Basic Net SpA

Earnings Release • Mar 4, 2020

PRESS RELEASE: BASICNET BOD APPROVES 2019 SEPARATE FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS. PRELIMINARY RESULTS OF FEBRUARY 14 CONFIRMED:

• aggregate sales of Group Brands by the Global licensee Network exceeding Euro 1 billion, +17.1%;
• consolidated revenues Euro 305.7 million, +45.3%;
• EBITDA Euro 42.5 million, +28.7%;
• EBIT Euro 30.6 million, +15.0%;
• consolidated net profit Euro 21.05 million, in line with Euro 21.01 million for the previous year, while up 13.6% on the 2018 profit excluding the one-off Patent Box tax benefits for financial years 2015 to 2017.
• proposed dividend of Euro 0.12 per share;
• Shareholders' AGM called for April 9 in single call.

Turin, March 4, 2020. The Board of Directors of BasicNet S.p.A., in a meeting today chaired by Marco Boglione, approved the 2019 Consolidated Financial Statements and the 2019 Separate Financial Statements.

Consolidated highlights:

• aggregate sales of Group Brands by the Global licensee Network exceeding Euro 1 billion, up 17.1% on 2018;
• consolidated revenues, including royalties, sourcing commissions and direct sales of Euro 305.7 million, +45.3% on the previous year; this growth was supported by the entry of the French Group Kappa Europe into the consolidation, net of which consolidated revenues grew 11.8% over 2018.
• EBITDA of Euro 42.5 million (Euro 33.0 million in 2018), up 28.7%, including the effects from applying IFRS 16 for the reclassification of Euro 5.5 million of lease charges to amortisation and interest charges;
• EBIT of Euro 30.6 million (Euro 26.6 million in 2018), +15.0%;
• the 2019 tax charge of Euro 8.3 million rose significantly on 2018, which reflected the one-off Patent Box tax benefits for financial years 2015 to 2017 (for Euro 2.5 million);
• consolidated net profit Euro 21.05 million, in line with Euro 21.01 million for the previous year, while up 13.6% on the 2018 profit excluding the one-off Patent Box tax benefits;
• net financial debt of Euro 78.3 million (Euro 59.0 million excluding the effects of IFRS 16 compared to Euro 51.7 million at December 31, 2018). The balance includes the effects of the first-time adoption of IFRS 16 which resulted in the recognition of a debt of Euro 19.3 million and the debt of Kappa Europe Group of approx. Euro 15 million. The debt/equity ratio in 2019 (net of the application of IFRS 16) is substantially in line with 2018 (0.46).

FINANCIAL STATEMENTS OF THE PARENT COMPANY BASICNET S.p.A.

The Board of Directors also approved the 2019 separate financial statements of BasicNet S.p.A.

Royalties and sourcing commissions of approx. Euro 38.0 million grew 12.6% on 2018.

EBIT amounted to Euro 12.1 million (Euro 11.1 million in 2018), following amortisation and depreciation of tangible and intangible assets of approx. Euro 3.9 million.

The net profit was Euro 14.5 million (Euro 13.0 million in 2018), up 11.5%.

Shareholders' Equity at December 31, 2019 was Euro 95.3 million (Euro 91.8 million in 2018), following the distribution in 2019 of dividends for Euro 6.5 million and the acquisition of treasury shares for approx. Euro 4.4 million.

DIVIDEND PROPOSED

The Board of Directors proposes to the Shareholders' AGM to distribute a dividend of Euro 0.12 per share in circulation, for a total value of approx. Euro 6.4 million.

The proposed dividend reflects a pay-out ratio of 30.3% (30.8% in 2018) on the consolidated net profit of Euro 21.05 million.

The dividend will be paid from April 29, 2020, with record date of April 28, 2020 and coupon date (No. 13) of April 27, 2020.

OUTLOOK

In general, Group operating results are expected to be positive in the first half of the year based on the order book and expected royalties and sourcing commissions.

This forecast is subject to the general market performance, which is shrouded by a degree of economic and political uncertainty, as reflected in consumption figures and by currency price fluctuations. As previously indicated, the unforeseeable duration of the "corona virus" emergency (which, as noted, during the period spread beyond China) does not allow us to forecast its impact on operating results.

As previously announced in the press release of February 14, the BasicNet Group continues to closely monitor the impact from the ongoing health crisis on the commercial and production activities of the licensee network. In terms of distribution, the contribution of the Chinese market to licensee aggregate sales is extremely limited. Production activities in China are also being normalised.

BasicNet's business model, based on the flexibility and financial independence of the licensees' network, all over the world, combined with the fully integrated management through the web of all the key processes of the value chain, allows to be natively reactive to the evolution of the crisis scenarios and to mitigate its impact.

SHAREHOLDERS' AGM CALL

The Board of Directors called the Shareholders' AGM for April 9, 2020 in single call to consider the following:

• approval of the 2019 Separate Financial Statements and proposal for the allocation of the net profit;
• resolutions relating to the First Section of the Remuneration Report as per Article 123-ter, paragraph 3-bis, of Legislative Decree No. 58/1998
• resolutions relating to the Second Section of the Remuneration Report as per Article 123-ter, paragraph 6, of Legislative Decree No. 58/1998
• proposal to purchase and utilise treasury shares.

TREASURY SHARES

The proposal to purchase and utilise treasury shares is submitted so as to:

• provide the company with an instrument to support projects matching the strategic guidelines, under which share swap opportunities are presented or as a guarantee for funding operations.
• permit the company to invest in treasury shares.

Shares shall be purchased and utilised in compliance with Article 2357 and subsequent of the Civil Code and Article 132 of Legislative Decree 58/1998: in such an amount so that at any given time these shares do not exceed overall 20% of the share capital, while also within the limits of the retained earnings and available reserves of the last approved financial statements, with the consequent setting up, in accordance with Article 2357-ter, paragraph 3 of the Civil Code, of an non-distributable reserve of an amount of the treasury shares from time to time acquired. The authorisation is requested for the period until the Shareholders' AGM called to approve the 2020 Annual Accounts and for a maximum financial commitment of Euro 10 million. Any purchases shall be made on the regulated markets in accordance with the regulations in force and, where applicable, as per the market practices permitted by the oversight authority, in accordance with Article 13 of Regulation (EC) No. 596/2014 ("MAR").

As part of the treasury share buy-back programme authorised by the Shareholders' AGM of April 19, 2019 and concluding last December 13 with the reaching of the maximum spending limited of Euro 4 million, BasicNet S.p.A. acquired 820,633 shares (equal to 1.345% of the Share Capital) at an average price of Euro 4.87 for a total payment of Euro 3,999,839. BasicNet today holds a total of 7,863,255 treasury shares (equal to12.892% of the Share Capital), for an investment of Euro 22 million.

The Shareholders' AGM documentation, including the illustrative reports of the Board of Directors on matters on the Agenda and the relative proposals, in addition to the Annual Financial Report, together with the related documentation, the Annual Corporate Governance Report and the report on the remuneration policy and the related compensation settled, will be made available at the registered office, on the authorised storage mechanism () and on the Company's website (www.basicnet.com) according to the legal deadline, i.e. by March 19, 2020.

The Chief Executive Officer Federico Trono will present to the market the 2019 results during a video conference call this afternoon at 5.30 PM. To join the video conference call (to be held in English), click on:

Join Skype Meeting

or telephone: +390200624808 (ID conference: 135049679 and PIN conference: 40804)

the presentation may be downloaded from the website www.BasicNet.com, from the section: "financial data/other information and presentations" shortly before the video conference, at the following link:

www.basicnet.com/contenuti/datifinanziari/informazioniannuali.asp?menuSelectedID=3g&language=IT

In relation to the "alternative performance indicators", as defined by the ESMA/2015/1415 guidelines, we provide below a definition of the indicators used in the present press release, as well as their reconciliation with the financial statement items:

• Commercial licensee aggregate sales:	sales by commercial licensees, recognised by the BasicNet Group to the "royalties" account of the income statement;
• Productive licensee aggregate sales:	sales by productive licensees, recognised by the BasicNet Group to the "sourcing commissions" account of the income statement;
• EBITDA:	"operating result" before "amortisation and depreciation" and "write-downs and other provisions";
• EBIT:	"operating result";
• Net debt:	total of current and medium/long-term financial payables, less cash and cash equivalents and other current financial assets.
• Pay-out ratio	percentage of consolidated net profit distributed as dividend
• Debt/equity ratio	this is an indicator of the financial structure of the balance sheet and is calculated as the ratio of financial debt to shareholders' equity.

The Executive Officer for Financial Reporting, Ms. Paola Bruschi, declares in accordance with Article 154 bis, paragraph 2, of the Consolidated Finance Act that the accounting information contained in the present press release corresponds to the underlying accounting documents, records and accounting entries.

The financial statements are attached

Financial statements (audit not yet complete)

CONSOLIDATED FINANCIAL STATEMENTS

BASICNET GROUP CONSOLIDATED INCOME STATEMENT

(Euro thousands)

	FY 2019		FY 2018		Changes
		%		%		%
Consolidated direct sales Cost of sales	250,148 (142,954)	100.00 (57.15)	155,615 (91,542)	100.00 (58.83)	94,533 (51,412)	60.75 (56.16)
GROSS MARGIN	107,195	42.85	64,073	41.18	43,121	67.30
Royalties and sourcing commissions Other income Sponsorship and media costs Personnel costs Selling, general and administrative costs, royalties expenses Amortisation & Depreciation EBIT	55,551 6,616 (42,186) (32,161) (52,493) (11,964) 30,557	22.21 2.64 (16.86) (12.86) (20.98) (4.78) 12.22	54,832 3,053 (25,650) (23,074) (40,205) (6,448) 26,581	35.24 1.96 (16.48) (14.83) (25.84) (4.14) 17.08	719 3,563 (16,537) (9,087) (12,288) (5,516) 3,975	1.31 116.72 (64.47) (39.38) (30.56) (85.56) 14.96
Net financial income (charges) Share of profit/(loss) of investments valued at equity	(1,160) (25)	(0.46) (0.01)	(1,157) (23)	(0.74) (0.02)	(3) (2)	(0.22) (6.93)
PROFIT BEFORE TAXES	29,372	11.74	25,401	16.32	3,971	15.63
Income taxes	(8,319)	(3.33)	(4,387)	(2.82)	(3,932)	(89.63)
NET PROFIT FOR THE YEAR	21,053	8.42	21,014	13.51	39	0.19
Earnings per share basic - diluted -	0.3919 0.3919		0.3860 0.3860		0.006 0.006	1.53 1.53

BASICNET GROUP CONSOLIDATED BALANCE SHEET

(Euro thousands)

ASSETS	December 31, 2019	December 31, 2018
Intangible assets	53,184	53,225
Rights-of-use	18,066	-
Goodwill	12,206	9,232
Property, plant and equipment	31,761	29,397
Equity invest. & other financial assets	1,051	1,048
Interests in joint ventures	217	243
Deferred tax assets	329	-
Total non-current assets	116,814	93,145
Net inventories	66,758	44,379
Trade receivables	68,560	69,880
Other current assets	10,887	8,820
Prepayments	14,517	9,368
Cash and cash equivalents	15,235	9,616
Derivative financial instruments	465	305
Total current assets	176,422	142,368
TOTAL ASSETS	293,235	235,513

LIABILITIES	December 31, 2019	December 31, 2018
Share capital	31,717	31,717
Reserve for treasury shares in portfolio	(22,225)	(17,827)
Other reserves	91,196	78,033
Net Profit	21,053	21,014
TOTAL SHAREHOLDERS' EQUITY	121,741	112,937
Provisions for risks and charges	227	50
Loans	19,939	22,217
Payables for rights-of-use	19,287	-
Other financial payables	2,839	-
Employee and Director benefits	3,408	4,040
Deferred tax liabilities	-	1,949
Other non-current liabilities	1,937	1,136
Total non-current liabilities	47,637	29,392
Bank payables	51,444	39,080
Trade payables	46,492	38,280
Tax payables	7,585	2,133
Other current liabilities	11,227	9,624
Accrued expenses	6,761	3,631
Derivative financial instruments	348	436
Total current liabilities	123,857	93,184
TOTAL LIABILITIES	171,495	122,576
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	293,235	235,513

CONSOLIDATED CASH FLOW STATEMENT

(Euro thousands)

		December 31, 2019	December 31, 2018
	A) OPENING SHORT-TERM BANK DEBT	(23,419)	(25,946)
	B) CASH FLOW FROM OPERATING ACTIVITIES
	Net profit for the year	21,053	21,014
	Amortisation & Depreciation	11,964	6,448
	Result of companies valued under the equity method Changes in working capital:	(25)	23
	. (Increase) decrease in trade receivables	13,874	(11,302)
	. (Increase) decrease in inventories	(7,626)	2,138
	. (Increase) decrease in other receivables	1,314	(3,677)
	. Increase (decrease) in trade payables	(7,204)	4,412
	. Increase (decrease) in other payables	(59)	2,300
	Net change Employee and Director benefits	137	505
	Others, net	384	49
		32,812	21,910
	C) CASH FLOW FROM INVESTING ACTIVITIES
	Investments in fixed assets:
	- tangible assets	(5,478)	(2,801)
	- intangible assets	(3,171)	(2,613)
	- financial assets	4	(386)
	- change in consolidation scope	(4,586)	-
	Realisable value for fixed asset disposals:
	- tangible assets	31	255
	- intangible assets - financial assets	11 -	39 -
		(13,189)	(5,506)
	D) CASH FLOW FROM FINANCING ACTIVITIES
	Finance lease contracts (repayments)	(172)	(168)
	New medium/long term loans	4,200	-
	Loan repayments	(8,967)	(7,104)
	Repayment of loans for rights-of-use	(5,162)	-
	Repayment of Kappa Europe Group bond loan	(2,276)	-
	Acquisition of treasury shares	(4,398)	(3,332)
	Dividend payments	(6,468)	(3,273)
		(23,244)	(13,877)
E)	CASH FLOW IN THE YEAR	(3,621)	2,527
F)	CLOSING SHORT-TERM BANK DEBT	(27,040)	(23,419)

BASICNET GROUP SUMMARY NET FINANCIAL POSITION

(Euro thousands)	December 31, 2019 December 31, 2018	Changes
Net financial position – Short-term	(36,209)	(29,464)	(6,745)
Financial payables – Medium-term	(19,289)	(21,394)	2,105
Finance leases	(651)	(823)	172
Net financial position with banks	(56,148)	(51,681)	(4,468)
Other financial liabilities	(2,839)	-	(2,839)
Payables for rights-of-use	(19,287)	-	(19,287)
Total net financial position	(78,274)	(51,681)	(26,594)
Net Debt/Equity ratio (Net financial position/Shareholders' equity)	0.64	0.46	0.18

BASICNET S.P.A. FINANCIAL STATEMENTS

BASICNET S.p.A. – INCOME STATEMENT

(in Euro)

	FY 2019	FY 2018	Changes
Direct sales Cost of sales	4,202,003 (4,067,201)	4,438,321 (4,287,824)	(236,318) 220,623
GROSS MARGIN	134,802	150,497	(15,695)
Royalties and sourcing commissions Other income Sponsorship and media costs Personnel costs Selling, general and administrative costs, royalties expenses Amortisation & Depreciation	37,973,599 6,886,862 (1,524,331) (10,448,707) (17,029,868) (3,926,467)	33,730,201 6,401,251 (1,381,038) (9,788,158) (15,628,094) (2,380,087)	4,243,398 485,611 (143,293) (660,549) (1,401,773) (1,546,381)
EBIT	12,065,890	11,104,572	961,319
Net financial income (charges) Dividends	286,177 4,800,000	(23,964) 2,150,000	310,140 2,650,000
PROFIT BEFORE TAXES	17,152,067	13,230,608	3,921,460
Income taxes	(2,665,499)	(276,194)	(2,389,305)
NET PROFIT FOR THE YEAR	14,486,568	12,954,414	1,532,155

BASICNET S.p.A. – BALANCE SHEET

(in Euro)

ASSETS	December 31, 2019	December 31, 2018
Intangible assets	12,387,382	12,738,924
Rights-of-use	9,239,766	-
Plant, machinery and other assets	3,130,236	3,015,848
Equity invest. & other financial assets	36,296,599	33,656,409
Total non-current assets	61,053,983	49,411,181
Net inventories	491,611	279,259
Trade receivables	15,982,713	17,348,486
Other current assets	65,875,339	64,145,043
Prepayments	4,802,398	4,850,553
Cash and cash equivalents	1,518,777	1,623,317
Derivative financial instruments	-	-
Total current assets	88,670,838	88,246,658
TOTAL ASSETS	149,724,821	137,657,839

LIABILITIES	December 31, 2019	December 31, 2018
Share capital	31,716,673	31,716,673
Treasury shares	(22,225,090)	(17,827,079)
Other reserves	71,279,414	64,926,726
Net Profit	14,486,568	12,954,414
TOTAL SHAREHOLDERS' EQUITY	95,257,565	91,770,734
Provisions for risks and charges	-	-
Loans	11,538,558	16,041,058
Payables for rights-of-use	9,244,914	-
Employee and Director benefits	1,567,150	2,586,331
Deferred tax liabilities	687,282	598,845
Other non-current liabilities	980,887	862,791
Total non-current liabilities	24,018,791	20,089,025
Bank payables	12,500,983	11,947,348
Trade payables	6,556,268	7,008,962
Tax payables	5,139,994	1,254,770
Other current liabilities	5,969,992	5,209,323
Accrued expenses	281,228	373,796
Derivative financial instruments	-	3,881
Total current liabilities	30,448,465	25,798,080
TOTAL LIABILITIES	54,467,256	45,887,105
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	149,724,821	137,657,839

BASICNET S.p.A. – CASH FLOW STATEMENT

(in Euro)

		December 31, 2019	December 31, 2018
A)	OPENING SHORT-TERM BANK DEBT	(6,386,531)	(3,467,981)
B)	CASH FLOW FROM OPERATING ACTIVITIES
	Net Profit Amortisation & Depreciation Write-down of investments Gains on sale of equity investments Changes in working capital: - (increase) decrease in trade receivables - (increase) decrease in inventories - (increase) decrease in other receivables - increase (decrease) in trade payables - increase (decrease) in other payables Net change in Employee and Director benefits Others, net	14,486,568 3,926,467 - - 1,365,774 (212,352) (2,682,142) 247,306 4,759,858 (19,181) (156,459)	12,954,414 2,380,087 - - (5,292,168) 487,893 751,518 969,888 (1,330,752) 433,710 17,139
C)	CASH FLOW FROM INVESTING ACTIVITIES	21,715,839	11,371,729
	Investments in fixed assets: - tangible assets - intangible assets - financial assets Realizable value for fixed asset disposals: - tangible assets - intangible assets - financial assets	(916,113) (1,800,778) (2,640,190) 55 - - (5,357,026)	(954,215) (1,326,587) (381,543) 149 - - (2,662,196)
D)	CASH FLOW FROM FINANCING ACTIVITIES
	Finance lease contracts (repayments) Repayments of medium/long term loans Undertaking of medium/long term loans Repayment of loans for rights-of-use Acquisition of treasury shares Distribution of dividends	(2,499) (3,937,500) - (1,648,539) (4,398,012) (6,467,938) (16,454,488)	(22,730) (5,000,000) - - (3,332,087) (3,273,266) (11,628,083)
E)	CASH FLOW IN THE YEAR	(95,674)	(2,918,550)
F)	CLOSING SHORT-TERM BANK DEBT	(6,482,206)	(6,386,531)

(Euro thousands)	December 31, 2019 December 31, 2018		Changes
Net financial position – Short-term	(10,982)	(10,324)	(658)
Financial payables – Medium-term	(11,438)	(15,938)	4,500
Finance leases	(101)	(104)	3
Financial position with banks	(22,521)	(26,365)	3,844
Group financial receivables/(payables)	54,554	55,484	(929)
Payables for rights-of-use	(9,245)	-	(9,245)
Financial position with the Group	45,310	55,484	(10,174)
Total net financial position	22,789	29,119	(6,330)

BASICNET S.P.A. SUMMARY NET FINANCIAL POSITION