Aeffe

Quarterly Report • Nov 8, 2018

INTERIM FINANCIAL STATEMENT AT 30 SEPTEMBER 2018

Disclaimer

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 2018	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	10
INTERIM MANAGEMENT REPORT	15
EXPLANATORY NOTES	16

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 Sabrina Borocci Alessandro Bonfiglioli

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 Sabrina Borocci

Board of Internal Control Committee

President Roberto Lugano

Members Daniela Saitta 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 - MOSCHINO – PHILOSOPHY) 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 Capri 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
		2017	2018
Total revenues	(Values in millions of EUR)	237.5	267.9
Gross operating margin (EBITDA)	(Values in millions of EUR)	30.4	37.1
Net operating profit (EBIT)	(Values in millions of EUR)	21.6	27.7
Profit before taxes	(Values in millions of EUR)	18.6	27.0
Net profit for the Group	(Values in millions of EUR)	11.9	16.1
Basic earnings per share	(Values in units of EUR)	0.117	0.159
Cash Flow (net profit + depreciation)	(Values in millions of EUR)	20.7	25.7
Cash Flow/Total revenues	Ratio	8.7	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.

		31 December	30 September	31 December	30 September
		2016	2017	2017	2018
Net capital invested	(Values in millions of EUR)	227.6	245.4	229.0	235.4
Net financial indebtedness	(Values in millions of EUR)	59.5	66.1	50.6	39.1
Group net equity	(Values in millions of EUR)	135.8	146.9	146.1	163.0
Group net equity per share	(Values in units of EUR)	1.3	1.4	1.4	1.5
Current assets/Current liabilities	Ratio	1.8	2.3	1.9	2.0
Current assets less invent./Current liabilities (ACID Test)	Ratio	0.8	1.1	0.8	0.9
Net financial indebtedness/Net equity	Ratio	0.4	0.4	0.3	0.2

Financial statements

Income statement at 30 September

(Values in units of EUR)	Notes	9 M	% on	9 M	% on	Change	%
		2018	revenues	2017	revenues
REVENUES FROM SALES AND SERVICES	(1)	264,616,404	100.0%	234,973,494	100.0%	29,642,910	12.6%
Other revenues and income		3,280,079	1.2%	2,572,852	1.1%	707,227	27.5%
TOTAL REVENUES		267,896,483	101.2%	237,546,346	101.1%	30,350,137	12.8%
Changes in inventory		( 2,237,105)	(0.8%)	1,872,757	0.8%	( 4,109,862)	(219.5%)
Costs of raw materials, cons. and goods for resale		( 82,998,159)	(31.4%)	( 74,940,985)	(31.9%)	( 8,057,174)	10.8%
Costs of services		( 73,167,381)	(27.7%)	( 65,236,028)	(27.8%)	( 7,931,353)	12.2%
Costs for use of third parties assets		( 19,447,966)	(7.3%)	( 17,682,410)	(7.5%)	( 1,765,556)	10.0%
Labour costs		( 50,404,264)	(19.0%)	( 47,770,281)	(20.3%)	( 2,633,983)	5.5%
Other operating expenses		( 2,520,042)	(1.0%)	( 3,354,932)	(1.4%)	834,890	(24.9%)
Total Operating Costs		( 230,774,917)	(87.2%)	( 207,111,879)	(88.1%)	( 23,663,038)	11.4%
GROSS OPERATING MARGIN (EBITDA)	(2)	37,121,566	14.0%	30,434,467	13.0%	6,687,099	22.0%
Amortisation of intangible fixed assets		( 4,827,857)	(1.8%)	( 4,934,753)	(2.1%)	106,896	(2.2%)
Depreciation of tangible fixed assets		( 3,876,376)	(1.5%)	( 3,730,465)	(1.6%)	( 145,911)	3.9%
Revaluations/(write-downs) and provisions		( 719,563)	(0.3%)	( 167,140)	(0.1%)	( 552,423)	330.5%
Total Amortisation, write-downs and provisions		( 9,423,796)	(3.6%)	( 8,832,358)	(3.8%)	( 591,438)	6.7%
NET OPERATING PROFIT/LOSS (EBIT)		27,697,770	10.5%	21,602,109	9.2%	6,095,661	28.2%
Financial income		479,751	0.2%	1,295,261	0.6%	( 815,510)	(63.0%)
Financial expenses		( 1,170,195)	(0.4%)	( 4,326,874)	(1.8%)	3,156,679	(73.0%)
Total Financial Income/(expenses)		( 690,444)	(0.3%)	( 3,031,613)	(1.3%)	2,341,169	(77.2%)
PROFIT/LOSS BEFORE TAXES		27,007,326	10.2%	18,570,496	7.9%	8,436,830	45.4%
Taxes		( 9,988,586)	(3.8%)	( 6,530,268)	(2.8%)	( 3,458,318)	53.0%
NET PROFIT/LOSS		17,018,740	6.4%	12,040,228	5.1%	4,978,512	41.3%
(Profit)/loss attributable to minority shareholders		( 928,377)	(0.4%)	( 131,337)	(0.1%)	( 797,040)	606.9%
NET PROFIT/LOSS FOR THE GROUP	(3)	16,090,363	6.1%	11,908,891	5.1%	4,181,472	35.1%
Basic earnings per share	(4)	0.159		0.117
Dilutive earnings per share	(4)	0.159		0.117

Income statement for the third quarter

(Values in units of EUR)	Notes	III Q	% on	III Q	% on	Change	%
		2018	revenues	2017	revenues
REVENUES FROM SALES AND SERVICES	(1)	93,516,740	100.0%	85,020,528	100.0%	8,496,212	10.0%
Other revenues and income		972,516	1.0%	1,183,367	1.4%	( 210,851)	(17.8%)
TOTAL REVENUES		94,489,256	101.0%	86,203,895	101.4%	8,285,361	9.6%
Changes in inventory		( 2,162,829)	(2.3%)	( 446,839)	(0.5%)	( 1,715,990)	384.0%
Costs of raw materials, cons. and goods for resale		( 28,130,116)	(30.1%)	( 25,289,616)	(29.7%)	( 2,840,500)	11.2%
Costs of services		( 23,889,521)	(25.5%)	( 22,677,060)	(26.7%)	( 1,212,461)	5.3%
Costs for use of third parties assets		( 6,814,464)	(7.3%)	( 6,145,936)	(7.2%)	( 668,528)	10.9%
Labour costs		( 16,567,741)	(17.7%)	( 15,329,010)	(18.0%)	( 1,238,731)	8.1%
Other operating expenses		( 771,780)	(0.8%)	( 1,375,354)	(1.6%)	603,574	(43.9%)
Total Operating Costs		( 78,336,451)	(83.8%)	( 71,263,815)	(83.8%)	( 7,072,636)	9.9%
GROSS OPERATING MARGIN (EBITDA)	(2)	16,152,805	17.3%	14,940,080	17.6%	1,212,725	8.1%
Amortisation of intangible fixed assets		( 1,602,688)	(1.7%)	( 1,613,619)	(1.9%)	10,931	(0.7%)
Depreciation of tangible fixed assets		( 1,347,351)	(1.4%)	( 1,243,886)	(1.5%)	( 103,465)	8.3%
Revaluations/(write-downs) and provisions		( 49,918)	(0.1%)	( 73,299)	(0.1%)	23,381	(31.9%)
Total Amortisation, write-downs and provisions		( 2,999,957)	(3.2%)	( 2,930,804)	(3.4%)	( 69,153)	2.4%
NET OPERATING PROFIT/LOSS (EBIT)		13,152,848	14.1%	12,009,276	14.1%	1,143,572	9.5%
Financial income		192,391	0.2%	276,741	0.3%	( 84,350)	(30.5%)
Financial expenses		( 264,170)	(0.3%)	( 1,110,399)	(1.3%)	846,229	(76.2%)
Total Financial Income/(expenses)		( 71,779)	(0.1%)	( 833,658)	(1.0%)	761,879	(91.4%)
PROFIT/LOSS BEFORE TAXES		13,081,069	14.0%	11,175,618	13.1%	1,905,451	17.1%
Taxes		( 4,422,881)	(4.7%)	( 3,691,193)	(4.3%)	( 731,688)	19.8%
NET PROFIT/LOSS		8,658,188	9.3%	7,484,425	8.8%	1,173,763	15.7%
(Profit)/loss attributable to minority shareholders		( 843,996)	(0.9%)	( 193,403)	(0.2%)	( 650,593)	336.4%
NET PROFIT/LOSS FOR THE GROUP	(3)	7,814,192	8.4%	7,291,022	8.6%	523,170	7.2%

Reclassified balance sheet

(Values in units of EUR)	Notes	30 September	31 December	30 September
		2018	2017	2017
Trade receivables		48,468,675	42,064,915	50,627,137
Stocks and inventories		96,556,700	97,817,891	91,884,436
Trade payables		( 60,750,520)	( 68,618,776)	( 53,553,114)
Operating net working capital	(5)	84,274,855	71,264,030	88,958,459
Other short term receivables		29,426,565	26,914,468	26,626,430
Tax receivables		7,668,571	5,411,024	2,940,427
Derivative assets		-	-	-
Other short term liabilities		( 18,447,355)	( 17,642,193)	( 16,939,190)
Tax payables		( 12,510,267)	( 3,611,468)	( 5,759,411)
Derivative liabilities		( 6,315)	( 997,532)	-
Net working capital		90,406,054	81,338,329	95,826,715
Tangible fixed assets		59,641,980	59,104,297	60,086,705
Intangible fixed assets		105,331,743	109,678,612	111,179,468
Equity investments		131,558	131,558	131,558
Other fixed assets		3,138,172	3,564,214	3,324,621
Fixed assets	(6)	168,243,453	172,478,681	174,722,352
Post employment benefits		( 5,665,450)	( 5,916,166)	( 6,047,103)
Provisions		( 2,519,524)	( 2,415,237)	( 2,436,095)
Assets available for sale		436,885	436,885	436,885
Long term not financial liabilities		( 695,924)	( 787,692)	( 471,152)
Deferred tax assets		15,094,881	14,335,779	13,944,734
Deferred tax liabilities		( 29,944,589)	( 30,436,700)	( 30,603,337)
NET CAPITAL INVESTED		235,355,786	229,033,879	245,372,999
Share capital		25,371,407	25,371,407	25,371,407
Other reserves		123,228,952	116,229,168	116,529,898
Profits/(Losses) carried-forward		( 1,663,268)	( 6,957,390)	( 6,956,308)
Profit/(Loss) of the period		16,090,363	11,490,343	11,908,891
Group interest in shareholders' equity		163,027,454	146,133,528	146,853,888
Minority interests in shareholders' equity		33,235,317	32,306,940	32,429,531
Total shareholders' equity	(7)	196,262,771	178,440,468	179,283,419
Short term financial receivables		( 1,420,000)	( 1,420,000)	( 2,236,173)
Cash		( 28,444,400)	( 22,808,913)	( 14,937,148)
Long term financial liabilities		15,620,442	22,079,795	24,964,974
Long term financial receivables		( 2,270,726)	( 2,591,605)	( 2,635,189)
Short term financial liabilities		55,607,699	55,334,134	60,933,116
NET FINANCIAL POSITION	(8)	39,093,015	50,593,411	66,089,580
SHAREHOLDERS' EQUITY AND NET FINANCIAL INDEBTEDNESS		235,355,786	229,033,879	245,372,999

Cash flow

(Values in thousands of EUR)	Notes	9 M	9 M
		2018	2017
OPENING BALANCE		22,809	14,521
Profit / loss before taxes		27,007	18,570
Amortisation / write-downs		9,275	8,665
Accrual (+) / availment (-) of long term provisions and post employment benefits		( 146)	( 442)
Paid income taxes		( 2,341)	( 8,618)
Financial income (-) and financial charges (+)		690	3,032
Change in operating assets and liabilities		( 18,058)	( 21,145)
CASH FLOW (ABSORBED) / GENERATED BY OPERATING ACTIVITY		16,427	62
Increase (-) / decrease (+) in intangible fixed assets		( 1,030)	( 982)
Increase (-) / decrease (+) in tangible fixed assets		( 4,436)	( 2,441)
Investments and write-downs (-)/ Disinvestments and revaluations (+)		-	-
CASH FLOW (ABSORBED) / GENERATED BY INVESTING ACTIVITY		( 5,466)	( 3,423)
Other variations in reserves and profits carried-forward of shareholders'equity		804	( 826)
Dividends paid		-	-
Increase (+) / decrease (-) of financial liabilities		( 6,186)	6,243
Increase (-) / decrease (+) of financial receivables		746	1,392
Financial income (+) and financial charges (-)		( 690)	( 3,032)
CASH FLOW (ABSORBED) / GENERATED BY FINANCING ACTIVITY		( 5,326)	3,777
CLOSING BALANCE		28,444	14,937

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 January 1, 2017	25,371	71,240	-	27,435	7,901	11,459	( 8,883) ( 1,130)		3,641	( 1,262)	135,772	32,298	168,070
Allocation of 31/12/16 profit/(loss)	-	-		1,715	-		1,926	-	( 3,641)	-	-	-	-
Dividends paid	-	-		-	-	-	-	-	-	-	-	-	-
Treasury stock (buy-back)/ sale	-	-		-	-	-	-	-	-	-	-	-	-
Total comprehensive income/(loss) at 30/09/17	-	-		-	-	-	-	-	11,909	( 827)	11,082	131	11,213
Other changes	-	-		-	-	-	-	-	-	-	-	-	-
At September 30, 2017	25,371	71,240	-	29,150	7,901	11,459		( 6,957) ( 1,130) 11,909 ( 2,089)			146,854	32,429	179,283
(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 2018, revenues from sales and services are equal to EUR 264,616 thousand with an increase of 12.6%, at current exchange rates and +13.1% at constant exchange rates, compared to EUR 234,973 thousand in the first nine months of 2017.

In the first nine months of 2018, revenues of the prêt-à-porter division increase by 12.8% (+13.5% at constant exchange rates) to EUR 202,957 thousand, while revenues of the footwear and leather goods division increase by 10.7%, before inter-divisional eliminations, to EUR 88,651 thousand.

In the first nine months of 2018 consolidated EBITDA is equal to EUR 37,122 thousand (with an incidence of 14.0% of consolidated sales), compared to EUR 30,434 thousand in the first nine months of 2017 (13.0% of total sales).

The improvement in profitability is mainly driven by sales growth of both divisions.

In particular, EBITDA of the prêt-à-porter division is equal to EUR 26,044 thousand (representing the 12.8% of sales) compared to EUR 21,657 thousand in the first nine months of 2017 (representing the 12.0% of sales).

EBITDA of the Footwear and leather goods division amounts to EUR 11,078 thousand (12.5% of sales) compared to EUR 8,777 thousand in the first nine months of 2017 (11.0% of sales), with a EUR 2,301 thousand increase.

Consolidated EBIT amounts to EUR 27,698 thousand, showing an increase of EUR 6,096 thousand compared to an EBIT of EUR 21,602 thousand in the first nine months of 2017. The increase reflects the growth in EBITDA.

In the first nine months of 2018, financial charges amount to EUR 690 thousand compared to EUR 3,032 thousand in the first nine months of 2017 and the decrease is mainly driven by the reduction of both bank charges and foreign exchange losses.

The Group post a Net Profit of EUR 16,090 thousand, compared to a net profit of EUR 11,909 thousand in the first nine months of 2017, with an increase of 4,181 thousand.

Compared to 31 December 2017, the balance sheet at 30 September 2018 shows an increase in shareholders' equity from EUR 178,440 thousand to EUR 196,263 thousand. The main variation is due to the economic result of the period.

At 30 September 2018, operating net working capital amounts to EUR 84,275 thousand (24.6% of LTM sales) compared to EUR 71,264 thousand at 31 December 2017 (22.8% of LTM sales) and to EUR 88,958 thousand at 30 September 2017 (29.5% of LTM sales).

Fixed assets decrease by EUR 4,235 thousand from December 31, 2017 to September 30, 2018.

Explanatory notes

Income statement

1. Revenues from sales and services

Nine months 2018 vs 2017

In the first nine months of 2018, revenues from sales and services are equal to EUR 264,616 thousand with an increase of 12.6%, at current exchange rates and +13.1% at constant exchange rates, compared to EUR 234,973 thousand in the first nine months of 2017.

Sales by brand

(Values in thousands of EUR)	9 M		9 M			Change
	2018	%	2017	%	Δ	%
Alberta Ferretti	25,057	9.5%	23,566	10.0%	1,491	6.3%
Philosophy	14,670	5.5%	12,987	5.5%	1,683	13.0%
Moschino	189,997	71.8%	163,405	69.5%	26,592	16.3%
Pollini	27,157	10.3%	26,439	11.3%	718	2.7%
Other	7,735	2.9%	8,576	3.7%	( 841)	(9.9%)
Total	264,616	100.0%	234,973	100.0%	29,643	12.6%

In the first nine months of 2018, Alberta Ferretti brand increases by 6.3% (+6.8% at constant exchange rates), generating 9.5% of consolidated sales, while Philosophy brand increases by 13.0% (+13.8% at constant exchange rates), generating 5.5% of consolidated sales.

In the same period, Moschino brand sales increase by 16.3% (+16.8% at constant exchange rates) contributing to 71.8% of consolidated sales.

Pollini brand increases by 2.7% (+2.9% at constant exchange rates), generating 10.3% of consolidated sales, while the other brands sales decrease by 9.9% (-8.4% at constant exchange rates) contributing to 2.9% of consolidated sales.

Sales by geographical area

(Values in thousands of EUR)	9 M	9 M			Change
	2018	%	2017	%	Δ	%
Italy	128,923	48.7%	115,958	49.3%	12,965	11.2%
Europe (Italy and Russia excluded)	53,675	20.3%	48,849	20.8%	4,826	9.9%
Russia	7,290	2.8%	7,161	3.0%	129	1.8%
United States	13,330	5.0%	14,794	6.3%	( 1,464)	(9.9%)
Rest of the World	61,398	23.2%	48,211	20.6%	13,187	27.4%
Total	264,616	100.0%	234,973	100.0%	29,643	12.6%

In the first nine months of 2018 sales in Italy, amounting to 48.7% of consolidated sales, register a positive trend increasing by 11.2% to EUR 128,923 thousand, thanks to organic growth both of wholesale and retail channel.

Sales in Europe, that amount to EUR 53,675 thousand, increase by 9.9% (+10.0% at constant exchange rates), contributing to 20.3% of consolidated sales, growth mostly driven by good performance in the UK, Germany, France and Eastern Europe, while the Russian market records sales equal to EUR 7,290 thousand, contributing to 2.8% of consolidated sales, with an increase of 1.8% compared to the corresponding period of 2017.

Sales in the United States are equal to EUR 13,330 thousand, contributing to 5.0% of consolidated sales, posting in the period a decrease of 9.9% (-4.4% at constant exchange rates).

In the Rest of the World, sales are equal to EUR 61,398 thousand, contributing to 23.2% of consolidated sales, with an increase of 27.4% (+27.9% at constant exchange rates) compared to the corresponding period of 2017, mainly thanks to the excellent trend in Far East, that increased by 38%.

(Values in thousands of EUR)	9 M	9 M				Change
	2018	%	2017	%	Δ	%
Wholesale	190,440	72.0%	164,429	70.0%	26,011	15.8%
Retail	65,670	24.8%	63,234	26.9%	2,436	3.9%
Royalties	8,506	3.2%	7,310	3.1%	1,196	16.4%
Total	264,616	100.0%	234,973	100.0%	29,643	12.6%

Sales by distribution channel

By distribution channel in the first nine months of 2018, wholesale sales increase by 15.8% (+16.4% at constant exchange rates) contributing to 72.0% of consolidated sales.

Sales of our directly-operated stores (retail channel) amount to EUR 65,670 thousand with an increase of 3.9% (+4.2% at constant exchange rates) contributing to 24.8% of consolidated sales.

Royalty income is 16.4% higher than in the corresponding period of the previous year, representing 3.2% of consolidated sales.

Third quarter 2018 vs 2017

In the third quarter of 2018, revenues from sales and services are equal to EUR 93,516 thousand with an increase of 10.0% compared with EUR 85,020 thousand in the third quarter of 2017.

Sales by brand

(Values in thousands of EUR)	III Q		III Q			Change
	2018	%	2017	%	Δ	%
Alberta Ferretti	8,104	8.7%	7,791	9.2%	313	4.0%
Philosophy	5,109	5.5%	4,493	5.3%	616	13.7%
Moschino	67,688	72.4%	58,618	68.9%	9,070	15.5%
Pollini	10,036	10.7%	10,766	12.7%	( 730)	(6.8%)
Other	2,579	2.7%	3,352	3.9%	( 773)	(23.1%)
Total	93,516	100.0%	85,020	100.0%	8,496	10.0%

In the third quarter of 2018, Alberta Ferretti brand increases by 4.0% generating 8.7% of consolidated sales, while Philosophy brand increases by 13.7% generating 5.5% of consolidated sales.

In the same period, Moschino brand sales increase by 15.5% contributing to 72.4% of consolidated sales.

Pollini brand decreases by 6.8% generating 10.7% of consolidated sales, while the other brands sales decrease by 23.1% contributing to 2.7% of consolidated sales.

Sales by geographical area

(Values in thousands of EUR)	III Q III Q			Change
	2018	%	2017	%	Δ	%
Italy	47,753	51.1%	43,907	51.6%	3,846	8.8%
Europe (Italy and Russia excluded)	17,550	18.8%	16,921	19.9%	629	3.7%
Russia	2,105	2.3%	2,610	3.1%	( 505)	(19.3%)
United States	4,328	4.6%	5,059	6.0%	( 731)	(14.4%)
Rest of the World	21,780	23.2%	16,523	19.4%	5,257	31.8%
Total	93,516	100.0%	85,020	100.0%	8,496	10.0%

In the third quarter of 2018 sales in Italy increase by 8.8% to EUR 47,753 thousand, contributing to 51.1% of consolidated sales.

Sales in Europe increase by 3.7% contributing to 18.8% of consolidated sales, while the Russian market records sales equal to EUR 2,105 thousand, contributing to 2.3% of consolidated sales, with a decrease of 19.3%. Sales in the United States are equal to EUR 4,328 thousand, contributing to 4.6% of consolidated sales, with a decrease of 14.4%.

In the Rest of the World, sales are equal to EUR 21,780 thousand with an increase of 31.8% and a contribution of 23.2% of consolidated sales.

Sales by distribution channel

(Values in thousands of EUR)	III Q	III Q				Change
	2018	%	2017	%	Δ	%
Wholesale	66,551	71.2%	59,187	69.6%	7,364	12.4%
Retail	23,489	25.1%	23,216	27.3%	273	1.2%
Royalties	3,476	3.7%	2,617	3.1%	859	32.8%
Total	93,516	100.0%	85,020	100.0%	8,496	10.0%

By distribution channel in the third quarter of 2018, wholesale sales increase by 12.4% contributing to 71.2% of consolidated sales.

Sales of our directly-operated stores (retail channel) amount to EUR 23,489 thousand with an increase of 1.2% contributing to 25.1% of consolidated sales.

Royalty income is 32.8% higher than in the corresponding period of the previous year, representing 3.7% of consolidated sales.

2. Gross Operating Margin (EBITDA)

Nine months 2018 vs 2017

In the first nine months of 2018 consolidated EBITDA is equal to EUR 37,122 thousand (with an incidence of 14.0% of consolidated sales), compared to EUR 30,434 thousand in the first nine months of 2017 (13.0% of total sales).

The improvement in profitability is mainly driven by sales growth of both divisions.

EBITDA of the prêt-à-porter division is equal to EUR 26,044 thousand (representing the 12.8% of sales) compared to EUR 21,657 thousand in the first nine months of 2017 (representing the 12.0% of sales).

EBITDA of the Footwear and leather goods division amounts to EUR 11,078 thousand (12.5% of sales) compared to EUR 8,777 thousand in the first nine months of 2017 (11.0% of sales), with a EUR 2,301 thousand increase.

Third quarter 2018 vs 2017

In the third quarter of 2018 consolidated EBITDA is EUR 16,153 thousand (with an incidence of 17.3% of consolidated sales), showing an increase of profitability compared to EUR 14,940 thousand in the third quarter of 2017, (with an incidence of 17.6% of consolidated sales).

3. Net profit for the Group

Nine months 2018 vs 2017

The Group posts a Net Profit of EUR 16,090 thousand, compared to the net profit of EUR 11,909 thousand in the first nine months of 2017, with a EUR 4,181 thousand increase.

In the first nine months of 2018, financial charges amount to EUR 690 thousand compared to EUR 3,032 thousand in the first nine months of 2017 and the decrease is mainly driven by the reduction of both bank charges and foreign exchange losses.

Third quarter 2018 vs 2017

In the third quarter of 2018 Group records a net profit of EUR 7,814 thousand showing an increase compared to a net profit of EUR 7,291 thousand in the third quarter of 2017.

4. 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	2018	2017
Earnings for determining basic earnings per share	16,090	11,909
Dilutive effects	-	-
Earnings for determing dilutive earnings per share	16,090	11,909
(Values in thousands of EUR)	30 September	30 September
From continuing activities	2018	2017
Earnings for the period	16,090	11,909
Earnings from discontinued operations	-	-
Earnings for determining basic earnings per share	16,090	11,909
Dilutive effects	-	-
Earnings for determing dilutive earnings per share	16,090	11,909

In both periods, September 2018 and September 2017, there is no evidence of dilution of consolidated net earnings.

Number of reference share

	30 September	30 September
	2018	2017
Average number of shares for determing earnings per share	101,486	101,486
Share options	-	-
Average number of shares for determing diluted earnings per share	101,486	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 16,090 thousand (September 2017: EUR 11,909 thousand).

Dilutive earnings per share

The calculation of diluted earnings per share for the period January - September 2018, matches with the calculation of basic earnings per share, as there are no tools with potential dilutive effects.

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 2018 vs 2017

The following tables indicate the main economic data for the first nine months of 2018 and 2017 of the Prêtà porter and Footwear and leather goods Divisions.

(Values in thousand of EUR)		Prêt-à porter Division Footwear and leather	Elimination of	Total
9M 2018		goods Division	intercompany
			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

(Values in thousand of EUR)		Prêt-à porter Division Footwear and leather	Elimination of	Total
		goods Division	intercompany
9M 2017			transactions
SECTOR REVENUES	179,928	80,111	( 25,066)	234,973
Intercompany revenues	( 5,828)	( 19,238)	25,066	-
Revenues with third parties	174,100	60,873	-	234,973
Gross operating margin (EBITDA)	21,657	8,777	-	30,434
Amortisation	( 6,536)	( 2,129)	-	( 8,665)
Other non monetary items:
Revaluations / write-downs		( 167)		( 167)
Net operating profit / loss (EBIT)	15,121	6,481	-	21,602
Financial income	698	911	( 314)	1,295
Financial expenses	( 1,326)	( 3,315)	314	( 4,327)
Profit / loss before taxes	14,493	4,077	-	18,570
Income taxes	( 5,106)	( 1,424)	-	( 6,530)
Net profit / loss	9,387	2,653	-	12,040

Prêt-à porter Division

In the first nine months of 2018, revenues of the prêt-à-porter division increase by 12.8% (+13.5% at constant exchange rates) to EUR 202,957 thousand. This division contributes to 69.2% of consolidated revenues in the first nine months of 2017 and 69.6% in the first nine months of 2018, before inter-divisional eliminations.

EBITDA of the prêt-à-porter division is equal to EUR 26,044 thousand in the first nine months of 2018 (representing 12.8% of consolidated sales) compared to an EBITDA of EUR 21,657 thousand in the first nine months of 2017 (representing 12.0% of consolidated sales), showing an increase of EUR 4,387 thousand mainly driven by sales growth.

Footwear and leather goods Division

Revenues of the footwear and leather goods division increase by 10.7% from EUR 80,111 thousand in the first nine months of 2017 to EUR 88,651 thousand in the first nine months of 2018.

EBITDA of the Footwear and leather goods division amounts to EUR 11,078 thousand (12.5% of sales) compared to EUR 8,777 thousand in the first nine months of 2017 (11.0% of sales), with a EUR 2,301 thousand increase.

Third Quarter 2018 vs 2017

The following tables indicate the main economic data for the third quarter of 2018 and 2017 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 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)	9,509	3,644		13,153
Financial income	88	154	( 49)	193
Financial expenses	( 217)	( 96)	49	( 264)
Profit / loss before taxes	9,380	3,702		13,082
Income taxes	( 3,300)	( 1,124)		( 4,424)
Net profit / loss	6,080	2,578		8,658

(Values in thousand of EUR)		Prêt-à porter Division Footwear and leather	Elimination of	Total
		goods Division	intercompany
III Q 2017			transactions
SECTOR REVENUES	63.597	29.710	( 8.287)	85.020
Intercompany revenues	( 1.901)	( 6.386)	8.287	-
Revenues with third parties	61.696	23.324		85.020
Gross operating margin (EBITDA)	10.247	4.693		14.940
Amortisation	( 2.147)	( 710)		( 2.857)
Other non monetary items:
Revaluations / write-downs		( 73)		( 73)
Net operating profit / loss (EBIT)	8.100	3.910		12.010
Financial income	400	( 22)	( 102)	276
Financial expenses	( 343)	( 870)	102	( 1.111)
Profit / loss before taxes	8.157	3.018		11.175
Income taxes	( 2.723)	( 968)		( 3.691)
Net profit / loss	5.434	2.050		7.484

Balance sheet

Compared to 31 December 2017, the balance sheet at 30 September 2018 shows an increase in shareholders' equity from EUR 178,440 thousand to EUR 196,263 thousand. The main variation is due to the economic result of the period.

5. Operating net working capital

At 30 September 2018, operating net working capital amounts to EUR 84,275 thousand (24.6% of LTM sales) compared to EUR 71,264 thousand at 31 December 2017 (22.8% of sales) and to EUR 88,958 thousand (29.5% of LTM sales) at 30 September 2017.

The reduction of incidence on sales is mainly related to better management of the operating net working capital.

6. Fixed assets

Fixed assets decrease by EUR 4,235 thousand from December 31, 2017 to September 30, 2018.

7. Shareholders' equity

Changes in shareholders' equity are presented in tables at page 14.

8. Net financial position

The net financial indebtedness amounts to EUR 39,093 thousand in improvement compared to EUR 66,090 thousand at 30 September 2017. The financial debt decrease mainly refers to cash flow increase.

Other information

Accounting policies

The main accounting policies and measurement basis adopted in preparing the consolidated financial statements at 30 September 2018, except for the interpretations and amendments to the accounting principles that have been mandatory since 1 January 2018 and illustrated in the half yearly financial statement at 30 June 2018, are the same used in preparing the consolidated financial statements at 31 December 2017.

Significant events subsequent to the balance sheet date

After the 30 September 2018 no significant events regarding the Group's activities have to be reported.

Outlook

The Group confirms a path of solid and continuous development, thanks to the creation of high quality and distinctiveness collections. Despite the challenging scenario also at macroeconomic level, we are confident about the remaining part of the year and we expect increase in sales and a more than proportional growth in profitability for the full 2018. Moreover, the orders' backlog of the Spring/Summer 2019 season, which posted a 6% increase, contributes to a positive sentiment on the growth over the mid-long term.

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.