Annual Report 2020 PRADA spa (Hong Kong Stock code: 1913) ANNUAL REPORT 2020 Annual Report 2020_MASTER_160421 with bleed.indd 2 20/04/21 09:42 Annual Report 2020_MASTER_160421 with bleed.indd 3 20/04/21 09:42 TABLE OF CONTENTS The PRADA Group 3 Financial Review 51 Directors and Senior Management 79 Directors’ Report 95 Corporate Governance 117 Consolidated Financial Statements 139 PRADA spa Separate Financial Statements 145 Notes to the Consolidated Financial Statements 151 Independent Auditors’ Reports 233 Annual Report 2020_MASTER_160421 with bleed.indd 1 20/04/21 09:42 The first Prada store Galleria Vittorio Emanuele II, Milan Annual Report 2020_MASTER_160421 with bleed.indd 2 20/04/21 09:42 THE PRADA GROUP PRADA Group Annual Report 2020 - The PRADA Group 3 Annual Report 2020_MASTER_160421 with bleed.indd 3 20/04/21 09:42 Miuccia Prada and Patrizio Bertelli Annual Report 2020_MASTER_160421 with bleed.indd 4 20/04/21 09:42 PRESENTATION Pioneer of a vision that transcends fashion, the Prada Group inquisitively observes contemporary society and its interactions with very diverse and apparently distant cultural spheres. A fluid perspective that becomes the Group’s manifesto, suggesting a unique approach to doing business by placing at the core of ethical and action principles essential values such as freedom of creative expression, reinterpretation of what already exists, preservation of know-how and enhancement of people’s work. The Prada Group is a contemporary interpreter of changing scenarios. In a three- dimensional temporal dialogue that combines the identity heritage of the past with demands and dynamics of the present and future perspectives, creativity molds ideas that transcend the boundaries of the ordinary and create an innovative vision of tomorrow. “Thorough observation and curiosity for the world around us have always been at the heart of the creativity and modernity of the Prada Group. In society, and thus in fashion, which is somehow a reflection of it, the only constant is change. The transformation and innovation of aesthetic codes, at the core of any evolution, has led us to interact with different cultural disciplines, at times apparently far from our own, allowing us to capture and anticipate the spirit of the times. Today this is no longer enough: we must be the agents of change, with the flexibility required to translate the demands of the market and society into tangible actions that inform our way to do business”. Miuccia Prada and Patrizio Bertelli PRADA Group Annual Report 2020 - The PRADA Group 5 Annual Report 2020_MASTER_160421 with bleed.indd 5 20/04/21 09:42 Mario Prada Annual Report 2020_MASTER_160421 with bleed.indd 6 20/04/21 09:42 PRADA GROUP HISTORY The Prada brand dates back to the beginning of the last century: in 1913, Mario Prada opened an exclusive store in the Galleria Vittorio Emanuele II, Milan, selling handbags, travel trunks, beauty cases, tasteful accessories, jewelry and other luxury items. Thanks to the innovative design of its goods, created using fine materials and sophisticated techniques, Prada rapidly acquired wide popularity across Europe. In 1919 Prada became an official supplier to the Italian royal family; since then Prada has been able to display the House of Savoy coat of arms and knotted rope design in its trademark logo. The turning point for the Group came at the end of the 1970s when Miuccia Prada, Mario Prada’s granddaughter, partnered with Tuscan entrepreneur Patrizio Bertelli to combine creativity with business acumen and lay the foundations for the ensuing international expansion. Patrizio Bertelli broke new ground in the luxury goods sector by introducing a business model based on direct control over all processes and applying strict quality criteria to the entire production cycle. Miuccia Prada’s creative talent attracted international attention due to her innovative approach, inspired by an unconventional outlook on society, enabling her to anticipate and often influence new fashion and design trends. In 1977 Patrizio Bertelli founded IPI spa, where he concentrated the production resources he had built up over ten years in the leather goods industry. In the same year, IPI spa obtained a license from Miuccia Prada for the exclusive production and distribution of Prada brand leather goods. In the following years the two family businesses gradually merged into a single Group. In 1983 the Prada family opened a second store in prestigious Via della Spiga in Milan, one of Europe’s key shopping destinations. The store showcased the new brand image by pairing traditional elements with modern, innovative architecture, thereby revolutionizing and setting a new standard for luxury retail. In response to the growing appreciation of the products, the Prada leather goods PRADA Group Annual Report 2020 - The PRADA Group 7 Annual Report 2020_MASTER_160421 with bleed.indd 7 20/04/21 09:42 range was expanded to include the first women’s footwear collection in 1979. The first women’s clothing collection was launched in Milan in 1988. At the same time the internationalization process began, with the first store openings in New York and Madrid, followed by London, Paris and Tokyo. In 1993 Prada made its debut in menswear with its first men’s clothing and footwear collection. That same year, Miuccia Prada’s creative inspiration led to the establishment of a new brand, Miu Miu, conceived for sophisticated, stylish women who love to stay ahead of fashion trends. Miu Miu now creates women’s ready-to-wear apparel, handbags, accessories, footwear, eyewear and fragrances, and accounts for a significant share of the Group’s sales. In 1993 Miuccia Prada and Patrizio Bertelli created “Milano Prada Arte”, which subsequently became “Fondazione Prada”, to pursue their interests and passions in the world of art and culture. In 1997 Patrizio Bertelli organized the Prada Challenge sailing team to compete for the 2000 America’s Cup and in the same year Prada launched its leisurewear range featuring the “Linea Rossa” (red line). In 1999, the Prada Group acquired the classic brand Church’s, founded in 1873 in Northampton, England. The brand, specialized in high-end handcrafted footwear, is a universally recognized symbol of British tradition and sophisticated elegance. In 2001, the Prada “Epicenter” store, designed by Rem Koolhaas, was opened on Broadway in New York City. This was the first store of the Epicenters project, whose purpose was to redefine the shopping concept and try out inventive ways to interact with customers. A second Epicenter store was opened in Aoyama, Tokyo, followed by a third one on Rodeo Drive, Beverly Hills, in 2004. During the same year, Prada acquired control of Car Shoe, a classic Italian brand renowned for its exclusive driving moccasins. In 2003 Prada entered into a licensing agreement with Italian eyewear manufacturer Luxottica, a global industry leader which currently produces and distributes eyewear with the Prada and Miu Miu brands. Also in 2003, a new partnership was established which led to the release of the first fragrance, Amber, in 2004. 8 PRADA Group Annual Report 2020 - The PRADA Group Annual Report 2020_MASTER_160421 with bleed.indd 8 20/04/21 09:42 Prada Epicenter concept store Broadway, New York by architect Rem Koolhaas and Studio OMA Prada Epicenter concept store Los Angeles, Beverly Hills by architect Rem Koolhaas and Studio OMA Annual Report 2020_MASTER_160421 with bleed.indd 9 20/04/21 09:42 Prada Epicenter concept store Aoyama, Tokyo by architects Herzog & de Meuron Annual Report 2020_MASTER_160421 with bleed.indd 10 20/04/21 09:42 In 2006, Miu Miu moved its fashion show venue to Paris to better represent its brand identity. The Prada phone by LG, the world’s first touchscreen cellphone, made its debut in March 2007. The LG/Prada partnership achieved further success with new releases in 2008 and 2011. On June 24, 2011, Prada was successfully listed on the Main Board of the Hong Kong Stock Exchange. In March 2014, Prada spa acquired control of Angelo Marchesi srl, the historical Milanese patisserie founded in 1824, thus entering the food industry. In 2015 the Prada Group and Coty Inc. introduced the first Miu Miu fragrance. In September of that year the Marchesi 1824 brand was developed on the market with the opening of a patisserie in via Montenapoleone, Milan. 2016 featured important manufacturing investments, all of which were made to achieve sustainable production growth respectful of the environment: a new leather goods factory was inaugurated and five factories in Tuscany and Umbria were renovated. The first construction phase of the new logistics hub for finished products was completed in Tuscany. The second phase was completed in 2018. In 2017, the important restyling plan for Prada and Miu Miu stores was coupled with an extensive program of pop-up events to further support retail activities. In the same year, the Prada Group was admitted to the Cooperative Compliance regime with the Italian tax authorities, introduced with Italian Law Decree 128 of 2015. In November the first edition of the “Shaping a Future” conference cycle takes place at the Headquarters in Milan. Other editions will follow in 2018 again in Milan, in 2019 in New York and in 2020 in Venice. In 2018 the Group added to its customary Milan and Paris fashion shows two important events to present pre-collections: Miu Miu Croisière in Paris and Prada Resort in New York. In 2019 the Diversity & Inclusion Advisory Council was established; assisted PRADA Group Annual Report 2020 - The PRADA Group 11 Annual Report 2020_MASTER_160421 with bleed.indd 11 20/04/21 09:42 by leading personalities of authoritative international academic and cultural institutions, it will guide the Group on matters of social sustainability. In October of the same year, the Prada Group obtained full control of the retail network by acquiring Fratelli Prada spa, the long-standing franchisee of Prada monobrand stores in Milan.