Aeffe

Interim / Quarterly Report • Nov 13, 2019

This Interim financial statement has been translated into English solely for the convenience of the International reader. In the event of conflict or inconsistency between the terms used in the Italian Version of the report and the English version, the Italian version shall prevail, as the Italian version constitutes the official document.

SUMMARY

INTERIM FINANCIAL STATEMENT AT 30 SEPTEMBER 2019	1
CORPORATE BOARDS OF THE PARENT COMPANY	3
ORGANISATION CHART	4
BRANDS PORTFOLIO	5
HEADQUARTERS	6
SHOWROOMS	7
MAIN FLAGSHIPSTORE LOCATIONS UNDER DIRECT MANAGEMENT	8
MAIN ECONOMIC-FINANCIAL DATA	9
FINANCIAL STATEMENTS	11
INTERIM MANAGEMENT REPORT	16
EXPLANATORY NOTES	17

Corporate Boards of the Parent Company

Chairman

Massimo Ferretti

Deputy Chairman

Alberta Ferretti

Chief Executive Officer Simone Badioli

Board of Directors

Directors

Marcello Tassinari – Managing Director Roberto Lugano Daniela Saitta Alessandro Bonfiglioli Bettina Campedelli

Board of Statutory Auditors

President

Angelo Miglietta

Statutory Auditors

Fernando Ciotti Carla Trotti

Alternate Auditors Nevio Dalla Valle Daniela Elvira Bruno

Board of Compensation Committee

President

Daniela Saitta

Members Roberto Lugano

Bettina Campedelli

Board of Internal Control Committee

President

Roberto Lugano

Members

Bettina Campedelli Alessandro Bonfiglioli

Organisation chart

Brands portfolio

Headquarters

AEFFE

Via Delle Querce, 51 47842 - San Giovanni in Marignano (RN) Italy

MOSCHINO

Via San Gregorio, 28 20124 - Milan Italy

POLLINI

Via Erbosa I° tratto, 92 47030 - Gatteo (FC) Italy

VELMAR

Via Delle Querce, 51 47842 - San Giovanni in Marignano (RN) Italy

Showrooms

MILAN (FERRETTI – PHILOSOPHY – POLLINI – CEDRIC CHARLIER) Via Donizetti, 48 20122 - Milan Italy

LONDON

(FERRETTI – PHILOSOPHY – MOSCHINO) 28-29, Conduit Street W1S 2YB - London UK

PARIS

(FERRETTI – PHILOSOPHY - MOSCHINO) 43, Rue due Faubourg Saint Honoré 75008 - Paris France

NEW YORK

(GROUP) 30, West 56th Street 10019 - New York USA

MILAN

(MOSCHINO) Via San Gregorio, 28 20124 - Milan Italy

MILAN

(LOVE MOSCHINO) Via Settembrini, 1 20124 - Milan Italy

PARIS

(CEDRIC CHARLIER) 28, Rue de Sevigne 75004 - Paris France

Main flagshipstore locations under direct management

ALBERTA FERRETTI Milan Rome Paris London Shanghai POLLINI Milan Venice Bolzano Varese

SPAZIO A

Florence Venice

MOSCHINO

Milan Rome Capri Paris London Los Angeles New York Seoul Pusan Daegu

Main economic-financial data

		9 M	9 M
		2019	2018
Total revenues	(Values in millions of EUR)	275.5	267.9
Gross operating margin (EBITDA)	(Values in millions of EUR)	46.1	37.1
Net operating profit (EBIT)	(Values in millions of EUR)	26.0	27.7
Profit before taxes	(Values in millions of EUR)	24.1	27.0
Net profit for the Group	(Values in millions of EUR)	13.2	16.1
Basic earnings per share	(Values in units of EUR)	0.131	0.159
Cash Flow (net profit + depreciation)	(Values in millions of EUR)	33.5	25.7
Cash Flow/Total revenues	Ratio	12.2	9.6

* EBITDA is represented by operating profit before provisions and depreciation. EBITDA thus defined is a measure used by management to monitor and evaluate the operational performance and is not identified as an accounting measure under both Italian Accounting Principles and IFRS and therefore should not be considered an alternative measure for evaluating the Group's results. Since EBITDA is not regulated by applicable accounting standards, the criteria used by the Group might not be consistent with that adopted by others and therefore may not be comparable.

		30 September	31 December	30 September	31 December
		2019	2018	2018	2017
Net capital invested	(Values in millions of EUR)	356.1	228.7	235.4	229.0
Net financial indebtedness	(Values in millions of EUR)	149.9	31.3	39.1	50.6
Group net equity	(Values in millions of EUR)	173.6	164.6	163.0	146.1
Group net equity per share	(Values in units of EUR)	1.6	1.5	1.5	1.4
Current assets/Current liabilities	Ratio	2.3	1.8	2.0	1.9
Current assets less invent./Current liabilities (ACID Test)	Ratio	1.0	0.8	0.9	0.8
Net financial indebtedness/Net equity	Ratio	0.7	0.2	0.2	0.3

Accounting policies

The accounting principles and valuation criteria adopted for the preparation of the consolidated financial statements at September 30, 2019 are the same as those adopted for the preparation of the financial statements at December 31, 2018 except for IFRS 16, which was applied for the first time in the consolidated financial statements of the Aeffe Group closed on 31 March 2019.

The Group has opted for a retrospective application of the standard, without restatement of comparative information. The cumulative effect has been noted as a reduction of the retained opening earnings. The incremental borrowing rate used is the one at the transaction date.

The effect reflected in the financial statements at 01/01/2019 mainly concerned lease liabilities of around EUR 116.5 million and assets deriving from the right to use assets of approximately EUR 110.4 million.

Leasing contracts with a duration equal to or less than 12 months and those that have assets of modest value have been excluded.

Lease liabilities have been discounted at a weighted average interest rate of 2%. The following is a representation of the leases in the opening balance sheet as at 01/01/2019.

(Values in thousands of EUR)	Notes	1 January	IFRS 16	31 December
		2019	Adjustment	2018
Operating net working capital		70,450		70,450
Net working capital		85,748		85,748
Fixed assets	a	276,867	110,494	166,373
NET CAPITAL INVESTED	b	340,910	112,194	228,716
Total shareholders' equity	c	193,067	( 4,392)	197,459
Short term financial receivables		( 1,420)	-	( 1,420)
Cash		( 28,037)	-	( 28,037)
Long term financial liabilities		16,409	-	16,409
Long term lease liabilities	d	102,309	102,309	-
Long term financial receivables		( 2,302)	-	( 2,302)
Short term financial liabilities		46,607	-	46,607
Short term lease liabilities	e	14,277	14,277	-
NET FINANCIAL POSITION		147,843	116,587	31,256
SHAREHOLDERS' EQUITY AND NET FINANCIAL INDEBTEDNESS		340,910	112,194	228,716

Adjustments on the opening balance sheet:

a) Increase due to the recognition of assets for rights of use;

• b) Detection of the tax effect;
• c) Cumulative effect on previous years to reduce opening results to new;
• d) e) Increase in financial liabilities due to the recognition of debts for leasing;

Concurrently with the application of IFRS 16 and to give a more truthful and correct representation the amortization plan of the Key Money has been modified making them fall within the rights of use of assets as they represent the initial direct costs of the lessee. The change in the estimate (Vita Utile) was made prospectively, resulting in a non-significant change.

Financial statements

Income statement at 30 September

(Values in thousands of EUR) Note	9 M 2019 IFRS 16	% on revenues	9 M 2019 No IFRS 16	% on revenues	9 M 2018	% on revenues	Change % included IFRS 16	Change % excluded IFRS 16
REVENUES FROM SALES AND SERVICES (1)	269,041	100.0%	269,041	100.0%	264,616	100.0%	1.7%	1.7%
Other revenues and income	6,415	2.4%	6,415	2.4%	3,280	1.2%	95.6%	95.6%
TOTAL REVENUES	275,456	102.4%	275,456	102.4%	267,896	101.2%	2.8%	2.8%
Changes in inventory	4,663	1.7%	4,663	1.7%	( 2,237)	(0.8%)	(308.5%)	(308.5%)
Costs of raw materials, cons. and goods for resale	( 90,733)	(33.7%)	( 90,733)	(33.7%)	( 82,998)	(31.4%)	9.3%	9.3%
Costs of services	( 79,826)	(29.7%)	( 79,826)	(29.7%)	( 73,167)	(27.7%)	9.1%	9.1%
Costs for use of third parties assets	( 7,036)	(2.6%)	( 19,339)	(7.2%)	( 19,448)	(7.3%)	(63.8%)	(0.6%)
Labour costs	( 53,267)	(19.8%)	( 53,267)	(19.8%)	( 50,404)	(19.0%)	5.7%	5.7%
Other operating expenses	( 3,167)	(1.2%)	( 3,167)	(1.2%)	( 2,520)	(1.0%)	25.7%	25.7%
Total Operating Costs	( 229,365)	(85.3%)	( 241,668)	(89.8%)	( 230,775)	(87.2%)	(0.6%)	4.7%
GROSS OPERATING MARGIN (EBITDA) (2)	46,091	17.1%	33,788	12.6%	37,122	14.0%	24.2%	(9.0%)
Amortisation of intangible fixed assets	( 3,492)	(1.3%)	( 5,049)	(1.9%)	( 4,828)	(1.8%)	(27.7%)	4.6%
Depreciation of tangible fixed assets	( 3,931)	(1.5%)	( 3,931)	(1.5%)	( 3,876)	(1.5%)	1.4%	1.4%
Depreciation of right-of-use assets	( 12,472)	(4.6%)	-	0.0%	-	0.0%	n.a	n.a
Revaluations / (write-downs) and provisions	( 185)	(0.1%)	( 185)	(0.1%)	( 720)	(0.3%)	(74.2%)	(74.2%)
Total Amortisation, write-downs and provisions	( 20,080)	(7.5%)	( 9,166)	(3.4%)	( 9,424)	(3.6%)	113.1%	(2.7%)
NET OPERATING PROFIT / LOSS (EBIT)	26,011	9.7%	24,622	9.2%	27,698	10.5%	(6.1%)	(11.1%)
Financial income	805	0.3%	805	0.3%	480	0.2%	67.9%	67.9%
Financial expenses	( 1,093)	(0.4%)	( 1,093)	(0.4%)	( 1,170)	(0.4%)	(6.6%)	(6.6%)
Financial expenses on right-of-use asset	( 1,635)	(0.6%)	-	0.0%	-	0.0%	n.a	n.a
Total Financial Income/(expenses)	( 1,922)	(0.7%)	( 287)	(0.1%)	( 690)	(0.3%)	178.4%	(58.4%)
PROFIT / LOSS BEFORE TAXES	24,088	9.0%	24,335	9.0%	27,007	10.2%	(10.8%)	(9.9%)
Total Income Taxes	( 10,513)	(3.9%)	( 10,582)	(3.9%)	( 9,989)	(3.8%)	5.2%	5.9%
NET PROFIT / LOSS	13,575	5.0%	13,753	5.1%	17,019	6.4%	(20.2%)	(19.2%)
(Profit) / loss attributable to minority shareholders	( 346)	(0.1%)	( 346)	(0.1%)	( 928)	(0.4%)	(62.7%)	(62.7%)
NET PROFIT / LOSS FOR THE GROUP (3)	13,229	4.9%	13,407	5.0%	16,090	6.1%	(17.8%)	(16.7%)
Basic earnings per share	0.131		0.131		0.159
Dilutive earnings per share	0.131		0.131		0.159

Statement of reconciliation of the income statement as of September 30TH

The effects of the application of the new IFRS 16 are as follows:

(Values in thousands of EUR)	9 M	IFRS 16	9 M	9 M	Change	Change
	2019	Effects	2019	2018		%
			Comparable
TOTAL REVENUES	275,456	0	275,456	267,896	7,559	2.8%
Total Operating Costs	(229,365)	(12,303)	(241,668)	(230,775)	1,410	(0.6%)
GROSS OPERATING MARGIN (EBITDA)	46,091	(12,303)	33,788	37,122	8,969	24.2%
Total Amortisation, write-downs and provisions	(20,080)	10,914	(9,166)	(9,424)	(10,656)	113.1%
NET OPERATING PROFIT / LOSS (EBIT)	26,011	(1,389)	24,622	27,698	(1,687)	(6.1%)
Total Financial Income / (expenses)	(1,922)	1,635	(287)	(690)	(1,232)	178.4%
PROFIT / LOSS BEFORE TAXES	24,088	246	24,335	27,007	(2,919)	(10.8%)
Taxes	(10,513)	(69)	(10,582)	(9,989)	(524)	5.2%
NET PROFIT / LOSS	13,575	178	13,753	17,019	(3,443)	(20.2%)

Income statement for the third quarter

(Values in units of EUR)	Notes	III Q	% on	III Q	% on	Change	%
		2019	revenues	2018	revenues
REVENUES FROM SALES AND SERVICES	(1)	95,740	100.0%	93,517	100.0%	2,223	2.4%
Other revenues and income		2,151	2.2%	973	1.0%	1,178	121.0%
TOTAL REVENUES		97,891	102.2%	94,490	101.0%	3,401	3.6%
Changes in inventory		( 2,870)	(3.0%)	( 2,163)	(2.3%)	( 707)	32.7%
Costs of raw materials, cons. and goods for resale		( 27,785)	(29.0%)	( 28,130)	(30.1%)	345	(1.2%)
Costs of services		( 26,176)	(27.3%)	( 23,890)	(25.5%)	( 2,286)	9.6%
Costs for use of third parties assets		( 2,789)	(2.9%)	( 6,814)	(7.3%)	4,025	(59.1%)
Labour costs		( 17,387)	(18.2%)	( 16,568)	(17.7%)	( 819)	4.9%
Other operating expenses		( 1,469)	(1.5%)	( 772)	(0.8%)	( 697)	90.2%
Total Operating Costs		( 78,475)	(82.0%)	( 78,337)	(83.8%)	( 138)	0.2%
GROSS OPERATING MARGIN (EBITDA)	(2)	19,416	20.3%	16,153	17.3%	3,263	20.2%
Amortisation of intangible fixed assets		( 1,146)	(1.2%)	( 1,603)	(1.7%)	457	(28.5%)
Depreciation of tangible fixed assets		( 1,369)	(1.4%)	( 1,347)	(1.4%)	( 22)	1.6%
Depreciation of right-of-use assets		( 4,020)	(4.2%)	-	0.0%	( 4,020)	#DIV/0!
Revaluations/(write-downs) and provisions		( 78)	(0.1%)	( 50)	(0.1%)	( 28)	56.8%
Total Amortisation, write-downs and provisions		( 6,613)	(6.9%)	( 3,000)	(3.2%)	( 3,613)	120.4%
NET OPERATING PROFIT/LOSS (EBIT)		12,803	13.4%	13,153	14.1%	( 350)	(2.7%)
Financial income		564	0.6%	192	0.2%	372	193.9%
Financial expenses		( 350)	(0.4%)	( 264)	(0.3%)	( 86)	32.5%
Financial expenses on right-of-use asset		( 469)	(0.5%)	-	0.0%	( 469)	#DIV/0!
Total Financial Income/(expenses)		( 254)	(0.3%)	( 72)	(0.1%)	( 182)	253.4%
PROFIT/LOSS BEFORE TAXES		12,548	13.1%	13,081	14.0%	( 533)	(4.1%)
Taxes		( 4,255)	(4.4%)	( 4,422)	(4.7%)	167	(3.8%)
NET PROFIT/LOSS		8,293	8.7%	8,659	9.3%	( 366)	(4.2%)
(Profit)/loss attributable to minority shareholders		( 179)	(0.2%)	( 844)	(0.9%)	665	(78.7%)
NET PROFIT/LOSS FOR THE GROUP	(3)	8,114	8.5%	7,815	8.4%	299	3.8%

Reclassified balance sheet

(Values in units of EUR)	Notes	30 September	31 December 2018	31 December 2018	30 September
		2019	Included IFRS 16	Excluded IFRS 16	2018
Trade receivables		49,078,371	43,138,560	43,138,560	48,468,675
Stocks and inventories Trade payables		108,750,714 ( 60,534,646)	104,261,515 ( 76,949,819)	104,261,515 ( 76,949,819)	96,556,700 ( 60,750,520)
Operating net working capital	(4)	97,294,439	70,450,256	70,450,256	84,274,855
Other short term receivables		33,299,207	34,852,460	34,852,460	29,426,565
Tax receivables		7,949,450	7,759,828	7,759,828	7,668,571
Derivative assets		248,570	219,632	219,632	-
Other short term liabilities		( 19,160,565)	( 21,081,936)	( 21,081,936)	( 18,447,355)
Tax payables		( 6,666,411)	( 6,452,612)	( 6,452,612)	( 12,510,267)
Derivative liabilities		-	-	-	( 6,315)
Net working capital		112,964,690	85,747,628	85,747,628	90,406,054
Tangible fixed assets		60,904,749	60,298,801	60,298,801	59,641,980
Intangible fixed assets		76,926,447	80,098,155	103,132,467	105,331,743
Right-of-use assets		123,271,807	133,511,706	-	-
Equity investments		160,058	131,558	131,558	131,558
Other fixed assets		2,607,104	2,810,046	2,810,046	3,138,172
Fixed assets	(5)	263,870,165	276,850,266	166,372,872	168,243,453
Post employment benefits		( 5,100,833)	( 5,491,570)	( 5,491,570)	( 5,665,450)
Provisions		( 1,801,693)	( 2,558,544)	( 2,558,544)	( 2,519,524)
Assets available for sale		436,885	436,885	436,885	436,885
Long term not financial liabilities		( 683,963)	( 770,731)	( 770,731)	( 695,924)
Deferred tax assets		16,034,458	16,789,691	15,073,001	15,094,881
Deferred tax liabilities		( 29,617,996)	( 30,093,668)	( 30,093,668)	( 29,944,589)
NET CAPITAL INVESTED		356,101,713	340,909,957	228,715,873	235,355,786
Share capital		25,288,666	25,371,407	25,371,407	25,371,407
Other reserves		128,448,381	119,946,675	123,799,107	123,228,952
Profits/(Losses) carried-forward		6,658,422	( 1,243,243)	( 1,287,069)	( 1,663,268)
Profit/(Loss) of the period		13,229,073	16,726,101	16,726,101	16,090,363
Group interest in shareholders' equity		173,624,542	160,800,940	164,609,546	163,027,454
Minority interests in shareholders' equity		32,612,341	32,265,958	32,849,847	33,235,317
Total shareholders' equity	(6)	206,236,883	193,066,898	197,459,393	196,262,771
Short term financial receivables		( 1,154,686)	( 1,420,000)	( 1,420,000)	( 1,420,000)
Cash		( 24,644,898)	( 28,037,213)	( 28,037,213)	( 28,444,400)
Long term financial liabilities		16,470,516	16,408,975	16,408,975	15,620,442
Long term financial receivables		( 2,295,895)	( 2,302,096)	( 2,302,096)	( 2,270,726)
Short term financial liabilities		53,812,179	46,606,814	46,606,814	55,607,699
NET FINANCIAL POSITION WITHOUT IFRS 16 EFFECTS	(7)	42,187,216	31,256,480	31,256,480	39,093,015
Short term lease liabilities		14,606,240	13,691,310	-	-
Long term lease liabilities		93,071,374	102,895,269	-	-
NET FINANCIAL POSITION		149,864,830	147,843,059	31,256,480	39,093,015
SHAREHOLDERS' EQUITY AND NET FINANCIAL INDEBTEDNESS		356,101,713	340,909,957	228,715,873	235,355,786

Cash flow

(Values in thousands of EUR)	Notes	9 M	9 M
		2019	2018
OPENING BALANCE		28,037	22,809
Profit / loss before taxes		24,088	27,007
Amortisation / write-downs		19,895	9,275
Accrual (+) / availment (-) of long term provisions and post employment benefits		( 1,148)	( 146)
Paid income taxes		( 10,036)	( 2,341)
Financial income (-) and financial charges (+)		1,922	690
Change in operating assets and liabilities		( 27,664)	( 18,058)
CASH FLOW (ABSORBED) / GENERATED BY OPERATING ACTIVITY		7,057	16,427
Increase (-) / decrease (+) in intangible fixed assets		( 1,416)	( 1,030)
Increase (-) / decrease (+) in tangible fixed assets		( 4,537)	( 4,436)
Increase (-)/ decrease (+) in right-of-use assets (1)		( 1,119)	-
Investments and write-downs (-)/ Disinvestments and revaluations (+)		( 28)	-
CASH FLOW (ABSORBED) / GENERATED BY INVESTING ACTIVITY		( 7,100)	( 5,466)
Other variations in reserves and profits carried-forward of shareholders'equity		( 405)	804
Dividends paid		-	-
Increase (+) / decrease (-) of financial liabilities		7,267	( 6,186)
Proceeds (+)/ repayment (-) of lease payments (2)		( 8,763)	-
Increase (-) / decrease (+) of financial receivables		474	746
Financial income (+) and financial charges (-)		( 1,922)	( 690)
CASH FLOW (ABSORBED) / GENERATED BY FINANCING ACTIVITY		( 3,349)	( 5,326)
CLOSING BALANCE		24,645	28,444

1: cash flow changes on assets for rights of use relating to the application of IFRS 16

2: cash flow changes on lease payables relating to the application of IFRS 16

Changes in shareholders' equity

(Values in thousands of EUR)	Share capital	Share premium reserve	Cash flow reserve	Other reserves	Fair Value reserve	IAS reserve	Profits/(Losses) carried forward	Reamisurement of defined benefit plans reserve	Net profit / loss for the Group	Translation reserve	shareholders' equity Group interest in	Minority interests in shareholders' equity	Total shareholders' equity
At December 31, 2018	25,371	71,240	158	35,967	7,901	11,459		( 1,286) ( 1,095) 16,726 ( 1,832)			164,609	32,850	197,459
Effects deriving from the application of IFRS 16						( 3,808)					( 3,808)	( 584)	( 4,392)
At January 1, 2019	25,371	71,240	158	35,967	7,901	7,651		( 1,286) ( 1,095) 16,726 ( 1,832)			160,801	32,266	193,067
Allocation of 31/12/18 profit/(loss)	-	-	-	8,781	-	-	7,945	-	( 16,726)	-	-	-	-
Dividends paid	-	-	-	-	-	-	-	-	-	-	-	-	-
Treasury stock (buy-back)/ sale	-	-	-	-	-	-	-	-	-	-	-	-	-
Total comprehensive income/(loss) at 30/09/19	-	-	20	-	-	-	-	-	13,229	94	13,343	346	13,689
Other changes	( 82)	( 437)	-	-	-	-	-	-	-	-	( 519)	-	( 519)
At September 30, 2019	25,289	70,803	178	44,748	7,901	7,651	6,659	( 1,095) 13,229 ( 1,738)			173,625	32,612	206,237
(Values in thousands of EUR)	Share capital	Share premium reserve	Cash flow reserve	Other reserves	Fair Value reserve	IAS reserve	Profits/(Losses) carried forward	Reamisurement of defined benefit plans reserve	Net profit / loss for the Group	Translation reserve	shareholders' equity Group interest in	Minority interests in shareholders' equity	Total shareholders' equity
At December 31, 2017	25,371	71,240	-	29,150	7,901	11,459		( 6,957) ( 1,173) 11,490 ( 2,348)			146,133	32,307	178,440
Effects deriving from the application of IFRS 9			( 621)				621				-		-
At January 1, 2018	25,371	71,240	( 621)	29,150	7,901	11,459		( 6,336) ( 1,173) 11,490 ( 2,348)			146,133	32,307	178,440
Allocation of 31/12/17 profit/(loss)	-	-	-	6,817	-	-	4,673	-	( 11,490)	-	-	-	-
Dividends paid Treasury stock (buy-back)/ sale	- -	- -	-	- -	- -	- -	- -	- -	- -	- -	- -	- -	- -
Total comprehensive income/(loss) at 30/09/18	-	-	617	-	-	-	-	-	16,090	188	16,895	928	17,823
Other changes	-	-		-	-	-	-	-	-	-	-	-	-

Interim management report

In the first nine months of 2019, revenues from sales and services are equal to EUR 269,041 thousand with an increase of 1.7%, at current exchange rates and +1.4% at constant exchange rates, compared to EUR 264,616 thousand in the first nine months of 2018.

In the first nine months of 2019 consolidated EBITDA, excluding the application of the IFRS 16 (EUR 12,303 thousand), is equal to EUR 33,788 thousand (with an incidence of 12.6% of consolidated sales), compared to EUR 37,122 thousand in the first nine months of 2018 (with an incidence of 14.0% of total sales), recording a reduction of EUR 3,334 thousand (-9.0%).

At 30 September 2019, operating net working capital amounts to EUR 97,294 thousand (27.7% of LTM sales) compared to EUR 84,275 thousand at 30 September 2018 (24.6% of LTM sales).

The net financial position, excluding the application of IFRS 16 (EUR 107,678 thousand) increases by EUR 3,094 thousand, rising from EUR 39,093 thousand at September 30, 2018 to EUR 42,187 thousand at September 30, 2019.

Explanatory notes

Income statement

1. Revenues from sales and services

Nine months 2019 vs 2018

In the first nine months of 2019, revenues from sales and services are equal to EUR 269,041 thousand with an increase of 1.7%, at current exchange rates and +1.4% at constant exchange rates, compared to EUR 264,616 thousand in the first nine months of 2018.

Sales by brand

(Values in thousands of EUR)	9 M		9 M			Change
	2019	%	2018	%	Δ	%
Alberta Ferretti	20,979	7.8%	25,057	9.5%	( 4,078)	(16.3%)
Philosophy	14,325	5.3%	14,670	5.5%	( 345)	(2.4%)
Moschino	199,399	74.1%	189,997	71.8%	9,402	4.9%
Pollini	27,312	10.2%	27,157	10.3%	155	0.6%
Other	7,026	2.6%	7,735	2.9%	( 709)	(9.2%)
Total	269,041	100.0%	264,616	100.0%	4,425	1.7%

In the first nine months of 2019, Alberta Ferretti brand decreases by 16.3% (-16.6% at constant exchange rates), generating 7.8% of consolidated sales, while Philosophy brand decreases by 2.4% (-3.0% at constant exchange rates), generating 5.3% of consolidated sales.

In the same period, Moschino brand sales increase by 4.9% (+4.8% at constant exchange rates) contributing to 74.1% of consolidated sales.

Pollini brand increases by 0.6% (+0.4% at constant exchange rates), generating 10.2% of consolidated sales, while the other brands sales decrease by 9.2% (-10.3% at constant exchange rates) contributing to 2.6% of consolidated sales.

Sales by geographical area

(Values in thousands of EUR)	9 M		9 M	Change
	2019	%	2018	%	Δ	%
Italy	125,195	46.5%	128,923	48.7%	( 3,728)	(2.9%)
Europe (Italy excluded)	62,334	23.2%	60,965	23.0%	1,369	2.2%
Asia and Rest of the World	67,464	25.1%	61,398	23.2%	6,066	9.9%
America	14,048	5.2%	13,330	5.0%	718	5.4%
Total	269,041	100.0%	264,616	100.0%	4,425	1.7%

In the first nine months of 2019 sales in Italy, amounting to 46.5% of consolidated sales, register a negative trend decreasing by 2.9% to EUR 125,195 thousand.

Sales in Europe, that amount to EUR 62,334 thousand, increase by 2.2% (+2.2% at constant exchange rates), contributing to 23.2% of consolidated sales, growth mostly driven by good performance in the UK and Germany.

In Asia and Rest of the World, sales are equal to EUR 67,764 thousand, contributing to 25.1% of consolidated sales, with an increase of 9.9% (+9.9% at constant exchange rates) compared to the corresponding period of 2018, mainly thanks to the excellent trend in Far East, that increased by 13.8%.

Sales in the United States are equal to EUR 14,048 thousand, contributing to 5.2% of consolidated sales, posting in the period an increase of 5.4% (+0.4% at constant exchange rates).

(Values in thousands of EUR)	9 M		9 M			Change
	2019	%	2018	%	Δ	%
Wholesale	187,575	69.7%	190,440	72.0%	( 2,865)	(1.5%)
Retail	71,608	26.6%	65,670	24.8%	5,938	9.0%
Royalties	9,858	3.7%	8,506	3.2%	1,352	15.9%
Total	269,041	100.0%	264,616	100.0%	4,425	1.7%

Sales by distribution channel

By distribution channel in the first nine months of 2019, wholesale sales decrease by 1.5% (-1.8% at constant exchange rates) contributing to 69.7% of consolidated sales.

Sales of our directly-operated stores (retail channel) amount to EUR 71,608 thousand with an increase of 9.0% (+8.8% at constant exchange rates) contributing to 26.6% of consolidated sales.

Royalty income is 15.9% higher than in the corresponding period of the previous year, representing 3.7% of consolidated sales.

Third quarter 2019 vs 2018

In the third quarter of 2019, revenues from sales and services are equal to EUR 95,740 thousand with an increase of 2.4% compared with EUR 93,516 thousand in the third quarter of 2018.

Sales by brand
----------------	--

(Values in thousands of EUR)	III Q		III Q			Change
	2019	%	2018	%	Δ	%
Alberta Ferretti	6,747	7.0%	8,104	8.7%	( 1,357)	(16.7%)
Philosophy	5,389	5.6%	5,109	5.5%	280	5.5%
Moschino	69,323	72.4%	67,688	72.4%	1,635	2.4%
Pollini	10,851	11.3%	10,036	10.7%	815	8.1%
Other	3,430	3.7%	2,579	2.7%	851	33.0%
Total	95,740	100.0%	93,516	100.0%	2,224	2.4%

In the third quarter of 2019, Alberta Ferretti brand decreases by 16.7% generating 7.0% of consolidated sales, while Philosophy brand increases by 5.5% generating 5.6% of consolidated sales.

In the same period, Moschino brand sales increase by 2.4% contributing to 72.4% of consolidated sales.

Pollini brand increases by 8.1% generating 11.3% of consolidated sales, while the other brands sales increase by 33.0% contributing to 3.7% of consolidated sales.

Sales by geographical area

(Values in thousands of EUR)	III Q	III Q				Change
	2019	%	2018	%	Δ	%
Italy	45,059	47.1%	47,753	51.1%	( 2,694)	(5.6%)
Europe (Italy excluded)	23,679	24.7%	19,655	21.0%	4,024	20.5%
Asia and Rest of the World	21,936	22.9%	21,780	23.3%	156	0.7%
America	5,066	5.3%	4,328	4.6%	738	17.1%
Total	95,740	100.0%	93,516	100.0%	2,224	2.4%

In the third quarter of 2019 sales in Italy decrease by 5.6% to EUR 45,059 thousand, contributing to 47.1% of consolidated sales.

Sales in Europe increase by 20.5% contributing to 24.7% of consolidated sales.

In Asia and Rest of the World, sales are equal to EUR 21,936 thousand with an increase of 0.7% and a contribution of 22.9% of consolidated sales.

Sales in America are equal to EUR 5,066 thousand, contributing to 5.3% of consolidated sales, with an increase of 17.1%.

Sales by distribution channel

(Values in thousands of EUR)	III Q	III Q			Change
	2019	%	2018	%	Δ	%
Wholesale	66,648	69.6%	66,551	71.2%	97	0.1%
Retail	25,433	26.6%	23,489	25.1%	1,944	8.3%
Royalties	3,659	3.8%	3,476	3.7%	183	5.3%
Total	95,740	100.0%	93,516	100.0%	2,224	2.4%

By distribution channel in the third quarter of 2019, wholesale sales increase by 0.1% contributing to 69.6% of consolidated sales.

Sales of our directly-operated stores (retail channel) amount to EUR 25,433 thousand with an increase of 8.3% contributing to 26.6% of consolidated sales.

Royalty income is 5.3% higher than in the corresponding period of the previous year, representing 3.8% of consolidated sales.

2. Gross Operating Margin (EBITDA)

Nine months 2019 vs 2018

In the first nine months of 2019 consolidated EBITDA is equal to EUR 46,091 thousand (with an incidence of 17.1% of consolidated sales), compared to EUR 37,122 thousand in the first nine months of 2018 (14.0% of total sales), recording an increase in profitability equal to EUR 8,969 thousand (+24.2%). The increase in EBITDA is mainly related to the application of IFRS 16. The application of the new standard has led to the cancellation of operating lease instalments recognized as costs for services that will be re-allocated to depreciation of the rights to use assets and charges financial related to the valuation of the amortized cost of the financial debt of the lease. The cumulative effect deriving from the application of IFRS 16 is equal to EUR 12,303 thousand.

EBITDA of the prêt-à-porter division is equal to EUR 33,392 thousand (representing the 16.6% of sales) compared to EUR 26,044 thousand in the first nine months of 2018 (representing the 12.8% of sales), recording an increase of EUR 7,348 thousand of which EUR 11,261 thousand deriving from the application of IFRS 16.

EBITDA of the Footwear and leather goods division amounts to EUR 12,699 thousand (13.1% of sales) compared to EUR 11,078 thousand in the first nine months of 2018 (12.5% of sales), with a EUR 1,621 thousand increase of which EUR 1,041 thousand deriving from the application of IFRS 16.

Third quarter 2019 vs 2018

In the third quarter of 2019 consolidated EBITDA is EUR 19,416 thousand (with an incidence of 20.3% of consolidated sales), showing an increase of profitability compared to EUR 16,153 thousand in the third quarter of 2018, (with an incidence of 17.3% of consolidated sales).

3. Net profit for the Group

Nine months 2019 vs 2018

The Group posts a Net Profit of EUR 13,229 thousand, compared to the net profit of EUR 16,090 thousand in the first nine months of 2018, with a EUR 2,861 thousand decrease.

It should be noted that the effect deriving from the application of IFRS 16 is equal to EUR -178 thousand.

Third quarter 2019 vs 2018

In the third quarter of 2019 Group records a net profit of EUR 8,114 thousand showing an increase compared to a net profit of EUR 7,815 thousand in the third quarter of 2018.

It should be noted that the effect deriving from the application of IFRS 16 is equal to EUR -53 thousand.

Segment information

Economic performance by Divisions

At international level, the Group is divided into two main business sectors:

• (i) Prêt-à porter Division;
• (ii) Footwear and leather goods Division.

Nine months 2019 vs 2018

The following tables indicate the main economic data for the first nine months of 2019 and 2018 of the Prêtà porter and Footwear and leather goods Divisions.

9M 2019 including IFRS 16 effects

(Values in thousand of EUR)		Prêt-à porter Division Footwear and leather	Elimination of	Total
9M 2019		goods Division	intercompany
			transactions
SECTOR REVENUES	200,952	96,735	( 28,646)	269,041
Intercompany revenues	( 8,466)	( 20,180)	28,646	-
Revenues with third parties	192,486	76,555	-	269,041
Gross operating margin (EBITDA)	33,392	12,699	-	46,091
Amortisation	( 16,919)	( 2,976)	-	( 19,895)
Other non monetary items:
Revaluations / write-downs	-	( 185)		( 185)
Net operating profit / loss (EBIT)	16,473	9,538	-	26,011
Financial income	308	632	( 135)	805
Financial expenses	( 2,294)	( 569)	135	( 2,728)
Profit / loss before taxes	14,487	9,601	-	24,088
Income taxes	( 7,778)	( 2,735)	-	( 10,513)
Net profit / loss	6,709	6,866	-	13,575

9M 2019 excluding IFRS 16 effects

(Values in thousand of EUR)		Prêt-à porter Division Footwear and leather	Elimination of	Total
9M 2019 excluded IFRS 16		goods Division	intercompany
Ricavi di settore	200,952	96,735	transactions ( 28,646)	269,041
Ricavi infradivisione	( 8,466)	( 20,180)	28,646	-
Ricavi da clienti terzi	192,486	76,555	-	269,041
Margine operativo lordo (EBITDA)	22,131	11,658	-	33,788
Ammortamenti	( 6,909)	( 2,072)	-	( 8,981)
Altre voci non monetarie:
Rivalutazioni/Svalutazioni	-	( 185)		( 185)
Margine operativo (EBIT)	15,222	9,401	-	24,622
Proventi finanziari	308	632	( 135)	805
Oneri finanziari	( 783)	( 445)	135	( 1,093)
Risultato ante imposte	14,747	9,588	-	24,334
Imposte sul reddito	( 7,850)	( 2,731)	-	( 10,582)
Risultato netto	6,896	6,856	-	13,753

9M 2018

(Values in thousand of EUR)		Prêt-à porter Division Footwear and leather	Elimination of	Total
		goods Division	intercompany
9M 2018			transactions
SECTOR REVENUES	202,957	88,651	( 26,992)	264,616
Intercompany revenues	( 6,745)	( 20,247)	26,992	-
Revenues with third parties	196,212	68,404	-	264,616
Gross operating margin (EBITDA)	26,044	11,078	-	37,122
Amortisation	( 6,580)	( 2,124)	-	( 8,704)
Other non monetary items:
Revaluations / write-downs	( 551)	( 169)		( 720)
Net operating profit / loss (EBIT)	18,913	8,785	-	27,698
Financial income	257	373	( 150)	480
Financial expenses	( 818)	( 502)	150	( 1,170)
Profit / loss before taxes	18,352	8,656	-	27,008
Income taxes	( 7,167)	( 2,822)	-	( 9,989)
Net profit / loss	11,185	5,834	-	17,019

Prêt-à porter Division

In the first nine months of 2019, revenues of the prêt-à-porter division decrease by 1% to EUR 200,952 thousand.

EBITDA of the prêt-à-porter division, in the first nine months of 2019 (excluding the application of the IFRS16 equal to EUR 11,261 thousand) is EUR 22,131 thousand (representing 11.0% of consolidated sales) compared to an EBITDA of EUR 26,044 thousand in the first nine months of 2018 (representing 12.8% of consolidated sales), showing a decrease of EUR 3,913.

Footwear and leather goods Division

Revenues of the footwear and leather goods division increase by 9.1% from EUR 88,651 thousand in the first nine months of 2018 to EUR 96,735 thousand in the first nine months of 2019.

EBITDA of the Footwear and leather goods division (excluding the application of the IFRS16 equal to EUR 1,041 thousand) amounts to EUR 11,658 thousand (12.1% of sales) compared to EUR 11,078 thousand in the first nine months of 2018 (12.5% of sales), with a EUR 580 thousand increase.

Third Quarter 2019 vs 2018

The following tables indicate the main economic data for the third quarter of 2019 and 2018 of the Prêt-à porter and Footwear and leather goods Divisions.

(Values in thousand of EUR)		Prêt-à porter Division Footwear and leather	Elimination of	Total
III Q 2019		goods Division	intercompany transactions
SECTOR REVENUES	68,719	36,037	( 9,016)	95,740
Intercompany revenues	( 3,263)	( 5,753)	9,016	-
Revenues with third parties	65,456	30,284		95,740
Gross operating margin (EBITDA)	13,418	5,998		19,416
Amortisation	( 5,537)	( 998)		( 6,535)
Other non monetary items:
Revaluations / write-downs		( 78)		( 78)
Net operating profit / loss (EBIT)	7,881	4,922		12,803
Financial income	138	466	( 40)	564
Financial expenses	( 737)	( 122)	40	( 819)
Profit / loss before taxes	7,282	5,266		12,548
Income taxes	( 2,749)	( 1,506)		( 4,255)
Net profit / loss	4,533	3,760		8,293
(Values in thousand of EUR)		Prêt-à porter Division Footwear and leather	Elimination of	Total
III Q 2018		goods Division	intercompany
			transactions
SECTOR REVENUES	71,248	30,508	( 8,240)	93,516
Intercompany revenues	( 2,438)	( 5,802)	8,240	-
Revenues with third parties	68,810	24,706		93,516
Gross operating margin (EBITDA)	11,728	4,425		16,153
Amortisation	( 2,239)	( 711)		( 2,950)
Other non monetary items:
Revaluations / write-downs	20	( 70)		( 50)
Net operating profit / loss (EBIT) Financial income	9,509 88	3,644 154	( 49)	13,153 193
	( 217)	( 96)	49	( 264)
Financial expenses Profit / loss before taxes	9,380	3,702		13,082
Income taxes	( 3,300)	( 1,124)		( 4,424)

Balance sheet

4. Operating net working capital

At 30 September 2019, operating net working capital amounts to EUR 97,294 thousand (27.7% of LTM sales) compared to EUR 84,275 thousand at 30 September 2018 (24.6% of sales).

5. Fixed assets

The change in fixed assets, that increases from EUR 166,373 thousand at 31 December 2018 to EUR 263,870 thousand at 30 September 2019, is attributable to the application of IFRS 16 with the recording of rights to use assets. In addition, in the 2019 financial year following the application of IFRS 16, the amortization plan for the Key Money was modified, making them part of the rights to use assets as they represent the initial direct costs of the lessee. The effect of the application of IFRS 16 is equal to Euro 101,379 thousand, while that of the reclassification of Key Money is equal to Euro 23,004 thousand.

6. Shareholders' equity

Changes in shareholders' equity are presented in tables at page 15.

7. Net financial position

The increase in the net financial position relates to the application of IFRS 16, which weighed EUR 107,678 thousand. Without considering the effect of the application of the new standard, the net financial position increases by EUR 3,094 thousand, from EUR 39,093 thousand at September 30, 2018 to EUR 42,187 thousand at September 30, 2019.

Statement of reconciliation of the net financial position

The effects of the application of the new IFRS 16 are shown below

(Values in thousands of EUR)	30 September	IFRS 16	30 September	31 December	30 September	Change	Change
			2019	2018	2018	on December	on September
	2019	Effects	comparable			2018	2018
Short term financial receivables	(1,155)		(1,155)	(1,420)	(1,420)	265	265
Cash	(24,645)		(24,645)	(28,037)	(28,444)	3,392	3,800
Long term financial liabilities	16,471		16,471	16,409	15,620	62	850
Long term financial receivables	(2,296)		(2,296)	(2,302)	(2,271)	6	(25)
Short term financial liabilities	53,812		53,812	46,607	55,608	7,205	(1,796)
Short term lease liabilities (IFRS 16)	14,606	14,606	-	-	-	-	-
Long term lease liabilities (IFRS 16)	93,071	93,071	-	-	-	-	-
NET FINANCIAL POSITION	149,865	107,678	42,187	31,256	39,093	10,931	3,094

Other information

Earnings per share

Reference earnings

The calculation of basic and dilutive earnings per share is based on the following elements:

(Values in thousands of EUR)	30 September	30 September
From continuing and discontinued activities	2019	2018
Earnings for determining basic earnings per share	13,229	16,090
Dilutive effects	-	-
Earnings for determing dilutive earnings per share	13,229	16,090

(Values in thousands of EUR)	30 September	30 September
From continuing activities	2019	2018
Earnings for the period	13,229	16,090
Earnings from discontinued operations	-	-
Earnings for determining basic earnings per share	13,229	16,090
Dilutive effects	-	-
Earnings for determing dilutive earnings per share	13,229	16,090

In both periods, September 2019 and September 2018, there is no evidence of dilution of consolidated net earnings.

	30 September	30 September
	2019	2018
Average number of shares for determing earnings per share	101,155	101,486
Share options	-	-
Average number of shares for determing diluted earnings per share	101,155	101,486

Basic earnings per share

Group net earnings attributable to holders of ordinary shares of parent company AEFFE S.p.A., amounts to EUR 13,229 thousand (September 2018: EUR 16,0990 thousand).

Dilutive earnings per share

The calculation of diluted earnings per share for the period January - September 2019, matches with the calculation of basic earnings per share, as there are no tools with potential dilutive effects.

Significant events subsequent to the balance sheet date

After the 30 September 2019 no significant events regarding the Group's activities have to be reported.

Outlook

In an uncertain market environment, characterized by turbulence in markets of importance for us, we positively evaluate the results of the first nine months and we believe that the investment plan implemented since last year across R&D, production and marketing departments will contribute to strengthen the strategic positioning of our brands at international level.

Atypical and/or unusual transactions

Pursuant to Consob communication n. DEM/6064293 dated 28 July 2006, it is confirmed that during the first nine months of 2019, the Group did not enter into any atypical and/or unusual transactions, as defined in that communication.

Significant non-recurring events and transactions

During the first nine months of 2019 no significant non-recurring events and transaction have been realized.

The executive responsible for preparing the company's accounting documentation Marcello Tassinari declares, pursuant to paragraph 2 of art. 154b of the Consolidated Finance Law, that the accounting information contained in this document agrees with the underlying documentation, records and accounting entries.