FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of September, 2004
Commission file number: I - 10230
Benetton Group S.p.A.
Via Villa Minelli, 1 - 31050 Ponzano Veneto, Treviso - ITALY
(Address of principal executive offices)
(Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or Form 40-F)
Form 20-F XForm 40-F______
(Indicate by check mark whether the Registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934).
Yes ______ NoX
TABLE OF CONTENTS
Half-year report of Benetton Group S.p.A. as of June 30, 2004
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Benetton Group S.p.A.
_________
(Registrant)
By:/s/ Luciano Benetton
______________________
Luciano Benetton
Chairman
Dated: September 24, 2004
Benetton Group
2004 half-year report
Benetton Group S.p.A.
Villa Minelli
Ponzano Veneto (Treviso) - Italy
Share capital: euro 236,026,454.30 fully paid-in
Tax ID/Treviso Company register: 00193320264
Index | THE BENETTON GROUP | ||
3 | Directors and other officers | ||
4 | Financial highlights | ||
5 | Directors' report | ||
Economic results | |||
Capital expenditures | |||
Supplementary information | |||
- Distribution of dividends | |||
- Financial management | |||
6 | - Treasury shares | ||
- Relations with the Parent Company and its subsidiaries | |||
7 | - Directors | ||
- Principal organizational and corporate changes | |||
8 | - Significant events after June 30, 2004 | ||
- Outlook for the full year | |||
9 | Group results | ||
- Consolidated statement of income | |||
12 | - Financial situation - highlights | ||
15 | Consolidated financial statements | ||
16 | Balance sheet - Assets | ||
18 | Balance sheet - Liabilities and Shareholders' equity and Memorandum account | ||
20 | Statements of income | ||
22 | Statements of changes in Shareholders' equity | ||
23 | Statements of changes in minority interests | ||
24 | Statements of cash flow | ||
26 | Notes to the consolidated financial statements | ||
Activities of the Group | |||
Form and content of the consolidated financial statements | |||
27 | Principles of consolidation | ||
28 | Accounting policies | ||
31 | Supplementary information | ||
33 | Comments on the principal asset items | ||
40 | Comments on the principal liability and equity items | ||
46 | Memorandum accounts | ||
47 | Comments on the principal statement of income items | ||
55 | Appendices | ||
62 | Independent Auditors' report |
| Board of Directors | |
Board of Statutory auditors | ||
Angelo Casò | ||
Independent auditors | ||
Financial highlights | 1st half | 1st half | Year | ||||||
Key operating data (millions of euro) | 2004 | % | 2003 | % | Change | % | 2003 | % | |
Revenues | 853 | 100.0 | 969 | 100.0 | (116) | (12.0) | 1,859 | 100.0 | |
Cost of sales | 480 | 56.3 | 554 | 57.2 | (74) | (13.3) | 1,049 | 56.4 | |
Gross operating income | 373 | 43.7 | 415 | 42.8 | (42) | (10.3) | 810 | 43.6 | |
Income from operations | 111 | 13.0 | 130 | 13.4 | (19) | (14.4) | 232 | 12.5 | |
Net income | 67 | 7.8 | 50 | 5.2 | 17 | 32.0 | 108 | 5.8 |
Key financial data (millions of euro) | 06.30.2004 | 12.31.2003 | 06.30.2003 | |
Working capital | 782 | 729 | 777 | |
Assets due to be sold | - | 8 | 9 | |
Net capital employed | 1,746 | 1,655 | 1,703 | |
Net financial position | 567 | 468 | 571 | |
Shareholders' equity | 1,175 | 1,174 | 1,117 | |
Self-financing | 144 | 327 | 157 | |
Capital expenditures in tangible and intangible fixed assets | 43 | 151 | 91 |
Share and market data | 06.30.2004 | 12.31.2003 | 06.30.2003 | |
Shareholders' equity per share (euro) | 6.47 | 6.47 | 6.16 | |
Period end share price (euro) | 9.40 | 9.11 | 9.04 | |
Screen-based market: high (euro) | 10.18 | 11.30 | 9.59 | |
Screen-based market: low (euro) | 8.33 | 5.90 | 5.90 | |
Market capitalization (thousands of euro) | 1,706,653 | 1,654,001 | 1,641,292 | |
Average no. of shares outstanding(1) | 181,558,811 | 181,558,811 | 181,341,018 | |
Number of shares outstanding | 181,558,811 | 181,558,811 | 181,558,811 | |
(1)Net of treasury shares held during the period. |
Employees | 06.30.2004 | 12.31.2003 | 06.30.2003 | |
Total number | 7,034 | 6,949 | 6,833 |
- Directors' reportEconomic results
- Consolidated revenues for the first half of 2004 were 853 million euro, compared with 969 million euro in the comparative period of 2003. This decrease was largely due to the sale of sports equipment business, sold during the first half of 2003, and the continued adverse effect on sales of exchange-rate movements. Adjusting for these effects, net revenues totaled 850 million euro, compared with 868 million euro in the first half of 2003, down 2.2%. Casual revenues fell slightly (-3.1%) due, in general, to the particularly cautious economic climate.
- Capital expenditures
- During the first half of 2004 the Group invested about 43 million euro in fixed assets, compared with 91 million in the same period of 2003. Most investments went into the retail network; the Group spent about 23 million euro on the purchase, modernization and upgrading of buildings that will house stores. Production investments came to 16 million euro and mainly concerned Italian manufacturing companies.
Gross operating income was 373 million euro versus 415 million euro in the comparative period of 2003. Income from operations, 111 million euro, was 13% of revenues (13.4% in the first half of 2003).
Ordinary income (being income from operations plus net financial charges and the net effect of currency management) was 100 million euro, representing 11.7% of revenues compared to 12.6% in the first half of 2003.
Net income was 67 million euro, or 7.8% of revenues, compared with 50 million euro in the first half of 2003, due to a marked reduction in both financial and non-recurring charges.
Self-financing amounts to 144 million euro compares with 157 million euro in the first half of 2003; however the free cash flow, before dividends and the non-recurring effect of selling the sports equipment business and paying the related substitute tax, improved considerably.
Shareholders' equity as of June 30, 2004 amounted to 1,175 million euro.
Net financial position amounts to 567 million euro (compared with 571 and 468 million euro, respectively, as of June 30 and December 31, 2003); the increase with respect to December 31, 2003, was mainly due to the payment of substitute tax associated with the business reorganization carried out at the end of 2003, and to normal business fluctuations.
Supplementary information
Distribution of dividends.The Shareholders of Benetton Group S.p.A. voted on May 12, 2004 to distribute a dividend of 0.38 euro per share, for a total of 69 million euro.
Financial management.The Group has also paid a great deal of attention to financial risk management by constantly monitoring its exposures and managing them by means of derivatives.
The exposure to exchange risk is very slight and concentrated on the US dollar, the Japanese yen, the British pound and the Swiss franc; this exposure has been essentially neutralized at period end as a result of outright, currency swap and ("zero cost") collar transactions:
Currency to sell | Currency to buy | |||
(in millions) | Currency | Euro | Currency | Euro |
U.S. Dollar | 135 | 114 | 98 | 80 |
Japanese Yen | 49.613 | 379 | 33.300 | 252 |
British Pound | 44 | 65 | 1 | 2 |
Swiss Franc | 74 | 48 | 31 | 20 |
During the first half of 2004, the Group did not use any derivatives that involved collecting or paying premiums.
Under the Group's guidelines, its exposure to exchange risk is split into:
- exposure to economic exchange risk: represented by the sum of monetary flows (receipts and payments in the same currency are netted) in all currencies other than the "functional currency". Risk exposure arises as soon as the price lists of collections are defined (each year being divided into two main collections), which takes place approximately 15 months prior to the time when such amounts will actually be collected: the prices in foreign currency applied to the budget volumes for each item are converted at an exchange rate (known as the "target rate") to calculate a budgeted result that the hedging policy has to ensure;
-exposure to exchange translation risk - on the net investment made by Benetton Group S.p.A. in foreign Group companies. Each variation in the exchange rate generates a new value for the net amount that the Parent Company has invested in Group companies located outside of the euro-zone. The "translation differences" that arise in such cases represent gains or losses that have a cash impact when there is a distribution of dividends or if the foreign subsidiary is liquidated or sold off; these differences do not flow into the statement of income, but are a direct adjustment to Group Shareholders' equity.
In the same way as the exposure to exchange risk, exposure to interest risk is also monitored on an ongoing basis and managed by way of derivatives. At the end of the first half 2004, the risk exposure on the liabilities side (essentially a floating-rate bond loan with maturity 2005 for 300 million euro and a floating-rate syndicated loan with maturity 2007 for 500 million euro) is partially hedged by interest rate swaps for a notional value of 340 million euro taken out mostly in previous years.
In July 2003, the Parent Company's Board of Directors approved a policy of investing surplus cash in order to limit and manage issuer credit risk (i.e. the risk of issuers failing to comply with their obligations). This policy permits investment in bank deposits, bonds (at fixed and floating rates) with a duration of less than three years, as well as in short-term bond or monetary funds. These instruments have to have an issuer rating of not less than "A-" from S&P or Fitch or "A3" from Moody's. Moreover, in order to avoid an excessive concentration of risk in a single issuer in the case of issuers with a rating of less than "AA" (or equivalent), the maximum amount that can be invested must not exceed 10% of the Group's total investment of liquid funds up to a maximum of 20 million euro.
Treasury shares.During the period, Benetton Group S.p.A. neither bought nor sold any treasury shares, shares or quotas in parent companies, either directly or indirectly or through subsidiaries, trustees or other intermediaries.
Relations with the Parent Company and its subsidiaries.The Benetton Group had limited trading dealings with Edizione Holding S.p.A. (the Parent Company), with its subsidiaries and with other parties which, directly or indirectly, are linked by common interests with the majority Shareholder. Trading relations with such parties are conducted on an arm's-length basis. These transactions relate primarily to purchases of tax credits and services.
The relevant totals appear below:
(thousands of euro) | 06.30.2004 | 06.30.2003 | ||
Accounts receivable | 392 | 1,241 | ||
Accounts payable | 26,532 | 3,917 | ||
Purchases of raw materials | 2,464 | 2,469 | ||
Other costs and services | 7,426 | 7,496 | ||
Sales of products | 17 | 75 | ||
Revenue from services and other income | 341 | 308 |
The Group has undertaken some transactions with companies directly or indirectly controlled, or in any case under the influence of managers serving within the Group. The Company's management believes that such transactions were completed at going market rates. The total value of such transactions was not, in any case, significant in relation to the Group's total production value. No Director, Manager, or Shareholder is a debtor of the Group.
Directors.The Company's directors as of June 30, 2004 are as follows:
Name and Surname | Date of birth | Appointed | Position | |
| Luciano Benetton | 05.13.1935 | 1978 | Chairman |
| Carlo Benetton | 12.26.1943 | 1978 | Deputy Chairman |
| Silvano Cassano | 12.18.1956 | 2003 | Managing Director |
| Giuliana Benetton | 07.08.1937 | 1978 | Director |
| Gilberto Benetton | 06.19.1941 | 1978 | Director |
| Alessandro Benetton | 03.02.1964 | 1998 | Director |
| Gianni Mion | 09.06.1943 | 1990 | Director |
| Ulrich Weiss | 06.03.1936 | 1997 | Director |
| Reginald Bartholomew | 02.17.1936 | 1999 | Director |
| Luigi Arturo Bianchi | 06.03.1958 | 2000 | Director |
| Sergio De Simoi | 05.23.1945 | 2003 | Director |
Luciano Benetton, Gilberto Benetton, Carlo Benetton are brothers; Giuliana Benetton is their sister; Alessandro Benetton is Luciano Benetton's son.
Principal organizational and corporate changes. The branches of Bencom S.r.l. in Spain, France and Great Britain became operational in January 2004 and, in June, a branch was formed in Belgium (which became operational on August 1). Via these local organizations, Bencom S.r.l. now directly manages in the above Nations a number of Benetton stores that were previously attached to Benetton Retail Spain S.L., Benetton Retail France S.A.S. and Benetton Retail (1988) Ltd.
Benetton Group S.p.A., throw the subsidiary Benfin S.p.A., has acquired the 15% minority interest in Olimpias S.p.A. for 15 million euro, payable in two instalments of 7.5 million euro each by, respectively, June 30, 2004, and June 30, 2005. This manufacturing and services company is active in the textiles and clothing field, mainly for the Benetton Group, throw many factories located in Italy. The absorption of Olimpias S.p.A. by Benfin S.p.A. has also been approved as part of, and consistent with, the more general reorganization of the Group carried out, for the most part, in 2003.
New Ben GmbH, the German subsidiary, has signed a contract for the purchase of the entire interest in Mari Textilhandels GmbH, which owns around 30 stores that sell Group-branded products in Bavaria, Hesse, Rhineland-Palatinate and Saarland. This purchase, approved by the Board of Directors of Benetton Group S.p.A. and the German antitrust authority, took effect on July 1, 2004, at a price of 4 million euro. Independent experts carried out "due diligence" work in relation to this purchase and released a fairness report on the consideration agreed between the parties.
The corporate reorganization in Spain and Portugal has been completed with the transfer of the holding in Benetton Textil Spain S.L. from Benetton International N.V. S.A. to Benetton Realty Spain S.L.
Benetton Realty Spain S.L. has sold its interest in Benetton Realty Portugal Imobiliaria S.A. to Benetton Real Estate International S.A.
Benetton Textil Spain S.L. has sold its interest in Benetton Textil Confeccao de Texteis S.A. to Benetton Manufacturing Holding N.V.
Benetton Retail International S.A. has transferred its holding in Benetton Asia Pacific Ltd. to Benetton International N.V. S.A.
Benetton Retail France S.A.S. has sold its entire interest in L'Apollinaire S.n.c., the owner of a retail business, to third parties.
Significant events after June 30, 2004.As part of the process of simplifying the corporate structure, the deeds for the absorption of Mari GmbH by New Ben GmbH with effect from July 1, 2004, and of I.M.I. S.r.l. by Bencom S.r.l. with effect from September 1, 2004, were both signed at the end of July.
At a meeting held on July 15, the Board of Directors of Benetton Group S.p.A. approved a stock option plan for the Group's top managers which will be presented to the Extraordinary Stockholders' Meeting called for September 9, 2004. As part of this operation, the Extraordinary Meeting will be asked to grant the Board of Directors powers to authorize a capital increase, to service the stock option plan, reserved to managers to be identified by the Board from among those that perform strategic functions within Benetton Group S.p.A. and other Group companies. The allocation of up to five million options to acquire five million newly-issued shares in Benetton Group, representing 2.75% of capital, is envisaged: 50% exercisable two years after the allotment date and 50% four years after. The options will be exercisable on achievement of the cumulative value creation objectives set out in the 2004-2007 Guidelines, which were presented to financial markets in December 2003.
Outlook for the full year. Based on the latest available information, the Group confirms consolidated net income for 2004 to fall in the range between 125 and 130 million euro. Revenues of casual, representing about 90% of the total, are expected to slightly decrease by 1 or 2%.
Consolidated revenues for 2004, influenced by the disposal of the sports equipment business in the prior year, should total about 1,750 million euro given continuing caution in the marketplace. Self-financing for 2004 is expected to be in line with that for 2003, as is the level of financial position despite payment of the substitute tax on the corporate reorganization.
Investment, focused mainly on development of the store network, is expected to total around 100 million euro.
Group results
Consolidated statement of income.The highlights of the Group's statement of income are presented below, together with those for the same period of last year. They are based on the reclassified statement of income adopted for internal reporting purposes.
1st half | 1st half | ||||||
(millions of euro) | 2004 | % | 2003 | % | Change | % | |
Revenues | 853 | 100.0 | 969 | 100.0 | (116) | (12.0) | |
Cost of sales | (480) | (56.3) | (554) | (57.2) | 74 | (13.3) | |
Gross operating income | 373 | 43.7 | 415 | 42.8 | (42) | (10.2) | |
Variable selling costs | (53) | (6.2) | (58) | (5.9) | 5 | (8.1) | |
Contribution margin | 320 | 37.5 | 357 | 36.9 | (37) | (10.6) | |
General and administrative expenses | (209) | (24.5) | (227) | (23.5) | 18 | (8.4) | |
Income from operations | 111 | 13.0 | 130 | 13.4 | (19) | (14.4) | |
Foreign currency gain, net | 1 | 0.1 | 10 | 1.0 | (9) | (88.8) | |
Financial charges, net | (12) | (1.4) | (17) | (1.8) | 5 | (31.9) | |
Ordinary income | 100 | 11.7 | 122 | 12.6 | (22) | (18.0) | |
Other and non recurring expenses | (11) | (1.3) | (27) | (2.8) | 16 | (57.9) | |
Income before taxes | 89 | 10.4 | 95 | 9.8 | (6) | (6.6) | |
Income taxes | (23) | (2.7) | (44) | (4.5) | 21 | (47.9) | |
Minority interests loss/(income) | 1 | 0.1 | (1) | (0.1) | 2 | n.s | |
Net income | 67 | 7.8 | 50 | 5.2 | 17 | 32.0 |
Net revenues in the first half of 2004 totaled 853 million euro, down 12% from 969 million euro in the comparative period of 2003. Comparison is influenced by the following factors: sale of the sports equipment business in the first half of 2003 and the continuing adverse effect of fluctuations in the leading currencies. The decrease in sales attributable to the business sold amounts to about 89 million, while the effect of exchange-rate movement on consolidated net sales for the period was around 9 million euro.
Casual sales decreased by 3.1%, including an adverse exchange effect of 1.1%. Although the number of garments sold increased by 2.7%, net revenues were penalized by a temporary "collection" effect, due to a structural change in the delivery of collections.
The net decrease in the revenues of the sports sector, 85 million euro, mainly derives from the disposal of the sports equipment business, as partially offset by the improved performance of sportswear, which rose by 4 million euro.
Manufacturing was penalized by market conditions, with revenues down by more than 7 million euro (-11.5%).
The consolidated cost of sales has fallen both in absolute terms, by 74 million euro due above all to the absence of costs relating to the business sold, and as a percentage of net revenues, to 56.3% from 57.2% in the first half of 2003. This performance is essentially explained by increased production efficiency.
Gross operating income amounted to 373 million euro, or 43.7% of net sales, compared with 42.8% in the first half of 2003. The decrease in absolute terms by 42 million euro is attributable to the disposal of the sports equipment business, for more than 32 million euro, and to a reduction in the casual sector, about 8 million. The latter effect was mostly caused by adverse exchange-rate effects which penalized the casual gross operating income by about 6 million euro.
The "other sectors" have declined both in absolute terms and as a percentage of sales.
Variable selling costs totaled 53 million euro or 6.2% of revenues, compared with 5.9% in 2003. They have decreased in absolute terms by 5 million euro, mostly due to the absence of costs relating to the business sold.
General and administrative expenses and overheads amounted to 209 million euro compared with 227 million in the first six months of 2003, down 18 million euro or 8.4%, with an increase in term of percentage on revenues from 23.5% to 24.5%. The decrease in absolute terms included about 27 million euro related to the business sold. Costs relating to the casual sector have increased by 10 million euro due to the action taken with regard to the commercial network. In particular, the number of directly-operated stores has increased versus the comparative period, with an impact on payroll costs, general expenses and operating costs.
Consolidated income from operations was 111 million compared with 130 million in the first half of 2003. The absolute change of 19 million euro was mostly attributable to the casual sector, while the adverse exchange-rate effect exceeded 3 million euro. The incidence on net revenues has eased from 13.4% to 13%.
The results from foreign exchange management, was 1 million euro compared with 10 million in the comparative period, due to the slight recovery of exchange rates during the period. Net financial charges of 12 million euro, or 1.4% of net revenues, were down 5 million euro mainly due to a reduction in average financial position and a slight decrease in the cost of funds.
The ordinary income, representing 11.7% of net sales, decreased from 122 to 100 million euro.
Other and non recurring expenses, for 11 million euro, mainly due to the writedown of certain commercial assets to their current value, were significantly lower than in the comparative period of 2003, 27 million euro, when they included the tax amnesty for the Italian companies.
Net income for the period was 67 million euro, compared with 50 million euro in the first half of 2003, representing 7.8% of net revenues as against 5.2%.
Revenues by geographical area are as follows:
1st half | 1st half | ||||||
(millions of euro) | 2004 | % | 2003 | % | Change | % | |
Europe | 732 | 85.8 | 794 | 81.9 | (62) | (7.9) | |
The Americas | 37 | 4.4 | 74 | 7.6 | (37) | (49.6) | |
Asia | 81 | 9.5 | 96 | 10.0 | (15) | (16.3) | |
Other areas | 3 | 0.3 | 5 | 0.5 | (2) | (31.6) | |
Total | 853 | 100.0 | 969 | 100.0 | (116) | (12.0) |
Performance by activity.The Group's activities are traditionally divided into three sectors to provide the basis for effective administration and adequate decision-making by company management, and to supply accurate and relevant information about company performance to financial investors.
The business sectors are as follows:
- the casual sector, representing the Benetton brands (United Colors of Benetton, Undercolors and Sisley), which also incorporates figures for the retail business, as well as complementary products, such as accessories and footwear;
- the sportswear and equipment sector, with the Playlife and Killer Loop brands; includes sales of equipment produced for third parties by a manufacturing company within the Group. The 2003 comparative amounts include the sales of sports equipment branded Nordica, Rollerblade and Prince;
- the manufacturing and others sector, including sales of raw materials, semi-finished products, industrial services and revenues and expenses from real estate activity.
- Results of the Casual sector
1st half | 1st half | ||||||
(millions of euro) | 2004 | % | 2003 | % | Change | % | |
Sector total revenues | 759 | 100.0 | 783 | 100.0 | (24) | (3.1) | |
Cost of sales | (405) | (53.4) | (421) | (53.8) | 16 | 3.6 | |
Gross operating income | 354 | 46.6 | 362 | 46.2 | (8) | (2.5) | |
Selling, general and administrative expenses | (247) | (32.5) | (237) | (30.2) | (10) | (4.0) | |
Income from operations | 107 | 14.1 | 125 | 16.0 | (18) | (14.7) |
Net revenues totaled 759 million, compared with 783 million euro in the first half of 2003, down 3.1%. Negative exchange-rate effects impacted casual revenues for about 9 million euro. The sales volumes sold increased by 2.7%, but net sales were penalized by both a structural change in the calendar for the delivery of collections.
The cost of sales fell by 16 million, or 3.6%, with respect to the comparative period and improved as a percentage of net revenues from 53.8% to 53.4% as a result of further rationalization in the production process. Gross operating income was 354 million euro or 46.6% of net revenues, compared with 46.2% in the comparative period of 2003, despite an adverse exchange-rate effect of 6 million euro.
The increase in general and operating expenses was due to the effect of action taken to develop the retail network.
Income from operations, 107 million euro, represents 14,1% of net revenues.
- Results of the Sportswear and equipment sector
1st half | 1st half | ||||||
(millions of euro) | 2004 | % | 2003 | % | Change | % | |
Sector total revenues | 35 | 100.0 | 120 | 100.0 | (85) | (70.6) | |
Cost of sales | (25) | (71.2) | (80) | (66.7) | 55 | 68.7 | |
Gross operating income | 10 | 28.8 | 40 | 33.3 | (30) | (74.6) | |
Selling, general and administrative expenses | (8) | (23.1) | (38) | (31.8) | 30 | 78.7 | |
Income from operations | 2 | 5.7 | 2 | 1.5 | (0) | (13.1) |
The first half 2003 figures for the sports sector included equipment sales. The decrease in revenues for the period due to the disposal of that business was about 89 million euro, while the sales of sports apparels totaled 23 million euro. The cost of sales decreased by 55 million euro, entirely due to the business sold.
Income from operations benefited from the absence of depreciation and other selling, general expenses and operating costs associated with the business sold. The income from operations generated by the clothing segment has improved from 7.3% to 11% of net revenues.
- Results of the Manufacturing and others sector
1st half | 1st half | ||||||
(millions of euro) | 2004 | % | 2003 | % | Change | % | |
Sector total revenues | 59 | 100.0 | 66 | 100.0 | (7) | (11.5) | |
Cost of sales | (50) | (84.0) | (54) | (80.1) | 4 | 7.2 | |
Gross operating income | 9 | 16.0 | 12 | 19.9 | (3) | (28.5) | |
Selling, general and administrative expenses | (7) | (12.4) | (9) | (16.0) | 2 | 30.8 | |
Income from operations | 2 | 3.6 | 3 | 3.9 | (1) | (19.3) |
The sales of the manufacturing sector to third parties declined from 66 million to 59 million euro, down 11.5%. This was due to a contraction in the fabrics and yarns market. Gross operating income was 16% of total revenues, compared with 19.9%. Income from operations was in line with the same period of last year.
Financial situation - highlights.The Group's financial position is summarized below on a comparative basis with the situation at the end of 2003:
(millions of euro) | 06.30.2004 | 12.31.2003 | Change | 06.30.2003 | |
Working capital | 782 | 729 | 53 | 777 | |
Asset due to be sold | - | 8 | (8) | 9 | |
Total capital employed | 1,746 | 1,655 | 91 | 1,703 | |
Net financial position | 567 | 468 | 99 | 571 | |
Shareholders' equity | 1,175 | 1,174 | 1 | 1,117 | |
Minority interests | 5 | 13 | (8) | 15 |
Working capital has increased by 5 million euro since June 30, 2003. In particular, the reduction in trade receivables has been more than offset by an increase in amounts due to the tax credit and the decrease in other payables.
Total capital employed has risen by 91 million euro since December 31, 2003 for the following reasons:
- increase in working capital by 53 million euro as a result of normal business ciclicity;
- additions to tangible and intangible fixed assets totalling 43 million euro;
- disposals, mainly of tangible fixed assets, amounting to 21 million euro;
- depreciation and amortization of 49 million euro;
- decrease in financial fixed assets of 29 million euro;
- other changes of 3 million euro.
The net financing position of 567 million euro has risen by 99 million euro since December 31, 2003, due to both payment of substitute tax related to the company reorganization and normal business ciclicity. The breakdown is as follows:
(millions of euro) | 06.30.2004 | 12.31.2003 | Change | 06.30.2003 | |
Current financial assets: | |||||
- Italian government securities and monetary and bond funds | 27 | 27 | - | 27 | |
- bank deposits | 100 | 207 | (107) | 156 | |
- cash and ordinary current accounts | 114 | 118 | (4) | 116 | |
- other short-term financial receivables | 13 | 17 | (4) | 11 | |
Total current financial assets | 254 | 369 | (115) | 310 | |
Medium-term financial receivables | 33 | 31 | 2 | 34 | |
Total financial assets | 287 | 400 | (113) | 344 | |
Current financial liabilities: | |||||
- short-term financial payables | (25) | (35) | 10 | (32) | |
- current portion of medium-term debt | (1) | (2) | 1 | (53) | |
- current portion of amounts due to leasing companies | (6) | (5) | (1) | (5) | |
Total current financial liabilities | (32) | (42) | 10 | (89) |
Medium-term financial payables: | |||||
- bond loan | (300) | (300) | - | (300) | |
- syndicated loan | (500) | (500) | - | (500) | |
- other medium-term loans | (1) | (4) | 3 | (3) | |
- due to leasing companies | (21) | (22) | 1 | (23) | |
Total medium-term financial payables | (822) | (826) | 4 | (826) | |
Total financial liabilities | (854) | (868) | 14 | (915) | |
Net financial position | (567) | (468) | (99) | (571) | |
Net short-term financial position | 222 | 327 | (105) | 221 | |
Net medium-term financial position | (789) | (795) | 6 | (792) | |
Net financial position | (567) | (468) | (99) | (571) |
The bond loan of 300 million euro, with maturity July 2005, provides for limitations on the granting of real guarantees for new loans; it does not provide for compliance with any financial index ("financial covenants").
The syndicated loan of 500 million euro, with maturity July 2007, provides for compliance with two financial indices that have to be calculated every six months on the consolidated figures, namely:
- minimum ratio between E.B.I.T.D. (earnings before interest, tax and depreciation) and net financial charges of 2.5 times;
- minimum ratio between the net financial position and Shareholders' equity of 1.
Moreover, there are limits on large disposals of assets and on the granting of real guarantees for new loans.
Given the excellent cash flow generated, management believes that the repayment of these loans will not affect the Group's ability to make the capital expenditure envisaged in the 2004-2007 Guidelines.
Cash flows during the half-year are summarized below with comparative figures for the same period of last year:
1st half | 1st half | |||
(millions of euro) | 2004 | 2003 | ||
Self-financing | 144 | 157 | ||
Change in working capital | (53) | (22) | ||
Payment of taxes | (11) | (40) | ||
Net operating assets | (29) | (79) | ||
Change in financial fixed assets | (17) | - | ||
Free cash flow | 34 | 16 | ||
Payment of dividends | (69) | (64) | ||
Payment of substitute tax | (98) | - | ||
Net sports equipment disposal | 35 | 82 | ||
Net financial (deficit)/surplus | (98) | 34 |
The self-financing generated by the Group as of June 30, 2004 amounted to 144 million euro, compared with 157 million euro in the first half of 2003.
Payment of the substitute tax associated with the company reorganization has had a significant effect.
The cash flow from the disposal of the sports equipment business was related to the collection of a guarantee deposit and the sale of real estate by a US subsidiary.
Further economic and financial information is provided in the financial statements and explanatory notes.
Consolidated financial statements
Balance sheet - Assets | 06.30.2004 | 12.31.2003 | 06.30.2003 | ||||
(thousands of euro) | A | Due from Shareholders for unpaid capital | - | - | - | ||
B | Fixed assets | ||||||
I | Intangible fixed assets | ||||||
1 | start-up and expansion expenses | 5,283 | 7,361 | 8,362 | |||
3 | industrial patents and | ||||||
intellectual property rights | 1,316 | 1,491 | 1,633 | ||||
4 | concessions, licenses, trademarks and similar rights | 25,267 | 26,734 | 25,732 | |||
5 | goodwill and consolidation differences | 82,729 | 90,078 | 95,330 | |||
6 | assets under construction and advance payments | 851 | 206 | 7,661 | |||
7 | other intangible fixed assets | 94,001 | 105,155 | 100,670 | |||
Total intangible fixed assets | 209,447 | 231,025 | 239,388 | ||||
II | Tangible fixed assets | ||||||
1 | real estate | 546,175 | 540,099 | 531,112 | |||
2 | plant and machinery | 89,465 | 87,343 | 98,307 | |||
3 | industrial and commercial equipment | 1,269 | 1,206 | 1,633 | |||
4 | other assets | 66,957 | 68,173 | 72,420 | |||
5 | assets under construction and advances to suppliers | 9,510 | 17,019 | 14,931 | |||
Total tangible fixed assets | 713,376 | 713,840 | 718,403 | ||||
III | Financial fixed assets | ||||||
1 | equity investments in: | ||||||
a. subsidiary companies | 877 | 3,549 | 1 | ||||
b. associated companies | 5 | 5 | 5 | ||||
d. other companies | 16,998 | 16,960 | 16,959 | ||||
Total equity investments | 17,880 | 20,514 | 16,965 | ||||
2 | accounts receivable due from: | ||||||
d. third parties: | |||||||
- within 12 months | 9,960 | 34,742 | 33,491 | ||||
- beyond 12 months | 50,332 | 46,447 | 48,635 | ||||
Total accounts receivable due from third parties | 60,292 | 81,189 | 82,126 | ||||
3 | other securities | - | 9 | 10 | |||
Total financial fixed assets | 78,172 | 101,712 | 99,101 | ||||
Total fixed assets | 1,000,995 | 1,046,577 | 1,056,892 |
06.30.2004 | 12.31.2003 | 06.30.2003 | |||||
C | Current assets | ||||||
I | Inventories | ||||||
1 | raw materials, other materials and consumables | 121,018 | 101,734 | 123,808 | |||
2 | work in progress and semi-manufactured products | 36,498 | 53,147 | 49,964 | |||
4 | finished goods and goods for resale | 95,460 | 78,422 | 83,308 | |||
5 | advance payments to suppliers | 360 | 433 | 464 | |||
Total inventories | 253,336 | 233,736 | 257,544 | ||||
II | Accounts receivable | ||||||
1 | trade receivables: | ||||||
- within 12 months | 768,830 | 752,153 | 825,800 | ||||
- beyond 12 months | 3,368 | 3,581 | 3,096 | ||||
Total trade receivables | 772,198 | 755,734 | 828,896 | ||||
2 | subsidiary companies | - | 101 | 44 | |||
3 | associated companies | 359 | 364 | 364 | |||
4 | parent company | 58 | 447 | 141 | |||
4 bis | tax receivables: | ||||||
- within 12 months | 60,220 | 26,004 | 28,613 | ||||
- beyond 12 months | 3,490 | 2,479 | 2,071 | ||||
Total tax receivables | 63,710 | 28,483 | 30,684 | ||||
4 ter | deferred tax assets | 207,838 | 202,250 | 58,824 | |||
5 | other receivables: | ||||||
- within 12 months | 33,560 | 41,061 | 55,897 | ||||
- beyond 12 months | 1,665 | 2,602 | 3,394 | ||||
Total other receivables | 35,225 | 43,663 | 59,291 | ||||
6 | assets due to be sold | - | 8,088 | 9,315 | |||
Total accounts receivable | 1,079,388 | 1,039,130 | 987,559 |
III | Financial assets not held as fixed assets | ||||||
6 | other securities | 27,583 | 27,289 | 26,996 | |||
7 | other financial receivables | 16 | 34 | 44,571 | |||
8 | differentials on forward transactions | ||||||
within 12 months | 3,646 | 10,000 | 5,755 | ||||
Total financial assets | |||||||
not held as fixed assets | 31,245 | 37,323 | 77,322 | ||||
IV | Liquid funds | ||||||
1 | bank and post office deposits | 152,845 | 265,024 | 175,611 | |||
2 | checks | 60,144 | 59,503 | 51,696 | |||
3 | cash in hand | 349 | 308 | 313 | |||
Total liquid funds | 213,338 | 324,835 | 227,620 | ||||
Total current assets | 1,577,307 | 1,635,024 | 1,550,045 | ||||
D | Accrued income and prepaid expenses | 18,877 | 15,842 | 26,629 | |||
TOTAL ASSETS | 2,597,179 | 2,697,443 | 2,633,566 |
Balance sheet - Liabilities and | 06.30.2004 | 12.31.2003 | 06.30.2003 | ||||
Shareholders' equity | A | Shareholders' equity | |||||
(thousands of euro) | |||||||
I | Share capital | 236,026 | 236,026 | 236,026 | |||
II | Additional paid-in capital | 56,574 | 56,574 | 56,574 | |||
III | Revaluation reserves | 22,058 | 22,058 | 22,058 | |||
IV | Legal reserve | 47,210 | 32,240 | 32,240 | |||
VII | Other reserves | 746,100 | 719,089 | 719,912 | |||
IX | Net income for the period | 66,630 | 107,874 | 50,488 | |||
Group interest in Shareholders' equity | 1,174,598 | 1,173,861 | 1,117,298 | ||||
Minority interests | 4,813 | 12,799 | 14,433 | ||||
Total Shareholders' equity | 1,179,411 | 1,186,660 | 1,131,731 | ||||
B | Reserves for risks and charges | ||||||
2 | taxes and deferred taxes | 47 | 3,039 | 38 | |||
3 | other | 31,363 | 39,334 | 43,223 | |||
Total reserves for risks and charges | 31,410 | 42,373 | 43,261 | ||||
C | Reserves for employee termination indemnities | 49,968 | 49,774 | 50,258 | |||
D | Accounts payable | ||||||
1 | bonds within 12 months | 300,000 | 300,000 | 300,000 | |||
4 | due to banks: | ||||||
- within 12 months | 22,195 | 35,388 | 82,720 | ||||
- beyond 12 months | 501,118 | 501,739 | 502,510 | ||||
Total due to banks | 523,313 | 537,127 | 585,230 | ||||
5 | due to other financial companies: | ||||||
- within 12 months | 6,847 | 5,835 | 5,746 | ||||
- beyond 12 months | 21,313 | 22,364 | 23,498 | ||||
Total due to other financial companies | 28,160 | 28,199 | 29,244 | ||||
6 | advances from customers | 7,290 | 2,715 | 2,774 | |||
7 | trade payables: | ||||||
- within 12 months | 339,255 | 317,292 | 343,017 | ||||
- beyond 12 months | - | 101 | 134 | ||||
Total due to trade payables | 339,255 | 317,393 | 343,151 | ||||
8 | securities issued | ||||||
within 12 months | 1,494 | 1,080 | 789 | ||||
9 | due to subsidiary companies | 16 | 2,630 | - | |||
10 | due to associated companies | - | 5 | 3 |
06.30.2004 | 12.31.2003 | 06.30.2003 | |||||
11 | due to parent company | 26,376 | 11,005 | 3,839 | |||
12 | due to tax authorities: | ||||||
- within 12 months | 43,001 | 149,440 | 47,132 | ||||
- beyond 12 months | - | - | 603 | ||||
Total due to tax authorities | 43,001 | 149,440 | 47,735 | ||||
13 | due to social security and welfare institutions | 5,673 | 8,931 | 5,324 | |||
14 | other payables: | ||||||
- within 12 months | 36,362 | 40,427 | 49,051 | ||||
- beyond 12 months | 626 | 604 | 7,565 | ||||
Total other payables | 36,988 | 41,031 | 56,616 | ||||
Total accounts payable | 1,311,566 | 1,399,556 | 1,374,705 | ||||
E | Accrued expenses and deferred income | ||||||
1 | accrued expenses and deferred income | 24,824 | 19,080 | 33,611 | |||
Total accrued expenses and deferred income | 24,824 | 19,080 | 33,611 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 2,597,179 | 2,697,443 | 2,633,566 | ||||
Memorandum accounts | 06.30.2004 | 12.31.2003 | 06.30.2003 | ||||
(thousands of euro) | Fiduciary guarantees granted | ||||||
Guarantees | 5,306 | 2,786 | 3,111 | ||||
Commitments | |||||||
Sale commitments | 18,015 | 1,950 | 4,271 | ||||
Purchase commitments | 1,291 | 6,895 | 1,595 | ||||
Other | |||||||
Currency to be sold forward | 633,029 | 581,088 | 646,794 | ||||
Currency to be purchased forward | 355,063 | 278,267 | 282,651 | ||||
Notes presented for discount | 239 | 1,725 | 4,392 | ||||
TOTAL MEMORANDUM ACCOUNTS | 1,012,943 | 872,711 | 942,814 |
Statements of income | 1st half | 1st half | Year | ||||
(thousands of euro) | 2004 | 2003 | 2003 | ||||
A | Value of production | ||||||
1 | Revenues from sales and services | 852,779 | 969,191 | 1,858,983 | |||
2 | Change in work in progress, semi-manufactured | ||||||
products and finished goods | (940) | (36,505) | (35,603) | ||||
4 | Own work capitalized | 14 | 22 | 750 | |||
5 | Other income and revenues | 28,772 | 27,011 | 55,868 | |||
Total value of production | 880,625 | 959,719 | 1,879,998 | ||||
B | Production costs | ||||||
6 | Raw materials, other materials, consumables and goods for resale | 234,633 | 261,748 | 487,048 | |||
7 | External services | 323,572 | 341,008 | 657,767 | |||
8 | Leases and rentals | 42,949 | 43,321 | 90,870 | |||
9 | Payroll and related costs: | ||||||
a. wages and salaries | 80,524 | 83,604 | 157,289 | ||||
b. social security contributions | 23,124 | 24,554 | 45,715 | ||||
c. employee termination indemnities | 4,238 | 4,572 | 8,858 | ||||
e. other costs | 543 | 464 | 1,531 | ||||
Total payroll and related costs | 108,429 | 113,194 | 213,393 | ||||
10 | Amortization, depreciation and writedowns: | ||||||
a. amortization of intangible fixed assets | 19,602 | 21,057 | 42,916 | ||||
b. depreciation of tangible fixed assets | 29,626 | 30,807 | 60,741 | ||||
c. other writedowns of fixed assets | 6,245 | 11,312 | 16,129 | ||||
d. writedowns of current receivables | |||||||
and of liquid funds | 9,985 | 13,550 | 48,430 | ||||
Total amortization, depreciation and writedowns | 65,458 | 76,726 | 168,216 | ||||
11 | Change in stock of raw materials, other materials, | ||||||
consumables and goods for resale | (19,037) | (14,500) | 6,828 | ||||
12 | Provisions to risk reserves | 3,375 | 5,034 | 11,888 | |||
13 | Other provisions | 2,069 | 6,419 | 11,085 | |||
14 | Other operating costs | 13,861 | 12,519 | 28,709 | |||
Total production costs | 775,309 | 845,469 | 1,675,804 | ||||
Difference between production value and costs | 105,316 | 114,250 | 204,194 |
C | Financial income and expenses | ||||||
15 | Income from equity investments | 29 | 4,013 | 4,042 | |||
16 | Other financial income: | ||||||
a. from receivables held as financial fixed assets, other companies | 381 | 1,206 | 1,945 | ||||
c. from securities included among current assets | |||||||
not representing equity investments | 365 | 519 | 795 | ||||
d. financial income other than the above: | |||||||
- subsidiary companies | 25 | 42 | 81 | ||||
- other companies | 10,782 | 14,692 | 26,102 | ||||
Total financial income other than the above | 10,807 | 14,734 | 26,183 | ||||
Total other financial income | 11,553 | 16,459 | 28,923 | ||||
Total financial income | 11,582 | 20,472 | 32,965 |
1st half | 1st half | Year | |||||
2004 | 2003 | 2003 | |||||
17 | Interest and other financial expenses: | ||||||
- subsidiary companies | 28 | - | 49 | ||||
- other companies | 25,122 | 36,092 | 64,767 | ||||
Total interest and other financial expenses | 25,150 | 36,092 | 64,816 | ||||
17 bis | Exchange gains/(losses) | 1,116 | 9,986 | 9,652 | |||
Total financial income and expenses | (12,452) | (5,634) | (22,199) | ||||
D | Changes in value of financial assets | ||||||
18 | Revaluations: | ||||||
c. of securities included among current assets | |||||||
not representing equity investments | 24 | 8 | - | ||||
Total revaluations | 24 | 8 | - | ||||
19 | Writedowns: | ||||||
a. of equity investments | 38 | - | 261 | ||||
c. of securities included among current assets | |||||||
not representing equity investments | 47 | 7 | 53 | ||||
Total writedowns | 85 | 7 | 314 | ||||
Total changes in value of financial assets | (61) | 1 | (314) |
E | Extraordinary income and expenses | ||||||
20 | Income: | ||||||
- gains on disposals | 965 | - | 2,870 | ||||
- other | 5,163 | 4,781 | 10,369 | ||||
Total income | 6,128 | 4,781 | 13,239 | ||||
21 | Expenses: | ||||||
- losses on disposals | 174 | 907 | 1,902 | ||||
- taxes relating to prior years | 322 | 10,762 | 10,916 | ||||
- other | 9,366 | 6,329 | 16,784 | ||||
Total expenses | 9,862 | 17,998 | 29,602 | ||||
Total extraordinary income and expenses | (3,734) | (13,217) | (16,363) | ||||
Results before income taxes | 89,069 | 95,400 | 165,318 | ||||
22 | Current, deferred and advance income taxes | 23,072 | 44,281 | 56,399 | |||
Income before minority interests | 65,997 | 51,119 | 108,919 | ||||
(Income)/Loss attributable to minority interests | 633 | (631) | (1,045) | ||||
26 | Net income for the period | 66,630 | 50,488 | 107,874 |
Surplus | ||||||||
from | Other | |||||||
Statements of changes in | Additional | monetary | reserves | Net | ||||
Shareholders' equity | Share | paid-in | revaluations | and retained | Translation | income/ | ||
(thousands of euro) | capital | capital | of assets | earnings | differences | (loss) | Total | |
Balance as of December 31, 2003 | 236,026 | 56,574 | 22,058 | 762,986 | (11,657) | 107,874 | 1,173,861 | |
Allocation of 2003 | ||||||||
net income to reserves | - | - | - | 107,874 | - | (107,874) | - | |
Dividends distributed, as approved | ||||||||
at the ordinary Shareholders' | ||||||||
meeting on May 12, 2004 | - | - | - | (68,992) | - | - | (68,992) | |
Translation differences | ||||||||
arising from foreign | ||||||||
financial statements | - | - | - | - | 3,099 | - | 3,099 | |
Net income for the period | - | - | - | - | - | 66,630 | 66,630 | |
Balance as of June 30, 2004 | 236,026 | 56,574 | 22,058 | 801,868 | (8,558) | 66,630 | 1,174,598 | |
Balance as of December 31, 2002 | 236,026 | 56,574 | 22,058 | 836,393 | (617) | (9,861) | 1,140,573 | |
Allocation of 2002 | ||||||||
net income to reserves | - | - | - | (9,861) | - | 9,861 | - | |
Dividends distributed, as approved | ||||||||
at the ordinary Shareholders' | ||||||||
meeting on May 12, 2003 | - | - | - | (63,545) | - | - | (63,545) | |
Translation differences | ||||||||
arising from foreign | ||||||||
financial statements | - | - | - | - | (10,218) | - | (10,218) | |
Net income for the period | - | - | - | - | - | 50,488 | 50,488 | |
Balance as of June 30, 2003 | 236,026 | 56,574 | 22,058 | 762,987 | (10,835) | 50,488 | 1,117,298 | |
Statements of changes | Capital and | Income/ | ||||||
in minority interests | reserves | (Loss) | Total | |||||
(thousands of euro) | Balance as of December 31, 2003 | 11,754 | 1,045 | 12,799 | ||||
Allocation of 2003 net income | 1,045 | (1,045) | - | |||||
Acquisition of investments | (7,259) | - | (7,259) | |||||
Dividends distributed | (419) | - | (419) | |||||
Translation differences | 325 | - | 325 | |||||
Income/(Loss) for the period | - | (633) | (633) | |||||
Balance as of June 30, 2004 | 5,446 | (633) | 4,813 | |||||
Balance as of December 31, 2002 | 13,171 | 1,609 | 14,780 | |||||
Allocation of 2002 net income | 1,609 | (1,609) | - | |||||
Share capital increase | 245 | - | 245 | |||||
Dividends distributed | (765) | - | (765) | |||||
Translation differences | (458) | - | (458) | |||||
Net income for the period | - | 631 | 631 | |||||
Balance as of June 30, 2003 | 13,802 | 631 | 14,433 |
Statements of | 1st half | 1st half | |||
cash flows | 2004 | 2003 | |||
(thousands of euro) | Cash flow from operating activities | ||||
Income before minority interests | 65,997 | 51,119 | |||
Depreciation and amortization | 49,228 | 51,864 | |||
Amortization of deferred charges on long-term loans | 179 | 181 | |||
Provision for doubtful accounts and other non-monetary charges | 19,244 | 28,288 | |||
Provision for income taxes | 23,072 | 44,281 | |||
Losses/(Gains) on disposal of assets, investments, net | 7,593 | 13,311 | |||
Payment of termination indemnities and use of other reserves | (20,923) | (32,019) | |||
Self-financing | 144,390 | 157,025 | |||
Payment of taxes | (11,404) | (40,503) | |||
Change in trade receivable | (24,312) | (55,578) | |||
Change in other operating receivables | (22,466) | (40,871) | |||
Change in inventories | (18,023) | 21,526 | |||
Change in accounts payable | 15,240 | 15,994 | |||
Change in other operating payables and accruals | (3,423) | 37,371 | |||
Change in working capital | (52,984) | (21,558) | |||
Net cash flow from operating activities | 80,002 | 94,964 | |||
Cash flow from investing activities | |||||
Purchase of new subsidiaries | (15,023) | - | |||
Purchase of tangible fixed assets | (33,794) | (66,554) | |||
Investment in intangible fixed assets | (8,902) | (24,759) | |||
Sales of tangible fixed assets | 16,541 | 27,249 | |||
Disposal of intangible fixed assets | 4,718 | 99,122 | |||
Net change in investment-related receivables and payables | 455 | 5,274 | |||
Net cash flow from investing activities | (36,005) | 40,332 | |||
Cash flow from other investing activities | |||||
Purchase of equity investments | - | (15,000) | |||
Sale of investments | - | 3,853 | |||
Net (increase)/decrease in guarantee deposits and treasury shares | 25,637 | (26,289) | |||
Net cash used in other investing activities | 25,637 | (37,436) | |||
Payment of dividends | (69,411) | (64,311) | |||
Payment of the substitute tax | (98,014) | - | |||
Net financing (requirement)/surplus | (97,791) | 33,549 |
1st half | 1st half | ||||
2004 | 2003 | ||||
Cash flow from financing activities | |||||
Change in Shareholders' equity | - | 245 | |||
Change in short-term borrowing | (4,956) | 22,211 | |||
Proceeds from issuance of long-term debt | - | 3 | |||
Repayment of long-term debt | (1,111) | (3,631) | |||
Change in securities held as fixed assets | 9 | - | |||
Change in long-term debt/financial receivables due to Group companies | 14 | - | |||
Increase in long-term financial receivables | (8,338) | (23,646) | |||
Decrease in long-term financial receivables | 3,818 | 4,191 | |||
Change in long-term financial receivables from Group subsidiaries | - | (1,347) | |||
Change in lease financing | (147) | (2,272) | |||
(10,711) | (4,246) | ||||
Change of liquidity | 112,002 | (42,406) | |||
Effect of translation adjustments | (3,500) | 13,103 | |||
Net cash provided/(used) by financing activities | 97,791 | (33,549) | |||
Notes to the consolidated
financial statements
The consolidated financial statements have been prepared in conformity with chapter III of Legislative Decree no.127 of April 9, 1991, which implements the EC VII Directive in Italy.
The notes to the consolidated financial statements explain, analyze and, in some cases, supplement the data reported on the face of the financial statements and include information required by article 38 and other provisions of Decree 127/1991. Additional information is also provided in order to present a true and fair view of the financial and operating position of the Group, even where this is not required by specific legislation.
The economic and financial position as of June 30, 2004, takes account of the changes required by the reform of company law (Decree 6 of January 17, 2003, and subsequent amendments and additions), which involved alterations to both the financial statement formats and the related legal disclosures. Accordingly, certain prior period captions have been reclassified for consistency with the amounts reported for the current semester.
Unless otherwise specified, amounts indicated in these notes are expressed in thousands of euro.
Activities of the Group
Benetton Group S.p.A., the Parent Company, and its subsidiary companies (collectively the "Group") primarily manufacture and market fashion apparel in wool, cotton and woven fabrics, as well as sportswear and casual wear. The manufacture of finished articles from raw materials is primarily undertaken in Italy, partly within the Group and partly using subcontractors, whereas marketing is carried out through an extensive sales network both in Italy and abroad. This network consists of sales representatives and specialty stores that are almost exclusively independently owned.
Form and content of the consolidated financial statements
The consolidated financial statements of the Group include the financial statements as of June 30, 2004 of Benetton Group S.p.A., the Parent Company, and all the Italian and foreign companies in which the Parent Company holds, directly or indirectly, the majority of the voting rights. They also include the accounts of some 50%-owned companies over which the Group exercises a dominant influence.
The companies included within the scope of consolidation are listed in an appendix.
Financial statements of foreign subsidiaries have been reclassified, where necessary, for consistency with the format adopted by the Parent Company. Such financial statements have been adjusted so that they are consistent with the accounting policies referred to below.
A reconciliation between Shareholders' equity and net income as reported in the statutory financial statements of Benetton Group S.p.A., and the consolidated Shareholders' equity and net income of the Group is presented in the note on Shareholders' equity.
Principles of consolidation
The most significant consolidation principles adopted for the preparation of the consolidated financial statements are as follows:
a. The assets and liabilities of subsidiary companies are consolidated on a line-by-line basis and the carrying value of investments held by the Parent Company and other consolidated subsidiaries is eliminated against the related Shareholders' equity accounts.
b. When a company is consolidated for the first time, any positive difference emerging from the elimination of its carrying value on the basis indicated in a) above, is allocated, where applicable, to the assets of the subsidiary. Any excess arising upon consolidation is accounted for as a consolidation adjustment and is classified as "Goodwill and consolidation differences".
Negative differences are classified within the "Reserve for risks and charges arising on consolidation" if they reflect estimated future losses; otherwise, they are classified as part of the "Consolidation reserve" within Shareholders' equity.
Goodwill is amortized over its estimated useful life.
c. Intercompany receivables and payables, costs and revenues, and all significant transactions between consolidated companies, including the intragroup payment of dividends, are eliminated.
Unrealized intercompany profits and gains and losses arising from transactions between Group companies are also eliminated.
d. The minority Shareholders' interest in the net assets and results for the period of consolidated subsidiaries are classified separately as "Minority interests" in the consolidated balance sheet and as "Income attributable to minority interests" in the consolidated income statement.
e. The financial statements of foreign subsidiaries are translated into euro using period-end exchange rates for balance sheet items and average exchange rates for the period for income statement items.
Differences arising from the translation into euro of foreign currency financial statements are reflected directly in consolidated Shareholders' equity.
Accounting policies
These have been adopted in observance of article 2426 of the Italian Civil Code, also taking account of accounting principles prepared by the Italian Accounting Profession and, in the absence thereof, those issued by the International Accounting Standards Board (I.A.S.B.).
Intangible fixed assets. These are recorded at purchase or production cost, including related charges. The value of these assets may be subject to revaluation in accordance with statutory regulations.
One method for determining the value of intangible fixed assets is to allocate the excess price deriving from investments acquired or other company transactions. This type of allocation is used for excess prices paid for trademarks acquired under these types of operation, on the basis of an independent appraisal.
Intangible fixed assets are written down in cases where, regardless of the amortization accumulated, there is a permanent loss in value. The value of such assets is reinstated in future accounting periods should the reasons for such writedowns no longer apply.
Book value is systematically amortized on a straight-line basis in relation to the residual economic useful lives of such assets. The duration of amortization plans is based on the estimated economic use of these assets.
Normally amortization periods for trademarks fluctuate between 15 and 25 years, while patents are amortized over three years. Goodwill and consolidation differences are amortized over ten years. Leasehold improvements costs are amortized over the duration of the lease contract. Start-up and expansion expenses and other deferred charges are mostly amortized over five years.
Tangible fixed assets.These are recorded at purchase or production cost, revalued where required or permitted by statutory regulations. Cost includes related charges and direct or indirect expenses reasonably attributable to the individual assets. Tangible fixed assets are written down in cases where, regardless of the depreciation accumulated, there is a permanent loss in value. The value of such assets is reinstated in future accounting periods should the reasons for such writedowns no longer apply. Ordinary maintenance costs are fully expensed as incurred. Improvement expenditure is allocated to the related assets and depreciated over their residual useful lives.
Depreciation is calculated systematically on a straight-line basis using rates considered to reflect the estimated useful lives of the assets. In the first year such assets enter into service these rates are halved in consideration of their shorter period of use.
The depreciation rates applied by consolidated companies are as follows:
| Real estate |
|
| 2% - 3% |
| Plant and machinery |
|
| 8% - 25% |
| Industrial and commercial equipment |
|
| 10% - 25% |
|
|
|
|
|
| Other tangible fixed assets: |
|
|
|
| - office and shops furniture, furnishing and electronic machines |
|
| 10% - 25% |
| - vehicles |
|
| 20% - 25% |
| - aircraft |
|
| 6% |
Accelerated depreciation calculated in the financial statements of Group companies is reversed and the related accumulated deprecation is adjusted as a result.
Assets acquired under finance leases are stated at their fair value at the start of the lease and the capital portion of the lease installments is recorded as a liability.
Such assets are depreciated over their economic useful lives on the same basis as other tangible fixed assets.
Financial fixed assets.Investments in subsidiaries not consolidated on a line-by-line basis, together with those in associated companies, are accounted for on an equity basis, eliminating the Group's share of any unrealized intercompany profits, where significant.
The difference between the cost and the net equity of investments at the time they were acquired is allocated on the basis described in paragraph b) of the consolidation principles.
Equity investments of less than 20% in other companies are stated at cost, which is written down where there is a permanent loss in value. The original value of these investments is reinstated in future accounting periods should the reasons for such writedowns no longer apply.
Receivables included among financial fixed assets are stated at their estimated realizable value.
Other securities held as financial fixed assets are stated at cost, which is written down where there is permanent loss in value, taking into account any accrued issue premiums and discounts.
Inventories.Inventories are stated at the lower of purchase or manufacturing cost, generally determined on a weighted average cost basis, and their market or net realizable value.
Manufacturing cost includes raw materials and all direct or indirect production-related expenses.
The calculation of estimated realizable value includes any manufacturing costs to be incurred and direct selling expenses. Obsolete and slow-moving inventories are written down in relation to their possibility of employment in the production process or to their net realizable value.
Accounts receivable.These are recorded at their estimated realizable value, net of appropriate allowances for doubtful accounts determined on a prudent basis. Any long-term receivables that include an implicit interest component are discounted using a suitable market rate.
Other securities not held as fixed assets.Such securities are stated at the lower of purchase cost and market value. The original value of these investments is reinstated in future accounting periods should the reasons for such writedowns no longer apply.
Securities acquired subject to resale commitments are recorded at cost and classified among other securities not held as fixed assets. The difference between the spot and forward prices of such securities is recognized on an accruals basis over the duration of the contract.
Accruals and deferrals.These are recorded to match costs and revenues in the accounting periods to which they relate.
Reserves for risks and charges.These reserves cover known or likely losses, the timing and amount of which cannot be determined at period-end. Reserves reflect the best estimate of losses to be incurred based on the information available.
Reserve for employee termination indemnities.This reserve represents the liability of Italian companies within the Group for indemnities payable upon termination of employment, accrued in accordance with labour laws and labour agreements in force. This liability is subject to annual revaluation using the officially-established indices.
Accounts payable.These are stated at face value. The implicit interest component which is included in long-term debt is recorded separately using a suitable market rate.
Transactions in foreign currencies. Transactions in foreign currencies are recorded using the exchange rates in effect at the transaction dates. Exchange gains or losses realized during the period are included in the consolidated income statement.
At the date of the financial statements, the Italian Group companies adjusted receivables and payables in foreign currency to the exchange rates ruling at the period end, booking all resulting gains and losses to the income statement. The exchange gains or losses on forward contracts opened to hedge receivables and payables are booked to the income statement; the discount or premium on these contracts is recorded on an accrual basis.
The value of forward contracts, other than those hedging specific foreign currency assets and liabilities, is restated at period-end with reference to the differential between the forward exchange rates applicable to the various types of contract at the balance-sheet date and the contracted forward exchange rates. Any net losses emerging are charged to the income statement.
Revenue recognition.Revenues from product sales are recognized at the time of shipment to the customer, which also represents the moment when ownership passes.
Expense recognition.Expenses are recorded in accordance with the matching principle.
Income taxes.Current income taxes are provided on the basis of a reasonable estimate of the tax liability for the period, in accordance with applicable local regulations.
The net balance between deferred tax assets and liabilities is also recorded.
Deferred tax assets refer to costs and expenses not yet deductible at period-end, to consolidation adjustments and to the benefit of accumulated tax losses. Deferred tax assets are provided when it was almost certain that they can be recovered in the future.
Deferred tax liabilities refer to transactions where taxation is deferred to future years, such as gains on the disposal of tangible and intangible fixed assets or consolidation adjustments arising from the reversal of accelerated depreciation or lease transactions recorded as finance leases.
Deferred tax assets are evaluated on a prudent basis and adjusted to consider any reasonable assurance that they will be realized.
Supplementary information
Accounting treatment of the business transfers in the consolidated financial statements.
The transfer of the various businesses from the Parent Company to three Italian companies on December, 2003 involved transferring assets and liabilities on the basis of a valuation carried out by expert appraisers in accordance with art. 2343 of the Italian Civil Code.
The assets transferred mainly consist of trademarks and patents, licenses and software, real estate, plant and machinery and IT equipment.
The expert appraisal recalculated the residual useful life of the assets and gave each of them a value, which resulted in a significant capital gain for the transferor. Reassessed for tax purposes, this gain was then subjected to the 19% substitute tax as per arts. 1 and 4.2 of D. Lgs. 358/1997.
The accounting treatment of this operation had the following impact on the consolidated financial statements:
- elimination of the intercompany gain on transfer and reallocation of the pre-contribution values to the various assets and related reserves;
- elimination of the depreciation and amortization charged on the new higher values in the transferee companies;
- recalculation of depreciation and amortization on the basis of the assets' historical costs and adjusting their residual useful life to that established for the financial statements of the transferee companies.
The substitute tax will make it possible to deduct the depreciation and amortization on these capital gains for tax purposes in future years. This tax has been paid in the first half of 2004.According to Accounting Principle no. 25 issued by the Italian Accounting Profession, elimination of the intercompany gains on consolidation will give rise to timing differences between the post-elimination asset values in the consolidated financial statements and the corresponding values shown in the statutory financial statements of the transferee companies, on which deferred tax assets have been booked.
These deferred tax assets have been calculated by applying the current tax rate to the said timing differences, given that it is reasonably certain that they will be recoverable in future years by earning sufficient taxable income, as reflected in the Company's forecasts.
The Killer Loop brand, on the other hand, was transferred at an appraisal value that was below book value. The expert appraisers chose the "market royalty rate" as their main method of valuation as this was considered the most prudent, even if it does not necessarily represent the value that could be obtained by selling the brand (market value). As pointed out in this appraisal, different methods of valuation can lead to quite different values; in fact, the appraisers used "enterprise value" as a control method to assess the economic sustainability of the values indicated by the main valuation method. Under this method, the value of the Killer Loop brand and related goodwill as shown in the financial statements were confirmed and the expected cash flows were not at risk of impairment.
Impact of introducing IAS
1. Timetable for the introduction of IFRS
Art. 25 of Law 306/2003, going for a wider application than originally provided for in Reg. no. 1606/2002/CE, obliges companies to adopt IFRS (International Financial Reporting Standards) for each financial year commencing from January 1, 2005. This includes the statutory and consolidated financial statements of all listed companies.
The first financial statements of the Benetton Group that will be prepared in accordance with IFRS will therefore be those for the year ending December 31, 2005.
The document IFRS 1 provides that the so-called "date of transition to IFRS" is the opening date of the year immediately prior to the one when IFRS will be adopted for the first time. In the case of the Benetton Group, the "date of transition" is therefore January 1, 2004, the date on which we will have to prepare a balance sheet in accordance with international accounting principles for the first time.
2. How the transition will be managed
To deal with this epoch-making change, the Benetton Group set up a task force together with external consultants which drew up a document that analyzed the impact of the transition. This involved identifying the main consequences on the financial statements (valuations and reclassifications between various balance sheet items), the explanatory notes (in terms of additional disclosures), internal organization (redrafting of existing rules and procedures and the designing of new interfunctional information flows), and IT systems (changes to respond to new lines of reasoning and data requirements).
Once this analysis phase was over, the task force began planning and implementing the steps needed to adjust the IT and reporting systems and structures. At present, there is no reason to believe that there will be any problem in implementing the rules as they currently stand.
3. Main areas affected
During the course of the analysis phase, it emerged that the areas that would be most affected by introduction of IFRS would be the following:
a. Financial statements: in value terms, the captions likely to change the most are those relating to tangible fixed assets (reversal of revaluation reserves on land, buildings, plant and machinery), intangible fixed assets (reversal of start-up and expansion costs), financial instruments (if IAS 32 and 39 are approved in their current form), employee termination indemnities (obligation to discount the liability as per IAS 19) and, obviously, Shareholders' equity. Certain reclassifications will also be necessary: for example, "Leasehold improvements", which are currently shown under "Intangible fixed assets" will in future be shown under "Tangible fixed assets". Lastly, changes will have to be made to the format of the balance sheet, statement of income, statement of cash flows and reconciliation of Shareholders' equity. The Group has already made a proposal in this regard.
b. Explanatory notes: there do not appear to be any particular problems in collecting the information that needs to be disclosed in the notes. Marginal changes may have to be made in the sector information that has to be given.
c. Internal organization: new information flows will have to be established, above all for "cash generating units" (see IAS 36) and their corollaries (management of internal and external indicators regarding an asset's possible loss of value, the so-called "impairment test", etc.). Moreover, the Administration and Management Accounting departments will have to adapt their internal and external reporting systems (which will also have to converge) to the new standards.
d. IT systems: significant changes are not expected to IT systems, except for the modules relating to fixed assets and derivatives. The consolidation software is currently being replaced.
Lastly, it is worth emphasising that the impact on organization and systems can only be evaluated in detail once it is clearer what relationship there will be between the introduction of IFRS, the new reform of company law and the latest reform of the tax system.
Article 2423, paragraph 4, of the Italian Civil Code.Departures from statutory accounting criteria and policies according to the fourth paragraph of article 2423 of the Italian Civil Code have not occurred.
Cash flow.The statement of consolidated cash flows provides information by type of flow and activity. Cash and banks items and readily marketable securities are treated as cash equivalents.
Comments on the principalasset items
Fixed assets
- Intangible fixed assets
06.30.2004 | 12.31.2003 | ||||
(thousands of euro) | Gross | Net | Gross | Net | |
Start-up and expansion expenses | 17,677 | 5,283 | 18,367 | 7,361 | |
Industrial patents and | |||||
intellectual property rights | 3,414 | 1,316 | 3,355 | 1,491 | |
Licenses, trademarks and similar rights | 65,278 | 25,267 | 64,851 | 26,734 | |
Goodwill | 106,999 | 77,576 | 110,464 | 83,236 | |
Consolidation differences | 16,987 | 5,153 | 17,542 | 6,842 | |
Total goodwill and consolidation differences | 123,986 | 82,729 | 128,006 | 90,078 | |
Assets under construction and advance payments | 851 | 851 | 206 | 206 | |
Expenses related to bond issues and loans | 1,677 | 692 | 1,722 | 876 | |
Costs for the purchase and development | |||||
of software and others | 57,702 | 22,209 | 58,087 | 25,798 | |
Leasehold improvements | 99,438 | 71,100 | 103,187 | 78,481 | |
Total other intangible fixed assets | 158,817 | 94,001 | 162,996 | 105,155 | |
Total | 370,023 | 209,447 | 377,781 | 231,025 |
"Start-up and expansion expenses" include 4,571 thousand euro (6,622 thousand euro as of December 31, 2003) in start-up expenses for retail projects.
"Licenses, trademarks and similar rights" include the net book value of the following brands:
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
United Colors of Benetton | 2,981 | 2,964 | ||
Sisley | 426 | 426 | ||
Killer Loop | 15,165 | 16,058 | ||
Others | 1,131 | 1,206 | ||
Total | 19,703 | 20,654 |
The change in "Goodwill" reflects disposals following the reorganization of the retail network and, above all, the amortization charge for the period. The balance essentially comprises the value of the retailing companies acquired in Italy's main cities with a view to developing the network of clothing stores.
"Consolidation differences" of 5,153 thousand euro reflect the residual goodwill emerging from consolidation of the companies acquired, with 1,858 thousand euro attributable to the business represented by Killer Loop trademark and the remainder to other European companies. This consolidation difference is amortized over ten years, which is considered appropriate since it is consistent with the accounting policies currently applied in the sector where Group companies operate.
Leasehold improvements mainly refer to the cost of restructuring and modernizing stores belonging to third parties; the change in the period reflects the amortization charge and the writedown to market value of certain foreign companies.
"Costs for the purchase and development of software and others" include costs incurred for the study, diagnosis and implementation, as well as the purchase, of IT programs and applications. They also include costs incurred for the early vacation of third party premises, which are amortized over the life of the lease, as well as expenses related to the acquisition of retail activities. The change is due to the amortization charge for the period.
Movements in the principal intangible fixed asset items during the first half year were as follows:
Licenses, | Goodwill and | Other, | |||||
trademarks and | consolidation | Leasehold | intangible | ||||
(thousands of euro) | Patents | similar rights | differences | improvements | fixed assets | Total | |
Net opening balance | 1,491 | 26,734 | 90,078 | 78,481 | 34,241 | 231,025 | |
Change in the scope | |||||||
of consolidation | - | - | - | - | - | - | |
Additions | 62 | 505 | 1,247 | 5,820 | 2,806 | 10,440 | |
Disposals | (3) | (17) | (2,967) | (1,667) | (956) | (5,610) | |
Amortization | (234) | (1,958) | (5,342) | (5,677) | (6,570) | (19,781) | |
Translation differences | |||||||
and other movements | - | 3 | (287) | (5,857) | (486) | (6,627) | |
Net closing balance | 1,316 | 25,267 | 82,729 | 71,100 | 29,035 | 209,447 |
- Tangible fixed assets
Tangible fixed assets are stated net of accumulated depreciation of 431,326 thousand euro.
Additions made during the first half of 2004 mainly concern the following items:
- investments in real estate for commercial use and the related modernization and upgrading of premises for over 17,500 thousand euro;
- plant, machinery and equipment purchased by Benetton Group S.p.A. and the manufacturing companies, about 14,790 thousand euro, to improve the efficiency of their production processes.
The depreciation charge for the period was 29,626 thousand euro.
Movements in the principal tangible fixed asset items during the first half of 2004 were as follows:
Assets under | |||||||
Industrial and | construction | ||||||
Real | Plant and | commercial | Other | and advances | |||
(thousands of euro) | estate | machinery | equipment | assets | to suppliers | Total | |
Net opening balance | 540,099 | 87,343 | 1,206 | 68,173 | 17,019 | 713,840 | |
Change in the scope | |||||||
of consolidation | - | - | - | - | - | - | |
Additions | 9,059 | 7,308 | 638 | 12,276 | 5,276 | 34,557 | |
Disposals | (436) | (2,829) | (11) | (4,952) | (387) | (8,615) | |
Depreciation | (8,193) | (11,073) | (327) | (10,033) | - | (29,626) | |
Translation differences | |||||||
and other movements | 5,646 | 8,716 | (237) | 1,493 | (12,398) | 3,220 | |
Net closing balance | 546,175 | 89,465 | 1,269 | 66,957 | 9,510 | 713,376 |
Some of the Group's tangible fixed assets are pledged as security for long-term loans from banks and other financial companies. The outstanding balance of such loans is 1,404 thousand euro as of June 30, 2004.
The increase in "Other assets" includes additions to "Furniture, furnishings and electronic machines" totaling 8,138 thousand euro, "Vehicles and aircraft" of 419 thousand euro and "Leased assets" of about 3,720 thousand euro.
Other assets include the following assets acquired under finance leases:
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Real estate | 9,485 | 13,790 | ||
Other assets | 3,831 | 123 | ||
Less - Accumulated depreciation | (1,263) | (1,577) | ||
Total | 12,053 | 12,336 |
Outstanding capital payments due to lessors as of June 30, 2004, classified as amounts due to leasing companies, are reported in the note "Due to other financial companies".
- Financial fixed assets
- Equity investments. Equity investments in subsidiaries companies mainly relate to foreign trading and manufacturing companies, that are carried at cost or at equity, since they are either not yet operating or are in liquidation at the balance-sheet date.
Other investments primarily represent minority interests in Italian and Japanese retail companies and in a Swiss company; this balance mainly relates to the purchase of 10% of the capital of Tecnica S.p.A. for 15 million euro in 2003.
Accounts receivable
Maturities (in years) | ||||||
(thousands of euro) | Within 1 | From 1 to 5 | Beyond 5 | 06.30.2004 | 12.31.2003 | |
Other receivables: | ||||||
- due within 12 months | 9,960 | - | - | 9,960 | 34,742 | |
- due beyond 12 months | - | 26,999 | 6,369 | 33,368 | 30,615 | |
Total other receivables | 9,960 | 26,999 | 6,369 | 43,328 | 65,357 | |
Guarantee deposits | - | - | 16,964 | 16,964 | 15,832 | |
Total | 9,960 | 26,999 | 23,333 | 60,292 | 81,189 |
This balance still includes a receivable of 20,500 thousand euro that arose on the disposal of the business associated with the Nordica brand. The amount due on the disposal of the Prince brand was collected during the period. Accounts receivable due beyond 12 months include a loan granted to third parties by the Japanese company to support local retail operations. The residual amount refers to financial receivables earning interest at market rates.
Guarantee deposits outstanding as of June 30 mainly relate to lease contracts stipulated by the Japanese subsidiary.
Current assets
- Inventories
Inventories, 253,336 thousand euro (233,736 thousand euro as of December 31, 2003), recorded net of the related inventory writedown reserve, consist of the following:
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Raw materials, other materials and consumables | 3,248 | 348 | ||
Work in progress and semi-manufactured products | 590 | 590 | ||
Finished goods | 6,475 | 7,546 | ||
Total | 10,313 | 8,484 |
The valuation of closing inventories at weighted average cost is not appreciably different from their value at current purchase cost.
- Accounts receivable
- Trade receivables. As of June 30, 2004, trade receivables, net of the allowance for doubtful accounts, amount to 772,198 thousand euro (755,734 thousand euro as of December 31, 2003).
The allowance for doubtful accounts amounts to 96,474 thousand euro (95,870 thousand euro as of December 31, 2003). 9,413 thousand euro of this reserve was used during the period. A prudent assessment of the specific and generic collection risks associated with receivables outstanding at period-end has resulted in an additional provision of 9,985 thousand euro to take account of the aging of certain balances and the difficult economic conditions in a number of markets.
This caption is analyzed by geographic area below:
Rest of | ||||||
(thousands of euro) | Europe | Asia | The Americas | the world | Total | |
Trade receivables | 701,504 | 32,597 | 36,680 | 1,417 | 772,198 |
- Due from subsidiaries, associated companies and the Parent Company.Accounts receivable from associated companies, amounting to 359 thousand euro, and those from the Parent Company, 58 thousand euro, are trade receivables.
- Tax receivables.Tax receivables include:
- VAT recoverable from the tax authorities, 46,355 thousand euro (18,481 thousand euro as of December 31, 2003), of which 2,804 thousand euro due beyond 12 months;
- tax credits, 15,656 thousand euro (5,553 thousand euro as of December 31, 2003), of which 287 thousand euro due beyond 12 months;
- Deferred tax assets. The following table shows total deferred tax assets, net; certain timing differences have been excluded from this calculation since the probability of recovering the related tax assets is deemed to be low:
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Tax effect of eliminating intercompany profits | 4,829 | 5,955 | ||
Tax effect of provisions and costs that will | ||||
become deductible in future accounting periods | 91,185 | 79,828 | ||
Deferred taxes arising on the reversal of accelerated depreciation | ||||
and the application of finance lease accounting | (17,035) | (17,685) | ||
Deferred taxes on gains taxable over a number of accounting periods | (1,298) | (2,267) | ||
Different basis for the depreciation/amortization | ||||
of tangible/intangible fixed assets | 122,075 | 128,500 | ||
Tax benefits on accumulated losses | 8,082 | 7,919 | ||
Others | - | |||
Total deferred tax assets | 207,838 | 202,250 | ||
Timing differences excluded from the calculation of deferred tax assets | 240,392 | 246,519 |
Deferred tax assets refer to:
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Italian companies | 184,994 | 179,282 | ||
Foreign companies | 22,844 | 22,968 | ||
Total | 207,838 | 202,250 |
- Other receivables. Other receivables include: advances to agents and vendors, other receivables and amounts due on the sale of fixed assets.
- Financial assets not held as fixed assets
- Treasury shares.The Company was not holding any treasury shares at the close of the period.
- Other securities
(thousands of euro) | 06.30.2004 | 12.31.2003 | |
Government bonds (BTP) maturing through 2006 and 2013 | |||
at interest rate between 1.65% and 4.75% | 9,811 | 7,201 | |
Treasury Certificates (CCT) maturing through 2008 and 2010 | |||
at interest rate between 2.1% and 2.3% | 12,410 | 14,866 | |
Amex European Short Term Euro | 824 | 822 | |
Gestielle Bt Euro | - | 605 | |
Sinopia Alternactiv Euro | 609 | - | |
Generali Am-Eu Sty-cd cap | 275 | - | |
Parvet Medium Term Euro | 289 | - | |
Vontobel Euro Bond A2 | 308 | - | |
Morgan Fund-Short Maturity Euro | 1,514 | 1,513 | |
SCH Euro Short Term A Euro | 1,543 | 2,282 | |
Total | 27,583 | 27,289 |
- Differentials on forward transactions
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Differentials on forward transactions | 3,646 | 10,000 |
The amount refers principally to the adjustment of hedging transactions outstanding at the end of the year to the period-end exchange rate.
- Liquid funds
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Current account deposits (euro) | 30,688 | 26,058 | ||
Current account deposits (foreign currency) | 21,688 | 31,756 | ||
Time deposits (euro) | 100,354 | 204,281 | ||
Time deposits (foreign currency) | 115 | 2,929 | ||
Checks | 60,144 | 59,503 | ||
Cash in hand | 349 | 308 | ||
Total | 213,338 | 324,835 |
The deposits in euro are liquid funds belonging to the finance companies. It also includes a bank deposit of 14,100 thousand euro made by the Parent Company with due date July 1, 2004.
Average interest rates reflect market returns for the various currencies concerned.
The balance of cash and banks as of June 30, 2004 reflects the receipts from customers at the period end.
Accrued income and prepaid expenses
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Accrued income: | ||||
- financial income | 3,193 | 3,810 | ||
- other income | 352 | 159 | ||
Total accrued income | 3,545 | 3,969 | ||
Prepaid expenses: | ||||
- financial charges | 30 | 27 | ||
- rentals and leasing charges | 6,117 | 8,871 | ||
- advertising and sponsorships | 161 | 278 | ||
- taxes | 3,847 | 847 | ||
- other expenses | 5,024 | 1,625 | ||
- discount of bond | 153 | 225 | ||
Total prepaid expenses | 15,332 | 11,873 | ||
Total | 18,877 | 15,842 |
Accrued financial income mainly relates to interest deriving from temporary investments.
In previous years, the Group's merger differences were released from further taxation via payment of a substitute tax at 27%. The substitute tax has been classified to "Current income taxes" with a matching balance in "Due to tax authorities". In accordance with the accruals concept, some 530 thousand euro of this tax has been recorded as a prepayment because the cost of freeing up merger differences from tax is related to the benefit deriving from future savings generated by tax-deductible amortization charges. Given the various periods of amortization of the assets involved and taking account of the prudence principle, the amortization period was set at 10 years. Other charges mainly derive from the provision of miscellaneous services.
Comments on the principal
liability and equity items
Shareholders' equity
- Share capital
The share capital of Benetton Group S.p.A. as of June 30, 2004 amounts to 236,026,454.30 euro consisting of 181,558,811 shares of par value 1.30 euro each. The 1980 spin-off reserve and part of the monetary revaluation reserves were capitalized by Benetton Group S.p.A. in prior years by the issue of stock dividends.
- Additional paid-in capital
This balance is unchanged with respect to the prior year.
- Revaluation reserves
The item exclusively reflects the residual amounts of revaluation reserves established in accordance with the provisions of Law no. 72 of March 19, 1983 and Law no. 413 of December 30, 1991 and the monetary revaluation of tangible fixed assets by a Spanish subsidiary (Royal Decree no. 2607/96).
- Legal reserve
The increase in the legal reserve reflects the allocation of a portion of the Parent Company's net income for the year ended December 31, 2003, in conformity with the statute and legal requirements.
- Other reserves
As of June 30, 2004, this item amounts to 746,100 thousand euro (719,089 thousand euro as of December 31, 2003), and includes:
- 551,000 thousand euro relating to other reserves of the Parent Company (60,722 thousand euro as of December 31, 2003);
- (8,558) thousand euro relating to the cumulative translation adjustment generated by translating the foreign-currency financial statements of companies consolidated on a line-by-line basis;
- 203,658 thousand euro representing the additional equity of consolidated companies with respect to their carrying value, together with other consolidation entries.
The first of the schedules which follow reconciles the Shareholders' equity and net income of Benetton Group S.p.A. with the corresponding consolidated amounts; the second lists the equity in consolidated subsidiaries attributable to minority Shareholders.
Reconciliation of the Shareholders' equity and net income of Benetton Group S.p.A. with the corresponding consolidated amounts:
06.30.2004 | |||
Shareholders' | Net | ||
(thousands of euro) | equity | income | |
Per Benetton Group S.p.A. financial statements | 939,742 | 30,765 | |
Net income and Shareholders' equity of consolidated subsidiaries, | |||
net of their carrying value | 736,993 | 88,604 | |
Reversal of gains on transfer of businesses, | |||
net of deferred tax assets | (545,563) | (6,425) | |
Reversal of writedown of equity investments | 6,640 | 10,155 | |
Elimination of dividends paid by | |||
consolidated subsidiaries | - | (50,039) | |
Reversal of merger differences and related amortization | |||
in Benetton Group S.p.A. | (17,196) | 765 | |
Allocation to fixed assets of the difference between the purchase price | |||
and the equity of new subsidiaries at the time they were acquired | |||
and related depreciation | 38,184 | (3,487) | |
Reversal/return of accelerated depreciation considering the useful lives of fixed | |||
assets and of intercompany gains on disposal of tangible fixed assets, | |||
net of the related tax effect | 18,872 | (4,908) | |
Application of finance lease accounting, | |||
taking account of the related tax effect | 6,884 | (329) | |
Elimination of intercompany profits included in the inventory of | |||
consolidated subsidiaries, net of the related tax effect | (9,830) | 1,342 | |
Net effect of other consolidation entries | (128) | 187 | |
Per Group's consolidated financial statements | 1,174,598 | 66,630 |
- Minority interests
As of June 30, 2004 and December 31, 2003, minority interests in consolidated subsidiaries were as follows:
(in %) | 06.30.2004 | 12.31.2003 | ||
Italian subsidiaries: | ||||
- Olimpias group | - | 15 | ||
Foreign subsidiaries: | ||||
- New Ben GmbH | 49 | 49 | ||
- DCM Benetton India Ltd. | 50 | 50 | ||
- Benetton Korea Inc. | 50 | 50 |
The change relating to the Olimpias group follows the purchase of 15% of Olimpias S.p.A. from the minority stockholder.
Reserves for risks and charges
- Reserve for taxes and deferred taxes
As of June 30, 2004, the reserve for fiscal risks amounts to 47 thousand euro (3,039 thousand euro as of December 31, 2003). It has decreased by 2,984 thousand euro to cover part of the cost of the tax amnesty governed by Law 289 of December 27, 2002, and subsequent amendments.
- Other reserves
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Reserve for contingencies | 8,050 | 9,235 | ||
Agents' leaving indemnity reserve | 13,494 | 12,745 | ||
Reserve for other provisions | 9,819 | 17,354 | ||
Total | 31,363 | 39,334 |
The reserve for contingencies covers various kinds of risk, the amount or timing of which is not known at the close of the period, but which may result in liabilities in future years; it mainly refers to liabilities for other minor disputes; decreased during the period by 4,176 thousand euro and increased by 2,382 thousand euro for disputes that arose during the period.
The agents' leaving indemnity reserve prudently reflects contingencies associated with the interruption of agency contracts in circumstances allowed by Italian law. During the period, this reserve was debited with 221 thousand euro in respect of utilizations and credited with an additional 970 thousand euro in provisions.
Other provisions cover expected charges for the closure of certain stores, as well as redundancy incentives.
Reserve for employee termination indemnities
Movements in the reserve during the period were as follows:
(thousands of euro) | ||||
Balance as of January 1, 2004 | 49,774 | |||
Provision for the period | 4,238 | |||
Indemnities paid during the period | (4,070) | |||
Other movements | 26 | |||
Balance as of June 30, 2004 | 49,968 |
Accounts payable
The content and significant changes in this account group during the period are discussed below.
- Bonds
In July 2002, Benetton Group S.p.A. issued a 300,000 thousand euro bond, repayable on July 26, 2005, bearing floating-rate interest, which was 2.56% at year-end. The bonds are listed on the Luxembourg Bourse.
This loan provides for limitations on the granting of real guarantees for new loans; it does not provide for compliance with any financial index ("financial covenants").
- Due to banks
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Current account overdrafts | 13,432 | 8,700 | ||
Advances on receivables and other short-term loans | 7,743 | 25,179 | ||
Long-term loans: | ||||
- due within 12 months | 1,020 | 1,509 | ||
- due beyond 12 months | 501,118 | 501,739 | ||
Total long-term loans | 502,138 | 503,248 | ||
Total | 523,313 | 537,127 |
Part of long-term loans due beyond 12 months, 1,404 thousand euro, is secured by mortgages on tangible fixed assets.
Long-term loans from banks outstanding as of June 30, 2004 and December 31, 2003 are as follows:
(thousands of euro) | 06.30.2004 | 12.31.2003 | |
Syndicated loan of 500 million euro maturing in 2007, granted by | |||
a pool of banks and made up of a revolving credit line for the first two years | |||
and a loan for the subsequent 5 years repayable on maturity. The annual | |||
interest rate was 2.197% at the balance-sheet date(1) | 500,000 | 500,000 | |
Loans from Efibanca (Ente Finanziario Interbancario S.p.A.) | |||
at an annual interest rate of 2.78% at the balance-sheet date | |||
repayable in half-yearly instalments in arrears through 2006 | 532 | 710 | |
Loan from Istituto Mobiliare Italiano, at an annual interest rate of 2.55%, | |||
repayable in half-yearly instalments expired on June 30, 2004 | - | 516 | |
Loan granted by Medio Credito del Friuli repayable in half-yearly | |||
instalments through January 1, 2007 at an annual interest rate of 2.5% | |||
secured by mortgages on real estate | 1,394 | 1,616 | |
Loan from CARI (Gorizia) dated April 20, 2001 | |||
repayable in 2005 at an annual interest rate of 4% | 202 | 392 | |
Other foreign currency loans obtained by foreign consolidated companies, | |||
secured by mortgages on real estate | 10 | 14 | |
Total long-term loans | 502,138 | 503,248 | |
less Current portion | (1,020) | (1,509) | |
Long-term loans, net of current portion | 501,118 | 501,739 |
(1)This loan provides for compliance with two financial indices calculated every six months on the consolidated figures, namely:
- minimum ratio between Ebitd (earnings before interest, tax and depreciation) and net financial charges of 2.5 times;
- minimum ratio between the net financial position and Shareholders' equity of 1.
Moreover, there are limits on large disposals of assets and on the granting of real guarantees for new loans.
The non-current portion of long-term loans as of June 30, 2004, totaling 501,118 thousand euro, falls due between 1 and 5 years.
- Due to other financial companies
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Other short-term loans | 908 | 800 | ||
Long-term loans: | ||||
- due within 12 months | 58 | 58 | ||
- due beyond 12 months | 530 | 530 | ||
Total long-term loans | 588 | 588 | ||
Due to leasing companies: | ||||
- due within 12 months | 5,881 | 4,977 | ||
- due beyond 12 months | 20,783 | 21,834 | ||
Total due to leasing companies | 26,664 | 26,811 | ||
Total | 28,160 | 28,199 |
The non-current portion of these loans as of June 30, 2004 falls due as follows:
(thousands of euro) | 06.30.2004 | |||
From 1 to 5 years | 308 | |||
Beyond 5 years | 222 | |||
Total | 530 |
The non-current portion of amounts due to leasing companies as of June 30, 2004 falls due as follows:
(thousands of euro) | 06.30.2004 | |||
From 1 to 5 years | 19,444 | |||
Beyond 5 years | 1,339 | |||
Total | 20,783 |
- Advances, trade payables and securities issued
This caption is analyzed by geographic area below:
Rest of | ||||||
(thousands of euro) | Europe | Asia | The Americas | the world | Total | |
Accounts receivable | 314,662 | 17,079 | 7,581 | 8,717 | 348,039 |
- Due to tax authorities
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Income taxes payable: | ||||
- Italian companies | 23,900 | 116,785 | ||
- Foreign companies | 10,544 | 9,729 | ||
Total income taxes payable | 34,444 | 126,514 | ||
VAT payable | 3,523 | 7,642 | ||
Other amounts due to tax authorities | 5,034 | 15,284 | ||
Total | 43,001 | 149,440 |
Income taxes payable are stated net of taxes paid in advance and all tax credits and withholdings.
"Other amounts due to tax authorities" mainly comprise withholding taxes and a residual amounts of 602 thousand euro deriving from acceptance of the tax amnesty.
- Due to social security and welfare institutions
This balance totals 5,673 thousand euro (8,931 thousand euro as of December 31, 2003) and reflects both the Group and employees contributions payable to these institutions at period-end.
- Other payables
Other payables, totaling 36,988 thousand euro, include 21,833 thousand euro due to employees (15,561 thousand euro as of December 31, 2003), other non-trading payables of 8,780 thousand euro (13,186 thousand euro as of December 31, 2003), other amounts due for the purchase of fixed assets, 4,280 thousand euro (12,183 thousand euro as of December 31, 2003) and 2,095 thousand euro (102 thousand euro as of December 31, 2003) of differentials on forward transactions.
"Other payables" include 626 thousand euro due beyond 12 months.
Accrued expenses and deferred income
(thousands of euro) | 06.30.2004 | 12.31.2003 | ||
Accrued expenses: | ||||
- financial charges | 13,878 | 10,801 | ||
- other charges | 7,642 | 4,983 | ||
Total accrued expenses | 21,520 | 15,784 | ||
Deferred income: | ||||
- financial income | 69 | 149 | ||
- other income | 3,235 | 3,147 | ||
Total deferred income | 3,304 | 3,296 | ||
Total | 24,824 | 19,080 |
Memorandum accounts
These mainly include currency to be sold or purchased forward. This is the euro equivalent at the forward exchange rate of commitments deriving from contracts signed during the period for various hedging transactions. For the most part, the item reflects transactions opened to hedge receivables, firm orders and future sales. Those covering future sales were subsequently partially renegotiated by carrying out reverse transactions. Other transactions were entered into to hedge the exchange risk on capital employed in some Group companies.
As of June 30, 2004, there were outstanding interest rate swaps for a figurative value of 340,000 thousand euro and 1 billion yen.
"Guarantees" include the guarantees given to secure the payment by Bencom S.r.l. of lease instalments due to third parties for use of the assets of a retailer located in Foggia, 2,786 thousand euro, and for the structural finishing and furnishing of the Padua store, 2,520 thousand euro.
At the end of the year, the Parent Company issued a guarantee on behalf of Benetton Retail (1988) Ltd. for any damages that might occur during the refurbishing of a building in London.
"Sale commitments" relate to the option to sell a business in Cesena, exercised on July 15, 2004, and preliminary agreements to sell certain real estate in Spain to third parties.
Purchase commitments relate to plant and machinery and construction works at a plant in Tunisia.
Comments on the principal
statement of income items
Value of production
- Revenues from sales and services
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Sales of core products | 815,588 | 933,668 | ||
Miscellaneous sales | 22,732 | 18,840 | ||
Royalty income | 6,627 | 6,801 | ||
Miscellaneous revenues | 7,832 | 9,882 | ||
Total | 852,779 | 969,191 |
Sales of core products are stated net of unconditional discounts.
Miscellaneous sales mainly arise from the sale of sports equipment produced for third parties by a Group company.
Miscellaneous revenues principally derive from the provision of services, such as processing on behalf of third parties, expense reimbursements, etc.
- Revenues by geographic area and business category
The | Other | |||||||||
(thousands of euro) | Europe | % | Americas | % | Asia | % | areas | % | Total | |
Casual | 647,550 | 88.5 | 36,857 | 98.7 | 73,082 | 90.5 | 1,071 | 33.9 | 758,560 | |
Sportswear and equipment | 32,824 | 4.5 | 168 | 0.5 | 2,110 | 2.6 | - | - | 35,102 | |
Manufacturing and others | 51,161 | 7.0 | 304 | 0.8 | 5,568 | 6.9 | 2,084 | 66.1 | 59,117 | |
Total revenues 1st half 2004 | 731,535 | 100.0 | 37,329 | 100.0 | 80,760 | 100.0 | 3,155 | 100.0 | 852,779 | |
Total revenues 1st half 2003 | 794,083 | - | 74,031 | - | 96,462 | - | 4,615 | - | 969,191 |
- Net sales of core products, by product category
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Casual wear, accessories and casual footwear | 739,152 | 764,548 | ||
Sportswear | 22,380 | 19,337 | ||
In-line skates and skateboards | 474 | 57,673 | ||
Racquets | - | 21,088 | ||
Ski boots | 473 | 5,046 | ||
Sports footwear | - | 4,506 | ||
Skis and snowboards | 190 | 1,453 | ||
Fabrics and yarns | 52,919 | 60,017 | ||
Total | 815,588 | 933,668 |
As for the trend in sales by product category, please refer to the breakdown provided in the Directors' report
- Net sales of core products, by brand
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
United Colors of Benetton | 598,510 | 609,147 | ||
Sisley | 140,642 | 155,454 | ||
Nordica | 662 | 6,551 | ||
Rollerblade | 474 | 57,154 | ||
Prince | - | 26,722 | ||
Killer Loop | 6,015 | 7,421 | ||
Playlife | 16,366 | 11,202 | ||
Others | 52,919 | 60,017 | ||
Total | 815,588 | 933,668 |
- The item "United Colors of Benetton" includes the amount of 213,448 thousand euro (203,985 thousand euro in the first half of 2003) relating to the label "Ucb Bambino", and the amount of 3,083 thousand euro (4,393 thousand euro in the first half of 2003) relating to the label "The Hip Site".
- Other revenues and income
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Reimbursements and compensation payments | 2,092 | 2,087 | ||
Rentals | 19,933 | 21,066 | ||
Gains on disposals of fixed assets | 2,270 | 1,800 | ||
Other operating income | 4,477 | 2,058 | ||
Total | 28,772 | 27,011 |
The item "Rentals " mainly refers to income from premises to be used for the sale of Benetton-label products.
Production costs
- Raw materials, other materials, consumables and goods for resale
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Raw materials, semi-manufactured and finished goods | 226,095 | 252,746 | ||
Other materials | 2,090 | 1,263 | ||
Sundry purchases advertising and promotion | 337 | 569 | ||
Other purchases | 6,146 | 7,183 | ||
(Discounts and rebates) | (35) | (13) | ||
Total | 234,633 | 261,748 |
- External services
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Subcontract work | 190,067 | 191,326 | ||
Distribution and transport | 14,496 | 14,942 | ||
Sales commission | 38,677 | 42,907 | ||
Advertising and promotion | 27,186 | 37,282 | ||
Other services | 49,777 | 51,472 | ||
Emoluments to directors and statutory auditors | 3,369 | 3,079 | ||
Total | 323,572 | 341,008 |
The decrease in sales commission and advertising and promotion costs was largely due to the absence of costs relating to the business sold.
Other services include power costs, 12,368 thousand euro, maintenance costs, 5,765 thousand euro, consultancy and other fees, 24,758 thousand euro, insurance premiums 2,228 thousand euro and personnel travel expenses, 4,658 thousand euro.
- Leases and rentals
Leases and rentals, 42,949 thousand euro, mainly relate to rentals paid of 38,175 thousand euro.
- Payroll and related costs
These costs are already analyzed in the statements of income. Personnel are analyzed below, by category:
Average | ||||
06.30.2004 | 12.31.2003 | of the period | ||
Managers | 108 | 109 | 109 | |
White collars | 3,363 | 3,315 | 3,339 | |
Workers | 2,683 | 2,654 | 2,668 | |
Part-time | 880 | 871 | 876 | |
Total | 7,034 | 6,949 | 6,992 |
- Amortization, depreciation and writedowns
- Amortization of intangible fixed assets
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Amortization of start-up and expansion expenses | 1,724 | 1,677 | ||
Amortization of industrial patents | ||||
and intellectual property rights | 234 | 508 | ||
Amortization of licenses, trademarks and similar rights | 1,958 | 2,439 | ||
Amortization of goodwill | 4,768 | 4,454 | ||
Amortization of consolidation differences | 574 | 756 | ||
Amortization of costs for the purchase | ||||
and development of software | 3,042 | 3,394 | ||
Amortization of leasehold improvements | 5,677 | 5,365 | ||
Amortization of other charges | 1,625 | 2,464 | ||
Total | 19,602 | 21,057 |
- Depreciation of tangible fixed assets
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Depreciation of real estate | 8,193 | 8,518 | ||
Depreciation of plant and machinery | 11,073 | 11,845 | ||
Depreciation of equipment | 327 | 535 | ||
Depreciation of other assets | 9,695 | 9,670 | ||
Depreciation of assets acquired under finance leases | 338 | 239 | ||
Total | 29,626 | 30,807 |
- Other writedowns of fixed assets.This item, at 6,245 thousand euro, mainly includes the adjustment to current market value of certain intangible fixed assets.
- Writedowns of current accounts receivable and of liquid funds.This item, amounting to 9,985 thousand euro, concerns the provision for doubtful accounts that was made for prudence sake; for more information see the note on current accounts receivable.
- Provisions to risk reserves
During the period, 2,382 thousand euro was allocated to the reserve for contingencies, 970 thousand euro to the agents' leaving indemnity reserve and about 23 thousand euro to the taxation reserve. For further details, refer to "Reserves for risks and charges" in the comments on liabilities.
- Other provisions
"Other provisions" were discussed earlier in relation to the balance sheet provisions.
- Other operating costs
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Indirect taxation | 4,494 | 3,390 | ||
Losses on disposal of fixed assets | 2,314 | 536 | ||
Losses on receivables | 136 | 1,043 | ||
Other general expenses | 6,917 | 7,550 | ||
Total | 13,861 | 12,519 |
- "Losses on disposal of fixed assets" mainly arose on the disposal of tangible fixed assets by a manufacturing company.
Other general expenses include charges, for an amount of 1,564 thousand euro, incurred during the first half of the year for returns and discounts relating to sales made in the prior year.
Financial income and expenses
- Income from equity investments
This caption, 29 thousand euro, relates to dividends distributed by other firms.
- Other financial income
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
From receivables held as financial fixed assets from other companies | 381 | 1,206 | ||
From securities included among current assets | ||||
not representing equity investments | 365 | 519 | ||
Financial income other than the above: | ||||
- interest income from subsidiary companies | 25 | 42 | ||
- interest income from trade and other financial receivables | 109 | 198 | ||
- interest income from banks | 2,463 | 1,133 | ||
- miscellaneous financial income and income from derivatives | 8,210 | 13,361 | ||
- exchange gains and income from currency management | - | - | ||
Total other than the above | 10,807 | 14,734 | ||
Total | 11,553 | 16,459 |
"Miscellaneous financial income and income from derivatives" includes:
- positive differentials on "interest rate swaps" and "forward rate agreements" for 3,643 thousand euro (7,360 thousand euro in the first half of 2003);
- income from "currency swaps" and "forward contracts" for 4,567 thousand euro (6,001 thousand euro in the first half of 2003).
- Interest and other financial expenses
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Interest expenses on bonds | 3,985 | 5,033 | ||
Interest expenses on bank current accounts | 185 | 185 | ||
Interest expenses on advances against receivables | 240 | 591 | ||
Interest expenses on short-term loans | 219 | 159 | ||
Interest expenses on long-term bank loans | 5,833 | 8,494 | ||
Interest expenses on loans from other financial companies | 418 | 564 | ||
Miscellaneous financial expenses and expenses on derivatives | 14,270 | 21,066 | ||
Exchange losses and charges from currency management | - | - | ||
Total | 25,150 | 36,092 |
- Miscellaneous financial expenses and expenses from derivatives mainly includes:
- negative differentials on "interest rate swaps" and "forward rate agreements", 7,973 thousand euro (13,142 thousand euro in the first half of 2003);
- charges on "currency swaps" and "forward contracts", 3,531 thousand euro (4,329 thousand euro in the first half of 2003);
- discounts allowed on the early settlement of trade receivables, 2,058 thousand euro (2,680 thousand euro in the first half of 2003);
- bank charges and commissions of 448 thousand euro (671 thousand euro in the first half of 2003).
- Exchange gains/(losses)
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | Change | |
Exchange gains | 36,063 | 98,082 | (62,019) | |
Exchange losses | (34,947) | (88,096) | 53,149 | |
Total | 1,116 | 9,986 | (8,870) |
The changes introduced by the reform of company law (Decree 6 of January 17, 2003, and subsequent amendments and additions) have been implemented with regard to exchange gains and losses. This resulted in the net exchange gains for the period ended June 30, 2004, about 1,116 thousand euro, being reported on one line of the statement of income. The comparative net exchange gain recorded in the first half of 2003, 9,986 thousand euro, was previously reported as other financial income of 98,082 thousand euro and, with regard to the exchange losses, as interest and other financial charges of 88,096 thousand euro. Exchange differences mainly arise on collections from foreign customers and payments to vendors, from currency hedging transactions, and from the renegotiation of contracts for the forward sale of currency. This caption also includes the exchange differences arising on the translation of foreign currency receivables and payables using the period-end rates of exchange.
Extraordinary income and expenses
- Extraordinary income
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Gains on disposal of fixed assets | 965 | - | ||
Other income: | ||||
- out-of-period income | 3,969 | 2,403 | ||
- other extraordinary income | 1,194 | 2,378 | ||
Total other income | 5,163 | 4,781 | ||
Total | 6,128 | 4,781 |
The capital gains on disposal of fixed assets were realized by foreign real estate management companies.
Out-of-period income reflects the recovery of a receivable that was written off in prior years, the cancellation of payables, and other income relating to prior years.
- Extraordinary expenses
1st half | 1st half | |||
(thousands of euro) | 2004 | 2003 | ||
Losses on disposal of fixed assets | 174 | 907 | ||
Taxes relating to prior years | 322 | 11,137 | ||
Other expenses | 9,366 | 5,954 | ||
Total | 9,862 | 17,998 |
In the first half of 2003, "taxes relating to prior years" included the cost of accepting the tax amnesty governed by Law 289 of December 27, 2002 and subsequent amendments.
Other charges include: donations, out-of-period expense, charges associated with the restructuring of the retail network and such costs as indemnities paid to third parties and redundancy incentives.
- Income taxes
- The tax liability for the period amounts to 23,072 thousand euro, of which 16,825 thousand euro relates to Italian companies.
This balance also includes deferred tax income and expenses, as analyzed below:
1st half | ||
(thousands of euro) | 2004 | |
Deferred tax income: | ||
- reversal of intercompany profits | 1,125 | |
- tax loss for the period | (11,860) | |
- writedowns of equity investments | 5,654 | |
- provisions for losses and contingencies | (3,751) | |
- return of taxation deriving from the different basis used for the | ||
depreciation and amortization of tangible and intangible fixed assets | 6,425 | |
- tax losses carried forward | 141 | |
- others | (581) | |
Total deferred tax income | (2,847) | |
Deferred tax expenses: | ||
- reversal/return of excess depreciation and | ||
application of lease accounting methodology | (613) | |
- capital gains | (1,394) | |
- others | 62 | |
Total deferred tax expenses | (1,945) | |
Net deferred tax (income)/expenses | (4,792) |
Appendices
These appendices present information not contained in the notes to the consolidated financial statements; they form an integral part of such notes and comprise:
- Consolidated balance sheet reclassified according to financial criteria;
- Consolidated statements of income reclassified to cost of sales;
- Companies and groups included within the consolidation area as of June 30, 2004.
Balance sheets | Assets | 06.30.2004 | 12.31.2003 | 06.30.2003 | |
reclassified according to | Current assets | ||||
financial criteria | Cash and banks | 213,338 | 324,835 | 227,620 | |
(thousands of euro) | Marketable securities | 27,583 | 27,289 | 26,996 | |
Differentials on forward transactions | 3,647 | 10,000 | 5,755 | ||
Financial receivables | 9,217 | 7,298 | 49,968 | ||
253,785 | 369,422 | 310,339 | |||
Accounts receivable | |||||
Trade receivables | 865,720 | 848,508 | 901,744 | ||
Other receivables | 302,377 | 297,220 | 171,470 | ||
less - Allowance for doubtful accounts | (96,474) | (95,870) | (75,437) | ||
1,071,623 | 1,049,858 | 997,777 | |||
Assets due to be sold | - | 8,088 | 9,315 | ||
Inventories | 253,336 | 233,736 | 257,544 | ||
Accrued income and prepaid expenses | 18,877 | 15,842 | 26,629 | ||
272,213 | 257,666 | 293,488 | |||
Total current assets | 1,597,621 | 1,676,946 | 1,601,604 | ||
Investments and other non-current assets | |||||
Equity investments | 17,880 | 20,514 | 16,965 | ||
Securities held as fixed assets | - | 9 | 10 | ||
Guarantee deposits | 16,964 | 15,832 | 14,842 | ||
Financial receivables | 33,368 | 30,615 | 33,793 | ||
Other non-current receivables | 8,523 | 8,662 | 8,561 | ||
Total investments and other non-current assets | 76,735 | 75,632 | 74,171 | ||
Tangible fixed assets | |||||
Real estate | 655,931 | 641,966 | 623,954 | ||
Plant, machinery and equipment | 336,074 | 327,409 | 338,216 | ||
Office furniture, furnishings and electronic equipment | 107,219 | 100,269 | 94,159 | ||
Vehicles and aircraft | 22,652 | 22,817 | 36,487 | ||
Construction in progress and advances for tangible fixed assets | 9,510 | 17,019 | 14,931 | ||
Finance leases | 13,316 | 13,913 | 14,347 | ||
less - Accumulated depreciation | (431,326) | (409,553) | (403,691) | ||
Total tangible fixed assets | 713,376 | 713,840 | 718,403 | ||
Intangible fixed assets | |||||
Licenses, trademarks and industrial patents | 26,583 | 28,225 | 27,365 | ||
Deferred charges | 182,864 | 202,800 | 212,023 | ||
Total intangible fixed assets | 209,447 | 231,025 | 239,388 | ||
TOTAL ASSETS | 2,597,179 | 2,697,443 | 2,633,566 |
Liabilities and Shareholders' equity | 06.30.2004 | 12.31.2003 | 06.30.2003 | ||
Current liabilities | |||||
Bank loans | 21,175 | 33,879 | 30,137 | ||
Short-term loans | 3,414 | 1,339 | 1,568 | ||
Current portion of long-term loans | 1,078 | 1,567 | 52,817 | ||
Current portion of lease financing | 5,881 | 4,977 | 4,703 | ||
Accounts payable | 347,583 | 331,563 | 350,318 | ||
Other payables, accrued expenses and deferred income | 99,758 | 91,364 | 129,278 | ||
Reserve for income taxes | 34,444 | 126,514 | 5,186 | ||
Total current liabilities | 513,333 | 591,203 | 574,007 | ||
Long-term liabilities | |||||
Bonds | 300,000 | 300,000 | 300,000 | ||
Long-term loans, | |||||
net of current portion | 501,648 | 502,269 | 503,101 | ||
Other long-term liabilities | 626 | 3,330 | 8,302 | ||
Lease financing | 20,783 | 21,834 | 22,906 | ||
Reserve for employee termination indemnities | 49,968 | 49,774 | 50,258 | ||
Other reserves | 31,410 | 42,373 | 43,261 | ||
Total long-term liabilities | 904,435 | 919,580 | 927,828 | ||
Minority interests in consolidated subsidiaries | 4,813 | 12,799 | 14,433 | ||
Shareholders' equity | |||||
Share capital | 236,026 | 236,026 | 236,026 | ||
Additional paid-in capital | 56,574 | 56,574 | 56,574 | ||
Surplus from monetary revaluation of assets | 22,058 | 22,058 | 22,058 | ||
Other reserves and retained earnings | 801,868 | 762,986 | 762,987 | ||
Translation differences | (8,558) | (11,657) | (10,835) | ||
Net income for the period | 66,630 | 107,874 | 50,488 | ||
Total Shareholders' equity | 1,174,598 | 1,173,861 | 1,117,298 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 2,597,179 | 2,697,443 | 2,633,566 |
Statements | 1st half | 1st half | Year | ||
of income reclassified | 2004 | 2003 | 2003 | ||
to cost of sales | Revenues | 852,779 | 969,191 | 1,858,983 | |
(thousands of euro) | |||||
Cost of sales | |||||
Material and net change in inventories | 225,754 | 277,408 | 528,315 | ||
Payroll and related costs | 46,535 | 49,172 | 90,786 | ||
Subcontract work | 175,318 | 191,880 | 364,291 | ||
Industrial depreciation | 11,273 | 12,631 | 24,075 | ||
Other manufacturing costs | 21,156 | 22,845 | 41,731 | ||
480,036 | 553,936 | 1,049,198 | |||
Gross operating income | 372,743 | 415,255 | 809,785 | ||
Selling, general and administrative expenses | |||||
Payroll and related cost | 61,121 | 63,455 | 121,424 | ||
Distribution and transport | 14,584 | 15,088 | 31,687 | ||
Sales commissions | 38,686 | 42,911 | 82,622 | ||
Advertising and promotion | 28,030 | 42,927 | 69,477 | ||
Depreciation and amortization | 37,955 | 39,036 | 79,178 | ||
Other expenses | 81,415 | 82,287 | 193,818 | ||
261,791 | 285,704 | 578,206 | |||
Income from operations | 110,952 | 129,551 | 231,579 | ||
Other income/(expenses) | |||||
Foreign currency gain/(loss), net | 1,116 | 9,986 | 9,652 | ||
Interest income | 11,535 | 16,359 | 28,780 | ||
Interest expenses | (23,135) | (33,400) | (60,213) | ||
Other income /(expenses), net | (11,399) | (27,096) | (44,480) | ||
(21,883) | (34,151) | (66,261) | |||
Income before taxes | |||||
and minority interests | 89,069 | 95,400 | 165,318 | ||
Income taxes | 23,072 | 44,281 | 56,399 | ||
Income before minority interests | 65,997 | 51,119 | 108,919 | ||
Minority interests (gain)/loss | 633 | (631) | (1,045) | ||
Net income | 66,630 | 50,488 | 107,874 |
Companies and groups included | Share | Group | |||
within the consolidation area | Name of the company | Location | Currency | capital | interest |
as of June 30, 2004 | Companies and groups consolidated on a line-by-line basis: | ||||
Parent Company | |||||
Benetton Group S.p.A. | Ponzano Veneto (Tv) | Eur | 236,026,454.30 | ||
Italian subsidiaries | |||||
Benfin S.p.A. | Ponzano Veneto (Tv) | Eur | 47,988,000 | 100.000% | |
_ Olimpias group | Ponzano Veneto (Tv) | Eur | 10,000,000 | 100.000% | |
_ Benair S.p.A. | Ponzano Veneto (Tv) | Eur | 1,548,000 | 100.000% | |
Bencom S.r.l. | Ponzano Veneto (Tv) | Eur | 150,000,000 | 100.000% | |
_ I.M.I. Italian Marketing International S.r.l. | Ponzano Veneto (Tv) | Eur | 90,000 | 100.000% | |
Società Investimenti | |||||
e Gestioni Immobiliari (S.I.G.I.) S.r.l. | Ponzano Veneto (Tv) | Eur | 36,150,000 | 100.000% | |
_ Buenos Aires 2000 S.r.l. | Ponzano Veneto (Tv) | Eur | 10,516,456 | 100.000% | |
Fabrica S.p.A. | Ponzano Veneto (Tv) | Eur | 4,128,000 | 100.000% | |
_ Colors Magazine S.r.l. | Ponzano Veneto (Tv) | Eur | 1,549,370.69 | 100.000% | |
Benind S.p.A. | Ponzano Veneto (Tv) | Eur | 26,000,000 | 100.000% | |
Benetton Retail Italia S.r.l. | Ponzano Veneto (Tv) | Eur | 5,100,000 | 100.000% | |
Bentec S.p.A. | Ponzano Veneto (Tv) | Eur | 12,900,000 | 100.000% | |
Foreign subsidiaries | |||||
Benetton USA Corp. | Wilmington | Usd | 73,654,000 | 100.000% | |
Benetton Retail International S.A. | Luxembourg | Eur | 10,000,000 | 100.000% | |
_ Benetton Retail Belgique S.A. | Bruxelles | Eur | 9,500,000 | 100.000% | |
_ Benetton Retail Deutschland GmbH | München | Eur | 2,000,000 | 100.000% | |
_ New Ben GmbH | Frankfurt | Eur | 1,000,000 | 51.000% | |
_ Benetton Retail (1988) Ltd. | London | Gbp | 56,800,000 | 100.000% | |
_ Benetton Retail Ungheria Kft. | Nagykallo | Huf | 50,000,000 | 100.000% | |
_ Benetton Retail Spain S.L. | Castellbisbal | Eur | 10,180,300 | 100.000% | |
_ Benetton 2 Retail Comércio | |||||
de Produtos Têxteis S.A. | Maia | Eur | 500,000 | 100.000% | |
_ Benetton Retail France S.A.S. | Paris | Eur | 12,213,336 | 100.000% | |
Benetton Deutschland GmbH | München | Eur | 2,812,200 | 100.000% | |
Benetton International N.V. S.A. | Amsterdam | Eur | 92,759,000 | 100.000% | |
_ Benetton Japan Co., Ltd. | Tokyo | Jpy | 400,000,000 | 100.000% | |
_ Benetton Retailing Japan Co. Ltd. | Tokyo | Jpy | 160,000,000 | 100.000% | |
_ Benetton Korea Inc. | Seoul | Krw | 2,500,000,000 | 50.000% | |
Share | Group | ||||
Name of the company | Location | Currency | capital | interest | |
_ Benetton Manufacturing Holding N.V. | Amsterdam | Eur | 225,000 | 100.000% | |
_ Benetton Croatia d.o.o. | Osijek | Hrk | 2,000,000 | 100.000% | |
_ Benetton Sportsystem Taiwan Ltd. | Taichung | Twd | 10,000,000 | 100.000% | |
_ Benetton Manufacturing Tunisia S.à r.l. | Sahline | Tnd | 350,000 | 100.000% | |
_ Benetton Textil - Confeccao de Texteis S.A. | Maia | Eur | 100,000 | 100.000% | |
_ DCM Benetton India Ltd. | New Delhi | Inr | 109,241,000 | 50.000% | |
_ Benetton (Far East) Ltd. | Hong Kong | Hkd | 51,000,000 | 100.000% | |
_ United Colors of Benetton do Brasil Ltda. | Curitiba | Brl | 74,981,578 | 100.000% | |
_ Benetton Austria GmbH | Salzburg | Eur | 3,270,277.54 | 100.000% | |
_ Benetton Trading USA Inc. | Princeton | Usd | 379,148,000 | 100.000% | |
_ Benetton Asia Pacific Ltd. | Hong Kong | Hkd | 41,400,000 | 100.000% | |
_ Benetton Finance S.A. | Luxembourg | Eur | 181,905,390 | 100.000% | |
_ Lairb Property Ltd. | Dublin | Eur | 260,000 | 100.000% | |
_ Benetton Società di Servizi S.A. | Lugano | Chf | 80,000,000 | 100.000% | |
_ United Colors Communication S.A. | Lugano | Chf | 1,000,000 | 100.000% | |
_ Benetton Tunisia S.à r.l. | Sahline | Tnd | 303,900 | 100.000% | |
_ Benetton Trading S.à r.l. | Sahline | Tnd | 20,000 | 100.000% | |
_ Benetton Ungheria Kft. | Nagykallo | Eur | 89,190 | 100.000% | |
Benetton International Property N.V. S.A. | Amsterdam | Eur | 17,608,000 | 100.000% | |
_ Benetton Real Estate International S.A. | Luxembourg | Eur | 116,600,000 | 100.000% | |
_ Benetton Real Estate Austria GmbH | Wien | Eur | 2,500,000 | 100.000% | |
_ Benetton France Trading S.à r.l. | Paris | Eur | 99,495,711.60 | 100.000% | |
_ Benetton Realty France S.A. | Paris | Eur | 94,900,125 | 100.000% | |
_ Benetton Realty Russia O.O.O. | Moscow | Rub | 64,600,000 | 100.000% | |
_ Benetton Realty Portugal Imobiliaria S.A. | Maia | Eur | 100,000 | 100.000% | |
_Benetton Realty Spain S.L. | Castellbisbal | Eur | 15,270,450 | 100.000% | |
_ Benetton Textil Spain S.L. | Castellbisbal | Eur | 150,250 | 100.000% | |
Benetton Australia Pty. Ltd. | Sydney | Aud | 500,000 | 100.000% | |
Investments in subsidiaries companies carried at equity: | |||||
_ Benetton Slovakia s.r.o. | Dolny Kubin | Svk | 135,000,000 | 100.000% | |
_ Benetton Argentina S.A. | Buenos Aires | Arp | 500,000 | 100.000% | |
Investments in subsidiaries and associated companies carried at cost: | |||||
_ Consorzio Generazione | |||||
Forme - Co.Ge.F. | S. Mauro Torinese (To) | Eur | 15,492 | 33.333% | |
Auditors' review reportTo the Shareholders of Benetton Group S.p.A.
on the interim financial
information for the six months
ended June 30, 2004
We have reviewed the accompanying interim financial information for the six months ended June 30, 2004 of Benetton Group S.p.A. which consist of the accounting schedules (balance sheet and income statement) and notes, both for the parent company only and consolidated.
We have also read the other parts of the report containing information on the results of operations with the sole purpose of verifying the consistency thereof with the interim financial information and notes.
Our review was carried out in accordance with the Italian auditing standards recommended by Consob, the Italian Stock Exchange Commission, under Resolution n. 10867 of July 31, 1997. Our review consisted principally of applying analytical procedures to the underlying financial data, assessing whether accounting principles have been consistently applied and making enquiries of management responsible for financial and accounting matters. The review excluded some audit procedures such as tests of controls and verification of assets and liabilities and was therefore substantially less in scope than an audit performed in accordance with Italian auditing standards. Accordingly, unlike our reports on the financial statements, both statutory and consolidated, as of December 31, 2003, we do not express an audit opinion on the interim financial information.
As far as comparable data for the parent company only and consolidated financial statements for the year ended December 31, 2003 is concerned, reference should be made to our reports issued onMarch 31, 2004. For the prior year interim financial information reference is made to our review report issued on September 11, 2003.
Based on our review, we are not aware of any material modifications that should be made to the interim financial information mentioned in the first paragraph above in order for it to be in conformity with the criteria provided by Consob regulations for the preparation of the interim financial information for the six months, approved with Resolution n. 11971 of May 14, 1999 and subsequent modifications and integrations.
DELOITTE & TOUCHE S.p.A.
Fausto Zanon
Partner
Treviso, Italy
September 09, 2004
The six-month report has been translated into English from the original version in Italian. It has been prepared in accordance with the Consob regulation related to interim reports, interpreted and integrated by the accounting principles established or adopted by the Italian Accounting Profession. Certain accounting practices applied by the Company that conform with generally accepted accounting principles in Italy, may not conform with generally accepted accounting principles in other countries.