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PRADA S.p.A. Interim / Quarterly Report 2014
50262_rns_2014-04-02_9c8b4fba-f2e1-4ea3-b28c-88fc2c3be3b3.pdf
Interim / Quarterly Report
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Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
PRADA spa
(Stock Code: 1913)
ANNOUNCEMENT OF THE CONSOLIDATED RESULTS FOR THE YEAR ENDED JANUARY 31, 2014
- Net revenues were Euro 3,587.3 million, recording an increase of 8.8% compared with the year ended January 31, 2013
- Retail net sales were Euro 2,996.6 million, up by 12.5% compared with the year ended January 31, 2013 (+17.8% at constant exchange rates)
- Retail Same Store Sales Growth was 7% compared with the year ended January 31, 2013
- EBITDA was Euro 1,143.2 million, up by 8.6% compared with the year ended January 31, 2013, and representing a margin of 31.9% on net revenues
- Group's net income amounted to Euro 627.8 million, up by 0.3% compared to Euro 625.7 million for the year ended January 31, 2013
- Positive net financial position at Euro 295.9 million as at January 31, 2014
- Net operating cash flow for the year ended January 31, 2014, was Euro 769.4 million
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Consolidated results for the year ended January 31, 2014
The Board of Directors (the “Board”) of PRADA S.p.A. (the “Company” or “PRADA spa”) is pleased to announce the audited Consolidated results of the Company and its subsidiaries (collectively, the “Group”) for the year ended January 31, 2014, together with the audited comparative figures for the year ended January 31, 2013. The following financial information was prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopted by the European Union. The consolidated results of the Group for the year ended January 31, 2014, and January 31, 2013, were audited by Deloitte & Touche spa.
Scope of work of Messrs. Deloitte & Touche spa
The figures in respect of the Group’s consolidated statement of financial position, consolidated statement of comprehensive income and the related notes thereto for the year ended January 31, 2014, as set out in this preliminary announcement have been agreed by the Group’s auditors, Messrs. Deloitte & Touche spa, to the amounts set out in the Group’s audited consolidated financial statements for the year. The work performed by Messrs. Deloitte & Touche spa in this respect did not constitute an assurance engagement in accordance with Auditing Standards issued by the Italian Accounting Profession (CNDCEC) and recommended by Consob, the Italian Commission for listed Companies and the Stock Exchange and consequently no assurance has been expressed by Messrs. Deloitte & Touche spa on the preliminary announcement.
Key financial information
| Key information from the Income statement (amounts in thousands of Euro) | twelve months ended Jan 31 2014 (audited) | twelve months ended Jan 31 2013 (audited) | twelve months ended Jan 31 2012 (audited) | % change vs Jan 31 2013 |
|---|---|---|---|---|
| Net revenues | 3,587,347 | 3,297,219 | 2,555,606 | 8.8% |
| EBITDA | 1,143,186 | 1,052,469 | 759,252 | 8.6% |
| EBITDA % | 31.9% | 31.9% | 29.7% | - |
| EBIT | 939,237 | 889,781 | 628,935 | 5.6% |
| EBIT % | 26.2% | 27.0% | 24.6% | - |
| Income before tax | 922,896 | 883,616 | 602,908 | 4.4% |
| Net income of the Group | 627,785 | 625,681 | 431,929 | 0.3% |
| Earnings per share (Euro) | 0.245 | 0.245 | 0.170 | 0% |
| Capital expenditure | 611,227 | 351,129 | 278,856 | - |
| Net operating cash flows | 769,437 | 759,272 | 479,954 | - |
| Average headcount (persons) | 10,816 | 9,427 | 8,067 | 14.7% |
| Key information from the Statement of financial position (amounts in thousands of Euro) | as at Jan 31 2014 (audited) | as at Jan 31 2013 audited | as at Jan 31 2012 (audited) | change vs Jan 31 2013 |
| --- | --- | --- | --- | --- |
| Net operating working capital | 409,774 | 317,714 | 357,648 | 92,060 |
| Net invested capital | 2,405,650 | 2,017,844 | 1,817,327 | 387,806 |
| Net financial position surplus/(deficit) | 295,890 | 312,648 | 13,640 | (16,758) |
| Group shareholders' equity | 2,687,554 | 2,320,022 | 1,822,743 | 367,532 |
Highlights for the year ended January 31, 2014
In 2013, the PRADA Group pursued with conviction its strategic plan of expansion in the global luxury goods market, achieving one of the highest rates of growth in the segment. The results achieved were all the more satisfying considering the ongoing uncertainty of the economic environment, especially in some parts of Europe, and the related exchange rate volatility. For the fourth consecutive year, significant net revenue growth was recorded.
Commercial growth was driven by the retail network thanks to both the solid contribution of existing stores and the impact of newly opened stores. Retail network expansion led to the opening of 79 net new Directly Operated Stores (DOS) during the year. The total number of DOS hit 500 in August 2013 and reached 540 at January 31, 2014. The Group now covers with its own stores 40 out of the 70 countries where Prada, Miu Miu, Church's and Car Shoe finished products are distributed and these stores generate 84.5% of consolidated net sales. At the same time, leather goods generate around two thirds of consolidated net sales with the remainder coming from clothing and footwear. This is consistent with the strategy of retail growth and the ongoing policy of selective reduction of the independent customer base.
The revenue growth has been accompanied by a communications strategy focused on sustaining and developing brand identity and ranging from unique advertising campaigns to sponsorship of events and initiatives with global visibility as the participation by Luna Rossa in the XXXIV edition of the America's Cup or the cultural and artistic initiatives of the Fondazione Prada.
Finally, in the industrial area, in 2013 management committed to improving further processes in order to optimize the system of procurement for the retail network and maintain high quality gross margins without affecting a tradition of craftsmanship that has now lasted a hundred years.
The Group’s net revenue for the twelve months ended January 31, 2014, totaled Euro 3,587.3 million, 8.8% more than in 2012 (+13.3% at constant exchange rates). An improvement in gross margin helped limit the impact of an increase in operating expenses due to retail network expansion and EBITDA remained in line with prior year at 31.9% of net revenue. In absolute terms, EBITDA totaled Euro 1,143.2 million, 8.6% more than the figure of Euro 1,052.5 million achieved in 2012.
The Group’s net income totaled Euro 627.8 million, slightly higher than the figure of Euro 625.7 million for the twelve months ended January 31, 2013. In addition to reasons above explained, the Group’s net income, as a percentage of net revenue, decreased from 19% to 17.5% because the increase in the direct tax burden.
The capital expenditure incurred during the twelve months ended January 31, 2014, amounted to Euro 611.2 million and was mainly focused on the retail area. Capital expenditure was mainly used to sustain the plan to open new stores and to acquire a prestigious building on Old Bond Street in London which the Group has already partially deployed to open one of the most strategic Prada stores in the world.
Free cash flows for the year enabled the Group to report a positive net financial position of Euro 295.9 million at January 31, 2014, after distributing dividends of Euro 230.3 million to the shareholders of PRADA spa. In terms of duration, the debt structure is more favorable than at January 31, 2013, as it has shifted more towards a longer term profile. During the year, the Group made loan repayments falling due of Euro 162.5 million, issued a five year bond of Euro 130 million and arranged new long-term bank loans of Euro 46.8 million.
4
Consolidated income statement for the year ended January 31, 2014
| (amounts in thousands of Euro) | Note | twelve months ended January 31 2014 (audited) | % on Net revenues | twelve months ended January 31 2013 (audited) | % on Net revenues |
|---|---|---|---|---|---|
| Net revenues | 3 | 3,587,347 | 100.0% | 3,297,219 | 100.0% |
| Cost of goods sold | (938,698) | -26.2% | (920,678) | -27.9% | |
| Gross margin | 2,648,649 | 73.8% | 2,376,541 | 72.1% | |
| Operating expenses | 4 | (1,709,412) | -47.7% | (1,486,760) | -45.1% |
| EBIT | 939,237 | 26.2% | 889,781 | 27.0% | |
| Interest and other financial income/(expenses), net | 5 | (17,357) | -0.5% | (7,131) | -0.2% |
| Dividends received from third parties | 1,016 | - | 966 | - | |
| Income before taxes | 922,896 | 25.7% | 883,616 | 26.8% | |
| Taxation | 6 | (285,091) | -7.9% | (250,339) | -7.6% |
| Net income from continuing operations | 637,805 | 17.8% | 633,277 | 19.2% | |
| Net income for the period | 637,805 | 17.8% | 633,277 | 19.2% | |
| Net income – Non-controlling interests | 10,020 | 0.3% | 7,596 | 0.2% | |
| Net income – Group | 627,785 | 17.5% | 625,681 | 19.0% | |
| Depreciation, amortization and impairment | 203,949 | 5.7% | 162,688 | 4.9% | |
| EBITDA | 1,143,186 | 31.9% | 1,052,469 | 31.9% | |
| Basic and diluted earnings per share (in Euro per share) | 7 | 0.245 | 0.245 |
Consolidated income statement for the three months ended January 31, 2014
| (amounts in thousands of Euro) | Note | three months ended January 31 2014 (unaudited) | % on Net revenues | three months ended January 31 2013 (unaudited) | % on Net revenues |
|---|---|---|---|---|---|
| Net revenues | 3 | 1,011,246 | 100.0% | 957,897 | 100.0% |
| Cost of goods sold | (271,837) | -26.9% | (265,801) | -27.7% | |
| Gross margin | 739,409 | 73.1% | 692,096 | 72.3% | |
| Operating expenses | (477,986) | -47.3% | (414,779) | -43.3% | |
| EBIT | 261,423 | 25.9% | 277,317 | 29.0% | |
| Interest and other financial income/(expenses), net | (2,933) | -0.3% | (2,837) | -0.3% | |
| Dividends received from third parties | 732 | 0.1% | 966 | 0.1% | |
| Income before taxes | 259,222 | 25.6% | 275,446 | 28.8% | |
| Taxation | (69,957) | -6.9% | (56,234) | -5.9% | |
| Net income from continuing operations | 189,265 | 18.7% | 219,212 | 22.9% | |
| Net income for the period | 189,265 | 18.7% | 219,212 | 22.9% | |
| Net income – Non-controlling interests | 2,360 | 0.2% | 2,083 | 0.2% | |
| Net income – Group | 186,906 | 18.5% | 217,129 | 22.7% | |
| Depreciation, amortization and impairment | 60,791 | 6.0% | 47,279 | 4.9% | |
| EBITDA | 322,214 | 31.9% | 324,596 | 33.9% |
Consolidated statement of financial position
| (amounts in thousands of Euro) | Note | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|---|
| Assets | |||
| Current assets | |||
| Cash and cash equivalents | 568,414 | 571,746 | |
| Trade receivables, net | 9 | 308,405 | 304,525 |
| Inventories, net | 8 | 449,903 | 343,802 |
| Derivative financial instruments - current | 13,984 | 43,060 | |
| Receivables from, and advance payments to, parent company and other related parties - current | 10 | 5,993 | 19,493 |
| Other current assets | 12 | 114,897 | 104,823 |
| Total current assets | 1,461,596 | 1,387,449 | |
| Non-current assets | |||
| Property, plant and equipment | 11 | 1,230,192 | 857,299 |
| Intangible assets | 11 | 901,289 | 878,750 |
| Associated undertakings | 21,186 | 23,024 | |
| Deferred tax assets | 201,245 | 176,057 | |
| Other non-current assets | 13 | 69,867 | 61,569 |
| Derivative financial instruments non-current | 1,430 | 1,018 | |
| Receivables from, and advance payments to, parent company and other related parties – non current | 10 | 1,487 | 113 |
| Total non-current assets | 2,426,696 | 1,997,830 | |
| Total Assets | 3,888,292 | 3,385,279 | |
| Liabilities and Shareholders' equity | |||
| Current liabilities | |||
| Bank overdrafts and short-term loans | 61,909 | 175,570 | |
| Payables to parent company and other related parties - current | 14 | 4,894 | 5,599 |
| Trade payables | 15 | 348,534 | 330,613 |
| Current tax liabilities | 132,145 | 97,148 | |
| Derivative financial instruments - current | 3,803 | 912 | |
| Obligations under finance leases - current | 524 | 575 | |
| Other current liabilities | 16 | 154,666 | 131,645 |
| Total current liabilities | 706,475 | 742,062 | |
| Non-current liabilities | |||
| Long-term financial payables | 207,950 | 78,830 | |
| Obligations under finance leases non-current | 19 | 518 | |
| Post-employment benefits | 63,279 | 45,538 | |
| Provision for risks and charges | 17 | 52,660 | 46,914 |
| Deferred tax liabilities | 42,671 | 55,636 | |
| Other non-current liabilities | 98,982 | 84,905 | |
| Derivative financial instruments non-current | 1,469 | 384 | |
| Payables to parent company and other related parties - non current | 14 | 13,247 | - |
| Total non-current liabilities | 480,277 | 312,725 | |
| Total Liabilities | 1,186,752 | 1,054,787 | |
| Share capital | 255,882 | 255,882 | |
| Other reserves | 1,853,325 | 1,480,747 | |
| Translation reserve | (49,438) | (42,288) | |
| Net profit for the period | 627,785 | 625,681 | |
| Total Shareholders' equity – Group | 2,687,554 | 2,320,022 | |
| Shareholders' equity – Non-controlling interests | 13,986 | 10,470 | |
| Total Liabilities and Shareholders' equity | 3,888,292 | 3,385,279 | |
| Net current assets | 755,121 | 645,387 | |
| --- | --- | --- | |
| Total assets less current liabilities | 3,181,817 | 2,643,217 |
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Statement of changes in consolidated shareholders' equity (amounts in thousands of Euro, except for number of shares)
| (amounts in thousands of Euro) | Number of Shares | Share Capital | Share premium reserve | Translation reserve | Cash flow hedge reserve | Actuarial gain (losses) reserve | Available for sale reserve | Other reserves | Net profit | Equity attributable to owners of the Group | Non-controlling interests | Total Equity |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at January 31, 2012 (audited) | 2,558,824,000 | 255,882 | 410,047 | (17,239) | (4,173) | (1,192) | (58) | 747,548 | 431,929 | 1,822,744 | 8,224 | 1,830,968 |
| Allocation of 2011 net profit | - | - | - | - | - | - | - | 431,929 | (431,929) | - | - | - |
| Dividends | - | - | - | - | - | - | - | (127,941) | - | (127,941) | (5,576) | (133,517) |
| Capital injection in subsidiaries | - | - | - | - | - | - | - | - | - | - | 1,166 | 1,166 |
| Comprehensive income for the year (recycled to P&L) | - | - | - | (25,049) | 24,321 | - | 5,544 | - | 625,681 | 630,497 | 6,656 | 637,153 |
| Comprehensive income for the year (not recycled to P&L) | - | - | - | - | - | (5,278) | - | - | - | (5,278) | - | (5,278) |
| Balance at January 31, 2013 (audited) | 2,558,824,000 | 255,882 | 410,047 | (42,288) | 20,148 | (6,470) | 5,486 | 1,051,536 | 625,681 | 2,320,022 | 10,470 | 2,330,492 |
| Allocation of 2012 net profit | - | - | - | - | - | - | - | 625,681 | (625,681) | - | - | - |
| Dividends | - | - | - | - | - | - | - | (230,294) | - | (230,294) | (6,634) | (236,928) |
| Capital injection in subsidiaries | - | - | - | - | - | - | - | - | - | - | 40 | 40 |
| Comprehensive income for the year (recycled to P&L) | - | - | - | (7,150) | (16,449) | - | (1,378) | - | 627,785 | 602,808 | 10,110 | 612,918 |
| Comprehensive income for the year (not recycled to P&L) | - | - | - | - | - | (4,982) | - | - | - | (4,982) | - | (4,982) |
| Balance at January 31, 2014 (audited) | 2,558,824,000 | 255,882 | 410,047 | (49,438) | 3,699 | (11,452) | 4,108 | 1,446,923 | 627,785 | 2,687,554 | 13,986 | 2,701,540 |
Under Italian law, the Company is required to allocate a portion of its net profit to non-distributable reserves and to provide additional information on the distribution of earnings for the period.
Summarized statement of consolidated cash flows
| (amounts in thousands of Euro) | twelve months ended January 31 2014 (audited) | twelve months ended January 31 2013 (audited) |
|---|---|---|
| Net cash flows from operating activities | 769,437 | 759,272 |
| Cash flows generated/(utilized) by investing activities | (548,348) | (331,645) |
| Cash flows generated/(utilized) by financing activities | (219,797) | (197,965) |
| Change in cash and cash equivalents, net of bank overdrafts | 1,292 | 229,662 |
Statement of consolidated comprehensive income
| (amounts in thousands of Euro) | twelve months ended January 31 2014 (audited) | twelve months ended January 31 2013 (audited) |
|---|---|---|
| Net income for the period – Consolidated | 637,805 | 633,277 |
| A) Items recycled to P&L: | ||
| Change in Translation reserve | (7,057) | (25,989) |
| Tax impact | - | - |
| Change in Translation reserve less tax impact | (7,057) | (25,989) |
| Change in Cash Flow Hedge reserve | (22,755) | 33,530 |
| Tax impact | 6,306 | (9,209) |
| Change in Cash Flow Hedge reserve less tax impact | (16,449) | 24,321 |
| Change in Fair Value reserve | (1,837) | 7,391 |
| Tax impact | 459 | (1,847) |
| Change in Fair Value reserve less tax impact | (1,378) | 5,544 |
| B) Item not recycled to P&L | ||
| Change in Actuarial reserve | (6,403) | (6,369) |
| Tax impact | 1,418 | 1,091 |
| Change in Actuarial reserve less tax impact | (4,985) | (5,278) |
| Consolidated comprehensive income for the period | 607,936 | 631,875 |
| Comprehensive income for the period – Non-controlling Interests | 10,110 | 6,656 |
| Comprehensive income for the period – Group | 597,826 | 625,219 |
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Notes to the consolidated results for the twelve months ended January 31, 2014
1. Presentation of PRADA Group
PRADA spa (the “Company”), together with its subsidiaries (jointly the “Group”), is listed on the Hong Kong Stock Exchange (stock code: 1913). It is one of the world leaders in the luxury goods sector where it operates with the Prada, Miu Miu, Church’s and Car Shoe brands in the design, production and distribution of luxury handbags, leather goods, footwear, apparel and accessories. The Group also operates, under licensing agreements, in the eyewear, fragrances and mobile telephone sectors. Its products are sold in 70 countries worldwide through a network that included 540 Directly Operated Stores (DOS) at January 31, 2014, and a selected network of luxury department stores, independent retailers and franchise stores.
The Company is a joint-stock company, registered and domiciled in Italy. Its registered office is in Via Antonio Fogazzaro 28, Milan, Italy.
2. Basis of preparation
The Consolidated financial statements of the PRADA Group as at January 31, 2014, including the “Consolidated statement of financial position”, the “Consolidated income statement”, the “Statement of Consolidated comprehensive income”, the “Summarized statement of consolidated cash flows “, the “Statement of changes in consolidated shareholders’ equity” and the “Notes to the consolidated financial statements” have been prepared in accordance with the International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) as endorsed by the European Union.
At the date of presentation of these Consolidated financial statements, there were no differences between IFRS as endorsed by the European Union and applicable to the PRADA Group and those issued by the IASB.
IFRS also refers to all International Accounting Standards (“IASs”) and all interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), previously called the Standing Interpretations Committee (“SIC”).
The contents of this Announcement on the consolidated results for the year ended January 31, 2014, are included in the 2013 Annual Report of PRADA spa.
New standards and amendments issued by the IASB, endorsed by the European Union and applicable to the PRADA Group from February 1, 2013
The following amendments to IFRS have been endorsed by the European Union and are applicable to the PRADA Group effective from February 1, 2013. These changes do not have any significant impact to the Group as of the date of these Consolidated financial statements:
- Amendments to “IAS 1 Presentation of financial statements”;
- Amendments to “IAS 19 Employee benefits”;
- “IFRS 13 Fair Value Measurement”;
- Amendments to “IAS 12 Income Taxes”;
- Amendments to “IFRS 7 Financial Instruments: Disclosures”;
- Amendments to “IFRS 1 First-time Adoption of IFRS – Governments Loans”;
- Annual improvements to IFRS (2009-2011 Cycle).
On December 29, 2012, the European Union endorsed the “IFRS 10 Consolidated Financial Statements”, the “IFRS 11 Joint Arrangements”, the “IFRS 12 Disclosure of Interests in Other Entities”, the Amendments to “IAS 28 Investment in Associates and Joint Ventures” and the Amendments to “IAS 27 Separate Financial Statements” that, according to IASB, are effective from January 1, 2013, but, because of the timing of the endorsement process in the European Union, are applicable to the PRADA Group effective from February 1, 2014. The early adoption of these new IFRS and amendments would not have had any significant impact on the Consolidated financial statements of the PRADA Group for the twelve months ended January 31, 2014.
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3. Net revenues analysis
Net revenues for the year ended January 31, 2014
| (amounts in thousands of Euro) | twelve months ended January 31 2014 (audited) | twelve months ended January 31 2013 (audited) | % change | ||
|---|---|---|---|---|---|
| Net sales by geographical area | |||||
| Italy | 552,897 | 15.6% | 528,302 | 16.2% | 4.7% |
| Europe | 776,494 | 21.9% | 739,634 | 22.7% | 5.0% |
| Americas | 487,990 | 13.8% | 440,035 | 13.5% | 10.9% |
| Asia Pacific | 1,292,753 | 36.4% | 1,160,166 | 35.6% | 11.4% |
| Japan (including Hawaii) | 340,784 | 9.6% | 337,313 | 10.4% | 1.0% |
| Middle East | 91,114 | 2.6% | 44,803 | 1.4% | 103.4% |
| Other countries | 6,175 | 0.1% | 6,175 | 0.2% | 0.0% |
| Total | 3,548,207 | 100.0% | 3,256,428 | 100.0% | 9.0% |
| Net sales by brand | |||||
| Prada | 2,943,633 | 83.0% | 2,649,559 | 81.4% | 11.1% |
| Miu Miu | 519,142 | 14.6% | 512,762 | 15.7% | 1.2% |
| Church's | 68,609 | 1.9% | 68,447 | 2.1% | 0.2% |
| Car Shoe | 13,427 | 0.4% | 19,660 | 0.6% | -31.7% |
| Other | 3,396 | 0.1% | 6,000 | 0.2% | -43.4% |
| Total | 3,548,207 | 100.0% | 3,256,428 | 100.0% | 9.0% |
| Net sales by product line | |||||
| Clothing | 581,594 | 16.4% | 563,322 | 17.3% | 3.2% |
| Leather goods | 2,332,518 | 65.7% | 2,038,043 | 62.6% | 14.4% |
| Footwear | 594,586 | 16.8% | 625,390 | 19.2% | -4.9% |
| Other | 39,509 | 1.1% | 29,673 | 0.9% | 33.1% |
| Total | 3,548,207 | 100.0% | 3,256,428 | 100.0% | 9.0% |
| Net sales by distribution channel | |||||
| DOS | 2,996,637 | 84.5% | 2,664,238 | 81.8% | 12.5% |
| Independent customers and franchises | 551,570 | 15.5% | 592,190 | 18.2% | -6.9% |
| Total | 3,548,207 | 100.0% | 3,256,428 | 100.0% | 9.0% |
| Net sales | 3,548,207 | 98.9% | 3,256,428 | 98.8% | 9.0% |
| Royalties | 39,140 | 1.1% | 40,791 | 1.2% | -4.0% |
| Total net revenues | 3,587,347 | 100.0% | 3,297,219 | 100.0% | 8.8% |
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Net revenues for the three months ended January 31, 2014
| (amounts in thousands of Euro) | three months ended January 31 2014 (unaudited) | three months ended January 31 2013 (unaudited) | % change | ||
|---|---|---|---|---|---|
| Net sales by geographical area | |||||
| Italy | 154,334 | 15.4% | 143,237 | 15.1% | 7.7% |
| Europe | 204,482 | 20.5% | 202,337 | 21.3% | 1.1% |
| Americas | 152,311 | 15.2% | 144,260 | 15.2% | 5.6% |
| Asia Pacific | 360,775 | 36.0% | 345,472 | 36.5% | 4.4% |
| Japan (including Hawaii) | 101,029 | 10.1% | 90,433 | 9.5% | 11.7% |
| Middle East | 26,078 | 2.6% | 20,759 | 2.2% | 25.6% |
| Other countries | 1,992 | 0.2% | 1,927 | 0.2% | 3.4% |
| Total | 1,001,001 | 100.0% | 948,425 | 100.0% | 5.5% |
| Net sales by brand | |||||
| Prada | 829,223 | 82.9% | 772,956 | 81.5% | 7.3% |
| Miu Miu | 151,144 | 15.1% | 152,098 | 16.0% | -0.6% |
| Church's | 17,348 | 1.7% | 18,310 | 1.9% | -5.3% |
| Car Shoe | 2,474 | 0.2% | 4,525 | 0.5% | -45.3% |
| Other | 812 | 0.1% | 536 | 0.1% | 51.5% |
| Total | 1,001,001 | 100.0% | 948,425 | 100.0% | 5.5% |
| Net sales by product line | |||||
| Clothing | 191,252 | 19.1% | 175,393 | 18.5% | 9.0% |
| Leather goods | 621,735 | 62.1% | 593,826 | 62.6% | 4.7% |
| Footwear | 179,228 | 17.9% | 175,046 | 18.5% | 2.4% |
| Other | 8,786 | 0.9% | 4,160 | 0.4% | 111.2% |
| Total | 1,001,001 | 100.0% | 948,425 | 100.0% | 5.5% |
| Net sales by distribution channel | |||||
| DOS | 814,597 | 81.4% | 746,686 | 78.7% | 9.1% |
| Independent customers and franchises | 186,404 | 18.6% | 201,739 | 21.3% | -7.6% |
| Total | 1,001,001 | 100.0% | 948,425 | 100.0% | 5.5% |
| Net sales | 1,001,001 | 99.0% | 948,425 | 99.0% | 5.5% |
| Royalties | 10,245 | 1.0% | 9,472 | 1.0% | 8.2% |
| Total net revenues | 1,011,246 | 100.0% | 957,897 | 100.0% | 5.6% |
Number of stores
| as at January 31, 2014 | as at January 31, 2013 | |||
|---|---|---|---|---|
| Owned | Franchises | Owned | Franchises | |
| Prada | 330 | 24 | 283 | 19 |
| Miu Miu | 150 | 8 | 126 | 6 |
| Church's | 52 | - | 45 | - |
| Car Shoe | 8 | - | 7 | - |
| Total | 540 | 32 | 461 | 25 |
| as at January 31, 2014 | as at January 31, 2013 | |||
| Owned | Franchises | Owned | Franchises | |
| Italy | 51 | 6 | 48 | 5 |
| Europe | 150 | 6 | 137 | 6 |
| Americas | 91 | - | 66 | - |
| Asia Pacific | 157 | 20 | 130 | 14 |
| Japan | 72 | - | 66 | - |
| Middle East | 16 | - | 11 | - |
| Africa | 3 | - | 3 | - |
| Total | 540 | 32 | 461 | 25 |
- Operating expenses
| (amounts in thousands of Euro) | twelve months ended January 31 2014 (audited) | % on net revenues | twelve months ended January 31 2013 (audited) | % on net revenues |
|---|---|---|---|---|
| Product design and development costs | 129,807 | 3.6% | 111,370 | 3.4% |
| Advertising and communication costs | 171,966 | 4.8% | 150,574 | 4.6% |
| Selling costs | 1,212,065 | 33.8% | 1,040,133 | 31.5% |
| General and administrative costs | 195,574 | 5.5% | 184,683 | 5.6% |
| Total | 1,709,412 | 47.7% | 1,486,760 | 45.1% |
15
5. Interest and other financial income/(expenses), net
| (amounts in thousands of Euro) | twelve months ended January 31 2014 (audited) | twelve months ended January 31 2013 (audited) |
|---|---|---|
| Interests expenses on borrowings | (9,548) | (12,956) |
| Interest expenses IAS 19 | (12) | (144) |
| Interest income | 3,576 | 4,804 |
| Exchange gains /(losses) – realized | (9,128) | 4,314 |
| Exchange gains/(losses) – unrealized | 1,448 | 1,551 |
| Other financial income/(expenses) | (3,693) | (4,700) |
| Total | (17,357) | (7,131) |
6. Taxation
| (amounts in thousands of Euro) | twelve months ended January 31 2014 (audited) | twelve months ended January 31 2013 (audited) |
|---|---|---|
| Current taxation | 320,176 | 258,613 |
| Deferred taxation | (35,085) | (8,274) |
| Income taxes | 285,091 | 250,339 |
7. Earnings and dividends per share
Earnings per share
Earnings per share are calculated by dividing the net income attributable to Group's shareholders by the weighted average number of ordinary shares in issue.
| twelve months ended January 31 2014 (audited) | twelve months ended January 31 2013 (audited) | |
|---|---|---|
| Group net income in Euro | 627,784,659 | 625,681,459 |
| Weighted average number of ordinary shares in issue | 2,558,824,000 | 2,558,824,000 |
| Earnings per share in Euro, calculated on weighted average number of shares | 0.245 | 0.245 |
Dividends per share
The Board of Directors of PRADA spa has proposed a final dividend of Euro 281,470,640 (or Euro 11 cents per share) for the twelve months ended January 31, 2014.
During the year ended January 31, 2014, the Company distributed dividends of Euro 230,294,160, as approved by the Shareholders' Meeting held on May
23, 2013, to approve the financial statements for the year ended January 31, 2013. The payment of the dividends and the related Italian withholding tax payable (Euro 9.2 million), arising from the application of the Italian ordinary withholding tax rate to the whole amount of dividends paid to beneficial owners of the Company shares held through the Hong Kong Central Clearing and Settlement System, was completed by January 31, 2014.
During the previous year ended, the Company distributed dividends of Euro 127,941,200, as approved by the Annual General Meeting held on May 22, 2012, to approve the financial statements for the year ended January 31, 2012.
8. Inventories, net
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Raw materials | 85,333 | 79,559 |
| Work in progress | 28,424 | 24,620 |
| Finished products | 403,473 | 314,244 |
| Allowance for obsolete and slow moving inventories | (67,327) | (74,621) |
| Total | 449,903 | 343,802 |
The increase in finished products is due to the greater value of retail stock as a result of the number of stores opened during 2013 and the higher unit value of the Spring/Summer 2014 collection in inventory at the reporting date.
Materials being worked upon by third parties are included in raw materials. Work in progress includes materials at the production stage with PRADA spa, subsidiaries Artisans Shoes srl and Church & Co Ltd and third party subcontractors.
Movements on the allowance for obsolete and slow moving inventories are analyzed as follows:
| (amounts in thousands of Euro) | Raw materials | Finished Products | Total |
|---|---|---|---|
| Balance at January 31, 2013 (audited) | 29,754 | 44,867 | 74,621 |
| Exchange differences | 2 | 14 | 16 |
| Increases | 24 | 83 | 107 |
| Reversals | - | (7,000) | (7,000) |
| Decrease for use | - | (417) | (417) |
| Balance at January 31, 2013 (audited) | 29,780 | 37,547 | 67,327 |
The allowance for obsolete and slow moving inventories has been adjusted to bring the value of inventories into line with their realizable amount.
- Trade receivables, net
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Trade receivables from third parties | 288,504 | 286,390 |
| Allowance for bad and doubtful debts | (10,432) | (11,547) |
| Trade receivables from related parties | 30,333 | 29,682 |
| Total | 308,405 | 304,525 |
Trade receivables from third parties did not vary significantly compared to January 31, 2013, as the value of shipments to independent retail customers for Spring/Summer collections remained almost unchanged between 2012 and 2013.
Trade receivables from related parties includes an amount of Euro 25.5 million (Euro 28.4 million at January 31, 2013) essentially arising from sales of finished products and royalties, as provided by the franchising agreement with Fratelli Prada spa, a retail company owned by the majority shareholders of parent company PRADA Holding bv. Trade receivables from related parties also includes a total of Euro 2.2 million due from Fratelli Prada spa and Progetto Prada Arte srl in respect of their utilization of premises in Galleria Vittoria Emanuele II which PRADA spa holds under a concession agreement with the Municipality of Milan.
The allowance for doubtful debts was determined on a specific basis considering all information available at the date the financial statements were prepared. It is revised periodically to bring receivables as close as possible to the fair value.
Movements during the period may be analyzed as follows:
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Opening balance | 11,547 | 11,681 |
| Exchange differences | 55 | (67) |
| Increases | 830 | 805 |
| Uses | (1,922) | (754) |
| Reversals | (78) | (118) |
| Closing balance | 10,432 | 11,547 |
The following table contains a summary, by due date, of total receivables before the allowance for doubtful debts at the reporting date:
| (amounts in thousands of Euro) | as at January 31, 2014 (audited) | Current | Overdue (days) | ||||
|---|---|---|---|---|---|---|---|
| 1 ≤ 30 | 31 ≤ 60 | 61 ≤ 90 | 91 < 120 | ≥ 120 | |||
| Trade receivables | 318,837 | 262,213 | 20,331 | 9,817 | 6,446 | 3,633 | 16,397 |
| Total | 318,837 | 262,213 | 20,331 | 9,817 | 6,446 | 3,633 | 16,397 |
| (amounts in thousands of Euro) | as at January 31, 2013 (audited) | Current | Overdue (days) | ||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| 1 ≤ 30 | 31 ≤ 60 | 61 ≤ 90 | 91 < 120 | ≥ 120 | |||
| Trade receivables | 316,072 | 263,079 | 27,328 | 7,708 | 5,852 | 1,607 | 10,498 |
| Total | 316,072 | 263,079 | 27,328 | 7,708 | 5,852 | 1,607 | 10,498 |
The following table contains a summary, by due date, of trade receivables less the allowance for doubtful accounts at the reporting date:
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | Current | Overdue (days) | ||||
|---|---|---|---|---|---|---|---|
| 1 ≤ 30 | 31 ≤ 60 | 61 ≤ 90 | 91 < 120 | ≥ 120 | |||
| Trade receivables less allowance for doubtful accounts | 308,405 | 261,862 | 20,331 | 9,817 | 6,213 | 3,633 | 6,549 |
| Total | 308,405 | 261,862 | 20,331 | 9,817 | 6,213 | 3,633 | 6,549 |
| (amounts in thousands of Euro) | as at January 31 2013 (audited) | Current | Overdue (days) | ||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| 1 ≤ 30 | 31 ≤ 60 | 61 ≤ 90 | 91 < 120 | ≥ 120 | |||
| Trade receivables less allowance for doubtful accounts | 304,525 | 262,799 | 27,141 | 7,708 | 5,804 | 634 | 439 |
| Total | 304,525 | 262,799 | 27,141 | 7,708 | 5,804 | 634 | 439 |
- Receivables from, and advance payments to, parent company and other related parties - current and non current
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Financial receivables - other related parties | 2,008 | 1,413 |
| Other receivables - PRADA Holding bv | 356 | 249 |
| Other receivables - other companies controlled by PRADA Holding bv | 36 | 3 |
| Other receivables - other related parties | 2,159 | 2,652 |
| Advance payments - other related parties | 1,434 | 15,176 |
| Receivables from, and advance payments to, parent company and other related parties - current | 5,993 | 19,493 |
The financial receivables from other related parties reported at January 31, 2013, were collected during the year and were due from PAC srl (in liquidation). The new receivables reported at January 31, 2014, are due from Luna Rossa Challenge 2013 srl and regard a loan made during the year which is repayable not later than July 30, 2014. At January 31, 2013, advance payments to other related companies included Euro 12.3 million paid to Luna Rossa Challenge NZ Ltd and Luna Rossa Challenge srl in accordance with the contracts signed with subsidiary PRADA sa for sponsorship of the Luna Rossa yacht in relation to its participation on the XXXIV edition of the America's Cup. The competition was held in San Francisco in 2013 and the full amount of the advance was released to the income statement for the year. Advances to other related companies at January 31, 2014, amount to Euro 1.4 million (Euro 2.9 million at January 31, 2013) and mainly regard advances paid to Progetto Prada Arte srl for cultural initiatives to be held during the following year.
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Deferred rental income – long term | 1,487 | - |
| Other | - | 113 |
| Receivables from, and advance payments to, parent company and other related parties – non current | 1,487 | 113 |
Deferred rental income - long term - has been recorded in relation to Fratelli Prada spa and Progetto Prada Arte srl in application of "IAS 17 Leases" which requires rental income to be recognized on a constant basis.
11. Capital expenditure
Changes in the net book value of Property, plant and equipment in the period ended January 31, 2014, are as follows:
| (amounts in thousands of Euro) | Land and buildings | Production plant and machinery | Leasehold improvements | Furniture & fittings | Other tangible | Assets under construction | Total net book value |
|---|---|---|---|---|---|---|---|
| Balance at January 31, 2013 (audited) | 211,580 | 17,448 | 373,043 | 110,310 | 39,413 | 105,505 | 857,299 |
| Additions | 175,197 | 10,710 | 215,784 | 70,427 | 32,179 | 55,499 | 559,796 |
| Depreciation | (7,931) | (7,926) | (112,932) | (31,900) | (8,064) | - | (168,753) |
| Disposals | (5) | (35) | (83) | (558) | (82) | (130) | (893) |
| Exchange differences | 4,474 | 34 | (13,118) | (1,884) | (240) | (1,759) | (12,493) |
| Other movements | 7,362 | 48 | 26,797 | 8,425 | 6,077 | (49,113) | (404) |
| Impairment | - | - | (2,264) | (1,392) | (60) | (644) | (4,360) |
| Balance at January 31, 2014 (audited) | 390,677 | 20,279 | 487,227 | 153,428 | 69,223 | 109,358 | 1,230,192 |
Changes in the net book value of Intangible assets in the period ended January 31, 2014, are as follows:
| (amounts in thousands of Euro) | Trade- marks | Goodwill | Store Lease Acquisitions | Software | Development costs and other intangible assets | Assets in progress | Total net book value |
|---|---|---|---|---|---|---|---|
| Balance at January 31, 2013 (audited) | 291,105 | 503,987 | 65,763 | 7,988 | 1,677 | 8,230 | 878,750 |
| Additions | 616 | - | 21,816 | 3,927 | 20,129 | 4,943 | 51,431 |
| Amortization | (11,060) | - | (12,614) | (3,505) | (2,925) | - | (30,104) |
| Disposals | - | - | (89) | - | - | (14) | (103) |
| Exchange differences | 2,270 | 386 | (173) | (43) | - | (113) | 2,327 |
| Other movements | (18) | - | 4,290 | 2,650 | 185 | (7,386) | (279) |
| Impairment | - | - | 1 | (380) | (37) | (317) | (733) |
| Balance at January 31, 2014 (audited) | 282,913 | 504,373 | 78,994 | 10,637 | 19,029 | 5,343 | 901,289 |
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12. Other current assets
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| VAT | 39,250 | 25,072 |
| Income tax and other tax receivables | 14,062 | 20,540 |
| Other assets | 13,470 | 16,731 |
| Prepayments and accrued income | 42,375 | 41,266 |
| Deposits | 5,740 | 1,214 |
| Total | 114,897 | 104,823 |
13. Other non-current assets
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Guarantee deposits | 57,158 | 50,785 |
| Deferred rental income | 6,923 | 2,410 |
| Other receivables | 5,786 | 8,374 |
| Total | 69,867 | 61,569 |
14. Payables to parent company and other related parties - current and non current
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Other payables - PRADA Holding bv and other companies controlled by PRADA Holding bv | 136 | 123 |
| Financial payables - other related parties | 4,130 | 5,018 |
| Other payables - other related parties | 628 | 458 |
| Payables to parent company and other related parties – current | 4,894 | 5,599 |
Financial payables towards other related parties, totaling Euro 4.1 million at January 31, 2014, include an interest-free loan contributed by Al Tayer, the non-controlling shareholder of PRADA Middle East fzco, according to its share in the said company. The loan was partially repaid during the year.
The non current portion of payables to parent company and other related parties may be detailed as follows:
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Other payables – other related companies | 13,247 | - |
| Payables to parent company and other related parties – non current | 13.247 | - |
Other payables to other related companies includes the amount due to Fin-Reta srl in relation to the establishment of a ten year right of usufruct to a real estate property in Tuscany, Italy, and to a business party to the rental agreement for said property which the Group is using as part of its retail network expansion. The payable reported at January 31, 2014, represents the present value of future payments due after January 31, 2015.
15. Trade payables
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Trade payables – third parties | 337,807 | 323,894 |
| Trade payables – related parties | 10,727 | 6,719 |
| Total | 348,534 | 330,613 |
The increase in Trade payables is due to the growth of the business in general.
The following table summarizes trade payables by maturity date.
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | Current | Overdue | ||||
|---|---|---|---|---|---|---|---|
| 1 ≤ 30 | 31 ≤ 60 | 61 ≤ 90 | 91 < 120 | ≥ 120 | |||
| Trade payables | 348,534 | 314,375 | 17,261 | 8,524 | 2,099 | 1,086 | 5,189 |
| Total | 348,534 | 314,375 | 17,261 | 8,524 | 2,099 | 1,086 | 5,189 |
| (amounts in thousands of Euro) | as at January 31 2013 (audited) | Current | Overdue | ||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| 1 ≤ 30 | 31 ≤ 60 | 61 ≤ 90 | 91 < 120 | ≥ 120 | |||
| Trade payables | 330,613 | 301,940 | 14,991 | 3,859 | 3,119 | 1,180 | 5,524 |
| Total | 330,613 | 301,940 | 14,991 | 3,859 | 3,119 | 1,180 | 5,524 |
16. Other current liabilities
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Payables for capital expenditure | 70,848 | 57,969 |
| Accrued expenses and deferred income | 10,842 | 9,810 |
| Other payables | 72,976 | 63,866 |
| Total | 154,666 | 131,645 |
17. Provisions for risks and charges
Movements in provisions for risks and charges are summarized as follows:
| (amounts in thousands of Euro) | Provision for litigation | Provision for tax disputes | Other provisions | Total |
|---|---|---|---|---|
| Balance at January 31, 2013 (audited) | 1,775 | 27,467 | 17,672 | 46,914 |
| Exchange differences | (1) | (580) | (873) | (1,454) |
| Reclassifications | - | (3,642) | 11 | (3,631) |
| Reversals | (373) | (386) | (74) | (833) |
| Uses | (39) | (365) | (544) | (948) |
| Increases | 38 | 230 | 12,344 | 12,612 |
| Balance at January 31, 2014 (audited) | 1,400 | 22,724 | 28,536 | 52,660 |
Provisions represent the Directors' best estimate of maximum contingent liabilities. In the Directors' opinion and based on the information available to them as supported by the opinions of independent experts at the reporting date, the total amount provided for risks and charges is reasonable considering the contingent liabilities that might arise.
24
Management Discussion and Analysis for the three months period ended January 31, 2014
Net revenues
In the three months ended January 31, 2014, the consolidated net revenues amounted to Euro 1,011.2 million, advancing 5.6% compared to Euro 957.9 million recorded in the three months ended January 31, 2013.
The expansion was delivered by the retail channel that, contributing 81.4% to the total net sales of the three months period ending January 31, 2014, posted an increase of 9.1% over the results achieved in the same period of last year. On a Same Store Sales Growth (SSSG) basis, the increase was 6%.
During the last quarter of 2013 a net of 24 new stores (27 openings and 3 closures) was opened, including the first store in Kazakhstan for the Group.
In the three months ended January 31, 2014, all geographical areas recorded positive growth rates with Japan and Middle East delivering double-digit increases.
In terms of brands, Prada contributed 82.8% to consolidated net sales and, with Euro 829.2 million, delivered an increase of 7.3% compared to Euro 773 million posted in the same quarter of 2012.
All product categories delivered positive rates of growth in the three months ended January 31, 2014. Recording total sales for Euro 621.7 million, the contribution of the leather goods division slightly declined to 62.1% from 62.6% achieved in the three months ended January 31, 2013.
Operating results
In the three months ended January 31, 2014, the Gross margin totaled Euro 739.4 million, up by 6.8% compared to Euro 692.1 million posted in the same period of last year. As a percentage of net revenues, the profitability increased up to 73.1% from 72.3%. The higher incidence of the retail channel contributed to raise the margin.
The EBITDA amounted to Euro 322.2 million and recorded a decrease of 0.7% over Euro 324.6 million achieved in the three months ended January 31, 2013. The profitability declined from 33.9% to 31.9%. The decrease was significantly affected by the higher incidence of the operative expenses which included higher costs strictly related to the retail expansion and a one-off charge recognized as a consequence of the decision not to go ahead with the planned opening of a large new Prada store in Ginza, Tokyo. Termination of the lease agreement was agreed subject to payment of an all-inclusive penalty of Japanese Yen 1.7 billion (Euro 13.1 million) which was recorded under operating costs for the period.
The Group's net result amounted to Euro 186.9 million, down 13.9% compared to Euro 217.1 million recorded in the three months ended January 31, 2013, due to a higher tax burden. The same quarter of last year reported a lower taxation because of some fiscal benefits and positive adjustments to tax assessments recognized at year end.
25
Management Discussion and Analysis for the year ended January 31, 2014
Net revenues
In the twelve months ended January 31, 2014, the consolidated net revenues of the Group totaled Euro 3,587.3 million and recorded an increase of 8.8% over Euro 3,297.2 million posted in the same period of last year.
Distribution channels
The retail channel delivered net sales of Euro 2,996.6 million for the twelve months ended January 31, 2014, an increase of 12.5% compared to Euro 2,664.2 million in 2012 (+17.8% at constant exchange rates).
On a Same Store Sales Growth (SSSG) basis, retail sales increased by 7%, performing steady throughout 2013 and benefiting from the geographical distribution of stores all over the world. Sales growth was further boosted by the strategy of retail expansion resulting in the opening of 79 net new stores during the year (93 openings and 14 closures). At January 31, 2014, the network included a total of 540 DOS. The results achieved meant that the contribution of the retail channel to the Group's consolidated net sales increased from 81.8% in the twelve months ended January 31, 2013, to 84.5%.
The wholesale channel contributed the remaining 15.5%, generating net sales of Euro 551.6 million and recording a 6.9% decrease (-5.8% at constant exchange rates) on the Euro 592.2 million reported in the twelve months ended January 31, 2013. The decrease due to rationalization of the independent customer base, the conversion of retail corners in North America into DOS and the ongoing stagnation of the European market – Italy included – was partially offset by the development of franchising contracts in the Far East and Italy where, in July 2013, related company Fratelli Prada spa launched a prestigious retail project in Galleria Vittorio Emanuele II in Milan.
Markets
In the twelve months ended January 31, 2014, net sales grew in all geographical areas with even higher paces of growth at constant exchange rates.
The Asia Pacific market reported net sales of Euro 1,292.8 million, an increase of 11.4% (+14.4% at constant exchange rates) compared to the Euro 1,160.2 million posted in 2012. The increase in net sales in this area was achieved thanks to the performance of existing stores, the 27 net new openings (31 openings and 4 closures) and the important new duty free franchise contracts in Korea, Taiwan and Singapore. Net sales in the Greater China area totaled Euro 826 million, 12.3% more than in 2012.
Net sales on the European market totaled Euro 776.5 million, a 5% increase compared to the Euro 739.6 million reported in 2012 (+7% at constant exchange rates). This performance was achieved thanks to double-digit
growth in the retail channel in relation to both existing stores and the 13 new openings, net, during the year (14 openings and 1 closure). The continuing selective policy applied to independent customers, also considering the credit policy of the Group and tough market conditions, especially in smaller cities, have led to a significant downturn in the wholesale channel.
The Italian market generated net sales of Euro 552.9 million in the twelve months ended January 31, 2014, 4.7% more than the Euro 528.3 million reported for 2012. The growth was essentially driven by the retail channel as the wholesale channel, similar to the already highlighted European trends, remained almost unchanged compared to 2012.
The American market, meant as North, Centre and South America, recorded net sales of Euro 488 million, a 10.9% increase compared to the Euro 440 million reported for the twelve months ended January 31, 2013 (+15.3% at constant exchange rates). It is worth noting that, at the reporting date, there was an important ongoing strategic program to convert a number of points of sale in the best department stores from wholesale to direct operation. During the period, 21 retail corners were converted in the United States and Canada (16 Prada and 5 Miu Miu corners).
The Japanese market recorded the highest rates of organic growth with a 23.6% increase at constant exchange rates. However, the extreme weakness of the Japanese Yen hit the Euro equivalent figure and net sales totaled Euro 340.8 million, 1% more than the Euro 337.3 million recorded in the twelve months ended January 31, 2013. The strategy of repositioning the product mix implemented since the start of the year was highly successful and led to constant, double-digit sales growth throughout 2013 on an SSSG basis.
At January 31, 2014, the Middle East area included a total of 16 DOS (11 at January 31, 2013). It achieved net sales of Euro 91.1 million, almost double the Euro 44.8 million reported for 2012, and is now an important area of business for the Group.
Products
In the twelve months ended January 31, 2014, net sales of leather goods totaled Euro 2,332.5 million and increased by 14.4% compared to Euro 2,038 million in the previous year (+19.6% at constant exchange rates). This product category increased from 62.6% of consolidated net sales in 2012 to 65.7% in 2013.
Clothing generated net sales of Euro 581.6 million, 3.2% more than the Euro 563.3 million recorded in 2012 (+7.2% at constant exchange rates). Compared to prior year, growth was achieved in the retail channel while the wholesale channel decreased. Miu Miu achieved a double-digit growth (at constant exchange rates), a sign of the brand's strong identity. The total contribution by clothing to consolidated net sales decreased from 17.3% to 16.4%.
Footwear generated net sales of Euro 594.6 million, a 4.9% decrease compared to 2012 (-1.8% at constant exchange rates). This segment has suffered more than others from the contraction of the wholesale channel
26
though, like the clothing segment, it has enjoyed strong growth from the Miu Miu brand.
Brands
In 2013, the Prada brand contributed net sales of Euro 2,943.6 million or 83% of consolidated net sales, recording 11.1% growth compared to the Euro 2,649.6 million reported for the twelve months ended January 31, 2013 (+15.6% at constant exchange rates). Sales growth was driven by both SSSG and new openings and was strong in all geographical areas, except for Italy where sales only recorded a single-digit increase.
The net sales of the Miu Miu brand totaled Euro 519.1 million, a moderate 1.2% increase on the Euro 512.8 million reported for the previous year (+6.5% at constant exchange rates). The increase was achieved thanks to the retail channel which, essentially thanks to new openings during the year, grew by 3.9% compared to the previous year (+10.1% at constant exchange rates).
In 2013, the Church's brand recorded net sales of Euro 68.6 million, remaining almost in line with the results achieved in 2012 (+3.2% at constant exchange rates). In Europe, where the brand realized 59.5% of its net sales, performance was still affected by generally disappointing domestic consumption levels due to the ongoing negative economic situation. Specific retail and wholesale dynamics did not differ greatly from the overall growth figures of the brand.
The Car Shoe brand generated net sales of Euro 13.4 million. The decrease compared to 2012 when sales totaled Euro 19.7 million was influenced by the prevailing dependence from the European wholesale. A new store was opened in Italy in 2013.
Royalties
In the twelve months ended January 31, 2014, licensing agreements generated royalties income of Euro 39.1 million, 4% less than the Euro 40.8 million recorded in 2012. In the previous year, the launch of the Prada phone LG 3.0 cellphone generated royalties of Euro 5.4 million, essentially concentrated in the first half of the year. Excluding this component, licensed products, essentially eyewear and cosmetics, generated a 9.3% increase in royalties compared to the twelve months ended January 31, 2013.
Operating results
Gross margin - net revenue less cost of goods sold - was Euro 2,648.6 million for the twelve months ended January 31, 2014, up by 11.4% compared to the Euro 2,376.5 million reported for 2012. As a percentage of net sales, gross margin improved from 72.1% in 2012 to 73.8%, thanks to a better contribution - almost evenly distributed - from the usual drivers: product, distribution and market.
EBITDA for the year totaled Euro 1,143.2 million, 8.6% more than the Euro 1,052.5 million reported for 2012. EBITDA for 2013 represented 31.9% of net revenues, in line with the 2012 results. The improvement achieved at gross margin level was absorbed by the greater burden of operating expenses,
27
especially labor costs and lease costs in relation to retail network expansion and greater investment on promotional and communications activities. The operating expenses for the year were affected by an extraordinary expense that is the decision not to go ahead with the planned opening of a large new Prada store in Ginza, Tokyo, as it was no longer considered compatible with proper positioning on the market. Termination of the lease agreement was agreed subject to payment of an all-inclusive penalty of Japanese Yen 1.7 billion (Euro 13.1 million) which was recorded under operating costs for the period. Without this penalty, EBITDA for the year would have totaled Euro 1,156.3 million or 32.2% of net revenues.
EBIT for the year totaled Euro 939.2 million, increasing by 5.6% compared to 2012 and representing 26.2% of net revenues. EBIT as well was affected by the above mentioned extraordinary expense: without such penalty it would have been equal to Euro 952.3 million, or 26.5% on net revenues. Writedowns adjustments for the year totaled Euro 5.1 million (Euro 7.8 million in 2012) and, as in prior year, were recognized solely in relation to projects no longer considered strategic. In both years, impairment test results did not identify any impairment of value.
The Group's net income totaled Euro 627.8 million, slightly more in absolute terms than the net income of Euro 625.7 million achieved in 2012. As a percentage of net revenues, net income decreased from 19% to 17.5%. The reduction in profitability below EBIT level was generated by the heavier tax burden because of tax charges of Euro 22 million relating to prior tax years and a general geographical mix of taxable incomes and, to a lesser extent, to the impact of foreign exchange differences.
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EBITDA by Brand
| twelve months ended January 31, 2014 (amounts in thousands of Euro) (audited) | Group | Prada | Miu Miu | Church's | Car Shoe | Other |
|---|---|---|---|---|---|---|
| Net sales | 3,548,207 | 2,943,633 | 519,142 | 68,609 | 13,427 | 3,396 |
| Royalties | 39,140 | 37,127 | 1,997 | 16 | - | - |
| Net revenues | 3,587,347 | 2,980,760 | 521,139 | 68,625 | 13,427 | 3,396 |
| EBITDA | 1,143,186 | 1,054,126 | 89,322 | 4,368 | (4,795) | 165 |
| EBITDA % | 31.9% | 35.4% | 17.1% | 6.4% | - | - |
| twelve months ended January 31, 2013 (amounts in thousands of Euro) (audited) | Group | Prada | Miu Miu | Church's | Car Shoe | Other |
| Net sales | 3,256,428 | 2,649,559 | 512,762 | 68,447 | 19,660 | 6,000 |
| Royalties | 40,791 | 39,453 | 1,248 | 90 | - | - |
| Net revenues | 3,297,219 | 2,689,012 | 514,010 | 68,537 | 19,660 | 6,000 |
| EBITDA | 1,052,469 | 948,729 | 100,270 | 7,099 | (2,707) | (922) |
| EBITDA % | 31.9% | 35.3% | 19.5% | 10.4% | - | - |
| Change in Net revenues | 290,128 | 291,748 | 7,129 | 88 | (6,233) | (2,604) |
| Change in Net revenues in percentage | 8.8% | 10.8% | 1.4% | 0.1% | -31.7% | -43.4% |
| Change in EBITDA | 90,717 | 105,397 | (10,948) | (2,731) | (2,088) | 1,087 |
| Change in EBITDA in percentage | 8.6% | 11.1% | -10.9% | -38.5% | -77.1% | - |
The PRADA brand generated EBITDA of Euro 1,054.1 million (35.4% of net revenues) for the twelve months ended January 31, 2014, 11.1% more than the Euro 948.7 million recorded in 2012 (35.3% of net revenues). Excluding the aforementioned penalty for termination of the property lease in Ginza, Tokyo, the brand's EBITDA margin would have been 35.8%, confirming a positive operating trend. The additional expenses resulting from retail network expansion only partially absorbed the additional profits created through sales growth. Sales growth was achieved thanks to the 59 net new stores opened in 2013, the full year contribution of DOS opened in 2012 and, above all, the SSSG performance which was the main driver of sales growth for the year. In line with Group strategy, the retail expansion was accompanied by increased communications activity to strengthen the global brand image.
Miu Miu generated EBITDA of Euro 89.3 million, 10.9% less than the Euro 100.3 million reported for 2012. Meanwhile, EBITDA margin decreased from 19.5% to 17.1% essentially because of the increase in operating expenses
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triggered by rapid expansion of the DOS network (up from 71 at January 31, 2011, a few months before the listing, to 150 at January 31, 2014, with a net of 24 new openings in the last year alone). Another factor was investment in DOS restyling and in communications, also in order to strengthen international brand awareness. Beyond the short-term impact, the Group Management believes that these measures are necessary with a view to achieving long-term sustainable growth for the brand.
Church's recorded EBITDA of Euro 4.4 million, 38.5% down on the Euro 7.1 million reported in 2012. The lower profitability is partly due to a less impressive performance by several traditional markets and partly to the greater burden of selling costs, again as a result of retail network expansion in new countries. During the year, Church's opened 7 new DOS including its first ever stores in China, Japan, Sweden and the Netherlands.
The Car Shoe brand reported negative EBITDA of Euro 4.8 million, a deterioration on prior year because of the decline in wholesale sales.
Net invested capital
The following table contains the Statement of financial position reclassified in order to provide a better picture of the composition of the Net invested capital.
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Non-current assets (excluding deferred tax assets) | 2,225,451 | 1,821,773 |
| Trade receivables, net | 308,405 | 304,525 |
| Inventories, net | 449,903 | 343,802 |
| Trade payables | (348,534) | (330,613) |
| Net operating working capital | 409,774 | 317,714 |
| Other current assets (excluding financial position items) | 132,866 | 165,962 |
| Other current liabilities (excluding financial position items) | (291,378) | (230,285) |
| Other current assets/(liabilities), net | (158,512) | (64,323) |
| Provisions for risks | (52,660) | (46,914) |
| Post-employment benefits | (63,279) | (45,538) |
| Other long-term liabilities | (113,698) | (85,289) |
| Deferred taxation, net | 158,574 | 120,421 |
| Other non-current assets/(liabilities), net | (71,063) | (57,320) |
| Net invested capital | 2,405,650 | 2,017,844 |
| Shareholders' equity – Group | (2,687,554) | (2,320,022) |
| Shareholders' equity – Non Controlling Interests | (13,986) | (10,470) |
| Total consolidated Shareholders' equity | (2,701,540) | (2,330,492) |
| Long term financial payables | (207,969) | (79,348) |
| Short term financial, net surplus/(deficit) | 503,858 | 391,996 |
| Net financial position surplus/(deficit) | 295,890 | 312,648 |
| Shareholders' equity and Net financial position | (2,405,650) | (2,017,844) |
At January 31, 2014, Net invested capital stood at Euro 2,405.7 million, Euro 387.8 million more than the Euro 2,017.8 million reported at January 31, 2013. The increase mainly regarded non-current assets, especially investments.
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Indeed, during 2013, capital expenditure totaled Euro 611.2 million, including Euro 521.5 million in the retail area and comprising the purchase cost of prestigious retail premises in London and St Petersburg for some Euro 182 million. Intangible assets at January 31, 2014, include assets with an indefinite useful life i.e. goodwill totaling Euro 504.4 million. As required by "IAS 36 Impairment of assets", these assets were subjected to an impairment test at the reporting date. The value in use of the goodwill, essentially determined using methods based on discounted future cash flows, did not reveal any impairment of value. The results of the impairment tests were further supported by sensitivity tests.
Net operating working capital increased by Euro 92.1 million from Euro 317.7 million at January 31, 2013, to Euro 409.8 million at January 31, 2014. The increase is due to the higher value of retail inventories mainly because of the number of stores opened during the 2013.
Total other current liabilities, net, increased from Euro 64.3 million at January 31, 2013, to Euro 158.5 million mainly because of the higher tax burden and a reduction in the reporting date fair value of derivative instruments used to hedge the exchange risk (forward contracts and options).
Other non-current liabilities, net, totaled Euro 71.1 million and increased by Euro 13.7 million compared to January 31, 2013, as a result of higher liabilities for long-term employee benefits and deferred lease income, net of an increase in deferred tax assets mainly because of higher temporary differences between the tax value and consolidated reported value of the stock of finished products.
Group shareholders' equity rose from Euro 2,320 million at January 31, 2013, to Euro 2,687.6 million at January 31, 2014. The increase generated by the Group's net income for the twelve months ended January 31, 2013, Euro 627.8 million, was partially offset by the dividends of Euro 230.3 million distributed to the PRADA spa shareholders (as approved by the Annual General Meeting on May 22, 2013, on the financial statements for the year ended January 31, 2013) and negative changes totaling Euro 30 million in the translation reserve and other IFRS reserves.
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Net financial position surplus/(deficit)
| (amounts in thousands of Euro) | as at January 31 2014 (audited) | as at January 31 2013 (audited) |
|---|---|---|
| Long-term debt | (207,950) | (78,830) |
| Obligations under finance leases | (19) | (518) |
| Long-term financial payables | (207,969) | (79,348) |
| Bank overdraft and short term loans | (61,909) | (175,570) |
| Payables to related parties | (4,130) | (5,018) |
| Receivables from related parties | 2,008 | 1,413 |
| Obligations under finance leases | (524) | (575) |
| Cash and cash equivalents | 568,414 | 571,746 |
| Short-term net financial surplus/(deficit) | 503,859 | 391,996 |
| Net financial position surplus/(deficit) | 295,890 | 312,648 |
Cash flows from operating activities totaled Euro 769.4 million for the twelve months ended January 31, 2014 (Euro 759.3 million in 2012) after cash absorbed by investing activities of Euro 548.3 million (Euro 331.6 million in 2012). After the distribution of dividends of Euro 230.3 million (Euro 127.9 million in 2012), this enabled the Group to achieve a positive net financial position of Euro 295.9 million. At January 31, 2013, the net financial position was slightly higher and stood at Euro 312.6 million.
As far as liquidity concerns, the composition of bank borrowings at January 31, 2014, was more favorable than at January 31, 2013, because of a shift towards longer term borrowings: indeed, long-term financial payables have increased from Euro 78.8 million at January 31, 2013, to Euro 208 million, while short-term financial payables have decreased from Euro 175.6 million to Euro 61.9 million. In 2013, PRADA spa issued a five year bond listed on the Irish Stock Exchange with a nominal amount of Euro 130 million. During 2013, the Group also repaid the Euro 100 million installment due on a syndicated loan by PRADA spa while debt due for repayment by PRADA Japan co ltd was refinanced with a new line of credit totaling Japanese Yen 9 billion, used part in part to finance the investment plan in Japan; at January 31, 2014, the outstanding amount on this line of credit was Japanese Yen 8.8 billion. At January 31, 2014, the Group had a short-term net financial surplus of Euro 503.9 million (Euro 392 million at January 31, 2013), as well as other available lines of credit of Euro 454.3 million (Euro 473.1 million at January 31, 2013).
Events after the reporting date
On February 27, 2014, PRADA spa signed with Luna Rossa Challenge srl, a related company in terms of IAS 24, a sponsorship agreement for the participation of the Luna Rossa sailing team in the XXXV edition of the America's Cup. The contract, effective from February 27, 2014, until October 31, 2017, provides for total sponsorship payments of Euro 50 million, payable
in variable monthly installments depending on the needs of the sailing team. In return, the Group will have the right to be the main sponsor of team Luna Rossa as well as to promote the Prada brand in association with the Luna Rossa trademark, for advertising purposes, during the contract and throughout the duration of the contract.
On February 27, 2014, PRADA spa signed a sponsorship agreement with Progetto Prada Arte srl (PPA), a related company in terms of IAS 24. The agreement regards the organization and promotion of cultural and artistic activities, including the "Art of Sound" exhibition by Germano Celant, and the renovation of the Ca' Corner della Regina building. The contract provides for a maximum contribution of Euro 7.94 million, payable by January 31, 2015. The Company will be entitled to use images of the sponsored events, as agreed with PPA.
On March 14, 2014, the Company acquired the 80% of the Angelo Marchesi srl, owner of the historic Milanese pastry shop founded in 1824. The acquisition is aimed at enhancing the "Pasticceria Marchesi" brand, a synonym to quality in the Italian food industry, joining it with Prada and Miu Miu brands, leaders in the luxury goods market, within the Group's development worldwide.
Outlook
In 2013, the Group continued its program of development centered on growth and, once again, achieved encouraging growth figures. However, the macroeconomic environment, especially in Europe, remains difficult and the recovery is struggling to take hold also because of the ongoing strength of the Euro which does not help exports. The Group will balance its attempts to achieve growth and development with careful management of its operations in order to ensure that the results achieved to date are built upon in future.
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Corporate governance practices
The Company is committed to maintaining a high standard of corporate governance practices and fulfilling its commitment to effective corporate governance. The corporate governance model adopted by the Company consists of a set of rules and standards with the aim at establishing efficient and transparent operations within the Group, to protect the rights of the Company's shareholders and to enhance shareholder value. The corporate governance model adopted by the Company is in compliance with the applicable regulations in Italy, as well as the principles of the Corporate Governance Code (the "Code") contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules").
Full details on the Company's corporate governance practices are set out in the Company's 2013 Annual Report.
Audit Committee
The Company has established an Audit Committee in compliance with Rule 3.21 of the Listing Rules where at least one member possesses appropriate professional qualifications in accounting or related financial management expertise to discharge the responsibility of the Audit Committee. The membership of the Audit Committee consists of three Independent Non-Executive Directors, namely, Mr. Gian Franco Oliviero Mattei (Chairman), Mr. Giancarlo Forestieri and Mr. Sing Cheong Liu. The primary duties of the Audit Committee are to assist the Board of Directors (the "Board") in providing an independent view of the effectiveness of the Company's financial reporting process and internal control and risk management systems, to oversee the external audit process and the internal audit process and to perform other duties and responsibilities as are assigned to the Audit Committee by the Board.
The Audit Committee held a meeting on April 1, 2014, to review the annual results for the year ended January 31, 2014, before recommending it to the Board for approval.
Compliance with the Code
The Board has reviewed the Company's corporate governance practices and is satisfied that such practices have complied with the code provisions set out in the Code, during the year ended January 31, 2014 (the "Reviewed Period").
Directors' securities transactions
The Company has adopted written procedures governing Directors' securities transactions on terms no less exacting than the standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code"). Specific written acknowledgments have been obtained from each Director to confirm compliance with the Model Code throughout the Reviewed Period. There was no incident of non-compliance during the
Reviewed Period.
The Company has also adopted written procedures governing securities transactions carried out by the relevant employees who are likely to possess inside information in relation to the Company and its securities. The terms of these procedures are no less exacting than the standard set out in the Model Code.
Purchase, sale or redemption of the Company's listed securities
Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's listed securities during the Reviewed Period.
Shareholders' general meeting
The Shareholders' general meeting of the Company will be held on Thursday, May 22, 2014.
Notice of the Shareholders' general meeting will be published on the Company's website at www.pradagroup.com and on the Hong Kong Exchanges and Clearing Limited's website at www.hkexnews.hk in due course.
Final dividend
The Board recommends, for the twelve month period ended January 31, 2014, a final dividend of Euro 281,470,640 (or 11 Euro/cents per share). The payments shall be made:
(i) in Euro to the shareholders recorded in the section of the Company's shareholders kept by the Company at its registered office in Milan (Italy), and
(ii) in Hong Kong dollars to the shareholders recorded in the section of the Company's shareholders register kept in Hong Kong. The relevant exchange rate will be the opening buying T/T rate of Hong Kong dollars to Euros as announced by the Hong Kong Association of Banks (www.hkab.org.hk) on the day of approval of the final dividend by the shareholders.
Subject to the shareholders' approving the recommended final dividend, such dividend will be payable on or about Friday, June 20, 2014.
Closure of register of shareholders
The shareholders recorded on the Company's shareholders register on Thursday, May 22, 2014, opening of business, will be allowed to attend and vote at the Shareholders' general meeting of the Company. In order to qualify for attending and voting at the Shareholders' general meeting of the Company, all transfers accompanied by the relevant share certificate(s) must be lodged with:
(i) the Company's Hong Kong share registrar, Computershare Hong
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Kong Investor Services Limited, at Shops 1712-16, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, if the transfer concerns shares registered in the section of the Company's shareholders register kept by the Company's Hong Kong share registrar itself, or
(ii) with the Company's registered office in Milan (Italy), Via Antonio Fogazzaro, 28, if the transfer concerns shares registered in the section of the Company's shareholders register kept by the Company itself,
in any case, not later than 4:30 p.m. (Hong Kong time) on Monday, May 19, 2014. The Company's shareholders register will be closed from Tuesday, May 20, 2014, to Thursday, May 22, 2014, both days inclusive, during which no share transfer can be registered.
The final dividend will be paid to shareholders recorded on the Company's shareholders register on Friday, May 30, 2014. In order to qualify for the payment of the final dividend, all transfers accompanied by the relevant share certificate(s) must be lodged with:
(i) the Company's Hong Kong share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-16, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, if the transfer concerns shares registered in the section of the Company's shareholders register kept by the Company's Hong Kong share registrar itself, or
(ii) the Company's registered office in Milan (Italy), Via Antonio Fogazzaro, 28, if the transfer concerns shares registered in the section of the Company's shareholders register kept by the Company itself,
in any case, not later than 4:30 p.m. (Hong Kong time) on Wednesday, May 28, 2014. The Company's shareholders register of the Company will be closed from Thursday, May 29, 2014, to Friday, May 30, 2014, both days inclusive, during which no share transfer can be registered.
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Publication of Annual Results Announcement and Annual Report
This Annual Results Announcement is published on the Company’s website at www.pradagroup.com and on the Hong Kong Exchanges and Clearing Limited’s website at www.hkexnews.hk. The Company’s 2013 Annual Report will be published on the same websites and dispatched to shareholders in due course.
By Order of the Board
PRADA S.p.A.
Mr. Carlo Mazzi
Chairperson
Milan (Italy), April 2, 2014
As at the date of this announcement, the Company’s executive directors are Mr. Carlo MAZZI, Ms. Miuccia PRADA BIANCHI, Mr. Patrizio BERTELLI, Mr. Donatello GALLI and Ms. Alessandra COZZANI; the Company’s non-executive director is Mr. Gaetano MICCICHE and the Company’s independent non-executive directors are Mr. Gian Franco Oliviero MATTEI, Mr. Giancarlo FORESTIERI and Mr. Sing Cheong LIU.