as well as the more recent acquisitions of Dondi, Bonotto, Tessitura Ubertino, and the minority interests in Filati Biagioli Modesto, the Group has built an in-house textiles platform that provides a unique competitive hedge in term of innovation capacity and research of the finest and highest performing fabrics with the best quality. The importance of innovation is also testified by our over 300 employees dedicated to research and development.
The textile platform, integrated with state-of-the-art manufacturing capabilities, represents a key competitive advantage that the Group can offer to the brands in its portfolio. It also offers significant barrier to entry in the strategic Made-to-Measure business. The Group offers Made-to-Measure (Su Misura) and bespoke services (that take customization to a higher level) for its three brands with a best-in-class lead time that goes from 2 weeks (in some key stores) up to 4 or 6 weeks. Management believes that the breadth of the offering and the lead times, as well as the service quality and the experience provided to customers, are setting the standards in the industry. These services enable us to cultivate meaningful client relationships, develop a loyal customer base and drive new customer engagement.
Complementary Portfolio of Uniquely Positioned Luxury Brands
Ermenegildo Zegna Group is made of three brands complementary across styles, occasions of use, and aesthetic.
ZEGNA, the Group’s eponym brand, is a leading brand in the men’s absolute luxury segment. Authenticity represents the brand’s core and true value. The brand’s authenticity stands not only on more than 110 years of unique heritage but also in a responsible vision which started since its foundation and has been passed down through the generations, ensuring that giving back, responsibility towards the environment and community well-being remain key values for the brand. An expression of this vision is a freely accessible natural reserve covering approximately 100 square kilometers from the small village of Trivero, where the Group originated, to the peaks of the Biella Alps in Italy. This area was created by the Group’s founder over 100 years ago and rebranded “Oasi Zegna” in 1993. Oasi Zegna has been and continues to be an important source of inspiration for the ZEGNA brand’s collections and for the brand iconic products.
Thom Browne. Distinctive craftsmanship, undisputed tailoring know-how and proud community are the key ingredients of the brand success in both men and womenswear. Thom Browne has a wide range of luxury and fashion clients that appreciate the unique design and quality.
TOM FORD FASHION. Recently added to the Group, TOM FORD FASHION completes the Group’s offering delivering an alluringly modern aesthetic for a client who pursues recognition, product excellence and impeccable fit.
All three brands have untapped growth potential in terms of products, countries and channels to be exploited in their respective reference markets. In particular, Thom Browne and TOM FORD FASHION give us exposure to the womenswear luxury apparel and leather goods markets.
World-Class Customer Relationship Management (CRM) Capabilities.
The Group’s clienteling business model puts the customer at the center. We believe that only a controlled distribution network, along with a unique CRM experience, can provide a distinctive, world class experience to its clients. Over the years, the Group has developed highly sophisticated and innovative CRM tools for ZEGNA and Thom Browne, able to connect with clients across multiple touchpoints, offering an expanded range of services, allowing to reach a wider, younger, and increasingly diverse audience while reinforcing the identity, history and values of the brands. Our DTC network is essential to implement successfully all CRM tools while embracing a unique clients’ journey. The Group has developed a strong, well balanced, international network of 390 Directly Operated Stores (DOS) in approximately 30 countries around the world, accounting for 66% of consolidated revenues. The Group’s strengthening of the DTC channels will continue to remain a significant pillar of its future growth strategy for all its brands, ZEGNA being the most advanced in this journey.
Potential Aggregator in the Luxury Goods Market.
While our brands maintain their own identity and unique design flair, the Group has the skills and the experience to act as a long-term industrial partner and as an aggregator of leading luxury brands. The Group’s in-house laboratory platform and manufacturing know-how, its capable management team led by the Zegna family, the extensive knowledge of the global luxury market in term of, among the others, real estate development and retail expertise, allow the Group to add value to the businesses it partners with. A prominent example of this is the performance of Thom Browne following our acquisition in 2018, with revenues growing from €117 million in 2018 to €380 million before eliminations in 2023. Similarly, the addition of the TOM FORD FASHION business represents a further opportunity to leverage the Group’s platform.
Strategy
Ermenegildo Zegna Group intends to reinforce and extend its leading position in the luxury market by continuing to develop its three brands in their unique and highly complementary reference markets, while strengthening its one of a kind Made in Italy textile and manufacturing platform, while always seeking to respect the planet and foster its community. In particular, the Group intends to:
a.Continue nourishing ZEGNA as a reference brand in the absolute luxury menswear business;
b.Support the Thom Browne international expansion, with a focus on DTC, womenswear and leather goods accessories, while protecting the brand’s DNA and unique identity;
c.Work on aligning the business of TOM FORD FASHION to the brand’s world-wide knowledge and allure in the luxury sector;
d.Continue to pursue a sustainable development of the Group’s business, leveraging on its superior Made in Italy integrated know-how. Respect for the planet, community and diversity support and traceability are some of the most important pillars for the Group’s future growth. In addition, the Group aims at investing in its directly controlled Made in Italy luxury textiles and manufacturing platform, which represents a strategic competitive advantage fueling quality, speed, and innovation capacity.
ZEGNA brand Strategy
One Brand. With the Fall/Winter 2022 season, Ermenegildo Zegna, Z Zegna, and Ermenegildo Zegna XXX brands have been consolidated into a single brand, ZEGNA, characterized by a new logo and a distinctive signifier. The new brand, logo, and signifier are designed to be iconic and immediately recognizable. This strategy is proving to be successful both with new and existing customers. The One Brand strategy, together with the evolution of the collections, as described below, has enabled the brand to enrich its sales mix towards the higher end of the luxury goods pyramid and has offered additional opportunities for a successful brand amplification allowing ZEGNA to expand its reach to a broader and younger client base.
Collections evolution. In recent years, in response to the needs of a fast-paced world, ZEGNA’s collections have evolved from primarily pure formalwear to a new definition of the men’s style that we call “luxury leisurewear”: a new, understated, versatile wardrobe in which the utmost ZEGNA quality is combined with performance and comfort, designed to meet the changing preferences of customers and their demand for greater comfort, modern aesthetic, excellent quality and product and style durability. In the meantime, management has also pursued the creation of iconic timeless products, such as
in the shoes segment with the Triple Stitch family. We believe that there are significant opportunities to capitalize on the brand recognition iconizing our products.
Along with this evolution, management intends to continue to protect and further elevate the leadership of ZEGNA in the formalwear to capitalize on formalwear’s broadening occasions of use, from office to social life, through an increasing elevation of products and customer services including the offering of unique Made to Measure and bespoke services.
As a complement to this, the brand is also pursuing a strategy of selected partnerships for co-branding projects which should allow ZEGNA to amplify its strength and to enter new product categories. Examples of this include the multiyear agreement with Real Madrid for their travel wear, and the collaborations with The Elder Statesman for cashmere knitwear and Norda Run for performance footwear.
The vertical integration of the Group’s supply chain represents a unique enabler for the evolution of ZEGNA collections.
Client-centricity and experience. Management intends to continue to develop a uniquely recognizable ZEGNA retail experience, fully designed around the customer and his/her needs. This places significant emphasis on developing personal relationships with, and dedicated attention to, our customers, through a mix of CRM tools and personal connection aiming at retaining our clients while boosting their spending with the final goal of sustain ZEGNA brand relevance and increase the productivity of its stores. Furthermore, through a deeper knowledge of our customers we are able to develop a more sophisticated merchandising approach and a more dynamic management of our DOSs to support the improvement of our retail KPIs.
Thom Browne brand Strategy
A distinctive and innovative brand. Thom Browne’s brand is distinctive, innovative and broadly recognized amongst a wide range of customers and is perceived as an insurgent brand. The brand has a loyal and authentic customer base, proud to be part of the Thom Browne community.
Growth Strategy. The Group intends to continue leveraging on the brand’s unique proposition strengthening its brand equity in menswear and, even more, in womenswear and leather goods, continuing to maintain a creative, thought-provoking design style with strong tailoring aesthetics and an innovative communication approach.
The brand has four main growth levers:
•Protect its unique and distinctive style while enhancing brand awareness in some key regions;
•Boost expansion in unpenetrated categories, in particular in womenswear and shoes and leather goods;
•Fuel a selected and balanced DTC expansion, through new openings and a tailored in-store and digital experience;
•Maintain a highly selective presence in the wholesale distribution channel with the aim of developing long-term valuable partnership with tier 1 wholesalers.
TOM FORD FASHION Strategy
Alluringly modern aesthetic Brand. TOM FORD is an iconic brand, perceived as an influential voice in global luxury industry. The TOM FORD FASHION collections enjoy a glamour luxury positioning characterized by absolute product excellence and impeccable fit.
Growth Opportunities. The Group ambition is to create a global luxury lifestyle house that blends innovation with artisan craftsmanship, with the aim of aligning the business to its extraordinary global recognition. The Group intends to grow the TOM FORD FASHION business by pursuing the following strategies:
•Leverage geographic expansion by increasing penetration into new, currently underexplored, markets;
•Enhance retail experience with investments towards directly operated stores to drive top-line growth and rebalance the channel mix while introducing CRM management tools;
•Amplify marketing and communication to strengthen the brand identity and storytelling as one of the most important fashion houses;
•Diversify product merchandising by rebalancing the gender mix with the goal of further increasing the contribution of womenswear collections, in particular through enhancement of accessories and shoes;
•Optimize the supply chain by leveraging on the Group’s platform and best practices.
Ermenegildo Zegna Group Business Model
Brands, Collections and Products
Ermenegildo Zegna Group designs, produces, markets and distributes luxury menswear, footwear, leather goods and other accessories under the ZEGNA, Thom Browne and TOM FORD FASHION brands, luxury womenswear under the Thom Browne and TOM FORD FASHION brands and children’s clothing under the Thom Browne brand. The three brands also have selected third-party license agreements for specific product categories. The Group covers the entire value chain thanks to its textile and knitwear design, manufacturing and distribution business (under the brands Lanificio Ermenegildo Zegna, Dondi, Bonotto, Tessitura di Novara, Tessitura Ubertino, as well as the minority-owned Filati Biagioli Modesto and Luigi Fedeli e Figlio). The acquisition of historic Italian companies, each specialized in its own product sector, has enabled the Group over the years to establish a true luxury textile laboratory producing the highest quality fabrics and safeguarding the uniqueness of its Italian supply chain.
The Group carries out its business activities through three reportable segments: the Zegna segment, the Thom Browne segment and the Tom Ford Fashion segment. Prior to the TFI Acquisition, the Ermenegildo Zegna Group was organized in two segments: the Zegna segment and the Thom Browne segment.
The Zegna segment consists of three product lines: the ZEGNA branded products product line, the Textile product line; and the Third Party Brands product line.
The Thom Browne segment corresponds to the Thom Browne business headed by the Company’s majority-owned subsidiary Thom Browne Inc.
The Tom Ford Fashion segment corresponds to the fashion business of the TOM FORD FASHION brand, which became part of the Group following the TFI Acquisition, representing a new operating and reporting segment of the Group. The Tom Ford Fashion segment includes all activities related to TOM FORD FASHION, from collection creation and development to merchandising, through to production, as well as retail and wholesale distribution.
Zegna segment
ZEGNA branded products Product Line
For the years ended December 31, 2023, 2022 and 2021, the ZEGNA branded products product line generated revenues equal to €1,109,491 thousand, €923,942 thousand, and €847,311 thousand, respectively, representing 58.3%, 61.9% and 65.6% of our revenues after eliminations. The ZEGNA branded products product line includes luxury leisurewear, formalwear, leather accessories and other ZEGNA branded products.
The ZEGNA branded products product line offers a complete collection for men under the ZEGNA brand, characterized by a new logo and signifier, which was introduced in July 2022 and replaced the previously existing Ermenegildo Zegna, Z Zegna, and Ermenegildo Zegna XXX brands. This evolution has further strengthened the ZEGNA presence in the men absolute luxury segment.
ZEGNA offers pre-collections and main collections organized in two seasons (Fall/Winter and Spring/Summer) plus several capsule collections. In 2024, the brand moved from a traditional approach with seasonal deliveries in store to the offer of monthly drops with a 360 degree activation among all touch points, from communication, windows, and clienteling
actions. ZEGNA collections include both seasonal products (which change from season to season) and continuative products (called “Essentials”) which are generally cross-season models and capsule collections. Essentials collections increasingly include iconic products, which are highly distinctive and easily recognizable.
Luxury Leisurewear. In recent years ZEGNA’s apparel has shifted towards more versatile and technical luxury leisurewear for men, anticipating the needs of a fast-paced world. The evolution from pure formalwear is ZEGNA’s new definition of men’s style that we call “luxury leisurewear,” a new, versatile wardrobe building on our tradition of excellence. With this new style, ZEGNA is continuing the process of entering a new era marked by new categories of products meeting the changing habits and preferences of our customers, including the demand for greater comfort. Our luxury leisurewear offering ranges from knits to jeans, jersey and shirts, fabric and leather outerwear and accessories.
Formalwear. ZEGNA is historically renowned for luxury formal menswear and for being at the forefront of men’s tailoring with its iconic suits and tuxedos. Our formalwear offering ranges from formal suits to tuxedos, shirts, blazers, formal overcoats and accessories.
Made to Measure. Our offer for both luxury leisurewear and formalwear also includes the Made to Measure (Su Misura) service, whereby customers may, following a meeting with a style advisor, order their custom-made garments with their fabric, style and finish of choice. This service is available not only for suits, but also for outerwear, shirts, pants, knitwear, denim and jersey. Our bespoke services take customization to a higher level including the full experience of putting together a unique piece, from the sketches and design to the choice of the fabrics. Each piece is made specifically for the customer by our tailors in our ateliers in Milan and in Paris, using time-honored tailoring techniques.
Leather Accessories. Leather accessories comprise shoes (sneakers and other shoes), bags, belts and small leather accessories. Our shoes’ offer has in recent years shifted from a prevalence of more formal shoes towards the increasing importance of certain highly recognizable casual sneaker models such as the successful Triple Stitch. Most of our shoes are produced in Italy, like most other leather accessories. We also provide our customers with the possibility to customize their preferred shoes through our Made to Order service. Several of the leather accessories feature the so called “Pelletessuta,” a soft and lightweight woven leather textile exclusively produced for ZEGNA by an external manufacturer.
Other ZEGNA branded products. ZEGNA licenses its brand to third parties for the manufacturing and distribution of eyewear, cufflinks and jewelry, beachwear, underwear and fragrances. All licensed products are generally sold by us through our DTC channel and by our licensing partners to wholesale customers and to other prestigious retailers. The table below shows the product categories for which we license the ZEGNA brand as of the date of this report.
| | | | | | | | |
Product category | Licensee | Start Date |
Eyewear | Marcolin Group | Since 2013 |
Cufflinks/Jewelry | Tateossian | Since 1999 |
Underwear and Beachwear | Isaseta | Since 2016 for Underwear Since 2017 for Beachwear |
Fragrances | Give Back Beauty | Since July 26, 2023(1) |
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(1)In 2023, ZEGNA signed the license agreement while products are expected to launch in 2025.
All the agreements governing licensed products provide for obligations for our licensees to comply with high quality standards, to ensure that our licensed products are available at selected prestigious points of sale and that they are timely delivered to the distribution network. The agreements have a fixed term and do not contain an automatic renewal mechanism. See “Item 3.D—Risk Factors—Risk factors relating to the Group’s business, strategy and operations—We could be adversely affected if we are unable to negotiate, maintain or renew our license or co-branding agreements with high end third party brands.”
As part of the activities of the ZEGNA branded products product line, ZEGNA has also entered into strategic partnerships for co-branding projects in order to strengthen the link with other luxury brands and mutually enhance the respective brands’ value. The co-branding agreements set forth the terms for the production of certain selected co-branded products and the relevant co-marketing activities. Co-branded products are sold through our DTC channel or through the monobrand stores and distribution networks of our co-branding partners.
Textile Product Line
For the years ended December 31, 2023, 2022 and 2021, the Textile product line generated revenues after eliminations equal to €150,986 thousand, €136,769 thousand and €102,244 thousand, respectively, representing 7.9%, 9.2% and 7.9% of our revenues after eliminations. The Textile product line is engaged in the design, manufacturing and sale of luxury fabrics under the brands Lanificio Ermenegildo Zegna, Dondi, Bonotto, Tessitura di Novara, Tessitura Ubertino. We believe that the exceptional quality of the textiles used in our garments is one of the principal reasons for the success of the Group through the years. The Group also holds a minority interest in Filati Biagioli Modesto (40%) and recently acquired a 15% interest in Luigi Fedeli e Figlio S.r.l., the world-renowned maker of fine Italian knitwear and yarns.
The activities of the Textile product line are focused on the research and development of excellence in all of our fabrics, in terms of product quality, style, design, and technical features.
Some of the fabrics are developed exclusively for the ZEGNA brand, including those recently introduced with the Oasi Cashmere and Oasi Lino collections. We otherwise sell our fabrics both to other product lines of the Zegna segment or to the Thom Browne and Tom Ford Fashion segments, and to third party customers, which include other luxury brands, specialized players or tailoring businesses. We regularly take part in textile fairs and exhibitions to market the products of our Textile product line to the industry’s specialized players. In addition, we have a global network of sales representatives that assist us with the marketing of such products to tailors worldwide.
Lanificio Ermenegildo Zegna, the wool mill founded in 1910 in Trivero, Italy, has been the backbone of the Company’s success and is renowned internationally for its fine textiles. Three generations of the Zegna family have led textile success by carefully balancing science with nature and craftsmanship with technology. As a result, Lanificio Ermenegildo Zegna has pioneered sophisticated men’s fabrics that are lighter, smoother, more refined, and with improved performance and functionality.
Bonotto (in which we acquired a 60% interest in 2016) is a textile manufacturer based in Molvena, Italy, that was originally founded in 1912. The brand focuses on handcraftsmanship and traditional techniques and is characterized by the creative and experimental dimensions of its fabrics, which take inspiration from the art world. Bonotto is premised on the philosophy of the “slow factory,” which rejects the concepts of industrial standardization and mass production at low cost, in favor of traditional but innovative production techniques that create exquisite, precious fabrics.
Dondi (in which we acquired a 65% interest in 2019) is a leader in manufacturing high-quality jersey fabrics for men and women, all Made in Italy. Dondi’s production cycle covers the phases from fabric design to distribution. Dondi counts among its customers not only the Group’s companies, but also some of the most prestigious brands in the fashion world. Dondi’s production facilities are based in Carpi, Italy.
Tessitura Ubertino (in which we acquired a 60% interest in June 2021) is a boutique weaving mill based in Pratrivero, Italy. Founded in 1981 by Adalgiso Ubertino, Tessitura Ubertino has been creating premium quality fabrics for women, such as tweed and jacquard, for over 30 years and today it supplies fabrics to major fashion brands.
Third Party Brands Product Line
For the years ended December 31, 2023, 2022 and 2021, the Third Party Brands product line generated revenues after eliminations equal to €25,343 thousand, €97,792 thousand and €74,957 thousand, respectively, representing 1.3%, 6.6% and 5.8% of our revenues after eliminations. The Third Party Brands product line is engaged in the manufacturing and the supply of apparel for men to Dunhill and Gucci. Until the closing of the TFI Acquisition, the Third Party Brands product line was also involved in the manufacturing (and until the Fall Winter 2022 collection also distribution) of menswear under the TOM FORD brand.
TOM FORD. We acted as an exclusive licensee for the manufacturing and distribution of menswear under the TOM FORD brand from 2004 until the Fall/Winter 2022 collection. In connection with the closing of the TFI Acquisition, the Ermenegildo Zegna Group has become a long-term licensee of The Estée Lauder Companies for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products, by virtue of a long-term licensing and collaboration agreement with ELC for 20 years subject to renewal at TFI’s option for one further 10 year period subject to certain minimum performance conditions. As a result, as of April 29, 2023 we no longer report TOM FORD in Third Party Brands, but the TOM FORD FASHION business is reported as a separate segment.
Dunhill. We have acted as a manufacturer and supplier of suits, jackets, blazers and formal overcoats under the Dunhill brand since 1998. Under the relevant agreement, we are required to comply with the designs and specifications supplied by Alfred Dunhill Ltd., as well as certain other restrictions relating to intellectual property and confidentiality. The agreement with Alfred Dunhill Ltd. does not provide for an express expiration date.
Gucci. We have acted as a manufacturer and supplier of jackets and formal overcoats, slacks and knitwear (both ready-to-wear and made to measure) under the Gucci brand since 1990. Under the relevant agreement, which was recently renewed, we are required to comply with the designs and specifications supplied by Gucci, as well as certain other restrictions relating to intellectual property, sustainability and confidentiality. Gucci has agreed, on a best-effort basis, to place a minimum number of orders for each season for jackets and formal overcoats and granted us exclusivity for made-to-measure products. The agreement with Gucci is set to expire upon completion of the Spring/Summer 2028 collection, unless a renewal is agreed upon between the parties.
Thom Browne segment
For the years ended December 31, 2023, 2022 and 2021, the Thom Browne segment generated revenues after eliminations equal to €378,410 thousand, €330,014 thousand and €263,397 thousand, respectively, representing 19.9%, 22.1% and 20.4% and of our revenues, respectively, after eliminations.
Thom Browne is a renowned luxury brand founded by Mr. Thom Browne in 2001 in New York. In 2018, the Group completed the acquisition of 85% of Thom Browne Inc., the holding company of the Thom Browne business. In June 2021, we acquired an additional 5% equity interest in Thom Browne Inc. Under a put option agreement between Ermenegildo Zegna Group and Mr. Thom Browne, Mr. Thom Browne has the right, but not the obligation, to sell to the Company up to 550.9674 shares of common stock of Thom Browne Inc. (representing the remaining 10% interest in the company held by Mr. Thom Browne) over the period between 2024 and 2030 (subject to potential deferral until 2032). The Thom Browne business’s growth since the initial acquisition has been remarkable, with revenues increasing from approximately €117 million in 2018 to €378 million in 2023 after eliminations, representing a CAGR of 26%.
Each year Thom Browne offers pre-collections and main collections, organized into two seasons (Fall/Winter and Spring/Summer) for each of men, women and children.
Mr. Browne started designing clothes for friends and family in the early 2000s, and his popularity as a fashion designer has grown ever since. Thom Browne’s signature line of grey suits redefined the concept of the male silhouette, and his collections lean heavily on two main colors: grey and navy. The brand uses the highest quality materials to obtain garments that are beautiful, classic, and durable. Its distinctive traits are the absence of any form of a bold logo, the cropped silhouette of the garments, and the use of visual identifiers as trademarks, such as the four white horizontal bands (uniquely located on the left upper sleeve and/or upper pant leg) and/or a grosgrain ribbon or tab in White, Red, White, Blue, White (also uniquely positioned on the garments). Each Thom Browne piece is designed to be aesthetically perfect, classic and long-lasting, inspired by Mr. Browne’s philosophy that something beautifully made will never be out of fashion.
Tom Ford Fashion segment
For the year ended December 31, 2023, the Tom Ford Fashion segment generated revenues after eliminations equal to €235,531 thousand representing 12.4% of our revenues, after eliminations.
The TOM FORD brand was founded in 2005 and partnerships were established with The Estée Lauder Companies Inc. and Marcolin to develop TOM FORD beauty and eyewear products. In 2008 and 2010 respectively, TOM FORD launched menswear, in collaboration with the Ermenegildo Zegna Group, and womenswear. In April 2023, Peter Hawkings was appointed as new Creative Director of TOM FORD. On April 28, 2023, the Estée Lauder Companies Inc. completed the acquisition of the TOM FORD brand, its trademarks, and other intellectual property rights. On the same day, the Ermenegildo Zegna Group completed the TFI Acquisition. TFI is consolidated in the Group’s results since April 29, 2023. The Group is now in charge of the end-to-end TOM FORD FASHION business, from collection creation and development to merchandising, through to production, as well as retail and wholesale distribution. In addition, by virtue of a long-term licensing and collaboration agreement with ELC (for a duration of 20 years, with an automatic renewal for one further 10-year period subject to certain minimum performance conditions), the Ermenegildo Zegna Group has become a long-term licensee of ELC for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products.
Building on the TOM FORD FASHION DNA of confidence, vision, and modern luxury glamour, refined elegance and mysterious allure, TOM FORD FASHION has all the cards to be positioned as a global luxury lifestyle house that blends innovation with artisan craftsmanship, delivering an alluringly modern aesthetic across diverse yet unified offerings that prioritize luxury, product excellence, and impeccable fit.
Ermenegildo Zegna Group Activities
The Group’s primary activities consist in designing, manufacturing, and distribute ready to wear, shoes and leather goods collections for its three brands.
Activities can be divided into the following major stages, each of which is overseen by dedicated functions, operating independently at the brand level: (i) design; (ii) product development; (iii) sales campaign; (iv) procurement; (v) manufacturing; (vi) logistics; (vii) marketing and advertising; and (viii) distribution. Procurement and manufacturing needs from each brand are partially met through the Textile product line and the Group’s manufacturing facilities.
From the first sketch to in-the-store delivery, the preparation of each collection takes approximately 12 months.
The activities of the Textile product line and of the Third-Party Brands product line follow their own operational phases and logics.
Design, Merchandising and Product Development
New collections are created by the Design team of each brand, considering each brand’s identity, market analyses and seasonal fashion trends. When developing collections, the Design team works in close coordination with the Merchandising team to make sure that the offer is complete with a congruent price structure and in line with the needs and trends of the market.
The Design and Merchandising teams then work closely with the product developers and modelers, who transform sketches into models and prototypes, including through the use of 3D technology. This is a key phase because of our production process, as it allows the Design and Product teams to assess the look, feel and functionality of the products and to possibly anticipate any issues that may arise during the manufacturing process. Once the prototypes are approved, we develop sample collections.
Sales Campaign
Once ready, the sample collections are presented to wholesale customers and retail buyers at ZEGNA’s, Thom Browne’s and TOM FORD FASHION’s respective showrooms. During the sales campaign, retail buyers and wholesalers place orders on the basis of the brand buying guidelines.
During the sales campaign, the Merchandising and the Supply Chain teams regularly share information on the evolution of the order portfolio to align the initial forecasts for raw material procurement and production planning.
Procurement
Based on forecasts and on the order portfolio, each brand sources the necessary raw materials, trimmings and finished goods through its network of selected suppliers. While the initial purchases are based on forecasts, they adjust and supplement such purchases based on actual orders as the sales campaign progresses.
Based on the proposition that the very best garments can only come from the best natural resources, the Group has dedicated its efforts through the years to the research of only the finest raw materials and fabrics. A crucial role in this context is played by the Textile product line. For instance, each brand sources a portion of its requirements of fabrics from Lanificio, jersey from Dondi, printed fabrics from Bonotto and cashmere from Biagioli.
Manufacturing and Logistics
While the sales campaign is still ongoing, each brand starts planning for its own manufacturing activities. Production quantities are continuously refined based on the results of the sales campaign. A distinctive feature of our manufacturing is
that Made in Italy represents the large majority of the overall production of all our brands’ products. A portion of such products is manufactured internally at our facilities. ZEGNA is currently the brand with the highest incidence of in-house production.
The Group’s production facilities are located in Verrone, Italy, for knitwear; San Pietro Mosezzo, Italy for formal jackets and suits; Parma, Italy, for outerwear and leather accessories; Mendrisio, Switzerland, for jackets, suits, shirts; and Turkey, for shirts. Each facility produces both ready to wear and Made to Measure products. For products or categories that are not manufactured internally, each brand relies on a selected network of external long-standing suppliers, largely based in Italy. Each sourcing team is committed to carefully selecting all suppliers and managing the relationships with suppliers for their entire duration, aiming to ensure that quality and ESG standards are aligned to the Group’s requirements and that timing of deliveries is adequately met.
The Group’s outsourced products are manufactured using two different approaches. The most common is the façon manufacturing (or third-parties production); the second is the “full package” manufacturing process. When using the façon manufacturing model, the brand outsources to external manufacturers the confection stage (i.e. the Cut-Make-Trim phase including cutting, sewing, washing and pressing), while remains responsible for providing the designs, product specifications and raw materials. Alternatively, in the “full package” approach, the brand outsources the entire production process.
Once produced internally or through our partners, products are delivered to our distribution centers to be transferred to each brand’s monobrand stores and to their wholesale customers. The logistics department of each brand is responsible for organizing and managing the distribution of the finished products, as well as the management of warehouses.
The Group has several logistics centers in Italy and abroad, in Switzerland, North America, China, Japan and South Korea.
Marketing and Advertising
Advertising and promotional activities are critical for luxury companies like us to enhance the brand recognizability, influence purchase selection, and encourage brand loyalty over time. The Group invests significant resources in advertising, communication and marketing, which include a full set of activities ranging from pure digital and social media marketing initiatives to events like fashion shows, product collaborations and co-marketing projects. In 2023, 2022 and 2021, marketing expenses amounted to €114,802 thousand, €85,147 thousand and €67,831 thousand, respectively.
ZEGNA’s marketing strategy is based on an all-round approach with the customer at its center. We manage the relationship with our customers from an omni-channel perspective, enhancing the interaction between the digital and physical dimensions. Our customers shop across different channels, and through digital tools we directly and regularly inform them about new campaigns, products, and collaborations using original content we develop and produce for a specific project or collection. We aim to provide tailored content and messages to our customers and, through our presence on social media, we translate our craft and products into a narrative aimed at attracting our customers through inspiration. All of our marketing campaigns focus on storytelling to strategically solidify our values in our customers’ minds. Our One Brand strategy and repositioning have provided enhanced opportunities for brand amplification, including collaborations such as the multiyear one with Real Madrid launched in August 2022 and advertising campaigns focusing on our iconic products such as the Triple Stitch or our Oasi Cashmere and Oasi Lino collections.
Since our founding in 1910, we have inspired men to define their style identity, ensuring their character can be found in every detail of their outfits. The ZEGNA brand can count many leaders of business, sports, entertainment, design and culture as friends. Some have even become part of our extended family over the years, acting as ambassadors for our brands. We also conduct targeted product placement activities on key opinion leaders, celebrities and influencers.
With respect to the Thom Browne segment, Thom Browne presents its seasonal collections in New York or Paris through spectacular, theatrical and conceptual fashion shows during the men’s and women’s fashion weeks. These shows contribute to positioning the brand at the pinnacle of fashion and creativity, are the source of the narrative for each season and help generate significant editorial coverage in fashion, art and culture publications, both on paper and online. This innovative approach makes Thom Browne the brand of choice for a number of VIPs and celebrities worldwide. From highly successful actors and musicians in South Korea, to U.S. athletes, actors and musicians of worldwide fame, the brand has proven to have a very strong appeal.
We are seeking to strengthen the historical customer loyalty enjoyed by the Thom Browne brand through the introduction of new customer relationship management tools and initiatives.
The Tom Ford Fashion segment aims at creating consistent storytelling through lookbooks, editorial and campaign assets, and runway shows that create a unified narrative across men’s, women’s, eyewear and beauty offerings with the goal of establishing the brand as a true global lifestyle icon and further solidifying Peter Hawking’s vision for the brand.
Seasonal collections are unveiled during the Milan Fashion week through sophisticated, elegant, and modern fashion shows that empower the brand to position itself as the pinnacle of true luxury, create engaging content, indulge and entertain top clients and partners, as well as to develop a carefully curated list of VIP attendees that encompass the TOM FORD FASHION man and woman. A tactical focus in marketing is on content creation and an increased, highly strategic investment in media to establish the new codes of the house - glamour, mysterious allure, refined elegance – in order to build awareness, customer loyalty and brand equity.
Each segment has internal teams dedicated to marketing and advertising activities, each following slightly different marketing strategies depending on the brand. To better reach a wide but selected consumer target, we use various communication tools, from organic institutional and product press coverage to media partnerships, a varied media-mix including digital marketing, digital media campaign, print, billboards, direct marketing and ad hoc initiatives in our boutiques where visual merchandising and windows displays are conceived to consistently adhere to the seasonal marketing strategy plan.
In addition to seasonal fashion shows, January Fall/Winter and June Spring/Summer collection presentations, specific shows and events are organized globally to strengthen our brands’ profiles and positioning and increase awareness on the most recent collections in local markets worldwide. Besides presenting new products, these events are planned to promote a direct involvement of the customers, media, celebrities, influencers, and industry key opinion leaders through exclusive events, as well as to reinforce the popularity of the brand and enhance its image.
Distribution Channels
Our sales teams bring our customers into our community, sharing with them our creativity and craft, as well as our story and the journey of each item. These relationships are nurtured in-store with respect to our DTC channel and in our showrooms with respect to our wholesale channel, with the aim to deliver a consistent and unique customer experience.
We distribute and sell our products in approximately 85 countries worldwide through a well-established network comprised of our DTC and wholesale distribution channels.
Our monobrand presence includes our DOSs (which are divided into boutiques and outlets), directly managed online boutiques and our franchisees’ monobrand stores. Our multi-brand presence includes department stores, specialty stores and e-tailers.
Zegna segment
For the year ended December 31, 2023, €945.3 million of ZEGNA branded products revenues (equal to 85% of total revenues of the product line) were generated through the DTC channel and €164.2 million were generated through the wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2023, ZEGNA operated 253 DOSs, of which 123 were in APAC, 71 were in EMEA, 59 were in the Americas. For the year ended December 31, 2023, the DTC channel generated revenues representing 85% of the revenues from the ZEGNA branded products product line of the Zegna segment. Our DTC channel is distributed throughout the main markets in which we operate. We focus on maintaining a presence in prestigious and strategic locations, and in certain cases we enter into joint ventures with local partners in jurisdictions where ZEGNA would not be able to operate directly without a local partner or where the presence of a local partner is beneficial due to its knowledge of the local market and regulations. As an example, we have entered into joint ventures in the United Arab Emirates, Vietnam and India.
The aesthetics and customer experience of our DOSs are carefully planned and designed by our Artistic Direction team. Once opened, an internal staff of architects and visual merchandisers who are supported by external professional firms constantly maintain and restyle our DOSs as required. In addition, we have in place specific training programs dedicated to our sales staff, focusing on product knowledge and customer service.
To select the range of products sold in our DOSs, we establish guidelines at the group level based on market potential and the characteristics of the points of sale. Buyers and merchandisers in our regional offices then select the best selection of products in terms of models, materials and color variants.
Our DTC channel also includes an e-commerce shop operated directly through our website www.zegna.com, outlets, concessions within department stores around the world, certain travel retail stores directly operated by us (including those at Linate and Malpensa airports in Milan) and other e-commerce platforms through which we sell directly to our customers (such as TMall Luxury Pavilion, Farfetch and WeChat) and whose sales systems are integrated with ZEGNA’s sales and warehouse management systems.
Wholesale Channel
As of December 31, 2023, our monobrand distribution network included 151 points of sale operated by our wholesale customers and franchisees, of which 33 were in APAC, 55 were in EMEA, 63 were in America. For the year ended December 31, 2023, the wholesale channel, including multibrand stores and royalties, generated revenues representing 15% of our revenues from the ZEGNA branded products product line of the Zegna segment.
Our wholesale distribution channel has developed through agreements with different types of wholesale customers, including in particular:
•Franchisees, which operate monobrand points of sale exclusively under the ZEGNA brand, in exchange for the payment of royalty fees to ZEGNA based on sales volumes. The franchising agreements governing these relationships typically have a medium term (providing for an automatic renewal or a renegotiation period prior to the term expiry). The contractual arrangements may also provide for minimum purchase obligations by the franchisee, and for the obligation by ZEGNA and/or the franchisee to invest certain amounts in marketing activities. Starting from January 1, 2024 we have internalized our franchising operation in South Korea, which is now operated via DOSs.
•Department stores and multibrand specialty stores, which purchase ZEGNA products for resale in their stores, sometimes in specific ZEGNA branded wall units. The contractual arrangements with this type of customer vary based on the relevant store’s standard terms.
•Online multibrand stores. ZEGNA branded products are also sold via prestigious online multi-brand stores such as SSENSE, Mr. Porter and JD.
As with our DTC channel, we carefully manage and, if necessary, customize our distribution policies for our wholesale customers.
Within the wholesale distribution channel, duty free and travel retail stores operated by specialized players and located at major airports around the world have an important role, ensuring that the ZEGNA brand is present in major airports worldwide and in exclusive hotels, both in duty free and duty paid points of sale. These travel retail stores in the wholesale distribution channel are in addition to travel retail stores directly operated by us.
We believe that our wholesale presence is strategic as it provides constant benchmarking opportunities and external feedback hence allowing a constant monitoring of the positioning of our brand and products vis-à-vis those of our competitors.
Thom Browne segment
For the year ended December 31, 2023, €183.4 million of the Thom Browne segment’s revenues was generated through its DTC channel and €195.0 million were generated through the points of sale operated by Thom Browne’s wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2023, Thom Browne operated 86 DOSs, of which 70 were in APAC, 9 were in EMEA and 7 were in America.
As of July 1, 2023, Thom Browne began directly operating its business in South Korea and its network of 17 stores. The business is now wholly owned through our subsidiary Thom Browne Korea, and will be operated in the region with external support from the former franchise partner.
Unlike other luxury fashion brands (including ZEGNA), Thom Browne, leveraging its customers’ awareness of the brand and presence in the main digital channels, has DOS locations of comparatively smaller size, which are usually destination stores with highly-trained staff. This allows for more flexibility in negotiations with landlords and alleviates pressure on rental charges, while Thom Browne still benefits from the inflow of loyal customers. Thom Browne’s strategy puts an emphasis on developing customer relationships rather than on positioning in key streets, while actively working to increase the visibility of its DOSs to attract new customers and to establish specific training programs for its DOS staff in order to ensure a consistent and high quality retail experience in the various geographies.
Thom Browne’s DOSs also include an e-commerce shop operated directly through the website www.thombrowne.com and carefully selected directly operated outlet sale locations.
Wholesale Channel
As of December 31, 2023, Thom Browne’s monobrand distribution network included 25 points of sale, of which 15 were in APAC, 7 were in EMEA and 3 were in North America.
On top of the wholesale monobrand stores, the Thom Browne segment’s wholesale distribution channel also consists of selected multibrand department and specialty stores globally and e-tailers.
Tom Ford Fashion segment
For the year ended December 31, 2023, €136.3 million of the Tom Ford Fashion segment revenues was generated through its DTC channel and €99.2 million were generated through the wholesale distribution channel and royalties.
DTC Channel
As of December 31, 2023, TOM FORD FASHION business operated 51 DOSs, of which 35 were in APAC, 4 were in EMEA and 12 were in North America.
Wholesale Channel
As of December 31, 2023, TOM FORD FASHION’s monobrand distribution network included 70 points of sale, of which 6 were in APAC, 14 were in EMEA and 50 were in the Americas.
The TOM FORD FASHION wholesale distribution channel also consists of a presence in a selected number of wholesale multibrand stores globally.
Intellectual Property
Zegna segment
As of the date of this report, and with an overall trademark portfolio including more than 3,800 registrations, the principal owned trademarks or trade names that we use in the Zegna segment’s business are “Ermenegildo Zegna” and “Zegna,” and the new logo “Brand Mark” related to the rebranding project, which we have filed or registered in all the relevant products and services classes and in all of the countries in which we operate in the logo version and/or in the word/standard characters version or in versions which are adapted to various local alphabets or ideographs (e.g., Zegna written in Japanese, Katakana syllabary, in Chinese ideographs, Thai characters, or in the Arabic or Georgian alphabet). We have also registered certain other marks used on our products and in our main marketing projects such as our capsule collections.
Additionally, we have a portfolio of more than 800 domain names, including (i) registrations in all the countries in which we operate, (ii) the most common Zegna and Ermenegildo Zegna typos and (iii) early and basic protection for our main business and marketing projects.
Besides trademarks, we invest significant resources in protecting other aspects of our brands’ uniqueness. With more than 800 design and 9 copyright registrations covering several countries including the European Union, China and the United States, every season we select the most relevant and original products, patterns and, to the extent necessary, protect our rights, labels, and take action to protect their design and defend them against counterfeiting. In addition, we own 15 patents and one copyright for engineering work (thanks to special protections available in Italy), which are a result of our solid roots in fabric making and our pioneering efforts to improve performance and functionality in our products.
We devote significant resources to the protection and enhancement of our intellectual property assets and actively monitor the market, offline and online, for infringements or abuses of our trademarks, domain names and product designs. We are also active in enforcing our rights against third party infringements. In addition, we monitor third party applications for registration of trademarks that could be confused with our trademarks, and file oppositions against the applications for, or the registration of such trademarks in accordance with the laws and regulations of the relevant jurisdictions and cooperate with competent authorities worldwide to fight the counterfeiting of our products.
Thanks to the long-standing efforts discussed above, judicial and/or administrative decision in countries including China, Turkey, Mexico, Brazil and India have recognized our trademarks as well known and famous, giving Zegna the ability to benefit from a cross-class protection.
For a description of the licenses we grant in our business, please see Note“—Brands, Collections and Products—Zegna segment—Third Party Brands Product Line.”
Thom Browne segment
As at the date of this report, Thom Browne Inc. and its subsidiary Thom Browne Japan, Inc. own or control approximately 300 trademark registrations worldwide, with a number of additional applications pending. The principal owned trademarks or trade names that are used by Thom Browne are THOM BROWNE, a four-band design, a grosgrain ribbon in White, Red, White, Blue, White, and THOM GREY, which have been registered or for which applications for registration have been submitted, in text form or design form, in virtually all the jurisdictions in which Thom Browne operates.
In addition, the design marks shown as location marks, such as a tab on the back of a collar on a shirt or jacket, have been registered, or an application for registration has been submitted, including in the native language of certain important markets.
Thom Browne has also registered certain other marks used on its products and in its main marketing projects and maintains an ongoing program to constantly review and update filings and protections to extend the registrations to classes of goods for which new products are introduced from time to time.
In addition, Thom Browne has a portfolio of domain names, including a number of domain names featuring the “Thom Browne” name, such as ThomBrowne.com, Thombrowne.uk and similar domain names in the jurisdictions in which Thom Browne operates.
Thom Browne devotes significant resources to the protection of its intellectual property assets worldwide through a highly specialized brand protection program. In-house and outside specialists monitor all major markets as well as global social media and websites for misuse of Thom Browne’s intellectual property. To the extent infringements are detected, adequate enforcement steps are taken, including in cooperation with the relevant authorities.
Tom Ford Fashion segment
As of the date of this report, TFI and its subsidiaries operating the TOM FORD FASHION business do not maintain trademarks, copyrights, patents, or domain names in their own name. Rather, pursuant to the TFF License with The Estée Lauder Companies, TFI is licensed to use the TOM FORD FASHION intellectual property for men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products worldwide.
TOM FORD FASHION cooperates closely with The Estée Lauder Companies to protect against misuse of the licensed TOM FORD FASHION intellectual property. To the extent counterfeiting activities or infringements of the licensed TOM FORD FASHION intellectual property are detected, TOM FORD FASHION cooperates with The Estée Lauder Companies in its enforcement efforts, including in cooperation with the relevant authorities.
Research and Development
Our competitiveness depends on, among other things, our ability to anticipate trends and to identify and respond to new and changing consumer preferences. We therefore devote significant resources to various research and development activities to design, create and develop new products for our collections. As of the date of this report, over 300 of our employees were involved in our research and development activities across the Zegna, Thom Browne and Tom Ford Fashion segments.
Our research and development activities mainly relate to the development of new patterns and designs for our fabrics, the research of innovative and technological materials with specific features, the design, modeling and development of new products and the creation of prototypes.
In recent years, our research and development efforts have focused on the reduction of the overall number of new products launched, with a shift towards the activities for the creation of iconic products characterized by high visibility and superior growth, the creation and launch of ad hoc capsule collections, and significant resources devoted to the development of products for our continuative products (which are generally sold across seasons with minimal style changes). In addition, in our commitment to contribute to address climate change issues, we intend to invest in research and development with the aim of producing in the medium to long-term new highly sustainable materials (e.g., non-oil synthetic materials) with lower environmental impact than traditional animal fibers and leathers.
Regulatory Environment
We are required to comply with the laws and regulations applying to our products and operations in the various jurisdictions in which we operate, particularly in relation to the protection of intellectual property rights, competition, product safety, packaging and labeling, import and processing of certain raw materials and finished goods, data protection, limits on cash payments, worker health and safety, environment and economic sanctions. We also use certain rare raw materials, such as vicuña yarns, which are only available in a very limited quantity and subject to strict export and processing regulations. Virtually all of our imported products are subject to custom duties and other taxes, which may impact the price of such products. We maintain compliance procedures and policies to assist in managing our import and export activities and ensure compliance with the laws and regulations of the jurisdictions where we operate.
C. Organizational Structure
Ermenegildo Zegna N.V. is the parent company of the Group. A list of the significant subsidiaries of the Company as of the date of this report is included in Exhibit 8.1 to this report.
D. Property, Plants and Equipment
We operate through manufacturing facilities, corporate offices, showrooms, warehouses, stores, land and other buildings around the world, which are in part owned by us and in part leased from third parties.
We lease part of the real estate assets used in the Group’s business operations from EZ Real Estate S.r.l. (“EZ Real Estate”), a former subsidiary of the Company which was demerged on November 1, -2021 as part of the Disposition. Such real estate assets include buildings hosting manufacturing facilities, corporate offices, showrooms, warehouses, land and other buildings, including our main manufacturing plants and offices in Italy (such as the Group’s headquarter offices in Milan, the manufacturing facility in Parma, San Pietro Mosezzo, Verrone and Oleggio, as well as part of the building located in Valdilana mostly occupied by us) and Switzerland (including the offices in Stabio and the manufacturing plant in Mendrisio) and certain ZEGNA stores, namely in Sandigliano and Oleggio (Italy) and London (United Kingdom).
We also own certain real estate assets (manufacturing facilities, warehouses and offices) used by Cappellificio Cervo in Sagliano Micca (Italy) and Dondi in Fossoli di Carpi (Italy) and Novi di Modena (Italy).
Our manufacturing facilities currently have capacity to increase production volumes if necessary to meet higher demand.
The following table sets forth information relating to owned real estate assets used in the conduct of our business at the date of this report.
| | | | | | | | | | | | | | |
Location | | Use | | Approximate Square Meters |
Italy, Sagliano Micca, Via della Libertà 16 | | Factory, storage and offices | | 5,500 |
Italy, Fossoli di Carpi, Italy, via Budrione Migliarina 2/A | | Factory, storage and offices | | 11,470 |
Italy, Novi di Modena, fraz. Rovereto sul Secchia, via Foscolo 11 | | Factory, storage and offices | | 975 |
In addition, we lease space from third-parties, mainly related to our DOSs and other direct points of sale around the world, as well as for warehouses, offices and housing for our personnel. At December 31, 2023, we directly operated 390 DOSs, totaling approximately 90,000 square meters of gross area, pursuant to lease agreements.
On February 8, 2024, the Group announced plans to open a new luxury footwear and leather goods production facility in Sala Baganza (Parma, Italy). Encompassing 12,500 square meter, the facility is expected to be completed by the end of 2026 and will expand the Group’s production capacity, focusing mainly on men’s footwear and leather goods. The new facility will also act as research and development center and is expected to employ over 300 employees at full capacity in 2027. In February 2024, we spent €8.5 million for the acquisition of the plot of land on which we will build the new facility. Details of the construction project, including the overall expenditure, are yet to be determined.
The total carrying value of our property, plant and equipment at December 31, 2023 was €159,608 thousand compared to €126,139 thousand at December 31, 2022.
For information on our principal expenditures on property, plant and equipment, see “Item 5.B—Liquidity and Capital Resources—Capital Expenditure.”
ITEM 4A UNRESOLVED STAFF COMMENTS
None.
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with the rest of this document, including the information included under “Note on Presentation,” “Item 4. Information
to on the Company” and the Consolidated Financial Statements included elsewhere in this Annual Reportdocument. This discussion includes forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under “Cautionary Note Regarding Forward-Looking Statements” and “Item 3.D. Risk Factors.” Actual results may differ materially from those contained in any forward looking statements.
A.Operating Results
Overview
Ermenegildo Zegna N.V. is a Dutch public limited liability company (naamloze vennootschap) and its Ordinary Shares are listed on Form20-F.
Impactour Chief Executive Officer) in the Northern Italian town of
Trivero in 1910 with the
COVID-19
pandemicZegna’s operations have been, dream of creating the most beautiful and luxurious fabrics in the world, and is now the parent company of Ermenegildo Zegna Group, a global luxury group. The Group designs, creates, and distributes luxury menswear and accessories under the ZEGNA brand, as well as menswear, womenswear and accessories under the Thom Browne brand and, under the TOM FORD FASHION brand, through a long-term licensing agreement with the Estee Lauder Companies Inc (“ELC”) following the completion of the TFI Acquisition on April 28, 2023. Our brands leverage our Made in Italy Luxury Textiles platform which provides the Group’s industrial backbone and know-how. Each of our brands is unique while sharing a commitment to excellence, innovation, and authenticity defined by distinctive products and tailored customer experiences across channels and geographies. The Group and its brands are led by a world-class management team and empowered by highly recognized designers. Our goal is to provide customers with excellent products that reflect our tradition of fine craftsmanship, exclusive design content, and exceptional quality, through the sourcing of superior raw materials, the careful finish of each piece, and the way they are delivered to our customers. Through this, we aim to continue to extend the global reach of our brands while ensuring that they protect and enhance their exclusive DNA and continue to
be, affected by the ongoing outbreak ofCOVID-19.
The global spread ofCOVID-19
has led to governments around the world mandating, to various degrees and at various times, restrictive measures to contain the pandemic, including quarantine, social distancing, “shelter in place” or similar orders, travel restrictions and suspension ofnon-essential
business activities. TheCOVID-19
pandemic has caused significant disruption to the global economy, consumer spending and behavior, tourism, supply chains and financial markets, leading to a global economic slowdown and a severe recession in several of the markets in which Zegna operates, which may persist even after restrictions are lifted.In connection with the COVID-19 pandemic and related government measures, Zegna experienced suspension or slowdown of production at its manufacturing and logistics facilities in 2020 and 2021, as well as delays in deliveries of raw materials from suppliers and of deliveries of products to wholesale customers, temporary closures of its DOSs and its distribution partners’ stores, with a material adverse effect on Zegna’s revenues and results from operations, particularly in 2020.
foster their ultimate luxury positioning.The
COVID-19
pandemic resulted in a significant decline in the demand for Zegna’s products in 2020, including the Textile product line, whose customers, which are mainly businesses operating in the fashion apparel industry, reduced orders. Despite the negative impacts of theCOVID-19
pandemic on Zegna’s operations and the demand for Zegna’s products, primarily in 2020, the remote selling and retaile-commerce
platforms continued to operate and Zegna implemented solutions to allow online purchases by wholesale customers. Zegna’s business has experienced a steady recovery in 2021 from the effects of theCOVID-19
pandemic, although certain restrictions remain in some of the markets where Zegna operates.During the period in which Zegna’s manufacturing facilities were closed in 2020 (from mid-March 2020 to mid-May 2020), Zegna purchased some of its raw materials and finished goods from suppliers pursuant to commitments entered into prior to the onset of theCOVID-19
pandemic when demand was higher, which had an adverse impact on results in 2020. During 2020, Zegna took several actions to reduce cash outflows and secure its liquidity and financial position, including (i) the temporary suspension of several capital expenditure programs (including for store renewals), (ii) delayingnon-essential
spending, and (iii) the sale of certain financial assets that were held as investments. In 2020 Zegna also took measures, the majority of which were reversed in 2021, to reduce costs and preserve profitability, including (i) the renegotiation of rent payable under lease agreements, (ii) temporarylay-offs
as permitted by local emergency legislation, (iii) accessing government support measures, (iv) salary and bonus cuts to directors and senior managers, and (v) significant reductions to marketing, travel and other expenses.TheCOVID-19
pandemic continues to impact the global economy. Although 2021 was characterized by steady recovery for Zegna’s business and the overall COVID-19 situation appears to have improved in countries that have rolled out vaccination campaigns, the extent to whichCOVID-19
will impact Group operates its business
financial position, results of operations and cash flows in
the future remains highly uncertain and cannot be accurately predicted at this time. Additionally, in the first months of 2022 Zegna experienced minor delays in production in certain countries where a significant number of its and its suppliers’ employees had to stay at home after becoming infected with COVID-19. Since March 2022, due to a new wave of the virus in certain parts of the Greater China Region and the resulting lockdown restrictions, Zegna has closed certain DOSs in the Greater China Region, and DOSs that have remained open have experienced significantly lower customer traffic.See also “Risk Factors—We are subject to risks related to theCOVID-19
pandemic or similar public health crises that may materially and adversely affect our business”.Fluctuations in exchange rates
A large portion of Zegna’s operations is in international markets outside the Eurozone, where Zegna records revenues and expenses in various currencies other than the Euro, which is the Group’s functional currency, mainly the Chinese Renminbi and the U.S. Dollar, as well as various other currencies. While Zegna’s revenues are denominated mainly in the local currencies of the respective markets (a share of revenues were generated in currencies other than the Euro corresponding to 70% in 2021, 66% in 2020 and 66% in 2019), a significant portion of its costs are denominated in Euro, mainly related to production and to its corporate headquarters and related functions. As a result, Zegna is affected by fluctuations in foreign currency exchange rates throughthree segments: (i) the translation of foreign currency financial statements into Euro upon consolidation of its subsidiaries with functional currencies other than Euro (translation impact), and (ii) transactions by Zegna entities in currencies other than their own functional currencies (transaction impact). In general, an appreciation of the Chinese Renminbi, U.S. Dollar or the other currencies in which Zegna operates against the Euro would positively impact Zegna’s revenues and results of operations, while a depreciation in those other currencies would have a negative impact.
Zegna seeks to mitigate the effects of its currency exposure by entering into derivative contracts (generally forward contracts for the sale of foreign currencies) in order to either fix exchange rates in advance, or to determine a predefined range of exchange rates at a future date. For the Zegna Branded Products and Textile product lines, Zegna initially defines sales prices in Euro, then sets the corresponding prices in other currencies by applying exchange rates selected by management based on reasonable expectations and assumptions. Forward sales contracts are made when the seasonal price lists in a given currency are set in order to mitigate the impact of any divergence between actual exchange rates and the expected exchange rates used by management, based on estimated revenues and setting the planned date of payment by customers as the date when the hedge contract matures. Additional hedging transactions may be entered into during the relevant season depending on actual developments in exchange rates. While Zegna has historically taken the foregoing measures with respect to the Zegna segment it is implementing similar policies also in(comprising three product lines: ZEGNA branded products, Textile and Third Party Brands), (ii) the Thom Browne segment which has recently become more exposed to currency impact as it expands into international markets.and (iii) the Tom Ford Fashion segment.
The following table presents the Group’s revenues, Profit/(Loss), Adjusted EBIT and Adjusted Profit for the years 2023, 2022 and 2021. For additional information on Zegna’s policiesregarding Adjusted EBIT and Adjusted Profit, which are non-IFRS financial measures, including a reconciliation of Adjusted EBIT and Adjusted Profit to manageProfit/(Loss), see “—Non-IFRS Financial Measures.”
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
Revenues | 1,904,549 | | 1,492,840 | | 1,292,402 |
Profit/(Loss) | 135,661 | | 65,279 | | (127,661) |
Adjusted EBIT | 220,212 | | 157,729 | | 149,115 |
Adjusted Profit | 145,235 | | 73,629 | | 75,322 |
The Group primarily operates via its
foreign currency exposure see “—Qualitativeworldwide direct-to-consumer (“DTC”) distribution channel through a network of 253 ZEGNA, 86 Thom Browne and Quantitative Information on Financial Risks
”.51 TOM FORD FASHION DOSs at December 31, 2023 (239 ZEGNA and 63 Thom Browne DOSs at December 31, 2022), including boutiques and outlets, as well as concessions in department stores and multibrand e-commerce marketplaces. The Group also distributes its products worldwide through monobrand or multibrand points of sale operated by its wholesale customers, including franchisees, department stores, multibrand specialty stores and online multi-brand e-tailers. Taking into account both the DTC and the wholesale distribution channels, the Group is present in approximately 85 countries worldwide. The activities of the Textile and Third Party Brands product lines, which are included within the Zegna segment, follow their own operational phases and logics. The Textile product line designs, manufactures and sells luxury fabrics under various brands to third party customers, as well as to other product lines within
the Group, and the Third Party Brands product line is primarily engaged in the manufacturing and supply of apparel for men to third party fashion brands, as well as to Thom Browne and TOM FORD FASHION.
The following table sets forth Zegna’s revenues by currency of origin formain trends, uncertainties and opportunities affecting the years ended December 31, 2021, 2020 and 2019.Group are summarized below:
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
| | | 387,251 | | | | 344,288 | | | | 447,231 | |
| | | 501,824 | | | | 375,359 | | | | 342,962 | |
| | | 185,944 | | | | 114,065 | | | | 206,536 | |
| | | 49,966 | | | | 48,605 | | | | 73,490 | |
| | | 30,101 | | | | 28,826 | | | | 50,551 | |
| | | 17,168 | | | | 27,182 | | | | 72,472 | |
United Arab Emirates Dirham | | | 31,534 | | | | 13,614 | | | | 18,180 | |
| | | 88,614 | | | | 62,794 | | | | 109,905 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The table below shows the exchange rates compared to the Euro of the main foreign currencies used by the Group.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | 1.133 | | | | 1.183 | | | | 1.227 | | | | 1.142 | | | | 1.123 | | | | 1.119 | |
| | | 1.033 | | | | 1.081 | | | | 1.080 | | | | 1.070 | | | | 1.085 | | | | 1.113 | |
| | | 7.195 | | | | 7.629 | | | | 8.023 | | | | 7.874 | | | | 7.821 | | | | 7.735 | |
| | | 0.840 | | | | 0.860 | | | | 0.899 | | | | 0.890 | | | | 0.851 | | | | 0.878 | |
| | | 8.833 | | | | 9.193 | | | | 9.514 | | | | 8.857 | | | | 8.747 | | | | 8.772 | |
| | | 1.528 | | | | 1.589 | | | | 1.622 | | | | 1.574 | | | | 1.511 | | | | 1.527 | |
United Arab Emirates Dirham | | | 4.160 | | | | 4.344 | | | | 4.507 | | | | 4.194 | | | | 4.126 | | | | 4.111 | |
| | | 130.380 | | | | 129.877 | | | | 126.490 | | | | 121.832 | | | | 121.940 | | | | 122.021 | |
General economic conditions, macro events and international tourism
Purchases of Zegna’sthe Group’s products tend to be discretionary and therefore sales may be highly volatile, particularly during periods of economic slowdown, and are influenced by, among other factors, general economic conditions, consumer confidence and disposable consumer income, as well as levels of international travel and tourism. A substantial amountportion of Zegna’sthe Group’s sales is generated by customers who purchase products while traveling. In times of economic growth, consumers tend to have more disposable income and travel more frequently, which may increase demand for Zegna’sthe Group’s products. Conversely, when economic growth is stagnant or negative, consumers may delay or avoid discretionary spending, which may result in reduced demand for Zegna’sGroup’s products.
In addition to adverse economic conditions, global political developments, social and geopolitical sources of unrest, natural disasters, travel restrictions imposed by governments (such as those relating to the
COVID-19
pandemic) and other events may also result in a shift in travel patterns or a decline in travel volumes, which have had in the past, and may have in the future, an adverse effect on
Zegna’sthe Group’s business, financial position, results of operations and cash flows.
Global trade conditions and consumer trends that originated during the COVID-19 pandemic continue to persist and may also have long-lasting adverse impacts on our business independently of the progress of the pandemic. For instance, the pandemic has led to shifts in tourism patterns and the emergence of new tourist destinations, thus reshaping the geographical landscape of our store and distribution network. These shifts have resulted in increased expenditure associated with the physical and logistical expansion of our distribution network, as well as the need to adjust distribution strategies and logistics. Moreover, increasing remote working arrangements may result in lower luxury purchases.SignificantEconomies around the world have recently experienced significant inflationary pressures, appeared in 2021 in many of the markets in which we operatecoupled with government measures to combat inflation and this trend has continued in early 2022.prevent or mitigate economic recession. Although there were no material effects on our results of operations in 2021 or 2020 from rising inflation, throughout 2022 and 2023 the recent riseGroup experienced a significant increase in inflation affectingthe price of energy and certain goods and services, management is carefully monitoring inflation,raw materials used in production, as well as any changeshigher prices for transportation and logistics activities and higher costs for labor and outsourced production. Despite these increases in costs, the effects on our margins were substantially offset by the price impacts of implementing our One Brand strategy and passing on a portion of the increase in costs to our customers, as well as actions implemented to improve production processes and efficiencies and lower per unit energy costs. If inflation continues to increase or remains at elevated levels, the Group could face further increases in costs for energy, raw materials or other production costs, or services, which could adversely affect the Group’s business and results of operations if we are not able to pass on the increased costs to our customers or successfully implement other mitigating actions. As a result of the recent inflation, many central banks have increased, and may increase further, interest rates that central banksas a result of the recent inflation, which in turn may enact in attempts to combat inflation, to appropriately address the potential impacts onincrease our operatingborrowing costs. Additionally, increasing costs and financial expensesrising interest rates impact consumer spending power and could result in the futurea decline in our sales.
Due to the ongoing conflict in Ukraine and resulting geopolitical tensions, many governments around the world, including those of the United States, the European Union, Japan and other jurisdictions, have recently announced the imposition of a variety of sanctions on certain industryindustries and parties in Russia and the Ukrainian regions of Donetsk and Luhansk, as well as enhanced export controls on certain industries and products and the exclusion of certain Russian financial institutions from the SWIFT system. On March 11, 2022, the President of the United States issued an executive order prohibiting exports to Russia of luxury goods (including, inter alia, apparel, footwear and certain accessories with a per unit wholesale price of $1,000 or more). Shortly thereafter, on March 15, 2022, the Council of the European Union imposed new sanctions on Russia prohibiting the export of luxury goods having a value in excess of €300 per item (including clothing, footwear, leather and fashion accessories). These and any additional sanctions and export controls, or other measures taken, as well as any counterresponses by the governments of Russia or other jurisdictions, couldare adversely affecting and will continue to adversely affect, directly or indirectly, our supply chain, with negative implications on the prices and availability of raw materials, and our customers, as well as the global financial markets and financial services industry. Following the escalation of the conflict in Ukraine and the aforementioned sanctions, we immediatelyeither suspended production of products forstarting with the Fall/Winter 2022 collection ordered by our Russian franchisees and distributors or redirected any products ordered by Russian franchises and itdistributors for the Fall/Winter 2022 collection to our DOSs or franchisees and distributors in other countries. It is uncertain
whether and when we will resume such production. The Russian market represented 1.5%0.01%, 2.0%0.3% and 1.5% of our revenues in 2023, 2022 and 2021, 2020respectively.
Acquisitions
In addition to the organic growth of our operations, our growth strategy may, from time to time, include strategic acquisitions and 2019, respectively. Furthermore,investments designed to strengthen our vertical integration and expand into new market segments and/or product categories. The economic and financial outcomes of any such transactions may present uncertainties. See “Item 3.D—Risk Factors—Risk factors relating to the political unrestGroup’s business, strategy and operations—We are exposed to risks relating to recent and potential future acquisitions.”
The following paragraphs describe acquisitions made by the Group for the years ended December 31, 2023, 2022 and 2021. For additional information relating to the purchase price allocation and other disclosures relating to business acquisitions, see Note 39 — Business combinations to the Consolidated Financial Statements included elsewhere in Hong Kongthis annual report on Form 20-F.
TFI Acquisition
On April 28, 2023, the Group completed the TFI Acquisition, through which it acquired TFI, the company that startedowns and operates the TOM FORD FASHION business, as part of a transaction in 2019which sole ownership of the TOM FORD brand, its trademarks, and other intellectual property rights were acquired by ELC and TFI has impacted,become a long-term licensee of ELC for all TOM FORD men’s and may continuewomen’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products, by virtue of a long-term licensing and collaboration agreement with ELC for 20 years with an automatic renewal for one further 10 year period subject to impact, ourcertain minimum performance conditions. The Group is in charge of the end-to-end TOM FORD FASHION business, from collection creation and we recognized impairmentdevelopment to production and merchandising, as well as retail and wholesale distribution. TOM FORD FASHION, under the Group, operates a network of €14,82451 directly operated TOM FORD FASHION stores globally at December 31, 2023. The TOM FORD FASHION business has been identified as one of the Group’s three operating and reportable segments.
Before the completion of the TFI Acquisition, the Group already owned 15% of TFI, through its wholly owned subsidiary EZ US Holding Inc., and, through the TFI Acquisition it acquired the remaining 85% equity interest. The transaction implied a value for the acquired 85% stake of TFI of $150 million, on a cash-free and debt-free basis and assuming a normalized working capital. No contingent consideration arrangements were agreed as part of the transaction. A financial guarantee provided to TFI in relation to its payment obligations under a bank loan for an amount of $6,875 thousand from 2019 to 2021,was closed as part of the transactions contemplated by the TFI Acquisition. No amounts were claimed under the guarantee. As a result of the TFI Acquisition, the Group also obtained 100% of Pelletteria Tizeta S.r.l. (“Pelletteria Tizeta”), of which €4,335it previously held a 50% interest. Pelletteria Tizeta, which used to be accounted for using the equity method, is now consolidated line by line following the closing of the TFI Acquisition.
The TFI Acquisition has been accounted for in accordance with IFRS 3 — Business Combinations (“IFRS 3”) using the acquisition method of accounting. For accounting purposes, the Group is the acquirer (through its wholly-owned subsidiary EZ US Holding Inc.). The acquisition method of accounting under IFRS 3 applies the fair value concepts defined in IFRS 13 — Fair Value Measurement (“IFRS 13”) and requires, among other things, the assets acquired and the liabilities assumed in a business combination to be recognized by the acquirer at their fair values as of the acquisition date (with limited exceptions as permitted by IFRS 3). As a result, the Group recognized the assets acquired and liabilities assumed of TFI at their respective fair values at the acquisition date of April 28, 2023. Following the completion of the acquisition, the earnings of the combined Group reflect the impacts of purchase accounting adjustments, including the amortization and depreciation of certain acquired assets.
Other acquisitions
On October 23, 2023, the Group executed an agreement with its South Korean franchise partner, pursuant to which the Group acquired the ZEGNA retail business in South Korea and began directly operating the ZEGNA business in South Korea as of January 1, 2024. As a result, a network of 16 ZEGNA retail stores in the country that were previously managed under franchising arrangements were converted to direct-to-consumer points of sale.
On September 5, 2023, Ermenegildo Zegna Group and Prada Group completed the previously announced acquisition of a 30% interest in Luigi Fedeli e Figlio S.r.l., the world-renowned maker of fine Italian knitwear and yarns, with each group acquiring 15% of the company. The Group paid consideration of €4.7 million for 15% of the company.
On July 1, 2023, the Group acquired the Thom Browne business in South Korea and began directly operating the Thom Browne business in South Korea, with its network of 17 stores. The business is now wholly owned through Thom Browne Korea Ltd., a newly formed and wholly owned subsidiary, and will be operated with external support from the former franchise partner. The Group paid cash consideration of €7,991 thousand and recognized deferred consideration of €18,583 thousand, which at December 31, 2023, amounted to €18,991 thousand, of which €9,302 thousand is expected to be paid in 2024 and was classified within current liabilities and €9,689 thousand is expected to be paid in 2025 and was classified within non-current liabilities.
On March 31, 2023, the Group completed the acquisition of a 25% interest in Canadian technical trail-running shoe company Norda Run Inc. for consideration of $7.1 million, with the option to gradually increase its stake over the following nine years. The luxury outdoor space continues to be an area of focus for the Group, and Norda Run, which uses the finest materials on the planet to produce the world’s best-performing all-weather footwear, aligns perfectly with the Group’s values of creating the best products from the best materials. The agreement secures the possibility of accelerating the brand’s growth through a strong industrial and commercial partnership.
On June 4, 2021, the Group acquired a 60% equity interest in Tessitura Ubertino S.r.l. (“Tessitura Ubertino”), a company specialized in the textile business, to further strengthen the Group’s verticalization strategy, for cash consideration of approximately €7,050 thousand, including a €1,170 thousand earn-out payment, subject to Tessitura Ubertino achieving certain predetermined operating performance targets for the years 2021 and 2022. The operating performance targets for 2021 and 2022 were achieved and the earn-out payment, amounting to €1,170 thousand, was paid by the Group in cash, of which €585 thousand in 2021, €3,6312022 and €585 thousand in 20202023. Tessitura Ubertino was consolidated in the Group’s consolidated financial statements starting on June 4, 2021, and €6,858contributed (i) revenues of €5,625 thousand and profit of €561 thousand to the Group from that date until December 31, 2021, (ii) revenues of €10,210 thousand and profit of €938 thousand in 2019,2022, and (iii) revenues of €11,015 thousand and profit of €1,479 thousand in 2023.
Transaction costs of €6,001 thousand and €2,289 thousand in 2023 and 2022, respectively, primarily for consultancy and legal fees relating to DOSs.the TFI Acquisition, were presented as an adjusting item in the calculation of Adjusted EBIT, Adjusted EBITDA, Adjusted Profit, Adjusted Basic Earnings per Share and Adjusted Diluted Earnings per Share. See also “—Non-IFRS Financial Measures.”
Fluctuations in the price of raw materials
Zegna’s costs forThe Group requires high quality raw materials
for its products, which primarily include fibers and yarns of wool, silk, cotton, linen, cashmere and fabrics of the same composition, as well as leather and rare raw materials such as vicuña. The Group’s cost of sales and profitability are
significantly impacted by fluctuations in the price of
certainthese and other raw materials,
including merino wool, cotton, cashmere, silk and rare raw materials such as vicuña. Price fluctuations in these raw materialswhich may be driven by several factors, including,
bothamong others, natural elements (e.g., weather conditions and diseases of livestock)
, inflation and trade restrictions, tariffs
andor similar government measures
whichthat may limit or
make more expensiveincrease the
importcost of importing or
export ofexporting these raw materials.
See also “–General economic conditions, macro events and international tourism
” above.
The table below sets forth Zegna’s cost of raw materials and consumables for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (108,442 | ) | | | (8.4 | %) | | | (108,130 | ) | | | (10.7 | %) | | | (139,965 | ) | | | (10.6 | %) | | | (312 | ) | | | (0.3 | %) | | | 31,835 | | | | 22.7 | % |
| | | (161,731 | ) | | | (12.5 | %) | | | (130,006 | ) | | | (12.8 | %) | | | (141,512 | ) | | | (10.7 | %) | | | (31,725 | ) | | | (24.4 | %) | | | 11,506 | | | | 8.1 | % |
| | | (12,951 | ) | | | (1.0 | %) | | | (10,909 | ) | | | (1.1 | %) | | | (14,067 | ) | | | (1.1 | %) | | | (2,042 | ) | | | (18.7 | %) | | | 3,158 | | | | 22.4 | % |
Change in raw materials, consumables and finished goods | | | (24,822 | ) | | | (1.9 | %) | | | 131 | | | | 0.0 | % | | | (9,991 | ) | | | (0.8 | %) | | | (24,953 | ) | | | n.m. | (*) | | | 10,122 | | | | 101.3 | % |
| | | (1,663 | ) | | | (0.1 | %) | | | (1,655 | ) | | | (0.2 | %) | | | (4,266 | ) | | | (0.3 | %) | | | (8 | ) | | | (0.5 | %) | | | 2,611 | | | | 61.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total cost of raw materials and consumables | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Throughout this section “n.m.” means not meaningful.
|
The price of wool has been subject to significant fluctuations in recent years. For example, the average price of Australian merino wool more than doubled from 2016 to 2018, declined significantly in the 2019-2020 period and has increased again in 20212021. Prices stabilized in 2022 before declining again in the first half of 2023 and early 2022, although current prices remain below 2018 levels.Zegna’sonly partially recovering by the end of the year. The Group’s management expects the price of wool to remain volatile and the availability of high-quality wool to continue to swing in the future. ZegnaThe Group seeks to mitigate the risk of price increases in the price offor wool through a procurement policy that tends to spread purchases of wool over time and in advance of actual requirements in order to average out the purchasing costs. Nevertheless, Zegnathe Group remains exposed to fluctuations in the price of wool and other raw materials, including cashmere, for which the price rosehas risen significantly through 2021. As noted above, although there were no material effects on our results of operations in 2021 fromover the recent rise in inflation in certain goodslast three years. See also “—General economic conditions, macro events and services, management is carefully monitoring inflation to appropriately address the potential impacts on our operating costs in the future.international tourism” above.
The Business Combination
On December 17, 2021, the Group closed the previously announced Business Combination pursuant to the Business Combination Agreement, dated as of July 18, 2021, as amended, by and among the Company, IIAC and Zegna Merger Sub, a wholly owned subsidiary of the Group, through a series of transactions described below.
On November 1, 2021, Ermenegildo Zegna Holditalia S.p.A. completed the disposition of certain of its businesses through the statutory demerger under Italian law to a new company owned by its existing shareholders. The Disposition included, inter alia, Ermenegildo Zegna Holditalia S.p.A.’s real estate business, consisting of its former subsidiary EZ Real Estate, which directly and indirectly held substantially all of the real estate assets formerly owned by the Group, as well as certain properties previously owned by Lanificio, and its 10% equity interest in Elah Dufour S.p.A. Most of the real estate properties directly or indirectly owned by EZ Real Estate were, and continue to be, leased to the Group following the Disposition.
The Business Combination was completed through a series of transactions executed on December 17, 2021, including a cross-border conversion whereby Ermenegildo Zegna Holditalia S.p.A., by means of the execution of a Dutch notarial deed of cross-border conversion and amendment of its articles of association, converted into a Dutch public limited liability company (naamloze vennootschap) and transferred its legal seat from Italy to the Netherlands and amended its articles of association, upon which the Company changed its name to Ermenegildo Zegna N.V.
Following the completion of the Business Combination, on December 20, 2021, the Company’s Ordinary Shares and Public Warrants began trading on the NYSE. As a result of the Warrant Redemption completed on February 27, 2023, the Public Warrants ceased trading on the NYSE and there are no remaining Warrants outstanding.
For additional information relating to the Business Combination and the Warrant Redemption, see Note 1 — General information to the Consolidated Financial Statements included elsewhere in this annual report on Form 20-F.
Disposition of certain businesses
On November 1, 2021, Zegnathe Group completed the dispositionDisposition by disposing of certain of its businesses, through the statutory demerger under Italian law to a new company owned by its existing shareholders of (i) its real estate business, consisting of Zegna’sthe Group’s former subsidiary EZ Real Estate, which directly and indirectly holdsheld substantially all of the real estate assets formerly owned by the Zegna group,Group, as well as certain properties previously owned by Lanificio, including part of Lanificio’s industrial building located in Valdilana and Lanificio’s hydroelectric plants, and (ii) its 10% equity interest in Elah Dufour S.p.A. ((i) and (ii) are collectively referred to as the “Demerger”). On January 14, 2021, Zegnathe Group sold 70% of its equity stake in Agnona S.r.l. (“Agnona”) to a related party for consideration of €1 and as a result Agnona was deconsolidated from the start of the year.2021. The Group subsequently disposed of the remaining 30% stake in Agnona in two tranches in September and October 2021 for total consideration of Euro 500€500 thousand (the disposition of the stake in Agnona, together with the Demerger, are referred to as the “Disposition”,“Disposition,” and the foregoing divested businesses are referred to collectively as the “Disposed Businesses”).
Zegna’s consolidated revenues for the years 2021, 2020 and 2019 were €1,292,402 thousand, €1,014,733 thousand and €1,321,327 thousand, respectively, of which nil, €9,805 thousand and €15,545 thousand, respectively, related to the “Disposed Businesses (primarily Agnona)”).
The majority of the real estate properties directly or indirectly owned by EZ Real Estate are, and will continue to be, leased to Zegna. Such real estate assets leased to Zegna includethe Group, including buildings hosting the mainthat host manufacturing plantsfacilities, corporate offices, showrooms, warehouses, land and officesother buildings of the Zegna Group in Italy (including Zegna’sthe headquarter offices in Milan and the manufacturing facilities in Parma, San Pietro Mosezzo, Verrone and Oleggio, as well as part of the building located in Valdilana partlymostly occupied by Zegna)the Group) and Switzerland (including the offices in Stabio and the manufacturing plant in Mendrisio), as well as certain ZegnaZEGNA stores, mainly in Sandigliano and Oleggio (Italy) and London (United Kingdom). Following the Disposition, Zegnathe Group continues to pay rent to EZ Real Estate or its relevant subsidiaries under the relevant lease agreements. With respectagreements, which amounted to Lanificio’s real estate assets that form partan aggregate of the Disposition,€12,268 thousand and €6,227 thousand in 2023 and 2022, respectively. Additionally, appropriate arrangements have been put in place at market terms to ensure the continued use by Zegnathe Group of such properties at market terms.Lanificio’s real estate assets that formed part of the Disposition.
The Disposed Businesses also include Oasi Zegna, a freely accessible natural reserve in Piemonte, Italy, established by Zegnathe Group in 1993 with the goal of fostering a positive relationship with the local territory and the community by creating a lasting environment for the public to enjoy. Following the Disposition and to strengthen the mutually beneficial and inspiring relationship between the Ermenegildo Zegna Group and Oasi Zegna, Zegnathe Group has entered into an arrangement whereby Oasi Zegna will provideprovides licensing, marketing and other sustainability-related services.
Fluctuations in exchange rates
A large portion of the Group’s operations is in international markets outside the Eurozone, where the Group records revenues and expenses in various currencies other than the Euro (which is the Group’s functional currency), mainly the Chinese Renminbi and the U.S. Dollar, as well as various other currencies. While the Group’s revenues are denominated mainly in the local currencies of the respective markets (revenues generated in currencies other than the Euro represented 68%, 65% and 70% of the Group’s revenues in 2023, 2022 and 2021, respectively), a significant portion of the Group’s costs are denominated in Euro, mainly related to production and corporate headquarters and related functions. As a result, the Group’s results are affected by fluctuations in foreign currency exchange rates through (i) the translation of foreign currency financial statements into Euro upon consolidation of the Group’s subsidiaries with functional currencies other than Euro (translation impact), and (ii) transactions by Group entities in currencies other than their own functional currencies (transaction impact). Generally, an appreciation of the Chinese Renminbi, U.S. Dollar or the other currencies in which the Group operates against the Euro would have a positive impact on the Group’s revenues and results of operations, while a depreciation in those currencies would have a negative impact. An appreciation of the U.S. Dollar against the Euro may also adversely affect the Group’s results of operations due to certain significant liabilities of the Group that are denominated in U.S. Dollars, such as the liability for the written put option on non-controlling interests in the Thom Browne Group, which is remeasured at fair value and recognized through profit or loss at the end of each reporting period based on the present value of the exercise price of the option in U.S. Dollars.
The last three years have been characterized by high volatility in exchange rates. For example, in 2023 several currencies used by the Group depreciated against the Euro, including (i) the Chinese Renminbi (going from 7.358 Chinese Renminbi for 1 Euro at December 31, 2022 to 7.851 at December 31, 2023), (ii) the U.S. Dollar (going from 1.067 U.S. Dollars for 1 Euro at December 31, 2022 to 1.105 at December 31, 2023) and (iii) the Japanese Yen (going from 140.660 Japanese Yen for 1 Euro at December 31, 2022 to 156.330 at December 31, 2023). In 2022, the U.S. Dollar, for which the Group generates a significant portion of its revenues, remained strong against many other currencies over the course of 2022, including the Euro, but recorded a slight fall in the last quarter of the year, while the Chinese Renminbi remained strong against the Euro over the course of 2022 but fell in the last quarter of the year to levels similar to the end of 2021. See below for the year end and average exchange rates of the main foreign currencies used by the Group compared to the Euro for 2023, 2022 and 2021.
The Group seeks to mitigate the effects of its currency exposure by entering into derivative contracts (generally forward contracts for the sale of foreign currencies) in order to either fix exchange rates in advance or to determine a predefined range of exchange rates at a future date. For the Zegna and the Tom Ford Fashion segments, the Group initially defines sales prices in Euro and then sets the corresponding prices in other currencies by applying exchange rates selected by management based on reasonable expectations and assumptions. Forward sales contracts are made when the seasonal price lists in a given currency are set in order to mitigate the impact of any divergence between actual exchange rates and the expected exchange rates used by management, based on estimated revenues and setting the hedge contract maturity in line with the planned date of payment by customers. Additional hedging transactions may be entered into during the relevant season depending on actual developments in exchange rates. The Group continues to implement similar policies also in the Thom Browne segment, which has become more exposed to currency impact as it expands into international markets. For information relating to the market risks that the Group is exposed to, see Note 35 — Qualitative and quantitative information on financial risks to the Consolidated Financial Statements included within this report.
The following table sets forth the Group’s revenues by currency of origin for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
| 2023 | | 2022 | | 2021 |
(€ thousands, except percentages) | Revenues | % of Revenues | | Revenues | % of Revenues | | Revenues | % of Revenues |
Euro | 612,394 | 32.2 | % | | 518,818 | 34.8 | % | | 387,251 | 30.0 | % |
Chinese Renminbi | 474,987 | 24.9 | % | | 414,579 | 27.8 | % | | 501,824 | 38.8 | % |
U.S. Dollar | 391,654 | 20.6 | % | | 275,550 | 18.5 | % | | 185,944 | 14.4 | % |
Japanese Yen | 80,096 | 4.2 | % | | 57,918 | 3.9 | % | | 49,966 | 3.9 | % |
United Arab Emirates Dirham | 62,493 | 3.3 | % | | 49,324 | 3.3 | % | | 31,534 | 2.4 | % |
Pound Sterling | 62,649 | 3.3 | % | | 45,834 | 3.1 | % | | 30,101 | 2.3 | % |
Hong Kong Dollar | 44,184 | 2.3 | % | | 17,272 | 1.2 | % | | 17,168 | 1.3 | % |
South Korean Won | 30,751 | 1.6 | % | | 922 | 0.1 | % | | 807 | 0.1 | % |
Other currencies | 145,341 | 7.6 | % | | 112,623 | 7.5 | % | | 87,807 | 6.8 | % |
Total revenues | 1,904,549 | 100.0 | % | | 1,492,840 | 100.0 | % | | 1,292,402 | 100.0 | % |
The table below shows the exchange rates of the main foreign currencies used by the Group compared to the Euro.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| At December 31 | | Average | | At December 31 | | Average | | At December 31 | | Average |
Chinese Renminbi | 7.851 | | 7.660 | | 7.358 | | 7.079 | | 7.195 | | 7.629 |
U.S. Dollar | 1.105 | | 1.081 | | 1.067 | | 1.053 | | 1.133 | | 1.183 |
Japanese Yen | 156.330 | | 151.990 | | 140.660 | | 138.027 | | 130.380 | | 129.877 |
United Arab Emirates Dirham | 4.058 | | 3.971 | | 3.917 | | 3.867 | | 4.160 | | 4.344 |
Pound Sterling | 0.869 | | 0.870 | | 0.887 | | 0.853 | | 0.840 | | 0.860 |
Hong Kong Dollar | 8.631 | | 8.465 | | 8.316 | | 8.245 | | 8.833 | | 9.193 |
South Korean Won | 1,433.660 | | 1,412.880 | | 1,344.090 | | 1,358.073 | | 1,346.380 | | 1,353.958 |
Swiss Franc | 0.926 | | 0.972 | | 0.985 | | 1.005 | | 1.033 | | 1.081 |
Impact of the COVID-19 pandemic
The Group’s business has experienced a steady recovery from the adverse effects of the COVID-19 pandemic on the Group’s revenues and results from operations that occurred primarily in 2020, although in 2022, due to a new wave of the virus and the resulting lockdown restrictions in certain parts of the Greater China Region, the Group’s largest geographical market, the Group was required to temporarily close certain of its DOSs in the region. In particular, from mid-March 2022 until the end of May 2022 and again in the fourth quarter of 2022, the Group closed certain DOSs in the Greater China Region. In addition, certain DOSs that remained open in the region continued to experience significantly lower customer traffic throughout 2022, resulting in significantly lower sales in the Greater China Region in 2022 compared to 2021. The Group’s operations substantially normalized in the Greater China Region in 2023.
The extent to which COVID-19 will impact the Group’s business, financial position, results of operations and cash flows in the future remains highly uncertain and cannot be accurately predicted at this time. See also “Item 3.D—Risk Factors—Risk factors relating to the Group’s business, strategy and operations—We are subject to risks related to the COVID-19 pandemic or similar public health crises that may materially and adversely affect our business.”
COVID-19-Related Rent Reductions
For the years ended December 31, 2022 and 2021, the Group obtained COVID-19 related rent reductions agreed with lessors for €7,194 thousand and €12,877 thousand, respectively, which were accounted for in accordance with amendments to IFRS 16 — Leases (“IFRS 16”) issued by the IASB which exempt lessees from determining whether COVID-19-related rent concessions are lease modifications, thereby providing a practical expedient to immediately recognize the entire economic benefit of such rental discounts in the statement of profit and loss.
Funding strategy
With the aim of reducing the cost of financing while continuing to ensure the Group has adequate access to liquidity to meet its financial commitments and guarantee flexibility for its operations and any expansion programs, starting in 2022 the Group has replaced a portion of its 2022 and 2023 debt maturities with new bilateral committed revolving credit facilities that may be drawn down by the Group at any time during the relevant term. As a result, the Group has reduced and will continue to reduce its borrowings, primarily through the use of cash and the disposal of certain financial investments held by the Group.
For additional information see “—Liquidity and Capital Resources—Net Financial Indebtedness/(Cash Surplus).”
Tax obligations and changes in tax laws, estimates, treaties and regulations
ZegnaThe Group is subject to taxation in Italy, the USAUnited States and China, as well as various other jurisdictions, with the applicable tax rates varying by jurisdiction. As a result, Zegna’sthe Group’s overall effective tax rate is affected by the proportion of earnings from the various tax jurisdictions and by the ability to generate sufficient and suitable future taxable profits from which the reversal of any deferred tax assets can be deducted. ZegnaThe Group recognizes tax expenses in multiple tax jurisdictions based on i)(i) the estimates of taxable income, ii)(ii) the required reserves for uncertain tax positions, iii)(iii) deductible temporary differences, tax loss carry-forwards and tax credits to the extent that their future offset is probable, iv)(iv) withholding taxes on unremitted earnings, and v) on(v) the way in which Zegnathe Group intends to recover or settle the carrying amount of deferred tax assets and liabilities. At any time, there are multiple tax years that are subject to examinations by various tax authorities.
Additionally, Zegnathe Group is subject to duties applicable to the importation of our products in various countries in which we operate, which may impact the cost of such products. In addition,Moreover, countries to which we ship our products may impose safeguard quotas to limit the quantity of products that may be imported. We rely on free trade agreements and other supply chain initiatives in order to maximize efficiencies relating to the importation of our products.
On June 4, 2021, Zegna acquired a 60% equity interest in Tessitura Ubertino S.r.l. (“Tessitura Ubertino”), a company specialized in the textile business, to further strengthen Zegna’s verticalization strategy, for cash consideration of approximately €7,050 thousand, including a €1,170 thousandearn-out
payment that will be payable 50% in 2022 and 50% in 2023 subject to Tessitura Ubertino achieving certain predetermined operating performance targets for the years 2021 and 2022, respectively. Tessitura Ubertino was consolidated in Zegna’s consolidated financial statements starting on June 4, 2021, and contributed revenues of €5,625 thousand and profit for the year of €561 thousand to the Group from that date until December 31, 2021.On July 19, 2019, Zegna acquired a 65% equity interest in Gruppo Dondi S.p.A. (“Dondi”), a company specialized in the manufacturing ofhigh-end
jersey, to further strengthen Zegna’s verticalization strategy, for cash consideration of approximately €18,075 thousand (including certainearn-out
payments). Dondi was consolidated in Zegna’s consolidated financial statements starting from September 1, 2019. In 2021 the Group paid contingent consideration of €710 thousand based on the achievement of certain predetermined performance targets by Dondi.For additional information relating to acquisitions made by Zegna subsequent to December 31, 2021 please refer to the section.The luxury apparel market in which Zegnathe Group operates is subject to seasonal fluctuations in sales. Zegna’sThe Group’s sales are usually higher in the months of the year in which wholesale customers concentrate their purchases. For example, deliveries of seasonal goods to wholesale customers tend to concentrate from November to February for the Spring/Summer collection and from June to September for the Fall/Winter collection.
With
regardsregard to retail sales at
Zegna’s DOSs,the Group’s DOS, sales tend to be higher in the last quarter of the year, driven by the holiday shopping season and in January and February, in correspondence with the Chinese New Year celebrations. However, several events may affect retail sales, including adverse weather conditions or other macroeconomic and external events (including the
COVID-19
pandemic).
Operating costs, in contrast, do not generally experience significant seasonal fluctuations, except for certain increases in the months of November and December due to the variable costs associated with sales commissions and variable leases.
As a result of the foregoing, the financial results for interim periods may not be indicative of results for the entire fiscal year. ZegnaManagement expects such seasonal trends to continue.
In May 2020 and March 2021, the IASB issued an amendments to IFRS 16 -(“IFRS 16”) exempting lessees from determining whetherrent concessions are lease modifications, thereby providing a practical expedient to immediately recognize the entire economic benefit of such rental discounts in the statement of profit and loss. Zegna adopted the amendments effective January 1, 2020 and elected not to treatCOVID-19
related rent concessions as lease modifications. For the year ended December 31, 2021 and 2020, Zegna recognized lease expenses net of rent reductions of €12,877 thousand and €24,931 thousand, respectively, received as a result of the effects of theCOVID-19
pandemic.
Table of Contents
For the year ended December 31, 2021, compared with the year ended December 31, 2020
The following is a discussion of Zegna’sthe Group’s results of operations for the year ended December 31, 20212023 as compared to the year ended December 31, 2020,2022, and for the year ended December 31, 20202022 as compared to the year ended December 31, 2019.
2021. Starting in 2023, the Group presents the consolidated statement of profit and loss by function, which is most representative of the way the Chief Operating Decision Maker and management view the business, and is consistent with international practice. In order to conform to this new presentation, the information for the years ended December 31, 2022 and 2021 has been reclassified compared to what was previously presented by the Group. For additional information see Note 2 — Basis of preparation to the Consolidated Financial Statements included elsewhere within this annual report on Form 20-F. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands, except percentages) | 2023 | | Percentage of revenues | | 2022 | | Percentage of revenues | | 2021 | | Percentage of revenues |
Revenues | 1,904,549 | | 100.0 | % | | 1,492,840 | | 100.0 | % | | 1,292,402 | | 100.0 | % |
Cost of sales | (680,235) | | (35.7 | %) | | (564,832) | | (37.8 | %) | | (495,702) | | (38.4 | %) |
Gross profit | 1,224,314 | | 64.3 | % | | 928,008 | | 62.2 | % | | 796,700 | | 61.6 | % |
Selling, general and administrative | (901,364) | | (47.3 | %) | | (695,084) | | (46.6 | %) | | (822,897) | | (63.7 | %) |
Marketing expenses | (114,802) | | (6.0 | %) | | (85,147) | | (5.7 | %) | | (67,831) | | (5.2 | %) |
Operating profit/(loss) | 208,148 | | 10.9 | % | | 147,777 | | 9.9 | % | | (94,028) | | (7.3 | %) |
Financial income | 37,282 | | 2.0 | % | | 13,320 | | 0.9 | % | | 45,889 | | 3.6 | % |
Financial expenses | (68,121) | | (3.6 | %) | | (54,346) | | (3.6 | %) | | (43,823) | | (3.4 | %) |
Foreign exchange losses | (5,262) | | (0.3 | %) | | (7,869) | | (0.5 | %) | | (7,791) | | (0.6 | %) |
Result from investments accounted for using the equity method | (2,953) | | (0.2 | %) | | 2,199 | | 0.1 | % | | 2,794 | | 0.2 | % |
Profit/(Loss) before taxes | 169,094 | | 8.9 | % | | 101,081 | | 6.8 | % | | (96,959) | | (7.5 | %) |
Income taxes | (33,433) | | (1.8 | %) | | (35,802) | | (2.4 | %) | | (30,702) | | (2.4 | %) |
Profit/(Loss) | 135,661 | | 7.1 | % | | 65,279 | | 4.4 | % | | (127,661) | | (9.9 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | | | | | | | | | | |
| | | 1,292,402 | | | | 100.0 | % | | | 1,014,733 | | | | 100.0 | % | | | 1,321,327 | | | | 100.0 | % |
| | | 8,260 | | | | 0.6 | % | | | 5,373 | | | | 0.5 | % | | | 7,873 | | | | 0.6 | % |
Cost of raw materials and consumables | | | (309,609 | ) | | | (24.0 | )% | | | (250,569 | ) | | | (24.7 | )% | | | (309,801 | ) | | | (23.4 | )% |
Purchased, outsourced and other costs | | | (353,629 | ) | | | (27.4 | )% | | | (286,926 | ) | | | (28.3 | )% | | | (371,697 | ) | | | (28.1 | )% |
| | | (367,762 | ) | | | (28.5 | )% | | | (282,659 | ) | | | (27.9 | )% | | | (331,944 | ) | | | (25.1 | )% |
Depreciation, amortization and impairment of assets | | | (163,367 | ) | | | (12.6 | )% | | | (185,930 | ) | | | (18.3 | )% | | | (177,068 | ) | | | (13.4 | )% |
Write downs and other provisions | | | (19,487 | ) | | | (1.5 | )% | | | (6,178 | ) | | | (0.6 | )% | | | (1,017 | ) | | | (0.1 | )% |
| | | (180,836 | ) | | | (14.0 | )% | | | (30,399 | ) | | | (3.0 | )% | | | (49,034 | ) | | | (3.7 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 45,889 | | | | 3.6 | % | | | 34,352 | | | | 3.4 | % | | | 22,061 | | | | 1.7 | % |
| | | (43,823 | ) | | | (3.4 | )% | | | (48,072 | ) | | | (4.7 | )% | | | (37,492 | ) | | | (2.8 | )% |
Foreign exchange (losses)/gains | | | (7,791 | ) | | | (0.6 | )% | | | 13,455 | | | | 1.3 | % | | | (2,441 | ) | | | (0.2 | )% |
Result from investments accounted for using the equity method | | | 2,794 | | | | 0.2 | % | | | (4,205 | ) | | | (0.4 | )% | | | (1,534 | ) | | | (0.1 | )% |
Impairments of investments accounted for using the equity method | | | — | | | | 0.0 | % | | | (4,532 | ) | | | (0.4 | )% | | | — | | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
(Loss)/Profit before taxes | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (30,702 | ) | | | (2.4 | )% | | | (14,983 | ) | | | (1.5 | )% | | | (43,794 | ) | | | (3.3 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | |
(Loss)/Profit for the year | | | | | | | | | | | | | | | | | | | | | | | | |
ZegnaThe Group generates revenues primarily from the sale of its products (net of returns and discounts),services, as well as from fees for services provided, royalties received from third parties and licensees. Revenues are recognized net of returns and discounts.
In addition to presenting our revenues on a current currency basis, the following analysis of revenues includes the change in revenues (i) on a constant currency basis and (ii) on an organic growth basis, which we refer to as “Constant Currency” and “Organic Growth”, respectively. The change in revenues on a constant currency and on an organic basis are non-IFRS measures. See “—Non-IFRS Financial Measures” for additional information relating to these measures and for the reconciliations of revenue growth to organic growth.
2023 compared to 2022
Revenues for the year ended December 31, 2023 amounted to €1,904,549 thousand, an increase of €411,709 thousand or +27.6% (+29.7% at constant currency; +19.3% organic growth) compared to €1,492,840 thousand for the year ended December 31, 2022, driven by double digit growth in the Zegna and Thom Browne segments (including on a constant currency and organic growth basis), as well as the revenues contributed by the Tom Ford Fashion segment following completion of the TFI acquisition on April 28, 2023.
An analysis of revenues by product line, by distribution channel and by geographical area is provided below.
2022 compared to 2021
Revenues for the year ended December 31, 2022 amounted to €1,492,840 thousand, an increase of €200,438 thousand or +15.5% (+11.0% at constant currency; +10.4% organic growth) compared to €1,292,402 thousand for the year ended December 31, 2021. Our revenues significantly increased in all major geographic areas with the exception of the Greater China Region, our largest geographical market, which was significantly impacted by COVID-19-related restrictions during the course of 2022, which resulted in the temporary closure of certain stores and lower customer traffic, primarily
from mid-March until the end of May, and again during the fourth quarter of the year as a result of additional waves of COVID-19. Therefore, the discussion below presents our revenues isolating the Greater China Region performance, which we believe is useful to better understand the underlying trend in our revenues for the periods presented.
Revenues in the Greater China Region for the year ended December 31, 2022 amounted to €494,110 thousand, a decrease of €94,766 thousand or -16.1% (-20.6% at constant currency and organic growth), compared to €588,876 thousand for the year ended December 31, 2021. The Greater China Region was adversely impacted by aforementioned COVID-19-related restrictions in 2022, which resulted in the temporary closure of certain stores and lower customer traffic, primarily from mid-March until the end of May, impacting both ZEGNA and Thom Browne directly operated stores. Starting in June and through the third quarter of 2022, DTC revenues in the Greater China Region showed a positive trend compared to the third quarter of 2021 as a result of a significant increase in e-commerce sales for both the Zegna and Thom Browne segments and the gradual recovery of in-store sales. Due to a new wave of particularly impactful COVID-19-related restrictions in the Greater China Region in October and November, as well as some further unplanned temporary store closures in December due to a wave of contagion and resulting staff shortages, the Group’s revenues in the fourth quarter of 2022 decreased by approximately 30% compared to the fourth quarter of 2021.
Revenues in the rest of the world for the year ended December 31, 2022 amounted to €998,730 thousand, an increase of €295,204 thousand or +42.0% (+38.6% at constant currency; +40.1% organic growth), compared to €703,526 thousand for the year ended December 31, 2021. This increase was mainly attributable to the United States (+53.5% or +42.1% at constant currency; +39.9% organic growth), driven by DTC sales in both the Zegna and Thom Browne segments, Italy (+41.3% or +41.8% at constant currency; +42.1% organic growth), the UK (+43.2% or +42.2% at constant currency; +51.6% organic growth), France (+51.0% at current and at constant currency; +46.9% organic growth) and the United Arab Emirates (+54.6% or +38.4% at constant currency; 39.6% organic growth), as well as Latin America (+49.7% or +33.4% at constant currency and organic growth) and Japan (+18.0% or +23.7% at constant currency; +24.3% organic growth). As a result of the ongoing conflict in Ukraine and wide-ranging sanctions on certain industries and parties in Russia, from March 2022 we suspended production of products for, as well as new order collection from, our Russian franchisees and distributors, and reallocated products to other geographies, primarily in EMEA.
The following discussion presents an analysis of revenues by product line, by distribution channel and by geographical area. For further details relating to the revenues of each of the Group’s operating segments, see “—Results by Segment” below.
Revenues by product line
The following table sets forth a breakdown of revenues by product line for the years ended December 31, 2021, 20202023, 2022 and 2019.
2021. | | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | |
| | | 847,311 | | | | 636,478 | | | | 919,545 | | | | 210,833 | | | | 33.1 | % | | | (283,067 | ) | | | (30.8 | )% |
| For the years ended December 31, | | | For the years ended December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | | (€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | Reported Revenues | | Constant Currency | | Organic Growth | | 2022 vs 2021 | | Reported Revenues | | Constant Currency | | Organic Growth |
ZEGNA branded products | | ZEGNA branded products | 1,109,491 | | 923,942 | | 847,311 | | 185,549 | | 20.1 | % | | 22.3 | % | | 22.3 | % | | 76,631 | | 9.0 | % | | 4.1 | % | | 4.1 | % |
| | | 263,397 | | | | 179,490 | | | | 160,595 | | | | 83,907 | | | | 46.7 | % | | | 18,895 | | | | 11.8 | % | Thom Browne | 378,410 | | 330,014 | | 263,397 | | 48,396 | | 14.7 | % | | 18.0 | % | | 17.5 | % | | 66,617 | | 25.3 | % | | 20.6 | % | | 20.6 | % |
TOM FORD FASHION | | TOM FORD FASHION | 235,531 | | — | | 235,531 | | n.m.(*) | | n.m. | | — | | — | % | | — | % | | — | % |
| | | 102,244 | | | | 87,615 | | | | 108,513 | | | | 14,629 | | | | 16.7 | % | | | (20,898 | ) | | | (19.3 | )% | Textile | 150,986 | | 136,769 | | 102,244 | | 14,217 | | 10.4 | % | | 9.4 | % | | 9.5 | % | | 34,525 | | 33.8 | % | | 35.4 | % | | 32.7 | % |
| | | 74,957 | | | | 82,273 | | | | 91,720 | | | | (7,316 | ) | | | (8.9 | )% | | | (9,447 | ) | | | (10.3 | )% | Third Party Brands | 25,343 | | 97,792 | | 74,957 | | (72,449) | | (74.1 | %) | | (74.2 | %) | | (17.4 | %) | | 22,835 | | 30.5 | % | | 27.9 | % | | 86.1 | % |
| | | 1,191 | | | | 12,389 | | | | 17,691 | | | | (11,198 | ) | | | (90.4 | )% | | | (5,302 | ) | | | (30.0 | )% |
| | | 3,302 | | | | 16,488 | | | | 23,263 | | | | (13,186 | ) | | | (80.0 | )% | | | (6,775 | ) | | | (29.1 | )% | Other | 4,788 | | 4,323 | | 4,493 | | 465 | | 10.8 | % | | 11.6 | % | | 15.4 | % | | (170) | | (3.8 | %) | | (7.5 | %) | | (7.5 | %) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | 1,904,549 | | 1,492,840 | | 1,292,402 | | 411,709 | | 27.6 | % | | 29.7 | % | | 19.3 | % | | 200,438 | | 15.5 | % | | 11.0 | % | | 10.4 | % |
_______________________________________(*) Throughout this document “n.m.” means not meaningful.
2023 compared to 2022
(i)an increase in ZEGNA branded products of Contents€185,549 thousand or +20.1% (+22.3% at constant currency and organic growth), primarily driven by the continued positive performance of both luxury leisurewear and footwear, which represented 50% and 13% of revenues from ZEGNA branded products during the year,
respectively, as well as our tailoring (“Tailoring”) and made-to-measure (“Made-to-Measure” or “MTM”) businesses;
(ii)an increase in Thom Browne of €48,396 thousand or +14.7% (+18.0% at constant currency; +17.5% organic growth), driven by the growth across all lines, in particular womenswear;
(iii)revenues of €235,531 thousand from TOM FORD FASHION following completion of the TFI Acquisition on April 28, 2023; and
(iv)an increase of €14,217 thousand or +10.4% (+9.4% at constant currency; +9.5% organic growth) in Textile, primarily attributable to double digit growth of the Lanificio Ermenegildo Zegna;
partially offset by:
(v)a decrease in Third Party Brands of €72,449 thousand or -74.1% (-74.2% at constant currency; -17.4% organic growth), reflecting the end of the previous TFI distribution license agreement for menswear with the deliveries of the Fall/Winter 2022 collection and the start of a supply agreement to act as the exclusive supplier for certain TOM FORD menswear products with the Spring/Summer 2023 collection. Following the completion of the TFI Acquisition on April 28, 2023, the revenues from the supply agreement with TFI are reported as intercompany revenues and eliminated from the Group’s consolidated results.
2022 compared to 2021
By product line, the increase in revenues was mainly attributable to:
(i)an increase of €76,631 thousand or +9.0% (+4.1% constant currency and organic growth) in ZEGNA branded products, primarily driven by the (a) the continued positive performance of shoes and steady growth in luxury leisurewear, as well as the rebound of our Tailoring and Made-to-Measure business, particularly in the United States and EMEA, as 2021 was impacted by COVID-19-related restrictions, and (b) the effects of price repositioning and price increases as part of the new ZEGNA One Brand strategy starting with the rollout of the Fall/Winter 2022 collection;
(ii)an increase of €66,617 thousand or +25.3% (+20.6% constant currency and organic growth) in Thom Browne, reflecting strong wholesale demand and growth across all lines (menswear, womenswear and childrenswear), driven by sales for both our seasonal and our classic collections, as well as the roll out of the TMall platform for e-commerce sales in the Greater China Region (which commenced in the second half of 2021) and the contribution of eleven net DTC store openings (63 DTC stores at December 31, 2022 compared to 52 DTC stores at December 31, 2021), primarily in APAC;
(iii)an increase of €34,525 thousand or +33.8% (+35.4% constant currency; +32.7% organic growth) in Textile, primarily attributable to the positive performance of the Lanificio Ermenegildo Zegna, Bonotto and Dondi brands driven by higher orders for the Fall/Winter 2022 and Spring/Summer 2023 collections compared to the previous year’s collections, which were affected by the COVID-19 pandemic, and the impact of Tessitura Ubertino S.r.l., which was acquired in June 2021 and contributed additional revenues of €4,590 thousand in 2022 compared to 2021; and
(iv)an increase of €22,835 thousand or +30.5% (+27.9% constant currency; +86.1% organic growth) in Third Party Brands, which benefited from higher orders for the TOM FORD brand for the Spring/Summer 2022 and Fall/Winter 2022 collections, as well as higher orders for the Gucci brand. The TFI distribution license agreement ended with the deliveries of the Fall/Winter 2022 collection and the Group expects to commence the TFF License in the second quarter of 2023 (subject to antitrust approvals and other customary closing conditions) for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile and home design products. See also “—Trends, Uncertainties and Opportunities—Acquisitions.”
Revenues by distribution channel
The following table sets forth a breakdown of revenues by salesdistribution channel for the years ended December 31, 2021, 20202023, 2022 and 2019.2021.
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| For the years ended December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | Reported Revenues | | Constant Currency | | Organic Growth | | 2022 vs 2021 | | Reported Revenues | | Constant Currency | | Organic Growth |
Direct to Consumer (DTC) |
ZEGNA branded products | 945,313 | | 772,505 | | 712,862 | | 172,808 | | 22.4 | % | | 25.4 | % | | 25.4 | % | | 59,643 | | 8.4 | % | | 2.9 | % | | 2.9 | % |
Thom Browne | 183,422 | | 145,702 | | 138,567 | | 37,720 | | 25.9 | % | | 34.1 | % | | 19.7 | % | | 7,135 | | 5.1 | % | | (1.5 | %) | | (1.5 | %) |
TOM FORD FASHION | 136,291 | | — | | — | | 136,291 | | n.m. | | n.m. | | n.m. | | n.m. | | — | % | | — | % | | — | % |
Total Direct to Consumer (DTC) | 1,265,026 | | 918,207 | | 851,429 | | 346,819 | | 37.8 | % | | 42.1 | % | | 24.5 | % | | 66,778 | | 7.8 | % | | 2.2 | % | | 2.2 | % |
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Wholesale |
ZEGNA branded products | 164,178 | | 151,437 | | 134,449 | | 12,741 | | 8.4 | % | | 7.0 | % | | 7.0 | % | | 16,988 | | 12.6 | % | | 10.6 | % | | 10.6 | % |
Thom Browne | 194,988 | | 184,312 | | 124,830 | | 10,676 | | 5.8 | % | | 6.0 | % | | 15.7 | % | | 59,482 | | 47.7 | % | | 46.6 | % | | 46.6 | % |
TOM FORD FASHION | 99,240 | | — | | — | | 99,240 | | n.m. | | n.m. | | n.m. | | — | | — | % | | — | % | | — | % |
Third Party Brands and Textile | 176,329 | | 234,561 | | 177,201 | | (58,232) | | (24.8 | %) | | (25.5 | %) | | 5.8 | % | | 57,360 | | 32.4 | % | | 32.2 | % | | 38.6 | % |
Total Wholesale | 634,735 | | 570,310 | | 436,480 | | 64,425 | | 11.3 | % | | 10.7 | % | | 9.6 | % | | 133,830 | | 30.7 | % | | 29.4 | % | | 30.8 | % |
Other | 4,788 | | 4,323 | | 4,493 | | 465 | | n.m. | | n.m. | | n.m. | | (170) | | (3.8 | %) | | (7.5 | %) | | — | % |
Total revenues | 1,904,549 | | 1,492,840 | | 1,292,402 | | 411,709 | | 27.6 | % | | 29.7 | % | | 19.3 | % | | 200,438 | | 15.5 | % | | 11.0 | % | | 10.4 | % |
2023 compared to 2022
By distribution channel, the increase in revenues was mainly attributable to:
(i)an increase of €346,819 thousand or 37.8% (+42.1% at constant currency; +24.5% organic growth) in the DTC channel, composed of;
(a)an increase in ZEGNA branded products DTC of €172,808 thousand or +22.4% (+25.4% at constant currency and organic growth), driven by double digit growth in all regions and reflecting higher average sales prices and increased store traffic, as well as selected DTC store openings (253 DTC stores at December 31, 2023 compared to 239 DTC stores at December 31, 2022);
(b)an increase in Thom Browne DTC of €37,720 thousand or +25.9% (+34.1% at constant currency; +19.7% organic growth), driven by the expansion of the store network through 23 net store openings (86 DTC stores at December 31, 2023 compared to 63 DTC stores at December 31, 2022), mainly in APAC and including the conversion of 17 stores in South Korea from wholesale to DTC following an agreement with the former franchise partner, as well as the performance of existing stores in Japan; and
(c)DTC revenues of €136,291 thousand generated by the TOM FORD FASHION DTC network (which consisted of 51 DTC stores at December 31, 2023) following completion of the TFI Acquisition on April 28, 2023;
(ii)an increase of €64,425 thousand or +11.3% (+10.7% at constant currency; +9.6% organic growth) in the wholesale channel, mainly due to:
(a)an increase of €12,741 thousand or +8.4% (+7.0% at constant currency and organic growth) in ZEGNA branded products driven by positive performance, particularly in EMEA, partially offset by the effects of a planned change in merchandising strategy whereby a portion of the Spring/Summer 2024 deliveries were intentionally shifted from the fourth quarter of 2023 to the first quarter of 2024;
(b)an increase of €10,676 thousand or +5.8% (+6.0% at constant currency; +15.7% organic growth) in Thom Browne driven by double digit growth in EMEA, partially offset by lower deliveries to the South Korean market ahead of a change in the business from wholesale to DTC starting in the third quarter of 2023 following an agreement with the former franchise partner; and
(c)wholesale revenues of €99,240 thousand from TOM FORD FASHION following completion of the TFI Acquisition on April 28, 2023;
partially offset by:
(d)a decrease of €58,232 thousand or -24.8% (-25.5% at constant currency; +5.8% organic growth) in Third Party Brands and Textile, driven by (i) lower revenues from Third Party Brands of €72,449 thousand, reflecting the end of the previous TFI distribution license agreement with the deliveries of the Fall/Winter 2022 collection and the start of a supply agreement to act as the exclusive supplier for certain TOM FORD menswear products with the Spring/Summer 2023 collection. Following the completion of the TFI Acquisition on April 28, 2023, the revenues from the supply agreement with TFI are reported as intercompany revenues and eliminated from the Group’s consolidated results, partially offset by (ii) an increase in Textile revenues of €14,217 thousand, primarily attributable to double digit growth of the Lanificio Ermenegildo Zegna.
2022 compared to 2021
By distribution channel, the increase in revenues was mainly attributable to:
(i)an increase of €66,778 thousand or +7.8% (+2.2% at constant currency and organic growth) in the DTC channel, related to:
(a)an increase in ZEGNA branded products of €59,643 thousand or +8.4% (+2.9% at constant currency and organic growth), driven by high double digit growth in the United States and EMEA, partially offset by the Greater China Region, which was impacted by COVID-19-related restrictions in 2022 that resulted in the temporary closure of certain stores and lower customer traffic, primarily from mid-March until the end of May and again in the fourth quarter of the year;
(b)an increase in Thom Browne branded products of €7,135 thousand or +5.1%, (-1.5% at constant currency and organic growth), driven by high double digit growth in the United States, EMEA and Japan, eleven net DTC store openings (63 DTC stores at December 31, 2022 compared to 52 DTC stores at December 31, 2021), primarily in APAC, and the roll out of the TMall platform for e-commerce sales in the Greater China Region (which commenced in the second half of 2021), partially offset by the aforementioned effects of COVID-19-related restrictions in the Greater China Region; and
(ii)an increase of €133,830 thousand or +30.7% (+29.4% at constant currency; +30.8% organic growth) in the wholesale channel, mainly due to:
(a)an increase in Thom Browne branded products of €59,482 thousand or +47.7% (+46.6% at constant currency and organic growth) driven by both our seasonal and our classic collections and strong growth across all lines (menswear, womenswear and childrenswear) and major geographical areas;
(b)an increase in Third Party Brands and Textile of €57,360 thousand or +32.4% (+32.2% at constant currency; +38.6% organic growth), consisting of an increase of €34,525 thousand or +33.8% (+35.4% at constant currency; +32.7% organic growth) in Textile, primarily attributable to the positive performance of the Lanificio Ermenegildo Zegna, Bonotto and Dondi brands driven by higher orders for the Fall/Winter 2022 and Spring/Summer 2023 collections compared to the previous year’s collections, which were affected by the COVID-19 pandemic, and the impact of Tessitura Ubertino S.r.l., which was acquired in June 2021 and contributed additional revenue of €4.6 million in 2022 compared to 2021, and an increase of €22,835 thousand or +30.5% (+27.9% at constant currency; +86.1% organic growth) in Third Party Brands, which benefited from higher orders for the TOM
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| | For the years ended December 31, | | | | |
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Direct to Consumer (DTC) - Zegna branded products | | | 712,862 | | | | 527,972 | | | | 743,012 | | | | 184,890 | | | | 35.0 | % | | | (215,040 | ) | | | (28.9 | )% |
Direct to Consumer (DTC) - Thom Browne branded products | | | 138,567 | | | | 85,268 | | | | 61,045 | | | | 53,299 | | | | 62.5 | % | | | 24,223 | | | | 39.7 | % |
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Total Direct to Customer (DTC) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wholesale Zegna branded products | | | 134,449 | | | | 108,506 | | | | 176,533 | | | | 25,943 | | | | 23.9 | % | | | (68,027 | ) | | | (38.5 | )% |
Wholesale Thom Browne branded products | | | 124,830 | | | | 94,222 | | | | 99,550 | | | | 30,608 | | | | 32.5 | % | | | (5,328 | ) | | | (5.4 | )% |
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Wholesale Third Party Brands and Textile | | | 177,201 | | | | 169,888 | | | | 200,233 | | | | 7,313 | | | | 4.3 | % | | | (30,345 | ) | | | (15.2 | )% |
| | | 1,191 | | | | 12,389 | | | | 17,691 | | | | (11,198 | ) | | | (90.4 | )% | | | (5,302 | ) | | | (30.0 | )% |
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FORD brand for the Spring/Summer 2022 and Fall/Winter 2022 collections, as well as higher orders for the Gucci brand.
(c)an increase in ZEGNA branded products of €16,988 thousand or +12.6% (+10.6% at constant currency and organic growth) driven by growth in the United States and EMEA, partially offset by lower orders for new collections from travel retail customers in the Greater China Region as a result of COVID-19-related store closures and the related build up of their inventory. The effects from the suspension of production for the Russian market and the closure of stores in Russia following the escalation of the conflict in Ukraine (resulting in lower revenues in Russia of €10,450 thousand) were substantially mitigated from the reallocation of products, primarily in the DTC channel in EMEA.
Revenues by geographical area
The following table sets forth a breakdown of revenues by geographical area for the years ended December 31, 2021, 20202023, 2022 and 2019.
2021. | (Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | | For the years ended December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | | (€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | Reported Revenues | | Constant Currency | | Organic Growth | | 2022 vs 2021 | | Reported Revenues | | Constant Currency | | Organic Growth |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | EMEA (1) | 658,694 | | 520,226 | | 380,325 | | 138,468 | | 26.6 | % | | 27.7 | % | | 18.8 | % | | 139,901 | | 36.8 | % | | 36.2 | % | | 39.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | of which Italy | 281,793 | | 224,342 | | 158,722 | | 57,451 | | 25.6 | % | | 25.6 | % | | 18.4 | % | | 65,620 | | 41.3 | % | | 41.8 | % | | 42.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | of which UK | 70,191 | | 53,970 | | 37,682 | | 16,221 | | 30.1 | % | | 31.7 | % | | 14.7 | % | | 16,288 | | 43.2 | % | | 42.2 | % | | 51.6 | % |
of which UAE | | of which UAE | 68,729 | | 50,926 | | 32,944 | | 17,803 | | 35.0 | % | | 38.2 | % | | 30.9 | % | | 17,982 | | 54.6 | % | | 38.4 | % | | 39.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | North America (2) | 417,352 | | 294,686 | | 191,283 | | 122,666 | | 41.6 | % | | 40.4 | % | | 11.4 | % | | 103,403 | | 54.1 | % | | 43.2 | % | | 41.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | of which United States | 384,544 | | 270,312 | | 176,059 | | 114,232 | | 42.3 | % | | 40.9 | % | | 10.4 | % | | 94,253 | | 53.5 | % | | 42.1 | % | | 39.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Latin America (3) | 37,538 | | 29,889 | | 19,971 | | 7,649 | | 25.6 | % | | 16.2 | % | | 16.2 | % | | 9,918 | | 49.7 | % | | 33.4 | % | | 33.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | APAC (4) | 788,007 | | 644,802 | | 696,344 | | 143,205 | | 22.2 | % | | 27.3 | % | | 23.7 | % | | (51,542) | | (7.4 | %) | | (11.6 | %) | | (11.8 | %) |
of which Greater China Region | | | | | | | | | | | | | | | | | | | | | | | | | | | | | of which Greater China Region | 595,515 | | 494,110 | | 588,876 | | 101,405 | | 20.5 | % | | 25.7 | % | | 24.2 | % | | (94,766) | | (16.1 | %) | | (20.6 | %) | | (20.6 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | of which Japan | 84,990 | | 65,445 | | 55,479 | | 19,545 | | 29.9 | % | | 39.8 | % | | 28.3 | % | | 9,966 | | 18.0 | % | | 23.7 | % | | 24.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other (5) | 2,958 | | 3,237 | | 4,479 | | (279) | | (8.6 | %) | | (8.3 | %) | | (25.6 | %) | | (1,242) | | (27.7 | %) | | (29.6 | %) | | (29.6 | %) |
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Total revenues | | Total revenues | 1,904,549 | | 1,492,840 | | 1,292,402 | | 411,709 | | 27.6 | % | | 29.7 | % | | 19.3 | % | | 200,438 | | 15.5 | % | | 11.0 | % | | 10.4 | % |
________________________________________ | EMEA includes Europe, the Middle East and Africa.
|
| North America includes the United States of America and Canada.
|
| Latin America includes Mexico, Brazil and other Central and South American countries.
|
| APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
|
| Other revenues mainly include royalties and certain sales of old season products.
|
(1)EMEA includes Europe, the Middle East and Africa.
(2)North America includes the United States of America and Canada.
(3)Latin America includes Mexico, Brazil and other Central and South American countries.
2021(4)APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
(5)Other revenues mainly include royalties.
2023 compared to 2020
Revenues for the year ended December, 2021 amounted to €1,292,402 thousand, an increase of €277,669 thousand or 27.4%, compared to €1,014,733 thousand for the year ended December 31, 2020.
2022By product line,geographical area, the increase in revenues was mainly relatedattributable to growth in all regions, including:
(i)an increase of €210,833€143,205 thousand or +22.2% (+33.1%)27.3% at constant currency; +23.7% organic growth) in Zegna branded products, (ii) an increase of €83,907 thousand (+46.7%) in Thom Browne and (iii) an increase of €14,629 thousand in Textile, which experienced double digit percentage growth, partially offset by (iv) decreases of €7,316 thousand, €11,198 thousand and €13,816 thousand in Third Party Brands, Agnona (which was disposed of as part of the Disposition) and Other, respectively. The increase in Zegna branded products was attributable to sales growth in all categories and primarily in luxury leisurewear and shoes as well as higher volumes in 2021 as 2020 was more severely impacted by temporary store closures related toCOVID-19
restrictions. The increase in Thom Browne reflects higher revenues in all product lines in both menswear and womenswear categories, and the introduction of a new kidswear line during the year. By sales channel, the increase in revenues was mainly related to (i) an increase of €238,189 thousand (+38.8%) in the DTC channel and (ii) an increase of €52,666 thousand (+13.7%) in the Wholesale channel. The increase in the DTC channel consisted of a €184,890 thousand increase in Zegna branded products,APAC driven by
higher volumes, primarilythe growth in
in the United States, EMEA and the Greater China Region,
while revenues declinedparticularly in
otherthe ZEGNA DTC channel, the expansion of the Thom Browne store network through 24 net store openings in APAC
markets which continue(70 DTC stores at December 31, 2023 compared to
be negatively affected byCOVID-19
restrictions and due to46 DTC stores at December 31, 2022), including the conversion of 17
DOS’sstores in
South Korea
from wholesale to
franchising in January 2021, and a €53,299 thousand increase inDTC, as well as strong performance of existing Thom Browne
stores in Japan. The comparison is also impacted by the adverse effects on revenues in the prior year due to COVID-19-related restrictions in the Greater China Region, which
experienced growthwere substantially reversed in
all product lines2023;(ii)an increase of €138,468 thousand or +26.6% (+27.7% at constant currency; +18.8% organic growth) in EMEA driven by the ZEGNA DTC channel in Europe and geographies, andthe United Arab Emirates (“UAE”), which benefited from the opening of fourteen new stores in 2021. Theboth domestic and tourist customers, as well as an increase in the Wholesalewholesale channel was driven by ZEGNA branded products, Thom Browne branded products, mainlyand Textile, partially offset by the effects of a planned change in EMEA and APAC, and Zegna branded products, mainly
merchandising strategy whereby a portion of the Spring/Summer 2024 deliveries were intentionally shifted from the fourth quarter of 2023 to the first quarter of 2024;
(iii)an increase of €122,666 thousand or +41.6% (+40.4% at constant currency; +11.4% organic growth) in North America, and APAC,driven by the United States, including the contribution of the Tom Ford Fashion segment’s 12 directly operated stores following completion of the TFI Acquisition on April 28, 2023, as well as double-digit revenue growth in the ZEGNA DTC channel, partially offset by the impact of the aforementioned shift in wholesale deliveries, as well as the recoveryconversion of the Textile product line, especiallySaks Fifth Avenue store in New York from wholesale to DTC; and
(iv)an increase of €7,649 thousand or +25.6% (+16.2% at constant currency and organic growth) in Latin America driven by double-digit growth of the second half ofZEGNA DTC channel in Mexico and Brazil.
2022 compared to 2021
as order intake in 2020 was adversely affected by theCOVID-19
pandemic.
By geographical area, the increase in revenues was mainly related to to:
(i)an increase of €144,694€139,901 thousand or +36.8% (+36.2% at constant currency; +39.3% organic growth) in EMEA, primarily attributable to significant growth in Italy, as well as strong performance in the UK and the Middle East, and driven by ZEGNA branded products in the DTC channel and Thom Browne in both the DTC and wholesale channels, as well as the rebound of our Tailoring and Made-to-Measure business in the Zegna segment following adverse effects in 2021 as a result of COVID-19-related restrictions. The effects from the suspension of production for the Russian market and the closure of stores in Russia following the escalation of the conflict in Ukraine were substantially mitigated by the reallocation of products within other EMEA countries;
(ii)an increase of €103,403 thousand or +54.1% (+43.2% at constant currency; +41.4% organic growth) in North America, primarily attributable to the United States and driven by (a) DTC sales for both ZEGNA branded products and Thom Browne, (b) the rebound of our Tailoring and Made-to-Measure business in the Zegna segment, (c) higher orders for the TOM FORD brand for the Spring/Summer 2022 and Fall/Winter 2022 collections. The TFI distribution license agreement ended with the deliveries of the Fall/Winter 2022 collection and the Group expects to commence the TFF License in the second quarter of 2023 for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile and home design products. See also “—Trends, Uncertainties and Opportunities—Acquisitions,” and (d) positive foreign currency exchange impact due to the strengthening of the U.S. Dollar compared to the Euro, and
(iii)an increase of €9,918 thousand or +49.7% (+33.4% at constant currency and organic growth) in Latin America driven by DTC sales of ZEGNA branded products in Mexico and Brazil, as well as positive foreign currency exchange impact;
partially offset by:
(iv)a decrease of €51,542 thousand or -7.4% (-11.6% at constant currency; -11.8% organic growth) in APAC, mainly dueattributable to higher local consumptionthe temporary closure of stores and lower customer traffic in the Greater China Region, driven byprimarily from mid-March 2022 until the end of May 2022, impacting both ZEGNA and Thom Browne directly operated stores. Starting in June 2022 and through the third quarter of 2022 DTC revenues in the Greater China Region showed a positive trend compared to the third quarter of 2021 as a result of a significant increase in e-commerce sales for both the Zegna and Thom Browne segments and the gradual recovery of in-store sales. Due to a new wave of particularly impactful COVID-19-related restrictions on international travel,in the Greater China Region in October and November, as well as some further unplanned temporary store closures in December due to a wave of contagion and resulting staff shortages, the openingGroup’s revenues in the fourth quarter of ten new Thom Browne stores in 2021, (ii) an increase2022 decreased by approximately 30% compared to the fourth quarter of €64,446 thousand in EMEA driven2021. These adverse effects were partially offset by significantdouble digit growth in the Thom Browne Wholesale channel, as well as the DTC channel, which was impacted by theCOVID-19
pandemic in 2020, especially in the UAE,Japan and (iii) an increase of €60,234 thousand in North America driven by the recovery of the DTC channel following the reversal ofCOVID-19
restrictions.South Korea. For further details onrelating to the revenues with respect toof each of Zegna’s twothe Group’s operating segments for the year ended December 31, 20212023 compared withto the year ended December 31, 2020,2022, and for the year ended December 31, 2022 compared to the year ended December 31, 2021, see “–“—Results by Segment” below.
Cost of sales
Cost of sales comprises costs directly related to the production, procurement and supply of goods and services, including direct labor costs, costs for raw materials and components used to manufacture the Group’s products (such as fibers and yarns of wool, silk, cotton, linen, cashmere and fabrics of the same composition, as well as leather), costs for semi-finished products, finished goods, consumables and outsourced manufacturing from third parties. Cost of sales also includes depreciation, amortization and impairment of assets, lease expenses, maintenance, write downs of inventory, freight and duty, and other production-related costs, including manufacturing overhead.
The following table sets forth cost of sales for the years ended December 31, 2023, 2022 and 2021.
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| For the years ended December 31, | | (Increase)/Decrease |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Cost of sales | (680,235) | | (564,832) | | (495,702) | | (115,403) | | | (20.4 | %) | | (69,130) | | | (13.9 | %) |
Cost of sales as % of revenues | (35.7 | %) | | (37.8 | %) | | (38.4 | %) | | | | | | | | |
2023 compared to 2022
Cost of sales for the year ended December 31, 2023 amounted to €680,235 thousand, an increase of €115,403 thousand or +20.4%, compared to €564,832 thousand for the year ended December 31, 2022.
The increase in cost of sales was primarily attributable to (i) the impact of TOM FORD FASHION, which was acquired through the TFI Acquisition on April 28, 2023, including the effects of the acquisition method of accounting for the business acquisition, comprising €14,368 thousand related to the purchase price step up of the fair value of the acquired TFI inventory that was sold subsequent to the acquisition and €1,183 thousand related to the order backlog, and (ii) higher sales volumes in ZEGNA branded products, Thom Browne and Textile.
Cost of sales for the year ended December 31, 2023 and 2022 included €106 thousand and €38 thousand relating to adjusting items in the presentation of Adjusted EBIT as management considers these items not reflective of underlying operating activities. For additional information please refer to “Non-IFRS Financial Measures—Adjusted EBIT”.
2022 compared to 2021
Cost of sales for the year ended December 31, 2022 amounted to €564,832 thousand, an increase of €69,130 thousand or +13.9%, compared to €495,702 thousand for the year ended December 31, 2021.
The increase in cost of sales was primarily attributable to higher volumes across all product lines.
Cost of sales for the year ended December 31, 2022 and 2021 included €38 thousand and €4,086 thousand relating to adjusting items in the presentation of Adjusted EBIT as management considers these items not reflective of underlying operating activities. For additional information please refer to “Non-IFRS Financial Measures—Adjusted EBIT”.
Gross profit
The following table sets forth gross profit for the years ended December 31, 2023, 2022 and 2021.
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| For the years ended December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Gross profit | 1,224,314 | | 928,008 | | 796,700 | | 296,306 | | | 31.9 | % | | 131,308 | | | 16.5 | % |
Gross profit as % of revenues | 64.3 | % | | 62.2 | % | | 61.6 | % | | | | | | | | |
2023 compared to 2022
Gross profit for the year ended December 31, 2023 amounted to €1,224,314 thousand, an increase of €296,306 thousand or +31.9%, compared to €928,008 thousand for the year ended December 31, 2022.
Gross profit as a percentage of revenues increased from 62.2% for the year ended December 31, 2022 to 64.3% for the year ended December 31, 2023, primarily driven by (i) a higher proportion of DTC sales compared to wholesale sales (DTC sales, which have higher margins compared to wholesale sales, represented 66.4% of total sales for the year ended December 31, 2023 compared to 61.5% for the year ended December 31, 2022), (ii) the effects of price increases, price repositioning and the reduction of the end-of-season sales as part of the ZEGNA One Brand strategy, which started with the rollout of the Fall/Winter 2022 collection in the prior year, (iii) higher absorption of fixed costs in the supply chain, and (iv) higher proportion of sales from Essentials collections compared to seasonal collections in line with the ZEGNA One Brand strategy, which resulted in proportionately lower provisions for slow moving and obsolete inventory.
2022 compared to 2021
Gross profit for the year ended December 31, 2022 amounted to €928,008 thousand, an increase of €131,308 thousand or +16.5%, compared to €796,700 thousand for the year ended December 31, 2021.
Gross profit as a percentage of revenues increased from 61.6% for the year ended December 31, 2021 to 62.2% for the year ended December 31, 2022 primarily driven by (i) higher absorption of fixed costs in the supply chain driven by higher sales volumes, (ii) effects of price increases, price repositioning and the reduction of the end-of-season sales as part of the new ZEGNA One Brand strategy which generated an increase in revenues, (iii) higher proportion of sales from Essentials collections compared to seasonal collections in line with the ZEGNA One Brand strategy, which resulted in proportionately lower provisions for slow moving and obsolete inventory, partially offset by (iv) lower proportion of DTC sales compared to wholesale sales (DTC sales, which have higher margins compared to wholesale sales, represented 61.5% of total sales for the year ended December 31, 2022 compared to 65.9% for the year ended December 31, 2021) due to the effects of COVID-19-related restrictions which resulted in the closure of certain DOSs in the Greater China Region.
Selling, general and administrative expenses
Selling, general and administrative expenses primarily include costs for sales and administrative personnel, selling expenses, corporate bodies fees, consultancy and accounting fees, other administrative and general expenses, as well as depreciation, amortization and impairment of assets used for selling and administrative activities.
The following table sets forth selling, general and administrative expenses for the years ended December 31, 2023, 2022 and 2021.
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| For the years ended December 31, | | (Increase)/Decrease |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Selling, general and administrative expenses | (901,364) | | (695,084) | | (822,897) | | (206,280) | | (29.7 | %) | | 127,813 | | 15.5 | % |
Selling, general and administrative expenses as % of revenues | (47.3 | %) | | (46.6 | %) | | (63.7 | %) | | | | | | | | |
2023 compared to 2022
Selling, general and administrative expenses for the year ended December 31, 2023 amounted to €901,364 thousand, an increase of €206,280 thousand or +29.7%, compared to €695,084 thousand for the year ended December 31, 2022.
The increase in selling, general and administrative expenses was primarily attributable to (i) €123,650 thousand related to TOM FORD FASHION, which was acquired through the TFI Acquisition on April 28, 2023 (including royalties relating to the TFF License as well as €2,241 thousand related to amortization of the TFF License, which was recognized at fair value at the acquisition date as part of the acquisition method of accounting of the TFI Acquisition), (ii) higher personnel costs (excluding TOM FORD FASHION), of €42,328 thousand (€313,173 thousandfor the year ended December 31, 2023
compared to €270,845 thousandfor the year ended December 31, 2022), mainly to reinforce the Group’s corporate governance as a result of becoming a public company, as well as to support new store openings, (iii) transaction costs of €6,001 thousand in 2023, primarily for consultancy and legal fees related to the TFI Acquisition and, to a lesser extent, the acquisition of the Thom Browne business in South Korea and a 25% interest in Norda Run, (iv) an increase of €13,392 thousand in variable rents (excluding TOM FORD FASHION) as a result of higher revenues, and (v) management fees related to the Thom Browne business in South Korea following the agreement signed on July 1, 2023.
Selling, general and administrative expenses as a percentage of revenues increased from 46.6% for the year ended December 31, 2022 to 47.3% for the year ended December 31, 2023.
Selling, general and administrative expenses for the year ended December 31, 2023 and 2022 included €11,958 thousand and €9,914 thousand relating to adjusting items in the presentation of Adjusted EBIT as management considers these items not reflective of underlying operating activities. For additional information please refer to “Non-IFRS Financial Measures—Adjusted EBIT”.
2022 compared to 2021
Selling, general and administrative expenses for the year ended December 31, 2022 amounted to €695,084 thousand, a decrease of €127,813 thousand or -15.5%, compared to €822,897 thousand for the year ended December 31, 2021.
The decrease in selling, general and administrative expenses was primarily attributable to (i) costs incurred in 2021 of (a) €200,961 thousand in relation to the Business Combination (additional costs of €2,099 thousand were recognized in 2022 in relation to the Business Combination), (b) €12,192 thousand following an unfavorable judgment handed down against the Group in 2021 in respect of a legal claim related to a lease agreement in the United States (of which €950 thousand was released in 2022) and (c) €6,006 thousand for losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group was required to compensate the company in accordance with the terms of the related sale agreement, and (ii) proceeds of €6,500 thousand received in 2022 from new tenants in order for the Group to withdraw from two existing lease agreements of commercial properties, partially offset by (iii) an increase in lease expenses of €5,385 thousand, mainly due to lower rent reductions recognized in 2022 compared to 2021 as a result of the COVID-19 pandemic (rent reductions amounted to €7,194 thousand in 2022 compared to €12,877 thousand in 2021), (iv) higher costs for maintenance and utilities of €5,212 thousand and €6,578 thousand, respectively, driven by higher energy prices, (v) an increase in personnel costs of €8,792 thousand driven by the hiring of new employees to reinforce variouscorporate functions in 2022, and (vi) an increase in depreciation, amortization and impairment of assets of €9,351 thousand.
Selling, general and administrative expenses as a percentage of revenues decreased from 63.7% for the year ended December 31, 2021 to 46.6% for the year ended December 31, 2022, mainly as a result of the aforementioned costs incurred in 2021 in relation to the Business Combination of €200,961 thousand.
Selling, general and administrative expenses for the year ended December 31, 2022 and 2021 included €9,914 thousand and €239,045 thousand relating to adjusting items in the presentation of Adjusted EBIT as management considers these items not reflective of underlying operating activities. For additional information please refer to “Non-IFRS Financial Measures—Adjusted EBIT”.
Marketing expenses
Marketing expenses primarily include costs related to advertising and marketing activities, including personnel costs and costs for advertising, communications, media and events, such as fashion shows, store windows and displays. Marketing expenses also include depreciation, amortization and impairment of assets used in advertising and marketing activities.
The following table sets forth marketing expenses for the years ended December 31, 2023, 2022 and 2021.
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| For the years ended December 31, | | (Increase)/Decrease |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Marketing expenses | (114,802) | | (85,147) | | (67,831) | | (29,655) | | (34.8 | %) | | (17,316) | | (25.5 | %) |
Marketing expenses as % of revenues | (6.0 | %) | | (5.7 | %) | | (5.2 | %) | | | | | | | | |
2023 compared to 2022
Marketing expenses for the year ended December 31, 2023 amounted to €114,802 thousand, an increase of €29,655 thousand or +34.8%, compared to €85,147 thousand for the year ended December 31, 2022.
The increase in marketing expenses was primarily attributable to (i) an increase of €19,421 thousand in expenses for ZEGNA and Thom Browne (excluding costs for personnel and depreciation, amortization and impairment of assets),in line with the Group’s marketing strategy announced at its Capital Markets Day in May 2022, including costs for the presentation of ZEGNA collections during men’s fashion week in Milan, Thom Browne at the Met Gala in New York and the debut of the Thom Browne Haute Couture collection in Paris, as well as (ii) €8,338 thousand related to TOM FORD FASHION, which was acquired through the TFI Acquisition on April 28, 2023, (iii) higher costs for personnel of €1,280 thousand and (iv) higher depreciation, amortization and impairment of assets of €616 thousand.
Marketing expenses as a percentage of revenues increased from 5.7% for the year ended December 31, 2022 to 6.0% for the year ended December 31, 2023.
2022 compared to 2021
Marketing expenses for the year ended December 31, 2022 amounted to €85,147 thousand, an increase of €17,316 thousand or +25.5%, compared to €67,831 thousand for the year ended December 31, 2021.
The increase in marketing expenses was primarily attributable to (i) an increase in costs of €16,452 thousand for advertising and marketing activities in line with the Group’s marketing strategy announced at its Capital Markets Day in May 2022, (ii) an increase in personnel costs for marketing functions of €587 thousand and (iii) an increase in depreciation, amortization and impairment of assets of €277 thousand.
Marketing expenses as a percentage of revenues increased from 5.2% for the year ended December 31, 2021 to 5.7% for the year ended December 31, 2022.
Marketing expenses for the year ended December 31, 2021 included €12 thousand relating to adjusting items in the presentation of Adjusted EBIT as management considers these items not reflective of underlying operating activities. For additional information please refer to “Non-IFRS Financial Measures—Adjusted EBIT”.
Financial income and financial expenses
Financial income and financial expenses primarily include the effects of fair value changes on put options owned by non-controlling interests in the Group’s investments in Thom Browne, Inc. and Gruppo Dondi S.p.A., as well as income and expenses relating to Group’s financial assets and liabilities, including interest and the cost of hedging operations. Until the completion of the Warrant Redemption in the first quarter of 2023, financial income and financial expenses also included the fair value changes in liability-classified warrants.
The following table sets forth financial income for the years ended December 31, 2023, 2022 and 2021.
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| For the years ended December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Financial income | 37,282 | | 13,320 | | 45,889 | | 23,962 | | 179.9 | % | | (32,569) | | (71.0 | %) |
Financial income as a % of revenues | 2.0 | % | | 0.9 | % | | 3.6 | % | | | | | | | | |
2023 compared to 2022
Financial income for the year ended December 31, 2023 amounted to €37,282 thousand for the year ended December 31, 2023, an increase of €23,962 thousand or +179.9%, compared to €13,320 thousand for the year ended December 31, 2022.
The increase in financial income was primarily attributable to (i) higher gains from the change in fair value of the Thom Browne and Dondi put options of €14,322 thousand (a gain of €11,587 thousand for the Thom Browne put option in 2023 compared to a loss in 2022 and a gain of €3,205 thousand for the Dondi put option in 2023 compared to a gain of €470 thousand in 2022), (ii) higher gains on derivative financial instruments of €5,745 thousand and (iii) higher income from interest on financial assets and hedging operations of €4,208 thousand.
2022 compared to 2021
Financial income for the year ended December 31, 2022 amounted to €13,320 thousand, a decrease of €32,569 thousand or -71.0%, compared to €45,889 thousand for the year ended December 31, 2021.
The decrease in financial income was primarily attributable to (i) the gain of €20,675 thousand recognized in 2021 following the Group’s purchase of an additional 5% of Thom Browne in June 2021 and the derecognition of a portion of the put option liability on non-controlling interests, and (ii) lower gains of €9,691 thousand from securities held by the Group (a gain of €8,154 thousand in 2022 compared to a gain of €17,845 thousand 2021) driven by the performance of the financial markets.
The following table sets forth financial expenses for the years ended December 31, 2023, 2022 and 2021.
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| For the years ended December 31, | | (Increase)/Decrease |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Financial expenses | (68,121) | | (54,346) | | (43,823) | | (13,775) | | (25.3 | %) | | (10,523) | | (24.0 | %) |
Financial expenses as % of revenues | (3.6 | %) | | (3.6 | %) | | (3.4 | %) | | | | | | | | |
2023 compared to 2022
Financial expenses for the year ended December 31, 2023 amounted to €68,121 thousand, an increase of €13,775 thousand or +25.3%, compared to €54,346 thousand for the year ended December 31, 2022. The increase in financial expenses was primarily attributable to (i) higher losses of €21,738 thousand from warrant liabilities (a loss of €22,909 thousand in 2023 compared to a loss of €1,171 thousand in 2022) driven by the exercise and redemption of warrants in the first quarter of 2023 (See Note 28 — Other current and non-current financial liabilities for additional information), (ii) an increase of €8,576 thousand in interest on bank loans and overdrafts driven by higher interest rates, and (iii) an increase of €7,148 thousand in interest and financial charges for lease liabilities (including €5,632 thousand related to TOM FORD FASHION), partially offset by (iv) lower losses from the fair value remeasurement of the Thom Browne non-controlling interest put option liability of €11,426 thousand (a gain in 2023 compared to a loss of €11,426 thousand in 2022), (v) lower losses of €9,014 thousand from securities held by the Group, driven by the performance of the financial markets (a loss of €4,412 thousand in 2023 compared to a loss of €13,426 thousand in 2022), and (vi) a decrease of €4,965 thousand relating to hedging costs.
2022 compared to 2021
Financial expenses for the year ended December 31, 2022 amounted to €54,346 thousand, an increase of €10,523 thousand or +24.0%, compared to €43,823 thousand for the year ended December 31, 2021.
The increase in financial expenses was primarily attributable to (i) an increase of €9,524 thousand relating to securities held by the Group, driven by the performance of the financial markets (a loss of €13,426 thousand in 2022 compared to a loss of €3,902 thousand in 2021) (ii) an increase of €4,657 thousand relating to hedging costs (mainly Chinese Renminbi and U.S. Dollar), and (iii) an increase of €1,940 thousand relating to interest on bank loans and overdrafts as a result of higher interest rates, partially offset by (iv) lower losses of €2,966 thousand from warrant liabilities (a loss of €1,171
thousand in 2022 compared to a loss of €4,137 thousand in 2021), and (v) lower losses of €1,965 thousand from the fair value remeasurement of non-controlling interest put option liabilities (a loss of €11,426 thousand in 2022 compared to a loss of €13,391 thousand in 2021).
Foreign exchange losses
Foreign exchange losses include realized gains and losses on exchange differences and on fair value adjustments of derivatives and the effects of exchange rates from the remeasurement of options and warrant liabilities.
The following table sets forth exchange losses for the years ended December 31, 2023, 2022 and 2021.
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| For the years ended December 31, | | (Increase)/Decrease |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Foreign exchange losses | (5,262) | | (7,869) | | (7,791) | | 2,607 | | 33.1 | % | | (78) | | (1.0 | %) |
Foreign exchange losses as % of revenues | (0.3 | %) | | (0.5 | %) | | (0.6 | %) | | | | | | | | |
2023 compared to 2022
Foreign exchange losses for the year ended December 31, 2023 amounted to €5,262 thousand, a decrease of €2,607 thousand or -33.1% compared to €7,869 thousand for the year ended December 31, 2022.
The decrease in foreign exchange losses was driven by favorable foreign exchange impact of (i) €13,805 thousand related to the Thom Browne non-controlling interest put option liability (unrealized foreign currency gains of €5,406 thousand in 2023 compared to unrealized foreign currency losses of €8,399 thousand in 2022) and (ii) €585 thousand related to lease liabilities (foreign exchange gains of €1,454 thousand in 2023 compared to foreign exchange gains of €869 thousand in 2022), partially offset by unfavorable foreign exchange impact of (iii) €4,705 thousand from the reclassification of cumulative translation losses related to the investment held in TFI from other comprehensive income to profit and loss at the date of the TFI Acquisition, (iv) €2,306 thousand related to securities held by the Group (foreign exchange losses of €855 thousand in 2023 compared to foreign exchange gains of €1,451 thousand in 2022), and (v) €4,772 thousand from higher other foreign exchange losses primarily related to transactions in foreign currencies.
2022 compared to 2021
Foreign exchange losses for the year ended December 31, 2022 amounted to €7,869 thousand, an increase of €78 thousand or +1.0% compared to €7,791 thousand for the year ended December 31, 2021.
The increase in foreign exchange losses was driven by unfavorable foreign exchange impact of (i) €2,507 thousand related to securities held by the Group (foreign exchange gains of €1,451 thousand in 2022 compared to foreign exchange gains of €3,958 thousand in 2021) and (ii) €805 thousand related to lease liabilities (foreign exchange gains of €869 thousand in 2022 compared to foreign exchange gains of €1,674 thousand in 2021), partially offset by favorable foreign exchange impact of (iii) €1,708 thousand related to the Thom Browne non-controlling interest put option liability (unrealized foreign currency losses of €8,399 thousand in 2022 compared to unrealized foreign currency losses of €10,107 thousand in 2021), and (iv) €1,526 thousand from lower other foreign exchange losses primarily related to transactions in foreign currencies.
Result from investments accounted for using the equity method
Result from investments accounted for using the equity method includes the Group’s share of income and loss related to our investments in associates and joint arrangements accounted for using the equity method.
The following tables set forth result from investments accounted for using the equity method for the years ended December 31, 2023, 2022 and 2021.
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| For the years ended December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Result from investments accounted for using the equity method | (2,953) | | 2,199 | | 2,794 | | (5,152) | | (234.3 | %) | | (595) | | (21.3 | %) |
Result from investments accounted for using the equity method as % of revenues | (0.2 | %) | | 0.1 | % | | 0.2 | % | | | | | | | | |
2023 compared to 2022
Result from investments accounted for using the equity method for the year ended December 31, 2023 amounted to a loss of €2,953 thousand, a decrease of €5,152 thousand or -234.3%, compared to a profit of €2,199 thousand for the year ended December 31, 2022, and primarily related to (i) the Group’s 15% interest in TFI prior to the TFI Acquisition for €2,663 thousand, reflecting a loss of €2,587 thousand in 2023 prior to the TFI Acquisition (which includes transaction costs incurred by TFI prior to the closing of the TFI Acquisition) compared to a gain of €76 thousand for the year ended December 31, 2022, (ii) Filati Biagioli Modesto S.p.A. for €1,543 thousand (a loss of €712 thousand in 2023 compared to a gain of €831 thousand in 2022), and (iii) Pelletteria Tizeta S.r.l. for €942 thousand (a gain of €350 thousand in 2023 compared to a gain of €1,292 thousand in 2022). Following completion of the TFI Acquisition on April 28, 2023, TFI and Pelletteria Tizeta S.r.l. (which was previously owned 50% by the Group and 50% by TFI) are consolidated by the Group.
2022 compared to 2021
Result from investments accounted for using the equity method for the year ended December 31, 2022 amounted to a profit of €2,199 thousand, a decrease of €595 thousand or -21.3%, compared to €2,794 thousand for the year ended December 31, 2021, and primarily related (i) the Group’s 15% interest in TFI (prior to the TFI Acquisition in 2023) for €1,817 thousand (a gain of €76 thousand in 2022 compared to a gain of €1,893 thousand in 2021), partially offset by (ii) Pelletteria Tizeta S.r.l. for €764 thousand (a gain of €1,292 thousand in 2022 compared to a gain of €528 thousand in 2021) and (iii) Filati Biagioli Modesto S.p.A. for €458 thousand (a gain of €831 thousand in 2022 compared to a gain of €373 thousand in 2021).
Income taxes
Income taxes include the current taxes on the results of the Group’s operations and any changes in deferred income taxes.
The following table sets forth income taxes for the years ended December 31, 2023, 2022 and 2021.
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| For the years ended December 31, | | (Increase)/Decrease |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Income taxes | (33,433) | | (35,802) | | (30,702) | | 2,369 | | 6.6 | % | | (5,100) | | (16.6 | %) |
Income taxes as % of revenues | (1.8 | %) | | (2.4 | %) | | (2.4 | %) | | | | | | | | |
2023 compared to 2022
Income taxes for the year ended December 31, 2023 amounted to €33,433 thousand compared to €35,802 thousand for the year ended December 31, 2022, of which €28,943 thousand and €32,206 thousand, respectively, related to general corporate income taxes in Italy (the Italian Corporate Income Tax (“IRES”)) and other countries in which the Group operates and €4,490 thousand and €3,596 thousand, respectively, related to the Italian Regional Income Tax (“IRAP”), which is calculated on a measure of income defined by the Italian Civil Code as the difference between operating revenues and costs, before financial income and expense, the cost of fixed term employees, credit losses and any interest included in lease payments.
The effective tax rate was 19.8% for the year ended December 31, 2023 compared to 35.4% for the year ended December 31, 2022 (the effective tax rate net of IRAP was 17.1% for the year ended December 31, 2023 compared to 31.9% for the year ended December 31, 2022. The decrease in the effective tax rate in 2023 compared to 2022 was primarily driven by non-taxable income recognized in 2023 from the remeasurement of the put option liability on non-controlling interests of Thom Browne and Dondi, as well as deferred taxes recognized from previous years.
2022 compared to 2021
Income taxes for the year ended December 31, 2022 amounted to €35,802 thousand compared to €30,702 thousand for the year ended December 31, 2021, of which €32,206 thousand and €29,666 thousand, respectively, related to general corporate income taxes in Italy (IRES) and other countries in which the Group operates and €3,596 thousand and €1,036 thousand, respectively, related to IRAP, which is calculated on a measure of income defined by the Italian Civil Code as the difference between operating revenues and costs, before financial income and expense, the cost of fixed term employees, credit losses and any interest included in lease payments.
The increase in income taxes was primarily attributable to an increase in profit before taxes.
The effective tax rate was +35.4% for the year ended December 31, 2022 compared to -31.7% for the year ended December 31, 2021 (the effective tax rate net of IRAP was +31.9% for the year ended December 31, 2022 compared to -30.6% for the year ended December 31, 2021.
Results by Segment
” below.Revenues for the year ended December 31, 2020 amounted to €1,014,733 thousand, a decrease of €306,594 thousand or 23.2%, compared to €1,321,327 thousand for the year ended December 31, 2019.
By product line, the increase in revenues was mainly related to (i) a decrease of €283,067 thousand(-30.8%)
in Zegna branded products, (ii) a decrease of €20,898 thousand(-19.3%)
in Textile and (iii) a decrease of €9,447 thousand(-10.3%)
in Third Party Brands, partially offset by (iv) an increase of €18,895 thousand (+11.8%) in Thom Browne. In particular: sales of Zegna branded products were negatively impacted by theCOVID-19
pandemic outbreak in 2020, especially in relation to formalwear; Textile experienced lower demand and order cancellations as a result ofCOVID-19,
only partially offset by the acquisition of Dondi in 2019 (Dondi was consolidated for a full twelve months in 2020 compared to four months in 2019); Third Party Brands also experienced lower demand driven byCOVID-19;
Thom Browne revenues increased by €24,223 thousand in the DTC channel driven by new store openings (both for stores opened in 2020 and for the full year effect of new stores opened in 2019) and an increase inE-Commerce
sales, only partially offset by a decrease of €5,328 thousand in the Wholesale channel from the partial shift of deliveries of the Spring Summer 2021Pre-Collection
from the fourth quarter of 2020 to first quarter of 2021.By sales channel, the decrease in revenues was mainly related to (i) a decrease of €190,817 thousand(-23.7%)
in the DTC channel, (ii) a decrease of €73,355 thousand(-26.6%)
in the Wholesale Zegna Branded Products and Thom Browne channel and (iii) a decrease of €30,345 thousand(-15.2%)
in the Wholesale Third Party Brands and Textile channel, with all channels negatively impacted by theCOVID-19
pandemic outbreak in 2020. The decrease in the DTC channel was driven by Zegna branded products, especially in EMEA and North America caused by the temporary closure of our stores in 2020 and by international travel restrictions as a result of the pandemic, the effects of which were partially offset by an increase in Thom Browne DTC sales as a result of new store openings and organic growth in the Greater China Region pushed by higher local consumption. The decrease in the Wholesale Zegna Branded Products and Thom Browne channel included a decrease of €68,027 thousand for Zegna branded products as a result of lower demand and cancellations in North America and EMEA as a consequence of temporary store closures and international travel restrictions, and a decrease of €5,328 thousand in Thom Browne as a result of the partial shift of deliveries of the Spring Summer 2021Pre-Collection
from the fourth quarter of 2020 to the first quarter of 2021.By geographical area, the decrease was mainly related to (i) a decrease of €115,505 thousand in EMEA, (ii) a decrease of €102,278 thousand in North America, and (iii) a decrease of €74,409 thousand in APAC, with all regions negatively impacted by theCOVID-19
pandemic to varying degrees. In the first half of 2020, APAC was significantly affected due to the full lockdown measures adopted in several countries, including the Greater China Region. The EMEA region was particularly impacted by lockdowns from the end of the first quarter of 2020 through most of the second quarter, with a partial recovery starting from June 2020, while the U.S. market was more significantly impacted in the second quarter of 2020. While Zegna resumed manufacturing activities during the second quarter of 2020, the temporary closures of our stores in different regions caused a decline in sales in the Zegna Branded Products DTC channel and in the Wholesale channel (mostly in EMEA and North America). In the second half of 2020, Zegna Branded Products experienced a steady recovery, especially in the Greater China Region thanks to higher local consumption as a consequence of international travel restrictions, while Thom Browne sales were supported by organic growth as well as new store openings.For further details on revenues with respect to each of Zegna’s two segments for 2020 as compared to 2019, see” below.Other income mainly includes income from the sale of advertising materials, tax refund commissions and other miscellaneous income.
The following table sets forth other income for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 8,260 | | | | 5,373 | | | | 7,873 | | | | 2,887 | | | | 53.7 | % | | | (2,500 | ) | | | (31.8 | )% |
Other income for the year ended December 31, 2021 amounted to €8,260 thousand, an increase of €2,887 thousand or 53.7%, compared to €5,373 thousand for the year ended December 31, 2020.
The increase in other income in 2021 compared to 2020 was primarily attributable to the sale of rights to build or develop airspace above a building in the United States.
Other income for the year ended December 31, 2020 amounted to €5,373 thousand, a decrease of €2,500 thousand or 31.8%, compared to €7,873 thousand for the year ended December 31, 2019.
The decrease in other income in 2020 compared to 2019 was primarily attributable to (i) lower tax refund commissions of €1,193 thousand driven by store closures as a result of theCOVID-19
pandemic and (ii) a decrease in sales of advertising materials of €528 thousand, mainly sales to franchisees, as well as a decrease in other miscellaneous income.Cost of raw materials and consumables
Cost of raw materials and consumables consist primarily of the cost for materials and components used to manufacture Zegna’s products, such as wool, silk, leather and other fabrics, as well as the costs incurred for semi-finished products, finished goods and consumables. Cost of raw materials and consumables also includes write downs of raw materials and finished product inventory.
The table below sets forth Zegna’s cost of raw materials and consumables for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (108,442 | ) | | | (8.4 | %) | | | (108,130 | ) | | | (10.7 | %) | | | (139,965 | ) | | | (10.6 | %) | | | (312 | ) | | | (0.3 | %) | | | 31,835 | | | | 22.7 | % |
| | | (161,731 | ) | | | (12.5 | %) | | | (130,006 | ) | | | (12.8 | %) | | | (141,512 | ) | | | (10.7 | %) | | | (31,725 | ) | | | (24.4 | %) | | | 11,506 | | | | 8.1 | % |
| | | (12,951 | ) | | | (1.0 | %) | | | (10,909 | ) | | | (1.1 | %) | | | (14,067 | ) | | | (1.1 | %) | | | (2,042 | ) | | | (18.7 | %) | | | 3,158 | | | | 22.4 | % |
Change in raw materials, consumables and finished goods | | | (24,822 | ) | | | (1.9 | %) | | | 131 | | | | 0.0 | % | | | (9,991 | ) | | | (0.8 | %) | | | (24,953 | ) | | | n.m. | (*) | | | 10,122 | | | | 101.3 | % |
| | | (1,663 | ) | | | (0.1 | %) | | | (1,655 | ) | | | (0.2 | %) | | | (4,266 | ) | | | (0.3 | %) | | | (8 | ) | | | (0.5 | %) | | | 2,611 | | | | 61.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total cost of raw materials and consumables | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Throughout this section “n.m.” means not meaningful.
|
Cost of raw materials and consumables for the year ended December 31, 2021 amounted to €309,609 thousand, an increase of €59,040 thousand or 23.6%, compared to €250,569 thousand for the year ended December 31, 2020.
The increasein cost of raw materials and consumables was primarily attributable to (i) an increase in sales volumes in both Zegna branded products and Thom Browne (as described above) and (ii) an increase in inventory obsolescence costs in the Thom Browne segment.Cost of raw materials and consumables as a percentage of revenues decreased from 24.7% for the year ended December 31, 2020 to 24.0% for the year ended December 31, 2021.
Cost of raw materials and consumables for the year ended December 31, 2020 amounted to €250,569 thousand, a decrease of €59,232 thousand or 19.1%, compared to €309,801 thousand for the year ended December 31, 2019.
The decrease in cost of raw materials and consumables in 2020 compared to 2019 was primarily attributable to (i) lower volumes of purchases of raw materials, goods and consumables of €46,499 thousand, driven by the decline in demand for Zegna’s products caused by theCOVID-19
pandemic and current temporary suspension of operation; and (ii) the slower pace throughout Zegna’s value chain as a result of temporary layoffs and other similar temporary measures; partially offset by (iii) a €2,065 thousand impairment recorded in 2020 of inventory pertaining to Agnona (the womenswear business held for sale at the end of 2020).Cost of raw materials and consumables as a percentage of revenues increased from 23.4% in 2019 to 24.7% in 2020 due to the decreased overall volumes resulting in higher incidence of supply chain purchases.
Purchased, outsourced and other costs
Purchased, outsourced and other costs mainly consist of consultancy fees and corporate bodies fees, advertising and marketing expenses (which include communication and marketing costs, and expenses for advertising, media and events), lease expenses (primarily variable rents which are not dependent on an index or rate), service costs for outsourced manufacturing from third parties on commissions, freight, insurance and selling expenses, utilities and maintenance expenses, as well as other services.The following table sets forth the purchased, outsourced and other costs for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Purchased, outsourced and other costs | | | (353,629 | ) | | | (286,926 | ) | | | (371,697 | ) | | | (66,703 | ) | | | (23.2 | )% | | | 84,771 | | | | 22.8 | % |
Purchased, outsourced and other costs as % of Revenues | | | (27.4 | )% | | | (28.3 | )% | | | (28.1 | )% | | | | | | | | | | | | | | | | |
Purchased, outsourced and other costs for the year ended December 31, 2021 amounted to €353,629 thousand, an increase of €66,703 thousand or 23.2%, compared to €286,926 thousand for the year ended December 31, 2020.
The increase in purchased, outsourced and other costs was primarily attributable to (i) an increase in consultancy fees and corporate bodies fees of €42,031 thousand, mainly due to €34,092 thousand of costs related to bank services, legal advisors and other consultancy services relating to the Business Combination, (ii) an increase in lease expenses of €23,590 thousand, including the effects of lower rent reductions received in 2021 compared to 2020 as a result of theCOVID-19
pandemic (rent reductions amounted to €12,877 thousand in 2021 compared to €24,931 thousand in 2020) as well as an increase of €8,756 thousand of variable lease payments driven by the increase in DTC sales and (iii) an increase of €9,757 thousand of advertising and marketing expenses mainly due to actions taken by Zegna in 2020 to reduce costs as a result of theCOVID-19
pandemic, partially offset by (iv) a decrease in costs for the outsourcing of production of €6,009 thousand driven by a change in mix of production inputs.Purchased, outsourced and other costs as a percentage of revenues decreased from 28.3% for the year ended December 31, 2020 to 27.4% for the year ended December 31, 2021, mainly as a result of the significant increase in revenues as described above.
Purchased, outsourced and other costs for the year ended December 31, 2020 amounted to €286,926 thousand, a decrease of €84,771 thousand or 22.8%, compared to €371,697 thousand for the year ended December 31, 2019.
The decrease in purchased, outsourced and other costs in 2020 compared to 2019 was primarily attributable to the effects of theCOVID-19
pandemic, including (i) €8,696 thousand of reduced variable rents as a result of the decline in sales driven by the pandemic, €1,866 thousand of reduced short term rents and low value rental agreements, and €24,931 thousand savings resulting from rent reductions negotiated with landlords, (ii) Zegna’s cost reduction initiatives (including reductions in advertising and marketing activities amounting to €13,322 thousand), (iii) €15,418 thousand reduced costs for outsourced production related to lower volumes due toCOVID-19,
and (iv) lower freight, insurance and selling expenses of €11,572 thousand resulting from the decline in activity due toCOVID-19,
partially offset by (v) higher expenses for royalties of €1,102 thousand in 2020 compared to 2019 thanks to a new partnership agreement with the Fear of God brand.Purchased, outsourced and other costs as a percentage of revenues increased from 28.1% in 2019 to 28.3% in 2020 mainly as a result of the decrease in revenues caused by theCOVID-19
pandemic.Personnel costs include expenses related to wages and salaries for Zegna’s employees, social and pension contributions, severance indemnities, uniforms, benefits and other payroll expenses, as well as share-based payments.The following table sets forth personnel costs for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | (367,762 | ) | | | (282,659 | ) | | | (331,944 | ) | | | (85,103 | ) | | | (30.1 | )% | | | 49,285 | | | | 14.8 | % |
Personnel costs as % of revenues | | | (28.5 | )% | | | (27.9 | )% | | | (25.1 | )% | | | | | | | | | | | | | | | | |
Personnel costs for the year ended December 31, 2021 amounted to €367,762 thousand, an increase of €85,103 thousand or 30.1%, compared to €282,659 thousand for the year ended December 31, 2020.
The increase in personnel costs was primarily attributable to (i) an increase in wages and salaries of €61,802 thousand primarily due to the actions taken in 2020 in response toCOVID-19
(many of which were partially or fully reversed in 2021), including the impact of furlough and other temporary layoff measures taken at our DOSs, cuts on senior andmid-level
manager salaries and permanently reduced headcount in certain business functions, as well as €10,916 thousand relating to aone-time
gift of €1,500 to each employee of the Group as a result of the Company’s listing on the NYSE on
December 20, 2021 (which was paid in February 2022) and €8,702 thousand relating to aone-time
fixed extraordinary bonuses earned by certain of Zegna’s senior management team (excluding the CEO) which will be paid in 2024; (ii) an increase in share-based payments of €16, 290 thousand, including €5,380 thousand relating to the grant of performance share units, each representing the right to receive one Zegna ordinary share, to the Group’s Chief Executive Officer (“CEO”), other Zegna directors, key executives with strategic responsibilities and other employees of the Group, all subject to certain vesting conditions, €1,236 thousand related to the fair value of private warrants issued, pursuant to the Business Combination, to certain Zegnanon-executive
directors, and €3,536 thousand for other equity incentives granted to key management (see Note 42 -Related party transactions
to the Consolidated Financial Statements included elsewhere in this Annual Report on Form20-F
for additional information).Personnel costs as a percentage of revenues increased from 27,9% for the year ended December 31, 2020 to 28.5% for the year ended December 31, 2021, driven by the 27.4% increase in revenues compared to an increase of 30.1% in personnel costs as described above.
Personnel costs for the year ended December 31, 2020 amounted to €282,659 thousand, a decrease of €49,285 thousand or 14.8%, compared to €331,944 thousand for the year ended December 31, 2019.
The decrease in personnel costs in 2020 compared to 2019 was primarily attributable to (i) €40,231 thousand of decreased compensation and benefits, primarily due to the actions taken in response toCOVID-19,
including the impact of furlough and other temporary layoff measures taken at our DOSs, cuts on senior andmid-level
manager salaries and permanently reduced headcount in certain business functions; and (ii) €3,468 thousand of decreased costs for uniforms (due to a uniform restyling initiative implemented in 2019 and to the reduced use of uniforms during the store closures resulting from theCOVID-19
pandemic in 2020); partially offset by (iii) higher severance costs of €2,530 thousand compared to 2019 mainly due to the reorganization of certain headquarter services, the permanent closure of some stores in Italy and the reduction of capacity at a plant in Spain.Personnel costs as a percentage of revenues increased from 25.1% in 2019 to 27,9% in 2020 mainly due to lower overall sales, partially offset by the cost-reduction measures described above.
Depreciation, amortization and impairment of assets
Depreciation, amortization and impairment of assets consist of depreciation and amortization expenses related to property, plant and equipment, investment property,assets and intangible assets with finite useful lives (therefore excluding goodwill and brands). These costs are depreciated or amortized over their useful life. Impairment of assets includes impairments ofassets, property, plant and equipment and intangible assets. Following the Disposition, certain assets previously owned by Zegna are leased from third parties, resulting in a decrease of depreciation of property, plant and equipment that is substantially offset by an increase in amortization ofassets. For additional information on the Disposition please see the sections entitled“—Trends, Uncertainties and Opportunities—The Disposition
”.The following table sets forth a breakdown of depreciation, amortization and impairment of assets for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | (154,195 | ) | | | (166,205 | ) | | | (168,210 | ) | | | 12,010 | | | | 7.2 | % | | | 2,005 | | | | 1.2 | % |
| | | (9,172 | ) | | | (19,725 | ) | | | (8,858 | ) | | | 10,553 | | | | 53.5 | % | | | (10,867 | ) | | | (122.7 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation, amortization and impairment of assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization as % of Revenues | | | (11.9 | )% | | | (16.4 | )% | | | (12.7 | )% | | | | | | | | | | | | | | | | |
Impairment of assets as % of Revenues | | | (0.7 | )% | | | (1.9 | )% | | | (0.7 | )% | | | | | | | | | | | | | | | | |
Depreciation, amortization and impairment of assets as % of Revenues | | | (12.6 | )% | | | (18.3 | )% | | | (13.4 | )% | | | | | | | | | | | | | | | | |
Depreciation, amortization and impairment of assets for the year ended December 31, 2021 amounted to €163,367 thousand, a decrease of €22,563 thousand or 12.1%, compared to €185,930 thousand for the year ended December 31, 2020.
The decrease in depreciation, amortization and impairment of assets was primarily attributable to (i) lower impairment of assets of €10,553 thousand and, in particular, lower impairment ofassets of €9,230 thousand mainly due to impairments recognized in 2020 as a result of the effects of theCOVID-19
pandemic on the Group’s operations, primarily relating to leased stores in Hong Kong that are part of the Zegna Segment; (ii) a decrease of €8,361 thousand in depreciation of property, plant and equipment and investment property driven by the disposal of certain assets as part of the Disposition, as well as the effects of lower investments in 2020 as a measure to preserve liquidity following theCOVID-19
outbreak, and (iii) a decrease of €2,731 thousand in amortization ofassets related to certain lease agreements renegotiated from fixed to variable payments, as well as to certain stores located in Italy and Japan that were fully impaired in the second half of 2020, partially offset by higher depreciation in the Thom Browne segment as a consequence of new store openings in 2020 and 2021.
Depreciation, amortization and impairment of assets as a percentage of revenues decreased from 18,3% for the year ended December 31, 2020 to 12.6%, driven by the 27.4% increase in revenues compared to an increase of 12.1% in depreciation, amortization and impairment of assets as described above.
Depreciation, amortization and impairment of assets for the year ended December 31, 2020 amounted to €185,930 thousand, an increase of €8,862 thousand or 5.0% compared to €177,068 thousand for the year ended December 31, 2019.
The increase in depreciation, amortization and impairment of assets in 2020 compared to 2019 was primarily attributable to (i) higher impairment ofassets of €7,736 thousand compared to 2019 and (ii) higher impairment of property, plant and equipment of €3,194 thousand compared to 2019; partially offset by (iii) lower amortization of intangible assets of €856 thousand compared to 2019, and (iv) lower amortization ofassets of €1,656 thousand as certain lease agreements in Hong Kong stores were renegotiated from fixed payments to variable payments and therefore not capitalized asassets.Impairment ofassets in 2020 was €15,716 thousand compared to €7,980 thousand in 2019, while impairment of property, plant and equipment in 2020 was €4,011 thousand compared to €817 thousand in 2019; the increase is mainly related to the early termination of leases in Japan and Italy in 2020 resulting in charges of €10,564 thousand and €1,789 thousand, respectively, and €3,340 thousand relating to the impairment for leases in Hong Kong (due to lowered expectations on stores’ profitability related to political unrest started in 2019 and travel restrictions followingCOVID-19
outbreak) and other regions. Rent reductions negotiated with landlords in 2020 due toCOVID-19
of €24,931 thousand are accounted for in purchased, outsourced and other costs, as permitted by the amendment to IFRS 16 onCOVID-19
rent reductions.Depreciation, amortization and impairment of assets as a percentage of revenues increased from 13.4% in 2019 to 18.3% in 2020 due to (i) increase in 2020 impairment of assets and (ii) revenues decline in 2020 compared to 2019.
Write downs and other provisions
Costs for write downs and other provisions mainly include thebad-debt
provision on current receivables, impairment of held for sale assets, and accruals for legal expenses.The following table sets forth write downs and other provisions for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Write downs and other provisions | | | (19,487 | ) | | | (6,178 | ) | | | (1,017 | ) | | | (13,309 | ) | | | (215.4 | )% | | | (5,161 | ) | | | (507.5 | )% |
Write downs and other provisions as % of revenue | | | (1.5 | )% | | | (0.6 | )% | | | (0.1 | )% | | | | | | | | | | | | | | | | |
Write downs and other provisions for the year ended December 31, 2021 amounted to €19,487 thousand, an increase of €13,309 thousand compared to €6,178 thousand for the year ended December 31, 2020.
The change in write downs and other provisions was primarily attributable to (i) an unfavorable judgment that was handed down against the Group in respect of a legal claim related to a lease agreement in the US, resulting in the recognition of an additional provision of €12,192 thousand, and (ii) €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group is required to compensate Agnona in accordance with the terms of the related sale agreement, partially offset by a lower loss allowance on trade receivables and lower provisions for legal expenses and restoration obligations for leased stores, which were all impacted in 2020 by the effects of theCOVID-19
pandemic on the Group’s operations.Write downs and other provisions for the year ended December 31, 2020 amounted to €6,178 thousand, an increase of €5,161 thousand, compared to €1,017 thousand for the year ended December 31, 2019.
The increase in write downs and other provisions in 2020 compared to 2019 was primarily attributable to (i) a provision for legal expenses relating to a lease agreement in the United Kingdom of €3,000 thousand, and (ii) higher provisions of €2,909 thousand forbad-debts
mainly due to an increase in overdue payments from third-party customers during theCOVID-19
pandemic.
Other operating costs include indirect taxes, gifts and donations, bank fees, travel expenses, stationary and similar materials, losses and gains on disposals of assets, penalties and other expenses.The following table sets forth operating costs for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | (180,836 | ) | | | (30,399 | ) | | | (49,034 | ) | | | (150,437 | ) | | | n.m. | | | | 18,635 | | | | 38.0 | % |
Operating costs as % of revenue | | | (14.0 | )% | | | (3.0 | )% | | | (3.7 | )% | | | | | | | | | | | | | | | | |
Other operating costs for the year ended December 31, 2021 amounted to €180,836 thousand, an increase of €150,437 thousand compared to €30,399 thousand for the year ended December 31, 2020.
The increase in other operating costs was primarily due to €152,869 thousand related to the Business Combination, including (i) €114,963 thousand relating to share-based payments for listing services recognized as the excess of the fair value of Zegna ordinary shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired, and (ii) €37,906 thousand for the issuance of 5,031,250 Zegna ordinary shares to the holders of IIAC class B shares to be held in escrow, as part of the Business Combination. The release of these shares from escrow is subject to attainment of certain targets within a seven-year period. For additional information related to the Business Combination please refer to“—The Business Combination”
.Other operating costs for the year ended December 31, 2020 amounted to €30,399 thousand, a decrease of €18,635 thousand or 38.0%, compared to €49,034 thousand for the year ended December 31, 2019.
Costs for gifts, associations and donations in 2020 amounted to €10,834 thousand compared to €12,338 thousand in 2019, and included donations for €4,482 thousand to support the efforts against the spread ofCOVID-19.
The decrease in other operating costs in 2020 compared to 2019 was primarily attributable to (i) a decrease of €11,231 thousand in travel expenses driven by reduced travel as a result of theCOVID-19
pandemic, (ii) lower bank fees of €3,381 thousand, (iii) reduced contributions to Fondazione Zegna in 2020 of €799 thousand (from €999 thousand in 2019 to €200 thousand in 2020), and (iv) a decrease in indirect taxes of €2,941 thousand.Financial income and financial expenses
Financial income and financial expenses primarily include the effects of fair value changes on put options owned bynon-controlling
interests in Zegna’s investments in the Thom Browne Group, the Gruppo Dondi S.p.A. and Lanificio Ermenegildo e Figli S.p.A., and fair value changes in liabilities for cash-settled share-based payments, as well as income and expenses relating to Zegna’s financial assets, the costs of hedging and derivatives, and interest income and expenses on financial assets and liabilities.The following tables set forth financial income and financial expenses for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 45,889 | | | | 34,352 | | | | 22,061 | | | | 11,537 | | | | 33.6 | % | | | 12,291 | | | | 55.7 | % |
Financial income as a % of revenues | | | 3.6 | % | | | 3.4 | % | | | 1.7 | % | | | | | | | | | | | | | | | | |
| | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | (43,823 | ) | | | (48,072 | ) | | | (37,492 | ) | | | 4,249 | | | | 8.8 | % | | | (10,580 | ) | | | (28.2 | )% |
Financial expenses as % of revenues | | | (3.4 | )% | | | (4.7 | )% | | | (2.8 | )% | | | | | | | | | | | | | | | | |
Financial income for the year ended December 31, 2021 amounted to €45,889 thousand, an increase of €11,537 thousand or 33.6%, compared to €34,352 thousand for the year ended December 31, 2020. The increase in financial income was primarily related to (i) an increase of €7,033 thousand relating to fixed-income securities held by the Group (a gain of €17,845 thousand compared to a gain of €10,812 thousand in 2020), (ii) a gain of €20,675 thousand recognized following the purchase of an additional 5% of the Thom Browne Group in June 2021 and the derecognition of a portion of the liability for the written put option on thenon-controlling
interest (compared to gains of €17,743 thousand on options in 2020, as further described below) and (iii) a gain of €2,760 thousand on derivative financial instruments relating to the closing of the Group’s option over its investment in Elah Dufour S.p.A., which was disposed of as part of the Disposition.Financial expenses for the year ended December 31, 2021 amounted to €43,823 thousand, a decrease of €4,249 thousand or 8.8%, compared to €48,072 thousand for the year ended December 31, 2020. The decrease in financial expenses was primarily attributable to (i) a decrease of €4,370 relating to fixed-income securities, (ii) a decrease of €2,338 thousand relating to changes in the value of the put options owned by thenon-controlling
interests in the Group’s investments in Thom Browne, Dondi and Lanificio (charges of €13,391 thousand in 2021 compared to €15,729 thousand in 2020), (iii) a decrease of interest and financial charges for lease liabilities of €1,633 thousand, and (vi) a decrease in interest on bank loans and overdrafts of €920, partially offset by (v) an increase of €4,137 relating to changes in the fair value of warrants, and (vi) an increase of €853 thousand in other financial expenses.
Financial income for the year ended December 31, 2020 amounted to €34,352 thousand, an increase of €12,291 thousand or 55.7%, compared to €22,061 thousand for the year ended December 31, 2019. The increase in financial income in 2020 compared to 2019 was primarily attributable to (i) the waiver by Zegna’s CEO of an option to sell back to Zegna 25,988 ordinary shares, which had been granted to him under his incentive plan, amounting to €9,975 thousand, and (ii) the decrease of €7,768 thousand of the fair value of Lanificio Ermenegildo Zegna e Figli S.p.A. option, partially offset by (iii) lower financial income from fixed-income securities, financial loans and other financial assets of €552 thousand, €1,103 thousand and €1,203 thousand, respectively.
Financial expenses for the year ended December 31, 2020 amounted to €48,072 thousand, an increase of €10,580 thousand or 28.2%, compared to €37,492 thousand for the year ended December 31, 2019. The increase in financial expenses in 2020 compared to 2019 was primarily attributable to (i) the increase of the fair value of Thom Browne Inc. and Gruppo Dondi S.p.A. options amounting to €15,538 thousand and €191 thousand, respectively, (ii) the increase of €5,926 thousand of fixed-income securities expenses compared to 2019 with some financial assets experiencing a decrease in fair value followingCOVID-19
outbreak, partially offset by (iii) lower hedging operations expenses of €4,670 thousand primarily due to lower hedged volumes compared to 2019 as a consequence of the expected revenues decline related toCOVID-19,
(iv) lower interest expenses on bank loans and overdrafts of €1,483 thousand primarily due to lower average debt and lower interest rates compared to 2019 and (v) lower lease liabilities financial expenses of €907 thousand.Exchange (losses)/gains include realized losses and gains on exchange differences and on fair value adjustments of derivatives and the effects of exchange rates from the remeasurement of options.
The following table sets forth exchange (losses)/gains for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | (7,791 | ) | | | 13,455 | | | | (2,441 | ) | | | (21,246 | ) | | | (157.9 | )% | | | 15,896 | | | | 651.2 | % |
Exchange (losses)/gains as % of revenue | | | (0.6 | )% | | | 1.3 | % | | | (0.2 | )% | | | | | | | | | | | | | | | | |
Exchange losses for the year ended December 31, 2021 amounted to €7,791 thousand compared to exchange gains of €13,455 thousand for the year ended December 31, 2020. Exchange gains for the year ended December 31, 2020 include gains of €14,171 thousand relating to the Thom Browne, Inc. put option.
Exchange gains for the year ended December 31, 2020 amounted to €13,455 thousand compared to exchange losses of €2,441 thousand for the year ended December 31, 2019. The change in exchange gains in 2020 compared to 2019 was primarily attributable to an exchange gain on the Thom Browne, Inc. put option of €14,171 thousand compared to a €3,163 thousand exchange loss in 2019 due to Euro appreciation against the US dollar going from 1.123 for the year ended December 31, 2019 to 1.227 for the year ended December 31, 2020.
Result and impairments of investments accounted for using the equity method
Result and impairments of investments accounted for using the equity method includes Zegna’s share of income and loss, as well as impairments, related to our investments recorded under the equity method of accounting.
The following tables set forth result and impairments of investments accounted for using the equity method for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Result from investments accounted for using the equity method | | | 2,794 | | | | (4,205 | ) | | | (1,534 | ) | | | 6,999 | | | | 166.4 | % | | | (2,671 | ) | | | (174.1 | )% |
Impairments of investments accounted for using the equity method | | | — | | | | (4,532 | ) | | | — | | | | 4,532 | | | | 100.0 | % | | | (4,532 | ) | | | 0.0 | % |
Result and impairments of investments accounted for using the equity method as % of Revenues | | | 0.2 | % | | | (0.9 | )% | | | (0.1 | )% | | | | | | | | | | | | | | | | |
Result from investments accounted for using the equity method for the year ended December 31, 2021 amounted to a profit of €2,794 thousand compared to a loss of €4,205 thousand for the year ended December 31,2020, and primarily related to the Group’s investment in Tom Ford International LLC (“Tom Ford”) for both periods, as well as to Pelletteria Tizeta S.r.l. and Filati Biagioli Modesto S.p.A. in 2021.
Impairments of investments accounted for using the equity method for the year ended December 31, 2021 amounted to zero compared to €4,532 thousand for the year ended December 31, 2020, which was entirely related to the Group’s investment in Tom Ford.
Result from investments accounted for using the equity method for the year ended December 31, 2020 amounted to a loss of €4,205 thousand, an increase of €2,671 thousand or 174.1%, compared to €1,534 thousand for the year ended December 31, 2019, and primarily related to the Group’s investment in Tom Ford for both periods.
Impairments of investments accounted for using the equity method for the year ended December 31, 2020 amounted to €4,532 thousand and related entirely to the Group’s investment in Tom Ford, compared to zero for the year ended December 31, 2019.
Income taxes include the current taxes on the results of Zegna’s operations and any changes in deferred income taxes.
The following table sets forth income taxes for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | (30,702 | ) | | | (14,983 | ) | | | (43,794 | ) | | | (15,719 | ) | | | (104.9 | )% | | | 28,811 | | | | 65.8 | % |
Income taxes as % of revenue | | | (2.4 | )% | | | (1.5 | )% | | | (3.3 | )% | | | | | | | | | | | | | | | | |
Income taxes for the year ended December 31, 2021 amounted to €30,702 thousand compared to €14,983 thousand for the year ended december 31, 2020.
The increase in income taxes was primarily attributable to higher non deductible costs related to the Business Combination and withholding taxes.
In order to facilitate the understanding of the Group’s effective tax rate, in addition to the total effective tax rate, we also present the effective tax rate net of the Italian Regional Income Tax (“IRAP”) considering IRAP is calculated on a different basis compared to the Italian corporate income tax (“IRES”). IRAP is calculated on a measure of income defined by the Italian Civil Code as the difference between operating revenues and costs, before financial income and expense, the cost of fixed term employees, credit losses and any interest included in lease payments. IRAP is calculated using financial information prepared under Italian accounting standards. The applicable IRAP rate was 5.57% for the parent company and 3.9% for the other Italian companies of the Group for each of the years ended December 31, 2021 and 2020. Zegna’s IRES tax rate was 24% for the years ended December 31, 2021 and 2020.
The effective tax rate net of IRAP was-30.6%
for the year ended December 31, 2021 compared to-43.8%
for the year ended December 31, 2020 (total effective tax rate of-31.7%
and-47.5%
for the years ended December 31, 2021 and 2020, respectively).Income taxes for the year ended December 31, 2020 amounted to €14,983 thousand, a decrease of €28,811 thousand or 65.8%, compared to €43,794 thousand for the year ended December 31, 2019.
The decrease in income taxes in 2020 compared to 2019 was primarily attributable to the decrease in profit before taxes as a result of theCOVID-19
pandemic as well as the other factors that affected the results of operations as described above.In order to facilitate the understanding of the Group’s effective income tax rate, in addition to the total effective tax rate, we also present the effective tax rate net of the Italian Regional Income Tax (“IRAP”) considering IRAP is calculated on a different basis compared to the Italian corporate income tax (“IRES”). IRAP is calculated on a measure of income defined by the Italian Civil Code as the difference between operating revenues and costs, before financial income and expense, the cost of fixed term employees, credit losses and any interest included in lease payments. IRAP is calculated using financial information prepared under Italian accounting standards. The applicable IRAP rate was 5.57% for the parent company and 3.9% for the other Italian companies of the Group for each of the years ended December 31, 2020 and 2019. Zegna’s IRES tax rate was 24% for the years ended December 31, 2020 and 2019.
The effective tax rate net of IRAP was-43.8%
for 2020 compared to 60.1% for 2019 (total effective tax rate of-47.5%
and 63.3% for 2020 and 2019, respectively). For 2020 the difference between the theoretical tax rate and the effective tax rate net of IRAP is primarily attributable to (i) deferred tax assets not recognized of €25,727 thousand, mainly related to tax losses of certain subsidiaries of the Group,(ii) non-deductible
costs of €10,353 thousand, (iii) withholding tax on earnings of €6,221 thousand, partially offset by (iv) differences between foreign tax rates and the theoretical applicable tax rate and tax holidays of €20,321 thousand. For 2019 the difference between the theoretical tax rate and the effective tax rate net of IRAP is primarily attributable to (i) deferred tax assets not recognized of €9,386 thousand, mainly related to tax losses of certain subsidiaries of the Group,(ii) non-deductible
costs of €7,349 thousand, (iii) withholding tax on earnings of €5,366 thousand, and (iv) differences between foreign tax rates and the theoretical applicable tax rate and tax holidays of €3,177 thousand.The change in the effective tax rate net of IRAP is primarily attributable to the deferred tax assets not recognized and the differences between foreign tax rates and the theoretical tax rate.
The following tables set forth revenues, Adjusted EBIT and Adjusted EBIT Margin by segment for the years ended December 31, 2021, 20202023, 2022 and 2019:
2021.As a result of organizational changes within the Group and changes in the information provided to the CODM for the purposes of making strategic decisions relating to the assessment of performance and the allocation of resources, revenues from Pelletteria Tizeta, which were allocated to the Zegna segment in the Semi-Annual Report at and for the six months ended June 30, 2023, are now presented within the Tom Ford Fashion segment for the year ended December 31, 2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 1,035,175 | | | | 843,318 | | | | 1,165,911 | | | | 191,857 | | | | 22.8 | % | | | (322,593 | ) | | | (27.7 | )% |
| | | 264,066 | | | | 179,794 | | | | 161,200 | | | | 84,272 | | | | 46.9 | % | | | 18,594 | | | | 11.5 | % |
| | | (6,839 | ) | | | (8,379 | ) | | | (5,784 | ) | | | (1,540 | ) | | | 18.4 | % | | | (2,595 | ) | | | 44.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) | | |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % Reported Revenues | | % Constant Currency | | % Organic Growth | | 2022 vs 2021 | | % Reported Revenues | | % Constant Currency | | % Organic Growth |
Revenues | | | | | | | | | | | | | | | | | | | | | |
Zegna | 1,322,045 | | 1,176,706 | | 1,035,175 | | 145,339 | | 12.4 | % | | 13.8 | % | | 19.5 | % | | 141,531 | | 13.7 | % | | 9.3 | % | | 8.4 | % |
Thom Browne | 380,287 | | 330,891 | | 264,066 | | 49,396 | | 14.9 | % | | 18.3 | % | | 17.8 | % | | 66,825 | | 25.3 | % | | 20.6 | % | | 20.6 | % |
Tom Ford Fashion | 235,544 | | — | | — | | 235,544 | | n.m. | | n.m. | | n.m. | | — | | n.m. | | n.m. | | n.m. |
Eliminations | (33,327) | | (14,757) | | (6,839) | | (18,570) | | n.m. | | n.m. | | n.m. | | (7,918) | | n.m. | | n.m. | | n.m. |
Total revenues | 1,904,549 | | 1,492,840 | | 1,292,402 | | 411,709 | | 27.6 | % | | 29.7 | % | | 19.3 | % | | 200,438 | | 15.5 | % | | 11.0 | % | | 10.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Adjusted EBIT | | | | | | | | | | | | | |
Zegna | 193,466 | | 141,513 | | 131,929 | | 51,953 | | 36.7 | % | | 9,584 | | 7.3 | % |
Thom Browne | 58,969 | | 48,077 | | 38,097 | | 10,892 | | 22.7 | % | | 9,980 | | 26.2 | % |
Tom Ford Fashion | (1,741) | | — | | — | | (1,741) | | — | % | | n.m. | | n.m. |
Corporate | (30,423) | | (31,861) | | (20,911) | | 1,438 | | (4.5 | %) | | (10,950) | | 52.4 | % |
Eliminations | (59) | | — | | — | | (59) | | n.m. | | n.m. | | n.m. |
Total | 220,212 | | 157,729 | | 149,115 | | 62,483 | | 39.6 | % | | 8,614 | | 5.8 | % |
Adjusted EBIT Margin | | | | | | | | | | | | | |
Zegna | 14.6 | % | | 12.0 | % | | 12.7 | % | | | | | | | | |
Thom Browne | 15.5 | % | | 14.5 | % | | 14.4 | % | | | | | | | | |
Tom Ford Fashion | (0.7 | %) | | n.m. | | n.m. | | | | | | | | |
For additional information relating to Adjusted EBIT
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 111,018 | | | | (8,981 | ) | | | 91,385 | | | | 119,999 | | | | n.m. | | | | (100,366 | ) | | | (109.8 | )% |
| | | 38,097 | | | | 28,994 | | | | 15,889 | | | | 9,103 | | | | 31.4 | % | | | 13,105 | | | | 82.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Details of reconciled items for these segments and Adjusted EBIT Margin, which are
provided under non-IFRS financial measures, see “—Non-IFRS Financial Measures—Adjusted EBIT and Adjusted EBIT Margin.”
”.The following is a discussion of revenues, Adjusted EBIT and Adjusted EBIT Margin for each segment for the year ended December 31, 20212023 as compared to the year ended December 31, 20202022, and for the year ended December 31, 20202022 as compared to the year ended December 31, 2019.2021.
The following table sets forth revenues, Adjusted EBIT and Adjusted EBIT forMargin of the Zegna segment for the years ended December 31, 2023, 2022 and 2021 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 1,035,175 | | | | 843,318 | | | | 1,165,911 | | | | 191,857 | | | | 22.8 | % | | | (322,593 | ) | | | (27.7 | )% |
| | | 111,018 | | | | (8,981 | ) | | | 91,385 | | | | 119,999 | | | | n.m. | | | | (100,366 | ) | | | (109.8 | )% |
(before intersegment eliminations).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Revenues | 1,322,045 | | 1,176,706 | | 1,035,175 | | 145,339 | | 12.4 | % | | 141,531 | | 13.7 | % |
Adjusted EBIT | 193,466 | | 141,513 | | 131,929 | | 51,953 | | 36.7 | % | | 9,584 | | 7.3 | % |
Adjusted EBIT Margin | 14.6 | % | | 12.0 | % | | 12.7 | % | | | | | | | | |
Revenues
2023 compared to 2022
Revenues for the Zegna segment for the year ended December 31, 20212023 amounted to €1,035,175€1,322,045 thousand, an increase of €191,857€145,339 thousand or 22.8%+12.4% (+13.8% at constant currency; +19.5% organic), compared to €843,318€1,176,706 thousand for the year ended December 31, 2020.
2022.The increase in revenues for the Zegna segment was primarily attributable to:
(i) Zegnaan increase of €185,549 thousand or 20.1% in ZEGNA branded products, driven in large part by growth in the luxury leisurewear and shoes categories and higher volumes in 2021 as 2020 was more severely impacted by temporary store closures related tocomprised of:
COVID-19
restrictions. Revenues(a)an increase of €172,808 thousand or +22.4% in the DTC channel, increaseddriven by €184,890 thousand (+35%), mainly due to robust growth in the United States, EMEAcontinued positive performance of both luxury leisurewear and footwear, which represented 50% and 13% of revenues from ZEGNA branded products during the Greater China Region, while growth in other APAC markets was loweryear, respectively, as they continue to be adversely affected byCOVID-19
restrictions. Revenues in the Wholesale channel increased by €25,943 thousand (+23.9%), mainly due to North Americawell as our Tailoring Made-to-Measure businesses, and APAC; (ii) an increase in Textile revenues to €102 million, reflecting double digit percentage growth including the additional contribution of €5,619 thousand from Tessitura Ubertino which was acquired in June 2021; partially offset by (iii) a decrease in Third-Party Brands, reflecting apost-COVID-19
adjustment phase in the B2B business,all regions, higher average sales prices and increased store traffic, as well as a decrease in Agnona and other revenues primarily as a result of the Disposition.Revenues for the year endedselected DTC store openings (253 DTC stores at December 31, 2020 amounted2023 compared to €843,318 thousand, a decrease239 DTC stores at December 31, 2022); and
(b)an increase of €322,593€12,741 thousand or 27.7% compared to €1,165,911 thousand for the year ended December 31, 2019.
The decrease in revenues was primarily attributable to: (i) Zegna branded products, and in particular formalwear, which were negatively impacted by theCOVID-19
pandemic outbreak in 2020 that resulted+8.4% in the
temporary closure of our stores. Despite this, revenues started to recover in the second half of 2020, especially in the DTCwholesale channel,
in the Greater China Region driven by
higher local consumption due to international travel restrictions; (ii) lower demand and order cancellations for Textile as a result ofCOVID-19,
onlypositive performance, particularly in EMEA, partially offset by the
acquisitioneffects of
Dondia planned change in
2019 (Dondi wasmerchandising strategy whereby a portion of the Spring/Summer 2024 deliveries were intentionally shifted from the fourth quarter of 2023 to the first quarter of 2024;(ii)an increase of €14,454 thousand or +10.6%in Textile, primarily attributable to the positive of the Lanificio Ermenegildo Zegna;
partially offset by:
(iii)a decrease of €54,664 thousand or -49.6% in Third Party Brands, reflecting the end of the previous TFI distribution license agreement for menswear with the deliveries of the Fall/Winter 2022 collection and the start of a supply agreement to act as the exclusive supplier for certain TOM FORD menswear products with the Spring/Summer 2023 collection (following the completion of the TFI Acquisition on April 28, 2023, the revenues from the supply agreement with TFI are reported as intercompany revenues and eliminated from the Group’s consolidated results), partially offset by the contribution of Pelleteria Tizeta, for a full twelve monthswhich the Group acquired the 50% interest held by TFI as part of the TFI Acquisition, bringing its interest in 2020Pelleteria Tizeta to 100%.
2022 compared to
four months in 2019) and (iii) lower demand driven byCOVID-19
for Third Party Brands.2021 Adjusted EBITRevenues for the Zegna segment for the year ended December 31, 20212022 amounted to €111,018€1,176,706 thousand, an increase of €141,531 thousand or +13.7% (+9.3% at constant currency; +8.4% organic growth), compared to (€8,981)€1,035,175 thousand for the year ended December 31, 2020.
2021.The changeincrease in Adjusted EBITrevenues for the Zegna segment was primarily attributable to:
(i)an increase of €76,631 thousand or +9.0% in ZEGNA branded products comprised of:
(a)an increase in the DTC channel of €59,643 thousand or +8.4%, which was composed of:
i.a decrease of €86,509 thousand or -19.8% in the Greater China Region, which was significantly impacted by COVID-19-related restrictions in 2022 that resulted in the temporary closure of stores and lower customer traffic, primarily from mid-March until the end of May and again in the fourth quarter of the year;
which was more than offset by:
ii.an increase of €146,151 thousand or +52.9% in in the rest of the world, driven by the continued positive performance of shoes and steady growth in luxury leisurewear, as well as the rebound of our Tailoring and Made to (i) higherMeasure business, particularly in the United States and EMEA, as 2021 was impacted by COVID-19-related restrictions.
(b)an increase in the wholesale channel €16,988 thousand or +12.6% driven by growth in the United States and EMEA, partially offset by lower orders for new collections from travel retail customers in the Greater China Region as a result of COVID-19-related store closures and the related build up of inventory. The effects from the suspension of production for the Russian market and the closure of stores in Russia following the escalation of the conflict in Ukraine (resulting in lower revenues in Russia of €191,857€10,450 thousand) were substantially mitigated from the reallocation of products, primarily in the DTC channel in EMEA.
(ii)an increase in Textile of €34,525 thousand or +33.8%, primarily attributable to the positive performance of the Lanificio Ermenegildo Zegna, Bonotto and Dondi brands driven by higher volumes in 2021, mainly drivenorders for the Fall/Winter 2022 and Spring/Summer 2023 collections compared to previous year’s collections, which were affected by the luxury leisurewear and shoes categoriesCOVID-19 pandemic, and the other factors mentioned above, (ii) lower depreciationimpact of Tessitura Ubertino S.r.l., which was acquired in June 2021 and amortization mainly duecontributed additional revenues of €4,590 thousand in 2022 compared to the effects of lower investments in 2020 as a temporary measure to preserve liquidity following the2021; and
COVID-19
outbreak, partially offset by (iii)an increase in costs relatedthe Third Party Brands of €22,835 thousand or +30.5%, which benefited from higher orders for the TOM FORD brand for the Spring/Summer 2022 and Fall/Winter 2022 collections, as well as higher orders for the Gucci brand. The TFI distribution license agreement ended with the deliveries of the Fall/Winter 2022 collection and the Group expects to volumes (the increasecommence the TFF License in costs was lower in proportionthe second quarter of 2023 (subject to the increase in revenues) and (iv) several measures taken in 2020 to reduce costs and not entirely replicated in 2021 such as the renegotiation of rent payable under lease agreements, temporarylay-offs
as permitted by local emergency legislation, accessing government support measures, salary and bonus cuts to directors and senior managers, and significant reductions to marketing, travelantitrust approvals and other expenses.customary closing conditions) for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile and home design products.Adjusted EBIT and Adjusted EBIT Margin
2023 compared to 2022
Adjusted EBIT for the year ended December 31, 2020Zegna segment amounted to €(8,981) thousand, a decrease of €100,366 thousand compared to €91,385€193,466 thousand for the year ended December 31, 2019.
2023, an increase of €51,953 thousand or +36.7% compared to €141,513 thousand for the year ended December 31, 2022. Adjusted EBIT Margin was 14.6% and 12.0%, respectively.The decreaseincrease in Adjusted EBIT for the Zegna segment was primarily attributable to:
(i)higher revenues of €145,339 thousand as further described above, including the effects of higher average sales prices;
(ii)improved profitability driven by (a) a higher proportion of DTC sales compared to wholesale sales, (b) improved retail store productivity including the effects of store right-sizing, (c) higher absorption of fixed costs in the supply chain, (d) price increases and a reduction of the end-of-season sales as part of the ZEGNA One Brand strategy, and (e) higher proportion of sales from Essentials collections compared to seasonal collections and proportionately lower provisions for slow moving and obsolete inventory;
partially offset by:
(iii)an increase in selling, general and administrative expenses driven by growth of the business and new resources to reinforce the corporate governance and certain functions within the Zegna segment;
(iv)higher advertising and marketing expenses, in line with the Group’s marketing strategy for the brand.
2022 compared to 2021
Adjusted EBIT for the Zegna segment amounted to €141,513 thousand for the years ended December 31, 2022, an increase of €9,584 thousand compared to €131,929 thousand, for the year ended December 31, 2021. Adjusted EBIT Margin was 12.0% and 12.7%, respectively.
The increase in Adjusted EBIT was primarily attributable to:
(i) lowerhigher revenues of €141,531 thousand, including the effects of price repositioning and inefficienciesprice increases as part of the new ZEGNA One Brand strategy and other factors as described above (and net of the negative impact in the Greater China Region); and
(ii)purchasing and production efficiencies as a result of higher volumes to support the increase in sales;
partially offset by:
(iii)higher advertising and marketing expenses, in line with the Group’s marketing strategy announced at its Capital Markets Day in May 2022;
(iv)higher costs to reinforce the corporate governance and certain functions within the Zegna segment as a result of becoming a public company in December 2021;
(v)higher costs due to the impact ofCOVID-19
as described above, partially offset by (ii) cost reduction initiativesnew equity-settled share-based payments program granted to address the Senior Management Team (excluding the CEO) and certain other Zegna segment employees; and COVID-19
crisis such as decreased personnel costs (reduced cost(vi)higher prices for compensationenergy and benefitscertain raw materials, including the impacteffects of furlough and other temporary layoff measures taken at our DOSs, cuts on senior andmid-levelinflation.
manager salaries, reduced headcount and access to government aid), decrease of purchased, outsourced and other costs and other operating costs (savings resulting from rent reductions negotiated with landlords and other cost reductions in advertising and marketing and travel expenses) as well as a reduction in cost for raw materials and consumables as a direct consequence of sales decline.
Thom Browne Segmentsegment
The following table sets forth revenues, Adjusted EBIT and Adjusted EBIT forMargin of the Thom Browne segment for the years ended December 31, 2023, 2022 and 2021 2020 and 2019.
(before intersegment eliminations). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Revenues | 380,287 | | 330,891 | | 264,066 | | 49,396 | | 14.9 | % | | 66,825 | | 25.3 | % |
Adjusted EBIT | 58,969 | | 48,077 | | 38,097 | | 10,892 | | 22.7 | % | | 9,980 | | 26.2 | % |
Adjusted EBIT Margin | 15.5 | % | | 14.5 | % | | 14.4 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | For the years ended December 31, | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 264,066 | | | | 179,794 | | | | 161,200 | | | | 84,272 | | | | 46.9 | % | | | 18,594 | | | | 11.5 | % |
| | | 38,097 | | | | 28,994 | | | | 15,889 | | | | 9,103 | | | | 31.4 | % | | | 13,105 | | | | 82.5 | % |
Revenues
2023 compared to 2022
Revenues for the Thom Browne segment for the year ended December 31, 20212023 amounted to €264,066€380,287 thousand, an increase of €84,272€49,396 thousand or 46.9%+14.9% (+18.3% at constant currency; +17.8% organic growth), compared to €179,794€330,891 thousand for the year ended December 31, 2020.
2022.RevenuesThe increase in revenues for the Thom Browne segment increased inreflects growth across all sales channels, geographieslines (in particular womenswear and product lines in both menswearchildrenswear) and womenswear categories, and a new kidswear line was introduced during the year. In particular, revenues in the DTC retail channel increased by €53,299 thousand (+62.5%), including the positive effects from the opening of fourteen new stores in 2021 (of which ten are in the APAC region, three in EMEA and one in North America), and revenues in Wholesale channel increased by €30,608 thousand (+32.5%), driven by sales in the EMEA and APAC regions.
comprises:Revenues for the year ended December 31, 2020 amounted to €179,794 thousand, (i)an increase of €18,594€37,720 thousand or 11.5% compared to €161,200 thousand for the year ended December 31, 2019.
The increase in revenues of €18,594 thousand was primarily attributable to (i) new store openings+25.9% in the DTC channel (both fordriven by the expansion of the store network through 23 net store openings (86 DTC stores openedat December 31, 2023 compared to 63 DTC stores at December 31, 2022), mainly in 2020APAC and forincluding the full year effectconversion of new17 stores opened in 2019)South Korea from wholesale to DTC following
an agreement with the former franchise partner, as well as the performance of existing stores in Japan and Macau; and
(ii)an increase of €11,676 thousand or +6.3% inE-Commerce
sales, only the wholesale channel driven by double digit growth in EMEA, partially offset by lower deliveries to the South Korean market ahead of a decrease of €5,329 thousandchange in the Wholesale channel (mainlybusiness from wholesale to DTC starting in North America and APAC, partially offset by an increase in EMEA) from the partial shift of deliveries of the Spring Summer 2021Pre-Collection
from the fourththird quarter of 20202023 following an agreement with the former franchise partner. 2022 compared to first quarter of 2021.2021
Adjusted EBITRevenues for the Thom Browne segment for the year ended December 31, 20212022 amounted to €38,097€330,891 thousand, an increase of €66,825 thousand or +25.3% (+20.6% at constant currency and organic growth), compared to €28,994€264,066 thousand for the year ended December 31, 2020.2021.
The increase in revenues for the Thom Browne segment was primarily attributable to:
(i)an increase in the wholesale channel of €59,482 thousand or +47.7%, driven by both our seasonal and our classic collections and strong growth across all lines (menswear, womenswear and childrenswear) and major geographical areas, and
(ii)an increase in the DTC channel of €7,135 thousand or +5.1%, which was composed of:
(a)a decrease of €9,446 thousand or -10.0% in the Greater China Region, which was impacted by the aforementioned effects of COVID-19-related restrictions, partially offset by the roll out of the TMall platform for e-commerce sales in the region, which commenced in the second half of 2021) and the effect of seven net store openings in the region in 2022 compared to 2021; and
which was more than offset by:
(b)an increase of €16,581 thousand or +37.5% in in the rest of the world, driven by high double digit growth in the United States, EMEA and Japan, including the effects of four net store openings in 2022 compared to 2021 (two in North America, one in EMEA and one in Japan).
Adjusted EBIT and Adjusted EBIT Margin
2023 compared to 2022
Adjusted EBIT for the Thom Browne segment amounted to €58,969 thousand for the years ended December 31, 2023, an increase of €10,892 thousand or +22.7% compared to €48,077 thousand for the year ended December 31, 2022. Adjusted EBIT Margin was 15.5% and 14.5%, respectively.
The increase in Adjusted EBIT for the Thom Browne segment was primarily attributable to to:
(i)higher revenues of €84,272€49,396 thousand compared to 2020 (asas further described above), above;
partially offset by by:
(ii) an increase in costs driven by higher volumes and the provision for inventory, (iii) costs related to the expansion of the DTC store network expansion, (iv) €8,702 thousand relatingwith 23 net store openings (86 DTC stores at December 31, 2023 compared to a63 DTC stores at December 31, 2022), including the conversion of 17 stores in South Korea from wholesale to DTC starting from July 1, 2023; and
one-time
fixed extraordinary bonuses earned(iii)an increase in personnel costs driven by growth of the business and new resources to reinforce certain of Zegna’s senior management team (excludingfunctions within the CEO) which will be paid in 2024, and (v) investmentsThom Browne segment.
2022 compared to improve central administrative functions and processes.2021
Adjusted EBIT for the yearThom Browne segment amounted to €48,077 thousand for the years ended December 31, 2020 amounted to €28,994 thousand,2022, an increase of €13,105€9,980 thousand or +26.2% compared to €15,889€38,097 thousand for the year ended December 31, 2019.2021. Adjusted EBIT Margin was 14.5% and 14.4%, respectively.
The increase in Adjusted EBIT for the Thom Browne segment was primarily attributable to:
(i)higher revenues of €18,594€66,825 thousand as further described above, including the effects of price increases;
partially offset by:
(ii)costs related to the expansion of the DTC store network (eleven net store openings in 2022 compared to 2019, (ii)2021);
(iii)higher advertising and marketing expenses, in line with the negative impactGroup’s marketing strategy announced at its Capital Markets Day in May 2022;
(iv)higher costs to reinforce the corporate governance and certain functions within the Thom Browne segment as a result of €8,228becoming a public company in December 2021; and
(v)an increase in performance-linked compensation.
Tom Ford Fashion segment
The following table sets forth revenues, Adjusted EBIT and Adjusted EBIT Margin of the Tom Ford Fashion segment for the years ended December 31, 2023, 2022 and 2021 (before intersegment eliminations).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | % | | 2022 vs 2021 | | % |
Revenues | 235,544 | | — | | — | | 235,544 | | — | % | | n.m. | | n.m. |
Adjusted EBIT | (1,741) | | — | | — | | (1,741) | | — | % | | n.m. | | n.m. |
Adjusted EBIT Margin | (0.7 | %) | | n.m. | | n.m. | | | | | | | | |
Revenues
The Tom Ford Fashion segment, which was acquired through the TFI Acquisition on April 28, 2023, contributed revenues of €235,544 thousand, recognizedincluding €136,291 thousand in the statementDTC channel and €99,240 thousand in the wholesale channel.
Adjusted EBIT and Adjusted EBIT Margin
Following completion of profit and loss in 2019the TFI Acquisition on April 28, 2023, the Tom Ford Fashion segment contributed Adjusted EBIT of €(1,741) thousand with an Adjusted EBIT Margin of (0.7%). Adjusted EBIT was negatively impacted by (i) costs of €17,793 thousand relating to the effects of the acquisition method of accounting for the business acquisition, comprising €14,368 thousand related to the purchase price step up of the fair value of the acquired TFI inventory in 2019 as partthat was sold subsequent to the acquisition, €2,241 thousand related to amortization of the purchase price accountinglicense agreement (which is being amortized for 30 years) and €1,183 thousand of amortization of the intangible asset recognized in relation to the order backlog, and (ii) royalties relating to the TFF License.
Corporate
Corporate includes costs for certain central corporate functions that are not directly attributable to the Group’s operating segments. These corporate costs amounted to €30,423 thousand, €31,861 thousand and €20,911 thousand for the years ended December 31, 2023, 2022 and 2021.
Corporate costs increased significantly following the Company’s public listing in December 2021 and primarily relate to the compensation of the Group’s Board of Directors and costs for functions that are managed centrally on behalf of the entire Group, including general counsel, central finance, internal audit, investor relations, insurance coverage for directors and officers, compliance and certain other centralized activities, such as those related to being a public company, for which the costs are not allocated to the segments. In particular, the significant increase in corporate costs from €20,911 thousand in 2021 to €31,861 thousand in 2022 primarily related to (i) higher costs for insurance coverage of directors and officers, (ii) higher costs to strengthen the Group’s corporate governance and develop certain Group functions, including general counsel, internal audit, investor relations and finance, and (iii) higher compliance costs and listing fees directly related to being a public company. Certain other costs to reinforce the corporate governance and certain functions within the Group are directly attributable to individual segments and were allocated accordingly to the Zegna segment and Thom Browne acquisition,segment, as further described in “—Zegna segment” and partially offset by (iii) cost increase related to DTC network expansion (ten new store openings in 2020, following thirteen new stores opened in 2019.
“—Thom Browne segment” above.
Table of Contents
B. Liquidity and Capital Resources
Zegna’sThe Group’s principal sources of liquidity are cash flows from operations, borrowings available under bank credit lines and other forms of indebtedness, as well as available cash and cash equivalents.
ZegnaThe Group requires liquidity in order to meet its obligations and fund its business. Short-term liquidity is required to fund ongoing cash requirements, including to purchase raw materials, consumables and goods for production,
to pay personnel costs, as well as to fund costs for services and other expenses. In addition to its general working capital and operational needs,
Zegnathe Group uses significant amounts of cash for the following purposes: (i) capital expenditures to support its existing and future commercial network and production facilities, (ii) principal and interest payments under its financial obligations, (iii) acquisitions, and (iv) returns of capital, including share repurchases and other corporate activities.
ZegnaThe Group makes capital investments primarily
related tofor the opening of new stores or the renovation of existing stores, as well as
for initiatives to
enhance and adapt
its production facilities to
new technologies and emerging
needs. In connection with theCOVID-19
crisis, Zegna has taken several measuresneeds and to
preserve its liquidity as described above (see “—Trends, Uncertainties and Opportunities
”). Zegnaupgrade information technology systems. The Group believes its cash generation together with its available liquidity will be sufficient to meet its obligations and fund its business and capital expenditures for the foreseeable future.
Starting in 2022 the Group has implemented a funding strategy with the aim of reducing the cost of financing while continuing to ensure the Group has adequate access to liquidity to meet its financial commitments and guarantee flexibility for its operations and any expansion initiatives. In line with this strategy, the Group has replaced a portion of its short-term debt maturities with new bilateral committed revolving credit facilities that may be drawn down by the Group at any time during the relevant term. Additionally, the Group has disposed of a significant portion of its financial asset securities holdings. In particular, in 2023 the Group disposed of securities (primarily investments in insurance contracts, fixed income and hedge funds) amounting to €267,826 thousand for proceeds of €270,317 thousand that the Group primarily used to finalize the TFI Acquisition and for capital expenditures, as well as to repay borrowings.
Year ended December 31, 2021 compared to the year ended December 31, 2020 and year ended December 31, 2020 compared to the year ended December 31, 2019
The following table summarizes the cash flows
provided by/from or used in operating, investing and financing activities for each of the years ended December 31,
2021, 20202023, 2022 and
2019. Refer2021. For additional information relating to the Group’s cash flows refer to the consolidated cash
flowsflow statement and accompanying notes to the
Consolidated Financial Statements
included elsewhere in this annual report on Form
20-F
for additional information. 20-F. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31 | Increase/(Decrease) |
(€ thousands) | 2023 | | 2022 | | 2021 | | 2023 vs 2022 | | 2022 vs 2021 |
Net cash flows from operating activities | 275,382 | | 146,398 | | 281,155 | | 128,984 | | (134,757) |
Net cash flows from/(used in) investing activities | 21,786 | | (57,335) | | (82,004) | | 79,121 | | 24,669 |
Net cash flows used in financing activities | (250,494) | | (296,997) | | (64,105) | | 46,503 | | (232,892) |
Effects of exchange rate changes on cash and cash equivalents | (4,716) | | 2,464 | | 7,454 | | (7,180) | | (4,990) |
Net increase/(decrease) in cash and cash equivalents | 41,958 | | (205,470) | | 142,500 | | 247,428 | | (347,970) |
Cash and cash equivalents at the beginning of the year | 254,321 | | 459,791 | | 317,291 | | (205,470) | | 142,500 |
Cash and cash equivalents at end of the year | 296,279 | | 254,321 | | 459,791 | | 41,958 | | (205,470) |
| | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | | | | | |
| | | | | | | | | | | | | | | |
Net cash flows from operating activities | | | 281,155 | | | | 70,906 | | | | 174,122 | | | | 210,249 | | | | (103,216 | ) |
Net cash flows (used in)/from investing activities | | | (82,004 | ) | | | 92,572 | | | | 83,961 | | | | (174,576 | ) | | | 8,611 | |
Net cash flows used in financing activities | | | (64,105 | ) | | | (49,052 | ) | | | (267,486 | ) | | | (15,053 | ) | | | 218,434 | |
Effects of exchange rate changes on cash and cash equivalents | | | 7,454 | | | | (7,761 | ) | | | 1,698 | | | | 15,215 | | | | (9,459 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase/(decrease) in cash and cash equivalents | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at the beginning of the year | | | 317,291 | | | | 210,626 | | | | 218,331 | | | | 106,665 | | | | (7,705 | ) |
Cash and cash equivalents at end of the year | | | 459,791 | | | | 317,291 | | | | 210,626 | | | | 142,500 | | | | 106,665 | |
Net cash flows from operating activities
20212023 compared to 20202022
Net cash flows from operating activities increased by 210,249 thousandamounted to €281,155€275,382 thousand in 2021 from €70,9062023 compared to €146,398 thousand in 2020.2022. The increasepositive change of €128,984 thousand between periods was primarily attributable to:
to the combined effects of:(i)an increase in Adjusted EBITprofit excluding non-cash items of €129,102€128,611 thousand (see“—Non-IFRS
Financial Measures’’for important information onnon-IFRS
measures)(€500,423 thousand in 2023 compared to €371,812 thousand in 2022); (ii)€33,87517,737 thousand from a positive change in cash flowsflow from Trade Working Capital, consistingother operating assets and liabilities (cash used of €69,911€20,479 thousand in 2023 compared to cash used of €38,216 thousand in 2022); and
(iii)€22,382 thousand relating to the positive change in current and non-current provisions for risks and charges, which was primarily due to payments of €27,980 thousand in 2022 to settle claims relating to lease agreements;
partially offset by:
(i)€36,898 thousand from thea negative change in cash flows used by inventories, trade receivables and trade payables includingand customer advances, driven by higher volumesincluding the effects of TFI following the TFI Acquisition (cash absorbed of €112,122 thousand in 20212023 compared to 2020, which was impacted by theCOVID-19
pandemic, and €11,932€75,224 thousand from the changein 2022). In 2023, cash used in inventories, partially offset by €47,969 thousand from the change in trade receivables reflectingand trade payables of €112,122 thousand includes (a) €72,770 thousand relating to inventories (reflecting also higher raw materials and finished products in order to support the growth of the business, including the build up of inventory of the Essentials collections in line with the ZEGNA One Brand strategy and the classic collections of Thom Browne), and (b) €51,022 thousand relating to an increase in trade receivables, drivenpartially offset by (c) €11,670 thousand relating to an increase in trade payables and customer advances; and (ii)higher volumes;
taxes paid of €4,730 thousand (€53,988 thousand in 2023 compared to €49,258 thousand in 2022).2022 compared to 2021
Net cash flows from operating activities amounted to €146,398 thousand in 2022 compared to €281,155 thousand in 2021. The negative change of €134,757 thousand between periods was primarily attributable to the combined effects of: (i)€30,00477,143 thousand from a positivenegative change in cash flows from other operating assets and liabilities
higher taxes paid (cash used of €26,875€38,216 thousand
2020 in 2022 compared to 2019
cash generated of €38,927 thousand in 2021). The change in other operating assets and liabilities in 2022 includes payments of: (a) €29,805 thousand relating to net payments of VAT, (b) €10,923 thousand for a special gift to all employees of the Group as a result of the Company’s listing completed on December 20, 2021 (which was reimbursed by Monterubello), and (c) €6,700 thousand to prepay certain expenses;Net(ii)€66,802 thousand from a negative change in cash flows used by inventories, trade receivables and trade payables (cash absorbed of €75,224 thousand in 2022 compared to €8,422 thousand in 2021). In 2022, cash flows from operating activities decreased by €103,216inventories, trade receivables and trade payables and customer advances of €75,224 thousand to €70,906includes (a) €103,112 thousand in 2020 from €174,122 thousand in 2019. The decrease was primarily attributable to:
a decrease in profit/(loss) for the year prior to income taxes, financial income, financial expenses, exchange gains/losses and depreciation, amortization and impairment of assets, mainly driven by the adverse impacts of theCOVID-19
pandemic, including the temporary suspension of production and stores closures mainly during the first half of 2020;higher inventories of €39,486 thousand in 2020 related to unsold stock due toCOVID-19
adverse effect on Zegna sales (comparedrelating to an increase in inventories,
primarily to support the growth in sales and higher overall activity levels, also reflecting the Group’s decision to maintain higher levels of
€5,400raw materials in order to mitigate the risk of any supply chain disruptions, as well as higher inventory levels of finished products driven by the new Essentials collections in line with the ZEGNA One Brand strategy, as well as higher levels of finished products held in the Greater China Region as a result of temporary store closures in the fourth quarter of 2022 as a consequence of COVID-19-related restrictions, (b) €15,623 thousand relating to an increase in trade receivables, partially offset by (c) €43,511 thousand relating to an increase in trade payables and customer advances; and(iii)€23,604 thousand relating to the negative change in current and non-current provisions for risks and charges, which was primarily due to payments of €27,980 thousand in 2019); and
lower trade payables including customer advances due2022 to contraction of the activities;settle claims relating to lease agreements;
a decrease in trade receivables(i)an increase profit excluding non-cash items of €35,675€21,421 thousand (€371,812 thousand in 2020, driven by lower revenue volumes especially in the wholesale channel,2022 compared to an increase of €8,377€350,391 thousand in 2019.
2021); and(ii)lower taxes paid of €14,042 thousand (€49,258 thousand in 2022 compared to €63,300 thousand in 2021).
Net cash flows from/(used in) investing activities
2023 compared to 2022
Net cash flows from investing activities amounted to €21,786 thousand in 2023 compared to net cash flows used in investing activities of €57,335 thousand in 2022. The positive change of €79,121 thousand between periods was primarily attributable to the combined effects of:
(i)higher proceeds from disposals of current financial assets and derivative instruments of €223,830 thousand (proceeds of €270,317 thousand in 2023 compared to 2020proceeds of €46,487 thousand in 2022) in line with actions taken by the Group to dispose of financial asset securities holdings primarily to fund the TFI Acquisition and capital expenditures, as well as repay borrowings; and
(ii)lower payments for investments in intangible assets of €3,342 thousand (€20,843 thousand in 2023 compared to €24,185 thousand in 2022. For additional information relating to the Group’s investments see “—Capital Expenditure”;
partially offset by:
(i)net cash outflows of €109,110 thousand related to the TFI Acquisition which was completed on April 28, 2023, €7,991 thousand related to the acquisition of the Thom Browne business in South Korea which was completed on July 1, 2023 and €585 thousand related to the earn-out payment for the acquisition of Tessitura Ubertino. For additional information relating to the these acquisitions, see Note 39 — Business combinations within the Consolidated Financial Statements included elsewhere in this annual report on Form 20-F;
(ii)payments of €6,580 thousand for the acquisition of a 25% interest in Norda Run Inc. (“Norda”), €4,656 thousand for the acquisition of a 15% interest in Luigi Fedeli e Figlio S.r.l. and €4,500 thousand for a capital contribution to Filati Biagioli Modesto S.p.A.. For additional information relating to the these transactions, see Note 17 — Investments accounted for using the equity method within the Consolidated Financial Statements included elsewhere in this annual report on Form 20-F;
(iii)higher payments for investments in property, plant and equipment of €7,920 thousand (€57,034 thousand in 2023 compared to €49,114 thousand in 2022. For additional information relating to the Group’s investments see “Item 5.B—Liquidity and Capital Resources—Capital Expenditure”; and
(iv)higher payments for acquisitions of current financial assets and derivative instruments of €4,544 thousand (payments of €36,956 thousand in 2023 compared to payments of €32,412 thousand in 2022.
2022 compared to 2021
Net cash flows used in investing activities amounted to €57,335 thousand in 2022 compared to €82,004 thousand in 2021 compared to net cash flows from investing activities of €92,572 thousand in 2020, representing a2021. The positive change of €174,576€24,669 thousand between periods was primarily attributable to: (i) lower net proceeds of €70,904 thousand fromto the disposal of current financial assets and derivative instruments (€15,963 thousand in 2021 compared to €86,867 thousand in 2020), (ii) highercombined effects of:
(i)lower payments for investments in property, plant and equipment of €52,069€30,585 thousand (€79,69949,114 thousand in 2022compared to €79,699 thousand in 2021, including €45,817 thousand forwhich included €46 million related to the purchase of a building in London which wasand €6 million primarily related to the renovation of a building in 61 W 23rd street in New York, that were subsequently part of the Disposition compared to €27,630 thousandcompleted in 2020) and (iii) November 2021);
(ii)lower proceeds from disposals ofnet payments for non-current
financial assets of €44,443€5,369 thousand driven by the receipt(net proceeds of the full repayment€2,474 thousand in 2020 of a loan granted to Tom Ford for a total of €40,824 thousand. 20202022 compared to 2019
Net cash flows from investing activities increased by €8,611 thousand from €83,961net payments of €2,895 thousand in 2019 to €92,572 thousand in 2020. The increase was primarily attributable to (i) higher proceeds from disposals of2021);
non-current
financial assets for €45,979 thousand driven by the full repayment in February 2020 of the loan granted to Tom Ford for a total of €40,824 thousand, including accrued interest, (ii) lower investments in property plant and equipment of €18,483 thousand as a result of Zegna’s measures to preserve liquidity in connection withCOVID-19
pandemic, and (iii)lower cash outflows for business combinations of €7,091€3,639 thousand (€585 thousand in 2022 compared to €4,224 thousand in 2021);partially offset by:
(i)higher investments in intangible assets of €9,558 thousand (€24,185 thousand in 2022 compared to €14,627 thousand in 2021), mainly driven by the impact of the acquisition of Dondiinvestments in 2019,information technology related to a business transformation project focused on reviewing and (iv) evolving order to cash, logistics and distribution, retail operations and point-of-sale processes; and
(ii)lower payments for purchases ofnon-current
financial assets of €6,987 thousand, partially offset by (v) lowernet proceeds from disposals of current financial assets and derivative instruments for €74,221 thousand.of €1,888 thousand (net proceeds of €14,075 thousand in 2022 compared to net proceeds of €15,963 thousand in 2021).
Net cash flow used in financing activities
20212023 compared to 2020
2022Net cash flows used in financing activities for the year ended December 31, 2021 amounted to €64,105€250,494 thousand in 2023 compared to €49,052€296,997 thousand in 2020.2022. The increasepositive change of €46,503 thousand between periods was primarily attributable to the combined effects of:
(i)lower net repayments of borrowings of €57,993 thousand (net repayments of €101,726 thousand in 2023 compared to €159,719 thousand in 2022).
(ii)€4,409 thousand of proceeds in 2023 from warrant holders exercising 408,667 warrants at an exercise price of $11.50 per ordinary share exchanged;
partially offset by:
(i)higher payments of lease liabilities of €4,099 thousand (€125,732 thousand in 2023 compared to €121,633 thousand in 2022) primarily driven by lease contracts for new store openings, including the contribution of TOM FORD FASHION, partially offset by the termination of certain lease contracts in APAC; and
(ii)lower capital contributions as a result of €10,923 thousand received in 2022 from the reimbursement to the Group by Monterubello of a special gift to all employees of the Group, as a result of the Company’s listing completed on December 20, 2021;
(iii)higher dividends paid to owners of the parent of €3,179 thousand (€25,031 thousand in 2023 compared to €21,852 thousand in 2022); and
(iv)higher dividends paid to non-controlling interests of €1,881 thousand (€6,068 thousand in 2023 compared to €4,187 thousand in 2022);
2022 compared to 2021
Net cash flows used in financing activities amounted to €296,997 thousand in 2022 compared to €64,105 thousand in 2021. The negative change of €232,892 thousand between periods was primarily attributable to the combined effects of:
(i)cash proceeds received in 2021 of €138,649 thousand relating to the Business Combination, as further described below;
(ii)higher net repayments of borrowings of €123,079 thousand (€159,719 thousand in 2022 compared to €36,640 thousand in 20212021), in line with our funding strategy. For additional information relating to our funding strategy see “—Trends, Uncertainties and Opportunities—Funding strategy”;
(iii)higher payments of lease liabilities of €21,022 thousand (€121,633 thousand in 2022 compared to net proceeds from borrowings of €44,323€100,611 thousand in 2020, 2021) driven by new lease contracts for new store openings and the use of certain assets previously owned by the Group that are now leased from third parties subsequent to the Disposition (which was completed on November 1, 2021), as well as a payment of €5,013 thousand in the first half of 2022 to early terminate a lease contract related to a DTC store in Japan;
(iv)higher dividends paid to owners of the parent of €21,750 thousand (€21,852 thousand in 2022 compared to €102 thousand in 2021); and
(v)higher dividends paid to non-controlling interests of €3,639 thousand (€4,187 thousand in 2022 compared to €548 thousand in 2021);
partially offset by:
(i)proceeds of €10,923 thousand in 2022 from the reimbursement to the Group by Monterubello of a special gift to all employees of the Group, as a result of the Company’s listing completed on December 20, 2021; and
(ii)the effects of cash outflows in 2021 for (a) payments of €40,253 thousand for the acquisition ofnon-controlling
interests in 2021 (€30,653 thousand for the acquisition of an additional 5% interest inof the Thom Browne Group in 2021 based on the first tranche of the put option on non-controlling interests, bringing the Group’s ownership in the Thom Browne Group to 90% and €9,600 thousand for the acquisition of an additional 10% interest in Lanificio), (iii) the(b) cash distributed as part of the Disposition for €26,272 thousand in 2021 and (iv) higher payments of lease liabilities of €9,912 thousand reflecting new store openings and lower rent reductions received as a result ofCOVID-19€26,272 thousand.
pandemic, partially offset by the net cash proceeds from the Business Combination of €138,649 thousand. The following table shows a breakdown of the net cash proceeds in 2021 from the business combination:
Business Combination: | | | | | |
| | | |
Proceeds from issuance of ordinary sharesOrdinary Shares upon Business Combination | | | 310,739 | |
Proceeds from issuance of ordinary sharesOrdinary Shares to PIPE Investors | | | 331,385 | |
Purchase of own shares from Monterubello | | | (455,000 | ) (455,000) |
Payments of transaction costs related to the Business Combination | | | (48,475 | ) (48,475) |
| | | | |
Net cash proceeds from the Business Combination | | | | |
Net cash flows used in financing activities decreased by €218,434 thousand from €267,486 thousand in 2019 to €49,052 thousand in 2020. The decrease in cash flows used in financing activities was primarily attributable to (i) higher proceeds of borrowings of €134,511 thousand, (ii) lower repayments of borrowings of €51,822 thousand, (iii) lower payments for lease liabilities for €19,761 mainly as a result of lease renegotiation and rent reductions to faceCOVID-19
pandemic and (iv) €13,191 lower dividend payments as a measure to preserve Zegna group liquidity in connection with theCOVID-19
pandemic.
Capital expenditure is defined as the sum of cash outflows that result in additions to property, plant and equipment and intangible assets.
The following table shows a breakdown of capital expenditure by category for each of the years ended December 31, 2021, 20202023, 2022 and 2019:
2021: | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
Payments for property, plant and equipment | 57,034 | | 49,114 | | 79,699 |
Payments for intangible assets | 20,843 | | 24,185 | | 14,627 |
Capital expenditure | 77,877 | | 73,299 | | 94,326 |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | |
Payments for property, plant and equipment | | | 79,699 | | | | 27,630 | | | | 46,113 | |
Payments for intangible assets | | | 14,627 | | | | 11,524 | | | | 13,392 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Capital expenditure for the years ended December 31, 2023, 2022, 2021 2020was €77,877 thousand, €73,299 thousand and 2019 was €94,326 thousand, €39,154 thousand and €59,505 thousand, respectively.
In 2021, payments for property, plant and equipment included €46 million related to the purchase of a building in London that was subsequently part of the Disposition.
The majority of the Group’s othermain capital expenditure primarily relates to investments are related toin our store network development (new store openings, store renewals or relocations, maintenance or maintenance) andfranchising contributions), which amounted to €26€48 million, €19€43 million and €39€26 million for the years ended December 31, 2023, 2022 and 2021, 2020 and 2019, respectively.
The investmentsfollowing table presents capital expenditure to develop our store network split by segment:
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ millions) | 2023 | | 2022 | | 2021 |
Zegna | 41 | | 35 | | 21 |
Thom Browne | 6 | | 8 | | 5 |
Tom Ford Fashion | 1 | | n.a.(*) | | n.a.(*) |
Capital expenditure related to the store network | 48 | | 43 | | 26 |
___________________________________(*) “n.a.” as the Group began operating the Tom Ford Fashion segment following the TFI Acquisition, which was completed on April 28, 2023.
Investments in this area for the year ended December 31, 2021 were mostlyour store network in APAC and amounted to €21 million for the Zegna segment network (of which €8 millionprimarily related to new store openings, €11 million related to relocations, renewals or remodeling across all regions in line with the ZEGNA One Brand strategy:
•in 2023 in New York (three stores), Beverly Hills and renewalsAtlanta in the United States, Beijing, Nanjing, Wuhan, Nanning and €2 million for other investments)Taipei in the Greater China Region, Porto, St. Moritz, Courchevel and €5 million forCopenhagen in Europe, Dubai and Kuwait City in the Middle East;
•in 2022 in Chengdu, Jinan, Fuzhou, and Lanzhou in the Greater China Region, the new Ginza store in Tokyo, Japan, Palm Beach in the United States and Madrid in Spain; and
•in 2021 in Shanghai and Chengdu in the Greater China Region, Rome and Prague in Europe and Boston in the United States.
Investments in our store network in Thom Browne segment primarily related toto:
•in 2023 in APAC, with new openings
in Wuhan, Shenzhen, Harbin and Jinan in Greater China Region, Nagoya and Yokohama in Japan;•in 2022 in APAC, with new openings in Shanghai, Beijing, Guangzhou, Tianjin, Nanjing, Chengdu, Chongqing and Zhengzhou; and
•in 2021 in APAC and Europe, with new openings in the Greater China Region (Shanghai, Shenzhen, Xiamen, Ningbo, Qingdao, Changsha and Tianjin), in the UK (Harrods stores in London) and in Italy (Sant’Andrea store in Milan).
Investments in our store network in the Tom Ford Fashion segment primarily related to store opening of New York Saks 5th Avenue in the United States and Hyundai Main store in Seoul in South Korea.
Other relevant investments for the periods presented mainly related to (i) the production area for both apparel and textile for €4€10 million, €5€8 million and €8€4 million for the years ended December 31, 2023, 2022 and 2021, 2020respectively, (mainly for property, plant and 2019, respectively,equipment), and (ii) the information technology area for €7€13 million, €8€16 million, and €9€7 million for the years ended December 31, 2021, 20202023, 2022 and 2019, respectively and (iii) the real estate area (which was subsequently disposed of as part of the Disposition), for €6 million, €5 million and €2 million for the years ended December 31, 2021, 2020 and 2019, respectively and primarily related to the renovation of a building in 61W23rd street in New York.
The most relevant investments in information technology werefor intangible assets related to a
digital and business transformation
project focused on reviewing and evolving order to cash, logistics and distribution, retail operations andprocesses and amounted to €8 million, of which €3 million, €2 million and €3 million for the years ended December 31, 2021, 2020 and 2019, respective. This business transformation is still in progress at the date of this annual report on Form20-F
and additional investments will be required in future periods.projects.The following table summarizes payments due underFor information on our significant contractual commitments at December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | | |
| | Carrying amount at December 31, 2021 | | |
| | |
| | |
| | | | |
Derivative financial instruments | | | 14,138 | | | | 14,138 | | | | — | | | | — | | | | — | |
Trade payables and customer advances | | | 223,037 | | | | 223,037 | | | | — | | | | — | | | | — | |
| | | 628,938 | | | | 161,550 | | | | 283,736 | | | | 135,541 | | | | 56,414 | |
| | | 438,052 | | | | 112,713 | | | | 98,101 | | | | 69,827 | | | | 186,951 | |
Other current and non-current financial liabilities | | | 201,371 | | | | 33,984 | | | | 29,816 | | | | — | | | | 137,571 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
2023 and 2022, see Note 27 — Borrowings and Note 35 — Qualitative and quantitative information on financial risks to the Consolidated Financial Statements included elsewhere in this annual report on Form 20-F.
Net Financial Indebtedness/(Cash Surplus)
Net Financial Indebtedness/(Cash Surplus) is defined as the sum of financial borrowings (current andnon-current),
and derivative financial instruments and bonds, loans and certain other financialinstrument liabilities, (recorded within othernon-current
financial liabilities in the consolidated statement of financial position), net of cash and cash equivalents, derivative financial instrumentsinstrument assets, securities and certainfinancial receivables (recorded within other current financial assets.assets in the consolidated statement of financial position). Net Financial Indebtedness/(Cash Surplus) is anon-IFRS
financial measure. See“—Non-IFRS
Financial
Measures’’ Measures”for important information onrelating to non-IFRS
financial measures. Zegna’sThe Group’s management believes that Net Financial Indebtedness/(Cash Surplus) is useful to monitor the level of net liquidity and financial resources available to
Zegna. Zegna’sthe Group. The Group’s management believes this
non-IFRS
financial measure aids management, investors and analysts to analyze
Zegna’sthe Group’s financial position and financial resources available, and to compare
Zegna’sthe Group’s financial position and financial resources available with that of other companies.
The following table sets forth the calculation of Net Financial Indebtedness/(Cash Surplus) for the years endedat December 31, 20212023 and 2020:
2022: | | | | | | | | |
| | | |
| | | | | | |
| | | 471,646 | | | | 558,722 | |
| | | 157,292 | | | | 106,029 | |
Derivative financial instruments - Liabilities | | | 14,138 | | | | 13,192 | |
Other non-current financial liabilities (bonds and other) (*) | | | 7,976 | | | | 8,065 | |
| | | | | | | | |
Total borrowings, other financial liabilities and derivatives | | | | | | | | |
Cash and cash equivalents | | | (459,791 | ) | | | (317,291 | ) |
Derivative financial instruments - Assets | | | (1,786 | ) | | | (11,848 | ) |
Other current financial assets (securities) ( ** ) | | | (334,244 | ) | | | (350,163 | ) |
| | | | | | | | |
Total cash and cash equivalents, other current financial assets and derivatives | | | | | | | | |
| | | | | | | | |
Net Financial Indebtedness/(Cash Surplus) | | | | | | | | |
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Non-current borrowings | 113,285 | | 184,880 |
Current borrowings | 289,337 | | 286,175 |
Derivative financial instruments — Liabilities | 897 | | 2,362 |
Total borrowings, other financial liabilities and derivatives | 403,519 | | 473,417 |
Cash and cash equivalents | (296,279) | | (254,321) |
Derivative financial instruments — Assets | (11,110) | | (22,454) |
Other current financial assets(1) | (85,320) | | (318,795) |
Total cash and cash equivalents, other current financial assets and derivatives | (392,709) | | (595,570) |
Net Financial Indebtedness/(Cash Surplus) | 10,810 | | (122,153) |
___________________________________ | Includes only the bonds and other components of the “Othernon-current
financial liabilities” line item from Zegna’s consolidated statement of financial position. |
| Includes only the securities component of the “Other current financial assets” line item from Zegna’s consolidated statement of financial position.
|
(1)Includes (i) the Group’s investments in securities amounting to €85,320 thousand and €316,595 thousand at December 31, 2023 and 2022, respectively, and (ii) a financial receivable from Filati Biagioli Modesto S.p.A., an associated company of the Group of €2,200 thousand at December 31, 2022. In July 2023, the receivable was converted to equity as a capital contribution.
Net Financial Indebtedness/(Cash Surplus) amounted to €(144,769)€10,810 thousand at December 31, 20212023 compared to Net Financial Indebtedness/(Cash Surplus) of €6,706€(122,153) thousand at December 31, 2020,2022, primarily reflecting disposals of a changesignificant portion of €151,475 thousand that was mainly duethe Group’s financial asset securities holdings, the proceeds of which were primarily used to (i) an increase in cashfinalize the TFI Acquisition and cash equivalents of €142,500 thousand and (ii) net repayments of borrowings (current andnon-current)
of €36,640 thousand, partially offset by a decrease of €15,919 thousand in securities held by the Group. The increase in cash and cash equivalents was primarily driven by net cash flows from operating activities of €281,155 thousand, partially offset by net cash flows used in investing activities of €82,004 thousand and net cash flows used in financing activities of €64,105 thousand.for capital expenditures, as well as to repay borrowings. For additional information relating to the increasechange in cash and cash equivalents see. The main components of Net Financial Indebtedness/(Cash Surplus) are further explained below.
ZegnaThe Group enters into and manages debt facilities centrally in order to satisfy the short and medium-term needs of each of its subsidiaries based on criteria of efficiency and cost-effectiveness. ZegnaThe Group has historically entered into and maintained with a diversified pool of lenders a total amount of bilateral committed credit lines that is considered consistent with its needs and suitable to ensure at any time the liquidity needed to satisfy and comply with all of its financial commitments, as well as guaranteeing an adequate level of operational flexibility for any expansion programs. With the aim of reducing the cost of financing while continuing to ensure the Group has adequate access to liquidity to meet its financial commitments and guarantee flexibility for its operations and any expansion programs, starting in 2022 the Group has replaced a portion of its 2022 and 2023 debt maturities with new bilateral committed revolving credit facilities that may be drawn down by the Group at any time during the relevant term. As a result, the Group has reduced and will continue to reduce its borrowings, primarily through the use of cash and the disposal of certain financial investments held by the Group.
The key interest rate terms of Zegna’s credit facilitiesthe Group’s borrowings and the amount outstanding at December 31, 20212023 are shownpresented in the tables below in thousandsbased on their maturity dates.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | Interest rates (bps) | | Amount | | Within 1 year | | Between 1 and 2 years | | Between 2 and 3 years | | Between 3 and 4 years | | Beyond 4 years |
Fixed | 0.00% - 2.20%(1) | | 120,734 | | 73,123 | | 34,859 | | 4,669 | | 4,031 | | 4,052 |
Variable | 0.05% - 3.09%(1) | | 281,888 | | 216,214 | | 50,118 | | 15,001 | | 555 | | |
Total | | | 402,622 | | 289,337 | | 84,977 | | 19,670 | | 4,586 | | 4,052 |
(1)Represents the spread over the variable component of Euros, unless otherwise indicated.the interest rate, which is generally based on Euribor, and includes certain preexisting borrowings of TFI, which was acquired on April 28, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | | | |
| | | 0.00% - 1.25% (*) | | | | 210,685 | | | | 75,013 | | | | 85,007 | | | | 4,618 | | | | 33,978 | | | | 12,069 | |
| | | 0.60% - 1.75% (*) | | | | 418,253 | | | | 82,279 | | | | 196,041 | | | | 129,934 | | | | 9,999 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The key interest rate terms of the Group’s borrowings and the amount outstanding at December 31, 2022 are presented in the tables below based on their maturity dates.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands, except percentages) | Interest rates (bps) | | Amount | | Within 1 year | | Between 1 and 2 years | | Between 2 and 3 years | | Between 3 and 4 years | | Beyond 4 years |
Fixed | 0.00% - 0.90%(1) | | 135,640 | | 85,447 | | 4,150 | | 33,975 | | 3,994 | | 8,074 |
Variable | 0.60% - 1.48%(1) | | 335,415 | | 200,728 | | 133,267 | | 1,420 | | — | | — |
Total | | | 471,055 | | 286,175 | | 137,417 | | 35,395 | | 3,994 | | 8,074 |
* | Represents the spread over the variable component of the interest rate, which is generally based on Euribor.
|
(1)Represents the spread over the variable component of the interest rate, which is generally based on Euribor.
At December 31, 2023, the Group has committed revolving lines amounting to an aggregate of €335 million with a maturity ranging between 5 to 7 years (€240 million at December 31, 2022 with a maturity of 7 years). A portion of the committed revolving lines (€190 million) have interest rates linked to the following two important Environment, Social and Governance (“ESG”) targets previously disclosed by the Group: (i) at least 50% of top priority raw materials are traced to their geography of origin and from lower-impact sources by 2026; and (ii) 100% of the electricity is from renewable sources in Europe and the United States by 2024. The lines were drawn down for €40 million at December 31, 2023 (undrawn at December 31, 2022).
For additional information seeto theConsolidated Financial Statements
included elsewhere in this annual report on Form20-F.
Certain of
Zegna’sthe Group’s borrowings
and revolving lines are subject to financial covenants requiring
Zegnathe Group to maintain a ratio of Net Financial Indebtedness to
Adjusted EBITDA
equal or lower than
3.03.0x (calculated on an annual basis based on
definitionsa definition of Adjusted EBITDA specified in the related agreements, which
may differ from the similarly named
non-IFRS
measures financial measure included elsewhere in this annual
report on Form20-F)report),
as well as negative pledges, pari passu, cross-default and change of control clauses. Failure to comply with these covenants may require
Zegnathe Group to fully repay
on demand the outstanding
amounts.amounts on demand. At December 31,
2021 Zegna2023 and at December 31, 2022, the Group had
a Net Financial
(CashIndebtedness/(Cash Surplus)
to EBITDA (calculated based onof €10,810 thousand and €(122,153) thousand (the latter representing excess cash over indebtedness), respectively, and therefore the
related borrowing agreements). At December 31, 2020 Zegna hadratio of Net Financial Indebtedness to
Adjusted EBITDA
(calculated based onwas, respectively, 0.04x and (0.6)x, and the
related borrowing agreements) of 0.2, therefore ZegnaGroup was in compliance with
this covenant. Additionally, at December 31, 2021 and 2020 Zegna was in compliance with all otherthe covenants.
Derivative financial instruments
ZegnaThe Group enters into certain derivative contracts in the course of its risk management activities, primarily to hedge the interest rate risk on its bank debt and the currency risk on sales made in currencies other than the Euro. ZegnaThe Group only enters into these contracts for hedging purposes as Zegna’sthe Group’s financial management policy does not permit trading in financial instruments for speculative purposes. Derivative financial instruments meeting the hedge requirements of IFRS 9 — Financial Instruments (“IFRS 9”) are accounted for using hedge accounting. Changes in the fair value of derivative financial instruments not qualifying for hedge accounting are recognized in profit or loss in the relevant reporting period. The interest rate and currency derivatives used by Zegnathe Group are over the counter (OTC)(“OTC”) instruments, meaning those negotiated bilaterally with market counterparties, and the determination of their current value is based on valuation techniques that use input parameters (such as interest rate curves, foreign exchange rates, etc.) observable on the market (level 2 of the fair value hierarchy defined in IFRS 13)13 — Fair Value Measurement). Derivatives are measured at fair value each reporting date by taking as a reference the applicable foreign currency exchange rates or the interest rates and yield curves observable at commonly quoted intervals.
The following table sets forth Zegna’sthe Group’s outstanding hedges at December 31, 20212023 and 2020:
2022. | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| At December 31, | | | At December 31, |
| 2023 | | | 2023 | | 2022 |
(€ thousands) | | (€ thousands) | Notional Amount | | Positive Fair Value | | Negative Fair Value | | Notional Amount | | Positive Fair Value | | Negative Fair Value |
Foreign currency exchange risk | | | | | | | | | | | | |
| | | 550,734 | | | | 1,786 | | | | (11,726 | ) | | | 347,679 | | | | 11,848 | | | | (4,918 | ) |
| | | 109,244 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Forward contracts | |
Forward contracts | | 595,819 | | 6,371 | | (897) | | 481,110 | | 13,075 | | (2,362) |
| | | | | | | | | | | | |
| | | 323,816 | | | | — | | | | (2,412 | ) | | | 274,336 | | | | — | | | | (5,515 | ) |
| | | | | | | | | | | | | | | | | | |
Total derivatives – Hedging | | | | | | | | | | | | | | | | | | | | | | | | |
| | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,759 | ) |
Total trading derivatives | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,759 | ) |
| | | | | | | | | | | | | | | | | | |
Interest rate swaps | |
Interest rate swaps | | 133,962 | | 4,739 | | — | | 320,000 | | 9,379 | | — |
Total derivatives instruments - Asset/(Liabilities) | | | | | | | | | | | | | | | | | | | | | | | | | Total derivatives instruments - Asset/(Liabilities) | 729,781 | | 11,110 | | (897) | | 801,110 | | 22,454 | | (2,362) |
For additional information seeNote 26 -21 — Derivative financial instruments
to theConsolidated Financial Statements,
included elsewhere in this annual report on Form20-F.
Othernon-current
financial liabilities (bonds and other)At December 31, 2021 bonds and other related to other loans granted by a minority shareholder of a Zegna subsidiary. In October 2021 the Board of Directors of Zegna decided to early redeem thenon-convertible
debenture loans for the full principal amount of €4,287 thousand and the bonds were fully repaid in November 2021 (the bonds amounted to €4,287 thousand at December 31, 2020).Cash and cash equivalents
The table below sets forth the breakdown of Zegna’sthe Group’s cash and cash equivalents at December 31, 20212023 and 2020.
2022. | (Euro thousands, except percentages) | | | | | | |
| | | | | | | | | | | | |
| At December 31, | | | At December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | | (€ thousands, except percentages) | 2023 | | 2022 | | 2023 vs 2022 | | % |
| | | 1,651 | | | | 535 | | | | 1,116 | | | | 208.6 | % | Cash on hand | 3,275 | | 2,322 | | 953 | | 41.0 | % |
| | | 458,140 | | | | 316,756 | | | | 141,384 | | | | 44.6 | % | Bank balances | 293,004 | | 251,999 | | 41,005 | | 16.3 | % |
| | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | | | | | | | | | | Cash and cash equivalents | 296,279 | | 254,321 | | 41,958 | | 16.5 | % |
ZegnaThe Group may be subject to restrictions which limit its ability to use cash. In particular, cash held in China is subject to certain repatriation restrictions and may only be repatriated as dividends. ZegnaThe Group does not believe that such transfer restrictions have any adverse impacts on its ability to meet liquidity requirements. Cash held in China at December 31, 20212023 amounted to €60,381€22,549 thousand (€43,38824,257 thousand at December 31, 2020)2022). Certain restrictions over cash also exist in Argentina; however, such restrictions do not significantly impact Zegnathe Group as cash held in Argentina amounted to €244€216 thousand at December 31, 20212023 (€265233 thousand at December 31, 2020)2022).
Table of Contents
Other current financial assets (securities)(securities and financial receivables)
The table below sets forth the breakdown of the Group’s securities and financial receivables included within Net Financial Indebtedness/(Cash Surplus), which are recorded within other current financial assets, at December 31, 20212023 and 2020.
2022. | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, | | Increase/(Decrease) |
(€ thousands, except percentages) | 2023 | | 2022 | | 2023 vs 2022 | | % |
Fair value through profit and loss | | | | | | | |
Private equity | 22,399 | | 18,311 | | 4,088 | | 22.3 | % |
Real estate funds | 12,146 | | 12,129 | | 17 | | 0.1 | % |
Private debt | 10,106 | | 13,644 | | (3,538) | | (25.9 | %) |
Hedge funds | 8,995 | | 46,761 | | (37,766) | | (80.8 | %) |
Money market funds | 2,093 | | 2,587 | | (494) | | (19.1 | %) |
Equity | 1,141 | | 14,592 | | (13,451) | | (92.2 | %) |
Insurance contracts | — | | 114,975 | | (114,975) | | (100.0 | %) |
Fixed income | — | | 64,017 | | (64,017) | | (100.0 | %) |
Commodities | — | | 2,727 | | (2,727) | | (100.0 | %) |
Total fair value through profit and loss | 56,880 | | 289,743 | | (232,863) | | (80.4 | %) |
Fair value through other comprehensive income/(loss) | | | | | | | |
Floating income | 16,692 | | 17,742 | | (1,050) | | (5.9 | %) |
Fixed income | 11,748 | | 9,110 | | 2,638 | | 29.0 | % |
Total fair value through other comprehensive income/(loss) | 28,440 | | 26,852 | | 1,588 | | 5.9 | % |
Securities (recorded within other current financial assets) | 85,320 | | 316,595 | | (231,275) | | (73.1 | %) |
Financial receivables(1) (recorded within other current financial assets) | 166 | | 2,224 | | (2,058) | | (92.5 | %) |
Total securities and financial receivables (recorded within other current financial assets) | 85,486 | | 318,819 | | (233,333) | | (73.2 | %) |
(1)Financial receivables relate to a loan granted to Filati Biagioli Modesto S.p.A., an associate company of the Group, in the first half of 2022. The loan was converted to equity as a capital contribution in July 2023.
| | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Fair value through profit and loss | | | | | | | | | | | | | | | | |
| | | 113,919 | | | | 107,188 | | | | 6,731 | | | | 6.3 | % |
| | | 68,947 | | | | 88,011 | | | | (19,064 | ) | | | (21.7 | )% |
| | | 32,898 | | | | 29,073 | | | | 3,825 | | | | 13.2 | % |
| | | 25,408 | | | | 24,843 | | | | 565 | | | | 2.3 | % |
| | | 41,483 | | | | 36,511 | | | | 4,972 | | | | 13.6 | % |
| | | 15,925 | | | | 10,583 | | | | 5,342 | | | | 50.5 | % |
| | | 7,945 | | | | 6,894 | | | | 1,051 | | | | 15.2 | % |
| | | 2,007 | | | | 19,223 | | | | (17,216 | ) | | | (89.6 | )% |
| | | | | | | | | | | | | | | | |
Total fair value through profit and loss | | | | | | | | | | | | | | | | |
Fair value through other comprehensive income | | | | | | | | | | | | | | | | |
| | | 20,687 | | | | 22,663 | | | | (1,976 | ) | | | (8.7 | )% |
| | | 5,025 | | | | 5,174 | | | | (149 | ) | | | (2.9 | )% |
| | | | | | | | | | | | | | | | |
Total fair value through other comprehensive income | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(recorded within other current financial assets) | | | | | | | | | | | | | | | | |
As noted above, in line with the Group’s funding strategy, the Group has disposed of a significant portion of its financial asset securities holdings. In particular, in 2023 the Group disposed of securities (primarily investments in insurance contracts, fixed income and hedge funds) amounting to €267,826 thousand for proceeds of €270,317 thousand that the Group primarily used to finalize the TFI Acquisition and for capital expenditures, as well as to repay borrowings.
Off-Balance
Sheet Arrangements
Zegna hasIn 2020, the Group provided a financial guarantee to Tom Ford (anTFI (which prior to the TFI Acquisition, was an associate of Zegna)the Group) for an amount of $7,500 thousand in relation to its payment obligations under a bank loan for an amount of $7,500 thousand issued to Tom Ford in 2020 and maturing in March 2025.TFI. The financial guarantee was still effectivesubsequently reduced to $6,875 in 2022 and closed in 2023 as part of the datetransactions contemplated by the TFI Acquisition. No amounts were claimed under the guarantee.
As part of this inthe TFI Acquisition, the Group has become a long-term licensee for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products for 20 years with an automatic renewal for one further 10 year period subject to certain minimum performance conditions. As part of the TFF License, the Group is required to pay minimum annual guaranteed royalties for the first 10 years of the TFF License, which at December 31, 2023 amounted to an aggregate of €170.6 million (undiscounted). For the remaining term of the TFF License the minimum annual guaranteed royalties to be paid by the Group will be calculated based on a percentage of the net sales of the preceding annual period. The TFF License also requires the Group to make minimum investments for marketing activities as a percentage of net sales of the licensed products as per customary market practices. For additional information relating to the TFI Acquisition and TFF License, see Note 39 — Business combinations within the Consolidated Financial Statements included elsewhere within this annual report on Form20-F
and no amounts have been claimed under the guarantee. 20-F.
Recent Developments
See Note 44 -to the Consolidated Financial Statements included elsewhere in this annual report onForm 20-F.
| Research and Development, Patents and Licenses
|
Please refer to “Item 4.B. Business—Research and Development
.”Please refer to “Item 5. Operating and Financial Review and Prospects—Trends, Uncertainties and Opportunities
.”
| Critical Accounting Estimates
|
Zegna has selected accounting policies that it believes present fairly its consolidated financial condition and results of operations. These accounting policies are applied in a consistent manner, unless stated otherwise, which will mainly be a result of the application of new accounting pronouncements. For a summary of all of Zegna’s significant accounting policies, refer toSummary of significant accounting policies
to the Consolidated Financial Statements included elsewhere in this annual report on Form20-F.
The preparationC. Research and Development, Patents and Licenses
Please refer to “Item 4.B—Business Overview—Research and Development.”
D. Trend Information
Please refer to “Item 5.A—Operating Results—Trends, Uncertainties and Opportunities.”
E. Critical Accounting Estimates
Please refer to Note 4 — Key sources of consolidated financial statements in accordance with IFRS issued by the International Accounting Standards Board requires management to make estimates, judgments and assumptions in order to determine the carrying amountsestimation uncertainty, use of certain assets, liabilities, income and expense items, as well as certain amounts disclosed in the explanatory notes to the financial statements relating to contingent assets and liabilities. The estimates and assumptions used are those deemed by management to be the most pertinent and accurate in view of Zegna’s circumstances and past experience, based on elements that are known when the financial statements are prepared.
The estimates and underlying assumptions are reviewed periodically and continuously by Zegna’s management. If the items subject to estimates do not perform as assumed, then the actual results could differ from the estimates, which would require adjustment accordingly.
A description of the critical accounting policies which Zegna management believes have the most significant impact on its consolidated financial statements is provided below:
Impairmentjudgments—Use ofnon-current
assets with definite useful livesNon-current
assets with definite useful lives include property, plant and equipment, investment property and intangible assets. Zegna periodically reviews the carrying amount ofnon-current
assets with definite useful lives when events and circumstances indicate that an asset may be impaired. Impairment tests are performed by comparing the carrying amount and the recoverable amount of the CGU. The recoverable amount is the higher of the CGU’s fair value less costs of disposal and its value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using apre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU. For additional information refer toNote 19 - Property, plant and equipment
estimatesto the Consolidated Financial Statements included elsewhere in this annual report on Form20-F.
The calculation of value in usedocument for
property, plant and equipment andassets is most sensitiveinformation relating to the
assumptions relatingcritical accounting estimates applicable to
discount rates, the
growth rates used to extrapolate cash flows beyond the forecast period and the revenue compounded annual rate of growth (“CAGR”).For the year ended December 31, 2021, impairment losses were recognized for DOS assets in the Zegna segment in the amount of €8,692 thousand, of which €6,486 thousand related toassets, €2,168 thousand to property, plant and equipment and €38 thousand related to intangible assets.Based on the impairment test performed over corporate assets for 2021, the headroom amounted to €1,277 million for the Zegna segment and €325 million for the Thom Browne segment.
Group.Recoverability of goodwill and brands with indefinite useful life
In accordance withIAS 36 — Impairment of Assets
, goodwill and brands with indefinite useful life are not amortized and are tested for impairment annually or more frequently if facts or circumstances indicate that the asset may be impaired. The impairment test is performed by comparing the carrying amount and the recoverable amount of the CGU. The recoverable amount of the CGU is the higher of its fair value, less costs of disposal and its value in use. For additional information refer toto the Consolidated Financial Statements included elsewhere in this annual report on Form20-F.
In relation to goodwill, the main assumptions to calculate the recoverable amount are the following:
Terminal value: determined using the perpetuity method at a long-term growth rate which represents the present value, at the last year of projection, of all expected future cash flows;
The growth rate used to calculate the terminal value was 1.5%, which has been determined according to the diverging inflation and GDP outlook in related geographical areas;
The rate used to discount cash flows was calculated using the weighted average cost of capital (WACC). For the year ended December 31, 2021, the WACC used for discounting purposes ranged between 6.40% and 10.65% (between 6.02% and 17.45% at December 31, 2020). The WACC was calculated ad hoc for each CGU subject to impairment, considering the parameters specific to the geographical area: market risk premium and sovereign bond yield.
The calculation of value in use for all CGUs is most sensitive to the following assumptions:
Growth rates used to extrapolate cash flows beyond the forecast period;
EBITDA growth rate over the explicit period of the business plan, which has been assessed taking into consideration the effects of theCOVID-19
pandemic on the 2021 performance of the Group.Based on the impairment test performed over goodwill for 2021, the headroom amounted to €615 million at December 31, 2021 (€430 million at December 31, 2020).
Based on the impairment test performed over intangible assets with an indefinite useful life, which relate to the Thom Browne brand, no impairment was recognized for the years ended December 31, 2010, 2020 and 2019.
Recoverability of deferred tax assets
Non-IFRS Financial MeasuresThe
deferred tax assets are recognized on the premise that it is more likely than not that Zegna will be able to generate sufficient and suitable future taxable profits from which the reversal of the asset can be deducted. If Zegna is unable to generate sufficient taxable profits in certain jurisdictions, or if there is a significant change in the actual effective tax rates or the time period within which the underlying temporary differences become taxable or deductible, Zegna could be required towrite-off
any deferred tax assets, resulting in an increase in its effective tax rate and an adverse impact on future operating results.For additional information refer toto the Consolidated Financial Statements included elsewhere in this annual report on Form20-F.
Fair value of derivatives not traded in an active market is determined using avaluation technique. Where active markets exist for its component parts, then fair value is determined on the basis of the relevant market prices for the component parts.Zegna entered into some business combination agreements granting put options tonon-controlling
interests, for which it recognizes a financial liability corresponding to the present value of the exercise price of the option. The liability is subsequently remeasured at fair value at the end of each period. For additional information refer toOther current andnon-current
financial liabilitiesto the Consolidated Financial Statements included elsewhere in this annual report on Form20-F.
Valuation techniques that are based on significant inputs that are observable are referred to as Level 2 valuations, while those based on techniques that use significant unobservable inputs are referred to as Level 3 valuations. Estimates and assumptions are made with the support of the corporate functions and, where appropriate, of independent specialists, and are regularly reviewed. For additional information refer toDerivative financial instruments
to the Consolidated Financial Statements included elsewhere in this annual report on Form20-F.
Provisions for obsolete inventory
Since Zegna’s products are subject to market trends and changes in fashion trends, product inventories at the end of the season are subject to impairment. Specifically, the provision for obsolete inventory of finished products reflects management’s estimate of the expected impairment losses on the products of the collections of previous seasons, considering the ability to sell them through Zegna’s various distribution channels.
Generally, impairment assumptions involve percentages of impairment that become greater the older the collections are, so as to reflect the decline in selling prices in secondary channels (mainly outlets), and on the other hand, the decrease in the probability of selling them as time goes by.
The provision for obsolete raw materials reflects management’s estimates of the decline in the probability they will be used based on the calculation of slow-moving raw materials.
Provision for risks and charges
Zegna recognizes a liability when facing legal and tax disputes and lawsuits if it believes it is probable that they will require an outflow of financial resources and a reliable estimate can be made of the amount of the potential losses. Given the uncertainty surrounding the outcome of these proceedings, it is hard to reliably estimate the outflow of resources that will be required to settle them, therefore the amount of the provisions for legal and tax disputes may change as a result of future developments in the outstanding proceedings. Zegna monitors the status of ongoing lawsuits and proceedings and consults with its legal advisors as well as legal and tax experts.
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date.establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
For additional information seeNote 41 - Qualitative and quantitative information on financial risks
to the Consolidated Financial Statements included elsewhere in this annual report on Form20-F.
Warrants give the holder the right, but not the obligation, to subscribe to the Company’s shares at a fixed price for a specified period of time and subject to the terms of redemption. Until warrant holders acquire the Company’s ordinary shares upon exercise of such warrants, they will have no rights with respect to the Company’s shares. These instruments, principally due to an option to replace them upon specific events, including share dividends, extraordinary dividends or reorganizations, which results in the Company delivering a variable number of shares, are accounted for as a current financial liability through profit and loss in accordance with the provisions of IAS 32.
Management measured the public warrants at fair value by using the Euro equivalent of the closing price of warrants on the NYSE. Management estimated the fair value of the private warrants by Monte Carlo simulation model, using as key inputs the Company’s share price, risk-free rate, implied public warrant volatility, the warrants’ maturity, and the public warrants’ market price.
Non-IFRS
Financial MeasuresZegna’sGroup’s management monitors and evaluates operating and financial performance using several
non-IFRS
financial measures including: adjusted earnings before interest and taxes (“
Adjusted EBIT”), Adjusted EBIT
”), Margin, adjusted earnings before interest, taxes, depreciation and amortization (“
”EBITDA”), Adjusted
Profit/(Loss),Profit, Adjusted Basic Earnings per Share and Adjusted Diluted Earnings
Perper Share, Net Financial Indebtedness/(Cash Surplus)
and, Trade Working
Capital. Zegna’sCapital, Free Cash Flow, revenues on a constant currency basis (Constant Currency) and revenues on an organic growth basis (Organic Growth). The Group’s management believes that these
non-IFRS
financial measures provide useful and relevant information regarding
Zegna’sthe Group’s financial performance and financial condition, and improve the ability of management and investors to assess and compare the financial performance and financial position of
Zegnathe Group with those of other companies. They also provide comparable measures that facilitate management’s ability to identify operational trends, as well as make decisions regarding future spending, resource allocations and other strategic and operational decisions. While similar measures are widely used in the industry in which
Zegnathe Group operates, the financial measures that
Zegnathe Group uses may not be comparable to other similarly named measures used by other companies nor are they intended to be substitutes for measures of financial performance or financial position as prepared in accordance with IFRS.
A definition, explanation of relevance and a reconciliation of each non-IFRS financial measure to the most directly comparable measure calculated and presented in accordance with IFRS are set out below.Adjusted EBIT is defined as profit or loss before income taxes plus financial income, financial expenses, foreign exchange losses/(gains),losses and the result from investments accounted for using the equity method, impairmentsadjusted for income and costs which are significant in nature and that management considers not reflective of underlying operating activities, including, for one or all of the periods presented and as further described below, transaction costs related to acquisitions, severance indemnities and provisions for severance expenses, legal costs for trademark dispute, costs related to the Business Combination, net impairment of leased and owned stores, special donations for social responsibility, net (income)/costs related to lease agreements and certain other items.
Adjusted EBIT Margin is defined as Adjusted EBIT divided by revenues of the applicable period.
The Group’s management uses Adjusted EBIT and Adjusted EBIT Margin for internal reporting to assess performance and as part of the forecasting, budgeting and decision-making processes as they provide additional transparency regarding the Group’s underlying operating performance. The Group’s management believes these non-IFRS financial measures are useful because they exclude items that management believes are not indicative of the Group’s underlying operating performance and allow management to view operating trends, perform analytical comparisons and benchmark performance between periods and among segments. The Group’s management also believes that Adjusted EBIT and Adjusted EBIT Margin are useful for investors and analysts to better understand how management assesses the Group’s underlying operating performance on a consistent basis and to compare the Group’s performance with that of other companies. Accordingly, management believes that Adjusted EBIT and Adjusted EBIT Margin provide useful information to third party stakeholders in understanding and evaluating the Group’s operating results.
The following table presents a reconciliation of Profit/(Loss) to Adjusted EBIT and the calculation of the Profit/(Loss) Margin and the Adjusted EBIT Margin for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 |
Profit/(Loss) | 135,661 | | 65,279 | | (127,661) |
Income taxes | 33,433 | | 35,802 | | 30,702 |
Financial income | (37,282) | | (13,320) | | (45,889) |
Financial expenses | 68,121 | | 54,346 | | 43,823 |
Foreign exchange losses | 5,262 | | 7,869 | | 7,791 |
Result from investments accounted for using the equity method | 2,953 | | (2,199) | | (2,794) |
Transaction costs related to acquisitions (1) | 6,001 | | 2,289 | | — |
Severance indemnities and provisions for severance expenses (2) | 4,002 | | 2,199 | | 8,996 |
Legal costs for trademark dispute (3) | 2,168 | | 7,532 | | — |
Costs related to the Business Combination (4) | 2,140 | | 2,137 | | 205,059 |
Net impairment of leased and owned stores (5) | 1,782 | | 1,639 | | 8,692 |
Special donations for social responsibility (6) | 100 | | 1,000 | | — |
Net (income)/costs related to lease agreements (7) | (4,129) | | (6,844) | | 15,512 |
Other (8) | — | | — | | 4,884 |
Adjusted EBIT | 220,212 | | 157,729 | | 149,115 |
| | | | | |
Revenues | 1,904,549 | | 1,492,840 | | 1,292,402 |
Profit/(Loss) Margin (Profit/(Loss) / Revenues) | 7.1 | % | | 4.4 | % | | (9.9 | %) |
Adjusted EBIT Margin (Adjusted EBIT / Revenues) | 11.6 | % | | 10.6 | % | | 11.5 | % |
__________________(1)Relates to transaction costs of €6,001 thousand and €2,289 thousand in 2023 and 2022, respectively, primarily for consultancy and legal fees related to the TFI Acquisition and, for 2023 only, also to the acquisition of the Thom Browne business in South Korea and the acquisition of a 25% interest in Norda. These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss.
(2)Relates to severance indemnities of €4,002 thousand, €2,199 thousand and €8,996 thousand in 2023, 2022 and 2021, respectively. These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss.
(3)Relates to legal costs of €2,168 thousand and €7,532 thousand in 2023 and 2022, respectively, in connection with a legal dispute between adidas and Thom Browne, primarily in relation to the use of trademarks. For additional information see “Item 8—Financial Information—Legal Proceedings”. These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss.
(4)Costs related to the Business Combination of €2,140 thousand and €2,137 thousand in 2023 and 2022, respectively, relate to the grant of equity awards to management in 2021 with vesting subject to the public listing of the Company’s shares and certain other performance and/or service conditions. Costs related to the Business Combination in 2021 include:
(a)€114,963 thousand relating to share-based payments for listing services recognized as the excess of the fair value of the Company Ordinary Shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired.
(b)€37,906 thousand for the issuance of 5,031,250 the Company Ordinary Shares to the holders of Class B Shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period.
(c)€34,092 thousand for transaction costs related to the Business Combination incurred by the Group, including costs for bank services, legal advisors and other consultancy fees.
(d)€10,916 thousand for the Zegna family’s grant of a one-time €1,500 gift to each employee of the Group as result of the Company’s listing on NYSE completed on December 20, 2021.
(e)€5,380 thousand relating to grant of performance share units, which each represent the right to receive one ordinary share of the Company, to the Group’s Chief Executive Officer, other directors of the Group, key executives with strategic responsibilities and other employees of the Group, all subject to certain vesting conditions.
(f)€1,236 thousand related to the fair value of private warrants issued, pursuant to the Business Combination, to certain non-executive directors of the Group.
(g)€566 thousand related to the write-off of non-refundable prepaid premiums for directors’ and officers’ insurance.
These amounts are recorded within (i) “selling, general and administrative expenses” for €2,034 thousand, €2,099 thousand and €200,961 thousand in 2023, 2022 and 2021, respectively, (ii) “cost of sales” for €106 thousand, €38 thousand and €4,086 thousand in 2023, 2022 and 2021, respectively, and (iii) “marketing expenses” for €12 thousand in 2021.
(5)Net impairment of leased and owned stores for 2023, 2022, 2021 includes (i) impairment of €832 thousand, €2,369 thousand and €6,486 thousand related to right-of-use assets, respectively, (ii) impairment of €915 thousand, reversals of impairment of €756 thousand and impairment of €2,167 thousand related to property, plant and equipment, respectively, and (iii) impairment of €35 thousand, €26 thousand and €39 thousand related to intangible assets, respectively. These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss.
(6)Relates to donations to support initiatives related to humanitarian emergencies in Turkey in 2023 (€100 thousand) and in Ukraine in 2022 (€1,000 thousand). These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss.
(7)Net (income)/costs related to lease agreements include:
(a)in 2023: €4,129 thousand for the derecognition of lease liabilities following a change in terms of a lease agreement in Hong Kong;
(b)in 2022: (i) proceeds of €6,500 thousand received from new tenants in order for the Group to withdraw from existing lease agreements of commercial properties and (ii) €950 thousand for reversals of previously recognized provisions in respect of a legal claim related to a lease agreement in the US, partially offset by (ii) €606 thousand for losses related to a sublease agreement in the US;
(c)in 2021: (i) €12,192 thousand of provisions relating to a lease agreement in the US following an unfavorable legal claim judgment against the Group, (ii) €1,492 thousand of legal expenses related to a lease agreement in Italy and (iii) €1,829 thousand in accrued property taxes related to a lease agreement in the UK.
These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss.
(8)Other adjustments in 2021 include €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group was required to compensate the company in accordance with the terms of the related sale agreement, as well as €144 thousand relating to the write down of the Group’s remaining 30% stake in Agnona, partially offset by other income of €1,266 thousand relating to the sale of rights to build or develop airspace above a building in the United States. These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss.
Adjusted EBITDA
Adjusted EBITDA is defined as profit or loss before income taxes plus financial income, financial expenses, foreign exchange losses, depreciation, amortization and impairment of assets and the result from investments accounted for using the equity method, adjusted for income and costs which are significant in nature and that management considers not reflective of underlying operating activities, including, for one or all of the yearsperiods presented and as further described below, transaction costs related to acquisitions, severance indemnities and provisions for severance expenses, legal costs for trademark dispute, costs related to the Business Combination, severance indemnities and provisionspecial donations for severance expenses, impairment of property, plant and equipment andassets, certain social responsibility, net (income)/costs related to lease agreements and certain other items (as further described below).items. Zegna’sThe Group’s management uses Adjusted
EBIT for internal reportingEBITDA to
assess performanceunderstand and
as part ofevaluate the
forecasting, budgeting and decision-making processes as it provides additional transparency regarding Zegna’sGroup’s underlying operating performance.
Zegna’sThe Group’s management believes this
non-IFRS
financial measure is useful because it excludes items that management believes are not indicative of
Zegna’s underlying operating performance and allows management to view operating trends, perform analytical comparisons and benchmark performance between periods and among segments. Zegna’s management also believes that Adjusted EBIT is useful for investors and analysts to better understand how management assesses Zegna’s underlying operating performance on a consistent basis and to compare Zegna’s performance with that of other companies. Accordingly, management believes that Adjusted EBIT provides useful information to third party stakeholders in understanding and evaluating Zegna’s operating results.The following table sets forth a reconciliation of (Loss)/Profit for the year to Adjusted EBIT for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | |
| | For the year ended December 31, | |
| | | | | | | | | |
(Loss)/Profit for the year | | | | | | | | | | | | |
| | | 30,702 | | | | 14,983 | | | | 43,794 | |
| | | (45,889 | ) | | | (34,352 | ) | | | (22,061 | ) |
| | | 43,823 | | | | 48,072 | | | | 37,492 | |
| | | 7,791 | | | | (13,455 | ) | | | 2,441 | |
Result from investments accounted for using the equity method | | | (2,794 | ) | | | 4,205 | | | | 1,534 | |
Impairments of investments accounted for using the equity method | | | — | | | | 4,532 | | | | — | |
Costs related to the Business Combination (1) | | | 205,059 | | | | — | | | | — | |
Costs related to lease agreements (2) | | | 15,512 | | | | 3,000 | | | | — | |
Severance indemnities and provision for severance expenses (3) | | | 8,996 | | | | 12,308 | | | | 9,777 | |
Impairment of property, plant and equipment and assets (4) | | | 8,692 | | | | 19,725 | | | | 8,858 | |
| | | 4,884 | | | | 7,535 | | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1) | Costs related to the Business Combination include:
|
| a) | €114,963 thousand relating to share-based payments for listing services recognized as the excess of the fair value of Zegna ordinary shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired. This amount is recorded within the line item “other operating costs” in the consolidated statement of profit and loss and it is related to Zegna segment.
|
| b) | €37,906 thousand for the issuance of 5,031,250 Zegna ordinary shares to the holders of IIAC class B shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period. This amount is recorded within the line item “other operating costs” in the consolidated statement of profit and loss and it is related to Zegna segment.
|
| c) | €34,092 thousand for transaction costs related to the Business Combination incurred by Zegna, including costs for bank services, legal advisors and other consultancy fees. This amount is recorded within the line item “purchased, outsourced and other costs” in the consolidated statement of profit and loss and it is related to Zegna segment.
|
| d) | €10,916 thousand for the Zegna family’s grant of aone-time
€1,500 gift to each employee of the Zegna group as result of the Company’s listing on NYSE completed on December 20, 2021. This amount is recorded within the line item “personnel costs” in the consolidated statement of profit and loss and it is related to Zegna segment for €10,120 thousand and to Thom Browne segment for €796 thousand. |
| e) | €5,380 thousand relating to grant of performance share units, which each represent the right to receive one Zegna ordinary share, to the Group’s Chief Executive Officer, other Zegna directors, key executives with strategic responsibilities and other employees of the Group, all subject to certain vesting conditions. This amount is recorded within the line item “personnel costs” in the consolidated statement of profit and loss and it is related to Zegna segment for €5,141 thousand and to Thom Browne segment for €239 thousand. For additional information please refer to Note 42 -Related party transactions
of the Consolidated Financial Statements. |
| f) | €1,236 thousand related to the fair value of private warrants issued, pursuant to the Business Combination, to certain Zegnanon-executive
directors. This amount is recorded within the line item “personnel costs” in the consolidated statement of profit and loss and it is related to Zegna segment. |
| g) | €566 thousand related to thewrite-off
ofnon-refundable
prepaid premiums for directors’ and officers’ insurance. This amount is recorded within the line item “personnel costs” in the consolidated statement of profit and loss and it is related to Zegna segment. |
(2) | Costs related to lease agreements for the year ended December 31, 2021, are related to Zegna segment and include (i) €12,192 thousand of provisions relating to a lease agreement in the US following an unfavorable legal claim judgment against the Group (recorded within “write downs and other provisions” in the consolidated statement of profit and loss), (ii) €1,492 thousand of legal expenses related to a lease agreement in Italy (recorded within “other operating costs” in the consolidated statement of profit and loss) and (iii) €1,829 thousand in accrued property taxes related to a lease agreement in the UK (recorded within “write downs and other provisions” in the consolidated statement of profit and loss). Costs related to lease agreements for the year ended December 31, 2020 include €3,000 thousand for legal expenses related to a lease agreement in the UK, incurred in the second half of 2020 (recorded within the line item “write downs and other provisions” in the consolidated statement of profit and loss).
|
(3) | Zegna incurred costs for severance indemnities of €8,996 thousand, €12,308 thousand and €9,777 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. These amounts are recorded within the line item “personnel costs” in the consolidated statement of profit and loss and are related to Zegna segment.
|
(4) | Primarily includes impairments ofassets for €5,981 thousand, €15,716 thousand and €7,980 thousand for the years ended December 31, 2021, 2020 and 2019 respectively, and impairments of property plant and equipment for €654 thousand, €4,011 thousand and €817 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. In particular, the impairment ofassets and property, plant and equipment primarily relates to the impairment of DOSs of Zegna segment. Impairments were higher in 2020 as a result of the effects of theCOVID-19
pandemic on the Group’s operations. |
(5) | Other adjustments for the year ended December 31, 2021 are related to Zegna segment and include €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group was required to compensate the company in accordance with the terms of the related sale agreement, as well as €144 thousand relating to the write down of the Group’s remaining 30% stake in Agnona (both of which are recorded within the line item “write downs and other provisions” in the consolidated statement of profit and loss), partially offset by other income of €1,266 thousand relating to the sale of rights to build or develop airspace above a building in the United States (this amount is recorded within the line item “other income” in the consolidated statement of profit and loss). Other adjustments for the year ended December 31, 2020 are related to Zegna segment and include (i) donations of €4,482 thousand to charitable organizations in Italy and abroad to support initiatives related to theCOVID-19
pandemic (this amount is recorded within the line item “other operating costs” in the consolidated statement of profit and loss), (ii) impairment on assets held for sale of €3,053 thousand in 2020, of which €988 thousand is recorded within the line item “write downs and other provisions” and €2,065 relates to the write down of inventories and is recorded within the line item “cost of raw materials and consumables” in the consolidated statement of profit and loss. |
Adjusted EBITDA is defined as profit or loss before income taxes plus, financial income, financial expenses, exchange losses/(gains), depreciation, amortization and impairment of assets, result from investments accounted for using the equity method, impairments of investments accounted for using the equity method, adjusted for income and costs which are significant in nature and that management considers not reflective of underlying operating activities, including, for one or all of the years presented, costs related to the Business Combination, severance indemnities and provision for severance expenses, certain costs related to lease agreements and certain other items (as further described below).
Zegna’s management uses Adjusted EBITDA to understand and evaluate Zegna’s underlying operating performance. Zegna’s management believes thisnon-IFRS
measure is useful because it excludes items that management believes are not indicative of Zegna’s underlying operating performance and allows management to view operating trends, perform analytical comparisons and benchmark performance between periods.
Zegna’sThe Group’s management also believes that Adjusted EBITDA is useful for investors and analysts to better understand how management assesses
Zegna’sthe Group’s underlying operating performance on a consistent basis and to compare
Zegna’sthe Group’s performance with that of other companies. Accordingly, management believes that Adjusted EBITDA provides useful information to third party stakeholders in understanding and evaluating
Zegna’sthe Group’s operating
results.result.
The following table sets forth the calculation of Adjusted EBITDA and presents a reconciliation of Profit/(Loss)/Profit for the year to Adjusted EBITDA for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
Profit/(Loss) | 135,661 | | 65,279 | | (127,661) |
Income taxes | 33,433 | | 35,802 | | 30,702 |
Financial income | (37,282) | | (13,320) | | (45,889) |
Financial expenses | 68,121 | | 54,346 | | 43,823 |
Foreign exchange losses | 5,262 | | 7,869 | | 7,791 |
Depreciation, amortization and impairment of assets | 194,952 | | 173,521 | | 163,367 |
Result from investments accounted for using the equity method | 2,953 | | (2,199) | | (2,794) |
Transaction costs related to acquisitions (1) | 6,001 | | 2,289 | | — |
Severance indemnities and provisions for severance expenses (2) | 4,002 | | 2,199 | | 8,996 |
Legal costs for trademark dispute (3) | 2,168 | | 7,532 | | — |
Costs related to the Business Combination (4) | 2,140 | | 2,137 | | 205,059 |
Special donations for social responsibility (5) | 100 | | 1,000 | | — |
Net (income)/costs related to lease agreements (6) | (4,129) | | (6,844) | | 15,512 |
Other (7) | — | | — | | 4,884 |
Adjusted EBITDA | 413,382 | | 329,611 | | 303,790 |
__________________(1)Relates to transaction costs of €6,001 thousand and €2,289 thousand in 2023 and 2022, respectively, primarily for consultancy and legal fees related to the TFI Acquisition and, for 2023 only, also to the acquisition of the Thom Browne business in South Korea and the acquisition of a 25% interest in Norda.
(2)Relates to severance indemnities of €4,002 thousand, €2,199 thousand and €8,996 thousand in 2023, 2022 and 2021, 2020respectively.
(3)Relates to legal costs of €2,168 thousand and 2019:
€7,532 thousandin 2023 and 2022, respectively, in connection with a legal dispute between adidas and Thom Browne, primarily in relation to the use of trademarks. For additional information see “Item 8—Financial Information—Legal Proceedings”. | | | | | | | | | | | | |
| | For the year ended December 31, | |
| | | | | | | | | |
(Loss)/Profit for the year | | | | | | | | | | | | |
| | | 30,702 | | | | 14,983 | | | | 43,794 | |
| | | (45,889 | ) | | | (34,352 | ) | | | (22,061 | ) |
| | | 43,823 | | | | 48,072 | | | | 37,492 | |
| | | 7,791 | | | | (13,455 | ) | | | 2,441 | |
Depreciation, amortization and impairment of assets | | | 163,367 | | | | 185,930 | | | | 177,068 | |
Result from investments accounted for using the equity method | | | (2,794 | ) | | | 4,205 | | | | 1,534 | |
Impairments of investments accounted for using the equity method | | | — | | | | 4,532 | | | | — | |
Costs related to the Business Combination (1) | | | 205,059 | | | | — | | | | — | |
Costs related to lease agreements (2) | | | 15,512 | | | | 3,000 | | | | — | |
Severance indemnities and provision for severance expenses (3) | | | 8,996 | | | | 12,308 | | | | 9,777 | |
| | | 4,884 | | | | 7,535 | | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(4)Costs related to the Business Combination of €2,140 thousand and €2,137 thousand in 2023 and 2022, respectively, relate to the grant of equity awards to management in 2021 with vesting subject to the public listing of the Company’s shares and certain other performance and/or service conditions. Costs related to the Business Combination in 2021 include:
(a)€114,963 thousand relating to share-based payments for listing services recognized as the excess of the fair value of the Company Ordinary Shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired. (b)€37,906 thousand for the issuance of 5,031,250 the Company Ordinary Shares to the holders of Class B Shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period.(c)€34,092 thousand for transaction costs related to the Business Combination incurred by the Group, including costs for bank services, legal advisors and other consultancy fees.
(e)€5,380 thousand relating to grant of performance share units, which each represent the right to receive one ordinary share of the Company, to the Group’s Chief Executive Officer, other directors of the Group, key executives with strategic responsibilities and other employees of the Group, all subject to certain vesting conditions.
(f)€1,236 thousand related to the fair value of private warrants issued, pursuant to the Business Combination, to certain non-executive directors of the Group.
(g)€566 thousand related to the write-off of non-refundable prepaid premiums for directors’ and officers’ insurance.
(5)Relates to donations to support initiatives related to humanitarian emergencies in Turkey in 2023 (€100 thousand) and in Ukraine in 2022 (€1,000 thousand).
(6)Net (income)/costs related to lease agreements include:
(1) | Costs related to the Business Combination include:
|
| a) | €114,963 thousand relating to share-based payments for listing services recognized as the excess of the fair value of Zegna ordinary shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired.
|
| b) | €37,906 thousand for the issuance of 5,031,250 Zegna ordinary shares to the holders of IIAC class B shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period.
|
| c) | €34,092 thousand for transaction costs related to the Business Combination incurred by Zegna, including costs for bank services, legal advisors and other consultancy fees.
|
| d) | €10,916 thousand for the Zegna family’s grant of aone-time
€1,500 gift to each employee of the Zegna group as result of the Company’s listing on NYSE completed on December 20, 2021. |
| e) | €5,380 thousand relating to grant of performance share units, which each represent the right to receive one Zegna ordinary share, to the Group’s Chief Executive Officer, other Zegna directors, key executives with strategic responsibilities and other employees of the Group, all subject to certain vesting conditions. For additional information please refer to Note 42- Related party transactions
of the Consolidated Financial Statements. |
| f) | €1,236 thousand related to the fair value of private warrants issued, pursuant to the Business Combination, to certain Zegnanon-executive
directors. |
| g) | €566 thousand related to thewrite-off
ofnon-refundable
prepaid premiums for directors’ and officers’ insurance. |
(2) | Costs related to lease agreements for the year ended December 31, 2021, include (i) €12,192 thousand of provisions relating to a lease agreement in the US following an unfavorable legal claim judgment against the Group (recorded within “write downs and other provisions” in the consolidated statement of profit and loss), (ii) €1,492 thousand of legal expenses related to a lease agreement in Italy (recorded within “other operating costs” in the consolidated statement of profit and loss) and (iii) €1,829 thousand in accrued property taxes related to a lease agreement in the UK (recorded within “write downs and other provisions” in the consolidated statement of profit and loss). Costs related to lease agreements for the year ended December 31, 2020 include €3,000 thousand for legal expenses related to a lease agreement in the UK, incurred in the second half of 2020 (recorded within the line item “write downs and other provisions” in the consolidated statement of profit and loss).
|
(3) | Zegna incurred costs for severance indemnities of €8,996 thousand, €12,308 thousand and €9,777 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. These amounts are recorded within the line item “personnel costs” in the consolidated statement of profit and loss.
|
(4) | Other adjustments for the year ended December 31, 2021 include €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group was required to compensate the company in accordance with the terms of the related sale agreement, as well as €144 thousand relating to the write down of the Group’s remaining 30% stake in Agnona (both of which are recorded within the line item “write downs and other provisions” in the consolidated statement of profit and loss), partially offset by other income of €1,266 thousand relating to the sale of rights to build or develop airspace above a building in the United States (this amount is recorded within the line item “other income” in the consolidated statement of profit and loss). Other adjustments for the year ended December 31, 2020 includes (i) donations of €4,482 thousand to charitable organizations in Italy and abroad to support initiatives related to theCOVID-19
pandemic (this amount is recorded within the line item “other operating costs” in the consolidated statement of profit and loss), (ii) impairment on assets held for sale of €3,053 thousand in 2020, of which €988 thousand is recorded within the line item “write downs and other provisions” and €2,065 relates to the write down of inventories and is recorded within the line item “cost of raw materials and consumables” in the consolidated statement of profit and loss. |
(a)in 2023: €4,129 thousand for the derecognition of lease liabilities following a change in terms of a lease agreement in Hong Kong;
(b)in 2022: (i) proceeds of €6,500 thousand received from new tenants in order for the Group to withdraw from existing lease agreements of commercial properties and (ii) €950 thousand for reversals of previously recognized provisions in respect of a legal claim related to a lease agreement in the US, partially offset by (ii) €606 thousand for losses related to a sublease agreement in the US;
Adjusted Profit/(Loss)(c)in 2021: (i) €12,192 thousand of provisions relating to a lease agreement in the US following an unfavorable legal claim judgment against the Group, (ii) €1,492 thousand of legal expenses related to a lease agreement in Italy and (iii) €1,829 thousand in accrued property taxes related to a lease agreement in the UK.
(7)Other adjustments in 2021 include €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group was required to compensate the company in accordance with the terms of the related sale agreement, as well as €144 thousand relating to the write down of the Group’s remaining 30% stake in Agnona, partially offset by other income of €1,266 thousand relating to the sale of rights to build or develop airspace above a building in the United States.
Adjusted Profit
Adjusted Profit is defined as Profit/(Loss) represents (Loss)/Profit for the year adjusted for income and costs (net of related tax effects) which are significant in nature and that management considers not reflective of underlying activities, including, for one or all of the yearsperiods presented and as further described below, transaction costs related to acquisitions, severance indemnities and provisions for severance expenses, legal costs for trademark dispute, costs related to the Business Combination, severance indemnities and provision for severance expenses,net impairment of property, plantleased and equipment andassets, certain owned stores, special donations for social responsibility, net (income)/costs related to lease agreements, gains on the Thom Browne option realized in connection with the exercise of the option impairment of equity method investments and certain other items, (as further described below), as well as the tax effects of the adjusting items (calculated based on the applicable tax rates of the jurisdictions where the adjustments relate).items. Zegna’sThe Group’s management uses Adjusted
Profit/(Loss)Profit to understand and evaluate
Zegna’sthe Group’s underlying performance.
Zegna’sThe Group’s management believes this
non-IFRS
financial measure is useful because it excludes items that management believes are not indicative of
Zegna’sthe Group’s underlying performance and allows management to view performance trends, perform analytical comparisons and benchmark performance between periods.
Zegna’sThe Group’s management also believes that Adjusted
Profit/(Loss)Profit is useful for investors and analysts to better understand how management assesses
Zegna’sthe Group’s underlying performance on a consistent basis and to compare
Zegna’sthe Group’s performance with that of other companies. Accordingly, management believes that Adjusted
Profit/(Loss)Profit provides useful information to third party stakeholders in understanding and evaluating
Zegna’sthe Group’s results.
Table of Contents
The following table sets forth the calculation of Adjusted Profit/(Loss) and presents a reconciliation of Profit/(Loss)/Profit for the year to Adjusted Profit/(Loss)Profit for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
Profit/(Loss) | 135,661 | | 65,279 | | (127,661) |
Transaction costs related to acquisitions (1) | 6,001 | | 2,289 | | — |
Severance indemnities and provisions for severance expenses (2) | 4,002 | | 2,199 | | 8,996 |
Legal costs for trademark dispute (3) | 2,168 | | 7,532 | | — |
Costs related to the Business Combination (4) | 2,140 | | 2,137 | | 205,332 |
Net impairment of leased and owned stores (5) | 1,782 | | 1,639 | | 8,692 |
Special donations for social responsibility (6) | 100 | | 1,000 | | — |
Net (income)/costs related to lease agreements (7) | (4,129) | | (6,844) | | 15,512 |
Gain on Thom Browne option (8) | — | | — | | (20,675) |
Other (9) | — | | — | | 4,884 |
Tax effects on adjusting items (10) | (2,490) | | (1,602) | | (19,758) |
Adjusted Profit | 145,235 | | 73,629 | | 75,322 |
__________________(1)Relates to transaction costs of €6,001 thousand and €2,289 thousand in 2023 and 2022, respectively, primarily for consultancy and legal fees related to the TFI Acquisition and, for 2023 only, also to the acquisition of the Thom Browne business in South Korea and the acquisition of a 25% interest in Norda.
(2)Relates to severance indemnities of €4,002 thousand, €2,199 thousand and €8,996 thousand in 2023, 2022 and 2021, 2020respectively.
(3)Relates to legal costs of €2,168 thousand and 2019:€7,532 thousandin 2023 and 2022, respectively, in connection with a legal dispute between adidas and Thom Browne, primarily in relation to the use of trademarks. For additional information see “Item 8—Financial Information—Legal Proceedings”.
(4)Costs related to the Business Combination of €2,140 thousand and €2,137 thousand in 2023 and 2022, respectively, relate to the grant of equity awards to management in 2021 with vesting subject to the public listing of the Company’s shares and certain other performance and/or service conditions. Costs related to the Business Combination in 2021 include:
(a)€114,963 thousand relating to share-based payments for listing services recognized as the excess of the fair value of the Company Ordinary Shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired.
(b)€37,906 thousand for the issuance of 5,031,250 the Company Ordinary Shares to the holders of Class B Shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period.
(c)€34,092 thousand for transaction costs related to the Business Combination incurred by the Group, including costs for bank services, legal advisors and other consultancy fees.
(d)€10,916 thousand for the Zegna family’s grant of a one-time €1,500 gift to each employee of the Group as result of the Company’s listing on NYSE completed on December 20, 2021.
(e)€5,380 thousand relating to grant of performance share units, which each represent the right to receive one ordinary share of the Company, to the Group’s Chief Executive Officer, other directors of the Group, key executives with strategic responsibilities and other employees of the Group, all subject to certain vesting conditions.
(f)€1,236 thousand related to the fair value of private warrants issued, pursuant to the Business Combination, to certain non-executive directors of the Group.
(g)€566 thousand related to the write-off of non-refundable prepaid premiums for directors’ and officers’ insurance.
(5)Net impairment of leased and owned stores for 2023, 2022, 2021 includes (i) impairment of €832 thousand, €2,369 thousand and €6,486 thousand related to right-of-use assets, respectively, (ii) impairment of €915 thousand, reversals of impairment of €756 thousand and impairment of €2,167 thousand related to property, plant and equipment, respectively, and (iii) impairment of €35 thousand, €26 thousand and €39 thousand related to intangible assets, respectively.
(6)Relates to donations to support initiatives related to humanitarian emergencies in Turkey in 2023 (€100 thousand) and in Ukraine in 2022 (€1,000 thousand).
| | | | | | | | | | | | |
| | For the year ended December 31, | |
| | | | | | | | | |
(Loss)/Profit for the year | | | | | | | | | | | | |
Costs related to the Business Combination (1) | | | 205,332 | | | | — | | | | — | |
Costs related to lease agreements (2) | | | 15,512 | | | | 3,000 | | | | — | |
Severance indemnities and provision for severance expenses (3) | | | 8,996 | | | | 12,308 | | | | 9,777 | |
Impairment of property, plant and equipment and assets (4) | | | 8,692 | | | | 19,725 | | | | 8,858 | |
Gain on Thom Browne option (5) | | | (20,675 | ) | | | — | | | | — | |
Impairment of investments accounted for using the equity method (6) | | | — | | | | 4,532 | | | | — | |
| | | 4,884 | | | | 7,535 | | | | — | |
Tax effects on adjusting items (8) | | | (19,758 | ) | | | (5,312 | ) | | | (1,027 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(7)Net (income)/costs related to lease agreements include:
(1) | Costs related to the Business Combination include:
|
| a) | €114,963 thousand relating to share-based payments for listing services recognized as the excess of the fair value of Zegna ordinary shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired.
|
| b) | €37,906 thousand for the issuance of 5,031,250 Zegna ordinary shares to the holders of IIAC class B shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period.
|
| c) | €34,092 thousand for transaction costs related to the Business Combination incurred by Zegna, including costs for bank services, legal advisors and other consultancy fees.
|
| d) | €10,916 thousand for the Zegna family’s grant of aone-time
€1,500 gift to each employee of the Zegna group as result of the Company’s listing on NYSE completed on December 20, 2021. |
| e) | €5,380 thousand relating to grant of performance share units, which each represent the right to receive one Zegna ordinary share, to the Group’s Chief Executive Officer, other Zegna directors, key executives with strategic responsibilities and other employees of the Group, all subject to certain vesting conditions. For additional information please refer to Note 42 -Related party transactions
of the Consolidated Financial Statements. |
| f) | €1,236 thousand related to the fair value of private warrants issued, pursuant to the Business Combination, to certain Zegnanon-executive
directors. |
| g) | €566 thousand related to thewrite-off
ofnon-refundable
prepaid premiums for directors’ and officers’ insurance. |
| h) | €273 thousand related to the deal contingent option entered in November 2021. The amount was recorded within the line item “foreign exchange gains/(losses)” in the consolidated statement of profit and loss.
|
(2) | Costs related to lease agreements for the year ended December 31, 2021, include (i) €12,192 thousand of provisions relating to a lease agreement in the US following an unfavorable legal claim judgment against the Group (recorded within “write downs and other provisions” in the consolidated statement of profit and loss), (ii) €1,492 thousand of legal expenses related to a lease agreement in Italy (recorded within “other operating costs” in the consolidated statement of profit and loss) and (iii) €1,829 thousand in accrued property taxes related to a lease agreement in the UK (recorded within “write downs and other provisions” in the consolidated statement of profit and loss). Costs related to lease agreements for the year ended December 31, 2020 include €3,000 thousand for legal expenses related to a lease agreement in the UK, incurred in the second half of 2020 (recorded within the line item “write downs and other provisions” in the consolidated statement of profit and loss).
|
(3) | Zegna incurred costs for severance indemnities of €8,996 thousand, €12,308 thousand and €9,777 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. These amounts are recorded within the line item “personnel costs” in the consolidated statement of profit and loss.
|
(4) | Primarily includes impairments ofassets for €5,981 thousand, €15,716 thousand and €7,980 thousand for the years ended December 31, 2021, 2020 and 2019 respectively, and impairments of property plant and equipment for €654 thousand, €4,011 thousand and €817 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. In particular, the impairment ofassets and property, plant and equipment primarily relates to the impairment of DOSs. Impairments were higher in 2020 as a result of the effects of theCOVID-19
pandemic on the Group’s operations. |
(5) | Reflects the financial income relating to options related to a gain of €20,675 thousand recognized following the purchase of an additional 5% of the Thom Browne Group on June 1, 2021. This amount is recorded within the line item “financial income” in the consolidated statement of profit and loss.
|
(6) | Relates to an impairment of €4,532 thousand in the Group’s investment in Tom Ford, which was recognized following a reported net loss by TFI that management considered as an indication of impairment.
|
(7) | Other adjustments for the year ended December 31, 2021 include €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group was required to compensate the company in accordance with the terms of the related sale agreement, as well as €144 thousand relating to the write down of the Group’s remaining 30% stake in Agnona (both of which are recorded within the line item “write downs and other provisions” in the consolidated statement of profit and loss), partially offset by other income of €1,266 thousand relating to the sale of rights to build or develop airspace above a building in the United States (this amount is recorded within the line item “other income” in the
|
(a)in 2023: €4,129 thousand for the derecognition of lease liabilities following a change in terms of a lease agreement in Hong Kong;
(b)in 2022: (i) proceeds of €6,500 thousand received from new tenants in order for the Group to withdraw from existing lease agreements of commercial properties and (ii) €950 thousand for reversals of previously recognized provisions in respect of a legal claim related to a lease agreement in the US, partially offset by (ii) €606 thousand for losses related to a sublease agreement in the US; (c)in 2021: (i) €12,192 thousand of provisions relating to a lease agreement in the US following an unfavorable legal claim judgment against the Group, (ii) €1,492 thousand of legal expenses related to a lease agreement in Italy and (iii) €1,829 thousand in accrued property taxes related to a lease agreement in the UK.
Table(8)Relates to a gain of Contents€20,675 thousand recognized following the exercise of a written option on non-controlling interests and the purchase of an additional 5% of the Thom Browne Group on June 1, 2021. | consolidated statement of profit and loss). Other adjustments for the year ended December 31, 2020 includes (i) donations of €4,482 thousand to charitable organizations in Italy and abroad to support initiatives related to theCOVID-19
pandemic (this amount is recorded within the line item “other operating costs” in the consolidated statement of profit and loss), (ii) impairment on assets held for sale of €3,053 thousand in 2020, of which €988 thousand is recorded within the line item “write downs and other provisions” and €2,065 relates to the write down of inventories and is recorded within the line item “cost of raw materials and consumables” in the consolidated statement of profit and loss. |
(8) | Includes the tax effects of the aforementioned adjustments.
|
(9)Other adjustments in 2021 include €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group was required to compensate the company in accordance with the terms of the related sale agreement, as well as €144 thousand relating to the write down of the Group’s remaining 30% stake in Agnona, partially offset by other income of €1,266 thousand relating to the sale of rights to build or develop airspace above a building in the United States.
(10)Includes the tax effects of the aforementioned adjustments, calculated as the current and deferred tax effects of pre-tax items excluded from Adjusted Profit using the statutory tax rates related to the jurisdiction that was impacted by the adjustment, after considering if such items are deductible or taxable, the impact of any temporary differences and the ultimate recoverability of deferred tax assets, if applicable.
Adjusted Basic Earnings per Share and Adjusted Diluted Earnings per Share
Adjusted Basic Earnings per Share and Adjusted Diluted Earnings per Share representare defined as basic earnings per share and diluted earnings per share adjusted for income and costs (net of related tax effects) which are significant in nature and that management considers not reflective of underlying activities, including, for one or all of the yearsperiods presented and as further described below, transaction costs related to acquisitions, severance indemnities and provisions for severance expenses, legal costs for trademark dispute, costs related to the Business Combination, severance indemnities and provision for severance expenses,net impairment of property, plantleased and equipment andassets, certain owned stores, special donations for social responsibility, net (income)/costs related to lease agreements, gains on the Thom Browne option realized in connection with the exercise of the option impairment of equity method investments and certain other items, (as further described below), as well as the tax effects of the adjusting items (calculated basedand excluding the impact of non-controlling interests on the applicable tax rates of the jurisdictions where the adjustments relate).adjusting items. Zegna’sThe Group’s management uses Adjusted Basic Earnings per Share and Adjusted Diluted Earnings per Share to understand and evaluate
Zegna’sthe Group’s underlying performance.
Zegna’sThe Group’s management believes this
non-IFRS
financial measure is useful because it excludes items that it does not believe are indicative of its underlying performance and allows it to view operating trends, perform analytical comparisons and benchmark performance between periods. Accordingly, management believes that Adjusted Basic and Diluted Earnings per Share provides useful information to third party stakeholders in understanding and evaluating
Zegna’s operatingthe Group’s results.
The following table presents a reconciliation of bothProfit to Adjusted Basic Earnings per Share and Adjusted Diluted Earnings per Share basic earnings per share and diluted earnings per share the number of ordinary and potential ordinary shares outstanding for all periods reflects the share split performed as part of the Business Combination.
The following table sets forth the calculation of Adjusted Basic and Diluted Earnings per Share and provides a reconciliation of (Loss)/Profit for the year to thesenon-IFRS
measures for the years ended December 31,
2023, 2022 and 2021. | | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
(€ thousands, except per share data) | 2023 | | 2022 | | 2021 |
Profit/(Loss) | 135,661 | | 65,279 | | (127,661) |
Transaction costs related to acquisitions (1) | 6,001 | | 2,289 | | — |
Severance indemnities and provisions for severance expenses (2) | 4,002 | | 2,199 | | 8,996 |
Legal costs for trademark dispute (3) | 2,168 | | 7,532 | | — |
Costs related to the Business Combination (4) | 2,140 | | 2,137 | | 205,332 |
Net impairment of leased and owned stores (5) | 1,782 | | 1,639 | | 8,692 |
Special donations for social responsibility (6) | 100 | | 1,000 | | — |
Net (income)/costs related to lease agreements (7) | (4,129) | | (6,844) | | 15,512 |
Gain on Thom Browne option (8) | — | | — | | (20,675) |
Other (9) | — | | — | | 4,884 |
Tax effects on adjusting items (10) | (2,490) | | (1,602) | | (19,758) |
Adjusted Profit | 145,235 | | 73,629 | | 75,322 |
Impact of non-controlling interests (11) | 14,327 | | 14,460 | | 8,669 |
Adjusted Profit attributable to shareholders of the Parent Company | 130,908 | | 59,169 | | 66,653 |
Weighted average number of shares for basic earnings per share | 247,015,882 | | 237,545,736 | | 203,499,933 |
Basic earnings per share in € | 0.49 | | 0.22 | | (0.67) |
Adjusted Basic Earnings per Share in € | 0.53 | | 0.25 | | 0.33 |
Weighted average number of shares for diluted earnings per share | 252,363,769 | | 240,647,513 | | 204,917,880 |
Diluted earnings per share in € | 0.48 | | 0.21 | | (0.67) |
Adjusted Diluted Earnings per Share in € | 0.52 | | 0.25 | | 0.33 |
__________________(1)Relates to transaction costs of €6,001 thousand and €2,289 thousand in 2023 and 2022, respectively, primarily for consultancy and legal fees related to the TFI Acquisition and, for 2023 only, also to the acquisition of the Thom Browne business in South Korea and the acquisition of a 25% interest in Norda.
(2)Relates to severance indemnities of €4,002 thousand, €2,199 thousand and €8,996 thousand in 2023, 2022 and 2021, 2020respectively.
(3)Relates to legal costs of €2,168 thousand and 2019:€7,532 thousand in 2023 and 2022, respectively, in connection with a legal dispute between adidas and Thom Browne, primarily in relation to the use of trademarks. For additional information see “Item 8—Financial Information—Legal Proceedings”.
| | | | | | | | | | | | |
| | For the year ended December 31, | |
| | | | | | | | | |
(Loss)/Profit for the year | | | | | | | | | | | | |
Costs related to the Business Combination (1) | | | 205,332 | | | | — | | | | — | |
Costs related to lease agreements (2) | | | 15,512 | | | | 3,000 | | | | — | |
Severance indemnities and provision for severance expenses (3) | | | 8,996 | | | | 12,308 | | | | 9,777 | |
Impairment of property, plant and equipment and assets (4) | | | 8,692 | | | | 19,725 | | | | 8,858 | |
Gain on Thom Browne option (5) | | | (20,675 | ) | | | — | | | | — | |
Impairment of investments accounted for using the equity method (6) | | | — | | | | 4,532 | | | | — | |
| | | 4,884 | | | | 7,535 | | | | — | |
Tax effects on adjusting items (8) | | | (19,758 | ) | | | (5,312 | ) | | | (1,027 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Impact of non-controlling interests (9) | | | 8,669 | | | | 4,063 | | | | 3,720 | |
| | | | | | | | | | | | |
Adjusted Profit/(Loss) attributable to shareholders of the Parent Company | | | | | | | | | | | | |
Weighted average number of shares for basic earnings per share | | | 203,499,933 | | | | 201,489,100 | | | | 201,561,100 | |
| | | | | | | | | | | | |
Adjusted Basic Earnings per Share | | | | | | | | | | | | |
Weighted average number of shares for diluted earnings per share | | | 204,917,880 | | | | 201,489,100 | | | | 201,561,100 | |
| | | | | | | | | | | | |
Adjusted Diluted Earnings per Share | | | | | | | | | | | | |
(4)Costs related to the Business Combination of €2,140 thousand and €2,137 thousand in 2023 and 2022, respectively, relate to the grant of equity awards to management in 2021 with vesting subject to the public listing of the Company’s shares and certain other performance and/or service conditions. Costs related to the Business Combination in 2021 include:
(1) | Costs related to the Business Combination include:
|
| a) | €114,963 thousand relating to share-based payments for listing services recognized as the excess of the fair value of Zegna ordinary shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired.
|
| b) | €37,906 thousand for the issuance of 5,031,250 Zegna ordinary shares to the holders of IIAC class B shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period.
|
| c) | €34,092 thousand for transaction costs related to the Business Combination incurred by Zegna, including costs for bank services, legal advisors and other consultancy fees.
|
(a)€114,963 thousand relating to share-based payments for listing services recognized as the excess of the fair value of the Company Ordinary Shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired.
(b)€37,906 thousand for the issuance of 5,031,250 the Company Ordinary Shares to the holders of Class B Shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period. (c)€34,092 thousand for transaction costs related to the Business Combination incurred by the Group, including costs for bank services, legal advisors and other consultancy fees.
| d) | €10,916 thousand for the Zegna family’s grant of aone-time
€1,500 gift to each employee of the Zegna group as result of the Company’s listing on NYSE completed on December 20, 2021. |
| e) | €5,380 thousand relating to grant of performance share units, which each represent the right to receive one Zegna ordinary share, to the Group’s Chief Executive Officer, other Zegna directors, key executives with strategic responsibilities and other employees of the Group, all subject to certain vesting conditions. For additional information please refer to Note 42 -Related party transactions
of the Consolidated Financial Statements. |
| f) | €1,236 thousand related to the fair value of private warrants issued, pursuant to the Business Combination, to certain Zegnanon-executive
directors. |
| g) | €566 thousand related to thewrite-off
ofnon-refundable
prepaid premiums for directors’ and officers’ insurance. |
| h) | €273 thousand related to the deal contingent option entered in November 2021. The amount was recorded within the line item “foreign exchange gains/(losses)” in the consolidated statement of profit and loss.
|
(2) | Costs related to lease agreements for the year ended December 31, 2021, include (i) €12,192 thousand of provisions relating to a lease agreement in the US following an unfavorable legal claim judgment against the Group (recorded within “write downs and other provisions” in the consolidated statement of profit and loss), (ii) €1,492 thousand of legal expenses related to a lease agreement in Italy (recorded within “other operating costs” in the consolidated statement of profit and loss) and (iii) €1,829 thousand in accrued property taxes related to a lease agreement in the UK (recorded within “write downs and other provisions” in the consolidated statement of profit and loss). Costs related to lease agreements for the year ended December 31, 2020 include €3,000 thousand for legal expenses related to a lease agreement in the UK, incurred in the second half of 2020 (recorded within the line item “write downs and other provisions” in the consolidated statement of profit and loss).
|
(3) | Zegna incurred costs for severance indemnities of €8,996 thousand, €12,308 thousand and €9,777 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. These amounts are recorded within the line item “personnel costs” in the consolidated statement of profit and loss.
|
(4) | Primarily includes impairments ofassets for €5,981 thousand, €15,716 thousand and €7,980 thousand for the years ended December 31, 2021, 2020 and 2019 respectively, and impairments of property plant and equipment for €654 thousand, €4,011 thousand and €817 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. In particular, the impairment ofassets and property, plant and equipment primarily relates to the impairment of DOSs. Impairments were higher in 2020 as a result of the effects of theCOVID-19
pandemic on the Group’s operations. |
(5) | Reflects the financial income relating to options related to a gain of €20,675 thousand recognized following the purchase of an additional 5% of the Thom Browne Group on June 1, 2021. This amount is recorded within the line item “financial income” in the consolidated statement of profit and loss.
|
(6) | Relates to an impairment of €4,532 thousand in the Group’s investment in Tom Ford, which was recognized following a reported net loss by TFI that management considered as an indication of impairment.
|
(7) | Other adjustments for the year ended December 31, 2021 include €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group was required to compensate the company in accordance with the terms of the related sale agreement, as well as €144 thousand relating to the write down of the Group’s remaining 30% stake in Agnona (both of which are recorded within the line item “write downs and other provisions” in the consolidated statement of profit and loss), partially offset by other income of €1,266 thousand relating to the sale of rights to build or develop airspace above a building in the United States (this amount is recorded within the line item “other income” in the consolidated statement of profit and loss). Other adjustments for the year ended December 31, 2020 includes (i) donations of €4,482 thousand to charitable organizations in Italy and abroad to support initiatives related to theCOVID-19
pandemic (this amount is recorded within the line item “other operating costs” in the consolidated statement of profit and loss), (ii) impairment on assets held for sale of €3,053 thousand in 2020, of which €988 thousand is recorded within the line item “write downs and other provisions” and €2,065 relates to the write down of inventories and is recorded within the line item “cost of raw materials and consumables” in the consolidated statement of profit and loss. |
(8) | Includes the tax effects of the aforementioned adjustments.
|
(9) | Represents the (Loss)/Profit for the year attributable to non-controlling interests plus the impact of non-controlling interests on the adjusting items.
|
(e)€5,380 thousand relating to grant of performance share units, which each represent the right to receive one ordinary share of the Company, to the Group’s Chief Executive Officer, other directors of the Group, key executives with strategic responsibilities and other employees of the Group, all subject to certain vesting conditions.
(g)€566 thousand related to the write-off of non-refundable prepaid premiums for directors’ and officers’ insurance.
(5)Net impairment of leased and owned stores for 2023, 2022, 2021 includes (i) impairment of €832 thousand, €2,369 thousand and €6,486 thousand related to right-of-use assets, respectively, (ii) impairment of €915 thousand, reversals of impairment of €756 thousand and impairment of €2,167 thousand related to property, plant and equipment, respectively, and (iii) impairment of €35 thousand, €26 thousand and €39 thousand related to intangible assets, respectively.
(6)Relates to donations to support initiatives related to humanitarian emergencies in Turkey in 2023 (€100 thousand) and in Ukraine in 2022 (€1,000 thousand).
(7)Net (income)/costs related to lease agreements include:
(a)in 2023: €4,129 thousand for the derecognition of lease liabilities following a change in terms of a lease agreement in Hong Kong;
(b)in 2022: (i) proceeds of €6,500 thousand received from new tenants in order for the Group to withdraw from existing lease agreements of commercial properties and (ii) €950 thousand for reversals of previously recognized provisions in respect of a legal claim related to a lease agreement in the US, partially offset by (ii) €606 thousand for losses related to a sublease agreement in the US;
(c)in 2021: (i) €12,192 thousand of provisions relating to a lease agreement in the US following an unfavorable legal claim judgment against the Group, (ii) €1,492 thousand of legal expenses related to a lease agreement in Italy and (iii) €1,829 thousand in accrued property taxes related to a lease agreement in the UK.
(8)Relates to a gain of €20,675 thousand recognized following the exercise of a written option on non-controlling interests and the purchase of an additional 5% of the Thom Browne Group on June 1, 2021.
(9)Other adjustments in 2021 include €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group was required to compensate the company in accordance with the terms of the related sale agreement, as well as €144 thousand relating to the write down of the Group’s remaining 30% stake in Agnona, partially offset by other income of €1,266 thousand relating to the sale of rights to build or develop airspace above a building in the United States.
(10)Includes the tax effects of the aforementioned adjustments, calculated as the current and deferred tax effects of pre-tax items excluded from Adjusted Basic Earnings per Share and Adjusted Diluted Earnings per Share using the statutory tax rates related to the jurisdiction that was impacted by the adjustment, after considering if such items are deductible or taxable, the impact of any temporary differences and the ultimate recoverability of deferred tax assets, if applicable.
(11)Represents the Profit attributable to non-controlling interests plus the impact of non-controlling interests on the adjusting items.
Net Financial Indebtedness/(Cash Surplus)
Net Financial Indebtedness/(Cash Surplus) is defined as the sum of financial borrowings (current and
non-current),
and derivative financial
instruments and bonds, loans and certain other financialinstrument liabilities,
(recorded within othernon-current
financial liabilities in the consolidated statement of financial position), net of cash and cash equivalents, derivative financial
instrumentsinstrument assets, securities and
certainfinancial receivables (recorded within other current financial
assets.assets in the consolidated statement of financial position).Zegna’sThe Group’s management believes that Net Financial Indebtedness/(Cash Surplus) is useful to monitor the level of net liquidity and financial resources available to
Zegna. Zegna’sthe Group. The Group’s management believes this
non-IFRS
financial measure aids management, investors and analysts to analyze
Zegna’sthe Group’s financial position and financial resources available, and to compare
Zegna’sthe Group’s financial position and financial resources available with that of other companies.
The following table sets forth the calculation of Net Financial Indebtedness/(Cash Surplus) for the years endedat December 31, 2021, 20202023 and 2019:
2022. | | | | | | | | |
| | | |
| | | | | | |
| | | 471,646 | | | | 558,722 | |
| | | 157,292 | | | | 106,029 | |
Derivative financial instruments - Liabilities | | | 14,138 | | | | 13,192 | |
Other non-current financial liabilities (bonds and other) (*) | | | 7,976 | | | | 8,065 | |
| | | | | | | | |
Total borrowings, other financial liabilities and derivatives | | | | | | | | |
Cash and cash equivalents | | | (459,791 | ) | | | (317,291 | ) |
Derivative financial instruments - Assets | | | (1,786 | ) | | | (11,848 | ) |
Other current financial assets (securities) (**) | | | (334,244 | ) | | | (350,163 | ) |
| | | | | | | | |
Total cash and cash equivalents, other current financial assets and derivatives | | | | | | | | |
| | | | | | | | |
Net Financial Indebtedness/(Cash Surplus) | | | | | | | | |
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Non-current borrowings | 113,285 | | 184,880 |
Current borrowings | 289,337 | | 286,175 |
Derivative financial instruments — Liabilities | 897 | | 2,362 |
Total borrowings, other financial liabilities and derivatives | 403,519 | | 473,417 |
Cash and cash equivalents | (296,279) | | (254,321) |
Derivative financial instruments — Assets | (11,110) | | (22,454) |
Other current financial assets(1) | (85,320) | | (318,795) |
Total cash and cash equivalents, other current financial assets and derivatives | (392,709) | | (595,570) |
Net Financial Indebtedness/(Cash Surplus) | 10,810 | | (122,153) |
__________________ | Includes only the “bonds” and “other” components of the “Othernon-current
financial liabilities” line item from Zegna’s consolidated statement of financial position. |
| Includes only the “securities” component of the “Other current financial assets” line item from Zegna’s consolidated statement of financial position.
|
(1)Includes (i) the Group’s investments in securities amounting to €85,320 thousand and €316,595 thousand at December 31, 2023 and 2022, respectively, and (ii) a financial receivable from Filati Biagioli Modesto S.p.A., an associated company of the Group, of €2,200 thousand at December 31, 2022. In July 2023, the receivable was converted to equity as a capital contribution.
For additional details relating to Net Financial Indebtedness/(Cash Surplus) see“Item 5.B—Liquidity and Capital Resources—Net Financial Indebtedness/(Cash Surplus).”
. Trade Working Capital is defined as current assets less current liabilities adjusted for derivative assets and liabilities, tax assetsreceivables and liabilities, cash and cash equivalents, assets and liabilities held for sale, borrowings, lease liabilities, and certain other current assets and liabilities. Trade Working Capital is a non-IFRS measure.
Zegna’sThe Group’s management uses Trade Working Capital to
analyzeunderstand and evaluate
Zegna’sthe Group’s liquidity generation/absorption.
Zegna’sThe Group’s management believes this
non-IFRS
financial measure
providesis important supplemental information for
management and investors
whenin evaluating liquidity in that it provides insight into the availability of net current resources to fund
Zegna’sour ongoing operations.
Additionally, Trade Working Capital is a measure used by management in internal evaluations of cash availability and operational performance.
The following table sets forth the calculation of Trade Working Capital at December 31, 20212023 and 2020:
2022. | | | | |
| | | | | | |
| At December 31, | | | At December 31, |
(€ thousands) | | (€ thousands) | 2023 | | 2022 |
| | | 1,384,531 | | | | 1,239,156 | | Current assets | 1,287,636 | | 1,285,657 |
| | | (702,316 | ) | | | (535,454 | ) | Current liabilities | (1,012,123) | | (866,984) |
| | | | | | |
| | | | | | | | | Working capital | 275,513 | | 418,673 |
| | | | |
Derivative financial instruments | | | 1,786 | | | | 11,848 | |
Derivative financial instruments - Assets | |
Derivative financial instruments - Assets | |
Derivative financial instruments - Assets | | 11,110 | | 22,454 |
| | | 14,966 | | | | 15,611 | | Tax receivables | 31,024 | | 15,350 |
Other current financial assets | | | 340,380 | | | | 350,163 | | Other current financial assets | 90,917 | | 320,894 |
| | | 68,773 | | | | 66,718 | | Other current assets | 95,260 | | 84,574 |
Cash and cash equivalents | | | 459,791 | | | | 317,291 | | Cash and cash equivalents | 296,279 | | 254,321 |
| | | — | | | | 17,225 | |
| | | (157,292 | ) | | | (106,029 | ) | Current borrowings | (289,337) | | (286,175) |
Current lease liabilities | | | (106,643 | ) | | | (92,842 | ) | Current lease liabilities | (122,642) | | (111,457) |
Derivative financial liabilities | | | (14,138 | ) | | | (13,192 | ) |
Derivative financial instruments - Liabilities | | Derivative financial instruments - Liabilities | (897) | | (2,362) |
Other current financial liabilities | | | (33,984 | ) | | | — | | Other current financial liabilities | (22,102) | | (37,258) |
Current provisions for risks and charges | | | (14,093 | ) | | | (8,325 | ) | Current provisions for risks and charges | (16,019) | | (13,969) |
| | | (28,773 | ) | | | (33,362 | ) | Tax liabilities | (41,976) | | (25,999) |
Other current liabilities | | | (124,356 | ) | | | (76,637 | ) | Other current liabilities | (205,013) | | (118,828) |
Liabilities held for sale | | | — | | | | (16,725 | ) |
| | | | | | |
| | | | | | | | | Trade Working Capital | 448,909 | | 317,128 |
of which trade receivables | | | | | | | | | of which trade receivables | 240,457 | | 177,213 |
| | | | | | | | | of which inventories | 522,589 | | 410,851 |
of which trade payables and customer advances | | | | | | | | | of which trade payables and customer advances | (314,137) | | (270,936) |
Trade Working Capital increasedincreased by €3,840€131,781 thousand from €271,958€317,128 thousand at December 31, 20202022 to €275,798€448,909 thousand at December 31, 2021,2023, primarily related to (i) higher inventories of €111,738 thousand and (ii) higher trade receivables of €21,531 thousand and (ii) higher inventories of €17,004€63,244 thousand, partially offset by (iii) an increase inhigher trade payables and customer advances of €34,695€43,201 thousand. All increases reflectare driven by the overall increase in operations to support the growth in sales and production volumes, as well as the consolidation of TFI following the TFI Acquisition, which contributed Trade Working Capital of €51,557 thousand at December 31, 2023 (of which €63,151 thousand of inventories, €40,163 thousand of trade receivables and €51,757 thousand of trade payables and customer advances). The increase in inventories also reflects the build up of inventory of the Essentials collections, in line with the ZEGNA One Brand strategy, which occurred in the first half of 2023 and then normalized in the second half of the year, as well as the increase of Thom Browne inventory in order to support the growth of the business.
Free Cash Flow
Free Cash Flow is defined as net cash flows from operating activities less payments for property, plant and equipment (net of proceeds from disposals), intangible assets and lease liabilities.
The Group’s management believes that Free Cash Flow is a general recoveryuseful metric for management, investors and analysts to evaluate and monitor the Group’s ability to generate cash, including in comparison to other companies. Free Cash Flow is not representative of activity levelsresidual cash flows available for discretionary purposes.
The following table sets forth the Free Cash Flow for the years ended December 31, 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
Net cash flows from operating activities | 275,382 | | 146,398 | | 281,155 |
Payments for property, plant and equipment | (57,034) | | (49,114) | | (79,699) |
Proceeds from disposals of property plant and equipment | — | | — | | 3,791 |
Payments for intangible assets | (20,843) | | (24,185) | | (14,627) |
Payments of lease liabilities | (125,732) | | (121,633) | | (100,611) |
Free Cash Flow | 71,773 | | (48,534) | | 90,009 |
For an explanation of the drivers in 2021 Free Cash Flow see “Item 5.B—Liquidity and Capital Resources—Cash Flows” above.
Revenues on a constant currency basis (Constant Currency)
In addition to presenting our revenues on a current currency basis, we also present certain revenue information on a constant currency basis (Constant Currency), which excludes the effects of foreign currency translation from our subsidiaries with functional currencies different from the Euro.
We calculate Constant Currency revenues by applying the current period average foreign currency exchange rates to translate prior period revenues of foreign subsidiaries expressed in local functional currencies different than the Euro.
We use revenues on a Constant Currency basis to analyze how our underlying revenues have changed between periods independent of the effects of foreign currency translation.
Revenues on a Constant Currency basis are not a substitute for revenues on a current currency basis or any IFRS-related measures, however we believe that revenues excluding the impact of foreign currency translation provide additional useful information to management and to investors in analyzing and evaluating our revenues and operating performance.
Revenues on an organic growth basis (Organic Growth)
In addition to presenting our revenues on a current currency basis, we also present certain revenue information on an organic growth basis (Organic Growth). Organic Growth is calculated as the change in revenues from period to period, excluding the effects of (a) foreign exchange, (b) acquisitions and disposals and (c) changes in license agreements where the Group operates as a licensee.
In calculating Organic Growth, the following adjustments are made to revenues:
(a)Foreign exchange – Current period average foreign currency exchange rates are used to translate prior period revenues of foreign subsidiaries expressed in local functional currencies different than the Euro.
(b)Acquisitions and disposals – Revenues generated by businesses and operations acquired or disposed in the current year or prior year are excluded from both periods. Additionally, where a business or operation was a customer prior to an acquisition, the related pre-acquisition revenues are excluded from the current and prior periods.
(c)Changes in license agreements where the Group operates as a licensee – Revenues generated from license agreements where the Group operates as a licensee that are new or terminated in the current year or prior year are excluded from both periods (except if the effects are already included in acquisitions and disposals). Additionally, revenues generated from license agreements where the Group operates as a licensee that experienced a structural change in the scope or perimeter in the current year or prior year are excluded from both periods, including changes to product categories, distribution channels or geographies of the underlying license agreements.
We believe the presentation of Organic Growth is useful to better understand and analyze the underlying change in the Group’s revenues from period to period on a consistent perimeter and constant currency basis.
Revenues on an Organic Growth basis are not a substitute for revenues on a current currency basis or any IFRS-related measures, however we believe that revenues excluding the effects of (a) foreign exchange, (b) acquisitions and disposals and
(c) changes in license agreements where the Group operates as a licensee provide additional useful information to management and to investors in analyzing and evaluating our revenues and operating performance.
The tables below show a reconciliation of revenue growth to organic growth, excluding the effects of foreign exchange, acquisitions and disposals and changes in license agreements where the Group operates as a licensee, by segment, by product line, by distribution channel and by geography:
•for the year ended December 31, 2023 compared to 2020,the year ended December 31, 2022 (FY 2023 vs FY 2022);
•for the year ended December 31, 2022 compared to the year ended December 31, 2021 (FY 2022 vs FY 2021);
Segment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FY 2023 vs FY 2022 |
| Revenues growth | | less Foreign exchange | | less Acquisitions and disposals | | less Changes in license agreements where the Group operates as a licensee | | Organic Growth |
Zegna | 12.4 | % | | (1.4 | %) | | — | % | | (5.7 | %) | | 19.5 | % |
Thom Browne | 14.9 | % | | (3.4 | %) | | 0.5 | % | | — | % | | 17.8 | % |
Tom Ford Fashion(*) | n.m. | | n.m. | | n.m. | | n.m. | | n.m. |
Total for the Group | 27.6 | % | | (2.1 | %) | | 16.2 | % | | (5.8 | %) | | 19.3 | % |
(*) Throughout this section considered not meaningful (n.m.) as the Group began operating the Tom Ford Fashion segment following the TFI Acquisition, which was adversely impacted bycompleted on April 28, 2023, therefore there is no comparison figure for the period.
COVID-19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FY 2022 vs FY 2021 |
| Revenues growth | | less Foreign exchange | | less Acquisitions and disposals | | less Changes in license agreements where the Group operates as a licensee | | Organic Growth |
Zegna | 13.7 | % | | 4.4 | % | | 0.4 | % | | 0.5 | % | | 8.4 | % |
Thom Browne | 25.3 | % | | 4.7 | % | | — | % | | — | % | | 20.6 | % |
Tom Ford Fashion | n.m. | | n.m. | | n.m. | | n.m. | | n.m. |
Total for the Group | 15.5 | % | | 4.5 | % | | 0.2 | % | | 0.4 | % | | 10.4 | % |
pandemic.
Qualitative and Quantitative Information on Financial Risks103
For a detailed description of Zegna’s financial risk factors and financial risk management, see
Note 41 - Qualitative and quantitative information on financial risks
to theProduct line
Consolidated Financial Statements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FY 2023 vs FY 2022 |
| Revenues growth | | less Foreign exchange | | less Acquisitions and disposals | | less Changes in license agreements where the Group operates as a licensee | | Organic Growth |
ZEGNA branded products | 20.1 | % | | (2.2 | %) | | — | % | | — | % | | 22.3 | % |
Thom Browne | 14.7 | % | | (3.3 | %) | | 0.5 | % | | — | % | | 17.5 | % |
TOM FORD FASHION | n.m. | | n.m. | | n.m. | | n.m. | | n.m. |
Textile | 10.4 | % | | 1.0 | % | | (0.1 | %) | | — | % | | 9.5 | % |
Third Party Brands | (74.1 | %) | | 0.1 | % | | — | % | | (56.8 | %) | | (17.4 | %) |
Other | 10.8 | % | | (0.8 | %) | | (3.8 | %) | | — | % | | 15.4 | % |
Total for the Group | 27.6 | % | | (2.1 | %) | | 16.2 | % | | (5.8 | %) | | 19.3 | % |
included elsewhere in this annual report on Form20-F. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FY 2022 vs FY 2021 |
| Revenues growth | | less Foreign exchange | | less Acquisitions and disposals | | less Changes in license agreements where the Group operates as a licensee | | Organic Growth |
ZEGNA branded products | 9.0 | % | | 4.9 | % | | — | % | | — | % | | 4.1 | % |
Thom Browne | 25.3 | % | | 4.7 | % | | — | % | | — | % | | 20.6 | % |
TOM FORD FASHION | n.m. | | n.m. | | n.m. | | n.m. | | n.m. |
Textile | 33.8 | % | | (1.6 | %) | | 2.7 | % | | — | % | | 32.7 | % |
Third Party Brands | 30.5 | % | | 2.6 | % | | — | % | | (58.2 | %) | | 86.1 | % |
Other | (3.8 | %) | | 3.7 | % | | — | % | | — | % | | (7.5 | %) |
Total for the Group | 15.5 | % | | 4.5 | % | | 0.2 | % | | 0.4 | % | | 10.4 | % |
New Standards, Amendments and Interpretations under IFRS104
Distribution channel
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FY 2023 vs FY 2022 |
| Revenues growth | | less Foreign exchange | | less Acquisitions and disposals | | less Changes in license agreements where the Group operates as a licensee | | Organic Growth |
Direct to Consumer (DTC) | | | | | | | | | |
ZEGNA branded products | 22.4 | % | | (3.0 | %) | | — | % | | — | % | | 25.4 | % |
Thom Browne | 25.9 | % | | (8.2 | %) | | 14.4 | % | | — | % | | 19.7 | % |
TOM FORD FASHION | n.m. | | n.m. | | n.m. | | n.m. | | n.m. |
Total Direct to Consumer (DTC) | 37.8 | % | | (4.3 | %) | | 17.6 | % | | — | % | | 24.5 | % |
| | | | | | | | | |
Wholesale | | | | | | | | | |
ZEGNA branded products | 8.4 | % | | 1.4 | % | | — | % | | — | % | | 7.0 | % |
Thom Browne | 5.8 | % | | (0.2 | %) | | (9.7 | %) | | — | % | | 15.7 | % |
TOM FORD FASHION | n.m. | | n.m. | | n.m. | | — | % | | n.m. |
Third Party Brands and Textile | (24.8 | %) | | 0.7 | % | | (0.1 | %) | | (31.2 | %) | | 5.8 | % |
Total Wholesale | 11.3 | % | | 0.6 | % | | 14.9 | % | | (13.8 | %) | | 9.6 | % |
Other | n.m. | | n.m. | | n.m. | | n.m. | | n.m. |
Total for the Group | 27.6 | % | | (2.1 | %) | | 16.2 | % | | (5.8 | %) | | 19.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FY 2022 vs FY 2021 |
| Revenues growth | | less Foreign exchange | | less Acquisitions and disposals | | less Changes in license agreements where the Group operates as a licensee | | Organic Growth |
Direct to Consumer (DTC) | | | | | | | | | |
ZEGNA branded products | 8.4 | % | | 5.5 | % | | — | % | | — | % | | 2.9 | % |
Thom Browne | 5.1 | % | | 6.6 | % | | — | % | | — | % | | (1.5 | %) |
TOM FORD FASHION | n.m. | | n.m. | | n.m. | | n.m. | | n.m. |
Total Direct to Consumer (DTC) | 7.8 | % | | 5.6 | % | | — | % | | — | % | | 2.2 | % |
| | | | | | | | | |
Wholesale | | | | | | | | | |
ZEGNA branded products | 12.6 | % | | 2.0 | % | | — | % | | — | % | | 10.6 | % |
Thom Browne | 47.7 | % | | 1.1 | % | | — | % | | — | % | | 46.6 | % |
TOM FORD FASHION | n.m. | | n.m. | | n.m. | | n.m. | | n.m. |
Third Party Brands and Textile | 32.4 | % | | 0.2 | % | | 1.6 | % | | (8.0 | %) | | 38.6 | % |
Total Wholesale | 30.7 | % | | 1.3 | % | | 0.6 | % | | (2.0 | %) | | 30.8 | % |
Other | n.m. | | n.m. | | n.m. | | n.m. | | n.m. |
Total for the Group | 15.5 | % | | 4.5 | % | | 0.2 | % | | 0.4 | % | | 10.4 | % |
Geographical area
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FY 2023 vs FY 2022 |
| Revenues growth | | less Foreign exchange | | less Acquisitions and disposals | | less Changes in license agreements where the Group operates as a licensee | | Organic Growth |
EMEA (1) | 26.6 | % | | (1.1 | %) | | 15.4 | % | | (6.5 | %) | | 18.8 | % |
of which Italy | 25.6 | % | | — | % | | 13.0 | % | | (5.8 | %) | | 18.4 | % |
of which UK | 30.1 | % | | (1.6 | %) | | 30.7 | % | | (13.7 | %) | | 14.7 | % |
of which UAE | 35.0 | % | | (3.2 | %) | | 7.3 | % | | — | % | | 30.9 | % |
North America (2) | 41.6 | % | | 1.2 | % | | 41.3 | % | | (12.3 | %) | | 11.4 | % |
of which United States | 42.3 | % | | 1.4 | % | | 42.6 | % | | (12.1 | %) | | 10.4 | % |
Latin America (3) | 25.6 | % | | 9.4 | % | | — | % | | — | % | | 16.2 | % |
APAC (4) | 22.2 | % | | (5.1 | %) | | 5.5 | % | | (1.9 | %) | | 23.7 | % |
of which Greater China Region | 20.5 | % | | (5.2 | %) | | 2.1 | % | | (0.6 | %) | | 24.2 | % |
of which Japan | 29.9 | % | | (9.9 | %) | | 15.9 | % | | (4.4 | %) | | 28.3 | % |
Other (5) | (8.6 | %) | | (0.3 | %) | | 17.3 | % | | — | % | | (25.6 | %) |
Total for the Group | 27.6 | % | | (2.1 | %) | | 16.2 | % | | (5.8 | %) | | 19.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FY 2022 vs FY 2021 |
| Revenues growth | | less Foreign exchange | | less Acquisitions and disposals | | less Changes in license agreements where the Group operates as a licensee | | Organic Growth |
EMEA (1) | 36.8 | % | | 0.6 | % | | 0.5 | % | | (3,6%) | | 39.3 | % |
of which Italy | 41.3 | % | | (0.5 | %) | | 0.2 | % | | (0,5%) | | 42.1 | % |
of which UK | 43.2 | % | | 1.0 | % | | 0.1 | % | | (9,5%) | | 51.6 | % |
of which UAE | 54.6 | % | | 16.2 | % | | — | % | | (1,2%) | | 39.6 | % |
North America (2) | 54.1 | % | | 10.9 | % | | 0.1 | % | | 1.7 | % | | 41.4 | % |
of which United States | 53.5 | % | | 11.4 | % | | 0.1 | % | | 2.1 | % | | 39.9 | % |
Latin America (3) | 49.7 | % | | 16.3 | % | | — | % | | — | % | | 33.4 | % |
APAC (4) | (7.4 | %) | | 4.2 | % | | 0.1 | % | | 0.1 | % | | (11.8 | %) |
of which Greater China Region | (16.1 | %) | | 4.5 | % | | — | % | | — | % | | (20.6 | %) |
of which Japan | 18.0 | % | | (5.7 | %) | | 0.1 | % | | (0.7 | %) | | 24.3 | % |
Other (5) | (27.7 | %) | | 1.9 | % | | — | % | | — | % | | (29.6 | %) |
Total for the Group | 15.5 | % | | 4.5 | % | | 0.2 | % | | 0.4 | % | | 10.4 | % |
(1)EMEA includes Europe, the Middle East and Africa.
(2)North America includes the United States of certain recently adopted, issued or proposed accounting standards which may impact Zegna’s consolidated financial statements in future reporting periods, refer toAmerica and Canada.
(3)Latin America includes Mexico, Brazil and other Central and South American countries.
(4)APAC includes the sections“Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New standardsZealand, India and amendments applicable from Januaryother Southeast Asian countries.
(5)Other revenues mainly include royalties.
and“New standards, amendments and interpretations not yet effective”
inNote 3 – Summary of significant accounting policies
to theConsolidated Financial Statements
included elsewhere in this annual report on Form20-F.
| ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A.Directors and Senior Management
Pursuant to the Zegna Articles of Association, Zegnathe Company has aone-tier
board consisting of one or more Zegna Executive Directors, having responsibility for themanagement of Zegnathe Company and one or more ZegnaNon-Executive
Directors having oversight responsibilities but not responsibility to manage themanagement. The Zegna Board determines the number of Zegna Executive Directors and ZegnaNon-Executive
Directors, provided that the majority of the Zegna Board consists of ZegnaNon-Executive
Directors. The Zegna Board as a whole is responsible for the strategy of Zegna. Zegnathe Company with a focus on sustainable long-term value creation, taking into account the relevant stakeholders’ interests. Directors are appointed by the Zegna General Meeting on a binding nomination by the Zegna Board, also taking into account the binding nomination rights set out in the Zegna Articles of Association and further described under “Item 10.B—Memorandum and Articles of Association—Board of Directors—Nomination and Appointment.
” The Zegna Board may allocate its duties and powers among the Zegna Directors and the committees of the Zegna Board in accordance with the Zegna Board Regulations or otherwise in writing. Pursuant to the Zegna Articles of Association, the general authority to represent Zegnathe Company is vested in the Zegna Board and any Zegna Executive Director.
As ofAt the date of this report, the Zegna Board is composed of eleven members as set forth the in the following table. Unless otherwise indicated, the business address of each person listed below is c/o Ermenegildo Zegna N.V., Viale Roma 99/100, 13835 Valdilana loc. Trivero, Italy.
| | | | | | | | | | | | | | |
| | | | |
Mr. Ermenegildo Zegna di Monte Rubello | | 1955 | | 1955 | Chairperson, Chief Executive Officer and Executive Director |
Mr. Andrea C. Bonomi | | 1965 | | 1965 | Non-Executive Director |
Ms. Angelica Cheung | | 1966 | | 1966 | Non-Executive Director |
Mr. Domenico De Sole | | 1944 | | 1944 | Non-Executive Director |
Mr. Sergio P. Ermotti | | 1960 | | 1960 | Lead Non-Executive Director and Non-Executive Director |
Mr. Ronald B. Johnson | | 1958 | | 1958 | Non-Executive Director |
Ms. Valerie A. Mars | | 1959 | | 1959 | Non-Executive Director |
Mr. Michele Norsa | | 1948 | | 1948 | Non-Executive Director |
Mr. Henry Peter | | 1957 | | 1957 | Non-Executive Director |
Ms. Anna Zegna di Monte Rubello | | 1957 | | 1957 | Non-Executive Director |
Mr. Paolo Zegna di Monte Rubello | | 1956 | | 1956 | Non-Executive Director |
Mr. Andrea C. Bonomi has been nominated as the Sponsor Nominee; the other Zegna Directors have been nominated by Monterubello and Ermenegildo Zegna.
the Board.TheAll current members of the Zegna Board were appointed effective as of December 17, 2021 and theirreappointed during the annual General Meeting held on June 27, 2023. The term of office of each member of the Board will end at the close of the next annual Zegna General Meeting. Each Zegna Director may be reappointed.
For the current term of appointment, theThe Board has designated Mr. Ermenegildo (Gildo) Zegna Board designateddi Monte Rubello, Executive Director, also as Chairperson and Chief Executive Officer and Mr. Sergio Ermotti, Non-Executive Director, as LeadNon-Executive
Director, being the chair () as referred to under Dutch law.Summary biographies of the Zegna Directors are set out below.
Ermenegildo (Gildo) Zegna di Monte Rubello
(Chairperson, (Chairperson, Chief Executive Officer and Executive Director)
Gildo Zegna is currently the Chairman and CEO of Ermenegildo Zegna Group.
A member of the Zegna family’s third generation, Mr. Zegna
has been Chief Executive Officer of Zegna since 2006, having servedoversees the company founded by his grandfather and namesake in 1910. In December 2021, he led the Group through its public listing on the
Company’s board since 1989 andNew York Stock Exchange, making history as
Co-Chief
Executive Officer from 1998 to 2006. Under his leadership, Zegna has pursued a strategy of vertical integration and has experienced its most extensive growth stage driven by continuous international expansion in countries within the
Middle East, Australia, Brazil and Africa.first Italian luxury group listed on the world’s largest stock exchange.
Mr. Zegna was born in Turin, Italy, in 1955, and graduated from the University of London in 1978. After starting his career at Bloomingdale’s in New York, he joined the family business in 1982, managing distribution of Zegna productsleading the Company’s business in the United StatesNorth America and Canada, as President of Ermenegildo Zegna Corporation. From 1986 tothen in Spain. In 1989, he joined the company’s Board of Directors and served as the ChiefCo-Chief Executive Officer of Italco SA, supervising distribution of Zegna products in Spain. Mr. Zegna was actively involved in Zegna’s expansion in America and Europe, and in 1991from 1998 to 2006.
In addition to his role at the Group, he oversaw the opening of the brand’s first store in China.
Mr. Zegna is also Chairman of the board of directors of Monterubello, and Thom Browne Inc. and, a board memberstarting from 2023, of Tom Ford International LLC. He also served as a member of the board of directors of Fiat Chrysler Automobiles N.V. from 2014 to 2021. In 2021, he was appointed as President of Filati Biagioli Modesto S.r.l.
Since 2013,
Mr. Zegnahe has been a member of the
boardStrategic Committee and Advisor of
Camera Nazionale della Moda Italiana
(The (The National Chamber for Italian Fashion)
, anon-profit
association committed to promoting the development of Italian fashion, and
ahas been an active member of the Council for the United States and Italy. In 2011, Mr. Zegna was nominated
by the President of the Italian Republic and,
in 2016, received the Leonardo Prize,
a prestigious award given to an Italian leader who has meaningfully promoted Italy’s image on a global scale, from the President of the Italian
Republic in 2016.Republic.
Born in Turin (Italy) in 1955, Mr. Zegna isoversaw the successful acquisition and integration of Thom Browne in 2018, the rebranding of Zegna in 2021 and, more recently, the TFI Acquisition and entry into the TFF License. Prior to this, Mr. Zegna was actively involved in the Company’s expansion in America and Europe, and in 1991 he oversaw the opening of the brand’s first store in China.
Under his leadership, the Group – which started as a graduatesingle wool mill in economics fromTrivero, Italy – has grown into a leading Italian luxury group building on a portfolio of three complementary luxury brands and encompassing a one-of-a-kind Made in Italy Luxury Textile Laboratory Platform that produces some of the University of London.
world’s finest textiles and fabrics.(Non-Executive
(Non-Executive Director)
Mr. Bonomi was appointed asis currently a member of the board of directors of Zegna on December 17,Board, a position he has held since 2021.
Mr. Bonomi established Investindustrial in 1990is Investindustrial’s Founder and Invest for Children in 2000 and currently serves as Chairman of the Industrial and Advisory Board.
Previously, heTeams’ Committees. Prior to founding Investindustrial in 1990, Mr. Bonomi was responsible for the Saffa Group (a diversified industrial holding company) and investments in Europe and the USA, which included acquisitions, divestments and fund raising. He has been chairman or director of a number of industrial and financial companies including Banca Popolare di Milano, RCS MediaGroup, Illycaffé S.p.A. and 21 Investimenti, 21 Centrale Partners and Inversiones Ibersuizas in the private equity industry.United States. Prior to that,Saffa, he was employedworked at Kleinwort Benson in London, where he was responsible for Spain and Italy, and at Lazard Frères & Co. in New York. In both cases, he was assigned to their respective merger
Mr. Bonomi has been a private equity investor for 30 years and acquisitions departments. has served as chairman or director in a number of industrial and financial companies, including BPM, RCS MediaGroup, Permasteelisa, 21 Investimenti, 21 Centrale Partners and Inversiones Ibersuizas.
He is a Trustee of the New York University, a member of the NYU President’s Global Council and a Private Equity Awards “Hall of Fame” (2018) inductee.
Born in New York City (USA) in 1965, Mr. Bonomi holds a B.Sc. in Business Administration from New York University.
(Non-Executive
(Non-Executive Director)
Ms. Cheung was appointed asis currently a member of the boardBoard, a position she has held since 2021, and also serves as member of directors of Zegna on December 17, 2021.
the Governance and Sustainability Committee.Ms. Cheung was the founding
of Vogue China and served as its
from 2005 to 2020.
In February 2021, Ms. Cheung joined Sequoia Capital China as Venture Partner where she focuses on investments in the fashion/lifestyle/entertainment industry, especially the new generation of Chinese innovation and international brands seeking expansion in China. Since June 2021, Ms. Cheung has served on the board of directors of SSense, a Montreal-based fashion platform. In 2022, she was appointed as a member of board of directors of AMI 9 Holding (AMI Paris), Rare Inc.
(WE11DONE) and Holzweizer Oslo. She is Asia ambassador for the British Fashion Council, serves on the Advisory Board of Advance Global Alumni and is a strategic advisor to several international brands.
Born in Beijing (China) in 1966, Ms. Cheung holds degrees in law and literature from Beijing University as well as a M.B.A. from the University of South Australia.
(Non-Executive
(Non-Executive Director)
Mr. De Sole is currently a member of the board of directors of Zegna,Board, a position he has held since 2005.
2005, and also serves as member of the Compensation Committee.Mr. De Sole is the
co-founder
of luxury retailer Tom Ford International, LLC and has been the Chairman of its board of directors
sincefrom its formation in
2005.2005 until the consummation of the TFI Acquisition. During this time, Mr. De Sole also advised private equity firms in transactions in the field of fashion business.
From 1984 to 1994, Mr. De Sole served as President and Chief Executive Officer of Gucci America, and, from 1994 to 2004, he served as the President and Chief Executive Officer of Gucci Group, which during his tenure made significant acquisitions such as YSL, Bottega Veneta and Balenciaga. Mr. De Sole has served on the board of directors of numerous public and private company, boards of directors, including his current roleand he currently serves as director of Pirelli & C. S.p.A. He formerly served as Chairman of Sotheby’s, and director of Conde Nast, Bausch & Lomb Incorporated, Delta Airlines, Inc., Gap, Inc., Newell Brands Inc., and Procter & Gamble and Telecom Italia S.p.A.Gamble.
Born in Rome (Italy) in 1944, Mr. De Sole graduated from the University of Rome with a law degree and received a L.L.M. from Harvard Law School where he also currently serves as a member of the Dean’s Advisory Board.
Sergio P. Ermotti was appointed as(Non-Executive Director)
Mr. Ermotti is currently a member of the board of directors of Zegna on December 17, 2021, whereBoard, a position he has held since 2021. Mr. Ermotti serves as LeadNon-Executive
Director. Mr. Ermotti was elected to the board of directors of Swiss Re Ltd. in April 2020Chair (voorzitter) under the Dutch law and has been granted the title of Lead Non-Executive Director.
Mr. Ermotti has been Group CEO of UBS Group AG and President of the Executive Board of UBS AG since April 2023. He was also the Group CEO from 2011 to 2020. He re-joined UBS from Swiss Re Ltd, where he served as Chairman of the boardBoard of directors sinceDirectors from April 2021.
2021 to April 2023.Mr. Ermotti was Group Chief Executive Officer ofPrior to joining UBS
Group from Septemberin 2011,
to October 2020, having joined the Group Executive Board in April 2011. Before, he was at UniCredit Group,
servingwhere from 2007 to 2010 he served as Group Deputy Chief Executive Officer and Head of Corporate & Investment Banking and Private Banking, after having served as Head of the Markets & Investment Banking Division
as of December 2005, and from 2007 to 2010, as Group Deputy Chief Executive Officer responsible for Corporate and Investment Banking and Private Banking.since 2005. Between 1987 and 2004, he held various positions at Merrill Lynch &
CoCo. in the areas of equity derivatives and capital markets. He became
Co-Head
of Global Equity Markets and a member of the Executive Management Committee for Global Markets & Investment Banking in 2001.
Born in Lugano (Switzerland) in 1960, Mr. Ermotti is a Swiss-certified banking expert and a graduate of the Advanced Management Program at Oxford University.
(Non-Executive
(Non-Executive Director)
Mr. Johnson is currently a member of the board of directors of Zegna,Board, a position he has held since 2019.
Table2019, and also serves as member of Contentsthe Audit Committee and the Governance and Sustainability Committee. Mr. Johnson is also a member of the board of directors of Ermenegildo Zegna Corporation, a subsidiary of the Company in the United States.Mr. Johnson is the founder of Enjoy Technology Inc., where he has served as Chief Executive Officer since 2014.from 2014, through the sale of the majority of the assets of the company in 2022 and the shutdown of the remainder of the company in the same year. He also serves as a member of the board of directors of Globality, Inc., Philz Coffee, Inc., and Fish Six Restaurant Corp (d/b/a The Melt) and other private companies..
Previously, Mr. Johnson served as the Chief Executive Officer of JCPenney Company, Inc. from November 2011 to April 2013, Senior Vice President of Retail at Apple Inc. from January 2000 to October 2011, and Vice President of Merchandising at Target Corporation from September 1984 to December 1999.
Born in Minneapolis (USA) in 1958, Mr. Johnson holds a B.A. in Economics from Stanford University and a M.B.A. from Harvard Business School.
(Non-Executive
(Non-Executive Director)
Ms. Mars was appointed asis currently a member of the board of directors of Zegna on December 17, 2021, whereBoard, a position she has held since 2021. Ms. Mars also serves as chairperson of the Audit Committee and member of the Compensation Committee.
Ms. Mars currently serves as Senior Vice President & Head of Corporate Development for Mars, Incorporated, a diversified food business operating in over 120 countries, where she focuses on acquisitions, joint ventures and divestitures for the company.
Previously, Ms. Mars served as a member of the board of directors of Fiat Chrysler Automobiles N.V. from 2014 until its merger with Peugeot S.A. in 2021, Ahlstrom-Munksjo, a Finnish/Swedish listed specialty paper business, from 2018 until its delisting in 2021, and Celebrity Inc., a NASDAQ listed company, from 1994 to 2000.
Ms. Mars began her career with Manufacturers Hanover Trust Company as a training program participant and rose to Assistant Secretary. Prior to joining Mars, Incorporated, Ms. Mars was a controller with Whitman Heffernan Rhein, a boutique investment company. Ms. Mars is also involved in a number of community and educational organizations and currently serves on the Boardboard of directors of Conservation International, where she chairs the Audit Committee.
Born in New York City (USA) in 1959, Ms. Mars holds a Bachelor of Arts degree from Yale University and a M.B.A. from the Columbia Business School.
(Non-Executive
(Non-Executive Director)
Mr. Norsa is currently a member of the board of directors of Zegna,Board, a position he has held since 2017. He also serves as chairperson of the Governance and Sustainability Committee and member of the Audit Committee.
Until December 31, 2021, Mr. Norsa was Executive Vice Chairman of Salvatore Ferragamo S.p.A., where he previously served as Chief Executive Officer from 2006 to 2016. In 2022, he was appointed as a member of the board of directors of Palazzo Feroni Finanziaria S.p.A., engaged in the business of real estate and luxury hospitality. He is also adirector of Horacio Pagani S.p.A. and member of the International Advisory Board of the China Europe International Business School in Shanghai (CEIBS). Furthermore, he is a member of the board of directors of Azimut Benetti S.p.A. Since September 2023, Mr. Norsa has become Global Senior Advisor of the Boston Consulting Group. Previously, Mr. Norsa served on the board of directors of Thom Browne Inc., Rocco Forte Hotels, Oettinger Davidoff Group and Hugo Boss, and successfully led two IPOs in the luxury sector (Salvatore Ferragamo S.p.A. in 2011 and Valentino Fashion Group S.p.A. in 2005).
Mr. Norsa has extensive experience in the fashion, consumer goods and publishing sectors with Marzotto, Benetton, Sergio Tacchini, Rizzoli Editore and Mondadori Editore.
Born in Lecco (Italy) in 1948, Mr. Norsa graduated in Business and Economics from Università Cattolica del Sacro Cuore in Milan.
(Non-Executive
(Non-Executive Director)
Mr. Peter is currently a member of the board of directors of Zegna,Board, a position he has held since 2014. He also serves as chairperson of the Compensation Committee.Committee and as director of Consitex SA, a subsidiary of the Company.
Mr. Peter serves on the board of directors of Swiss Life AG (Switzerland’s largest life insurance company) and, among others, of Banque Lombard Odier & Cie SA, where he chairs the Audit Committee, and is Chairman of the board of directors of Sigurd Rück AG, a captive reinsurance company of the Italian Saipem SpA group.S.p.A. Group. He is also Chairman of the board of directors of Brembo Reinsurance AG, a captive reinsurance company of the Italian Group Brembo S.p.A. He was a member of the Swiss Takeover Board between 2004 and 2015 and has been a member of the Sanctions Commission of the SIX Swiss Exchange since 2007.
Born in Boston (USA) in 1957, Mr. Peter holds a Ph.D. in law from the University of Geneva. Since 1988, Mr. Peter has been a partner in a Lugano law firm, currently Kellerhals Carrard Lugano SA.SA, and in 2022 he joined the board of
directors of the Swiss cooperative Kellerhals Carrard Genossenschaft. He has also served since 1997 as professor of business law, and since 2017 as President of the Geneva Center for Philanthropy, at the University of Geneva.
Mr. Peter is Vice-Chairman of the disciplinary chamberSwiss Sports Disciplinary Chamber of the Swiss Olympic Association in charge of dopingdisciplinary cases, a position he has held since 2001. He is also Chairman of the board of the Foundation for the Lugano Faculties of the Swiss Italian University, member of the audit committee of the University of Geneva and a memberChairman of the board of the Foundation of the Swiss Italian Art Museum (MASI).
Anna Zegna di Monte Rubello
(Non-Executive
(Non-Executive Director)
Ms. Zegna is currently a member of the board of directors of Zegna,Board, a position she has held since 2018.
Ms. Zegna has served as headis also Sustainability Officer of Oasi Zegna, a position she has held since 2014 and has2014; prior to that, she directed the Store Planning at Zegna from 1995 to 1998 and the Group Image until 2017. Ms. Zegna is still involved in the Store Planning of Zegna as a special advisor. She is also a member of the board of directors of Monterubello as well as Chairman of Fondazione Zegna, where she oversees the planning and coordination of local and international humanitarian initiatives related to conservation, sustainable development and education. She is also member of the board of directors of the non-profit foundation Fondo Ambiente Italiano (FAI) and of thenon-profit
foundation Fondo Ambiante Italiano (FAI).San Patrignano Foundation. Previously, Ms. Zegna headed the public relations department of Gianni Versace from 1982 to 1984 before joining Zegna in 1984 as Head of Corporate Advertising and External Relations Manager. In 1993, along with Laura Zegna, Ms. Zegna developed the Oasi Zegna project, which has over the years become a model of environmental sustainability. In 1998, she won a Green Globe Award for her work at
Zegnathe Company in support of environmental issues and was appointed to the management committee of Touring Club Italiano in 2002. In 2007, in recognition of her social commitment, she received a MarcoPolo Award from the prestigious Babson College in Boston.
Ms. Zegna is also the PresidentIn 2023, she was nominated by AIDAF (the Italian Association of
, where she oversees the planning and coordination Family Businesses) as Ambassador of
international humanitarian initiatives related to conservation, sustainable development and education.Italian Enterprise Culture.
Born in Turin (Italy) in 1957, Ms. Zegna holds a degree in Political Sciences from the University of Lausanne and did her post-graduate studies in advertising and marketing at Watford College.
Mr. Ermenegildo Zegna di Monte Rubello and Ms. Anna Zegna di Monte Rubello are siblings.
Paolo Zegna di Monte Rubello
(Non-Executive
(Non-Executive Director)
Mr.
Paolo Zegna
is currently a member of the Board, where he has served as Chairman
of the board of directors of Zegna from 2006 until December 2021. Previously, he served as a member of the
board of directors of ZegnaBoard from 1989 to 1998 and was
Co-Chief
Executive Officer from 1998 to 2006.
Mr. Paolo Zegna is also Vice-Chairman of the board of directors of Monterubello and Chairman of the board of directors of Lanificio Ermenegildo Zegna e Figli S.p.A., Achill Station Pty Ltd. and Achill StationLand Pty Ltd., and a member of the board of directors of Bonotto S.p.A., Gruppo Dondi S.p.A. and Elah Dufour S.p.A.
Mr. ZegnaHe has been a member of the board of
since 2005, which represents companies of the entire supply chain and is the official interlocutor in relations with Italian and international institutions and organizations. He also served as Vice President of the Altagamma Foundation, which is committed to gathering
high-end
cultural and creative companies and increasing the competitiveness of the
high-end
industry.
Born in Turin (Italy) in 1956, Mr. Paolo Zegna holds a degree in Economics from the University of Geneva.
Mr. Ermenegildo Zegna di Monte Rubello and Ms. Anna Zegna di Monte Rubello are siblings. Mr. Paolo Zegna di Monte Rubello is a cousin to Mr. Ermenegildo Zegna di Monte Rubello and Ms. Anna Zegna di Monte Rubello.
The senior managementSenior Management Team of Zegnathe Group comprises the following individuals:
•Ermenegildo Zegna di Monte Rubello as Chairman and Chief Executive Officer;
•Gianluca Ambrogio Tagliabue as Chief Operating Officer and Chief Financial Officer;
•Alessandro Sartori as Zegna Artistic Director;
•Franco Ferraris as Head of Textiles;
•Rodrigo Bazan as Chief Executive Officer of Thom Browne; and
•Thom Browne as Founder and Chief Creative Officer of Thom Browne.
Browne; and
Summary biographies of members of the senior managementSenior Management Team are set out below.
Ermenegildo (Gildo) Zegna di Monte Rubello
For the biography of Mr.Gildo Zegna, please see“— “—Board of Directors.Directors.”
Mr. Tagliabue currently serves as theGroup Chief Financial Officer and Chief Operating Officer, and Chief Financial Officer of Zegna, positions he has held since January 2020.
Mr. Tagliabue joined Zegnathe Group in January 2016 as Chief Financial Officer and Head of Business Development. Before joining Zegna,the Group, Mr. Tagliabue was the Chief Financial Officer and Senior Vice President, Strategy and Shared Services of Oakley Group from 2012 to 2015, based in California, USA. Previously, he served as Group Business Development Director and International Business Development Director (Retail, Sun & Luxury) of the Luxottica Group from January 2011 to June 2012 and from June 2010 to December 2010, respectively. Mr. Tagliabue has over 10 years of experience in strategic consulting, having worked at Value Partners, in Italy and Brazil, as Partner from 2005 to 2010 and as Senior Manager from 2001 to 2005, and earlier at Gemini Consulting.
Born in Milan (Italy) in 1968, Mr. Tagliabue holds a degree in Business Administration from the Bocconi University in Milan.
Mr. Sartori is currently the Artistic Director of Zegna,ZEGNA, a position he has held since 2016, and oversees all the brands and creative functions in the Zegna Branded ProductsZEGNA branded products product line. He started his professional career at Zegnathe Company in 1989 and worked as a men’s wearmenswear designer for over 10 years. In 2003, Mr. Sartori was appointed Creative Director of Z Zegna. During his eight-year tenure as Creative Director, he oversaw the launch of the brand, including its first runway show in New York City in 2007.
In 2011, Mr. Sartori joined Berluti, a Paris-based menswear brand which becamehad become part of the LVMH group in 2003, as Artistic Director where he was responsible for developing the brand.
Born in Trivero (Italy) in 1966, Mr. Sartori studied fashion design at Istituto Marangoni Milano.
Mr. Ferraris is currently the Head of Textiles, at Zegna, a position he has held since 1992.
Mr. Ferraris has served as the Chief Executive Officer and General Manager of Lanificio Ermenegildo Zegna e Figli S.p.A. since 1992.1992, where he has been serving as Managing Director starting from 2022. He is also the Chairman of the board of directors of Bonotto S.p.A., Gruppo Dondi S.p.A. and Tessitura Ubertino S.r.l. Mr. Ferraris also serves on the board of directors of a number of private companies in the industrial services and real estate sector, including Finissaggio e Tintoria Ferraris S.p.A., Pettinatura di Verrone S.r.l., F2 S.r.l., Immobiliare Giulia s.s. and Immobiliare Magda s.s. Since
From 2015
to 2023, he
has served as the Chairman of
Fondazione Cassa di Risparmio di Biella,
, which plays an active role in supporting initiatives aimed at promoting the cultural, economic and social growth of the Province of Biella.
Born in Turin (Italy) in 1956, Mr. Ferraris holds a degree in Business and Economics from the University of Ancona.
Mr. Franco Ferraris is the spouse of Ms. Anna Zegna di Monte Rubello.
Mr. Bazan is currently the Chief Executive Officer of Thom Browne, a position he has held since 2016. Under his leadership, Thom Browne has expanded in the DTC channel, opening directly-operated stores in North America, Europe, UK, Japan and Greater China Region, Middle East and with partners in
Korea, Hong-Kong SAR and South East
Asia. He hasAsia, as well as in South Korea (where the 17 retail stores previously managed by Samsung under franchising arrangements were acquired by the Group to be directly operated by Thom Browne Korea Ltd. from July 1, 2023). Mr. Bazan also led the digital retail footprint for
e-business,
including partnering with platforms like Farfetch and TMall.
Before joining Thom Browne, Mr. Bazan served as President at Alexander Wang from 2010 to 2016, where he oversaw merchandising, marketing and sales, finance/operations, digital, as well as the company’s retail expansion. Prior to his appointment at Alexander Wang, Mr. Bazan served as Vice President and General Manager of Marc Jacobs International for Europe, the Middle East and India from 2007 to 2010. Previously, he served as the General Manager and Chief Financial Officer of Alexander McQueen from 2003 to 2007, where he oversaw both the wholesale
and accessories team and the retail network of flagship stores.
Since 2012, Mr. Bazan has served as a member of the CFDA/Vogue Fashion Fund business advisory committee and has been actively involved in the Fund’s mentorship program. Since 2015, Mr. Bazan has been recognized by The Business of Fashion in the “BoF 500,” an annual list of the most influential people who are shaping the global fashion industry.
Born in Mar del Plata (Argentina) in 1975, Mr. Bazan graduated from the Universidad Argentina de la Empresa in Buenos Aires.
Mr. Browne is the Founder and Chief Creative Officer of Thom Browne, a position he has held since 2002, before the acquisition of Thom Browne by Zegnathe Company in November 2018.
Mr. Browne is widely recognized for challenging and modernizing today’s uniform, the suit. Mr. Browne began his eponymous business in the early 2000s with five suits in a small “by appointment” shop in New York City’s West Village and, in the following years, expanded it to include complete
and accessories collections for both men and women. Mr. Browne has also become known for his highly conceptual runway presentations, which have gained global attention for their thought provoking and dramatic themes and settings.
In October 2022, Mr. Browne was elected chairman of the Council of Fashion Designers of America, succeeding Mr. Tom Ford starting from January 1, 2023.
Born in Allentown, Pennsylvania, in 1965, Mr. Browne holds a Bachelor of Science from the University of Notre Dame.
Lelio Gavazza
Lelio Gavazza is the Chief Executive Officer of TOM FORD FASHION, a position he has held since September 2023. He is currently responsible for the end-to-end management of the TOM FORD FASHION business, from collection development to merchandising, through production as well as retail and wholesale distribution.
Previously, he spent 14 years at Bulgari, where he consolidated his strong expertise in luxury with a focus on jewelry, watches, accessories, and perfumes in both retail and wholesale. In such role, Mr. Gavazza extensively promoted the Bulgari brand and Made in Italy in the world leveraging on the Italian DNA of the company and promoting the Italian lifestyle as a key element of differentiation. During his time at Bulgari, he covered several roles from Managing Director of Greater China to Managing Director for Europe, Middle East and Africa and to Executive Vice President Sales and Retail for
Bulgari Group in 2017. Prior to Bulgari, he was Chief Executive Officer of SharMoon / Ermenegildo Zegna Garments Ltd. in China for more than two years, Chief Operations Officer of Mantero Seta S.p.A. for five years and a member of the Board of Directors of Mantero Orient, operating in Shanghai (China) from 2002 to 2007.
An engineer by background, before entering the luxury arena, Mr. Gavazza gained experience in the chemical field, focusing on activities in the supply chain, with responsibilities in different roles, and a four-year experience in Strategic Consulting.
B. Compensation
The description belowThis section provides information relatingrelated to the remuneration that was earned by the Zegna Board and senior management teamthe Senior Management Team for the year ended December 31, 2021. 2023.
The form and amount of remuneration received by the directors and the senior management team of Zegna generallyBoard was determined in accordance with the decisions made by Zegna prior to the completion of the Business Combination. Onremuneration policy adopted on December 17, 2021, further amended on June 28, 2022 at the Zegna General Meeting, adopted ain accordance with Dutch law and the Articles of Association.
The remuneration policy. received by the Senior Management Team was determined consistent with the Group’s prior practice, based on principles aimed to ensure talent retention and align the remuneration with the Group’s strategy, the Group’s performance and each individual’s contribution to such performance.
The
non-executive
directors Non-Executive Directors of the
Zegna Board oversee the remuneration policy,
the remuneration plans and practices of
Zegnathe Group and
intend to recommend changes when appropriate. More than half of the members of the Compensation Committee (including the chairperson) are independent pursuant to the DCGC. The Company may from time to time amend the remuneration policy, subject to the
Zegna General
Meeting’s approval when necessary.Meeting adopting such amendment with the required majority.This compensation report consists of two sections:
•Historical Compensationcompensation for the 2021 Financial Year:year ended December 31, 2023: details the remuneration features during the 2021 financial yearin 2023 and actual remuneration received by or awarded to each executiveExecutive andnon-executive
director Non-Executive Director and the senior management team. Senior Management Team.•Remuneration Policy:policy: details our current remuneration policy, (which is available on our corporate website), as adopted by the Zegna General Meeting on December 17, 2021. Our remuneration policy,website, which governs compensation for both executiveExecutive andnon-executive
directors Non-Executive Directors (with regard to the latter as of January 1, 2022), provides a structure that and aligns remuneration of the Zegna Board with successful delivery of Zegna’sthe Group’s long-term strategy and sustainable long-term value creation with the goal of ensuring that the directors’ interests are closely aligned to those of Zegna’sthe Company’s stakeholders, including its shareholders. Historical Compensationcompensation for the 2021 Financial Yearyear ended December 31, 2023
Short Term Incentive Plan
Base salaryIn 2021, Ermenegildo Zegna di Monte Rubello, Zegna Director and Chief Executive Officer of Zegna, Paolo Zegna di Monte Rubello, the former chairman and current Zegna Director, and Anna Zegna di Monte Rubello, Zegna Director, were eligible to earn short term variable cash compensation for 2021. For Ermenegildo Zegna di Monte Rubello, the short term variable compensation was based on Zegna’s profitability. For Paolo Zegna di Monte Rubello and Anna Zegna di Monte Rubello, the short term variable compensation was based on certain Zegna profitability metrics. The amount of short term variable compensationbase salary earned by Messrs. Zegna and Zegna and Ms.Gildo Zegna for the year ended December 31, 2021 was €2,695,000, €600,0002023 amounted to €2,003,360, inclusive of personal income tax. It represents all fixed compensation earned by Gildo Zegna from the Company and €480,000, respectively.
Group subsidiaries.
Long TermShort-term Incentive Plan
The ChiefGildo Zegna, Executive
Officer’s executive agreement (whichDirector and CEO, was
last amended and restated on July 15, 2021, as approved by the Zegna Board) includes a Long Term Incentive Plan (the “”).Under the LTIP, Ermenegildo Zegna di Monte Rubello is eligible to earn
shares of Zegna subject to continued service and performance-based conditions for each of 2022 through 2024. Awards will generally lapse inshort-term variable cash compensation, based on the
event of termination of employment prior to the applicable vesting date or if Mr. Zegna has given notice to terminate his employment prior to the applicable vesting date. In the event of a termination of employment classified as “good leaver,” grants will vestpro-rata
from the date of grant to the date of termination of employment. “Good leaver” is defined as (a) death, (b) incapacity or illness, (c) redundancy, (d) any other reasonGroup’s profitability. The Non-Executive Directors have determined that the
Zegna Board may determine and (e) if Mr. Zegna leaves his position as Chief Executive Officer of Zegna after December 31, 2023. The amount of long termshort-term variable
cash compensation
awarded to Mr.earned by Gildo Zegna for the year ended December 31,
2021 was €6,138,000. No share has vested yet2023 shall amount to €4,743,831. As the arithmetic calculation of Gildo Zegna’s short-term variable cash compensation exceeded 200% of Gildo Zegna’s base salary, the Non-Executive Directors have assessed his specific achievements during 2023 and
this amount represents exclusivelyin line with the
accrual for 2021conclusion of the
LTIP.annual assessment of the Board
conducted with the support of an external firm, concluded that his contribution to the execution of the Group’s strategy justified the payment of the amount stated above.
Share-based compensation
In accordance with the CEO’s executive agreement, as amended and restated in July 2021 and further amended in August 2022, the Company granted the following share-based compensation benefits to Gildo Zegna.
Long-term Incentive Plan
On December 17, 2021, in connection with the completion of the Merger,Business Combination, the Zegna Board approved an equity incentive plan (“”), which was approved by the Zegna General Meeting on December 17, 2021. In addition, the Zegna Board adopted the CEO Long Term Incentive Plan 2022-2024 (the “CEO LTIP”), asub-plan
of the EIP, which set out the modalities of the arrangements agreed upon pursuant to Ermenegildo Zegna di Monte Rubello’sGildo Zegna’s executive agreement, as discussed above. Pursuant In accordance with the amendment to the Chief Executive Officer’s executive agreement,remuneration policy on June 28, 2022, the CEO LTIP was amended to include, among other measures, a non-financial performance measure linked to the sustainability strategy of the Group. Under the CEO LTIP, the Group granted to Gildo Zegna:
•Up to a maximum of 2,520,000 performance share units (“PSUs”) (the “CEO 2022-2024 PSUs”) that vest in three tranches in 2023, 2024 and 2025 based on the achievement of defined performance targets and the CEO’s continued service to the Group through the date of vesting. Each of the performance targets will be measured and settled independently of the other targets and the total number of shares to be assigned upon vesting depends on the level of achievement of financial performance targets, as amended and restated on July 15, 2021,well as a resultmultiplier that is based on the performance of certain ESG indicators over the performance period1. For the year ended December 31, 2023, the Group recognized €4,265,977 as share-based compensation expense in relation to the CEO 2022-2024 PSUs (which amount does not reflect the value of the Company becoming listed on a public stock exchange, Ermenegildonumber of Ordinary Shares that will actually be delivered to Gildo Zegna di Monte Rubelloafter achievement of the performance and service conditions).
•The share purchase rights, under which Gildo Zegna is entitled to receive, at no cost to him, performance-based share awards giving right to receive 600,000purchase Ordinary Shares upon the satisfaction of certain vesting conditions (the “”). Subsequently, on December 17, 2021, the Zegna Board adopted the IPO Bonus Plan,at asub-plan
of the EIP, which sets out the terms and conditions governing the IPO Performance Bonus, subject to Zegna filing a registration statement registering the Ordinary Shares subject to the IPO Performance Bonus. The IPO Performance Bonus will vest and become transferrable in two tranches upon the value per share price of the Ordinary Shares of the Company reaching certainpre-determined
levels and, with respectbased on an enterprise value corresponding to the second tranche (representing 360,000 shares), also subject to his continued service as Zegna’s Chief Executive Officer as of December 31, 2023, unless otherwise resolved by the ZegnaNon-Executive
Directors. Zegna recorded an expense of €2,047,000 for 2021 in respect of the IPO Performance Bonus awarded to Mr. Zegna. In addition and subject to the adoption of the necessary corporate approvals under Dutch law, the Zegna Board resolved to grant to Henry Peter, subject to certain corporate approvals, an IPO Performance Bonus representing the right to receive 50,000 Ordinary Shares pursuant to the IPO Bonus Plan. Mr. Peter’s IPO Bonus would vest and become transferrable in two tranches upon the per share price of the Ordinary Shares of the Company reaching certainpre-determined
levels and, with respect to the second tranche (representing 25,000 shares), also subject to continued service as of December 31, 2023, unless otherwise resolved by the Zegna Board.Ermenegildo Zegna di Monte Rubello’s executive agreement, prior to its restatement on July 15, 2021, provided that each year he was entitled to buy from Zegna shares valued at the greater of (a) contractually defined EBITDA multiplied by 8 divided by the number of shares issued as of December 31, 2020 and (b) €186 per share, the accounting value of Zegna’s treasury shares prior to the Conversion. On February 4, 2021, Zegna granted Ermenegildo Zegna di Monte Rubello the right to buy a maximum number of 15,832 Zegna shares for a purchase price of €186 per share, the accounting value of Zegna’s treasury shares prior to the Conversion. In May 2021, Mr. Zegna exercised such right and purchased 15,832 Zegna shares for a total consideration of €2,946,000. In July 2021, Mr. Zegna exercised his right to purchase 6,352 Zegna shares for a total consideration of €1,185,000.
In compliance with the remuneration policy, Mr. Zegna’s executive agreement, amended and restated as of July 15, 2021, provides that each year he is entitled to buy from Zegna shares valued at 12 times the
Group’s Adjusted EBIT of the previous
year’s EBIT (calculated in accordance with the recognition and measurement principles of IFRS),year, for a maximum amount corresponding to his base salary,
net of personal income tax, plus
short term incentive short-term variable cash compensation for the previous year.
Zegna recorded an expenseIn June 2023, as a result of
€234,000 for 2021 in connection with Mr. Zegna’s right to purchase shares, pursuant to the executive agreement, amended and restated as of July 15, 2021, and the remuneration policy.
On October 12, 2021, Zegna entered into an amendment of the agreement with DDS and Associates LLC (an entity beneficially owned by members of Mr. De Sole’s family which provides certain consultancy services to Zegna), entered into in 2004 and subsequently amended in 2021, in order for Mr. Domenico De Sole to provide consultancy services to Zegna on a worldwide basis. As part of the arrangement, DDS and Associates LLC was granted a “virtual options” incentive program tied to the EBITDA improvement of Zegna under which Zegna would pay, upon exercise, an amount corresponding to 0.4% of the difference between the initial (2004) reference EBITDA multiplied by 8.5 and the amount obtained by applying the same formula to the Zegna EBITDA of the fiscal year ended prior to the exercise of the virtual options. Whole or partshare purchase rights, Gildo Zegna purchased 468,450 Ordinary Shares. The Group did not incur any costs in 2023 in respect of such share purchase rights.
IPO Performance Bonus
On December 17, 2021, the Board adopted an IPO bonus plan (the “IPO Bonus Plan”), a sub-plan of the “virtual options” could be exercised. PursuantEIP. Under the IPO Bonus Plan, Gildo Zegna was granted 600,000 PSUs related to the above mentioned amendment, priorCompany’s public listing (the “CEO IPO PSUs”), of which:
•240,000 CEO IPO PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares, and (ii) a Company share price of at least $11.50 for twenty consecutive trading days following the public listing and before December 31, 20232, and
•360,000 CEO IPO PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares, (ii) a Company share price of at least $12.50 for twenty consecutive trading days
1On April 5, 2023, the Board determined the level of achievement of the performance conditions under the CEO 2022-2024 PSUs in 2022. As a result of such determination, 588,000 Ordinary Shares vested and were delivered to Gildo Zegna in 2023. On April 4, 2024, the Board determined the level of achievement of the performance conditions under the CEO 2022-2024 PSUs in 2023. As a result of such determination, 588,000 Ordinary Shares vested and will be delivered to Gildo Zegna in due course.
2 On April 5, 2023, the Board confirmed the level of achievement of the performance market condition applicable to the Closingfirst tranche of awards under the Business Combination DDSCEO IPO PSUs. As a result of such confirmation, 240,000 Ordinary Shares were delivered to Gildo Zegna in 2023.
following the public listing and Associates purchased 16,237 treasury sharesbefore December 31, 2023, and (iii) the CEO’s continued service with the Company from Zegna representing approximately 0.4% of Zegna’s issued and outstanding share capital priorthe award grant date until December 31, 20233.
For the year ended December 31, 2023, the Group recognized €839,775 as share-based compensation expense in relation to the Conversion for a purchase price of approximately €2.2 million.CEO IPO PSUs.
In connection with the completion of the Business Combination, Zegna granted an aggregate number of 800,000 Private Placement Warrants to certain ZegnaNon-Executive
Directors, namely the directors who were members of the Zegna Board prior to the Conversion, the LeadNon-Executive
Director and the chairperson of the Audit Committee, in accordance with the terms and conditions set forth in the New Warrant Agreement. The Warrants are subject to alock-up
period of 12 months from the Closing Date (the “”). During theLock-Up
Period, the eligible ZegnaNon-Executive
Director will not (i) exercise the Warrants or (ii) transfer, sell or otherwise dispose of any Warrants beneficially owned or owned by record by the eligible ZegnaNon-Executive
Director or any economic entitlement therein, except in specific cases or with prior approval of the Zegna Board.Remuneration in the Event of Termination
Ermenegildo Zegna di Monte Rubello’sGildo Zegna’s executive agreement provides that in the event that, for any reason, Mr. Zegnahe leaves his position as Chief Executive Officer of Zegna,CEO, regardless of whether he maintains his position as Chairperson of the Zegna Board, he will be entitled to a severance payment of an amount equal to two years of his fixed annual fee,base salary, net of income taxes, provided thattaxes. For the reductionyear ended December 31, 2023, the Group recognized €121,548 as a provision for termination compensation.
Board of Directors - Non-Executive Directors
In 2023, Non-Executive Directors received an annual base fee of €150,000, paid 50% in cash and 50% in Ordinary Shares, granted pursuant to a restricted share units plan (“RSUs”). Non-Executive Directors acting as members of committees received an additional fee as defined by the remuneration policy. The aggregate amount of compensation earned by Non-Executive Directors in their role as directors for the year ended December 31, 2023 was €1,700,100, of which €905,000 related to the portion paid in cash and €795,100 related to share-based compensation4.
For the year ended December 31, 2023, the Group also recognized €30,000 earned by Mr. Paolo Zegna di Monte Rubello and €107,694 earned by Mr. Henry Peter, in relation to their remuneration as Directors of Group’s subsidiaries.
In addition, in compliance with the remuneration policy and in recognition of his fixed annual fee which he acceptedspecific contribution to the listing, the Board had granted to Mr. Henry Peter, a Non-Executive Director, 50,000 PSUs related to the Company’s public listing under the IPO Bonus Plan (the “IPO PSUs”), of which:
•25,000 IPO PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares, and (ii) a Company share price of at least $11.50 for twenty consecutive trading days following the public listing and before December 31, 20235, and
•25,000 IPO PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares, (ii) a Company share price of at least $12.50 for twenty consecutive trading days following the public listing and before December 31, 2023, and (iii) Mr. Henry Peter’s continued service with respectthe Company from the award grant date until December 31, 20236.
For the year ended December 31, 2023, the Group recognized €75,557 as share-based compensation expense in relation to 2020the IPO PSUs granted to Mr. Peter.
3 On January 30, 2024, the Board confirmed the level of achievement of the performance market condition and the service condition applicable at December 31, 2023 to the second tranche of awards under the CEO IPO PSUs. As a result of such confirmation, 360,000 Ordinary Shares vested at December 31, 2023 and will be delivered to Gildo Zegna in lightdue course.
4 For the services rendered in 2023, each Non-Executive Director will receive 7,640 Ordinary Shares in January 2025. For the services rendered in 2022, each Non-Executive Director will receive 7,846 Ordinary Shares in June 2024.
5 On April 5, 2023, the Board confirmed the level of achievement of the performance market condition applicable to the first tranche of awards under the IPO PSUs. As a result of such confirmation, 25,000 Ordinary Shares were delivered to Mr. Henry Peter in 2023.
COVID-19
pandemic6 On January 30, 2024, the Board confirmed the level of achievement of the performance market condition and the service condition applicable at December 31, 2023 to the second tranche of awards under the IPO PSUs. As a result of such confirmation, 25,000 Ordinary Shares vested at December 31, 2023 and will not be considereddelivered to Mr. Henry Peter in such calculation.due course.Historical Compensation116
Historical compensation for the year ended December 31, 2023
The following table summarizes the compensation from Zegna received by the members of the Zegna Board for the year ended December 31, 2021.
2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | Office Held | | Fixed Compensation | | Variable compensation in cash | | Share-based compensation | | Pension benefits (1) | | Fringe Benefits (2) | | Other Compensation (3) | | Total |
| | | in € |
Mr. Ermenegildo Zegna di Monte Rubello | Chairperson, Chief Executive Officer and Executive Director | | 2,003,360 | | | 4,743,831 | | | 5,105,752 | | | 1,523,198 | | | 30,000 | | | 46,752 | | | 13,452,893 | |
Total – Executive Director | | | 2,003,360 | | | 4,743,831 | | | 5,105,752 | | | 1,523,198 | | | 30,000 | | | 46,752 | | | 13,452,893 | |
Mr. Andrea C. Bonomi | Non-Executive Director | | 75,000 | | | — | | | 79,510 | | | 6,603 | | | — | | | — | | | 161,113 | |
Ms. Angelica Cheung | Non-Executive Director | | 85,000 | | | — | | | 79,510 | | | 19,957 | | | — | | | — | | | 184,467 | |
Mr. Domenico De Sole | Non-Executive Director | | 85,000 | | | — | | | 79,510 | | | — | | | — | | | — | | | 164,510 | |
Mr. Sergio P. Ermotti | Lead Non-Executive Director and Non-Executive Director | | 93,863 | | | — | | | 79,510 | | | 8,264 | | | — | | | — | | | 181,637 | |
Mr. Ronald B. Johnson | Non-Executive Director | | 100,000 | | | — | | | 79,510 | | | — | | | — | | | — | | | 179,510 | |
Ms. Valerie A Mars | Non-Executive Director | | 115,000 | | | — | | | 79,510 | | | — | | | — | | | — | | | 194,510 | |
Mr. Michele Norsa | Non-Executive Director | | 106,137 | | | — | | | 79,510 | | | — | | | — | | | — | | | 185,647 | |
Mr. Henry Peter | Non-Executive Director | | 202,694 | | | — | | | 155,067 | | | 28,640 | | | — | | | — | | | 386,401 | |
Ms. Anna Zegna di Monte Rubello | Non-Executive Director | | 75,000 | | | — | | | 79,510 | | | 12,203 | | | — | | | — | | | 166,713 | |
Mr. Paolo Zegna di Monte Rubello | Non-Executive Director | | 105,000 | | | — | | | 79,510 | | | 12,259 | | | 10,000 | | | — | | | 206,769 | |
Total – Non-Executive Directors | | | 1,042,694 | | | — | | | 870,657 | | | 87,926 | | | 10,000 | | | — | | | 2,011,277 | |
Of the compensation reported__________________
(1)Relates to social contributions and provision for Ermenegildotermination compensation.
(2)Relates to customary benefits, (e.g. clothing allowance) provided to Gildo Zegna and Mr. Paolo Zegna di Monte Rubello, a significant portion, €11,661,000, represents non-realized remuneration that was accruedRubello.
(3)Relates to the difference between the short-term variable cash compensation acknowledged in 20212022 and the actual payment made in respect of2023 for €46,752.
Senior Management Team
The following section provides the equity awards subject to satisfaction of performance and presence conditions and of Mr. Zegna’s right to purchase shares, and his termination indemnity.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Ermenegildo Zegna di Monte Rubello | | Chairperson, Chief Executive Officer and Executive Director | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | (1) | | | | (2) | | | | (4) | | | | | | | | (7) | | | | | | | | |
| | | | | | | | | | (3) | | | | (5) | | | | (6) | | | | (8) | | | | | | | | |
Total – Sole Executive Director | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Non-Executive Director | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | |
| | Senior Non-Executive Director | | | — | | | | — | | | | — | | | | — | | | | — | | | | 98,000 | (11) | | | | |
| | Non-Executive Director | | | 40,000 | | | | — | | | | — | | | | (812,000 | ) (12) | | | 155,000 | (13) | | | 190,000 | (14) | | | | |
| | Non-Executive Director | | | — | | | | — | | | | — | | | | — | | | | 155,000 | (13) | | | — | | | | | |
| | Non-Executive Director | | | 80,000 | | | | — | | | | — | | | | — | | | | 155,000 | (13) | | | — | | | | | |
| | Non-Executive Director | | | — | | | | — | | | | — | | | | — | | | | 155,000 | (13) | | | — | | | | | |
| | Non-Executive Director | | | 80,000 | | | | — | | | | — | | | | — | | | | 155,000 | (13) | | | — | | | | | |
| | Non-Executive Director | | | 199,000 | (16) | | | 9,000 | (17) | | | — | | | | 186,000 | (18) | | | 155,000 | (13) | | | 100,000 | (19) | | | | |
Angelo Zegna di Monte Rubello (20) | | Non-Executive Director | | | 6,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | |
Anna Zegna di Monte Rubello | | Non-Executive Director | | | 189,000 | | | | 43,000 | (17) | | | 480,000 | | | | — | | | | 155,000 | (13) | | | — | | | | | |
Paolo Zegna di Monte Rubello (21) | | Non-Executive Director | | | 523,000 | (22) | | | 27,000 | (17) | | | 600,000 | | | | — | | | | 155,000 | (13) | | | — | | | | | |
Renata Zegna di Monte Rubello | | Non-Executive Director | | | 20,000 | | | | 5,000 | (17) | | | — | | | | — | | | | — | | | | — | | | | | |
Total – Non-Executive Directors | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | The amount reported is comprised of (i) the base salary earned by Mr. Zegna as Chief Executive Officer of Zegna (€880,000) and (ii) €983,000 for his services as a director of Zegna Group companies.
|
(2) | The amount reported represents post-employment benefits in the form of mandatory social contributions for Ermenegildo Zegna di Monte Rubello.
|
(3) | The amount reported represents the accrued value of the indemnity payable to Mr. Zegna on termination of his employment.
|
(4) | The amount reported represents short term variable compensation, determined as described above.
|
(5) | The amount reported represents the long term variable compensation, calculated as described above.
|
(6) | The amount reported represents the IPO Performance Bonus share awards to which Mr. Zegna is entitled, subject to the satisfaction of certain conditions described above.
|
(7) | The amount reported is comprised of (i) the gain incurred by Mr. Zegna from the exercise of his right to purchase 15,832 shares of Zegna, as discussed above and (ii) the gain incurred by Mr. Zegna from the exercise of his right to purchase 6,352 shares of Zegna, as discussed above.
|
(8) | The amount reported represents the expense that was recorded by Zegna for 2021 in connection with Mr. Zegna’s right to purchase shares, pursuant to the executive agreement restated as of July 15, 2021 and the remuneration policy, as discussed above.
|
(9) | Andrea C. Bonomi was nominated to the Zegna Board by the IIAC Sponsor effective as of, and has been a Zegna Director since, December 17, 2021.
|
(10) | Angelica Cheung has been a Zegna Director since December 17, 2021.
|
(11) | Ms. Cheung received €98,000 for consulting services provided to Zegna.
|
(12) | The amount reported represents 16,237 Zegna treasury shares assigned to Domenico De Sole on July 4, 2021 with a fair market value of €6,051,530 for a purchase price of €2,216,351. Such Ordinary Shares were purchased pursuant to the right under the agreement between Zegna and DDS and Associates LLC, as discussed above under “—”), net of the expense that was recorded by Zegna in previous periods (€4,647,000). |
(13) | Represents the Zegna Warrants granted to certain Zegna Directors, as discussed above.
|
(14) | DDS and Associates LLC (an entity beneficially owned by members of Mr. De Sole’s family), received €190,000 for consulting services provided to Zegna. Mr. De Sole has disclaimed any pecuniary interest in DDS and Associates LLC.
|
(15) | The table does not include any remuneration received by Sergio P. Ermotti for his service to IIAC. Mr. Ermotti was the chairman of the board of directors of IIAC until December 17, 2021.
|
(16) | The amount reported includes €99,000 earned by Henry Peter for services as a director of a Zegna subsidiary.
|
(17) | Includes post-employment benefits in the form of mandatory social contributions earned for services as a director of Zegna.
|
(18) | The amount reported, which is non-realized compensation for 2021, represents the accrual for 2021 of the IPO Performance Bonus to which the Zegna Director shall be entitled, subject to the conditions described above.
|
(19) | Mr. Peter received €100,000 for services provided to Zegna in connection with the Business Combination.
|
(20) | The amount reported for Angelo Zegna di Monte Rubello was received in connection with his service to Zegna prior to his death in August 2021.
|
(21) | Paolo Zegna di Monte Rubello was the chairman of the Zegna Board until December 17, 2021.
|
(22) | The amount reported includes €30,000 earned by Paolo Zegna di Monte Rubello for services as a director of a Zegna subsidiary.
|
Board of Statutory Auditors
In 2021, the members of Zegna’s board of statutory auditors received an annual cash fee as well as reimbursement for all reasonable and properly documented expenses. The aggregate amount of compensation earned by the members of Zegna’s board of statutory auditors in 2021 was €165,880.
Zegna’s board of statutory auditors ceased to exist upon the effectiveness of the Conversion.
For 2021, Zegna’s senior management team consisted of:
Ermenegildo Zegna di Monte Rubello as Chief Executive Officer;
Gianluca Ambrogio Tagliabue as Chief Operating Officer and Chief Financial Officer;
Alessandro Sartori as Zegna Artistic Director;
Franco Ferraris as Head of Textiles;
Rodrigo Bazan as Chief Executive Officer of Thom Browne; and
Thom Browne as Founder & Chief Creative Officer of Thom Browne.
The aggregate amount of fixed compensation earned by Zegna’s senior management team Team (excluding the CEO, whose compensation is included in the discussion of the compensation earned by the Zegna Board above) for.
For the year ended December 31, 2021 was €5,309,000, including (a) €4,289,000 earned by Zegna’s senior management team (excluding2023, the CEO) asGroup recognized €7,344,470 in relation to fixed compensation, which includes base salary, (b) €407,000 earned by Zegna’s senior management team (excluding the CEO)consulting fees and compensation for service as a directorDirector of a Zegna subsidiary, (c) €601,000 accrued by Zegna for post-employment benefits and (d) €12,000 accrued by Zegna for fringe benefits to its senior management team (excluding the CEO). Additionally, Zegna accrued other compensation for €8,702,000 forGroup’s subsidiaries.
one-time
fixed extraordinary bonuses earned by certain of Zegna’s senior management team (excluding the CEO) which will be paid in 2024. Zegna’s senior management team (excluding the CEO) earned €1,015,000 for consulting services provided to Zegna. The aggregate amounts of short term variable compensation under Zegna’s Perfomance Management Program ( the “”) and long term variable compensation earned by Zegna’s senior management team (excluding the CEO) forFor the year ended December 31, 2021 were €3,968,000 and €32,000, respectively.Cash compensation for Zegna’s senior management team2023, the Group recognized €2,271,988 in
2021 consisted of base salary, consulting fees and a short termrelation to short-term variable cash compensation under the
PMP. The Performance Management Program (the “PMP”), which provides eligible employees, including the senior management team,Senior Management Team, with an opportunity to earn a cash incentive payment to the extent thatpre-established
business and individual performance goals are achieved. Additionally, certainFor the year ended December 31, 2023, the Group recognized €17,384,237, in relation to long-term incentive plans, of which €9,110,061 for cash-based long-term incentives (expected to be paid in 2024) and €8,274,176 for share-based compensation. In particular:
•Certain members of Zegna’s senior management teamthe Senior Management Team are entitled to awards under the IPO Bonus Plan related to the Company’s public listing (“Management IPO PSUs”), representing the right to receive an aggregate of 225,000 Ordinary Shares, as communicated to the applicable recipients in December 2021, resulting in an expense to Zegna of €837,000 for2021. For the year ended December 31, 2021.2023, the Group recognized €679,500 as share-based compensation expense in relation to the Management IPO PSUs.
Table•To further align the interests of Contentsthe Senior Management Team with those of the shareholders and promote retention of senior management, in February 2022, the Board adopted a long-term incentive plan (as a sub-plan of the EIP), pursuant to which certain members of the Senior Management Team (excluding the CEO), were granted PSUs, representing 70% of the total awards granted, and retention RSUs, representing the remaining 30% of the total awards granted, which each represents the right to receive one Ordinary Share (the “Long-Term Incentive Awards 2022-2025”). In particular, under the terms of the plan, PSUs vest in 2025, subject to the (i) level of achievement of financial performance targets and a multiplier that is based on the performance of certain environmental, social and governance indicators over the performance period from
2022 to 2024 and (ii) participant’s continued service through December 31, 2024. New participants in the long-term incentive plan could be designated until June 30, 2023. The RSUs vest in 2026, subject to the participant’s continued service through December 31, 2025 (and good leaver provisions, in the case of an earlier termination of employment). In total, 262,500 PSUs and RSUs have been granted to certain members of Senior Management Team (excluding CEO) under this plan. For the year ended December 31, 2023, the Group recognized €531,484 as share-based compensation expense in relation to the Long-Term Incentive Awards 2022-2025.
•In September 2023, because new participants in the long-term incentive plan could no longer be designated after June 30, 2023, the Board adopted a RSUs plan (the “2023 RSU Plan”) (as a sub-plan of the EIP). In 2023, the Group granted 170,000 RSUs, which each represent the right to receive one Ordinary Share, to Senior Management Team (excluding CEO) under the 2023 RSU Plan. For the year ended December 31, 2023, the Group recognized €498,544 as share-based compensation expense in relation to the Management IPO PSUs.
•To further align the interests of the Senior Management Team with those of the Company’s stakeholders, including its shareholders, in 2023, the Group modified the contractual terms of the above mentioned cash-based long-term incentives in order to entitle the Senior Management Team to settle a portion of the bonus in Ordinary Shares equal to a value of $7,500,000 in 2024. As a result, the Group recognized €6,564,648 in relation to the compensation that will be settled in Ordinary Shares.
For the year ended December 31, 2023, the Group recognized €1,435,587 in relation to the pension and post-employment benefits.
For the year ended December 31, 2023, the Group recognized €22,763 in relation to fringe benefits.
Remuneration Policy
policyZegna’sThe Group’s remuneration policy provides a framework for the
ZegnaNon-Executive
Directors to determine the remuneration of the
Zegna Executive Directors and the
ZegnaNon-Executive
Directors. The remuneration policy provides a structure that aligns remuneration of the
Zegna Board with successful delivery of
Zegna’sthe Group’s long-term strategy and
sustainable long-term value creation, and therefore aims to ensure that the
Zegna Directors’ interests are closely aligned to those of
Zegna’sthe Company’s stakeholders, including its shareholders. The
purposespurpose of the remuneration policy is to define a competitive remuneration package, designed to attract, retain and motivate
Zegna Directors who possess the necessary leadership qualities and requisite skills and experience in the
various aspectsrelevant areas of
Zegna’sthe Group’s business, while also providing
enoughappropriate flexibility to tailor remuneration practices
to abased on specific
situation.circumstances.While formulating the remuneration policy, the
ZegnaNon-Executive
Directors have taken into consideration
Zegna’sthe Group’s strategy and core values, which are focused on long-term value creation and sustainable development of
Zegna.the Group. Pay ratios within
Zegnathe Group and scenario analyses have also been considered. The remuneration policy is based upon the following principles:
General
1.The remuneration of the Board follows the pay-for-performance principle and incentivizes Directors to create long-term value for shareholders and other stakeholders through achievement of strategic objectives;
2.The remuneration is appropriately balanced between fixed and variable remuneration components, aiming to ensure long-term value creation and alignment of Directors’ interests with the Group’s strategic objectives;
3.The remuneration of the Board is competitive in relation to the market in which the Group operates, the relative size of the business, the specificity of the Group’s governance structure and the duties and responsibilities of the Board resulting therefrom;
| 1. | The remuneration of the board follows theprinciple and incentivizes Zegna Directors to create long-term value for shareholders and other stakeholders through achievement of strategic objectives; |
| 2. | The remuneration is appropriately balanced between fixed and variable remuneration components, aiming to ensure long-term value creation and alignment of Zegna Directors’ interests with Zegna’s strategic objectives;
|
| 3. | The remuneration of the board is competitive in relation to the market in which Zegna operates, the relative size of the business, the specificity of Zegna’s governance structure and the duties and responsibilities of the board resulting therefrom;
|
With Respect to Zegna Executive Director(s)
4.The remuneration is predominantly long-term in nature, with long-term equity incentives linked to the achievement of the Group’s strategic objectives in the highly competitive industry the Group operates in;
| 4. | The remuneration is predominantly long-term in character, with long-term equity incentives linked to the delivery of Zegna’s strategic objectives in the highly competitive industry Zegna operates in;
|
With Respect to
ZegnaNon-Executive
Directors
5.The remuneration of the Non-Executive Directors is designed to attract and retain Non-Executive Directors who have the talent and skills to foster the long-term value creation of the Group while respecting its core values;
6.The remuneration of the Non-Executive Directors consists of cash consideration and share-based compensation, in accordance with market practice among companies listed on the NYSE and to ensure structural alignment of the Non-Executive Directors’ interests with the interests of the Company’s stakeholders, including its shareholders; and
| 5. | The remuneration of the ZegnaNon-Executive
Directors is designed to attract and retainnon-executive
directors who have the talent and skills to foster the long-term value creation of Zegna while respecting its core values; |
| 6. | The remuneration of the ZegnaNon-Executive
Directors consists of cash payments and equity awards in order to enable Zegna to limit the cash component of thenon-executive
director remuneration and to ensure structural alignment of the ZegnaNon-Executive
Directors’ interests with the interests of Zegna’s stakeholders, including its shareholders; and |
7.The Non-Executive Directors will evaluate the objectives and structures of the remuneration policy at regular intervals, to ensure the policy is fit for its intended purpose. The Non-Executive Directors will be assisted by the Compensation Committee.
| 7. | The ZegnaNon-Executive
Directors will evaluate the objectives and structures of the remuneration policy at regular intervals, to ensure it is fit for its intended purpose. The ZegnaNon-Executive
Directors will be assisted by Zegna’s Compensation Committee. |
Zegna Executive Director(s)
On the basis of the remuneration policy objectives, the compensation of Zegna Executive Director(s) consists of the elements discussed below.
The base salary is set at a level to attract, motivate and retain executive director(s)Executive Director(s).
Reimbursement of Expenses
ZegnaThe Group will reimburse the expenses and costs reasonably incurred in relation to the performance of the Zegna Executive Director’s duties.
The objective of any short-term variable compensation is to incentivize the
Zegna Executive
DirectorDirector(s) to achieve annual targets and objectives that are related to the short-term focus of
Zegna.the Group. The annual short-term incentive payment to be granted to an individual
executive directorExecutive Director will not exceed 200% of that individual
Zegna Executive Director’s base salary. Notwithstanding the foregoing, the
ZegnaNon-Executive
Directors may decide, based on a proposal of the Compensation Committee, to increase the short-term incentive payable to an individual
Zegna Executive Director for any given year in case of exceptional achievements of such
Zegna Executive Director.
The objective of any long-term equity incentive is to provide a retention tool for the
Zegna Executive Director and to align the long-term interests of the
Zegna Executive Director with those of
Zegnathe Group and its stakeholders.
The granting of long-term equity incentives also aims to motivate the Executive Directors to pursue and implement the Group’s sustainability strategy. Furthermore, by granting a long-term incentive in the form of equity, the
Zegna Executive Director participate directly in the growth of the value of
Zegnathe Group to which he or she contributes. The amount of equity awarded to the
Zegna Executive Director will be determined by the
ZegnaNon-Executive
Directors, taking into account the applicable performance
conditions, which may include both financial and non-financial conditions, and continuous service requirements with the intent of creating long-term shareholder value. The
ZegnaNon-Executive
Directors may resolve, upon recommendation of the Compensation Committee, to grant equity awards in accordance with any equity incentive plan approved by the
Zegna General Meeting and to be further implemented by the
Zegna Board.
The Zegna Executive Director may be entitled to annually acquire such number of Zegna’s Ordinary Shares up to a maximum value of his or her base salary and annual variable cash compensation awarded for the previous year, at a value per share based on an enterprise value corresponding to 12 times the Group’s Adjusted EBIT of the year preceding the year in which the Zegna Executive Director wishes to acquire the Ordinary Shares.
Recoupment of Incentive Compensation (Adjustment and Claw-Back)
Clawback)Any grant, award or actual payment in relation to the short-term and long-term incentives may during any relevant performance and/or vesting period and during a period of three years following the actual award, in the sole discretion of the
ZegnaNon-Executive
Directors and whether or not at the instigation of the Compensation Committee:
| 1. | Be decreased or eliminated if such grant, award or actual payment were to be unacceptable according to principles of reasonableness and fairness; and
|
1.Be decreased or eliminated if such grant, award or actual payment was deemed to be unacceptable according to principles of reasonableness and fairness; and
| 2. | Clawed back if such grant, award or actual payment took place on the basis of incorrect data (including data that has been maliciously altered and therefore, is incorrect).
|
2.Clawed back if such grant, award or actual payment took place on the basis of incorrect data (including data that has been maliciously altered and therefore, is incorrect).
On September 12, 2023, the Board adopted a new clawback policy (the “Clawback Policy”) in accordance with the listing requirements of the New York Stock Exchange. The Clawback Policy, which became effective on December 1, 2023, provides for the recovery of certain erroneously share-based compensation from current or former Executive Director(s) of the Company in the event that the Company is required to prepare an accounting restatement.
Remuneration in the Event of Termination
ZegnaThe Group may pay severance compensation in accordance with the terms and conditions of the applicable services agreement of an individual Zegna Executive Director. Such severance compensation will not exceed 200% of the Zegna Executive Director’s annual base salary. Severance benefits may also include outplacement services and continuation of insurance and other benefits that have been paid or made available to the Zegna Executive Director prior to the termination of service. The specific terms of the severance package of a Zegna Executive Director will be established in his or her services agreement, all in accordance with the framework provided in the remuneration policy.
ZegnaThe Group may provide to the
Zegna Executive Director customary benefits such as company cars (or a car allowance), travel expenses and work related costs, medical insurance, accident insurance, D&O insurance, tax assistance and relocation allowances. In addition, in individual cases, company housing and other benefits may also be offered, such as annual clothing allowances. Such benefits are in line with general prevailing market practice, while also providing the
ZegnaNon-Executive
Directors with enough flexibility to tailor the remuneration and benefits practices to a specific situation.
Loans, Advances and Guarantees
ZegnaThe Group will not provide any loans, advances or guarantees to Zegna Executive Director(s).
ZegnaNon-Executive
Director(s)
On the basis of the remuneration policy objectives, the compensation of
ZegnaNon-Executive
Directors consists of the elements discussed below. Each year, the
ZegnaNon-Executive
Directors will review the remuneration levels and structure applicable to the
ZegnaNon-Executive
Directors and consider whether any adjustment is required.
ZegnaThe Group will pay the Zegnaeach Non-Executive
Directors Director an annual base fee of €150,000 payable 50% in cash and 50% in Zegna’s Ordinary Shares, (“”), subject to a restricted stock award.award (“Equity Awards”). The LeadNon-Executive
Director will be entitled to an additional fee of €15,000 for the additional duties and responsibilities related to that role, payable in cash.The number of Equity Awards granted to the
ZegnaNon-Executive
Directors will be established, based on the closing stock price of the last trading day of the month preceding the date of grant, converted into Euros at the reference rate
published by the European Central Bank on the closing of the same day, rounded down to the nearest whole share. The date of grant for the Equity Awards will be determined by the
ZegnaNon-Executive
Directors. The Equity Awards will vest on the second anniversary of the date of grant.
ZegnaThe Group will pay each
ZegnaNon-Executive
Director serving on one of
Zegna’sthe Group’s committees of the
boardBoard an additional fee as set forth below:
•Audit Committee -– €30,000 (chairperson), €15,000 (other members)
•Compensation Committee -– €20,000 (chairperson), €10,000 (other members)
•Governance and Sustainability Committee -– €20,000 (chairperson), €10,000 (other members)
Additional Cash and/or Equity Awards
Notwithstanding the annual base fee and committee fees received by the Non-Executive Directors, the Non-Executive Directors may decide, based on a proposal of the Compensation Committee, to grant additional cash and/or equity awards to an individual Non-Executive Director for any given year in case of exceptional achievements of that Non-Executive Director, provided, however, that any such additional grant should not result in a significant discrepancy between the size of the award and the Group’s results and performance.
Reimbursement of Expenses
ZegnaThe Group will reimburse the expenses and costs reasonably incurred in relation to the performance of the
ZegnaNon-Executive
Directors’ Director’s duties, in accordance with
Zegna’sthe Group’s expense policy, if any.
ZegnaThe Group will subscribe to the benefit of the
ZegnaNon-Executive
Directors a liability insurance with a coverage in line with the general market practice prevailing among companies similar to
Zegna.the Group.Loans, Advances and Guarantees
ZegnaThe Group will not provide any loans, advances or guarantees to
ZegnaNon-Executive
Directors, unless the majority of the
ZegnaNon-Executive
Directors
givesgive prior written approval.
Please refer to “Item 6.A—Directors and Senior Management
”and “—” for additional information concerning the Zegna Directors required by this item. Committees of the Zegna Board
Pursuant to the Zegna Articles of Association, the Zegna Board has power to establish any committees and and may allocate specific duties, tasks and procedures to any such committees.
On December 17, 2021, the ZegnaThe Board has established three standing committees: (i) the Audit Committee, (ii) the Compensation Committee and (iii) the Governance and Sustainability Committee.
Each standing committee is comprised of at least three Zegna Directors, a majorityDirectors. As of whom is independent.
the date of this report, all members of the Company’s Audit Committee and Governance and Sustainability Committee, as well as two members out of three of the Compensation Committee are considered independent both under the NYSE listing standards and under the DCGC rules.
The Audit Committee
The Audit Committee is responsible for assisting and advising the
Zegna Board in the oversight of, among
others:other things: (i) the integrity of
Zegna’sthe Company’s financial statements, including any published interim reports; (ii) the adequacy and effectiveness of
Zegna’sthe Company’s internal control over financial reporting, financial reporting procedures and disclosure controls and procedures; (iii)
Zegna’sthe Company’s policy on tax planning; (iv)
Zegna’sthe Company’s policy on reservations and dividends; (v)
Zegna’sthe Company’s financing; (vi)
Zegna’sthe Company’s application of information and communication technology; (vii) the systems of internal controls that management and/or the
Zegna Board have established; (viii)
Zegna’sthe Company’s compliance with legal and regulatory requirements; (ix)
Zegna’sthe Company’s compliance with recommendations and observations of internal and independent auditors; (x) the open and ongoing communications regarding
Zegna’sthe Company’s financial position and results of operations between the
Zegna Board, the independent auditors,
Zegna’sthe Company’s management and internal audit department; (xi)
Zegna’sthe Company’s policies and procedures for addressing certain actual or perceived conflicts of interest; (xii) the qualifications, independence, oversight and remuneration of the independent auditors and any
non-audit
services provided to
Zegnathe Company by the independent auditors; (xiii) determining the process for selecting the external auditor or the audit firm (and/or the independent registered public accounting firm), if applicable, and the nomination to extend the assignment to carry out the statutory audit; (xiv) the performance of
Zegna’sthe Company’s internal auditors and of the independent auditors; (xv)
the design and operation of the internal risk management
and control system, risk assessment guidelines and
policies;policies including major financial risk exposure (whether strategic, financial, operating, sustainability, cybersecurity, compliance related or otherwise), and the steps taken to monitor and control such risks; and (xvi) the implementation and effectiveness of
Zegna’sthe Company’s ethics and compliance program.
The Audit Committee is comprised of at least three
ZegnaNon-Executive
Directors. Each member of the Audit Committee is required (i) not to have any material relationship with
Zegnathe Company or to serve as auditors or accountants for
Zegna;the Company; (ii) to be “independent,” for purposes of the NYSE rules, Rule
10A-3
of the Exchange Act and the DCGC; and (iii) to be “financially literate” and have “accounting or selected financial management expertise” (as determined by the
Zegna Board). At least one member of the Audit Committee will be a “financial expert” as defined by the
Sarbanes-OxleySarbanes- Oxley Act and the rules of the SEC. No Audit Committee member may serve on more than four audit committees for other public companies, absent a waiver from the
Zegna Board which must be disclosed in
Zegna’sthe Company’s annual report. Unless decided otherwise by the Audit Committee, the independent auditors of the
company,Company, the Chief Financial Officer and the head of internal audit will attend its meetings. The Chief Executive Officer will be entitled to attend meetings of the Audit Committee unless the Audit Committee determines otherwise and should attend the meetings of the Audit Committee if the Audit Committee so requires. The Audit Committee will meet with the independent auditors at least once per year outside the presence of the
Zegna Executive Directors and management.
The Audit Committee
currently comprises Valerie A. Mars (as chairperson),
Sergio P. Ermotti and Ronald B. Johnson
eachand Michele Norsa. Each of
whomthe members is independent for purposes of the NYSE rules, Rule
10A-3
of the Exchange Act and the DCGC.
The Compensation Committee
The Compensation Committee is responsible for, among
others,other things, assisting and advising the
Zegna Board in: (i) determining executive compensation consistent with
Zegna’sthe Company’s remuneration policy; (ii) reviewing and approving the remuneration structure for the
ZegnaNon-Executive
Directors; (iii) administering equity incentive plans and deferred compensation benefit plans; (iv) discussing with management
Zegna’sthe Company’s policies and practices related to compensation and issuing recommendations with respect to such compensation; and (v)
to preparepreparing the remuneration report in accordance with the DCGC.
The Compensation Committee is comprised of at least three
ZegnaNon-Executive
Directors. More than half of its members (including the chairperson) are independent under the DCGC. Unless decided otherwise by the Compensation Committee, the head of human resources of
Zegnathe Company or its relevant subsidiaries may be invited to attend the discussions of the Compensation Committee other than discussions relating to the compensation of
ZegnaNon-Executive
Directors.
The Compensation Committee comprises Henry Peter (as chairperson), Domenico De Sole and Valerie A. Mars. Each of Henry Peter and Valerie A. Mars is independent for purposes of the NYSE rules and the DCGC. Domenico De Sole is independent for purposes of the DCGC.
The Governance and Sustainability Committee
The Governance and Sustainability Committee is responsible for, among
others,other things, assisting and advising the
Zegna Board with: (i)
the recommendation ofrecommendations on the criteria, professional and personal qualifications for candidates to serve as
Zegna Directors; (ii)
the periodic assessment of the size and composition of the
Zegna Board; (iii)
the periodic assessment of the performance of individual
Zegna Directors and
of the reporting on this to the
Zegna Board; (iv) proposals to the
ZegnaNon-Executive
Directors for the nomination and
re-nomination
of
Zegna Directors to be appointed by the
Zegna General Meeting; (v)
the supervision of the policy on the selection and appointment criteria for senior management and on succession planning; (vi)
the monitoring,
evaluatingevaluation and reporting on the group’s sustainable development policies and practices, management standards, strategy, performance and governance globally; and
by (vii) reviewing, assessing and making recommendations as to strategic guidelines for sustainability-related issues,
and reviewing the annual sustainability
report.report, advising on and overseeing the integrity of the sustainability reporting and other related corporate communications.
The Governance and Sustainability Committee is comprised of at least three
ZegnaNon-Executive
Directors. More than half of its members are independent under the DCGC.
The Governance and Sustainability Committee comprises Michele Norsa (as chairperson), Ronald B. Johnson and Angelica Cheung. EachCheung, each of Ronald B. Johnson and Angelica Cheungwhom is independent for purposes of the NYSE rules and the DCGC. Michele Norsa is independent for purposes of the DCGC.
As ofAt December 31, 2021, 20202023, 2022 and 2019,2021, respectively, we had the following number of employees, divided ininto the categories of activity and geographic locations as set forthoutlined in the tables below.
| | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 | | 2021 |
White Collars | 4,734 | | 3,953 | | 3,814 |
Blue Collars | 2,191 | | 2,077 | | 2,016 |
Temporary employees | 276 | | 226 | | 219 |
Total | 7,201 | | 6,256 | | 6,049 |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | |
| | | 3,814 | | | | 3,897 | | | | 4,095 | |
| | | 2,016 | | | | 2,201 | | | | 2,132 | |
| | | 219 | | | | 151 | | | | 313 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 | | 2021 |
EMEA | 4,664 | | 4,159 | | 3,957 |
North America | 597 | | 420 | | 369 |
Latin America | 121 | | 118 | | 117 |
APAC | 1,819 | | 1,559 | | 1,606 |
Total | 7,201 | | 6,256 | | 6,049 |
| | | | | | | | | | | | |
| | | |
| | | | | | | | | |
| | | 3,957 | | | | 4,217 | | | | 4,347 | |
| | | 369 | | | | 327 | | | | 366 | |
| | | 117 | | | | 125 | | | | 139 | |
| | | 1,606 | | | | 1,580 | | | | 1,688 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The Group reported a 14.8% increase in the number of employees excluding temporary staff, rising from 6,030 at the end of 2022 to 6,925 at the end of 2023. Such increase was mainly due to (i) the TFI Acquisition (580 TFI employees and 45 Pelletteria Tizeta employees at December 31, 2023), (ii) the increase in production capacity within our manufacturing facilities in Italy in response to heightened demand, particularly for shoes and sleeve units which underwent partial insourcing, (iii) the hiring of personnel to strengthen the finance, IT, and retail development divisions, reflecting the Group’s commitment to operational excellence, and (iv) the new store openings and increased retail staff, especially across North America, EMEA and APAC.
Historically, weBy region, the number of employees saw a significant increase of 505 in EMEA, 260 in APAC and 180 in the Americas.
External temporary employees also increased by 50, rising from 226 at December 31, 2022, to 276 at December 31, 2023. This increase is mainly due to the deployment of temporary employees in select TOM FORD FASHION stores.
The Group continues to have had good labor relationships with our employees and we are committed to maintaining a positive and constructive relationship with them. In the past, we have not experienced any material job action or labor stoppage that has had a material impact on our business.
While production was suspended at our manufacturing and logistics facilities and our stores were temporarily closed in response to theCOVID-19
pandemic, we resorted to the furlough of approximately 75% of our workforce in Italy and Switzerland, as well as temporary layoffs and salary reductions frommid-March
2020 to themid-second
quarter of 2020. During 2021 we resorted to the furlough for approximately 10% of the total working hours in Italy and Switzerland, which involved approximately 65% of the total workforce in these countries, mainly during the initial part of the year. As of the date of this report, all our manufacturing and logistics facilities and the majority of our stores (with the exception of certain of our DOSs in the Greater China Region) havere-opened
and virtually all our furloughed employees have returned to work.
Table of Contents
Information regarding the ownership of Ordinary Shares and Special Voting Shares A by our directorsDirectors and senior managementmembers of our Senior Management Team is set forth in Item 7.A of this report.
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
| MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information relating to the beneficial ownership of our Ordinary Shares as of March 30, 2022,23, 2024, based on the information in Zegna’sthe Company’s shareholder register and other sources available to us, by: each person who is known to be the beneficial owner of more than 5% of our issued and outstanding Ordinary Shares and Special Voting Shares; and each of the Zegna Directors and senior managers.
members of the Senior Management Team.On December 18, 2023, 149,734,550 and 5,246,800 Special Voting Shares A were assigned, respectively, to Monterubello and to Ermenegildo (Gildo) Zegna di Monte Rubello under the terms of the loyalty voting program. Monterubello is the controlling shareholder of Zegnathe Company through its 61.8%59.8% shareholding interest in Zegna’sthe Company’s issued and outstanding Ordinary Shares (as of March 30, 2022)23, 2024). As a result of its participation in the loyalty voting program, Monterubello’s voting power is approximately 73.9% (as of March 23, 2024).
For further information on the Company’s loyalty voting structure, see “Item 10.B—Memorandum and Articles of Association.”
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrantsor has the right to acquire that are currently exercisable or exercisablesecurity within 60 days.days (including through the exercise of any options or warrants).
The percentages in the table below are computed on the basis of 242,343,659250,310,263 Ordinary Shares issued and outstanding and do not include154,981,350 Special Voting Shares A issued and outstanding. The percentages of ownership and voting power in this report are calculated based on the number of outstanding shares (excluding shares held in treasury).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Beneficial Owner | | Number of Ordinary Shares | | % of Ordinary Shares | | Number of Special Voting Shares A | | % of Special Voting Shares A Outstanding |
>5% holders | | | | | | | | |
Monterubello s.s.(1)(2) | | 149,734,550 | | | 59.8 | % | | 149,734,550 | | 96.6 | % |
Strategic Holding Group S.à r.l.(3) | | 30,282,195 | | 12.1 | % | | — | | | — | |
T. Rowe Price Associates, Inc.(4) | | 12,805,298 | | | 5.1 | % | | — | | | — | |
Directors | | | | | | | | |
Ermenegildo Zegna di Monte Rubello(5) | | 8,150,336 | | 3.3 | % | | 5,246,800 | | 3.4 | % |
Andrea C. Bonomi | | — | | — | | — | | — |
Angelica Cheung | | — | | — | | — | | — |
Domenico De Sole | | (*) | | (*) | | — | | — |
Sergio P. Ermotti | | (*) | | (*) | | — | | — |
Ronald B. Johnson | | (*) | | (*) | | — | | — |
Valerie A. Mars | | (*) | | (*) | | — | | — |
Michele Norsa | | (*) | | (*) | | — | | — |
Henry Peter | | (*) | | (*) | | — | | — |
Anna Zegna di Monte Rubello | | (*) | | (*) | | — | | — |
Paolo Zegna di Monte Rubello | | (*) | | (*) | | — | | — |
Senior Management Team | | | | | | | | |
Gianluca Ambrogio Tagliabue | | (*) | | (*) | | — | | — |
Rodrigo Bazan | | (*) | | (*) | | — | | — |
Thom Browne | | — | | — | | — | | — |
Franco Ferraris | | (*) | | (*) | | — | | — |
Lelio Gavazza | | (*) | | (*) | | — | | — |
Alessandro Sartori | | (*) | | (*) | | — | | — |
(*) Less than 1% of the class of shares outstanding.
(1)Monterubello is an Italian società semplice whose quotas are currently held by members of the Zegna family. The directors of Monterubello, as of December 31, 2023, were Ermenegildo Zegna di Monte Rubello (chairman of the board of directors), Paolo Zegna di Monte Rubello (vice chairman of the board of directors), Anna Zegna di Monte Rubello, Angelo Zegna di Monte Rubello, Giovanni Schneider, Alessandro Andrea Trabaldo Togna, Franca Calcia and Riccardo Mulone. Monterubello participates in our loyalty voting program.
(2)As of March 23, 2024, Monterubello’s voting power in Zegna is approximately 73.9%. Such percentage is calculated as the ratio of (i) the aggregate number of Ordinary Shares and Zegna Special Voting Shares A beneficially owned by Monterubello to (ii) 250,310,263 Ordinary Shares issued and outstanding and 154,981,350 Zegna Special Voting Shares A issued and outstanding as of March 23, 2024.
(3)Based on filings with the SEC (Schedule 13G/A filed on February 13, 2024, File No. 005-93353) (the “Schedule 13G/A”). Strategic Holding Group S.à r.l. is governed by a five-member board of managers, which at the time of the SEC filing included Kamel Aliat, Amélie Flammia, Marvin Martins, Alex Browning and John Crostarosa Mowinckel. Action by the five-member board of managers is by simple majority vote. No individual manager on the board of managers has voting or dispositive control over the reported securities and, therefore, no individual manager has or shares beneficial ownership of such securities.
(4)Based on filings with the SEC (Schedule 13G filed on February 14, 2024, File No. 005-93353), T. Rowe Price Associates, Inc. is a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G) and, out of the Ordinary Shares issuable uponbeneficially owned as set forth in the exercisetable, it has sole voting power over 4,880,106 Ordinary Shares.
(5)Mr. Zegna participates in our loyalty voting program. As of March 23, 2024, Mr. Zegna’s voting power in Zegna is approximately 3.1%. Such percentage is calculated as the Warrants. The denominators used in calculatingratio of (i) the percentageaggregate number of beneficial ownership of each of Strategic Holdings Group S.à r.l. and Mr. Sergio P. Ermotti include the Ordinary Shares issuable upon exerciseand Zegna Special Voting Shares A beneficially owned by Ermenegildo Zegna di Monte Rubello to (ii) 250,310,263 Ordinary Shares issued and outstanding and 154,981,350 Zegna Special Voting Shares A issued and outstanding as of the Private Placement Warrants held by each such beneficial owner.March 23, 2024.
| | | | | | | | |
| | | | | |
| | | | | | | | |
| | | 149,734,550 | | | | 61.8 | % |
Strategic Holding Group S.à r.l. (2) | | | 36,184,446 | (3) | | | 14.6 | % |
| | | | | | | | |
Ermenegildo Zegna di Monte Rubello | | | 5,246,800 | (4) | | | 2.2 | % |
| | | — | | | | — | |
| | | — | | | | — | |
| | | 120,000 | (5) | | | | (*) |
| | | 1,469,688 | (6) | | | | (*) |
| | | 120,000 | (7) | | | | (*) |
| | | 120,000 | (8) | | | | (*) |
| | | 120,000 | (9) | | | | (*) |
| | | 420,000 | (10) | | | | (*) |
Anna Zegna di Monte Rubello | | | 150,000 | (11) | | | | (*) |
Paolo Zegna di Monte Rubello | | | 240,000 | (12) | | | | (*) |
| | | | | | | | |
Gianluca Ambrogio Tagliabue | | | 30,000 | (13) | | | | (*) |
| | | — | | | | — | |
| | | 200,000 | (14) | | | | (*) |
| | | — | | | | — | |
| | | 30,000 | (15) | | | | (*) |
(*) | Less than 1% of the shares outstanding.
|
(1) | Monterubello is an Italian società semplice whose quotas are currently held by members of the Zegna family. The directors of Monterubello, as of the Closing Date, were Ermenegildo Zegna di Monte Rubello (chairman of the board of directors), Paolo Zegna di Monte Rubello (vice chairman of the board of directors), Renata Zegna di Monte Rubello, Anna Zegna di Monte Rubello, Giovanni Schneider, Stefano Aimone and Alessandro Andrea Trabaldo Togna.
|
(2) | Based on filings with the SEC (Schedule 13G filed on February 8, 2022, FileNo. 005-93353):
Strategic Holding Group S.à r.l. is governed by a five-member board of managers, which at the time of the SEC filing included Kamel Aliat, Amélie Flammia, Marvin Martins, Alex Browning and Natalie Ramsden; action by the five-member board of managers is by simple majority vote; and no individual manager on the board of managers has voting or dispositive control over the reported securities and, therefore, no individual manager has or shares beneficial ownership of such securities. |
(3) | Includes 3,490,000 PIPE Shares and 5,230,000 Ordinary Shares issuable upon exercise of an equal number of Private Placement Warrants that are exercisable within 60 days of March 30, 2022. Excludes 4,276,563 Escrowed Shares which will be held in escrow until the satisfaction of the relevant release conditions or lapse of the prescribed period of time. As long as any such Escrowed Shares are held in escrow Strategic Holding Group S.à r.l.’s voting and economic rights shall be restricted.
|
(4) | Includes 420,000 PIPE Shares. Excludes 600,000 Ordinary Shares which may be granted upon vesting of the performance-based share awards which were granted following the closing of the Business Combination.
|
(5) | Represents 120,000 PIPE Shares.
|
(6) | Includes 120,000 PIPE Shares and 670,000 Ordinary Shares issuable upon exercise of an equal number of Private Placement Warrants that are exercisable within 60 days of March 30, 2022.
|
(7) | Represents 120,000 PIPE Shares.
|
(8) | Represents 120,000 PIPE Shares.
|
(9) | Represents 120,000 PIPE Shares.
|
(10) | Represents 420,000 PIPE Shares.
|
(11) | Represents 150,000 PIPE Shares.
|
(12) | Represents 240,000 PIPE Shares.
|
(13) | Represents 30,000 PIPE Shares.
|
(14) | Represents 200,000 PIPE Shares held by Thom Browne Revocable Trust.
|
(15) | Represents 30,000 PIPE Shares.
|
Based on the information in Zegna’sthe Company’s shareholder register, as of March 30, 2022, 41,236,05923, 2024, 88,887,773 Ordinary Shares were held in the United States. As ofAt the same date, 3521 record holders had registered addresses in the United States.
B. Related Party Transactions
The related parties of the Group are all entities and individuals, including their close family members, capable of exercising control, joint control or significant influence over the Group and its subsidiaries, including the Group’s controlling shareholder, Monterubello, as well as other companies owned by Monterubello and its shareholders. Related parties also include Zegna’sthe Company’s associates and joint arrangements, members of the Zegna Board and executives with strategic responsibilities, as well as their families and entities controlled by them.
The Group carries out transactions with related parties on commercial terms that are normal in the respective markets, considering the characteristics of the goods or services involved.
Transactions carried out by the Group with these related parties are primarily of a commercial and financial nature and mainly relate to:
Transactions with associates
•Transactions with Tom FordTFI and its subsidiaries (the “TFI Group”), prior to the completion of the TFI Acquisition, related to (i) to:
◦a licensing agreement for the production and worldwide distribution of luxury men’s ready to wear and made to measure clothing, footwear and accessories under the Tom Ford label, (ii) TOM FORD brand (which ended with the deliveries of the Fall/Winter 2022 collection), as well as a supply agreement to act as exclusive supplier for certain TOM FORD menswear products starting with the Spring/Summer 2023 collection (for which the supply commenced in 2022);
◦financial assets related to loans to Tom Ford,TFI that were settled during the period; and (iii)
◦a financial guaranteesguarantee provided in 2020 by the Group to Tom FordTFI (which at the time was an associate of the Group) for an amount of $7,500 thousand in relation to its payment obligations under a bank loan for an amount of $7,500 thousand issued to Tom FordTFI. Such guarantee was subsequently reduced to $6,875 thousand in 20202022 and maturingterminated in March 2025.
2023 as part of the transactions contemplated by the TFI Acquisition. No amounts were claimed under the guarantee.•The purchase of raw materials, in particular carded yarns from Filati Biagioli Modesto
Modesto;•The purchase of finished products from Norda Run Inc. and Luigi Fedeli e Figlio S.r.l..
Transactions with Monterubello and companies controlled by Monterubello or its shareholders, Zegnaour directors or senior management
members of the Senior Management Team•The purchase of raw materials, in particular of wool, from Gruppo Schneider S.p.A.
and its subsidiaries (the “Schneider Group”).•The purchase of industrial services, in particular of fabrics’ finishing, from Finissaggio e Tintoria Ferraris S.p.A.
•The purchase of industrial services from Pettinatura di Verrone S.r.l.
•Transactions with PKB PrivatbankBank AG relating to an interest-bearing loan amounting to Euro 5,000€5,000 thousand expiringwhich was fully repaid in Marchthe first half of 2022.
•The Disposition, which was completed in November 2021, of certain of its businesses, through the statutory demerger under Italian law to a new company owned by its existing shareholders. The Disposition included, inter alia, Zegna’sthe Company’s real estate business, consisting of Zegna’sthe Company’s former subsidiary EZ Real Estate, which directly and indirectly holds substantially all of the real estate assets formerly owned by the Zegna group,Group, as well as certain properties previously owned by Lanificio Zegna. MostLanificio.
•Following the Disposition, the rental of the real estate properties directly or indirectly owned by EZ Real Estate were, and continue to be, leased to Zegna also following the Disposition. Zegna pays rent tofrom EZ Real Estate or its subsidiaries under lease agreements. In addition, following
•Following the Disposition, Zegna has entered into arrangements whereby Oasi Zegna providesthe Group receives licensing, marketing and other sustainability-related services tofrom Oasi Zegna.
•As part of the Disposition, on January 14, 2021, the Group sold 70% of its equity stake in Agnona to a related party for consideration of Euro 1€1 and as a result Agnona was deconsolidated from the beginning of the year and became a related party of the Group. The Group subsequently disposed of the remaining 30% stake in Agnona in two tranches during September and October 2021 for total consideration of Euro 500€500 thousand. Following the initial disposal of Agnona, the Group sold products and recharged costs for services to Agnona, as well as compensated amounts related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in accordance with the terms of the related sale agreement.
Following the Disposition, the payment of rent to EZ Real Estate or its subsidiaries under lease agreements for the use of properties.
•Support to the activities of Fondazione Zegna, a charitable organization which provides an opportunity for charitable work on the part of the Zegna family and Group employees. Fondazione Zegna supports and funds projects in cooperation withnon-profit
organizations operating in various fields and different parts of the world. •Put contracts entered into as part of the Group’s investments in the Thom Browne Group and Lanificio Zegna whereby the Group has been required to, and may in the future be required to, purchase all or a portion of the remainingnon-controlling
interests in the Thom Browne Group and Lanificio. In July 2021, the Group purchased the additional 10% of Lanificio Zegna.for a total consideration of €9,600 thousand, following which the Group owns 100% of Lanificio. In June 2021, the Group purchased an additional 5% of the Thom Browne Group for a total consideration of €30,653 thousand, following which the Group owns 90% of the Thom Browne Group. For additional information relating to the Thom Browne put contracts please refer to contract see Note 34 -28 — Other
current and non-current
financial liabilities
to the Consolidated Financial Statements. Transactions with other related parties connected to directors and shareholders, including in connection with the Business Combination in 2021
•Transactions with UBS Group AG and its subsidiaries (together referred to as the “UBS Group AG”) for borrowings, revolving credit lines and financial assets the Group holds (mainly cash and cash equivalents and other securities), as well as derivative contracts in the course of the Group’s risk management activities. UBS Group AG also provides certain financial guarantees to third parties on behalf of the Group. Following Mr. Sergio Ermotti's appointment as Group Chief Executive Officer of UBS Group AG effective April 5, 2023, UBS Group AG and its subsidiaries qualify as related parties of the Group.
In connection with the closing of the Business Combination and the public listing of Zegnathe Company (as further described in the Note 1to the Consolidated Financial Statements), Zegnathe Company entered into various transactions with Monterubello and other shareholders and related parties, including the following: •The repurchase by Zegnathe Company of 54,600,000 of its own shares from Monterubello for total consideration of Euro 455,000€455,000 thousand.
•The reimbursement to Zegnathe Company by Monterubello of a special gift to all employees of the Group for an amount of Euro 10,923€10,923 thousand.
•The issuance of 800,000 private warrants to certain Zegnanon-executive
directors,Non-Executive Directors, for which the Group recognized personnel costs of Euro 1,263€1,236 thousand and an offsetting increase to other reserves within equity for the year ended December 31, 2021. As a result of the warrant redemption completed on February 27, 2023 (the “Warrant Redemption”), there are no remaining private warrants outstanding. For additional information see Note 28 — Other current and non-current financial liabilities to the Consolidated Financial Statements.•The grant of equity-settled share-based payments to key management.
For additional information see Note 37 — Share-based payments to the Consolidated Financial Statements.
In connection with the Business Combination, certain of
Zegna’sthe Company’s related parties (including certain directors and officers and affiliates of Monterubello) entered into PIPE Subscription Agreements with
Zegnathe Company pursuant to which they subscribed for Ordinary Shares at the closing of the Business Combination. The amount of each such subscription was immaterial. Under the terms of the PIPE Subscription Agreements, such related parties are entitled to certain registration rights in respect of their Ordinary Shares. In addition, at the Closing of the Business Combination,
Zegnathe Company entered into certain agreements with related parties, including the Shareholders Agreement, the Zegna
Shareholders Lock-Up Agreement,
the IIAC Sponsor
Lock-Up
Agreement and the Registration Rights Agreement.
Such agreements are filed as exhibits to this annual report on Form 20-F.For a description of such agreements,additional information on related party transactions see “Item 10.B—Memorandum and Articles of Association
”.Note 36 — Related party transactions to the Consolidated Financial Statements included elsewhere in this annual report on Form 20-F. C. Interests of Experts and Counsel
ITEM 8 FINANCIAL INFORMATION
A.Consolidated Statements and Other Financial Information
Consolidated Financial Statements
Refer to “Item 18—Financial Statements
” for ourThe audited Consolidated Financial Statements and the report of our independent registered public accounting firm
are included
elsewhere instarting on page F-1 of this
document.report.Refer to “Item 4.B—Business Overview
” for a discussion of our sales and distribution channels. Legal Proceedings
We are party to civil and administrative proceedings (including tax audits) and to legal actions in the normal course of our business, including with respect to lease agreements, labor matters and intellectual property matters. Adverse decisions in one or more of these proceedings could require us to pay substantial damages. Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. An accrual is established in connection with pending or threatened litigation if a loss is probable and a reliable estimate can be made. For information regarding provisions made for the legal proceedings we are a party to, please refer to Note 36 (30 — Provisions for risks and charges
) to the Consolidated Financial Statements. On June 28, 2021, adidas filed a lawsuit in the Southern District of New York for, among others,other things, trademark infringement, unfair competition, dilution and various state claims, in connection with Thom Browne’s five color grosgrain ribbon and the four bands on sleeves and pants on its sporting goods, sportswear and athletic wear. adidasAdidas claims these designs allegedly infringe the three stripe marks of adidas. AsThe case was assigned to a jury trial and on January 12, 2023, the jury found that at no time did Thom Browne, Inc. infringe on any of adidas’s trademarks. Adidas has filed a notice of appeal, following which Thom Browne, Inc. has filed a notice of cross-appeal. In addition, based on evidence submitted in another trial against Thom Browne Inc., adidas has filed a motion requesting a new trial based on discovery phaseflaws. The appeal from the jury verdict remains pending before the Court of Appeals and the parties have been called for oral argument on April 17, 2024. The motion for a new trial is pending before the lower court judge who has been notified of the trial progresses,oral argument before the Court of Appeals; we therefore expect a rapid decision on the pending motion to reopen the case.
Meanwhile, the opposition filed by adidas against several trademarks which Thom Browne Inc. filed a motionfor registration in the European Union was denied, except with respect to dismiss adidas’s claims,one mark which remains pending. Thereafter,has yet to be decided. Thom Browne Inc. has also initiatedcommenced cancellation proceedings in the European Union as well as in the UK against a number of adidas’ trademarks that could be used to restrain access of Thom Browne Inc.’s products to these markets. As a result, adidas has filed counterclaims for infringement of those marks registeredby Thom Browne Inc.’s use of its grosgrain ribbon signature as well as the four bar design. On challenge, adidas has voluntarily cancelled a number of the marks at issue. The first hearing in the European Union,UK is set for July 17, 2024 and trial is expected to conclude during the week of July 24.
In addition, in 2022, adidas commenced a lawsuit before the Nuremberg-Furth District Court in Germany against Thom Browne, Inc. and Thom Browne Retail Italy Srl, alleging thatThom Browne’s four-bar signature infringed adidas’ three stripe mark. Counsel’s service of the marks lack distinction.documentation was flawed and formed the basis of default judgments against both Thom Browne, Inc. and Thom Browne Retail Italy Srl. Upon discovery of the defaults, Thom Browne obtained the suspension of both judgments. The parties have submitted various pleadings intheir arguments and are now waiting for the judge to decide or for the District Court to assign a trial period.
All such proceedings which remain pending. Thom Browne intends to vigorously defend its position in theseall the aforementioned proceedings.
On February 17, 2022, the New York Supreme Court in the City of New York issued a judgment dismissing
Zegna’sthe Group’s claims seeking rescission of a lease of premises in New York City. The trial court found that the lease
remainswas still in full force and effect and ordered
Zegnathe Group to pay the amount requested by the landlord as unpaid rent and fees.
A substantial portion of the amount of the court’s judgment is covered by an accrual recorded in Zegna’s balance sheet. On March 10, 2022, the landlord filed a complaint requesting
Zegnathe Group to pay the unpaid rent and fees accrued until March 2022.
Zegna intends to appeal against the judgment and to oppose the landlord’s complaint. Following the latest developments,
Zegnathe Company had accrued a provision of
Euro 28,254€28,254 thousand on its balance sheet
as ofat December 31, 2021.
The impact onOn July 13, 2022, the
statementGroup and the landlord entered into a settlement agreement, following which the Group made a payment of
profit€25,698 thousand and
loss for the
year ended December 31, 2021 is Euro 12,192 thousand in additionremaining provision was reclassified to
thepre-existingother current liabilities.
provision (see Note 36 to the Consolidated Financial Statements).We have not paid any cash dividends onaim to grow the Ordinary Shares fromGroup’s business solidly and steadily, and to create long-term value for our shareholders. Our priority is to invest in the Closinggrowth of our business while providing return to shareholders. Taking into consideration these priorities, we target a payout ratio of 25% to 30% of the Business Combinationprofit attributable to date. Theshareholders of the Parent Company, intends to pay regularwithout reducing dividends on outstanding Ordinary Shares.and at least maintaining or increasing dividends each year. However, any decision to declare and pay dividends in the future will ultimately be made at the discretion of the Zegna Board and will depend on the Group’s results of operations, business conditions, financial conditions, earnings, cash balances, commitments, strategic plans and other factors that the Zegna Board may deem relevant at the time it recommends approval of any such dividend, including economic and market conditions.
Pursuant to Dutch law and the
Zegna Articles of Association, the distribution of dividends will take place following the adoption of the annual accounts, from which we will determine whether such distribution is permitted. We may make distributions to our shareholders, whether from profits or from our freely distributable reserves, only insofar as our shareholders’ equity exceeds the sum of
the paid-up and called-up share
capital plus any reserves to be maintained by Dutch law or the
Zegna Articles of Association.
The Zegna Board may resolve to reserve the profits or part of the profits. Any profits remaining after the reservation referred to in the previous sentence by the Zegna Board will first be applied to allocate and add to the dividend reserve for each class of Zegna Special Voting Shares an amount equal to 1% of the aggregate nominal value of all issued and outstanding Zegna Special Voting Shares of that class. The profits remaining after application of the preceding sentence will be at the disposal of the Zegna General Meeting, which may resolve to add the remaining profits to the reserves or distribute them to the holders of Ordinary Shares. Distributions of dividends will be made to Zegna’sthe Company’s shareholders in proportion to the nominal value of their Ordinary Shares.
Pursuant to Dutch law and the
Zegna Articles of Association, the
Zegna Board or the
Zegna General Meeting at the proposal of the
Zegna Board will be allowed to resolve upon interim distributions on Ordinary Shares. For this purpose, the
Zegna Board must prepare an interim statement of assets and liabilities. Such interim statement shall show our financial position not earlier than on the first day of the third month before the month in which the resolution to make the interim distribution is announced. An interim dividend can only be paid if (i) an interim statement of assets and liabilities is drawn up showing that the funds available for distribution are sufficient, and (ii) our shareholders’ equity exceeds the sum of
the paid-up and called-up share
capital and any reserves to be maintained by Dutch law or the
Zegna Articles of Association. Interim distributions will be made in cash, in kind or in the form of Ordinary Shares.
Since Ermenegildo Zegna N.V. is a holding company and its operations are carried out through its subsidiaries, Zegna’sthe Company’s ability to pay dividends will primarily depend on the ability of its subsidiaries to generate earnings and to provide it with the necessary financial resources.
In July 2023 the Company made a dividend distribution to the holders of Ordinary Shares of €0.10 per Ordinary Share, corresponding to a total dividend distribution of €25 million.
Subject to the finalization and adoption of the annual statutory accounts of the Company, provided that the distribution is permitted under Dutch law, and also subject to the approval of the proposed distribution by the Company’s 2024 annual General Meeting (which is currently expected to be on June 26, 2024), the Company intends to make a dividend distribution to the holders of Ordinary Shares of €0.12 per share, corresponding to a total dividend distribution to shareholders of approximately €30 million.
B. Significant Changes
Except otherwise disclosed within this report, no significant changes have occurred since the date of the Consolidated Financial Statements.
| ITEM 9 THE OFFER AND LISTING |
A. Offer and Listing Details
The Ordinary Shares and the Zegna Public Warrants are listed on NYSE under the symbols “ZGN” and “ZGN WS,symbol “ZGN.” respectively.
Not applicable.
See “—Offer and Listing Details
” above. Not applicable.
Not applicable.
ITEM 10 ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Corporate Seat and Place of Effective Management
ZegnaThe Company is a legal entity organized under the laws of the Netherlands. It has its corporate seat () in Amsterdam, the Netherlands. The address of Zegnathe Company is Viale Roma 99/100, 13835 Valdilana loc. Trivero, Italy. Since its incorporation Zegnathe Company has had, and it intends to continue to have, its place of effective management in Italy.
ZegnaThe Company is registered with the Dutch Trade Register. Its trade register number is 84808640.
Share Capital and Form of Shares
As ofAt December 31, 2021, there were 242,343,659 Ordinary Shares issued and outstanding. As of2023, the same date, there were also 13,416,667 Public Warrants and 6,700,000 Private Placement Warrants outstanding.
As of December 31, 2021, Zegna’sCompany’s authorized share capital amounted to €18,700,000, divided into 400,000,000 Ordinary Shares, with a nominal value of €0.02 each, 200,000,000 Zegna Special Voting Shares A, with a nominal value of €0.02 each, 50,000,000 Zegna Special Voting Shares B, with a nominal value of €0.08 each and 15,000,000 Zegna Special Voting Shares C, with a nominal value of €0.18 each. In order to facilitate Zegna’sthe Company’s loyalty voting structure, the Zegna Articles of Association provide for transitional provisions to increase the authorized share capital when the Zegna Board makes the required filings with the Dutch Trade Register. All issued
At December 31, 2023, there were 250,310,263 Ordinary Shares have been fully paid up.
and 154,981,350 Special Voting Shares A issued and outstanding.As ofAt December 31, 2021, 54,600,000 Ordinary2023, 52,394,463 Ordinary Shares were held by Zegnathe Company in treasury.
All issued and outstanding Ordinary Shares and Zegna Special Voting Shares are held in registered form. No share certificates may be issued.
All issued Ordinary Shares and Special Voting Shares A have been fully paid up.The Zegna Articles of Association provide that Ordinary Shares and Zegna Special Voting Shares may be issued or rights to subscribe for shares may be granted pursuant to a resolution adopted by the Zegna General Meeting at the proposal of the Zegna Board, or alternatively, by the Zegna Board if so designated by the Zegna General Meeting. Designation by resolution of the Zegna General Meeting cannot be withdrawn unless determined otherwise at the time of designation. The scope and duration of the Zegna Board’s authority to issue shares or grant rights to subscribe for shares (such as granting stock options) will be determined by a resolution of the Zegna General Meeting and relates, at the most, to all unissued shares in Zegna’sthe Company’s authorized capital on the date on which the Zegna Board resolves to issue shares or grant rights to subscribe for shares. The duration of this authority may not exceed a period of five years. Designation of the Zegna Board as the body authorized to issue shares or grant rights to subscribe for shares may be extended by a resolution of the Zegna General Meeting for a period not exceeding five years in each case. The maximum number of shares or rights to subscribe for shares that may be issued or granted by the Board is determined at the time of designation by the Zegna General Meeting.
No resolution of the Zegna General Meeting or resolution of the Zegna Board is required to issue shares pursuant to the exercise of a previously granted right to subscribe for shares.
The Zegna General Meeting adopted a resolution prior to the Closing pursuant to which the Zegna Board is authorized, for a period of five years from the date of the Closing, to issue Ordinary Shares and grant rights to subscribe for Ordinary Shares up to the authorized share capital from time to time.
Under Dutch law and the
Zegna Articles of Association, each shareholder has a
pre-emptive
right in proportion to the aggregate number of its Ordinary Shares upon the issuance of new Ordinary Shares or the granting of rights to subscribe for Ordinary Shares. Exceptions to this
pre-emptive
right include the issuance of new Ordinary Shares or the granting of rights to subscribe for Ordinary Shares: (i) to employees of
Zegnathe Company or another company of its group; (ii) against payment other than in cash; and (iii) to persons exercising a previously granted right to subscribe for Ordinary Shares. Holders of
Zegna Special Voting Shares will not have
pre-emptive
rights to acquire newly issued Ordinary Shares or
Zegna Special Voting Shares and no
pre-emptive
rights will exist with respect to the issue of
Zegna Special Voting Shares. In accordance with Dutch law,
pre-emptive
rights may be exercised during a period of at least two weeks after the announcement of an issuance of new Ordinary Shares or a grant of rights to subscribe for Ordinary Shares in the Dutch State Gazette.
The
Zegna General Meeting at the proposal of the
Zegna Board, or alternatively the
Zegna Board if it has been designated to do so by the
Zegna General Meeting, has the authority to resolve on the limitation or exclusion of
pre-emptive
rights upon an issuance of Ordinary Shares or a grant of rights to subscribe for Ordinary Shares. A resolution of the
Zegna General Meeting to limit or exclude
pre-emptive
rights or to authorize the
Zegna Board to do so requires a
two-thirds
majority of the votes cast if less than half of the issued share capital is represented at a
Zegna General Meeting. If half or more of the issued share capital is represented at the meeting, this resolution is adopted with a simple majority of the votes cast.
Pursuant to Dutch law, the
Zegna Board may be designated as the competent body to limit or exclude
pre-emption
rights for a specified period of time not exceeding five years, but only if the
Zegna Board has also been authorized or is simultaneously authorized to issue Ordinary Shares. If a proposal is made by the
Zegna Board to the
Zegna General Meeting to limit or exclude
pre-emptive
rights, the reasons for the proposal and the choice of the intended price of issue must be explained in writing.
The
Zegna General Meeting adopted a resolution prior to the Closing pursuant to which the
Zegna Board is authorized, for a period of five years from the Closing Date, to limit or exclude
pre-emptive
rights in connection with an issuance of Ordinary Shares or grant of rights to subscribe for Ordinary Shares.
ZegnaThe Company and each of its subsidiaries may acquire Ordinary Shares and Zegna Special Voting Shares, subject to certain provisions of Dutch law and the Zegna Articles of Association and the articles of association of such subsidiary, as applicable. Ordinary Shares or Zegna Special Voting Shares may be acquired by Zegnathe Company or a subsidiary against no consideration or
against consideration. Ordinary Shares or Zegna Special Voting Shares may only be acquired against consideration if (i) Zegna’sthe Company’s shareholders’ equity () less the acquisition price is not less than the sum of thepaid-up
andcalled-up
share capital and any reserves to be maintained by Dutch law or the Zegna Articles of Association, (ii) Zegnathe Company and its subsidiaries would not thereafter hold shares or hold shares as pledgee with an aggregate nominal value exceeding 50% of Zegna’sthe Company’s then current issued and outstanding share capital, and (iii) the Zegna Board has been designated to do so by its shareholders at a Zegna General Meeting. The designation of the Zegna Board is not required if Zegnathe Company acquires fullypaid-up
Ordinary Shares for the purpose of transferring these to employees of Zegnathe Group under any applicable equity compensation plan. The ZegnaOn June 27, 2023, the General Meeting adopted a resolution
prior to the Closing to authorize the
Zegna Board for a period of 18 months
(starting from the
Closing Date,date of such meeting, until December 27, 2024) to repurchase Ordinary Shares, on the open market, through privately negotiated repurchases, in self-tender offers,
or through accelerated repurchase arrangements
representingor through other arrangements, for a total amount up to 10% of
Zegna’sthe Company’s issued share capital at
June 27, 2023. Notwithstanding the
timeforegoing and in accordance with the terms of
such repurchase, provided that the
Zegnaresolution, the Board is authorized to repurchase Ordinary Shares representing up to 20% of
Zegna’sthe Company’s issued share capital at
June 27, 2023, if the
time of such repurchase if ZegnaCompany intends to cancel or transfer
the the repurchased Ordinary Shares within 12 months from the date of such repurchase, at prices ranging from the nominal value of the Ordinary Shares up to 110% of the market price for the Ordinary
Shares;Shares and provided that (i) for open market or privately negotiated repurchases, the market price shall be the price for the Ordinary Shares on the NYSE at the time of the transaction; (ii) for self-tender offers, the market price shall be the volume weighted average price (the
“”“VWAP”) for the Ordinary Shares on the NYSE during a period, determined by the Board, of no less than one and no greater than five consecutive trading days immediately prior to the expiration of the tender offer; and (iii) for accelerated repurchase arrangements, the market price shall be the VWAP for the Ordinary Shares on the NYSE over the term of the arrangement. The VWAP of any number of trading days shall be calculated as the arithmetic average of the daily VWAP on those trading days.
Reduction of Share Capital
The Zegna General Meeting may resolve to reduce Zegna’sthe Company’s issued share capital by a cancellation of shares or by reducing the nominal value of the shares by amending the Zegna Articles of Association. A resolution to cancel shares may only relate to shares held by Zegnathe Company itself or all issued shares of any class of Zegna Special Voting Shares. A resolution to cancel all issued shares of any class of Zegna Special Voting Shares will be subject to approval of the meeting of holders of such class of Zegna Special Voting Shares. Cancellation of a class of Zegna Special Voting Shares will take place without the repayment of the nominal value of the class of Zegna Special Voting Shares, which nominal value will be added to the special capital reserve.
Any reduction of the nominal value of the Ordinary Shares or a class of Zegna Special Voting Shares without repayment must be made pro rata on all such shares. Any reduction of the nominal value of the Zegna Special Voting Shares will take place without repayment.
A resolution of the
Zegna General Meeting to reduce the share capital requires a majority of at least
two-thirds
of the votes cast at a
Zegna General Meeting if less than half of the issued share capital is represented at the meeting. If half or more of the issued share capital is represented at the meeting, such resolution is adopted with a simple majority of the votes cast.
In addition, Dutch law contains detailed provisions regarding the reduction of share capital. A resolution to reduce the issued share capital shall not take effect before a two monthstwo-month creditor opposition period has lapsed.
Pursuant to Dutch law and the
Zegna Articles of Association, the transfer of Ordinary Shares or
Zegna Special Voting Shares (in each case, other than in book-entry form) or the creation of a right
on such shares requires a deed intended for that purpose and, save when
Zegnathe Company is a party to the deed, written acknowledgment by
Zegnathe Company of the transfer or the creation.
Pursuant to the Zegna Articles of Association, for as long as Ordinary Shares are listed on a regulated foreign stock exchange, the Zegna Board may resolve, in accordance with applicable Dutch law, that the preceding paragraph shall not apply to the Ordinary Shares that are registered in the part of the shareholders register which is kept outside the Netherlands by a registrar appointed by the Zegna Board for the purpose of the listing on such foreign stock exchange and that the property law aspects of such shares shall be governed by the law of the state of establishment of such stock exchange or by the law of the
state in which deliveries and other legal acts under property law relating to the Ordinary Shares can or must be made with the consent of such stock exchange.
Pursuant to Dutch law and the Zegna Articles of Association, the Ordinary Shares are freely transferable. The Ordinary Shares which are registered in the Loyalty Register to participate in Zegna’sthe Company’s loyalty voting structure are subject to the transfer restrictions described under “—Terms and Conditions of the Zegna Special Voting Shares—Cancellation of Zegna Special Voting Shares.
” No Liability to Further Capital Calls
All issued Ordinary Shares and Special Voting Shares A have been fully paid up.
Discriminating Provisions
There are no provisions in the Zegna Articles of Association that discriminate against a shareholder because of its ownership of a certain number of shares.
Dividends and Other Distributions
Pursuant to Dutch law and the
Zegna Articles of Association, the distribution of dividends will take place following the adoption of the annual accounts, from which
Zegnathe Company will determine whether such distribution is permitted.
ZegnaThe Company may make distributions to its shareholders, whether from profits or from
Zegna’sthe Company’s freely distributable reserves, only insofar as
Zegna’sthe Company’s shareholders’ equity exceeds the sum of the
paid-up
and
called-up
share capital plus any reserves to be maintained by Dutch law or the
Zegna Articles of Association.
The Zegna Board may resolve to reserve the profits or part of the profits. Any profits remaining after the reservation referred to in the previous sentence by the Zegna Board will first be applied to allocate and add to the dividend reserve for each class of Zegna Special Voting Shares an amount equal to 1% of the aggregate nominal value of all issued and outstanding Zegna Special Voting Shares of that class. The profits remaining after application of the preceding sentence will be at the disposal of the Zegna General Meeting, which may resolve to add the remaining profits to the reserves or distribute them to the holders of Ordinary Shares. Distributions of dividends will be made to Zegna’sthe Company’s shareholders in proportion to the nominal value of their Ordinary Shares.
Pursuant to Dutch law and the
Zegna Articles of Association, the
Zegna Board or the
Zegna General Meeting at the proposal of the
Zegna Board are allowed to resolve upon interim distributions on Ordinary Shares. For this purpose, the
Zegna Board must prepare an interim statement of assets and liabilities. Such interim statement shall show
Zegna’sthe Company’s financial position not earlier than on the first day of the third month before the month in which the resolution to make the interim distribution is announced. An interim dividend can only be paid if (i) an interim statement of assets and liabilities is drawn up showing that the funds available for distribution are sufficient, and (ii)
Zegna’sthe Company’s shareholders’ equity exceeds the sum of the
paid-up
and
called-up
share capital and any reserves to be maintained by Dutch law or the
Zegna Articles of Association. Interim distributions may be made in cash
and in kind
or(such as in the form of Ordinary
Shares.Shares).Holders of Zegna Special Voting Shares will not receive any dividends in respect of the Zegna Special Voting Shares; however, Zegnathe Company will maintain a separate dividend reserve for each class of Zegna Special Voting Shares for the sole purpose of the allocation of the mandatory minimal profits that accrue to the Zegna Special Voting Shares (as further described under “—”). Any distribution out of a special voting shares dividend reserve or the partial or full release of any such reserve will require a prior proposal from the Zegna Board and a resolution of the meeting of holders of the relevant class of Zegna Special Voting Shares, and will be made exclusively to the holders of the relevant class of Zegna Special Voting Shares in proportion to the aggregate nominal value of such relevant class of Zegna Special Voting Shares. Distributions are payable on the day determined by the Zegna Board. Distributions will lapse if the distributions are not claimed within five years and one day following the date when they became payable.
Table of Contents
Pursuant to the
Zegna Articles of Association,
Zegnathe Company has a
one-tier
board consisting of one or more
Zegna Executive Directors and one or more
ZegnaNon-Executive
Directors. The
Zegna Board determines the number of
Zegna Executive Directors and
ZegnaNon-Executive
Directors, provided that the majority of the
Zegna Board will consist of
ZegnaNon-Executive
Directors.
The Zegna Board is currently composed of eleven members, as described in “Item 6.A—Directors and Senior Management—Board of Directors.
” The Zegna Board has adopted a diversity and inclusion policy for the Board to ensure gender representation, diversity and diversityinclusion on the Zegna Board in accordance with applicable law and in pursuit of best market practices.
The
Zegna Executive Directors are primarily responsible for all
operations of
Zegna.the Company. The
ZegnaNon-Executive
Directors, among others, supervise (i) the
Zegna Executive Directors’ policy and performance of duties and (ii)
Zegna’sthe Company’s general affairs and its business, and render advice and direction to the
Zegna Executive Directors. The
ZegnaNon-Executive
Directors furthermore perform any duties allocated to them under or pursuant to Dutch law or the
Zegna Articles of Association. The
Zegna Executive Directors will timely provide the
ZegnaNon-Executive
Directors with the information they need to carry out their duties.
The Zegna Board may allocate its duties and powers among the Zegna Directors and the committees of the Zegna Board in or in accordance with the Zegna Board Regulations or otherwise in writing.
The Zegna Board may in its discretion grant one of the ZegnaNon-Executive
Directors the title Vice Chairman and may grant such additional titles the Zegna Board deems appropriate to any Zegna Director. The Zegna Board determines which ZegnaNon-Executive
Director will act as LeadNon-Executive
Director and chair () as referred to under Dutch law. Nomination and Appointment
Zegna Directors are appointed by the
Zegna General Meeting on a binding nomination by the
Zegna Board, provided that one
ZegnaNon-Executive
Director is appointed on a binding nomination by the IIAC Sponsor if at the time of the convocation of the relevant
Zegna General Meeting the Sponsor Group satisfies the Minimum Holding Requirement. The nomination of the Sponsor Nominee by the IIAC Sponsor is subject to the approval of the
Zegna Board in its discretion if he or she has not previously served as
Zegna Director.
The IIAC Sponsor’s right to make a nomination for
one ZegnaNon-Executive
Director will lapse with immediate effect if the Sponsor Group fails to satisfy the Minimum Holding Requirement, provided that if such failure is not caused by a sale or transfer of Ordinary Shares by any member of the Sponsor Group, the IIAC Sponsor’s nomination right will lapse if such failure continues for a period of 20 trading days from the date on which any member of the Sponsor Group had knowledge of such failure. Upon the termination of the nomination right, the Sponsor Nominee (or any temporary
Zegna Director replacing a Sponsor Nominee) shall resign from the
Zegna Board with immediate effect at the request of
Zegna.the Company.The
Zegna General Meeting will at all times be allowed to overrule a binding nomination for the appointment of a
Zegna Director by a simple majority of the votes cast, representing more than
one-third
of
Zegna’sthe Company’s issued share capital. If a majority of the votes are cast in favor of overruling the binding nomination, but that majority does not represent more than one third of
Zegna’sthe Company’s issued share capital, a new
Zegna General Meeting may be convened at which the resolution to overrule the binding nomination may be adopted by a simple majority of the votes cast, regardless of
Zegna’sthe Company’s issued share capital represented by that majority.
In the event the binding nomination for the appointment of any Zegna Director other than the Sponsor Nominee is overruled, the Zegna Board is allowed to make a new binding nomination to fill the vacancy. In the event that also this binding nomination is overruled, the Zegna General Meeting shall be free to appoint a Zegna Director to fill the vacancy. In the event the binding nomination for the appointment of the Sponsor Nominee is overruled, the IIAC Sponsor may make a new binding nomination to fill the vacancy, provided that at the time of the convocation of the relevant Zegna General Meeting, the Sponsor Group satisfies the Minimum Holding Requirement.
Term of Office; Suspension; Dismissal; Conflict of Interest
Each Zegna Director is appointed for a term ending at the close of the first annual Zegna General Meeting following his or her appointment. Each Zegna Director may be reappointed.
The
Zegna General Meeting may at all times suspend or dismiss a
Zegna Director. Such resolution will require a majority of at least
two-thirds
of the votes cast, representing more than half of
Zegna’sthe Company’s issued share capital, or, if such resolution is proposed by the
Zegna Board, by a simple majority of the votes cast, representing more than half of
Zegna’sthe Company’s issued share capital. A
Zegna Director will not participate in the deliberations and decision-making process if such
Zegna Director has a direct or indirect personal conflict of interest with
Zegnathe Company and its associated business enterprise. If the
Zegna Board is unable to adopt a resolution as a result of all
Zegna Directors being unable to participate in the deliberations and decision-making process due to a conflict of interest, the resolution may nevertheless be adopted by the
Zegna Board.
LiabilityTransfer of Directors
SharesPursuant to Dutch law and the Articles of Association, the transfer of Ordinary Shares or Special Voting Shares (in each Zegna Directorcase, other than in book-entry form) or the creation of a right in rem on such shares requires a deed intended for that purpose and, save when the Company is a party to the deed, written acknowledgment by the Company of the transfer or the creation.
Pursuant to the Articles of Association, for as long as Ordinary Shares are listed on a regulated foreign stock exchange, the Board may resolve, in accordance with applicable Dutch law, that the preceding paragraph shall not apply to the Ordinary Shares that are registered in the part of the shareholders register which is kept outside the Netherlands by a registrar appointed by the Board for the purpose of the listing on such foreign stock exchange and that the property law aspects of such shares shall be governed by the law of the state of establishment of such stock exchange or by the law of the
state in which deliveries and other legal acts under property law relating to the Ordinary Shares can or must be made with the consent of such stock exchange.
Pursuant to Dutch law and the Articles of Association, the Ordinary Shares are freely transferable. The Ordinary Shares which are registered in the Loyalty Register to participate in the Company’s loyalty voting structure are subject to the transfer restrictions described under “—Terms and Conditions of the Special Voting Shares—Cancellation of Special Voting Shares.”
No Liability to Further Capital Calls
All issued Ordinary Shares and Special Voting Shares A have been fully paid up.
Discriminating Provisions
There are no provisions in the Articles of Association that discriminate against a shareholder because of its ownership of a certain number of shares.
Dividends and Other Distributions
Pursuant to Dutch law and the Articles of Association, the distribution of dividends will take place following the adoption of the annual accounts, from which the Company will determine whether such distribution is permitted. The Company may make distributions to its shareholders, whether from profits or from the Company’s freely distributable reserves, only insofar as the Company’s shareholders’ equity exceeds the sum of the paid-up and called-up share capital plus any reserves to be maintained by Dutch law or the Articles of Association.
The Board may resolve to reserve the profits or part of the profits. Any profits remaining after the reservation referred to in the previous sentence by the Board will first be applied to allocate and add to the dividend reserve for each class of Special Voting Shares an amount equal to 1% of the aggregate nominal value of all issued and outstanding Special Voting Shares of that class. The profits remaining after application of the preceding sentence will be at the disposal of the General Meeting, which may resolve to add the remaining profits to the reserves or distribute them to the holders of Ordinary Shares. Distributions of dividends will be made to the Company’s shareholders in proportion to the nominal value of their Ordinary Shares.
Pursuant to Dutch law and the Articles of Association, the Board or the General Meeting at the proposal of the Board are allowed to resolve upon interim distributions on Ordinary Shares. For this purpose, the Board must prepare an interim statement of assets and liabilities. Such interim statement shall show the Company’s financial position not earlier than on the first day of the third month before the month in which the resolution to make the interim distribution is announced. An interim dividend can only be paid if (i) an interim statement of assets and liabilities is drawn up showing that the funds available for distribution are sufficient, and (ii) the Company’s shareholders’ equity exceeds the sum of the paid-up and called-up share capital and any reserves to be maintained by Dutch law or the Articles of Association. Interim distributions may be held jointlymade in cash and severally liable to Zegna for damagesin kind (such as in the eventform of improper or negligent performanceOrdinary Shares).
Holders of his or her duties. Furthermore, Zegna Directors may be held liable to third parties based on tort pursuant to certain provisionsSpecial Voting Shares will not receive any dividends in respect of the Dutch Civil Code. All ZegnaSpecial Voting Shares; however, the Company will maintain a separate dividend reserve for each class of Special Voting Shares for the sole purpose of the allocation of the mandatory minimal profits that accrue to the Special Voting Shares (as further described under “—Loyalty Voting Structure”). Any distribution out of a special voting shares dividend reserve or the partial or full release of any such reserve will require a prior proposal from the Board and a resolution of the meeting of holders of the relevant class of Special Voting Shares, and will be made exclusively to the holders of the relevant class of Special Voting Shares in proportion to the aggregate nominal value of such relevant class of Special Voting Shares.
Distributions are payable on the day determined by the Board. Distributions will lapse if the distributions are not claimed within five years and one day following the date when they became payable.
Board of Directors are jointly and severally liable for failure
Board Composition
Pursuant to the Articles of Association, the Company has a one-tier board consisting of one or more
co-directors.
An individual Zegna Director will only be exempt from liability if he or she proves that he or she cannot be held culpable for the mismanagement and that he or she has not been negligent in seeking to prevent the consequences of the mismanagement. In this regard a Zegna Director may, however, refer to the allocation of tasks among the Zegna Directors. Pursuant to the Zegna Articles of Association, the Zegna Board has adopted regulations dealing with its internal organization, the manner in which decisions are taken, the place and manner in which meetings are held, the composition, the duties and organization of committees of the Zegna Board and any other matters concerning the Zegna Board, Zegna Executive Directors and committees established byone or more Non-Executive Directors. The Board determines the Zegna Board.
Pursuant to the Zegna Board Regulations, the Zegna Board strives to adopt its resolutions by consensus. If this is not possible, resolutions are adopted by a majoritynumber of votes cast, unlessExecutive Directors and Non-Executive Directors, provided otherwise by the Zegna Board Regulations. In the event of a tied vote, the proposal is rejected, unless the Zegna Board Regulations provide otherwise. Each Zegna Director shall have one vote.
Pursuant to the Zegna Board Regulations, the Zegna Board will only adopt resolutions at a meeting ifthat the majority of the directors entitledBoard will consist of Non-Executive Directors.
The Board is currently composed of eleven members, as described in “Item 6.A—Directors and Senior Management—Board of Directors.”
The Board has adopted a diversity and inclusion policy for the Board to voteensure gender representation, diversity and inclusion on the Board in accordance with applicable law and in pursuit of best market practices.
The Executive Directors are primarily responsible for all day-to-day operations of the Company. The Non-Executive Directors, among others, supervise (i) the Executive Directors’ policy and performance of duties and (ii) the Company’s general affairs and its business, and render advice and direction to the Executive Directors. The Non-Executive Directors furthermore perform any duties allocated to them under or pursuant to Dutch law or the Articles of Association. The Executive Directors will timely provide the Non-Executive Directors with the information they need to carry out their duties.
The Board may allocate its duties and powers among the Directors and the committees of the Board in or in accordance with the Board Regulations or otherwise in writing.
The Board may in its discretion grant one of the Non-Executive Directors the title Vice Chairman and may grant such additional titles the Board deems appropriate to any Director. The Board determines which Non-Executive Director will act as Lead Non-Executive Director and chair (voorzitter) as referred to under Dutch law.
Nomination and Appointment
Directors are appointed by the General Meeting on a binding nomination by the Board, provided that one Non-Executive Director is
present or representedappointed on a binding nomination by the IIAC Sponsor if at the
meeting. Iftime of the
LeadNon-Executive
Director andconvocation of the
Chairperson believe there is an urgent situation that requires an immediate resolutionrelevant General Meeting the Sponsor Group satisfies the Minimum Holding Requirement. The nomination of the Sponsor Nominee by the
Zegna Board, they may decide that the aforementioned quorum requirement does not apply provided that (i) at least two Directors entitled to vote are present or represented at the meeting including at least one Zegna Executive Director (provided, however, that any such Zegna Executive DirectorIIAC Sponsor is
entitled to vote on the matters being considered), and (ii) reasonable efforts have been made to involve the other Directors in the decision-making. The Zegna Articles of Association and Dutch law provide that resolutions of the Zegna Board regarding an important change in Zegna’s identity or character or its associated business enterprise are subject to the approval of the Zegna General Meeting. Such resolutions includeBoard in any event: (i)its discretion if he or she has not previously served as Director.
The IIAC Sponsor’s right to make a nomination for Non-Executive Director will lapse with immediate effect if the Sponsor Group fails to satisfy the Minimum Holding Requirement, provided that if such failure is not caused by a sale or transfer of Ordinary Shares by any member of the Sponsor Group, the IIAC Sponsor’s nomination right will lapse if such failure continues for a period of 20 trading days from the date on which any member of the Sponsor Group had knowledge of such failure. Upon the termination of the nomination right, the Sponsor Nominee (or any temporary Director replacing a Sponsor Nominee) shall resign from the Board with immediate effect at the request of the Company.
The General Meeting will at all times be allowed to overrule a binding nomination for the appointment of a Director by a simple majority of the votes cast, representing more than one-third of the Company’s issued share capital. If a majority of the votes are cast in favor of overruling the binding nomination, but that majority does not represent more than one third of the Company’s issued share capital, a new General Meeting may be convened at which the resolution to overrule the binding nomination may be adopted by a simple majority of the votes cast, regardless of the Company’s issued share capital represented by that majority.
In the event the binding nomination for the appointment of any Director other than the Sponsor Nominee is overruled, the Board is allowed to make a new binding nomination to fill the vacancy. In the event that also this binding nomination is overruled, the General Meeting shall be free to appoint a Director to fill the vacancy. In the event the binding nomination for the appointment of the Sponsor Nominee is overruled, the IIAC Sponsor may make a new binding nomination to fill the vacancy, provided that at the time of the convocation of the relevant General Meeting, the Sponsor Group satisfies the Minimum Holding Requirement.
Term of Office; Suspension; Dismissal; Conflict of Interest
Each Director is appointed for a term ending at the close of the first annual General Meeting following his or her appointment. Each Director may be reappointed.
The General Meeting may at all times suspend or dismiss a Director. Such resolution will require a majority of at least two-thirds of the votes cast, representing more than half of the Company’s issued share capital, or, if such resolution is proposed by the Board, by a simple majority of the votes cast, representing more than half of the Company’s issued share capital. A Director will not participate in the deliberations and decision-making process if such Director has a direct or indirect personal conflict of interest with the Company and its associated business
of Zegna or practicallyenterprise. If the
entire business of ZegnaBoard is unable to
adopt a
third party; (ii) concluding or cancelling a long-lasting cooperation of Zegna or a subsidiary with another legal entity or company orresolution as a
fully liable partner in a partnership, provided that the cooperation or cancellation isresult of
material significance to Zegna; and (iii) acquiring or disposing of a participating interest in the share capital of a company with a value of at leastone-third
of Zegna’s assets, as shown in the consolidated balance sheet with explanatory notes according to the last adopted annual accounts, by Zegna or a subsidiary. The Zegna Board as a whole and any Zegna Executive Director acting individually are authorized to represent Zegna. The Zegna Board may authorize one or more persons, whether or not employed by Zegna, to represent Zegna on a continuing basis or authorize in a different manner one or more persons to represent Zegna.
Indemnification of Zegnaall Directors and Officers
Under Dutch law, indemnification provisions may be included in a company’s articles of association. Pursuant to the Zegna Articles of Association, Zegna is required to indemnify any and all of the Zegna Directors, officers, former Zegna Directors, former officers and any person who may have served at its request as a director or officer of a subsidiary of Zegna, who were or are made a party or are threatened to be made a party or are involved in, any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative (each, a “”), or any appeal in such a Proceeding or any inquiry or
investigation that could lead to such a Proceeding against any and all liabilities, damages, documented expenses (including attorney’s fees), financial effects of judgments, fines, penalties (including excise and similar taxes and punitive damages) and amounts paid in settlement in connection with such Proceeding by any of them. Notwithstanding the above, no indemnification will be made (i) in respect of any claim, issue or matter as to which any of the above-mentioned indemnified persons will be adjudged in a final andnon-appealable
decision to be liable for gross negligence or willful misconduct in the performance of such person’s duty to Zegna or (ii) to the extent that the costs or the capital losses of the above-mentioned indemnified persons are paid by another party or covered by an insurance policy and the insurer has paid out these costs or capital losses. This indemnification by Zegna will not be exclusive of any other rights to which those indemnified may be entitled otherwise.Zegna has adopted a loyalty voting structure, in order to strengthen the stability of Zegna and foster the development and the continuous involvement of a stable base of long-term Zegna shareholders.
The Zegna Special Voting Shares are governed by the provisions included in the Zegna Articles of Association and the Terms and Conditions of the Zegna Special Voting Shares. These documents govern the issuance, allocation, acquisition, conversion, sale, holding, repurchase and transfer of the Zegna Special Voting Shares and certain aspects of the registration of the Ordinary Shares in the Loyalty Register.
The loyalty voting structure provides the Zegna shareholders with the opportunitybeing unable to participate in the loyalty voting structuredeliberations and decision-making process due to a conflict of interest, the resolution may nevertheless be adopted by requesting Zegna to register all or some of their Ordinary Shares in the Loyalty Register. The registration of Ordinary Shares in the Loyalty Register will block such shares from trading on the NYSE. If a number of Ordinary Shares have been registered in the Loyalty Register for an uninterrupted period of two years in the name of the same shareholder, such shares become eligible to receive Zegna Special Voting Shares A. The relevant shareholder will receive one Zegna Special Voting Share A per eligible Ordinary Share. Each Zegna Special Voting Share A will automatically be converted into a Zegna Special Voting Share B and each Zegna Special Voting Share B will automatically be converted into a Zegna Special Voting Share C, upon the issuance of the relevant conversion statement by Zegna. The requirements for the conversions are:Board.
after holding a number of Ordinary Shares for an uninterrupted period of five years following the registration of such number of Ordinary Shares in the Loyalty Register, and without such number of Ordinary Shares beingde-registered
from the Loyalty Register in such period, each Zegna Special Voting Share A corresponding to such number of Ordinary Shares will automatically be converted into a Zegna Special Voting Share B; andafter holding a number of Ordinary Shares for an uninterrupted period of ten years following the registration of such number of Ordinary Shares in the Loyalty Register, and without such number of Ordinary Shares beingde-registered
from the Loyalty Register in such period, each Zegna Special Voting Share B corresponding to such number of Ordinary Shares will automatically be converted into a Zegna Special Voting Share C.Each class of Zegna Special Voting Shares will entitle the relevant holders to the following number of votes, in addition to the voting rights attached to each Ordinary Share:
each Zegna Special Voting Share A will entitle its holder with one extra vote;
each Zegna Special Voting Share B will entitle its holder with four extra votes; and
each Zegna Special Voting Share C will entitle its holder with nine extra votes.
If, at any time, a number of Ordinary Shares arede-registered
from the Loyalty Register for whatever reason, the relevant shareholder will lose its entitlement to hold a corresponding number of Zegna Special Voting Shares.A holder of Ordinary Shares registered in the Loyalty Register is allowed to request thede-registration
of some or all of such shares from the Loyalty Register at any time, which will allow such shareholder to freely trade such shares. From the moment of such a request, the holder of the Ordinary Shares registered in the Loyalty Register will be considered to have waived his or her rights to cast any votes associated with the Zegna Special Voting Shares to bede-registered
from the Loyalty Register. Upon thede-registration
from the Loyalty Register, the holder of the relevant number of Ordinary Shares will cease to be entitled to receive Zegna Special Voting Shares. Anyde-registration
request will automatically trigger a mandatory transfer requirement pursuant to which the relevant Zegna Special Voting Shares will be acquired by Zegna for no consideration () in accordance with the Terms and Conditions of the Zegna Special Voting Shares.
The Ordinary Shares are freely transferable (subject to the limitations described under “—Transfer of Shares
Pursuant to Dutch law and the Articles of Association, the transfer of Ordinary Shares or Special Voting Shares (in each case, other than in book-entry form) or the creation of a right in rem on such shares requires a deed intended for that purpose and, save when the Company is a party to the deed, written acknowledgment by the Company of the transfer or the creation.
Pursuant to the Articles of Association, for as long as Ordinary Shares are listed on a regulated foreign stock exchange, the Board may resolve, in accordance with applicable Dutch law, that the preceding paragraph shall not apply to the Ordinary Shares that are registered in the part of the shareholders register which is kept outside the Netherlands by a registrar appointed by the Board for the purpose of the listing on such foreign stock exchange and that the property law aspects of such shares shall be governed by the law of the state of establishment of such stock exchange or by the law of the
state in which deliveries and other legal acts under property law relating to the Ordinary Shares can or must be made with the consent of such stock exchange.
Pursuant to Dutch law and the Articles of Association, the Ordinary Shares are freely transferable. The Ordinary Shares which are registered in the Loyalty Register to participate in the Company’s loyalty voting structure are subject to the transfer restrictions described under “—Terms and Conditions of the Special Voting Shares—Cancellation of Special Voting Shares.”
No Liability to Further Capital Calls
All issued Ordinary Shares and Special Voting Shares A have been fully paid up.
Discriminating Provisions
There are no provisions in the Articles of Association that discriminate against a shareholder because of its ownership of a certain number of shares.
Dividends and Other Distributions
Pursuant to Dutch law and the Articles of Association, the distribution of dividends will take place following the adoption of the annual accounts, from which the Company will determine whether such distribution is permitted. The Company may make distributions to its shareholders, whether from profits or from the Company’s freely distributable reserves, only insofar as the Company’s shareholders’ equity exceeds the sum of the paid-up and called-up share capital plus any reserves to be maintained by Dutch law or the Articles of Association.
The Board may resolve to reserve the profits or part of the profits. Any profits remaining after the reservation referred to in the previous sentence by the Board will first be applied to allocate and add to the dividend reserve for each class of Special Voting Shares an amount equal to 1% of the aggregate nominal value of all issued and outstanding Special Voting Shares of that class. The profits remaining after application of the preceding sentence will be at the disposal of the General Meeting, which may resolve to add the remaining profits to the reserves or distribute them to the holders of Ordinary Shares. Distributions of dividends will be made to the Company’s shareholders in proportion to the nominal value of their Ordinary Shares.
Pursuant to Dutch law and the Articles of Association, the Board or the General Meeting at the proposal of the Board are allowed to resolve upon interim distributions on Ordinary Shares. For this purpose, the Board must prepare an interim statement of assets and liabilities. Such interim statement shall show the Company’s financial position not earlier than on the first day of the third month before the month in which the resolution to make the interim distribution is announced. An interim dividend can only be paid if (i) an interim statement of assets and liabilities is drawn up showing that the funds available for distribution are sufficient, and (ii) the Company’s shareholders’ equity exceeds the sum of the paid-up and called-up share capital and any reserves to be maintained by Dutch law or the Articles of Association. Interim distributions may be made in cash and in kind (such as in the form of Ordinary Shares).
Holders of Special Voting Shares will not receive any dividends in respect of the Special Voting Shares; however, the Company will maintain a separate dividend reserve for each class of Special Voting Shares for the sole purpose of the allocation of the mandatory minimal profits that accrue to the Special Voting Shares (as further described under “—Loyalty Voting Structure”). Any distribution out of a special voting shares dividend reserve or the partial or full release of any such reserve will require a prior proposal from the Board and a resolution of the meeting of holders of the relevant class of Special Voting Shares, and will be made exclusively to the holders of the relevant class of Special Voting Shares in proportion to the aggregate nominal value of such relevant class of Special Voting Shares.
Distributions are payable on the day determined by the Board. Distributions will lapse if the distributions are not claimed within five years and one day following the date when they became payable.
Board of Directors
Board Composition
Pursuant to the Articles of Association, the Company has a one-tier board consisting of one or more Executive Directors and one or more Non-Executive Directors. The Board determines the number of Executive Directors and Non-Executive Directors, provided that the majority of the Board will consist of Non-Executive Directors.
The Board is currently composed of eleven members, as described in “Item 6.A—Directors and Senior Management—Board of Directors.”
The Board has adopted a diversity and inclusion policy for the Board to ensure gender representation, diversity and inclusion on the Board in accordance with applicable law and in pursuit of best market practices.
The Executive Directors are primarily responsible for all day-to-day operations of the Company. The Non-Executive Directors, among others, supervise (i) the Executive Directors’ policy and performance of duties and (ii) the Company’s general affairs and its business, and render advice and direction to the Executive Directors. The Non-Executive Directors furthermore perform any duties allocated to them under or pursuant to Dutch law or the Articles of Association. The Executive Directors will timely provide the Non-Executive Directors with the information they need to carry out their duties.
The Board may allocate its duties and powers among the Directors and the committees of the Board in or in accordance with the Board Regulations or otherwise in writing.
The Board may in its discretion grant one of the Non-Executive Directors the title Vice Chairman and may grant such additional titles the Board deems appropriate to any Director. The Board determines which Non-Executive Director will act as Lead Non-Executive Director and chair (voorzitter) as referred to under Dutch law.
Nomination and Appointment
Directors are appointed by the General Meeting on a binding nomination by the Board, provided that one Non-Executive Director is appointed on a binding nomination by the IIAC Sponsor if at the time of the convocation of the relevant General Meeting the Sponsor Group satisfies the Minimum Holding Requirement. The nomination of the Sponsor Nominee by the IIAC Sponsor is subject to the approval of the Board in its discretion if he or she has not previously served as Director.
The IIAC Sponsor’s right to make a nomination for Non-Executive Director will lapse with immediate effect if the Sponsor Group fails to satisfy the Minimum Holding Requirement, provided that if such failure is not caused by a sale or transfer of Ordinary Shares by any member of the Sponsor Group, the IIAC Sponsor’s nomination right will lapse if such failure continues for a period of 20 trading days from the date on which any member of the Sponsor Group had knowledge of such failure. Upon the termination of the nomination right, the Sponsor Nominee (or any temporary Director replacing a Sponsor Nominee) shall resign from the Board with immediate effect at the request of the Company.
The General Meeting will at all times be allowed to overrule a binding nomination for the appointment of a Director by a simple majority of the votes cast, representing more than one-third of the Company’s issued share capital. If a majority of the votes are cast in favor of overruling the binding nomination, but that majority does not represent more than one third of the Company’s issued share capital, a new General Meeting may be convened at which the resolution to overrule the binding nomination may be adopted by a simple majority of the votes cast, regardless of the Company’s issued share capital represented by that majority.
In the event the binding nomination for the appointment of any Director other than the Sponsor Nominee is overruled, the Board is allowed to make a new binding nomination to fill the vacancy. In the event that also this binding nomination is overruled, the General Meeting shall be free to appoint a Director to fill the vacancy. In the event the binding nomination for the appointment of the Sponsor Nominee is overruled, the IIAC Sponsor may make a new binding nomination to fill the vacancy, provided that at the time of the convocation of the relevant General Meeting, the Sponsor Group satisfies the Minimum Holding Requirement.
Term of Office; Suspension; Dismissal; Conflict of Interest
Each Director is appointed for a term ending at the close of the first annual General Meeting following his or her appointment. Each Director may be reappointed.
The General Meeting may at all times suspend or dismiss a Director. Such resolution will require a majority of at least two-thirds of the votes cast, representing more than half of the Company’s issued share capital, or, if such resolution is proposed by the Board, by a simple majority of the votes cast, representing more than half of the Company’s issued share capital. A Director will not participate in the deliberations and decision-making process if such Director has a direct or indirect personal conflict of interest with the Company and its associated business enterprise. If the Board is unable to adopt a resolution as a result of all Directors being unable to participate in the deliberations and decision-making process due to a conflict of interest, the resolution may nevertheless be adopted by the Board.
Liability of Directors
Pursuant to Dutch law, each Director may be held jointly and severally liable to the Company for damages in the event of improper or negligent performance of his or her duties. Furthermore, Directors may be held liable to third parties based on tort pursuant to certain provisions of the Dutch Civil Code. All Directors are jointly and severally liable for failure of one or more co-directors. An individual Director will only be exempt from liability if he or she proves that he or she cannot be held culpable for the mismanagement and that he or she has not been negligent in seeking to prevent the consequences of the mismanagement. In this regard a Director may, however, refer to the allocation of tasks among the Directors.
Board Regulations
Pursuant to the Articles of Association, the Board has adopted regulations dealing with its internal organization, the manner in which decisions are taken, the place and manner in which meetings are held, the composition, the duties and organization of committees of the Board and any other matters concerning the Board, Directors and committees established by the Board.
Decision-making
Pursuant to the Board Regulations, the Board strives to adopt its resolutions by consensus. If this is not possible, resolutions are adopted by a majority of votes cast, unless provided otherwise by the Board Regulations. In the event of a tied vote, the proposal is rejected, unless the Board Regulations provide otherwise. Each Director shall have one vote.
Pursuant to the Board Regulations, the Board will only adopt resolutions at a meeting if the majority of the directors entitled to vote is present or represented at the meeting. If the Lead Non-Executive Director and the Chairperson believe there is an urgent situation that requires an immediate resolution by the Board, they may decide that the aforementioned quorum requirement does not apply provided that (i) at least two Directors entitled to vote are present or represented at the meeting including at least one Executive Director (provided, however, that any such Executive Director is entitled to vote on the matters being considered), and (ii) reasonable efforts have been made to involve the other Directors in the decision-making.
The Articles of Association and Dutch law provide that resolutions of the Board regarding an important change in the Company’s identity or character or its associated business enterprise are subject to the approval of the General Meeting. Such resolutions include in any event: (i) the transfer of the business enterprise, or practically the entire business enterprise to a third party; (ii) concluding or cancelling a long-lasting cooperation of the Company or a subsidiary with another legal entity or company or as a fully liable partner in a partnership, provided that the cooperation or cancellation is of material significance to the Company; and (iii) acquiring or disposing of a participating interest in the share capital of a company with a value of at least one-third of the Company’s assets, as shown in the consolidated balance sheet with explanatory notes according to the last adopted annual accounts, by the Company or a subsidiary.
Representation
The Board as a whole and any Executive Director acting individually are authorized to represent the Company. The Board may authorize one or more persons, whether or not employed by the Company, to represent the Company on a continuing basis or authorize in a different manner one or more persons to represent the Company.
Indemnification of Directors and Officers
Under Dutch law, indemnification provisions may be included in a company’s articles of association. Pursuant to the Articles of Association, the Company is required to indemnify any and all of the Directors, officers, former Directors, former officers and any person who may have served at its request as a director or officer of a subsidiary of the Company, who were or are made a party or are threatened to be made a party or are involved in, any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative (each, a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding against any and all liabilities, damages, documented expenses (including attorney’s fees), financial effects of judgments, fines, penalties (including excise and similar taxes and punitive damages) and amounts paid in settlement in connection with such Proceeding by any of them. Notwithstanding the above, no indemnification will be made (i) in respect of any claim, issue or matter as to which any of the above-mentioned indemnified persons will be adjudged in a final and non-appealable decision to be liable for gross negligence or willful misconduct in the performance of such person’s duty to the Company or (ii) to the extent that the costs or the capital losses of the above-mentioned indemnified persons are paid by another party or covered by an insurance policy and the insurer has paid out these costs or capital losses. This indemnification by the Company will not be exclusive of any other rights to which those indemnified may be entitled otherwise.
Loyalty Voting Structure
The Company has adopted a loyalty voting structure, in order to strengthen the stability of the Company and foster the development and the continuous involvement of a stable base of long-term the Company shareholders.
The Special Voting Shares are governed by the provisions included in the Articles of Association and the Terms and Conditions of the Special Voting Shares. These documents govern the issuance, allocation, acquisition, conversion, sale, holding, repurchase and transfer of the Special Voting Shares and certain aspects of the registration of the Ordinary Shares in the Loyalty Register.
The loyalty voting structure provides the Company shareholders with the opportunity to participate in the loyalty voting structure by requesting the Company to register all or some of their Ordinary Shares in the Loyalty Register. The registration of Ordinary Shares in the Loyalty Register will block such shares from trading on the NYSE. If a number of Ordinary Shares have been registered in the Loyalty Register for an uninterrupted period of two years in the name of the same shareholder, such shares become eligible to receive Special Voting Shares A. The relevant shareholder will receive one Special Voting Share A per eligible Ordinary Share. Each Special Voting Share A will automatically be converted into a Special Voting Share B and each Special Voting Share B will automatically be converted into a Special Voting Share C, upon the issuance of the relevant conversion statement by the Company. The requirements for the conversions are:
•after holding a number of Ordinary Shares for an uninterrupted period of five years following the registration of such number of Ordinary Shares in the Loyalty Register, and without such number of Ordinary Shares being de-registered from the Loyalty Register in such period, each Special Voting Share A corresponding to such number of Ordinary Shares will automatically be converted into a Special Voting Share B; and
•after holding a number of Ordinary Shares for an uninterrupted period of ten years following the registration of such number of Ordinary Shares in the Loyalty Register, and without such number of Ordinary Shares being de-registered from the Loyalty Register in such period, each Special Voting Share B corresponding to such number of Ordinary Shares will automatically be converted into a Special Voting Share C.
Each class of Special Voting Shares will entitle the relevant holders to the following number of votes, in addition to the voting rights attached to each Ordinary Share:
•each Special Voting Share A will entitle its holder with one extra vote;
•each Special Voting Share B will entitle its holder with four extra votes; and
•each Special Voting Share C will entitle its holder with nine extra votes.
If, at any time, a number of Ordinary Shares are de-registered from the Loyalty Register for whatever reason, the relevant shareholder will lose its entitlement to hold a corresponding number of Special Voting Shares.
A holder of Ordinary Shares registered in the Loyalty Register is allowed to request the de-registration of some or all of such shares from the Loyalty Register at any time, which will allow such shareholder to freely trade such shares. From the moment of such a request, the holder of the Ordinary Shares registered in the Loyalty Register will be considered to have waived his or her rights to cast any votes associated with the Special Voting Shares to be de-registered from the Loyalty Register. Upon the de-registration from the Loyalty Register, the holder of the relevant number of Ordinary Shares will cease to be entitled to receive Special Voting Shares. Any de-registration request will automatically trigger a mandatory transfer requirement pursuant to which the relevant Special Voting Shares will be acquired by the Company for no consideration (om niet) in accordance with the Terms and Conditions of the Special Voting Shares.
The Ordinary Shares are freely transferable (subject to the limitations described under “—Transfer of Shares” above). However, any transfer or disposal of Ordinary Shares registered in the Loyalty Register not permitted by the Terms and Conditions of the Zegna Special Voting Shares will trigger thede-registration
of such shares from the Loyalty Register and the transfer of all relevant Zegnacorresponding Special Voting Shares to Zegna.the Company. The Zegna Special Voting Shares are not listed and are transferable only in very limited circumstances (including, among other things, transfers to certain affiliates or to relatives through succession, donation or other transfers, provided that the corresponding Ordinary Shares registered in the Loyalty Register are also transferred to such party, or transfers with the approval of the Zegna Board). In particular, no shareholder will be allowed to, directly or indirectly: (a) sell, dispose of, trade or transfer any Zegna Special Voting Shares or otherwise grant any right or interest in any Zegna Special Voting Share, other than as permitted pursuant to the Zegna Articles of Association or the Terms and Conditions of the Zegna Special Voting Shares; or (b) establish or permit to establish any pledge, lien, fixed or floating charge or other encumbrance over any Zegna Special Voting Share or any interest in any Zegna Special Voting Share.
The purpose of the loyalty voting structure is to grant long-term shareholders extra voting rights by means of granting Zegna Special Voting Shares, without entitling such shareholders to any economic rights, other than those pertaining to the Ordinary Shares. However, under Dutch law, the Zegna Special Voting Shares cannot be totally excluded from economic entitlements. As a result, pursuant to the Zegna Articles of Association, holders of Zegna Special Voting Shares will be entitled to a minimum dividend, which is allocated to separate special voting shares dividend reserves. Any distribution out of a special voting shares dividend reserve or the partial or full release of any such reserve will require a prior proposal from the Zegna Board and a resolution of the meeting of holders of the relevant class of Zegna Special Voting Shares, and will be made exclusively to the holders of the relevant class of Zegna Special Voting Shares in proportion to the aggregate nominal value of the relevant class of their Zegna Special Voting Shares. The powers to vote upon the distribution from the special voting shares dividend reserve and the cancellation of all issued Zegna Special Voting Shares of a specific class are the only powers that are granted to the meeting of holders of Zegna Special Voting Shares of the relevant class pursuant to Zegna Articles of Association.
The Zegna Board is allowed to amend the Terms and Conditions of the Zegna Special Voting Shares, provided, however, that any material, not merely technical amendment will be subject to approval of the Zegna General Meeting, unless such amendment is required to ensure compliance with applicable laws and or stock exchange rules.
Zegna Special Voting Shares Foundation
Pursuant to the Zegna Articles of Association, a Dutch foundation () (the “”SVS Foundation”) has the right to subscribe for a number of Zegna Special Voting Shares A, Zegna Special Voting Shares B and Zegna Special Voting Shares C up to the number of such class of Zegna Special Voting Shares included in Zegna’sthe Company’s authorized share capital from time to time. The SVS Foundation is only allowed to exercise the option right to facilitate the loyalty voting structure set forth in the Zegna Articles of Association and the Terms and Conditions of the Zegna Special Voting Shares. The option right is granted to the SVS Foundation for an unlimited period and is intended to ensure that holders of eligible Ordinary Shares in the future will receive their Zegna Special Voting Shares without requiring a resolution from the Zegna General Meeting. Under the structure of the SVS Foundation, once a shareholder of Zegnathe Company becomes entitled to receive Zegna Special Voting Shares A, Zegnathe Company will issue such Zegna Special Voting Shares A to the SVS Foundation pursuant to the SVS Foundation’s exercise of its option right and, thereafter, the SVS Foundation will transfer the Zegna Special Voting Shares A to such shareholder. To the extent required, and only if Zegnathe Company fails to issue a conversion statement, the SVS Foundation will have the right to subscribe for Zegna Special Voting Shares B and Zegna Special Voting Shares C to facilitate the loyalty voting structurestructure.
Terms and Conditions of the Zegna Special Voting Shares
The Terms and Conditions of the Zegna Special Voting Shares apply to the issuance, allocation, acquisition, conversion, sale, holding, repurchase and transfer of the Zegna Special Voting Shares and certain aspects of the registration of the Ordinary Shares in the Loyalty Register.
ZegnaThe Company will maintain a special capital reserve, exclusively for the purpose of facilitating the issuance, conversion, or cancellation of the
Zegna Special Voting Shares. The amounts required to maintain the special capital reserve will be charged exclusively against
Zegna’sthe Company’s share premium reserve. Without prejudice to the next sentence, no distributions shall be made from the special capital reserve. The
Zegna Board will be authorized to resolve upon (i) any distribution out of the special capital reserve to
pay-up
the
Zegna Special Voting Shares or
(ii) re-allocation
of amounts to credit or debit the special capital reserve against or in favor of the share premium reserves
Zegnathe Company will maintain.
Cancellation of Zegna Special Voting Shares
Following a mandatory transfer to
Zegnathe Company of
Zegna Special Voting Shares after a
de-registration
of eligible Ordinary Shares from the Loyalty Register,
Zegnathe Company will be allowed to continue to hold the
Zegna Special Voting Shares as treasury shares, but will not be entitled to vote on any such treasury shares. Alternatively,
Zegnathe Company will be allowed to cancel the
Zegna Special Voting Shares held in treasury, as a result of which the nominal value of such shares will be added to the special capital reserve.
ZegnaThe Company will also be allowed to cancel all issued and outstanding
Zegna Special Voting Shares of a specific class, subject to approval of the meeting of holders of the relevant class of
Zegna Special Voting Shares. Consequently, the loyalty voting feature will terminate, and the relevant Ordinary Shares will be
de-registered
from the Loyalty Register. No shareholder, who will be required to transfer
Zegna Special Voting Shares to
Zegnathe Company pursuant to the Terms and Conditions of the
Zegna Special Voting Shares will be entitled to any consideration for such
Zegna Special Voting Shares and each shareholder will expressly waive any rights in that respect as a condition to participation in the loyalty voting structure.
A shareholder with Ordinary Shares registered in the Loyalty Register must promptly notify Zegnathe Company in the event of a change of control (as such term is defined in the Terms and Conditions of the Zegna Special Voting Shares) with respect to such shareholder and must make ade-registration
request with respect to all his or her Ordinary Shares registered in the Loyalty Register. Thede-registration
request leads to a withdrawaltransfer of the Zegna Special Voting Shares as described under “—“—Board of Directors—Loyalty Voting Structure.
Structure.” Notwithstanding Zegnathe Company not receiving any such notification, it will be allowed, upon becoming aware of a change of control, to initiate thede-registration
of the relevant shareholder’s Ordinary Shares from the Loyalty Register. Affirmative Vote of the Sponsor Nominee
Pursuant to the Zegna Articles of Association, the affirmative vote of the Sponsor Nominee is required for resolutions of the Zegna Board concerning the following matters, provided that the Sponsor Group satisfies the Minimum Holding Requirement:
•making a proposal to the Zegna General Meeting concerning any amendment of the Zegna Articles of Association which adversely affects the rights of the IIAC Sponsor specifically (as opposed to its rights arising from the ownership of Ordinary Shares or Zegna Special Voting Shares that are shared on a pro rata basis by the other holders of the same class);
•cessation or material alteration of the principal business of Zegna,the Company, including a material change to its corporate purpose, or change of jurisdiction of organization;
•expansion of the Zegna Board to more than fifteen members without granting the IIAC Sponsor the right to nominate an additional Zegna Director to preserve its proportional representation;
•dissolution or termination of any standing committee of the Zegna Board;
•deregistration of Zegnathe Company or delisting of the Ordinary Shares from the NYSE; and
•making a proposal to the Zegna General Meeting for the appointment or removal of Zegna’sthe Company’s independent auditors, but only if the replacement is not from among Deloitte, Ernst & Young, KPMG or PricewaterhouseCoopers.
The IIAC Sponsor’s rights described above will lapse with immediate effect if the Sponsor Group fails to satisfy the Minimum Holding Requirement, provided that if such failure is not caused by a sale or transfer of Ordinary Shares by a member of the Sponsor Group, the IIAC Sponsor’s rights will lapse if such failure continues for a period of 20 trading days from the date on which any members of the Sponsor Group had knowledge of such failure.
Zegna General Meetings will be held in Amsterdam, Haarlemmermeer (which includes Schiphol Airport), The Hague or Rotterdam, the Netherlands. The annual Zegna General Meeting shall be held no later than six months after the end of the financial year on the date and at the place mentioned in the convocation notice. Additional extraordinary Zegna General Meetings may also be held whenever considered appropriate by the Zegna Board. Pursuant to Dutch law, one or more shareholders, who solely or jointly represent at least 10% of the issued and outstanding share capital, may request the Zegna Board to convene a Zegna General Meeting. If the Zegna Board has not taken the steps necessary to ensure that a Zegna General Meeting is held within the relevant statutory period after the request, the requesting person(s) may, at his/her/their request, be authorized by a court in preliminary relief proceedings to convene a Zegna General Meeting.
Zegna General Meetings shall be convened by
an announcement in a Dutch daily newspaper and a notice, which shall include an agenda stating the items to be discussed, including for the annual
Zegna General Meeting, among other things, the discussion and adoption of the annual accounts, appropriation of
Zegna’sthe Company’s profits, and proposals relating to the
Zegna Board, including the appointment or
re-appointment
of
Zegna Directors and the filling of any vacancies in the
Zegna Board. In addition, the agenda shall include such items as have been included therein by the
Zegna Board. One or more of shareholders, alone or together, representing at least 3% of the issued and outstanding share capital may also request to include items in the agenda of a
Zegna General Meeting.
Requests must be made in writing and received by the
Zegna Board at least 60 days before the day of the meeting. No resolutions shall be adopted on items other than those which have been included in the agenda. In accordance with the DCGC, a shareholder may only request the inclusion of an item on the agenda after consulting the
Zegna Board in that respect. If one or more of
Zegna’sthe Company’s shareholders intend to request that an item be put on the agenda for a
Zegna General Meeting that may result in a change in
Zegna’sthe Company’s strategy, pursuant to the DCGC, the
Zegna Board may invoke a response time of a maximum of 180 days until the day of the
Zegna General Meeting. In addition,
recently, a statutory response time became effective in the Netherlands. Ifif shareholders request a change to the composition of the
Zegna Board or of corresponding provisions in the
Zegna Articles of Association, and in the case of an unsolicited public offer,
thea statutory response time may be invoked by the
Zegna Board
pursuant to Dutch law, being a period of, depending on the circumstances, no more than 250 days. The
Zegna General Meeting is presided over by the Chairperson or, if the Chairperson is absent or no
Zegna Director has been designated as Chairperson, by the Lead
Non-Executive
Director.
The Zegna Directors may attend a Zegna General Meeting in person or by electronic means of communication. The chairperson of the meeting may decide at his or her discretion to admit other persons to the meeting.
The external auditor of Zegnathe Company may attend the annual Zegna General Meeting in which the annual accounts are discussed.
When convening a
Zegna General Meeting, the
Zegna Board is allowed to determine that persons with the right to vote or attend such meeting are considered those persons who have these rights at the 28th day prior to the date of the meeting (the
“”“Record Date”) and are registered as such in a register to be designated by the
Zegna Board for such purpose, regardless of whether they have these rights at the date of the meeting. In order for a person to be able to attend a
Zegna General Meeting and to have the right to vote in such meeting, such person must notify
Zegnathe Company in writing of his or her intention to do so no later than on the day and in the manner mentioned in the convocation notice for the
Zegna General Meeting.
Voting Rights and Quorum at Zegna General Meetings
Each Ordinary Share and each Zegna Special Voting Share A confers the right to cast one vote, each Zegna Special Voting Share B confers the right to cast four votes and each Zegna Special Voting Share C confers the right to cast nine votes in a Zegna General
Meeting. For more information about the Zegna Special Voting Shares, please refer to “—Board of Directors—Loyalty Voting Structure.
” No votes may be cast at a Zegna General Meeting on shares held by Zegnathe Company or Zegna’sthe Company’s subsidiaries. Nonetheless, the holders of a right of usufruct in respect of Ordinary Shares are not excluded from the right to vote on such shares, if the right of usufruct or the right of pledge was granted prior to the time such share was acquired by Zegnathe Company or any of Zegna’sthe Company’s subsidiaries. ZegnaThe Company may not cast votes on shares in respect of which Zegnathe Company or a subsidiary holds a right of usufruct or a right of pledge. Ordinary Shares which are not entitled to voting rights pursuant to the preceding sentences will not be taken into account for the purpose of determining the number of shares on which votes may be cast, or the amount of the share capital that is present or represented at a Zegna General Meeting. Unless Dutch law or the Zegna Articles of Association state otherwise, all resolutions adopted at the Zegna General Meeting are adopted with a simple majority of the votes cast. No quorum requirements apply.
Pursuant to Dutch law, when determining the extent to which shareholders vote, are present or represented, or the extent to which the share capital is present or represented, no account shall be taken of shares in respect of which the law or the Zegna Articles of Association provide that no votes may be cast.
Meetings of Holders of Shares of a Specific Class
Meetings of holders of shares of a specific class will be held whenever the Zegna Board calls such meetings.
Meetings of holders of shares of a specific class may be convened no later than on the sixth day before the day of such meeting. The provisions applicable to Zegna General Meetings, except those concerning the frequency, notice period and the Zegna Record Date, will applyto the meetings of holders of shares of a specific class. See “—Zegna General Meetings—Voting Rights and Quorum at Zegna General Meetings.Meetings.”
” Annual Accounts and Independent Auditor
Zegna’sThe Company’s financial year coincides with the calendar year. Within five months after the end of each financial year, which period may be extended with five months upon a resolution of the Zegna General Meeting on grounds of special circumstances, the Zegna Board will prepare and publish the annual accounts, consisting of a balance sheet, a profit and loss account and explanatory notes and which must be accompanied by a management report and auditor’s report, alongside any other information that would need to be made public in accordance with the applicable provisions of law and the requirements of the NYSE. All Zegna Directors are required to sign the annual accounts and in case the signature of any member is missing, the reason for this must be stated.
The annual accounts are to be adopted by the Zegna General Meeting. The annual accounts, the management report and independent auditor’s report will be made available at Zegna’sthe Company’s address to the shareholders for review as from the day of the notice convening the Zegna General Meeting at which they are discussed.
Amendments to the Zegna Articles of Association
A resolution of the Zegna General Meeting to amend the Zegna Articles of Association may only be adopted by the Zegna General Meeting at the proposal of the Zegna Board, which proposal requires the affirmative vote of the Sponsor Nominee if any amendment adversely affects the rights of the IIAC Sponsor specifically, as described under “—“—Affirmative Vote of the Sponsor Nominee.
Nominee.” A resolution regarding the amendment of the Zegna Articles of Association will require a simple majority of the votes cast. Dissolution and Liquidation
ZegnaThe Company may only be dissolved by a resolution of the Zegna General Meeting at the proposal of the Zegna Board. If a resolution to dissolve Zegnathe Company is to be submitted to the Zegna General Meeting, this must in all cases be stated in the convocation notice for the relevant Zegna General Meeting. If the Zegna General Meeting resolves to dissolve Zegna,the Company, the members of the Zegna Board will be charged with the liquidation of the business, of Zegna, unless the Zegna General Meeting resolves otherwise at the proposal of the Zegna Board. During liquidation, the provisions of the Zegna Articles of Association will remain in force as long as possible.
If Zegnathe Company is dissolved and liquidated, whatever remains of Zegna’sthe Company’s equity after all its debts have been satisfied will be divided. Firstly, the balance of the dividend reserve for each class of Zegna Special Voting Shares will be for the benefit of the holders of Zegna Special Voting Shares of that class in proportion to the aggregate nominal value of the class of their Zegna
Special Voting Shares. Any balance remaining will be for the benefit of the holders of Ordinary Shares in proportion to the aggregate nominal value of Ordinary Shares held by each of them.
Pursuant to article 2:92a of the Dutch Civil Code, a shareholder who, for his or her own account, holds at least 95% of Zegna’sthe Company’s issued and outstanding share capital may initiate proceedings against the other shareholders jointly for the transfer of their shares to the claimant. The proceedings are held before the Dutch Enterprise Chamber () and can be instituted by means of a writ of summons served upon each of the minority shareholders in accordance with the provisions of the Dutch Code of Civil procedure (Wetboek van Burgerlijke Rechtsvordering
). The Dutch Enterprise Chamber may grant the claim forthe squeeze-out in
relation to all minority shareholders and will determine the price to be paid for the shares, if necessary after appointment of one to three expert(s) who will offer an opinion to the Dutch Enterprise Chamber on the value to be paid for the shares of the minority shareholders. Once the order to transfer becomes final before the Dutch Enterprise Chamber, the person acquiring the shares must give written notice of the date and place of payment and the price to the holders of the shares to be acquired whose addresses are known to him or her. Unless the addresses of all of them are known to the acquiring person, such person is required to publish the same in a Dutch national daily newspaper. Financial Reporting under Dutch Law
The Dutch Financial Reporting Supervision Act (Wet toezicht financiële verslaggeving
, the “”), applies to Zegna’sthe Company’s financial reporting. Under the FRSA, the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten
, “”“AFM”) supervises the application of financial reporting standards by, among others, companies whose corporate seats are in the Netherlands and whose securities are listed on a regulated market within the EU or on an equivalentthird (non-EU) country
market. As Zegnathe Company has its corporate seat in the Netherlands and the Ordinary Shares are listed on the NYSE, the FRSA is applicable to Zegna.the Company.
Pursuant to the FRSA, the AFM has an independent right to (i) request an explanation from Zegnathe Company regarding the application of the applicable financial reporting standards and thereafter (ii) make informal arrangements with Zegnathe Company that must be observed in the future or make a notification to Zegnathe Company that its financial reports do not meet the applicable financial reporting standards, which notification may be accompanied by a reccommendationrecommendation to Zegnathe Company to issue a press release on the subject matter..matter. If Zegnathe Company does not comply or comply adequately with such a request or recommendation, the AFM may request that the Dutch Enterprise Chamber orders Zegnathe Company to (i) provide an explanation on the way it has applied the applicable financial reporting standards to its financial reports or (ii) prepare its financial reports in accordance with the Dutch Enterprise Chamber’s instructions.
Certain Insider Trading and Market Manipulation Laws
Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014 (the “”) on abuse rules does not apply to Zegnathe Company or to the Ordinary Shares as the Ordinary Shares are solely listed on the NYSE, a stock exchange outside the European Economic Area. As a result, there are no EU rules or Dutch rules applicable to Zegnathe Company relating to market abuse, such as insider trading, tipping, market manipulation and notification rules for director dealings. Certain Disclosure and Reporting Obligations of Zegna Directors, Officers and Shareholders of Zegna
Zegna Directors, officers, and shareholders of Zegna are subject to certain disclosure and reporting obligations under Dutch law. The following is a description of the general disclosure obligations of Zegna Directors, officers, and shareholders under Dutch law as such laws exist as of the date of this report and should not be viewed as legal advice for specific circumstances.
CompanyAs
Zegnathe Company has its corporate seat in the Netherlands and has its Ordinary Shares listed on a third
(non-EU)
country market equivalent to a regulated market (i.e. NYSE),
Zegnathe Company is subject to the DCGC. The DCGC contains both principles and suggested governance provisions for
one-tier
boards, executive and
non-executive
directors, shareholders and general meetings, financial reporting, auditors, disclosure compliance and enforcement standards.
While the Company intends to endorse the principles and best practice provisions of the DCGC, it does not apply all best practice provisions. The DCGC is based on a “comply or explain” principle. Accordingly,
Zegnathe Company is required to disclose in its management report publicly filed in the Netherlands whether or not it is complying with the various provisions of the DCGC. If
Zegnathe Company does not comply with one or more of those provisions (e.g., because of a conflicting NYSE requirement or U.S. market practice),
Zegnathe Company is required to explain the reasons for such
non-compliance
in its Dutch statutory annual report relating to the fiscal year under review.
While we intend to endorse the principles and best practice provisions of the DCGC, it is envisaged that Zegna will not apply certain best practice provisions of the DCGC, including the following:142
Paolo Zegna di Monte Rubello and Anna Zegna di Monte Rubello are both representatives of Monterubello and are appointed as ZegnaNon-Executive
Directors. Because of their affiliation with Monterubello, Zegna does not comply with best practice provision 2.1.7(iii) of the DCGC that requires that there is at most one ZegnaNon-Executive
Director who can be considered to be affiliated with a Shareholder who holds more than 10% of the Ordinary Shares. Zegna believes that it and all of its stakeholders benefit from both affiliates of Monterubello, especially in respect of their expertise and valuable knowledge of Zegna’s business and the industry Zegna operates in, which outweighs any perceived disadvantage ofnon-independence;
the Chief Executive Officer has also been granted the title Chairperson but does not qualify as the chairperson within the meaning of the DCGC (for example best practice provision 2.3.6). In accordance with the Zegna Articles of Association and the Zegna Board Regulations, the Zegna Board has granted an independent ZegnaNon-Executive
Director the title LeadNon-Executive
Director. The LeadNon-Executive
Director serves as the chairperson of the Zegna Board under Dutch law and within the meaning of the DCGC (for example best practice provision 2.3.6). Consequently, Zegna is compliant with best practice provision 2.1.9 that requires the chairperson of the Zegna Board to be independent within the meaning of best practice provision 2.1.8 of the DCGC;pursuant to the Zegna Articles of Association, the Zegna Directors are appointed for a term ending at the close of the first annual Zegna General Meeting following his or her appointment. Given these annual appointments, Zegna does not prepare a retirement schedule as referred to in best practice provision 2.2.4 of the DCGC;
the Zegna Board has granted or intends to grant options and/or performance shares to the Chief Executive Officer as part of his remuneration. In deviation of best practice provision 3.1.2 of the DCGC, the options may be exercised within the first three years of their grant date, and the performance shares to be awarded to the Chief Executive Officer will not be subject to a five years holding period. Although in deviation of the DCGC, the foregoing is market practice among companies listed on the NYSE. As regards the ZegnaNon-Executive
Directors, it is envisaged that their remuneration will be payable 50% in cash and 50% in shares subject to alock-up
period of two years. The remuneration in the form of Ordinary Shares is in accordance with market practice among companies listed on the NYSE, although in deviation from suggested governance provision 3.3.2 of the DCGC; and
the management services agreement of the Chief Executive Officer provides for (i) a severance payment in excess of one year base salary and (ii) a severance payment if such agreement is terminated, among other things, at the initiative of the Chief Executive Officer. These severance provisions are considered consistent with US market practice, although in deviation from suggested governance provision 3.2.3 of the DCGC.
Registration Rights and
Lock-Up
Arrangements
Concurrently with the Closing,
Zegna,the Company, the Zegna Initial Shareholders, the IIAC Sponsor and the IIAC Initial Shareholders (collectively, the
“”“Holders”) entered into the Registration Rights Agreement, pursuant to which, among other things, the Holders have been granted certain registration rights with respect to certain Ordinary Shares and other equity securities of
Zegnathe Company held by the Holders from time to time. Pursuant to the Registration Rights Agreement,
Zegnathe Company has
agreed to filefiled a registration statement registering for resale certain Ordinary Shares and other equity securities of
Zegna within 45 days after the
Closing.Company held by the Holders. At any time and from time to time after the expiration of
any lock-up to
which a Holder’s shares are subject, if any, any Holder will be able to request to sell all or a portion of its registrable securities in an underwritten offering so long as the aggregate gross proceeds from the offering are reasonably expected to exceed $50 million.
ZegnaThe Company will under no circumstances be obligated to effect (i) more than 3 underwritten offerings in the aggregate in respect of all registrable securities held by the Zegna Initial Shareholders or (ii) more than 3 underwritten offerings in the aggregate in respect of all registrable securities held by the IIAC Initial Shareholders. The Registration Rights Agreement also provides for customary “piggyback” registration rights, subject to certain requirements and
customary cut-backs. The
Registration Rights Agreement also contains customary provisions regarding indemnification and contribution.
Concurrently with the execution of the Business Combination Agreement, IIAC and Zegnathe Company entered into the PIPE Subscription Agreements with certain investors. The PIPE Subscription Agreements provide for certaininvestors, which provided customary registration rights.rights to investors. In particular,accordance with the PIPE Subscription Agreements, provide that Zegna is required to filethe Company filed with the SEC a registration statement registering the resale of such shares as soon as practicable (but in any case within 45 calendar days following the Closing Date). Additionally, Zegna is required to use its commercially reasonable efforts to have the registration statement declared effective as soon as practicable after the filing thereof, but no later than the earlier of (i) the 30th
calendar day (or the 90th
calendar day if the SEC notifies Zegna that it will “review” the registration statement) following the filing date thereof and (ii) the 10th
business day after the date Zegna is notified (orally or in writing, whichever is earlier) by the SEC that the registration statement will not be “reviewed” or will not be subject to further review. Zegnashares. The Company will use commercially reasonable efforts to keep the registration statement effective until the earliest of: (i) the third anniversary of the Closing; (ii) the date the subscribers cease to hold any shares issued pursuant to the PIPE Subscription Agreements (the “”); or (iii) the date all registrable shares may be sold by the subscribers under Rule 144 within 90 days without the public information, volume or manner of sale limitations of such rule. The PIPE Subscription Agreements for the Insider PIPE Subscribers containcontained certain restrictions on transfer with respect to the shares issued pursuant to such PIPE Subscription Agreements, immediately following the Closing. Such restrictions began at the Closing and will endwhich expired on the date that is twelve (12) months after the Closing. Under the terms of the Warrant Agreement and the New Warrant Agreement, Zegna is required to use commercially reasonable efforts to file with the SEC a registration statement covering the issuance of Ordinary Shares issuable upon exercise of the Warrants as soon as practicable, but in no event later than 20 business days after the Closing. Zegna is required to use commercially reasonable efforts to have the registration statement declared effective within 60 business days of the Closing and to maintain the effectiveness of such registration statement and a current prospectus relating to Ordinary Shares issuable upon exercise of the Warrants until the expiration or redemption of the Warrants in accordance with the provisions of the Warrant Agreement and New Warrant Agreement, as applicable.
December 17, 2022.Concurrently with the Closing,
the Zegna Initial Shareholders, the IIAC Sponsor and the IIAC Initial Shareholders entered into the
ZegnaShareholdersIIAC Sponsor Lock-Up Agreement and
with the
IIAC SponsorLock-Up
Agreement, as applicable, with Zegna. Pursuant to the Zegna ShareholdersLock-Up
Agreement, the Zegna Initial Shareholders have agreed, among other things, not to sell, transfer or otherwise dispose of any Ordinary Shares owned by them (excluding any shares acquired in the PIPE Financing) until the earlier of (a) the date that is 18 months from the Closing Date and (b) the last trading day on which the volume weighted average share price of the Ordinary Shares equals or exceeds $12.50 per share for at least 20 trading days within any period of 30 consecutive trading days, commencing at least 180 days after the Closing Date.Company. Pursuant to the IIAC Sponsor
Lock-Up
Agreement,
subject to certain exceptions, the IIAC Sponsor and the IIAC Initial Shareholders have agreed, among other things,
not to sell, transfer or otherwise dispose of any Ordinary Shares or Warrants acquired in connection with the Business Combination in exchange for Class B Shares,
Class A Shares subscribed for pursuant to the Forward Purchase Agreement and IIAC Private Placement Warrants, as applicable (excluding any shares acquired in the PIPE Financing), for a period of 180 days following the Closing Date, in each case other than pursuant to certain customary exceptions; provided that, subject to certain adjustments: (i) the IIAC Sponsor (together with any other IIAC affiliates) willagreed to maintain beneficial ownership of a number of Ordinary Shares representing at least (a) 80% of the IIAC Sponsor’s initial stake immediately following the Closing (excluding, for the avoidance of doubt, Ordinary Shares acquired in the PIPE Financing) for a period of at least 18 months following the Closing Date, and (b) 40% of the IIAC Sponsor’s initial stake immediately following the Closing (excluding, for the avoidance of doubt, Ordinary Shares acquired in the PIPE Financing) for a period of at least 36 months following the Closing Date.
Concurrently with the Closing,
Zegna,the Company, Monterubello, Ermenegildo
(Gildo) Zegna and the IIAC Sponsor entered into the Shareholders Agreement, pursuant to which, among other things, for so long as the Sponsor Group satisfies the Minimum Holding Requirement, (i) the parties thereto will, and will cause their respective controlled affiliates to, exercise their rights and powers such that the Sponsor Nominee will only be (a) suspended as a
Zegna Director if so requested in writing by the IIAC Sponsor unless the Board reasonably determined that not suspending the Sponsor Nominee would be in breach of the
Zegna Board’s fiduciary duties and (b) dismissed as a
Zegna Director if so requested in writing by the IIAC Sponsor or in the case of fraud or willful misconduct in the performance of the Sponsor Nominee’s office as a
ZegnaNon-Executive
Director, (ii)
Zegnathe Company will offer the Sponsor Nominee the opportunity to be proposed to the
Zegna Board for appointment to serve on the Audit Committee and/or the Compensation Committee and (iii) the IIAC Sponsor will have the right to participate in certain capital raises of
Zegnathe Company on the terms and subject to the exceptions contained in the Shareholders Agreement.
For so long as the Sponsor Group satisfies the Minimum Holding Requirement and subject to the conditions contained in the Shareholders Agreement,
Zegnathe Company will also (i) consult with the IIAC Sponsor and solicit and consider its views in good faith before (a) entering into any major, transformative acquisition involving a merger with a similarly situated fashion or luxury goods company or (b) determining to pay an extraordinary cash dividend, and (ii) provide access to senior representatives of the IIAC Sponsor to interact with (a) the Chief Financial Officer and Chief Operating Officer of
Zegnathe Company monthly and (b) the Chief Executive Officer of
Zegnathe Company quarterly, in each case to ask questions about the affairs of
Zegna,the Company, provided that, in each case, neither
Zegnathe Company nor its senior representatives shall be under any obligation to disclose any confidential
or non-public information.
C. Material Contracts
Information regarding certain material contracts is included in this report under “Item 10.B—Memorandum and Articles of Association
” and is incorporated herein by reference. See also Note 34 (28 — Other
current and non-current
financial liabilities
) to the Consolidated Financial Statements for information on the put option arrangements with Thom Browne. Under Dutch law, there are no exchange control restrictions on investments in, or payments on, the Ordinary Shares. There are no special restrictions in the Zegna Articles of Association or Dutch law that limit the right of shareholders who are not citizens or residents of the Netherlands to hold or vote the Ordinary Shares.
Material United States Federal Income Tax Considerations
The following discussion is a summary of material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) of owning Ordinary Shares and/or Warrants. This discussion applies only to Ordinary Shares and/or Warrants held as capital assets (generally held for investment). This summary does not discuss all aspects of U.S. federal income taxation that may be relevant to particular investors in light of their particular circumstances, or to investors subject to special tax rules, such as:
•Broker-dealers;
•Traders in securities that electtreatment; •Regulated investment companies;
•Real estate investment trusts;
•Tax exempt organizations (including private foundations);
•Investors that hold Ordinary Shares or Warrants as part of a “straddle,” “hedge,” “conversion,” “synthetic security,” “constructive ownership transaction,” “constructive sale” or other integrated transaction for U.S. federal income tax purposes;
•Holders that have a functional currency other than the U.S. dollar;
•Investors subject to the U.S. “inversion” rules; and
U.S. •Holders owning or considered as owning (directly, indirectly or through attribution) 5%(5% measured by vote or value) or more of Zegna’sthe Ordinary Shares; and
•Person who received any of Zegna’sthe Company’s stock or warrants as compensation.
This summary does not discuss any U.S. state or local or
non-U.S.
tax considerations, any
non-income
tax (such as gift or estate tax) considerations, the alternative minimum tax or the Medicare tax on net investment income.
If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Ordinary Shares or Warrants, the tax treatment of a partner in such partnership will generally depend upon the status of the partner, the activities of the partnership and the partner and certain determinations made at the partner level. A partner in a partnership holding Ordinary Shares or Warrants is urged to consult their tax advisor regarding the tax consequences to them of the ownership and disposition of Ordinary Shares and Warrants.
This summary is based upon the U.S. Tax Code, the regulations promulgated by the U.S. Department of the Treasury, current administrative interpretations and practices of the U.S. Internal Revenue Service (“”), and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS will not assert, or that a court will not sustain a position contrary to any of the tax considerations described below. For purposes of this discussion, a
“”“U.S. Holder” is a beneficial owner of Ordinary Shares or Warrants, as the case may be, that is:
•An individual who is a U.S. citizen or resident of the United States;
•A corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia;
•An estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
•A trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons (within the meaning of the U.S. Tax Code) who have the authority to control all substantial decisions of the trust or (B) that has in effect a valid election under applicable Treasury Regulations to be treated as a U.S. person.
•A “non-U.S. Holder” is a beneficial owner of Ordinary Shares or Warrants that is not a United States person and is not a partnership for United States federal income tax purposes.
•A U.S. Holderholder should consult its own tax advisor regarding the United States federal, state and local tax consequences of owning and disposing of Ordinary Shares or Warrants in its particular circumstances. U.S. Holders
Dividends and Other Distributions on Ordinary Shares
Subject to the PFIC rules discussed below under the heading“— “—Passive Foreign Investment Company (“PFIC”) Rules
,” distributions on Ordinary Shares generally will be taxable as dividends for U.S. federal income tax purposes to the extent paid from Zegna’sthe Company’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of Zegna’sthe Company’s current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in its Ordinary Shares. Any remaining excess will be treated as gain realized on the sale or other disposition of the Ordinary Shares and will be treated as described below under the heading“Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Ordinary Shares and Warrants.”
The amount of any such distribution will include any amounts withheld by us (or another applicable withholding agent), which, as described below under the heading “—Material Dutch Tax Considerations—ZegnaCompany’s Shares and Warrants
”Warrants” and “—Material Italian Tax Considerations—Ordinary Shares and Warrants
Taxation in Italy” is expected to be in respect of Italian, and not Dutch, taxes, provided that certain conditions as set forth under the heading “—Material Dutch Tax Considerations—Zegna Shares and Warrants
” are met and such distribution is made to a QualifyingNon-Dutch
Resident (as defined and explained under the prior-mentioned heading). Zegnataxes. The Company does not expect to calculate earnings and profits in accordance with U.S. federal income tax principles, and accordingly, U.S. Holders should expect to generally treat distributions on Ordinary Shares as dividends taxable at the highest U.S. tax rates. In the case of a U.S. Holder that is a corporation owning at least 10 percent of the Company’s shares by vote and value, a dividend received by such a U.S. Holder on a share of the Company may be eligible for a dividends-received
deduction with respect to the U.S. source portion of such dividends. Any amount treated assuch corporate U.S. Holders must have owned such shares for over 46 days during the 91-day period beginning on the date which is 45 days before the ex-dividend date. The U.S. Tax Code also provides a dividends-received deduction for a dividend income will be treated asreceived from a “specified 10-percent owned foreign corporation” by a U.S. corporation that is a “10 percent U.S. Shareholder” with respect to the foreign-source portion of such dividend. However, the deduction for the foreign-source portion of dividends received by specified 10-percent owned foreign corporations is generally disallowed in its entirety if the common share with respect to which the dividend income. is paid is owned by such corporate U.S. Holder for less than 366 days during the 731-day period beginning on the date which is 365 days before the date on which the common share becomes ex-dividend with respect to such dividend. The Company does not intend to track and identify whether any portion of a dividend constitutes “post-86 Undistributed U.S. earnings” or “Undistributed Foreign Earnings” for purposes of the dividends received deductions. U.S. Holders should contact their tax advisor to determine whether such rules apply to any dividends received.
Amounts treated as dividends that
Zegnathe Company pays to a U.S. Holder that is taxable as a corporation generally will be taxed at regular
rates and will not qualify for the dividends received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations.rates. With respect to
non-corporate
U.S. Holders, subject to certain exceptions (including, but not limited to, dividends treated as investment income for purposes of investment interest deduction limitations), dividends generally will be eligible for treatment as “qualified dividend income” and taxed at the lower applicable long-term capital gains rate only if, among others: (i) Ordinary Shares are readily tradable on an established securities market in the United States or
Zegnathe Company is eligible for benefits under an applicable tax treaty with the United States; (ii)
Zegnathe Company is not treated as a PFIC with respect to such U.S. Holder at the time the dividend was paid or in the preceding year; and (iii) certain holding period requirements are met. The Ordinary Shares are listed on the NYSE, so the first of these requirements is expected to be met. The amount of any dividend distribution paid in Euros will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of payment, regardless of whether the payment is in fact converted into U.S. dollars at that time. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. The foreign currency gain or loss from such conversion will be ordinary income or loss and generally will be U.S. source.
Subject to applicable limitations, Italian income taxes withheld from dividends on common shares at a rate not exceeding the rate provided by the applicable treaty with the United States will be eligible for credit against a U.S. treaty beneficiary’s U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the lower applicable long-term capital gains rates. For purposes of calculating the foreign tax credit, dividends paid on the Ordinary Shares will be foreign source and will generally constitute passive category income. The rules governing foreign tax credits are complex and U.S. Holders are urged to consult their tax advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, a U.S. Holder may deduct foreign taxes, including any Italian income tax, in computing its taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.
Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Ordinary Shares and Warrants
Subject to the PFIC rules discussed below under the heading“— “—Passive Foreign Investment Company (“PFIC”) Rules,”
upon any sale, exchange or other taxable disposition of Ordinary Shares or Warrants, a U.S. Holder generally will recognize gain or loss in an amount equal to the difference between (i) the sum of (x) the amount of cash and (y) the fair market value of any other property, received in such sale, exchange or other taxable disposition and (ii) the U.S. Holder’s adjusted tax basis in such Ordinary Shares or Warrants (determined as described herein), in each case as calculated in U.S. dollars. Any such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder’s holding period for such Ordinary Shares exceeds one year. Long-term capital gain realized by anon-corporate
U.S. Holder generally will be taxable at a reduced rate. The deduction of capital losses is subject to limitation. Gain or loss recognized by a U.S. Holder generally will be treated as U.S. source.
If Ordinary Shares or Warrants are sold, exchanged, redeemed, retired or otherwise disposed of in a taxable transaction in exchange for Euro, the amount realized generally will be the U.S. dollar value of the Euro received based on the spot rate in effect on the date of sale, exchange, redemption, retirement or other taxable disposition. If a U.S. Holder is a cash method taxpayer and the Ordinary Shares and/or Warrants are traded on an established securities market, Euro paid or received will be translated into U.S. dollars at the spot rate on the settlement date of the purchase or sale. An accrual method taxpayer may elect the same treatment with respect to the purchase and sale of Ordinary Shares or Warrants traded on an established securities market, provided that the election is applied consistently from year to year. Such election cannot be changed without the consent of the IRS. Euro received on the sale or other disposition of an Ordinary Share or Warrant
generally will have a tax basis equal to its U.S. dollar value as determined pursuant to the rules above. Any gain or loss recognized by a U.S. Holder on a sale, exchange, redemption, retirement or other taxable disposition of the Euro will be ordinary income or loss and generally will be U.S. source.
Exercise or Lapse of a Warrant
A U.S. Holder generally will not recognize taxable gain or loss on the acquisition of an Ordinary Share upon exercise of a Warrant for cash. The U.S. Holder’s tax basis in the Ordinary Share received upon exercise of the Warrant generally will be an amount equal to the sum of the U.S. Holder’s initial investment in the Warrant (i.e., its tax basis, calculated in U.S. dollars) and the exercise price. If the exercise price is paid in Euro, a U.S. Holder’s tax basis in respect of the exercise price will be the U.S. dollar value of the Euro paid on exercise, determined at the spot rate on the date of exercise. The U.S. Holder’s holding period for Ordinary Shares received upon exercise of the of a Warrant will begin on the date following the date of exercise (or possibly the date of exercise) of the Warrant and will not include the period during which the U.S. Holder held the Warrant (or any IIAC Warrant exchanged therefor). If a Warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such U.S. Holder’s tax basis in the warrant (calculated in U.S. dollars). Such loss will be long-term if the warrant has been held for more than one year and generally will be U.S. source.
Adjustment to Exercise Price
Under Section 305 of the U.S. Tax Code, if certain adjustments are made (or not made) to the number of shares to be issued upon the exercise of a Warrant or to the Warrant’s exercise price, a U.S. Holder may be deemed to have received a constructive distribution with respect to the warrant, which could result in adverse consequences for the U.S. Holder, including the recognition of dividend income (with the consequences generally as described above under the heading“Item 10.E—Taxation—Dividends and Other Distributions on Ordinary Shares”
Shares”). The rules governing constructive distributions as a result of certain adjustments with respect to a Warrant are complex, and U.S. Holders are urged to consult their tax advisors on the tax consequences of any such constructive distribution with respect to a Warrant. Passive Foreign Investment Company (“PFIC”) Rules
Significant potential adverse U.S. federal income tax consequences, including certain reporting requirements, generally apply to any United States person who owns, or is treated as owning through the application of certain “attribution” rules, shares in a PFIC. Zegna,The Company, however, does not expect that it or any subsidiary will be a PFIC for the current taxable year or any future taxable year.
The treatment of U.S. Holders of Ordinary Shares and Warrants could be materially different from that described above if Zegnathe Company is treated as a PFIC for U.S. federal income tax purposes. A foreign (i.e.,non-U.S.)
corporation will be classified as a PFIC for U.S. federal income tax purposes if either (i) at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value and any partnership in which the Company owns more than 25% by value, is passive income or (ii) at least 50% of its assets in a taxable year (ordinarily determined based on fair market value and averaged quarterly over the year), including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value and any partnership in which the Company owns more than 25% by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. Certain look-through rules apply to classify items of income as either active or passive for PFIC purposes. Finally, if the Company were treated as a PFIC, certain additional “attribution” rules may apply to treat U.S. Holders as indirectly owning the subsidiary legal entities of the Company, only for purposes of applying the PFIC rules to such entities. See additional information under the heading “—Related PFIC Rules,” below. As previously stated, Zegnathe Company does not expect that it will qualify as a PFIC for U.S. federal income tax purposes for its most recent taxable year. Although Zegna’sthe Company’s PFIC status is determined annually, a determination that Zegnathe Company is a PFIC will generally apply for subsequent years to a U.S. Holder who held Ordinary Shares or Warrants while Zegnathe Company was a PFIC, whether or not Zegnathe Company meets the test for PFIC status in those subsequent years.
If Zegnathe Company is determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of Ordinary Shares or Warrants and, in the case of Ordinary Shares, the U.S. Holder did not make
either an applicable PFIC Electionelection (or elections) for the first taxable year of Zegnathe Company (or IIAC, as applicable) in which it was treated as a PFIC, and in which the U.S. Holder held (or was deemed to hold) such shares or otherwise, such U.S. Holder generally will be subject to special and adverse rules with respect to (i) any gain recognized by the U.S. Holder on the sale or other disposition of its Ordinary Shares or Warrants and (ii) any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the Ordinary Shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for the Ordinary Shares).
•the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the Ordinary Shares or Warrants;
•the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of Zegna’sthe Company’s first taxable year in which Zegnathe Company is a PFIC, will be taxed as ordinary income;
•the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and
•an additional tax equal to the interest charge generally applicable to underpayments of tax will be imposed on the U.S. Holder with respect to the tax attributable to each such other taxable year of the U.S. Holder.
In general, if Zegnathe Company is determined to be a PFIC, a U.S. Holder may avoid the adverse PFIC tax consequences described above in respect of Ordinary Shares (but not Warrants) by making and maintaining a timely and valid QEFQualified Electing Fund (“QEF”) election (if eligible to do so) to include in income its pro rata share of Zegna’sthe Company’s net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the first taxable year of the U.S. Holder in which or with which Zegna’sthe Company’s taxable year ends and each subsequent taxable year. A U.S. Holder generally may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge. However, in order to comply with the requirements of a QEF election, a U.S. Holder must receive a PFIC Annual Information Statement from us. ZegnaThe Company does not expect that it is or will become a PFIC and, therefore, presently does not intend to provide the information necessary for U.S. Holders to make or maintain a QEF election (but can provide no assurance in this regard).
Alternatively, if
Zegnathe Company is a PFIC and Ordinary Shares constitute “marketable stock,” a U.S. Holder may avoid the adverse PFIC tax consequences discussed above if such U.S. Holder makes a
election with respect to such shares for the first taxable year in which it holds (or is deemed to hold) Ordinary Shares and each subsequent taxable year. Such U.S. Holder generally will include for each of its taxable years as ordinary income the excess, if any, of the fair market value of its Ordinary Shares at the end of such year over its adjusted basis in its Ordinary Shares. The U.S. Holder also will recognize an ordinary loss in respect of the excess, if any, of its adjusted basis of its Ordinary Shares over the fair market value of its Ordinary Shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the
election). The U.S. Holder’s basis in its Ordinary Shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of its Ordinary Shares will be treated as ordinary income and any loss would be an ordinary loss to the extent of the net amount of previously included income as a result of the
election and, thereafter, a capital loss. Currently, a
election may not be made with respect to Warrants.
The
election is available only for “marketable stock,” which is, generally, stock that is regularly traded on a national securities exchange that is registered with the U.S. Securities and Exchange Commission, including the NYSE (on which the Ordinary Shares are listed). If made, a
election would be effective for the taxable year for which the election was made and for all subsequent taxable years unless the Ordinary Shares cease to qualify as “marketable stock” for purposes of the PFIC rules or the IRS consents to the revocation of the election. U.S. Holders are urged to consult their tax advisors regarding the availability and tax consequences of a
election with respect to Ordinary Shares under their particular circumstances.
Notwithstanding any PFIC election made by a U.S. Holder, dividends received from Zegnathe Company will not constitute “qualified dividend income” in a taxable year in which Zegnathe Company is a PFIC (or is treated as a PFIC with respect to such U.S. Holder) either in the taxable year of the distribution or the preceding taxable year. Dividends that do not constitute qualified dividend income are not eligible for taxation at the preferential rates applicable to qualified dividend income. Instead, the U.S. Holder must include the gross amount of any such dividend paid by Zegnathe Company out of its accumulated earnings and profits (as determined for United States federal income tax purposes) in their gross income, and it will be subject to tax at rates applicable to ordinary income.
If Zegnathe Company is a PFIC and, at any time during the U.S. Holders holding period of the stock of the Company, has a foreign subsidiary that is also classified as a PFIC, a U.S. Holder generally would be deemed to own a proportionate amount of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if Zegnathe Company receives a distribution from, or disposes of all or part of its interest in, the lower-tier PFIC, or the U.S. Holder otherwise was deemed to have disposed of an interest in the lower-tier PFIC. Any PFIC elections made with respect to Zegnathe Company would not be effective for such lower-tier PFIC and the consequences of any distributions or dispositions would generally be as described above under the heading“— “—Passive Foreign Investment Company Rules.(“PFIC”) Rules.”
As described above under the heading “—Passive Foreign Investment Company (“PFIC”) Rules” the Company does not expect that it will qualify as a PFIC for U.S. federal income tax purposes for its most recent taxable year, and therefore the attribution rule described in this paragraph should not apply to a U.S. Holder. A U.S. Holder that owns (or is deemed to own) shares in a PFIC during any taxable year of the U.S. Holder, may be required to file an IRS Form 8621 (whether or not a QEF or
election is made) and to provide such other information as may be required by the U.S. Department of the Treasury. Failure to do so, if required, will extend the statute of limitations applicable to such U.S. Holder until such required information is furnished to the IRS.
The rules dealing with PFICs and with the QEF and
elections are complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of Ordinary Shares and Warrants, are urged to consult their own tax advisors concerning the application of the PFIC rules to
Zegnathe Company securities under their particular circumstances.
Loyalty Voting Program and Zegna Special Voting Shares
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE RECEIPT, OWNERSHIP OR DISPOSITION OF ZEGNA SPECIAL VOTING SHARES SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES AND AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES ARE UNCERTAIN. ACCORDINGLY, U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP AND DISPOSITION OF ZEGNA SPECIAL VOTING SHARES.
Receipt of Zegna Special Voting Shares
The tax consequences of the receipt by a U.S. Holder of Zegna Special Voting Shares is unclear. While distributions of stock aretax-free
in certain circumstances, the distribution of Zegna Special Voting Shares would be taxable if it were considered to result in a “disproportionate distribution.” A disproportionate distribution is a distribution or series of distributions, including deemed distributions, that have the effect of the receipt of cash or other property by some shareholders of Zegnathe Company and an increase in the proportionate interest of other shareholders of Zegnathe Company in Zegna’sthe Company’s assets or earnings and profits. It is possible that the distribution of Zegna Special Voting Shares to a U.S. Holder and a distribution of cash in respect of Ordinary Shares could be considered together to constitute a “disproportionate distribution.” Unless Zegnathe Company has not paid cash dividends in the 36 months prior to a U.S. Holder’s receipt of Zegna Special Voting Shares and Zegnathe Company does not pay cash dividends in the 36 months following a U.S. Holder’s receipt of Zegna Special Voting Shares, Zegnathe Company intends to treat the receipt of Zegna Special Voting Shares as a distribution that is subject to tax as described above in“—Taxation of Dividends.”
The amount of the dividend should equal the fair market value of the Zegna Special Voting Shares received. ZegnaThe Company believes and intends to take the position that the value of each Zegna Special Voting Share is minimal. However, because the fair market value of the Zegna Special Voting Shares is factual and is not governed by any guidance that directly addresses such a situation, the IRS
could assert that the value of the Zegna Special Voting Shares (and thus the amount of the dividend) as determined by Zegnathe Company is incorrect.
Ownership of Zegna Special Voting Shares
ZegnaThe Company believes that U.S. Holders holding Zegna Special Voting Shares should not have to recognize income in respect of amounts transferred to the Zegna Special Voting Shares dividend reserve that are not paid out as dividends. Section 305 of the U.S. Tax Code may, in certain circumstances, require a holder of preferred shares to recognize income even if no dividends are actually received on such shares if the preferred shares are redeemable at a premium and the redemption premium results in a “constructive distribution.” Preferred shares for this purpose refer to shares that do not participate in corporate growth to any significant extent. ZegnaThe Company believes that Section 305 of the U.S. Tax Code should not apply to any amounts transferred to the Zegna Special Voting Shares dividend reserve that are not paid out as dividends so as to require current income inclusion by U.S. Holders because, among other things, (i) the Zegna Special Voting Shares are not redeemable on a specific date and a U.S. Holder is only entitled to receive amounts in respect of the Zegna Special Voting Shares upon liquidation, and (ii) Section 305 of the U.S. Tax Code does not require the recognition of income in respect of a redemption premium if the redemption premium does not exceed a de minimis amount and, even if the amounts transferred to the special voting shares dividend reserve that are not paid out as dividends are considered redemption premium, the amount of the redemption premium is likely to be “de minimis” as such term is used in the applicable Treasury Regulations. ZegnaThe Company therefore intends
to take the position that the transfer of amounts to the Zegna Special Voting Shares reserve that are not paid out as dividends does not result in a “constructive distribution,” and this determination is binding on all U.S. Holders of Zegna Special Voting Shares other than a U.S. Holder that explicitly discloses its contrary determination in the manner prescribed by the applicable regulations. However, because the tax treatment of the loyalty voting program is unclear and because Zegna’sthe Company’s determination is not binding on the IRS, it is possible that the IRS could disagree with Zegna’sthe Company’s determination and require current income inclusion in respect of such amounts transferred to the Zegna Special Voting Shares dividend reserve that are not paid out as dividends.
Disposition of Zegna Special Voting Shares
The tax treatment of a U.S. Holder that has its Zegna Special Voting Shares redeemed for zero consideration after removing its common shares from the Loyalty Register is unclear. It is possible that a U.S. Holder would recognize a loss to the extent of the U.S. Holder’s basis in its Zegna Special Voting Shares, which should equal the amount that was included in income upon receipt. Such loss would be a capital loss and would be a long-termlong- term capital loss if a U.S. Holder has held its Zegna Special Voting Shares for more than one year. It is also possible that a U.S. Holder would not be allowed to recognize a loss upon the redemption of its Zegna Special Voting Shares and instead a U.S. Holder should increase the basis in its Ordinary Shares by an amount equal to the basis in its Zegna Special Voting Shares. Such basis increase in a U.S. Holder’s Ordinary Shares would decrease the gain, or increase the loss, that a U.S. Holder would recognize upon the sale or other taxable disposition of its Ordinary Shares.
THE U.S. FEDERAL INCOME TAX TREATMENT OF THE LOYALTY VOTING PROGRAM IS UNCLEAR AND U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS IN RESPECT OF THE CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING OF ZEGNA SPECIAL VOTING SHARES.
Additional Reporting Requirements
Certain U.S. Holders holding specified foreign financial assets with an aggregate value in excess of the applicable U.S. dollar thresholds are required to report information to the IRS relating to such assets, subject to certain exceptions (including an exception for Ordinary Shares held in accounts maintained by U.S. financial institutions), by attaching a complete IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their tax return for each year in which they hold Ordinary Shares. Substantial penalties apply to any failure to file IRS Form 8938 and the period of limitations on assessment and collection of U.S. federal income taxes will be extended in the event of a failure to comply. U.S. Holders are urged to consult their tax advisors regarding the effect, if any, of these rules on the ownership and disposition of Ordinary Shares.
Non-U.S. Holders
Dividends
Dividends on Ordinary Shares paid to a non-U.S. Holder will not be subject to United States federal income tax unless the dividends are “effectively connected” with the conduct of a trade or business within the United States, and the dividends are attributable to a permanent establishment maintained by a non-U.S. Holder in the United States if that is required by an applicable income tax treaty as a condition for subjecting a non-U.S. Holder to United States taxation on a net income basis. In such cases, a non-U.S. Holder generally will be taxed in the same manner as a U.S. holder. Corporate non-U.S. Holders may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if eligible for the benefits of an income tax treaty that provides for a lower rate, on “effectively connected” dividends.
Capital Gains
Non-U.S. Holders will not be subject to United States federal income tax on gain recognized on the sale or other disposition of Ordinary Shares or Warrants unless the gain is “effectively connected” with the conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that is maintained in the United States if that is required by an applicable income tax treaty as a condition for subjecting the non-U.S. Holder to United States taxation on a net income basis, or if the non-U.S. Holder is an individual present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist.
Corporate non-U.S. Holders may be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if eligible for the benefits of an income tax treaty that provides for a lower rate on “effectively connected” gains.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made to a U.S. Holder within the United States or through certain U.S.-related financial intermediaries are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S.
Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.
The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.
A non-U.S. Holder is generally exempt from backup withholding and information reporting requirements with respect to dividend payments made to you outside the United States by us or another non-United States payor. A non-U.S. Holder is also generally exempt from backup withholding and information reporting requirements in respect of dividend payments made within the United States and the payment of the proceeds from sales effected at a U.S. office of a broker, as long as either (i) the non-U.S. Holder has furnished a valid IRS Form W-8 or other documentation upon which the payor or broker may rely to treat the payments as made to a non-U.S. person, or (ii) the non-U.S. Holder otherwise establishes an exemption.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO ALL HOLDERS DEPENDING UPON THE PARTICULAR SITUATION. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF ORDINARY SHARES AND WARRANTS INCLUDING THE TAX CONSEQUENCES UNDER U.S. STATE, LOCAL, ESTATE AND FOREIGN AND OTHER TAX LAWS AND TAX TREATIES AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. OR OTHER TAX LAWS.
Material Dutch Tax Considerations—ZegnaCompany’s Shares and Warrants
Taxation in the Netherlands
This summary outlines the principal Dutch tax consequences in connection with the acquisition, ownership and transfer of (i) the Ordinary Shares and, if applicable, the Zegna Special Voting Shares (“”), and/or (ii) the Warrants. It does not present a comprehensive or complete description of all aspects of Dutch tax law which could be relevant to a holder of Zegnathe Company Shares and/or Warrants. For Dutch tax purposes, a holder of Zegnathe Company Shares and/or Warrants may include an individual or entity not holding the legal title to the ZegnaCompany Shares and/or Warrants, but to whom, or to which, the ZegnaCompany Shares and/or Warrants are, or the income therefrom is, nevertheless attributed based either on this individual or entity owning a beneficial interest in the ZegnaCompany Shares and/or Warrants or on specific statutory provisions. These include statutory provisions attributing Zegnathe Company Shares and/or Warrants to an individual who is, or who has directly or indirectly inherited from a person who was, the settlor, grantor or similar originator of a trust, foundation or similar entity that holds the ZegnaCompany Shares and/or Warrants.
This summary assumes that Zegnathe Company is organized and that its business will be conducted such that Zegnathe Company is considered to be exclusively tax resident in Italy, including for purposes of the Convention between the Kingdom of the Netherlands and the Republic of Italy for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (the “Italy-Netherlands Tax Treaty
”). This should not be impacted by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “MLI”) as Italy has made a provisional reservation to Article 4 (Dual Resident Entities). This summary is intended as general information only. Prospective holders of Zegnathe Company Shares and/or Warrants should consult their own tax adviser regarding the tax consequences of any acquisition, ownership or transfer of Zegnathe Company Shares and/or Warrants.
This summary is based on Dutch tax law as applied and interpreted by Dutch tax courts and as published and in effect on the date of this report, including the tax rates applicable on that date, without prejudice to any amendments introduced at a later date and implemented with or without retroactive effect.
This summary does therefore not take into account the amendments to the Withholding Tax Act 2021 introducing an additional conditional Dutch withholding tax for certain dividend distributions tolow-tax
jurisdictions and in abusive situations (Wet invoering conditionele bronbelasting op dividenden
) as these amendments are not yet in effect as of the date of this report. Once these amendments become effective on January 1, 2024, as announced, dividends paid to certain entities considered related to Zegna may be subject to an additional Dutch withholding tax equal to the highest corporate income tax rate at the time of the dividend payment.Any reference in this summary made to Dutch taxes, Dutch tax or Dutch tax law should be construed as a reference to any taxes of any nature levied by or on behalf of the Netherlands or any of its subdivisions or taxing authorities or to the law governing such taxes, respectively. The Netherlands means the part of the Kingdom of the Netherlands located in Europe.
Any reference made to a treaty for the avoidance of double taxation concluded by the Netherlands includes the Tax Regulation for the Kingdom of the Netherlands (Belastingregeling voor het Koninkrijk
), the Tax Regulation for the State of the Netherlands (Belastingregeling voor het land Nederland
), the Tax Regulations for the Netherlands and Curacao (Belastingregeling Nederland Cura
ç), the Tax Regulations for the Netherlands and St. Maarten (Belastingregeling Nederland Sint Maarten
) and the Agreement between the Taipei Representative Office in the Netherlands and the Netherlands Trade and Investment Office in Taipei for the avoidance of double taxation. This
ummary summary is of non-limitative nature. Amongst others it does not describe any Dutch tax considerations or consequences that may be relevant where a holder of
Zegnathe Company Shares and/or Warrants:
(i)is an individual and the holder’s income or capital gains derived from the Company Shares and/or Warrants are attributable to employment activities, the income from which is taxable in the Netherlands;
(ii)has a substantial interest (aanmerkelijk belang) or a fictitious substantial interest (fictief aanmerkelijk belang) in the Company within the meaning of chapter 4 of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001) (the “ITA”). Generally, a holder of the Company Shares and/or Warrants has a substantial interest in the Company if the holder, alone or – in case of an individual – together with a partner for Dutch tax purposes, or any relative by blood or by marriage in the ascending or descending line (including foster-children) of the holder or the partner, owns or holds, or is deemed to own or hold shares (such as the Company Shares) or certain rights to shares, including rights to directly or indirectly acquire shares (such as the Warrants), directly or indirectly representing 5% or more of the Company’s issued capital as a whole or of any class of shares or profit participating certificates (winstbewijzen) relating to 5% or more of the Company’s annual profits or 5% or more of the Company’s liquidation proceeds;
| (i) | is an individual and the holder’s income or capital gains derived from the Zegna Shares and/or Warrants are attributable to employment activities, the income from which is taxable in the Netherlands;
|
(iii)is an entity that, although it is in principle subject to Dutch corporate income tax under the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969) (the “CITA”), is not subject to Dutch corporate income tax or is fully or partly exempt from Dutch corporate income tax (such as a qualifying pension fund as described in
| (ii) | has a substantial interest () or a fictitious substantial interest (fictief aanmerkelijk belang
) in Zegna within the meaning of chapter 4 of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001
) (the “”). Generally, a holder of Zegna Shares and/or Warrants has a substantial interest in Zegna if the holder, alone or – in case of an individual – together with a partner for Dutch tax purposes, or any relative by blood or by marriage in the ascending or descending line (including foster-children) of the holder or the partner, owns or holds, or is deemed to own or hold shares (such as the Zegna Shares) or certain rights to shares, including rights to directly or indirectly acquire shares (such as the Warrants), directly or indirectly representing 5% or more of Zegna’s issued capital as a whole or of any class of sharesor profit participating certificates () relating to 5%or more of Zegna’s annual profits or 5% or more of Zegna’s liquidation proceeds; |
| (iii) | is an entity that, although it is in principle subject to Dutch corporate income tax under the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969
) (the “”), is not subject to Dutch corporate income tax or is fully or partly exempt from Dutch corporate income tax (such as a qualifying pension fund as described in section 5 CITA and a tax exempt investment fund (vrijgestelde beleggingsinstelling
) as described in Section 6a CITA); |
| (iv) | is an investment institution () as described in Section 28 CITA; |
section 5 CITA and a tax exempt investment fund (vrijgestelde beleggingsinstelling) as described in Section 6a CITA), or is an entity that is not tax resident in the Netherlands and that has a function comparable to a tax exempt investment fund (vrijgestelde beleggingsinstelling) as described in Section 6a CITA;(iv)is an investment institution (beleggingsinstelling) as described in Section 28 CITA, or is an entity that is not tax resident in the Netherlands and that has a function comparable to an investment institution (beleggingsinstelling) as described in Section 28 CITA;
| (v) | is required to apply the participation exemption () with respect to the Zegna Shares and/or Warrants (as defined in Section 13 CITA). Generally, a holder of Zegna Shares and/or Warrants is required to apply the participation exemption if it is subject to Dutch corporate income tax and it, or a related entity, holds an interest of 5% or more of the nominalpaid-up
share capital in Zegna; or |
(vi)is part of a multinational enterprise group or large-scale domestic group within the meaning of the Dutch Minimum Tax Act 2024 (Wet minimumbelasting 2024; the Dutch implementation of Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the European Union).
| (vi) | is entitled to the dividend withholding tax exemption () with respect to any profits derived from the Zegna Shares and/or Warrants (as defined in Section 4 of the Dutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965
) (the “”). Generally, a holder of Zegna Shares and/or Warrants may be entitled or required to apply the dividend withholding tax exemption if it holds an interest of 5% or more of the nominalpaid-up
share capital in Zegna. |
Based on Dutch domestic law, a holder of Zegna Sharesshares and/or Warrantswarrants in a corporate entity incorporated under Dutch law is generally subject to Dutch dividend withholding tax at a rate of 15% on dividends distributed by Zegna. Generally, Zegna is responsiblepursuant to the Dutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965) (the “DWTA”). Under specific conditions, a holder of shares and/or warrants in a corporate entity incorporated under Dutch law may also be subject to withholding or deduction for, the withholdingor on account of, such dividendDutch withholding tax at source. However,a rate of 25.8% on dividends distributed pursuant to the Withholding Tax Act 2021 (Wet bronbelasting 2021; "WTA 2021").
In a tax ruling obtained in September 2022 and which is valid from January 1, 2022 to December 31, 2026, the Dutch tax authorities have, however, confirmed that an Italian corporate entity which has been legally converted into a Dutch N.V. is not considered to be incorporated under Dutch law, as
long as Zegna will bea result of which the incorporation fictions in the DWTA and the WTA 2021 do not apply. Provided that the Company is exclusively tax resident in Italy for purposes of the Italy-Netherlands Tax Treaty and
once the MLI enters into effect with respect to the Italy-Netherlands Tax Treaty, subject to meeting the principal purpose test set out in article 7is not tax resident of the
MLI,Netherlands based on any other criterion than the
following shall apply. Based on case law of the Dutch Supreme Court (in particular ECLI:NL:HR:1992:ZC5045) the Italy-Netherlands Tax Treaty would in principle preclude the Netherlands from imposing Dutch dividend withholding tax on dividends paid by Zegna to a holder of Zegna Shares who is, or who is deemed to be, a QualifyingNon-Dutch
Resident. For purposes of this summary a QualifyingNon-Dutch
Resident is aNon-Dutch
Resident Individual (as defined below) orNon-Dutch
Resident Corporate Entity (as defined below) who does not derive profits from an enterprise that is fully or partly carried on through a permanent establishment () or a permanent representative () in the Netherlands to which the Zegna Shares are attributable. Consequently, dividends paid on the shares to a holder of such Zegna Shares who is, or who is deemed to be, a QualifyingNon-Dutch
Resident are in principle not subject to Dutch dividend withholding tax. As a condition for not withholding Dutch dividend withholding tax, Zegna may in its sole discretion decide to require holders of Zegna Shares to submit information, including information certifying their status as a QualifyingNon-Dutch
Resident.However, if and to the extent dividends are paid on the Zegna Shares to a holder of such Zegna Shares who is, or who is deemed to be:
| (i) | a Dutch Resident Individual (as defined below) or a Dutch Resident Corporate Entity (as defined below); or
|
| (ii) | aNon-Dutch
Resident Individual (as defined below) or aNon-Dutch
Resident Corporate Entity (as defined below) that derives profits from an enterprise, which enterprise is fully or partly carried on through a permanent establishment () or a permanent representative () in the Netherlands to which the Zegna Shares are attributable, |
such dividends are generally subject to Dutch dividend withholding tax at a rate of 15% imposedincorporation fictions, distributions made by the Netherlands. Generally, the Dutch dividend withholding taxCompany will not be borne by Zegna, but will be withheld by Zegna from the gross dividends paid on the Zegna Shares.
Dividends distributed by Zegna include, but are not limited to:
| (i) | distributions of profits in cash or in kind, whatever they be named or in whatever form;
|
| (ii) | proceeds from the liquidation of Zegna or proceeds from the repurchase of shares by Zegna, other than as a temporary portfolio investment (), in excess of the averagepaid-in
capital recognized for Dutch dividend withholding tax purposes; |
| (iii) | the par value of the Zegna Shares issued to a holder of Zegna Shares or an increase in the par value of the Zegna Shares, to the extent that no related contribution, recognized for Dutch dividend withholding tax purposes, has been made or will be made; and
|
| (iv) | partial repayment ofpaid-in
capital, that is |
not recognized for Dutch dividend withholding tax purposes, or
recognized for Dutch dividend withholding tax purposes, to the extent that Zegna has “net profits” (), unless (a) the Zegna General Meeting has resolved in advance to make this repayment, and (b) the par value of the Zegna Shares concerned has been reduced by an equal amount by way of an amendment to the articles of association of Zegna. The term “net profits” includes anticipated profits that have yet to be realized.The issuance of an Ordinary Share pursuant to the exercise of a Warrant should in principle not give rise to Dutch dividend withholding tax, provided that (i) (the Euro equivalent of) the exercise price paid in cash is at least equal to the par value of the Ordinary Share issuable upon the exercise of such Warrant, or (ii) the par value of the Ordinary Share issuable upon the exercise of such Warrant is charged against Zegna’s share premium reserve recognized for Dutch dividend withholding tax purposes. Any payments made by Zegna to the holder of a Warrant, including in connection with the redemption, repurchase or cashless settlement of a Warrant, may be subject to Dutch dividend withholding tax
at a rate of 15%. If any Dutch dividend withholding tax due is not effectively withheld for the account of the relevant holder of a Warrant, Dutch dividend withholding tax shall in principle be due by Zegna on agrossed-up
basis, which would make it effectively a cost to Zegna rather than such holder of a Warrant.The issuance of a Zegna Special Voting Share pursuant to the
loyalty voting structure should in principle not give rise toDWTA or Dutch
dividend withholding tax
provided thatpursuant to the
par valueWTA 2021 regardless to whom they are made and identification of
the Zegna Special Voting Share issued under the loyalty voting structure is charged against the special capital reserve and the special capital reserve is recognized aspaid-in
capital for Dutch dividend withholding tax purposes.If a holderholders of
ZegnaCompany Shares and/or Warrants
is an individual that is resident or deemed to be resident in the Netherlands or is an individual that is not resident or deemed to be resident in the Netherlands, but for whom dividends distributed by Zegna or income deemed to be derived from the Zegna Shares and/or Warrants is subject to income tax under the ITA, such holder of Zegna Shares and/or Warrants is generally entitled to a credit for any Dutch dividend withholding tax against his Dutch tax liability and to a refund of any residual Dutch dividend withholding tax. Entities that are resident or deemed to be resident in the Netherlands and entities that are not resident or deemed resident in the Netherlands, but for which dividends distributed by Zegna are subject to corporate tax under the CITA, can only credit Dutch dividend withholding tax up to the total amount of their Dutch corporate income tax liability without taking into account any credit for Dutch dividend withholding tax and gaming tax (). To the extent the aggregate of the Dutch dividend withholding tax and gaming tax exceeds the aggregate Dutch corporate income tax liability due in respect of the relevant year, the excess is not refunded, but carried forward to future years subject to certain restrictions and conditions.According to Dutch domestic anti-dividend stripping rules, no credit against Dutch tax, exemption from, reduction, or refund of Dutch dividend withholding tax will be granted if the recipient of the dividends paid by Zegna is not considered to be the beneficial owner () of those dividends.The DWTA provides for anon-exhaustive
negative description of a beneficial owner. According to the DWTA, a holder of Zegna Shares will not be
consideredrequired. Any amount withheld from distributions made prior to the
beneficial ownerdate on which the tax ruling was obtained, will be refunded to the holder of
the dividends if as a consequence of a combination of transactions: | (i) | a person other than the holder of Zegna Shares wholly or partly, directly or indirectly, benefits from the dividends;
|
| (ii) | whereby this other person retains or acquires, directly or indirectly, an interest similar to that in the Zegna Shares on which the dividends were paid; and
|
| (iii) | that other person is entitled to a credit, reduction or refund of Dutch dividend withholding tax that is less than that of the holder of ZegnaCompany Shares.
|
Taxes on Income and Capital Gains
Residents of the Netherlands
The description of certain Dutch tax consequences in this summary is only intended for the following holders of ZegnaCompany Shares and/or Warrants:
(i)individuals who are resident or deemed to be resident in the Netherlands (“Dutch Resident Individuals”); and
| (i) | individuals who are resident or deemed to be resident in the Netherlands (“Dutch Resident Individuals
”); and |
(ii)entities or enterprises that are subject to the CITA and are resident or deemed to be resident in the Netherlands (“Dutch Resident Corporate Entities”).
| (ii) | entities or enterprises that are subject to the CITA and are resident or deemed to be resident in the Netherlands (“Dutch Resident Corporate Entities
”). |
Dutch Resident Individuals engaged or deemed to be engaged in an enterprise or in miscellaneous activities
Dutch Resident Individuals engaged or deemed to be engaged in an enterprise
(winst uit onderneming) or in miscellaneous activities
(resultaat(resultaat uit overige werkzaamheden
)werkzaamheden) are generally subject to income tax at statutory progressive rates with a maximum of 49.50% on any benefits derived or deemed to be derived from the
ZegnaCompany Shares and/or Warrants, including any capital gains realized on any transfer of the
ZegnaCompany Shares and/or Warrants, where those benefits are attributable to:
| (i) | an enterprise from which a Dutch Resident Individual derives profits, whether as an entrepreneur (ondernemer
) or by beingco-entitled
() to the net worth of this enterprise other than as an entrepreneur or shareholder; or |
| (ii) | miscellaneous activities, including activities which are beyond the scope of active portfolio investment activities (meer dan normaal vermogensbeheer
). |
(i)an enterprise from which a Dutch Resident Individual derives profits, whether as an entrepreneur (ondernemer) or by being co-entitled (medegerechtigde) to the net worth of this enterprise other than as an entrepreneur or shareholder; or
(ii)miscellaneous activities, including activities which are beyond the scope of active portfolio investment activities (meer dan normaal vermogensbeheer).
Dutch Resident Individuals not engaged or deemed to be engaged in an enterprise or in miscellaneous activities
Generally, the ZegnaCompany Shares and/or Warrants held by a Dutch Resident Individual who is not engaged or deemed to be engaged in an enterprise or in miscellaneous activities, or who is so engaged or deemed to be engaged but the ZegnaCompany Shares and/or Warrants are not attributable to that enterprise or miscellaneous activities, will be subject to an annual income tax imposed on a fictitious yield on the Zegnafair market value of the Company Shares and/or Warrants on January 1 of each calendar year under the regime for savings and investments (inkomen uit sparen en beleggen
). Irrespective of the actual income or capital gains realized, the annual taxable benefit from a Dutch Resident Individual’s assets and liabilities taxed under this regime, including the ZegnaCompany Shares and/or Warrants, is set at a percentagebased on fictitious percentages applied to the fair market value of (i) bank savings, (ii) other assets, including the positive balanceCompany Shares and/or Warrants, and (iii) liabilities. Taxation only occurs if and to the extent the sum of the fair market value of thesebank savings and other assets including the Zegna Shares and/or Warrants, andminus the fair market value of these liabilities. The percentage increases:
| (i) | from 1.82% over the first EUR 50,650 of such positive balance;
|
| (ii) | to 4.37% over any excess positive balance between EUR 50,650.01 up to and including EUR 962,350; and
|
| (iii) | to a maximum of 5.53%over any excess positive balance of EUR 962,350.01 or higher. |
The percentages under (i) to (iii) will be reassessed each year and the
amounts under (i) to (iii) will be adjusted for inflation each year. No taxation occurs if this positive balance does not exceedliabilities exceeds a certain threshold (
). The fair market value of assets, including the Zegna Shares and/or Warrants, and liabilities that are taxed under this regime is measured once in each calendar year on January 1. The tax rate under the regime for savings and investments is a flat rate of 31%36%.For the calendar year 2024, the fictitious percentages applicable to the first and third categories mentioned above (bank savings and liabilities) have not yet been determined. The fictitious yield percentage applicable to the second category mentioned above (other assets, including the Company Shares and/or Warrants) is 6.04% for the calendar year 2024.
Based onCertain transactions that have the effect of reducing the fictitious yield by shifting net wealth between the aforementioned categories (i) and (ii) or increasing liabilities in any three months period starting before and ending after January 1 will for this purpose be ignored unless the holder of the Company Shares and/or Warrants can demonstrate that such transactions are implemented for other reasons than tax reasons.
The fictitious percentages referred to above are considered by the Dutch government to be in compliance with a decision byof the Dutch Supreme Court of 24 December 2021 (ECLI:NL:HR:2021:1963) concerningregarding the years 2017 and 2018, taxation underincompatibility of the previous regime for savings and investments in its current form, as described in the above paragraph, may under specific circumstances contravene Section 1 of the First Protocol towith the European Convention on Human Rights (protectionRights. Holders of property) in combination with Section 14 ofCompany Shares and/or Warrants are nevertheless advised to consult their tax advisor on whether any tax levied under the European Convention on Human Rights (protection from discrimination). The Dutch State Secretary of Finance has announced that also the regime for taxation of savings and investments as in effect on the date of this report will be amended to comply with the decision of the Dutch Supreme Court mentioned above. At the date of this report, no legislative changes to thecurrent regime for savings and investments, have been proposed yet. Holdersincluding in respect of Zegnathe Company Shares and/or Warrants, are advised to consult their own tax advisor to ensure that tax is levied in accordance with the decision of the Dutch Supreme Court.this convention.
Dutch Resident Corporate Entities
Dutch Resident Corporate Entities are generally subject to corporate income tax at statutory rates up to 25.8% on any benefits derived or deemed to be derived from the ZegnaCompany Shares and/or Warrants, including any capital gains realized on their transfer.
Non-Residents
of the Netherlands
The description of certain Dutch tax consequences in this summary is only intended for the following holders of ZegnaCompany Shares and/or Warrants:
(i)individuals who are not resident and not deemed to be resident in the Netherlands (“Non-Dutch Resident Individuals”); and
| (i) | individuals who are not resident and not deemed to be resident in the Netherlands (“Non-Dutch
Resident Individuals”); and |
(ii)entities that are not resident and not deemed to be resident in the Netherlands (“Non-Dutch Resident Corporate Entities”).
| (ii) | entities that are not resident and not deemed to be resident in the Netherlands (“Non-Dutch
Resident Corporate Entities”). |
Non-Dutch
Resident Individuals
A
Non-Dutch
Resident Individual will not be subject to any Dutch taxes on income or capital gains derived from the acquisition, holding or transfer of the
ZegnaCompany Shares and/or Warrants
unless:(i)the Non-Dutch Resident Individual derives profits from an enterprise, whether as entrepreneur or by being co-entitled to the net worth of this enterprise other than withholding tax as described above, unless:an entrepreneur or shareholder and this enterprise is fully or partly carried on through a permanent establishment (vaste inrichting) or a permanent representative (vaste vertegenwoordiger) in the Netherlands to which the Company Shares are attributable;
| (i) | theNon-Dutch
Resident Individual derives profits from an enterprise, whether as entrepreneur or by beingco-entitled
to the net worth of this enterprise other than as an entrepreneur or shareholder and this enterprise is fully or partly carried on through a permanent establishment () or a permanent representative () in the Netherlands to which the Zegna Shares are attributable; |
(ii)the Non-Dutch Resident Individual derives benefits from miscellaneous activities carried on in the Netherlands in respect of the Company Shares and/or Warrants, including activities which are beyond the scope of active portfolio investment activities; or
| (ii) | theNon-Dutch
Resident Individual derives benefits from miscellaneous activities carried on in the Netherlands in respect of the Zegna Shares and/or Warrants, including activities which are beyond the scope of active portfolio investment activities; or |
(iii)the Non-Dutch Resident Individual is entitled to a share—other than by way of securities—in the profits of an enterprise, which is effectively managed in the Netherlands and to which the Company Shares and/or Warrants are attributable.
| (iii) | theNon-Dutch
Resident Individual is entitled to a share—other than by way of securities—in the profits of an enterprise, which is effectively managed in the Netherlands and to which the Zegna Shares and/or Warrants are attributable. |
Non-Dutch
Resident Corporate Entities
A
Non-Dutch
Resident Corporate Entity will not be subject to any Dutch taxes on income or capital gains derived from the acquisition, holding or transfer of the
ZegnaCompany Shares and/or Warrants
unless:(i)the Non-Dutch Resident Corporate Entity derives profits from an enterprise, which is fully or partly carried on through a permanent establishment (vaste inrichting) or a permanent representative (vaste vertegenwoordiger) in the Netherlands to which the Company Shares are attributable; or
(ii)the Non-Dutch Resident Corporate Entity is entitled to a share—other than withholding tax as described above, unless:by way of securities—in the profits of an enterprise or a co-entitlement to the net worth of an enterprise, which is effectively managed in the Netherlands and to which the Company Shares and/or Warrants are attributable.
| (i) | theNon-Dutch
Resident Corporate Entity derives profits from an enterprise, which is fully or partly carried on through a permanent establishment () or a permanent representative () in the Netherlands to which the Zegna Shares are attributable; or |
| (ii) | theNon-Dutch
Resident Corporate Entity is entitled to a share—other than by way of securities—in the profits of an enterprise or aco-entitlement
to the net worth of an enterprise, which is effectively managed in the Netherlands and to which the Zegna Shares and/or Warrants are attributable. |
Dutch Gift Tax or Inheritance Tax
No Dutch gift tax or inheritance tax is due in respect of any gift of the ZegnaCompany Shares and/or Warrants by, or inheritance of the ZegnaCompany Shares and/or Warrants on the death of, a holder of ZegnaCompany Shares and/or Warrants, unless:
(i)the holder is resident, or is deemed to be resident, in the Netherlands at the time of the gift or death of the holder;
| (i) | the holder is resident, or is deemed to be resident, in the Netherlands at the time of the gift or death of the holder;
|
(ii)the holder dies within 180 days after the date of the gift of the Company Shares and/or Warrants and was, or was deemed to be, resident in the Netherlands at the time of the holder’s death but not at the time of the gift; or
| (ii) | the holder dies within 180 days after the date of the gift of the Zegna Shares and/or Warrants and was, or was deemed to be, resident in the Netherlands at the time of the holder’s death but not at the time of the gift; or
|
| (iii) | the gift of the Zegna Shares and/or Warrants is made under a condition precedent and the holder is resident, or is deemed to be resident, in the Netherlands at the time the condition is fulfilled.
|
(iii)the gift of the Company Shares and/or Warrants is made under a condition precedent and the holder is resident, or is deemed to be resident, in the Netherlands at the time the condition is fulfilled.
For purposes of Dutch gift tax or inheritance tax, an individual who is of Dutch nationality will be deemed to be resident in the Netherlands if this individual has been resident in the Netherlands at any time during the ten years preceding the date of the gift or the Shareholder’sshareholder’s death. For purposes of Dutch gift tax, any individual, irrespective of nationality, will be deemed to be resident in the Netherlands if this individual has been resident in the Netherlands at any time during the 12 months preceding the date of the gift.
No other Dutch taxes, including taxes of a documentary nature, such as capital tax, stamp or registration tax or duty, are payable by, or on behalf of, the holder of ZegnaCompany Shares and/or Warrants by reason only of the acquisition, holding and transfer of the ZegnaCompany Shares and/or Warrants.
A holder of ZegnaCompany Shares and/or Warrants will not become a resident or deemed resident of the Netherlands by reason only of holding the ZegnaCompany Shares and/or Warrants.
Material Italian Tax Considerations – Ordinary Shares and Warrants
The information set out below is a general summary of the material Italian tax consequences connected with the acquisition, ownership and transfer of the Ordinary Shares and/or the Warrants and, if applicable, Zegna Special Voting Shares.
This summary does not purport to be a comprehensive description of every aspect of Italian taxation that may be relevant in the hands of a particular holder of the Ordinary Shares and/or the Warrants, and, if applicable, Zegna Special Voting Shares, who may be subject to special treatment under the applicable law, nor does this summary intend to be applicable in all respects to all categories of holders of the Ordinary Shares, Zegna Special Voting Shares and/or Warrants. For purposes of Italian tax law, a holder of the Ordinary Shares and/or the Warrants may include an individual or entity who does not have the legal title to the Ordinary Shares and/or the Warrants, but to whom or to which nevertheless the Ordinary Shares and/or the Warrants or the income therefrom are attributed based on specific statutory provisions or on the basis of such individual or entity having an interest in the Ordinary Shares and/or Warrants or the income therefrom.
This summary assumes that the Ordinary Shares are listed on a regulated market, qualified as such for Italian tax purposes. This summary also assumes that Zegnathe Company is organized and that its business is and will be conducted such that Zegnathe Company is considered to be tax resident in Italy for purposes of the tax treaty as concluded between the Netherlands and Italy. A change to the organizational structure or to the manner in which Zegnathe Company conducts its business may invalidate the contents of this section, which will not be updated to reflect any such change.
This summary is based upon the tax laws of the Republic of Italy and upon the case law/practice (unpublished case law/practice is not included) as it stands at the date of this report. The law upon which this description is based is subject to change, potentially with retroactive effect. Any such change may invalidate the contents of this description, which will not be updated to reflect this change. The summary does not address the tax consequences arising in any jurisdiction other than Italy.
As this is a general summary, holders of the Ordinary Shares, Zegna Special Voting Shares and/or the Warrants should consult their own tax advisersadvisors as to the Italian or other tax consequences connected with the acquisition, ownership and transfer of the Ordinary Shares, Zegna Special Voting Shares and/or the Warrants, including, in particular, the application to their particular situations of the tax considerations discussed below.
For purposes of this section, the following terms have the meaning defined below:
•“”: Presidential Decree No. 917 of December 22, 1986 (the Consolidated Income Tax Act); •“”: a State that is party to the European Economic Area Agreement; •“”: Law No. 232 of December 11, 2016; •“”: Law No. 205 of December 27, 2017; •“”: Law No. 145 of December 30, 2018; •“”: Law No. 160 of December 27, 2019; •“”: Law No. 178 of December 30, 2020; •“Finance Act 2024”: Italian corporate income tax; Law No. 213 of December 30, 2023;•“”: Regional Tax on productive activities;
”: the list of countries and territories allowing a satisfactory exchange of information with Italy (i) currently included in the Italian Ministerial Decree of September 4, 1996, as subsequently amended and supplemented or (ii) once effective in any other decree or regulation that will be issued in the future to provide the list of such countries and territories (and that will replace Ministerial Decree of September 4, 1996), including any country or territory that will be deemed listed therein for the purpose of any interim rule;•“”: holdings of the Ordinary Shares, including the Warrants and any other rights or securities through which Ordinary Shares may be acquired, other than Qualified Holdings; •“”: holdings of the Ordinary Shares, including the Warrants and any other rights or securities through which the Ordinary Shares may be acquired, that represent, in case of shares listed on regulated markets, either (i) more than 2% of the overall voting rights exercisable at ordinary shareholders’ meetings or (ii) an interest in Zegna’sthe Company’s issued and outstanding capital exceeding 5%; and •“Transfer of Qualified Holdings
”: transfers of the Ordinary Shares, including the Warrants and any other rights or securities through which the Ordinary Shares may be acquired, that exceed, over a period of 12 (twelve) months, the threshold for qualifying as Qualified Holdings. The twelve-month period starts from the date when the shares, securities and the rights owned represent a percentage of voting rights or interest in Zegna’sthe Company’s capital that exceeds the aforesaid thresholds. In case of rights or securities through which the Ordinary Shares may be acquired, the percentage of voting rights or interest in Zegna’sthe Company’s capital potentially attributable to the holding of such rights and securities is taken into account. The Finance Act 2018 materially changed the tax regime applicable to dividends and capital gains from Qualified Holdings received or realized by Italian resident persons not engaged in a business activity and by
non-resident
persons without a permanent establishment in Italy.
This section only describes the tax regime applicable to (i) dividends paid out of profits that Zegna has realized as of fiscal year 2018, and (ii) capital gains realized on the shares as of January 1, 2019.The Finance Act 2018 provides for an interim regime that applies to dividend distributions that are (i) paid out of profits realized by Zegna until the fiscal year that was current on December 31, 2017 and (ii) declared before December 31, 2022 (dividends declared after this date are subject to the new tax regime enacted by Finance Act 2018 and described below in detail in this section). These dividend distributions would be subject to the previous tax regime that applied before Finance Act 2018. In particular, Italian resident individuals holding a Qualified Holding not in connection with a business activity (i) would not be subject to a withholding tax on the distribution, provided that, in this case, the holders declare at the time of receipt that the dividends relate to Qualified Holdings, but (ii) would have to include in their taxable income:
40% of the amount of the dividends paid out of profits formed until the fiscal year that was current on December 31, 2007;
49.72% of the amount of the dividends paid out of profits formed after the fiscal year that was current on December 31, 2007 and until the fiscal year that was current on December 31, 2016;
58.14% of the amount of the dividends paid out of profits formed in the fiscal year that was current on December 31, 2017.
Article 1(4) of Ministerial Decree of May 26, 2017 sets forth a priority rule whereby dividends are first deemed to be paid out of profits earned by the distributing company until the fiscal year that was current on December 31, 2007, then out of profits earned until the fiscal year that was current on December 31, 2016 and finally out of profits of subsequent fiscal years.
Article 32-of Law Decree No. 124 of October 26, 2019 provides for an interim regime that applies to dividend distributions received by Italiannon-business
partnerships () that are (i) paid out of profits realized by Zegna until December 31, 2019 and (ii) declared before December 31, 2022.The tax regime summarized in this subsection “—” applies only to classes of holders of the Ordinary Shares and, if applicable, of the Zegna Special Voting Shares that are described here below.
Dividends paid by Zegnathe Company are subject to the tax regime generally applicable to dividends paid by companies that are resident for tax purposes in the Republic of Italy. As mentioned, this subsection only describes the tax regime applicable to dividends paid out of profits that Zegna has realized as of fiscal year 2018.
Taxation of Holders of Ordinary Shares Tax Resident In Italy
Individuals not engaged in business activity
Under Decree No. 600 of September 29, 1973 (Decree 600)(“Decree 600”), dividends paid from January 1, 2018 to Italian resident individuals who hold the Ordinary Shares neither in connection with a business activity nor in the context of the discretionary investment portfolio regime (risparmio gestito) as defined in subparagraph (A)(ii) below are subject to 26% tax withheld at source in Italy. In this case, the holders are not required to report the dividends in their income tax returns.
Subject to certain conditions (including a minimum holding period requirement) and limitations, dividends paid by Zegnathe Company may be exempt from any income taxation (including from the 26% tax withheld at source) if the Ordinary Shares do not represent a Qualified Holding and are included in a long-term savings account (piano di risparmio a lungo termine) that meets all the requirements set forth under Italian tax law.
Individuals not engaged in business activity and holding the Ordinary Shares under the “risparmio gestito” regime
Dividends paid
from January 1, 2018 to Italian resident individuals who do not hold the Ordinary Shares in connection with a business activity are not subject to any tax withheld at source in Italy if (a) the holder has entrusted the management of the shares to an authorized intermediary under a discretionary asset management contract, and (c) the holder has elected for the discretionary investment portfolio regime
()(risparmio gestito) under Article 7 of Legislative Decree No. 461 of November 21, 1997
(Decree 461)(“Decree 461”). In this case, the dividends are included in the annual accrued management result
(risultato(risultato maturato annuo di gestione
)gestione), which is subjected to a 26% substitute tax.
Even if there is not yet official published guidance of the Italian tax authorities after the reform enacted by Finance Act 2018, according to a certain interpretation, until January 1, 2023 the election for the discretionary investment portfolio regime would only be available if the Ordinary Shares held represent aNon-Qualified
Holding.
Sole Proprietors
Dividends paid to Italian resident individuals who hold the Ordinary Shares in connection with a business activity (Sole Proprietors)(“Sole Proprietors”) are not subject to any tax withheld at source in Italy, provided that, in this case, the holders declare at the time of receipt that the profits collected are from holdings connected with their business activity. In this case, dividends must be reported in the income tax return, but only 58.14% of such dividends are included in the holder’s overall business income taxable in Italy.
Partnerships (Italian “società in nome collettivo,” “società in accomandita semplice,” “società semplici” and similar Italian partnerships as referred to in Article 5 CITA)
No Italian tax is withheld at source on dividends paid to Italian business partnerships (such as Italiansocietà in nome collettivo,
,società in accomandita semplice
and similar partnerships as referred to in Article 5 CITA). Only 58.14% of such dividends is included in the overall business income to be reported by the business partnership. If it is instead anon-business
partnership (), based on Article 32-32-quarter of Law Decree No. 124 of October 26, 2019, as subsequently amended and supplemented, dividends are deemed to be received on a tax transparency basis by the partners and are subject to tax under the tax regime applicable to the relevant partner ((i.e., as if they were directly paid to each partner). Companies and other business entities referred to in Article 73(1)(a)-(b) CITA
No Italian tax is withheld at source on dividends paid to Italian resident companies and other Italian resident business entities as referred to in Article 73(1)(a)-(b) CITA, including, among others, corporations (), partnerships limited by shares (società in accomandita per azioni
), limited liability companies (società a responsabilità limitata
) and public and private entities whose sole or primary purpose is to carry out business activities. Only 5% of such dividends are included in the overall business income subject to IRES, unless the Ordinary Shares are financial assets held for trading by holders that apply IAS / IFRS international accounting standards under Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002. In this latter case, the full amount of the dividends is included in the holder’s overall business income subject to IRES.
For some types of companies and under certain conditions, dividends are also partially included in the net value of production, which is subject to IRAP.
Non-Business
Entities Referred to in Article 73(1)(c) CITA
No Italian tax is withheld at source on dividends paid to Italian residentnon-business
entities referred to in Article 73(1)(c) CITA (including Italian resident trusts that do not carry out a business activity), except for Italian undertakings for collective investment (OICR)(“OICR”). The dividends are fully included in the holder’s overall income subject to IRES (only 77.74% of the dividend would instead be included in the holder’s overall income if it were paid out of profits formed until the fiscal year that was current on December 31, 2016). For social security entities pursuant to Legislative Decree No. 509 of June 30, 1994 and Legislative Decree No. 103 of February 10, 1996, subject to certain conditions (including minimum holding period requirement) and limitations, dividends and other income from the Ordinary Shares that do not represent a Qualified Holding may be excluded from the taxable base if the social security entity earmarks the Ordinary Shares as eligible investment under Article 1(89) of Finance Act 2017 (as subsequently amended) to the extent, however, that investment in the Ordinary Shares (and other qualifying shares or units in undertakings for collective investment investing mainly in qualifying shares) represent no more than 10% of the gross asset value of the social security entity of the previous year.
As ofAt the fiscal year current on January 1, 2021, according to Article 1(44—46) of Finance Act 2021, 50% of the dividends paid to
non-business
entities referred to in Article 73(1)(c) CITA will be excluded from their IRES taxable base provided that they: (i) exclusively or mainly carry out any of the qualifying
non-profit
activities listed in Article 1(45) of Finance Act 2021 and (ii) earmark the related tax savings to a
non-distributable
reserve and use these resources to finance these
non-profit
activities.
Persons exempt from IRES and persons outside the scope of IRES
Dividends paid to Italian resident persons that are exempt from IRES are generally subject to 26% tax withheld at source. No Italian tax is instead withheld at source on dividends paid to persons that are outside the scope of IRES
()(esclusi) under Article 74(1) CITA.
Pension funds and OICR (other than real estate AIF)
No Italian tax is withheld at source on dividends paid to (a) Italian pension funds governed by Legislative Decree No. 252 of December 5, 2005 (Decree 252) and (b) Italian OICR, other than real estate investment funds and Italian real estate SICAFs (real estate alternative investment funds, or Real Estate AIF).
Dividends received by Italian pension funds are taken into account to compute the pension fund’s net annual accrued yield, which is subject to a 20% flat tax (). Subject to certain conditions (including minimum holding period requirement) and limitations, dividends and other income from the Ordinary Shares may be excluded from the taxable base of the 20% flat tax if the pension fund earmarks the shares as eligible investment under Article 1(89)-(92) of Finance Act 2017 (as subsequently amended) to the extent, however, that investment in the shares (and other qualifying shares or units in undertakings for collective investment investing mainly in qualifying shares) represent no more than 10% of the gross asset value of the pension fund of the previous year. Dividends received by OICR that are set up in, and organized under the laws of, Italy and that are subject to regulatory supervision (other than Real Estate AIF) are not subject to taxation at the level of the OICR.
No Italian tax is withheld at source on dividends paid to Italian Real Estate AIF. Moreover, dividends are not subject to either IRES or IRAP at the level of the Real Estate AIF. However, income realized by Italian Real Estate AIF is attributed pro rata to Italian resident holders, irrespective of any actual distribution, on a tax transparency basis if the Italian resident unitholders / shareholders are not institutional investors and hold units / shares in the Real Estate AIF representing more than 5% of the Real Estate AIF’s net asset value.
Taxation of Holders Of Ordinary Shares Not Tax Resident In Italy
Non-resident
persons holding the Ordinary Shares through a permanent establishment in Italy
No Italian tax is withheld at source on dividends paid to
non-resident
persons that hold the Ordinary Shares through a permanent establishment in Italy to which the Ordinary Shares are effectively connected. Only 5% of the dividends are included in the overall income subject to IRES, unless the Ordinary Shares are financial assets held for trading by holders that apply IAS / IFRS international accounting standards under Regulation No. 1606/2002 of the European Parliament and the Council of July 19, 2002. In this latter case, the full amount of the dividends is included in the overall business income subject to IRES. If the Ordinary Shares are held by a
non-resident
Sole Proprietor through a permanent establishment in Italy to which the Ordinary Shares are effectively connected, only 58.14% of the dividends is included in the overall income subject to personal income tax.
For some types of businesses and under certain conditions, dividends are also partially included in the net value of production, which is subject to IRAP.
Non-Resident
Persons that Do Not Hold the Ordinary Shares through a permanent establishment in Italy
A 26% tax withheld at source generally applies on dividends paid to
non-resident
persons that do not have a permanent establishment in Italy to which the Ordinary Shares are effectively connected.
Subject to a specific application that must be submitted to the Italian tax authorities under the terms and conditions provided by law,
non-resident
holders are entitled to relief (in the form of a refund), which cannot be greater than 11/26 (eleven twenty-sixths) of the tax levied in Italy, if they can demonstrate that they have paid final tax abroad on the same profits. holders who may be eligible for the relief should consult with their own independent tax advisors to determine whether they are eligible for, and how to obtain, the tax refund.
As an alternative to the relief described above, persons resident in countries that have a double tax treaty in force with Italy may request that the withholding tax on dividends be levied at the (reduced) rate provided under the applicable tax treaty, provided that the
non-resident
person promptly submits proper documentation.
The domestic withholding tax rate on dividends is 1.2% (and not 26%) if the recipients and beneficial owners of the dividends of Ordinary Shares are companies or entities that are (a) resident for tax purposes in an EU Member State or in an EEA State that is included in the Italian White List and (b) subject to corporate income tax in such State. These companies and entities are not entitled to the relief described above.
The domestic withholding tax rate on dividends is 11% (and not 26%) if the recipients and beneficial owners of the dividends on the Ordinary Shares are pension funds that are set up in an EU Member States or an EEA State included in the Italian White List. These pension funds are not entitled to the relief described above. Moreover, Article 1(95) of Finance Act 2017 (as amended by Finance Act 2019) provides for an exemption from withholding taxation on dividends if a pension fund set up in an EU Member State or an EEA State holds shares in an Italian resident corporation (such as Zegna)the Company) for at least 5 years and only to the extent of dividends from investments in qualifying shares (or units in undertakings for collective investment investing mainly in qualifying shares) that represent no more than 10% of the gross asset value of the pension fund of the previous year. To benefit from this exemption, the EU (or “white listed” EEA) pension fund (or an EEA pension fund established in a State allowing an adequate exchange of information) that is the beneficial owner of the dividends must submit an affidavit to the withholding agent whereby it declares that it meets the conditions for the exemption and that it undertakes to hold the shares for the required holding period.
As ofAt January 1, 2021, pursuant to Article
1(631-632)
of Finance Act 2021, no Italian tax is withheld at source on dividends paid to (i) foreign undertakings for collective investment that comply with Directive 2009/65/EC, or (ii) foreign undertakings for collective investment that do not fall within the scope of Directive 2009/65/EC but whose asset manager is subject to regulatory supervision according to Directive 2011/61/EU, provided that in both case (i) and (ii) the foreign undertaking for collective investment is organized under the laws of an EU Member State or an EEA State that
is included in the White List.allows an adequate exchange of information.Under Article 27-27-bis of Decree 600, which implemented in Italy the Directive 435/90/EEC of July 23, 1990, then recast in EU Directive 2011/96 of November 30, 2011 (the “Parent-Subsidiary Directive
”), a company is entitled to a full refund of the withholding tax levied on the dividends if it (a) has one of the legal forms provided for in the appendix to the Parent-Subsidiary Directive, (b) is resident for tax purposes in an EU Member State without being considered to be resident outside the EU according to a double tax treaty signed with anon-EU
country, (c) is subject in the country of residence to one of the taxes indicated in the appendix to the Parent Subsidiary Directive with no possibility of benefiting from optional or exemption regimes that have no territorial or time limitations, and (d) directly holds Ordinary Shares that represent an interest in the issued and outstanding capital of
Zegna the Company of no less than 10% for an uninterrupted period of at least one year. If these conditions are met, and as an alternative to submitting a refund request after the dividend distribution, the
non-resident
company may request that no tax is levied at the time the dividends are paid, provided that
the
1-year
holding period under condition (d) above has already run and
the
non-resident
company promptly submits proper documentation. EU resident companies that are controlled directly or indirectly by persons that are not resident in a EU Member State may request the refund or the direct withholding exemption only if the EU resident companies prove that they do not hold the Ordinary Shares for the sole or primary purpose of benefiting from the Parent-Subsidiary Directive.
Under the Agreement between the European Community and the Swiss Confederation providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments, the withholding tax refund / exemption regime described above also applies to dividends paid to a company that (a) is resident for tax purposes in Switzerland without being considered to be resident outside Switzerland according to a double tax treaty signed with a
non-EU
country, (b) is a limited company, (c) is subject to Swiss corporate tax without being exempted or benefiting from preferential tax regimes, and (d) directly holds Ordinary Shares that represent an interest in
Zegna’sthe Company’s issued and outstanding capital of no less than 25% for an uninterrupted period of at least two years.
The application of the above-described tax relief, WHT reduction under the double tax treaties or WHT exemption, is subject to conditions required under the applicable laws and/or treaties, which may vary depending on the case, as well as to the fulfillment by the holders of certain formalities, such as the timely provision to the withholding tax agent of, self-statements and tax residence certificates. In this respect, holders should consult with their own independent tax advisors to determine whether they are eligible for, and how to obtain, such tax relief, WHT reductions or exemption.
Taxation of Distributions of Certain Capital Reserves
Special rules apply to the distribution of certain capital reserves, including reserves or funds created with share offerings’ premiums, adjusted interest paid by subscribers of shares, capital contributions, capital account payments made by holders ortax-exempt
monetary revaluation funds. Under certain circumstances, such distribution may trigger taxable income in the hands of the recipients depending on the existence of current profits or outstanding profit reserves of the distributing company at the time of the distribution, and on the actual nature of the reserves so distributed. The application of such rules may also have an impact on the tax basis of the Ordinary Shares and the characterization of the taxable income received by the recipients as well as the tax regime applicable to it.Non-Italian
resident holders may be subject to tax in Italy as a result of the distribution of such reserves pursuant to the same tax regime applicable to dividends as described at subsection “—Tax Regime forTaxation of Dividends
” above. Prospective investors should consult their advisers in case any distributions of such capital reserves occur. Taxation of Capital Gains
The tax regime summarized in this subsection “—“—Taxation of Capital Gains
” applies only to classes of holders of Ordinary Shares and, if applicable, Zegna Special Voting Shares that are described here below. Taxation of Holders Of Ordinary Shares Tax Resident In Italy
Italian resident individuals not carrying out a business activity
Capital gains realized by Italian resident individuals upon the transfer for consideration of the Ordinary Shares (including the Warrants and securities or rights whereby Ordinary Shares may be acquired), other than capital gains realized in connection with a business activity, are subject to a 26% substitute tax (CGT)(“CGT”). The taxpayer may opt for any of the following three tax regimes:
(i)The tax return regime (regime della dichiarazione). Under this regime, capital gains and capital losses realized during the tax year must be reported in the income tax return. The CGT on capital gains will be chargeable, on a cumulative basis, on all capital gains, net of any relevant incurred capital loss of the same nature. The CGT must be paid within the deadline for the payment of the balance income tax due on the basis of the tax return. Capital losses in excess of capital gains may be carried forward against capital gains of the same nature realized in the following four years, provided that such capital losses are reported in the tax return of the year when they were realized. Capital losses realized on transfers of Non-Qualified Holdings before 2019 should be allowed to offset capital gains realized on Transfers of Qualified Holdings as of 2019. The tax return method is mandatory if the taxpayer does not choose one of the two alternative regimes mentioned in (b) and (c) below.
(ii)The non-discretionary investment portfolio (risparmio amministrato) regime (optional). Under this regime, CGT is applied separately on capital gains realized on each transfer of the Ordinary Shares. This regime is allowed subject to (x) the Ordinary Shares being managed or in custody with Italian banks, broker-dealers (società di intermediazione mobiliare) or certain authorized financial intermediaries; and (y) an express election being made in writing in due time by the relevant holder. Under this regime, the financial intermediary is responsible for accounting for and paying (on behalf of the taxpayer) CGT in respect of capital gains realized on each transfer of the Ordinary Shares (as well as in respect of capital gains realized at revocation of the intermediary’s mandate), net of any relevant capital losses. Capital losses may be carried forward and offset against capital gains realized within the same relationship of deposit in the same tax year or in the following tax years up to the fourth. Capital losses realized on transfers of Non-Qualified Holdings before 2019 should be allowed to offset capital gains realized on Transfers of Qualified Holdings as of 2019. Under this regime, the holder is not required to report capital gains in the annual income tax return.
(iii)The discretionary investment portfolio regime (risparmio gestito) (optional). This regime is allowed for holders who have entrusted the management of their financial assets, including the Ordinary Shares, to an authorized intermediary and have elected in writing into this regime. Under this regime, capital gains accrued on the Ordinary Shares are included in the computation of the annual increase in value of the managed assets accrued (even if not realized) at year end, which is subject to CGT. The managing authorized intermediary applies the tax on behalf of the taxpayer. Any decrease in value of the managed assets accrued at year end may be carried forward and offset
| (i) | The tax return regime (regime della dichiarazione
). Under this regime, capital gains and capital losses realized during the tax year must be reported in the income tax return. The CGT on capital gains will be chargeable, on a cumulative basis, on all capital gains, net of any relevant incurred capital loss of the same nature. The CGT must be paid within the deadline for the payment of the balance income tax due on the basis of the tax return. Capital losses in excess of capital gains may be carried forward against capital gains of the same nature realized in the following four years, provided that such capital losses are reported in the tax return of the year when they were realized. Capital losses realized on transfers ofNon-Qualified
Holdings before 2019 should be allowed to offset capital gains realized on Transfers of Qualified Holdings as of 2019. The tax return method is mandatory if the taxpayer does not choose one of the two alternative regimes mentioned in (b) and (c) below. |
against any increase in value of the managed assets accrued in any of the four following tax years. Under this regime, the holder is not required to report capital gains in the annual income tax return.
| (ii) | Thenon-discretionary
investment portfolio () regime (optional). Under this regime, CGT is applied separately on capital gains realized on each transfer of the Ordinary Shares. This regime is allowed subject to (x) the Ordinary Shares being managed or in custody with Italian banks, broker-dealers (società di intermediazione mobiliare
) or certain authorized financial intermediaries; and (y) an express election being made in writing in due time by the relevant holder. Under this regime, the financial intermediary is responsible for accounting for and paying (on behalf of the taxpayer) CGT in respect of capital gains realized on each transfer of the Ordinary Shares (as well as in respect of capital gains realized at revocation of the intermediary’s mandate), net of any relevant capital losses. Capital losses may be carried forward and offset against capital gains realized within the same relationship of deposit in the same tax year or in the following tax years up to the fourth. Capital losses realized on transfers ofNon-Qualified
Holdings before 2019 should be allowed to offset capital gains realized on Transfers of Qualified Holdings as of 2019. Under this regime, the holder is not required to report capital gains in the annual income tax return. |
| (iii) | The discretionary investment portfolio regime () (optional). This regime is allowed for holders who have entrusted the management of their financial assets, including the Ordinary Shares, to an authorized intermediary and have elected in writing into this regime. Under this regime, capital gains accrued on the Ordinary Shares are included in the computation of the annual increase in value of the managed assets accrued (even if not realized) at year end, which is subject to CGT. The managing authorized intermediary applies the tax on behalf of the taxpayer. Any decrease in value of the managed assets accrued at year end may be carried forward and offset against any increase in value of the managed assets accrued in any of the four following tax years. Under this regime, the holder is not required to report capital gains in the annual income tax return. Even if there is not yet official published guidance of the Italian tax authorities after the reform enacted by Finance Act 2018, according to a certain interpretation, until January 1, 2023 the election for the discretionary investment portfolio regime would only be available if the Ordinary Shares held represent aNon-Qualified
Holding. |
Subject to certain conditions (including minimum holding period requirement) and limitations, capital gains on the Ordinary Shares may be exempt from any income taxation (including from the 26% CGT) if the Ordinary Shares do not represent a Qualified Holding and are included in a long-term savings account (piano di risparmio a lungo termine
) that meets all the requirements set forth under Italian tax law. Pursuant to Article 12 of Finance Act 2024, Italian resident individuals not carrying out a business activity may opt to step up the tax value of their shares and other securities - included those listed on regulated markets - held as of January 1, 2024 by means of the payment of a substitute tax at a rate 16% within the deadline of June 30, 2024.
Sole proprietors and business partnerships (Italian “società in nome collettivo,” “società in accomandita semplice” and similar Italian partnerships as referred to in Article 5 CITA)
Capital gains realized by Italian Sole Proprietors and Italian business partnerships (Italian “società in nome collettivo
,” “società in accomandita semplice
” and similar Italian partnerships as referred to in Article 5 CITA) upon transfer for consideration of the Ordinary Shares must be fully included in the overall business income and reported in the annual income tax return. Capital losses (or other negative items of income) derived by this class of holders upon transfer for consideration of the Ordinary Shares would be fully deductible from the holder’s income. However, if the conditions under a and b of subparagraph (A)(iii) below are met, only 49.72% (58.14% in case of Sole Proprietors) of the capital gains must be included in the overall business income. Capital losses realized on the Ordinary Shares that meet the conditions under a and b of subparagraph (A)(iii) below are only partially deductible (similarly to what is provided for the taxation of capital gains).
Companies and other business entities referred to in Article 73(1)(a)-(b) CITA
Capital gains realized by Italian resident companies and other business entities as referred to in Article 73(1)(a)- (b) CITA (including partnerships limited by shares and public and private entities whose sole or primary purpose is carrying out business activity) upon transfer for consideration of the shares must be fully included in the overall taxable business income subject to IRES in the tax year in which the capital gains are realized or, upon election, may be spread in equal installments over a maximum of five tax years (including the tax year when the capital gain is realized). The election for the installment computation is only available if the shares have been held for no less than three years and booked as fixed financial assets (immobilizzazioni finanziarie
) in the last three financial statements. However, under article 87 of the CITA (“
participation exemption” regime)Participation Exemption Regime”), capital gains arising from the disposal of the Ordinary Shares are
tax-exempt
for 95% of such capital gains, whereas the remaining 5% is included in the holders’ taxable income and is subject to IRES, if the following conditions are met:
(i)the Ordinary Shares have been uninterruptedly held as of the first day of the twelfth month prior to the transfer, treating the shares acquired on the most recent date as being transferred first (on a “last in first out” basis);
(ii)the Ordinary Shares have been booked as fixed financial assets in the first financial statement closed during the holding period. In case of holders that draft their financial statements according to IAS / IFRS international accounting standards, the Ordinary Shares are deemed as fixed financial assets if they are not accounted as “held for trading”;
| (i) | the Ordinary Shares have been uninterruptedly held as of the first day of the twelfth month prior to the transfer, treating the shares acquired on the most recent date as being transferred first (on a “last in first out” basis);
|
(iii)residence for tax purposes of the participated entity in a country other than those with a privileged tax regime in accordance with the criteria set out in Article 47-bis(1) CITA. This requirement must be met at the time when the capital gain is realized, without interruption, since the beginning of the holding of the Ordinary Shares or, if the shares are held since more than five years and the disposal is made in favor of entities not belonging to the sale group of the seller, from at least the beginning of the fifth tax period preceding the one in which the gain is realized; and
| (ii) | the Ordinary Shares have been booked as fixed financial assets in the first financial statement closed during the holding period. In case of holders that draft their financial statements according to IAS / IFRS international accounting standards, the Ordinary Shares are deemed as fixed financial assets if they are not accounted as “held for trading”;
|
| (iii) | residence for tax purposes of the participated entity in a Country other than those with a privileged tax regime in accordance with the criteria set out in Article 47-(1) CITA. This requirement must be met at the time when the capital gain is realized, without interruption, since the beginning of the holding of the Ordinary Shares or, if the shares are held since more than five years and the disposal is made in favor of entities not belonging to the sale group of the seller, from at least the beginning of the fifth tax period preceding the one in which the gain is realized; and |
| (iv) | the participated entity carries out a commercial business activity according to the definition set forth in Article 55 CITA; however, this requirement is not relevant for shareholdings in companies whose securities are traded on regulated markets (as for the Ordinary Shares). This requirement must be met at the time when the capital gain is realized, without interruption, from at least the beginning of the third tax period preceding the one in which the gain is realized.
|
The transfer of Ordinary Shares booked as fixed financial assets and Ordinary Shares booked as inventory must be considered separately with reference to each class.
If the requirements for the participation exemption are met, any capital loss realized on the Ordinary Shares cannot be deducted.
Capital losses and negative differences between revenue and costs for Ordinary Shares that do not meet the requirements for participation exemption are not relevant up to the
non-taxable
amount of dividends, or of accounts thereof, received in the thirty six months prior to their transfer. This provision applies with reference to shares acquired during the
36-month
period prior to the realization of capital losses or negative differences, provided that the conditions under (c) and (d) above are met; such a provision does not apply to parties who prepare their financial statements in accordance with
IAS/IAS / IFRS international accounting standards referred to in Regulation (EC) No. 1606/2002 of the European Parliament and Council of July 19, 2002.
When the amount of the aforesaid capital losses (and negative differences) deriving from a transaction (or a series of transactions) on shares traded on regulated markets is greater than €50,000.00, the taxpayer must report the data and the information regarding the transaction to the Italian tax authorities.
Moreover, in case of capital losses greater than €5,000,000.00 deriving from the transfer (or a series of transfers) of shares booked as fixed financial assets, the holder must report the data and the information to the Italian tax authorities. holders that draft their financial statements according to IAS/IAS / IFRS international accounting standards are under no such obligation.
For some types of companies and under certain conditions, capital gains on the Ordinary Shares are also included in the net value of production that is subject to IRAP, at the ordinary rates.
Non-business
entities referred to in Article 73(1)(c) CITA and
non-business
partnerships referred to in Article 5 CITA
Capital gains realized, outside the scope of a business activity, by Italian residentnon-business
entities referred to in Article 73(1)(c) CITA (other than OICR) and Italiannon-business
partnerships as referred to in Article 5 CITA are subject to tax under the same rules as provided for capital gains realized by Italian resident individuals who do not hold Zegnathe Company in connection with a business activity. For a short description of a favorable regime available to certain social security entities, see subparagraph (A)(v) of the subsection “—” above. Pursuant to Article 12 of Finance Act 2024, Italian non-business entities and non-business partnerships referred to in Article 5 CITA may opt to step up the tax value of their shares and other securities - included those listed on regulated markets - held as of January 1, 2024 by means of the payment of a substitute tax at a rate 16% within the deadline of June 30, 2024.
Pension funds and OICR (other than Real Estate “AIF”)
Capital gains on Ordinary Shares held by Italian pension funds governed by Decree 252 must be taken into account to compute the pension fund’s net annual accrued yield, which is subject to a 20% flat tax (). For a short description of a favorable regime available to pension funds, subsection “—” above. Capital gains on Ordinary Shares held by OICRs that are set up in, and organized under the laws of, Italy and that are subject to regulatory supervision (other than Real Estate AIF) are not subject to tax at the level of the OICR.
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Capital gains on Ordinary Shares held by Italian Real Estate AIF are not subject to IRES or IRAP at the level of the Real Estate AIF.
Non-Italian
Resident Persons
Non-resident
persons holding the Ordinary Shares through a permanent establishment in Italy
If
non-Italian
resident persons hold the Ordinary Shares through a permanent establishment in Italy to which the Ordinary Shares are effectively connected, capital gains realized upon disposal of the Ordinary Shares must be included in the permanent establishment’s income taxable in Italy according to the tax regime as provided for the capital gains realized by Italian resident companies and other business entities as referred to in Article 73(1)(a)-(b) CITA, which is summarized under subparagraph (A)(iii) above. If the Ordinary Shares are not connected to a permanent establishment in Italy of the
non-resident
person, reference must be made to subparagraph (B)(ii) below.
Non-resident
persons that do not hold the Ordinary Shares through a permanent establishment in Italy
Non-Qualified
Holdings.
Based on the fact that Ordinary Shares are listed on a regulated market, no tax applies in Italy on capital gains realized by
non-Italian
resident holders without a permanent establishment in Italy upon transfer for consideration of Ordinary Shares that do not qualify as Transfers of Qualified Holdings, even if the Ordinary Shares are held in Italy and regardless of the provisions set forth in any applicable double tax treaty. In such case, in order to benefit from this exemption,
non-Italian
resident holders who hold the Ordinary Shares with an Italian authorized financial intermediary and either are subject to the
non-discretionary
investment portfolio regime or have elected for the discretionary investment portfolio regime may be required to timely submit to the Italian authorized financial intermediary an affidavit whereby they state that they are not resident in Italy for tax purposes.
Capital gains realized by
non-Italian
resident holders without a permanent establishment in Italy upon Transfers of Qualified Holdings are subject to tax under the rules as provided for capital gains realized by Italian resident individuals who do not hold the Ordinary Shares in connection with a business activity.
Starting from fiscal year 2024, Finance Act 2024 has provided for the extension of the domestic Participation Exemption Regime pursuant to Article 87 of the CITA to capital gains upon Transfers of Qualified Holdings realized by non-resident corporations that: (i) are resident in the European Union (EU) or resident in the European Economic Area (EEA) and allow an adequate exchange of information, (ii) do not have a permanent establishment in Italy and (iii) are subject to corporate income tax in their State of residence.
The tax regimes described above will not prevent the application, if more favorable to the taxpayer, of any different provisions of any applicable double taxation treaty with Italy. Most double taxation treaties entered into by Italy provide that capital gains realized on the disposal of shares are subject to tax only in the country of residence of the seller. In such a case, the capital gains realized by
non-resident
holders on the disposal of the Ordinary Shares will not be subject to tax in Italy.
As ofAt January 1, 2021, under Article 1(633) of Finance Act 2021, no tax applies in Italy on capital gains realized by (i) foreign undertakings for collective investment that comply with Directive 2009/65/EC, or (ii) foreign undertakings for collective investment that do not fall within the scope of Directive 2009/65/EC but whose asset manager is subject to regulatory supervision according to Directive 2011/61/EU, provided that in both case (i) and (ii) the foreign undertaking for collective investment is organized under the laws of an EU Member State or an EEA State that is included in the White List.allows an adequate exchange of information. In any case, the provisions of double tax treaties entered into by Italy may apply if more favorable.
The provisions of Article 12 of Finance Act 2024, which allow for the step-up the tax value of shares and other securities - included those listed on regulated markets - held as of January 1, 2024 by means of the payment of a substitute tax at a rate 16% within the deadline of June 30, 2024, also apply to non-resident persons that do not hold the shares through a permanent establishment (both Qualified and Non-Qualified Holdings).
Taxation of Capital Gains Derived from the Warrants
Capital gains realized upon the sale of the Warrants are subject to the same tax regime applicable in case of sale of the Ordinary Shares as described in subsection “—“—Taxation of Capital Gains
” above. At the purposes of determining the tax regime applicable, the sale of the Warrants shall be regarded as a Transfer of Qualified Holding if the Warrants sold would have granted the relevant holder with the right to hold (upon conversion) a Qualified Holding in Zegna.the Company. Further to the conversion of the Warrants, the Italian tax regimes described under Sections “,” “—“—Taxation of Distributions of Certain Capital Reserves
” and “—“—Taxation of Capital Gains
” above will apply in the hands of the holders.
Zegna Special Voting Shares
No statutory, judicial or administrative authority directly discusses how the receipt, ownership or disposal of the Zegna Special Voting Shares should be treated for Italian income tax purposes and as a result, the Italian tax consequences are uncertain. Accordingly, we urge Zegnathe Company shareholders to consult their tax advisors as to the tax consequences of the receipt, ownership and disposal of the Zegna Special Voting Shares.
Receipt of Zegna Special Voting Shares
A shareholder that receives Zegna Special Voting Shares issued by Zegnathe Company should in principle not recognize any material taxable income upon the receipt of the Zegna Special Voting Shares. Under a possible interpretation, the issue of Zegna Special Voting Shares can be treated as the issue of bonus shares free of charge to the shareholders out of existing available reserves of Zegna.the Company. Such issue should not have any material effect on the allocation of the tax basis of a shareholder between its Ordinary Shares and its Zegna Special Voting Shares. Because the Zegna Special Voting Shares are not admitted to listing and are transferable only in very limited circumstances (including, among other things, transfers to certain affiliates or to relatives through succession, donation or other transfers, provided that the corresponding Ordinary Shares registered in the Loyalty Register are also transferred to such party, or transfers with the approval of the Zegna Board) and their limited economic rights can be enjoyed only at the time of the liquidation of Zegna,the Company, we believe and intend to take the position that the fair market value of each Zegna Special Voting Share is minimal. However, because the determination of the fair market value of the Zegna Special Voting Shares is not governed by any guidance that directly addresses such a situation and is unclear, the Italian tax authorities could assert that the value of the Zegna Special Voting Shares as determined by us is incorrect.
Ownership of Zegna Special Voting Shares
Holders of the Zegna Special Voting Shares should not have to recognize income in respect of any amount transferred to the Zegna Special Voting Shares dividend reserve, but not paid out as dividends, in respect of the Zegna Special Voting Shares.
Disposition of Zegna Special Voting Shares
The tax treatment of a ZegnaCompany’s shareholder that has its Zegna Special Voting Shares redeemed for no consideration after removing its shares from the Loyalty Register is unclear. It is possible that a shareholder should recognize a loss to the extent of the shareholder’s tax basis (if any). The deductibility of such loss depends on individual circumstances and conditions generally required by Italian law. It is also possible that a ZegnaCompany’s shareholder would not be allowed to recognize a loss upon the redemption of its Zegna Special Voting Shares and instead should increase its basis in its Ordinary Shares by an amount equal to the tax basis (if any) in its Zegna Special Voting Shares.
Contracts or other legal instruments relating to the transfer of securities (including the transfer of the Ordinary Shares and of the Warrants) are subject to registration tax as follows: (i) notary deeds () and private deeds with notarized signatures (scritture private authenticate
) executed in Italy must mandatorily be registered with the Italian tax authorities and are subject to €200.00 registration tax; and (ii) private deeds () are subject to €200.00 registration tax only if they are voluntary filed for registration with the Italian tax authorities or if theso-called
“caso d’uso”d’uso” or “enunciazione”“enunciazione” occurs.
Financial Transaction Tax
Article1(491-500)
of Law No. 228 of December 24, 2012 introduced a financial transaction tax (FTT)(“FTT”) applicable, among others, to the transfers of the ownership of (i) shares issued by Italian resident corporations, (ii) participating financial instruments (as defined under Article 2346(6) of the Italian Civil Code) issued by Italian resident corporations, and (iii) securities representing equity investments in Italian resident corporations, regardless of the place of residence of the issuer of such securities and of the place where the contract has been concluded. The residence of the issuer for the purposes of FTT is the place where the issuer has its registered office (intended as its corporate seat).
Since the corporate seat of Zegnathe Company is not in Italy, transfers of ownership of the Ordinary Shares and/or of the Warrants will not be subject to FTT.
Subject to certain exceptions, Italian inheritance and gift tax is generally payable on transfers of assets and rights (including, possibly, the Ordinary Shares, the Warrants and the
Zegna Special Voting Shares) (i) by reason of death or gift by Italian resident persons (or other transfers for no consideration and the creation of liens on such assets for a specific purpose), even if the transferred assets are held outside Italy, and (ii) by reason of death or gift by
non-Italian
resident persons, but limited to transferred assets held in Italy. Shares in corporations that are resident in Italy for tax purposes (because they have their corporate address or their place of effective management or their main business purpose in Italy for the greater part of the tax year) are deemed to be held in Italy.
Subject to certain exceptions, transfers of assets and rights (including the Ordinary Shares, the Warrants and the Zegna Special Voting Shares) on death or by gift are generally subject to inheritance and gift tax as follows:
•at a rate of 4% in case of transfers made to the spouse or relatives in direct line, on the portion of the global net value of the transferred assets, if any, exceeding, for each beneficiary, €1,000,000.00.
•at a rate of 6% in case of transfers made to relatives up to the fourth degree orup to the third degree on the entire value of the transferred assets (in the case of transfers to brothers or sisters, the 6% rate is applicable only on the portion of the global net value of the transferred assets, if any, exceeding, for each beneficiary, €100,000.00). •at a rate of 8% in any other case.
•If the transfer is made in favor of persons with severe disabilities, the tax applies on the value exceeding €1,500,000.00 at the rates illustrated above, depending on the type of relationship existing between the deceased or donor and the beneficiary.
Assets and rights (i) segregated in a trust, or (ii) allocated to special funds by entering into a fiduciary contract, or (iii) encumbered by special purpose liens under Article
2645-ter
of the Italian Civil Code, in favor of persons with severe disabilities are exempt from the Italian inheritance and gift tax, provided that all the conditions set out in Article 6 of Law No. 112 of June 22, 2016 are met. The exemption from Italian inheritance and gift tax also applies to the
re-transfer
of assets and rights if the death of the beneficiary occurs before the death of the settlor.
Under Article 13(2bis—2ter) of Decree No. 642 of October 26, 1972, a 0.20% stamp duty generally applies on communications and reports that Italian financial intermediaries periodically send to their clients in relation to the financial products that are deposited with such intermediaries or with an Italian permanent establishment of a foreign financial intermediary. Shares are included in the definition of financial products for these purposes. Communications and reports are deemed to be sent at least once a year even if the Italian financial intermediary is under no obligation to either draft or send such communications and reports.
The stamp duty cannot exceed €14,000.00 per year for investors other than individuals.
The stamp duty applies to any investor who is a client (as defined in the regulations issued by the Bank of Italy on June 20, 2012) of an entity that exercises in any form a banking, financial or insurance activity within the Italian territory.
Wealth Tax on Financial Products Held Abroad
Under Article 19 of Decree No. 201 of December 6, 2011, individuals,
non-business
entities and
non-business
partnerships resident for tax purposes in Italy, which hold certain financial products outside of the Italian territory (including shares) are required to pay a wealth tax at the rate of 0.20%. The wealth tax applies on the market value at the end of the relevant year or—in the lack thereof—on the nominal value or the redemption value of such financial products held outside of Italian territory. The wealth tax cannot exceed €14,000 per year for investors other than individuals.
Finance Act 2024 has provided for an amendment to Article 19 of Decree No. 201 of December 6, 2011 by introducing the new paragraph 20-bis, according to which, starting from fiscal year 2024, the wealth tax is due at the rate of 0.40% of the value of financial products held in countries and territories that do not allow a satisfactory exchange of information with Italy according to Italian Ministerial Decree of September 4, 1996, as subsequently amended and supplemented.
Taxpayers may deduct from the Italian wealth tax a tax credit equal to any wealth tax paid in the country where the financial products are held (up to the amount of the Italian wealth tax due).
Details of the financial activities held abroad have to be inserted in the income tax return to be filed in Italy by the Italian resident individuals.
Certain Reporting Obligations for Italian Resident Holders
Under Law Decree No. 167 of June 28, 1990, individuals,
non-business
entities and
non-business
partnerships that are resident in Italy for tax purposes and, during the fiscal year, hold financial assets abroad (including, possibly, the Ordinary Shares, the Warrants and the
Zegna Special Voting Shares) must, in certain circumstances, disclose these financial assets to the Italian tax authorities in their income tax return (or if the income tax return is not due, in a proper form that must be filed within the same term as prescribed for the annual income tax return), regardless of the value of such assets (save for deposits or bank accounts having an aggregate value not exceeding €15,000.00 throughout the year). The requirement applies also if the persons above, being not the direct holder of the financial assets, are the beneficial owners thereof for the purposes of anti-money laundering legislation.
No disclosure requirements exist for financial assets (including, possibly, the Ordinary Shares, the Warrants and the Zegna Special Voting Shares) under management or administration entrusted to Italian resident intermediaries (Italian banks, broker-dealers (SIM)(“SIM”), fiduciary companies or other professional intermediaries as indicated under Article 1 of Law Decree No. 167 of June 28, 1990) and for contracts concluded through their intervention, provided that the cash flows and the income derived from such assets and contracts have been subjected to Italian withholding tax or substitute tax by such intermediaries.
F. Dividends and Paying Agents
Not applicable.
Not applicable.
We are subject to the informational requirements of the Exchange Act that are applicable to foreign private issuers. Accordingly, we are required to file or furnish reports and other information with the SEC, including annual reports on Form20-F
and reports on Form6-K.
The SEC maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are available to the public through the SEC’s website athttp://www.sec.gov.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal and selling shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, nor be required to comply with Regulation FD, which restricts the selective disclosure of material information.
The mailing address of Zegna’sthe Company’s principal executive office is Viale Roma 99/100, 13835 Valdilana loc. Trivero, Italy and its telephone number is +39 01575911. Zegna’sThe Company’s agent for U.S. federal securities law purposes is Vincenzo Roberto,Robin Burgher, c/o Ermenegildo Zegna Corporation, 7th Floor, 10 East 53rd Street, New York, NY, 10022. ZegnaThe Company also maintains a website at https://ir.zegnagroup.com. In this report, the website addresses of the SEC and Zegnathe Company are provided solely for information and are not intended to be active links. ZegnaThe Company is not incorporating the contents of the websites of the SEC and Zegnathe Company or any other entity into this report.
I. Subsidiary Information
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|
PleaseITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKETS RISKS
For information relating to the market risks that the Company is exposed to, refer to Note 41 (35 — Qualitative and Quantitative Informationquantitative information on Financial Risks
)financial risks to the Consolidated Financial Statements included withinelsewhere in this report for details on the market risks that Zegna is exposed to. report.
| DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
Not applicable.
Not applicable.
D. American Depositary Shares
Table of Contents
| DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
| MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15 CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures
As required by Rule13a-15
under the Exchange Act, our management, under the supervision and with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of ourWe maintain disclosure controls and procedures
as of December 31, 2021. As(as that term is defined in
Rule13a-15
ofRules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act
the term “disclosure controls and procedures” means controls and other proceduresof 1934, as amended (“Exchange Act”)) that are designed to
ensureprovide reasonable assurance that information required to be disclosed in the
Group’s reports
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms
of the SEC, and
to ensure that
such information
required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to
our management, including our
chief executive officer, our chief financial officerChief Executive Officer and
other management,Chief Financial Officer, as appropriate, to allow timely decisions regarding
our required disclosures.
Disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.Based onOur management, under the foregoing,supervision and with the participation of our chief executive officerChief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our chief financial officer have concluded that, as ofdisclosure controls and procedures at December 31, 2021,2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective. effective at the reasonable assurance level at December 31, 2023, due to the material weaknesses reported below under the section “Management’s Annual Report on Internal Control over Financial Reporting”.
After considering these material weaknesses, along with additional analyses and procedures conducted to ensure the compliance of our consolidated financial statements included in this Annual Report on Form 20-F with generally accepted accounting principles, our management concluded that our consolidated financial statements present fairly, in all material aspects, our financial position, results of operations, and cash flows for the disclosed period in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
B. Previously Disclosed Material Weaknesses
For the year ended December 31, 2022, our management identified deficiencies in our internal control over financial reporting that constituted material weaknesses. For the year ended December 31, 2022, the Group identified deficiencies in the Control Environment, Control Activities, Information and Communication and Monitoring components of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework that constitute material weaknesses, either individually or in the aggregate. These deficiencies are discussed further below.
Control Environment
The reasonGroup identified deficiencies associated with the Control Environment COSO component, due to the fact that the resources with appropriate experience in IFRS and SEC reporting hired to perform control activities were not in place for this conclusion isa sufficient period of time to operate the control activities.
Control Activities
Management identified deficiencies associated with the Control Activities COSO component, specifically relating to:
•the inadequate and untimely implementation or operating effectiveness of control activities, including management review controls, across substantially all financial statement account balances and disclosures, and
•general information technology controls related to users’ access management, segregation of duties, and change management.
Information and Communication
The Group identified deficiencies associated with the Information and Communication COSO component, specifically related to an inability to generate and provide quality information and communication necessary to support the functioning of internal control.
Monitoring
Management identified a deficiency associated with the Monitoring COSO component, specifically related to the identifiedtimely performance of control testing and the evaluation and communication of internal control deficiencies to those parties responsible for taking corrective action, including senior management and the Board of Directors, in a timely manner to allow for remediation.
Remediation Activities
During 2023, under the oversight of the Audit Committee of the Board of Directors, the Group continued to implement a remediation plan to address the material weaknesses identified at December 31, 2022 as describednoted below.
Control Environment
The Group continued to hire personnel with IFRS and SEC reporting experience in “Finance, Compliance, Internal Audit and IT & Security functions, according to the approved hiring plan, in order to significantly enhance the structures and competence and to fill the remaining positions opened at the end of 2022.
Management continued to engage external consultants with extensive expertise in internal control over financial reporting and SEC reporting to assist management, including control owners, in enhancing its internal control framework.
Item 3.D—Risk Factors.In addition, the Group delivered training programs and awareness sessions on internal control practices, procedures, and Sarbanes-Oxley requirements to management, including controls owners, which resulted in an improved level of formalization and documentation of the execution of controls.
These actions strengthened the Group’s internal control framework and remediated the material weakness identified in 2022 associated with the Control Environment COSO.
” See also belowControl Activities
Management has designed and implemented effective general information technology controls, including user access and change management controls, for additional information.all relevant systems. These actions resulted in the remediation of the general information technology controls deficiencies identified in 2022 associated with the Control Activities COSO component, and consequently, to support the reliability of system-generated information used in business process controls. Nevertheless, these actions were not sufficient to remediate the material weakness associated with the Control Activities component.
Further, management has undertaken a significant and structured multi-year project, involving both IT and organizational areas, aimed at addressing appropriate segregation and allocation of duties. In 2023, some actions have been conducted to address the related risks for specific prioritized business processes, including revenues and receivables, period-end financial reporting and financial management. For the remaining processes, remedial actions will be conducted in accordance with the project timeline.
Additionally, the Group has automated certain manual components of business process controls, including manual journal entries and account reconciliations. This automation will further support the remediation process once segregation and allocation of duties are fully addressed.
Information and Communication
The Group implemented controls over its reporting and consolidation system and associated processes to mitigate risks around key applications and data utilized in the production of the consolidated financial statements. This will further support the remediation process once segregation and allocation of duties are fully addressed.
Monitoring
Management has strengthened their monitoring program to perform testing and evaluation of their controls more timely. This allows management to take corrective actions for a portion of the deficiencies identified.
In addition, the Group established a SOX Steering Committee to maintain effective monitoring, communication, and implementation of controls. The committee meets regularly and reports timely to the Board of Directors and Audit Committee.
Despite the progress discussed above, there were certain matters in 2023 that hindered our ability to remediate all of the material weaknesses identified in the prior year. These include:
•The remedial actions undertaken over segregation of duties were limited to specific prioritized business processes. Given the complexity of the Group and the heterogeneity of its IT environment, the improvement of proper segregation of duties requires extensive time; therefore, additional remedial actions are still ongoing to mitigate certain deficiencies identified in the principles associated with the Control Activities and Information and Communication COSO components;
•Based on the timing of when certain controls were implemented the Group was unable to timely execute a monitoring program over those controls, including the inability to timely evaluate and remediate deficiencies.
We believe that our efforts have improved our internal control over financial reporting and resulted in the remediation of the Control Environment material weakness identified at December 31, 2022. Remediation of the material weaknesses identified at December 31, 2023, will require further remedial actions.
C. Management’s Annual Report on Internal Control over Financial Reporting
This annual report on Form20-F
does not include a report of management’s assessment regardingOur management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting
due(as such term is defined by Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to
a transition period established by rulesprovide reasonable assurance regarding the reliability of financial reporting and the preparation of the
consolidated financial statements for external purposes in accordance with IFRS and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with the authorizations of our management and directors of the Group; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As permitted by related SEC staff interpretive guidance for newly public companies. We will be required to provide an annualacquired businesses, we have excluded from the scope of our assessment of internal control over financial reporting Tom Ford International LLC, together with its subsidiaries, which was acquired in a business combination in 2023, which represented 15.7% and 12.4% of our Group consolidated total assets and revenue at and for the year ended December 31, 2023.
Our management reporthas assessed the effectiveness of internal control over financial reporting at December 31, 2023 based on the effectiveness ofcriteria established in Internal Control–Integrated Framework (2013) issued by COSO. Based on this
assessment, our management has concluded that our internal control over financial reporting
commencing with our second annual report on Form20-F,
which we expect to file inwas not effective at December 31, 2023,
with respectdue to the
fiscal year ending December 31, 2022.material weaknesses described below. Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or combination of control deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Group’s annual or interim financial statements will not be prevented or detected on a timely basis.
BeforeDuring our assessment of the effectiveness of the Group’s internal control over financial reporting at December 31, 2023, we becamehave identified deficiencies that, either individually or in the aggregate, rise to the level of material weaknesses in three components of internal control of COSO.
The Group continued to identify a public companymaterial weakness in December 2021, in connectionthe principles associated with the auditsControl Activities component, mainly caused by ineffective segregation of ourduties, that consequently resulted in inadequate design, implementation or operating effectiveness of control activities, including management review controls, across a significant number of financial statement account balances and disclosures.
As a result of the aforementioned material weakness, the Group continued to identify a material weakness in the Information and Communication component of COSO, specifically related to the principle associated with the inability to generate and provide quality information and communication necessary to support the functioning of internal control.
In addition, the Group continued to identify a material weakness in the Monitoring component of the COSO, specifically related to the timely performance of control testing and communication of internal control deficiencies to those parties responsible for taking corrective action in a timely manner to allow for remediation.
These material weaknesses resulted in a limited number of adjustments corrected by management in preparing the Group’s 2023 consolidated financial statements. Additionally, these material weaknesses could result in material misstatements of the interim or annual consolidated financial statements as ofand disclosures that would not be prevented or detected.
Planned Remediation Activities for Fiscal Year 2024
Management’s remediation plan to address the material weaknesses existing at December 31, 20202023, includes the following:
•The implementation of segregation of duties will continue according to the multi-year project plan mentioned above, both from an IT and 2019organizational perspective. By enhancing the implementation of segregation of duties in the IT environment across the organization, we expect to improve the control activities and the quality of information and communication necessary to support the functioning of our system of internal control;
•Timely execute a monitoring program over our internal control framework that will more effectively identify, evaluate and remediate deficiencies than the current year.
We cannot give assurance that the measures we are taking to remediate the material weaknesses will be sufficient or that they will prevent future material weaknesses. As management continues to evaluate and work to improve our internal control over financial reporting, we may determine it necessary to take additional measures or modify the remediation plan described above. The material weaknesses cannot be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
D. Attestation Report of the years ended December 31, 2020, 2019 and 2018, our management and ourRegistered Public Accounting Firm
Deloitte & Touche S.p.A, the independent registered public accounting firm identified material weaknessesthat audited the consolidated financial statements included in this Annual Report on Form 20-F, has issued an attestation report on our internal control over financial reporting at December 31, 2023.
E. Changes in Internal Control over Financial Reporting
Except for the changes described above, there have been no changes in the Group’s internal control over financial reporting that have occurred during the period covered by this Annual Report on Form 20-F, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. As defined
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Ermenegildo Zegna N.V.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Ermenegildo Zegna N.V. and subsidiaries (the “Company”) as at December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as at December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards established byof the United States Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as at and for the year ended December 31, 2023, of the Company and our report dated April 5, 2024, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the change of accounting policy to present its expenses in the consolidated statements of profit and loss by function instead of nature, as permitted by International Accounting Standard 1 Presentation of Financial Statements.
As described in the “Management’s Annual Report on Internal Control over Financial Reporting”, management excluded from its assessment the internal control over financial reporting at Tom Ford International LLC, together with its subsidiaries, which was acquired on April 28, 2023, and whose financial statements constitute 15.7% and 12.4% of our Group consolidated total assets and revenue at and for the year ended December 31, 2023. Accordingly, our audit did not include the internal control over financial reporting at Tom Ford International LLC, together with its subsidiaries.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a “material weakness”public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The following material weaknesses have been identified primarily related to: (i)and included in management's assessment:
During the absenceassessment of sufficient resourcesthe effectiveness of the Company’s internal control over financial reporting as at December 31, 2023, the Company have identified deficiencies that, either individually or in the accounting department with appropriate IFRS competencies and SEC reporting experienceaggregate, rise to provide accurate informationthe level of material weaknesses in a timely manner; (ii) the lackthree components of an effective risk assessment processinternal control of COSO.
The Company continued to identify a material weakness in the principles associated with the Control Activities component, mainly caused by ineffective segregation of duties, that consequently resulted in inadequate design, implementation or operating effectiveness of control activities, including management review controls, across a significant number of financial statement account balances and communicate appropriate objectives and fraud, anddisclosures.
As a result of the aforementioned material weakness, the Company continued to identify and assess changesa material weakness in the business that could affect our systemInformation and Communication component of internal controls; (iii)COSO, specifically related to the principle associated with the inability to generate and provide quality information and communication necessary to support the functioning of internal control.
In addition, the Company continued to identify a material weakness in the Monitoring component of the COSO, specifically related to the timely performance of control (iv) the lack of monitoring controls to ascertain whether the componentstesting and communication of internal control are present and functioning as intended; (v) the insufficient design and implementation of effective control activities, including proper segregation of duties and general information technology controls, across substantially all financial statement account balances and disclosures and (vi) the lack of adequately designed and documented management review controlsdeficiencies to properly detect and prevent certain accounting errors and omitted disclosuresthose parties responsible for taking corrective action in the consolidated financial statements.
a timely manner to allow for remediation.Subsequent to the evaluation made in connection with filing our Registration Statement on Form
F-4
we have begun implementing a remediation plan designed to address theseThese material weaknesses
were considered in determining the nature, timing, and
other existing deficiencies, and ensure the intended executionextent of
audit tests applied in our
Sarbanes-Oxley Act compliance program. As part of this remediation plan, and together with external
advisor with expertise in these matters as appropriate, we are focusing on the following areas: (i) performing our risk assessment and scoping to identify relevant controls that will be designed, implemented, and tested by management, (ii) establishing compliant risk and control matrices for applicable processes across our markets, (iii) designing and/or reassessing existing entity-level controls and general information technology controls and, as necessary, implementing enhancements to such controls to improve the effectivenessaudit of the internal control system and our internal control over financial reporting, (iv) implementing appropriate monitoring activities and procedures over internal control and financial reporting, (v) reinforcing of the composition of Finance, Internal Audit and other departments and (vi) providing relevant training over internal controls and financial reporting processes.
As our remediation activities remain ongoing, we cannot conclude that these measures fully address the material weaknesses identified in our internal control over financial reporting for the preparation of our consolidated financial statements as ofat and for the year ended December 31, 2021.2023, of the Company, and this report does not affect our report on such financial statements.
/s/ Deloitte & Touche S.p.A.
Turin, Italy
April 5, 2024
Attestation Report of the Registered Public Accounting Firm
This annual report on Form20-F
does not include an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERTChanges in Internal Control Over Financial Reporting
The changes in our internal control over financial reporting that occurred during the period covered by this annual report on Form20-F
that have materially affected, or are reasonably likely to affect, our internal control over financial reporting are described above. | AUDIT COMMITTEE FINANCIAL EXPERT
|
The Zegna Board has determined that Valerie A. Mars (the chairperson of the Audit Committee) qualifies as an “audit committee financial
expert”.expert.” Ms. Mars is an independent director under the applicable NYSE rules, Rule
10A-3
under the Exchange Act and the
DCGC. DCGC.We have adopted a Code of Ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Our Code of Ethics is available on our website. We intend to disclose any amendment to our Code of Ethics, or any waivers of its requirements, in our
Annual Reportannual report on Form
20-F.
For the year ended December 31,
2021,2023, we did not grant any waivers of the Code of Ethics.
| PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
Deloitte & Touche S.p.A., Turin Italy, PCAOB ID No.1376, the member firms of Deloitte & Touche and their respective affiliates (collectively, the “”) were appointed to serve as our independent registered public accounting firm for the years ended December 31, 20212023 and 2020.2022. We incurred the following fees from the Deloitte Entities for professional services for the years ended December 31, 20212023 and 2020,2022, respectively: | | | For the years ended December 31, | |
| | | | | | |
| For the years ended December 31, | | | For the years ended December 31, |
(€ thousands) | | (€ thousands) | 2023 | | 2022 |
| | | 8,214 | | | | 1,768 | |
| | | 195 | | | | 395 | |
| | | 412 | | | | 308 | |
| | | 154 | | | | 669 | |
| | | | | | |
| | | | | | | | |
| The Audit fees in 2021 include (i) the PCAOB audit for the years ended December 31, 2020, 2019 and 2018 for Euro 4,900 thousand in connection with the preparation of the consolidated financial statements as of and for the three years in the period ended December 31, 2020 for the purpose of Zegna’s Registration Statement on FormF-4
filed in connection with the Business Combination and (ii) the PCAOB audit for the year ended December 31, 2021. |
•Audit fees are the aggregate fees charged by the Deloitte Entities for the audit of our annual consolidated financial statements, the review of our interim consolidated financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
•Audit-related fees are the aggregate fees charged by the Deloitte Entities for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category comprises fees for agreed upon procedures engagements and other attestation services subject to regulatory requirements. In 2021, approximately €120 thousand of audit-related fees were incurred in relation to the listing process.
•Tax fees are the aggregate fees charged by the Deloitte Entities for services related to tax compliance, tax advice and tax planning.
•All other fees are the aggregate fees charged by the Deloitte Entities fornon-audit
services rendered which are not listed above.
Audit Committee’s
pre-approval
policies and procedures
Our Audit Committee makes recommendations for the appointment, compensation and retention of our independent registered public accounting firm entrusted with the audit of our consolidated financial statements. Our Audit Committee has adopted a policy requiring management to obtain the Audit Committee’s approval before engaging our independent registered public accounting firm to provide any other audit or permitted
non-audit
services to us or our subsidiaries. Pursuant to this policy, which is designed to ensure that such engagements do not impair the independence of our independent registered public accounting firm, the Audit Committee reviews and
pre-approves
( pre-approves(if appropriate) specific audit and
non-audit
services in the categories Audit Services, Audit-Related Services, Tax Services, and any other services that may be performed by our independent registered public accounting firm.
ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
| EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
| PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
During the year ended December 31, 2021,2023, no purchases of our equity securities registered pursuant to Section 12 of the Exchange Act were made by or on behalf of us or any affiliated purchaser.
| CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
ITEM 16F CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.Applicable.
ITEM 16G CORPORATE GOVERNANCE
The discussion below summarizes the significant differences between our corporate governance practices and the NYSE listing standards applicable to U.S. companies. ForThe DCGC is based on a “comply or explain” principle, then for a discussion regarding certain ways in which our governance practices deviate from those suggested in the DCGC, please see “Item 10.B—Memorandum and Articles of Association—Certain Disclosure and Reporting Obligations of Zegna Directors, Officers and Shareholders of Zegna
the Company.”. •NYSE listing standards generally require a majority of board members to be “independent” as determined under the NYSE listing standards. While the DCGC, in principle, also requires that a majority of board membersnon-executive directors be “independent”,“independent,” the definition of “independent” under the DCGC differs in its details from the corresponding definition of “independent” under the NYSE listing standards. In some cases, DCGC requirements are stricter; in other cases, the NYSE listing standards are stricter. Currently, a majority of the members of the Zegna Board are independent under the NYSE listing standards (6 out of 11 members) and the DCGC (7 out of 11 members).
; 5 out of the 10 non-executive directors of the Board are independent under the DCGC.•NYSE listing standards require that when an audit committee member of a U.S. domestic listed company serves on four or more audit committees of public companies, the listed company should disclose (either on its website or in its annual proxy statement or annual report filed with the SEC) that the board of directors has determined that this simultaneous service would not impair the director’s service to the listed company. Dutch law does not require the Company to make such a determination.
•NYSE listing standards applicable to U.S. companies require that external auditors be appointed by the audit committee. The general rule under Dutch law is that external auditors are appointed by the Zegna General Meeting. In accordance with the requirements of Dutch law, the appointment and removal of our independent registered public accounting firm must be resolved upon at a Zegna General Meeting. Our Audit Committee is responsible for determining the process for selecting and determining the remuneration of the independent registered public accounting firm and oversees and evaluates the work of our independent registered public accounting firm.
•NYSE listing standards require a U.S. listed company to have a compensation committee and a nominating/corporate governance committee composed entirely of independent directors. As a foreign private issuer, we do not have to comply with this requirement, although we do have a Compensation Committee and a Governance and Sustainability Committee. The charter of our Compensation Committee states that more than half of the members of the Compensation Committee (including the chairperson) are independent under the DCGC. Currently, alltwo out of three members of our Compensation Committee are independent both under the DCGC and two members are independent under the NYSE listing standards. The charter of our Governance and Sustainability Committee states that more than half of the members of the Governance and Sustainability Committee are independent under the DCGC/DCGC. Currently all three members of our Governance and Sustainability Committee are independent both under the DCGC and two members are independent under the NYSE listing standards.
•Under NYSE listing standards, shareholders of U.S. companies must be given the opportunity to vote on all equity compensation plans and material revisions to those plans, with limited exceptions set forth in the NYSE listing standards. As a foreign private issuer, we are permitted to follow our home country laws regarding shareholder approval of compensation plans. Under Dutch law such approval is only required in relation to members of the board of directors if the articles of association of a company ((i.e., public limited liability company ()) stipulate that a corporate body other than the general meeting is authorized to determine the remuneration of members of the board of directors. The adoption ofsub-plans
under an equity incentive plan that has been approved by the general meeting does not require separate approval of the company’s general meeting, provided, however, that suchsub-plans
are adopted within the framework and limits of the equity incentive plan as approved by the general meeting. Approval by the general meeting is also not required in respect of equity compensation plans for employees, provided, however, that (i) such employees are no members of the board of
directors and (ii) the general meeting has authorized the board of directors to issue shares and/or rights to subscribe for shares.
| ITEM 16H MINE SAFETY DISCLOSURE |
| ITEM 16I DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not applicable.
ITEM 16J INSIDER TRADING POLICIES
Not applicable.
ITEM 16K CYBERSECURITY
A.Risk management and strategy
Our processes to assess, identify and manage material risks from cybersecurity threats are integrated in our overall enterprise risk management framework. Such processes are designed to evaluate the impact and likelihood of cybersecurity incidents, concurrently assessing the effectiveness of mitigation measures in place to mitigate and reduce the risk level across the Group.
We manage cybersecurity risk at multiple levels within the organization. Due to our wide geographic spread and the several recent acquisitions, our information systems are diversified, hosted by servers in multiple locations and supported by third-party providers of cloud services, with a wide range of software applications adapted to the different regions and functions. Policies and procedures across the Group for the safeguard of our information systems and the data residing therein are tailored to the specificities of the different parts of our organization. Third party providers which are given access to our data and programs are required to comply with operational rules set forth in our procedures regarding the use of our resources and access to our systems and are subject to specific access controls. For us to monitor the risks related to recourse to a third party provider, we require third parties providing infrastructure services in the IT landscape for the purpose of internal control over financial reporting to provide a “Security Organization Controls (“SOC”)” report at least once a year, which includes information on such supplier’s internal control system as applied to its IT systems as well as any problems related thereto occurred during the year.
Within this framework, the central Group management and the management of our segments, product lines and operating subsidiaries share responsibility for cybersecurity management and collaborate on assessing, identifying, and managing material risks. We use a variety of controls and processes to identify, mitigate and manage material cybersecurity risks, detect unusual activities and/or potential cybersecurity incidents or threats, including potential system breaches, and to verify the effectiveness of protective measures. Such controls and processes include identity and access management, infrastructure and architecture security, client and server end-point protection and network security. Information systems are monitored and tested on a regular basis with a view to keeping them secure and protected from cybersecurity threats. We seek to continuously strengthen our security processes and controls by investing in new and improved security technologies, improving incident response plans, engaging world-class cybersecurity advisors, contracting specialized service providers, and providing regular employee training. In addition, we purchase Group-wide business cybersecurity insurance in order to mitigate the risk of liabilities that may result from cybersecurity incidents.
In order to manage the risk of a material impact on our operations, financial performance, and reporting due to cybersecurity threats and incidents, we have adopted a mandatory Group-wide Cybersecurity Incident Management Procedure (the “Cybersecurity Policy”). The Cybersecurity Policy, which is supported by procedural documentation, sets forth the steps to be followed and assigns clear responsibilities within the organization in connection with cyber threats and incidents, in order to manage the response process at all stages, from detection and assessment to internal reporting and escalation, review, remedial action (including mitigation and recovery), notification to the competent authorities (where applicable), and post-incident analysis.
We provide regular training and launch awareness campaigns addressed to Group employees to understand and comply with Group policies and applicable regulations, including those related to cybersecurity. As part of our cybersecurity strategy, we have deployed across our organization cybersecurity education platforms, with mandatory training for all employees equipped with a workstation or a device connected to the information systems, in order to increase the level of employees’ training and awareness on cybersecurity.
We work with several external consultants specializing in cybersecurity to improve our ability to identify and detect, protect against, and recover from, cybersecurity incidents. This includes both ongoing consulting services and specific interventions as our Segment CISOs deem necessary. Large part of our organization is serviced by security operations centers active 24 hours a day, 7 days a week, with market-leading providers, for the monitoring of potentially critical IT events from a cybersecurity perspective and intervening promptly with mitigation and remediation measures as and when necessary. We also engage external consultants who are experts in the field in order to perform penetration testing sessions; these sessions are aimed at identifying any vulnerabilities that may affect our systems and appropriately remediating them. In addition, our Cybersecurity Policy provides that external advisors may be engaged, as appropriate, in connection with the response to any cyber incidents. In accordance with internal policies, we also conduct a careful cybersecurity evaluation of selected service providers, both in the selection phase and during the course of our relationship with them with security risk assessments as deemed appropriate.
As previously disclosed, in August 2021 we were subject to a ransomware attack that impacted the majority of our IT systems. As we refused to engage in discussions relating to the payment of the ransom, the responsible parties published certain accounting materials extracted from our IT systems. We publicly announced the IT systems breach and gradually restored our IT systems from secure back up servers during the weeks following the breach. As of the date of this report, we have not experienced any further material cybersecurity incidents. See “Item 3.D—Risk Factors— A disruption in our information technology, including as a result of cybercrimes, could disrupt our business operations and compromise confidential and sensitive information” for further information about data protection and cybersecurity risks.
B.Governance
The Board has designated the Audit Committee, and delegated powers to it, to assist and advise the Board with respect to the application by the Company of information and communication technology, including risks relating to cybersecurity. The Audit Committee meets regularly with management, the head of internal audit and the independent auditors to discuss risk assessment and risk management guidelines and policies and the Group’s significant risk exposures, the steps management has taken to monitor and control these exposures and the effectiveness of the design and operation of the internal risk management and control systems, including with respect to cybersecurity risk. It also meets at least annually with the Group Chief Information Officer, and/or the Segment CISOs for an update on cybersecurity risk management (including on key cybersecurity initiatives) and strategy. As frequently as may be necessary, the Audit Committee convenes to review the assessment of the materiality of cybersecurity incidents exceeding pre-defined severity thresholds, and the corporate communications relating to such incidents. The Audit Committee is also responsible for updating the Board on identified cybersecurity risks and material incidents, if any, as well as on remediation measures and investments required to be considered by the Board on cybersecurity matters. Our organizational structure reflects the diversity of our Group by relying on the designation of a Chief Information Security Officer for each operating segment (each, a “Segment CISO”), who reports directly to the top management of the relevant segment. The Segment CISOs are principally responsible for elaborating the cybersecurity strategy for, as well as handling all cybersecurity incidents and threats in, their respective segment. They assess and monitor the IT environment, conduct and review the risk assessment and organize preventive and detective cybersecurity measures. Pursuant to the Cybersecurity Policy, upon notice from an IT technical team about a cybersecurity incident or threat, the competent Segment CISO assesses the event, assigns it a level of severity in accordance with a predefined scale, coordinates the responsive actions (including through the appointment of external advisors), escalates the matter as set forth in the Cybersecurity Policy, and prepares reports on each cybersecurity incident.
The Cybersecurity Policy establishes a committee (the “Cybersecurity Committee”) responsible to support the Segment CISOs and the Audit Committee in connection with the assessment of, and response to, cybersecurity incidents that meet a certain severity level or other conditions as established in the policy. The Cybersecurity Committee, with the Segment CISOs, prepares and shares with the Audit Committee at least annually a report on all the cybersecurity incidents occurred during the relevant period. The Cybersecurity Committee comprises the Group Chief Information Officer, the Group Chief Financial Officer and Chief Of Operations and the Group General Counsel as permanent members, and may include additional members when dealing with specific cybersecurity incidents (including, for instance, the relevant Segment CISOs, or the chief executive officer or the chief financial officer of the entities affected by the cybersecurity incident).
| ITEM 17 FINANCIAL STATEMENTS |
We have responded to Item 18 in lieu of responding to this item.
| ITEM 18 FINANCIAL STATEMENTS |
The audited Consolidated Financial Statements as required under Item 18 are attached hereto starting on page
F-1
of this report.
ITEM 19 EXHIBITS
| | Description |
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1.1 | | |
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1.2 | | |
2.1 | |
2.1 | | |
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2.2 | | |
| |
2.3 | | Warrant Assumption and Amendment Agreement, dated as of December 17, 2021, by and among Investindustrial Acquisition Corp., Ermenegildo Zegna Holditalia S.p.A., Continental Stock Transfer & Trust Company, Computershare Trust Company, N.A and Computershare Inc. (incorporated by reference to Exhibit 2.3 to the Report on Form 20-F, filed with the SEC on December 23, 2021, File No. 001-41180) |
| |
2.4 | | |
| |
2.5 | | |
| |
4.1 | | |
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4.2 | | |
| |
4.3 | | |
4.4 | |
4.4 | | |
| |
4.5 | | |
4.5 | |
4.6 | | |
4.6 | |
4.7 | | |
| |
4.8 | | |
4.7† | |
4.9† | | |
| | |
| | |
4.8 | |
4.10 | | |
4.9 | |
4.11 | | |
8.1 | |
8.1 | | |
12.1 | |
12.1 | | |
12.2 | |
12.2 | | |
13.1 | |
13.1 | | |
13.2 | |
13.2 | | |
15.1 | |
15.1 | | |
97.1 | | |
101 | | |
104 | |
104 | | Cover Page Interactive Data File |
| | |
† | Certain of the exhibits and schedules to this exhibit have been omitted in accordance with the Instructions as to Exhibits of Form20-F. The Registrant agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. |
Table of Contents
The registrant hereby certifies that it meets all of the requirements for filing on Form
20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| | | | | | | | | | | | | | |
| | | | |
| | | | |
| April 6, 2022 | | By: | | | | By: | | /s/ Ermenegildo Zegna di Monterubello Monte Rubello |
April 5, 2024 | | | | | | Name: Ermenegildo Zegna di MonterubelloMonte Rubello |
| | | | | | Title: Chairperson and Chief Executive Officer |
Index to the Consolidated Financial Statements
ERMENEGILDO ZEGNA N.V.
CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2023 AND 2022 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2023
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
| | | | | |
| Page |
1376) | | F-2 |
CONSOLIDATED STATEMENT OF PROFIT AND LOSS | |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND LOSS | |
| | F-6 |
| |
| | F-7 |
| |
| | F-8 |
| |
| | F-9 |
| |
| | F-10 |
| |
| | F-11 |
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Ermenegildo Zegna N.V. and subsidiaries (together the “Company”(the "Company") as ofat December 31, 20212023 and 2020,2022, the related consolidated statements of profit and loss, comprehensive income and loss, changes in equity, and the consolidated cash flow statement for each of the three years in the period ended December 31, 2021,2023, and the related notes (collectively referred to as the “financial statements”"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as ofat December 31, 20212023 and 20202022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021,2023, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as at December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 5, 2024 expressed an adverse opinion on the Company's internal control over financial reporting.
Change in consolidated statement of profit and loss presentation
As discussed in Note 2 to the financial statements, in 2023, the Company changed its accounting policy to present its expenses in the
consolidated statements of profit and loss by function instead of nature, as permitted by International Accounting Standard 1 - Presentation of Financial Statements. In order to conform to this new presentation, the information for the year ended December 31, 2022 and 2021 has been reclassified to reflect presentation by function.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Property, Plant and Equipment and Right of Use Assets – Impairment of Directly Operated Store Assets identified with triggering events — Refer to Notes 3, 4, 12, 1915 and 2016 to the financial statements
Critical Audit Matter Description
The financial statements as of December 31, 2021 include Property, Plantplant and Equipmentequipment (“PPE”) and Right of Useright-of-use assets (“RoU assets”) amounting to Euro 111.5 million and Euro 370.5 million, respectively, which includeincludes assets relating to Directly Operated Stores (“DOS”directly operated stores and strategic stores (together “DOS”). The Company recognized a net impairment losses for the year ended December 31, 2021 primarily in relation2023 of Euro 1.7 million, comprising of a net impairment of Euro 832 thousand related to its DOS PPE and RoU assets and of Euro 2.6 million and Euro 6.5 million, respectively.
915 thousand related to PPE.
As discussed in Note 193 to the financial statements, for purposes of impairment testing, the Company determines the cash generating unit (“CGU”) for its PPE and RoU assets forrelated to DOS to be at the individual store level, withlevel.
During the exception of the strategic stores. For strategic stores, their carrying amount is testedyear, management performed triggering event analyses for all CGUs for DOS and performed an impairment as part ofanalysis for those CGUs for DOS where a cash-generating unit comprising all the DOS that benefit from the strategic stores.trigger has been identified. Impairment is recognized when the carrying value of a CGU for DOS assets exceeds the recoverable amount.
InFor those CGUs for DOS where an impairment analysis is performed, in order to determine the recoverable amount, the Company estimated the DOS assets’ value in use by making significant estimates and assumptions related to, among others, related to future forecasted revenues and profits atfor each individual store and to the determination of appropriate discount rates. Estimates and assumptions related to future cash flows are determined based on the approved management’s budget and forecast for a period of three years and an estimate of the long-term growth rate.
We identified impairment of DOS asset impairmentassets identified with triggering events as a critical audit matter because the estimate of future store cash flows to assess the recoverability of DOS assets required significant management judgment, primarily in relation to forecasting future revenues and profitability, (including the effect of the global pandemic) as well as in relation to the determination of discount rates. Changes in these estimates could have a significant impact on the measurement of the recoverable amount, resulting in a possible adjustment to the impairment charge.charge to be recorded. This matterarea of management estimate required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists when performing audit procedures to evaluate the reasonableness of the Company’smanagement’s judgments used in preparing these estimates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s judgments regarding the estimated future cash flows, specifically forecasts offorecasting future revenues and profitability andas well as in relation to the selectiondetermination of an appropriatethe discount rate,rates included the following, among others:
following:•We evaluated management’s ability to accurately forecast future cash flows by comparing actual results to management’s historical forecasts.
We evaluated the consistency of managementperform forecasts, prepared at the DOS level to management’s segments-level forecasts.
We evaluated the reasonableness of management’s estimated future cash flows, including management’s basis and approach for considering the impacts of changes in market conditions and economic events, by:
| - | Inquiring of the Company’s executives to understand the business initiatives supporting the assumptions in the future cash flows, and
|
–inquiring of the Company's executives to understand the business initiatives supporting the assumptions in the future revenues and profits;
| - | Comparing the forecasts to (1) historical revenue and operating results; (2) internal communications regarding the Company’s business plan and strategy; and (3) industry and market conditions.
|
–performing a retrospective analysis to assess management’s ability to accurately forecast by comparing actual results to management’s historical forecast; and
–comparing the forecasts to (1) historical revenue and operating results; (2) internal communications regarding the Company’s business plan and strategy; and (3) industry and market conditions.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates used in the impairment analysis by testing the source information used to select appropriateunderlying management’s determination of the discount rates and the mathematical accuracy of the discount rate calculations.
Other
current and non-current
financial
liabilities—liabilities – Thom Browne
Group—Group - Valuation of put option - Refer to Notes 3, 4,
10 and
3428 to the financial statements
Critical Audit Matter Description
On November 28, 2018As at December 31, 2023, the Company
completed the acquisition of 85% of Thom Browne, Inc. and entered intohas a put option
agreement to buy the remaining
15%non-controlling
interest at the option10% of
thenon-controlling
shareholder, interests in Thom Browne Inc. (“Thom Browne”), which is
recordedrecognized as
an othernon-current
a financial
liability. liability of Euro 139 million, of which Euro 22 million recognized as current.
The valuation of
the othercurrent and non-current
financial
liabilityliabilities was based on management’s forecasts of Thom Browne’s future
cash flowsprofitability and their selection of an appropriate discount rate.
As discussed in Note 34 to the financial statements, on June 1, 2021 the Group purchased an additional 5% of Thom Browne, based on the first tranche of the put option, for a total consideration of Euro 30.6 million, following which the Group owns 90% of the Thom Browne group. As a result, the Group derecognized a portion of the liability for the written put option onnon-controlling
interests in the amount of Euro 51.3 million and recognized a corresponding gain within finance income in the financial statements of Euro 20.6 million. As of December 31, 2021, the outstanding balance of put option liability was Euro 135.7 million.Management accounts for the put option agreement in accordance with IAS 32, Financial Instruments, recognizing a liabilitycurrent and non-current financial liabilities for the Company’s estimated obligation under the option. The exercise price of the put option is dependent on a measure of the brand’s profitability at the exercise date.
Therefore, the Company’s fair value determination of the liabilitycurrent and non-current financial liabilities required management to make significant estimates and assumptions related to forecasts of future revenuerevenues and profitsprofitability and to select an appropriate discount rate. Changes in above described assumptions could have a significant impact on the measurement of the liability.
current and non-current financial liabilities.
We identified the valuation of the
liability for the Thom Brownenon-controlling
interest put option as a critical audit matter, because of the significant judgments made by management to estimate
discount rate, future
revenuerevenues and
profitsprofitability of the Thom Browne
Group and to select appropriate discount rates.Group. This required a high degree of auditor judgment and an increased extent of effort,
including the involvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates
ofand assumptions related to discount rate, future revenue and
profits, specifically due to the relatively short history of the Thom Browne Group from which to develop forecasts.profitability.
How the Critical Audit Matter Was Addressed in the Audit
Our procedures related to the valuation of the
liability for the Thom Brownenon-controlling
interest put option included the following, among others:
•We evaluated management’s ability to accurately forecast revenues and profit of the Thom Browne Group by comparing actual revenue and profit resultsprofitability to management’s historical forecasts.
•We evaluated management’s assumptions related to future revenues and profitsprofitability by:
| - | Inquiring of the Company’s executives to understand the business initiatives supporting the assumptions in the future revenues and profits, and
|
–Inquiring of the Company's executives to understand the business initiatives supporting the assumptions in the future revenues and profitability, and
| - | Comparing the forecasts to the current and past performance of the Thom Browne Group and to external market and industry data.
|
–Comparing the forecasts to the current and past performance of the Thom Browne Group and to external market and industry data.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates used in the valuation of the Thom Browne put option liabilityrate by testing the source information underlying management’s selectiondetermination of athe discount rate and testing the mathematical accuracy of the calculations.
Intangible assets – Fair value determination of intangible asset for Tom Ford license agreement – Refer to Notes 14 and 39 to the financial statements
Critical Audit Matter Description
On April 28, 2023, the Company completed the acquisition of Tom Ford International (“TFI”), the Company that owns and operates the Tom Ford Fashion business. As part of a transaction, sole ownership of the Tom Ford brand, its trademarks, and other intellectual property rights were acquired by The Estee Lauder Companies Inc. (“ELC”), and the Company has become a long-term licensee of ELC for some Tom Ford products. The Company accounted for the acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including an intangible asset for the license agreement for Euro 99 million. Management estimated the fair value of the license using the multi-period excess earnings method. The fair value determination of the license required management to make significant estimates and assumptions related to future revenues and profitability and the discount rate calculations.used.
We identified the valuation of the intangible asset for the Tom Ford license agreement as a critical audit matter because of the significant estimates and assumptions management makes to fair value the license agreement. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts revenues, profitability and the discount rate.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenues, future profitability and the discount rate used for the determination of the fair value of the Tom Ford license agreement included the following, among others:
•We evaluated the terms of the relevant contractual documents, including purchase and sale agreements and license agreement, as well as other documents including board of directors’ minutes, to understand and evaluate the business purpose and the critical terms, rights and obligations associated with the transactions.
•With the assistance of our technical accounting specialist we evaluated the Company's technical accounting analysis regarding the accounting treatment for minimum annual guaranteed royalties that the Company will pay to ELC based on the applicable accounting guidance.
•We assessed the reasonableness of management’s forecasts of future revenues and future profitability by comparing the forecasts to industry comparatives and own accumulated industry knowledge.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate applied including:
◦the comparison between the discount rate used and the implied risk in the cash flow used for the license valuation, and
◦the mathematical accuracy of the calculation.
/s/ Deloitte & Touche S.p.A.
We have served as the Company’sCompany's auditor since 1995.
CONSOLIDATED STATEMENT OF PROFIT AND LOSS
for the years ended December 31, 2023, 2022 and 2021
| | | | | | | | | | | | | | | | | | | | |
| | For the years ended December 31, |
(€ thousands, except per share data) | Notes | 2023 | | 2022(*) | | 2021(*) |
Revenues | 6 | 1,904,549 | | 1,492,840 | | 1,292,402 |
Cost of sales | 7 | (680,235) | | (564,832) | | (495,702) |
Gross profit | | 1,224,314 | | 928,008 | | 796,700 |
Selling, general and administrative expenses | 8 | (901,364) | | (695,084) | | (822,897) |
Marketing expenses | 9 | (114,802) | | (85,147) | | (67,831) |
Operating profit/(loss) | | 208,148 | | 147,777 | | (94,028) |
Financial income | 10 | 37,282 | | 13,320 | | 45,889 |
Financial expenses | 10 | (68,121) | | (54,346) | | (43,823) |
Foreign exchange losses | 10 | (5,262) | | (7,869) | | (7,791) |
Result from investments accounted for using the equity method | 17 | (2,953) | | 2,199 | | 2,794 |
Profit/(Loss) before taxes | | 169,094 | | 101,081 | | (96,959) |
Income taxes | 11 | (33,433) | | (35,802) | | (30,702) |
Profit/(Loss) | | 135,661 | | 65,279 | | (127,661) |
Attributable to: | | | | | | |
Shareholders of the Parent Company | | 121,529 | | 51,482 | | (136,001) |
Non-controlling interests | | 14,132 | | 13,797 | | 8,340 |
| | | | | | |
Basic earnings per share in € | 12 | 0.49 | | 0.22 | | (0.67) |
Diluted earnings per share in € | 12 | 0.48 | | 0.21 | | (0.67) |
_________________
(*) Starting with the year ended December 31, 2023, the Group presents the consolidated statement of profit and loss by function, which is most representative of the way the Chief Operating Decision Maker and management view the business, and therefore it provides reliable and more relevant information and is consistent with international practice. In order to conform to this new presentation, the information for the year ended December 31, 2022 and 2021 2020 and 2019
have been reclassified compared to what was previously presented by the Group. | | | | | | | | | | | | | | |
| | | | For the years ended December 31, | |
| | | | | | | | | | | |
| | 7 | | | 1,292,402 | | | | 1,014,733 | | | | 1,321,327 | |
| | 8 | | | 8,260 | | | | 5,373 | | | | 7,873 | |
Cost of raw materials and consumables | | 9 | | | (309,609 | ) | | | (250,569 | ) | | | (309,801 | ) |
Purchased, outsourced and other costs | | 10 | | | (353,629 | ) | | | (286,926 | ) | | | (371,697 | ) |
| | 11 | | | (367,762 | ) | | | (282,659 | ) | | | (331,944 | ) |
Depreciation, amortization and impairment of assets | | 12 | | | (163,367 | ) | | | (185,930 | ) | | | (177,068 | ) |
Write downs and other provisions | | 13 | | | (19,487 | ) | | | (6,178 | ) | | | (1,017 | ) |
| | 14 | | | (180,836 | ) | | | (30,399 | ) | | | (49,034 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | 15 | | | 45,889 | | | | 34,352 | | | | 22,061 | |
| | 15 | | | (43,823 | ) | | | (48,072 | ) | | | (37,492 | ) |
Foreign exchange (losses)/gains | | 15 | | | (7,791 | ) | | | 13,455 | | | | (2,441 | ) |
Result from investments accounted for using the equity method | | 21 | | | 2,794 | | | | (4,205 | ) | | | (1,534 | ) |
Impairments of investments accounted for using the equity method | | 21 | | | 0 | | | | (4,532 | ) | | | 0 | |
| | | | | | | | | | | | | | |
(Loss)/Profit before taxes | | | | | | | | | | | | | | |
| | 16 | | | (30,702 | ) | | | (14,983 | ) | | | (43,794 | ) |
| | | | | | | | | | | | | | |
(Loss)/Profit for the year | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Shareholders of the Parent Company | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | |
Basic earnings per share in Euro | | 17 | | | (0.67 | ) | | | (0.25 | ) | | | 0.11 | |
Diluted earnings per share in Euro | | 17 | | | (0.67 | ) | | | (0.25 | ) | | | 0.11 | |
The accompanying notes are an integral part of these Consolidated Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND LOSS
for the years ended December 31, 2021, 20202023, 2022 and 2019
2021 | | | | | | | | | | | | | | | | |
| | | | | For the years ended December 31, | |
| | | | | | | | | | | | |
(Loss)/Profit for the year | | | | | | | | | | | | | | | | |
Other comprehensive income/(loss): | | | | | | | | | | | | | | | | |
Items that will be subsequently reclassified to the statement of profit and loss: | | | | | | | | | | | | | | | | |
Foreign currency exchange differences arising from the translation of foreign operations | | | | | | | 40,324 | | | | (36,435 | ) | | | 11,132 | |
Net (loss)/gain from cash flow hedges | | | | | | | (6,344 | ) | | | 649 | | | | (1,963 | ) |
Net gain from financial instruments measured at fair value | | | | | | | 444 | | | | 287 | | | | 2,463 | |
Items that will not be subsequently reclassified to the statement of profit and loss: | | | | | | | | | | | | | | | | |
Net actuarial (loss)/gain from defined benefit plans | | | | | | | (397 | ) | | | 499 | | | | (444 | ) |
| | | | | | | | | | | | | | | | |
Total other comprehensive income/(loss) | | | 31 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total comprehensive (loss)/income for the year | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Shareholders of the Parent Company | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | For the years ended December 31, |
(€ thousands) | Notes | 2023 | | 2022 | | 2021 |
Profit/(Loss) | | 135,661 | | 65,279 | | (127,661) |
Other comprehensive (loss)/income, net of tax: | | | | | | |
Items that will be subsequently reclassified to the statement of profit and loss: | | | | | | |
Foreign currency exchange differences arising from the translation of foreign operations(*) | | (15,887) | | 10,098 | | 40,324 |
Net (loss)/gain from cash flow hedges | | (7,553) | | 21,744 | | (6,344) |
Net gain/(loss) from financial instruments measured at fair value | | 635 | | (1,482) | | 444 |
Items that will not be subsequently reclassified to the statement of profit and loss: | | | | | | |
Net actuarial gain/(loss) from defined benefit plans | | 1,025 | | 1,092 | | (397) |
Total other comprehensive (loss)/income, net of tax | 25 | (21,780) | | 31,452 | | 34,027 |
Total comprehensive income/(loss) | | 113,881 | | 96,731 | | (93,634) |
Attributable to: | | | | | | |
Shareholders of the Parent Company | | 100,583 | | 82,908 | | (102,106) |
Non-controlling interests | | 13,298 | | 13,823 | | 8,472 |
_________________
(*) As a result of the acquisition of Tom Ford International in April 2023, cumulative translation losses amounting to €4,705 thousand related to the original investment held in Tom Ford International were reclassified from other comprehensive income and loss to foreign exchange losses within the consolidated statement of profit and loss for the year ended December 31, 2023. For additional information relating to the acquisition of Tom Ford International see Note 1 — General information, Note 17 — Investments accounted for using the equity method and Note 39 — Business combinations.
The accompanying notes are an integral part of these Consolidated Financial Statements
Statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at December 31, 20212023 and 2020
2022 | | | | | | |
| | | | | | | | |
| | At December 31, | | | | At December 31, |
(€ thousands) | | (€ thousands) | Notes | 2023 | | 2022 |
| | | | | | |
| | | | | | |
Non-current assets | |
Non-current assets | |
Intangible assets | |
Intangible assets | |
| | 18 | | | 425,220 | | | | 387,847 | | 14 | 572,274 | | 455,908 |
Property, plant and equipment | | 19 | | | 111,474 | | | | 244,127 | | Property, plant and equipment | 15 | 159,608 | | 126,139 |
| | 20 | | | 370,470 | | | | 351,646 | | Right-of-use assets | 16 | 533,952 | | 375,508 |
Investments at equity method | | 21 | | | 22,447 | | | | 21,360 | |
Investments accounted for using the equity method | | Investments accounted for using the equity method | 17 | 18,765 | | 22,648 |
| | 16 | | | 108,210 | | | | 71,901 | | Deferred tax assets | 11 | 160,878 | | 124,627 |
| | 22 | | | 0 | | | | 49,754 | |
Other non-current financial assets | | 23 | | | 35,372 | | | | 49,263 | | Other non-current financial assets | 18 | 33,898 | | 36,240 |
| | | | | | | | |
| | | | | | | | | | | Total non-current assets | | 1,479,375 | | 1,141,070 |
| | | | | | |
Inventories | |
Inventories | |
| | 24 | | | 338,475 | | | | 321,471 | | 19 | 522,589 | | 410,851 |
| | 25 | | | 160,360 | | | | 138,829 | | Trade receivables | 20 | 240,457 | | 177,213 |
Derivative financial instruments | | 26 | | | 1,786 | | | | 11,848 | | Derivative financial instruments | 21 | 11,110 | | 22,454 |
| | | | | 14,966 | | | | 15,611 | | Tax receivables | | 31,024 | | 15,350 |
Other current financial assets | | 27 | | | 340,380 | | | | 350,163 | | Other current financial assets | 22 | 90,917 | | 320,894 |
| | 28 | | | 68,773 | | | | 66,718 | | Other current assets | 23 | 95,260 | | 84,574 |
Cash and cash equivalents | | 29 | | | 459,791 | | | | 317,291 | | Cash and cash equivalents | 24 | 296,279 | | 254,321 |
| | | | | | | | |
| | | | | | | | | | |
| | 30 | | | 0 | | | | 17,225 | |
| | | | | | | | |
| | | | | | | | | | | Total current assets | | 1,287,636 | | 1,285,657 |
| | | | | | | | |
| | | | | | | | | | | Total assets | | 2,767,011 | | 2,426,727 |
| | | | | | | | |
| | | | | | |
| | 31 | | | 5,939 | | | | 4,300 | |
| | 31 | | | 498,592 | | | | 893,236 | |
| | 31 | | | 96,679 | | | | (295,772 | ) |
| | | | | | | | |
Liabilities and Equity | |
Liabilities and Equity | |
Equity attributable to shareholders of the Parent Company | | | | | | | | | | |
Equity attributable to non-controlling interest | | 32 | | | 43,094 | | | | 43,270 | |
| | | | | | | | |
Equity attributable to shareholders of the Parent Company | |
Equity attributable to shareholders of the Parent Company | | | 840,294 | | 678,949 |
Equity attributable to non-controlling interests | | Equity attributable to non-controlling interests | 26 | 60,602 | | 53,372 |
| | | | | | | | | | | Total equity | | 900,896 | | 732,321 |
| | | | | | |
Non-current borrowings | |
Non-current borrowings | |
| | 33 | | | 471,646 | | | | 558,722 | | 27 | 113,285 | | 184,880 |
Other non-current financial liabilities | | 34 | | | 167,387 | | | | 220,968 | | Other non-current financial liabilities | 28 | 136,556 | | 178,793 |
Non-current lease liabilities | | 35 | | | 331,409 | | | | 314,845 | | Non-current lease liabilities | 29 | 471,083 | | 332,050 |
Non-current provisions for risks and charges | | 36 | | | 44,555 | | | | 39,956 | | Non-current provisions for risks and charges | 30 | 19,849 | | 19,581 |
| | 37 | | | 42,263 | | | | 29,347 | | Employee benefits | 31 | 29,645 | | 51,584 |
| | 16 | | | 53,844 | | | | 70,728 | | Deferred tax liabilities | 11 | 73,885 | | 60,534 |
| | | | | | | | |
Other non-current liabilities | | Other non-current liabilities | 33 | 9,689 | | — |
Total non-current liabilities | | | | | | | | | | | Total non-current liabilities | | 853,992 | | 827,422 |
| | | | | | |
Current borrowings | |
Current borrowings | |
| | 33 | | | 157,292 | | | | 106,029 | | 27 | 289,337 | | 286,175 |
Other current financial liabilities | | 34 | | | 33,984 | | | | 0 | | Other current financial liabilities | 28 | 22,102 | | 37,258 |
Current lease liabilities | | 35 | | | 106,643 | | | | 92,842 | | Current lease liabilities | 29 | 122,642 | | 111,457 |
Derivative financial instruments | | 26 | | | 14,138 | | | | 13,192 | | Derivative financial instruments | 21 | 897 | | 2,362 |
Current provisions for risks and charges | | 36 | | | 14,093 | | | | 8,325 | | Current provisions for risks and charges | 30 | 16,019 | | 13,969 |
Trade payables and customer advances | | 38 | | | 223,037 | | | | 188,342 | | Trade payables and customer advances | 32 | 314,137 | | 270,936 |
| | | | | 28,773 | | | | 33,362 | | Tax liabilities | | 41,976 | | 25,999 |
Other current liabilities | | 39 | | | 124,356 | | | | 76,637 | | Other current liabilities | 33 | 205,013 | | 118,828 |
| | | | | | | | |
| | | | | | | | | | |
Liabilities held for sale | | 30 | | | 0 | | | | 16,725 | |
| | | | | | | | |
Total current liabilities | | | | | | | | | | | Total current liabilities | | 1,012,123 | | 866,984 |
| | | | | | | | |
Total equity and liabilities | | | | | | | | | | | Total equity and liabilities | | 2,767,011 | | 2,426,727 |
| | | | | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements
Statements.
CONSOLIDATED CASH FLOW STATEMENT
for the years ended December 31, 2021, 20202023, 2022 and 2019
2021 | | | | | | | | | | | | | | | | | | | | |
| | For the years ended December 31, |
(€ thousands) | Notes | 2023 | | 2022 | | 2021 |
Operating activities | | | | | | |
Profit/(Loss) | | 135,661 | | 65,279 | | (127,661) |
Income taxes | 11 | 33,433 | | 35,802 | | 30,702 |
Depreciation, amortization and impairment of assets | 13 | 194,952 | | 173,521 | | 163,367 |
Financial income | 10 | (37,282) | | (13,320) | | (45,889) |
Financial expenses | 10 | 68,121 | | 54,346 | | 43,823 |
Foreign exchange losses | 10 | 5,262 | | 7,869 | | 7,791 |
Write downs and other provisions | | (1,168) | | 14 | | 19,487 |
Write downs of the provision for obsolete inventory | 19 | 31,850 | | 28,561 | | 29,600 |
Result from investments accounted for using the equity method | 17 | 2,953 | | (2,199) | | (2,794) |
(Gains)/Losses arising from the disposal of fixed assets | | — | | (1,124) | | 1,153 |
Other non-cash expenses, net | 38 | 66,641 | | 23,063 | | 230,812 |
Change in inventories | | (72,770) | | (103,112) | | (27,554) |
Change in trade receivables | | (51,022) | | (15,623) | | (12,294) |
Change in trade payables including customer advances | | 11,670 | | 43,511 | | 31,426 |
Change in current and non-current provisions for risks and charges | | (6,720) | | (29,102) | | (5,498) |
Change in employee benefits | | (2,566) | | (8,676) | | (13,456) |
Change in other operating assets and liabilities | | (20,479) | | (38,216) | | 38,927 |
Interest paid | | (29,166) | | (24,938) | | (17,487) |
Income taxes paid | | (53,988) | | (49,258) | | (63,300) |
Net cash flows from operating activities | | 275,382 | | 146,398 | | 281,155 |
Investing activities | | | | | | |
Payments for property, plant and equipment | | (57,034) | | (49,114) | | (79,699) |
Proceeds from disposals of property, plant and equipment | | — | | — | | 3,791 |
Payments for intangible assets | | (20,843) | | (24,185) | | (14,627) |
Proceeds from disposals of non-current financial assets | | 2,345 | | 2,585 | | 1,536 |
Payments for purchases of non-current financial assets | | (2,623) | | (111) | | (4,431) |
Proceeds from disposals of current financial assets and derivative instruments | 22 | 270,317 | | 46,487 | | 92,021 |
Payments for acquisitions of current financial assets and derivative instruments | | (36,956) | | (32,412) | | (76,058) |
Business combinations, net of cash acquired | 39 | (117,686) | | (585) | | (4,224) |
Acquisition of investments accounted for using the equity method | 17 | (15,734) | | — | | (313) |
Net cash flows from/(used in) investing activities | | 21,786 | | (57,335) | | (82,004) |
Financing activities | | | | | | |
Proceeds from borrowings | 27 | 204,424 | | — | | 123,570 |
Repayments of borrowings | 27 | (306,150) | | (159,719) | | (160,210) |
Repayments of other non-current financial liabilities | 28 | — | | (3,919) | | (4,287) |
Payments of lease liabilities | 29 | (125,732) | | (121,633) | | (100,611) |
Proceeds from the exercise of warrants | 28 | 4,409 | | — | | — |
Proceeds from capital contribution from Monterubello | 25 | — | | 10,923 | | — |
Sales of shares held in treasury | 25 | 3,654 | | 3,390 | | 6,343 |
Purchase of own shares | | — | | — | | (384) |
Dividends to owners of the parent | | (25,031) | | (21,852) | | (102) |
Dividends paid to non-controlling interests | | (6,068) | | (4,187) | | (548) |
Purchase of own shares from Monterubello | 1 | — | | — | | (455,000) |
Proceeds from issuance of ordinary shares upon Business Combination | 1 | — | | — | | 310,739 |
Proceeds from issuance of ordinary shares to PIPE Investors | 1 | — | | — | | 331,385 |
Payments of transaction costs related to the Business Combination | 1 | — | | — | | (48,475) |
Cash distributed as part of the Disposition | | — | | — | | (26,272) |
Payments for acquisition of non-controlling interests | | — | | — | | (40,253) |
Net cash flows used in financing activities | | (250,494) | | (296,997) | | (64,105) |
Effects of exchange rate changes on cash and cash equivalents | | (4,716) | | 2,464 | | 7,454 |
Net increase/(decrease) in cash and cash equivalents | | 41,958 | | (205,470) | | 142,500 |
Cash and cash equivalents at the beginning of the year | 24 | 254,321 | | 459,791 | | 317,291 |
Cash and cash equivalents at the end of the year | 24 | 296,279 | | 254,321 | | 459,791 |
| | | | | | | | | | | | | | | | |
| | | | | For the years ended December 31, | |
| | | | | | | | | | | | |
| | | 43 | | | | | | | | | | | | | |
(Loss)/Profit for the year | | | | | | | (127,661 | ) | | | (46,540 | ) | | | 25,439 | |
| | | | | | | 30,702 | | | | 14,983 | | | | 43,794 | |
Depreciation, amortization and impairment of assets | | | | | | | 163,367 | | | | 185,930 | | | | 177,068 | |
| | | | | | | (45,889 | ) | | | (34,352 | ) | | | (22,061 | ) |
| | | | | | | 43,823 | | | | 48,072 | | | | 37,492 | |
Exchange losses/(gains) | | | | | | | 7,791 | | | | (13,455 | ) | | | 2,441 | |
Write downs and other provisions | | | | | | | 19,487 | | | | 6,178 | | | | 1,017 | |
Write downs of the provision for obsolete inventory | | | | | | | 29,600 | | | | 37,735 | | | | 6,691 | |
Result from investments accounted for using the equity method | | | | | | | (2,794 | ) | | | 4,205 | | | | 1,534 | |
Impairments of investments accounted for using the equity method | | | | | | | 0 | | | | 4,532 | | | | 0 | |
Losses arising from the sale of fixed assets | | | | | | | 1,153 | | | | 1,091 | | | | 970 | |
Other non-cash expenses/(income), net | | | | | | | 230,812 | | | | (27,698 | ) | | | (6,420 | ) |
| | | | | | | (27,554 | ) | | | (39,486 | ) | | | (5,400 | ) |
Change in trade receivables | | | | | | | (12,294 | ) | | | 35,675 | | | | (8,377 | ) |
Change in trade payables including customer advances | | | | | | | 31,426 | | | | (38,485 | ) | | | (11,002 | ) |
Change in other operating assets and liabilities | | | | | | | 19,973 | | | | (10,031 | ) | | | (11,285 | ) |
| | | | | | | (17,487 | ) | | | (21,023 | ) | | | (26,872 | ) |
| | | | | | | (63,300 | ) | | | (36,425 | ) | | | (30,907 | ) |
| | | | | | | | | | | | | | | | |
Net cash flows from operating activities | | | | | | | | | | | | | | | | |
| | | 43 | | | | | | | | | | | | | |
Payments for property plant and equipment | | | | | | | (79,699 | ) | | | (27,630 | ) | | | (46,113 | ) |
Proceeds from disposals of property plant and equipment | | | | | | | 3,791 | | | | 1,125 | | | | 0 | |
Payments for intangible assets | | | | | | | (14,627 | ) | | | (11,524 | ) | | | (13,392 | ) |
Payments for investment property | | | | | | | 0 | | | | 0 | | | | (325 | ) |
Proceeds from disposals of non-current financial assets | | | | | | | 1,536 | | | | 45,979 | | | | 0 | |
Payments for purchases of non-current financial assets | | | | | | | (4,431 | ) | | | 0 | | | | (6,987 | ) |
Proceeds from disposals of current financial assets and derivative instruments | | | | | | | 92,021 | | | | 253,201 | | | | 327,422 | |
Payments for acquisitions of current financial assets and derivative instruments | | | | | | | (76,058 | ) | | | (166,334 | ) | | | (167,308 | ) |
Acquisition of Investments at equity method | | | | | | | (313 | ) | | | 0 | | | | 0 | |
Business combinations, net of cash acquired | | | | | | | (4,224 | ) | | | (2,245 | ) | | | (9,336 | ) |
| | | | | | | | | | | | | | | | |
Net cash flows (used in)/from investing activities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | 123,570 | | | | 265,352 | | | | 130,841 | |
| | | | | | | (160,210 | ) | | | (221,029 | ) | | | (272,851 | ) |
Repayments of non-current financial liabilities | | | | | | | (4,287 | ) | | | 0 | | | | 0 | |
Payments of lease liabilities | | | | | | | (100,611 | ) | | | (90,699 | ) | | | (110,460 | ) |
Purchase of own shares from Monterubello | | | | | | | (455,000 | ) | | | 0 | | | | 0 | |
Proceeds from issuance of ordinary shares upon Business Combination | | | | | | | 310,739 | | | | 0 | | | | 0 | |
Proceeds from issuance of ordinary shares to PIPE Investors | | | | | | | 331,385 | | | | 0 | | | | 0 | |
Payments of transaction costs related to the Business Combination | | | | | | | (48,475 | ) | | | | | | | | |
Cash distributed as part of the Disposition | | | | | | | (26,272 | ) | | | 0 | | | | 0 | |
Payments for acquisition of non-controlling interests | | | | | | | (40,253 | ) | | | 0 | | | | 0 | |
Sale of shares held in treasury/(Purchase of own shares) | | | | | | | 5,959 | | | | (945 | ) | | | (94 | ) |
Dividends paid to non-controlling interests | | | | | | | (548 | ) | | | (1,731 | ) | | | (14,922 | ) |
Dividends to owners of the parent | | | | | | | (102 | ) | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Net cash flows used in financing activities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Effects of exchange rate changes on cash and cash equivalents | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net increase/(decrease) in cash and cash equivalents | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at the beginning of the year | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at the end of the year | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements
Statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the years ended December 31, 2021, 20202023, 2022 and 2019
2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Legal reserves | | | | | | | | | | | | |
(€ thousands) | Share capital | | Share premium | | Currency translation difference | | Cash flow hedge reserve | | Reserve for remeasurement of defined benefit plans | | Financial assets at FVOCI reserve | | Other legal reserves | | Reserve for treasury shares | | Other reserves | | Retained earnings | | Total equity attributable to shareholders of the Parent Company | | Total equity attributable to non-controlling interests | | Total equity |
At January 1, 2021(*) | 4,300 | | — | | (24,660) | | (2,225) | | 741 | | 243 | | — | | (76,624) | | (193,247) | | 893,236 | | 601,764 | | 43,270 | | 645,034 |
(Loss)/Profit | — | | — | | — | | — | | — | | — | | — | | — | | — | | (136,001) | | (136,001) | | 8,340 | | (127,661) |
Other comprehensive income/(loss) | — | | — | | 40,197 | | (6,316) | | (430) | | 444 | | — | | — | | — | | — | | 33,895 | | 132 | | 34,027 |
Total comprehensive income | — | | | — | | | 40,197 | | | (6,316) | | | (430) | | | 444 | | | — | | | — | | | — | | | (136,001) | | | (102,106) | | | 8,472 | | | (93,634) | |
Legal reserves | — | | — | | — | | — | | — | | — | | 20,351 | | — | | (21,211) | | 860 | | — | | — | | — |
Dividends | — | | — | | — | | — | | — | | — | | — | | — | | (102) | | — | | (102) | | (548) | | (650) |
Capital increase related to the Business Combination | 1,639 | | 710,264 | | — | | — | | — | | — | | — | | — | | — | | — | | 711,903 | | — | | 711,903 |
Purchase of own shares from Monterubello | — | | — | | — | | — | | — | | — | | — | | (455,000) | | — | | — | | | (455,000) | | — | | (455,000) |
Capital contribution from Monterubello | — | | 10,923 | | — | | — | | — | | — | | — | | — | | — | | — | | | 10,923 | | — | | 10,923 |
Issuance of shares held in treasury | — | | — | | — | | — | | — | | — | | — | | 76,624 | | (70,665) | | — | | | 5,959 | | — | | 5,959 |
Assignment of treasury shares | — | | — | | — | | — | | — | | — | | — | | — | | 31,823 | | (31,823) | | — | | — | | — |
Acquisition of non-controlling interests | — | | — | | — | | — | | — | | — | | — | | — | | — | | 8,365 | | 8,365 | | (8,365) | | — |
Acquisition of Ubertino | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 2,854 | | 2,854 |
Share-based payments | — | | | — | | — | | — | | — | | — | | — | | — | | 74,978 | | — | | 74,978 | | — | | 74,978 |
Disposition | — | | | — | | (20,465) | | 176 | | — | | — | | — | | — | | — | | (235,185) | | (255,474) | | (2,589) | | (258,063) |
At December 31, 2021(*) | 5,939 | | | 721,187 | | (4,928) | | (8,365) | | 311 | | 687 | | 20,351 | | (455,000) | | (178,424) | | 499,452 | | | 601,210 | | | 43,094 | | 644,304 |
Profit | — | | — | | — | | — | | — | | — | | — | | — | | — | | 51,482 | | 51,482 | | 13,797 | | 65,279 |
Other comprehensive income/(loss) | — | | | — | | | 10,223 | | | 21,744 | | | 941 | | | (1,482) | | | — | | | — | | | — | | | — | | | 31,426 | | 26 | | | 31,452 |
Total comprehensive income | — | | | — | | | 10,223 | | | 21,744 | | | 941 | | | (1,482) | | | — | | | — | | | — | | | 51,482 | | | 82,908 | | | 13,823 | | | 96,731 | |
Legal reserves | — | | | — | | | — | | | — | | | — | | | — | | | 4,927 | | | — | | | (4,927) | | | — | | | — | | | — | | | — |
Dividends | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (21,852) | | | (21,852) | | | (4,187) | | | (26,039) |
Sale of treasury shares, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,826 | | | — | | | — | | | 3,826 | | | — | | | 3,826 |
Share-based payments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 13,579 | | | — | | | 13,579 | | | — | | | 13,579 |
Other changes | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 40 | | | (762) | | | (722) | | | 642 | | | (80) |
At December 31, 2022(*) | 5,939 | | | 721,187 | | 5,295 | | 13,379 | | 1,252 | | (795) | | 25,278 | | (451,174) | | (169,732) | | 528,320 | | 678,949 | | 53,372 | | 732,321 |
Profit | — | | — | | — | | — | | — | | — | | — | | — | | — | | 121,529 | | 121,529 | | 14,132 | | 135,661 |
Other comprehensive income/(loss) | — | | | — | | | (15,151) | | | (7,553) | | | 1,123 | | | 635 | | | — | | | — | | | — | | | — | | | (20,946) | | | (834) | | | (21,780) |
Total comprehensive income | — | | | — | | | (15,151) | | | (7,553) | | | 1,123 | | | 635 | | | — | | | — | | | — | | | 121,529 | | | 100,583 | | | 13,298 | | | 113,881 |
Legal reserves | — | | | — | | | — | | | — | | | — | | | — | | | (3,145) | | | — | | | 3,145 | | | — | | | — | | | — | | | — |
Dividends | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (25,031) | | | (25,031) | | | (6,068) | | | (31,099) |
Sale of treasury shares, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,902 | | | (248) | | | — | | | 3,654 | | | — | | | 3,654 |
Exercise of warrants | 115 | | | 64,500 | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,236) | | | — | | | 63,379 | | | — | | | 63,379 |
Issuance of Special Voting Shares A | 3,100 | | | (3,100) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Share-based payments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 19,780 | | | — | | | 19,780 | | | — | | | 19,780 |
Settlement of share-based payments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 10,650 | | | (11,093) | | | 443 | | | — | | | — | | | — |
Other changes | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5,388 | | | (6,408) | | | (1,020) | | | — | | | (1,020) |
At December 31, 2023 | 9,154 | | 782,587 | | (9,856) | | 5,826 | | 2,375 | | (160) | | 22,133 | | (436,622) | | (153,996) | | 618,853 | | 840,294 | | 60,602 | | 900,896 |
(*) Starting with the Semi-Annual Condensed Consolidated Financial Statements at June 30, 2023 and for the six months ended June 30, 2023 and 2022, in the consolidated statement of changes in equity the Group separately presents certain components of equity, including share premium, the reserve for treasury shares and other legal reserves, which were previously presented within other reserves. Management believes this presentation, together with the accompanying notes, facilitate a better understanding of the underlying components of the Group’s equity. As a result of this new presentation, certain comparative period amounts above have been reclassified compared to the amounts presented in the Group’s 2022 consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Other comprehensive income | | | | | | | | | | |
| | | | | | | | | | | Currency translation difference | | | | | | Remeasurement of defined benefit plans | | |
| | | Total equity attributable to shareholders of the Parent Company | | | Total equity attributable to non-controlling interests | | | | |
At January 1, 2019 (Restated) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Profit/(Loss) for the year | | | — | | | | 21,749 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 21,749 | | | | 3,690 | | | | 25,439 | |
Other comprehensive income/(loss) | | | — | | | | — | | | | — | | | | 11,035 | | | | (1,990 | ) | | | (395 | ) | | | 2,463 | | | | 11,113 | | | | 75 | | | | 11,188 | |
| | | — | | | | (12,731 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (12,731 | ) | | | (2,191 | ) | | | (14,922 | ) |
| | | — | | | | (1,084 | ) | | | (21,552 | ) | | | — | | | | — | | | | — | | | | — | | | | (22,636 | ) | | | 5,198 | | | | (17,438 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Loss)/Profit for the year | | | — | | | | (50,577 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (50,577 | ) | | | 4,037 | | | | (46,540 | ) |
Other comprehensive income/(loss) | | | — | | | | — | | | | — | | | | (36,274 | ) | | | 637 | | | | 539 | | | | 287 | | | | (34,811 | ) | | | (189 | ) | | | (35,000 | ) |
| | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,731 | ) | | | (1,731 | ) |
| | | — | | | | (676 | ) | | | (944 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,620 | ) | | | 171 | | | | (1,449 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Loss)/Profit for the year | | | — | | | | (136,001 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (136,001 | ) | | | 8,340 | | | | (127,661 | ) |
Other comprehensive income/(loss) | | | — | | | | — | | | | — | | | | 40,197 | | | | (6,316 | ) | | | (430 | ) | | | 444 | | | | 33,895 | | | | 132 | | | | 34,027 | |
| | | — | | | | — | | | | (102 | ) | | | — | | | | — | | | | — | | | | — | | | | (102 | ) | | | (548 | ) | | | (650 | ) |
Capital increase related to the Business Combination | | | 1,639 | | | | — | | | | 710,264 | | | | — | | | | — | | | | — | | | | — | | | | 711,903 | | | | — | | | | 711,903 | |
Purchase of own shares from Monterubello | | | — | | | | — | | | | (455,000 | ) | | | — | | | | — | | | | — | | | | — | | | | (455,000 | ) | | | — | | | | (455,000 | ) |
Capital contribution from Monterubello | | | — | | | | — | | | | 10,923 | | | | — | | | | — | | | | — | | | | — | | | | 10,923 | | | | — | | | | 10,923 | |
Issuance of shares held in treasury | | | — | | | | — | | | | 5,959 | | | | — | | | | — | | | | — | | | | — | | | | 5,959 | | | | — | | | | 5,959 | |
Assignment of treasury shares | | | — | | | | (31,823 | ) | | | 31,823 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Acquisition of non-controlling interests | | | — | | | | 8,365 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 8,365 | | | | (8,365 | ) | | | — | |
| | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,854 | | | | 2,854 | |
| | | — | | | | — | | | | 74,978 | | | | — | | | | — | | | | — | | | | — | | | | 74,978 | | | | — | | | | 74,978 | |
| | | — | | | | (235,185 | ) | | | — | | | | (20,465 | ) | | | 176 | | | | — | | | | — | | | | (255,474 | ) | | | (2,589 | ) | | | (258,063 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements
Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2023 and 2022 and for the years ended December 31, 2021, 20202023, 2022 and 2019
2021Ermenegildo Zegna N.V. (formerly known as Ermenegildo Zegna Holditalia S.p.A., and hereinafter referred to as “Zegna”, the “Company” or the “Parent Company” and together with its consolidated subsidiaries, or any one or more of them, as the context may require, the “Zegna“Ermenegildo Zegna Group” or the “Group”) is the holding company of the Zegna Group and is incorporated as a public companyvennootschap) under the laws of the Netherlands.Netherlands and its ordinary shares are listed on the New York Stock Exchange under the “ZGN” ticker. The Company is domiciled in Amsterdam, the Netherlands, and the Company’s registered office is Viale Roma 99/100, Valdilana (Biella), Italy. Ermenegildo Zegna Group is a leading global luxury group, internationally recognized for the distinctive heritage of craftsmanship and design associated with the ZegnaZEGNA and Thom Browne brands and the noble fabrics and fibers of itsin-house
luxury textile and knitwear business. Since its foundation in 1910 through Lanificio Ermenegildo Zegna e Figli S.p.A. (“Lanificio”) in Valdilana (BI), Italy, Zegnathe Group has expanded beyond luxury textile production toproducts and accessories to become a highly recognized luxury lifestyle group. The Group designs, manufactures, markets and distributes luxury menswear, footwear, leather goods and other accessories under the ZegnaZEGNA and the Thom Browne brands, and luxury womenswear and childrenswear under the Thom Browne brand. The Group’s product range is complemented by eyewear, cufflinks and jewelry, watches, underwear and beachwear manufactured by third parties under licenses. In addition, following the completion of the acquisition of Tom Ford International (“TFI”) on April 28, 2023 (the “TFI Acquisition”), the Group has become a long-term licensee of the Estée Lauder Companies Inc. (“ELC”) for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products. For further information on the TFI Acquisition, see Note 39 — Business combinations. The Group’s business covers the entire value chain as a result of its design, manufacturing and distribution business and the Group has a significant international presence through the retail channel, consisting of directly operated single-brand stores (“Directly Operated Stores” or “DOS”) and online stores, as well as through the wholesale channel, represented by multi-brand stores, luxury department stores and major international airports. Business Combination and other transactions in 2021
On December 17, 2021, the Group closed the previously announced business combination pursuant to a business combination agreement, dated as of July 18, 2021, Zegna,as amended, by and among the Group, Investindustrial Acquisition Corp. (“
”IIAC”) and EZ Cayman, a wholly-owned subsidiary of Zegnathe Group (“
”Sub”) signed a business combination agreement that contemplated, through a series of transactions which were ultimately completed on December 17, 2021, as described below (the “
”“Business Combination”).
Effective November 1, 2021, Ermenegildo Zegna Holditalia S.p.A. transferred its activities related to design and style, brand, marketing, planning, retail management, human resources, finance and accounting, legal, information technology and internal audit and compliance, and transferred 197 employees out of a total 212 employees to EZ Service S.r.l. (“EZ Service”), a limited liability company based in Italy that was incorporated on October 1, 2021 and is fully owned by Ermenegildo Zegna N.V. Subsequent to this transfer the Company’s activities are primarily limited to holding investments in the subsidiaries of the Group and conducting certain administrative, treasury, internal control and investor relations activities.
OnAlso on November 1, 2021, Ermenegildo Zegna Holditalia S.p.A. completed the disposition of certain of its businesses (the
“”“Disposition”), through the statutory demerger under Italian law to a new company owned by its existing shareholders. The Disposition included, inter alia, Ermenegildo Zegna Holditalia S.p.A.’s real estate business, consisting of its former subsidiary EZ Real Estate S.r.l. (“
”Estate”), which directly and indirectly holds substantially all of the real estate assets formerly owned by the
Zegna Group, as well as certain properties previously owned by Lanificio,
Ermenegildo Zegna e Figli S.p.A. (“Lanificio”), and its 10% equity interest in Elah Dufour S.p.A. Most of the real estate properties directly or indirectly owned by EZ Real Estate were, and continue to be, leased to
Zegnathe Group also following the Disposition.
The following transactions related to the Business Combination were completed on December 17, 2021:
•Ermenegildo Zegna Holditalia S.p.A. implemented a cross-border conversion whereby it, by means of the execution of a Dutch notarial deed of cross-border conversion and amendment of its articles of association,
converted into a Dutch public limited liability company
(naamloze (naamloze vennootschap)
and transferred its legal seat from Italy to the Netherlands and amended its articles of association, upon which the Company changed its name to Ermenegildo Zegna N.V. (the
“”“Conversion”);
•In connection with the Conversion, Zegnathe Company underwent a share split of 4,300,000 ordinary shares into 215,000,000 ordinary shares (the “”“Share Split”); •Zegna Merger Sub merged with and into IIAC, with IIAC being the surviving entity in the merger (the “”“Merger”), as a result of which: (a)each share of Zegna Merger Sub was converted into one IIAC ordinary share;
| a. | each share of Zegna Merger Sub was converted into one IIAC ordinary share;
|
(b)a total number of 44,443,659 IIAC class A shares and class B shares were contributed to the Company in exchange for an equivalent number of the Company ordinary shares, representing a capital increase of €397.8 million measured based on the closing price of IIAC’s shares of $10.14 per share on December 17, 2021;
| b. | a total number of 44,443,659 IIAC class A shares and class B shares were contributed to Zegna in exchange for an equivalent number of Zegna ordinary shares, representing a capital increase of Euro 397.8 million measured based on the closing price of IIAC’s shares of $10.14 per share on December 17, 2021;
|
(c)13,416,637 outstanding IIAC public warrants were converted to an equivalent number of the Company public warrants representing a right to acquire one the Company ordinary share. The public warrants were measured at fair value by using the Euro equivalent of the closing price of IIAC warrants on December 17, 2021, amounting to a total of €20,723 thousand; and
| c. | 13,416,667 outstanding IIAC public warrants were converted to an equivalent number of Zegna public warrants representing a right to acquire one Zegna ordinary share. The public warrants were measured at fair value by using the Euro equivalent of the closing price of IIAC warrants on December 17, 2021, amounting to a total of Euro 20,723 thousand; and
|
(d)5,900,000 IIAC private placement warrants were exchanged for an equivalent number of the Company private placement warrants representing a right to acquire one the Company ordinary share, while the remaining 800,000 IIAC private placement warrants were transferred by Strategic Holding Group S.à r.l. to the Ermenegildo Zegna Group and the Company issued a corresponding number of private placement warrants to certain of its directors. The private placement warrants were measured at fair value using a Monte Carlo simulation model, amounting to a total of €10,349 thousand;
| d. | 5,900,000 IIAC private placement warrants were exchanged for an equivalent number of Zegna private placement warrants representing a right to acquire one Zegna ordinary share, while the remaining 800,000 IIAC private placement warrants were transferred by Strategic Holding Group S.à r.l. to Zegna and Zegna issued a corresponding number of private placement warrants to certain of its directors. The private placement warrants were measured at fair value using a Monte Carlo simulation model, amounting to a total of Euro 10,349 thousand;
|
(e)The issuance of 5,031,250 the Company ordinary shares to the holders of IIAC class B shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period (“Escrow Shares”). The Escrow Shares were measured in accordance with IFRS 2 - Share-Based Payment (“IFRS 2”) using a Monte Carlo simulation model, amounting to a total of €37,906 thousand;
| e. | The issuance of 5,031,250 Zegna ordinary shares to the holders of IIAC class B shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period (“”). The Escrow Shares were measured in accordance with IFRS 2 -(“IFRS 2”) using a Monte Carlo simulation model, amounting to a total of Euro 37,906 thousand; |
•Pursuant to certain agreements between Zegnathe Group and IIAC, the private investment in public equity investors (“”Investors”) subscribed to an aggregate of 37,500,000 Zegnathe Company ordinary shares for an aggregate purchase price of Euro 331.4€331.4 million; Zegna•The Company repurchased 54,600,000 of its ordinary shares from the Group’s controlling shareholder, Monterubello s.s. (hereinafter “”“Monterubello”), in exchange for consideration of Euro 455.0€455.0 million.•Transaction costs incurred by the Group in relation to the Business Combination amounted to Euro 51.4€51.4 million(Euro (€2.9 million of which were paid in 2022), of which Euro 17.3€17.3 million were recognized directly within equity and Euro 34.1€34.1 million were recognized in the consolidated statement of profit and loss for the year ended December 31, 2021.
The following table shows a breakdown of the net cash proceeds in 2021 from the business combination:
Business Combination: | | | | | |
| | | |
Proceeds from issuance of ordinary sharesOrdinary Shares upon Business Combination | | | | |
Proceeds from issuance of ordinary sharesOrdinary Shares to PIPE Investors | | | | |
Purchase of own shares from Monterubello | | | | (455,000) |
Payments of transaction costs related to the Business Combination | | | | (48,475) |
| | | | |
Net cash proceeds from the Business Combination | | | | |
Following the completion of the Business Combination, on December 20, 2021, Zegna’sthe Company’s ordinary shares and public warrants began trading on the New York Stock Exchange (“NYSE”) under the symbols “ZGN” and “ZGN WS”,WS,” respectively.
Accounting for the Business Combination
The Business Combination between Zegnathe Group and IIAC iswas accounted for as a capital reorganization in accordance with International Financial Reporting Standards. For accounting purposes, the Business Combination iswas treated as the equivalent of the Company issuing shares for the net assets of IIAC. The net assets of IIAC, arewhich were stated at historical cost, with no goodwill or other intangible assets recorded.
It has been determined that IIAC does not meet the definition of a “business” pursuant to IFRS 3 -
(“ (“IFRS 3”), hence the transaction is accounted for within the scope of IFRS 2. In accordance with IFRS 2, the difference in the fair value of Zegna’sthe Group’s equity instruments deemed issued to IIAC shareholders (measured based on the closing price of IIAC’s shares of $10.14 per share on December 17, 2021) over the fair value of identifiable net assets of IIAC represents a service for listing amounting to Euro 114,963€114,963 thousand and was accounted for as a share-based payment expensed as incurred.
Statement of compliance with IFRS
These consolidated financial statements of Ermenegildo Zegna N.V. have been prepared in compliance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), as well as IFRS as adopted by the European Union. There is no effect on these consolidated financial statements resulting from differences between IFRS as issued by the IASB and IFRS as adopted by the European Union.
These consolidated financial statements were approved and authorized for issuanceissue by the Board of Directors of Ermenegildo Zegna N.V. on April 6, 2022.4, 2024.
Contents and structure of the Consolidated Financial Statements
The consolidated financial statements include the consolidated statement of profit and loss, the consolidated statement of comprehensive income and loss, the consolidated statement of financial position, the consolidated cash flow statement, the consolidated statement of changes in equity and the accompanying notes (collectively referred to as the “Consolidated Financial Statements”).
The financial reporting formats presented by the Group have the following characteristics:
•starting in 2023, the Group presents the consolidated statement of profit and loss by function, which is most representative of the way the Chief Operating Decision Maker and management view the business, and therefore it provides reliable and more relevant information and is consistent with international practice. In order to conform to this new presentation, the information for the year ended December 31, 2022 and 2021 has been reclassified compared to what was previously presented by the Group;
•the consolidated statement of comprehensive income and loss is presented as a separate statement and, in addition to presenting the components of profit and loss recognized directly in the consolidated statement of profit and loss during the period, presents the components of profit and loss not recognized in profit or loss as required or permitted by IFRS;
•the consolidated statement of financial position presents assets and liabilities by current and non-current items. Current items are those expected to be realized within 12 months from the reporting date or to be sold or consumed in the normal operating cycle of the Group;
•the consolidated cash flow statement has been prepared using the “indirect method,” as permitted by IAS 7 — Statement of Cash Flows (“IAS 7”), and presents cash flows by operating, investing and financing activities;
| | | the consolidated statement of profit and loss is presented by nature, in line with internal reporting processes and business operations;
|
| | | the consolidated statement of comprehensive income is presented as a separate statement and, in addition to presenting the components of profit and loss recognized directly in the consolidated statement of profit and loss during the period, presents the components of profit and loss not recognized in profit or loss as required or permitted by IFRS;
|
•the consolidated statement of changes in equity presents the movements in shareholder’s equity. Starting in 2023, in the consolidated statement of changes in equity the Group separately presents certain components of equity, including share premium, the reserve for treasury shares and other legal reserves, which were previously presented within other reserves. Management believes this presentation, together with the accompanying notes, facilitate a better understanding of the underlying components of the Group’s equity. As a result of this new presentation, certain amounts presented for periods prior to the year ended December 31, 2023 within these Consolidated Financial Statements have been reclassified compared to amounts previously presented by the Group;
•the notes to the consolidated financial statements comprise a summary of the material accounting policy information and other explanatory information. In order to conform the note to the consolidated financial statements with the new presentation of the consolidated statement of profit and loss by function, the explanatory information for the year ended December 31, 2022 and 2021 has been modified compared to what was previously presented by the Group.
| | | the consolidated statement of financial position presents assets and liabilities by current and
items. Current items are those expected to be realized within 12 months from the reporting date or to be sold or consumed in the normal operating cycle of the Group;
|
| | | the consolidated cash flow statement has been prepared using the “indirect method”, as permitted by
—
(“IAS 7”), and presents cash flows by operating, investing and financing activities;
|
| | | the consolidated statement of changes in equity presents the movements in shareholder’s equity.
|
The Consolidated Financial Statements are presented in Euro, which is the functional and presentation currency of the Company, and amounts are stated in thousands of Euros, unless otherwise indicated.
The Consolidated Financial Statements have been prepared on a going concern basis and applying the historical cost method, modified as required for certain financial assets and liabilities (including derivative instruments), which are measured at fair value, as further described in the accounting policy information below. Income and assets heldexpenses are accounted for sale, which are measured at fair value less costs to sell.
on an accrual basis.
3. Summary of significantmaterial accounting policiespolicy information
New standar
d
sstandards and amendments applicableeffective from January 1, 2023
1, 2021
Amendments to IFRS 9 — Financial Instruments, IAS 39 — Financial Instruments: Recognition and Measurement, IFRS 7 — Financial Instruments: Disclosures, IFRS 4 — Insurance Contracts and IFRS 16 — Leases
The Group adopted a package of amendments to IFRS 9 —(“IFRS 9”), IAS 39 —Financial Instruments: Recognition and Measurement
(“IAS 39”), IFRS 7 —Financial Instruments: Disclosures
(“IFRS 7”), IFRS 4 —(“IFRS 4”) and IFRS 16 —(“IFRS 16”) in response to the ongoing reform of inter-bank offered rates (IBOR) and other interest rate benchmarks. The amendments are aimed at helping companies provide investors with useful information about the effects of the reform on a company’s financial statements. These amendments complement amendments issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform. The new amendments relate to:changes to contractual cash flows – a company will not be required to derecognize or adjust the carrying amount of financial instruments for changes required by the interest rate benchmark reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate;
hedge accounting – a company will not have to discontinue its hedge accounting solely because it makes changes required by the interest rate benchmark reform if the hedge meets other hedge accounting criteria; and
disclosures – a company will be required to disclose information about new risks that arise from the interest rate benchmark reform and how the company manages the transition to alternative benchmark rates.
There was no effect from the adoption of these amendments.
Amendments to IFRS 4 — Insurance Contracts
The Group adopted the amendments to IFRS 4 —(“IFRS 4”) which defer the expiry date of the temporary exemption from applying IFRS 9 to annual periods beginning on or after January 1, 2021. There was no effect from the adoption of these amendments.Amendments to IFRS 16 — Leases
The Group adopted the amendments to IFRS 16 forCOVID-19
- related to rent reductions beyond 30 June 2021. The amendment permits lessees, as a practical expedient, not to assess whether particular rent reductions occurring as a direct consequence of theCOVID-19
pandemic are lease modifications and instead to account for those rent reductions as if they are not lease modifications, thus giving the possibility to the lessees to recognize the entire economic benefit of such discounts immediately through profit or loss. The Board has therefore extended the practical expedient by 12 months – i.e. permitting lessees to apply it to rent reductions for which any reduction in lease payments affects only payments originally due on or before June 30, 2022. As a result of the above, the consolidated statement of profit or loss for the year ended December 31, 2021 includes a total of Euro 12,877 thousand ofrent reductions (Euro 24,931 thousand for the year ended December 31, 2020), representing the reduction of lease payments resulting from the concessions agreed.New standards, amendments and interpretations not yet effective
The standards, amendments and interpretations issued by the IASB that will have mandatory application in 2022 or subsequent years are listed below:
In May 2017, the IASB issued IFRS 17 —, which establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued as well as guidance relating to reinsurance contracts held and investment contracts with discretionary participation features issued. In June 2020 the IASB issued amendments to IFRS 17 aimed at helping companies implement IFRS 17 and make it easier for companies to explain their financial performance. The new standard and amendments are effective on or after January 1, 2023. The Group is currently evaluating the impacts, if any,There was no effect from the adoption of these amendments. In January 2020 the IASB issued amendments to IAS 1 —Presentation of Financial Statements: Classification of Liabilities as Current orNon-Current
to clarify how to classify debt and other liabilities as current ornon-current,
and in particular how to classify liabilities with an uncertain settlement date and liabilities that may be settled by converting to equity. These amendments are effective on or after January 1, 2023. The Group does not expect any material impact from the adoption of these amendments.
In May 2020 the IASB issued amendments to IFRS 3 —to update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations. These amendments are effective on or after January 1, 2022. The Group does not expect any material impact from the adoption of these amendments.In May 2020 the IASB issued amendments to IAS 16 —Property, Plant and Equipment
. The amendments prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company should recognize such sales proceeds and the related cost in the income statement. These amendments are effective on or after January 1, 2022. The Group does not expect any material impact from the adoption of these amendments.In May 2020 the IASB issued amendments to IAS 37 —Provisions, Contingent Liabilities and Contingent Assets
, which specify which costs a company includes when assessing whether a contract will be loss-making. These amendments are effective on or after January 1, 2022. The Group does not expect any material impact from the adoption of these amendments.In May 2020 the IASB issuedAnnual Improvements to IFRSs 2018 - 2020 Cycle.
The improvements have amended four standards with effective date January 1, 2022: i) IFRS 1 —First-time Adoption of International Financial Reporting Standards
in relation to allowing a subsidiary to measure cumulative translation differences using amounts reported by its parent, ii) IFRS 9 —in relation to which fees
an entity includes when applying the ‘10 percent’ test for derecognition of financial liabilities, iii) IAS 41 —in relation to the exclusion of taxation cash flows when measuring the fair value of a biological asset, and iv) IFRS 16 —in relation to an illustrative example of reimbursement for leasehold improvements. The Group does not expect any material impact from the adoption of these amendments.In February 2021, the IASB issued amendments to IAS 1 —Presentation of Financial Statements
andIFRS Practice Statement 2
:2: Disclosure of Accounting policies
Policieswhich require companies to disclose their material accounting policy information rather than their significant accounting policies and provide guidance on how to apply the concept of materiality to accounting policy disclosures. These amendments are effective on or after January 1, 2023. The Group does not expect any material impact fromCertain accounting policy disclosures were updated a result of the adoption of these amendments.
In February 2021, the IASB issued amendments to IAS 8 —Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates
which clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. These amendments are effective on or after January 1, 2023. The Group does not expect any material impactThere was no effect from the adoption of these amendments.
In May 2021, the IASB issued amendments to IAS 12 —Income Taxes: Deferred Tax related to Assets and Liabilities Arising From a Single Transaction
that clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations. These amendments are effective on or after January 1, 2023. The Group does not expect any material impactThere was no effect from the adoption of these amendments. As a result of adopting the amendments the Group recognizes deferred taxes arising from lease accounting on a gross basis.
In December 2021, the IASB issued an amendmentamendments to IFRS 17 —Insurance Contracts: Initial Application of IFRS 17 and IFRS 9 - Comparative Information
, which provides a transition option relating to comparative information about financial assets presented on initial application of IFRS 17. The amendment is aimed at helping entities to avoid temporary accounting mismatches between financial assets and insurance contract liabilities, and therefore improve the usefulness of
comparative information for users of financial statements. The amendment is effective on or after January 1, 2023. There was no effect from the adoption of these amendments.
In May 2023, the IASB issued amendments to IAS 12 — Income taxes: International Tax Reform – Pillar Two Model Rules, to clarify the application of IAS 12 — Income taxes to income taxes arising from tax law enacted or substantively enacted to implement the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) Pillar Two model rules (Pillar Two income taxes). The amendments introduce: (i) a mandatory temporary exception for the recognition of and disclosure relating to deferred tax assets and liabilities arising from the jurisdictional implementation of the Pillar Two model rules, which was effective immediately upon issuance of the amendment and which the Group applied from that date, and (ii) disclosure requirements for affected entities to help users of the financial statements better understand an entity’s exposure to Pillar Two income taxes arising from that legislation, particularly before the effective date of the Pillar Two model rules, which apply for annual reporting periods beginning on or after January 1, 2023, but not for any interim periods ending on or before December 31, 2023. Please refer to Note 11 — Income taxes for additional information relating to Pillar Two model rules.
New standards, amendments and interpretations not yet effective
The standards, amendments and interpretations issued by the IASB that will have mandatory application in 2024 or subsequent years are listed below:
In January 2020, the IASB issued amendments to IAS 1 — Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current to clarify how to classify debt and other liabilities as current or non-current, and in particular how to classify liabilities with an uncertain settlement date and liabilities that may be settled by converting to equity. These amendments are effective on or after January 1, 2024. The Group does not expect any material impact from the adoption of these amendments.
In September 2022, the IASB issued amendments to IFRS 16 — Leases: Liability in a Sale and Leaseback to improve the requirements for sale and leaseback transactions, which specify the measurement of the liability arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognize any amount of the gain or loss that relates to the right of use it retains. These amendments are effective on or after January 1, 2024. The Group does not expect any material impact from the adoption of these amendments.
In October 2022, the IASB issued amendments to IAS 1 — Presentation of Financial Statements: Non-current Liabilities with Covenants, that clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability. These amendments are effective on or after January 1, 2024. The Group does not expect any material impact from the adoption of these amendments.
In May 2023, the IASB issued amendments to IAS 7 — Statement of Cash Flows and IFRS 7 — Financial Instruments: Disclosures: Supplier Finance Arrangements, that introduce new disclosure requirements to enhance the transparency and usefulness of the information provided by entities about supplier finance arrangements and are intended to assist users of financial statements in understanding the effects of supplier finance arrangements on an entity’s liabilities, cash flows and exposure to liquidity risk. The amendments are effective on or after January 1, 2024. The Group is evaluating the potential impact from the adoption of these amendments.
Significant accounting policies
In August 2023, the IASB issued amendments to IAS 21 — The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability, to clarify how an entity has to apply a consistent approach to assessing whether a currency is exchangeable into another currency and, when it is not, to determine the exchange rate to use and the disclosures to provide. These amendments are effective on or after January 1, 2025. The Group is evaluating the potential impact from the adoption of these amendments.
Material accounting policy information
Basis of consolidation
Subsidiaries are entities over which the Group has control. Control is achieved when the Group has the power over the investee, it is exposed, or has rights to, variable returns from its involvement with the investee, and has the ability to use its power to affect its returns. Subsidiaries are consolidated on a line by line basis from the date on which the Group obtains control. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
Subsidiaries are deconsolidated from the date when control ceases. When the Group ceases to have control over a subsidiary, it derecognizes the assets (including any goodwill) and liabilities of the subsidiaries at their carrying amounts, derecognizes the carrying amount of
non-controlling
interests in the former subsidiary and recognizes the fair value of any consideration received from the transaction. Any retained interest in the former subsidiary is then remeasured to its fair value.
The Group recognizes any
non-controlling
interests (“NCI”) in the acquiree on an
acquisition-by-acquisition
basis, either at fair value or at the
non-controlling
interests’ share of the acquiree’s identifiable net assets. Net profit or loss and each component of other comprehensive income/(loss) are attributed to the owners of the parent and to the
non-controlling
interests.
All intra-group balances and transactions and any unrealized gains and losses arising from intra-group transactions are eliminated in preparing the Consolidated Financial Statements.
Foreign currency transactions
The functional currency of the Group’s entities is the currency of their primary economic environment. Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign currency exchange rate prevailing at that date. Exchange differences arising on the settlement of monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the period or in previous financial statements are recognized in the consolidated statement of profit and loss.
Consolidation of foreign entities
Upon consolidation, all assets and liabilities of Group entities with a functional currency other than the Euro are translated using the closing rates at the date of the consolidated statement of financial position. Income and expenses are translated into Euro at the average foreign currency exchange rate for the period. Translation differences resulting from the application of this method are recognized within other comprehensive income/(loss) and accumulated in the currency translation reserve until the disposal of the investment.investment, at which date the accumulated amount is reclassified to profit/(loss). Average foreign currency exchange rates for the period are used to translate the cash flows of foreign subsidiaries in preparing the consolidated statement of cash flows. Goodwill, assets acquired and liabilities assumed arising from the acquisition of entities with a functional currency other than the Euro are recognized in the Consolidated Financial Statements in the functional currency and translated at the foreign currency exchange rate at the acquisition date. These balances are translated at subsequent balance sheet dates at the relevant foreign currency exchange rate.
The following table presents the principal foreign currency exchange rates used by the Group to translate other currencies into Euro were as follows:
Euro: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| At December 31, | | Average | | At December 31, | | Average | | At December 31, | | Average |
U.S. Dollar | 1.105 | | 1.081 | | 1.067 | | 1.053 | | 1.133 | | 1.183 |
Swiss Franc | 0.926 | | 0.972 | | 0.985 | | 1.005 | | 1.033 | | 1.081 |
Chinese Renminbi | 7.851 | | 7.660 | | 7.358 | | 7.079 | | 7.195 | | 7.629 |
Pound Sterling | 0.869 | | 0.870 | | 0.887 | | 0.853 | | 0.840 | | 0.860 |
Hong Kong Dollar | 8.631 | | 8.465 | | 8.316 | | 8.245 | | 8.833 | | 9.193 |
Singapore Dollar | 1.459 | | 1.452 | | 1.430 | | 1.451 | | 1.528 | | 1.589 |
United Arab Emirates Dirham | 4.058 | | 3.971 | | 3.917 | | 3.867 | | 4.160 | | 4.344 |
Japanese Yen | 156.330 | | 151.990 | | 140.660 | | 138.027 | | 130.380 | | 129.877 |
South Korean Won | 1,433.660 | | 1,412.880 | | 1,344.090 | | 1,358.073 | | 1,346.380 | | 1,353.958 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | 1.133 | | | | 1.183 | | | | 1.227 | | | | 1.142 | | | | 1.123 | | | | 1.119 | |
| | | 1.033 | | | | 1.081 | | | | 1.080 | | | | 1.070 | | | | 1.085 | | | | 1.113 | |
| | | 7.195 | | | | 7.629 | | | | 8.023 | | | | 7.874 | | | | 7.821 | | | | 7.735 | |
| | | 0.840 | | | | 0.860 | | | | 0.899 | | | | 0.890 | | | | 0.851 | | | | 0.878 | |
| | | 8.833 | | | | 9.193 | | | | 9.514 | | | | 8.857 | | | | 8.747 | | | | 8.772 | |
| | | 1.528 | | | | 1.589 | | | | 1.622 | | | | 1.574 | | | | 1.511 | | | | 1.527 | |
United Arab Emirates Dirham | | | 4.160 | | | | 4.344 | | | | 4.507 | | | | 4.194 | | | | 4.126 | | | | 4.111 | |
| | | 130.380 | | | | 129.877 | | | | 126.490 | | | | 121.832 | | | | 121.940 | | | | 122.021 | |
Interests in associates and in joint arrangements
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee without having control or joint control over those policies.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Associates and joint ventures are accounted for using the equity method of accounting, from the date significant influence or joint control is obtained, respectively.
Under the equity method, the investments are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit/(loss) and other comprehensive income/(loss) of the investee. The Group’s share of the investee’s profit/(loss) is recognized in the consolidated statement of profit and loss. Distributions received from an investee reduce the carrying amount of the investment. Post-acquisition movements in other comprehensive income/(loss) are recognized in other comprehensive income/(loss) with a corresponding adjustment to the carrying amount of the investment. Unrealized gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of the losses of an associate or joint venture exceeds the carrying amount of the Group’s investment, the Group discontinues recognizing its share of further losses. Additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the related investee. The Group discontinues the use of the equity method from the date the investment ceases to be an associate or joint venture, or when it is classified as
Ermenegildo Zegna N.V. is the parent company of the Zegna Group and it holds, directly or indirectly, interests in the Zegna Group’s subsidiaries. The following table presents the Zegna Group’s scope of consolidation at December 31, 20212023 and 2020:
2022: | | | | | | | | | | | | | | | | |
| | | | Share capital (functional currency) | | | | | | |
| | |
| | | | | |
Companies consolidated on a basis | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Ermenegildo Zegna N.V. | | Amsterdam (Netherlands) | | | 5,938,873 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
In.co. S.p.A. | | Biella | | | 4,050,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Lanificio Ermenegildo Zegna e Figli S.p.A. | | Valdilana (BI) | | | 3,100,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 90 | |
Ezi S.p.A. | | Milan | | | 5,750,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
| | Valdilana (BI) | | | 2,000,000 | | | Ermenegildo Zegna N.V. | | | 0 | | | | 100 | |
EZ Service S.r.l. | | Valdilana (BI) | | | 500,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 0 | |
| | Milan | | | 200,000 | | | Ermenegildo Zegna N.V. | | | 0 | | | | 100 | |
Bonotto S.p.A. | | Colceresa (VI) | | | 1,239,600 | | | Ermenegildo Zegna N.V. | | | 60 | | | | 60 | |
Cappellificio Cervo S.r.l. | | Biella | | | 300,000 | | | Ermenegildo Zegna N.V. | | | 51 | | | | 51 | |
Thom Browne Services Italy S.r.l. | | Milan | | | 10,000 | | | Thom Browne Trading SA | | | 90 | | | | 85 | |
Thom Browne Retail Italy S.r.l. | | Milan | | | 10,000 | | | Thom Browne Services Italy S.r.l. | | | 90 | | | | 85 | |
Gruppo Dondi S.p.A. | | Carpi (MO) | | | 1,502,800 | | | Ermenegildo Zegna N.V. | | | 65 | | | | 65 | |
Tessitura Ubertino S.r.l. | | Valdilana (BI) | | | 100,000 | | | Ermenegildo Zegna N.V. | | | 60 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Investindustrial Acquisition Corp. (“IIAC”) | | Cayman Islands | | | 4,944,366 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 0 | |
Ermenegildo Zegna Giyim Sanayi ve Tic. A. S. | | Istanbul (Turkey) | | | 32,291,439 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ermenegildo Zegna H.m.b.H. | | Wien (Austria) | | | 610,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Société de Textiles Astrum France S.à.r.l. | | Paris (France) | | | 500,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ermenegildo Zegna GmbH | | Munich (Germany) | | | 6,577,421 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Zegna Japan Co., LTD | | (Japan) | | | 100,000,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Fantasia (London) Limited | | London (UK) | | | 7,000,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ermenegildo Zegna S.A. de C.V. | | Ciudad de Mexico (Mexico) | | | 459,600,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ezeti Portugal. S.A. | | Lisbon (Portugal) | | | 800,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ermenegildo Zegna Madrid S.A. | | Barcelona (Spain) | | | 901,500 | | | Ezeti S.L. | | | 70 | | | | 70 | |
Ezeti S.L. | | Barcelona (Spain) | | | 500,032 | | | Italco S.A. | | | 100 | | | | 100 | |
Italco S.A. | | Sant Quirze (Spain) | | | 1,911,300 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ermenegildo Zegna Czech s.r.o | | Prague (Czech Republic) | | | 1,350,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 0 | |
Co.Ti. Service S.A. | | Stabio (Switzerland) | | | 27,940,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Consitex S.A. | | Stabio (Switzerland) | | | 15,000,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ermenegildo Zegna Corporation | | New York, NY | | | 500,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Zegna (China) Enterprise Management Co., Ltd. | | Shanghai (China) | | | 58,309,140 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ermenegildo Zegna (China) Co., LTD | | Shanghai (China) | | | 50,000,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ismaco Amsterdam B. V. | | Amsterdam (Netherlands) | | | 226,890 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ermenegildo Zegna Korea LTD (**) | | Seoul (Korea) | | | 6.876.000.000 | | | E.Z. Holditalia | | | 0 | | | | 100 | |
| | Stabio (Switzerland) | | | 9,200,000 | | | EZ Real Estate S.r.l. (*) | | | 0 | | | | 100 | |
Ermenegildo Zegna Far-East Pte LTD | | Singapore | | | 21,776,432 | | | Consitex S.A. | | | 100 | | | | 100 | |
Ermenegildo Zegna Hong Kong LTD | | Hong Kong | | | 238,240,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
E. Zegna Trading Hong Kong LTD Taiwan Branch | | Hong Kong | | | 233,659,800 | | | Ermenegildo Zegna Hong Kong LTD | | | 100 | | | | 100 | |
Ermenegildo Zegna Canada Inc. | | Toronto (Canada) | | | 700,000 | | | Consitex S.A. | | | 100 | | | | 100 | |
Ermenegildo Zegna Australia PTY LTD | | Sydney (Australia) | | | 18,000,000 | | | Ermenegildo Zegna Far-East Pte LTD | | | 100 | | | | 100 | |
E. Z. New Zealand LTD | | Auckland (New Zealand) | | | 3,300,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ezesa Argentina S.A. | | Buenos Aires (Argentina) | | | 27,246,979 | | | Ermenegildo Zegna N.V.; Italco S.A. | | | 100 | | | | 100 | |
E. Z. Thai Holding Ltd | | Bangkok (Thailand) | | | 3,000,000 | | | Ermenegildo Zegna N.V. | | | 49 | | | | 49 | |
The Italian Fashion Co. LTD | | Bangkok (Thailand) | | | 16,000,000 | | | E. Z. Thai Holding Ltd; Ermenegildo Zegna Far-East Pte LTD | | | 65 | | | | 65 | |
Zegna South Asia Private LTD | | Mumbai (India) | | | 902,316,770 | | | Ermenegildo Zegna N.V. | | | 51 | | | | 51 | |
ISMACO TEKSTİL LİMİTED ŞİRKETİ | | Istanbul (Turkey) | | | 10,000,000 | | | Ermenegildo Zegna N.V., Ismaco | | | 100 | | | | 100 | |
Ezesa Brasil Participacoes LTDA | | San Paolo (Brazil) | | | 77,481,487 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Ermenegildo Zegna (Macau) LTD | | Kowloon Bay (Hong Kong) | | | 4,650,000 | | | Consitex S.A. | | | 100 | | | | 100 | |
Ermenegildo Zegna Malaysia Sdn. Bhd. | | Kuala Lumpur (Malaysia) | | | 3,000,000 | | | Ermenegildo Zegna Far-East Pte LTD | | | 100 | | | | 100 | |
Ermenegildo Zegna Maroc S.A.R.L.A.U. | | Casablanca (Morocco) | | | 530,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Company | | Registered office | | Share capital (functional currency) | | Held directly by | | % Group |
| | | | At December 31, |
| | | | 2023 | | 2022 |
Companies consolidated on a line-by-line basis |
Parent company | | | | | | | | | | |
Ermenegildo Zegna N.V. | | Amsterdam (Netherlands) | | 9,153,722 | | | | | | | |
Italian subsidiaries |
In.co. S.p.A. | | Biella | | 4,050,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
| | | | | | | | | | | | | | | | |
| | | | Share capital (functional currency) | | | | | | |
| | |
| | | | | |
61 West 23rd Street LLC (*) | | New York, NY | | | 12,637,342 | | | Alan Real Estate S.A. | | | 0 | | | | 100 | |
Ermenegildo Zegna Vietnam LLC | | Hanoi City (Vietnam) | | | 53,567,900,000 | | | Ermenegildo Zegna N.V. | | | 77 | | | | 77 | |
| | Armidale NSW (Australia) | | | 10,200,000 | | | Alan Real Estate S.A. | | | 0 | | | | 60 | |
Zegna Gulf Trading LLC | | Dubai (UAE) | | | 300,000 | | | Consitex S.A. | | | 49 | | | | 49 | |
EZ US Holding Inc. | | Wilmington (U.S.A.) | | | 1,000,099 | | | Consitex S.A. | | | 100 | | | | 100 | |
E.Zegna Attica Single Member Société Anonyme | | Athens (Greece) | | | 650,000 | | | Ermenegildo Zegna N.V. | | | 100 | | | | 100 | |
Thom Browne Inc. | | Wilmington (U.S.A.) | | | 5,510 | | | Ermenegildo Zegna N.V. | | | 90 | | | | 85 | |
Thom Browne Japan Inc. | | Tokyo (Japan) | | | 1,000,000 | | | Thom Browne Inc. | | | 90 | | | | 85 | |
Thom Browne Trading SA | | Stabio (Switzerland) | | | 100,000 | | | Thom Browne Inc. | | | 90 | | | | 85 | |
Thom Browne France Services | | Paris (France) | | | 50,000 | | | Thom Browne Trading SA | | | 90 | | | | 85 | |
Thom Browne UK Limited | | Beckenham (UK) | | | 1 | | | Thom Browne Trading SA | | | 90 | | | | 85 | |
Tailoring Luxury Co., Ltd. | | Shanghai (China) | | | 900,000 | | | Thom Browne Trading SA | | | 90 | | | | 85 | |
Thom Browne (Macau) Limited | | Hong Kong | | | 500,000 | | | Thom Browne Trading SA | | | 90 | | | | 85 | |
Thom Browne Canada | | Vancouver (Canada) | | | 1 | | | Thom Browne Trading SA | | | 90 | | | | 85 | |
Thom Browne Hong Kong Limited | | Hong Kong | | | 500,000 | | | Thom Browne Trading SA | | | 90 | | | | 0 | |
Investments valued using the equity method of accounting | | | | | | | | | | | | | | | | |
Italian associates and joint arrangements | | | | | | | | | | | | | | | | |
Pelletteria Tizeta S.r.l. | | Sesto Fiorentino (FI) | | | 206,816 | | | Ermenegildo Zegna N.V. | | | 50 | | | | 50 | |
Filati Biagioli Modesto S.p.A. | | Montale (PT) | | | 7,900,000 | | | Ermenegildo Zegna N.V. | | | 40 | | | | 0 | |
Foreign associates and joint arrangements | | | | | | | | | | | | | | | | |
Achill Station Pty Ltd. | | Armidale NSW (Australia) | | | 2,239,127 | | | Alan Real Estate S.A. | | | 0 | | | | 60 | |
Tom Ford International LLC | | Delaware (U.S.A.) | | | 82,366,000 | | | EZ US Holding Inc. | | | 15 | | | | 15 | |
Other investments valued at fair value | | | | | | | | | | | | | | | | |
Acquedotto Piancone S.r.l. | | Valdilana (BI) | | | 42,000 | | | Lanificio Ermenegildo Zegna e Figli S.p.A. | | | 67 | | | | 67 | |
Pettinatura di Verrone S.r.l. | | Verrone (BI) | | | 3,000,000 | | | Lanificio Ermenegildo Zegna e Figli S.p.A. | | | 15 | | | | 15 | |
Consorzio Turistico Alpi Biellesi (*) | | Valdilana (BI) | | | 33,750 | | | EZ Real Estate S.r.l. (*) | | | 0 | | | | 44 | |
Sharmoon.EZ.Garments Co. Ltd | | Wenzhou (China) | | | 100,000,000 | | | Ermenegildo Zegna N.V. | | | 50 | | | | 50 | |
F2 S.r.l. | | Schio (VI) | | | 90,000 | | | Bonotto S.p.A. | | | 49 | | | | 49 | |
| | Genova (GE) | | | 26,650,000 | | | E.Z. Holditalia | | | 0 | | | | 10 | |
| | Busalla (GE) | | | 130,000 | | | EZ Real Estate S.r.l. (*) | | | 0 | | | | 22 | |
Future 101 Design Private Ltd | | New Delhi (India) | | | 100,000 | | | E.Z. Holditalia | | | 0 | | | | 18 | |
F-17
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Company | | Registered office | | Share capital (functional currency) | | Held directly by | | % Group |
| | | | At December 31, |
| | | | 2023 | | 2022 |
Pelletteria Tizeta S.r.l. (3) | | Sesto Fiorentino (FI) | | 206,816 | | | Ermenegildo Zegna N.V. (50%) / Tom Ford International LLC (50%) | | 100 | % | | 50 | % |
Lanificio Ermenegildo Zegna e Figli S.p.A. | | Valdilana (BI) | | 3,100,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ezi S.p.A. | | Milan | | 5,750,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
EZ Service S.r.l. | | Valdilana (BI) | | 500,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Bonotto S.p.A. | | Colceresa (VI) | | 1,239,600 | | | Ermenegildo Zegna N.V. | | 60 | % | | 60 | % |
Cappellificio Cervo S.r.l. | | Biella | | 300,000 | | | Ermenegildo Zegna N.V. | | 51 | % | | 51 | % |
Thom Browne Services Italy S.r.l. | | Milan | | 10,000 | | | Thom Browne Trading SA | | 90 | % | | 90 | % |
Thom Browne Retail Italy S.r.l. | | Milan | | 10,000 | | | Thom Browne Services Italy S.r.l. | | 90 | % | | 90 | % |
Gruppo Dondi S.p.A. | | Carpi (MO) | | 1,502,800 | | | Ermenegildo Zegna N.V. | | 65 | % | | 65 | % |
Tessitura Ubertino S.r.l. | | Valdilana (BI) | | 100,000 | | | Ermenegildo Zegna N.V. | | 60 | % | | 60 | % |
Tom Ford Distribution S.r.l. (3) | | Sesto Fiorentino (FI) | | 117,616 | | | Tom Ford Switzerland Sagl (85.02%) / Tom Ford International LLC (14.98%) | | 100 | % | | — | % |
Foreign subsidiaries | | | | | | | | | | |
Investindustrial Acquisition Corp. (“IIAC”) (6) | | Cayman Islands | | 5,614 | | | Ermenegildo Zegna N.V. | | — | % | | 100 | % |
Ermenegildo Zegna Giyim Sanayi ve Tic. A. S. | | Istanbul (Turkey) | | 32,291,439 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ermenegildo Zegna H.m.b.H. | | Wien (Austria) | | 610,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Société de Textiles Astrum France S.à.r.l. | | Paris (France) | | 500,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ermenegildo Zegna GmbH | | Munich (Germany) | | 6,577,421 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Zegna Japan Co., LTD | | Minato-Ku-Tokyo (Japan) | | 100,000,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Fantasia (London) Limited | | London (UK) | | 499,800 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ermenegildo Zegna S.A. de C.V. | | Ciudad de Mexico (Mexico) | | 459,600,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ezeti Portugal. S.A. | | Lisbon (Portugal) | | 800,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ermenegildo Zegna Madrid S.A. | | Barcelona (Spain) | | 901,500 | | | Ezeti S.L. | | 70 | % | | 70 | % |
Ezeti S.L. | | Barcelona (Spain) | | 500,032 | | | Italco S.A. | | 100 | % | | 100 | % |
Italco S.A. | | Sant Quirze (Spain) | | 1,911,300 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ermenegildo Zegna Czech s.r.o | | Prague (Czech Republic) | | 1,350,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Co.Ti. Service S.A. | | Stabio (Switzerland) | | 27,940,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Consitex S.A. | | Stabio (Switzerland) | | 15,000,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ermenegildo Zegna Corporation | | New York, NY | | 500,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Zegna (China) Enterprise Management Co., Ltd. | | Shanghai (China) | | 58,309,140 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ermenegildo Zegna (China) Co., LTD | | Shanghai (China) | | 50,000,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ismaco Amsterdam B.V. (6) | | Amsterdam (Netherlands) | | 226,890 | | | Ermenegildo Zegna N.V. | | — | % | | 100 | % |
Ermenegildo Zegna Far-East Pte LTD | | Singapore | | 21,776,432 | | | Consitex S.A. | | 100 | % | | 100 | % |
Ermenegildo Zegna Hong Kong LTD | | Hong Kong | | 538,240,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
E.Z. Trading (Hong Kong) LTD | | Hong Kong | | 82,120,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
Ermenegildo Zegna Canada Inc. | | Toronto (Canada) | | 700,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Company | | Registered office | | Share capital (functional currency) | | Held directly by | | % Group | | | | | At December 31, | | | | | 2023 | | 2022 | Ermenegildo Zegna Australia PTY LTD | | Sydney (Australia) | | 18,000,000 | | | Ermenegildo Zegna Far-East Pte LTD | | 100 | % | | 100 | % | E. Z. New Zealand LTD | | Auckland (New Zealand) | | 5,800,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % | Ezesa Argentina S.A. | | Buenos Aires (Argentina) | | 9,421,014 | | | Ermenegildo Zegna N.V. / Italco S.A. | | 100 | % | | 100 | % | E. Z. Thai Holding Ltd | | Bangkok (Thailand) | | 3,000,000 | | | Ermenegildo Zegna N.V. | | 49 | % | | 49 | % | The Italian Fashion Co. LTD | | Bangkok (Thailand) | | 16,000,000 | | | E. Z. Thai Holding Ltd / Ermenegildo Zegna Far-East Pte LTD | | 65 | % | | 65 | % | Zegna South Asia Private LTD | | Mumbai (India) | | 902,316,770 | | | Ermenegildo Zegna N.V. | | 51 | % | | 51 | % | ISMACO TEKSTİL LİMİTED ŞİRKETİ | | Istanbul (Turkey) | | 10,000,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % | Ezesa Brasil Participacoes LTDA | | San Paolo (Brazil) | | 77,481,487 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % | Ermenegildo Zegna (Macau) LTD | | Kowloon Bay (Hong Kong) | | 4,650,000 | | | Consitex S.A. | | 100 | % | | 100 | % | Ermenegildo Zegna Malaysia Sdn. Bhd. | | Kuala Lumpur (Malaysia) | | 3,000,000 | | | Ermenegildo Zegna Far-East Pte LTD | | 100 | % | | 100 | % | Ermenegildo Zegna Maroc S.A.R.L.A.U. | | Casablanca (Morocco) | | 530,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % | Ermenegildo Zegna Vietnam LLC | | Hanoi City (Vietnam) | | 132,294,900,000 | | | Ermenegildo Zegna N.V. | | 90 | % | | 90 | % | Zegna Gulf Trading LLC | | Dubai (UAE) | | 300,000 | | | Consitex S.A. | | 49 | % | | 49 | % | EZ US Holding Inc. | | Wilmington (U.S.A.) | | 1,000,099 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % | E.Zegna Attica Single Member Societé Anonyme | | Athens (Greece) | | 650,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | 100 | % | Zegna for Retail of Readymade and Novelty Clothes W.L.L. | | Kuwait City (Kuwait) | | 125,000 | | | Zegna Gulf Trading LLC | | 49 | % | | 49 | % | Zegna Denmark ApS (2) | | Aarhus (Denmark) | | 400,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | — | % | EZ CA Holding Corp. | | Toronto (Canada) | | 1,000 | | | Ermenegildo Zegna N.V. | | 100 | % | | — | % | Thom Browne Inc. | | Wilmington (U.S.A.) | | 5,510 | | | Ermenegildo Zegna N.V. | | 90 | % | | 90 | % | Thom Browne Japan Inc. | | Tokyo (Japan) | | 1,000,000 | | | Thom Browne Inc. | | 90 | % | | 90 | % | Thom Browne Trading SA | | Stabio (Switzerland) | | 100,000 | | | Thom Browne Inc. | | 90 | % | | 90 | % | Thom Browne France Services | | Paris (France) | | 50,000 | | | Thom Browne Trading SA | | 90 | % | | 90 | % | Thom Browne UK Limited | | Beckenham (UK) | | 1 | | | Thom Browne Trading SA | | 90 | % | | 90 | % | Thom Browne (China) Co., Ltd.(*) | | Shanghai (China) | | 900,000 | | | Thom Browne Trading SA | | 90 | % | | 90 | % | Thom Browne (Macau) Limited | | Hong Kong | | 500,000 | | | Thom Browne Trading SA | | 90 | % | | 90 | % | Thom Browne Canada | | Vancouver (Canada) | | 100 | | | Thom Browne Trading SA | | 90 | % | | 90 | % | Thom Browne Hong Kong Limited | | Hong Kong | | 500,000 | | | Thom Browne Trading SA | | 90 | % | | 90 | % | Thom Browne Eyewear (T.B.E.) SA | | Stabio (Switzerland) | | 1,000,000 | | | Thom Browne Trading SA | | 90 | % | | 90 | % | Thom Browne Eyewear France SAS | | Paris (France) | | 40,000 | | | Thom Browne Eyewear SA | | 90 | % | | 90 | % | Thom Browne Korea Ltd. (5) | | Seoul (South Korea) | | 100,000,000 | | | Thom Browne Trading SA | | 90 | % | | — | % | Tom Ford International LLC (3) | | Delaware (U.S.A.) | | 10,000,000 | | | EZ US Holding Inc | | 100 | % | | 15 | % | Tom Ford Switzerland (3) | | Stabio (Switzerland) | | 1,000,000 | | | Tom Ford International LLC | | 100 | % | | — | % | Tom Ford Showroom Limited (3) | | London (UK) | | 1 | | | Tom Ford Distribution S.r.l. | | 100 | % | | — | % | Tom Ford Retail UK Limited (3) | | London (UK) | | 1 | | | Tom Ford International LLC | | 100 | % | | — | % | Tom Ford Studio Limited (3) | | London (UK) | | 50,000 | | | Tom Ford International LLC | | 100 | % | | — | % | Tom Ford Property Limited (3) | | London (UK) | | 1 | | | Tom Ford International LLC | | 100 | % | | — | % | Tom Ford Retail LLC (3) | | New York (U.S.A.) | | 2,060,000 | | | Tom Ford International LLC | | 100 | % | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Company | | Registered office | | Share capital (functional currency) | | Held directly by | | % Group | | | | | At December 31, | | | | | 2023 | | 2022 | Tom Ford Retail Hong Kong Limited (3) | | Hong Kong | | 300,000 | | | Tom Ford International LLC | | 100 | % | | — | % | Tom Ford Hong Kong Limited (3) | | Hong Kong | | 1,000 | | | Tom Ford International LLC | | 100 | % | | — | % | Tom Ford Retail Macau Limited (3) | | Macau | | 25,000 | | | Tom Ford Retail Hong Kong Limited (96%) / Tom Ford Hong Kong Limited (4%) | | 100 | % | | — | % | Tom Ford Retail Korea (Yuhan Hoesa) (3) | | Seoul (Korea) | | 50,000,000 | | | Tom Ford International LLC | | 100 | % | | — | % | Tom Ford Retail Japan GK (Godo Kaisha) (3) | | Tokyo (Japan) | | 10,000,000 | | | Tom Ford International LLC | | 100 | % | | — | % | Tom Ford Clothing Retail Shanghai Company Limited (3) | | Shanghai (China) | | 13,500,000 | | | Tom Ford Retail Hong Kong Limited | | 100 | % | | — | % | Italian associates and joint arrangements | Filati Biagioli Modesto S.r.l. | | Montale (PT) | | 7,900,000 | | | Ermenegildo Zegna N.V. | | 40 | % | | 40 | % | Luigi Fedeli e Figlio S.r.l. (7) | | Monza (MB) | | 3,358,000 | | | Ermenegildo Zegna N.V. | | 15 | % | | — | % | Foreign associates and joint arrangements | Norda Run Inc (1) | | Toronto (Canada) | | 9,696,528 | | | EZ CA Holding Corp. | | 25 | % | | — | % | Other investments valued at fair value | Acquedotto Piancone S.r.l. | | Valdilana (BI) | | 42,000 | | | Lanificio Ermenegildo Zegna e Figli S.p.A. | | 67 | % | | 67 | % | Pettinatura di Verrone S.r.l. | | Verrone (BI) | | 3,000,000 | | | Lanificio Ermenegildo Zegna e Figli S.p.A. | | 15 | % | | 15 | % | Sharmoon.EZ.Garments Co. Ltd | | Wenzhou (China) | | 100,000,000 | | | Ermenegildo Zegna N.V. | | 50 | % | | 50 | % | F2 S.r.l. | | Schio (VI) | | 90,000 | | | Bonotto S.p.A. | | 29 | % | | 29 | % | Consorzio Re.Crea (4) | | Milan | | 712,000 | | | Ermenegildo Zegna N.V. | | 15 | % | | 17 | % | _________________(*) Formerly known as Tailoring Luxury Co. Ltd.
| Disposed of as part of the Disposition, which was completed on November 1, 2021 (See Note 1 - General information, for additional details).
|
| Reclassified as current assets held for sale in 2020 and sold in 2021 (See Note 30 - Assets and liabilities held for sale, for additional details).
|
The following changes in the scope of consolidation of the Group occurred during the year ended December 31, 2021:
2023:On January 14, 2021,(1)In March 2023, the Group sold 70%completed the acquisition of a 25% minority stake interest in Canadian technical trail running shoe company Norda Run Inc. (“Norda”) for consideration of $7.1 million, with the option to gradually increase its equity stake in Agnona S.r.l. (“Agnona”) to a related party, maintaining an equity stake and a joint control, andover the next nine years. Management has determined that it has significant influence over Norda as a result Agnona was deconsolidated from the beginning of the year. The Group disposed of the remaining 30% stake in Agnonain two tranches
during Septemberits 25% minority equity interest and October 2021;
On February 16, 2021 the Group incorporated Ermenegildo Zegna Czech s.r.o., primarily to manage a franchised storeaccounts for its investment in Prague that the Group converted to a DOS;
On June 1, 2021 the Group acquired an additional 5% of Thom Browne, based on the first tranche of the put option, for a total consideration of USD 37,400 thousand (Euro 30,653 thousand), following which the Group owns 90% of the Thom Browne group. As a result, the Group derecognized a portion of the liability for the written put option onnon-controlling
interests in the amount of Euro 51,328 thousand and recognized a corresponding gain within finance income in the consolidated statement of profit and loss in the amount of Euro 20,675 thousand. Additionally,Norda using the equity
attributable tonon-controlling
interests was reduced by Euro 4,037 thousand with an offsetting increase to equity attributable to shareholders of the Parent Company;On June 4, 2021 the Group acquired 60% of the shares of Tessitura Ubertino S.r.l. (“Tessitura Ubertino”) and began consolidating Tessitura Ubertino. See Note 5 -below for additional details;On July 14, 2021 the Group acquired 40% of the shares of Filati Biagioli Modesto S.p.A. for consideration of Euro 313 thousand;
On July 28, 2021, the Group acquired an additional 10% interest in Lanificio from a related party for a total consideration of Euro 9,600 thousand, following which the Group owns 100% of Lanificio. As a result, the Group recognized a loss for the changes in fair value of Euro 3,523 thousand, and derecognized the liability for the written put option onnon-controlling
interests in the amount of Euro 9,600 thousand. Additionally, the equity attributable tonon-controlling
interests was reduced by Euro 4,328 thousand with an offsetting increase to equity attributable to shareholders of the Parent Company;On September 2, 2021 the Group finalized the purchase of the single purpose company London Blue LLC, which holds a real estate property in London, England (previously 50% owned by the Group), for a total consideration of GBP 37,041 thousand. London Blue LLC was subsequently disposed of as part of the Disposition.
On September 28, 2021 the Group sold a17.5
% share of Future101 Design Private Limited, a company incorporated under the laws of India, for a consideration of Euro1,563
thousand;On October 1, 2021method. EZ Service S.r.l. (“EZ Service”),CA Holding Corporation, a limited liability company based in ItalyCanada and fully owned by Ermenegildo Zegna Holditalia S.p.A., was incorporated. A branch of Ermenegildo Zegna Holditalia S.p.A. was transferred to EZ Service effective November 1, 2021. EZ Service provides a range of corporate services to both Group subsidiaries and third parties, including, among others, services related to administration, tax, legal, design, marketing, retail management and information technology;
As part of the activities contemplated by the Business Combination, on November 1, 2021, Zegna completed the Disposition (as defined in Note 1 -) through the statutory demerger under Italian law to a new company owned by its existing shareholders. The Disposition included, inter alia, Zegna’s real estate business, consisting of Zegna’s former subsidiary EZ Real Estate, which directly and indirectly holds substantially all of the real estate assets formerly owned by the Zegna group, as well as certain properties previously owned by Lanificio. Most of the real estate properties directly or indirectly owned by EZ Real Estate were, and continue to be, leased to Zegna also following the Disposition;As part of the activities contemplated by the Business Combination, in December 2021 EZ Cayman, a wholly-owned subsidiary of Zegna
thatN.V. was incorporated in 2021 forMarch 2023, primarily to manage the purposesacquisition of Norda.
(2)In March 2023, Zegna Denmark ApS, a limited liability company based in Denmark and fully owned by Ermenegildo Zegna N.V. was incorporated, primarily to manage the operating activities in Denmark. The Group held a 100% interest in the company at December 31, 2023.
(3)In April 2023, the Group completed the TFI Acquisition, through which it acquired the company that owns and operates the TOM FORD FASHION business, as part of a transaction in which sole ownership of the Business Combination, was merged withTOM FORD brand, its trademarks, and into IIAC, with IIAC beingother intellectual property rights have been acquired by The Estée Lauder Companies Inc. (“ELC”). Before the
surviving entity, as completion of the TFI Acquisition, the Group already owned 15% of TFI, through its fully owned subsidiary EZ US Holding Inc., and, through the TFI Acquisition it acquired the remaining 85% equity interest. As a result of the TFI Acquisition, the Group also obtained 100% of Pelletteria Tizeta, for which IIAC becameit previously held a wholly-owned subsidiary of Zegna.50% interest and accounted for the investment using the equity method, with the remaining 50% interest owned by TFI and being acquired by the Group through the TFI Acquisition. For additional information relating to the
TFI Acquisition and the acquisition method of accounting for the transaction, see Note 24 — Business Combination please see Note 1 -General information
combinations.
(4)In 2023, the interest held in Consorzio Re.Crea was reduced from 16.7% at December 31, 2022 to 15.5% due to the entrance of new consortium members in the company.
(5)In March 2023, Thom Browne Korea Ltd., a limited liability company fully owned by Thom Browne Trading SA, was incorporated. On July 1, 2023, Thom Browne began directly operating its business in South Korea and its network of 17 stores through the company, with the external support from the former franchise partner. The Group held a 90% interest in the company at December 31, 2023.
(6)On April 6, 2023 and April 20, 2023, respectively, Investindustrial Acquisition Corp. and Ismaco Amsterdam B.V. were liquidated.
(7)On September 5, 2023, Ermenegildo Zegna Group and Prada Group completed the previously announced acquisition of a 30% interest in Luigi Fedeli e Figlio S.r.l., the world-renowned maker of fine Italian knitwear and yarns, with each group acquiring 15% of the company. The Group paid consideration of €4.7 million for 15% of the company. The Group accounts for this investment under the equity method based on its representation on the board of directors of the company and its participation in policy-making processes.
Property, plant and equipment
Property, plant and equipment is initially recognized at cost, which comprises the purchase price, any costs directly attributable to bringing the assets to the location and condition necessary to be capable of operating in the manner intended by management, capitalized borrowing costs and any initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Self-constructed assets are initially recognized at their production cost, including labor costs. Subsequent costs are capitalized only if they increase the future economic benefits embodied in the related assets. All other expenditures are expensed as incurred. When parts are replaced, the carrying amount of the parts that are replaced are written off in the consolidated statement of profit and loss.
Property, plant and equipment is presented net of accumulated depreciation, calculated on the basis of the useful lives of the assets, and any impairment losses.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:
| | | | | |
Category of Property, Plant and Equipment | | | Rate |
| | | 3% - 10 | % 10% |
| | | 12.5% - 17.5 | % 17.5% |
Industrial and commercial equipment | | | 20% - 25 | % 25% |
| 10.0% - 25.0% |
Other tangible assets | | | 12%10% - 25 | % 25% |
Land and assets under construction are not depreciated.
If the asset being depreciated consists of separately identifiable components whose useful life differs from that of the other parts making up the asset, depreciation is charged separately for each of its component parts through application of the “component approach”.approach.”
Property, plant and equipment is tested for impairment when impairment indicators are identified, such as a scheduled closure of a store or site, a redundancy plan or a downward revision of market forecasts. When an asset’s recoverable amount is less than its net carrying amount, an impairment loss is recognized. Where the recoverable amount of an individual asset cannot be determined precisely, the Group determines the recoverable amount of the cash-generating unit (“CGU”) or group of CGUs to which the asset belongs.
Investment property is land or buildings owned by the Group with the intention of earning rent or holding for capital appreciation.
Investment property is recognized when it is probable that the future economic benefits associated with the property will flow to the entity and the cost of the property to the entity can be reliably measured. Investment property is initially measured at cost plus transaction costs. Investment property is subsequently measured at cost less accumulated depreciation and any accumulated impairment losses (the cost model).
Investment property is impaired if its carrying amount exceeds its recoverable amount. Impairment losses are recognized in the consolidated statement of profit and loss under “Depreciation, amortization and impairment of assets”. Impairment losses are reversed if the reasons for them cease to exist, but not in excess of the carrying amount that would have been recorded had no impairment loss been recognized. The reversal of an impairment loss is recognized in the consolidated statement of profit and loss immediately.
Investment property is derecognized when it has been disposed of or when it has been permanently withdrawn from use and no future economic benefits are expected to arise from its disposal. The Any gain or loss on disposal of property, plant and equipment is recognized in profit or retirement of investment property is calculated as the difference between the net disposal proceeds, after deducting direct costs of disposal, and the carrying amount at the date of disposal.
loss.
Intangible assets with an indefinite useful life
Goodwill and brands with an indefinite useful lives
BrandsGoodwill originated on acquisitions of subsidiaries and brands with an indefinite useful lives that are acquired separately are initially recognized in accordance with IFRS 3 — Business Combinations, as further described below, and are recorded within intangible assets. In accordance with IAS 36 — Impairment of assets (“IAS 36”), goodwill and brands with an indefinite useful lives are not amortized butand are tested for impairment at least annually, or more frequently if facts or circumstances indicate that the asset may be impaired.
Goodwill and brands with an indefinite useful lives are allocated to each of the Group’s CGUs (or groups of CGUs) expected to benefit from the synergies of the combination. CGUs (or groups of CGUs) to which goodwill and brands with an indefinite useful lives have been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired, in order to verify that the recoverable amount of the CGU (or groups of CGUs) is not less than the carrying amount of the CGU (or groups of CGUs).
TableThe recoverable amount of Contentsall CGUs and groups of CGUs is based on a value in use calculation which uses cash flow projections based on most recent budget forecast calculations, which are prepared separately for each CGU and approved by management. These budget and forecast calculations generally cover a period of three years. A long-term growth rate is calculated and applied to project future cash flows after the third year. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.Intangible assets with a finite useful life
An identifiable
non-monetary
asset without physical substance, controlled by the Group and capable of producing future economic benefits is recognized as intangible assets.
Intangible assets with a finite useful life include trademarks, licenses, software, and development costs.
Concession, licenses, trademarks and patents
Concession, licenses, trademarks and patents are recognized at cost or at the value attributed upon acquisition and include the cost of trademark registration in the various countries in which the Group operates, assuming there are no risks or limitations on control over their use.
Software acquired as part of recurring operations and software developedin-house
by the Group which meet all the relevant criteria in IAS 38 — Intangible Assets (“IAS 38”) are capitalized and amortized on a straight-line basis over their useful lives. As a result of the acquisition of Tessitura Ubertino in June 2021, the Group recognized intangible assets relating to know how, which were initially recognized at their fair value at the date of acquisition and will be amortized over a 5 year period.
Development costs are recognized as an asset if, and only if, both of the following conditions
underin IAS 38
—(“IAS 38”) are met: (i) that development costs can be measured reliably and (ii) that the technical feasibility of the product, volumes and pricing support the view that the development expenditure will generate future economic benefits. Capitalized development costs include all direct and indirect costs that may be directly attributed to the development process. All other research and development costs are expensed as incurred.
Intangible assets with a definite useful life are amortized on a straight-line basis at the following rates:
| | | | | |
Category of Intangible assetsAssets with a finite useful life Finite Useful Life | | | Rate |
Concessions, licenses, trademarks and patents | | | 2.5% - 25 | % 25.0% |
| | | 10% - 33 | % 33% |
| | | 20 | % 20% |
Development costs and other intangibles | | | 10% - 33 | % 33% |
The Group continuously monitors its operations to assess whether there is any indication that its intangible assets with a definite useful life (including intangible assets in progress) are impaired. See “—Impairment of non-current assets” below for additional information.
Leases
The Group recognizes a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use. Each lease payment is allocated between the principal liability and finance costs. Finance costs are charged to the statement of profit and loss over the lease period using the effective interest rate method. The right-of-use asset isRight-of-use assets are depreciated on a straight-line basis over the lease term.
term or, if shorter, the useful life of the asset.assets are measured at cost comprising the following: (i) the amount of the initial measurement of lease liability; (ii) any lease payments made at or before the commencement date less any lease incentives received; (iii) any initial direct costs and, if applicable, (iv) restoration costs. Payments associated with short- term leases (less than 12 months at inception) and leases of
low-value
assets are recognized as an expense in the statement of profit and loss on a straight-line basis.
Lease liabilities are measured at the net present value of the following: (i) fixed lease payments, (ii) variable lease payments that are based on an index or a rate and, if applicable, (iii) amounts expected to be payable by the lessee under residual value guarantees, and (iv) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option. Lease liabilities do not include any
non-lease
components that may be included in the related contracts. Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Variable lease payments are recognized in the statement of profit and loss in the period in which the condition that triggers those payments occurs. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. The Group determines the lease term as the
non-cancellable
period of a lease, together with the periods covered by (i) an option to extend if the lessee is reasonably certain to extend or periods after an optional termination date if the lessee is reasonably certain not to terminate early. Management evaluates the exercise of the option if it’s considered “reasonably certain” based on several factors and circumstances that create an incentive for the lessee to exercise, or not to exercise the option, including any expected changes in facts and circumstances from the commencement date until the exercise date of the option.
The Group subleases certain spaces to third parties. The accounting for the right-of-use asset depends on the classification of the sublease, while the accounting for the head lease liability remains unchanged. For sublease classified as finance lease, the Group derecognizes the right-of-use asset (to the extent that it is subject to the sublease) and recognizes a lease receivable. If the sublease is classified as an operating lease, the Group continues to recognize the right-of-use asset. Operating income from the sublease is recognized on a straight-line basis over the term of the agreement
Impairment of
non-current
assets
The Group continuously monitors its operations to assess whether there is any indication that its
non-current
assets are impaired, including goodwill, brands with an indefinite useful life,
other intangible assets
investment property,with a definite useful life (including intangible assets in progress), property, plant and equipment and
assets. Goodwill,
and brands with an indefinite useful life
and intangible assets in progress are tested for impairment annually or more frequently, if there is an indication that they may be impaired. If impairment indicators are present, the carrying amount of the asset is reduced to its recoverable amount, which is the higher of its (i) fair value less costs of disposal and (ii) value in use. The recoverable amount is determined for the individual asset, unless the asset does not generate cash inflows that are largely independent of the cash
inflows from other assets or groups of assets, in which case the asset is tested as part of the CGU to which the asset belongs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
The Group identifies each DOS as a separate CGU, withCGU. New DOS require a start-up period before they achieve the exceptionexpected level of profitability, which generally extends for three years following the date of each store’s opening. When a DOS is in the start-up period, an operating loss is not necessarily considered to be an indicator of possible impairment. The Group considers an operating loss to be an indicator of possible impairment if the DOS cash flows for the start-up period are lower than the DOS cash flows of the approved operational plan. Strategic stores are considered separate CGUs when determining whether any impairment indicators are present. If an impairment indicator is identified, it is assessed whether other stores have benefited from the strategic store. If the strategic store is determined to benefit other stores, whose carrying amountan impairment test for the strategic store is tested for recoverability taking into considerationperformed as a group of CGUs at the cash flows arising from all the DOS that benefit from it. segment level.
In assessing the value in use of an asset or CGU, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognized if the recoverable amount is lower than the carrying amount. Where an impairment loss for assets other than goodwill subsequently no longer exists or has decreased, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but not in excess of the carrying amount that would have been recorded had no impairment loss been recognized. The reversal of an impairment loss is recognized in the consolidated statement of profit and loss.
Business combinations are accounted for using the acquisition method in accordance with IFRS 3. Accordingly, the consideration transferred (acquisition price) in a business combination is measured at the fair value, which is measured at the fair value of the assets transferred, liabilities incurred by the acquirer and the equity interest issued at the date the control changed. The following items constitute an exception, which are instead valued according to their reference principle: (i) deferred tax assets and liabilities, (ii) assets and liabilities for employee benefits and (iii) assets held for sale. Acquisition-related costs are recognized in the consolidated statement of profit and loss as incurred. Goodwill is measured as the excess of the acquisition price plus the amount of any
non-controlling
interests in the acquiree over the net fair value of the identifiable assets
acquired and liabilities
acquired.assumed. If, after reassessment, it results in a negative difference, the excess is recognized immediately in the consolidated statement of profit and loss as a bargain purchase gain.
In the event that the fair values of the assets, liabilities and contingent liabilities can only be determined provisionally, the business combination is recognized using these provisional values. Any adjustments deriving from the completion of the valuation process are recognized within twelve months from the acquisition date.
If a price component is linked to the realization of future events, this component is considered in the estimate of the fair value at the time of the business combination.
Significant gains and losses, with the related tax effects, deriving from transactions carried out between fully consolidated companies not yet realized with third parties, are eliminated, except for losses that are not eliminated if the transaction provides evidence of a reduction of value of the transferred asset. The reciprocal debit and credit relationships, costs and revenues, as well as financial income and expenses are also eliminated if significant.
The purchase of further holdings in subsidiaries and the sale of shares that do not involve the loss of control are considered transactions between shareholders; as such, the accounting effects are recognized directly in the Group’s equity.
Put and call agreement on
non-controlling
interests
In the case of put options granted to
non-controlling
interests, the Group recognizes a financial liability corresponding to the present value of the exercise price of the option. On initial recognition, if put option terms and conditions give the Group the access to the economic benefits of the
non-controlling
interests, the Group recognizes a financial liability and a reduction of equity attributable to
non-controlling
interests (as if the
non-controlling
interest had been acquired by the Group). If put option terms and conditions do not give the Group the access to the economic benefits of the
non-controlling
interests, the Group recognizes a financial liability and a reduction of the Group’s retained earnings. The liability is subsequently remeasured at the end of each period. The liability is subsequently accreted through financial
expenses up to the redemption amount that is payable at the date at which the option first becomes exercisable. In the event that the option expires unexercised, the liability is derecognized with a corresponding adjustment to equity.
The classification of a financial asset is based on the Group’s business model for managing the related financial assets and their contractual cash flows. The Group considers whether the contractual cash flows represent solely payments of principal and interest that are consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related financial assets are classified and measured at fair value through profit and loss.
With the exception of trade receivables that do not contain a significant financing component (or for which the Group has applied the practical expedient available under IFRS 15 -—Revenue from contracts with customers
(“ (“IFRS 15”)), which are measured at the transaction price (as defined in IFRS 15), all financial assets are initially measured at their fair value plus, in the case of financial assets not at fair value through profit and loss only, transaction costs that are directly attributable to the acquisition of the asset. Measurement subsequent to initial recognition is based on the classification of the financial assets into one of the following categories:
1.Financial assets at amortized cost;
| 1. | Financial assets at amortized cost;
|
2.Financial assets at fair value through other comprehensive income/(loss), with subsequent recycling of cumulative gains and losses to the statement of profit and loss (“FVOCI”); or
| 2. | Financial assets at fair value through other comprehensive income, with subsequent recycling of cumulative gains and losses to the statement of profit and loss (“FVOCI”); or
|
3.Financial assets at fair value through profit and loss (“FVPL”).
| 3. | Financial assets at fair value through profit and loss (“FVPL”).
|
1.Financial assets at amortized cost
Financial assets at amortized cost are subsequently measured using the effective interest rate method and are subject to impairment testing. Gains and losses are recognized in the statement of profit and loss when the asset is derecognized, modified or impaired.
The Group’s financial assets at amortized cost primarily include trade receivables, guarantee deposits and certain other
non-current
financial assets.
2.Financial assets at fair value through other comprehensive incomeincome/(loss) (FVOCI)
Financial assets at FVOCI are initially recognized at fair value and subsequent fair value changes are recognized within other comprehensive income.income/(loss). Interest income, foreign exchange revaluations and impairment losses or reversals are recognized in the consolidated statement of profit and loss. Upon derecognition, the cumulative reserve of fair value changes recognized within other comprehensive incomeincome/(loss) is recycled to profit and loss.
The Group’s financial assets at FVOCI primarily include derivative instruments (when they qualify for hedge accounting), as well as fixed income and floating income securities.
3.Financial assets at fair value through profit and loss (FVPL)
Financial assets at FVPL are initially recognized at fair value and subsequent fair value changes are recognized in the consolidated statement of profit and loss. Financial assets at FVTPLFVPL include derivative instruments and listed equity investments for which the Group has not irrevocably elected to classify the instruments at FVOCI. Dividends from listed equity investments are recognized as other income in the consolidated statement of profit and loss when the right of payment has been established.
The Group’s financial assets measured at FVPL primarily include insurance contracts, equity instruments and fixed income securities, as well as investments in hedge funds and private equity private debts, money market funds, floating income and real estate funds.
Reclassification
A financial asset is only reclassified when there is a change in the contractual terms that significantly affects the previously expected cash flows or when the Group changes its business model for managing financial assets. Reclassifications are only made prospectively from the reclassification date, without restating any previously recognized gains, losses or interest.
The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for any obligations created or retained. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.
On derecognition of a financial asset measured at amortized cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit and loss. In addition, on derecognition of an investment in a debt instrument classified as FVOCI, the cumulative gain or loss previously accumulated in the investment revaluation reserve within other comprehensive incomeincome/(loss) is reclassified to profit and loss.
Impairment of financial assets
The Group recognizes a loss allowance for expected credit losses on investments in debt instruments that are measured at amortized cost or at FVOCI, lease receivables, trade receivables and contract assets, as well as on financial guarantee contracts. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.
The Group always recognizes lifetime expected credit losses (ECL) for trade receivables, contract assets, lease receivables and securities. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.
Trade receivables are amounts due from clients for goods sold or services provided in the ordinary course of business. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method, less any loss allowances.
Financial liabilities include loans, bonds, lease liabilities, trade payables and other liabilities. These instruments are recorded at fair value on initial recognition, net of any costs that can be ascribed to them. Subsequently, the financial liabilities are measured at amortized cost using the effective interest method. The Group derecognizes a financial liability when, and only when, it is extinguished, i.e. when the obligation in the contract is discharged, canceled or expired.
Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts, options and interest rate swaps.
Derivatives are recognized initially at fair value at the date a derivative contract is entered into and are subsequently remeasured to fair value at each reporting date. The resulting gain or loss is recognized immediately in profit or loss unless the derivative is designated and effective as a hedging instrument, in which case the timing of the recognition in profit or loss depends on the nature of the hedge relationship. A derivative with a positive fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial liability. A derivative is classified as a
non-current
asset or a
non-current
liability if the remaining maturity of the instrument is more than 12 months and it is not due to be realized or settled within 12 months. Derivatives held for trading are classified as current assets or current liabilities.
The Group designates certain derivatives as hedging instruments in respect of foreign currency and interest rate risk, as fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging relationship meets all of the following hedge effectiveness requirements:
a.there is an economic relationship between the hedged item and the hedging instrument;
| a. | there is an economic relationship between the hedged item and the hedging instrument;
|
b.the effect of credit risk does not dominate the value changes that result from that economic relationship; and
c.the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
| b. | the effect of credit risk does not dominate the value changes that result from that economic relationship; and
|
| c. | the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
|
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same, the Group adjusts the hedge ratio of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.
The Group designates the full change in the fair value of a forward contract (i.e. including the forward elements) as the hedging instrument for all of its hedging relationships involving forward contracts.
The Group designates only the intrinsic value of option contracts as a hedged item and excludes the time value of the option. The changes in the fair value of the aligned time value of the option are recognized in other comprehensive
incomeincome/(loss) and accumulated in the hedge reserve. If the hedged item is transaction-related, the time value is reclassified to profit or loss when the hedged item affects profit or loss. If the hedged item is time period related, then the amount accumulated in the hedge reserve is reclassified to profit or loss on a rational basis – the Group applies straight-line amortization. Those reclassified amounts are recognized in profit or loss in the same line as the related hedged item. If the hedged item is a
non-financial
item, then the amount accumulated in the hedge reserve is removed directly from equity and included in the initial carrying amount of the recognized
non-financial
item. Furthermore, if the Group expects that some or all of the loss accumulated in the hedge reserve will not be recovered in the future, that amount is immediately reclassified to profit or loss.
The Group designates certain derivatives as either:
a.hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge). Where a derivative financial instrument is designated as a hedge against the fluctuation in fair value of a recognized asset or liability (fair value hedge), the gain or loss for re-measuring the hedging instrument at fair value is recognized in the statement of profit and loss together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Consistently, the hedged items are adjusted to consider changes in fair value of the hedged risk. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognized in the statement of profit and loss. The gain or loss relating to the ineffective portion is recognized in the statement of profit and loss. Changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk are recognized in the statement of profit and loss. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest rate method is used is amortized to the statement of profit and loss over the period to maturity.
| a. | b.hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge). Where a derivative financial instrument is designated as a hedge against the fluctuation in fair value of a recognized asset or liability (fair value hedge), the gain or loss forre-measuring
the hedging instrument at fair value is recognized in the statement of profit and loss together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Consistently, the hedged items are adjusted to consider changes in fair value of the hedged risk. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognized in the statement of profit and loss. The gain or loss relating to the ineffective portion is recognized in the statement of profit and loss. Changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk are recognized in the statement of profit and loss. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest rate method is used is amortized to the statement of profit and loss over the period to maturity. |
| b. | hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge). Where a derivative financial instrument is designated as a hedge of foreign exchange rate or interest rate in relation to future cash flow (cash flow hedge), the effective portion of any gain or loss on the derivative financial instrument is recognized directly in other comprehensive income within equity. The gain or loss associated with an ineffective portion of a hedge is recognized in the statement
|
a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge). Where a derivative financial instrument is designated as a hedge of foreign | of profit and loss. The cumulative gain or loss is removed from equity and recognized in the statement of profit and loss at the same time in which the hedged transaction affects the statement of profit and loss (as an adjustment to the caption of the statement of profit and loss affected by the hedged cash flows). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the statement of profit and loss. The gain or loss relating to the effective portion of forward foreign exchange contracts hedging export sales is recognized in the statement of profit and loss within ‘revenues’. However, when the forecast transaction that is hedged results in the recognition of anon-financial
asset (for example, inventory) or anon-financial
liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the statement of profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the statement of profit and loss. |
F-27
exchange rate or interest rate in relation to future cash flow (cash flow hedge), the effective portion of any gain or loss on the derivative financial instrument is recognized directly in other comprehensive income/(loss) within equity. The gain or loss associated with an ineffective portion of a hedge is recognized in the statement of profit and loss. The cumulative gain or loss is removed from equity and recognized in the statement of profit and loss at the same time in which the hedged transaction affects the statement of profit and loss (as an adjustment to the caption of the statement of profit and loss affected by the hedged cash flows). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the statement of profit and loss. The gain or loss relating to the effective portion of forward foreign exchange contracts hedging export sales is recognized in the statement of profit and loss within ‘revenues’. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the statement of profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the statement of profit and loss.
Warrant liabilities
The Group accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of
additionalpaid-in
capitalshare premium within equity at the time of issuance. For issued or modified warrants that do not meet all of the criteria for equity classification, the warrants are recognized as a liability at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of liability-classified warrants are recognized as a
non-cash
gain or loss in the statement of profit and loss. In order to determine their fair value, the Group’s public warrants are measured at their trading price and the Group’s private warrants are measured at fair value using a Monte Carlo Simulation model.
Cash and cash equivalents
Cash and cash equivalents include cash inon hand, deposits held at call with banks and other short-term highly liquid investments with original maturitiesinvestments. Cash and cash equivalents are primarily held for the purpose of meeting short-term cash commitments.
To be classified as cash and cash equivalents, an asset must be readily convertible into cash, have an insignificant risk of changes in value and have a maturity period of three months or less at the date of inception.
acquisition.Inventories are recognized at the lower of cost (acquisition or production) and net realizable value. Cost includes direct production costs and indirect costs that have been incurred in bringing the inventories to the location and condition necessary to be capable for their use in the production process. Cost is determined on a weighted average basis. Net realizable value is the estimated selling price less the estimated costs of completion and the estimated costs for sale and distribution.
Inventories are presented net of provisions for slow moving and obsolete inventories.
Defined contribution plans -
Costs arising from defined contribution plans are expensed as incurred.
The Group’s net obligations are determined separately for each plan by estimating the present value of future benefits that employees have earned in the current and prior periods, and deducting the fair value of any plan assets.
The present value of defined benefit obligations is measured using actuarial techniques and benefits are attributable to periods in which the obligation to provide post-employment benefits arise by using the Projected Unit Credit Method. Actuarial assumptions are based on management’s best estimates. The components of defined benefit cost are recognized as follows:
•the service costs are recognized in the consolidated statement of profit and loss in the personnel cost line item;
•the net interest expense on the defined benefit liability is recognized in the consolidated statement of profit and loss within financial expenses;
•the remeasurement components of the net obligation, which comprise actuarial gain and losses, are recognized immediately in other comprehensive income.income/(loss). These remeasurement components are not reclassified in the consolidated statement of profit and loss in a subsequent period.
Post-employment benefits include the Italian employee severance indemnity (“trattamento di fine rapporto” or “TFR”) obligation required under Italian Law. The amount of TFR to which each employee is entitled must be paid when the employee leaves the Group and is calculated based on the period of employment and the taxable earnings of each employee. Under certain conditions, the entitlement may be partially advanced to an employee during their working life.
The TFR scheme is classified as a defined contribution plan and the Group recognizes the associated costs over the period in which the employee renders service.
Other long-term employee benefits
The Group’s obligations represent the present value of future benefits that employees have earned in return for their service during the current and prior periods. Remeasurement components on other long-term employee benefits are recognized in the consolidated statement of profit and loss in the period in which they arise.
Provisions for risks and charges
Provisions are recognized when the Group has a present obligation, legal or constructive, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. A restructuring provision is recognized when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.
Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
Provisions for the costs to restore leased plant assets to their original condition, as required by the terms and conditions of the lease, are recognized when the obligation is incurred, either at the commencement date or as a consequence of having used the underlying asset during a particular period of the lease, at the directors’ best estimate of the expenditure that would be required to restore the assets. Estimates are regularly reviewed and adjusted as appropriate for new circumstances.
Treasury shares are measured at purchase cost, as a reduction in shareholders’ equity. The nominal value of the treasury shares held is deducted directly from share capital. Gains and losses on disposal, net of income taxes, are recognized directly to equity.
Assets and disposal groups held for saleF-29
Assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset or disposal group is available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such an asset or disposal group, and the sale is highly probable, with the sale expected to be completed within one year from the date of classification.
When the Group has determined that a subsidiary meets the criteria for held for sale, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain anon-controlling
interest in its former subsidiary after the sale.Assets and disposal groups are not classified as held for sale within the comparative period presented for the Consolidated Statement of Financial Position.
Revenue mainly comprises sales of goods, together with income from associated services, and income from royalties and operating licenses.
Revenue is recognized when control over a product or service is transferred to a customer. Revenue is measured at the transaction price which is based on the amount of consideration that the Group expects to receive in exchange for transferring the promised goods or services to the customer and excludes any sales incentives, rebates or discounts (including end of season discounts offered by the retail channel), as well as taxes collected from customers that are remitted to government authorities.
Revenues from wholesale operations and direct sales to customers, through retail stores and online channels, are recognized at a point in time when control over a product is transferred to the customers. Revenues from sales of services are recognized when the Group satisfies its performance obligation. Under the Group’s standard contract terms, retail customers are entitled to a right of returns within 30 days, which enables them to receive a full or partial cash refund of the amount paid, a store coupon or another product in exchange. Exchanges of one product for another of the same type, quality, condition and price are not considered returns, unless product exchange occurs after 30 days from the original sale.
Wholesalers generally do not have a contractual right of return.
Provisions for returns are presented in the consolidated statement of financial position under liabilities with a corresponding adjustment to revenue in respect of future refunds. A corresponding asset (with an offsetting adjustment to cost of sales) representing the right to recover the goods from the client is also recognized.
The Group uses its historical experience to estimate the number of returns on a portfolio level using the expected value method.
Royalties received with respect to operating licenses are recognized in accordance with the contractual obligations specific to each agreement, which is generally when the sales occur for sales-based licensing agreements, otherwise over time as the performance obligations are satisfied for other types of licensing agreements.
Payment for retail sales is typically required at the time of purchase or within 30 days, or, on occasion, in advance. Payment terms for wholesale sales are generally longer and the Group may adopt various measures aimed at ensuring collectability of the related consideration, such as requiring customers to provide advanced payments or financial guarantees, as well as performing credit analysis of customers and obtaining insurance over receivables.
Revenues from sales to department stores on a consignment basis are recognized when the goods are ultimately sold by the department stores to the end customers.
Personnel expenses primarily consist of wages and salaries, social contributions, pension plans and indemnities, share-based payments, severance indemnities and other long-term benefits, as well as costs for payroll taxes, uniforms, insurance and other benefits. Wages and salaries primarily include fixed remuneration, variable short-term remuneration plans, directors’ fees, costs related to employee profit-sharing and other incentive plans, and any associated payroll taxes.
Cash-settled share-based payments
Where the Group issues cash-settled share-based transactions, the cost of the cash-settled transactions is initially valued at the fair value at the date the beneficiary is informed of their allocation. This fair value is recognized in the statement of profit and loss in the period until vesting, with the recognition of a corresponding liability. Until the liability is settled, the fair value is recalculated at each
year-end
date and at the settlement date, charging the related changes to the statement of profit and loss.
Equity-settled share-based payments
Equity-settled share-based payments are accounted for in accordance with IFRS 2, which requires the Company to recognize share-based compensation expense based on the fair value of the awards granted. Compensation expense for the equity-settled awards containing market ornon-market
performance conditions, as well as for the Escrow Shares issued as part of the Business Combination (as described in Note 1)1 — General information), is measured at the grant date fair value of the award using a Monte Carlo simulation model, which requires the input of assumptions, including the expected volatility of the Company’s shares, the dividend yield, interest rates and a correlation coefficient between the shares and the relevant market index. The fair value of equity awards which are conditional only on a recipient’s continued service to the Company is measured using the share price at the grant date adjusted for the present value of future distributions which employees will not receive during the vesting period. Share-based compensation expense relating to equity-settled share-based payments is recognized in the consolidated income statement over the service period with an offsetting increase to equity.
The Group recognizes the effects of modifications that increase the total fair value of share-based payment arrangements or are otherwise beneficial to the employee. If the Group modifies the terms or conditions of the awards granted in a manner that reduces the total fair value of a share-based payment arrangement, or is not otherwise beneficial to the employee (e.g. by increasing the vesting period or adding a non-market performance), the Group continues to recognize the share-based payments as if that modification had not occurred.
Income tax expense comprises the current and deferred tax expense.
The tax currently payable is based on taxable profit for the year. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
A provision is recognized for those mattersuncertain tax positions for which the tax determination is uncertain but it is considered probable that there will be a future outflow of funds to a tax authority.authority, in accordance with IFRIC 23 — “Uncertainty over Income Tax Treatments.”
Deferred tax is calculated using the liability method on all temporary differences between the carrying amount recorded in the consolidated balance sheet and the tax value of assets and liabilities, except for goodwill that is not deductible for tax purposes and certain other exceptions. The valuation of deferred tax balances depends on the way in which the Group intends to recover or settle the carrying amount of assets and liabilities, using tax rates that have been enacted or substantively enacted at the end of the reporting period.
Deferred tax assets and liabilities are not discounted and are presented separately in the balance sheet within
non-current
assets and liabilities. A deferred tax asset is recognized on deductible temporary differences and for tax loss carry-forwards and tax credits to the extent that their future offset is probable. A deferred tax liability is recognized on taxable temporary differences relating to investments in subsidiaries and associates unless the Group is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future.
Basic earnings per share is calculated by dividing the profit or loss attributable to shareholders of the parent company by the weighted average number of ordinary shares outstanding during the period, excluding treasury shares.
Diluted earnings per share
Diluted earnings per share is calculated by dividing the profit or loss attributable to holders of the parent company, excluding treasury shares, by the weighted average number of ordinary shares outstanding, taking into account all dilutive potential ordinary shares. To calculate diluted earnings per share, the weighted average number of shares outstanding is adjusted assuming the conversion of all potential shares with dilutive
effects, and the entity’s net profit is adjusted to take into account any effects, net of taxes, of the conversion.
In accordance with IAS 33 -, for the calculation of both basic earnings per share and diluted earnings per share the number of ordinary and potential ordinary shares outstanding for all periods reflects the Share Split. Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s consolidated financial statements in the period in which the dividends are approved by the Company’s shareholders.
Operating segments are reported in a manner consistent with the internal reporting provided to the Board of Directors, which has been identified as the chief operating decision-maker (CODM). The CODM, who isof the Group responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors.
segments.All amounts disclosed in the financial statements and notes have been rounded to the nearest thousand Euro unless otherwise stated.
4. Key sources of estimation uncertainty, use of estimates and critical accounting judgments
The preparation of the Consolidated Financial Statements in accordance with IFRS requires the use of estimates judgements and assumptions, and may involve the application of judgment in applying the Group’s accounting policy information, that affect the carrying amounts of assets and liabilities (as well as the assessment of contingent assets and liabilities) and the amount of income and expenses recognized. The estimates and associated assumptions are based on historical experience and on any other factors that are considered to be relevant. Actual results might not fully correspond to estimates.
The estimates and underlying assumptions are reviewed continuously by the Group. The effects of any changes to accounting estimates are recognized in the consolidated statement of profit and loss in the period in which the adjustment is made, or prospectively in future periods.
Key sources of estimation uncertainty
The itemskey assumptions concerning the future, and other key sources of estimation uncertainty, requiring estimates for which there is a risk that a material difference may arise in respect of the carrying amounts of assets and liabilities in the future are discussed below.below and in the related notes.
Impairment of
non-current
assets with definite useful lives
Non-current
assets with definite useful lives include property, plant and equipment,
assets
investment property and intangible assets. The Group periodically reviews the carrying amount of
non-current
assets with definite useful lives when events and circumstances indicate that an asset may be impaired. Impairment tests are performed by comparing the carrying amount and the recoverable amount of the CGU. The recoverable amount is the higher of the CGU’s fair value less costs of disposal and its value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a
pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU.
For additional information please refer to Note 14 — Intangible assets, Note 15 — Property, plant and equipment and Note 16 — Right-of-use assets.
Recoverability of goodwill and brands with indefinite useful life
In accordance with IAS 36 —Impairment of Assets (“IAS 36”)
, goodwill and brands with indefinite useful life are not amortized and are tested for impairment annually or more frequently if facts or circumstances indicate that the asset may be impaired. The impairment test is performed by comparing the carrying amount and the recoverable amount of the CGU. The recoverable amount of the CGU is the higher of its fair value, less costs of disposal and its value in use. For additional information please refer to Note 14 — Intangible assets. Items requiring estimates (in addition to those described above) for which there is a risk that a material difference may arise in respect of the carrying amounts of assets and liabilities in the future are discussed below and in the related notes.Derivatives
derivatives not traded in an active market is determined using a mark-to-model valuation technique. Where active markets exist for its component parts, then fair value is determined on the basis of the relevant market prices for the component parts.Financial liabilities for put options granted to non-controlling interests are measured based on the present value of the exercise price of the option. The liability is subsequently remeasured at fair value at the end of each period.
Valuation techniques that are based on significant inputs that are observable are referred to as Level 2 valuations, while those based on techniques that use significant unobservable inputs are referred to as Level 3 valuations. Estimates and assumptions are made with the support of the corporate functions and, where appropriate, of independent specialists, and are regularly reviewed. For additional information please refer to Note 21 — Derivative financial instruments.
Provisions for obsolete inventory
Since the Group’s products are subject to market trends and changes in fashion trends, product inventories at the end of the season are subject to impairment. Specifically, the provision for obsolete inventory of finished products reflects management’s estimate of the expected impairment losses on the products of the collections of previous seasons, considering the ability to sell them through the Group’s various distribution channels.
Generally, impairment assumptions involve percentages of impairment that become greater the older the collections are, so as to reflect the decline in selling prices in secondary channels (mainly outlets), and on the other hand, the decrease in the probability of selling them as time goes by.
The provision for obsolete raw materials reflects management’s estimates of the decline in the probability they will be used based on the calculation of slow-moving raw materials. For additional information please refer to Note 19 — Inventories.
Recoverability of deferred tax assets
The deferred tax assets are recognized on the premise that it is more likely than not that the Group will be able to generate sufficient and suitable future taxable profits from which the reversal of the asset can be deducted. If the Group is unable to generate sufficient taxable profits in certain jurisdictions, or if there is a significant change in the actual effective tax rates or the time period within which the underlying temporary differences become taxable or deductible, the Group could be required towrite-off
any deferred tax assets, resulting in an increase in its effective tax rate and an adverse impact on future operating results. Fair value of derivatives not traded in an active market is determined using avaluation technique. Where active markets exist for its component parts, then fair value is determined on the basis of the relevant market prices for the component parts.Financial liabilities for put options granted tonon-controlling
interests are measured based on the present value of the exercise price of the option. The liability is subsequently remeasured at fair value at the end of each period.Valuation techniques that are based on significant inputs that are observable are referred For additional information please refer to as Level 2 valuations, while those based on techniques that use significant unobservable inputs are referred to as Level 3 valuations. Estimates and assumptions are made with the support of the corporate functions and, where appropriate, of independent specialists, and are regularly reviewed.Note 11 — Income taxes.
Provisions for obsolete inventory
Since the Group’s products are subject to market trends and changes in fashion trends, product inventories at the end of the season are subject to impairment. Specifically, the provision for obsolete inventory of finished products reflects management’s estimate of the expected impairment losses on the products of the collections of previous seasons, considering the ability to sell them through the Group’s various distribution channels.
Generally, impairment assumptions involve percentages of impairment that become greater the older the collections are, so as to reflect the decline in selling prices in secondary channels (mainly outlets), and on the other hand, the decrease in the probability of selling them as time goes by.
The provision for obsolete raw materials reflects management’s estimates of the decline in the probability they will be used based on the calculation of slow-moving raw materials.
Provision for risks and charges
The Group recognizes a liability when facing legal and tax disputesdispute and lawsuits if it believes it is probable that they will require an outflow of financial resources and a reliable estimate can be made of the amount of the potential losses. Given the uncertainty surrounding the outcome of these proceedings, it is hard to reliably estimate the outflow of resources that will be required to settle them, therefore the amount of the provisions for legal and tax disputes may change as a result of future
developments in the outstanding proceedings. The Group monitors the status of ongoing lawsuits and proceedings and consults with its legal advisors as well as legal and tax experts. For additional information please refer to Note 30 — Provisions for risks and charges.
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. IFRS 13 —(“ (“IFRS 13”) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include: Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. For additional information please refer to Note 34 — Fair value measurement.
Warrants give the holder the right, but not the obligation, to subscribe to the Company’s shares at a fixed price for a specified period of time and subject to the terms of redemption. Until warrant holders acquire the Company’s ordinary shares upon exercise of such warrants, they will have no rights with respect to the Company’s shares. These instruments, principally due to an option to replace them upon specific events, including share dividends, extraordinary dividends or reorganizations, which results in the Company delivering a variable number of shares, are accounted for as a current financial liability through profit and loss in accordance with the provisions of IAS 32.
Management measured the public warrants at fair value by using the Euro equivalent of the closing price of warrants on the NYSE. Management estimated the fair value of the private warrants by Monte Carlo simulation model, using as key inputs the Company’s share price, risk-free rate, implied public warrant volatility, the warrants’ maturity, and the public warrants’ market price.
On February 27, 2023 the Group completed the redemption of its outstanding public and private placement warrants, following which there are no remaining public or private placement warrants outstanding. For additional information relating to the Warrant Redemption see Note 28 — Other current and non-current financial liabilities.
Critical judgments in applying the Group's accounting policies The following are the critical judgments, apart from those involving estimations (which are presented separately above), that the Group has made in the process of applying its accounting policies and that have the most significant effect on the amounts recognized in the Consolidated Financial Statements.
See Note 1 -for a description of the Business Combination between Zegna and IIAC completed on December 17, 2021.A summary of the Group’s other business combinations forFor the year ended December 31, 2022 and 2021, is provided below. All business combinations have been recognizedthe Group had applied judgment in determining that it has significant influence over Tom Ford International LLC (“TFI”), despite the Group owned 15% of the equity shares of TFI. In making its judgment, the Group determined that it had significant influence in accordance with IFRS 3.
AcquisitionIAS 28—Investments in Associates and Joint Ventures (“IAS 28”) based on its representation on the board of Tessitura Ubertino
On June 4, 2021directors of TFI and its the participation in policy-making processes. Furthermore, there are material transactions between the Group acquired 60% of Tessitura Ubertino, a company active in the textile business.and TFI. As a result of acquisition,this determination, the Group accounted for the investment in TFI under the equity method until the TFI Acquisition on April 28, 2023, at which point TFI was consolidated by the Group.
For the year ended December 2023, the Group had applied judgment in determining that it has expanded its textile activities and product offering. Detailssignificant influence over Luigi Fedeli e Figlio S.r.l., despite the Group owned 15% of the purchase consideration, the net assets acquired and goodwill are as follows:
A portionequity shares of the considerationcompany. ln making its judgment, the Group determined that it had significant influence in accordance with IAS 28—Investments in Associates and Joint
Ventures (“IAS 28”) based on its representation on the board of directors of the company and its the participation in policy-making processes. As a result of this determination, the Group accounted for the acquisition, amounting to Euro 1,170 thousand, will be payableinvestment in cash in 2022 and 2023 if Tessitura Ubertino achieves certain predetermined operating performance targets duringLuigi Fedeli e Figlio S.r.l. under the years ended December 31, 2021 and 2022. The contingent consideration was recognized within other current liabilities at December 31, 2021.equity method.
For additional information, see Note 17 — Investments accounted for using the equity method.
| | | | |
| |
| |
Cash and cash equivalents
| | | 2,366 | |
| | | 1,681 | |
| | | 1,564 | |
| | | 626 | |
Property, plant and equipment
| | | 641 | |
| | | 4,200 | |
| | | (1,872 | ) |
Other current liabilities
| | | (712 | ) |
| | | (272 | ) |
| | | (1,172 | ) |
| | | | |
Net identifiable assets acquired
| | | | |
| | | | |
Less:Non-controlling
interests | | | | |
| | | | |
| | | | |
| | | | |
Net assets acquired including goodwill
| | | | |
| | | | |
Goodwill arising from the acquisition of Euro 2,820 thousand is primarily attributable to the expected synergies from combining operations of the acquiree and the acquirer. The goodwill is not deductible for tax purposes. Minor acquisition-related costs were expensed and recorded within purchased, outsourced and other costs in the consolidated statement of profit and loss.
The Group elected to recognizenon-controlling
interests at its proportionate share of the acquired net identifiable assets.The details of the net cash outflows related to the acquisition are shown below:
| | | | |
| | | |
| | | (5,880 | ) |
Cash and cash equivalents acquired
| | | 2,366 | |
| | | | |
Net cash outflow - Investing activities
| | | | |
| | | | |
Tessitura Ubertino contributed revenues of Euro 5,625 thousand and profit for the year of Euro 561 thousand to the Group for the period from June 4, 2021 (the acquisition date) to December 31, 2021. If the acquisition had occurred on January 1, 2021, the consolidated statement of profit and loss would have included additional revenues for Euro 3,987 thousand and profit for the year of Euro 674 thousand.
Contingent consideration relating to the acquisition of Gruppo Dondi S.p.A.
5. Segment reportingIn 2021 the Group paid contingent consideration of Euro 710 thousand relating to the acquisition of Gruppo Dondi S.p.A. (“Dondi”), which was completed in July 2019, based on the achievement of certain predetermined performance targets by Dondi.
The Group has determined the operating segments based on the reports reviewed by the Board of Directors, which is considered the Chief Operating Decision Maker (“CODM”) as defined under(“ (“IFRS 8”), for the purposes of allocating resources and assessing the performance of the Group. The Group is organized in twothree operating and reportable segments, based on a brand perspective, as described below:
1.Zegna segment — Includes all activities related to the ZEGNA branded products, Textile and Third Party Brands product lines.
| 1. | Zegna Segment — Includes all activities related to the Zegna Branded Products, Textile and Third Party Brands (previously referred to as Strategic Alliances) product lines.
|
2.Thom Browne segment — Includes all activities related to the Thom Browne brand.
| 2. | Thom Browne Segment — Includes all activities related to the Thom Browne brand.
|
3.Tom Ford Fashion segment — Includes all activities related to the TOM FORD FASHION business.
Prior to the TFI Acquisition, which was completed on April 28, 2023, the Group was organized in two segments: the Zegna segment and the Thom Browne segment.
Adjusted Earnings Before Interest and Taxes (“Adjusted EBIT”) is the key profit measure used by the CODM to assess performance and allocate resources to the Group’s operating segments, as well as to analyze operating trends, perform analytical comparisons and benchmark performance between periods and among the segments. Adjusted EBIT is defined as profit or loss before income taxes plus financial income, financial expenses, foreign exchange gains/(losses),losses and the result from investments accounted for using the equity method and impairments of investments accounted for using the equity method, adjusted for income and costs which are significant in nature and that management considers not reflective of ongoing operational activities,underlying operating activities, including, for one or all of the periods presented and as further described below, transaction costs related to acquisitions, severance indemnities and provisions for severance expenses, legal costs for trademark dispute, costs related to the Business Combination, severance indemnities and provision for severance expenses,net impairment of property, plantleased and equipmentowned store, special donations for social responsibility andassets, certain net (income)/costs related to lease agreements and certain other items.agreements. Transactions between segments are processed at arm’s lengthexecuted on commercial terms that are normal in the respective markets and primarily relate to intersegment sale. No allocationssales.
As a result of commona change in the way the CODM and management view the business, starting with the year ended December 31, 2022, costs for certain central corporate functions that are not directly attributable to individual segments, and which were previously allocated to the Zegna segment, are presented separately as Corporate. These central corporate costs, which have increased significantly following the Company’s public listing in December 2021, primarily relate to the compensation of the Board of Directors and costs for functions that are managed centrally on behalf of the entire group, including group general counsel, central finance, internal audit, investor relations, insurance coverage for directors and officers, compliance and certain other centralized activities, including those related to being a public company, for which the costs are made acrossnot allocated to the segments.
This presentation reflects the information regularly reviewed by the CODM for the purposes of allocating resources and assessing the performance of the Group, and management believes this presentation more accurately reflects the underlying nature of such costs and the profitability of the individual segments. As a result, the related costs for the year ended December 31, 2021 have been reclassified from the Zegna segment to Corporate to conform to the current period presentation, resulting in an increase in the Zegna segment Adjusted EBIT compared to the amount previously reported for the year ended December 31, 2021.As a result of organizational changes within the Group and changes in the information provided to the CODM for the purposes of making strategic decisions relating to the assessment of performance and the allocation of resources, revenues from Pelletteria Tizeta which were allocated to the Zegna segment in the Semi-Annual Report at and for the six month ended June 30, 2023, are now presented within the Tom Ford Fashion segment for the year ended December 31, 2023.
No measures of assets or liabilities by segment are reported to the CODM. Therefore, the related information is not provided.
The following tables summarize selected financial information by segment for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2023 |
(€ thousands) | Zegna | | Thom Browne | | Tom Ford Fashion | | Corporate | | Intercompany Eliminations | | Group Consolidated |
Revenues with third parties | 1,290,608 | | 378,410 | | 235,531 | | — | | — | | 1,904,549 |
Inter-segment revenues | 31,437 | | 1,877 | | 13 | | — | | (33,327) | | — |
Revenues | 1,322,045 | | 380,287 | | 235,544 | | — | | (33,327) | | 1,904,549 |
Depreciation and amortization | (139,902) | | (27,214) | | (26,008) | | (46) | | — | | (193,170) |
Adjusted EBIT | 193,466 | | 58,969 | | (1,741) | | (30,423) | | (59) | | 220,212 |
Transaction costs related to acquisitions (1) | | | | | | | | | | | (6,001) |
Severance indemnities and provisions for severance expenses (2) | | | | | | | | | | | (4,002) |
Legal costs for trademark dispute (3) | | | | | | | | | | | (2,168) |
Costs related to the Business Combination (4) | | | | | | | | | | | (2,140) |
Net impairments of leased and owned stores (5) | | | | | | | | | | | (1,782) |
Special donations for social responsibility (6) | | | | | | | | | | | (100) |
Net income related to lease agreements (7) | | | | | | | | | | | 4,129 |
Financial income | | | | | | | | | | | 37,282 |
Financial expenses | | | | | | | | | | | (68,121) |
Foreign exchange losses | | | | | | | | | | | (5,262) |
Result from investments accounted for using the equity method | | | | | | | | | | | (2,953) |
Profit before taxes | | | | | | | | | | | 169,094 |
______________(1)Relates to transaction costs of €6,001 thousand for consultancy and legal fees, primarily related to the TFI Acquisition and, to a lesser extent, the acquisition of the Thom Browne business in South Korea and the acquisition of a 25% interest in Norda. This amount is recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and is related to Corporate for €5,738 thousand and to the Thom Browne segment for €263 thousand.
(2)Relates to severance indemnities of €4,002 thousand. This amount is recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and is related to the Zegna segment for €1,166 thousand and to the Tom Ford Fashion segment for €2,836 thousand.
(3)Relates to legal costs of €2,168 thousand in connection with defending a legal dispute initiated by adidas alleging that Thom Browne infringe its intellectual property rights. This amount is recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and is related to the Thom Browne segment.
(4)Costs related to the Business Combination of €2,140 thousand relate to the grant of equity awards to management in 2021 2020with vesting subject to the public listing of the Company’s shares and 2019.
certain other performance and/or service conditions. This amount is recorded within “selling, general and administrative expenses” for €2,034 thousand and “cost of sales” for €106 thousand in the consolidated statement of profit and loss and relates to the Zegna segment for €1,066 thousand, to the Thom Browne segment for €98 thousand and to Corporate for €976 thousand. | | | | | | | | | | | | | | | | |
| | For the year ended December 31, 2021 | |
| | | | | | | | | | |
| |
Revenues with third parties | | | 1,029,005 | | | | 263,397 | | | | — | | | | 1,292,402 | |
| | | 6,170 | | | | 669 | | | | (6,839 | ) | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Depreciation and amortization | | | (137,502 | ) | | | (17,173 | ) | | | 0 | | | | (154,675 | ) |
| | | | | | | | | | | | | | | | |
Costs related to the Business Combination (1) | | | | | | | | | | | | | | | (205,059 | ) |
Costs related to lease agreements (2) | | | | | | | | | | | | | | | (15,512 | ) |
Severance indemnities and provision for severance expenses | | | | | | | | | | | | | | | (8,996 | ) |
Impairment of property, plant and equipment and assets (3) | | | | | | | | | | | | | | | (8,692 | ) |
| | | | | | | | | | | | | | | (4,884 | ) |
| | | | | | | | | | | | | | | 45,889 | |
| | | | | | | | | | | | | | | (43,823 | ) |
Foreign exchange gains/(losses) | | | | | | | | | | | | | | | (7,791 | ) |
Result from investments accounted for using the equity method | | | | | | | | | | | | | | | 2,794 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Costs related to the Business Combination include:
|
| | Euro 114,963 thousand relating to share-based payments for listing services recognized as the excess of the fair value of Zegna ordinary shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired, in accordance with IFRS 2. This amount is recorded within the line item “other operating costs” in the consolidated statement of profit and loss.
|
| | Euro 37,906 thousand for the issuance of 5,031,250 Zegna ordinary shares to the holders of IIAC class B shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period. This amount is recorded within the line item “other operating costs” in the consolidated statement of profit and loss.
|
| | Euro 34,092 thousand for transaction costs related to the Business Combination incurred by Zegna, including costs for bank services, legal advisors and other consultancy fees. This amount is recorded within the line item “purchased, outsourced and other costs” in the consolidated statement of profit and loss.
|
| | Euro 10,916 thousand for the Zegna family’s grant of a Euro 1,500 special gift to each employee of the Zegna group as result of the Company’s listing completed on December 20, 2021. This amount is recorded within the line item “personnel costs” in the consolidated statement of profit and loss.
|
| | Euro 5,380 thousand relating to grant of performance share units, which each represent the right to receive one Zegna ordinary share, to the Group’s Chief Executive Officer, other Zegna directors, key executives with strategic responsibilities and other employees of the Group, all subject to certain vesting conditions. This amount is recorded within the line item “personnel costs” in the consolidated statement of profit and loss. For additional information please refer to Note 42 -
Related party transactions
.
|
| | Euro 1,236 thousand related to the fair value of private warrants issued, pursuant to the Business Combination, to certain Zegna
directors. This amount is recorded within the line item “personnel costs” in the consolidated statement of profit and loss.
|
| | Euro 566 thousand related to the
of
prepaid premiums for directors’ and officers’ insurance. This amount is recorded within the line item “personnel costs” in the consolidated statement of profit and loss.
|
| Costs related to lease agreements for the year ended December 31, 2021, includeleased and owned stores includes (i) €12,192 thousand of provisions relating to a lease agreement in the US following an unfavorable legal claim judgment against the Group (recorded within “write downs and other provisions” in the consolidated statement of profit and loss), (ii) €1,492 thousand of legal expenses related to a lease agreement in Italy (recorded within “other operating costs” in the consolidated statement of profit and loss) and (iii) €1,829 thousand in accrued property taxes related to a lease agreement in the UK (recorded within “write downs and other provisions” in the consolidated statement of profit and loss). Costs related to lease agreements for the year ended December 31, 2020 include €3,000 thousand for legal expenses related to a lease agreement in the UK, incurred in the second half of 2020 (recorded within the line item “write downs and other provisions” in the consolidated statement of profit and loss).
|
| Includes impairment relating to the Group’s DOSs.
|
| Other adjustments for the year ended December 31, 2021 include €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group was required to compensate the company in accordance with the terms of the related sale agreement, as well as €144 thousand relating to the write down of the Group’s remaining 30% stake in Agnona (both of which are recorded within the line item “write downs and other provisions” in the consolidated statement of profit and loss), partially offset by other income of €1,266 thousand relating to the sale of rights to build or develop airspace above a building in the United States (this amount is recorded within the line item “other income” in the consolidated statement of profit and loss).
|
€915 thousand related to property, plant and equipment, (ii) impairment of €832 thousand related to right-of-use assets and (iii) impairment of €35 thousand, related to intangible assets. These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and are related to the Tom Ford Fashion segment for €910 thousand, to the Zegna segment for €855 thousand and to Thom Browne segment for €17 thousand. | | | | | | | | | | | | | | | | |
| | For the year ended December 31, 2020 | |
| | | | | | | | | | | | |
Revenues with third parties | | | 835,244 | | | | 179,489 | | | | 0 | | | | 1,014,733 | |
| | | 8,074 | | | | 305 | | | | (8,379 | ) | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Depreciation and amortization | | | (153,962 | ) | | | (12,243 | ) | | | — | | | | (166,205 | ) |
| | | | | | | | | | | 0 | | | | | |
Donations related to the COVID-19 pandemic | | | | | | | | | | | | | | | (4,482 | ) |
Costs related to lease agreements | | | | | | | | | | | | | | | (3,000 | ) |
Impairment of property, plant and equipment and assets | | | | | | | | | | | | | | | (19,725 | ) |
Severance indemnities and provision for severance expenses | | | | | | | | | | | | | | | (12,308 | ) |
Impairment on held for sale assets | | | | | | | | | | | | | | | (3,053 | ) |
| | | | | | | | | | | | | | | 34,352 | |
| | | | | | | | | | | | | | | (48,072 | ) |
Foreign exchange gains/(losses) | | | | | | | | | | | | | | | 13,455 | |
Result from investments accounted for using the equity method | | | | | | | | | | | | | | | (4,205 | ) |
Impairments of investments accounted for using the equity method | | | | | | | | | | | | | | | (4,532 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-37
(6)Relates to a donation of €100 thousand to support initiatives related to humanitarian emergencies in Turkey. This amount is recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and is related to Corporate.
(7)Net income related to lease agreements of €4,129 thousand relates to the derecognition of lease liabilities following a change in terms of a lease agreement in Hong Kong. This amount is recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and is related to the Zegna segment.
| | | | | | | | | | | | | | | | |
| | For the year ended December 31, 2019 | |
| | | | | | | | | | | | |
Revenues with third parties | | | 1,160,731 | | | | 160,596 | | | | — | | | | 1,321,327 | |
| | | 5,180 | | | | 604 | | | | (5,784 | ) | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Depreciation and amortization | | | (160,381 | ) | | | (7,829 | ) | | | — | | | | (168,210 | ) |
| | | | | | | | | | | 0 | | | | | |
Impairment of property, plant and equipment and assets | | | | | | | | | | | | | | | (8,858 | ) |
Severance indemnities and provision for severance expenses | | | | | | | | | | | | | | | (9,777 | ) |
| | | | | | | | | | | | | | | 22,061 | |
| | | | | | | | | | | | | | | (37,492 | ) |
Foreign exchange gains/(losses) | | | | | | | | | | | | | | | (2,441 | ) |
Result from investments accounted for using the equity method | | | | | | | | | | | | | | | (1,534 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2022 |
(€ thousands) | Zegna | | Thom Browne | | Corporate | | Intercompany Eliminations | | Group Consolidated |
Revenues with third parties | 1,162,826 | | 330,014 | | — | | — | | 1,492,840 |
Inter-segment revenues | 13,880 | | 877 | | — | | (14,757) | | — |
Revenues | 1,176,706 | | 330,891 | | — | | (14,757) | | 1,492,840 |
Depreciation and amortization | (148,747) | | (23,129) | | (6) | | — | | (171,882) |
Adjusted EBIT | 141,513 | | 48,077 | | (31,861) | | — | | 157,729 |
Legal costs for trademark dispute (1) | | | | | | | | | (7,532) |
Transaction costs related to acquisitions (2) | | | | | | | | | (2,289) |
Severance indemnities and provisions for severance expenses (3) | | | | | | | | | (2,199) |
Costs related to the Business Combination (4) | | | | | | | | | (2,137) |
Net impairment of leased and owned stores (5) | | | | | | | | | (1,639) |
Special donations for social responsibility (6) | | | | | | | | | (1,000) |
Net income related to lease agreements (7) | | | | | | | | | 6,844 |
Financial income | | | | | | | | | 13,320 |
Financial expenses | | | | | | | | | (54,346) |
Foreign exchange losses | | | | | | | | | (7,869) |
Result from investments accounted for using the equity method | | | | | | | | | 2,199 |
Profit before taxes | | | | | | | | | 101,081 |
(1)Relates to legal costs of Contents€7,532 thousand in connection with a legal dispute between adidas and Thom Browne, primarily in relation to the use of trademarks. This amount is recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and is related to the Thom Browne segment.
(2)Relates to transaction costs of €2,289 thousand for consultancy and legal fees related to the TFI Acquisition. This amount is recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and is related to Corporate.
(3)Relates to severance indemnities of €2,199 thousand. This amount is recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and is related to the Zegna segment.
(4)Costs related to the Business Combination of €2,137 thousand relate to the grant of equity awards to management in 2021 with vesting subject to the public listing of the Company’s shares and certain other performance and/or service conditions. This amount is recorded within “selling, general and administrative expenses” for €2,099 thousand and “cost of sales” for €38 thousand in the consolidated statement of profit and loss and relates to the Zegna segment for €1,101 thousand, to the Thom Browne segment for €98 thousand and to Corporate for €938 thousand. For additional information please refer to Note 37 — Share-based payments.
(5)Net impairment of leased and owned stores includes (i) impairment of €2,369 thousand related to right-of-use assets, (ii) reversals of impairment of €756 thousand related to property, plant and equipment and (iii) impairment of €26 thousand related to intangible assets. These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and are related to the Zegna segment for a net impairment of €819 thousand and to the Thom Browne segment for impairment of €820 thousand.
(6)Relates to a donation of €1,000 thousand to the United Nations High Commissioner for Refugees (UNHCR) to support initiatives related to the humanitarian emergency in Ukraine. This amount is recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and is related to Corporate.
(7)Net income related to lease agreements relate entirely to the Zegna segment and recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and include (i) proceeds of €6,500 thousand received from new tenants in order for the Group to withdraw from existing lease agreements of commercial properties and (ii) €950 thousand for reversals of previously recognized provisions in respect of a legal claim related to a lease agreement in the United States, partially offset by (ii) €606 thousand for costs related to a sublease agreement in the United States.
The following table summarizesnon-currentF-39
assets (other than financial instruments and deferred tax assets) by geography at December 31, 2021 and 2020.
| | | | | | | | |
| | | |
| | | | | | |
| | | | | | | | |
| | | 166,467 | | | | | |
| | | | | | | | |
| | | 503,496 | | | | | |
| | | | | | | | |
| | | | | | | | |
of which Greater China Region | | | 70,828 | | | | | |
| | | 22,387 | | | | | |
| | | | | | | | |
Total non-current assets (other than financial instruments and deferred tax assets) | | | | | | | | |
| EMEA includes Europe, the Middle East and Africa.
|
| North America includes the United States of America and Canada.
|
| Latin America includes Mexico, Brazil and other Central and South American countries.
|
| APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
|
Zegna generates revenues primarily from the sale of its products (net of returns and discounts), as well as from fees for services provided, royalties received from third parties and licensees.
The following table provides a breakdown of revenues by product line:
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
| | | 847,311 | | | | 636,478 | | | | 919,545 | |
| | | 263,397 | | | | 179,490 | | | | 160,595 | |
| | | 102,244 | | | | 87,615 | | | | 108,513 | |
| | | 74,957 | | | | 82,273 | | | | 91,720 | |
| | | 1,191 | | | | 12,389 | | | | 17,691 | |
| | | 3,302 | | | | 16,488 | | | | 23,263 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The following table provides a breakdown of revenues by sales channel:
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
Direct to Consumer (DTC) - Zegna branded products | | | 712,862 | | | | 527,972 | | | | 743,012 | |
Direct to Consumer (DTC) - Thom Browne branded products | | | 138,567 | | | | 85,268 | | | | 61,045 | |
| | | | | | | | | | | | |
Total Direct to Customer (DTC) | | | | | | | | | | | | |
Wholesale Zegna branded products | | | 134,449 | | | | 108,506 | | | | 176,533 | |
Wholesale Thom Browne branded products | | | 124,830 | | | | 94,222 | | | | 99,550 | |
Wholesale Third Party Brands and Textile | | | 177,201 | | | | 169,888 | | | | 200,233 | |
| | | 1,191 | | | | 12,389 | | | | 17,691 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2021 |
(€ thousands) | Zegna | | Thom Browne | | Corporate | | Intercompany Eliminations | | Group Consolidated |
Revenues with third parties | 1,029,005 | | 263,397 | | — | | — | | 1,292,402 |
Inter-segment revenues | 6,170 | | 669 | | — | | (6,839) | | — |
Revenues | 1,035,175 | | 264,066 | | — | | (6,839) | | 1,292,402 |
Depreciation and amortization | (137,500) | | (17,173) | | (2) | | — | | (154,675) |
Adjusted EBIT | 131,929 | | 38,097 | | (20,911) | | — | | 149,115 |
Costs related to the Business Combination (1) | | | | | | | | | (205,059) |
Net costs related to lease agreements (2) | | | | | | | | | (15,512) |
Severance indemnities and provisions for severance expenses (3) | | | | | | | | | (8,996) |
Net impairment of leased and owned stores (4) | | | | | | | | | (8,692) |
Other adjustments (5) | | | | | | | | | (4,884) |
Financial income | | | | | | | | | 45,889 |
Financial expenses | | | | | | | | | (43,823) |
Foreign exchange gains | | | | | | | | | (7,791) |
Result from investments accounted for using the equity method | | | | | | | | | 2,794 |
Loss before taxes | | | | | | | | | (96,959) |
______________
The following table provides a breakdown of revenues by geographic area:
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
of which Greater China Region | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| EMEA includes Europe, the Middle East and Africa.
|
| North America includes the United States of America and Canada.
|
| Latin America includes Mexico, Brazil and other Central and South American countries.
|
| APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
|
| Other revenues mainly include royalties and certain sales of old season products.
|
Other income mainly consists of miscellaneous income that is not directly attributable(1)Costs related to the sale of the Group’s goods or services, royalties or operating licenses, such as income from the sale of advertising materials, tax refund commissions and other miscellaneous income. Other income for the year ended December 31,Business Combination in 2021 also includes income of Euro 1,266include:
(a)€114,963 thousand relating to share-based payments for listing services recognized as the saleexcess of rights to build or develop airspace above a buildingthe fair value of the Company ordinary shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired, in the United States.
accordance with IFRS 2. | | Cost of raw materials and consumables
|
The following table provides a breakdown for cost of raw materials and consumables:
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
| | | (108,442 | ) | | | (108,130 | ) | | | (139,965 | ) |
| | | (161,731 | ) | | | (130,006 | ) | | | (141,512 | ) |
| | | (12,951 | ) | | | (10,909 | ) | | | (14,067 | ) |
Change in raw materials, consumables and finished goods | | | (24,822 | ) | | | 131 | | | | (9,991 | ) |
| | | (1,663 | ) | | | (1,655 | ) | | | (4,266 | ) |
| | | | | | | | | | | | |
Total cost of raw materials and consumables | | | | | | | | | | | | |
| | Purchased, outsourced and other costs
|
The following table provides a breakdown for purchased, outsourced and other costs:
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
Consultancy fees and corporate bodies fees | | | (75,737 | ) | | | (33,706 | ) | | | (38,460 | ) |
Advertising and marketing expenses | | | (57,224 | ) | | | (47,467 | ) | | | (60,789 | ) |
| | | (56,345 | ) | | | (32,755 | ) | | | (68,248 | ) |
Outsourcing of production | | | (53,402 | ) | | | (59,411 | ) | | | (74,829 | ) |
Freight, insurance and selling expenses | | | (49,241 | ) | | | (55,905 | ) | | | (67,477 | ) |
| | | (26,710 | ) | | | (22,423 | ) | | | (26,063 | ) |
| | | (14,610 | ) | | | (14,993 | ) | | | (12,672 | ) |
| | | (4,258 | ) | | | (5,982 | ) | | | (4,880 | ) |
| | | (16,102 | ) | | | (14,284 | ) | | | (18,279 | ) |
| | | | | | | | | | | | |
Total purchased, outsourced and other costs | | | | | | | | | | | | |
Consultancy fees and corporate bodies fees(b)€37,906 thousand for the year ended December 31, 2021 include Euro issuance of 5,031,250 the Company ordinary shares to the holders of IIAC class B shares to be held in escrow. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period.
(c)€34,092 thousand for transaction costs related to the Business Combination incurred by the Group, including costs for bank services, legal advisors and other consultancy services relating to the Business Combination. See Note 1 -for a description of the Business Combination.fees. Other services mainly include costs for postal services, telephone and communication, training and other external services.
The following table provides a breakdown for lease expenses:
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
| | | 12,877 | | | | 24,931 | | | | — | |
| | | (63,421 | ) | | | (54,665 | ) | | | (63,361 | ) |
Expenses relating to short-term leases | | | (5,697 | ) | | | (2,260 | ) | | | (4,029 | ) |
Expenses relating to low value leases | | | (104 | ) | | | (761 | ) | | | (858 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The Group’s variable lease payments are typically linked to sales without a guaranteed minimum.
In 2021 and 2020 lease payments reflect Euro 12,877(d)€10,916 thousand and Euro 24,931thousand, respectively, of rent reductions from lessors, recognized in accordance with the specific amendments to IFRS 16 adopted in 2021 and 2020 as a result of theCOVID-19
pandemic.For lease payments not required to be capitalized asassets under IFRS 16 (short term and low value leases), the costs are recognized as the lease expenses are incurred.The following table provides a breakdown for personnel costs:
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
| | | (271,767 | ) | | | (209,965 | ) | | | (250,196 | ) |
Social contributions, pension plans and indemnities | | | (51,725 | ) | | | (50,750 | ) | | | (61,156 | ) |
| | | (16,290 | ) | | | — | | | | — | |
| | | (8,996 | ) | | | (12,308 | ) | | | (9,778 | ) |
| | | (8,702 | ) | | | — | | | | — | |
| | | (4,434 | ) | | | (5,013 | ) | | | (8,481 | ) |
Insurances and other benefits | | | (2,455 | ) | | | (3,142 | ) | | | (1,460 | ) |
| | | (3,393 | ) | | | (1,481 | ) | | | (873 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Wages and salaries for the
year ended December 31, 2021 include Euro 10,916 thousand relating toZegna family’s grant of a
Euro 1,500€1,500 special gift to each employee of the Group as
a result of the Company’s listing
on the NYSEcompleted on December 20,
2021 (Monterubello agreed to reimburse the cost incurred by the Group as an equity contribution, which was received in February 2022, see also Note 42 -Related party transactions
). Wages and salaries for the year ended December 31, 2020 were impacted by several actions taken in 2020 in response toCOVID-19
(many of which were partially or fully reversed in 2021), including the impact of furlough and other temporary layoff measures taken at our DOSs, cuts on senior andmid-level
manager salaries and permanently reduced headcount in certain business functions.2021.Share-based payments in 2021 include (i) Euro 6,138 thousand relating to long-term incentives granted to the Group’s Chief Executive Officer (“CEO”) that vest in three tranches in 2022, 2023 and 2024 subject to the achievement of certain performance and service conditions; (ii) Euro (e)€5,380 thousand relating to the grant of performance share units, which each represent the right to receive one Zegna ordinary share of the Company, to some Zegnathe Group’s Chief Executive Officer, other directors of the Group, key executives with strategic responsibilities and other employees of the Group, all subject to certain performance and service conditions, (iii) Euro vesting conditions. For additional information please refer to Note 37 — Share-based payments.
(f)€1,236 thousand related to 800,000the fair value of private warrants issued, pursuant to the Business Combination, to certain Zegnanon-executive
directors and (iv) Euro 3,536of the Group. (g)€566 thousand for other equity incentives to key management. For additional information related to these awards and other incentives awarded to the key management please refer to Note 42 -Related party transactions
and for additional information related to the Business Combination please referwrite-off of non-refundable prepaid premiums for directors’ and officers’ insurance. These amounts are recorded within “selling, general and administrative expenses” for €200,961 thousand, within “cost of sales” for €4,086 thousand and “marketing expenses” for €12 thousand in the consolidated statement of profit and loss and are related to Note 1 -Corporate for €190,996 thousand, to the Zegna segment for €13,028 thousand and to the Thom Browne segment for €1,035 thousand. Other long-term benefits include Euro 8,702 thousand relating to bonuses earned by certain of Zegna’s senior management team (excluding the CEO) which will be paid in 2024.
Severance indemnities include restructuring(2)Net costs related to supply chain (Euro 7,828 thousandlease agreements in 2021 Euro 1,599 thousand in 2020 and Euro 6,935 thousand in 2019), to distribution companies and headquarter functions (Euro 1,168 thousand in 2021, Euro 5,371 thousand in 2020 and Euro 2,827 thousand in 2019) andrelate entirely to the woman division business (NaN in 2021, Euro 3,407 thousand in 2020Zegna segment and Euro 16 thousand in 2019), as well as a provision for severance indemnities (NaN in 2021, Euro 1,931 thousand in 2020recorded within “selling, general and NaN in 2019).
| | Depreciation, amortization and impairment of assets
|
The following table provides a breakdown for depreciation, amortization and impairment of assets:
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
Depreciation and amortization | | | (154,195 | ) | | | (166,205 | ) | | | (168,210 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Property, plant and equipment and investment property | | | | | | | | | | | | |
Intangible assets with a finite useful life | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Property, plant and equipment | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total depreciation, amortization and impairment of assets | | | | | | | | | | | | |
The impairment ofassets and property, plant and equipment primarily relates to the impairment of directly operated stores that are part of the Zegna Segment. Impairments ofassets and property, plant and equipment for the year ended December 31, 2020 include the effects of theCOVID-19
pandemic on the Group’s operations and primarily to stores in Hong Kong that are part of the Zegna Segment, due to ongoing developmentsadministrative expenses” in the
area that could affect future cash flow generation.
13. Write downsprofit and otherloss and include (i) €12,192 thousand of provisions
The relating to a lease agreement in the United States following table provides a breakdown for write downs and other provisions:
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
Provision for legal expenses | | | (12,257 | ) | | | (2,484 | ) | | | 409 | |
Agnona disposal and write downs | | | (6,150 | ) | | | (988 | ) | | | — | |
Provision for restoration obligations for leased stores | | | (349 | ) | | | (1,992 | ) | | | (2,331 | ) |
Reversal/(Loss) allowance on trade receivables | | | 498 | | | | (3,636 | ) | | | (727 | ) |
| | | (1,229 | ) | | | 2,922 | | | | 1,632 | |
| | | | | | | | | | | | |
Total write downs and other provisions | | | | | | | | | | | | |
On February 17, 2022, an unfavorable legal claim judgment was handed down against the Group, (ii) €1,492 thousand of legal expenses related to a lease agreement in respect of a legal claimItaly and (iii) €1,829 thousand in accrued property taxes related to a lease agreement in the US, resultingUK.
(3)Relates to severance indemnities incurred by the Zegna segment of €8,996 thousand and recorded within “selling, general and administrative expenses” in the recognitionconsolidated statement of an additional provisionprofit and loss.
(4)Net impairment of Euro 12,192 thousand. Atleased and owned stores in 2021 includes impairment of (i) €6,486 thousand related to right-of-use assets, (ii) €2,167 thousand related to property, plant and equipment and (iii) €39 thousand related to intangible assets. These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss and are related to the Zegna segment.
(5)Other adjustments for the year ended December 31, 2021 the total provision for the legal claim amounted to Euro 28,254 thousand (USD 32,000 thousand), reflecting management’s best estimate of the obligation based on the current facts and circumstances. The Group has appealed the decision and no payments have yet been made to the claimant pending outcome of the appeal.
Agnona disposal and write downs includes Euro 6,006include €6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Group
was
required to compensate
Agnonathe company in accordance with the terms of the related sale agreement, as well as
Euro 144€144 thousand relating to the write down of the Group’s remaining 30% stake in
Agnona. Agnona, both of which relate to Corporate, partially offset by other income generated by the Zegna segment of €1,266 thousand relating to the sale of rights to build or develop airspace above a building in the United States. These amounts are recorded within “selling, general and administrative expenses” in the consolidated statement of profit and loss.
Other provisions for both periods include releasesThe following table summarizes non-current assets (other than financial instruments and deferred tax assets) by geography at December 31, 2023 and 2022.
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
EMEA (1) | 359,174 | | 281,749 |
of which Italy | 211,394 | | 178,714 |
North America (2) | 739,044 | | 549,634 |
of which United States (3) | 730,090 | | 546,362 |
Latin America (4) | 4,926 | | 5,147 |
APAC (5) | 181,455 | | 143,673 |
of which Greater China Region | 113,134 | | 103,621 |
of which Japan | 18,415 | | 21,339 |
of which South Korea (6) | 27,624 | | — |
Total non-current assets (other than financial instruments and deferred tax assets) | 1,284,599 | | 980,203 |
__________________(1)EMEA includes Europe, the Middle East and Africa.
(2)North America includes the United States of previously recognized provisions.America and Canada.
(3)Non-current assets in the United States at December 31, 2023 and 2022 included goodwill of €206,699 thousand and €214,141 thousand, respectively, and intangible assets with an indefinite useful life relating to the Thom Browne brand of €162,832 thousand and €168,694 thousand, respectively, which originated on acquisition of the Thom Browne Group in 2018. For additional information see Note 14 — Intangible assets.
(4)Latin America includes Mexico, Brazil and other Central and South American countries.
(5)APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
(6)Non-current assets in South Korea at December 31, 2023 included goodwill of €24,003 thousand originated on acquisition of the Thom Browne business in South Korea in 2023. For additional information see Note 14 — Intangible assets
Non-current assets (other than financial instruments and deferred tax assets) in the Netherlands, the Company’s country of domicile, amounted to €1,328 thousand and €1,909 thousand at December 31, 2023 and 2022, respectively.
14. Other operating costsF-41
6. Revenues
The Group generates revenues primarily from the sale of its products and services, as well as from royalties received from third parties and licensees. Revenues are recognized net of returns and discounts.
The following table provides a breakdown for other operating costs:of revenues by product line:
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
ZEGNA branded products(1) | 1,109,491 | | 923,942 | | 847,311 |
Thom Browne | 378,410 | | 330,014 | | 263,397 |
TOM FORD FASHION | 235,531 | | — | | — |
Textile | 150,986 | | 136,769 | | 102,244 |
Third Party Brands | 25,343 | | 97,792 | | 74,957 |
Other | 4,788 | | 4,323 | | 4,493 |
Total revenues | 1,904,549 | | 1,492,840 | | 1,292,402 |
_________________(1)ZEGNA branded products include apparel, bags, shoes and small and large leather goods, as well as licensed goods and royalties.
The following table provides a breakdown of revenues by distribution channel:
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
Direct to Consumer (DTC) | | | | | |
ZEGNA branded products | 945,313 | | 772,505 | | 712,862 |
Thom Browne | 183,422 | | 145,702 | | 138,567 |
TOM FORD FASHION | 136,291 | | — | | — |
Total Direct to Consumer (DTC) | 1,265,026 | | 918,207 | | 851,429 |
| | | | | |
Wholesale | | | | | |
ZEGNA branded products | 164,178 | | 151,437 | | 134,449 |
Thom Browne | 194,988 | | 184,312 | | 124,830 |
TOM FORD FASHION | 99,240 | | — | | — |
Third Party Brands and Textile | 176,329 | | 234,561 | | 177,201 |
Total Wholesale | 634,735 | | 570,310 | | 436,480 |
Other | 4,788 | | 4,323 | | 4,493 |
Total revenues | 1,904,549 | | 1,492,840 | | 1,292,402 |
The following table provides a breakdown of revenues by geographic area:
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
EMEA (1) | 658,694 | | 520,226 | | 380,325 |
of which Italy | 281,793 | | 224,342 | | 158,722 |
of which UK | 70,191 | | 53,970 | | 37,682 |
of which UAE | 68,729 | | 50,926 | | 32,944 |
North America (2) | 417,352 | | 294,686 | | 191,283 |
of which United States | 384,544 | | 270,312 | | 176,059 |
Latin America (3) | 37,538 | | 29,889 | | 19,971 |
APAC (4) | 788,007 | | 644,802 | | 696,344 |
of which Greater China Region | 595,515 | | 494,110 | | 588,876 |
of which Japan | 84,990 | | 65,445 | | 55,479 |
Other (5) | 2,958 | | 3,237 | | 4,479 |
Total revenues | 1,904,549 | | 1,492,840 | | 1,292,402 |
_______________(1)EMEA includes Europe, the Middle East and Africa.
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
Costs related to the Business Combination | | | (152,869 | ) | | | — | | | | — | |
| | | (8,939 | ) | | | (6,665 | ) | | | (10,046 | ) |
| | | (7,919 | ) | | | (5,886 | ) | | | (17,117 | ) |
| | | (3,327 | ) | | | (3,541 | ) | | | (6,459 | ) |
Gifts, associations and donations | | | (2,891 | ) | | | (10,834 | ) | | | (12,338 | ) |
Stationary and other materials | | | (1,766 | ) | | | (1,904 | ) | | | (1,502 | ) |
Losses on disposals of assets | | | (1,153 | ) | | | (1,091 | ) | | | (970 | ) |
| | | (1,972 | ) | | | (478 | ) | | | (602 | ) |
| | | | | | | | | | | | |
Total other operating costs | | | | | | | | | | | | |
(2)North America includes the United States of America and Canada.
(3)Latin America includes Mexico, Brazil and other Central and South American countries.
(4)APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
(5)Other revenues mainly include royalties.
Revenues in the Netherlands, the Company’s country of domicile, amounted to €15,505 thousand, €8,701 thousand and €6,320 thousand for the years ended December 31, 2023, 2022 and 2021, respectively.
7. Cost of sales
Cost of sales in 2023, 2022 and 2021 amounted to €680,235 thousand, €564,832 thousand and €495,702 thousand, respectively, consisting of costs directly related to the production, procurement and supply of goods and services, including direct labor costs, costs for raw materials and components used to manufacture the Group’s products (such as fibers and yarns of wool, silk, cotton, linen, cashmere and fabrics of the same composition, as well as leather), costs for semi-finished products, finished goods, consumables and outsourced manufacturing from third parties. Cost of sales also includes depreciation, amortization and impairment of assets used for production, lease expenses, maintenance, write downs of inventory, freight and duty, and other production related costs, including manufacturing overhead. The remaining costs mainly include insurance and transportation costs.
8. Selling, general and administrative expenses
Selling, general and administrative expenses in 2023, 2022 and 2021 amounted to €901,364 thousand, €695,084 thousand and €822,897 thousand, respectively, consisting mainly of costs for sales and administrative personnel, corporate bodies, consultancy and accounting fees, as well as depreciation, amortization and impairment of assets used for selling and administrative activities. Costs related to the Business Combination
include (i) Euro 114,963amounted to €2,034 thousand,
relating to the excess of the fair value of Zegna ordinary shares issued as part of the Business Combination€2,099 thousand and
the fair value of IIAC’s identifiable net assets acquired, accounted for in accordance with IFRS 2 and measured based on the closing price of IIAC’s shares of $10.14 per share on December 17, 2021, and (ii) Euro 37,906 thousand for the issuance of 5,031,250 Zegna ordinary shares to the holders of IIAC class B shares to be held in escrow, accounted for in accordance with IFRS and measured using a Monte Carlo simulation model. The release of these shares from escrow is subject to achievement of certain targets within a seven-year period. For additional information related to the Business Combination please refer to Note 1 -. Gifts, associations and donations in 2020 includes contributions to Fondazione Zegna for Euro 200€200,961 thousand in 2020 (Euro 9992023, 2022 and 2021, respectively.
9. Marketing expenses
Marketing expenses in 2023, 2022 and 2021 amounted to €114,802 thousand,
€85,147 thousand and €67,831 thousand, respectively, consisting mainly of costs for advertising and marketing activities, including personnel costs and costs for advertising, communications, media and events, such as fashion shows, store windows and displays. Marketing expenses also include depreciation, amortization and impairment of assets used in
2019), as well as donations amounting to Euro 4,482 to support the Civil Protection in Italyadvertising and
other initiatives during theCOVID-19
pandemic period.marketing activities.
15.10. Financial income, financial expenses and foreign exchange gains/(losses)losses
The following table provides a breakdown for financial income, financial expenses and foreign exchange gains/(losses):
losses: | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
Financial income | | | | | |
Options - Changes in fair value | 14,792 | | 470 | | 20,675 |
| | | | | |
Securities | 8,652 | | 8,154 | | 17,845 |
Hedging operations | 2,968 | | 241 | | 661 |
Interest on financial other assets | 2,707 | | 1,226 | | 1,881 |
Interest on financial receivables/loans | 187 | | 501 | | 583 |
Derivative financial instruments | 6,767 | | 1,022 | | 2,760 |
Other financial income | 1,209 | | 1,706 | | 1,484 |
Total financial income | 37,282 | | 13,320 | | 45,889 |
| | | | | |
Financial expenses | | | | | |
Options - Changes in fair value | — | | (11,426) | | (13,391) |
Hedging operations | (6,736) | | (11,701) | | (7,044) |
Interest and financial charges for lease liabilities | (17,030) | | (9,882) | | (8,982) |
Warrants - Changes in fair value | (22,909) | | (1,171) | | (4,137) |
Securities | (4,412) | | (13,426) | | (3,902) |
Interest on bank loans and overdrafts | (13,361) | | (4,785) | | (2,845) |
Interest expenses on interest rate swaps | (300) | | (1,356) | | (2,076) |
Other financial expenses | (3,373) | | (599) | | (1,446) |
Total financial expenses | (68,121) | | (54,346) | | (43,823) |
| | | | | |
Foreign exchange losses | (5,262) | | (7,869) | | (7,791) |
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
| | | | | | | | | | | | |
Options - Changes in fair value | | | 20,675 | | | | 17,743 | | | | 0 | |
| | | 17,845 | | | | 10,812 | | | | 11,364 | |
| | | 661 | | | | 358 | | | | 843 | |
Interest on financial other assets | | | 1,881 | | | | 2,462 | | | | 3,665 | |
Interest on financial receivables/loans | | | 583 | | | | 1,391 | | | | 2,494 | |
Derivative financial instruments | | | 2,760 | | | | 0 | | | | 2,986 | |
| | | 1,484 | | | | 1,586 | | | | 709 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Options - Changes in fair value | | | (13,391 | ) | | | (15,729 | ) | | | (4,154 | ) |
| | | (7,044 | ) | | | (6,716 | ) | | | (11,386 | ) |
Interest and financial charges for lease liabilities | | | (8,982 | ) | | | (10,615 | ) | | | (11,522 | ) |
Warrants - Changes in fair value | | | (4,137 | ) | | | — | | | | — | |
| | | (3,902 | ) | | | (8,272 | ) | | | (2,346 | ) |
Interest on bank loans and overdrafts | | | (2,845 | ) | | | (3,765 | ) | | | (5,248 | ) |
Interest expenses on interest rate swaps | | | (2,076 | ) | | | (2,002 | ) | | | (1,987 | ) |
Derivative financial instruments | | | 0 | | | | (380 | ) | | | 0 | |
| | | (1,446 | ) | | | (593 | ) | | | (849 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Foreign exchange (losses)/gains | | | | | | | | | | | | |
Financial income and financial expenses relating to options represent the fair value changes during the period in the value of the put options owned by the
non-controlling
interests in the Group’s investments in Thom Browne
Group and Gruppo Dondi
S.p.A. (“Dondi”) and
for 2021 only, in Lanificio, as well as
for 2021 only the remeasurement of cash-settled share-based payments.
For the year ended December 31, 2021, financial income relating to options
relatedprimarily relates to a gain of
Euro 20,675€20,675 thousand recognized following the purchase of an additional 5% of the Thom Browne Group on June 1,
2021, as further described in Note 34 -Other current andnon-current
financial liabilities.2021. The put option relating to the remaining 10% of
non-controlling
interest was remeasured at fair value at December 31,
2021,2023 and 2022, resulting in
ana decrease in the liability and financial income of €11,587 thousand for the year ended December 31, 2023, mainly due to the increase in the discount interest rate (an increase in the liability and financial expenses of
Euro 7,833 thousand. Financial€11,426 thousand and €7,833 thousand for the year ended December 31, 2022 and 2021, respectively).For the year ended December 31, 2023, financial income relating to options also includes €3,205 thousand related to the fair value remeasurement of the Dondi put option.
For the year ended December 31, 2021 financial expenses relating to options also include Euro 3,523€3,523 thousand related to the Lanificio put option which(which was exercised by the Groupclosed in July 2021 following the Group’s purchase of the remaining 10% of Lanificio for a total consideration of €9,600 thousand, following which the Group owns 100% of Lanificio), and Euro 2,035€2,035 thousand related to the Dondi put option. For the year ended December 31, 2020, financial income relating to options primarily relates to the Lanificio put option and financial expenses relating to options primarily relate to the Thom Browne put option.
See Note 34 -28 — Other current and
non-current
financial liabilities
for additional details relating to the Group’s written put options onnon-controlling
interests. As a result of the exercise and redemption of warrants in the first quarter of 2023, the Group remeasured the related warrant liabilities and recognized financial expenses of €22,909 thousand. For additional information see Note 28 — Other current and non-current financial liabilities.
Financial income and financial expenses relating to fixed incomefor securities primarily relate to fixed income investments and insurance contractsin securities held by the Group.
In line with the Group’s funding strategy, during 2023 the Group disposed of securities (primarily investments in insurance contracts, fixed income and hedge funds) amounting to €267,826 thousand for proceeds of €270,317 thousand that the Group primarily used to finalize the TFI Acquisition and for capital expenditures, as well as to repay borrowings.Interest on bank loansFinancial income and overdrafts mainly includes interestfinancial expenses on bank loans.
Other financial income for the year ended December 31, 2020 includes a Euro 1,000 thousand gain deriving from contingent consideration relatingsecurities relate to the Dondi acquisition that will not be payableinvestments in securities held by the Group as the defined performance targets were not met by Dondi.
Group.Foreign exchange losses for the years ended December 31, 2021, 20202023, 2022 and 2019,2021 amounted tolosses
of Euro 7,791 €5,262 thousand, gains of Euro
13,455€7,869 thousand and losses of Euro 2,441€7,791 thousand, respectively. Foreign exchange gains and losses primarily relate to exchange rate effects deriving from the remeasurement of the put options owned by thenon-controlling
interests in the Group’s investments. investments, and for the year ended December 31, 2023 only, to the reclassification of the cumulative translation losses related to the investment held in TFI, amounting to €4,705 thousand, from other comprehensive income to profit and loss at the date of the TFI Acquisition. For additional information relating to the TFI Acquisition see Note 39 — Business combinations.
The following table provides a breakdown for income taxes:
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
Current taxes | (54,795) | | (47,355) | | (47,882) |
Deferred taxes | 21,362 | | 11,553 | | 17,180 |
Income taxes | (33,433) | | (35,802) | | (30,702) |
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
| | | (47,882 | ) | | | (24,928 | ) | | | (31,557 | ) |
| | | 17,180 | | | | 9,945 | | | | (12,237 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The table below provides a reconciliation between actual income taxes and the theoretical income taxes, calculated on the basis of the applicable corporate tax rate in effect in Italy, which was
24.0%
24.0% for each of the years ended December 31,
2021, 20202023, 2022 and
2019. 2021. | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands, except percentages) | 2023 | | 2022 | | 2021 |
Profit/(Loss) before taxes | 169,094 | | 101,081 | | (96,959) |
Theoretical income tax (expense)/benefit - tax rate 24% | (40,583) | | (24,259) | | 23,270 |
Tax effect on: | | | | | |
Non-taxable income/(Non-deductible costs) | 11,454 | | (8,256) | | (23,863) |
Differences between foreign tax rates and the theoretical applicable tax rate | 5,847 | | 10,829 | | (2,849) |
Tax benefit/(expense) relating to prior years | 2,997 | | (96) | | (2,668) |
Deferred tax assets recognized from previous years | 7,425 | | — | | — |
Deferred tax assets not recognized | (4,107) | | 1,876 | | (14,978) |
Tax on dividends and earnings | (5,613) | | (5,366) | | (9,027) |
Other tax items | (6,363) | | (6,934) | | 449 |
Total tax expense, excluding IRAP | (28,943) | | (32,206) | | (29,666) |
Effective tax rate, excluding IRAP | 17.1 | % | | 31.9 | % | | (30.6 | %) |
Italian regional income tax expense (IRAP) | (4,490) | | (3,596) | | (1,036) |
Total income tax | (33,433) | | (35,802) | | (30,702) |
Effective tax rate | 19.8 | % | | 35.4 | % | | (31.7 | %) |
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
(Loss)/Profit before taxes | | | (96,959 | ) | | | (31,557 | ) | | | 69,233 | |
Theoretical income tax benefit/(expense) - tax rate 24% | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | (23,863 | ) | | | (10,353 | ) | | | (7,349 | ) |
| | | — | | | | 1,497 | | | | 1,545 | |
Differences between foreign tax rates and the theoretical applicable tax rate and tax holidays | | | (2,849 | ) | | | 20,321 | | | | (3,177 | ) |
Taxes relating to prior years | | | (2,668 | ) | | | (197 | ) | | | 192 | |
Deferred tax assets not recognized | | | (14,978 | ) | | | (25,727 | ) | | | (9,386 | ) |
Withholding tax on earnings | | | (9,027 | ) | | | (6,221 | ) | | | (5,366 | ) |
| | | 449 | | | | (727 | ) | | | (1,482 | ) |
| | | | | | | | | | | | |
Total tax expense, excluding IRAP | | | | | | | | | | | | |
Effective tax rate, excluding IRAP | | | (30.6 | )% | | | (43.8 | )% | | | 60.1 | % |
Italian regional income tax expense (IRAP) | | | (1,036 | ) | | | (1,150 | ) | | | (2,155 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
In order to facilitate the understanding of the tax rate reconciliation presented above, income tax expense
has been presentedincludes a presentation net
of other taxes paid abroad and of the Italian Regional Income Tax (“IRAP”)
. IRAP, which is
calculatedbased on a measure of income defined by the Italian Civil Code as the difference between operating revenues and costs, before financial income and expense, the cost of fixed term employees, credit losses and any interest included in lease payments.
IRAP is calculated using financial information prepared under Italian accounting standards. The applicable IRAP rate was
5.57%
5.57% for the Parent Company and
3.9%
3.9% for the other Italian components, for each of the years ended December 31,
2021,2023, 2022 and 2021.In 2020 and 2019.
Income taxes for 2019 include benefits from the Group sent a request to the Italian tax authorities to renew its application of the Patent Box tax regime in Italy, for certain trademarks, designs and models in the Group’s portfolio. The request for renewal of the Patent Box tax regime in 2020 was sent to the Italian tax authorities and the outcome is pending at December 31, 2021. The Group also applied for the Patent Box tax regime for the period from 2017 to 2021 for certain Italian companies of the Group; however, the application as to whether the regime may be claimed for specific goods remains ongoing.
The Patent Box tax regime was recently revised following the Law Decree (Decree) n. 146 enacted by the Italian authorities, which became effective on October 22, 2021 and was amended by the 2022 Italian budget law, and the new regime no longer provides for a partial exemption of the business income derived from certain trademarks, designs and models in the useGroup’s portfolio, for fiscal years up to 2021. The Italian tax authorities acknowledged the request and the outcome of qualified intangible assets. Underthe
renewal application is still pending at December 31, 2023. Following the enactment of new tax legislation in Italy in 2021, the previous Patent Box tax regime was replaced with a new Patent Box tax regime under which the amount of qualifying expenses relevant forare deductible by an additional 110% (for both IRES and IRAP purposes, is increased by 110%purposes). Specific transitional rules regulate the transition from the previous Patent boxBox tax regime to the new regime.
In the first quarter of 2024 the Group filed for the new Patent Box tax regime and its benefit will be recognized in financial year 2024 onwards.For the year ended December 31, 2023, other tax items includes €5,100 thousand recognized for uncertain tax positions (€5,000 thousand for the year ended December 31, 2022).
In December 2021, the Organisation for Economic Co-operation and Development (“OECD”) released a draft legislative framework, widely referred as Pillar Two, to ensure large multinational corporations pay a minimum level of tax on the income arising in each of the jurisdictions where they operate. In March 2022, the OECD issued technical guidance and an overview of the potential impact of the OECD Pillar Two legislation on financial statements prepared in accordance with IFRS.
The Pillar Two legislation aims to address Base Erosion and Profit Shifting (BEPS) by introducing a global minimum tax rate of 15% and implementing tax legislation for the allocation of taxing rights.
Since the Group’s ultimate parent Company office is registered in Italy, and that the Italian tax authorities have enacted new tax legislation to implement the Pillar Two framework, the global minimum top-up tax should be applied with respect to all subsidiaries of the Group. The newly enacted tax legislation in Italy is effective for financial years starting from December 31, 2023 (January 1, 2024 for the Ermenegildo Zegna Group), therefore there was no current tax impact for the year ended December 31, 2023.
The Group has prepared a preliminary Transitional Country-by-Country Reporting (CbCR) Safe Harbour assessment concluding on fiscal year 2023, based on which it expects to be eligible for the Transitional CbCR Safe Harbour in the majority of jurisdictions in which the Group is expected to be operating during fiscal year 2024. Based on analysis performed to date, the Group does not expect the application of the Pillar Two legislation to have a material impact on the Group’s income taxes in 2024.
Deferred tax assets and deferred tax liabilities
Deferred taxes reflect the net tax effect of temporary differences between the book value and the taxable amount of assets and liabilities. The accounting of assets for deferred taxes was duly adjusted to take account of the effective possibility to be realized.
The Group’s Italian entities participate in a group Italian tax consolidation under the Ermenegildo Zegna NV,N.V., and may therefore offset taxable income against tax losses of the companies participating in the Italian tax consolidation regime.
The following tables provide a breakdown for deferred tax assets and deferred tax liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | At December 31, 2022 | | Recognized in profit and loss | | Recognized in comprehensive income/(loss) | | Business Combination | | Exchange differences and other | | At December 31, 2023 |
Deferred tax assets arising on: | | | | | | | | | | | |
Employee benefits | 4,794 | | 1,564 | | (297) | | 86 | | (118) | | 6,030 |
Property, plant and equipment | 9,878 | | (1,401) | | — | | — | | 106 | | 8,583 |
Lease liabilities | 59,963 | | (4,373) | | — | | 46,141 | | 1,368 | | 103,099 |
Intangible assets | 3,229 | | (65) | | — | | — | | 215 | | 3,379 |
Provision for obsolete inventory | 27,647 | | 2,348 | | — | | | | (1,036) | | 28,959 |
Elimination of Intercompany margin on inventory | 28,447 | | 8,361 | | — | | 3,439 | | (546) | | 39,701 |
Provisions | 3,647 | | (223) | | (47) | | — | | (1,009) | | 2,368 |
Financial assets | 1,596 | | — | | (148) | | — | | — | | 1,448 |
Tax losses | 41,622 | | 1,601 | | — | | — | | 3,143 | | 46,366 |
Other | 503 | | 3,051 | | (17) | | 3,091 | | 537 | | 7,165 |
Total deferred tax assets | 181,326 | | 10,863 | | (509) | | 52,757 | | 2,660 | | 247,098 |
Deferred tax liabilities arising on: | | | | | | | | | | | |
Property, plant and equipment | 448 | | (184) | | — | | — | | 32 | | 296 |
Right-of-use assets | 57,156 | | (7,288) | | — | | 46,132 | | 615 | | 96,615 |
Intangible assets | 45,301 | | 1,370 | | — | | 327 | | (138) | | 46,860 |
Financial assets fair value | 2,382 | | 45 | | (210) | | — | | (400) | | 1,817 |
Other | 11,946 | | (4,442) | | (2,254) | | 4,776 | | 4,492 | | 14,517 |
Total deferred tax liabilities | 117,233 | | (10,499) | | (2,464) | | 51,235 | | 4,601 | | 160,105 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | At December 31, 2021 | | Recognized in profit and loss | | Recognized in comprehensive income/(loss) | | Exchange differences and other | | At December 31, 2022 |
Deferred tax assets arising on: | | | | | | | | | |
Employee benefits | 4,665 | | 352 | | (85) | | (138) | | 4,794 |
Property, plant and equipment | 11,107 | | (1,668) | | — | | 439 | | 9,878 |
Lease liabilities | 36,752 | | 23,255 | | — | | (43) | | 59,963 |
Intangible assets | 3,246 | | (85) | | — | | 68 | | 3,229 |
Provision for obsolete inventory | 21,077 | | 4,602 | | — | | 1,968 | | 27,647 |
Elimination of Intercompany margin on inventory | 21,695 | | 6,493 | | — | | 259 | | 28,447 |
Provisions | 2,851 | | 1,463 | | — | | (667) | | 3,647 |
Financial assets | 1,533 | | (84) | | — | | 147 | | 1,596 |
Tax losses | 36,766 | | 100 | | — | | 4,756 | | 41,622 |
Other | 2,685 | | 688 | | (18) | | (2,852) | | 503 |
Total deferred tax assets | 142,377 | | 35,116 | | (103) | | 3,937 | | 181,326 |
Deferred tax liabilities arising on: | | | | | | | | | |
Property, plant and equipment | — | | 452 | | — | | (4) | | 448 |
Right-of-use assets | 34,188 | | 22,953 | | — | | 18 | | 57,156 |
Intangible assets | 45,420 | | (202) | | — | | 83 | | 45,301 |
Financial assets fair value | 2,461 | | (1,423) | | 1,158 | | 186 | | 2,382 |
Other | 5,944 | | 1,783 | | 2,278 | | 1,941 | | 11,946 |
Total deferred tax liabilities | 88,013 | | 23,563 | | 3,436 | | 2,224 | | 117,233 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Recognized in profit and loss | | | Recognized in comprehensive income | | | Exchange differences and other | | | | | | | |
Deferred tax assets arising on: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3,900 | | | | 626 | | | | — | | | | 142 | | | | (3 | ) | | | 4,665 | |
Property plant and equipment | | | 10,124 | | | | 1,245 | | | | — | | | | — | | | | (262 | ) | | | 11,107 | |
| | | 2,289 | | | | 121 | | | | — | | | | 175 | | | | — | | | | 2,585 | |
| | | 3,297 | | | | (51 | ) | | | — | | | | — | | | | — | | | | 3,246 | |
Provision for obsolete inventory | | | 33,793 | | | | 6,082 | | | | — | | | | 2,897 | | | | — | | | | 42,772 | |
| | | 4,114 | | | | (1,360 | ) | | | — | | | | 97 | | | | — | | | | 2,851 | |
| | | 1,477 | | | | 56 | | | | — | | | | — | | | | — | | | | 1,533 | |
| | | 9,794 | | | | 26,972 | | | | — | | | | — | | | | — | | | | 36,766 | |
| | | 3,113 | | | | (428 | ) | | | — | | | | — | | | | — | | | | 2,685 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total deferred tax assets | | | | | | | | | | | | | | | | | | | | | | | | |
Deferred tax liabilities arising on: | | | | | | | | | | | | | | | | | | | | | | | | |
Property plant and equipment | | | 23,391 | | | | 9,288 | | | | — | | | | 1,844 | | | | (34,523 | ) | | | — | |
| | | 1,195 | | | | 183 | | | | — | | | | | | | | (1,359 | ) | | | 19 | |
| | | 40,039 | | | | 4,246 | | | | — | | | | 1,135 | | | | — | | | | 45,420 | |
Financial assets fair value | | | 1,776 | | | | 683 | | | | 2 | | | | — | | | | — | | | | 2,461 | |
| | | 4,327 | | | | 1,683 | | | | (66 | ) | | | — | | | | — | | | | 5,944 | |
Total deferred tax liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Recognized in profit and loss | | | Recognized in comprehensive income | | | Exchange differences and other | | | | |
Deferred tax assets arising on: | | | | | | | | | | | | | | | | | | | | |
| | | 5,104 | | | | (1,169 | ) | | | (61 | ) | | | 26 | | | | 3,900 | |
Property plant and equipment | | | 2,514 | | | | 7,773 | | | | — | | | | (163 | ) | | | 10,124 | |
| | | 1,944 | | | | 394 | | | | — | | | | (49 | ) | | | 2,289 | |
| | | 1,811 | | | | 1,486 | | | | — | | | | — | | | | 3,297 | |
Provision for obsolete inventory | | | 26,579 | | | | 7,073 | | | | — | | | | 141 | | | | 33,793 | |
| | | 1,384 | | | | 2,730 | | | | — | | | | — | | | | 4,114 | |
| | | 1,448 | | | | 29 | | | | — | | | | — | | | | 1,477 | |
| | | 9,750 | | | | 893 | | | | — | | | | (849 | ) | | | 9,794 | |
| | | 9,077 | | | | (7,678 | ) | | | — | | | | 1,714 | | | | 3,113 | |
| | | | | | | | | | | | | | | | | | | | |
Total deferred tax assets | | | | | | | | | | | | | | | | | | | | |
Deferred tax liabilities arising on: | | | | | | | | | | | | | | | | | | | | |
Property plant and equipment | | | 25,233 | | | | (3,535 | ) | | | — | | | | 1,693 | | | | 23,391 | |
| | | 1,008 | | | | 187 | | | | — | | | | — | | | | 1,195 | |
| | | 44,495 | | | | (1,063 | ) | | | — | | | | (3,393 | ) | | | 40,039 | |
Financial assets fair value | | | 2,173 | | | | (397 | ) | | | — | | | | — | | | | 1,776 | |
| | | 3,243 | | | | 6,394 | | | | — | | | | (5,310 | ) | | | 4,327 | |
| | | | | | | | | | | | | | | | | | | | |
Total deferred tax liabilities | | | | | | | | | | | | | | | | | | | | |
The decision to recognize deferred tax assets is made for each company in the Group by assessing whether the conditions exist for the future recoverability of such assets by taking into account the basis of the most recent forecasts from budgets and business plans. Deferred tax assets and deferred tax liabilities of the individual companies are offset where they may be legally offset and management has the intention to settle them through netting.
The following table provides the details of tax losses carried forward for which no deferred tax assets were recognized:
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Expiry within 1 year | 15,265 | | 9,936 |
Expiry 1-5 years | 20,793 | | 35,927 |
Expiry over 5 years | 66,384 | | 86,433 |
No expiration | 328,736 | | 321,389 |
Total tax losses carried forward | 431,178 | | 453,685 |
| | | | | | | | |
| | | |
| | | | | | |
| | | 4,587 | | | | 5,320 | |
| | | 33,108 | | | | 37,855 | |
| | | 73,856 | | | | 61,406 | |
| | | 188,922 | | | | 119,733 | |
| | | | | | | | |
Total tax losses carried forward | | | | | | | | |
Basic and diluted earnings per share wereare calculated as the ratio of net profit or (loss) attributable to the shareholders of the Company by the weighted average number of outstanding ordinary shares (basic and diluted) of the Company.
In accordance with IAS 33 -, for the calculation of both basic earnings per share and diluted earnings per share the number of ordinary and potential ordinary shares outstanding for all periods reflects the Share Split performed as part of the Business Combination. For additional information related to the Business Combination please refer to Note 1 -. The following table summarizes the amounts used to calculate basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands, except per share data ) | 2023 | | 2022 | | 2021 |
Profit/(Loss) attributable to shareholders of the Parent Company | 121,529 | | 51,482 | | (136,001) |
| | | | | |
Weighted average number of shares for basic earnings per share | 247,015,882 | | 237,545,736 | | 203,499,933 |
Adjustments for calculation of diluted earnings per share: | | | | | |
Long-Term Incentive Awards 2022-2025 (1) | 1,775,976 | | 946,990 | | — |
CEO 2022-2024 PSUs (2) | 1,149,273 | | 1,031,673 | | — |
CEO remuneration in shares (3) | 1,134,108 | | 1,081,513 | | — |
IPO PSUs (4) | 790,000 | | — | | — |
Long-term equity incentives (5) | 307,242 | | — | | |
Non-executive directors remuneration in shares (6) | 149,836 | | 41,601 | | — |
2023 Restricted Stock Units Plan (7) | 41,452 | | — | | — |
Weighted average number of shares for diluted earnings per share | 252,363,769 | | 240,647,513 | | 203,499,933 |
| | | | | |
Basic earnings per share in Euro | 0.49 | | 0.22 | | (0.67) |
Diluted earnings per share in Euro | 0.48 | | 0.21 | | (0.67) |
For the year ended December 31, 2023 and 2022, the diluted weighted average number of shares outstanding was increased to take into consideration the theoretical effect of the potential ordinary shares relating to equity awards granted by the Group, to the extent to which they are dilutive. All potential ordinary shares are assumed converted into ordinary shares at the beginning of the period or, if later, at the date of grant of the potential ordinary shares. The adjustments for the calculation of the weighted average number of shares for diluted earnings per share are further explained below. For additional information see also Note 37 — Share-based payments.
(1)Long-Term Incentive Awards 2022-2025 — Performance share units (“PSUs”) and retention restricted share units (“RSUs”) granted to the Group’s senior management (excluding the CEO) (“Senior Management Team”), which in the case of the PSUs are considered to be potential ordinary shares if the performance conditions relating to Adjusted EBIT and adjusted net financial indebtedness/(cash surplus) targets would have been met based on the Group’s performance
| | | | | | | | | | | | |
| | For the years ended December 31, | |
| | | | | | | | | |
(Loss)/Profit for the year attributable to shareholders of the Parent Company | | | | | | | | | | | | |
Weighted average number of shares for basic earnings per share | | | 203,499,933 | | | | 201,489,100 | | | | 201,561,100 | |
Weighted average number of shares for diluted earnings per share | | | 203,499,933 | | | | 201,489,100 | | | | 201,561,100 | |
| | | | | | | | | | | | |
Basic earnings per share in Euro | | | | | | | | | | | | |
Diluted earnings per share in Euro | | | | | | | | | | | | |
up to the reporting date, and in the case of the RSUs are considered to be potential ordinary shares if the recipient was still employed by the Group at the reporting date.
(2)CEO 2022-2024 PSUs — Performance share units (PSUs) granted to the CEO, which are considered to be potential ordinary shares if the performance conditions relating to Adjusted EBIT and adjusted net financial indebtedness/(cash surplus) targets would have been met based on the Group’s performance up to the reporting date.
(3)CEO remuneration in shares — Potential ordinary shares from the exercise of the share purchase rights of all or part of the CEO’s fixed remuneration.
(4)IPO PSUs — PSUs related to the Company’s public listing, granted to the CEO and certain members of the Senior Management Team, which are considered to be potential ordinary shares if the performance market conditions have been met and if the recipient was still employed by the Group at the reporting date.
(5)Long-term equity incentives — Potential ordinary shares of the Company granted to Senior Management Team equal to a value of $7,500 thousand, that will be assigned in 2024, which are considered to be potential ordinary shares if the recipient was still employed by the Group at the reporting date.
(6)Non-executive directors remuneration in shares — Potential ordinary shares of the Company granted to the non-executive directors for 50% of their annual base remuneration for services provided in 2022 and 2023 and that will be assigned to the recipients in 2024 and 2025.
(7)2023 Restricted Stock Units Plan — RSUs granted to Senior Management Team, which are considered to be potential ordinary shares if the recipient was still employed by the Group at the reporting date.
For the year ended December 31, 2021, as a result of the loss for the year, in accordance with IAS 33, the theoretical effect that would arise if all the outstanding stock options and warrants were exercised (represented by 1,417,947 weighted average potentially diluted shares) were not taken into consideration in the calculation of diluted loss per share as this would have had an anti-dilutive effect. For
13. Other information by nature
The following table provides a breakdown of depreciation and amortization and of personnel costs within the years endedconsolidated statement of profit and loss:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands) | 2023 | | 2022 | | 2021 |
| Depreciation and amortization | | Personnel costs | | Depreciation and amortization | | Personnel costs | | Depreciation and amortization | | Personnel costs |
Cost of sales | (16,376) | | (132,447) | | (13,557) | | (116,330) | | (13,034) | | (98,384) |
Selling, general and administrative expenses | (174,905) | | (344,421) | | (157,050) | | (270,845) | | (140,165) | | (262,053) |
Marketing expenses | (1,889) | | (10,276) | | (1,275) | | (7,912) | | (996) | | (7,325) |
Total | (193,170) | | (487,144) | | (171,882) | | (395,087) | | (154,195) | | (367,762) |
At December 31, 20202023 and 2019, diluted earnings per share is equal2022 the Group had 7,201 and 6,256, employees, respectively. Headcount increased mainly due to basic earnings per share as there were no potentially dilutive instruments.
the TFI Acquisition (580 TFI employees and 45 Pelletteria Tizeta employees at December 31, 2023).
The following table provides a breakdown for intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | Goodwill | | Brands with an indefinite useful life | | Concessions, licenses, trademarks and patents | | Other intangible assets | | Intangible assets in progress | | Total |
Historical cost at January 1, 2022 | 227,230 | | 158,864 | | 45,003 | | 126,661 | | 4,181 | | 561,939 |
Additions | — | | — | | 1,620 | | 23,474 | | 164 | | 25,258 |
Disposals | — | | — | | (3,164) | | (4,651) | | (3,199) | | (11,014) |
Exchange differences | 12,479 | | 9,830 | | 82 | | 518 | | — | | 22,909 |
Other movements and reclassifications | — | | — | | (1,202) | | 1,202 | | — | | — |
Balance at December 31, 2022 | 239,709 | | 168,694 | | 42,339 | | 147,204 | | 1,146 | | 599,092 |
Additions | — | | — | | 1,777 | | 21,598 | | 633 | | 24,008 |
Disposals | — | | — | | (369) | | (431) | | (166) | | (966) |
Business combinations | 23,966 | | — | | 99,295 | | 3,520 | | 305 | | 127,086 |
Exchange differences | (7,405) | | (5,862) | | (765) | | (851) | | (43) | | (14,926) |
Other movements and reclassifications | — | | — | | 1,644 | | (1,000) | | (1,769) | | (1,125) |
Balance at December 31, 2023 | 256,270 | | 162,832 | | 143,921 | | 170,040 | | 106 | | 733,169 |
| | | | | | | | | | | |
Accumulated amortization at January 1, 2022 | — | | — | | (39,132) | | (97,587) | | — | | (136,719) |
Amortization | — | | — | | (1,457) | | (10,926) | | — | | (12,383) |
Disposals | — | | — | | 2,761 | | 4,122 | | — | | 6,883 |
Impairment | — | | — | | 1 | | (27) | | — | | (26) |
Exchange differences | — | | — | | 838 | | (1,777) | | — | | (939) |
Balance at December 31, 2022 | — | | — | | (36,989) | | (106,195) | | — | | (143,184) |
Amortization | — | | — | | (3,963) | | (15,190) | | — | | (19,153) |
Disposals | — | | — | | 369 | | 413 | | — | | 782 |
Impairment | — | | — | | — | | (35) | | — | | (35) |
Exchange differences | — | | — | | 164 | | 531 | | — | | 695 |
Other movements and reclassifications | — | | — | | (929) | | 929 | | — | | — |
Balance at December 31, 2023 | — | | — | | (41,348) | | (119,547) | | — | | (160,895) |
Carrying amount at: | | | | | | | | | | | |
January 1, 2022 | 227,230 | | 158,864 | | 5,871 | | 29,074 | | 4,181 | | 425,220 |
December 31, 2022 | 239,709 | | 168,694 | | 5,350 | | 41,009 | | 1,146 | | 455,908 |
December 31, 2023 | 256,270 | | 162,832 | | 102,573 | | 50,493 | | 106 | | 572,274 |
The intangible assets held by the Group increased primarily as a result of the TFI Acquisition and goodwill arising from the acquisition of the Thom Browne business in South Korea of €23,966 thousand.
In particular, as part of the TFI Acquisition, the Group recognized a license agreement asset at its fair value of €99,295 thousand determined through an income approach based on the multi-period excess earnings method. The estimated useful life of the license agreement is 30 years, which includes the 20 guaranteed years as per the contract plus the automatic renewal period of 10 years which is subject to certain minimum performance conditions that management believes will be satisfied based on the business plan and information currently available. For additional information related to the acquisition of TFI and the Thom Browne business in South Korea, see Note 39 — Business combinations.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Brands with an indefinite useful life | | | Concessions, licenses, trademarks and patents | | | | | | Intangible assets in progress | | | | |
Historical cost at January 1, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | — | | | | — | | | | 1,658 | | | | 7,398 | | | | 2,468 | | | | 11,524 | |
| | | — | | | | — | | | | — | | | | (4,319 | ) | | | — | | | | (4,319 | ) |
| | | (17,181 | ) | | | (13,531 | ) | | | (327 | ) | | | (1,666 | ) | | | — | | | | (32,705 | ) |
Reclassifications to assets held for sale | | | — | | | | — | | | | (629 | ) | | | (1,889 | ) | | | — | | | | (2,518 | ) |
Other movements and reclassifications | | | — | | | | — | | | | 185 | | | | 33 | | | | (218 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | — | | | | — | | | | 2,895 | | | | 10,712 | | | | 4,508 | | | | 18,115 | |
| | | — | | | | — | | | | (6,572 | ) | | | (6,556 | ) | | | (19 | ) | | | (13,147 | ) |
| | | 15,529 | | | | 12,231 | | | | 476 | | | | 1,715 | | | | 61 | | | | 30,012 | |
| | | 2,820 | | | | — | | | | — | | | | 4,200 | | | | — | | | | 7,020 | |
| | | — | | | | — | | | | (18 | ) | | | (2,656 | ) | | | (915 | ) | | | (3,589 | ) |
Other movements and reclassifications | | | — | | | | — | | | | 1,407 | | | | 593 | | | | (2,000 | ) | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated amortization at January 1, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | — | | | | — | | | | (1,863 | ) | | | (9,552 | ) | | | — | | | | (11,415 | ) |
| | | — | | | | — | | | | — | | | | 4,316 | | | | — | | | | 4,316 | |
| | | — | | | | — | | | | 20 | | | | 1,100 | | | | — | | | | 1,120 | |
Reclassifications to assets held for sale | | | — | | | | — | | | | 384 | | | | 1,478 | | | | — | | | | 1,862 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | — | | | | — | | | | (2,045 | ) | | | (8,452 | ) | | | — | | | | (10,497 | ) |
| | | — | | | | — | | | | 2,314 | | | | 7,547 | | | | — | | | | 9,861 | |
| | | — | | | | — | | | | (3 | ) | | | (36 | ) | | | — | | | | (39 | ) |
| | | — | | | | — | | | | (228 | ) | | | (1,346 | ) | | | — | | | | (1,574 | ) |
| | | — | | | | — | | | | 8 | | | | 1,203 | | | | — | | | | 1,211 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill and brands with an indefinite useful life
Goodwill originated on acquisitions made by the Group and it isbrands with an indefinite useful life that are acquired separately are attributable to the following operating segments:
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
ZEGNA | 25,568 | | 25,568 |
Thom Browne | 393,534 | | 382,835 |
Total goodwill and brands with an indefinite useful life | 419,102 | | 408,403 |
| | | | | | | | |
| | | |
| | | | | | |
| | | 25,568 | | | | 22,748 | |
| | | 201,662 | | | | 186,133 | |
| | | | | | | | |
| | | | | | | | |
In accordance with IAS 36,
—(“IAS 36”), goodwill
isand brands with an indefinite useful life are not amortized and
isare tested for impairment annually, or more frequently if facts or circumstances indicate that the asset may be impaired. Goodwill
isand brands with an indefinite useful life are allocated to each of the Group’s CGUs (or groups of CGUs)
expected to benefit fromand the
synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired, in order to verify that the recoverable amount of the CGU is not less than the carrying amount of the CGU.The recoverable amount of all CGUs and groups of CGUs is based on a value in use calculation, which uses cash flow projections based on
most recentlast approved budget forecast calculations, which are prepared separately for each CGU. These budget and forecast calculations generally cover a period of three years. A long-term growth rate is calculated and applied to project future cash flows after the third year. In assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax
post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
The main assumptions to calculate the recoverable amount are the following:
•Terminal value: determined using the perpetuity method at a long-term growth rate which represents the present value, at the last year of projection, of all expected future cash flows, and the growth rate used to calculate the terminal value was 1.5%3% for the Zegna Segmentsegment and 2%3% for the Thom Browne Segment,segment, which has been determined according to the diverging inflation and GDP outlook in related geographical areas;
•Discount rate: the rate used to discount cash flows was calculated using the weighted average cost of capital (WACC).(“WACC”) post tax. For the year ended December 31, 2021,2023 impairment test, the WACC used for discounting purposes ranged between 6.40%8.81% and 10.65%9.55% (between 6.02%8.41% and 17.45% at December 31, 2020)12.04% for 2022). The WACC was calculated ad hoc for each CGU and group of CGUs subject to impairment, considering the parameters specific to the geographical area: market risk premium and sovereign bond yield;
•EBITDA: See table below for the EBITDA CAGRcompound annual growth rate (CAGR) assumptions utilized to calculate the expected future cash flows.
The calculation of value in use for all CGUs and groups of CGUs is most sensitive to the following assumptions:
•Growth rates used to extrapolate cash flows beyond the forecast period
period; andThe following table detailstables detail the sensitivity of the impairment testing to reasonably possible changes in both assumptions:
assumptions, for those CGUs that have significant goodwill and brands with an indefinite useful life allocated to them. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Sensitivity effects on headroom | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 327 | | | | 773 | | | | 200 | | | | +15.3 | % | | | 211/493 | | | | 395/270 | | | | 379/276 | |
| | | 62 | | | | 640 | | | | 150 | | | | +18.6 | % | | | 47/84 | | | | 71/54 | | | | 67/57 | |
| | | 5 | | | | 640 | | | | 150 | | | | +65.8 | % | | | 1/11 | | | | 8/3 | | | | 7/3 | |
| | | 78 | | | | 640 | | | | 150 | | | | +57.6 | % | | | 58/107 | | | | 90/68 | | | | 87/69 | |
Tessitura Ubertino S.r.l. | | | 24 | | | | 640 | | | | 150 | | | | +21.4 | % | | | 19/33 | | | | 28/22 | | | | 36/23 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2023 |
| | | Existing assumption | | Sensitivity effects on headroom |
(€ millions, except percentages and basis points) | Headroom | | WACC (bps) | | Growth rate (bps) | | EBITDA CAGR (%) vs. 2023 | | WACC +100 bps | | Growth rate -50 bps | | EBITDA -500 bps |
CGU Thom Browne Group (*) | 484 | | 881 | | 300 | | +15.9% | | 317 | | 403 | | 405 |
CGU Thom Browne Korea Ltd. | 31 | | 905 | | 300 | | n.a. | | 22 | | 27 | | 25 |
CGU Gruppo Dondi S.p.A. | 51 | | 955 | | 300 | | +15.5% | | 39 | | 45 | | 46 |
CGU Bonotto S.p.A. | 6 | | 955 | | 300 | | -9.5% | | 3 | | 5 | | 5 |
CGU In.Co. S.p.A. | 39 | | 955 | | 300 | | +11.2% | | 20 | | 30 | | 30 |
CGU Tessitura Ubertino S.r.l. | 20 | | 955 | | 300 | | -2.8% | | 16 | | 18 | | 18 |
_________________
(*) Excluding the Thom Browne business in South Korea, which is part of the CGU Thom Browne Korea Ltd.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2022 |
| | | Existing assumption | | Sensitivity effects on headroom |
(€ millions, except percentages and basis points) | Headroom | | WACC (bps) | | Growth rate (bps) | | EBITDA CAGR (%) vs. 2022 | | WACC +100 bps | | Growth rate -50 bps | | EBITDA -500 bps |
CGU Thom Browne Group | 454 | | 841 | | 300 | | +20.8% | | 362 | | 372 | | 381 |
CGU Gruppo Dondi S.p.A. | 66 | | 878 | | 300 | | +7.0% | | 52 | | 59 | | 61 |
CGU Bonotto S.p.A. | 3 | | 878 | | 300 | | -1.0% | | 0 | | 2 | | 2 |
CGU In.Co. S.p.A. | 110 | | 878 | | 300 | | +2.2% | | 85 | | 98 | | 98 |
CGU Tessitura Ubertino S.r.l. | 22 | | 878 | | 300 | | +6.6% | | 18 | | 20 | | 21 |
Based on the analysis performed, 0no impairment of goodwill was recognized for the years ended December 2021 and 2020. Goodwill from the acquisition of Pelle Tessuta S.r.l. was written off for Euro 480 thousand in 2019.
Brandsbrands with an indefinite useful life
Brands with an indefinite useful life relate to the Thom Browne brand (denominated in USD) and amounted to Euro 158,864 and Euro 146,633 thousand at December 31, 2021 and 2020, respectively. An impairment test of the Thom Browne Brand was performed at December 31, 2021, 2020 and 2019 in order to verify the recoverability of the asset following the purchase price allocation process which took place in 2018, due to the indefinite useful life classification of this brand. The 2021 test was carried out considering the cash flow projections from 2022 to 2024 plus a terminal value. A royalty rate of 9.1% was considered (average of comparables), derived from the analysis of comparable transactions and excluding marketing in line with the purchase price allocation process, in order to obtain a net royalty rate aligned to the implied royalty rates of the comparable companies.
A discount rate of 8.73% was used to discount expected future cash flows, equal to the Thom Browne Segment WACC of 7.73% plus a factor equal to 1% cautiously taken consistently with the purchase price allocation approach. The fair value of the brands was calculated as the net present value of expected future cash flows, including the terminal value, plus the tax amortization benefit.
Based on the analysis performed, 0 impairment of the Thom Browne brand was were recognized for the years ended December 31, 2021, 20202023 and 2019.2022.
19.15. Property, plant and equipment
The following table provides a breakdown for property, plant and equipment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | Land and buildings | | Plant and machinery | | Industrial and commercial equipment | | Leasehold improvements | | Other tangible assets | | Tangible assets under construction and advances | | Total |
Historical cost at January 1, 2022 | 8,537 | | 164,539 | | 144,831 | | 228,904 | | 8,710 | | 3,428 | | 558,949 |
Additions | 11 | | 6,171 | | 11,121 | | 27,081 | | 153 | | 3,637 | | 48,174 |
Disposals | — | | (17,130) | | (12,341) | | (18,874) | | (200) | | — | | (48,545) |
Exchange differences | — | | (37) | | 5,117 | | (2,353) | | 24 | | (30) | | 2,721 |
Reclassifications | — | | 320 | | (769) | | 3,432 | | (947) | | (2,036) | | — |
Balance at December 31, 2022 | 8,548 | | 153,863 | | 147,959 | | 238,190 | | 7,740 | | 4,999 | | 561,299 |
Additions | 33 | | 10,812 | | 14,342 | | 31,390 | | 562 | | 8,461 | | 65,600 |
Disposals | — | | (4,245) | | (8,302) | | (26,049) | | (104) | | (36) | | (38,736) |
Business combinations | — | | 238 | | 6,781 | | 12,094 | | 1,328 | | 158 | | 20,599 |
Exchange differences | — | | 121 | | (2,515) | | (10,812) | | (23) | | (358) | | (13,587) |
Reclassifications | — | | 966 | | 4,235 | | 6,752 | | (3,074) | | (7,798) | | 1,081 |
Balance at December 31, 2023 | 8,581 | | 161,755 | | 162,500 | | 251,565 | | 6,429 | | 5,426 | | 596,256 |
| | | | | | | | | | | | | |
Accumulated depreciation at January 1, 2022 | (3,735) | | (142,469) | | (120,599) | | (173,351) | | (6,841) | | (480) | | (447,475) |
Depreciation | (296) | | (6,879) | | (11,504) | | (20,356) | | (1,167) | | — | | (40,202) |
Disposals | — | | 17,048 | | 12,262 | | 18,747 | | 193 | | — | | 48,250 |
Impairment | — | | (23) | | (438) | | 1,217 | | — | | — | | 756 |
Exchange differences | — | | (71) | | (1,437) | | 4,139 | | 880 | | — | | 3,511 |
Reclassifications | 6 | | 71 | | (1,443) | | 17 | | 869 | | 480 | | — |
Balance at December 31, 2022 | (4,025) | | (132,323) | | (123,159) | | (169,587) | | (6,066) | | — | | (435,160) |
Depreciation | (250) | | (6,454) | | (13,538) | | (26,558) | | (278) | | — | | (47,078) |
Disposals | — | | 4,101 | | 7,840 | | 24,677 | | 94 | | — | | 36,712 |
Impairment | — | | 4 | | (406) | | (513) | | — | | — | | (915) |
Exchange differences | (162) | | (92) | | 2,195 | | 7,834 | | 18 | | — | | 9,793 |
Reclassifications | — | | 63 | | (1,844) | | — | | 1,781 | | — | | — |
Balance at December 31, 2023 | (4,437) | | (134,701) | | (128,912) | | (164,147) | | (4,451) | | — | | (436,648) |
Carrying amount at: | | | | | | | | | | | | | |
January 1, 2022 | 4,802 | | 22,070 | | 24,232 | | 55,553 | | 1,869 | | 2,948 | | 111,474 |
December 31, 2022 | 4,523 | | 21,540 | | 24,800 | | 68,603 | | 1,674 | | 4,999 | | 126,139 |
December 31, 2023 | 4,144 | | 27,054 | | 33,588 | | 87,418 | | 1,978 | | 5,426 | | 159,608 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Industrial and commercial equipment | | | | | | | | | Tangible assets under construction and advances | | | | |
Historical cost at January 1, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,834 | | | | 4,115 | | | | 6,537 | | | | 7,316 | | | | 1,075 | | | | 6,753 | | | | 27,630 | |
| | | — | | | | (682 | ) | | | (8,751 | ) | | | (23,513 | ) | | | (1,951 | ) | | | — | | | | (34,897 | ) |
| | | (59 | ) | | | (40 | ) | | | (6,798 | ) | | | (9,775 | ) | | | (132 | ) | | | (61 | ) | | | (16,865 | ) |
Reclassifications to assets held for sale | | | — | | | | (351 | ) | | | (3,102 | ) | | | (3,457 | ) | | | (452 | ) | | | (2 | ) | | | (7,364 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 51,296 | | | | 4,571 | | | | 10,252 | | | | 24,506 | | | | 360 | | | | 5,221 | | | | 96,206 | |
| | | (720 | ) | | | (2,150 | ) | | | (12,630 | ) | | | (21,812 | ) | | | (403 | ) | | | (512 | ) | | | (38,227 | ) |
| | | 4,483 | | | | 222 | | | | 4,756 | | | | 14,516 | | | | 51 | | | | 650 | | | | 24,678 | |
| | | (232,705 | ) | | | (30,448 | ) | | | (4,384 | ) | | | (34 | ) | | | (860 | ) | | | (9,159 | ) | | | (277,590 | ) |
| | | 245 | | | | 315 | | | | 6 | | | | — | | | | 75 | | | | — | | | | 641 | |
| | | 327 | | | | 118 | | | | 571 | | | | 5,086 | | | | — | | | | (6,102 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated depreciation at January 1, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (2,353 | ) | | | (9,166 | ) | | | (13,977 | ) | | | (19,346 | ) | | | (636 | ) | | | — | | | | (45,478 | ) |
| | | — | | | | 23 | | | | (342 | ) | | | (3,153 | ) | | | (539 | ) | | | — | | | | (4,011 | ) |
| | | — | | | | 682 | | | | 8,448 | | | | 22,943 | | | | 1,160 | | | | — | | | | 33,233 | |
| | | (103 | ) | | | (25 | ) | | | 4,579 | | | | 6,170 | | | | 56 | | | | — | | | | 10,677 | |
Reclassifications to assets held for sale | | | — | | | | 245 | | | | 2,011 | | | | 2,864 | | | | 443 | | | | — | | | | 5,563 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (478 | ) | | | (7,827 | ) | | | (11,693 | ) | | | (16,490 | ) | | | (1,167 | ) | | | — | | | | (37,655 | ) |
| | | — | | | | 2,164 | | | | 11,522 | | | | 19,305 | | | | 292 | | | | — | | | | 33,283 | |
| | | 0 | | | | (84 | ) | | | (595 | ) | | | (1,488 | ) | | | — | | | | (480 | ) | | | (2,647 | ) |
| | | (1,816 | ) | | | (267 | ) | | | (6,066 | ) | | | (12,362 | ) | | | (13 | ) | | | — | | | | (20,524 | ) |
| | | 61,473 | | | | 24,798 | | | | 2,307 | | | | 7 | | | | 597 | | | | — | | | | 89,182 | |
| | | 163 | | | | 45 | | | | 2,575 | | | | (3,525 | ) | | | 742 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The assets amortized or depreciated on a systematic basis are tested for impairment if there are indications of or changes to planning assumptions suggesting that the carrying amount of the assets is not recoverable. For this purpose, after preparing the annual budget plan, the Group conducts a triggering event test for each store. If defined
sales and profitability indicators are not reached, the
non-current
assets of the store in question are tested for impairment.
The method used to identify the recoverable amount (value in use) of all the aforementioned CGUs, except for the brands, consisted of discounting the projected cash flows (Discounted Cash Flow) generated by the activities directly attributable to the segment to which the intangible asset or net invested capital has been assigned (CGU). Value in use was
the sum of the present value of future cash flows expected from the business plan projections prepared for each CGU and the present value of the related operating activities at the end of the period (terminal value).
The business plans used to prepare the impairment test cover a periodthe last three months of 2023 and the three years and have been constructed on the basis of the 2022 budget prepared by management, using IFRS adjustments consistent with the IFRS consolidated financial statements.from 2024 to 2026.
The rate used to discount cash flows was calculated using the weighted average cost of capital (WACC). For the year ended December 31, 2021,2023, the WACC used for discounting purposes ranged between 4.99%8.64% and 21.63%12.56% (between 6.19%8.84% and 22.92%17.20% at December 31, 2020)2022). The WACC was calculated ad hoc for each CGU subject to impairment, considering the parameters specific to the geographical area: market risk premium and sovereign bond yield. The “g” rate of growth used to calculate the terminal value has been determined according to the diverging inflation and GDP outlooks in the various countries. The prevalent growth rate was 1.5%ranged between 2.0% and 3.0% for Zegna Segmentsegment, between 2.5% and 2%3.0% for Thom Browne Segment.segment and 3.0% for Tom Ford Fashion segment.
The impairment test of DOS assets takes into consideration those
assets, intangible assets and property,
and plant and equipment elements relating to directly operated stores of Zegna
Segment andsegment, Thom Browne
Segment.segment and Tom Ford Fashion segment. The result of the impairment test of DOS on the consolidated financial statements is obtained by comparing the recoverable amount, based on the value in use, of each CGU with the carrying amount of the tangible and intangible assets allocated to the CGU, including leases (according to the IFRS 16).
Impairment lossof €1,782 thousand recognized in 2023 was recognized equal to Euro 8,692composed of:
(a)impairment of €959 thousand and reversal of which Euro 2,168impairment of €44 thousand related to property, plant and equipment, Euro 6,486equipment;
(b)impairment of €832 thousand related to right-of-use assets; and
assets(c)impairment of €37 thousand and Euro 38reversal of impairment of €2 thousand related to intangible assets. The impairments areImpairment by segment, was composed of:
(a)impairment of €901 thousand and reversal of impairment of €46 thousand relating to the Zegna segment;
(b)impairment of €17 thousand related to the Zegna Segment.Thom Browne segment; and
(c)impairment of €910 thousand related to the Tom Ford Fashion segment
The calculation of value in use for this CGU is most sensitive to the following assumptions:
•Discount rates;
•Growth rates used to extrapolate cash flows beyond the forecast period
period;•Revenue compounded annual rate of growth (“CAGR”), which has been assessed taking into consideration the effects of theCOVID-19.
pandemic on the 2021 performance of the Group. In order to ensure that the changes to the main assumptions did
not significantly affect the results of the impairment tests, sensitivity analyses were conducted.
The following table detailstables present the sensitivity of the 20212023 and 2022 Zegna, Thom Browne and Tom Ford Fashion segments DOS impairment testingtest to reasonably possible changes in assumptions previous detailedthe aforementioned assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Existing assumption | | Sensitivity effects on impairment |
(€ millions, except percentages and basis points) | Impairment | | WACC (%) | | Growth rate (%) | | Revenues CAGR (%) vs. current year | | WACC +100 bps | | Growth rate -50 bps | | Revenues -250 bps |
Zegna segment DOS | | | | | | | | | | | | | |
2023 | (855) | | 8.64% / 12.56% | | 2.00% / 3.00% | | +15.7% | | (965) | | (917) | | (1,480) |
2022 | (2,231) | (1) | 8.84% / 17.20% | | 1.50% / 5.00% | | +7.6% | | (2,413) | | (2,258) | | (2,714) |
Thom Browne segment DOS | | | | | | | | | | | | | |
2023 | (17) | | 11.16% / 12.56% | | 2.50% / 3.00% | | +7.5% | | (17) | | (17) | | (17) |
2022 | (820) | | 8.84% / 11.59% | | 1.50% / 3.00% | | +9.5% | | (1,003) | | (848) | | (1,120) |
Tom Ford Fashion segment DOS | | | | | | | | | | | | | |
2023 | (910) | | 11.27% / 12.16% | | 3.00% | | +18.2% | | (925) | | (912) | | (1,029) |
_________________
(1)Gross of reversals related to the Zegna Segment:
reduction of right-of-use assets of €1,412 thousand. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Sensitivity effects on impairment | |
| | | | | | | | | | | | | |
| | |
| | |
| |
| | | (8,692 | ) | | | 4.99% - 21.63 | % | | | 1.50 | % | | | +9.7 | % | | | (8,994) / (8,344 | ) | | | (8,692) / (8,692 | ) | | | (8,320) / (9,048 | ) |
|
The following table details the sensitivity of the 2021 impairment testing to reasonably possible changes in assumptions previous detailed related to the Thom Browne Segment: | |
| | | | | | | | Sensitivity effects on impairment | |
| | | | | | | | | | | | | | | | | | | | | |
| | | — | | | | 7.13% - 10.33 | % | | | 2.00 | % | | | +6.9 | % | | | (95) / - | | | | - / (58 | ) | | | - / (235 | ) |
The sensitivity analysis of the
above-mentionedaforementioned assumptions (WACC, growth
rate
and revenues) used to determine the recoverable value, carried out on the CGUs subject to impairment testing, showed that negative changes in the basic assumptions could lead to an additional impairment loss.
Impairment test of corporate assets
The impairment test of corporate assets takes into consideration those assets whose recoverability is assessed at the reporting segment level: Zegna Segmentsegment (including corporate costs) and Thom Browne Segment.segment. There were 0no impairments arising from the 2021, 20202023, 2022 and 20192021 impairment tests performed.
The calculation of value in use for all CGUs is most sensitive to the following assumptions:
•Growth rates used to extrapolate cash flows beyond the forecast period
period;•EBITDA growth rate over the explicit period of the business planplan.
In order to ensure that the changes to the main assumptions did not significantly affect the results of the impairment tests, sensitivity analyses were conducted.
The following table detailstables present the sensitivity analysis of the 20212023 and 2022 impairment testingtest of corporate assets to reasonably possible changes in assumptions previous detailed:aforementioned assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Existing assumption | | Sensitivity effects on headroom |
(€ millions, except percentages and basis points) | Headroom | | WACC (bps) | | Growth rate (bps) | | EBITDA CAGR (%) vs current year | | WACC +100 bps | | Growth rate -50 bps | | Revenues -250 bps |
CGU Zegna segment | | | | | | | | | | | | | |
2023 | 2,036 | | 898 | | 300 | | +18.9% | | 1,588 | | 1,822 | | 1,741 |
2022 | 1,590 | | 855 | | 300 | | +16.3% | | 1,196 | | 1,399 | | 1,337 |
CGU Thom Browne segment | | | | | | | | | | | | | |
2023 | 484 | | 881 | | 300 | | +15.9% | | 317 | | 403 | | 405 |
2022 | 454 | | 841 | | 300 | | +20.8% | | 362 | | 372 | | 381 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Sensitivity effects on headroom
| |
| | | | |
| | |
| | |
| | |
| | |
| | |
| |
| | | 1,277 | | | | 669 | | | | 150 | | | | +13.2 | % | | | 931 / 1,790 | | | | 1,485 / 1,106
| | | | 1,506 / 1,048
| |
| | | 325 | | | | 773 | | | | 200 | | | | +15.3 | % | | | 209 / 491
| | | | 393 / 269
| | | | 376 / 274
| |
Based on the analysis performed, except for the impairments of
non-current
assets indicated above, these stress tests continued to show ample headroom.
The following table provides a breakdown for
assets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | Land and buildings | | Industrial and commercial equipment | | Plant and machinery | | Other right-of-use assets | | Total |
Historical cost at January 1, 2022 | 715,325 | | 572 | | 168 | | 5,784 | | 721,849 |
Additions | 135,933 | | 32 | | — | | 1,816 | | 137,781 |
Disposals | (101,692) | | (80) | | — | | (1,789) | | (103,561) |
Exchange differences | 9,357 | | — | | — | | (18) | | 9,339 |
Balance at December 31, 2022 | 758,923 | | 524 | | 168 | | 5,793 | | 765,408 |
Additions | 139,057 | | 66 | | — | | 2,872 | | 141,995 |
Disposals | (65,322) | | (545) | | — | | (2,091) | | (67,958) |
Business combinations | 160,659 | | — | | — | | 210 | | 160,869 |
Exchange differences | (22,284) | | — | | — | | (19) | | (22,303) |
Balance at December 31, 2023 | 971,033 | | 45 | | 168 | | 6,765 | | 978,011 |
| | | | | | | | | |
Accumulated amortization at January 1, 2022 | (347,403) | | (449) | | (81) | | (3,446) | | (351,379) |
Amortization | (117,488) | | (117) | | (34) | | (1,658) | | (119,297) |
Impairments | (2,369) | | — | | — | | — | | (2,369) |
Disposals | 82,858 | | 80 | | — | | 1,694 | | 84,632 |
Exchange differences | (1,494) | | — | | — | | 7 | | (1,487) |
Balance at December 31, 2022 | (385,896) | | (486) | | (115) | | (3,403) | | (389,900) |
Amortization | (125,096) | | (75) | | (35) | | (1,733) | | (126,939) |
Impairments | (832) | | — | | — | | — | | (832) |
Disposals | 58,161 | | 546 | | — | | 1,653 | | 60,360 |
Exchange differences | 13,229 | | — | | — | | 23 | | 13,252 |
Balance at December 31, 2023 | (440,434) | | (15) | | (150) | | (3,460) | | (444,059) |
| | | | | | | | | |
Carrying amount at: | | | | | | | | | |
January 1, 2022 | 367,922 | | 123 | | 87 | | 2,338 | | 370,470 |
December 31, 2022 | 373,027 | | 38 | | 53 | | 2,390 | | 375,508 |
December 31, 2023 | 530,599 | | 30 | | 18 | | 3,305 | | 533,952 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Industrial and commercial equipment | | | | | | | | | | |
Historical cost at January 1, 2020 | | | | | | | | | | | | | | | | | | | | |
| | | 52,051 | | | | 96 | | | | — | | | | 1,637 | | | | 53,784 | |
| | | (48,392 | ) | | | (7 | ) | | | — | | | | (1,446 | ) | | | (49,845 | ) |
| | | (32,985 | ) | | | — | | | | — | | | | (32 | ) | | | (33,017 | ) |
Reclassifications to assets held for sale | | | (80 | ) | | | — | | | | — | | | | (156 | ) | | | (236 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | | | | | | | | | | | | | | | | | | | |
| | | 147,372 | | | | 18 | | | | | | | | 909 | | | | 148,299 | |
| | | (86,612 | ) | | | (151 | ) | | | (158 | ) | | | (1,381 | ) | | | (88,302 | ) |
| | | 37,071 | | | | — | | | | — | | | | (143 | ) | | | 36,928 | |
| | | (18,838 | ) | | | — | | | | — | | | | — | | | | (18,838 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Accumulated amortization at January 1, 2020 | | | | | | | | | | | | | | | | | | | | |
| | | (106,340 | ) | | | (166 | ) | | | (122 | ) | | | (1,882 | ) | | | (108,510 | ) |
| | | (15,716 | ) | | | — | | | | — | | | | — | | | | (15,716 | ) |
| | | 36,925 | | | | 7 | | | | — | | | | 1,431 | | | | 38,363 | |
| | | 7,309 | | | | — | | | | — | | | | 20 | | | | 7,329 | |
Reclassifications to assets held for sale | | | 80 | | | | — | | | | — | | | | 73 | | | | 153 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | | | | | | | | | | | | | | | | | | | |
| | | (103,908 | ) | | | (132 | ) | | | (73 | ) | | | (1,666 | ) | | | (105,779 | ) |
| | | (6,486 | ) | | | — | | | | — | | | | — | | | | (6,486 | ) |
| | | 73,546 | | | | 151 | | | | 155 | | | | 1,295 | | | | 75,147 | |
| | | (21,123 | ) | | | (31 | ) | | | (1 | ) | | | (13 | ) | | | (21,168 | ) |
| | | 2,233 | | | | — | | | | — | | | | — | | | | 2,233 | |
Reclassifications and other | | | (3,210 | ) | | | — | | | | — | | | | — | | | | (3,210 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
The Group leases various retail stores, warehouses, equipment and vehicles. Rental contracts are typically made for fixed periods of 1 year to 15 years but may have extension options. Contracts may contain both lease and
non-lease
components. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Extension options in a range of 1
yearsyear to 10 years are included in a number of property leases across the Group. These are used to maximize operational flexibility in terms of managing the assets used in the Group’s operations. Such extension options are exercisable only by the Group and not by the respective lessor. Other tangible assets mainly refer to vehicles.
For the yearyears ended December 31, 20212023 and 20202022 impairments were recognized for an amount of Euro 6,486€832 thousand and Euro 15,716€2,369 thousand, respectively, and primarily related to leased stores in Hong Kong, Japan, ItalyGreater China Region and the UKEurope that are part of the Zegna Segment.segment, to a leased stores in Greater China Region that is part of the Tom Ford Fashion segment, for 2023 only, and to a leased stores in Europe that is part of the Thom Browne segment, for 2022 only. For details related to the impairment testing performed overassets, please refer to Note 19 -15 — Property, plant and equipment
.equipment.
17. Investments ataccounted for using the equity method
The Group’s ownership percentages and the carrying value of investments accounted for using the equity method were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands, except percentages) | Tom Ford International LLC | | Pelletteria Tizeta S.r.l. | | Norda Run Inc. | | Filati Biagioli Modesto S.p.A. | | Luigi Fedeli e Figlio S.r.l. | | Total investments accounted for using the equity method |
Group’s percentage interest at December 31, 2023 | 100 | % | | 100 | % | | 25 | % | | 40 | % | | 15 | % | | |
Group’s percentage interest at December 31, 2022 | 15 | % | | 50 | % | | — | % | | 40 | % | | — | % | | |
| | | | | | | | | | | |
At January 1, 2022 | 18,345 | | 3,416 | | — | | 686 | | — | | 22,447 |
Disposal | — | | — | | — | | (2) | | — | | (2) |
Net income | 76 | | 1,292 | | — | | 831 | | — | | 2,199 |
Translation differences | (1,996) | | — | | — | | — | | — | | (1,996) |
At December 31, 2022 | 16,425 | | 4,708 | | — | | 1,515 | | — | | 22,648 |
Additions | 1,845 | | — | | 6,580 | | 6,700 | | 4,656 | | 19,781 |
Disposal | — | | — | | — | | (13) | | — | | (13) |
Net (loss)/income | (2,587) | | 350 | | (2) | | (712) | | (2) | | (2,953) |
Translation differences | 764 | | — | | 43 | | — | | — | | 807 |
Business combinations | (16,447) | | (5,058) | | — | | — | | — | | (21,505) |
At December 31, 2023 | — | | — | | 6,621 | | 7,490 | | 4,654 | | 18,765 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Filati Biagioli Modesto S.p.A. | | | Total investments at equity method | |
| | | | | | | | | | | — | | | | — | | | | | |
| | | 368 | | | | (1,902 | ) | | | — | | | | — | | | | (1,534 | ) |
| | | (225 | ) | | | — | | | | — | | | | — | | | | (225 | ) |
| | | — | | | | (353 | ) | | | — | | | | — | | | | (353 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | — | | | | | |
| | | 2 | | | | — | | | | 530 | | | | — | | | | 532 | |
| | | — | | | | (4,532 | ) | | | — | | | | — | | | | (4,532 | ) |
| | | 92 | | | | (4,232 | ) | | | (65 | ) | | | — | | | | (4,205 | ) |
| | | — | | | | — | | | | — | | | | — | | | | — | |
| | | — | | | | 1,764 | | | | 7 | | | | — | | | | 1,771 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | — | | | | | |
| | | — | | | | — | | | | — | | | | 313 | | | | 313 | |
| | | — | | | | — | | | | (472 | ) | | | — | | | | (472 | ) |
| | | 528 | | | | 1,893 | | | | — | | | | 373 | | | | 2,794 | |
| | | — | | | | (1,548 | ) | | | — | | | | — | | | | (1,548 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
On July 14, 2021At December 31, 2022 and January 1, 2022, although the Group acquired 40%
of the equity shares of Filati Biagioli Modesto S.p.A. for consideration of Euro 313 thousand, a company based in Montale (Pistoia) that specializes in the production of yarns.As a result of net losses incurred in 2020 and 2019 by Tom Ford International LLC (“Tom Ford”) the Group performed an impairment test over the carrying amount of its investment in Tom Ford. The method used to identify the recoverable amount (value in use) involves discounting the projected cash flows produced by the CGU. Value in use is the sum of the present value of future cash flows expected from the business plan projections and the present value of the related operating assets at the end of the business plan period (terminal value). The business plans used to prepare the impairment test cover a period of five years and have been constructed on the basis of the annual budgets prepared by the management of Tom Ford. The rate used to discount cash flows was calculated using the weighted average cost of capital (WACC).
For the year ended December 31, 2021, the WACC used for discounting purposes amounted to 13.59% (10.45% at December 31, 2020). The WACC was calculated ad hoc for Tom Ford, considering the parameters specific to the geographical area: market risk premium and sovereign bond yield. The “g” rate of growth used to calculate the terminal value has been determined at 1.5%. The results of the impairment test resulted in 0 impairment in 2021 and 2019, and an impairment loss of Euro 4,532 thousand in 2020.
Although the Group owns 15%
owned 15% of the equity shares of Tom Ford
International LLC (“TFI”), the Group
accountsaccounted for the investment under the equity method as the following requirements of IAS 28—
Investmentslnvestments in Associates and Joint Ventures
(“ (“IAS 28”) arewere met: the representation on the board of directors and the participation in policy-making processes. Furthermore, there arewere material transactions between the Group and Tom Ford.TFI. The results of impairment tests performed in 2021 and 2022 resulted in no impairment.As a result of the TFI Acquisition completed on April 28, 2023, the Group obtained 100% of TFI and 100% of Pelletteria Tizeta, which was previously 50% owned by the Group and 50% owned by TFI. The Group’s previously held equity interests in TFI and Pelletteria Tizeta were measured at their fair value as of the acquisition date and recognized as part of the consideration transferred according to IFRS 3 — Business Combinations (“IFRS 3”). The cumulative translation losses related to the previously held investment in TFI, amounting to €4,705 thousand, were reclassified from other comprehensive income to profit and loss at the acquisition date as foreign exchange losses. Following completion of the TFI Acquisition, TFI and Pelletteria Tizeta are consolidated by the Group. For additional information relating to the TFI Acquisition see Note 39 — Business combinations. Additions for the year ended December 31, 2023 included:
(ii)€6,580 thousand for the acquisition of a 25% minority stake interest in Canadian technical trail running shoe company Norda which was completed on March 31, 2023;
(iii)€4,656 thousand for the acquisition of a 15% minority stake interest in Luigi Fedeli e Figlio S.r.l., the world-renowned maker of fine Italian knitwear and yarns; and
(iv)€1,845 thousand for the conversion of financial receivables from TFI into a capital contribution prior to the TFI Acquisition.
Certain financial information of companies accounted for using the equity method is provided below at and for the period from the acquisition date to December 31, 2023 or for the year ended December 31, 2021,2023, as required by IFRS 12—Disclosure of Interest in Other Entities
(“ (“IFRS 12”). | | | | | | | | | | | | | | | | | |
(€ thousands) | Norda Run Inc. | | Filati Biagioli Modesto S.p.A. | | Luigi Fedeli e Figlio S.r.l. |
Total assets | 8,291 | | 61,084 | | 30,121 |
Total liabilities | 2,871 | | 42,266 | | 21,592 |
Total equity | 5,420 | | 18,818 | | 8,529 |
Net revenues | 4,433 | | 52,253 | | 7,048 |
Net income/(loss) | (7) | | (1,789) | | (13) |
| | | | | | | | | | | | |
| | Pelletteria Tizeta S.r.l. | | | | | | Filati Biagioli Modesto S.p.A. | |
| | | 29,311 | | | | 318,667 | | | | 37,707 | |
| | | 22,340 | | | | 444,006 | | | | 35,992 | |
| | | 6,971 | | | | (125,339 | ) | | | 1,715 | |
| | | 28,329 | | | | 221,480 | | | | 30,766 | |
| | | 1,055 | | | | 12,620 | | | | (333 | ) |
The following table provides a breakdown for investment property:
| | | | |
| | | |
Historical cost at December 31, 2019
| | | | |
| | | (4,917 | ) |
| | | | |
Balance at December 31, 2020
| | | | |
| | | 0 | |
| | | 4,445 | |
| | | (57,712 | ) |
| | | | |
Balance at December 31, 2021
| | | | |
| | | | |
Accumulated depreciation at December 31, 2019
| | | | |
| | | (802 | ) |
| | | 311 | |
| | | | |
Balance at December 31, 2020
| | | | |
| | | (264 | ) |
| | | (305 | ) |
| | | 4,082 | |
| | | | |
Balance at December 31, 2021
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
As a result of the Disposition, the Group’s investment property was disposed of in 2021 through the demerger to its existing shareholders of (i) the Group’s real estate assets, consisting of the Company’s former subsidiary EZ Real Estate, which directly and indirectly holds substantially all of Zegna’s real estate assets, as well as certain properties owned by Lanificio. For further details please refer to Note 1 -.
23.18. Other
non-current
financial assets
The following table provides a breakdown for other
non-current
financial assets:
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Guarantee deposits | 28,362 | | 26,814 |
Financial loans to related parties | — | | 2,240 |
Financial loans to TFI | — | | 1,862 |
Lease receivables from sublease | 1,115 | | 1,366 |
Other | 4,421 | | 3,958 |
Total other non-current financial assets | 33,898 | | 36,240 |
| | | | | | | | |
| | | |
| | | | | | |
| | | 29,399 | | | | 27,379 | |
Investment held in Elah Dufour S.p.A. | | | 0 | | | | 17,119 | |
Financial loans to related parties | | | 2,219 | | | | 0 | |
Financial loans to Tom Ford | | | 1,497 | | | | 1,198 | |
| | | 2,257 | | | | 3,567 | |
| | | | | | | | |
Total other non-current financial assets | | | | | | | | |
The investment of 10% previously held in Elah Dufour S.p.A. was part ofThere are no expected credit losses associated with the Disposition in 2021.guarantee deposits.
Financial loans to related parties consistsconsist of a loan to a company beneficially owned by a Zegna director’s family memberdirector of the Group in December 2021 for a principal amount of Euro
2.2
€2.2 million in order to acquire Zegnathe Company’s ordinary shares in December 2021.
In August 2023 the receivable was fully repaid.Financial loans to Tom Ford (in whichTFI that were settled during the Group holds a 15% interest) at December 31, 2020 mainly relatedperiod. For additional information relating to a loanTFI see Note 17 — Investments accounted for a principal amount of USD 45 million provided byusing the Group in multiple tranches between 2012 and 2014, bearing annual interest between 3% and 4%equity method. The full amount of the loan was repaid by Tom Ford upon its maturity in February 2020, amounting to USD 45 million plus accrued interest. The amount outstanding at December 31, 2021 relates to a loan with a principal amount of Euro 1.2 million due in 2023.
Other
non-current
financial assets primarily related to investments in other companies, which are measured at fair value at December 31,
2021.2023 and 2022.The following table provides a breakdown for inventories:
inventories (net of the provision for slow moving and obsolete inventories): | | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Raw materials, ancillary materials and consumables | 90,460 | | 61,822 |
Work-in-progress and semi-finished products | 46,735 | | 63,019 |
Finished goods | 385,394 | | 286,010 |
Total inventories | 522,589 | | 410,851 |
| | | | | | | | |
| | | |
| | | | | | |
Raw materials, ancillary materials and consumables | | | 42,255 | | | | 38,127 | |
and semi-finished products | | | 50,703 | | | | 42,466 | |
| | | 245,517 | | | | 240,878 | |
| | | | | | | | |
| | | | | | | | |
The amount of
inventory write-downs,
provisions for slow moving and obsolete inventories recognized
primarily within cost of raw materials, consumables and finished goods,
duringfor the years ended December 31,
2023, 2022 and 2021
2020 and 2019 was
Euro 29,600€59,558 thousand,
Euro 43,064€28,561 thousand and
Euro 20,799€29,600 thousand, respectively.
The following table provides the changes in the total provision for slow moving and obsolete inventories for the years ended December 31, 2023 and 2022.
| | | | | | | | | | | |
| 2023 | | 2022 |
At January 1, | (147,819) | | (136,822) |
Provisions | (59,558) | | (28,561) |
Utilizations and releases | 27,708 | | 22,707 |
Exchange differences and other changes | 4,447 | | (5,143) |
At December 31, | (175,222) | | (147,819) |
20. Trade receivables
The following table provides a breakdown for trade receivables:
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Trade receivables | 247,138 | | 183,725 |
Loss allowance | (6,681) | | (6,512) |
Total trade receivables | 240,457 | | 177,213 |
| | | | | | | | |
| | | |
| | | | | | |
| | | 167,003 | | | | 147,546 | |
| | | (6,643 | ) | | | (8,717 | ) |
| | | | | | | | |
| | | | | | | | |
The following table provides a breakdown for the loss allowance relating to trade receivables:
| | | | | | | | | | | |
| Loss allowance |
(€ thousands) | 2023 | | 2022 |
At January 1, | (6,512) | | (6,643) |
Provisions | (3,276) | | (806) |
Utilizations | 285 | | 131 |
Releases | 2,829 | | 645 |
Exchange differences and other | (7) | | 161 |
At December 31, | (6,681) | | (6,512) |
| | | | |
| | | |
| | | | |
| | | (3,636 | ) |
| | | 96 | |
Exchange differences and other
| | | 458 | |
| | | | |
| | | | |
| | | (496 | ) |
| | | 71 | |
| | | 923 | |
| | | 207 | |
Exchange differences and other
| | | 1,369 | |
| | | | |
| | | | |
Provisions for the year ended December 31, 2020 include amounts provisioned as a result of the effects of theCOVID-19
pandemic on the collection of certain receivables.The Group applies the simplified approach available under IFRS 9 to always measure the loss allowance for trade receivables at an amount equal to lifetime expected credit losses. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date.
date (See Note 35 — Qualitative and quantitative information on financial risks for additional information).The Group has recognized a loss allowance of
100%
100% against all receivables
withnon-related
parties that are greater than 180 days past due because historical experience has indicated that these receivables are generally not
recoverable.recoverable, except in certain cases where the receivables are covered by insurance agreements. The Group generally writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery (e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings)
or when the trade receivables are over two years past due, whichever occurs earlier.. None of the trade receivables that have been written off are subject to enforcement activities.
The following table showspresents trade receivables by geographic area:
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
EMEA (1) | 102,653 | | 77,817 |
of which Italy | 60,174 | | 50,897 |
North America (2) | 38,636 | | 24,523 |
of which United States | 33,028 | | 20,669 |
Latin America (3) | 8,936 | | 5,770 |
APAC (4) | 90,232 | | 69,103 |
of which Greater China Region | 61,990 | | 47,924 |
Total trade receivables | 240,457 | | 177,213 |
_________________(1)EMEA includes Europe, the Middle East and Africa.
(2)North America includes the United States of America and Canada.
(3)Latin America includes Mexico, Brazil and other Central and South American countries.
| | | | | | | | |
| | For the years ended December 31, | |
| | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
of which Greater China Region | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(4)APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
| EMEA includes Europe, the Middle East and Africa.
|
| North America includes the United States of America and Canada.
|
| Latin America includes Mexico, Brazil and other Central and South American countries.
|
| APAC includes the Greater China Region, Japan, South Korea, Thailand, Malaysia, Vietnam, Indonesia, Philippines, Australia, New Zealand, India and other Southeast Asian countries.
|
26.21. Derivative financial instruments
The Group enters into certain derivative contracts in the course of its risk management activities, primarily to hedge the interest rate risk on its bank debt and the currency risk on sales made in currencies other than the Euro. The Company only enters into these contracts for hedging purposes as the Group’s financial management policy does not permit trading in financial instruments for speculative purposes. Derivative financial instruments meeting the hedge requirements of IFRS 9 are accounted for using hedge accounting. Changes in the fair value of derivative financial instruments not qualifying for hedge accounting are recognized in profit or loss in the relevant reporting period. The interest rate and currency derivatives used by the Company are over the counter (OTC) instruments, meaning those negotiated bilaterally with market counterparties, and the determination of their current value is based on valuation techniques that use input parameters (such as interest rate curves, foreign exchange rates, etc.) observable on the market (level 2 of the fair value hierarchy defined in IFRS 13)13 — Fair Value Measurement).
Derivatives are measured at fair value each reporting date by taking as a reference the applicable foreign currency exchange rates or the interest rates and yield curves observable at commonly quoted intervals.
At the reporting date, the Group had outstanding hedges as detailed in the tables below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 | | At December 31, 2022 |
(€ thousands) | Notional Amount | | Positive Fair Value | | Negative Fair Value | | Notional Amount | | Positive Fair Value | | Negative Fair Value |
Foreign currency exchange risk | | | | | | | | | | | |
Forward contracts | 595,819 | | 6,371 | | (897) | | 481,110 | | 13,075 | | (2,362) |
Interest rate risk | | | | | | | | | | | |
Interest rate swaps | 133,962 | | 4,739 | | — | | 320,000 | | 9,379 | | — |
Total derivatives instruments - Asset/(Liabilities) | 729,781 | | 11,110 | | (897) | | 801,110 | | 22,454 | | (2,362) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
Foreign currency exchange risk | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 550,734 | | | | 1,786 | | | | (11,726 | ) | | | 347,679 | | | | 11,848 | | | | (4,918 | ) |
| | | 109,244 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 323,816 | | | | 0 | | | | (2,412 | ) | | | 274,336 | | | | 0 | | | | (5,515 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives – Hedging | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (2,759 | ) |
Total trading derivatives | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives instruments - Asset/(Liabilities) | | | | | | | | | | | | | | | | | | | | | | | | |
All contracts in place at the reporting date were entered into with major financial institutions, and no counterparties are expected to default. A liquidity analysis of the derivative contract maturities is provided in the financial risks section of these notes.
The cash flows resulting from the Group’s international activities are exposed to exchange rate volatility. In order to hedge this risk, the Group enters into forward sale and purchase agreements, so as to guarantee the value of identified cash flows in Euro (or in other currencies used locally). The projected future cash flows mainly relate to the collection of trade
receivables, the settlement of trade payables and financial cash flows. The notional amount of foreign exchange forward contracts to hedge projected future cash flows are detailed as follows:
| | | | | | | | | | | |
| For the years ended December 31, |
(€ thousands) | 2023 | | 2022 |
USD | 206,232 | | 203,611 |
CHF | — | | 8,145 |
CNY | 201,153 | | 94,203 |
GBP | 54,282 | | 36,984 |
JPY | 34,749 | | 35,119 |
HKD | 31,735 | | 59,160 |
Other | 67,668 | | 43,888 |
Total notional amount | 595,819 | | 481,110 |
| | | | | | | | |
(Euro thousands) | | For the years ended December 31, | |
| | | | | | |
| | | 194,097 | | | | 144,569 | |
| | | 4,792 | | | | 24,810 | |
| | | 191,936 | | | | 20,318 | |
| | | 25,012 | | | | 19,226 | |
| | | 46,883 | | | | 12,613 | |
| | | 51,075 | | | | 52,407 | |
| | | 36,939 | | | | 73,736 | |
| | | | | | | | |
| | | | | | | | |
The Deal-Contingent Option refers to a deal-contingent option acquired by Zegna on November 3, 2021 in connection with the Business Combination. Under the agreement Zegna had the right, but not the obligation, to exchange $130 million for Euros at an exchange rate of $1.19 per Euro, contingent on the closing of the Business Combination. The Deal-Contingent Option was set to expire on January 14, 2022 and was entered into in order to hedge currency risk for the distribution of Euros by locking in the strike exchange rate of $1.19 per Euro. Zegna paid a premium to acquire the option because the closing occurred; however, because the Deal-Contingent Option was out of the money on the closing date of the Business Combination, the option was not exercised and expired.
The key features of the interest rate swap (IRS) agreements are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands, except percentages) | | | | | | Notional amount at December 31, | | Fair value at December 31, |
Contract | | Maturity date | | Fixed interest rate | | 2023 | | 2022 | | 2023 | | 2022 |
IRS 1 | | 1/27/2023 | | 0.27% | | — | | 20,000 | | — | | 67 |
IRS 2 | | 2/8/2023 | | 0.17% | | — | | 20,000 | | — | | 45 |
IRS 3 | | 4/27/2023 | | 0.26% | | — | | 50,000 | | — | | 428 |
IRS 4 | | 8/3/2023 | | 0.28% | | — | | 40,000 | | — | | 676 |
IRS 5 | | 11/17/2023 | | 0.34% | | — | | 60,000 | | — | | 1,564 |
IRS 6 | | 4/15/2024 | | (0.24%) | | 80,000 | | 80,000 | | 2,190 | | 3,775 |
IRS 7 | | 12/20/2024 | | 0.01% | | 50,000 | | 50,000 | | 2,380 | | 2,824 |
IRS 8 | | 9/30/2027 | | 0.22% | | 2,775 | | — | | 128 | | — |
IRS 9 | | 12/31/2025 | | (0.15%) | | 1,187 | | — | | 41 | | — |
Total | | | | | | 133,962 | | 320,000 | | 4,739 | | 9,379 |
| | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | | | | | | | | Notional amount at December 31, | | | Fair value at December 31, | |
| | | | | | | | | | | | | | | | | | |
| | | 2/17/2021 | | | | 0.47 | % | | | 0 | | | | 80,000 | | | | 0 | | | | (1,031 | ) |
| | | 1/27/2023 | | | | 0.27 | % | | | 20,000 | | | | 20,000 | | | | (192 | ) | | | (366 | ) |
| | | 2/8/2023 | | | | 0.17 | % | | | 20,000 | | | | 20,000 | | | | (144 | ) | | | (309 | ) |
| | | 4/27/2023 | | | | 0.26 | % | | | 50,000 | | | | 50,000 | | | | (523 | ) | | | (988 | ) |
| | | 8/3/2023 | | | | 0.28 | % | | | 40,000 | | | | 40,000 | | | | (483 | ) | | | (898 | ) |
| | | 11/17/2023 | | | | 0.34 | % | | | 60,000 | | | | 60,000 | | | | (801 | ) | | | (1,549 | ) |
| | | 4/15/2024 | | | | (0.24 | %) | | | 80,000 | | | | 0 | | | | (109 | ) | | | 0 | |
| | | 12/20/2024 | | | | 0.01 | % | | | 50,000 | | | | 0 | | | | 72 | | | | 0 | |
| | | 7/29/2027 | | | | 0.80 | % | | | 1,996 | | | | 2,334 | | | | (57 | ) | | | (108 | ) |
| | | 12/18/2031 | | | | 1.94 | % | | | 1,820 | | | | 2,002 | | | | (175 | ) | | | (266 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The Elah Dufour Option represented a purchase ag
reement of the investment held in Elah Dufour S.p.A. that was disposed of in 2021 as part of the Disposition. The option provided for a cross-linkedoption, which allowed the Group to acquire up to
5% of the share capital of Elah Dufour from certain shareholders of Elah Dufour, and such shareholders to sell their shares up to a maximum of
5
% of the share capital of Elah Dufour. On August 3, 2021 the contractual counterparties communicated to Zegna that other shareholders of Elah Dufour had elected to exercise their
right over such
5
% of the share capital of Elah Dufour S.p.A. As a result, the Elah Dufour Option lapsed and the related derivative financial instrument liability of
thousand was extinguished with the recognition of financial income for the same amount.
27.22. Other current financial assets
The following table provides a breakdown for other current financial assets (see Note 40 -34 — Fair value measurement
for a breakdown of other current financial assets by fair value level): | | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Securities | 85,320 | | 316,595 |
Guarantee deposits | 5,431 | | 2,075 |
Financial receivables | 166 | | 2,224 |
Total other current financial assets | 90,917 | | 320,894 |
| | | | | | | | |
| | | |
| | | | | | |
| | | 334,244 | | | | 350,163 | |
Guarantee deposits and others | | | 6,136 | | | | 0 | |
| | | | | | | | |
Total other current financial assets | | | | | | | | |
The following table provides a breakdown for securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | At December 31, 2022 | | Investments | | Disposals | | Fair value adjustments | | Realized gains/(losses) | | Exchange rate gains/(losses) | | At December 31, 2023 |
FVPL | | | | | | | | | | | | | |
Private equity | 18,311 | | 3,035 | | (802) | | 2,266 | | — | | (411) | | 22,399 |
Real estate funds | 12,129 | | 2,096 | | — | | (1,887) | | — | | (192) | | 12,146 |
Private debt | 13,644 | | 1,001 | | (4,224) | | (347) | | 32 | | — | | 10,106 |
Hedge funds | 46,761 | | 4,009 | | (42,658) | | 706 | | 264 | | (87) | | 8,995 |
Money market funds | 2,587 | | 18,578 | | (19,038) | | (71) | | 209 | | (172) | | 2,093 |
Equity | 14,592 | | 997 | | (14,999) | | (159) | | 703 | | 7 | | 1,141 |
Insurance contracts | 114,975 | | — | | (115,485) | | 545 | | (35) | | — | | — |
Fixed income | 64,017 | | — | | (65,018) | | — | | 1,001 | | — | | — |
Commodities | 2,727 | | — | | (2,601) | | — | | (126) | | — | | — |
Total FVPL | 289,743 | | 29,716 | | (264,825) | | 1,053 | | 2,048 | | (855) | | 56,880 |
FVOCI | | | | | | | | | | | | | |
Floating income | 17,742 | | — | | (1,005) | | (45) | | — | | — | | 16,692 |
Fixed income | 9,110 | | 3,884 | | (1,996) | | 304 | | 446 | | — | | 11,748 |
Total FVOCI | 26,852 | | 3,884 | | (3,001) | | 259 | | 446 | | — | | 28,440 |
Total securities | 316,595 | | 33,600 | | (267,826) | | 1,312 | | 2,494 | | (855) | | 85,320 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Exchange rate gains/(losses) | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 107,188 | | | | 6,232 | | | | 0 | | | | 499 | | | | 0 | | | | 0 | | | | 113,919 | |
| | | 88,011 | | | | 24,756 | | | | (44,713 | ) | | | 1,271 | | | | (380 | ) | | | 2 | | | | 68,947 | |
| | | 36,511 | | | | 10,396 | | | | (7,861 | ) | | | 1,153 | | | | 572 | | | | 712 | | | | 41,483 | |
| | | 29,073 | | | | 3,826 | | | | (2,060 | ) | | | 1,316 | | | | 109 | | | | 634 | | | | 32,898 | |
| | | 24,843 | | | | 8,327 | | | | (10,236 | ) | | | 1,224 | | | | 1,011 | | | | 239 | | | | 25,408 | |
| | | 10,583 | | | | 4,505 | | | | (3,036 | ) | | | 3,486 | | | | 0 | | | | 387 | | | | 15,925 | |
| | | 6,894 | | | | 401 | | | | 0 | | | | 650 | | | | 0 | | | | 0 | | | | 7,945 | |
| | | 19,223 | | | | 11,479 | | | | (30,978 | ) | | | 20 | | | | 279 | | | | 1,984 | | | | 2,007 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 22,663 | | | | 0 | | | | (2,284 | ) | | | 252 | | | | 56 | | | | 0 | | | | 20,687 | |
| | | 5,174 | | | | 0 | | | | (416 | ) | | | 267 | | | | 0 | | | | 0 | | | | 5,025 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | At December 31, 2021 | | Investments | | Disposals | | Fair value adjustments | | Realized gains/(losses) | | Exchange rate gains/(losses) | | At December 31, 2022 |
FVPL | | | | | | | | | | | | | |
Private equity | 15,925 | | 6,230 | | (7,533) | | 3,282 | | 17 | | 390 | | 18,311 |
Real estate funds | 32,898 | | 2,496 | | (24,633) | | 248 | | 800 | | 320 | | 12,129 |
Private debt | 7,945 | | 5,201 | | — | | 498 | | — | | — | | 13,644 |
Hedge funds | 41,483 | | 7,304 | | — | | (2,631) | | — | | 605 | | 46,761 |
Money market funds | 2,007 | | 966 | | (370) | | 77 | | — | | (93) | | 2,587 |
Equity | 25,408 | | — | | (7,101) | | (3,354) | | (590) | | 229 | | 14,592 |
Insurance contracts | 113,919 | | — | | — | | 1,056 | | — | | — | | 114,975 |
Fixed income | 68,947 | | — | | — | | (4,930) | | — | | — | | 64,017 |
Commodities | — | | 2,991 | | — | | (264) | | — | | — | | 2,727 |
Total FVPL | 308,532 | | 25,188 | | (39,637) | | (6,018) | | 227 | | 1,451 | | 289,743 |
FVOCI | | | | | | | | | | | | | |
Floating income | 20,687 | | — | | (2,500) | | (445) | | — | | — | | 17,742 |
Fixed income | 5,025 | | 5,000 | | — | | (915) | | — | | — | | 9,110 |
Total FVOCI | 25,712 | | 5,000 | | (2,500) | | (1,360) | | — | | — | | 26,852 |
Total securities | 334,244 | | 30,188 | | (42,137) | | (7,378) | | 227 | | 1,451 | | 316,595 |
F-In line with the Group’s funding strategy, during 2023, the Group disposed of securities (primarily investments in insurance contracts, fixed income and hedge funds) amounting to €267,826 thousand for proceeds of €270,317 thousand that the Group primarily used to finalize the TFI Acquisition and for capital expenditures, as well as to repay borrowings.
51
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Exchange rate gains/(losses) | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 176,575 | | | | 7,500 | | | | (78,897 | ) | | | 1,984 | | | | 26 | | | | 0 | | | | 107,188 | |
| | | 122,070 | | | | 38,580 | | | | (72,752 | ) | | | 920 | | | | (798 | ) | | | (9 | ) | | | 88,011 | |
| | | 50,471 | | | | 20,198 | | | | (35,408 | ) | | | 420 | | | | 1,299 | | | | (469 | ) | | | 36,511 | |
| | | 24,807 | | | | 21,023 | | | | (15,788 | ) | | | (884 | ) | | | 604 | | | | (689 | ) | | | 29,073 | |
| | | 15,261 | | | | 27,834 | | | | (18,024 | ) | | | (80 | ) | | | (124 | ) | | | (24 | ) | | | 24,843 | |
| | | 10,254 | | | | 37,222 | | | | (28,253 | ) | | | 0 | | | | 0 | | | | 0 | | | | 19,223 | |
| | | 8,256 | | | | 2,845 | | | | (548 | ) | | | 201 | | | | 0 | | | | (171 | ) | | | 10,583 | |
| | | 2,006 | | | | 4,802 | | | | 0 | | | | 86 | | | | 0 | | | | 0 | | | | 6,894 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 19,879 | | | | 5,425 | | | | (2,938 | ) | | | 295 | | | | 2 | | | | 0 | | | | 22,663 | |
| | | 5,326 | | | | 167 | | | | (303 | ) | | | (12 | ) | | | (4 | ) | | | 0 | | | | 5,174 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
28.23. Other current assets
Other current assets amount to Euro 68,773€95,260 thousand and Euro 66,718€84,574 thousand at December 31, 20212023 and 2020,2022, respectively, and mainly relate to accrued income, deferred charges and indirect tax receivables.
24. Cash and cash equivalents
The following table provides a breakdown for cash and cash equivalents:
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Cash on hand | 3,275 | | 2,322 |
Bank balances | 293,004 | | 251,999 |
Total cash and cash equivalents | 296,279 | | 254,321 |
| | | | | | | | |
| | | |
| | | | | | |
| | | 1,651 | | | | 535 | |
| | | 458,140 | | | | 316,756 | |
| | | | | | | | |
Total cash and cash equivalents | | | | | | | | |
The Group may be subject to restrictions which limit its ability to use cash. In particular, cash held in China is subject to certain repatriation restrictions and may only be repatriated as dividends or capital distributions, or to repay debt or other liabilities. The Group does not believe that such transfer restrictions have any adverse impacts on its ability to meet liquidity requirements. Cash held in China at December 31,
20212023 amounted to
Euro 60,381€22,549 thousand
(Euro 43,388(€24,257 thousand at December 31,
2020)2022). Certain restrictions over cash also exist in Argentina; however, such restrictions do not significantly impact the Group as cash held in Argentina amounted to
Euro 244€216 thousand at December 31,
2021 (Euro 2652023 (€233 thousand at December 31,
2020)2022).
30. Assets and liabilities held for sale
The following table provides a breakdown of assets and liabilities held for sale at December 31, 2020:
| | | | |
| | | |
| | | 656 | |
Property plant and equipment
| | | 1,801 | |
| | | 83 | |
Othernon-current
financial assets | | | 0 | |
| | | 1,393 | |
| | | 7,079 | |
| | | 3,081 | |
| | | 455 | |
| | | 345 | |
| | | 1,752 | |
Cash and cash equivalents
| | | 580 | |
| | | | |
| | | | |
| | | 1,130 | |
| | | 0 | |
| | | 83 | |
Derivative financial instruments
| | | 0 | |
Other current liabilities
| | | 9,385 | |
Provision for risks and charges
| | | 1,505 | |
| | | 1,181 | |
Trade payables and customer advances
| | | 3,441 | |
| | | | |
| | | | |
| | | | |
Assets and liabilities held for sale
| | | | |
| | | | |
Assets and liabilities held for sale at December 31, 2020 relate to the Agnona business and the Group’s operations in Korea. A write down of Euro 988 thousand was recognized in 2020 within write downs and other provisions in the statement of profit and loss as a result of the remeasurement of the assets in accordance with IFRS 5 upon classification as held of sale. The sale of 70% of the Agnona business and the Group’s operations in Korea were finalized during 2021 and the Group collected a total agreed consideration of Euro 500 thousand related to the Group’s operations in Korea.
31.25. Shareholder’ equity
At December 31,
20212023 the fully paid up share capital of the Company was
Euro €9,154 thousand, consisting of 302,704,726 ordinary shares and 154,981,350 special voting shares A, all with a nominal value of €0.02 (€5,939 thousand, consisting of 296,943,659 ordinary shares
all with a nominal value of Euro 0.02. Atat December 31,
2020 the fully paid up share capital of the Company was Euro 4,300 thousand, consisting of 214,954,000 ordinary shares and 46,000 special shares (which entitled the holder to participate in dividends, without providing any voting rights), all with a nominal value of Euro 0.02. The number of shares for all periods presented reflects the Share Split performed as part of the Business Combination. For additional information related to the Business Combination please refer to Note 1 -2022).
Each ordinary share confers the right to cast one vote. Holders of ordinary shares become entitled to special voting shares upon registering their ordinary shares in the loyalty register (thereby blocking such shares from trading on the NYSE) and maintaining them registered in such register for an interrupteduninterrupted period of time as prescribed by the articles of association of Zegna.the Company. Ordinary shares carry the right to receive dividends and each ordinary share carries the right to repayment of capital in the event of dissolution and liquidation, with the remaining equity, after all debts are satisfied, for the benefit of the holders of ordinary shares in proportion to the aggregate nominal value of their ordinary shares. Ordinary shares carrypre-emptive
preemptive rights in proportion to the aggregate number of ordinary shares held upon the issuance of new ordinary shares or the granting of rights to subscribe for ordinary shares, subject to certain exceptions.exceptions. If ordinary shares have been registered in the loyalty register for an uninterrupted period of two years in the name of the same shareholder, such shares become eligible to receive Special Voting Shares A of the Company. The relevant shareholder will receive one of the Company Special Voting Share A per eligible ordinary share. Each of the Company Special Voting Share A will automatically be converted into a Special Voting Share B of the Company after holding a number of ordinary shares for an uninterrupted period of five years following the registration of such ordinary shares in the loyalty register, and each of the Company Special Voting Share B will automatically be converted into a Special Voting Share C of the Company after holding a number of ordinary shares for an uninterrupted period of ten years following the registration of such ordinary shares in the loyalty register. Each class of the Company Special Voting Shares will entitle the relevant holders to the following number of votes, in addition to the voting rights attached to each ordinary share: each Special Voting Share A of the Company confers the right to cast one vote, each Special Voting Share B of the Company confers the right to cast four votes and each Special Voting Share C of the Company confers the right to cast nine votes in the Company General Meeting. Holders of the Company Special Voting Shares will not receive any dividends in respect of the Company Special Voting Shares; however, the Company will maintain a separate dividend reserve for each class of the Company Special Voting Shares for the sole purpose of the allocation of the mandatory minimum profits that accrue to the Company Special Voting Shares.
Retained earnings include
The following table summarizes the Group’s accumulated earnings, less dividends paid to equity holderschanges in the share capital, share premium and other changes. Among other changes, retained earnings also include the first-time adoption reserve (IFRS), reflecting the combined effectsnumber of ordinary shares and special voting shares of the equity adjustments, net of tax effects, arising fromCompany for the transition to IFRS from previous local GAAP, which occurred on January 1, 2018.
Other reserves (including other comprehensive income) are detailed as follows:
| | | | | | | | |
| | | |
| | | | | | |
Italian statutory reserve | | | 860 | | | | 860 | |
| | | 721,187 | | | | — | |
Reserve for treasury shares | | | (455,000 | ) | | | (76,624 | ) |
Other comprehensive income reserve (OCI) | | | (12,295 | ) | | | (25,901 | ) |
Share-based payments reserve | | | 74,978 | | | | — | |
Non-controlling interests options reserve | | | (196,691 | ) | | | (196,691 | ) |
| | | (36,360 | ) | | | 2,584 | |
| | | | | | | | |
Other reserves, including OCI | | | | | | | | |
Atyears ended December 31, 2021, additional2022 and 2023:
paid-in
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share capital (€ thousand) | | Share premium (€ thousand) | | Outstanding ordinary shares | | Ordinary shares held in treasury | | Total ordinary shares | | Special voting shares |
At January 1, 2022 | 5,939 | | 721,187 | | 242,343,659 | | 54,600,000 | | 296,943,659 | | — |
Ordinary shares issued to warrant holders | — | | — | | 1 | | (1) | | — | | — |
Ordinary shares assigned under share-based payments (1) | — | | — | | 459,086 | | (459,086) | | — | | — |
At December 31, 2022 | 5,939 | | 721,187 | | 242,802,746 | | 54,140,913 | | 296,943,659 | | — |
Ordinary shares issued to warrant holders (2) | 115 | | 64,500 | | 5,761,067 | | — | | 5,761,067 | | — |
Ordinary shares assigned delivered under share-based payments (3) | — | | — | | 1,746,450 | | (1,746,450) | | — | | — |
Special Voting Shares A issued (4) | 3,100 | | (3,100) | | — | | — | | — | | 154,981,350 |
At December 31, 2023 | 9,154 | | 782,587 | | 250,310,263 | | 52,394,463 | | 302,704,726 | | 154,981,350 |
__________________capital amounted(1)Includes 459,086 ordinary shares, which were previously held in treasury, delivered to Euro 721,187 thousand (Euro NaN at December 31, 2020) and includes Euro 710,264 thousandthe CEO as a result of shares issued as partthe conversion of the Business Combination (netCEO’s fixed remuneration for 2021 for an aggregate purchase price of transaction costs€3,390 thousand.
(2)The Company issued an aggregate of Euro 17,239 thousand)5,761,067 newly issued ordinary shares as a result of the exercise of warrants in the first quarter of 2023. For additional information see Note 28 — Other current and Euro 10,923 thousandnon-current financial liabilities - Warrant liabilities.
(3)As a result of the vesting of certain equity incentive arrangements, ordinary shares, which were previously held in treasury, were assigned to participants of the share-based payments plans. It includes:
(a)588,000 ordinary shares delivered to the CEO under the CEO 2022-2024 LTIP in relation to the 2022 performance period;
(b)240,000 ordinary shares delivered to the CEO under the CEO IPO PSUs plan.
(c)450,000 ordinary shares delivered to the directors of the Group (excluding the CEO), key executives with strategic responsibilities and other employees of the Group under the Management IPO PSUs plan.
(d)468,450 ordinary shares delivered to the CEO under the right to convert the CEO’s fixed remuneration in shares of the Company for an aggregate purchase price of €3,654 thousand.
For additional information relating to the reimbursement to Zegna by Monterubello of a special gift to all employeesequity incentive arrangements of the Group.
Group, see Note 37 — Share-based payments.At(4)On December 31, 2021,18, 2023, upon the reservefulfillment of the conditions outlined in the Company’s Articles of Association 154,981,350 Special Voting Shares A were issued and delivered to Monterubello s.s. and Ermenegildo (Gildo) Zegna di Monte Rubello for treasury shares amounted to Euro 455,000 thousand (Euro 76,624 thousand at December 31, 2020) and 54,600,000 ordinary shares were held in treasury (13,590,750 ordinary shares at December 31, 2020 (based on the number of shares following the Share Split)). In 2021, the Company sold or assigned 13,636,750 ordinary shares, decreasing the reserve for treasury shares by Euro 77,009 thousand and purchased 54,646,000 ordinary shares mainly due to the Business Combination, increasing the reserve for treasury shares by Euro 455,384 thousand.
no consideration.
Other comprehensive income reserve includesLegal reserves
Legal reserves include the following:
•a translation reserve for the translation differences arising from the consolidation of subsidiaries with a functional currency different from the Euro;
•a cash flow hedge reserve for the changes in the fair value of derivative financial instruments held by the Group designated as a hedge of the exposure to variability in currency exchange rate and interest rate risk;
•gains and losses on the remeasurement of defined benefit plans for actuarial gains and losses arising during the period which are offset against the related net defined benefit liabilities;
•the financial assets at FVOCI reserve which arises from changes in the fair value of debt instruments held by the company under a hold to collect and sell business model, which will be reversed when the investment is derecognized or impaired.impaired;
•legal reserves for subsidiaries consisting of earnings of subsidiaries and associates that are subject to restrictions on distributions to the Company for €17,856 thousand at December 31, 2023 (€22,183 thousand at December 31, 2022) and capitalized development costs recognized by subsidiaries of the Company for €4,277 thousand at December 31, 2023 (€3,095 thousand at December 31, 2022).
Reserve for treasury shares
At December 31, 2021,2023, the share-based payments reserve for treasury shares amounted to Euro 74,978€436,622 thousand (Euro NaN(€451,174 thousand at December 31, 2020). The following table presents a breakdown share-based compensation during the year:
| | | | |
| | | |
| | | 37,906 | |
| | | 6,138 | |
| | | 2,938 | |
| | | 1,410 | |
| | | 2,047 | |
| | | 4,585 | |
| | | 3,834 | |
Cash-settled share based payments
| | | 16,120 | |
| | | | |
Total share-based payments
| | | | |
The share-based payments reserve includes Euro 37,906 thousand related to the Escrow Shares for the issuance of 5,031,250 Zegna2022) and 52,394,463 ordinary shares to the holders of IIAC class B shares to bewere held in escrowtreasury (54,140,913 ordinary shares at December 31, 2022).
Other reserves
Other reserves are detailed as part of the Business Combination and Euro 37,072 thousand related to share-based compensation to key management and other employees of the Group. For additional information relating to share-based compensation please refer to Note 42 -follows:
Related party transactions
. | | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Share-based payments reserve | 96,008 | | 88,557 |
Non-controlling interests options reserve | (183,525) | | (183,525) |
Other | (66,479) | | (74,764) |
Other reserves | (153,996) | | (169,732) |
The
non-controlling
interests options reserve includes a reduction of equity attributable to shareholders of the Company resulting from the initial recognition of the financial liabilities at fair value (which
isare subsequently remeasured at the end of
whicheach period through the statement of profit and loss) relating to the put
optionoptions held by
non-controlling interests in Thom Browne Group for €162,066 thousand at December 31, 2023 and 2022 originally recognized in 2018 and Gruppo Dondi
S.p.A. for €21,459 thousand at December 31, 2023 and 2022 originally recognized in 2019.non-controllingRetained earnings
interestRetained earnings include the Group’s accumulated earnings, less dividends paid to equity holders and other changes. Among other changes, retained earnings also include the first-time IFRS adoption reserve, reflecting the combined effects of the equity adjustments, net of tax effects, arising from the transition to IFRS from previous local GAAP, which occurred on January 1, 2018.
At the Annual General Meeting of the Shareholders held on June 27, 2023, the shareholders for Euro 21,459 thousand in 2019, as well asapproved a dividend distribution of €0.10 per ordinary share, corresponding to a total dividend of €25,031 thousand. The dividend distribution was paid on July 28, 2023 and was made from the put optionretained earnings reserve.
At the Annual General Meeting of the Shareholders held
by Thom Brownenon-controlling
intereston June 28, 2022, the shareholders
for Euro 162,066 thousandapproved a dividend distribution of €0.09 per ordinary share, corresponding to a total dividend of €21,852 thousand. The dividend distribution was paid on July 28, 2022 and
onwas made from the
put option held by Lanificionon-controlling
interest shareholders for Euro 13,166 thousand for 2018.retained earnings reserve.
32.26. Non-controlling
interests
The following tables show the financial information of consolidated companies not entirely controlled by the Group, as required by IFRS 12. The amounts disclosed for each subsidiary are before intercompany eliminations and at and for the yearsyear ended December 31, 20212023 and 2020.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At and for the year ended December 31, 2023 |
(Functional currency thousands) | Country | | Group’s percentage interest | | Non- controlling interest percentage | | Functional currency | | Total assets | | Total equity | | Net revenues | | Net income / (loss) | | Dividends paid to non- controlling shareholders |
Company | | | | | | | | | | | | | | | | | |
Thom Browne Inc. | U.S.A. | | 90% | | 10% | | USD | | 378,736 | | 199,275 | | 411,192 | | 49,988 | | — |
Ermenegildo Zegna Vietnam LLC | Vietnam | | 90% | | 10% | | VTD | | 42,201,273 | | 27,134,951 | | 40,281,928 | | 5,446,184 | | — |
Ermenegildo Zegna Madrid S.A. | Spain | | 70% | | 30% | | EUR | | 4,591 | | 1,811 | | 5,412 | | 34 | | — |
Gruppo Dondi S.p.A. | Italy | | 65% | | 35% | | EUR | | 39,369 | | 22,387 | | 44,588 | | 3,935 | | (708) |
E. Z. Thai Holding Ltd | Thailand | | 49% | | 51% | | THB | | 12,338 | | (264) | | — | | (283) | | — |
Bonotto S.p.A. | Italy | | 60% | | 40% | | EUR | | 25,596 | | 10,974 | | 25,657 | | 2,709 | | (451) |
Tessitura Ubertino S.r.l. | Italy | | 60% | | 40% | | EUR | | 8,404 | | 4,863 | | 11,051 | | 1,479 | | (600) |
Cappellificio Cervo S.r.l. | Italy | | 51% | | 49% | | EUR | | 2,186 | | 938 | | 3,281 | | 119 | | (11) |
Zegna South Asia Private LTD | India | | 51% | | 49% | | INR | | 732,458 | | 271,079 | | 473,553 | | 71,215 | | — |
Zegna Gulf Trading LLC | UAE | | 49% | | 51% | | AED | | 193,655 | | 79,300 | | 250,244 | | 60,856 | | (17,150) |
The Italian Fashion Co. LTD | Thailand | | 65% | | 35% | | THB | | 238,912 | | (2,053) | | 255,389 | | 14,880 | | — |
Zegna for Retail of Readymade and Novelty Clothes W.L.L. | Kuwait | | 49% | | 51% | | KWD | | 1,439 | | 384 | | 791 | | (227) | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At and for the year ended December 31, 2022 |
(Functional currency thousands) | Country | | Group’s percentage interest | | Non- controlling interest percentage | | Functional currency | | Total assets | | Total equity | | Net revenues | | Net income / (loss) | | Dividends paid to non- controlling shareholders |
Company | | | | | | | | | | | | | | | | | |
Thom Browne Inc. | U.S.A. | | 90% | | 10% | | USD | | 298,901 | | 146,879 | | 348,445 | | 43,277 | | (2,000) |
Ermenegildo Zegna Vietnam LLC | Vietnam | | 90% | | 10% | | VTD | | 59,373,311 | | 21,638,614 | | 45,647,540 | | 7,913,295 | | — |
Ermenegildo Zegna Madrid S.A. | Spain | | 70% | | 30% | | EUR | | 3,718 | | 1,741 | | 3,838 | | 120 | | (90) |
Gruppo Dondi S.p.A. | Italy | | 65% | | 35% | | EUR | | 39,469 | | 20,507 | | 47,655 | | 4,901 | | (1,113) |
E. Z. Thai Holding Ltd | Thailand | | 49% | | 51% | | THB | | 12,669 | | 19 | | — | | (309) | | — |
Bonotto S.p.A. | Italy | | 60% | | 40% | | EUR | | 23,739 | | 9,431 | | 24,552 | | 2,075 | | (797) |
Tessitura Ubertino S.r.l. | Italy | | 60% | | 40% | | EUR | | 8,351 | | 4,921 | | 10,245 | | 983 | | (312) |
Cappellificio Cervo S.r.l. | Italy | | 51% | | 49% | | EUR | | 1,630 | | 864 | | 2,371 | | 85 | | — |
Zegna South Asia Private LTD | India | | 51% | | 49% | | INR | | 590,989 | | 199,864 | | 395,827 | | 76,155 | | — |
Zegna Gulf Trading LLC | UAE | | 49% | | 51% | | AED | | 140,841 | | 53,895 | | 191,749 | | 52,806 | | — |
The Italian Fashion Co. LTD | Thailand | | 65% | | 35% | | THB | | 198,556 | | (16,584) | | 190,048 | | 11,015 | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At and for the year ended December 31, 2021 | |
(Functional currency thousands) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thom Browne Inc. | | | 90 | % | | | 10 | % | | | USD | | | | 233,472 | | | | 129,244 | | | | 312,311 | | | | 35,703 | | | | 0 | |
Ermenegildo Zegna Vietnam LLC | | | 77 | % | | | 23 | % | | | VTD | | | | 59,619,650 | | | | (65,153,441 | ) | | | 34,267,609 | | | | (3,987,259 | ) | | | 0 | |
Ermenegildo Zegna Madrid S.A. | | | 70 | % | | | 30 | % | | | EUR | | | | 3,627 | | | | 1,925 | | | | 2,241 | | | | (96 | ) | | | 0 | |
Gruppo Dondi S.p.A. | | | 65 | % | | | 35 | % | | | EUR | | | | 33,459 | | | | 18,475 | | | | 37,617 | | | | 4,783 | | | | (182 | ) |
E. Z. Thai Holding Ltd | | | 49 | % | | | 51 | % | | | THB | | | | 12,979 | | | | 328 | | | | 0 | | | | (121 | ) | | | 0 | |
Bonotto S.p.A. | | | 60 | % | | | 40 | % | | | EUR | | | | 21,482 | | | | 9,030 | | | | 17,674 | | | | 1,840 | | | | 0 | |
Tessitura Ubertino S.r.l. | | | 60 | % | | | 40 | % | | | EUR | | | | 12,221 | | | | 8,786 | | | | 5,625 | | | | 561 | | | | 0 | |
Cappellificio Cervo S.r.l. | | | 51 | % | | | 49 | % | | | EUR | | | | 1,498 | | | | 757 | | | | 1,315 | | | | (35 | ) | | | 0 | |
Zegna South Asia Private LTD | | | 51 | % | | | 49 | % | | | INR | | | | 871,210 | | | | 123,709 | | | | 281,592 | | | | 21,891 | | | | 0 | |
Zegna Gulf Trading LLC | | | 49 | % | | | 51 | % | | | AED | | | | 125,086 | | | | 921 | | | | 137,355 | | | | 30,783 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At and for the year ended December 31, 2020 | |
(Functional currency thousands) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thom Browne Inc. | | | 85 | % | | | 15 | % | | | USD | | | | 157,679 | | | | 105,890 | | | | 203,859 | | | | 24,275 | | | | 0 | |
Gruppo Dondi S.p.A. | | | 65 | % | | | 35 | % | | | EUR | | | | 24,590 | | | | 21,321 | | | | 27,199 | | | | 1,147 | | | | (354 | ) |
Bonotto S.p.A. | | | 60 | % | | | 40 | % | | | EUR | | | | 22,345 | | | | 7,143 | | | | 20,526 | | | | (366 | ) | | | (216 | ) |
Lanificio Ermenegildo Zegna e Figli S.p.A. | | | 90 | % | | | 10 | % | | | EUR | | | | 42,855 | | | | 27,077 | | | | 52,945 | | | | 6,048 | | | | (1,116 | ) |
Ermenegildo Zegna Madrid S.A. | | | 70 | % | | | 30 | % | | | EUR | | | | 2,935 | | | | 2,935 | | | | 2,051 | | | | (29 | ) | | | (45 | ) |
Zegna South Asia Private LTD | | | 51 | % | | | 49 | % | | | INR | | | | 654,611 | | | | 103,020 | | | | 216,675 | | | | (13,372 | ) | | | 0 | |
Ermenegildo Zegna Vietnam LLC | | | 77 | % | | | 23 | % | | | VTD | | | | 36,801,969 | | | | (61,223,291 | ) | | | 28,519,833 | | | | (2,520,357 | ) | | | 0 | |
Zegna Gulf Trading LLC | | | 49 | % | | | 51 | % | | | AED | | | | 91,261 | | | | (29,810 | ) | | | 57,826 | | | | (9,600 | ) | | | 0 | |
Achill Land Pty Ltd. | | | 60 | % | | | 40 | % | | | AUD | | | | 11,749 | | | | 10,200 | | | | n.a. | | | | n.a. | | | | 0 | |
The following table provides a breakdown for
non-current
and current borrowings:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
(€ thousands) | Committed Loans | | Other financial loans | | Total borrowings | | Committed Loans | | Other financial loans | | Total borrowings |
At January 1, | 470,627 | | 428 | | 471,055 | | 578,213 | | 50,725 | | 628,938 |
Business combinations | 21,258 | | 8,632 | | 29,890 | | — | | — | | — |
Repayments | (298,256) | | (7,894) | | (306,150) | | (109,422) | | (50,297) | | (159,719) |
Proceeds | 119,924 | | 84,500 | | 204,424 | | — | | — | | — |
Other | 3,403 | | — | | 3,403 | | 1,836 | | — | | 1,836 |
At December 31, | 316,956 | | 85,666 | | 402,622 | | 470,627 | | 428 | | 471,055 |
Of which: | | | | | | | | | | | |
Non-current | 113,244 | | 41 | | 113,285 | | 184,661 | | 219 | | 184,880 |
Current | 203,712 | | 85,625 | | 289,337 | | 285,966 | | 209 | | 286,175 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | (56,029 | ) | | | (104,181 | ) | | | (160,210 | ) | | | (221,029 | ) | | | — | | | | (221,029 | ) |
| | | 20,000 | | | | 103,570 | | | | 123,570 | | | | 215,000 | | | | 50,352 | | | | 265,352 | |
| | | 827 | | | | — | | | | 827 | | | | 136 | | | | — | | | | 136 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The repayment schedule for borrowings is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | At December 31, 2023 | | Year 1 | | Year 2 | | Year 3 | | Year 4 | | Year 5 and beyond |
Committed loans | 316,956 | | 203,712 | | 84,936 | | 19,670 | | 4,586 | | 4,052 |
Other financial liabilities | 85,666 | | 85,625 | | 41 | | — | | — | | — |
Total borrowings | 402,622 | | 289,337 | | 84,977 | | 19,670 | | 4,586 | | 4,052 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
(€ thousands) | | (€ thousands) | At December 31, 2022 | | Year 1 | | Year 2 | | Year 3 | | Year 4 | | Year 5 and beyond |
| | | 578,213 | | | | 107,279 | | | | 281,028 | | | | 133,872 | | | | 43,965 | | | | 12,069 | | Committed loans | 470,627 | | 285,966 | | 137,206 | | 35,387 | | 3,994 | | 8,074 |
Other financial liabilities | | | 50,725 | | | | 50,013 | | | | 20 | | | | 680 | | | | 12 | | | | — | | Other financial liabilities | 428 | | 209 | | 211 | | 8 | | — |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Total borrowings | 471,055 | | 286,175 | | 137,417 | | 35,395 | | 3,994 | | 8,074 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | 613,415 | | | | 56,029 | | | | 107,500 | | | | 281,250 | | | | 130,000 | | | | 38,636 | |
Other financial liabilities | | | 51,336 | | | | 50,000 | | | | — | | | | — | | | | 874 | | | | 462 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest on certain of the Group’s borrowings is calculated based on variable rates. Management may use interest rate swaps (“IRS”) or other derivative financial instruments to hedge exposure to fluctuations in interest rates associated with monetary flows and not for speculative purposes. See Note 41 -35 — Qualitative and quantitative information on financial risks
for additional information related to the Group’s management of interest rate and other financial risks.
The following tables provide details relating to the Group’s individual borrowings.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | At December 31, 2023 |
Borrower | | Interest rate | | Interest rate terms | | Expiry date | | of which current portion | | of which non-current portion |
| | | | | | | | (€ thousands) |
Co.Ti Service S.A. | | Fixed | | 0.75% | | August 2025 | | — | | 20,000 |
Co.Ti Service S.A. | | Fixed | | 0.75% | | April 2025 | | — | | 10,000 |
Ermenegildo Zegna N.V. | | Variable | | IRS + 0.60% | | December 2024 | | 50,808 | | — |
Ermenegildo Zegna N.V. | | Variable | | IRS + 0.81% | | April 2024 | | 81,351 | | — |
Ermenegildo Zegna N.V. | | Variable | | Euribor 1m + 0.79% | | May 2025 | | 3,331 | | 1,494 |
Ermenegildo Zegna N.V. | | Fixed | | 0.73% | | September 2028 | | 3,979 | | 16,034 |
Ermenegildo Zegna N.V. | | Variable | | Euribor 3m + 0.60% | | February 2024 | | 20,078 | | — |
Ermenegildo Zegna N.V. | | Variable | | Euribor 6m + 0.77% | | December 2026 | | 33 | | 19,988 |
Ermenegildo Zegna N.V. | | Variable | | Euribor 6m + 0.97% | | December 2025 | | 13 | | 39,971 |
Ermenegildo Zegna N.V. | | Variable | | Euribor 3m + 0.80% | | February 2024 | | 40,234 | | — |
Ermenegildo Zegna N.V. | | Fixed | | 4.00% | | February 2024 | | 15,123 | | — |
Ermenegildo Zegna N.V. | | Variable | | Euribor 1m + 0.05% | | February 2024 | | 19,592 | | — |
Ermenegildo Zegna N.V. | | Fixed | | 4.05% | | March 2024 | | 35,122 | | — |
Ermenegildo Zegna N.V. | | Fixed | | 4.05% | | March 2024 | | 15,052 | | — |
Lanificio Ermenegildo Zegna e Figli S.p.A. | | Fixed | | 1.35% | | June 2024 | | 109 | | 31 |
Tom Ford Distribution S.r.l. | | Fixed | | 1.57% | | October 2026 | | 124 | | 232 |
Tom Ford Distribution S.r.l. | | Variable | | Euribor 3m + 0.80% | | September 2024 | | 384 | | — |
Tom Ford Distribution S.r.l. | | Fixed | | 2.20% | | June 2026 | | 143 | | 220 |
Tom Ford Distribution S.r.l. | | Variable | | Euribor 3m + 1.48% | | November 2026 | | 199 | | 408 |
Tom Ford Distribution S.r.l. | | Variable | | Euribor 3m + 1.48% | | November 2026 | | 399 | | 815 |
Tom Ford Distribution S.r.l. | | Fixed | | 1.60% | | January 2027 | | 101 | | 217 |
Tom Ford Distribution S.r.l. | | Fixed | | 2.02% | | November 2026 | | 124 | | 255 |
Tom Ford Distribution S.r.l. | | Variable | | IRS + 3.09% | | September 2027 | | 716 | | 2,035 |
Tom Ford Distribution S.r.l. | | Variable | | Euribor 1m + 0.45% | | January 2024 | | 1,000 | | — |
Pelletteria Tizeta S.r.l. | | Variable | | Euribor 6m + 1.65% | | September 2026 | | 195 | | 368 |
Pelletteria Tizeta S.r.l. | | Fixed | | 2.02% | | October 2026 | | 99 | | 204 |
Pelletteria Tizeta S.r.l. | | Fixed | | 1.58% | | July 2026 | | 124 | | 201 |
Pelletteria Tizeta S.r.l. | | Fixed | | 1.63% | | August 2026 | | 122 | | 207 |
Pelletteria Tizeta S.r.l. | | Variable | | IRS + 1.39% | | December 2025 | | 591 | | 595 |
Other borrowings | | Fixed | | 0.05% - 0.49% | | Up to 2029 | | 191 | | 10 |
Total | | | | | | | | 289,337 | | 113,285 |
of which fixed | | | | | | | | 70,413 | | 47,611 |
of which variable | | | | | | | | 218,924 | | 65,674 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | of which non-current portion | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Co.Ti Service S.A. | | | Fixed | | | 0.79% | | February 2022 | | | 10,000 | | | | — | |
Co.Ti Service S.A. | | | Fixed | | | 0.79% | | March 2022 | | | 5,000 | | | | — | |
Ermenegildo Zegna N.V. | | | Fixed | | | 0.00% | | March 2022 | | | 15,000 | | | | — | |
Ermenegildo Zegna N.V. | | | Fixed | | | 0.00% | | March 2022 | | | 35,000 | | | | — | |
Ermenegildo Zegna N.V. | | | Variable | | | Euribor 3m + 0.69% |
| September 2022 | | | 9,998 | | | | — | |
Ermenegildo Zegna N.V. | | | Fixed | | | 1.25% | | December 2022 | | | 10,000 | | | | — | |
Ermenegildo Zegna N.V. | | | Variable | | | IRS + 1.48% | | January 2023 | | | — | | | | 19,999 | |
Ermenegildo Zegna N.V. | | | Variable | | | IRS + 0.80% |
| February 2023 | | | — | | | | 20,000 | |
Ermenegildo Zegna N.V. | | | Fixed | | | 0.77% | | March 2023 | | | — | | | | 15,000 | |
Ermenegildo Zegna N.V. | | | Fixed | | | 0.49% | | April 2023 | | | — | | | | 49,993 | |
Ermenegildo Zegna N.V. | | | Variable | |
| Euribor 6m + 0.75% |
| May 2023 | | | — | | | | 44,991 | |
Ermenegildo Zegna N.V. | | | Variable | | | Euribor 6m + 0.83% | | June 2023 | | | 12,485 | | | | 6,247 | |
Ermenegildo Zegna N.V. | | | Variable | | | IRS + 1.05% | | August 2023 | | | — | | | | 39,993 | |
Ermenegildo Zegna N.V. | | | Variable | | | Euribor 6m + 0.80% |
| September 2023 | | | 49,836 | | | | — | |
Ermenegildo Zegna N.V. | | | Variable | | | IRS + 0.75% | | November 2023 | | | — | | | | 59,948 | |
Ermenegildo Zegna N.V. | | | Variable | | | Euribor 6m + 0.75% | | November 2023 | | | 9,960 | | | | 4,966 | |
Ermenegildo Zegna N.V. | | | Fixed | | | 1.22% | | November 2023 | | | — | | | | 20,000 | |
Ermenegildo Zegna N.V. | | | Variable | | | IRS + 0.81% | | April 2024 | | | — | | | | 79,936 | |
Lanificio Ermenegildo Zegna e Figli S.p.A. | | | Fixed | | | 1.35% | | June 2024 | | | — | | | | 655 | |
Ermenegildo Zegna N.V. | | | Variable | |
| IRS + 0.60% | | December 2024 | | | — | | | | 49,901 | |
Co.Ti Service S.A. | | | Fixed | | | 0.75% | | March 2025 | | | — | | | | 20,000 | |
Co.Ti Service S.A. | | | Fixed | | | 0.75% | | April 2025 | | | — | | | | 10,000 | |
Ermenegildo Zegna N.V. | | | Variable | | | Euribor 1m + 0.76% | | May 2025 | | | — | | | | 9,993 | |
Ermenegildo Zegna N.V. | | | Fixed | | | 0.73% | | September 2028 | | | — | | | | 19,967 | |
Other | | | Fixed | | | 0.05% | | June 2025 | | | 13 | | | | 57 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | At December 31, 2022 |
Borrower | | Interest rate | | Interest rate terms | | Expiry date | | of which current portion | | of which non-current portion |
| | | | | | | | (€ thousands) |
Ermenegildo Zegna N.V. | | Variable | | IRS + 1.48% | | January 2023 | | 20,099 | | — |
Ermenegildo Zegna N.V. | | Variable | | IRS + 0.80% | | February 2023 | | 20,000 | | — |
Ermenegildo Zegna N.V. | | Fixed | | 0.77% | | March 2023 | | 15,000 | | — |
Ermenegildo Zegna N.V. | | Fixed | | 0.49% | | April 2023 | | 50,042 | | — |
Ermenegildo Zegna N.V. | | Variable | | Euribor 6m + 0.75% | | May 2023 | | 45,139 | | — |
Ermenegildo Zegna N.V. | | Variable | | Euribor 6m + 0.86% | | June 2023 | | 6,250 | | — |
Ermenegildo Zegna N.V. | | Variable | | IRS + 1.05% | | August 2023 | | 40,168 | | — |
Ermenegildo Zegna N.V. | | Variable | | IRS + 0.78% | | November 2023 | | 60,139 | | — |
Ermenegildo Zegna N.V. | | Variable | | Euribor 6m + 0.78% | | November 2023 | | 5,000 | | — |
Ermenegildo Zegna N.V. | | Fixed | | 1.22% | | November 2023 | | 20,000 | | — |
Ermenegildo Zegna N.V. | | Variable | | IRS + 0.81% | | April 2024 | | 409 | | 79,986 |
Lanificio Ermenegildo Zegna e Figli S.p.A. | | Fixed | | 1.35% | | June 2024 | | 194 | | 195 |
Ermenegildo Zegna N.V. | | Variable | | IRS + 0.60% | | December 2024 | | 200 | | 49,951 |
Co.Ti Service S.A. | | Fixed | | 0.75% | | March 2025 | | — | | 20,000 |
Co.Ti Service S.A. | | Fixed | | 0.75% | | April 2025 | | — | | 10,000 |
Ermenegildo Zegna N.V. | | Variable | | Euribor 1m + 0.77% | | May 2025 | | 3,324 | | 4,750 |
Ermenegildo Zegna N.V. | | Fixed | | 0.73% | | September 2028 | | 33 | | 19,973 |
Other borrowings | | Fixed | | 0.05% - 0.49% | | Up to 2029 | | 178 | | 25 |
Total | | | | | | | | 286,175 | | 184,880 |
of which fixed | | | | | | | | 85,447 | | 50,193 |
of which variable | | | | | | | | 200,728 | | 134,687 |
At December 31, 2023, the Group has committed revolving lines amounting to an aggregate of €335 million with a maturity ranging between 5 to 7 years (€240 million at December 31, 2022 with a maturity of 7 years). A portion of the committed revolving lines (€190 million) have interest rates linked to the following two important Environment, Social and Governance (“ESG”) targets previously disclosed by the Group: (i) at least 50% of top priority raw materials are traced to their geography of origin and from lower-impact sources by 2026; and (ii) 100% of the electricity is from renewable sources in Europe and the United States by 2024. The lines were drawn down for €40 million at December 31, 2023 (undrawn at December 31, 2022).
| | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | of which non-current portion | |
| | | | | | | | | |
Ermenegildo Zegna N.V. | | Fixed | | 0.00% | | April 2021 | | | 15,000 | | | | — | |
Ermenegildo Zegna N.V. | | Fixed | | 0.73% | | October 2021 | | | 17,500 | | | | — | |
Ermenegildo Zegna N.V. | | Variable | | Euribor 3m + 0.73% | | October 2021 | | | 17,500 | | | | — | |
Ermenegildo Zegna N.V. | | Fixed | | 0.80% | | December 2021 | | | 3,529 | | | | — | |
Co.Ti Service S.A. | | Fixed | | 0.79% | | February 2022 | | | — | | | | 10,000 | |
Co.Ti Service S.A. | | Fixed | | 0.79% | | March 2022 | | | — | | | | 5,000 | |
Ermenegildo Zegna N.V. | | Variable | | Euribor 3m + 0.69% | | September 2022 | | | — | | | | 10,000 | |
Ermenegildo Zegna N.V. | | Variable | | Euribor 6m + 0.80% | | September 2022 | | | 30,000 | | | | 50,000 | |
Ermenegildo Zegna N.V. | | Fixed | | 1.25% | | December 2022 | | | — | | | | 10,000 | |
Ermenegildo Zegna N.V. | | Variable | | IRS + 1.48% | | January 2023 | | | — | | | | 20,000 | |
Ermenegildo Zegna N.V. | | Variable | | IRS + 0.80% | | February 2023 | | | — | | | | 20,000 | |
Ermenegildo Zegna N.V. | | Fixed | | 0.77% | | March 2023 | | | — | | | | 15,000 | |
Ermenegildo Zegna N.V. | | Fixed | | 0.49% | | April 2023 | | | — | | | | 50,000 | |
Ermenegildo Zegna N.V. | | Variable | | Euribor 6m + 0.75% | | May 2023 | | | — | | | | 45,000 | |
Ermenegildo Zegna N.V. | | Variable | | Euribor 6m + 0.83% | | June 2023 | | | 12,500 | | | | 18,750 | |
Ermenegildo Zegna N.V. | | Variable | | IRS + 1.05% | | August 2023 | | | — | | | | 40,000 | |
Ermenegildo Zegna N.V. | | Fixed | | 1.22% | | November 2023 | | | — | | | | 20,000 | |
Ermenegildo Zegna N.V. | | Fixed | | 1.09% | | November 2023 | | | — | | | | 60,000 | |
Ermenegildo Zegna N.V. | | Variable | | IRS + 0.75% | | November 2023 | | | 10,000 | | | | 14,972 | |
Ermenegildo Zegna N.V. | | Variable | | IRS + 0.81% | | April 2024 | | | — | | | | 80,000 | |
Ermenegildo Zegna N.V. | | Variable | | IRS + 0.60% | | December 2024 | | | — | | | | 50,000 | |
Co.Ti Service S.A. | | Fixed | | 0.75% | | March 2025 | | | — | | | | 20,000 | |
Co.Ti Service S.A. | | Fixed | | 0.75% | | April 2025 | | | — | | | | 10,000 | |
E.Z. Holditalia | | Variable | | Euribor 1m + 0.76% | | May 2025 | | | — | | | | 10,000 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Other current andnon-current 28. Other current and non-current financial liabilities |
The following table provides a breakdown for other current and
non-current
financial liabilities:
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Written put options on non-controlling interests | 136,466 | | 178,766 |
of which Thom Browne option | 116,456 | | 155,551 |
of which Dondi option | 20,010 | | 23,215 |
Other | 90 | | 27 |
Other non-current financial liabilities | 136,556 | | 178,793 |
Written put options on non-controlling interests | 22,102 | | — |
of which Thom Browne option | 22,102 | | — |
Warrant liabilities | — | | 37,258 |
Other current financial liabilities | 22,102 | | 37,258 |
Total | 158,658 | | 216,051 |
| | | | | | | | |
| | | |
| | | | | | |
Written put options on non-controlling interests | | | 159,411 | | | | 196,783 | |
Cash-settled share-based payments | | | 0 | | | | 16,120 | |
| | | 0 | | | | 4,287 | |
| | | 7,976 | | | | 3,778 | |
| | | | | | | | |
Other non-current financial liabilities | | | | | | | | |
| | | | | | | | |
| | | 33,984 | | | | 0 | |
| | | | | | | | |
Other current financial liabilities | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Written put options on
non-controlling
interests
with which provides Mr. Thom Browne
in reference to the Group’s original investment of 85% in Thom Browne. Inparticular, Mr. Thom Browne hasthe right to
sell
to
15% his remaining 10% interest in
the Thom Browne
Group not owned by the Group, in three
tranches, during 2023, 2028 and 2030.tranches. The exercise price of the option is established as the EBITDA of
the Thom Browne Group
at the exercise date,recorded in 2023, 2028 and 2030, multiplied by a given
multiple (“TB Exercise Formula”). The financial liability arising from the obligation
of the Group to purchase the non-controlling interest in the Thom Browne Group is measured at the present value of the expected exercise amount, calculated through the TB Exercise Formula as per projections contained in the
2019-2030 Business Plan approved on May 7, 2020 and April 6, 2021by Zegna’s Valuation Committee.latest business plan, which cover the period from 2024 to 2026. The
remeasurementliability was initially recognized against equity for €162,066 thousand, which was related to the put option of the
liability15% interest, and is remeasured at each reporting date
is recognized throughin profit or loss
based on the latest available information.
During the first half of 2021 the parties renegotiated the contract, providing for early exercise of the option to purchase an additional 5% of Thom Browne; all other conditions of the contract remained unmodified. As a result, on In June
1, 2021, the Group purchased an additional 5% of
the Thom Browne
based on the first tranche of the put option,Group for a total consideration of
USD 37,400€30,653 thousand,
(Euro 30,653 thousand), following which the Group owns 90% of the Thom Browne
group.Group. The
Group derecognized a portion of the liability
for therelated to this written put option
onnon-controlling
interests inat December 31, 2023 amounted to €138,558 thousand, of which €22,102 thousand was classified as current (relating to the
amount of Euro 51,328 thousand and recognized arelated
gain within finance income in the consolidated statement of profit and loss in the amount of Euro 20,675 thousand. Additionally, the equity attributable tonon-controlling
interests was reduced by Euro 4,037 thousand with an offsetting increase to equity attributable to shareholdersfirst tranche representing 2% of the
Parent Companynon-controlling interests that is based on 2023 EBITDA of the Thom Browne Group) and
the put optionrelating to the remainingnon-controlling
interest was remeasured at its fair value.At December 31, 2021, the liability relating to the put option, whichfor
the remaining 10% ofnon-controlling
interests amounted to Euro 135,726€116,456 thousand
and was classified as
non-current.
At non-current (relating to the second and third tranches representing 5% and 3% of the non-controlling interests that are based on 2028 and 2030 EBITDA of the Thom Browne Group, respectively (€155,551 thousand at December 31,
2020, the liability2022 relating to
the put optionall three tranches).
for the
15% ofnon-controlling
interests, amounted to Euro 169,055 thousand and was classified asnon-current.
The Group is party to an option agreement withwhich provides the Dondi family in reference to the Group’s original investment of
65
%
in Dondi. In particular, the
Dondi family haswith a put option giving them the right to sell to the Group on the Dondi family’s
35
%
remaining 35% interest in Dondi
not owned by the Group, in
two tranches duringin 2029 and
2034
. 2034. The exercise price of the option is established as the EBITDA of Dondi at the exercise date, less its net indebtedness, multiplied by a given
multiple less a given discount (“Dondi Exercise Formula”). The financial liability arising from the obligation is measured at the present value of the expected exercise amount, calculated through the Dondi Exercise Formula as per projections contained in the 2020-2034approved Business Plan approved on May 7, 2020 and April 6, 2021 by Zegna’s Valuation Committee.Plan. The remeasurement of the liability at each reporting date is recognized through profit
or loss based on the latest available information. The liability related to this written put option at December 31, 20212023 amounted to Eur
thousand at 31 December 2020).
The Group is party to an option agreement with the CEO of Lanificio in reference to the
10
%
interests in Lanificio. The exercise price
of the optionand was establishedclassified as the fair market value at the exercise date. The financial liability arising from the obligation was measured at the present value of the redemption amount measured with the discounted cash flow method. The remeasurement of the liability at each reporting date was recognized through profit or loss. In July 2021, the Group purchased the additional 10% of Lanificio for a total consideration of Euro
housand, following which the Group owns 100%
of the Lanificio. The Group derecognized the liability for the written put option on
interests.
Cash-settled share-based payments
Cash-settled share-based payments relate to amounts owing to the Group’s CEO. Following a review of the CEO’s compensation package in 2021, the obligation of Euro 16,120 was waived by the CEO. For additional information please refer to Note 42 -Related party transactions
.
Bonds related tonon-convertible
debenture loans for a principal amount of Euro 4,287 thousand, issued between 1984 and 1985. The original due date of the bonds was November 30, 2030; however, on October 12, 2021 the Board of Directors of Zegna decided to early redeem thenon-convertible
debenture loans and the bonds were fully repaid in November 2021.Other mainly includes a financing received from anon-controlling
interest in a subsidiary amounting to Euro 3,919non-current (€23,215 thousand at December
2021 (Euro 3,594 thousand at December 2020)31, 2022).
As part of the Business Combination,On February 27, 2023, the Group assumed IIAC’s 13,416,667completed the previously announced redemption of its outstanding public warrants (which automatically converted intoand private placement warrants to purchase ordinary shares of Zegna) and issued 6,700,000 private placement warrants (of which 800,000 were issued to certain of Zegna’s directors), all of which werethe Company that remained outstanding at December 31, 2021 and recognized as liabilities5:00 p.m. New York City time on February 27, 2023 (the “Redemption Date”), following which (i) 408,667 warrants were exercised by the warrant holders at fair value.
Each public warrant entitles the holder to purchase 1 Zegnaan exercise price of $11.50 per ordinary share at a priceand the Group received total cash proceeds of USD 11.50 per share$4.7 million in exchange for 408,667 newly issued ordinary shares, and may be(ii) 19,322,846 warrants were exercised within 5 years from the completion of the Business Combination. The public warrants may be redeemed by the Company:
at a price of USD 0.01 per warrant
if, and only if, the last reported sale price of the Zegna ordinary shares equals or exceeds USD 18.00 per share for any 20 trading days within a30-trading
day period ending three trading days before sending the notice of redemption to each warrant holder;at a price of USD 0.10 per warrant, if, and only if, the last reported sale price of the Zegna ordinary shares equals or exceeds USD 10.00 per share for any 20 trading days within a30-trading
day period ending three trading days before sending the notice of redemption to each warrant holder.The exercise price and number of Zegna ordinary shares issuable on exercise of the public warrants, as well as the terms of redemption, may be subject to adjustments in certain circumstances, including, among other events, in the event of a share dividend, extraordinary dividend or Zegna’s recapitalization, reorganization, merger or consolidation.
The private placement warrants have the same terms as the public warrants, except that, so long as they are held by Investindustrial Acquisition Corp. L.P., a limited partnership incorporated in England and Wales (“IIAC Sponsor”) or its permitted transferees, i) the private placement warrants were subject to transfer limitations in the30-day
period immediately after the completion of the Business Combination, ii) they may be exercised by the holders on a cashless basis
in exchange for 0.277 ordinary shares of the Company per warrant, with the Company issuing an aggregate of 5,761,067 newly issued ordinary shares. As a result of these transactions, approximately 98% of the outstanding warrants were exercised, of which approximately 2% were exercised for cash and
iii) in certain circumstances they will not be redeemableapproximately 96% were exercised on a cashless basis. The remaining 385,123 warrants remained unexercised on the Redemption Date and were redeemed by the
Company. IfCompany for cash at a redemption price of $0.10 per warrant in accordance with the
terms of the related warrant agreements, for a total of $38.5 thousand.Following the aforementioned transactions, there are no remaining public or private placement warrants are held by someone other than the IIAC Sponsor or its permitted transferees, suchoutstanding. At December 31, 2022, 13,416,636 public warrants will be redeemableand 6,700,000 private warrants were outstanding. The warrants were assumed by the Company and exercisable by such holders on the same basisfrom Investindustrial Acquisition Corp. (IIAC) as the public warrants.
For additional information related topart of the Business Combination
please refer to Note 1 -.completed in December 2021.The following table provides a breakdown for lease liabilities.
| | | | | | | | | | | |
(€ thousands) | 2023 | | 2022 |
At January 1, | 443,507 | | 438,052 |
Interest expense | 17,030 | | 9,882 |
Repayment of lease liabilities (including interest expense) | (142,762) | | (124,321) |
Business combinations | 160,869 | | — |
IFRS 16 lease amendment: lease renegotiation | — | | (7,194) |
Additions due to new leases and store renewals | 142,005 | | 140,875 |
Decrease of lease liabilities due to store closures | (14,750) | | (21,726) |
Translation differences | (12,174) | | 7,939 |
At December 31, | 593,725 | | 443,507 |
Of which: | | | |
Non-current | 471,083 | | 332,050 |
Current | 122,642 | | 111,457 |
| | | | | | | | |
| | | | | | |
| | | | | | | | |
| | | 9,351 | | | | 10,285 | |
Repayment of lease liabilities (including interest expense) | | | (109,962 | ) | | | (100,984 | ) |
IFRS 16 lease amendment: lease renegotiation | | | (12,416 | ) | | | (24,931 | ) |
Additions due to new leases and store renewals | | | 150,648 | | | | 54,303 | |
Decrease of lease liabilities due to store closures | | | (16,485 | ) | | | (14,084 | ) |
Reclassifications to liabilities held for sale | | | — | | | | (83 | ) |
| | | (11,508 | ) | | | — | |
| | | 20,737 | | | | (24,972 | ) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
In certain countries, leases for stores entail the payment of both minimum amounts and variable amounts, especially for stores with lease payments indexed to revenue. As required by IFRS 16, only the minimum fixed lease payments are capitalized.
The following table summarizes the lease liabilities by maturity date:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | At December 31, | | Year 1 | | Year 2 | | Year 3 | | Year 4 | | Beyond |
2023 | 593,725 | | 122,642 | | 102,631 | | 82,248 | | 68,876 | | 217,328 |
2022 | 443,507 | | 111,457 | | 91,081 | | 62,502 | | 46,528 | | 131,939 |
See Note 35 — Qualitative and quantitative information on financial risks—Liquidity risks for information relating to the contractual cash flows of the Group’s lease agreements.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | 106,643 | | | | 92,344 | | | | 65,610 | | | | 38,898 | | | | 134,557 | |
| | | | | | | 92,842 | | | | 79,604 | | | | 60,281 | | | | 47,107 | | | | 127,853 | |
| | 30. Provisions for risks and charges |
The provisions for risks and charges, which amount to Euro 58,648€35,868 thousand in 2021 (Euro 48,2812023 (€33,550 thousand in 2020)2022), represent management’s best estimate of the amount of potential liabilities. In the Directors’ opinion, based on the information available to them, the total amount allocated for risks and charges at the reporting date is adequate in respect of the liabilities that could arise from the underlying circumstances.
The following tables show the movement of the provision for risks and charges in 20212023 and 2020:
2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | Legal and fiscal risks | | Leased store restoration | | Refund liability returns | | Other provisions | | Total provisions |
At January 1, 2023 | 664 | | | 14,808 | | | 9,546 | | | 8,532 | | | 33,550 | |
of which current | — | | | 909 | | | 9,546 | | | 3,514 | | | 13,969 | |
of which non-current | 664 | | | 13,899 | | | — | | | 5,018 | | | 19,581 | |
Provisions | 390 | | | 2,782 | | | 8,373 | | | — | | | 11,545 | |
Releases | (159) | | | (1,533) | | | (94) | | | (2,810) | | | (4,596) | |
Utilizations | (119) | | | (1,515) | | | (4,547) | | | (539) | | | (6,720) | |
Exchange differences | 43 | | | (966) | | | (282) | | | 31 | | | (1,174) | |
Business Combination | — | | | 3,254 | | | 250 | | | — | | | 3,504 | |
Reclassifications and other | (49) | | | (25) | | | (154) | | | (13) | | | (241) | |
At December 31, 2023 | 770 | | | 16,805 | | | 13,092 | | | 5,201 | | | 35,868 | |
of which current | 136 | | | 672 | | | 13,092 | | | 2,119 | | | 16,019 | |
of which non-current | 634 | | | 16,133 | | | — | | | 3,082 | | | 19,849 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 902 | | | | 2,396 | | | | 2,044 | | | | 8,122 | | | | 13,464 | |
| | | (1,752 | ) | | | — | | | | (2,062 | ) | | | (1,559 | ) | | | (5,373 | ) |
| | | (30 | ) | | | (2,581 | ) | | | (694 | ) | | | (1,328 | ) | | | (4,633 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 12,521 | | | | 979 | | | | 491 | | | | 2,594 | | | | 16,585 | |
| | | (264 | ) | | | (630 | ) | | | — | | | | (1,365 | ) | | | (2,259 | ) |
| | | (1,168 | ) | | | — | | | | (351 | ) | | | (3,979 | ) | | | (5,498 | ) |
| | | 1,191 | | | | (110 | ) | | | 178 | | | | — | | | | 1,259 | |
Reclassifications and other | | | — | | | | 175 | | | | 3,699 | | | | (3,594 | ) | | | 280 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
The provision for fiscal and legal risks includes provisions for various litigated matters that have occurred in the ordinary course of business.
On February 17, 2022, an unfavorable judgment was handed down against the Group in respect of a legal claim related to a lease agreement in the US, resulting in the recognition of an additional provision of Euro 12,192 thousand. At December 31, 2021 the total provision for the legal claim amounted
to Euro 28,254 thousand (USD 32,000 thousand),
reflecting management’s best estimate of the obligation based on the current facts and circumstances, including the unfavorable judgment handed down on February 17, 2022. The Group
the decision and 0 payments have yet been made to the claimant pending outcome of the appeal.
The Group is a defendant in various other legal and fiscal lawsuits arising in the ordinary course of business. It is the opinion of the management of the Company that it has meritorious defenses against all such outstanding claims, which the Company will vigorously pursue, and that the outcome of such claims, individually or in the aggregate, will not have a material adverse effect on the Group’s consolidated financial position or results of operations, except as otherwise described above.
The following table presents a breakdown of employee benefits.
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Italian leaving indemnities (TFR) | 10,507 | | 7,613 |
Other leaving indemnities | 10,392 | | 10,486 |
Post-employment benefits | 7,247 | | 5,675 |
Other long-term employee benefits | 1,165 | | 1,469 |
Termination benefits | 334 | | 311 |
Total defined benefit obligations | 29,645 | | 25,554 |
Other long-term payables to employees | — | | 26,030 |
Total employee benefits | 29,645 | | 51,584 |
| | | | | | | | |
| | | |
| | | | | | |
Italian leaving indemnities (TFR) | | | 9,784 | | | | 11,596 | |
Other leaving indemnities | | | 15,237 | | | | 16,073 | |
| | | 5,280 | | | | 590 | |
Other long-term employee benefits | | | 1,362 | | | | 561 | |
| | | 366 | | | | 396 | |
Total defined benefit obligations | | | | | | | | |
Other long-term payables to employees | | | 10,234 | | | | 131 | |
| | | | | | | | |
| | | | | | | | |
Defined benefit obligations
The following table shows the changes in defined benefit obligations.
| | | | | | | | | | | |
(€ thousands) | 2023 | | 2022 |
At January 1, | 25,554 | | 32,029 |
Changes through statement of profit and loss | 5,236 | | 3,280 |
- of which: Service cost | 4,342 | | 3,018 |
- of which: Financial charges | 894 | | 262 |
Changes through statement of comprehensive income and loss | (1,838) | | (755) |
- of which: Actuarial (gain)/loss | (1,376) | | (1,220) |
- of which: Translation differences | (462) | | 465 |
Benefits paid | (2,566) | | (8,676) |
Business Combination | 3,259 | | — |
Reclassifications and other | — | | (324) |
At December 31, | 29,645 | | 25,554 |
| | | | | | | | |
| | | | | | |
| | | | | | | | |
Changes through statement of profit and loss | | | 14,365 | | | | 2,591 | |
| | | | | | | | |
- of which: Financial charges | | | | | | | | |
Changes through statement of comprehensive income | | | 1,562 | | | | (930 | ) |
- of which: Actuarial loss/(gain) | | | | | | | | |
- of which: Translation differences | | | | | | | | |
| | | (13,456 | ) | | | (2,360 | ) |
Change in scope of consolidation and reclassifications to assets held for sale | | | 342 | | | | (658 | ) |
| | | | | | | | |
| | | | | | | | |
Italian leaving indemnities relate to the Italian employee severance indemnity (“TFR”) obligation required under Italian Law and other leaving indemnities primarily relate to leaving indemnities relating to the Group’s subsidiaries in Spain and China.
The following table summarizes the main financial assumptions used in determining the present value of the TFR and other leaving indemnities.
indemnities. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 | | At December 31, 2022 |
| Italy | | Spain | | China | | Italy | | Spain | | China |
Discount rate | 2.90% / 3.40% | | 3.00% / 3.30% | | 2.60% | | 3.60% / 3.80% | | 3.70% / 3.80% | | 2.80% / 2.90% |
Inflation rate | 2.00% / 3.00% | | 2.00% | | 1.50% / 9.00% | | 2.00% / 3.00% | | 1.00% | | 5.50% / 8.00% |
| | | | | | | | | | | |
Turn-over rate | 1.00% / 10.00% | | 4.00% / 5.00% | | 2.00% / 4.50% | | 0.50% / 7.90% | | 2.50% / 4.00% | | 3.50% / 5.50% |
| | | | | | | | | | | | |
| | | | |
| | | | | | | | | | | | |
| | 0.183% / 0.757% | | 0.60 / 0.70% | | 2.80% | | -0.204% / 0.246% | | -0.440 / 0.283% | | 3.05% |
| | 1.50% | | 1.00% | | 5.50% | | 1.50% | | 0.80% | | 4.41% |
| | 1.0% / 2.2% | | 1.00% | | 5.50% | | 0.5% / 2.3% | | 0.80% | | 4.41% |
In determining the defined benefit obligations of the Group’s Italian companies, the Group used the
ISTAT(the Italian National Institute of Statistics)
Statistics (“ISTAT”) benchmark for the estimated mortality rates in Italy, broken down by age and gender, while for defined benefit obligations of the Group’s
non-Italian
companies, the Group used the standard mortality rate benchmark for each individual country, broken down by age and gender. Estimated annual staff turnover rates have been calculated based on the individual companies’ data.
The following table presents a quantitative sensitivity analysis for the main assumptions relating to the Group’s main employee benefit obligations and service costs.
costs. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 | | At December 31, 2022 |
| +50 bps | | -50 bps | | +50 bps | | -50 bps | | +50 bps | | -50 bps | | +50 bps | | -50 bps |
(€ thousands) | Employee benefit obligations | | Service costs | | Employee benefit obligations | | Service costs |
Discount rate | (797) | | | 854 | | | (107) | | | 116 | | | (720) | | | 770 | | | (109) | | | 60 | |
Inflation rate | 728 | | | (689) | | | 113 | | | (105) | | | 680 | | | (645) | | | 61 | | | (111) | |
Turn-over rate | 2,209 | | | (3,292) | | | 381 | | | (570) | | | 2,511 | | | (3,708) | | | 372 | | | (582) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Employee benefit obligations | | | | | | Employee benefit obligations | | | | |
| | | (714 | ) | | | 765 | | | | (39 | ) | | | 42 | | | | (793 | ) | | | 850 | | | | (75 | ) | | | 79 | |
| | | 601 | | | | (572 | ) | | | 38 | | | | (36 | ) | | | 630 | | | | (598 | ) | | | 46 | | | | (43 | ) |
| | | 1,155 | | | | (1,864 | ) | | | 92 | | | | (156 | ) | | | 570 | | | | (1 | ) | | | 61 | | | | (109 | ) |
The average duration of the defined benefit obligations for the Italian TFR at the end of the reporting period was 9.08.7 years (2020: 9.2(2022: 7.8 years), for leaving indemnities in China was 6.39.9 years (2020: 6.2(2022: 10.5 years) and for leaving indemnities in Spain was 7.19.7 years (2019: 6.6(2022: 8.2 years).
Post-employment benefits at December 31, 20212023 and 2022 primarily relate to the Group’s CEO.
Other long-term payables to employees
Other long-term payables at December 31, 2021 Euro 8,7022022 include €24,855 thousand relatingrelated to bonuses earned by certain of Zegna’s senior management team (excluding the CEO)Senior Management Team which willwere expected to be paid in 2024.
2024 in accordance with the related contractual terms, which was classified as due to employees within other current liabilities at December 31, 2023.In 2023, the Group modified the contractual terms of the agreement in order to entitle Senior Management Team to settle a portion of the bonus in ordinary shares equal to a value of $7,500 thousand in 2024. As a result, the compensation that will be settled in ordinary shares is accounted for as equity-settled share-based compensation and measured at the fair value of the related compensation, with an offsetting increase to equity of €6,562 thousand.
| | 32. Trade payables and customer advances |
The following table provides a breakdown for trade payables and customer advances:
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Trade payables | 261,099 | | 220,789 |
Customer advances | 53,038 | | 50,147 |
Total trade payables including customer advances | 314,137 | | 270,936 |
| | | | | | | | |
| | | |
| | | | | | |
| | | 177,801 | | | | 150,257 | |
| | | 45,236 | | | | 38,085 | |
| | | | | | | | |
Total trade payables including customer advances | | | | | | | | |
| | 33. Other current and non-current liabilities |
The following table provides a breakdown for other current and non-current liabilities:
| | | | | | | | | | | |
| At December 31, |
(€ thousands) | 2023 | | 2022 |
Due to employees | 90,864 | | 44,705 |
VAT and other taxes | 25,100 | | 15,102 |
Accrued expenses | 28,512 | | 23,162 |
Social security institutions | 21,260 | | 11,660 |
Deferred income | 9,790 | | 7,650 |
Other current liabilities | 29,487 | | 16,549 |
Total other current liabilities | 205,013 | | 118,828 |
Other non-current liabilities | 9,689 | | — |
Total other non-current liabilities | 9,689 | | — |
| | | | | | | | |
| | | |
| | | | | | |
| | | 51,847 | | | | 26,134 | |
| | | 28,609 | | | | 19,993 | |
| | | 15,319 | | | | 19,739 | |
Social security institutions | | | 8,683 | | | | 9,147 | |
| | | 3,591 | | | | 1,624 | |
Other current liabilities | | | 16,307 | | | | — | |
| | | | | | | | |
Total other current liabilities | | | | | | | | |
Amounts due to employees include deferred compensation, accrued and untaken leave and related social contributions. At December 31, 2021,2023, €43,034 thousand related to bonuses earned by key management that are expected to be paid in 2024 are also included in the amounts due to employees also include the Zegna family’s grant of a Euro 1,500 special gift to each employee of the Zegna group, amounting to a total of Euro 10,916 thousand, as a result of the Company’s listing completed on December 20, 2021. The amount was subsequently paid to employees in February 2022. Monterubello agreed to reimburse the cost incurred by the Group as an equity contribution, which was received in February 2022.employees.
Accrued expenses primarily include payroll accruals and rental expenses.
At December 31, 2023, other current and non-current liabilities include deferred consideration related to the acquisition of the Thom Browne business in South Korea in 2023 of €18,991 thousand, of which €9,302 thousand is expected to be paid in 2024 and was classified as current and €9,689 thousand is expected to be paid in 2025 and was classified as non-current. For additional information see Note 39 — Business combinations.
Other current liabilities at December 31, 2021 primarilyalso include amounts due to the Company’s Board of Directors for board fees, contingent consideration for the acquisition of Tessitura Ubertino, and liabilities relating to customs and vouchers and other sundry amounts.amounts as well as, for 2022 only, the remaining 50% of the contingent consideration for the acquisition of Tessitura Ubertino subject to the company achieving certain predetermined operating performance targets for the year 2022. As a result of the operating performance targets achieved in 2022, the remaining 50% portion of the earn-out payment, amounting to €585 thousand was paid in cash in 2023.
| | 34. Fair value measurement |
The reported amount of derivative instruments, whether assets or liabilities, reflects their fair value at the reporting date.
The carrying amount of cash and cash equivalents, financial assets and trade receivables, as adjusted for impairment where necessary as required by IFRS 9, approximates their estimated realizable value and their fair value. Lease liabilities are reported at present value, while all of the other financial liabilities recorded at amortized cost approximate fair value.
For units in investment funds sensitivity has not been calculated as the valuation is made on the basis of the latest available net asset value (NAV).
Categories of financial assets and liabilities according to IFRS 7
The following tables provide a breakdown for financial assets by category at December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
| Financial assets | | | | Fair value Level |
(€ thousands) | FVPL | | FVOCI | | Amortized cost | | Total | | Note | | 1 | | 2 | | 3 |
Derivative financial instruments | — | | 11,110 | | — | | 11,110 | | 21 | | — | | 11,110 | | — |
Cash and cash equivalents | — | | — | | 296,279 | | 296,279 | | 24 | | — | | 296,279 | | — |
Trade receivables | — | | — | | 240,457 | | 240,457 | | 20 | | — | | 240,457 | | — |
Other non-current financial assets | 4,421 | | — | | 29,477 | | 33,898 | | 18 | | — | | 30,133 | | 3,765 |
Other current financial assets | 56,880 | | 28,440 | | 5,597 | | 90,917 | | 22 | | 29,581 | | 7,970 | | 53,366 |
Total Financial assets | 61,301 | | 39,550 | | 571,810 | | 672,661 | | | | 29,581 | | 585,949 | | 57,131 |
The following table provides an additional breakdown for other current financial assets at December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
| Financial assets | | Fair value Level |
(€ thousands) | FVPL | | FVOCI | | Amortized cost | | Total | | 1 | | 2 | | 3 |
| | | | | | | | | | | | | |
Private equity | 22,399 | | — | | — | | 22,399 | | — | | — | | 22,399 |
Money market funds and floating income | 2,093 | | 16,692 | | — | | 18,785 | | 16,692 | | 2,093 | | — |
Real estate funds | 12,146 | | — | | — | | 12,146 | | — | | — | | 12,146 |
Fixed income | — | | 11,748 | | — | | 11,748 | | 11,748 | | — | | — |
Private debt | 10,106 | | — | | — | | 10,106 | | — | | 280 | | 9,826 |
Hedge funds | 8,995 | | — | | — | | 8,995 | | — | | — | | 8,995 |
Guarantee deposits | — | | — | | 5,431 | | 5,431 | | — | | 5,431 | | — |
| | | | | | | | | | | | | |
Equity | 1,141 | | — | | — | | 1,141 | | 1,141 | | — | | — |
Financial receivables | — | | — | | 166 | | 166 | | — | | 166 | | — |
Total other current financial assets | 56,880 | | 28,440 | | 5,597 | | 90,917 | | 29,581 | | 7,970 | | 53,366 |
The following table presents the changes in level 3 items for the years ended December 31, 2023 and 2022:
| | | | | | | | | | | |
(€ thousands) | Fair value Level 3 |
| 2023 | | 2022 |
At January 1 | 215,727 | | 201,290 |
Investments | 10,140 | | 21,343 |
Disposals | (169,645) | | (12,529) |
Fair value adjustments | 1,647 | | 4,355 |
Realized gains | (49) | | 254 |
Exchange rate gains | (689) | | 1,014 |
At December 31 | 57,131 | | 215,727 |
The fair value of Level 2 items is mainly estimated on the basis of data provided by pricing services (non-active markets) and the fair value of Level 3 items is estimated on the basis of the last available NAV.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 |
| Financial assets | | | | Fair value Level |
(€ thousands) | FVPL | | FVOCI | | Amortized cost | | Total | | Note | | 1 | | 2 | | 3 |
Derivative financial instruments | — | | 22,454 | | — | | 22,454 | | 21 | | — | | 22,454 | | — |
Cash and cash equivalents | — | | — | | 254,321 | | 254,321 | | 24 | | — | | 254,321 | | — |
Trade receivables | — | | — | | 177,213 | | 177,213 | | 20 | | — | | 177,213 | | — |
Other non-current financial assets | 3,958 | | — | | 32,282 | | 36,240 | | 18 | | — | | 32,861 | | 3,379 |
Other current financial assets | 289,743 | | 26,852 | | 4,299 | | 320,894 | | 22 | | 30,076 | | 78,470 | | 212,348 |
Total Financial assets | 293,701 | | 49,306 | | 468,115 | | 811,122 | | | | 30,076 | | 565,319 | | 215,727 |
The following table provides an additional breakdown for other current financial assets at December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 |
| Financial assets | | Fair value Level |
(€ thousands) | FVPL | | FVOCI | | Amortized cost | | Total | | 1 | | 2 | | 3 |
Insurance contracts (*) | 114,975 | | — | | — | | 114,975 | | — | | — | | 114,975 |
Fixed income | 64,017 | | 9,110 | | — | | 73,127 | | 9,110 | | 47,114 | | 16,903 |
Hedge funds | 46,761 | | — | | — | | 46,761 | | — | | 10,116 | | 36,645 |
Real estate funds | 12,129 | | — | | — | | 12,129 | | — | | — | | 12,129 |
Equity | 14,592 | | — | | — | | 14,592 | | 497 | | 14,095 | | — |
Money market funds and floating income | 2,587 | | 17,742 | | — | | 20,329 | | 17,742 | | 2,587 | | — |
Private equity | 18,311 | | — | | — | | 18,311 | | — | | — | | 18,311 |
Private debt | 13,644 | | — | | — | | 13,644 | | — | | 259 | | 13,385 |
Commodities | 2,727 | | — | | — | | 2,727 | | 2,727 | | — | | — |
Guarantee deposits and others | — | | — | | 2,075 | | 2,075 | | — | | 2,075 | | — |
Financial receivables | — | | — | | 2,224 | | 2,224 | | — | | 2,224 | | — |
Total other current financial assets | 289,743 | | 26,852 | | 4,299 | | 320,894 | | 30,076 | | 78,470 | | 212,348 |
_________________
*A sensitivity analysis was performed at December 31, 20212022 on the fair value of the Group’s insurance contracts (recorded within other current financial assets), with the support of an external actuarial expert, using the discounted cash flow method. The main assumptions used to perform the sensitivities are: i)(i) the vector of prospective returns is calculated from the last certified management rate (known at the valuation date) assuming a trend to the market forward rate, consistent with the current Italian government curve; ii)(ii) the target duration has been assumed to be 5 years; iii)(iii) the prospective investment returns are netted against the management fees; iv)(iv) the cash flow projection was made in line with the underlying contractual conditions; v)(v) a probability of surrender has been assumed, based on market data and depending on the type of insurance contract considered, ranging from 5.22%5.61% to 6.41%8.31%. Based on the analysis performed, no significant differences from fair value were noted.
For units in investment funds sensitivity has not been calculated as the valuation is made on the basis of the latest available NAV.
Categories of financial assets and liabilities according to IFRS 7
The following tables provide a breakdown for financial assets by category:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Derivative financial instruments | | | 0 | | | | 1,786 | | | | 0 | | | | 1,786 | | | | 26 | | | | 0 | | | | 1,786 | | | | 0 | |
Cash and cash equivalents | | | 0 | | | | 0 | | | | 459,791 | | | | 459,791 | | | | 29 | | | | 0 | | | | 459,791 | | | | 0 | |
| | | 0 | | | | 0 | | | | 160,360 | | | | 160,360 | | | | 25 | | | | 0 | | | | 160,360 | | | | 0 | |
Other non-current financial assets | | | 2,257 | | | | 0 | | | | 33,115 | | | | 35,372 | | | | 23 | | | | 0 | | | | 33,115 | | | | 2,257 | |
Other current financial assets (*) | | | 308,532 | | | | 25,712 | | | | 6,136 | | | | 340,380 | | | | 27 | | | | 53,164 | | | | 88,183 | | | | 199,033 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(*) | The following table provides an additional breakdown for other current financial assets at December
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 113,919 | | | | 0 | | | | 0 | | | | 113,919 | | | | 0 | | | | 0 | | | | 113,919 | |
| | | 68,947 | | | | 5,025 | | | | 0 | | | | 73,972 | | | | 29,764 | | | | 26,700 | | | | 17,508 | |
| | | 41,483 | | | | 0 | | | | 0 | | | | 41,483 | | | | 0 | | | | 11,243 | | | | 30,240 | |
| | | 32,898 | | | | 0 | | | | 0 | | | | 32,898 | | | | 0 | | | | 19,100 | | | | 13,798 | |
| | | 25,408 | | | | 0 | | | | 0 | | | | 25,408 | | | | 2,713 | | | | 22,695 | | | | 0 | |
Money market funds and floating income | | | 2,007 | | | | 20,687 | | | | 0 | | | | 22,694 | | | | 20,687 | | | | 2,007 | | | | 0 | |
| | | 15,925 | | | | 0 | | | | 0 | | | | 15,925 | | | | 0 | | | | 0 | | | | 15,925 | |
| | | 7,945 | | | | 0 | | | | 0 | | | | 7,945 | | | | 0 | | | | 302 | | | | 7,643 | |
Guarantee deposits and others | | | 0 | | | | 0 | | | | 6,136 | | | | 6,136 | | | | 0 | | | | 6,136 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other current financial assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents the changes in level 3 items for the period ended December 31, 2021:
| | | | |
| | | |
| | | | |
| | | | |
| | | 19,516 | |
| | | (5,169 | ) |
| | | 6,060 | |
| | | 69 | |
| | | 1,403 | |
| | | | |
| | | | |
The fair value of Level 2 items is mainly estimated on the basis of data provided by pricing services (non active(non-active markets) and the fair value of Level 3 items is estimated on the basis of the last available net asset value (NAV).
NAV. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Derivative financial instruments | | | 0 | | | | 11,848 | | | | 0 | | | | 11,848 | | | | 26 | | | | 0 | | | | 11,848 | | | | 0 | |
Cash and cash equivalents | | | 0 | | | | 0 | | | | 317,291 | | | | 317,291 | | | | 29 | | | | 0 | | | | 317,291 | | | | 0 | |
| | | 0 | | | | 0 | | | | 138,829 | | | | 138,829 | | | | 25 | | | | 0 | | | | 138,829 | | | | 0 | |
Other non-current financial assets | | | 20,686 | | | | 0 | | | | 28,577 | | | | 49,263 | | | | 23 | | | | 0 | | | | 0 | | | | 20,686 | |
Other current financial assets (*) | | | 322,326 | | | | 27,837 | | | | 0 | | | | 350,163 | | | | 27 | | | | 32,217 | | | | 140,792 | | | | 177,154 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(*) | The following table provides an additional breakdown for other current financial assets at December
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 107,188 | | | | 0 | | | | 0 | | | | 107,188 | | | | 0 | | | | 0 | | | | 107,188 | |
| | | 88,011 | | | | 5,174 | | | | 0 | | | | 93,185 | | | | 7,201 | | | | 68,570 | | | | 17,414 | |
Money market funds and floating income | | | 19,223 | | | | 22,663 | | | | 0 | | | | 41,886 | | | | 22,662 | | | | 19,224 | | | | 0 | |
| | | 36,511 | | | | 0 | | | | 0 | | | | 36,511 | | | | 0 | | | | 8,549 | | | | 27,962 | |
| | | 29,073 | | | | 0 | | | | 0 | | | | 29,073 | | | | 0 | | | | 17,607 | | | | 11,466 | |
| | | 24,843 | | | | 0 | | | | 0 | | | | 24,843 | | | | 2,354 | | | | 22,489 | | | | 0 | |
| | | 10,583 | | | | 0 | | | | 0 | | | | 10,583 | | | | 0 | | | | 0 | | | | 10,583 | |
| | | 6,894 | | | | 0 | | | | 0 | | | | 6,894 | | | | 0 | | | | 4,353 | | | | 2,541 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other current financial assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The fair value of Level 2 items is mainly estimated on the basis of data provided by pricing services (non active markets) and the fair value of Level 3 items is estimated on the basis of the last available net asset value (NAV).
The following tables provide a breakdown for financial liabilities by category:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 |
| Financial liabilities | | | | Fair value Level |
(€ thousands) | FVPL | | FVOCI | | Amortized cost | | Total | | Note | | 1 | | 2 | | 3 |
Derivative financial instruments | — | | 897 | | — | | 897 | | 21 | | — | | 897 | | — |
Non-current borrowings | — | | — | | 113,285 | | 113,285 | | 27 | | — | | 113,285 | | — |
Current borrowings | — | | — | | 289,337 | | 289,337 | | 27 | | — | | 289,337 | | — |
Other non-current financial liabilities | 136,466 | | — | | 90 | | 136,556 | | 28 | | — | | 136,466 | | 90 |
Other current financial liabilities | 22,102 | | — | | — | | 22,102 | | 28 | | — | | 22,102 | | — |
Trade payables and customer advances | — | | — | | 314,137 | | 314,137 | | 32 | | — | | 314,137 | | — |
Lease liabilities – Current / Non-current | — | | — | | 593,725 | | 593,725 | | 29 | | — | | — | | 593,725 |
Financial liabilities | 158,568 | | 897 | | 1,310,574 | | 1,470,039 | | | | — | | 876,224 | | 593,815 |
| | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2022 | | | At December 31, 2022 |
| Financial liabilities | | | Financial liabilities | | | | Fair value Level |
(€ thousands) | | (€ thousands) | FVPL | | FVOCI | | Amortized cost | | Total | | Note | | 1 | | 2 | | 3 |
Derivative financial instruments | | | 0 | | | | 14,138 | | | | 0 | | | | 14,138 | | | | 26 | | | | 0 | | | | 14,138 | | | | 0 | | Derivative financial instruments | — | | 2,362 | | — | | 2,362 | | 21 | | — | | 2,362 | | — |
| | | 0 | | | | 0 | | | | 471,646 | | | | 471,646 | | | | 33 | | | | 0 | | | | 471,646 | | | | 0 | | Non-current borrowings | — | | — | | 184,880 | | 27 | | — | | 184,880 | | — |
| | | 0 | | | | 0 | | | | 157,292 | | | | 157,292 | | | | 33 | | | | 0 | | | | 157,292 | | | | 0 | | Current borrowings | — | | — | | 286,175 | | 27 | | — | | 286,175 | | — |
Other non-current financial liabilities | | | 159,411 | | | | 0 | | | | 7,976 | | | | 167,387 | | | | 34 | | | | 0 | | | | 159,411 | | | | 7,976 | | Other non-current financial liabilities | 178,766 | | — | | 27 | | 178,793 | | 28 | | — | | 178,766 | | 27 |
Other current financial liabilities | | | 33,984 | | | | 0 | | | | 0 | | | | 33,984 | | | | 35 | | | | 23,810 | | | | 10,174 | | | | 0 | | Other current financial liabilities | 37,258 | | — | | 37,258 | | 28 | | | | 37,258 | | — |
Trade payables and customer advances | | | 0 | | | | 0 | | | | 223,037 | | | | 223,037 | | | | 38 | | | | 0 | | | | 223,037 | | | | 0 | | Trade payables and customer advances | — | | — | | 270,936 | | 32 | | — | | 270,936 | | — |
Lease liabilities – Current / Non-current | | | 0 | | | | 0 | | | | 438,052 | | | | 438,052 | | | | 35 | | | | 0 | | | | 0 | | | | 438,052 | | Lease liabilities – Current / Non-current | — | | — | | 443,507 | | 29 | | — | | 443,507 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities | 216,024 | | 2,362 | | 1,185,525 | | 1,403,911 | | | | — | | 960,377 | | 443,534 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Derivative financial instruments | | | 0 | | | | 13,192 | | | | 0 | | | | 13,192 | | | | 26 | | | | 0 | | | | 13,192 | | | | 0 | |
| | | 0 | | | | 0 | | | | 558,722 | | | | 558,722 | | | | 33 | | | | 0 | | | | 558,722 | | | | 0 | |
| | | 0 | | | | 0 | | | | 106,029 | | | | 106,029 | | | | 33 | | | | 0 | | | | 106,029 | | | | 0 | |
Other non-current financial liabilities | | | 212,903 | | | | 0 | | | | 8,065 | | | | 220,968 | | | | 34 | | | | 0 | | | | 0 | | | | 220,968 | |
Trade payables and customer advances | | | 0 | | | | 0 | | | | 188,342 | | | | 188,342 | | | | 38 | | | | 0 | | | | 188,342 | | | | 0 | |
Lease liabilities – Current / Non-current | | | 0 | | | | 0 | | | | 407,687 | | | | 407,687 | | | | 35 | | | | 0 | | | | 0 | | | | 407,687 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | | | | |
| | Qualitative and quantitative information on financial risks
|
35. Qualitative and quantitative information on financial risks
The Group is exposed to several financial risks connected with its operations:
•financial market risk, (principally relatingprimarily related to foreign currency exchange rates, interest rates and commodity prices;
•liquidity risk relating to the availability of funds and access to credit, if required, and to financial instruments in general;
•credit risk relating to counterparties failing to repay amounts owed or meet contractual obligations.
These risks could significantly affect the Group’s financial position, results of operations and cash flows, and for this reason the Group identifies and monitors these risks, in order to detect potential negative effects in advance and take the necessary action to mitigate them, primarily through the Group’s operating and financing activities and if required, through the use of derivative financial instruments.
A summary of qualitative and quantitative factors relating to these risks is provided below. The quantitative data reported in the following section does not have any predictive value. In particular, the sensitivity analysis on finance market risks does not reflect the complexity of the market or the reaction which may result from any changes that are assumed to take place.
Foreign currency risk
The Group operates in numerous markets worldwide and is exposed to market risks stemming from fluctuations in currency exchange rates. The exposure to currency risk is mainly linked to the differences in geographic distribution of the Group’s sourcing and manufacturing activities from those in its commercial activities, as a result of which its cash flows from sales are denominated in currencies different from those related to purchases or production activities. In particular, the Group incurs a large portion of its capital and operating expenses in Euro (which is the Group’s functional and presentation
Creditcurrency) while it receives the majority of its revenues in currencies other than Euro (mainly in Chinese Renminbi, U.S. Dollars, Japanese Yen, United Arab Emirates Dirham and British Pound). Risk management is mainly centralized at the Group’s distribution companies. Goods transferred for consideration to associates are settled directly in the currency of the country where they operate and sell (with the exception of countries where local currency cannot be delivered outside the country). This creates the risk that the corresponding value in Euro of revenues at the moment of collection is insufficient to cover production costs or to achieve the desired profit margin. This risk is definedheightened during the period between the moment when the sale prices of a collection are set and the moment when revenues are converted into Euro, which may extend up to 18 months. For the Zegna and the Tom Ford Fashion segments, the Group manages risks associated with fluctuations in currency through financial hedging instruments, mainly forward contracts for the sale of foreign currencies, in order to establish the conversion rate in advance, or a predefined range of conversion rates at future dates. The Group continues to implement similar policies also for the Thom Browne segment, which has become more exposed to currency impact as it expands into international markets. For the years ended December 31, 2023, 2022 and 2021 the Zegna segment covered its exchange rate risk almost exclusively with currency forward exchange contracts. To this end, before the preparation of the price list and based on market expectations and conditions, the Group arranges hedges that cannot exceed 50% - 60% of forecast sales in foreign currencies. In the period following the preparation of the price list, the total outstanding hedge is adjusted on the basis of market conditions and of the orders effectively managed and entered into production.
In addition, the Group controls and hedges exposure deriving from changes due to exchange rate changes in the value of assets or liabilities denominated in currencies other than the accounting currency of the individual company (typically intercompany financial receivables/payables), which may affect the Group’s net results, through financial instruments, whose recognition in accordance with IFRS follows the rules of fair value hedges: the profit or loss arising from subsequent remeasurements of the fair value of the hedging instrument and the hedged item are recorded within profit and loss. The hedges of the Group’s future transactions in foreign currencies (which can be classified as cash flow hedges pursuant to IFRS) are accounted for in accordance with hedge accounting rules.
The Group has estimated the potential effects of a shock change of +/-5% on the main currencies to which the Group is exposed at each reporting date, by using internal assessment models based on generally accepted principles.
The following table presents the potential effects on profit before tax of a hypothetical change of +/- 500 bps in year-end exchange-rates, applied to the Group’s net balances of trade receivables and trade payables in foreign currencies.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 | | At December 31, 2022 |
(€ thousands, except basis points) | Trade receivables and trade payables | | +500 bps | | -500 bps | | Trade receivables and trade payables | | +500 bps | | -500 bps |
Currency | | Impact on profit before tax | | | Impact on profit before tax |
USD | 145,836 | | (6,945) | | | 7,676 | | | 59,523 | | (2,834) | | | 3,133 | |
JPY | 22,735 | | (1,083) | | | 1,197 | | | 17,055 | | (812) | | | 898 | |
CNY | 113,962 | | (5,427) | | | 5,998 | | | 43,398 | | (2,067) | | | 2,284 | |
HKD | 24,843 | | (1,183) | | | 1,308 | | | 19,139 | | (911) | | | 1,007 | |
GBP | 16,283 | | (775) | | | 857 | | | (2,227) | | 106 | | | (117) | |
SGD | 7,965 | | (379) | | | 419 | | | 9,496 | | (452) | | | 500 | |
CHF | (25,940) | | 1,235 | | | (1,365) | | | (9,285) | | 442 | | | (489) | |
KRW | 23,753 | | (1,131) | | | 1,250 | | | n.a. | | n.a. | | n.a. |
Total | 329,437 | | (15,688) | | | 17,340 | | | 137,099 | | (6,528) | | | 7,216 | |
The following table presents the potential impact on profit before tax of a hypothetical change of +/- 500 bps in year-end exchange-rates, applied to the Group’s hedged positions on the main currencies to which the Group is exposed.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 | | At December 31, 2022 |
(€ thousands, except basis points) | Notional amount | | +500 bps | | -500 bps | | Notional amount | | +500 bps | | -500 bps |
Currency | | Impact on profit before tax | | | Impact on profit before tax |
USD | 117,479 | | 5,594 | | | (6,183) | | | 53,320 | | 2,539 | | | (2,806) | |
JPY | 21,116 | | 1,006 | | | (1,111) | | | 15,979 | | 761 | | | (841) | |
CNY | 96,021 | | 4,572 | | | (5,054) | | | 42,817 | | 2,039 | | | (2,254) | |
GBP | 12,233 | | 583 | | | (644) | | | (816) | | (39) | | | 43 | |
HKD | 17,422 | | 830 | | | (917) | | | 19,940 | | 950 | | | (1,049) | |
CHF | — | | — | | | — | | | — | | — | | | — | |
SGD | 7,525 | | 358 | | | (396) | | | 9,463 | | 451 | | | (498) | |
KRW | 11,999 | | 571 | | | (632) | | | n.a. | | n.a. | | n.a. |
Total | 283,795 | | 13,514 | | | (14,937) | | | 140,703 | | 6,701 | | | (7,405) | |
The following table presents the potential change in equity gross of tax of a hypothetical change of +/- 500 bps in year-end exchange-rates, applied to the Group’s foreign currency hedging instruments on highly probable transactions.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 | | At December 31, 2022 |
(€ thousands, except basis points) | Notional amount | | +500 bps | | -500 bps | | Notional amount | | +500 bps | | -500 bps |
Currency | | Impact on hedge reserve | | | Impact on hedge reserve |
USD | 75,308 | | 3,586 | | | (3,964) | | | 61,821 | | 2,944 | | | (3,254) | |
CHF | — | | — | | | — | | | (8,272) | | (394) | | | 435 | |
JPY | 9,181 | | 437 | | | (483) | | | 10,433 | | 497 | | | (549) | |
HKD | 11,531 | | 549 | | | (607) | | | 6,153 | | 293 | | | (324) | |
GBP | 20,924 | | 996 | | | (1,101) | | | 8,280 | | 394 | | | (436) | |
CNY | 88,176 | | 4,199 | | | (4,641) | | | 48,918 | | 2,329 | | | (2,575) | |
SGD | 4,709 | | 224 | | | (248) | | | 5,206 | | 248 | | | (274) | |
KRW | — | | — | | | — | | | n.a. | | n.a. | | n.a. |
Total | 209,829 | | 9,991 | | | (11,044) | | | 132,539 | | 6,311 | | | (6,977) | |
The following table presents the potential impact on profit before tax of a hypothetical change of +/- 500 bps in the EUR/USD year-end exchange-rate, applied to the Thom Browne put option in U.S. Dollars on non-controlling interests (recorded within other non-current financial liabilities).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 | | At December 31, 2022 |
(€ thousands, except basis points) | Notional amount | | +500 bps | | -500 bps | | Notional amount | | +500 bps | | -500 bps |
Currency | | Impact on profit before tax | | | Impact on profit before tax |
USD | (116,456) | | 6,598 | | | (7,293) | | | (155,551) | | 7,407 | | | (8,187) | |
Total | (116,456) | | 6,598 | | | (7,293) | | | (155,551) | | 7,407 | | | (8,187) | |
Interest rate risk
Overall exposure to interest rate risk is monitored at the Group level through coordinated management of debt and available liquidity and of the relevant due dates. The Group’s principal sources of exposure to interest rate risk derive from loans and revolving credit lines at variable rates. At December 31, 2023, the notional value of interest rate swap derivatives to hedge the risk of financial loss caused by the failure of a counterparty to repay amounts owed or meet its contractual obligations. The maximum risk to which an entity is exposed is represented by all the financial assets recognizedpotential increase in the cost of servicing of financial statements. Management considers itsdebt due to fluctuations in market rates was €133,962 thousand (€320,000 thousand at December 31, 2022) with a positive fair value of €4,739 thousand (€9,379 thousand at December 31, 2022). The short-term portion of bank debt, used mainly to finance working capital needs, is not covered by interest rate hedges. The cost of bank debt is equal to Euribor for the period plus a spread that depends on the type of credit risk to relate primarily to trade receivables generated fromfacility used.
For the wholesale channel and mitigatesyear ended December 31, 2023 a hypothetical 20% increase in short-term interest rates on such floating rate non-current financial liabilities, with all other variables held constant, would have resulted in financial expenses, on an annual basis, of approximately €8,124 thousand (€2,273 thousand for the related effects through specific commercial andyear ended December 31, 2022). For the year ended December 31, 2023 a hypothetical 20% decrease in short-term interest rates on such floating rate non-current financial strategies.
With regards to trade receivables, credit risk management is carried out by monitoringliabilities, with all other variables held constant, would have resulted in financial expenses, on an annual basis, of approximately €5,774 thousand (€1,670 thousand for the reliability and solvency of customers, as well as through insurance agreements. year ended December 31, 2022).
The following table providespresents the agingsensitivity on floating rate borrowings not covered by interest rate swaps.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2023 |
Amount | | Total interest rate (*) | | Interest expense | | -20% | | Impact on profit before tax | | +20% | | Impact on profit before tax |
(€ thousands, except percentages) |
4,829 | | 4.690% | | 226 | | 3.910% | | 189 | | 5.470% | | 264 |
20,000 | | 4.560% | | 912 | | 3.770% | | 754 | | 5.360% | | 1,071 |
20,000 | | 4.770% | | 954 | | 3.970% | | 794 | | 5.570% | | 1,114 |
40,000 | | 4.900% | | 1,960 | | 4.110% | | 1,645 | | 5.680% | | 2,274 |
40,000 | | 4.850% | | 1,940 | | 4.040% | | 1,616 | | 5.660% | | 2,264 |
19,500 | | 3.910% | | 761 | | 3.130% | | 611 | | 4.680% | | 912 |
384 | | 4.800% | | 18 | | 4.000% | | 15 | | 5.600% | | 22 |
608 | | 5.480% | | 33 | | 4.680% | | 28 | | 6.280% | | 38 |
1,217 | | 5.480% | | 67 | | 4.680% | | 57 | | 6.280% | | 76 |
1,000 | | 4.450% | | 45 | | 3.650% | | 37 | | 5.250% | | 53 |
565 | | 5.700% | | 32 | | 4.890% | | 28 | | 6.510% | | 37 |
148,103 | | | | 6,949 | | | | 5,774 | | | | 8,124 |
_________________*The overall rate indicated is compounded of trade receivables:
the fixed spread plus the variable rate (+-20% is on the variable rate).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2022 |
Amount | | Total interest rate (*) | | Interest expense | | -20% | | Impact on profit before tax | | +20% | | Impact on profit before tax |
(€ thousands, except percentages) |
5,000 | | 3.091% | | 155 | | 2.629% | | 131 | | 3.553% | | 178 |
6,250 | | 3.620% | | 226 | | 2.760% | | 173 | | 3.928% | | 246 |
8,080 | | 2.690% | | 217 | | 2.304% | | 186 | | 3.064% | | 248 |
45,000 | | 3.090% | | 1,391 | | 2.622% | | 1,180 | | 3.558% | | 1,601 |
64,330 | | | | 1,989 | | | | 1,670 | | | | 2,273 |
_________________
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | |
| | | | | | | |
| | | 136,648 | | | | 21,957 | | | | 5,018 | | | | 3,380 | | | | 167,003 | |
| | | (1,575 | ) | | | (696 | ) | | | (992 | ) | | | (3,380 | ) | | | (6,643 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total trade receivables at December 31, 2021 | | | | | | | | | | | | | | | | | | | | |
| | | 106,659 | | | | 23,172 | | | | 2,509 | | | | 15,206 | | | | 147,546 | |
| | | (549 | ) | | | (1,876 | ) | | | (480 | ) | | | (5,812 | ) | | | (8,717 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total trade receivables at December 31, 2020 | | | | | | | | | | | | | | | | | | | | |
At December 31, 2020 trade receivables overdue by more than 180 days relates to*The overall rate indicated is compounded of the related party Tom Ford International LLC, mainly due tofixed spread plus the financial impact caused byvariable rate (+-20% is on theCOVID-19
pandemic. variable rate).Liquidity risk represents the risk that the Group cannot meet its financial obligations due to problems in obtaining funds at current market price conditions (funding liquidity risk) or in liquidating assets on the market to find the necessary financial resources (asset liquidity risk), which could negatively impact the Group’s results if the Group is forced to incur additional costs to obtain liquidity or meet its commitments.
The following tables summarize the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | Within 1 year | | Within 2 Years | | Within 3 years | | Beyond | | Total contractual cash flows | | Carrying amount at December 31, 2023 |
Derivative financial instruments | 897 | | — | | — | | — | | 897 | | 897 |
Trade payables and customer advances | 314,137 | | — | | — | | — | | 314,137 | | 314,137 |
Borrowings | 294,537 | | 88,235 | | 20,123 | | 8,705 | | 411,600 | | 402,622 |
Lease liabilities | 142,283 | | 119,128 | | 95,035 | | 320,141 | | 676,587 | | 593,725 |
Other current and non-current financial liabilities | 22,102 | | — | | — | | 136,556 | | 158,658 | | 158,658 |
Total | 773,956 | | 207,363 | | 115,158 | | 465,402 | | 1,561,879 | | 1,470,039 |
| | | | |
| | Carrying amount at December 31, 2021 | | |
| | |
| | |
| | | | |
(€ thousands) | | (€ thousands) | Within 1 year | | Within 2 Years | | Within 3 years | | Beyond | | Total contractual cash flows | | Carrying amount at December 31, 2022 |
Derivative financial instruments | | | 14,138 | | | | 14,138 | | | | 0 | | | | 0 | | | | 0 | | Derivative financial instruments | 2,362 | | — | | 2,362 | | 2,362 |
Trade payables and customer advances | | | 223,037 | | | | 223,037 | | | | 0 | | | | 0 | | | | 0 | | Trade payables and customer advances | 270,936 | | — | | 270,936 | | 270,936 |
| | | 628,938 | | | | 161,550 | | | | 283,736 | | | | 135,541 | | | | 56,414 | | Borrowings | 290,470 | | 139,257 | | 36,536 | | 16,650 | | 482,913 | | 471,055 |
| | | 438,052 | | | | 112,713 | | | | 98,101 | | | | 69,827 | | | | 186,951 | | Lease liabilities | 119,287 | | 97,148 | | 66,812 | | 193,368 | | 476,615 | | 443,507 |
Other current and non-current financial liabilities | | | 201,371 | | | | 33,984 | | | | 29,816 | | | | 0 | | | | 137,571 | | Other current and non-current financial liabilities | 37,258 | | 23,632 | | — | | 155,161 | | 216,051 | | 216,051 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Total | 720,313 | | 260,037 | | 103,348 | | 365,179 | | 1,448,877 | | 1,403,911 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Carrying amount at December 31, 2020 | | |
| | |
| | |
| | | | | | |
Derivative financial instruments | | | 13,192 | | | | 13,192 | | | | 0 | | | | 0 | | | | — | | | |
Trade payables and customer advances | | | 188,342 | | | | 188,342 | | | | 0 | | | | 0 | | | | —
| | | |
| | | 664,751 | | | | 106,029 | | | | 107,500 | | | | 281,250 | | | | 169,972 | | | |
| | | 407,687 | | | | 102,092 | | | | 82,489 | | | | 67,137 | | | | 187,771 | | | |
Other non-current financial liabilities | | | 220,968 | | | | 0 | | | | 25,976 | | | | 71,924 | | | | 123,068 | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
The factors which mainly influence the Group’s liquidity are the resources generated or absorbed by current operating and investing activities, the possible distribution of dividends, the maturity or refinancing of debt and the management of surplus cash. Liquidity needs or surpluses are monitored on a daily basis by the Parent Company in order to guarantee effective sourcing of financial resources or adequate investment of excess liquidity.
The negotiation and management of credit lines is coordinated by the Parent Company with the aim of satisfying the short and medium-term financing needs of the individual companies within the Group according to efficiency and cost-effectiveness criteria. It has always been the Group’s policy to sign and constantly maintain with various and diversified banks a total amount of committed credit lines that is considered consistent with the needs of the individual companies and suitable to ensure at any time the liquidity needed to satisfy and comply with all the Group’s financial commitments, at the established economic conditions, as well as guaranteeing the availability of an adequate level of operational flexibility for any expansion programs.
Credit risk
Credit risk is defined as the risk of financial loss caused by the failure of a counterparty to repay amounts owed or meet its contractual obligations. The maximum risk to which an entity is exposed is represented by all the financial assets recognized in the financial statements. Management considers its credit risk to relate primarily to trade receivables generated from the wholesale channel and mitigates the related effects through specific commercial and financial strategies.
Foreign currency riskF-81
Foreign currency exchange rate transaction risks originate mainly from exports of the Group in US Dollars, Chinese Renminbi, Japanese Yen, British Pound and Mexican Peso. RiskWith regards to trade receivables, credit risk management is mainly centralized atcarried out by monitoring the distributing companies. Goods transferred for consideration to associates are settled directly inreliability and solvency of customers, as well as through insurance agreements. The following table provides the currencyaging of the country where they operate and sell (with the exception of countries where local currency cannot be delivered outside the country). This implies the risk that the corresponding value in Euro of revenues determined at the moment of collection is insufficient to cover production costs or to achieve the desired profit margin. This risk is heightened during the significant period between the moment when the sale prices of a collection are set and the moment when revenues are converted into Euro, which extends up to 18 months. The distributing companies enter into currency forward contracts or options, to establish the conversion rate in advance, or a predefined range of conversion rates at future dates. For the years ended December 31, 2021, 2020 and 2019 the Group covered its exchange rate risk almost exclusively with currency forward exchange contracts. To this end, before the preparation of the price list and based on market expectations and conditions, the Group arranges hedges that cannot exceed 50%trade receivables:
- | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(€ thousands) | Not yet due | | 0-120 days overdue | | 121-180 days overdue | | >180 days overdue | | Total |
Trade receivables, gross | 189,324 | | 46,078 | | 6,907 | | 4,829 | | 247,138 |
Loss allowance | (418) | | (1,387) | | (1,262) | | (3,614) | | (6,681) |
Total trade receivables at December 31, 2023 | 188,906 | | 44,691 | | 5,645 | | 1,215 | | 240,457 |
Trade receivables, gross | 146,486 | | 29,772 | | 1,877 | | 5,590 | | 183,725 |
Loss allowance | (894) | | (1,287) | | (278) | | (4,053) | | (6,512) |
Total trade receivables at December 31, 2022 | 145,592 | | 28,485 | | 1,599 | | 1,537 | | 177,213 |
60% of forecast sales in foreign currencies. In the period following the preparation of the price list, the total outstanding hedge is adjusted on the basis of market conditions and of the orders effectively managed and entered into production.
In addition, the Group controls and hedges exposure deriving from changes due to exchange rate changes in the value of assets or liabilities denominated in currencies other than the accounting currency of the individual company (typically intercompany financial receivables/payables), which may affect the Group’s net results, through financial instruments, whose recognition in accordance with IFRS follows the rules of fair value hedge: the profit or loss arising from subsequent remeasurements of the fair value of the hedging instrument and the hedged item are recorded within profit and loss. The hedges of the Parent Company’s future transactions in foreign currencies (which can be classified as cash flow hedges pursuant to IFRS) are accounted for in accordance with hedge accounting rules.
The Group has estimated the potential effects of a shock change of+/-5%
on the main currencies to which the Group is exposed at each reporting date, by using internal assessment models based on generally accepted principles.
36. Related party transactions
The following table presents the potential effects on profit before tax of a hypothetical change of +/- 500 bps inyear-end
exchange-rates, appliedPursuant to IAS 24 — Related Party Disclosures (“IAS 24”), the Group’s net balances of trade receivables and trade payables in foreign
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | Trade receivables and trade payables in functional currency | | | | | | | | | Trade receivables and trade payables in functional currency | | | | | | | |
| | Impact on profit before tax | | | Impact on profit before tax | |
| | | 96,885 | | | | (4,614 | ) | | | 5,099 | | | | 112,850 | | | | (5,374 | ) | | | 5,939 | |
| | | 20,481 | | | | (975 | ) | | | 1,078 | | | | 41,757 | | | | (1,988 | ) | | | 2,198 | |
| | | 21,084 | | | | (1,004 | ) | | | 1,110 | | | | 35,083 | | | | (1,671 | ) | | | 1,846 | |
| | | 27,452 | | | | (1,307 | ) | | | 1,445 | | | | 11,235 | | | | (535 | ) | | | 591 | |
| | | (5,974 | ) | | | 284 | | | | (314 | ) | | | 4,923 | | | | (234 | ) | | | 259 | |
| | | 8,220 | | | | (391 | ) | | | 433 | | | | 3,120 | | | | (149 | ) | | | 164 | |
| | | (18,158 | ) | | | 865 | | | | (956 | ) | | | (16,552 | ) | | | 788 | | | | (871 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents the potential impact on profit before tax of a hypothetical change of +/- 500 bps inyear-end
exchange-rates, applied to the Group’s hedged positions on the main currencies to which the Group is
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Impact on profit before tax | | | Impact on profit before tax | |
| | | 81,725 | | | | 3,892 | | | | (4,301 | ) | | | 119,214 | | | | 5,677 | | | | (6,274 | ) |
| | | 20,692 | | | | 985 | | | | (1,089 | ) | | | 45,658 | | | | 2,174 | | | | (2,403 | ) |
| | | 11,464 | | | | 546 | | | | (603 | ) | | | 20,318 | | | | 968 | | | | (1,069 | ) |
| | | (12,660 | ) | | | (603 | ) | | | 666 | | | | 16,464 | | | | 784 | | | | (867 | ) |
| | | 28,054 | | | | 1,336 | | | | (1,477 | ) | | | 9,460 | | | | 450 | | | | (498 | ) |
| | | 0 | | | | 0 | | | | 0 | | | | 6,295 | | | | (300 | ) | | | 331 | |
| | | 8,158 | | | | 388 | | | | (429 | ) | | | 3,083 | | | | 147 | | | | (162 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents the potential change in equity gross of tax of a hypothetical change of +/- 500 bps inyear-end
exchange-rates, applied to the Group’s foreign currency hedging instruments on highly probable
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | 80,155 | | | | 3,817 | | | | (4,219 | ) | | | 25,355 | | | | 1,207 | | | | (1,334 | ) |
| | | (4,792 | ) | | | (228 | ) | | | 252 | | | | 18,515 | | | | (882 | ) | | | 974 | |
| | | 10,360 | | | | 493 | | | | (545 | ) | | | 6,749 | | | | 321 | | | | (355 | ) |
| | | 16,097 | | | | 767 | | | | (847 | ) | | | 3,153 | | | | 150 | | | | (166 | ) |
| | | 12,659 | | | | 603 | | | | (666 | ) | | | 2,762 | | | | 132 | | | | (145 | ) |
| | | 178,537 | | | | 8,502 | | | | (9,397 | ) | | | 0 | | | | 0 | | | | 0 | |
| | | 1,947 | | | | 93 | | | | (102 | ) | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents the potential impact on profit before tax of a hypothetical change of +/- 500 bps in the USD/EURyear-end
exchange-rate, applied to the Thom Browne put option in USD onnon-controlling
interests (recorded within othernon-current
financial liabilities). | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Impact on profit before tax | | | Impact on profit before tax | |
| | | (135,726 | ) | | | (7,143 | ) | | | 6,463 | | | | (169,055 | ) | | | (8,897 | ) | | | 8,050 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Overall exposure to interest rate risk is monitored at the Group level through coordinated management of debt and available liquidity and of the relevant due dates. The Group’s principal sources of exposure to interest rate risk derive from loans at variable rates. At December 31, 2021, the notional value of interest rate swap derivatives to hedge the risk of a potential increase in the cost of servicing of financial debt due to fluctuations in market rates was Euro 323,816 thousand (Euro 274,336 thousand at December 31, 2020) with a negative fair value of Euro 2,412 thousand (Euro 5,515 thousand at December 31, 2020). The short-term portion of bank debt, used mainly to finance working capital needs, is not covered by interest rate hedges. The cost of bank debt is equal to Euribor for the period plus a spread that depends on the type of credit facility used.
For the year ended December 31, 2021 a hypothetical 20% increase in short-term interest rates on such floating ratenon-current
financial liabilities, with all other variables held constant, would have resulted in financial expenses, on an annual basis, of approximately Euro 332 thousand (Euro 742 thousand for the year ended December 31, 2020). For the year ended December 31, 2021 a hypothetical 20% decrease in short-term interest rates on such floating ratenon-current
financial liabilities, with all other variables held constant, would have resulted in financial expenses, on an annual basis, of approximately Euro 69 thousand (Euro 359 thousand for the year ended December 31, 2020).The following table presents the sensitivity on floating rate borrowings not covered by interest rate swaps.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | |
| |
| | | | | | | | | | | | | Impact on profit before tax | | | | | | Impact on profit before tax | |
10,000 | | | | | 0.115 | % | | | 12 | | | | 0.006 | % | | | 1 | | | | 0.224 | % | | | 22 | |
15,000 | | | | | 0.112 | % | | | 17 | | | | 0.004 | % | | | 1 | | | | 0.220 | % | | | 33 | |
18,750 | | | | | 0.284 | % | | | 53 | | | | 0.175 | % | | | 33 | | | | 0.393 | % | | | 74 | |
50,000 | | | | | 0.000 | % | | | 0 | | | | 0.000 | % | | | 0 | | | | 0.100 | % | | | 50 | |
10,000 | | | | | 0.186 | % | | | 19 | | | | 0.077 | % | | | 8 | | | | 0.295 | % | | | 30 | |
45,000 | | | | | 0.167 | % | | | 75 | | | | 0.060 | % | | | 27 | | | | 0.274 | % | | | 123 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| The overall rate indicated is compounded of the fixed spread plus the variable rate(+-20%
is on the variable rate). |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Euro thousands, except percentages) | |
| |
| | | | | | | | | | | | | Impact on profit before tax | | | | | | Impact on profit before tax | |
| | | | | | | | | | | | | | | | | | | | | | | | |
80,000 | | | | | 0.349 | % | | | 279 | | | | 0.259 | % | | | 207 | | | | 0.439 | % | | | 351 | |
10,000 | | | | | 0.195 | % | | | 20 | | | | 0.097 | % | | | 10 | | | | 0.293 | % | | | 30 | |
45,000 | | | | | 0.238 | % | | | 107 | | | | 0.136 | % | | | 61 | | | | 0.340 | % | | | 153 | |
31,250 | | | | | 0.300 | % | | | 94 | | | | 0.194 | % | | | 61 | | | | 0.406 | % | | | 127 | |
10,000 | | | | | 0.184 | % | | | 18 | | | | 0.069 | % | | | 7 | | | | 0.299 | % | | | 30 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
17,500 | | | | | 0.183 | % | | | 32 | | | | 0.074 | % | | | 13 | | | | 0.292 | % | | | 51 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| The overall rate indicated is compounded of the fixed spread plus the variable rate(+-20%
is on the variable rate). |
| | Related party transactions
|
The related parties of the Group are all entities and individuals, including their close family members, capable of exercising control, joint control or significant influence over the Group and its subsidiaries, including the Group’s controlling shareholder, Monterubello, as well as other companies owned by Monterubello and its shareholders. Related parties also include Zegna’sthe Group’s associates and joint arrangements, members of itsthe Group Board of Directors and executives with strategic responsibilities, as well as their families and entities controlled by them.
The Group carries out transactions with related parties on commercial terms that are normal in the respective markets, considering the characteristics of the goods or services involved.
Transactions carried out by the Group with these related parties are primarily of a commercial and financial nature and are mainly relate to:
Transactions with associates
•Transactions with TFI and its subsidiaries (the “TFI Group”), prior to the completion of the TFI Acquisition related to:
| | | Transactions with Tom Ford related to (i) a licensing agreement for the production and worldwide distribution of luxury men’s ready to wear and made to measure clothing, footwear and accessories under the Tom Ford label, (ii) financial assets related to loans to Tom Ford, and (iii) financial guarantees provided to Tom Ford in relation to its payment obligations under a bank loan for an amount of $7,500 thousand issued to Tom Ford in 2020 and maturing in March 2025.
|
◦a licensing agreement for the production and worldwide distribution of luxury men’s ready to wear and made to measure clothing, footwear and accessories under the TOM FORD brand (which ended with the deliveries of the Fall/Winter 2022 collection), as well as a supply agreement to act as exclusive supplier for certain TOM FORD menswear products starting with the Spring/Summer 2023 collection (for which the supply commenced in 2022);
| | | The purchase of raw materials, in particular carded yarns from Filati Biagioli Modesto
|
◦financial loans to TFI that were settled during the period; and
◦a financial guarantee provided in 2020 by the Group to TFI (which at the time was an associate of the Group) for an amount of $7,500 thousand in relation to its payment obligations under a bank loan issued to TFI. Such guarantee was subsequently reduced to $6,875 thousand in 2022 and terminated in 2023 as part of the transactions contemplated by the TFI Acquisition. No amounts were claimed under the guarantee.
•The purchase of raw materials, in particular carded yarns from Filati Biagioli Modesto.
•The purchase of finished products from Norda Run Inc. and Luigi Fedeli e Figlio S.r.l..
Transactions with Monterubello and companies controlled by Monterubello or its shareholders, Zegnathe Company’s directors or senior managementSenior Management Team
•The purchase of raw materials, in particular of wool, from Gruppo Schneider S.p.A. and its subsidiaries (the “Schneider Group”).
•The purchase of industrial services, in particular of fabrics’ finishing, from Finissaggio e Tintoria Ferraris S.p.A.
•The purchase of industrial services from Pettinatura di Verrone S.r.l.
•Transactions with PKB Bank AG relating to an interest-bearing loan amounting to €5,000 thousand which was fully repaid in the first half of 2022.
•The Disposition, which was completed in November 2021, of certain of its businesses, through the statutory demerger under Italian law to a new company owned by its existing shareholders. The Disposition included, inter alia, the Group’s real estate business, consisting of the Group’s former subsidiary EZ Real Estate, which directly and indirectly holds substantially all of the real estate assets formerly owned by the Group, as well as certain properties previously owned by Lanificio.
•Following the Disposition, the rental of properties from EZ Real Estate or its subsidiaries under lease agreements.
| | | The purchase of raw materials, in particular of wool, from Gruppo Schneider S.p.A.
|
| | | The purchase of industrial services, in particular of fabrics’ finishing, from Finissaggio e Tintoria Ferraris S.p.A.
|
•Following the Disposition, the Group receives licensing, marketing and other sustainability-related services from Oasi Zegna.
| | | The purchase of industrial services from Pettinatura di Verrone S.r.l.
|
•As part of the Disposition, on January 14, 2021, the Group sold 70% of its equity stake in Agnona to a related party for consideration of €1 and as a result Agnona was deconsolidated from the beginning of the year and became a related party of the Group. The Group subsequently disposed of the remaining 30% stake in Agnona in two tranches during September and October 2021 for total consideration of €500 thousand. Following the initial disposal of Agnona, the Group sold products and recharged costs for services to Agnona, as well as compensated amounts related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in accordance with the terms of the related sale agreement.
| | | Transactions with PKB Privatbank AG relating to an interest-bearing loan amounting to Euro 5,000 thousand expiring in March 2022.
|
•Support to the activities of Fondazione Zegna, a charitable organization which provides an opportunity for charitable work on the part of the Zegna family and Group employees. Fondazione Zegna supports and funds projects in cooperation with non-profit organizations operating in various fields and different parts of the world.
•Put contracts entered into as part of the Group’s investments in the Thom Browne Group and Lanificio whereby the Group has been required to, and may in the future be required to, purchase all or a portion of the remaining non-controlling interests in the Thom Browne Group and Lanificio. In July 2021, the Group purchased the additional 10% of Lanificio for a total consideration of €9,600 thousand, following which the Group owns 100% of Lanificio. In June 2021, the Group purchased an additional 5% of the Thom Browne Group for a total consideration of €30,653 thousand, following which the Group owns 90% of the Thom Browne Group. For additional information relating to the Thom Browne put contract see Note 28 — Other current and non-current financial liabilities.
| | | The Disposition of certain of its businesses, through the statutory demerger under Italian law to a new company owned by its existing shareholders. The Disposition included, inter alia, Zegna’s real estate business, consisting of Zegna’s former subsidiary EZ Real Estate, which directly and indirectly holds substantially all of the real estate assets formerly owned by the Zegna group, as well as certain properties previously owned by Lanificio. Most of the real estate properties directly or indirectly owned by EZ Real Estate were, and continue to be, leased to Zegna also following the Disposition. Zegna pays rent to EZ Real Estate or its subsidiaries under lease agreements. In addition, following the Disposition, Zegna has entered into arrangements whereby Oasi Zegna provides licensing, marketing and other sustainability-related services to Zegna.
|
| | | As part of the Disposition, on January 14, 2021, the Group sold 70% of its equity stake in Agnona to a related party for consideration of Euro 1 and as a result Agnona was deconsolidated from the beginning of the year and became a related party of the Group. The Group subsequently disposed of the remaining 30% stake in Agnona in two tranches during September and October 2021 for total consideration of Euro 500 thousand. Following the initial disposal of Agnona, the Group sold products and recharged costs for services to Agnona, as well as compensated amounts related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in accordance with the terms of the related sale agreement.
|
| | | Following the Disposition, the payment of rent to EZ Real Estate or its subsidiaries under lease agreements for the use of properties.
|
| | | Support to the activities of Fondazione Zegna, a charitable organization which provides an opportunity for charitable work on the part of the Zegna family and Group employees. Fondazione Zegna supports and funds projects in cooperation with
organizations operating in various fields and different parts of the world.
|
| | | Put contracts entered into as part of the Group’s investments in Thom Browne and Lanificio whereby the Group has been required to, and may in the future be required to, purchase all or a portion of the remaining
interests in Thom Browne and Lanificio. For additional information relating to the put contracts please refer to Note 34 -
Other current and
financial liabilities
.
|
Transactions with other related parties connected to directors and shareholders, including in connection with the Business Combination
in 2021•Transactions with UBS Group AG and its subsidiaries (together referred to as the “UBS Group AG”) for borrowings, revolving credit lines and financial assets the Group holds (mainly cash and cash equivalents and other securities), as well as derivative contracts in the course of the Group’s risk management activities. UBS Group AG also provides certain financial guarantees to third parties on behalf of the Group. Following Mr. Sergio Ermotti's appointment as Group Chief Executive Officer of UBS Group AG effective April 5, 2023, UBS Group AG and its subsidiaries qualify as related parties of the Group.
In connection with the closing of the Business Combination and the public listing of Zegnathe Company (as further described in the Note 1 -
), Zegnathe Company entered into various transactions with Monterubello and other shareholders and related parties, including the following:
•The repurchase by the Company of 54,600,000 of its own shares from Monterubello for total consideration of €455,000 thousand.
•The reimbursement to the Company by Monterubello of a special gift to all employees of the Group for an amount of €10,923 thousand.
•The issuance of 800,000 private warrants to certain Non-Executive Directors, for which the Group recognized personnel costs of €1,236 thousand and an offsetting increase to other reserves within equity for the year ended December 31, 2021. As a result of a warrant redemption completed on February 27, 2023, there are no remaining private warrants outstanding. For additional information see Note 28 — Other current and non-current financial liabilities.
•The grant of equity-settled share-based payments to key management. For additional information see Note 37 — Share-based payments.
•In connection with the Business Combination, certain of the Company’s related parties (including certain directors and officers and affiliates of Monterubello) entered into PIPE Subscription Agreements with the Company pursuant to which they subscribed for ordinary shares at the closing of the Business Combination. The amount of each such subscription was immaterial. Under the terms of the PIPE Subscription Agreements, such related parties are entitled to certain registration rights in respect of their ordinary shares. In addition, at the Closing of the Business
| | | The repurchase by Zegna of 54,600,000 of its own shares from Monterubello for total consideration of Euro 455,000 thousand.
|
Combination, the Company entered into certain agreements with related parties, including the Shareholders Agreement, the Zegna Shareholders Lock-Up Agreement, the IIAC Sponsor Lock-Up Agreement and the Registration Rights Agreement. Such agreements are filed as exhibits to this annual report on Form 20-F.
| | | The issuance of Zegna ordinary shares to the PIPE Investors, which include certain of Zegna’s related parties (including certain directors and officers and affiliates of Monterubello), in exchange for cash consideration.
|
| | | The reimbursement to Zegna by Monterubello of a special gift to all employees of the Group for an amount of Euro 10,923 thousand.
|
| | | The issuance of 800,000 private warrants to certain Zegna
directors, for which the Group recognized personnel costs of Euro 1,263 thousand and an offsetting increase to other reserves within equity for the year ended December 31, 2021.
|
| | | The grant of equity-settled share-based payments to key management, as further described below.
|
The following table summarizes transactions with related parties for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2023 | | 2022 | | 2021 |
(€ thousands) | Revenues | | Cost of sales | | Selling, general and administrative expenses | | Marketing expenses | | Financial income/(expenses) | | Foreign exchange gains/(losses) | | Revenues | | Cost of sales | | Selling, general and administrative expenses | | Marketing expenses | | Financial income/(expenses) | | Foreign exchange gains/(losses) | | Revenues | | Cost of sales | | Selling, general and administrative expenses | | Marketing expenses | | Financial income/(expenses) | | Foreign exchange gains/(losses) |
Associates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TFI Group(1)(2) | 3,233 | | 288 | | 740 | | — | | (7) | | — | | 35,525 | | — | | 6,396 | | — | | 136 | | — | | 23,047 | | — | | 7,730 | | — | | 596 | | — |
Filati Biagioli Modesto S.p.A. | 5 | | 4,782 | | 141 | | — | | 96 | | — | | — | | 3,304 | | 61 | | — | | — | | — | | 49 | | 177 | | — | | — | | — | | — |
Norda Run Inc. | — | | 2,072 | | 122 | | — | | — | | (14) | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — |
Pelletteria Tizeta S.r.l.(1) | — | | — | | — | | — | | — | | — | | 1 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — |
Luigi Fedeli e Figlio S.r.l. | 86 | | 85 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — |
Total associates | 3,324 | | 7,227 | | 1,003 | | — | | 89 | | (14) | | 35,526 | | 3,304 | | 6,457 | | — | | 136 | | — | | 23,096 | | 177 | | 7,730 | | — | | 596 | | — |
Companies controlled by Monterubello or its shareholders, the Company's directors or Senior Management Team | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
EZ Real Estate(3) | 4 | | 2,580 | | 4,100 | | 2,072 | | (545) | | — | | 8 | | 2,545 | | 3,638 | | — | | (490) | | — | | 58 | | 830 | | 1,659 | | 84 | | — | | — |
Schneider Group | 25 | | 14,209 | | 14 | | — | | | | — | | 23 | | 14,785 | | 52 | | — | | — | | — | | 20 | | 5,623 | | — | | — | | — | | — |
Alan Real Estate S.A.(3) | — | | 1,650 | | 3,100 | | — | | (310) | | (8) | | | | 1,692 | | 1,415 | | — | | (13) | | — | | — | | 274 | | 520 | | — | | — | | — |
Agnona S.r.l. | 64 | | 35 | | 210 | | 32 | | (1) | | (1) | | 195 | | 262 | | 81 | | — | | — | | — | | 373 | | — | | 5,665 | | — | | — | | — |
61 West 23rd Street LLC(3) | — | | — | | — | | — | | — | | — | | — | | — | | (16) | | — | | — | | — | | — | | — | | (14) | | — | | — | | — |
Other companies controlled by Monterubello or its shareholders, the Company's directors or Senior Management Team(4) | 195 | | 5,827 | | 614 | | 6 | | 3 | | — | | 1 | | 6,086 | | 33 | | — | | (8) | | — | | 9 | | 491 | | — | | — | | (40) | | — |
Other related parties connected to directors and shareholders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
UBS Group AG | — | | — | | 3,108 | | — | | (1,522) | | 350 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — |
Other | — | | — | | 3,038 | | — | | — | | — | | — | | — | | 2,563 | | — | | — | | — | | — | | — | | 1,284 | | — | | (20,675) | | — |
Total transactions with related parties | 3,612 | | 31,528 | | 15,187 | | 2,110 | | (2,286) | | 327 | | 35,753 | | 28,674 | | 14,223 | | — | | (375) | | — | | 23,556 | | 7,395 | | 16,844 | | 84 | | (20,119) | | — |
Total for the Group | 1,904,549 | | 680,235 | | 901,364 | | 114,802 | | (30,839) | | (5,262) | | 1,492,840 | | 564,832 | | 695,084 | | 85,147 | | (41,026) | | (7,869) | | 1,292,402 | | 495,702 | | 822,897 | | 67,831 | | 2,066 | | (7,791) |
_________________
(1)Following the TFI Acquisition completed on April 28, 2023, TFI Group and Pelletteria Tizeta S.r.l. are controlled by the Group and are no longer related parties.
(2)Costs with TFI Group include royalties amounting to €181 thousand for the year ended December 31, 2023 (€3,956 thousand and €4,081 thousand for the year ended December 31, 2022 and 2021, 2020respectively).
(3)Entities disposed of as part of the disposition in November 2021 of certain businesses that were previously part of the Group.
(4)Includes transactions with Fondazione Zegna, Finissaggio e Tintoria Ferraris S.p.A., PKB Privatbank AG and 2019.
Pettinatura di Verrone S.r.l. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, | |
| | | | | | | | | |
| | | | |
| | |
| | | Write down and other provisions (3) | | |
| | | | | |
| | |
| | |
| | | | | |
| | |
| | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 23,047 | | | | 7,730 | | | | — | | | | — | | | | 596 | | | | 25,088 | | | | 7,673 | | | | — | | | | 471 | | | | 29,499 | | | | 8,958 | | | | — | | | | 1,847 | |
Filati Biagioli Modesto S.p.A. | | | 49 | | | | 177 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Pelletteria Tizeta S.r.l. | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4 | | | | 2 | | | | — | | | | — | | | | 4 | | | | 2 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Companies controlled by Monterubello or its shareholders, Zegna directors or senior management | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 20 | | | | 5,623 | | | | — | | | | — | | | | — | | | | 217 | | | | 6,683 | | | | — | | | | — | | | | 10 | | | | 9,815 | | | | — | | | | — | |
| | | 373 | | | | (485 | ) | | | — | | | | 6,150 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | 58 | | | | 1,566 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Other companies controlled by Monterubello or its shareholders, Zegna directors or senior management (5) | | | 9 | | | | 491 | | | | — | | | | — | | | | (40 | ) | | | 13 | | | | 450 | | | | — | | | | (44 | ) | | | 11 | | | | 1,364 | | | | — | | | | (44 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total companies controlled by Monterubello or its shareholders, Zegna directors or senior management | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other related parties connected to directors and shareholders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total transactions with related parties | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Costs with Tom Ford include royalties amounting to Euro 4,081 thousand, Euro 4,095 thousand and Euro 4,721 thousand for the years ended December 31, 2021, 2020 and 2019, respectively.
|
| Includes cost for raw materials and consumables, purchased, outsourced and other costs.
|
| Includes Euro 6,006 thousand related to losses incurred by Agnona subsequent to the Group’s sale of a majority stake in Agnona in January 2021, for which the Groupwas
required to compensate the company in accordance with the terms of the related sale agreement, as well as Euro 144 thousand relating to the write down of the Group’s remaining 30% stake in Agnona (which was subsequently disposed of as part of the Disposition). |
| Disposition entities includes Alan Real Estate S.A., EZ Real Estate S.r.l and 61 West 23rd Street LLC
|
| Includes transactions with Fondazione Zegna, Finissaggio e Tintoria Ferraris S.p.A., PKB Privatbank AG and Pettinatura di Verrone S.r.l.
|
The following table summarizes balancesassets and liabilities with related parties at December 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2023 | | At December 31, 2022 |
(€ thousands) | Non-current assets | | Current assets | | Non-current liabilities | | Current liabilities | | Non-current assets | | Current assets | | Non-current liabilities | | Current liabilities |
Associates | | | | | | | | | | | | | | | |
TFI Group(1) | — | | — | | — | | — | | — | | 11,808 | | — | | 366 |
Filati Biagioli Modesto S.p.A. | — | | 598 | | — | | 927 | | — | | 2,200 | | — | | 2,830 |
Norda Run Inc. | — | | — | | — | | 2 | | — | | — | | — | | — |
Pelletteria Tizeta S.r.l.(1) | — | | — | | — | | — | | — | | 1 | | — | | — |
Luigi Fedeli e Figlio S.r.l. | — | | 3 | | — | | — | | — | | — | | — | | — |
Total associates | — | | 601 | | — | | 929 | | — | | 14,009 | | — | | 3,196 |
Monterubello and Companies controlled by Monterubello or its shareholders, the Company's directors or Senior Management Team | | | | | | | | | | | | | | | |
Monterubello | — | | — | | — | | — | | — | | | | — | | — |
Agnona S.r.l. | — | | 55 | | — | | 56 | | — | | 32 | | — | | 67 |
Schneider Group | — | | — | | — | | 4,176 | | — | | 4 | | — | | 4,102 |
EZ Real Estate (2) | 43,215 | | 82 | | 37,320 | | 8,503 | | 41,671 | | 69 | | 35,776 | | 6,476 |
61 West 23rd Street LLC(2) | — | | — | | — | | — | | — | | 24 | | — | | — |
Alan Real Estate S.A.(2) | 37,154 | | — | | 33,245 | | 5,291 | | 9,875 | | — | | 7,565 | | 2,471 |
Other companies controlled by Monterubello or its shareholders, the Company's directors or Senior Management Team(3) | 406 | | 188 | | — | | 2,144 | | — | | 240 | | — | | 2,204 |
Other related parties connected to directors and shareholders | | | | | | | | | | | | | | | |
UBS Group AG | — | | 43,202 | | 20,000 | | 3,017 | | — | | — | | — | | — |
Other | — | | — | | — | | 530 | | — | | — | | — | | 384 |
Total transactions with related parties | 80,775 | | 44,128 | | 90,565 | | 24,646 | | 51,546 | | 14,378 | | 43,341 | | 18,900 |
Total for the Group | 1,479,375 | | 1,287,636 | | 853,992 | | 1,012,123 | | 1,141,070 | | 1,285,657 | | 827,422 | | 866,984 |
_________________(1)Following the TFI Acquisition completed on April 28, 2023, TFI Group and Pelletteria Tizeta S.r.l. are controlled by the Group and are no longer related parties.
(2)Entities disposed of as part of the disposition in November 2021 of certain businesses that were previously part of the Group.
(3)Includes transactions with Fondazione Zegna, Finissaggio e Tintoria Ferraris S.p.A., PKB Privatbank AG, Achill Station Pty Ltd., and 2020.
Pettinatura di Verrone S.r.l. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| |
| | |
| | | | | | | | | | | |
| | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 20,939 | | | | 1,497 | | | | — | | | | — | | | | 344 | | | | 23,453 | | | | 1,198 | | | | — | | | | 136 | |
Filati Biagioli Modesto S.p.A. | | | 59 | | | | — | | | | — | | | | — | | | | 63 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Monterubello and companies controlled by Monterubello or its shareholders, Zegna directors or senior management | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | — | | | | — | | | | 10,923 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | 12 | | | | — | | | | — | | | | — | | | | 516 | | | | 18 | | | | — | | | | — | | | | 323 | |
| | | 642 | | | | — | | | | — | | | | — | | | | 122 | | | | — | | | | — | | | | — | | | | — | |
| | | — | | | | — | | | | — | | | | 5,000 | | | | — | | | | — | | | | — | | | | 5,000 | | | | — | |
| | | 248 | | | | — | | | | — | | | | — | | | | 1,248 | | | | — | | | | — | | | | — | | | | — | |
Other companies controlled by Monterubello or its shareholders, Zegna directors or senior management (5) | | | 13 | | | | — | | | | — | | | | — | | | | 242 | | | | 2 | | | | 94 | | | | — | | | | 51 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Monterubello and companies controlled by Monterubello or its shareholders, Zegna directors or senior management | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other related parties connected to directors and shareholders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total originating from related parties | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| On December 20, 2021, the Group announced that the Zegna family decided to grant a Euro 1,500 special gift to each employee of the Zegna group, amounting to a total of Euro 10,916 thousand, as a result of the Company becoming listed on a public stock exchange. The gift was paid to employees in February 2022. Monterubello agreed to reimburse the cost incurred by the Group as an equity contribution, which was received in February 2022.
|
| Includesnon-current
borrowings at December 31, 2021 andnon-current
borrowings and othernon-current
financial liabilities at December 31, 2020. |
| Includes trade payables and customer advances, employee benefits and other current liabilities.
|
| Disposition entities includes Alan Real Estate S.A., EZ Real Estate S.r.l and 61 West 23rd Street LLC
|
| Includes transactions with Finissaggio e Tintoria Ferraris S.p.A., Achill Station Pty Ltd., and Pettinatura di Verrone S.r.l.
|
The following table summarizes remuneration of and outstanding balances with Zegnathe directors of the Group and key executives with strategic responsibilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Key Management Personnel | | Outstanding Balance |
(Euro thousands) | Short-term employee benefits(1) | | Post- employment benefits | | Other long-term benefits | | Share-based payments | | | | Financial income | | Employee benefits | | Other current and non-current financial liabilities(2) | | Other current liabilities | | Non-current financial assets |
2023 | 17,516 | | 3,047 | | 9,110 | | 14,251 | | | | — | | 4,346 | | 138,558 | | 43,034 | | — |
2022 | 17,337 | | 1,015 | | 13,623 | | 9,358 | | | | (24) | | 28,648 | | 156,782 | | 6,861 | | 2,240 |
2021 | 16,853 | | 4,012 | | 8,702 | | 14,012 | | | | — | | 12,865 | | 135,726 | | 7,990 | | 2,219 |
__________________
(1)Includes corporate bodies fees, consultancy fees and personnel compensation.
(2)Primarily relates to liabilities on put contracts entered into as part of the Group’s investments in Thom Browne and Lanificio (in 2021).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | Short-term employee benefits (1) | | | | | | | | | | | | | | | Purchase of investments (2) | | | | | |
current financial liabilities(3) | | | | | | Non-current financial assets | |
| | | 16,853 | | | | 4,012 | | | | 8,702 | | | | 14,012 | | | | 0 | | | | 0 | | | | 12,865 | | | | 135,726 | | | | 7,990 | | | | 2,219 | |
| | | 9,414 | | | | 736 | | | | 0 | | | | (9,975 | ) | | | 1,116 | | | | 0 | | | | 538 | | | | 198,046 | | | | 991 | | | | 0 | |
| | | 11,790 | | | | 956 | | | | 0 | | | | 1,016 | | | | 1,465 | | | | 1,762 | | | | 526 | | | | 214,389 | | | | 1,193 | | | | 0 | |
| Includes corporate bodies fees, consultancy fees and personnel compensation.
|
| Relates to the acquisition of Thom Browne.
|
| Primarily relates to liabilities on put contracts entered into as part of the Group’s investments in Thom Browne and Lanificio.
|
Cash-settledThe Group has several equity incentive arrangements under which share-based payments
have been awarded to the Chief Executive Officer (“CEO”), other members of the Senior Management Team and certain other employees of the Group. The equity incentives primarily consist of performance share units (“PSUs”) and retention restricted share units (“RSUs”), which each represent the right to receive one of the Company ordinary share, and are further described below.2023 Restricted Stock Units Plan
In 2017October 2023, the Company granted certain cash-settled170,000 RSUs to Senior Management Team (the “2023 RSUs Plan”), of which:
•80,000 RSUs vest in two equal installments on April 10, 2024 and December 10, 2024, in connection with the achievement of the service condition through the vesting periods, and
•90,000 RSUs vest in three equal installments on December 10, 2024, December 10, 2025, and December 10, 2026, in connection with the achievement of the service condition through the vesting periods.
For the year ended December 31, 2023, the Group recognized €499 thousand as share-based payment awardscompensation expense and an offsetting increase to other reserves within equity in relation to the Group’s CEO. Under these plans, the CEO was awarded:
| a. | 55,433 shares (2,771,650 shares following the Share Split) of the Company together with an option that entitles the CEO to sell back to the Company the same shares at their market price. For 25,988 shares of the shares attributed (1,299,400 shares following the Share Split) there were no specific conditions to be satisfied for the sale right to be exercised; and
|
| b. | The right to buy a maximum number of 15,832 shares (791,600 shares following the Share Split) in the Company at a price of Euro 186.50 per share (Euro 3.73 per share following the Share Split) and the right to convert part of his fixed remuneration in the Company’s shares at the same price, together with the right to sell those shares back to the Company at their market price. Such rights vested immediately and can be exercised directly by the CEO in case of an initial public offering of the Company’s shares, a sale to third parties of whole or part of the Company’s shares or by the CEO’s heirs under the circumstances of either his death or medically ascertained mental or severe physical disablement.
|
As a result of entering into this agreement, the Company recognized a liability to transfer cash2023 RSUs Plan. At December 31, 2023, unrecognized compensation expense relating to the CEO based on2023 RSUs Plan amounted to €1,680 thousand and is expected to be recognized over the remaining vesting periods.
The following table summarizes the fair value of equity instruments offor accounting purposes at grant dates and the Company at each reporting date, withkey assumptions used in the valuation:
| | | | | | | | |
| | 2023 RSUs |
Fair value | | €12.64 - €12.95 |
| | |
Grant date share price | | €12.95 |
| | |
Dividend yield | | 0.801% |
Risk-free rate | | 4.93% - 5.46% |
The following table summarizes the changes in the fair value the liability recognized in the statement of profit or loss for the period. The Company share price was estimated according to a market approach valuation model, using market multiples derived from a set of comparable transactions.
During 2020, in the context of theCOVID-19
pandemic, the plan described in point a) above was renounced by the CEO with the resulting change in the valuenumber of the
related liability recognized inoutstanding number awards under the
statement2023 Restricted Stock Units Plan, all of
profit and loss and at December 31, 2020 the Group measured the fair value of the remaining liability based on a Company share price of Euro 372 (Euro 7.44 per share following the Share Split) and a discount rate of 1.90%. Following a review of the CEO’s compensation package in 2021, the remaining cash-settled share-based payment obligation of Euro 16,120 was waived by the CEO.which were unvested:Equity-settled share-based payments
| | | | | | | | |
| | 2023 RSUs |
Outstanding at December 31, 2022 | | — |
Granted | | 170,000 |
Outstanding at December 31, 2023 | | 170,000 |
On February 4, 2021 and as amended on July 15, 2021,Long-Term Incentive Awards 2022-2025
In 2022, the Company granted the following equity-settled share-based payments to Senior Management Team (excluding the CEO:CEO) and certain other employees of the Group:
(i)A target number of 1,461,950 PSUs (the “2022-2024 PSUs”) that vest in 2025 based on the achievement of defined targets related to the Adjusted EBIT and the change in the adjusted net financial indebtedness/(cash surplus) compared to the previous year for the performance periods 2022, 2023 and 2024, and the recipient’s continued service to the Group at the date of vesting. Each of the performance targets will be settled independently of the other target and the total number of shares to be assigned upon vesting depends on the level of achievement of the performance targets, as well as a multiplier that is based on the performance of certain environmental, social and governance indicators over the performance period. In case of over- or underachievement of the targets and/or the multiplier, the number of awards that vest will be adjusted according to predefined parameters. For the year ended December 31, 2023, the Group recognized €4,062 thousand as share-based compensation expense and an offsetting increase to other reserves within
equity in relation to the 2022-2024 PSUs (€2,816 thousand for the year ended December 31, 2022). At December 31, 2023 unrecognized compensation expense relating to the 2022-2024 PSUs amounted to €4,408 thousand and is expected to be recognized over the remaining vesting period through 2024.
(ii)Up to a maximum of 626,550 RSUs (the “2022-2025 RSUs”) that vest in 2026 based on the recipient’s continued service with the Group. For the year ended December 31, 2023, the Group recognized €1,456 thousand as share-based compensation expense and an offsetting increase to other reserves within equity in relation to the 2022-2025 RSUs (€1,046 thousand for the year ended December 31, 2022). At December 31, 2023, unrecognized compensation expense relating to the 2022-2025 RSUs amounted to €3,123 thousand and is expected to be recognized over the remaining vesting period through 2025.
The fair value of the 2022-2024 PSUs and the 2022-2025 RSUs for accounting purposes was measured at the grant dates using a Monte Carlo Simulation model. The following table summarizes the fair value for accounting purposes at grant dates and the key assumptions used in the valuation:
| | | | | | | | | | | |
| 2022-2024 PSUs | | a.2022-2025 RSUs |
Fair value | Up to a maximum of 2,520,000 performance share units (“”), which each represent the right to receive 1 Zegna ordinary share, that vest in three tranches in 2022, 2023 and 2024 according to the achievement of defined targets based on Group’s EBIT. For the year ended December 31, 2021, the Group recognized Euro 6,138 thousand as share-based compensation expense within personnel costs and an offsetting increase to other reserves within equity in relation to the PSUs. At December 31, 2021, unrecognized compensation expense relating to the PSUs amounted to Euro 12,897 thousand and is expected to be recognized over the remaining vesting periods through 2024. The fair value of the PSU awards used for accounting purposes was measured at the grant date using a Monte Carlo Simulation model. Key assumptions used in the valuation include the following: (i) grant€8.68 - €11.52 | | €8.62 - €11.40 |
| | | |
Grant date share price: Euro 7.43 per share to Euro 9.13 per share (ii) expected volatility:30%-40% price | €9.71 - €12.68 |
Expected volatility based on the historical and implied volatility of a group of comparable companies (iii) risk free rate: 0%. | 35.0% - 37.5% |
Dividend yield | b.0.90% - 1.24% |
Risk-free rate | The right to buy a maximum number of 15,832 shares (791,600 shares following the Share Split) in the Company for a purchase price of Euro 186 per share (Euro 3.72 per share following the Share Split) (“”). In May 2021, the CEO exercised the option and purchased 15,832 shares (791,600 shares following the Share Split) for total consideration of Euro 2,946 thousand. The Company recognized Euro 2,938 thousand as share-based compensation expense within personnel costs and an offsetting increase to other reserves within equity, representing the difference between the fair value of the shares sold and the consideration received. |
1.96% - 4.86% | | c.The right to convert all or part of the CEO’s fixed remuneration in the Company’s shares (“”) at the same price of Euro 186 per share (Euro 3.72 per share following the Share Split). Following an amendment to the related agreement in July 2021, the remuneration will be converted at a rate based on a multiplier of EBIT. The annual right vests each year and can be exercised directly by the CEO within the term of 12 months after the end of each year. The Company recognized Euro 1,410 thousand as share-based compensation expense within personnel costs and an offsetting increase to other reserves within equity in 2021. |
| d. | 600,000 PSUs (“”), of which: 2.07% - 4.05% |
The following table summarizes the changes in the number of the outstanding number awards under the Long-Term Incentive Awards 2022-2025, all of which were unvested:
| • | | 240,000 PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares, and (ii) a Company share price of at least $11.50 for twenty consecutive trading days following the public listing and before December 31, 2023, and
|
| | | | | | | | | | | | | | | | | |
| 2022-2024 PSUs | | 2022-2025 RSUs | | Total Awards |
Outstanding at December 31, 2021 | — | | — | | — |
Granted | 1,461,950 | | 626,550 | | 2,088,500 |
Forfeited | (95,900) | | (41,100) | | (137,000) |
Outstanding at December 31, 2022 | 1,366,050 | | 585,450 | | 1,951,500 |
Granted | 114,800 | | 49,200 | | 164,000 |
| | | | | |
| | | | | |
Outstanding at December 31, 2023 | 1,480,850 | | 634,650 | | 2,115,500 |
| • | | 360,000 PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares, (ii) a Company share price of at least $12.50 for twenty
consecutive trading days following the public listing and before December 31, 2023, and (iii) the CEO’s continued service with the Company from the award grant date until December 31, 2023.
|
CEO equity-settled share-based payments
In February 2021 and as amended in July 2021 and August 2022, the Company granted the following equity-settled share-based payments to the CEO:
(i)Up to a maximum of 2,520,000 PSUs (the “CEO 2022-2024 PSUs”) that vest in three tranches in 2023, 2024 and 2025 according to the achievement of defined targets based on the Group’s Adjusted EBIT and the change in the adjusted net financial indebtedness/(cash surplus) (as defined in the related agreement) compared to the previous year for the performance periods 2022, 2023 and 2024, and the CEO’s continued service to the Group at the date of vesting. Each of the performance targets will be settled independently of the other target and the total number of shares to be assigned upon vesting depends on the level of achievement of the performance targets, as well as a multiplier that is based on the performance of certain ESG indicators over the performance period. For the year ended December 31, 2021,2023, the Group recognized Euro 2,047€4,266 thousand as share-based compensation expense and an offsetting increase to other reserves within personnel costsequity in relation to thesethe CEO 2022-2024 PSUs (€6,789 thousand and at€6,138 thousand for the years ended December 31, 2022 and 2021, respectively). At December 31, 2023, unrecognized compensation expense relating to the CEO 2022-2024 PSUs amounted to Euro 1,680€1,842 thousand and is expected to be recognized over the expected remaining vesting periods through 2023.2024 (€6,108 thousand at December 31, 2022). The fair value of the PSU awards usedCEO 2022-2024 PSUs for accounting purposes was €7.43 to €9.13 per PSU and was measured at the grant dates using a Monte Carlo Simulation model. Key assumptions used in the valuation include the following: (i) grant date share price:
€7.43 per share to €9.13 per share (ii) expected volatility: 30%-40% based on the historical and implied volatility of a group of comparable companies, (iii) risk free rate: 0%. On April 5, 2023, the Board of Directors determined the level of achievement of the performance conditions applicable to the awards under the CEO 2022-2024 LTIP in relation to the 2022 performance period. As a result of such determination, 588,000 ordinary shares vested and were delivered to the Chairman and CEO. At December 31, 2023 1,932,000 2022-2024 PSUs were outstanding and unvested.
(ii)The right to buy a maximum number of 15,832 shares of the Company (791,600 shares following the Share Split) for a purchase price of €186 per share (€3.72 per share following the Share Split) (the “CEO Stock Options”). In May 2021, the CEO exercised the option and purchased 15,832 shares of the Company (791,600 shares following the Share Split) for total consideration of €2,946 thousand. For the year ended December 31, 2021, the Company recognized €2,938 thousand as share-based compensation expense and an offsetting increase to other reserves within equity, representing the difference between the fair value of the shares sold and the consideration received.
(iii)The share purchase rights, under which the CEO is entitled to purchase ordinary shares of the Company at a rate based on a multiplier of EBIT, for a maximum amount corresponding to his base salary, net of personal income tax, plus short-term variable cash compensation for the previous year (the “CEO Remuneration in Shares”). The annual right vests each year and can be exercised directly by the CEO within 12 months after the end of each year. In June 2022, as a result of the exercise of the share purchase rights, 459,086 ordinary shares, which were previously held in treasury, were delivered to the CEO for an aggregate purchase price of €3,390 thousand. In June 2023, as a result of the exercise of the share purchase rights, 468,450 ordinary shares, which were previously held in treasury, were delivered to the CEO for an aggregate purchase price of €3,654 thousand.
(iv)600,000 PSUs related to the Company’s public listing (the “CEO IPO PSUs”), of which:
•240,000 CEO IPO PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares, and (ii) a Company share price of at least $11.50 for twenty consecutive trading days following the public listing and before December 31, 2023, and
•360,000 CEO IPO PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares, (ii) a Company share price of at least $12.50 for twenty consecutive trading days following the public listing and before December 31, 2023, and (iii) the CEO’s continued service with the Company from the award grant date until December 31, 2023.
For the year ended December 31, 2023, the Group recognized €840 thousand as share-based compensation expense in relation to the CEO IPO PSUs and an offsetting increase to other reserves in equity (€840 thousand and €2,047 thousand for the years ended December 31, 2022 and 2021, respectively). The fair value of the CEO IPO PSUs for accounting purposes was €5.77 to €6.93 per PSU and was measured at the grant date using a Monte Carlo Simulation model. Key assumptions used in the valuation include the following: (i) grant date share price:
USD 6.53 per share to USD 7.85 per share (ii) expected volatility:30%-40%
based on the historical and implied volatility of a group of comparable companies, (iii) risk free rate: 0.73%. In December 2021, the Company resolved to granted 900,000 PSUs to Zegna directors (excluding the CEO), key executives with strategic responsibilities and other employees of the Group (“”), of which: | • | | 450,000 PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares before December 31, 2021 and, (ii) a Company share price of at least $11.50 for ten consecutive trading days following the public listing and before December 31, 2023, and
|
| • | | 450,000 PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares before December 31, 2021, (ii) a Company share price of at least $12.50 for twenty consecutive trading days following the public listing and before December 31, 2023, and (iii) the recipient’s continued employment with the Company from the award grant date until December 31, 2023.
|
For the year ended December 31, 2021, the Group recognized Euro 3,349 thousand (of which Euro 1,023 thousand related to key management, excluding the CEO) as share-based compensation expense within personnel costs in relation to these PSUs and at December 31, 2021 unrecognized compensation expense amounted to Euro 2,720 thousand and is expected to be recognized over the expected remaining vesting periods through 2023. The fair value of the PSU awards used for accounting purposes was measured at the grant date using a Monte Carlo Simulation model. Key assumptions used in the valuation include the following: (i) grant date share price: USD 7.00 per share to USD 8.32 per share$10.48 (ii) expected volatility: 30% based on the historical and implied volatility of a group of comparable companies, (iii) risk free rate: 0.73%. On April 5, 2023, the Board of Directors verified the achievement of the vesting conditions applicable to the first tranche of awards under the IPO Performance Bonus plan conditioned upon the completion of the public listing of the Company’s shares by December 31, 2021 and the attainment of predefined targets relating to the Company’s share price. The Board of Directors determined that the conditions were satisfied and as a result, 240,000 CEO IPO PSUs vest and the same number of ordinary shares held in treasury were delivered to the CEO in the second quarter of 2023. At December 31, 2023 360,000 CEO IPO PSUs vested as a result of the achievement of the vesting conditions applicable to the second tranche of the awards under the IPO Performance Bonus plan conditioned upon the completion of the public listing of the Company’s shares by December 31, 2021, the attainment of predefined targets relating to the Company’s share price and the recipient’s continued employment with the Company from the award grant date until December 31, 2023. The same number of ordinary shares held in treasury will be delivered to the CEO in due course.
Management IPO equity-settled share-based payments
In December 2021, the Company granted 900,000 PSUs to the directors of the Group (excluding the CEO), key executives with strategic responsibilities and other employees of the Group (the “Management IPO PSUs”), of which:
•450,000 Management IPO PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares before December 31, 2021 and, (ii) a Company share price of at least $11.50 for ten consecutive trading days following the public listing and before December 31, 2023, and
•450,000 Management IPO PSUs vest upon the satisfaction of the following conditions: (i) a public listing of the Company’s shares before December 31, 2021, (ii) a Company share price of at least $12.50 for twenty consecutive trading days following the public listing and before December 31, 2023, and (iii) the recipient’s continued employment with the Company from the award grant date until December 31, 2023.
For the year ended December 31, 2023, the Group recognized €1,300 thousand as share-based compensation expense in relation to the Management IPO PSUs (€1,297 thousand and €3,349 thousand for the years ended December 31, 2022 and 2021, respectively). The fair value of the Management IPO PSUs for accounting purposes was €6.18 to €7.35 per PSU and was measured at the grant dates using a Monte Carlo Simulation model. Key assumptions used in the valuation include the following: (i) grant date share price: $10.48 (ii) expected volatility: 30% based on the historical and implied volatility of a group of comparable companies, (iii) risk free rate: 0.73%.
The following table summarizes the changes in the number of the outstanding number awards under the Management IPO equity-settled share-based payments:
| | | | | | | | |
| | Management IPO PSUs |
Outstanding at December 31, 2021 | | 900,000 |
| | |
Forfeited | | (20,000) |
| | |
Outstanding at December 31, 2022 | | 880,000 |
| | |
| | |
Vested | | (880,000) |
Outstanding at December 31, 2023 | | — |
On April 5, 2023, the Board of Directors verified the achievement of the vesting conditions applicable to the first tranche of awards under the IPO Performance Bonus plan conditioned upon the completion of the public listing of the Company’s shares by December 31, 2021 and the attainment of predefined targets relating to the Company’s share price. The Board of Directors determined that the conditions were satisfied and as a result, 450,000 Management IPO PSUs vest and the same number of ordinary shares held in treasury were delivered to the directors of the Group (excluding the CEO), key executives with strategic responsibilities and other employees of the Group in the second quarter of 2023. At December 31, 2023 430,000 Management IPO PSUs vested as a result of the achievement of the vesting conditions applicable to the second tranche of the awards under the IPO Performance Bonus plan conditioned upon the completion of the public listing of the Company’s shares by December 31, 2021, the attainment of predefined targets relating to the Company’s share price and the recipient’s continued employment with the Company from the award grant date until December 31, 2023. The same number of ordinary shares held in treasury will be delivered to the directors of the Group (excluding CEO) in due course.
As part of the Business combination,Combination, the Company issued 800,000 private warrants to certain ZegnaGroup’s non-executive
directors (the “Private Warrant Awards”) and recognized Euro 1,263€1,236 thousand as share-based compensation expense within personnel costs and an offsetting increase to other reserves within equity for the year ended December 31, 2021. stock options
In 2021 a member of key management (excluding the CEO) exercised a right to buy 16,237 shares of the Company (811,850 shares following the Share Split) in the Company for a purchase price of Euro 137€137 per share (Euro (€2.74 per share following the Share Split) (“(the “Management Stock Options
”) for total consideration of Euro 2,216€2,216 thousand. The CompanyFor the year ended December 31, 2021, the Group recognized Euro 3,834€3,834 thousand as share-based compensation expense within personnel costs and an offsetting increase to other reserves within equity.
Non-executive directors remuneration in shares
| Notes to consolidated cash flow statement
|
Under the Group’s remuneration policy, non-executive directors will receive 50% of their annual base remuneration in cash and 50% in the Company’s ordinary shares (“Non-Executive Directors’ Equity Compensation”). The number of ordinary shares in the Company to be assigned to the non-executive directors is determined based on the closing share price of the Company’s ordinary shares on the last trading date of the month preceding the grant date. If a non-executive director
Othernon-cash
expenses/(income), netceases to be employed by the Group within a given year, the shares will vest on a pro-rata basis until the date on which the non-executive director provided their services. A total of 76,400 and 78,460 ordinary shares of the Company were earned by the non-executive directors for 50% of their annual base remuneration for services provided in 2023 and 2022, and will be delivered to the recipients two years following the grant date, which for the 2023 remuneration was in January and for the 2022 remuneration was in June. For the year ended December 31, 2023, the Group recognized €795 thousand as share-based compensation expense and an offsetting increase to other reserves within equity (€791 thousand for the year ended December 31, 2021 mainly includes2022.
38. Notes to consolidated cash flow statement
Operating activities
Other non-cash expenses/(income), net in the consolidated cash flow statement primarily include:
•in 2023 and 2022: equity-settled share-based compensation and bonuses earned by the Senior Management Team and other employees of the Group that were not paid during the period; and
•in 2021: (i) Euro 114,963€114,963 thousand relating to the excess of the fair value of Zegnathe Company’s ordinary shares issued as part of the Business Combination and the fair value of IIAC’s identifiable net assets acquired, (ii) Euro 37,906€37,906 thousand for the issuance of 5,031,250 Zegnathe Company’s ordinary shares, to be held in escrow, to the holders of IIAC class B shares, (iii) Euro 16,290€16,290 thousandnon-cash
of equity-settled share-based compensation, and (iv) rent reductions received as a result of theCOVID-19
pandemic and defined benefit obligations. For the year ended December 31, 2020 othernon-cash
expenses/(income), net mainly includes the effects of rent reductions received as a result of theCOVID-19
pandemic.The change in other operating assets and liabilities primarily relates to indirect taxes, accrued income and expenses, and deferred charges.
Non-cash investing activities
Non-cash investing activities primarily related to:
•acquisitions of right-of-use assets of €141,995 thousand in 2023 (€137,781 thousand in 2022 and €148,299 thousand in 2021);
•acquisitions of property, plant and equipment of €13,301 thousand in 2023 (€5,891 thousand in 2022 and €16,507 thousand in 2021);
•acquisitions of intangible assets of €5,859 thousand in 2023 (€4,561 thousand in 2022 and €3,488 thousand in 2021), and
•deferred consideration relating to the acquisition of the Thom Browne business in South Korea amounting to €18,583 thousand.
39. Business combinations
Acquisition of ContentsThom Browne business in South Korea
On July 1, 2023, Thom Browne began directly operating its business in South Korea and its network of 17 stores. The business is now wholly owned through Thom Browne Korea Ltd., a newly formed and wholly owned company, and operates in the region with external support from the former franchise partner.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
| | | | | |
(€ thousands) | At acquisition date |
Cash consideration paid | 7,991 |
Deferred consideration | 18,583 |
Total consideration | 26,574 |
Business combinations,
At the acquisition date, the Group recognized the net present value of cash acquired relatesthe deferred consideration related to the acquisition of the Thom Browne business in South Korea for €18,583 thousand. At December 31, 2023, the deferred consideration amounted to €18,991 thousand, of which €9,302 thousand is expected to be paid in 2024 and was classified within current liabilities and €9,689 thousand is expected to be paid in 2025 and was classified within non-current liabilities.
The assets and liabilities recognized as a result of the acquisition are as follows:
| | | | | |
(€ thousands) | Fair value at acquisition date |
Inventories | 1,054 |
Other current assets | 800 |
Property, plant and equipment | 949 |
Other current liabilities | (123) |
Deferred tax liabilities | (72) |
Net identifiable assets acquired | 2,608 |
Goodwill | 23,966 |
Net assets acquired including goodwill | 26,574 |
Goodwill arising from the acquisition of €23,966 thousand is primarily attributable to the expected synergies from combining operations of the acquiree and the acquirer. Acquisition-related costs of €263 thousand were expensed.
Details of the net cash outflows related to the acquisition are presented below.
| | | | | |
(€ thousands) | At acquisition date |
Cash consideration paid | (7,991) |
| |
Net cash outflow - Investing activities | (7,991) |
The acquired business contributed revenues of acquisitions made€19,668 thousand and a net loss of €1,003 thousand to the Group for the period from the date of acquisition until December 31, 2023.
Acquisition of Tom Ford International (TFI)
On April 28, 2023, the Group completed the TFI Acquisition, through which it acquired TFI, the company that owns and operates the TOM FORD FASHION business, as part of a transaction in which sole ownership of the TOM FORD brand, its trademarks, and other intellectual property rights were acquired by ELC and the Group has become a long-term licensee for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products. The Group will be in charge of the end-to-end TOM FORD FASHION business, from collection creation and development to production and merchandising, as well as retail and wholesale distribution. TOM
FORD FASHION, under the Group, operates a network of 51 directly operated TOM FORD FASHION stores globally at December 31, 2023.
Before the completion of the TFI Acquisition, the Group already owned 15% of TFI, through its fully owned subsidiary EZ US Holding Inc., and, through the TFI Acquisition, acquired the remaining 85% equity interest. The transaction implied a value for the acquired 85% stake of TFI at $150 million in cash, on a cash-free and debt-free basis and assuming a normalized working capital. The final purchase price has been subject to customary final confirmation of purchase price adjustments related primarily to indebtedness, trade working capital and transaction expenses, as stipulated in the related agreements. No contingent consideration arrangements were agreed as part of the transaction.
In connection with the TFI Acquisition, the Group entered into a long-term license agreement through TFI with ELC under which the Group will be licensee for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products (as further described below).
As a result of the TFI Acquisition, the Group also obtained 100% of Pelletteria Tizeta, for which it previously held a 50% interest and accounted for the investment using the equity method, with the remaining 50% interest owned by TFI and being acquired by the Group (excludingthrough the TFI Acquisition. See Note 17 — Investments accounted for using the equity method for additional information. A financial guarantee provided to TFI in relation to its payment obligations under a bank loan for an amount of $6,875 thousand was closed as part of the transactions contemplated by the TFI Acquisition. No amounts were claimed under the guarantee.
The Group has accounted for the TFI Acquisition using the acquisition method of accounting in accordance with IFRS 3 — Business Combination)Combinations (“IFRS 3”), which applies the fair value concepts defined in IFRS 13 — Fair Value Measurement (“IFRS 13”) and requires the Group to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date of April 28, 2023 (with certain exceptions). Please referFollowing the TFI Acquisition, the earnings of the Group reflect the impacts of purchase accounting adjustments, including the amortization and depreciation of certain acquired assets.
Acquisition-related costs amounted to Note 5 -€5,436 thousand and were expensed in the consolidated statement of profit and loss.
Details of the purchase consideration, previously equity interest held and the net assets acquired are presented below.
| | | | | |
(€ thousands) | At acquisition date |
Cash consideration paid for 85% of TFI | 91,619 |
Fair value of the previously equity interests held | 21,505 |
Settlement of pre-existing intercompany balances | 5,949 |
Total consideration | 119,073 |
Business combinationsF-95
| | | | | |
(€ thousands) | Fair value at acquisition date |
Cash and cash equivalents | 109,667 |
Trade receivables | 23,329 |
Inventories | 82,694 |
Right-of-use assets | 160,869 |
Intangible assets and property, plant and equipment | 122,770 |
Other current and non-current assets | 70,014 |
Other current and non-current liabilities | (176,147) |
Current and non-current lease liabilities | (160,869) |
Current and non-current borrowings | (29,890) |
Trade payables and customer advances | (28,942) |
Employee benefits | (3,259) |
Deferred tax liabilities | (51,163) |
Net identifiable assets acquired | 119,073 |
Intangible assets and property, plant and equipment include the fair value of the license agreement under which the Group has become a long-term licensee for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products, amounting to €99,295 thousand and determined through an income approach based on the multi-period excess earnings method, which requires an estimate of future expected cash flows. The estimated useful life of the license agreement is 30 years, which includes the 20 guaranteed years as per the contract plus the automatic renewal period of 10 years which is subject to certain minimum performance conditions that management believes will be satisfied based on the business plan and information currently available.
Details of the net cash outflows related to the acquisition are presented below.
| | | | | |
(Euro thousands) | At acquisition date |
Consideration paid for 85% of TFI | (91,619) |
Cash and cash equivalents acquired | 109,667 |
Payment of TFI acquisition-related liabilities | (127,158) |
Net cash outflow - Investing activities | (109,110) |
TFI contributed revenues of €235,531 thousand and a loss of €14,926 thousand to the Group from the acquisition date until December 31, 2023 (including additional costs as a result of the purchase price accounting). If the acquisition had occurred on January 1, 2023, the consolidated statement of profit and loss for the year ended December 31, 2023 would have included additional revenues of €97 million and an additional loss of €17 million (including transaction costs incurred by TFI prior to the closing of the TFI Acquisition).
Total assets and total revenues of TFI represent approximately 15.7% and approximately 12.4%, respectively, of the related consolidated financial statement amounts at and for the year ended December 31, 2023.
Trade receivables had a gross contractual value of €24,571 thousand and the best estimate at the acquisition date of the contractual cash flows not to be collected is €1,242 thousand.
As part of the license agreement, the Group has become a long-term licensee of ELC for all TOM FORD men’s and women’s fashion as well as accessories and underwear, fine jewelry, childrenswear, textile, and home design products, by virtue of a long-term licensing and collaboration agreement with ELC for 20 years with an automatic renewal for one further details.10 year period subject to certain minimum performance conditions. As part of the license agreement, the Group is required to pay minimum annual guaranteed royalties for the term of the license agreement.
At December 31, 2023, the remaining minimum annual guaranteed royalties covering the first 10-year period of the license agreement were as follows (undiscounted):
| | | | | |
| At December 31, 2023 |
| (€ millions)* |
Due within 1 year | 16.9 |
Due in 1 to 5 years | 71.8 |
Due in 5 to 10 years | 81.9 |
Total | 170.6 |
(*) Translated from U.S. Dollars to Euro at the December 31, 2023 end of day exchange rate.For the remaining term of the license the minimum annual guaranteed royalties to be paid by the Group will be calculated based on a percentage of the net sales of the preceding annual period.
The license agreement also requires the Group to make minimum investments for marketing activities as a percentage of net sales of the licensed products as per customary market practices.
Acquisition of Tessitura Ubertino
On June 4, 2021 the Group acquired 60% of Tessitura Ubertino, a company active in the textile business. As a result of acquisition, the Group has expanded its textile activities and product offering. Details of the purchase consideration, the net assets acquired and goodwill were as follows:
| | | | | |
(€ thousands) | At acquisition date |
Cash consideration paid | 5,880 |
Contingent consideration | 1,170 |
Total consideration | 7,050 |
The cash consideration of approximately €7,050 thousand included a €1,170 thousand earn-out payment, subject to Tessitura Ubertino achieving certain predetermined operating performance targets for the years 2021 and 2022. The operating performance targets for 2021 and 2022 were achieved and the earn-out payment, amounting to €1,170 thousand, was paid by the Group in cash, of which €585 thousand in 2022 and €585 thousand in 2023.
| | | | | |
(€ thousands) | Fair value at acquisition date |
Cash and cash equivalents | 2,366 |
Trade receivables | 1,681 |
Inventories | 1,564 |
Other current assets | 626 |
Property, plant and equipment | 641 |
Intangible assets | 4,200 |
Account payables | (1,872) |
Other current liabilities | (712) |
Employee benefits | (272) |
Deferred tax liabilities | (1,172) |
Net identifiable assets acquired | 7,050 |
Less: Non-controlling interests | (2,820) |
Goodwill | 2,820 |
Net assets acquired including goodwill | 7,050 |
Goodwill arising from the acquisition of €2,820 thousand is primarily attributable to the expected synergies from combining operations of the acquiree and the acquirer. The goodwill is not deductible for tax purposes. Minor acquisition-related costs were expensed and recorded within purchased, outsourced and other costs in the consolidated statement of profit
and loss. The Group elected to recognize non-controlling interests at its proportionate share of the acquired net identifiable assets. The details of the net cash outflows related to the acquisition are shown below:
| | | | | |
(€ thousands) | At acquisition date |
Cash consideration paid | (5,880) |
Cash and cash equivalents acquired | 2,366 |
Net cash outflow - Investing activities | (3,514) |
Tessitura Ubertino was consolidated in the Group’s consolidated financial statements starting on June 4, 2021, and contributed revenues of €5,625 thousand and profit of €561 thousand to the Group from that date until December 31, 2021 and revenues of €11,015 thousand and profit of €1,479 thousand in 2023 (€10,210 thousand and €938 thousand in 2022, respectively). If the acquisition had occurred on January 1, 2021, the consolidated statement of profit and loss the year ended December 31, 2021 would have included additional revenues for €3,987 thousand and profit for the year of €674 thousand.
Contingent deferred consideration relating to the acquisition of Gruppo Dondi S.p.A.
In 2021 the Group paid contingent deferred consideration of €710 thousand relating to the acquisition of Dondi, which was completed in July 2019, based on the achievement of certain predetermined performance targets by Dondi.
The Group has evaluated subsequent events through April
6, 20224, 2024 which is the date the Consolidated Financial Statements were authorized for issuance, and identified the following events, all of which are
non-adjusting
as defined in IAS 10:
On January 1, 2024, the Group acquired the 100% interests in Ermenegildo Zegna Korea Co. Ltd. for a consideration of €9 million, through which, the Group began directly operating its South Korean business and its network of 15 stores. The purchase price allocation process is still at a preliminary stage due to the proximity of the acquisition date to the date of the issuance of the financial statements. Therefore, certain valuations have yet to commence or progress to a stage where there is sufficient information for these measurements to be made. The finalization of fair values for assets acquired and liabilities assumed, with limited exceptions as provided under IFRS 3, will occur during the one year measurement period provided for by IFRS 3.
On January 30, 2024, the Group announced the renewal of its licensing agreement with Marcolin to produce ZEGNA-branded eyewear through the end of 2030, continuing the strong partnership built between the companies since it was launched in 2015.
On January 30, 2024, the Board confirmed the level of achievement of the performance market condition and the service condition applicable at December 31, 2023 to the second tranche of awards under the CEO IPO PSUs. As a result of such confirmation, 360,000 ordinary shares vested at December 31, 2023 and will be delivered to the CEO in due course.
On January 30, 2024, the Board confirmed the level of achievement of the performance market condition and the service condition applicable at December 31, 2023 to the second tranche of awards under the Management IPO PSUs. As a result of such confirmation, 430,000 ordinary shares vested at December 31, 2023 and will be delivered to the members of management in due course.
On February 8, 2024, the Group announced plans to open a new luxury footwear and leather goods production facility in Sala Baganza (Parma, Italy). Encompassing 12,500 square meters, the facility is expected to be completed by the end of 2026 and will expand the Group’s production capacity, focusing mainly on men’s footwear and leather goods. The new facility will also act as a research and development center and is expected to employ over 300 employees at full capacity in 2027. In February 2024, the Group spent €8.5 million for the acquisition of the plot of land on which it will build the new facility. Details of the construction project, including the overall expenditure, are yet to be determined.
Due to ongoing conflict in Ukraine that started in February 2022 and
On April 4, 2024, the related escalating geopolitical tensions, many governments aroundBoard of Directors determined the world, including thoselevel of achievement of the United States,performance conditions applicable to the European Union,awards under the United KingdomCEO 2022-2024 LTIP in relation to the 2023 performance period. As a result of such determination, 588,000 ordinary shares vested and other jurisdictions, have recently announcedwill be delivered to the impositionChairman and CEO in due course.
On April 4, 2024, the Board of sanctions on certain industries and parties in Russia and the Ukrainian regionsDirectors of Donetsk and Luhansk, as well as export controls on certain industries and products and the exclusionZegna proposed to make a dividend distribution of certain Russian financial institutions from the SWIFT system. On March 11, 2022, the President€0.12 per share to holders of the United States issued an executive order prohibiting exportsCompany's ordinary shares, corresponding to Russiaa total dividend distribution of luxury goods (including, inter alia, apparel, footwearapproximately €30 million. The dividend proposal is subject to the finalization and certain accessories with a per unit wholesale price of $1,000 or more). Shortly thereafter, on March 15, 2022, the Counciladoption of the European Union imposed new sanctions on Russia prohibitingannual statutory accounts of the export of luxury goods having a value in excess of €300 per item (including clothing, footwear, leatherCompany (provided that the distribution is permitted under Dutch law) and fashion accessories). Pursuant to the aforementioned sanctions, the Group suspended production of products for the Fall/Winter 2022 collection ordered by our Russian franchisees and distributors and it is uncertain whether and when it will be able to resume such production. Severalapproval of the agreements withCompany's shareholders at the Group’s wholesale customers in Russia are due2024 annual general meeting, which is expected to expire during the course of 2022 and 2023 and it is uncertain whether, when and at what terms and conditions such agreements will be renewed.
The Russian market represented 1.5%, 2.0% and 1.5% of the Group’s revenues in 2021, 2020 and 2019, respectively.
held on June 26, 2024.The Group has experienced minor delays in production in 2022 in certain countries where a significant number of its and its suppliers’ employees had to stay at home after becoming infected with
Since March 2022, due to a new wave of
in certain parts of the Greater China Region and the resulting lockdown restrictions, the Group has been required to close certain DOSs in the Greater China Region, and DOSs that have remained open have experienced significantly lower customer traffic.