Benetton Group Benetton 2002 Annual Report Report Annual 2002 > > Benetton Group 2002 Annual Report > Benetton Group 2002 Annual Report Benetton Group S.p.A. Villa Minelli Ponzano Veneto [Treviso] - Italy Share Capital: Euro 236,026,454.30 fully paid-in Tax ID/Treviso Company register: 00193320264 James Mollison photographs Aqulmina and Mahjabina at the Pol-I-Charki Repatriation Camp for returning Afghan refugees. INDEX The Benetton Group 9 Directors and other officers 10 Letter to our Shareholders 13 Financial highlights 14 Directors’ report Strategic focus Brands and markets Capital expenditures 16 Technology Communication 17 Supplementary information Sale of the Nordica, Rollerblade and Prince brands Financial management Treasury shares 18 Performance of Benetton shares 19 Ownership of the Company 20 Relations with the Parent Company and its subsidiaries Corporate Governance 25 Directors Shares held by Directors and Statutory auditors 27 Principal organizational and corporate changes Significant events since year-end Outlook for 2003 28 Group results Consolidated statement of income 31 Financial situation - highlights 4 INDEX 35 Consolidated financial statements 36 Balance sheets reclassified according to financial criteria 38 Statements of income reclassified to cost of sales 40 Balance sheet - Assets 42 Balance sheet - Liabilities, Shareholders’ equity and Memorandum accounts 44 Statements of income 46 Statements of changes in Shareholders’ equity 47 Statements of changes in minority interests 48 Statements of cash flow 50 Companies and groups included within the consolidation area as of December 31, 2002 52 Notes to the consolidated financial statements Activities of the Group Form and content of the consolidated financial statements 53 Principles of consolidation 54 Accounting policies 56 Supplementary information 58 Comments on the principal asset items 67 Comments on the principal liability and equity items 74 Memorandum accounts 75 Comments on the principal statement of income items 83 Independent Auditors’ report 5 Basmina is photographed at the Pol-I-Charki Repatriation Camp for returning refugees in Afghanistan. MAIN CONSOLIDATED COMPANIES > Main consolidated companies as of December 31, 2002 Benetton Group SpA Ponzano Veneto [Tv] 100% 100% 100% 100% Benlog SpA Benetton Gesfin SpA Benetton Retail Italia Srl United Web SpA Ponzano Veneto [Tv] Ponzano Veneto [Tv] Ponzano Veneto [Tv] Ponzano Veneto [Tv] 100% 100% 85% 50% Benfin SpA Benair SpA Olimpias SpA Filatura di Vittorio Veneto SpA Ponzano Veneto [Tv] Ponzano Veneto [Tv] Ponzano Veneto [Tv] Vittorio Veneto [Tv] 100% 50% Gescom Srl I.M.I. Italian Marketing International Srl Ponzano Veneto [Tv] Ponzano Veneto [Tv] 100% 100% SIGI Srl Buenos Aires 2000 Srl Ponzano Veneto [Tv] Ponzano Veneto [Tv] 100% 100% Fabrica SpA Colors Magazine Srl Ponzano Veneto [Tv] Ponzano Veneto [Tv] 100% 100% 100% 100% 100% Benetton Retail International SA Benetton Retail Belgique SA Benetton Retail Austria Handels GmbH Benetton Retail Ungheria Kft Benetton 2 Retail Comércio de Luxembourg Bruxelles Wien Budapest Produtos Têxteis SA, Maia [Portugal] 100% 100% 100% 100% Benetton Retail [Hong Kong] Ltd Benetton Retail Spain SL Benetton Retail [1988] Ltd Denware Ltd Hong Kong Castellbisbal London London 100% 100% 100% 100% Benetton Retail France SAS Veuve Auguste Dewas et Cie SA Novanantes SA L’Apollinaire Snc Paris Lille Nantes Paris 100% 51% Benetton Retail Deutschland GmbH New Ben GmbH München Frankfurt am Main 100% 100% 100% 100% 100% Benetton International Property NV SA Benetton Realty Spain SL Benetton Realty Portugal Imobiliaria SA Benetton Real Estate International SA Benetton France Trading Sàrl Amsterdam Castellbisbal Maia [Portugal] Luxembourg Paris 100% 100% 100% 100% Benetton Sportsystem Schweiz AG Benetton Sportsystem GmbH Benetton USA Corp Benetton Realty France SA Stans München Wilmington Paris 100% 100% 100% 50% 24% Benetton International NV SA Benetton Argentina SA Benetton Sportsystem Austria GmbH DCM Benetton India Ltd Unisex Apparels Ltd Amsterdam Buenos Aires Salzburg New Delhi New Delhi 100% 100% 100% 100% Benetton Ungheria Kft United Colors Communication SA Benetton Sportsystem USA Inc Prince U.K. Ltd Nagykallo Lugano Bordentown Ardingly 100% 100% 100% 100% Benest Ltd United Colors of Benetton do Brasil Benetton [Far East] Ltd Benetton Australia Pty Ltd Moskba Ltda, Curitiba Hong Kong Sydney 100% 100% 100% 100% Benetton Manufacturing Holding NV Benetton Croatia doo Benetton Slovakia sro Benetton Sportsystem Taiwan Ltd Amsterdam Osijek Bratislava Taichung 100% 50% 100% Benetton Japan Co Ltd Benetton Korea Inc Benetton Retailing Japan Co Ltd Tokyo Seoul Tokyo 100% 100% 100% 100% Benetton Textil Spain SL Benetton Textil - Confeccao Benetton Tunisia Sàrl Benetton Trading Sàrl Castellbisbal de Texteis SA, Maia [Portugal] Sahline Sahline 100% 100% 100% Benetton Finance SA Benetton Società di Servizi SA Lairb Property Ltd Luxembourg Lugano Dublin 8 DIRECTORS AND OTHERSOMMARIO OFFICERS Board of Directors Luciano Benetton [1] Chairman Carlo Benetton [2] Deputy Chairman Luigi de Puppi [3] Managing Director Giuliana Benetton [4] Directors Gilberto Benetton [5] Alessandro Benetton Gianni Mion Angelo Tantazzi Ulrich Weiss Reginald Bartholomew Luigi Arturo Bianchi Pierluigi Bortolussi Secretary to the Board Board of Statutory auditors Angelo Casò Chairman Filippo Duodo Auditors Dino Sesani Antonio Cortellazzo Alternate auditors Marco Leotta Independent auditors Deloitte & Touche S.p.A. Powers granted [1] Company representation and power to carry out [3] Power to carry out any action that is consistent any action that is consistent with the Company’s with the ordinary administration of the Company, purposes, except for those expressly reserved by with limitation for some categories of action. law to the Board of Directors and to the [4] Power to carry out any action that is consistent with Shareholders’ Meeting, with limitation for some the definition of the strategies for the planning and categories of action. creation of the Company’s product collections. [2] Power to carry out any action that is consistent with [5] Power to carry out any action that is consistent with the Company’s purposes, except for those the definition of the strategies for the financial expressly reserved by law to the Board of Directors activity, new investments and projects. and to the Shareholders’ Meeting, with limitation for some categories of action. 9 LETTER TO OUR SHAREHOLDERS > Letter to our Shareholders Dear Shareholders, The Benetton Group decided to make a break with the past in 2002 by ending its experience in the sports equipment business, whose results over the years had failed to provide the same level of satisfaction as the casual sector. The program for the division’s disposal was started during the year and completed in the early part of 2003. With regard to the core business of clothing, our system confirms its ability to be competitive and generate value: although net income for 2002 was affected by extraordinary items deriving mostly from the sale of the sports sector, this did not harm Shareholders’ returns. We have spent the past two years on gradually improving our organizational structure. As regards distribution, we are investing in the network in partnership with over 2,000 distributors: we are rapidly expanding our flagship stores, while also concentrating ontransforming our traditional retail outlets from small to medium-size. The fact that we can rely on the energy of such a large group of entrepreneurs, ready to invest with increasing commitment in our brand, confirms the validity of our business model, where innovation, hi-tech and system speed are the basis of our philosophy. I would like to emphasize the business’s firm commitment, unique among its major international competitors, to maintain production mainly in Italy and Europe. This is a demonstration of excellence, which focuses on those values of design and quality, greatly appreciated by the ever more complex and sophisticated needs of the global market. It is superfluous to dwell on the international crisis and the gloomy outlook for markets and consumption. However, I should like to emphasize our vigorous determination in dealing with this situation: in fact, I have always said that it is during times of greatest difficulty that those who are most prepared are able to grasp the best opportunities. Luciano Benetton Chairman Benetton Group 10 Children who scavenge at the Stung Mean Chey dump in Phnom Penh, Cambodia, are given food at a project which tries to stop child labour. FINANCIAL HIGHLIGHTS > 2002 revenues casualwear 79.6% by activity [%] sportswear and equipment 14.2% manufacturing and other 6.2% euro area 68.9% > 2002 revenues asia 8.9% by geographical the americas 9.6% area [%] other 12.6% > Net revenues 1,992 2002 [millions of euro] 2,098 2001 2,018 2000 1,982 1999 1,980 1998 net revenues > Total capital 170 2002 expenditures and 349 self-financing 311 2001 [millions of euro] 374 312 2000 311 191 1999 375 266 1998 332 total capital expenditures self-financing 12 FINANCIAL HIGHLIGHTS > Financial highlights Key operating data [millions of euro] 2002 % 2001 % 2000 % 1999 % 1998 % Revenues 1,992 100.0 2,098 100.0 2,018 100.0 1,982 100.0 1,980 100.0 Cost of sales 1,124 56.4 1,189 56.7 1,138 56.4 1,109 56.0 1,168 59.0 Gross operating income 868 43.6 909 43.3 880 43.6 873 44.0 812 41.0 Income from operations 243 12.2 286 13.6 309 15.3 316 15.9 233 11.8 Net income/[loss] [10] [0.5] 148 7.1 243 12.1 166 8.4