Annual Report • Mar 23, 2022
Annual Report
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ANNUAL REPORT 2021
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 Company 12 | |
| 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 | |
| Economic results 21 | |
| Economic results summary21 | |
| Cost of sales and gross profit 25 | |
| Operating costs25 | |
| Restructuring charges 25 | |
| Net asset impairment 26 | |
| Operating income (EBIT) 26 | |
| Taxes for the period26 | |
| Net result from discontinued operations 26 | |
| IFRS 16 effects on 2021 Profit and Loss 27 | |
| 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 period 31 | |
| IFRS 16 effects on Reclassified consolidated cash flow statement32 | |
| Treasury shares and equity interests in parent companies 33 | |
| Stock Plan 33 | |
| Transactions 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 61 different patents and by 5 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, 2021).
The applied research carried out by Geox in 2021 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.
In particular, "+ Grip" has been developed, a further technological innovation for AMPHIBIOXTM products, relating to a sole in which the rubber material and the characteristic tread design have been studied and combine to achieve optimal grip on several surfaces, including on wet surfaces.
The continuous innovation process has also allowed the study and development of new projects, based on the amplification of the concepts of comfort and well-being.
Specifically, in 2021 work began on the study of an "Upper Casual" shoe with sole construction technology that allows increased cushioning, combined with high breathability.
A formal shoe with an "ultra comfort" sole was then developed with TPU/PU bi-material moulding technology, in which a soft PU insert extends over the entire width and length of the sole, as well as over the tread part of the forefoot, until it reaches the side edges of the sole. This technology amplifies the feeling of comfort and cushioning, even in a shoe with an elegant shape and style.
In apparel, "Any Weather Condition", the new eco-friendly technology that allows garments to be made in the most varied styles and fabrics, making them high-performance thanks to a breathable, windproof and waterproof inner lining that keeps you dry and cool in all weather conditions, has been developed. Excess hot and humid air escapes through a ventilation strip on the shoulders fitted with a membrane, allowing effective breathability.
Geox innovation is protected by 61 patents and 5 recent patent applications.
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, 2021, the overall number of "Geox Shops" came to 768, of which 350 operated directly, 304 in franchising and 114 under license agreement.
(*) Europe includes: Austria, Benelux, France, Germany, UK, Iberia, 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 and, till at the end of June 2021, at the group's production plant in Vranje, Serbia.
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, 2021 the Group had 3,018 employees, showing a decrease of 1,440 employees compared with 4,458 employees at 31 December 2020.
As of December 31, 2021 the employees were splitted as follows:
| Level | 31-12-2021 | 31-12-2020 |
|---|---|---|
| Managers | 42 | 48 |
| Middle Managers and office staff | 869 | 912 |
| Shop Employees | 2,104 | 2,192 |
| Factory Workers | 3 | 1,306 |
| Total | 3,018 | 4,458 |
The graph shows the employees of the Group at 31 December 2021, 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 | 2019 |
|---|---|---|---|
| Earnings per share [Euro] | (0.24) | (0.50) | (0.10) |
| Equity per share [Euro] | 0.48 | 0.65 | 1.17 |
| Dividend per share [Euro] | - | - | - |
| Pay-out ratio [%] | - | - | - |
| Dividend yield (at 12.31) | - | - | - |
| Year-end price [Euro] | 1.07 | 0.79 | 1.18 |
| MTA high [Euro] | 1.34 | 1.19 | 1.93 |
| MTA low [Euro] | 0.76 | 0.47 | 1.15 |
| Price per share/EPS | (4.39) | (1.57) | (12.29) |
| Price per share/Equity per share | 2.23 | 1.22 | 1.01 |
| Stock market capitalization [thousands of Euro] | 277,352 | 204,774 | 305,865 |
| Number of shares making up the share capital | 259,207,331 | 259,207,331 | 259,207,331 |
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).
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 | 11,288 | 14,886,556 |
| from 5.001 to 10.000 shares | 922 | 7,068,355 |
| 10.001 shares and over | 806 | 243,767,654 |
| Lack of information on disposal of individual positions previously reported | (6,515,234) | |
| Total | 13,016 | 259,207,331 |
(*) As reported by Computershare S.p.A. on December 31, 2021.
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, 2021.
Claudia Baggio Director Lara Livolsi (3) Independent Director Alessandro Antonio Giusti (2) (3) Director Francesca Meneghel (2) (4) Ernesto Albanese (2) Alessandra Pavolini (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 (2) Member of the Audit, Risk and Sustainability Committee (3) Member of the Nomination and Compensation 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 January 16, 2020.
| Name | Position | |
|---|---|---|
| Sonia Ferrero | Chairman | |
| Francesco Gianni | Statutory Auditor | |
| Fabrizio Colombo | Statutory Auditor | |
| Fabio Antonio Vittore Caravati | Alternate Auditor | |
| Giulia Massari | Alternate Auditor | |
Deloitte & Touche S.p.A.
The Geox Group has implemented the Code of Conduct for Italian Listed Companies published 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 Code of Conduct 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 Executive Director in charge of supervising the Internal Control System and Risk Management. 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, most recently on April 17, 2018. 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 non-financial 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. 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.
The Global Compliance Program was drawn up in accordance with the main and most authoritative international regulations in this field (i.e. the main international conventions on combating corruption, UK Bribery Act 2010, Good Practice Guidance on Internal Controls, Ethics and Compliance 2010, etc.), also taking into account the Group's current organisational structure and the specific reference legislation applicable in the legal systems in which the Group's companies operate.
Moreover, in line with the previously described control measures, Geox S.p.A. has successfully completed the process for obtaining ISO 37001 certification as regards measures to combat active and passive corruption.
Lastly, it should be noted that, in compliance with (Italian) Law no. 179/2017 regarding "Provisions to protect individuals who report offences or irregularities of which they become aware as part of their public or private work" (the so-called "Whistle-blowing Law"), the Company has implemented a suitable global Whistle-blowing system that is integrated at group level. The aim of this system is to verify and promptly manage any unlawful conduct and/or violations regarding suspicious behaviour and breaches of the Company's Code of Ethics. The internal whistle-blowing process has been structured with a dedicated channel, run by a third-party specialist, which includes an online platform and a multilingual helpline able to ensure that the whistle-blower remains anonymous.
* Company under liquidation process
The structure of the Group controlled by Geox S.p.A., which acts as an operating holding company, is split into 3 macro-groups:
In terms of business risks, the Group is exposed to:
2021 witnessed an increase in cyber attacks, at the same time as the ICT structure being put under pressure due to employees' need for greater flexibility as a result of the Covid-19 pandemic. Geox Group is carefully monitoring the increasing cases of 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 Group's activities are affected by exogenous variables, such as macroeconomic variables linked to the countries in which Geox Group operates (for example, in terms of production or simply also sales). In this context, specific social and environmental issues are included, and this will increasingly be the case going forward (e.g. focus on environmentally friendly products).
Geox Group therefore monitors how the external context evolves 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.
Furthermore, the Group pays the utmost attention to:
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 action 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.
In this context, given expectations of stability in the dynamics of interest rates and the medium/short-term nature of the debt, 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 67.5 million, the Group has signed two Interest Rate Swap (IRS) agreements to hedge its only medium/long-term loan, 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.
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 lines of credit that are currently available but have not yet been used, as well as the new financing obtained from banks during 2020.
2021 results were deeply affected by the Covid-19 pandemic, the main results are outlined below:
In the following table a comparison is made between the consolidated income statement for 2021 and 2020:
| (Thousands of Euro) | 2021 | % | 2020 Restated (*) |
% |
|---|---|---|---|---|
| Net sales | 608,915 | 100.0% | 534,897 | 100.0% |
| Cost of sales | (324,653) | (53.3%) | (302,523) | (56.6%) |
| Gross profit | 284,262 | 46.7% | 232,374 | 43.4% |
| Selling and distribution costs | (37,659) | (6.2%) | (41,395) | (7.7%) |
| General and administrative expenses | (262,691) | (43.1%) | (278,102) | (52.0%) |
| Advertising and promotion | (29,195) | (4.8%) | (23,049) | (4.3%) |
| Restructuring charges | 351 | 0.1% | (1,134) | (0.2%) |
| Net asset impairment | - | 0.0% | (12,436) | (2.3%) |
| EBIT | (44,932) | (7.4%) | (123,742) | (23.1%) |
| Net financial expenses | (8,336) | (1.4%) | (8,112) | (1.5%) |
| PBT | (53,268) | (8.7%) | (131,854) | (24.7%) |
| Income tax | (6,419) | (1.1%) | 4,307 | 0.8% |
| Net result from continuing operations | (59,687) | (9.8%) | (127,547) | (23.8%) |
| Net result from discontinued operations | (2,460) | (0.4%) | (658) | (0.1%) |
| Net result | (62,147) | (10.2%) | (128,205) | (24.0%) |
| EBITDA | 30,803 | 5.1% | (15,184) | (2.8%) |
| EBITDA excl. IFRS 16 | (22,909) | (3.8%) | (83,194) | (15.6%) |
(*) 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 and, for comparative purposes, 2020 income statements. This resulted in a restatement of the 2020 income statement (as detailed in the final schedules of the release).
EBITDA: is the EBIT plus depreciation, amortization and can be directly calculated from the financial statements as integrated by the notes .
EBITDA and EBITDA adjusted are not defined under IFRS accounting standards applied in the European Union and therefore their definition should be attentively assessed and analyzed by investors. Those measures are included in this report in order to improve the level of transparency for the financial community. Management considers that adjusted measures help evaluating Group's operating performance and help the comparison with companies operating in the same sector. Those indicators aim to give a supplementary view of results excluding the impact of unusual, not recurring and not operating items.
This Report, and in particular the section entitled "Outlook for operation and significant subsequent events", contains forward-looking statements. These statements are based on the Group's current expectations and projections about future events and, by their nature, are subject to inherent risks and uncertainties. They relate to events and depend on circumstances that may or may not occur or exist in the future, and, as such, undue reliance should not be placed on them. Actual results may differ materially from those expressed in such statements as a result of a variety of factors, including: volatility and deterioration of capital and financial markets, changes in commodity prices, changes in general economic conditions, economic growth and other changes in business conditions, changes in government regulation (in each case, in Italy or abroad), and many other factors, most of which are outside of the Group's control.
Consolidated revenues for 2021 stood at € 608.9 million, up 13.8% on the previous year (+14.4% at constant forex). The increase was mainly driven by the good trend shown by the wholesale channel and the gradual improvement in store performance, which was underpinned by the re-openings that took place starting from the end of the second quarter.
| (Thousands of Euro) | 2021 | % | 2020 | % | Var. % |
|---|---|---|---|---|---|
| Wholesale | 306,256 | 50.3% | 258,330 | 48.3% | 18.6% |
| Franchising | 43,137 | 7.1% | 43,106 | 8.1% | 0.1% |
| DOS* | 259,522 | 42.6% | 233,461 | 43.6% | 11.2% |
| Geox Shops | 302,659 | 49.7% | 276,567 | 51.7% | 9.4% |
| Net sales | 608,915 | 100.0% | 534,897 | 100.0% | 13.8% |
* Directly Operated Store
Revenues from multi-brand stores, accounting for 50.3% of Group revenues (48.3% in 2020), came in at € 306.3 million (+18.6% at current forex, +19.5% at constant forex), compared with € 258.3 million in 2020. The trend benefited from the strong performance of stock replenishment for SS21, a positive order book for the FW21 collection, a positive timing effect on shipments (as requested by partners at the beginning of the year), increased sales of stock from previous seasons and an improvement in commercial conditions. These effects more than offset the weak initial order book for the SS21 collection – which had been filled in the previous year at the height of the first lockdown – and therefore led to the overall good performance for the period.
Revenues from the franchising channel, accounting for 7.1% of Group revenues, amounted to € 43.1 million, virtually in line with 2020. The trend for the period benefited from the gradual re-opening of stores, whose positive performance combined with a favourable timing effect on shipments made it possible to cancel out the negative effects deriving from the reduction in the store network (approximately -€ 7 million or -15%). Indeed, the total number of franchised stores decreased from 322 stores in December 2020 to 304 in December 2021.
Revenues from Directly Operated Stores (DOS), accounting for 42.6% of Group revenues, stood at € 259.5 million, compared to € 233.5 million in 2020 (+11.2% at current forex, +11.3% at constant forex). Comparable sales (LFL) at year-end stood at +23%, partially thanks to a lower percentage of stores temporarily closed during the year (14% on average) as compared to 2020 (approximately 23%). As already mentioned, the rationalisation of the store network must also be taken into consideration (around 15%), with a net reduction of 60 DOS.
The Group's direct online business continued to perform well (+18% compared to 2020 and +73% compared to 2019).
| (Thousands of Euro) | 2021 | % | 2020 | % | Var. % |
|---|---|---|---|---|---|
| Italy | 153,801 | 25.3% | 124,923 | 23.4% | 23.1% |
| Europe (*) | 278,283 | 45.7% | 250,293 | 46.8% | 11.2% |
| North America | 26,827 | 4.4% | 24,772 | 4.6% | 8.3% |
| Other countries | 150,004 | 24.6% | 134,909 | 25.2% | 11.2% |
| Net sales | 608,915 | 100.0% | 534,897 | 100.0% | 13.8% |
(*) Europe includes: Austria, Benelux, France, Germany, Great Britain, Iberian Peninsula, Scandinavia, Switzerland.
Revenues generated in Italy, accounting for 25.3% of Group revenues (23.4% in 2020), stood at € 153.8 million (+23.1%) compared to € 124.9 in 2020. Italy's performance benefited from a lower percentage of stores closed due to lockdown compared to 2020. Growth was led by the wholesale channel (+47%) and the DOS channel (+19.1%). The franchising channel show a downtrend (-11.8%) and was most impacted by the ongoing rationalisation process (-15 outlets compared to December 2020, i.e. 17% of the network).
Revenues generated in Europe, accounting for 45.7% of Group revenues (46.8% in 2020), totalled € 278.3 million, compared to € 250.3 million in 2020, showing an increase of 11.2% mainly driven, as was the case with Italy, by the good performance of the wholesale channel (+19.3%).
Direct stores in Europe posted a positive performance thanks to the uptrend of comparable sales (+14.3%) and despite the effects deriving from both the ongoing rationalisation process (-25 DOS, i.e. 18% of the network) and the lockdown-driven closure of many stores in the first half. The trend proved slightly negative for franchising revenues (down 4.4%), as they too were impacted by the ongoing rationalization process and lockdown in the first half of the year.
North America posted revenues of € 26.8 million, up 8.3% (+7.6% at constant forex) over 2020 despite the sharp reduction in the store network (4 net closures, i.e. 17% of the network) and closures due to lockdown in Canada, which continued until 30 June. The trend of the wholesale channel (+16.2%) and of the direct online channel (+20.1%) was particularly strong.
Other countries posted an increase in turnover of +11.2% over 2020 (+13.5% at constant forex).
In the Asia Pacific area in particular, turnover fell by 8.5%, primarily as a result of the reorganisation in Japan, which resulted in the branch being closed and the business being transferred to a distributor.
China showed a revenue growth (+11%), with comparable sales from direct operated stores increasing by 11%.
Revenues in Eastern Europe grew by 17.7%, driven by the performance in Russia (up 23%). Directly Operated Stores throughout the region showed a 32% increase in comparable sales (Russia +41%); growth in the wholesale and franchising channels also proved positive, showing a double-digit increase.
Footwear revenues accounted for 89.8% of consolidated revenues, standing at € 547 million, up 14.6% (+15.0% at constant forex) compared to 2020. Apparel accounted for about 10% of consolidated revenues, standing at € 62 million (+7.8% at current forex, +9.3% at constant forex).
| (Thousands of Euro) | 2021 | % | 2020 | % | Var. % |
|---|---|---|---|---|---|
| Footwear Apparel |
546,917 61,998 |
89.8% 10.2% |
477,379 57,518 |
89.2% 10.8% |
14.6% 7.8% |
| Net sales | 608,915 | 100.0% | 534,897 | 100.0% | 13.8% |
As at 31 December 2021, 'Geox Shops' totalled 768, of which 350 DOS. During 2021, 33 new Geox Shops were opened and 132 were closed, in line with the store network optimization planned in more mature markets and the expansion in countries where the Group's presence is still limited but developing well.
| 12-31-2021 | 12-31-2020 | 2021 | |||||
|---|---|---|---|---|---|---|---|
| Geox Shops |
of which DOS |
Geox Shops |
of which DOS |
Net Openings |
Openings | Closings | |
| Italy | 200 | 128 | 226 | 139 | (26) | 4 | (30) |
| Europe (*) | 210 | 117 | 246 | 142 | (36) | 2 | (38) |
| North America | 20 | 20 | 24 | 24 | (4) | 0 | (4) |
| Other countries (**) | 338 | 85 | 371 | 105 | (33) | 27 | (60) |
| Total | 768 | 350 | 867 | 410 | (99) | 33 | (132) |
(*) Europe includes: Austria, Benelux, France, Germany, UK, Iberia, Scandinavia, Switzerland.
(**) Includes Under License Agreement Shops (114 as of December 31 2021, 135 as of December 31 2020). Sales from these shops are not included in the franchising channel.
While showing a significant improvement compared to 2020, the results for the period were still affected by the pandemic that led to the temporary closure of many stores, especially in the first part of the year. Against such a backdrop, the Group achieved a significant improvement in gross margins while acting resolutely in terms of cost effectiveness, with a cost reduction of approximately 13 million compared to 2020 (-70 million compared to 2019).
The cost of sales came in at 53.3% of revenues, compared with 56.6% in 2020, resulting in a gross margin of 46.7% (43.4% in 2020).
The strong improvement in margin was driven mainly by the improved performance of the business, which did not require extraordinary write-downs as was the case in 2020 (about € 18 million), and by the sharp reduction in average discounts in the DOS channel. These factors more than offset the unfavourable channel mix due to the reduction in direct channel sales caused by the rationalisation process carried out and temporary closures.
Total operating costs (general and administrative expenses, selling and distribution costs and advertising costs) stood at € 329.5 million compared to € 342.5 million in 2020, with savings in the region of € 13 million (about -4%).
Sales and distribution costs stood at € 37.7 million (€ 41.4 million in 2020), showing a decrease despite the strong increase in turnover, mainly due to a back-to-normal situation in credit risk as a result of good business performance.
General and administrative expenses stood at € 262.7 million, compared to € 278.1 million in 2020, down by approximately € 15 million. The decrease compared with last year benefited primarily from lower costs in Directly Operated Stores (DOS) of around € 21 million, due to the store network reduction over the past few quarters. This item also reflects around € 26 million (around € 27 million in 2020) relating to extraordinary positive items, including (i) government supports (€ 11.5 million compared to € 3.7 million in 2020) granted for the impact suffered by the business in the various countries following the pandemic, (ii) reliance on welfare support provisions (€ 7.2 million compared to € 17 million in 2020) and (ii) renegotiation of lease payments (€ 6.8 million compared to € 6.4 million in 2020).
Advertising and promotion costs totalled € 29.2 million, showing an increase compared to the previous period (€ 23.0 million). The increase was chiefly due to greater marketing endeavours launched in the period, in line with the Business Plan.
The rationalisation initiatives undertaken by the Group mainly in the last two years, have required significant measures to be adopted in many regions. It should be noted that in 2021, restructuring expenses and income show a positive balance of € 0.4 million (compared to costs of € 1.1 million in 2020). This net effect originates from the almost perfect offsetting of the costs incurred for the rationalisation of the distribution network and the positive effects arising from the write-off of past debts as part of the reorganisation procedures completed in Canada and the USA.
Financial year 2020 was strongly affected by the global outbreak of COVID-19, which resulted in a net impairment of € 12.4 million, referring to 95 stores that were fully or partially impaired. These write-downs proved adequate with respect to both the stores closed in 2021 and future forecasts for existing stores. As a result, no additional book value adjustments were required in financial year 2021.
Operating income, after net impairments of fixed assets and restructuring costs, totalled € -44.9 million, compared to -€ 123.7 million in 2020.
Income taxes for 2021 totalled € 6.4 million, compared to +4.3 million in 2020. Earnings results in both financial years did not have a corresponding monetary outlay, as these account for changes in deferred tax assets reflected in the financial statements, primarily due to temporary differences in provisions.
It should also be noted that the tax amount has been affected by the prudent choice not to make a provision for deferred tax assets to the extent of € 19.5 million, referring to the tax losses generated during 2021 (€ 25.1 million in 2020) in relation to which, as at the reporting date, there is not reasonable certainty that sufficient taxable income will be generated over the next three or four financial years to recover them, in addition to the value of deferred tax assets already reflected in the financial statements.
Such a prudent approach is in line with the recent ESMA recommendation issued in light of the extreme volatility of forecasts during the current pandemic. As a result, gaining more insights into the likely end of the health emergency is considered to be the best option.
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 and, for comparative purposes, 2020 income statements, totalling € 2,460 thousand and € 658 thousand respectively.
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) | 2021 Reported |
IFRS 16 impact |
2021 excl. IFRS 16 |
% | 2020 Restated excl. IFRS 16 |
% |
|---|---|---|---|---|---|---|
| Net sales | 608,915 | - | 608,915 | 100.0% | 534,897 | 100.0% |
| Cost of sales | (324,653) | - | (324,653) | (53.3%) | (302,523) | (56.6%) |
| Gross profit | 284,262 | - | 284,262 | 46.7% | 232,374 | 43.4% |
| Selling and distribution costs | (37,659) | (1,245) | (38,904) | (6.4%) | (42,760) | (8.0%) |
| General and administrative expenses | (262,691) | (4,381) | (267,072) | (43.9%) | (278,386) | (52.0%) |
| Advertising and promotion | (29,195) | (347) | (29,542) | (4.9%) | (23,276) | (4.4%) |
| Restructuring charges | 351 | (6,261) | (5,910) | (1.0%) | (1,134) | (0.2%) |
| Net asset impairment | - | - | - | 0.0% | (3,197) | |
| EBIT | (44,932) | (12,234) | (57,166) | (9.4%) | (116,379) | (21.8%) |
| Net interest | (8,336) | 3,561 | (4,775) | (0.8%) | (3,667) | (0.7%) |
| PBT | (53,268) | (8,673) | (61,941) | (10.2%) | (120,046) | (22.4%) |
| Income tax | (6,419) | - | (6,419) | (1.1%) | 4,307 | 0.8% |
| Net result from continuing operations | (59,687) | (8,673) | (68,360) | (11.2%) | (115,739) | (21.6%) |
| Net result from discontinued operations | (2,460) | - | (2,460) | (0.4%) | (658) | (0.1%) |
| Net result | (62,147) | (8,673) | (70,820) | (11.6%) | (116,397) | (19.1%) |
| EBITDA adjusted | 30,803 | (53,712) | (22,909) | (3.8%) | (83,194) | (15.6%) |
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, 2021 | Dec. 31, 2020 |
|---|---|---|
| Intangible assets | 31,853 | 35,834 |
| Property, plant and equipment | 35,873 | 50,413 |
| Right-of-use assets | 203,674 | 241,808 |
| Other non-current assets - net | 36,567 | 47,686 |
| Total non-current assets | 307,967 | 375,741 |
| Net operating working capital | 112,435 | 177,528 |
| Other current assets (liabilities), net | (10,219) | (8,462) |
| Net invested capital | 410,183 | 544,807 |
| Equity | 124,582 | 167,208 |
| Provisions for severance indemnities, liabilities and charges | 8,908 | 9,849 |
| Net financial position | 276,693 | 367,750 |
| Net invested capital | 410,183 | 544,807 |
The following table shows the mix and changes in net operating working capital and other current assets (liabilities):
| (Thousands of Euro) | Dec. 31, 2021 | Dec. 31, 2020 |
|---|---|---|
| Inventories | 240,320 | 267,964 |
| Accounts receivable | 68,927 | 87,718 |
| Trade payables | (196,812) | (178,154) |
| Net operating working capital | 112,435 | 177,528 |
| % of sales for the last 12 months | 18.5% | 33.2% |
| Taxes payable | (10,079) | (13,057) |
| Other non-financial current assets | 31,025 | 35,093 |
| Other non-financial current liabilities | (31,165) | (30,498) |
| Other current assets (liabilities), net | (10,219) | (8,462) |
Net working capital stood at approximately Euro 112 million, down from Euro 178 million in December 2020. This reduction was mainly due to the reduction in inventory (approximately Euro -28 million compared to 2020) resulting from both the disposal of unsold inventory from previous seasons and the reduction in purchases for current seasons. In addition, the upturn in business also experienced by our customers enabled amounts collected to perform well, with a reduction in trade receivables reflected in the financial statements. As a result, the ratio of operating net working capital to revenues improved significantly and fell to 18.5% from 33.2% in 2020.
The following table gives a breakdown of the net financial position:
| (Thousands of Euro) | Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Cash and cash equivalents | 45,655 | 83,130 |
| Current financial assets - excluding derivatives | 2,831 | 2,971 |
| Bank borrowings and current portion of long-term loans | (48,954) | (61,969) |
| Current financial liabilities - excluding derivatives | (25) | (116) |
| Net financial position - current portion | (493) | 24,016 |
| Non-current financial assets | 26 | 24 |
| Long-term loans | (82,389) | (113,832) |
| Net financial position - non-current portion | (82,363) | (113,808) |
| Net financial position - prior to fair value adjustment of derivatives and IFRS 16 | ||
| impact | (82,856) | (89,792) |
| Lease liabilities | (212,374) | (267,907) |
| Net financial position - prior to fair value adjustment of derivatives | (295,230) | (357,699) |
| Fair value adjustment of derivatives | 18,537 | (10,051) |
| Net financial position | (276,693) | (367,750) |
The combined effect of rationalisation actions undertaken and the positive trend of sales in the direct channel at the time of re-opening, made it possible to improve the net financial position, which at the end of December, despite the extraordinary situation, stood (before IFRS 16 and after the fair value of derivative contracts) at Euro -64.3 million (Euro -99.8 million at December 2020). The net financial position before fair value of derivative contracts stood at Euro -82.9 million (Euro -89.8 million at December 2020), with cash generation of approximately Euro 7 million mainly concentrated in the second half of the year following the gradual reopening of stores and outlets.
The Group suggested suspending payment of some rents while stores were temporarily closed and then began to pay rent in proportion to sales performance following their re-opening, until an agreement with the various landlords was eventually reached.
This approach is coherent with the ongoing talks being held with the various landlords, aimed at renegotiating the contractual agreements in place, bringing them more in line with the changes to the economic scenario; this involves introducing variable rents based on the level of turnover, at least while there is reduced footfall caused by the restrictive measures and the strong reduction in tourist numbers. Discussions with property owners proceeded well and, as at 31 December, the Group already executed a significant number of agreements, with the few remaining ones being well underway. The past due portion of suspended or partially paid rent as at 31 December 2021 decreased to approximately Euro 4.1 million from approximately Euro 14 million as at 31 December 2020.
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, 2021 and those excluding accounting effects deriving from the application of IFRS 16 is presented below:
| (Thousands of Euro) | Dec. 31, 2021 |
IFRS 16 impact |
Dec. 31, 2021 excl. IFRS 16 |
Dec. 31, 2020 excl. IFRS 16 |
|---|---|---|---|---|
| Intangible assets | 31,853 | 461 | 32,314 | 36,236 |
| Property, plant and equipment | 35,873 | 799 | 36,672 | 50,413 |
| Right-of-use assets | 203,674 | (203,674) | - | - |
| Other non-current assets - net | 36,567 | - | 36,567 | 47,096 |
| Total non-current assets | 307,967 | (202,414) | 105,553 | 133,745 |
| Net operating working capital | 112,435 | (4,110) | 108,325 | 163,809 |
| Other current assets (liabilities), net | (10,219) | - | (10,219) | (9,059) |
| Net invested capital | 410,183 | (206,524) | 203,659 | 288,495 |
| Equity | 124,582 | 5,850 | 130,432 | 180,610 |
| Provisions for severance indemnities, liabilities and charges | 8,908 | - | 8,908 | 8,042 |
| Net financial position | 276,693 | (212,374) | 64,319 | 99,843 |
| Net invested capital | 410,183 | (206,524) | 203,659 | 288,495 |
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) | 2021 | 2020 |
|---|---|---|
| Net result | (62,147) | (128,205) |
| Depreciation, amortization and impairment | 77,677 | 110,793 |
| Other non-cash items | (19,449) | 26,317 |
| (3,919) | 8,905 | |
| Change in net working capital | 81,087 | (29,825) |
| Change in other assets/liabilities | 2,635 | (5,677) |
| Cash flow from operations | 79,803 | (26,597) |
| Capital expenditure | (18,989) | (18,212) |
| Disposals | 6,505 | 183 |
| Net capital expenditure | (12,484) | (18,029) |
| Free cash flow | 67,319 | (44,626) |
| Increase in right-of-use assets | (4,015) | (18,317) |
| Change in net financial position | 63,304 | (62,943) |
| Initial net financial position - prior to fair value adjustment of derivatives | (357,699) | (296,020) |
| Change in net financial position | 63,304 | (62,943) |
| Translation differences | (835) | 1,264 |
| Final net financial position - prior to fair value adjustment of derivatives | (295,230) | (357,699) |
| Fair value adjustment of derivatives | 18,537 | (10,051) |
| Final net financial position | (276,693) | (367,750) |
During 2020, 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.
On the contrary, during 2021, part of this abnormal effect on working capital was reabsorbed.
Consolidated capital expenditure is analyzed in the following table:
| (Thousands of Euro) | 2021 | 2020 |
|---|---|---|
| Trademarks and patents | 396 | 578 |
| Opening and restructuring of Geox Shop | 4,494 | 7,747 |
| Production plant | - | 110 |
| Industrial plant and equipment | 2,631 | 2,334 |
| Logistic | 1,347 | 560 |
| Information technology | 8,713 | 5,958 |
| Offices furniture, warehouse and fittings | 1,408 | 925 |
| Total cash capex | 18,989 | 18,212 |
| Right-of-Use | 4,015 | 20,123 |
| Total capex | 23,004 | 38,335 |
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 2021 and those that exclude the accounting effects deriving from the application of IFRS 16 is presented below:
| (Thousands of Euro) | 2021 | IFRS 16 impact |
2021 excluding IFRS 16 |
2020 excluding IFRS 16 |
|---|---|---|---|---|
| Net result | (62,147) | (8,673) | (70,820) | (116,397) |
| Depreciation, amortization and impairment | 77,677 | (41,478) | 36,199 | 35,420 |
| Other non-cash items | (19,449) | - | (19,449) | 26,317 |
| Totale non-cash items | 58,228 | (41,478) | 16,750 | 61,737 |
| Change in net working capital | 81,087 | (9,608) | 71,479 | (16,106) |
| Change in other current assets/liabilities | 2,635 | - | 2,635 | (5,080) |
| Cash flow from operations | 79,803 | (59,759) | 20,044 | (75,846) |
| Capital expenditure | (18,989) | - | (18,989) | (18,212) |
| Disposals | 6,505 | - | 6,505 | 183 |
| Net capital expenditure | (12,484) | - | (12,484) | (18,029) |
| Free cash flow | 67,319 | (59,759) | 7,560 | (93,875) |
| Increase in right-of-use assets | (4,015) | 4,015 | - | - |
| Change in net financial position | 63,304 | (55,744) | 7,560 | (93,875) |
| Initial net financial position - prior to fair value adjustment of derivatives | (357,699) | 267,907 | (89,792) | 5,364 |
| Change in net financial position | 63,304 | (55,744) | 7,560 | (93,875) |
| Translation differences | (835) | 211 | (624) | (1,281) |
| Final net financial position - prior to fair value adjustment of derivatives | (295,230) | 212,374 | (82,856) | (89,792) |
| Fair value adjustment of derivatives | 18,537 | - | 18,537 | (10,051) |
| Final net financial position | (276,693) | 212,374 | (64,319) | (99,843) |
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 2019-2021 Stock Grant Plan.
The buy-back program started on June 5, 2019 and ended on November 20, 2019.
The extraordinary Shareholders' Meeting, on April 16, 2019, approved a medium-long term incentive plan involving the free issue of up to a maximum of five million ordinary Company shares (2019-2021 Stock Grant Plan), 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, 2021. Shares being assigned will also depend on and be proportional to the achievement of performance results based on the accumulated consolidated net income reported in Geox Group's 2019-2021 Strategic Business Plan.
The Plan states that these shares, at the discretion of the Board of Directors and in accordance with applicable legal provisions, may come (a) from a free share capital increase pursuant to article 2349, paragraph I, of the (Italian) Civil Code, to be made by using a profit reserve that is non-distributable for the purpose of said share capital increase and/or (b) from shares that may have been purchased on the market and/or held by the Company in another form, subject to an ordinary Shareholders' Meeting authorizing the purchase and making treasury shares available pursuant to articles 2357 et seq. of the (Italian) Civil Code.
In order to put the resolutions passed by Shareholders' Meeting into effect, the Board of Directors of Geox S.p.A., resolved to implement the 2019-2021 Stock Grant Plan, with 3,996,250 rights initially being attributed to 107 beneficiaries. At the date of this report a number of 2,205,132 rights are in circulation which, given the performances, will not be exercisable by beneficiaries.
For further details please refer to the Remuneration Report.
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.
Pursuant to the Plan, the shares to be assigned can be found in the same manner described in the previous plan. 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 by 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, 2021, a number of 6,811,609 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 34 of the Consolidated Financial Statements.
In formulating forecasts for the full year, certain positive factors (listed below) related to the current business trend must be taken into account, while emphasizing however that these factors have not yet been affected by the possible consequences of today's developments in the crisis in Ukraine:
1) The DOS channel is showing to date (week 7) comparable sales (LFL) evolving positively (approximately +44% over 2021 and slightly below 2019 levels) with a non-negligible reduction in markdowns (approximately 6 points) compared to both 2021 and 2019. Indeed, in the absence of new restrictions the entire first half of the year will benefit from an easy comparison with the first half of 2021, which was particularly affected by lockdowns and the ensuing closure of a high percentage of stores, especially in Europe. In contrast, second-half performance will compare on a more consistent basis (again assuming no lockdowns are required), as the entire network was virtually operational in the second half of 2021.
2) With regard to the wholesale channel, following the outstanding close of the initial order intake for the SS22 season (approximately +25%), the initial order book for the FW22 season is also showing the same increasing trend, reaching the budget and going to reach 2019 levels. It should be noted that in order to balance the increase in raw material and shipping costs the Group revised upwards its price list for both the SS22 collection (approximately +4% on average) and the FW22 collection (approximately +8% on average).
3) The situation regarding transportation still remains challenging both in terms of the timing of shipments and their cost. Geox is constantly in touch with its partners in the multi-brand channel to agree on methods and timing of delivery for the SS22 collection. This will cause some impact in terms of cancellations, commercial conditions and greater reliance on air travel, especially in the first half of the year. The Group believes, as do most market operators, that the situation may gradually improve during the second half of the year.
On the basis of these elements and the forecasts for the coming quarters, the management confirms that the fundamental lines of the Plan are respected and the current sales performance of the direct stores together with the excellent performance recorded in the Spring-Summer and Fall-Winter sales campaigns, which are now substantially concluded, would lead to the objectives of double-digit growth in annual revenues (forecast by the Plan to be above €700 million), with gross margins improving by approximately 100/150 basis points compared to 2021 levels. The increase in margins and profitability will be mainly concentrated in the second half of the year, thanks both to a higher revenue base (typical seasonality of the business) and to the expected easing of the critical issues currently present in the supply chain.
In this context, today's events, with the worsening of the crisis in Ukraine, lead to an increase in the risk and volatility of these forecasts on future performance because the actions and sanctions that will be applied by the international community as a reaction to these serious events are not yet known. In particular, today it is not yet possible to predict and quantify any possible impact on the business of our sector, currency trends, energy costs and inflation. Therefore, these forecasts on future trends, which by their very nature are already subject to great uncertainty, require even greater caution today.
Biadene di Montebelluna, February 24, 2022
for the Board of Directors The Chairman Mr. Mario Moretti Polegato
| (Thousands of Euro) | Notes | 2021 | of which related party |
2020 Restated (*) |
of which related party |
|---|---|---|---|---|---|
| Net sales | 3-34 | 608,915 | 898 | 534,897 | 626 |
| Cost of sales | 34 | (324,653) | 529 | (302,523) | 134 |
| Gross profit | 284,262 | 232,374 | |||
| Selling and distribution costs | (37,659) | (41,395) | |||
| General and administrative expenses | 4-34 | (262,691) | 97 | (278,102) | 12 |
| Advertising and promotion | 34 | (29,195) | (149) | (23,049) | (145) |
| Restructuring charges | 8 | 351 | (1,134) | ||
| Net asset impairment | 6 | - | (12,436) | ||
| EBIT | 3 | (44,932) | (123,742) | ||
| Net financial expenses | 9-34 | (8,336) | (1,364) | (8,112) | (579) |
| PBT | (53,268) | (131,854) | |||
| Income tax | 10-34 | (6,419) | (5) | 4,307 | (81) |
| Net result from continuing operations | (59,687) | (127,547) | |||
| Net result from discontinued operations | 11-34 | (2,460) | 1,155 | (658) | 695 |
| Net result | (62,147) | (128,205) | |||
| Earnings per share [Euro] | 12 | (0.24) | (0.50) | ||
| Diluted earnings per share [Euro] | 12 | (0.24) | (0.50) |
| (Thousands of Euro) | 2021 | of which related party |
2020 Restated (*) |
of which related party |
|---|---|---|---|---|
| Net income | (62,147) | (128,205) | ||
| Other comprehensive income that will not be reclassified subsequently to profit or loss: |
||||
| - Net gain (loss) on actuarial defined-benefit plans | 25 | - | 44 | - |
| Other comprehensive income that may be reclassified subsequently to profit or loss: |
||||
| - Net gain (loss) on Cash Flow Hedge, net of tax | 18,396 | - | (6,058) | - |
| - Currency translation | (880) | - | (1,271) | - |
| Net comprehensive income | (44,606) | (135,490) |
(*) 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 and, for comparative purposes, 2020 income statements. This resulted in a restatement of the 2020 income statement (as detailed in the final schedules of the release).
| (Thousands of Euro) | Notes | Dec. 31, 2021 |
of which related party |
Dec. 31, 2020 |
of which related party |
|---|---|---|---|---|---|
| ASSETS: | |||||
| Intangible assets | 13 | 31,853 | 35,834 | ||
| Property, plant and equipment | 14 | 35,873 | 50,413 | ||
| Right-of-use assets | 15 | 203,674 | 241,808 | ||
| Deferred tax assets | 16 | 30,374 | 42,579 | ||
| Non-current financial assets | 21 | 26 | 24 | ||
| Non-current lease assets | 27 | 343 | 508 | ||
| Other non-current assets | 17 | 7,754 | 7,935 | ||
| Total non-current assets | 309,897 | 379,101 | |||
| Inventories | 18 | 240,320 | 267,964 | ||
| Accounts receivable | 19-34 | 68,927 | 907 | 87,718 | 1,068 |
| Other non-financial current assets | 20-34 | 31,025 | 67 | 35,093 | 175 |
| Current financial assets | 21-33 | 22,413 | 4,127 | ||
| Cash and cash equivalents | 22 | 45,655 | 83,130 | ||
| Current assets | 408,340 | 478,032 | |||
| Total assets | 718,237 | 857,133 | |||
| LIABILITIES AND EQUITY: | |||||
| Share capital | 23 | 25,921 | 25,921 | ||
| Reserves | 23 | 160,808 | 269,492 | ||
| Net income | 23 | (62,147) | (128,205) | ||
| Equity | 124,582 | 167,208 | |||
| Employee severance indemnities | 24 | 2,411 | 2,834 | ||
| Provisions for liabilities and charges | 25 | 6,497 | 7,015 | ||
| Long-term loans | 26 | 82,389 | 113,832 | ||
| Non-current lease liabilities | 27-34 | 166,082 | 54,096 | 202,861 | 57,525 |
| Other long-term payables | 28 | 1,561 | 2,828 | ||
| Total non-current liabilities | 258,940 | 329,370 | |||
| Trade payables | 29-34 | 196,812 | 64 | 178,154 | 744 |
| Other non-financial current liabilities | 30 | 31,165 | 30,498 | ||
| Taxes payable | 31 | 10,079 | 13,057 | ||
| Current financial liabilities | 21-33 | 1,070 | 11,323 | ||
| Current lease liabilities | 27-34 | 46,635 | 4,949 | 65,554 | 5,143 |
| Bank borrowings and current portion of long-term loans | 26 | 48,954 | 61,969 | ||
| Current liabilities | 334,715 | 360,555 | |||
| Total liabilities and equity | 718,237 | 857,133 |
| (Thousands of Euro) | Notes | 2021 | 2020 |
|---|---|---|---|
| CASH FLOW FROM OPERATING ACTIVITIES: Net result |
(62,147) | (128,205) | |
| Adjustments to reconcile net income to net cash provided | |||
| (used) by operating activities: | |||
| Depreciation and amortization and impairment | 5-6 | 77,677 | 110,793 |
| Other non-cash items | (19,449) | 26,317 | |
| 58,228 | 137,110 | ||
| Change in assets/liabilities: | |||
| Accounts receivable | 14,096 | 23,656 | |
| Other assets | 2,222 | (5,902) | |
| Inventories | 42,374 | (5,461) | |
| Accounts payable | 24,617 | (48,020) | |
| Other liabilities | 5,358 | (2,793) | |
| Taxes payable | (4,945) | 3,018 | |
| 83,722 | (35,502) | ||
| Operating cash flow | 79,803 | (26,597) | |
| CASH FLOW USED IN INVESTING ACTIVITIES: | |||
| Capital expenditure on intangible assets | 13 | (7,467) | (6,793) |
| Capital expenditure on property, plant and equipment | 14 | (11,372) | (10,971) |
| Capital expenditure on right-of-use assets | (150) | (448) | |
| (18,989) | (18,212) | ||
| Disposals | 6,505 | 183 | |
| (Increase) decrease in financial assets | 382 | (2,227) | |
| Cash flow used in investing activities | (12,102) | (20,256) | |
| CASH FLOW FROM (USED IN) FINANCING ACTIVITIES: | |||
| Increase (decrease) in short-term bank borrowings, net | (1,861) | (3,486) | |
| Lease liabilities repayment | 27 | (61,292) | (48,611) |
| Loans: | |||
| - Proceeds | 16,669 | 157,240 | |
| - Repayments | (59,549) | (22,207) | |
| Cash flow used in financing activities | (106,033) | 82,936 | |
| Increase (decrease) in cash and cash equivalents | (38,332) | 36,083 | |
| Cash and cash equivalents, beginning of the period | 22 | 83,130 | 48,449 |
| Effect of translation differences on cash and cash equivalents | 857 | (1,402) | |
| Cash and cash equivalents, end of the period | 22 | 45,655 | 83,130 |
| (Thousands of Euro) | Share capital |
Legal reserve |
Share premium reserve |
Transla- tion reserve |
Cash flow hedge reserve |
Stock Option reserve |
Retained earnings |
Net income |
Group equity |
|---|---|---|---|---|---|---|---|---|---|
| Balance at December 31, 2019 | 25,921 | 5,184 | 37,678 | (2,267) | (582) | - | 261,523 | (24,759) | 302,698 |
| Allocation of 2019 result Net comprehensive result |
- - |
- - |
- - |
- (1,271) |
- (6,058) |
- - |
(24,759) 44 |
24,759 (128,205) |
- (135,490) |
| Balance at December 31, 2020 | 25,921 | 5,184 | 37,678 | (3,538) | (6,640) | - | 236,808 | (128,205) | 167,208 |
| Allocation of 2020 result Stock option movements Net comprehensive result |
- - - |
- - - |
- - - |
- - (880) |
- - 18,396 |
- 1,980 - |
(128,205) - 25 |
128,205 - (62,147) |
- 1,980 (44,606) |
| Balance at December 31, 2021 | 25,921 | 5,184 | 37,678 | (4,418) | 11,756 | 1,980 | 108,628 | (62,147) | 124,582 |
The Geox Group coordinates the third-party suppliers production and sells Geox-brand footwear and apparel to retailers and end-consumers. 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. is a joint-stock company incorporated in Italy and controlled by Lir S.r.l..
These explanatory notes have been prepared by the Board of Directors on the basis of the accounting records updated to December 31, 2021. They are accompanied by the directors' report on operations, which provides information on the results of the Geox Group. The consolidated financial statements have been drawn up in compliance with the International Financial Reporting Standards adopted by the European Union (IFRS, which include IAS). The accounting principles and policies used in the preparation of the consolidated financial statements are the same as last year, with the exception of those indicated below.
To facilitate comparison with the previous year, the accounting schedules provide comparative figures with December 31, 2020 for balance sheet accounts and for the year 2020 in the case of the income statement. Following IFRS 5 accounting standard and with reference to the closure of the production plant in Serbia qualified as "Discontinued Operations", 2020 Income statement has been appropriately restated. Therefore, in accordance with IFRS 5, the contribution to the consolidated financial statement of the subsidiary was presented under the item "Net result from discontinued operations" (please see Note 11). No restatement was made in statement of financial position as of December 31, 2021 and December 31, 2020 as the aforementioned transaction was completed within December 31, 2021.
The reporting currency is the Euro and all figures have been rounded up or down to the nearest thousand Euro.
As explained in Director's Report, 2021, although significantly improved compared to 2020, was still significantly impacted by the the Covid-19 pandemic which, especially in the first part of the year, led to frequent suspensions of non-essential commercial activities in many countries, resulting in the temporary closure of shops operated by the Group and its customers.
The containment of the loss achieved in 2021 was possible thanks to both the positive trend in revenues and the increase in gross margins driven by the incisive and continuous cost-saving action, also obtained thanks to the one-off support received in some European countries.
Since the reopening of the shops, there has been a progressive and significant improvement in the performance of the network, which has been fully operational since the end of June 2021, with only a few interruptions in some countries at the end of the year due to the resumption of contagions. Particularly comforting was the evolution of digital revenues and markets on which the Group continues to focus its investments.
In all the areas where the Group operates, there are currently no new lockdowns and therefore the entire Geox distribution network is currently operational.
Despite this, the health situation is, in fact, holding back the recovery of tourist flows and the mobility of people around the world, with significant effects on shop performance.
In this context, the Directors have implemented the necessary actions to protect the Group's employees and its financial position, have carried out incisive cost-cutting measures and have accelerated the definition of a business model that is leaner, more efficient and more responsive to the new market context.
It should also be noted that the financial effects generated by the significant one-off cash absorption, which in the spring of 2020 was added to the normal seasonality of the business, caused by the Covid emergency and common to the entire sector in which the Group operates, are gradually receding. In particular, the temporary suspension of shop operations and the slowdown in collections from multi-brand and franchised customers, caused, particularly in the second quarter of 2020, a significant absorption of financial resources due by the increase in working capital caused by the lack of takings from stores (managed by different customers), unsold stock and unpaid receivables.
The Directors formalized their forecasts on the evolution of the business in the 2022-2024 Strategic Business Plan (hereinafter the "Business Plan"), which was approved by the Board of Directors on 1 December 2021. The Business Plan, the main assumptions of which are described in note 6 and are still considered valid, has been considered as a reference to support the assessments relating to these consolidated financial statements.
With reference to this situation, as described in more detail in the Directors' Report, the Directors do not believe that the Group has any issues regarding its ability to fulfil its commitments in the foreseeable future, and especially over the next 12 months; this belief is based on the forecasts made in the Business plan, on the lines of credit currently available and not yet used and on the loans received from the banking system during 2020.
On this basis, and also considering the Group's sound balance sheet, the Directors have concluded that, despite the difficult economic and financial context, there is no significant uncertainty regarding its ability to continue operating as a going concern.
The consolidated financial statements at December 31, 2021 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, 2021".
The Group presents an income statement using a classification based on the "cost of sales" method, as this is believed to provide information that is more relevant. The format selected 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 (Note 34).
The financial statements of the subsidiaries included in the scope of consolidation are consolidated on a lineby-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 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.
The following are also eliminated:
On March 31, 2021, the IASB published an amendment entitled 'Covid-19-Related Rent Concessions beyond June 30, 2021 (Amendment to IFRS 16)' containing an extension by one year of the same amendment published in 2020. This document stated that lessees are entitled to record Covid-19-related rent reductions without having to analyse the contracts to assess whether the definition of 'lease modification', as stated by the IFRS 16, is respected. Lessees who exercise this right may therefore record the effects of the rent reductions directly in the income statement as at the date when the reduction takes effect. The 2021 amendment, only applicable for the companies that applied the same amendment in 2020, was applicable to financial statements starting from April 1 st , 2021, early adoption is allowed. Over the course of 2020, the Group negotiated with the main landlords with whom it holds operating leases, these negotiations were concluded between 2020 year-end and 2021. Rent savings recorded directly in the income statement amount to Euro 7,034 thousand in 2021 and 6,783 thousand in 2020.
Given the reform of interbank interest rates (such as the IBOR), the IASB published the "Interest Rate Benchmark Reform—Phase 2" document on August 27, 2020 containing the following amendments:
All changes will enter into force on January 1 st , 2022. The directors are not expecting the adoption of these amendments to have a significant impact on the Group's financial statements.
On February 12, 2021 IASB issued 2 amendments "Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2" and "Definition of Accounting Estimates – Amendments to IAS 8".
On May 7, 2021 IASB issued the amendment "Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction".
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 used, as published by the Italian Exchange Office (U.I.C.), are as follows:
| Currency | Average for | Average for |
As at | |
|---|---|---|---|---|
| 12-31-2021 | 12-31-2021 | 12-31-2020 | 12-31-2020 | |
| US Dollar | 1.1835 | 1.1326 | 1.1413 | 1.2271 |
| Swiss Franc | 1.0814 | 1.0331 | 1.0703 | 1.0802 |
| British Pound | 0.8600 | 0.8403 | 0.8892 | 0.8990 |
| Canadian Dollar | 1.4835 | 1.4393 | 1.5294 | 1.5633 |
| Japanese Yen | 129.8575 | 130.3800 | 121.7755 | 126.4900 |
| Chinese Yuan | 7.6340 | 7.1947 | 7.8708 | 8.0225 |
| Czech Koruna | 25.6468 | 24.8580 | 26.4555 | 26.2420 |
| Russian Ruble | 87.2321 | 85.3004 | 82.6454 | 91.4671 |
| Polish Zloty | 4.5640 | 4.5969 | 4.4432 | 4.5597 |
| Hungarian Forint | 358.4635 | 369.1900 | 351.2043 | 363.8900 |
| Macau Pataca | 9.4748 | 9.0983 | 9.1172 | 9.7996 |
| Serbian Dinar | 117.5512 | 117.6165 | 117.6154 | 117.4097 |
| Vietnam Dong | 27,149.9167 | 25,819.0000 26,515.2500 28,331.0000 | ||
| Indonesian Rupiah | 16,928.5075 | 16,100.4200 16,619.7767 17,240.7600 | ||
| Turkish Lira | 10.4670 | 15.2335 | 8.0436 | 9.1131 |
| Indian Rupia | 87.4861 | 84.2292 | 84.5795 | 89.6605 |
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 characterized by the Covid-19 pandemic. So it cannot be exclude 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, the pandemic is classed as an external impairment indicator, due to its intensity and unpredictability; impairment tests were therefore updated, assessing the performance of the various CGUs based on Strategic Business Plan, as described in note 6.
The items in the financial statements that are principally affected by these situations of uncertainty are: asset impairment, deferred tax assets, the provisions for returns, the provision for obsolete and slow-moving inventory, the provision for bad and doubtful accounts and lease liabilities (and the related Right-of-Use assets).
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 set up provisions against the possibility that the carrying amounts of tangible and intangible assets may not be recoverable from them by use. The directors are required to make a significant subjective 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 6.
Deferred tax assets are booked on all carry-forward tax losses to the extent that it is probable that there will be adequate taxable income in the future to absorb them. The directors are required to make a significant subjective assessment to determine the amount of deferred tax assets that should be recognized. 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 16.
The Group has provided for the possibility that products already sold may 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 for returns 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 29.
The Group has set up provisions 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. 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 18.
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 19.
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. 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 15 with regard to Right-of-use assets and note 27 with regard to lease assets/liabilities.
The financial statements are prepared on a historical cost basis, amended as required for the valuation of certain financial instruments. They are also prepared on a going-concern basis, as already explained in "Covid-19 impacts" paragraph and in Directors' Report as regards financial issues.
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, as required by IAS 36.
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.
Intangible assets with an indefinite useful life are not amortized; instead, they are subjected to impairment testing.
The following table summarizes the useful life (in years) of the various intangible assets:
| 10 years |
|---|
| 10 years |
| 3-5 years |
| Period of the rental contract |
| Period of the rental contract |
Trademarks include the costs incurred to protect and disseminate them.
Similarly, 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.
Key money includes:
Goodwill is initially recognized by capitalizing 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, or more frequently if there is evidence of a loss in value, to verify whether its value has been impaired. The elements that satisfy the definition of "assets acquired in a business combination" are only accounted for separately if their fair value can be established with a reasonable degree of reliability.
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 in accordance with IAS 36, 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:
| 20-30 years |
|---|
| 3-8 years |
| 11 years |
| 2-4 years |
| 2 years |
| 8 years |
| 3-5 years |
| 4 years |
| 5 years |
| Period of contract * |
| Lower of contract period and 8 years |
| 4 years |
| 2-4-5 years |
* Depreciated over the lower of the useful life of the improvements and the residual duration of the lease.
Assets acquired under finance leases are shown in the consolidated financial statements at their nominal value at the start of the contract, at the same time recognizing the financial liability owed to leasing companies. These assets are depreciated using the depreciation schedules normally applied to similar types of fixed assets.
Upon signing a contract, the Group assess 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 relative 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 leasing start date (i.e. the date when the underlying asset becomes available for use). 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 incremental borrowing 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 applies the exemption for recording short-term leases and leases for assets of modest value.
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, consolidation differences and intangible assets with an indefinite useful life have 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.
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 presented in the financial statements as described in the following paragraphs:
Non-current financial assets other than investments, as well as current financial assets and financial liabilities, are accounted for in accordance with IFRS 9.
All recognized financial assets are measured subsequently in their entirety at either amortized cost or fair value depending on the business model of the company for the management of financial assets and the contractual terms that give rise to cash flows of the financial assets. Specifically:
Despite the foregoing, the Group may make the following irrevocable designation at initial recognition of a financial asset:
During the current year, the Group did not designate any debt instrument that satisfies the amortized cost or FVTOCI criteria to be measured at fair value through profit or loss (FVTPL).
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 treatment applies:
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 accruals 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 (also in virtue of the recent changes in the Italian regulations on pensions) are recognized on an accruals basis; at the same time, they also give rise to the recognition of a liability at face value.
Some group employees receive part of their compensation in the form of share-based payments. Employees therefore provide services in exchange for shares ("equity-based transactions").
The cost of equity-based transactions with employees is measured on the basis of the fair value at the grant date. The fair value is determined by an independent appraiser using an appropriate valuation method. Further details are provided in note 32.
The cost of the equity-based transactions and the corresponding increase in equity is accounted for from the time that the conditions for the attainment of the objectives and/or provision of the service are met, and ends on the date when the employees concerned have fully accrued the right to receive the compensation (the "maturity date").
The accumulated costs recorded for such transactions at the end of each accounting period up to the maturity date are compared with a best estimate of the number of equity securities that will effectively reach maturity at the end of the maturity period. The gain or loss posted to the income statement reflects the change in the accumulated cost recorded at the beginning and end of the accounting period.
No costs are booked for rights that do not reach full maturity, except in the case of rights whose granting is linked to market conditions. These are treated as if they had matured independently of the underlying market conditions, as long as all the other conditions are met.
If the initial conditions are changed, at the very least a cost has to be indicated, assuming that the conditions have remained the same. Moreover, a cost is recorded for each change implying an increase in the total fair value of the payment plan, or in any case when the change is favorable to the employees. This cost is measured taking into account the date on which the change takes place.
If rights are cancelled, they are treated as though they had reached maturity on the date of cancellation and any unrecorded costs relating to these rights are recognized immediately. However, if a cancelled right is replaced by a new right and the latter is recognized as a replacement on the date it is granted, the cancelled right and the new right are treated as though they were a change in the original right, as explained in the previous paragraph.
The dilutive effect of any vested options not yet exercised is reflected in the calculation of the dilution of earnings per share (see note 12).
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 postdelivery 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.
Rental income relates to the Geox Shops owned by the Group and leased to third parties under franchising agreements; rental income are recognized on an accruals basis.
Royalties are accounted for on an accruals basis in accordance with the substance of the contractual agreements.
Costs and expenses are accounted for on an accruals 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.
Deferred tax assets are recorded to the extent that, according to future plans, there is likely to be sufficient taxable income to cover deductible temporary differences.
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.
For management purposes, the Group runs and controls its business according to the type of products being supplied, and for disclosure purposes these consist of two operating segments: footwear and apparel.
The directors monitor the results of these two business units separately so that they can make decisions regarding the allocation of resources and check the return on investment. The yield of each segment is evaluated on the basis of the operating result, which is allocated to the various operating segments as follows:
The following table provides information on the Group's business segments:
| 2021 | % | 2020 Restated |
% | ||
|---|---|---|---|---|---|
| Footwear | Net sales | 546,917 | 477,379 | ||
| EBIT | (38,476) | (7.03%) | (106,554) | (22.32%) | |
| Apparel | Net sales | 61,998 | 57,518 | ||
| EBIT | (6,456) | (10.41%) | (17,188) | (29.9%) | |
| Net sales | 608,915 | 534,897 | |||
| EBIT | (44,932) | (7.38%) | (123,742) | (23.13%) |
Segment assets and liabilities are all managed at Group level, so they are not shown separately by segment. The only exception to this rule is the value of inventories, which amount to Euro 212,122 thousand for footwear (Euro 239,238 thousand in 2020) and Euro 28,198 thousand for apparel (Euro 28,726 thousand in 2020).
The following table provides Net sales on the Group's geographical segments:
| 2021 | % | 2020 | % | Var. % |
|---|---|---|---|---|
| 23.1% | ||||
| 278,283 | 45.7% | 250,293 | 46.8% | 11.2% |
| 26,827 | 4.4% | 24,772 | 4.6% | 8.3% |
| 150,004 | 24.6% | 134,909 | 25.2% | 11.2% |
| 608,915 | 100.0% | 534,897 | 100.0% | 13.8% |
| 153,801 | 25.3% | 124,923 | 23.4% |
(*) Europe includes: Austria, Benelux, France, Germany, UK, Iberia, Scandinavia, Switzerland
General and administrative expenses are analyzed in the following table:
| 2021 | 2020 Restated |
Change | |
|---|---|---|---|
| Wages and salaries | 92,705 | 84,860 | 7,845 |
| Rental expenses | 6,233 | 10,976 | (4,743) |
| Other costs | 175,455 | 188,050 | (12,595) |
| Rental income | (1,236) | (2,353) | 1,117 |
| Other income | (10,466) | (3,431) | (7,035) |
| Total | 262,691 | 278,102 | (15,411) |
Rental and lease expenses, equal to Euro 6,233 thousand, relate to the shops, offices and industrial property leased by the Group. The reduction compared to the same period of last year is mainly due to the decrease in shop network.
It's to be noted that, starting from January 1st, 2019, only leases excluded from the application of IFRS 16 are accounted for in this item. During 2020, the Group began an important process to negotiate with the main landlords of the properties for which it has operating leases in place; these negotiations have been completed between the end of 2020 and over the course of 2021. The ensuing economic benefits, recorded under the 'Rent payable and building expenses' item as decreases to rental payments, in line with the provisions of the amendment to the IFRS 16 accounting standard "Covid-19-Related Rent Concessions (Amendment to IFRS 16)", amounted to Euro 7,034 thousand (Euro 6,783 thousand in 2020).
With regard to the subsidiary Geox Retail S.r.l., it should also be noted that the Group benefited from a tax credit on rent instalments pursuant Italian Decree Law no. 34 of May 19, 2020, as converted with amendments by Italian law no. 77 of 17 July 2020, equal to a total of Euro 1,907 thousand (Euro 624 thousand in 2020); the subsidiary Geox Canada Inc. also received a government grant towards the rent costs incurred, for Euro 1,152 thousand (Euro 319 thousand in 2020).
Moreover in 2021 the item refers to service charges for an amount of Euro 6,510 thousand, variable rents for an amount of Euro 3,912 thousand, short term leases for Euro 4,087 thousand and lease contracts for which the underlying asset is classed as a "low-value assets" for an amount of Euro 1,817 thousand.
Rental income relates to the Geox Shops owned by the Group and leased to third parties under franchising agreements.
Other costs mainly include: depreciation and amortization, services and consulting, sample costs, utilities, insurance, maintenance and bank charges.
Other income mainly includes sales of miscellaneous goods and insurance compensation and government grants obtained in the various countries where the Group operates, to support the business following the Pandemic (Euro 7,527 thousand).
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 written off to income during the period and amounted in total to Euro 11,273 thousand (in 2020 Euro 10,375 thousand).
The fees due to the directors for 2021 amount to Euro 2,838 thousand (Euro 2,601 in 2020) and those to executives with strategic responsibilities amount to Euro 2,694 thousand (Euro 2,470 in 2020). These amounts, in Euro, 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 2021 amount to Euro 175 thousand (Euro 175 thousand also in 2020).
In 2021 the number of rights that give right to the assignment of no. 1 free issue share of the Company, for each right assigned, to Board of Directors members and Executive with Strategic responsibilities is equal to 3,052,327.
The following table shows all of the depreciation and amortization charges included in the consolidated income statement:
| 2021 | 2020 Restated |
Change | |
|---|---|---|---|
| Industrial depreciation | 3,720 | 4,113 | (393) |
| Non-industrial depreciation and amortization | 72,015 | 92,009 | (19,994) |
| Total | 75,735 | 96,122 | (20,387) |
Amortization and depreciation amount to Euro 75,735 thousand, showing a decrease of Euro 20,387 thousand compared to 2020, mainly related to Right of Use assets, whose depreciation amounted to Euro 48,946 thousand in 2021 compared to Euro 66,134 thousand in 2020.
Payroll costs from continuing operations amounted to Euro 113,974 thousand (in 2020 Euro 103,047 thousand). 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 (60 net closures in 2021).
As explained in detail in the Directors' report, although to a lesser extent than 2020, performance in 2021 was affected by the Covid-19 pandemic. As has been extensively described, this event has had a significant impact on the Group's business and will continue to do so over the coming months.
In accordance with regulators' guidelines, when drawing up the report as at December 31, 2021, Directors therefore carried out an impairment test in order to analyse the recoverable value of Group's assets. Please note that the impairment test was carried out based on the cash flows deriving from the forecasts contained in the "Business plan 2022-2024", prepared and approved by the Board of Directors on December 1st, 2021 and also used for the purposes of the assessment relating to the 2021 financial statements.
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 by the new Chief Executive Officer. 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), 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.
Starting from these solid foundations, over the next three years, Geox will seek to increase its market share in core markets (Italy, France, Spain and Germany) where it is excellently positioned, and to speed up growth in those countries (Russia above all) which are already growing strongly. In order to achieve these results, Geox will be able to benefit from the gradual and ongoing digitalisation of its business and a product offer more targeted at current consumers (kids and adults) but also with product offers aimed at those customer segments identified as targets by our new communication strategy. Geox' purpose is to improve people's wellbeing on the move because in comfort and style people can go one step further.
The Plan strategy leads to defining the following Group objectives which are considered by the Directors to be still valid at the date of approval of the draft financial statements for 2021:
Digital revenues represent the Group's main growth driver and will reach around 30% of total turnover (from 17% in 2019) in line with market trends. This growth, which will offset the decrease in turnover as a consequence of the planned rationalisation of physical stores, will be made possible by important IT investments and by the growth in the digital perimeter. More limited growth is forecast for the online channels of multi-brand customers where qualitative and profitability guidelines will prevail;
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.
As part of the Business Plan, the shop network is expected to remain substantially stable (2021-2024), but with further optimisation of directly operated shops in Italy and Europe, which will be more than offset by new openings of non-operated franchise shops, especially in Eastern Europe. For the shops existing at the reporting date, a gradual recovery in sales is expected for 2022 compared to 2019, linked to a first half still impacted by a sharp drop in traffic and a recovery expected with the Fall/Winter Season. The growth forecast for the period 2022-2024 foresees an average CAGR of 2% in relation to the 2019 figures.
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 the 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 6.23% and 8.77%).
The Directors therefore proceeded to write down, in whole or in part, assets relating to 63 shops (CGUs), compared to the 95 shops written down as at December 31, 2020.
The performance of this test did not result in the need to make a net impairment loss in addition to the amount already provided in 2020. The total impairment provision allocated as an adjustment to fixed assets amounted to Euro 8,415 thousand, while it amounted to Euro 20,380 thousand as of December 31, 2020. The reduction compared to the previous year is mainly attributable to the closure of certain points of sale managed directly by the Group (60 net closures in 2021) also following the restructuring of certain subsidiaries.
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 and 2026, and projecting a growth rate ("g" rate) of 1.71%.
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 7.61%.
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, as required by IAS 36, 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 (break-even hypothesis), the following parameters would need to change, considered individually and if nothing else changes: i) a WACC increase to 12.47%, 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 30%.
The average number of employees is shown below:
| 2021 | 2020 Restated |
Change | |
|---|---|---|---|
| Managers | 44 | 47 | (3) |
| Middle managers and office staff | 893 | 943 | (50) |
| Shop employees | 2,105 | 2,479 | (374) |
| Factory workers | 718 | 1,254 | (536) |
| Total | 3,760 | 4,723 | (963) |
The average number of employees for 2021 amounted to 3,760 unit, showing a reduction of 963 unit compare to 2020 mainly due to the restructuring of some subsidiaries and the rationalization of the store network managed directly by the Group (60 net closures in 2021).
The rationalisation initiatives undertaken by the Group mainly in the last two years, have required significant measures to be adopted in many regions. It should be noted that in 2021, restructuring expenses and income show a positive balance of € 0.4 million (compared to costs of € 1.1 million in 2020). This net effect originates from the almost perfect offsetting of the costs incurred for the rationalisation of the distribution network and the positive effects arising from the write-off of past debts as part of the reorganisation procedures completed in Canada and the USA.
This item is made up as follows:
| 2021 | 2020 Restated |
Change | |
|---|---|---|---|
| Interest income | 1,853 | 2,563 | (710) |
| Interest expense | (10,448) | (10,607) | 159 |
| Exchange differences | 259 | (68) | 327 |
| Total | (8,336) | (8,112) | (224) |
Interest income is made up as follows:
| 2021 | 2020 Restated |
Change | |
|---|---|---|---|
| Interest from banks | 37 | 33 | 4 |
| Interest from customers | 27 | - | 27 |
| Other interest income | 1,789 | 2,530 | (741) |
| Total | 1,853 | 2,563 | (710) |
Other interest income mainly consists of the effect of accounting for financial derivatives as explained in note 33.
Interest expense is made up as follows:
| 2021 | 2020 Restated |
Change | |
|---|---|---|---|
| Bank interest and charges | 43 | 120 | (77) |
| Interest on loans | 1,485 | 1,012 | 473 |
| Interest on leases | 3,611 | 4,209 | (598) |
| Other interest expense | 2,548 | 2,972 | (424) |
| Financial discounts and allowances | 2,761 | 2,294 | 467 |
| Total | 10,448 | 10,607 | (159) |
The increase in "Interest on loans" is mainly due to the increase in the average debts towards banks.
Interest on leases relate to the application of the new accounting standard IFRS 16. The weighted average of the interest borrowing rate of the year is 1.50%.
Other interest expense mainly consists of the effect of accounting for financial derivatives as explained in note 33.
Financial discounts and allowances relate to the discounts granted to customers who pay in advance, as per practice in various European markets.
Exchange differences are made up as follows:
| 2021 | 2020 Restated |
Variazione | |
|---|---|---|---|
| Exchange gains Exchange losses |
21,033 (20,774) |
32,045 (32,113) |
(11,012) 11,339 |
| Totale | 259 | (68) | 327 |
Income taxes for 2021 totalled Euro 6,419 thousand, compared to +4,307 thousand in 2020. Earnings results in both financial years did not have a corresponding monetary outlay, as these account for changes in deferred tax assets reflected in the financial statements, primarily due to temporary differences in provisions.
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):
| 2021 | % | 2020 Restated |
% | |
|---|---|---|---|---|
| PBT | (53,268) | 100.0% | (131,854) | 100.0% |
| Theoretical income taxes (*) | (12,784) | 24.0% | (31,645) | 24.0% |
| Effective income taxes | 6,419 | n.a. | (4,307) | n.a. |
| Difference due to: | 19,203 | n.a. | 27,338 | n.a. |
| 1) different tax rates applicable in other countries | 293 | n.a. | 353 | n.a. |
| 2) permanent differences: | ||||
| i) IRAP and other local taxes | 329 | n.a. | 33 | n.a. |
| ii) writedowns of deferred tax asset | 19,504 | n.a. | 25,083 | n.a. |
| iii) previous years' taxes and other taxes | (923) | n.a. | 1,869 | n.a. |
| Total difference | 19,203 | n.a. | 27,338 | n.a. |
It should also be noted that the tax amount has been affected by the prudent choice not to make a provision for deferred tax assets to the extent of Euro 19.5 million, referring to the tax losses generated during 2021 (Euro 25.1 million in 2020) in relation to which, as at the reporting date, there is not reasonable certainty that sufficient taxable income will be generated over the next three or four financial years to recover them, in addition to the value of deferred tax assets already reflected in the financial statements.
The management's assessment as to the likelihood of deferred taxes being recovered through future taxable income is based on the Business plan scenario. These scenarios were necessary given the extremely volatile nature of any forecasts made at the moment. In light of the above, the preferred option is to wait until there is a clearer picture of when the health emergency may be over.
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 and, for comparative purposes, 2020 income statements, totalling € 2,460 thousand and € 658 thousand respectively.
The following table shows the breakdown of this item to the net result 2021, compared with 2020:
| 2021 | of which related parties |
2020 | of which related parties |
|
|---|---|---|---|---|
| Net sales from discontinued operations | - | - | ||
| Cost of sales | (198) | 1,155 | (551) | 695 |
| Gross profit from discontinued operations | (198) | (551) | ||
| General and administrative expenses | (173) | (227) | ||
| EBIT from discontinued operations | (371) | (778) | ||
| Net financial expenses | (90) | (17) | ||
| PBT from discontinued operations | (461) | (795) | ||
| Income tax | (1,999) | 137 | ||
| Net result from discontinued operations | (2,460) | (658) |
With regard to the cash flows related to the closure of the production plant, we point out, in particular, the disinvestment flow related to the sale of the building and production machinery for a total amount of approximately Eur 6.5 million.
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 1 st ,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 1 st , 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 2021 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:
| 2021 | 2020 | |
|---|---|---|
| Earning/(Loss) per share (Euro) | (0.24) | (0.50) |
| Diluted earning/(loss) per share (Euro) | (0.24) | (0.50) |
| Weighted average number of shares outstanding: | ||
| - basic 255,211,081 |
255,211,081 | |
| - diluted 255,211,081 |
255,211,081 |
Intangible assets are made up as follows:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Industrial patents and intellectual property rights | 14,800 | 12,714 | 2,086 |
| Trademarks, concessions and licenses | 298 | 361 | (63) |
| Key money | 14,050 | 17,634 | (3,584) |
| Assets in process of formation and payments on account | 1,567 | 3,640 | (2,073) |
| Other intangible assets | - | 347 | (347) |
| Goodwill | 1,138 | 1,138 | - |
| Total | 31,853 | 35,834 | (3,981) |
The following table shows the changes in intangible assets during 2021:
| 12-31-20 | Purchases | Transl. | Amort./ | Dispo sals |
Other | 12-31-21 | |
|---|---|---|---|---|---|---|---|
| and capital. |
Differen ces |
write down |
Changes | ||||
| Intangible assets with finite useful life: | |||||||
| Industrial patents and intellectual property rights | 12,714 | 6,394 | 5 | (7,378) | (17) | 3,082 | 14,800 |
| Trademarks, concessions and licenses | 361 | 43 | - | (106) | - | - | 298 |
| Key money | 17,634 | 20 | 30 | (3,601) | (33) | - | 14,050 |
| Other intangible assets | 347 | - | - | (347) | - | - | - |
| Assets in process of formation and payments on account |
3,640 | 1,010 | (1) | - | - | (3,082) | 1,567 |
| Intangible assets with an indefinite useful life: | |||||||
| Goodwill | 1,138 | - | - | - | - | - | 1,138 |
| Total intangible assets | 35,834 | 7,467 | 34 | (11,432) | (50) | 0 | 31,853 |
| 62 |
Investments during the period mainly concern:
Details of property, plant and equipment are shown in the following table:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Changes | |
|---|---|---|---|
| Land and buildings | - | 7,903 | (7,903) |
| Plant and machinery | 3,191 | 5,967 | (2,776) |
| Industrial and commercial equipment | 2,746 | 2,634 | 112 |
| Leasehold improvements | 18,881 | 22,038 | (3,157) |
| Construction in progress and payments on account | 549 | 373 | 176 |
| Total | 35,873 | 50,413 | (14,540) |
The following table shows the changes in property, plant and equipment during 2021:
| 12-31-20 | Purchases | Translation | Amort./ | Disposals | Other | 12-31-21 | |
|---|---|---|---|---|---|---|---|
| and capital. |
Differences | write down |
Changes | ||||
| Land and buildings | 7,903 | 5 | (10) | (835) | (7,067) | 4 | - |
| Plant and machinery | 5,967 | 724 | (3) | (2,107) | (1,390) | - | 3,191 |
| Industrial and commercial equipment | 2,634 | 2,739 | 5 | (2,615) | (13) | (4) | 2,746 |
| Other assets | 11,498 | 3,726 | 123 | (4,822) | (157) | 138 | 10,506 |
| Leasehold improvements | 22,038 | 3,639 | 189 | (6,920) | (294) | 229 | 18,881 |
| Construction in progress and payments on account |
373 | 539 | 7 | - | (3) | (367) | 549 |
| Total | 50,413 | 11,372 | 311 | (17,299) | (8,924) | - | 35,873 |
Investments during the period mainly concern:
Other assets are made up as follows:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Electronic machines | 3,490 | 2,318 | 1,172 |
| Furniture and fittings | 6,579 | 8,594 | (2,015) |
| Motor vehicles and internal transport | 437 | 586 | (149) |
| Total | 10,506 | 11,498 | (992) |
Right-of-use assets are made up as follows:
| Saldo al 31-12-2021 |
Saldo al 31-12-2020 |
Variazione | |
|---|---|---|---|
| Right-of-use - Apartments | 491 | 510 | (19) |
| Right-of-use - Building | 202,242 | 240,333 | (38,091) |
| Right-of-use - Cars and Trucks | 941 | 965 | (24) |
| Total Right-of-use | 203,674 | 241,808 | (38,134) |
The following table shows the changes in Right-of-use assets during 2021:
| 12-31-20 | Net increases |
Translation differences |
Amort./write down |
Other movements |
12-31-21 | |
|---|---|---|---|---|---|---|
| Right-of-use assets | 241,808 | 4,015 | 1,250 | (48,946) | 5,547 | 203,674 |
The increases refers to new lease contracts signed over the course of the year, mainly for Geox Shops, or renegotiations of existing contracts.
The Right-of-Use item also includes Euro 150 thousand referring to sums paid to obtain the availability of leased properties to be used as Geox Shops, by taking over existing contracts or having the lessees withdraw from their contracts in order to be able to enter into new agreements with the landlords.
Other movements refer to positive effects arising from the reverse of impairment funds as part of the reorganisation procedures completed in Canada and the USA.
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, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Carry-forward tax losses | 5,178 | 4,212 | 966 |
| Depreciation and amortization and impairment | 6,189 | 7,976 | (1,787) |
| Evaluation derivates | - | 2,096 | (2,096) |
| Provision for obsolescence and slow-moving inventory and returns | 12,948 | 19,209 | (6,261) |
| Provision for agents' severance indemnities | 526 | 525 | 1 |
| Other | 9,459 | 8,763 | 696 |
| Deferred tax assets | 34,300 | 42,781 | (8,481) |
| Depreciation and amortization | (179) | (178) | (1) |
| Evaluation derivates | (3,713) | - | (3,713) |
| Other | (34) | (24) | (10) |
| Deferred tax liabilities | (3,926) | (202) | (3,724) |
| Total deferred taxes | 30,374 | 42,579 | (12,205) |
Prepaid 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 Business plan as described in note 10.
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 Business plan.
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 3,713 thousand (tax assets amounting to Euro 2,096 thousand in 2020).
Deferred tax assets included in "Other" are mainly related to the provision for bad and doubtful accounts (note 19) and provisions for liabilities and charges (note 30).
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, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Accounts receivable from others in 1 to 5 years | 6,696 | 6,726 | (30) |
| Accounts receivable from others in more than 5 years | 1,058 | 1,209 | (151) |
| Total | 7,754 | 7,935 | (181) |
Non-current assets mainly relate to guarantee deposits for utilities and shop leases and accounts receivable, payable more than 1 year.
The following table shows the breakdown of inventories:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Raw materials | 6,620 | 13,413 | (6,793) |
| Work in process and semi-finished products | - | 1,682 | (1,682) |
| Finished products and goods for resale | 233,482 | 252,792 | (19,310) |
| Furniture and fittings | 218 | 77 | 141 |
| Total | 240,320 | 267,964 | (27,644) |
Inventories of finished products 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 decreased by Euro 19,310 thousand compared to the previous year. The temporary suspension of shop activities at the start of the Spring/Summer 2020 season caused an abnormal increase in unsold stock at the end of 2020. For this reason, the Group had to carefully re-evaluate the strategy for the introduction of products into the distribution network, in order to reduce purchases for future seasons (Fall/Winter 2020 and Spring/Summer 2021), based on the availability of product in stock, trying to use it in subsequent sales periods. The reduction in the stock of finished products is also consistent with the reduction in the shops' needs following the rationalisation of the network.
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, which is considered adequate for a prudent valuation of finished products from previous collections and raw materials that are no longer used.
The provision for obsolete and slow-moving inventory is analyzed below:
| Balance at January 1 | 39,649 |
|---|---|
| Provisions | 25,955 |
| Translation differences | 484 |
| Utilizations | (39,035) |
The write-down mainly reflects the adjustment to market value based on statistical forecasts of discounted sales of products from previous collections. The significant inventory write-down made in the year, mainly linked to the 2020 collections, is the result of the excess stock caused by stores being closed during the lockdown.
Accounts receivable are made up as follows:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Gross value | 95,771 | 108,827 | (13,056) |
| Provision for bad and doubtful accounts | (26,844) | (21,109) | (5,735) |
| Net value | 68,927 | 87,718 | (18,791) |
Accounts receivable amounted to Euro 95,771 thousand at December 31, 2021, showing a decrease of Euro 13,056 thousand compared to December 31, 2020. This reduction benefited from the collection, during 2021, of a series of customer positions that the Group had rescheduled, following lockdown periods, as support to some of its customers.
It's to be noted that this item was influenced by non-recourse factoring transactions, amounted to Euro 12,120 thousand at year end (Euro 12,394 at December 31, 2020).
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, 2021 | 59,352 | 12,579 | 2,430 | 21,410 | 95,771 |
| Gross value of trade receivables at December 31, 2020 | 58,819 | 15,765 | 7,716 | 26,527 | 108,827 |
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:
| 21,109 |
|---|
| 2,647 |
| 30 |
| 4,411 |
| (1,353) |
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 by the due date.
The increase in the provision for bad and doubtful accounts reflects the changing market conditions due to the health emergency and its effects on the financial solvency of some clients.
This item is made up as follows:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Tax credits | 3,815 | 4,590 | (775) |
| VAT recoverable | 10,922 | 14,476 | (3,554) |
| Advances to vendors | 2,617 | 2,034 | 583 |
| Other receivables | 9,423 | 9,509 | (86) |
| Accrued income and prepaid expenses | 4,248 | 4,484 | (236) |
| Total | 31,025 | 35,093 | (4,068) |
Other receivables include:
Prepaid expenses mainly include prepayments for rentals and maintenances.
The book value of the financial assets and liabilities shown below coincides with their fair value.
The following table shows the breakdown of this item:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Term bank deposits | 26 | 24 | 2 |
| Total non current financial assets | 26 | 24 | 2 |
| Fair value derivative contracts | 19,582 | 1,156 | 18,426 |
| Other current financial assets | 2,831 | 2,971 | (140) |
| Total current financial assets | 22,413 | 4,127 | 18,286 |
| Fair value derivative contracts | (1,045) | (11,207) | 10,162 |
| Other current financial liabilities | (25) | (116) | 91 |
| Total current financial liabilities | (1,070) | (11,323) | 10,253 |
The term bank deposits of Euro 26 thousand include amounts lodged to guarantee rent contracts on foreign shops.
As regards the mark-to-market derivative contracts, see the comments in note 33.
The amount of Euro 45,655 thousand relates to short term deposits for Euro 1,062 thousand, a current account in Euro for Euro 34,671 thousand, a current account in British Pound for Euro 2,281 thousand, a current account in US Dollars for Euro 1,759 thousand, a current account in Canadian Dollars for Euro 1,538 thousand, a current account in Swiss Franc for Euro 1,408 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.
This item is made up as follows:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Legal reserve | 5,184 | 5,184 | - |
| Share premium reserve | 37,678 | 37,678 | - |
| Translation reserve | (4,418) | (3,538) | (880) |
| Reserve for cash flow hedges | 11,756 | (6,640) | 18,396 |
| Reserve for stock grant | 1,980 | - | 1,980 |
| Retained earnings | 108,628 | 236,808 | (128,180) |
| Total | 160,808 | 269,492 | (108,684) |
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 11,756 thousand, originated as a result of valuing the financial instruments defined as cash flow hedges at December 31, 2021. Fair value valuation of cash flow hedges is stated net of the tax effect as explained in greater detail in note 33. This reserve is not distributable. Amounts are shown net of tax, where applicable.
The reduction in item Retained earnings refers to the 2020 loss carried forward.
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 2021 |
Equity 12-31-2021 |
Net income for the period 2020 |
Equity 12-31-2020 |
|---|---|---|---|---|
| Parent company's equity and net income | (64,824) | 119,623 | (138,281) | 164,071 |
| Differences between the carrying value of the investments in subsidiaries and the Group share of their equity |
11,575 | 15,371 | 57,276 | 62,728 |
| Group share of affiliates' results Effect of the reorganization in 2001 |
(11,662) - |
(11,662) - |
(55,419) - |
(55,419) - |
| Elimination of intragroup transactions on inventories Elimination of intragroup dividens and investments |
5,690 (2,855) |
(5,673) - |
2,142 - |
(11,140) - |
| write-off Other adjustments |
(71) | 6,923 | 6,077 | 6,968 |
| Group equity and net income | (62,147) | 124,582 | (128,205) | 167,208 |
Employee severance indemnities at December 31, 2021 amount to Euro 2,411 thousand, as shown in the following table:
| Balance at December 31, 2020 | 2,834 |
|---|---|
| Reversal of 0.50% withholding | (225) |
| Reversal of 17% flat-rate tax | (7) |
| Payments to supplementary pension schemes | (1,149) |
| Advances granted to employees | (188) |
| Provision for the period | 3,941 |
| Payments to supplementary pension schemes run by INPS net of amounts paid to leavers | (2,729) |
| Change as a result of actuarial calculations | (62) |
| Translation differences | (4) |
Changes in the provision for severance indemnities during 2021 show a utilization of Euro 1,149 thousand for payments to supplementary pension funds and one of Euro 2,729 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.
Instead, companies book a short-term payable which is then cancelled when the amount is paid over to INPS.
The actuarial valuation of the severance indemnities 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:
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 | (36) |
|---|---|
| -1% employee turnover rate | 41 |
| +1/4% inflation rate | 50 |
| -1/4% inflation rate | (49) |
| +1/4% discount rate | (74) |
| -1/4% discount rate | 78 |
This item is made up as follows:
| Balance at Dec. 31, 20 |
Utilization | Provisions | Transl. dif. |
Actuarial adj. |
Balance at Dec. 31, 21 |
|
|---|---|---|---|---|---|---|
| Provision for agents' severance indemnities | 5,145 | (197) | 80 | (2) | (34) | 4,992 |
| Other | 1,870 | (498) | 106 | 3 | - | 1,505 |
| Total | 7,015 | (695) | 186 | 1 | (34) | 6,497 |
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 119 thousand.
"Other" reflects mainly an estimate of the risks involved in outstanding disputes.
This item is made up as follows:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Bank loans | 82,076 | - | 10.439 |
| Other loans | 123 | 639 | (516) |
| Total | 82,389 | 113,832 | (31,443) |
| Cash advances | 857 | 2,504 | (1,647) |
| Loans | 42,763 | 59,404 | (16,641) |
| Advances against orders | 5,000 | - | 5,000 |
| Total bank borrowings short term | 48,620 | 61,908 | (13,288) |
| Other providers of funds | 334 | 61 | 273 |
| Other providers of funds | 48,954 | 61,969 | (13,015) |
Overall Financial debts decreased by Euro 44,458 thousand (of which Euro 31,443 thousand long-term and 13,015 thousand current) compared to December 31, 2020.
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 short-term 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 longterm 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.
That loan is subject to financial covenants (to be calculate before IFRS 16 effects), to be tested on a halfyearly 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 value of financial covenants are different over the duration of the contract and can be healed by Equity cure operations. As regards results before IFRS 16 effects:
As at 31 December 2021, the covenants were respected: the net financial position, as defined in the contract, was Euro 82,856 thousand and the debt ratio was 0.64.
Based on the forecasts included in the Business Plan, it's considered that these financial indicators will also be respected in the coming testing periods.
Other outstanding loans are not subject to financial covenants.
It should be noted that the Group has not had to resort to suspending loan repayments.
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, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Long term lease assets – third parties | 343 | 508 | (165) |
| Total long term lease assets | 343 | 508 | (165) |
| Long term lease liabilities - third parties | 111,986 | 145,336 | (33,350) |
| Long term lease liabilities - related parties | 54,096 | 57,525 | (3,429) |
| Total long term lease liabilities | 166,082 | 202,861 | (36,779) |
| Short term lease liabilities - third parties | 41,686 | 60,411 | (18,725) |
| Short term lease liabilities - related parties | 4,949 | 5,143 | (194) |
| Total short term lease liabilities | 46,635 | 65,554 | (18,919) |
| Total net lease liabilities | 212,374 | 267,907 | (55,698) |
The following table shows the changes lease liabilities during 2021:
| 12-31-20 | Translation | Payments | 12-31-21 | ||
|---|---|---|---|---|---|
| Differences | |||||
| Total Lease liabilities | 268,415 | 4,015 | 1,579 | (61,292) | 212,717 |
It should be noted that the Group has made a suspension of rent payments for stores during the time they were closed and the partial payment of rent when they were reopened, based on sales performance. This approach is in line with the ongoing talks being held with the various landlords, aimed at renegotiating the contractual agreements in place, bringing them more in line with the changes to the economic scenario; this involves introducing variable rents based on the level of turnover, at least while there is reduced footfall caused by the restrictive measures and the strong reduction in tourist numbers. As of today, these closed talks with landlords have undoubtedly proven to be challenging, but the Group has already signed a number of agreements and many others are in an advanced phase of negotiation. The Group is also convinced that the right thing is to terminate the relative agreement if solutions cannot be found that reflect current market values. At December 31, 2021, unpaid rent amounted to Euro 4.1 million.
The weighted average of the interest borrowing rate of the year is 1.50%.
This item is made up as follows:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Guarantee deposits | 392 | 169 | 223 |
| Accrued expenses and deferred income | 1,169 | 2,659 | (1,490) |
| Total | 1,561 | 2,828 | (1,267) |
The guarantee deposits refer to amounts received from third parties to guarantee business lease contracts (for Geox Shops).
Accrued expenses and deferred income mainly relate to revenue and grants pertaining to future years.
The item is made as follows:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Accounts payable | 160,666 | 134,928 | 25,738 |
| Provision for returns | 36,146 | 43,226 | (7,080) |
| Total | 196,812 | 178,154 | 18,658 |
Accounts payable at December 31, 2021 amount to Euro 160,666 thousand, showing an increase of Euro 25,738 thousand if compared with December 31, 2020. This increase is mainly due to the higher purchases of finished products for the Spring/Summer 22 season, compared to the purchases for the corresponding season of the previous year, in which unsold products from previous seasons were put back into collection due to the Pandemic.
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 2021 are as follows:
| Balance at January 1 | 43,226 |
|---|---|
| Provisions | 34,305 |
| Translation differences | 405 |
| Utilizations | (41,790) |
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 31 December 2020 is mainly due to the forecast of fewer returns from the franchised shops network following the significant reduction in the number of shops compared to the previous year (18 net closures).
This item is made up as follows:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Social security institutions | 4,018 | 4,629 | (611) |
| Employees | 16,254 | 10,500 | 5,754 |
| Provisions for liabilities and charges | 806 | 7,124 | (6,318) |
| Other payables | 7,971 | 6,049 | 1,922 |
| Accrued expenses and deferred income | 2,116 | 2,196 | (80) |
| Total | 31,165 | 30,498 | 667 |
The amounts due to social security institutions mainly relate to pension contributions for 2021, paid in 2022.
The amounts due to employees include payroll, bonuses and accrued vacation not yet taken as of December 31, 2021.
The provisions for liabilities and charges mainly include the estimated costs related to the rationalization and optimization plan of the distribution network, as well as the estimated restoration costs. It should be noted that, during 2021, an amount of Euro 4,411 thousand was reclassified to the provision for bad debts following the termination of relations with certain franchisees.
Other payables are mainly advances received from customers and the short term part of the guarantee deposits received from third parties.
This item is made up as follows:
| Balance at Dec. 31, 2021 |
Balance at Dec. 31, 2020 |
Change | |
|---|---|---|---|
| Witholding taxes VAT payable and other taxes |
3,232 6,847 |
2,726 10,331 |
506 (3,484) |
| Total | 10,079 | 13,057 | (2,978) |
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 two medium-long term incentive plans are in place. Please refer to the Directors' Report for the details of these plans.
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 31 December 2021, the Group's indebtedness to the banking system amounts to Euro 130.7 million and is mainly floating rate.
In this context, given expectations of stability in the dynamics of interest rates and the medium/short-term nature of the debt, 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 67.5 million, the Group has signed two Interest Rate Swap (IRS) agreements to hedge its only medium/long-term loan, 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 799 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.
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 a currency different from the money of account of the company itself. In addition, it may be convenient from an economic point of
view, for companies to obtain finance or use funds in a currency different from the money of account. 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 from the company's money of account.
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 of revenues, costs and the result in Euro.
The assets and liabilities of consolidated companies whose money of account 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 2021 in the nature or structure of exposure to currency risk or in the Group's hedging policies.
The Group's financial statements as at December 31, 2021, could be materially affected by fluctuations in the exchange rates, mainly referred to the US dollar. The impact on the Group's result at December 31, 2021 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 362 thousand, while in case of a favorable change of 10% in exchange rates the impact would have been approximately Euro 320 thousand.
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. 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 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, 2021 financial instruments are as follows:
| Notional value on 12-31-21 |
Fair value on 12-31-21 (debit) |
Fair value on 12-31-21 (credit) |
Notional value on 12-31-20 |
Fair value on 12-31-20 (debit) |
Fair value on 12-31-20 (credit) |
|
|---|---|---|---|---|---|---|
| FX Forward buy agreements to hedge exch. rate risk | 92,916 | 4,074 | (165) | 143,559 | 20 | (5,975) |
| FX Forward sell agreements to hedge exch. rate risk | 86,985 | 44 | (816) | 95,862 | 1,136 | (260) |
| FX Currency Option agreem. to hedge exch. rate risk | 295,780 | 15,464 | - | 138,538 | - | (4,310) |
| Interest Rate Swap | 67,500 | - | (64) | 67,500 | - | (662) |
| Total financial assets/(liabilities) | 543,181 | 19,582 | (1,045) | 445,459 | 1,156 | (11,207) |
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, 2021 are classified on Level 2. In 2021 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, 2021:
These agreements hedge future purchases and sales planned for the upcoming seasons.
The fair value mentioned above agrees with the amount shown in the balance sheet. 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, 2021:
With regard to derivative financial instruments to hedge the interest rate risk, at December 31, 2021, the Group held only an Interest Rate Swap (IRS), used to alter the profile of original interest rate risk exposure from variable rate to fixed rate. On set dates, this IRS exchanges interest flows with the counterparties, calculated on the basis of a reference notional value, at the agreed fixed and variable rates.
Pursuant to IAS 24, the Group's related parties are companies and people who are unable 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 Group has dealings with the ultimate parent company (LIR S.r.l.) and with third parties that are directly or indirectly linked by common interests to the majority shareholder. The commercial relations with these parties are based on the utmost transparency and normal market conditions.
The main effects on profit and loss of the transactions with these parties for 2021 and 2020 are summarized below:
| Total 2021 | Parent company |
Affiliated company |
Other related parties |
Total of which related parties |
Effect on Total (%) |
|
|---|---|---|---|---|---|---|
| Net sales | 608,915 | - | 898 | - | 898 | 0.1% |
| Cost of sales | (324,653) | - | 529 | - | 529 | (0.2%) |
| General and administrative expenses | (262,691) | 76 | 22 | (1) | 97 | (0.0%) |
| Advertising and promotion | (29,195) | (149) | - | - | (149) | 0.5% |
| Net financial expenses | (8,336) | (42) | (1,322) | - | (1,364) | 16.4% |
| Taxes | (6,419) | (5) | - | - | (5) | 0.1% |
| Net result from discontinued operations | (2,460) | - | 1,155 | - | 1,155 | (47.0%) |
| Total 2020 Restated |
Parent company |
Affiliated company |
Other related parties |
Total of which related parties |
Effect on Total (%) |
|
|---|---|---|---|---|---|---|
| Net sales | 534,897 | - | 626 | - | 626 | 0.12% |
| Cost of sales | (303,074) | - | 134 | - | 134 | (0.04%) |
| General and administrative expenses | (278,102) | 38 | (26) | - | 12 | 0.00% |
| Advertising and promotion | (23,049) | (145) | - | - | (145) | 0.63% |
| Net financial expenses | (8,112) | (47) | (532) | - | (579) | 7.14% |
| Taxes | 4,307 | (81) | - | - | (81) | (1.88%) |
| Net result from discontinued operations | (658) | - | 695 | - | 695 | (105.6%) |
The main effects on financial statement of the transactions with these parties at December 31, 2021 and at December 31, 2020 are summarized below:
| Balance at Dec. 31, 21 |
Parent company |
Affiliated company |
Other related parties |
Total of which related parties |
Effect of 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% |
| Trade payables | 196,812 | 39 | 24 | 1 | 64 | 0.03% |
| Current lease liabilities | 46,635 | 353 | 4,596 | - | 4,949 | 10.61% |
| Balance at Dec. 31, 20 |
Parent company |
Affiliated company |
Other related parties |
Total of which related parties |
Effect of Total (%) |
|
|---|---|---|---|---|---|---|
| Accounts receivable | 87,718 | 50 | 1,018 | - | 1,068 | 1.22% |
| Other non-financial current assets | 35,093 | 175 | - | - | 175 | 0.50% |
| Non-current lease liabilities | 202,861 | 1,848 | 55,677 | - | 57,525 | 28.36% |
| Trade payables | 178,154 | 582 | 162 | - | 744 | 0.42% |
| Current lease liabilities | 65,555 | 350 | 4,793 | - | 5,143 | 7.85% |
The future rental payments under lease contracts, excluded from the application of IFRS 16, as of December 31, are as follows:
| 12-31-2021 | |
|---|---|
| Within 1 year | 7,717 |
| Within 1-5 years | 12,899 |
| Beyond 5 years | 2,131 |
| Total | 22,747 |
In relation to the requirements imposed by Italian Law no. 124/2017, it should be noted that, during 2021 and with reference to its Italian companies, the Group received Euro 4,276 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 2021, 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.
The strong geo-political tensions concerning Russia, Belarus and Ukraine may lead to international, humanitarian and social crisis situations of significant dimensions with consequent strong negative impacts on the populations of these countries. This context strongly raises the concrete risk of international sanctions being used as a deterrent for some of the countries involved and, as a result, could have a significant impact on their trade and domestic economic activity. At present, the size and extent of the sanctions have not been made public by the international community and, as a result, it is not possible to reliably estimate any impact on business. However, it is reasonable to expect that the events currently underway, which are extraordinary in nature and extent, will have direct and indirect repercussions on economic activity, the potential effects of which on: i) supply chains, in particular with reference to the supply and prices of raw materials and energy, ii) the development of demand on international markets and iii) trends in inflation and interest rates cannot be predicted.
With reference to the above, it should be noted that in 2021 the Group developed a turnover of approximately Euro 51 million in Russia and Euro 5 million in Ukraine (turnover in Belarus is negligible). In particular, the Group operates in the Russian market with its own subsidiary that distributes products both to independent, multi-brand and franchising customers, and through its own network of 29 direct shops that at 31 December 2021 are mainly located in the cities of Moscow and St. Petersburg. In Ukraine, on the other hand, distribution is handled by Geox S.p.A. through an external distributor.
With regard to the main economic and financial figures, with reference to the 2021 financial statements, of the Group's business in Russia, the following should be noted:
Operating income (EBIT) was approximately Euro 5.8 million, of which Euro 2.7 million related to the subsidiary's financial statements;
Net invested capital, all of which relates to the branch, is approximately Euro 10.5 million (not including user fees of Euro 5 million), of which Euro 2 million in non-current assets and Euro 8.5 million in net working capital. Net working capital is made up as follows: Euro 9.9 million in inventories, Euro 4.0 million in trade receivables and Euro -5.4 million in trade payables (of which Euro -3.8 million to the parent company Geox S.p.A.).
It should be noted that the Group has long implemented a prudent risk management policy to safeguard business results and investments made in the country (see Note 33). In particular, it should be noted that an exchange rate risk policy is in place to protect the Parent Company's industrial margin. In this context, however, the worsening of the crisis in Ukraine increases the risk and volatility of forecasts on future performance, and it is not possible to foresee and quantify every possible impact on the business of our sector, currency trends, energy costs and inflation.
As mentioned, Russia, Ukraine and Belarus accounted for only 9% of the Group's sales in 2021 and therefore it is believed that the uncertainties arising from the situation described above do not change the going concern assumptions adopted for the preparation of these financial statements. In particular, the Group believes that it will realise the parent company's industrial margin for the Spring/Summer 2022 collection in these areas, and the order backlog for the Fall/Winter 2022 collection will continue to grow at double-digit rates, even assuming that the portion attributable to these countries were to be completely eliminated. Based on the considerations already described, at present, the value of the Group's assets, net of the non-current assets of the Russian subsidiary, is deemed recoverable. This assessment is supported by some sensitivity analyses carried out on the impairment tests based on the absence of operations in the countries mentioned above.
As mentioned above, the situation is constantly evolving and requires constant monitoring of events in order to promptly identify any issues that could impact the local business and implement any appropriate mitigation actions.
Finally, with regard to the Covid-19 pandemic, the following should be noted: as of today, all the Group's shops are operational, despite a scenario still characterised by restrictions that, in fact, are limiting people's mobility and still heavily impacting tourist flows.
The Group's supply areas are the Far East and the Mediterranean basin. Overall, the effects of the COVID 19 pandemic are still present, but the system as a whole is currently operational, albeit in a context characterised by a certain instability due to the spread of the new variants in the Far East. The transport situation also continues to present critical elements, although they are improving. On the one hand, all economic operators are experiencing a lengthening of ship transport times due to a reduction in the frequency of departures and an increase in stops in order to optimise space. On the other hand, there are fewer opportunities to make up production delays by air transport due to the limited number of cargo and passenger flights. These factors
have led and continue to lead to a substantial increase in freight and airfreight costs, especially to the Americas. On the other hand, we are seeing a slight improvement in freight costs to Europe, compared to peaks at the end of 2021.
***
Biadene, Montebelluna, February 24, 2022
for the Board of Directors The Chairman Mr. Mario Moretti Polegato
Attachment 1
Biadene, Montebelluna, February 24, 2022
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 2021.
They also confirm that the consolidated financial statements:
________________________ ___________________________ ____________________________ _____________________________________
Livio Libralesso Massimo Nai Livio Libralesso CEO Financial Reporting Manager
Pursuant to Art. 149-duodecies of the Issuers' Regulations:
| Type of services | Entity that provided the services | Beneficiary | Fees 2021 (Euro/000) |
Fees 2020 (Euro/000) |
|
|---|---|---|---|---|---|
| Auditing | Auditors of the Parent Company | Parent company | 160 | 158 | |
| Attestation services | Auditors of the Parent Company | Parent company | - | - | |
| Tax advisory services |
Same network as the Parent Company's auditors |
Parent company | - | - | |
| Other services | Auditors of the Parent Company | Parent company | 13 | - | |
| Total Parent Company | 173 | 158 | |||
| Auditing | i) Auditors of the Parent Company | Subsidiaries | 22 | 22 | |
| ii) Same network as the Parent Company's auditors |
Subsidiaries | 104 | 146 | ||
| 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 | - | - | ||
| Total Subsidiaries | 126 | 168 | |||
| Total | 299 | 326 |
| Name | Location | Year | Currency | Share | % held | ||
|---|---|---|---|---|---|---|---|
| end | capital | Directly | Indirectly | Total | |||
| - 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 | 100.00% | 100.00% | |
| - Geox Respira SL | Barcelona, Spain | Dec. 31 | EUR | 1,500,000 | 100.00% | 100.00% | |
| - Geox Suisse SA | Lugano, Switzerland | Dec. 31 | CHF | 200,000 | 100.00% | 100.00% | |
| - Geox UK Ltd | London, U.K. | Dec. 31 | GBP | 1,050,000 | 100.00% | 100.00% | |
| - Geox Japan K.K. | Tokyo, Japan | Dec. 31 | JPY | 100,000,000 | 100.00% | 100.00% | |
| - Geox Canada Inc. | Mississauga, Canada | Dec. 31 | CAD | 100 | 100.00% | 100.00% | |
| - S&A Distribution Inc. | New York, Usa | Dec. 31 | USD | 1 | 100.00% | 100.00% | |
| - Geox Holland B.V. | Breda, Netherlands | Dec. 31 | EUR | 20,100 | 100.00% | 100.00% | |
| - Geox Retail S.r.l. | Biadene di Montebelluna (TV), Italy | Dec. 31 | EUR | 100,000 | 100.00% | 100.00% | |
| - Geox Hungary Kft | Budapest, Hungary | Dec. 31 | HUF | 10,000,000 | 99.00% | 1.00% | 100.00% |
| - Geox Hellas S.A. | Athens, Greece | Dec. 31 | EUR | 220,000 | 100.00% | 100.00% | |
| - Geox France Sarl | Sallanches, France | Dec. 31 | EUR | 15,000,000 | 100.00% | 100.00% | |
| - S&A Retail Inc. | New York, Usa | Dec. 31 | USD | 200 | 100.00% | 100.00% | |
| - Geox Asia Pacific Ltd | Hong Kong, China | Dec. 31 | USD | 1,282 | 100.00% | 100.00% | |
| - XLog S.r.l. | Signoressa di Trevignano (TV), Italy | Dec. 31 | EUR | 110,000 | 100.00% | 100.00% | |
| - Geox Rus LLC | Moscow, Russia | Dec. 31 | RUB | 60,000,000 | 100.00% | 100.00% | |
| - Geox AT Gmbh | Wien, Austria | Dec. 31 | EUR | 35,000 | 100.00% | 100.00% | |
| - Geox Poland Sp. Z.o.o. | Warszawa, Poland | Dec. 31 | PLN | 5,000 | 100.00% | 100.00% | |
| - Geox Portugal S.U. LDA | Lisbon, Portugal | Dec. 31 | EUR | 300,000 | 100.00% | 100.00% | |
| - Technic Development D.O.O. Vranje | Vranje, Serbia | Dec. 31 | RSD | 802,468,425 | 100.00% | 100.00% | |
| - Geox Macau Ltd | Macau, China | Dec. 31 | MOP | 5,000,000 | 100.00% | 100.00% | |
| - Geox Trading Shangai Ltd | Shanghai, China | Dec. 31 | CNY | 101,577,316 | 100.00% | 100.00% | |
| - Dongguan Technic Footwear Apparel Design Ltd | Dongguan, China | Dec. 31 | CNY | 3,795,840 | 100.00% | 100.00% | |
| - Technic Development Vietnam Company Ltd | Ho Chi Minh City, Vietnam | Dec. 31 | VND | 3,403,499,500 | 100.00% | 100.00% | |
| - Geox Distribution UK Ltd | London, U.K. | Dec. 31 | GBP | 100,000 | 100.00% | 100.00% | |
| - XBalk D.O.O. Vranje | Vranje, Serbia | Dec. 31 | RSD | 1,200,000 | 100.00% | 100.00% |
Via Feltrina Centro, 16 31044 Biadene di Montebelluna (TV)
Share Capital: Euro 25,920,733.1 i.v. Economic and Administrative Database no. 265360 Treviso Commercial Register and Taxpayer's Code no. 03348440268
Simone Maggi [email protected] ph. +39 0423 282476
www.geox.biz (investor relations section)
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