MARCOLIN BOND REPORT AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2014 - PDF document

MARCOLIN BOND REPORT AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2014 1

DISCLAIMER The following information is confidential and does not constitute an offer to sell or a solicitation of an offer to buy any securities of Marcolin S.p.A. or any of its subsidiaries or affiliates. Statements on the following pages which are not historical facts are forward-looking statements. All forward-looking statements involve risks and uncertainties which could affect Marcolin’s actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements produced by, or on behalf of, Marcolin. 2

TABLE OF CONTENTS ..................................................................................................................................................................... 4 I. OVERVIEW II. PRESENTATION OF FINANCIAL INFORMATION ............................................................................................................. 7 III. SUMMARY CONSOLIDATED INFORMATION .................................................................................................................. 8 IV. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............. 13 APPENDIX – OTHER CONSOLIDATED FINANCIAL INFORMATION ..................................................................................... 26 3

Marcolin Bond Report as of and for the year ended December 31, 2014 Presentation of Financial Information I. OVERVIEW This report as of and for the year ended December 31, 2014 should be read in conjunction with the annual report for the year ended December 31, 2014, which will be audited and made available within 120 days from the end of fiscal year 2014. This report focuses on the material changes in our results of operations and financial position from those disclosed in the report for the year ended December 31, 2014. Differently from the previously issued annual financial report, this report focuses on the consolidated results for the Group. In all interim 2014 reports, including this one, the results of operations of the Group, which includes Marcolin, Cristallo and Viva, are discussed as those of one entity (whereas in the previous annual report the results of Marcolin and Viva were discussed jointly and at the end, separately). This is consistent with the strategy to fully integrate Viva, its operations and its brands into the Marcolin Group. Due to the advanced stage of the Viva integration at December 31 , 2014, as described under “Viva Acquisition and Integration”, the stand -alone income statement information for Viva and Marcolin previously presented in Appendices B and C is no longer included with this report. Marcolin is a leading global designer, manufacturer and distributor of branded sunglasses and prescription frames. We believe we are the world’s fourth largest eyewear wholesale player by reven ue, with a broad portfolio of 22 licensed brands that appeal to key demographics across five continents. We manage primarily a licensed brand business, and we design, manufacture (or contract to manufacture) and distribute eyewear primarily bearing the brand names we have obtained pursuant to long-term, exclusive license agreements. We focus on high-performing brands with eyewear lines that enjoy international awareness. The Marcolin portfolio includes iconic labels such as Tom Ford, Roberto Cavalli, T od’s , Montblanc, Zegna, Pucci, Swarovski, Guess, Diesel, Timberland, Gant and Harley-Davidson. The long tenure of licenses provides Marcolin with strong revenue visibility. The Group is now present in all leading countries throughout the world through its affiliates, partners and exclusive distributors. The Marcolin Group has a strong brand portfolio, with a good balance between luxury brands (high-end products distinguished by their exclusivity and distinctiveness and often characterized by a higher retail price) and mainstream ("diffusion") products (products influenced by fashion and market trends positioned in the mid and upper-mid price segments targeting a wider customer base), men's and women's products, and prescription frames and sunglasses. The luxury segment includes glamorous fashion brands such as Tom Ford, Tod’s, Balenciaga, Roberto Cavalli, Montblanc and now Zegna, Pucci and Agnona (the first two brands have been recently launched in 2015), while the diffusion segment includes brands such as Diesel, Swarovski, DSquared2, Just Cavalli, Timberland, Cover Girl, Kenneth Cole New York and Kenneth Cole Reaction. The house brands are the traditional "Marcolin" brand as well as National and Web. 1. Viva Acquisition and Integration In December 2013, Marcolin bought the Viva Internatio nal group (hereafter also “Viva”) by acquiring a 100% stake in Viva Optique, Inc. Viva is a leading eyewear wholesale designer and distributor of premium eyewear. Viva’s net sales are concentrated mainly in the diffusion category, with a strong position in prescription frames. Consistent with the growth strategy being pursued by Marcolin, the Viva acquisition has developed the Group into a true global player by expanding its scale, geographical presence, brand portfolio and product range. The Viva Group has added to the diffusion portfolio the brands Guess, Guess by Marciano, Gant, Harley Davidson, and other brands targeted specifically to the U.S. market. The diversity of the brands managed, the completion of the "diffusion" product range and the balance achieved between men's and women's products, and also between eyeglasses and sunglasses, are among the strategic factors behind this important acquisition. Moreover, Viva’s strong presence in the overseas market will enable Marcolin, which up to now has be en concentrated in Europe, to become stronger in the United States by covering one third of the independent opticians, while continuing to focus on the Far East and Europe. Today Marcolin markets its products in over 100 countries with a wide distribution network across five continents. 4

Marcolin Bond Report as of and for the year ended December 31, 2014 Presentation of Financial Information The complementary distinctive characteristics and specific expertise of the Marcolin Group and the Viva Group have given rise to a globally competitive eyewear company, to which Marcolin brings its know-how and background, enabling it to offer significant added value to the market in terms of both product range and global distribution. The merger of Viva ’s and Marcolin’s operations generates significant cost synergies in terms of organization, sourcing, production and distribution, as well as cross-selling opportunities arising from the integration of the sales and distribution networks. Pursuant to the Viva integration, important cost synergies of approximately €10.0 million will be attained, exceedin g the initially planned €8.5m . We adopted a prudent approach in order to not underestimate the de-synergies to support the increase volumes of the Business post integration in certain areas (i.e. Italy). The main differences between the current estimate and the initial estimate for run-rate synergies are: US: • Higher savings related to the New Jersey and Arizona personnel reorganization (executives and sales force) • Higher savings due to joint participation in fairs and exhibitions UK: • Higher savings related to the sales force reorganization • Higher savings achieved on the closure of the Harrogate location • Higher savings related to the personnel reorganization In order to obtain the extra synergies, additional non-recurring costs (one-off costs) related to the integration were incurred, impacting on the P&L 2014 for €9.4m. Integration costs has been increased in France to change the status of the Sales Reps from “VRP” to “Attaché Commercial” . The negotiation has eliminated a potential liability in the future as “VRP” Reps have by law a pretty sizeable indemnity in case of termination of the contract. The main differences between current and initial estimated one-off costs , including capital expenditure (€12.1m in 2014), are related to: • Higher severance costs for the personnel reorganization (partially due to the higher number of redundancies vs. what initially planned) • Higher consultancy fees (SAP roll-out, integration support, tax and legal assistance, etc.) • Higher costs/capex for setting up the new facilities, achieving performance improvements and optimizing the supply chain All synergies are calculated assuming 2013 as the reference year; the run rate considers the 12-month effect of the savings. Part of the €10m actual run- rate synergies, €3.6m was realized in 2014, as set forth below. Total US 2,970 UK 522 France 2 Brazil - Hong Kong 114 Total 3,609 Full-year run-rate synergies are shown below: Total US 6,571 UK 2,032 France 865 Brazil 383 Hong Kong 191 Total 10,043 5