(Translation from the Italian original which remains the definitive version) B V L G A R I. Bulgari Group

Transcription

1 (Translation from the Italian original which remains the definitive version) B V L G A R I Bulgari Group Interim management statements as at 30 September

2 INTERIM MANAGEMENT STATEMENTS AS AT 30 SEPTEMBER 2010 Management and Control Bodies page 3 Interim Management Report as at 30 September 2010 page 4 Interim consolidated financial statements as at 30 September 2010, 31 December 2009 and 30 September 2009 page 15 Notes to the interim consolidated financial statements as at 30 September 2010 page 22 Management and Control Bodies 2

3 Board of Directors Chairman Paolo Bulgari Deputy - Chairman Nicola Bulgari Chief Executive Officer Francesco Trapani Directors Claudio Costamagna (3) Paolo Cuccia (1) (4) Giulio Figarolo Di Gropello (3) (4) Claudio Sposito (2) Board of Statutory Auditors Chairman Eugenio Pinto Standing Auditors Maurizio De Magistris Gerardo Longobardi Substitute Auditors Mario Civetta Tiziano Onesti Independent Auditors KPMG S.p.A. (1) Chairman of the Internal Control Committee (2) Chairman of the Compensation Committee (3) Member of the Internal Control Committee (4) Member of the Compensation Committee 3

4 B V L G A R I Bulgari Group Interim Management Report as at 30 September

5 Bulgari Group Interim Management Report as at 30 September 2010 Introduction The Bulgari Group has prepared its interim management report as at 30 September 2010 pursuant to article 154-ter of Legislative Decree no. 58/1998, in accordance with the principles established by International Accounting Standard 34 applicable to interim financial reporting. KEY FINANCIAL AND ECONOMIC INDICATORS NET REVENUE Cumulated revenue amounted to million euros for the nine months ended 30 September 2010, representing an increase of 13% at current exchange rates (+7% at comparable exchange rates) over the corresponding period of the previous year. This increase has been achieved through the positive contribution both of the directly operated stores and the third party channel. REVENUE BY PRODUCT TYPE TABLE 1 The following table sets out revenue for the third quarter of 2010 and the third quarter of 2009, the percentage of total revenue by product type and the percentage change over the same periods of the previous years at current and comparable exchange rates. 5

6 TABLE 2 The following table sets out revenue for the nine months ended 30 September 2010, the nine months ended 30 September 2009 and full year 2009, the percentage of total revenue by product type and the percentage change over the same periods of the previous years at current and comparable exchange rates. Jewellery rose by 13.7% (+24.2% at current exchange rates) following the excellent sales performance of the B.zero1 line and the Serpenti collection. Watches fell by 10.9% (-1.8% at current exchange rates), with comparisons penalised by the delivery of new products which this year began in September and continued into the following three months, whereas last year newly launched items were already available in the second quarter. The excellent response to the Serpenti collection for women also requires emphasis, with the steel version, the first, becoming available in the shops in September. Perfumes fell by 4.1% (+3.5% at current exchange rates), which is mainly the result of differences in the timing of deliveries for the new launch, the male perfume MAN, distributed at the end of the third quarter this year on the basis of last year s launch, and BLV II for which distribution began in June. In conclusion accessories achieved an excellent sales performance, rising by 35.3% (+54.8% at current exchange rates). In particular leather accessories rose by 41% due amongst other things to the success of the Leoni bag which was promoted by an autumn/winter advertising campaign having a great effect and the Isabella Rossellini bag produced in collaboration with the actress. Turnover at 30 September 2010 rose by 6.9% at comparable exchange rates over the same period in 2009 (+13.0% at current exchange rates), with all product lines making their contribution with the exception of watches which were affected by the above-mentioned factors (-1.4% at current exchange rates, -7.2% at 6

7 comparable exchange rates). Jewellery rose by 11.5% at comparable exchange rates (+18.1% at current exchange rates). Perfumes and cosmetics increased by 11.0% at current exchange rates and by 6.3% at comparable exchange rates. Accessories, which confirmed their excellent performance in the third quarter, rose by 36.1% at current exchange rates and by 26.3% at comparable exchange rates over the same period in REVENUES BY GEOGRAPHICAL SEGMENT TABLE 3 The following table provides an analysis of revenue for the third quarter of 2010 and the third quarter of 2009 by geographical segment on the basis of outlet market, the respective percentages of total revenue and the percentage change over the same periods of the previous years at current and comparable exchange rates. TABLE 4 The following table provides an analysis of revenue for the nine months ended 30 September 2010, the nine months ended 30 September 2009 and full year 2009 by geographical segment on the basis of outlet market, the respective percentages of total revenue and the percentage change over the same periods of the previous years at current and comparable exchange rates. 7

8 Performance in the third quarter 2010 varied by geographical segment. Europe rose by 11.1% (with Italy at +24.4%) while America fell by 7.4%. If the normal volatility of the performance of high jewellery is excluded, though, sales in America actually increased by 6.4%. Regarding Asia, Japan (-1.1%) continues to show signs of weakness, in line with the previous quarter, while the rest of Asia is consistently growing (+15.4%), once again with a significant contribution coming from the Chinese market (Greater China: +24.3%). The Middle East was stable. Despite a decrease (-4.8% at current exchange rates), the rest of the world, grouped together in Other, nevertheless showed an improvement over the second quarter of 2010; it should be stressed that the performance of this segment was affected by a penalising comparative basis. All geographical segments contributed to growth for the nine months ended 30 September 2010 with the exception of Japan (-2.9%) and the rest of the world (-19.3%), grouped together in Other, for the abovementioned reasons. Europe rose by 4.6% (with Italy at +10.1%). America and the rest of Asia rose by 25.7% and 19% respectively. OPERATING PROFIT TABLE 5 The income statement set out below differs from the official income statement included in the interim consolidated financial statements at 30 September 2010 for the following reasons: all items exclude restructuring costs and other income/expense relating to the restructuring process which are stated separately before operating profit; cost components of operating profit are provided in detail; and Other non-operating income (expense) is presented in a summarised manner as the net balance of financial income and expense of various natures reported separately in the notes to the financial statements, to which reference should be made. III QUARTER 30 SEPTEMBER (millions of Euro) REVENUE 267,9 233,2 711,1 629,5 NET CONTRIBUTION MARGIN 168,4 147,9 444,3 393,3 62,9% 63,4% 62,5% 62,5% Variable Selling Expenses (10,9) (9,9) (29,5) (28,4) Personnel Costs (45,1) (38,7) (134,6) (137,3) Other Income and Expenses (42,7) (37,6) (122,6) (120,2) Advertising and Promotion Expenses (23,6) (21,0) (66,1) (66,6) Depreciation, Amortization and Impairment (17,8) (15,5) (51,4) (47,1) TOTAL OPERATING EXPENSES (Excluding Restructuring & other Non Recurring costs ) (140,1) (122,7) (404,2) (399,7) Restructuring & other Non Recurring costs (1,5) (6,7) (1,0) (7,0) OPERATING PROFIT/(LOSS) 26,8 18,6 39,1 (13,4) R.O.S. 10,0% 8,0% 5,5% -2,1% Other non-operating incomes (expenses) (8,0) (9,7) (31,2) (21,1) Income/(Loss) before Taxation and Non-controlling interest 18,9 8,9 7,9 (34,5) Current and Deferred Taxation (2,2) (1,7) 1,1 1,2 Income/(Loss) before Non-controlling interest 16,7 7,1 9,0 (33,3) 6,2% 3,1% 1,3% -5,3% Non-controlling interests (0,0) (0,1) 0,0 (0,2) NET RESULT, GROUP SHARE 16,6 7,0 9,0 (33,5) 6,2% 3,0% 1,3% -5,3% 8

9 The Group managed to contain the effects of the significant increase in the price of raw materials, gold in particular, earning contribution margins for the quarter and the nine months ended 30 September 2010 that were essentially stable compared to the corresponding periods of the previous year. In value terms the figure rose from million euros in the third quarter of 2009 to million euros in the third quarter of A margin of million euros was accordingly achieved for the nine months ended 30 September 2010 compared with million euros in the corresponding period of the previous year (62.5% in 2010 against 62.5% in 2009). Total operating costs for the quarter, before costs relating to the restructuring process and excluding advertising and promotion expenses, rose by 14.5%, increasing from million euros in the third quarter of 2009 to million euros in the third quarter of It should be underlined that at comparable exchange rates the rise in these costs was actually more contained at 4.9% and that a comparison is being made with a quarter in 2009 that had already benefitted from the decisive action taken by the Group to limit and reduce these costs. The cumulative figure for operating costs at 30 September 2010 before costs relating to the restructuring process and excluding advertising and promotion expenses amounted to million euros compared to million euros in 2009 (+1.5% at current exchange rates, -3.0% at comparable exchange rates). Advertising and promotion expenses to support the BVLGARI brand closed at 23.6 million euros in the third quarter of 2010, equivalent to 8.8% of net revenue, essentially unchanged with respect to the 2009 level (9.0%). The cumulative figure at 30 September 2010 was 66.1 million euros, equivalent to 9.3% of net revenue and representing a decrease compared to 2009 (10.6%), which is exclusively due to the different planning in which these activities have been organised, with a higher concentration at the end of the year. The effect of costs relating to the restructuring process was immaterial at 30 September The amounts recognised relate to leaving incentives (0.2 million euros), to net balance, essentially nil, of income and expense regarding the closure of stores (key money) and for the remainder (0.8 million euros) to the strategic restructuring of the watch business which began last year and which mainly consists of the write-down of assets and inventories and a revision of. Details of this item are provided in the notes on operating costs. The continuing cost containment activities and the good performance of revenue led to an operating profit of 39.1 million euros for the nine months ended 30 September 2010, achieved through profits of 26.8 million euros earned in the third quarter which represent a rise of 44.5% over the same quarter of the previous year. NET RESULT The net result was also positive, with a profit of 16.6 million euros in the third quarter of 2010 taking the cumulative result for the nine months ended 30 September 2010 to a profit of 9.0 million euros. There were falls in currency hedge transaction costs and financial expense over the corresponding quarter in For the nine months ended 30 September 2010, the net effect of exchange rate differences had a negative effect of 19.8 million euros on the result for the period compared to 8.6 million euros for the corresponding period in Financial expense fell following the significant reduction in average debt compared to the corresponding period of the previous year. An analysis by operating segment of the key data included in the Group s results is reported in detail in note 20 Segment reporting. 9

10 SUMMARISED CONSOLIDATED CASH FLOW STATEMENT TABLE 6 The following table presents the consolidated cash flow statement in summary form, showing the operations that have generated or absorbed cash. A complete cash flow statement forms part of the consolidated financial statements. 30 September September 2009 Net cash (debt) at the beginning of the period ( ) ( ) Cash flows from operating activities Cash flows from changes in net working capital (96.020) (1.318) Cash flows from investing activities and other assets and liabilities (77.422) (51.235) Total changes in shareholders' equity (9.069) Net cash (debt) at the end of the period ( ) ( ) In addition to the contribution made by operating activities, the Group s financial position also benefited from a thorough policy of stock containment and a selective investment strategy. Excluding the significant exchange effect, cash flows used in investing activities relate mainly to the continued investments in tangible and intangible assets which in the period totalled 36.0 million euros, representing a decrease of 23% over the same period of the previous year. Investments mainly regarded the refurbishment and opening of directly managed stores and sales points of existing third parties. Regarding opening of new stores mention should be made of Shanghai (China), Taipei (Taiwan), Singapore and Hong Kong. The figure also includes the investments made by the Parent Company in computer hardware, those made by Prestige D Or S.A. to enlarge its factory and those made by Bulgari Time (Switzerland) S.A. in watch movements. The distribution of dividends of 15.1 million euros in May 2010 (30 million euros in the same period of the previous year) also had an effect on the Group s financial position. SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION TABLE 7 The table below presents the statement of financial position reclassified into a format highlighting the Group s invested capital and how this is funded by equity and debt. Compared to the official format used for the interim financial statements for the nine months ended 30 September 2010, in which a more traditional presentation is adopted by separating net assets, liabilities and equity, all the non-financial liability items in the format below are classified as a reduction in invested capital, while cash and cash equivalents are classified in coverage as a reduction in debt. 10

11 Net indebtedness amounted to million euros at 30 September 2010, compared to million euros at 31 December 2009 and million euros at 30 September Equity includes non-controlling interests of million euros at 30 September 2010 compared to million euros at 31 December 2009 and million euros at 30 September The careful management of stock has led to a slight reduction over 31 December 2009 (-1% at comparable exchange rates) and hence, with turnover rising, to an improvement in rotation. The gearing ratio between net indebtedness and equity, including non-controlling interests, is slightly higher than that at the end of 2009 but shows a considerable improvement if compared to the end of the same quarter of the previous year, and remains within levels of complete solidity. KEY EVENTS AT A GROUP LEVEL IN THE THIRD QUARTER OF 2010 On 27 August 2010 the merger of Bulgari Parfums Iberia S.L. into Bulgari Espana SA. was finalised; the accounting and fiscal effects of this merger have retroactive effect from 1 January On 31 August 2010 the merger of Bulgari Holding Europe B.V.into Bulgari International Corporation (BIC) N.V. was finalised; the accounting and fiscal effects of this merger have retroactive effect from 1 January On 15 September 2010 the shareholders of Bulgari Retail USA S.r.l. in extraordinary meeting resolved to wind up the company in advance and put it into liquidation, due to its main business ceased. Shareholders also appointed a liquidator at the meeting. No other key events took place during the third quarter of

12 MAIN RISKS AND UNCERTAINTIES TO WHICH THE BULGARI GROUP IS EXPOSED Reference should be made to the consolidated financial statements for the year ended 31 December 2009 for information about the main risks and uncertainties to which the Bulgari Group is exposed, given the essential stability of financial and market conditions in comparison with that date. RECONCILIATION BETWEEN THE EQUITY OF THE PARENT AND CONSOLIDATED EQUITY As required by Consob Communication no of 28 July 2006, the following table provides reconciliation between the profit (loss) for the period and the equity of the Parent Bulgari S.p.A. and the corresponding consolidated figures. Net equity Change in Profit (loss) Net equity 31 Dec net equity for the period 30 Sept 2010 Separate financial statements of Bulgari S.p.A (13.122) (10.389) Effect of consolidating investments: - difference between carrying amount and share of (1.680) equity Elimination of intragroup dividends Elimination of intragroup profit in inventories ( ) (5.128) ( ) Tax effect Group consolidated interest Non-controlling interests (12) Consolidated financial statements Intragroup relations and related party transactions Bulgari S.p.A., the Parent, has its head office in via Lungotevere Marzio 11, Rome and a share capital of 21.1 million euros. The company is the owner of the BVLGARI trademark and its main activities are as follows: acquisition of equity interests and granting of financing to Group companies; commercial exploitation of the BVLGARI name and trademark; technical, financial and administrative coordination of investees; invention, design and creation of articles of jewellery, gold jewellery, watches, perfumes, cosmetics, silk and leather accessories and items in porcelain, silver and crystal. Bulgari S.p.A. has commercial relations with its various subsidiaries that manufacture and distribute BVLGARI brand products; these are governed by specific agreements that relate to the licensing of the BVLGARI trademark. In addition, the Parent also has commercial relations with its subsidiaries, these too governed by specific agreements, regarding the provision of technical, legal, fiscal, administrative, commercial, financial and ICT services. 12

13 It also performs financial activities on behalf of Group companies consisting of corporate treasury management. Relations between Group companies concerning the sale of goods and the provision of services and financing transactions are arranged at market conditions that also take into account the features of the transactions and are carried out in the interests of the company and the Group. The Group procedure governing related party transactions was approved by means of a resolution adopted by the Board of Directors on 7 March No atypical or unusual transactions or significant non-recurring transactions, as defined by Consob in Communication DEM/ of 28 July 2007, took place during the period. As required by Consob Communication DEM/ of 28 July 2006, details of transactions of a commercial and financial nature carried out between Bulgari S.p.A. and the other Group companies and their proportions are provided in the notes to the consolidated financial statements. Research and development The Bulgari Group carries out research and development activities to the design, creation and development of new products for all of its product lines, namely jewellery, watches, accessories, perfumes and cosmetics. Research and development expenditure recognised in profit or loss during the period amounted to 1,926 thousand euros. Other information Bulgari S.p.A. held no treasury shares at 30 September The information required to be disclosed about the stock option plans reserved for specific employee categories and the chief executive officer in order to satisfy the requirements of Consob Recommendation no of 15 February 2000 is provided in a specific note to which reference should be made. SUBSEQUENT EVENTS On 11 November 2010 the Board of Directors of Bulgari S.p.A. approved the procedure for related party transactions pursuant to Consob Regulation no.17221/2010. The new procedure which will come into effect on 1 January 2011 will replace the existing code of conduct for related party transactions which Bulgari S.p.A. had introduced by means of a resolution adopted by the Board of Directors on 7 March 2007 pursuant to the Corporate Government Code. This document is currently being posted on the Company s website in the section dedicated to Corporate Governance. No other significant subsequent events have occurred. 13

14 BUSINESS OUTLOOK The results achieved by the Group in the third quarter - in particular the excellent performance of jewellery and accessories and the considerable increase in profitability - are in line with the Group s expectations and plans. The picture clearly emerges of a continuously improving business in terms of product and image and its control of investments, debt, stock and costs. A union, therefore, of creativity and discipline, which will continue to have positive effects and cause the decisional and operative approach adopted by the Group to stand out in future years. Bulgari S.p.A. Chief Executive Officer also on behalf of the Board of Directors Francesco Trapani 14

15 B V L G A R I Bulgari Group Interim consolidated financial statements 15

16 B V L G A R I Bulgari Group Consolidated financial statements as at 30 September

17 Bulgari Group Consolidated income statement for the period ended 30 September 2010 (Thousands of euros) Note III Quarter 2010 III Quarter 2009 Change % September 2010 September 2009 Change % Of which Of which related parties related parties Total net revenue ,9% ,0% Cost of sales (99.461) (86.199) 15,4% ( ) ( ) 12,9% - of which income (costs) relating to the restructuring process (22) (967) (885) (967) Total contribution margin ,6% ,0% 62,9% 63,0% 62,4% 62,3% Net operating expenses 3 ( ) ( ) 10,3% ( ) (102) ( ) (25) -0,4% - of which restructuring costs 167 (4.103) (4.928) - of which income (costs) relating to the restructuring process (1.660) (1.697) (2.098) (1.145) Operating profit (loss) ,5% (13.421) -391,6% 10,0% 8,0% 5,5% -2,1% - Other financial income (expense) (4.128) (5.370) (11.372) (12.427) - Foreign exchange gains (losses) (3.827) (4.346) (19.857) (8.666) Total financial income (expense) 4 (7.956) (9.716) -18,1% (31.230) (21.093) 48,1% Profit (loss) before taxes ,3% (34.514) -122,9% Current and deferred taxes 5 (2.202) (1.709) 28,9% ,2% Profit (loss) for the period ,5% (33.282) -126,9% of which: Profit (loss) for the period attributable to non-controlling interests ,2% (12) ,0% Profit (loss) for the period attributable to owners of the Parent ,8% (33.480) -126,8% 6,2% 3,0% 1,3% -5,3% Basic earnings per share (in euros) 13 0,06 0,02 0,03-0,11 Average number of shares on which the calculation is based Diluted earnings per share (in euros) 13 0,05 0,02 0,03-0,11 Average number of shares on which the calculation is based

18 17

19 Bulgari Group Consolidated statement of financial position at 30 September 2010 (Thousands of euros) ASSETS Note 30 September December 2009 Of which related Of which related parties parties Property, plant and equipment Goodwill Other intangible assets Intangible assets Investments in associated companies Investments in other companies Other non-current financial assets Investments and other non-current financial assets Deferred tax assets Other non-current assets Non-current financial receivables NON-CURRENT ASSETS NON-CURRENT ASSETS HELD FOR SALE Raw materials Work in progress and semi-finished goods Finished goods and packaging Total inventories Trade receivables Other tax receivables Other current assets Total other current assets Current financial assets Cash and cash equivalents CURRENT ASSETS TOTAL ASSETS LIABILITIES AND EQUITY Note 30 September December 2009 Of which related parties Of which related parties - Share capital Reserves Retained earnings Profit (loss) for the period (47.095) Equity attributable to the owners of the parent Equity attributable to non-controlling interests TOTAL EQUITY Employee benefits Provisions for risks and charges Deferred tax liabilities Other non-current liabilities Non-current bank loans and borrowings Non-current financial payables NON-CURRENT LIABILITIES NON-CURRENT LIABILITIES HELD FOR SALE - - Trade payables Advances Current tax payables Other current liabilities (39) Total other current liabilities Current bank loans and borrowings Current financial payables CURRENT LIABILITIES TOTAL LIABILITIES AND EQUITY

20 Bulgari Group Consolidated statement of cash flows (Thousands of euros) 19

21 Consolidated statement of changes in equity for the nine months ended 30 September 2010 Nota Share Share Legal Translation Other Stock Cash flow Retained Profit (loss) Group Minority Total capital premium reserve reserve reserves option hedge earnings for the equity interest shareholders' reserve reserve period equity equity 31 December (47.095) Fluctuations in exchange rates Fair value measurement of derivatives Total gains and losses recognised directly in equity Profit (loss) for the period (12) Total gains and losses (12) Distribution of dividends (15.065) - (15.065) - (15.065) Allocation of 2009 profit (47.095) Purchase and sale of treasury stock Capital increase due to exercise of stock options Stock Options Other changes (410) - (410) - (410) 30 September

22 Consolidated statement of changes in equity for the nine months ended 30 September 2009 Note Share Share Legal Translation Other Stock Cash flow Retained Profit (loss) Group Minority Total capital premium reserve reserve reserves option hedge earnings for the equity interest shareholders' reserve reserve reserve period equity equity 31 December (16.782) Fluctuations in exchange rates (12.166) (12.166) (49) (12.215) Fair value measurement of derivatives Capital Transactions (323) (323) (323) Total gains and losses recognised directly in equity (12.166) (323) (49) Profit (loss) for the period (33.480) (33.480) 198 (33.282) Total gains and losses (33.480) (33.480) 198 (33.282) Allocation of 2008 profit (82.865) Distribution of dividends (30.063) - (30.063) - (30.063) Capital Transactions Capital increase due to exercise of stock options Stock options Other changes September (69) (33.480)

23 B V L G A R I Bulgari Group Notes to the interim management statements as at 30 September 2010 Bulgari Group 22

24 Interim consolidated financial statements as at 30 September 2010 ACCOUNTING PRINCIPLES AND POLICIES Bulgari S.p.A. (referred to in the following as the Parent ) is a company having its registered office in Italy and domicile at Via Lungotevere Marzio 11, Rome. The interim consolidated financial statements as at 30 September 2010 include the results of the Parent and its subsidiaries and joint ventures (together referred to as the Group ). The financial statements used in preparing these consolidated financial statements were those drawn up by the directors of the individual companies. These interim management statements, which are also available on the website ir.bulgari.com, were authorised for publication by the Board of Directors on 29 July (a) Statement of compliance The Bulgari Group prepares its annual consolidated financial statements in accordance with international accounting standards (International Accounting Standards - IAS and International Financial Reporting Standards - IFRS) and the relative interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC) endorsed by the European Commission (hereafter, collectively, also IFRS ) and with the provisions implementing article 9 of Legislative Decree no. 38/2005. These interim management statements have been prepared on the basis of IAS 34 Interim Financial Reporting applying the same accounting principles used to prepare the consolidated financial statements for the year ended 31 December 2009, except for those specified in the section Accounting standards, amendments and interpretations effective from 1 January 2010, which did not lead to any accounting consequences for the Group. Certain measurement processes, in particular those of a more complex nature such as the calculation of impairment losses on non-current assets, are generally only carried out fully during the preparation of the annual financial statements when all the required information is available, unless there are indications that assets may be impaired which require immediate evaluation. Similarly, actuarial valuations performed in connection with calculations for employee defined benefit plans are carried out during the preparation of the annual financial statements. As a consequence, therefore, the interim management statements, which have not been audited, do not necessarily include all the disclosures required to be made in the annual financial statements and should accordingly be read in conjunction with the consolidated financial statements for the year ended 31 December (b) Accounting standards, amendments and interpretations effective from 1 January 2010, which did not lead to any accounting consequences for the Group - IAS 27 (2008) Consolidated and Separate Financial Statements - IFRS 3 (Revised 2008) Business Combinations - Amendment to IFRS 5 (as part of April 2009 improvements) Non-current Assets Held for Sale and Discontinued Operations - Amendment to IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures following the amendments made to IAS 27 - Improvements to IFRSs (2009) - Amendment to IFRS 2 Group Cash-settled Share-based Payment Transactions - IFRIC 17 Distributions of Non-cash Assets to Owners - IFRIC 18 Transfers of Assets from Customers - Amendment to IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items. 23

25 c) Accounting standards, amendments and interpretations not yet applicable and not early adopted by the Group On 6 May 2010 the IASB issued a series of amendments to IFRSs ( improvements ) that are effective from 1 January 2011; those leading to a change in the presentation, recognition or measurement of financial statement items are described below: IFRS 3 (2008) Business Combinations: this amendment clarifies that the components of non-controlling interests that do not entitle their holders to a proportionate share of the subsidiary s net assets must be measured at fair value unless another measurement basis is required by IFRSs. Thus for example in the case of a business combination an employee stock option plan must be measured in accordance with IFRS 2 and the equity portion of a convertible bond must be measured in accordance with IAS 32. In addition, the Board goes into further detail concerning the question of share-based payment plans that are replaced as part of a business combination, adding specific guidance to clarify the accounting treatment. IFRS 7 Financial Instruments: Disclosures: this amendment emphasises the interaction between qualitative and quantitative disclosures concerning the nature and extent of risks arising from financial instruments. This is intended to enable users of financial statements to link related disclosures and hence form a related picture of the nature and extent of risks arising from financial instruments. In addition, the requirement to provide disclosures for financial assets that would otherwise be past due or impaired whose terms have been renegotiated and those relating to the fair value of collateral have been eliminated. IAS 1 Presentation of Financial Instruments: this amendment requires a reconciliation of changes in each component of equity to be provided in the statement of changes in equity or in the notes to the financial statements. IAS 34 Interim Financial Reporting: through the use of examples clarifications are added concerning the additional disclosures that must be provided in interim financial reporting. The European Union had not yet completed its endorsement process for the use of the above improvements at the date of this interim report. On 26 November 2009 the IFRIC issued interpretation IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments that provides guidance on how to account for the extinguishment of a financial liability by the issue of equity instruments. The interpretation clarifies that when an entity renegotiates the settlement terms of a financial liability with its creditor and the creditor agrees to accept the entity s shares to settle the financial liability, then the entity s equity instruments issued to a creditor are part of the consideration paid to extinguish the financial liability and must be measured at their fair value; the difference between the carrying amount of the financial liability extinguished and the initial measurement of the equity instruments issued must be included in profit or loss for the period. The interpretation, endorsed by the European Union in July 2010, is applicable for annual periods beginning on or after 1 July On 12 November 2009 the IASB issued IFRS 9 Financial Instruments regarding the classification and measurement of financial assets; the standard is applicable from 1 January This represents the first part of a project to replace IAS 39 in a series of phases. The new standard uses a single approach based on how an entity manages its financial instruments and the contractual cash flow characteristics of the financial assets to determine how a financial asset is measured, replacing the many different rules in IAS 39. In addition, IFRS 9 also requires a single impairment method to be used for financial assets. The 24

26 European Union had not yet completed its endorsement process for the use of this new standard at the date of this interim report. On 4 November 2009 the IASB issued a revised version of IAS 24 Related Party Disclosures that simplifies the disclosure requirements for transactions with related parties that are government controlled and clarifies the definition of a related party. The revised standard, endorsed by the European Union in July 2010, is applicable from 1 January In October 2009 the IASB issued an amendment to IAS 32 Financial Instruments: Presentation which specifies the accounting for rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. Previously such rights issues were accounted for as derivative liabilities. The amendment now requires that, provided certain conditions are met, such rights issues should be classified as equity regardless of the currency in which the exercise price is denominated. This amendment, endorsed by the European Union in December 2009, is effective for annual periods beginning on or after 1 February (e) Translation of foreign currency financial statements The rates of exchange between the euro and the currencies of those countries which have not joined the monetary union are as follows: 30/09/ /12/ /09/2009 Currency Average Rate Closing Rate Average Rate Closing Rate Average Rate Closing Rate USD YEN CHF GBP SGD HKD AUD MYR TWD KRW 1, , , , , , CNY THB MOP PAB QAR KWD Acquisition/formation and disposal of companies 25

27 The process to wind up Bulgari Portugal Acessorios de Luxo Lda. was completed on 15 June Revenue Thousands of euros Q Q /09/ /09/2009 Net sales 264, , , ,629 Royalties 2,672 2,205 7,863 7,100 Other revenue ,936 1, , , , ,544 Reference should be made to note 20 Segment information and the report of the directors on the Group s operations for an analysis of revenue by product type and geographical segment. 3. Net operating expenses Thousands of euros Note Q Q /09/ /09/2009 Personnel expenses 18 45,107 38, , ,336 Variable selling expenses 10,894 9,900 29,511 28,420 Other selling, general and 62,144 54, , ,457 administrative expenses Advertising and promotion 23,580 23,005 66,102 73,116 expenses Restructuring costs (167) 4,017 (1,995) 4, , , , ,257 Personnel expense relates to both the selling and administrative functions. Restructuring costs consist mainly of an estimate of the costs relating to individual or collective agreements for the mutually agreed early termination of employment for organisational purposes and an estimate of the costs arising from non-cancellable leases following the closure of certain stores. Variable selling expenses 26

28 Thousands of euros Note Q Q /09/ /09/2009 Credit card commissions 1,451 1,227 3,792 3,366 Intermediaries fees 1,098 2,004 3,024 5,329 Transport expenses 3,682 2,509 9,785 8,086 Sales commissions 18 2,026 1,759 5,609 4,870 Other 2,636 2,401 7,301 6,770 10,894 9,900 29,511 28,420 Other selling, general and administrative expenses Thousands of euros Q Q /09/ /09/2009 Rents 24,501 21,059 69,366 62,838 General expenses, net 19,765 16,476 54,663 56,584 Depreciation and amortisation 17,878 17,301 52,031 49,035 62,144 54, , , Financial income (expense) Interest income Thousands of euros Q Q /09/ /09/2009 Bank interest income (29) (21) Interest income from the public administration Premium income on hedging activities Other 1, , , ,433 2,461 Interest expense 27

29 Thousands of euros Q Q /09/ /09/2009 Bank interest expense (65) (50) (114) (119) Bond interest expense. (2,741) (2,485) (8,166) (2,485) Loan interest expense (1,627) (1,919) (3,086) (6,155) Premium expense on hedging (354) (758) (588) (4,764) activities Other (42) (71) (48) (100) Other financial income (expense) (4,829) (5,283) (12,003) (13,623) Thousands of euros Note Q Q /09/ /09/2009 Financial discounts and allowance income Financial discounts and (378) (124) (708) (250) allowance expense Bank charges and (177) (348) (655) (771) commissions Actuarial losses on postemployment (131) (127) (360) (381) benefits Other (37) (18) (121) (109) (696) (560) (1,802) (1,265) 5. Taxes Thousands of euros Note Q Q /09/ /09/2009 Current taxes 4,519 3,703 11,545 9,140 Deferred taxes 9 (1,721) (2,314) (10,560) (10,738) Prior year taxes (596) 320 (2,042) 366 2,202 1,709 (1,057) (1,232) 6. Property, plant and equipment 28

30 Property, plant and equipment and changes for the period are as follows: Description Cost at 31 December 2009 Opening accumulated depreciation Net book value at 31 Dec Purchases Depn. charge Other Cost at 30 changes, September net 2010 Closing acc. depn. Net book value at 30 Sept Land and buildings 31,565 (11,854) 19,711 1,218 (2,038) (5,957) 20,839 (7,905) 12,934 Plant and machinery 49,194 (29,641) 19,553 2,188 (4,061) (2,611) 46,683 (31,615) 15,068 Equipment 24,264 (17,847) 6,417 1,501 (1,700) ,346 (21,275) 7,071 Furniture, office equipment and fittings 165,076 (111,135) 53,941 12,815 (16,798) (13,210) 150,506 (113,758) 36,748 Motor vehicles 178 (178) - 39 (6) (82) 34 Leasehold improvements 177,030 (96,489) 80,541 5,516 (14,702) 35, ,444 (135,400) 107,045 Bulgari Museum 13,955-13,955 1, ,631-15,631 Construction in progress and advance payments 4,208-4,208 1,536 - (3,894) 1,850-1,850 TOTAL 465,470 (267,144) 198,326 26,256 (39,304) 11, ,416 (310,035) 196,381 Investments in Furniture, office equipment and fittings relate to investments in computer hardware made by Bulgari S.p.A., the investments of Bulgari Global Operations S.A in window displays for use by the third party distribution network for the presentation of Bvlgari products and the expenditure occurred for refurbishing existing stores or opening new stores, including those in Hong Kong (Lee Garden and Chater House), Taiwan (Taipei) and China (Shanghai Plaza and Shanghai IFC). The increase in Leasehold improvements relates to the investments made in certain shops by Bulgari Japan Ltd and Bulgari Corporation of America Inc. The increase in Construction in progress and advance payments relates principally to expenditure incurred for the refurbishment of existing stores in Milan, Madrid and Naples. No information had been received from Group companies at 30 September 2010 as to any idle assets or fully depreciated property, plant and equipment still in use and having a significant value. No information had been received from Group companies at 30 September 2010 as to any charges on property, plant and equipment securing liabilities. 7. Intangible assets 29

31 Thousands of euros 30/09/ /12/2009 Goodwill 52,665 49,602 Other intangible assets 82,767 83, , ,427 The change in the balance for Goodwill is essentially due to fluctuations in the exchange rate concerning the goodwill generated by acquisitions of companies having a functional currency other than the euro. The composition of and changes in Other intangible fixed assets are as follows: Description Net book Cost at 31 Opening value at 31 December accumulated December 2009 amortisation 2009 Increases Amortn. charge Other changes, net Cost at 30 September 2010 Closing acc. amortn. Net book value at 30 September 2010 Development expenditure 16,680 (12,571) 4,109 1,273 (1,619) (397) 19,049 (15,682) 3,367 Industrial patents and intellectual property rights 104,398 (65,310) 39,088 4,280 (9,633) 4, ,826 (76,746) 38,079 Concessions, trade marks and licences 359 (160) (81) (258) 224 Assets under development 13,868-13,868 3,218 - (2,105) 14,980-14,980 Deferred charges 34,764 (8,203) 26,561 1,153 (1,147) (449) 35,344 (9,226) 26,118 TOTAL 170,069 (86,244) 83,825 10,009 (12,479) 1, ,680 (101,912) 82,767 The increase in Industrial patents and intellectual property rights and Assets under development relates to expenditure for the purchase of software incurred by Bulgari S.p.A. amounting to 3,830 thousand euros and 3,022 thousand euros respectively. 8. Investments and other non-current financial assets Thousands of euros 30/09/ /12/2009 Investments in other companies 15,445 13,421 Other non-current financial assets 37,285 35,219 52,731 48,640 The increase in Investments in other companies refers to capital payments made to Opera Participations 2 S.c.a. which are to be used to finance the purchase of companies identified by the fund manager. Other non-current financial assets 30

32 Thousands of euros 30/09/ /12/2009 Guarantee deposits 37,285 35,213 Other ,285 35,219 The principal balance included in guarantee deposits is an amount of 30,722 thousand euros (28,367 thousand euros at 31 December 2009) paid by the subsidiary Bulgari Japan Ltd. as a deposit for the rental of the stores and premises in Tokyo. The increase is mainly due to the strengthening of the yen against the euro. 9. Other non-current assets Thousands of euros 30/09/ /12/2009 Non-current financial receivables Other non-current assets 17,018 16,768 Deferred tax assets 47,176 35,803 64,628 52,989 Non-current financial receivables Non-current financial receivables are all due from related parties and include an amount of 350 thousand euros representing the portion not eliminated on consolidation (of 35%) of long-term subordinated loans granted to Bulgari Hotels and Resorts B.V. and an amount of 83 thousand euros relating to long-term subordinated loans made to Bulgari Hotels & Resorts Milano S.r.l.; both companies are consolidated using the proportionate method. These loans are repayable in April 2027 and interest is charged on a quarterly basis at a rate of EURIBOR +3%. Other non-current assets Thousands of euros 30/09/ /12/2009 Other non-current assets: Other non-current tax receivables 16,885 16,664 Other ,018 16,768 Deferred taxation 31

33 Details of deferred taxes are set out in the following table, with a description of the items which generate the main temporary differences: (Thousands of euros) At 31/12/2009 Increases Decreases Other changes At 30/09/2010 Elimination of intragroup profits 14,239 1, ,996 Fixed assets 7,285 5,121 (9) ,590 Other accruals 14,279 4,428 (2,049) 1,932 18,590 Deferred tax assets 35,803 10,632 (2,058) 2,798 47,176 Accelerated depreciation/amortisation (1,118) - 80 (18) (1,056) Undistributed profits (1,592) (967) Allowance for inventory writedown (5,638) - 1, (4,336) Employee benefit obligations (345) - - (2) (347) Allowance for bad debts impairment (185) (137) Other accruals (429) - 6 (964) (1,387) Deferred tax liabilities (9,307) - 1,881 (804) (8,230) Total deferred taxes 26,496 10,632 (177) 1,994 38,945 The increase in Other accruals arises from the recognition of deferred tax assets relating to the tax losses of Bulgari Japan and the Parent, together with its Italian subsidiaries which take part in the tax consolidation scheme. Deferred tax assets are recognised for tax losses on the basis of the earnings prospects included in business plans which show that it is probable that taxable profit will be available in future years to enable all the deferred tax assets that have been recognised to be recovered. The column Other changes consists primarily of the exchange rate effect of translating the financial statements of companies whose functional currency is different from the euro. 10. Other current assets Thousands of euros 30/09/ /12/2009 Current financial assets 12,911 2,726 Other current assets 68,878 57,190 Current financial assets include the effect of hedging currencies and gold prices. 81,789 59,916 Other current assets include receivables of 44,264 thousand euros (30,938 thousand euros at 31 December 2009) due from the public administration. 11. Cash and cash equivalents 32

34 Cash and cash equivalents, for which there is no restriction on use, are made up as follows: Thousands of euros 30/09/ /12/2009 Bank deposits 45,992 29,532 Cash and cheques 607 1,046 Overdrafts (3,118) (1,345) 43,481 29,233 Bank deposits consist of balances on current accounts at prime national and international banks where available funds are held in different currencies. The carrying amount of Cash and cash equivalents equals their fair value at the reporting date 12. Equity Share capital amounted to 21,123 thousand euros at 30 September 2010 and consisted of 301,763,560 shares each of par value 0.07 euros, all fully subscribed and paid up. A total of 454,500 new shares were issued during the period following the exercising of stock option rights under plans reserved for certain employees, with a resulting increase of 32 thousand euros in share capital. A dividend of 0.05 euros per share was distributed in May 2010 for a total of 15,065 thousand euros, as resolved by shareholders in general meeting on 22 April Earnings per share Basic earnings per share The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders of 8,971 thousand euros (a loss of 33,480 thousand euros for the period ended 30 September 2009) and a weighted average number of 301,536 thousand shares outstanding during the period, calculated as follow: Thousands of shares 30/09/ /09/2009 Ordinary shares at 1 January 301, ,630 Treasury shares at 1 January - - Shares sold in the period - - New shares issued Ordinary shares at 30 September excluding treasury shares 301, ,930 Weighted average of ordinary shares 301, ,780 Diluted earnings per share 33