ADMISSION DOCUMENT OF ITALIA INDEPENDENT GROUP S.P.A. S SHARES. Nominated Adviser and Specialist Equita SIM S.p.A. Joint Global Coordinators

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1 ADMISSION DOCUMENT regarding the ADMISSION TO TRADING ON AIM ITALIA/ALTERNATIVE INVESTMENT MARKET, MULTILATERAL TRADING SYSTEM ORGANIZED AND MANAGED BY BORSA ITALIANA S.P.A. OF ITALIA INDEPENDENT GROUP S.P.A. S SHARES Nominated Adviser and Specialist Equita SIM S.p.A. Joint Global Coordinators Equita SIM S.p.A. Banca IMI S.p.A. Financial Adviser Methorios Capital S.p.A. This Admission Document has been prepared in compliance with the AIM Issuers Regulations with the purpose of admitting Italia Independent Group S.p.A. s ordinary shares to tradings on AIM Italia/Alternative Investment Market (hereinafter AIM Italia ) and is not an information sheet pursuant to Legislative Decree no. 58 of 24 February 1998, as subsequently amended and supplemented (hereinafter Consolidated Finance Act ) and Consob Regulation no of 14 May 1999, as subsequently amended and supplemented (hereinafter Regulation ). Borsa Italiana S.p.A. issued the measure for admission to trading on AIM Italia on June 26 th, The expected trading start date for the Issuer s shares is June 28 th, The shares of the Company are negotiated in no Italian or foreign regulated or unregulated market and the Company submitted no request for admission of its shares in other markets (except for AIM Italia). AIM Italia is a multilateral trading system primarily dedicated to small and medium enterprises and to companies with a high growth potential that are typically associated with a higher risk level compared to larger issuers or issuers with a consolidated business. The investor should be aware of the risks deriving from investing in this type of issuers and should decide whether to invest only after a careful evaluation. In order to correctly appreciate the financial instruments considered in this Admission Document, all the information disclosed in this document, including Chapter 4 Risk factors, should be carefully examined. Consob and Borsa Italiana S.p.A. neither examined nor approved the contents of this document. 1

2 Neither this Admission Document nor the operation described in this document is a public offer of financial instruments or an admission of financial instruments in a regulated market as defined in the Consolidated Finance Act and Regulation Therefore, there is no need to prepare a prospectus according to the schemes set forth in EU Regulation 809/2004/EC. The publication of this document is not subject to Consob authorization pursuant to the European Prospectus Directive no. 2003/71/EC ( hereinafter the Prospectus Directive ) or any other rule or regulation regarding the preparation and publication of information prospectuses (including articles 94 and 113 of the Consolidated Finance Act). The New Shares resulting from the Capital Increase and the Sale Shares have been offered to qualified investors in Italy and institutional investors abroad in proximity of the admission to trading on AIM Italia, pursuant to art. 6 of Part II ( Guidelines ) of the AIM Issuers Regulations within the framework of a private placement falling under the cases of inapplicability of the provisions concerning public offers of financial instruments as defined in Art. 100 of the Consolidated Finance Act and Art. 34-ter of Regulation 11971, and therefore without an IPO of New Shares and Sale Shares (hereinafter the Institutional Placement ). This Admission Document may not be disclosed, either directly or indirectly, in jurisdictions other than Italy and, in particular, in Australia, Canada, Japan and the United States of America or in any other country where the offer of the securities indicated in this Admission Document is not permitted in the absence of specific authorizations by the competent authorities and/or notified to investors resident in said countries, except for the exemptions provided for by the applicable legislation. The publication and distribution of this Admission Document in other jurisdictions may be subject to legal or regulatory restrictions. Any entity that may receive this Admission Document shall preventively verify the existence of said regulations and restrictions and comply with them. The Shares have not been and will not be registered pursuant to the United States Securities Act of 1933 and subsequent amendments or with any financial regulation authority of any state of the USA or based on the legislation concerning financial instruments in force in Australia, Canada or Japan. The Shares may not be offered, sold or transferred in any manner, either directly or indirectly, in Australia, Canada, Japan and United States and shall not be offered, sold or transferred in any manner, either directly or indirectly, on behalf or to the benefit of citizens or individuals resident in Australia, Canada, Japan or the United States, unless the Company is entitled to and uses, in its total discretion, any of the exemptions provided for by the applicable legislation. Violating these restrictions may be considered as a violation of the applicable legislation regarding financial instruments in the competent jurisdiction. The Company represents that it will use the Italian language for all the documents made available to shareholders and for any other information disclosed as required by the AIM Issuers Regulations. 2

3 CONTENTS DEFINITIONS AND GLOSSARY... 7 DOCUMENTS ACCESSIBLE TO THE PUBLIC ADDITIONAL INFORMATION CALENDAR OF THE OPERATION MAIN INFORMATION ON THE ISSUER S SHARE CAPITAL PART ONE INFORMATION ON THE PERSONS IN CHARGE OF THE ADMISSION DOCUMENT PERSONS IN CHARGE OF THE ADMISSION DOCUMENT STATEMENT OF RESPONSIBILITY STATUTORY AUDITORS THE ISSUER'S STATUTORY AUDITORS INFORMATION ON THE RELATIONSHIPS WITH THE AUDITOR SELECTED FINANCIAL INFORMATION SELECTED CONSOLIDATED FINANCIAL INFORMATION ON THE YEARS ENDED 31 DECEMBER 2012, 2011 AND Selected consolidated economic information on the Issuer for the years ended 31 December 2012, 2011 and Analysis of revenues for the years ended 31 December 2012, 2011 and Consolidated balance sheets for the years ended 31 December 2012, 2011 and Net working capital Other accounts receivable, accrued income and prepaid expenses and other accounts payable, accrued expenses and deferred income Tangible fixed assets, goodwill and intangible fixed assets, long-term investments Non-current liabilities Shareholders equity Net financial position Selected data regarding the Issuer's cash flows for the years ended 31 December 2012 and RISK FACTORS ISSUER S PROFILE ISSUER S BACKGROUND AND EXPANSION Issuer s registered name and trade name Issuer s place of registration and Registration number Issuer s date and term of incorporation Issuer s address and legal status, applicable law, country of incorporation, address and telephone number of the registered office Significant events in the Issuer s business activity INVESTMENTS Description of the Group s investments in tangible, intangible and financial assets during the years ended 31 December 2012, 2011 and 2010 and until the date of the Admission Document Description of major ongoing investments Future investments BUSINESS OVERVIEW CORE BUSINESS Overview of the Group s business and key factors Products and services Eyewear and Lifestyle Products Communication Business organization model Research, design and product development Production, logistics and customer care

4 Distribution Communication. Italia Independent as a brand Activities of Independent Ideas Other activities I Spirits Sound Identity Independent Value Card We Care Strategy and future programmes MAIN MARKETS IN WHICH THE GROUP IS OPERATING Reference market Competitive positioning EXCEPTIONAL FACTORS INFLUENCING THE ISSUER S ACTIVITIES OR REFERENCE MARKETS ISSUER S DEPENDENCE ON PATENTS OR LICENCES, INDUSTRIAL, COMMERCIAL OR FINANCIAL CONTRACTS, OR NEW MANUFACTURING PROCEDURES SOURCE OF THE STATEMENTS MADE BY THE ISSUER ON ITS COMPETITIVE POSITIONING ORGANIZATION DESCRIPTION OF THE GROUP OF WHICH THE ISSUER IS A COMPONENT COMPANIES CONTROLLED AND PARTICIPATED BY THE ISSUER Subsidiaries Other companies of which the Issuer owns interests in capital stock BUILDINGS, PLANTS AND MACHINERY INFORMATION ON EXISTING OR EXPECTED TANGIBLE ASSETS, INCLUDING LEASED PROPERTY ENVIRONMENTAL FACTORS LIABLE TO IMPACT ON THE USE OF TANGIBLE ASSETS INFORMATION ON EXPECTED TRENDS RECENT SIGNIFICANT TRENDS THAT HAVE EMERGED CONCERNING PRODUCTION, SALES AND STOCK AS WELL AS COST AND SALES PRICE EVOLUTION INFORMATION ON TRENDS, UNCERTAINTIES, COMMITMENTS OR KNOWN FACTS WHICH MAY REASONABLY LEAD TO SIGNIFICANT REPERCUSSIONS ON THE ISSUER S PROSPECTS AT LEAST FOR THE CURRENT FINANCIAL YEAR EXPECTED OR ESTIMATED INCOME ADMINISTRATION, MANAGEMENT OR MONITORING BODIES AND TOP MANAGEMENT INFORMATION ON ADMINISTRATION, MANAGEMENT AND MONITORING BODIES Board of Directors Board of Auditors CEO and top management CONFLICT OF INTEREST OF THE MEMBERS OF THE ADMINISTRATION, MANAGEMENT AND MONITORING BODIES AND TOP MANAGEMENT POLICY OF THE BOARD OF DIRECTORS TERM OF THE MEMBERS OF THE BOARD OF DIRECTORS AND BOARD OF AUDITORS EMPLOYMENT CONTRACT SIGNED BY MEMBERS OF THE ADMINISTRATION, MANAGEMENT AND MONITORING BODIES OF THE ISSUER OF WITH SUBSIDIARIES ENVISAGING A SEVERANCE PAY STATEMENT ON THE COMPLIANCE WITH THE LAWS ON CORPORATE GOVERNANCE EMPLOYEES GROUP S ORGANISATIONAL CHART EMPLOYEES Number of employees SHAREHOLDING AND STOCK OPTIONS DESCRIPTION ANY EMPLOYEE SHAREHOLDING AGREEMENTS MAJOR SHAREHOLDERS SHAREHOLDERS HOLDING FINANCIAL INSTRUMENTS TO AN EXTENT GREATER THAN 5% OF THE ISSUER S SHARE CAPITAL SPECIAL VOTING RIGHTS OF MAJOR SHAREHOLDERS ENTITY CONTROLLING THE ISSUER

5 14.4 AGREEMENTS WHOSE EXECUTION MAY CAUSE A CHANGE IN THE ISSUER S CONTROL AFTER THE PUBLICATION OF SHAREHOLDING OF THE ISSUER SUBSEQUENTLY TO THE PUBLICATION OF THE ADMISSION DOCUMENT TRANSACTIONS WITH RELATED PARTIES INTRA-GROUP TRANSACTIONS AND DIRECTORS FEES ADDITIONAL INFORMATION SHARE CAPITAL Amount of the issued share capital Shares not representing capital Treasury shares Amount of convertible securities, exchangeable bonds and warrants Existence of purchase rights or obligations on authorized but not issued capital or of a commitment to increase capital Additional information regarding the capital of any member of the Group offered under an option Development regarding the Issuer s share capital in the last three years ARTICLES OF INCORPORATION AND BYLAWS Business purpose Bylaws provisions concerning the members of the Control, Management and Supervisory Boards Rights, privileges and restrictions granted to existing shares Bylaws provisions concerning changes to the rights of share owners, with indication of the cases where conditions are more significant than legal conditions Meeting calling process Description of any Bylaws provisions that may have the effect of delaying, deferring or preventing a change to the Issuer's control structure Description of any Bylaws provisions that regulate the ownership threshold above which the obligation to disclose shareholdings to the public applies Conditions set forth in the Articles of Incorporation and Bylaws for changes to the share capital in the event that these conditions are more restrictive than statutory conditions SIGNIFICANT AGREEMENTS INFORMATION RECEIVED FROM THIRD PARTIES, EXPERT OPINIONS AND STATEMENTS OF INTEREST INFORMATION RECEIVED FROM THIRD PARTIES, EXPERT OPINIONS AND STATEMENTS OF INTEREST CERTIFICATION CONCERNING INFORMATION RECEIVED FROM THIRD PARTIES, EXPERT OPINIONS AND STATEMENTS OF INTEREST INFORMATION ON SHAREHOLDINGS PART TWO PERSONS IN CHARGE PERSONS IN CHARGE OF THE ADMISSION DOCUMENT STATEMENT OF RESPONSIBILITY RISK FACTORS ESSENTIAL INFORMATION STATEMENT ON THE WORKING CAPITAL REASONS OF THE CAPITAL INCREASE AND USE OF REVENUES INFORMATION REGARDING FINANCIAL INSTRUMENTS TO BE ADMITTED TO... TRADING TYPE AND CLASS OF FINANCIAL INSTRUMENTS OFFERED TO THE PUBLIC AND ADMITTED TO TRADING LEGISLATION BASED ON WHICH THE SHARES WILL BE ISSUED CHARACTERISTICS OF THE SHARES SHARE ISSUANCE CURRENCY DESCRIPTION OF THE RIGHTS, INCLUDING ANY LIMIT, ASSOCIATED WITH THE SHARES AND PROCEDURE FOR THEIR EXERCISE RESOLUTIONS, AUTHORIZATIONS AND APPROVALS REQUIRED FOR THE PAST OR FUTURE CREATION/ISSUING OF FINANCIAL INSTRUMENTS

6 4.7 EXPECTED FINANCIAL INSTRUMENT ISSUANCE DATE DESCRIPTION OF ANY RESTRICTIONS TO THE FREE TRANSFERABILITY OF THE SHARES APPLICABILITY OF PUBLIC OFFER OR RESIDUAL PURCHASE OFFER REGULATIONS PREVIOUS PUBLIC PURCHASE OFFERS ON THE ISSUER'S SHARES TAXATION Dividend taxation system STABILIZATION OWNERS OF FINANCIAL INSTRUMENTS TO BE OFFERED FOR SALE INFORMATION ON ENTITIES OFFERING FINANCIAL INSTRUMENTS FOR SALE NUMBER AND CLASS OF THE FINANCIAL INSTRUMENTS OFFERED BY EACH OWNER OF THE FINANCIAL INSTRUMENTS OFFERED FOR SALE LOCK-UP AGREEMENTS EXPENSES ASSOCIATED WITH THE ADMISSION NET TOTAL REVENUES AND ESTIMATE OF TOTAL EXPENSES ASSOCIATED WITH ADMISSION DILUTION AMOUNT AND PERCENTAGE OF THE IMMEDIATE DILUTION RESULTING FROM THE OFFER DILUTIVE EFFECTS IN CASE OF NON-SUBSCRIPTION OF THE OFFER ADDITIONAL INFORMATION CONSULTANTS INDICATION OF ADDITIONAL INFORMATION CONTAINED IN PART TWO TO BE AUDITED OR SUBJECT TO LIMITED AUDIT BY THE AUDITOR EXPERT OPINIONS OR REPORTS INFORMATION RECEIVED FROM THIRD PARTIES

7 DEFINITIONS AND GLOSSARY A list of the main definitions and terms used in this Admission Document is given below. These definitions and terms shall be intended with the meaning specified below, except where otherwise specified. Admission The admission of the Shares to trading on AIM Italia. Admission Date Admission Document Admission Document Date AIM Issuers Regulations AIM Italia Auditor Banca IMI Below the line activities Borsa Italiana Bylaws Capital Increase Co-branding Code of Self-Regulation Consob Consolidated Finance Act Date of the Borsa Italiana admission provision. This Admission Document. Date of publication of the Admission Document by the Issuer. AIM (Alternative Investment Market) Italia Issuers Regulations by Borsa Italiana of 1 march AIM Italia/Alternative Investment Market, multilateral trading system organized and managed by Borsa Italiana S.p.A. Deloitte & Touche S.p.A., headquartered in Milan, via Tortona n. 25, with a fully registered and paid-up share capital of Euro 10,328,220.00, tax code and VAT number and registration in the Register of Companies of Milan no , registered in the Register Auditors, as per Leg. Dec. no. 88 of 27 January 1992 and pursuant to Art. 13 of Leg. Dec. no. 39 of 27 Jan Banca IMI S.p.A., headquartered in Largo Mattioli n. 3, Milan. Any communication activity other than advertising and the activities conveyed through the traditional media, such as TV, radio, advertising and billposting, including sponsoring, public relations, direct marketing and promotions. Borsa Italiana S.p.A., the Italian stock exchange, headquartered in Milan, Piazza degli Affari n. 6. The Issuer s corporate Bylaws, as amended by the Extraordinary Meeting Resolution of 29 May 2013 effective from the Admission Date. An increase in the share capital, on a paid and divisible basis, with the exclusion of the right of option pursuant to art. 2441, paragraph 5, of the Civil Code, from Euro 1,785,000 up to nominal maximum amounts of Euro 2,285,000, by issuing a maximum of 500,000 Shares for the Admission deliberated on by the Issuer s Extraordinary Meeting of 29 May In execution of the aforesaid meeting resolution, the Issuer s Board of Directors of June 25 th, 2013 deliberated on issuing a maximum of no. 425,000 Shares for Admission at a minimum subscription price of Euro for each New Share (the New Shares ). The cooperation between the Group and partnering aimed at jointly realizing products and initiatives identified by the matching of the respective brands. Code of Self-Regulation of Listed Companies, approved by the Committee for Corporate Governance of Listed Companies in December National Commission for the Companies and the Stock Exchange, created with Law no. 216 of 7 June Legislative Decree no. 58 of 24 February 1998, as subsequently 7

8 amended and supplemented. Equita Equita SIM S.p.A., headquartered in Milan, via Turati 9, Register of Companies of Milan, tax code and and VAT number , with a fully registered and paid-up share capital of Euro 26,793,000, registered in the Albo delle SIM [Register of Securities Trading Companies] with no. 67. Group The Issuer and the companies under its control, pursuant to Art. 2359, paragraph 1, no. 1, of the Civil Code, and included in the consolidation area. IFRS All the International Financial Reporting Standards (IFRS), all the International Accounting Standards (IAS), all the interpretations of the International Reporting Interpretations Committee (IFRIC), previously called SIC, adopted by the European Union. Independent Ideas Independent Ideas S.r.l., headquartered in Torino, corso XI febbraio, 19, tax code and VAT number and registered in the Register of Companies of Turin no , R.E.A. (Repertorio Economico Amministrativo - Economic Administrative Index] no Institutional Placement or Placement Issuer or Italia Independent Group or Company Italia Independent Italian Accounting Principles Lifestyle Products Monte Titoli New Shares The offer of the New Shares and Sale Shares to qualified investors in Italy and to institutional investors abroad in proximity of the admission to trading on AIM Italia, pursuant to Art. 6 of Part II ( Guidelines ) of the AIM Issuers Regulations, within the framework of a private placement, falling under the cases of inapplicability of the provisions regulating the public offer of financial instruments defined n Art. 100 of the Consolidated Finance Act and Art. 34-ter of Regulation and equivalent legal and statutory provisions applicable abroad and therefore without public offer. Italia Independent Group S.p.A., headquartered in Turin, Corso XI Febbraio n. 19, with tax code and VAT number and registration in the Register of Companies of Turin no , R.E.A. (Repertorio Economico Amministrativo - Economic Administrative Index] no Italia Independent S.p.A., headquartered in Torino, corso XI febbraio, 19, tax code and VAT number and registered in the Register of Companies of Turin no , R.E.A. (Repertorio Economico Amministrativo - Economic Administrative Index] no Legal provisions in force at the reference date of each financial statement of the Issuer and Group, that inspire the reporting criteria used to interpret accounting information and supplemented by the accounting principles issued by the Consiglio Nazionale dei Dottori Commercialisti e dei Ragionieri [National Council of Chartered Accountants] and, where applicable, by the interpretation documents prepared by the Organismo Italiano di Contabilità [Italian Accounting Board]. The articles of clothing and accessories distributed by the Group in the lifestyle fashion industry. Monte Titoli S.p.A., the Italian central securities depository, headquartered in Milan, Via Andrea Mantegna no. 6. A maximum of no. 425,000 Shares, corresponding to an aggregate amount of nominal Euro 425,000, corresponding to the capital increase offered for subscription within the framework of the Institutional 8

9 Placement. Nomad (Nominated Adviser) Over Allotment Option Equita SIM S.p.A., headquartered in Milan, via Turati 9, Register of Companies of Milan, tax code and VAT number , with a fully registered and paid-up share capital of Euro 26,793,000, registered in the Albo delle SIM [Register of Securities Trading Companies] with no. 67. The purchase option granted to the Joint Global Coordinators for the purchase of a maximum number of 78,750 Shares to be allocated to the qualified investors and the other institutional investors for whom the Placement is meant in case of over allotment, as described in Part Two, Chapter 5, Section 5.2. Regulation Regulation implementing Legislative Decree no. 58 of 24 February 1998 on the regulation of issuers, adopted by Consob with Resolution no of 14 May 1999, as subsequently amended and supplemented. Related Parties Retail Sale Shares As defined in the Regulation adopted by Consob with Resolution no of 12 March 2010, as subsequently amended and supplemented, which sets forth provisions regarding transactions with Related Parties. The Group s direct retail sales. The maximum number of 100,000 Shares of the Selling Shareholders offered for sale within the framework of the Institutional Placement. Sell-out Selling Shareholders The final retail sale of the Group s products to consumers. The Company s shareholders indicated in Part Two, Chapter 5, Section 5.2 of the Admission Document. Shares The ordinary shares of the Issuer, with a nominal value of Euro 1.00 each. Stock Option Plan Wholesale Indicates the Stock Option Plan described in Part One, Chapter 13, Section 13.3 of the Admission Document. The distribution channel of third-party operators used by the Group for the sale of its products to retailers. 9

10 DOCUMENTS ACCESSIBLE TO THE PUBLIC The following documents are available to the public at the Issuer s headquarters (in Corso XI febbraio n. 19, Turin), as well as on the web site Admission Document Issuer s Bylaws Company financial statements for the year ended 31 December 2012 prepared according to the Italian accounting principles and approved by the Company Shareholders Meeting on 29 May 2013 Auditor s report on the Company s Financial Statements for the year ended 31 December 2012 issued on 24 May 2013 The Group s Consolidated Financial Statements for the year ended 31 December 2012, prepared in compliance with the Italian Accounting Principles and approved by the Board of Directors of the Company on 16 May 2013 The Auditor s report on the Group s Consolidated Financial Statements for the year ended 31 December 2012 issued on 24 May

11 ADDITIONAL INFORMATION Calendar of the operation Admission Document Date June 26 th, 2013 Admission Date June 26 th, 2013 Expected negotiating start date June 28 th, 2013 Main information on the Issuer s share capital Nominal Share capital at the Admission Document Date Euro 1,785,000 Number of Shares at the Admission Document Date 1,785,000 Nominal value of each Share Euro 1.00 Shortly before Admission, the Shares involved in the Institutional Placement have been offered for subscription and for sale to qualified investors in Italy and institutional investors abroad pursuant to Art. 6 of Part II ( Guidelines ) of the AIM Issuers Regulations, within the framework of a private placement falling under the cases of inapplicability of the provisions regulating the public offer of financial instruments set forth in Art. 100 of the Consolidated Finance Act and Art. 34-ter of Regulation 11971, as well as of the equivalent legal and statutory provisions applicable abroad, and therefore without public offer of subscription or dale of Shares. For additional information on the Capital Increase, please see Part Two, Chapter 4, Section

12 12 PART ONE

13 1. INFORMATION ON THE PERSONS IN CHARGE OF THE ADMISSION DOCUMENT 1.1 Persons in charge of the Admission Document The Issuer is responsible for the completeness and truthfulness of the data and information contained in the Admission Document. 1.2 Statement of responsibility The Issuer hereby represents that, having acted with reasonable diligence for this purpose, the information and data contained herein are, as far as he is aware of, compliant with facts and have no omissions that may alter their meaning. 13

14 2. STATUTORY AUDITORS 2.1 The Issuer's Statutory Auditors On 19 December 2012, the The Meeting of the Company entrusted the Auditor with the task of auditing the accounts of the Company for the years 2012, 2013 and 2014 pursuant to Art. 13 of Leg. Dec. 39/2010. On 29 May 2013, the Meeting of the Company deliberated on integrating, subject to Admission, the auditing of the year s financial statement and of the consolidated financial statements for the years ended 2013, 2014 and 2015 with the limited auditing of the Mid-Year Report regarding each of the interim periods closing until 30 June 2015 conferred on the Auditor. That task also includes the issuing by the Auditor of an opinion on each year s and consolidated financial statement/balance sheet of the Company and on each Mid-Year Report for each of the years considered pursuant to Art. 14 of Leg. Dec. 39/2010. The consolidated financial statements of the Group and the year s financial statement closed for the year ended 31 December 2012 have been prepared in compliance with Italian Accounting Principles and audited by the Auditor on a voluntary and statutory basis, respectively, which expressed a favourable opinion. The Auditor s reports have been issued on 24 May Information on the relationships with the Auditor Until the Admission Document Date, the task conferred on the Auditor by the Issuer was neither cancelled nor waived by the Auditor. 14

15 3. SELECTED FINANCIAL INFORMATION BACKGROUND This Chapter provides selected financial information regarding the annual consolidated accounts of the Issuer for the years ended 31 December 2012, 2011 and We point out that the Group prepared consolidated financial statements for the year ended 31 December 2012 for the first time and that the consolidated data regarding the years 2011 and 2010 are provided on a pro-forma basis and exclusively for information purposes for their inclusion in this Admission Document. The year s financial statement of the Company and the Group s consolidated financial statement for the year ended 31 December 2012 have been audited by the Auditor, who issues an Audit Report on 24 May The pro-forma consolidated financial information regarding the years ended 31 December 2011 and 31 December 2010 have not been audited by the Auditor. The pro-forma consolidated financial information regarding the year ended 31 December 2010 have been prepared assuming that the Issuer s acquisition process regarding the Subsidiaries (Italia Independent and Independent Ideas), concluded during 2011, had taken place with reference to the year ended 31 December Therefore, pro-forma consolidated financial information for the year ended 31 December 2010 was prepared by fully aggregating the year s financial statement of the Holding with the year s financial statements of the two Subsidiaries, prepared according to the Italian Accounting Principles used by the Holding. The financial statements of Italia Independent and Independent Ideas for the years ended 31 December 2010 and 31 December 2011 have not been audited under any form (including limited auditing). In detail, the following conditions were assumed when preparing the pro-forma consolidated financial information for the year ended 31 December 2010: The Issuer already owned, for the year ended 31 December 2010, a stake in the Company Italia Independent (former LA S.p.A. ) (corresponding to 72.5% of the share capital) for a book value of Euro 950,000, and a stake in the Company Independent Ideas (former LA Communication S.r.l. ) (corresponding to 75% of the share capital) for a book value of Euro 112,170. After the completion of the aforesaid transactions, the pro-forma consolidation process showed a consolidation difference of Euro 951,724 (related to Italia Independent for Euro 863,001 and to Independent Ideas for Euro 88,723) resulting from the deletion of the book value of the stakes (for Euro 1,062,170, related to Italia Independent for Euro 950,000 and to Independent Ideas for Euro 112,170) against the corresponding shareholders equity portion for the same amount for the year ended 31 December 2010 (corresponding to Euro 110,446, related to Italia Independent for Euro 86,999 and to Independent Ideas for Euro 23,447). The consolidation difference has been amortized starting from The Issuer s shareholders equity already contained for the year ended 31 December 2010: o o o the capital increase of Euro 36,850 (completed in 2011), after which the share capital of the Company became of Euro 116,850; the recording of a share premium reserve of Euro 1,833,900, consisting of 931,250 corresponding to the capital increase completed by contributing the stake held by Lapo Edovard Elkann in Italia Independent and Euro 902,650 corresponding to the cash capital increases contributed in the course of 2011; the recording of a reserve of Euro 10,022 resulting from the merger with Tessitore & Associates S.r.l.. In summary, the acquisition of the Subsidiaries have been considered together with capital-related transactions due to their close correlation. The pro-forma consolidated financial information regarding the year ended 31 December 2011 were prepared assuming that the acquisition of the Subsidiaries Italia Independent and Independent Ideas by the Issuer had been completed, in June 2011 and August 2011, respectively, referring to the year ended 31 December 2010, therefore the Income Statement as of 31 December 2011 reflects the consolidation of the entire year 2011, consistently with the income statement as at 31 December 2010, which reflects the consolidation of the entire year The selected financial information are inferred from the Issuer s consolidated financial statements for the year ended 31 December 2012 and from the pro-forma consolidated financial information for the year ended 31 December 2011 and 2010, prepared in compliance with the applicable legislation, supplemented and interpreted with Italian Accounting Principles. 15

16 However, we highlight again that the consolidated financial information provided consists of a simulation of the possible effects that might have been the result of the transactions, disclosed for mere information purposes. More specifically, since pro-forma consolidated financial information is built to retrospectively reflect the effects of subsequent transactions, there are limits associated with the very nature of pro-forma information, in spite of the compliance with commonly accepted regulations and the use of reasonable assumptions. Furthermore, in consideration of the different purposes of pro-forma information compared to actual financial statements and of the different methods used for the calculation of the effects of transactions in connection with the pro-forma balance sheet and income statement, these accounts must be read and interpreted separately, without looking for any accounting connection between them. This chapter does not include the Issuer s yearly financial statements referring to each of the dates indicated above. The selected financial information given below must be read together with the financial statement for the year ended 31 December 2012 and with the Issuer s consolidated financial statements for the year ended 31 December 2012 enclosed with this Admission Document and made available to the public for consultation in the places indicated in the introduction of this Admission Document. 3.1 Selected consolidated financial information on the years ended 31 December 2012, 2011 and Selected consolidated economic information on the Issuer for the years ended 31 December 2012, 2011 and 2010 The main economic data of the Issuer for the years ended 31 December 2012, 2011 and 2010 are given below: (in Euro units) 2012 % Pro-forma 2011 % Pro-forma 2010 % Gross revenue 16,673, % 10,081, % 5,350, % Returns (1,858,737) -11.9% (816,897) -8.5% (323,780) -5.8% Net revenue 14,814, % 9,264, % 5,027, % Other revenues and income (royalties) 851, % 397, % 531, % Total revenues 15,665, % 9,662, % 5,558, % Changes in inventories of intermediate goods, semifinished and finished products 1,210, % 384, % 321, % T Value of production (revenue accounts) 16,876, % 10,046, % 5,879, % Costs for raw & ancillary materials, consumables and goods (5,105,064) -32.6% (2,393,277) -24.8% (1,395,615) -25.1% Costs for services (6,801,883) -43.4% (5,093,118) -52.7% (3,574,956) -64.3% Costs for leased assets (262,923) -1.7% (253,592) -2.6% (227,238) -4.1% Cost of personnel (1,515,866) -9.7% (607,714) -6.3% (207,237) -3.7% Sundry operating expenses (216,187) -1.4% (225,577) -2.3% (92,173) -1.7% EBITDA (*) 2,974, % 1,472, % 382, % Amortization of intangible fixed assets (186,670) -1.2% (207,027) -2.1% (108,722) -2.0% Depreciation of tangible fixed assets (116,891) -0.7% (59,855) -0.6% (41,499) -0.7% Other provisions (210,613) -1.3% (255,000) -2.6% (840,000) -1.4% Credit impairment (221,959) -1.4% (166,711) -1.7% (20,000) -0.4% EBIT (**) 2,238, % 784, % 132, % Financial charges (221,822) -1.4% (151,776) -1.6% (76,807) -1.4% Financial income 6, % % % Exchange rate profit (loss) (463) 0.0% % 0 0.0% Net financial income (charges) (215,868) -1.4% (151,122) -1.6% (76,774) -1.4% Write-up of financial assets 11, % 16, % 1, % Write-down of financial assets (214,016) -1.4% 0 0.0% (15,300) -0.3% Value adjustments to net financial assets (202,659) -1.3% 16, % (14,109) -0.3% Non-recurring charges (117,130) -0.7% (155,444) -1.6% (92,000) 1.7% Non-recurring income 1, % 1 0.0% 4, % Net non-recurring income (charges) 115, % (155,443) -1.6% (87,117) 1.6% Result before tax 1,705, % 494, % (45,802) -0.8% Current taxes (703,411) -4.5% (266,365) -2.8% (116,458) -2.1% Deferred taxes (94,205) -0.6% (79,024) -0.8% (569) 0.0% Year s result 907, % 149, % (162,829) -2.9% 16

17 (*) The EBITDA indicates earnings before financial and non-recurring operations, taxes, amortization/depreciation of fixed assets, provisions and bad debt and inventories, and, more specifically, does not include non-recurring expenses (Euro 117K in 2012, Euro 155K in 2011 and Euro 92K in 2010), the provision for the Directors severance pay (Euro 55K in 2012 and in 2011) and the provision for inventory write-down (Euro 50K in 2012 and Euro 40K in 2010). The EBITDA so defined is the indicator used by the Issuer s Directors to monitor and assess business operation trends. Since the EBITDA is not identified as an accounting criterion among national accounting principles, it should not be considered as an alternative method to measure or assess the Issuer s operating trends. In addition, the composition of the EBITDA is not regulated by any reference accounting principles, so the criterion used by the Company for its determination may not be consistent with the criterion adopted by other entities, and therefore cannot be used for comparisons. (**) The EBIT indicates earnings before financial, non-recurring operations and year s taxes, therefore it represents the operating result before any return on both borrowed capital and owners equity. The EBIT so defined is the indicator used by the Issuer s Directors to monitor and assess business operation trends. Since the EBIT is not identified as an accounting criterion among national accounting principles, it should not be considered as an alternative method to measure or assess the Issuer s operating trends. In addition, since the composition of the EBIT is not regulated by any reference accounting principles, so the criterion used by the Company for its determination may not be consistent with the criterion adopted by other entities, and therefore cannot be used for comparisons Analysis of revenues for the years ended 31 December 2012, 2011 and 2010 The details of the composition of the Consolidated revenues for the years ended 31 December 2012, 2011 and 2010 item are given below, organized by category of activity: Pro-forma 2011 % Pro-forma 2010 % (thousand Euro) 2012 % Eyewear 11,478,871 73% 5,665,112 59% 2,733,717 49% Lifestyle Products 480,177 3% 273,051 3% 495,185 9% Communication 3,706,895 24% 3,723,950 39% 2,329,357 42% Total Revenues 15,665, % 9,662, % 5,558, % (*) Information on revenues has been extracted from the consolidated financial statement as of 31 December 2012 and from pro-forma consolidated reports as of 31 December 2011 and 2010, without considering changes in inventories Consolidated balance sheets for the years ended 31 December 2012, 2011 and 2010 Information concerning the main equity indicators is given below regarding the years ended 31 December 2012, 2011 and In detail, the table below shows the reclassified sources and uses of the balance sheet as of 31 December 2012, 2011 and 2010: (thousand Euro) 2012 Pro-forma 2011 Pro-forma 2010 USES Net Working Capital 4,551,689 3,638,671 2,601,143 Fixed assets 3,588,402 1,480,289 1,443,958 Non-current assets Non-current liabilities (541,678) (239,228) (23,827) Net invested capital (2) 7,598,413 4,879,732 4,021,274 SOURCES Shareholders Equity 3,879,386 2,193,555 2,044,451 Net financial position (3) 3,719,027 2,686,177 1,976,823 Total Sources of Financing 7,598,413 4,879,732 4,021,274 (1) The net working capital is defined as the difference between current assets and current liabilities, with the exclusion of financial assets and liabilities. The net working capital is not identified as an accounting criterion among reference accounting principles. We specify that it has been determined in compliance with CESR Recommendation b of 10 February 2005, reviewed on 23 March 2011 Recommendations for a uniform implementation of the European Commission s Regulation on Prospectuses. The determination criterion used by the Issuer may not be uniform with the criterion adopted by other entities, therefore the balance obtained by the Issuer may not be comparable with the balance determined by other entities. (2) The net invested capital is defined as the algebraic sum of the net working capital, fixed assets and long-term liabilities. It is not identified as an accounting criterion among reference accounting principles. The determination 17

18 criterion used by the Issuer may not be uniform with the criterion adopted by other entities, therefore the balance obtained by the Issuer may not be comparable with the balance determined by other entities. (3) According to CONSOB Communication no. DEM/ of 28 July 2006, we specify that the net financial position is defined as the algebraic sum of cash and cash equivalents, current financial assets and financial current and non-current short- and long-term liabilities. The net financial position has been determined in compliance with CESR Recommendation b of 10 February 2005, reviewed on 23 March 2011 Recommendations for a uniform implementation of the European Commission s Regulation on Prospectuses Net working capital The composition of the Net Working Capital item for the years ended 31 December 2012, 2011 and 2010 is detailed in the table below: Pro-forma 2011 Pro-forma 2010 (thousand Euro) 2012 Trade receivables due within one year 7,954,804 4,886,672 2,775,731 Gross value 8,199,060 5,060,069 2,795,731 Reserve for bad debt (244,256) (173,397) (20,000) Inventories 2,397,314 1,151, ,629 Gross value 2,447,314 1,151, ,629 Reserve for bad debt (50,000) - (40,000) Other receivables, accrued income & prepaid expenses 723, , ,986 Trade payables (5,232,372) (2,147,592) (1,641,831) Other accrued expenses & deferred income (1,291,308) (684,314) (175,372) Total 4,551,689 3,638,671 2,601, Other accounts receivable, accrued income and prepaid expenses and other accounts payable, accrued expenses and deferred income The other current assets and liabilities for the years ended 31 December 2012, 2011 and 2010 are detailed in the table below: Pro-forma 2011 Pro-forma 2010 (thousand Euro) 2012 Tax receivables 318,933 6, ,982 Prepaid and deferred taxes receivable within the year 145, , ,221 Other receivables due within one year 197, , ,941 Accrued income & Prepaid expenses 62,075 64,619 57,842 Total other receivables, accrued income & prepaid expenses 723, , ,986 Tax liabilities (821,030) (413,321) (89,044) Accounts payable to pension and social security institutions (168,624) (96,025) (48,290) Other accounts payable (156,866) (71,177) (17,266) Accrued expenses & Deferred income (144,788) (103,791) (20,772) Total other receivables, accrued expenses & deferred income (1,291,308) (684,314) (175,372) Tangible fixed assets, goodwill and intangible fixed assets, long-term investments Tangible and intangible fixed assets, goodwill and long-term investments for the years ended 31 December 2012, 2011 and 2010 are detailed in the table below: Pro-forma 2011 Pro-forma 2010 (thousand Euro) 2012 Land and buildings Plants, machinery, industrial and commercial equipment Other assets Installation and expansion costs

19 Research & Development and advertising costs - - 8,018 Concessions, licences, trademarks and similar rights 109,635 20,633 22,197 Other intangible assets 853, ,831 1,020,868 Stakes in controlled companies 12,181-10,000 - I-I Wall Street Corp. 12, LA France ,000 Stakes in associated companies 86,178 72,948 35,152 Stakes held in other companies 2, Other accounts receivable 9, ,395 50,000 Total 3,588,402 1,480,289 1,443,958 The increase in the Land and Buildings shown for 2012 results from the recording, with the financial method, of two financial leasing agreements signed during the year for the buildings used as headquarters by the Issuer (Corso XI febbraio n. 19, Turin) Non-current liabilities The other medium-long term liabilities for the years ended 31 December 2012, 2011 and 2010 are detailed in the table below: Pro-forma 2011 Pro-forma 2010 (thousand Euro) 2012 Employee termination indemnity (109,081) (39,228) (17,828) Provision for risks and charges (432,597) (200,000) (5,999) Other accounts payable Total (541,678) (239,228) (23,827) Shareholders equity The shareholders equity for the years ended 31 December 2012, 2011 and 2010 is detailed in the table below: Pro-forma 2011 Pro-forma 2010 (thousand Euro) 2012 Share Capital 1,785, , ,850 Share premium reserve 965,750 1,833,900 1,833,900 Legal reserve 1,930 1, Other reserves 47,270 30,617 10,022 Profit (loss) carried forward 86,832 10, ,661 Year s profit (loss) 602,235 92,859 (120,745) Group's Shareholders Equity 3,489,017 2,086,196 1,993,337 Third-Party's Shareholders Equity 390, ,359 51,114 Total Shareholders Equity 3,879,386 2,193,555 2,044, Net financial position The negative net financial position shown according to the scheme recommended by Consob Communication no. DEM/ of 28 July 2006 for the years ended 31 December 2012, 2011 and 2010 is detailed in the table below: (thousand Euro) 2012 Pro-forma 2011 Pro-forma 2010 A. Cash (39,376) (1,139) - B. Other liquid assets (743,780) (379,901) (1,021,833) C. Securities held for trading - (149,834) - D. Cash and cash equivalents (A) + (B) + (C) (783,156) (530,874) (1,021,833) E. Current financial receivables F. Short-term bank payables 2,031,539 2,117,653 2,156,481 G. Current portion of non-current liabilities 207, ,067 8,751 H. Other current financial liabilities 77,000 10,779 7,500 I. Current financial liabilities (F)+(G)+(H) 2,316,431 2,234,499 2,172,732 19

20 J. Net current financial liabilities (D) + (E) + (I) 1,533,275 1,703,625 1,150,899 K. Non-current bank liabilities 608, , ,924 L. Issued bonds M. Other non-current liabilities 1,577,289 72, ,000 N. Non-current financial liabilities (K) + (L) + (M) 2,185, , ,924 O. Net financial indebtedness (J) + (N) 3,719,027 2,686,177 1,976, Selected data regarding the Issuer's cash flows for the years ended 31 December 2012 and 2011 Cash flows for the years ended 31 December 2012 and 2011 are detailed in the table below: Pro-forma A. Cash flows from operating activity 601,324 (406,140) After tax profit /(loss) 907, ,104 Adjustments for non-monetary costs and revenues 606, ,283 Amortization 303, ,882 Increase in provisions for risks and expenses 232,597 21,400 Increase in provisions for employee benefits 70, ,001 Change in the Net Working Capital (913,018) (1,037,528) (Increase in trade receivables) (3,068,132) (2,110,941) (Increase in sundry receivables) (291,121) 442,856 Reduction in inventories (1,245,539) (384,146) (Decrease in trade receivables) 3,084, ,761 (Decrease in sundry receivables) 606, ,942 B. Cash flows from investment activities (2,411,674) (303,214) (Purchase of buildings, plants and machinery) (2,411,674) (303,214) C. Cash flows from financial activities 2,062, ,395 Proceeds from issued capital stock 800,000 0 Proceeds/(Reimbursements) of long-term loans 1,285, ,395 (Dividends paid) (22,500) 0 D. Net cash flows generated from operations (A ± B ± C) 252,282 (490,959) E. Initial cash flows 530,874 1,021,833 F. Final cash flows (D ± E) 783, ,874 20

21 4. RISK FACTORS The investment in the Shares involves a high degree of risk and presents the typical risk elements of an investment in shares traded on an unregulated market. In order to correctly appreciate the financial instruments contemplated in the Admission Document, the specific risk factors regarding the Issuer, the companies of the Group, the business sector in which they operate and the admission to trading of said financial instruments. The risk factors described in this Chapter 4 Risk factors must be read together with the information provided in the Admission Document. The occurrence of the circumstances described in one of the following risk factors may adversely impact the business and economic, financial and equity situation of the Company and Group, their future perspectives and the price of the Shares, and Shareholders might loose everything or part of their investment. These negative effects may also be caused to the Company, Group and Shares in case of events, not known today, that may expose the Company to further risks or uncertainties, i.e. if risk factors not considered significant today become significant due to any new circumstance. When reference is made to a section or chapter, this always means section or chapter of the Admission Document. 4.1 RISK FACTORS REGARDING THE ISSUER Risks associated with the dependence of the Group on certain key figures The founder of the Group, Lapo Edovard Elkann, has been essential for the rapid success of the Italia Independent brand in the eyewear, Lifestyle Products and communication markets, and is still significant for the implementation of the Group s communication strategy, thanks to his communication skills and influence as style icon. The success of the Group also significantly stems from the other founders - Andrea Tessitore, Giovanni Accongiagioco and Alberto Fusignani whose consolidated professional expertise plays a prominent role in the development and management of the Group s business. Due to these reasons, while the operating and management profile of the Group is characterized by a structure capable of ensuring continuity to business operations, the lack of the professional support of one or more of these key figures could adversely impact the development of the business and the implementation of the growth strategy of the Group. More specifically, should the Issuer not be capable of promptly replacing them with equally qualified individuals capable of ensuring the same operating and professional contribution, the growth perspectives of the Group, as well as its entire financial and equity situation, might be definitely adversely impacted. For further information, see Part One, Chapter 6, Section Risks associated with the management of growth Over the last few years, the activity of the Group has been characterized by a considerable and rapid development in Italy and abroad. The Issuer intends to adopt a strategy aimed at continuing along this line of development and growth. However, we cannot assure that the Group may achieve in the future the significant growth rates registered in the past. Furthermore, the considerable growth in sales volumes together with the commercial strategies the Group is planning to adopt to increase its penetration in the eyewear industry, particularly in international markets, will bring about increased investments and uses of working capital. In such a context, the Group will have to structure its organizational model and internal procedures to adjust its working capital management policies to increased requirements and meet requirements by finding the adequate amount of financial resources to promptly and effectively fulfil the needs and demands generated by high growth rates and international expansion. Should the Group fail to manage its investments and working capital efficiently or fail to find adequate short-medium term forms of financing, particularly in the present market phase characterized by credit crunch conditions that have reduced opportunities for support to growing/developing companies, and manage the growth process and adjustment of the organizational model in an efficient and appropriate manner for the increasingly complex management tasks of the period, the Group may not be capable of maintaining its present competitive positioning, which could adversely impact the Group s business operations, future perspectives and economic and financial situation. For further information, see Part One, Chapter 6, Section Risks associated with the implementation of strategies and future programs Should the Group fail to effectively implement its strategy and development plans, or not succeeding in implementing them within the times scheduled, or should any basic assumption of the strategy and development plans of the Group be proved incorrect, the capacity of the Group to increase its revenues and profitability might be damaged and this could negatively affect the business and growth perspectives of the Group, as well as its economic, financial and equity situation. The Group intends to pursue its growth and development strategy to increase and consolidate its competitive positioning in the eyewear industry and succeed as international player, while simultaneously reinforcing the Italia Independent brand in the Lifestyle Products and Communication sector. More specifically, as regards the expansion 21

22 strategy in international markets, the Group is planning to increase its penetration mainly in the key markets of the Euro Area and in the United States of America. Within the framework of its development strategy, the Group is also planning to open new single-brand concept stores called Garage in some selected locations, with the prevalent purpose of reinforcing the brand image and its market positioning with flagship stores, in support of wholesale distribution. After implementing its further international expansion strategy, the Group will be exposed to an increased management complexity and to a number of risks associated with the general economic, social and political conditions of different countries. This includes, inter alia, limitations to imports and exports, customs excises and restrictions to international exchanges in general, exchange rate fluctuations, limits to foreign investments and exposure to different tax regimes, legal and administrative systems. Furthermore, the opening of selected single-brand concept retail stores called Garage implies increased fixed costs and the execution of new multi-year rental agreements or could require, in case any store is shut-down, negative effects on the image of the brand. For further information on the strategies and future programs of the Group, see Part One, Chapter 6, Section Risks associated with dependence on Suppliers The Group will use selected third-party suppliers for the manufacturing of eyewear, sunglasses and reading glass frames within the framework of a Group policy prevalently based, for efficiency-related reasons, on aggregate procurement from a reduced number of suppliers. Although these third-party suppliers, located in Italy, are assessed and monitored by the Group to comply with adequate service levels in terms of product quality and deliverables, outsourcing always implies the existence of risks associated with the lack of a direct control of the manufacturing process by the Group and the risk of terminating agreements with suppliers. The high growth rates achieved with the sale of products registered by the Group in the eyewear industry also involve the risk for the Group not to promptly and efficiently fulfil product requirements based on customer needs, particularly in case of demand of large quantities in concentrated time intervals (the so-called order peaks), as suppliers may not be in the condition to rapidly adjust their manufacturing levels to the increased demand. This would lead to delays in deliveries, violation of contractual terms and conditions and termination of relationships, with the consequent negative effects on the image of the brand and the Group. For these reasons, we cannot exclude that the Group may find itself in the situation of having to replace all or part of its suppliers or increase their number, thus bearing higher expenses and procurement costs and difficulties in the maintenance of the Group s quality standard. Although the dies for the manufacturing of eyewear frames are the property of the Group and the management maintains that this condition reduces the timing associated with possible supplier replacements, any interruption or termination in existing agreements/business relationships with said suppliers without immediately finding alternative solutions could adversely, albeit temporarily, impact the continuity of the business operations, economic results and financial situation of the Group. Furthermore, suppliers may increase their prices to the Group and the Group may not be in the condition to promptly replace said suppliers or wholly or partly transfer its increased costs on distributors or end-consumers or customers. In addition to that, all the manufacturing sites of third-party suppliers are subject to their own operating and regulatory risks or any other kind of risk and any interruption or slow-down in manufacturing activities in these plants may negatively affect the economic results of the Group. For further information, see Part One, Chapter 6, Section Risks associated with the sale of the Group's products through the wholesale channel The distribution model adopted by the Group is prevalently based on the wholesale channel through agents that offer retailers the opportunity to purchase the products directly from the Group and a network of distributors that purchase the products from the Group to resell them to retailers. The wholesale channel also includes selected independent optical shops with display cases dedicated to the marketing of Eyewear and Lifestyle Products selected based on the Group s projects conceived from time to time (so-called shop-in-shop format). More specifically, we point out that the first three agents used by the Group in the Italian market have generated, in the year ended 31 December 2012, net revenues for approximately 5.6 million, corresponding to about 46.8% of the net revenue of the Eyewear and Lifestyle Products business line. The Group is exposed to the risk of not being capable of maintaining its relationships with the present agents and distributors and the present shop-in-shop business relationships or of developing new relationships or replacing/changing any existing agreement in connection with the risk that distributors and agents may not be capable of adequately managing relationships with retailers. Criticalities may also concern the geographical areas where individual distributors and agents operate due to changes in the applicable legislation and the so-called country risk. Should agreements with agents and distributors be terminated, the Group would be exposed to the risk of litigations with the consequent damages due to claims for compensation and indemnification. Furthermore, we point out that shopin-shop agreements also contain the right to return Lifestyle Products, so Group is also subject to the risk of having unsold products. Although the Group has developed an effective system for the selection, management and control of agents, distributors and opticians who run its shops-in-shop, the adoption by these entities of any marketing policy not compliant with the 22

23 Group s Guidelines might damage the image and brand reputation of Italia Independent and its trade relationships with retailers, that are maintained by agents and distributors. This could adversely impact the present business and future growth perspectives of the Group, as well as its economic, financial and equity situation. For further information, see Part One, Chapter 6, Section Risks associated with the capacity to offer innovative products Should the Group not be capable of identifying and seizing market opportunities for the development and launch of products based on new treatments or innovative materials, or in the event that said new products are not as successful as expected o require excessive investments both in economic and management terms, this might negatively affect the business and future growth perspectives of the Group, as well as its economic, financial and equity situation. The market segment of sunglasses and reading glass frames where the Group is prevalently positioned is particularly affected by fashion trends and changes in customer taste. The Management believes that the capacity to develop and launch innovative products on the market, including through new agreements for the use of materials, treatments and innovative manufacturing processes, will continue to significantly determine the future success of the Group. For further information on the products and business organizational model, see Part One, Chapter 6, sections and Risks associated with the sale of the Group's products through the retail channel The retail distribution model adopted by the Group includes single-brand franchised shops managed by third-parties, which include a single-brand shop opened in May 2013 based on the new retail concept called Garage (for further information, see Part One, Chapter 6, Section 6.1.3), two outlets and the company e-commerce website. The adoption of marketing policies not consistent with the Group s Guidelines by the managers of franchised single-brand shops may damage the image and reputation of the Italia Independent brand, with the consequent adverse impact on the business and future growth perspectives of the Group, as well as its economic, financial and equity situation. We also point out that some franchising agreements of the Group include the right for affiliates to return the products distributed, which causes the Group to be exposed to the risk of unsold products. Referring to the e-commerce channel, the Group is exposed to the risk of not being capable of increasing traffic on its website, of depending on the customers propensity to use the web for their purchases or witnessing changes in online commerce trends. Should the Group not be capable of developing the aforesaid e-commerce activities, this would adversely impact the business and future growth perspectives of the Group, as well as its economic, financial and equity situation. For further information, see Part One, Chapter 6, Section Risks associated with trade receivable collection and access to credit (credit-related risk) During 2012, the Group saw its trade receivable collection times increase, also due to the general worsening of macroeconomic conditions, a situation that is particularly emphasized in the domestic market, where most of its customers are located. Starting from the beginning of the current year, the Group made some changes to its marketing policy and management and credit collection facilities with the objective of progressively reducing the average number of collection days. Should the actions undertaken not allow the Group to achieve its objectives and if delays in customer payment will continue, this may adversely impact the management of the working capital and consequently require the Group to secure new bank loans or other similar source of financing. Furthermore, the failure to get refunding or the non-availability of any credit line for the Group and, more generally, the lack of opportunities to obtain alternative refunding sources would adversely impact the economic, financial and equity situation of the Group and/or slow down its process of achieving the objectives set out in its business plan Risks associated with the branding and communication strategy There is no certainty that the Group will be capable of continuing and pursuing a successful strategy of promotion of the brand adopted to date, nor can we be sure that the aforesaid strategy allows the Group to achieve its objective of disseminating the Italia Independent brand and attracting the attention of the media on its products. This could consequently lead to the need to increase expenses and marketing and communication investments, with an adverse impact on the economic, financial and equity situation of the Group. The success of the Group is associated to the success of its brand-building policies in the eyewear, lifestyle and communication industries thanks to the contribution of its founder, Lapo Edovard Elkann, and the Top Management, with the support of an innovative promotion and branding strategy and the distribution of distinctive products. The adoption of this strategy allowed the Group to minimize the resources to be used for the launch of the brand and its subsequent development. Furthermore, any behaviour or event which may damage the brand image, the Group and its products, whether of an endogenous nature (e.g., the inability to convey the value of the distinctive features and philosophy of the Group in the future), or of an exogenous nature (e.g. the dissemination by third parties of any information, including false statements, 23

24 on the Group, on its founder Lapo Edovard Elkann or on any other Group member), could adversely impact the business and growth perspectives of the Group, as well as its economic, financial and equity situation. For further information, see Part One, Chapter 6, Section Risks associated with the business of Independent Ideas The communication agent of the Group, Independent Ideas, operates almost exclusively in Italy in a highly competitive context characterized by a fierce competition with major communication agents provided with greater resources. Should the Group s communication agent not be capable of maintaining its competitive strength in the market or loose any of its key professionals whose role is of paramount importance for the industry s operators, such a situation could adversely impact its business and growth perspectives. We also point out that most of Independent Ideas revenues are generated by a limited number of customers, so we cannot ensure that all the present customers of the agent will renew existing agreements or sign new ones. On the other hand, Independent Ideas operates on the basis of agreements signed for individual communication campaigns or shortterm campaigns, generally not exceeding 3 years, which usually include a termination for convenience clause. This translates into a risk for the Group that Independent Ideas customer portfolio may be reduced, including over a rather short span of time. The loss of one or more of its main customers, if not offset by the signature of new agreements or by an increased business with existing customers, may adversely impact the economic, financial results and equity of the Group. Finally, the communication agent s business is particularly exposed to the effects of any unfavourable economic conditions in the markets and sectors where it operates or where its customers are. For the year ended 31 December 2012, the revenues of the Subsidiary Independent Ideas were approximately 3.3 million, almost exclusively generated in Italy, for about 50% by customers of the fashion industry and for about 30% by customers of the automotive industry, with an approximate 20% of customers from other sectors. The present and potential customers of the Group may react to difficult economic conditions by reducing the costs of marketing and communication activities. In addition to that, any critical situation suffered by customers may result in financial dire straits or insolvency or cause delays in the payment of any fee due to the agent and request the use of resources to collect credit, with the consequent adverse impact on the business and growth perspectives of the Group, as well as on its economic, financial and equity situation. For further information, see Part One, Chapter 6, Sections and Risks associated with the perception of new trends The main sector where the Group operates is characterized by changes, which may even be sudden, in customer trends, taste and lifestyles. Market surveys and research on new trends are carried out before creating, developing and launching the Group s products and these activities, in their turn, are carried out after collecting orders form customers and identifying new marketing campaigns in support of the product. The Issuer believes that the success of the Group is also linked to its ability in grasping new trends in advance and capturing the most attractive styles in the global fashion scenario. We cannot exclude that the Group may find it difficult to perceive fashion trends or adequately translate them into the creation of a product style, design and development in its business model. Such a situation may damage the success of the Group s products and even generate unsold products with the consequent greater inventories and negative impact on the business and growth perspectives of the Group, as well as on its economic, financial and equity situation. For further information, see Part One, Chapter 6, Sections , and Risks associated with other activities The Group supports additional entrepreneurial and business initiatives aimed at creating opportunities for a wideranging dissemination and development of the Italia Independent brand. In the event that these activities do not produce the positive expected results, there could be an adverse impact on brand perception leading to the need to identify alternative marketing tools and, if necessary, increase marketing and communication expenses, or even make new financial investments for support (or the return on investment could be reduced for the Group), thus negatively affecting the business and growth perspectives of the Group, as well as its economic, financial and equity situation. For further information on other activities, see Part One, Chapter 6, Section Risks associated with the addition of pro-forma consolidated information in the Admission Document for the year ended 31 December 2010 and 2011 In consideration of the corporate events that took place in 2011, some selected pro-forma information on the years ended 31 December 2011 and 2010 was prepared and included in the Admission Document to continuously report economic and financial trends resulting from the management of the Group for the three-year period This was done assuming that the acquisition of the Subsidiaries Italia Independent and Independent Ideas by the Issuer, 24

25 concluded during 2011, had taken place referring to the year ended 31 December The pro-forma consolidated information for the years ended 31 December 2011 and 2010 were prepared in compliance with Italian Accounting Principles and were not examined by the Auditor. The methods used for the preparation of pro-forma consolidated information for the years ended 31 December 2011 and 2010 is better described in Part One, Chapter 3, Section 3.1 of the Admission Document. Pro-forma consolidated information for the years ended 31 December 2011 and 2010 was prepared for mere information purposes, exclusively for their inclusion in the Admission Document. In the even that any pro-forma transaction has been carried out within the framework of a group of companies that were under the control of the Company in said periods, the financial and economic results disclosed in the pro-forma consolidated information would not have necessarily been obtained. Therefore, we point out that said information does not reflect the financial situation and actual results of the Group, and cannot be considered similar to its forward-looking information. For these reasons, when information regarding the years 2012, 2011 and 2010 is analysed and compared, one must keep in mind the peculiarity of the pro-forma financial information for the years ended 31 December 2011 and 2010 described above. For further information, see Part One, Chapter 3, Section Risks associated with the defence of industrial and intellectual property rights The protection of the Italia Independent brand and other Group s trademarks, design rights, processes and manufacturing technologies, ornamental and utility models and the other intellectual property rights of the Group is essential for the success of the products and for the Group s positioning in the eyewear, lifestyle and communication industries. The Group makes investments to ensure the protection of its trademarks and industrial and intellectual property rights, and carries out surveillance activities on prominent trademark registration bodies to be promptly informed about any submission of trademark registration in conflict with those of the Group. However, we cannot exclude that the actions undertaken may fail to prevent imitations of the Group s brand and products. As regards brand protection, in the event that the Group wishes to expand its business in Countries where the Italia Independent brand has not yet been registered, any previous use or registration of the brand (or of brands that can be confused with the Group s brand) by any third party could limit (or hinder) the Group s business activity in said Countries. Finally, the laws of many foreign Countries do not protect intellectual property rights with the same strength as the Italian or other EU Countries legislations do. The occurrence of one or more of the unfavourable conditions described above could damage the image and reputation of the brand, with a possible adverse impact on the business and growth perspectives of the Group, as well as its economic, financial and equity situation. We also point out that eyewear products are often subject to forgery and imitation. While the Company believes that the manufacturing methods and materials used to produce the Group s products are so original as to make it very expensive and difficult to imitate them, there can be no certainty that the Group s products will never be imitated or forged and that forged or very similar products (in terms of design and materials) may appear on the market. The extent of any such phenomenon, if significant, could negatively affect the business of the Group, particularly due to the consequent adverse impact on the prestige of the trademarks involved. In order to prevent any such forgery and imitation phenomenon, the Group carries out, inter alia, market prevention and control activities, which, however, could be insufficient to oppose the forgery and imitation of its products. Furthermore, the Group could be forced in the future to significantly increase the use of resources to these purposes, con the consequent adverse impact on its economic, financial and equity situation Risks associated with the corporate governance system and the deferred application of certain statutory predictions The Company has adopted Bylaws that will become effective upon the admission to trading on AIM Italia of the Issuer s ordinary shares. Said Bylaws provide for the list voting mechanism for the appointment of the members of the Board of Directors. We point out that the Issuer s Board of Directors in office upon the Admission Document Date was appointed before the Admission and will remain in office until the date of the Meeting that will be called for the adoption of the balance sheet/financial statement for the year ending 31 December Therefore, the list voting provisions set forth in the Bylaws will apply from that date to allow the minority list to obtain the majority of votes (not being connected, including indirectly, with the shareholders that present or vote the list ranked first for number of votes) in the appointment of an independent director. For further information, see Part One, Chapter 12, Section Risks associated with the non-adoption of organization and management models pursuant to Leg. Dec. 231/2001 The Issuer did not adopt the organizational and management model required by Leg. Dec. no. 231 of 8 June 2001 to create appropriate rules to prevent the occurrence of illegal conduct by executives, top managers or any individual vested with decision-making powers. The Issuer is willing to adopt an appropriate organizational and management model to prevent said crimes and offences. On the Admission Document Date, the Issuer has started activities aimed at 25

26 preparing an organizational model that may fulfil the requirements defined in Legislative Decree no. 231 of 8 June This model is expected to be completed within 18 months after the Admission Document Date Risks associated with the distribution of dividends In consideration of the Group s growth and development stage, the Issuer may decide, even in case of operating profits, not to distribute dividends in favour of the holders of its ordinary shares even in future years. For further information, see Part Two, Chapter 4, Section Risks associated with leading position statements and market information the Admission Document contains leading position statements, estimates of the nature and size of the reference market and on the competitive positioning of the Group, market assessments and comparisons with competitors developed, where not otherwise specified, by the Issuer based on its specific knowledge of the relevant industry, of public or estimated information, of the official financial statements of competitors or of its own expertise. However, this information may not correctly reflect the reference markets, their future trends, related positioning of the Group, as well as the actual developments of the Group s business due to known and unknown risks, uncertainties and other factors described, inter alia, in this Section RISK FACTORS REGARDING THE BUSINESS INDUSTRY WHERE THE ISSUER OPERATES Risks regarding the high risk of competitiveness The Group operates in a competitive context where it has to compete with major producers of sunglasses and reading glass frames provided with greater financial resources. The Group s Management believes that one of the key factors to combat competitors in addition to the launch of innovative products, adapting to new market trends and maintaining an appropriate production capacity - is to maintain a scalable organizational model and an efficient distribution network. If the Group, after expanding the number of its direct competitors or reinforcing any of them, is still not capable to maintain its competitive strength in the market, or if it cannot develop a scalable organizational model or an efficient distribution network, the business and growth perspectives of the Group, as well as its economic, financial and equity situation may be adversely impacted. For further information, see Part One, Chapter 6, Section Risk regarding the macroeconomic situation The eyewear and communication market segments where the Group is positioned are characterized by cyclic trends associated with macroeconomic trends. The crisis that began in mid-2008 and affected the banking system and financial markets, as well as the consequent worsening of the macroeconomic conditions that led to a reduction in consumptions and industrial production worldwide, had the effect, over the last few years, of restricting credit access conditions, reducing the liquidity of financial markets and making equity and bond markets extremely volatile. The crisis of the banking system and financial markets led, together with other factors, led to a recession scenario or at least to one of economic difficulty in some of the geographical markets where the Group operates, such as Italy, Spin and other European Union Member States. This shrinking economy stage has particularly sharpened in some Countries of the European Union, particularly in Italy, starting from the first half of 2011 due to the so-called sovereign debt crisis, with the consequent reduction in the expenditure for some consumers and adverse impact in the economic, equity and financial situation of the customers of the Group. While the Group scored positive results in spite of the crisis, we cannot exclude that, should the economic recession continue or cease but be repeated in one or more of the geographical areas where the Group operates, this may adversely impact the business and growth perspectives of the Group, as well as its economic, financial and equity situation. For further information, see Part One, Chapter 6, Section Risks associated with changes in the national and international regulatory framework applicable to the Group General regulatory framework In the different jurisdictions where it operates, the Group is liable to comply with the applicable legislation and technical regulations regarding the products it manufactures or markets. Regulations regarding the protection of industrial and intellectual property rights and competition, occupational health and safety and environment protection are to be emphasized in this regard. The introduction of new legislation or amendments/supplements to existing regulations may require the Group to adopt stricter standards that may involve costs for adapting manufacturing structures or product characteristics or again, limit the Group s operations with a consequent adverse impact on the business and economic, financial and equity situation of the Group. Made in Italy 26

27 Almost all the products manufactured and marketed by the Group are presently made in Italy. The Group s Management considers this feature as a competitive advantage compared to other competitor products that cannot boast the same definition. However, any change to the legislation on the definition of the Made in Italy could change the current requirements for the identification of Made in Italy products. Should Made in Italy identification regulations become less restrictive, this could affect the competitive advantage compared to competitors, who might use the same definition with the consequent adverse impact on the economic, financial and equity situation of the Group. Likewise, in the event that these requirements should become more restrictive, this could force the Group to give up said identification or to change its products to fulfil new legal requirements with an adverse impact on the economic, financial and equity situation of the Group. The Company does not exclude that in the future Made in Italy, rather than representing an added value, may merely be seen as a restriction in terms of expenses and processes, thus requiring higher production costs compared to equivalent products. In the event that such a situation should occur, this may adversely impact the competitiveness of the Group and force the Group to review its business model. For further information, see Part One, Chapter 6. Risks associated with the introduction of new excises and protectionist measures As regards the commercial distribution in countries other than Italy, we point out that the Group s products are sometimes subject to specific excise taxes or other protectionist measures in some of the countries where the Group operates, particularly as regards the importation of products in said jurisdictions. In the event that said excise taxes or protectionist measures should be increased, this would adversely impact the business, perspectives and economic, financial and equity situation of the Group. 4.3 RISK FACTORS REGARDING THE FINANCIAL INSTRUMENTS OFFERED Risks associated with trading on AIM Italia The Shares have been admitted to trading on AIM Italia, the multilateral trading system primarily dedicated to small and medium enterprises and to companies with a high growth potential, which are usually associated with a high risk level, even greater than larger issuers or issuers with a consolidated business. At the Admission Document Date, a limited number of companies are listed on AIM Italia. Admission to trading on AIM Italia poses some risks, including: (i) an investment in financial instruments negotiated on AIM Italia may involve a higher risk compared to the risk of financial instruments listed on regulated markets and there is no guarantee for the future about the success and liquidity of the market of the Shares; and (ii) Consob and Borsa Italiana did not examine nor approved the Admission Document. Furthermore, we should consider that AIM Italia is not a regulated market and the companies admitted to AIM Italia are not subject to the legislation for companies listed in regulated markets. More specifically, the corporate governance regulations issued by the Consolidated Finance Act, except for some limited exceptions, e.g. rules applicable to issuers of financial instruments offered to the public to a significant extent as provided for in the Consolidated Finance Act, that are subject to legal requirements, and some rules regarding public purchase offers mentioned in the Bylaws of the Company pursuant to AIM Italia Issuers Regulations Risks associated with market liquidity and the possible volatility of the price of the Issuer's Shares At the Admission Document Date, the Shares are not listed or negotiable on any regulated market or multilateral trading system and, after admission to AIM Italia, they will not be listed in a regulated market. Although the Shares will be exchanged on AIM Italia, there is no guarantee that an active and liquid market is formed or maintained for the Shares. In fact, disinvestments may be made, with a potential adverse impact on the Shares selling price. No guarantee can be given on the possibility to conclude tradings with the Shares because any sale request might not find appropriate and prompt purchase counteroffers and the purchase requests might not find appropriate and prompt sale counteroffers. Furthermore, after the Admission, the market price of the Shares may considerably fluctuate in connection with a series of factors (including the possible sale of a considerable number of Shares by shareholders who undertook a temporary commitment not to sell the Shares, at the date of expiration of the effectiveness terms of said commitments), some of which go beyond the Issuer s control, and may, therefore, not reflect the operating results of the Company Risks regarding the possible capital dilution effect in connection with the exercise of any stock option In case of partial or total exercise of option rights of the beneficiaries of the Stock Option Plan, dilutive effects will be seen for the stakes held by shareholders, as described below. With the resolutions of 25 October 2012 and 29 May 2013, the Extraordinary Meeting of the Company approved a paid capital increase for a maximum of Euro 474,444 by issuing, within 31 December 2022, a maximum of 474,444 ordinary shares of the Issuer of the nominal value of Euro 1.00 each, only for private subscription by Directors at the unit price of Euro 6.40, of which Euro 5.40 as premium. The option rights regarding the Plan will be transferred for free upon reaching certain pre-established objectives, which are described in Part One, Chapter 13, Section 13.3 and will be able to be exercised starting from 1 st June 2014 until 31 December The 474,444 shares of the Issuer, which may be globally subscribed under the Plan, represent about 27

28 [21.5]% of the fully diluted post-placement share capital of the Issuer (determined by taking into consideration the full subscription of all the shares connected with the capital increase). For further information concerning the Stock Option Plan, see Part One, Chapter 13, Section Risks associated with the possibility of a revocation or suspension from trading of the Issuer s financial instruments Pursuant to the AIM Issuers Regulations, Borsa Italiana may cancel the trading of the Issuer s financial instruments in the event that: (i) (ii) (iii) within two months after the date of suspension from trading due to absence of the NOMAD, the Issuer takes care to replace it; the financial instruments have been suspended from tradings for at least six months; the revocation is approved by as many shareholders as representing at least 90% of the votes of the shareholders who met for the Meeting Risks associated with the temporary commitment not to sell the Company s Shares The Selling Shareholders subscribed lock-up commitments with Joint Global Coordinators containing prohibitions of Share disposal transactions for a period of time of 18 months effective from the trading start date. Upon the expiry of the aforesaid lock-up commitments, there will be no guarantee that said shareholders do not sell the respective Shares, with the consequent potential negative impact on the price of the Shares. For further information, see Part One, Chapter 13, Section 13.4 and Part Two, Chapter 5, Section Risks associated with the stabilization activity Equita, from the date when the trading of the Shares will start and until 30 days after that date, will be able to carry out Share stabilization activities in compliance with the applicable legislation. That activity may determine a higher market price than the price that would otherwise be produced. Furthermore, there is no guarantee that the stabilization activity will be actually carried out or that, even though carried out, it may not be interrupted at any time Risks associated with the limited free float of the Company s Shares and with limited capitalization We point out that the floating part of the share capital of the Company, calculated as indicated by the provisions set forth in the AIM Issuers Regulations, will correspond to approx. 27.3% of the Issuer s share capital, assuming the full placement of the shares of the Institutional Placement abd the full exercise of the Over-Allotment Option. This situation, with respect to the securities of other issuers with a higher floating part or with a higher capitalization, implies a higher share price volatility risk and greater disinvestment difficulties for the shareholders at the prices expressed by the market at the time of entering any sales order. For further information, see Part One, Chapter 13, Section Risks associated with conflicts of interest Banca IMI S.p.A. ( Banca IMI ), a company of the banking group Intesa Sanpaolo ( Intesa Sanpaolo Group ) that plays the role of Joint Global Coordinators and Joint Bookrunners within the framework of the Institutional Placement, has a conflict of interest because it will receive, in connection with the roles played within the framework of said Placenemt, fees determined as a percentage of the value of the Shares to be placed. As of 13 June 2013, the Intesa Sanpaolo Group has an authorized credit limit of Euro 1,700,000 and approximately Euro 557,000 of used credit with Italia Independent Group S.p.A. and will recover part of the loan with the proceeds resulting from the Placement. Furthermore, a real estate leasing for a residual amount of Euro 909,000 exists between the Group and the Intesa Sanpaolo Group. The Intesa Sanpaolo Group, in the conduction of its ordinary business, has provided or may provide advisory and investment banking services in favour of the Issuer, of the Group entities and its Shareholders. 28

29 5. ISSUER S PROFILE 5.1 Issuer s background and expansion Issuer s registered name and trade name The Issuer is called Italia Independent Group S.p.A., with no graphic constraints, and is a joint stock company Issuer s place of registration and Registration number The Issuer is registered with Turin s Register of Companies, registration number , and with the Repertorio Economico Amministrativo (REA Economic and Administrative Index) of Turin s Chamber of Commerce, registration number Issuer s date and term of incorporation The Issuer was incorporated on 15 th July 2008 by notarial deed before Francesco Pene Vidari, Notary Public in Turin, file no Under article 4 of its Bylaws, the Company s term is until 31 December 2050, and such term may be extended by resolution of a special shareholders meeting, provided those shareholders who have not passed such resolution are entitled to resign Issuer s address and legal status, applicable law, country of incorporation, address and telephone number of the registered office The Issuer is a joint stock company incorporated under the Italian law, having its permanent address in Turin, Italy, Corso XI February, 19, telephone number: , fax number: (+39) , website: info@iigroup.it; the Italian law has jurisdiction over the Issuer Significant events in the Issuer s business activity The Issuer, whose purpose is the development of the Italia Independent brand, is a holding specialising in eyewear, lifestyle and media products, mainly working in the manufacture and distribution of sunglasses and reading glass frames. Company s background and growth The launch of the Italia Independent brand and the birth of the Group LA S.r.l., now renamed Italia Independent S.p.A., was incorporated on 1 st August The birth of the Italia Independent brand dates back to January 2007, its first business being the promotion and launch of one single innovative product, a pair of sunglasses handmade in Italy in carbon fibre, at the retail price of Euro 1,007. Since the very beginning, the Group s strategy has focussed on differentiation, in order to attract as much media coverage as possible and make the brand philosophy popular. In June 2007, the Group s founders opened the Independent Ideas agency to capitalise on their communication skills. Also in 2007, the Group bought a 17.5 % minority share in We Care S.r.l., owner of the Care Label brand, specialising in the production of high-quality denim, in return for support in product branding, communication and development services. The company was founded in 2008 as a holding to give a more rational structure to the eyewear, design and communication businesses owned by Lapo Edovard Elkann, the other founding shareholders and the Group s Top Management was also the first year the Italia Independent brand became truly popular, with the launch of the first sunshade collection and a few clothing items, as well as the first partnerships with such leading brands as Borsalino (hats), Arfango (shoes), Iveco (cars) and Pantofola d Oro (shoes). In addition, the Independent Ideas agency went into partnership with international creative partners and began to strike deals with other parties, such as Breil, Fox, La Stampa, Levi s, Moschino, Meltin Pot, Pantofola d Oro, Film Commission Torino Piemonte. It also incorporated the I Spirits S.r.l. start-up, of which the Group owns 50% of shares, for the production of Italian vodka, called I Spirit Vodka and developed with Arrigo Cipriani and Marco Fantinel with the Group s support in the development of a corporate identity and brand. In 2009, the Group decided to concentrate its efforts on its eyewear core business and licensed its apparel manufacture out to Brama Sportswear. In the area of eyewear, the Group launched the first styles of reading glass frames and took an integrated, direct approach to its business and organisational system. Distribution reached about 220 accounts in Italy, and the products began to be sold abroad as well. In addition, a temporary store was opened in Saint Tropez. Along with 29

30 partnerships with Arfango and Borsalino, which went on, the Group gained another two partners, Spy (ski goggles) and Alfa Romeo. Also in 2009, the Group set up Sound Identity S.r.l., of which the Group owns 30% of shares, an agency specialising in music-based communication projects. Independent Ideas kept growing by acquiring more and more accounts, such as Virgin Radio (for which it developed the Rock Save Italy campaign) and Fiat, for which it developed the Fiat 500 by Diesel project, giving it national and international visibility. In 2010, the Italia Independent product range was extended to include the first velvet glasses (I-velvet). Distribution reached about 650 accounts in Italy and kept expanding abroad as well. In addition, the Group teamed up with Dinh Van (men s jewellery), Meritalia (interior decoration), Diesel (jeans) and Vans (footwear). The Group was still very keen on communication, so it restyled the website and further expanded its Independent Ideas, which joined forces with Vogue Italia, Skitsch and La Rinascente. In business terms, the Group entered into a licensing agreement to use the so-called vintage Fiat 500 heritage brand to develop exclusive household appliances and interior design. The Group s development and recent history In 2011, the Group further broadened its product range by launching the I-thin glass family and expanding the range of styles and colours. Distribution reached about 1,000 accounts in Italy. It also entered partnerships with Orciani (belts), bstripe/blossom (skis), Toy Watch (watches) and Meritalia (vintage Fiat 500-inspired interior design). In 2011, it opened its first single-brand franchises in Alassio, Alessandria and Courmayeur and launched a communication campaign with history characters and the Be Independent. Everywhere campaign. For further information, see Part One, Chapter 6, Section Independent Ideas grew on, and its account portfolio came to include Bic, Gucci, Caffè Vergnano, Unicredit and Pinko. The Group expanded by taking a 50% share in Independent Value Card S.r.l., the core business of which is the design of credit cards in combinations of precious or engineered materials. In 2012, the Group kept developing with the launch of its I-cons eyewear family and then the I-teen, the first eyewear range specially designed for children and teenagers. The Group s distribution network had approximately 1,400 accounts and its international position got stronger. In 2012, the Group entered partnerships with such leading partners as Juventus (production of eyewear for the win of the Serie A football cup in 2012, won again in 2012/2013), Eclectic (men s jackets), Invicta (bags), K-way (sports jackets), Bear (beachwear), Mark Mahoney (bespoke eyewear), Victoria s Secret (bespoke eyewear), Smeg (refrigerators), Vertu (mobile phones) and Able to enjoy (wheelchairs). That year saw the birth of the shop in shop, that is, Italia Independent corners being opened at selected opticians to attract people and increase eyewear sales. 5 new single-brand franchises opened in Bergamo, Porto Montenegro, Bologna, Turin and Sestriere, along with the first outlet in the Turin s premises. At the end of 2012, the licence granted to Brama Sportswear for the production of Lifestyle Products ran out, and the Group began to produce them itself. The Group started to go global: in September 2012, Italia Independent USA Corp. was set up in Miami to manage the US market. Also, some distribution agreements are entered into in the Middle East, Japan and other countries. Since 1 January 2013, local units have been started up in France and Spain. Independent Ideas grew on, and in 2012 it signed important agreements with Ferrari, Baglietto, Juventus, Jeep, Smeg, Vertu, and others. Main Issuer corporate events The company was incorporated on 15 th July 2008 by notarial deed before Francesco Pene Vidari, Notary Public in Turin, file number 62617, as a Limited Liability company named LA Holding S.r.l. On 27 th June 2011, by notarial deed before Ettore Morone, Notary Public in Turin, file number , the Issuer concurred in increasing the capital of Independent Ideas S.r.l. by taking a nominal stake of 60, euros, equal to 75% of the share capital, against the payment of 112, euros, of which 52, euros to cover part of the operating loss of Independent Ideas S.r.l. in the year closing on 31 December 2010 and 60, euros to replenish part of the share capital of Italia Independent Ideas S.r.l. after making good such loss. On 2 nd August 2011, by notarial deed before Francesco Pene Vidari, Notary Public in Turin, file number , the Issuer s shareholders decided to increase the company s capital, whereby the shareholder Lapo Edovard Elkann 30

31 transferred to the Issuer its nominal stake of 85, euros, equal to 72.5% of the share capital of LA S.r.l. (eventually converted into Italia Independent S.p.A.). On 24 th November 2011, the company s shareholders decided to take over Tessitore & Associates S.r.l., a limited liability company, the sole shareholder of which was Andrea Tessitore, one of the company s directors. On 25 th October 2012, the company s shareholders decided to change the Issuer s legal status, from a limited liability company to a joint stock company named LA Holding S.p.A. On 28 th February 2013, the company s shareholders decided to change the company s name to Italia Independent Group S.p.A.. For information about changes in the Issuer s ownership and BoD membership, see Part One, Chapter 16, Section , and Part One, Chapter 11, Section , of the Admission Document. For information about the subsidiaries, see Chapter Investments Description of the Group s investments in tangible, intangible and financial assets during the years ended 31 December 2012, 2011 and 2010 and until the date of the Admission Document The Table below lists the investments made by the Group in tangible, intangible and financial assets during the years ended 31 December 2012, 2011 and 2010 (in Euros). INVESTMENTS 2012 Pro-forma 2011 Pro-forma 2010 Intangible assets 963,569 1,000,338 1,179,533 Differences from takeovers 761, , ,724 Implementation of ERP system 54,603 16,053 19,001 Registration of trademarks 55,032 20,633 25,747 Upkeep of third-parties property 36,018 24,726 32,009 Restyling of website and online shop 36,804 44,912 55,824 Long-term start-up costs - 16,200 79,660 Cost of incorporation - - 4,827 Expansion costs and incidental costs 5, Other intangibles 14,000 21,262 10,741 Tangible assets 2,514, , ,273 Property in c.so XI Febbraio n. 19 2,172, Plants 18,922 6,849 7,413 Vehicles 19,775 32,958 46,141 Lab equipment and moulds 54,880 39,468 21,311 General equipment 8,092 2,171 - Furniture and furnishings 157,591 92,005 55,692 Office electronics 52,234 32,472 33,039 Other tangibles 30,647 17,686 5,677 Long-term investments 110, ,342 95,151 Shares in subsidiaries 12,181-10,000 Shares in affiliated companies 86,178 72,947 35,151 Other shares 2, Loans to affiliated companies - 75,000 50,000 Loans to other companies 9, ,395 - Investments in intangible assets mainly include the difference in the consolidated accounts, which as of 31 December 2012 amounts to a total of 761 thousand euros, of which 690 thousand euros are from the consolidation of the 31

32 subsidiary Italia Independent, and 71 thousand euros are from the consolidation of Independent Ideas. Such difference in the consolidated accounts is redeemed in 10 years, as also expected of the concepts (product families). In addition, such intangible assets include concessions, licences, trademarks and the like, including the costs incurred for the acquisition of the brand and other intangible assets, which include the long-term start-up costs incurred by the subsidiary Italia Independent. Investments in tangible assets include, above all, buildings, which have been recorded in the Group s consolidated balance-sheet as per IAS 17 and include the building in which the Group is headquartered. The building is covered by two leases: the first taken out with Credit Agricole Leasing Italia S.r.l. on 11 April 2012 (taking over the lease made by the seller Investire S.r.l residual debt as of 31 December 2012: of Euro 630,000); the second taken out on 20 April 2012 with Centro Leasing S.p.A (residual debt as of 31 December 2012: Euro 919,000). The remaining investments were made in instrumental production equipment, electric and electronic machinery and furnishings. Long-term investments include shareholdings that have been recorded on a net worth basis or at cost Description of major ongoing investments Investments made by the Group as from 1 January 2013 or that are under way at the date of the Admission Document include tangible and intangible assets, especially the implementation, in early 2013, of the new management software, the building works at the Turin s premises, the opening of a new outlet in Castel Romano, the restyling of Italia Independent s website, the purchase of storage equipment and office furniture, machinery and equipment, as well as equipment for the Group s US premises. The cost of such investments has been estimated at approximately 500 thousand euros and will be self-funded Future investments At the date of the Admission Document, there are no prospective investments approved by the Board of Directors. For information about prospective plans and strategies, see Chapter 6, Section

33 6. BUSINESS OVERVIEW 6.1 Core business Overview of the Group s business and key factors The Issuer, the purpose of which is to further the Italia Independent brand, is at the helm of a group dealing with eyewear, lifestyle and communication products, which specialises in the manufacture and distribution of sunglasses and reading glass frames. The Group s main products and services are: (i) sunglasses and reading glass frames collections; (ii) Lifestyle Products; and (iii) communication services. For a detailed description of such products and services, see Section At the same time, using its own managers/shareholders who have extensive experience, including international experience, in product development and communication, the Group acts as a platform for the development and internationalisation of new entrepreneurial and business initiatives in the areas of communication, design and style that may synergistically support the growth of the Italia Independent brand. Currently, the Group is involved in some new entrepreneurial initiatives through I Spirits S.r.l., Sound Identity S.r.l., We Care S.r.l. and Independent Value Card S.r.l.. For further information, see Chapter 6, Section Italia Independent is the Group s brand that combines creativity and style, fashion and design, tradition and innovation, through which the Group develops, distributes and sells its products and services. The name Italia Independent says a lot about its mission and philosophy. Italy is not just the place the company works or is located in, but it is also the main inspiration and driver of the Italia Independent project, born of the need to give a new lease of life to the Made in Italy, to create a Made in Italy 2.0, working in a number of industries to export Italian style into a global world. Creativity, style and innovation have been the distinctive traits of Italia Independent since its opening, when, in 2007, Lapo Edovard Elkann and the other founding shareholders of the Group produced an innovative pair of all-carbon sunglasses, inspired by Stealth, Gianni Agnelli s famous sailboat. Later on, Italia Independent made products in such materials as Kevlar, Cordura by DuPont, Gore-tex as well as carbon, matched with such fabrics as cashmere, linen or velvet, giving a new twist to classic products and developing a contemporary idea of creativity where different experiences and styles are mixed and matched together. 33

34 The Group supervises the entire production and distribution chain. In particular, the Group manages the following divisions, internally, using its own resources: (i) brand management and communication, (ii) marketing, (iii) product design and development, (iv) logistics and quality control, (v) distribution and direct sales, and (vi) customer care. Production and wholesale are entrusted to selected suppliers and agents or distributors, in compliance with specific procedures that are defined and supervised by the Issuer through its organisation. For a description of each step of the organisational system, see Section The Group is headquartered in Turin and operated with a branch office in the United States of America (Miami) and three local units in Europe (Milan, Paris and Barcelona), which coordinate its product distribution and logistics activities, and provide support to the promotion of the brand image. As of 31 March 2013, the Group had 49 employees, 42 of whom employed on a permanent basis and 7 on a temporary basis. Products are sold in Italy and abroad through wholesale and retail channels. Wholesale distribution covers the markets that are most important to the Group in terms of volumes. Work is coordinated by the Turin s HQ for the Italian market, by the US Branch for North and South America, by two local units in France and Spain and a network that, as of 31 st May 2013 was composed of: (i) 12 independent distributors for the following markets: Eire, Holland, UK, Channel Islands, Tunisia, South Korea, Israel, West Bank, Gaza, Canada, Belgium, Luxembourg, Japan, United Arab Emirates, Qatar, Oman, Bahrain, Saudi Arabia, Kuwait, India, Pakistan, Sri Lanka, Denmark and Iceland, Singapore and Myanmar; and (ii) a network of 29 agents, 6 in Italy and 23 abroad. In addition, the Group has already developed and launched its shops in shop, i.e. display corners at independent Italian opticians selected by the Group, which in addition to the glasses may also sell the Lifestyle Products. As of 31 st May 2013, the Group has 34 shops in shop in Italy, while agreements have been entered into to open another 14 new shops in shop in the next few months. As of 31 st May 2013, the retail distribution channel has 8 franchises in Italy, 1 abroad and 2 direct-selling outlets in Italy. May 2013 saw the opening of the first single-brand franchise, based on the Garage concept. The retail channel also includes an e-commerce channel. Through its Independent Ideas agency, the Group also provides communication services in the areas of creativity, strategy and design, both to the Group s subsidiaries and to third parties. As to commercial services, the core business of Independent Ideas is branding and design, where it stands out for using classic and digital advertising, for event planning, co-branding and media. For further information, see Section , below. The Table below shows the Group s consolidated revenues and EBITDA by line of business as of 31 December 2012, 2011 and 2010: 34

35 (thousands of Euros) Unaudited 31 December 2012 Pro-forma unaudited 31 December 2011 Pro-forma unaudited 31 December 2010 Revenues Of which: Eyewear 11,479 5,665 2,734 Lifestyle Communication 3,707 3,724 2,329 Growth per year % 62.1% 73.8% N/D Total 15,666 9,662 5,558 EBITDA (*) di cui: Eyewear and lifestyle N/D Communication N/D Growth per year % 102% 285.6% N/D Margin % 19.0% 15.2% 6.9% Total , Data deriving from the general accounts of the Issuer and its associated entities that are not subject to the requirement to have their accounts audited by the Auditor. For additional information, see Part One, Chapter 3. (*) The EBITDA indicates earnings before financial and non-recurring operations, taxes, asset depreciation, allocation and credit and inventory depreciation, and, more specifically, does not include non-recurring expenses (Euro in 2012, Euro in 2011 and Euro in 2010), the provision for the Directors severance pay (Euro in 2012 and in 2011) and the provision for inventory write-down (Euro in 2012 and Euro in 2010). Therefore, the EBITDA is the operating result before application of a policy for depreciation, allocations, collectability of receivables and inventory. Such EBITDA is an indicator used by the Issuer s directors to monitor and assess the business trend. Since EBIDTA is not included in the Italian accounting principles, it should not be regarded as an alternative indicator of the Issuer s operating result. Since the structure of EBITDA is not laid down by the official accounting standard, the Company s standard might differ from the one used by other companies and might not be comparable with them. As of 31 December 2012, the Group s consolidated revenues amount to 15,666 thousand Euros, which is approx. 62% higher than on the same date in In addition, note that, as of 31 March 2013, the Group s consolidated revenues amount to 5,153 thousand Euros, which is approx. 179% higher than on the same date in As of 31 December 2012, the Group s EBITDA amounts to 2,975 thousand Euros, corresponding to a 19.0% profit margin, with a 3 basis points increase compared to 2011 (15.2%). As of 31 March 2013, the Group s EBITDA amounts to 897 thousand Euros, corresponding to a 17.4% profit margin, with a 6 basis point increase compared to 31 March 2012 (11.4%). The Tables below show the Group s consolidated revenues as of 31 December 2012 and 2011 by geographical area. (in thousand Euro) 31 December December 2011 Italy 13,300 8,850 USA France Spain Rest Of the World 1, According to the company, the Group s key factors are: Strong brand identity and strategic position on the lifestyle market. Since its birth in 2007, the Italia Independent brand has cut out a space of its own in the fashion and style markets, especially in eyewear, which is dominated by heritage brands. The main driver of the development of the Italia Independent brand and its strong identity is the fact that its eyewear sales go hand in hand with the Group s position on the lifestyle 35

36 market as well as its co-branding business, supported by its Independent Ideas agency, which enable the Group to stand out in the particularly competitive eyewear market and increase the iconic and unique character of the brand. Product innovation, contamination of materials, and extensive production expertise. The Group s products stand out for their exclusive mix of Italian style, tradition and innovation, which makes them unique and truly distinctive. The Group has specialist knowledge of and experience in different materials, technology and expertise that enables it to create traditional products, using innovative materials (the so-called contamination of materials and technology borrowed from other industries) with the support of leading suppliers, and to make sure only the best products are manufactured by its partners. Distinctive communication strategy. A careful, targeted communication strategy carried out in the stores, on the web and through co-branding initiatives, as well as the Lifestyle Products supporting the eyewear collections the Group s core business help spread and convey the company s philosophy, attracting interest around the brand s innovative communication and style. In addition, the Group s having its own communication agency, Independent Ideas, which works for both the brand and other important parties, gives a key contribution to its visibility through a combination of leading brands and allows Italia Independent to benefit from the partners experience and professional expertise. New distribution concepts. The Group has developed innovative distribution concepts, such as the Garage, wholesale, or shop in shop concepts, as a result of the brand s position in the lifestyle market and the expansion of its product range outside eyewear, giving a new lease of life to traditional distribution principles. Organisational system. The Group implements an innovative, efficient organisational system and has developed specific organisational expertise, which markedly reduce the time to market new products, to timely respond to the clients orders, and to keep inventory and returns down to a minimum. Experienced, cohesive and resourceful management. The Issuer s management is composed of experienced managers who have a strong entrepreneurial spirit and who have been in the Group since it was born. The management has developed a lifestyle brand based on its product development and communication experience and has come up with a flexible, efficient organisation, which successfully runs the Group, achieving high growth rates and promoting a well-balanced development of its structure, human resources and assets Products and services As of the date of the Admission Document, the Group s range of products and services includes: Sunglasses and reading glass frames (eyewear) and Lifestyle Products; Communication services. Please find below a description of each product and service Eyewear and Lifestyle Products Eyewear Italia Independent eyewear collections are divided by product families, depending on the special treatment or material used on a number of sunglass or reading glass styles. One of the main distinctive features of the Italia Independent brand is using materials and treatments borrowed from other industries. An example is the UV LUX treatment, similar to the one that has been used for years in the automotive industry, which led to the birth of the I-Velvet eyewear collection. Such collections have a very wide and unspecific target, so they can fulfil the needs of several consumer groups. The glasses are mainly made in classical shapes and innovative materials (e.g. the Aviator model is made with Superflex material) or classical materials and innovative treatments, such as cellulose acetate, metal and plastic, subsequently treated which innovative processes, like UV LUX injected plastic. In addition, the Group has recently developed the Tailor Made project about the development of tailor-made eyewear to suit the requirements of the client or optician who can work with the Group s sales staff to choose the shape, treatment, colour, finish and type of lenses they like and produce a one-off edition, with the company s or the store s name printed on the frame. In particular, a range of 5 models, 48 fronts, 48 arms, 12 shades of lenses and 12 colours variations for the printed logo in the arms, for a total of 1,600,000 of possible sunglasses combinations are available. As of the date of the Admission Document, the Group s sunglass/reading glass range consists of about 90 styles, divided into 12 families, depending on the material or treatment used. Here s a list of such product families: 36

37 I-Velvet treated with an exclusive patented UV LUX technology that the Group uses to give its glasses a velvety finish. I-Thin made with a special polymer that produces extremely thin frames, so they are light and comfortable as well as being very strong. I-Cons made in cellulose acetate in shapes inspired by the style icons of the past. I-Teen made in a special light polymer that makes them extremely thin, so they are light and comfortable, specially designed for children and teenagers. I-Ultra oversize glasses made of XL-EXTRALIGHT, developed in cooperation with a company leader in the shoe industry. I-Metal made of light-cut metal coated in a soft touch finish that gives them a soft rubbery feel. I-Mirror coated with a special technique known as PVD coating that gives them a mirror finish. I-Thermic treated with a special pigment that dissolves steadily but reversibly at 30 C, leaving the background colour or texture shine through. I-Touch treated with a paint specially developed by a leading car paint company that gives them a special textile feel which feels nice and is very scratch resistant. I-Stardust treated with a special technology based on the application of metal grits that give them a glittery finish. I-Sport made with a special material that springs back to its original shape even if twisted. Great for sports. I-Wood made with a special treatment known as wood vibrations that gives these glasses a wooden look and feel. As to retail prices, most of the Group s glasses are priced at between about 110 and 160 Euros, which is a moderate price. Note that the collection includes a children s eyewear range (I-Teen), which is sold at a lower price. The diagrams below show the proportions of sell-outs in Italy, in terms of units sold of the Group s reading glass frames and sunglasses, by price range and by two-month periods, from January 2012 to February

38 Reading glass frames Sales % > = 200 EUR EUR EUR EUR EUR 0-79 EUR 23,6% 11,0% 11,8% 8,9% 15,0% 11,6% 16,7% 23,5% 23,6% 34,3% 52,6% 40,2% 39,0% 43,7% 39,6% 34,7% 41,5% 34,6% 37,1% 26,0% 15,5% 11,1% 29,7% 6,3% 10,3% 9,7% 12,6% 18,9% (Source: GFK Retail and Technology) Sunglasses Sales % > = 200 EUR EUR EUR EUR EUR 0-79 EUR 6,2% 16,3% 19,3% 20,9% 15,8% 23,7% 12,7% 23,5% 43,4% 53,6% 51,4% 61,8% 58,2% 52,9% 49,5% 18,5% 19,3% 26,1% 23,3% 21,4% 12,9% 19,6% 22,4% 9,7% Seasonality and average life (Source: GFK Retail and Technology) The Group works on two main sales seasons. The winter season starts with the August campaign, when sales are mostly focused on reading glass styles; the summer season begins in January and is mainly focussed on sunglasses; and then a few flash campaigns are promoted in the summer (May, June and July) and winter (in November and December). Because the Group supplies both sunglasses and reading glass frames, sales are not too influenced by the seasons, as the sales mix is dominated by the sales of sunglasses in the first few months of the year, while the reading glass frames sell best in the last few months of the year. According to the Group s sales policy, each product must be kept in stock for about 2 to 3 seasons. However, if the glasses keep selling out quite well, then they are usually kept in stock and maybe restyled in new colours or finishes. 38

39 The diagrams below show the sell-outs of sunglasses and reading glass frames in Italy, in the after-launch months, from January 2012 to February Reading glass frames Sales % Mar11-Ago11 Set11-Feb Mar12-Ago12 Set12-Feb (Source: GFK Retail and Technology) Sunglasses Sales % Mar11-Ago11 Set11-Feb Mar12-Ago12 Set12-Feb Lifestyle products (Source: GFK Retail and Technology) The Group s Lifestyle Products include several types of goods, such as apparel and interior design. Lifestyle products have been designed to supplement the Group s product range, so as to make customers live the Italia Independent experience, and to help strengthen the brand, giving it a distinctive, unique allure compared with the other eyewear brands, increasing traffic in the stores, and expanding its consumer targets. 39

40 The Lifestyle Products are either made in house or developed in partnership with leading companies (under co-branding agreements) and are designed and developed by the same designer team that take care of the eyewear collections, in compliance with the Group s guidelines. The Italia Independent Lifestyle Products are sold in the single-brand stores of the retail channel or in the shops in shop. In particular, the Italia Independent apparel range is mainly targeted to men and consists of jackets, sweaters, shirts, trousers, T-shirts and polo shirts. The ranges include one or two style per item and plenty of colours per style, according to the same sales philosophy as the eyewear collection, which is based on a vertical differentiation of the product range, rather than a horizontal one. The Italia Independent accessories are designed for both men and women and feature special treatments, colours and materials inspired by the Italia Independent eyewear world. Accessories include helmets, shoes, bags, belts and wristbands. The so-called co-branded products are designed in partnership with national and international brands, in keeping with the spirit and style that the Italia Independent brand embodies. Such brands usually work in different areas and are industry leaders in their fields. Such partnerships usually take place by selecting an iconic product from the partner brand and giving it a cutting edge, using the materials, styles and creativity that the Italia Independent brand stands for, in order to create long-term partnerships that may be renewed over time with ever new, unique products. Since 2007, the Group has developed a lot of partnerships, mainly in two categories: Apparel and accessories with Arfango, Bear, Borsalino, Diesel, IcBerlin, Invicta, K- Way, Orciani, Pantofola d Oro, Praiaz, Saint Andrews, Toy Watch, Vans; and Design and interior decoration with Able to Enjoy, Alfa Romeo, Dinh Van, Iveco, Meritalia (Collezione Officina, Fiat 500 Design Collection), Smeg (Fiat 500, Independent Fab), Vertu (Accessories, Quest by Italia Independent). Some of the existing partnerships are: The Smeg FAB28 denim refrigerator, showcased on a world preview at the Milan Furniture Fair An iconic product, restyled by Italia Independent with an innovative plasma-treated denim coating, to make it waterproof; Borsalino by Italia Independent hats, a new take on classic hats by Borsalino, a company that has been a leader in the manufacture of hats for over a century; The Independent Chukka sneaker, in which Vans trademark style is translated into a high-tech, very strong and elegantly designed sneaker. The Group s co-branded products are generally distributed by the Group or by the partner brands through their own distribution channels. The Group s turnover from the co-branded products are partly the result of its direct sales and partly come from the royalties paid by the partner brands on sales made through their distribution network Communication The Group provides communication services in the areas of creativity, strategy and design, mainly through its own Independent Ideas agency. 40

41 Independent Ideas specialises in branding and design and stands out for using both digital and classical advertising, for event planning, the development of co-branding initiatives and media, which may be summed up in the following three macro-areas: Branding / re- branding design, which includes: o Brand identity, corporate image, development of communication strategy and media plans for the launch of start-ups (the most outstanding ones being the subsidiary I Spirits S.r.l. and Key Fast, Skitsch, Fashion Valley), the re-branding of vintage brands and the launch of special projects (the most outstanding one being the Ferrari Tailor Made project); o Management of co-branding projects, such as 500 by Diesel, 500 by Gucci, Smeg Fiat 500, Vertu by Italia Independent ; o Promotion of sponsoring initiatives, as in the case of the Jeep & Juventus; Integrated campaigning services, i.e. development of advertising campaigns based on classic advertising tied in with new below the line and digital expertise or tailor-made events (Baglietto, La Rinascente, Bic, Caffè Vergnano, Iveco, Virgin Radio, Fratelli Rossetti, and Dudalina); One-off services, i.e. development of one-off advertising campaigns, events or shoots (Swatch, Samsung Fashion, Unicredit, Breil, Levi s, DVF). Some of Independent Ideas most outstanding campaigns include: In 2011, the 500 by Gucci project with Fiat and Gucci, a co-branding project that involved the production of 10,000 Limited Edition Fiat 500 by Gucci cars, to which the agency supplied coordinated, integrated communication services, including the concept and design with the support of Centro Stile Fiat and Gucci as creative director, a Print Advertising Campaign, with videos, lifestyle media & magazine, events, below the line & catalogue services and website maintenance; In 2012, the Ferrari Tailor Made project, which involved a customised version of the car for the most exclusive Ferrari users, including the concept and design in conjunction with Centro Stile Ferrari, brand identity and development of below the line materials, an emotional launch video, as well as video tutorials and website maintenance; and In 2012, Italia Independent s co-branding project with Vertu for the production of 777 limited edition Vertu Conquest Blue by Italia Independent mobile phones. Independent Ideas developed the concept and design of the event, in conjunction with Centro Stile Vertu and Italia Independent, and organised the Print Advertising Campaign, as well editing the videos and organising the promotional events at Milan Fashion Week. Finally, the agency was responsible for the below the line & catalogue services and for the website Business organization model The Group s business is based on a system in which product strategies, distribution strategies and communication are closely interconnected. Such organisational system involves the direct or indirect management of the entire production and distribution chain in order to create an efficient and effective structure that may sustain a high level of innovation, high growth rates and unfailing attention to the requirements of the distribution channels and end users. The organisational system includes the following steps: Research and development, internally managed with the support of professionals and the suppliers staff; Supervision of production, logistics and relations with the distribution network (Customer Care); Wholesale and retail distribution; Marketing and communication, managed by the subsidiary Independent Ideas. The diagram shown below sums up the steps which the Group s organisational system consists of. R&D Production, Logistics and Customer Care Distribution Marketing & Communication 41

42 Each step of the organisational system is separately described below Research, design and product development Since the early beginnings, the Group has stood out for its ability to innovate and restyle tradition. With the support of its research and development divisions, the Group has created the 12 eyewear families that currently make up its product range, each one using a different innovative material or treatment (for further information, see Part One Chapter 6, Section ). Such novelty eyewear includes all-carbon glasses (2007), a velvety feel treatment for the I-Velvet family (2010) and the eyeglasses of the I-Thermic (2012) and I-Ultra (2013) families. Other novelty products include the first corduroy smoking jacket (2007) and Fab28, a refrigerator coated in plasma-treated denim, in partnership with Smeg (2012). For the eyewear division, the in-house research and development team cooperate with the research and development teams of selected suppliers used by the Group uses to produce such goods (see Section , below) and with which the Group plans and shares all targets, product strategies and priorities. The research and development division is also powerfully driven by other initiatives promoted by the Group with leading companies in different areas of expertise. The velvety finish was launched, for instance, after a project with Alfa Romeo for the production of the Alfa Brera - Italia Independent car. The velvety finish takes inspiration from a treatment known as flocking which is used in the automotive industry; such material was licensed to the Group on the exclusive basis for its eyewear collections and launched as UV Lux. Another example of technological products and materials borrowed from other industries is the I-touch treatment, consisting of a special four-coat paint used to paint luxury cars, which gives glasses a metallic finish and a soft feel Production, logistics and customer care Production The Group commissions selected Italian suppliers with the production of sunglasses and reading glass frames using the Group s exclusive moulds. The Group has adequate technical expertise and resources to monitor the suppliers quality standards, raw materials and production processes. Note that, in such relations, suppliers are involved in the development of new products as well as in product and process improvement plans. In the last three years, the Group has implemented a supplier selection process, which, despite its expanding sales, has led to reduce the number of suppliers, in order to achieve a greater integration of research and production, optimise processes, and reduce costs and inventory. Relations with suppliers are based on purchase orders, which describe the key points of each supply, such as amount of products, prices, delivery and payment terms. The Group s management believes that managing relations with suppliers through detailed purchase orders, without the constraints of a long-term supply agreement, enables the Group to manage the ever-rising growth of its core business more flexibly, with no impediments to the potential search for more profitable solutions. One of such suppliers focuses on the production of mould-injected plastic glasses and is used by the Group above all for the production of new types of glasses by experimenting with innovative treatments and production methods. In addition, such supplier is responsible for the Tailor Made project, described before at Section Another supplier who has been working in eyewear for over a decade is used by the Group to produce reading glass frames and sunglasses in different materials, such as injected plastic, cellulose acetate, metal, nylon and more valuable materials, such as carbon and titanium. One of the key factors of the production strategy is working on innovative treatments, so the Group decided to opt for injection plastics. In particular, in 2012 over 90% of the Group s product range is made with such technology, while the rest is made of metal. Use of the injection technology, as opposed to classic acetate, offers the remarkable advantage of reducing variable costs, reducing raw material provisioning prices, saving on production time, and increasing productivity. The final result of using the injection technology is not just a cheaper end product than acetate glasses, but also shorter restocking times. In addition, the Group s added-value surface treatments make such products more valuable, as opposed to the competitors glasses. Sometimes, no surface treatments are used, it is the injected material that is innovative itself, that performs in a unique manner. As to the industrialisation and launching process, when a new product is selected by the R&D team and the prototypes have been approved, then the Operations team decides how many pieces must be produced in the first run, which includes a first batch of finished glasses, ready to be launched, and a batch of unfinished glasses that may be quickly finished and sold. Such production strategy enables the Group to have specific amounts of products in stock as soon as 42

43 the marketing process begins and orders starts to arrive. In addition, in this way, the Group can handle the clients orders fast, reducing the usual time gap between the reception of the order and the delivery of the product. After the first production run and all through the sales campaign and the collection of orders, production requirements are calculated at weekly intervals by monitoring the stock, reviewing the account/order and supplier/order records and the placement of new production orders with the suppliers. In other words, the Group s management believes that its organisational system saves time to market, restocking time, reduces the inventory of finished products and raw materials and the cost of the end products, that it offers high flexibility, scalability and responsiveness to new market trends and demands, as well as the option to produce minimal product runs to cater to the clients need for bespoke products. Logistics The warehouses in which the sunglasses and the reading glass frames are stored are located at the Group s premises in Turin and Miami and are internally managed by the Group s Operations team, which is in charge of planning, inbound (reception and storage) and outbound (delivery) products, including packaging and reception of incoming goods, packaging of spare parts, storage of goods and development of packages, quality control on incoming goods and management of returns. For the Lifestyle Products, the Group outsources its logistic operations to suppliers who work according to the Group s directions. Customer care The Group s customer care service is carried out by two teams, one working with Italian customers and one working with foreign customers, respectively. The customer care team responsible for Italian customers works from the Group s Turin HQ, while the customer care team responsible for foreign customers is based in the Turin s HQ, in the US branch and at the local units in Paris and Barcelona. The Group s customer care system is in a position to respond to the customers needs and monitor customer satisfaction indicators. In 2013, a new management software has been adopted, and is currently being implemented, to be also used for the direct management of customer relations, through which the customer care teams will be able to manage and monitor the main events and customer relation trends in real time. In this case, the customer care team will have to (i) develop and manage each client s database, (ii) handle orders in real time, partly with the help of the mobile devices provided, (iii) report historical order trends, (iv) coordinate aftersales services, making sure any minor failure is solved or technical assistance rapidly provided, and (v) monitor the accounts Distribution The Group distributes its products according to both indirect (wholesale distribution) and direct channels (retail distribution) Wholesale distribution covers the most important geographical markets of the eyewear sector in terms of sales volume and is managed by the Group through its agents from a network of distributors for the other markets. Retail distribution currently takes place through mono brand or franchise stores (9 th to 31 st May 2013), 2 outlet stores managed directly and its own website 43

44 The table below provides a geographical representation of how the Group has organized its distribution world-wide. [ ] Markets with local units managed by the Group [ ] Markets managed by the Group (no local units) [ ] Markets managed through distributors The Issuer believes that wholesale and retail distribution should operate according to a synergic and integrated approach. Retail distribution ensures maximum visibility and publicity to the Italia Independent brand and the whole product range being marketed, i.e. to the wholesale distribution as well. The expansion of wholesale distribution ensures the necessary widespread distribution to meet the potential demand for the products of the Group. The strategies for the marketing and distribution network in all geographical areas (distribution channel types and distribution range number of points of sales within each channel) are managed by the Operations department of the Group, whose task is ensuring that those strategies are implemented by business partners according to the agreements signed with the Group. The characteristics and operating procedures of each distribution channel are described below. Direct wholesale distribution In the main markets, wholesale distribution activities are managed through agents and enable the Group to keep closely in touch with their customers in order to enhance the image and visibility of the Italia Independent brand. In the other markets, it is complemented by a network of selected independent distributors. According to its current structure, the wholesale distribution network derives from a strategy aimed to achieve a competitive position in the main markets as a prerequisite to strengthen the growth opportunities of the Group. Management activities of the Italian market are carried out by the Turin headquarters; the North American and South American markets are managed through the Group branch office in Miami, Florida (USA), whereas two local units support distribution activities in the French and Spanish markets. Each structure manages its own mainly sole agent network. As at 31 st May 2013, the Group employed 29 agents, 6 of whom in Italy and 23 abroad. As far as other markets are concerned, the Group is only supported by independent distributors selling products to the eyewear stores present in the territory where they operate as sole distributors. According to the management, the wholesale distribution model implemented by the Group allows controlling the dissemination of the Italia Independent brand and at the same time enables the Group to be present and gain insight in 44

45 the most important markets and improve its expertise at international level. Information on strategies to expand distribution in emerging markets according to that management model is provided under Paragraph At international level, the distribution system is complemented by a centralized production planning system. This system allows the daily control of world sales and available stocks so as to plan production resources and re-allocate stocks according to specific market needs. Europe, the US and Middle East host the main order distribution centres so as to improve distribution speed and effectiveness. To date, the Group has a number of retail customers ( doors ) including eyewear stores, large distributors, top department stores and specialists dealing with both sales and post-sale servicing. As regards wholesale distribution in the Italian market, i.e. currently the Group s main market in terms of turnover, as at 31 December 2012 the Group had approximately 1,400 customers. The role played by the sales of Italia Independent products has rapidly become more important within eyewear stores in Italy: the charts below report the turnover recorded by eyewear stores distributing the Group s eyewear referring to the sales of the Group s sunglasses and reading glasses (e.g., over the January-February 2013 period, 4.3% of the turnover generated by eyewear frames in an Italian eyewear store dealing with Italia Independent reading glasses frames may be attributed to the latter). Reading glasses frames Turnover share value Gen-Feb 12 Mar-Apr 12 Mag-Giu 12 Lug-Ago 12 Set-Ott 12 Nov-Dic 12 Gen-Feb 13 3,5 3,4 3,9 4,3 2,6 1,5 1,5 1,8 1,8 2,6 3,5 3,4 3,9 4,3 (Source: GFK Retail and Technology) Sunglasses Turnover share value Gen-Feb 12 Mar-Apr 12 Mag-Giu 12 Lug-Ago 12 Set-Ott 12 Nov-Dic 12 Gen-Feb 13 4,0 3,8 2,8 0,9 0,9 1,5 1,5 1,8 2,0 1,8 2,0 2,8 4,0 3,8 (Source: GFK Retail and Technology) In January 2012 the Group started implementing a strategy aimed at vertical growth through the shop in shop project, envisaging the installation of dedicated displays in eyewear stores to promote and sell both eyewear and lifestyle products. 45

46 The project is mainly aimed at achieving the following objectives: (i) enabling the Group to strengthen their brand identity and mark the difference compared to competitors, (ii) give eyewear stores the opportunity to diversify and attract more and diverse customers on their premises (iii) increase their visibility through windows fully devoted to the brand in prominent locations from a commercial point of view. Shop in shop contracts typically last 3 years and are renewed automatically unless explicitly cancelled. They do not envisage any entry fee incurred by the eyewear dealer, who is responsible for installation costs and undertakes to devote at least one window to the brand and its products during the whole life of the contract. Contracts envisage royalties and the dealer s right to return lifestyle products. According to shop in shop contracts, the Group is mainly responsible for training the staff for marketing purposes, supplying lifestyle products, supporting communication activities by eyewear dealers and contributing to the streamlining of the management of points of sales. As at 31 st May 2013, the Group opened 34 shops in shops in Italy and agreements were signed envisaging 14 new shops in shops during the next months. Wholesale distribution through distributors Moreover, as at 31 st May 2013, the Group signed distribution agreements with 12 independent distributors for the following markets: Eire, the Netherlands, UK, Channel Islands, Tunisia, South Korea, Israel, West Bank, Gaza, Canada, Belgium, Luxembourg, Japan, United Arab Emirates, Qatar, Oman, Bahrain, Saudi Arabia, Kuwait, India, Pakistan, Sri Lanka, Denmark and Iceland, Singapore and Malaysia. Please notice that the main distribution agreements, including the agreements with Rivoli Group LLC for the markets including United Arab Emirates, Qatar, Oman, Bahrain, Saudi Arabia, Kuwait, India, Pakistan and Sri Lanka, the agreement with Baraka Optics Group for the Egyptian market and the agreement with Italia Independent Japan Inc. for the Japanese market, have been made to possibly further boost the joint venture with the Group. Retail distribution The retail channel includes franchise mono brand stores, two outlet stores directly managed by the group and the e- commerce channel. Franchise agreements Since 2001 the group has managed the sales of its eyewear and lifestyle products also through the mono brand retail channel, including franchise stores. As at 31 st May 2013, the Group opened 8 mono brand points of sales in Italy (Alassio, Alessandria, Courmayeur, Bergamo, Bologna, Turin, Sestriere and Rivoli) and 1 abroad (Porto Montenegro Village). Stores are generally managed by local entrepreneurs with extensive knowledge and expertise in the reference markets according to franchise agreements. The franchise agreements signed by the Group typically last 3 years and are automatically renewed unless explicitly cancelled. In managing franchise agreements, the Group is mainly responsible for finding and selecting store locations, which need to ensure a significant inflow of customers, staff recruitment and training, contributing to communication activities (from the opening event to periodical communication initiatives) and streamlining the management of points of sales. Mono brand stores display the full range of Group products (eyewear, clothing, accessories, apparel, home design). Contracts envisage royalties on sales and, in some cases, the franchise dealers right to return unsold products. 46

47 Other retail channels The Group distributes its products in Italy also through two outlet stores directly managed by the group, contributing to the management of returned products and unsold stocks. Those outlet stores offer eyewear and lifestyle products from previous collections at lower prices than other distribution channels; their aim is the direct management of the sales of returned items while preserving the brand image. The first outlet store was opened in 2012 in Corso XI Febbraio 19, Turin, at the company s headquarters. The second outlet store was opened in April 2013 in Castel Romano, in the McArthurGlen Center near Rome The Group also deals with the sales of its products on the Internet, mainly through the Italia Independent website ( which was deeply renewed and updated in May 2013 to meet the interest raised by this distribution channel. Finally, the Group plans to open a direct point of sales in the Fall 2013 according to a new Garage concept in the city centre of Milan (so-called quadrilatero della moda ) Communication. Italia Independent as a brand All Group communication activities are coordinated by the Independent Ideas in-house agency. The agency was founded in 2007 and is one of the strategic strengths providing the distinctive features of the Group. Further information on Independent Ideas is available under Paragraph Distinctive features of the Group s communication activities Since its very inception in 2007, the Italia Independent brand has been conceived to conquer its own role within the eyewear sector, characterized by the presence of historical brands which are famous, strongly structured and highly visible. During the launch stage, the contribution and international visibility provided by Lapo Edovard Elkann, the founder of the Group, and the expertise and marketing skills ensured by the other founding partners and top managers enabled the Group to rapidly increase the dissemination and visibility of the Italia Independent brand, at the same time devoting smaller resources destined to marketing and advertising activities. After the initial stage, today brand dissemination benefits from an innovative promotional and branding strategy exploiting: the very strength of the brand and the distinctive value of the Group s products; effective communication strategies implemented in the points of sales, along with web activities (from the management of the Groups corporate websites to presence in the main social media); co-branding agreements contributing to Group brand dissemination through additional communication initiatives by partners respectively choosing the Italia Independent brand to market exclusive, unique or limited edition products; brand endorsement by a number of celebrities from the sports, show and culture business industries, who have freely chose to wear Italia Independent products. Communication campaigns for the Italia Independent brand Branding and communication strategies are developed in house according to the guidelines set by the Marketing and Communication office. Communication campaigns to promote Italia Independent products were designed in house by the Independent Ideas agency and disseminated through traditional and innovative channels. The events promoted by the Group (press day, events held in points of sales, etc.) are managed by staff dealing with public relations. In the course of the year, the Group launched advertising campaigns connected to two conceptual strains based on the idea that both the products and brand philosophy are transversal to geographical, social and chronological limits: a) a physical journey allows the brand to cross different locations world-wide (from Russia to Florida crossing Palestine, Scandinavia and Japan), both picturesque and charming, where people wear and endorse Italia Independent products. The physical journey is the natural promotion of accessible products everybody wants and can have (examples are provided below); 47

48 b) a journey in time, which sees the brand crossing past ages in which historical figures wear Italia Independent products according to a game combining past and present. Within the concept of the journey in time, product quality, shapes and materials are typical of their time but exceed a limited chronological dimension to become absolute stylistic icons (examples are provided below). c) The Web and Social Media The Group has always focussed on the most innovative technological solutions made available to the communications industry. The website is a repository of basic information on the history, mission, and past and future projects of the brand, complemented by a section devoted to the online sale of products. In May 2013, the Group renewed its website to make it more functional and intuitive, adding new sections and contents aimed at becoming a reference point also for the international markets where the Group is present. Moreover, the Group is present in the main social media, including Facebook and Twitter Activities of Independent Ideas Independent Ideas was founded in 2007 as an in-house structure serving the Italia Independent brand, charged with developing and coordinating all communication activities of the Group. In the course of the years, Independent Ideas has developed remarkable expertise in the fields of creativity, strategy and design, and can operate on the market in collaboration with external clients of the Group operating in a wide range of sectors, such as fashion, automotive and commodities with specific skills and competences in the fashion, high tech and style sectors. As at 31 December 2012, the turnover of Independent Ideas may be subdivided as follows: approximately 50% from clients in the fashion sector, approximately 30% from clients in the automotive sector and approximately 20% from clients in other sectors. In addition to being a source of income for the Group, the external activities of Independent Ideas collect information on market trends and developments in other sectors and after processing such data provide the group with the expertise and professional skills achieved by collaborating with clients, typically known as trendsetters. In providing strategic support to the Italia Independent brand, the agency can combine a thorough knowledge of Italia Independent products and those external expertise and skills, so that the Group can develop target-oriented and effective campaigns. The offer of Independent Ideas focuses on branding and design activities and is marked by the use of both traditional and digital advertising, the organization of events and the launching of co-branding initiatives as communication leverages and means. Moreover, the flexible and multi-faceted approach of the agency is believed to be one of its strengths necessary to face competitors according to the various sectors in which it is operating (advertising, art direction, digital, events) and the clients market sectors. 48

49 It may operate as an advertising, branding and design agency, video and photo producer, event producer and style, strategic or external relation consultant while maintaining its marked creative value and innovative capacity in terms of style and communication. Independent Ideas is based in Turin and Milan and, as at 31 March 2013, employed approximately 20 units including Directors, employees and professionals. As regards its in house role, the objective of Independent Ideas is strengthening the Italia Independent brand and its core business, i.e. eyewear products, through innovative and effective communication campaigns, as well as business and marketing initiatives leading to synergies and strategically or tactically contributing to the growth of Italia Independent. As regards the objectives relating to its market consulting activities, Independent Ideas plans to consolidate its role as a reference point for companies and brands that need a modern and creative approach to communication and design through its flexible and effective structure, integrated business model and international network of partners and relations Other activities The main mission of the Group is strengthening the Italia Independent brand through the further development of its core business, i.e. the sale of eyewear products. To achieve this objective and, more specifically, to identify the Italia Independent brand as a style icon, the Group also supported business and marketing initiatives in different product classes., through which the management believe brand visibility may be enhanced I Spirits I Spirit Vodka is a new Italian Vodka sold in bottles characterized by innovative design and produced by I Spirits S.r.l.. The company was founded in 2008 following the collaboration between the founding partner of the Group, Lapo Edovard Elkann, Arrigo Cipriani, the owner of famous Harry s Bar in Venice, and Marco Fantinel, a well known wine producer in Friuli Venezia Giulia. At the Admission Document Date, I Spirits S.r.l. partners include Gianfranco Fantinel & Partners S.A.P.A., Conti Formentini S.r.l. and the Company. In the course of the years, I Spirit Vodka received important international awards, including excellent, highly recommended vodka in 2012 and 2013 on the occasion of the Ultimate Spirits Challenge in the US. Fantinel is responsible for the production (according to a proprietary formula) and distribution of I Spirit Vodka Sound Identity In 2009 the Issuer, together with Stefano Fontana, a music artist, and businessman Claudio Pella, founded Sound Identity S.r.l. in order to develop communication strategies and projects based on music. The Issuer currently owns 30% of the capital stock of Sound Identity S.r.l. The company operates in the communication sectors thanks to its consolidated experience in the field of sound and music aimed to develop and implement communication campaigns, tools and supports based on the use of music as a distinctive feature of brands and products, The core business of the company includes (i) Sound Branding, i.e. the creation of sound logos, jingles, web sound design, etc.; (ii) in-store sound design, i.e. the creation of background music for stores, offices, showrooms, venues and commercial spaces and (iii) the organization of music-based events Independent Value Card INDEPENDENT VALUE CARD Independent Value Card S.r.l. is a company of which the Issuer owns 50% of the capital stock and since 2012 it has had the exclusive right to exploit some of the patents developed by the German company AIL Beteiligungsverwaltungs GmbH, owning the remaining 50% of the capital stock. The patents are aimed at developing, manufacturing and 49