Annual Report • Mar 29, 2023
Annual Report
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Annual Report 2022
Geox S.p.A. Registered Offices in Italy - Via Feltrina Centro 16, Biadene di Montebelluna (Treviso) Share Capital - Euro 25,920,733.1 fully paid Tax Code and Treviso Companies Register No. 03348440268
| DIRECTORS' REPORT 5 | |
|---|---|
| Profile 6 | |
| Research and development 7 | |
| The distribution system 8 | |
| The production system 9 | |
| Human Resources 10 | |
| Shareholders 11 | |
| Financial communication11 | |
| Geox on the Stock Exchange 11 | |
| Control of the Compnany12 | |
| Shares held by directors and statutory auditors12 | |
| Company officers 13 | |
| Report on corporate governance and ownership structure 14 | |
| Group Structure 17 | |
| Principal risks and uncertainties to which Geox S.p.A. and the Group are exposed 18 | |
| Alternative performance measures 21 | |
| Economic results 21 | |
| Economic results summary 21 | |
| Sales22 | |
| Cost of sales and gross margin 25 | |
| Operating costs25 | |
| Operating income (EBIT)25 | |
| Income taxes26 | |
| Net result from discontinued operations 26 | |
| IFRS 16 effects on 2022 Profit and Loss27 | |
| The Group's financial performance 28 | |
| The Group's financial performance 28 | |
| IFRS 16 effects on Group's financial performance 30 | |
| Reclassified consolidated cash flow statement and investments of the period31 | |
| IFRS 16 effects on Reclassified consolidated cash flow statement32 | |
| Treasury shares and equity interests in parent companies 33 | |
| Stock Plan 33 | |
| Transaction between Related Parties 34 | |
| Outlook for operation 34 | |
| CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES 35 |
The Geox Group creates, produces, promotes and distributes Geox-brand footwear and apparel, the main feature of which is the use of innovative and technological solutions that can guarantee the ability to breathe and remain waterproof at the same time.
The extraordinary success that Geox has achieved is due to the technological characteristics of its shoes and apparel. Thanks to a technology that has been protected by 63 different patents and by 3 more recent patent applications, "Geox" products ensure technical characteristics that improve foot and body comfort in a way that consumers are able to appreciate immediately.
Geox's innovation stems essentially from the creation and development of special outsoles: thanks to a special membrane that is permeable to vapour but impermeable to water, rubber outsoles are able to breathe and leather outsoles remain waterproof. In the apparel sector the innovation increases the expulsion of body's internal humidity thanks to hollow spaces and aerators.
Geox is market leader in Italy in its own segment and is one of the leading brands world-wide in the "International Branded Casual Footwear Market" (source: Shoe Intelligence, 2022).
The applied research carried out by Geox in 2022 was directed to the identification of innovative solutions for improving products and manufacturing processes, through the study of the active breathing element of shoe soles, the development of new products for footwear and apparel and certification of the materials used.
This experimentation has allowed Geox to develop footwear and apparel that combine comfort and well-being with a greater ability to breathe, to be waterproof and to be highly resistant.
The continuous innovation process has also allowed the study and development of new projects, based on the amplification of the concepts of comfort, breathability and well-being.
Specifically, a new shoe with an 'Athletic Leisure' core shoe was developed in 2022 with sole construction technology that increases cushioning for a 'super comfortable' feel and a smooth, elastic walk. The upper has an external rigid element on the heel to increase stability.
The '+ Grip' technology - originally developed for AMPHIBIOX® products and relating to special soles in which the rubber material and tread design provide optimal grip on several surfaces, including wet ones – has been developed for further product categories: sandals, loafers and women's heels.
For Geox technology on outerwear, a new membrane has been developed that is high-performance in terms of breathability and impermeability, but at the same time more sustainable towards the environment.
Geox innovation is protected by 63 patents and 3 recent patent applications.
Research and development costs are charged to the profit and loss account for the year and totalled Euro 11,313 thousand (Euro 11,273 thousand in 2021).
Geox distributes its products through about 9,000 multi-brand selling points and also through a Geox shops network (Franchising and DOS – directly operated stores).
As of December 31, 2022, the overall number of "Geox Shops" came to 717, of which 315 operated directly, 294 in franchising and 108 under license agreement.
(*) Europe includes: Austria, Benelux, France, Germany, Great Britain, Iberian Peninsula, Scandinavia, Switzerland
Geox's production system is organized so as to ensure the attainment of three strategic objectives:
Production is completed by selected partners mainly in the Far East. All stages of the production process are under the strict control and coordination of the Geox organisation.
Great care is taken by the Group in selecting third-party producers, taking into account their technical skills, quality standards and ability to handle the production volumes which are assigned by the agreed deadlines.
All of the output from these manufacturing locations is consolidated at the Group's distribution centers in Italy for Europe, Moscow for Russia, New Jersey for the North America, Ontario for Canada, Shanghai for China and Hong Kong for the rest of Asia.
At December 31, 2022 the Group had 2,991 employees, showing a decrease of 27 employees compared with 3,018 employees at 31 December 2021.
As of December 31, 2022 the employees were splitted as follows:
| Level | 31-12-2022 | 31-12-2021 |
|---|---|---|
| Managers | 43 | 42 |
| Middle Managers and office staff | 853 | 869 |
| Shop Employees | 2,094 | 2,104 |
| Factory Workers | 1 | 3 |
| Total | 2,991 | 3,018 |
The graph shows the employees of the Group at 31 December 2022, broken down by geographic area:
Geox maintains a constant dialogue with individual shareholders, institutional investors and financial analysts through its Investor Relations function, which actively provides information to the market to consolidate and enhance confidence and level of understanding of the Group and its businesses.
The Investor Relations section, at www.geox.biz, provides historical financial data and highlights, investor presentations, quarterly publications, official communications and real time trading information on Geox shares.
Geox S.p.A. has been listed on the Italian Stock Exchange since December 1, 2004. The following table summarizes the main share prices and stock market values for the last 3 years:
| Share price and stock market information | 2021 | 2020 | |
|---|---|---|---|
| Earnings per share [Euro] | (0.05) | (0.24) | (0.50) |
| Equity per share [Euro] | 0.42 | 0.48 | 0.65 |
| Dividend per share [Euro] | - | - | - |
| Pay-out ratio [%] | - | - | - |
| Dividend yield (at 12.31) | - | - | - |
| Year-end price [Euro] | 0.80 | 1.07 | 0.79 |
| MTA high [Euro] | 1.12 | 1.34 | 1.19 |
| MTA low [Euro] | 0.69 | 0.76 | 0.47 |
| Price per share/EPS | (15.74) | (4.39) | (1.57) |
| Price per share/Equity per share | 1.92 | 2.23 | 1.22 |
| Stock market capitalization [thousands of Euro] | 208,143 | 277,352 | 204,774 |
| Number of shares making up the share capital | 259,207,331 | 259,207,331 | 259,207,331 |
| Number of treasury shares held by the Group | 3,996,250 | 3,996,250 | 3,996,250 |
Geox S.p.A. is a joint-stock company incorporated and domiciled in Italy with registered office in Via Feltrina Centro 16, Biadene di Montebelluna (TV), Italy. It is specified that the Company has no secondary offices.
LIR S.r.l. holds a controlling interest in the share capital of Geox S.p.A. with a shareholding of 71.10%. LIR S.r.l., with registered offices in Montebelluna (TV), Italy, is an investment holding company that belongs entirely to Mario Moretti Polegato and Enrico Moretti Polegato (who respectively own 85% and 15% of the share capital).
Geox S.p.A. is not subject to management and coordination activities exercised by another person or entity for the reasons illustrated in the Directors' Report to which reference should be made
The shareholder structure of Geox S.p.A. based on the number of shares held is as follows:
| Shareholder structure (*) | Number of shareholders |
Number of shares |
|---|---|---|
| from 1 to 5,000 shares | 11,293 | 14,892,967 |
| from 5,001 to 10,000 shares | 925 | 7,093,400 |
| 10,001 shares and over | 808 | 241,893,566 |
| Lack of information on disposal of individual positions previously reported | (4,672,602) | |
| Total | 13,026 | 259,207,331 |
(*) As reported by Computershare S.p.A. on December 31, 2022
As mentioned previously, the directors Mr. Mario Moretti Polegato and Mr. Enrico Moretti Polegato directly hold the entire share capital of LIR S.r.l., the Parent Company of Geox S.p.A..
Directors, statutory auditors and executives with strategic responsibilities have submitted declarations that they hold 54,847 shares of the Company as of December 31, 2022.
Claudia Baggio Director Lara Livolsi (3) Director Alessandro Antonio Giusti (2) Director Francesca Meneghel (2) (4) Silvia Zamperoni (3) Silvia Rachela (2) (3)
Mario Moretti Polegato (1) Chairman and Executive Director Enrico Moretti Polegato (1) Vice Chairman and Executive Director Livio Libralesso (1) CEO and Executive Director (*) Independent Director Independent Director Independent Director
(1) Member of the Executives Committee
(4) Lead Independent Director
(*) Powers and responsibilities for ordinary and extraordinary administration, within the limits indicated by law and the Articles of Association, in compliance with the powers of the Shareholders' Meeting, the Board of Directors and the Executive Committee, in accordance with the Board of Directors' resolution of April 14, 2022.
| Name | Position | |
|---|---|---|
| Sonia Ferrero | Chairman | |
| Gabriella Covino | Statutory Auditor | |
| Fabrizio Colombo | Statutory Auditor | |
| Fabio Antonio Vittore Caravati | Alternate Auditor | |
| Francesca Salvi | Alternate Auditor | |
KPMG S.p.A.
The Geox Group has implemented the Code of Conduct for Italian Listed Companies published in its first version in March 2006 and updated in January 2020 (Corporate Governance Code), with suitable amendments and adjustments considering the characteristics of the Group.
In accordance with the regulatory requirements, every year we prepare a "Report on Corporate Governance and Ownership Structure", as per Art. 123-bis of the TUF, which contains a general description of the system of corporate governance adopted by the Group. It also contains information on the ownership structure and implementation of the Corporate Governance Code with an explanation of the main governance practices applied and the characteristics of the risk management and internal control systems involved in the process of financial reporting. Also explained here are the mechanisms that govern the functioning of the Shareholders' Meeting and the composition and functioning of the board of directors and board of statutory auditors and their sub-committees.
The Report on Corporate Governance and the Ownership Structure is available in the Governance section of the Company's website: www.geox.biz.
The following is a summary of the main aspects relating to this directors' report.
The internal control system and the company risk management are processes designed by the Board of Directors, management and others in the corporate structure; they consist of a set of rules, procedures and organizational structures designed to identify, measure, manage and monitor the main risks; they ensure that the management of the business is in line with the corporate objectives, and they help protecting the business wealth, the efficiency and effectiveness of the business processes, the reliability, accuracy and promptness of the financial reporting, the compliance with laws and rules as well as with the article of associations and internal procedures.
In compliance with Law n. 262/2005, the Group has therefore put in place procedures aimed to increase the transparency of the company disclosure and to make more effective the internal control system and in particular the controls related to the financial reporting.
In line with this definition, the system for managing the existing risks in relation to Geox's process of financial reporting forms part of the Group's wider system of internal control and Group Risk management. As part of its supervision and coordination of subsidiaries, Geox S.p.A. establishes the general principles according to which the internal control system is meant to function for the entire Group. Each subsidiary adopts these principles in line with local regulations and applies them to organizational structures and operating procedures that are suitable for their specific context. Geox has introduced tools for supervising and assessing the internal control system, allocating specific responsibilities to certain players who have been clearly identified.
The CEO and the Financial Reporting Manager, in accordance with the principles of operation of the Internal Control System and Risk Management for the financial reporting process, identify the main risks therein levied annually in a prudent and careful way (so-called scoping activities). The identifying risks process passes through the identification of the group companies and operating flows subject to material errors or fraud, with reference to the economic variables included in the financial statements of Geox S.p.A. and/or the consolidated financial statement. Companies and significant processes in relation to the financial reporting process are identified through quantitative and qualitative analysis.
The identification of risks is operated through a classification based on the main sources of risk identified by the CEO and periodically submitted to the Board of Directors. Control activities are policies and procedures that ensure the proper implementation of management responses to risk. The control activities are implemented throughout the organization, at every hierarchical and functional level. The assessment of control procedures is made by parsing the appropriate design of the control activities and their effective and efficient implementation of the course of time. In relation to the financial reporting process, control activities are evaluated in two semi-annual sessions followed, where appropriate, as many phases of follow-up if some critical issues are identified.
In summary, the main players of the Internal Control System and Risk Management as it relates to the process of financial reporting are as follows:
It's to be noted that on February 25, 2021 Board of Directors approved the guidelines related the Internal Control System and Risk Management contained in Corporate Governance Code. More in detail, the Board approved the Guidelines on the Internal Control and Risk Management System.
The Group adopted some time ago its own model of organization, management and control as per D.Lgs 231/01, steadily updated to include the new crimes, relevant for the purpose of D.Lgs 231/01, and lastly updated on May 13, 2021. In particular, financial reporting is protected by a series of controls that are carried out during the various corporate processes that lead to the formation of the figures shown in the financial statements. These control activities apply not only to the areas that are closely linked to the business (sales, purchases, inventory, etc.), but also to those areas that provide support in the processing of accounting entries (closing the accounts, IT systems management, etc.). These control procedures are defined by the Financial Reporting Manager. He also checks periodically that they are being applied properly. The outcome of the assessments made by the Financial Reporting Manager is reported in the certification that he provides in accordance with paras. 5 and 5-bis of art. 154-bis of the TUF.
In compliance with (Italian) Legislative Decree no. 254/2016, the Group has prepared a separate report containing nonfinancial information. This report, published on the Group's website (www.geox.biz), identifies the topics that are considered to be of material importance for reporting purposes. These topics were defined by considering both the point of view of the company's own organisation (through workshops and interviews conducted internally), and the results of benchmarking activities carried out with reference to the Group's main competitors in the fashion industry, as well as studies linked to the world of sustainability. As further confirmation of Geox's focus on sustainability issues, in 2019, the Group decided to join the Fashion Pact. This pact is a global coalition of companies in the fashion and textile industry (ready-to-wear, sport, lifestyle and luxury), including their suppliers and distributors, all committed to a common core of key environmental goals in three areas: stopping global warming, restoring biodiversity and protecting the oceans.
Please refer to the aforementioned report for all aspects regarding the information required by the decree, relating to environmental and social matters, aspects linked to employees, the respect of human rights, anti-corruption, diversity in the Board of Directors and other sustainability issues..
The Board of Directors of Geox S.p.A. also approved the "Global Compliance Program", a document addressed to the Group's foreign companies and lastly updated on November 9 2022. This is a governance tool aimed at
strengthening the Company's ethical and professional commitment and preventing offences from being committed abroad (such as offences against the public administration, fraudulent accounting, money laundering, offences committed in violation of workplace health and safety regulations, environmental crimes), which may otherwise lead to criminal liability for the company and subsequent reputation risks.
* Company under liquidation process * Società in liquidazione
The structure of the Group controlled by Geox S.p.A., which acts as an operating holding company, is split into 3 macro-groups:
European trading companies. They are responsible for developing and overseeing their area in order to provide a better customer service, increasing the presence of the Group through localized direct sales force and investments in showrooms closer to the market. The trading companies in Switzerland, Russia and UK, also have the need of purchasing a product immediately marketable in the territory, having already complied with the customs.
In terms of business risks, the Group is exposed to:
• the risks, of an exogenous nature, connected to the evolution of geo-political scenarios and, in particular, to the tensions concerning Russia and Ukraine, which continue to fuel pre-existing international, humanitarian and social crisis situations with significant impacts primarily for the living conditions of the populations of these countries, but also for internal economic activities and commercial trade in the area. These extraordinary events in terms of their nature and extent, have had global repercussion in 2022 on: i) supply chains with particular reference to the supply and related timing and modalities of transport as well as to the prices of raw materials and energy; ii) international market demand levels; iii) inflation and the consequent restrictive interest rate policy; iv) the strengthening of the dollar as a haven from risk, the divergent performance of the US economy and rising interest rates; v) evolution of the sanctions scenario and restrictive measures of the European Union.
The situation is being constantly monitored in order to be able to promptly assess possible reactions to a possible exacerbation of the conflict;
The Geox Group carefully monitors the evolution of the external context, including the increase in the number of the cyber attacks and is fully aware of the growing level of danger that such attacks pose to business continuity.
These circumstances led the Group to define an action plan aimed at preventing and defending against potential attacks on the one hand and strengthening the measures to combat this phenomenon and restore normal operations on the other.
The Group therefore defined a governance structure which involves:
The Geox Group carefully monitors the evolution of the external context - as it is considered a significant aspect also with reference to its own strategic guidelines – in order to identify any potential new risks that are directly and/or indirectly linked to climate change, as well as proactively managing their possible impacts wherever possible; the Group also monitors all legislative, regulatory aspects etc. linked to climate change.
In this context, the Geox Group carefully monitors issues relating to climate change, which are also the subject of current and growing attention by legislators and supervisory authorities in the countries in which the Group operates, also simply with reference to product commercial activities.
The Geox Group is, therefore, aware of the importance that transparency on issues related to climate, climate change, impacts, etc. is assuming and will increasingly assume.
That said, and in the awareness of how important the aforementioned issues are - also for the Group - Geox will work in the years to come to define its own specific plan that will allow, on the one hand, to frame the initiatives carried out and started up to now in a well-defined strategic line and, on the other, to understand any possible need to intervene on its business model. Precisely for this reason, during 2022, a process of identification and assessment of the main strategic risks was started and concluded, including the risks with potential impacts known as esg.
The Group's intention is to identify, in this context, objectives with respect to which: i) it will be possible to give continuity to initiatives, as indicated above, already underway and referring, by way of example, to actions that have contributed to reducing greenhouse gas emissions produced with reference to its own direct organisation; ii) Geox believes it can concretely identify - and in a logic of proportionality - the activities, methods, timing and comparison periods, where possible, through which to achieve them.
In addition, the Group always pays the utmost and increasing attention and devotes specific and reinforced insight:
Geox Group has also renewed its strategic commitment and responsibility in terms of handling the developments and challenges of today and tomorrow in the best way possible, by signing up to the Fashion Pact and taking part in the round tables and projects linked to this initiative; by being a Fashion Pact signatory, Geox intends to remain at the
forefront of activities to provide protection in important areas, such as climate change, biodiversity and the oceans and further, more specific areas such as the transition to a low-emission model.
The Geox Group constantly monitors the financial risks to which it is exposed in order to evaluate in advance any possible negative impacts and to undertake appropriate corrective actions to mitigate or correct such risks. The Group is exposed to a variety of financial risks: credit risk, interest rate risk, exchange rate risk and liquidity risk. These risks are managed and coordinated at Parent Company level on the basis of hedging policies that also entail the use of derivatives to minimize the effects of exchange rate fluctuations (especially in the U.S. dollar).
The Geox Group tends to minimize the risk of insolvency on the part of its customers by adopting credit policies designed to concentrate sales on reliable and creditworthy customers. In particular, the credit management procedures implemented by the Group, which involve the use of contracts with major credit insurance companies, the evaluation of available information on customer solvency, the use of credit limits for each customer and strict control over compliance with the terms of payment, make it possible to reduce credit concentration and the related risk. Credit exposure is also spread over a large number of counterparties and customers.
Indebtedness to the banking system exposes the Group to the risk of interest rate fluctuations. Floating rate loans, in particular, run the risk of cash flow variations.
The Group did not deem it necessary to implement general policies to hedge the risk of interest rate fluctuations but rather entered into two Interest Rate Swap (IRS) transactions to hedge the medium-long term loan, for a total amount of Euro 59,1 million, also with the specific aim of removing the original floor to zero on the entire notional amount, in relation to the Euribor included in the variable rate.
The Geox Group also carries on its activity in countries outside the Euro-zone, which means that exchange rate fluctuations are an important factor to be taken into consideration. The Group initially calculates the amount of exchange risk that is involved in the budget for the coming period. It then gradually hedges this risk during the process of order acquisition to the extent that the orders match the forecasts. These hedges take the form of specific forward contracts and options for the purchase and the sale of the foreign currency. The Group is of the opinion that its policies for handling and limiting this type of risk are adequate. However, it cannot exclude the possibility that sudden fluctuations in exchange rates could have consequences on the results of the Geox Group.
This risk can arise when a company is unable to obtain the financial resources it needs to support its operational activities in a timely manner and at reasonable economic conditions. The cash flows, funding requirements and liquidity of the Geox Group are constantly monitored at central level under the control of the Group treasury in order to ensure effective and efficient management of financial resources.
It should be noted that Covid-19 emergency caused in 2020, for the entire sector in which the Company operates, a significant one-off cash absorption, which was added to the normal seasonality of the business. In contrast, during 2021, part of this abnormal effect on working capital was reabsorbed.
The Directors, in consideration of the improved performance in 2022, of the forecasts of the Strategic Plan which at the date of these financial statements are confirmed, of the current available and not yet used lines, as well as of the financing obtained from banks during 2020, do not believe that the effects of the aforementioned events are such as to undermine the Group's ability to fulfil its payment commitments.
In order to better assess its performance, Geox Group makes use of some alternative performance measures which are not identified as accounting measures under IFRS. Management believes that these measures are useful in assessing the Group's operating performance and comparing it to that of companies operating in the same sector, and are intended to provide a supplementary view of results. These alternative performance measures are derived exclusively from historical financial data of the Group and are not to be considered as substitutes for IFRS measures.
The definitions of the alternative performance measures adopted in this document are provided below:
Below the summary results of Geox Group, compared to 2021, when they were still impacted by the spread of the Covid-19 pandemic:
The consolidated income statement is shown below:
| (Thousands of Euro) | 2022 | % | 2021 | % |
|---|---|---|---|---|
| Sales | 735,517 | 100.0% | 608,915 | 100.0% |
| Cost of sales | (386,287) | (52.5%) | (324,653) | (53.3%) |
| Gross profit | 349,230 | 47.5% | 284,262 | 46.7% |
| Selling and distribution costs | (38,998) | (5.3%) | (37,659) | (6.2%) |
| General and administrative expenses | (275,610) | (37.5%) | (262,691) | (43.1%) |
| Advertising and promotion costs | (30,358) | (4.1%) | (29,195) | (4.8%) |
| Restructuring charges | - | 0.0% | 351 | 0.1% |
| EBIT | 4,264 | 0.6% | (44,932) | (7.4%) |
| Net financial expenses | (12,660) | (1.7%) | (8,336) | (1.4%) |
| PBT | (8,396) | (1.1%) | (53,268) | (8.7%) |
| Income tax | (4,625) | (0.6%) | (6,419) | (1.1%) |
| Net result from continuing operations | (13,021) | (1.8%) | (59,687) | (9.8%) |
| Net result from discontinued operations | - | 0.0% | (2,460) | (0.4%) |
| Net result | (13,021) | (1.8%) | (62,147) | (10.2%) |
| EBITDA | 79,428 | 10.8% | 30,803 | 5.1% |
| EBITDA excl. IFRS 16 | 26,550 | 3.6% | (22,909) | (3.8%) |
The shutting down of the production facility in Serbia in mid-2021 qualifies as "Discontinued Operations" under IFRS 5. As a result, revenues and income and costs and expenses were reclassified under "Net result from discontinued operations" in the 2021 income statements.
2022 consolidated sales totalled Euro 735.5 million, up 20.8% on the previous year (+17.8% at constant forex), thanks to the strong performance across all the main distribution channels. Q4 also reported a strong performance, with sales of Euro 166 million (growth of 14% on Q4 2021), thanks to the full return of supply chain reliability, allowing us to fully satisfy customer product delivery demand.
| (Thousands of Euro) | 2022 | % | 2021 | % | Var. % |
|---|---|---|---|---|---|
| Wholesale | 369,507 | 50.2% | 306,256 | 50.3% | 20.7% |
| Franchising | 63,583 | 8.7% | 43,137 | 7.1% | 47.4% |
| DOS* | 302,427 | 41.1% | 259,522 | 42.6% | 16.5% |
| Geox Shops | 366,010 | 49.8% | 302,659 | 49.7% | 20.9% |
| Net sales | 735,517 | 100.0% | 608,915 | 100.0% | 20.8% |
*Directly operated Stores
Multibrand store sales, accounting for 50.2% of Group sales (50.3% in 2021), amounted to Euro 369.5 million (+20.7% at current forex, +17.5% at constant forex), compared to Euro 306.3 million in 2021. Sales benefited from the increased initial order intake for the SS22 and FW22 collections and good levels of in-season re-stocking. In addition, in December, a number of counterparties requested the early shipment of SS23, which was possible thanks to the significant improvement in transport and supply chain conditions in the final part of the year.
Franchising channel sales (9% of Group sales) amounted to Euro 63.6 million (+47.4% on 2021). The performance benefited from the gradual reopening of stores, together with the favourable timing of shipments. Total franchising sales points decreased from 304 stores in December 2021 to 294 stores in December 2022.
Directly-operated store (DOS) sales accounted for 41% of the Group total, amounting to Euro 302.4 million, compared to Euro 259.5 million in 2021 (+16.5% at current forex and +13.8% at constant forex). Comparable sales (LFL) were up 18%, thanks both to the re-opening of all stores in the second half of 2021 (in 2021 approx. 14% of direct stores were temporarily closed due to pandemic restrictions) and the gradual roll-out of the Strategic Plan initiatives. Physical stores in particular reported an increase in comparable sales of approx. 27% on 2021, while the online channel saw a decline of approx. 13% (as a result of the stabilisation of performances following the lockdowns). Direct online channel growth was however particularly strong (approx. +63%) over 2019. The uptick in COVID-19 infections in April in Asia resulted in a temporary closure for approx. two months of 19 directly-operated stores in Shanghai.
Finally, in terms of the distribution scope, the number of DOS decreased from 350 stores in December 2021 to 315 in December 2022. This reduction was the main cause of the overall change in channel sales, which despite an increase in comparable sales (LFL) of 18%, increased in the period by 16.5%.
Sales by region
| (Thousands of Euro) | 2022 | % | 2021 | % | Var. % |
|---|---|---|---|---|---|
| Italy | 194,754 | 26.5% | 153,801 | 25.3% | 26.6% |
| Europe (*) | 327,901 | 44.6% | 278,283 | 45.7% | 17.8% |
| North America | 30,271 | 4.1% | 26,827 | 4.4% | 12.8% |
| Other countries | 182,591 | 24.8% | 150,004 | 24.6% | 21.7% |
| Net sales | 735,517 | 100.0% | 608,915 | 100.0% | 20.8% |
(*) Europe includes: Austria, Benelux, France, Germany, UK, Iberia, Scandinavia, Switzerland.
Sales generated in Italy, representing 26.5% of the Group total (25.3% in 2021), amounted to Euro 194.8 million (+26.6%), compared to Euro 153.8 million in 2021. Sales were driven by the directly-operated stores (+23%) and the franchising channel (+79%) and were supported also by the gradual reopening of the distribution network. The wholesale channel also returned an excellent performance (+21%).
Sales generated in Europe, accounting for 44.6% of the Group total (45.7% in 2021), totalled Euro 327.9 million, compared to Euro 278.3 million in 2021, up 17.8% and mainly due to (as in Italy) the strong retail channel performance. Stores in Europe reported comparable sales growth of 19%. The franchising performance (+50.7%) was also strong.
North America returned sales of Euro 30.3 million, +12.8% (+3.0% at constant forex) on 2021. The direct stores performed well (+20%), while the wholesale channel (+2%) was impacted by the cancellation of a number of orders due to the supply chain difficulties (production and/or shipment delays).
The Other Countries reported sales growth of 21.7% on 2021 (+12.6% at constant forex). Specifically, Asia Pacific sales were up 6%, thanks to the strong Q4 performance (+23%) which largely offset the impacts from the reorganisation in Japan, resulting in the branch's closure and the transfer of the business to a distributor. Eastern European sales however were up 25.8%. Direct stores for the entire area reported an increase in comparable sales of +15%. The wholesale and franchising channels also delivered growth.
| (Thousands of Euro) | 2022 | % | 2021 | % | Var. % |
|---|---|---|---|---|---|
| Footwear | 663,066 | 90.1% | 546,917 | 89.8% | 21.2% |
| Apparel | 72,451 | 9.9% | 61,998 | 10.2% | 16.9% |
| Net sales | 735,517 | 100.0% | 608,915 | 100.0% | 20.8% |
Footwear accounted for 90% of consolidated sales, amounting to Euro 663.1 million, up 21.2% (+18.4% at constant forex) on 2021. Apparel accounted for 10% of consolidated sales, totalling Euro 72.5 million, compared to Euro 62.0 million in 2021 (+16.9% at current forex, +12.4% at constant forex).
At December 31, 2022, the total number of "Geox Shops" was 717 (of which 315 DOS). 38 new Geox Shops were opened in 2022, with the closure of 89, as per the planned optimisation of stores on the more mature markets and an expansion in those countries where the Group's presence is still limited although developing strongly.
| 12-31-2022 | 12-31-2021 | 2022 | |||||
|---|---|---|---|---|---|---|---|
| Geox Shops |
of which DOS |
Geox Shops |
of which DOS |
Net Openings |
Openings | Closings | |
| Italy Europe (*) |
189 197 |
116 110 |
200 210 |
128 117 |
(11) (13) |
5 8 |
(16) (21) |
| North America | 17 | 17 | 20 | 20 | (3) | - | (3) |
| Other countries (**) | 314 | 72 | 338 | 85 | (24) | 25 | (49) |
| Total | 717 | 315 | 768 | 350 | (51) | 38 | (89) |
(*) Europe includes: Austria, Benelux, France, Germany, UK, Iberia, Scandinavia, Switzerland.
(**) Includes Under License Agreement Shops (108 as of December 31 2022, 114 as of December 31 2021). Sales from these shops are not included in the franchising channel.
The results for the year significantly improved on 2021 and outperformed expectations. In particular, the increase in sales (up nearly Euro 130 million), together with the higher gross margin (+80 bps vs 2021) and the major streamlining of the business model in the 2020-2022 period (costs dropping 14% on 2019) permitted the achievement of a positive operating profit (EBIT) of Euro 4.3 million (approx. Euro -45 million in 2021).
The main movements are presented below:
The cost of sales was 52.5% of sales, compared to 53.3% in 2021, resulting in a gross margin of 47.5% (46.7% in 2021).
The improved margin stems particularly from increased sales, reasoned price increases and the reduction in average markdowns at the direct stores (on average approx. 2 percentage points on 2021). These positive movements more than offset the impacts from the difficulties throughout the supply chain, the congestion at ports and the consequent increased use of air transport (air transport costs of approx. Euro 17 million in FY 2022), which particularly impacted the first half of the year. These criticalities, as previously reported, fortunately abated in the final part of the year and service levels of the entire supply chain remain good and in line with pre-pandemic levels.
Total operating expenses (general and administrative expenses, the cost of sales and distribution and advertising and promotion expenses) in the year totalled Euro 345.0 million, compared to Euro 329.5 million in 2021. The decrease (approx. 14%) on the 2019 figures was particularly significant (operating expenses of approx. Euro 402 million). This was supported by the major streamlining actions introduced over the last three years.
In particular:
Sales and distribution expenses were Euro 39.0 million (Euro 37.7 million in 2021), equal to 5.3% of sales (6.2% in 2021).
General and administrative expenses (net of other revenues) totalled Euro 275.6 million, compared to Euro 262.7 million in 2021 (approx. Euro 332 million in 2019). This account includes a number of non-recurring positive items, such as the insurance payout from the fire at the third-party warehouse for approx. Euro 6 million and supports (government grants, renegotiation of lease payments) related to the pandemic for approx. Euro 3 million. In 2021 extraordinary pandemic-related grants totalled approx. Euro 26 million. Considering these extraordinary items, general and administrative expenses in 2022 would therefore decrease (approx. -1%) on 2021.
Advertising and promotion expenses totalled Euro 30.4 million, increasing on Euro 29.2 million in the previous year. The increase is substantially due to the increased marketing initiatives undertaken in the period, in line with the strategic plan.
The operating result returned to a profit at Euro 4.3 million (loss of Euro 44.9 million in 2021).
Income taxes in 2022 totalled Euro 4.6 million, compared to Euro 6.4 million in 2021. It should be noted that the total amount of the deferred tax assets does not include the tax benefits associated with the tax losses of fiscal years 2021 and 2022, which amounted to respectively Euro 19.5 million and Euro 5.5 million. For such amounts, as at the date of this report, there is no reasonable certainty that taxable income, over the period of the Strategic Plan, will allow their recovery, in addition to the deferred tax assets already recorded in the financial statement. This valuation approach is due to the significant complexity and volatility related to the international geo-political situation which has required management to take a prudent approach and to await therefore the return also to a pre-tax profit, before recognizing additional deferred tax assets.
The shutting down of the production facility in Serbia in mid-2021 qualifies as "Discontinued Operations" under IFRS 5. As a result, revenues and income and costs and expenses were all reclassified under this specific item, totaling Euro 2,460 thousand in 2021.
In order to give a clearer representation of the Group's performance and to improve the level of transparency for the financial community, the reconciliation table between the economic values for the year and those that exclude the accounting effects deriving from the application of IFRS 16 is presented below:
| (Thousands of Euro) | 2022 | IFRS 16 impact |
2022 excl. IFRS 16 |
% | 2021 excl. IFRS 16 |
% |
|---|---|---|---|---|---|---|
| Sales | 735,517 | - | 735,517 | 100.0% | 608,915 | 100.0% |
| Cost of sales | (386,287) | - | (386,287) | (52.5%) | (324,653) | (53.3%) |
| Gross profit | 349,230 | - | 349,230 | 47.5% | 284,262 | 46.7% |
| Selling and distribution costs | (38,998) | (1,148) | (40,146) | (5.5%) | (38,904) | (6.4%) |
| General and administrative expenses | (275,610) | (240) | (275,850) | (37.5%) | (267,072) | (43.9%) |
| Advertising and promotion costs | (30,358) | (264) | (30,622) | (4.2%) | (29,542) | (4.9%) |
| Restructuring charges | - | - | - | 0.0% | (5,910) | (1.0%) |
| EBIT | 4,264 | (1,652) | 2,612 | 0.4% | (57,166) | (9.4%) |
| Net interest | (12,660) | 3,782 | (8,878) | (1.2%) | (4,775) | (0.8%) |
| PBT | (8,396) | 2,130 | (6,266) | (0.9%) | (61,941) | (10.2%) |
| Income tax | (4,625) | - | (4,625) | (0.6%) | (6,419) | (1.1%) |
| Net result from continuing operations | (13,021) | 2,130 | (10,891) | (1.5%) | (68,360) | (11.2%) |
| Net result from discontinued operations | - | - | - | 0.0% | (2,460) | (0.4%) |
| Net result | (13,021) | 2,130 | (10,891) | (1.5%) | (70,820) | (11.6%) |
| EBITDA adjusted | 79,428 | (52,878) | 26,550 | 3.6% | (22,909) | (3.8%) |
The item 'IFRS 16 Impact' includes the following effects:
It is emphasized that the economic statements set out above, which exclude the impacts deriving from the IFRS 16 application, are not to be considered as a substitute for those defined by the IFRS accounting standards adopted by the European Union and therefore their presentation must be carefully evaluated by the reader of this Financial Report.
The following table summarizes the reclassified consolidated balance sheet:
| (Thousands of Euro) | Dec. 31, 2022 | Dec. 31, 2021 |
|---|---|---|
| Intangible assets | 34,190 | 31,853 |
| Property, plant and equipment | 34,477 | 35,873 |
| Right-of-use assets | 224,273 | 203,674 |
| Other non-current assets - net | 34,631 | 36,567 |
| Total non-current assets | 327,571 | 307,967 |
| Net operating working capital | 77,102 | 112,435 |
| Other current assets (liabilities), net | (6,601) | (10,219) |
| Net invested capital | 398,072 | 410,183 |
| Equity | 108,210 | 124,582 |
| Provisions for severance indemnities, liabilities and charges | 7,701 | 8,908 |
| Net financial position | 282,161 | 276,693 |
| Net invested capital | 398,072 | 410,183 |
The following table shows the mix and changes in net operating working capital and other current assets (liabilities):
| (Thousands of Euro) | Dec. 31, 2022 | Dec. 31, 2021 |
|---|---|---|
| Inventories | 290,165 | 240,320 |
| Accounts receivable | 83,998 | 68,927 |
| Trade payables | (297,061) | (196,812) |
| Net operating working capital | 77,102 | 112,435 |
| % of sales for the last 12 months | 10.5% | 18.5% |
| Taxes payable | (9,732) | (10,079) |
| Other non-financial current assets | 32,021 | 31,025 |
| Other non-financial current liabilities | (28,890) | (31,165) |
| Other current assets (liabilities), net | (6,601) | (10,219) |
Net working capital stood at approximately Euro 77 million, down from Euro 112 million in December 2021. The reduction in working capital is mainly due to the sale of inventories from previous seasons. Current inventories refer mainly to the current and future seasons and thus with a higher incidence of accounts payable (about Euro 100 million more). The receivables portfolio is healthy and increasing in line with sales. The ratio of the net working capital to revenues stood at 10.5% compared to 18.5% in 2021.
The following table gives a breakdown of the net financial position:
| (Thousands of Euro) | Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Cash and cash equivalents | 24,303 | 45,655 |
| Current financial assets - excluding derivatives | 4,043 | 2,831 |
| Current financial liabilities - excluding derivatives | (47,465) | (48,979) |
| Net financial position - current portion | (19,119) | (493) |
| Non-current financial assets | 27 | 26 |
| Long-term loans | (56,622) | (82,389) |
| Net financial position - non-current portion | (56,595) | (82,363) |
| Net financial position - prior to fair value adjustment of derivatives and IFRS 16 impact |
(75,714) | (82,856) |
| Lease liabilities | (232,324) | (212,374) |
| Net financial position - prior to fair value adjustment of derivatives | (308,038) | (295,230) |
| Fair value adjustment of derivatives | 25,877 | 18,537 |
| Net financial position | (282,161) | (276,693) |
The combination of streamlining measures, the strong sales performance, working capital control and the hedges on forex and interest rate risk have kept the net financial position under control, which (pre-IFRS 16 and applying the fair value of derivative contracts) was Euro -49.8 million (Euro -64.3 million in December 2021). The net bank debt was at Euro -75.7 million (Euro -82.9 million in December 2021). The fair value of hedges in place at December 31 was positive for Euro 25.9 million.
The following is a reconciliation between the Parent Company's equity and net income for the period and the Group's equity and net income for the period:
| Description | Net income for the period 2022 |
Equity 12-31-2022 |
Net income for the period 2021 |
Equity 12-31-2021 |
|---|---|---|---|---|
| Parent company's equity and net income | (12,233) | 104,910 | (64,824) | 119,623 |
| Differences between the carrying value of the investments in subsidiaries and the Group share of their equity |
168,314 | 163,718 | 11,575 | 15,371 |
| Group share of affiliates' results | (122,770) | (122,770) | (11,662) | (11,662) |
| Elimination of intragroup transactions on inventories | (3,142) | (8,504) | 5,690 | (5,673) |
| Elimination of intragroup dividends and investments write-off | (2,026) | - | (2,855) | - |
| Other adjustments | (41,164) | (29,144) | (71) | 6,923 |
| Group equity and net income | (13,021) | 108,210 | (62,147) | 124,582 |
In order to give a clearer representation of the Group's financial performance and to improve the level of transparency for the financial community, the reconciliation table between the balance sheet amounts as of December 31, 2022 and those excluding accounting effects deriving from the application of IFRS 16 is presented below:
| (Thousands of Euro) | Dec. 31, 2022 |
IFRS 16 impact |
Dec. 31, 2022 excl. IFRS 16 |
Dec. 31, 2021 excl. IFRS 16 |
|---|---|---|---|---|
| Intangible assets | 34,190 | 356 | 34,546 | 32,314 |
| Property, plant and equipment | 34,477 | 953 | 35,430 | 36,672 |
| Right-of-use assets | 224,273 | (224,273) | - | - |
| Other non-current assets - net | 34,631 | - | 34,631 | 36,567 |
| Total non-current assets | 327,571 | (222,964) | 104,607 | 105,553 |
| Net operating working capital | 77,102 | (728) | 76,374 | 108,325 |
| Other current assets (liabilities), net | (6,601) | - | (6,601) | (10,219) |
| Net invested capital | 398,072 | (223,692) | 174,380 | 203,659 |
| Equity | 108,210 | 8,632 | 116,842 | 130,432 |
| Provisions for severance indemnities, liabilities and charges | 7,701 | - | 7,701 | 8,908 |
| Net financial position | 282,161 | (232,324) | 49,837 | 64,319 |
| Net invested capital | 398,072 | (223,692) | 174,380 | 203,659 |
The item 'IFRS 16 Impact' mainly includes the following effects:
It is emphasized that the balance sheets set out above, which exclude the impacts deriving from the application of IFRS 16, are not to be considered as a substitute for those defined by the IFRS accounting standards adopted by the European Union and therefore their presentation must be carefully evaluated by the reader of this Financial Report
The following table gives a reclassified consolidated cash flow statement:
| (Thousands of Euro) | 2022 | 2021 |
|---|---|---|
| Net result | (13,021) | (62,147) |
| Depreciation, amortization and impairment | 75,164 | 77,677 |
| Other non-cash items | (14,744) | (19,449) |
| Cash flow from economics | 47,399 | (3,919) |
| Change in net working capital | 41,381 | 81,087 |
| Change in other assets/liabilities | (4,837) | 2,635 |
| Cash flow from operations | 83,943 | 79,803 |
| Capital expenditure | (25,237) | (18,989) |
| Disposals | 45 | 6,505 |
| Net capital expenditure | (25,192) | (12,484) |
| Free cash flow | 58,751 | 67,319 |
| Increase in right-of-use assets | (72,087) | (4,015) |
| Change in net financial position | (13,336) | 63,304 |
| Initial net financial position - prior to fair value adjustment of derivatives | (295,230) | (357,699) |
| Change in net financial position | (13,336) | 63,304 |
| Translation differences | 528 | (835) |
| Final net financial position - prior to fair value adjustment of derivatives | (308,038) | (295,230) |
| Fair value adjustment of derivatives | 25,877 | 18,537 |
| Final net financial position | (282,161) | (276,693) |
Consolidated capital expenditure is analyzed in the following table:
| (Thousands of Euro) | 2022 | 2021 |
|---|---|---|
| Trademarks and patents | 382 | 396 |
| Opening and restructuring of Geox Shop | 8,539 | 4,494 |
| Industrial plant and equipment | 3,510 | 2,631 |
| Logistic | 2,729 | 1,347 |
| Information technology | 9,151 | 8,713 |
| Offices furniture, warehouse and fittings | 926 | 1,408 |
| Total cash capex | 25,237 | 18,989 |
| Right-of-Use | 72,616 | 4,015 |
| Total capex | 97,853 | 23,004 |
In order to provide a clearer representation of the changes in the Group's net financial position and to improve the level of transparency for the financial community, the reconciliation table between the values of the consolidated cash flow statement for 2022 and those that exclude the accounting effects deriving from the application of IFRS 16 is presented below::
| (Thousands of Euro) | 2022 | IFRS 16 impact |
2022 excluding IFRS 16 |
2021 excluding IFRS 16 |
|---|---|---|---|---|
| Net result | (13,021) | 2,130 | (10,891) | (70,820) |
| Depreciation, amortization and impairment | 75,164 | (51,226) | 23,938 | 36,199 |
| Other non-cash items | (14,744) | - | (14,744) | (19,449) |
| Cash flow from economics | 47,399 | (49,096) | (1,697) | (54,070) |
| Change in net working capital | 41,381 | (3,382) | 37,999 | 71,479 |
| Change in other current assets/liabilities | (4,837) | - | (4,837) | 2,635 |
| Cash flow from operations | 83,943 | (52,478) | 31,465 | 20,044 |
| Capital expenditure | (25,237) | - | (25,237) | (18,989) |
| Disposals | 45 | - | 45 | 6,505 |
| Net capital expenditure | (25,192) | - | (25,192) | (12,484) |
| Free cash flow | 58,751 | (52,478) | 6,273 | 7,560 |
| Increase in right-of-use assets | (72,087) | 72,087 | - | - |
| Change in net financial position | (13,336) | 19,609 | 6,273 | 7,560 |
| Initial net financial position - prior to fair value adjustment of derivatives | (295,230) | 212,374 | (82,856) | (89,792) |
| Change in net financial position | (13,336) | 19,609 | 6,273 | 7,560 |
| Translation differences | 528 | 341 | 869 | (624) |
| Final net financial position - prior to fair value adjustment of derivatives | (308,038) | 232,324 | (75,714) | (82,856) |
| Fair value adjustment of derivatives | 25,877 | - | 25,877 | 18,537 |
| Final net financial position | (282,161) | 232,324 | (49,837) | (64,319) |
The item 'IFRS 16 impact' includes the effects described above on the income statement items (mainly reversal of depreciation relating to Right-of-use assets and consideration of lease costs) and on the balance sheet and financial position (mainly reversal of Right-of-use assets and financial lease liabilities).
It is emphasized that the above statements, which exclude the impacts deriving from the application of IFRS 16, are not to be considered as a substitute for those defined by the IFRS accounting standards adopted by the European Union and therefore their presentation must be carefully evaluated by the reader of this Financial Report.
As at December 31, 2021, the treasury shares held by the Company amount to 3,996,250 corresponding to 1.54% of the total number of ordinary shares, according to the resolution passed by the Shareholders' Meeting on April 16, 2019, which launched a buy-back program of Geox shares to be used for the Stock Grant Plan. The buy-back program started on June 5, 2019 and ended on November 20, 2019.
The extraordinary Shareholders' Meeting, on April 22, 2021, approved a new medium-long term incentive plan, Stock Grant & Cash-Based 2021-2023, involving the free issue of up to a maximum of 7,696,626 ordinary Company shares, as well as a monetary component for a maximum amount of Euro 1,320,000 gross, in the event of overachievement of some targets, to the benefit of the Chief Executive Officer, Executives with strategic responsibilities and other senior managers and employees who are considered key resources for Geox or other Group Companies. The Plan has a three-year vesting period and, as a result, the shares may be assigned from the date the Shareholders' Meeting approves the financial statements for the year ending December 31, 2023. The assignment of Equity Shares component is subject to the compliance with permanence condition (permanence at the date of approval by the Board of Directors of the Company of the draft consolidated financial statements closed on December 31, 2023), to the achievement of some profitability targets linked to EBIT in 2022, to the EBITDA target in 2023 and to some financial targets of the Group in 2023. The disbursement of the Cash Quota is also subject to the achievement of the overachievement target.
Through the adoption of the Plan, the Company intends to promote and pursue the following objectives: to involve and incentivize the beneficiaries whose activities are considered of fundamental importance for the achievement of the Group's objectives; promote the loyalty of beneficiaries, encouraging their stay within the Group; sharing and aligning the interests of the beneficiaries with those of the Company and of the shareholders in the medium to long term, acknowledging the management's contribution to the increase in the Company's value. The Board of Directors of Geox S.p.A. resolved to implement the 2021-2023 Equity (Stock Grant) & Cash-Based Plan, with a first assignment cycle of no. 7,671,892 rights in favor of 99 beneficiaries. As of December 31, 2022, a number of 6,722,087 rights are in circulation.
During the period, there were no transactions with related parties which can be qualified as unusual or atypical. Any related party transactions formed part of the normal business activities of companies in the Group. Such transactions are concluded at standard market terms for the nature of goods and/or services offered.
Information on transactions with related parties is provided in Note 38 of the Consolidated Financial Statements.
The Geox Board of Directors' meeting of February 2, 2023 reviewed and approved the 2023 budget, which confirms the Strategic Plan objectives in terms of both sales and key earnings indicator growth.
These forecasts are based on the following results and assumptions:
On the basis of that outlined above, management confirms the guidelines of the Strategic Plan to 2024. In greater detail, the 2023 forecasts are for:
The above annual forecasts are also based on the following future performance assumptions:
These performance forecasts are however, due to their nature, subject to significant uncertainties in terms of the geopolitical and cost inflation environment.
Biadene di Montebelluna, 9 March 2023
For the Board of Directors The Chairman Mr. Mario Moretti Polegato
| (Thousands of Euro) | Notes | 2022 | of which related party (note 38) |
2021 | of which related party (note 38) |
|---|---|---|---|---|---|
| Sales | 4 | 735,517 | 1,000 | 608,915 | 898 |
| Cost of sales | 5 | (386,287) | 28 | (324,653) | 529 |
| Gross profit | 5 | 349,230 | 284,262 | ||
| Selling and distribution costs | 6 | (38,998) | (37,659) | ||
| General and administrative expenses | 7 | (288,974) | (64) | (274,393) | 7 |
| Other revenues | 8 | 13,364 | 93 | 11,702 | 90 |
| Advertising and promotion costs | 6 | (30,358) | (159) | (29,195) | (149) |
| Restructuring charges | - | 351 | |||
| EBIT | 4,264 | (44,932) | |||
| Financial income | 12 | 2,709 | 2,112 | ||
| Financial expenses | 12 | (15,369) | (1,307) | (10,448) | (1,364) |
| PBT | (8,396) | (53,268) | |||
| Income tax | 13 | (4,625) | (6,419) | (5) | |
| Net result from continuing operations | (13,021) | (59,687) | |||
| Net result from discontinued operations | 14 | - | (2,460) | 1,155 | |
| Net result | (13,021) | (62,147) | |||
| Earnings per share [Euro] | 15 | (0.05) | (0.24) | ||
| Diluted earnings per share [Euro] | 15 | (0.05) | (0.24) |
| (Thousands of Euro) | Notes | 2022 | of which related party |
2021 | of which related party |
|---|---|---|---|---|---|
| Net income | 26 | (13,021) | (62,147) | ||
| Other comprehensive income that will not be reclassified subsequently to profit or loss: |
|||||
| Net gain (loss) on actuarial defined-benefit plans | 373 | - | 25 | - | |
| Other comprehensive income that may be reclassified subsequently to profit or loss: |
|||||
| Net gain (loss) on Cash Flow Hedge | (6,072) | - | 24,205 | - | |
| Tax effects on items that may be later reclassified to profit or loss | 1,457 | (5,809) | |||
| Currency translation | (1,033) | - | (880) | - | |
| Net comprehensive income | (18,296) | (44,606) |
| related party (note 38) |
related party (note 38) |
||||
|---|---|---|---|---|---|
| ASSETS: | |||||
| Intangible assets | 16 | 34,190 | 31,853 | ||
| Property, plant and equipment | 17 | 34,477 | 35,873 | ||
| Right-of-use assets | 18 | 224,273 | 203,674 | ||
| Deferred tax assets | 19 | 29,222 | 30,374 | ||
| Non-current financial assets | 24 | 27 | 26 | ||
| Non-current lease assets | 30 | 176 | 343 | ||
| Other non-current assets | 20 | 6,588 | 7,754 | ||
| Total non-current assets | 328,953 | 309,897 | |||
| Inventories | 21 | 290,165 | 240,320 | ||
| Accounts receivable | 22 | 83,998 | 573 | 68,927 | 907 |
| Other non-financial current assets | 23 | 32,021 | 2 | 31,025 | 67 |
| Current financial assets | 24-37 | 30,945 | 22,413 | ||
| Cash and cash equivalents | 25 | 24,303 | 45,655 | ||
| Current assets | 461,432 | 408,340 | |||
| Total assets | 790,385 | 718,237 | |||
| LIABILITIES AND EQUITY: | |||||
| Share capital | 26 | 25,921 | 25,921 | ||
| Reserves | 26 | 95,310 | 160,808 | ||
| Net income | 26 | (13,021) | (62,147) | ||
| Equity | 108,210 | 124,582 | |||
| Employee severance indemnities | 27 | 1,875 | 2,411 | ||
| Provisions for liabilities and charges long-term | 28 | 5,826 | 6,497 | ||
| Long-term loans | 29 | 56,622 | 82,389 | ||
| Non-current lease liabilities | 30 | 189,549 | 50,770 | 166,082 | 54,096 |
| Other long-term payables | 31 | 1,179 | 1,561 | ||
| Total non-current liabilities | 255,051 | 258,940 | |||
| Trade payables | 32 | 297,061 | 101 | 196,812 | 64 |
| Other non-financial current liabilities | 33 | 26,535 | 30,359 | ||
| Provisions for liabilities and charges short-term | 34 | 2,355 | 806 | ||
| Taxes payable | 35 | 9,732 | 10,079 | ||
| Current financial liabilities | 29-37 | 48,490 | 50,024 | ||
| Current lease liabilities | 30 | 42,951 | 5,000 | 46,635 | 4,949 |
| Current liabilities | 427,124 | 334,715 | |||
| Total liabilities and equity | 790,385 | 718,237 |
| (Thousands of Euro) | Notes | 2022 | 2021 |
|---|---|---|---|
| CASH FLOW FROM OPERATING ACTIVITIES: Net result |
26 | (13,021) | (62,147) |
| Adjustments to reconcile net income to net cash generate | |||
| (absorbed) by operating activities: | |||
| Depreciation and amortization and impairment | 9-10 | 75,164 | 77,677 |
| Income tax | 13 | 4,625 | 6,419 |
| Net financial expenses | 12 | 12,660 | 8,336 |
| Share-based payment transactions settled with equity instruments | 26 | 1,924 | 1,980 |
| Other non-cash items | (33,794) | (35,791) | |
| Employee benefits | 27 | (159) | (393) |
| 60,420 | 58,228 | ||
| Change in assets/liabilities: | |||
| Accounts receivable | 22 | (10,700) | 14,096 |
| Other assets | 20-23 | (2,533) | 865 |
| Inventories | 21 | (56,742) | 42,374 |
| Accounts payable | 32 | 108,823 | 24,617 |
| Other liabilities | 31-33 | 4,905 | 10,501 |
| Taxes paid | (672) | (3,352) | |
| Interests paid | (8,251) | (6,736) | |
| Interests received | 1,714 | 1,357 | |
| 36,544 | 83,722 | ||
| Net cash flow generated (absorbed) by operating activities | 83,943 | 79,803 | |
| CASH FLOW USED IN INVESTING ACTIVITIES: | |||
| Capital expenditure on intangible assets | 16 | (9,987) | (7,467) |
| Capital expenditure on property, plant and equipment | 17 | (15,250) | (11,372) |
| Capital expenditure on right-of-use assets | 18 | - | (150) |
| (25,237) | (18,989) | ||
| Disposals | 16-17 | 45 | 6,505 |
| (Increase) decrease in financial assets | 24 | (1,062) | 382 |
| Net cash flow generated (absorbed) by investing activities | (26,254) | (12,102) | |
| CASH FLOW FROM (USED IN) FINANCING ACTIVITIES: | |||
| Increase (decrease) in short-term bank borrowings, net | 29 | 3,901 | (1,861) |
| Lease liabilities repayment | 30 | (52,020) | (61,292) |
| Loans: | |||
| - Proceeds | 29 | 17,000 | 16,669 |
| - Repayments | 29 | (48,180) | (59,549) |
| Treasury shares buy back | - | - | |
| Dividends | - | - | |
| Net cash flow generated (absorbed) by financing activities | (79,299) | (106,033) | |
| Increase (decrease) in cash and cash equivalents | (21,610) | (38,332) | |
| Cash and cash equivalents, beginning of the period | 25 | 45,655 | 83,130 |
| Effect of translation differences on cash and cash equivalents | 258 | 857 | |
| Cash and cash equivalents, end of the period | 25 | 24,303 | 45,655 |
| (Thousands of Euro) | Notes | Share capital |
Legal reserve |
Share premium reserve |
Transla- tion reserve |
Cash flow hedge reserve |
Stock Option reserve |
Treasury shares reserve |
Retained earnings |
Net income |
Group equity |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at December 31, 2020 | 25,921 | 5,184 | 37,678 | (3,538) | (6,640) | - | (5,051) | 241,859 | (128,205) | 167,208 | |
| Allocation of result | - | - | - | - | - | - | - | (128,205) | 128,205 | - | |
| Share-based payment transactions settled with equity instruments |
- | - | - | - | - | 1,980 | - | - | - | 1,980 | |
| Other Items of the Comprehensive Income Statement |
- | - | - | (880) | 18,396 | - | - | 25 | - | 17,541 | |
| Net result | - | - | - | - | - | - | - | - | (62,147) | (62,147) | |
| Balance at December 31, 2021 | 26 | 25,921 | 5,184 | 37,678 | (4,418) | 11,756 | 1,980 | (5,051) | 113,679 | (62,147) | 124,582 |
| Allocation of result | - | - | - | - | - | - | - | (62,147) | 62,147 | - | |
| Share-based payment transactions settled with equity instruments |
- | - | - | - | - | 1,924 | - | - | - | 1,924 | |
| Other Items of the Comprehensive Income Statement |
- | - | - | (1,033) | (4,615) | - | - | 373 | - | (5,275) | |
| Net result | - | - | - | - | - | - | - | - | (13,021) | (13,021) | |
| Balance at December 31, 2022 | 26 | 25,921 | 5,184 | 37,678 | (5,451) | 7,141 | 3,904 | (5,051) | 51,905 | (13,021) | 108,210 |
The Geox Group develops, schedules and coordinates production and sells Geox-brand footwear and apparel to retailers and end-consumers sales to retailers and end-conusmers. It also grants distribution rights and/or use of the brand name to third parties in markets where the Group has chosen not to have a direct presence. Licensees handle production and marketing in accordance with licensing agreements and pay Geox royalties.
Geox S.p.A., the parent company, is a joint-stock company incorporated and domiciled in Italy and is controlled by LIR S.r.l. Geox S.p.A. is a joint-stock company incorporated and domiciled in Italy with registered office at Via Feltrina Centro 16, Biadene di Montebelluna (TV), Italy.
Geox S.p.A. is controlled, with a share of 71.10%, by Lir S.r.l., which has its registered office in Treviso, Italy, and is an investment holding company that belongs entirely to Mario Moretti Polegato and Enrico Moretti Polegato (who respectively own 85% and 15% of the share capital).
Geox S.p.A. is not subject to management and coordination activities exercised by another person or entity for the reasons illustrated in the Directors' Report to which reference should be made
The consolidated financial statements have been prepared by the Board of Directors on the basis of the accounting records updated to December 31, 2022. The consolidated financial statements have been drawn up in compliance with the International Financial Reporting Standards adopted by the European Union (IFRS) in force at the date of preparation, as well as on the basis of the measures issued in compliance with article 9 of Legislative Decree 38/2005 (Consob Resolutions No. 15519 and 15520 of 27 July 2006). Unless otherwise indicated, the accounting standards described below have been applied consistently for all periods included in these consolidated financial statements.
To facilitate comparison with the previous year, the accounting schedules provide comparative figures with December 31, 2021 for balance sheet accounts and for the year 2021 in the case of the income statement. It should be noted that the comparative information is restated to reflect the new classifications of balance sheet items.
The financial statements are presented in Euro and all values are rounded to the nearest thousand.
Russia's invasion of Ukraine continues to create a major international humanitarian and social crisis, with significant impacts primarily for the living conditions of the populations of these countries, but also for internal economic activities and commercial trade in the area. These extraordinary events in terms of their nature and extent, added to those stemming from COVID-19 and have had global repercussions in 2022 on: i) supply chains, particularly with regard to raw material and energy supply and prices; ii) international market demand levels; iii) inflation and the consequent restrictive interest rate policies; iv) the strengthening of the dollar as a haven from risk, the divergent performance of the US economy and rising interest rates.
Geox mainly operates through third parties in both countries, wholesale and franchising (100% in Ukraine and 70% in Russia). In view of these events, the Group suspended fresh direct investment in Russia shortly after the outbreak of the conflict, withdrawing European management and is managing the short-term situation so as to be prepared to mitigate the impacts from any future decisions regarding its presence in Russia.
Sales in the area in 2022 (Russia and Ukraine) were substantially in line with the Plan at approx. Euro 74 million (approx. 10% of consolidated sales). The invested capital of the Russian subsidiary comprises mainly fast-moving net working capital and accounted for in December 2022 approximately 6% of the Group total. These figures include the incremental effects of the significant revaluation of the Rouble against the Euro, which at December reported an average annual exchange rate of 73 against 87 in 2021.
Likewise, the situation of receivables from customers operating in the region is constantly monitored and has a low residual balance of Euro 5.6 million. Non-current assets in Russia, which mainly refer to directly operated stores, amount to Euro 6.5 million (of which Euro 4.2 million in Right-of-use). The value of inventories in Russia amounted to € 15.8 million. Overall, net invested capital in Russia amounts to Euro 25.7 million, equivalent to approximately 6% of the Group total, at 31 December 2022 exchange rates
The Group does not have suppliers or production plant in the area. The company is involved in Banca Intesa's and Caritas Italiana's Golden Links project and supports Civil Protection, a number of humanitarian associations, the Ukrainian Ambassador in Italy and the Ukrainian consulate in Venice for the supply of basic necessities such as clothing and footwear to people on the ground and refugees in Italy.
In terms of the COVID-19 pandemic, all Group stores are currently operational despite the still unstable situation and especially in the Far East. The difficult public health situation in the Far East in the first half of 2022 was in fact the cause of the major criticalities affecting the Group's supply chain for most of the year. On the one hand, all economic operators have experienced a lengthening of sea freight transportation times due to the reduced frequency in departures and increased stops in order to optimise space. On the other hand, there have been less opportunities to recover production delays through air shipments due to the limited number of cargo and passenger flights. Conditions in the final part of the year improved significantly and across the board. In particular, sea freight costs and delivery times decreased. This improvement has continued into 2023, with significant development in terms of full supply chain reliability.
The consolidated financial statements at December 31, 2022 include the figures, on a line-by-line basis, of all the Italian and foreign companies in which the Parent Company holds a majority of the shares or quotas, directly or indirectly. The companies taken into consideration for consolidation purposes are listed in the attached schedule entitled "List of companies consolidated at December 31, 2022".
The Group presents its income statement by classifying costs by function, a reclassification deemed most representative of the business sector in which the Group. The format chosen is that used for managing the business and for management reporting purposes and is consistent with international practice in the footwear and apparel sector.
For the Statement of financial position, a format has been selected to present current and non-current assets and liabilities.
The Statement of cash flow is presented using the indirect method.
In connection with the requirements of the Consob Resolution No. 15519 of July 27, 2006 as to the format of the financial statements, specific supplementary column has been added for related party transactions so as not to compromise an overall reading of the statements (Nota 38).
The financial statements of the subsidiaries included in the scope of consolidation are consolidated on a line-by-line basis, which involves combining all of the items shown in their financial statements regardless of the Group's percentage interest.
If the companies included in the scope of consolidation are subject to different local regulations, the most suitable reporting formats have been adopted to ensure maximum clarity, truth and fairness. The financial statements of foreign subsidiaries are reclassified where necessary to bring them into line with Group accounting policies. They are also adjusted to ensure compliance with IFRS.
In particular, for the subsidiaries included in the scope of consolidation:
The following are also eliminated:
The following is a list of IFRS accounting standards, amendments and interpretations that became effective on January 1, 2022, the adoption of which had no impact on the Group's financial statements.
| Title | Issue Date | Effective date | EU Endorsment date |
EU regulation and date of publication |
|---|---|---|---|---|
| Annual Improvements to IFRS Standards (2018 – 2020 Cycle) – Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 |
May 2020 | 1 January 2022 | 28 June 2021 | (UE) 2021/1080 2 July 2021 |
| Property, plant and equipment – proceeds before intended use (Amendment to IAS 16) |
May 2020 | 1 January 2022 | 28 June 2021 | (UE) 2021/1080 2 July 2021 |
| Onerous contracts – Cost of fulfilling a contract (Amendments to IAS 37) |
May 2020 | 1 January 2022 | 28 June 2021 | (UE) 2021/1080 2 July 2021 |
| Reference to the Conceptual Framework (Amendments to IFRS 3) |
May 2020 | 1 January 2022 | 28 June 2021 | (UE) 2021/1080 2 July 2021 |
| Title | Issue Date | Effective date | Endorsment date | EU regulation and date of publication |
|---|---|---|---|---|
| IFRS 17 – Insurance contracts (including amendments published on 25 June 2020) |
May 2017 June 2020 |
1 January 2023 | 19 November 2021 | (UE) 2021/2036 23 November 2021 |
| Definition of accounting estimates (Amendments to IAS 8) |
February 2021 | 1 January 2023 | 2 March 2022 | (UE) 2022/357 3 March 2022 |
| Disclosure of Accounting policies (Amendments to IAS 1) |
February 2021 | 1 January 2023 | 2 March 2022 | (UE) 2022/357 3 March 2022 |
| Deferred tax related to assets and liabilities arising from a single transaction (Amendments to IAS 12) |
May 2021 1 January 2023 |
11 August 2022 | (UE) 2022/1392 12 August 2022 |
|
| Initial Application of IFRS 17 and IFRS 9— Comparative Information (Amendment to IFRS 17) |
December 2021 |
1 January 2023 | 8 September 2022 | (UE) 2022/1491 9 September 2022 |
The directors are not expecting the adoption of these amendments to have a significant impact on the Group's financial statements.
As of the date of this document, the competent authorities of the European Union have not yet concluded the endorsement process necessary for the adoption of the amendments and principles described:
| Title | Issue Date | Effective date of IASB document |
Approval date by EU |
|---|---|---|---|
| Standards | |||
| IFRS 14 Regulatory deferral accounts | January 2014 | 1 January 2016 | Postponed pending the conclusion of the IASB project on "rate regulated activities" |
| Amendments | |||
| Sale or contribution of assets between an investor and its associate or joint venture (Amendments to IFRS 10 and IAS 28) |
September 2014 | Deferred until the completion of the IASB project on the equity method |
Postponed pending the conclusion of the IASB project on the equity method |
| Classification of liabilities as current or non-current (Amendments to IAS 1) and Non current liabilities with covenants (Amendments to IAS 1) |
January 2020 July 2020 October 2022 |
1 January 2024 | TBD |
| Lease liability in a sale and leaseback (Amendments to IFRS 16) |
September 2022 | 1 January 2024 | TBD |
The financial statements of foreign companies denominated in currencies other than the Euro are translated as follows:
The difference between the equity translated at historical rates and the assets and liabilities translated at closing rates is recorded as a "Translation reserve" under "Reserves" as a part of consolidated equity.
The exchange rates applied represent the rates available published by the Italian Bank, with the exception of the Russian Ruble exchange rate, which the ECB has decided to suspend publishing as from March 1st, 2022. As of that date, the Group considered the exchange rate published by WMR (World Market Reuters) in London.
| Currency | Average for | As at | Average for | As at |
|---|---|---|---|---|
| 12-31-2022 | 12-31-2022 | 12-31-2021 | 12-31-2021 | |
| US Dollar | 1.0539 | 1.0666 | 1.1835 | 1.1326 |
| Swiss Franc | 1.0052 | 0.9847 | 1.0814 | 1.0331 |
| British Pound | 0.8526 | 0.8869 | 0.8600 | 0.8403 |
| Canadian Dollar | 1.3703 | 1.4440 | 1.4835 | 1.4393 |
| Japanese Yen | 138.0051 | 140.6600 | 129.8575 | 130.3800 |
| Chinese Yuan | 7.0801 | 7.3582 | 7.6340 | 7.1947 |
| Czech Koruna | 24.5603 | 24.1160 | 25.6468 | 24.8580 |
| Russian Ruble | 73.3537 | 77.9094 | 87.2321 | 85.3004 |
| Polish Zloty | 4.6845 | 4.6808 | 4.5640 | 4.5969 |
| Hungarian Forint | 390.9439 | 400.8700 | 358.4635 | 369.1900 |
| Macau Pataca | 8.4990 | 8.5658 | 9.4748 | 9.0983 |
| Serbian Dinar | 117.4202 | 117.3246 | 117.5512 | 117.6165 |
| Vietnam Dong | 24,642.1667 | 25,183.0000 | 27,149.9167 | 25,819.0000 |
| Indonesian Rupiah | 15,633.5917 | 16,519.8200 | 16,928.5075 | 16,100.4200 |
| Turkish Lira | 17.3849 | 19.9649 | 10.4670 | 15.2335 |
| Indian Rupia | 82.7145 | 88.1710 | 87.4861 | 84.2292 |
Drawing up financial statements and notes in compliance with IFRS requires directors to make estimates and assumptions that can affect the value of the assets and liabilities in the balance sheet, including disclosures on contingent assets and liabilities at the balance sheet date. The estimates and assumptions used are based on experience and other relevant factors.
It's to be noted that forecasts are by their nature subject to significant factors of uncertainty, especially in the current economic situation characterised by geo-political tensions concerning Russia and Ukraine, which added to the Covid-19 pandemic. So it cannot be excluded that the results over the coming months may differ from what has been forecasted, and this in turn could lead to adjustments that obviously cannot be estimated or foreseen as of today.
Estimates and assumptions are revised periodically and the effects of each variation made to them are reflected in the income statement for the period when the estimate is revised. In particular, with regard to asset values, impairment
tests were updated, based on the financial projections for the period 2023-2027, approved on 2 February 2023 by the Board of Directors, which confirm the main objectives and strategies defined in the 2022-2024 Strategic Plan, as better described in Note 10.
The items in the financial statements that are principally affected by these situations of uncertainty are: intangible assets, property, plant and equipment, right-of-use assets, deferred tax assets, the refund liabilities, the provision for obsolete and slow-moving inventory, the provision for bad and doubtful accounts and lease liabilities. The following is a summary of the critical valuation processes and key assumptions used by management in the process of applying the accounting standards with regard to the future and which could have significant effects on the values shown in the financial statements.
The Group has recognized impairment losses against the possibility that the carrying amounts of intangible assets, property, plant and equipment and right-of-use assets may not be recoverable from them by use. The Directors are required to make a significant assessment to determine the amount of asset impairment that should be recognized. They estimate the possible loss of value of assets in relation to future economic performance closely linked to them. Further details and the main Directors' assumptions related impairment test are provided in note 10.
Deferred tax assets are recognised for temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding amounts recognised for tax purposes, as well as for tax loss carryforwards considered recoverable.
The Directors are required to make a significant assessment to determine the amount of recoverable deferred tax assets to the extent that it is probable that there will be adequate future taxable profits against which such losses can be utilised. They have to assess the timing and amount of future taxable income and develop a tax planning strategy for the coming years. The book value of the tax losses that have been recognized is shown in note 19.
The Group has valued the possibility that products already sold can be returned by customers. To this end, the Group has made certain assumptions based on the quantity of goods returned in the past and their estimated realizable value. The Group took into account the changed economic scenario and made a provision which reflects the assumptions relating to the performance of its customers until the end of the season and therefore of the expected returns. Further details are provided in note 32.
The Group has recognised write-downs for products in inventory that may have to be sold at a discount, which means that they will have to be adjusted to their estimated realizable value, lower than the recorded cost.
For this purpose, the Group has developed assumptions regarding the quantity of goods sold at a discount in the past and the possibility of selling them through the Group's own outlets. In particular, the Group reflected in the inventory write-down provision its assumptions regarding the disposal of previous collections inventories and the surplus estimation relating to the current season collections, considering the current scenario of uncertainty. Further details are provided in note 21.
The provision for bad and doubtful accounts is calculated on the basis of a specific analysis of items in dispute and of those balances which, even if not in dispute, show signs of delayed collection. Furthermore, the provision includes the receivable evaluation according to the lifetime expected loss model. Evaluating the overall amount of trade receivables that are likely to be paid requires the use of estimates regarding the probability of collecting such items, as well as the write-down percentages applied for not in dispute positions, so it is an assessment that is subject to uncertainties. In
particular, Directors took into account the current uncertainty scenario and made a bad debt provision consistent with the situation of the accounts receivable that are partly subject to insurance. Further details are provided in note 22.
The Group records right-of-use assets and lease liabilities. Right-of-use assets are initially valued at cost, and then at cost net of amortisation and accumulated losses due to reductions in value and are adjusted in order to reflect revaluations of lease liabilities.
The Group values lease liabilities at the current value of the payments due for lease contracts and not yet paid as at the effective date, discounting them using the incremental borrowing rate defined taking into account the term of the leases, the currency in which they are denominated, the characteristics of the economic environment in which the lease was entered into and the credit adjustment. Lease liabilities are then subsequently increased by the interest that accrues on them and are reduced by the payments made for the leasing. Lease liabilities are also revalued if future payments due for the leasing are altered, due to a change to the index or rate, if there is a change to the amount that the Group believes it will have to pay as a guarantee on the residual value or if the Group alters its valuation with reference to the option to purchase the asset, or to extend or terminate the lease contract.
The Group has estimated the duration of leasing for contracts for which it acts as lessee and that provide for a renewal option. The Group's assessment as to whether or not it is reasonably certain that the option will be exercised affects the estimate of the duration of the leasing, thereby significantly impacting the amount of the lease liabilities and of the right-of-use assets recorded. The Group has analysed all lease contracts, defining the lease term for each by combining the "non cancellable" period with the effects of any extension or early termination clauses that are expected to be exercised with reasonable certainty. More specifically, with regard to real estate, this valuation took into account the specific facts and circumstances for each asset. With regard to other categories of assets, mainly company cars and equipment, the Group generally did not deem it likely for extension or early termination clauses to be exercised, considering the approach normally taken by the Group.
Further details are provided in note 18 with regard to Right-of-use assets and note 30 with regard to lease assets/liabilities.
The financial statements are prepared on a historical cost basis, with the exception of derivative instruments measured at fair value, and on the going concern assumption.
The main accounting policies are outlined below:
Intangible assets with a finite useful life are recorded at purchase or production cost, including directly-related charges, and amortized systematically over their residual useful lives.
The residual value and useful life of intangible assets are reviewed at least at the end of each reporting period and if, regardless of the amortisation already recorded, an impairment loss occurs, the intangible asset is written down accordingly. If the reason for the impairment loss ceases to apply in subsequent years, its value is reinstated.
Amortization is applied systematically over the useful life of the assets based on the period that they are expected to be of use to the Group. The residual value of intangible assets at the end of their useful life is assumed to be zero, unless there is a commitment on the part of third parties to purchase the asset at the end of their useful life or there is an active market for them. As regards the item key money, it is pointed out that in France the protection provided to the tenant by the local law, supported by the market practice, allows the recognition of a recovering value of each trading position, even at the end of the contract. This led the Directors to estimate a residual value of the key money paid at the end of each lease.
The directors review the estimated useful life of intangible assets at the end of each period.
The following table summarizes the useful life (in years) of the various intangible assets:
| Trademarks | 10 years |
|---|---|
| Geox patents | 10 years |
| Other patents and intellectual property rights | 3-5 years |
| Key money | Period of the rental contract |
| Other intangible assets | Period of the rental contract |
Trademarks include the costs incurred to protect and disseminate them.
Geox patents include the costs incurred to register, protect and extend new technological solutions in various parts of the world. The other patents and intellectual property rights mainly relate to the costs of implementing and customizing software programs which are amortized in 3-5 years, taking into account their expected future use.
The item key money, which arose before IFRS16 came into force, include:
Goodwill represents the excess cost of acquisition compared with the fair value of the net assets of the company recently acquired. Goodwill is not amortized; instead, it is subjected to impairment testing at least once a year, and anyway, whenever there is evidence of a loss in value, in order to identify any loss in value of the asset.
Property, plant and equipment are booked at their purchase or construction cost, which includes the price paid for the asset (net of any discounts and allowances) and any directly-related purchasing and start-up costs. Property, plant and equipment are shown at cost, net of accumulated depreciation and write-downs/write backs.
The residual value of the assets, together with their estimated useful life, is reviewed at least once a year at the end of each accounting period and written down if it is found to be impaired, regardless of the amount of depreciation already charged.
The value is reinstated in subsequent years if the reasons for the write-down no longer apply.
Routine maintenance costs are charged in full to the income statement, whereas improvement expenditure is allocated to the assets concerned and depreciated over their residual useful life.
The following table shows the useful life in years related to the depreciation rates applied:
| Building | 20-30 years |
|---|---|
| Plant and machinery | 3-8 years |
| Photovoltaic plant | 11 years |
| Industrial and commercial equipment | 2-4 years |
| Moulds | 2 years |
| Office furniture | 8 years |
| Electronic machines | 3-5 years |
| Motor vehicles | 4 years |
| Internal transport and trucks | 5 years |
| Leasehold improvements | Period of contract * |
| Shop equipment | Lower of contract period and 8 years |
| Shop fittings | 4 years |
| Concept stores | 2-5 years |
* Depreciated over the lower of the useful life of the improvements and the residual duration of the lease.
Upon signing a contract, the Group assesses whether it is, or contains, a leasing agreement. In other words, if the contract grants the right to use a given asset for a period of time in exchange for a fee.
The Group applies a single model to recognise and measure all leasing contracts, with certain exceptions referring to short-term leases and the leasing of assets of modest value. The Group recognises liabilities relating to payments for leasing and assets for the right to use the assets referred to by the contract.
• Right-of-use assets
The Group recognises right-of-use assets as at the effective date of the lease. Right-of-use assets are valued at cost, net of accumulated amortisation and losses in value, and are adjusted for any revaluations of lease liabilities. Right-of-use assets are amortised using constant rates starting from the effective date of the lease and until the end of the useful life of the right-of-use asset. Right-of-use assets are subject to impairment.
• Lease liabilities
As at the effective date of the lease contract, the Group records the relative lease liabilities, measuring them as the current value of the payments due for the leasing and that have not yet been paid as at said date. Payments due include fixed payments (including fixed payments in terms of substance) net of any leasing incentives to be received, variable leasing payments that depend on an index or rate and amounts that are expected to be due as a guarantee on the residual value. Leasing payments also include the price to exercise the purchase option, if there is reasonable certainty that the Group will exercise said option, and the penalty payments for termination of the lease contract, if the duration of the lease takes into account the Group exercising the option to terminate the lease in question.
Variable leasing payments that do not depend on an index or rate are recorded as costs during the period in which the event or condition arises that generates the payment.
When calculating the current value of payments due, the Group uses the marginal financing rate as at the start date. After the effective date, the lease liability amount is increased to take into account the interest accruing on said lease liabilities and is reduced to take into account any payments made. Furthermore, the book value of lease liabilities is recalculated if any changes are made to the lease agreements or if the contractual terms and conditions are reviewed to alter payments; this is also recalculated if there are any changes to the valuation of the option to purchase the underlying asset or to future payments deriving from an alteration to the index or rate used to calculate said payments.
• Short-term leases and leases for assets of modest value The Group has decided not to recognise right-of-use assets and lease liabilities related to low-value assets and short-term leases. The Group recognises the related lease payments as an expense over the lease term.
The book value of the Geox Group's property, plant and equipment and intangible assets is reviewed whenever there is internal or external evidence that the value of such assets, or group of assets (defined as a Cash Generating Unit or CGU), may be impaired. Goodwill has to be subjected to impairment testing at least once a year.
Impairment tests are performed by comparing the book value of the asset or of the CGU with its realizable value, represented by its fair value (net of any disposal costs) or, if greater, the present value of the net cash flows that the asset or CGU is expected to generate.
If the book value of the asset is greater than its recoverable value, this asset is consequently impaired in order to align it to its recoverable value through use.
Each unit, to which the specific values of assets are allocated (tangible and intangible), represents the lowest level at which the Group monitors such assets. The Group's terms and conditions for reinstating the value of an asset that has previously been written down are those established by IAS 36. Write backs of goodwill are not possible under any circumstances
Financial instruments held by the Group are included in the following financial statements items:
Financial assets are measured at amortised cost or fair value, based on the Company's business model under which they are managed and on the characteristics of the contractual flows of these financial assets.
Specifically:
When the financial assets do not have a fixed term, they are measured at acquisition cost. Receivables with maturities of over one year which bear no interest or an interest rate significantly lower than market rates are discounted using market rates.
Assessments are made regularly as to whether there is any objective evidence that a financial asset or group of assets may be impaired. If any such evidence exists, an impairment loss is included in the income statement for the period.
Accounts receivable are initially recognized at their fair value and then presented net of the provision for bad debt determined in accordance with the impairment model introduced by IFRS 9 (expected losses model). The accrual for the doubtful debts found is charged to the income statement.
Receivables subject to impairment are written off when it's confirmed that they are not recoverable.
Receivables sold to the factor without recourse (pro-soluto) have been removed from the Balance Sheet as the relative contract transfers ownership of the receivables, together with all cash flows generated by said receivable and all related risks and benefits, to the factor.
Except for derivative instruments, financial liabilities are measured at amortized cost using the effective interest method.
Financial assets and liabilities hedged by derivative instruments are measured in accordance with hedge accounting principles applicable to fair value hedges: gains and losses arising from remeasurement at fair value, due to changes in relevant hedged risk, are recognized in the income statement and are offset by the effective portion of the loss or gain arising from remeasurement at fair value of the hedging instrument.
All derivative financial instruments are measured in accordance with IFRS 9 at fair value.
Derivative financial instruments are used for hedging purposes, in order to reduce currency, interest rate and market price risks. In accordance with IFRS 9, derivative financial instruments qualify for hedge accounting only when at the inception of the hedge there is formal designation and documentation of the hedging relationship and the hedge relationship is effective on the basis of the "economic relationship" between the hedged item and the hedge instrument.
When derivative financial instruments qualify for hedge accounting, the following accounting treatments apply:
If hedge accounting cannot be applied, the gains or losses from the fair value measurement of derivative financial instruments are recognized immediately in the income statement.
Inventories of finished products are measured at the lower of purchase or production cost and their estimated net realizable or replacement value. For raw materials, purchase cost is calculated at the weighted average cost for the period.
For finished products and goods, purchase or production cost is calculated at the weighted average cost for the period, including directly-related purchasing costs and a reasonable proportion of production overheads. Obsolete and slow-moving goods are written down according to the likelihood of them being used or sold.
Benefits paid to employees under defined-benefit plans on termination of employment (employee severance indemnities) are recognized over the period that the right to such benefits accrues. The liability arising under defined-
benefit plans, net of any assets servicing the plan, is determined using actuarial assumptions and recorded on an accrual basis in line with the work performed to earn the benefits.
The liability is assessed by independent actuaries.
The amount reflects not only the liabilities accrued up to the balance sheet date, but also future pay rises and related statistical trends.
The benefits guaranteed to employees through defined-contribution plans are recognized on an accrual basis; at the same time, they also give rise to the recognition of a liability at face value.
The fair value at grant date of the incentives granted to employees in the form of share-based payments, that are equity settled, is usually included in expenses with a corresponding increase in equity over the period during which the employees earn the incentives rights. The amount recognised as an expense is adjusted to reflect the actual number of incentives for which the conditions of continued employment and non-market performance are met, so that the final amount recognised as an expense, is based on the number of incentives that fulfil these conditions at the vesting date. In case the incentives granted as share-based payments whose conditions are not to be considered to maturity, the fair value at the grant date of the share-based payment is measured to reflect such conditions. With reference to the non-vesting conditions, any difference between amounts at the grant date and the actual amounts will have no impact on the Consolidated Financial Statements.
The fair value of the amount payable to employees related to share appreciation rights, settled in cash, is recognised as an expense with a corresponding increase in liabilities over the period during which the employees unconditionally become entitled to receive the payment. The liability is measured at year-end and the settlement date based on the fair value of the share appreciation rights.
Any changes in the fair value of the liability are recognised in profit or loss for the year.
Provisions for liabilities and charges are recognized when there is an effective obligation (legal or implicit) deriving from a past event, providing there will probably be an outlay of resources to settle the obligation and the amount of the obligation can be reliably estimated.
Provisions represent the best estimate of the amount that the business would have to pay to settle the obligation or transfer it to third parties at the balance sheet date. Provisions are determined by discounting the expected future cash flows, if the effect of discounting is significant.
The Geox Group creates, produces, promotes and distributes Geox-brand footwear and apparel, the main feature of which is the use of innovative and technological solutions that can guarantee the ability to breathe and remain waterproof at the same time. The Group's revenues include:
Revenue from the sale of goods is recognized when control of the asset is transferred to the buyer, i.e. when the asset is delivered to the customer in accordance with contractual provisions and the customer acquires the ability to direct the use of and obtain substantially all of the benefits from the asset. If the sales contract includes retrospective volume-related discounts, the Group estimates the relevant impact and treat it as variable consideration. Group estimates the impact of potential returns from customers. This impact is accounted for as variable consideration, recognizing a liability for returns and the corresponding asset in the statement of financial position. This estimate is based on the Group's right of return policies and practices along with historical data on returns.
The Group includes in the transaction price the variable considerations estimated (discounts and returns) only to the extent that it is highly probable that a significant reversal in the amount of recognized revenue will not occur in the future.
Retail revenue is recognized upon receipt of the goods by the customer at the retail location. The relevant consideration is usually received at the time of the delivery. Any advance payments or deposits from customers are not recognized as revenue until the product is delivered. Concerning sales through the ecommerce channel, the moment in which the customer obtains control of the asset is identified based on the specific terms and conditions applied by the on-line sales platforms used by the Group. In some countries, the Group allows customers to return the products for a certain period of time after the purchase: therefore, it estimates the relevant impact by accounting for it as variable consideration, recognizing the relevant assets and liabilities (see Sale of goods (Wholesale and Franchising)).
The estimate is based on the historical trend in returns, accounts for the time elapsed from the purchase date, and is regularly reviewed. The Group includes in the transaction price the variable considerations estimated only to the extent that it is highly probable that a significant reversal in the amount of recognized revenue will not occur in the future. There are no post-delivery obligations other than product warranties, if required by local law; these warranties do not represent a separate performance obligation.
The companies of the Retail division offer their customers discount programs or similar loyalty programs with a term of 12 months or greater. Customers who present a valid loyalty card receive a fixed percentage discount off the retail prices for a specified range of products and/or services. Revenue under these arrangements is recognized upon receipt of the products or services by the customer at the retail location.
The Group licenses the rights to use trademarks and/or patents to third parties and recognizes royalty revenues based on the characteristics of the contracts entered into with customers.
Rental income relates to the Geox Shops owned by the Group and leased to third parties under franchising agreements; rental income is recognized on an accrual basis.
Government grants are recognized in the financial statements when there is reasonable assurance of the Group's compliance with the conditions for receiving such grants and that the grants will be received. Government grants are recognized as income over the periods necessary to match them with the related costs which they are intended to offset.
Current income taxes for the period are calculated on the basis of taxable income in accordance with the tax rules in force in the various countries.
Geox S.p.A. joined, as parent company, a new domestic tax consolidation for three years (2014-2016), then renewed twice for other three years, with the two Italian subsidiaries Geox Retail S.r.l. and XLOG S.r.l..
Deferred tax assets and liabilities are recognized on temporary differences between the amounts shown in the balance sheet and their equivalent value for fiscal purposes. Deferred tax assets are also recognized on the tax losses carried forward by Group companies when they are likely to be absorbed by future taxable income earned by the same companies.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply in the various countries in which the Geox Group operates in the tax periods when the temporary differences reverse or expire.
The book value of deferred tax assets is reviewed at each balance sheet date and if necessary reduced to the extent that future taxable income is no longer likely to be sufficient to recover all or part of the assets. These write-downs are reversed if the reasons for them no longer apply. Income taxes on the amounts booked directly to equity are also charged directly to equity rather than to the income statement.
Basic EPS is calculated by dividing the net income attributable to the Parent Company's shareholders by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is calculated by dividing the net income attributable to the Parent Company's shareholders by the weighted average number of shares outstanding, taking into account the effects of all potentially dilutive ordinary shares (e.g. employee stock option plans).
The Group is subject to legal and tax litigations arising from the ordinary course of the business in the countries where it operates. Based on the information currently available, the Group believes that the provisions recognized as liabilities are sufficient to correctly represent the Consolidated Financial Statements.
We hereby inform that the parent company, Geox S.p.A., underwent an audit by the Guardia di Finanza, Economic and Financial Police Unit of Venice for the tax years 2016-2017-2018-2019-2020 in order to check compliance with the provisions of tax regulations for the purposes of VAT, income tax and other taxes.
The audit was concluded on June 27, 2022 with the notification of the relevant tax audit report (PVC). Faced with the findings contained in this document, the Company, as is its practice, reserved the right to provide the necessary clarifications within the envisaged timeframe, also through the filing of appropriate briefs, but already at the preliminary assessment stage, it emerges that, in the main findings made by the Guardia di Finanza, there are points that are highly questionable. To this end, the Company, supported by its tax advisors, believes that Geox S.p.A.'s actions are correct and that the position taken by the Guardia di Finanza in formulating the aforesaid findings is unfounded in fact and in law.
For the purposes of IFRS 8 "Operating segment," the activity carried out by the Group can be identified in a single operating segment referring to the Geox business.
2022 consolidated sales stood at Euro 735,517 thousand (Euro 608,915 thousand in 2021), up +20.8% compared to the previous year (+17.8% at constant forex). Sales are growing at double-digit rates in all distribution channels and in all major geographical areas).
Sales by product category are shown in the following table:
| 2022 | 2021 | Change | |
|---|---|---|---|
| Footwear | 663,066 | 546,917 | 116,149 |
| Apparel | 72,451 | 61,998 | 10,453 |
| Total sales | 735,517 | 608,915 | 126,602 |
Sales by region are shown in the following table:
| 2022 | 2021 | Change | |
|---|---|---|---|
| Italy | 194,754 | 153,801 | 40,953 |
| Europe | 327,901 | 278,283 | 49,618 |
| North America | 30,271 | 26,827 | 3,444 |
| Other Countries | 182,591 | 150,004 | 32,587 |
| Total sales | 735,517 | 608,915 | 126,602 |
As regards the sales made to individual customers, there are no situations of particular concentration as all are well under the threshold of 10% of total revenues.
Revenues from royalties amounted Euro 1,366 thousand, compared to Euro 1,147 thousand in 2021.
The cost of sales, amounting to Euro 386,287 thousand (Euro 324,653 thousand in 2021) was 52.5% of sales compared to 53.3% in 2021, resulting in a gross margin of 47.5% (46.7% in 2021).
The improved margin stems particularly from increased sales, reasoned price increases and the reduction in average markdowns at the direct stores (on average approx. 2 percentage points on 2021). These positive movements more than offset the impacts from the difficulties throughout the supply chain, the congestion at ports and the consequent increased use of air transport (air transport costs of approx. Euro 17 million in FY 2022), which particularly impacted the first half of the year. These criticalities, as previously reported, fortunately abated in the final part of the year and service levels of the entire supply chain remain good and in line with pre-pandemic levels.
The item includes an amount of Euro 9,925 thousand, as insurance indemnity, to compensate for the value of the impaired, and therefore written down, value of the goods as a result of the fire mentioned in Note 8.
Selling and distribution costs, were Euro 38,998 thousand (Euro 37,659 thousand in 2021) equal to 5.3% on sales (6.2% in 2021).
These costs include, mainly, the costs of the sales force, credit management costs, such as the cost of credit insurance, and transportation costs on sales.
Advertising and promotions costs, amounting to Euro 30,358 thousand (Euro 29,195 thousand in 2021) show an increase which is substantially due to the increased marketing initiatives undertaken in the period, in line with the Strategic Plan.
General and administrative expenses are analyzed in the following table:
| 2022 | 2021 | Change | |
|---|---|---|---|
| Wages and salaries | 103,102 | 92,705 | 10,397 |
| Rental and service charges | 11,120 | 6,233 | 4,887 |
| Services and consulting | 35,567 | 38,093 | (2,526) |
| Non industrial depreciation | 71,077 | 72,015 | (938) |
| Other costs | 68,108 | 65,347 | 2,761 |
| Total | 288,974 | 274,393 | 14,581 |
Wages and salaries grew from Euro 92,705 thousand to Euro 103,102 thousand, an increase of euro 10,397 thousand. The change from the previous year is mainly attributable to lesser use of forms of government aids implemented by the governments to address the exceptional circumstances of Pandemic.
Rental and service charges include costs related to short term contracts, variable rent on turnover contracts and those related to lease contracts for which the underlying asset is a low-value asset.
Rental and service charges relate to shops, offices and industrial property leased by the Group, and they show in 2022 an increase of Euro 4,887 thousand.
The increase was mainly due to the lower rent concession in 2022 as results of the negotiation with the landlords of the properties following the pandemic restrictions. Such concessions impacted the months between the end of 2020 and the first part of 2021 for lock-down periods that occurred in 2020, and the second part of 2021 for restrictions that occurred in the first part of 2021.
The economic benefits, which arose from negotiations with the landlords, were recognized as negative adjustments of rents, in line with the provision of the amendment of the IFRS16 accounting standard "Covid-19-Related Rent Concessions (Amendment to IFRS 16)", and amounted to Euro 1,737 thousand (Euro 7,034 thousand in 2021).
In addition to the benefits explained. the item includes service charges for an amount of Euro 6,680 thousand, variable rents for an amount of Euro 3,580 thousand, short term leases for Euro 2,314 thousand and lease contracts for which the underlying asset is classed as a "low-value assets" for an amount of Euro 1,334 thousand.
The item services and consulting, amounting to Euro 35,567 thousand, includes mainly logistics and warehousing services, outsourcing services, and information systems.
Non industrial depreciation, amounting to Euro 71,077 thousand and substantially in line with previous year, includes mainly the depreciation of Right-of-use assets, shops furniture, and software and hardware related to information systems.
Other costs, amounting to Euro 68,108 thousand, include mainly: other miscellaneous costs, sample development costs, maintenance, company officers' compensation, utilities, insurance, and bank fees.
It should be noted that General and administrative expenses include an amount of Euro 1,742 thousand as insurance compensation for the costs incurred in restoring goods exposed to smoke, as a consequence of the fire mentioned in Note 8.
The item includes research and development costs. Research and the ongoing conception and implementation of innovative solutions is a significant factor in the Group's strategies because, as already explained in the directors' report on operations, product innovation is fundamental to maintain and strengthen the Group's competitive advantage. Research and development is a complex corporate process, which ranges from the study of technical solutions involving materials that are able to breathe while remaining waterproof, to the concession of new patents and the development of new product lines.
This process can be broken down into the following stages:
Research and development makes use of dedicated personnel, who transmit the results of their work to all those (designers, product managers, production technicians, etc.) who take part in the definition, industrialization and production of the Group's products.
R&D costs are all charged to the profit and loss account for the year, as general and administrative expenses and amount to Euro 11,313 thousand (Euro 11,273 thousand in 2021).
The fees due to the Directors for 2022 amount to Euro 2,805 thousand (Euro 2,838 thousand in 2021) and those to executives with strategic responsibilities amount to Euro 2,592 thousand (Euro 2,694 thousand in 2021). These amounts include the fees due for performing the same functions in Geox S.p.A. and in other companies included in the scope of consolidation.
The fees due to statutory auditors for 2022 amount to Euro 177 thousand (Euro 175 thousand in 2021).
The following table details other revenues:
| 2022 | 2021 | Change | |
|---|---|---|---|
| Rental income | 1,318 | 1,236 | 82 |
| Insurance compensation | 5,961 | 106 | 5,855 |
| Government grants | 942 | 7,604 | (6,662) |
| Other | 5,143 | 2,756 | 2,387 |
| Total | 13,364 | 11,702 | 1,662 |
Rental income relates to the Geox Shops owned by the Group and leased to third parties under franchising agreements.
Insurance compensation, amounting to Euro 5,961 thousand, increased compared to previous year for an amount of Euro 5,855 thousand.
In late September, a fire broke out at a third-party warehouse located in Levada (TV). This logistics operator handled a substantial portion of Geox brand apparel, except for e-commerce. No personal injuries were reported and the fire was confined to a small part of the building. The smoke however affected about half of the warehouse. Items destroyed or contaminated by the fumes could not be recovered or put back into production.
These mainly concerned the final part of the Fall/Winter 2022 collection that had not yet been shipped to customers and directly owned stores, and to a lesser extent prior season items.
The Company is insured with adequate coverage against such events and by December 2022 had signed an agreement with the Insurance Company to quantify the compensation at sales value (including orders from its own retail companies) for the amount of destroyed products subject to unfulfilled orders and at cost value for those not subject to orders, relating mainly to prior seasons. All direct costs related to the handling of the claim or related claims were also included, as well as indirect costs on a lump-sum basis.
As a result, there was no impact on the operating result for the year, while there were effects on certain income statement items. The impacts in terms of reduced sales to third parties and the resulting reduced industrial margin were offset by a single net positive amount of Euro 5,833 thousand.
The total amount recognized by insurance is Euro 17,500 thousand. The remaining amounts, with respect to what has already been highlighted, are Euro 9,925 thousand, included in the cost of sales to compensate for the value of the impairment of the damaged stored goods, and Euro 1,742 thousand, included in general and administrative expenses to compensate for the costs incurred for the restoration of the goods exposed to smoke.
From a financial point of view, it should also be noted the collection by December 2022, of an advance payment of Euro 5,000 thousand, while the collection of the balance of Euro 12,500 thousand took place in February 2023.
Government grants, amounting to Euro 942 thousand, mainly refer to a grant of Euro 461 thousand, for investments in research, development and technological innovation, in relation to the 2021 projects pursuant to Article 1, paragraphs 198-209, of Law No. 160/2019 and to a grant of Euro 84 thousand, for investments in the specialized press and radio and television pursuant to Article 57 bis, paragraph 1, Decree Law No. 50 of April 24, 2017, and subsequent amendments.
The item Other includes mainly sales of miscellaneous goods.
The following table includes the total value of depreciation and amortization for the year, shown in the movements in fixed assets shown in Notes 16, 17 and 18, net of provisions and releases of impairment funds:
| 2022 | 2021 | Change | |
|---|---|---|---|
| Industrial depreciation | 4,087 | 3,720 | 367 |
| Non-industrial depreciation and amortization | 71,077 | 72,015 | (938) |
| Total | 75,164 | 75,735 | (571) |
Industrial depreciation increased from Euro 3,720 thousand to Euro 4,087 thousand and refers mainly to molds for shoes soles.
Non-industrial depreciation and amortization went from Euro 72,015 thousand to Euro 71,077 thousand and refer mainly to Right-of-use assets, shops furniture, and software and hardware related to information systems.
Payroll costs from continuing operations amounted to Euro 123,422 thousand (Euro 113,974 thousand in 2021). The increase in payroll costs compared to the previous year is mainly due to lesser use of forms of government aids implemented by the governments to address the exceptional circumstances of Pandemic, partially offset by the reduction of employees, following the restructuring of some subsidiaries and the rationalization of the store network managed directly by the Group. The item also includes the notional cost related to the accounting treatment of stock grant plans in accordance with IFRS 2. In 2022, the amount of rights granted entitling to the free assignment of 1 share of the Company, for each Right granted, to members of the Board of Directors and Executives with Strategic Responsibilities is 3,052,327 in the amount of Euro 874 thousand, included in personnel costs.
The following describes the approach followed and the assumptions adopted in carrying out the impairment test designed to verify the recoverability of the Group's assets. Recoverable value is based on value in use determined on the basis of projections of estimated future cash flows.
On Feb. 2, 2023, the Board of Directors approved the financial projections for the period 2023-2027, which confirm the main objectives and strategies defined in the Strategic Plan 2022-2024 prepared and approved by the Board of Directors on Dec. 1, 2021, and also used for the purposes of the valuations related to the 2021 financial statements.
These financial projections were prepared from the approved Group budget for 2023 and considering for the period 2024-2027 the ongoing implementation of the Group's Strategic Plan confirming its long-term objectives in terms of volumes and margins.
In estimating growth over the Plan period, the Group took into account both its own internal expectations and indications obtained from independent external sources.
This Business Plan marks an important moment of discontinuity for the Group and represents the second stage in a five-year strategic pathway started at the beginning of 2020. It aims at establishing a new, more digital and more efficient Geox more focused on customer and distribution centricity in the most relevant countries for the Group.
The Group's transformation process consisted of two stages: the first "Focus on the Core" (2020-2021) strongly rationalised and deeply transformed the business model to fully integrate the physical and digital channels and create greater coherence with consumers' purchasing choices; the second "Bigger and Better" (2022-2024) which, by leveraging the initiatives in place, seeks to increase the importance of the brand's values, the consumer audience and the Group's profitability.
Between 2020 and 2021 the Group undertook significant rationalisation of unprofitable activities (including the closure of 20% of the stores and the shutting down of the production facility in Serbia), established a more streamlined organisational structure, included new managerial figures in the most important areas of the business and accelerated the most important investments for future growth (digital infrastructure, staff training and sustainability). In parallel to these actions, the Group started a program to relaunch the brand relevance supported by an increase in investment in advertising and in all the activities needed to establish a product portfolio and a distribution structure which are more targeted and focused on Geox' core customers.
The Strategic Plan envisaged the following assumption which are considered by the Directors to be still valid at the date of approval of the draft financial statements for 2022:
The test envisaged a first phase in which the recoverability of the invested capital in each store managed directly by the Group (DOS) was verified. At that stage for each of the cash-generating units (CGUs) identified by the Group, the recoverable value is based on the value in use, calculated using estimated future cash flows.
Regarding the assets of the stores analysed, total assets of Euro 194 million (of which Right-of-use assets for Euro 160 million) were tested, as of December 31, 2022. This methodology is consistent with what was done last year in which total assets for Euro 174 million (of which Right-of-use assets for Euro 137 million) were tested.
As part of the Strategic Plan, the shop network is expected to remain substantially stable, but with further optimisation of directly operated shops in Italy and Europe, which will be more than offset by new openings of nonoperated franchise shops, especially in Eastern Europe.
For each store, the forecast period is in line with the expected duration of the relative lease agreement, making the necessary projections to cover the years following said forecast time frames. In order to calculate the current value, future cash flows obtained in this way have been discounted using a WACC as at the reference date of the test, taking into consideration the specific characteristics and risks of each area in which the Group operates, between 7.6% and 24.0% (24% refers to the Russian market, while the highest value excluding Russia is 9.6% for Italy).
The Directors therefore proceeded to write down, in whole or in part, assets relating to 70 shops (CGUs), compared
to the 63 shops written down as at December 31, 2021. It is important to highlight that as of December 31, 2022, the impaired stores include 24 stores in the China area (compared to 4 in the previous period). In China, the Group operates in the retail channel mainly through shop-in-shops within shopping malls; therefore, these are small stores, which are not comparable with the sales and investment volumes of stores on the streets.
The total impairment provision allocated as an adjustment to fixed assets as of December 31, 2022, amounted to Euro 5,927 thousand, while it was Euro 8,446 thousand as of December 31, 2021. The reduction from the previous year is mainly attributable to the closure of 26 stores operated directly by the Group that had been written down at the end of 2021 for which the allocated provision was used in 2022. With reference to the outcomes of the impairment test, it should be noted that the amount of impairments made at the end 2022 compared to is also significantly affected by the gradual process of depreciation of the tested assets (notes 16,17 and 18). In fact, it should be recalled how the Group continues to depreciate the assets subject to impairment and at the same time proceeds to release the impairment fund, thus not adjusting, as a result of the impairment, the value on which to calculate depreciation.
Changes in the impairment fund for the different categories of fixed assets is shown below:
| Intangible assets |
Property, plant Right-of-use and equipment |
Total | ||
|---|---|---|---|---|
| Impairment fund as at 31-12-2021 | (5,339) | (1,827) | (1,280) | (8,446) |
| Provisions | (320) | (1,687) | (2,437) | (4,444) |
| Releases | 4,071 | 1,096 | 925 | 6,092 |
| Utilization for stores closed | 483 | 342 | - | 825 |
| Translation differences and other movements | 2 | 21 | 23 | 46 |
| Change in impairment fund | 4,236 | (228) | (1,489) | 2,519 |
| Impairment fund as at 31-12-2022 | (1,103) | (2,055) | (2,769) | (5,927) |
Next phase of the impairment test was carried out by the Directors at a higher level in order to assess the recoverability of the Group's net invested capital, including goodwill amounting to Euro 1,138 thousand. An asset-side approach was instead used to check the recoverable value of the Group's goodwill and net invested capital, comparing the value in use of each cash generating unit with the relative carrying amount. For the purposes of the impairment test, a five-year time period was taken into consideration, hypothesizing that the trend recorded in 2024 shall continue into 2025-2027, and projecting a growth rate ("g" rate) of 2.2%.
The discount rate is calculated using the weighted average cost of capital ("WACC"), i.e. by weighting the expected rate of return on invested capital, net of funding costs, for a sample of companies operating in the same sector. The calculation took into account the changed economic scenario compared with the previous year, as well as the consequent implications in terms of interest rates. The WACC was calculated as being equal to 10.7%. This is a weighted WACC based on the different countries in which the Group operates.
As a result, the impairment test shows a positive coverage, sufficient to support the Group's net invested capital and goodwill and, therefore, no further write-downs are necessary compared to those already accounted for in previous years with reference to the impairment test on shops
The Group also completed the usual sensitivity analyses in order to highlight any effects that a reasonable change in the basic assumptions (WACC and growth rates) would have on the "value in use". The sensitivity analysis carried out on "intermediate" scenario shows that, in order to make the "value in use" equal to the value of net invested capital (breakeven hypothesis), the following parameters would need to change, considered individually and if nothing else changes: i) a WACC increase to 18.7%, ii) a "g" growth rate used in the terminal value of less than 0; and iii) a reduction in Gross Operating Profit (EBITDA pre IFRS 16) in the explicit period of approximately 32%.
The average number of employees is shown below:
| 2022 | 2021 | Change | |
|---|---|---|---|
| Managers | 43 | 44 | (1) |
| Middle managers and office staff | 858 | 893 | (35) |
| Shop employees | 2,065 | 2,105 | (40) |
| Factory workers | 1 | 718 | (717) |
| Total | 2,967 | 3,760 | (793) |
The average number of employees for 2022 amounted to 2,967, showing a reduction of 793 compared to 2021 mainly due mainly due to closure of the production plant in Serbia.
This item is made up as follows::
| 2022 | 2021 | Change | |
|---|---|---|---|
| Financial income | 2,709 | 2,112 | 597 |
| Financial expenses | (15,369) | (10,448) | (4,921) |
| Total | (12,660) | (8,336) | (4,324) |
| 2022 | 2021 | Change | |
|---|---|---|---|
| Interest from banks | 351 | 37 | 314 |
| Interest from customers | 67 | 27 | 40 |
| Other interest income | 2,291 | 1,789 | 502 |
| Gains on exchange rate differences | - | 259 | (259) |
| Total | 2,709 | 2,112 | 597 |
Other interest income mainly includes the time value effect referring to derivative financial instruments mentioned in note 37.
Financial expenses are made up as follows:
| 2022 | 2021 | Change | |
|---|---|---|---|
| Bank interest and charges | 206 | 43 | 163 |
| Interest on loans | 1,810 | 1,485 | 325 |
| Interest on leases | 3,785 | 3,611 | 174 |
| Other interest expense | 5,433 | 2,548 | 2,885 |
| Financial discounts and allowances | 3,168 | 2,761 | 407 |
| Losses on exchange rate differences | 967 | - | 967 |
| Total | 15,369 | 10,448 | 4,921 |
Interest on loans increases by Euro 325 thousand compared to previous year, as a result of the increase in the average borrowing rate in 2022 compared to 2021.
Other interest expense mainly includes the time value effect referring to derivative financial instruments mentioned in Note 37.
Interest on leases relate to the application of the accounting standard IFRS 16. The weighted average of the interest borrowing rate (IBR) of the year is 1.7%.
Income taxes in 2022 amount to Euro 4,625 thousand, compared to Euro 6,419 thousand in 2021.
| 2022 | 2021 | Change | |
|---|---|---|---|
| Current taxes | (1,846) | (743) | (1,103) |
| Deferred taxes | (2,779) | (5,676) | 2,897 |
| Total | (4,625) | (6,419) | 1,794 |
The following table shows reconciliation between the Group's effective tax burden and its theoretical tax charge, based on the current tax rate in force during the period in Italy (the country of Geox S.p.A., the Parent Company):
| 2022 | % | 2021 | % | |
|---|---|---|---|---|
| PBT | (8,396) | 100.0% | (53,268) | 100.0% |
| Theoretical income taxes (*) | (2,015) | 24.0% | (12,784) | 24.0% |
| Effective income taxes | 4,625 | n.a. | 6,419 | n.a. |
| Difference due to: | 6,640 | n.a. | 19,203 | n.a. |
| 1) different tax rates applicable in other countries | 136 | n.a. | 293 | n.a. |
| 2) permanent differences: | ||||
| i) IRAP and other local taxes | 740 | n.a. | 329 | n.a. |
| ii) writedowns of deferred tax asset | 5,455 | n.a. | 19,504 | n.a. |
| iii) previous years' taxes and other taxes | 309 | n.a. | (923) | n.a. |
| Total difference | 6,640 | n.a. | 19,203 | n.a. |
(*) Theoretical income taxes based on the tax rates applicable to Geox S.p.A.
It should be noted that the total amount of the deferred tax assets does not include the tax benefits associated with the tax losses of fiscal years 2021and 2022, which amounted to respectively Euro 19,504 thousand and Euro 5,455 thousand. For such amounts, as at the date of this report, there is no reasonable certainty that taxable income, over the period of the Strategic Plan, will allow their recovery, in addition to the deferred tax assets already recorded in the financial statement. This valuation approach is due to the significant complexity and volatility related to the international geopolitical situation which has required management to take a prudent approach and to await therefore the return also to a pre-tax profit, before recognizing additional deferred tax assets.
The shutting down of the production facility in Serbia in mid-2021 qualifies as "Discontinued Operations" under IFRS 5. As a result, revenues and income and costs and expenses were all reclassified under this specific item in the 2021, totalling Euro 2,460 thousand.
The following table shows the breakdown of this item to the net result 2022, compared with 2021:
| 2022 | of which related parties |
2021 | of which related parties |
|
|---|---|---|---|---|
| Sales from discontinued operations | - | - | ||
| Cost of sales | - | - | (198) | 1,155 |
| Gross profit from discontinued operations | - | (198) | ||
| General and administrative expenses | - | (173) | ||
| EBIT from discontinued operations | - | (371) | ||
| Net financial expenses | - | (90) | ||
| PBT from discontinued operations | - | (461) | ||
| Income tax | - | (1.999) | ||
| Net result from discontinued operations | - | (2,460) |
It should be noted that the State Aid Control Commission of the Republic of Serbia, with a resolution dated August 5, 2021, and pursuant to the Law on State Aid Control, initiated an ex-post control procedure in relation to the disbursement of state aid by the Ministry of Economy and the City of Vranje in favour of the Geox Group, for the implementation of the investment project of the production site located in the city of Vranje. The state aid was disbursed on the basis of the Funds Disbursement Resolution of October 1st,2012, formalised with a Funds Disbursement Agreement for Direct Investments of October 8, 2012 signed between the Serbian Ministry of Finance and Economy and Geox.
On November 1st, 2021, the State Aid Control Commission issued a resolution stating that the state aid, which the Ministry of Economy and the City of Vranje disbursed to the Group, for the implementation of the investment project, was disbursed in contravention of the Law on State Aid Control. For this reason, at the beginning of 2022, the Ministry of Economy of the Republic of Serbia initiated legal proceedings against the Serbian subsidiary TDV d.o.o. in liquidation aimed at ascertaining this violation and the consequent repayment of part of the funds granted at the time. The amount of the claim amounts to a countervalue of approximately Euro 3.5 million.
The Group, with the support of its legal advisors appointed to follow the litigation, believes, although aware of the existence of elements of uncertainty and chance inherent in any litigation, that its position is supported by valid legal reasons, having fully complied with the Agreement for the disbursement of funds for direct investments signed between the parties, and that therefore the Commission's allegations are unfounded and consequently what is claimed and requested in court by the Serbian Ministry of the Economy.
For this reason, no provisions are included in the 2022 budget on the basis of any negative effects arising from the above litigation.
EPS is calculated by dividing the net income for the period attributable to the ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is calculated by dividing the net income for the period attributable to the Parent Company's shareholders by the weighted average number of shares outstanding during the period, taking into account the effects of all potentially dilutive ordinary shares (for example, vested options under a stock option plan that have not yet been exercised).
The following table shows the result and the number of ordinary shares used to calculate basic and diluted EPS in accordance with IAS 33:
| 2022 | 2021 | |
|---|---|---|
| Earning/(Loss) per share (Euro) | (0.05) | (0.24) |
| Diluted earning/(loss) per share (Euro) | (0.05) | (0.24) |
| Weighted average number of shares outstanding: | ||
| - basic | 255,211,081 | 255,211,081 |
| - diluted | 261,933,168 | 262,022,690 |
Intangible assets are made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Industrial patents and intellectual property rights | 15,068 | 14,800 | 268 |
| Trademarks, concessions and licenses | 251 | 298 | (47) |
| Key money | 14,575 | 14,050 | 525 |
| Assets in progress and payments on account | 3,158 | 1,567 | 1,591 |
| Goodwill | 1,138 | 1,138 | - |
| Total | 34,190 | 31,853 | 2,337 |
The following table shows the changes in intangible assets during 2022:
| Industrial patents and intellectual property rights |
Trademarks, concessions and licenses |
Key money |
Assets in progress and payments on account |
Goodwill | Total | |
|---|---|---|---|---|---|---|
| Historical value at 31-12-2021 | 105,422 | 115,706 | 73,174 | 1,567 | 1,789 | 297,658 |
| Accumulated depreciation at 31-12-2021 | (90,622) | (115,408) | (53,785) | - | (651) | (260,466) |
| Impairment fund at 31-12-2021 | - | - | (5,339) | - | - | (5,339) |
| Net book value at 31-12-2021 | 14,800 | 298 | 14,050 | 1,567 | 1,138 | 31,853 |
| Additions | 7,770 | 25 | - | 2,192 | - | 9,987 |
| Disposals | (1,117) | (3) | (6,424) | - | - | (7,544) |
| Translation differences and other movements | 611 | - | (12) | (601) | - | (2) |
| Change in historical value | 7,264 | 22 | (6,436) | 1,591 | - | 2,441 |
| Amortization | (8,107) | (72) | (2,782) | - | - | (10,961) |
| Decreases | 1,117 | 3 | 5,480 | - | - | 6,600 |
| Translation differences and other movements | (6) | - | 27 | - | - | 21 |
| Change in amortization fund | (6,996) | (69) | 2,725 | - | - | (4,340) |
| Provisions | - | - | (320) | - | - | (320) |
| Releases | - | - | 4,071 | - | - | 4,071 |
| Utilization for stores closed | - | - | 483 | - | - | 483 |
| Translation differences and other movements | - | - | 2 | - | - | 2 |
| Change in impairment fund | - | - | 4,236 | - | - | 4,236 |
| Total change in the period | 268 - |
(47) - |
525 - |
1,591 - |
- - |
2,337 - |
| Historical value at 31-12-2022 | 112,686 | 115,728 | 66,738 | 3,158 | 1,789 | 300,099 |
| Accumulated depreciation at 31-12-2022 | (97,618) | (115,477) | (51,060) | - | (651) | (264,806) |
| Impairment fund at 31-12-2022 | - | - | (1,103) | - | - | (1,103) |
| Net book value at 31-12-2022 | 15,068 | 251 | 14,575 | 3,158 | 1,138 | 34,190 |
Investments during the period mainly concern:
Movements in the impairment fund are the result of the impairment test on non current assets relating to the stores, as further described in Note 10.
Details of property, plant and equipment are shown in the following table:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Changes | |
|---|---|---|---|
| Plant and machinery | 3,312 | 3,191 | 121 |
| Industrial and commercial equipment | 3,439 | 2,746 | 693 |
| Other assets | 9,008 | 10,506 | (1,498) |
| Leasehold improvements | 17,606 | 18,881 | (1,275) |
| Assets in progress and payments on account | 1,112 | 549 | 563 |
| Total | 34,477 | 35,873 | (1,396) |
The following table shows the changes in property, plant and equipment during 2022:
| Plant and machinery |
Industrial and commercial equipment |
Other assets |
Leasehold improvements |
Assets in progress and payments on account |
Total | |
|---|---|---|---|---|---|---|
| Historical value at 31-12-2021 | 24,233 | 32,294 | 59,766 | 82,082 | 549 | 198,924 |
| Accumulated depreciation at 31-12-2021 | (21,011) | (29,543) | (48,781) | (61,889) | - | (161,224) |
| Impairment fund at 31-12-2021 | (31) | (5) | (479) | (1,312) | - | (1,827) |
| Net book value at 31-12-2021 | 3,191 | 2,746 | 10,506 | 18,881 | 549 | 35,873 |
| Additions | 1,278 | 3,591 | 3,546 | 6,019 | 816 | 15,250 |
| Disposals | (127) | (1,385) | (6,052) | (7,715) | (1) | (15,280) |
| Translation differences and other movements | 1 | (12) | 125 | 237 | (252) | 99 |
| Change in historical value | 1,152 | 2,194 | (2,381) | (1,459) | 563 | 69 |
| Amortization | (1,166) | (2,871) | (4,751) | (6,832) | - | (15,620) |
| Decreases | 105 | 1,379 | 5,861 | 7,018 | - | 14,363 |
| Translation differences and other movements | (1) | 11 | (61) | 71 | - | 20 |
| Change in amortization fund | (1,062) | (1,481) | 1,049 | 257 | - | (1,237) |
| Provisions | - | (26) | (531) | (1,130) | - | (1,687) |
| Releases | 31 | 5 | 331 | 729 | - | 1,096 |
| Utilization for stores closed | - | 1 | 28 | 313 | - | 342 |
| Translation differences and other movements | - | - | 6 | 15 | - | 21 |
| Change in impairment fund | 31 | (20) | (166) | (73) | - | (228) |
| Total change in the period | 121 | 693 | (1,498) | (1,275) | 563 | (1,396) |
| Historical value at 31-12-2022 | 25,385 | 34,488 | 57,385 | 80,623 | 1,112 | 198,993 |
| Accumulated depreciation at 31-12-2022 | (22,073) | (31,024) | (47,732) | (61,632) | - | (162,461) |
| Impairment fund at 31-12-2022 | - | (25) | (645) | (1,385) | - | (2,055) |
| Net book value at 31-12-2022 | 3,312 | 3,439 | 9,008 | 17,606 | 1,112 | 34,477 |
Investments mainly concern:
Movements in the impairment fund are the result of the impairment test on non current assets relating to the stores, as further described in Note 10.
The item "Other assets" is made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Electronic machines | 2,812 | 3,490 | (678) |
| Furniture and fittings | 5,810 | 6,579 | (769) |
| Motor vehicles and internal transport | 386 | 437 | (51) |
| Total | 9,008 | 10,506 | (1,498) |
Right-of-use assets are made up as follows:
| Balance at 31-12-2022 |
Balance at 31-12-2021 |
Change | |
|---|---|---|---|
| Right-of-use - Apartments | 395 | 491 | (96) |
| Right-of-use - Building | 223,187 | 202,242 | 20,945 |
| Right-of-use - Cars and Trucks | 691 | 941 | (250) |
| Total | 224,273 | 203,674 | 20,599 |
The following table shows the changes in property, plant and equipment during 2022:
| Right-of-use - Apartments |
Right-of-use - Building |
Right-of-use - Cars and Trucks |
Total | |
|---|---|---|---|---|
| Historical value at 31-12-2021 | 1,205 | 346,098 | 2,115 | 349,418 |
| Accumulated depreciation at 31-12-2021 | (714) | (142,576) | (1,174) | (144,464) |
| Impairment fund at 31-12-2021 | - | (1,280) | - | (1,280) |
| Net book value at 31-12-2021 | 491 | 202,242 | 941 | 203,674 |
| Additions | 178 | 72,111 | 328 | 72,617 |
| Disposals | (196) | (20,479) | (284) | (20,959) |
| Translation differences and other movements | - | 47 | - | 47 |
| Change in historical value | (18) | 51,679 | 44 | 51,705 |
| Amortization | (272) | (49,384) | (575) | (50,231) |
| Decreases | 196 | 20,479 | 284 | 20,959 |
| Translation differences and other movements | (2) | (340) | (3) | (345) |
| Change in amortization fund | (78) | (29,245) | (294) | (29,617) |
| Provisions | - | (2,437) | - | (2,437) |
| Releases | - | 925 | - | 925 |
| Utilization for stores closed | - | - | - | - |
| Translation differences and other movements | - | 23 | - | 23 |
| Change in impairment fund | - | (1,489) | - | (1,489) |
| Total change in the period | (96) | 20,945 | (250) | 20,599 |
| Historical value at 31-12-2022 | 1,187 | 397,777 | 2,159 | 401,123 |
| Accumulated depreciation at 31-12-2022 | (792) | (171,821) | (1,468) | (174,081) |
| Impairment fund at 31-12-2022 | - | (2,769) | - | (2,769) |
| Net book value at 31-12-2022 | 395 | 223,187 | 691 | 224,273 |
The increases refer to new lease contracts signed over the course of the year, mainly for Geox Shops, or renegotiations of existing contracts.
Movements in the impairment fund are the result of the impairment test on non current assets relating to the stores, as further described in Note 10.
The following table analyses the change in deferred tax assets and the nature of the items and temporary differences that gave rise to them. The Group has offset the deferred tax assets and liabilities as the law permits the compensation of fiscal assets with fiscal liabilities.
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Carry-forward tax losses | 5,348 | 5,178 | 170 |
| Depreciation and amortization and impairment | 5,244 | 6,189 | (945) |
| Provision for obsolescence and slow-moving inventory and returns | 13,611 | 12,948 | 663 |
| Provision for agents' severance indemnities | 470 | 526 | (56) |
| Other | 7,172 | 9,459 | (2,287) |
| Deferred tax assets | 31,845 | 34,300 | (2,455) |
| Evaluation derivates | (2,256) | (3,713) | 1,457 |
| Other | (367) | (213) | (154) |
| Deferred tax liabilities | (2,623) | (3,926) | 1,303 |
| Total deferred taxes | 29,222 | 30,374 | (1,152) |
Deferred tax assets, net of deferred tax liabilities, were analysed and written down, to the extent that sufficient future taxable income is not expected to be available to allow for them to be partially or fully used. In order to calculate projections of future taxable income, considered for the purposes of recovering the prepaid tax assets of Group companies, reference was made to the aforementioned Strategic Plan as described in note 10 and 13.
The deferred tax assets on carry-forward tax losses mainly relate to the tax loss generated during 2019 by the parent company Geox S.p.A. as part of the domestic tax consolidation with the Italian subsidiaries Geox Retail S.r.l. and Xlog. S.r.l. which is considered recoverable in the time frame covered by the aforementioned Strategic Plan.
It should be noted that no deferred tax assets have been recognized in respect of the tax losses of the parent company and of the other Italian subsidiaries, for the years 2020-2022, for a total amount of 36,040 thousand, as well as those of the foreign subsidiaries in markets such as USA, Canada and China, for which, at the date of this report, there is no reasonable certainty that taxable income, over the period of the Strategic Plan, will allow their recovery.
Derivatives that are defined as cash flow hedges and valued on a mark-to-market basis booked directly to equity require all related taxes also to be booked directly to equity and not to the income statement. The deferred tax liabilities booked directly to equity amount to Euro 2,256 thousand (tax assets amounting to Euro 3,713 thousand in 2021).
Deferred tax assets included in "Other" are mainly related to the provision for bad and doubtful accounts and provisions for liabilities and charges.
Deferred tax assets have been calculated at the tax rates applied in the various countries concerned.
Other non-current assets are made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Accounts receivable from others in 1 to 5 years Accounts receivable from others in more than 5 years |
4,418 2,170 |
6,696 1,058 |
(2,278) 1,112 |
| Total | 6,588 | 7,754 | (1,166) |
Non-current assets mainly relate to guarantee deposits for utilities and shop leases.
The following table shows the breakdown of inventories:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | ||
|---|---|---|---|---|
| Raw materials | 4,926 | 6,620 | (1,694) | |
| Finished products and goods for resale | 284,902 | 233,482 | 51,420 | |
| Furniture and fittings | 337 | 218 | 119 | |
| Total | 290,165 | 240,320 | 49,845 |
Inventories of finished products also include goods in transit acquired from countries in the Far East and the costs related to the expected returns on sales.
The value of finished product inventories increases by Euro 51,420 thousand compared to 2021. This increase mainly relates to the purchase of finished goods from the current and future seasons, and this also explains the increase in accounts payable.
Furniture and fittings relate to furnishings that will be used or sold to franchisees for opening new Geox Shops.
The book value of inventories is not significantly different from their current cost at the end of the period.
Inventories are shown net of the provision for obsolete and slow-moving inventory, deemed appropriate for the measurement at estimated realizable value of finished products from previous collections and raw materials no longer used.
The provision for obsolete and slow-moving inventory is analyzed below:
| Balance at January 1 | 27,053 |
|---|---|
| Provisions | 18,550 |
| Translation differences | 67 |
| Utilizations | (13,329) |
| Balance at December 31 | 32,341 |
The write-down mainly reflects the adjustment to the market value of inventories based on the sales forecasts illustrated above.
Accounts receivable are made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Gross value | 103,070 | 95,771 | 7,299 |
| Provision for bad and doubtful accounts | (19,072) | (26,844) | 7,772 |
| Net value | 83,998 | 68,927 | 15,071 |
Accounts receivable amounted to Euro 103,070 thousand at December 31, 2022, showing an increase of Euro 7,299 thousand compared to December 31, 2021. The receivables portfolio is healthy and increasing in line with sales.
It has to be noted that this item was influenced by non-recourse factoring transactions, amounting to Euro 21,056 thousand (Euro 12,120 thousand in 2021).
The following is an ageing analysis of accounts receivable:
| Not yet due |
Past due 0 - 90 days |
Past due 91 - 180 days |
Past due over 180 days |
Total | |
|---|---|---|---|---|---|
| Gross value of trade receivables at December 31, 2022 | 71,714 | 11,893 | 4,016 | 15,447 | 103,070 |
| Gross value of trade receivables at December 31, 2021 | 59,352 | 12,579 | 2,430 | 21,410 | 95,771 |
As regards the sales made to individual customers, there are no situations of particular concentration as all are well under the threshold of 10% of total revenues.
The book value of trade receivables coincides with their fair value.
The Group continues to maintain tight control over credit. This management practice ensures that the investment in working capital is limited. Accounts receivable are adjusted to their estimated realizable value by means of a provision for bad and doubtful accounts based on a review of individual outstanding balances. The provision at December 31, 2021 represents a prudent estimate of the current collection risk.
Changes in the provision during the year are as follows:
| Balance at January 1 | 26,844 |
|---|---|
| Provisions | 164 |
| Translation differences | 1 |
| Utilizations | (7,937) |
| Balance at December 31 | 19,072 |
The risk of customer insolvency is significantly mitigated as specific contracts with leading credit insurance companies cover credit risk on most of the turnover. The clauses provide that, initially, the insurance is configured solely as a
request to accept the credit risk up to previously agreed credit limits. The insurance does become operating only after a formal communication of non-payment within the stipulated time. The decrease in the provision reflects the trend in past due over 180 days shown in the table. This is explained by the cancellation in 2022 of some past due receivables as a result of bankruptcies.
This item is made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Tax credits | 2,333 | 3,815 | (1,482) |
| VAT recoverable | 5,930 | 10,922 | (4,992) |
| Advances to vendors | 3,690 | 2,617 | 1,073 |
| Other receivables | 16,524 | 9,423 | 7,101 |
| Accrued income and prepaid expenses | 3,544 | 4,248 | (704) |
| Total | 32,021 | 31,025 | 996 |
Other receivables include:
Prepaid expenses mainly include prepayments for rentals and maintenances.
The book value of the financial assets shown below coincides with their fair value.
The following table shows the breakdown of this item:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Term bank deposits | 27 | 26 | 1 |
| Total non current financial assets | 27 | 26 | 1 |
| Fair value derivative contracts | 26,902 | 19,582 | 7,320 |
| Other current financial assets | 4,043 | 2,831 | 1,212 |
| Total current financial assets | 30,945 | 22,413 | 8,532 |
The term bank deposits of Euro 27 thousand include amounts lodged to guarantee rent contracts on foreign shops.
As regards the mark-to-market derivative contracts, see the comments in note 37.
The item "Other current financial assets" amounting to Euro 4,043 thousand includes mainly, sums deposited as guarantee for the purpose of the e-commerce business.
The amount of Euro 24,303 thousand relates to short term deposits for Euro 2,788 thousand, to current account in Euro for Euro 10,264 thousand, in British Pound for Euro 1,203 thousand, in US Dollar for Euro 3,006 thousand, in Rouble for Euro 1,468 thousand, in Swiss Franc for Euro 1,254 thousand, in Chinese Yuan for Euro 1,003 thousand, other currencies for the rest. The term deposits relate to investments of surplus cash remunerated at a rate linked to Euribor. The cash on the current account in US Dollars is used to pay suppliers in the Far East when their invoices fall due; it has a yield substantially in line with the reference rate.
The book value of the financial assets and liabilities shown below coincides with their fair value.
The share capital of Euro 25,921 thousand is fully paid and is made up of 259,207,331 shares with a par value of Euro 0.10 each. As at December 31, 2022, the treasury shares held by the Company amount to 3,996,250 corresponding to 1,54% of the share capital.
This item is made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Legal reserve | 5,184 | 5,184 | - |
| Share premium reserve | 37,678 | 37,678 | - |
| Translation reserve | (5,451) | (4,418) | (1,033) |
| Reserve for cash flow hedges | 7,141 | 11,756 | (4,615) |
| Reserve for stock options | 3,904 | 1,980 | 1,924 |
| Reserve for treasury shares | (5,051) | (5,051) | - |
| Retained earnings | 51,905 | 113,679 | (61,774) |
| Total | 95,310 | 160,808 | (65,498) |
The legal reserve amounts to Euro 5,184 thousand. This reserve is not distributable.
The share premium reserve was set up mainly in 2004 as a result of the public offering of shares which increased the share capital by Euro 850 thousand, then this reserve was increased following the exercise of the stock option plans reserved for management.
The reserve for cash flow hedges, for Euro 7,141 thousand, originated as a result of valuing the financial instruments defined as cash flow hedges at 31 December 2022. Fair value valuation of cash flow hedges is stated net of the tax effect as explained in greater detail in note 37. This reserve is not distributable.
Reserve for treasury shares, for Euro 5,051 thousand, originated during 2019 in execution of a program to purchase treasury shares to service the Stock Grant Plans.
The reduction in item Retained earnings refers to the 2021 loss carried forward.
Amounts are shown net of tax, where applicable.
Employee benefits at 31 December 2022 amount to Euro 1,875 thousand as shown below:
| Balance at December 31, 2021 | 2,411 |
|---|---|
| Increase for acquisition | 30 |
| Reversal of 0.50% withholding | (251) |
| Reversal of 17% flat-rate tax | (12) |
| Payments to supplementary pension schemes | (1,175) |
| Advances granted to employees | (354) |
| Provision for the period | 3,902 |
| Payments to supplementary pension schemes run by INPS net of amounts paid to leavers | (2,200) |
| Change as a result of actuarial calculations | (472) |
| Translation differences | (4) |
Balance at December 31, 2022 1,875
Changes in the item, during 2022, show a utilization of Euro 1,175 thousand for payments to supplementary pension funds and one of Euro 2,200 thousand for net payments to supplementary pension schemes run by INPS. This is because, based on the legislative changes introduced by Law 296/06, with effect from June 30, 2007, severance indemnities accruing after January 1, 2007 have to be paid by companies (with more than 50 employees) to a special treasury fund set up by INPS or, if the employee prefers, to a supplementary pension fund that complies with D.Lgs 252/05.
Companies book a short-term payable which is then cancelled when the amount is paid over to INPS.
The actuarial valuation is carried out on the basis of the Projected Unit Credit Method in accordance with IAS 19. This method involves measurements that reflect the average present value of the pension obligations that have accrued on the basis of the period of service that each employee has worked up to the time that the valuation is carried out, without extrapolating the employee's pay according to the legislative amendments introduced by the recent Pension Reform.
The various stages of the calculation can be summarized as follows:
The actuarial model used for the valuation of the provision for severance indemnities is based on various assumptions, some demographic, others economic and financial. The main assumptions used in the model are as follows:
• mortality rates: RG48 life expectancy table
The following table shows the effect that there would be on the obligation for the defined benefit obligation as a result of changes of significant actuarial assumptions at the year-end:
| +1% employee turnover rate | 7 |
|---|---|
| -1% employee turnover rate | (8) |
| +1/4% inflation rate | 33 |
| -1/4% inflation rate | (33) |
| +1/4% discount rate | (49) |
| -1/4% discount rate | 51 |
This item is made up as follows:
| Balance at Dec. 31, 21 |
Utilization | Provisions | Transl. diff. |
Reclass. | Actuarial adj. |
Balance at Dec. 31, 22 |
|
|---|---|---|---|---|---|---|---|
| Provision for agents' severance indemnities | 4,992 | (332) | 92 | (76) | - | (466) | 4,210 |
| Other | 1,505 | (311) | 443 | (4) | (17) | - | 1,616 |
| Total | 6,497 | (643) | 535 | (80) | (17) | (466) | 5,826 |
The "provision for agents' severance indemnities" is provided for on the basis of legislative rules and collective agreements that regulate situations in which agency mandates may be terminated. Provisions represent the best estimate of the amount that the business would have to pay to settle the obligation or transfer it to third parties at the balance sheet date. The cumulative effect of the actuarial valuation carried out in accordance with IAS 37 amounts to Euro 585 thousand.
"Other" reflects mainly an estimate of the risks involved in outstanding disputes, as well as the estimated restoration costs.
This item is made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Bank loans | 56,561 | 82,076 | (25,515) |
| Other loans | 61 | 313 | (252) |
| Total | 56,622 | 82,389 | (25,767) |
Non current financial liabilities amount to Euro 56,622 thousand compared to Euro 82,389 thousand at December 31, 2021 and are all due within 5 years.
Current financial liabilities is made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Cash advances | 4,389 | 857 | 3,532 |
| Loans | 25,520 | 42,763 | (17,243) |
| Advances against orders | 17,000 | 5,000 | 12,000 |
| Other current loans | 251 | 334 | (83) |
| Fair value derivative contracts | 1,025 | 1,045 | (20) |
| Other current financial liabilities | 305 | 25 | 280 |
| Total | 48,490 | 50,024 | (1,534) |
Current financial liabilities amount to Euro 48,490 thousand compared to Euro 50,024 thousand at December 31, 2021.
The item Loans includes the portion due within 12 months of medium-to long-term loans.
Other current loans, for Euro 251 thousand, include the portion due within 12 months of a loan stipulated with the company IBM Italia Servizi Finanziari S.r.l. for the purchase of hardware and software systems.
Regarding the item "Fair value derivative contracts," refer Note 37.
The Group provided adequate lines of credit available thanks to the fact that, since the beginning of the emergency, it has implemented a strategy to cover its financing needs. The aim of this strategy is to ensure that the sources of financing remain as coherent as possible with funding requirements, in order to have the right balance between shortterm lines of credit to deal with normal business seasonality, medium-term financing to manage the temporary one-off absorption of cash caused by the Covid-19 emergency and long term financing to also support the investments required to develop a truly omnichannel business model that perfectly integrates physical and digital stores.
It's to be noted that on July 30, 2020 the Group completed its already solid financial structure to support its business and investments over the next three years, by signing a loan agreement for a total of Euro 90 million, obtained thanks to its solid track record in terms of balance sheet and financial indicators. Pursuant to the provisions of Italian Decree Law no. 23 of 8 April 2020, SACE (export credit insurance company) promptly issued a so-called "Italy guarantee",
through the simplified procedure, for 90% of the amount granted by the banks, following an in-depth investigation. This loan will mainly be used to cover personnel costs and investments, as well as working capital dynamics for production facilities and business activities in Italy. The loan has a maximum duration of 6 years, with a 24-month grace period and quarterly repayments. It should be noted that during 2022 the reimbursement of this loan began, with the repayment of the first two installments in the total amount of Euro11,250 thousand.
That loan is subject to financial covenants (to be calculate before IFRS 16 effects), to be tested on a semiannual basis in June and December, with reference to the consolidated financial statements. That financial covenants are: net financial position, indebtedness ratio (net financial position/Equity) and the ratio between net financial position and EBITDA. The values of financial covenants are different over the duration of the contract and can be healed by Equity cure operations. It should be noted that, to date, the covenants have been met.
With particular focus on the measurement as of December 31, 2022, the covenants are being complied with: the Debt Ratio, as defined in the contract, is equal to Euro 0.43 (it should have been less than 1 by contract). On the other hand, Net Financial Position/EBITDA Ratio as of December 31, 2022 is equal to 1.88 (it should have been less than 3).
Furthermore, with reference to the next measurements, the Debt Ratio shall be less than 0.75 from 2023, and Net Financial Position to EBITDA Ratio shall be less than 2.75 in 2023 and less than 2.50 from 2024. Based on the forecasts contained in Strategic Plan, it is believed that these financial indicators will also be met in the coming testing periods.
Other outstanding loans are not subject to financial covenants.
It should be noted that the Group did not resort to any suspension of loan repayments or suspension of payments to suppliers.
The net financial position as defined by the new ESMA Guidelines of 4 March 2021 (Consob Warning notice no. 5/21 to the Consob Communication DEM/6064293 of 28 July 2006) is detailed below:
| (Thousands of Euro) | Dec. 31, 2022 | |
|---|---|---|
| A. Cash | 24,303 | 45,655 |
| B. Cash equivalents | - | - |
| C. Other current financial assets | 30,945 | 22,413 |
| D. Liquidity (A + B + C) | 55,248 | 68,068 |
| E. Current financial debt | (65,921) | (53,896) |
| F. Current portion of non-current financial debt | (25,520) | (42,763) |
| G. Current financial indebtedness (E + F) | (91,441) | (96,659) |
| H. Net current financial indebtedness (G + D) | (36,193) | (28,591) |
| I. Non current financial debt | (245,907) | (247,789) |
| J. Debt instruments | - | - |
| K. Non-current trade and other payables | (61) | (313) |
| L. Non-current financial indebtedness (I + J + K) | (245,968) | (248,102) |
| M. Total financial indebtedness (H + L) | (282,161) | (276,693) |
It should be noted that the non current financial debt is shown net of non-current financial assets.
The item refers to the present value of the payments due for rents following the application of IFRS 16 Accounting Standard.
The item is made as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Non-current lease assets – third parties | 176 | 343 | (167) |
| Total lease assets | 176 | 343 | (167) |
| Non-current lease liabilities - third parties | 138,779 | 111,986 | 26,793 |
| Non-current lease liabilities - related parties | 50,770 | 54,096 | (3,326) |
| Total non-current lease liabilities | 189,549 | 166,082 | 23,467 |
| Current lease liabilities - third parties | 37,951 | 41,686 | (3,735) |
| Current lease liabilities - related parties | 5,000 | 4,949 | 51 |
| Total current lease liabilities | 42,951 | 46,635 | (3,684) |
| Total lease liabilities | 232,500 | 212,717 | 19,783 |
| Total net lease liabilities | 232,324 | 212,374 | 19,950 |
Non-current lease liabilities amount to Euro 189,549 thousand, of which Euro 111,910 thousand are due within 5 years, and Euro 77,639 thousand beyond 5 years.
The following table shows the changes lease liabilities during 2022:
| 31/12/21 | Net increases | Transl. Diff. | Payments | 31/12/22 | |
|---|---|---|---|---|---|
| Total Lease liabilities | 212,717 | 72,087 | (284) | (52,020) | 232,500 |
The weighted average of the interest borrowing rate (IBR) of the year is 1.70%.
This item is made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Guarantee deposits | 308 | 392 | (84) |
| Accrued expenses and deferred income | 871 | 1,169 | (298) |
| Total | 1,179 | 1,561 | (382) |
The guarantee deposits refer to amounts received from third parties to guarantee business lease contracts (for Geox Shops).
The item is made as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Accounts payable | 269,454 | 160,666 | 108,788 |
| Refund liabilities | 27,607 | 36,146 | (8,539) |
| Total | 297,061 | 196,812 | 100,249 |
Accounts payable at December 31, 2022 amount to Euro 269,454 thousand, showing an increase of Euro 108,788 thousand if compared with December 31, 2021. This increase is mainly due to the higher purchases of finished products for the Spring/Summer 23 season, compared to the purchases for the corresponding season of the previous year.
All amounts are due within the next 12 months. Terms and conditions of the above financial liabilities:
The book value of accounts payable coincides with their fair value.
Changes in the refund liabilities during 2022 are as follows:
| Balance at January 1 | 36,146 |
|---|---|
| Provisions | 25,698 |
| Translation differences | 369 |
| Utilizations | (34,606) |
Balance at December 31 27,607
The provision for returns has been estimated based on the potential returns and credit notes arising from the trade agreements signed with customers, in particular with franchising ones.
The decrease in the provision for returns and credit notes compared to December 31, 2021 is mainly due to the forecast of fewer returns from the franchised shops network as a result of better sales figures for the 2022 seasons compared with the previous year.
This item is made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | |
|---|---|---|---|
| Social security institutions | 3,940 | 4,018 | (78) |
| Employees | 16,111 | 16,254 | (143) |
| Other payables | 5,088 | 7,971 | (2,883) |
| Accrued expenses and deferred income | 1,396 | 2,116 | (720) |
| Total | 26,535 | 30,359 | (3,824) |
The amounts due to social security institutions mainly relate to pension contributions for 2022, paid in 2023.
The amounts due to employees include payroll, bonuses and accrued vacation not yet taken as of December 31, 2022.
Other payables are mainly advances received from customers and the short term part of the guarantee deposits received from third parties.
Provision for liabilities and charges short term, amounting to Euro 2,355 thousand (Euro 806 thousand in 2021) include, mainly, an estimate of the risks involved in outstanding disputes, as well as the estimated restoration costs.
This item is made up as follows:
| Balance at Dec. 31, 2022 |
Balance at Dec. 31, 2021 |
Change | ||
|---|---|---|---|---|
| Withholding taxes | 3,154 | 3,232 | (78) | |
| VAT payable and other taxes | 6,578 | 6,847 | (269) | |
| Total | 9,732 | 10,079 | (347) |
In accordance with IFRS 2, the adoption of a stock option/stock grant plan requires that the fair value of the options at the grant date is recognized as a cost. This cost is charged to the income statement over the vesting period, and a specific equity reserve is booked. The fair value of these options has been determined by an independent expert using the binomial method.
At the date of this report a medium-long term incentive plans is in place, which has been approved by the extraordinary Shareholders' Meeting, on April 22, 2021 involving the free issue of up to a maximum of 7,696,626 ordinary Company shares, as well as a monetary component for a maximum amount of Euro 1,320,000 gross, in the event of overachievement of some targets, to the benefit of the Chief Executive Officer, Executives with strategic responsibilities and other senior managers and employees who are considered key resources for Geox or other Group Companies.
The Plan has a three-year vesting period and, as a result, the shares may be assigned from the date the Shareholders' Meeting approves the financial statements for the year ending December 31, 2023. The assignment of Equity Shares component is subject to the compliance with permanence condition (permanence at the date of approval by the Board of Directors of the Company of the draft consolidated financial statements closed on December 31, 2023), to the achievement of some profitability targets linked to EBIT in 2022, to the EBITDA target in 2023 and to some financial targets of the Group in 2023. The disbursement of the Cash Quota is also subject to the achievement of the overachievement target.
Geox S.p.A. resolved to implement the Plan, with a first assignment cycle of no. 7,671,892 rights in favor of 99 beneficiaries. As of December 31, 2022, a number of 6,722,087 rights are in circulation, for an amount included in personnel costs of Euro 1,924 thousand.
Geox Group policy is to insure its trade receivables, thereby minimizing the risk of bad debts due to non-payment and/or significant payment delays on the part of customers. The policy of insuring against credit risk is applied to the main part of the Geox Group's accounts receivable from third parties.
The maximum risk involved in the Group's financial assets, which include cash and cash equivalents, derivative and other financial assets, is the book value of these assets in the event of counterparty insolvency.
Indebtedness to the banking system exposes the Group to the risk of interest rate fluctuations. Floating rate loans, in particular, run the risk of cash flow variations. At December 31, 2022, the Group's indebtedness to the banking system amounts to Euro 103.5 million and is mainly floating rate.
The Group did not deem it necessary to implement general policies to hedge the risk of interest rate fluctuations but rather entered into two Interest Rate Swap (IRS) transactions to hedge the medium-long term loan, for a total amount of Euro 59.1 million, with the specific aim of removing the original floor to zero on the entire notional amount, in relation to the Euribor included in the variable rate.
In terms of sensitivity analysis, we would emphasize that a positive (negative) variation of 50 b.p. in the level of interest rates applicable to short-term variable-rate financial liabilities that are not hedged would have resulted in a higher (lower) annual financial burden, gross of tax, of approximately Euro 420 thousand.
The Geox Group also carries on its activity in countries outside the Euro-zone, which means that exchange rate fluctuations are an important factor to be taken into consideration.
The principal exchange rates to which the Group is exposed are the following:
The Group initially calculates the amount of exchange risk, from trading transactions forecast for the coming 12 months, that is involved in the budget for the coming period. It then gradually hedges this risk during the process of order acquisition to the extent that the orders match the forecasts. These hedges take the form of specific forward contracts and options for the purchase and sale of the foreign currency. Group policy is not to arrange derivative transactions for speculative purposes.
With regard to the Russian market, where transactions between the parent Geox S.p.A. and the Russian subsidiary are exposed, it should be noted that, during 2022, particularly starting from the Fall/Winter 22 sales season, commercial transactions for the sale of finished products were settled in the Euro currency due to the impossibility of hedging the RUB currency. Therefore, to date, the transactional exchange rate risk between the Euro and the Rouble for the Group is mainly present in the financial statements of the Russian company that purchases finished products in the EUR currency.
The Board of Directors believes that the risk management policies adopted by the Geox Group are appropriate.
Group companies may find themselves with trade receivables or payables denominated in currencies other than the functional currency of the entity holding them.
In addition, it may be convenient from an economic point of view, for companies to obtain finance or use funds in a currency different than the functional currency. Changes in exchange rates may result in exchange gains or losses arising from these situations. It is the Group's policy to hedge fully, whenever possible, the exposure resulting from receivables, payables and securities denominated in foreign currencies different than the functional currency.
Some of the Group's subsidiaries are located in countries which are not members of the European monetary union. As the Group's reference currency is the Euro, the income statements of those entities are converted into Euro using the average exchange rate for the period, and while revenues and margins are unchanged in local currency, changes in exchange rates may lead to effects on the converted balances in Euro.
The assets and liabilities of consolidated companies whose functional currency is different from the Euro may acquire converted values in Euro which differ based on the fluctuation in exchange rates. The effects of these changes are recognized directly in the item Cumulative Translation Adjustments reserve, included in Other Comprehensive income.
There have been no substantial changes in 2022 in the nature or structure of exposure to currency risk or in the Group's hedging policies.
The Group's financial statements could be materially affected by fluctuations in the exchange rates, mainly referred to the US dollar and Rouble. The impact on the Group's result at December 31, 2022 resulting from a hypothetical, unfavorable and instantaneous change of 10% in the exchange rates of the leading foreign currencies with the Euro would have been approximately Euro 5 million, while in case of a favorable change of 10% in exchange rates the impact would have been approximately Euro 4 million, almost all of which relating to RUB because, as previously mentioned, it is not possible to hedge exchange rate risk. Receivables, payables and future trade flows whose hedging transactions have been analyzed were not considered in this analysis. It is reasonable to assume that changes in exchange rates will produce the opposite effect, of an equal or greater amount, on the underlying transactions that have been hedged.
The sector in which the Group operates is very seasonal in nature. The year can be split into two collections (Spring/Summer and Fall/Winter), which more or less coincide with the first and second half. On the one hand, purchases and production are concentrated in the three months prior to the half-year in question, leading to an increase in inventory and, subsequently, the absorption of cash. On the other hand the wholesale and franchising sales are concentrated in the first three months of the half-year in question, transforming inventory into receivables. The same period sees the completion of payment of accounts payable. Receipts from customers and end consumers, on the other hand, are collected before the end of the half-year in question.
These situations bring about very strong seasonal trends, also in the Group's financial cycle, which leads to peaks of absorption of financial resources in January to April and in July to October.
The Group manages liquidity risk by maintaining tight control over the various components of working capital, especially inventory and accounts receivable. The Group's credit risk hedging policies guarantee short-term collection of all accounts receivable, even those from customers in financial difficulty, eliminating almost entirely the risk of insolvency. In addition, the finished products remained in stores at the end of the season are then disposed of in a planned way in the
outlets owned by the Group and through promotional sales to third parties. The Group also has bank lines of credit in line with the strong balance sheet and which are also roomy compared to seasonal phenomena described above.
It's to be noted that Covid-19 emergency has led the entire sector to face a significant one-off absorption of cash, in addition to the normal seasonality of the business. In particular, the temporary closure of stores and the slowdown in receiving payments from wholesale and franchising clients led to a temporary negative cash flow during the second quarter of 2020. This was caused by the abnormal increase in working capital as a result of the lack of takings from stores, unsold stock and unpaid receivables. In 2021, on the contrary, part of this abnormal effect on working capital was reabsorbed.
With reference to the situation described above and the direct impacts on the assessment of liquidity risk, the Directors do not believe that the effects of the aforementioned events are such as to undermine the Group's ability to fulfil its payment commitments, taking into consideration the improving trend of 2022, the forecasts of the Strategic Plan, the lines of credit that are currently available but have not yet been used, as well as the new financing obtained from banks during 2020.
On this basis, the Company's Management has concluded that, despite the difficult economic and financial context, there is no uncertainty regarding the ability to continue operating as a going concern.
As at December 31, 2022 financial instruments are as follows:
| Notional value on 12-31-22 |
Fair value on 12-31-22 (debit) |
Fair value on 12-31-22 (credit) |
Notional value on 12-31-21 |
Fair value on 12-31-21 (debit) |
Fair value on 12-31-21 (credit) |
|
|---|---|---|---|---|---|---|
| FX Forward buy agreements to hedge exch. rate risk | 37,305 | 2,588 | (673) | 92,916 | 4,074 | (165) |
| FX Forward sell agreements to hedge exch. rate risk | 69,231 | 1,849 | (352) | 86,985 | 44 | (816) |
| FX Currency Option agreem. to hedge exch. rate risk | 285,955 | 19,711 | - | 295,780 | 15,464 | - |
| Target Forward FX Trans. to hedge exch.rate risk | 59,063 | 2,754 | - | 67,500 | - | (64) |
| Total Cash flow hedge | 451,554 | 26,902 | (1,025) | 543,181 | 19,582 | (1,045) |
IFRS 7 requires financial instruments recognized in the statement of financial position at fair value to be classified on the basis of a hierarchy that reflects the significance of the inputs used in determining fair value.
The following levels are used in this hierarchy:
All the financial assets and liabilities measured at fair value at December 31, 2022 are classified on Level 2. In 2022 there were no transfers from Level 1 to Level 2 or to Level 3 or vice versa.
The Group holds the following derivatives to cover exchange rate fluctuations at December 31, 2022:
These agreements hedge future purchases and sales planned for the upcoming seasons.
The fair value measurement of the derivatives being analyzed was carried out by means of independent valuation models on the basis of the following market data posted on December 31, 2022:
With regard to derivative financial instruments to hedge the interest rate risk, at December 31, 2022, the Group held two Interest Rate Swap (IRS), used to alter the profile of original interest rate risk exposure from variable rate to fixed rate. On set dates, such IRS exchange interest flows with the counterparties, calculated on the basis of a reference notional value, at the agreed fixed and variable rates.
The Geox Group is aware of the relevance of climate-related issues and their relative impacts and, in this perspective, monitors them in relation to the type of its business (e.g. transition risks) and the sector in which it operates, which includes among its main risks, as well as emerging ones, those relating to so-called 'climate change' and, in particular:
The Geox Group has carried out analyses of the risk profiles considered relevant - including risks with potential ESG impacts - aware of the evolution and recommendations (e.g. Task Force on Climate-related Financial Disclosures, TCFD) to which the aforesaid analyses must tend.
As set out in the Consolidated Non-Financial Statement, the product initiatives (e.g. linked to ongoing research and development activities), process initiatives (e.g. linked to the evolution of packaging, energy consumption, the supply chain, etc.) and the awards obtained by the Group, in addition to the initiatives towards personnel and other stakeholders, demonstrate the Group's attention and positioning - in a context of extreme sensitivity - with respect to emerging needs and the consequent risks, including regulatory risks, of a climatic-environmental nature.
Pursuant to IAS 24, the Group's related parties are companies and people who are able to exercise control or significant influence and associated companies. Finally, are considered related parties the members of the Board of Directors, the Statutory Auditors and Executives with strategic roles of the Group and their families.
The Regulation governing related party transactions is available on the website www.geox.biz Governance section.
The Group has dealings with the ultimate parent company (LIR S.r.l.),with affiliated companies (mainly Diadora S.p.A. for the portion related to revenues on royalties and Domicapital S.r.l. for the portion related to leases on capital properties) and other related parties. Commercial relations with these parties are based on the utmost transparency and on market terms and conditions. The economic transactions held with related parties in 2022 and 2021 are summarised in the following tables:
| Total 2022 | Parent company |
Affiliated company |
Other related parties |
Total of which related parties |
Effect on Total (%) |
|
|---|---|---|---|---|---|---|
| Sales | 735,517 | - | 1,000 | - | 1,000 | 0.1% |
| Cost of sales | (386,287) | - | 28 | - | 28 | (0.0%) |
| General and administrative expenses | (288,974) | 12 | (69) | (7) | (64) | 0.0% |
| Other revenues | 13,364 | 48 | 45 | - | 93 | 0.7% |
| Advertising and promotion costs | (30,358) | (159) | - | - | (159) | 0.5% |
| Financial expenses | (15,369) | (37) | (1,270) | - | (1,307) | 8.5% |
| Total 2021 | Parent company |
Affiliated company |
Other related parties |
Total of which related parties |
Effect on Total (%) |
|
|---|---|---|---|---|---|---|
| Sales | 608,915 | - | 898 | - | 898 | 0.1% |
| Cost of sales | (324,653) | - | 529 | - | 529 | (0.2%) |
| General and administrative expenses | (274,393) | 31 | (23) | (1) | 7 | (0.0%) |
| Other revenues | 11,702 | 45 | 45 | - | 90 | 0.8% |
| Advertising and promotion costs | (29,195) | (149) | - | - | (149) | 0.5% |
| Financial expenses | (10,448) | (42) | (1,322) | - | (1,364) | 13.1% |
| Taxes | (6,419) | (5) | - | - | (5) | 0.1% |
| Net result from discontinued operations | (2,460) | - | 1,155 | - | 1,155 | (47.0%) |
The main effects on financial statement of the transactions with these parties at December 31, 2022 and at December 31, 2021 are summarized below:
| Balance at Dec. 31, 2022 |
Parent company |
Affiliated company |
Other related parties |
Total of which related parties |
Effect on Total (%) |
|
|---|---|---|---|---|---|---|
| Accounts receivable | 83,998 | 57 | 516 | - | 573 | 0.68% |
| Other non-financial current assets | 32,021 | 2 | - | - | 2 | 0.01% |
| Non-current lease liabilities | 189,549 | 1,244 | 49,526 | - | 50,770 | 26.78% |
| Accounts payable | 297,061 | 39 | 61 | 1 | 101 | 0.03% |
| Current lease liabilities | 42,951 | 336 | 4,664 | - | 5,000 | 11.64% |
| Balance at Dec. 31, 202 |
Parent company |
Affiliated company |
Other related parties |
Total of which related parties |
Effect on Total (%) |
|
|---|---|---|---|---|---|---|
| Accounts receivable | 68,927 | 52 | 855 | - | 907 | 1.32% |
| Other non-financial current assets | 31,025 | 67 | - | - | 67 | 0.22% |
| Non-current lease liabilities | 166,082 | 1,545 | 52,551 | - | 54,096 | 32.57% |
| Accounts payable | 196,812 | 39 | 24 | 1 | 64 | 0.03% |
| Current lease liabilities | 46,635 | 353 | 4,596 | - | 4,949 | 10.61% |
The future rental payments under lease contracts, excluded from the application of IFRS 16, as of December 31, 2022 are as follows:
| 12-31-2022 | |
|---|---|
| Within 1 year | 7,142 |
| Within 1-5 years | 10,646 |
| Beyond 5 years | 2,687 |
| Total | 20,475 |
The Group has decided not to recognise right-of-use assets and lease liabilities related to low-value assets and shortterm leases. The Group recognises the related lease payments as an expense over the lease term.
In relation to the requirements imposed by Italian Law no. 124/2017, it should be noted that, during 2022 and with reference to its Italian companies, the Group received Euro 904 thousand, broken down as follows:
It is hereby specified that these benefits have been recorded based on the cash accounting principle, meaning that the aforementioned amounts include subsidies, grants, paid positions and any other kind of economic benefits that where cashed in during 2022, without considering the period to which they refer.
With regard to compliance with the aforementioned requirements, in relation to any other grants received that may fall within the defined categories, please also refer to the dedicated national Register, which is available to the public.
On 14 February 2023, the Ecofin Council updated the List of Non-Cooperative Jurisdictions for Tax Purposes (socalled Black List countries) by adding certain countries, including Russia. The Group operates in that country with its own wholly-owned subsidiary, but with actual economic activity through the use of personnel, equipment, assets and premises. The management, therefore, believes that, based on the information available at the date of this report, this inclusion has no impact on the Group's operations, both from an economic and financial point of view, nor on the recoverability of its assets in Russia.
No other significant events occurred after 31 December 2022.
***
Biadene di Montebelluna, 9 March 2023
for the Board of Directors The Chairman Mr. Mario Moretti Polegato
Attachment 1
Biadene di Montebelluna, 9 March 2023
The undersigned Livio Libralesso, Chief Executive Officer of Geox S.p.A. and Massimo Nai, Financial Reporting Manager of Geox S.p.A., attest, bearing in mind the provisions of art. 154-bis, paras. 3 and 4 of Legislative Decree 58 of February 24, 1998:
of the administrative and accounting procedures for preparing the consolidated financial statements during 2022.
They also confirm that the consolidated financial statements:
________________________ ___________________________ ____________________________ _____________________________________
Livio Libralesso Massimo Nai CEO Financial Reporting Manager
Pursuant to Art. 149-duodecies of the Issuers' Regulations:
| Type of services | Entity that provided the services | Beneficiary | Fees 2022 (Euro/1000) |
|---|---|---|---|
| Auditing | Auditors of the Parent Company | Parent Company | 181 |
| Attestation services | Auditors of the Parent Company | Parent Company | |
| Tax advisory services | Same network as the Parent Company's auditor | Parent Company | |
| Other services | Auditors of the Parent Company | Parent Company | 8 |
| Total | 189 | ||
| Auditing | i) Auditors of the Parent Company | Subsidiaries | 21 |
| ii) Same network as the Parent Company's auditors | Subsidiaries | 82 | |
| Attestation services | i) Auditors of the Parent Company | Subsidiaries | |
| ii) Same network as the Parent Company's auditors | Subsidiaries | ||
| Tax advisory services | i) Auditors of the Parent Company | Subsidiaries | |
| ii) Same network as the Parent Company's auditors | Subsidiaries | ||
| Other services | i) Auditors of the Parent Company | Subsidiaries | |
| ii) Same network as the Parent Company's auditors | Subsidiaries | ||
| 103 | |||
| Total | 293 |
| Name | Location | Year | Currency | Share | % held | ||
|---|---|---|---|---|---|---|---|
| - Geox S.p.A. | Biadene di Montebelluna (TV), Italy | Dec. 31 | EUR | 25,920,733 | |||
| - Geox Deutschland Gmbh | Munich, Germany | Dec. 31 | EUR | 500,000 | 100% | 100.00% | |
| - Geox Respira SL | Barcelona, Spain | Dec. 31 | EUR | 1,500,000 | 100% | 100.00% | |
| - Geox Suisse SA | Lugano, Switzerland | Dec. 31 | CHF | 200,000 | 100% | 100.00% | |
| - Geox UK Ltd | London, U.K. | Dec. 31 | GBP | 1,050,000 | 100% | 100.00% | |
| - Geox Canada Inc. | Mississauga, Canada | Dec. 31 | CAD | 23,500,100 | 100% | 100.00% | |
| - S&A Distribution Inc. | New York, Usa | Dec. 31 | USD | 1 | 100% | 100.00% | |
| - Geox Holland B.V. | Breda, Netherlands | Dec. 31 | EUR | 20,100 | 100% | 100.00% | |
| - Geox Retail S.r.l. | Biadene di Montebelluna (TV), Italy | Dec. 31 | EUR | 100,000 | 100% | 100.00% | |
| - Geox Hungary Kft | Budapest, Hungary | Dec. 31 | HUF | 10,000,000 | 99% | 1% | 100.00% |
| - Geox Hellas S.A. | Athens, Greece | Dec. 31 | EUR | 220,000 | 100% | 100.00% | |
| - Geox France Sarl | Sallanches, France | Dec. 31 | EUR | 15,000,000 | 100% | 100.00% | |
| - S&A Retail Inc. | New York, Usa | Dec. 31 | USD | 200 | 100% | 100.00% | |
| - Geox Asia Pacific Ltd | Hong Kong, China | Dec. 31 | USD | 127,400 | 100% | 100.00% | |
| - XLog S.r.l. | Signoressa di Trevignano (TV), Italy | Dec. 31 | EUR | 110,000 | 100% | 100.00% | |
| - Geox Rus LLC | Moscow, Russia | Dec. 31 | RUB | 60,000,000 | 100% | 100.00% | |
| - Geox AT Gmbh | Wien, Austria | Dec. 31 | EUR | 35,000 | 100% | 100.00% | |
| - Geox Poland Sp. Z.o.o. | Warszawa, Poland | Dec. 31 | PLN | 5,000 | 100% | 100.00% | |
| - Geox Portugal S.U. LDA | Lisbon, Portugal | Dec. 31 | EUR | 300,000 | 100% | 100.00% | |
| - Technic Development D.O.O. Vranje | Vranje, Serbia | Dec. 31 | RSD | 802,468,425 | 100% | 100.00% | |
| - Geox Macau Ltd | Macau, China | Dec. 31 | MOP | 5,000,000 | 100% | 100.00% | |
| - Geox Trading Shangai Ltd | Shanghai, China | Dec. 31 | CNY | 101,577,316 | 100% | 100.00% | |
| - Dongguan Technic Footwear Apparel Design Ltd | Dongguan, China | Dec. 31 | CNY | 3,795,840 | 100% | 100.00% | |
| - Technic Development Vietnam Company Ltd | Ho Chi Minh City, Vietnam | Dec. 31 | VND | 3,403,499,500 | 100% | 100.00% | |
| - XBalk D.O.O. Vranje | Vranje, Serbia | Dec. 31 | RSD | 1,200,000 | 100% | 100.00% |
Registered office Geox S.p.A. – Joint Stock Company Via Feltrina Centro, 16 31044 Biadene di Montebelluna (TV) - Italy
Via Feltrina Centro, 16 31044 Biadene di Montebelluna (TV) - Italy Share Capital: Euro 25,920,733.1 i.v. Economic and Administrative Database no. 265360 Treviso Commercial Register and Taxpayer's Code no. 03348440268
Investor Relations [email protected] tel. +39 0423 282476
www.geox.biz (Sezione Investor Relations)
This English version of the consolidated financial statements of Geox Group constitutes a non-official version which has not been prepared in accordance with the provisions of the Commission Delegated Regulation (EU) 2019/815. The official version of the financial statements, which was prepared in accordance with the aforementioned Regulation, has been translated into the English language solely for the convenience of international readers. Accordingly, only the original text in Italian language is authoritative.
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