Intercos S.p.A. Registered Office in Milan – Piazza Diaz 1 Share capital €10,818,377 fully paid-in

Separate Financial Statements at December 31, 2018

REPORT ON OPERATIONS

Intercos S.p.A., a leader in the research, development and manufacture of cosmetics for the major world brands, closed the year 2018 with a profit of €23,196,738.

In 2018, Intercos S.p.A. further established its leadership position in the field of innovation, growing its penetration in the cosmetics market through its subsidiaries thanks to the acquisition of new customers in all distribution segments, as well as its growth in the emerging markets of Korea and China.

1. Economic Scenario

Macroeconomic picture

Over the last few months the world economy has continued to grow but signs of cyclical deterioration have become evident in many advanced and emerging economies, especially in Europe and in Asia. The prospects for world trade continue to worsen following the slowdown in the first part of last year. The uncertainties surrounding the economic picture have had repercussions on international financial markets, with a shrinkage in long-term yields and the fall in stock prices. Global outlooks are burdened by the risks of a negative outcome in the trade talks between the United States and China, by a possible flare-up of financial tensions in emerging markets and the way in which Brexit will unfold. Besides financial and trade tensions, monitoring the risk of an inversion of the trend in consumer confidence is still vital since a deterioration could have negative consequences on public and private-sector debt.

In the eurozone, growth has weakened; in November, industrial production declined significantly in Germany, France and Italy. Inflation, although remaining widely at positive levels, fell due to the slowdown in the prices of energy products. The ECB Governing Council has reiterated its intention to maintain a significant monetary stimulus for an extended period.

In Italy, after growth was interrupted in the third quarter, available economic indicators suggest that expansion could be further reduced in the fourth quarter. Aside from the weakness of the summer months, the reduction in domestic demand also contributed, particularly capital expenditures and, to a lesser degree,

household spending. In 2019, the capital expenditures programs of industrial and service companies would be more subdued owing both to political and economic uncertainty and trade tensions.

The trend of Italian exports is still favorable in the second half of the year; the slowdown in world trade has nevertheless affected future predictions of foreign orders from companies.

Overall inflation fell in December to 1.2 percent, owing especially to the slowdown in the prices of energy products; the dynamic of the fundamental component remained weak (0.5 percent).

The core projection of GDP growth is 0.6 percent this year, 0.4 percent less than what was previously forecast. Instead, the effects on growth are moderately positive: the impact of the reduction in long-term interest rates is favorable. The core projections for growth in 2020 and 2021 are 0.9 percent and 1.0 percent, respectively. The dispersion of the probability distribution surrounding these projections is particularly ample.

Inflation could increase gradually, from 1.0 percent this year to 1.5 percent on average in the next two years, in the wake of the increase in private remuneration and the gradual alignment of inflation expectations.

Besides the global factors of uncertainty already mentioned, the risks of the reduction in growth are linked to the possibility of a new increase in sovereign yields, a faster deterioration of loan conditions in the private sector and a further slowdown in the propensity to invest by companies. A more pronounced reduction in tensions over the yield of government securities could instead foster higher rates of growth.

2. Market Scenario

The global market of the Color Cosmetics sector has a retail value of around USD 71 billion, with a yearover-year increase from +6.7% to +7.0%.

As for the different geographical regions, the Asian market (excluding Japan and Australasia) remains the market with the highest growth rate, reporting an increase of +11.6% (+9.6% in 2017) and is positioned above the global growth rate. China, in particular, grew +15.7% in a market worth USD 5.9 billion.

The emerging markets (excluding China) show a reduction compared to the prior year but the trend is positive at +8.7% (+10.2% in 2017), including Brazil which reports an increase of +8.1% (+9.4% in 2017).

Although lower than global expansion, Western Europe and North America advanced by +4.7% and +6.4%, maintaining growth rates in line with 2017.

The continuous demand for innovation and the ability to anticipate market trends, in addition to the elevated degree of complexity of the processes contribute to the outsourcing of production and higher growth of the B2B segment as compared with the reference market.

Technological innovation

The company adopts an R&D investment policy geared to identifying and developing innovative products and efficient and competitive manufacturing processes. The search for innovation in terms of both processes and final products starts with a knowledge of the make-up market and the related distribution channels; this know-how gives the company an advantage in adapting to the changing demands of consumers, actively anticipating them and influencing them.

4. Significant Events in 2018

Significant events during the course of the year ended December 31, 2018

On July 6, 2018, to complete the acquisition of Cosmint Group (now Cosmint S.p.A.), the board of directors of Intercos S.p.A. approved the payment of the deferred price to Futura Società Semplice at the end of October.
In July 2018, the shareholders' meetings approved the process for the merger of the companies Cosmint Group S.p.A. and Sodisco S.r.l. with and into the company Cosmint S.p.A. The purpose of the merger, now concluded, was to bring Sodisco's real estate assets into Cosmint S.p.A. in order to acquire ownership of the properties used in its production and commercial activities. In addition, through the merger of Cosmint Group with and into Cosmint S.p.A., the following was achieved: (i) a simplification and rationalization of the company's organization, resulting in a shortening of the chain of control reporting to the company aimed at facilitating decisional and operational processes within the Intercos Group, (ii) a better utilization of the potential synergies, particularly production and commercial synergies; as well as (iii) a reduction in total operating and administrative costs, all with a view towards an overall improvement in terms of operating efficiency. The Cosmint merger became effective under the Italian Civil Code on November 1, 2018. The accounting effects on the consolidated and separate financial statements are effective retroactively from January 1, 2018.
On July 31, 2018, the board of directors of Intercos S.p.A. approved a long-term share incentive plan, named Management Long-Term Incentive Plan, intended for certain Intercos Group key managers. In line with what is established by this Plan, on October 11, 2018, the Intercos S.p.A. extraordinary shareholders' meeting approved an increase in the multiplier coefficient of the supermajority voting rights in shareholders' meetings to which the companies Dafe 3000 S.r.l., Dafe 4000 S.p.A. and Dafe 5000 S.r.l. are entitled as holders of Class A shares such as to ensure that these same Dafe companies continue to have control of the group holding company, Intercos S.p.A., also after the issue of shares pursuant to the share incentive plan.

5. Profit and Financial Performance in 2018

Following its restructuring in 2011, Intercos S.p.A. is now identified as the corporate holding company of the Group. The company has exclusive ownership of almost all buildings, trademarks and brands and industrial patents, equity investments in Italian and foreign companies, R&D and strategic marketing activities, in addition to the management of all corporate finance and administrative functions of the Group.

In consideration of the above, an operating income statement by activity was drawn up for the year ended December 31, 2018 and is presented as follows:

(in € thousands)	Royalties	Service fees	Rent income/ Other revenues	Finance/taxes and corporate costs	Total 2018	Total 2017
Revenues	19,800	23,632	38		43,470	44,548
Rent income and other revenues		6	2,213	796	3,015	3,349
Financial income				3,748	3,748	2,440
Dividend income				18,494	18,494	15,299
Gain on the sale of fixed assets		15			15	64
Gain on the sale of investments				-	0	-
Total revenues (A)	19,800	23,652	2,251	23,039	68,742	65,700
Purchases of raw materials, consumables and merchandise for sale	(429)	(878)	0	0	(1,307)	(1,057)
Purchases of services and leases and rents	(3,689)	(5,536)	(468)	(4,585)	(14,278)	(13,837)
Employee benefit expenses	(6,000)	(12,968)	0	(2,108)	(21,076)	(18,320)
Other expenses and accruals	0	(1,018)	0		(1,018)	(928)
Capitalized internal construction costs	5,459				5,459	4,991
Financial expenses	(554)	0	0	(6,621)	(7,174)	(8,628)
Total operating expenses ( B )	(5,213)	(20,401)	(468)	(13,313)	(39,394)	(37,779)
Operating profit (A-B)	14,587	3,252	1,783	9,725	29,348	27,920
Operating margin	74%	14%	79%	42%	43%	42%
Nonrecurring income and expenses Depreciation, amortization, impairment	(53)			(719)	(773)	(1,185)
reversals (losses)	(5,102)	(1,217)	(2,522)	0	(8,841)	(8,499)
Income taxes				3,463	3,463	(1,627)
Profit for the year	9,432	2,034	(738)	12,469	23,197	16,609

The company, in its role of direction and coordination as the Group holding company, has recharged its corporate costs to the subsidiaries for a total of €23,652 thousand. Such fees are determined on the basis of service agreements. In 2017, revenues from service fees amounted to €24,136 thousand.

Royalty income, totaling €19,800 thousand includes income determined on the basis of license agreements specifically designed to regulate the method of reallocating license costs for the use of the formulae archives by the subsidiaries. Royalties in 2017 totaled €20,413 thousand.

Royalties are calculated on the net sales of the beneficiary company and also take into account the type of products sold; the following expenses are excluded from the calculation of the net sales on which royalties are calculated:

shipping and indirect taxes recharged to the client in the price of the product;
products sold based on formulae developed by the customer;
packaging, excluding the "delivery system" segment.

Other revenues amount to €2,251 thousand and primarily include €1,566 thousand for rent charged to Group companies, €685 thousand for services rendered to third-party customers and the difference for sundry income from cost recoveries.

Financial income is €3,748 thousand and comprises €2,783 thousand of interest income from Group companies. The company, in fact, in its role as coordinator of the financial resources of the Group extends, according to need, interest-bearing loans to subsidiaries in order to optimize their resources.

Dividend income received in 2018 as the investment holding company of the Group amounts to €18,494 thousand, as detailed below:

	2018	2017
CRB S.A.	5,963	4,571
Intercos Paris	650	500
Intercos Europe S.p.A.	11,000	10,000
Intercos Asia Pacific	881	0
Ager S.r.l.	0	228
Total	18,494	15,299

The policies adopted by management, focusing on the optimization of its financial resources, have produced a positive change in the net financial position. At December 31, 2018, in fact, net debt, without considering the transaction for the acquisition of the investment by the subsidiary Cosmint S.p.A., is €90,075 thousand, while at December 31, 2017 net debt was €96,742 thousand, with a reduction of €6,666 thousand, or -7%, from year-end 2017.

Additional information is provided in the Notes.

6. Capital Expenditures in Property, Plant and Equipment and Intangible Assets

Capital expenditures in property, plant and equipment in 2018 total €1,284 thousand and refer mainly to plant, equipment and molds used in the laboratories and in manufacturing.

Capital expenditures in intangible assets in 2018 largely refer to R&D and software development and total €7,903 thousand.

Additional information is provided in the Notes.

7. Research & Development

The innovation that Intercos has pursued over the course of the years is certainly the critical factor of success that has always allowed the company to grow and affirm itself at an international level as a recognized example of "Made in Italy", especially in the Make-up sector.

In 2018, the company's R&D program has focused on the following areas:

studies seeking new manufacturing technologies for the development of new products;
studies aimed at research into new raw materials and new formulae for the development of new products.

The following table illustrates, by year, completed development projects at the end of 2018 included in capitalized development costs:

Project	Remaining years of amortization	Year commenced	Historical cost	Amortization to date	Net amount at 12/31/2018
Development projects
New manufacturing technologies	1	2014	1,721	(1,492)	229
New raw materials and New formulae	1	2014	4,418	(4,124)	295
Subtotal			6,139	(5,615)	524
New manufacturing technologies	2	2015	0	0	0
New raw materials and New formulae	2	2015	2,268	(1,433)	852
Subtotal			2,268	(1,433)	852
New manufacturing technologies	3	2016	4,209	(2,141)	2,069
New raw materials and New formulae	3	2016	4,089	(1,927)	2,162
Subtotal			8,299	(4,068)	4,230
New manufacturing technologies	4	2017	348	(99)	249
New raw materials and New formulae	4	2017	770	(231)	539
Subtotal			1,118	(330)	789
New manufacturing technologies	5	2018	0	0	0
New raw materials and New formulae	5	2018	4,950	(248)	4,703
Subtotal			4,950	(248)	4,703
Total			22,774	(11,694)	11,080

The following table presents the projects in progress at the end of the year which will be completed over the next few years:

Project	Amount at 12/31/2018
Assets under development
New manufacturing technologies	1,359
New raw materials and New formulae	6,062
Total	7,421

With regard to capitalized research and development projects, management carefully evaluates the expected economic benefits and, over the useful life, tests for any impairment in value.

8. Corporate Governance Report pursuant to ex art. 123 bis of Legislative Decree 58 of February 24, 1998 and subsequent Modifications and Additions (Consolidated Law on Finance - TUF)

The bodies that form the Corporate Governance system of the Intercos Group are the board of directors, the board of statutory auditors and the shareholders' meetings. In addition, the supervisory board supervises and monitors the Intercos Group's governance system.

The board of directors is the body invested with ample powers for the management of the company and its function is to define the strategic objectives and guidelines of the Group and carry out all those acts deemed appropriate for the implementation and achievement of the purposes of the company, excluding only those powers reserved by law for the shareholders' meeting. At the end of the year, the board of directors is composed of 11 directors, of whom 8 are men and 3 are women. The directors remain in office for three years and may be re-elected. Additional details are provided in the following table.

Name	Office	Role
		Executive	Non-executive	Gender
Dario Gianandrea Ferrari	Chairman			M
Ludovica Arabella Ferrari	Director			F
Gianandrea Ferrari	Director			M
Thukral Nikhil Kumar	Director			M
James Michael Chu	Director			M
Renato Semerari	Director			M
Ciro Piero Cornelli	Director			M
Decio Masu	Director			M
Ginevra Ott	Director			F
Maggie Fanari	Director			F
Junbae Kim	Director			M

The board of statutory auditors, according to the relative article of the bylaws, is composed of three standing auditors and two alternate auditors elected by the shareholders' meeting to monitor compliance with the law and bylaws with the support of an independent audit firm. The statutory auditors remain in office for a period of three years and may be re-elected. Additional details are provided in the following table.

Name	Office	Gender
Nicola Pietro Lorenzo Broggi	Chairman	M
Maria Maddalena Gnudi	Standing auditor	F
Matteo Tamburini	Standing auditor	M
Francesco Molinari	Alternate auditor	M
Simone Alessandro Marchiò	Alternate auditor	M

The shareholders' meeting represents the universality of the shareholders and their resolutions are passed in compliance with the law and corporate bylaws. The ordinary shareholders' meeting must be called by the board of directors at least once a year within 120 days of the end of the financial year or 180 days in the situations allowed by law.

The supervisory board supervises the observance, effectiveness, implementation and updating, where necessary, of the Organization, Management and Control Model pursuant to Legislative Decree 231/2001, for the purpose of preventing the commission of offenses as per the Decree. In order to fulfill its responsibilities, the supervisory board is invested with all initiative and control powers over every corporate activity and personnel level and reports exclusively to the board of directors through its chairman. The composition of the supervisory board is reported in the following table.

Name	Office	Gender
Giuseppe Schiuma	Chairman	M
Francesco Cimatti	Member	M
Maria D'Agata	Member	F

THE CODE OF ETHICS AND THE CODE OF CONDUCT

The core values of the Intercos Group are found in the Code of Ethics and are embodied by innovation and imagination, ambition, passion, flexibility and speed, beauty and the client at the center. With the adoption of the Code of Ethics, the Group commits, in fact, to anticipate the future beauty trends through continuous research and encouragement of creativity, initiative and originality, to exceed customers' expectations and, lastly, to act in a manner that is responsible, proactive and always guided by enthusiasm, all the while keeping the client and his needs as the priority.

The Code of Ethics also expresses the three fundamental ethical values of the Intercos Group, that is, respect, integrity and transparency, which are the bases for relationships with all stakeholders: customers, personnel, investors, suppliers, community, government, unions and, lastly, the environment.

Finally, the company uses the Code of Ethics to explain the values and the specific responsibilities that guide it in relationships with every stakeholder, thus guaranteeing a vision and a common approach and high standards of responsible conduct by the Group.

The Code of Conduct clearly expresses the Vision and the Mission of the Intercos Group: "To be a world leader in the color cosmetics market and offer customers highly innovative products which no one else is able to conceive or execute" and "To assist and satisfy the desire of beauty innate in each and every human being". The Code of Conduct constitutes an integral part of the Organization, Management and Control Model (pursuant to Legislative Decree 231/2001) adopted by the parent, has the purpose of guiding Intercos' personnel (employees and collaborators) in relationships with stakeholders, in the exercise of corporate values and principles and in the pursuit of the commitments contained in the Code of Ethics. The Code of Conduct outlines in a detailed manner, in fact, the values and responsibilities that guide the Group in dealings with customers, with its own people, with suppliers, towards the environment and, in general, with those that share a legitimate interest in Intercos (competitors, shareholders, finance, administration and control, government, unions and community) during all stages of its work. For example, with regard to corporate liability towards personnel, the Code of Conduct describes the criteria of conduct to be adopted during the selection processes, formation of the work relationship, personnel management and issues of health and safety. Knowledge and observance of the Code of Conduct by all employees of the Group are decisive factors in guaranteeing innovation, competitiveness, ability to anticipate market changes, quality and creation of value.

On July 28, 2017, the Intercos S.p.A. shareholders' meeting passed a resolution to increase share capital from €10,710,193 to €10,818,377 by issuing 922,423 Class C shares, with the consequent division of share capital into 92,242,293 shares.

Following the adoption of the new bylaws by resolution of the extraordinary shareholders' meeting on October 16, 2017, it was decided to convert 10,852,035 Class A shares (8,139,026 previously owned by DAFE 4000 and 2,713,009 by DAFE 5000) and the 8,139,026 Class B shares (previously owned by CP7 Beauty Luxco S.à r.l.) into 18,991,061 Class D shares owned by the new shareholder The Innovation Trust.

Share capital at December 31, 2018 is €10,818,377 and represented by 92,242,293 no-par value ordinary shares divided as follows:

40,976,231 Class A shares
31,128,518 Class B shares
1,146,483 Class C shares
18,991,061 Class D shares

Class A, Class B, Class C and Class D shares all have the same rights and can be transferred by acts between living persons and by succession due to death, with effect on Intercos S.p.A. pursuant to law, without prejudice to art. 5 of the bylaws.

	December 31, 2018	December 31, 2017	December 31, 2016 December 31, 2015
Class A shares - number	40,976,231	40,976,231	51,624,356	51,624,356
Class B shares - number	31,128,518	31,128,518	39,267,544	39,267,544
Class C shares - number	1,146,483	1,146,483	427,970	427,970
Class D shares - number	18,991,061	18,991,061	-	-

Total share capital in euros	10,818,377	10,818,377	10,710,193	10,710,193

The following table presents the situation at December 31, 2018 by class of shares:

The following table presents the situation at December 31, 2018 by shareholder:

SHAREHOLDER	NUMBER OF SHARES	%
DAFE 4000 S.P.A.	29,452,874 Class A	31.930%
DAFE 5000 S.R.L.	11,319,447 Class A	12.271%
DAFE 3000 S.R.L.	203,910 Class A	0.221%
CP7 BEAUTY LUXCO S.À R.L.	31,128,518 Class B	33.746%
MANAGERS	1,146,483 Class C	1.243%
THE INNOVATION TRUST	18,991,061 Class D	20.588%
Total	92,242,293	100.00%

Pursuant to the provisions of art. 2428 of the Italian Civil Code, it should be noted that the subsidiaries neither hold nor have purchased or sold shares of the parent during the course of the year under examination, not even through fiduciaries or trustees.

9. Related Party Transactions

Related party transactions do not qualify as either atypical or unusual but fall under the ordinary course of the business operations of the Group companies. Such transactions, when not concluded at standard conditions or dictated by specific laws, are nevertheless carried out on an arm's length basis.

The details of the effects of related party transactions on the income statement for 2018 and the statement of financial position at December 31, 2018 are described in the Notes.

10. Risk Management and Uncertainties

Intercos S.p.A.'s business is exposed to various types of risk: market risk (including exchange rate and interest rate risks), credit risk and financial risk. Detailed comments on each of these are provided under Risk Management in the Notes.

Financial risk management is an integral part of the management of the activities of Intercos S.p.A.

Intercos S.p.A., in fact, is exposed to various types of risks: market risk (including exchange rate risk and interest rate risk), credit risk and liquidity risk. The company's risk management strategy is focused on the

unpredictability of the markets and aimed at minimizing potential negative impacts on earnings. Certain types of risk are mitigated using derivative financial instruments.

The coordination and monitoring of major financial risks are centralized with management. The risk management policies are approved, in concert with the board, by the Administration, Finance and Control Function, which sets down written policies for the management of the above risks and the use of suitable financial instruments.

Types of risks hedged

In the sensitivity analyses performed and described below, the effect on profit and equity is determined without considering the tax effect.

Exchange rate risk

Intercos S.p.A. operates globally and is exposed to foreign exchange risk arising from fluctuations in the equivalent amount of commercial and financial flows denominated in currencies other than the functional currency.

Intercos S.p.A.'s exposure is mainly concentrated on the EUR/USD exchange rate with reference to financial transactions entered into by the company in the North American market and vice versa.

The risk is monitored by net currency positions or by using derivative contracts.

The following sensitivity analysis was performed to illustrate the effects on profit and consequently on equity produced by an increase/decrease of 7.5% in exchange rates compared to the effective exchange rates at December 31, 2018.

(in € thousands)	2018
	-7.50%	+7.50%
U.S. dollar	2,199	(1,892)
Other currencies	(2)	1
Total	2,197	(1,891)

Interest rate risk

The company is exposed to interest rate risk mainly from long-term borrowings. Such borrowings are at either fixed or variable interest rates. Intercos S.p.A. has no particular hedging policy regarding the risks arising from fixed-rate contracts, maintaining that the risk is moderate in relation to the limited amount of fixed-rate loans.

Variable-rate borrowings expose the Intercos S.p.A. to risk originating from the volatility of interest rates (cash flow risk). With regard to this risk, for purposes of hedging, the company may use derivative contracts which limit the impact of interest rate fluctuations on the income statement.

The Administration Function monitors interest rate risk exposure and proposes the most appropriate hedging strategies to keep exposure within the limits established by the Administration, Finance and Control Function, using derivative contracts, where necessary.

The following sensitivity analysis was performed to illustrate the effects on profit produced by an increase/decrease of 50 basis points in interest rates compared to the effective interest rates at December 31, 2018, with all other variables remaining constant.

The potential effects reported above were calculated by taking the liabilities which represent the most significant part of the company's borrowings at the reference date and calculating, on that amount, the potential impact of a change in the interest rates on an annual basis.

This analysis includes variable-rate financial payables and receivables, cash and cash equivalents and derivative financial instruments whose value is affected by changes in interest rates.

(in € thousands)		2018
	-0.50%	+0.50%
Euro	305	(305)
U.S. dollar	52	(52)
Total	357	(357)

Credit risk

As the holding company of the Intercos Group, the financial statements at December 31, 2018 of Intercos S.p.A. include receivables from Group companies for the corporate services rendered to the subsidiaries. Therefore, credit risk is not a significant risk and is managed together with liquidity risk since the Administration Function has procedures in place aimed at ensuring the timely payment of receivables among Group companies in order to improve the Group's management of liquidity.

Liquidity risk

Prudent management of liquidity risk in the ordinary operations of the company implies maintaining an adequate level of cash as well as sufficient funds through committed credit lines.

The Finance Function monitors forecasts on the use of liquidity reserves on the basis of estimated cash flows.

The amount of liquid assets available at December 31, 2018 compared to the end of the prior year is as follows:

(in € thousands)	2018	2017
Cash	17,463	20,783
Unused committed credit lines	-	30,000
Total	17,463	50,783

The following tables present an analysis of the maturities of borrowings, other liabilities and derivatives, on

a net basis.

				TOTAL
(in € thousands)	Within 1 year	1 to 5 years	Beyond 5 years	At December 31, 2018
Banca IMI S.p.A and Unicredit loan	30,904	50,112	-	81,015
Bonds	-	120,000	-	120,000
Finance leases payable	26	-	-	26
Fair value derivatives	33	-	-	33
Medium/long-term debt	30,962	170,112	-	201,074
Bank overdrafts and advances account	-	-	-	-
Payables to Group companies	1,350	-	-	1,350
Trade payables	6,659	-	-	6,659
Short-term debt	8,009	-	-	8,009
Total	38,971	170,112	-	209,083

In order to complete the disclosure on financial risks, a reconciliation is presented below between the categories of financial assets and liabilities as identified in the statement of financial position format of Intercos S.p.A. and the categories of assets and liabilities identified in accordance with the requirements of IFRS 7:

in € thousands)

12/31/2018	Financial assets at fair value through profit and loss	Receivables and loans	Available-for sale financial assets	Held-to maturity assets	Financial liabilities at fair value through profit and loss	Other liabilities at amortized cost	Hedging derivatives
Available-for-sale financial assets	-	-	-	-	-	-	-

Derivatives (assets)	-	-	-	-	-	-	-
Loans receivables	-	47,691	-	-	-	-	-
Trade receivables	-	39,198	-	-	-	-	-
Other assets	-	2,804	-	-	-	-	-
Loans payable	-	-	-	-	-	1,350	-
Borrowings from banks and other
lenders	-	-	-	-	-	201,041	-
Trade payables		-	-	-	-	6,659 -	---
Other payables	-	-	-	-	-	6,940	-
Derivatives (liabilities)	-	-	-	-	33		-
Total		89,693	-	-	33	215,990	-

Cash and cash equivalents	-	17,463	-	-	-	-	-

With the reference to the assets and liabilities in the above table, the fair value is considered to approximate the carrying amount in the financial statements.

11. Environment and Employees

In order to best meet the challenges of the next few years, the company is investing in the completion and strengthening of its functional structures.

The headcount increased by 9 people, from 229 at year-end 2017 to 238 at year-end 2018.

Matters associated with safety at work and protection and safeguarding of the environment are always of major concern to the Intercos Group. The activities conducted by the company in these areas ensured that, during the year, there were no cases of accidents in the workplace causing serious injury to the workforce, or charges that the company was harming the environment.

12. Subsequent Events, Performance in first few Months of 2018, Future Outlook

There were no events subsequent to the date of the financial statements which, if previously known, would have required an adjustment to the financial statements.

As for developments in the early months of 2019, the following important events are described:

On January 9, 2019, the company Intercos Do Brasil Industria e Comercio de Productos Cosmeticos LTDA increased its share capital by a total of R\$4,500 thousand, corresponding to €1,063 thousand. The increase was fully subscribed to and paid in by the company as the majority shareholder, with the other shareholder, Intercos America Inc., waiving its right to subscribe to the share of the capital increase in proportion to its investment in Intercos Do Brasil Industria e Comercio de Productos Cosmeticos LTDA. Following this capital increase, the Company holds 99.72% of Intercos Do Brasil Industria e Comercio de Productos Cosmeticos LTDA.
In view of the cessation of every activity and the definitive closing of any receivable or payable position whatsoever, on January 31, 2019 the shareholders' meeting of the company Marketing Projects S.r.l. in liquidation, 100%-owned by Intercos S.p.A. and in a wind-up since June 14, 2012, approved the final liquidation financial statements at December 31, 2018 and the liquidation distribution plan. Intercos' investment amounted to €40 thousand.

13. Secondary Offices

In compliance with art. 2428 of the Italian Civil Code, a statement is made to the effect that activities are conducted at the operational site in Agrate Brianza, at Via Marconi 84, and there are no secondary offices.

14. Appropriation of the Profit for the Year

To the shareholders,

We ask you to approve the Directors' Report on Operations for the year 2018 and the financial statements for the year ended December 31, 2018 as submitted to you, appropriating the profit for the year €23,196,738 entirely to retained earnings.

Milan, March 29, 2019

INTERCOS S.p.A. On behalf of the Board of Directors

___________________________

Intercos S.p.A.

Registered Office in Milan - Piazza Diaz 1 Share capital €10,818,377 fully paid-in

SEPARATE FINANCIAL STATEMENTS AT DECEMBER 31, 2018

PREPARED IN CONFORMITY WITH IFRS ADOPTED BY THE EUROPEAN UNION

Corporate Information

BOARD OF DIRECTORS *

Name	Office
Dario Gianandrea Ferrari	Chairman and CEO
Ludovica Arabella Ferrari	CEO
Gianandrea Ferrari	Director
Nikhil Kumar Thukral	Director
James Michael Chu	Director
Renato Semerari **	CEO
Ciro Piero Cornelli	Director
Ginevra Ott	Director
Decio Masu	Director
Maggie Fanari	Director
Jun-bae Kim (Jay Kim)***	Director

BOARD OF STATUTORY AUDITORS

Name	Office
Nicola Pietro Lorenzo Broggi	Chairman
Matteo Tamburini	Standing auditor
Maria Maddalena Gnudi	Standing auditor
Francesco Molinari	Alternate auditor
Simone Alessandro Marchiò	Alternate auditor

INDEPENDENT AUDITORS

EY S.p.A.

* The current board of directors and the board of statutory auditors will remain in office until the date of the shareholders' meeting called to approve the financial statements for the year ended December 31, 2019.

_____________________________________________________________________________________

** Renato Semerari, a director of the company, was appointed chief executive officer on March 27, 2018. His powers were at the same time expanded and are today equivalent to those conferred to the chairman of the board, Dario Gianandrea Ferrari.

*** Junbae Kim was appointed a member of the board of directors by co-option on November 28, 2017 and his appointment was subsequently confirmed by the shareholders' meeting held on April 27, 2018.

	(in euros)	December 31, 2018	December 31, 2017
	ASSETS
	NON-CURRENT ASSETS
5	Property, plant and equipment	21,599,557	23,374,320
6	Intangible assets	23,570,268	21,106,373
7	Goodwill	33,653,547	33,653,547
8	Investments in subsidiaries	179,256,927	178,900,979
9	Deferred tax assets	1,146,864	1,486,632
10	Other non-current assets	2,557,595	3,059,459
	Non-current assets	261,784,758	261,581,310
	CURRENT ASSETS
11	Trade receivables	39,198,244	37,885,700
12	Taxes receivable	3,033,892	2,187,727
13	Other current assets	2,803,917	3,615,587
14	Loans receivable from Group companies – short-term	47,690,615	41,000,393
15	Cash and cash equivalents	17,462,697	20,782,576
	Current assets	110,189,365	105,471,983
	TOTAL ASSETS	371,974,124	367,053,293

Statement of Financial Position at December 31, 2018

	(in euros)	December 31, 2018	December 31, 2017
	EQUITY AND LIABILITIES
	EQUITY
	Share capital	10,818,377	10,818,377
	Legal reserve	2,142,038	2,142,038
	Other reserves	63,165,151	62,329,429
	Retained earnings, including profit for the year	64,103,464	40,463,587
16	TOTAL EQUITY	140,229,031	115,753,432
	LIABILITIES
	NON-CURRENT LIABILITIES
17	Borrowings from banks and other lenders – non-current	174,681,805	177,150,863
18	Provisions	0	161,358
19	Deferred tax liabilities	4,828,891	4,938,021
20	Employee benefit obligations	1,164,449	1,212,778
	Non-current liabilities	180,675,144	183,463,020

21	CURRENT LIABILITIES Borrowings from banks and other lenders – current	36,095,560	8,295,397
22	Loans payable to Group companies – short-term	1,350,000	8,193,744
23	Other financial payables	25,819	25,697,450
24	Trade payables	6,658,806	6,452,839
25	Other payables	6,939,764	19,197,410
	Current liabilities	51,069,948	67,836,841

	TOTAL EQUITY AND LIABILITIES	371,974,123	367,053,293

(in euros)	2018	2017

Revenues 26	43,469,961	44,548,261
Other income 27	21,524,048	18,711,777
Purchases of raw materials, semifinished products and consumables 28	(1,306,786)	(1,057,145)
Costs for services and leases and rents 29	(14,277,233)	(13,837,496)
Employee benefit expenses 30	(21,075,731)	(18,320,009)
Accruals 31	0	(30,000)
Other operating expenses 32	(1,018,333)	(898,206)
Capitalized internal construction costs 33	5,458,898	4,991,186

Operating profit before depreciation,
amortization, impairment reversals (losses) and nonrecurring income (expenses)	32,774,824	34,108,369

Depreciation, amortization and impairment reversals
(losses) 34	(8,841,332)	(8,499,490)
Valuation adjustments to financial assets 35	0	0
Nonrecurring income (expenses) 36	(772,511)	(1,185,188)
Operating profit	23,160,980	24,423,691

Financial income 37	3,748,156	2,439,675
Financial expenses 38	(7,174,244)	(8,627,873)
Income taxes 39	3,461,845	(1,626,540)
Profit for the year from continuing operations	23,196,738	16,608,952
Profit for the year from discontinued operations	0	0

Other comprehensive income Other comprehensive income that will not be	0	0
reclassified subsequently to the income statement	0	0
Profit for the year	23,196,738	16,608,952
Actuarial gains (losses) 40	(484,487)	(75,078)
Total Other comprehensive income	(484,487)	(75,078)
Total comprehensive income for the year	22,712,251	16,533,874

Statement of Comprehensive Income for the year ended December 31, 2018

Statement of Cash Flows for the year ended December 31, 2018

(in € thousands)	2018	2017

Profit from continuing operations	23,197	16,609
Profit for the year	23,197	16,609
Depreciation, amortization and impairment reversals (losses)	8,841	8,499
Change in provisions	(210)	28
Financial income (expenses)	3,426	6,188
Decrease / (Increase) in trade receivables, net	(5,146)	(13,345)
Increase / (Decrease) in trade payables	206	846
Decrease / (Increase) in other assets	807	5,499
Increase / (Decrease) in other payables	(12,367)	5,254
Cash flows provided by operating activities ( a )	18,755	29,579

Acquisition of property, plant and equipment, net	(1,186)	(722)
Acquisition of intangible assets, net	(7,902)	(6,418)
Acquisition of investments, net	(356)	(71,597)

Cash flows (used in) investing activities ( b )	(9,443)	(78,737)

Share capital increase	836	108
(Increase) / Decrease in financial receivables	(2,857)	7,846
Increase / (Decrease) in short-term financial payables	25,331	28,160
Increase / (Decrease) in long-term financial payables	(32,515)	24,102
Interest (paid) / received during the year	(3,426)	(6,188)

Cash flows provided by (used in) financing activities ( c )	(12,631)	54,028

Cash flows during the year ( a )+( b )+ ( c )	(3,320)	4,870

Cash and cash equivalents, at beginning of the year	20,783	15,912
Cash and cash equivalents, at end of the year	17,463	20,783

Net increase in cash and cash equivalents during the year	(3,320)	4,870

Statement of Changes in Equity

(in € thousands)

Description	Share capital	Share premium reserve	Legal reserve	Other reserves	Retained earnings	Profit for the year	TOTAL

Equity at 12/31/2016	10,710	62,396	2,142	(132)	7,586	16,409	99,111
Appropriation 2016 profit					16,409	(16,409)	0
Capital increase	108						108
Other comprehensive income - actuarial loss				(75)			(75)
Profit for the year 2017						16,609	16,609
Equity at 12/31/2017	10,818	62,396	2,142	(207)	23,995	16,609	115,753
Appropriation 2017 profit					16,609	(16,609)	0
Capital increase
Long-term incentive plan reserve				794			794
Other comprehensive income - actuarial gain				484			484
Profit for the year 2018						23,197	23,197
Equity at 12/31/2018	10,818	62,396	2,142	1,072	40,604	23,197	140,229

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Intercos S.p.A. is a corporation organized under the laws of the Republic of Italy. The company was formed on July 5, 2007 and has its registered office in Milan, Piazza Diaz 1.

The shareholders of Intercos S.p.A. at December 31, 2018 are as follows:

SHAREHOLDER	NUMBER OF SHARES	%
DAFE 4000 S.P.A.	29,452,874	31.930%
	Class A
DAFE 5000 S.R.L.	11,319,447	12.271%
	Class A
DAFE 3000 S.R.L	203,910	0.221%
	Class A
CP7 Beauty Luxco S.à r.l.	31,128,518	33.746%
	Class B

	1,146,483
MANAGERS	Class C	1.243%

	18,991,061
THE INNOVATION TRUST	Class D	20.588%

Significant events in 2018

On July 6, 2018, to complete the acquisition of Cosmint Group (now Cosmint S.p.A.), the board of directors of Intercos S.p.A. approved the payment of the deferred price to Futura Società Semplice at the end of October.
In July 2018, the shareholders' meetings approved the process for the merger of the companies Cosmint Group S.p.A. and Sodisco S.r.l. with and into the company Cosmint S.p.A. The purpose of the merger, now concluded, was to bring Sodisco's real estate assets into Cosmint S.p.A. in order to acquire ownership of the properties used in its production and commercial activities. In addition, through the merger of Cosmint Group in Cosmint S.p.A., the following was achieved: (i) a simplification and rationalization of the company's organization, resulting in a shortening of the chain of control reporting to the company aimed at facilitating decisional and operational processes within the Intercos Group, (ii) a better utilization of the potential synergies, particularly production and commercial synergies; as well as (iii) a reduction in total operating and administrative costs, all with a view towards an overall improvement in terms of operating efficiency. The Cosmint merger became effective under the Italian Civil Code on November 1, 2018. The accounting effects on the consolidated and separate financial statements are effective retroactively from January 1, 2018.
On July 31, 2018, the board of directors of Intercos S.p.A. approved a long-term share incentive plan, named Management Long-Term Incentive Plan, intended for certain key managers of the Intercos Group.

In line with the provisions of this Plan, on October 11, 2018, the Intercos S.p.A. extraordinary shareholders' meeting approved an increase in the multiplier coefficient of the supermajority voting rights in shareholders' meetings to which the companies Dafe 3000 S.r.l., Dafe 4000 S.p.A. and Dafe 5000 S.r.l. are entitled as holders of Class A shares such as to ensure that these same Dafe companies continue to have control of the group holding company, Intercos S.p.A., also after the issue of shares pursuant to the share incentive plan.

As at the date of the preparation of the financial statements, the company's operations are carried out through the following companies of the Group:

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The financial statements for the year ended December 31, 2018 of Intercos S.p.A. are expressed in euros. The financial statements consist of the statement of financial position, the statement of comprehensive income, the statement of cash flows and the statement of changes in equity and the notes thereto. All amounts in the notes are expressed in thousands of euros, unless otherwise indicated. The statement of comprehensive income format presents a classification according to costs by nature.

The separate financial statements at December 31, 2018 have been prepared in accordance with International Financial Reporting Standards ("IFRS"), issued by the International Accounting Standards Board ("IASB"), and adopted by the European Commission for the preparation of the consolidated and separate financial statements of companies with equity securities and/or debt listed on one of the regulated markets of the European Union.

By IFRS is meant all International Financial Reporting Standards, all International Accounting Standards ("IAS"), all interpretations of the International Financial Reporting Interpretations Committee ("IFRIC"), formerly the Standing Interpretations Committee ("SIC"), adopted by the European Union and contained in the relative European Union Regulations published up to the date on which the board of directors of Intercos S.p.A. approved the draft financial statements of the company. Any future guidance and updated interpretations will be adopted in subsequent years in the manner established each time by the benchmark accounting standards.

The financial statements were approved for publication by the board of directors on March 29, 2019.

New accounting standards and interpretations adopted by the company

The accounting principles adopted in the preparation of the financial statements of the company at December 31, 2018 are consistent with those applied in the prior year, except for the adoption of recently issued standards and interpretations that became effective from January 1, 2018, as reported below.

Regulations 2016/1905 and 2017/1987, issued by the European Commission, respectively, on September 22, 2016 and October 31, 2017, adopted "IFRS 15 - Revenue from Contracts with Customers" and the document "Clarifications to IFRS 15 - Revenue from Contracts with Customers" that define the criteria for the recognition and measurement of revenues arising from contracts with customers.

IFRS 15 was adopted from January 1, 2018 and the company took advantage of the possibility allowed by the standard of recognizing the cumulative effect in equity at January 1, 2018, considering the situations existing at that date, without restating the prior years presented for comparison purposes. The application of the standard did not have significant accounting effects.

"IFRS 9 - Financial Instruments", adopted by Regulation 2016/2067 issued by the European Commission on November 22, 2016, was adopted beginning from January 1, 2018. As allowed by the transitional provisions of the standard, also due to the complexity of recalculating values at the beginning of the first year presented without the use of elements known afterwards, the effects of the first-time application of IFRS 9 as regards classification and measurement, including impairment, of financial assets, were recognized in equity at January 1, 2018, without restating the prior years presented for comparison purposes. As for hedge accounting, the adoption of the new provisions did not have significant effects.

Specifically, the adoption of IFRS 9 resulted in an increase in equity of €422 thousand and refers to the application of the amortized cost criterion for the measurement of financial payables.

Accounting standards and interpretations issued by the IASB/IFRIC and adopted by the European Commission, but not yet effective

Regulation 2017/1986, issued by the European Commission on October 31, 2017, adopted "IFRS 16 - Leases", which replaces IAS 17 and related interpretations. Specifically, IFRS 16 defines a lease as a contract that conveys to the lessee a right to use the asset for a specified period of time in exchange for consideration. The new standard eliminates the distinction between operating or finance lease for purposes of the preparation of financial statements by lessees; in particular, for all lease contracts with a lease term of more than 12 months the following is required:

in the statement of financial position, the recognition of an asset, representing the right to use the asset (hereafter "right-of-use asset") and a liability (hereafter "lease liability"), representing the obligation to make the payments established by the contract; in accordance with the standard, the right-of-use asset and the lease liability are recognized in separate captions of the balance sheet;
in the income statement, recognition of depreciation on the right-to-use asset and the interest expense on the lease liability, in lieu of the recognition of operating lease payments recorded in operating costs, if not capitalized, according to the provisions of IAS 17 in effect until the end of the year 2018. In the event the depreciation of the right-to-use asset and the interest expense on the lease liability are directly associated with the realization of assets, they are capitalized on such assets and later recognized in the income statement through depreciation;¹
in the statement of cash flows, the recognition of cash payments on the lease liability presented within financing activities and the interest expense presented within operating activities, if charged to the income statement, or in investing activities if they are capitalized if they refer to assets leased and used for the realization of other assets. Consequently, compared to the provisions of IAS 17, as regards

¹ . The income statement will also include: (i) lease payments relating to short-term leases and leases of low-value assets, as allowed by IFRS 16; and (ii) variable lease payments, not included in calculating the lease liability (e.g. payments based on the use of the leased asset).

operating leases, the application of IFRS 16 will have a significant impact on the statement of cash flows.

Instead, the lessor, in its financial statements, continues to classify its leases as operating leases or finance leases. IFRS 16 increases the disclosure of leases in the financial statements both for the lessor and lessee. IFRS 16 is effective for reporting periods beginning on or after January 1, 2019.

During 2018, the analyses have been completed for the identification of areas affected by the new provisions, for the updating of company processes and systems and for the calculation of the estimated relative effects. Upon first-time application, the company intends to take advantage of the following practical exemption set out in the standard:

decision not to assimilate, on transition, leases with a remaining lease term of less than 12 months at January 1, 2019 with short-term leases and leases of low-value assets of less than USD 5 thousand according to the interpretation IFRS 16 Leases - IFRS Effects Analysis International Financial Reporting Standard (January 2016).

Based on available information, the application of IFRS 16 will result in the recognition of a lease liability of €270 thousand. This estimate could change depending on the possible evolution of interpretations according to indications by IFRIC, as well as perfecting the formulation process in anticipation of the first-time application of the standard in 2019.

In order to recognize the effect of the retroactive recalculation resulting from the application of the new standard, prior years presented for comparison purposes will be restated under the full retrospective approach.

Accounting standards, interpretations and amendments issued by the IASB/IFRIC and not yet adopted by the European Commission

Accounting standards, interpretations and amendments, which, at the date of the preparation of these financial statements, are in the process of being adopted by the European Commission are illustrated below.

On May 18, 2017, the IASB issued "IFRS 17 - Insurance Contracts", which defines the accounting for insurance contracts issued and reinsurance contracts held. The provisions of IFRS 17, which supersede those currently set out in "IFRS 4 - Insurance Contracts", are effective for reporting periods beginning on or after January 1, 2021.

On February 7, 2018, the IASB also amended "IAS 19 - Plan Amendment, Curtailment or Settlement" (hereafter amendments to IAS 19), aimed mainly at requiring the use of updated actuarial assumptions to calculate current service cost and net interest for the period following an amendment, curtailment or an existing defined benefit plan. The amendments to IAS 19 are effective for reporting periods beginning on or after January 1, 2019.

On March 29, 2018, the IASB issued the document "Amendments to References to the Conceptual Framework in IFRS Standards", containing amendments, mainly of a technical and editorial nature, to international standards aimed at supporting transition to the revised IFRS Conceptual Framework for Financial Reporting issued by the IASB on the same date. The amendments to the standards are effective for reporting periods beginning on or after January 1, 2020.

On October 22, 2018, the IASB issued amendments to "IFRS 3 - Business Combinations", to provide clarification on the definition of a business. The amendments to IFRS 3 are effective for reporting periods beginning on or after January 1, 2020.

On October 31, 2018, the IASB issued amendments to "IAS 1 and IAS 8 - Definition of Material" (hereafter amendments to IAS 1 and IAS 8) aimed at clarifying and rendering uniform within the IFRS and other publications, the definition of material for the purpose of providing support to companies in the formulation of opinions. In particular, information must be considered material if it can reasonably be assumed that to omit, misstate or obscure it influences the primary users of general-purpose financial statements in making decisions on the basis of those statements. The amendments to IAS 1 and IAS 8 are effective for reporting periods beginning on or after January 1, 2020.

On December 12, 2017, the IASB issued the document "Annual Improvements to IFRS Standards 2015-2017 Cycle", containing amendments, mainly of a technical and editorial nature, of the international standards. effective for reporting periods beginning on or after January 1, 2019.

With EU Regulation 2018/1595 issued on October 23, 2018, the European Commission adopted "IFRIC 23 - Uncertainty over Income Tax Treatments", which contains indications on current and/or deferred accounting for income taxes when there is uncertainty over the application of the tax law. The provisions of IFRIC 23 are effective for reporting periods beginning on or after January 1, 2019. The effects of the new provisions are currently being assessed.

Furthermore, with EU Regulation 2019/237 issued by the European Commission on February 8, 2019, the amendments to "IAS 28 - Long-term Interests in Associates and Joint Ventures" (hereafter amendments to IAS 28) were adopted with the aim of clarifying that an entity applies IFRS 9, including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture. The amendments to IAS 28 are effective for reporting periods beginning on or after January 1, 2019.

The Group is assessing these standards, where applicable, in order to evaluate whether their adoption will or will not have any significant impact on the financial statements.

Summary of significant accounting policies

The financial information, as stated, has been prepared in accordance with IFRS adopted by the European Union. The financial statements have been prepared under the historical cost convention except as specifically described in the following notes, in which case, fair value was used.

The financial statements have been prepared under the going concern concept.

The most significant accounting policies adopted are described below. The accounting policies described have been applied on a basis consistent with all periods presented.

These financial statements will be submitted for the approval of the shareholders' meeting, which is authorized to make changes, if any, to the financial statements, where necessary.

Property, plant and equipment

Property, plant and equipment are stated at purchase or production cost less accumulated depreciation and impairment losses, if any. Purchase cost includes all directly attributable costs necessary to make the asset ready for use and any expenses for decommissioning and restoration that will be incurred as a result of contractual obligations that require the assets to be restored to their original condition.

Any borrowing costs incurred for the acquisition, production or construction of property, plant and equipment are capitalized to the relative asset up to the time such asset is ready for use. Ordinary and/or cyclical maintenance and repairs are charged directly to the income statement in the year in which they are incurred. Costs for the expansion, refurbishment or betterment of structural elements owned or leased are capitalized solely to the extent that they meet the requisites for being classified separately as assets or part of an asset under the component approach. Likewise, the replacement costs of identifiable components of complex assets are charged to assets and depreciated over their estimated useful lives; the remaining carrying amount of the component being replaced is charged to the income statement.

Spare parts of significant amount are capitalized and depreciated over the estimated useful life of the asset to which they refer.

The carrying amount of property, plant and equipment is adjusted by systematic depreciation, calculated on a straight-line basis from the date the asset is available and ready for use, over the estimated useful life of the asset. In particular, depreciation is recognized starting from the month in which the asset is available for use

or is potentially able to provide the economic benefits associated with it and is charged on a monthly basis on a straight-line basis at rates designed to write off the assets up to the end of their useful life or, for disposals, up to the last month of utilization.

The annual depreciation rates representing the estimated useful lives of property, plant and equipment are as follows:

- industrial buildings	5.5%
- generic plant	10% / 5.5%
- processing machinery	12%
- water purification plant	15%
- light constructions	10%
- office furniture and fixtures	12%
- electronic machines	20%
- internal transportation equipment	20%
- motor vehicles and transportation equipment	25%
- cell phones	20%
- sundry equipment, hardware and molds	40%

The useful life of property, plant and equipment and the residual amount is reviewed and updated, where applicable, at the end of every year.

Whenever the depreciable asset is composed of distinctly identifiable elements whose useful life differs significantly from the other parts that compose the asset, depreciation is taken separately for each of the parts that compose the asset in accordance with the component approach.

Leasehold improvements are classified in property, plant and equipment, consistently with the nature of the cost incurred. The depreciation period of the cost relating to the expansion, renovation or improvement of the structural elements in use by third parties corresponds to the lower of the remaining estimated useful life of the property, plant and equipment and the remaining term of the lease contract.

Profits and losses on the sale or disposal of property, plant and equipment are calculated as the difference between the proceeds from the sale and the net carrying amounts of the assets sold or disposed of and are recognized in the income statement in the year to which they refer.

Land is not depreciated and is measured at cost, net of accumulated impairment losses.

Capital gains and capital losses on the sale or disposal of property, plant and equipment are calculated as the difference between the proceeds from the sale and the net carrying amount of the assets sold or disposed of.

Leased assets

Assets owned under finance lease contracts in which substantially all the risks and rewards of ownership are transferred to the company are recognized as property, plant and equipment at fair value or, if lower, at the present value of the minimum lease payments. The corresponding liability payable to the lessor is shown in the financial statements under financial payables. The assets are depreciated according to the policies and rates indicated for property, plant and equipment unless the term of the lease contract is shorter than the useful life represented by these rates and reasonable certainty of transferring ownership of the leased asset at the natural expiration of the contract is not assured. In that case, the depreciation period is represented by the term of the lease contract. The lease payment is divided into its components of financial expense, recognized in the income statement, and the repayment of principal, recorded as a reduction of the financial payables.

Leases in which the lessor retains substantially all the risks and rewards of ownership associated with ownership of the assets are classified as operating leases. Payments made under operating leases are recognized in the income statement on a straight-line basis over the term of the lease contract.

Intangible assets

Intangible assets are identifiable assets without physical substance, controlled by the company and able to produce expected future economic benefits, as well as goodwill, when acquired against payment. Identifiability of an intangible asset is defined as the possibility of distinguishing it from goodwill. This requisite is normally satisfied when: (i) the asset arises from contractual or other legal rights, or (ii) the asset is separable, i.e. is capable of being sold, transferred, rented or exchanged individually or as an integral part of other assets. An entity controls an asset if the entity has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. Such assets are recorded at the cost of purchase and/or production, including incidental expenses directly attributable to the preparation of the asset for its intended use, net of accumulated amortization, and any impairment losses. Any borrowing costs arising during and for the development of intangible assets are expensed in the income statement. Amortization starts when the asset is available for use and is charged on a straight-line basis over the remaining period of possible utilization, intended as the estimated useful life.

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the net fair value at the date of purchase, of assets and liabilities of acquired companies or business segments. Goodwill is not subject to amortization but is tested for impairment at least annually or whenever there is an indication of impairment, to verify the

adequacy of the relative carrying amount in the financial statements. To test for impairment, goodwill must be allocated to cash-generating units or groups of cash-generating units (hereafter also "CGU"). An impairment loss on goodwill is recognized when the recoverable amount of goodwill is below the carrying amount in the financial statements. The recoverable amount is the higher of the fair value of the CGU or groups of CGUs, less costs to sell, and the relative value in use (see the following paragraph on the "Impairment of property, plant and equipment and intangible assets" for additional information on the determination of the value in use). Reversal of a previous impairment loss on goodwill is prohibited.

When the impairment loss is higher than the carrying amount of goodwill allocated to the cash-generating unit, the remaining excess is allocated to the assets of the CGU in proportion to their carrying amount. The carrying amount of an asset should not be reduced below the higher of:

the fair value of the asset less costs to sell;
the value in use, as defined above.

(ii) Trademarks, licenses and similar rights

Licenses are amortized on a straight-line basis so as to allocate the cost incurred for the purchase of the right over the shortest period between the expected utilization period and the term of the relative contracts starting from the time in which the acquired right becomes exercisable. Software licenses are amortized on a straightline basis over their estimated useful lives (5 years).

(iii) R&D costs

Costs associated with research and development are charged to the income statement in the year incurred except for development costs recognized in intangible assets when all the following conditions are met:

a) the project can be clearly identified and the costs associated with it can be identified and measured reliably;
b) the technical feasibility of the project can be demonstrated;
c) the intention to complete the project and sell the intangible assets generated by the project can be demonstrated;
d) a potential market exists or, in the case of internal use, the utility of the intangible asset for the production of intangible assets generated by the project can be demonstrated;
e) the technical and financial resources for the completion of the project are available.

Amortization of any capitalized development costs recorded in intangible assets starts from the date in which

the result generated by the project can be marketed. Amortization is charged on a straight-line basis over a period of five years, which represents the estimated useful life of capitalized expenditures.

Impairment of property, plant and equipment and intangible assets

At each balance sheet date, property, plant and equipment and intangible assets with a finite life are reviewed to identify the existence of any indicators of an impairment in their value. When the presence of these indicators is identified, the recoverable amount of such assets is estimated and any impairment is recognized in the income statement. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use where the value in use is the present value of the estimated future cash flows for such asset. The value in use is determined by discounting the estimated future cash flows from the use of the asset to present value at a pretax rate which reflects current market assessments of the time value of money, in relation to the period of the investment and the risks specific to the asset. For an asset that does not generate independent financial flows, the recoverable amount is determined by reference to the cash-generating unit to which such asset belongs.

An impairment loss is recognized in the income statement when the carrying amount of the asset, or the cash-generating unit to which it is allocated, is higher than the recoverable amount. Where an impairment loss on assets subsequently no longer exists or has decreased, the carrying amount of the asset, except for goodwill, is increased and the reversal is recognized in the income statement. The asset is increased to the net carrying amount that would have been recorded and reduced by the depreciation and amortization that would have been charged had no impairment loss been recognized.

Investments in subsidiaries

Investments in subsidiaries are measured at acquisition cost. Subsidiaries are entities in which the company has the right, directly or indirectly, to exercise control, as defined by IFRS 10 - Consolidated Financial Statements. More specifically, control exists when the controlling entity, at the same time:

has decision-making power to direct the relevant activities of the investee;
is exposed, or has rights, to variable returns (positive and negative) from its involvement with investee;
has the ability to use its power over the investee to affect the amount of the investor's returns.

Evidence of control must be verified on a continuous basis by the company, with the aim of considering all relevant facts and circumstances that may imply a change in one or more elements that determine whether control over an investee exists. When there is objective evidence of an impairment, recoverability of the carrying amount is verified by comparing the carrying amount of the investment against its recoverable amount consisting of the greater of fair value, net of disposal costs, and value in use. The value in use is

calculated, generally, within the limits of the corresponding share of the investee's equity in the consolidated financial statements. The investors' share of any loss of the investee, in excess of the carrying amount of the investment, is recorded in a specific provision to the extent that the investor has incurred legal or constructive obligations on behalf of the investee, or, in any case, is committed to cover the losses. Where an impairment loss of an investment subsequently no longer exists or has decreased, the carrying amount of the investment measured at cost is increased up to the limit of the recorded impairment loss with recognition of the effect in the income statement.

Financial instruments

Financial assets

Financial assets mainly relate to accounts receivable from customers, with fixed or determinable payments, that are non-derivative and are not listed on an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified in non-current assets. Such assets are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method. Where there is objective evidence of an indication of impairment, the asset is reduced so that it equals the present value of estimated future cash flows. The impairment loss is recognized in the income statement. Where an impairment loss on assets subsequently no longer exists or has decreased, the carrying amount of the asset is increased up to the carrying amount that would have been recorded under the amortized cost method had no impairment loss been recognized.

Financial assets are derecognized from the financial statements when the right to receive cash flows from the instrument is extinguished or when the company has substantially transferred all the risks and rewards relating to the receivable and the relative control.

Financial liabilities

Purchases and sales of financial liabilities are recognized on the trade date, that is, the date on which the company commits to purchase or sell the financial instrument.

Financial liabilities are borrowings, trade payables and other obligations payable. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method. When there is a change in estimated cash flows and it is possible to estimate them reliably, the amount of the borrowings is recalculated to reflect this change on the basis of the present value of the new estimated cash flows and the internal rate of return determined initially. Financial liabilities are classified in current liabilities unless the company has an unconditional right to defer settlement of the liabilities for at least 12 months after the balance sheet date.

Financial liabilities are derecognized from the financial statements when they are extinguished or when all the risks and expenses relating to the liability have been transferred to third parties.

Derivative instruments

In accordance with its financial policies, the company may use derivative financial instruments to hedge interest and foreign exchange rate exposure. In particular, derivative financial instruments may be used to hedge the exposure of fluctuations in future cash flows arising as a result of the fulfillment of future contractual obligations defined at the balance sheet date, mainly the payment of interest on variable-rate loans received (hereafter also cash flow hedge) and the risk of exposure to changes in the exchange rates relating to receivables and payables in currencies other than the functional currency (hereafter fair value hedge).

Derivative financial instruments are initially recorded at fair value at the date of inception of the contract. Changes in the fair value of the derivatives, subsequent to first-time recognition, are recognized in the income statement as a financial component. This recognition criteria is applied to all derivatives since the company does not deem it opportune to implement the procedures necessary to determine the existence of the requisites to designate, strictly from an accounting standpoint, the outstanding derivatives as hedging instruments, whether fair value hedges or cash flow hedges, and therefore recognize the changes in fair value subsequent to the first-time recognition of the derivatives according to specific hedge accounting criteria.

Determination of the fair value of derivative financial instruments

The fair value of financial instruments listed on an active market is based on market prices at the balance sheet date. The market prices used for derivatives are bid prices whereas ask prices are used for financial liabilities. The fair value of instruments which are not listed on an active market is calculated using valuation techniques based upon a series of methods and assumptions connected with market conditions at the balance sheet date.

The fair value of interest rate swaps is determined on the basis of the present value of estimated future cash flows.

Cash and cash equivalents

Cash and cash equivalents include bank deposits, postal deposits, cash and valuables in cash. They are stated at nominal value.

Provisions

Provisions include accruals for present legal or constructive obligations as a result of past events for which it

is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. The accrual is measured using the best possible estimate of the amount that the company would be expected to pay to extinguish the obligation. Where the effect of the time value of money is material and the dates of payment can be reliably estimated, the accrual is measured at present value. The rate used to determine the present value of the liability reflects fair value and includes the additional effects relating to the specific risk that can be associated with each liability. The change in the amount of the provision connected with the passage of time is recognized in the income statement in Financial expenses.

Risks associated with liabilities that are only considered possible are disclosed under Guarantees and other commitments.

Employee benefit obligations

Defined benefit pension plans, which also included until December 31, 2006 the employee severance indemnities due to Italian employees as set forth in art. 2120 of the Italian Civil Code, are based on the working life and the compensation received by the employee over a predetermined service period. In particular, the liability relating to employee severance indemnities is recognized in the financial statements based on actuarial calculations since it qualifies as an employee benefit due on the basis of a defined benefit plan. Recognition of a defined benefit plan in the financial statements requires actuarial techniques to estimate the amount of benefits accruing to employees in exchange for work performed during the current and prior years and the discounting of such benefits in order to determine the present value of the company's commitments. The determination of the present value of such commitments is calculated using the Projected Unit Credit Method. This method, which is one of the actuarial techniques used for calculating accrued benefits, considers each active service period by the employee in the company as an additional unit which gives the right to benefits: the actuarial liability must therefore be quantified on the basis of only the service life accrued at the date of measurement; therefore, the total liability is normally recalculated on the basis of the ratio of the number of years of service accrued at the measurement date to the total estimated service life that will be reached at the time of settlement. Furthermore, this method calls for considering future increases in compensation, for whatever reasons (inflation, career, contract renewals, etc.) up until the time of termination of employment.

The cost accrued during the year for defined benefit plans and recognized in the income statement under employee benefit expenses is equal to the sum of the average present value of the defined benefits accrued by active employees for the work performed during the year and the annual interest accrued on the present value of the company's commitments at the beginning of the year, calculated using the discount rate of future cash outflows adopted for the estimate of the liability at the end of the preceding year.

Remeasurements of employee defined benefit plans comprise actuarial gains and losses expressing the effects of differences arising from experience adjustments and changes in actuarial assumptions. Such actuarial gains and losses are recorded in the statement of comprehensive income.

Following the Reform of Supplementary Pension Benefits, as amended by the Budget Law 2007 and subsequent decrees and regulations issued during the early months of 2007, employee severance indemnities that accrue starting from the date of January 1, 2007 are assigned to pension funds or to a treasury fund managed by INPS or, in the case of companies with less than 50 employees, may be retained in the company and calculated similarly to the method used in past years. Employees have the right to choose the destination of their employee severance indemnities up to June 30, 2007.

To this end, account was taken of the effect of the new provisions and only the liability relating to employee severance indemnities that is retained in the company is measured in accordance with IAS 19, since the amount of employee severance indemnities accruing from 2007 is assigned to alternative forms of pension or paid into a treasury fund managed by INPS, according to the choice of destination made by each single employee.

Consequently, the portion of employee severance indemnities accruing and assigned to pension funds or to the INPS-managed fund is classified as a defined contribution plan since the company's obligation is only represented by the payment of contributions to the pension fund or to INPS. The liability for severance indemnities previously accrued continues to be considered as a defined benefit plan and is measured on the basis of actuarial assumptions.

Translation of foreign currency balances and transactions

Transactions in foreign currency are translated to Euro using the exchange rate in effect at the dates of the relative transactions. Foreign exchange gains and losses realized on the receipt or the payment of the above transactions and the translation of monetary asset and liability balances denominated in foreign currencies are recognized in the income statement.

Foreign exchange gains and losses arising from bonds and other monetary assets measured at fair value through profit and loss are recognized as part of the changes in the relative fair value in the income statement.

Revenue recognition

Revenues are recognized net of returns, discounts, allowances, rebates, taxes and directly related promotional contributions.

Performance of services

Revenues from services are recognized only when the results of the transaction can be estimated reliably,

with reference to the stage of completion of the transaction at the closing date of the financial statements. The results of a transaction can be estimated reliably when all the following conditions are met:

the amount of revenues can be determined with reliability;
it is probable that any future economic benefit associated with the item of revenue will flow to the entity;
the stage of completion at the date of the financial statements can be measured reliably;
the costs incurred for the transaction and the costs to be incurred to complete the transaction can be measured reliably.

Royalties

Royalties are recorded on the accrual basis in accordance with the substance of the relevant agreement.

Dividends

Dividends are recorded when the right to receive payment is established, which normally coincides with the shareholders' resolution for the payment of dividends.

Financial expenses

Financial expenses are recorded as expenses in the year incurred. They include interest on bank overdrafts and loans, financial expenses on finance leases, actuarial losses and financial expenses on the actuarial valuation of employee severance indemnities.

Income taxes

Current income taxes are determined on the basis of a realistic estimate of the tax expense to be paid under the existing tax laws.

Deferred income taxes are calculated by applying the full liability method to the temporary differences between the tax bases of the assets and liabilities and their corresponding carrying amounts, except for goodwill. Deferred tax assets, including those relating to the carryforward of unused tax losses, are recognized to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax liabilities are determined based on enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Current and deferred income taxes are recognized in the income statement except to the extent that they relate to items directly charged or credited to equity, in which case the related income tax effect is recognized in equity. Current and deferred income taxes are offset when the income taxes are levied by the same taxing authority and where there is a legally enforceable right of offset and there are expectations of settling the net balance.

Intercos S.p.A. has adhered to the national tax consolidation procedure as the "consolidating" company pursuant to articles 117-129 of T.U.I.R., since 2008, for three-year periods, with Intercos Europe S.p.A. and Marketing Projects S.r.l. as the "consolidated" companies. The option was also renewed for the periods 2011-2013, 2014-2016 and 2017-2019. During the course of these years, other Group companies have also adhered to the procedure, as seen in Intercos S.p.A.'s Unico 2018 tax return in Schedule OP – "Communication of Optional Schemes". Consequently, the companies currently participating in the national tax consolidation procedure are, besides the parent, Intercos Europe S.p.A., Marketing Projects S.r.l. in liquidation, Ager S.r.l., Vitalab S.r.l., Drop Nail S.r.l., Kit Productions S.r.l. and Intercos Concept S.r.l. It should be noted that the merger of Drop Nail S.r.l. with and into Intercos Europe S.p.A. in 2018, with retroactive tax effects from the beginning of the tax period, did not cause an interruption in the Group taxation scheme since, in this case, as established by art. 11, paragraph 1 of the D.M. dated March 1, 2018, "the time constraints in the tax consolidation scheme of the companies participating in the merger are transferred to the company arising from the merger, which must comply by the farthest deadline date". Starting from 2019, instead, the scheme was interrupted with Marketing Projects S.r.l. as a matter of course since it definitely ceased operations and presented its final financial statements as at December 31, 2018.

Each of the companies participating in the tax consolidation scheme transfers its taxable income or tax loss to Intercos S.p.A. which records a receivable (equal to the IRES tax to be paid) from the companies which contribute a taxable income or a payable to the companies which transfer a tax loss.

Intercos S.p.A., as the consolidating company, is responsible not only for any additional taxes assessed and the relative fines and interest referring to its own individual total income, but also for the sums which could become due, with reference to the consolidated tax return, from "formal control" activities pursuant to ex art. 36-ter DPR 600/1973. It is also liable, jointly and severally, for the sums due in relation to fines levied on companies in the consolidated tax return which have committed violations in determining their individual position. Similarly, the consolidated companies are jointly and severally liable with Intercos S.p.A., as the consolidating company, for higher taxes assessed relating to the consolidated tax return referring to adjustments to the income in its tax return, also as a result of "formal control" activities, pursuant to ex art. 36-ter DPR 600/1973. All this is governed by the tax consolidation agreement originally signed on June 5, 2008 and subsequent revisions, of which the last, currently in force, is dated October 1, 2014.

Public grants - Disclosure ex art. 1, paragraphs 125-129, Law 124/2017

Art. 1, paragraphs 125-129 of Law 124/2017 regulate public grants and, specifically, the obligations of both beneficiaries and grantors.

Intercos S.p.A., as a company not directly or indirectly controlled by the government, is not obliged by paragraph 126 to indicate any disbursements granted to Italian and foreign beneficiaries.

Instead, regarding disbursements received from Italian government agencies and entities, given that presentation is not required for the following:

forms of incentives/subsidies received under a general system of assistance to all those entitled (such as, for example, tax relief measures);
consideration referring to the performance of works/services, including sponsorships;
reimbursements or indemnities paid to parties participating in traineeships and orientation programs;
grants received for continual training from interprofessional funds established under the legal form of an association;
membership dues for trade and territorial associations in addition to those for foundations, or equivalent organizations, related to the activities of the company's business,

under the provisions of art. 3-quater of Legislative Decree 135/2018, for disbursements received in 2018 and included in the National Register of Government Assistance referred to in art. 52 of Law 234 of December 24, 2012, reference should be made to the indications contained therein and note should be taken that any other grants, subsidies, consideration and economic advantages of whatsoever type received during the year from government or related entities not included in the above Register (in particular, the Youth Guarantee incentive applied through INPS) total less than €10,000.

3. RISK MANAGEMENT

Financial risk management is an integral part of the activities of Intercos S.p.A.

Intercos S.p.A., in fact, is exposed to various types of risks including exchange rate risk and interest rate risk, credit risk and liquidity risk. Intercos S.p.A.'s risk management strategy is focused on the unpredictability of the markets and aimed at minimizing potential negative impacts on earnings. Certain types of risk are mitigated using derivative financial instruments.

Types of risks hedged

In the sensitivity analyses performed and described below, the effect on profit and equity is determined without considering the tax effect.

Exchange rate risk

Intercos S.p.A. operates globally and thus is exposed to foreign exchange risk arising from fluctuations in the equivalent amount of commercial and financial flows denominated in currencies other than the functional currency.

Intercos S.p.A.'s exposure is mainly concentrated on the EUR/USD exchange rate with reference to financial transactions entered into by the company in the North American market and vice versa.

These are hedged by net currency positions or by using derivative contracts.

The following sensitivity analysis was performed to illustrate the effects on profit and consequently on equity produced by an increase/decrease of 7.5% in the exchange rates compared to the effective exchange rates at December 31, 2018.

(in € thousands)	2018
	-7.50%	+7.50%
U.S. dollar	2,199	(1,892)
Other currencies	(2)	1
Total	2,197	(1,891)

Interest rate risk

The company is exposed to interest rate risk mainly from long-term borrowings. Such borrowings are at either fixed or variable interest rates. Intercos S.p.A. has no particular hedging policy regarding the risks arising from these contracts, maintaining that the risk is moderate in relation to the limited amount of fixedrate loans.

Variable-rate borrowings expose Intercos S.p.A. to risk originating from the volatility of interest rates (cash flow risk). With regard to this risk, for purposes of hedging, the company may use derivative contracts which limit the impact of interest rate fluctuations on the income statement.

The following sensitivity analysis was performed to illustrate the effects on profit produced by an

increase/decrease of 50 basis points in interest rates compared to the effective interest rates at December 31, 2018, with all other variables remaining constant.

The liabilities in this analysis include variable-rate financial payables and receivables, cash and cash equivalents and derivative financial instruments whose value is affected by changes in interest rates.

(in € thousands)	2018
	-0.50%	+0.50%
Euro	305	(305)
U.S. dollar	52	(52)
Total	357	(357)

Credit risk

As the holding company of the Intercos Group, the financial statements at December 31, 2018 of Intercos S.p.A. include receivables from Group companies for the corporate services rendered to subsidiaries. Therefore, credit risk is not a significant risk and is managed together with liquidity risk since the Administration Function has procedures in place aimed at ensuring the timely payment of receivables among Group companies in order to improve the Group's management of liquidity.

Liquidity risk

Prudent management of liquidity risk in the ordinary operations of the company implies maintaining an adequate level of cash as well as sufficient funds through committed credit lines.

The Finance Function monitors forecasts on the use of the liquidity reserves on the basis of estimated cash flows.

The amount of liquidity reserves available at December 31, 2018 compared to the end of the prior year is as follows:

(in € thousands)	2018	2017
Cash and cash equivalents	17,463	20,783
Unused committed credit lines	-	30,000
Total	17,463	50,783

The following table presents an analysis of the maturities of borrowings, other liabilities and derivatives, on a net basis:

(in € thousands) TOTAL

	Within 1 year	From 1 to 5 years	Beyond 5 years	December 31, 2018

Fin Banca IMI S.p.A. and Unicredit	30,904	50,112	-	81,015
Bonds		120,000		120,000
Payables under Law 46/Mediocredito	-	-	-	-
Finance leases payable	26	-	-	26
Fair value of derivatives	33	-	-	33
Medium/long-term debt	30,962	170,112	-	201,074
Bank overdrafts and advance accounts	-	-	-	-
Payables to Group companies	1,350	-	-	1,350
Trade payables	6,659	-	-	6,659
Short-term debt	8,009	-	-	8,009
Total	38,971	170,112	-	209,083

(in € thousands)

12/31/2018	Financial assets at fair value through profit and loss	Receivables and loans	Available-for sale financial assets	Held-to maturity assets	Financial liabilities at fair value through profit and loss	Other liabilities at amortized cost	Hedging derivatives
Available-for-sale
financial assets	-	-	-	-	-	-	-
Derivatives (assets)	-	-	-	-	-	-	-
Loans receivable	-	47,691	-	-	-	-	-
Trade receivables	-	39,198	-	-	-	-	-
Other assets	-	2,804	-	-	-	-	-
Loans payable						1,350
Borrowings from
banks and other
lenders	-	-	-	-	-	201,041	-
Trade payables	-	-	-	-	-	6,659	-
Other payables	-	-	-	-	-	6,940	-
Derivatives (liabilities)	-	-	-	-	33		-
Total		89,693	-	-	33	215,990	-

Cash and cash equivalents	-	17,463	-	-	-	-	-

With reference to the assets and liabilities in the above tables, the fair value is considered to approximate the carrying amounts in the financial statements.

Derivatives

IFRS require the fair value categorization of derivative financial instruments within the fair value hierarchy based on inputs that are observable in the market or other financial parameters (e.g. interest rate, exchange rate curves, etc.). Derivatives in foreign currency to hedge exchange rate risk and interest rate risk fall under Level 2 of the fair value hierarchy since the fair value of these instruments is determined by recalculating the present value at the official year-end rate for exchange rates and interest rates quoted in the market. The following table illustrates the fair value of the financial instruments portfolio:

(in € thousands)	December 31, 2018 Level 2	December 31, 2017 Level 2
Assets
Currency Forwards/ swaps/ options
Fair value hedge	-	-
Liabilities
Currency Forwards/ swaps/ options
Fair value hedge	-	-
IRS – Interest rate swaps
Fair value hedge	126	157

Fair value hierarchy at the reporting date

Fair value hedges are used by the company to hedge exchange rate risk on financial assets and liabilities recorded in the financial statements.

At the end of the year there are no open contracts for derivatives hedging exchange rate risk.

The following table presents the details of the IRS contracts put into place by the company:

Type of derivative contract	Contract start date	Contract due date	Duration in years	Interest rate purchase	Spread	Currency	Notional Amount /000	MTM (in € /000)
Interest Rate Swap (Intesa)	3/3/2017	6/30/2021	3.5	Euribor Fwd 6M	0.2200%	EUR	9,830	71
Interest Rate Swap (Intesa)	3/3/2017	6/30/2021	3.5	Libor Fwd 6M	2.1600%	USD	5,520	(56)
Interest Rate Swap (BNL)	3/3/2017	6/30/2021	3.5	Euribor Fwd 6M	0.2200%	EUR	14,235	104
Interest Rate Swap (BNL)	3/3/2017	6/30/2021	3.5	Libor Fwd 6M	2.1600%	USD	810	(8)
Interest Rate Swap (Unicredit)	3/3/2017	6/30/2021	3.5	Euribor Fwd 6M	0.2200%	EUR	9,830	71
Interest Rate Swap (Unicredit)	3/3/2017	6/30/2021	3.5	Libor Fwd 6M	2.1600%	USD	5,520	(56)
								126

4. USE OF ESTIMATES AND ASSUMPTIONS

The preparation of the financial statements requires management to apply accounting principles and methods which at times are based upon complex subjective judgments and estimates connected with past experience as well as reasonable and realistic assumptions according to the relevant circumstances. The use of these

estimates and assumptions can affect the amounts reported in the financial statements, such as the statement of financial position, the statement of comprehensive income and the statement of cash flows, in addition to the disclosure provided. Those accounting policies which particularly require critical judgments by management in making estimates and for which a change in the conditions underlying the assumptions used could have a significant impact on the financial statements are briefly described below.

Goodwill

In accordance with the accounting policies adopted for the preparation of the financial statements, goodwill is tested annually for any impairment that requires recognition in the income statement. The test specifically requires the allocation of goodwill to cash-generating units and the subsequent determination of the recoverable amount, being the higher of the fair value and the value in use. When the value in use is lower than the carrying amount of the cash-generating unit, an impairment of goodwill should be recognized. The allocation of goodwill to the cash-generating unit and the determination of the value in use require the use of estimates that depend upon subjective judgments and factors which over time could be different from management's estimates and have consequent effects that could be significant.

Impairment of property, plant and equipment and intangible assets

Property, plant and equipment and intangible assets are tested for any impairment that requires recognition of an impairment loss, whenever there are indications that the carrying amount through use may not be recoverable. Verification of the existence of such indications requires management to exercise subjective judgment based on information available from within the company and from the market and from historical experience. Moreover, whenever an impairment may exist, the company determines the impairment loss on the basis of appropriate measurement techniques. The proper identification of the factors indicating that an impairment may exist and the estimates used depend on factors which could vary over time and affect management's judgments and estimates.

Depreciation of property, plant and equipment

Depreciation of property, plant and equipment constitutes a significant cost for the company. The cost of buildings, plant and machinery is depreciated over the estimated useful lives of the assets on a straight-line basis. The economic useful life of these assets is determined by management when the assets are purchased; it is based on the historical experience of similar assets, market conditions and anticipation of future events which could have an impact on the useful life, including changes in technology. Therefore, the effective economic life could differ from the estimated useful life. The company periodically reviews technological and sector changes, evaluates decommissioning costs and the recoverable amount in order to update the residual useful life. This periodical update could entail a change in the period of depreciation and therefore a change in the depreciation charge of future years.

Deferred taxes

Deferred tax assets are recognized on the basis of expectations of future earnings. The estimate of future earnings for purposes of the recognition of deferred taxes depends on factors which could vary over time and significantly affect the amount of deferred taxes.

Provisions

Accruals are made to provisions for probable liabilities relating to disputes with employees, suppliers, third parties and, generally, the expenses which the company might be obliged to incur for obligations undertaken in the past. These accruals also include an estimate of the liabilities which could arise from disputes concerning the terms of fixed-term labor contracts used in the past, mainly for delivery activities. The determination of such accruals requires the assumption of estimates which depend on the current knowledge of factors which could change over time and which could produce effects that differ from the final outcomes estimated by management in preparing the financial statements.

5. Property, plant and equipment

Movements in Property, plant and equipment in 2018 are as follows:

(in € thousands)	January 1, 2018	Increases / Depreciation	Translation differences / Reclassifications.	Decreases / Utilization	December 31, 2018

Historical cost
Land and buildings	68,735	327	0	0	69,062
Plant and machinery	12,605	386	0	(1,292)	11,699
Industrial equipment	920	203	0	(86)	1,037
Office furniture and equipment	5,101	112	0	(30)	5,182
Motor vehicles and internal
transportation equipment	245	0	5	0	250
Cell phones	16	0	0	0	16
Assets under construction and payments on account	136	257	0	0	393
Total	87,757	1,284	5	(1,408)	87,639
Accumulated depreciation
Land and buildings	46,867	2,522	0	0	49,389
Plant and machinery	12,001	145	0	(1,261)	10,885
Industrial equipment	732	104	0	(13)	822
Office furniture and equipment	4,566	160	0	(30)	4,696
Motor vehicles and internal transportation equipment	204	29	0	0	233
Cell phones	13	1	0	0	14
Assets under construction and payments on account	0	0	0	0	0

Total	64,382	2,961	0	(1,305)	66,039
Net carrying amount	23,374	(1,676)	5	(104)	21,600

Increases during the year mainly refer to the purchase of machinery for the manufacture of products, generic and specific plant as well as sundry laboratory equipment.

5.1 Leases

Assets acquired under finance lease contracts entered into by Intercos S.p.A. are included in the respective classes of property, plant and equipment. The following table gives the details of these assets, mainly referring to motor vehicles, and a comparison with the prior year:

	At December 31, 2017			At December 31, 2018
(in € thousands)	Capitalized cost	Accumulated depreciation	Net carrying amount	Capitalized cost	Accumulated depreciation	Net carrying amount
Other assets	773	(696)	77	717	(699)	18

TOTAL	773	(696)	77	717	(699)	18
-------	-----	-------	----	-----	-------	----

As required by IAS 17, disclosure is provided on the total future minimum lease payments at the end of the year, which amount to €26 thousand and are all due within 12 months. There are no amounts due beyond five years. Lease installments recorded as expenses during the year amount to €3 thousand.

6. Intangible assets

Movements in Intangible assets in 2018 are as follows:

(in € thousands)	January 1, 2018	Increases	Disposals	Reclassifications	Amortization	December 31, 2018

Capitalized development costs	9,943	1,562	0	3,388	(3,813)	11,080
Patent and software rights	3,344	905	0	184	(1,270)	3,163
Concessions and licenses	902	1,003	0	0	(355)	1,550
Assets under development	6,916	4,433	0	(3,572)	0	7,777
TOTAL	21,106	7,903	0	0	(5,438)	23,570

Capitalized development costs refer to the company's investment program that focused on:

studies seeking new manufacturing technologies for the development of new products;
studies aimed at research into new raw materials and new formulae for the development of new products.

The following table illustrates, by year, completed development projects at the end of 2018 included in capitalized development costs:

Project	Remaining years of	Year	Historical	Amortization	Net amount at
(in € thousands)	amortization	commenced	cost	to date	12/31/2018
Development projects
New manufacturing technologies	1	2014	1,721	(1,492)	229
New raw materials and New formulae	1	2014	4,418	(4,124)	295
Subtotal			6,139	(5,615)	524
New manufacturing technologies	2	2015	0	0	0
New raw materials and New formulae	2	2015	2,268	(1,433)	852
Subtotal			2,268	(1,433)	852
New manufacturing technologies	3	2016	4,209	(2,141)	2,069
New raw materials and New formulae	3	2016	4,089	(1,927)	2,162
Subtotal			8,299	(4,068)	4,230
New manufacturing technologies	4	2017	348	(99)	249
New raw materials and New formulae	4	2017	770	(231)	539
Subtotal			1,118	(330)	789
New manufacturing technologies	5	2018	0	0	0

New raw materials and New formulae	5	2018	4,950	(248)	4,703
Subtotal			4,950	(248)	4,703
Total			22,774	(11,694)	11,080

Uncompleted projects at the end of the year that will completed over the next few years are as follows:

Project	Amount at 12/31/2018
Assets under development
New manufacturing technologies	1,359
New raw materials and New formulae	6,062
Total	7,421

The amortization plan, basically in line with the projected benefits guaranteed by the individual projects, is five years. The capitalization of development projects includes, according to the provisions of IAS 23, a portion of borrowing costs; the accounting principle, in fact, provides for this possibility even for loans not specifically earmarked for manufacturing or for the purchase of a specific asset thanks to the application of a capitalization rate to the expenses incurred. The rates used are the following: 4.08% for 2013, 5.29% for 2014, 3.98% for 2015, 4.01% for 2016, 3.17% for 2017 and 3.30% for 2018.

The increase in Patent and software rights for a total of €1,089 thousand refers to expenses incurred for the development of software for the various information systems of €653 thousand, the development of software used to conduct research and development activities of €405 thousand in addition to business intelligence software for the various business areas and expenses incurred to file patents of €31 thousand.

In addition, the increase in Assets under development for a total of €4,433 thousand can be divided into: (1) ongoing projects for research and development of €4,077 thousand, (2) ongoing projects relating to the development of software for various information systems of €307 thousand and (3) information systems used to conduct research and development activities of €49 thousand.

With regard to the capitalization of research and development projects, management carefully evaluates the expected economic benefits and, over the useful life, tests for any impairment in value.

Additional details on R&D are discussed in the Directors' Report on Operations under Profit and Financial Performance in 2018.

7. Goodwill

Movements in Goodwill are as follows:

(in € thousands)	January 1, 2018	Change during the year	December 31, 2018

Goodwill	33,654	-	33,654

Goodwill is tested annually for impairment.

For purposes of impairment testing, the goodwill of €33,654 thousand was allocated to the Make-up Cash-Generating Unit (CGU).

The impairment test was developed on the basis of the profit, financial position and cash flows plan drawn up by company management and updated for the period 2019-2023.

The impairment test was conducted by comparing the total carrying amount of goodwill and the aggregate net assets able to independently produce cash flows (CGU), to which goodwill can reasonably be allocated, with the higher of the value in use of the CGU and the recoverable amount through sale. In particular, the value in use was determined using the discounted cash flow method by discounting to present value the operating flows from the profit and financial projections based on assumptions included in the plan approved by management and the board of directors of the company. The valuation model determines the value in use as the sum of operating cash flows (defined as gross operating margin net of implicit income tax on operating profit, and also changes in net working capital, changes in employee severance indemnities and acquisitions and disposals of fixed assets) for each year of the plan. The cash flows were discounted at a WACC rate of 9.09% for the Make-up CGU (7.5% at December 31, 2017). The terminal value was determined by applying a perpetual growth factor that is basically representative of the expected inflation rate of 2% to the operating cash flows for the last year of the normalized plan.

No impairment losses on the carrying amount of goodwill resulted from the impairment tests conducted at December 31, 2018 as the value in use determined for the CGU identified was higher than the relative carrying amount. In the same manner, the sensitivity analyses carried out did not show any impairment losses.

8. Investments in subsidiaries

Movements in Investments in subsidiaries are as follows:

(in € thousands)	December 31, 2018

Beginning balance	178,901
Revaluations	0
Impairments	0
Disposals	0
Acquisitions – Share capital increases	356

Total	179,257

Details and movements during the year in Investments in subsidiaries are as follows:

(in € thousands)	1/1/2018	Acquisitions	12/31/2018
Intercos Europe S.p.A. *	34,599	226	34,825
Cosmint S.p.A.	69,601	30	69,631
Kit Productions S.r.l.	7	0	7
Marketing Projects S.r.l. in liquidation	40	0	40
Ager S.r.l.	102	0	102
Intercos America Inc.	24,729	100	24,829
Intercos do Brasil	9,595	0	9,595
Intercos Paris S.à r.l.	188	0	188
Intercos UK Ltd	580	0	580
CRB S.A.	15,544	0	15,544
Hana Co. LTD	0	0	0
Intercos Concept S.r.l.	360	0	360
Intercos Asia Pacific Limited	23,556	0	23,556
Total	178,901	356	179,257

* Includes the investment in Drop Nail S.r.l. following the merger on December 1, 2018, effective retroactively to January 1, 2018.

During the course of the year, the company subscribed to a capital increase of €150 thousand in Drop Nail S.r.l., merged with and into Intercos Europe S.p.A. on December 1, 2018, with retroactive effect to January 1, 2018. Additional details are provided under Significant events in 2018.

On July 31, 2018, the board of directors of Intercos S.p.A. approved a long-term share incentive plan, named Management Long-Term Incentive Plan, intended for certain key managers of the Intercos Group. The company therefore recorded an increase in the value of the investments as the contra-entry for the effect of the increase in the equity of the companies in which the key managers conduct their activities. The carrying amount of the investments and the relative amount of the equity of the investee companies are as follows:

(in € thousands)	Carrying amount of the
	investment	% holding	Share of equity	Change

Intercos Europe S.p.A.	34,825	100%	68,259	33,434
Cosmint S.p.A.	69,631	100%	31,676	(37,955)
Kit Productions S.r.l.	7	70%	1,286	1,279
Marketing Projects S.r.l. in liquidation	40	100%	353	313
Ager S.r.l.	102	76%	1,091	989
Intercos America Inc.	24,829	60%	3,320	(21,509)
Intercos do Brasil	9,595	100%	2,671	(6,924)
Intercos Paris S.à r.l.	188	100%	690	502
Intercos UK Ltd	580	100%	2,338	1,758
CRB S.A.	15,544	65%	13,842	(1,702)
Intercos Concept S.r.l.	360	100%	543	183
Intercos Asia Pacific Limited	23,556	100%	28,174	4,618
Total	179,257		154,243	(25,014)

As for the subsidiaries CRB S.A., Cosmint S.p.A., Intercos America Inc. and Intercos do Brasil, their multiyear business plans indicate future profitability sufficient to recover the carrying amount of the investment at the closing date of the financial statements.

The impairment tests performed at December 31, 2018 showed no impairments in the investment amounts since the equity value obtained from discounting estimated future cash flows under the 2019-2023 plans is higher than the carrying amount of the investments.

9. Deferred tax assets

Deferred tax assets amount to €1,147 thousand at December 31, 2018, with a decrease of €340 thousand compared to December 31, 2017.

The following table gives details according to the source of deferred tax assets at December 31, 2018 and 2017.

(in € thousands)	12/31/2018			12/31/2017
Description	Taxable	IRES	IRAP	Taxable	IRES	IRAP
Exchange losses	4,704	1,129	-	5,889	1,414	-
Provisions	-	-	-	156	37	-
Directors' compensation not paid during the year	26	6	-	18	4	-
Difference on employee severance indemnity	16	4	-	44	11	-
Other	33	8	-	87	21	-
Total	4,779	1,147	-	6,194	1,487	-

The company, at this time, also in light of the budgets forecasting future earnings approved by the board of directors, believes that it can generate taxable income sufficient to recover the deferred tax assets recorded in the financial statements.

10. Other non-current assets

Details of Other non-current assets at December 31, 2018 and 2017 are as follows:

	December 31,
(in € thousands)	2018	2017
VAT 2009 refund receivable	2,300	2,300
Interest on VAT receivables	147	147
Security deposits	111	100
Other receivables	0	513
Total	2,558	3,059

The VAT refund receivable relating to the year 2009 is shown as non-current as it is believed that settlement will not take place in 2019.

The change in Other receivables refers to the reclassification to Other current receivables of the interestbearing receivable to be collected following the sale, in 2013, of the investment in the Malaysian company Intercos Asia Pacific.

11. Trade receivables

Trade receivables at December 31, 2018 and 2017 are as follows:

	December 31,
	2018	2017

Receivables from third parties	251	272
Provision for impairment of receivables	(180)	-
Receivables from Group companies	39,127	37,614
Total	39,198	37,886

Additional details on credit risks are described in the introduction to the notes under Risk management.

12. Taxes receivable

	December 31,
(in € thousands)	2018	2017

VAT receivable for the year	1,181	722
IRES receivable 2007 ex Legislative Decree 201/2011	422	422
IRAP receivable	31	-
Other taxes receivable	1,399	1,044
Total	3,034	2,188

IRES receivable 2007 ex Legislative Decree 201/2011 refers to an application filed by the company after recalculating the IRES tax following the recognition of IRAP taxes deductibility (relating to the labor cost component); it takes into account the results of the new calculation for the subsidiaries that had adhered to the tax consolidation for that year. It is believed that the reimbursement will be obtained in 2019 and therefore the receivable is classified as current.

IRAP receivable refers to advances paid in excess of the tax due for the year.

Other taxes receivable include withholding taxes on royalties and commissions earned in 2018.

13. Other current assets

Details of Other current assets at December 31, 2018 and 2017 are as follows:

	December 31,
(in € thousands)	2018	2017

Receivables from subsidiaries under the tax consolidation	1,347	2,575
Sundry receivables	634	412
Accrued income and prepaid expenses	519	409
Advances to employees	303	218
Total	2,804	3,616

Receivables from subsidiaries under the tax consolidation include:

the IRES receivable from the subsidiary Intercos Europe S.p.A. of €1,300 thousand on the 2018 IRES settlement;
the IRES receivable from the subsidiary Intercos Concept S.r.l. of €47 thousand on the 2018 IRES settlement;

Sundry receivables include primarily the reclassification from Other non-current assets of the interestbearing receivable to be collected on the sale of the investment in the Malaysian company Intercos Asia Pacific in 2013. According to the underlying contractual agreements, the above receivable will be collected by the end of 2019 and, more precisely, the plan calls for extinction in July 2019. The remaining receivable amounts to USD 243 thousand, or an equivalent amount of €212 thousand, which includes an exchange difference of €31 thousand. The remaining €53 thousand refers to advances to suppliers and €355 thousand to sundry receivable from various subsidiaries.

Accrued income and prepaid expenses at December 31, 2018 include prepaid rent, insurance, utilities and rentals for a total of €519 thousand.

14. Loans receivable from Group companies – short-term

Details of Loans receivable from Group companies – short-term at December 31, 2017 and at December 31, 2018 are as follows:

December 31, 2017	Within 12 months	Beyond 12 months	Total
Intercos Asia Pacific	5,419	-	5,419
Intercos Europe S.p.A.*	5,000	-	5,000
Drop Nail S.r.l.	1,230		1,230
Intercos do Brasil	1,918		1,918
Intercos Technology Co. Ltd	834	-	834
Intercos America Inc.	26,599	-	26,599
Total	41,000	-	41,000

December 31, 2018	Within 12 months	Beyond 12 months	Total
Intercos Asia Pacific	6,987	-	6,987
Intercos Europe S.p.A.*	6,230	-	6,230
CRB	3,833		3,833
Intercos do Brasil	2,620		2,620

Intercos America Inc.	28,020	-	28,020
Total	47,691	-	47,691

* Includes the Drop Nail S.r.l. loan following the merger on December 1, 2018, effective retroactively to January 1, 2018.

The company, in its role as the coordinator of the financial resources of the Group, extends interest-bearing loans to subsidiaries, as needed, in order to optimize their resources.

During 2018, loans were extended to:

the subsidiary Intercos Asia Pacific for USD 5,500 thousand, corresponding to €4,820 thousand, which includes an exchange difference of €34 thousand; at the same time the company repaid USD 4,000 thousand, corresponding to €3,452 thousand.
Intercos Do Brasil for USD 3,000 thousand, corresponding to €2,455 thousand, with an exchange gain of €165 thousand;
the company extended by one year the loan receivable from Intercos America of USD 31,900 thousand, equal to €28,944 thousand, with an exchange difference of €924 thousand;
during the year, as a result of the merger of Drop Nail S.r.l. with and into Intercos Europe S.p.A., the latter absorbed the portion of the debt due to Intercos S.p.A. by that company and increased its loan to €6,230 thousand; at the same time the due date on the loan was extended by another year.

15. Cash and cash equivalents

Cash and cash equivalents at December 31, 2018 and 2017 are as follows:

	December 31,
(in € thousands)	2018	2017
Bank and postal deposits	17,449	20,765
Cash on hand	14	18
Total	17,463	20,783

Cash and cash equivalents are available and can be used immediately; at this date there are no restricted cash balances.

A complete financial analysis is presented in the statement of cash flows.

16. Equity

Equity amounts to €140,229 thousand (€115,753 thousand at December 31, 2017).

The composition and changes in equity are presented in the statement of changes in equity.

Share capital

At December 31, 2018, share capital is fully subscribed to and paid in and equal to €10,818,377 (with a total

share premium of €62,395,860).

Following the adoption of the new bylaws, by resolution of the extraordinary shareholders' meeting on October 16, 2017, it was decided to convert 10,852,035 Class A and 8,139,026 Class B shares into 18,991,061 Class D shares owned by the new shareholder The Innovation Trust.

The following table presents the situation at December 31, 2018 and 2017:

	December 31, 2018	December 31, 2017

Class A shares - number	40,976,231	40,976,231
Class B shares - number	31,128,518	31,128,518
Class C shares - number	1,146,483	1,146,483
Class D shares - number	18,991,061	18,991,061
Total share capital in euros	10,818,377	10,818,377

Without prejudice to what is stated in the bylaws with regard to voting rights, the Class A, Class B, Class C and Class D shares all have the same rights and can be transferred by acts between living persons and by succession due to death, with effect on the company pursuant to law.

Subject to the provisions of art. 2428 of the Italian Civil Code, note should be taken that the company neither holds nor has purchased or sold shares during the course of the year under examination, not even through fiduciaries or trustees.

The following table summarizes the individual items of equity according to their source:

Nature/Description	Balance at
(in € thousands)	December 31, 2018	Possibility of utilization
Share capital	10,818
Share premium reserve (*)	62,396	A, B, C
Other reserves () (*)	277
Long-term incentive plan reserve	794
Legal reserve	2142	B
Retained earnings	40,605
Profit for the year (*)	23,197	A, B, C
Equity at 12/31/2018	140,229

A: Available for capital increases

B: Available to cover losses

C: Distributable to shareholders

(*) Pursuant to art. 2431 of the Italian Civil Code, the entire amount of this reserve may be distributed only on condition that the legal reserve has reached the limit established by art. 2430 of the Italian Civil Code.

(**) This refers to the reserve formed in respect of the higher or lower value attributed to employee severance indemnities remeasured in accordance with IAS 19.

17. Borrowings from banks and other lenders – non-current

	The following table provides details of short and medium/long-term debt outstanding at December 31, 2018
together with the relative due dates:

Description (in euros)	Rate	Nominal amount	Financial expenses	Internal rate of return *	Debt discounted	Due date
Bond (Fixed rate)	3.250%	120,000,000	3,687,791	3.776%	120,525,877	March 28, 2023
Intercos EUR	Euribor 6m + Spread	8,221,797	246,368	2.504%	8,013,487	December 31, 2021
Intercos USD	Libor \$ 6m + Spread	10,349,053	346,853	4.844%	10,199,916	December 31, 2021
Tranche A2	Euribor 6m + Spread	12,793,375	134,946	1.505%	12,726,643	December 31, 2021
Revolving line	Euribor 6m + Spread	20,000,000	533,345		19,798,604	December 31, 2021
Tranche B1	Euribor 6m + Spread	30,000,000	592,125	2.198%	29,631,621	December 31, 2021
Tranche B2	Euribor 6m + Spread	10,000,000	197,375	2.334%	9,848,214	December 31, 2021
		211,364,225	5,736,419		210,744,362

* The internal rate of return is the rate used for IAS 39 measurements on the loans shown in the table.

(in euros)	Due date
Description	Short-term	Long-term
Bond (fixed rate)	2,970,411	117,555,466
Intercos EUR	1,918,419	6,095,068
Intercos USD	2,459,866	7,740,050
Tranche A2	2,985,121	9,741,522
Revolving line	19,798,604	-
Tranche B1	4,500,000	25,131,621
Tranche B2	1,500,000	8,348,214
	36,132,421	174,611,941

Financial payables are secured by collateral (pledges on shares and special liens) as better described in the Note on Guarantees and other commitments.

Details of Borrowings from banks and other lenders with an indication of the relative due dates are provided in the following table:

December 31, 2017

				TOTAL
(in € thousands)	Within 1 year	1 to 5 years	Beyond 5 years	December 31, 2017
Banca IMI and Unicredit loan	5,401	59,639	0	65,040
Bonds	2,970	14,852	102,462	120,285
Other financial payables	25,658	0	0	25,658
Finance leases payable	39	34	0	73
Fair value derivatives	87	0	0	87
Medium/long-term debt	34,156	74,525	102,462	211,143
Bank overdrafts and advance accounts	0	0	0	0
Short-term debt	0	0	0	0
Total	34,156	74,525	102,462	211,143
December 31, 2018
				TOTAL

(in € thousands)	Within 1 year	1 to 5 years	Beyond 5 years	December 31, 2018
Banca IMI and Unicredit loan	33,162	57,056		90,218

Bond	2,970	117,555	120,526
Other financial payables	0	0	0
Finance leases payable	26	0	26
Fair value derivatives	33	0	33
Medium/long-term debt	36,191	174,612	210,803
Bank overdrafts and advance accounts	0	0	0
Short-term debt	0	0	0
Total	36,191	174,612	210,803

The loan carries financial covenants calculated on the basis of the consolidated financial statements. These covenants can be summarized as follows:

1. Net financial position / EBITDA
1. EBITDA / Net financial expenses
1. Available cash flows / Debt service *
(*) Net financial expenses + principal instalments repaid + leasing.

The computations indicate that these financial covenants have been complied with for the year ended December 31, 2018.

18. Provisions

Movements during the year in Provisions are as follows:

(in € thousands)	December 31, 2018	December 31, 2017

Beginning balance	161	133
Accrual	0	30
Utilization	(161)	(2)
Ending balance	0	161

The balance is nil at the end of 2018 since the entire amount at the beginning of the year was used and no further accruals were set aside owing to the absence of risk situations at the end of the year.

19. Deferred tax liabilities

Deferred tax liabilities amount to €4,829 thousand, with a decrease of €109 thousand compared to the prior year. For a better understanding, details of the temporary differences which gave rise to the calculation of deferred income taxes are provided in the following table.

Description	December 31, 2018			December 31, 2017
(in € thousands)	Taxable	IRES	IRAP	Taxable	IRES	IRAP
Differences on depreciation	11,543	2,770	450	12,754	3,061	497

PPE revaluation	464	111	18	677	163	26
Translation differences	4,670	1,121	-	4,661	1,119	-
Uncollected dividends	192	46	-	-	-	-
Discounting of employee severance indemnities IAS 19	28	7	-	-	-	-
IFRS 9 (*)	994	239	-	-	-	-
Elimination of tax effect on PPE	279	67	-	300	72	-
Total	18,170	4,361	468	18,392	4,415	523

(*) Of which €205 thousand did not pass through the income statement.

20. Employee benefit obligations

Movements during the year in Employee benefit obligations are as follows:

in € thousands)	December 31, 2018	December 31, 2017

Beginning balance	1,213	1,213
Actuarial gains (losses)	(28)	1
Utilization	(116)	(21)
Interest cost	22	21
Transfers	74	(1)
Ending balance	1,165	1,213

The following sensitivity analysis was performed to illustrate the effects produced by an increase/decrease in the main assumptions used on the data at December 31, 2018.

Deferred Benefit Obligation at December 31, 2018
	( in € thousands)
Inflation rate +0.25%	1,175
Inflation rate -0.25%	1,154
Discount rate +0.25%	1,147
Discount rate -0.25%	1,182
Turnover rate +1%	1,164
Turnover rate -1%	1,165

The following table presents the main assumptions used in determining the actuarial cost to be accrued for employee benefit obligations at December 31, 2018.

	December 31, 2018	December 31, 2017
Discount rate	1.97%	1.61%
Annual inflation rate	1.50%	1.50%
Annual rate of increase in employee severance indemnities	2.62%	2.62%
Annual rate of increase in salaries	1.50%	1.50%

The annual discount rate used to calculate the present value of the obligation was determined on the basis, consistently with IAS 19, paragraph 78, of the IBoxx Eurozone Corporate A Index for durations of more than 10 years (in line with the collective duration under examination).

A breakdown of headcount at December 31, 2018 and at December 31, 2017 is as follows:

	Headcount at December 31, 2018	Headcount at December 31, 2017
Executives	20	13
Mid-level managers and white-collars	197	194
Blue-collars	21	22
Total	238	229

Additional details are as follows:

	Headcount 2016	Headcount 2017	Headcount 2018
Employees at January 1	193	205	229
Employees at December 31	205	229	238
Of whom
Permanent	196	212	224
Fixed term	9	17	14
Total	205	229	238

During the year, there were no deaths or accidents in the workplace which caused serious injury to personnel.

The company has not been charged with harming the environment nor has it received fines or penalties in this regard.

21. Borrowings from banks and other lenders – current

Details on Borrowings from banks and other lenders – current are presented in Note 17.

22. Loans payable to Group companies – short-term

Loans payable to Group companies – short term total €8,194 thousand. Details are as follows:

	December 31, 2018	December 31, 2017
Ager S.r.l.	1,000	1,000
Kit Production S.r.l.	350	350
Intercos America Inc.	0	6,844
Total	1,350	8,194

The positions with the subsidiaries Ager S.r.l. and Kit S.r.l. have remained unchanged since the due dates were extended, whereas soft cash pooling transactions by the subsidiary Intercos America are not in place at the end of the year.

23. Other financial payables

For details of Other financial payables, reference should be made to Note 17.

24. Trade payables

Trade payables at December 31, 2018 and December 31, 2017 are as follows:

	December 31,
	2018	2017

Trade payables to third party suppliers	4,486	3,986
Trade payables to Group companies	2,173	2,466
Total	6,659	6,453

25. Other payables

Details of Other payables at December 31, 2018 and 2017 are as follows:

	December 31,
(in € thousands)	2018	2017
Taxes payable	352	3,704
Payables to employees	4,082	3,201
Social security agencies payable	1,413	1,088
Payables to tax authorities for withholdings	818	830
Accrued liabilities	21	48
Payables to subsidiaries for tax consolidation	253	408
Payables to subsidiaries	0	0
Sundry payables	1	9,919
Total	6,940	19,197

Taxes payable of €352 thousand refer to IRAP taxes for the year.

Payables to employees and Social security agencies payable mainly comprise €799 thousand for amounts due at December 31, 2018 paid at the beginning of the year, €265 thousand for compensation and related social security contributions, €1,933 thousand for the employee incentive plan and €707 thousand for related social security contributions, €941 thousand for vacation pay accrued and not used and €256 thousand for related social security contributions, €305 thousand for accrued compensation for the 14th month salary, €104 thousand for employee expense reports and €321 thousand for various social security agencies.

Payables to tax authorities for withholdings refer to IRPEF withholding taxes on employee compensation for €801 thousand and withholding taxes on self-employed compensation for the remaining €17 thousand.

Accrued liabilities include interest of €3 thousand and sundry costs for the remaining €18 thousand.

Payables to subsidiaries for the tax consolidation of €253 thousand include the receivables for IRES

transferred by the subsidiaries below and referring to the following:

Description (in € thousands)	Intercos Europe S.p.A.	Kit Productions S.r.l.	Ager S.r.l.	Vitalab S.r.l.	Total
Reimbursement ex Legislative Decree 201/2011	212	0	0	0	212
Settlement 2018	0	9	11	21	41
Total	212	9	11	21	253

With regard to the applications filed under Legislative Decree 201/2011 for the years 2007-2008-2009-2010- 2011 in which the tax consolidation procedure was adopted, Intercos S.p.A., as the consolidating company, recorded in intercompany payables the receivable positions arising from the recalculation of IRES of the subsidiaries which had adhered to the tax consolidation for each of those years.

25 bis. Guarantees and other commitments

Guarantees provided refer to sureties, guarantees and pledges provided by the company, on its behalf and on behalf of the subsidiaries.

On behalf of Intercos S.p.A.:

The following pledges and guarantees were provided to guarantee the March 24, 2015 bank loan:

1) in favor of Banca IMI, syndicate of banks and bondholders, the following pledges and liens were provided as collateral on the loan secured and in compliance with the requirements of the ABI Code:

pledge on Intercos Europe S.p.A. shares for €3,000 thousand;
pledge on Cosmint S.p.A. shares for €50 thousand;
corporate guarantee on overall borrowings and debt still due at the end of the year.

2) Among the most important guarantees provided to third parties at December 31, 2018 are the following:

guarantee in favor of the Revenues Agency to guarantee the VAT receivable for the 2009 refund request of €2,785 thousand, set to expire on February 3, 2018, not yet released at the end the current year;
guarantee in favor of the Revenues Agency to guarantee the VAT receivable for the 2010 refund request of €1,513 thousand, set to expire on November 30, 2018, not yet released at the end the

current year;

guarantee on the lease contract of Intercos America Inc. for the sales office in New York City at 37th West 57th Street for USD 951 thousand, corresponding to €820 thousand.

guarantee in the interests of Intercos America Inc. for the bank facility in favor of Intesa BCI for USD 1,400 thousand, corresponding to €1,223 thousand.

The following table details the pledges and liens received:

Guarantor	Beneficiary	Type of guarantee	Description	Amount in euros	Issue date	Due
Dafe 3000		First-ranking pledge (i) on behalf of the bank syndicate to guarantee repayment of the loan granted on March 24, 2015 (as amended) and (ii) bank syndicate + on behalf of the bondholders of the bonds issued on March 27, 2015 (as amended)	Pledge on Intercos Class A shares (203,910 shares)	€23,915	3/27/2015	3/28/2023
Dafe 4000			Pledge on Intercos Class A shares (29,452,874 shares)	€3,454,297	3/27/2015	3/28/2023
Dafe 5000	Banca IMI and		Pledge on Intercos Class A shares (11,319,447 shares)	€1,327,569	3/27/2015	3/28/2023
CPT Beauty Luxco	bondholders		Pledge on Intercos Class B shares (31,128,518 shares)	€3,650,820	3/27/2015	3/28/2023
Renato Semerari		Pledge on Intercos Class C shares (922,423 shares)	€108,183,	7/31/2017	3/28/2023
Innovation Trust			Pledge on Intercos Class D shares (18,991,061 shares)	€2,227,312	10/16/2017	3/28/2023

26. Revenues

Intercos S.p.A.'s business, following the conferral operation that took place on September 30, 2011, is that of the corporate holding company, retaining exclusive ownership of the buildings, trademarks and brands and industrial patents, the equity investments in Italian and foreign companies, research and development and strategic marketing activities and management of all the corporate financial and administration functions of the Group. Bearing this in mind, the details of revenues in 2018 and 2017 are presented below:

(in € thousands)	2018	2017

Administrative services recharged to Group companies	23,632	24,136
Royalty income	19,838	20,413
Total revenues	43,470	44,548

The main item of revenues is composed of the services recharged by Intercos S.p.A., in its direction and coordination function as the Group holding company, to its subsidiaries (for a total of €23,632 thousand). This represents the consideration calculated on the basis of the Service Agreements entered into specifically to govern the method of reallocating corporate services. Royalties, instead, include the consideration determined on the basis of License Agreements specifically designed to regulate the method of reallocating

license costs for the use of the formulae archives by the subsidiaries.

shipping and indirect taxes and duties recharged to the customer in the price of the product;
products sold based on formulae developed by the customer;
packaging, excluding the "delivery system" segment.

27. Other income

Details of Other income in 2018 and 2017 are as follows:

(in € thousands)	2018	2017
Prior period income and sundry allowances	783	88
Insurance compensation	14	36
Rent income	1,566	1,554
Dividends	18,494	15,299
Other revenues	652	1,671
Gains on disposal of property, plant and equipment	15	64
Total	21,524	18,712

Prior period income mainly includes €471 thousand for the tax credit on research and development activities for the years 2015 and 2016, €155 thousand for the release of prior year accruals in the provision for risks following the positive settlement of a case and €53 thousand for the recalculation of prior years' INPS social security contributions.

Rent income of €1,566 thousand refers to the rent charged, starting from October 1, 2011, to Intercos Europe S.p.A. on the portion of the Agrate Brianza and Dovera buildings used by the company for its operations.

Other revenues comprise €234 thousand of miscellaneous costs incurred on behalf of subsidiaries and recharged to them and €418 thousand for contracts with certain customers for collaboration in the area of Innovation.

The company as the parent received dividends of €18,494 thousand in 2018 from the following:

(in € thousands)	2018	2017
CRB S.A.	5,963	4,571
Intercos Paris S.à r.l.	650	500
Intercos Europe S.p.A.	11,000	10,000
Intercos Asia Pacific Limited	881	0
Ager S.r.l.	0	228
Total	18,494	15,299

28. Purchases of raw materials, semifinished products and consumables

Purchases of raw materials, semifinished products and consumables in 2018 and 2017 refer to the following:

(in € thousands)	2018	2017
Consumables	29	19
Purchase of samples and sample lines	895	720
Pilot molds and equipment	382	318
Total	1,307	1,057

29. Costs for services and leases and rents

Details of Costs for services and leases and rents in 2018 and 2017 are as follows:

(in € thousands)	2018	2017
Shipping of samples and sample lines	536	445
Other shipping	66	52
Publicity costs	487	492
Sundry services	3,538	3,429
Maintenance	377	304
Sundry utilities	1,334	1,331
Legal and notary fees	93	37
Board of statutory auditors' compensation	68	68
Consulting fees	1,830	1,990
Insurance	249	187
Royalties	217	168
Other costs	5,482	5,334
Total	14,277	13,837

Consulting fees include fees for services rendered by highly qualified technical-professional external specialists and companies lending support in administration, tax, legal, IT and technical areas (market research, sector studies, etc.).

Sundry services costs are detailed as follows:

(in € thousands)	2018	2017
Stationery and forms	18	18
Performance of services	244	239
Temp work.(service)	5	5
Sundry services rendered by subsidiaries	2,931	2,732
Laboratory analyses	295	275
Waste disposal	33	35
Other services rendered	13	126
Total	3,538	3,429

Sundry services rendered by subsidiaries include costs recharged, mostly for personnel fulfilling corporate duties and responsibilities incurred by the subsidiaries, on behalf of the company, in accordance with the

criteria established by existing contracts.

Other costs comprise the following:

(in € thousands)	2018	2017
Travel	1,588	1,757
Commercial information expenses	168	155
EDP	2,070	1,713
Rent	96	204
Rentals	472	407
Security service	93	91
Cleaning	196	253
Employee-related	799	753
Total	5,482	5,334

30. Employee benefit expenses

Details of Employee benefit expenses in 2018 and 2017 are as follows:

(in € thousands)	2018	2017

Salaries and wages	12,998	11,245
Social security	3,975	3,259
Defined contribution plan costs	782	721
Temp work	56	47
Board of directors' compensation	2,331	2,223
Coordinated and continual and occasional collaboration work	577	491
Other costs	357	334
Total	21,076	18,320

31. Accruals

Accruals show a nil balance in 2018.

32. Other operating expenses

Details of Other operating expenses in 2018 and 2017 are as follows:

(in € thousands)	2018	2017

Promotional expenses	404	213
Prior period expenses, sundry allowances	59	111
Sundry taxes and duties	308	313
Association membership dues	69	52
Motor vehicle expenses	12	6
Other costs	166	203
Total	1,018	898

Prior period expenses, sundry allowances, for the most part include revisions of accruals for costs referring to the prior year.

Sundry taxes and duties consist of city taxes of €259 thousand and sundry taxes and duties of €49 thousand.

Other costs include €9 thousand for magazines and books, €74 thousand for fines and tickets, €14 thousand for contributions and donations, €63 thousand for losses from theft and €6 thousand for miscellaneous expenses.

33. Capitalized internal construction costs

The total costs amount to €5,459 thousand and include the amounts capitalized for costs inherent to R&D projects.

Additional details are provided in Note 6 – Intangible assets.

34. Depreciation, amortization and impairment reversals (losses)

Depreciation, amortization and impairment reversals (losses) in 2018 and 2017 refer to the following:

(in € thousands)	2018	2017
Amortization of intangible assets	5,438	5,516
Depreciation of property, plant and equipment	2,961	2,983
Impairment of assets	443	0
Total	8,841	8,499

Additional information is provided in Notes 5 and 6 relating to Property, plant and equipment and Intangible assets.

35. Valuation adjustments to financial assets

There were no valuation adjustments to financial assets in 2018.

36. Nonrecurring income (expenses)

(in € thousands)	2018	2017
Nonrecurring expenses	(773)	(1,185)
Total	(773)	(1,185)

Nonrecurring expenses are connected to transactions of an extraordinary nature and the portion of personnel costs for the year included in the long-term incentive plan as better described under Significant events in 2018.

37. Financial income

Details of Financial income in 2018 and 2017 are as follows:

(in € thousands)	2018	2017
Interest on loans to subsidiaries	2,783	2,314
Sundry interest	54	103
IRS fair value adjustment	0	23
Other financial income	0	0
Interest from the tax authorities	0	0
Total financial income	2,837	2,440
Net foreign exchange gains, from financial expenses	266	0
Net financial exchange gains, from financial income	645	0
Net foreign exchange	911	0
Total	3,748	2,440

The most important item, Interest on loans to subsidiaries, refers entirely to the remuneration on the various loans extended to subsidiaries, as better described in Note 14 – Loans receivable from Group companies – short term.

38. Financial expenses

Details of Financial expenses in 2018 and 2017 are as follows:

(in € thousands)	2018	2017
Interest on medium/long-term borrowings	5,089	4,070
Interest on short-term borrowings	0	54
Other interest	1,263	985
Interest on loans from subsidiaries	11	10
Financial expenses on medium/long-term debt	663	480
Banking fees and commissions	148	185
Total interest and financial expenses	7,174	5,784
Foreign exchange losses	0	1,059
Foreign exchange gains	0	1,785
Net foreign exchange differences	0	2,844
Total financial expenses	7,174	8,628

Interest on medium/long-term borrowings includes interest relating to medium/long-term debt.

Other interest includes €1,077 thousand of adjustments arising from the application of IAS 39 relating to the measurement of loans; the remaining amount includes, among other things, interest relating to measurements for purposes of the application of IAS 19 and IAS 17.

Interest on loans from subsidiaries includes only the interest accrued during the year on the loans extended to Intercos S.p.A. by the subsidiaries Ager S.r.l. and Kit Productions S.r.l.

Exchange differences are classified in Financial income since the net balance is a gain.

39. Income taxes

Details of Income taxes in 2018 and 2017 are as follows:

(in € thousands)	2018	2017
Current income taxes	(322)	2,393
Deferred income taxes	(314)	(918)
Prior years' taxes	(3,146)	266
Deferred tax assets (charge/credit)	320	(114)
Total	(3,462)	1,627

Current income taxes include the tax charge in 2018 for IRAP taxes of €259 thousand and the tax credit for IRES taxes on the tax loss available and transferred as part of the tax consolidation of €581 thousand.

On June 29, 2018, a preliminary agreement was signed with the Revenues Agency to define the methods and criteria for the calculation of exempt income deriving from the indirect use of intangible assets (so-called Patent Box regime) referred to in art. 1, paragraphs 37 to 45 of Law 190 dated December 23, 2014, as amended. This Agreement became binding for the parties when it was signed but effective from the tax period in which the original application was filed (2015) and for the four following tax periods. The agreement made it possible to directly apply the exemption to the calculation of 2018 taxes (as can be seen in the following table for the reconciliation between the theoretical and effective tax rate), as well as to the recalculation of taxable income of the company for the years 2015, 2016 and 2017 whose effects are included in Prior years' taxes generating a total credit balance of €3,146 thousand, as follows:

Description	Patent Box 2015	Patent Box 2016	Patent Box 2017	Other	Total
IRES	(730)	(885)	(1,253)	153	(2,715)
IRAP	(102)	(125)	(204)	-	(431)
Total	(832)	(1,010)	(1,457)	153	(3,146)

The column Other refers to higher IRES taxes for the year 2015, as recalculated following the communication of irregularity prepared by the Revenues Agency on November 9, 2018 and paid by the company on January 9, 2019.

With regard to deferred taxes, reference should be made to Notes 9 and 19.

The reconciliation between the theoretical and effective tax rate is as follows:

(in € thousands)

Pre-tax profit	19,735
Theoretical IRES (24%)	4,736
Temporary differences deductible in future years	9,947
Non-deductible costs	2,838
Temporary differences taxable in future years	(10,559)
Reversal of temporary differences of prior years	(897)
Other deductions and recoveries (*)	(18,497)
Tax-exempt income (Patent Box)	(4,987)
Tax	(2,420)
IRES on tax loss	(581)

(*) Of which €13,928 thousand refers to dividends approved and collected during the year and €3,833 for dividends approved and not collected during the year.

IRAP

Difference between production value and costs (net of dividends)	5,440
Theoretical IRAP (3.9%)	212
Costs not considered for IRAP purposes	6,195
Tax-exempt income (Patent Box)	(4,987)
Taxable for IRAP purposes	6,648
IRAP (4.8%)	259

40. Actuarial gains (losses)

Actuarial gains/losses total €484 thousand and refer to the year-end measurement of employee severance indemnities in accordance with IAS.

41. Related party transactions

Related party transactions do not qualify as either atypical or unusual but fall under the ordinary course of business operations. Such transactions, when not concluded at standard conditions or dictated by specific laws, are nevertheless carried out on an arm's length basis.

The effects of related party transactions on the income statement for 2018 and the statement of financial position at December 31, 2018 are as follows:

Transactions with Group companies, including joint ventures

(in € thousands)	Other revenues and income	Purchases of raw materials, semifinished products and consumables	Costs for services and leases and rent and sundry costs	Financial expenses	Financial income	Dividends
Kit Productions S.r.l.	36	0	0	(2)	0	0
Intercos Europe S.p.A.	27,755	(201)	(1,394)	0	267	11,000
Vitalab S.r.l.	48	0	0	0	0	0
CRB Benelux B.V.	0	0	(345)	0	0	0
Cosmint S.p.A.	0	(3)	0	0	0	0
Tatra Spring Polska SP. Z.O.O.	167	0	0	0	0	0
Intercos Do Brasil	0	0	0	0	169	0
Intercos UK Ltd.	79	0	0	0	0	0
Intercos Paris S.à.r.l.	481	0	0	0	0	650
Intercos Marketing Ltd	0	0	0	0	0	0
Intercos America Inc.	7,915	0	(2,359)	0	1962	0
Intercos Cosmetics Suzhou Co. Ltd	1,039	0	(1)	0	0	0
Intercos Asia Pacific	0	0	(110)	0	344	881
Intercos Korea LTD	172	0	0	0	0	0
Intercos Technology Co. Ltd	1,689	-4	(223)	0	22	0
Interfila Cosmetics (Shanghai) Co. Ltd	2,439	0	0	0	0	0
CRB S.A.	34,06	0	0	0	0	5,963
Ager S.r.l.	10	0	267)	(8)	0	0
Total	45,237	(209)	(4,699)	(11)	2,763	18,494

(in € thousands)	Trade receivables	Other receivables	Current financial receivables	Loans from Group companies – short-term	Trade payables	Other payables
Kit Productions S.r.l.	11	0	0	(350)	(1)	9
Intercos Concept S.r.l.	0	48	0	0	0	0
Intercos Europe S.p.A.	20,968	1,435	6,230	0	(836)	(212)
Vitalab S.r.l.	32	0	0	0	0	(21)
Cosmint S.p.A.	0	220	0	0	0	0
Tatra Spring Polska SP. Z.O.O.	167	0	0	0	0	0
Intercos Do Brasil	51	0	2,620	0	0	0
Intercos UK Ltd.	21	0	0	0	0	0
Intercos Paris S.à.r.l.	230	0	0	0	0	0
Intercos America Inc.	11,763	0	27860	0	(1,195)	0
Intercos Cosmetics Suzhou Co. Ltd	750	0	0	0	1	0
Intercos Asia Pacific	108	36	6,987	0	0	0
Intercos Korea LTD	172	0	0	0	0	0
Intercos Technology Co. Ltd	1,269	0	0	0	(57)	0
Interfila Cosmetics (Shanghai) Co. Ltd	1,978	0	0	0	0	0
CRB S.A.	1,605	0	3,993	0	0	0
Ager S.r.l.	3	0	0	1,000	(83)	(11)

Total	39,127	1,738	47,691	1,350	(2,173)	(253)	0

Transactions with other related parties

(in € thousands)	Other receivables	Trade payables
Dafe International S.r.l.	12	(91)
Cornelli Gabelli e Associati	0	(37)
Sci Maragia	0	(31)
Je m'en Fous S.r.l.	0	(15)
Interior	0	(46)
Catterton	0	(3)
Total	12	(241)

(in € thousands)	Costs for services and leases and rent	Other costs
Dafe International S.r.l.	(129)	0
Cornelli Gabelli e Associati	(49)	0
Sci Maragia	(31)	0
My Style	0	(14)
Interior	(1)	(48)
Catterton	(18)	0
Maragia USA Inc.	(26)	0
Total	(254)	(62)

42. Composition of the boards at December 31, 2018 and compensation during the year:

	Number of members	Compensation (in € thousands)

Board of directors	11	2,331
Board of statutory auditors	3	68
Total	13	2,399

43. Independent auditors' fees

	Fees
(in € thousands) Fees for audit of financial statements	167
	58

44. Subsequent events

There were no events subsequent to the date of the financial statements which, if previously known, would have required an adjustment to the financial statements.

As for developments in the early months of 2019, the following important events are described:

On January 9, 2019, the company Intercos Do Brasil Industria e Comercio de Productos Cosmeticos LTDA increased its share capital by a total of R\$4,500 thousand, corresponding to €1,063 thousand. The increase was fully subscribed to and paid in by the company as the majority shareholder, with the other shareholder, Intercos America Inc., waiving its right to subscribe to the share of the capital increase in proportion to its investment in Intercos Do Brasil Industria e Comercio de Productos Cosmeticos LTDA. Following this capital increase, the Company holds 99.72% of "Intercos Do Brasil Industria e Comercio de Productos Cosmeticos LTDA.
In view of the cessation of every activity and the definitive closing of any receivable or payable position whatsoever, on January 31, 2019 the shareholders' meeting of the company Marketing Projects S.r.l. in liquidation, 100%-owned by Intercos S.p.A. and in a wind-up since June 14, 2012, approved the final liquidation financial statements at December 31, 2018 and the liquidation distribution plan. Intercos' investment amounted to €40 thousand.

45. Appropriation of the profit for the year

A motion is proposed to appropriate the profit for the year of €23,196,738 entirely to retained earnings.

Milan, March 29, 2019

These financial statements, consisting of the statement of financial position, the statement of comprehensive income, the statement of cash flows, the statement of changes in equity and the notes thereto, present a true and correct view of the financial condition, the results for the year and the cash flows of the company and correspond to the accounting books and records.

INTERCOS S.p.A. On behalf of the Board of Directors

Intercos S.p.A.

Financial statements as at December 31, 2018

Independent auditor's report pursuant to article 14 of Legislative Decree n. 39, dated 27 January 2010, and article 10 of EU Regulation n. 537/2014

EY S.p.A. Via Meravigli, 12 20123 Milano

Tel: +39 02 722121 Fax: +39 02 722122037 ey.com

Independent auditor's report pursuant to article 14 of Legislative Decree n. 39, dated 27 January 2010 and article 10 of EU Regulation n. 537/2014 (Translation from the original Italian text)

To the Shareholders of Intercos S.p.A.

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Intercos S.p.A. (the Company), which comprise the statement of financial position as at December 31, 2018, and the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and the notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements give a true and fair view of the financial position of the Company as at December 31, 2018, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with the regulations issued for implementing art. 9 of Legislative Decree n. 38/2005.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the regulations and standards on ethics and independence applicable to audits of financial statements under Italian Laws. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We identified the following key audit matters:

Key Audit Matter Audit Response

Evaluation of investments in subsidiaries

At December 31, 2018, the carrying amount of investments in subsidiaries was € 172,9 million.

Management assesses at least annually the existence of impairment indicators for each investment in subsidiaries, in line with group legal entities' management strategy and, if indicators are detected, perform an impairment test of such assets.

The processes and methodologies to evaluate and determine the recoverable amount for each investment in subsidiaries are based on assumptions that are in some cases complex and that, due to their nature, imply the use of judgement by Management, in particular with reference to the identification of impairment indicators, the forecast of the investments' return over the period covered by the group business plan, the normalized cash flows used to estimate terminal value and the long term growth and discount rates applied to such cash flows forecasts.

Considering the level of judgement and complexity of the assumptions applied in estimating the recoverable amount of investments in subsidiaries, we have determined that this area constitutes a key audit matter.

The Company included disclosures related to the evaluation of investments in subsidiaries in note 8. "Investments in subsidiaries" to the separate financial statements.

Our audit procedures relating to this key audit matter included, among others, and in line with goodwill impairment testing performed at the Group consolidated financial statements level:

understanding the procedure and key controls implemented by the Company to identify potential impairment losses and to evaluate investments in subsidiaries;
assessing cash flows projections, also considering industry data and forecasts;
verifying the consistency of the forecast of future cash flows of each investment in subsidiaries with the group business plan for the period 2019-2023;
validating the forecasts, by verifying their historical accuracy;
assessing the determination of long-term growth and discount rates.

In performing our audit procedures we also involved our valuation specialists independently performed their own calculations and sensitivity analyses of key assumptions, in order to assess any changes in assumptions that could significantly impact the determination of the recoverable amount.

Lastly, we reviewed the adequacy of the disclosures made in the notes to the separate financial statements related to the valuation of investments in subsidiaries.

Valuation of goodwill

At December 31, 2018, the carrying amount of goodwill was € 33,7 million, and was entirely allocated to the Cash Generating Unit (CGU) "Make-up".

The processes and methodologies to evaluate and determine the recoverable amount of the CGU, in terms of value in use, are based on assumptions that are in some cases complex and that, due to their nature, imply the use of judgement by Management, in particular with reference to the cash flow forecasts, and the long term growth and discount rates applied to such cash flows forecasts.

Considering the level of judgement and complexity of the assumptions applied in estimating the recoverable amount of goodwill, we have determined that this area constitutes a key audit matter.

The Company included disclosures related to the evaluation of goodwill in note 2. "Significant accounting policies", in the paragraph "Intangible assets", in note 4. "Use of estimates and assumptions" and in note 7. "Goodwill" to the separate financial statements.

Our audit procedures relating to this key audit matter included, among others:

assessing the process and key controls implemented by the Company for evaluating goodwill;
validating the CGU perimeter and the allocation of the carrying value of assets and liabilities to the CGU;
assessing cash flows projections, also considering industry data and forecasts;
verifying the consistency of the forecast of future cash flows of the CGU with the group business plan for the period 2019- 2023;
assessing the accuracy of cash flows forecasts by comparing forecasted data to actual results;
assessing the long-term growth and discount rates.

In performing our audit procedures we also involved our valuation specialists who independently performed their own calculations and sensitivity analyses of key assumptions, in order to assess any changes in assumptions that could significantly impact the determination of recoverable amount.

Lastly, we reviewed the adequacy of the disclosures made in the notes to the separate financial statements related to evaluation of goodwill.

Responsibilities of Directors and Those Charged with Governance for the Financial Statements

The Directors are responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and with the regulations issued for implementing art. 9 of Legislative Decree n. 38/2005, and, within the terms provided by the law, for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Directors are responsible for assessing the Company's ability to continue as a going concern and, when preparing the financial statements, for the appropriateness of the going concern assumption, and for appropriate disclosure thereof. The Directors prepare the financial statements on a going concern basis unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The statutory audit committee ("Collegio Sindacale") is responsible, within the terms provided by the law, for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with International Standards on Auditing (ISA Italia), we have exercised professional judgment and maintained professional skepticism throughout the audit. In addition:

we have identified and assessed the risks of material misstatement of the financial statements, whether due to fraud or error, designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
we have obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control;
we have evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors;

we have concluded on the appropriateness of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to consider this matter in forming our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern;
we have evaluated the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We have communicated with those charged with governance, identified at an appropriate level as required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We have provided those charged with governance with a statement that we have complied with the ethical and independence requirements applicable in Italy, and we have communicated with them all matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we have determined those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We have described these matters in our auditor's report.

Additional information pursuant to article 10 of EU Regulation n. 537/14

The shareholders of Intercos S.p.A., in the general meeting held on July 29, 2015, engaged us to perform the audits of the financial statements for each of the years ending from December 31, 2015, to December 31, 2023.

We declare that we have not provided prohibited non-audit services, referred to article 5, par. 1, of EU Regulation n. 537/2014, and that we have remained independent of the Company in conducting the audit.

We confirm that the opinion on the financial statements included in this report is consistent with the content of the additional report to the audit committee (Collegio Sindacale) in their capacity as audit committee, prepared pursuant to article 11 of the EU Regulation n. 537/2014.

Report on compliance with other legal and regulatory requirements

Opinion pursuant to article 14, paragraph 2, subparagraph e), of Legislative Decree n. 39 dated 27 January 2010 and of article 123-bis, paragraph 4, of Legislative Decree n. 58, dated 24 February 1998

The Directors of Intercos S.p.A. are responsible for the preparation of the Report on Operations and of the Report on Corporate Governance and Ownership Structure of Intercos S.p.A. as at December 31, 2018, including their consistency with the related financial statements and their compliance with the applicable laws and regulations.

We have performed the procedures required under audit standard SA Italia n. 720B, in order to express an opinion on the consistency of the Report on Operations and of specific information included in the Report on Corporate Governance and Ownership Structure as provided for by article 123-bis, paragraph 4, of Legislative Decree n. 58, dated 24 February 1998, with the financial statements of Intercos S.p.A. as at December 31, 2018 and on their compliance with the applicable laws and regulations, and in order to assess whether they contain material misstatements.

In our opinion, the Report on Operations and the above mentioned specific information included in the Report on Corporate Governance and Ownership Structure are consistent with the financial statements of Intercos S.p.A. as at December 31, 2018 and comply with the applicable laws and regulations.

With reference to the statement required by art. 14, paragraph 2, subparagraph e), of Legislative Decree n. 39, dated 27 January 2010, based on our knowledge and understanding of the entity and its environment obtained through our audit, we have no matters to report.

Statement pursuant to article 4 of Consob Regulation implementing Legislative Decree n. 254, dated 30 December 2016

The Directors of Intercos S.p.A. are responsible for the preparation of the non-financial information pursuant to Legislative Decree n. 254, dated 30 December 2016. We have verified that non-financial information have been approved by Directors.

Pursuant to article 3, paragraph 10, of Legislative Decree n. 254, dated 30 December 2016, such non-financial information are subject to a separate compliance report signed by us.

Milan, April 5, 2019

EY S.p.A. Signed by: Paolo Zocchi, Partner

This report has been translated into the English language solely for the convenience of international readers.

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Intercos — Audit Report / Information 2018

4306_rns_2019-05-13_ac8a47e2-46fd-4966-8313-05b64371a6f9.pdf