INTERCOS GROUP Global Cosmetic Manufacturer

CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2018

PREPARED IN CONFORMITY WITH IFRS ADOPTED BY THE EUROPEAN UNION

Intercos S.p.A. Registered Office Milan – Piazza Generale Armando Diaz 1

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

Consolidated Financial Statements at December 31, 2018

REPORT ON OPERATIONS

1. Business Combinations – Acquisition of Cosmint Group and subsequent allocation of goodwill

On August 3, 2017, Intercos S.p.A. completed the 100% acquisition of Cosmint Group S.p.A. (now merged with and into Cosmint S.p.A.), a company operating in the B2B cosmetic sector for more than 20 years and a leader in the manufacture of skin care, hair and body products. The acquisition has contributed to the creation of one of the largest B2B groups in the world of beauty.

The higher price paid of €42,852 thousand, now settled in full, was allocated to goodwill in the 2017 consolidated financial statements on a provisional basis until completion of the purchase price allocation process as set out in IFRS 3.

During the year 2018, in fact, after completion of the purchase price allocation, the higher price paid was allocated as follows:

€14,947 thousand to property, plant and equipment according to a measurement of the fair value of these assets as determined by an independent third-party company. The amount allocated net of the tax effect was €10,777 thousand;
the remaining €32,075 thousand to goodwill, allocated in part to the already-existing individual Make-up and Skin Care CGUs and in part to the new Hair & Body CGU.

The allocation process among the different CGUs was completed based on an internal measurement of the fair value of the assets on which an impairment test is conducted periodically by the Group as set out in IAS 36.

The comparative consolidated income statements for the two years include the figures of Cosmint beginning from the acquisition date of August 3, 2017 for 2017 and from January 1 for 2018.

2. Profit and Financial Performance

The year 2018 saw the Intercos Group affirm the success of its strategy in the field of innovation through product diversification in the Color Cosmetic and Skin Care markets and by expansion of its offering in the Hair & Body business thanks to the newly acquired Cosmint Group. Additional details are described in Point 1. – Business Combinations – Acquisition of the Cosmint Group and subsequent allocation of goodwill.

In 2018, the Intercos Group reported revenues from sales totaling €691,631 thousand compared to €590,162 thousand in 2017, recording an increase of +17% compared to the prior year.

In order to better understand 2018 revenues, if such revenues are compared to 2017 total revenues of €671,334 thousand, which include Cosmint for the whole of 2017 (from January 1 to December 31 instead of from the August 3, 2017 acquisition date to the end of the year), there would have been an increase of 3% or €20,297 thousand, confirming Intercos' effective leadership position through the consolidation of its growth.

Adjusted EBITDA* is a positive €100,501 thousand (14.5% margin) compared to €84,910 thousand in 2017 (14.4% margin), increasing +18.4%.

Adjusted EBITDA of the Group in 2017, including Cosmint for the whole of 2017, would have been €92,981 thousand (13.9% margin) with a margin improvement of 0.6% and an +8.1% increase year-over-year for a total of €7,520 thousand. The Group bettered its performance thanks to an improved industrial gross margin accompanied by its control over indirect costs which, although higher, are still in line with the Group's consolidated growth. Total Adjusted EBITDA is extremely positive when considering that Cosmint's contract manufacturing business has by its very nature a lower margin as compared with the Make-up and Skin Care businesses.

Operating profit (EBIT) is €68,369 thousand and +18.5% higher compared to €57,697 thousand in 2017. Including Cosmint for the 12 months of 2017, EBIT in 2018 shows an increase of €5,261 thousand (+8.3%). Net nonrecurring expenses in 2018 total €991 thousand and include €119 thousand referring to the subsidiary Intercos Europe S.p.A., mainly for merchandise that was destroyed in a fire aboard a ship that should have provided transport, €184 thousand to the parent Intercos S.p.A. for additional costs for internal reorganization actions, €80 thousand to the subsidiary Intercos America Inc. and €779 thousand for costs associated with the Management Long-term Incentive Plan. The Plan is intended to motivate certain key managers within Intercos by assigning free bonus shares to reinforce their loyalty and sense of belonging to the Group and to align the individual's interest with those of the Group in the achievement of performance goals and with its stakeholders for the creation of value over time.

Profit for the year is €47,403 thousand, with an increase of €21,387 thousand (+82.2%) over 2017. In order to better understand the performance of the Group, if Cosmint is included in consolidation for the whole of 2017, the profit would have been €30,174 thousand in 2017, with an increase of €17,229 thousand (+57.1%) in 2018 thanks to lower financial expenses (which are reduced by -23%) and the lower effect of taxes on EBT of 21.3% (42.1% in 2017).

This Consolidated Full Year Financial Report has been translated into English solely for the convenience of the international reader. In case of discrepancies, the Italian language document is the sole authoritative and universally valid version.

Capital expenditures in property, plant and equipment and intangible assets during the year (excluding the Cosmint Group) come to €24,120 thousand and €10,597 thousand, respectively. Total capital expenditures by the Cosmint Group amount to €9,048 thousand.

The net financial position is €183,978 thousand compared to €217,671 thousand at December 31, 2017. The debt reduction trend continues and improves by -15.5% with a 1.83 leverage ratio of debt to Adjusted EBITDA (2.56 at December 31, 2017).

Equity is €199,476 thousand compared to €156,099 thousand at December 31, 2017. The increase of €43,377 can be traced to the profit for the year. Additional details are described in Note 16 to the consolidated financial statements.

* Adjusted EBITDA is represented by operating profit before depreciation, amortization and impairment reversals (losses) adjusted by nonrecurring income (expenses).

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 manner in which Brexit will unfold. Besides financial and trade tensions, monitoring over 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.

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.

5. Important Factors significantly impacting Operating Performance

Technological innovation

The Intercos Group 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 and Skin Care markets and the related distribution channels; this know-how gives the Group an advantage in adapting to the changing demands of consumers, actively anticipating them and influencing them.

The completion of the 100% acquisition of Cosmint Group S.p.A. allowed Intercos to expand its cosmetics offering in the B2B market with skin care, hair and body products through manufacturing facilities in Italy and Poland.

The operations of Cosmint are organized by the parent into various business units, whose flows have been integrated into Intercos' already-existing business units to which the Hair & Body BU was added. This is described in Point 1. – Business Combinations – Acquisition of the Cosmint Group and subsequent allocation of goodwill.

During 2018, the Intercos Group developed more than 738 new color cosmetic formulae that became products and 68 new raw materials in addition to over 967 new skin care formulae.

Market expansion thanks to new customer categories

The entry of new players in the market such as emerging regional brands and retailers has contributed to the expansion of the market in which the Group operates, now no longer limited to multinational brands. This has enabled the Intercos Group to extend its offering of services to new categories of customers that, without their own or sufficient manufacturing capacity, have sought out Intercos as their strategic partner for product innovation, packaging development and creation of a marketing concept. On the other hand, multinational customers, although having their own manufacturing capacity, turn to Intercos so they can compete with the flexibility and speed typical of emerging regional brands.

6. Profit and Financial Review of the Intercos Group

For the purpose of providing information along the lines of the performance analysis and control parameters of the Group, non-GAAP alternative performance measures are used by management to provide information for a better assessment of the results of operations and the financial position of the Group as described below. Such performance measures should not be interpreted as a substitute for the conventional performance measures established by IFRS.

The content of the alternative performance measures not arrived at directly from the financial statements is defined as follows:

EBITDA: is calculated as profit before taxes, financial income (expenses) without any adjustment and depreciation, amortization and impairment reversals (losses). EBITDA also excludes income (expenses) from the management of unconsolidated companies and securities, as well as gains or losses on disposal of consolidated equity investments, classified under financial income (expenses) or, for the share of the profit (loss) of investments accounted for using the equity method (non-operating), within the result from investments accounted for using the equity method.
Adjusted EBITDA: is calculated by the deducting the following, if applicable, from EBITDA, as defined above:
- impairment of goodwill, if any;
- amortization of the portion of the purchase price allocated to intangible assets in a business combination, as established in IFRS 3;
- restructuring costs, under specific and significant restructuring plans;
- nonrecurring other income (expenses) referring to particularly significant events unrelated to ordinary business operations.
Operating working capital: includes inventories and trade receivables and payables.
Net working capital: is given by operating working capital net of other current assets and liabilities.
Net invested capital: is the sum of non-current assets, non-current liabilities and net working capital.
Net debt (cash) or net financial position: is given by the sum of current and non-current financial liabilities net of short- and long-term financial receivables, including cash and cash equivalents.
Headcount: is given by the number of employees registered in the payroll book on the last day of the period under consideration.

(in € thousands)	2018	2017	Change
Revenues	691,631	590,162	101,469
EBITDA	99,510	82,708	16,803
Adjusted EBITDA	100,501	84,910	15,591
Adjusted EBITDA margin	14.5%	14.4%	0.1%

Operating profit (EBIT)	68,369	57,697	10,673
EBIT margin	9.9%	9.8%	0.1%

EBT	60,257	44,942	15,315
EBT margin	8.7%	7.6%	1.1%

Profit for the year	47,403	26,016	21,387
Profit margin	6.9%	4.4%	2.4%

(in € thousands)	12/31/2018	12/31/2017	Change
Net working capital	77,058	77,987	(929)
Net working capital turnover	8.98	7.57	1.41

Net invested capital	383,454	373,770	9,685

Non-current assets	329,145	315,866	13,279
Net financial position	183,978	217,671	(33,692)

	2018	2017	Change
Headcount (number)	3,595	3,447	148

Earnings per share (basic and diluted) – in euro	0.51	0.28	0.23

For the purpose of providing additional disclosure on the results of operations, financial position and cash flows of the Group, the following reclassified consolidated income statement, reclassified consolidated statement of financial position and consolidated net debt (cash) table are presented in the following pages.

Reclassified Consolidated Income Statement by function

(in € thousands)	2018	2017

Revenues	691,631	590,162
Cost of sales	(539,214)	(453,517)
Industrial gross margin	152,417	136,645
Industrial gross margin %	22.0%	23.2%
R&D and innovation costs	(33,390)	(32,528)
Selling expenses	(25,145)	(24,644)
General and administrative expenses	(28,354)	(24,804)
Other operating income (expenses)	7,755	7,011
Result from investments accounted for using the equity method (operating)	(3,923)	(1,781)
Nonrecurring income (expenses)	(991)	(2,202)
Operating profit (EBIT)	68,369	57,697
EBIT margin	9.9%	9.8%
Depreciation, amortization and impairment reversals (losses)	(31,141)	(25,011)
EBITDA (*)	99,510	82,708
Nonrecurring income (expenses)	(991)	(2,202)
Adjusted EBITDA (*)	100,501	84,910
Adjusted EBITDA margin	14,5%	14,4%
Financial income (expenses) (**)	(8,941)	(12,847)
Result from investments accounted for using the equity method	829	92
Profit before taxes (EBT)	60,257	44,942
Income taxes	(12,854)	(18,926)
Profit for the year	47,403	26,016

Of which:
- attributable to owners of the parent	47,301	25,793
- attributable to non-controlling interests	102	223
Earnings per share:
Basic and diluted	0.51	0.28

(*) Additional details are described on page 6.

(**) Financial income (expenses) is the sum of financial income (expenses) without any adjustment.

In 2018, the Intercos Group reported revenues from sales totaling €691,631 thousand compared to €590,162 thousand in 2017. This is a +17% increase over the prior year in a world market that grew at a pace of 7% yearover-year.

In order to better understand 2018 revenues, if such revenues are compared to the 2017 revenues of the Group including Cosmint (from January 1 to December 31 instead of from the August 3, 2017 acquisition date to the end of the year), the 2017 total is €671,334 thousand, with a year-over-year increase of +3%, confirming Intercos' leadership position through the consolidation of its growth.

Breakdown of revenues by geographical region

A comparison of revenues by geographical region in the two years is as follows:

(in € thousands)
Revenues by geographical region	2018	2017
Americas	179,751	204,422
EMEA	409,213	256,183
Asia	102,667	67,354
Cosmint Group	-	62,203
Total	691,631	590,162

Americas: in a market that expanded by +6.4%, sales were -12.1% lower particularly in the mass market and private label market segments of multinational and retailer customers.
EMEA: sales total €409,213 thousand in 2018 against €256,183 thousand in 2017. The increase of €153,030 thousand (+59.7%) is largely due to the change in the consolidation area which now includes the Cosmint Group for all 12 months of 2018.
Asia: a +52% increase is reported in total sales from €67,354 thousand in 2017 to €102,667 thousand in 2018, in a market that grew +11.6%. This increase can mostly be traced to the ceaseless efforts made by the Group to grow the business with local emerging brands and retailers. Moreover, but to a lesser extent, a positive growth in sales was recorded with multinational customers.
As for the Cosmint Group, almost all sales are concentrated in EMEA.

Breakdown of sales by business unit

The analysis of revenues by business unit in 2018 compared to 2017 is the following:

	Year		Change
(in € thousands)	2018	2017	2018 vs 2017	2018 vs 2017 %
Make-up	435,645	449,111	-13,466	-3.0%
Skin Care	112,111	78,848	33,264	42.2%
Hair & Body	143,875	-	143,875	n.s.
Cosmint	-	62,203	-62,203	n.s.
Total	691,631	590,162	101,469	17.2%

Additional details are described in Note 5 - Segment reporting in the consolidated financial statements.

The contribution to revenues by Group companies is summarized below:

Company	2018	2017
Intercos Europe S.p.A.	272,807	257,499
Intercos America Inc.	71,500	113,879
Intercos Cosmetics Suzhou Co. Ltd	24,318	34,668
Intercos Technology Co. Ltd	86,627	58,118
Interfila Cosmetics (Shanghai) Co. Ltd	36,668	34,351
CRB S.A.	51,020	43,474
Cosmint S.p.A.	142,913	56,060
Tatra Spring Polska SP ZOO	27,120	6,111
Other companies	12,273	20,326
Aggregate total	725,247	624,486
Eliminations	(33,616)	(34,324)
Consolidated total	691,631	590,162

Reclassified Consolidated Statement of Financial Position

(in € thousands)	12/31/2018	12/31/2017

Fixed assets	297,195	290,112

Inventories	117,476	111,870
Trade receivables	116,023	126,578
Trade payables	(121,645)	(123,408)
Operating working capital	111,853	115,039
Other current assets and liabilities, net (*)	(34,795)	(37,052)
Net working capital	77,058	77,987

Other non-current assets and liabilities, net (**)	3,087	915

Investments accounted for using the equity method	6,114	4,757

Invested capital	383,454	373,770

Equity	199,476	156,099
Cash and cash equivalents	(94,367)	(68,777)
Financial payables	278,345	286,448
Net financial position	183,978	217,671
Total sources	383,454	373,770

Fixed assets / Invested capital	77.50%	77.62%
Net financial position / Equity	0.92	1.39
Invested capital / Equity	1.92	2.39
Operating working capital / Revenues	16.17%	19.49%
Net working capital / Revenues	11.14%	13.21%

A reconciliation between the Reclassified Consolidated Statement of Financial Position above and the Consolidated Statement of Financial Position in the Consolidated Financial Statements is as follows:

(*) Includes the captions Other current assets and Other current liabilities.

Ratios

(**) Includes the captions Deferred tax assets, Other non-current receivables, Non-current provisions for risks, Deferred tax liabilities, Other non-current liabilities and Employee benefits.

The net financial position is €183,978 thousand compared to €217,671 thousand at December 31, 2017. The debt reduction trend continues and improved by -15.5% with a 1.83 leverage ratio of debt to Adjusted EBITDA which, at December 31, 2017, following the acquisition of the Cosmint Group, was 2.56.

Consolidated Net debt (Cash)

(in € thousands)	12/31/2018	12/31/2017
Cash and cash equivalents	(94,367)	(68,777)
Borrowings from banks and other lenders	60,253	58,696
Current net financial position	(34,114)	(10,081)

Borrowings from banks and other lenders	218,092	227,752
Non-current net financial position	218,092	227,752

Debt (Cash)	183,978	217,671

The following significant events took place during the year 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' meeting 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 S.p.A. 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 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. To this end, 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.
On September 7, 2018, Intercos Europe S.p.A. and Drop Nail S.r.l. held their respective shareholders' meetings which approved the project for the merger of Drop Nail S.r.l. with and into Intercos Europe S.p.A. in order to simplify and rationalize the organization of the corporate structures within the Intercos Group. The Drop Nail merger became effective under the Italian Civil Code on December 1, 2018. The accounting effects on the consolidated and separate financial statements are effective retroactively from January 1, 2018.

8. 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 Note 32 to the consolidated financial statements.

9. Performance of the main Companies of the Group

Intercos Europe S.p.A.: Intercos Europe is the most important company of the Group in terms of volume. In 2018, the company reported revenues of €272,807 thousand, up €15,308 thousand, or +6% compared to 2017 (in 2017 revenues grew +3%), particularly in the EMEA and Americas regions in the prestige segment with multinational and emerging brands customers.

CRB S.A.: sales recorded by CRB are €51,020 thousand, recording an increase of €7,546 thousand (+17%). The company grew in all geographical regions but mainly in EMEA and Asia in the prestige segment with emerging brands customers.

Intercos Technology Ltd.: this company reported revenues of €86,627 thousand, increasing +49% (€58,118 thousand in 2017) and rewarding Intercos' commitment to develop its business with local customers in the mass market segment with emerging brands and retailer customers.

Interfila Cosmetics (Shanghai) Ltd.: in 2018, this company posted an increase in sales from €34,351 thousand in 2017 to €36,668 thousand (+7%) by adding new value and consolidating the growth in sales reported in the prior year (+74% in 2017). The increase is spread over all geographical regions but especially EMEA and Asia in the mass market segment with multinational and emerging brands customers.

Intercos Cosmetics Suzhou Ltd.: revenues reported by this company amount to €24,318 thousand compared to €34,668 thousand in 2017. The reduction of -30% mainly occurred in the EMEA region in the private label segment with retailer customers.

Intercos America Inc.: a decrease of -37% in revenues was posted by this company totaling €42,379 thousand, from €113,879 thousand in 2017 to €71,500 thousand in 2018. The decrease refers to the Americas region in all segments with both multinational and retailer customers. The Group has already put into place corrective measures to relaunch the company.

10. Research & Development

In 2018, the Group continued to invest in new products and technologies, confirming its global leadership position in terms of innovation.

The increase in research and development costs in 2018 totals €9,563 thousand and refers to:

€3,719 thousand of expenditures classified under Capitalized development costs, of which €1,562 thousand relates to Intercos S.p.A., €832 thousand to Intercos America Inc., €189 thousand to projects of CRB S.A. and €503 thousand to research conducted by Vitalab S.r.l.;
€5,844 thousand for projects conducted primarily by Intercos S.p.A. not yet completed and classified under Assets under development and payments on account.

The increase in Assets under development and payments in advance refers to costs capitalized for R&D projects which encompass both Make-up and Skin Care products spanning studies conducted on new raw materials, innovative ingredients, formulae, materials and sustainable products development.

Additional details are described in Note 8 to the consolidated financial statements.

11. Personnel and Organization

The headcount of the Group at December 31, 2018, including temp workers, is 5,611 compared to 5,499 at the end of 2017, with an increase of 148 permanent workforce and a decrease of 36 temporary workers.

The breakdown by category is as follows:

Group headcount	12/31/2018	12/31/2017

Executive and mid-level managers	288	265
White-collars	1,294	1,210
Blue-collars	2,013	1,972

Total	3,595	3,447

Temporary	2,016	2,052

Total	5,611	5,499

The breakdown by permanent and fixed-term personnel is the following:

Group headcount	12/31/2018	12/31/2017

Permanent	3,447	3,394
Fixed-term	148	53
Total	3,595	3,447

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

Employee benefit expenses show an increase of €13,553 thousand, from €163,421 thousand in 2017 to €176,974 thousand in 2018; +8.3% of this change is the result of the consolidation of Cosmint.

In order to better understand the comparison for the two years, if employee benefit expenses in 2017 also included Cosmint for the 12 months, then the total expenses for that year would be €2,660 thousand higher, with a change of +1.5% compared to 2017.

The Group uses temp work contracts for its manufacturing activities in order to render direct manufacturing costs more flexible. Temp work costs for 2018 are €38,319 thousand with a -7.9% reduction of €3,300 thousand thanks to careful management of demand.

The Group's business is exposed to various types of risk including exchange rate risk, interest rate risk, credit risk and liquidity risk.

Exchange rate risk

The Group 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 of the individual companies of the Group.

The Group's exposure is mainly concentrated on the following exchange rates:

EUR/USD exchange rate: with reference to commercial and financial transactions entered into by eurozone companies operating on the North American market and vice versa.
EUR/GBP exchange rate: with reference to commercial and financial transactions entered into by eurozone companies operating on the British market and vice versa.
USD/RMB: with reference to commercial and financial transactions entered into by Chinese companies operating on the North American market and vice versa.
EUR/RMB: with reference to commercial and financial transactions entered into by eurozone companies operating on the Chinese market and vice-versa.
CHF/EUR/USD: with reference to commercial and financial transactions entered into by the Group company operating in Switzerland.

It is the Group's policy to hedge, where possible, exposures denominated in currencies other than the functional currency of the individual companies, particularly the following:

certain flows: commercial flows and exposures generated by loans receivable and payable;
forecast flows: commercial flows originating from certain or highly probable contractual commitments.

The risk is monitored by net currency positions managed by the Group or by using derivative contracts. The following sensitivity analysis was performed to illustrate the effects on consolidated 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 and at December 31, 2017.

The following sensitivity analysis does not consider the tax effect on profit and equity.

(in € thousands)	2018		2017
	-7.50%	+7.50%	-7.50%	+7.50%
U.S. dollar	(130)	112	(636)	547
British pound	(28)	24	24	(20)
Other currencies	(31)	16	135	(63)
Total	(189)	151	(477)	463

Interest rate risk

The Group is exposed to interest rate risk mainly from long-term borrowings. Such borrowings are at either fixed or variable interest rates. The Group 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 Group to risk originating from the volatility of interest rates (cash flow risk). With regard to this risk, for purposes of hedging, the Group may use derivative contracts which limit the impact of interest rate fluctuations on the income statement.

The Group 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 of the Group, using derivative contracts, where necessary.

The following sensitivity analysis was performed to illustrate the effects on consolidated profit produced by an increase/decrease of 50 basis points in interest rates compared to the effective interest rates at December 31, 2018 and at December 31, 2017, with all other variables remaining constant.

(in € thousands)	2018		2017
	-0.50%	+0.50%	-0.50%	+0.50%
Euro (Euribor)	(489)	489	(350)	350
U.S. dollar (Libor)	(52)	52	(58)	58
Total	(541)	541	(408)	408

The potential effects reported above were calculated by taking the liabilities which represent the most significant part of the Group'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.

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.

Credit risk

Credit risk is associated with trade receivables, cash and cash equivalents, financial instruments, deposits at banks and other financial institutions and is defined as the risk that a counterparty does not fulfill the obligations associated with a financial instrument or a commercial contract, thus resulting in a financial loss.

The credit risk related to trading counterparties is managed by the individual subsidiaries and monitored centrally by the corporate Administration, Finance and Control Function. The Intercos Group does not have significant concentrations of credit risk. However, there are policies in place to ensure that sales of products and services are made to customers with a high degree of creditworthiness, taking into consideration their financial position, past experience and other factors. Credit limits for major customers are based on internal and external valuations according to ceilings approved by management in the individual countries. The use of credit limits is monitored periodically at a local level. It should be noted that at the end of 2018, the Group sold non-past due receivables under non-recourse factoring contracts for €17,969 thousand, of which €11,476 thousand refers to the subsidiary Intercos Europe S.p.A. and €6,493 thousand to the subsidiary Cosmint S.p.A.

As for credit risk relating to the management of financial resources and cash, the risk is monitored by the Administration, Finance and Control Function of the Group which has policies in place to ensure that the companies of the Group enter into transactions with independent high-credit-quality counterparties.

Trade accounts receivables, the provision for impairment of receivables and an ageing analysis of receivables are presented at December 31, 2018 and December 31, 2017.

12/31/2018	Trade receivables	Current	Overdue 0- 60 days	Overdue 61-90 days	Overdue over 90 days	Provision for impairment
Make-up	72,447	59,178	10,442	1,856	3,484	(2,514)
Skin Care	24,358	17,067	5,907	632	1,192	(440)
Hair & Body	19,218	15,095	3,721	528	10	(137)
Total	116,023	91,340	20,070	3,016	4,686	(3,090)

(in € thousands)

12/31/2017	Trade receivables	Current	Overdue 0- 60 days	Overdue 61-90 days	Overdue over 90 days	Provision for impairment
Make-up	88,102	58,015	27,195	1,564	2,229	(902)
Skin Care	17,466	12,093	4,816	422	190	(55)
Cosmint	21,011	18,154	2,635	967	81	(826)
Total	126,578	88,262	34,646	2,953	2,500	(1,783)

Liquidity risk

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

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

The amount of liquidity reserves available at December 31, 2018 and December 31, 2107 is as follows.

(in € thousands)	December 31, 2018	December 31, 2017
Cash	94,367	68,777
Unused committed credit lines	-	30,000
Total	94,367	98,777

The following tables present an analysis of the maturities of borrowings and other liabilities. Borrowings from banks in the following tables are presented at their nominal amount.

(in € thousands)	Within 1 year	1 to 5 years	Beyond 5 years	At 12/31/2018
Bonds	-	120,000		120,000
Borrowings from banks and other lenders - m-l/term	20,179	93,236	-	113,415
Finance leases payable	154	8,772	-	8,926
Medium/long-term debt	20,333	222,008	-	242,341
Borrowings from banks and other lenders - s/term	34,051	-	-	34,051
Derivatives	126	-	-	126
Factoring companies payable	1,260	-	-	1,260
Trade payables	121,645	-	-	121,645
Short-term debt	157,082	-	-	157,082
Total	177,416	222,008	-	399,423

(in € thousands)	Within 1 year	1 to 5 years	Beyond 5 years	At 12/31/2017
Bonds	-	-	120,000	120,000
Borrowings from banks and other lenders - m-l/term	7,782	97,776	-	105,558
Finance leases payable	2,155	9,213	-	11,367
Medium/long-term debt	9,937	106,989	120,000	236,926
Borrowings from banks and other lenders - s/term	45,621	1,389	3,669	50,679
Derivatives	157	-	-	157
Trade payables	123,408	-	-	123,799
Short-term debt	169,186	1,389	3,669	174,635
Total	179,123	108,377	123,669	411,170

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 the Group 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 through profit and loss
Available-for-sale	-	-	-	-	-	-	-
financial assets
Derivatives (assets)	-	-	-	-	-	-	-
Securities held for	-	-	-	-	-	-	-
trading
Trade receivables	-	116,023	-	-	-	-	-
Other receivables (*)	-	4,563	-	-	-	-	-
Borrowings from banks	-	-	-	-	-	278,345	-
and other lenders Trade payables	-	-	-	-	-	121,645	-

Other payables (*)	-	-	-	-	-	44,429	-
Derivatives (liabilities)	-	-	-	-	-	-	-
Total	-	120,586	-	-	-	444,419	-

(in € thousands)

12/31/2017	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 through profit and loss
Available-for-sale	-	-	-	-	-	-	-
financial assets
Derivatives (assets)	-	-	-	-	-	-	-
Securities held for	-	-	-	-	-	-	-
trading
Trade receivables	-	126,578	-	-	-	-	-
Other receivables (*)	-	5,410	-	-	-	-	-
Borrowings from banks
and other lenders	-	-	-	-	-	286,448	-
Trade payables	-	-	-	-	-	123,408	-
Other payables (*)	-	-	-	-	-	42,095	-
Derivatives (liabilities)	-	-	-	-	-	-	-
Total	-	131,988	-	-	-	451,951	-

(*) Other receivables and Other payables exclude items of a tax nature which do not meet the definition of financial assets or liabilities.

Derivatives

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:

Fair value hierarchy at the reporting date

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

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

At December 31, 2018 and 2017, there were no exchange rate hedging contracts to be expressed at fair value in the financial statements.

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

Type of derivative contract	Contract start date	Contract due date	Duration in years	Interest rate purchased	Spread	Currency	Notional Amount /000	MTM (in € thousands)
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

13. Environmental Analysis

The most important environmental issues relevant to the Intercos Group are atmospheric emissions, energy consumption, water usage and discharge, disposal management and usage of raw materials. Intercos is committed to ensuring that local laws regulating these issues are abided by and has begun to set out objectives at the Group level. In this regard, in 2018, there were no significant sanctions, whether monetary or non-monetary, imposed for violations of environment laws and/or regulations.

It should be noted that, in compliance with art. 5, paragraph 3, letter b of Legislative Decree 254/2016, the consolidated non-financial statement prepared in accordance with GRI Standards (CORE level) is available on the Group's website.

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 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 of 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.

15. Corporate Governance and Ownership Structure pursuant to ex art. 123 bis of Legislative Decree 58 of February 24, 1998 , as amended (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 (BoD) 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.

		Role
Name	Office	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 Supervisory Board is composed as reported in the following table.

Name	Position	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 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 Group, 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 remains unchanged at €10,818,377 and is 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.

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

	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 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.

16. 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 consolidated financial statements.

17. Information regarding Policies or Factors of a governmental, economic, fiscal, monetary or political Nature that have had or could have, directly or indirectly, significant Repercussions on the Activities of the Group

During the year to which the foregoing reported financial information and results refer, the activities of the Group have not been affected in a substantive manner by policies or factors of a governmental, economic, fiscal, monetary or political nature.

18. Outlook for 2019

A substantially positive outlook is expected for the year 2019, in effect confirming the Group's expectations as illustrated in its Business Plan.

19. Additional Information

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 pursuant to art. 2492 of the Italian Civil Code and authorized the liquidator of the company to file these with the Milan Company's Register together with the request to cancel the company from the Register.

In compliance with art. 5, paragraph 3, letter b of Legislative Decree 254/2016, the consolidated non-financial statement with a separate report drawn up according to GRI Standards (Core level) is available on the Group's website.

Milan, March 29, 2019 INTERCOS S.p.A. On behalf of the Board of Directors

___________________________

Corporate Information

BOARD OF DIRECTORS *

Name Office

Dario Gianandrea Ferrari	Chairman and CEO
Renato Semerari**	CEO
Ludovica Arabella Ferrari	Director
Gianandrea Ferrari	Director
Nikhil Thukral Kumar	Director
James Michael Chu	Director
Ciro Piero Cornelli	Director
Decio Masu	Director
Ginevra Ott	Director
Maggie Fanari	Director
Junbae 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.

Consolidated Statement of Financial Position at December 31, 2018

(in € thousands)	Note	December 31, 2018	December 31, 2017
NON-CURRENT ASSETS
Property, plant and equipment	7	160,237	145,816
Intangible assets	8	28,993	26,130
Goodwill	9	107,940	118,140
Investments	2	6,139	4,781
Deferred tax assets	10	19,412	14,214
Other non-current assets	11	6,423	6,783
Non-current assets		329,145	315,866

CURRENT ASSETS
Inventories	12	117,476	111,870
Trade receivables	13	116,023	126,578
Other current assets	14	16,351	18,327
Cash and cash equivalents	15	94,367	68,777
Current assets		344,217	325,552
TOTAL ASSETS		673,361	641,417

EQUITY
Share capital		10,818	10,818
Other reserves		66,005	66,005
Retained earnings		120,087	76,813
Equity attributable to owners of the parent		196,911	153,636
Equity attributable to non-controlling interests		2,565	2,463
TOTAL EQUITY	16	199,476	156,099

LIABILITIES
NON-CURRENT LIABILITIES
Borrowings from banks and other lenders	17	218,092	227,752
Provisions	18	440	2,147
Deferred tax liabilities	19	12,495	7,426
Other non-current liabilities		207	669
Employee benefit obligations	20	9,607	9,841
Non-current liabilities		240,841	247,835

CURRENT LIABILITIES
Borrowings from banks and other lenders	17	56,704	30,386
Other financial payables	17	3,548	28,310
Trade payables	21	121,645	123,408
Other current liabilities	22	51,147	55,379
Current liabilities		233,045	237,484
TOTAL EQUITY AND LIABILITIES		673,361	641,417

Consolidated Income Statement for the year ended December 31, 2018

(in € thousands)	Note	2018	2017

Revenues	23	691,631	590,162
Cost of sales	24	(539,214)	(453,517)
Industrial gross margin		152,417	136,645
Research & Development and innovation costs	25	(33,390)	(32,528)
Selling expenses	26	(25,145)	(24,644)
General and administrative expenses	27	(28,354)	(24,804)
Other operating income (expenses)		7,755	7,011
Result from investments accounted for using the equity method (operating)	30	(3,923)	(1,781)
Nonrecurring income (expenses)	28	(991)	(2,202)
Operating profit (EBIT)		68,369	57,697
Financial income	29	7,912	5,901
Financial expenses	29	(16,854)	(18,748)
Result from investments accounted for using the equity method (financial)	30	829	92
Profit before tax (EBT)		60,257	44,942
Income taxes	31	(12,854)	(18,926)
Profit for the year		47,403	26,016

Attributable to:
owners of the parent -		47,301	25,793
non-controlling interests -		102	223

Earnings per share:
Basic and diluted in euro	33	0.51	0.28

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

(in € thousands)	2018	2017

Net profit	47,403	26,016

Other comprehensive income that will not be reclassified subsequently to the income statement,
net of tax effect
- Actuarial gains (losses) on remeasurement of employee defined benefit plans 20	198	339
- Tax effect 10/19	(7)	(66)
Actuarial gains (loss) net of tax effect	191	273

Other comprehensive income that will be reclassified subsequently to the income statement,
net of tax effect
- Exchange differences on translating foreign operations 16	(354)	(7,395)
Exchange differences on translating foreign operations	(354)	(7,395)
- Fair value hedge	30	(157)
- Tax effect 16	(7)	38
Fair value hedge net of tax effect	23	(119)

Comprehensive income for the year	47,263	18,775

Attributable to:
owners of the parent -	47,157	18,594
non-controlling interests -	106	181

(in € thousands)	Equity attributable to owners of the parent				Equity attributable to non-controlling interests		Total
Description	Share capital	Other reserves (Share premium reserve)	Reserves and retained earnings	Profit for the year	Share capital	Profit for the year
Balances at January 1, 2018	10,818	66,005	58,219	18,594	2,282	181	156,099
Appropriation of 2017 profit	-	-	18,594	(18,594)	181	(181)	-
Share capital increase	-	-	-	-	-	-	-
Exchange differences on translating foreign operations	-	-	-	(344)	-	(10)	(354)
Other comprehensive income, net of tax	-	-	-	200	-	14	214
Consolidation reserve	-	-	(3,619)	-	(3)	-	(3,622)
Business combinations net of tax	-	-	(264)	-	-	-	(264)
Profit for the year	-	-	-	47,301	-	102	47,403
Balances at December 31, 2018	10,818	66,005	72,930	47,157	2,459	106	199,476

Consolidated Statement of Changes in Equity at December 31, 2017

(in € thousands)	Equity attributable to Equity attributable to owners of the parent non-controlling interests						Total
Description	Share capital	Other reserves (Share premium reserve)	Reserves and retained earnings	Profit for the year	Share capital	Profit for the year
Balances at January 1, 2017	10,710	66,005	38,366	20,058	2,193	161	137,493
Appropriation of 2016 profit	-	-	20,058	(20,058)	161	(161)	-
Share capital increase	108	-	-	-	-	-	108
Exchange differences on translating foreign operations	-	-	-	(7,353)	-	(42)	(7,395)
Other comprehensive income, net of tax	-	-	-	154	-	-	154
Consolidation reserve	-	-	(205)	-	(72)	-	(277)
Profit for the year	-	-	-	25,793	-	223	26,016
Balances at December 31, 2017	10,818	66,005	58,219	18,594	2,282	181	156,099

(in € thousands)	2018	2017
Profit from continuing operations		47,403	26,016
Profit for the year attributable to owners of the parent		47,403	26,016
Depreciation, amortization and impairment reversals (losses)		30,850	24,989
Nonrecurring income (expenses)	28	991	2,202
Change in provisions	10/18/19/20	(2,741)	(2,288)
Financial income (expenses)	29	8,941	12,847
Decrease / (Increase) in inventories	12	(5,358)	(13,060)
Decrease / (Increase) in trade receivables, net	13	10,947	(8,195)
Increase / (Decrease) in trade payables	21	(1,930)	2,039
Decrease / (Increase) in other assets	14/11/19	(4,349)	1,623
Increase / (Decrease) in other payables	22	(3,712)	15,604
Cash flows provided by operating activities ( a )		81,042	61,777

Acquisition of property, plant and equipment, net	7	(24,120)	(21,571)
Acquisition of intangible assets, net	8	(10,597)	(8,414)
Disposal of property, plant and equipment	1,370	738
Acquisitions of investments		(1,357)	(84)
Acquisition of investments in subsidiaries		-	(69,602)
Cash flows (used in) investing activities ( b )		(34,705)	(98,933)

Increase / (Decrease) in borrowings from banks and other lenders	17	(10,143)	49,010
Interest paid during the year		(7,104)	(6,592)

Cash flows provided by (used in) financing activities ( c )		(17,248)	42,418

Change in equity (d)	16	(3,622)	(169)
Net increase in cash and cash equivalents ( a )+( b )+ ( c ) + ( d )		25,467	5,092

Cash and cash equivalents, at beginning of the year	15	68,777	64,525
Translation differences		(123)	1,807
Cash and cash equivalents acquired		0	967
Cash and cash equivalents, at end of the year	15	94,367	68,777

Net increase in cash and cash equivalents during the year		25,467	5,092

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. General Information

Group organization structure

Intercos S.p.A. is a corporation organized under the laws of the Republic of Italy, with its registered office in Milan, Piazza Diaz 1.

Starting at the end of 2013, the Group's business was reorganized into two areas identified on the basis of the following operating segments:

Make-up Business Unit: specialized in the creation, development, manufacture and marketing of powders, emulsions, lipsticks, nail polishes and types of cosmetics using delivery systems in the form of pens/pencils for the face, eyes and lips;
Skin Care Business Unit: specialized in the manufacture and marketing of cosmetic and skin care creams.

The Group's main manufacturing facilities are at the plant sites in Italy, the United States, Switzerland, China, Brazil and South Korea.

Furthermore, after the parent Intercos S.p.A. completed the 100% acquisition of Cosmint Group S.p.A. (now Cosmint S.p.A.), a company operating in the B2B cosmetic sector with production facilities in Italy and Poland, the Intercos Group's operations now also encompass the:

Hair & Body Business Unit: specialized in the manufacture of hair and body products.

Additional details are described in Point 1. – Business Combinations – Acquisition of the Cosmint Group and subsequent allocation of goodwill.

The Group's organization structure is updated to the closing date of the consolidated financial statements at December 31, 2018 and shows the operating companies and those in liquidation.

2. Significant Accounting Policies

Basis of preparation

The consolidated financial statements for the year ended December 31, 2018 of the Intercos Group consist of the statement of financial position, the income statement, the statement of comprehensive income, the statement of changes in equity, the statement of cash flows and the notes thereto. All amounts in the notes are expressed in thousands of euros, unless otherwise indicated.

The format of the income statement, as permitted by IAS 1, presents a format by function showing revenues and cost of sales, which is considered to be a better representation of the economic and financial performance of the Group.

The consolidated 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 consolidated financial statements of the Group. Any future guidance and updated interpretations will be adopted in subsequent years in the manner established each time by the benchmark accounting standards.

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

New accounting standards and interpretations adopted by the Group

The accounting principles adopted in the preparation of the consolidated financial statements of the Group 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 Group 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 €715 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" or "ROU 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-ofuse 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

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).

realization of other assets. Consequently, compared to the provisions of IAS 17, as regards 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 Group intends to take advantage of the following practical exemptions 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.

Based on available information, the application of IFRS 16 will result in the recognition of a lease liability of €28 million. 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.

Furthermore, 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 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 statements have been prepared under the going concern concept.

The following accounting policies have been applied on a consistent basis for all periods presented.

Principles of consolidation

The consolidated financial statements of the Intercos Group include the financial statements at December 31, 2018 of Intercos S.p.A., the parent, and its subsidiaries.

The financial statements, prepared for purposes of consolidation, whose closing date coincides with that of the parent, have been drawn up in accordance with the international financial accounting standards adopted by the Group.

The financial statements of the subsidiaries are adjusted, if necessary, to conform to the accounting policies of the Group.

Control of an entity exists when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Thus, the Group controls an investee if and only if the Group has all the following:

power over the investee (when the investor has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee's returns);
exposure, or rights, to variable returns from its involvement with the investee;
the ability to use its power over the investee to affect the amount of the investor's returns.

When the Group holds less than the majority of voting rights (or similar rights), it shall consider all facts and circumstances when assessing whether it controls an investee, including:

contractual arrangements with other holders of voting rights;
rights from contractual agreements;
voting rights or potential voting rights of the Group.

The Group shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements defining control above. The consolidation of a subsidiary starts from the date that control commences until the date that control ceases. The assets, liabilities, income and expenses of the subsidiary acquired or sold during the year are included in the statement of comprehensive income from the date the Group commences control until the date that control ceases.

The profit (loss) for the year and each of the components of other comprehensive income shall be attributed to the owners of the parent and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All assets and liabilities, equity, income, costs and cash flows relating to transactions between entities of the Group are eliminated in full on consolidation.

When the proportion of the equity held by the parent changes, without a loss of control, such change shall be recorded in equity. If the Group loses control of the subsidiary, it shall:

derecognize the assets (including any goodwill) and liabilities of the subsidiary;
derecognize the carrying amount of any non-controlling interests;
eliminate the cumulative translation differences recognized in equity;
recognize the fair value of the consideration received;
recognize any investment retained in the former subsidiary at its fair value;
recognize the profit or loss in the income statement;
reclassify to profit or loss, or transfer directly to retained earnings if required by other IFRSs, the amounts recognized in other comprehensive income in relation to the subsidiary, as if the Group had directly disposed of the related assets or liabilities.

Scope of consolidation

Details of the companies included in the scope of consolidation of Intercos S.p.A. at December 31, 2018 and the method of consolidation of the various companies are presented in the following table:

SUBSIDIARIES

(consolidated line-by-line)
Company	Head Office	Currency	Capital in thousands of currency	Percentage of ownership
				Direct	Indirect
Intercos Europe S.p.A.	Milan	Euro	3,000	100.00%
Kit Productions S.r.l.	Pessano con Bornago (Milan)	Euro	10	70.00%
Marketing Projects S.r.l. in liquidation	Milan	Euro	40	100.00%
Ager S.r.l.	Monza	Euro	31	76.00%
Intercos America Inc.	Wilmington, New Castle, Delaware (USA)	US dollar	10	100.00%
Intercos do Brasil Indústria e Comércio de Productos Cosméticos ltda	Atibaia (Brazil)	Brazilian real	34,877	99.72%	0.27%
Intercos Paris S.à r.l.	Paris (France)	Euro	14	100.00%
Intercos UK Ltd	Barnstaple (UK)	British pound	0.1	65.00%
Intercos Marketing Ltd	South Molton (UK)	British pound	0.001		100%
CRB S.A.	Puidoux (Switzerland)	Swiss franc	100	100.00%
Vitalab S.r.l.	Milan	Euro	160		75.01%
CRB Benelux B.V.	Maastricht (Netherlands)	Euro	18		100.00%
Intercos Technology Co. Ltd.	Suzhou (P.R.C.)	US dollar	8,400		100.00%
Interfila Cosmetics (Shanghai) Co. Ltd	Shanghai (P.R.C)	US dollar	2,700		100.00%
Intercos Cosmetics Suzhou Co. Ltd.	Suzhou (P.R.C.)	US dollar	12,800		100.00%
Intercos Asia Pacific Limited*	Hong Kong	US dollar	29,104*	100.00%
Intercos Concept S.r.l	Milan	Euro	10	100.00%
Cosmint S.p.A. **	Olgiate Comasco	Euro	1,586	100.00%
Tatra Spring Polska Spółka zoo **	Garwolin (Poland)	Polish zloty	50		100.00%

* The investment in Intercos Asia Pacific is recorded for USD 29,101 thousand and HKD 26 thousand; the latter, converted at the exchange rate at the transaction date, is €3 thousand.

** The company is an integral part of the Intercos Group since August 3, 2017 following the 100% acquisition of Cosmint Group S.p.A., now merged with and into Cosmint S.p.A., which, in turn, owns 100% of the share capital of Tatra Spring Polska Spółka zoo. It should be noted that Cosmint S.p.A. holds a minority interest of 1.85% in Lariana Depur S.p.A., with registered offices in Como (Italy) at Via Raimondi 1.

During the year 2018 certain extraordinary transactions took place to rationalize the companies of the Group with the aim of shortening the chain of control and facilitating decisional, administrative and operational processes, as follows:

in July 2018, the shareholders' meetings approved and consequently started 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 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 September 7, 2018, Intercos Europe S.p.A. and Drop Nail S.r.l. held their respective shareholders' meetings which approved the project for the merger of Drop Nail S.r.l. with and into Intercos Europe S.p.A. The Drop Nail merger became effective under the Italian Civil Code on December 1, 2018. The accounting effects on the consolidated and separate financial statements are effective retroactively from January 1, 2018.

Investments in associates and joint ventures

An associate is a company in which the Group exercises a significant influence, meaning that it has the power to participate in the financial and operating policy decisions of the investee (but not control or joint control).

The considerations made to determine significant influence or joint control are similar to those necessary to determine control over subsidiaries.

Investments by the Group in associates are accounted for using the equity method.

The equity method is a method of accounting whereby the investment is initially recognized at cost. The carrying amount is adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets. Goodwill relating to an associate is included in the carrying amount of the investment. Amortization of goodwill is not permitted and goodwill is not tested for impairment separately.

The companies consolidated using the equity method refer to Hana and Shinsegae Intercos Korea, as follows:

SOCIETA' CONSOLIDATE CON IL METODO DEL PATRIMONIO NETTO
Società	Sede	Tipo di attivita svolta	Data riferimento bilancio	Principi contabili usati	Capitale €/000	Totale Attivo €/000	Totale Passivo €/000	Divisa	0/0 di possesso	0/0 diritti di voto	50% dirtti di voto ma non controllo	Possesso > Possesso < 50% dirtti di voto ma controllo	Possesso > 20% dirtti di voto ma non influenza sīgnificativa	Possesso < 20% dirtti di voto ma influenza significativa	Valore €/000
	Controllo: Diretto
Hana Co Ltd	Hwasung, Korea	Packaging	31/12/2018	IFRS			924 - 1 - 29.493 - 29.493 - 18.869 - 18.869 - 18.869 - 18.869 - 18.86 - 18.8		20,00% = = =	20,00%	N/A		N/A	N/A	2537
Shinsegae Intercos Korea	Sud Korez	Cosmetics Prod	31/12/2018	IFRS	21.261 - - - -		42.739		50,00% = = = = = =	50,00%	N/A		N/A	N/A	- - - - - 3.578

In August 2018, Intercos and the shareholder Shinsegae increased their investment in the share capital of the Shinsegae Intercos Korea joint venture each by €4,633 thousand (KRW 6,000,000 thousand), with the 50% percentage investment remaining unchanged for both shareholders.

Current / non-current classification

Assets and liabilities in the financial statements of the Group are classified according to current/non-current criteria. The Group classifies an asset as current when:

it expects to realize the asset, or intends to sell or consume it, in its normal operating cycle;
it holds the asset primarily for the purpose of trading;
it expects to realize the asset within 12 months after the reporting period;
the asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

The Group classifies all other assets as non-current.

The Group classifies a liability as current when:

it expects to settle the liability in its normal operating cycle;
it holds the liability primarily for the purpose of trading;
the liability is due to be settled within 12 months after the reporting period;
it does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

The Group classifies all other liabilities as non-current.

Deferred tax assets and deferred tax liabilities are classified as non-current assets and liabilities.

Translation of financial statements expressed in currencies other than the functional currency

The rules for translating the financial statements of subsidiaries expressed in currencies other than the euro are the following:

assets and liabilities are translated at the exchange rates prevailing at the date of the consolidated financial statements;
revenues and costs are translated at the average exchange rate for the year;
the "reserve for exchange differences on translating foreign operations" includes both exchange differences generated by the translation of the income statement at a rate different from the year-end rate and those generated by the translation of opening equity at a rate different from the year-end rate;
goodwill and fair value adjustments arising from the purchase of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the year-end exchange rate.

The exchange rates used for the translation of the statement of financial position in currencies other than the euro at December 31, 2018 and December 31, 2017 and the average exchange rates for the year 2018 and 2017 are as follows:

	Income statement 2018	Statement of financial position 12/31/2018	Income statement 2017	Statement of financial position 12/31/2017
	Average during year	Year-end	Average during year	Year-end
U.S. dollar	1.1815	1.1450	1.1293	1.1993
Pound sterling	0.8847	0.8945	0.8761	0.8872
Swiss franc	1.1549	1.1269	1.1115	1.1702
Chinese renminbi (yuan)	7.8073	7.8751	7.6264	7.8044
Brazilian real	4.3094	4.4440	3.6041	3.9729
South Korean won	1,299.2523	1,277.9300	1,275.8322	1,279.6100
Polish zloty	4.2606	4.3014	4.2563	4.1770

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:

	Depreciation rates
	December 31, 2018	December 31, 2017

Buildings	4%- 5.5%	4%- 5.5%
Plant	10% - 15%	10% - 15%
Machinery	10% - 12%	10% - 12%
Equipment	10% - 40%	10% - 40%
Furniture	12% - 20%	12% - 20%
Motor vehicles	20% - 25%	20% - 25%

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 corresponds to the lower of the remaining estimated useful life of the property, plant and equipment and the remaining term of the lease contract.

Gains and losses on the sale or disposal of property, plant and equipment are calculated as the difference between the net proceeds from the sale and the 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.

Leased assets

Assets owned under finance lease contracts in which substantially all the risks and rewards of ownership are transferred to the Group 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. Intangible assets are recognized at cost according to the criteria indicated for property, plant and equipment. Not even in the case of the application of specific laws are revaluations permitted.

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 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 recoverability 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 (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 they can be demonstrated and 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;
c) the intention to complete the project and sell the intangible assets generated by the project;
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 the 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 cashgenerating 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.

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.

At first-time recognition, the financial assets are classified, depending on the case, as financial assets through profit and loss, loans and receivables, financial assets held to maturity or available-for-sale financial assets. All financial assets are recognized initially at fair value, to which directly attributable transaction costs are added, except in the case of financial assets measured at fair value through profit and loss.

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 (to which directly attributable transaction costs are added, except in the case of financial assets measured at fair value through profit and loss) and subsequently measured at amortized cost using the effective interest rate method. Where there is objective evidence of an indication of impairment (that may include indications that a debtor or group of debtors are in situations of financial difficulty, inability to meet obligations or inability or delays in interest payments or important payments), 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 Group 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 Group 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.

Financial liabilities are classified, at first-time recognition in financial liabilities at fair value through profit and loss or in financing and loans.

All financial liabilities are recognized initially at fair value, to which directly attributable transaction costs are added in the case of financing, loans and payables.

The financial liabilities of the Group include financing and loans, as well as bank overdrafts and guarantees provided.

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 Group 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 Group uses derivative financial instruments to hedge interest and foreign exchange rate exposure. In particular, derivative financial instruments are 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 Group 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 firsttime recognition of the derivatives according to specific hedge accounting criteria.

Determination of the fair value of derivative financial instruments

The Group measures financial instruments, such as derivatives, and non-financial assets, such as property investments at fair value at each reporting date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:

(a) in the principal market for the asset or liability; or

(b) in the absence of a principal market, the most advantageous market for the asset or liability.

The Group must have access to the principal (or most advantageous) market at the measurement date.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy described as follows:

Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly;
Level 3 valuation techniques for which the inputs are unobservable for the asset or liability.

The fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input used for measurement.

For assets and liabilities held at the end of the reporting period that are measured at fair value on a recurring basis, the Group determines if there have been any transfers between hierarchy levels, reviewing the categorization (based on the lowest level input that is significant to the entire measurement).

Inventories

Inventories are stated at the lower of purchase or production cost, determined using the weighted average cost method, and estimated realizable value.

Inventories, where necessary, are adjusted to take into account obsolete or slow-moving goods. When the circumstances which previously led to the adjustment no longer exist or when there is a clear indication of an increase in net realizable value, the adjustments are reversed in whole or in part so that the new carrying amount is the lower of purchase or production cost and net realizable value at the balance sheet date.

Cash and cash equivalents

Cash and cash equivalents include bank deposits, postal deposits, cash and valuables in cash. They are stated in euro at nominal value, which corresponds to fair value, and if in a currency other than the euro, at the exchange rate at the end of the year.

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 Group 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

The Group companies operate various types of defined benefit pension plans, in accordance with the conditions and practices commonly applied in the countries in which the Group companies conduct their business.

Defined benefit pension plans, which also include 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 Group'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 Group companies' 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 December 31, 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.

Discontinued operations

A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and represents a separate major line of business or geographical region of operations, and is part of a single coordinated disposal plan.

In the consolidated income statement, the post-tax profit or loss of discontinued operations and the post-tax gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group constituting the discontinued operation, is disclosed as a single amount separately from the post-tax profit or loss from continuing operations.

The net cash flows attributable to the activities of discontinued operations are presented separately in the consolidated statement of cash flows.

Disclosure of the above is also provided for the comparative period.

Revenues and costs

Revenues and costs are recognized according to the accrual and matching principles.

Revenues are recognized net of returns, discounts, allowances, rebates, taxes and directly related promotional contributions. Revenues are recognized upon delivery of the goods to the final customer when all the risks and rewards of ownership are transferred.

Revenue recognition

Sales of products

Revenues from the sale of products are recognized when all the following conditions are met:

the significant risks and rewards of ownership are transferred to the customer;
effective control over the assets in the transaction and the normal continuing level of business associated with ownership have ceased;
the revenues can be measured reliably;
it is probable that economic benefits associated with the sales transaction will flow to the company;
the costs incurred or to be incurred can be determined reliably;
in the event the nature and the extent of the seller's involvement is such that the risks and rewards relating to ownership are not in fact transferred, the time of revenue recognition is deferred until the date when such transfer can be considered to have taken place;
under "Bill & Hold" transactions, revenue is recognized when there is a contract signed by the customer in which the customer expressly asks that delivery of the products be deferred while nevertheless assuming all the risks and rewards associated with them. Such transactions refer solely to immediately available products of Intercos Europe and will be concluded within a short time after the date the "Bill

& Hold" agreement is signed between the parties.

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 or to be incurred to complete the transaction can be measured reliably.

Financial income and 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

Current tax income or tax expense for the year is measured based on the amount that is expected to be recovered or paid to the tax authorities. The tax rates and the tax laws used in calculating the amount are those enacted, or substantially in effect, at the reporting date of the financial statements in the countries where the Group operates and generates its taxable income.

Current taxes relative to elements recognized directly in equity are also recognized in equity and not in the income statement for the year. Management periodically evaluates the position taken in the tax return in the case in which the tax rules are subject to interpretation and, where appropriate, makes suitable accruals.

Deferred taxes

Deferred income taxes are calculated by applying the "liability method" to the temporary differences between the tax bases of the assets and liabilities and their corresponding carrying amounts.

Deferred tax liabilities are recognized on all taxable temporary differences, with the following exceptions:

deferred tax liabilities arising from the initial recognition of goodwill or an asset or a liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss):
reversal of taxable temporary differences, associated with investments in subsidiaries or associates, can be controlled, and it is probable that it will not occur in the foreseeable future.

Deferred tax assets are recognized on all deductible temporary differences, the carryforward of unused tax credits and the carryforward of unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and the carryforward of unused tax losses can be utilized, except in the case of:

deferred tax assets associated with deductible temporary difference arising from the initial recognition of an asset or a liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit (tax loss);
deductible temporary differences arising from investments in subsidiaries or associates, in which case the deferred tax assets are recognized only to the extent that it is probable that taxable profit will be available against which the temporary difference can be recovered.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow the benefit of part or all the deferred tax asset to be utilized. Deferred tax assets that are not recognized are reviewed at the end of each reporting period and recognized to the extent that it becomes probable that taxable income will be sufficient to recover such deferred tax assets.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to taxable income in the period when such assets are realized or such liabilities are settled, based on tax rates that have been enacted or substantially enacted by the end of the reporting period.

Deferred tax assets and liabilities relating to elements recognized outside the income statement are recognized either directly in equity or in other comprehensive income, consistently with the items to which they refer.

Deferred tax assets and liabilities are offset if and only if there is a legally enforceable right to set off current tax assets against current tax liabilities, and the deferred tax assets and deferred tax liabilities refer to the same taxpayer and are levied by the same taxation authority.

Tax benefits acquired in a business combination which do not meet the criteria for separate recognition at the acquisition date, may be recognized after the acquisition date, when new information is obtained about changes in events or circumstances. The adjustment is recognized as a deduction from goodwill (up to the amount of goodwill), if it is recognized during the measurement period, or in the income statement if recognized subsequently.

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. 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.

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 of 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.

Government grants

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

Art.1, paragraphs 125 - 129 of Law 124/2017 regulate government 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) are reported in the separate financial statements of the Italian subsidiaries.

3. Risk Management

Financial risk management is an integral part of the management of the Group's business. The board of directors of the company establishes the policies for the management of risks such as market risk (exchange rate risk and interest rate risk) credit risk and liquidity risk.

Types of risks

Financial risk management

The Group's business is exposed to various types of risks including exchange rate risk and interest rate risk, credit risk and liquidity risk. The Group'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 of directors, by the Group's Administration, Finance and Control Function, which provides written policies for the management of the above risks and the use of suitable financial instruments.

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

Exchange rate risk

The Group's exposure is mainly concentrated on the following exchange rates:

EUR/USD exchange rate: with reference to commercial and financial transactions entered into by eurozone companies operating on the North American market and vice versa.
EUR/GBP exchange rate: with reference to commercial and financial transactions entered into by eurozone companies operating on the British market and vice versa.
USD/RMB: with reference to commercial and financial transactions entered into by Chinese companies operating on the North American market and vice versa.
USD/RMB: with reference to commercial and financial transactions entered into by eurozone companies operating on the Chinese market and vice-versa.
CHF/EUR/USD: with reference to commercial and financial transactions entered into by the Group company operating in Switzerland.

It is the Group's policy to hedge, where possible, exposures denominated in currencies other than the functional currency of the individual companies, particularly the following:

certain flows: commercial flows and exposures generated by loans receivable and payable;
forecast flows: commercial flows originating from certain or highly probable contractual commitments.

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

The following sensitivity analysis was performed to illustrate the effects on consolidated 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 and at December 31, 2017.

The following sensitivity analysis does not consider the tax effect on profit and equity.

(in € thousands)	2018		2017
	-7.50%	+7.50%	-7.50%	+7.50%
U.S. dollar	(130)	112	(636)	547
British pound	(28)	24	24	(20)
Other currencies	(31)	16	135	(63)
Total	(189)	151	(477)	463

Interest rate risk

(in € thousands)	2018			2017
	-0.50%	+0.50%	-0.50%	+0.50%
Euro (Euribor)	(489)	489	(350)	350
U.S. dollar (Libor)	(52)	52	(58)	58
Total	(541)	541	(408)	408

Credit risk

The credit risk related to trading counterparties is managed by the individual subsidiaries and monitored centrally by the corporate Administration, Finance and Control Function. The Intercos Group does not have significant concentrations of credit risk. However, there are policies in place to ensure that sales of products and services are made to customers with a high degree of creditworthiness, taking into consideration their financial position, past experience and other factors. Credit limits for major customers are based on internal and external valuations based on ceilings approved by management in the individual countries. The use of credit limits is monitored periodically at a local level.

It should be noted that at the end of 2018, the Group sold non-past due receivables under non-recourse factoring contracts for €17,969 thousand, of which €11,476 thousand refers to the subsidiary Intercos Europe S.p.A. and €6,493 thousand to the subsididary Cosmint S.p.A.

Trade accounts receivables, the provision for impairment of receivables and an ageing analysis of receivables are presented at December 31, 2018 and December 31, 2017.

12/31/2018	Trade receivables	Current	Overdue 0-60 days	Overdue 61-90 days	Overdue over 90 days	Provision for impairment
Make-up	72,447	59,178	10,442	1,856	3,484	(2,514)
Skin Care	24,358	17,067	5,907	632	1,192	(440)
Hair & Body	19,218	15,095	3,721	528	10	(137)
Total	116,023	91,340	20,070	3,016	4,686	(3,090)

(in € thousands)

12/31/2017	Trade receivables	Current	Overdue 0- 60 days	Overdue 61-90 days	Overdue over 90 days	Provision for impairment
Make-up	88,102	58,015	27,195	1,564	2,229	(902)
Skin Care	17,466	12,093	4,816	422	190	(55)
Cosmint	21,011	18,154	2,635	967	81	(826)
Total	126,578	88,262	34,646	2,953	2,500	(1,783)

Liquidity risk

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

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

The amount of liquidity reserves available at December 31, 2018 and December 31, 2107 is as follows:

(in € thousands)	December 31, 2018	December 31, 2017
Cash and cash equivalents	94,367	68,777
Unused committed credit lines	-	30,000
Total	94,367	98,777

The following tables present an analysis of the maturities of borrowings and other liabilities. Borrowings from banks in the following tables are presented at their nominal amount.

(in € thousands)	Within 1 year	1 to 5 years	Beyond 5 years	At 12/31/2018
Bonds	-	120,000		120,000
Borrowings from banks and other lenders - m-l/term	20,179	93,236	-	113,415
Finance leases payable	154	8,772	-	8,926
Medium/long-term debt	20,333	222,008	-	242,341
Borrowings from banks and other lenders - s/term	34,051	-	-	34,051
Derivatives	126	-	-	126
Factoring companies payable	1,260	-	-	1,260
Trade payables	121,645	-	-	121,645
Short-term debt	157,082	-	-	157,082
Total	177,416	222,008	-	399,423

(in € thousands)	Within 1 year	1 to 5 years	Beyond 5 years	At 12/31/2017
Bonds	-	-	120,000	120,000
Borrowings from banks and other lenders - m-l/term	7,782	97,776	-	105,558
Finance leases payable	2,155	9,213	-	11,367
Medium/long-term debt	9,937	106,989	120,000	236,926
Borrowings from banks and other lenders - s/term	45,621	1,389	3,669	50,679
Derivatives	157	-	-	157
Trade payables	123,408	-	-	123,799
Short-term debt	169,186	1,389	3,669	174,635
Total	179,123	108,377	123,669	411,170

(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 through profit and loss
Available-for-sale	-	-	-	-	-	-	-
financial assets
Derivatives (assets)	-	-	-	-	-	-	-
Securities held for	-	-	-	-	-	-	-
trading
Trade receivables	-	116,023	-	-	-	-	-
Other receivables (*)	-	4,563	-	-	-	-	-
Borrowings from banks
and other lenders	-	-	-	-	-	278,345	-
Trade payables	-	-	-	-	-	121,645	-
Other payables (*)	-	-	-	-	-	44,429	-
Derivatives (liabilities)	-	-	-	-	-	-	-
Total	-	120,586	-	-	-	444,419	-

(in € thousands)

12/31/2017	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 through profit and loss
Available-for-sale	-	-	-	-	-	-	-
financial assets
Derivatives (assets)	-	-	-	-	-	-	-
Securities held for	-	-	-	-	-	-	-
trading
Trade receivables	-	126,578	-	-	-	-	-
Other receivables (*)	-	5,410	-	-	-	-	-
Borrowings from banks
and other lenders	-	-	-	-	-	286,448	-
Trade payables	-	-	-	-	-	123,408	-
Other payables (*)	-	-	-	-	-	42,095	-
Derivatives (liabilities)	-	-	-	-	-	-	-
Total	-	131,988	-	-	-	451,951	-

(*) Other receivables and Other payables exclude items of a tax nature which do not meet the definition of financial assets or liabilities.

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 forward / swap/ option
Fair value hedge	-	-
Liabilities
Currency forward / swap/ option
Fair value hedge	-	-
IRS – Interest rate swap Fair value hedge	126	157

Fair value hierarchy at the reporting date

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

At December 31, 2018 and 2017, there were no exchange rate hedging contracts to be expressed at fair value in the financial statements

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

Type of derivative contract	Contract start date	Contract due date	Duration in years	Interest rate purchased	Spread	Currency	Notional Amount /000	MTM (in € thousands)
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 consolidated 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 of the Group companies 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 less costs of disposal 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 Group and from the market and from historical experience. Moreover, whenever an impairment may exist, the Group 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 Group. 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 Group 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 Group 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. 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. Segment Reporting

Group organization structure

Intercos S.p.A. is a corporation organized under the laws of the Republic of Italy, with its registered office in Milan, Piazza Diaz 1.

Starting at the end of 2013, the Group's business was reorganized into two areas identified on the basis of the following operating segments:

Make-up Business Unit: specialized in the creation, development, manufacture and marketing of powders, emulsions, lipsticks, nail polishes and types of cosmetics using delivery systems in the form of pens/pencils for the face, eyes and lips;
Skin Care Business Unit: specialized in the manufacture and marketing of cosmetic and skin care creams.

The Group's main manufacturing facilities are at the plant sites in Italy, the United States, Switzerland, China, Brazil and South Korea and, with the acquisition of Cosmint, also in Poland.

The operations of Cosmint are organized into various business units, whose flows, at the conclusion of the purchase price allocation, have been integrated into Intercos' already-existing business units and the following business unit was added:

Hair & Body Business Unit: specialized in the manufacture of hair and body products.

Additional details are described in Point 1. – Business Combinations – Acquisition of the Cosmint Group and subsequent allocation of goodwill.

Financial information by business unit is periodically reviewed by the board of directors and used for planning and budgeting.

Detailed information on each identified segment for the years ended December 31, 2018 and 2017 is presented in the following tables.

			Hair &
2018 (in € thousands)	Make-up	Skin Care	Body	Total
Revenues	435,645	112,111	143,875	691,631
Adjusted EBITDA (*)	68,105	16,250	16,145	100,501
Depreciation, amortization and impairment reversals (losses)	(20,881)	(3,537)	(6,723)	(31,141)
Nonrecurring income (expenses)				(991)
Financial income (expenses)				(8,941)
Result from investments accounted for using the equity method				829
Income taxes				(12,854)
Profit for the year				47,403
Net invested capital at 12/31/2018	243,148	61,553	78,754	383,454

			Cosmint
2017 (in € thousands)	Make-up	Skin Care	Group	Eliminations	Total
Revenues	451,919	78,848	62,203	(2,808)	590,162
Adjusted EBITDA (*)	68,353	10,541	6,016		84,910
Depreciation, amortization and impairment reversals (losses)	(19,478)	(2,792)	(2,742)		(25,011)
Nonrecurring income (expenses)					(2,202)
Financial income (expenses)					(12,847)
Result from investments accounted for using the equity
method					92
Income taxes					(18,926)
Profit for the year					26.016
Net invested capital at 12/31/2017	299,020	50,109	94,242(**)	(69,601)	373,770

(*) Adjusted EBITDA is represented by operating profit (loss) before depreciation, amortization and impairment reversals (losses) adjusted by nonrecurring income (expenses).

(**) The figure included provisional goodwill of €42,852 thousand that was allocated according to the manner and the time frame set out in IFRS 3.

Make-up BU: despite a reduction in revenues of €16,274 thousand (-3.6%) from last year, the Make-up BU reported an Adjusted EBITDA that was basically in line with the previous year and an improvement in the Adjusted EBITDA margin of 0.5% reaching 15.6% in 2018 (15.1% in 2017).

The improvement in Adjusted EBITDA in 2018 is attributable to a better gross industrial margin, control over indirect costs and a different mix of products sold.

Skin Care BU: revenues total €112,111 thousand, up €33,264 thousand (+42.2%) compared to 2017. If revenues by Cosmint are considered for the full 12 months of 2017 compared to 2018, the increase would have been +28.3%.

Adjusted EBITDA is €16,250 thousand compared to €10,541 thousand in 2017 or +54.2%. In order to better understand the results of this CGU, if Adjusted EBITDA is compared to the corresponding figure in 2017, including Cosmint for the full 12 months, the increase would have been €4,992 thousand (+44.3%). The Adjusted EBITDA margin is 14.5% (13.4% in 2017) with an increase of +1.1%. Considering Cosmint for all of 2017, the increase would be +1.6%.

Higher volumes are reflected in the increase in Adjusted EBITDA owing to a different product mix that was compensated in part by higher structure costs.

Detailed information on revenues by geographical regions is reported according to the location in which the recipient of the invoice has its headquarters.

(in € thousands)
Revenues by geographical region	2018	2017
Americas	179,751	204,422
EMEA	409,213	256,183
Asia	102,667	67,354
Cosmint Group	-	62,203
Total	691,631	590,162

Americas: in a market that expanded by +6.4%, sales were -12.1% lower particularly in the mass market and private label market segments of multinational and retailer customers.
EMEA: sales total €409,213 thousand in 2018 against €256,183 thousand in 2017. The increase of €153,030 thousand (+59.7%) is largely due to the change in the consolidation area which now includes the Cosmint Group for all 12 months of 2018.
Asia: a +52% increase is reported in total sales from €67,354 thousand in 2017 to €102,667 thousand in 2018, in a market that grew +11.6%. This increase can mostly be traced to the ceaseless efforts made by the Group to grow the business with local emerging brands and retailers. Moreover, but to a lesser extent, a positive growth in sales was recorded with multinational customers.
Cosmint Group: almost all sales are concentrated in EMEA.

Assets of the Group by geographical region are as follows:

in € thousands) (	December 31, 2018	December 31, 2017
Assets
Americas	69,089	71,853
EMEA	348,637	286,235
Asia	138,128	145,345
Cosmint Group	116,597	137,984
Total	672,452	641,417

Capital expenditures by the Group by geographical region are as follows:

(in € thousands)	2018	2017
Capital expenditures
Americas	1,672	2,087
EMEA	9,421	16,982
Asia	4,736	6,020
Cosmint Group	8,291	2,245
Total	24,120	27,335

The EMEA region spent a total of €9,421 thousand on capital expenditures, of which €6,907 thousand by Intercos Europe S.p.A. and €663 thousand by CRB S.A. Capital expenditures in both companies were for the purchase of new machinery (€3,701 thousand) and new industrial equipment (€1,162 thousand).

As for the Asia region, the Group, through the subsidiary Intercos Technology Ltd, spent a total of €4,736 thousand for new capital expenditures, of which €3,127 thousand relate to industrial machinery and equipment and €940 thousand to complete the new production facility in China.

Additional details are provided in Note 7 - Property, plant and equipment.

6. Significant Events in 2018

The following significant events took place during the year 2018:

On July 6, 2018, to complete the acquisition of Cosmint Group S.p.A. (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' meeting 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. To this end, 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.
On September 7, 2018, Intercos Europe S.p.A. and Drop Nail S.r.l. held their respective shareholders' meetings which approved the project for the merger of Drop Nail S.r.l. with and into Intercos Europe S.p.A. in order to simplify and rationalize the organization of the corporate structures within the Intercos Group. The Drop Nail merger became effective under the Italian Civil Code on December 1, 2018. The accounting effects on the consolidated and separate financial statements are effective retroactively from January 1, 2018.

NOTES ON THE MAIN ITEMS OF THE CONSOLIDATED FINANCIAL STATEMENTS

7. Property, Plant and Equipment

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

December 31, 2018

(in € thousands)	January 1, 2018	Increases / Depreciation	Increases/ Depreciation Option contracts	Translation differences/ Reclassifications	Business Combinations	Decreases/ Utilization	December 31, 2018
Historical cost
Land and buildings	164,098	1,826	-	4,020	7,759	(335)	177,369
Plant and machinery	188,831	8,393	-	7,904	6,281	(2,172)	209,237
Industrial equipment	42,605	2,071	-	1,665	808	(39)	47,109
Office furniture and equipment	16,042	488	-	598	99	(112)	17,115
Motor vehicles and internal
transportation equipment	1,686	135	-	94	-	(202)	1,713
Cell phones	2,333	2	-	(2,275)	-	0	59
Assets under construction and
payments on account	6,897	11,206	-	(10,425)	-	(501)	7,177
Total	422,493	24,120	-	1,581	14,947	(3,363)	459,778
Accumulated depreciation
Land and buildings	83,849	6,133	223	1,377	12	(7)	91,588
Plant and machinery	140,424	13,268	-	321	284	(2,088)	152,209
Industrial equipment	37,908	2,926	-	118	56	(37)	40,972
Office furniture and equipment	12,047	1,068	-	166	14	(106)	13,190
Motor vehicles and internal
transportation equipment	1,579	120	-	58	-	(202)	1,554
Cell phones	869	3	-	(844)	-	0	28
Total	276,677	23,518	223	1,197	366	(2,439)	299,541
Net carrying amount	145,816	602	(223)	384	14,581	(924)	160,237

Overall capital expenditures total €24,120 thousand in 2018.

Capital expenditures in Plant and machinery and Industrial equipment amount respectively to €8,393 thousand and €2,071 thousand and were directed to boost, expand, renovate and automate the production plants as a whole. They refer to new machinery purchases by Intercos Europe S.p.A (€3,550 thousand), Intercos Technology Ltd (€1,868 thousand), Cosmint S.p.A. (€1,734 thousand) Intercos Cosmetics Suzhou Co. (€272 thousand) and CRB S.A. (€151 thousand); new industrial equipment expenditures refer to Intercos Europe S.p.A (€1,080 thousand), Intercos Technology Ltd (€433 thousand) and Cosmint S.p.A. (€250 thousand).

The increase in Land and buildings mainly relates to expenditures by the Chinese companies (€940 thousand) to complete the new production site in China.

8. Intangible Assets

Movements in Intangible assets in 2018 are as follows:

(in € thousands)	January 1, 2018	Increases	Decreases/ Adjustments/ Translation differences	Reclassifications	Amortization	December 31, 2018
Capitalized development costs	12,539	3,719	61	3,388	(5,043)	14,664
Patent and software rights	3,705	743	4	853	(1,522)	3,784
Concessions and licenses	1,999	290	10	713	(492)	2,521
Assets under development and payments on account	7,014	5,844	(71)	(5,298)	-	7,489
Other intangible assets	874	-	(365)	75	(48)	536
TOTAL	26,130	10,597	(360)	(270)	(7,105)	28,993

The Group continued to invest in new products and technologies in 2018, confirming its leadership position in the global field.

The increase in research and development is €9,563 thousand and refers to:

€3,719 thousand of expenditures classified under Capitalized development costs, of which €1,562 thousand relates to Intercos S.p.A., €832 thousand to Intercos America Inc., €189 thousand to CRB S.A. projects and €503 thousand to research conducted by Vitalab S.r.l.;
€5,844 thousand for projects conducted mainly by Intercos S.p.A. not yet completed and classified under Assets under development and payments on account.

The increase in Assets under development and payments on account refers to costs capitalized for R&D projects which encompass both make-up and skin care products spanning studies conducted on new raw materials, innovative ingredients, formulae, materials and sustainable products development.

Capitalized development costs refer to the group holding 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, uncompleted development projects at the end of 2018 included in the capitalized development costs of the company that contributed the most to describing the effects on the consolidated financial statements, the parent Intercos S.p.A.

Project	Remaining years of	Year	Historical cost	Amortization to date	Net amount at
(in € thousands)	amortization	commenced			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 (in € thousands)	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 is for 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 information technology investment projects.

In addition, the increase in Assets under development and payment on account for a total of €4,433 thousand can be divided into: (1) ongoing projects for research and development of €4,077 thousand and (2) ongoing projects relating to the development of IT projects of €356 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.

Movements in Goodwill are as follows:
---------------------------------------	--	--	--	--	--

(in € thousands)	January 1, 2018	Increases	Decreases	Translation differences	December 31, 2018
Goodwill	118,140	4,170	(14,947)	576	107,940

On August 3, 2017, Intercos S.p.A. completed the 100% acquisition of Cosmint Group S.p.A. and its subsidiaries. This generated an increase in goodwill for the Group of €42,852 thousand. In the consolidated financial statements at December 31, 2017, the higher price paid over the net assets acquired in the companies purchased was recorded entirely on a provisional basis in "Goodwill" since the purchase price allocation, in accordance with IFRS 3 – Business Combinations, was completed in 2018.

Following the purchase price allocation, as better described in Point 1. – Business Combinations – Acquisition of the Cosmint Group and subsequent allocation of goodwill, in the Report on Operations, a new Cash Generating Unit (CGU) already identified at December 31, 2017, named the Hair & Body CGU, was added to the already-existing Make-up and Skin Care CGUs. The activities carried out by the individual CGUs are the following:

Make-up CGU: specialized in the creation, development, manufacture, distribution and marketing of powders, emulsions, lipsticks, nail polishes and types of cosmetics using delivery systems in the form of pens/pencils for the face, eyes and lips.

Skin Care CGU: introduced in 2006 following the decision to diversify the Intercos Group's business through the acquisition of the Swiss company CRB S.A., specialized in the manufacture and marketing of cosmetic and skin care creams.

Hair & Body CGU: introduced in 2018 and coinciding almost entirely with the operations conducted by the newly acquired Cosmint Group and its subsidiaries in the B2B cosmetic sector, specialized in the manufacture of skin, hair and body products.

Goodwill decreased by a total of €10.2 million due to (i) the allocation of a portion of the higher price to property, plant and equipment of €14.9 million, (ii) the recognition of deferred tax liabilities on the higher value allocated to property, plant and equipment, as set out in IFRS 3, paragraph 24, by applying the 27.9% tax rate (IRES 24% and IRAP 3.9%) resulting in an amount of €4.2 million and (iii) the translation to euro of goodwill expressed in local currency, other than the euro, of €0.6 million.

An impairment test was performed on the goodwill of the Intercos Group including the translation difference and net of the allocation of the aforementioned higher price paid, for an amount of €107,940 thousand.

Goodwill at December 31, 2018 was allocated to the Make-up CGU for €71.6 million, the Skin Care CGU for €18.8 million and the Hair & Body CGU for €17.5 million.

The recoverable amount of the CGUs to which goodwill is allocated is defined using the value in use. In particular, the value in use was determined using the discounted cash flow method by discounting to present value the operating flows resulting from the plan approved by Group management, specifically the five-year 2019-2023 profit, financial position and cash flows plan.

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 indemnityes and acquisitions and disposals of fixed assets) for each year of the plan.

The cash flows were discounted at a WACC rate (weighted average cost of capital) of 8.4% for the Make-up CGU (7.5% at December 31, 2017), 7.6% for the Skin Care CGU (6.8% at December 31, 2017) and 9% for the Hair & Body CGU, consistently with the geographic locations of such activities. The terminal value was determined by applying a perpetual growth factor that is basically representative of the expected inflation rate of 2% (unchanged compared to December 31, 2017) to the operating cash flows for the last year of the normalized plan.

(in € millions)	Enterprise value	Net invested capital	Cover
Hair & Body CGU	157.5	78.8	78.8
Skin Care CGU	315.5	61.6	254.0
Make-Up CGU	889.7	243.1	646.6
Total	1.362.8	383.5	979.3

The value in use of the individual CGUs determined as described above is the following:

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 each of the CGUs identified was higher than the relative carrying amount (net invested capital, inclusive of the portion of goodwill specifically allocated).

The sensitivity analyses conducted when the impairment test was performed indicated that:

with reference to the Make-up CGU, with the growth factor remaining the same, there would be an impairment if WACC is 24%;
with reference to the Make-up CGU, with the WACC remaining the same, there would be an impairment if the growth factor is negative beyond -44%;

with reference to the Skin Care CGU, with the growth factor remaining the same, there would be an impairment if WACC is 25.9%;
with reference to the Skin Care CGU, with the WACC remaining the same, there would be an impairment if the growth factor is negative beyond -48%.
with reference to the Hair & Body CGU, with the growth factor remaining the same, there would be an impairment if WACC is 14.7%;
with reference to the Hair & Body CGU, with the WACC remaining the same, there would be an impairment if the growth factor is negative beyond -6.7%.

Deferred tax assets amount to €19,412 thousand at December 31, 2018 and mainly refer to the following items:

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

Provision for inventory obsolescence	6,100	4,481
Translation differences	1,188	1,489
Fees and interest, royalties deductible on a cash basis and not paid	3,540	2,980
Provision for impairment of receivables	491	159
Provisions	-	72
Loss carryforwards	3,622	2,639
Derivatives	30	38
Temporary differences on PPE revaluations	891	891
Temporary differences due to foreign tax laws	1,325	1,120
Differences on employee severance indemnities revaluation	7	11
Tax effect of IFRS 15 application	899	-
Other minor differences (maintenance, hospitality expenses etc.)	1,318	336
Total	19,412	14,214

The increase at December 31, 2018 is largely due to higher deferred tax assets arising from the application of IFRS 15 of €899 thousand, loss carryforwards of €983 thousand, the provision for inventory obsolescence of €1,619 thousand, fees and interest on royalties of €560 thousand and other items of €1,137 thousand.

11. Other Non-current Assets

Other non-current assets are detailed as follows:

(in € thousands)	December 31, 2018	December 31, 2017
VAT receivables Interest on VAT receivables Security deposits Other receivables	5,311 223 834 56	5,300 223 748 513
Total	6,423	6,783

VAT receivables, for which refunds have been filed, are unchanged compared to the prior year and are classified as non-current since they are expected to be settled after 12 months.

Details of Inventories are as follows:

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

Raw materials, packaging and consumables	66,108	62,419
Semifinished products	32,864	32,146
Finished products and merchandise	18,503	17,305

Total	117,476	111,870

Inventories total €117,476 thousand and increased €5,606 thousand (+5.0%).

The balance is net of the provision for inventory writedowns, which shows the following movements during the year ended December 31, 2018:

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

Beginning balance	22,841	19,203
New acquisitions	-	2,021
Accrual	16,195	15,535
Utilization	(11,714)	(13,919)
Ending balance	27,322	22,841

The Intercos Group adopts a uniform method for the measurement of its obsolete inventories. Under this approach all materials that have had no movement for more than 12 months are written down 100%, given that at the end of such period the semifinished and finished product have only a limited possibility of being reused for either marketing and/or production.

Movements show that the utilization during the year was significant on account of the destruction of products principally by Intercos Europe S.p.A., Cosmint S.p.A., Intercos America Inc. and the Asian subsidiaries.

13. Trade Receivables

Details of Trade receivables are as follows:

(in € thousands)	December 31, 2018	December 31, 2017
Receivables from third parties	119,113	128,361
Provision for impairment of receivables	(3,090)	(1,783)
Total	116,023	126,578

Net trade receivables at December 31, 2018 total €116,023 thousand, with a decrease of €10,555 thousand compared to the prior year, highlighting a reduction in the number of days to collection. In order to achieve a better comparison, the number of days was calculated on 2017 net revenues, including Cosmint for the full 12 months of that year. The reduction is mainly due to a better management of operating working capital. The fair value measurement of trade receivables did not generate any significant effects.

Movements in the provision for impairment of receivables in 2018 are as follows:

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

Beginning balance	1,783	334
New acquisitions	-	819
Accrual	1,638	706
Utilization	(400)	(24)
Translation differences	68	(51)
Ending balance	3,090	1,783

The balance of trade receivables is shown net of the provision for the impairment of receivables. This provision is calculated in an analytical manner by dividing receivables into classes of risk and applying an estimated loss percentage to each class based on past experience in addition to the application of IFRS 9. The first-time application of IFRS 9 did not product any significant effects during the year. The increase between the two years is €1,606 thousand and is due to higher accruals by the subsidiaries Intercos America Inc. for €621 thousand, Intercos Europe for €432 thousand and CRB S.A. for €320 thousand.

14. Other Current Assets

Details of other current assets are as follows:

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

Receivables from the tax authorities	11,786	12,917
Sundry receivables	1,418	1,563
Advances to suppliers	1,658	2,593
Accrued income and prepaid expenses	1,489	1,254

Total	16,351	18,327

Other current assets of the Group decreased by €1,966 thousand mainly in Receivables from the tax authorities due to the reduction of €1,130 thousand in the balance of VAT receivables, and €936 thousand in Advances to suppliers.

Cash and cash equivalents include the following:

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

Bank and postal deposits	92,093	68,626
Cash on hand	2,273	151

Total	94,367	68,777

Cash and cash equivalents increased by €25,589 thousand bringing the ending balance to €94,367 thousand. The change in cash and cash equivalents is presented in the statement of cash flows.

16. Equity

Share capital

Share capital at December 31, 2018 remains unchanged compared to December 31, 2017 and amounts to €10,818,377 and is 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

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

	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

Subject to the provisions of art. 2428 of the Italian Civil Code, note should be taken 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.

SHAREHOLDERS	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%

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

Other reserves

Other reserves consist of the share premium reserve of €66,005 thousand.

Retained earnings and profit attributable to owners of the parent

Retained earnings and profit attributable to owners of the parent amount to €120,087 thousand compared to the opening balance at January 1, 2018 of €58,219 thousand. Changes in 2018 include the appropriation of profit for the year 2017 of €18,594 thousand and the change in the consolidation reserve of a negative €3,882 thousand. Furthermore, the balance attributable to owners of the parent includes the profit for the year of €47,301 thousand, a change in the reserve on translating foreign operations of a negative €344 thousand, actuarial gains of €177 thousand and the fair value reserves of a positive €23 thousand. For this last figure, reference can be

made to the consolidated statement of comprehensive income on page 4.

Non-controlling interests

Equity attributable to non-controlling interests includes the attributable share of capital and profit for the year and total €2,565 thousand.

Equity attributable to non-controlling interests increased by the profit for the year of €102 thousand, actuarial gains of €14 thousand and the reserve on translating foreign operations of a negative €10 thousand.

Borrowings from banks and other lenders total €278,345; an indication of the relative due dates are provided in

the following table.

December 31, 2018

	Short-term	Medium-term	Long-term	Total
Intercos S.p.A. bonds	2,970	117,555	-	120,526
Medium/long-term bank borrowings (syndicate)	16,369	66,585	-	82,954
Medium/long-term bank borrowings (CRB)	255	4,915	-	5,171
Medium/long-term bank borrowings (Cosmint)	3,600	20,264	-	23,864
Mortgages	-	-	-	-
Finance leases payable	1,823	8,772	-	10,595
Other financial payables	340	-	-	340
Derivatives (liabilities)	126	-	-	126
Medium/long-term debt	25,483	218,092	-	243,575
Revolving credit facility Intercos S.p.A.	19,799	-	-	19,799
Revolving credit facility Intercos China	3,978	-	-	3,978
Bank overdrafts	1,733	-	-	1,733
Advances on invoices	8,000	-	-	8,000
Short-term debt	33,510	-	-	33,510
Borrowings from other lenders	-	-	-	-
Factoring companies payable	1,260	-	-	1,260
Total	60,253	218,092	0	278,345

December 31, 2017

	Short-term	Medium-term	Long-term	Total
Intercos S.p.A. bonds	2,970	14,852	102,500	120,323
Medium/long-term bank borrowings (syndicate)	7,615	96,129	0	103,743
Medium/long-term bank borrowings (CRB)	167	1,389	3,669	5,226
Mortgages	36	-	0	36
Finance leases payable	2,155	9,213	0	11,367
Other financial payables	25,998	-	0	25,998
Derivatives (liabilities)	157	-	-	157
Medium/long-term debt	39,098	121,582	106,170	266,850
Revolving credit facility Intercos S.p.A.	-	-	-	-
Revolving credit facility Intercos China	17,980	-	-	17,980
Bank overdrafts	1,617	-	-	1,617
Advances on invoices	-	-	-	-
Short-term debt	19,597	0	0	19,597
Borrowings from other lenders	-	-	-	-
Factoring companies payable	-	-	-	-
Total	58,696	121,582	106,170	286,448

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.

Details of medium/long-term debt outstanding at December 31, 2018 are as follows:

Company	Bank	Amount	Internal rate of return	Description
Intercos S.p.A.	Bank syndicate	60,220	1.5% - 2.5%	Tranche in EUR
Intercos S.p.A.	Bank syndicate	10,200	4.84%	Tranche in USD
Intercos S.p.A.	Institutional investors	120,526	3.77%	Bonds
Cosmint Group S.p.A.	Bank syndicate	23,864	1.89%	Tranche in EUR
Intercos Europe S.p.A.	Bank syndicate	12,534	2.58%	Tranche in EUR
		227,344
CRB S.A.	BCV Bank	1,154	1.85%	Mortgage (in CHF)
CRB S.A.	BCV Bank	4,017 5,171	2.18%	Batiplus (in CHF)

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

The following financial information is reported according to the schedule proposed by CONSOB communication DEM/6064293 of July 28, 2006:

(in € thousands)		12/31/2018	12/31/2017
A	Cash	675	135
B	Other liquid assets (bank accounts)	93,691	68,642
C	Securities held for trading	-	-
D	LIQUIDITY (A+B+C)	94,367	68,777
E	CURRENT FINANCIAL RECEIVABLES	-	-
F	Current bank debt	8,682	700
G	Current portion of long-term debt	48,022	29,686
H	Other current financial payables	3,548	28,310
I	CURRENT FINANCIAL DEBT (F+G+H)	60,253	58,696
J	NET CURRENT FINANCIAL DEBT (CASH) (I-E-D)	(34,114)	(10,081)
K	Non-current bank debt	218,092	227,752
L	Bonds issued	-	-
M	Non-current other payables	-	-
N	NON-CURRENT FINANCIAL DEBT (K+L+M)	218,092	227,752
O	NET FINANCIAL DEBT (CASH) (J+N)	183,978	217,671

Movements during the year in Provisions are as follows:

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

Beginning balance	2,147	1,079
New acquisitions	-	682
Accrual	54	862
Utilization	(1,656)	(408)
Translation differences	4	(68)
Other changes	(591)	-
Total	440	2,147

At December 31, 2018, Provisions are €1,707 thousand lower mainly due to the following utilizations:

€471 thousand by the subsidiary Intercos Cosmetics Suzhou Co. Ltd. for higher customs duties prudently set aside in prior years;
€396 thousand by the subsidiary Intercos America Inc. for the conclusion of a dispute with a local supplier.

Other changes primarily regard the subsidiary Cosmint Group S.p.A., merged with and into Cosmint S.p.A., for the reclassification of the balance of provisions due within 12 months to other current liabilities.

19. Deferred Tax Liabilities

Deferred tax liabilities amount to €12,495 thousand at December 31, 2018.

For a better understanding, a description of the temporary differences on which deferred taxes have been calculated is presented in the following table:

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

Land and buildings revaluation IAS 16	7,341	3,935
Exchange gains	1,268	1,083
Tax differences on PPE (elimination of tax effect/revaluations by law)	865	580
Consolidation adjustments on inventories	585	488
Consolidation adjustments on PPE (revaluations)	167	181
Differences on employee severance indemnities measurement IAS 19	62	58
Difference on fin. instruments measurement IAS 39 (effective interest)	257	18
Other minor differences	1,950	1,082

Total	12,495	7,426

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	9,841	8,621
New acquisitions	-	1,575
Service cost	569	277
Utilizations	(870)	(205)
Interest cost	146	130
Translation differences	118	(339)
Actuarial gains (losses)	(198)	(217)
Total	9,607	9,841

The following table presents the main assumptions used in determining the actuarial cost to be accrued for Employee benefit obligations at December 31, 2018 and 2017.

Italian subsidiaries of the Intercos Group	December 31, 2018	December 31, 2017

Discount rate	1.97%	1.61%
Annual inflation rate	1.50%	1.50%
Annual rate of increase in salaries	2.625%	2.625%
Annual rate of increase in employee severance indemnities	1.50%	1.50%

CRB S.A.	December 31, 2018	December 31, 2017

Discount rate	0.90%	0.75%
Annual inflation rate	1.50%	1.00%
Annual rate of increase in salaries	1.50%	1.00%
Annual rate of increase in employee severance indemnities	1.50%	1.00%

The breakdown of the headcount by category is as follows:

Group headcount	12/31/2018	12/31/2017

Executive and mid-level managers	288	265
White-collars	1,294	1,210
Blue-collars	2,013	1,972

Total	3,595	3,447

Temporary	2,016	2,052

Total	5,611	5,499

The headcount of the Group at December 31, 2018, including temp workers, is 5,611 compared to 5,499 at the end of 2017, with an increase of 148 permanent workforce and a decrease of 36 temporary workers.

Group headcount 12/31/2018 12/31/2017 Permanent 3,447 3,394 Fixed-term 148 53 Total 3,595 3,447

The breakdown by permanent and fixed-term personnel is the following:

In order to better understand the figures, if employee benefit expenses in 2017 also included Cosmint for the 12 months, then the total expenses for that year would have been €2,660 thousand higher with a change of +1.5% compared to 2017.

Lastly, in 2018, there were no episodes of particular importance regarding the health and safety of the Group's employees. Additional details can be consulted in the non-financial consolidated statement available on the Group's website.

21. Trade Payables

Trade payables at December 31, 2018 and December 31, 2017 total, respectively, €121,645 thousand and €123,408 thousand, with a decrease of €1,763 thousand.

Trade payables refer to trading transactions with suppliers in the ordinary course of manufacturing and investment activities. All trade payables are due within 12 months.

The fair value measurement of trade payables and other payables did not produce any significant effects as compared with the carrying amounts in view of the short period of time between the date the liability arises and its due date.

Details of Other current liabilities are as follows:

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

Payables to employees	21,467	18,571
Social security agencies payable	4,235	2,657
Tax authorities payable	6,717	11,710
Advances from customers	9,925	6,645
Accrued liabilities	5,948	126
Sundry payables	2,854	15,669
Total	51,147	55,379

Other current liabilities at the end of 2018 total €51,148 thousand. The overall change is a reduction of €4,232 thousand. The biggest change refers to Sundry payables which recorded a reduction of €12,816 thousand due primarily to the completion of the acquisition of Cosmint.

Payables to employees increased by €2,896 thousand and refer to vacation pay accrued and not taken, bonuses payable and the December payroll paid in January.

Social security agencies payable shows an increase of €1,578 thousand and refers to social security costs on December compensation to employees, paid in January.

Tax authorities payable include payables consisting of IRPEF withholding taxes on employee compensation and withholding taxes on self-employed compensation and VAT payable. The reduction of €4,993 thousand is largely the result of a decrease in current income taxes and VAT payable.

Guarantees and other commitments

Guarantees provided refer to sureties, guarantees and pledges provided by the parent Intercos S.p.A., on its behalf (€18,140 thousand at December 31, 2018) and on behalf of subsidiaries (€1,822 thousand at December 31, 2018).

On behalf of the parent 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 686 thousand, corresponding to €599 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			Pledge on Intercos Class A shares (203,910 shares)	€23,915	3/27/2015	3/28/2023
Dafe 4000		First-ranking pledge (i) on behalf of the bank syndicate to guarantee repayment of the loan granted on	Pledge on Intercos Class A shares (29,452,874 shares)	€3,454,297	3/27/2015	3/28/2023
Dafe 5000	Banca IMI and bank syndicate +	March 24, 2015 (as amended) and (ii) on behalf of the bondholders	Pledge on Intercos Class A shares (11,319,447 shares)	€1,327,569	3/27/2015	3/28/2023
CPT Beauty Luxco	bondholders of the bonds issued on March 27, 2015 (as amended)	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	7/31/2018	3/28/2023
Innovation Trust			Pledge on Intercos Class D shares (18,991,061 shares)	€2,227,312	10/16/2018	3/28/2023

23. Revenues

(in € thousands)	2018	2017

Revenues from sales and services	691,631	590,162

The increase in revenues is €101,469 thousand (+17.2%). Including Cosmint for the full year 2017, the increase is €20,297 thousand (+3.02%).

For additional analyses by geographical region and business activity in 2018 compared to 2017, reference can be made to Note 5 – Segment reporting.

24. Cost of Sales

The composition is as follows:

(in € thousands)	2018	2017

Labor costs	125,235	117,191
Raw materials, consumables and merchandise	282,439	229,657
Outside work	58,849	43,680
Shipping	17,696	18,565
Depreciation	18,623	12,767
Utilities	8,218	6,718
Maintenance	8,540	9,265
Other cost of sales	19,613	15,675
Total	539,214	453,517

Cost of sales totals €539,214 thousand in 2018 and is 78.0% as a percentage of revenues; the gross industrial margin is 22.0%.

The change over the prior year is €85,697 thousand and includes the contribution by Cosmint for only the last five months of the year.

In order to better understand the comparison between the two periods, if Cosmint is included for the full 12 months of 2017, the ratio of cost of sales to revenues was 78.6%, bringing the industrial gross margin in 2017 to 21.4% compared to 22.0% in 2018 (+0.7%) thanks to higher volumes and better margins on the mix of products sold.

25. Research & Development and Innovation Costs

Research & Development and Innovation costs amount to €33,390 thousand in 2018.

The composition is as follows:

(in € thousands)	2018	2017

Labor costs	22,699	20,091
Raw materials, consumables and merchandise	1,290	1,092
Consulting	1,968	1,678
Travel	2,787	2,769
Depreciation and amortization	8,543	9,831
Utilities	441	486
Capitalized internal construction costs	(7,116)	(5,759)
Other general expenses	2,779	2,342
Total	33,390	32,528

The increase is €862 thousand compared to 2017.

26. Selling Expenses

In 2018, selling expenses amount to €25,145 thousand.

The composition is as follows:

(in € thousands)	2018	2017

Labor costs	16,101	15,509
Commercial expenses	1,241	1,266
Shipping	755	765
Consulting	1,051	1,117
Depreciation and amortization	230	247
Utilities	859	784
Losses on receivables	1,225	694
Other general expenses	3,683	4,260
Total	25,145	24,644

The increase over 2017 is €501 thousand.

General and administrative expenses amount to €28,354 thousand in 2018.

The composition is as follows:

(in € thousands)	2018	2017

Labor costs	12,939	10,629
Computer system services	2,595	2,144
Employee training and selection	1,396	1,647
Consulting	3,405	2,623
Depreciation and amortization	3,455	2,146
Utilities	1,016	916
Rent	463	548
Other general expenses	3,086	4,151
Total	28,354	24,804

The increase compared to the prior year is €3,550 thousand (€1,013 thousand if Cosmint is included for the whole of 2017).

28. Nonrecurring Income (Expenses)

In 2018, net nonrecurring expenses are recorded for €991 thousand and include: €119 thousand referring to the subsidiary Intercos Europe S.p.A., mainly for merchandise that was destroyed in a fire aboard a ship that should have provided transport, €184 thousand to the parent Intercos S.p.A. for additional costs for internal reorganization measures, €80 thousand to the subsidiary Intercos America Inc. and €779 thousand to costs for the Management Long-Term Incentive Plan. The Plan is intended to motivate certain key managers within Intercos by assigning free bonus shares to reinforce their loyalty and sense of belonging to the Group and to align the individual's interest with those of the Group in the achievement of performance goals and with its stakeholders for the creation of value over time.

Financial income (expenses) shows a net expense balance of €8,941 thousand in 2018. Details are as follows:

(in € thousands)	2018	2017
Bank interest income	(168)	(147)
Other financial income	(26)	(54)
Derivatives (assets)	(20)	(447)
Total financial income	(213)	(648)

Interest on short-term borrowings	1,945	1,964
Interest on medium/long-term borrowings	5,840	4,535
Derivatives (liabilities)	211	256
Interest discounted under IAS 19 application	146	130
Interest under IAS 23 application	(180)	(159)
Interest under IAS 39 application	1,317	837
Interest on leases under IAS 17 application	218	137
Bank charges	519	499
Total financial expenses	10,017	8,198

Foreign exchange gains	(7,699)	(5,700)
Foreign exchange losses	6,837	10,997
Net foreign exchange	(862)	5,297

Total	8,941	12,847

30. Result from Investments accounted for using the equity method

The share of the profit (loss) of investments accounted for using the equity method is as follows:

(in € thousands)	2018	2017
Shinsegae Intercos Korea Inc. Hana Co.Ltd.	(3,923) 829	(1,781) 92
Total	(3,094)	(1,689)

Additional information is provided in Note 2 - Significant accounting policies - Scope of consolidation.

31. Income Taxes

Details of income taxes are as follows:

(in € thousands)	2018	2017

Current income taxes	19,496	17,831
Deferred income taxes	(3,550)	(373)
Prior years' taxes	(3,092)	(722)
Total	12,854	18,926

The net tax charge in 2018 is €12,854 thousand and is composed of current income taxes of €19,496 thousand and deferred tax assets of €3,550 thousand, principally in Intercos America Inc. (for deferred taxes on inventories, tax loss carryforwards and labor costs). Prior years' taxes total €3,092 thousand and refer primarily to the parent Intercos S.p.A. which on June 29, 2018 signed the preliminary agreement 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.

The tax rate in 2018 is 21.3% against 42.1% in the prior year due primarily to the taxes for prior years referring to the parent Intercos S.p.A. and deferred tax assets referring to the subsidiary Intercos America Inc.

The reconciliation between the tax charge recognized in 2018 in the consolidated financial statements and the theoretical tax charge based on the theoretical tax rate in Italy is as follows:

	2018
(in € thousands)	Amount	Rate
Pre-tax profit	60,257
Theoretical tax charge	14,462	24.00%
IRAP	2,623	4.35%
Effect of increase in permanent tax difference in Italy	1,495	2.48%
Effect of decreases in permanent tax differences in Italy	(2,280)	-3.78%
Effect of tax differences - foreign companies	(649)	-1.08%
Effect of different tax rates - foreign companies	295	0.49%
Prior years' taxes	(3,092)	-5.13%
Tax charge in income statement	12,854	21.33%

32. Related Party Transactions

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

€ thousands	Commodities, consumer goods and cost for service	Personnel cost	Miscellaneous operating income and expenses	Financial charges	Financial income	Trade receivables	Trade payables	Financial payables
Dafe International Srl	(129)	-	-	-	-	-	91	-
Sci Maragia	(50)	-	-	-	-	-	142	-
Je m'en fous	-	-	-	-	-	-	14	-
Arterra Bioscience Srl	(694)	-	(0)	(13)	-	-	510	340
My Style	(1)	-	(14)	-	-	-	1	-
Interior	(3)	0	(60)	-	-	-	58	-
Catterton	(52)	-	-	-	-	-	3	-
Vault	(160)	-	-	-	-	-	-	-
Maragia USA Inc	(26)	-	-	-	-	-	-	-
Cornelli Gabelli e associati	(153)	-					93
Familiari e affini di Dario Ferrari	-	(149)	-	-	-	-	-	-
Total	(1.267)	(149)	(74)	(13)	-	-	912	340

€ thousands	Revenues	Other operating income	Commodities, consumer goods and cost for service	Personnel cost	Miscellaneous operating income and expenses	Financial charges	Financial income	Trade receivable s	Trade payables	Financial payables
Intercos Korea LTD	2.726	274	(567)	10	-	-		- 767	219	-
Total	2.726	274	(567)	10	-	-		767 -	219	-

The persons identified as key executives are mainly the directors of the various companies of the Group. Their compensation is disclosed in the following Note 34.

Earnings per share (EPS) is calculated as follows:

by dividing the profit attributable to the holders of ordinary shares by the average number of ordinary shares during the year, net of treasury shares (basic EPS);
by dividing the profit by the average number of ordinary shares and the potential number of shares arising from the exercise during the year of all option rights for stock option plans, net of treasury shares (diluted EPS).

Earnings per share	2018	2017
Average number of shares during the year Profit for the year (in € thousands)	91,716,638 47,403	91,716,638 26,016
Basic EPS and Diluted EPS	0.51	0.28

34. Compensation to the Board of Directors and Board of Statutory Auditors

The costs relating to the compensation of the corporate boards for 2018 are as follows:

(in € thousands)	Amount

Boards of directors	4,741
Boards of statutory auditors	126

Total	4,867

The persons identified as key executives are basically the directors of the company.

35. Independent Auditors' Fees

(in € thousands)
Service	Service provider	User	Note	2018 fee
Audit	EY S.p.A.	Parent	(1)	127
Drop Nail merger audit	EY S.p.A.	Parent		40
Audit	EY S.p.A.	Subsidiaries		168
Audit	EY network	Subsidiaries	(2)	320
Other	EY S.p.A.	Parent		87
Total				742

(1) Includes fees for the audit of the separate financial statements and the consolidated financial statements and fees for the audit of the statement of costs for research & development staff for purposes of IRAP deductibility.

(2) Includes fees relating to the audit of the Chinese, American, Swiss and Polish subsidiaries.

At December 31, 2018, the company is not aware of any contingent liabilities.

37. Subsequent Events

38. Additional Information

Milan, March 29, 2019 INTERCOS S.p.A On behalf of the Board of Directors

___________________________

Intercos S.p.A.

Consolidated 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 Consolidated Financial Statements

Opinion

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

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group 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 Consolidated Financial Statements section of our report. We are independent of Intercos S.p.A. 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 consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated 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
Revenue recognition: terms and conditions of product sales
Product sales transactions are based upon different shipping terms that include, in some cases, the transfer of control to the buyer prior to the actual delivery of the product.	Our audit procedures in response to this key audit matter included, among others:
Revenue recognition criteria for such transactions require the assessment of sales' contractual terms and the fulfillment of relevant obligations for revenue recognition purposes.	gaining an understanding of the revenue recognition process adopted by the Group; assessing the revenue recognition process and key controls implemented by the Group;
The assessment of sales' terms and conditions and their application to revenue recognition criteria has been deemed a key audit matter, considering the differences in certain contractual terms applied to sales transactions.	performing tests of key controls, including those related to the application of contractual terms; performing substantive procedures to address revenue
The Group disclosed the revenue recognition criteria for product sales in note 2 "Significant accounting policies" to the consolidated financial statements, in the paragraph "Revenues and costs".	recognition criteria at or near period end, where the risks of ownership are transferred to the buyer prior to the actual delivery of the product.
	Lastly, we reviewed the adequacy of the disclosure made in the notes to the consolidated financial statements related to revenue recognition.

Valuation of goodwill

At December 31, 2018, the carrying amount of goodwill was € 107, 9 million, and was allocated to the Cash Generating Units (CGUs) "Make-up", "Skin-care" and "Hair&Body".

The processes and methodologies to evaluate and determine the recoverable amount for each 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, the normalized cash flows used to estimate terminal value, and the long term growth and discount rates applied to such cash flow forecasts.

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

assessing the process and key controls implemented by the Group for evaluating goodwill;
validating the CGUs perimeter and the allocation of the carrying value of assets and liabilities to each CGU;
assessing cash flows projections, also considering industry data and 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 Group included disclosures related to the valuation of goodwill in note 2. "Significant accounting policies", in the paragraph "Intangible assets", in note 4. "Use of estimates and assumptions" and in note 9. "Goodwill" to the consolidated financial statements.

verifying the consistency of the forecast of future cash flows for each CGU with the group business plan for the period 2019-2023;
assessing the accuracy of cash flows forecasts by comparing forecasted data to actual result;
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 the recoverable amount.

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

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

The Directors are responsible for the preparation of the consolidated 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 Group's ability to continue as a going concern and, when preparing the consolidated financial statements, for the appropriateness of the going concern assumption, and for appropriate disclosure thereof. The Directors prepare the consolidated financial statements on a going concern basis unless they either intend to liquidate the Parent Company Intercos S.p.A. 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 Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 Group'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 Group'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 Group to cease to continue as a going concern;
we have evaluated the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
we have obtained sufficient appropriate audit evidence regarding the financial information of the entities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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 consolidated 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 Group in conducting the audit.

We confirm that the opinion on the consolidated 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 consolidated 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 consolidated financial statements of Intercos Group 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 consolidated financial statements of Intercos Group 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.

AI assistant

Intercos — Audit Report / Information 2018

4306_rns_2019-05-13_d5ad23e8-ff4b-48d4-a06a-84b058877e25.pdf

INTERCOS GROUP Global Cosmetic Manufacturer

CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2018

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

Consolidated Financial Statements at December 31, 2018

REPORT ON OPERATIONS

2. Profit and Financial Performance

5. Important Factors significantly impacting Operating Performance

Technological innovation

Market expansion thanks to new customer categories

6. Profit and Financial Review of the Intercos Group

Reclassified Consolidated Income Statement by function

Breakdown of revenues by geographical region

Breakdown of sales by business unit

Reclassified Consolidated Statement of Financial Position

Consolidated Net debt (Cash)

8. Related Party Transactions

9. Performance of the main Companies of the Group

10. Research & Development

11. Personnel and Organization

Exchange rate risk

Interest rate risk

Credit risk

Liquidity risk

Derivatives

Fair value hierarchy at the reporting date

13. Environmental Analysis

15. Corporate Governance and Ownership Structure pursuant to ex art. 123 bis of Legislative Decree 58 of February 24, 1998 , as amended (Consolidated Law on Finance - TUF)

THE CODE OF ETHICS AND THE CODE OF CONDUCT

16. Subsequent Events

18. Outlook for 2019

19. Additional Information

Corporate Information

BOARD OF DIRECTORS *

Name Office

BOARD OF STATUTORY AUDITORS *

INDEPENDENT AUDITORS

EY S.p.A.

Consolidated Statement of Financial Position at December 31, 2018

Consolidated Income Statement for the year ended December 31, 2018

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. General Information

Group organization structure

2. Significant Accounting Policies

Basis of preparation

New accounting standards and interpretations adopted by the Group

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

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

Summary of significant accounting policies

Principles of consolidation

Scope of consolidation

SUBSIDIARIES

Investments in associates and joint ventures

Current / non-current classification

Translation of financial statements expressed in currencies other than the functional currency

Property, plant and equipment

Leased assets

Intangible assets

(i) Goodwill

(ii) Trademarks, licenses and similar rights

(iii) R&D costs

Impairment of property, plant and equipment and intangible assets

Financial instruments

Financial assets

Financial liabilities

Derivative instruments

Determination of the fair value of derivative financial instruments

Inventories

Cash and cash equivalents

Provisions

Employee benefit obligations

Translation of foreign currency balances and transactions

Discontinued operations

Revenues and costs

Revenue recognition

Sales of products

Performance of services

Intercos Audit Report / Information 2018