World Duty Free S.p.A.

Transcription

1 World Duty Free S.p.A. Annual Financial Report 2013

2 WDF S.p.A. Financial Annual Report 2013 Boards and Officers Board of Directors Chairman Gianmario Tondato da Ruos 1 CEO José Maria Palencia Saucedo 2,3,E Directors Gilberto Benetton 2 Alberto De Vecchi 2 Gianni Mion 1 Paolo Roverato 1,5,7 Carla Cico 2,5,8 Laura Cioli 2,4,7,9,L Lynda Christine Tyler-Cagni 2,6,9 Secretary Marcello Marzo 12 Board of Statutory Auditors Chairman Marco Giuseppe Maria Rigotti 10 Standing auditors Massimo Catullo 10 Patrizia Paleologo Oriundi 10 Alternate auditors Antonella Campus Cinzia Cravagna Independent auditors KPMG S.p.A Appointed upon the incorporation of the company on March 27, 2013 and remain in office until the shareholders meeting approving the financial statements for the year ending December 31, Appointed by shareholders meeting held on July 18, 2013 and assumed office starting September 16,2013 and until the shareholders meeting approving the financial statements for the year ending December 31, Appointed at the Board of Directors meeting of September 20, Independent non-executive director, chairman of the Internal Control Committee and Corporate Governance 5 Independent non-executive director, member of the Internal Control Committee and Corporate Governance 6 Independent non-executive director, chairman of the Human Resources Committee 7 Independent non-executive director, member of the Human Resources Committee 8 Independent non-executive director, chairman of the Related Parties Operations Committee 9 Independent non-executive director, member of the Related Parties Operations Committee 10 Certified auditor 11 Appointed by shareholders meeting held on July 18, 2013 for the financial years from 2013 to Appointed by Board of Directors held on February 13, 2014 until June 30, 2014 E Executive Director L Lead Independent Director Page 2

3 WDF S.p.A. Financial Annual Report 2013 Contents Part I Director s Report 1. Directors Report 1.1. The World Duty Free Group 1.2. Group performance General business context Highlights Income statement results Financial position 1.3. Business segments 1.4. Group Performance 1.5. Performance in the fourth quarter of Financial review World Duty Free S.p.A Income Statement Results Reclassified statement of financial position 1.7. Outlook 1.8. Other information Corporate Social Responsibility Main risks and uncertainties faced by the World Duty Free Group Corporate Governance Management and coordination Related party transactions Statement pursuant to art of the Regulations for Markets organized and managed by Borsa Italiana S.p.A Research and development Treasury shares Significant non-recurring events and transactions Atypical or unusual transactions Reconciliation between parent and consolidated equity Shareholders Meeting 1.9. Proposal for approval Part II Consolidated Financial Statements 1. Consolidated Financial Statements 1.1. Statement of Financial Position 1.2. Income Statement 1.3. Statement of comprehensive income 1.4. Statement of change in equity 1.5. Statement of cash flow 2. Notes to the consolidated financial statements Annexes List of consolidated companies Certification by the CEO and financial reporting officer Independent Auditors Report Page 3

4 WDF S.p.A. Annual Financial Report 2013 Part III Separate Financial Statements 1. Separate Financial Statements 1.1. Statement of Financial Position 1.2. Income Statement 1.3. Statement of comprehensive income 1.4. Statement of change in equity 1.5. Statement of cash flow 2. Notes to the Separate financial statements Annexes List of consolidated companies Certification by the CEO and financial reporting officer Independent Auditors Report Report from the Board of Statutory Auditors Page 4

5 WDF S.p.A. Part I -Director s Report as of December 31, 2013 PART I DIRECTOR S REPORT 1. DIRECTOR S REPORT 1.1 The World Duty Free Group Operations World Duty Free S.p.A. (WDF S.p.A.) was incorporated on March 27, 2013 and was listed on Milan Stock Exchange on October 1, 2013 (see paragraph 1.2.2). WDF S.p.A. is the parent company of World Duty Free Group ( WDFG or the Group ), one of the leading operators worldwide in the airport travel retail sector. As of December 31, 2013, the Group was present in 21 countries with a workforce of 8,500, it manages 519 stores. The Group operates duty free and duty paid stores, mainly located in airports, through a partnership concession model. Under the duty free regime, goods sold are exempt from import taxes, customs and other taxes while under the duty paid regime, import taxes and other taxes are applied to the goods sold. As regarding the operations in the European Union, in accordance with Directive 91/689/CEE of December 16, 1991 the duty paid regime applies if the passenger s final destination is domestic of a European Union member state, while the duty free regime applies if the passenger s final destination is outside of the European Union. The Group s largest market is Europe, with a solid presence in the United Kingdom and Spain; in December 2012, in this latter country, the Group was awarded a seven-year extension of its existing presence in the Spanish Airports; the corresponding new contract was signed in February The Group is also active in the Americas, Asia and Middle East. Particularly, 480 stores are located in 98 airport around the world and in some selected non-airport locations and 39 stores located in cultural institutions. Among the stores the WDFG manages 6 stores in Saudi Arabia and India that are run through local partners with whom WDFG subscribed, respectively, joint venture and operating agreements. The Group provides a large range of products, mainly comprised in the following categories: beauty, drinks, tobacco and food. The wide variety of products are tailored according to the store location, in line with the customers needs and expectations. Each store is designed on the basis of the flight destinations served in the airport where the store is located and to the specific profile of passengers in transit. The main location by geographical area and the main countries where WDFG operates are set out below: Number of locations Travel Retail & Duty-Free Channel United Kingdom Rest of Europe Americas Asia and Middle East Total Airports Cultural institutions Total

6 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Countries Brazil India Peru Cape Verde Italy Saudi Arabia Canada Jamaica Spain Chile Jordan Sri Lanka Curaçao Kuwait Turkey Germany Mexico United Kingdom Finland Panama USA Our Airport Stores WDFG understands Travel Retail as a partnership business where the three key actors, Airports, Brands and Retailer must work together to deliver the best possible commercial offer and extract the best value of it. Under this strategy, with the passengers flow in mind, WDFG models stores in a standard or walkthrough multi-category store, in a single category store or in a last minute store depending on the size of the airport, the space available in the relevant commercial or the passengers flow. Some of the Group s airport stores are specially designed according to the airport s location, giving the travellers a sense of place. General travel retail stores These are the Group s general airport stores, some of them are easily identifiable from the fascia as stores of the Group and accompanied by the name of the relevant airport, where a wide range of traditional duty-free products are offered. The Group s General travel retail stores are designed to optimise the space granted under the concession but are also adapted to the natural flow of travellers. The Group is the pioneer of the walkthrough store, which are stores located in the passenger flow from security to the lounge areas, with the result that passengers must walk through the store to get to their departure gate. This concept has consistently delivered an uplift in sales wherever it has been implemented. Additionally, the Group s General travel retail stores have clean spaces, trying to reduce barriers that might impede the travellers flow and access to the stores. Each of the Group s General travel retail stores are divided into different clearly identifiable product zones, by product and by brand, depending on the type of travellers and the purpose of their journey. In addition, in line with the Group s brand partners strategy, some of the Group General travel retail stores have special reserved and personalised areas for some of the Group s brand partners and some feature enhanced premium areas (such as beauty rooms ). Some Group s airport stores feature fixtures and furniture reflecting the relevant region and are especially designed to recreate, in a modern and fashionable manner and by using innovative architectonic concepts, the environment of the airport s location, so that travellers experience an extension of their destination ( sense of place ). Specialist and Theme Stores The Group has also established several Specialist and Theme Stores for specific categories of products or products within the different categories. These Specialist and Theme Stores are specially designed for the type of product offered and have highly trained staff who are specialists in the products offered. Page 6

7 Souvenir Stores WDF S.p.A. Part I -Director s Report as of December 31, 2013 The Group s souvenir stores offer a wide range of typical and original products: books, decorative items, food, reproductions of works of art, t-shirts, gifts, key rings, writing materials and accessories, and many more. Luxury Boutiques & Stores These stores are designed to create a glamour, sophistication and luxury environment and offer a carefully assortment of haute couture jewellery, watches, leather and clothing products. The availability of this kind of shops help reinforcing the commercial customer proposition and help delivering a strongest sense of luxury to the whole of the different product categories. The luxury segment is one of the fastest growing categories in travel retail, with strong appeal amongst some of key spending nationalities such us China, Russia and Brazil. Convenience Stores These are stores for essential reading and last-minute food and travel purchases. The Group operates from a range of news stores that cater for international, regional and local readerships. These stores are currently located only in the airports included in the US Retail Division. Other sales channels Group also provides some other additional types of services in channels different from airports, mainly: (i) (ii) wholesale and logistic services to ship chandlers, embassies and diplomatic corps, ferry and cruise liner shops, on-board airline sales, other airport shops, sea-port shops, border shops and military bases. The Group provides its wholesale clients with similar products to those offered to travellers in any of the Group s stores. commercial and management services at cultural institutions and sites of historical heritage (such as cathedrals, museums or palaces) in Panama, Spain, Turkey (though a management agreement) and the United States of America. These services include ticket offices, information services, guided tours, provision of audio-guides and publishing coordination (of guides, art books, exhibition catalogues, etc.) and the products offered in these stores are mainly cultural merchandising. Page 7

8 Strategy WDF S.p.A. Part I -Director s Report as of December 31, 2013 WDFG s strategy aims to strengthen the Group s position in the airport travel retail sector, thanks to the improvement of performance of existing concessions, the extension and/or renewal of these and entering into new concessions in same Countries and into new Countries characterized by high rates of growth in passengers traffic. To pursue its objectives the WDFG adapts the commercial offer to the passengers evolving needs by constantly refining the range of products offered and their corresponding marketing, increases accuracy in designing the sale spaces and the efficient management of the supply chain, strengthen the commercial capacity through the increased use of top-performing retail models and reinforces the collaboration with licensors and brand partners. Although the global travel retail sector continues to be highly fragmented, WDFG deems that in the next years, thanks to a series of agreements, acquisitions and integrations, global leaders of the sector may be able to emerge in order to generate potential synergies in terms of costs and investments and to have higher chances of being awarded new concessions owning both the necessary competences in the sector and adequate financial capacity and to enlarge geographical presence, mainly in Countries characterized by higher growth rates. Within this scenario, the Group is ready to assess potential opportunities that may allow the WDFG to strengthen its global presence always maintaining a well-balanced financial structure. Any opportunities for growth which create shareholder value will be carefully assessed in terms of both business strategy whether they complement the areas and channels served and financial sustainability, and will be pursued in a way that keeps the financial structure consistent with the operations performed and the needs of the WDFG and its stakeholders. Page 8

9 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Simplified Group structure 1 The main group companies in terms of revenue are reported below: 1 Where not otherwise specified, all companies are wholly owned. See the Annex to the notes to the consolidated and separate financial statements for a complete list of equity investments. Page 9

10 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Organizational structure The Group is structured in business units, which manage operational levers according to objectives and guidelines defined by the corporate executives of WDF S.p.A.. Page 10

11 WDF S.p.A. Part I -Director s Report as of December 31, Group Performance General business context The travel retail market has been defined as the sale of goods or the provision of services mainly to travelers in different sale channels connected to transport, including airports, sea ports, railway stations, border areas, airplanes, ferries ad cruise boats. WDFG main activities are concentrated in the airport channel that is a market with total revenues in 2013 amounting to USD 33 billion characterized by a constant growth (CAGR of 10.2% from 2009 to ) and that has shown increases in all the main geographical areas of the world irrespective of the context of the corresponding domestic economies. The airport travel retail sector is characterized by customers with limited time to be spent in the airport. This, however, allows the airport travel retailer to gather a much higher knowledge than a traditional retailer of the target customer s features (destination, and therefore, indirectly nationality and purchase preferences). For these customers shopping at the airport becomes part of the travel experience and the airport travel retailer targets a cosmopolitan, non-regular clientele, with a high socio-economic profile and with high propensity to buy. In recent years, airport managers have increasingly focused on the commercial potential of their facilities, showing a more sophisticated approach to the airport travel retail with results of new commercial offer models, based mainly on the general increase of the commercial spaces dedicated to travel retail. More specifically, the European airport travel retail sector, where the Group is significantly present, represents the second largest market in size, after Pacific Asia. In 2013, the European market of travel retail amounted to USD 11.1 billion (around 32.3% of the total market), with a 2.4% increase compared to The airport traffic The sales volumes of the air transport sector shows a strong correlation with the volume of passengers traffic and, consequently, the travel retail market is highly sensitive to geopolitical and economic developments as well as to long-term demographic changes. Passenger traffic 3,4 kept showing further growth of 3.9% in 2013, in line with the increase recorded in 2012 and was driven especially by international traffic (+5.2%), with all the areas showing positive rates (except Africa) and Asia Pacific and Middle East showed the higher ones. Domestic traffic grew at a lower rate of 2.7%, led by Asia Pacific and Latin America & Caribbean; North America recorded a faint growth, while Europe was close to remaining flat, recording a slightly negative growth rate 5. Of the roughly 4.3 billion passengers worldwide, Europe and North America contribute about 30% and 29%, respectively with Asia Pacific increasing its contribution up to 27% of passengers. 2 Source: Verdict Retail (part of Informa Business Information). 3 Sources: ACI, PaxFlash_FreightFlash, February 2014 Press release. 4 BAA, Airport of Manchester and Airport of Gatwick, January-December Domestic traffic includes passengers travelling within the same country whilst international passengers includes passengers that flight from one country to another one. Page 11

12 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Passengers in North America increased by 1.3% to 1.2 billion, mostly corresponding to domestic traffic, which accounts for roughly half of global domestic traffic. Europe enjoyed a 2.6% increase in traffic thanks to solid international growth. The trend in the main airports where the Group is present came to a contrasting +3.6% in the United Kingdom and - 3.5% in Spain 6. Growth in the UK factors in the decrease experimented during the 2012 London Olympic Games, which caused a reduction in traffic during the main travel months of the year, July and August. The downward trend in Spain reflects the country s economic crisis, mirrored in the demand for domestic flights and the operations of major airlines, which reduced their capacity (e.g. Iberia and Ryanair) or went out of business (Spainair). Asia made a solid contribution, accounting for slightly over a third of the growth in global international traffic. Specifically, in 2013 traffic in Asian countries was up by 7.2%; after slowing down in the central months of the year, it began to accelerate again on the strength of renewed confidence in the prospects of the Chinese economy. Traffic in Latin America & Caribbean (350 million passengers in 2013) progressed by 4.8% thanks to significant economic growth in the area and the expansion of trade with North America and Asia. Growth was also significant in the Middle East (+10.1% to close to 170 million passengers), stemming exclusively from international routes. Introduction Highlights During 2013, Autogrill S.p.A., a subsidiary of Schematrentaquattro S.p.A., initiated and completed a strategic project to split the Food & Beverage business from the Travel Retail & Duty Free business. That split was realized through the partial proportional demerger (the Demerger ), effective from October 1, 2013, of the Travel Retail & Duty Free business from Autogrill S.p.A. in favor of WDF S.p.A., specifically incorporated by Autogrill S.p.A. for the purpose of the Demerger. In particular, with the Demerger, Autogrill S.p.A. transferred to WDF S.p.A. its investment in World Duty Free Group SAU ( WDFG SAU ), a parent company of a group operating in the Travel Retail & Duty Free sector. As a result of the Demerger, the consolidated financial statements of WDF S.p.A. (as described in the illustrative note 2 of the financial statements), were represented as follows: i) in order to better understand the results of WDFG, the Directors Report presents the consolidated economic and financial information for the twelve months period ended December 31, 2013, irrespectively of the effective date of the Demerger. The comparable data for the financial year 2012 are referred to the consolidated economic and financial information for the twelve months period ended December 31, 2012 of WDFG SAU (subject to the Demerger), based on the historical data included in the Autogrill S.p,A. consolidated financial statements as of December 31, 2012; ii) as regarding the Financial Highlights figures, there were also represented the consolidated economic and financial information of WDF S.p.A. for the period from March 27, 2013 (the date of incorporation of WDF S.p.A.) to December 31, 2013 (closing date of the financial year). 6 AENA. January December Page 12

13 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Financial Highlights in millions of Euro For the period from March 27, 2013 to December 31, 2013 Revenue EBITDA 60.8 EBITDA margin 11.1% Cash EBITDA 68.7 EBITDAR EBITDAR margin 42.1% EBIT 35.4 EBIT margin 6.5% Profit for the year 19.8 % of revenue 3.6% Net cash flows from operating activities 20.5 Net capital expenditure 38.6 % revenue 7.1% Earning per share (Euro cents) - basic diluted 6.5 See footnote for specific definitions 7 in millions of Euro change change at constant exchange rates Revenue 2, , % 7.1% EBITDA (2.9%) 0.6% EBITDA margin 12.3% 13.1% Cash EBITDA % 8.0% EBITDAR % 7.3% EBITDAR margin 43.9% 43.8% EBIT % 13.6% EBIT margin 7.9% 7.5% Profit for the year % 12.7% % of revenue 5.3% 5.1% Net cash flows from operating activities (96.1) (150.7%) Net capital expenditure % % revenue 3.1% 1.4% See footnote for specific definitions 7,8 7 The above indicators are not recognized as accounting measures under IFRSs and therefore they should not be considered as alternative measures to those ones included in the financial statements for evaluating the Group s economic performance. Since such financial information are not determined in accordance with generally accepted accounting principles for the preparation of the consolidated financial statements, the criteria applied for their calculation may not be consistent with those ones used by other group companies and thus, these measures may not be comparable with any similar measures used by other group companies. The above indicators are defined as follows: Ebitda: profit for the year + income tax + impairment and revaluation of financial assets + net financial expense + depreciation and amortization + impairment losses on property, plant and equipment and intangible assets Ebitda margin: Ebitda/revenues Ebitdar: Ebitda + leases, rentals, concessions and royalties Ebitdar margin: Ebitdar/revenues Cash Ebitda: Ebitda + recovery of annual concession fees paid in advance to AENA Ebit: operating profit Ebit margin: Ebit/revenues Net cash flows from operating activities: see detailed calculation reported in the table Net cash generation Net capital expenditure: the item refers to the additions in capital expenditure, excluding investments in financial fixed assets and equity investments. Some figures may have been rounded to the nearest million. Changes and ratios have been calculated using figures in thousands and not the figures rounded to the nearest million as shown. 8 Change at constant exchange rates: the variation that would have been reported had the comparative figures of consolidated companies with functional currencies other than Euro been converted at the same exchange rates employed for the period under review. Page 13

14 WDF S.p.A. Part I -Director s Report as of December 31, 2013 in millions of Euro change change at constant exchange rates Net invested capital 1, , % 28.3% Net financial position 1, % 87.4% For the detailed calculation of these indicators see table Reclassified consolidated statement of financial position The acquisition of US Retail Division On July 2013, World Duty Free Group US, Inc (a subsidiary of WDFG) and WDFG entered into a purchase agreement with HMS Host Corporation and its subsidiary Host International Inc (both subsidiaries of Autogrill S.p.A.) in relation to the sale of 248 convenience stores located in 29 US airports (the US Retail Division ). On September 6, 2013 these retail business activities, for which the authorization was granted by the landlord, were acquired by the Group. The purchase price agreed was USD 105 million, equal to 87.8% of the maximum consideration (i.e. USD 120 million) initially agreed in the event of all the retail concessions managed by HMS Host Corporation were transferred. Any subsequent closing will be made once the necessary authorizations have been granted by the landlords. The convenience stores, related to the US Retail Division, mainly offer souvenirs, gifts, books and newspapers, beverages and ready-to-eat food. Certain categories of items offered by the convenience stores overlap the categories offered by the other points of sale of Group. The offer of the convenience stores of the US Retail Division is adequate to the characteristics of the travel retail market in North America, where the flow of domestic passengers is dominant (in 2013 approximately 83% of passengers in North America were domestic passengers 5 ). The US Retail Division recorded a strong growth in the three-year period , with revenues of USD million in 2010, USD million in 2011 and USD million in 2012, and with a compound annual growth rate of 8.3%. The acquisition rational is to expand its presence in 29 US airports (including San Francisco, Chicago, Washington D.C., Miami and Dallas) and to leverage on these activities strengthen the presence of WDFG in North America Income statement results 2013 has been a transformational year for WDFG. During 2013 took place the listing of WDF S.p.A. in the Milan stock exchange, the acquisition of new activities in the United States through the US Retail Division and successful results in terms of award of important contracts also in new countries. The refurbishment and enlargement of store portfolio operated in Spain, the international expansion achieved with new operations in Germany, Saudi Arabia, Brazil and Jamaica, and the starting of leverage new categories following the acquisition of the US travel retail operation left the Group in a better position to face the economic recession and the drop in consumption registered in some European countries and thus to continue to improve revenue and cash flow generation. Page 14

15 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Condensed consolidated income statement in millions of Euro 2013 % of revenue 2012 % of revenue change change at constant exchange rates Revenue 2, % 2, % 3.8% 7.1% Other operating income % % (1.9%) 0.6% Total revenue and other operating income 2, % 2, % 3.7% 7.0% Cost of goods sold (847.7) (40.8%) (820.0) (41.0%) 3.4% 6.5% Personnel expense (220.8) (10.6%) (205.9) (10.3%) 7.2% 10.1% Leases, rentals, concessions and royalties (657.5) (31.6%) (615.5) (30.7%) 6.8% 10.2% Other operating expense (123.8) (6.0%) (124.9) (6.2%) (0.9%) 3.1% EBITDA % % (2.9%) 0.6% Cash EBITDA % % 4.6% 8.0% Depreciation, amortization and impairment losses (91.3) (4.4%) (112.7) (5.6%) (19.0%) (16.8%) EBIT % % 9.3% 13.6% Net financial income/expenses (34.3) (1.6%) (18.5) (0.9%) 85.5% 86.8% Impairment and revaluation of financial assets % % 10.7% 10.7% Pre-tax profit % % (1.3%) 3.4% Income tax (20.5) (1.0%) (30.0) (1.5%) (31.8%) (28.3%) Profit for the year attributable to: % % 7.6% 12.7% - owners of the parent % % 5.1% 10.2% - non-controlling interest % % 121.0% 122.0% See footnote for specific definitions 7,8 Page 15

16 Revenue WDF S.p.A. Part I -Director s Report as of December 31, 2013 The Group closed 2013 with consolidated revenue of Euro 2,078.5 million which at constant exchange rates is 7.1% compared to the previous year. The exchange rate trends of the currencies other than Euro in which WDFG operates, had a negative impact on revenue which at current exchange rates increased by 3.8% compared to the previous year s figures of Euro 2,002.0 million, in particular due to the revaluation of the Euro against the pound and US Dollar. The US Retail Division, acquired in September 2013, had an impact on total revenues of USD 59.5 million, equivalent to Euro 44.8 million. Group s revenue growth at constant exchange rates and excluding the contribution of the US Retail Division would have been +4.8%. Change in revenues (in million of Euro) 2, ,078 2, ,034 2,000 2, ,950 1,900 1,850 Revenues 12M 2012 Forex effect United Kingdom Rest of Europe Americas (ex US Retail) Asia & Middle Revenues 12M East 2013 (ex US Retail) US Retail Revenues 12M 2013 Revenues related to the airport channel amounts to Euro 2,032.8 million or 97.8% of the total revenues generated in financial year Within this, the acquired US Retail division delivered revenues of Euro 44.8 million from the date of acquisition, or 2.2% of total annual revenues. The Group recorded non-airport revenues for an amount of 2.2% of the Group s total revenues for Excluding the addition to the perimeter of the US Retail, the product mix evolution showed the growing focus of the business in Beauty category with sales at Euro million improving its share of airport sales to 45.3% of total sales against 44.3% in Liquor sales at 18.3% and Food sales at 11.6% of total sales both also grew their share versus Tobacco sales were impacted by ongoing regulations (such as the UK Tobacco Display Area requirements) and were in % of sales, being -0.5% lower than The Spanish airport tender impacted adversely on the sales of the Luxury and Souvenir categories. Luxury at 4.9% of total airport sales were -1.3% lower than 2012, with Euro 96 million sales dropping -20.7% against Souvenirs at 2.7% of total sales were -0.7% lower than 2012 with sales being -12.8% lower. Page 16

17 EBITDA WDF S.p.A. Part I -Director s Report as of December 31, 2013 In 2013 Ebitda amounted to Euro million, up 0.6% at constant exchange rates (down -2.9% at current exchange rates) from Euro million in the same period of EBITDA margin amounted to 12.3% of total revenue compared to 13.1% in Change in EBITDA margin The decrease in EBITDA margin was largely due to the increase in rental costs mainly as a consequence of the contract extensions in Spanish airports. Perimeter change mixes also adversely impacted the Ebitda margin, due to the effect from the start-up operations; mainly in Düsseldorf (Germany), and the dilution stemming from the acquisition of the US Retail division, which pushed Ebitda margins lower. The type of products offered by the US Retail Division, has a natural Ebitda margin which is lower than the average margin of WDFG. The gross margins (i.e. Revenue minus Cost of Goods Sold) were however improved through internal efficiencies and external supplier deals. Cash EBITDA, calculated as the sum of EBITDA and the recovery of annual concession fees paid in advance to AENA, the Spanish licensor, amounted to Euro million, representing 13.2% on revenues. Amortization, depreciation and impairment In 2013 amortization, depreciation and impairment amounted to Euro 91.3 million, Euro 21.4 million lower than in 2012 (Euro 18.9 million at constant exchange rates), mainly due to the effect of the revision of the useful life of the Spanish concessions after their extension at the end of 2012 up to 2020, as well as to having the fixed assets connected with the former Spanish contract fully amortized while the new developments relating to the extension awarded at the end of 2012 are in progress. Page 17

18 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Net Financial Expenses In 2013 net financial expenses amounted to Euro 34.3 million, up from Euro 18.5 million recorded in 2012: the increase was mainly due to a higher average cost of debt and to bank fees paid on the loans extinguished as part of Travel Retail & Duty Free s debt refinancing which had not been fully amortized as of June 5, Financial expenses were partially offset by financial income relating to the implicit interests recorded in connection with the advance payment to AENA. The average cost of debt, net of the bank fees related to the new financing, was 3.9% compared to 3.2% in Income tax Income Tax decreased from Euro 30.0 million in 2012 to Euro 20.5 million in The average tax rate was 15.6%, down from 22.6% in The improvement mainly reflects the revaluation of deferred tax liabilities in UK in view of the recent lowering of tax rates to be applied in the next fiscal years. Net profit for the period Net profit attributable to the controlling interest amounted to Euro million compared to Euro million recorded in 2012, due to the positive evolution of amortization and income tax being partially offset by lower Ebitda and higher net financial expenses. Net profit attributable to minority interests amounted to Euro 5.0 million, up from Euro 2.3 million of previous year. Page 18

19 WDF S.p.A. Part I -Director s Report as of December 31, Financial position Reclassified consolidated statement of financial position 9 in millions of Euro December 31, 2013 December 31, 2012 * change change at constant exchange rates Intangible assets 1, ,228.0 (60.3) (35.6) Property, plant and equipment Financial assets A) Non-current assets 1, , Inventories Trade receivables Other receivables Trade payables (235.5) (203.8) (31.7) (36.8) Other payables (119.2) (101.8) (17.4) (98.2) B) Working capital (107.0) (115.3) 8.2 (68.8) C) Invested capital, less current liabilities 1, , (22.6) D) Other non-current non-financial assets and liabilities (65.9) E) Assets held for sale F) Net invested capital 1, , Equity attributable to owners of the parent (184.6) (160.4) Equity attributable to non-controlling interests G) Equity (179.1) (154.8) Non-current financial liabilities Non-current financial assets H) Non-current financial indebteness Current financial liabilities Cash and cash equivalent and other current financial assets (35.8) (31.4) (4.4) (4.3) I) Current net financial indebteness Net financial position (H+I) 1, * The figures were adjusted since their original plublication due to the application of IAS 19 revised as described in note 2.1. reported in the illustrative notes of financial statements. Net invested capital at December 31, 2013 amounted to Euro 1,445.8 million, increasing of Euro million with respect to the previous year. The increase is mainly related to Other non-current non-financial assets and liabilities that includes non-current portion of the payment made to AENA. Particularly, based on the agreement signed in February 2013 with AENA for the extension of the Spanish airport concessions to 2020, WDFG, in the first quarter of 2013, made an advance payment of Euro 279 million to be offset against future rent payments (of this amount, Euro 17 million have been already offset during 2013). For further details please also refer to note 2.3 reported in the illustrative notes of the financial statements. The Group s financial position is mainly represented by the medium-long term loan of Euro 1,250 million, signed by WDFG SAU at the end of May For further details, please refer to note reported in the illustrative notes of the financial statements. Net financial position at December 31, 2013 was Euro 1,026.7 million (Net Debt), with an increase of Euro million compared with the previous year s figures. 9 The figures in the reclassified consolidated statement of financial position are directly derived from the consolidated financial statements and illustrative notes. Page 19

20 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Change in net financial position (in million of Euro) The effect produced by the translation of foreign currency items into Euro was positive by Euro 4.7 million due to the positive impact on the net financial position produced by pound/euro translation. The net cash flows from operating activities (excluding the advance payment and the cash deposit paid to AENA) amounted to Euro million, a decrease of Euro 23.6 million on the previous year, with higher interest payments explaining a big portion of this decrease. In addition, three very significant events with impact on the Net Financial Position took place during 2013: i) Euro million related to the advance payment to AENA described above and Euro 27.3 million in connection with the cash deposit paid to AENA within the framework of the agreement signed in February 2013; ii) Euro million dividend distribution approved by Shareholders meeting on April 30, 2013 which was paid on June 5, 2013 to Autogrill S.p.A.; and iii) Euro 80.0 million (including 5% retained to serve as guarantee as set in the sale and purchase agreement see note 2.2 of the illustrative notes to the financial statements for further details) for the acquisition on September 6, 2013 of US Retail Division from HMS Host (a company of Autogrill Group). The fair value on interest rate hedges at December 31, 2013 was negative for Euro 1.8 million. At the end of 2013, 37.7% of consolidated net financial position was denominated in British pounds, and the rest in Euros. 26.0% was originally fixed-rate or converted to fixed-rate by means of interest rate swaps. Debt consists mainly of committed non-current credit lines from banks. At 31 December 2013, loans had an average remaining life of 3.4 years. The loan contracts require the Group to uphold certain financial ratios. At December 31, 2013 all of these were satisfied. For more detailed information, please refer to the note in the illustrative notes of financial statements. Page 20

21 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Net cash generation in millions of Euro change EBITDA (7.5) Change in net working capital (7.1) (13.0) 5.9 AENA advance payment (Net) (261.9) - (261.9) Other non-cash items (0.5) Cash flow from operating activities (13.7) (263.9) Tax paid (50.8) (42.5) (8.3) Net interest paid (31.6) (18.3) (13.2) Net cash flow from operating activities (96.1) (285.5) Net capital expenditure paid (49.5) (28.3) (21.2) US Retail Division Acquisition (80.0) - (80.0) Free operating cash flow (225.6) (386.7) See footnote for specific definitions 7,10 WDFG registered a negative free operating cash flow of Euro million compared with the previous year s positive amount of Euro million. The decrease reflects the advance payment of Euro million to AENA and the US Retail acquisition. Excluding these effects, the free operating cash flow would have been positive by Euro million. The 2013 change in working capital have a negative impact of Euro 5.9 million, mainly due to the one-off effect connected with the change in the rent payment terms under the contract signed with AENA. The increase in net interest paid with respect to the 2012 was Euro 13.2 million up to Euro 31.6 million recorded in Net capital expenditure outflow of Euro 49.5 million recorded an increase of Euro 21.2 million compared with the previous year s, mainly related to Rest of Europe area for the refurbishment and enlargement of store portfolio operated in Spain and for the new openings in Dusseldorf Airport in Germany. Capital expenditure Net capital expenditure was Euro 63.4 million, up from Euro 28.4 million in 2012 and rose from 1.4% to 3.1% of revenue. It mostly concerned the European airports totaling about Euro 53.4 million. 10 Definitions: Change in net working capital: change into (inventories + trade receivables + tax assets + other current receivables + trade payables + tax liabilities + other current payables + current provisions for risks and charges). Net cash flow from operating activities: EBIT + depreciation, amortization and impairment losses - proceeds from asset disposals + change in working capital + change in non-current assets and liabilities - interests and taxes paid. Free operating cash flow: net cash flow from operating activities - net capital expenditure paid + fixed asset disposal proceeds. Page 21

22 WDF S.p.A. Part I -Director s Report as of December 31, Business segments in thousands of Euro United Kingdom For the year ended December 31, 2013 Rest of Asia and Americas Unallocated Europe Middle East Total Revenue ,078.5 Other operating income Total revenue and other operating income ,104.6 EBITDA Depreciation, amortization and impairment losses on assets (36.7) (34.8) (11.0) (8.7) - (91.3) Operating profit (loss) Net financial income/expenses (34.3) (34.3) Adjustement to the value of financial assets Pre-tax profit (loss) (32.2) Income tax (20.5) (20.5) Profit (loss) for the year (52.7) in thousands of Euro United Kingdom For the year ended December 31, 2012 Rest of Asia and Americas Unallocated Europe Middle East Total Revenue ,002.0 Other operating income Total revenue and other operating income ,028.6 EBITDA Depreciation, amortization and impairment losses on assets (40.6) (53.7) (9.5) (8.9) - (112.7) Operating profit (loss) Net financial income/expenses (18.5) (18.5) Adjustement to the value of financial assets Pre-tax profit (loss) (16.6) Income tax (30.0) (30.0) Profit (loss) for the year (46.7) Revenue In 2013 revenues amounted to Euro 2,078.5 million, up +7.1% at constant exchange rates (+3.8% at current exchange rates) against Euro 2,002.0 million in Revenues contributed by the recently acquired US Retail Division were Euro 44.8 million; excluding this contribution, revenues would have grown +4.8% at constant exchange rates (+1.6% at current exchange rates). Revenues in the United Kingdom reached Euro million, +6.2% at constant exchange rate (+1.4% at current exchange rate) supported by the traffic growth of +3.6% 11 alongside higher average spending per passenger. Higher British sterling exchange rates and the staging of the Olympic Games in 2012 implied travelling in the United Kingdom was more expensive in The spend per passenger in 2013 is slightly up on 2012, despite the higher number of passengers subsequently seen in 2013 travelling to European destinations, who tend to show lower spends. Heathrow Airport recorded sales of Euro million up +4.0% at constant exchange rates compared to a traffic increase of +3.4%. The good performance is driven by a higher number of passengers to European destinations along with business initiatives driving stronger spends on those passengers travelling to non-eu destinations. These offset the adverse spends seen from higher volumes on low spending EU passengers and the negative mix from passenger volumes being switched to lower spend terminals, away from the Terminal 3 walk-through store. 11 Source: BAA, Airport of Manchester and Airport of Gatwick, January-December Page 22

23 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Revenues at Gatwick Airport were up +7.5% at constant exchange rates to Euro million higher than the +3.6% increase in traffic thanks to contribution of the new walk-through stores in the South Terminal from the second half 2012 driving an increase in spend per passenger throughout first half Manchester airport recorded an increase in revenues of +5.9% at constant exchange rates compared to the prior year. The performance is mainly driven by increase of traffic (+5.1% ) considering that the spend per passenger remained flat as the passenger increases have been on low spending destinations. Sales in the Rest of Europe were Euro million, up 4.0% compared to Euro million in This increase is due to the contribution of the new operations in Dusseldorf, which more than offsets the negative growth rate recorded in the Spanish airports (-4.1%), affected by the drop in traffic (-3.5% 13 ) and the impact of the closing of the Boutiques 12. This negative performance was due to the effect of lower number of Iberia flights and to the passenger mix, that was less favourable with lower business passenger and higher tourist volumes. This impacted Madrid heavily with its passenger numbers being reduced by -12.1%. Madrid sales of Euro million, % compared to Excluding the Euro -21 million impact of the Boutique exit, the sales were in line with the passenger decline effect. Barcelona airport showed excellent spend performance, with sales up +5.3% against flat traffic 13,being sustained by both a higher spend per passenger with destinations outside Europe and the opening of new commercial layouts in May Alicante airport performed well with revenues of Euro 40.8 million, with an increase of +9.7% compared to Euro 37.2 million in 2012, mainly driven by increase in passenger traffic of +8.8% 13. Canary Islands airports recorded revenues of Euro 69.7 millions, in line with the prior year. Regarding Dusseldorf Airport, the new stores recorded sale for Euro 47.3 million since the opening at the beginning of January In Americas revenues amounted to Euro million, up +19.4% at constant exchange rates (+14.8% at current exchange rates) compared to The US Retail business inclusion contributed Euro 44.8 million. Excluding this contribution, Americas grew +2.8% at constant exchange rates, despite of the negative impact of the exit from the duty free operations in Atlanta and Orlando, thanks primarily to the outstanding performance recorded in other airports of the geography. Canada recorded the best performance, showing an increase of +20.0%, mainly due to the increase in spend per passenger thanks to marketing activities and to new development finished in the first half of 2012; Mexico increased by 15.1% over the prior year thanks to new store in Los Cabos airport opened at the end of 2012 and the bigger volume of higher spending passengers (particularly from Russia); Peru recorded a positive growth rate of +7.0% over the prior year, driven by an increase in passenger traffic, even if the main portion of it consists of low spending passengers. Only Chile showed a slowdown of -2.7% reflecting a change in the passenger profile mix, particularly, the lower number of passengers from Brazil and some government restrictions for Argentinean passengers which have reduced the average spend per passenger. Furthermore 2013 sales has been affected by currency depreciation and refurbishments in shops and terminals disrupting sales. In Asia and Middle East revenues amounted to Euro 160 million, up +2.6% at constant exchange rates (-1.6% at current exchange rates) compared to Jordan at Euro 72.7 million sales continued to record positive performance with growth rates of 13.0% thanks to new operations 12 Store discontinued after the new agreement signed with AENA on February Source: AENA, January-December Page 23

24 WDF S.p.A. Part I -Director s Report as of December 31, 2013 opened during Kuwait, second biggest country of this area, recorded sales for Euro 52.9 million, up +6.2% compared to the previous year while Sri Lanka at Euro 30.8 million sales declined -20.2% with direct competition at the airport impacting historic sales. EBITDA Ebitda amounted to Euro million, with an increase of +0.6% at constant exchange rates (- 2.9% at current exchange rates) in respect to Euro million reported in Ebitda Margin at 12.3% for 2013 decreased by -0.8% versus 13.1% in 2012, at both constant and current exchange rates. In the United Kingdom Ebitda was euro million, with an increase of +22.4% at constant exchange rates (+16.8% at current exchange rate) in respect to Euro million reported in The Ebitda margin came to 15.1% compared to 13.1% in the prior year thanks to an improvement in the operating and personnel costs. In the Rest of Europe the Ebitda reached Euro 56.7 million, a drop of -26.1% with respect to Euro 76.7 million reported in 2012, while the Ebitda margin came to 9.1%, versus the prior year at 12.9%, directly related to higher rent rates seen. The effect of new business at lower Ebitda margins at the beginning of the operations is balanced by an improvement in gross margins. In Americas Ebitda amounted to Euro 27.8 million, decreasing by -9.6% at constant exchange rates (-13.2% at current exchange rates) in respect to Euro 32.0 million reported in Ebitda margin decrease to 8.6% (11.4% in 2012) mainly for the inclusion of the new US Retail business that generated Ebitda margin in 2013, start-up costs related to new openings and for fixed costs related to the closing of Atlanta and Orlando operations. In Asia and Middle East, Ebitda amounted to Euro 22.9 million, with a decrease of -13.4% at constant exchange rates (-16.5% at current exchange rates) compared to Euro 27.4 million reported in Ebitda margin decrease to 14.3% (16.9% in 2012) mainly due to the increase in operating costs. Amortization, depreciation and impairment In 2013 amortization, depreciation and impairment was lower by Euro 18.9 million at constant exchange rates, mostly driven by the Rest of Europe (Euro 18.8 million) mainly due to the effect of the revision of the useful life of the Spanish concessions after their extension at the end of 2012 up to 2020, as well as to having the fixed assets connected with the former Spanish contract fully amortized while the new developments relating to the extension awarded at the end of 2012 are in progress. The United Kingdom accounted for a reduction of Euro 2.1 million at constant exchange rate, while the Americas increased Euro 1.9 million due to the incorporation of the US Retail. Asia and Middle East remained flat versus prior year. Page 24

25 WDF S.p.A. Part I -Director s Report as of December 31, Performance in the fourth quarter 2013 Revenue Group revenues at Euro million for the fourth quarter 2013, was up +12.8% at current exchange rates (+7.5% at constant exchange rates and excluding the contribution of the US Retail) against the same quarter of Revenues in the United Kingdom airports reached Euro million, up +7.4% at constant exchange rates (+3.1% at current exchange rates) compared to the fourth quarter 2012, driven by traffic (up 3.5% 14 ) alongside higher spend per passenger. Heathrow Airport recorded sales of Euro million (up +3.8%) compared to a traffic increase of 2.7%. A Record breaking Christmas sales period drove the spend gain, with these spends being flat through early fourth quarter. Revenues at Gatwick Airport were up +3.7% to Euro 41.6 million, lower than the +4.4% increase in traffic, with spends disrupted by airport closure issues at Christmas. Manchester Airport recorded an increase in revenues of +6.6% compared to Euro 20.5 million in the fourth quarter of The performance is mainly driven by increase of traffic of +4.7%. Sales in the Rest of Europe were Euro million, up +7.5% compared to the same period of At a constant perimeter, therefore excluding activities in Dusseldorf (Germany) and the effect of the closing of boutiques in Spain (mainly in Madrid), there would be an increase of +2.9%. Particularly, at a constant perimeter, Spain recorded an increase in revenues of +3.1% compared to a traffic increase of +1.5% 15. The Canaries airports achieved growth of +16.1% with Euro sales of 21.2 million in quarter four Alicante, Malaga, and Palma De Mallorca all achieved growth above the Spain average, with Barcelona s growth of +3.6%, in line with the passenger growths seen. Madrid sales at Euro 32.8 million declined -22.2%, but excluding the effect of the closing of Boutiques (down Euro -6.2 million) the fourth quarter decline was of -8.6%, versus a Madrid passenger decline of -5.7%. Regarding Dusseldorf Airport, the new stores recorded sales of Euro 12.3 million in the fourth quarter In Americas revenues amounted to Euro million, +77.5% at constant exchange rates compared to the same period of This performance is affected by the change in the perimeter, with the new US Retail acquisition accounting for Euro 44.8 million sales (excluding the contribution of the US Retail, the growth at constant exchange rate would have been +8.6%). Canada grew +20.8% benefitting from new developments. Mexico showed +14.3% supported by the Los Cabos development. Peru growth of +15.3% was countered by Chile decreasing -6.3% due to works in progress and passenger shifts. In Asia and Middle East, revenues amounted to Euro 41.0 million up +6.3% at constant exchange rates compared to the same period of Jordan continued to recording positive performance with growth of +18.9%, while Sri Lanka remained flat from continued competition impacting. EBITDA Ebitda in the fourth quarter 2013 amounted to Euro 60.8 million, showing an increase +8.3% at constant exchange rates (+4.4% at current exchange rates) versus the same period of The Ebitda Margin of 11.1% in the fourth quarter of 2013 decreased by -0.9% compared to 12.0% in the same period of Source: BAA, Airport of Manchester and Airport of Gatwick, October-December Source: AENA, October-December Page 25

26 WDF S.p.A. Part I -Director s Report as of December 31, 2013 The US business acquisition at negative Ebitda in the quarter reduced group Ebitda margins in the fourth quarter. Excluding this, the Ebitda margin was +12.2% showing an improvement of 0.2%, since efficiencies in operating costs were seen, more than offsetting the increase in rent rates. Capital expenditure In the fourth quarter of 2013 net capex was Euro 38.6 million (Euro 12.6 million in the corresponding period of the previous year), amounting to 7.1% of sales. Capital expenditure in quarter four of 2013 accounted for approximately 60% of the whole capital expenditure of the year, with the developments in Spain being the main contributors. Depreciation, amortization and impairment losses In the fourth quarter of 2013 depreciation, amortization and impairment losses amounted to Euro 25.3 million, with a decrease of -8.2% compared to Euro 27.6 million recorded in the same period of 2012 (-5.4% at current exchange rates). Net financial expense In the fourth quarter of 2013 net financial expense increased to Euro 10.6 million, compared to Euro 4.1 million of the same period of The significant change is primarily due to the increase in debt amount. Income tax In the fourth quarter of 2013 tax decreased to Euro 4.9 million compared with Euro 7.3 million in the same period of The average tax rate was 19.1%, down from 27.2% compared to the fourth quarter of Profit In the fourth quarter of 2013 the profit reached Euro 19.8 million compared to Euro 19.5 million in the same period of The profit attributable to owners of the parent amounted to Euro 16.5 million compared to Euro 18.9 million compared to the fourth quarter of Page 26

27 WDF S.p.A. Part I -Director s Report as of December 31, Financial review World Duty Free S.p.A Income statement results Condensed income statement in millions of Euro 2013 Dividends and other income from investments - Other operating income - Total revenue and other operating income - Personnel expense - Other operating expense (0.9) EBITDA (0.9) Depreciation, amortization and impairment losses (0.0) EBIT (0.9) Net financial income/expenses (0.0) Pre-tax profit (0.9) Income tax - Profit (loss) for the year (0.9) See footnote for specific definitions 7 Other operating expenses mainly correspond to costs for consulting services, remuneration to the Board of Directors and fees to the Statutory Auditors. Page 27

28 WDF S.p.A. Part I -Director s Report as of December 31, Reclassified statement of financial position 16 in millions of Euro December 31, 2013 Intangible assets - Property, plant and equipment 0.0 Financial assets A) Non-current assets Inventories - Trade receivables - Other receivables 0.2 Trade payables (4.7) Other payables (0.6) B) Working capital (5.1) C) Invested capital, less current liabilities D) Other non-current non-financial assets and liabilities - E) Assets held for sale - F) Net invested capital Equity attributable to owners of the parent Equity attributable to non-controlling interests - G) Equity Non-current financial liabilities 6.3 Non-current financial assets - H) Non-current financial indebteness 6.3 Current financial liabilities - Cash and cash equivalent and other current financial assets (1.6) I) Current net financial indebteness (1.6) Net financial position (H+I) 4.7 Financial assets include the investment in WDFG SAU, which was transferred by Autogrill S.p.A. to WDF S.p.A by the effect of the Demerger. Non-current financial liabilities consist of the revolving facility loan granted in 2013 by the subsidiary WDFG SAU, expiring in 2018 and for a maximum amount of Euro 10 million. 16 The figures in the reclassified statement of financial position are directly derived from the separate financial statements and illustrative notes. Page 28

29 WDF S.p.A. Part I -Director s Report as of December 31, Outlook The first eight weeks of 2014 delivered a growth rate at constant exchange rates of +4.2% compared to the same period of the previous year (+5.3% excluding the effect of the Boutiques in Spain mentioned previously), showing a positive evolution in all the regions. Despite financial turmoil in Latin America, the recovery of a positive economic sentiment in Europe has been started to be perceived both in terms of traffic and consumer confidence. In addition, the recently acquired contribution of the US Retail activity is pushing up the revenue growth rate to +11.6%. In the first eight weeks the highest contributing region to that growth in sales at constant exchange rates is Asia and Middle East (+9.4%) while Rest of Europe and UK are performing close to the average (+4.0% and +3.9%, respectively; Rest of Europe, excluding the effect of the Boutiques is +8.7%, though); Americas (excluding US Retail) is delivering weaker growth due to the financial situation the region is facing during this period. As is well known, the start of the year clearly is the low season in most of the Group s operations particularly in Europe which start to become more relevant along summer season starts. The Group will provide more detailed information on forecasts for the year in course when it publishes results for the first half of Given the above, the guidelines for 2014 are to focus on generating cash to reduce current net debt levels, implementing development programs currently in progress along the Group and execute new openings such as Helsinki airport. Events after the reporting date Since December 31, 2013, no events have occurred that if known in advance would have entailed an adjustment to the figures reported or required additional disclosures. 1.7 Other information Corporate Social Responsibility WDFG adopted a coherent and integrated framework of values, rules of conduct, systems and structures to support the pursuit of its corporate strategy. These beliefs are embodied in the system of corporate governance and provide the foundation for the development of the Group s Sustainability initiatives. WDFG is an organization made of people that sells products and provides services for other people, nourishing a circular and virtuous value-creating circle involving the organization itself and its employees and customers. Improving employee relation and satisfaction, offering travelers better service, sharing objectives with partners and landlords, carrying out periodic analyses to fully comprehend the employees, landlords, consumers and the characteristics of the markets mean being innovative, extending and re-inventing one s own concepts. Employees To facilitate a long term satisfaction and engagement among its employees, WDFG is committed to developing various initiatives of welfare and worklife balance. Attention to employees is not limited to management of working hours, but instead takes into consideration all those elements that contribute to improving the quality of people s lives. Particular attention is devoted to the creation of a diverse workforce (i.e. a team composed of members who speak different languages, etc.) with the ultimate objective of increasing the value Page 29

30 WDF S.p.A. Part I -Director s Report as of December 31, 2013 provided to group customers. The Group defined a series of policies (such as Recruiting practice policy, Remuneration policy, Employees Training and Development Program) targeting diversity and equal opportunity: these plans were developed aimed at preventing any form of discrimination (salary-based, career-oriented, etc.) and they have been designed in compliance with the currently applicable laws and in agreement with worker representatives. Employee training represents the key leverage for personnel development and the development of WDFG. Training planning is strictly correlated to the outcomes derived from employee performance and competency evaluation processes. Moreover, in the UK there are specific professional profiles available to help complete training plans with employees in the stores. Health and safety WDFG is commitment to the health and safety of all employees and consumers translates into prevention, technology, training, and day-to-day monitoring. The Group performs preventive assessments of workplace hazards so it can take the most suitable measures, such as new operating procedures or the purchase of individual protection devices that will eliminate or minimize the risks. To make sure these measures are effective, the number and type of accidents that occur are constantly monitored, along with the steps taken to mitigate the hazards. Comparable data shows that there has been a reduction in accidents over the last three years. Social certification OHSAS certification, obtained in 2012 for all WDFG shops in Great Britain, promotes a safe and healthy workplace by maintaining an infrastructure that allows the group to systematically monitor health and safety risks, reduce hazards, foster regulatory compliance and improve overall standards. Environment Environmental issues climate change, access to clean water, waste disposal, etc. concern people, organizations and institutions all over the world. WDFG believes it is the personal contribution of each individual that makes the difference. Simple, everyday habits can help reduce emissions without sacrificing quality of life. The Group feels a responsibility to reduce the consumption of energy, water and raw materials. WDFG is doing this by designing green facilities, properly managing resources and processes, monitoring performance and, above all, enlisting the help of its employees. An innovative and flexible property management system was experimented while restyling stores, which enabled the group not only to design more welcoming and greener stores, but also to enjoy considerable cost reductions and the possibility of effectively comparing consumption in different stores. Specifically, new stores should be equipped with highly efficient air conditioning systems and LED technology lighting. Also, WDFG opened a round table with its commercial partners with the aim of reducing packaging, optimizing the consumption of paper/cardboard and the volume of packaging during transportation and in the warehouse. Environmental certification World Duty Free Group UK Ltd. received the internationally recognized ISO 14001:2004 certification for all of its stores, attesting to the effectiveness of its environmental management system. Page 30

31 WDF S.p.A. Part I -Director s Report as of December 31, 2013 Community support World Duty Free Group engages with community and charitable partnerships in many of the territories in which it operates, with a strong but not exclusive focus on children, young people and their families and education. The Group uses a combination of corporate donations and employee fundraising to benefit a number of charities and community projects. WDFG partners Fundación Iberoamericana Down 21. Canal Down21 is a network of foundations, associations, educational establishments, hospitals and other bodies who work in the study, teaching, development and research of people with Downs Syndrome. Canal Down21 enables these institutions to collaborate to promote better understanding of the condition and to improve the care and social inclusion of people with Down s Syndrome. World Duty Free Group s partnership has helped to make it possible for the organization to reach beyond Spanish borders, and turn it into a benchmark for the understanding of Down s Syndrome in all Spanish-speaking countries. In 2013 WDFG donated Euro 45 thousand. WDFG has been in partnership with The One Foundation since 2006, selling bottled water and reuseable jute bags in its stores which fund life saving water and nutrition projects in Africa. In 2013, sales of these products helped to raise Euro 148 thousand to continue to assist people in droubt-stricken areas of the world such as North West Kenya. Fundación Padre Arrupe s primary objective is to contribute towards the economic, human and social development of El Salvador, a country which suffers the consequences of recent civil war and the effects of the most devastating natural disasters, circumstances which combine to drive down the standard of living in some of the poorest areas of Central America to unsustainable levels. The core aims of the Foundation are to develop education and training in these areas: assistance to build educational structures and to allow training as well as social, economic and cultural promotion in under-developed countries. enhancement of social and educational work performed by other institutions. social integration of children and youngsters through training and education. strengthening of women s training to increase their control of their own economic and social environment. WDFG has partnered Fundación Padre Arrupe since 2002 and in 2013 donated Euro 20 thousand. Fundación Xaley s mission is to ensure that Senegal s most vulnerable children and young people can develop their abilities in an environment which respects their rights and their culture. Working closely with local NGOs, Xaley is able to help some of the most vulnerable people in Senegal, including street children and youths who do not attend school. Key focus areas for Fundación Xaley are in education and training, health and hygiene, personal rights and financial support to enable young people to be given a stable future. WDFG has supported Fundación Xaley since 2009, specifically Xaley Ca Kanam in St. Louis, Senegal and in 2013 donated Euro 13 thousand. In the UK, WDFG has partnered The Rainbow Trust, an organisation which provides emotional and practical support to children with a life-threatening or terminal illness, and they current help around Page 31

32 WDF S.p.A. Part I -Director s Report as of December 31, ,000 families a year. In the 2013, WDFG raised and donated Euro 65 thousand through employee-driven fundraising. In the Middle East, WDFG has donated to three charities from its centre of operations in Jordan. The Group has partnered SOS Children s Village for 5 years; this is a project which cares for orphaned and abandoned children in specially built villages, providing them with love care and support in a family setting. In 2013, WDFG donated Euro 16 thousand. Other projects include Injaz which helps to prepare young people for a productive future and to which the Group donated Euro 7 thousand, and the King Hussein Cancer Foundation which received a donation of Euro 8 thousand. In Canada, WDFG has partnered Touchstone Family Association whose services are primarily focused on preserving and enhancing family relationships and in the second year of our partnership in 2013, the Group donated Euro 10 thousand. Prizes and Awards The Group has been granted with a number of industry awards over These are awards are testament to the Groups s continuous search for excellence and innovation. Frontier Awards Airport Retailer of the year and Best Partnership initiative of the year: The 2013 Frontier Awards known as the Oscar of the industry - took place at Cannes on October 23 and WDFG won two of them: Award to the Best Airport Retailer of the year. Best partnership initiative of the year with Luxottica. The Frontier Awards, instituted in 1985, were instigated to raise the standards of retailing and the quality of products in travel-retail. One of the factors that makes the Awards so special is the unique judging process, whit a panel of top executives from the industry who collectively boast a wealth of experience in the various product categories and geographical regions. Best Airport Retailer: The Airport Retailer of the Year award represents official recognition of the Group s expertise and achievements in this increasingly complex and dynamic global industry. When judging the awards, it was WDFG s innovation and their incorporation of the latest technologies into their stores, which really stood out for the panel of judges. They praised the creativity and foresight demonstrated by World Duty Free Group in its approach to travel retailing, with its focus on creating the ultimate airport shopping environments for its customers. In particular, its Contentainment digital marketing concept helps create dramatic and engaging in store theatre for its customers and really brings brands to life, whilst helping brand partners themselves to showcase and sample their products to best effect. Partnership initiative of the year: The award recognises the unique global partnership that has been created, which has taken the concept of partnership itself, to a new level of excellence. The combination of Luxottica s expertise and authority in sunglasses, and WDFG s global resources and understanding of travel retail, allowed WDFG to create a single team that is united in driving the growth and development of sales of this product category. World Airport Awards:: At the 2013 World Airport Awards held at Passenger Terminal EXPO in Geneva in March, and for the third consecutive year, Heathrow Terminal 5, where WDFG operates the duty free stores, was voted as Best Airport Shopping. Travellers from over 160 countries take part in the world s largest, annual airport passenger satisfaction survey, to decide award winners. The World Airport Awards are a global benchmark of airport excellence and Quality ranking. Page 32

33 WDF S.p.A. Part I -Director s Report as of December 31, 2013 The World Airport Awards are managed by the air transport rating organisation, Skytrax Research of London, UK. The Airport Survey has operated since 1999, and the 2013 Awards are based on 12.1 million airline passenger nominations, and include 395 airports worldwide. The survey evaluates 39 airport service and product key performance indicators - from check-in, arrivals, transfers, shopping, security and immigration through to departure at the gate. European Business Awards - Ruban d Honneur: WDFG has been named as one of the final 100 businesses and Ruban d Honneur recipients in the 2013/2014 European Business Awards sponsored by RSM international. Selected as one of ten finalists in the Infosys Business of the Year (turnover above Euro 150 million) category, WDFG will now go on to compete in the third and final round of judging resulting in 10 overall category winners to be announced in May. The 100 Ruban d Honneur recipients were chosen from 375 National Champions by an esteemed panel of judges made up of European business and political leaders, academics and entrepreneurs. DFNI product awards: WDFG obtained best marketing campaign awards for both for WDFG s Wine Festival aimed to showcase the extensive selection of value and fine wines from France, Spain and the New World on offer in the WDFG s stores and the WDFG & Lancôme campaign for Lancôme Wonderland 3D Exhibition at London Heathrow Terminal 5. The Moodie Report Dreamstore 2013: WDFG s operations in Heathrow were singled out for the Beauty category honours, with specific reference to Terminal 5 for its promotions, offer and service, and the luxury approach in Terminal 3. The Moodie Report Social Media Awards 2013: In the Moodie Report s inaugural airport social media, digital and mobile awards The Moodies, WDFG came top in three categories. WDFG was awarded Best Twitter Feed for an Airport Retailer, Best Use of Digital Media on the Concourse (for WDFG s innovative Contentainment programme) and top accolade, Best Use of Social Media Overall for the Group s activities across web, social media and in-store digital marketing Main risks and uncertainties faced by the World Duty Free Group WDFG is exposed to external risks and uncertainties arising from general economic conditions or those specific to the industries in which it works, from the financial markets and from frequent changes in legislation, as well as to risks generated by strategic decisions and operating procedures. WDF Group has maintained the risk management processes in place across the Group before demerging and the main risks identified are periodically brought to the attention of the control bodies. The main business risks are presented below. With regard to the main financial risks, for further information see the section Other information in the illustrative notes to the consolidated financial statements. Risks associated with the concentration of WDFG s activities in the United Kingdom and in Spain Considering the fundamental contribution of the concessions in the United Kingdom and in Spain to the WDFG s revenue during financial year 2013, about the 74.1% of the total revenue- the Page 33

34 WDF S.p.A. Part I -Director s Report as of December 31, 2013 loss or non-renewal of these concessions or any event which may negatively impact the volume of passengers transitioning through the UK or Spanish airports in which the Group operates (especially London Heathrow, Madrid Barajas and Barcelona El Prat), may adversely affect the financial, economic situation and the assets of the WDFG. Concessions in the United Kingdom and in Spain are expected to expire starting from 2020 and the Group works proactively to mitigate this risk by diversifying activities through the acquisition of new contracts, both within and outside UK and Spain, and the renewal of existing contracts. To reach these targets WDFG manages relationship with its licensors to understand and anticipate possible development opportunities in airports where already exist retail activities. Risks associated with the acquisition, renewal and keeping of WDFG concessions WDFG performs its core activity predominantly under concession agreements where it has the right to operate in certain airport commercial areas. Concessions are the Group s core asset and, consequently, WDFG focuses its strategy on renewing its existing concessions and on acquiring new ones. Due to the strong competition in this sector, in the case of new acquisitions and/or renewals of concessions, the terms provided by the licensors may be less favorable than those currently in place. The Group works proactively to mitigate the risk of not acquiring any new contracts or not renewing existing ones or not maintaining the profitability of the concessions. In particular the Group works constantly, with the support of its current licensors, to analyze traffic trends and customer needs in order to present the best offer and to manage Travel retail and Duty Free shops on action. This means constantly reviewing products offer and services standards in order to keep them competitive in terms of quality and price and suitable to consumers different spending habits. In some cases, the concession agreements in force may be terminated or cease to be in force for several reasons beyond the WDFG s control, including an order by the competent authorities or courts nullifying them, or the licensors not granting their prior approval to transactions resulting in a change in control of a member of the Group. In general, the Group mitigates this risk by following an approach aimed at building and maintaining a clear long-term partnership arrangement with the concession grantor, based in part on the development of concepts and commercial solutions that maximize the overall gain. Risks associated with events that may affect passenger traffic and their spending attitudes WDFG s activity largely relies on the sales to passengers in transit through the airports in which the Group is present. The Group performance, therefore, is influenced by the evolution in the travelers spending attitudes and shows a significant correlation with the variation in the number of passengers. The travelers spending attitudes and passenger traffic are both highly sensitive to the general economic trends and, in particular, the trends in consumers confidence, the availability and costs of consumer credit, inflation or deflation, interest and exchange rates and the unemployment levels. Particularly, impulse buying at an airport is strongly influenced by the exchange rate between the country of origin and the destination. It is essential to monitor the price perceived by the customer Page 34

35 WDF S.p.A. Part I -Director s Report as of December 31, 2013 as a result of exchange rate fluctuations, in order to boost sales of products that are especially good value in certain countries. The Group s widespread operations around the globe, and its constant attention to product supply and demand in countries of origin and destination, help it identify the advantage customers will perceive from favorable rates of exchange, mitigating in practice this risk. Furthermore, passenger traffic is also sensitive to events beyond the WDFG s control, including for example: political instability, acts or threats of terrorism, hostilities or wars, increased security control time, fuel price escalations, emerging alternatives to air travel (such as high speed rail), strikes, disruption or suspension of services provided by airlines, amongst others. Any event that may adversely impact air travelers spending attitudes, their dwelling time at the airport and passenger traffic (such as those mentioned above) may negatively affect the WDFG s sales thus may adversely affect the WDFG s financial-economic condition and assets. Risks associated with the changes to the regulations governing the duty-free sale of products and the sector in which WDFG operates The ability to operate under the duty-free regime is a competitive advantage for WDFG vis-a-vis those operators who cannot take advantage of this regime. Nevertheless, the respective governmental authorities of the countries where WDFG operates may amend or suppress the implementation of the duty-free regime for some categories of products, or modify the taxation regime applied to the products sold in traditional shops outside the airports, thus eliminating part of WDFG s competitive advantage. Furthermore, if the requirements for granting, maintaining or renewing certifications, licenses and authorizations to operate duty-free shops in airports are modified, and WDFG is not able to adapt to the new requirements, the Group may lose the authorization to operate under the duty-free regime, in general, in one of the markets where it operates or with respect to certain categories of products. Particularly, sale of tobacco is heavily regulated and, as a general matter, the applicable regulations of the countries where the Group operates, or its concession agreements, impose some advertising and/or sale restrictions of tobacco products. Moreover, an increasing number of national and local governments have prohibited, or are proposing to prohibit, smoking in public places. As the sale of tobacco represents an important share of the Group s revenues, if the Group were no longer able to sell tobacco products under the duty-free regime in general or in some of the markets where it is present, or if the tightening of the ban on smoking caused a reduction in the sales of these products, the WDFG s financial-economic condition and assets may be adversely affected. To mitigate these risks, with the support of external specialists, WDFG stays constantly abreast of legal developments so it can adapt its processes, procedures and controls to the new requirements and bring personnel up to date. It also relies on constant monitoring and frequent audits of service quality with respect to contractual and legal obligations. Risks associated with the loss of reputation by the Group towards licensors, clients and customs and fiscal authorities Reputation towards both clients and licensors has great importance for the WDFG. Reputation of the Group towards the licensors and also the clients represents one of the key elements based on which licensors grant or renew concession agreements. The reputation of WDFG towards clients Page 35

36 WDF S.p.A. Part I -Director s Report as of December 31, 2013 could be negatively affected by the reduction of the perceived quality of the services rendered, with a consequent loss of appeal and clients; the reputation of WDFG towards licensors could be negatively affected by the inability of the same to fulfill its contractual obligations. In addition the reputation of the Group could also be affected by third parties conduct; for instance, in those countries where it operates through management agreements with local partners, by such partners conduct. In relation to the above risks, during the years, WDFG obtained and maintained a good reputation towards both the licensors and the clients. An implicit confirmation of the good reputation of the Group is represented by its ability, during the years, to renew its expiring concession agreements and to obtain new ones. Furthermore, WDFG monitors constantly the quality of the services rendered to clients (in terms of perceived satisfaction and product safety) and to licensors (in terms of compliance with the quantitative and qualitative parameters set forth in the agreements). Risks associated with the Group operation in emerging markets WDFG is present in some emerging markets which in 2013, generated 13.9% of the consolidated revenue. The Group s strategy envisages expanding in further emerging markets, which typically present higher risks as compared to the OECD area markets. Among the most significant risks of operating in these countries are those arising from the interruption of operation due to political or social instability, in addition to the establishment/enforcement of foreign exchange restrictions which, if they were to occur, could effectively prevent the Group from repatriating the profits. If these risks occur, they may adversely affect the implementation of the WDFG s strategy in these markets. Risks associated with specific provisions contained in the concession agreements entered into by members of WDFG The concession agreements to which the members of WDFG are party contain provisions limiting the WDFG concessioner s ability to perform its activities in the relevant airports, including but not limited to, restrictions on the range of products to be offered for sale and to the applicable pricing policy. Furthermore, the concession agreements typically entitle the licensors, even when the licensee is not in breach, to unilaterally modify certain terms of the concession (sometimes without any corresponding indemnification right), for reasons of public interest or airport safety. By virtue of these clauses, which do not relate to the determination of the concession charges, the licensors may, among other things, modify the extension or the location of the WDFG stores, which could reduce the flow of passengers through them. Among other things, the need to comply with these conditions may prevent the Group from appealing or capturing of its clients, thus adversely affecting the financial and economic situation and the assets of the Group. Even if these risks exist, in the last three financial years none of the concession agreements entered into by WDFG has been unilaterally modified by the relevant licensor. The concession agreements of the travel retail sector, and also many of those entered into by WDFG are typically for initial fixed term periods and generally provide for the licensee obligation to pay guaranteed minimum annual charges, not always in relation with the revenues actually Page 36

37 WDF S.p.A. Part I -Director s Report as of December 31, 2013 generated or the flow of passengers. If the revenue generated by a concession is lower than that foreseen when the concession was acquired (even due to a reduction in the passengers spending attitude or, in some instances, in the number of passengers itself), the profitability of the concession may decrease or even become negative due to the obligation to pay the guaranteed minimum annual charges, thus adversely affecting the Group s financial-economic condition and assets. Risks associated with product procurement The risks associated with product procurement can be ascribed to two main factors: the degree of concentration WDFG shows with regard to some suppliers and the complexity of effectively managing the supply chain so as to continuously ensure a complete, balanced and effective assortment of products, meeting the consumer s expectations. It should be noted, however, that airport commercial areas are an appealing distribution channel for the suppliers, which enhances WDFG bargaining power. Furthermore, as regards the main suppliers that are also brand partners of the Group, the collaborative approach the Group has adopted with these suppliers may further reduce their interest in taking advantage of their potential bargaining power. Risks associated with the defined benefit pension plan of WDFG UK Ltd The Group has pension obligations through its subsidiary WDFG UK Ltd (the Company) who sponsors a funded defined benefit pension plan (the Plan) for qualifying UK employees. The Plan is administered by a separate board of Trustees which is legally separate from the Company. The Trustees are composed of representatives of both the employer and employees. The Trustees are required by law to act in the interest of all relevant beneficiaries and are responsible for the investment policy with regard to the assets plus the day to day administration of the benefits. Under the Plan, employees are entitled to annual pensions on retirement at age 65 of one-sixtieth of final pensionable salary for each year of service. Pensionable salary is defined as basic salary less the Basic State Pension. Benefits are also payable on death and following other events such as withdrawing from active service. No other post-retirement benefits are provided to these employees. The last funding valuation of the Plan was carried out by a qualified actuary as at April 5, The Company agreed to pay deficit contributions and the next funding valuation is due no later than April 5, 2014 at which progress towards full-funding will be reviewed The Plan exposes the Company to a number of non controllable risks, the most significant of which are: i) asset volatility: the liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, this will create a deficit; ii) changes in bond yields: a decrease in corporate bond yields will increase the value placed on the Plan's liabilities for accounting purposes, although this will be partially offset by an increase in the value of the Plan s bond holdings; iii) inflation risk: a significant proportion of the Plan s benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities; and iv) life expectancy: the majority of the Plan s obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the liabilities. The Company remains exposed to risks from the Plan, as part of the pension strategy the Company and Trustees have agreed a long-term strategy to reduce pension risks over time, based on criteria set by the Company achieved through a package of liability reduction and investment Page 37

38 WDF S.p.A. Part I -Director s Report as of December 31, 2013 measures. As part of this strategy, the Trustees of the Plan entered into a bulk annuity transaction with Legal & General on March 28, 2013 such that Legal & General would pay to the Trustees the future pension payments of all pensioners and dependants who retired on or before September Corporate Governance All information on corporate governance is included in the Corporate Governance Report (prepared in accordance with art. 123-bis of the Consolidated Finance Act), part of this Annual Report. It is also available online at Management and coordination The Board of Directors held on December 13, 2013 considered that WDF S.p.A. is not subject to management and coordination by the parent company, Edizione S.r.l., pursuant to art bis of the Italian Civil Code. The Board of Directors, also taking into consideration the short period of the company s activities, considered the relations heretofore occurred with Edizione S.r.l. (through Schematrentaquattro S.p.A.) do not provide evidences for management and coordination activity Related party transactions With the execution of the deed of demerger on September 26, 2013, filed for registration with the Novara Companies Register on September 27, 2013, Autogrill S.p.A., the assigning company, transferred to WDF S.p.A. the beneficiary company fully owned by Autogrill S.p.A. and incorporated on March 27, 2013 specifically for the demerger s implementation ( WDF or Beneficiary Company ) the Autogrill Group s operations in the sector Travel Retail & Duty Free and more specifically the entire interest held by Autogrill S.p.A. in the Spanish company World Duty Free Group S.A.U. ( WDFG SAU ), the parent company of a group operating in this sector, through which Autogrill S.p.A. operated the mentioned above activities (the Demerger ). The partial proportional demerger became effective on October 1, For further information about the Demerger please refer to, also to this Directors Report and to the illustrative notes to the consolidated financial statements and to the separate financial statements, the information document related to the Demerger and prepared in accordance with Article. 57 (I) of Consob Regulation of May 14, 1999 issued on September 27, 2013 on the WDF website ( and on Borsa Italiana website ( (the Information Document ). Other transactions with the Group s related parties do not qualify as atypical or unusual and fall within the normal sphere of operations. They are conducted in the interests of WDF S.p.A. and the WDFG on an arm s length basis. See the section Other information in the notes to the consolidated financial statements and to the separate financial statements for further information on related party transactions, including the disclosures required by Consob Resolution of 12 March 2010 (amended with Resolution of 23 June 2010). Page 38

39 WDF S.p.A. Part I -Director s Report as of December 31, 2013 The Procedure for related party transactions is available online at Statement pursuant to art (10) of the Regulations for Markets Organized and Managed by Borsa Italiana S.p.A. In respect of art. 36 of Consob Regulation no of 29 October 2007 on conditions for the listing of companies that control entities formed or governed under the laws of countries outside the European Union that are of material significance to the consolidated financial statements, we report that four companies fall under these provisions (Aldeasa Jordan Duty Free Shops Ltd, World Duty Free Group US Inc, World Duty Free North America LLC, Aldeasa Mexico de CV), that suitable procedures have been adopted to ensure full compliance with said rules, and that the conditions stated in art. 36 have been satisfied Research and development In relation to the nature of its activities, the Group invests in innovation and improvements to the quality of services. It does not conduct technological research as such Treasury shares At December 31, 2013, WDF S.p.A. does not held treasury shares. Its subsidiaries do not own equity or other instruments representing the share capital of WDF S.p.A., and did not at any time during the year, either directly or through trust companies or other intermediaries. WDF S.p.A. and its subsidiaries, as of December 31, 2013 do not own equity or other instruments representing the share capital of the ultimate parents, and did not at any time during the year, either directly or through trust companies or other intermediaries Significant non-recurring events and transactions Except for the partial proportional demerger of Autogrill S.p.A. in favor of WDF S.p.A., during 2013 there were no significant non-recurring events or transactions as defined by Consob Resolution of 27 July 2006 and Consob Communication DEM/ of 28 July Atypical or unusual transactions In 2013 there were no atypical and/or unusual transactions as defined by Consob Communications DEM/ of April 28, 2006 and DEM/ of July 28, 2006, unless the partial proportional demerger of Autogrill S.p.A. in favor of WDF S.p.A., as communicated to the market, in accordance with Consob Regulation of May 11, Page 39

40 WDF S.p.A. Part I -Director s Report as of December 31, Reconciliation between parent and consolidated equity in thousand of Euro Equity as of March 27, 2013 Changes in equity Demerger Profit (loss) for 2013 Equity as of December 31, 2013 WDF S.p.A. separate financial statements 130,0 (8.954,6) ,0 (958,4) ,9 Effect of the consolidation of subsidiaries' financial statements and related deferred taxation ,9 ( ,0) , ,6 Translation reserve - (44.903,2) - - (44.903,2) Hedging reserve* - (999,1) - - (999,1) Group consolidated financial statements 130, , , ,2 Equity attributable to non-controlling interests 3.102, , ,5 Total consolidated equity 130, , , ,7 * Net of tax effects Shareholders Meeting The Board of Directors, in accordance with art. 2364(2) of the Italian Civil Code and art. 21 of the by-laws, has decided to call the Annual General Meeting of shareholders within the extended deadline of 180 days after the end of the business year, in consideration of needs and obligations relating to the preparation of the consolidated financial statements and taking account of the extraordinary transaction carried out during the year ended December 31, Page 40

41 WDF S.p.A. Part I -Director s Report as of December 31, Proposal for approval Proposal for approval of the financial statements and allocation of the 2013 loss Dear Shareholders, The year ended December 31, 2013 closed with a loss of Euro 958,417. Recommending, for all further details, consultation of the financial statements published and made available according to the protocol set by law, the Board of Directors submits for your approval the following The Annual General Meeting of shareholders: motion having examined the financial statements at and for the year ended December 31, 2013, which close with a loss of Euro 958,417; having acknowledged the reports of the Board of Statutory Auditors and of the independent auditors, KPMG S.p.A.; hereby resolves a) to approve the financial statements of World Duty Free S.p.A. at and for the year ended 31 December 2013, showing a loss of Euro 958,417; b) to carry forward the loss for the year, in the amount of Euro 958,417. March 10, 2014 The Board of Directors Page 41

42 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 PART II CONSOLIDATED FINANCIAL STATEMENTS 1. Consolidated financial statements 1.1 STATEMENT OF FINANCIAL POSITION Notes 2013 As of December 31, of which related 2012* parties of which related parties ASSETS Current assets 283,450 2, , Cash and cash equivalents ,772-18,684 - Other financial assets ,994-12,720 - Tax assets ,019-7,798 - Other receivables ,595 2,013 12, Trade receivables , , Inventories , ,462 - Non-current assets 1,639,759-1,372,496 - Property, plant and equipment ,100-80,355 - Investment property ,556-6,932 - Goodwill , ,117 - Other intangible assets , ,874 - Investments ,822-9,136 - Other financial assets ,228-3,975 - Deferred tax assets ,100-30,091 - Other receivables ,241-14,016 - TOTAL ASSETS 1,923,209 2,031 1,594, LIABILITIES AND EQUITY LIABILITIES 1,504,074 21, ,055 71,526 Current liabilities 432,928 21, ,348 1,526 Trade payables ,493 15, ,843 - Tax liabilities ,351-18,694 - Other payables ,948 2,287 70,693 1,447 Other financial liabilities ,278 3, Due to banks ,915-63,839 - Provisions for risks and charges ,943-12,403 - Non-current liabilities 1,071, ,707 70,000 Other payables ,752-2,000 - Other financial liabilities ,751-76,408 70,000 Loans, net of current portion , ,299 - Deferred tax liabilities ,939-90,924 - Defined benefit plan ,904-10,222 - Provisions for risks and charges ,281-6,854 - EQUITY 419,135 (4,006) 598,198 (3,664) - attributable to owners of the parent ,983 (4,006) 595,541 (3,664) - attributable to non-controlling interests ,152-2,657 - TOTAL LIABILITIES AND EQUITY 1,923,209 17,664 1,594,253 67,862 * The combined comparative figures for the year ended December 31, 2012 have been prepared in accordance with paragraph "Basis of preparation of the financial information" Page 42

43 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, INCOME STATEMENT Notes For the period from March 27, 2013 to December 31, 2013 of which related parties 2013* For the twelve months periods ended 31 December of which related parties 2012* of which related parties Revenue ,017-2,078, ,001,973 - Other operating income ,819-26, ,607 1,191 Total revenue and other operating income 553,836-2,104, ,028,580 1,191 Supplies and goods (222,958) - (847,711) - (819,989) - Personnel expense (67,189) - (220,810) 610 (205,891) - Leases, rentals, concessions and royalties (169,217) - (657,459) - (615,470) - Other operating expense (33,697) (1,521) (123,674) (4,267) (124,894) (2,599) Depreciation and amortization (24,776) - (90,708) - (112,379) - Impairment losses on property, plant and equipment and intangible assets (566) - (569) - (287) - Operating profit 35,433 (1,521) 163,562 (3,314) 149,670 (1,408) Financial income ,219-10, Financial expense (13,808) - (45,060) (692) (19,290) (2,258) Impairment and revaluation of financial assets (119) - 2,041-1,844 - Pre-tax profit 24,725 (1,521) 131,344 (4,006) 133,041 (3,664) Income tax (4,906) - (20,469) - (30,029) - Profit for the year 19,819 (1,521) 110,875 (4,006) 103,012 (3,664) Profit for the year attributable to: - owners of the parent 16,480 (1,521) 105,826 (4,006) 100,727 (3,664) - non-controlling interest 3,339-5,049-2,285 - Earnings per share (in Euro cents) basic diluted * The combined economic figures for the twelve months periods ended 31 December 2013 and 2012 have been prepared in accordance with paragraph "Basis of preparation of the financial information" 1.3 STATEMENT OF COMPREHENSIVE INCOME Notes For the period from March 27, 2013 to December 31, 2013 For the twelve months periods ended December 31, 2013* 2012* Profit for the year 19, , ,012 Items that will not be subsequently reclassified to profit or loss Remeasurement of the defined liability (asset) (3,474) (11,980) (5,235) Tax on items that will not be reclassified to profit or loss ,253 1,204 Total items that will not be subsequently reclassified to profit or loss (2,840) (9,727) (4,031) Items that will be reclassified subsequently to profit or loss Effective portion of fair value change in cash flow hedges ,479 4,658 (2,463) Foreign currency translation differences for foreign operations (4,207) (23,308) 10,642 Gains (losses) on net investment hedge (826) 6,208 (6,760) Tax on items that will be reclassified subsequently to profit or loss (196) (3,260) 2,767 Total items that will be reclassified subsequently to profit or loss (3,750) (15,702) 4,186 Total comprehensive income for the year 13,229 85, ,167 - attributable to owners of the parent 9,737 80, ,818 - attributable to non-controlling interests 3,492 5,178 2,349 * The combined economic figures for the twelve months periods ended 31 December 2013 and 2012 have been prepared in accordance with paragraph "Basis of preparation of the financial information" Page 43

44 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, STATEMENT OF CHANGES IN EQUITY (note ) Reserve Hedging reserve Translation reserve Equity attributable to owners of the parent Equity attributable to non-controlling interests Equity Balance as of January 1, 2012* 592,866 (2,534) (25,648) 564,684 1, ,319 Comprehensive income for the period Profit for the year 100, ,727 2, ,012 Effective portion of fair value change in cash flow hedges, net of tax effect (1,724) (1,724) (1,724) Translation differences on foreign investments 8,881 1,697 10, ,642 Gains (losses) on net investment hedge, net of tax effect (4,732) (4,732) (4,732) Remeasurement of the defined liability (asset), net of tax effect (4,031) (4,031) (4,031) Total comprehensive income for the period 105,577 (1,724) (3,035) 100,818 2, ,167 Contributions by and distributions to owners of the parent Dividend distribution (70,000) (70,000) (1,327) (71,327) Changes in consolidated Group and other movements (5) (5) (5) Share-based payments Total contributions by and distributions to owners of the parent (69,961) 0 0 (69,961) (1,327) (71,288) Balance as of December 31, 2012* 628,482 (4,258) (28,683) 595,541 2, ,198 * The combined economic figures for the twelve months periods ended 31 December 2013 and 2012 have been prepared in accordance with paragraph "Basis of preparation of the financial information" Share Capital Legal reserve Reserve Hedging reserve Transalation reserve Equity attributable to owners of the parent Equity attributable to non-controlling interests Balance as of January 1, 2013* ,482 (4,258) (28,683) 595,541 2, ,198 Comprehensive income for the period Profit for the year , ,826 5, ,875 Effective portion of fair value change in cash flow hedges, net ,259-3,259-3,259 Translation differences on foreign investments - - (2,870) - (20,567) (23,437) 129 (23,308) Gains (losses) on net investment hedge, net of tax effect ,347 4,347-4,347 Remeasurement of the defined liability (asset), net of tax - - (9,727) - - (9,727) - (9,727) Total comprehensive income for the period ,229 3,259 (16,220) 80,268 5,178 85,446 Contributions by and distributions to owners of the Incorporation of WDF SpA (March ) Demerger effect 63,600 12,720 (76,320) Transaction costs for the issuance and the listing of the shares - - (8,956) - - (8,956) - (8,956) Dividend distribution - - (220,000) - - (220,000) (1,080) (221,080) Changes in consolidated Group and other movements - - (35,962) - - (35,962) 1,397 (34,565) Share-based payments - - (38) - - (38) - (38) Total contributions by and distributions to owners of the parent 63,720 12,720 (341,266) - - (264,825) 316 (264,509) Balance as of December 31, 2013* 63,720 12, ,445 (999) (44,903) 410,983 8, ,135 * The combined financial figures for the twelve months periods ended 31 December 2013 and 2012 have been prepared in accordance with paragraph "Basis of preparation of the financial information" Equity In thousand of Euro Share Capital Legal reserve Reserve Hedging reserve Transalation reserve Equity attributable to owners of the parent Equity attributable to non-controlling interests Balance as of March 27, 2013* Incorporation of WDF SpA (March ) Demerger effect 63,600 12, ,644 (2,033) (42,885) 409,045 6, ,342 Transaction costs for the issuance and the listing of the shares - - (8,956) - - (8,956) - (8,956) Comprehensive income for the period March 27, December 31, 2013 Profit for the period March 27, December 31, , ,480 3,339 19,819 Effective portion of fair value change in cash flow hedges, net of tax effect for the period March 27, December 31, 2013 Equity ,034-1,034-1,034 Transalation differences on foreign investments for the period March 27, December 31, (2,919) - (1,441) (4,360) 153 (4,207) Gain (losses) on net investment hedge, net of tax effect for the period March 27, December 31, (577) (577) - (577) Remeasurement of the defined liability (asset), net of tax effect for the period March 27, December 31, (2,840) - - (2,840) - (2,840) Total comprehensive income for the period March 27, December 31, ,721 1,034 (2,018) 9,737 3,492 13,229 Contribution by and ditribution to owners of the parent Dividends distribution (1,020) (1,020) Change in Group Consolidated area - - 1, ,097 (617) 480 Share-base payments costs for the period March 27, December 31, 2013 (71) - - (71) - (71) Totale contribution by and ditribution to owners of the parent - - 1, ,026 (1,638) (611) Balance as of December, * 63,720 12, ,445 (999) (44,903) 410,983 8, ,135 * The combined financial figures for the twelve months periods ended 31 December 2013 and 2012 have been prepared in accordance with paragraph "Basis of preparation of the financial information" Page 44

45 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, STATEMENT OF CASH FLOWS Notes For the period from March 27, 2013 to December 31, 2013 For the twelve months periods ended December 31, 2013* 2012* Opening cash and cash equivalents ,684 45,358 Pre-tax profit and net financial expense for the period 35, , ,514 Amortization, depreciation and impairment losses on non-current assets, net of reversals ,342 91, ,666 Adjustments and (gains)/losses on disposal of financial assets (2,041) (1,844) (Gains)/losses on disposal of non-current assets Change in working capital (26,682) (20,159) (7,273) AENA Advances (Net) 7,835 (261,925) - Net change in non-current non-financial assets and liabilities 10,790 13,087 (5,722) Cash flows from / (used in) operating activities 52,745 (13,670) 250,310 Taxes paid (19,960) (50,800) (42,470) Interest paid (12,330) (31,582) (18,349) Net cash flows from / (used in) operating activities 20,455 (96,052) 189,491 Acquisition of the US Retail Division (2,015) (76,124) - Acquisition of property, plant and equipment and intangible assets (30,218) (49,689) (28,407) Proceeds from sale of non-current assets Net change in non-current financial assets (158) (26,077) (1,589) Net cash flows from / (used in) investing activities (32,312) (151,738) (29,879) Opening of new non-current loans ,198 1,124,922 - Repayments of non-current loans (93,800) (645,111) (122,235) Repayments of current loans, net of new loans (744) 5,973 6,277 Dividends paid (80) (220,080) (71,327) Tansaction costs for the issuance and the listing of the shares (5,681) (5,681) Capital contribution Other cash flows (7,647) (6,834) 730 Net cash flows from / (used in) financing activities 6, ,319 (186,555) Net increase / (decrease) in cash and cash equivalents (5,481) 5,529 (26,943) Demerger effect 29, Effect of exchange rate fluctuation on net cash and cash equivalents (1,441) (1,441) 269 Closing cash and cash equivalents ,772 22,772 18,684 * The combined financial figures for the twelve months period ended 31 December 2013 and 2012 have been prepared in accordance with paragraph "Basis of preparation of the financial information" Page 45

46 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Notes to the consolidated financial statements Group operation World Duty Free S.p.A. (hereafter also referred to as WDF S.p.A. ) is a public limited company organized in accordance with the laws of the Italian Republic. The WDF S.p.A. s registered office is located in Novara, Via Greppi 2. The secondary office is located in Milan, Corso di Porta Vittoria, 16. WDF S.p.A. and its subsidiaries (the WDF Group ) are engaged, almost exclusively at airport venues, in the sale of fragrances and cosmetics, spirits, tobacco products and other items with duty free and duty paid tax status ( Travel Retail & Duty Free sector). The WDF Group operates stores throughout the world in the following geographic regions: (i) United Kingdom; (ii) rest of Europe (mainly Spain, but also Italy and Germany); (iii) Americas (Brazil, Canada, Chile, Curaçao, Jamaica, Mexico, Peru and United States of America); and (iv) Asia and Middle East (Jordan, Kuwait, India, Sri Lanka and Cape Verde). The WDF Group runs its activities under the duty free and the duty paid regimes. In particular, under the duty free regime, goods sold are exempt from import taxes, customs and other taxes while under the duty paid regime, import taxes and other taxes are applied to the goods sold. As regarding the stores managed in the European Union, in accordance with Directive 91/689/CEE of December 16, 1991 the duty paid regime applies if the passenger s final destination is domestic or a European Union member state, while the duty free regime applies if the passenger s final destination is outside of the European Union. The airport stores are typically operated pursuant to concession agreements entered into by the airport authorities (as licensors) and the group (as licensee). The conditions, duration and fees payable are established in each of the concession agreements, the most significant of which are those signed with AENA and former BAA Airports Limited in the case of Spain and the United Kingdom, respectively. WDF S.p.A. was incorporated on March 27, 2013 and registered with the Novara Company Register from April 3, The duration of the company is fixed at December 31, 2070 and may be extended on one or more occasions. The consolidated financial statements of the WDF Group for the year ended December 31, 2013 are the first consolidated financial statements of the company. Demerger of Autogrill S.p.A. in favor of WDF S.p.A. On October 1, 2013 the partial proportional demerger of Autogrill S.p.A. in favor of WDF S.p.A. (the Demerger ) became effective, following the resolutions of the respective shareholders meetings on June 6, The project of the Demerger was prepared jointly by Autogrill S.p.A. and WDF S.p.A. boards of directors pursuant to Sections 2506-bis and 2501-ter of the Civil Code and was approved by those boards of directors on May 3, The project of the Demerger was made available on Autogrill s Page 46

47 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 website on May 4, The deed of Demerger was executed on September 26, 2013 and it was filed for registration with the Novara Companies Register on September 27, The purpose of the Demerger was pre-eminently industrial and is aimed to separate the two sectors, Food & Beverage and Travel Retail & Duty Free, in which Autogrill Group operated, considering that these two sectors have substantially different features from each other, both in terms of market and competitive context of reference, as well as in terms of dynamic management and development strategies; the two sectors are also managed independently and no significant synergies connect one to the other. These features are reflected in the different historical and projected results of the two sectors and development strategies that they will enact in the coming years. The Demerger aimed to create two distinct groups, focused in their own businesses, and will allow each of them to better pursue its strategies and improve its performance by leveraging their respective strengths. With the Demerger, Autogrill S.p.A. transferred to WDF S.p.A. its investment in World Duty Free Group SAU ( WDFG SAU ), a parent company of a group operating in the Travel Retail & Duty Free sector ( Group WDFG SAU ). As a result of the Demerger, on October 1, 2013, the net assets of WDF S.p.A. increased by Euro 428,878 thousand and, at the same time, the net assets of Autogrill S.p.A. decreased by the same amount. Therefore, the shareholders of Autogrill S.p.A. received, for no consideration, shares in WDF S.p.A. in the same number and of the same class of those previously held in Autogrill S.p.A.. Since October 1, 2013 the shares of WDF S.p.A. and of Autogrill S.p.A. have been listed separately on the MTA (Mercato Telematico Azionario) in Milan. The two companies operate separately and independently and are related parties because they are both subsidiaries of Schematrentaquattro S.p.A., which holds, as at December 31, % of the share capital of Autogrill S.p.A. and 50.1% of the share capital of WDF S.p.A.. Schematrentaquattro S.p.A. has changed its legal status from Schematrentaquattro S.r.l. during Schematrentraquattro S.p.A. is fully owned by Edizione S.r.l.. Basis of preparation of the financial information As already reported in the previous paragraph, WDF S.p.A. has been established on March, Therefore, the company has prepared the first consolidated financial statements for the period from the incorporation date and December 31, 2013, closing date of the financial year (the Consolidated Financial Statements ). For the purpose of the Demerger, WDF S.p.A. has prepared and issued on September 26, 2013 the information document, pursuant to Article 57, paragraph 1, letter d) of the Issuers Regulation (the Information Document ) for the admission to trading on the MTA of all the shares of WDF, in order to make available information deemed by Consob equivalent to the information contained in a listing prospectus. The Demerger, with the effective date October 1, 2013 is considered a "business combination involving entities or businesses under common control". It is therefore excluded from the application of IFRS 3 and IFRIC 17 and has been recognized applying the continuity of values principle. Page 47

48 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 WDFG SAU has prepared the consolidated financial statements for the year ending at December 31, 2013 and 2012 in accordance with the International Financial Reporting Standards endorsed by the European Union (EU-IFRSs). Taking into consideration the interpretation and accounting literature regarding the business combinations under common control and in order to better understand the financial information of the WDF Group, the Consolidated Financial Statements also report the following information: i. in the column for the period from March 27, 2013 to December 31, 2013 included in the income statement, statement of comprehensive income and cash flows statement, the financial and economic information of WDF S.p.A. for the period from March 27, 2013 to December 31, 2013 and of the Group WDFG SAU for the period from October 1, 2013, the Demerger s effective date, to December 31, 2013; ii. iii. in the column for the twelve months period ended December 31, 2013 included in the income statement, statement of comprehensive income and cash flow statement, the combined financial and economic results of the WDF Group for the full 2013 year, irrespectively of the Demerger s effective date. This column represents, therefore, the economic and financial results of WDF S.p.A. for the period from March 27, 2013 to December 31, 2013 and the consolidated results of the Group WDFG SAU for the twelve months period ended December 31, 2013; in the column for the twelve months period ended December 31, 2012 included in the income statement, statement of comprehensive income and cash flow statement the combined economic and financial information of Group WDFG SAU subject to the Demerger for the twelve months ended December 31, 2012, based on the combined financial statements for the years ended December 31, 2012, 2011 and 2010 included in the Information Document. In order to better understand the economic and financial information included in the consolidated financial statements, the table below is reported: Data presented in the 2013 Consolidated financial statements "For the period from March 27, 2013 to December 31, 2013" "For the twelve months period ended 31 december 2013" "For the twelve months period ended 31 december 2012" accounting data of WDF S.p.A. for the year 2013 (from March 27, 2013 to December 31, 2013) + consolidated data of WDFG SAU for the period from October 1, 2013 (Demerger's effective date) to December 31, 2013 accounting data of WDF S.p.A. for the year 2013 (from March 27, 2013 to December 31, 2013) + consolidated data of WDFG SAU for the period from January 1, 2013 to December 31, 2013 consolidated financial data of WDFG SAU as of December 31, 2012 Furthermore, in the column as of December 31, 2012 included in the statement of financial position, are represented the financial information of Group WDFG SAU subject to the Demerger for the twelve months ended December 31, 2012, based on the historical data included in the Autogrill S.p.A. consolidated financial statements as of December 31, 2012 and in the Information Document, adjusted to take into consideration the impact of the IAS 19 revised. Page 48

49 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 The combined data as of December 31, 2012 contain some reclassifications compared with combined data presented in the Information Document, as set out below: i. the liabilities related to the defined contributions plan has been reclassified from Employee benefit plan to Other payables current for Euro 874 thousand; ii. the fair value of interest rate hedging derivatives has been reclassified from Other financial liabilities current to Other financial liabilities non current for Euro 6,408 thousand; and iii. the receivables from credit card companies has been reclassified from Other receivables current to Other financial assets current for Euro 12,449 thousand. Cash flow statement has been modified consequently. Furthermore, the effect of the application of the IAS 19 revised is shown in the following table: Combined data as of December 31, 2012 included in the Information Document Effects of the application of the IAS 19 revised Combined data as of December 31, revised Deferred tax assets 27,877 2,214 30,091 Defined benefit plan assets 7,103 (7,103) - Deferred tax liabilities 92,557 (1,633) 90,924 Defined benefit plan liabilities 595 9,627 10,222 Equity - attributable to owners of the parent 608,424 (12,883) 595,541 On September 6, 2013, the WDF Group acquired from companies under common control the business US Retail as better specified in the following note 2.2. The economic and financial effects of this acquisition have been represented in the income statement, statement of comprehensive income and cash flow statement columns for the period from March 27, 2013 to December 31, 2013 and for the twelve months period ended December 31, 2013 of the Consolidated Financial Statements from its effective date. For further information, refer to note 2.2. The items relating to transactions between companies remaining within the Autogrill S.p.A. Group post Demerger and the companies within the WDF Group are presented in the Consolidated Financial Statements as transactions with related parties. Based on what reported above, the illustrative notes included in the Consolidate Financial Statements report the balances as of December 31, 2013 and 2012 with regard the financial information of the WDF Group and the economic data for the period from March 27 to December 31, 2013 and for the twelve months periods ended December 31, 2013 and 2012 with regard to the income statement, total comprehensive income, cash flows statement and statement of changes in equity information. The 2013 tables representing movement of assets and liabilities included in the illustrative notes include an interim balance as of September 30, 2013, in order to represent the effect of the Demerger. 2.1 ACCOUNTING POLICIES AND BASIS OF CONSOLIDATION The main valuation criteria and significant accounting policies adopted in the preparation of these consolidated financial statements are described below. These accounting principles have been consistently applied to all the years presented in this document, unless otherwise stated. Page 49

50 General standards World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (International Accounting Standards IAS and International Financial Reporting Standards IFRS) issued by the International Financial Reporting Standards Board and endorsed by the European Union (EU-IFRSs), supplemented by the respective interpretations (Standing Interpretations Committee SIC and International Financial Reporting Interpretations Committee IFRIC) (all of the abovementioned standards and interpretations are being hereinafter referred to as the IFRSs ). The abbreviation EU-IFRSs shall mean all International Financial Reporting Standards, all International Accounting Standards (IAS), all interpretations of the International Reporting Interpretations Committee (IFRIC), previously called Standing Interpretations Committee (SIC), that, on the date these consolidated financial statements were approved, had been endorsed by the European Union in accordance with the procedure set forth in EC Regulation No. 1606/2002 endorsed by the European Parliament and the European Council on July 19, Moreover, please note that the EU-IFRSs were applied consistently for all of the periods presented in this document. The Consolidated Financial Statements have been prepared in accordance with the resolutions regarding the financial statement presentation format adopted by CONSOB in implementation of Article 9 of Legislative Decree No. 38/2005 and other CONSOB regulations and resolutions concerning financial statements. The Consolidated Financial Statements have been prepared under the historical cost convention, except for the items that, in accordance with IFRS, are measured at fair value, as specified in the individual accounting policies below, and in accordance with the going concern assumption. They have been prepared with clarity and to give a true and fair view of the financial position, results of operations and cash flows of the WDF Group. New standards and interpretations not yet applicable The table below lists the IFRS, interpretations, amendments to existing standards and interpretations or specific provisions contained in standards or interpretations approved by the IASB, showing those that were endorsed and not endorsed by the European Union as of the date of the preparation of the Consolidated Financial Statements. Page 50

51 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Description Endorsed by the EU at the date of the financial statements Effective date IFRS 9 Financial instruments NO Annual periods beginning on or after January 1, 2018 Annual improvements to IFRSs Cycle NO Annual periods beginning on or after January 1, 2014 Amendments to IFRS 10, IFRS 12 and IAS 27 on consolidation for investment entities Amdendements to IAS 36 "Impairment of assets" on recoverable amounts disclosures Financial instruments: Recognition and Measurement - Amdendements to IAS 39 "Novation of Derivatives" Amendments to IFRS 10, IFRS 11 and IIFRS 12: Consolidated Financial Statements, Joint Arrangements and Disclosure of Interest in Other Entities - Transition Giudance December 2013 Annual periods beginning on or after January 1, 2014 December 2013 Annual periods beginning on or after January 1, 2014 December 2013 Annual periods beginning on or after January 1, 2014 April 2013 Annual periods beginning on or after January 1, 2014 Amendment to IAS 32 Financial instruments Presentation Offsetting financial assets and financial liabilities December 2012 Annual periods beginning on or after January 1, 2014 IFRS 10 "Consolidated Financial Statements" December 2012 Annual periods beginning on or after January 1, 2014 IFRS 11 "Joint Arrangements" December 2012 Annual periods beginning on or after January 1, 2014 IFRS 12 "Disclosure of interests in Other Entities" December 2012 Annual periods beginning on or after January 1, 2014 IAS 27 "Separate Financial Statements" December 2012 Annual periods beginning on or after January 1, 2014 IAS 28 "Investments in Associates and Joint Ventures" December 2012 Annual periods beginning on or after January 1, 2014 The WDF Group is in the process of assessing the impact that the adoption of these standards could have on its financial statements. However, based on a preliminary analysis, no significant effects should arise from the application of the above mentioned accounting standards. Structure, format and content of the consolidated financial statements The WDF Group made the following choices regarding the presentation format and content of the financial statements: i. in the statement of financial position, current and non-current assets and liabilities are shown separately; ii. iii. iv. in the income statement, costs and revenue are classified by nature; the statement of comprehensive income is presented separately; the statement of cash flows is presented in accordance with the indirect method. The presentation formats used, as described above, are those best suitable to present the results of operations, financial position and cash flows of the WDF Group. These consolidated financial statements are denominated in Euro, the presentation currency of the WDF Group. The amounts shown in the financial statement schedules and the detail included in the accompanying notes are in thousands of Euro, unless otherwise stated. Page 51

52 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Consolidation scope and criteria Consolidation area The companies included in the consolidation area of WDF Group are listed in the Annex List of consolidated companies. The US Retail Division entered the scope of consolidation of Group WDFG SAU during the course of See paragraph 2.2 for details about the US Retail acquisition. Subsidiaries Subsidiaries are companies in which the WDF Group has the power directly or indirectly to govern financial and operating policies and to receive the resulting benefits. Control may be exercised through direct or indirect ownership of the majority of voting rights, or through contractual or legal agreements, regardless of the type of investment. When assessing whether control exists, the existence of potential exercisable voting rights at the statement of financial position date is considered. In general, control is assumed to exist when the WDF Group holds directly or indirectly more than 50% of the voting rights. Subsidiaries are fully consolidated from the date on which the WDF Group obtains control over the company up to the date on which control is transferred to a third party. The financial statements of the companies included in the consolidated area of WDF Group have been adjusted, where necessary, in order to ensure compliance with the accounting policies of the WDF Group. Subsidiaries are fully consolidated on a line by line basis as follows: i. the assets and liabilities, revenue and costs of the subsidiaries are consolidated line by line and the proportionate share of equity and profit (loss) are allocated to non controlling interests where applicable; equity and profit (loss) attributable to non controlling interests are reported separately in equity, the income statement and the statement of comprehensive income; ii. the WDF Group applies the acquisition method to business combinations except for those under common control. Under the acquisition method, the consideration transferred in a business combination is measured at fair value, calculated as the sum of the fair value of the assets transferred and of the liabilities assumed by the WDF Group on the date of acquisition and the equity instruments issued in exchange for control of the company acquired. Costs related to the acquisition are recorded in the statement of comprehensive income as incurred. The identifiable assets acquired and the liabilities assumed are recognized at fair value on the acquisition date, except for the following items which are recognized in accordance with their relevant accounting policy: deferred tax assets and liabilities; employee benefit assets and liabilities; liabilities or equity instruments relating to share-based payments of the company acquired or to payments based on the shares of the WDF Group, issued to replace contracts of the company acquired; assets held for sale and discontinued operations. Page 52

53 iii. World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 For each business combination, any non-controlling interest in the acquiree is measured at fair value or in proportion to the non-controlling interests in the acquiree's net identifiable assets. Goodwill arising from the acquisition is recognized as an asset and is initially measured as the excess between the consideration transferred, the amount of any noncontrolling interest in the acquire and the acquisition date fair value of any previously equity interest in the acquire over the fair value of the identifiable assets acquired and the identifiable liabilities assumed. In case of a business combination achieved in stages, the interest previously held in the acquiree is remeasured at its acquisition-date fair value and any resulting gain or loss is recognized in profit or loss. significant gains and losses, with the related tax effects, arising from transactions made between fully consolidated companies, and not yet realized with third parties, are eliminated, unless the transaction provides evidence of impairment of the asset transferred. Intercompany payables and receivables, costs and revenues, and financial income and expenses are also eliminated if significant. World Duty Free Group North America, LLC and its subsidiaries close their fiscal year on the Friday closest to December 31 and divide it into 13 four-week periods, which in turn are grouped into 12- week quarters with the exception of the last which is a 16-week quarter. As a result, the accounts included in the 2013 consolidated financial statements cover the period September 7, 2013 (acquisition date) to January 4, Associates An associate is a company over which the Group has a significant influence, but not control or joint control, through participation in decisions regarding the associate s financial and operational policies. The associate s income, expenses, assets and liabilities are recognized in the consolidated financial statements at equity, except where the investment is classified as held for sale. Under this method investments in associates are initially recognized at cost, adjusted to reflect subsequent changes in the associates net assets and any impairment losses on individual equity investments. The amount by which the acquisition cost exceeds the Group s share of the fair value of the associate s assets, liabilities and contingent liabilities identifiable on acquisition is recognized as goodwill. Business combinations under common control Business combinations in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination and such control is not transitory, are considered business combinations involving entities under common control. Business combinations under common control are excluded from the scope of IFRS 3 Business Combinations, which governs the accounting for business combinations, and from other IFRS. In the absence of an applicable accounting standard, such transactions should be accounted for considering the requirements of IAS 8, ensuring the reliable and faithful representation of the transaction. The accounting principles chosen to account for business combinations under common control should reflect the economic substance of the transaction, independent of the legal form. The key driver when considering the accounting treatment is the economic effect of the Page 53

54 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 transaction, which should make reference to an increase in value which should be realized as a significant variation in cash flows of the net assets transferred. In relation to the accounting treatment of the transaction, the Group also follows the current guiding principles and interpretations, in particular the guidance set out by OPI 1 (ASSIREVI preliminary guidelines regarding IFRS) Business combinations of entities under common control in separate and consolidated financial statements. The WDF Group recognises net assets transferred in a business combination under common control based on the pre-acquisition net book value as presented in the consolidated financial statements of the common parent company and recognizes the difference between the consideration amount and the net asset value as an adjustment to the consolidated shareholders equity reserves attributable to the WDF Group. Foreign currency transactions Translation of the financial statements of foreign entities The financial statements of each company in the scope of consolidation are prepared in the currency of its primary location. For the purpose of the consolidated financial statements, the asset and the liabilities of foreign subsidiaries with a functional currency other than the euro (including goodwill and fair value adjustments generated by the acquisition of a foreign business) are translated at the rates prevailing at year end. Income and expense are converted at average exchange rates for the year. Exchange differences are recognized in the statement of comprehensive income and shown under translation reserve in the statement of changes in equity. Below are the main exchange rates used to translate the financial statements of the main subsidiaries with a functional currency other than the euro: Rate on 31 December Average rate for the year Rate on 30 September Average rate for first nine months Rate on 31 December Average rate for the year US dollar British pound Canadian dollar Mexican peso Translation of foreign currency denominated transactions and balances Foreign currency transactions are translated into the functional currency using the transaction date exchange rate. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency based on the exchange rate at the reporting date. Exchange rate gains and losses are recorded in the income statement. Cash and cash equivalents Cash and cash equivalents include cash and current accounts with banks and post offices, as well as demand deposits and other highly liquid short-term financial investments (maturity of three months or less on the acquisition date) that are immediately convertible to cash; they are stated at face value as they are subject to no significant risk of impairment. Page 54

55 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Trade and other current and non-current receivables Trade receivables and other receivables are initially recognized at fair value, and subsequently at amortized cost using the effective interest method. They are reduced by estimated impairment losses. In accordance with IAS 39, factored receivables are derecognized if the contract entails the full transfer of the associated risks and rewards (contractual rights to receive cash flows from the asset). The difference between the carrying amount of the asset transferred and the amount received is recognized in the income statement. Other financial assets Other financial assets are recognized or derecognized on the transaction date and are initially measured at fair value, including direct acquisition costs. Subsequently, the financial assets that the Group has the intention and capacity to hold to maturity (held to maturity investment) are measured at amortized cost net of impairment losses. Financial assets other than those held to maturity are classified as held for trading or available for sale and are measured at each reporting date at fair value. If the financial assets are held for trading, gains and losses arising from changes in fair value are recognized in that year's income statement. Fair value gains and losses on other financial assets available for sale are recognized directly in comprehensive income and presented under equity until they are sold or impaired. In this case total gains or losses previously recognized in equity are taken to the income statement. Inventories Inventories are recognized at the lower of purchase cost and market value. Purchase cost includes directly attributable expenses, net of discounts, calculated using the average cost method. When the carrying amount of inventories is higher than their net realizable value, they are written down and an impairment loss is recognised in the income statement. The recoverability of inventories is tested at the end of each year. If the reasons for the impairment loss cease to apply, they are reversed to an amount not exceeding purchase cost. Property, plant and equipment and investment property Property, plant and equipment and investment property are recognized when it is probable that use of the asset will generate future benefits and when the cost of the asset can be reliably determined. They are stated at purchase price or production cost, including ancillary charges and direct or indirect costs to the extent that can reasonably be attributed to the asset. Property, plant and equipment and investment property are systematically depreciated on a straight-line basis at rates deemed to reflect their estimated useful lives. The WDF Group reviews the useful life of property, plant and equipment and investment property annually. Cost includes reasonably estimated expenses (if compatible with IAS 37) that are likely to be incurred on expiry of the relevant contract to restore the asset to the contractually agreed condition, assuming that maintenance will continue to be carried out properly and with the usual frequency. Components of significant value or with a different useful life (50% longer or shorter than that of the asset to which the component belongs) are considered separately when determining depreciation. Page 55

56 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 The depreciation periods used are as follows: Estimated useful life Buildings and investment property Plant and machinery Other equipment Furniture Electronic machinery Motorvehicles Other years 3-15 years 4 years 4-10 years 4-10 years 6 years 4-10 years Land is not depreciated. An asset's useful life is reviewed annually and is changed when maintenance work during the year has involved enhancements or replacements that materially change its useful life. Regardless of depreciation already recognized, if there are impairment losses (determined as described under Impairment losses on assets ), the asset is written down accordingly. Costs incurred to enhance and maintain an asset that produce a material and tangible increase in its productivity or safety or extend its useful life are capitalized and increase the carrying amount of the asset. Routine maintenance costs are taken directly to the income statement. Leasehold improvements are included in property, plant and equipment on the basis of the type of cost incurred. They are depreciated over the asset's residual useful life or the term of the contract, whichever is shorter. The gain or loss from the sale of property, plant or equipment or investment property is the difference between the net proceeds of the sale and the asset s carrying amount, and is recognized under Other operating income or Other operating expense. Goodwill Goodwill arising from the acquisition of subsidiaries is shown separately in the statement of financial position. Goodwill is not amortized, but is subject to impairment testing on a yearly basis or when specific events or changed circumstances indicate the possibility of a loss in value. After its initial recognition, goodwill is measured at cost net of any accumulated impairment losses. For more details please refer to the following paragraph Impairment losses on assets. Upon the sale of a company or part of a company whose previous acquisition gave rise to goodwill, the residual value of the goodwill is taken into consideration in order to determine gain or loss from the sale. Other intangible assets Other intangible assets are recognized at purchase price or production cost, including ancillary charges, and amortized on a systematic basis over their useful life when it is likely that use of the asset will generate future economic benefits. The WDF Group reviews the estimated useful life and amortization method of these assets annually and whenever there is evidence of possible impairment losses. If impairment losses arise Page 56

57 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, determined in accordance with the section "Impairment losses on assets" - the asset is impaired accordingly. The following are the amortization periods used for the various kinds of intangible asset: Estimated useful life Concessions Licenses and trademarks Software Other 7-20 years 5-20 years 3 years Term of the right Leased assets Lease contracts are classified as finance leases if the terms of the contract are such to transfer all risks and benefits of ownership to the lessee. All other lease contracts are treated as operating leases. Assets acquired under finance leases are recognized at fair value as of the commencement date of the contract less ancillary charges and any expenses for replacing another party in the lease, or, if lower, at the present value of the minimum payments due under the contract. The corresponding liability to the lessor is charged to Other financial liabilities. Lease payments are divided into principal and interest, using a constant interest rate over the life of the contract. Financial expenses are recognized in the income statement. Operating lease payments are recognized over the term of the lease. Benefits received or to be received, and those given or to be given, as incentives for taking out operating leases are recognized on a straight-line basis over the term of the lease. Impairment losses on assets Annually, or when specific events or changed circumstances indicate the possibility of a loss in value, the WDF Group evaluates whether there is internal or external evidence of impairment of its property, plant and equipment or intangible assets with definite useful life. If so, the recoverable amount of the assets is estimated to determine any impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the WDF Group estimates the recoverable amount of the cash-generating unit to which the asset belongs; a cash-generating unit (CGU) is a group of assets that generates cash flows largely independent from other assets or groups of assets. With regard to property, plant and equipment used in the sales network, this minimum aggregation unit is the sales outlet or sales outlets covered by a single concession agreement. Goodwill and intangible assets are tested for impairment at each reporting date and any time there is evidence of possible impairment. The cash-generating units to which goodwill has been allocated are grouped so that the level of detection of impairment reflects the lowest level at which goodwill is monitored for internal reporting purposes, though reflecting the maximum level of this aggregation represented by the operating segment. Goodwill acquired in a business combination is allocated to the cash-generating units expected to benefit from the synergies of the combination. Group management performs impairment test as follows: i) the recoverable amount is calculated for each cash-generating unit, although in the case of property, plant and equipment, whenever possible, impairment is calculated for each individual item; ii) the recoverable amount is the higher of fair value less costs to sell and value in use. In determining value in use, the estimated future Page 57

58 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 cash flows are discounted to their current value using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset. Every year senior management prepares a five-year business plan, by market and activity, for each CGU. The main components of this plan are profit and loss projections and investment and working capital projections. Other factors which affect the calculation of recoverable amount are: i) the discount rate to be applied, understood to be the weighted average cost of capital, which is mainly influenced by the cost of liabilities and the specific risks of the assets; and ii) the cash flows growth rate used to extrapolate the cash flow projections beyond the period covered by the budgets and forecasts. The projections are prepared on the basis of past experience and the best estimates available, which are consistent with external sources of information. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, it is reduced to the recoverable amount. Impairment losses are recognized in the income statement. Impairment losses on cash-generating units are first deducted from the carrying amount of any goodwill attributed to the unit; any remainder is deducted from the other assets of the unit (or group of units) in proportion to their carrying amount. If the reason for the impairment no longer exists, the asset or cash-generating unit is written back to the new estimate of recoverable amount (except in the case of goodwill), which may not exceed the carrying amount net of depreciation/amortization that the asset would have had if the impairment loss had not been recognised. The reversal of impairment is taken to the income statement. Based on the Group s organizational structure and activities, the cash-generating units are essentially the same as the geographical areas. Trade payables Trade payables are initially recognized at fair value (normally the same as face value) net of discounts, returns or billing adjustments, and of all directly attributable ancillary costs, and subsequently at amortized cost, if the financial effect of payment deferral is material. Loans and borrowings Interest-bearing loans, bank loans and current account overdrafts are initially recognized at fair value taking account of the amounts received, net of transaction costs, and are subsequently measured at amortized cost using the effective interest method, if the financial effect of payment deferral is material. Provisions for employee benefits All employee benefits are recognized and disclosed on an accruals basis. WDF Group companies provide defined benefit and defined contribution plans. Post-employment benefit plans are formalized and non-formalized agreements whereby the WDF Group provides post-employment benefits to one or more employees. The manner in which these benefits are provided varies according to legal, fiscal and economic conditions in the countries in which the WDF Group operates, and are normally based on compensation and years of service. Page 58

59 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Defined-contribution plans are post-employment benefit plans under which the WDF Group pays pre-determined contributions to a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions should the fund have insufficient assets to pay all benefits to employees. Defined benefit plans are post-employment benefit plans other than defined contribution plans. Defined benefit plans may be unfunded or else entirely or partly funded by contributions paid by the employer, and sometimes by the employee, to a company or fund which is legally separate from the company that pays the benefits. The amount accrued is projected forward to estimate the amount payable on termination of employment and is then discounted using the projected unit credit method, to account for the time that will elapse before actual payment occurs. The liability is recognized in the accounts net of the fair value of any plan assets. If the calculation generates a benefit for the WDF Group, the amount of the asset recognized is limited to the sum of any unrecognized cost for previous employment and the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. To establish the present value of these economic benefits, the minimum funding requirements applicable to any Group plan are considered. An economic benefit is available to the Group when it can be realized throughout the duration of the plan or upon settlement of the plan liabilities. Actuarial valuations are made by actuaries outside the WDF Group. Remeasurements arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in income. Provisions for risks and charges Provisions are recognized when the WDF Group has a present obligation as a result of a past event and will likely have to use resources in order to produce economic benefits that satisfy that obligation, and when the amount of the obligation can be reliably determined. Provisions are based on the best estimate of the cost of fulfilling the obligation as of the reporting date, and when the effect is material, are discounted to their present value. An onerous contracts provision is recognized when the unavoidable costs necessary to fulfill the obligations of a contract are greater than the economic benefits the WDF Group can expect to obtain thereon. The provision is measured at the present value of the lower of the cost of terminating the contract and the net cost of continuing with the contract. Before a provision is established, the WDF Group recognizes any impairment losses on the assets associated with the contract. A provision for restructuring is recognized when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or been publicly announced. Future operating losses are not provided for. Page 59

60 Equity Share capital World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 The share capital is composed wholly of ordinary shares. Costs for equity transactions Transaction costs directly attributable to equity transactions are accounted for and deducted from equity. Recognition of revenue and costs Purchases and sales of goods are recognized on transfer of ownership at fair value, i.e., the price paid or received net of returns, rebates, sales discounts and year-end bonuses. Revenue is recognized when the risks and the rewards connected to ownership of the goods are transferred to the buyer, recovery of the consideration is probable, the associated costs or possible return of the goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of the revenue can be accurately measured. If it is probable that discounts will be granted and the amount can be measured reliably, the discount is charged as a reduction of revenue when the sale is recognized. The transfer of the risks and rewards varies with the type of sale made. In the case of a retail sale, the transfer generally takes place when the goods are delivered and the consumer has paid the consideration asked. In the case of wholesale transactions, the transfer usually coincides with the arrival of the products in the client s warehouse. Service revenue and costs are recognized according to the stage of completion at year end. Stage of completion is determined according to measurements of the work performed. When the services covered under a single contract are provided in different years, the consideration will be broken down by service provided on the basis of the relative fair value. Recoveries of costs borne on behalf of third parties are recognized as a deduction from the related cost. Recognition of financial income and expense Financial income includes interest on invested liquidity (including available for sale financial assets), dividends received, proceeds from the transfer of financial assets available for sale, fair value changes in financial assets recognized in profit or loss, income arising from a business combination due to the remeasurement at fair value of the interest already held, gains on hedging instruments recognized in profit or loss, and the reclassification of net gains previously recognized in other comprehensive income. Interest income is recognized on an accruals basis using the effective interest method. Dividends are recognized when the WDF Group's right to receive them is established. Financial expense includes interest on loans, discounting on provisions and deferred income, losses from the sale of available for sale financial assets, fair value changes in financial assets at fair value through profit or loss and in contingent consideration, impairment losses on financial assets (other than trade receivables), losses on hedging instruments recognized in profit or loss, and the reclassification of net losses previously recognized in other comprehensive income. Page 60

61 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Borrowing costs that are not directly attributable to the purchase, construction or production cost of an asset that justifies capitalization are recognized in profit or loss for the year using the effective interest method. Net exchange rate gains or losses on financial assets/liabilities are shown under financial income and expense on the basis of the net gain or loss produced by foreign currency transactions. Income tax The tax expense for the year is the sum of current and deferred taxes recognized in the profit or loss for the year, with the exception of those relating to business combinations or items recognized directly in equity or in other comprehensive income. Current tax is calculated on taxable income for the year. The taxable profit differs from the result reported in the income statement because it excludes costs and income that will be deducted or taxed in other years, as well as items that will never be deducted or taxed and tax credit. Current tax liabilities are determined using the enacted tax rates in effect (on an official or de facto basis) on the reporting date in the countries where the WDF Group operates. Deferred tax liabilities are generally recognized for all taxable temporary differences, while deferred tax assets are recognized to the extent that future taxable profit is likely to be earned allowing use of the deductible temporary differences. Specifically, the carrying amount of deferred tax assets is reviewed at each reporting date based on the latest forecasts as to future taxable income. Deferred tax assets and liabilities are not recognized if the temporary differences arise from the initial recognition of goodwill or, for transactions other than business combinations, of other assets or liabilities in transactions that have no influence either on accounting profit or on taxable profit. Deferred tax liabilities are recognized on taxable temporary differences relating to equity investments in subsidiaries, associates or joint ventures, unless the WDF Group is able to monitor the reversal of the temporary differences and they are unlikely to be reversed in the foreseeable future. Deferred tax assets and liabilities are measured using the tax rate expected to apply at the time the asset is realized or the liability is settled, taking account of the tax rates in force at the close of the year or approved and not yet in force. Deferred tax assets are recognized when they are likely to be used against taxable income. Deferred tax assets and liabilities are offset when there is a legal right to offset current tax balances, when they pertain to the same tax authorities, and when the WDF Group plans to settle its current tax assets and liabilities on a net basis. WDFG Italia S.r.l. (formerly Alpha Retail Italia S.r.l.) and WDF S.p.A. agreed to be included in the national tax consolidation scheme of Edizione S.r.l., respectively for the three-year period from 2011 to 2013 and for the three-year period from 2013 to 2015, in accordance with provisions of the consolidated Income Tax Act. The regulation signed by the parties provides for payment in full of the amount corresponding to the transferred losses or profits times the IRES (corporate tax) rate, as well as the transfer of any tax assets. In particular, any fiscal losses will be transferred whereby Edizione S.r.l. would utilize them within the tax consolidation scheme. The net current tax asset or liability for the year, in respect of IRES only, will be therefore recognised as a receivable or payable due from/to Edizione S.r.l. and will be therefore not shown under tax assets or liabilities but under Other receivables or Other payables. Page 61

62 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Earnings per share The Group presents basic and diluted earnings per share for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of WDF S.p.A. by the weighted average number of ordinary shares outstanding during the period, adjusted for treasury shares held. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, as defined above, for the effects of all dilutive potential ordinary shares. Derivative financial instruments and hedge accounting The WDF Group s liabilities are exposed primarily to financial risks due to changes in interest and exchange rates. To manage these risks, the Group uses financial derivatives, mainly in the form of interest rate swap, forward rate agreements, and combination of these. The use of derivatives is governed by Group policies approved by the WDF S.p.A. s Board of Directors, which establish precise written procedures concerning the use of derivatives in accordance with the Group s risk management strategies. Derivative contracts have been entered into with counterparties deemed to be financially solid, with the aim of reducing default risk to a minimum. Group companies do not use derivatives for purely trading purposes, but rather to hedge identified risks. Please refer to note 4 Financial risk management for further explanation. In accordance with IAS 39, derivative financial instruments qualify for hedge accounting only if: (i) at the inception of the hedge there is formal designation and documentation of the hedging relationship, and the hedge is assumed to be effective; (ii) effectiveness can be reliably measured (the actual effectiveness is within a range of 80%-125%); (iii) the hedge is effective throughout the financial reporting periods for which it was designated. All derivative financial instruments are initially measured at fair value, with the related transaction costs recognized in profit or loss when incurred. They are subsequently carried at fair value. More specifically, the fair value of forward exchange contracts is based on the listed market price, where available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current spot rate for the residual maturity of the contract using a risk-free interest rate (based on government securities). For interest rate swaps, fair value is determined using the cash flows estimated on the basis of the conditions and remaining life of each contract, and according to the year-end market interest rates of comparable instruments. Fair value changes are measured as described below. When financial instruments qualify for hedge accounting, the following rules apply: (i) Fair value hedge: if a derivative financial instrument is designated as a hedge against changes in the fair value of a recognized asset or liability attributable to a particular risk that may affect profit or loss, the gain or loss arising from subsequent fair value measurement of the hedge is recognized in the income statement. The gain or loss on the hedged item attributable to the hedged risk adjusts its carrying amount and is recognized in profit or loss; (ii) Cash flow hedge: if a financial instrument is designated as a hedge against exposure to variations in the future cash flows of a recognized asset or liability or a forecast transaction that is highly probable and could affect profit or loss, the effective portion of the gain or loss on the financial instrument is recognized in comprehensive income and presented in the "hedging reserve" under equity. The cumulative gain or loss is reclassified from comprehensive income Page 62

63 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 and recognized in profit or loss in the same year in which the hedged transaction is recognized. Fair value gains and losses associated with a hedge (or part of a hedge) which has become ineffective are recognized in the income statement immediately. If a hedge or a hedging relationship is terminated, but the hedged transaction has not yet taken place, the gains or losses accrued up to that time in the statement of comprehensive income are reclassified to profit or loss as soon as the transaction occurs. If the transaction is no longer expected to take place, the gains or losses not yet realized that have been included in comprehensive income are reclassified immediately to profit or loss; (iii) Hedge of net investment: if a derivative is designated as a hedge of a net investment in a foreign operation, held directly or indirectly through an intermediary holding company, the effective portion of the gain or loss on the hedge is recognized in comprehensive income and presented in the "translation reserve" under equity, while the ineffective portion is taken to profit or loss. On disposal of the foreign operation, the gain or loss on the effective portion of the hedge that has been cumulatively recognized in the translation reserve is also taken to profit or loss. If hedge accounting does not apply, the gains or losses arising from measurement at fair value of the financial derivative are immediately recognized in the income statement. Share-based payments The grant-date fair value of share-based payment awards granted to employees is recognized in personnel expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet those conditions at the vesting date. For share-based payments with non-vesting performance conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual conditions. The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities over the period that the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of the share appreciation rights. Any changes in the liability are recognized as employee benefit expenses in the income statement. Use of estimates The preparation of the consolidated financial statements and notes requires Group management, on the basis of the IFRS requirements, to make estimates and assumptions that affect the carrying amounts of assets, liabilities, costs and income and the disclosure about contingent assets and liabilities at the reporting dates. Actual results may differ. Estimates are used to determine the effects of business combinations, asset impairment, the fair value of derivatives, allowances for impairment and inventory write down, amortization and depreciation, employee benefits, tax and other provisions. Estimates and assumptions are periodically reviewed and the effect of any change is taken to the income statement of the current and future years. Page 63

64 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, BUSINESS COMBINATIONS The acquisition of the US Retail Division On July 2013, World Duty Free Group US Inc (a subsidiary of WDF S.p.A.) and WDFG SAU entered into a purchase agreement with HMS Host Corporation and its subsidiary Host International Inc (both subsidiaries of Autogrill S.p.A.) in relation to the sale of 248 convenience stores located in 29 US airports (the US Retail Division ). On September 6, 2013 the retail business activities, for which the authorization was granted by the landlords, were acquired by the WDF Group. The corresponding purchase price was USD 105 million, equal to 87.8% of the maximum consideration initially agreed in the event of all the retail concessions managed by HMS Host Corporation were transferred. The 5% of the purchase price was retained from the WDF Group as set out in the contract, as guarantee for a period of nine months from the date of the closing. Any subsequent closing will be made once the necessary authorization has been granted by the landlords. The initial consideration was increased in USD 18 million, as an adjustment based on the net working capital at acquisition date. The transaction was fully funded using the new loan signed on May 30, 2013 described in note As part of the acquisition of the US Retail Division, an agreement was executed for the supply from HMS Host Corporation to WDFG SAU and its subsidiaries, until 31 March 2015, of several services (including accounting, IT, personnel management services and other administrative support services) in order to allow WDF Group to effectively carry out the activities of the recently acquired US Retail Division. The acquisition of the US Retail Division is a business combination under common control and it has been accounted for in accordance with the accounting principles reported in the section above. Therefore, the assets and the liabilities of the acquired entity are reflected at their carrying amount in the WDF Group consolidated financial statements. The difference between the consideration paid and the net assets acquired has been recorded as a decrease in equity for an amount of Euro 35.9 million. The table that follows summarizes the assets and liabilities of the US Retail Division at the acquisition date: In thousands of USD September 7, 2013 Property and equipment, net 26,476 Goodwill and intangible assets 33,241 A) Non-current assets 59,717 Inventories 16,814 Other current assets 10,246 Trade and other current lilabilities (10,634) B) Working capital 16,426 C) Other non-current non-financial assets and liabilities (1,689) D) Net invested capital 74,454 Equity attributable to owners of the parent 73,270 Equity attributable to non-controlling interests 2,720 E) Equity 75,990 F) Net financial position (1,536) G) Total, as in D) 74,454 Acquisition cost 123,279 Effect on consolidated equity 50,009 Page 64

65 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 The acquisition has generated tax assets not recognized, amounting to about Euro 14.5 million. The revenue and the operating profit included in the consolidated income statement since September 6, 2013 contributed by the US Retail Division was, respectively Euro 44.8 million and Euro -2.5 million. The US Retail Division also contributed net profit of Euro -1.1 million over the same period. 2.3 OTHER SIGNIFICANT EVENTS The AENA agreements On 29 June 2012, AENA, in accordance with the principles foreseen in Law 31/2007 for the procedure negotiated, issued a public call to tender for the Travel Retail activity under the Duty Free and Duty Paid systems in premises allocated by AENA Aeropuertos, S.A. for this business for the period On 18 December 2012 the directors of AENA agreed to award the new contracts for the three airport groups to the WDF Group. On February 2013, following the award in December 2012 of tenders for the award of concessions to operate until 2020 duty free and duty paid travel retail activities at 26 airports in Spain, the companies World Duty Free Group España S.A. and Sociedad de Distribución Comercial Aeroportuaria de Canarias S.L., subsidiaries of WDF, and AENA executed the corresponding agreements (the AENA Agreements ). On February 2013, in execution of the above mentioned contracts, AENA received: (i) the sum of Euro 278,933 thousand (plus VAT amounting to Euro 58,576 thousand) as advance payment of a portion of the concession fees payable over the duration of the contracts; and (ii) Euro 27,318 thousand as a security deposit. The advance payment will be gradually recovered by means of deductions from the concession fees payable over the duration of the AENA Agreements based on a calendar agreed between the parties. The security deposit will be refunded at the end of the concession agreements. Pursuant to the terms of the AENA Agreements, a bank guarantee was provided to AENA on behalf of the WDF Group. For additional details, please see the more comprehensive information provided in note 8 Guarantees provided, commitments and contingent liabilities. The contract establishes the payment of rents on sales, as well as an additional rent for the support surfaces, as well as investment commitments of Euro 94 million throughout the life of the contract. Page 65

66 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, NOTES TO THE STATEMENT OF FINANCIAL POSITION Current assets Cash and cash equivalents The table that follows shows a breakdown of Cash and cash equivalents : As of December 31, Cash and cash equivalents Change Bank and cash deposits 20,098 17,077 3,022 Cash and equivalents on hand 2,674 1,607 1,067 Total 22,772 18,684 4,089 Bank and cash deposits mainly consist of bank accounts. Cash and cash equivalents on hand includes cash floats at the stores and the amounts in the process of being credited to bank accounts. The amount may vary substantially, depending on the frequency of cash receipt pickups at the stores, generally handled by specialized carriers Other financial assets Other financial assets amounting to Euro 12,994 thousand (Euro thousand as of December 31, 2012) mainly include receivables for credit cards for Euro 12,886 thousand as of December 31, 2013 (Euro 12,449 thousand as of December 31, 2012) Tax assets The item amounts to Euro 13,019 thousand (7,798 thousand as of December 31, 2012) and reflects advance payments made to tax authorities and tax credits, mainly for corporate income tax Other receivables The table below shows a breakdown of Other receivables : As of December 31, Other receivables Change Lease and concession advance payments 27,050 5,482 21,568 Inland revenue and government agencies 8,378 3,427 4,951 Other 6,167 3,255 2,912 Total current 41,596 12,164 29,431 Lease and concession advance payments 263,304 12, ,642 Other 937 1,354 (417) Total non-current 264,241 14, ,225 Lease and concession advance payments refers to lease installments paid in advance to the airport authorities where the WDF Group operates. As of December 31, 2013, the balance mainly includes the advance payments given to the Jordan and Kuwait airport authorities and to the Page 66

67 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Spanish airport authority (AENA). The non-current portion related to AENA advances amounts to Euro 252,881 thousand. Please refer to note 2.3 for further details. Inland revenue and government agencies refers mainly to indirect tax refunds receivable. Other includes prepayments of maintenance fees, insurance policies and amounts rebilled to Autogrill companies for the provision of services, mainly involving technical support Trade receivables A breakdown of Trade receivables is provided below: As of December 31, Trade receivables Change Trade receivables versus suppliers 28,207 22,344 5,863 Trade receivables versus customers 10,309 7,789 2,520 Allowance for impairment (2,039) (2,204) 165 Total 36,477 27,929 8,548 Trade receivables versus suppliers consist mainly of promotional contributions receivable and bonuses on purchases. Trade receivables versus customers reflects primarily receivables for the wholesales business The following table shows the changes that occurred in the Allowance for impairment: As of December 31, Allowance for impairment 2013 Opening balance as of December 31, ,204 Increases, net of releases (94) Utilizations (49) Changes in Consolidation Scope 105 Exchange rate differences (84) Balance as of September 30, ,082 Increases, net of releases 172 Utilizations (183) Changes in Consolidation Scope - Exchange rate differences (31) Closing balance as of December 31, ,039 Refer to note 4 for further information about the risk profile of receivables. Page 67

68 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Inventories A breakdown of Inventories is provided below: As of December, 31 Inventories Change Finished goods 158, ,871 16,493 Advances 2,182 3,976 (1,793) Allowance for inventory write-down (3,953) (3,385) (568) Total 156, ,462 14,132 The WDF Group is the holder of several insurance policies aimed at covering risks for existing inventories due to extraordinary events (earthquakes, floods, etc.). The WDF Group believes that these policies are sufficient to cover the value of the inventories. At December 31, 2013, there were no agreements entailing obligations to make large purchases from suppliers. The following changes took place in the Allowance for inventory write down : As of December 31, Allowance for inventory write down 2013 Opening balance as of December 31, ,385 Increases, net of releases 3,137 Utilizations (3,185) Changes in Consolidation scope 675 Exchange rate differences (64) Balance as of September 30, ,948 Increases, net of releases 2,662 Utilizations (2,672) Changes in Consolidation scope - Exchange rate differences 15 Closing balance as of December 31, ,953 Please note that on the reference dates the inventories were not encumbered by any type of guarantee provided to third parties. Page 68

69 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Non-current assets Property, plant and equipment The tables that follow report the movement of Property, plant and equipment : Property, plant and equipment As of December 31, 2011 Increases Decreases Reclassifications Changes in Impairment Consolidation scope losses Exchange rate differences As of December 31, 2012 Cost Buildings 12, (113) 12,628 Plant and machinery 81,626 5,929 (11,191) 1, ,394 Other equipment 2, (17) (1) ,066 Furniture 154,940 8,319 (7,142) 5, , ,539 Electronic machinery 30, (2,054) ,350 Motor vehicles 1, (78) ,566 Other 1, (352) (25) 1,462 Assets under construction 5,410 10,432 (131) (8,124) ,674 Total cost 290,654 25,917 (20,965) (46) 656-3, ,679 Accumulated depreciation and impairment Buildings 7, (75) 7,558 Plant and machinery 59,461 10,295 (10,540) ,864 Other equipment 1, (17) ,297 Furniture 103,887 21,764 (6,921) (1) , ,493 Electronic machinery 26,986 1,530 (1,996) ,934 Motor vehicles 1, (74) ,193 Other 1, (349) (23) 985 Total accumulated depreciation and impairment 201,305 34,684 (19,897) , ,324 Net value 89,349 (8,767) (1,068) (334) 108 (287) 1,354 80,355 Property, plant and equipment As of December 31, 2012 Increases Decreases Reclassifications Changes in Impairment Consolidation scope losses Exchange rate differences As of September 30, 2013 Cost Buildings 12, (1,627) (132) 10,924 Plant and machinery 78,394 11,406 (8,676) 2, (1,250) 81,880 Other equipment 3, , ,206 Furniture 164,539 2,798 (7,013) 3,203 4,494 - (3,675) 164,346 Electronic machinery 30, (762) (663) 30,204 Motor vehicles 1, (68) (37) 1,747 Other 1, (71) (28) - - (39) 1,627 Assets under construction 7,674 9,259 (38) (5,984) 3,756 - (92) 14,575 Total cost 299,679 24,640 (18,255) (241) 19,346 - (5,660) 319,509 Accumulated depreciation and impairment Buildings 7, (1,627) (88) 6,234 Plant and machinery 59,864 4,332 (8,581) 3-2 (818) 54,802 Other equipment 2, ,477 Furniture 120,493 12,493 (6,622) (5) - 1 (2,527) 123,833 Electronic machinery 26, (758) (577) 26,532 Motor vehicles 1, (65) (31) 1,329 Other (68) (30) 995 Total accumulated depreciation and impairment 219,324 18,521 (17,721) (2) (4,071) 216,202 Net value 80,355 6,119 (534) (239) 19,198 (3) (1,589) 103,307 Page 69

70 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Property, plant and equipment As of September 30, 2013 Increases Decreases Reclassifications Changes in Impairment Consolidation scope losses Exchange rate differences As of December 31, 2013 Cost Buildings 10, (115) 10,861 Plant and machinery 81,880 18,255 (6,377) (108) - - (528) 93,122 Other equipment 14, (48) 745 (202) - (231) 15,031 Furniture 164,346 5,750 (3,000) (120) 168,002 Electronic machinery 30, (5) (11) 30,790 Motor vehicles 1, (77) (18) 1,747 Other 1, (55) (13) 1,584 Assets under construction 14,575 13,050 (17) (1,393) - - (153) 26,062 Total cost 319,509 38,086 (9,545) (1,189) 347,199 Accumulated depreciation and impairment Buildings 6, (74) 6,316 Plant and machinery 54,802 2,233 (6,301) (1) (275) 50,808 Other equipment 2,477 1,270 (40) (45) 3,741 Furniture 123,833 4,921 (2,993) (18) 125,966 Electronic machinery 26, (6) (9) 26,891 Motor vehicles 1, (79) (14) 1,312 Other (59) (10) 1,065 Total accumulated depreciation and impairment 216,202 8,987 (9,444) (445) 216,099 Net value 103,307 29,099 (101) (10) 115 (566) (744) 131,100 In 2013 additions refer to development of new sales spaces in airports in relation with new or extended concessions, mainly in Spain (Madrid, Barcelona, Palma de Mallorca and the Canary Islands), Germany (Dusseldorf) and Santiago de Chile (Chile) and the change in consolidation scope is all referred to the US Retail acquisition. Disposals of furniture and technical installations mainly comprise those derived from the renewal of sales spaces in Spanish airports due to new contracts with AENA, the closing of the old terminal of Amman airport in Jordan and the cease of operations in Orlando (United States). In 2013 there was no significant impairment. As of December 31, 2013 no fixed assets were encumbered by any type of guarantee provided to third parties and there were no non-current assets held under finance leases. The cost of fully depreciated property, plant and equipment and investment property which are in use as of December 31, 2013 and 2012 is as follows: As of December 31, Change Building 2,750 3,671 (921) Machinery and installations 28,828 37,140 (8,312) Furniture and fixtures 77,263 46,004 31,259 Other 8,688 6,848 1,840 Total 117,529 93,663 23,866 Page 70

71 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Investment Property The table below shows a breakdown of Investment property : As of December, 31 Investment property Change Cost 11,765 11,765 - Accumulated depreciation (5,209) (4,833) (376) Total 6,556 6,932 (376) Details of income and expenses from investment property are as follows: For the year ended 31 December Change Rental income Depreciation charge of investment property (376) (375) (1) Operating expenses (806) (967) 161 Investment property includes a warehouse building in Madrid leased to third parties under leases that expire in 2017 and Future minimum payment receivables under non-cancellable operating leases are as follows: For the year ended 31 December Change Less than one year Between one and five years 1, Over 5 years Total 2,029 1, The WDF Group has contracted some insurance policies to cover the risks of damages to its property, plant and equipment and investment property. The coverage of these policies is considered sufficient to cover these risks Goodwill Goodwill was generated by the acquisitions of World Duty Free Group España SA (formerly Aldeasa S.A.), completed in two stages respectively in 2005 for 50% of its share capital and in 2008 for the residual balance, Autogrill Holdings UK Plc. (formerly Alpha Group Plc.) in 2007 and World Duty Free UK Holdings (formerly World Duty Free Europe Ltd.) in The Cash Generating Units (CGUs) are essentially the same as the geographical areas. The carrying amounts attributed to the CGU group are as follows: Page 71

72 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 As of December,31 Goodwill Change Geographical area: United Kingdom 423, ,124 (9,141) Rest of Europe 82,243 82,248 (5) Americas 66,225 43,397 22,828 Asia and Middle East 44,781 46,348 (1,567) Total 617, ,117 12,117 The changes in goodwill on the reference dates are attributable to negative foreign exchange rate translation differences for Euro 13,146 thousand and to the goodwill of the US Retail Division acquired for Euro 25,263 thousand. The recoverability of the goodwill allocated to each CGU is tested by estimating their value in use, defined as the present value of estimated future cash flows discounted at a rate reflecting the time value of money (differentiated by currency area) and specific risks of the individual CGUs at the measurement date. The discount rate was determined using as a reference the Capital Assets Pricing Model, based as much as possible on indicators and parameters observable in the market. Future cash flows were estimated at December 31, 2013 based on the 2014 budget and forecasts for the Plan. Cash flows beyond the period covered by the plan were estimated by extrapolating plan information and applying nominal growth rates ( g rate ), which do not exceed the long-term growth estimates for the sector and the country in which each CGU operates and by using the perpetuity method to calculate the terminal value. The table below shows the main underlying assumptions used for impairment testing purposes: Forecast nominal growth rate "g" Discount rate 2013 Discount rate 2012 Post tax Pre tax Post tax Pre tax United Kingdom 2.00% 6.61% 6.91% 5.49% 6.07% Rest of Europe 2.00% 5.63% % 6.20% % 5.06% % 5.77% % Americas 2.00% 6.07% % 6.83% % 5.15% % 5.99% % Asia and Middle East 2.00% 7.41% % 7.57% % 6.28% % 6.66% % The main assumptions used to estimate cash flows for impairment test purposes are reported below: United Kingdom: as mature market, small growth rates in terms of passengers and spends have been projected for the period ; profitability in line with recent past years. Rest of Europe: significant revenue growth rates have been projected for the period given the contribution of new operations (Helsinki) and full contribution in Dusseldorf and Spain (Madrid, Barcelona, Palma de Mallorca and the Canary Islands). Slight dilution in terms of profitability is assumed affected by the first years of the new operations and by the higher rental costs related to the new contracts in Spain. Americas: moderate growth rates have been assumed (on a like-for-like basis considering full year impact of the US Retail); profitability diluted compared to historical, due to the contribution of the US Retail, despite of a slight improvement at constant perimeter. Page 72

73 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Asia and Middle East: although overall flat revenue growth rate is assumed for the period , rates differ by country. Profitability is assumed to be slightly below the historical. Based on the assumptions above reported, the amount of goodwill attributed to each cash generating unit was found to be fully recoverable for the year ended December 31, The following table shows the levels at which, for the most significant assumptions used in the impairment tests, there would no longer be a gap between the CGU s value in use and its carrying amount Discount rate, net of tax effect g United Kingdom 20.65% (60.75%) Rest of Europe 18.90% (34.44%) Americas 18.43% (25.50%) Asia and Middle East 17.90% (19.81%) Other intangible assets The movement of Other intangible assets is reported below: Other intangible assets As of December 31, 2011 Increases Decreases Reclassifications Changes in Impairment Consolidation scope losses Exchange rate differences As of December 31, 2012 Cost Concessions 856, , ,840 Licences and trademarks 126,230 - (89) (40) 40-2, ,108 Software 36, (1,217) ,488 Assets under development - 2, ,237 Other 2, (285) ,856 Total cost 1,021,693 2,526 (1,306) ,219 1,031,529 Accumulated amortization Concessions 272,516 69, (67) 341,979 Licences and trademarks 23,461 6,535 (89) (40) ,415 Software 34,875 1,111 (1,198) ,413 Other (285) Total accumulated amortization 331,555 77,320 (1,287) (287) 351-1, ,655 Net value 690,138 (74,794) (19) 334 (1) - 7, ,874 Other intangible assets As of December 31, 2012 Increases Decreases Reclassifications Changes in Impairment Consolidation scope losses Exchange rate differences As of September 30, 2013 Cost Concessions 860, ,899 - (11,090) 851,649 Licences and trademarks 129, (3,086) 126,118 Software 36, (22) (673) 36,173 Assets under development 2, ,237 Other 2, ,856 Total cost 1,031, (22) 239 1,995 - (14,849) 1,019,033 Accumulated amortization Concessions 341,979 41, ,828 - (3,491) 382,248 Licences and trademarks 30,415 4, (636) 34,535 Software 35, (22) (651) 35,164 Other Total accumulated amortization 408,655 47,127 (22) - 1,920 - (4,778) 452,902 Net value 622,874 (46,986) (10,071) 566,131 Page 73

74 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Other intangible assets As of September 30, 2013 Increases Decreases Reclassifications Changes in Impairment Consolidation scope losses Exchange rate differences As of December 31, 2013 Cost Concessions 851, (2,326) 849,323 Licences and trademarks 126,118 - (79) ,407 Software 36, ,660 Assets under development 2, ,405 Other 2, ,856 Total cost 1,019, (79) (1,904) 1,017,651 Accumulated amortization Concessions 382,248 13, (1,526) 394,651 Licences and trademarks 34,535 1,577 (77) ,152 Software 35, ,379 Other Total accumulated amortization 452,902 15,696 (77) (1,354) 467,173 Net value 566,131 (15,112) (2) (550) 550,478 Concessions represents carrying amount of the contract rights as part of the fair value measurement (Purchase Price Allocation) of the acquired assets and liabilities of World Duty Free Group UK Holding Ltd. (formerly World Duty Free Europe Ltd.) and World Duty Free Group España SA (formerly Aldeasa S.A.). Licenses and trademarks consist mainly of the value assigned to trademarks as part of the above mentioned valuation process. A breakdown of concessions by geographical area at December 31, 2013 and 2012 is provided below: As of December 31, Concessions by geographical area Change United Kingdom 219, ,782 (20,613) Rest of Europe 173, ,431 (25,378) Americas 25,221 32,836 (7,615) Asia and Middle East 37,229 47,812 (10,583) Total 454, ,861 (64,189) The cost of fully amortized intangible assets in use as of December 31, 2013 is as follows: As of December 31, Change Computer software 18,450 17, Other (401) Total 18,453 18, Investments This item includes investments in associates, measured using the equity method, and investments in other companies. In 2013, the WDF Group received dividends for Euro 1,904 thousand from Creuers del Port de Barcelona S.A. (Euro 698 thousand in 2012). Page 74

75 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 The tables that follow list the carrying amount of these investments as of December 31, 2013 and 2012 and show the results, the assets, the liabilities and revenues related to these companies: In thousands of local currency Investments Name Registered address Country % held Currency Revenue Profit/(Loss) for the year Total assets Data in local currency/000 Total liabilities Carrying amount of December 31, 2013 Creuers del Port de Barcelona, S.A. Barcelona Spain 23% Euro 20,449 11,177 53,850 12,142 8,822 Total 20,449 11,177 53,850 12,142 8,822 In thousands of local currency Investments Registered address Country % held Currency Revenue Profit/(Loss) for the year Total assets Data in local currency/000 Total liabilities Carrying amount of December 31, 2012 Name Souk al Mouhajir, S.A. Tangeri Morocco 36% Dhs 4,169 (406) 18,188 2, Creuers del Port de Barcelona, S.A. Barcelona Spain 23% Euro 18,020 1,789 54,454 12,900 8,668 Total 22,189 1,383 72,642 15,646 9,136 In 2013, the associated company Souk al Mouhair, S.A. was liquidated Other financial assets, non current Other financial assets, non-current equal to Euro 32,228 thousand as of December 31, 2013 (Euro 3,975 thousand as of December 2012) include: - Non-interest bearing deposits for Euro 22,230 thousand referred to the amortized cost of AENA deposits (see note 2.3). These deposits were registered at inception date at their present value considering the implicit rate of interest. The difference of that value with the amount paid is expensed during the life of the contract; and - security deposits given by the WDF Group, measured at amortized cost for Euro 5,667 thousand Deferred tax assets and liabilities Deferred tax assets and deferred tax liabilities includes those resulting from temporary differences between the carrying amount of assets and liabilities and their tax base due to the presence of factors that would make them deductible or taxable in the future. A breakdown of these deferred taxes for the years ended December 31, 2013 and 2012 is provided in the table below: As of December 31, 2013 As of December 31, 2012 Deferred tax assets and liabilities Temporary differences Tax effect Temporary differences Tax effect Property, plant and equipment 21,000 4,536 20,242 4,798 Other financial liabilities 1, ,082 1,825 Other payables 1, ,891 2,333 Defined benefit plan 11,905 2,381 9,626 2,214 Deferred tax assets arising from tax losses and tax credits - 19,939-18,160 Other temporary differences 4,657 1,563 2, Total deferred tax assets 40,254 29,100 47,424 30,091 Other intangible assets 279,345 52, ,722 80,957 Investments 17,419 5,226 15,658 4,406 Other temporary differences 24,180 5,768 22,273 5,561 Total deferred tax liabilities 320,944 63, ,653 90,924 Total net deferred taxes (34,839) (60,833) Page 75

76 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Deferred taxes regarding other intangible assets refer mainly to the World Duty Free trademark and concessions. The WDF Group has tax credits and tax losses carried forward amounting to Euro 70.5 million as of December 31, 2013 (of which Euro 19.9 million are recognized in the statement of financial position) attributable mainly to some Spanish companies, to the acquired US Retail business and to World Duty Free S.p.A.. The deferred tax assets used for tax losses carry forwards amount to Euro 5.3 million in 2013 (Euro 6.5 million in 2012). Current liabilities Trade payables Trade payables, amounting to Euro 235,493 thousand as of December 31, 2013 refer mainly to the purchase of goods for resale. The increase with respect to the prior fiscal year, is mainly related to the higher volume in the business and to the US Retail transaction Tax liabilities Tax liabilities reflect the amount payable due to corporate income tax, net of offsettable tax credits Other payables A breakdown of Other payables at December 31, 2013 and 2012 is provided below: As of December, 31 Other payables Change Personnel liabilities 19,800 29,244 (9,445) Indirect taxes 11,560 8,441 3,120 Withholding taxes 5,506 6,553 (1,047) Social Security institutions and defined contribution plans 5,485 4, Due to suppliers for investments 19,305 3,566 15,739 Other 27,293 18,108 9,185 Total 88,948 70,693 18,255 Personnel liabilities includes, among others, the liability for benefit under employee incentive plans payable the following years. Other taxes payables refers to retentions to employees, excise duties and other concepts. Liabilities to Social Security institution and defined contribution plan, amounting to Euro 5,505 thousand, refer to payables for social security contribution and to insurance contribution for employee benefit plans. In particular, the WDF Group operates defined contribution plans mainly in Spain an US. Other includes accrued payable for insurance premiums, utilities and maintenance and payables owed to Autogrill Group companies for services rendered. Page 76

77 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Other financial liabilities The balance at December 31, 2013 mainly includes: i) Euro 3,855 thousand that is the 5% of the consideration for the acquisition of US Retail Division, retained by the WDF Group as guarantee for a period of nine months from the date of the closing; and ii) Euro 1,615 thousand for accrued expenses and deferred income for interest on loans. Non-current liabilities Other payables Other payables, amounting to Euro 2,751 thousand as of December 31, 2013 (Euro 2,000 thousand as of December 31, 2012) mainly include the non-current portion of the liability for long term employee incentive plan for Euro 2,734 thousand. Please refer to note 9.2 for further information about incentive plan Other financial liabilities The balance as of December 31, 2013 includes the fair value of interest rate hedging derivatives for an amount of Euro 1,751 thousand (Euro 6,408 thousand as of December 31, 2012). The balance as of December 31, 2012 also included Euro 70 million that corresponded to the loan granted by Autogrill S.p.A. to the WDF Group for a maximum amount of Euro 200 million which was completely reimbursed and cancelled during Please refer to note for further details Due to banks and loans, net of current portion The table below provides a breakdown both for Due to banks and Loans, net of current portion at December 31, 2013 and 2012: As of December, 31 Due to banks and loans, net of current portion Change Current account overdrafts 11,915 3,318 8,597 Unsecured bank loans current 10,000 4,000 6,000 Current portion of non-current debt 50,000 56,521 (6,521) Total current 71,915 63,839 8,076 Unsecured bank loans non-current 995, , ,859 Commissions on loans (12,575) (4,936) (7,639) Total non current 982, , ,220 Total 1,054, , ,296 Unsecured bank loan (current portion), amounting to Euro 10,000 thousand as of December 31, 2013 (Euro 4,000 thousand as of December 31, 2012) consists of lines of credit that are renewable annually at maturity and entail no specific covenants, guarantees or other restrictions. The liability for bank loans (including both current and non-current portion) amounts to Euro 1,045,094 thousand at December 2013 (Euro 500,756 thousand at December 31, 2012). At December 31, 2012, the liability for bank loans consisted of a facility provided to the WDF Group by a bank syndicate in July 2011 ( the Multicurrency Revolving Facility ). This facility was totally reimbursed and cancelled on June 5, 2013 upon the disbursement of a new loan, as described below. Page 77

78 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 On May 30, 2013 WDFG SAU, WDFG España S.A., WDFG UK Holdings Ltd and WDFG UK Ltd. (jointly, the Borrowing Companies ) signed a loan agreement providing four different tranches of credit for a total amount of Euro 1.25 billion (the Loan ). The Loan is comprised of the following tranches: Tranches Currency Type Total available (in million) Draw down as of December 31, 2013 Duration Tranche 1 Euro amortizing term loan years Tranche 2 GBP amortizing term loan years Tranche 3 Euro/GBP revolving credit facility years Tranche 4* Euro revolving credit facility lasting 18 months Total 1,250 1,045 * May be extended by 18 months if the company deems The Loan provides for an interest rate linked to Euribor or Libor, depending on the currency used for the Loan, in addition to a margin. The margin applied for all tranches is a market margin and calculated with respect to tranches 1, 2 and 3 on a ratchet basis by reference to the Leverage Ratio (as defined hereunder). On June 5, 2013, the WDF Group used the Loan to: reimburse and cancel the debt outstanding under the Multicurrency Revolving Facility; reimburse in full and cancel a medium term credit facility (Bilateral Revolving Credit Facility) draw down in 2013 for Euro 100 million; reimburse and cancel the loan provided by Autogrill S.p.A. for a residual amount of Euro 67 million; and pay a dividend to Autogrill S.p.A. for an amount of Euro 220 million, approved by the WDFG SAU shareholder s meeting on April 30, The Loan includes the obligation to maintain certain financial ratios based on the consolidated financial statements of Group WDFG SAU, breach of which might entail the prepayment of the Loan. These ratios have to be tested by June 30 and December 31 every year during the life of the Loan, being the first test to be conducted based on information as of December 31, The financial ratios refer to: i) the Leverage Ratio which is calculated as the ratio between the net financial indebtedness and the cash EBITDA and must not exceed a threshold decreasing from 4.35 to 3.50 during the tenor of the Loan and ii) the Interest Cover Ratio which is the ratio between the cash EBITDA and the net financial charges which shall be no less than 4.00 in each verification period until December 31, 2014 and not lower than 4.50 for each verification period thereafter. For the calculation of these ratios, the net financial indebtedness, the cash EBITDA and the net financial charges are measured in accordance with the contractual definition and therefore could differ from the amounts valid for financial statements purposes. Thus, the final ratios are not readily apparent from the financial statements. In particular, the EBITDA is adjusted to include certain rental expenses and other non-cash rent adjustments; as of the date of the preparation of these consolidated financial statements, they mainly relate to rental expenses due in a period in which the related payment is offset by the advance payment made to AENA on February As of December 31, 2013, all of the above financial covenants were satisfied. Page 78

79 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 The loan agreement considers the possibility of an early prepayment and cancellation of all or part of the Loan in case of Change of Control as defined in the loan agreement. The loan agreement provides that the lenders shall negotiate for a period not exceeding 30 days to determine whether the facilities under the loan agreement can continue and on what basis. At the end of the 30-day period, any lender not agreeing to continue the facility may require the Borrowing Companies, by serving 10 days prior notice in writing, to prepay and cancel that lender s participation in the Loan. The Loan also provides certain limits upon the disposal of assets, assumption of additional financial indebtedness and issuance of guarantees or other securities, distribution of dividends and carrying out extraordinary transactions. No compliance with these limitations would entitle the Lenders to drawstop, cancel and/or accelerate the Loan. As of December 31, 2013, the Loan, accounted for according to the amortized cost method, is represented net of the fees amounting to Euro 12,575 thousand Employee benefit plan The item amounted to Euro 11,904 thousand at the year end, increased of Euro 1,682 thousand with respect to December 31, The WDF Group operates defined benefit pension plans mainly in the UK under specific regulatory frameworks. All of the plans are final salary pension plans, which provide benefits to members in the form of a guaranteed level of pension payable. The level of benefits provided depends on members length of service and their salary in the final years leading up to retirement. In the UK plans, pensions in payment are generally updated in line with the retail price index. The majority of benefit payments are from trustee administered funds; however, there are also a number of unfunded plans where the company meets the benefit payment obligation as it falls due. Plan assets held in trusts are governed by local regulations, as is the nature of the relationship between the Group and the trustees (or equivalent) and their composition. Responsibility for governance of the plans including investment decisions and contribution schedules lies jointly with the company and the board of trustees. The board of trustees must be composed of representatives of the company and plans participants in accordance with the plans regulations. The liabilities for defined contribution plans has been classified in current other payables. Please refer to note for further comments. The table below show detail of employee benefits recognized as defined benefit plans. As of December 31, Change Defined benefits plan 11,904 10,222 1,682 Total 11,904 10,222 1,682 This item is shown net of the fair value of the defined benefit plan assets amounting to Euro 144,177 thousand. The following is a reconciliation of the present value of the obligation and the fair value of assets against the liability recognized at December 31, 2013: Page 79

80 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 As of December 31, Change Present value of funded plans (156,681) (151,009) (5,672) Fair value of plan assets 144, ,787 3,990 (11,904) (10,222) (1,682) Present value of unfunded obligations Total deficit of defined benefit pension plans (11,904) (10,222) (1,682) Impact of minimum funding requirement/asset ceiling Defined pension benefits (11,904) (10,222) (1,682) The actuarial assumptions used to calculate the defined benefit plans are summarized in the following table: Actuarial assumptions As of December 31, Discount rate 4.450% 4.500% Inflation rate (RPI) 3.650% 3.250% Salary increase rate 4.650% 4.250% Pension increase rate 2.200% 2.100% The 2013 discount rate were determined based on the yield of high grade corporate bonds at the date of this document. The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is: Impact on defined benefit obligation Change in assumption Increase in Liability Discount rate Decrease by 0.25% 7,813 Pension growth rate Increase by 0.25% 5,648 Life expectancy Increase by 1 year 4,064 Below the amount recognized in the income statement for defined benefit plans: For the period from March 27, 2013 to December 31, 2013 For the twelve months periods ended December 31, Current service costs Interest expense 3,206 6,431 5,794 Interest income on plan assets (3,022) (6,064) (6,210) Total (23) Interest expense is recognized under Financial expense net of the expected yield on plan assets, while the post employment benefit cost is recognized under Personnel expense. Page 80

81 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 The movement in the defined benefit obligation is as follows: Total As of January 1, ,793 Current service cost 188 Interest expense 6,683 Remeasurement - (Gain)/loss from change in demographic assumptions (6,521) Remeasurement - (Gain)/loss from change in financial assumptions 13,218 Remeasurement - (Gain)/loss from experience 141 Employee's share of contributions 109 Net benefits paid out (3,370) Exchange rate gains (losses) 3,173 Other 595 As of December 31, ,009 Total As of December 31, ,009 Current service cost 201 Interest expense 6,431 Remeasurement - (Gain)/loss from change in demographic assumptions (101) Remeasurement - (Gain)/loss from change in financial assumptions 6,513 Remeasurement - (Gain)/loss from experience 311 Employee's share of contributions 105 Net benefits paid out (4,737) Exchange rate gains (losses) (3,051) Other - As of December 31, ,681 The weighted average duration of the defined benefit obligation is 20 years. The movement in the plan assets is as follows: Total As of January 1, ,457 Estimated yield on plan assets (interest income on plan assets) 6,210 Remeasurement - (Gain)/loss from change in demographic assumptions - Remeasurement - (Gain)/loss from change in financial assumptions - Remeasurement - (Gain)/loss return on plan assets 2,976 Initial actuarial gain/(loss) on annuity policy - Employee's share of contributions 109 Group's share of contributions 6,493 Net benefits paid out (3,370) Exchange rate gains (losses) 2,912 Other - As of December 31, ,787 Page 81

82 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Total As of December 31, ,787 Estimated yield on plan assets 6,064 Remeasurement - (Gain)/loss from change in demographic assumptions - Remeasurement - (Gain)/loss from change in financial assumptions - Remeasurement - (Gain)/loss return on plan assets 8,903 Initial actuarial gain/(loss) on annuity policy (14,160) Employee's share of contributions 104 Group's share of contributions 10,080 Net benefits paid out (4,142) Exchange rate gains (losses) (2,859) Other - As of December 31, ,777 The main categories of plan assets are: As of December 31, 2013 As of December 31, 2012 Quoted Unquoted Total % Quoted Unquoted Total % Equity instruments 38,618-38,618 27% 70,501-70,501 50% Bonds 17,437-17,437 12% 60,947-60,948 43% Qualifying insurance policies* - 49,178 49,178 34% % Investment funds 37,708-37,708 26% % Cash and cash equivalents 1,836-1,836 1% 9,338-9,338 7% Total 95,599 49, , % 140, , % * The buy-in annuity policy is the only asset class that is not quoted in an active market Provision for risks and charges A breakdown of this item at December 31, 2013 and 2012 with the current and non-current portions shown separately, is provided below: Provisions for risks and charges As of December 31, 2011 Provisions, net of releases Utilizations Exchange rate differences Changes in Consolidation Reclassifications As of December 31, 2012 Provision for taxes - 7,463 (30) (47) - 5,017 12,403 Other provisions Total current provisions for risks and charges - 7,463 (30) (47) - 5,017 12,403 Provision for taxes 3,097 - (3,097) Provision for legal disputes Provision for the refurbishment of third party assets 6,919 - (249) ,833 Other provisions Total non-current provisions for risks and charges 10,016 - (3,346) ,854 Provisions for risks and charges As of December 31, 2012 Provisions, net of releases Utilizations Exchange rate differences Changes in Consolidation scope Reclassifications As of September 30, 2013 Provision for taxes 12, (904) ,498 Other provisions Total current provisions for risks and charges 12, (904) ,498 Provision for taxes Provision for legal disputes (21) - Provision for the refurbishment of third party assets 6,833 - (6) (163) - - 6,663 Other provisions Total non-current provisions for risks and charges 6,854 - (6) (163) ,860 Page 82

83 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Provisions for risks and charges As of September 30, 2013 Provisions, net of releases Utilizations Exchange rate differences Changes in Consolidation scope Reclassifications As of December 31, 2013 Provision for taxes 11, (54) - (58) 11,937 Other provisions (345) (13) Total current provisions for risks and charges 11, (345) (67) - (58) 11,943 Provision for taxes Provision for legal disputes Provision for the refurbishment of third party assets 6, ,563 Other provisions (6) (1) Total non-current provisions for risks and charges 6, (6) ,281 Provision for taxes, amounting to Euro 11,937 thousand as of December 31, 2013 represent the amount expected to be paid as a result of lawsuits underway in India in relation to indirect taxes and customs duty. In relation to this dispute, during the year 2012, it was recorded a provision (net of releases) for Euro 7,463 thousand. The provision for refurbishment of third party assets, amounting to Euro 7,563 thousand as of December 31, 2013 includes future payments that the Group is expected to incur in the United Kingdom concessions to return property, plant and equipment in its original condition to the lessor at the end of the concession Equity The changes in equity reserves are shown in the corresponding schedule of these financial statements. A description of the content of the main equity reserves is provided below, together with some details about the main changes for the period. Share capital The share capital of WDF S.p.A., fully subscribed and paid in, amounts to Euro 63,720 thousand and consists of n. 254,520,000 ordinary shares with no par value. On the date of incorporation (March 27, 2013), the share capital amounted to Euro 120 thousand, consisted of 120,000 shares with no par value. As a result of the Demerger, the share capital of WDF S.p.A. increased by Euro 63,600 thousand, by issuing 254,400,000 new ordinary shares. Legal reserve The legal reserve amounts to Euro 12,720 thousand as effect of the Demerger. This item includes includes the portion of income of WDF to an extend reaching the requirement minimum of 20% of share capital, as stated by the art of Civil Code. Hedging reserve The Hedging reserve amounting to Euro 998 thousand includes the effective component of the fair value of derivatives designated as cash flow hedges. Translation reserve Translation differences arise from the translation into Euro of the financial statements of companies consolidated line by line that are denominated in currencies other than the euro. Page 83

84 Other Reserves World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 This item includes the profit of subsidiaries not distributed as dividends, consolidation adjustments and the amount set aside in connection with the recognized costs of the stock options plans. The changes in these reserves, in addition to the recognition of the profit for the year, include: i) Euro 220 million as a dividends distribution to Autogrill S.p.A., approved by the WDFG SAU shareholder s meeting on 30 April 2013; ii) Euro 35.9 million as movements related to changes in consolidation perimeter due to the acquisition of the US Retail Division (please also refer to note 2.2 for further information); and iii) Euro 9.7 million as the effect of the remeasurement of defined benefit plans. Non controlling interest Non controlling interests amount to Euro 8,153 thousand at December 31, 2013, compared with Euro 2,657 thousand at December 31, The increase is mainly due to the acquisition of the US Retail division and to the profit for the year achieved by the group companies where minorities exist. Other comprehensive income The following table shows the components of comprehensive income and the relative tax effect: Gross amount Tax benefit/ (expense) Net amount Gross amount Tax benefit/ (expense) Net amount Remeasurement of the defined liability (asset) (11,980) 2,253 (9,727) (5,235) 1,204 (4,031) Effective portion of fair value change in cash flow hedges 4,658 (1,398) 3,260 (2,463) 739 (1,724) Foreign currency translation differences for foreign operations (23,308) - (23,308) 10,642-10,642 Gains (losses) on net investment hedge 6,208 (1,862) 4,346 (6,760) 2,028 (4,732) Total other comprehensive income (24,422) (1,007) (25,429) (3,816) 3, WDF S.p.A. operates as the holding company of the WDF Group and therefore its ability to distribute dividends to its shareholders depends on the amount of dividends distributed by the subsidiary WDFG SAU. The loan agreement signed by the subsidiary on May 2013, provides for restrictions on its ability to make any distribution (either through dividend payments or otherwise) in any financial year on a sliding scale based on the leverage ratio of WDFG SAU and its subsidiaries as at each relevant determination date as provided in the loan agreement. For the calculation of the leverage ratio, the loan agreement provides for specific definitions of net financial indebtedness, EBITDA and net financial charges, and therefore differ from the amounts valid for financial reporting purposes. Thus, the final ratios are not readily apparent from the financial statements. More specifically, the loan agreement provides as follows: Percentage of profits whose distribution is allowed Leverage Ratio 100% < % >=3.25 and < % >=3.75 and < % >= 4.00 With reference to the year 2013, the loan agreement allows for distributions up to a maximum of Euro 40 million, irrespective of the levels of the leverage ratio as of December 31, Page 84

85 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, NOTES TO THE INCOME STATEMENT Revenue The table below shows a breakdown of Revenue by geographic area for 2013 and 2012: For the period from For the twelve months periods ended March 27, 2013 to December 31, Revenue by geographic area December 31, United Kingdom 253, , ,744 Rest of Europe 139, , ,946 Americas 113, , ,648 Asia and Middle East 40, , ,635 Total 547,017 2,078,477 2,001, Other operating income The table below shows a breakdown of Other operating income : Other operating income For the period from March 27, 2013 to December 31, 2013 For the twelve months periods ended December 31, Advertising Other income Total Supplies and goods The table below shows a breakdown of Supplies and goods : For the period from For the twelve months periods ended March 27, 2013 to December 31, Supplies and goods December 31, Purchases 218, , ,931 Change in inventories 4,336 (8,177) 6,059 Total 222, , ,990 The variation in Purchases, mainly referred to the cost of goods for resale, is in line with the increase of revenues. Page 85

86 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Personnel expense The table below shows a breakdown of Personnel expense for 2013 and 2012: For the period from For the twelve months periods ended March 27, 2013 to December 31, Personnel expense December 31, Wages and salaries 50, , ,915 Social security contributions 7,525 27,563 25,350 Other costs 8,878 16,865 13,626 Total 67, , ,891 Other costs mainly refer to the cost of contracting temporary personnel to cover summer periods when sales increase. The average headcount, expressed in terms of equivalent full-time employees, was 8,376 for 2013 (6,942 for 2012) Leases, rentals concessions and royalties The table below shows a breakdown of Leases, rentals, concessions and royalties for 2013 and 2012: For the period from For the twelve months periods ended March 27, 2013 to December 31, Leases, rentals, concessions and royalties December 31, Leases, rentals and concessions 168, , ,896 Royalties Total 169, , ,470 The increase in Leases, rentals and concessions is mostly due to the growth in sales revenues and to the higher rent cost incurred as a result of the new contracts of the Spanish concessions. Page 86

87 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Other operating expense A breakdown of Other operating expense for 2013 and 2012 is provided below: Other operating expense For the period from March 27, 2013 to December 31, 2013 For the twelve months periods ended December 31, Consulting services 4,596 18,559 20,612 Maintenance 4,787 14,336 13,339 Commission on credit card payments 4,143 13,701 12,586 Advertising and market research 4,379 10,634 9,281 Utilities 2,247 9,865 8,656 Travel expenses 3,270 10,477 8,392 Storage and transport 1,674 7,164 7,661 Surveillance 1,108 4,723 5,146 Insurance 273 1,973 3,328 Cleaning 612 2,681 2,928 Telephone and postal charges 981 3,031 2,463 Banking services 713 2,602 1,975 Other services 1,143 13,405 11,570 Costs for materials and services 29, , ,937 Impairment losses on receivables (201) Provisions for risks, net of releases ,463 Other operating costs 2,685 9,530 9,695 Total 33, , ,894 As regarding the provision for risks see note for further information Depreciation and amortization A breakdown of Depreciation and amortization for 2013 and 2012 is as follows: For the period from For the twelve months periods March 27, 2013 to ended December 31, Depreciation and amortization December 31, Other intangible assets 15,695 62,823 77,320 Property, plant and equipment 8,987 27,509 34,684 Investment property Total 24,776 90, ,379 The decrease in the amortization of Other intangible assets is mainly referred to the decline in the amortization of concessions as a result of the redetermination of their useful life linked to the extension until 2020 of the duty free and duty paid concessions in the Spanish airports. Page 87

88 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Financial income and expense A breakdown of Financial income and Financial expense for 2013 and 2012 is provided below: For the period from For the twelve months periods ended March 27, 2013 to December 31, Financial income December 31, Interest income Other financial income 3,172 10, Total 3,219 10, For the period from For the twelve months periods ended March 27, 2013 to December 31, December 31, 2013 Financial expense Interest expense 9,882 33,492 15,062 Interest paid to Autogrill Group companies ,258 Exchange rate losses Other financial expense 3,077 9,919 1,011 Total 13,808 45,060 19,290 Other financial income includes mainly the effect of valuing at amortized cost the AENA advance payment. (see note 2.3). Other financial expense also includes the effects of the amortized cost on the Multicurrency Revolving Facility reimbursed during the year, amounting to Euro 4.9 million and the upfront fees paid for the medium term credit facility amounting to Euro 1.2 billion (see note for further information) Impairment and revaluation of financial assets The table below shows a breakdown of Impairment and revaluation of financial assets for 2013 and 2012: For the period from For the twelve months periods March 27, 2013 to ended December 31, Impairment and revaluation of financial assets December 31, Income from investments accounted for using the equity method (123) 2,224 2,219 Loss / impairment of investments 4 (183) (375) Total (119) 2,041 1,844 Page 88

89 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Income tax A breakdown of Income tax for 2013 and 2012 is provided below: For the period from For the twelve months periods March 27, 2013 to ended December 31, Income tax December 31, Current income tax 14,813 46,091 40,897 Deferred income tax (9,907) (25,622) (10,868) Total 4,906 20,469 30,029 The table that follows provides a reconciliation of the income tax expense recognized in the consolidated financial statements to the theoretical tax liability, which was determined by applying the applicable theoretical rate to the pre-tax profit generated in each jurisdiction. For the period from For the twelve months periods ended March 27, 2013 to December 31, December 31, Pre-tax profit 24, , ,012 Theoretical income tax 5,492 33,789 32,699 Non-deductible expenses 2,958 6,298 7,006 Exempt income (3,071) (5,473) (3,902) Increase/utilization of deferred tax assets on losses carried forward (1,056) (5,996) 3,535 Effect of tax rate differences (373) (8,516) (6,823) Other adjustments (2,486) Income tax 4,907 20,469 30,029 In 2013, the WDF Group s theoretical tax rate was about 26%, in line with previous year. The average effective tax rate passed from 22.6% in 2012 to 15.5% in 2013 mainly for the revaluation of deferred tax liabilities in UK in view of the recent lowering of tax rates to be applied in the next fiscal years Basic and diluted earnings per share Basic earnings per share is determined based on the weighted average number of shares, excluding the average of own shares. Diluted earnings per share is calculated by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, as defined above, for the effects of all diluitive potential ordinary shares. As of December 31, 2013 and 2012 the WDF Group has no potentially dilutable ordinary shares. The computation details are provided below: Page 89

90 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 For the period from March 27, 2013 to December 31, 2013 For the twelve months periods ended December 31, Profit for the year attributable to owners of the parent (in thousands of Euro) 16, , ,727 Number of shares (in units) 254,520, ,520, ,400,000 Basic and Diluted earnings per share (in Euro cents) Net financial position In accordance with the requirements of the Consob Communication of July 28, 2006 and consistent with the ESMA/2011/81 Recommendation, a breakdown of net financial position at December 31, 2013 and 2012 is provided below: As of December 31, Notes Net Financial Position Change A) Cash on hand ,674 1,607 1,067 B) Cash equivalents ,098 17,077 3,022 C) Securities held for trading D) Cash and cash equivalents (A+B+C) 22,772 18,684 4,089 E) Current financial assets ,994 12, F) Due to banks, current (71,915) (63,839) (8,076) G) Bonds issued H) Other financial liabilities (6,278) (876) (5,401) I) Current financial indebtedness (F+G+H) (78,193) (64,715) (13,478) J) Net current financial indebtedness (I+E+D) (42,427) (33,311) (9,115) K) Due to banks, net of current portion (982,519) (439,299) (543,220) L) Bonds issued M) Due to others (1,751) (76,408) 74,657 N) Non-current financial indebtedness (K+L+M) (984,270) (515,707) (468,563) O) Net financial indebtedness (J+N)* (1,026,697) (549,018) (477,678) P) Non-current financial assets Net financial position (O+P) (1,026,657) (549,018) (477,638) * As defined by CONSOB communicationin July 28, 2006 and ESMA/2011/81 Recommendations 4. Financial risk management WDF Group is exposed to the following risks: market risk; credit risk; liquidity risk. The WDF Group adopted a financial risk management procedure that sets forth the organization, the separation of responsibilities, a risk assessment system and the principles that govern the implementation of the policies and criteria for the recording of transactions in the accounting records. Page 90

91 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Information about the exposure of the WDF Group to each of the abovementioned risks, the objectives, policies and processes to manage those risks, and the methods used to assess them is provided in this section of the notes. Market risk The market risk is the risk that the fair value or future cash flows from a financial instrument may fluctuate due to changes in exchange rates, interest rates or equity instrument prices. The aim of market risk management is to monitor, manage and control, within acceptable levels, the exposure of the WDF Group to these risks and the resulting impact on the Group s income statement, financial position and cash flow. The WDF Group s financial policy places special emphasis on the control and management of market risk, specifically with regard to interest rates and exchange rates, given the extent of the borrowings of the WDF Group and its international footprint. Interest rate risk The aim of interest rate risk management is to mitigate and/or reduce financial expense volatility. This entails predetermining a portion of financial expense over a time horizon consistent with the structure of the indebtedness, which, in turn, must be in line with the capital structure and future cash flows. When the desired risk profile cannot be obtained in the capital markets or through bank facilities, it is achieved by using derivatives for amounts and maturities in line with those of the liabilities that they hedge. The derivatives used are interest rate swaps (IRS). At December 31, 2013 most of the indebtedness of the WDF Group paid a floating rate. At December 31, 2013 the ratio of fixed rate debt to net debt is 26.0%. The purpose of using derivatives is to make financial expense predictable for a portion of the debt, having established sustainable fixed rates. Hedging instruments are allocated to companies with significant exposure to interest rate risk where there are borrowing paying floating rate (thus exposing the WDF Group to higher finance costs if interest rate rises) or a fixed rate (which means that lower interest rate do not bring about a reduction in financial expenses). The tables that follow show the main characteristics of the interest rate swaps, serving as cash flow hedges, outstanding at December 31, 2013 and 2012: Currency Notional amount (in thousands of GBP) Commencement date Maturity date Interest rate Fair value as of December 31, GBP 20,000 09/08/ /07/ % (159) (618) GBP 20,000 09/08/ /07/ % (164) (625) GBP 20,000 09/08/ /07/ % (175) (641) GBP 20,000 09/08/ /07/ % (183) (652) GBP 20,000 09/08/ /07/ % (168) (632) GBP 20,000 09/08/ /07/ % (181) (649) GBP 20,000 09/08/ /07/ % (178) (645) GBP 20,000 09/08/ /07/ % (180) (647) GBP 20,000 09/08/ /07/ % (180) (647) GBP 20,000 09/08/ /07/ % (183) (652) 200,000 (1,751) (6,408) Page 91

92 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 The fair value of financial instruments is measured in accordance with valuation techniques that use as reference parameters observable in the market, different from prices quoted on active markets for the assets and liabilities that are being valued. Consequently, in the fair value hierarchical ranking they are classifiable at level 2 of the ranking. A hypothetical unfavorable change of 1% in the interest rates applicable to assets and liabilities and to interest rate hedges outstanding at December 31, 2013 would increase net financial expenses by Euro 6,707 thousand. Currency risk Because it operates in international markets and uses different presentation currencies, the WDF Group is exposed to currency risk. Fluctuations in exchange rates affect the economic results of the WDF Group in several ways. A significant impact is represented by the translation effect, which emerges when the financial statements of foreign subsidiaries are translated into Euro. In addition, because a portion of the revenue and expenses of the WDF Group are denominated in currencies other from the euro, increases or decreases in the value of the euro versus those currencies can have an impact on the consolidated financial statements of the WDF Group. However, because within each country revenue and expenses are usually denominated in the same currency, the WDF Group benefits to a significant extent from a natural hedging effect. The aim of currency risk management is to neutralize in part this risk on foreign currency payables and receivables that are not denominated in Euro. The table that follows shows for the main currencies the exposure of the equity and profit for the year of the WDF Group to currency risk at December 31, 2013: CAD GBP USD MXP Equity 16, , , ,202 Profit for the year 9,179 77,180 21,519 72,755 A 5% increase or depreciation of the Euro versus the currencies listed below would have caused, at December 31, 2013 the effects on equity and profit shown in the table below, stated in thousands of Euro: CAD GBP USD MXP Total % - 5% + 5% - 5% + 5% - 5% + 5% - 5% + 5% - 5% Equity 757 (837) (4,420) 4,886 (494) (448) (3,752) 4,147 Profit for the year 288 (318) 4,125 (4,559) 496 (549) 130 (144) 5,039 (5,569) This analysis was performed assuming that all other variables, interest rates in particular, remained constant. The WDF Group uses derivatives to hedge currency risk primarily in connection with intercompany transactions. Hedging instruments are allocated to companies with significant exposure to currency risk in terms of translation risk (i.e., the risk attending conversion into Euro in the parent s or its subsidiaries Page 92

93 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 financial statements of equity investments in foreign currency) or financial assets or liabilities in a currency other than the reporting currency. These transactions are recognized at fair value under financial assets or liabilities. In the case of financial instruments that hedge financial receivables and payables in a currency other than the reporting currency, any changes in fair value and the corresponding change in the carrying value of the hedged assets and liabilities are recognized in profit or loss. In the case of financial instruments that hedge the translation risk and, consequently, are designated as hedges of net investments, the effective component of fair value is recognized in comprehensive income and classified in equity in the Translation reserve. The fair value of these hedges outstanding at December 31, 2013 is shown in the following table: Underlying Currency Notional amount in currency (in thousands) Maturity date Spot exchange rate Forward exchange rate Fair value Intragroup loan GBP 35,000 21/01/ Intragroup loan GBP (10,000) 03/01/ Intragroup loan BRL 1,150 20/06/ Intragroup loan USD /06/ Intragroup loan USD /06/ Intragroup loan USD 1,608 23/01/ Intragroup loan CAD /01/ Intragroup loan CAD 2,000 02/01/ Intragroup loan USD 1,000 23/01/ Total financial assets 51 Intragroup loan GBP 40,294 21/01/ (88) Intragroup loan GBP 53,000 09/01/ (132) Intragroup loan USD 8,700 23/01/ (21) Intragroup loan USD 1,400 23/01/ (3) Intragroup loan USD 1,150 23/01/ (1) Intragroup loan USD 1,000 23/01/ (82) Intragroup loan USD 14,842 23/01/ (14) Intragroup loan USD 2,500 23/01/ (5) Intragroup loan USD /01/ (16) Intragroup loan USD 3,000 23/01/ (21) Intragroup loan USD 4,700 23/01/ (26) Intragroup loan KWD 2,470 29/01/ (29) Intragroup loan KWD /01/ (8) Intragroup loan KWD /01/ (6) Intragroup loan KWD /01/ (9) Intragroup loan KWD /01/ (11) Intragroup loan KWD /01/ (2) Total financial liabilities (474) The fair value of instruments outstanding at December 31, 2012 is detailed in the table below: Page 93

94 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Underlying Currency Notional amount in currency (in thousands) Maturity date Spot exchange rate Forward exchange rate Fair value Intragroup loan USD 19,194 26/03/ Intragroup loan USD 1,102 14/01/ Intragroup loan USD 7,390 26/03/ Intragroup loan USD 4,335 14/01/ Intragroup loan KWD 3,236 27/03/ Intragroup loan KWD /01/ Intragroup loan KWD /03/ Total financial assets 272 Intragroup loan USD (1,102) 16/01/ (8) Intragroup loan USD 1,200 26/03/ (2) Intragroup loan USD (4,335) 14/01/ (23) Intragroup loan USD (4,339) 14/01/ (24) Intragroup loan CAD (4,240) 15/01/ (1) Intragroup loan PEN (5,407) 16/01/ (25) Intragroup loan KWD (964) 21/01/ (28) Intragroup loan GBP (10,162) 15/01/ (5) Intragroup loan USD (1,600) 26/03/ (11) Intragroup loan USD (399) 14/01/ (2) Intragroup loan USD 2,903 26/03/ (2) Intragroup loan USD /03/ Intragroup loan USD 1,169 26/03/ (1) Intragroup loan PEN 29,403 26/03/ (25) Total financial liabilities (157) For the purposes of containing the net total exposure to the British pound, which is related to the presence of the WDF Group in the United Kingdom a portion of the indebtedness denominated in British pounds was designated as a hedge of net investment. The fair value of financial instruments is measured in accordance with valuation techniques that use as reference parameters observable in the market, different from prices quoted on active markets for the assets and liabilities that are being valued. Consequently, in the fair value hierarchical ranking they are classifiable at level 2 of the ranking. Credit risk The credit risk is the risk that a customer or a financial instrument counterparty may cause a financial loss by defaulting on an obligation. It arises principally in relation to the trade receivables and financial investments of the WDF Group. At December 31, 2013 the carrying amount of the financial assets represents the maximum exposure of the WDF Group to the credit risk, in addition to the face value of guarantees given for the borrowings or commitments of third parties as shown below: As of December 31, Exposure to credit risk Bank and cash deposits 20,099 17,077 Other financial assets - current portion 12,994 12,720 Trade receivables 36,477 27,929 Other receivables - current portion 28,409 7,544 Other financial assets - non-current portion 32,228 3,975 Other receivables - non current portion 264,242 14,016 Total 394,449 83,262 Page 94

95 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Trade receivables consist of promotional contributions and bonuses on purchases from suppliers and receivables from customers for wholesale transactions. Because of the business model of the WDF Group, centered on the relationship with the end consumer, the credit risk on trade receivables is not high relative to the total financial assets, as the consideration due for sales is generally settled in cash. Other receivables consist mainly of amounts due by the tax authorities and the public administration, prepaid rent and advances for services, commercial investments made on behalf of concession grantors and receivables owed by credit card issuers, all of which entail a limited credit risk. The amounts corresponding to guarantee deposits and advance payments are contractually covered. Financial assets are recognized net of impairment losses computed to reflect the risk of default by counterparties. Impairment is determined in accordance with local procedures, which may require both impairment of individual positions, if individually material, when there is evidence of an objective condition of uncollectability or all of part of the amount due, and generic impairment calculated on the basis of historical and statistical data. The table that follows shows the age of trade receivables at December 31, 2013 and 2012: and percentage of trade receivables Not expired 1-3 months Expired not impaired 3-6 months 6 months - 1 year Over 1 year Total Trade receivables as of December 31, ,294 21,824 1,687 2, ,477 percentage of total trade receivables 28% 60% 5% 7% 1% 100% Trade receivables as of December 31, ,048 8,956 6, ,929 percentage of total trade receivables 40% 32% 24% 1% 3% 100% There is no significant concentration of credit risk. Liquidity risk The liquidity risk arises when it proves difficult to meet the obligations relating to financial liabilities. The element that make up the WDF Group s liquidity are the resources generated or absorbed by operating and investing activities, the characteristics of its debt, the liquidity of its financial investments, and financial market conditions. The tables that follow shows an analysis of the maturities of financial liabilities derivative and not at December 31, 2013 and 2012: Page 95

96 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 AS OF DECEMBER 31, 2013 Carrying amount Total 1-3 months 3-6 months Maturity 6 months years 2-5 years Over 5 years 1 year Financial non derivative liabilities Current account overdraft 11,915 11, , Unsecured bank loans 1,055,094 1,055, , , ,107 - Other financial liabilities 5,804 5,804 5, Trade payables 235, , , Due to suppliers for investments 19,305 19,305 19, Other payables 5,036 5,036 5, Total 1,332,647 1,332, ,638-71, , ,107 - AS OF DECEMBER 31, 2013 Carrying amount Total 1-3 months 3-6 months Maturity 6 months years 2-5 years Over 5 years 1 year Financial derivative liabilities Forward foreign exchange derivatives Interest rate swap 1,751 1, ,751 - Total 2,225 2, ,751 - AS OF DECEMBER 31, 2012 Carrying amount Total 1-3 months 3-6 months Maturity 6 months years 2-5 years Over 5 years 1 year Financial non derivative liabilities Current account overdraft 3,318 3, , Unsecured bank loans 504, , , ,235 - Long term loans from Autogrill 70,079 70, ,079 - Other financial liabilities Trade payables 203, , , Due to suppliers for investments 3,566 3,566 3, Other payables 3,884 3,884 3, Total 790, , ,933-63, ,314 - AS OF DECEMBER 31, 2012 Carrying amount Total 1-3 months 3-6 months Maturity 6 months years 2-5 years Over 5 years 1 year Financial derivative liabilities Forward foreign exchange derivatives Interest rate swap 6,408 6, ,408 - Total 6,565 6, ,408 - As of December 31, 2013 and 2012 there were no financial liabilities with a maturity longer than five years. The loan agreement identifies certain events of default, customary for an agreement of this nature. If one of these events occurred and the lenders exercised their right, the Borrowing companies would be obliged to promptly reimburse the drawn-down amounts of the Loan, and this would be terminated. Said events of default include, among others, failure by the WDF Group to comply with certain financial covenants (see note for further information). The WDF Group carefully assessed its ability to meet the financial covenants even in case of events adversely affecting the Group s economic results and cash generation. Although the sustainability assessment has shown that there are adequate security margins, it cannot be ruled out, however, that, if more serious adverse events occurred as compared to the ones already considered, the financial covenants might not be complied with. Page 96

97 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 In addition to the failure to meet the financial covenants, the loan agreement provides for further events of default or circumstances that may trigger the prepayment of the Loan (or part of it), including, by way of example, a change of control on the WDF Group. In February 2013, after winning the contract to operate travel retail shops for the period , the WDF Group made an outlay in excess of Euro 278,933 thousand (plus VAT amounting to Euro 58,576 thousand) as advance payment in relation to AENA agreements and Euro 27,318 thousand as a security deposit. This advance payment will allow the Group to obtain more operating cash flows in the future. The WDF Group naturally has a negative working capital (Euro million as of December 31, 2013 and Euro million as of December 31, 2012). This peculiarity mainly arises from the following structural characteristics of business of the WDF Group: (i) a low value of trade receivables compared to the volume of sales, since much of the sales turn quickly into cash, as usual for the businesses of retail sale to the final consumer; and (ii) an amount of inventories structurally reduced compared to the turnover. For these reasons, the amount of current liabilities, and trade payables in particular, usually exceeds current assets. The WDF Group has unused committed bank facilities for approximately Euro 205 million as of December 31, The objective of the WDF Group is to maintain sufficient liquid assets to cover the liquidity risk. Moreover, the WDF Group believes to have sufficient flexibility in the time management of its investments and in containing overheads to address any financial stress, while complying with the parameters required by the loan agreements. Page 97

98 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Fair value estimation The tables that follow provide a breakdown by category of financial assets and liabilities at December 31, 2013 and analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs other than quoted prices included within level 1 that are observable for the asset and liability, either directly (that is, as prices) or indirectly (that is, derived from prices); Level 3 inputs for asset and liability that are not based on observable market data (that is, unobservable inputs). As of December 31, 2013 Financial assets and liabilities at fair value through profit and loss Derivatives used for hedging Held to maturiy Loans and receivables Available for sale financial assets Other financial liabilities Total Level 1 Level 2 Level 3 Total Cash and cash equivalents , , Forward foreign exchange derivatives Other financial assets , , Trade receivables , , Other receivables current , , Other receivables non current , , , ,242 Total , , , ,293 Due to banks ,915 71,915-21,915 50,000 71,915 Loans , , , ,094 Forward foreign exchange derivatives Interest rate swap - 1, ,751-1,751-1,751 Other financial liabilities ,804 5,804-5,804-5,804 Trade payables , , Due to suppliers for investments ,305 19, Other payables ,036 5, Total - 2, ,332,647 1,334,872-29,944 1,045,094 1,075,038 The tables that follow provide a breakdown by category of financial assets and liabilities at December 31, 2012 and their fair value: As of December 31, 2012 Financial assets and liabilities at fair value through profit and loss Derivatives used for hedging Held to maturiy Loans and receivables Available for sale financial assets Other financial liabilities Total Level 1 Level 2 Level 3 Total Cash and cash equivalents , , Forward foreign exchange derivatives Other financial assets , , Trade receivables , , Other receivables current , , Other receivables non current , ,016-14,016-14,016 Total , ,868-14,287-14,287 Due to banks ,839 63,839-7,318 56,521 63,839 Loans , , , ,235 Forward foreign exchange derivatives Interest rate swap - 6, ,408-6,408-6,408 Other financial liabilities ,719 70,719-70,719-70,719 Trade payables , , Due to suppliers for investments ,566 3, Other payables ,884 3, Total - 6, , ,651-84, , ,359 There was no transfer between the different levels of hierarchy during Page 98

99 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 (a) Financial instruments in level 1 The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm s length basis. The quoted market price used for financial assets held by the Group is the current bid price. (b) Financial instruments in level 2 The fair value of financial instruments that are not traded in an active market (for example, overthe-counter derivatives) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. For level 2, specific valuation techniques used to value financial instruments include: the fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable market yield curves. The credit value adjustment is based on directly observable market credit spreads for the respective counterparts. The debit value adjustment is considered by estimating the Group own credit rating based on several representative financial ratios as well as on benchmarking analyses. Adjustments for both above mentioned risks can be considered as not significant as per December 31, 2013; the fair value of the AENA upfront payment and guarantee deposits is calculated as the present value of the estimated future cash flows based on the counterparty credit risk; and the carrying amount of short term financial assets and liabilities, such us short term receivables and payables is a reasonable approximation of their fair values. (c) Financial instruments in level 3 The fair value of the syndicated loan has been estimated by discounting the future cash flows with observable risk free market interest rates plus a spread for the Group s own credit risk. The own credit risk spread is obtained by estimating the Group s own credit rating based on several representative financial ratios as well as on benchmarking analyses. Furthermore, the fair value as per December 31, 2013 should be close to the amortized cost considering the following aspects: the risk free part of the Loan s interest rate is linked to Euribor/Libor; the contractual credit spread is variable as well, that is, the credit spread is periodically adjusted depending on the credit risk of the Group; and the syndicated loan has been signed in May The Group s own credit risk has not changed significantly since the date of the signing. 6. Segment reporting The table below, which was prepared in accordance with the disclosure requirements of IFRS 8, provides segment information about the Group s operations as of December 31, 2013 and The WDF Group operates in four geographical areas: United Kingdom, Rest of Europe, Americas and Asia and Middle East, designated as operating segments pursuant to IFRS 8. The criteria applied to designate these geographical areas as operating segments were based, inter alia, on Page 99

100 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 the methods used at the highest level of operational decision making to periodically review the results of the WDF Group and adopt decisions concerning the allocation of resources to the various operating segments and assess their performance. The tables below present the relevant information concerning the four geographical areas during the periods presented in the Consolidated Financial Statements. In the following table, the column Unallocated includes the year s share of the financial charges and income taxes, that were not specifically allocated to the operating segments. For the period from March 27, 2013 to December 31, 2013 Asia and United Rest of Americas Middle Unallocated Total Kingdom Europe East Revenue 253, , ,320 40, ,017 Other operating income 3,493 1,001 1, ,819 Total revenue and other operating income 256, , ,765 41, ,836 Depreciation, amortization and impairment losses on property, plant, equipment and intangible assets (9,295) (9,748) (4,141) (2,158) - (25,342) Operating profit (loss) 27, ,211 4,631-35,432 Net financial expense (10,588) (10,588) Adjustment to the value of financial assets (119) (119) Pre tax profit (loss) 27, ,211 4,631 (10,708) 24,725 Income tax (4,906) (4,906) Profit (loss) for the year 27, ,211 4,631 (15,614) 19,818 For the twelve months periods ended December 31, 2013 and 2012 United Kingdom Rest of Europe Americas Asia and Middle East Unallocated Total Revenue 975, , , , , , , , ,078,477 2,001,973 Other operating income 3,885 1,193 11,706 12,976 6,225 6,972 4,201 5, ,016 26,607 Total revenue and other operating income 979, , , , , , , , ,104,493 2,028,580 Depreciation, amortization and impairment losses on property, plant, equipment and (36,742) (40,571) (34,850) (53,665) (10,972) (9,513) (8,713) (8,917) - - (91,276) (112,666) intangible assets Operating profit/ (loss) 110,685 85,608 21,870 23,065 16,802 22,479 14,204 18, , ,670 Net financial expenses (34,259) (18,473) (34,259) (18,473) Adjustment to the value of financial assets 2,041 1,844 2,041 1,844 Pre tax profit/(loss) 110,685 85,608 21,870 23,065 16,802 22,479 14,204 18,518 (32,218) (16,629) 131, ,041 Income tax (20,469) (30,029) (20,469) (30,029) Profit for the year 110,685 85,608 21,870 23,065 16,802 22,479 14,204 18,518 (52,687) (46,658) 110, ,012 United Kingdom Rest of Europe Americas Asia and Middle East Not allocated As of December 31, Total United Kingdom Rest of Europe Americas Asia and Middle East Not allocated Total Goodwill 423,985 82,243 66,225 44, , ,124 82,248 43,397 46, ,117 Other intangible assets 309, ,053 25,238 37, , , ,027 32,864 47, ,874 Property, plant and equipment 37,908 56,157 32,525 4, ,100 42,879 19,109 13,771 4,596-80,355 Investment property - 6, ,556-6, ,932 Financial assets 1,517 37, ,601-41,010 2,177 10, ,111 Non-current assets 773, , ,145 88,136-1,346, , ,947 90,263 98,856-1,328,389 Net working capital (82,452) (37,521) 8,965 3,958 - (107,050) (83,159) (50,554) 10,931 7,496 - (115,286) Other non current non financial assets and liabilities (19,799) 250,474 1,330 9,300 (34,839) 206,465 (15,092) (2,616) 2,402 10,260 (60,832) (65,878) Net invested capital 671, , , ,393 (34,839) 1,445, , , , ,612 (60,832) 1,147,224 Page 100

101 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Seasonal pattern The WDF Group s volumes are closely related to the flow of travelers, which is highly seasonal in some businesses. A breakdown of 2013 results by quarter is as follows: In million of Euro First quarter First Half First nine months Full year Revenue , ,033.7 % on full year 19.6% 45.4% 75.3% 100.0% Operating profit (loss) % on full year 10.9% 40.7% 79.5% 100.0% Pre-tax profit (loss) % on full year 10.1% 40.2% 82.7% 100.0% Profit (loss) for the year attributable to the owners of the parent % on full year 11.17% 39.66% 85.48% % The above figures are merely indicative and they cannot be used to predict results. The figures corresponding to the US Retail business for the fourth quarter have been excluded in the above table. 8. Guarantees provided, commitments and contingent liabilities Guarantees The WDF Group provided guarantees totaling Euro 205,200 thousand as of December 31, 2013 and Euro 140,440 thousand at December 31, 2012, mainly for concession licences and tax procedures. The tax related guarantees amount to Euro 48,330 thousand as of December, out of which Euro 42,300 thousand (including interests) refer to the guarantee deposited by the WDFG España with the taxation authorities in relation to the income tax inspection of 2006, 2007 and 2008 as reported below. The Company directors and tax advisors classify the inspection's interpretation as not complying with the law and, therefore, consider that it is more likely than not that the arguments put forward against this interpretation will be upheld by any of the possible bodies of appeal. During 2013, pursuant to the AENA contracts, the bank issued three guarantees for a total amount of about Euro 46.3 million on behalf of the WDF Group to AENA. Contingent liabilities WDFG España S.A. (a subsidiary of WDF) is currently undergoing tax assessments in Spain related to the application of the Spanish Corporate Income Tax for financial years 2006, 2007 and The Spanish Tax Authorities are challenging: the applicability of specific tax deductions to avoid double taxation on domestic dividends, in the context of a dividend received by the company; and Page 101

102 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 the calculation of tax effectiveness percentage of the merger difference arisen in 2006 from the merger between certain entities incorporated in Spain. Tax liability and interest due according to the assessments (actas en disconformidad) issued by the Spanish Tax Authorities amount to Euro 41.2 million. The WDF Group believes, also on the basis of authoritative independent experts opinion, that the two matters challenged by the Spanish Tax Authorities have been correctly and lawfully executed and that, therefore, the referred audits will not result in obligations giving rise to an outflow of resources from WDF Group. Consequently, the WDF Group has decided not to record a provision regarding the above described tax proceedings in Spain. Commitments A breakdown by maturity of the future payments in relation to the concession installments at December 31, 2013 is provided below: Year Total future lease payments Sub-lease future payments Net future lease payments ,836 3, , ,455 2, , , , , , , ,060 After ,722,689 1,975 1,720,714 Total 4,913,784 10,925 4,902,859 The figures in the table above has been prepared considering the different typology of contracts, estimations in the flow of passengers and sales surface, among other variables. The business plan of the Group includes committed investments for the period in fixed assets for an amount not exceeding Euro 119 million. This amount considers the investment commitments related to the AENA contracts, for Euro 94 million throughout their duration. The WDF Group has commitments to the company HMS Host International and its subsidiary Host International Inc. in relation to the retail concessions of US Retail Division not transferred on the acquisition date, for which the necessary authorization will be subsequently granted by the landlords. Page 102

103 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Other information 9.1 Related party transactions The tables below provide an overview of transactions with related parties for the 2013 as reflected in the balances of the statement of financial position and the income statement: Transactions with Edizione S.r.l. Edizione S.r.l. As of December 31, Statement of financial position Change Other receivable -current (113) Trade receivables Trade payables (40) - (40) Other payables - current Other financial liabilities current and non current Edizione S.r.l. For the period from March 27, For the twelve months periods 2013 to ended December 31, December 31, Income statement Revenues and other Operating expenses* (57) (57) - Net financial expenses * "Operating expenses" includes "raw material, supplies and goods", "Personnel expenses", "Cost for leases, rental concessiiones and trademark roaylties "and "Other operaring expenses" Transactions with other related parties Autogrill S.p.A. Autogrill catering UK Ltd HMS Host ADR Tel. S.p.A. Aeroporti di Roma S.p.A. As of December 31, Statement of financial position Other receivable -current , Trade receivables Trade payables (2,291) - (161) - (13,037) Other payables - current (520) (1,384) - - (1,767) (54) - (5) - (4) Other financial liabilities current and non current - (70,079) - - (3,855) Autogrill S.p.A. Autogrill catering UK Ltd HMS Host ADR Tel. S.p.A. Aeroporti di Roma S.p.A. ADR Mobility Srl For the period For the period For the period For the period For the period For the period For the twelve months For the twelve months For the twelve months For the twelve months For the twelve months For the twelve months from March 27, from March 27, from March 27, from March 27, from March 27, from March 27, periods ended periods ended periods ended periods ended periods ended periods ended 2013 to 2013 to 2013 to 2013 to 2013 to 2013 to December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, Incom statement Revenue and other 1, Operating expenses* (57) (1,482) (1,335) - - (45) (1,407) (2,118) (44) - - (7) - - (1,159) - - (9) Net financial expenses - (654) (2,256) (38) * "Operating expenses" includes "raw material, supplies and goods", "Personnel expenses", "Cost for leases, rental concessiiones and trademark roaylties "and "Other operaring expenses" The incidence of related parties transactions on the statement of financial position and income statement of the WDF Group is reported below: Page 103

104 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 As of December 31, 2013 Statement of financial position Total related parties Total Group % Other receivable -current 2,013 41, % Trade receivables 18 36, % Trade payables (15,529) (235,493) 6.59% Other payables - current (2,287) (88,948) 2.57% Other financial liabilities current and non current (3,855) (8,029) 48.01% For the twelve months periods ended December 31, 2013 Income statement Total related parties Total Group % Revenue and other 343 2,104, % Operating expenses* (3,657) (1,940,931) 0.19% Net financial expenses (692) (34,259) 2.02% * "Operating expenses" includes "raw material, supplies and goods", "Personnel expenses", "Cost for leases, rental concessiiones and trademark roaylties "and "Other operaring expenses" For the period from March 27, 2013 to December 31, 2013 Income statement Total related parties Total Group % Revenue and other - 553, % Operating expenses* (1,521) (518,403) 0.29% Net financial expenses - (10,588) 0.00% * "Operating expenses" includes "raw material, supplies and goods", "Personnel expenses", "Cost for leases, rental concessiiones and trademark roaylties "and "Other operaring expenses" 9.2 Remuneration of directors and executives with strategic responsibilities The following remuneration was paid to members of the Board of Directors and to executive with strategic responsibilities of WDF Group during the twelve months period ended December 31, 2013: Name Office Term of office Remuneration (Euro) Bonus and other incentives (Euro) Long-term incentive plan (Euro) Non monetary benefits (Euro) Other (Euro) Total (Euro) Gianmario Tondato Da Ruos Chairman , ,058 Jose Maria Palencia Saucedo Executive Director from to , ,047 1,192,561 21,525-1,808,471 Gianni Mion Director , ,458 Paolo Roverato Director , ,794 28,852 Lynda Christine Tyler-Cagni Director from to , ,997 21,455 Gilberto Benetton Director from to , ,058 Alberto De Vecchi Director from to , ,458 Laura Cioli Director from to , ,794 28,852 Carla Cico Director from to , ,797 23,855 Total Directors 576, ,047 1,192,561 21,525 35,382 1,978,517 Key management with strategic responsabilities 2,098, , , ,381-3,409,775 Total 2,674, ,264 1,472, ,906 35,382 5,388,292 The CEO s remuneration includes his salary, bonuses paid under the annual incentive plan and bonuses accrued under the long-term incentive plan. Remuneration also includes compensation related to the long term incentive plan paid in The CEO s contract states that if he resigns with just cause or is dismissed by WDFG SAU without just cause, the company must pay him about Euro 2.2 million. In the event of discontinuation of office, the CEO shall retain the right to variable compensation under the incentive plans, subject to the achievement of the targets and satisfying any other conditions stated in the plans, during the relevant period of time. Page 104

105 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 A significant portion of the variable compensation received by the CEO and by Executives with strategic responsibilities is tied to the achievement of specific targets established in advance by the Board, by virtue of their participation in management incentive plans. In particular, the CEO and top managers participated during the year in an annual bonus system involving earnings and financial targets and other strategic objectives for the Group and/or the relevant business unit, as well as individual objectives. This was in addition to the three-year incentive plan for paid out in April Another Long Term Incentive Plan is in place relating to the years 2011 and 2012 and the participants include those Executives with Strategic responsibilities. The LTIP system involves financial targets for the Group, and the scheme objective was to retain key executives whilst driving Group financial performance. The LTIP bonus is deferred for three years once it is earnt, and therefore payable in April 2014 and April 2015 respectively. Share options plan 120,000 share options have been granted to one director of the WDF Group. The stock option plan, originally implemented by Autogrill S.p.A., was modified on June 6, 2013 by Autogrill S.p.A. shareholder s meeting. The plan conveys the right to acquire by each option one Autogrill, S.p.A. common share and one World Duty Free S.p.A. common share at a specified exercise price. The main characteristics of the stock option plan are reported below: the exercise price of the granted option is equal to the average market price of share on the month before grant date and was calculated separately for Autogrill share and WDF share after the Demerger; options are conditional on the employee completing a certain multi-year period service ending April 20, 2014; the options are exercisable subject to the WDF Group and Autogrill S.p.A. achieving market price jointly calculated; and options may be exercised during the period between April 20, 2014 and April 30, An independent external advisor has been engaged to calculate the fair value of the stock options, based on the value of shares on the grant date estimated dividend payments, the term of the plan and the risk free rate of return. The calculation was performed using the binomial method. The same advisor was engaged to update the evaluation after the above mentioned Demerger. The cost recognized by WDF Group during 2013 amounts to Euro 337 thousand (Euro 45 thousand for 2012). Share options outstanding at the end of 2013 have an exercise price of Euro 4.17 for Autogrill share and Euro 5.17 for WDF share. 9.3 Fees to the statutory auditors Statutory auditors fees for the twelve months period ended December 31, 2013 are as follows: Name Office Term of office Fees (Euro) Other fees (Euro) Total (Euro) Marco Giuseppe Maria Rigotti Chairman ,521 4,397 32,918 Patrizia Paleologo Oriundi Standing auditor ,014 2,932 21,946 Massimo Catullo Standing auditor ,014 2,932 21,946 Page 105

106 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Fees to the independent auditors The table below provides an overview of the fees for the independent auditors and other companies in their network for the auditing services and other services provided: Type of service Service provider Recipient Fees (in thousand of Euro) Auditing Principal auditor Parent 35 Auditor in principal auditor s network Subsidiaries 671 Attestation Principal auditor Parent - Auditor in principal auditor s network Subsidiaries 79 Other services Principal auditor Parent* 603 Auditor in principal auditor s network Subsidiaries 164 Total 1,552 * Fees for Other services are referred to auditing and attestation services related to the issuance of the new shares and their related listing, accounted by WDF S.p.A. into a specific equity reserve. 10. Significant non-recurring events and transactions Except for the partial proportional demerger of Autogrill S.p.A. in favor of WDF S.p.A., during 2013, there were no significant non-recurring events or transactions as defined by Consob s Resolution and Communication DEM/ Atypical or unusual transactions No atypical or unusual transactions, as defined by Consob Communications DEM/ of 28 April 2006 and DEM/ of 28 July 2006, were performed in 2013, unless the partial proportional demerger of Autogrill S.p.A. in favor of WDF S.p.A., as communicated to the market, in accordance with Consob Regulation of May 11, Page 106

107 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, Events after the reporting period Since December 31, 2013, no events have occurred that if known in advance would have entailed an adjustment to the figures in the financial statements or required additional disclosures in these notes. 13. Authorization for publication The Board of Directors authorized the publication of these draft financial statements at its meeting of March 10, Page 107

108 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Annex List of consolidated companies Company Registered office Currency Share/quota capital % held at December 31, 2013 % held at December 31, 2012 Shareholders/quota holders PARENT World Duty Free, S.p.A. Milan EUR 63,720, % - Schematrentaquattro, S.p.A. COMPANIES CONSOLIDATED LINE-BY-LINE World Duty Free Group, S.A.U. Madrid EUR 1,800, % % World Duty Free, S.p.A. World Duty Free Group España, S.A. Madrid EUR 10,772, % 99.93% World Duty Free Group, S.A.U. Aldeasa Chile, Limitada Santiago de Chile USD 2,516, % % World Duty Free Group España, S.A. Aldeasa Servicios Aeroportuarios, Ltda Santiago de Chile USD 15, % 99.99% World Duty Free Group España, S.A. Sociedad de Distribución Comercial Aeroportuaria de Canarias, S.L. Telde (Gran Canaria) EUR 667, % 60.00% World Duty Free Group España, S.A. Aldeasa Colombia, Ltda. Cartagena de Indias (Colombia) COP 2,356,075, % % World Duty Free Group España, S.A. Aldeasa México, S.A. de C.V. Cancún PXM 60,962, % 99.99% World Duty Free Group España, S.A. 0.01% 0.01% World Duty Free Group, S.A.U. Prestadora de Servicios en Aeropuertos, S.A. de C.V. Cancún PXM 50, % 99.99% World Duty Free Group España, S.A. 0.01% 0.01% World Duty Free Group, S.A.U. Aldeasa Cabo Verde, S.A. Ilha do Sal (Cabo Verde) CVE 6,000, % 99.99% World Duty Free Group España, S.A. 0.01% 0.01% World Duty Free Group, S.A.U. Aldeasa Italia S.L.R. Naples EUR 10, % % World Duty Free Group España, S.A. Aldeasa Duty Free Comercio e Importación de Productos LTDA Sao Paulo BRL 1,560, % 99.99% World Duty Free Group España, S.A. 0.21% 0.01% World Duty Free Group, S.A.U. Palacios y Museos, S.L.U. Madrid EUR 160, % % World Duty Free Group España, S.A. Audioguiarte Servicios Culturales, S.L.U. Madrid EUR 251, % % Palacios y Museos, S.L.U. Panalboa, S.A. Ciudad de Panamá PAB 150, % 80.00% Palacios y Museos, S.L.U. Aldeasa Jamaica Ltd St James (Jamaica) JMD 23,740, % % World Duty Free Group España, S.A. WDFG Germany GmbH Düsseldorf EUR 5,250, % % World Duty Free Group España, S.A. WDFG Italia, S.r.L. (ARI) in liquidation Rome EUR 10, % % World Duty Free Group España, S.A. Cancouver Uno S.L.U. Madrid EUR 3, % % World Duty Free Group UK Holdings, Ltd. WDFG Vancouver LP Vancouver CAD 9,500, % 99.99% Cancouver Uno S.L.U. 0.01% 0.01% WDFG Canada INC WDFG Canada INC Vancouver CAD 1, % % Cancouver Uno S.L.U. Aldeasa Jordan Airport Duty Free Shops Amman USD 705, % % World Duty Free Group UK Holdings, Ltd. WDFG US, Inc. Delaware USD 149,072, % % World Duty Free Group UK Holdings, Ltd. Alpha Keys Orlando Retail Associates LLP Orlando USD 100, % 85.00% WDF US, Inc. World Duty Free US, Inc. Orlando USD 1,400, % % WDFG US, Inc. Aldeasa Atlanta, LLC Atlanta USD 1,672, % % WDFG US, Inc. Aldeasa Atlanta JV Atlanta USD % 51.00% Aldeasa Atlanta, LLC 25.00% 25.00% WDFG US, Inc. Aldeasa Curaçao N.V. Curacao USD 500, % % World Duty Free Group UK Holdings, Ltd. Autogrill Lanka, Ltd Colombo (Sri Lanka) SLR 30,000, % 99.00% World Duty Free Group UK Holdings, Ltd. Alpha-Kreol (India) Pvt Ltd Mumbai INR 100, % 50.00% World Duty Free Group UK Holdings, Ltd. Airport Retail Pvt Limited (formerly called Alpha Future Airport Retail PvT Ltd) Mumbai INR 601,472, % 50.00% Alpha Airports Retail Holdings Pvt Limited 50.00% 50.00% World Duty Free Group UK Holdings, Ltd. WDFG Helsinki Oy Vantaa (Finland) EUR 2, % - World Duty Free Group España, S.A. World Duty Free Group UK Holdings, Ltd. London GBP 12,484, % 80.10% World Duty Free Group, S.A.U % 19.90% World Duty Free Group España, S.A. Autogrill Holdings UK, Ltd. London GBP 1, % % World Duty Free Group UK Holdings, Ltd. WDFG UK Limited London GBP 360, % % World Duty Free Group UK Holdings, Ltd. WDFG International Limited London GBP % % World Duty Free Group UK Holdings, Ltd. WDFG Holdings UK Pension Trustees Ltd London GBP % % WDFG UK Limited Alpha Retail Ireland Ltd Dublin EUR % % WDFG UK Limited WDFG Jersey Limited Jersey GBP 4, % % WDFG UK Limited Alpha Airports Group (Channel Islands) Ltd St Helier, Jersey GBP % % World Duty Free Group UK Holdings, Ltd. Alpha Airports Retail Holdings Pvt Limited Mumbai INR % - World Duty Free Group UK Holdings, Ltd. WDFG North America, LLC Delaware USD 72,047, % - WDFG US, Inc. WDFG-Howell-Mickens, Terminal A Retail II, LLC Delaware USD % - WDFG North America, LLC WDFG-Love Field Partners III, LLC Delaware USD % - WDFG North America, LLC WDFG-SPI DEN Retail, LLC Delaware USD % - WDFG North America, LLC WDFG JV Holdings, LLC Delaware USD % - WDFG North America, LLC AIRSIDE E JV Delaware USD % - WDFG JV Holdings, LLC WDFG-Tinsley JV Delaware USD % - WDFG JV Holdings, LLC WDFG PROSE JV II Delaware USD % - WDFG JV Holdings, LLC WDFG-ELN MSP Terminal 2 Retail, LLC Delaware USD % - WDFG JV Holdings, LLC Houston 8-WDFG JV Delaware USD % - WDFG JV Holdings, LLC WDFG Bush Lubbock Airport JV Delaware USD % - WDFG JV Holdings, LLC WDFG Adevco JV Delaware USD % - WDFG JV Holdings, LLC WDFG-Howell-Mickens JV Delaware USD % - WDFG JV Holdings, LLC WDFG-Solai MDW Retail, LLC Delaware USD % - WDFG JV Holdings, LLC WDFG-Diversified JV Delaware USD % - WDFG JV Holdings, LLC WDFG-Java Star JV Delaware USD % - WDFG JV Holdings, LLC WDFG-Howell Mickens Terminal A Retail I JV Delaware USD % - WDFG JV Holdings, LLC Phoenix-WDFG JV Delaware USD % - WDFG JV Holdings, LLC WDFG-Houston 8 Terminal E, LLC Delaware USD % - WDFG JV Holdings, LLC WDFG-Chelsea JV 1 Delaware USD % - WDFG JV Holdings, LLC WDFG-Love Field Partners II, LLC Delaware USD % - WDFG JV Holdings, LLC WDFG-DFW AF, LLC Delaware USD % - WDFG JV Holdings, LLC WDFG-Houston 8 San Antonio JV Delaware USD % - WDFG JV Holdings, LLC Miami Airport Retail Partners JV Delaware USD % - WDFG JV Holdings, LLC WDFG-Howell Mickens JV III Delaware USD % - WDFG JV Holdings, LLC WDFG-DMV DTW Retail LLC Delaware USD % - WDFG JV Holdings, LLC COMPANIES CONSOLIDATED PROPORTIONALLY Alpha ASD Ltd London GBP 20, % 50.00% World Duty Free Group UK Holdings, Ltd. COMPANIES CONSOLIDATED USING THE EQUITY METHOD Souk Al Mohuajir DF Shops Tanger DIRHA 6,500, % World Duty Free Group España, S.A. Creuers del Port de Barcelona S.A. Barcelona EUR 3,005, % 23.00% World Duty Free Group España, S.A. Page 108

109 World Duty Free S.p.A. Part II - Consolidated financial statements as of December 31, 2013 Statement of the CEO and manager in charge of financial Reporting STATEMENT about the consolidated financial statements pursuant to art. 81-ter of Consob Regulation of 14 May 1999 (as amended) 1. We, the undersigned, José María Palencia as Chief Executive Officer and David Jiménez- Blanco as manager in charge of Financial Reporting of World Duty Free S.p.A., hereby declare, including in accordance with art. 154-bis (3) and (4) of Legislative Decree no. 58 of 24 February 1998: a) the adequacy of, in relation to the characteristics of the business; and b) due compliance with the administrative and accounting procedures for the preparation of the consolidated financial statements during No significant findings have come to light in this respect. 3. We also confirm that: 3.1 the consolidated financial statements: a) have been prepared in accordance with the applicable International Financial Reporting Standards endorsed by the European Union pursuant to Regulation 1606/2002/EC of the European Parliament and the Council of 19 July 2002; b) correspond to the ledgers and accounting entries; c) provide a true and fair view of the financial position and results of operations of World Duty Free S.p.A. and of companies included in the consolidation. 3.2 The directors report includes a reliable description of the performance and financial position of the issuer and the entities in the scope of consolidation, along with the main risks and uncertainties to which they are exposed. Milan, March 10, 2014 Mr José María Palencia Chief Executive Officer Mr David Jiménez-Blanco Manager in charge of Financial Reporting Page 109

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112 World Duty Free S.p.A. Part III - Separate financial statements as of December 31, 2013 PART III SEPARATE FINANCIAL STATEMENTS 1. SEPARATE FINANCIAL STATEMENTS 1.1 STATEMENT OF FINANCIAL POSITION Euro Notes As of December 31, 2013 of which related parties ASSETS Current assets Cash and cash equivalents ,629,208 - Other receivables ,568 - Total current assets 1,786,776 - Non-current assets Property, plant and equipment ,706 - Investments ,878,184 - Other receivables 1,098 - Total non-current assets 428,885,988 - TOTAL ASSETS 430,672,764 - LIABILITIES AND EQUITY LIABILITIES Current liabilities Trade payables ,699,781 2,314,959 Other payables ,425 - Due to others ,431 14,431 Total current liabilities 5,277,637 2,329,390 Non-current liabilities Due to others ,300,000 6,300,000 Total non-current liabilities 6,300,000 6,300,000 Equity ,095,126 - TOTAL LIABILITIES AND EQUITY 430,672,764 8,629,390 Page 112

113 Euro World Duty Free S.p.A. Part III - Separate financial statements as of December 31, INCOME STATEMENT Notes For the year ended December 31, 2013 of which related parties Dividends and other income from investments - - Other operating income - - Personnel expenses (35,410) (35,410) Other operating expenses (894,179) (208,778) Depreciation, amortization and impairment (667) - Operating profit (930,256) (244,188) Financial income - - Financial expense (28,160) (26,404) Pre-tax profit (loss) (958,417) (270,592) Income tax Profit (loss) for the year (958,417) (270,592) 1.3 STATEMENT OF COMPREHENSIVE INCOME Euro Notes For the year ended December 31, 2013 Profit (loss) for the year - (958,417) Items that will not be subsequently reclassified to profit or loss - - Items that will be subsequently reclassified to profit or loss - - Total comprehensive income (expense) for the year - (958,417) Page 113

114 World Duty Free S.p.A. Part III - Separate financial statements as of December 31, STATEMENT OF CHANGE IN EQUITY (note 2.3.8) Euro Share Capital Legal Reserve Other reserves and retained earnigns Profit (loss) for the year Equity Incorporation and contribution to share capital 120,000-10, ,000 Comprehensive income for the year Profit (loss) for the year (958,417) (958,417) Total comprehensive income for the year (958,417) (958,417) Transaction with owners of the parent, recognized directly in equity Partial demerger of Autogrill S.p.A. 63,600,000 12,720, ,558, ,878,184 Transaction costs for the issuance and the listing of the shares - - (8,954,641) - (8,954,641) Total transaction with owners of the parent, recognized directly in equity 63,600,000 12,720, ,603, ,923,543 Balance as of December 31, ,720,000 12,720, ,613,543 (958,417) 419,095, STATEMENT OF CASH FLOWS Euro Notes For the year ended December 31, 2013 Opening net cash and cash equivalents Pre-tax profit (loss) and net financial expense for the year (930,256) Amortization, depreciation and impairment losses on non-current assets, net of reversals 667 Change in working capital in the year 1,829,476 Cash flows from operating activities 899,887 Net interests paid (11,972) Taxes paid - Net cash flows used in operating activities 887,914 Acquisition of tangible assets (7,372) Net cash flows from investing activities (7,372) Opening of intercompany loans from subsidiaries ,300,000 Transaction costs for the issuance and the listing of the shares (5,681,334) Incorporation of the company ,000 Net cash flows used in financing activities 748,666 Cash flow for the year 1,629,208 Closing net cash and cash equivalents ,629,208 Page 114

115 World Duty Free S.p.A. Part III - Separate financial statements as of December 31, 2013 Euro Notes For the year ended December 31, 2013 Opening net cash and cash equivalents - balance as of March 27, Cash and cash equivalents - Current account overdrafts - Closing net cash and cash equivalents - balance as of December 31, ,629,208 Cash and cash equivalents 1,629,208 Current account overdrafts - Page 115

116 WDF S.p.A. Part III - Separate financial statements as of December 31, NOTES TO THE SEPARATE FINANCIAL STATEMENTS 2.1 GENERAL INFORMATION Company operations World Duty Free S.p.A. (hereinafter also WDF S.p.A. ) is a public limited company organized in accordance with the laws of the Italian Republic. WDF S.p.A. is the parent company of WDF Group which directly holds the entire interest in World Duty Free Group SAU (hereinafter also WDFG SAU ), a company under Spanish law with registered office in Madrid, operating in the Travel Retail & Duty Free sector. WDF S.p.A. was incorporated on March 27, 2013 and registered with the Novara Company Register from April, The duration of the company is fixed at December 31, 2070 and may be extended on one or more occasions. The separate financial statements for the year ended December 31, 2013 are, therefore, the first financial statements of the company. As parent company, WDF S.p.A. has also prepared the consolidated financial statements for WDF Group for the year ended December 31, The WDF s registered office is located in Novara, via Greppi, 2. The secondary office is in Milan, Corso di Porta Vittoria 16. Demerger of Autogrill S.p.A. in favor of WDF S.p.A. On October 1, 2013 the partial proportional demerger of Autogrill S.p.A. in favor of WDF S.p.A. (the Demerger ) became effective, following the resolutions of the respective shareholders meetings on June 6, The project of the Demerger was prepared jointly by Autogrill S.p.A. and WDF S.p.A. boards of directors pursuant to Sections 2506-bis and 2501-ter of the Civil Code and was approved by those boards of directors on May 3, The project of the Demerger was made available on Autogrill s website on May 4, The deed of Demerger was executed on September 26, 2013 and it was filed for registration with the Novara Companies Register on September 27, The scope of the Demerger was predominantly industrial and is aimed to separate the two sectors, Food & Beverage and Travel Retail & Duty Free, in which Autogrill Group operated, considering that these two sectors have substantially different features from each other, both in terms of market and competitive context of reference, as well as in terms of dynamic management and development strategies; the two sectors are also managed independently and no significant synergies connect one to the other. These features are reflected in the different historical and projected results of the two sectors and development strategies that they will enact in the coming years. The Demerger aimed to create two distinct groups, focused in their own businesses, and will allow each of them to better pursue its strategies and improve its performance by leveraging their respective strengths. Page 116

117 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 With the Demerger, Autogrill S.p.A. transferred to WDF S.p.A. its investment in WDFG SAU, a parent company of a group operating in the Travel Retail & Duty Free sector. As a result of the Demerger, on October 1, 2013, the net assets of WDF S.p.A. increased by Euro 428,878 thousand and, at the same time, the net assets of Autogrill S.p.A. decreased by the same amount. Therefore, the shareholders of Autogrill S.p.A. received, for no consideration, shares in WDF S.p.A. in the same number and of the same class of those previously held in Autogrill S.p.A.. Since October 1, 2013 the shares of WDF S.p.A. and of Autogrill S.p.A. have been listed separately on the MTA (Mercato Telematico Azionario) in Milan. The two companies operate separately and independently and are related parties because they are subsidiaries of Schematrentaquattro S.p.A., which holds, as at December 31, % of the share capital of Autogrill S.p.A. and 50.1% of the share capital of WDF S.p.A.. Schematrentraquattro S.p.A. is fully owned by Edizione S.r.l ACCOUNTING POLICIES General Standards These financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and endorsed by the European Union. IFRS (or International Accounting Standards ) mean International Financial Reporting Standards including International Accounting Standards (IAS), supplemented by the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), previously called the Standing Interpretations Committee (SIC). These financial statements are also compliant with the rules on reporting formats adopted by CONSOB in accordance with art. 9 of Legislative Decree 38/2005 and with the other CONSOB regulations on financial reporting. The financial statements have been prepared in accordance with the historical cost principle, except for items that, in accordance with IFRS, are measured at fair value and in accordance with the going concern assumption. These financial statements are denominated in Euro. The statement of financial position, income statement, the statement of comprehensive income, the statement of change in equity and the statement of cash flows are expressed in Euro. The amounts in the illustrative notes, are expressed in thousands of Euro, unless otherwise stated. Structure, format and content of the financial statements WDF S.p.A. made the following choices regarding the structure, format and content of the financial statements: (i) (ii) (iii) (iv) in the statement of financial position, current and non-current assets and liabilities are shown separately; in the income statement, costs and revenue are classified by nature; the statement of comprehensive income is presented separately; and the statement of cash flows is presented in accordance with the indirect method. Page 117

118 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 The structure and the formats used, as described above, are those best suitable to present the results of operations, financial position and cash flows of WDF S.p.A.. The financial statements were prepared with clarity and to give a true and fair view of the financial position, results of operations and cash flows of WDF S.p.A.. Accounting Policies and valuation criteria The main valuation criteria and significant accounting policies adopted in the preparation of the financial statements are described below. Property, plant and equipment Property, plant and equipment are recognized when it is probable that use of the asset will generate future benefits and when the cost of the asset can be reliably determined. They are stated at purchase price or production cost, including ancillary charges and direct or indirect costs to the extent that can reasonably be attributed to the assets. Property, plant and equipment are systematically depreciated on a straight-line basis at rates deemed to reflect their estimated useful lives. WDF S.p.A. systematically reviews the useful life of each asset annually. Cost includes reasonably estimated expenses (if compatible with IAS 37) that are likely to be incurred on expiry of the relevant contract to restore the asset to the contractually agreed condition, assuming that maintenance will continue to be carried out properly and with the usual frequency. Components of significant value or with a different useful life (50% longer or shorter than that of the asset to which the component belongs) are considered separately when determining depreciation. The depreciation periods used are as follows: Estimated useful life Furniture Electronic machinery 10 years 3-5 years An asset s useful life is reviewed annually, and is changed when maintenance work during the year has involved enhancements or replacements that materially alter its useful life. Regardless of depreciation already recognized, if there are impairment losses, the asset is impaired accordingly. Costs incurred to enhance and maintain an asset that produce a material and tangible increase in its productivity or safety or extend its useful life are capitalized and increase the carrying amount of the asset. Routine maintenance costs are taken directly to the income statement. The gain or loss from the sale of property, plant or equipment is the difference between the net proceeds of the sale and the asset s carrying amount, and is recognized under Other operating income or Other operating costs. Investments Investments in subsidiaries and other companies are measured at cost adjusted for impairment losses as described below. At each reporting date, the company tests whether there are internal or external indicators of impairment of the investment. If so, the recoverable amount of the assets is estimated to determine any impairment loss. Page 118

119 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 The recoverable amount is the higher of market value (fair value less costs to sell) and value in use. In determining value in use, the estimated future cash flows are discounted at their present value using a pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the asset. The fair value of investments in subsidiaries and associates is determined based on the market value when available, or otherwise, their recoverable amount is taken as their estimated value in use, calculated by discounting the cash flows associated with their forecast results. If the recoverable amount of the investment is estimated to be less than its carrying amount, it is reduced to the recoverable amount. Impairment losses are recognized in the income statement. If the reason for impairment loss no longer exists, the investment in subsidiaries is reversed to the new estimate of recoverable amount, which may not exceed the carrying amount that the investment would have had if the impairment loss had not been charged. The reversal of impairment is taken to the income statement. Other receivables Other receivables are initially recognized at fair value, and subsequently at amortized cost, using the effective interest method, if the financial effect of payment deferral is material. They are impaired to reflect estimated impairment losses. Cash and cash equivalents Cash and cash equivalents include the cash and the current accounts with banks and post offices, as well as the demand deposits and other highly liquid short-term financial investments, with maturity of three months or less on the acquisition date, that are immediately convertible to cash; they are stated at face value as they are subject to no significant risk of impairment. Equity Share capital The share capital is composed wholly of ordinary shares. Costs for equity transactions Transaction costs directly attributable to equity transactions are accounted for and deducted from equity. Trade payables Trade payables are initially recognized at fair value, normally the same as face value, net of discounts, returns and billing adjustments, and subsequently at amortized cost, if the financial effect of payment deferral is material. Due to others Due to others are initially recognized at fair value taking account of the amounts received, net of transaction costs, and are subsequently measured at amortized cost using the effective interest method, if the financial effect of payment deferral is material. Page 119

120 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 Recognition of revenue and costs Dividends are recognized when the company is entitled to receive payment. Purchases and sales of goods are recognized on transfer of title at fair value, i.e., the price paid or received net of returns, rebates, sales discounts and year-end bonuses. Service revenue and costs are recognized according to the stage of completion at year end. Stage of completion is determined according to measurements of the work performed. When the services covered under a single contract are provided in different years, the consideration will be broken down by service provided on the basis of the relative fair value. Recoveries of costs borne on behalf of others are recognized as a deduction from the related cost. Financial income and expense Financial income includes interests on invested liquidity (including financial assets available for sale), which are recognized on an accrual basis using the effective interest method. Financial expense includes interests on loan. Net foreign exchange gain or losses on financial assets/liabilities are shown under financial income and expense on the basis of the net gain or loss produced by foreign currency transactions. Income tax Tax for the year is the sum of current and deferred taxes recognized in profit or loss for the year, with the exception of items recognized directly in equity or in other comprehensive income. Current tax is calculated on taxable income for the year. Taxable income differs from the result reported in the income statement because it excludes costs and income that will be deducted or taxed in other years, as well as items that will never be deducted or taxed. Current tax liabilities are determined using the tax rates in effect (on an official or de facto basis) on the reporting date. Deferred tax liabilities are generally recognized for all taxable temporary differences, while deferred tax assets are recognized to the extent that future taxable income is likely to be earned allowing use of the deductible temporary differences. Specifically, the carrying amount of deferred tax assets is reviewed at each reporting date based on the latest forecasts as to future taxable income. Deferred tax liabilities are recognized on taxable temporary differences relating to equity investments in subsidiaries, associates or joint ventures, unless the company is able to monitor the reversal of these temporary differences and they are unlikely to be reversed in the foreseeable future. Deferred tax assets and liabilities are measured using the tax rate expected to apply at the time the asset is realized or the liability is settled, taking account of the tax rates in force at the close of the year. Deferred tax assets and liabilities are offset when there is a legal right to offset current tax balances, when they pertain to the same tax authorities, and when the company plans to settle its current tax assets and liabilities on a net basis. WDF S.p.A. agreed to be included in the national tax consolidation scheme of Edizione S.r.l. for the three-year period from 2013 to 2016, in accordance with provisions of the consolidated Income Page 120

121 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 Tax Act. The regulation signed by the parties provides for payment in full of the amount corresponding to the transferred losses or profits times the IRES (corporate tax) rate, as well as the transfer of any tax assets. In particular, any fiscal losses will be transferred whereby Edizione S.r.l. would utilize them within the tax consolidation scheme. The net current tax asset or liability for the year, in respect of IRES only, will be therefore recognised as a receivable or payable due from/to Edizione S.r.l. and then shown under Other receivables or Other payables. Foreign currency transactions Foreign currency transactions are translated into the functional currency using the transaction date exchange rate. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency based on the exchange rate at the reporting date. Exchange rate gain and losses are recorded in the income statement. Use of estimates The preparation of the separate financial statements and illustrative notes requires management, on the basis of the IFRS requirements, to make estimates and assumptions that affect the carrying amounts of assets, liabilities, costs and income and the disclosure about contingent assets and liabilities at year end. Actual results may differ. Estimates are used to determine the allowances for impairment, the impairment losses on assets and taxes. Estimates and assumptions are periodically reviewed and the effect of any change is immediately taken to the income statement of the current and future years. New standards and interpretations not yet applicable The table below lists the IFRS, interpretations, amendments to existing standards and interpretations or specific provisions contained in standards or interpretations approved by the IASB, showing those that were endorsed and not endorsed by the European Union as of the date of the preparation of these financial statements: Description Endorsed by the EU at the date of the financial Effective date IFRS 9: Financial instruments NO Annual periods beginning on or after January 1, 2015 Annual improvements to IFRSs Cycle Amendment to IAS 27 Separate Financial Statements Amendment to IAS 32 Financial instruments Presentation Offsetting financial assets and financial liabilities IAS 28 (revised 2011) Investments in associates andjoint ventures Amdendements to IAS 36 "Recoverable Amounts Disclosures for Non -Financial Assets" Amdendements to IAS 39 "Novation of Derivatives and Continuation of Hedge Accounting" NO Annual periods beginning on or after January 1, 2014 December 2012 Annual periods beginning on or after January 1, 2014 December 2012 Annual periods beginning on or after January 1, 2014 December 2012 Annual periods beginning on or after January 1, 2014 December 2013 Annual periods beginning on or after January 1, 2014 December 2013 Annual periods beginning on or after January 1, 2014 Page 121

122 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 No significant effects should arise from the application of the above mentioned accounting standards. WDF S.p.A. did not opted for early adoption of standards or interpretations which have effective date as annual period beginning after January 1, NOTES TO THE STATEMENT OF FINANCIAL POSITION Current assets Cash and cash equivalents The item amounted to Euro 1,629 thousand, reflects the cash available on current bank deposits Other receivables The item amounted to Euro 158 thousand refers to advance payments to suppliers for fiscal consulting services Property, plant and equipment The item refers to furniture and electronic machineries acquired during the year. The movements for the year are reported in the table below: Property, plant and equipment As of March 27, 2013 Increases Decreases Reclassifications Impairment losses As of December 31, 2013 Cost Furniture Electronic machinery Total cost Accumulated depreciation and impairment Furniture Electronic machinery Total accumulated depreciation and impairment Net value Non-current assets Investments This item includes the investment in WDFG SAU, which was transferred by Autogrill S.p.A. to WDF S.p.A. for the effect of the Demerger. The main financial and economic information of WDFG SAU are described below: In thousand of Euro Carrying amount As of October 1, 2013 (Demerger effective date) As of December 31, 2013 Registered office % held Revenues* As of December 31, 2013 Equity* Result for the year* WDFG SAU* 428, ,878 * Data referred to the consolidated financial statements Madrid, Spain 100% 2,078, , ,833 Page 122

123 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 The recoverable amount of the investment is tested by estimating the value in use, defined as the present value of estimated future cash flows for the subsidiary and other group companies (based on the 2014 budget and projections for ) discounted at rates calculated using the Capital Assets Pricing Model (from 5.3% to 14.5%). Cash flows beyond the period covered by projections have been estimated by extrapolating information from those forecasts and applying nominal growth rates ( g ), which do not exceed the long-term growth estimates of each WDFG SAU Group s sector and Countries of operation (equal to 2%). Based on the result of the estimation process above described, the recoverable amount of the investment in WDFG SAU is significantly higher than the correspondent carrying amount. Therefore, no impairment losses has been accounted for. For the full list of key data on investments held directly and indirectly in subsidiaries and associates as of December 31, 2013 see the Annex. Current liabilities Trade payables The item, amounting to Euro 4,700 thousand, is detailed as follows: In thousand of Euro As of December 31, 2013 Due to suppliers 2,414 Due to related companies 2,286 Total 4,700 Due to suppliers is referred to consulting services mainly related to the transaction costs directly related to the issuance of the shares and to the listing process. For more details about Due to related companies see the note Other payables Other payables are detailed as follows: In thousand of Euro As of December 31, 2013 Tax payables 360 Other 203 Total 563 Tax Payables includes Euro 248 thousand for withholding taxes and Euro 112 thousand for VAT. Other includes Euro 187 thousand related to the remuneration payable to the members of the Board of Directors. Non-current liabilities Due to others The item, amounting to Euro 6,314 thousand (including the current portion referred to interests accrued), consists of the loan (credit revolving facility) provided by the subsidiary WDFG SAU during August 2013, expiring on 2018 for a maximum amount of Euro 10 million. Page 123

124 WDF S.p.A. Part III - Separate financial statements as of December 31, Equity Equity as of December 31, 2013 amounts to Euro 419,095 thousand. The change in the year is shown in the corresponding schedule of these financial statements. Share capital On the date of incorporation (March 27, 2013), the share capital amounted to Euro 120 thousand, consisted of 120,000 shares with no par value, wholly held by Autogrill S.p.A.. As a result of the Demerger, the share capital of WDF S.p.A. increased by Euro 63,600 thousand, by issuing 254,400,000 new ordinary shares assigned to Autogrill S.p.A. shareholders on the basis of one WDF S.p.A. share per each Autogrill S.p.A. share held. As of December 31, 2013 the share capital is equal to Euro 63,720,000, fully subscribed and paid in, represented by 254,520,000 ordinary shares with no par value. Legal reserve The item includes the portion of income to an extend reaching the required minimum of 20% of share capital, as stated by the art of Civil Code. As of December 31, 2013 this item amounts to Euro 12,720 thousand as a result of the Demerger. Other reserves/retained earnings This item amounts to Euro 343,613 thousand and includes: i) Euro 352,558 thousand, as effect of the Demerger; ii) Euro (8,955) thousand, as transaction costs directly related to transaction costs directly related to the issuance of the new shares and the related listing, mainly referred to fiscal, legal, financial and accounting consulting services; these costs are accounted in reduction of equity; iii) Euro 10 thousand, as extraordinary reserve made on the date of incorporation of the company. the following table details permissible uses of the main components of equity: In thousand of Euro As of December 31, 2013 Eligibility of use Amount available Share capital 63, Income-related reserves: Legal reserve 12,720 B - Other reserves and retained earnings 343,614 A, B, C 343,614 Key: A: for share capital increases B: for coverage of losses C: for distribution to shareholders WDF S.p.A. operates as the holding company of the WDF Group and therefore its ability to distribute dividends to its shareholders depends on the amount of dividends distributed by the subsidiary WDFG SAU. The loan agreement signed by the subsidiary on May 2013, provides for restrictions on its ability to make any distribution (either through dividend payments or otherwise) in any financial year on a sliding scale based on the leverage ratio of WDFG SAU and its subsidiaries as at each relevant determination date as provided in the loan agreement. For the calculation of the leverage ratio, the loan agreement provides for specific definitions of net financial indebtedness, EBITDA and net financial charges, and therefore differ from the amounts valid for financial reporting purposes. Thus, the final ratios are not readily apparent from the financial statements. More specifically, the loan agreement provides as follows: Page 124

125 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 Percentage of profits whose distribution is allowed Leverage Ratio 100% < % >=3.25 and < % >=3.75 and < % >= 4.00 With reference to the year 2013, the loan agreement allows for distributions up to a maximum of Euro 40 million, irrespective of the levels of the leverage ratio as of December 31, NOTES TO THE INCOME STATEMENT Personnel expenses As of December 31, 2013 the company does not have any employees. The cost represented for the period ended on December 31, 2013, amounting to Euro 35 thousand, refers to employees seconded of foreign subsidiaries, for administrative and managing activities made during December Other operating expenses A breakdown of Other operating expenses is provided below: In thousand of Euro For the year ended December 31, 2013 Consulting services 531 Remuneration to the Board of Directors 187 Fees to the Statutory Auditors 77 Other services 55 Rent 25 Other operating expenses 20 Total 894 Consulting services are referred to administrative, IT, legal and fiscal services. Consulting services also include the cost related to the service agreement executed with Autogrill S.p.A. for the supply of IT, administrative and legal support services, in order to assist the transition period following the Demerger Financial income and expense Financial income and expense, amounting to Euro 28 thousand, are detailed as follows: In thousand of Euro Fot the year ended December 31, 2013 Interest expense 27 Exchange rate losses 1 Totale 28 Interest expenses are referred to the loan provided by the subsidiary WDFG SAU Income tax There is no taxable income for the year ended December 31, 2013 and therefore no current income tax was recorded. Page 125

126 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 WDF S.p.A. did not recognize deferred tax assets for tax losses carried forward and amounting to Euro 2,573 thousand. 2.5 NET FINANCIAL POSITION In accordance with the requirements of the Consob Communication of July 28, 2006 and consistent with the ESMA/2011/81 Recommendation, a breakdown of net financial position at December 31, 2013 is provided below: In thousand of Euro Notes As of December 31, 2013 A) Cash on hand ,629 B) Cash equivalents - C) Securities held for trading - D) Cash and cash equivalents (A+B+C) 1,629 E) Current financial receivables - F) Due to banks, current - G) Due to others (14) H) Other financial liabilities - I) Current financial indebtedness (F+G+H) (14) J) Net current financial indebtedness (I+E+D) 1,615 K) Due to banks, net of current portion - L) Bonds issued - M) Due to others (6,300) N) Non-current financial indebtedness (K+L+M) (6,300) O) Net indebtness (J+N)* (4,685) P) Non-current financial assets - Net financial position (O+P) (4,685) * As defined by Consob Communication July 28, 2006 and ESMA/2011/81 Recommendations Page 126

127 WDF S.p.A. Part III - Separate financial statements as of December 31, Financial risk management In connection with management risk, the main risks identified and managed by the company are as follows: market risk, mainly deriving from fluctuations in interest rates and in exchange rates; credit risk, deriving from the possibility that a counterparty may default; liquidity risk, deriving from the lack of sufficient financial resources to meet financial obligations. Information about quantitative and qualitative aspects related to those risks are provided in this section of the notes. Market risk Currency risk As at December 31, 2013, there are no significant receivable, payable or financial derivatives that are exposed to currency risk. Interest rate risk A hypothetical 1% variance in the interest rates applied to assets and liabilities outstanding as of December 31, 2013 would have no a material effect on result for the year and on equity. Credit risk The credit risk is the risk that a financial institution counterparty may cause a financial loss by defaulting on an obligation. It mainly arises in relation to the financial investments of WDF S.p.A.. As of December 31, 2013 the carrying amount of the financial assets represents the maximum exposure of WDF S.p.A. to the credit risk, as shown below: In thousand of Euro As of December 31, 2013 Cash and cash equivalents 1,629 Other receivables 158 Total exposure to credit risk 1,787 Other receivables consist of advances for services, which entail a limited credit risk. Liquidity risk The liquidity risk arises when the company proves difficult to meet the obligations relating to financial liabilities. The table that follows shows an analysis of the maturities of financial liabilities as of December 31, 2013: Page 127

128 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 In thousand of Euro As of December 31, months 3-6 months 6 months - 1 year 1-2 years 2-5 years Over 5 years Due to others 6, ,300 - Trade payables 4,700 4, Other payables Total 11,217 4, ,300 - As of December 31, 2013 there were no financial liabilities with a maturity longer than five years. With regard to exposure to trade payables, there is no significant concentration of suppliers. The objective of the company is to maintain sufficient liquid assets to address and to cover any risk of financial stress. Future company s financial needs will be satisfied, mainly, through dividends expected to be received from the subsidiary or rather the financial resources that the subsidiary will distribute. 4. Fair value estimation The table attached provides a breakdown by category of financial assets and liabilities at December 31, 2013 and analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1 Level 2 Level 3 quoted prices (unadjusted) in active markets for identical assets or liabilities; inputs other than quoted prices included within level 1 that are observable for the asset and liability, either directly (that is, as prices) or indirectly (that is, derived from prices); inputs for asset and liability that are not based on observable market data (that is, unobservable inputs). As of December 31, 2013 Financial assets and liabilities at fair value through profit and loss Derivatives used for hedging Held to maturity Loans and receivables Available for sale financial assets Other financial liabilities Total Level 1 Level 2 Level 3 Total Cash and cash equivalents , , Other receivables Total - - 1, , Due to others ,314 6, Trade payables , , Other payables Total - - 5,263-6,314 11, The carrying amount of financial assets and financial liabilities is substantially the same as their fair value. Page 128

129 WDF S.p.A. Part III - Separate financial statements as of December 31, Guarantees provided, commitments and contingent liabilities As of December 31, 2013 there were not any guarantees provided and did not exist any commitment and contingent liability. 6. Other information 6.1 Related parties transactions WDF S.p.A. is controlled by Schematrentaquattro S.p.A., which owns as at December 31, % of its ordinary shares. Schematrentaquattro S.p.A. has changed its legal status from Schematrentaquattro S.r.l. during Schematrentaquattro S.p.A. is a wholly-owned subsidiary of Edizione S.r.l.. All related-party transactions are carried out in the interest of WDF S.p.A. and at arm s length. In 2013 WDF S.p.A. had no transactions with its direct parent, Schematrentaquattro S.p.A.. Transactions with Edizione S.r.l. Income statement (in thousand of Euro) For the year ended December 31, 2013 Dividends and other income from investements - Other operating income - Personnel expenses - Other operating expenses 57 Financial income - Financial expense - Statement of financial position (in thousand of Euro) As of December 31, 2013 Other receivables - Trade payables 40 Other payables - Due to others - Other operating expenses are referred to insurance and utilities costs amounting to Euro 12 thousand and to rent and leasing costs amounting to Euro 16 thousand to the accrual at December 31, 2012 for fees due to a director of Autogrill S.p.A., to be paid over to Edizione S.r.l. where he serves as executive manager. Trade payables outstanding on December 31, 2013 are related to the above mentioned operating costs. Page 129

130 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 Transactions with related companies Income Statement (in thousand of Euro) For the year ended December 31, 2013 Autogrill S.p.A. Dividends and other income from investements - Other operating income - Personnel expenses - Other operating expenses 57 Financial income - Financial expense - Statement of financial position (in thousand of Euro) As of December 31, 2013 Autogrill S.p.A. Other receivables - Trade payables 1,789 Other payables - Due to others - Other operating expenses are related to the service agreement executed with Autogrill S.p.A. for the supply of IT, administrative and legal support services, in order to assist the transition period following the Demerger. Trade payables outstanding on December 31, 2013 are related to the above mentioned operating costs and to the payments due for expenses anticipated by Autogrill S.p.A. related to the issuance of the new shares, to the Demerger and the related listing process, accounted by the company into a specific equity reserve deducted from equity. Transactions with subsidiaries Income Statement (in thousand of Euro) WDFG SAU For the year ended December 31, 2013 World Duty Free Group UK Ltd Total subsidiaries Dividends and other income from investements Other operating income - Personnel expenses Other operating expenses Financial income Financial expense Statement of financial position (in thousand of Euro) WDFG SAU As of December 31, 2013 World Duty Free Group UK Ltd Total subsidiaries Other receivables Trade payables Other payables Due to others 6,314-6,314 Page 130

131 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 Personnel expenses consist of charges for employees seconded that made administrative support activities during December Other operating expenses refer to IT and managing consulting services accrued for the fourth quarter Financial expenses consist of interest expenses related to the loan provided by the subsidiary. Trade payables are referred to the above mentioned costs and to the payments due for expenses anticipated by the spanish subsidiary related to the issuance of the new shares, to the Demerger and the related listing process, accounted by the company into a specific equity reserve deducted from equity. The incidence of the related party transactions of the financial and economic statement is represented below: Income statement (in thousand of Euro) Edizione S.r.l., related parties and subsidiaries WDF S.p.A. % Dividends and other income from investements Other operating income Personnel expenses % Other operating expenses % Financial income Financial expense % Statement of financial position (in thousand of Euro) Edizione S.r.l., related parties and subsidiaries WDF S.p.A. % Other receivables Trade payables 2,315 4,700 49% Other payables Due to others 6,314 6, % 6.2 Remuneration of directors and executives with strategic responsibilities The following remuneration was paid by the WDF Group to members of the Board of Directors and to executive with strategic responsibilities during the year ended December, : Name Office Term of office Remuneration (Euro) Bonus and other incentives (Euro) Long-term incentive plan (Euro) Non monetary benefits (Euro) Other (Euro) Total (Euro) Gianmario Tondato Da Ruos Chairman , ,058 Jose Maria Palencia Saucedo Executive Director from to , ,047 1,192,561 21,525-1,808,471 Gianni Mion Director , ,458 Paolo Roverato Director , ,794 28,852 Lynda Christine Tyler-Cagni Director from to , ,997 21,455 Gilberto Benetton Director from to , ,058 Alberto De Vecchi Director from to , ,458 Laura Cioli Director from to , ,794 28,852 Carla Cico Director from to , ,797 23,855 Total Directors 576, ,047 1,192,561 21,525 35,382 1,978,517 Key management with strategic responsabilities 2,098, , , ,381-3,409,775 Total 2,674, ,264 1,472, ,906 35,382 5,388,292 Page 131

132 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 Please note that the in the table above attached, the remuneration for the Board of Directors for the period from the 1 January to December 31, 2013 related to WDF Group. The CEO s remuneration includes his salary, bonuses paid under the annual incentive plan and bonuses accrued under the long-term incentive plan. Remuneration also includes compensation related to the long term incentive plan paid in The CEO s contract states that if he resigns with just cause or is dismissed by WDFG SAU without just cause, the company must pay him about Euro 2.2 million. In the event of discontinuation of office, the CEO shall retain the right to variable compensation under the incentive plans, subject to the achievement of the targets and satisfying any other conditions stated in the plans, during the relevant period of time. A significant portion of the variable compensation received by the CEO and by executives with strategic responsibilities is tied to the achievement of specific targets established in advance by the Board, by virtue of their participation in management incentive plans. In particular, the CEO and top managers participated during the year in an annual bonus system involving earnings and financial targets and other strategic objectives for the Group and/or the relevant business unit, as well as individual objectives. This was in addition to the three-year incentive plan for paid out in April Another Long Term Incentive Plan is in place relating to the years 2011 and 2012 and the participants include those Executives with Strategic responsibilities. The LTIP system involves financial targets for the Group, and the scheme objective was to retain key executives whilst driving group financial performance. The LTIP bonus is deferred for three years once it is earnt, and therefore payable in April 2014 and April 2015 respectively. 6.3 Fees to the statutory Auditors Statutory auditors fees for the year ended December 31, 2013 are as follows: Name Office Term of office Fees (in thousand of Euro) Other fees (in thousand of Euro) Total (in thousand of Euro) Marco Giuseppe Maria Rigotti Chairman ,521 4,397 32,918 Patrizia Paleologo Oriundi Standing auditor ,014 2,932 21,946 Massimo Catullo Standing auditor ,014 2,932 21, Fees of the independent auditors The table below provides an overview of the fees of the independent auditors for the services provided in 2013: Page 132

133 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 Type of service Service provider Recipient Fees (in thousand of Euro) Auditing KPMG S.p.A. WDF S.p.A. 35 Other services KPMG S.p.A. WDF S.p.A. 682 Total 717 Fees for Other services are referred to auditing and attestation services related to the issuance of the new shares and to their listing, accounted by the company into a specific equity reserve. 7. Events after the reporting date Since December 31, 2013, no events have occurred that if known in advance would have entailed an adjustment to the figures in the financial statements or required additional disclosures in these notes. 8. Significant non-recurring events and transactions Except for the partial proportional demerger of Autogrill S.p.A. in favor of WDF S.p.A., during 2013, there were no significant non-recurring events or transactions as defined by Consob s Resolution and Communication DEM/ Atypical or unusual transactions No atypical or unusual transactions, as defined by Consob Communications DEM/ of 28 April 2006 and DEM/ of 28 July 2006, were performed in 2013, unless the partial proportional demerger of Autogrill S.p.A. in favor of WDF S.p.A., as communicated to the market, in accordance with Consob Regulation of May 11, Authorization for publication The Board of Directors authorized the publication of these draft financial statements at its meeting of March 10, The Shareholders Meeting approving the separate financial statements has the power to request amendments to the financial statements. Page 133

134 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 Annex List of investments held directly and indirectly in subsidiaries and associates Company Registered office Currency Share/quota capital % held at December 31, 2013 Shareholders/quota holders PARENT World Duty Free, S.p.A. Milan EUR 63,720, % Schematrentaquattro, S.p.A. COMPANIES CONSOLIDATED LINE-BY-LINE World Duty Free Group, S.A.U. Madrid EUR 1,800, % World Duty Free, S.p.A. World Duty Free Group España, S.A. Madrid EUR 10,772, % World Duty Free Group, S.A.U. Aldeasa Chile, Limitada Santiago de Chile USD 2,516, % World Duty Free Group España, S.A. Aldeasa Servicios Aeroportuarios, Ltda Santiago de Chile USD 15, % World Duty Free Group España, S.A. Sociedad de Distribución Comercial Aeroportuaria de Canarias, S.L. Telde (Gran Canaria) EUR 667, % World Duty Free Group España, S.A. Aldeasa Colombia, Ltda. Cartagena de Indias (Colombia) COP 2,356,075, % World Duty Free Group España, S.A. Aldeasa México, S.A. de C.V. Cancún PXM 60,962, % World Duty Free Group España, S.A. 0.01% World Duty Free Group, S.A.U. Prestadora de Servicios en Aeropuertos, S.A. de C.V. Cancún PXM 50, % World Duty Free Group España, S.A. 0.01% World Duty Free Group, S.A.U. Aldeasa Cabo Verde, S.A. Ilha do Sal (Cabo Verde) CVE 6,000, % World Duty Free Group España, S.A. 0.01% World Duty Free Group, S.A.U. Aldeasa Italia S.L.R. Naples EUR 10, % World Duty Free Group España, S.A. Aldeasa Duty Free Comercio e Importación de Productos LTDA Sao Paulo BRL 1,560, % World Duty Free Group España, S.A. 0.21% World Duty Free Group, S.A.U. Palacios y Museos, S.L.U. Madrid EUR 160, % World Duty Free Group España, S.A. Audioguiarte Servicios Culturales, S.L.U. Madrid EUR 251, % Palacios y Museos, S.L.U. Panalboa, S.A. Ciudad de Panamá PAB 150, % Palacios y Museos, S.L.U. Aldeasa Jamaica Ltd St James (Jamaica) JMD 23,740, % World Duty Free Group España, S.A. WDFG Germany GmbH Düsseldorf EUR 5,250, % World Duty Free Group España, S.A. WDFG Italia, S.r.L. (ARI) in liquidation Rome EUR 10, % World Duty Free Group España, S.A. Cancouver Uno S.L.U. Madrid EUR 3, % World Duty Free Group UK Holdings, Ltd. WDFG Vancouver LP Vancouver CAD 9,500, % Cancouver Uno S.L.U. 0.01% WDFG Canada INC WDFG Canada INC Vancouver CAD 1, % Cancouver Uno S.L.U. Aldeasa Jordan Airport Duty Free Shops Amman USD 705, % World Duty Free Group UK Holdings, Ltd. WDFG US, Inc. Delaware USD 149,072, % World Duty Free Group UK Holdings, Ltd. Alpha Keys Orlando Retail Associates LLP Orlando USD 100, % WDF US, Inc. World Duty Free US, Inc. Orlando USD 1,400, % WDFG US, Inc. Aldeasa Atlanta, LLC Atlanta USD 1,672, % WDFG US, Inc. Aldeasa Atlanta JV Atlanta USD % Aldeasa Atlanta, LLC 25.00% WDFG US, Inc. Aldeasa Curaçao N.V. Curacao USD 500, % World Duty Free Group UK Holdings, Ltd. Autogrill Lanka, Ltd Colombo (Sri Lanka) SLR 30,000, % World Duty Free Group UK Holdings, Ltd. Alpha-Kreol (India) Pvt Ltd Mumbai INR 100, % World Duty Free Group UK Holdings, Ltd. Airport Retail Pvt Limited (formerly called Alpha Future Airport Retail PvT Ltd) Mumbai INR 601,472, % Alpha Airports Retail Holdings Pvt Limited 50.00% World Duty Free Group UK Holdings, Ltd. WDFG Helsinki Oy Vantaa (Finland) EUR 2, % World Duty Free Group España, S.A. World Duty Free Group UK Holdings, Ltd. London GBP 12,484, % World Duty Free Group, S.A.U % World Duty Free Group España, S.A. Autogrill Holdings UK, Ltd. London GBP 1, % World Duty Free Group UK Holdings, Ltd. WDFG UK Limited London GBP 360, % World Duty Free Group UK Holdings, Ltd. WDFG International Limited London GBP % World Duty Free Group UK Holdings, Ltd. WDFG Holdings UK Pension Trustees Ltd London GBP % WDFG UK Limited Alpha Retail Ireland Ltd Dublin EUR % WDFG UK Limited WDFG Jersey Limited Jersey GBP 4, % WDFG UK Limited Alpha Airports Group (Channel Islands) Ltd St Helier, Jersey GBP % World Duty Free Group UK Holdings, Ltd. Alpha Airports Retail Holdings Pvt Limited Mumbai INR % World Duty Free Group UK Holdings, Ltd. WDFG North America, LLC Delaware USD 72,047, % WDFG US, Inc. WDFG-Howell-Mickens, Terminal A Retail II, LLC Delaware USD % WDFG North America, LLC WDFG-Love Field Partners III, LLC Delaware USD % WDFG North America, LLC WDFG-SPI DEN Retail, LLC Delaware USD % WDFG North America, LLC WDFG JV Holdings, LLC Delaware USD % WDFG North America, LLC AIRSIDE E JV Delaware USD % WDFG JV Holdings, LLC WDFG-Tinsley JV Delaware USD % WDFG JV Holdings, LLC WDFG PROSE JV II Delaware USD % WDFG JV Holdings, LLC WDFG-ELN MSP Terminal 2 Retail, LLC Delaware USD % WDFG JV Holdings, LLC Houston 8-WDFG JV Delaware USD % WDFG JV Holdings, LLC WDFG Bush Lubbock Airport JV Delaware USD % WDFG JV Holdings, LLC WDFG Adevco JV Delaware USD % WDFG JV Holdings, LLC WDFG-Howell-Mickens JV Delaware USD % WDFG JV Holdings, LLC WDFG-Solai MDW Retail, LLC Delaware USD % WDFG JV Holdings, LLC WDFG-Diversified JV Delaware USD % WDFG JV Holdings, LLC WDFG-Java Star JV Delaware USD % WDFG JV Holdings, LLC WDFG-Howell Mickens Terminal A Retail I JV Delaware USD % WDFG JV Holdings, LLC Phoenix-WDFG JV Delaware USD % WDFG JV Holdings, LLC WDFG-Houston 8 Terminal E, LLC Delaware USD % WDFG JV Holdings, LLC WDFG-Chelsea JV 1 Delaware USD % WDFG JV Holdings, LLC WDFG-Love Field Partners II, LLC Delaware USD % WDFG JV Holdings, LLC WDFG-DFW AF, LLC Delaware USD % WDFG JV Holdings, LLC WDFG-Houston 8 San Antonio JV Delaware USD % WDFG JV Holdings, LLC Miami Airport Retail Partners JV Delaware USD % WDFG JV Holdings, LLC WDFG-Howell Mickens JV III Delaware USD % WDFG JV Holdings, LLC WDFG-DMV DTW Retail LLC Delaware USD % WDFG JV Holdings, LLC COMPANIES CONSOLIDATED PROPORTIONALLY Alpha ASD Ltd London GBP 20, % World Duty Free Group UK Holdings, Ltd. COMPANIES CONSOLIDATED USING THE EQUITY METHOD Souk Al Mohuajir DF Shops Tanger DIRHA 6,500,000 - World Duty Free Group España, S.A. Creuers del Port de Barcelona S.A. Barcelona EUR 3,005, % World Duty Free Group España, S.A. Page 134

135 WDF S.p.A. Part III - Separate financial statements as of December 31, 2013 Statement of the CEO and manager in charge of financial Reporting STATEMENT about the separate financial statements pursuant to art. 81-ter of Consob Regulation of 14 May 1999 (as amended) 1. We, the undersigned, José María Palencia as Chief Executive Officer and David Jiménez- Blanco as manager in charge of Financial Reporting of World Duty Free S.p.A., hereby declare, including in accordance with art. 154-bis (3) and (4) of Legislative Decree no. 58 of 24 February 1998: a) the adequacy of, in relation to the characteristics of the business; and b) due compliance with the administrative and accounting procedures for the preparation of the separate financial statements during No significant findings have come to light in this respect. 3. We also confirm that: 3.1 the separate financial statements: a) have been prepared in accordance with the applicable International Financial Reporting Standards endorsed by the European Union pursuant to Regulation 1606/2002/EC of the European Parliament and the Council of 19 July 2002; b) correspond to the ledgers and accounting entries; c) provide a true and fair view of the issuer s financial position and results of operations. 3.2 The directors report includes a reliable description of the performance and financial position of the issuer, along with the main risks and uncertainties to which it is exposed. Milan, March 10, 2014 Mr José María Palencia Chief Executive Officer Mr David Jiménez-Blanco Manager in charge of Financial Reporting Page 135

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