Prada Group Annual Report 2021

Plain-text annual report

Annual Report 2021 PRADA spa (Hong Kong Stock code: 1913) A N N U A L R E P O R T 2 0 2 1 Annual Report 2021_DRAFT_160322 separated pages.indd 2 Annual Report 2021_DRAFT_160322 separated pages.indd 2 16/03/22 20:41 16/03/22 20:41 Annual Report 2021_DRAFT_160322 separated pages.indd 3 Annual Report 2021_DRAFT_160322 separated pages.indd 3 16/03/22 20:41 16/03/22 20:41 T A B L E O F C O N T E N T S The PRADA Group Financial Review Directors and Senior Management Directors’ Repor t Corporate Governance Consolidated Financial Statements PRADA spa Separate Financial Statements Notes to the Consolidated Financial Statements Independent Auditors’ Repor ts 3 57 85 101 121 143 149 155 233 Annual Report 2021_DRAFT_160322 separated pages.indd 1 Annual Report 2021_DRAFT_160322 separated pages.indd 1 16/03/22 20:41 16/03/22 20:41 The first Prada store Galleria Vittorio Emanuele II, Milan Annual Report 2021_DRAFT_160322 separated pages.indd 2 Annual Report 2021_DRAFT_160322 separated pages.indd 2 16/03/22 20:41 16/03/22 20:41 T H E P R A D A G R O U P Annual Report 2021_DRAFT_160322 separated pages.indd 3 Annual Report 2021_DRAFT_160322 separated pages.indd 3 3 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupMiuccia Prada and Patrizio Ber telli Annual Report 2021_DRAFT_160322 separated pages.indd 4 Annual Report 2021_DRAFT_160322 separated pages.indd 4 16/03/22 20:41 16/03/22 20:41 P R E S E N T A T I O N “ Thorough observation and curiosity for the world around us have always been at the hear t of the creativity and modernity of the Prada Group. In society, and thus in fashion, which is somehow a reflection of it, the only constant is change. The transformation and innovation of references, at the core of any evolution, lead us to interact with different cultural disciplines, at times apparently far from our own, allowing us to capture and anticipate the spirit of the times. Today this is no longer enough: we must be the Drivers of Change, with the flexibility required to translate the demands of the market and society into tangible actions that inform our way of doing business.” Miuccia Prada and Patrizio Ber telli Annual Report 2021_DRAFT_160322 separated pages.indd 5 Annual Report 2021_DRAFT_160322 separated pages.indd 5 5 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupAnnual Report 2021_DRAFT_160322 separated pages.indd 6 Annual Report 2021_DRAFT_160322 separated pages.indd 6 16/03/22 20:41 16/03/22 20:41 The Group is a contemporary interpreter of changing scenarios. In a dialogue that combines the identity of the past with current dynamics and future prospectives, creativity molds ideas that go beyond the ordinary and offer an innovative vision of tomorrow. A fluid perspective that becomes the Group’s manifesto, suggesting a unique approach to doing business. Re-think the rules. Synonymous with innovation, transformation and independence, the Prada Group offers its brands a shared vision in which they can express their essence. This concept has broadened the horizons of luxury, without fear of facing contradictions. Innovative tradition. The Group has been driven by a spirit of constant experimentation and innovation for more than a century. Spirit of excellence. Gearing toward excellence is a mental attitude for the people of the Prada Group, who constantly seek per fection, continuously refining and surpassing their previous achievements. Uniqueness of talents. Passion, curiosity, attention to detail and exper tise are the distinctive qualities of each person in Prada. The promotion of an inclusive work environment stimulates intellectual vitality and the ability to interpret how society is evolving. Beyond boundaries. Ar t, philosophy and cinema are just some of the cultural disciplines that represent constant sources of inspiration for the Group. A network of connections that broaden the horizon to boldly challenge expectations and create scenarios that trascend boundaries. Sustainable paths. The value creation model is implemented in harmony with the places and people within the entire sphere of influence of the Group’s activities. Interest in the world of culture and the contribution to the contemporary debate complete Prada’s vision of sustainability. Annual Report 2021_DRAFT_160322 separated pages.indd 7 Annual Report 2021_DRAFT_160322 separated pages.indd 7 7 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupMario Prada Annual Report 2021_DRAFT_160322 separated pages.indd 8 Annual Report 2021_DRAFT_160322 separated pages.indd 8 16/03/22 20:41 16/03/22 20:41 P R A D A G R O U P H I S T O R Y The Prada brand dates back to the beginning of the last century: in 1913, Mario Prada opened an exclusive store in the Galleria Vittorio Emanuele II, Milan, selling handbags, travel trunks, beauty cases, tasteful accessories, jewelry and other luxury items. Thanks to the innovative design of its goods, created using fine materials and sophisticated techniques, Prada rapidly acquired wide popularity across Europe. In 1919 Prada became an official supplier to the Italian royal family; since then Prada has been able to display the House of Savoy coat of arms and knotted rope design in its trademark logo. The turning point for the Group came at the end of the 1970s when Miuccia Prada, Mario Prada’s granddaughter, par tnered with Tuscan entrepreneur Patrizio Ber telli to combine creativity with business acumen and lay the foundations for the ensuing international expansion. Patrizio Ber telli broke new ground in the luxury goods sector by introducing a business model based on direct control over all processes and applying strict quality standards to the entire production cycle. Miuccia Prada’s creative talent attracted international attention due to her innovative approach, inspired by an unconventional outlook on society, enabling her to anticipate and often influence new fashion and design trends. In 1977 Patrizio Ber telli founded IPI spa, where he concentrated the production resources he had built up over ten years in the leather goods industry. In the same year, IPI spa obtained a license from Miuccia Prada for the exclusive production and distribution of Prada brand leather goods. In the following years the two family businesses gradually merged into a single Group. In 1983 the Prada family opened a second store in prestigious Via della Spiga in Milan, one of Europe’s key shopping destinations. The store showcased the new brand image by pairing traditional elements with modern, innovative architecture, thereby revolutionizing and setting a new standard for luxury retail. In response to the growing appreciation of the products, the Prada leather goods Annual Report 2021_DRAFT_160322 separated pages.indd 9 Annual Report 2021_DRAFT_160322 separated pages.indd 9 9 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA Grouprange was expanded to include the first women’s footwear collection in 1979. The first women’s clothing collection was launched in Milan in 1988. At the same time, the internationalization process began, with stores opening first in New York and Madrid, and then in London, Paris and Tokyo. In 1993 Prada made its debut in menswear with its first men’s clothing and footwear collection. That same year, Miuccia Prada’s creative inspiration led to the establishment of a new brand, Miu Miu, conceived for sophisticated, stylish women who love to stay ahead of fashion trends. Miu Miu now creates women’s ready-to-wear apparel, handbags, accessories, footwear, eyewear and fragrances, and accounts for a significant share of the Group’s sales. In 1993 Miuccia Prada and Patrizio Ber telli created “Milano Prada Ar te”, which subsequently became “Fondazione Prada”, to pursue their interests and passions in the world of ar t and culture. In 1997 Patrizio Ber telli organized the Prada Challenge sailing team to compete for the 2000 America’s Cup, and Prada launched its leisurewear range featuring the “Linea Rossa” (red line). In 1999, the Prada Group acquired the classic brand Church’s, founded in 1873 in Nor thampton, England. The brand, specialized in high-end handcrafted footwear, is a universally recognized symbol of British tradition and sophisticated elegance. In 2001, the Prada “Epicenter ” store, designed by Rem Koolhaas, was opened on Broadway in New York City. This was the first store of the Epicenters project, whose purpose was to redefine the shopping concept and try out inventive ways to interact with customers. A second Epicenter store was opened in Aoyama, Tokyo, followed by a third one on Rodeo Drive, Beverly Hills, in 2004. During the same year, Prada acquired control of Car Shoe, a classic Italian brand renowned for its exclusive driving moccasins. In 2003 Prada entered into a licensing agreement with Italian eyewear manufacturer Luxottica, a global industry leader which currently produces and distributes eyewear with the Prada and Miu Miu brands. Also in 2003, a new par tnership was established that led to the release of the first fragrance, Amber, in 2004. 10 Annual Report 2021_DRAFT_160322 separated pages.indd 10 Annual Report 2021_DRAFT_160322 separated pages.indd 10 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupPrada Epicenter concept store Broadway, New York by architect Rem Koolhaas and Studio OMA Prada Epicenter concept store Los Angeles, Beverly Hills by architect Rem Koolhaas and Studio OMA Annual Report 2021_DRAFT_160322 separated pages.indd 11 Annual Report 2021_DRAFT_160322 separated pages.indd 11 16/03/22 20:41 16/03/22 20:41 Prada Epicenter concept store Aoyama, Tokyo by architects Herzog & de Meuron Annual Report 2021_DRAFT_160322 separated pages.indd 12 Annual Report 2021_DRAFT_160322 separated pages.indd 12 16/03/22 20:41 16/03/22 20:41 In 2006, Miu Miu moved its fashion show venue to Paris to better represent its brand identity. The Prada phone by LG, the world’s first touchscreen cellphone, made its debut in March 2007. The LG/Prada par tnership achieved fur ther success with new releases in 2008 and 2011. On June 24, 2011, Prada was successfully listed on the Main Board of the Hong Kong Stock Exchange. In March 2014, Prada spa acquired control of Angelo Marchesi srl, the historical Milanese patisserie founded in 1824, thus entering the food industry. In 2015 the Prada Group and Coty Inc. introduced the first Miu Miu fragrance. In September of that year the Marchesi 1824 brand was developed on the market with the opening of a patisserie in via Montenapoleone, Milan. 2016 featured impor tant manufacturing investments, all of which were made to achieve sustainable production growth respectful of the environment: a new leather goods factory was inaugurated and five factories in Tuscany and Umbria were renovated. The first construction phase of the new logistics hub for finished products was completed in Tuscany. The second phase was completed in 2018. In 2017, the impor tant restyling plan for Prada and Miu Miu stores was coupled with an extensive program of pop-up events to fur ther suppor t retail activities. In the same year, the Prada Group was admitted to the Cooperative Compliance regime with the Italian tax authorities, introduced with Italian Law Decree 128 of 2015. In 2018 the Group added to its customary Milan and Paris fashion shows two impor tant events to present pre-collections: Miu Miu Croisière in Paris and Prada Resor t in New York. In 2019 the Diversity & Inclusion Advisory Council was established; assisted by leading exper ts from impor tant international academic and cultural institutions, it guides the Group on matters of social sustainability. In October of the same year, Annual Report 2021_DRAFT_160322 separated pages.indd 13 Annual Report 2021_DRAFT_160322 separated pages.indd 13 13 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA Groupthe Prada Group obtained full control of the retail network by acquiring Fratelli Prada spa, the long-standing franchisee of Prada monobrand stores in Milan. In 2020, the year when the beginning of the Covid-19 pandemic wreaked havoc across the globe, Raf Simons became the Creative Co-Director of Prada and other impor tant managers joined the team, with a view to fostering long-term growth even with the uncer tainties arising from the public health emergency. In July of the same year Prada spa obtained “AEO Full” (Authorized Economic Operator) cer tification from the Italian Customs Agency, becoming one of very few taxpayers in Italy to hold simultaneously this qualification and par ticipate in the Cooperative Compliance regime with the Italian Revenue Agency. In 2021 the 36th edition of America’s Cup presented by Prada became the most viewed one ever, and the Luna Rossa sailing team won the Prada Cup Challenger Selection Series for the second time in history. During the year, the Prada Group founded the Aura Blockchain Consor tium with LVMH and Car tier and purchased a stake in Filati Biagioli Modesto S.p.A. with the Zegna Group; it also bought out the remaining stakes in the Travel Retail Shop companies dealing with duty-free store activities, and acquired the ownership of Luna Rossa Challenge Srl so as to fully develop the commercial value of the Luna Rossa brand. In addition, a long-term licensing agreement with L’Oréal for the creation, development and distribution of Prada brand luxury cosmetics entered into effect. 14 Annual Report 2021_DRAFT_160322 separated pages.indd 14 Annual Report 2021_DRAFT_160322 separated pages.indd 14 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupT H E G R O U P ' S B R A N D S The Prada Group owns and manages some of the most prestigious luxury brands in the world and works constantly to enhance their value by increasing their visibility, recognition and appeal. The Group’s brands are one of its most impor tant assets. PRADA Prada is at the forefront of Italy’s design and manufacturing tradition, sophisticated style and outstanding quality. As one of the most innovative fashion brands, intrinsically linked to acumen and intellectual curiosity, it is capable of redefining the norm by anticipating and setting new trends. Prada is radicalism, authenticity and duality. Its essence transcends the creativity of its design process to encompass the most novel forms of production, communication and distribution. Miuccia Prada has always been a refined interpreter of her times who has stayed ahead of styles and trends. The Prada brand, with its collections of men’s and women’s leather goods, clothing, footwear, eyewear, and fragrances, targets an international clientele that is urbane, modern, and culturally and socially active. In addition, the prestige of the Luna Rossa collection captures the interest of spor ts enthusiasts. Annual Report 2021_DRAFT_160322 separated pages.indd 15 Annual Report 2021_DRAFT_160322 separated pages.indd 15 15 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupAnnual Report 2021_DRAFT_160322 separated pages.indd 16 Annual Report 2021_DRAFT_160322 separated pages.indd 16 16/03/22 20:41 16/03/22 20:41 Prada advertising campaign S/S 2022 Annual Report 2021_DRAFT_160322 separated pages.indd 17 Annual Report 2021_DRAFT_160322 separated pages.indd 17 16/03/22 20:41 16/03/22 20:41 Annual Report 2021_DRAFT_160322 separated pages.indd 18 Annual Report 2021_DRAFT_160322 separated pages.indd 18 16/03/22 20:41 16/03/22 20:41 Prada advertising campaign S/S 2022 Talent: Tom Holland Annual Report 2021_DRAFT_160322 separated pages.indd 19 Annual Report 2021_DRAFT_160322 separated pages.indd 19 16/03/22 20:41 16/03/22 20:41 MIU MIU Miu Miu is the most free-spirited representation of Miuccia Prada’s creativity. Intentionally distant from classic aesthetic expressions, and with a nonconformist perspective, the brand reflects an emancipated and discerning woman. Miu Miu was created in 1993 from Miuccia Prada’s independent and unconventional spirit. It soon evolved into one of the leading fashion brands in the world by successfully embodying the same quality and culture of innovation behind all the Group’s activities. Miu Miu is irreverently sophisticated and characterized by a cutting-edge style that evokes a sense of freedom and intimacy. Miu Miu targets women driven by a modern spirit of exploration and experimentation in their fashion choices. The independent identity of the Miu Miu brand is enhanced by its ties with Paris, where the fashion shows have been held for several years now. Right page Miu Miu adver tising campaign S/S 2022 20 Annual Report 2021_DRAFT_160322 separated pages.indd 20 Annual Report 2021_DRAFT_160322 separated pages.indd 20 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupAnnual Report 2021_DRAFT_160322 separated pages.indd 21 Annual Report 2021_DRAFT_160322 separated pages.indd 21 16/03/22 20:41 16/03/22 20:41 Annual Report 2021_DRAFT_160322 separated pages.indd 22 Annual Report 2021_DRAFT_160322 separated pages.indd 22 16/03/22 20:41 16/03/22 20:41 CHURCH’S Church’s has challenged the most formal rules of style throughout its history. Church’s expresses contemporary luxury, upholding a centuries-old tradition. It began its distinctive journey when, thanks to a family heritage of handcrafted shoemaking experience dating back to 1675, the first Church’s brand shoe factory was opened in 1873 at 30 Maple Street in Nor thampton, England. Over time, Church’s turned a small cordwainer ’s workshop into a leading luxury footwear company. With its creations, Church’s has become synonymous with an impeccable style that remains faithful to the British look yet explores new design areas, playing with the combination of three primary elements: the finest leather, classic style and superb craftsmanship. Church’s dedicates meticulous attention and care to every detail: its takes approximately 250 manual steps and 8 weeks of labor to make a single pair of shoes. Left page Church’s adver tising campaign S/S 2022 Annual Report 2021_DRAFT_160322 separated pages.indd 23 Annual Report 2021_DRAFT_160322 separated pages.indd 23 23 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupAnnual Report 2021_DRAFT_160322 separated pages.indd 24 Annual Report 2021_DRAFT_160322 separated pages.indd 24 16/03/22 20:41 16/03/22 20:41 CAR SHOE Small rubber studs set on a deconstructed sole have characterized the iconic Car Shoe loafer since 1963. Originating from a passion for race cars and fine shoes, this timeless accessory has become par t of the imagery involving travel and motors. The Car Shoe brand is a symbol of an exclusive, relaxed lifestyle, inspired by luxury. Par ticularly suited for leisure time and informal occasions, the Car Shoe collections are targeted to a casual, well-dressed male and female clientele. MARCHESI 1824 With a strong history and tradition, Marchesi 1824 is one of the oldest and most famous pastry shops in Milan, renowned for the excellence of its products, par ticularly chocolate and Panettone, the typical Milanese cake. Left page Car Shoe adver tising campaign S/S 2021 Annual Report 2021_DRAFT_160322 separated pages.indd 25 Annual Report 2021_DRAFT_160322 separated pages.indd 25 25 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupAnnual Report 2021_DRAFT_160322 separated pages.indd 26 Annual Report 2021_DRAFT_160322 separated pages.indd 26 16/03/22 20:41 16/03/22 20:41 Pasticceria Marchesi 1824 Galleria Vittorio Emanuele II, Milan Annual Report 2021_DRAFT_160322 separated pages.indd 27 Annual Report 2021_DRAFT_160322 separated pages.indd 27 16/03/22 20:41 16/03/22 20:41 B U S I N E S S M O D E L The success of the Prada Group’s brands is based on a business model that combines skilled craftsmanship with industrial manufacturing processes. This integration enables the Group to translate its innovative fashion concepts into viable commercial products. It also help retaining flexible capacity, as well as control over know-how, quality and sustainability standards and production costs. Fashi on Shows Showroom Presentation SOURCING STYLE & DESIGN AND PRODUCT DEVELOPMENT COLLECTION OF ORDERS Quality Control DISTRIBUTION Buying Session (Ret ai l) Sales Campaign ( W ho l e sal e) PRODUCTION AND LOGISTICS CREATIVIT Y Creativity is at the hear t of the manufacturing process. Miuccia Prada has the talent to combine intellectual curiosity, the pursuit of new and unconventional ideas, and cultural and social interests with a strong sense of fashion. This has made it possible to establish a genuine design culture, based on method and discipline, which guides everyone who works in the creative process. The appointment in 2020 of Raf Simons as Creative Co-Director of the Prada brand alongside Miuccia Prada produced a new creative authorship model, reiterating the impor tance and power of dialogue. With this unique approach Prada anticipates and often influences trends, while constantly experimenting with new designs, fabrics and production techniques. Experimentation and idea-sharing are the essential components of the design process throughout the Group. The time spent at the drawing board and in the testing room on design research and development is fundamental to formulating each collection so that the clothing, footwear and accessories complement each other and create a well-defined image reflecting the brands. Prada’s flair and the strong appeal of its tradition and quality standards continue to attract talented people from all over the world who want to share the creative 28 Annual Report 2021_DRAFT_160322 separated pages.indd 28 Annual Report 2021_DRAFT_160322 separated pages.indd 28 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA Groupexperience. This results in teams in all stages of the creative process: from fashion design to manufacture, from architecture to communication and photography, from store interior design to all the unique and special projects in which the Prada Group is involved. In 2021 the American magazine WWD awarded Miuccia Prada the John B. Fairchild Honor for Lifetime Achievement to celebrate her enduring influence on fashion. RAW MATERIALS AND THE PRODUCTION PROCESS Know-how is the Group’s historical asset and represents an element of continuity and balance between creativity and precision. The manufacturing vision is based on two key principles: constant innovation, which ensures the evolution of skills and exper tise, and a vocation for craftsmanship, which is an essential asset for the production and value of each brand. Raw materials are an essential par t of product quality and are of primary impor tance for all the Prada Group’s brands. In many cases the fabrics and leather are made especially for the Group, according to stringent technical and style specifications that guarantee excellence. Prada products are made at the 23 manufacturing facilities owned (20 in Italy, 1 in the United Kingdom, 1 in France and 1 in Romania) and by a network of selected and strictly monitored contract manufacturers that are supplied with internally made raw materials and internally made patterns and prototypes. This system, which enables close oversight of each step of the process and ensures high-quality workmanship, emphasizes the manufacturing excellence of each facility and ensures significant flexibility in the organization of production. The outstanding quality of the production operations gives the Group a competitive advantage, enhanced by continuous research and experimentation on production materials and techniques, and by investments in structures, supply chain and, not least of all, people. Most of the production employees have been working for the Prada Group for an average of 20 years; this ensures an extremely high level of specialization as well as in-depth knowledge and harmony with the Group’s unique concept. For years Prada has been investing heavily in the transmission of manufacturing techniques and core values to younger generations, both with the Prada Academy and by honing its employees’ technical skills. Annual Report 2021_DRAFT_160322 separated pages.indd 29 Annual Report 2021_DRAFT_160322 separated pages.indd 29 29 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupPrada store La Samaritaine, Paris Prada store Seoul The Hyundai, Seoul Annual Report 2021_DRAFT_160322 separated pages.indd 30 Annual Report 2021_DRAFT_160322 separated pages.indd 30 16/03/22 20:41 16/03/22 20:41 Miu Miu store Sant’Andrea, Milan Miu Miu store Taipei Breeze Nanshan, Taipei Annual Report 2021_DRAFT_160322 separated pages.indd 31 Annual Report 2021_DRAFT_160322 separated pages.indd 31 16/03/22 20:41 16/03/22 20:41 DISTRIBUTION Over the years, the Group has expanded its distribution network to include 635 directly operated stores (“DOS”) in the most prestigious locations of the major international shopping destinations, consistent with the image, heritage and exclusivity of each brand. This extensive network, the object of ongoing research and renovation, is a true asset for the Group as it showcases the new collections and is the fulcrum of the omnichannel strategy. The Group’s own e-commerce websites complete the direct customer journey, offering a constantly evolving shopping experience integrated with the physical stores. The DOS serve as more than a primary sales function as they are also an impor tant means of communication: they are the true brand ambassadors, conveying the image of each brand consistently and categorically. The DOS are integrated with the e-commerce strategy and allow the Group to monitor in real time the sales per formance of the various markets for each brand and product category. The wholesale channel (depar tment stores, multi-brand stores and franchisees) provides additional venues selected on the basis of location prestige in the various markets, and enables direct, immediate comparison with the competition. Developments in the ominichannel strategy have led to impor tant par tnerships with top online retailers (“e-tailers”). IMAGE AND COMMUNICATIONS Sharing information with stakeholders enables being involved in the brands’ value system, which transcends purely commercial goals. Effective communications are key to building and transmitting a strong image for the brands that is consistent with their identity. From impeccably executed fashion shows rich in content to award-winning adver tising campaigns, Prada and all the Group’s brands continue to create a captivating, stylish image that is valued par ticularly by a high-end, international clientele and by the strictest, most demanding observers and critics. The fluid content, embodying creative freedom and intellectual curiosity, makes it possible to implement the omnichannel strategy effectively. Through social media accounts, brand e-commerce websites, the corporate website and digital platforms in general, the Group fosters direct and immediate contact with the audience to enhance the interest in its brands and initiatives. In parallel, the vast editorial coverage given on hundreds of covers of the world’s leading 32 Annual Report 2021_DRAFT_160322 separated pages.indd 32 Annual Report 2021_DRAFT_160322 separated pages.indd 32 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA Groupfashion magazines and in the most influential dailies and weeklies heightens the visibility of the Group’s brands. Special events also promote brand profiles and boost awareness of the most recent collections in local markets, especially in large cosmopolitan cities. SOCIAL AND ENVIRONMENTAL SUSTAINABILIT Y On November 11, 2021, Prada spa’s Board of Directors approved the strategic guidelines for sustainable growth, formalized on the basis of the principles and priorities that have always moved the Prada Group, identified in three pillars: people, the environment and culture. Along with defining the social and environmental sustainability strategy, the Group strengthened the related governance by arranging for three Board members to have specific ESG (environmental, social and governance) capabilities. This organizational structure, made official on January 28, 2022 through the resolution of the PRADA spa general meeting, ensures that the processes for creating the Group’s long-term value develop in harmony with the sustainability objectives. PEOPLE The Prada Group puts the human factor and the universe of cultures, talents and identities that compose it at the center of its work. This variety is a source of inspiration for creativity and innovation, and an essential tool for rapidly understanding changes in society and in the market. At December 31, 2021 the Group has 13,140 employees from 107 countries, with women making up 62% of the total workforce. The Group, which works in a constantly evolving global market, encourages a culture of diversity, equity and inclusion within its own ranks and along its entire sphere of influence. The Board of Directors’ capabilities, the Diversity, Equity and Inclusion management and the par tnerships with authoritative universities and monitoring centers make it possible for Prada’s strategies to evolve in tune with the most recent societal shifts. Moreover, the Diversity & Inclusion Advisory Council in the U.S.A., which brings together illustrious activists and exper ts, educates management fur ther about the social aspects of sustainability, autonomously and independently from any form of Group governance. In 2021 the Prada Group joined The Valuable 500, an international association Annual Report 2021_DRAFT_160322 separated pages.indd 33 Annual Report 2021_DRAFT_160322 separated pages.indd 33 33 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA Groupthat promotes the inclusion of people with disabilities in company organizations. In this context, the Prada Group prepared a long-term disability integration plan that has taken off with the hiring of individuals affected by Trisomy 21 (Down syndrome) at its Italian stores. From the outset, Prada has encouraged and rewarded workplace skills, results orientation and teamwork. The passion and skills of the employees, and of the ar tisans in par ticular, are essential for product innovation and quality, for which the Group pursues excellence in all its endeavors and relationships. It cultivates a mindset that leads people to strive for per fection in their work. Prada Academy is the Group’s training hub designed to cultivate talent and ensure the Group’s future through the sharing of knowledge, techniques, and ideas. The Academy has a global digital platform and a team dedicated to the implementation and continuous updating of projects, content and training plans. It is split up into three macro areas: Industrial, Learning & Development and Stores. The Industrial area holds courses dedicated to learning craftsmanship in the clothing, footwear and leather goods categories. A substantial structure completely behind the Group’s productive strategy, the Industrial Academy’s goal is to preserve and pass on to young generations the heritage of knowledge and exper tise typical of the organization and of the fashion industry. The Learning & Development area, effectively the Group’s corporate area, focuses on courses geared toward the enhancement of relational and behavioral skills, aimed at achieving more effective management of operational complexities. In the Stores area, store staff are mentored by experienced personnel, and institutional training courses are held for store staff to strengthen relational skills, in par t through the use of technology, and product knowledge. The extensive, merit-based compensation and benefits system ensures equal treatment in terms of gender, seniority and role, and makes the Prada Group a true equal oppor tunity employer. The Group’s remuneration policy seeks to attract, reward and retain skilled personnel and exper t managers, while bringing the interests of management into line with the primary objective of creating value for the long-term future. The Remuneration Committee oversees the compensation packages of top management, taking into consideration roles and responsibilities as well as market 34 Annual Report 2021_DRAFT_160322 separated pages.indd 34 Annual Report 2021_DRAFT_160322 separated pages.indd 34 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA Groupstandards for similar positions in a panel of companies comparable to Prada in terms of size and complexity. The Group is committed to demonstrating its full respect for the value of the individual and of the human rights, especially of workers, recognized in Italian and international agreements and statements such as the United Nations Universal Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work and the OECD Guidelines for Multinational Enterprises, as noted in the Sustainability Policy approved by the Board of Directors on March 15, 2019. Internal policies safeguard the health and safety of the employees at all the premises in accordance with the highest standards and in full compliance with local and international regulations and the strictest public health emergency protocols. In most locations (offices, warehouses and stores), these risks are limited. Manufacturing facilities present the greatest health and safety risk, although such risk is still low. Safety training and refresher courses, with an emphasis on industrial facilities, helped keep the number of accidents very low in 2021, as well as in previous years. The Prada Group collaborates with trade unions to continuously improve the working conditions of its employees and to foster the long-term well-being of its employees and the respective communities. During the Covid-19 pandemic, the Group was among the first businesses in Italy to establish stringent employee safety protocols, allowing it to reopen production facilities in 2020 during the most acute phase of the lockdown. Over the years the Group has stipulated many supplementary agreements in Italy, the United Kingdom and France whereby it offers better benefits than those already contained in the local collective bargaining agreements. Thanks to respect, dialogue and cooperation with trade unions, no labor strikes occurred in the year or in recent years. With regard to the working conditions of employees throughout the supply chain, the Company has identified some industrial supplier risks, for which it has adopted specific policies and has set up dedicated structures. This control system defines the responsibilities and operational behaviors needed to assess the ethical, technical and financial reliability of the suppliers. Specifically for ethical issues, the accreditation and subsequent maintenance of a supplier ’s qualification requires compliance with the Group’s Code of Ethics and the collection Annual Report 2021_DRAFT_160322 separated pages.indd 35 Annual Report 2021_DRAFT_160322 separated pages.indd 35 35 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA Groupof documents, statements and self-cer tifications that ensure compliance with laws on remuneration, social security, taxation, occupational health and safety, the environment, privacy and the governance model. Audits carried out at the manufacturing locations of suppliers in recent years, intended to maintain a high level of control over risks of human rights violations and inadequate working conditions, led to the formulation of action plans at some locations. Some audits resulted in the termination of the supply contract. ENVIRONMENT AND TERRITORY The Prada Group believes it has a responsibility to engage in and cultivate vir tuous behaviors that contribute to the sustainable growth of its business and are examples of good practice within its industry. Prada is committed to reducing its environmental impact not only within the organization but also by raising the awareness of its stakeholders and par tnering with qualified third par ties. Fighting climate change and conserving the places where it operates are ways the Group intends reduce its environmental footprint with the greatest priority. In 2021 the Prada Group completed the measurement of its carbon footprint and then successfully presented greenhouse gas emission reduction targets in accordance with the Science Based Targets Initiative, a best international practice and protocol. Such targets envision a 29% reduction of Scope 1 and Scope 2 emissions (from those of 2019) by 2026, and a 42% reduction of Scope 3 emissions (from those of 2019) by 2029. The first target will be met through an intensive energy-efficiency action plan that has in recent years made the Group one of the industry leaders in this area: by the end of 2026, electric heating and air conditioning systems will be installed in five other plants, the propor tion of renewable energy obtained and self-produced will be doubled and new LEED cer tificates will be obtained for stores; about the latter, the Prada Group has achieved a leadership position having already secured n. 141 LEED cer tifications (3 for Building Design and Construction, 57 v4. Interior Design and Construction and 81 v4.1 Operations and Maintenance O + M) The second target, cutting emissions along the supply chain, requires the involvement of the suppliers and the formulation of a joint action plan. The Group plans to reach net zero emissions by 2050. Respect for the places where its facilities are located has been a guiding principle for the Prada Group from the star t. Reducing land take, renovating existing 36 Annual Report 2021_DRAFT_160322 separated pages.indd 36 Annual Report 2021_DRAFT_160322 separated pages.indd 36 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA Groupstructures and working toward building requalification have inspired the decisions made in more than thir ty years of industrial development. Prada’s manufacturing and storage facilities are an excellent example of its responsible relationship with the environment. These buildings occupy more than 200,000 m2, and are almost all located in Italy. Five of them are new constructions, three are the products of industrial archeology projects, and many more have been conver ted from sites long abandoned and in obvious disrepair. For four of its largest industrial projects, Prada hired architect Guido Canali, Italy’s leading proponent of sustainable architecture. This relationship, initiated in the 1990s and still underway in a new, impor tant phase, was developed while business ethics were being introduced voluntarily and spontaneously at a time in history in which the significance of adopting such values had not been realized yet. The Prada Valvigna factory, as well as the new logistic hub in Levanella, both in Tuscany, represent the synthesis of these principles: structures capable of generating sustainable efficiency and obtaining harmony between the architectural intervention and the natural surroundings. With respect to protecting biodiversity, the Prada Group is constantly seeking ways to make footwear, clothing and leather goods increasingly more sustainable, in keeping with its characteristically innovative spirit. The exper tise acquired over decades of product research and development made it possible to successfully launch the “Re-Nylon” campaign to completely transition from virgin nylon to regenerated nylon, by now nearly accomplished, and to introduce many new solutions with a smaller carbon footprint, from the catwalks to the collections and, obviously, packaging. Prada became fur free with the 2020 Spring-Summer Women’s collection. Annual Report 2021_DRAFT_160322 separated pages.indd 37 Annual Report 2021_DRAFT_160322 separated pages.indd 37 37 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupAnnual Report 2021_DRAFT_160322 separated pages.indd 38 Annual Report 2021_DRAFT_160322 separated pages.indd 38 16/03/22 20:41 16/03/22 20:41 Prada industrial Headquar ter Valvigna, Terranuova Bracciolini (AR) by architect Guido Canali Annual Report 2021_DRAFT_160322 separated pages.indd 39 Annual Report 2021_DRAFT_160322 separated pages.indd 39 16/03/22 20:41 16/03/22 20:41 Annual Report 2021_DRAFT_160322 separated pages.indd 40 Annual Report 2021_DRAFT_160322 separated pages.indd 40 16/03/22 20:41 16/03/22 20:41 In 2020, for World Oceans Day, Prada and UNESCO inaugurated the “Sea Beyond” project, embarking on an enduring par tnership aimed at spreading awareness about the impor tance of ocean preservation through the research and repor ting activities of the Intergovernmental Oceanographic Commission. Sea Beyond, conceived as an ocean literacy project dedicated to secondary school students in ten cities across the globe, has become par t of Prada’s narrative describing the commitment to publicizing this topic. New initiatives are planned for this awareness campaign involving the Group’s employees and a new, more extensive project with the schools. Last but not least, joining the Fashion Pact on August 23, 2019 at the G7 Meeting in France created a unique oppor tunity to accelerate environmental sustainability initiatives. Active par ticipation in the coalition’s projects has enabled the Group to acquire exper tise, forge new relationships and expand its own knowledge of the actions needed to achieve the objectives of contrasting climate change, restoring biodiversity and protecting the oceans. Left page Prada Group and UNESCO educational programme “Sea Beyond” Annual Report 2021_DRAFT_160322 separated pages.indd 41 Annual Report 2021_DRAFT_160322 separated pages.indd 41 41 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupCULTURE Ar t, philosophy, architecture, literature and film are the main cultural disciplines that represent continuous sources of inspiration for the Group. The network of connections made broadens horizons, subver ting norms, boldly challenging expectations and shaping scenarios that deviate from the ordinary. Interaction with these apparently distant cultural spheres has led to a number of special projects that, over the years, have helped define the many facets of the Prada world. Prada’s interest in architecture has always been evident in its aforementioned cutting-edge manufacturing sites, with the requalification and conversion of former factories into showrooms and offices, and the development of revolutionary retail concepts thanks to prestigious par tnerships with some of the most influential architectural firms in the world. In 2015 Herzog & de Meuron, winners of the Prit zker Architecture Prize, worked with the Group on the Miu Miu flagship store in the Aoyama district of Tokyo, core of the brand’s Japanese operations. A few years earlier, from 2000 to 2004, Herzog & de Meuron and another Prit zker Prize winner, Rem Koolhaas, had par tnered with Prada on the Epicenter Concept Stores in New York, Los Angeles and Tokyo. These Epicenters, still essential for the Group’s image, are the result of innovative thinking about the shopping concept, revisited and reinvented to create unique places, where luxury goods, technology, design and architecture combine seamlessly with a vast range of exclusive services and sensory and digital experiences. On occasion, the Epicenters host movie screenings, exhibitions, debates and other cultural events. The restoration of Rong Zhai, a historic residence in downtown Shanghai, was completed in 2017 after a scrupulous, six-year refurbishment. Rong Zhai, yet another example of the Prada Group’s interest in the restoration of historical landmarks, is the result of a fruitful par tnership with architects, historians, and ar tisans and is now the hub of the Group’s cultural events in China. The interests and passions of Miuccia Prada and Patrizio Ber telli have inspired the Prada Group to suppor t the ar tistic and cultural activities of Fondazione Prada since 1993. Fondazione Prada was created in Milan to develop contemporary ar t exhibitions along with architectural, cinematic, philosophical, science and per forming ar ts projects. The cultural activities of Fondazione Prada make it possible for the Group 42 Annual Report 2021_DRAFT_160322 separated pages.indd 42 Annual Report 2021_DRAFT_160322 separated pages.indd 42 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA Groupto proactively contribute to current debates and observe the changes taking place in society. This collaboration, active in the form of sponsorship, is an impor tant source of inspiration for the creative process and enables the Group to associate the success of Fondazione Prada with its image and share the related value with its stakeholders. Since 2010, Fondazione Prada has presented twenty-four exhibitions in Milan dedicated to impor tant international ar tists, as well as other activities in the field of cinema, architecture and philosophy in Italy and abroad. Since 2011, the Fondazione has also been operating at its Venetian venue, Ca’ Corner della Regina, an eighteenth-century building that has so far hosted nine research exhibitions and an experimental platform dedicated to cinema. The exhibition program of Fondazione Prada’s headquar ters in Milan, inaugurated in 2015 and designed by the architectural firm OMA, included in 2021 the site- specific project “Who the Bær ”conceived by contemporary ar tist Simon Fujiwara, and the retrospective exhibition “Domenico Gnoli” conceived by Germano Celant and dedicated to the eponymous twentieth-century ar tist. Annual Report 2021_DRAFT_160322 separated pages.indd 43 Annual Report 2021_DRAFT_160322 separated pages.indd 43 43 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupExhibition view of “Domenico Gnoli” Fondazione Prada, Milano. Photo: Rober to Marossi Annual Report 2021_DRAFT_160322 separated pages.indd 44 Annual Report 2021_DRAFT_160322 separated pages.indd 44 16/03/22 20:41 16/03/22 20:41 The multifunctional space of the Deposito, within the Milan venue, hosted for the first time in December 2021 “Riccardo Muti Italian Opera Academy”, a training project under taken by Maestro Muti targeted to five young orchestra conductors and five répétiteurs under the age of 35 from all over the world. Also at the Milan venue, the “Multiple Canvases” and “Proof. Incorporated” film series took place at the Cinema in 2021. The Venetian venue hosted the “Stop Painting” exhibition, conceived by ar tist Peter Fischli, and the “AURA | SUL TOCCARE LE COSE” choreographic project, conceived by Virgilio Sieni and presented in collaboration with Fondazione Archivio Luigi Nono. Osservatorio, the Fondazione’s exhibition space dedicated to photography since 2016, is located on the 5th and 6th floors of one of the central buildings in Galleria Vittorio Emanuele II, in Milan. The “Sturm&Drang” exhibition project, a collaboration between Fondazione Prada and gta exhibitions, ETH Zurich, was held in 2021. Curated by Luigi Alber to Cippini, Fredi Fischli and Niels Olsen, “Sturm&Drang” explored the applications, experiences and environments related to computer-generated imagery (CGI) with the aim of revealing the complexity of computer modeling and analyzing the current production of images. In spring 2021, with the suppor t of Fondazione Prada, the Prada Group presented a different version called “Sturm&Drang Preview Services” on a floor of the Prada Aoyama Tokyo Epicenter in Japan. The entire project was integrated with a program of online lectures on the subjects of the exhibitions, with ar tists, designers and creatives exper t on these technologies, published on the Fondazione’s website. In 2021, “Human Brains,” a global project of exhibitions, scientific debates, public meetings and publishing activities dedicated to brain studies, was developed fur ther. The project, which will run until 2022, aims to attract public interest in neuroscience and create a forum to facilitate exchanges among scientists, philosophers and scholars. Annual Report 2021_DRAFT_160322 separated pages.indd 45 Annual Report 2021_DRAFT_160322 separated pages.indd 45 45 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupExhibition view of “Stop Painting” Fondazione Prada, Venezia. Photo: Marco Cappelletti Annual Report 2021_DRAFT_160322 separated pages.indd 46 Annual Report 2021_DRAFT_160322 separated pages.indd 46 16/03/22 20:41 16/03/22 20:41 Annual Report 2021_DRAFT_160322 separated pages.indd 47 Annual Report 2021_DRAFT_160322 separated pages.indd 47 16/03/22 20:41 16/03/22 20:41 Annual Report 2021_DRAFT_160322 separated pages.indd 48 Annual Report 2021_DRAFT_160322 separated pages.indd 48 16/03/22 20:41 16/03/22 20:41 Miuccia Prada’s personal interest in cinema as a contemporary form of ar t has led to other invaluable collaborations such as the shor t films entitled “Miu Miu Women’s Tales”, of which the last two episodes – “Shangri-La”, directed by Isabel Sandoval and “I and the Stupid Boy”, directed by Kaouther Ben Hania – were shown at the 2021 Venice Film Festival as par t of the Giornate degli Autori program. The film series, which consists of twenty-two films produced up to December 2021, calls upon directors of international fame and diverse intellectual backgrounds to explore the world of women. Interaction with the world of cinema has created various other par tnerships with internationally renowned film directors, such as “ The Delivery Man” (2018), created and directed by Ryan Hope and interpreted by Academy Award winner J.K. Simmons, “Past Forward” (2016) by Academy Award winner David O. Russell, and “ Thunder Per fect Mind” (2006) by Jordan and Ridley Scott. Left page Miu Miu Women’s tales n.22 “I and The Stupid Boy” Directed by Kaouther Ben Hania Annual Report 2021_DRAFT_160322 separated pages.indd 49 Annual Report 2021_DRAFT_160322 separated pages.indd 49 49 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupAnnual Report 2021_DRAFT_160322 separated pages.indd 50 Annual Report 2021_DRAFT_160322 separated pages.indd 50 16/03/22 20:41 16/03/22 20:41 LUNA ROSSA In addition to engaging with the world of ar t, cinema, architecture and culture in general, the Prada Group, driven by the same spirit of constant pursuit of inspiration, has shown for more than twenty years fervent interest in the world of sailing and the America’s Cup race, the most prestigious competition for this spor t. Prada sponsors the Luna Rossa team, which was a challenger in the sailing yacht races of 2000, 2003, 2007, 2013 and 2021, won the challenger selection regattas in 2000 and 2021, and reached the finals in 2007 and 2013. Having thrived from this experience, which increased the Prada brand’s visibility and made a huge contribution to the commercial success of the activewear lines, in November 2021 the Group purchased Luna Rossa Challenge Srl, the firm that manages the sailing team and possesses unique and advanced technological and spor ts know-how in the sector. With this acquisition, the Group has combined the ownership of the Luna Rossa brand with the competitive capability of the team in view of par ticipating in the upcoming 37th America’s Cup and fully benefiting from the commercial potential of the Luna Rossa brand. Left page Luna Rossa Prada Pirelli Team Winner of the Prada Cup Annual Report 2021_DRAFT_160322 separated pages.indd 51 Annual Report 2021_DRAFT_160322 separated pages.indd 51 51 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupP R A D A G R O U P S T R U C T U R E PRADA spa Milan Holding/Manufacturing/distribution/services 100% Church & Co ltd Northampton Manufacturing/ distribution/services 100% IPI Logistica srl Milan services 100% PRADA Canada Corp Toronto distribution/retail 100% PRADA Australia pty ltd Sydney retail 100% Church & Co (Footwear) ltd Northampton tradeMarks 100% Pelletteria Ennepi srl Figline e Incisa Valdarno Production 100% Post Development Corp New York real estate 100% PRADA Korea llc Seoul retail 60% PRADA Middle East fzco Jebel Ali Free Zone-Dubai distribution/services 100% PRADA Retail France sas 100% Marchesi 1824 srl Milan food&beverage 100% PRADA sa Luxembourg tradeMark 49% PRADA Emirates llc 100% PRADA Monte-Carlo sam Dubai retail UK Branch London Swiss Branch Lugano services 100% Church UK Retail ltd Northampton retail 100% Hipic Prod Impex srl Sibiu Production 100% PRADA USA Corp New York distribution/services/retail 100% PRADA Singapore pte ltd Singapore retail 49% PRADA Kuwait wll Kuwait City retail 100% PRADA Belgium sprl 100% Luna Rossa Challenge srl 100% PRADA Company sa Grosseto ManageMent sailing teaM Luxembourg services 100% Church’s English Shoes sa Brussels retail 100% Figline srl Milan Production PRADA Guam llc Guam retail 100% 100% PRADA Retail Malaysia sdn bhd Kuala Lumpur retail 100% 100% Church France sas Paris retail 100% Pelletteria Figline srl Figline Incisa Valdarno Production PRADA Retail Mexico S. de R.L. de C.V. Mexico City retail 100% 100% PRADA Japan Co ltd Tokyo retail Church Spain sl Madrid retail 66.7% Artisans Shoes srl Montegranaro Production 100% 100% PRADA Brasil Importação e Comércio de Artigos de Luxo ltda São Paulo retail PRADA Panama sa Panama retail 100% PRADA Retail Aruba nv Aruba retail 100% PRADA Saint Barthelemy sarl Gustavia retail 100% PRADA (Thailand) Co ltd Bangkok retail 100% PRADA New Zealand ltd Wellington retail 100% 100% PRADA Vietnam Limited Liability Company Hanoi retail PRADA Saipan llc Saipan retail 100% PRADA Asia Pacific ltd Hong Kong services/retail PRADA Taiwan ltd Hong Kong retail 100% Taipei Branch Taipei retail PRADA Trading (Shanghai) Co ltd Shanghai dorMant 100% PRADA Fashion Commerce (Shanghai) Co ltd Shanghai retail 100% PRADA Macau Co ltd Macau retail 100% PRADA Dongguan Trading Co ltd Dongguan services 100% 100% Church Ireland Retail ltd Dublin retail 60% Tannerie Limoges sas Isle Production 100% Church Austria gmbh Vienna retail 40% Les Femmes srl Porto S. Elpidio Production 100% Church Netherlands bv Amsterdam retail 40% Filati Biagioli Modesto srl Montale Production 100% Church Footwear ab Stockholm retail 100% Church Denmark aps Copenhagen retail 100% Church Germany gmbh Münich retail 100% 100% Church’s English Shoes Switzerland sa Lugano retail Church Italia srl Milan retail 100% Church & Co (USA) ltd New York retail 100% Church Hong Kong Retail ltd Hong Kong retail 100% Church Japan Company ltd Tokyo retail 100% Church Singapore pte ltd Singapore retail 100% 100% Church Footwear (Shanghai) Co ltd Shanghai retail Church Korea llc Seoul retail 52 Annual Report 2021_DRAFT_160322 separated pages.indd 52 Annual Report 2021_DRAFT_160322 separated pages.indd 52 16/03/22 20:41 16/03/22 20:41 100% PRADA Retail wll 100% PRADA Germany gmbh Munich retail/services 75% PRADA Saudi Arabia ltd 100% PRADA Austria gmbh 100% PRADA Rus llc 100% PRADA Czech Republic sro 100% PRADA Ukraine llc 100% PRADA Netherlands bv Amsterdam retail 100% PRADA Kazakhstan llp 100% PRADA Switzerland sa Doha retail Jeddah retail Moscow retail Kiev retail Almaty retail Paris retail Monaco retail Brussels retail Vienna retail Prague retail Lugano retail Madrid retail Lisbon retail Istanbul retail London retail 100% PRADA Spain sl 100% PRADA Portugal Unipessoal lda 100% PRADA Hellas Sole Partner llc Athens retail 100% PRADA Bosphorus Deri Mamüller ltd Sirketi 100% PRADA Retail UK ltd Ireland Branch Dublin retail 100% PRADA Denmark aps Copenhagen retail 100% PRADA Sweden ab Stockholm retail 100% PRADA San Marino srl San Marino retail 100% Kenon ltd London real estate PRADA Group Annual Report 2021 - The PRADA GroupPRADA spa Milan Holding/Manufacturing/distribution/services 100% IPI Logistica srl Milan services 100% PRADA Canada Corp Toronto distribution/retail 100% PRADA Australia pty ltd 100% Pelletteria Ennepi srl Figline e Incisa Valdarno Production 100% Hipic Prod Impex srl Sibiu Production Figline srl Milan Production 100% Post Development Corp 100% PRADA Korea llc New York real estate 100% PRADA USA Corp New York distribution/services/retail 100% PRADA Singapore pte ltd Singapore retail PRADA Guam llc 100% 100% Guam retail PRADA Retail Malaysia sdn bhd Kuala Lumpur retail 100% Pelletteria Figline srl Figline Incisa Valdarno Production PRADA Retail Mexico S. de R.L. de C.V. Mexico City retail 100% 100% PRADA Japan Co ltd Tokyo retail Sydney retail Seoul retail 100% Church’s English Shoes sa 100% 100% Church Ireland Retail ltd 60% Tannerie Limoges sas 100% PRADA (Thailand) Co ltd 100% Church Austria gmbh 40% 100% PRADA New Zealand ltd 66.7% Artisans Shoes srl Montegranaro Production Isle Production Les Femmes srl Porto S. Elpidio Production 100% PRADA Brasil Importação e Comércio de Artigos de Luxo ltda São Paulo retail 100% PRADA Panama sa Panama retail 100% Church Netherlands bv 40% Filati Biagioli Modesto srl Amsterdam retail Montale Production 100% PRADA Retail Aruba nv Aruba retail 100% PRADA Saint Barthelemy sarl Gustavia retail 100% Church & Co ltd Northampton Manufacturing/ distribution/services 100% Church & Co (Footwear) ltd Northampton tradeMarks 100% Church UK Retail ltd Northampton retail 100% Church France sas 100% Church Spain sl Brussels retail Paris retail Madrid retail Dublin retail Vienna retail 100% Church Footwear ab Stockholm retail 100% Church Denmark aps Copenhagen retail 100% Church Germany gmbh 100% Church’s English Shoes Switzerland sa 100% Church Italia srl 100% Church & Co (USA) ltd 100% Church Hong Kong Münich retail Lugano retail Milan retail New York retail Retail ltd Hong Kong retail Tokyo retail 100% Church Japan Company ltd 100% Church Singapore pte ltd Singapore retail 100% Church Footwear (Shanghai) Co ltd Shanghai retail 100% Church Korea llc Seoul retail Bangkok retail Wellington retail Hanoi retail Saipan retail 100% PRADA Vietnam Limited Liability Company 100% PRADA Saipan llc 100% PRADA Asia Pacific ltd Hong Kong services/retail PRADA Taiwan ltd Hong Kong retail 100% Taipei Branch Taipei retail PRADA Trading (Shanghai) Co ltd Shanghai dorMant 100% PRADA Fashion Commerce (Shanghai) Co ltd 100% Shanghai retail Macau retail PRADA Macau Co ltd 100% PRADA Dongguan Trading Co ltd Dongguan services 100% 60% PRADA Middle East fzco Jebel Ali Free Zone-Dubai distribution/services 100% PRADA Retail France sas Paris retail 100% Marchesi 1824 srl Milan food&beverage 100% PRADA sa Luxembourg tradeMark 49% 49% PRADA Emirates llc Dubai retail 100% PRADA Monte-Carlo sam Monaco retail UK Branch London Swiss Branch Lugano services PRADA Kuwait wll Kuwait City retail 100% PRADA Belgium sprl Brussels retail 100% Luna Rossa Challenge srl Grosseto ManageMent sailing teaM 100% PRADA Company sa Luxembourg services 100% PRADA Retail wll Doha retail 100% PRADA Germany gmbh Munich retail/services 75% PRADA Saudi Arabia ltd Jeddah retail 100% PRADA Austria gmbh Vienna retail 100% 100% PRADA Rus llc Moscow retail 100% PRADA Czech Republic sro Prague retail PRADA Ukraine llc Kiev retail 100% PRADA Netherlands bv Amsterdam retail 100% PRADA Kazakhstan llp Almaty retail 100% PRADA Switzerland sa Lugano retail 100% 100% 100% 100% PRADA Spain sl Madrid retail PRADA Portugal Unipessoal lda Lisbon retail PRADA Hellas Sole Partner llc Athens retail PRADA Bosphorus Deri Mamüller ltd Sirketi Istanbul retail 100% PRADA Retail UK ltd London retail Ireland Branch Dublin retail 100% PRADA Denmark aps Copenhagen retail 100% PRADA Sweden ab Stockholm retail 100% PRADA San Marino srl San Marino retail 100% Kenon ltd London real estate Note: PRM Services S. de R.L. de C.V.; Prada Maroc Sarlau; Prada Retail South Africa (pty) ltd; Cor 36 S.r.l. (all 100%, directly or indirectly, owned by Prada S.p.A.) are currently under liquidation process Annual Report 2021_DRAFT_160322 separated pages.indd 53 Annual Report 2021_DRAFT_160322 separated pages.indd 53 53 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupP R A D A S . P. A . C O R P O R A T E I N F O R M A T I O N Registered Office Head Office Via A. Fogazzaro, 28 20135 Milan, Italy Via A. Fogazzaro, 28 20135 Milan, Italy Place of business in Hong Kong registered under Par t 16 of the Hong Kong Companies Ordinance 8th Floor, One Taikoo Place 979 King’s Road Quarry Bay, Hong Kong S.A.R. (P.R.C.) Company Corporate web site www.pradagroup.com Hong Kong Stock Exchange Identification Number 1913 Share Capital Board of Directors Audit Committee 54 Euro 255,882,400 (represented by 2,558,824,000 shares of Euro 0.10 each) Paolo Zannoni (Chairman & Executive Director) Miuccia Prada Bianchi (Chief Executive Officer & Executive Director) Patrizio Ber telli (Chief Executive Officer & Executive Director) Alessandra Cozzani (Chief Financial Officer & Executive Director) Lorenzo Ber telli (Executive Director) Stefano Simontacchi (Non-Executive Director) Marina Sylvia Caprotti (Independent Non-Executive Director) Maurizio Cereda (Independent Non-Executive Director) Yoël Zaoui (Independent Non-Executive Director) Pamela Yvonne Culpepper (Independent Non-Executive Director) Anna Maria Rugarli (Independent Non-Executive Director) Yoël Zaoui (Chairman) Marina Sylvia Caprotti Maurizio Cereda Annual Report 2021_DRAFT_160322 separated pages.indd 54 Annual Report 2021_DRAFT_160322 separated pages.indd 54 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupRemuneration Committee Nomination Committee Board of Statutor y Auditors Marina Sylvia Caprotti (Chairwoman) Paolo Zannoni Yoël Zaoui Maurizio Cereda (Chairman) Lorenzo Ber telli Marina Sylvia Caprotti Antonino Parisi (Chairman) Rober to Spada David Terracina Organismo di Vigilanza (Supervisor y Body) (Italian Leg. Decr. 231/2001) Stefania Chiaruttini (Chairwoman) Yoël Zaoui Gianluca Andriani Main Shareholder Joint Company Secretaries PRADA Holding S.p.A. Via A. Fogazzaro, 28 20135 Milan, Italy Stefania Cane Via A. Fogazzaro, 28 20135 Milan, Italy Ying Kwai Yuen 8th Floor, One Taikoo Place 979 King’s Road Quarry Bay, Hong Kong S.A.R. (P.R.C.) Authorized Representatives in Hong Kong S.A.R. Patrizio Ber telli Via A. Fogazzaro, 28 20135 Milan, Italy Alternate Authorized Representative to Patrizio Ber telli in Hong Kong S.A.R. Hong Kong Share Registrar Auditor Ying Kwai Yuen 8th Floor, One Taikoo Place 979 King’s Road Quarry Bay, Hong Kong S.A.R. (P.R.C.) Wendy Pui-Ting Tong 8th Floor, One Taikoo Place 979 King’s Road Quarry Bay, Hong Kong S.A.R. (P.R.C.) Computershare Hong Kong Investor Services Limited Shops 1712-1716 17th Floor, Hopewell Centre 183 Queen’s Road East Wanchai, Hong Kong S.A.R. (P.R.C.) Deloitte & Touche S.p.A. Via Tor tona, 25 20144 Milan, Italy Annual Report 2021_DRAFT_160322 separated pages.indd 55 Annual Report 2021_DRAFT_160322 separated pages.indd 55 55 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - The PRADA GroupAnnual Report 2021_DRAFT_160322 separated pages.indd 56 Annual Report 2021_DRAFT_160322 separated pages.indd 56 16/03/22 20:41 16/03/22 20:41 F I N A N C I A L R E V I E W Annual Report 2021_DRAFT_160322 separated pages.indd 57 Annual Report 2021_DRAFT_160322 separated pages.indd 57 57 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewF I N A N C I A L R E V I E W B A S I S O F P R E P A R A T I O N The Board of Director ’s Financial Review refers to the group of companies controlled by PRADA spa (“Prada” or the “Company”), the parent company of the PRADA Group (the “Group” or “Prada Group”). This Financial Review should be read in conjunction with the Consolidated Financial Statements and related explanatory Notes, which are an integral par t thereof. The tables repor ted in the Financial Review have been prepared in accordance with the International Financial Repor ting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) and endorsed by the European Union. Some “non-IFRS measures” are also used in the Financial Review in order to represent some financial aspects of the period from a management perspective. 58 Annual Report 2021_DRAFT_160322 separated pages.indd 58 Annual Report 2021_DRAFT_160322 separated pages.indd 58 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewCONSOLIDATED STATEMENT OF PROFIT OR LOSS (amounts in thousands of Euro) twelve months period ended December 31, 2021 % on net revenues twelve months period ended December 31, 2020 % on net revenues twelve months period ended December 31, 2019 Net Sales Royalties Net revenues 3,316,620 49,047 3,365,667 98.5% 1.5% 100% 2,390,866 31,873 2,422,739 98.7% 1.3% 100% 3,183,339 42,255 3,225,594 % on net revenues 98.7% 1.3% 100% Cost of goods sold (818,309) -24.3% (679,361) -28.0% (905,982) -28.1% Gross margin 2,547,358 75.7% 1,743,378 72.0% 2,319,612 71.9% Product design and development costs Advertising and promotion expenses (115,319) (294,251) -3.4% -8.8% (102,232) (206,848) -4.2% -8.5% (127,378) (231,011) Selling costs (1,421,169) -42.2% (1,259,827) -52.0% (1,470,101) General and administrative expenses Total operating expenses (227,135) (2,057,874) -6.7% (154,410) -6.4% (184,343) -61.1% (1,723,317) -71.1% (2,012,833) -3.9% -7.2% -45.6% -5.7% -62.4% EBIT 489,484 14.5% 20,061 0.8% 306,779 9.5% Interest and other financial income / (expenses), net Interest expenses on Lease Liability Dividends from investments Total financial income/(expenses) (31,216) (36,773) 160 (67,829) -0.9% -1.1% 0.0% -2.0% (29,480) (42,670) 277 (71,873) -1.2% -1.8% 0.0% -3.0% (25,174) (48,980) 2,135 (72,019) Income / (loss) before taxation 421,655 12.5% (51,812) -2.1% 234,760 Taxation (126,552) -3.8% (2,556) -0.1% 22,964 Net income / (loss) for the period 295,103 8.8% (54,368) -2.2% 257,724 Net income / (loss) - Non-controlling interests 849 0.0% (229) 0.0% 1,936 Net income / (loss) - Group 294,254 8.8% (54,139) -2.2% 255,788 -0.8% -1.5% 0.1% -2.2% 7.3% 0.7% 8.0% 0.1% 7.9% Annual Report 2021_DRAFT_160322 separated pages.indd 59 Annual Report 2021_DRAFT_160322 separated pages.indd 59 59 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Review KEY FINANCIAL INFORMATION Key economic figures (amounts in thousands of Euro) Net revenues Operating income/(loss) - EBIT % Incidence on net revenues Net income / (loss) of the Group Earnings / (losses) per share (Euro) Net Operating Cash Flows (*) twelve months ended December 31 2021 twelve months ended December 31 2020 twelve months ended December 31 2019 3,365,667 2,422,739 489,484 14.5% 294,254 0.115 750,723 20,061 0.8% (54,139) (0.021) 262,100 3,225,594 306,779 9.5% 255,788 0.100 362,365 (*) Non- IFRS measure equal to Net Cash Flows from operating activities less repayments of lease liability Key indicators (amounts in thousands of Euro) December 31 2021 December 31 2020 December 31 2019 Net operating working capital Net invested capital (Right of Use assets included) Net financial surplus / (deficit) Group shareholders’ equity 2 0 2 1 H I G H L I G H T S 602,038 4,936,402 237,653 3,113,894 667,024 5,296,489 (311,357) 2,832,057 702,835 5,809,417 (405,544) 2,967,158 The Covid-19 pandemic continued to fuel a transformation process in the luxury goods market in 2021, making it truly evolve. The share of consumers belonging to young generations increased considerably, as did the input of the digital sales channels and local consumers. Ethical products, the social responsibility of the brands and the significance of human beings in the buying experience, even in the new physical-digital ecosystem, have become of paramount impor tance to the industry’s value proposition. Focusing on being relevant, sustainable and impactful, the Prada Group has succeeded in evolving with the market in this scenario of mutations. The combination of its unique creative prowess and a transformational omnichannel strategy has enhanced the perceived value of the brands and products, paving the way for revenue growth and putting the Group back on the path of long-term value creation. The commercial strategy was behind this growth with a more profitable sales mix, the elimination of markdowns, and a fully streamlined wholesale distribution channel. The increase in the Group’s own e-commerce sites also contributed to the growth, mainly with new customers. Investments in retail space and processes raised store productivity rates and were critical to strengthening the brand identities. In 2021 alone, 120 store renovations 60 Annual Report 2021_DRAFT_160322 separated pages.indd 60 Annual Report 2021_DRAFT_160322 separated pages.indd 60 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Reviewwere completed and 80 pop-up installations were set up, leading to increased footfall in stores and a continuously evolving retail image. The Prada Outdoor, Prada Holiday, Miu Miu Upcycled and Miu Miu Nuit pop-up shops resonated the most, traveling around to some of the most prestigious depar tment stores and malls. Investments in content and in traditional and digital communication channels led to excellent results even in the online brand visibility metrics. Effective communication campaigns made it possible to expand the involvement of the digital community during successful events, such as the Prada 2022 Spring/Summer fashion show, the first be to presented simultaneously in two cities (Milan and Shanghai), and the 36th America’s Cup presented by Prada, the most viewed edition ever. The omnichannel growth strategy included new investments that will soon lead to additional optimization of back end retail operations and greater use of data, making the customer relationship management (CRM) activities even more effective. Last but not least, having joined the Aura consor tium as a founding member enables the Group to fur ther enrich the customer journey: through blockchain technology, the Group’s brands will guarantee to customers enhanced transparency and traceability. Moreover, a digital evolution roadmap was approved during the year that will lead to a cutting-edge information system for the Group in terms of engineering and technology, giving another competitive advantage in the per formance of all distribution and communication channels and indeed the entire business operation. The industrial area benefited from impor tant reduction of complexity as well as investments in the ver ticalization of the production process to enhance ar tisanal know-how and fur ther boost the high quality standards of the products. Use of operating capacity was optimized at the Levanella logistic hub, a forerunner of technology and sustainability in the industry and a crucial site for integrating manufacturing processes with store procurement ones. Manufacturing activities were also strengthened through the acquisition of the remaining minority stakes in two subsidiaries, and the acquisition of a stake in Filati Biagioli spa, renowned for Italian excellence in the production of cashmere and other noble yarns. For Capital Markets Day in November, the strategic guidelines for the Group’s sustainable growth were communicated as formalized based on the principles and priorities that have always motivated the Prada Group, organized into three pillars: people, environment and culture. The Group’s operating results improved considerably from those of the pre- Annual Report 2021_DRAFT_160322 separated pages.indd 61 Annual Report 2021_DRAFT_160322 separated pages.indd 61 61 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Reviewpandemic levels, showing increases in both amounts and as a percentage of net revenues. The consequential cash generation, net of investments and resumed dividend payments, enabled the Group to accumulate enough cash assets to face confidently the impor tant shor t and medium investments. ANALYSIS OF NET REVENUES (amounts in thousands of Euro) Net Sales by geographical area Europe Asia Pacific Americas Japan Middle East and Other countries Total Net Sales Net Sales by brand Prada Miu Miu Church's Other Total Net Sales Net Sales by product line Leather goods Clothing Footwear Other Total Net Sales Net Sales by channel Net Sales of direct operated stores (DOS) Sales to independent customers and franchisees Total Net Sales Net Revenues Net Sales Royalties Total Net Revenues twelve months ended December 31 2021 twelve months ended December 31 2020 twelve months ended December 31 2019 970,637 1,272,534 636,963 309,704 126,782 3,316,620 2,857,693 401,219 39,551 18,157 3,316,620 1,698,470 908,041 655,798 54,311 3,316,620 29.3% 38.4% 19.2% 9.3% 3.8% 100% 86.2% 12.1% 1.2% 0.5% 100% 51.2% 27.4% 19.8% 1.6% 100% 741,131 963,845 324,479 280,232 81,179 2,390,866 2,012,620 329,497 36,964 11,785 2,390,866 1,310,938 604,571 442,792 32,565 2,390,866 31.0% 40.3% 13.6% 11.7% 3.4% 100% 84.2% 13.8% 1.5% 0.5% 100% 54.8% 25.3% 18.5% 1.4% 100% 1,228,437 1,017,593 455,402 386,066 95,841 3,183,339 2,643,348 450,491 69,801 19,699 3,183,339 1,765,799 729,350 627,576 60,614 3,183,339 38.6% 32.0% 14.3% 12.1% 3.0% 100% 83.0% 14.2% 2.2% 0.6% 100% 55.5% 22.9% 19.7% 1.9% 100% 2,930,856 385,764 3,316,620 88.4% 11.6% 100% 2,115,370 275,496 2,390,866 88.5% 11.5% 100% 2,636,097 547,242 3,183,339 82.8% 17.2% 100% 3,316,620 98.5% 2,390,866 98.7% 3,183,339 98.7% 49,047 3,365,667 1.5% 100% 31,873 2,422,739 1.3% 100% 42,255 3,225,594 1.3% 100% During the year the Prada Group obtained net revenues of Euro 3,365.7 million, an increase at constant exchange rates of 7.8% against those of 2019 and 40.6% against those of 2020. Except for the Chinese renminbi and a few other currencies, the foreign exchange rates of the main currencies weakened against the Euro, and reduced the increase against 2019 by 3.4% and against 2020 by 1.7%. 62 Annual Report 2021_DRAFT_160322 separated pages.indd 62 Annual Report 2021_DRAFT_160322 separated pages.indd 62 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewDISTRIBUTION CHANNELS Over the twelve-month period, the net sales of the retail channel rose constantly and progressively, thanks to the per formance of full-price sales and local customers. Sales of directly operated stores increased by 15.2% at constant exchange rates compared with 2019 (+11.2% at current exchange rates) and by 40.4% compared with 2020 (+38.6% at current exchange rates). Such results need to be contextualized in an economic and operational scenario still characterized by store closures ensuing from the restrictions adopted by governments to combat the pandemic: during the year the Group operated with 10% fewer stores on average (mainly in Europe and Japan). There were 635 stores at December 31, 2021, after 2 additions net. Direct e-commerce sales continued to benefit from impor tant growth: 61% from 2020, and more than fivefold from 2019; they account for approximately 7% of the total 2021 retail sales. The wholesale channel continued to be streamlined, in accordance with the Group’s strategies. MARKETS The retail sales in Asia Pacific of the twelve months ended December 31, 2021 rose at constant exchange rates by 30.1% from those of 2019 (+28.9% at current exchange rates), with a remarkable growth in the Chinese Mainland, South Korea and Taiwan (P.R.C.). Compared to 2020, the region grew by 29.1% (+30.4% at current exchange rates). Retail sales in Europe showed a contraction of 11.5% at constant exchange rates compared with 2019 (-15% at current exchange rates), although they resumed growth in the second half of the year; set against the twelve months of 2020, the region showed an increase of 35.1% (+33.4% at current exchange rates). It should be noted that in most of the first half of the year this region was severely affected by restrictions, which forced it to operate with 19% fewer stores on an annual basis. Retail sales in the American market showed a surge compared to both 2019 (+68.8% at constant exchange rates and +57.8% at current exchange rates) and 2020 (nearly double at constant and current exchange rates). The growth was achieved across all countries in the region. Annual Report 2021_DRAFT_160322 separated pages.indd 63 Annual Report 2021_DRAFT_160322 separated pages.indd 63 63 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewThe Japanese market was especially penalized by the persistent restrictive measures in place. However, the region began to recover in the second half of the year, and its four th-quar ter retail sales were substantially in line with those of the same period of 2019. Set against full year 2019, the region showed a decline of 16.6% at constant exchange rates (-21.5% at current exchange rates), whereas compared with 2020 it repor ted an increase of 16.3% at constant exchange rates (+9.2% at current exchange rates). Retail sales in the Middle East were considerably higher than those of 2019 (+42.7% at constant exchange rates and +35.2% at current exchange rates) and 2020 (+61.8% at constant exchange rates and +56.5% at current exchange rates). PRODUCTS The Group’s retail growth involved all the product categories. Clothing, the product category that best expresses the Group’s design leadership, had 35.5% growth over 2019 in retail net sales and 52.8% over 2020. Footwear, building on the success of lifestyle and new collections, had 15.7% growth over 2019 and 49% over 2020. Leather goods, benefiting from both new products and iconic ones, increased by 7.3% over 2019 and 31.2% over 2020. BRANDS Prada retail net sales increased by 20.6% at constant exchange rates versus 2019 (+16.2% at current exchange rates), with 29.2% growth in the last quar ter. Miu Miu fell by 6.7%, with the four th quar ter of 2021 almost in line against the same three-month period of 2019. Church’s, affected by the geographical exposure in Europe, fell by 41.4%. In contrast, compared with 2020, all the brands repor ted gains: Prada +44% (+42% at current exchange rates), Miu Miu +19.8% (+18.9% at current exchange rates) and Church’s +11.4% (+11.7% at current exchange rates). ROYALTIES Royalty income rose by 16.1% from that of 2019 and by 53.9% from that of 2020. The new agreement with L’Oréal gave an impor tant boost to the fragrance segment, whereas the increase for eyewear followed the trend with the long-standing par tner, Luxottica. 64 Annual Report 2021_DRAFT_160322 separated pages.indd 64 Annual Report 2021_DRAFT_160322 separated pages.indd 64 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewNUMBER OF STORES Prada Miu Miu Church's Car Shoe Marchesi 1824 and others Total Europe Americas Asia Pacific Japan Middle East Total December 31, 2021 December 31, 2020 December 31, 2019 Owned Franchises Owned Franchises Owned Franchises 420 146 61 2 6 635 21 5 - - - 26 410 152 62 3 6 633 20 6 - - - 26 410 160 62 3 6 641 19 6 - - - 25 December 31, 2021 December 31, 2020 December 31, 2019 Owned Franchises Owned Franchises Owned Franchises 228 105 193 88 21 635 - - 21 - 5 26 222 108 194 88 21 633 - - 21 - 5 26 229 107 198 85 22 641 - - 20 - 5 25 Annual Report 2021_DRAFT_160322 separated pages.indd 65 Annual Report 2021_DRAFT_160322 separated pages.indd 65 65 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Review O P E R A T I N G R E S U L T S The gross margin of the twelve months ended December 31, 2021 corresponded to 75.7% of the net revenues, up substantially from the 72% of 2020 as a result of a better product, channel and country mix. It should also be considered that the 2020 margin had been affected by less absorption of production overheads due to the sales contraction. In the second half of 2021 the gross margin was 76.8%. The total operating expenses were Euro 2,057.9 million, up by Euro 334.6 million from those of 2020. The increase is attributable to the normalization of expenditure levels, which in 2020 had benefited more from rent discounts and government incentives. Compared with 2019, the increase is reduced to Euro 45.1 million, due essentially to greater communication activities and the purchase of traditional and digital media space. The operating result (EBIT) was Euro 489.5 million (14.5% of net revenues), versus Euro 20.1 million for 2020. The EBIT was also much higher than for 2019 (Euro 306.8 million, 9.5% of net revenues). 66 Annual Report 2021_DRAFT_160322 separated pages.indd 66 Annual Report 2021_DRAFT_160322 separated pages.indd 66 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewF I N A N C I A L E X P E N S E S A N D T A X A T I O N The net financial expenses were Euro 67.8 million, down by Euro 4 million from those 2020. The decrease was due to less interest expenses, due to a smaller amount and time horizon, and less net bank borrowings. Higher foreign exchange net losses par tially offset the overall decrease of financial charges. The income tax expense, net was Euro 126.6 million, corresponding to 30% of the pre-tax income. Annual Report 2021_DRAFT_160322 separated pages.indd 67 Annual Report 2021_DRAFT_160322 separated pages.indd 67 67 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewA N A L Y S I S O F T H E S T A T E M E N T O F F I N A N C I A L P O S I T I O N NET INVESTED CAPITAL The following table reclassiﬁes the Statement of Financial Position to provide a better view of net invested capital: (amounts in thousands of Euro) Right of Use assets Non-current assets (excluding deferred tax assets), net Trade receivables, net Inventories, net Trade payables Net operating working capital Other current assets (excluding items of financial position) Other current liabilities (excluding items of financial position) Other current assets/(liabilities), net Provision for risks Post-employment benefits Other long-term liabilities Deferred taxation, net Other non-current assets/(liabilities), net Net invested capital Shareholder's equity – Group Shareholder's equity – Non-controlling interests Total Consolidated shareholders' equity Long-term financial, net surplus/(deficit) Short-term financial, net surplus/(deficit) Net financial surplus / (deficit) Net financial deficit to Consolidated shareholders' equity ratio Long-term Lease Liability Short-term Lease Liability Total Lease Liability Net financial surplus / (deficit), including Lease Liability Shareholders’ equity and Net financial surplus / (deficit), including Lease Liability December 31 2021 December 31 2020 1,956,289 2,490,047 329,547 662,654 (390,163) 602,038 186,866 (349,915) (163,049) (59,201) (73,819) (73,559) 257,656 51,077 2,054,338 2,507,244 290,380 666,222 (289,578) 667,024 246,914 (221,421) 25,493 (45,416) (73,256) (61,576) 222,638 42,390 4,936,402 5,296,489 (3,113,894) (14,749) (3,128,643) (491,676) 729,329 237,653 -7.6% (1,627,197) (418,215) (2,045,412) (1,807,759) (4,936,402) (2,832,057) (19,663) (2,851,720) (450,075) 138,718 (311,357) 10.9% (1,729,819) (403,593) (2,133,412) (2,444,769) (5,296,489) The net invested capital at December 31, 2021 amounts to Euro 4,936 million, financed by net equity of Euro 3,129 million and lease liability of Euro 2,045 million; the financial position at December 31, 2021 is positive and amounting to Euro 237.7 million. The right of use assets decreased by Euro 98 million on account of the depreciation charge of Euro 426.2 million, net of the increase due to new leases and remeasurements of existing ones, equal to Euro 27 7.3 million, and foreign exchange appreciation of Euro 50.8 million. The non-current assets (net) have remained consistent (Euro 2,490 million at December 31, 2021 against Euro 2,507 million at December 31, 2020) because 68 Annual Report 2021_DRAFT_160322 separated pages.indd 68 Annual Report 2021_DRAFT_160322 separated pages.indd 68 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Review the increase in fixed assets (Euro 55.8 million) was offset nearly entirely by the decrease in non-current equity instruments (Euro 60.5 million), due mainly to the disposal of financial investments. The capital expenditures of the year amounted to Euro 216.7 million, against depreciation, amor tization and write-downs of Euro 204.5 million. The increase in the item was also affected by foreign exchange gains of Euro 33.4 million, as a result of the main currencies in which the Group’s assets are denominated appreciating against the Euro, as well as the acquisition of Luna Rossa for Euro 10.6 million. (amounts in thousands of Euro) Retail Real estate Production, Logistics and Corporate Total twelve months ended December 31 2021 twelve months ended December 31 2020 85,742 59,453 71,549 61,056 - 60,686 216,744 121,742 The capital expenditures regarded primarily store restyling and relocation projects, as well as many technological and digital evolution projects in the retail, manufacturing and corporate areas. In addition, to have greater control over its real estate space, the Group purchased two prestigious buildings in impor tant shopping destination in Europe where Prada stores are located. The net operating working capital at December 31, 2021 is Euro 602 million, down by approximately Euro 65 million from that of 2020. The contraction was substantially attributable to higher payables resulting from the intensification of the production, commercial and communication activities in the final months of 2021. The other current liabilities (net) are Euro 163 million at December 31, 2021, turning around from an asset balance of December 31, 2020 as a result of the current taxes due for the year. The other non-current assets (net) show an increase of Euro 8.7 million from the prior year: deferred tax assets referring to larger temporary differences on the tax bases of inventory were offset in par t by liabilities recognized for deferring over the long term royalty income collected during the year. Annual Report 2021_DRAFT_160322 separated pages.indd 69 Annual Report 2021_DRAFT_160322 separated pages.indd 69 69 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewNET FINANCIAL POSITION The following table provides details of the net financial position: (amounts in thousands of Euro) Bank borrowing – non-current Financial payables and bank overdrafts - current Payables to related parties - current Total financial payables – current Total Financial payables Cash and cash equivalents Financial receivables from related parties - non-current Financial receivables from related parties - current December 31 2021 December 31 2020 (492,801) (451,200) (249,103) (3,360) (252,463) (300,577) (3,097) (303,674) (745,264) (754,874) 981,786 1,125 6 442,392 1,125 - Total Financial receivables and Cash and cash equivalents 982,917 443,517 Net financial surplus / (deficit) 237,653 (311,357) The net operating cash flow for the twelve-month period, after the payment of lease liabilities (Euro 392.8 million), was cash generation of Euro 750.7 million, which enabled to finance the cash outflows for investing activities (Euro 137.3 million), pay dividends (Euro 91.2 million), and conver t the initial net financial deficit of Euro 311.4 million into a net financial surplus of Euro 237.7 million. The total amount of undrawn lines of credit as at December 31, 2021 is Euro 808 million, consisting of Euro 400 million of committed lines and Euro 408 million of uncommitted lines. All financial covenants were fully complied with at December 31, 2021. The following table sets for th the Lease Liability: (amounts in thousands of Euro) Short-term Lease Liability Long-term Lease Liability Total Lease Liability December 31 2021 December 31 2020 418,215 1,627,197 403,593 1,729,819 2,045,412 2,133,412 The Lease liability decreased by Euro 88 million from that of December 31, 2020. This is the result of decreases for the payments of the period (Euro 393 million), as well as rent discounts and foreign exchange differences, and increases (Euro 273 million) for new leases and re-measurements (net of the closures of the period). 70 Annual Report 2021_DRAFT_160322 separated pages.indd 70 Annual Report 2021_DRAFT_160322 separated pages.indd 70 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewThe lease liability is concentrated mainly in Japan, the U.S.A. and Italy. The net financial indebtedness, including the lease liability, is Euro 1,808 million at December 31, 2021 (Euro 2,445 million at December 31, 2020). Fur ther information on the Group’s debt maturities and obligations, currency and interest rate management, commitments and contingent liabilities is provided in Notes 21, 26 and 28 of the Notes to the Consolidated Financial Statements. Annual Report 2021_DRAFT_160322 separated pages.indd 71 Annual Report 2021_DRAFT_160322 separated pages.indd 71 71 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewR I S K F A C T O R S RISK FACTORS REGARDING THE INTERNATIONAL LUXURY GOODS MARKET ECONOMIC RISKS AND INTERNATIONAL BUSINESS RISKS The per formance of the luxury goods market is influenced by individuals’ propensity to consume and by the general economy. Accordingly, the Group’s financial and business per formance is exposed to global social and macroeconomic risks due to its international scale. An unfavorable economy in one or more of the main countries where the Group operates, or at a global level, could adversely affect the propensity to spend on luxury goods and have a negative impact on the Group’s operations, results, cash flows and financial condition. Moreover, a substantial por tion of sales originates from purchases of products by customers on trips abroad. Therefore, unfavorable economic conditions, social, health or geopolitical situations leading to instability, adverse natural events or government restrictions on movement could negatively affect the Group’s sales operations, results, cash flows and general financial condition. The Group believes that full control over the value chain, a well-balanced physical retail presence in the global market accompanied by an omnichannel strategy with closely integrated sales and communication channels, and a sufficiently diversified product range enable it to mitigate the risk that adverse conditions such as these could influence significantly the business per formance. RISKS REGARDING IMAGE AND BRAND RECOGNITION The Group’s success in the international luxury goods business is linked to the image and distinct character of its brands. These features depend on many factors, such as the style and design of the products, the quality of materials and production techniques, the image and locations of DOS, the careful selection of licensees, the communications activities and the corporate profile in general. Preserving the image and prestige acquired by its brands is a primary objective of the Prada Group. This is pursued by monitoring constantly the changes in society, including through close collaboration with the world of ar t and culture, and by continuously seeking innovation in styles, products and communications in order to convey messages that are always consistent with the strong brand identities. Meanwhile, monitoring meticulously each internal and external phase of the value chain reduces considerably the risk that inappropriate per formance could affect 72 Annual Report 2021_DRAFT_160322 separated pages.indd 72 Annual Report 2021_DRAFT_160322 separated pages.indd 72 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Reviewthe image and therefore the value of the brands. RISKS REGARDING ABILIT Y TO ANTICIPATE TRENDS AND REACT TO SHIF TS IN CONSUMER TASTES The Group’s success is reliant on its ability to create and influence fashion and product trends, and to anticipate shifts in consumer tastes and societal trends in a timely manner. Miuccia Prada, assisted by a qualified team of stylists and designers, is capable of combining intellectual curiosity, the pursuit of new and unconventional ideas, and cultural and social interests with a strong sense of fashion. This has made it possible to establish a genuine design culture, based on method and discipline, which guides everyone who works in the creative process. The recent appointment of a Creative Co-Director for the Prada brand enables the Group to benefit from cooperation between two designers widely acknowledged as among the most impor tant and influential of our times – Miuccia Prada and Raf Simons – emphasizing the impor tance and power of creativity. Approximately one thousand individuals work in the design depar tment and in the development depar tment. In the first one a mix of different nationalities, cultures and talents contribute to creativity, while in the second one craft skills combined with solid manufacturing processes dominate the area. This enables the Group to keep abreast of emerging consumer trends and lifestyles and remain a major player in the industry. INTELLECTUAL PROPERT Y RISKS The Prada Group’s brands have always been associated with beauty, creativity, tradition and excellent quality. Prada’s ability to protect its brands and other intellectual proper ty rights means safeguarding these fundamental assets that are responsible for the success of the brands and the brand positioning. The Group protects its brands, designs, patents and websites by registering them and obtaining legal protection for them in all countries throughout the world. At a global level, the Group actively opposes all forms of counter feiting and intellectual proper ty infringement by adopting strong, systematic measures. The wholesale, retail, online and offline markets are monitored daily in close collaboration with customs authorities, tax authorities and the police. Annual Report 2021_DRAFT_160322 separated pages.indd 73 Annual Report 2021_DRAFT_160322 separated pages.indd 73 73 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewRISKS SPECIFIC TO THE PRADA GROUP STRATEGIC RISKS The possibility for the Group to improve its financial and business per formance depends on successful implementation of its commercial strategy for each brand, which is achieved through the continuous suppor t and development of retail sales and the constant recognition of the brands as reference points in the industry. The Group provides suppor t to the retail network by offering leather goods, clothing and footwear that reflect the brand position, accompanied by a unique buying experience featuring a careful revisiting of the physical and digital store concepts and layouts as well as constant enrichment of customer services. The per formance of the retail channel is suppor ted by marketing initiatives intended to enhance the identity of the brands in the specific markets, emphasizing the unique features that distinguish the style and craftsmanship of the products. Moreover, the implementation of the omnichannel strategy has paved the way for long-term business development based on product quality, strong innovation and integration of distribution and communication channels in line with the evolving demands of consumers. RISKS REGARDING THE IMPORTANCE OF KEY PERSONNEL The Group’s success depends on the contribution of key individuals who have played an essential role in the Group’s expansion and who have substantial experience in the fashion and luxury goods business. Its success also depends on Prada’s ability to train new generations of ar tisans and to attract and retain people who are qualified in the design, product development, marketing, merchandising and corporate functions. The Group considers its management structure to be capable of ensuring managerial continuity, and has recently implemented a long-term incentive plan to retain key employees so that they will continue to cover the roles essential to the achievement of the challenging objectives that the Group constantly sets itself. RISKS REGARDING THE OUTSOURCING OF MANUFACTURING ACTIVITIES The Prada Group’s products are made at 23 manufacturing facilities owned in Europe (20 in Italy, 1 in France, 1 in the United Kingdom and 1 in Romania) and by contract manufacturers carefully selected on the basis of competence, quality and reliability. Nearly all the prototypes and samples and some finished products 74 Annual Report 2021_DRAFT_160322 separated pages.indd 74 Annual Report 2021_DRAFT_160322 separated pages.indd 74 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Revieware made at the Group’s own manufacturing facilities. Most sensitive phases of production, such as the cutting of hides and the controls conducted over all raw materials (including those to be sent to contract manufacturers) and semi-finished goods take place there as well. All stages of the production process are checked by the Prada Group’s technical staff to ensure that the products meet the quality standards and that the entire supply chain complies with Prada Spa’s Code of Ethics, which must be signed before any business relationship is entered into. A key par t of the strategy is to establish long-term business relationships with suppliers based on mutual trust and transparency. The Prada Group works with approximately 1,000 raw material suppliers and contract manufacturers, 80% of which are located in Italy. The Group has implemented a strict quality control process for all outsourced production, and contractually requires its contract manufacturers to comply with all regulations on brand ownership and other intellectual proper ty rights. Moreover, the Group demands compliance with the applicable regulations concerning labor law, social security and occupational health and safety, and monitors such compliance with a process that uses document controls and, since 2019, audits conducted at the suppliers’ premises. CREDIT RISK Credit risk is defined as the risk of financial loss caused by the failure of a counterpar ty 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. The Group considers its credit risk to involve primarily trade receivables generated from the wholesale channel and liquid assets. The Group manages credit risk and mitigates the related effects through its business and financial strategies, which are based on the monitoring of the creditwor thiness and solvency of customers, the stipulation of insurance contracts and the use of safe solutions such as advance payments. Concerning liquid assets, the risk of default substantially relates to bank deposits, which represent the Group’s most widely-used financial product for investing surplus operating cash flows. Default risk is mitigated by the allocation of cash holdings to bank deposits that are diversiﬁed in terms of counterpar ties (always investment grade), country and currency, and by the consistently shor t-term period. The residual por tion of liquid assets consists of cash and bank accounts. The Group considers no significant risk to exist on these kinds of liquid assets Annual Report 2021_DRAFT_160322 separated pages.indd 75 Annual Report 2021_DRAFT_160322 separated pages.indd 75 75 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Reviewgiven that they are used for operating activities and business processes and, consequently, the number of independent par ties involved is fragmented. LIQUIDIT Y RISK Cash flow risk refers to difficulty that the Group could have in meeting its financial obligations. The Directors are responsible for managing liquidity risk, whereas the Corporate Finance management, which repor ts to the CFO, is responsible for optimizing ﬁnancial resources. The Directors consider the currently available funds and lines of credit, in addition to the funding that will be generated by operating and financing activities, to be sufficient for enabling the Group to meet its requirements in terms of working capital management, investing activities, punctual loan repayment and the payment of any dividends as planned. TAX RISKS The Prada Group’s tax strategy is based on the prevention of tax risks and on tax cer tainty, both of which are pursued through ongoing dialogue and long-term, principled interaction with the tax authorities in the countries where it operates. The Group’s tax risks, which could arise from compliance errors or incorrect interpretation of regulations, are constantly monitored within the scope of an extensive internal control system, formalized into the tax control framework. The effectiveness of the tax risk management system has made Prada spa eligible to par ticipate in the Cooperative Compliance Tax Regime in Italy (under Italian Legislative Decree 128/2015), enhancing its tax risks internal control system. Within such regime, the Group has expanded a systematic, open communication channel with both the Italian and the most impor tant foreign tax authorities of the countries where it operates, based on reciprocal transparency and trust, with the purpose of minimizing the level of uncer tainty about potentially risky situations. LEGAL AND REGUL ATORY RISKS The Prada Group uses centralized models to comply with the rules and regulations ensuing from the complexity of the global context in which it operates. The guidelines, policies and practices established by Prada spa ensure unequivocal compliance with processes and conduct in order to manage the following legal and regulatory risks: ― risks associated with non-compliance with the Rules Governing the Listing of 76 Annual Report 2021_DRAFT_160322 separated pages.indd 76 Annual Report 2021_DRAFT_160322 separated pages.indd 76 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewSecurities on the Stock Exchange of Hong Kong or with other laws or regulations in force in Hong Kong S.A.R. that the Company must observe as it is listed on the Stock Exchange of Hong Kong Limited; ― risks associated with occupational health and safety under Italian Legislative Decree 81/08 and equivalent regulations in force in other countries; ― possible legal penalties for wrongful acts pursuant to Italian Law 231/2001, as subsequently amended; ― possible events that could adversely affect the accuracy of the annual financial statements and the protection of assets; ― possible manufacturing compliance risks with respect to Italian and international laws and regulations regarding finished goods distributed and raw materials and consumables used. In 2020 Prada spa obtained “AEO Full” (Authorized Economic Operator) cer tification from the Italian Customs Agency for its handling of goods, becoming one of very few taxpayers in Italy to simultaneously hold this qualification and par ticipate in the Cooperative Compliance regime with the Italian Revenue Agency. The Group involves various divisions and uses external exper ts as necessary to keep its processes and procedures constantly updated in order to comply with changing rules and regulations in a timely manner, thereby reducing the risk of non-compliance to an acceptable level. Monitoring activities are per formed by divisional managers, auditors, special entities and committees such as the Supervisory Board and the Internal Control Committee. FOREIGN EXCHANGE RISK The Group has a vast international presence, and therefore is exposed to the risk that changes in currency exchange rates could adversely impact revenue, expenses, margins and profit. In order to hedge foreign exchange risk, the Group enters into derivative contracts designed to fix the value in Euro (or other functional currency) of identified future cash flows. The future cash flows consist primarily of inflows of trade and financial receivables and outflows of trade payables. They refer mainly to Prada spa, the Group’s parent company and worldwide distributor of Prada and Miu Miu brand products. The management of foreign exchange risk is described in more detail in the Notes to the Consolidated Financial Statements. Annual Report 2021_DRAFT_160322 separated pages.indd 77 Annual Report 2021_DRAFT_160322 separated pages.indd 77 7 7 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewINTEREST RATE RISK Interest rate risk is the risk that future cash flows could be affected by interest rate fluctuations. In order to hedge this risk, which refers mainly to Prada spa, the Group uses derivatives (such as interest rate swaps) to conver t variable-rate debt into fixed-rate debt or debt at rates within a specified range. The management of interest rate risk is described in more detail in the Notes to the Consolidated Financial Statements. DATA PROTECTION The Prada Group is aware of the impor tance of ensuring adequate safeguards to its stakeholders on the processing of data and personal information that each of the companies belonging to the Group per forms in the course of its business activities. In order to guarantee the right to protection of personal data and minimize the risks associated with their processing – including risks of non-compliance and cyber attacks - the Prada Group has developed policies and implemented technical and organizational security measures and transparency requirements towards data subjects. Taking into account the state of technological and regulatory evolution, as well as the risk of varying likelihood and severity for the rights and freedoms of individuals underlying each processing activity, the Prada Group has set up an organizational and operational control system, consisting inter alia of operating procedures, training sessions, periodic risk assessments capable of ensuring that: • personal data are processed in compliance with the European General Data Protection Regulation (GDPR) and any other applicable privacy law and regulation of the jurisdictions in which the Group operates; • data are adequately protected against the risk of accidental or unlawful destruction, loss, alteration, unauthorized disclosure or access; • personal data collected and processed by the Group’s companies are handled with the utmost confidentiality and secrecy, may not be used for purposes other than those that justify and permit their collection, processing and storage, and may not be disclosed or transferred to third par ties except in cases and in the manner permitted by applicable law; • any service provider engaged in processing personal data on behalf of the Prada Group, processes such personal data only to the extent necessary for the purposes of the service provided under a contractual obligation of confidentiality and ensures an adequate level of protection of the data subjects’ rights and compliance with 78 Annual Report 2021_DRAFT_160322 separated pages.indd 78 Annual Report 2021_DRAFT_160322 separated pages.indd 78 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Reviewthe applicable legislation. As par t of the measures adopted, the Prada Group has designated a Data Protection Officer (DPO), whose functions include supervising regulatory compliance, repor ting activities and advising on personal data protection matters. With respect to cybersecurity, considering the growing risk of cyber attacks repor ted by European Union financial market regulators, at the time of approval of the consolidated financial statements the Prada Group raised the security levels of its information systems, reinforcing the lines of defense and taking the measures necessary to ensure business continuity. OTHER INFORMATION INFORMATION ON REL ATED-PART Y TRANSACTIONS Information on the Group’s transactions and balances with related par ties is provided in the Notes to the Consolidated Financial Statements, insofar as required by IFRS, and in the Directors’ Repor t and Corporate Governance Repor t, insofar as required by the Hong Kong Stock Exchange rules. NON-IFRS MEASURES The Group uses cer tain financial measures (“non-IFRS measures”) to measure its business per formance and to help readers understand and analyze the results of its operations and its financial situation. Although they are used by the Group’s management, such measures are not universally or legally defined and are not regulated by the IFRS adopted to prepare these Consolidated Financial Statements. O ther companies operating in the luxury goods industry might use the same measures, but with different calculation criteria. For this reason, non-IFRS measures should always be read in conjunction with the related notes, and may not be directly comparable with those used by other companies. In this Annual Repor t the Prada Group used the following non-IFRS measures: EBIT: Earnings before Interest and Taxation, i.e. “Consolidated net result for the period” adjusted to exclude “ Total financial income/(expenses)” and “ Taxation”. EBITDA: Earnings before Interest, Taxation, Depreciation and Amor tization, i.e. “Consolidated net result for the period”, adjusted to exclude “ Total financial Annual Report 2021_DRAFT_160322 separated pages.indd 79 Annual Report 2021_DRAFT_160322 separated pages.indd 79 79 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Reviewincome/(expenses)”, “ Taxation” and “ Total depreciation, amor tization and impairment (included the Depreciation and write-downs of Right of Use assets)”. Markdown sales: Net sales of Group’s Directly Operated Stores of end of season products at promotional prices. Full-price sales (or “regular sales”): Net sales of Group’s Directly Operated Stores excluding Markdown sales. Selling expenses of the closed stores during the lockdowns: as a result of the public health crisis, in 2020 the Group introduced a new non-IFRS measure, “Selling expenses of the closed stores during the lockdowns” regarding the amount of operating expenses directly related to stores that could not generate revenues due to the restrictions imposed during the pandemic. The Group includes this non-IFRS measure to provide additional quantitative information to improve the reader ’s understanding of the impacts of the Covid-19 pandemic on the business. The Prada Group’s EBIT and EBITDA are repor ted below: (amounts in thousands of Euro) twelve months ended December 31 2021 (unaudited) % on net revenues twelve months ended December 31 2020 (unaudited % on net revenues twelve months ended December 31 2019 (unaudited % on net revenues Operating income / (loss) - EBIT 489,484 14.5% 20,061 0.8% 306,779 9.5% Selling expenses of the closed stores during the lockdowns 43,602 1.3% 115,833 4.8% - - Operating income/(loss) - EBIT excluding Selling expenses of the closed stores during the lockdowns 533,086 15.8% 135,894 5.6% 306,779 9.5% Depreciation, amortization and impairment on tangible and intangible fixed assets Depreciation and write-downs of the Right of Use assets (*) Total depreciation, amortization and impairment 204,510 6.1% 225,014 9.3% 233,759 7.2% 426,221 630,731 12.7% 18.8% 443,910 668,924 18.3% 27.6% 456,310 690,069 14.1% 21.3% EBITDA 1,120,215 33.3% 688,985 28.4% 996,848 30.8% (*) shown without the impact of Covid-related discounts The caption “Selling expenses of the closed stores during the lockdowns”, Euro 43.6 million for 2021, included the main direct costs per taining to the retail network during the closure periods related to the pandemic (Euro 115.8 million for 2020). The most significant captions were for Euro 16.3 million the depreciation of rights of use assets net of Covid-related lease discounts obtained from lessors (Euro 45.5 million at December 31, 2020), for Euro 11.8 million the labor costs net of 80 Annual Report 2021_DRAFT_160322 separated pages.indd 80 Annual Report 2021_DRAFT_160322 separated pages.indd 80 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial Review government subsidies (Euro 35.4 million at December 31, 2020), and for Euro 12.6 million the depreciation of tangible fixed assets (Euro 27.7 million at December 31, 2020). Net financial position surplus/(deficit): Shor t-term and long-term financial payables due to third par ties and related par ties, net of cash and cash equivalents and shor t-term and long-term financial receivables due from third par ties and related par ties. Net financial position surplus/(deficit), including Lease Liability: Net Financial Position including Lease Liability. (amounts in thousands of Euro) December 31 2021 December 31 2020 Net financial position surplus/(deficit) 237,653 (311,357) Short-term Lease Liability Long-term Lease Liability Total Lease Liability (418,215) (1,627,197) (403,593) (1,729,819) (2,045,412) (2,133,412) Net financial position surplus/(deficit), including Lease Liability (1,807,759) (2,444,769) Net Operating Cash Flow: Net Cash Flow generated by operating activities, less the repayment of Lease Liability. Free cash flow: Net Operating Cash Flow after the net cash flows used for the investing activities. (amounts in thousands of Euro) December 31 2021 December 31 2020 December 31 2019 Cash Flow from operating activities 1,226,018 691,013 895,573 Cost of net financial debt: interest paid Lease Liability: interest paid Tax Paid (8,556) (36,773) (37,161) (11,704) (42,670) (44,220) (10,338) (49,214) (26,126) Net Cash Flow from operating activities 1,143,528 592,419 809,895 Repayment of Lease Liability (392,805) (330,319) (447,530) Net Operating Cash Flow 750,723 262,100 362,365 Net cash flow utilized by investing activities (137,265) (149,910) (302,261) Free Cash Flow 613,458 112,190 60,104 Annual Report 2021_DRAFT_160322 separated pages.indd 81 Annual Report 2021_DRAFT_160322 separated pages.indd 81 81 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewRESEARCH AND DEVELOPMENT ACTIVITIES The research and development activities are described in the introductory (“ The Prada Group”) section of this Annual Repor t, in the paragraph regarding creativity. The design and product development costs for the twelve months ended December 31, 2021 amount to Euro 115.3 million, as repor ted in the Consolidated Profit or Loss Statement by destination prepared in accordance with IFRSs. TREASURY SHARES As at December 31, 2021 the Group did not own any treasury shares, as repor ted in the “Corporate Governance” section. EVENTS AF TER THE REPORTING DATE At the date of approval of these Consolidated Financial Statements, the Group has suspended its retail operations in Russia. At December 31, 2021 the Group had assets of approximately RUB 7 billion in Russia (Euro 81 million at the year-end exchange rate), consisting mainly of tangible assets at 13 stores (10 Prada and 3 Miu Miu), working capital and cash assets. The net revenues realized in Russia in 2021 accounted for approximately 2% of the consolidated net revenues. The ongoing conflict in Ukraine has resulted in a high volatility of the financial markets, a significant devaluation of the Ruble and a context of high uncer tainty whose future potential effects on the Group’s consolidated financial statements cannot be determined so far.The Management will continue to closely monitor the evolution of the business and legal scenario in order to ensure the correct valuation of the assets recognized in the consolidated financial statements of the Group. Chora S.r.l. initiated a lawsuit in January 2022 against Prada spa; more details are provided in Note 28. OUTLOOK The Prada Group’s star t to 2022 has been strong. The long-term strategy is on track, focused on distinctive brand identity, product quality and industrial know- how, direct distribution and sustainability at the core of corporate values. Decisive actions to evolve the business and navigate the changing luxury market drove outstanding growth and increased profitability in 2021. 82 Annual Report 2021_DRAFT_160322 separated pages.indd 82 Annual Report 2021_DRAFT_160322 separated pages.indd 82 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewThese results give the Group confidence to achieve its medium-term targets, even though it is difficult to predict the impact of the Ukraine conflict on the global economy. The concern is for all the colleagues and their families affected by the war, as well as the local communities and all people suffering, to whom the Group will continue to provide suppor t. Milan, March 14, 2022 Annual Report 2021_DRAFT_160322 separated pages.indd 83 Annual Report 2021_DRAFT_160322 separated pages.indd 83 83 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Financial ReviewAnnual Report 2021_DRAFT_160322 separated pages.indd 84 Annual Report 2021_DRAFT_160322 separated pages.indd 84 16/03/22 20:41 16/03/22 20:41 D I R E C T O R S A N D S E N I O R M A N A G E M E N T Annual Report 2021_DRAFT_160322 separated pages.indd 85 Annual Report 2021_DRAFT_160322 separated pages.indd 85 85 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementDIRECTORS Our Board consists of eleven Directors, of whom five are executive Directors, one is a non-executive Director and five are independent non-executive Directors. The Board of Directors is appointed for a term of three years. CHAIRMAN ZANNONI, Paolo, aged 73, was elected as the Chairman of the Board on May 27, 2021 and conferred executive role on June 4, 2021. He has been international advisor at Goldman Sachs since 2019, providing advice to the firm’s business across Italy and the rest of Europe. He is currently member of the Board of Autogrill S.p.A., listed on the Italian Stock Exchange and secretary of the Board of Directors of Beretta Holding S.p.A. He served as Chairman of Dolce & Gabbana Holding S.r.l. from 2007 to 2021 and Chairman of the Italian energy and telecommunications Prysmian Group from 2005 to 2012. Prior to this, Mr. Zannoni spent a number of years enhancing the Goldman Sachs investment banking franchise in Italy. He joined Goldman Sachs in 1994, was named managing director in 1997, par tner in 2000 and was Chairman of the Italian investment banking business between 2000 and 2013. He also spent a period as co-chief executive officer of Goldman Sachs Russia. Prior to joining Goldman Sachs, Mr. Zannoni was a vice president at Fiat S.p.A. and a lecturer at Yale University. Mr. Zannoni holds directorships in subsidiaries of the Company. Mr. Zannoni is member of the Remuneration Committee. Save as disclosed herein, Mr. Zannoni has not held any directorship in any other listed companies in Hong Kong or overseas in the last three years. EXECUTIVE DIRECTORS PRADA BIANCHI, Miuccia, aged 73, is Chief Executive Officer of the Company along with Mr. Patrizio Ber telli as well as Prada Co-Creative Director along with Raf Simons and Miu Miu Creative Director. She served as Chairperson of the Board from 2003 to 2014 and was most recently re-elected to the Board in May 2021. After obtaining a degree in Political Science from Milan University, Miuccia Prada began designing for the exclusive family business, founded by her grandfather in 1913. At the end of the ‘70s, she formed a par tnership with Patrizio Ber telli, an entrepreneur and owner of two high quality leather goods companies at the time. 86 Annual Report 2021_DRAFT_160322 separated pages.indd 86 Annual Report 2021_DRAFT_160322 separated pages.indd 86 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementThe combination of the two minds made it possible for Prada to become one of the leading luxury companies worldwide. Miuccia Prada has received several awards for her original vision, innovation, and contribution to international fashion. In 2000, she received an Honorary Doctorate from the Royal College of Ar t in London. In 2006, Ms. Prada was named Officier dans l’Ordre des Ar ts et des Lettres by the French Ministry of Culture. In 2015, she was granted the title of Knight of the Grand Cross, the highest Order of Merit of the Italian Republic, in recognition of her international success and contribution on behalf of Italy to the fields of creativity, fashion and style. Ms. Prada is the wife of Mr. Ber telli, one of the Chief Executive Officers, and is the mother of Mr. Lorenzo Ber telli, Executive Director and Group Marketing Director Ms. Prada holds directorships in Prada Holding S.p.A., Bellatrix S.p.A. and Ludo S.p.A., which are substantial shareholders of the Company. Ms. Prada is not and has not been a director of any other listed companies in Hong Kong or overseas in the past three years BERTELLI, Patrizio, aged 75, is Chief Executive Officer of the Company along with Ms. Miuccia Prada. He was first appointed to the Board in 2003 and was most recently re-elected to the Board in May 2021. His par tnership with Miuccia Prada began at the end of the ‘70s. To his entrepreneurial activity, he combines cultural and spor ting interests that he shares with Miuccia Prada. Mr. Ber telli received an honorary degree in Business Economics from the University of Florence in 2000 and the “University Seal” from the University of Bologna in 2021. In 2006, Time Magazine cited him together with Miuccia Prada among the 100 most influential couples in the world and in 2012 he became the first Italian in history to be inducted into the America’s Cup Hall of Fame. Mr. Ber telli holds directorships in subsidiaries of the Company. He holds directorship in PA BE 1 S.r.l., which is a substantial shareholder of the Company. Mr. Ber telli is the husband of Ms. Prada, one of the Chief Executive Officers, and is the father of Mr. Lorenzo Ber telli, Executive Director and Group Marketing Director. Mr. Ber telli is not and has not been a director of any other listed companies in Hong Kong or overseas in the past three years. COZZANI, Alessandra, aged 59, is the Chief Financial Officer of the Company. She was first appointed to the Board as Executive Director on December 20, 2013 Annual Report 2021_DRAFT_160322 separated pages.indd 87 Annual Report 2021_DRAFT_160322 separated pages.indd 87 87 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior Managementand she was most recently re-elected on May 27, 2021. She has been Group Investor Relations Director since July 2010, responsible for managing financial communication and for relationships with investment community, and was fur ther appointed as Chief Financial Officer on February 19, 2016. Ms. Cozzani holds directorships in subsidiaries of the Company. Ms. Cozzani joined our Group in 2000 and has covered different managerial roles within the Finance depar tment. In 2003, she was appointed as Group Financial Repor ts Director. Ms. Cozzani obtained a degree “cum laude” (with praise) in Business Administration from the University of Genoa (Italy) in 1988. She star ted her career as an auditor at Coopers & Lybrand (1989 to 1995). Prior to joining our Group, she worked in Castelletti International Transpor ts, the Italian subsidiary of an international logistic company (now Schenker Group) for five years, most of the time as Finance and Control Director. Ms. Cozzani is not and has not been a director of any other listed companies in Hong Kong or overseas in the past three years. BERTELLI, Lorenzo, aged 33, joined the Board of Directors as Executive Director in May 2021. Mr. Ber telli has been Group Marketing Director since 2019 and, from 2020, has been appointed Group’s Head of Corporate Social Responsibility. He is responsible, on one side, for the Group’s Marketing and Communication strategy and, on the other, for the Group’s overall approach to sustainability strategy and initiatives. He joined the Group in 2017 as Head of Digital Communication. Lorenzo Ber telli obtained a degree in Philosophy at San Raffaele University in Milan in 2008. He is the son of Ms. Miuccia Prada Bianchi and Mr. Patrizio Ber telli, the Chief Executive Officers of the Company. He holds directorship in Prada Holding S.p.A., which is a substantial shareholder of the Company, as well as directorships in subsidiaries of the Company. Mr. Lorenzo Ber telli is a member of the Nomination Committee and the Sustainability Committee. Mr. Ber telli is not and has not been a director of any other listed companies in Hong Kong or overseas in the past three years. NON-EXECUTIVE DIRECTORS SIMONTACCHI, Stefano, aged 51, has been appointed as Non-Executive Director of the Company on April 8, 2016 and most recently re-elected on May 27, 2021. Mr. Simontacchi has been appointed as President of BonelliErede Law Firm, a 88 Annual Report 2021_DRAFT_160322 separated pages.indd 88 Annual Report 2021_DRAFT_160322 separated pages.indd 88 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior Managementleading law firm in Italy, since December 2018 and has been re-appointed for a fur ther three-year term mandate on May 2021. He was the Managing Par tner from 2013 to 2018 and has been on the firm’s board since 2010. His practice focuses on international taxation, transfer pricing, tax planning, private equity, and tax aspects related to real-estate transactions, real-estate and equity funds, M&A and reorganizations. In addition, Mr. Simontacchi was a member of the EU Joint Transfer Pricing Forum (which assists and advises the European Commission on transfer pricing tax matters) and has authored widely on tax law, including for Il Sole 24 Ore (a leading, daily business newspaper). Mr. Simontacchi obtained a degree with praise (cum laude) in business administration from L. Bocconi University of Milan in 1995. In 2000, he obtained an Adv. LLM with praise (cum laude) in International Taxation from Leiden University. In January 2007, Mr. Simontacchi obtained his PhD in International Taxation from the Faculty of Law of Leiden University. In April 2015, Mr. Simontacchi was appointed as board member of RCS MediaGroup S.p.A., an Italian listed company, leader in the newspaper sector. In addition, he has been serving as board member of Cabara Insurance Broker S.r.l. since 2010, as Chairman of the Fondazione Ospedale Buzzi since July 2015 and as board member of Assoedilizia Servizi S.r.l. since 2017. On November 2018 he has been appointed as board member of Fattorie Osella S.p.A. and in 2020 as board member of Cordusio Sim S.p.A. In February 2022 he has been appointed as member of Strategic Advisory Board of Nextalia SGR. Save as disclosed herein, Mr. Simontacchi has not held any directorship in other listed companies in Hong Kong or overseas in the last three years. INDEPENDENT NON-EXECUTIVE DIRECTORS CAPROT TI, Marina Sylvia, aged 44, was elected as Independent Non-Executive Director on May 27, 2021. She has been Executive Chairperson of Esselunga S.p.A. since 2019. Prior to this, she was a member of its Board of Directors star ting from June 1998 and Vice President from 2016 to 2019. She is currently a director in the Board of Fondazione Accademia Teatro alla Scala of Milan. Ms. Marina Sylvia Caprotti obtained a degree in Law at Università Cattolica del Sacro Cuore in Milan in 2004. Ms. Caprotti is the Chairwoman of the Remuneration Committee and member of the Audit Committee and Nomination Committee. Ms. Caprotti is not and has not been a director of any other listed companies in Hong Kong or overseas in the past three years. Annual Report 2021_DRAFT_160322 separated pages.indd 89 Annual Report 2021_DRAFT_160322 separated pages.indd 89 89 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementCEREDA, Maurizio, aged 58, has been appointed as Independent Non-Executive Director of the Company first on April 27, 2018 and previously has been a Non- Executive Director. Mr. Cereda’s practice focuses on providing consultancy services to entrepreneurs, family offices, companies and financial institutions. Since 2015, he has also been founding par tner and board member of FIEE (Fondo Italiano per l’Efficienza Energetica) Sgr S.p.A.. Mr. Cereda obtained a degree in business economics from L. Bocconi University of Milan in 1989. Mr. Cereda has been serving as board member of various companies listed on the Italian Stock Exchange including NEXI S.p.A. (since December 2021), Technogym S.p.A. (since 2016), and Enervit S.p.A. (since 2007). Mr. Cereda star ted his career as an analyst in the equity capital markets division in Rasfin S.p.A. and then he worked fifteen years at Mediobanca S.p.A., until his appointment as deputy general manager and head of corporate finance covering large corporate clients, a role that he covered from 2007 to 2015. From 2007 to 2014, he was a board member of Mediobanca S.p.A., and from 2006 to 2014, he was also a board member of Ansaldo STS S.p.A., both companies listed on the Italian Stock Exchange. Mr. Cereda is the Chairman of the Remuneration Committee and a member of the Audit Committee. Save as disclosed herein, Mr. Maurizio Cereda has not held any directorship in any other listed companies in Hong Kong or overseas in the last three years. ZAOUI, Yoël, aged 61, was elected as an Independent Non-Executive Director on May 27, 2021. He is a co-founder of Zaoui & Co., a firm established in 2013 to advise select clients on mergers, acquisitions and other strategic and financial transactions, as well as major investment decisions. Mr. Zaoui began his investment banking career at Goldman Sachs in 1988, and, over a 24-year career at Goldman Sachs, was responsible for some of Europe’s largest and more defining corporate transactions in a period of unprecedented growth. Mr. Zaoui was the first European investment banker to have joined Goldman Sachs’s top governing body, the management committee, a position he held from 2008 until his retirement in 2012. Prior to Goldman Sachs, Mr. Zaoui worked at Ar thur Andersen in Paris (1983-1986). Mr. Zaoui was educated in France and the US; he obtained a diploma from the Ecole des Hautes Etudes Commerciales (HEC, 1982), a DEA doctoral degree in Finance from Universite Paris-Dauphine (1983) and an MBA from Stanford University (1988). Mr. Zaoui continues to be actively involved with his alma maters, serving as a member of the Cercle des Grands Donateurs de la Fondation HEC. Mr. Zaoui is decorated by His Majesty the King of Morocco 90 Annual Report 2021_DRAFT_160322 separated pages.indd 90 Annual Report 2021_DRAFT_160322 separated pages.indd 90 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementMohamed VI of the Order of Wissam. Mr. Zaoui is the Chairman of the Audit committee and a member of the Remuneration Committee. Mr. Zaoui is not and has not been a director of any other listed companies in Hong Kong or overseas in the past three years. CULPEPPER, Pamela Yvonne, aged 57, was elected as Independent Non-Executive Director on January 28, 2022. Ms. Culpepper is one of three co-founders of Have Her Back, LLC., a female-owned, female led culture consultancy focused on advancing equity for all. Before that, Ms. Culpepper was the Chief Human Resources Officer at Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, offering cutting-edge trading and investment solutions to investors around the world. At Cboe, Ms. Culpepper served as a trusted advisor to the executive team and Board of Directors on talent management, compensation and benefits and Cboe’s recent M&A of a global exchange. As a veteran HR executive, Ms. Culpepper has over 25 years of experience. She joined Cboe from Golin, where she was the company’s Chief People Officer. For more than 14 years prior, Ms. Culpepper held various leadership roles with PepsiCo, Inc., including Chief Global Diversity and Inclusion Officer, Vice President, Human Resources for Quaker Foods and Snacks; Vice President, Human Resources for PepsiCo’s Beverages Supply Chain; and Vice President, Talent Management and Diversity for Quaker, Tropicana and Gatorade. Before PepsiCo, Ms. Culpepper held progressive roles with McKesson Corporation, Clorox and Wells Fargo. Ms. Culpepper is a former Board Trustee of VSO International, based in the United Kingdom and was a Board member for Navy Pier of Chicago. Ms. Culpepper has a B.A. in Psychology from the University of Arkansas at Little Rock and a Masters of Public Administration in Organizational Change, from California State University, Eastbay. Ms. Culpepper is member of the Sustainability Committee. Ms. Culpepper is not and has not been a director of any other listed companies in Hong Kong or overseas in the past three years. RUGARLI, Anna Maria, aged 49, was elected as Independent Non-Executive Director on January 28, 2022. Ms. Rugarli is the Corporate Sustainability Vice President of Japan Tobacco International and she is responsible to develop business-integrated strategy at a global level. Ms. Rugarli is a Sustainability & CSR exper t with more than twenty years’ experience specializing in designing innovative programs and in developing strategies. She initiated and launched Nike’s Sustainability & CSR Annual Report 2021_DRAFT_160322 separated pages.indd 91 Annual Report 2021_DRAFT_160322 separated pages.indd 91 91 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior Managementprograms in the Europe, Middle East & Africa regions and was with the company for 12 years pioneering this work at industry level. Ms. Rugarli then led VF’s Circular Economy strategy at global level as well as Sustainability, Purpose, and I&D strategy at regional level for 10 years. During this time, she managed broad networks of stakeholders and cross-sector par tners and led Sustainability & CSR programs integration across the business. While at VF she was a Board member and then President of European Outdoor Conservation Association for a total of seven years. Ms. Rugarli graduated in Political Sciences and is a cer tified broker in Cross-Sector Par tnerships at Cambridge University. Ms. Rugarli is member of the Sustainability Committee. Ms. Rugarli is not and has not been a director of any other listed companies in Hong Kong or overseas in the past three years. 92 Annual Report 2021_DRAFT_160322 separated pages.indd 92 Annual Report 2021_DRAFT_160322 separated pages.indd 92 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementSENIOR MANAGEMENT Our senior management is responsible for the day-to-day management of the business of the Group. AGOSTINI, Cristiano, aged 48, has been Group IT Director since July 2021. He is primarily responsible for overseeing worldwide Transformation and Innovation Technology of IT Depar tment. Mr. Agostini, after earning a degree in Communication Sciences at the University of Turin, has gained many years of experience in the Information Technology sector at prestigious companies and consulting firms. He has managed complex projects of transformation and technological innovation in international contexts, first at the Telecom Italia Research Center and subsequently at Deloitte and Accenture. In 2006 he joined Accenture to cover the role of Managing Director in the Technology Strategy & Advisory area. ANDRIANI, Gianluca, aged 47, has been appointed as Group Internal Audit and Risk Management Director in February 2020. He is primarily responsible for the appropriateness of the control systems and the application of procedures, to ensure protection against risks at Group level. Mr. Andriani obtained a degree in Economics and Management. He joined our Group in 2008, first as Fiscal Manager, then as Latin America and Caribbean Accounting, Finance and Controlling Director. Prior to joining Prada, he worked in Ernst & Young as Senior Auditor and in Erg Group as Financial Statement Senior Analyst. BERTONCINI, Francesca, aged 51, has been appointed as Nor th Europe Regional Director in December 2019. Ms. Ber toncini is primarily responsible for overseeing the Group’s operations in United Kingdom, Ireland, Denmark and Sweden, where she covers several managerial roles at the Company’s subsidiaries. She joined the Group in 2001 and covered, until 2018, different managerial roles in product development, collection and retail merchandising, until being appointed as Worldwide Prada Woman Shoes Collection/Retail Merchandising Director. From 2018 to 2019, she worked as Senior Vice President Global Merchandising and Product Development for Stuar t Weit zman in New York. BUGG, Christopher Aaron, aged 38, has been appointed Group Communication Director in 2021. During 2020 he had a strategic communication role in the Asia Annual Report 2021_DRAFT_160322 separated pages.indd 93 Annual Report 2021_DRAFT_160322 separated pages.indd 93 93 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior Managementregion. He is responsible for media and communication strategies, public relations and promotional activities of all the Group brands. Mr. Bugg obtained a Bachelor Degree in Mass Communication at University of Evansville in 2004. After the graduation, he worked as Account Executive in different media communication agencies based in New York. From 2008 to 2016, he was Vice President Global Digital Marketing at Calvin Klein. Prior to joining the Prada Group he was Director of Global Digital Communication at Louis Vuitton. CAROLA, Pablo, aged 54, has been Regional Director Middle East since 2017. Mr. Carola is primarily responsible for overseeing the Group’s commercial operations in the Middle East area, where he covers several managerial roles at the Company’s subsidiaries. Mr. Carola obtained a University degree in Business Administration at Universidad de Politecnica de Catalunya (Spain). He joined the Group in 2011 to manage human resources of both Miu Miu and Prada stores worldwide and from 2013 to 2017, he was Regional Director for Iberian Peninsula and Nor th Africa. Prior to joining our Group, he worked for almost twelve years as human resources director at Louis Vuitton. CHAN, Li Sa, aged 50, has been South East Asia General Manager since 2017. She is primarily responsible for overseeing the Group’s commercial operations in Singapore, Malaysia and Thailand. Ms. Chan obtained a Master degree in Business Administration at the University of Stirling (UK). She joined Prada first in 2008 as Retail Merchandising Manager for Prada after spending a few years as Brand Manager in a number of brands in Singapore. In 2013, she was appointed as Retail Director for Miu Miu responsible for the retail merchandising, retail operations and visual merchandising of the brand in the South East Asia. From 2016 to 2017, she worked for Valentino as General Manager in Singapore. CHOI, Moonyoung, aged 59, has been Prada Korea General Manager since 2007. She is primarily responsible for overseeing the Group’s commercial operations in Korea. She star ted her career at Louis Vuitton, as the first Louis Vuitton Store Manager in Korea (1991 – 1999). From 1999 to 2007, Ms. Choi worked at Celine Korea, LVMH Group, as Retail Manager, subsequently becoming Country Manager for Korea. 94 Annual Report 2021_DRAFT_160322 separated pages.indd 94 Annual Report 2021_DRAFT_160322 separated pages.indd 94 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementCLARK, Sophie, aged 49, has been Prada Australia General Manager since 2016. She is primarily responsible for overseeing the Group’s commercial operations in Australia and New Zealand. Ms. Clark graduated from Sydney’s exclusive Kincoppal- Rose Bay School. Ms. Clark had an extensive career at leading Depar tment store David Jones in Sydney (1999 – 2016) where she most recently held the position of General Manager Womenswear. Ms. Clark was elected as a judge for the prestigious International Woolmark Fashion Awards in Milan 2014, Beijing 2015 and New York 2016. COVIELLO, Letizia, aged 54, has been Group Tax Director since 2016. She is primarily responsible for overseeing all Group strategic tax matters. Ms. Coviello obtained a Degree in Economics from the University La Sapienza in Rome in 1991 followed by a Tax Specialization Master at Ipsoa in Milan. Before joining the Group in 1998, she worked for a Legal Firm, Studio Simonelli e Associati in Milan and afterwards as Tax Senior Assistant in the Fiscal Depar tment at Eni Spa, in Milan. CROSO, Carlo, aged 41, joined the Group in July 2019 as Retail Innovation and E-Commerce Director. Mr. Croso is responsible for the Group’s customer strategy, digital transformation and omnichannel initiatives while also overseeing the development of the e-commerce channels. After obtaining a Bachelor ’s Degree in Industrial Engineering and a Master ’s Degree in Business Administration from the Politecnico of Milan, Mr. Croso worked several years covering different industries for Bain & Company. Before joining the Group, since 2014 Mr. Croso has been globally in charge of business-to-consumer distribution and digital, holding the position of Senior Vice President of Direct Business for Royal Caribbean Group’s luxury cruise company Silversea. IWATA, Timothy, aged 50, has been Prada Jewellery Director since September 2021. He is primarily responsible for overseeing worldwide operations and strategy of Prada Jewellery sector. After gaining his professional experience in the Investment Banking sector in Asia, Timothy Iwata moved to New York where he founded his Consulting agency and innovation studio serving the luxury industry, working for clients such as Car tier, Tiffany and L’Oreal. He returned to Europe in 2018, where he most recently covered the role of Innovation Director at Car tier, Richemont Group. Annual Report 2021_DRAFT_160322 separated pages.indd 95 Annual Report 2021_DRAFT_160322 separated pages.indd 95 95 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementMANZAT TO, Denni, aged 37, has been appointed as Managing Director of the Church Group on January 2022. He is responsible for overseeing the Church brand operations worldwide. Prior to this appointment Mr. Manzatto has been Group Commercial Director with responsibility of the commercial development of the wholesale and marketplace channels of the Prada, Miu Miu and Car Shoe brands. He directly managed Prada wholesale channel as well as the eyewear and fragrance licenses for both Prada and Miu Miu. Moreover, he was also responsible for leading Group and brand-level business development oppor tunities, strategic par tnerships and collaborations. Mr. Manzatto obtained an Executive Master in Business Administration at INSEAD and Tsinghua University in 2018. He joined our Group in 2013 and, before being appointed to his current position, he covered different roles in retail/collection merchandising, marketing and e-commerce. MARSICOLA, Alessandra, aged 62, has been appointed as Prada Retail Director in January 2020. She is primarily responsible for overseeing worldwide Prada retail functions and strategy of Prada Brand. Ms. Marsicola joined our Group in 1991 and before being appointed to her current position she covered different managerial roles in the commercial area, including Regional Director Nor th West Europe, Retail Development Director for Japan and Asia, Chief Executive Officer of Prada Fashion Commerce (Shanghai), Prada Worldwide Store Operation Director and Prada Retail Director for Prada Japan. From 2006 to 2009, she worked first as Sales Director for La Rinascente then as Asia Pacific Retail Director for Fendi. NOSCHESE, Marcelo, aged 57, has been Latin America Regional Director since 2017 and has been appointed as Nor th America Regional Director in 2020. He is primarily responsible for overseeing the Group’s operations in Nor th America, Central America, South America and Caribbean area. Mr. Noschese obtained a master ’s degree in Business Administration from INSEAD, Fontainebleau, France, in 1992 and graduated in Business Administration in Getúlio Vargas Foundation São Paulo, Brazil. He star ted his career at L’Oréal, as International Development Manager for the Fine Fragrances Division, and then was appointed as General Manager for the Travel Retail Division in Nor th and South America (1992 – 1998). Prior to joining our Group in 2011 as Regional Director for South America, he worked for LVMH – Moët Hennessy Louis Vuitton as Country Manager for Brazil (2001 – 2004) and for Salvatore Ferragamo S.p.A., as Regional Development Director for South America (2007 – 2011). 96 Annual Report 2021_DRAFT_160322 separated pages.indd 96 Annual Report 2021_DRAFT_160322 separated pages.indd 96 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementPETRUZZO, Benedetta, aged 36, has been appointed Miu Miu General Manager in February 2020. She is responsible for overseeing the worldwide retail and wholesale operations of the brand and for the overall strategy and development of Miu Miu. Before joining the Prada Group, she was Executive Vice President for the Nor th America at Kering Eyewear, where she worked for five years, holding different management positions. After obtaining a degree in Business Administration and a Master of Science in Management at Bocconi University, she star ted her career first in the finance sector. Afterwards, she joined Bain & Company, where she worked several years in the retail and luxury practices of the management-consulting firm. RASTRELLI, Stefano, aged 59, has been Group Human Resources Director since 2013. Mr. Rastrelli obtained a degree in Law, from the University of Naples. He first joined the PRADA Group in 2007 to manage the human resources of the Industrial Depar tments and subsequently extended to the Commercial Depar tments. Prior to joining our Group, he worked for almost twenty years for the Fiat Group, covering different managerial roles within the Fiat Group for different branches in Italy and abroad (Argentina, Brazil). From 2005 to 2007, Mr. Rastrelli was in Spain as Human Resources Director for GKN Driveline. SESIA, Davide, aged 54, has been Regional Director Japan and Islands since February 2004. He is primarily responsible for overseeing the Group’s operations in Japan, Guam, Saipan and Hawaii area, where he covers several managerial roles at the Company’s subsidiaries. Mr. Sesia obtained a degree in Business Administration from the University Cattolica del Sacro Cuore of Milan in 1991. He joined our Group in 2000 as Representative Director and Chief Financial Officer of Prada Japan. Prior to that, he was Chief Financial Officer and Director of Benetton Japan and Managing Director of Benetton Korea Ltd (1997 - 2000). SIMONS, Raf, aged 54, has been appointed as Prada Co-Creative Director in April 2020, working in par tnership with Mrs Miuccia Prada Bianchi. He launched his own menswear label in 1995. He was creative director at Jil Sander from 2005 to 2012, in Christian Dior from 2012 to 2015 and in Calvin Klein from 2016 to 2018. He contributes to the conception, preparation and development of the Prada brand products, coordinating also the image. He par ticipates in the development of creative strategies of marketing, adver tising and branding campaigns. Mr. Simons graduated in Industrial Design at SHIVKV in Genk in 1991. Annual Report 2021_DRAFT_160322 separated pages.indd 97 Annual Report 2021_DRAFT_160322 separated pages.indd 97 97 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementTAO, Yu Hua Irene, aged 55, has been Prada Taiwan General Manager since 2017. She is primarily responsible for overseeing the Group’s commercial operations in Taiwan. Ms. Tao obtained the degree in Japanese Language at the Soochow University (Taiwan). Prior to joining the Group, she worked for almost 11 years at Louis Vuitton in Taiwan. Then she held the Retail Operations positions in Fendi and Car tier from 2007 to 2013 and became the General Manager at Chloe Taiwan from 2014 to 2017. TOLOMELLI, Armando, aged 55, has been Regional Director Asia Pacific since 2012. Mr. Tolomelli is primarily responsible for overseeing the Group’s operations in the Asia Pacific region, where he covers several managerial roles at the Company’s subsidiaries. Prior to this appointment Mr. Tolomelli has been our Group Controlling Director since joining our Group in July 2005. Prior to joining our Group, he spent four teen years working for the Barilla Group, covering various roles including Financing Office Manager, Divisional Business Controller, Business Controller for South Eastern Europe, Group Controller of Wasa in Stockholm, Sweden (1999 to 2001), Finance Manager International Business Development of the Bakery Division (2001) and Corporate Controlling Director of Kamps in Düsseldor f, Germany (2002 to 2005). He graduated in business economics from University of Parma (Italy) in 1989. VIAN, Massimo, aged 49, has been appointed Industrial Director in 2020. He is responsible for industrial divisions. Mr. Vian obtained a degree in Engineering Management from the University of Padua in 1999 and an Executive Development Program in 2008 from the Kellogg Business School, Nor th-Western University of Chicago. He gained his professional experience first in the automotive sector, and then he joined the Luxottica Group in 2005 covering several managerial roles, in Italy and abroad (China), where he became C.E.O. Product and Operations. In March 2019, he joined the Calzedonia Group as C.E.O. of the Falconeri brand. WANG, Chen-Chen, aged 49, has been China General Manager since 2019. She is primarily responsible for overseeing the Group’s commercial operations in China, where she covers several managerial roles at the Company’s subsidiaries. She joined our Group in 2015 as Miu Miu Retail Director. Ms. Wang obtained a Master ’s Degree in Science from Auburn University. She star ted her career at Guilford Mills New York (1 997–2000); then she worked at SilverStream Software 98 Annual Report 2021_DRAFT_160322 separated pages.indd 98 Annual Report 2021_DRAFT_160322 separated pages.indd 98 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementNew York (2000– 2002). Before joining our Group, she was Merchandising Director at Christian Dior China (2011 -2015). ZAMBERNARDI, Fabio, aged 59, has been Group Design Director since November 2002. He is responsible for the collection concept development, overseeing all the strategic activities related to the coherence between image and product development of the collection, as well as suppor ting the strategic brands image communication of both Prada and Miu Miu brands. He has been collaborating with the Group since 1981. He was promoted Shoe Design Director in 1997 and Design Fashion Coordinator in 1999. ZENKOVSKAYA, Vera, aged 45, has been Russian area Regional Director since 2013. Ms. Zenkovskaya is primarily responsible for overseeing the Group operations in Russia, Kazakhstan and Ukraine, where she covers several managerial roles at the Company’s subsidiaries. Ms. Zenkovskaya obtained a Foreign Languages Degree at Language University of Kazakhstan. Prior to joining our Group in 2011 as Russia Country Manager, she worked within the beauty sector (L’Oreal, Temtrade) in marketing and retail areas. From 2006 to 2011, she covered several managerial roles in Russia and Ukraine for Louis Vuitton. None of the Group’s senior management listed above is or has been a director of any listed companies in Hong Kong or overseas in the past three years. Annual Report 2021_DRAFT_160322 separated pages.indd 99 Annual Report 2021_DRAFT_160322 separated pages.indd 99 99 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementCOMPANY SECRETARY CANE, Stefania, aged 43, is the joint company secretary of the Company and the secretary of the Board of Directors. Ms. Cane has been appointed as Director of Group Corporate Affairs in October 2021. She is responsible for the governance matters of the Company and its subsidiaries worldwide (around 90 companies). Prior to joining the Company in 2011 as Corporate Affairs Counsel, she worked as an associate at the banking and finance depar tment of BonelliErede Law Firm from September 2006 to January 2009 and then worked as a senior associate at the corporate depar tment of Paul Hastings, Janofsky & Walker (Europe) LLP Law Firm from January 2009 to June 2011. Ms. Cane graduated from Università degli Studi di Milano (The University of Milan) in 2003 with a Master ’s degree cum laude (with praise) in Law and has been a qualified lawyer in Italy since 2006. Ms. Cane is not and has not been a director of any other listed companies in Hong Kong or overseas in the past three years. YUEN, Ying Kwai, aged 55, has joined the Company as a joint company secretary since May 2011 and is responsible for corporate secretarial duties. Ms. Yuen has over 25 years of experience in the corporate secretariat and compliance areas of listed companies and professional firms. Prior to joining our Group, she worked with Li & Fung group for 15 years. She first joined in 1995 as company secretary of Li & Fung (1937) Limited until 1999 when she was transferred to Li & Fung Distribution (Management) Limited and appointed as group company secretary in 2000. Ms. Yuen was the company secretary of Integrated Distribution Services Group Limited (member of Li & Fung Group) between 2004 and 2011. Ms. Yuen received an Honours Diploma in Company Secretaryship and Administration from Lingnan College (now Lingnan University) in 1988. Ms. Yuen obtained a Master ’s degree in Business Administration (Executive) from City University of Hong Kong in 2003. Ms. Yuen has been a fellow of both The Hong Kong Char tered Governance Institute (formerly known as “ The Hong Kong Institute of Char tered Secretaries” (HKICS)) and The Char tered Governance Institute in the United Kingdom since 2001. Ms. Yuen was the past member of each of the Membership Committee of HKICS (2016 – 2019) and the Company Secretaries Panel of HKICS (2012 – 2015). Ms. Yuen is not and has not been a director of any other listed companies in Hong Kong or overseas in the past three years. 100 Annual Report 2021_DRAFT_160322 separated pages.indd 100 Annual Report 2021_DRAFT_160322 separated pages.indd 100 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors and Senior ManagementD I R E C T O R S ’ R E P O R T Annual Report 2021_DRAFT_160322 separated pages.indd 101 Annual Report 2021_DRAFT_160322 separated pages.indd 101 101 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportPRINCIPAL ACTIVITIES AND BUSINESS REVIEW PRADA S.p.A. (the “Company”), together with its subsidiaries (the “Group”), is a leading global luxury group in the design, production and distribution of high-end leather goods, handbags, footwear, apparel and accessories, as well as operates, under licensing agreements, in the eyewear and fragrance sectors. Through its Directly Operated Stores network, franchise stores, and a selected number of luxury depar tment stores and independent retailers, the Group operates in all major international markets worldwide. The Company is a joint-stock company with limited liability, incorporated and domiciled in Italy. Its registered office is at Via A. Fogazzaro 28, 20135 Milan (MI), Italy. Fur ther discussion and analysis of these activities, as required by section 388(2) and Schedule 5 to the Hong Kong Companies Ordinance, including a review of the business of the Company, a discussion and analysis of the Group’s per formance during the year ended December 31, 2021 (the “2021 Year ”), and the material factors underlying its economic results and financial position, a description of the risks and uncer tainties facing the Group, and the future development of the business of the Company, is set out in the Financial Review section of this annual repor t. Details of material events affecting the Group that have occurred since the end of the repor ting period are set out in note 44 to the 2021 Year Group’s consolidated financial statements (the “Consolidated Financial Statement”). These discussions form par t of this directors’ repor t. COMPLIANCE WITH THE RELEVANT LAWS AND REGULATIONS The Group has adopted specific compliance procedures aimed at ensuring compliance with all applicable laws, rules and regulations, in par ticular those that have a significant impact at a worldwide level, as the Group’s products are distributed and sold across more than 70 countries. To properly address this matter, in 2010 the Group established an Industrial Compliance Committee to oversee the compliance of the Group’s products with the international and local legal standards and requirements of all the manufacturing and distribution processes at a worldwide level. A detailed analysis of the legal and regulatory risks to which the Group is exposed is set out in the paragraph 102 Annual Report 2021_DRAFT_160322 separated pages.indd 102 Annual Report 2021_DRAFT_160322 separated pages.indd 102 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ Reportheaded “Legal and regulatory risks” of the Financial Review section of this annual repor t, which forms par t of this directors’ repor t. ENVIRONMENTAL POLICIES AND PERFORMANCE The Group aims to enhance value creation for its stakeholders by combining economic profitability with employee and customer satisfaction, respecting ethical and environmental values, and ensuring sustainability. Environmental protection is one of main commitments of the Group, which is engaged in implementing and enforcing vir tuous behaviors that contribute to its sustainable growth, and that represent examples of good practices within the entire luxury industry. Commitment to environmental respect is a key element of the Code of Ethics, applied both within the Group’s organization, by implementing staff awareness, and to the third par ties working with the Group. The main direct impact of the Group’s business originates from the use of energy for offices, factories, logistics centers and stores worldwide. The objective is to reach ever-higher levels of energy efficiency, waste reduction and responsible use of natural resources. Fur ther analysis on the environmental policies and per formances is set out in “ The PRADA Group” section to this annual repor t. RELATIONSHIPS WITH KEY STAKEHOLDERS The Group’s success also depends on the suppor t from key stakeholders, such as employees, customers, suppliers and shareholders. EMPLOYEES The Group is built on people. The Group has always considered human capital to be the key to its competitive edge, and makes every effor t to promote and reward productivity, professional skills and teamwork, with an emphasis on results. The employees’ enthusiasm, craft skills and intellectual curiosity are the indispensable elements, which underpin the innovation and quality of the Group’s products. The Company searches for people that can combine these outstanding qualities with Annual Report 2021_DRAFT_160322 separated pages.indd 103 Annual Report 2021_DRAFT_160322 separated pages.indd 103 103 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ Reportthe values of the Group. As of December 31, 2021 the Group had 13,140 employees (headcount), of whom 38.7% working in Italy and with women making up 62% of the total workforce. The Group’s remuneration policy aims to attract, reward, and retain skilled personnel and exper t managers, while bringing the interests of the management in line with the primary objective of creating value for the Group over the medium and long term. Fur ther analysis on the value of human resources of the Group is set out in the “ The PRADA Group” section to this annual repor t, while fur ther analysis on the remuneration policy of the Group is set out in the “Corporate Governance” section of this annual repor t, both of which form par t of this directors’ repor t. CUSTOMERS The Group is a leader in style, maker of outstanding products, and provides excellent customer service. The distinctive features and the prestige of the Group, which derived from an original management of the creative and industrial processes, places the Group in a position to offer customers worldwide unique products, representing an inimitable synthesis of creativity, quality and exclusivity. In addition, the Group believes that an effective communication with customers is crucial to build and convey an image of strong and consistent brand identity. The result of the Group’s approach to its customers is the unique relationship between each customer and the Group’s brands, its products and its stores. SUPPLIERS The Group regards its relationship with its suppliers, built through years of day-to- day collaboration and directed towards continuous improvement, as fundamental to it. The Group has a diverse range of raw materials suppliers and external manufacturers. About 92% of them are located in the European Union, the vast majority of which are in Italy. 104 Annual Report 2021_DRAFT_160322 separated pages.indd 104 Annual Report 2021_DRAFT_160322 separated pages.indd 104 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportRaw materials are a key component of the quality of the Group’s products, and therefore constitute a primary focus for the Group. The procurement process, impor t, use, and expor t of raw materials, are carried out in full compliance with all the applicable international and local laws, rules, and regulations. Every raw material used in the manufacturing process has a cer tificate of origin that attests its geographical origin. In addition, raw materials are subject to strict quality controls by the Group’s inspectors and exper ts. The Group has always intended to act as a stimulus for its suppliers, not only in terms of the excellent quality standards required, but also through the promotion of a culture and a “modus operandi”, which comply with the highest ethical standards. The Group thus requires that its suppliers act responsibly, and that each of them under takes and acknowledges the Group’s Code of Ethics, which sets for th the inalienable rights of employees, such as proper working conditions, equal oppor tunities, freedom of association, health insurance coverage, and protection of the environment in the collection of materials and during the production processes. In order to achieve the highest quality standards, the Group carries out a strict process for the selection and retention of its suppliers, with the aim to establish long-term business relationships. SHAREHOLDERS One of the main corporate goals of the Group is to enhance corporate value to its shareholders by granting dividends payouts, taking into account the liquidity positions and business expansion needs of the Group. Details of the Group’s communication with its shareholders are set out in the “Corporate Governance” section of this annual repor t, which forms par t of this directors’ repor t. An analysis of the Group’s environmental policies and per formance, as well as of the relationships with the key stakeholders (employees, customers, suppliers and shareholders), will be included in the Group’s Social Responsibility Repor t 2021, which will be published in due course. RESULTS AND DIVIDENDS The results of the Group for the 2021 Year are set out in the Consolidated Statement Annual Report 2021_DRAFT_160322 separated pages.indd 105 Annual Report 2021_DRAFT_160322 separated pages.indd 105 105 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ Reportof Profit and Loss. The Board recommends for the 2021 Year the distribution of final dividends of Euro 179,117,680 (Euro 0.07 per share). The final dividends will be subject to the shareholders’ approval at the for thcoming shareholders’ general meeting of the Company to be held on Thursday, April 28, 2022. Subject to the shareholders’ approval of the recommended final dividends, such dividend will be paid on Friday, May 27, 2022. The final dividend will be paid to the shareholders recorded on the Company’s shareholders register on Friday, May 6, 2022 only, net of Italian withholding tax, where applicable. The current rate of Italian withholding tax applied to applicable dividend payments is equal to 26%. FIVE-YEAR FINANCIAL SUMMARY The five-year financial summary of the Group is set out in Note 41 to the Consolidated Financial Statements. RESERVES Details of the movements in the reserves of both the Group and the Company during the 2021 Year are set out in the Consolidated Statement of Changes in Shareholders’ Equity and in the Statement of Changes in the Company’s Equity. DISTRIBUTABLE RESERVES As at December 31, 2021, the Company’s reserves available for distribution to the shareholders in accordance with the Company’s by-laws amounted to Euro 1,523 million. PROPERT Y, PLANT AND EQUIPMENT Details of the movements in the proper ty, plant and equipment of the Group during the 2021 Year are set out in Note 15 to the Consolidated Financial Statements. 106 Annual Report 2021_DRAFT_160322 separated pages.indd 106 Annual Report 2021_DRAFT_160322 separated pages.indd 106 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportPRE-EMPTIVE RIGHTS The Company’s by-laws do not provide for shareholders’ pre-emptive rights. PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES During the 2021 Year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities. CAPITAL GAINS TAX IN ITALY Capital gains realized from the sale of securities in an Italian company by shareholders resident in Hong Kong are not subject to taxation in Italy. SUBSIDIARIES Details of the Company’s subsidiaries as at December 31, 2021, are set out in Note 42 to the Consolidated Financial Statements. Annual Report 2021_DRAFT_160322 separated pages.indd 107 Annual Report 2021_DRAFT_160322 separated pages.indd 107 107 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportDIRECTORS The current Directors of the Company as of the date of this director ’s repor t are: EXECUTIVE DIRECTORS Mr. Paolo ZANNONI (Chairman of the Board, elected on May 27, 2021) Ms. Miuccia PRADA BIANCHI (Chief Executive Officer, re-elected on May 27, 2021) Mr. Patrizio BERTELLI (Chief Executive Officer, re-elected on May 27, 2021) Ms. Alessandra COZZANI (Chief Financial Officer, re-elected on May 27, 2021) Mr. Lorenzo BERTELLI (elected on May 27, 2021) NON-EXECUTIVE DIRECTOR Mr. Stefano SIMONTACCHI (re-elected on May 27, 2021) INDEPENDENT NON-EXECUTIVE DIRECTORS Ms. Marina Sylvia CAPROTTI (elected on May 27, 2021) Mr. Yoël ZAOUI (elected on May 27, 2021) Mr. Maurizio CEREDA (re-elected on May 27, 2021) Ms. Pamela Yvonne CULPEPPER (elected on January 28, 2022) Ms. Anna Maria RUGARLI (elected on January 28, 2022) CEASED DIRECTORS The Directors of the Company ceased during 2021 Year are: Mr. Carlo MAZZI (former Chairman of the Board and Executive Director, mandate expired on May 27, 2021) Mr. Gian Franco Oliviero MATTEI (Independent Non-Executive Director, mandate expired on May 27, 2021) Mr. Giancarlo FORESTIERI (Independent Non-Executive Director, mandate expired on May 27, 2021) Mr. Sing Cheong LIU (Independent Non-Executive Director, mandate expired on May 27, 2021) BIOGRAPHICAL INFORMATION OF DIRECTORS A brief biography of each current Director of the Company is set out in the “Directors and Senior Management” section of this annual repor t. 108 Annual Report 2021_DRAFT_160322 separated pages.indd 108 Annual Report 2021_DRAFT_160322 separated pages.indd 108 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ Report DIRECTORS’ PERMIT TED INDEMNIT Y There is no permitted indemnity provision in any contract entered into by the Company or any of its associated corporation (within the meaning of Par t XV of the Securities and Futures Ordinance, the “SFO”) that is or was in force during the 2021 Year and until the date when this directors’ repor t is approved by the Board, which is required to be disclosed under section 470 of the Hong Kong Companies Ordinance. MANAGEMENT CONTRACT No contract, other than employment contracts and directors’ service contracts, concerning the management and administration of the whole or any substantial par t of the Company’s business was entered into, or was effective, during the 2021 Year. DIRECTORS’ SERVICE CONTRACTS None of the Directors of the Company has a service contract with any member of the Group that cannot be terminated within one year without payment of compensation, other than statutory compensation. DIRECTORS’ INTERESTS IN COMPETING BUSINESS During the 2021 Year, none of the Directors of the Company held any interest in a business that competes, or is likely to compete, directly or indirectly, with the business of the Company or the Group. DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SECURITIES As at December 31, 2021, the Directors (including the Chief Executive Officers) of the Company held the following interests in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Par t XV of the SFO) as recorded in the register required to be kept by the Company under Section 352 of the SFO, or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”) contained in Appendix 10 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”): Annual Report 2021_DRAFT_160322 separated pages.indd 109 Annual Report 2021_DRAFT_160322 separated pages.indd 109 109 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ Report(a) Long positions in shares and underlying shares of the Company Name of Director Number of Shares Nature of Interest Approximate percentage of Issued Capital Ms. Miuccia Prada Bianchi Mr. Patrizio Bertelli Notes: 2,046,470,760 (Notes 1 and 2) 2,046,470,760 (Notes 1 and 3) Interest of Controlled corporation Interest of Controlled corporation 80% 80% 1. Prada Holding S.p.A. owns approximately 80% of the issued capital in the Company and, therefore, is the holding company of the Company. 2. Ms. Miuccia Prada Bianchi controls, indirectly through Ludo S.p.A., 53.8% (comprised of 438,460 ordinary shares and 100,000 preference shares) of the capital in Bellatrix S.p.A., which in turn owns 65% (comprised of 1,650 ordinary shares and 300 preference shares) of the capital in Prada Holding S.p.A.. Ms. Miuccia Prada Bianchi is therefore deemed under the SFO to be interested in all the shares registered in the name of Prada Holding S.p.A.. Ms. Miuccia Prada Bianchi is also a director of Prada Holding S.p.A., Bellatrix S.p.A. and Ludo S.p.A.. 3. Mr. Patrizio Ber telli controls, indirectly through PA BE 1 S.r.l., 35% (comprised of 750 ordinary shares and 300 preference shares) of the capital in Prada Holding S.p.A.. Mr. Patrizio Ber telli is therefore deemed under the SFO to be interested in all the shares registered in the name of Prada Holding S.p.A.. Mr. Patrizio Ber telli is also a director of PA BE 1 S.r.l.. 110 Annual Report 2021_DRAFT_160322 separated pages.indd 110 Annual Report 2021_DRAFT_160322 separated pages.indd 110 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportThe interests of Ms. Miuccia Prada Bianchi and Mr. Patrizio Ber telli in the shares of the Company as at December 31, 2021 are summarized in the following char t: Patrizio Bertelli 100% Miuccia Prada Bianchi 100% Ludo S.p.A. 53.8% PA BE 1 S.r.l. Bellatrix S.p.A. 35% 65% Prada Holding S.p.A. 80% PRADA S.p.A. Annual Report 2021_DRAFT_160322 separated pages.indd 111 Annual Report 2021_DRAFT_160322 separated pages.indd 111 111 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ Report(b) Long positions in shares and underlying shares of associated corporations: Name of Director Name of associated corporations Class of shares Number of shares Ms. Miuccia Prada Bianchi Prada Holding S.p.A. Ordinary Shares 1,650 Prada Holding S.p.A. Prapar Corporation Preference Shares Common Shares MFH Munich Fashion Holding GmbH Registered Share Nature of Interests Controlled Corporation As above As above As above As above As above Approximate percentage of Interests 68.75% 50% 100% 100% 49.83% 83.34% Beneficial Owner 100% Beneficial Owner 100% Controlled Corporation As above 100% 100% 300 50 1 438,460 100,000 5,066,000 4,965,100 1,000,000 Ordinary Shares Preference Shares Class A shares Class B shares Capital Contribution (JPY) Participation quota (Euro) 1 Bellatrix S.p.A. Bellatrix S.p.A. Ludo S.p.A. Ludo S.p.A. PH-RE LLC Orexis S.r.l. Mr. Patrizio Bertelli Prada Holding S.p.A. Ordinary Shares Prada Holding S.p.A. Preference Shares MFH Munich Fashion Holding GmbH Registered Share 750 300 1 Controlled Corporation As above As above PH-RE LLC Orexis S.r.l. Capital Contribution (JPY) 1,000,000 As above Participation quota (Euro) 1 As above 31.25% 50% 100% 100% 100% Save as disclosed above, as at December 31, 2021, none of the Directors of the Company or their associates held any interest or shor t position in the shares, underlying shares and/or debentures of the Company or any of its associated corporations (within the meaning of Par t XV of the SFO), as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange under the Model Code. SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN SECURITIES As at December 31, 2021, other than the interests of the Directors of the Company as disclosed above, the following persons held interests or shor t positions in the shares or underlying shares of the Company which were recorded in the register required to be kept by the Company under Section 336 of the SFO: Name of Shareholder Capacity Number of Shares Approximate percentage of issued capital Long Positions Prada Holding S.p.A. Bellatrix S.p.A. Ludo S.p.A. PA BE 1 S.r.l. 112 Legal and beneficial owner Interest of controlled corporation Interest of controlled corporation Interest of controlled corporation 2,046,470,760 2,046,470,760 2,046,470,760 2,046,470,760 80% 80% 80% 80% Annual Report 2021_DRAFT_160322 separated pages.indd 112 Annual Report 2021_DRAFT_160322 separated pages.indd 112 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportNote: Prada Holding S.p.A. owns approximately 80% of the issued capital in the Company. As Ludo S.p.A. owns 53.8% of Bellatrix S.p.A., which in turn owns 65% of Prada Holding S.p.A. and PA BE 1 S.r.l. owns 35% of Prada Holding S.p.A., Bellatrix S.p.A., Ludo S.p.A. and PA BE 1 S.r.l. are all deemed to be interested in the 2,046,470,760 shares of the Company held by Prada Holding S.p.A.. SHARE CAPITAL Details of the share capital of the Company during the 2021 Year are set out in the Consolidated Statement of Changes in Shareholders’ Equity and Note 30 to the Consolidated Financial Statements. DIRECTORS’ INTERESTS IN TRANSACTIONS, ARRANGEMENTS AND CONTRACTS Save for those contracts disclosed under the section on Continuing Connected Transactions below, and in Consolidated Financial Statements Note 40, Transactions with Related Par ties, and Note 39, Remuneration of the Board of Directors, no transaction, arrangement, or contract of significance to the Group’s business was entered into or subsisted at any time during the 2021 Year in which the direct or indirect interest of a Director, or an entity connected with a Director, was material. During the 2021 Year, there were no arrangements to which the Company, or any of the Company’s subsidiaries or holding companies or a subsidiary of any of the Company’s holding companies is a par ty, to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company. ISSUANCE OF DEBT SECURITIES Neither the Company, nor any members of the Group, issued any debt securities during the 2021 Year. CONTINUING CONNECTED TRANSACTIONS During the 2021 Year, the Group had the following non-exempt continuing connected transactions details of which were disclosed in the Company’s announcements dated July 15, 2015, May 26, 2017, December 1, 2017, March 1, 2020, and November 20, 2020, respectively: (a) Lease Agreement and Guarantee for Prada Aoyama Building in Japan Annual Report 2021_DRAFT_160322 separated pages.indd 113 Annual Report 2021_DRAFT_160322 separated pages.indd 113 113 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportOn July 15, 2015, PH-RE LLC purchased a building in Minami-Aoyama, Tokyo, Japan (“the Aoyama Building”). Prada Japan Co. Ltd (“Prada Japan”), a wholly owned subsidiary of the Company, has been leasing the Aoyama Building for use as its flagship store in Tokyo since 2004. On May 25, 2015, Prada Japan, as lessee, and the former lessor, renewed the lease of the Aoyama Building by entering into a lease agreement for a term of 20 years (the “Lease Agreement”). On the same date, the Company granted a guarantee in favour of the former lessor to guarantee the full compliance by Prada Japan with all its obligations under the Lease Agreement (the “Guarantee”). As a result of the purchase of the Aoyama Building, PH-RE LLC, a connected person of the Company, has become the lessor under the Lease Agreement and the beneficiary of the Guarantee granted by the Company in favour of the former lessor. Accordingly, the Lease Agreement and the Guarantee, which were continuing transactions of the Group, have become continuing connected transactions of the Group under Chapter 14A of the Listing Rules. On April 28, 2017 PH-RE LLC, which was previously a wholly owned subsidiary of PA BE 1 S.r.l., became a wholly owned subsidiary of Prada Holding S.p.A., a substantial shareholder of the Company. Both Ms. Miuccia Prada Bianchi and Mr. Patrizio Ber telli – Chief Executive Officers, Executive Directors and substantial shareholders (as defined in the Listing Rules) of the Company – are indirect shareholders of Prada Holding S.p.A.. As a consequence of this transaction, the Lease Agreement and the Guarantee remained as subsequent continuing connected transaction of the Group with no variation of their terms. The annual cap for the 2021 Year for the rent paid to PH-RE LLC, or accrued by the Company in accordance with applicable accounting rules, under the Lease Agreement and the Guarantee was JPY 2,040,703,000, as disclosed in the Company’s announcement dated May 26, 2017. (b) Lease Agreement and Guarantee for Miu Miu Aoyama Building in Japan On May 26, 2017, PH-RE LLC purchased a building in Minami-Aoyama, Tokyo, 114 Annual Report 2021_DRAFT_160322 separated pages.indd 114 Annual Report 2021_DRAFT_160322 separated pages.indd 114 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportJapan (“the MM Aoyama Building”). Prada Japan has been leasing the MM Aoyama Building for use as flagship store for the Miu Miu brand in Tokyo since 2015 under a lease agreement entered into with the former owner of the MM Aoyama Building (the “MM Lease Agreement”). In the context of the MM Lease Agreement, the Company granted a guarantee in favour of the former owner to secure the punctual per formance by Prada Japan of all its obligations under the MM Lease Agreement (the “MM Guarantee”). As a result of the purchase of the MM Aoyama Building, PH-RE LLC has become the lessor under the MM Lease Agreement and the beneficiary of the MM Guarantee granted by the Company in favour of the former owner. PH-RE LLC is a wholly owned subsidiary of Prada Holding S.p.A., a substantial shareholder (as defined in the Listing Rules) of the Company. Both Ms. Miuccia Prada Bianchi and Mr. Patrizio Ber telli - Chief Executive Officers, Executive Directors and substantial shareholders (as defined in the Listing Rules) of the Company – are indirect shareholders of Prada Holding S.p.A.. In this context, the MM Lease Agreement and the MM Guarantee, being continuing transactions of the Group, have become subsequent continuing connected transactions of the Group under Chapter 14A of the Listing Rules. The annual cap for the 2021 Year for the rent paid to PH-RE LLC, or accrued by the Company in accordance with applicable accounting rules, under the MM Lease Agreement and the MM Guarantee was JPY 630,000,000, as disclosed in the Company’s announcement dated May 26, 2017. (c) Luna Rossa Sponsorship Agreement On December 1, 2017, the Company entered into a sponsorship agreement with Luna Rossa Challenge S.r.l., a company at that time indirectly controlled by Mr. Patrizio Ber telli, who is a Chief Executive Officer, an Executive Director and a substantial shareholder of the Company, for the par ticipation of the Luna Rossa sailing team in the XXXVI edition of the America’s Cup, which was held in New Zealand in 2021. The payment to be made by the Company to Luna Rossa Challenge S.r.l., according to the terms of the sponsorship agreement, was due for the period from January 2018 to June 2021, as disclosed in the Company’s announcement Annual Report 2021_DRAFT_160322 separated pages.indd 115 Annual Report 2021_DRAFT_160322 separated pages.indd 115 115 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ Reportdated December 1, 2017 (the “Luna Rossa Sponsorship Agreement”). As disclosed in the Company’s announcement dated November 20, 2020, the Luna Rossa Sponsorship Agreement was amended to grant an additional sponsorship payment of Euro 10 million to Luna Rossa Challenge S.r.l. (the “Amended Sponsorship Agreement”) for the period from November 20, 2020 to June 30, 2021. The total annual cap of the sponsorship contribution paid by the Company to Luna Rossa Challenge S.r.l. under the Luna Rossa Sponsorship Agreement and as amended by the Amended Sponsorship Agreement for the 2021 Year was Euro 17 million. The Luna Rossa Sponsorship Agreement expired on June 30, 2021. (d) COR 36 Sponsorship Agreement As disclosed in the Company’s announcement dated March 1, 2020, the Company entered into a sponsorship agreement (“COR36 Sponsorship Agreement”) with Challenger of Record 36 S.r.l. (“COR36”), a company owned by Luna Rossa Challenge S.r.l., thus at that time indirectly controlled by Mr. Patrizio Ber telli, who is a Chief Executive Officer, an Executive Director and a substantial shareholder of the Company, for the sponsorship of the management and organization by COR36 of the preliminary regattas, the related event, and the selection of the challenger to the 36th edition of the America’s Cup, named “Prada Cup”. The term of COR36 Sponsorship Agreement was from March 1, 2020 to June 30, 2021. The annual cap of this sponsorship contribution paid by the Company to COR36 under the COR36 Sponsorship Agreement for the 2021 Year was Euro 5 million. The COR 36 Sponsorship Agreement expired on June 30, 2021. 116 Annual Report 2021_DRAFT_160322 separated pages.indd 116 Annual Report 2021_DRAFT_160322 separated pages.indd 116 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportBelow is a table setting out the aggregate value for each of the non-exempt continuing connected transactions for the 2021 Year: Continuing Connected Transaction (“CCT”) Accounting adjustment to the CCT following the application of “IAS 1 Presentation of Financial Statements” Impact on the profit or loss for the year ended December 31, 2021 (a) Lease Agreement and Guarantee for Prada Aoyama Building Depreciation of the Right of Use assets and Interest expenses on Lease Liability Japanese Yen million Japanese Yen million Japanese Yen million 2,040.7 101.5 2,142.2 (b) Lease Agreement and Guarantee for Miu Miu Aoyama Building Depreciation of the Right of Use assets and Interest expenses on Lease Liability Japanese Yen million Japanese Yen million Japanese Yen million 630 (12) 618 (c) Luna Rossa Sponsorship Agreement Sponsorship contribution (d) COR 36 Sponsorship Agreement Sponsorship contribution Euro million 21.23 Euro million (18.53) Euro million 2.7 Euro million Euro million Euro million 11.5 (6.5) 5.0 The Independent Non-Executive Directors have reviewed the above non-exempt continuing connected transactions and confirmed that these have been entered into: (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms or better; and (iii) according to the agreements governing them on terms that are fair and reasonable, and in the interests of the shareholders of the Company as a whole. The Directors of the Company have engaged the auditors to review the above non-exempt continuing connected transactions. Based on the work per formed, the auditors have provided a letter to the Directors of the Company (with a copy to the Stock Exchange) to confirm that nothing has come to their attention causing them to believe that the continuing connected transactions: (i) have not been approved by the Company’s Board of Directors; (ii) were not, in all material respects, in accordance with the pricing policies of the Group if the transaction involved the provision of goods or services by the Group; (iii) were not entered into, in all material respects, in accordance with the terms of the relevant agreements governing such transactions; and (iv) have exceeded the relevant annual cap. Annual Report 2021_DRAFT_160322 separated pages.indd 117 Annual Report 2021_DRAFT_160322 separated pages.indd 117 117 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportSave as disclosed above, none of the transactions disclosed as related par ty transaction in Note 40 to the Consolidated Financial Statements is a connected transaction or continuing connected transaction, which is subject to the repor ting or disclosure requirements under the Listing Rules. The Company has complied with the disclosure requirements governing “connected transactions” or “continuing connected transactions” in accordance with Chapter 14A of the Listing Rules. CONNECTED TRANSACTION On November 30, 2021, the Company acquired the entire capital of Luna Rossa Challenge S.r.l. from PA BE 1 S.r.l. at a purchase price Euro 12 million plus an earn-out of up to Euro 5 million, details of which were disclosed in the Company’s announcement dated November 30, 2021. PA BE 1 S.r.l. is a company 100% owned by Mr. Patrizio Ber telli, a Chief Executive Officer, an Executive Director, and a substantial shareholder (as defined in the Listing Rules) of the Company. As a result of this acquisition, Luna Rossa Challenge S.r.l. ceased to be a connected person of the Company. BANK LOANS AND OTHER BORROWINGS Details of the Group’s bank loans and other borrowings as at December 31, 2021 are set out in Notes 21 and 26 to the Consolidated Financial Statements. MAJOR CUSTOMERS AND SUPPLIERS The nature of the Group’s activities are such that the percentage of sales or purchases attributable to the Group’s five largest customers or suppliers is less than 30% of the total sales or purchases and the Directors do not consider any one customer or supplier to have an influence on the Group. RETIREMENT BENEFIT SCHEMES Details of the retirement benefit schemes of the Group are set out in Note 27 to the Consolidated Financial Statements. MODEL CODE FOR SECURITIES TRANSACTIONS The Company has adopted the Model Code. Having made specific enquiries to all Directors, all of them have confirmed that they have complied with the standard set out in the Model Code throughout the 2021 Year. 118 Annual Report 2021_DRAFT_160322 separated pages.indd 118 Annual Report 2021_DRAFT_160322 separated pages.indd 118 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportEVENTS AF TER THE REPORTING PERIOD – IF APPLICABLE Details of significant events occurring after the repor ting date – if any – are set out in Note 44 to the Consolidated Financial Statements. COMMITMENTS AND CONTINGENCIES Details of capital commitments and contingent liabilities of the Group as at December 31, 2021 are set out in Note 28 to the Consolidated Financial Statements. SUFFICIENCY OF PUBLIC FLOAT At the time the Company was listed, the Stock Exchange granted a waiver from strict compliance with Rule 8.08(1) of the Listing Rules (the “Public Float Waiver ”). Pursuant to the Public Float Waiver, the Company must at all times maintain a minimum public float of 20%. Based on the information available to the Company and within the knowledge of the Directors, the Company has maintained such minimum public float as at the date of this annual repor t. DIRECTORS’ RESPONSIBILITIES FOR THE CONSOLIDATED FINANCIAL STATEMENTS The Directors are responsible for the preparation of the Consolidated Financial Statements for the year ended December 31, 2021, to ensure such Consolidated financial statements give a true and fair view of the state of affairs of the Group. In preparing these Consolidated Financial Statements, the Directors have selected suitable accounting policies, made judgments and estimates that are prudent and reasonable, and prepared the Consolidated Financial Statements on a going concern basis and in accordance with International Financial Repor ting Standards issued by the International Accounting Standards Board as adopted by the European Union. The Directors are responsible for keeping proper accounting records for safeguarding the assets of the Company and the Group. Annual Report 2021_DRAFT_160322 separated pages.indd 119 Annual Report 2021_DRAFT_160322 separated pages.indd 119 119 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportAUDITOR The Consolidated Financial Statements and the Separate financial statements of the Company are audited by Deloitte & Touche S.p.A. Under Italian company law, the auditor is appointed and its remuneration is resolved every three years by the shareholders’ general meeting of the Company, on the basis of a proposal made by the Board of statutory auditors. On April 13, 2012, the Stock Exchange granted to the Company a waiver from strict compliance with Rule 13.88 of the Listing Rules, which requires the appointment of an auditor at each annual general meeting to hold office until the next annual general meeting. Therefore, the Company’s auditor is appointed and its remuneration is determined every three years at the shareholders’ general meeting of the Company under the applicable Italian laws. On March 14, 2022, the Board resolved, in accordance with the recommendations received from the Board of statutory auditors and the Audit Committee, to propose a resolution at the shareholders’ general meeting of the Company on April 28, 2022 to reappoint Deloitte & Touche S.p.A. as the auditor of the Company for a term of three financial years ending December 31, 2024, and to fix its remuneration. By order of the Board Paolo Zannoni Chairman March 14, 2022 120 Annual Report 2021_DRAFT_160322 separated pages.indd 120 Annual Report 2021_DRAFT_160322 separated pages.indd 120 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Directors’ ReportC O R P O R A T E G O V E R N A N C E Annual Report 2021_DRAFT_160322 separated pages.indd 121 Annual Report 2021_DRAFT_160322 separated pages.indd 121 121 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceCORPORATE GOVERNANCE PRACTICES The Company is committed to maintaining the highest standards of corporate governance to create long-term sustainable value for all its stakeholders, including its shareholders. The corporate governance model adopted by the Company consists of a set of rules and standards aimed at establishing efficient and transparent operations within the Group, to protect the rights of the Company’s shareholders, to enhance shareholder value and to uphold the Group’s credibility and reputation. The corporate governance model adopted by the Company complies with the applicable laws and regulations in Italy, where the Company is incorporated, as well as the principles set out in the Corporate Governance Code (the “Code”) in Appendix 14 of the Listing Rules. COMPLIANCE WITH THE CODE The Board has reviewed the Company’s corporate governance practices and is satisfied that such practices have complied with the code provisions set out in the Code, for the year ended December 31, 2021 (“2021 Year ”). This Corporate Governance repor t summarizes how the Company has applied the principles and implemented the code provisions contained in the Code for the 2021 Year. DIRECTORS’ SECURITIES TRANSACTIONS The Company has adopted a written procedure governing Directors’ securities transactions on terms no less exacting than those set out in the Model Code. In response to specific enquiry by the Company, all Directors confirmed that they complied with the required standard set out in the Model Code and the Company’s procedure at all applicable times during the 2021 Year. There were no incidents of non-compliance during the 2021 Year. The Company has also adopted a written procedure governing securities transactions carried out by the relevant employees who are likely to possess inside information in relation to the Company and its securities. This procedure is on terms no less exacting than those set out in the Model Code. Directors’ interests as at December 31, 2021, in the shares of the Company and its associated corporations (within the meaning of Par t XV of the SFO) are set out in the Directors’ Repor t. 122 Annual Report 2021_DRAFT_160322 separated pages.indd 122 Annual Report 2021_DRAFT_160322 separated pages.indd 122 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceBOARD OF DIRECTORS A. BOARD COMPOSITION The Board is currently made up of eleven Directors, of which five are Executive Directors, one is Non-Executive Director and five are Independent Non-Executive Directors. The Board has an appropriate mix of skills and experience that is relevant to the Company’s strategy, governance and business, and underpins its management effectiveness and efficiency. Its approach to achieving diversity is set out in the Board Diversity Policy, which is discussed in more detail in the paragraph headed Nomination Committee. Biographical details of the Directors and their relationships, where applicable, are set out in the Directors and Senior Management section of this annual repor t. The Company has maintained both on its own website and on the website of the Stock Exchange an updated list of its Directors, identifying their respective roles and functions. B. BOARD MEETINGS During the 2021 Year, the Board held eight meetings to discuss the Group’s overall corporate strategic direction and objectives, assess its operational and financial per formance (including the annual budget and the annual and interim results), and to approve connected transactions and the Group’s main investments and corporate reorganization plans. The average attendance rate of the Directors for these eight meetings (all held through electronic means) was 88.9%. Minutes of the Board meetings are kept by the Group Corporate Affairs Director and Joint Company Secretary, Ms. Stefania Cane. Minutes of the Board meetings and all Board Committees meetings are sent to the relevant Directors and are available for inspection by any Director by giving reasonable notice to the Company. Annual Report 2021_DRAFT_160322 separated pages.indd 123 Annual Report 2021_DRAFT_160322 separated pages.indd 123 123 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceC. BOARD AT TENDANCE The details of attendance at Board meetings, Board Committees meetings and shareholders’ general meeting held during the 2021 Year are set out in the following table: Directors Executive Directors Mr. Paolo ZANNONI 1 (Chairman) Ms. Miuccia PRADA BIANCHI (Chief Executive Officer) Mr. Patrizio BERTELLI (Chief Executive Officer) Ms. Alessandra COZZANI (Chief Financial Officer) Mr. Lorenzo BERTELLI 2 Non-Executive Director Mr. Stefano SIMONTACCHI Independent Non-Executive Directors Ms. Marina Sylvia CAPROTTI 3 Mr. Maurizio CEREDA 4 Mr. Yoël ZAOUI 5 Statutory Auditors Mr. Antonino PARISI (Chairman) Mr. Roberto SPADA Mr. David TERRACINA Board Audit Committee Remuneration Committee Nomination Committee Shareholders’ Meeting 2/2 1/2 2/2 2/2 4/4 9/9 4/4 2/2 1/1 2/2 5/5 3/8 8/8 8/8 4/5 6/8 5/5 8/8 5/5 8/8 7/8 8/8 0/1 1/1 1/1 1/1 1/1 1/1 1/1 1/1 Date(s) of Meeting Jan 5, 2021 Jan 29, 2021 Mar 31, 2021 Feb 26, 2021 May 27, 2021 Mar 10, 2021 Feb 25, 2021 Jun 28, 2021 Apr 1, 2021 Apr 16, 2021 Mar 8, 2021 Dec 17, 2021 July 29, 2021 Jun 4, 2021 Apr 8, 2021 Jun 28, 2021 May 18, 2021 Jul 29, 2021 July 16, 2021 Nov 11, 2021 July 28, 2021 Dec 17, 2021 Nov 11, 2021 Dec 2, 2021 Dec 17, 2021 Average Attendance Rate of Directors 88.9% 100% 100% 91.7% 77.8% Notes: 1. Member of Remuneration Committee 2. Member of Nomination Committee 3. Chairwoman of Remuneration Committee and Member of Audit Committee and Nomination Committee 4. Chairman of Nomination Committee and Member of Audit Committee and Former Chairman of Remuneration Committee 5. Chairman of Audit Committee and Member of Remuneration Committee * Mr. Carlo MAZZI, former Chairman of the Board (3/3 attendance); former Member of Remuneration Committee (1/1 attendance) and former Member of Nomination Committee (2/2 attendance); Shareholders’ Meeting (1/1 attendance) * Mr. Gian Franco Oliviero MATTEI, former member of the Board (3/3 attendance); former Chairman of Audit Committee (5/5 attendance) and Nomination Committee (2/2 attendance), former Member of Remuneration Committee (1/1 attendance); Shareholders’ Meeting (1/1 attendance) * Mr. Giancarlo FORESTIERI, former member of the Board (3/3 attendance); former member of Audit Committee (5/5 attendance); Shareholders’ Meeting (0/1 attendance) * Mr. Sing Cheong LIU, former member of the Board (3/3 attendance); former member of Nomination Committee (2/2 attendance); Shareholders’ Meeting (1/1 attendance) 124 Annual Report 2021_DRAFT_160322 separated pages.indd 124 Annual Report 2021_DRAFT_160322 separated pages.indd 124 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceD. ROLES AND RESPONSIBILITIES The Board is the highest decision making body of the Company vested with the power to manage all ordinary and extraordinary matters of the Company. The Board has the power to per form all acts it deems necessary or useful to the pursuit of the Company’s corporate purposes, except for those acts specifically reserved for approval by the shareholders by relevant laws or the By-laws. In par ticular, the Board is responsible for setting the overall strategy, as well as reviewing the operational and financial per formance of the Company and the Group. Therefore, the Board considers and decides on all matters concerning the overall Group strategy, including the sustainability strategy, the Group’s strategic objectives, annual budgets, annual and interim results, approval of major transactions, connected transactions and any other significant operational and financial matters. The Board is also responsible for evaluating on an ongoing basis the effectiveness of the internal control and risk management system. During the 2021 Year, all Board members were provided with monthly updates, prepared by the Executive Directors with the suppor t of the management. The purpose of such updates were to provide a balanced and comprehensive assessment of the per formance, position and prospects of the Group in sufficient detail, in order to enable each Director to discharge his/her duties. In addition, due to the continued uncer tainty at a worldwide level caused by the Covid-19 pandemic, the Board devoted additional time in meetings held during the 2021 Year to discuss the actual impact of such uncer tainty on the Group’s business as well as the measures adopted by the Group to boost its business. The Executive Directors are responsible for the day-to-day management of the Company and to make operational and business decisions within the control and delegation framework of the Company. The types of decisions delegated by the Board to the management include: ― the preparation of annual and interim results for the Board’s approval; ― the execution of business strategies and other initiatives adopted by the Board; ― the monitoring of operating budgets adopted by the Board; ― the design, implementation and monitoring of the internal control and risk management system; and ― the compliance with relevant statutory requirements, rules and regulations. Annual Report 2021_DRAFT_160322 separated pages.indd 125 Annual Report 2021_DRAFT_160322 separated pages.indd 125 125 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceE. NON-EXECUTIVE DIRECTORS The Non-Executive Directors, including the Independent Non-Executive Directors, provide the Company with diversified skills, exper tise, qualifications as well as varied backgrounds and perspectives. They par ticipate in the Board and Board Committees meetings to provide independent and objective opinions, advice and judgment on impor tant issues relating to the Company’s strategy, policy, financial per formance, and take the lead on matters where conflicts of interests may arise. They also attend the shareholders’ general meetings of the Company to understand the views of the shareholders. They make a positive contribution to the development of the Company’s strategy and policy through independent, constructive and informed comments. F. INDEPENDENT NON-EXECUTIVE DIRECTORS Independent Non-Executive Directors enhance the effectiveness and decision- making of the Board by providing objective judgement and constructive challenge. Their independence is assessed upon appointment, annually, and whenever the circumstances warrant reconsideration. All of the Independent Non-Executive Directors meet the independence guidelines set out in Rule 3.13 of the Listing Rules and have, as required by the Listing Rules, provided the Company with the written confirmations as to their independence. The independence of the Independent Non-Executive Directors was fur ther confirmed following the review by the Nomination Committee conducted on March 14, 2022. None of the Independent Non-Executive Directors of the Company has any business or financial interest in the Company or its subsidiaries. G. LIABILIT Y INSURANCE FOR THE DIRECTORS The Company has arranged appropriate liability insurance to indemnify its Directors for their liabilities arising out of corporate activities. The insurance coverage is reviewed on an annual basis. H. DIRECTORS’ TRAINING Upon appointment to the Board, Directors are provided with a comprehensive induction program to ensure that they have a thorough understanding of the key areas of business operations and practices of the Company, as well as their role and responsibilities under the relevant laws, rules and regulations. 126 Annual Report 2021_DRAFT_160322 separated pages.indd 126 Annual Report 2021_DRAFT_160322 separated pages.indd 126 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceDuring the 2021 Year, Mr. Paolo Zannoni, Ms. Miuccia Prada Bianchi, Mr. Patrizio Ber telli, Ms. Alessandra Cozzani, Mr. Lorenzo Ber telli, Mr. Stefano Simontacchi, Ms. Marina Sylvia Caprotti, Mr. Maurizio Cereda and Mr. Yoël Zaoui par ticipated in continuous professional training to develop and refresh their knowledge and skills and received regular updates on development of the laws, rules and/or regulations relating to Directors’ duties and responsibilities. Ongoing training helps Directors keep abreast of current trends and issues facing the Group, while enabling them to update and refresh their skills and knowledge necessary to per form their duties. Directors were required to provide the Company with their training records during the 2021 Year. The records are maintained by the Joint Company Secretaries, Ms. Stefania Cane and Ms. Yuen Ying Kwai. CHAIRMAN AND CHIEF EXECUTIVE OFFICERS The Chairman is Mr. Paolo Zannoni and the Chief Executive Officers are Ms. Miuccia Prada Bianchi and Mr. Patrizio Ber telli. The role of the Chairman is separate from that of the Chief Executive Officers. The Chairman is vested with the power to represent the Company and provides leadership to the Board. He is responsible for ensuring that the Board is functioning effectively and adhering to good corporate governance practices and procedures. The Chief Executive Officers, suppor ted by the other Executive Directors and senior management, are responsible for managing the Company’s business, including the implementation of major strategies and other initiatives adopted by the Board. RELATIONSHIPS BET WEEN DIRECTORS The Chief Executive Officers are husband and wife. Mr. Lorenzo Ber telli (an Executive Director of the Company) is the son of Ms. Miuccia Prada Bianchi and Mr. Patrizio Ber telli. APPOINTMENT OF THE BOARD MEMBERS At the shareholders’ general meeting of the Company held on May 27, 2021 (“2021 AGM”), the Board (consisting of nine Directors) was appointed for a term of three financial years. The mandate of the Board will lapse on the date of the shareholders’ general meeting to approve the financial statements of the Company for the year ending December 31, 2023. Two additional Independent Non-Executive Directors were appointed at the shareholders’ general meeting of the Company held on Annual Report 2021_DRAFT_160322 separated pages.indd 127 Annual Report 2021_DRAFT_160322 separated pages.indd 127 127 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceJanuary 28, 2022 for the remaining term of the current Board’s mandate. Under the Company’s By-laws, the Directors may be re-appointed. CORPORATE GOVERNANCE FUNCTIONS OF THE BOARD The Board is responsible for determining and supervising the implementation of the Company’s corporate governance policies and ensuring its compliance with the provisions of the Code. The Board’s role in this regard is: (i) to develop and review the Company’s policies and practices on corporate governance; (ii) to review and monitor the training and continuous professional development of directors and senior management; (iii) to review and monitor the Company’s policies and practices regarding compliance with legal and regulatory requirements; (iv) to develop, review and monitor the Code of Ethics, the Organisation, Management and Control Model (adopted pursuant to Italian Legislative Decree no. 231 of June 8, 2001) and the Company’s procedures applicable to directors and employees; (v) to review relevant Environmental, Social and Governance (“ESG”) matters; (vi) to review the Company’s compliance with the Code and the disclosure of such in the Corporate Governance repor t; and (vii) to per form any other corporate governance duties and functions set out by the Listing Rules or other applicable rules, for which the Board shall be responsible. During the 2021 Year, the Board completed the following with respect to corporate governance matters: (i) reviewed and approved connected transactions of the Company; (ii) reviewed the level of compliance with the Code; (iii) reviewed the effectiveness of the internal control and risk management system of the Company through the Internal Audit Depar tment and the Audit Committee; (iv) reviewed and approved the corporate social responsibility repor t; and (v) approved the Group’s main transactions and corporate reorganization plans. 128 Annual Report 2021_DRAFT_160322 separated pages.indd 128 Annual Report 2021_DRAFT_160322 separated pages.indd 128 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceBOARD COMMIT TEES The Board has established the Audit Committee, the Remuneration Committee and the Nomination Committee, each chaired by an Independent Non-Executive Director, in compliance with the Code. The Regulation and membership of all Board Committees are disclosed on the websites of the Company and the Stock Exchange. The Regulation of the Committees are no less exacting than those set out in the Code. The Board has established a Sustainability Committee on February 4, 2022. A. AUDIT COMMIT TEE The Company has established an Audit Committee in compliance with Rule 3.21 of the Listing Rules, where at least one member possesses related financial management exper tise to discharge the responsibility of the Audit Committee. The membership of the Audit Committee consists of three Independent Non-Executive Directors, namely, Mr. Yoël Zaoui (Chairman), Ms. Marina Sylvia Caprotti and Mr. Maurizio Cereda. The primary duties of the Audit Committee are to assist the Board in providing an independent view on the effectiveness of the Company’s financial repor ting process and its internal control and risk management system, to oversee the external audit process, the internal audit process, to implement the Company’s risk management functions and to per form any other duties and responsibilities assigned to it by the Board. During the 2021 Year, the Audit Committee held nine meetings (with an attendance rate of 100%) mainly to review with senior management, the Group’s internal and external auditor and the Board of Statutory Auditors, the significant internal and external audit findings and financial matters as required under the Audit Committee’s Regulation and to make relevant recommendations to the Board. The Audit Committee’s review covered the audit plan for the 2021 Year, the findings of both the internal and the external auditors, internal controls, risk assessment, annual review of the continuing connected transactions of the Group for 2020, tax and legal updates and the financial repor ting matters (including the annual results for the year ended December 31, 2020 and the interim financial results as at June 30, 2021), before recommending them to the Board for approval. The Audit Committee also held two meetings on February 23, 2022 and March 9, Annual Report 2021_DRAFT_160322 separated pages.indd 129 Annual Report 2021_DRAFT_160322 separated pages.indd 129 129 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate Governance2022, to review the Group results for the 2021 Year, before recommending them to the Board for approval. AUDITOR’S COMPENSATION The total fees and expenses accrued in favor of Deloitte & Touche S.p.A. and its network for the audit of the financial statements for the 2021 Year and for the year ended December 31, 2020, together with non-audit services, are illustrated below (amounts in thousands of Euro): Type of service Audit Firm Provided to Audit services Audit services Audit services Deloitte & Touche spa PRADA spa Deloitte & Touche spa Subsidiaries Deloitte Network Subsidiaries Total audit fees to Deloitte Network Other advisory services Other advisory services Deloitte & Touche spa PRADA spa Deloitte Network Subsidiaries Total non-audit fees to Deloitte Network twelve months ended December 31 2021 twelve months ended December 31 2020 508 136 1,129 1,773 24 69 93 450 106 1,066 1,622 31 111 142 Total compensation to Deloitte Network 1,866 1,764 B. REMUNERATION COMMIT TEE The primary duties of the Remuneration Committee are to make recommendations to the Board on the Company’s policy and structure for the remuneration package of Directors and senior management and the establishment of a formal and transparent procedure for developing policies on such remuneration. The recommendations of the Remuneration Committee are then put forward to the Board for consideration and adoption, where appropriate. The Remuneration Committee consists of two Independent Non-Executive Directors, Ms. Marina Sylvia Caprotti (Chairwoman) and Mr. Yoël Zaoui and of the Chairman of the Board, Mr. Paolo Zannoni. During the 2021 Year, the Remuneration Committee held three meetings (with an attendance rate of 100%) to recommend the aggregate basic remuneration of the Board for each year of its three-year term, to appoint its Chairwoman, to review and recommend the remuneration package for directors vested with special authorities, to review and recommend cer tain updates to the long term incentive plan and to the management through objective plan for executives and Directors. 130 Annual Report 2021_DRAFT_160322 separated pages.indd 130 Annual Report 2021_DRAFT_160322 separated pages.indd 130 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceREMUNERATION POLICY The Group’s remuneration policy is aimed at attracting, rewarding and retaining its personnel, who is considered as the key to the success of the Group’s business. This ‘Human Capital’ is preserved through constant monitoring in order to maintain engagement with the Company and a remuneration policy that is in line with the market. To ensure the Company’s ability to attract and retain talent, the Company’s remuneration policy is built upon the principles of providing an equitable and market-competitive remuneration package that suppor ts the per formance culture and enable the achievement of strategic business goals. The Group’s remuneration policy is designed to reward and retain highly professional staff and skilled managers, new graduates and workers, with the cer tainty that the creation of value is achieved in the medium and long term through constant organizational learning and the consolidation of collaborators’ experiences and skills. The policy comprises fixed and variable, direct and deferred, components tailored for the relevant position and professional qualifications, and is consistent with the needs of the various geographical areas. The Group has an incentive system that links compensation with the annual per formance of the Group, taking into account the Group’s objectives in net sales, as well as the objectives of each depar tment. The Group has adopted long term cash incentive plans for executive directors, senior managers and key managers for retention purposes. Entitlement to benefits under such plans would vest in the eligible executive director, senior manager or key manager subject to the achievement by the Group of one or more economic objectives and his/her presence within the Group at the end of a three-year period. O ther incentive schemes specific to sales staff are also in place, and technicians of the Group may receive a collection bonus following the development of a seasonal collection. The aggregate basic remuneration of the Board is approved by the shareholders in a general meeting. The additional remuneration of each Director vested with special Annual Report 2021_DRAFT_160322 separated pages.indd 131 Annual Report 2021_DRAFT_160322 separated pages.indd 131 131 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate Governanceauthorities (that is, the Executive Directors and members of the Board Committees) is determined by the Board after having considered the recommendation of the Remuneration Committee and the opinion of the Board of Statutory Auditors. Under the current remuneration package, the Executive Directors receive remuneration in the form of fees, salaries and other benefits, discretionary bonuses and/or other incentives, including non-monetary benefits and other allowances and contributions such as contributions to retirement benefits schemes. The Non-Executive Directors (including Independent Non-Executive Directors) receive remuneration in the form of fees and contributions to retirement benefits scheme, as the case may be. No Director is allowed to approve his/her own remuneration. C. NOMINATION COMMIT TEE The primary duties of the Nomination Committee are to determine the policy for the nomination of Directors and to make recommendations to the Board for consideration and, where appropriate, adoption on the structure, size and composition of the Board itself, on the selection of new Directors and on the succession plans for Directors. The Nomination Committee consists of two Independent Non-Executive Directors, Mr. Maurizio Cereda (Chairman) and Ms. Marina Sylvia Caprotti and one Executive Director, Mr. Lorenzo Ber telli. During the 2021 Year, the Nomination Committee held four meetings (with an average attendance rate of 91.7%) to per form the annual review of the independence of the Independent Non-Executive Directors for the 2020 year, to recommend to the shareholders the structure and composition of the Board which was to be elected at the 2021 AGM for a term of three financial years, to appoint its new Chairman, to recommend the proposal of the change of number of Directors from nine to eleven and to recommend the appointment of Ms. Pamela Yvonne Culpepper and Ms. Anna Maria Rugarli, both being exper ts in the ESG fields, as Independent Non-Executive Directors of the Company. The Nomination Committee held one meeting on March 14, 2022 to assess and confirm the independence of the Independent Non-Executive Directors of the Company for the 2021 Year. In the discharge of its duties, the Nomination Committee has recommended and proposed to the Board for adoption, the Board diversity policy in 2013 and the 132 Annual Report 2021_DRAFT_160322 separated pages.indd 132 Annual Report 2021_DRAFT_160322 separated pages.indd 132 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceDirector nomination policy in 2019. With a view to achieving a sustainable and balanced development, the Company has viewed diversity at the Board level as an essential element to attain its strategic objectives and its development. The Board diversity policy was adopted by the Board in September 2013 (the “Board Diversity Policy”). According to the principles set out in the Board Diversity Policy, all Board appointments are based on merit and candidates are proposed and selected based on objective criteria, with due regard for diversity within the Board. Diversity in this sense encompasses a wide range of factors, including but not limited to gender, age, cultural and educational background, professional experience, skills and knowledge. The final selection is based on merit and the contribution which the candidates can bring to the Board. The Nomination Committee has been delegated the overall responsibility for implementing and monitoring the implementation of the Board Diversity Policy. The Nomination Committee will discuss any revisions that may be required to ensure the effectiveness of the Board Diversity Policy and will recommend any such revisions to the Board for its approval. On March 15, 2019, the Board adopted the nomination policy for directors (“Director Nomination Policy”), which provides guidance on the proposal for the appointment or re-appointment of Directors or to fill casual vacancies and sets out the processes and criteria for the nomination of a candidate for directorship in the Company. The Company adopted the Director Nomination Policy to regulate the nomination process of directors so as to ensure that all nominations of Board members are made in a fair and transparent manner in order to maintain an appropriate balance of skills, experience and diversity within the Board that are relevant to the Company’s strategy, governance and business, and which can contribute to the effectiveness and efficiency of the Board’s management. The Director Nomination Policy contains a number of factors for assessing the suitability of a proposed candidate, including the high ethical character and reputation for integrity, professional qualifications, skills, knowledge and experience, available time commitment, merit and potential contributions to the Board, as well as the independence criteria under the Listing Rules (where applicable). Annual Report 2021_DRAFT_160322 separated pages.indd 133 Annual Report 2021_DRAFT_160322 separated pages.indd 133 133 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceThe Nomination Committee will consider the candidates proposed by shareholders for new directorship or for re-election and make recommendations for the Board’s consideration. The Board will then decide whether the proposed candidate shall be eligible to be appointed or re-appointed, as the case may be, as a director of the Company and will in turn recommend to shareholders to vote in favor of the relevant resolutions to be proposed at the shareholders general meeting of the Company. D. SUSTAINABILIT Y COMMIT TEE The Sustainability Committee comprises two Independent Non-Executive Directors, Ms. Pamela Yvonne Culpepper and Ms. Anna Maria Rugarli, and one Executive Director, Mr. Lorenzo Ber telli. The Sustainability Committee assists and suppor ts the Board with proposing and advisory functions in its assessments and decisions on sustainability, meaning the processes, initiatives and activities aimed at overseeing the Company’s commitment to sustainable development along the value chain. Moreover, the Committee suppor ts the preparation and review of non-financial repor ts, including the annual Sustainability Repor t, and communications concerning sustainability to be submitted to the Board for approval. BOARD OF STATUTORY AUDITORS Under Italian law, a joint-stock company is required to have a board of statutory auditors, appointed by the shareholders for a term of three financial years, with the authority to supervise the Company on its compliance with the applicable laws, regulations, its By-laws, the principles of proper management and, in par ticular, on the adequacy and functioning of the organizational, administrative and accounting structure adopted by the Company. At the shareholders’ general meeting of the Company held on May 27, 2021, the Board of Statutory Auditors was appointed for a term of three financial years. The mandate of the current Board of Statutory Auditors will expire at the shareholders’ general meeting to approve the financial statements of the Company for the year ending December 31, 2023. The Board of Statutory Auditors of the Company consists of Mr. Antonino Parisi 134 Annual Report 2021_DRAFT_160322 separated pages.indd 134 Annual Report 2021_DRAFT_160322 separated pages.indd 134 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate Governance(Chairman), Mr. Rober to Spada and Mr. David Terracina. The alternate statutory auditors are Ms. Stefania Bettoni and Ms. Fioranna Negri. DIRECTORS’ RESPONSIBILIT Y AND AUDITORS’ RESPONSIBILIT Y FOR CONSOLIDATED FINANCIAL STATEMENTS The Directors are responsible for preparing the Consolidated Financial Statements of the Company for the 2021 Year to ensure such Consolidated Financial Statements give a true and fair view of the state of affairs of the Group. In preparing these Consolidated Financial Statements, the Directors have selected suitable accounting policies and made prudent and reasonable judgments and estimates. The Consolidated Financial Statements have been prepared on a going concern basis and in accordance with International Financial Repor ting Standards issued by the International Accounting Standards Board as adopted by the European Union. In addition, the Board is generally satisfied of the adequacy of resources, staff qualifications and experience, training program and budget of the Company’s accounting and financial repor ting function during the 2021 Year. With respect to the auditor of the Company, its responsibilities are stated in the auditor ’s repor ts on the Consolidated Financial Statements. INTERNAL CONTROL AND RISK MANAGEMENT The Group’s internal control system has mainly been designed to safeguard the assets of the Group, to maintain proper accounting standards, to ensure that appropriate authority has been given for the per formance of acts by the Company, and to comply with the relevant laws and regulations. To better control its activities in achieving the established objectives, the Group has adopted procedures to identify, evaluate and manage the specific risks arising out of the continuous changes which affect the Group’s operations and the regulatory framework to which it is subject. The Board places great impor tance on maintaining a sound and effective internal control and risk management system to safeguard the shareholders’ investment and the Company’s assets. Annual Report 2021_DRAFT_160322 separated pages.indd 135 Annual Report 2021_DRAFT_160322 separated pages.indd 135 135 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceThe Board has acknowledged its responsibility for the internal control and risk management system - including financial, operational and compliance controls functions - and for the ongoing monitoring and review of its effectiveness. Such system is designed to manage rather than eliminate risks and is aimed at providing reasonable and not absolute assurance against material misstatement or loss. The management, with the suppor t of the Internal Audit Depar tment, has the responsibility, as delegated by the Board, to identify, evaluate and manage the risk factors that may affect the Group’s operations and to resolve any material internal control defects that arise. In par ticular, the measures, which were adopted by the Group to contain the effects of the spread of the Covid-19 pandemic on the Company’s activities and mitigating the health and safety risk at work, have been continuously assessed during the 2021 Year. The Internal Audit Depar tment provides an independent review of the adequacy and effectiveness of the internal control and risk management system. The audit plan is discussed and agreed every year by the Audit Committee before being submitted to the Board for approval. In addition to its agreed annual schedule of work, the Internal Audit Depar tment conducts other special reviews as required. The risk assessment documents are periodically updated by the Internal Audit Depar tment with the suppor t of the management, then reviewed by the Audit Committee and submitted to the Board for approval. The Board has received specific confirmation from the relevant management personnel of the Company on the effectiveness of the Group’s internal control and risk management system throughout the 2021 Year. During the 2021 Year, no significant control failings or weaknesses were identified. The Board, with the suppor t from the Audit Committee, has been reviewing the internal control and risk management system of the Group on an ongoing basis (with the same frequency as regular Board meetings were held) and is generally satisfied that the internal control and the risk management system has functioned effectively and has been adequate for the Group as a whole, throughout the 2021 Year. 136 Annual Report 2021_DRAFT_160322 separated pages.indd 136 Annual Report 2021_DRAFT_160322 separated pages.indd 136 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceMoreover, the Board is generally satisfied of the adequacy of resources, staff qualifications and experience, training program and budget of the Company’s internal audit and risk management function during the 2021 Year. “ORGANISMO DI VIGIL ANZA” In compliance with Italian Legislative Decree no. 231 of June 8, 2001 (“Decree”), the Company established an “Organismo di Vigilanza” whose primary duty is to ensure the functioning, effectiveness and enforcement of the Company’s Organization, Management and Control Model, adopted by the Company pursuant to the Decree. The “Organismo di Vigilanza” has three members appointed by the Board and selected among qualified and experienced individuals. The “Organismo di Vigilanza” consists of Ms. Stefania Chiaruttini (Chairwoman), Mr. Yoël Zaoui, Independent Non-Executive Director, and Mr. Gianluca Andriani, Head of Internal Audit Depar tment. INSIDE INFORMATION The Company handles and disseminates inside information in accordance with the requirements of the Securities and Futures Ordinance and the Listing Rules. With regard to the procedures and internal controls for the handling and dissemination of inside information, the Company: ― has adopted cer tain policies to ensure potential inside information is identified and confidentiality is maintained until timely and proper disclosure is made (the “Policy on Inside Information”); ― has made available on the Company’s intranet the Policy on Inside Information in order to ensure immediate access to it by the entire Group’s staff; ― has included in the procedures governing Directors and relevant employees a prohibition on dealing in the Company’s shares whilst in possession of inside information; and ― has authorized only the Executive Directors and a few selected members of the management to act as spokespersons and respond to external enquiries. In addition, the Board has established an Inside Information Committee, which comprises the Chairman (Mr. Paolo Zannoni), the Chief Executive Officer (Mr. Patrizio Ber telli) and an Executive Director (Mr. Lorenzo Ber telli). The Inside Information Committee has been delegated with the power to assess, if necessary, Annual Report 2021_DRAFT_160322 separated pages.indd 137 Annual Report 2021_DRAFT_160322 separated pages.indd 137 137 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate Governanceany potential inside information, and to keep all other Directors timely informed about its decisions. JOINT COMPANY SECRETARIES The Company has appointed Ms. Stefania Cane and Ms. Yuen Ying Kwai as joint company secretaries. Given that the headquar ter of the Company is located outside Hong Kong S.A.R., P.R.C. (“Hong Kong”) and the Company is incorporated in Italy, the Company is of the view that it is in the best interests of the Company and is of good corporate governance to have Ms. Stefania Cane and Ms. Yuen Ying Kwai as the joint company secretaries. During the 2021 Year, each of Ms. Stefania Cane and Ms. Yuen Ying Kwai, respectively, under took over 15 hours of relevant professional training to update their skills and knowledge. Their biographies are set out in the Directors and Senior Management section. SHAREHOLDERS’ RIGHTS A. CONVENING OF SHAREHOLDERS’ GENERAL MEETING AT SHAREHOLDERS’ REQUEST Pursuant to Ar ticle 14.2 of the Company’s By-Laws, a shareholders’ general meeting has to be called by the Board when requested by shareholders representing at least one-twentieth of the Company’s share capital, provided that the request mentions the item(s) to be discussed at the meeting. If there is an unjustified delay in calling the meeting by the Board, action will be taken by the Board of Statutory Auditors. B. PUT TING FORWARD PROPOSALS AT SHAREHOLDERS’ GENERAL MEETING Pursuant to Ar ticle 14.5 of the Company’s By-Laws, shareholders who, individually or jointly, own or control at least one-for tieth of the Company’s share capital may request in writing for additions to be made to the list of items on the agenda, within ten days from the notice of call for a shareholders’ general meeting, by setting out the proposed additions. The proposals should be directed to the Company by email at corporatesecretary@prada.com. C. MAKING AN ENQUIRY TO THE BOARD Enquiries about matters to be put forward to the Board should be directed to the Company by email at corporatesecretary@prada.com . The Company will not normally deal with verbal or anonymous enquiries. 138 Annual Report 2021_DRAFT_160322 separated pages.indd 138 Annual Report 2021_DRAFT_160322 separated pages.indd 138 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceD. PROCEDURES FOR SHAREHOLDERS’ TO PROPOSE A PERSON FOR ELECTION AS DIRECTOR The procedures for a shareholder to nominate a person for election as a Director of the Company are set out in Ar ticles 19.3 and 19.4 of the Company’s By-laws, details of which have been disclosed in the Company’s announcement dated March 30, 2012. CONSTITUTIONAL DOCUMENTS On May 27, 2021, the Company has adopted a new set of By-Laws (“Amended By- Laws”) mainly to provide for the possibility of holding general meetings, Board of Directors and Board of Statutory Auditors’ meetings by electronic means only, to inser t the office of an honorary chairperson of the Company to be appointed by the Board of Directors, to delete references to provisions under the Italian laws that are not applicable to the Company and to make consequential as well as other house-keeping amendments to the then By-laws. The Amended By-Laws are available for viewing on the websites of the Company and the Hong Kong Stock Exchange. COMMUNICATION WITH SHAREHOLDERS A. DIVIDEND POLICY On March 15, 2019, the Board formalized and adopted a Dividend Policy to set out the framework that the Company has put in place in relation to dividend payouts to shareholders. The Company aims to provide its shareholders a sustainable dividend stream, taking into account financial results, cash flow situation, working capital requirements, capital expenditures, investment requirements, future operations and earnings, business conditions and strategies, interests of shareholders and any statutory or regulatory restrictions (including under Italian law and the Company’s By-laws) on payment of dividends. The Board reviews the Dividend Policy from time to time and may adopt changes, as appropriate, to ensure the effectiveness of the Dividend Policy. At the 2021 AGM, the shareholders approved the distribution of a final dividend of Euro 0.035 per share for the financial year ended December 31, 2020, representing a total dividend of Euro 89,558,840, which was paid on June 30, 2021. Annual Report 2021_DRAFT_160322 separated pages.indd 139 Annual Report 2021_DRAFT_160322 separated pages.indd 139 139 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceB. INVESTOR REL ATIONS AND COMMUNICATIONS The Company endeavors to maintain a high level of transparency when communicating with the shareholders and the financial community in general. The Company has maintained a regular dialogue with and fair disclosure to institutional shareholders, fund managers, research analysts and the finance media. Investor/ analysts briefings and one-on-one meetings, investor conferences and results briefings are conducted on a regular basis in order to facilitate communication between the Company, shareholders and the investment community. The Company strives to ensure effective and timely dissemination of information to shareholders and the investment community at all times and will regularly review the arrangements to ensure its effectiveness. The Company’s corporate website (www.pradagroup.com) facilitates effective communications with shareholders, investors and other stakeholders, making corporate information and other relevant financial and non-financial information available electronically and on a timely basis. This includes extensive information about the Group’s per formance and activities via the annual repor t, interim repor t, social responsibility repor t, press releases, presentations, announcements, circulars to shareholders and notices of general meetings, etc. C. SHAREHOLDERS’ MEETINGS The Company strives to maintain an on-going dialogue with its shareholders. Shareholders are encouraged to par ticipate in general meetings either in person or through appointed proxies to attend and vote at meetings for and on their behalf if they are unable to attend such meetings. The process of the Company’s general meeting is monitored and reviewed on a regular basis. The Company uses the shareholders’ general meeting as one of the main channels for communicating with the shareholders and to ensure that shareholders’ views are communicated to the Board. At the shareholders’ general meeting, each substantially separate issue is proposed and considered by a separate resolution (including the election of individual directors). In order to mitigate the risks connected with the Covid-19 pandemic, a shareholders’ general meeting of the Company was held on May 27, 2021 exclusively by way of electronic means (the “2021 AGM”). The Directors, including the Chairman of the 140 Annual Report 2021_DRAFT_160322 separated pages.indd 140 Annual Report 2021_DRAFT_160322 separated pages.indd 140 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceBoard, the Chairman of the Board Committees, the Joint Company Secretaries, the auditor of the Company, Deloitte & Touche S.p.A., the statutory auditors and the scrutineer, attended the 2021 AGM. The Company has also held a shareholders’ general meeting on January 28, 2022 to appoint two additional Independent Non-Executive Directors (the “2022 SGM”). All resolutions put to the shareholders at the 2021 AGM and 2022 SGM were duly passed and the voting results of such resolutions were disclosed in the announcements of the Company dated May 27, 2021 and January 28, 2022 respectively. Computershare Hong Kong Investor Services Limited, the Company’s Hong Kong share registrar, acted as scrutineer for the vote taking at the 2021 AGM and 2022 SGM. D. CORPORATE COMMUNICATIONS In order to increase the efficiency in communication with shareholders and to contribute to environmental protection, the Company has made arrangements from September 2011 to ascer tain how its shareholders wish to receive corporate communications. Shareholders have the right to choose the language, either in English or Chinese (or both), and the means of receipt of the corporate communications, either in printed form or by electronic means through the Company’s website at www.pradagroup.com. Annual Report 2021_DRAFT_160322 separated pages.indd 141 Annual Report 2021_DRAFT_160322 separated pages.indd 141 141 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Corporate GovernanceAnnual Report 2021_DRAFT_160322 separated pages.indd 142 Annual Report 2021_DRAFT_160322 separated pages.indd 142 16/03/22 20:41 16/03/22 20:41 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Annual Report 2021_DRAFT_160322 separated pages.indd 143 Annual Report 2021_DRAFT_160322 separated pages.indd 143 143 16/03/22 20:41 16/03/22 20:41 PRADA Group Annual Report 2021 - Consolidated Financial StatementsCONSOLIDATED STATEMENT OF FINANCIAL POSITION (amounts in thousands of Euro) Assets Current assets Cash and cash equivalents Trade receivables, net Inventories, net Derivative financial instruments – current Receivables from, and advance payments to, related parties - current Other current assets Total current assets Non-current assets Property, plant and equipment Intangible assets Right of Use assets Investments in equity instruments Deferred tax assets Other non-current assets Receivables from, and advance payments to, related parties - non-current Total non-current assets Total Assets Liabilities and Shareholders’ Equity Current liabilities Short-term lease liability Short-term financial payables and bank overdraft Payables to related parties – current Trade payables Tax payables Derivative financial instruments - current Other current liabilities Total current liabilities Non-current liabilities Long-term lease liability Long-term financial payables Long-term employee benefits Provision for risks and charges Deferred tax liabilities Other non-current liabilities Derivative financial instruments non-current Total non-current liabilities Total Liabilities Share capital Total other reserves Translation reserve Net income / (loss) for the period Net Equity attributable to owners of the Group Net Equity attributable to Non-controlling interests Total Net Equity Note December 31 2021 December 31 2020 9 10 11 12 13 14 15 16 17 18 36 19 13 20 21 22 23 24 12 25 20 26 27 28 36 29 12 30 31 981,786 329,547 662,654 1,762 22,866 171,220 2,169,835 1,564,853 829,405 1,956,289 5,696 287,462 144,346 1,125 4,789,176 6,959,011 418,215 249,103 8,360 390,163 144,159 29,683 180,048 1,419,731 1,627,197 492,801 73,819 59,201 29,806 123,027 4,786 2,410,637 3,830,368 255,882 2,496,324 67,434 294,254 3,113,894 14,749 3,128,643 442,392 290,380 666,222 10,691 51,035 194,188 1,654,908 1,506,011 832,445 2,054,338 66,191 251,888 142,712 19,434 4,873,019 6,527,927 403,593 300,577 3,481 289,578 68,863 7,789 153,382 1,227,263 1,729,819 451,200 73,256 45,416 29,250 110,754 9,249 2,448,944 3,676,207 255,882 2,633,673 (3,359) (54,139) 2,832,057 19,663 2,851,720 Total Liabilities and Total Net Equity 6,959,011 6,527,927 Net current assets Total Assets less current Liabilities 750,104 5,539,280 427,645 5,300,664 144 Annual Report 2021_DRAFT_160322 separated pages.indd 144 Annual Report 2021_DRAFT_160322 separated pages.indd 144 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Consolidated Financial StatementsCONSOLIDATED STATEMENT OF PROFIT OR LOSS (amounts in thousands of Euro) Note Net revenues Cost of goods sold Gross margin Operating expenses Operating income / (loss) - EBIT Interest and other financial income/(expenses), net Interest expenses on Lease Liability Dividends from investments Total financial income/(expenses) Income / (loss) before taxation Taxation Net income / (loss) for the period Net income / (loss) - Non-controlling interests Net income / (loss) - Group Basic and diluted earnings / (losses) per share (in Euro per share) 32 33 34 35 36 31 30 37 twelve months ended December 31 2021 3,365,667 (818,309) % on net revenues 100% -24.3% twelve months ended December 31 2020 % on net revenues 2,422,739 (679,361) 100% -28.0% 2,547,358 75.7% 1,743,378 72.0% (2,057,874) -61.1% (1,723,317) -71.1% 489,484 14.5% 20,061 0.8% (31,216) (36,773) 160 (67,829) -0.9% -1.1% 0.0% -2.0% (29,480) (42,670) 277 (71,873) -1.2% -1.8% 0.0% -3.0% 421,655 12.5% (51,812) -2.1% (126,552) -3.8% (2,556) -0.1% 295,103 849 294,254 8.8% 0.0% 8.8% (54,368) -2.2% (229) 0.0% (54,139) -2.2% 0.115 (0.021) Annual Report 2021_DRAFT_160322 separated pages.indd 145 Annual Report 2021_DRAFT_160322 separated pages.indd 145 145 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Consolidated Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (amounts in thousands of Euro) twelve months ended December 31 2021 twelve months ended December 31 2020 Net income / (loss) for the period – Consolidated 295,103 (54,368) A) Items recyclable to P&L: Change in Translation reserve Tax impact Change in Translation reserve less tax impact Change in Cash Flow Hedge reserve Tax impact Change in Cash Flow Hedge reserve less tax impact B) Item not recyclable to P&L: Change in Fair Value in equity instruments reserve Tax impact Change in Fair Value in equity instruments reserve less tax impact Change in Actuarial reserve Tax impact Change in Actuarial reserve less tax impact 72,230 - 72,230 (14,331) 4,247 (10,084) 845 - 845 4,248 (1,734) 2,514 (66,321) - (66,321) 4,402 (1,727) 2,675 (15,206) - (15,206) (4,676) 1,041 (3,635) Consolidated comprehensive income / (loss) for the period 360,608 (136,855) Comprehensive income / (loss) for the period - Non-Controlling Interests 1,717 (1,754) Comprehensive income / (loss) for the period - Group 358,891 (135,101) 146 Annual Report 2021_DRAFT_160322 separated pages.indd 146 Annual Report 2021_DRAFT_160322 separated pages.indd 146 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Consolidated Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS (amounts in thousands of Euro) Income / (loss) before taxation Profit or loss adjustments Depreciation and write-downs of the Right of Use assets Depreciation and amortization of property, plant and equipment and intangible assets Impairment of property, plant and equipment and intangible assets Non-monetary financial (income) expenses Gain on disposal of fixed assets Interest expenses on Lease Liability Other non-monetary (income) expenses Balance Sheet changes Other non-current assets and liabilities Trade receivables, net Inventories, net Trade payables Other current assets and liabilities Cash flows from operating activities Interest paid (net), including interest paid of Lease Liability Taxes paid Net cash flows from operating activities Purchases of property, plant and equipment and intangible assets Disposals of property, plant and equipment and intangible assets Real estate sale to related party Dividends from investments Disposals of equity instruments Acquisition of additional shares from Non-Controlling Interests Business combination Net cash flow utilized by investing activities Dividends paid to shareholders of PRADA spa Dividends paid to Non-Controlling shareholders Repayment of Lease Liability Repayment of current portion of long-term borrowings - third parties Arrangement of long-term borrowings – third parties Change in short-term borrowings – third parties Repayment of loans from related parties Loans to related parties Net cash flows generated/(utilized) by financing activities Change in cash and cash equivalents, net of bank overdrafts Foreign exchange differences Opening cash and cash equivalents, net of bank overdraft Closing cash and cash equivalents, net of bank overdraft Cash and cash equivalents, net of bank overdraft Closing cash and cash equivalents, net of bank overdraft twelve months ended December 31 2021 twelve months ended December 31 2020 421,655 (51,812) 426,221 197,997 6,513 25,267 - 36,773 33,848 5,491 (29,790) 11,502 90,297 244 1,226,018 (45,329) (37,161) 1,143,528 443,910 203,720 21,294 36,700 (36,942) 42,670 (74,598) 59,210 16,186 9,134 (34,894) 56,435 691,013 (54,374) (44,220) 592,419 (219,628) (109,557) 364 20,000 103 76,464 (7,827) (6,741) (137,265) (89,559) (1,674) (392,805) (217,277) 240,000 (33,412) - - (494,727) 511,536 27,858 442,392 981,786 981,786 981,786 2,320 - 277 - - (42,950) (149,910) - - (330,319) (205,593) 175,000 (35,608) 2,000 (750) (395,270) 47,239 (25,916) 421,069 442,392 442,392 442,392 Annual Report 2021_DRAFT_160322 separated pages.indd 147 Annual Report 2021_DRAFT_160322 separated pages.indd 147 147 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Consolidated Financial StatementsCONSOLIDATED STATEMENT OF CHANGES IN EQUIT Y (AMOUNTS IN THOUSANDS OF EURO, EXCEPT NUMBER OF SHARES) (amounts in thousands of Euro) Number of shares Share Capital Tran- slation reserve Share premium reserve Cash flow hedge reserve Actua- rial reser- ve Fair Value Invest- ments in equity instru- ments Reserve Other reserves Total other reserves Net result for the period Net Equity attribu- table to owners of the Group Equity Net Equity at- tributable Non-con- trolling interests Total Net Equity 2,558,824,000 255,882 61,437 410,047 (8,469) (4,516) (9,982) 2,006,971 2,394,051 255,788 2,967,158 21,417 2,988,575 - - - - - - - - - - - - - (64,796) - 2,675 - - - - - - 204,612 204,612 (204,612) 51,176 51,176 (51,176) - - - - - - - 2,675 (54,139) (116,260) (1,755) (118,015) - - - - (3,635) (15,206) - (18,841) - (18,841) 1 (18,840) 2,558,824,000 255,882 (3,359) 410,047 (5,794) (8,151) (25,188) 2,262,759 2,633,673 (54,139) 2,832,057 19,663 2,851,720 - - - - - - - - - - (574) - - - - - - - - - - - - - - - - - - - - - - - - - (54,139) (54,139) 54,139 - - - (89,559) (89,559) - - - - (89,559) (1,674) (91,233) - (141) (141) - 13,351 922 14,273 - 14,273 - 14,273 - (66) - - (66) - (640) (4,816) (5,456) - - - - (1,128) (1,128) - (1,128) - (1,128) - - (10,084) 294,254 355,537 1,712 357,249 - 71,367 - (10,084) - - - - 2,509 845 - 3,354 - 3,354 5 3,359 2,558,824,000 255,882 67,434 410,047 (15,878) (5,708) (10,992) 2,118,855 2,496,324 294,254 3,113,894 14,749 3,128,643 Balance at December 31, 2019 Allocation of 2019 net income - retained earnings Allocation of 2019 net income - extraordinary reserves Comprehensive income/(loss) for the period (recyclable to P&L) Comprehensive income/(loss) for the period (not recyclable to P&L Balance at December 31, 2020 Allocation of 2020 net loss Dividends Capital reduction in subsidiaries Gains/(losses) on sales of Investments in equity instru- ments Acquisition of additional shares from Non-Con- trolling Interests Acquisition of Luna Rossa Challenge srl Comprehensive income/(loss) for the period (recyclable to P&L) Comprehensive income/(loss) for the period (not recyclable to P&L Balance at December 31, 2021 148 Annual Report 2021_DRAFT_160322 separated pages.indd 148 Annual Report 2021_DRAFT_160322 separated pages.indd 148 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Consolidated Financial StatementsP R A D A S P A S E P A R A T E F I N A N C I A L S T A T E M E N T S Annual Report 2021_DRAFT_160322 separated pages.indd 149 Annual Report 2021_DRAFT_160322 separated pages.indd 149 149 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - PRADA spa Separate Financial StatementsPRADA SPA STATEMENT OF FINANCIAL POSITION (amounts in thousands of Euro) Assets Current assets Cash and cash equivalents Trade receivables, net Inventories, net Derivative financial instruments - current Financial receivables and other receivables from parent company, subsidiaries, associates and related parties - current Other current assets Total current assets Non-current assets Property, plant and equipment Intangible assets Right of Use assets Investments Deferred tax assets Other non-current assets Derivative financial instruments - non-current Financial receivables and other receivables from parent company, subsidiaries, associates and related parties - non-current Total non-current assets Total Assets Liabilities and Shareholders' equity Current liabilities Short-term lease liability Short-term financial payables and bank overdraft Financial payables and other payables to parent company, subsidiaries, associates and related parties - current Trade payables Tax payables Derivative financial instruments - current Other current liabilities Total current liabilities Non-current liabilities Long-term lease liability Long-term financial payables Long-term employee benefits Provisions for risks and charges Deferred tax liabilities Other non-current liabilities Derivative financial instruments - non-current Financial payables and other payables to parent company, subsidiaries, associates and related parties - non-current Total non-current liabilities Total Liabilities Share capital Total other reserves Net income / (loss) for the period Total Net Equity December 31 2021 December 31 2020 396,777 683,087 269,947 3,058 415,146 95,509 1,863,524 788,786 205,587 343,835 907,468 43,324 70,304 3,518 72,525 2,435,347 4,298,871 50,507 171,973 86,000 635,780 84,781 29,683 145,298 1,204,022 312,767 441,013 39,810 16,051 1,960 116,661 4,786 - 933,048 2,137,070 255,882 1,595,269 310,650 2,161,801 103,295 526,652 295,694 12,445 265,627 143,154 1,346,867 791,076 200,497 294,420 903,272 43,923 74,457 6,768 201,298 2,515,711 3,862,578 42,146 177,787 63,801 635,002 24,124 7,789 145,773 1,096,422 275,612 385,868 35,704 1,581 1,711 104,000 9,249 13,878 827,603 1,924,025 255,882 1,698,847 (16,176) 1,938,553 Total Liabilities and Total Net Equity 4,298,871 3,862,578 150 Annual Report 2021_DRAFT_160322 separated pages.indd 150 Annual Report 2021_DRAFT_160322 separated pages.indd 150 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - PRADA spa Separate Financial Statements PRADA SPA STATEMENT OF PROFIT OR LOSS (amounts in thousands of Euro) Net revenues Cost of goods sold Gross Margin Operating expenses Operating income / (loss) - EBIT Interest and other financial income / (expenses), net Interest expenses on Lease Liability Dividends from investments Total financial income/(expenses) Income / (loss) before taxation Taxation twelve months ended December 31 2021 twelve months ended December 31 2020 1,854,692 (719,202) 1,188,628 (598,424) 1,135,490 590,204 (675,067) (595,638) 460,423 (45,679) (3,420) 23,785 (25,314) (5,434) (52,856) (2,952) 37,014 (18,794) 435,109 (24,228) (124,459) 8,052 Net income / (loss) for the period 310,650 (16,176) PRADA SPA STATEMENT OF COMPREHENSIVE INCOME (amounts in thousands of Euro) Net income / (loss) for the period A) Items recyclable to P&L: Change in Cash Flow Hedge reserve Tax impact Change in Cash Flow Hedge reserve less tax impact B) Items not recyclable to P&L: Change in Fair Value in equity instruments reserve Tax impact Change in Fair Value in equity instruments reserve less tax impact Change in Actuarial reserve Tax impact Change in Actuarial reserve less tax impact twelve months ended December 31 2021 twelve months ended December 31 2020 310,650 (16,176) (17,695) 4,247 (13,448) 845 - 845 634 (152) 482 5,809 (1,394) 4,415 (15,206) - (15,206) (346) 405 59 Comprehensive income / (loss) for the period 298,529 (26,908) Annual Report 2021_DRAFT_160322 separated pages.indd 151 Annual Report 2021_DRAFT_160322 separated pages.indd 151 151 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - PRADA spa Separate Financial Statements PRADA SPA STATEMENT OF CASH FLOWS (amounts in thousands of Euro) Income / (loss) before taxation Profit or loss adjustments Depreciation and write-downs of the Right of Use assets Depreciation and amortization of property, plant and equipment and intangible assets Impairment of property, plant and equipment and intangible assets Losses/(gains) on disposal of non-current assets Impairment of investments Interest expenses on Lease Liability Non-monetary financial (income) expenses Other non-monetary (income) expenses Balance sheet changes Trade receivables, net Inventories, net Trade payables Other current assets and liabilities Other non-current assets and liabilities Cash flows from operating activities Interest paid (net), including interest paid of Lease Liability Taxes paid Net cash flows from operating activities Purchase of property, plant and equipment and intangible assets Disposal of property, plant and equipment and intangible assets Investments in subsidiaries Financial investments Dividends from investments Net cash flow utilized by investing activities Dividends paid to shareholders Change in short-term borrowing - third parties Change in intercompany loans Loans repaid by subsidiaries Repayment of Lease Liability Loans made to subsidiaries Repayment of short-term portion of long-term borrowings - third parties Arrangement of long-term borrowings - third parties Net cash flows utilized by financing activities Change in cash and cash equivalents, net of bank overdraft Fratelli Prada spa - Opening cash and cash equivalents, net of bank overdraft Opening cash and cash equivalents, net of bank overdraft Closing cash and cash equivalents, net of bank overdraft Cash and cash equivalents, net of bank overdraft Closing cash and cash equivalents, net of bank overdraft twelve months ended December 31 2021 twelve months ended December 31 2020 435,109 (24,228) 48,354 71,479 1,030 (18) 39,216 3,420 (27,321) 31,278 (162,624) 13,663 1,138 4,628 (6,010) 453,342 (1,714) 8,560 460,187 (74,901) 20,000 (92,826) 76,363 23,785 (47,579) (89,559) - (4,447) 23,537 (56,132) (42,640) (189,889) 240,000 (119,130) 293,478 - 103,293 396,771 396,771 396,771 43,561 65,242 515 (36,748) 40,353 2,952 (34,537) 24,087 224,162 31,769 (230,123) 19,222 7,591 133,818 (2,814) (4,159) 126,845 (49,054) 2,320 (6,614) - 37,014 (16,334) - (45,000) 27,563 14,052 (53,728) (23,486) (177,889) 175,000 (83,488) 27,023 5,574 70,696 103,293 103,293 103,293 152 Annual Report 2021_DRAFT_160322 separated pages.indd 152 Annual Report 2021_DRAFT_160322 separated pages.indd 152 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - PRADA spa Separate Financial StatementsPRADA S.P.A. STATEMENT OF CHANGES IN EQUIT Y (AMOUNTS IN THOUSANDS OF EURO, EXCEPT NUMBER OF SHARES) (amounts in thousands of Euro) Number of shares Share capital Share premium reserve Legal reserve Other reserves Retained earnings Cash flow hedge reserve Fair Value Invest- ments in equity in- struments Reserve Total other reserves Net result for the period Total equity 2,558,824,000 255,882 410,047 51,176 182,899 881,086 (3,711) (9,982) 1,511,515 249,027 2,016,425 Balance at December 31 2019 Allocation of 2019 net income - retained earnings Allocation of 2019 net income - extraordinary reserves Merger of F.lli Prada spa Comprehensive income/ (loss) for the period (recyclable to P&L) Comprehensive income/ (loss) for the period (not recyclable to P&L) Balance at December 31 2020 Allocation of 2020 net loss Other movements Dividends Comprehensive income/ (loss) for the period (recyclable to P&L) Comprehensive income/ (loss) for the period (not recyclable to P&L) Balance at December 31 2021 - - - - - - - - - - - - - - - - - - - - - 197,851 51,176 - (50,965) - - - - 4,415 - - - - 197,851 (197,851) 51,176 (51,176) - - (50,965) - (50,965) 4,415 (16,176) (11,761) 59 - (15,206) (15,146) - (15,147) 2,558,824,000 255,882 410,047 51,176 234,075 1,028,031 704 (25,188) 1,698,846 (16,176) 1,938,552 - - - - - - - - - - - - - - - - - - - - - - (16,176) 929 (51,176) (38,382) - - - - (16,176) 16,176 - 13,351 14,280 (89,558) - - 14,280 (89,558) - (13,448) (13,448) 310,650 297,202 - - 482 - 845 1,327 - 1,327 2,558,824,000 255,882 410,047 51,176 182,899 974,884 (12,744) (10,992) 1,595,271 310,650 2,161,802 - - - - - Annual Report 2021_DRAFT_160322 separated pages.indd 153 Annual Report 2021_DRAFT_160322 separated pages.indd 153 153 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - PRADA spa Separate Financial Statements Annual Report 2021_DRAFT_160322 separated pages.indd 154 Annual Report 2021_DRAFT_160322 separated pages.indd 154 16/03/22 20:42 16/03/22 20:42 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Annual Report 2021_DRAFT_160322 separated pages.indd 155 Annual Report 2021_DRAFT_160322 separated pages.indd 155 155 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements1. GENERAL INFORMATION PRADA spa (“Prada” or the “Company”), together with its subsidiaries (collectively the “Group” or “Prada Group”), is listed on the Hong Kong Stock Exchange (HKSE code: 1913). The Prada Group is a leading player in the luxury goods industry, where it operates with the Prada, Miu Miu, Church’s and Car Shoe brands producing and distributing leather goods, footwear and apparel. It also operates in the food sector with Marchesi 1824 and in the eyewear and fragrance industries under licensing agreements. The Group owns 23 production facilities (20 in Italy, 1 in the United Kingdom, 1 in France and 1 in Romania) and its products are sold in 70 countries worldwide mainly through its directly operated stores, which numbered 635 at December 31, 2021. The Prada Group’s products are also sold through the brands’ e-commerce channels, in selected high-end depar tment stores, by independent retailers in very exclusive locations, and by impor tant e-tailers. The Company is a joint-stock company with limited liability, registered and domiciled in Italy. Its registered ofﬁce is at via Fogazzaro 28, Milan. At December 31, 2021 (the repor ting date of these 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 14, 2022. 2. BASIS OF PREPARATION The Consolidated Financial Statements of the Prada Group as at December 31, 2021, which consist of the “Consolidated Statement of Financial Position”, the “Consolidated Statement of Proﬁt or Loss for the twelve months ended December 31, 2021”, the “Consolidated Statement of Comprehensive Income for the twelve months ended December 31, 2021”, the “Consolidated Statement of Cash Flows for the twelve months ended December 31, 2021”, 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 156 Annual Report 2021_DRAFT_160322 separated pages.indd 156 Annual Report 2021_DRAFT_160322 separated pages.indd 156 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsRepor ting 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 Repor ting Interpretations Committee (“IFRIC”), previously called the Standing Interpretations Committee (“SIC”). The Group has prepared the Consolidated Statement of Financial Position presenting separately the current and non-current assets and liabilities. All details needed for accurate and complete disclosure are provided in the Notes to the Consolidated Financial Statements. Consolidated Statement of Profit or Loss items are classified by destination. The Consolidated Statement of Cash Flows has been prepared with the indirect method. The Consolidated Financial Statements are presented in Euro, the functional currency of PRADA spa. The Consolidated Financial Statements have been prepared on a going concern basis. 3. NEW IFRS AND AMENDMENTS TO IFRS Amendments to existing standards issued by the International Accounting Standard Board (“IASB”), endorsed by the European Union and applicable to the Prada Group from Januar y 1, 2021. Amendments to existing standards Effective date for Prada Group EU endorsement dates Amendments to IFRS 4 Insurance Contracts – deferral of IFRS 9 January 1, 2021 Endorsed in December 2020 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform- Phase 2 January 1, 2021 Endorsed in January 2021 Amendments to IFRS 16 Leases: Covid-19-Related Rent Concessions beyond 30 June 2021 (issued on 31 March 2021) April 1, 2021 Endorsed in August 2021 The introduction of these amendments, with the exception of that relating to IFRS 16, did not have any effect on these Consolidated Financial Statements. AMENDEMENT TO “IFRS 16 LEASES” REGARDING COVID-RELATED RENT CONCESSIONS On March 31, 2021, the IASB extended by one year the period of application Annual Report 2021_DRAFT_160322 separated pages.indd 157 Annual Report 2021_DRAFT_160322 separated pages.indd 157 157 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsof the IFRS 16 practical expedient previously approved by the IASB on May 28, 2020. With this amendment, issued in response to the duration of the Covid-19 pandemic, immediate recognition in profit and loss of rent discounts is applicable if the reduction regards payments originally due on or before June 30, 2022 (and no longer by the original date of June 30, 2021), whereas the other terms of the standard and practical expedient adopted in 2020 remain valid. The amendment is effective for annual repor ting periods beginning on or after April 1, 2021. Note that during the annual repor ting period, the Group accounted for Covid- related concessions of Euro 34.4 million in the Statement of Profit or Loss, basically none of which regarded the 2021 amendment, as no significant related cases had emerged at the repor ting date. Amendments to existing standards issued by the IASB, endorsed by the European Union, but not yet applicable to the Prada Group because they are effective for annual periods beginning on or af ter Januar y 1, 2022. Amendments to existing standards IFRS 3 Business Combinations IAS 16 Property, Plant and Equipment IAS 37 Provisions, Contingent Liabilities and Contingent Assets Annual Improvements 2018-2020 IFRS 17 Insurance contracts Effective date for Prada Group EU endorsement status January 1, 2022 Endorsed in June 2021 January 1, 2022 Endorsed in June 2021 January 1, 2022 Endorsed in June 2021 January 1, 2022 Endorsed in June 2021 January 1, 2022 Endorsed in November 2021 Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (issued on 12 February 2021) January 1, 2023 Endorsed in March 2022 Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (issued on 12 February 2021) January 1, 2023 Endorsed in March 2022 New standards and amendments issued by the IASB, but not yet endorsed by the European Union at December 31, 2021. New IFRS Standards and Amendments to existing standards Date of possible application EU endorsement status Amendment to IAS 1 Presentation of Financial Statements (issued on 23 January 2020) January 1, 2023 Not endorsed yet Amendments to IAS 12 Income taxes: deferred tax related to assets and liabilities arising from a single transaction Amendments to IFRS 17 Insurance contracts: Initial application of IFRS 17 and IFRS 9 - Comparative information ( issued on 9 December 2021) January 1, 2023 Not endorsed yet January 1, 2023 Not endorsed yet At the date of the Consolidated Financial Statements, the Directors had not yet completed the analysis necessary to assess the impacts of the new standards and interpretations not yet applicable to the Prada Group, in terms of both those 158 Annual Report 2021_DRAFT_160322 separated pages.indd 158 Annual Report 2021_DRAFT_160322 separated pages.indd 158 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsalready endorsed by the European Union and those undergoing the endorsement process. 4. SCOPE OF CONSOLIDATION The consolidated ﬁnancial information comprises the accounts of PRADA spa and the Italian and foreign companies over which such 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 use that power to affect its returns from 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 using the full consolidation method from the date on which the Group gains control until the date on which that control ceases. Associated under takings (“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 par ticipate 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. 5. BASIS OF CONSOLIDATION The main consolidation procedures used to prepare the Consolidated Financial Statements are explained below: ― the separate financial statements of PRADA spa are prepared in accordance with IFRS and those of its subsidiaries are adjusted, as necessary, to comply with IFRS and with the standards applied throughout the Group. The financial statements used to prepare the consolidated financial information all have the same repor ting date; ― the financial statements of subsidiaries are consolidated using the full Annual Report 2021_DRAFT_160322 separated pages.indd 159 Annual Report 2021_DRAFT_160322 separated pages.indd 159 159 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsconsolidation method, incorporating the entire amount of the assets, liabilities, revenues and expenses of each company irrespective of the percentage of ownership held, and eliminating the carrying amount of the consolidated equity interests owned directly or indirectly by the Company against the corresponding por tion of the related equity; ― for fully consolidated companies that are not wholly owned by the Parent Company, the por tions of equity and annual profit or loss belonging to third par ties are shown separately as “equity attributable to non-controlling interests” in the Consolidated Statement of Financial Position and “net income/(loss) of non-controlling interests” in the Consolidated Statement of Profit or Loss; ― for business combinations, the difference between the purchase price of the equity interest acquired and the corresponding por tion of equity at the acquisition date is allocated, if positive, to the identifiable assets acquired and liabilities assumed measured at their fair value. Any residual amount, if positive, is recognized as goodwill, and if negative is recognized immediately in the Statement of Profit or Loss. The difference between the cost of acquisition of an additional controlling interest and the related value of the interest acquired is recognized directly in equity reserves. If the business combination is achieved in stages (a step acquisition), the previous held interest owned in the company acquired is remeasured at fair value at the date on which control is acquired. Differences identified in this manner are recognized in profit or loss. In business combinations under common control, the difference between the purchase price of the equity interest acquired and the corresponding por tion of equity is recognized directly in equity. ― the acquisition cost of an equity interest or an activity that does not constitute a business, and which therefore does not originate a business combination, is allocated to the individual assets acquired and liabilities assumed measured at their fair value at the acquisition date; ― the resulting profits, losses, assets and liabilities of associates are accounted for using the equity method. Under such method, the investments in associates are recognized in the Statement of Financial Position at cost, subsequently adjusted to reflect post-acquisition changes and any impairment losses. Losses exceeding the Parent Company’s owners’ interest in the associate are not recognized, unless the Group has taken on an obligation to cover such losses. An excess of the cost of acquisition over the Company’s share of the fair value of the assets acquired and liabilities assumed at the acquisition date is accounted 160 Annual Report 2021_DRAFT_160322 separated pages.indd 160 Annual Report 2021_DRAFT_160322 separated pages.indd 160 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsfor as goodwill. Goodwill is included in the carrying amount of the investment and is tested for impairment. A deficit between the cost of acquisition and the Company’s share of the fair value of the identifiable assets, liabilities and contingent liabilities at the acquisition date is recognized in the Statement of Profit or Loss of the period of acquisition; ― during the consolidation process, all payables, receivables, expenses and revenues deriving from transactions between the consolidated companies are eliminated in full. Any unrealized profits and losses deriving from transactions between the Group’s consolidated companies and included in the inventory valuation at the repor ting date are eliminated. Unrealized losses are eliminated except where the transaction provides evidence of impairment of the asset transferred, in which case the value of the transferred asset is written down; ― dividends distributed by the consolidated companies are eliminated from the Profit or Loss Statement and added to the retained earnings if and to the extent that they were extracted from them; ― the financial statements of subsidiaries are prepared in their respective local currency. Assets and liabilities are translated into Euro using the end-of-period exchange rate, and income and expenses are translated using the average exchange rate of the period. If translation at the average exchange rate does not present the transaction fairly, the exchange rate prevailing at the date of the transaction is used to translate its effect on the consolidated profit or loss. Differences arising on translating Statement of Financial Position balances at the beginning and at the end of the period, and differences arising on translating Statement of Profit or Loss items at the average exchange rate for the period (or another exchange rate, as mentioned above) and at the end of the period, are recognized in a translation reserve in consolidated equity until the disposal of the investee. The translation reserve includes the accumulated translation differences generated since first-time consolidation (January 1, 2004). In the preparation of the Consolidated Statement of Cash Flows, the cash flows of subsidiaries are translated using the average exchange 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 translation reserve and subsequently released to profit or loss upon disposal of the investment; ― the repor ting currency of the Consolidated Financial Statements is the Euro. All amounts are expressed in thousands of Euro unless stated otherwise. Annual Report 2021_DRAFT_160322 separated pages.indd 161 Annual Report 2021_DRAFT_160322 separated pages.indd 161 161 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements6. MAIN ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS Cash and cash equivalents are recognized at their nominal value. Cash equivalents include all highly liquid investments originally with a shor t-term maturity. Solely for the purpose of the Statement of Cash Flows, cash and cash equivalents include cash on hand, bank accounts and deposit accounts. Bank overdrafts and the current por tions due to banks on medium and long-term loans are recognized as shor t-term financial payables and bank overdrafts. 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, fur ther impairments recognized upon specific doubtful conditions on the single credit positions. Trade accounts payable are recognized at nominal amount. Transactions denominated in foreign currency are recognized at the exchange rate as at the date of the transaction. At the repor ting date, transactions denominated in foreign currencies are translated using the exchange rate as at the repor ting 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 inventories, are made for slow moving, obsolete inventories or if, in the end, the estimated selling price or realizable value is reasonably expected to be lower than the cost. PROPERT Y, PLANT AND EQUIPMENT Proper ty, 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 162 Annual Report 2021_DRAFT_160322 separated pages.indd 162 Annual Report 2021_DRAFT_160322 separated pages.indd 162 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsimpairment 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. 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 Equipment Depreciation rate or period Land Buildings and construction Production plant and equipment Improvements to leased retail premises Improvements to leased industrial and corporate premises Furniture and fixture retail Furniture and fixture corporate and industrial Other tangible fixed assets not depreciated 2.5% - 10% 4% - 25% Shorter of lease term (*) and useful life Shorter of lease term (*) and useful life Shorter of lease term (*) and useful life 7% - 20% 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 lease agreement is terminated in advance, the useful life of fixed assets related to such premise is adjusted consistently. 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 valuation aimed at monitoring indications of impairment over the value of proper ty, plant and equipment is per formed. 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 repor ting 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. Annual Report 2021_DRAFT_160322 separated pages.indd 163 Annual Report 2021_DRAFT_160322 separated pages.indd 163 163 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsINTANGIBLE ASSETS Only identifiable assets, controlled by the Group 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 recognized at cost or at the value attributed upon acquisition and include the cost of trademark registration in the various countries in which the Group operates. 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 proper ty rights which useful life is determinated in accordance with the relevant contracts. Store lease acquisition costs (or key money) represent expenditures incurred to enter into or take over retail store lease agreements. When the lease contracts fall under the application of IFRS 16 Leases, the store lease acquisition is included within the initial direct costs that contribute to the formation of the Right of Use assets. O therwise, the store lease acquisition is an intangible assets. Intangible assets with a definite useful life are amor tized on a straight-line basis at the following rates: Category of intangible assets Amortization rate or period Trademarks and other intellectual property rights Store lease acquisition costs Software Development costs and other intangible assets Shorter of lease term (*) and useful life 2.5% - 25% 10% - 33% 10% - 33% (*) the lease term includes the renewal period when the exercise of the option is deemed reasonably certain 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 amor tized 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 per formed more frequently. 164 Annual Report 2021_DRAFT_160322 separated pages.indd 164 Annual Report 2021_DRAFT_160322 separated pages.indd 164 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsFor 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 including the lease liability. 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 predictions (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. RIGHT OF USE ASSETS AND LEASE LIABILIT Y Right of Use and Lease Liabilities are regulated by IFRS 16 Leases which apply to all lease contracts that provide for the payment of fixed rents, including those indexed and those that set a guaranteed minimum. The Group recognize the Right of Use assets and the Lease Liability at the commencement date of the lease and based on the lease term. The identification of a lease term is very impor tant, especially in the field of real estate, because the form, legislation and common business practice can vary considerably from one jurisdiction to another. The Group determines the lease term as the non-cancellable period of a lease, together with the periods covered by an option to extend or to terminate the lease under the control of the Company. The management evaluates the exercise of the option if it’s considered “reasonably Annual Report 2021_DRAFT_160322 separated pages.indd 165 Annual Report 2021_DRAFT_160322 separated pages.indd 165 165 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementscer tain” based on several factors and circumstances that create an incentive for the lessee to exercise, or not to exercise the option, including any expected changes in facts and circumstances from the commencement date until the exercise date of the option. The lease term begins on the ‘commencement date’ of the lease. This is defined as the date on which the lessor makes an underlying asset available for use by a lessee. It is the date on which the lessee initially recognises and measures Right of Use assets and lease liabilities. The commencement date is not necessarily the date on which star t the depreciation of the Right of Use. For retail premises, the asset leased is ready for use when works on premises are completed and, therefore, the depreciation of Right of Use shall begin after the completion of works necessary to bring a store to its working condition according to the management instructions (consistently with the IAS 16 requirements). The Right of Use assets is measured at cost, identified as the initial measurement of the lease liability, increased by any initial direct costs incurred by the lessee (key money, legal fees, agent fees or other incremental costs incurred to conclude the contract) or by any dismantling cost necessary to bring back the premises to its original condition. The Right of use Assets is depreciated over the Lease term. The Lease Liability is measured at the present value of the lease payments that are not paid at that date. The lease payments are discounted using an incremental borrowing rate calculated at Group level. The profit or loss caption “Interest expenses IFRS 16” represent the adjustment to the present value of the Lease Liability. 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 is determined as the risk-free rate of each contract currency in which the leases are stipulated, with payment dates based on the terms of the specific lease, increased by the parent company’s credit spread. A lease modification occurs when there is a change in the scope of a lease, or the consideration for a lease, that was not par t of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or shor tening the contractual lease term). The effective date of the modification is defined as “the date when both par ties agree to a lease modification”. When this occur, the Right of use and the lease liability are updated accordingly. If a lease is terminated before the original lease term 166 Annual Report 2021_DRAFT_160322 separated pages.indd 166 Annual Report 2021_DRAFT_160322 separated pages.indd 166 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsdate defined at the commencement date, both Right of Use assets and the lease liability are remeasured, impacting also the profit or loss statement. In addition, the options for the extension and early termination of the lease agreements are re-evaluated and re-considered when a significant event or a change occurs in the circumstances that are under the control of the Group and this will influence the assessment of the reasonable cer tainty of the exercise options. Low value contracts (the price of the asset, when new and recognized on a single- component basis approach, is less than Euro 5,000) and leases whose lease term is shor ter than 12 months are not in the scope of “IFRS 16 Leases”, so they are recognized through profit or loss on a straight-line basis over the lease term. Purely variable rent, typically linked to sales without a guaranteed minimum, are excluded too from the scope of application of such standard. Based on the practical expedient set by the “Amendment to IFRS16: Covid-Related Rent Concession”, a lessee is not required to assess whether the Covid-related rent reductions obtained by the lessors are lease modifications. Therefore, the lessee can book such rent reduction as if they were not lease modifications, thus recognizing the entire economic benefit of such discounts immediately through profit or loss. Rent discounts are eligible for the practical expedient if they occur as a direct consequence of the Covid-19 pandemic and if all of the following criteria are met: ― any rent reduction affects only payments originally due on or before June 30, 2022; ― there is no substantive change to the other terms and conditions of the lease; ― the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change. A lessee is expected to make judgement about whether other changes are substantive based on its understanding of those changes and based on how they were historically managed by the Group. As a result, in the Group’s view a modification of the contract such as a renewal or the extension of the lease term is to be considered substantive only when it is not consistent with the usual practices applied by the Group and in the industry as a whole. INVESTMENTS IN EQUIT Y INSTRUMENTS The initial recognition of Investments in equity instruments (previously “available Annual Report 2021_DRAFT_160322 separated pages.indd 167 Annual Report 2021_DRAFT_160322 separated pages.indd 167 167 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsfor 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 recognized in a specific equity reserve. This change (Fair Value through O ther Comprehensive Income) 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 (Fair Value Through Profit or Loss). The choice of this accounting treatment (FV TPL 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 repor ted 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 par ts 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 repor ting 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 168 Annual Report 2021_DRAFT_160322 separated pages.indd 168 Annual Report 2021_DRAFT_160322 separated pages.indd 168 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsa business combination. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments that hedge interest rate risk and exchange rate risk exposure are recognized at the fair value based on hedge accounting rules. According to these rules, within the framework of IFRS 9, future cash flow hedging contracts such as those listed above are qualified 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 which could affect profit or loss. In this case, the change in fair value of 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 por tion 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. Non-current financial liabilities are initially recognized 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 amor tized cost, which means at the initial amount less principal repayments already made, plus or minus the amor tization (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. Annual Report 2021_DRAFT_160322 separated pages.indd 169 Annual Report 2021_DRAFT_160322 separated pages.indd 169 169 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsActuarial gains and losses are recognized directly in equity, net of the tax effect. O ther 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 repor ting date, adjusted according to the period of the underlying agreement. The recognition of these benefits is usually subject to the attainment of specific earnings by the Group, and their payment, deferred over time to keep the beneficiaries in the organization, is remeasured using indices relating to the Group’s profitability or market value. Like 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 The Prada Group is mainly involved in civil and tax disputes and the related provisions for risks and charges are booked in the financial statements both on the basis of historical experience and on the basis of assumptions concerning future events that are difficult to predict as also depending on factors that are not under the full control of the Group. Therefore it is possible that after the repor ting period, depar tures between the estimates made and the actual results materialize so that it might be necessary to make adjustments to the values of the liabilities recognized. Application of exemptions to some or all of the disclosures required by IAS 37 are applied when these could prejudice seriously the position the Group in a dispute with other par ties on the on the subject matter of the provision, contingent liability or contingent asset. 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 170 Annual Report 2021_DRAFT_160322 separated pages.indd 170 Annual Report 2021_DRAFT_160322 separated pages.indd 170 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsliability 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 repor ting 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: ― identification of the contract (in writing, orally or in accordance with other customary business practices) with a customer; ― identification of the per formance obligations in the contract; ― determination of the transaction selling price for each per formance 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 per taining to the transaction can be reliably measured; ― each per formance 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 recognized on an accrual basis. In par ticular, 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. Annual Report 2021_DRAFT_160322 separated pages.indd 171 Annual Report 2021_DRAFT_160322 separated pages.indd 171 171 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsPRE-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 the suspension of the depreciation of the Right of Use assets. INTEREST EXPENSES Interest expenses might include interest on bank overdrafts and on shor t and long term loans, financial charges related to the adjustments of the present value of the Lease Liability, amor tization 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 repor ting 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 OR LOSSES PER SHARE Earnings or losses per share are calculated by dividing the net result 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 repor ted for each prior period are also adjusted as if the new policy had been applied from the outset. A prospective approach is adopted 172 Annual Report 2021_DRAFT_160322 separated pages.indd 172 Annual Report 2021_DRAFT_160322 separated pages.indd 172 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsonly 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 cer tain 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 recognized in the profit or loss. Estimates are used also for impairment tests, for equity method accounting, when determining provisions for risks and charges, the provision for bad debts, the inventory obsolescence provision, the post-employment benefits, the tax computation, the measurement of derivatives, the lease term of contracts with renewal or early termination options (in accordance with IFRS 16) and the useful life of proper ty, plant and equipment and intangible assets. IMPACT OF CLIMATE CHANGE-RELATED MAT TERS ON FINANCIAL STATEMENTS The management estimates that the effects of climate change on the criteria for the preparation of these consolidated financial statements are negligible, as at the repor ting date it does not identify par ticular items of assets and liabilities subject to estimation processes that can be significantly influenced by climate change matters. Annual Report 2021_DRAFT_160322 separated pages.indd 173 Annual Report 2021_DRAFT_160322 separated pages.indd 173 173 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements7. MERGERS AND ACQUISITIONS On January 29, 2021, the Prada Group signed an agreement with DFS Group L.P. to purchase the residual minority stake in the “ Travel Retail Shop” companies, managed together with the latter group on the basis of a joint venture agreement that expired on January 31, 2021. Pursuant to this transaction, since February 1, 2021 Prada Group has wholly owned TRS Hong Kong ltd, TRS Saipan llc, TRS Hawaii llc, TRS Okinawa kk and TRS Guam ltd; TRS Singapore pte ltd, for which a liquidation process had already initiated and finished in November 2021, was not par t of the acquisition. The consideration for the share purchase was Euro 6 million. After the acquisition, in order to simplify the Group structure, some extraordinary transactions were carried out. On April 15, 2021, PRADA spa established the company PRADA S.M. srl with the aim of expanding commercial activities in the area of central Italy. On April 23, 2021, PRADA spa exercised the purchase option on the remaining 10% of the share capital of Pelletteria Ennepì srl. As a result of such agreement, the Prada Group wholly owns that company. On May 26, 2021, PRADA spa exercised the purchase option on the remaining 20% of the share capital of Hipic Prod Impex Srl. As a result of such agreement, the Prada Group wholly owns that company. On June 22, 2021, the Prada Group and the Ermenegildo Zegna Group signed an agreement to acquire share capital of Filati Biagioli Modesto S.p.A., a company renowned for Italian excellence in the production of cashmere and other noble yarns located in Tuscany (Montale, Pistoia). In July, the two new shareholders subscribed the respective 40% stakes in the company. On November 30, 2021, the Prada Group acquired from a related par ty, PA BE 1 S.r.l., the entire share capital of Luna Rossa Challenge S.r.l., the company that organizes and manages the Luna Rossa sailing team for the par ticipation in America’s Cup and other high-profile sailing events. Luna Rossa Challenge S.r.l. also wholly owns COR 36 S.r.l., whose activities are about to be liquidated since they relate exclusively solely to the organization of the 36th edition of the 174 Annual Report 2021_DRAFT_160322 separated pages.indd 174 Annual Report 2021_DRAFT_160322 separated pages.indd 174 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsAmerica’s Cup race. As a result of this acquisition, the Group has combined the title over the Luna Rossa brand, which it had already owned, with the activity of the sailing team, in view of maximizing the economic value of the brand. The acquisition is outside the scope of IFRS 3 – Business Combination, as it is considered a transaction “under common control”, because Prada spa and Luna Rossa Challenge srl are ultimately controlled by the same group of individuals. For this reason, the excess amount of Euro 1.1 million paid by Prada spa, i.e. the difference between the consideration paid (Euro 12 million) and accrued (Euro 5 million) and the net assets acquired at their acquisition–date carrying amount (Euro 15.9 million), was deducted from the Group’s equity. The cash-out for the acquisition was equal to Euro 6.7 million, corresponding to the agreed consideration of Euro 12 million net of the cash of Euro 5.3 million included in the net assets acquired. (amounts in thousands of Euro) Cash Property, plant and equipment/intangible assets Other current assets/(liabilities) Tax credits Carrying amount of net assets acquired Consideration paid at November 30, 2021 Earn-out accrued at December 31, 2021 Reduction of Group equity December 31 2021 5,255 10,649 (12,621) 12,589 15,872 12,000 5,000 1,128 The consolidation of Luna Rossa Challenge srl from December 1, 2021 did not have a material effect on the Group’s Consolidated Statement of Profit or Loss for the year ended at December 31, 2021. 8. OPERATING SEGMENTS IFRS 8, “Operating Segments”, requires detailed information to 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 adopt decisions to allocate appropriate resources to the segment and assess its per formance. Annual Report 2021_DRAFT_160322 separated pages.indd 175 Annual Report 2021_DRAFT_160322 separated pages.indd 175 175 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements 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 per formance solely on a Group-wide level. For this reason, the business is considered a single operating segment, as it better represents the specific characteristics of the Prada Group business model. NET REVENUES Detailed information on the net revenues by distribution channel, brand, geographical area and product are provided in the Financial Review together with the related comments. GEOGRAPHICAL INFORMATION The following table repor ts 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 repor table segment: (amounts in thousands of Euro) Europe Americas Asia Pacific Japan Middle East and Africa Total December 31 2021 December 31 2020 3,005,722 3,016,375 471,229 536,218 417,887 57,344 515,662 533,832 477,799 66,181 4,488,400 4,609,849 The total amount of Euro 4,488 million (Euro 4,610 million at December 31, 2020) refers to the Group’s non-current assets excluding, as per IFRS 8, those relating to derivatives, deferred tax assets and the pension fund surplus. 176 Annual Report 2021_DRAFT_160322 separated pages.indd 176 Annual Report 2021_DRAFT_160322 separated pages.indd 176 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION 9. CASH AND CASH EQUIVALENTS Cash and cash equivalents are detailed as follow: (amounts in thousands of Euro) Cash on hand Bank deposit accounts Bank current accounts Total December 31 2021 December 31 2020 36,636 189,306 755,844 25,818 120,563 296,011 981,786 442,392 At December 31, 2021, the bank accounts and deposits accruing interest income had yields in the range of 0% and 5.1% annually (0% and 2.1% at December 31, 2020). 10. TRADE RECEIVABLES, NET Trade receivables, net are detailed below: (amounts in thousands of Euro) Trade receivables – third parties Allowance for bad and doubtful debts Trade receivables – related parties Total December 31 2021 December 31 2020 338,931 (10,990) 1,606 297,953 (11,979) 4,406 329,547 290,380 The change in the Allowance for doubtful debts is set for th below: (amounts in thousands of Euro) December 31 2021 December 31 2020 Opening balance Exchange differences Increases Reversals Utilization Closing balance Annual Report 2021_DRAFT_160322 separated pages.indd 177 Annual Report 2021_DRAFT_160322 separated pages.indd 177 11,979 546 581 (1,129) (987) 10,990 9,354 (317) 4,135 (109) (1,084) 11,979 17 7 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements 11. INVENTORIES, NET Inventories can be broken down as follows: (amounts in thousands of Euro) Raw materials Work in progress Finished products Return assets Allowance for obsolete, slow-moving inventories and return assets December 31 2021 December 31 2020 99,837 29,938 585,547 7,246 (59,914) 99,827 20,386 586,917 6,974 (47,882) Total 662,654 666,222 The net inventories are consistent with the prior year ’s balance, mainly as a result of the streamlining of the production and logistics processes. The changes in the Allowance for obsolete, slow-moving inventories and return assets are as follows: (amounts in thousands of Euro) Opening balance Exchange differences Increases Utilization Reversal Closing balance Raw materials Finished products and return assets Total allowance for obsolete, slow- moving inventories and return assets 24,449 23,433 47,882 9 6,300 (23) - 251 6,740 (784) (461) 260 13,040 (807) (461) 30,735 29,179 59,914 178 Annual Report 2021_DRAFT_160322 separated pages.indd 178 Annual Report 2021_DRAFT_160322 separated pages.indd 178 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements 12. DERIVATIVE FINANCIAL INSTRUMENTS: ASSETS AND LIABILITIES Derivative financial instruments: assets and liabilities, current and non-current por tions: (amounts in thousands of Euro) Financial assets regarding derivative instruments - current Total Financial Assets - Derivative financial instruments Financial liabilities regarding derivative instruments – current Financial liabilities regarding derivative instruments – non-current December 31 2021 December 31 2020 1,762 1,762 (29,683) (4,786) 10,691 10,691 (7,789) (9,249) Total Financial Liabilities - Derivative financial instruments (34,469) (17,038) Net carrying amount – current and non-current portion (32,707) (6,347) The net carrying amount of derivatives, both the current and the non-current por tion, has the following composition: (amounts in thousands of Euro) December 31 2021 December 31 2020 Forward contracts Options Positive fair value Forward contracts Options Interest rate swaps Negative fair value 1,394 368 1,762 (10,139) (17,486) (6,844) 7,770 2,921 10,691 (3,006) (2,030) (12,002) (34,469) (17,038) IFRS7 Category Level II Level II Level II Level II Level II Net carrying amount – current and non-current (32,707) (6,347) All the above derivative instruments are classified as Level II in the fair value hierarchy. 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 or “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 Annual Report 2021_DRAFT_160322 separated pages.indd 179 Annual Report 2021_DRAFT_160322 separated pages.indd 179 179 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements curves and on spot and forward exchange rates at the repor ting 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 fluctuations. FOREIGN EXCHANGE RATE TRANSACTIONS The cash flows of the Group are exposed to exchange rate volatility because it operates on an international scale. 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 expected future cash flows mainly regard the collection of trade receivables, the settlement of trade payables and financial cash flows. At the repor ting date, the notional amounts of the derivative contracts designated as foreign exchange risk hedges (translated at the European Central Bank exchange rate as at December 31, 2021, repor ted in Note 38) are as stated below. Contracts in effect as of December 31, 2021 to hedge projected future trade cash flows: (amounts in thousands of Euro) Currency Chinese Renminbi US Dollar Korean Won Japanese Yen GB Pound Russian Ruble Taiwan Dollar Canadian Dollar Other currencies Total Options Forward sale contracts December 31 2021 280,762 150,980 133,692 46,019 42,962 9,203 19,144 18,481 27,686 37,528 42,380 - 37,966 5,355 14,537 - - 44,970 318,290 193,360 133,692 83,985 48,317 23,740 19,144 18,481 72,656 728,929 182,736 911,665 180 Annual Report 2021_DRAFT_160322 separated pages.indd 180 Annual Report 2021_DRAFT_160322 separated pages.indd 180 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements Contracts in effect as of December 31, 2021 to hedge projected future financial cash flows: (amounts in thousands of Euro) Currency GB Pound Swiss Franc US Dollar Malaysia Ringgit Other currencies Total Forward sale contracts December 31 2021 73,785 29,716 13,597 5,298 28,919 73,785 29,716 13,597 5,298 28,919 151,315 151,315 Contracts in effect as of December 31, 2020 to hedge projected future trade cash flows. (amounts in thousands of Euro) Currency Chinese Renminbi US Dollar Japanese Yen Korean Won GB Pound Canadian Dollar Hong Kong Dollar Taiwan Dollar Swiss Franc Russian Ruble Malaysia Ringgit Other currencies Total Options Forward sale contracts December 31 2020 64,319 53,133 39,608 37,912 24,660 - 3,857 4,294 - - - 16,347 181,739 61,527 58,661 48,353 45,571 20,585 15,006 10,981 14,229 12,174 10,022 30,016 246,058 114,660 98,269 86,265 70,231 20,585 18,863 15,275 14,229 12,174 10,022 46,363 244,130 508,864 752,994 Contracts in effect as of December 31, 2020 to hedge projected future financial cash flows. (amounts in thousands of Euro) Currency Swiss Franc GB Pound Malaysia Ringgit US Dollar Other currencies Total Annual Report 2021_DRAFT_160322 separated pages.indd 181 Annual Report 2021_DRAFT_160322 separated pages.indd 181 Forward sale contracts December 31 2020 49,528 24,193 5,067 2,445 5,217 86,450 49,528 24,193 5,067 2,445 5,217 86,450 181 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements All contracts in place at December 31, 2021 have a maturity shor ter than twelve months. All contracts in place at the repor ting date were entered into with major financial institutions, and no counterpar ties 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 IRS contracts in order to hedge the risk of interest rate fluctuations on bank loans. The key features of the IRS agreements in place as at December 31, 2021 and December 31, 2020 are summarized below: Interest Rate Swap (IRS) Agreement Hedged loan Contract Currency Notional amount Interest rate Maturity date December 31, 2021 Currency Type of debt Amount Expiry IRS IRS IRS Euro/000 Euro/000 GBP/000 31,167 50,000 46,050 1.457% May-2030 -0.094% Feb-2022 2.778% Jan-2029 Total fair value (amounts in thousands of Euro) (2,015) (153) (4,676) (6,844) Euro/000 Term Loan 31,167 May-2030 Euro/000 Term Loan 50,000 Feb-2022 GBP/000 Term Loan 46,050 Jan-2029 Interest Rate Swap (IRS) Agreement Hedged loan Contract Currency Notional amount Interest rate Maturity date December 31, 2020 Currency Type of debt Amount Expiry IRS IRS IRS IRS IRS 1.457% May-2030 (3,197) Euro/000 Term Loan 34,833 May-2030 Euro/000 Euro/000 Euro/000 34,833 58,500 90,000 -0.094% Feb-2022 0.013% Feb-2021 Euro/000 100,000 0.252% Jun-2021 (313) (3) (125) Euro/000 Term Loan 58,500 Feb-2022 Euro/000 Term Loan 90,000 Feb-2021 Euro/000 Term Loan 100,000 Jun-2024 GBP/000 48,975 2.778% Jan-2029 (8,364) GBP/000 Term Loan 51,600 Jan-2029 Total fair value (amounts in thousands of Euro) (12,002) The IRS conver t variable interest rates on bank loans into fixed interest rates. They have been arranged with major financial institutions, and no counterpar ties 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. 182 Annual Report 2021_DRAFT_160322 separated pages.indd 182 Annual Report 2021_DRAFT_160322 separated pages.indd 182 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsCATEGORIES OF FINANCIAL ASSETS AND LIABILITIES ACCORDING TO IFRS 7 FINANCIAL ASSETS (amounts in thousands of Euro) Cash and cash equivalents Trade receivables, net Derivative financial instruments Investments in equity instruments Other Investments Financial receivables, trade receivables and financial investments Derivative financial instruments Total Note 981,786 329,547 - 2,964 2,732 - - 1,762 - - 981,786 329,547 1,762 2,964 2,732 9 10 12 18 18 Total at December 31, 2021 1,317,029 1,762 1,318,791 (amounts in thousands of Euro) Cash and cash equivalents Trade receivables, net Derivative financial instruments Investments in equity instruments Other Investments Financial receivables, trade receivables and financial investments Derivative financial instruments Total Note 442,392 290,380 - 64,203 1,988 - - 10,691 - - 442,392 290,380 10,691 64,203 1,988 9 10 12 18 18 Total at December 31, 2020 798,963 10,691 809,654 FINANCIAL LIABILITIES (amounts in thousands of Euro) Financial payables Trade payables Derivative financial instruments Lease liabilities Loans and payables Derivative financial instruments Total Note 745,264 390,163 - 2,045,412 - - 34,469 - 745,264 390,163 34,469 2,045,412 21,22,26 23 12 20 Total at December 31, 2021 3,180,839 34,469 3,215,308 (amounts in thousands of Euro) Financial payables Trade payables Derivative financial instruments Lease liabilities Loans and payables Derivative financial instruments Total Note 754,878 289,578 - 2,133,412 - - 17,038 - 754,878 289,578 17,038 2,133,412 21,22,26 23 12 20 Total at December 31, 2020 3,177,868 17,038 3,194,906 Annual Report 2021_DRAFT_160322 separated pages.indd 183 Annual Report 2021_DRAFT_160322 separated pages.indd 183 183 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsFAIR VALUE The repor ted amount of derivative instruments, whether assets or liabilities, reflects their fair value, as explained in this Note 12. 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 amount of Investments in equity instruments corresponds to its fair value (Level I), as explained in Note 18. The Lease liability is repor ted at its present value, while all other ﬁnancial liabilities are stated at approximately their fair value. CREDIT RISK Credit risk is defined as the risk of financial loss caused by the failure of a counterpar ty 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. However, according to management, the Group’s credit risk regards essentially the trade receivables generated in the wholesale channel and the cash holdings. The Group has implemented specific control systems to manage such risk, as explained in the section describing risk factors in the Financial Review. TRADE RECEIVABLES The following table contains an aging analysis of Trade receivables before accounting the Allowance for bad and doubtful debts: (amounts in thousands of Euro) December 31, 2021 Not overdue Overdue (in days) 1 30 31 60 61 90 91 120 > 120 Trade receivables 340,537 284,762 11,103 15,126 4,187 3,759 21,600 Total at December 31, 2021 340,537 284,762 11,103 15,126 4,187 3,759 21,600 (amounts in thousands of Euro) December 31, 2020 Not overdue Overdue (in days) 1 30 31 60 61 90 91 120 > 120 Trade receivables 302,359 265,763 6,157 12,724 1,492 895 15,328 Total at December 31, 2020 302,359 265,763 6,157 12,724 1,492 895 15,328 The increase in the aging of receivables compared to 2020 is mainly due to open positions for outstanding retail collections with depar tment stores and malls. 184 Annual Report 2021_DRAFT_160322 separated pages.indd 184 Annual Report 2021_DRAFT_160322 separated pages.indd 184 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsWith reference to these delays, the management does not expect any losses also considering that the payments have been settled in the first months of 2022. The following table contains an aging analysis of Trade receivables after accounting the Allowance for bad and doubtful debts at the repor ting date: (amounts in thousands of Euro) December 31, 2021 Not overdue Overdue (in days) 1 30 31 60 61 90 91 120 > 120 Trade receivables less allowance for doubtful accounts 329,547 283,363 10,968 15,045 4,146 3,751 12,274 Total at December 31, 2021 329,547 283,363 10,968 15,045 4,146 3,751 12,274 (amounts in thousands of Euro) December 31, 2020 Not overdue Overdue (in days) 1 30 31 60 61 90 91 120 > 120 Trade receivables less allowance for doubtful accounts 290,380 263,358 6,094 12,720 1,492 854 5,862 Total at December 31, 2020 290,380 263,358 6,094 12,720 1,492 854 5,862 BANK CURRENT ACCOUNTS AND DEPOSITS Bank deposits accounts are broken down by currency as follows: (amounts in thousands of Euro) Hong Kong Dollar Chinese Renmimbi Korean Won Other Currencies December 31 2021 December 31 2020 120,469 29,073 8,912 30,852 62,305 37,606 - 20,652 Total bank deposit accounts 189,306 120,563 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 shor t-term. Annual Report 2021_DRAFT_160322 separated pages.indd 185 Annual Report 2021_DRAFT_160322 separated pages.indd 185 185 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements Bank current accounts are broken down by currency as follows: (amounts in thousands of Euro) Euro US Dollar GB Pound Hong Kong Dollar Korean Won Other Currencies December 31 2021 December 31 2020 404,164 202,107 13,965 4,023 16,288 115,297 108,877 76,925 10,953 6,439 5,027 87,790 Total bank current accounts 755,844 296,011 The Group considers no signiﬁcant risk to exist on bank accounts given that their use is strictly related to operating activities and business processes and, therefore, they are present in a large number of countries. LIQUIDIT Y 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 requirements arising from investing activities, working capital management, punctual loan repayment and dividend payment. At December 31, 2021, the Group has undrawn cash credit lines of Euro 808 million available at banks (Euro 1,009 million as of December 31, 2020), of which Euro 400 million of committed loans and Euro 408 million of uncommitted ones. An aging analysis of the Trade payables is set for th below: (amounts in thousands of Euro) December 31, 2021 Not overdue Overdue (days) 1 30 31 60 61 90 91 120 > 120 Trade payables 390,163 348,256 14,226 5,854 3,450 2,580 15,797 Total at December 31, 2021 390,163 348,256 14,226 5,854 3,450 2,580 15,797 186 Annual Report 2021_DRAFT_160322 separated pages.indd 186 Annual Report 2021_DRAFT_160322 separated pages.indd 186 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements (amounts in thousands of Euro) December 31, 2020 Not overdue Overdue (days) 1 30 31 60 61 90 91 120 > 120 Trade payables 289,578 262,158 10,830 2,725 1,139 652 12,074 Total at December 31, 2020 289,578 262,158 10,830 2,725 1,139 652 12,074 FINANCIAL LIABILITIES UNDER DERIVATIVE FINANCIAL INSTRUMENTS (FORWARD CONTRACTS AND OPTIONS) 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. As required by IFRS 7, the following tables show the financial liabilities under forward contracts and options designated as cash flow hedges where a negative cash flow is expected at the repor ting date: (amounts in thousands of Euro) Future contractual cash flows at Dec. 31, 2021 6 mths or less 6 to 12 mths 1 to 2 years 2 to 3 years 3 to 4 years more than 4 years Net cash flows (outflows/inflows) of forward contracts (10,139) (5,492) (4,647) - - - - Net cash flows (outflows/inflows) of options (17,486) (9,783) (6,851) (305) (214) (187) (146) Net amount (27,625) (15,275) (11,498) (305) (214) (187) (146) (amounts in thousands of Euro) Future contractual cash flows at Dec. 31, 2020 6 mths or less 6 to 12 mths 1 to 2 years 2 to 3 years 3 to 4 years more than 4 years Net cash flows (outflows/inflows) of forward contracts (2,931) (2,351) Net cash flows (outflows/inflows) of options (2,045) (860) (580) (619) - - (355) (135) - (70) Net amount (4,976) (3,211) (1,199) (355) (135) (70) - (6) (6) Annual Report 2021_DRAFT_160322 separated pages.indd 187 Annual Report 2021_DRAFT_160322 separated pages.indd 187 187 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsFINANCIAL 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 repor ting date: (amounts in thousands of Euro) Future contractual cash flows at Dec. 31, 2021 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 (6,844) (1,123) (756) (1,132) (946) (850) (2,037) Net amount (6,844) (1,123) (756) (1,132) (946) (850) (2,037) (amounts in thousands of Euro) Future contractual cash flows at Dec. 31, 2020 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 (12,002) (1,095) (1,063) (2,347) (1,783) (1,565) (4,149) Net amount (12,002) (1,095) (1,063) (2,347) (1,783) (1,565) (4,149) FINANCIAL LIABILITIES (amounts in thousands of Euro) Carrying amount at Dec. 31, 2021 Future contractual cash flows at Dec. 31, 2021 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 Lease Liability (IFRS 16) 2,045,412 2,170,899 - 232,498 217,379 347,633 303,106 246,392 823,891 Financial liabilities – third parties (without deferred costs on loans) 742,983 763,745 - 202,228 51,019 99,175 88,465 138,681 184,177 Financial liabilities – related parties 3,360 3,360 - - 3,360 - - - - Total 2,791,755 2,938,004 - 434,726 271,758 446,808 391,571 385,073 1,008,068 (amounts in thousands of Euro) Carrying amount at Dec. 31, 2020 Future contractual cash flows at Dec. 31, 2020 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 Lease Liability (IFRS 16) 2,133,412 2,271,858 - 227,342 204,518 370,768 294,191 257,501 917,538 Financial liabilities – third parties (without deferred costs on loans) 752,673 763,809 - 248,205 55,265 185,442 59,984 48,891 166,022 Financial liabilities – related parties 3,097 3,097 - - 3,097 - - - - Total 2,889,182 3,038,764 475,547 262,880 556,210 354,175 306,392 1,083,560 Some of the above financial liabilities contain loan covenants, as described in Note 26. 188 Annual Report 2021_DRAFT_160322 separated pages.indd 188 Annual Report 2021_DRAFT_160322 separated pages.indd 188 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsSENSITIVIT Y ON EXCHANGE RATE RISK The exchange rate risk to which the Group is exposed is concentrated largely with PRADA spa and it 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 impor tant 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, 2021: (amounts in thousands of Euro) Euro strengthens by 5% Euro weakens by 5% Impact on net result Impact on net equity Impact on net result Impact on net equity GP Pound Hong Kong Dollar Japanese Yen US Dollar Chinese Renminbi Korean Won Other currencies Total (977) 3,689 434 1,206 (3,629) (2,647) (5,973) (7,897) 246 4,143 3,656 7,917 6,481 1,439 (2,086) 21,796 548 (4,101) (451) (1,506) 4,324 2,449 6,356 (1,431) (4,639) (4,044) (10,381) (9,199) (3,786) 1,115 7,619 (32,365) The total impact on equity (positive for Euro 21.8 million and negative for Euro 32.4 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 strengthening or weakening 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. With par ticular reference to the Russian Ruble, a sensitivity analysis was carried out with a range of hypothetical fluctuation towards Euro of 20% which led to the Annual Report 2021_DRAFT_160322 separated pages.indd 189 Annual Report 2021_DRAFT_160322 separated pages.indd 189 189 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsresults of the table below: (amounts in thousands of Euro) Euro strengthens by 20% Euro weakens by 20% Impact on net result Impact on net equity Impact on net result Impact on net equity Russian Ruble (7,094) (4,457) 10,642 6,225 SENSITIVIT Y ON 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, 2021: (amounts in thousands of Euro) +0.50% -0.50% Impact on net result Impact on net equity Impact on net result Impact on net equity Interest rate curve shift Euro GB Pound Hong Kong Dollar Japanese Yen US Dollar Other currencies Total (1,053) (204) 622 (338) 996 974 997 (338) 1,164 622 (338) 996 974 3,080 1,053 204 (622) 338 (996) (974) (997) 312 (1,164) (622) 338 (996) (974) (3,106) The total impact on equity (positive and negative for Euro 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 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 are described in the Financial Review. 190 Annual Report 2021_DRAFT_160322 separated pages.indd 190 Annual Report 2021_DRAFT_160322 separated pages.indd 190 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements13. RECEIVABLES FROM, AND ADVANCE PAYMENTS TO, RELATED PARTIES – CURRENT AND NON-CURRENT The current Receivables from and advances to related par ties are detailed as follows: (amounts in thousands of Euro) Prepaid sponsorship Other receivables and advances Receivables from and advances to related parties - current December 31 2021 December 31 2020 - 22,866 22,866 25,032 26,003 51,035 Euro 18 million of the amount of other receivables and advances refers to the shor t-term por tion of the receivable due from the 2020 sale of the Via della Spiga 18 proper ty in Milan. The prepaid sponsorship were for the 36th America’s Cup race and were entirely released in the period due to the expiration of the contracts and the completion of the spor ting event. The non-current Receivables from and advances to related par ties are detailed as follows: (amounts in thousands of Euro) Other receivables and advances Financial receivables Receivables from and advances to related parties - non-current December 31 2021 December 31 2020 - 1,125 1,125 18,309 1,125 19,434 Additional information on related par ty transactions is provided in Note 40. Annual Report 2021_DRAFT_160322 separated pages.indd 191 Annual Report 2021_DRAFT_160322 separated pages.indd 191 191 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements 14. OTHER CURRENT ASSETS The O ther current assets are set for th below: (amounts in thousands of Euro) VAT Taxation and other tax receivables Other assets Prepayments Deposits Total OTHER ASSETS The O ther assets are detailed as follows: (amounts in thousands of Euro) Advances to suppliers Incentives for retail investments Other receivables Total PREPAYMENTS The Prepayments are detailed as follows: (amounts in thousands of Euro) Rental costs Insurance Design costs Fashion shows and advances on advertising campaigns Other Total December 31 2021 December 31 2020 31,121 56,864 11,937 63,068 8,230 34,677 100,406 4,605 48,319 6,181 171,220 194,188 December 31 2021 December 31 2020 3,005 5,804 3,128 11,937 1,250 20 3,335 4,605 December 31 2021 December 31 2020 3,394 2,199 25,836 15,063 16,576 63,068 1,689 1,957 21,198 6,911 16,564 48,319 The prepaid design costs consist primarily of costs incurred to design collections that will generate revenue after the repor ting period. DEPOSITS The guarantee deposit refers primarily to security deposits paid under retail leases. 192 Annual Report 2021_DRAFT_160322 separated pages.indd 192 Annual Report 2021_DRAFT_160322 separated pages.indd 192 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements 15. PROPERT Y, PLANT AND EQUIPMENT The Historical cost and Accumulated depreciation of the past two years are set for th 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 Accumulated depreciation 917,519 230,663 1,309,080 599,787 178,915 38,332 3,274,296 (155,018) (171,987) (991,399) (333,605) (116,276) - (1,768,285) Net carrying amount at December 31, 2020 762,501 58,676 317,681 266,182 62,639 38,332 1,506,011 Historical cost Accumulated depreciation 1,006,801 241,686 1,355,364 639,481 212,361 51,027 3,506,720 (176,517) (184,977) (1,065,208) (370,561) (144,604) - (1,941,867) Net carrying amount at December 31, 2021 830,284 56,709 290,156 268,920 67,757 51,027 1,564,853 The changes in the Net book value 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 Opening balance 762,501 58,676 317,681 266,182 62,639 38,332 1,506,011 Change in the consolidation area Additions Depreciation Disposals Exchange differences Other movements Impairment - 61,094 508 5,885 224 252 44,665 33,568 9,669 4,406 - 10,653 35,241 184,859 (18,328) (11,993) (83,831) (36,891) (10,035) - 13,332 11,685 - (21) 111 3,557 (14) (249) 11,620 3,221 (3,175) (70) 5,315 3,784 (3,220) (24) 241 949 (88) - - 321 (22,851) (161,078) (364) 30,940 345 (16) (6,513) Closing balance 830,284 56,709 290,156 268,920 67,757 51,027 1,564,853 The change in the consolidation area regarded the acquisition of Luna Rossa Challenge S.r.l. and its subsidiary COR 36 S.r.l., as described in Note 7. The amount for other tangibles refers to the net value of the AC75 hulls. The additions to Land and buildings referred to the purchase of two prestigious buildings where Prada stores are located in Athens and Moscow, conducted to have greater control over the real estate space. The increases in Furniture and fittings and in Leasehold improvements regarded primarily store restyling and relocation projects. Annual Report 2021_DRAFT_160322 separated pages.indd 193 Annual Report 2021_DRAFT_160322 separated pages.indd 193 193 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsAssets under construction at the end of the period concern retail and industrial projects that are nearly completed. The Euro 6.5 million impairment for the period referred substantially to the writedown of store assets due to early closures or renovations in the period. 16. INTANGIBLE ASSETS The Historical cost and Accumulated amor tization of the past two years are set for th below: (amounts in thousands of Euro) Trade- marks and intellectual property rightss Goodwill Store Lease Acquisitions Software Other intangibles Assets in progress Total Historical cost Accumulated amortization 404,261 (193,856) 551,217 (37,731) 54,445 201,677 63,620 20,985 1,296,205 (53,675) (120,709) (57,789) - (463,760) Net carrying amount at December 31, 2020 210,405 513,486 770 80,968 5,831 20,985 832,445 Historical cost Accumulated amortization 427,371 (210,141) 580,721 (67,235) 49,793 220,958 65,968 13,936 1,358,747 (49,324) (141,484) (61,158) - (529,342) Net carrying amount at December 31, 2021 217,230 513,486 469 79,474 4,810 13,936 829,405 The changes in the Net book value for the year are as follows: (amounts in thousands of Euro) Trade- marks and intellectual property rights Goodwill Store Lease Acquisitions Software Other intangibles Assets in progress Total net carrying amount Opening balance 210,405 513,486 770 80,968 5,831 20,985 832,445 Change in the consolidation area Additions Amortization Exchange differences Other movements - 637 (13,693) 2,481 17,400 - - - - - - 7 2 16,387 (351) (19,982) (1) 44 31 2,068 66 1,019 (2,893) 4 783 - 13,835 - - (20,884) 68 31,885 (36,919) 2,515 (589) Closing balance 217,230 513,486 469 79,474 4,810 13,936 829,405 194 Annual Report 2021_DRAFT_160322 separated pages.indd 194 Annual Report 2021_DRAFT_160322 separated pages.indd 194 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsThe Net book value of Trademarks and intellectual proper ty rights at the repor ting date is broken down in the following table: (amounts in thousands of Euro) Miu Miu Church's Prada Other trademarks and other intellectual property rights Total December 31 2021 December 31 2020 121,789 69,385 5,095 20,961 127,362 70,757 5,141 7,145 217,230 210,405 No impairment was recognized for the Group’s trademarks during the year. The capital expenditures for software refer to technological and digital evolution projects in the retail, manufacturing and corporate areas. The total capital expenditure for Tangible and Intangible assets in the twelve months ended December 31, 2021 was Euro 216.7 million, as broken down below: (amounts in thousands of Euro) Retail Real Estate Production, Logistics and Corporate Total IMPAIRMENT TEST twelve months ended December 31 2021 twelve months ended December 31 2020 85,742 59,453 71,549 61,056 - 60,686 216,744 121,742 As required by IAS 36, “Impairment of Assets,” intangible assets with indefinite useful lives are not amor tized, but they are tested for impairment at least once per year. The Group does not repor t intangible assets with indeﬁnite useful lives other than goodwill. At December 31, 2021, goodwill amounted to Euro 513.5 million, detailed by cash generating unit (“CGU”) as shown below: Annual Report 2021_DRAFT_160322 separated pages.indd 195 Annual Report 2021_DRAFT_160322 separated pages.indd 195 195 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements (amounts in thousands of Euro) Italy Wholesale Asia Pacific and Japan Retail Italy Retail and Pasticceria Marchesi 1824 Germany and Austria Retail United Kingdom Retail Spain Retail France and Montecarlo Retail North America Retail and wholesale Production Division December 31 2021 December 31 2020 78,355 311,936 33,825 5,064 9,300 1,400 11,700 48,000 13,906 78,355 311,936 33,825 5,064 9,300 1,400 11,700 48,000 13,906 Total 513,486 513,486 IAS 36 requires an entity to assess at each annual repor ting date whether there are indications of impairment for any other asset recognized in the Statement of Financial Position. In light of the per formance of cer tain retail businesses during the period, CGUs other than those shown above were also tested for impairment. The method used to identify the recoverable amount (value in use) of the CGUs consists of discounting the projected cash flows (Discounted Cash Flow) generated by the activities directly attributable to the segment to which the intangible asset or net invested capital has been assigned. 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 activities at the end of the period (terminal value). The business plans used for the impairment tests cover a period of five years and were constructed on the basis of the 2022 budget prepared by management. The plans do not take into account either significant improvements in the per formance of the assets existing at December 31, 2021 or future developments of new activities, except for the investments planned in the 2022 budget for the retail premises’ restyling and renovation projects. The rate used to discount cash flows was calculated using the weighted average cost of capital (WACC). For the year ended December 31, 2021, the weighted average WACC (based on the enterprise value of the CGUs) used for discounting purposes is 5.2%. Each WACC was determined taking into due consideration the risk profile of the CGU’s activities, as well as the parameters specific to the geographical area to which it belongs: market risk premium and sovereign bond yield. For the latter data, the observation period for determining the risk-free rate was extended in some cases to five years to minimize the dilutive effect on rates of the expansionary monetary policies adopted by central banks. 196 Annual Report 2021_DRAFT_160322 separated pages.indd 196 Annual Report 2021_DRAFT_160322 separated pages.indd 196 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsThe “g” rate of growth used to calculate the terminal value ranged between 1.5% (Asia Pacific) and 20% (Turkey), in light of the diverging inflation prospects and GDP growth outlooks of the various countries. However, the prevalent growth rate was 1.5%, which can be considered prudent given the average growth expected in the long term for the luxury goods market in general. For the Church’s Group, classified as a single CGU, the impairment test did not identify any impairment loss. This CGU was measured, consistently with last year, by comparing the carrying amount of net invested capital items with their fair value (less costs to sell), deemed the best approach for expressing the value of the Group. In the specific case of the trademark (Euro 69.5 million at December 31, 2021), the fair value was measured by using the royalty relief method, i.e. by estimating the cash flows obtainable from a hypothetical licensing of the asset, assuming to earn a gross 9% royalty, in line with observable comparable market transactions. The remaining par t of the net invested capital, Euro 66 million (including Euro 42 million for right-of-use assets and Euro 10.2 million for net operating working capital), was considered to approximate its fair value. In order to ensure that the potential changes in the main assumptions did not significantly affect the results of the impairment tests, sensitivity analysis were conducted on 90% of the goodwill recognized in the Statement of Financial Position. These stress tests, in which the “g” growth rate for the terminal period was reduced by up to 50 basis points and the WACC rate was increased by up to 50 basis points, continued to show significant headrooms. Fur ther sensitivity analysis were fur thermore as carried out on the WAAC, using par ticularly conservative parameters to determine the market risk premium and risk-free rates. In this sensitivity analysis the weighted average WACC (based on the enterprise value of the CGUs) was equal to 6.8%. These additional stress tests did not indicate any impairment loss either. Finally, the “break-even” weighted average WACC was set at 14%, the threshold above which write-off for impairment test occur. However, since values in use and fair values are 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. In accordance with IAS 10, Management considered the potential impacts deriving from the Ukrain conflict which began in February 2022 as non adjusting events that occurred after the end of the financial year (Note 44) and consequently did not take them into consideration for the impairment test per formed as at 31 December 2021. Annual Report 2021_DRAFT_160322 separated pages.indd 197 Annual Report 2021_DRAFT_160322 separated pages.indd 197 197 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements17. RIGHT OF USE ASSETS The changes in the Net book value of the Right of Use assets for the year ended December 31, 2021 are shown below: (amounts in thousands of Euro) Opening balance New contracts, initial direct costs and remeasurements Depreciation Contracts termination Exchange differences Closing balance Real Estate 2,050,768 304,325 (424,352) (28,740) 50,833 Other 3,570 2,582 (1,851) (862) 16 Total net carrying amount 2,054,338 306,907 (426,203) (29,602) 50,849 1,952,834 3,455 1,956,289 The increase for New leases, initial direct costs and remeasurements is attributable to lease renewals (mainly in Asia Pacific and Europe) and the remeasurement of the liability to adjust to indexes commonly used in the real estate industry (primarily the consumer price index). Lease terminations amounted to Euro 30 million for the period and referred mainly to leases in Europe. The exchange differences of the period impacted the Right to Use assets considerably, as a result of Euro depreciation versus the main currencies of the countries where the Group operates. The caption “O ther ”, amounting to Euro 3.5 million, includes plant and machinery, vehicles and hardware. 18. INVESTMENTS IN EQUIT Y INSTRUMENTS (amounts in thousands of Euro) Investments in equity instruments Other investments Total December 31 2021 December 31 2020 2,964 2,732 5,696 64,203 1,988 66,191 The decrease for the year in the caption Investments in equity instruments referred to the disposal of securities. 198 Annual Report 2021_DRAFT_160322 separated pages.indd 198 Annual Report 2021_DRAFT_160322 separated pages.indd 198 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements19. OTHER NON-CURRENT ASSETS The O ther non-current assets are detailed as follows: (amounts in thousands of Euro) Guarantee Deposits Deferred rental income Pension fund surplus (Note 27) Prepayments for commercial agreements Other long-term assets December 31 2021 December 31 2020 61,842 383 13,309 54,253 14,559 60,051 533 11,277 58,427 12,424 Total 144,346 142,712 The Guarantee deposits are set for th below by nature and maturity: (amounts in thousands of Euro) December 31 2021 December 31 2020 Nature: Stores Offices Warehouses Other Total (amounts in thousands of Euro) Maturity between one to two years between two to five years After more than five years Total 56,003 3,982 158 1,699 61,842 53,637 3,847 123 2,444 60,051 December 31 2021 13,417 23,251 25,174 61,842 The guarantee deposits refer primarily to security deposits paid under retail leases. Annual Report 2021_DRAFT_160322 separated pages.indd 199 Annual Report 2021_DRAFT_160322 separated pages.indd 199 199 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements20. LEASE LIABILIT Y The following table sets for th the Lease Liability: (amounts in thousands of Euro) Short-term Lease Liability Long-term Lease Liability Total December 31 2021 December 31 2020 418,215 1,627,197 403,593 1,729,819 2,045,412 2,133,412 The Lease liability decreased by Euro 88 million from that of December 31, 2020. This is the result of decreases for the payments of the period (Euro 393 million), as well as rent discounts and foreign exchange differences, and increases (Euro 273 million) for new leases and re-measurements (net of the closures of the period). The Lease liability is concentrated mainly with Japan, the U.S.A. and Italy. 21. SHORT-TERM FINANCIAL PAYABLES AND BANK OVERDRAF TS (amounts in thousands of Euro) Short-term bank loans Current portion of long-term loans Deferred costs on loans Total December 31 2021 December 31 2020 61,578 187,887 (362) 97,115 203,861 (399) 249,103 300,577 The shor t-term bank loans at December 31, 2021 consist of the use of credit lines by PRADA Japan co ltd. Some of these credit lines contain covenants based on the financial statement results of PRADA Japan co ltd, all of which were satisfied at December 31, 2021. Shor t-term bank loans are broken down by currency below: (amounts in thousands of Euro) Euro Japanese Yen Other currencies Total 200 December 31 2021 December 31 2020 - 61,578 - 61,578 576 96,462 77 97,115 Annual Report 2021_DRAFT_160322 separated pages.indd 200 Annual Report 2021_DRAFT_160322 separated pages.indd 200 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsThe Group generally borrows at variable interest rates, as explained in Note 26, and manages the risk of interest rate fluctuations by using hedging contracts, as explained in Note 12. 22. PAYABLES TO RELATED PARTIES – CURRENT The current Payables to related par ties are shown below: (amounts in thousands of Euro) Financial payables Other payables Payables to related parties - current December 31 2021 December 31 2020 3,360 5,000 8,360 3,101 380 3,481 The current 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. Additional information on related par ty transactions is provided in Note 40. 23. TRADE PAYABLES The Trade payables are detailed as follows: (amounts in thousands of Euro) Trade payables – third parties Trade payables – related parties Total December 31 2021 December 31 2020 382,208 7,955 286,653 2,925 390,163 289,578 The increase is attributable to the intensification of production, commercial and communication activities in the final months of 2021. Annual Report 2021_DRAFT_160322 separated pages.indd 201 Annual Report 2021_DRAFT_160322 separated pages.indd 201 201 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements24. TAX PAYABLES The tax payables are detailed hereunder: (amounts in thousands of Euro) Current taxation VAT and other taxes Total December 31 2021 December 31 2020 77,466 66,693 144,159 15,691 53,172 68,863 The Group recognizes current tax liabilities of Euro 7 7.5 million at December 31, 2021 (Euro 15.7 million at December 31, 2020) against tax receivables shown within the current assets of Euro 56.9 million (Euro 100.4 million at December 31, 2020), as repor ted in Note 14. 25. OTHER CURRENT LIABILITIES The O ther current liabilities are detailed as follows: (amounts in thousands of Euro) Payables for capital expenditure Accrued expenses and deferred income Other payables Total The O ther payables are detailed as follows: (amounts in thousands of Euro) Short-term benefits for employees and other personnel Customer advances Returns from customers Other Total December 31 2021 December 31 2020 43,575 30,308 106,165 39,958 24,944 88,480 180,048 153,382 December 31 2021 December 31 2020 70,397 17,290 16,118 2,360 106,165 55,525 16,980 14,006 1,969 88,480 202 Annual Report 2021_DRAFT_160322 separated pages.indd 202 Annual Report 2021_DRAFT_160322 separated pages.indd 202 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements26. LONG-TERM FINANCIAL PAYABLES The Long-term financial payables are as follows: (amounts in thousands of Euro) Long-term bank borrowings Deferred costs on loans Total December 31 2021 December 31 2020 493,518 (717) 451,695 (495) 492,801 451,200 In 2021 PRADA spa took out three new bank loans totaling Euro 240 million, two of which are sustainability-linked loans; in fact, both have a mechanism to adjust the annual interest based on the achievement of sustainability goals regarding the quantity of scrap regenerated and reintroduced into new operating cycles and energy production from new photovoltaic plants. There were 4 ESG-linked loans in place, accounting for 37% of the total bank debt. PRADA spa’s loans covenants were fully satisfied at December 31, 2021 and are expected to be met in the next 12 months as well. In 2021, the Parent Company and the other Group companies repaid current por tions of long-term loans for an amount of Euro 217.3 million. The long-term bank borrowings at December 31, 2021, excluding amor tized costs, are set for th below: Borrower PRADA spa PRADA spa PRADA spa PRADA spa PRADA spa PRADA spa PRADA spa PRADA spa PRADA spa PRADA spa Amount in thousands of Euro 50,000 50,000 31,167 30,000 100,000 100,000 90,000 55,555 57,000 50,000 Term-loan Term-loan Term-loan Term-loan Term-loan Term-loan Term-loan Term-loan Term-loan Term-loan PRADA Japan Co.Ltd 5,752 Syndicate loan PRADA Japan Co.Ltd 5,752 Syndicate loan Kenon Ltd Tannerie Limoges sas 54,804 1,375 Term-loan Term-loan Type of loan Currency Expiry date Interest rate (1) Current Portion (Euro thousands) Non-current Portion (Euro thousands) Pledge EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR JPY JPY GBP EUR 02/2022 06/2022 05/2030 10/2024 04/2025 07/2026 02/2026 06/2024 01/2025 11/2026 09/2022 09/2022 01/2029 07/2024 0.406% 0.179% 2.737% 0.600% 0.157% 0.069% 1.250% 0.137% 0.232% 0.184% 0.457% 0.457% 4.477% 1.200% 50,000 50,000 3,667 10,000 - - 12,600 22,222 18,000 5,556 5,752 5,752 3,838 500 - - - - 27,500 Mortgage ioan 20,000 100,000 100,000 77,400 33,333 39,000 44,444 - - - - - - - - - - - 50,966 Mortgage ioan 875 Mortgage ioan Total 681,405 187,887 493,518 (1) the interest rates include the effect of any interest rate risk hedges Annual Report 2021_DRAFT_160322 separated pages.indd 203 Annual Report 2021_DRAFT_160322 separated pages.indd 203 203 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsPRADA spa’s mor tgage loan is secured by the building in Milan used for the Group’s headquar ters, and Kenon ltd’s mor tgage 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 for th hereunder by their por tions with fixed and variable interest rates: December 31, 2021 December 31, 2020 variable interest rates fixed interest rates variable interest rates fixed interest rates Short-term financial payables Long-term financial payables 77% 84% 23% 16% 65% 71% 35% 29% 27. LONG-TERM EMPLOYEE BENEFITS (amounts in thousands of Euro) Post-employment benefits Other long-term employee benefits Total liabilities for long-term benefits Pension plan surplus (note 19) Net liabilities for long-term benefits December 31 2021 December 31 2020 49,293 24,526 73,819 54,160 19,096 73,256 (13,309) (11,277) 60,510 61,979 POST-EMPLOYMENT BENEFITS The net balance of Long-term employee benefits as at December 31, 2021 is a liability of Euro 60.5 million (Euro 62 million as of December 31, 2020) and all the benefits fall within the scope of defined benefit plans. The Post-employment benefits consist of Euro 25.8 million (Euro 28.1 million at December 31, 2020) in liabilities accounted for by Italian companies and Euro 23.4 million by the foreign subsidiaries (Euro 26.1 million in at December 31, 2020). The Italian liabilities regard the “ Trattamento di Fine Rappor to” (“ 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 204 Annual Report 2021_DRAFT_160322 separated pages.indd 204 Annual Report 2021_DRAFT_160322 separated pages.indd 204 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements present value of the liability recognized was determined by projecting the amount accrued at December 31, 2021 as per Italian law to the estimated future date of employment termination, and then discounting it to the present value at the same repor ting date using the projected unit credit method (“PUCM”). The following table presents the changes in long-term employee benefits as at December 31, 2021: (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 Opening balance 28,050 26,111 (11,277) 19,095 61,979 Current service cost Financial charges (income) Actuarial (gains)/losses Benefits paid Contributions Exchange differences 698 (123) (505) (2,275) - - 5,243 129 (2,488) (5,040) - (507) 355 (142) (1,242) - (186) (817) 15,090 (254) (1,706) (7,924) - 225 21,386 (390) (5,941) (15,239) (186) (1,099) Closing balance 25,845 23,448 (13,309) 24,526 60,510 The actuarial gains and losses are as follows: (amounts in thousands of Euro) Actuarial adjustments due to (a) Changes in financial assumptions (b) Changes in other assumptions (e.g. demographic assumptions, remuneration increases) Defined Benefit Plans in Italy (TFR) Defined Benefit Plans in Other Countries (including Japan) Pension Funds in UK (1,045) 540 (867) (1,621) (2,712) 1,470 Actuarial (gains)/losses (505) (2,488) (1,242) The current service cost and financial charges/(income) are recognized in the statement of profit or loss. For O ther long-term employee benefits only, the actuarial differences 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 involved variables such as the probabilities of death, retirement, resignations and dismissals; contract Annual Report 2021_DRAFT_160322 separated pages.indd 205 Annual Report 2021_DRAFT_160322 separated pages.indd 205 205 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements expiration; leaving indemnity advances; and supplementary pension schemes. The Post-employment benefits are stated net of the pension plan surplus for the Group companies operating in the United Kingdom that supply pension services to their employees. As at December 31, 2021, the fair value of such pension plans was a surplus of Euro 13.3 million (Euro 11.3 million as of December 31, 2020). The fair value of the plan assets was determined by the independent actuary Mercer Limited. It is detailed below: (amounts in thousands of Euro) Fair value of plan assets Fair value of plan liabilities Pension plan surplus December 31 2021 December 31 2020 73,190 (59,881) 72,009 (60,732) 13,309 11,277 The composition of the main plan assets on the repor ting date is as follows: (amounts in thousands of Euro) Equities Alternatives Bonds Cash Other Total December 31 2021 December 31 2020 21,385 15,967 27,318 8,520 - 73,190 24,819 5,860 34,515 5,919 896 72,009 The main actuarial assumptions used as at December 31, 2021 are as follows: Average duration of plan (years) Average increase in remuneration Rate of inflation Defined Benefit Plans in Italy (TFR) Pension Funds in UK Defined Benefit Plans in Japan 11.7 1.10% 1.50% 15 3.07% 3.07% 11 2.61% N/A The main actuarial assumptions used as of December 31, 2020 were as follows: Average duration of plan (years) Average increase in remuneration Rate of inflation 206 Defined Benefit Plans in Italy (TFR) Pension Funds in UK Defined Benefit Plans in Japan 11.8 1.30% 1.50% 15 2.60% 2.60% 13.8 3.37% N/A Annual Report 2021_DRAFT_160322 separated pages.indd 206 Annual Report 2021_DRAFT_160322 separated pages.indd 206 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsThe 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, 2021 liability, a sensitivity analysis was per formed on the main actuarial variables such as the 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 O ther long-term employee benefits meet the IAS 19 definition of long-term employee benefits and refer to retention and per formance-based programs for the Group’s key-figures. Their actuarial valuation at December 31, 2021, calculated using PUC methodology, resulted in Euro 24.5 million (Euro 19.1 million as at December 31, 2020), according to an independent actuarial appraisal. 28. PROVISIONS FOR RISKS AND CHARGES 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 Opening balance Exchange differences Reversals Utilized Increases Closing balance 389 4 - (120) 10,626 10,899 1,858 78 - (656) 1,026 2,306 43,169 3,119 (491) (2,978) 3,177 45,996 Total 45,416 3,201 (491) (3,754) 14,829 59,201 The Provisions for risks and charges represent management’s best estimate of the maximum amount of possible liabilities. In the Directors’ opinion, based on the information available to them and , the total amount accrued for risks and charges at the repor ting date is adequate in respect of the liabilities that could arise from them. Annual Report 2021_DRAFT_160322 separated pages.indd 207 Annual Report 2021_DRAFT_160322 separated pages.indd 207 207 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsTAX DISPUTES The Group’s main tax disputes at the repor ting date are described hereunder. The dispute filed by PRADA spa following an audit initiated in 2012 by the Italian Customs Agency for the tax years from 2007 to 2011 to determine the customs value of the products consists of three legal actions regarding the 2010 tax year, all of which are currently pending at the Supreme Cour t pursuant to appeals filed by the Company in 2019 and 2020. The Company has already paid the related amount due and is awaiting the notice of the hearing for all three cases. Meanwhile, the Company established an appropriate method for measuring the value of impor ted products star ting from May 2020, with retroactive effectiveness for the assessable years, in agreement with the Italian Customs Agency. The application of such method led to the estimate, for the previous years, of an end- of-period liability of approximately Euro 0.5 million. O ther liabilities for customs duty risks are recognized at the repor ting date in an amount of Euro 1.4 million, consisting of Euro 0.8 million for a mistaken customs classification of footwear impor ted into the United States and Euro 0.6 million for risks of assessments regarding price adjustments, split among various non-EU countries. LEGAL DISPUTES Chora S.r.l., a company controlled by Prada’s former Board Chairman, Carlo Mazzi, initiated a lawsuit in January 2022 against Prada in the Cour t of Milan claiming for a one-off compensation following the non-renewal of the strategic consulting agreement with Chora S.r.l.. Prada, taking into consideration the independent opinion of its legal counsels, considered reasonable a provision of Euro 10 million, which represents the best estimate at this time of the contingent liability. The Company will continue to monitor this case and will adjust the amount allocated for it at December 31, 2021, as necessary, in view of any new facts and/or circumstances. OTHER RISK PROVISIONS The O ther risk provisions amount to Euro 46 million as at December 31, 2021 and refer primarily to contractual obligations to restore leased commercial proper ties 208 Annual Report 2021_DRAFT_160322 separated pages.indd 208 Annual Report 2021_DRAFT_160322 separated pages.indd 208 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsto their original condition. 29. OTHER NON-CURRENT LIABILITIES (amounts in thousands of Euro) Deferred costs for lease payments Deferred income for commercial agreements Other non-current liabilities Total December 31 2021 December 31 2020 6,143 116,661 223 4,362 104,000 2,392 123,027 110,754 Deferred income for commercial agreements increased by Euro 12 million compared to December 31, 2020 as a result of amounts collected under commercial agreements whose effects on income are expected for more than 12 months. 30. EQUIT Y AT TRIBUTABLE TO THE OWNERS OF THE GROUP The equity attributable to the owners of the Group is set for th below: (amounts in thousands of Euro) Share Capital Share premium reserve Other reserves Actuarial reserve Fair value Investments in equity instruments reserve Cash flow hedge reserve Translation reserve Net income/(loss) for the period Total SHARE CAPITAL December 31 2021 December 31 2020 255,882 410,047 2,118,855 (5,708) (10,992) (15,878) 67,434 294,254 255,882 410,047 2,262,759 (8,151) (25,188) (5,794) (3,359) (54,139) 3,113,894 2,832,057 As at December 31, 2021, approximately 80% of PRADA spa’s Share capital was owned by PRADA Holding spa and the remainder is listed on the Main Board of the Hong Kong Stock Exchange. SHARE PREMIUM RESERVE The Share premium reserve of Euro 410 million did not change from that of December 31, 2020. Annual Report 2021_DRAFT_160322 separated pages.indd 209 Annual Report 2021_DRAFT_160322 separated pages.indd 209 209 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsTRANSLATION RESERVE Changes in this reserve result from the translation into Euro of the foreign currency ﬁnancial statements of the consolidated companies. The reserve increased from Euro -3.4 million at December 31, 2020 to Euro 67.4 million. OTHER RESERVES The O ther reserves amount to Euro 2,118.9 million as at December 31, 2021, down by Euro 143.9 million compared to December 31, 2020 mainly as a result of the 2020 loss and the distribution of dividends. NET RESULT FOR THE PERIOD The Group’s net result for the twelve months ended December 31, 2021 is a profit of Euro 294.3 million (versus a loss of Euro 54.1 million for the twelve months ended December 31, 2020). 31. EQUIT Y AT TRIBUTABLE TO NON-CONTROLLING INTERESTS The following table shows the changes in the Non-controlling interests during the years ended December 31, 2021 and December 31, 2020: (amounts in thousands of Euro) Opening balance Translation differences Dividends Net income/(loss) for the period Actuarial reserve Capital reduction in subsidiaries Sale of shares to the Group Closing balance December 31 2021 December 31 2020 19,663 863 (1,674) 849 5 (141) (4,816) 14,749 21,417 (1,526) - (229) 1 - - 19,663 210 Annual Report 2021_DRAFT_160322 separated pages.indd 210 Annual Report 2021_DRAFT_160322 separated pages.indd 210 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements CONSOLIDATED STATEMENT OF PROFIT OR LOSS For a better understanding of the economical and operating per formances of 2021, reference is made to the Financial Review. 32. NET REVENUES 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) Net sales Royalties Total twelve months ended December 31 2021 twelve months ended December 31 2020 3,316,620 49,047 2,390,866 31,873 3,365,667 2,422,739 The Financial Review describes the Net sales by distribution channel, geographical area, brand and product. 33. COST OF GOODS SOLD The Cost of goods sold has the following composition: (amounts in thousands of Euro) Purchases of raw materials and manufactoring services Depreciation, amortization and impairment on tangible and intangible fixed assets Depreciation and write-downs of the Right of Use assets Labor cost Short-term and low value lease (IFRS 16) Logistics costs, duties and insurance Change in inventories twelve months ended December 31 2021 twelve months ended December 31 2020 497,841 17,967 3,178 131,219 58 154,966 13,080 417,119 17,025 3,035 117,702 597 103,808 20,075 Total 818,309 679,361 The incidence of the cost of goods sold on net revenues for the twelve months ended December 31, 2021 was 24.3%, a substantial decrease from the 28% of 2020. The improvement was due largely to economies of scale in the manufacturing division facilitated by the sales acceleration in 2021. Annual Report 2021_DRAFT_160322 separated pages.indd 211 Annual Report 2021_DRAFT_160322 separated pages.indd 211 211 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements34. OPERATING EXPENSES The Operating expenses are detailed below: (amounts in thousands of Euro) Product design and development costs Advertising and communications costs Selling costs General and administrative costs twelve months ended December 31 2021 % of net revenues twelve months ended December 31 2020 % of net revenues 115,319 294,251 1,421,169 227,135 3.4% 8.8% 42.2% 6.70% 102,232 206,848 1,259,827 154,410 4.2% 8.5% 52.0% 6.4% 71.1% Total 2,057,874 61.10% 1,723,317 The total operating expenses were Euro 2,057.9 million, up by Euro 334.6 million from those of 2020. The increase was attributable to the normalization of expenditure levels, which in 2020 had benefited to a greater extent from rent discounts and government incentives, and more communication activities. The following table sets for th depreciation, amor tization, impairment, cost of labor (net of the government subsidies for the Covid-19 pandemic) and rent expense included within the operating expenses in accordance with the requirements of IAS 1. (amounts in thousands of Euro) Depreciation, amortization and impairment on tangible and intangible fixed assets Depreciation and write-downs of the Right of Use assets (*) Labor cost Pure variable lease (IFRS 16) Short term and low value lease (IFRS 16) (*) shown without the impact of Covid-related discounts twelve months ended December 31 2021 twelve months ended December 31 2020 186,543 423,043 617,862 173,730 12,676 207,989 440,875 548,056 127,830 9,028 212 Annual Report 2021_DRAFT_160322 separated pages.indd 212 Annual Report 2021_DRAFT_160322 separated pages.indd 212 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements35. FINANCIAL INCOME / (EXPENSE) The Net financial income/(expense) are presented below: (amounts in thousands of Euro) Interest expenses on borrowings Interest income Interest income / (expenses) IAS 19 Exchange gains / (losses) – realized Exchange gains / (losses) – unrealized Other financial income / (expenses) Interest and other financial income / (expenses), net Interest expenses on Lease Liability Dividends from investments Total financial expenses twelve months ended December 31 2021 twelve months ended December 31 2020 (9,239) 2,591 151 (4,117) (18,696) (1,906) (31,216) (10,239) 1,954 212 (2,501) (16,318) (2,588) (29,480) (36,773) (42,670) 160 277 (67,829) (71,873) The net financial expenses were Euro 67.8 million, down by Euro 4 million from those 2020. The decrease was due to less interest expenses, due to a smaller amount and time horizon, and less net bank borrowings. Higher foreign exchange net losses par tially offset the overall decrease of financial charges. 36. TAXATION Income taxes have the following composition: (amounts in thousands of Euro) Current taxation Deferred taxation Total twelve months ended December 31 2021 twelve months ended December 31 2020 151,210 (24,658) 22,636 (20,080) 126,552 2,556 The income tax expense, net was Euro 126.6 million, corresponding to 30% of the pre-tax income. Annual Report 2021_DRAFT_160322 separated pages.indd 213 Annual Report 2021_DRAFT_160322 separated pages.indd 213 213 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsThe 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 2021 Group’s weighted theoretical tax rate (calculated in absolute values on the basis of subsidiaries’ pre-taxable income/loss) 26.7 % Non deductible expenses, net of not taxable income Write-off of the deferred tax asset and utilization of tax losses carried forward Tax losses generated in the year on which no deferred tax assets were recognized Prior year taxes adjustments Withholding and other income taxes Effective tax rate of the Group 2.2% 0.0% 0.0% 0.1% 1.0% 30.0% The changes in Deferred tax assets and liabilities are set for th below: (amounts in thousands of Euro) Opening balance Exchange differences Deferred taxes on acquisition Deferred taxes on derivative instruments recorded in equity (cash flow hedges) Deferred taxes on post-employment benefits recorded in equity (reserve for actuarial differences) Other movements Deferred taxes for the period in profit or loss twelve months ended December 31 2021 twelve months ended December 31 2020 222,638 214,869 8,185 - 4,247 (1,740) (331) 24,657 (10,889) (1,318) (1,727) 1,034 590 20,079 Closing balance 257,656 222,638 The Deferred tax assets and liabilities are classified by nature hereunder: (amounts in thousands of Euro) Inventories Receivables and other assets Useful life of non-current assets Deferred taxes due to acquisitions Provision for risks / accrued expenses Non-deductible / taxable charges/income Deferred tax assets on rental contracts Tax loss carryforwards Derivative financial instruments Long term employee benefits Other Total December 31, 2021 December 31, 2020 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities 159,548 1,767 36,832 - 16,465 5,394 43,515 4,961 5,095 10,421 3,464 - 1,510 7,587 12,462 394 2,246 423 - - 3,327 1,857 123.078 1.177 34.975 - 13.135 6.148 40.630 12.189 1.508 10.911 8.137 - 1.548 8.447 12.699 429 1.639 504 - 222 2.262 1.500 287,462 29,806 251.888 29.250 214 Annual Report 2021_DRAFT_160322 separated pages.indd 214 Annual Report 2021_DRAFT_160322 separated pages.indd 214 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsThe Tax loss carryforwards as of December 31, 2021, including those already recognized in the Group’s financial statements, are detailed below: (amounts in thousands of Euro) Expiring within 5 years Expiring after 5 years Available for carryforward with no time limit Total tax loss carryforwards December 31 2021 15,542 10,340 98,810 124,692 The Group’s management updated the deferred tax assets recognized on tax loss carryforwards taking into consideration, for their recoverability, the macroeconomic scenario and the business developments of each of the Group’s companies. 37. EARNINGS AND DIVIDENDS PER SHARE EARNINGS PER SHARE BASIC AND DILUTED Earnings/(losses) per share are calculated by dividing the net profit (or net loss) attributable to the Group’s shareholders by the weighted average number of ordinary shares outstanding. Group net income / (loss) in Euro Weighted average number of ordinary shares in issue twelve months ended December 31 2021 twelve months ended December 31 2020 294,253,615 (54,138,620) 2,558,824,000 2,558,824,000 Basic and diluted earnings / (losses) per share in Euro, calculated on weighted average number of shares 0.115 (0.021) DIVIDENDS PER SHARE The Board of Directors of the Company has proposed a final dividend of Euro 179,117,680 for the twelve months ended December 31, 2021 (Euro 0.07 per share). During 2021, the Company distributed dividends of Euro 89,558,840 (Euro 0.035 per share), as approved at the General Meeting held on May 27, 2021 to approve the December 31, 2020 financial statements. The dividends and the related Italian withholding tax due (Euro 4.7 million), Annual Report 2021_DRAFT_160322 separated pages.indd 215 Annual Report 2021_DRAFT_160322 separated pages.indd 215 215 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements 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 2020 Financial statements ended December 31 2019 Financial statements ended December 31 2018 89,558,840 0.035 27/05/2021 June 2021 - - 26/05/2020 - 153,529,440 0.06 30/04/2019 May 2019 Total dividends paid (Euro) Dividends per Share (Euro) Date of approval by Shareholders’ Meeting Date of payment 38. ADDITIONAL INFORMATION NUMBER OF EMPLOYEES The average F TE (calculated through ratio between effective working hours and standard working hours) of the employees, by business division, is presented below: (number of employees) Production Product design and development Advertising and Communications Selling General and administrative services Total twelve months ended December 31 2021 twelve months ended December 31 2020 2,829 936 180 7,696 931 2,838 946 161 7,669 934 12,572 12,548 In 2021 new criteria for determining Full-Time Equivalents were adopted, which entailed revision of those published in 2020 in order to ensure correct comparison between the two periods. 216 Annual Report 2021_DRAFT_160322 separated pages.indd 216 Annual Report 2021_DRAFT_160322 separated pages.indd 216 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsEMPLOYEE REMUNERATION The employee remuneration by business division, net of government subsidies for Covid-19 pandemic, is presented below: (amounts in thousands of Euro) Production Product design and development Advertising and Communications Selling General and administrative services Total twelve months ended December 31 2021 twelve months ended December 31 2020 126,692 60,618 19,682 440,189 97,373 109,481 56,384 15,456 390,248 85,968 744,554 657,537 The types of employee remuneration are presented below: (amounts in thousands of Euro) Wages and salaries Post-employment benefits and other long-term benefits Social contributions Other Total twelve months ended December 31 2021 twelve months ended December 31 2020 558,616 37,804 116,067 32,067 492,529 34,368 102,828 27,812 744,554 657,537 DISTRIBUTABLE RESERVES OF THE PARENT COMPANY, PRADA SPA (amounts in thousands of Euro) December 31 2021 Possible utilization Distributable amount Share Capital Share premium reserve Legal reserve Other reserves Retained earnings Fair Value reserve Time Value reserve Intrinsic Value reserve Distributable amount A share capital increase B coverage of losses C distributable to shareholders 255,882 410,047 51,176 182,899 974,885 (10,992) 618 (13,363) - - A, B, C B A, B, C A, B, C - - - - - 410,047 - 182,899 930,013 - - - 1,522,959 Summary of utilization in the last three years Coverage of losses Distribution of dividends - - - - - - - - - - - - - 345,441 - - - 345,441 Under Italian Civil Code Ar ticle 2431, the share premium reserve is fully distributable since the amount of the legal reserve is equal to or exceeds 20% of Annual Report 2021_DRAFT_160322 separated pages.indd 217 Annual Report 2021_DRAFT_160322 separated pages.indd 217 217 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsshare capital. Under Italian Legislative Decree 38/2005, Ar ticle 7, Euro 20.5 million of the retained earnings is not distributable. Reserves for Euro 85 million are restricted under tax suspension in accordance with Decree Law 104/2020, Ar t. 110, subsection 8. These reserves are subject to taxation in the event of distribution, on which deferred taxes had not been allocated as their distribution is not foreseen. 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 at December 31, 2021 and December 31, 2020 are listed hereunder. (amounts in thousands of Euro) Average rate December 31 2021 Average rate December 31 2020 Closing rate December 31 2021 Closing rate December 31 2020 UAE Dirham Australian Dollar Brazilian Real Canadian Dollar Swiss Franc Czech Koruna Danish Kronor GB Pound Hong Kong Dollar Japanese Yen Korean Won Kuwait Dinar Kazakhstani Tenge Moroccan Dirham Macau Pataca Mexican Peso Malaysian Ringgit New Zealand Dollar Qatari Riyal Chinese Renminbi Romanian Leu Russian Ruble Saudi Riyal Swedish Kronor Singapore Dollar Thai Baht Turkish Lira Taiwan Dollar Ukrainian Hryvna US Dollar Vietnamese Dong South African Rand 218 4.348 1.575 6.379 1.484 1.082 25.646 7.437 0.860 9.200 129.837 1,353.833 0.357 503.806 10.626 9.471 23.987 4.903 1.673 4.363 7.637 4.921 87.248 4.440 10.144 1.590 37.802 10.421 33.070 32.294 1.184 4.191 1.656 5.882 1.529 1.070 26.451 7.455 0.889 8.850 121.773 1,344.894 0.350 469.976 10.822 9.117 24.513 4.792 1.756 4.192 7.870 4.838 82.598 4.282 10.491 1.573 35.686 8.033 33.605 30.808 1.141 4.160 1.562 6.310 1.439 1.033 24.858 7.436 0.840 8.833 130.380 1,346.380 0.343 489.100 10.518 9.113 23.144 4.718 1.658 4.158 7.195 4.949 85.300 4.254 10.250 1.528 37.653 15.234 31.342 30.923 1.133 4.507 1.590 6.374 1.563 1.080 26.242 7.441 0.899 9.514 126.490 1,336.000 0.373 516.790 10.882 9.792 24.416 4.934 1.698 4.535 8.023 4.868 91.467 4.603 10.034 1.622 36.727 9.113 34.468 34.740 1.227 27,415.961 26,478.377 26,212.000 28,469.000 17.463 18.758 18.063 18.022 Annual Report 2021_DRAFT_160322 separated pages.indd 218 Annual Report 2021_DRAFT_160322 separated pages.indd 218 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsAUDITOR’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, 2021 and December 31, 2020 and providing non-audit services, are presented below (amounts in thousands of Euro): Type of service Audit Firm Provided to twelve months ended December 31 2021 twelve months ended December 31 2020 Audit services Audit services Audit services Deloitte & Touche spa Deloitte & Touche spa Deloitte Network PRADA spa Subsidiaries Subsidiaries Total audit fees to Deloitte Network Other advisory services Other advisory services Deloitte Network Deloitte Network PRADA spa Subsidiaries Total non-audit fees to Deloitte Network 508 136 1,129 1,773 24 69 93 450 106 1,066 1,622 31 111 142 Total compensation to Deloitte Network 1,866 1,764 39. REMUNERATION OF BOARD OF DIRECTORS, FIVE HIGHEST PAID INDIVIDUALS AND SENIOR MANAGERS Remuneration of PRADA spa Board of Directors for period ended December 31, 2021 (amounts in thousands of Euro) Directors’ fees Remuneration Bonuses and other incentives Benefits in kind Paolo Zannoni Miuccia Prada Bianchi Patrizio Bertelli Alessandra Cozzani Lorenzo Bertelli Stefano Simontacchi Marina Sylvia Caprotti Yoël Zaoui Maurizio Cereda 875 14,830 14,830 - - 50 53 64 70 - - - 388 64 - - - - 33 144 144 453 252 - - - - Total 30,772 452 1,026 - - 1 13 3 - - - - 17 Pension, healthcare and TFR contributions - 24 24 261 69 2 8 10 3 401 Total 908 14,998 14,999 1,115 388 52 61 74 73 32,668 The Director ’s fees include the allocation of what was resolved by the Shareholders’ Meeting on May 27, 2021 as well as the additional emoluments approved by the Board of Statutory Auditors due to the specific activities carried out by the Directors. During the year, remuneration was also paid to two former directors of the Group Annual Report 2021_DRAFT_160322 separated pages.indd 219 Annual Report 2021_DRAFT_160322 separated pages.indd 219 219 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements (Carlo Mazzi for Euro 481,000 and Gian Franco Oliviero Mattei for Euro 7 7,000). Remuneration of PRADA spa Board of Directors for fiscal year ended December 31, 2020 (amounts in thousands of Euro) Directors’ fees Remuneration Bonuses and other incentives Benefits in kind Carlo Mazzi Miuccia Prada Bianchi Patrizio Bertelli Alessandra Cozzani Stefano Simontacchi Maurizio Cereda Gian Franco Oliviero Mattei Giancarlo Forestieri Sing Cheong Liu 766 9,088 9,088 50 35 72 98 42 42 - - - 294 - - - - - - 27 27 204 - - - - - 73 - - 12 - - - - - Pension, healthcare and TFR contributions 21 24 24 181 1 2 13 10 14 Total 860 9,139 9,139 741 36 74 111 52 56 Total 19,281 294 258 85 290 20,208 REMUNERATION OF FIVE HIGHEST PAID INDIVIDUALS The Group’s ﬁve highest paid individuals included two Board of Director members for 2021 and three Board Members for 2020. The total remuneration of the remaining three highest paid individuals in the twelve months ended December 31, 2021 and the remaining two highest paid individuals in the twelve months ended December 31, 2020 is set for th below: (amounts in thousands of Euro) Remuneration and other benefits Bonuses and other incentives Non-monetary benefits Pension/social security, healthcare and TFR contributions Total twelve months ended December 31 2021 twelve months ended December 31 2020 20,916 12,099 593 63 33,671 19,800 8,250 - 28 28,078 Excluding the remuneration of the Board of Directors’ members the remuneration range of the highest paid individuals is as follows: Less than HKD 8,000,000 Between HKD 8,000,000 and HKD 20,000,000 Between HKD 20,000,000 and HKD 50,000,000 More than HKD 50,000,000 Total individuals 220 twelve months ended December 31 2021 twelve months ended December 31 2020 - 1 - 2 3 - - - 2 2 Annual Report 2021_DRAFT_160322 separated pages.indd 220 Annual Report 2021_DRAFT_160322 separated pages.indd 220 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsSENIOR MANAGERS REMUNERATION The remuneration of the Senior Managers is as follows: (amounts in thousands of Euro) Remuneration and other benefits Bonuses and other incentives Non-monetary benefits Pension/social security, healthcare and TFR contributions Total twelve months ended December 31 2021 twelve months ended December 31 2020 27,290 16,978 2,197 1,980 48,445 27,018 9,894 1,976 1,600 40,488 There were 24 Senior Managers as of December 31, 2021, and 25 Senior Managers as of December 31, 2020. The remuneration range of the Senior Managers is as follows: Less than HKD 4,000,000 between HKD 4,000,000 and HKD 8,000,000 between HKD 8,000,000 and HKD 16,000,000 between HKD 16,000,000 and HKD 50,000,000 more than HKD 50,000,000 Total individuals twelve months ended December 31 2021 twelve months ended December 31 2020 9 6 5 2 2 24 13 7 3 - 2 25 The amounts included in the tables Remuneration of Board of Directors, Five Highest Paid Individuals and Senior Managers represent the amounts recognized in the profit or loss. 40. RELATED PART Y TRANSACTIONS The Group carries out transactions with companies classifiable as related par ties according to IAS 24, “Related Par ty Disclosures”. In the twelve months ended December 31, 2021, these transactions referred primarily to the purchase or sale of finished and semi-finished products and raw materials, the supply of services, loans, sponsorships, leases and the sale of real estate proper ty. The following tables present the effect of related-par ty transactions on the Consolidated Financial Statements in terms of Statement of Financial Position Annual Report 2021_DRAFT_160322 separated pages.indd 221 Annual Report 2021_DRAFT_160322 separated pages.indd 221 221 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsbalances at the repor ting date and total transactions affecting the Statement of Profit or Loss. STATEMENT OF FINANCIAL POSITION BALANCES AS OF DECEMBER 31, 2021 (amounts in thousands of Euro) Trade receivables Receivables from, and advances to, related parties – current Receivables from, and advances to, related parties – non-current Right of Use assets Trade payables Payables to related parties – current Lease Liability Other Liabilities Les Femmes Srl 569 FILATI BIAGIOLI MODESTO S.P.A SPELM SA Rubaiyat Modern Lux.Pr.Co.Ltd LUDO DUE S.R.L. Chora Srl Peschiera Immobiliare srl Premiata Srl Conceria Superior S.p.A. Perseo srl PA BE 1 S.r.l. Al Tayer Group LLC Al Tayer Insignia LLC Danzas LLC Al Sanam Rent a Car LLC PRADA HOLDING S.P.A. Orexis S.r.l. PH-RE Others Members of the Board of Directors of PRADA spa - - - - - - 2 1 2 - - 995 - - 11 - - 3 - 6 - - - - 4,711 - - - - - - - - - - 18,000 149 - - 1,125 - - - - - - - - - - - - - - - - - - - - - 2,676 2,877 4,174 - 9,972 - 3,294 - - - - - - - - - 74 231,046 - - - - - 433 41 234 1,351 288 - 2 12 38 1 - - - 2 - - - - 994 - - - - - - 5,000 - 2,366 - - - - - - - - - 4,225 - 10,942 - 3,869 - - - - - - - - - 81 256,219 - - - - - - - - - - - - - - - 133 - - - - - 1,702 Total at December 31, 2021 1,583 22,866 1,125 248,560 7,955 8,360 275,336 1,835 222 Annual Report 2021_DRAFT_160322 separated pages.indd 222 Annual Report 2021_DRAFT_160322 separated pages.indd 222 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsSTATEMENT OF FINANCIAL POSITION BALANCES AS OF DECEMBER 31, 2020 Trade receivables Receivables from, and advances to, related parties – current Receivables from, and advances to, related parties – non-current Right of Use assets Trade payables Payables to related parties – current Lease Liability Other Liabilities (amounts in thousands of Euro) Les Femmes srl CECCO BRUNA 2011 srl Luna Rossa Challenge 2013 NZ ltd COR 36 srl New Zeland Branch DFS Hawaii DFS Cotai limitada DFS Guam LP DFS Saipan Ltd DFS Okinawa SPELM SA Rubaiyat Modern Lux.Pr.Co.Ltd LUDO DUE S.R.L. Orexis S.r.l. Progetto Prada Arte srl 331 - 228 856 - 188 - - - - - - - 3 Luna Rossa Challenge 2013 srl 2,152 - - - 1 - 46 - 596 - - 5 - - Chora Srl Peschiera Immobiliare srl Premiata srl Conceria Superior spa Perseo srl COR 36 srl Al Tayer Group llc Al Tayer Insignia llc Danzas llc Al Sanam Rent a Car llc PRADA HOLDING spa BELLATRIX spa PH-RE Members of the Board of Directors of PRADA spa Relatives of members of the Board of Directors - - - - - - - - - - - - 1,125 - - - - - - - - - - - 20,000 18,000 - 18,532 5,848 - - - - 6,500 - - - - - - 155 - - - - - - - - - - 309 - - - - - 10 - - - 960 (54) - - 3 5,673 355 87 12 31 4,524 - 4,671 - - - - 3,820 - - - - - - - - - - 257,496 - - - - - - - - - 403 38 125 661 330 - 8 45 50 1 - - - - 6 - - - 7,347 144 24 92 4,560 - 5,154 - - - - 4,384 - - - - - - - - - - 280,168 - - - - - - - - - - 917 - - - - - - - - - - - 2,184 - - - - - 380 (*) - - - - - - - - - - - - - - - - - - - - - - - 234 - - - - 2,206 471 Total at December 31, 2020 4,406 51,035 19,434 276,324 2,925 3,481 301,879 2,911 (*) Payables for the acquisition of Fratelli Prada spa Annual Report 2021_DRAFT_160322 separated pages.indd 223 Annual Report 2021_DRAFT_160322 separated pages.indd 223 223 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsSTATEMENT OF PROFIT OR LOSS TRANSACTIONS FOR THE T WELVE MONTHS ENDED DECEMBER 31, 2021 (amounts in thousands of Euro) Les Femmes Srl CECCO BRUNA 2011 SRL FILATI BIAGIOLI MODESTO S.P.A SPELM SA LUDO DUE S.R.L. Ludo Tre S.r.l. Chora Srl Peschiera Immobiliare srl Premiata Srl Conceria Superior S.p.A. Perseo srl Al Tayer Group LLC Al Tayer Insignia LLC Danzas LLC Al Sanam Rent a Car LLC Luna Rossa Challenge NZ LTD COR 36 New Zeland Branch Ltd Luna Rossa Challenge Srl Luna Rossa Challenge Srl (sponsorship) COR 36 S.r.l. COR 36 S.r.l. (sponsorship) PRADA HOLDING S.P.A. Orexis S.r.l. PH-RE Others Net revenues Cost of goods sold General, admin. & selling costs (income) Interest income Interest expenses - - - - - - - - - - - - 1,956 - - - (275) 4 - 1 - - - - (10) 5,455 2 3,777 - - - - 42 70 11,972 723 - - 44 - - - - - 13 - - - - - - - 36 531 1,121 (1) 856 530 707 64 - 32 136 64 10 (12) 189 (4) 21,232 (2) 11,500 (4) 74 18,845 79 11 - - - - - - - - - - - - - - - - - - - - - - - - - - - 36 56 - - 35 - - - - - - - - - - - - - - 1 2,414 - Total at December 31, 2021 1,676 22,098 55,983 11 2,542 224 Annual Report 2021_DRAFT_160322 separated pages.indd 224 Annual Report 2021_DRAFT_160322 separated pages.indd 224 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsSTATEMENT OF PROFIT OR LOSS TRANSACTIONS FOR THE T WELVE MONTHS ENDED DECEMBER 31, 2020 (amounts in thousands of Euro) Les Femmes srl CECCO BRUNA 2011 srl Luna Rossa Challenge 2013 NZ ltd COR 36 S.r.l. New Zeland Branch DFS Hawaii DFS Venture Singapore (Pte) Limited DFS Cotai limitada SPELM SA LUDO DUE srl Orexis S.r.l. Net revenues Cost of goods sold General, admin. & selling costs (income) Interest income Interest expenses - - - 197 - - - - - - 2,960 99 - - - - - - - - 114 294 6,807 836 - - (228) (383) 587 22 1,581 537 1,123 (36,942) 21,143 1,711 530 521 82 - - 11,414 65 85 137 125 1 10 (14) (3) 1 - 20,093 1,041 9 - - - - - - - - - - - - - - - 9 - - - - - - 122 - - - - - - - - 321 41 49 - - (1) 47 - - - - - - - - - - - 2,724 Luna Rossa Challenge 2013 srl 455 (1) Chora Srl Peschiera Immobiliare srl Premiata srl Conceria Superior spa Perseo srl COR 36 srl Al Tayer Group LLC Al Tayer Insignia LLC Danzas LLC Al Tayer Motors Al Sanam Rent a Car LLC PRADA HOLDING spa BELLATRIX S.P.A. LUDO Spa PH - RE Relatives of members of the Board of Directors - - - 284 - 25 - 1,217 - - - - - - - Total at December 31, 2020 2,178 11,174 23,174 140 3,181 Annual Report 2021_DRAFT_160322 separated pages.indd 225 Annual Report 2021_DRAFT_160322 separated pages.indd 225 225 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsThe foregoing tables repor t information on transactions with related par ties in accordance with IAS 24, “Related Par ty Disclosures”, while the following transactions also fall within the scope of application of the Hong Kong Stock Exchange Listing Rules. The transactions with related par ty PH-RE llc (formerly PABE-RE llc) refer to the transaction between such company and PRADA Japan co ltd in relation to the lease of two buildings in Aoyama, Tokyo for Prada and Miu Miu stores. The transactions repor ted for the twelve months ended December 31, 2021 are regulated by Chapter 14A of the Listing Rules because they are considered continuing connected transactions subject to disclosure, but they are exempt from the independent shareholders’ approval requirement. As required by the Listing Rules, comprehensive disclosure of those continuing connected transactions is contained in PRADA spa’s Announcements dated, respectively, July 15, 2015 (“Prada Aoyama”) and May 26, 2017 (“Miu Miu Aoyama”). The transactions with related par ty Luna Rossa Challenge srl for the twelve months ended December 31, 2021 are regulated by Chapter 14A of the Listing Rules because they are considered continuing connected transactions subject to disclosure, but they are exempt from the independent shareholders’ approval requirement. As required by the Listing Rules, comprehensive disclosure of those continuing connected transactions is contained in PRADA spa’s Announcements dated, respectively, December 1, 2017 (“Sponsorship Agreement”) and November 20, 2020 (“Amendment to Sponsorship Agreement”). The sponsorship agreement with related par ty Challenger of Record 36 srl, effective from March 1, 2020, is regulated by Chapter 14A of the Listing Rules because it is considered a continuing connected transaction subject to disclosure, but it is exempt from the independent shareholders’ approval requirement. As required by the Listing Rules, comprehensive disclosure of the continuing connected transaction is contained in PRADA spa’s Announcement dated March 1, 2020. The transactions with related par ty Orexis srl refer to the 2020 transaction in which PRADA spa sold and Orexis srl purchased the building at Via della Spiga 18 in Milan. This transaction is regulated by Chapter 14A of the Listing Rules because it is considered a connected transaction subject to disclosure, but it is exempt 226 Annual Report 2021_DRAFT_160322 separated pages.indd 226 Annual Report 2021_DRAFT_160322 separated pages.indd 226 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statementsfrom the independent shareholders’ approval requirement. As required by the Listing Rules, comprehensive disclosure of the connected transaction is contained in PRADA spa’s Announcement dated December 29, 2020. Apar t from the non-exempt continuing connected transactions and non-exempt connected transactions repor ted above, no other transaction repor ted in the 2021 consolidated financial statements meets the definition of “connected transaction” or “continuing connected transaction” contained in Chapter 14A of the Hong Kong Stock Exchange Listing Rules or, if it does meet the definition of “connected transaction” or “continuing connected transaction” according to Chapter 14A, it is exempt from the announcement, disclosure and independent shareholders’ approval requirements laid down in Chapter 14A. 41. FINANCIAL TREND (amounts in thousands of Euro) December 31 2021 December 31 2020 December 31 2019 December 31 2018 December 31 2017 (*) Net revenues Gross margin Operating income (EBIT) Group net income Total assets Total liabilities Total Group shareholders’ equity (*) eleven-month statement of profit or loss 3,365,667 2,547,358 489,484 294,254 6,959,011 3,830,368 3,113,894 2,422,739 1,743,378 20,061 (54,139) 6,527,927 3,676,207 2,832,057 3,225,594 2,319,612 306,779 255,788 7,038,439 4,049,864 2,967,158 3,142,148 2,262,594 323,846 205,443 4,678,812 1,781,743 2,877,986 2,741,095 2,030,696 315,878 217,721 4,739,375 1,873,204 2,844,652 Annual Report 2021_DRAFT_160322 separated pages.indd 227 Annual Report 2021_DRAFT_160322 separated pages.indd 227 227 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial Statements42. CONSOLIDATED COMPANIES Company Italy Local currency Share capital (000s of local currency) % Interest Registered office Principal place of operation Date of incorporation/ establishment (MM/DD/YYYY) Main Business PRADA Spa EUR 255,882 Milan Artisans Shoes Srl (*) IPI Logistica Srl (*) Pelletteria Ennepì Srl (*) Church Italia Srl Marchesi 1824 Srl (*) Figline Srl (*) Pelletteria Figline Srl Luna Rossa Challenge Srl (*) COR 36 Srl Europe PRADA Retail UK Ltd (*) PRADA Germany Gmbh (*) PRADA Austria Gmbh (*) PRADA Spain Sl (*) PRADA Retail France Sas (*) PRADA Hellas Sole Partner Llc (*) PRADA Monte-Carlo Sam (*) PRADA Sa (*) PRADA Company Sa PRADA Netherlands Bv (*) Church Denmark Aps Church France Sas Church UK Retail Ltd Church’s English Shoes Switzerland Sa Church & Co. Ltd (*) Church & Co. (Footwear) Ltd Church English Shoes Sa PRADA Czech Republic Sro (*) PRADA Portugal Unipessoal Lda (*) PRADA Rus Llc (*) Church Spain Sl PRADA Bosphorus Deri Mamuller Ltd Sirketi (*) PRADA Ukraine Llc (*) Church Netherlands Bv Church Ireland Retail Ltd Church Austria Gmbh Prada Sweden Ab (*) Church Footwear Ab Prada Switzerland Sa (*) Prada Kazakhstan Llp (*) Kenon Ltd (*) Tannerie Limoges Sas (*) EUR EUR EUR EUR EUR EUR EUR EUR EUR GBP EUR EUR EUR EUR EUR EUR EUR EUR EUR DKK EUR GBP CHF GBP GBP EUR CZK EUR RUB EUR TRY UAH EUR EUR EUR SEK SEK CHF KZT GBP EUR 1,000 66.7 Montegranaro 600 100 Milan 93 51 1,000 10 20 100 100 100 100 100 Figline e Incisa Valdarno Milan Milan Milan Figline e Incisa Valdarno 10 100 Grosseto 10 100 Milan Italy Italy Italy Italy Italy Italy Italy Italy Italy Italy Group Holding/ Manufacturing/ Distribution/ Retail 02/09/1977 Manufacturing 01/26/1999 Services 12/01/2016 Manufacturing 01/31/1992 Retail/Services 07/10/2013 Food&Beverage 07/24/2019 Manufacturing 09/30/2020 Manufacturing 12/01/2021 12/01/2021 Management sailing team Event mana- gement 36th America’s Cup 5,000 215 100 100 London Munich 40 100 Wien 240 4,000 4,350 2,000 100 100 100 100 Madrid Paris Athens Monaco U.K. Germany Austria Spain France Greece 01/07/1997 Retail 03/20/1995 Retail/Services 03/14/1996 Retail 05/14/1986 Retail 10/10/1984 Retail 12/19/2007 Retail Principality of Monaco 05/25/1999 Retail 31 100 Luxembourg Switzerland 07/29/1994 Trademarks/ Services 3,204 20 50 2,856 1,021 100 100 100 100 100 100 100 Luxembourg Amsterdam Luxembourg Netherlands 04/12/1999 Services 03/27/2000 Retail Copenhagen Denmark 03/13/2014 Retail Paris Northampton France U.K. 06/01/1955 Retail 07/16/1987 Retail Lugano Switzerland 12/29/2000 Retail 2,811 100 Northampton U.K. 01/16/1926 Sub-Holding/ Manufacturing/ Distribution Northampton U.K. 03/06/1954 Trademarks 44 75 2,500 5 250 3 100 100 100 100 100 100 Brussels Prague Lisbon Moscow Madrid 73,000 100 Istanbul 240,000 18 50 35 500 100 24,000 500,000 84,000 600 100 100 100 Kiev Dublin 100 Wien 100 100 100 100 100 60 Stockholm Stockholm Lugano Almaty London Isle Belgium 02/25/1963 Retail Czech Republic 06/25/2008 Retail Portugal 08/07/2008 Retail Russian Federation 11/07/2008 Retail Spain Turkey Ukraine 05/06/2009 Retail 02/26/2009 Retail 10/14/2011 Retail Ireland Austria Sweden Sweden Switzerland Kazakhstan U.K. France 11/20/2011 Retail 01/17/2012 Retail 12/18/2012 Retail 12/18/2012 Retail 09/28/2012 Retail 06/24/2013 Retail 02/07/2013 Real Estate 08/19/2014 Manufacturing Amsterdam Netherlands 07/07/2011 Retail 228 Annual Report 2021_DRAFT_160322 separated pages.indd 228 Annual Report 2021_DRAFT_160322 separated pages.indd 228 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsCompany Prada Denmark Aps (*) Prada Belgium Sprl (*) Hipic Prod Impex Srl (*) Church Germany Gmbh Prada San Marino (*) Americas Local currency Share capital (000s of local currency) % Interest Registered office Principal place of operation DKK EUR RON EUR EUR 26,000 4,000 32,124 200 26 100 100 100 100 100 Copenhagen Brussels Sibiu Munich Falciano Denmark Belgium Romania Germany Date of incorporation/ establishment (MM/DD/YYYY) Main Business 05/19/2015 Retail 12/04/2015 Retail 04/15/2016 Manufacturing 09/18/2018 Retail San.Marino 04/15/2021 Retail PRADA USA Corp. (*) USD 152,211 100 New York U.S.A. 10/25/1993 CAD USD USD MXN BRL MXN USD USD EUR HKD TWD MYR SGD KRW THB JPY USD USD AUD RMB RMB JPY HKD SGD RMB RMB NZD PRADA Canada Corp. (*) Church & Co. (USA) Ltd Post Development Corp (*) PRADA Retail Mexico, S. de R.L. de C.V. PRADA Brasil Importação e Comércio de Artigos de Luxo Ltda (*) PRM Services S. de R.L. de C.V. (*) PRADA Panama Sa (*) PRADA Retail Aruba Nv (*) PRADA St. Barthelemy Sarl (*) Asia-Pacific and Japan PRADA Asia Pacific Ltd (*) PRADA Taiwan Ltd PRADA Retail Malaysia Sdn. Bhd. (*) PRADA Singapore Pte Ltd (*) PRADA Korea Llc (*) PRADA (Thailand) Co. Ltd (*) PRADA Japan Co. Ltd (*) Prada Guam Llc Prada Saipan Llc (*) PRADA Australia Pty Ltd (*) PRADA Trading (Shanghai) Co. Ltd (***) PRADA Fashion Commerce (Shanghai) Co. Ltd (***) Church Japan Company Ltd Church Hong Kong Retail Ltd Church Singapore Pte Ltd Prada Dongguan Trading Co. Ltd (***) Church Footwear (Shanghai) Co. Ltd (***) Prada New Zealand Ltd (*) PRADA Vietnam Limited Liability Company (*) PRADA Macau Co. Ltd Church Korea Llc Middle East PRADA Middle East Fzco (*) PRADA Emirates Llc (**) PRADA Kuwait Wll (**) PRADA Retail Wll (*) PRADA Saudi Arabia Ltd (*) 300 100 Toronto 85 86,592 100 100 New York New York Canada U.S.A. U.S.A. Distribution/ Services/ Retail Distribution/ Retail 05/01/1998 09/08/1930 Retail 02/18/1997 Real Estate 269,140 100 Mexico City Mexico 07/12/2011 Retail 340,000 100 Sao Paulo Brazil 04/12/2011 Retail 7,203 30 2,011 1,600 100 100 100 100 Mexico City Panama Oranjestad Gustavia Mexico Panama Aruba 02/27/2014 Services 09/15/2014 Retail 09/25/2014 Retail St. Barthelemy 04/01/2016 Retail 3,000 100 Hong Kong Hong Kong S.A.R., P.R.C. 09/12/1997 Retail/Services 3,800 1,000 1,000 8,125,000 372,000 1,200,000 0.001 100 100 100 100 100 100 100 Hong Kong Taiwan P.R.C. 09/16/1993 Retail Kuala Lumpur Malaysia 01/23/2002 Retail Singapore Seoul Bangkok Tokyo Guam Singapore 10/31/1992 Retail South Korea 11/27/1995 Retail Thailand Japan Guam 06/19/1997 Retail 03/01/1991 Retail 02/04/2021 Retail 1,405 100 Northern Marianas Islands Saipan 01/20/2021 Duty-Free Stores 13,500 1,653 100 100 Sydney Shanghai 624,950 100 Shanghai 100,000 100 Tokyo 29,004 100 Hong Kong 7,752 8,500 31,900 100 100 100 Singapore Dongguan Shanghai Australia 04/21/1997 Retail P.R.C. P.R.C. Japan Hong Kong S.A.R., P.R.C. 02/09/2004 Retail/Dormant 10/31/2005 Retail 04/17/1992 Retail 06/04/2004 Retail Singapore 08/18/2009 Retail P.R.C. P.R.C. 11/28/2012 Services 12/05/2012 Retail 3,500 100 Wellington New Zealand 07/05/2013 Retail VND 146,246,570 100 Hanoi Vietnam 09/09/2014 Retail MOP KRW AED AED KWD QAR SAR 25 100 Macau 650,000 100 Seoul Macau S.A.R., P.R.C. South Korea 01/22/2015 Retail 09/03/2018 Retail 18,000 60 Jebel Ali Free Zone 300 29.4 Dubai 50 29.4 Kuwait City 15,000 100 Doha U.A.E. U.A.E. Kuwait Qatar 05/25/2011 Distribution/ Services 08/04/2011 Retail 09/18/2012 Retail 02/03/2013 Retail 26,666 75 Jeddah Saudi Arabia 07/02/2014 Retail Annual Report 2021_DRAFT_160322 separated pages.indd 229 Annual Report 2021_DRAFT_160322 separated pages.indd 229 229 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsCompany Local currency Share capital (000s of local currency) % Interest Registered office Principal place of operation Date of incorporation/ establishment (MM/DD/YYYY) Main Business Other countries PRADA Maroc Sarlau (*) PRADA Retail South Africa (pty) ltd (*) MAD ZAR 95,000 50,000 100 100 Casablanca Morocco 11/11/2011 Under liquidation Sandton South Africa 06/09/2014 Under liquidation (*) Company owned directly by PRADA spa (**) Company consolidated based on definition of control per IFRS 10 (***) Wholly foreign owned enterprises 43. DISCLOSURES REGARDING NON-CONTROLLING INTERESTS The financial information of companies not entirely controlled by the Group is provided below, as required by IFRS 12. The amounts are stated before the consolidation adjustments. December 31, 2021 financial statements (amounts in thousands of Euro): Company Artisans Shoes S.r.l. Prada Emirates Llc Prada Middle East Fzco Prada Kuwait Wll Prada Saudi Arabia Ltd Tannerie Limoges S.A.S. Group's percentage interest Local currency Total assets Total equity Net revenues Net income/ (loss) Dividends paid to non- controlling shareholders 66.7 29.4 60 29.4 75 60 EUR AED AED KWD SAR EUR 38,215 74,096 102,841 17,919 18,832 9,158 7,869 (12,746) 44,133 2,945 5,106 123 53,720 68,296 66,641 23,314 14,832 5,926 118 2,771 724 993 351 (23) - - - - - - December 31, 2020 financial statements (amounts in thousands of Euro): Company Artisans Shoes srl TRS Hawaii llc TRS Hong Kong TRS Singapore TRS Guam Partnership TRS Saipan Partnership TRS Okinawa KK TRS Hong Kong branch in Macau S.A.R. PRADA Emirates llc PRADA Middle East fzco Prada Kuwait Wll PRADA Saudi Arabia ltd Tannerie Limoges sas Hipic Prod Impex srl Pelletteria Ennepì srl Group's percentage interest Local currency Total assets Total equity Net revenues Net income/ (loss) Dividends paid to non- controlling shareholders 66.7 55 55 55 55 55 55 55 29.4 60 29.4 75 60 80 90 EUR USD HKD SGD USD USD JPY MOP AED AED KWD SAR EUR RON EUR 26,530 1,875 53 778 3,125 2,528 6,812 18,498 75,426 75,658 14,778 16,262 9,410 4,644 5,771 7,751 (1,151) 44 716 2,504 2,427 5,336 7,864 (14,437) 40,035 1,754 4,380 146 (1,333) 1,898 48,879 1,824 - 153 2,041 356 4,677 7,594 35,141 7,160 19,557 12,330 4,961 400 - 1 (3,399) (7) (306) (1,158) (508) (972) (3,897) 577 (43) 529 (451) (331) (1,410) (615) - - - - - - - - - - - - - - - 230 Annual Report 2021_DRAFT_160322 separated pages.indd 230 Annual Report 2021_DRAFT_160322 separated pages.indd 230 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsThere were no significant restrictions on the Group’s ability to access or use assets and settle liabilities as at the repor ting period. In 2011, PRADA spa and Al Tayer Insignia llc (“Al Tayer ”) stipulated an agreement expiring on December 31, 2021 to develop the Prada and Miu Miu brands in the Middle East retail business (the “joint venture”). That agreement resulted in the establishment of subsidiary Prada Middle East fzco, followed by Prada Emirates llc and Prada Kuwait llc. At the date of approval of these Consolidated Financial Statements, Prada and Al Tayer were managing the joint venture under principles of ordinary administration while negotiating the expired contractual terms. Management is confident that through the negotiations the Prada Group can acquire full control of such companies upon the payment of an amount that does not differ significantly from the corresponding non-controlling interest in equity stated in the financial statements. 44. EVENTS AF TER THE REPORTING DATE At the date of approval of these Consolidated Financial Statements, the Group has suspended its retail operations in Russia. At December 31, 2021 the Group had assets of approximately RUB 7 billion in Russia (Euro 81 million at the year-end exchange rate), consisting mainly of tangible assets at 13 stores (10 Prada and 3 Miu Miu), working capital and cash assets. The net revenues realized in Russia in 2021 accounted for approximately 2% of the consolidated net revenues. The ongoing conflict in Ukraine has resulted in a high volatility of the financial markets, a significant devaluation of the Ruble and a context of high uncer tainty whose future potential effects on the Group’s consolidated financial statements cannot be determined so far.The Management will continue to closely monitor the evolution of the business and legal scenario in order to ensure the correct valuation of the assets recognized in the consolidated financial statements of the Group. Chora S.r.l. initiated a lawsuit in January 2022 against Prada spa; more details are provided in Note 28. Annual Report 2021_DRAFT_160322 separated pages.indd 231 Annual Report 2021_DRAFT_160322 separated pages.indd 231 231 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Notes to the Consolidated Financial StatementsAnnual Report 2021_DRAFT_160322 separated pages.indd 232 Annual Report 2021_DRAFT_160322 separated pages.indd 232 16/03/22 20:42 16/03/22 20:42 I N D E P E N D E N T A U D I T O R S ’ R E P O R T S Annual Report 2021_DRAFT_160322 separated pages.indd 233 Annual Report 2021_DRAFT_160322 separated pages.indd 233 233 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Independent Auditors’ ReportsINDEPENDENT AUDITORS’ REPORTS The Independent Auditor ’s Repor ts included in this Annual Repor t are in two different formats taking into account the differences between the International Auditing Standards (ISAs) issued by the International Auditing and Assurance Standard Boards (IAASB) and the auditing standards adopted in the Italian jurisdiction (ISA Italia). Specifically, in accordance to the regulations applicable in Hong Kong, where the Company’s shares are listed on the Main Board of the Hong Kong Stock Exchange, the Independent Auditors’ repor t is issued in accordance with ISAs, while in Italy, where the Company is domiciled, the Independent Auditor ’s repor t is issued for statutory purposes in accordance with ISA Italia pursuant to ar t. 14 of Italian Legislative Decree no 39 of January 27, 2010. 234 Annual Report 2021_DRAFT_160322 separated pages.indd 234 Annual Report 2021_DRAFT_160322 separated pages.indd 234 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Independent Auditors’ ReportsDeloitte & Touche S.p.A. Via Tortona, 25 20144 Milano Italia Tel: +39 02 83322111 Fax: +39 02 83322112 www deloitte.it IINNDDEEPPEENNDDEENNTT AAUUDDIITTOORR’’SS RREEPPOORRTT TToo tthhee SShhaarreehhoollddeerrss ooff PPrraaddaa SS..pp..AA.. OOppiinniioonn We have audited the consolidated financial statements of Prada S.p.A. and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at December 31, 2021, the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in equity for the year then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at December 31, 2021, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. BBaassiiss ffoorr OOppiinniioonn We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KKeeyy AAuuddiitt MMaatttteerrss Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Ancona Bari Bergamo Bologna Brescia Cagliari Firenze Genova Milano Napoli Padova Parma Roma Torino Treviso Udine Verona Sede Legale: Via Tortona, 25 - 20144 Milano | Capitale Sociale: Euro 10.328.220,00 i.v. Codice Fiscale/Registro delle Imprese di Milano Monza Brianza Lodi n. 03049560166 - R.E.A. n. MI-1720239 | Partita IVA: IT 03049560166 Il nome Deloitte si riferisce a una o più delle seguenti entità: Deloitte Touche Tohmatsu Limited, una società inglese a responsabilità limitata (“DTTL”), le member firm aderenti al suo network e le entità a esse correlate. DTTL e ciascuna delle sue member firm sono entità giuridicamente separate e indipendenti tra loro. DTTL (denominata anche “Deloitte Global”) non fornisce servizi ai clienti. Si invita a leggere l’informativa completa relativa alla descrizione della struttura legale di Deloitte Touche Tohmatsu Limited e delle sue member firm all’indirizzo www deloitte com/about. © Deloitte & Touche S.p.A. Annual Report 2021_DRAFT_160322 separated pages.indd 235 Annual Report 2021_DRAFT_160322 separated pages.indd 235 235 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Independent Auditors’ Reports IImmppaaiirrmmeenntt tteesstt DDeessccrriippttiioonn ooff tthhee kkeeyy aauuddiitt mmaatttteerr 2 As described in Note 16 to the consolidated financial statements, the Group accounts for goodwill of Euro 513.5 million, which is unchanged compared to the previous year, allocated to the cash generating units (“CGUs”) identified by Management. In accordance with IAS 36 - Impairment of assets, goodwill is not amortized, but tested for impairment at least annually by comparing the recoverable amount of the CGUs to their carrying amount. Furthermore, in light of the performance of certain retail businesses during the period, CGUs other than those which include goodwill were also tested for impairment. In order to measure the recoverable amount of the tested CGUs, Management determined the “value in use” using present value techniques, whilst the “fair value less costs of disposal” method has been used for the impairment test carried out on the Church’s CGU, deemed by Management as the best approach for expressing the value of the tested assets. In this context, the fair value of the Church’s brand has been estimated by using the relief royalty method. No impairment losses have been identified as a result of the tests performed. The determination of the recoverable amount of each CGU is based on estimates and assumptions made by Management using, among other, projected cash flows of the CGUs, appropriate discount rates (WACC), long- term growth rates (g-rate) and royalty rates for the Church’s brand fair value assessment. Management also performed sensitivity analysis (some of which specifically related to the CGUs to which a significant amount of goodwill has been allocated), in order to verify and disclose the effects of changes to the main assumptions (WACC and g-rate) on the impairment tests result. In accordance with IAS 10 Management has considered the potential impacts arising from the Russia - Ukraine conflict commenced on February 24, 2022 as non-adjusting events occurred after the reporting period and has not accordingly taken them in account for the impairment test. Given the materiality of the value of goodwill and other assets allocated to the CGUs, the complexity of the estimates of the CGUs cash flows projections and of the other estimates and assumptions used in the impairment model, we considered the impairment test as a key audit matter. AAuuddiitt pprroocceedduurreess ppeerrffoorrmmeedd For our audit, we have evaluated the methods used by Management to determine the recoverable amount of the CGUs and analyzed these methods and the related assumptions used by Management in the impairment test. 236 Annual Report 2021_DRAFT_160322 separated pages.indd 236 Annual Report 2021_DRAFT_160322 separated pages.indd 236 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Independent Auditors’ Reports 3 Our audit procedures included, among others, the following, which were performed along with the support of our internal valuation specialists: • Evaluation of the appropriateness of the methodologies used by Management to test CGUs; • Analysis of the reasonableness of the main assumptions used to develop cash flow forecasts, through sector data analysis (reports on the fashion and luxury industry) as well as of supporting data and information obtained from Management; • Evaluation of the reasonableness of the discount rates (WACC) and long- term growths (g-rate) used by Management; • Verification of the mathematical accuracy of the model used to determine the recoverable amount of each tested CGU; • Verification of the correct determination of the carrying amount of each tested CGU; • Analysis of the reasonableness of the main assumptions for the determination of Church’s brand fair value less costs of disposal and of the mathematical accuracy of the model used; • Evaluation of the sensitivity analysis performed by Management and development of an independent sensitivity analysis; • Analysis of the information disclosed in the notes to the consolidated financial statements. OOtthheerr IInnffoorrmmaattiioonn Management is responsible for the other information. The other information comprises the information included in the Annual Report 2021 but does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. RReessppoonnssiibbiilliittiieess ooff MMaannaaggeemmeenntt aanndd TThhoossee CChhaarrggeedd wwiitthh GGoovveerrnnaannccee ffoorr tthhee CCoonnssoolliiddaatteedd FFiinnaanncciiaall SSttaatteemmeennttss Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Annual Report 2021_DRAFT_160322 separated pages.indd 237 Annual Report 2021_DRAFT_160322 separated pages.indd 237 237 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Independent Auditors’ Reports 4 In preparing the consolidated financial statements, Management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those Charged with Governance are responsible for overseeing the Group’s financial reporting process. AAuuddiittoorr’’ss RReessppoonnssiibbiilliittiieess ffoorr tthhee AAuuddiitt ooff tthhee CCoonnssoolliiddaatteedd FFiinnaanncciiaall SSttaatteemmeennttss Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. • Conclude on the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. 238 Annual Report 2021_DRAFT_160322 separated pages.indd 238 Annual Report 2021_DRAFT_160322 separated pages.indd 238 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Independent Auditors’ Reports 5 • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with Those Charged with Governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide Those Charged with Governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with Those Charged with Governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. DELOITTE & TOUCHE S.p.A. MMaarrccoo RRiiccccii Partner Milan, Italy March 14, 2022 Annual Report 2021_DRAFT_160322 separated pages.indd 239 Annual Report 2021_DRAFT_160322 separated pages.indd 239 239 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Independent Auditors’ Reports Deloitte & Touche S.p.A. Via Tortona, 25 20144 Milano Italia Tel: +39 02 83322111 Fax: +39 02 83322112 www deloitte.it IINNDDEEPPEENNDDEENNTT AAUUDDIITTOORR’’SS RREEPPOORRTT PPUURRSSUUAANNTT TTOO AARRTTIICCLLEE 1144 OOFF LLEEGGIISSLLAATTIIVVEE DDEECCRREEEE NNoo.. 3399 OOFF JJAANNUUAARRYY 2277,, 22001100 TToo tthhee SShhaarreehhoollddeerrss ooff PPrraaddaa SS..pp..AA.. RREEPPOORRTT OONN TTHHEE AAUUDDIITT OOFF TTHHEE CCOONNSSOOLLIIDDAATTEEDD FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS OOppiinniioonn We have audited the consolidated financial statements of Prada S.p.A. and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at December 31, 2021, the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in equity for the year then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at December 31, 2021, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. BBaassiiss ffoorr OOppiinniioonn We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of Prada S.p.A. (the “Company”) in accordance with the ethical requirements applicable under Italian law to the audit of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. RReessppoonnssiibbiilliittiieess ooff tthhee DDiirreeccttoorrss aanndd tthhee BBooaarrdd ooff SSttaattuuttoorryy AAuuddiittoorrss ffoorr tthhee CCoonnssoolliiddaatteedd FFiinnaanncciiaall SSttaatteemmeennttss The Directors are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, and, within the terms established by law, for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Ancona Bari Bergamo Bologna Brescia Cagliari Firenze Genova Milano Napoli Padova Parma Roma Torino Treviso Udine Verona Sede Legale: Via Tortona, 25 - 20144 Milano | Capitale Sociale: Euro 10.328.220,00 i.v. Codice Fiscale/Registro delle Imprese di Milano Monza Brianza Lodi n. 03049560166 - R.E.A. n. MI-1720239 | Partita IVA: IT 03049560166 Il nome Deloitte si riferisce a una o più delle seguenti entità: Deloitte Touche Tohmatsu Limited, una società inglese a responsabilità limitata (“DTTL”), le member firm aderenti al suo network e le entità a esse correlate. DTTL e ciascuna delle sue member firm sono entità giuridicamente separate e indipendenti tra loro. DTTL (denominata anche “Deloitte Global”) non fornisce servizi ai clienti. Si invita a leggere l’informativa completa relativa alla descrizione della struttura legale di Deloitte Touche Tohmatsu Limited e delle sue member firm all’indirizzo www deloitte com/about. © Deloitte & Touche S.p.A. 240 Annual Report 2021_DRAFT_160322 separated pages.indd 240 Annual Report 2021_DRAFT_160322 separated pages.indd 240 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Independent Auditors’ Reports 2 In preparing the consolidated financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they have identified the existence of the conditions for the liquidation of the Company or the termination of the business or have no realistic alternatives to such choices. The Board of Statutory Auditors is responsible for overseeing, within the terms established by law, the Group’s financial reporting process. AAuuddiittoorr’’ss RReessppoonnssiibbiilliittiieess ffoorr tthhee AAuuddiitt ooff tthhee CCoonnssoolliiddaatteedd FFiinnaanncciiaall SSttaatteemmeennttss Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with International Standards on Auditing (ISA Italia), we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control; • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Annual Report 2021_DRAFT_160322 separated pages.indd 241 Annual Report 2021_DRAFT_160322 separated pages.indd 241 241 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Independent Auditors’ Reports 3 • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance, identified at an appropriate level as required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. RREEPPOORRTT OONN OOTTHHEERR LLEEGGAALL AANNDD RREEGGUULLAATTOORRYY RREEQQUUIIRREEMMEENNTTSS OOppiinniioonn ppuurrssuuaanntt ttoo aarrtt.. 1144 ppaarraaggrraapphh 22 ((ee)) ooff LLeeggiissllaattiivvee DDeeccrreeee 3399//1100 The Directors of Prada S.p.A. are responsible for the preparation of the financial review of the Group as at December 31, 2021, including its consistency with the related consolidated financial statements and its compliance with the law. We have carried out the procedures set forth in the Auditing Standard (SA Italia) n. 720B in order to express an opinion on the consistency of the financial review, with the consolidated financial statements of the Group as at December 31, 2021 and on its compliance with the law, as well as to make a statement about any material misstatement. In our opinion, the above-mentioned financial review is consistent with the consolidated financial statements of the Group as at December 31, 2021 and is prepared in accordance with the law. With reference to the statement referred to in art. 14, paragraph 2 (e), of Legislative Decree 39/10, made on the basis of the knowledge and understanding of the entity and of the related context acquired during the audit, we have nothing to report. DELOITTE & TOUCHE S.p.A. Signed by MMaarrccoo RRiiccccii Partner Milan, Italy March 14, 2022 This report has been translated into the English language solely for the convenience of international readers. 242 Annual Report 2021_DRAFT_160322 separated pages.indd 242 Annual Report 2021_DRAFT_160322 separated pages.indd 242 16/03/22 20:42 16/03/22 20:42 PRADA Group Annual Report 2021 - Independent Auditors’ Reports

Continue reading text version or see original annual report in PDF format above