NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION

PRADA spa (the “Company”), together with its subsidiaries (collectively the “Group”), is listed on the Hong Kong Stock Exchange (HKSE code: 1913). It is one of the leading companies in the luxury goods industry, where it operates with the Prada, Miu Miu, Church’s and Car Shoe brands in the design, production and distribution of luxury handbags, leather goods, footwear, clothing and accessories. The Group also operates in the eyewear and fragrance industries under specific licensing agreements. In addition, with its acquisition of Pasticceria Marchesi 1824, the Group made, in the last years, its entry into the food industry , where it’s consistently positioned at the highest levels of quality.

As of December 31, 2018, the Group’s products are sold in 70 countries worldwide through a network of 634 directly operated stores (“DOS”) and a select network of luxury department stores, independent retailers and franchise stores.

The Company is a joint-stock company, registered and domiciled in Italy. Its registered office is in via Fogazzaro 28, Milan. At the reporting date of the Consolidated Financial Statements, 79.98% of the share capital was owned by PRADA Holding spa, a company domiciled in Italy, and the remainder consisted of floating shares on the Main Board of the Hong Kong Stock Exchange.

The Consolidated Financial Statements were approved and authorized for issue by the Board of Directors of PRADA spa on March 15, 2019.

The Consolidated Financial Statements of the Prada Group as at December 31, 2018, which consist of the Consolidated Statement of Financial Position, the Consolidated Statement of Profit or Loss for the twelve months ended December 31, 2018, the Consolidated Statement of Comprehensive Income for the twelve months ended December 31, 2018, the Consolidated Statement of Cash Flows for the twelve months ended December 31, 2018, the Consolidated Statement of Changes in Shareholders’ Equity and the Notes to the Consolidated Financial Statements, have been prepared in accordance with the International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) and endorsed by the European Union.

At the date of presentation of these Consolidated Financial Statements, there were no differences between the IFRSs endorsed by the European Union and applicable to the PRADA Group and those issued by the IASB.

IFRS also refers to all International Accounting Standards (“IAS”) and all interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), previously called the Standing Interpretations Committee (“SIC”).

The Consolidated Statement of Financial Position presents separately the current and non-current assets and liabilities. All information necessary for accurate and complete disclosure is provided in the Notes to the Consolidated Financial Statements. The Consolidated Statement of Profit or Loss is classified by destination. The Consolidated Statement of Cash Flows has been prepared with the indirect method.

The Consolidated Financial Statements have been prepared on a going concern basis and are presented in Euro, which is also the functional currency of PRADA spa.

New Standards and Amendments issued by the IASB, endorsed by the European Union and applicable to the Prada Group from January 1, 2018.

 

New IFRS and Amendments to existing standards

Effective date for Prada Group

EU endorsement dates

IFRS 9 Financial Instruments

January 1, 2018

Endorsed in November 2016

IFRS 15 Revenue from Contracts with Customers

January 1, 2018

Endorsed in September 2016

Amendments to IFRS 4

January 1, 2018

Endorsed in November 2017

Clarifications to IFRS 15 Revenue from Contracts with Customers

January 1, 2018

Endorsed in October 2017

2014-2016 Cycle affecting IFRS 1, IAS 28, IFRS 12

January 1, 2018

Endorsed in February 2018

IFRS 2 Classification and Measurement of Share-based Payment Transactions

January 1, 2018

Endorsed in February 2018

IAS 40: Transfers of Investment Property

January 1, 2018

Endorsed in March 2018

IFRIC Interpretation 22: “Foreign Currency Transactions and Advance Consideration”

January 1, 2018

Endorsed in March 2018

IFRS 9 FINANCIAL INSTRUMENTS
On January 1, 2018, IFRS 9 “Financial instruments” replaced IAS 39 “Financial instruments: recognition and measurement”.
The Group adopted the Standard using the exemption which allows not to restate comparative figures of previous years in terms of classification, measurement and impairments. Changes in the carrying amounts of financial assets and liabilities deriving from the adoption of IFRS 9 were recognized in the retained earnings as at January 1, 2018.
IFRS 9 introduced new provisions for the classification and measurement of financial assets based on the business model with which these activities are managed, taking into account the characteristics of their financial flows. IFRS 9 classifies financial assets into three main categories: at amortized cost, at fair value recognized through profit or loss (FVTPL) and at fair value through other comprehensive income (FVOCI). Categories indicated by IAS 39, like assets held to maturity, loans and receivables and assets available for sale are eliminated.
Below are reported the results of the analyzes carried out and the impacts deriving from the introduction of the new IFRS 9 Standard in the Group’s Consolidated Financial Statements.

CLASSIFICATION AND MEASUREMENT
The Group carried out an analysis of financial assets and liabilities to determine impacts deriving from the first time application of IFRS 9, considering the contractual cash flows of financial instruments and the business model of the Group. The Group has concluded that most of the non-derivative financial assets in the Group’s financial statements are classified in the IFRS 9 category of assets valued at amortized cost.
On the basis of the new classification criteria, Investments in equity instruments, whose fair value at December 31, 2017 was Euro 8.4 million and classified as assets available for sale, are now reported in the “Investments in equity instruments” category. For each investment in equity instrument, the Group has decided whether the fair value measurement will have to be recognized through profit or loss (FVTPL) or through the statement of comprehensive income (FVOCI), not recyclable to profit or loss. This option, applicable to each investment in equity instrument, it’s an irrevocable election and cannot change. The Group applied the FVTOCI criteria for equity investments existing at year end.

IMPAIRMENT
The new Standard introduced a new method based on the “expected loss”, replacing the previous “incurred loss” model. In response to this new method for measuring financial assets, which for the Prada Group are essentially the trade receivables, a new impairment procedure was developed deriving in part from the commercial scoring system already in place in the Group. Such procedure is based on the probabilities of default of the country in which the subsidiary owner of the receivable operates and the probability of default of the counterparty itself.
The new standard was adopted without restating the December 31, 2017 balances and the effect on the opening equity reserves was Euro 1.7 million, net of taxes.

HEDGE ACCOUNTING
The new model introduced by IFRS 9 aims to simplify hedge accounting, bringing it closer to the company’s risk management activities. The application of the new standard entails a different way of recording derivatives in the financial statements, now based on the recognition of all changes in the fair value in the cash flow hedge reserve, provided that the hedged cash flow does not already affect profit or loss of the year (as already established by IAS 39).
The application of the new Standard involved a reclassification within equity reserves, between the “cash flow hedge reserve” and the “other reserves”, of Euro 2.1 million, net of taxes.

IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
On January 1, 2018, IFRS 15 “Revenue from Contracts with Customers” replaced IAS 18 “Revenue” and IAS 11 “Construction Contracts”.
IFRS 15 establishes a new model of revenue recognition based on the allocation of the transaction selling price between the various obligations identified within a contract with a customer.
The criteria for the revenues recognition depends on how a performance obligation is satisfied, whether at a point in time or over time. The new standard does not allow revenue to be recognized before the control of the promised goods or services is transferred to the customer. Moreover, the costs of fulfilling customer contracts may be capitalized when such costs are directly related to the contract and recovered over the life of the contract.
The new standard was adopted by the Group without restating previous periods and it did have an impact on the opening equity as at January 1, 2018 amounting to Euro 2.7 million, net of taxes.
The adoption of the new standard had two applications for the Group. The first one related to a different method for recognizing future liabilities for returns of finished products, resulting in an increase in the current liabilities accounted for at December 31, 2017 balanced by a corresponding new inventory item, “return assets” (Euro 4.6 million at January 1, 2018). The second one related to the write- off of such return assets in order to adjust its carrying value to the net realizable value (Euro 3.8 million).
No material adjustment to the classification of revenue and expense in the statement of profit or loss was identified given that the Prada Group acts on its own behalf (“principal”) in each activity concerning finished product sales. Moreover, the new standard did not produce effects with reference to the license agreements.

New Standards and Amendments issued by the IASB, endorsed by the European Union, but not yet applicable to the Prada Group as effective for financial years beginning on January 1, 2019.

New IFRS and Amendments to existing standards

Effective date for Prada Group

EU endorsement status

IFRS 16 Leases

January 1, 2019

Endorsed in October 2017

IFRS 9: Prepayment Features with Negative Compensation

January 1, 2019

Endorsed in March 2018

IFRIC Interpretation 23: “Uncertainty over Income Tax Treatments”

January 1, 2019

Endorsed in October 2018

IFRS 16 LEASES
On January 13, 2016 IASB published IFRS 16 “Leases”, intended to supersede IAS 17 – “Leases”, as well as IFRIC 4 “Determining Whether an Arrangement Contains a Lease”, SIC-15 “Operating Leases — Incentives”, and SIC-27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease”.
The new standard provides a new definition of leases and introduces a method based on the right of use of an asset to distinguish between a lease and a service contract, using as discriminating factors: identification of the asset, right of substitution of the asset, right to obtain substantially all the economic benefits from use of the asset and right to direct the identified leased asset’s use.
The standard provides for a single model to recognize and measure leases whereby a lessee recognizes a right-of-use asset (including for operating leases) and a lease liability. The standard does not include significant changes for lessors.
The standard is effective for annual periods beginning on or after January 1, 2019 and the Company opted to apply it retrospectively according to the “modified retrospective approach”. As a result, the adoption of the standard will entail the recognition on January 1, 2019 of:
- a lease liability of Euro 2.4 billion, corresponding to the present value of future lease payments at the transition date, discounted using the incremental borrowing rate applicable at the transition date for each lease. Such amount does not differ significantly from the total lease obligations reported in Note 40 of the 2018 Annual Report because the discount component is more or less balanced out by the optional periods, considered only in the estimated lease liability. Leases for which the underlying asset is of low value (“low-value assets”) and short-term leases constitute an immaterial difference between the two amounts;
- a right-of-use asset of Euro 2.4 billion obtained from the amount of the above lease liability reduced by the total allowances for deferred rent recognized in the December 31, 2018 financial statements, reclassified from liabilities to this new asset item pursuant to the transition. The right-of-use asset was also increased by the carrying amount of the “store lease acquisition” at December 31, 2018 and other Statement of Financial Position components that were immaterial on the whole.
The adoption of the new IFRS Standard will not have any material effect on the opening equity of the year 2019.
In adopting IFRS 16, the Prada Group intends to use the exemption allowed by IFRS 16:5(a) regarding short-term leases and low-value assets, although the effects of the exemption are expected to be immaterial. For such leases, the introduction of IFRS 16 will not entail recognition of the lease liability and the related right of use, but the lease payments will be recognized in the Statement of Profit or Loss on a straight-line basis over the terms of the respective leases.
Transition to IFRS 16 introduces areas where professional judgment may be required, involving the establishment of some accounting policies and the use of estimates. The main ones are summarized below:
- the identification of a lease term is very important because the form, legislation and common business practice regarding leases for real estate vary considerably from one jurisdiction to another. Based on its past experience, the Group has set an accounting policy for inclusion of the lease renewal period beyond the non- cancellable period, limited to cases in which the lease assigns an enforceable right that the Group is reasonably certain to exercise;
- since most leases stipulated by the Group do not have an interest rate implicit in the lease, the discount rate applicable to future lease payments was determined as the risk-free rate of each country in which the leases were stipulated, with payment dates based on the terms of the specific lease, increased by the parent company’s credit spread.
The implementation of the technological solution chosen by the Group to adopt IFRS 16 was nearly completed at the end of the reporting period. The new structure, designed to satisfy the new regulatory requirements, while improving the business processes involved in managing the underlying assets of leases, intends to ensure an adequate level of internal control based on the standardization and automation of the processes and full integration of the ERP systems with the financial reporting systems.
The final amount of lease liability is likely to change between the date of this Financial Statement and the publication of the financial statement for the interim financial report ended June 30, 2019 as regards the estimated term of certain leases. This is because market and technical positions in certain countries could still evolve in this period, thereby calling into question some of the assumptions used to date to estimate lease terms.

New Standards, changes and operational guidelines issued by the IASB, but not yet endorsed by the European Union at the date of this Consolidated Financial Statements.

New IFRS and Amendments to existings standards

Effective date for Prada Group

EU endorsement status

IFRS 17 Insurance Contracts

January 1, 2021

Not endorsed yet

IAS 28: Long-term Interests in Associates and Joint Ventures

January 1, 2019

Not endorsed yet

2015-2017 Cycle affecting IFRS 3, IFRS 11, IAS 12, IAS 23

January 1, 2019

Not endorsed yet

IAS 19: Plan Amendment, Curtailment or Settlement

January 1, 2019

Not endorsed yet

Amendments to References to the Conceptual Framework in IFRS Standards

January 1, 2020

Not endorsed yet

IFRS 3: Business Combination

January 1, 2020

Not endorsed yet

IAS 1 and IAS 8: Definition of Material

January 1, 2020

Not endorsed yet

As at the date of these Consolidated Financial Statements, the Directors have not yet completed the analysis necessary to assess the impacts of the above reported new standards, amendments and operational guides not yet applicable to the Prada Group.

The consolidated financial information comprises the accounts of PRADA spa and the Italian and foreign companies over which the Company has the right to exercise control either directly or indirectly. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

The companies in which the Group has more than 50% of the voting rights or that are controlled by the Group in some other way are consolidated on a line-by-line basis from the date on which the Group acquires control until the date on which that control ends.

Associated undertakings (“associates”) are consolidated using the equity method. Associates are companies in which the Group has significant influence but does not exercise control. Significant influence is defined as the power to participate in the financial and operating policy decisions of the investee without having control or joint control.
The companies included in the Consolidated Financial Statements are listed in Note 42.

The main consolidation criteria applied to prepare these Consolidated Financial Statements are as follows:

  • the separate financial statements of PRADA spa (“holding company”) are prepared under IFRS and those of its subsidiaries are adjusted, as necessary, to comply with IFRS accounting standards and with the standards applied throughout the Group. The financial statements used to prepare the consolidated financial information are those closed at the reporting date;
  • assets and liabilities, costs and revenues of controlled companies are fully included on a line-by-line basis in the Consolidated financial statements irrespective of the percentage held. The book value of equity investments, directly or indirectly owned by the holding company, is eliminated against the corresponding portion of shareholders’ equity of the companies in which the interest is held.
  • for companies consolidated on a line-by-line basis that are not 100% owned by the holding company, the share of the net equity and net results for the year of non-controlling interests are disclosed as “Shareholders’ equity - Non- controlling interests” in the Consolidated statement of financial position and “Net income - Non-controlling interests” in the Consolidated statement of Profit or Loss;
  • on business combinations, the difference between the acquisition cost of investments acquired and the corresponding share of shareholders’ equity at the date of acquisition is allocated, if positive, to the identifiable assets acquired and liabilities assumed based on their fair value at the date of acquisition. Any residual positive amount is accounted for as goodwill while any negative amount is charged to the profit or loss immediately. The positive difference between the acquisition cost of an additional stake in a controlled company and the value of the interest acquired is directly recognized in equity reserves; in business combinations achieved in stages, the Group remeasures its previously held equity interest in the acquiree at its acquisition date fair value and recognizes the resulting gain or loss, if any, in profit or loss;
  • the acquisition cost of an investment or an activity which does not constitute a business, and which therefore does not constitute a business combination, is allocated to the individual assets acquired and liabilities assumed based on their fair value at the acquisition date;
  • profits and losses, assets and liabilities of associated undertakings are accounted for using the equity method. According to this method, investments in associated undertakings are recognized in the statement of financial position at cost, and adjusted to account for any changes in the companies’ net equity post-acquisition, less any impairment of the investment value. Losses exceeding the interest of the shareholders of the holding company are recognized only if the Group has undertaken an obligation to cover them. The excess of the acquisition cost of the investment over the interest of the holding company in the net fair value of acquired assets and liabilities assumed is recognized as goodwill. Goodwill is included in the book value of the investment and tested for impairment. If the cost is lower than the holding company’s interest in the fair value of identifiable assets, liabilities and contingent liabilities, the difference is recognized in the profit or loss for the year of acquisition;
  • during the consolidation process, receivables and payables, costs and revenues arising from transactions between entities included in the scope of consolidation are fully eliminated. Unrealized gains or losses generated by transactions between the Group’s consolidated companies and included in inventories at the balance sheet date are also eliminated, if any. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. In this case, the transferred asset is adjusted for impairment;
  • dividends paid by consolidated companies are also eliminated from the profit or loss and added to prior year retained earnings if, and to the extent that, they have been drawn from the latter;
  • the financial statements of subsidiary companies are prepared in their respective local currency. The statement of financial position is translated into Euro using the year end exchange rate, whereas the profit or loss is translated using the average exchange rate for the year. When the translation of a transaction is not properly represented by the average exchange rate of the period, the prevailing exchange rate at the date of such transaction is used to translate its impacts in the profit or loss of the Consolidated Financial Statements. Translation differences arising on conversion of the statement of financial position, using the exchange rate at the start of the period and the exchange rate at the end of the period, and translation differences arising on conversion of the profit or loss using the average rate for the period (or other exchange rate as explained above) and the rate at the end of the period are recorded as a translation reserve in the consolidated shareholder’s equity until disposal of the investment. The translation reserve in consolidated shareholder’s equity represents translation differences recognized as from first time application on January 1, 2004. When preparing the Consolidated statement of cash flows, the cash flows of subsidiary companies are translated using the average rate for the period. Exchange differences arising on a monetary item qualified as a net investment in a foreign operation are initially recognized in the currency translation reserve and released to profit or loss upon disposal of the investment;
  • the reporting currency used to prepare the Consolidated financial statements is the Euro. All amounts are stated in thousands of Euro unless otherwise stated.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are carried in the statement of financial position at nominal amount. Cash equivalents include all highly liquid investments with an original short term maturity.

For the purposes of the cash flow statement only, cash and cash equivalents comprise cash on hand, bank accounts and deposit accounts. In the statement of financial position, bank overdrafts and current portions of payables to banks for medium and long-term loans are included in Bank overdrafts and short-term loans.

TRADE RECEIVABLES AND PAYABLES

Trade receivables are recognized at their nominal value net of the bad debt provision determined on the basis of the requirements set by IFRS 9. According to this standard, receivables are written off following the application of the “expected loss” impairment method together with, if necessary, further impairments recognized upon specific doubtful conditions on the single credit positions.

Trade accounts payable are recorded at nominal amount.

Transactions denominated in foreign currency are recognized at the exchange rate as at the date of the transaction. At the reporting date, transactions denominated in foreign currencies are translated using the exchange rate as at the reporting date. Gains and losses arising from the translation are reflected in the profit or loss.

INVENTORIES

Raw materials, work in progress and finished products are recognized at the lower of acquisition cost, production cost and net realizable value. Cost comprises direct production costs and those indirect that have been incurred in bringing the inventories to their present location and condition. Acquisition or production cost is determined on a weighted average basis. Provisions, adjusting the value of the inventory, are made for slow moving, obsolete inventories or if, in the end, the estimated selling price is lower than the cost.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recognized at purchase cost or production cost, including any charges directly attributable. They are shown net of accumulated depreciation calculated on the basis of the useful lives of the assets and any impairment losses.

Ordinary maintenance expenses are charged in full to the profit or loss for the year they are incurred. Extraordinary maintenance expenses are capitalized if they increase the value or useful life of the related asset.

The costs included under leasehold improvements relate to refurbishment works carried out on premises, mainly commercial, not owned by the Group.

Rent expenses incurred during the period between the start of refurbishment work and the opening of the store are capitalized as leasehold improvements, as they are deemed necessary to bring the related assets to their working condition in accordance with corporate guidelines. The relevant construction or refurbishment period ranges from six to eighteen months depending on the type of store/work. Depreciation methods, useful lives and net book values are reviewed annually. The depreciation rates representing the useful lives are listed below:

Category of Property, Plant and Machinery

Depreciation rate or period

Land

not depreciated

Buildings and construction

2.5% - 10%

Production plant and equipment

4% - 25%

Improvements to leased retail premises

Shorter of lease term (*) and useful life

Improvements to leased industrial and corporate premises

Shorter of lease term (*) and useful life

Furniture and fixture retail

Shorter of lease term (*) and useful life

Furniture and fixture corporate and industrial

7% - 20%

Other tangible fixed assets

4% - 50%

(*) the lease term includes the renewal period when the exercise of the option is deemed reasonably certain

When assets are sold or disposed of, their cost and accumulated depreciation are eliminated from the financial statements and any gains or losses are recognized in the profit or loss. If the term of a rental agreement is posponed, all capital expenditures incurred from that change onwards are depreciated consistently with the new lease term. Instead, if the term of a rental agreement is anticipated, the useful life of all the fixed assets allocated on the store is adjusted accordingly.

The value of land is stated separately from the value of buildings. Depreciation is only charged on the value of buildings.
Every year end, a test is performed for indications that the value of property, plant and equipment has been impaired. If any such indications are found, an impairment test is used to estimate the recoverable amount of the asset. The impairment loss is determined by comparing the carrying value of the asset with its recoverable value, which means the higher of the fair value of the asset less costs to sell and its value in use.

Fair value is determined based on the best information available to reflect the amount that could be obtained from the disposal of the asset at the reporting date.

Value in use is an estimate of the present value of future cash flows expected to derive from the asset tested for impairment.
Impairment losses are recorded immediately in the profit or loss.

INTANGIBLE ASSETS

Only identifiable assets, controlled by the company and capable of producing future economic benefits are included in intangible assets. Intangible assets include trademarks, licenses, store lease acquisition costs, software, development costs and goodwill.
Trademarks are recorded at cost or at the value attributed upon acquisition and include the cost of trademark registration in the various countries in which the Group operates.

The Directors estimate a useful life of between 20 and 40 years for trademarks. This assumes there are no risks or limitations on control over their use. Every trademark is tested for impairment whenever indicators of impairment emerge.

The useful life of trademark registration costs is estimated to be 10 years.

The caption trademark also includes other intellectual property rights which useful life is determinated in accordance with the relevant contracts.

Store lease acquisition costs represent expenditures incurred to enter into or take over retail store lease agreements.

Intangible assets with a definite useful life are amortized on a straight-line basis at the following rates:

Category of intangible assets

Amortization rate or period

Trademarks and other intellectual property rights

2.5% - 25%

Store lease acquisition costs

Shorter of lease term (*) and useful life

Software

10% - 33%

Development costs and other intangible assets

10% - 33%

(*) the lease term includes the renewal period when the exercise of the option is deemed reasonably certain

If the term of a rental agreement is posponed, all capital expenditures incurred from that change onwards are depreciated consistently with the new lease term. Instead, if the term of a rental agreement is anticipated, the useful life of all the fixed assets allocated on the store is adjusted accordingly.
Goodwill, an asset that produces future economic benefits, but which is not individually identified and separately measured, is initially recognized at cost.
Goodwill is not amortized but tested for impairment every year to check if its value has been impaired. If specific events or altered circumstances indicate the possibility that goodwill has been impaired, the impairment test is performed more frequently.
For impairment test purposes, goodwill acquired in a business combination shall be, from the acquisition date, allocated to each of the acquirer’s cash generating units that are expected to benefit from the synergies of the combination. Cash Generating Units are determined based on the organizational structure of the Group and represent groups of assets that generate independent cash inflows from continuing use of the relevant assets. The Prada Group’s Cash Generating Units include trademarks, sales channels and geographical areas.

The cash generating units to which goodwill has been allocated are tested for impairment annually and, whenever there is an indication of impairment, the carrying value of the cash generating unit is compared with their recoverable amount.

The carrying amount of CGUs tested for impairment for consolidation purposes is represented by the net invested capital, which means the net equity adjusted by the net financial position.

Recoverable amount is the higher of fair value less costs to sell and value in use, as calculated based on an estimate of the future cash flows expected to derive from the cash generating unit tested for impairment. Cash flow projections are based on budget, forecast and on long-term business plans (generally five years) prepared by the management.

An impairment loss is recognized in the profit or loss for the period whenever the recoverable amount of the cash generating unit is lower than its book value.
An impairment loss recognized for goodwill is never reversed in subsequent years.

INVESTMENTS IN EQUITY INSTRUMENTS
The initial recognition of Investments in equity instruments (previously “available for sale”) is at purchase cost, increased by any directly attributable transaction costs. The Group evaluates these instruments at fair value and the related changes are recorded in a specific equity reserve. This change (FVOCI) is also included in the statement of comprehensive income as “items not recyclable to profit or loss”, therefore only dividends received will be recorded in the statement of profit or loss of the Group. IFRS 9 also provides for an alternative treatment that allows the recognition of fair value changes directly to profit or loss (FVTPL). The choice of this accounting treatment (FVTPL or FVOCI) has to be done for each investment and has to be considered irrevocable once adopted. Any exceptions to the initial recognition will be reported in the Notes to the Consolidated financial statements. In the case of securities listed on active markets, the fair value is the price recorded at the end of the trading day of the period under review. For investments for which there is no an active market, the fair value is determined based on the price of recent transactions between independent parts of substantially similar instruments, or by using other valuation techniques such as, for example, income assessments or based on flow analysis discounted financial figures.

DEFERRED TAX ASSETS
Deferred tax assets are amounts of income taxes recoverable in future periods in relation to deductible temporary differences and carryforward of unused tax losses.

Deductible temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and its tax value which, in determining taxable income for future years, will result in deductible amounts when the carrying amount of the asset or liability is realized or settled.

Deferred tax assets are recognized for all deductible temporary differences, tax losses carried-forward and unused tax credits only to the extent that is probable that taxable income will be available in future years against which the deductible temporary differences can be used. Recoverability is reviewed at every year end. Deferred tax assets are measured at the tax rates which are expected to apply to the period when the asset is realized based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax assets are not discounted.
Deferred tax assets are recognized through the profit or loss unless the tax amount is generated from a transaction or an event directly recognized in equity or from a business combination.

DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments that hedge interest rate risk and exchange rate risk exposure are recognized based on hedge accounting rules.
Hedging contracts are designated as cash flow hedges. Hedge accounting treatment is allowed if derivative financial instruments are designated as a hedge of the exposure to changes in future cash flows of a recognized asset or liability or a highly probable transaction and which could affect profit or loss. In this case, the effective portion of the gain or loss on the hedging instrument is recognized in shareholders’ equity.

Accumulated gains or losses are reversed from shareholders’ equity and recognized in the profit or loss for the period in which the profit or loss effect of the hedged operation is recognized.

Any gain or loss on a hedging instrument (or portion thereof) which is no longer effective as a cash flow hedge is immediately recognized in the profit or loss. If the hedged transaction is no longer expected to take place, any related cumulative gain or loss outstanding in equity will be recognized in the profit or loss.

NON-CURRENT FINANCIAL LIABILITIES
Non-current financial liabilities include payables to banks for medium and long- term loans and financial leases.
Non-current financial liabilities are initially recorded at fair value on the transaction date less transaction costs which are directly attributable to the acquisition.

After initial recognition, non-current financial liabilities are valued at amortized cost, which means at the initial amount less principal repayments already made plus or minus the amortization (using the effective interest method) of any difference between that initial amount and the maturity amount.

POST-EMPLOYMENT BENEFITS
Defined benefit plans are recognized using actuarial techniques to estimate the amount of the obligations resulting from employee service in the current and past periods and discounting it to determine the present value of the Group’s obligations.

The present value of the obligations is determined by an independent actuary using the Projected Unit Credit Method.

Actuarial gains and losses are recognized directly in equity, net of the tax effect. Other long-term employee benefits are recognized among non-current liabilities and their value corresponds to the present value of the defined benefit obligation at the reporting date, adjusted according to the period of the underlying agreement. Alike defined benefit plans, other long-term benefits are also valued using the Projected Unit Credit Method. Unlike defined benefits plans the actuarial gains and losses of other long-term benefits are recognized though profit or loss rather then through net equity.

PROVISIONS FOR RISKS AND CHARGES AND CONTINGENT ASSETS
Provisions for risks and charges cover costs of a known nature, that were certain or probable but whose amount or due date was uncertain at year end. Provisions are recorded following a legal or constructive obligation as a result of past events and when it is probable that an outflow of resources will be required.

Where the Group expects reimbursement of a charge that has been provided for (e.g. under an insurance policy), the reimbursement is recognized as a separate asset but only when the reimbursement is certain.

DEFERRED TAX LIABILITIES
Deferred tax liabilities are amounts of income taxes due in future periods in respect of taxable temporary differences.

Taxable temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base which, in determining the taxable income for future years, will result in taxable amounts when the carrying amount of the asset or liability is recovered or settled.

Deferred tax liabilities are recognized for all taxable timing differences except when liability is generated by the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction other than a business combination that does not affect the accounting result or the tax result at the transaction date.

Deferred tax liabilities are measured at the tax rates which are expected to apply to the period when the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax liabilities are not discounted.
Deferred tax liabilities are recognized through the profit or loss unless the tax amount is generated from a transaction or an event directly recognized in equity or from a business combination.

REVENUE RECOGNITION AND COST RECOGNITION

Revenues from the sale of goods are recognized in the profit or loss when all of the following criteria have been satisfied:

  • identication of the contract (in writing, orally or in accordance with other customary business practices) with a customer;
  •  identication of the performance obligations in the contract;
  • determination of the transaction price for each performance obligations;
  • the amount of revenue (transaction selling price) can be measured reliably;
  • the significant risks and rewards of ownership are transferred to the buyer;
  • all control over the goods sold has ceased;
  • the economic benefits generated by the transaction will probably be enjoyed by the Group;
  • the costs pertaining to the transaction can be reliably measured;
  • each performance obligation has been satisfied.

Royalties are accounted for based on sales made by the licensees and the terms of the contracts. Financial discounts are recognized as financial expenses.

Costs are recorded on an accrual basis. In particular, a cost is immediately recognized in the profit or loss when:

  •  an expense does not generate any future economic benefit;
  •  the future economic benefits do not qualify or cease to qualify as assets for recognition in the statement of financial position;
  • a liability is incurred and no asset has been recognized.

OPERATING LEASES
Operating leases are recognized in the profit or loss on a straight-line basis for the whole lease term. When calculating the lease term, renewal periods are also considered if provided for by the agreement and the amount due is known.

OBLIGATIONS UNDER FINANCE LEASES
Fixed assets acquired under finance leases are recognized at the lower of market value and the present value of future payments due under the lease agreement on the date of the transaction and are depreciated based on their useful life.
Short-term portions of obligations related to discounted future lease payments are recognized among current liabilities, while medium and long-term portions are recognized among non-current liabilities.

PRE-OPENING RENTS
Costs incurred during the pre-opening period of new or refurbished retail stores are charged to the profit or loss when incurred, except for rent expenses capitalized as leasehold improvements.

INTEREST EXPENSES
Interest expenses might include interest on bank overdrafts, on short and long term loans, financial charges on finance leases, amortization of initial costs of loan operations, changes in the fair value of derivatives – insofar as chargeable to the profit or loss –, annual interest maturing on the present value of post-employment benefits and interests on late payments.

TAXATION
The provision for taxation is determined based on a realistic estimate of the tax charge of each consolidated entity, in accordance with the tax rates (and tax laws) that have been enacted or substantially enacted in each country at the reporting date.

Current taxes are recognized in the profit or loss as an expense. This is except for taxes deriving from transactions or events directly recognized through shareholders’ equity which are directly charged to equity.

EARNINGS PER SHARE
Earnings per share are calculated by dividing the net income attributable to the holding company by the weighted average number of ordinary shares in issue.

CHANGES OF ACCOUNTING POLICIES, ERRORS AND CHANGES OF ESTIMATES
The accounting policies adopted change from one year to the next only if the change is required by an accounting standard or if it helps provide more reliable and meaningful information on the impact of operations on the entity’s statement of financial position, profit or loss or cash flows.

Changes of accounting policy are accounted for retroactively with the effect allocated to the opening equity of the earliest of the periods presented. The other comparative amounts reported for each prior period are also adjusted as if the new policy had been applied from the outset. A prospective approach is adopted only when it would be impracticable to restate the comparative information.

The application of a new or amended accounting standard is accounted for as requested by the standard itself. If the standard does not regulate the transition method, the change is accounted for on a retroactive basis or, if impracticable, on a prospective basis.

Material errors are treated on the same basis as changes of accounting policy as described above. Non-material errors are corrected through the profit or loss for the period in which the error was identified.
Changes of accounting estimates are accounted for prospectively in the profit or loss for the year in which the change is made if it only affects the profit or loss for that year, or in the profit or loss for the year in which the change is made and in subsequent periods if they are also affected by the change.

USE OF ESTIMATES
In accordance with IFRS, preparation of these Consolidated financial statements requires the use of estimates and assumptions when determining certain types of assets, liabilities, revenues and costs and when assessing contingent assets and liabilities.
These assumptions refer, first of all, to operations and events not settled at the end of the period. Therefore, upon payment, the actual outcome may differ from the estimated amounts. Estimates and assumptions are reviewed periodically and the effects of each change are immediately recorded in the profit or loss.

Estimates are used also for impairment tests, when determining provisions for risks and charges, the provision for bad debts, the inventory obsolescence provision, post-employment benefits, the tax computation, measurement of derivatives and useful life of property, plant and equipment and intangible assets.

On January 11, 2018 a transaction was concluded by PRADA spa and the non- controlling shareholder of Angelo Marchesi srl for the acquisition of the remaining 20% stake in the latter company. To simplify the Group’s corporate structure, on March 29, 2018 a deed for a merger involving the Group’s three companies in the food industry was stipulated: Montenapoleone 9 srl and Isarcodue srl were merged into Marchesi Angelo srl, whose name was changed to Marchesi 1824 srl. The merger took effect on April 1, 2018.

On May 22, 2018 the liquidation of TRS New Zealand Limited was concluded.
On July 24, 2018 the liquidation of Church Holding UK ltd was concluded.
On August 8, 2018 the liquidation of PT Prada Indonesia was concluded.
On September 3, 2018 Church Korea Llc was founded with the goal of developing retail business in Korea.
On September 18, 2018 Church Germany GmbH was founded with the goal of developing retail business in Germany.
On December 21, 2018 the Group increased its ownership of Pelletteria Ennepi Srl from 80% to 90%.

IFRS 8, “Operating Segments”, requires that detailed information be provided for each operating segment that makes up the business. An operating segment is defined as a business division whose operating results are regularly reviewed by top management in order to allocate appropriate resources to the segment and assess its performance.
Because of the Group’s matrix-based organizational structure (whereby responsibility is assigned cross-functionally in relation to brands, products, distribution channels and geographical areas), the complementary nature of the various brands’ production processes and the many relationships between the different business divisions, it is not possible to designate operating segments as defined by IFRS 8 since the top management is provided with the financial performance solely on a Group-wide level. For this reason, the business is considered a single operating segment, as it best represents the specific characteristics of the Prada Group business model.

Detailed information on the net revenues by distribution channel, brand, geographical area and product for the twelve months ended December 31, 2018 is provided in the Financial Review together with the comments thereon.

GEOGRAPHICAL INFORMATION
The following table reports the carrying amount of the Group’s non-current assets by geographical area, as required by IFRS 8, “Operating Segments”, for entities like the Prada Group that have a single reportable segment:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Europe

2,161,446

2,005,887

Americas

188,340

193,757

Asia Pacific

218,826

235,010

Japan

72,473

81,709

Middle East and Africa

47,090

34,015

Total

2,688,175

2,550,378

The total amount of Euro 2,688.2 million (Euro 2,550.4 million at December 31, 2017) refers to the Group’s non-current assets with the exception of derivative financial instruments, deferred tax assets and the pension fund surplus, as required by IFRS 8.

The composition of Cash and cash equivalents is shown below:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Cash on hand

54,893

66,162

Bank deposit accounts

98,723

477,950

Bank current accounts

446,205

348,498

Total

599,821

892,610

As of December 31, 2018, interest income of between 0% and 5% per year was accrued on bank accounts and deposits (between 0% and 6.8% at December 31, 2017).

Trade receivables are detailed below:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Trade receivables – third parties

319,945

284,602

Allowance for bad and doubtful debts

(8,821)

(7,892)

Trade receivables – related parties

10,789

13,263

Total

321,913

289,973

Trade receivables from related parties refer principally to sales of products to Fratelli Prada spa, a related party and franchisee of the Prada Group. Further details of related party transactions are provided in Note 39.

The changes during the period were as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Opening balance

7,892

6,654

IFRS 9 First Time Adoption - Bad Debt Provision

2,246

-

Exchange differences

7

(171)

Increases

413

1,926

Reversals

(325)

-

Utilization

(1,412)

(517)

Closing balance

8,821

7,892

Inventories can be broken down as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Raw materials

104,036

102,246

Work in progress

36,327

30,556

Finished products

530,324

484,709

Allowance for obsolete and slow-moving inventories

(39,312)

(47,582)

Total

631,375

569,929

Return assets

2,391

-

Allowance for return assets

(1,975)

-

Total

631,791

569,929

Net inventories rose by Euro 61.9 million from December 31, 2017 due essentially to the restocking of finished products at the retail network.
Materials being processed by third parties are included in raw materials. Work in progress refers to goods being manufactured by PRADA spa, other manufacturing companies included in the consolidation perimeter and contract manufacturers.

The changes in the allowance for obsolete and slow-moving inventories and the allowance for return assets are as follows:

(amounts in thousands of Euro)

Raw materials

Finished Products

Total allowance for obsolete and slow-moving inventories

Allowance for return assets

Total allowance on inventories

Balance at December 31, 2017

23,774

23,808

47,582

- 47,582

First Time Adoption IFRS 15 - Allowance for return assets

-

-

-

3,800 3,800

Exchange differences

(1)

(32)

(33)

- (33)

Increases

130

6,855

6,985

- 6,985

Utilization

(707)

(11,996)

(12,703)

(1,825) (14,528)

Reversal

(2,506)

(13)

(2,519)

- (2,519)

Balance at December 31, 2018

20,690

18,622

39,312

1,975 41,287

The change of the allowance is mainly related to the use of merchandise written down in prior years.

Derivative financial instruments: assets and liabilities, current and non-current portions:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Financial assets regarding derivative instruments - current

9,718

13,923

Financial assets regarding derivative instruments – non-current

205

2,005

Total Financial Assets - Derivative financial instruments

9,923

15,928

Financial liabilities regarding derivative instruments – current

(14,220)

(7,654)

Financial liabilities regarding derivative instruments – non-current

(7,077)

(7,112)

Total Financial Liabilities - Derivative financial instruments

(21,297)

(14,766)

Net carrying amount – current and non-current portion

(11,374)

1,162

The carrying amount of the derivatives, both the current and non-current portion, has the following composition:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

IFRS7 Category

Forward contracts

9,916

15,721

Level II

Options

7

207

Level II

Positive fair value

9,923

15,928

Forward contracts

(10,196)

(3,573)

Level II

Options

(1,095)

(501)

Level II

Interest rate swaps

(10,064)

(10,692)

Level II

Negative fair value

(21,297)

(14,766)

Net carrying amount – current and non-current

(11,374)

1,162

All of the above derivative instruments are classifiable as Level II in the fair value hierarchy recommended by IFRS 7. The Group has not entered into any derivative contracts that could be qualified as Level I or III.

The fair values of derivatives arranged to hedge interest rate risks (interest rate swaps, “IRS”) and of derivatives arranged to hedge foreign exchange risks (forward contracts and options) were determined by using one of the most widely used valuation platforms on the financial market and are based on the interest rate curves and spot and forward exchange rates at the reporting date.
The Group entered into the derivative contracts in the course of its risk management activities, in order to hedge financial risks stemming from exchange rate and interest rate fluctuation.

FOREIGN EXCHANGE TRANSACTIONS

The cash flows resulting from the Group’s international activities are exposed to exchange rate volatility. In order to hedge this risk, the Group enters into options and forward sale and purchase agreements, so as to guarantee the value of identified cash flows in Euro (or in other currencies used locally). The projected future cash flows mainly regard the collection of trade receivables, the settlement of trade payables and financial cash flows.

The notional amounts of the derivative contracts designated as foreign exchange risk hedges (translated at exchange rate as at December 31, 2018, reported in Note 37 ) are listed below.

Contracts in effect as of December 31, 2018 to hedge projected future trade cash flows.

(amounts in thousands of Euro)

Options

Forward sale contracts (*)

Forward purchase contracts (*)

December 31 2018

Currency

US Dollar

41,048

103,057

-

144,105

Chinese Renmibi

-

154,538

-

154,538

Japanese Yen

-

104,887

-

104,887

GB Pound

-

81,607

-

81,607

Hong Kong Dollar

22,303

92,556

-

114,859

Korean Won

-

57,984

-

57,984

Singapore Dollar

-

19,370

-

19,370

Canadian Dollar

-

17,110

-

17,110

Russian Ruble

-

9,321

-

9,321

Swiss Franc

-

11,847

-

11,847

Australian Dollar

-

11,221

-

11,221

Other currencies

-

36,780

-

36,780

Total

63,351

700,278

-

763,629

(*) Positive figures represent forward sales, negative figures represent forward purchases of currency

Contracts in effect as of December 31, 2018 to hedge projected future trade cash flows.

(amounts in thousands of Euro)

Options

Forward sale contracts (*)

Forward purchase contracts (*)

December 31 2018

Currency

US Dollar

-

81,769

(55,459)

26,310

Japanese Yen

-

9,535

-

9,535

GB Pound

-

20,122

-

20,122

Swiss Franc

-

72,766

(22,185)

50,581

Singapore Dollar

-

14,752

-

14,752

Australian Dollar

-

9,864

-

9,864

Other currencies

-

13,860

-

13,860

Total

-

222,668

(77,644)

145,024

(*) Positive figures represent forward sales, negative figures represent forward purchases of currency

Contracts in effect as of December 31, 2017 to hedge projected future trade cash flows.

(amounts in thousands of Euro)

Options

Forward sale contracts (*)

Forward purchase contracts (*)

December 31 2017

Currency

US Dollar

-

175,102

-

175,102

Chinese Renmibi

-

142,548

-

142,548

Japanese Yen

-

87,031

-

87,031

GB Pound

-

80,306

-

80,306

Hong Kong Dollar

6,936

78,852

-

85,788

Korean Won

-

55,876

-

55,876

Singapore Dollar

-

22,421

-

22,421

Canadian Dollar

-

20,181

-

20,181

Russian Ruble

-

13,907

-

13,907

Swiss Franc

-

10,212

-

10,212

Other currencies

-

49,414

-

49,414

Total

6,936

735,850

-

742,786

(*) Positive figures represent forward sales, negative figures represent forward purchases of currency

Contracts in effect as of December 31, 2017 to hedge projected future financial cash flows.

(amounts in thousands of Euro)

Options

Forward sale contracts (*)

Forward purchase contracts (*)

December 31 2017

Currency

US Dollar

-

9,068

(52,948)

(43,880)

Japanese Yen

-

18,073

-

18,073

GP Pound

-

21,573

(1,285)

20,288

Swiss Franc

-

48,710

-

48,710

Other currencies

-

8,475

-

8,475

Total

-

105,899

(54,233)

51,666

(*) Positive figures represent forward sales, negative figures represent forward purchases of currency

All contracts in place at December 31, 2018 will mature within 12 months, except for one forward contract to hedge future financial cash flows which matures after December 31, 2019 and whose net notional amount is Euro 20.1 million (referring entirely to forward sale contracts).

All contracts in place at the reporting date were entered into with major financial institutions, and no counterparties are expected to default. A liquidity analysis of the derivative contracts maturities is provided in the financial risks section of these Notes.

INTEREST RATE TRANSACTIONS

The Group enters into interest rate swaps (“IRS”) in order to hedge the risk of interest rate fluctuations on bank loans. The key features of the IRS agreements in place at December 31, 2018 and December 31, 2017 are summarized below:

Interest Rate Swap (IRS) Agreement

Hedged loan

Contract

Currency

Notional amount

Interest rate

Maturity date

December 31, 2018

Currency

Type of debt

Amount

Expiry

IRS

Euro/000

42,167

1.457%

May-2030

(2,343)

Euro/000

Term loan

42,167

May-2030

IRS

Euro/000

60,000

0.105%

Mar-2019

(64)

Euro/000

Term loan

60,000

Mar-2019

IRS

Euro/000

90,000

0.013%

Feb-2021

(511)

Euro/000

Term loan

90,000

Feb-2021

IRS

Euro/000

100,000

0.252%

Jun-2021

(928)

Euro/000

Term loan

100,000

Jun-2021

IRS

GBP/000

53,925

2.778%

Jan-2029

(6,164)

GBP/000

Term loan

53,925

Jan-2029

IRS

Yen/000

900,000

1.360%

Mar-2020

(54)

Yen/000

Term loan

900,000

Mar-2020

Total fair value (amounts in thousands of Euro)

(10,064)

Interest Rate Swap (IRS) Agreement

Hedged loan

Contract

Currency

Notional amount

Interest rate

Maturity date

December 31, 2017

Currency

Type of debt

Amount

Expiry

IRS

Euro/000

45,833

1.457%

May-2030

(2,204)

Euro/000

Term loan

45,833

May-2030

IRS

Euro/000

60,000

0.105%

Mar-2019

(304)

Euro/000

Term loan

60,000

Mar-2019

IRS

Euro/000

90,000

0.013%

Feb-2021

(177)

Euro/000

Term loan

90,000

Feb-2021

IRS

Euro/000

100,000

0.252%

Jun-2021

(523)

Euro/000

Term loan

100,000

Jun-2021

IRS

GBP/000

55,950

2.778%

Jan-2029

(7,361)

GBP/000

Term loan

55,950

Jan-2029

IRS

Yen/000

1,800,000

1.360%

Mar-2020

(123)

Yen/000

Term loan

1,800,000

Mar-2020

Total fair value (amounts in thousands of Euro)

(10,692)

The IRS convert variable interest rates on bank loans into fixed interest rates. They have been arranged with major financial institutions, and no counterparties are expected to default.

INFORMATION ON FINANCIAL RISKS

CAPITAL MANAGEMENT
The Group’s capital management strategy is intended to safeguard its ability to guarantee a return to shareholders, protect the interests of other stakeholders and comply with loan covenants, while maintaining a viable and balanced capital structure.

CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES ACCORDING TO IFRS 7

FINANCIAL ASSETS

(amounts in thousands of Euro)

Loans, receivables and financial investments

Derivative financial instruments

Total

Note

Cash and cash equivalents

599,821

-

599,821

9

Trade receivables, net

321,913

-

321,913

10

Derivative financial instruments

-

9,923

9,923

12

Investments in equity instruments

97,948

-

97,948

17

Other Investments

1,590

-

1,590

17

Total at December 31, 2018

1,021,272

9,923

1,031,195

(amounts in thousands of Euro)

Loans, receivables and financial investments

Derivative financial instruments

Total

Note

Cash and cash equivalents

892,610

-

892,610

9

Trade receivables, net

289,973

-

289,973

10

Derivative financial instruments

-

15,928

15,928

12

Investments in equity instruments

8,387

-

8,387

17

Other Investments

29

-

29

17

Total at December 31, 2017

1,190,999

15,928

1,206,927

FINANCIAL LIABILITIES

(amounts in thousands of Euro)

Loans and payables

Derivative financial instruments

Total

Note

Financial payables

911,269

-

911,269

19, 20, 24

Trade payables

315,211

-

315,211

21

Derivative financial instruments

-

21,297

21,297

12

Financial lease

2,057

-

2,057

19, 24

Total at December 31, 2018

1,228,537

21,297

1,249,834

(amounts in thousands of Euro)

Loans and payables

Derivative financial instruments

Total

Note

Financial payables

994,057

-

994,057

19, 20, 24

Trade payables

313,697

-

313,697

21

Derivative financial instruments

-

14,766

14,766

12

Financial lease

2,291

-

2,291

19, 24

Total at December 31, 2017

1,310,045

14,766

1,324,811

FAIR VALUE

The reported amount of derivative instruments, whether assets or liabilities, reflects their fair value, as explained in this Note.

The carrying amount of cash and cash equivalents, financial receivables and trade receivables, as adjusted for impairment where necessary as required by IFRS 9, approximates their estimated realizable value and, hence, their fair value.

The reported amount of investments in equity instruments corresponds to its fair value (Level I), as explained in Note 17.

All financial liabilities, including fixed-rate financial debts, are carried at approximately their fair value.

CREDIT RISK
Credit risk is defined as the risk of financial loss caused by the failure of a counterparty to meet its contractual obligations. The maximum risk to which an entity is exposed is represented by all the financial assets recognized in the financial statements. Management considers its credit risk to regard primarily the trade receivables generated from the wholesale channel and its cash holding, and mitigates the related effects through specific business and financial strategies, as explained in the section describing risk factors in the Financial Review.

TRADE RECEIVABLES
The table below summarizes trade receivables by due date before the allowance for doubtful debts:

(amounts in thousands of Euro)

December 31, 2018

Not overdue

Overdue (in days)

1 ≤ 30

31 ≤ 60

61 ≤ 90

91 ≤ 120

> 120

Trade receivables

330,734

283,862

18,226

12,021

1,565

2,278

12,782

Total

330,734

283,862

18,226

12,021

1,565

2,278

12,782

 

(amounts in thousands of Euro)

December 31, 2017

Not overdue

Overdue (in days)

1 ≤ 30

31 ≤ 60

61 ≤ 90

91 ≤ 120

> 120

Trade receivables

297,865

267,271

9,871

6,225

2,052

1,622

10,824

Total

297,865

267,271

9,871

6,225

2,052

1,622

10,824

The following table summarizes trade receivables by due date less the allowance for doubtful debts:

(amounts in thousands of Euro)

December 31, 2018

Not overdue

Overdue (in days)

1 ≤ 30

31 ≤ 60

61 ≤ 90

91 ≤ 120

> 120

Trade receivables less allowance for doubtful accounts

321,913

281,485

18,137

11,993

1,331

2,264

6,703

Total

321,913

281,485

18,137

11,993

1,331

2,264

6,703

 

(amounts in thousands of Euro)

December 31, 2017

Not overdue

Overdue (in days)

1 ≤ 30

31 ≤ 60

61 ≤ 90

91 ≤ 120

> 120

Trade receivables less allowance for doubtful accounts

289,973

267,133

9,871

6,225

2,052

1,622

3,070

Total

289,973

267,133

9,871

6,225

2,052

1,622

3,070

As of the reporting date, the expected loss on receivables is fully covered by the allowance for doubtful debts. The changes in that allowance are presented in Note 10.

BANK CURRENT ACCOUNTS AND DEPOSITS
Bank deposits are broken down by currency as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Hong Kong Dollar

64,730

387,212

Chinese Renmimbi

8,244

66,611

Korean Won

15,259

12,269

US Dollar

210

1,868

Other Currencies

10,280

9,990

Total bank deposit accounts

98,723

477,950

During the year the subsidiary PRADA Asia Pacific ltd distributed dividends amounting to some HKD 4 billion to parent company PRADA spa. These funds, once converted into Euro, were used to meet the parent company’s financial obligations, partially used for financial investments and in part transferred into bank accounts.
The Group aims to reduce the default risk on bank deposits by allocating the available funds to multiple accounts that differ by currency, country and bank (always investment grade); such investments are always short-term.

Bank accounts are broken down by currency as follows: 

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Euro

246,883

188,438

US Dollar

87,671

74,525

GB Pound

12,409

8,408

Hong Kong Dollar

52,273

7,058

Korean Won

3,869

1,473

Other Currencies

43,100

68,596

Total bank current accounts

446,205

348,498

The Group considers no significant risk to exist on bank accounts given that their use is strictly connected with operating activities and business processes and, therefore, they are spread over a large number of banks.

LIQUIDITY RISK
Liquidity risk refers to the difficulty the Group could have in meeting its financial obligations. The Directors are responsible for managing liquidity risk, while the Chief Financial Office (“CFO”) is in charge of optimizing the management of financial resources.

According to management, the funds and credit lines currently available, in addition to those that will be generated by operating and financing activities, will enable the Group to meet its financial requirement arising from investing activities, working capital management, punctual loan repayment and dividends payments as planned.

As of December 31, 2018, the Group has undrawn cash credit lines of Euro 597 million (Euro 681 million as of December 31, 2017) available at banks.

An aging analysis of the trade payables is set forth below:

(amounts in thousands of Euro)

December 31, 2018

Not overdue

Overdue (days)

1 ≤ 30

31 ≤ 60

61 ≤ 90

91 ≤ 120

> 120

Trade payables

315,211

280,453

18,034

5,727

2,024

1,072

7,901

Total

315,211

280,453

18,034

5,727

2,024

1.072

7,901

(amounts in thousands of Euro)

December 31, 2017

Not overdue

Overdue (days)

1 ≤ 30

31 ≤ 60

61 ≤ 90

91 ≤ 120

> 120

Trade payables

313,697

284,005

13,277

7,097

1,411

748

7,159

Total

313,697

284,005

13,277

7,097

1,411

748

7,159

The maturities of the financial liabilities according to the earliest date on which the Group could be required to pay (worst-case scenario) are presented in the following tables.

FINANCIAL LIABILITIES UNDER DERIVATIVE FINANCIAL INSTRUMENTS (FORWARD CONTRACTS AND OPTIONS)

As required by IFRS 7, the following tables show the financial liabilities under forward contracts and options where a negative cash flow is expected at the reporting date:

 

(amounts in thousands of Euro)

Future contractual cash flows at Dec. 31, 2018

6 mths or less

6 to 12 mths

1 to 2 years

2 to 3 years

3 to 4 years

more than 4 years

Forward contracts designated as cash flow hedges

Net cash flows (outflows/inflows)

(10,196)

(4,945)

(5,251)

-

-

-

-

Options designated as cash flow hedges

Net cash flows (outflows/inflows)

(1,095)

(594)

(183)

(224)

(94)

-

-

Net amount

(11,291)

(5,539)

(5,434)

(224)

(94)

-

-

(amounts in thousands of Euro)

Future contractual cash flows at Dec. 31, 2017

6 mths or less

6 to 12 mths

1 to 2 years

2 to 3 years

3 to 4 years

more than 4 years

Forward contracts designated as cash flow hedges

Net cash flows (outflows/inflows)

(3,573)

(1,800)

(1,773)

-

-

-

-

Net amount

(3,573)

(1,800)

(1,773)

-

-

-

-

FINANCIAL LIABILITIES UNDER DERIVATIVE FINANCIAL INSTRUMENTS (INTEREST RATE SWAPS)
As required by IFRS 7, the following tables show interest rate swaps where a negative cash flow is expected at the reporting date:

(amounts in thousands of Euro)

Future contractual cash flows at Dec. 31, 2018

6 mths or less

6 to 12 mths

1 to 2 years

2 to 3 years

3 to 4 years

more than 4 years

Interest rate swap cash flow hedge

(10,064)

(1,405)

(1,270)

(2,104)

(1,343)

(1,018)

(2,922)

Net amount

(10,064)

(1,405)

(1,270)

(2,104)

(1,343)

(1.018)

(2,922)

(amounts in thousands of Euro)

Future contractual cash flows at Dec. 31, 2017

6 mths or less

6 to 12 mths

1 to 2 years

2 to 3 years

3 to 4 years

more than 4 years

Interest rate swap cash flow hedge

(11,500)

(1,693)

(1,595)

(2,343)

(1,188)

(897)

(3,784)

Net amount

(11,500)

(1,693)

(1,595)

(2,343)

(1,188)

(897)

(3,784)

FINANCIAL LIABILITIES

(amounts in thousands of Euro)

Carrying amount at Dec. 31,

Future contractua cash flows at Dec. 31, 2018

on demand

6 mths or less

6 to 12 mths

1 to 2 years

2 to 3 years

3 to 4 years

more than 4 years

Obligations under finance leases

2,057

2,402

-

161

161

323

323

323

1,111

Financial liabilities – third parties (without deferred costs on loans)

907,930

931,446

-

389,238

36,279

77,216

257,811

85,374

85,528

Financial liabilities – related parties

4,415

4,415

-

-

4,415

-

-

-

-

Total

914,402

938,263

-

389,399

40,855

77,539

258,134

85,697

86,639

(amounts in thousands of Euro)

Carrying amount at Dec. 31, 2017

Future contractual cash flows at Dec. 31, 2017

on demand

6 mths or less

6 to 12 mths

1 to 2 years

2 to 3 years

3 to 4 years

more than 4 years

Obligations under finance leases

2,291

2,750

-

204

177

323

323

323

1,400

Financial liabilities – third parties (without deferred costs on loans)

991,382

1,017,094

-

69,781

284,143

254,073

53,260

239,488

116,349

Financial liabilities – related parties

4,423

4,423

-

-

4,423

-

-

-

-

Total

998,096

1,024,267

-

69,985

288,743

254,396

53,583

239,811

117,749

Some of the above financial liabilities contain loan covenants, as described in Note 24.

EXCHANGE RATE RISK
The exchange rate risk to which the Group is exposed is concentrated largely with PRADA spa, and results from fluctuation of foreign currencies against the Euro.

For PRADA spa, the foreign exchange risk substantially consists of the risk that cash flows from retail and distribution activities could fluctuate as a result of changes in exchange rates. In terms of exposure, the most important currencies for the Group are the U.S. Dollar, Hong Kong Dollar, Japanese Yen, British Pound and Chinese Renminbi.

The following table shows the sensitivity of the consolidated net income and equity to a range of hypothetical fluctuations in the main foreign currencies against the Euro, based on the statement of financial position of the Group’s companies as of December 31, 2018:

(amounts in thousands of Euro)

Euro strengthens by 5%

Euro weakens by 5%

Effect on net income prova

Effect on shareholders’ equity

Effect on net income

Effect on shareholders’ equity

US Dollar

4,662

9,682

(5,590)

(11,450)

Hong Kong Dollar

1,055

5,517

(1,432)

(6,579)

Japanese Yen

1,855

6,885

(1,893)

(6,580)

GB Pound

1,218

4,006

(402)

(2,568)

Chinese Renminbi

(409)

5,005

460

(5,399)

Other currencies

(512)

6,253

314

(6,716)

Total

7,869

37,348

(8,543)

(39,292)

The total impact on equity (positive for Euro 37.3 million and negative for Euro 39.3 million) is the sum of the theoretical effect on the statement of profit or loss and on the cash flow hedge reserve of a hypothetical appreciation/depreciation of the Euro against the other currencies.
The effects on the financial statement items are presented above before taxes. The sensitivity analysis is based on currency exposure at the end of the period, which might not reflect the actual exposure during the period. For this reason it is purely indicative.

INTEREST RATE RISK
The PRADA Group is exposed to interest rate fluctuations mainly with regard to interest expense on the medium/long-term debt of the parent company, PRADA spa, and of some of its subsidiaries. Managing this risk falls within the scope of the risk management activities carried out by the CFO.

The following table shows the sensitivity of the consolidated net income and equity to a hypothetical shift in the interest rate curve based on the financial position of the Group’s companies at December 31, 2018:

(amounts in thousands of Euro)

Interest rate curve shift

+0.50%

-0.50%

Impact on net result

Impact on net equity

Impact on net result

Impact on net equity

Euro

(2,320)

1,085

2,322

(1,143)

GB Pound

(244)

1,834

245

(1,834)

Hong Kong Dollar

585

585

(585)

(585)

Japanese Yen

(570)

(551)

569

551

US Dollar

346

346

(346)

(346)

Other currencies

356

356

(356)

(356)

Total

(1,847)

3,655

1,849

(3,713)

The total impact on equity (positive for Euro 3.7 million and negative for Euro 3.7 million) is the sum of the theoretical effect on the statement of profit or loss and on the cash flow hedge reserve of a hypothetical shift in the interest rate curve. The effects on the financial statement items are presented above before taxes.
The sensitivity analysis is based on the net financial position at the end of the period, which might not reflect the actual exposure to interest rate risk during the period. For this reason it is purely indicative.

OTHER RISKS
Risks factors affecting the international luxury goods market and those specific to the Prada Group other than the risks reported above (liquidity risk, credit risk, foreign exchange risk and interest rate risk) are disclosed in the Financial Review.

The current portions are as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Prepaid sponsorship

6,761

-

Other receivables and advances

5,865

6,107

Receivables from and advances to related parties - current

6,107

6,107

The sponsorship prepayment at December 31, 2018 regards Luna Rossa Challenge srl, under the new sponsorship agreement for participation in the 36th America’s Cup. Additional information on related party transactions is provided in Note 39.

The other current assets are set forth below:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

VAT

48,576

42,444

Taxation and other tax receivables

54,181

69,652

Other assets

14,115

18,755

Prepayments

55,897

52,779

Deposits

12,972

8,442

Total

185,741

192,072

OTHER ASSETS
The other assets are detailed below:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Advances to suppliers

2,741

1,760

Incentives for retail investments

3,574

5,247

Other receivables

7,800

11,748

Total

14,115

18,755

PREPAYMENTS
Prepayments are detailed as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Rental costs

17,704

16,889

Insurance

1,897

1,809

Design costs

12,354

11,743

Fashion shows and advances on advertising campaigns

10,254

8,363

Other

13,688

13,975

Total

55,897

52,779

The prepaid design costs consist primarily of costs incurred to design collections that will generate revenue the following year.

DEPOSITS
The deposits refer primarily to security deposits paid under retail leases.

The historical cost and accumulated depreciation of the past two years are set forth below:

(amounts in thousands of Euro)

Land and buildings

Production plant and machinery

Leasehold improve-ments

Furniture & fittings

Other tangibles

Assets under construction

Total

Historical cost

767,797

183,162

1,319,813

434,511

191,240

91,006

2,987,529

Accumulated depreciation

(108,447)

(137,425)

(862,814)

(259,040)

(97,021)

-

(1,464,747)

Net carrying amount

at December 31, 2017

659,350

45,737

456,999

175,471

94,219

91,006

1,522,782

Historical cost

847,901

207,268

1,364,818

475,157

187,840

84,151

3,167,135

Accumulated depreciation

(124,751)

(145,474)

(936,231)

(281,571)

(101,756)

-

(1,589,783)

Net carrying amount

at December 31, 2018

723,150

61,794

428,587

193,586

86,084

84,151

1,577,352

The changes in the carrying amount for the year are as follows:

(amounts in thousands of Euro)

Land and buildings

Production plant and machinery

Leasehold improve-ments

Furniture & fittings

Other tangibles

Assets under construction

Total net carrying amount

Balance at December 31, 2017

659,350

45,737

456,999

175,471

94,219

91,006

1,522,782

Additions

31,880

17,733

63,933

46,549

11,303

75,645

247,043

Depreciation

(16,553)

(9,550)

(110,494)

(35,419)

(11,596)

-

(183,612)

Disposals

(1,153)

(74)

(2)

(67)

(8,063)

-

(9,359)

Exchange differences

(950)

(14)

5,111

2,389

102

537

7,175

Other movements

50,591

8,005

17,942

6,731

166

(82,715)

720

Impairment

(15)

(43)

(4,902)

(2,068)

(47)

(322)

(7,397)

Balance at December 31, 2017

723,150

61,794

428,587

193,586

86,084

84,151

1,577,352

The increases for “land and buildings” and “plant and machinery” are attributable mainly to the capital expenditure invested to ramp up and improve the manufacturing and logistics activities, within a broader plan to expand the production capacity. The increases for “furniture and fittings” and “leasehold improvements” are due primarily to the layout restyling strategy for Prada and Miu Miu stores intended to adapt them to the new aesthetic concepts of the brands.
The impairment of Euro 7.4 million for the year referred principally to store closures and layout restyling projects.

The historical cost and accumulated amortization of the past two years are set forth below:

(amounts in thousands of Euro)

Trade-marks

Goodwill

Store Lease Acquisitions

Software

Other intangibles

Assets in progress

Total

Historical cost

402,693

547,808

209,702

116,828

63,143

31,062

1,371,236

Accumulated amortization

(153,703)

(29,472)

(132,973)

(81,743)

(51,887)

-

(449,778)

Net carrying amount at December 31, 2017

248,990

518,336

76,729

35,085

11,256

31,062

921,458

Historical cost

403,525

547,594

235,702

137,766

63,144

15,383

1,403,114

Accumulated amortization

(167,450)

(29,328)

(139,569)

(92,792)

(53,964)

-

(483,103)

Net carrying amount at December 31, 2018

236,075

518,266

96,133

44,974

9,180

15,383

920,011

The changes in the carrying amount for the year are as follows: 

(amounts in thousands of Euro)

Trade-marks

Goodwill

Store Lease Acquisitions

Software

Other intangibles

Assets in progress

Total net carrying amount

Balance at December 31, 2017

248,990

518,336

76,729

35,085

11,256

31,062

921,458

Additions

1,431

-

11,973

9,280

118

13,742

36,544

Amortization

(14,021)

-

(9,136)

(11,019)

(2,094)

-

(36,544)

Disposals

-

-

(1,633)

(22)

-

-

(1,655)

Exchange differences

(325)

(70)

550

(4)

1

(14)

138

Other movements

-

-

17,650

11,655

(101)

(29,329)

(125)

Impairment

-

-

-

(1)

-

(78)

(79)

Balance at December 31, 2018

236,075

518,266

96,133

44,974

9,180

15,383

920,011

The carrying amount of “trademarks” at the reporting date is broken down in the following table:

(amounts in thousands of Euro)

December 3 2018

December 31 2017

Miu Miu

138,482

144,005

Church's

78,487

82,609

Prada

5,502

5,292

Other trademark and other intellectual property right

13,604

17,084

Total

236,075

248,990

No impairment was recognized for the Group’s trademarks during the year. “Key money” includes intangible assets recognized in respect of costs incurred by the Group to stipulate or take over leases for retail premises in prestigious locations.
The total capital expenditure for tangibles and intangibles in the twelve months ended December 31, 2018 was Euro 283.6 million, as broken down below:

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Retail

135,997

110,026

Production, Logistics and Corporate

147,590

140,638

Total

283,587

250,664

IMPAIRMENT TEST
As required by IAS 36, “Impairment of Assets,” intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least once per year. The Group reports no intangible assets with indefinite useful lives other than goodwill. As at December 31, 2018, goodwill amounted to Euro 518.3 million, detailed by cash generating unit (“CGU”) as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Italy Wholesale

78,355

78,355

Asia Pacific and Japan Retail

311,936

311,936

Italy Retail

25,850

25,850

Germany and Austria Retail

5,064

5,064

United Kingdom Retail

9,300

9,300

Spain Retail

1,400

1,400

France and Montecarlo Retail

11,700

11,700

North America Retail and wholesale

48,000

48,000

Production Division

10,169

10,169

Church's

8,517

8,587

Pasticceria Marchesi 1824

7,975

7,975

Total

518,266

518,336

IAS 36 requires an entity to assess at each annual reporting date whether there are indications of impairment losses for any other asset recognized in the financial statements. In light of the performance of certain retail businesses during the year, CGUs other than those shown above were also tested for impairment.
The method used to identify the recoverable amount (value in use) involves discounting the projected cash flows produced by the CGU to which goodwill has been allocated. Value in use is the sum of the present value of future cash flows expected from the business plan projections prepared for each CGU and the present value of the related operating assets at the end of the business plan period (terminal value).
The business plans cover a period of five years and have been constructed on the basis of the 2019 budget prepared by management. Prudently, no business growth was forecast after 2019, meaning that no significant improvement in the performance of the assets existing at December 31, 2018 was projected for the years of the plan.
The rate used to discount cash flows was calculated using the weighted average cost of capital (“WACC”). For the year ended December 31, 2018, the WACC used for discounting purposes ranged between 5.1% and 14.7% (between 4.2% and 13.3% for 2017). The WACC was calculated ad hoc for each CGU subject to impairment, considering the parameters specific to the geographical area: market risk premium and sovereign bond yield. The “g” rate of growth used to calculate the Terminal Value ranged between 0% and 9.3%, according to the diverging inflation and GDP outlooks in the various countries. However, the prevalent growth rate was 1.5%, which can be considered prudent given the average growth expected for the luxury goods market in general and the specific growth rate projected for the PRADA Group at the reporting date.
For the Church’s Group, which has recently been relaunched, management decided to use evaluation methods based on fair value for the impairment tests (such as market multiples and comparable transactions), whose results were supported by control methods.
Where deemed appropriate, sensitivity analysis was carried out to ensure that changes in the main assumptions did not significantly affect the impairment test results. The outcome of these simulations confirmed that the result obtained through the DCF method was reasonable.
None of the impairment tests performed at December 31, 2018 identified any impairment losses. However, since value in use is measured on the basis of estimates and assumptions, management cannot guarantee that the value of goodwill or other tangible or intangible assets will not be subject to impairment in the future.

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Investment in equity instruments

97,948

8,387

Other investments

1,590

29

Total

99,538

8,416

The Group, after appropriate evaluation by the respective Corporate bodies, invested surplus liquidity in highly rated equity securities listed on the most important regulated stock markets in the world. The change in fair value of investments in equity instruments is recognized through a specific equity reserve.

Other non-current assets are detailed as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Guarantee Deposits

64,770

66,511

Deferred rental income

9,606

13,004

Pension fund surplus

11,719

13,021

Other long-term assets

16,897

18,162

Total

102,992

110,698

Other non-current assets as of December 31, 2018 includes Euro 11.7 million representing the actuarial valuation of the Group’s pension plans in the United Kingdom (Note 25).

The guarantee deposits are set forth below by type and maturity:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Nature:

Stores

59,590

61,398

Offices

3,900

3,889

Warehouses

117

100

Other

1,163

1,124

Total

64,770

66,511

(amounts in thousands of Euro)

December 31 2018

Maturity:

from one to two years

18,963

from two to five years

14,505

After more than five years

31,302

Total

64,770

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Short-term bank loans

152,365

87,901

Current portion of long-term loans

269,195

265,447

Deferred costs on loans

(323)

(611)

Financial lease

244

234

Total

421,481

352,971

The short-term bank loans as at December 31, 2018 refer to the use of credit lines by PRADA spa for an amount of Euro 90.3 million and by PRADA Japan co ltd for a total equivalent value of Euro 62 million. Some of these credit lines contain covenants based on the results of PRADA Japan co ltd’s financial statements, all of which were met as at December 31, 2018.

Short-term bank loans are broken down by currency below:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Euro

90,365

31,994

Japanese Yen

62,000

54,979

Other currencies

-

928

Total

152,365

87,901

The Group generally borrows at variable interest rates (as explained in Note 24) and manages the risk of interest rate fluctuations by using hedging agreements, as explained in Note 12.

The current portions due to related parties are presented below:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Financial payables

4,415

4,423

Other payables

62

65

Payables to related parties - current

4,477

4,488

The financial payables due to related parties regard two interest-free loans granted by non-controlling shareholders of the Group’s subsidiaries in the Middle East. The payables due to related parties are analyzed in Note 39.

Trade payables are detailed as follows: 

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Trade payables – third parties

309,294

302,847

Trade payables – related parties

5,917

10,850

Total

315,211

313,697

The tax payables are detailed hereunder:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Current taxation

44,637

25,015

VAT and other taxes

40,406

43,101

Total

85,043

68,116

The Group recognized current tax liabilities of Euro 44.6 million at December 31, 2018 (Euro 25 million at December 31, 2017) against tax credits of Euro 54.2 million (Euro 69.7 million at December 31, 2017), as reported in Note 14.

The other current liabilities are as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Payables for capital expenditure

50,085

62,357

Accrued expenses and deferred income

19,719

20,943

Other payables

76,625

74,046

Total

146,429

157,346

The other payables are detailed as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Short-term benefits for employees and other personnel

60,681

61,252

Customer advances

6,334

6,164

Returns from customers

6,145

4,724

Other

3,465

1,906

Total

76,625

74,046

The long-term financial payables are as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Long-term bank borrowings

486,369

638,034

Deferred costs on loans

(751)

(1,137)

Financial lease – non-current

1,813

2,057

Total

487,431

638,954

In 2018 the parent company took out a new long-term loan of Euro 100 million containing covenants referring to PRADA spa’s consolidated financial statements. All such covenants were met as at December 31, 2018.
In 2018 PRADA Japan co ltd drew the final tranche (JPY 2.5 billion) of the 11 billion multi-tranche syndicated loan stipulated in 2017 with a group of Japanese banks. The related loan covenants, based on the subsidiary’s results, were fully met as at December 31, 2018.
Hipic Prod Impex srl stipulated a Romanian leu 13.8 million loan in 2017, which it used entirely in 2018 (Euro 3 million). The loan will be extinguished with a bullet repayment at maturity.
The current portions of long-term loans were repaid in the year for an amount of Euro 143.2 million and the Notes issued by Prada spa were redeemed for an amount of Euro 130 million.

The long-term bank borrowings as of December 31, 2018, excluding finance lease obligations and amortized costs, are set forth below: 

Borrower

Amount in thousands of Euro

Type of loan

Currency

Expiry date

Interest rate (1)

Current >Portion (Euro thousands)

Non-current Portion (Euro thousands)

Pledge

PRADA spa

92,500

Term-loan

EUR

02/2022

0.500%

17,000

75,500

-

PRADA spa

60,000

Term-loan

EUR

03/2019

0.755%

60,000

-

-

PRADA spa

42,167

Term-loan

EUR

05/2030

2.737%

3,667

38,500

Mortgage loan

PRADA spa

40,000

Term-loan

EUR

02/2019

0.608%

40,000

-

-

PRADA spa

100,000

Term-loan

EUR

06/2021

0.752%

-

100,000

-

PRADA spa

87,500

Term-loan

EUR

06/2022

0.480%

25,000

62,500

-

PRADA spa

90,000

Term-loan

EUR

02/2021

0.963%

-

90,000

-

PRADA spa

5,000

Term-loan

EUR

03/2019

0.710%

5,000

-

-

PRADA spa

100,000

Term-loan

EUR

06/2019

0.000%

100,000

-

-

PRADA Japan Co. Ltd

23,838

Syndicate loan

JPY

09/2022

0.469%

1,987

21,851

-

PRADA Japan Co. Ltd

23,838

Syndicate loan

JPY

09/2022

0.469%

1,987

21,851

-

PRADA Japan Co. Ltd

7,151

Term-loan

JPY

03/2020

1.360%

4,767

2,384

-

PRADA Japan Co. Ltd

2,384

Term-loan

JPY

03/2020

0.810%

1,589

795

-

PRADA Japan Co. Ltd

1,192

Syndicate loan

JPY

03/2020

1.180%

795

397

-

Kenon Ltd

60,282

Term-loan

GBP

01/2029

4.477%

2,598

57,684

Mortgage loan

Prada Middle East

14,192

Term-loan

USD

02/2022

4.523%

4,367

9,825

-

Tannerie Limoges sas

2,500

Term-loan

EUR

01/2024

1.200%

375

2,125

Mortgage loan

Pelletteria Ennepi srl

63

Term-loan

EUR

06/2019

2.500%

63

-

-

Hipic Prod Impex srl

2,957

Term-loan

RON

11/2021

3.990%

-

2,957

-

Total

755,564

269,195

486,369

(1) the interest rates include the effect of interest rate risk hedges, if any

PRADA spa’s mortgage loan is secured by the building in Milan used for the Group’s headquarters, while Kenon ltd’s mortgage loan is secured by the building on Old Bond Street, London, used for one of the most prestigious Prada stores in Europe. The loan to Tannerie Limoges sas is secured by such company’s factory building. The Group generally borrows at variable interest rates and manages the risk of interest rate fluctuations through hedging agreements, as described in Note 12.


The financial payables are set forth hereunder by their portions with fixed and variable interest rates: 

(amounts in thousands of Euro)

December 31, 2018

December 31, 2017

variable interest rates

fixed interest rates

variable interest rates

fixed interest rates

Short-term financial payables

58%

42%

56%

44%

Long-term financial payables

40%

60%

27%

73%

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Post-employment benefits

47,407

46,338

Other long-term employee benefits

12,594

15,106

Total liabilities for long-term benefits

60,001

61,444

Pension plan surplus (note 18)

(11,719)

(13,021)

Net liabilities for long-term benefits

48,282

48,423

POST-EMPLOYMENT BENEFITS
The net balance of long-term employee benefits as of December 31, 2018 is Euro 48.3 million (Euro 48.4 million as of December 31, 2017) and all the benefits are classified as defined benefit plans.

The post-employment benefits consist of Euro 22.5 million (Euro 23.8 million at December 31, 2017) in liabilities accounted for by Italian companies and Euro 25 million by the foreign subsidiaries (Euro 22.5 million in at December 31, 2017). The Italian liabilities regard the “Trattamento di Fine Rapporto” (“TFR”, or staff leaving indemnities), a deferred benefit for employees that is mandatory for Italian businesses and is based on the employees’ length of service and pay. The present value of the liability recognized was determined by projecting the amount accrued as of December 31, 2018 under Italian law to the estimated future date of employment termination, discounting it to the present value at the same reporting date using the projected unit credit method (“PUCM”).

The following table presents the changes in long-term employee benefits as at December 31, 2018:

(amounts in thousands of Euro)

Defined Benefit Plans in Italy (TFR)

Defined Benefit Plans in other countries (including Japan)

Pension Funds in UK

Other long-term employee benefits

Total

Balance at December 31, 2017

23,797

22,541

(13,021)

15,106

48,423

Acquisitions

-

-

-

-

-

Current service cost

442

3,366

944

3,858

8,610

Interest expenses (income)

-

-

(310)

173

(137)

Actuarial (gains)/losses

200

(112)

791

(1,762)

(883)

Benefits paid

(1,987)

(2,395)

-

(4,953)

(9,335)

Contributions

-

-

(216)

-

(216)

Exchange differences

-

1,555

93

172

1,820

Other movements

-

-

-

-

-

Balance at December 31, 2018

22,452

24,955

(11,719)

12,594

48,282

The actuarial gains and losses are as follows:

(amounts in thousands of Euro)

Defined Benefit Plans in Italy (TFR)

Defined Benefit Plans in Other Countries (including Japan)

Pension Funds in UK

Actuarial adjustments due to

(a) Changes in financial assumptions

(28)

72

3,227

(b) Changes in other assumptions (e.g. demographic assumptions, remuneration increases)

228

(184)

(2,436)

(c) Other

-

-

-

Actuarial (gains)/losses

200

(112)

791

The current service cost and interest expense/(income) are recognized in the statement of profit or loss. The actuarial differences for “other long-term employee benefits” are also recognized in the statement of profit or loss.

The TFR liability was measured on the basis of an independent appraisal by Federica Zappari, an Italian actuary, member (n. 1134) of the Ordine Nazionale degli Attuari (Italian Society of Actuaries). The technical basis was processed using statistical data, whereas the demographic assumptions used variables such as probability of death, probabilities of retirement and resignations, probability of dismissals, contract expiration, leaving indemnity advances and supplementary pension schemes.

The post-employment benefits are stated net of the pension plan surplus attributable to Group companies operating in the United Kingdom that supply pension services to their employees. As of December 31, 2018, the fair value of such pension plans is a surplus of Euro 11.7 million (Euro 13 million as of December 31, 2017). The fair value of the plan assets was determined by the independent actuary of JLT Jardine Lloyd Thompson Group. It is detailed below:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Fair value of plan assets

61,571

65,852

Fair value of plan liabilities

(49,852)

(52,831)

Pension plan surplus

11,719

13,021

The composition of the main plan assets on the reporting date is as follows:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Equities

21,444

32,190

Alternatives

10,875

10,967

Bonds

25,907

19,550

Cash

3,345

3,145

Total

61,571

65,852

The main actuarial assumptions used as of December 31, 2018 are as follows: 

December 31, 2018

Defined Benefit Plans in Italy (TFR)

Pension Funds in UK

Defined Benefit Plans in Japan

Average duration of plan (years)

10.7

15

14.4

Average increase in remuneration

1.30%

2.05%

3.37%

Rate of inflation

1.50%

2.05%

n/n

The main actuarial assumptions used as of December 31, 2017 were as follows:

December 31, 2017

Defined Benefit Plans in Italy (TFR)

Pension Funds in UK

Defined Benefit Plans in Japan

Average duration of plan (years)

11

15

15.5

Average increase in remuneration

1.80%

1.98%

3.37%

Rate of inflation

1.50%

1.98%

n/a

The discount rate used to measure defined benefit plans was determined on the basis of yields on bonds with an AA rating and a maturity date similar to that of the plans.
With respect to the December 31, 2018 liability, a sensitivity analysis was performed on the main actuarial variables such as discount rate, salary changes and inflation rate. The analysis did not lead to significant changes in the liability, except for the sensitivity analysis conducted on the interest rate curve, according to which a 50 basis point increase or decrease would cause an increase or decrease in the Group’s total defined benefit obligation (“DBO”) up to Euro 6 million.

OTHER LONG-TERM EMPLOYEE BENEFITS
The other long-term employee benefits meet the IAS 19 definition of long-term employee benefits and refer to retention and performance-based programs for employees. Their actuarial valuation as of December 31, 2018 under the PUCM methodology resulted in Euro 12.6 million (Euro 15.1 million as at December 31, 2017), according to an independent actuarial appraisal.

The changes in the provisions for risks and charges are as follows:

(amounts in thousands of Euro)

Provision for litigation

Provision for tax disputes

Other provisions

Total

Balance at December 31, 2017

3,094

9,928

48,793

61,815

Exchange differences

53

44

724

821

Reversals

(929)

(5,719)

(1,139)

(7,787)

Utilized

(928)

(652)

(4,437)

(6,017)

Increases

135

1,728

2,843

4,706

Reclassification

-

(2,228)

-

(2,228)

Balance at December 31, 2018

1,425

3,101

46,784

51,310

The provisions for risks and charges represent management’s best estimate of the maximum amount of potential liabilities. In the Directors’ opinion, based on the information available to them, the total amount allocated for risks and charges at the reporting date is adequate in respect of the liabilities that could arise from them.

TAX DISPUTES
The Group’s main tax disputes are described hereunder.
In 2005 PRADA spa received two VAT assessment notices for tax year 2002 regarding the sale of two business divisions reclassified as sales of trademarks. In 2017 the related disputes that had emerged were resolved through the facilitated settlement procedure for pending tax disputes pursuant to Italian Law Decree 50/2017, Article 11. In 2018 the settlements were concluded and the corresponding tax proceedings were closed because the tax authorities did not notify PRADA spa of their denial within the prescribed time limits. Accordingly, the liability estimated in the past for such tax disputes was eliminated.

On April 23, 2018, pursuant to its adherence to the Cooperative Compliance Tax Regime, PRADA spa signed a formal agreement with the Italian Revenue Agency to reciprocally waive the disputes initiated in the past and due to the dismissal or inadmissibility of petitions filed to not apply the Controlled Foreign Company (“CFC”) rules. After such date, the requirements were met at the various court levels to obtain recognition of claim dismissal for each pending dispute. The settlement of such disputes did not affect the financial statements because, since the associated risk had been deemed remote, the Directors had decided that it was reasonable not to recognize any risk provisions for them.
PRADA spa filed an appeal following an audit initiated in 2012 by the Italian Customs Agency for the tax years from 2007 to 2011, which resulted in notices of assessment for the 2010 tax year. In the first half of 2018 a new appeal was discussed with the Livorno Provincial Tax Commission and ruled in favor of the Company, just as a previous appeal had been discussed with and ruled favorably by the same Commission in 2017. The Customs Agency has lodged an appeal against the rulings and the first of such appeals was discussed with the Florence Regional Tax Commission on July 23, 2018, with an adverse ruling for the Company notified on October 19, 2018. PRADA spa will lodge an appeal before the Supreme Court within the prescribed time limit.
PRADA Korea underwent a customs audit for tax years 2013 to 2016 regarding the duty liability of the year-end transfer pricing adjustment. The customs audit began at the end of 2017 and lasted throughout 2018. Negotiations with the Korean customs authorities to close the audit concluded in December 2018 with the quantification of additional customs duties due in an amount of some Euro 1.2 million.
With respect to the notice of assessment of direct taxes regarding PRADA Germany GmbH issued by the German tax authorities for the tax years from 2008 to 2011, extended to 2014, in the first half of 2018 the Company paid the tax bills received, using the provision allocated, and lodged an appeal with a higher hierarchical level of tax authority. At the end of November 2018, an agreement was reached with the German tax authorities to settle the assessment with some Euro 1.8 million reduction of the originally estimated liability of some Euro 2.4 million.

LEGAL DISPUTES
The Euro 1.4 million provision for litigation as at December 31, 2018 refers to pending disputes regarding labor law.

OTHER RISK PROVISIONS
The other risk provisions amount to Euro 46.8 million as at December 31, 2018 and refer primarily to contractual obligations to restore leased commercial property to its original condition.

The other non-current liabilities amount to Euro 159 million (Euro 167.6 million as at December 31, 2017) and consist primarily of liabilities recognized to account for commercial lease costs on a straight-line basis.

The equity attributable to owners of the Group is set forth below:

(amounts in thousands of Euro)

December 31
2018

December 31
2017

Share Capital

255,882

255,882

Share premium reserve

410,047

410,047

Other reserves

2,001,391

1,977,983

Actuarial reserve

(4,822)

(4,103)

Fair value Investments in equity instruments reserve

(12,276)

(5,570)

Cash flow hedge reserve

(10,620)

(3,273)

Translation reserve

32,941

(4,035)

Net income for the period

205,443

217,721

Total

2,877,986

2,844,652

SHARE CAPITAL
As at December 31, 2018, approximately 80% of PRADA spa’s share capital is owned by PRADA Holding spa and the remainder consist of floating shares on the Main Board of the Hong Kong Stock Exchange.

SHARE PREMIUM RESERVE
The share premium reserve of Euro 410 million has not changed from that of December 31, 2017.

TRANSLATION RESERVE
Changes in this reserve derive from the translation into Euro of the foreign currency financial statements of the consolidated companies. The reserve increased from Euro -4 million at December 31, 2017 to Euro 33 million, due in part of the conversion impact related to the distribution of dividends totaling HKD 4 billion by Prada Asia Pacific Ltd. to PRADA spa.

OTHER RESERVES
The other reserves amount to Euro 2,001.4 million as at December 31, 2018. They increased by Euro 23.4 million compared with December 31, 2017 (Euro 1,978 million) primarily as a result of the allocation of the Euro 217.7 million profit of the previous period after the distribution of dividends totaling Euro 191.9 million to PRADA spa shareholders.

NET INCOME FOR THE PERIOD
The Group’s net income for the twelve months ended December 31, 2018 was Euro 205.4 million (Euro 217.7 million for the eleven months ended December 31, 2017).

CAPITAL GAINS TAX IN ITALY
Capital gains from the sale of an Italian company by shareholders residing in Hong Kong have not been subject to taxation in Italy since January 1, 2016. Additional information on Italian capital gains tax is provided in the Tax Booklet available on the Company’s website (www.pradagroup.com).

The following table sets forth the changes in the non-controlling interests as of December 31, 2018 and December 31, 2017:

(amounts in thousands of Euro)

December 31 2018

December 31 2017

Opening balance

21,519

24,028

Translation differences

828

(2,190)

Dividends

(5,729)

(1,014)

Net income for the period

2,739

296

Actuarial reserve

(9)

(13)

Capital injection in subsidiaries

345

89

Transactions with non-controlling shareholders

(577)

323

IFRS 9 First time Adoption - Bad Debt Provision

(33)

-

Closing balance

19,083

21,519

Dividends of Euro 5.7 million were distributed to non-controlling shareholders as of December 31, 2018, as detailed in Note 43.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

The following Statement of Profit or Loss tables compare the results of the twelve months of 2018 with an eleven-month period of 2017 due to the 2017 change in the end of the annual reporting period from January 31 to December 31. For a better understanding of the performance of 2018, reference is made to the Financial Review, which provides a comparison of the results with the 12-month pro-forma period of 2017.

The consolidated net revenues are produced primarily by sales of finished products, and are stated net of returns and discounts. 

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Net sales

3,098,068

2,696,644

Royalties

44,080

44,451

Total

3,142,148

2,741,095

The Financial Review describes the net revenues by distribution channel, geographical area, brand and product.

The cost of goods sold has the following composition:

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Purchases of raw materials and production costs

790,465

642,609

Logistics costs, duties and insurance

154,052

129,627

Change in inventories

(64,963)

(61,837)

Total

879,554

710,399

The operating costs are detailed below:

(amounts in thousands of Euro)

twelve months
ended December 31
2018

% of net revenues

eleven months
ended December 31
2017

% of net revenues

Product design and development costs

125,179

4.0%

116,536

4.3%

Advertising and communications costs

207,278

6.6%

167,733

6.1%

Selling costs

1,414,153

45.0%

1,274,947

46.5%

General and administrative costs

192,138

6.1%

155,602

5.7%

Total

1,938,748

61.7%

1,714,818

62.6%

The following table sets forth depreciation, amortization, impairment, cost of labor and rent expense included within the operating expenses.

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Depreciation, amortization and impairment

211,638

196,852

Labor cost

598,503

520,569

Variable rent

329,199

294,962

Fixed rent

282,284

278,794

Total

1,421,624

1,291,177

The net interest and other financial income/(expense) is presented below:

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Interest expenses on borrowings

(13,543)

(13,786)

Interest income / (expenses) IAS 19

140

143

Interest income

9,405

5,070

Exchange gains / (losses) – realized

(15,138)

(5,911)

Exchange gains / (losses) – unrealized

1,301

9,360

Other financial income / (expenses)

(4,105)

(1,607)

Total

(21,940)

(6,731)

In the twelve months ended December 31, 2018, the Group accounted for dividends of Euro 0.6 million (Euro 0.7 million in 2017) from investments in equity instruments.

Taxation have the following composition:

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Current taxation

95,184

69,896

Deferred taxation

(828)

21,904

Total

94,356

91,800

The reconciliation between the Group’s theoretical tax rate and its effective tax rate is presented in the table below:

(amounts in thousands of Euro)

twelve months ended December 31, 2018

Weighted average tax rate of the Group

26.8%

Costs and revenues not taxable/deductible

1.7%

Effect of utilization of tax loss carryforwards

0.3%

Prior year taxes

0.4%

Withholdings

1.4%

Other

0.6%

Effective tax rate of the Group

31.2%

The changes in deferred tax assets and liabilities are set forth below:

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Opening balance

177,390

216,126

Exchange differences

4,650

(15,310)

Deferred taxes on derivative instruments recorded in equity (cash flow hedges)

2,669

(1,657)

Deferred taxes on post-employment benefits recorded in equity (reserve for actuarial differences)

102

(334)

Deferred taxes on FTA IFRS 9

444

-

Other movements

971

470

Deferred taxes for the period in profit or loss

828

(21,904)

Closing balance

187,054

177,390

Deferred tax assets and liabilities are classified by type hereunder:

(amounts in thousands of Euro)

December 31, 2018

December 31, 2017

Deferred tax assets

Deferred tax liabilities

Deferred tax assets

Deferred tax liabilities

Inventories

108,491

-

100,620

-

Receivables and other assets

702

1,548

94

1,412

Useful life of non-current assets

48,238

8,743

46,405

9,048

Deferred taxes due to acquisitions

-

15,170

-

15,071

Provision for risks / accrued expenses

34,043

1,358

38,078

437

Non-deductible / taxable charges/income

7,830

65

9,416

2,024

Tax loss carryforwards

3,121

-

3,627

-

Derivative financial instruments

3,195

-

1,306

593

Long term employee benefits

9,916

1,992

8,986

2,214

Other

1,564

1,174

870

1,213

Total

217,104

30,050

209,402

32,012

Tax loss carryforwards as of December 31, 2018, including those already recognized in the Group’s financial statements, are detailed below:

(amounts in thousands of Euro)

December 31, 2018

Expiring within 5 years

19,142

Expiring after 5 years

16,149

Available for carryforward with no time limit

93,745

Total tax loss carryforwards

129,036

The Group’s management updated the deferred tax assets recognized on tax loss carryforwards taking into consideration the macroeconomic scenario and the business developments of each of the Group’s companies.

PRADA spa is eligible to benefit from the Patent box regime that grants a tax exemption for income derived from the use of the qualified intangible assets, for both Italian corporate income tax (IRES) and Italian regional tax (IRAP) purposes. This optional Patent box regime was introduced by the 2015 Italian Bill, Italian Law No. 190 of December 2014 (subsequently amended and supplemented) and lasts as of fiscal year 2015 to fiscal year 2019.
On January 29, 2016 PRADA spa formally applied for the Patent box regime to Italian Tax authorities for the direct use of intangibles, whose method for the determination of the exemption has to be mandatorily agreed in the framework of a tax ruling. The procedure has seen significant progresses in last period and the Company’s Directors expect to formally sign the agreement in 2019. Therefore in 2019 Financial statements, PRADA spa will recognize the patent box benefit for the whole 5 years period.

EARNINGS PER SHARE BASIC AND DILUTED
Earnings per share are calculated by dividing the net income attributable to the shareholders of the parent company by the weighted average number of ordinary shares outstanding.

twelve months ended December 31 2018

eleven months ended December 31 2017

Group net income in Euro

205,443,297

217,721,032

Weighted average number of ordinary shares in issue

2,558,824,000

2,558,824,000

Basic and Diluted earnings per share in Euro, calculated on weighted average number of shares

0.080

0.085

DIVIDENDS PER SHARE
The Board of Directors of PRADA spa has proposed a dividend of Euro 153,529,440 (Euro 0.06 per share) for the twelve months ended December 31, 2018.
During 2018 the Company distributed dividends of Euro 191,911,800 (Euro 0.075 per share), as approved at the General Meeting held on April 27, 2018 to approve the December 31, 2017 financial statements.
The dividends and the related Italian withholding tax (Euro 10 million), determined by applying the ordinary Italian tax rate to the entire amount of the dividends distributed to the beneficial owners of the Company’s shares held through the Hong Kong Central Clearing and Settlement System, were fully paid during the year.

The dividends paid in the past three years are detailed hereunder:

Financial statements ended December 31, 2017

Financial statements ended January 31, 2017

Financial statements ended January 31, 2016

Total dividends paid (Euro)

191,911,800

307,058,880

281,470,640

Dividends per Share (Euro)

0.075

0.12

0.11

Date of approval by Shareholders’ Meeting

27/04/2018

31/05/2017

24/05/2016

Date of payment

May 2018

June 2017

June 2016

The average number of employees by business division is presented below:

(number of employees)

twelve months ended December 31 2018

eleven months ended December 31 2017

Production

2,959

2,741

Product design and development

1,023

985

Advertising and Communications

158

128

Selling

8,101

7,622

General and administrative services

956

924

Total

13,197

12,400

EMPLOYEE REMUNERATION
The employee remuneration by business division is presented below:

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Production

126,416

106,375

Product design and development

67,683

60,383

Advertising and Communications

14,907

13,733

Selling

423,874

367,888

General and administrative services

92,350

78,565

Total

725,230

626,944

The types of employee remuneration are presented below:

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Wages and salaries

547,990

475,135

Post-employment benefits and other long-term benefits

30,711

28,727

Social contributions

113,453

98,564

Other

33,076

24,518

Total

725,230

626,944

DISTRIBUTABLE RESERVES OF THE PARENT COMPANY, PRADA SPA

(amounts in thousands of Euro)

December 31 2018

Possible utilization

Distributable amount

Summary of utilization in the last three years

Coverage of losses

Distribution of dividends

Share Capital

255,882

Share premium reserve

410,047

A, B, C

410,047

-

-

Legal reserve

51,176

B

-

-

-

Other reserves

182,899

A, B, C

182,899

-

-

Retained earnings

325,301

A, B, C

285,924

-

780,442

Fair Value reserve

(12,275)

-

-

-

Time Value reserve

(4,218)

-

-

-

Intrinsic Value reserve

(2,368)

-

-

-

Distributable amount

878,870

 

780,442

A share capital increase
B coverage of losses
C distributable to shareholders

 

 

 

 

Under Italian Civil Code Article 2431, the share premium reserve is fully distributable since the amount of the legal reserve is equal to or exceeds 20% of share capital. Under Italian Legislative Decree 38/2005, Article 7, Euro 20.5 million of the retained earnings is not distributable.

EXCHANGE RATES
The exchange rates against the Euro used for consolidation of the statements of financial position and statements of profit or loss whose presentation currency differed from that of the consolidated financial statements as of December 31, 2018 and December 31, 2017 are listed hereunder.

Currency

Average rate December 31 2018

Average rate December 31 2017

Closing rate December 31 2018

Closing rate December 31 2017

US Dollar

1.182

1.135

1.145

1.199

Canadian Dollar

1.530

1.469

1.561

1.504

GB Pound

0.885

0.878

0.895

0.887

Swiss Franc

1.155

1.115

1.127

1.170

Australian Dollar

1.579

1.477

1.622

1.535

Korean Won

1,299.544

1,277.502

1,277.930

1,279.610

Japanese Yen

130.496

127.044

125.850

135.010

Hong Kong Dollar

9.264

8.850

8.968

9.372

Singapore Dollar

1.593

1.562

1.559

1.602

Thai Baht

38.178

38.335

37.052

39.121

Taiwan Dollar

35.605

34.412

35.197

35.570

Russian Ruble

74.003

66.090

79.715

69.392

Czech Koruna

25.643

26.267

25.724

25.535

Macau Pataca

9.543

9.116

9.238

9.653

Chinese Renminbi

7.810

7.654

7.875

7.804

New Zealand Dollar

1.705

1.597

1.706

1.685

Malaysian Ringgit

4.765

4.861

4.732

4.854

Turkish Lira

5.684

4.133

6.059

4.546

Brazilian Real

4.307

3.622

4.444

3.973

Mexican Peso

22.712

21.210

22.492

23.661

UAE Dirham

4.342

4.169

4.206

4.405

Ukrainian Hryvna

32.143

30.104

31.714

33.495

Moroccan Dirham

11.086

10.978

10.947

11.206

Kuwait Dinar

0.357

0.334

0.348

0.362

Danish Kronor

7.453

7.439

7.467

7.445

Swedish Kronor

10.255

9.648

10.255

9.844

Kazakhstani Tenge

406.812

369.889

439.370

398.230

Qatari Riyal

4.322

4.183

4.181

4.398

Indian Rupia

80.722

73.602

79.730

76.606

Saudi Riyal

4.433

4.257

4.295

4.498

South African Rand

15.589

15.096

16.459

14.805

Vietnamese Dong

26,708.917

25,410.458

26,118.500

26,697.000

Indonesian Rupiah

16,802.343

15,193.701

16,500.000

16,239.120

Panamanian Balboa

1.182

1.135

1.145

1.199

Romanian Leu

4.654

4.575

4.664

4.659

AUDITOR’S COMPENSATION
The total fees and expenses recognized to Deloitte & Touche spa and its network for auditing the financial statements of the periods ended December 31, 2018 and December 31, 2017 and providing non-audit services, are presented below:

Type of service

Audit Firm

Provided to

twelve months ended December 31, 2018

eleven months ended December 31, 2017

Audit services

Deloitte & Touche spa

PRADA spa

555

516

Audit services

Deloitte & Touche spa

Subsidiaries

126

121

Audit services

Deloitte Network

Subsidiaries

1,139

1,186

Total audit fees to Deloitte Network

1,820

1,823

Other advisory services

Deloitte Network

PRADA spa

583

1,408

Other advisory services

Deloitte Network

Subsidiaries

108

79

Total non-audit fees to Deloitte Network

691

1,487

Total compensation to Deloitte Network

2,511

3,310

The other advisory services provided by Deloitte to PRADA spa were mainly related to the last phase of an assistance project aimed at restyiling the Prada web site.

Remuneration of PRADA spa Board of Directors for period ended December 31, 2018

(amounts in thousands of Euro)

Directors’ fees

Remuneration and other benefits

Bonuses and other incentives

Benefits in kind

Pension, healthcare and TFR contributions

December 31, 2018

Carlo Mazzi

1,020

-

-

74

22

1,116

Miuccia Prada Bianchi

12,382

-

-

-

23

12,405

Patrizio Bertelli

12,382

-

-

-

23

12,405

Alessandra Cozzani

50

280

178

12

139

659

Stefano Simontacchi

50

-

-

-

2

52

Maurizio Cereda

70

-

-

-

3

73

Gian Franco Oliviero Mattei

140

-

-

-

13

153

Giancarlo Forestieri

60

-

-

-

5

65

Sing Cheong Liu

60

-

-

-

7

67

Total

26,214

280

178

86

237

26,995

Remuneration of PRADA spa Board of Directors for fiscal year ended December 31, 2017 

(amounts in thousands of Euro)

Directors’ fees

Remuneration and other benefits

Bonuses and other incentives

Benefits in kind

Pension, healthcare and TFR contributions

December 31, 2017

Carlo Mazzi

1,020

-

1,000

74

7

2,101

Miuccia Prada Bianchi

12,000

-

655

-

-

12,655

Patrizio Bertelli

12,000

-

655

-

-

12,655

Alessandra Cozzani

50

252

127

12

96

537

Stefano Simontacchi

50

-

-

-

2

52

Maurizio Cereda

50

-

-

-

2

52

Gian Franco Oliviero Mattei

150

-

-

-

-

150

Giancarlo Forestieri

70

-

-

-

11

81

Sing Cheong Liu

70

-

-

-

16

86

Total

25,460

252

2,437

86

134

28,369

REMUNERATION OF FIVE HIGHEST PAID INDIVIDUALS

The Group’s five highest paid individuals included three Board of Director members for 2018 and three Board Members for 2017. The total remuneration of the remaining two highest paid individuals in the twelve months ended December 31, 2018 and the remaining two highest paid individuals in the eleven months ended December 31, 2017 is set forth below:

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Remuneration and other benefits

10,683

8,971

Bonuses and other incentives

1,001

1,367

Non-monetary benefits

345

256

Pension/social security, healthcare and TFR contributions

23

23

Total

12,052

10,617

Excluding the remuneration of the Board of Directors’ members the remuneration range of the highest paid individuals is as follows: 

 

twelve months ended December 31 2018

eleven months ended December 31 2017

Less than HKD 8,000,000

-

-

Between HKD 8,000,000 and HKD 20,000,000

1

1

More than HKD 50,000,000

1

1

Total individuals

2

2

SENIOR MANAGERS REMUNERATION
The remuneration of the Senior Managers is as follows:

(amounts in thousands of Euro)

twelve months ended December 31 2018

eleven months ended December 31 2017

Remuneration and other benefits

17,738

16,458

Bonuses and other incentives

3,614

3,773

Non-monetary benefits

2,066

2,262

Pension/social security, healthcare and TFR contributions

1,863

2,106

Total

25,281

24,599

There were 26 Senior Managers as of December 31, 2018, and 28 Senior Managers as of December 31, 2017.

The remuneration range of the Senior Mangers is as follows:

 

twelve months
ended
December 31
2018

eleven months
ended
December 31
2017

Less than HKD 4,000,000

8

11

between HKD 4,000,000 and HKD 8,000,000

13

12

between HKD 8,000,000 and HKD 16,000,000

4

4

between HKD 16,000,000 and HKD 50,000,000

-

-

more than HKD 50,000,000

1

1

Total individuals

26

28

The Group carries out transactions with companies classifiable as related parties according to IAS 24, “Related Party Disclosures”. The transactions regard mainly sales of goods, supplies of services, loans, sponsorships, leases and franchise agreements. The transactions take place on an arm’s length basis.

The following tables present the effect of related-party transactions on the consolidated financial statements in terms of Statement of Financial Position balances at the reporting date and total transactions affecting the Statement of Profit or Loss.

STATEMENT OF FINANCIAL POSITION BALANCES AS OF DECEMBER 31, 2018

(amounts in thousands of Euro)

Trade receivables

Receivables from, and advances to, related parties – current

Trade

payables

Payables to related parties - current

Other Liabilities

Progetto Prada Arte srl

3

-

-

-

-

Al Tayer Insignia LLC

1,357

-

24

2,341

-

Danzas LLC - UAE

-

-