1 MARCOLIN BOND REPORT AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
1
MARCOLIN BOND REPORT
AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2014
2
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.
The financial information contained herein has not been subject to audit procedures, and has been derived from the
management accounts, which could differ in some instances from the statutory financial statements.
3
TABLE OF CONTENTS
I. OVERVIEW ..................................................................................................................................................................... 4
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 – PRO-FORMA CONSOLIDATED FINANCIAL INFORMATION ............................................................................ 25
Marcolin Bond Report as of and for the nine months ended September 30, 2014
Overview
4
I. OVERVIEW
This report as of and for the nine months ended September 30, 2014 should be read in conjunction with the annual
report for the year ended December 31, 2013. 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, 2013.
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 September 30, 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 revenue, with a broad portfolio of 22 licensed
brands that appeal to key demographics across five continents. Marcolin manages 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 accessory lines that enjoy international awareness. The Marcolin portfolio includes iconic labels such as Tom
Ford, Roberto Cavalli, Tod’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, partnerships and exclusive distribution agreements with
major players.
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 will be launched in 2015), and the diffusion
segment includes 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 International 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 been
concentrated in Europe, to become stronger in the United States by covering one third of the market, while
continuing to focus on the Far East and Europe.
The Viva acquisition has especially boosted Marcolin's presence in the American market, where Marcolin used to have
Marcolin Bond Report as of and for the nine months ended September 30, 2014
Overview
5
smaller operations. Marcolin is now a wholesaler present in over 100 countries with a wide distribution network
across five continents.
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 acquisition is bringing important synergies to the Marcolin Group in terms of organization, cost structure and
sourcing (through common management and stronger bargaining power with some suppliers), thanks to opportunities
arising from the integration of the sales and distribution networks.
The status of the VIVA integration as of September 30, 2014 is summarized as follows:
- Synergies from Shared Services:
Efficiencies are generated in 2014 through the reduction of overlaps between foreign subsidiaries, savings in property
executive management and back-office personnel, consolidation of corporate functions, and shared usage of
operational, office, and distribution networks:
• reorganization of foreign subsidiaries in progress: focusing mainly on the U.S., U.K, France, Brazil and Hong Kong;
the integration activities are proceeding as planned;
• sales force integration: U.S. fully executed; U.K. and Hong Kong completed; France and Brazil in progress as
planned;
• corporate function and back-office function restructuring in progress: fully in line with the integration plan.
- Operational Synergies:
Efficiencies through the consolidation of warehouse facilities, IT systems and procurement department savings:
• warehouse and logistics consolidation: UK and HK Distribution Centers have been fully integrated in the
Marcolin’s system, the planned integration of the two existing US facilities in the one in NJ by shutting down the
warehouse in AZ is scheduled for Q1 2015;
• IT: SAP rollout in progress as planned: U.K. and H.K. are fully integrated in the Marcolin IT Platform, while VIVA US
has gone live on October 1, 2014.
- Synergies from elimination of redundancies at Executive level:
Analysis of redundancies completed. Execution in U.S., U.K. and Hong Kong completed. France and Brazil at advanced
phase of completion, scheduled for the YE 2014.
The integration process is fully in line with the defined plans, with the main efforts spent in the first nine months of
2014 in the U.S., Europe (especially the U.K.) and Hong Kong.
Within the scope of the Viva U.K. integration, the International Distribution business unit was transferred to the
parent company Marcolin Spa, and the Domestic Distribution business unit was transferred to Marcolin U.K. These
operations has been successfully completed during the month of September 2014.
We also created on July 2014 the Marcolin UK Hong Kong Branch to serve the entire client base of VIVA and Marcolin
in the Asia-Pacific region (APAC), and manage jointly the sourcing operations out of China.
A important stage of the integration process includes business restructuring of the US Companies (Marcolin U.S./VIVA
Optique), to further enhance the consumer focus and align the brand portfolio to the market, to deliver greater
efficiencies throughout the organization. As part of this process, it has been decided to merge by March 2015 the
current headquarters of Marcolin U.S. (Scottsdale) into the New Jersey operation, formerly the VIVA International
Group headquarters. The combined headquarters in New Jersey will bring the company closer to its customers,
reduce management layers and leverage efficiencies to increase speed-to-market advantages globally.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
Overview
6
2. Merger of Marcolin with Cristallo
During the year ended December 31, 2013, the merger of Cristallo S.p.A. (“Cristallo”- the vehicle incorporated for the
acquisition of Marcolin by PAI partners) into Marcolin was completed within the scope of an extensive reorganization
and optimization plan for the business, industrial and strategic purposes of the Group of which Cristallo and Marcolin
are part. In contrast to a direct merger, the reverse merger enabled Marcolin to retain its own business and legal
relationships, with significant savings in terms of costs and organizational demands.
The main objective of the merger was to shorten the chain of control in order to improve flexibility and operational
efficiency, reduce corporate and administrative expenses, and rationalize the financial indebtedness involving the
Group companies, thereby resulting in greater financial stability.
The merger, expressly required under financing agreements, was a condition for the medium/long-term credit
facilities foreseen under the Senior Term and Revolving Facilities Agreement of October 14, 2012, as those credit
facilities could be issued solely upon the effective completion of the merger.
The deed of merger was stipulated on October 28, 2013 and became effective for tax, accounting and legal purposes
on the same date.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
Presentation of Financial Information
7
II. PRESENTATION OF FINANCIAL INFORMATION
This document focuses on the consolidated results for the Group which includes Marcolin, Cristallo and Viva.
The discussion of the Group as one single entity is consistent with the strategy to fully integrate Viva and its
operations and business into the Marcolin Group.
Marcolin was acquired by Cristallo on December 5, 2012, and in October 2013 Cristallo underwent a reverse merger
with and into Marcolin, within the scope of a corporate reorganization of the Group’s holding structure.
In December 2013, Marcolin obtained control over Viva by acquiring a 100% stake in Viva Optique, Inc. Accordingly,
the Marcolin Group’s results of operations for the nine months ended September 30, 2014 include the Viva Group’s
results.
In accordance with Management’s objectives of fully integrating the Viva Group, and in order to provide a meaningful
period-on-period discussion, the results for the nine months ended September 30, 2013 have been adjusted to include
the Viva Group’s results of operations for that period.
We believe that such disclosure provides relevant information to enhance period-on-period comparability.
This document presents the following financial information:
1) Summary financial information as of and for the nine months ended September 30, 2014;
2) Management’s discussion and analysis of the financial condition and results of operations as of and for the nine
months ended September 30, 2014;
3) Appendix – Other Financial Information
a) Pro Forma – Other Financial Information as of and for the twelve months ended September 30, 2014.
The consolidated income statement, consolidated statement of financial position, consolidated cash flow statement
and other financial information of the Group as of and for the nine months ended September 30, 2014 are derived
from the unaudited interim condensed consolidated financial statements of the Marcolin Group as of and for the nine
months ended September 30, 2014.
Non-IFRS and Non-U.S. GAAP Measures
The summary financial information set forth below contains certain non-IFRS and non-U.S. GAAP financial measures
including “Pro-Forma Combined Adjusted Run-Rate EBITDA,” “EBITDA,” “EBITDA margin,” “Adjusted EBITDA,”
“Adjusted EBITDA margin,” “Total debt”, “Net debt,” “Capital expenditures” and “Movements in working capital.”
The non-IFRS and non-U.S. GAAP financial measures are not measurements of performance or liquidity under IFRS or
U.S. GAAP.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
Summary Financial Information
8
III. SUMMARY CONSOLIDATED INFORMATION
1. Summary Consolidated Income Statement Information
For the nine months ended September 30,
2013
2014
(Constant Perimeter)
(As reported)
Revenue(1)
267,850
272,165
Cost of sales
(103,402)
(108,127)
Gross profit
164,448
164,038
Selling and marketing costs
(124,977)
(129,075)
General and administrative expenses
(24,974)
(22,789)
Other operating income and expenses
3,265
1,984
Effects of accounting for associates
347
151
Operating profit
18,110
14,309
Net finance costs(2)
(10,720)
(8,432)
Profit before taxes
7,390
5,877
Income tax expense
(5,074)
(2,763)
Net profit for the period
2,316
3,115
(1) Within the same consolidation perimeter, including Viva’s results for 3Q 2013 , net sales are up by 1.6% from September 30, 2013. The
increase in the revenues at constant exchange rates is 3.7%. We calculated net sales for the nine-month period ended September 30, 2014
using constant exchange rates by applying the prior-period average exchange rates (of the U.S.$ and the other currencies relevant for the
Group against the €) to the current financial data expressed in the original currency, in order to eliminate the impact of currency fluctuations.
(2) Included within net finance costs for the nine-month period ended September 30, 2014 are costs incurred in connection with the bond issued
and the refinancing of existing debt facilities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations -
Net Finance Costs” for a description of the net finance costs for the period. Net finance costs for the nine-month period ended September 30,
2013 include €3.4 million relating to Cristallo S.p.A. on the existing bank loan facilities.
Operating profit was affected by a number of extraordinary items both for the nine-month period ended September
30, 2013 and for the nine-month period ended September 30, 2014.
Please see “Adjusted EBITDA” for further details on such items.
2. Summary Consolidated Balance Sheet
As of December 31,
As of September 30,
2013
2014
(As reported)
(As reported)
(In € thousands)
Property, plant and equipment 23,489
24,454
Intangible assets 34,655
41,522
Goodwill 256,917
263,418
Inventories 72,907
88,994
Trade receivables 72,468
75,228
Cash and cash equivalents 38,536
33,691
Other current and non-current assets 50,110
51,885
Total assets 549,082
579,192
Long-term borrowings 195,891
196,894
Short-term borrowings 17,707
28,583
Trade payables 64,711
76,577
Other long-term and short-term liabilities 55,797
53,759
Total liabilities 334,106
355,813
Total equity 214,976
223,379
Total liabilities and equity 549,082
579,192
Marcolin Bond Report as of and for the nine months ended September 30, 2014
Summary Financial Information
9
3. Summary Consolidated Cash Flow Statement Information
For the nine months ended September 30,
2013
2014
(Constant Perimeter)
(As reported)
(In € thousands)
Net cash from operating activities 9,809
(9,642)
Net cash (used in) investing activities (3,759)
(8,838)
Net cash from/(used in) financing activities 5,090
8,034
Effect of foreign exchange rates and other non-cash items (1,739)
5,602
Net increase/(decrease) of cash and cash equivalents 9,400
(4,844)
4. Other Financial Information
We define EBITDA as profit for the period plus income tax expense, net finance costs, amortization and depreciation
and bad debt provision. EBITDA is a Non-GAAP Financial Measure. The following table sets forth the calculation of
EBITDA for the periods indicated.
For the nine months ended September 30,
2013
2014
(Constant Perimeter)
(As reported)
(In € thousands)
Net profit for the period 2,316
3,115
Income tax expense 5,074
2,763
Net finance costs 10,720
8,432
Amortization and depreciation 6,383 7,228
Bad debt provision 508 424
EBITDA (a)
25,000 21,961
(a) The 2013 EBITDA with a constant perimeter uses a different reclassification of the financial discount and exchange difference presented in the
Marcolin Trading Update as of and for the nine months ended September 30, 2013 (amount reclassified 1,397 U.S.$). In the tables above the
EBITDA for the nine-month period ended September 30, 2013 is presented consistently with the same period 2014, with the same reclassification of
Marcolin Group, in order to provide comparable data.
We define adjusted EBITDA as EBITDA adjusted for the effect of non-recurring transactions which primarily refer to
one-off charges, non-recurring costs in relation to changes in management, and other extraordinary items (some of
which relate to Cristallo’s acquisition of Marcolin). The following table sets forth the calculation of adjusted EBITDA for
the periods indicated.
For the nine months ended September 30,
2013
2014
(Constant Perimeter)
(As reported)
(In € thousands)
EBITDA 25,000 21,961
Costs related to PAI acquisition(a)
1,467
-
Costs related to VIVA integration(b)
-
6,360
Senior management changes(c)
1,711
1,183
Exceptional termination of licenses(d)
1,249
-
Other(e)
243
-
Adjusted EBITDA 29,670 29,504
(a) Costs related to PAI acquisition refer primarily to advisory fees and expenses related to the mandatory tender offer and consequent
obligations.
(b) Costs related to Viva integration were incurred for the integration process of Viva as described in “Overview – Acquisition and Integration of
Viva”.
(c) Senior management changes relate to non-recurring employment termination expenses incurred in connection with the change in top
management, including the head of the Brazilian branch, Italian and U.S. management.
(d) Exceptional termination of licenses in 2013 relates primarily to expenses and losses incurred on the John Galliano and Miss Sixty licenses that
were terminated prior to their contractual expiration date. The John Galliano license was terminated following the impairment to the
reputation of the brand, as a result of a scandal involving the designer, while the Miss Sixty license was terminated following the licensor’s
initiation of insolvency procedures, resulting in damage to the brand reputation and a decrease in sales beyond the ordinary course of
business.
(e) Other relates to non-recurring expenses incurred in the development of certain licenses and new business.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
Summary Financial Information
10
For the nine months ended September 30,
2013
2014
(Constant Perimeter)
(As reported)
(In € thousands)
Property, plant and equipment (a)
1,962 3,538
Intangible assets(b)
1,797 5,300
Total capital expenditure 3,759 8,838
(a) Investments of €3.5 million in property, plant and equipment mainly related to new asset purchases of € 3.9 million, specifically: €1.0 million
in plant and machinery, €0.7 million in equipment, € 0.3 million in hardware, € 0.9 million in factory restructuring and € 0.1 million to purchase
the manufacturing plant from the associate Finitec in liquidation. (b) Investments of €5.3 million in intangible assets mainly related to the lump sum agreed by the Parent Company for some licensors in order to
extend licensing agreement periods. In addition, intangible assets under formation include Viva’s ERP software change, and the Parent
Company’s software and business application implementation totaling €1.8 million.
As of December 31, 2013
As of September 30, 2014
(As reported)
(As reported)
(In € thousands)
Cash and cash equivalents (38,536)
(33,691)
Financial receivables (8,890)
(7,359)
Long-term borrowings 195,891 196,894
Short-term borrowings (a)
17,707 28,583
Net indebtedness 166,172 184,426 (a)
Includes current portion of long-term debt.
For the nine months ended September 30,
2013
2014
(Constant Perimeter)
(As reported)
(In € thousands)
(Increase)/decrease in trade receivables 7,999
(3,187)
(Increase)/decrease in other receivables 172
(4,010)
(Increase)/decrease in inventories 6,625
(13,700)
Increase/(decrease) in trade payables (20,281)
8,027
Increase/(decrease) in other liabilities (3,038)
2,382
Increase/(decrease) in current tax liabilities (105)
809
(Use) of provision (2,049)
(972)
Movements in working capital (10,677)
(10,651)
The cash flows absorbed by Inventory is due to an improvement of the service level to customers and to the stock
building (including WIP and Raw Materials) for the new brands ready to be shipped in Q1 2015 (Zegna and Pucci).
The percentage of Close out and Phase Out stock is actually decreased from 32% to 24%.
5. Summary Financial Information
For the nine months ended September 30,
2013
2014
(Constant Perimeter)
(As reported)
EBITDA 25,000
21,961
Adjusted EBITDA 29,670
29,504
Adjusted EBITDA margin(a)
11.1%
10,8%
Capital expenditures(b)
3,759
8,838
Net indebtedness(c)
168,906
184,426
Movements in working capital(d)
(10,677)
(10,651) (a) We define the adjusted EBITDA margin as adjusted EBITDA divided by revenue. (b) Capital expenditure consists of investments for the period in property, plant and equipment and intangible assets, as presented in the cash
flow statement. The table above sets forth a breakdown of capital expenditure for the periods indicated. (c) We define net debt as the total consolidated debt net of cash and cash equivalents. The table above sets forth the calculation of net debt for
the periods indicated. Net Indebtedness for 2013 is a “pro-forma” figure (since the acquisition had not yet occurred). (d) We define movements in working capital as the movements in trade and other receivables, inventories, trade payables, other liabilities, tax
liabilities and use of provisions.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
Summary Financial Information
11
6. Other Financial and Non-Financial Data and Key Performance Indicators
Revenue, sales volume and average price per unit by geographic segment
For the nine months ended September 30,
2013 (Constant Perimeter)
% of total
2014 (As Reported)
% of total
Revenue (In € thousands)
Italy 61,239
22.9%
67,090
24.7%
Of which Italy Domestic(1)
15,760
5.9%
19,617
7.2%
Of which Italy Export(2)
45,478
17.0%
47,472
17.4%
France 28,438
10.6%
27,261
10.0%
Rest of Europe 42,476
15.9%
41,267
15.2%
North America 122,645
45.8%
125,114
46.0%
Rest of World(3)
13,053
4.9%
11,433
4.2%
Total 267,850
100.0%
272,165
100.0%
Sales Volume(4)
(units in thousands)
Italy 1,217
11.6%
1,420
12.9%
Of which Italy Domestic(1)
325
3.1%
464
4.2%
Of which Italy Export(2)
892
8.5%
956
8.7%
France 676
6.4%
656
6.0%
Rest of Europe 1,697
16.2%
1,530
13.9%
North America 6,406
61.0%
6,853
62.2%
Rest of World(3)
508
4.8%
553
5.0%
Total 10,504
100.0%
11,012
100.0%
Average price per unit(5)
(€ per unit)
Italy 50.3
47.2
Of which Italy Domestic(1)
48.6
42.3
Of which Italy Export(2)
51.0
49.6
France 42.1
41.6
Rest of Europe 25.0
27.0
North America 19.1
18.3
Rest of World 25.7
20.7
25.5
24.7
(1) Italy Domestic relates to the revenue generated by Marcolin’s sales of products to the Italian market.
(2) Italy Export relates to the revenue generated by Marcolin’s sales of products to the markets in which we do not have an operating subsidiary,
mainly in the Far East and Middle East. (3)
Rest-of-World sales relates to the sales generated by Brazilian and other non-North American and non-European subsidiaries (for example
Marcolin do Brasil Ltda, Viva Brasil Ltda, Marcolin Asia Ltd.).
(4) Sales volumes correspond to sales made to wholesale customers expressed in thousands of units.
(5) Average price is calculated as revenue divided by sales volume.
Revenue amounted to €272.2 million for the nine months ended September 30, 2014, an increase of €4.3 million, or
1.6%, from the €267.9 million for the nine months ended September 30, 2013.
At constant exchange rates, the revenue for the nine months ended September 30, 2014 was €277.9 million, up by
€10.0 million, or 3.7%, from the same period of last year. We calculate net sales for the nine-month period ended
September 30, 2014 using constant exchange rates by applying the prior-period average exchange rates (of the U.S.$
and the other currencies relevant for the Group against the €) to the current financial data expressed in the original
currency, in order to eliminate the impact of currency fluctuations.
Currency fluctuation strongly impacted North America revenue, which at constant exchange rates was €129.3 million
for the nine months ended September 30, 2014 instead of the €125.1 million shown in the table, an increase of 5.0%
from the same period of 2013.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
Summary Financial Information
12
Revenue, sales volume and average price per unit by brand type
For the nine months ended September 30,
2013 (Constant Perimeter)
% of total
2014 (As Reported)
% of total
Revenue (In € thousands)
Luxury brands 112,800
42.1%
120,098
44.1%
Diffusion brands 157,361
58.7%
155,768
57.2%
Other(1)
(2,311)
-0.9%
(3,701)
-1.4%
Total 267,850
100.0%
272,165
100.0%
Sales volume(2)
(units in thousands)
Luxury brands 1,416
13.5%
1,594
14.5%
Diffusion brands 9,088
86.5%
9,417
85.5%
Total 10,504
100.0%
11,012
100.0%
Average price per unit(3)
(€ per unit)
Luxury brands 79.7
75.3
Diffusion brands 17.3
16.5
25.5
24.7
(1) Other relates primarily to unallocated end-of-period adjustments for discounts, and to a lesser extent, returns.
(2) Sales volume corresponds to sales made to wholesale customers expressed in thousands of units.
(3) Average price is calculated as revenue divided by sales volume.
Revenue, sales volume and average price per unit by product type
For the nine months ended September 30,
2013 (Constant Perimeter)
% of total
2014 (As Reported)
% of total
Revenue (In € thousands)
Sunglasses 132,759
49.6%
136,987
50.3%
Prescription frames 137,403
51.3%
138,878
51.0%
Others(1)
(2,311)
-0.9%
(3,701)
-1.4%
Total 267,850
100.0%
272,165
100.0%
Sales volume(2)
(units in thousands)
Sunglasses 5,773
55.0%
6,033
54.8%
Prescription frames 4,731
45.0%
4,979
45.2%
Total 10,504
100.0%
11,012
100.0%
Average price per unit(3)
(In € per unit)
Sunglasses 23.0
22.7
Prescription frames 29.0
27.9
25.5
24.7
(1) Others relates primarily to unallocated end-of-period adjustments for discounts and, to a lesser extent, returns.
(2) Sales volume corresponds to sales made to wholesale customers expressed in thousands of units.
(3) Average price is calculated as revenue divided by sales volume.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
13
IV. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion and analysis of our financial condition and results of operations in the periods set forth
below. The following discussion should also be read in conjunction with “Presentation of Financial Information and
Other Data” and “Selected Consolidated Financial Information.” The discussion in this section may contain
forward-looking statements that reflect our plans, estimates and beliefs and involve risks and uncertainties.
Unless the context indicates otherwise, in this “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” references to “we,” “us,” “our,” or the “Marcolin Group” refer to Marcolin, including Cristallo,
Viva and the consolidated group.
Key Factors Affecting Our Financial Condition and Results of Operations
1. General economic conditions and consumer discretionary spending
Our performance is affected by the economic conditions of the markets in which we operate and trends in consumer
discretionary spending.
In a global scenario of improvement for the world economy, Italian eyewear continues to dominate the international
market, demonstrating the sector's extreme dynamism and competitive strength, which make it one of the most
successful sectors of the Italian economy.
In the first half of 2014 exports rose from the same period of 2013; growth leads to reasonable expectations of
exceeding the value of eyewear exports reached in 2013 by the end of 2014.
The export markets that most appreciate the design and quality of Italian-made eyewear are Europe and the Americas
(which collectively account for nearly 80% of Italian eyewear exports), and 2014 is emerging as a year of solid
improvement in those two areas.
In the first six months of the year, exports to countries that now represent important future markets, i.e. China, the
United Emirates and Japan, performed well.
The appeal of Italian eyewear continues to attract European consumers, particularly in Germany, the United Kingdom
and France. The success achieved in particularly demanding, refined and sophisticated markets such as Asia proves
that innovation, technological performance, the constant pursuit of quality and creative design give Italian eyewear a
competitive edge (source: ANFAO).
For the Marcolin Group the revenue for the nine months ended September 30, 2014 has grown, at constant exchange
rates, by about 3.7% compared to the revenue recorded for the same period in 2013 (on a constant perimeter basis,
i.e. including both the results of Marcolin and Viva for both periods). We calculate net sales for the nine-month period
ended September 30, 2014 using constant currencies by applying the prior-period average exchange rates (of the
U.S.$ and the other currencies relevant for the Group against the €) to the current financial data expressed in the
original currency, in order to eliminate the impact of currency fluctuations.
We believe that such results, excluding the impact of period-on-period currency fluctuations, provide additional useful
information to investors regarding the operating performance on a local currency basis.
2. Licensing agreements
Licenses – key facts for the year 2013 and the nine months ended September 30, 2014
In the nine months ended September 30, 2014, the Marcolin Group continued with its efforts to rationalize and
optimize both the brands and collections offered to its clients, a process that was launched in 2013.
This process has included the following activities:
• for the purpose of product innovation, a new collection using metal was created in 2013 for the Tom Ford
brand, the "Essential" line, combining Italian design, Marcolin's expertise and available production
capabilities. Sales of the Essential line products commenced in February 2014;
• Balenciaga was re-launched, after the fashion house's designer change, with a sophisticated and elegant
collection having great complexity, which was presented at the end of 2013 to a distinctive group of selected
retailers; in January 2014, the group of distributors was extended, while continuing to focus on just a few
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
14
prestigious names;
• an important strategic alliance was created with the stipulation of licenses for the prestigious eyewear
brands Ermenegildo Zegna and Agnona. The licensing agreement has a ten-year duration and involves the
exclusive design, manufacture and global distribution of sunglasses and prescription frames. Given that
typically, when we enter into an agreement with a new licensor, there is a time lag between the date of the
agreement and the date on which the agreement begins to generate revenue, we estimate that the initial
Ermenegildo Zegna and Couture collections should be launched in January 2015, and start generating
revenues from that date;
• Two existing licenses have been renegotiated, resulting in improved terms and conditions for the Group;
• at the end of April 2014 Marcolin exercised its option to renew the Tom Ford license, extending the license
period from January 2016 to December 2022;
• on May 6, 2014, Viva renewed its licensing agreement with Skechers USA, Inc., an award-winning global
leader in the lifestyle and performance footwear industry;
• on June 9, 2014, Marcolin Group and Emilio Pucci announced the stipulation of a worldwide exclusive license
agreement for the design, production and distribution of sunglasses and eyeglasses for the Emilio Pucci
brand. The five-year, renewable license will become effective in January 2015;
• on July 2, 2014, the Group and M.lle Catherine Deneuve announced the renewal of their licensing agreement,
initially launched through a licensing partnership with Viva International in 1989, for the design, production
and worldwide distribution of Catherine Deneuve optical frames and sunglasses.
Other licensing events occurring after the 3Q closing are:
• on October 8, 2014, the license agreement with one of our licensor was renegotiated, resulting in strongly
improved terms and conditions for the Group. The negotiation recently finalized can be summarized as lower
minimum royalties and advertising royalties over the course of the life of the License in exchange of cash
disbursement.
3. Distribution
In the first part of 2014, following a review of our global operations, Marcolin made certain changes to the
management of our Brazilian subsidiary.
The recent Viva acquisition and the consequential integration process began with the review of the distribution
network and sales force, with the objective of maximizing the distribution synergies possible and promoting cost
efficiencies. The Optical Channel sales force integration in the U.S. has been fully executed, in the U.K. and Hong Kong
is completed both domestically and internationally, while in France and Brazil it is still in progress, in line with the
defined integration plans. In Italy the complete restructuring of the sales force resulted in an increase in revenues and orders for the nine
months ended September 30, 2014, as presented in the tables of Net Revenues by destination market.
In 2013 Marcolin and the Rivoli Group, an important eyewear business with a strong presence in the Middle East,
stipulated a medium/long-term agreement for the distribution of Marcolin products in the Middle East. Marcolin
assigned the brand management for the Middle East of Diesel and Swarovski to the Rivoli Group beginning November
2014.
The partnership is expected to further boost the Italian eyewear company's presence in the Middle East, with Rivoli as
the main distributor of the portfolio brands.
Within the process of consolidation and development undertaken by the Marcolin Group, the Company is initiating
business partnerships with important players in the eyewear industry that operate in countries deemed strategic to
the Group's growth, namely China and Russia.
China is certainly one of the Group's sales growth drivers, and the signature of a Letter of Intent in July 2014 to set up
a joint venture with a top local business is unquestionably a good opportunity for rapid sales penetration, consistently
with Marcolin's business plans. The distinctive skills of the business partner combined with its extensive experience
and knowledge of local markets and clients will enable Marcolin to sustain growth based on its internal strategies, in a
distant and unique market, with investments in human and financial resources in proportion to the targets set and in
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
15
line with the business plans. On November 3rd
, the JV has been announced and the set-up activity is well undergoing.
For the same strategic reasons, the Company is also initiating a business partnership with a well-known eyewear
distributor in Russia, a Country pivotal for growth and development in the next few years according to geographical
growth drivers. The Marcolin Group's objective is to strengthen the partnership and set up a joint venture with it.
4. Efficiency and cost control initiatives
Within the framework of the Viva integration, we have combined the two U.S. sales teams in the optical channel,
given a significant increase in the share of certain Marcolin legacy brands (namely Diesel, Timberland, Cover Girl and
Kenneth Cole).
Also in the U.S., we have joined the Marketing Departments under a new leadership.
These measures have generated sizable, unplanned savings in the personnel line of the Sales & Marketing Costs which
are of course not yet reflected in the Q3 financials.
In Hong Kong and the United Kingdom we consolidated Viva operations into Marcolin entities:
- we created the Hong Kong Branch of Marcolin UK to serve the entire client base of VIVA and Marcolin in
APAC and manage jointly the sourcing operations out of China;
- we transferred VIVA UK’s international business to Marcolin SpA for clients in Europe, Middle East and Africa
(EMEA) and Latin America (LATAM);
- we transferred VIVA UK’s Domestic business to Marcolin UK.
Other events occurring after the 3Q closing are:
the signature of an irrevocable letter of intent for the acquisition of a new 3,500m² manufacturing facility in
Longarone (Fortogna area), in the heart of the eyewear district. The new site which will be fully operational in H2
2015, granting to the Group an increase of its manufacturing capacity and lower dependence from Third Parties in
Italy. The payback of the investment is based on the savings generated by the insourcing and the significant reduction
of production lead-times.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
16
Group Comparison of nine months ended September 30, 2013 against nine months ended September 30, 2014
1. Presentation of Financial Information
This document focuses on the consolidated results of the Group that includes Marcolin and Viva. The discussion of the
Group as one single entity is consistent with the strategy to fully integrate Viva and its operations and brands into the
Marcolin Group.
Marcolin was acquired by Cristallo on December 5, 2012, and in October 2013 Cristallo underwent a reverse merger
with and into Marcolin, within the scope of a corporate reorganization of the Group’s holding structure. The Marcolin
Group’s consolidated financial statements for the nine months ended September 30, 2013 include Cristallo’s results of
operations.
In December 2013, Marcolin obtained control over Viva by acquiring a 100% stake in Viva Optique, Inc. Accordingly,
the Marcolin Group’s results of operations for the nine months ended September 30, 2014 include the Viva Group’s
results.
In accordance with Management’s objectives of fully integrating the Viva Group, and in order to provide a meaningful
period-on-period discussion, the results for the nine months ended September 30, 2013 have been adjusted to include
the Viva Group’s results of operations for that period. We believe that such disclosure provides relevant information
to enhance period-on-period comparability.
The consolidated income statement, consolidated statement of financial position, consolidated cash flow statement
and other financial information of the Group as of and for the nine months ended September 30, 2014 are derived
from the unaudited interim condensed consolidated financial statements of the Marcolin Group as of and for the nine
months ended September 30, 2014.
For the nine months ended September 30,
2013 (Constant Perimeter)
% of revenue
2014 (As Reported)
% of revenue
(In € thousands, except percentages)
Revenue 267,850
100.0%
272,165
100.0%
Cost of sales (103,402)
-38.6%
(108,127)
-39.7%
Gross profit 164,448
61.4%
164,038
60.3%
Selling and marketing costs (124,977)
-46.7%
(129,075)
-47.4%
General and administrative expenses (24,974)
-9.3%
(22,789)
-8.4%
Other operating income and expenses 3,265
1.2%
1,984
0.7%
Effects of accounting for associates 347
0.1%
151
0.1%
Operating profit 18,110
6.8%
14,309
5.3%
Net finance costs (10,720)
-4.0%
(8,432)
-3.1%
Profit before taxes 7,390
2.8%
5,877
2.2%
Income tax expense (5,074)
-1.9%
(2,763)
-1.0%
Net profit for the period 2,316
0.9%
3,115
1.1%
2. Revenue by Brand Type and by Product Type
The following tables set forth an analysis of our revenues by product type and brand type for the periods indicated.
For the nine months ended September 30,
2013 (Constant Perimeter)
% of
total
2014 (As
Reported)
% of
total Change
Revenue by brand type (In € thousands)
amount %
Luxury brands 112,800
42.1%
120,098
44.1%
7,298 6.5%
Diffusion brands (1)
157,361
58.7%
155,768
57.2%
(1,593) -1.0%
Others(2)
(2,311)
-0.9%
(3,701)
-1.4%
(1,390) 60.1%
Total 267,850
100.0%
272,165
100.0%
4,315 1.6%
(1)
The decrease was affected by unfavorable impact of the exchange rate of the USD, driven by the sales generated by the former Viva Entites.
At constant Forex the said sales are actually, growing of about €3,5m.
(2) “Others” primarily relates to unallocated end-of-period adjustments for discounts and returns.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
17
For the nine months ended September 30,
2013 (Constant Perimeter)
% of
total
2014 (As Reported)
% of
total Change
Revenue by product type (In € thousands)
amount %
Sunglasses 132,759
49.6%
136,987
50.3%
4,229 3.2%
Prescription frames 137,403
51.3%
138,878
51.0%
1,476 1.1%
Others(1)
(2,311)
-0.9%
(3,701)
-1.4%
(1,390) 60.1%
Total 267,850
100.0%
272,165
100.0%
4,315 1.6%
(1) “Others” primarily relates to unallocated end-of-period adjustments for discounts and, to a lesser extent, returns.
Revenue amounted to €272.2 million for the nine months ended September 30, 2014, an increase of €4.3 million, or
1.6%, from the €267.9 million for the nine months ended September 30, 2013.
At constant exchange rates revenue rose by 3.7%. We calculate net sales for the nine-month period ended September
30, 2014 using constant currencies by applying the prior-period average exchange rates (of the U.S.$ and the other
currencies relevant for the Group against the €) to the current financial data expressed in the original currency, in
order to eliminate the impact of currency fluctuations.
The increase in revenue is attributable to an increase in sales volumes, from 10.504 million units for the nine months
ended September 30, 2013 to 11.012 million units for the nine months ended September 30, 2014, which was partially
offset by a decrease in the average price per unit, from €25.5 for the nine months ended September 30, 2013 to €24.7
for the nine months ended September 30, 2014.
The revenue generated by sales of luxury brand items increased by 6.5% in the nine months ended September 30,
2013 compared to the nine months ended September 30, 2014. The increase is attributable to an increase in sales
volume, from 1.416 million units for the nine months ended September 30, 2013 to 1.594 million units for the nine
months ended September 30, 2014, which was partially offset by a reduction in the average price per unit, from €79.7
for the nine months ended September 30, 2013 to €75.3 for the nine months ended September 30, 2014.
The revenues generated by diffusion brand products increased by 1.0% in the nine months ended September 30, 2013
compared to the nine months ended September 30, 2014, mainly attributable to a decrease in the average price per
unit, from €17.3 for the nine months ended September 30, 2013 to €16.5 for the nine months ended September 30,
2014, partially offset by an increase in sales volumes, from 9.088 million units for the nine months ended September
30, 2013 to 9.417 million units for the nine months ended September 30, 2014.
The decrease in average price is mainly driven by certain close-out sales carried out in order to clean up the inventory
post integration of VIVA and a significant impact of the weak USD in the first nine months of the year.
The percentage of revenue generated by sales of sunglasses increased 3,2% vs. the nine months ended September 30,
2013 being 50.3% for the nine months ended September 30, 2014.
Such increase was attributable to an increase in sales volumes, from 5.773 million units for the nine months ended
September 30, 2013 to 6.033 million units for the nine months ended September 30, 2014; prices have been
substantially in line from €23.0 for the nine months ended September 30, 2013 to €22.7 for the nine months ended
September 30, 2014
The revenue generated by sales of prescription frames grew 1,1% being 51.0% of Total Sales. The growth is mainly
attributable to an increase in sales volumes, from 4.731 million units for the nine months ended September 30, 2013
to 4.979 million units for the nine months ended September 30, 2014 partially offset by a decrease in the average
price per unit, from €29.0 for the nine months ended September 30, 2013 to €27.9 for the nine months ended
September 30, 2014.
The increase in revenue was partially offset by an increase in unallocated end-of-period adjustments for discounts and
returns, from €2.3 million for the nine months ended September 30, 2013 to €3.7 million for the nine months ended
September 30, 2014. The discounts rose mainly in connection of an increased business generated with larger optical
Chain in Europe.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
18
3. Revenue by geographical segment
Revenue is segmented by reference to the geographic area in which the reporting entity resides.
The following tables set forth an analysis of our revenue by “geographic segment” for the periods indicated.
See also “- Revenue by market destination” for an analysis of revenue by the “destination market”.
For the nine months ended September 30,
2013 (Constant Perimeter)
% of
total
2014 (As Reported)
% of
total Change
Revenue (In € thousands)
amount %
Italy 61,239
22.9%
67,090
24.7%
5,851 9.6%
Of which Italy Domestic(1)
15,760
5.9%
19,617
7.2%
3,857 24.5%
Of which Italy Export(2)
45,478
17.0%
47,472
17.4%
1,994 4.4%
France 28,438
10.6%
27,261
10.0%
(1,177) -4.1%
Rest of Europe 42,476
15.9%
41,267
15.2%
(1,209) -2.8%
North America 122,645
45.8%
125,114
46.0%
2,469 2.0%
Rest of World(3)
13,053
4.9%
11,433
4.2%
(1,620) -12.4%
Total 267,850
100.0%
272,165
100.0%
4,315 1.6%
(1) Italy Domestic relates to the revenue generated by Marcolin’s sales of products to the Italian market.
(2) Italy Export relates to the revenue generated by Marcolin’s sales of products to the markets in which Marcolin does not have an operating
subsidiary, mainly in the Far East and Middle East.
(3 Rest-of-World sales relates to the sales generated by Brazilian and other non-North American and non-European subsidiaries (for example
Marcolin do Brasil Ltda, Viva Brasil Ltda, Marcolin Asia Ltd.).
Italy
As a result of the business initiatives aimed to strengthen relationships with customers, and the great attention
dedicated to the reorganization of the Domestic market, in particular the reorganization of the independent agents,
the Italian market has strongly expanded in comparison with the same period of last year. Italy revenues amounted to
€67.1 million for the nine months ended September 30, 2014, an increase of €5.9 million, or 9.6%, from €61.2 million
for the nine months ended September 30, 2013.
• Italy Domestic revenues amounted to €19.6 million for the nine months ended September 30, 2014, an
increase of €3.9 million, or 24.5%, from €15.8 million for the nine months ended September 30, 2013. Italy
Domestic revenue accounted for 7.2% of the total revenue for the nine months ended September 30, 2014,
compared to 5.9% for the nine months ended September 30, 2013. The increase in Italy Domestic revenue is
attributable to an increase in sales volumes, partially offset by a decrease in the average price per unit. In
particular, sales volumes increased by 42.7%, from 325 thousand units for the nine months ended September
30, 2013 to 464 thousand units for the nine months ended September 30, 2014, while the average price per
unit decreased from €48.6 for the nine months ended September 30, 2013 to €42.3 for the nine months
ended September 30, 2014;
• Italy Export revenue amounted to €47.5 million for the nine months ended September 30, 2014, an increase
of €2.0 million, or 4.4%, from €45.5 million for the nine months ended September 30, 2013. Italy Export
revenue accounted for 17.4% of the total revenue for the nine months ended September 30, 2014, compared
to 17.0% for the nine months ended September 30, 2013. The increase in Italy Export revenue is attributable
to an increase in sales volumes, partially offset by a decrease in the average price per unit. In particular, sales
volumes increased by 7.2%, from 892 thousand units for the nine months ended September 30, 2013 to 956
thousand units for the nine months ended September 30, 2014, while the average price per unit decreased
from €51.0 for the nine months ended September 30, 2013 to €49.6 for the nine months ended September
30, 2014. The said reduction is driven by a selective reduction of prices for certain styles of our high-end
offer.
France
France revenues amounted to €27.3 million for the nine months ended September 30, 2014, a decrease of €1.2
million, or 4.1%, from €28.4 million for the nine months ended September 30, 2013. France revenue accounted for
10.0% of the total revenue for the nine months ended September 30, 2014, compared to 10.6% for the nine months
ended September 30, 2013. The decrease in France revenue is attributable to a decrease in the average price per unit
sold and in sales volumes.
In particular, the average price per unit decreased from €42.1 for the nine months ended September 30, 2013 to
€41.6 for the nine months ended September 30, 2014 and the sales volumes decreased by 2.9%, from 676 thousand
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
19
units for the nine months ended September 30, 2013 to 656 thousand units for the nine months ended September 30,
2014. The explanation of this small decrease in volumes is driven primarily by the softness of the French Market.
Rest of Europe
Rest-of-Europe revenues amounted to €41.3 million for the nine months ended September 30, 2014, a decrease of
€1.2 million, or 2.8%, from the €42.5 million for the nine months ended September 30, 2013. Rest-of-Europe revenues
accounted for 15.9% of the total revenue for the nine months ended September 30, 2014, compared to 15.2% for the
nine months ended September 30, 2013. The decrease in Rest-of-Europe revenue is attributable to a decrease in the
in sales volumes, partially offset by an increase in the average price per unit sold.
In particular, sales volumes decreased by 9.8%, from 1.697 thousand units for the nine months ended September 30,
2013 to 1.530 thousand units for the nine months ended September 30, 2014, while the average price per unit
increased from €25.0 for the nine months ended September 30, 2013 to €27.0 for the nine months ended September
30, 2014. The decrease in sales of Rest of Europe for the nine months ended September 30, 2014, compared to the
same period of the previous year, is also determined by the different classification of the international business of
VIVA UK that in August 2014 has been transferred to Marcolin Spa while in 2013 was recorder in the “Rest of Europe
Line”
North America
North America revenues amounted to €125.1 million for the nine months ended September 30, 2014, an increase of
€2.5 million, or 2.0%, from the €122.6 million for the nine months ended September 30, 2013. North America revenue
accounted for 46.0% of the total revenue for the nine months ended September 30, 2014, compared to 45.8% for the
nine months ended September 30, 2013. The increase in North America revenue is attributable to an increase in sales
volumes, partially offset by a decrease in the average price per unit driven by an unfavorable exchange rate with the
US Dollar . In particular, sales volumes increased by 6.9%, from 6.406 thousand units for the nine months ended
September 30, 2013 to 6.853 thousand units for the nine months ended September 30, 2014, while the average price
per unit decreased from €19.1 for the nine months ended September 30, 2013 to €18.3 for the nine months ended
September 30, 2014.
Currency fluctuation strongly impacted North America revenue, which at constant exchange rates was €129.3 million
for the nine months ended September 30, 2014 instead of the €125.1 million shown in the table, an increase of 5.0%
from the same period of 2013.
Rest of World
Rest-of-World revenues amounted to €11.4 million for the nine months ended September 30, 2014, a decrease of
€1.6 million, or 12.4%, from the €13.1 million for the nine months ended September 30, 2013. Rest-of-World revenue
accounted for 4.2% of the total revenue for the nine months ended September 30, 2014, compared to 4.9% for the
nine months ended September 30, 2013. The decrease in Rest-of-World revenue is attributable to a decrease in the
average price per unit sold, partially offset by an increase in sales volumes.
In particular, the average price per unit decreased from €25.7 for the nine months ended September 30, 2013 to
€20.7 for the nine months ended September 30, 2014 and the sales volumes increased by 8.8%, from 508 thousand
units for the nine months ended September 30, 2013 to 553 thousand units for the nine months ended September 30,
2014. The decrease in sales of Rest-of-World for the nine months ended September 30, 2014, compared to the same
period of the previous year, is also determined by negative impact to currency fluctuation for €0.5 million in Brazil and
termination of distribution Agreements with former VIVA’s Partners in the Philippines and Thailand.
4. Revenues by destination market
The table below sets forth Marcolin’s revenue by destination market.
This information is relevant, as it shows the geographic concentration of our customers, rather than our distribution
entities.
For the nine months ended September 30,
2013 (Constant Perimeter)
% of
total
2014 (As Reported)
% of
total Change
Revenue (In € thousands)
amount %
Italy 18,814
7.0%
21,509
7.9%
2,695 14.3%
Rest of Europe 77,302
28.9%
77,350
28.4%
48 0.1%
Europe 96,116
35.9%
98,859
36.3%
2,743 2.9%
USA 105,804
39.5%
107,335
39.4%
1,531 1.4%
Asia 19,919
7.4%
21,117
7.8%
1,197 6.0%
Rest of World 46,011
17.2%
44,853
16.5%
(1,158) -2.5%
Total 267,850
100.0%
272,165
100.0%
4,315 1.6%
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
20
5. Cost of sales
The cost of sales amounted to €108.1 million for the nine months ended September 30, 2014, an increase of €4.7
million, or 4.6%, from the €103.4 million for the nine months ended September 30, 2013. The cost of sales as a
percentage of revenue is 39.7% for the nine months ended September 30, 2014 compared to 38.6% for the nine
months ended September 30, 2013.
September YTD gross margin is 120 bps below last year.
The main reasons are:
• Price/Volume effect: we decided to selectively reduce prices with a pretty sizeable recovery in the volumes,
namely in Domestic and Key Accounts Channels which triggered also a positive variance of the brand mix (as
growth was generated by higher-margin brands)
• FX Rate: as we experienced a significant currency headwind as the US and Brazilian portion of the business
which have reduced their share of the Group’s profits in Euros. Our estimate is €3.1m.
• Close/Out Sales at VIVA
• Input cost from Asia impact is marginal.
The following table sets forth an analysis of the cost of sales for the periods indicated:
For the nine months ended September 30,
2013 (Constant Perimeter)
% of
revenue
2014 (As reported)
% of revenue
Change
(In € thousands, except percentages)
(amount)
%
Material and finished
products 76,028
28.4%
76,220
28.0%
192
0.3%
Personnel expenses 14,142
5.3%
14,363
5.3%
221
1.6%
Outsourcing 4,900
1.8%
7,133
2.6%
2,233
45.6%
Other expenses 8,331
3.1%
10,410
3.8%
2,079
25.0%
Total 103,402
38.6%
108,127
39.7%
4,725
4.6%
The increase in cost of sales is attributable to the combined effect of the following changes:
• Materials and finished products amounted to €76.2 million for the nine months ended September 30, 2014, an
increase of 0.3%, from the €76.0 million for the nine months ended September 30, 2013. Materials and finished
products as a percentage of revenue is 28.0% for the nine months ended September 30, 2014 and 28.4% for the
nine months ended September 30, 2013.
• Personnel expenses relating to production amounted to €14.4 million for the nine months ended September 30,
2014, an increase of 1.6% from the €14.1 million for the nine months ended September 30, 2013. Personnel
expenses as a percentage of revenue is 5.3% for the nine months ended September 30, 2014 compared to 5.3%
for the nine months ended September 30, 2013.
• Outsourcing amounted to €7.1 million for the nine months ended September 30, 2014, an increase of €2.2
million, or 45.6%, from the €4.9 million for the nine months ended September 30, 2013. Outsourcing as a
percentage of revenue is 2.6% for the nine months ended September 30, 2014, compared to 1.8% for the nine
months ended September 30, 2013. This is due to the increase in volumes, supported by third party factories.
• Other expenses amounted to €10.4 million for the nine months ended September 30, 2014, an increase of €2.1
million or 25.0% from €8.3 million for the nine months ended September 30, 2013. Other expenses as a
percentage of revenue is 3.8% for the nine months ended September 30, 2014, compared to 3.1% for the nine
months ended September 30, 2013. In both periods, other expenses were primarily related to transport and
customs charges and, to a lesser extent, depreciation and amortization of assets associated with production
activities. The growth in other expenses is mainly attributable to higher customs charges, also driven by volume
increases.
6. Selling and marketing costs
Selling and marketing costs amounted to €129.1 million for the nine months ended September 30, 2014, an increase
of €4.1 million, or 3.3%, from the €125.0 million for the nine months ended September 30, 2013.
Selling and marketing costs as a percentage of revenue is 47.4% for the nine months ended September 30, 2014,
compared to 46.7% for the nine months ended September 30, 2013.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
21
The following table sets forth an analysis of selling and marketing costs for the periods indicated.
For the nine months ended September 30,
2013 (Constant Perimeter)
% of revenue
2014 (As Reported)
% of revenue
Change
(In € thousands, except percentages)
(amount)
%
Royalties 35,551
13.3%
35,616
13.1%
65
0.2%
Personnel Expenses 49,646
18.5%
50,438
18.5%
792
1.6%
Advertising and PR 17,582
6.6%
18,555
6.8%
972
5.5%
Other costs 22,198
8.3%
24,466
9.0%
2,268
10.2%
Total 124,977
46.7%
129,075
47.4%
4,097
3.3%
The €4.1 million increase in selling and marketing costs is primarily attributable to the combination of the following
changes:
• Royalties amounted to €35.6 million for the nine months ended September 30, 2014, an increase of 0.2%, from
the €35.5 million for the nine months ended September 30, 2013. Royalties as a percentage of revenue is 13.1%
for the nine months ended September 30, 2014, compared to 13.3% for the nine months ended September 30,
2013.
• Personnel expenses relating to selling and marketing amounted to €50.4 million for the nine months ended
September 30, 2014, an increase of €0.8 million, or 1.6%, from the €49.7 million for the nine months ended
September 30, 2013. Personnel expenses as a percentage of revenue is 18.5% for the nine months ended
September 30, 2014, in line with the same period of previous year.
• Advertising and PR amounted to €18.6 million for the nine months ended September 30, 2014, an increase of €1.0
million, or 5.5%, from the €17.6 million for the nine months ended September 30, 2013. Advertising and PR
expenses as a percentage of revenue is 6.8% for the nine months ended September 30, 2014, compared to 6.6%
for the nine months ended September 30, 2013. In the first nine months of 2014, costs were incurred for
additional advertising and public relations activities; greater advertising investments were made in the house
brands and for the Venice International Convention, held in September 2014, which all the Group’s top customers
attended, including those acquired through the Viva acquisition.
• Other costs amounted to €24.5 million for the nine months ended September 30, 2014, an increase of €2.3
million, or 10.2%, from the €22.2 million for the nine months ended September 30, 2013. Other costs as a
percentage of revenue is 9.0% for the nine months ended September 30, 2014, compared to 8.3% for the nine
months ended September 30, 2013. The other costs refer principally to transportation expenses on sales, business
travel, rents and services.
7. General and administrative expenses
General and administrative expenses amounted to €22.8 million for the nine months ended September 30, 2014, a
decrease of €2.2 million, or 8.75%, from the €25.0 million for the nine months ended September 30, 2013.
General and administrative expenses as a percentage of revenue is 8.4% for the nine months ended September 30,
2014, compared to 9.3% for the nine months ended September 30, 2013.
The decrease in general and administrative expenses is the result of the successful actions taken by the Group to
improve efficiency and contain costs for the pro-rata reduction of the Management Fee charged by the former Parent
company of VIVA. In addition, the decrease in G&A expenses is also attributable to a decrease in legal consulting fees
incurred during the nine months ended September 30: in 2013, Cristallo incurred legal consulting fees of €1.2 million
in relation to the mandatory full tender offer for the entire share capital of Marcolin, which was completed in
February 2013.
8. Other operating income and expenses
Other operating income and expenses resulted in net income of €2.0 million for the nine months ended September
30, 2014, compared to the net operating income of €3.2 million for the nine months ended September 30, 2013.
Other operating income and expenses as a percentage of revenue is 0.7% for the nine months ended September 30,
2014, compared to 1.2% for the nine months ended September 30, 2013.
In both periods other net operating income primarily relates to prior period adjustments, refunded transport costs,
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
22
and other income and expenses.
9. Net finance costs
Net finance costs amounted to €8.4 million for the nine months ended September 30, 2014, compared to €10.7
million for the nine months ended September 30, 2013.
Net finance costs as a percentage of revenue is 3.1% for the nine months ended September 30, 2014, compared to
4.0% for the nine months ended September 30, 2013.
The decrease in finance costs is primarily attributable to the fluctuation of the U.S.$ that has strongly impacted the
unrealized exchange differences of 3Q 2014.
10. Income tax expense
The income tax expense amounted to €2.8 million for the nine months ended September 30, 2014, a decrease of €2.3
million, compared to the €5.1 million for the nine months ended September 30, 2013.
Income tax expense as a percentage of revenue is 1.0% for the nine months ended September 30, 2014, compared to
1.9% for the nine months ended September 30, 2013.
The decrease in income tax expense is primarily attributable to the decrease in profit before tax.
* * * * *
11. Working Capital
The table below sets forth a summary of the movements in the Group’s working capital, as derived from our
consolidated cash flow statements for the periods indicated.
For the nine months ended September 30,
2013
2014
(Constant Perimeter)
(As reported)
(In € thousands)
(Increase)/decrease in trade receivables 7,999
(3,187)
(Increase)/decrease in other receivables 172
(4,010)
(Increase)/decrease in inventories 6,625
(13,700)
Increase/(decrease) in trade payables (20,281)
8,027
Increase/(decrease) in other liabilities (3,038)
2,382
Increase/(decrease) in current tax liabilities (105)
809
(Use) of provision (2,049)
(972)
Movements in working capital (10,677)
(10,651)
• The cash flows generated /(absorbed) by movements in working capital are largely attributable to movements in
trade and other receivables, inventories and trade payables, most of which relate to the timing of receivable
collection or payable settlement, also due to seasonality.
• Nearly the entire increase in trade receivables concerns non-overdue receivables, and attributable to sales
increase. With a constant perimeter, the Group’s (including Viva) twelve-month average days sales outstanding
(DSO) at September 30, 2014 is substantially consistent with its 2013 full-year DSO (87 days).
• The increase in trade payables is primarily attributable to the turnover increase. With a constant perimeter, the
Group’s (including Viva) twelve-month average days payables outstanding (DPO) at September 30, 2014
improved compared with its 2013 full-year DPO.
• The increase in inventories is mainly referred to Marcolin’s Spa Inventory increase, driven by turnover increase
and improvement of the service level, increasing the current collection finished goods to meet the request of the
market, in terms of order and delivery. Last but not least, the inventory built up for the new Brands (Zegna and
Pucci) to be sold after Dec.31st
with significant advanced sourcing of raw materials and WIP.
12. Capital Expenditures
Our capital expenditures primarily consisted of the maintenance and modernization of our production and logistics
facilities, and investments in obtaining new licenses or extending/improving terms and conditions of existing licenses.
Capital expenditures in property, plant and equipment over the period covered by this analysis primarily relate to the
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
23
maintenance and replacement of production plant and machinery.
The following table sets forth our capital expenditures for the periods indicated as derived from our cash flow
statement.
For the nine months ended September 30,
2013
2014
(Constant Perimeter)
(As reported)
(In € thousands)
Property, plant and equipment (a)
1,962 3,538
Intangible assets(b)
1,797 5,300
Total capital expenditures 3,759 8,838
(a) Investments of €3.5 million in property, plant and equipment mainly related to new asset purchases of € 3.9 million, specifically: €1.0 million
in plant and machinery, €0.7 million in equipment, € 0.3 million in hardware, € 0.9 million in factory restructuring and € 0.1 million for the
purchase of the manufacturing plant from the associate Finitec in liquidation. (b) Investments of €5.3 million in intangible assets mainly related to the lump sum agreed by the Parent Company for some licensors in order to
extend licensing agreement periods. In addition, intangible assets under formation include Viva’s ERP software change, and the Parent
Company’s software and business application implementation totaling €1.8 million.
13. Liquidity (Cash and cash equivalents)
As of September 30, 2014, the €4.8 million decrease in cash and cash equivalents from December 31, 2013 , and the
changes in the Group’s cash position as compared to that disclosed in our report as of and for the year ended
December 31, 2013 are presented in the Cash Flow Statement below.
14. Cash Flow Statement
The following table sets forth our consolidated cash flow statement for the periods indicated.
As of December 31, For the nine months
ended September 30,
2013 2014
Marcolin Group Marcolin Group
(As reported) (As reported)
(In € thousands)
Operating activities
Profit before income tax expense (11,810)
5,877
Depreciation, amortization and impairment 5,411 7,040
Accruals to provisions 18,109 277
Cash flows from operating activities before changes in working capital and tax and interest
paid 11,710 13,194
Movements in working capital (14,819) (10,651)
Income taxes paid (1,938) (3,148)
Interest paid (17,452) (9,037)
Net cash flows from operating activities (22,499) (9,642)
Investing activities
(Purchase) of property, plant and equipment (2,615) (3,981)
Proceeds from the sale of property, plant and equipment (30) 444
(Purchase) of intangible assets (1,512) (5,300)
(Acquisition) of investments (127,745) -
Net cash (used in) investing activities (131,902) (8,838)
Adjustments to other non-cash items 5,524 2,901
Financing activities
Net proceeds from/(repayments of) borrowings 91,620 8,034
Other cash flows from financing activities 51,300 -
Capital contribution payment - -
Net cash from/(used in) financing activities 142,920 8,034
Net increase/(decrease) in cash and cash equivalents (5,957) (7,545)
Effect of foreign exchange rate changes (707) 2,701
Cash and cash equivalents at beginning of period 45,200 38,536
Cash and cash equivalents at end of period 38,536 33,691
Marcolin Bond Report as of and for the nine months ended September 30, 2014
MD&A
24
14.a Net cash flows from operating activities
Net cash flows from operating activities absorbed €9.6 million for the nine months ended September 30, 2014.
This cash absorption is primarily attributable to non-recurring payments, such as the Bond expenses paid in
January, 2014, and the one-off costs related to the Viva integration project, in addition to the interest paid in the
period related to the Bond Notes.
14.b. Net cash flows used in investing activities
Net cash flows used in investing activities amounted to €8.8 million for the nine months ended September 30,
2014.
Investing activities for the nine months ended September 30, 2014 primarily related to:
• Investments in tangible assets of €3.5 million, mainly relating to new asset purchases of € 3.9 million,
specifically: €1.0 million in plant and machinery, €0.7 million in equipment, € 0.3 million in hardware, € 0.9
million in factory restructuring and € 0.5 million to purchase a manufacturing plant from the associate
Finitec in liquidation;
• Investments of €5.3 million in intangible assets, mainly relating to the lump sum paid by the Parent
Company to some licensors in order to amend and extend the licensing agreement periods. In addition,
intangible assets under formation include Viva’s ERP software change, and the Parent Company’s software
and business application implementation totaling €1.8 million.
14.c. Net cash flows from/used in financing activities
Net cash flows used in financing activities amounted to €8.0 million for the nine months ended September 30,
2014, consisting of net repayments of borrowings.
15. Capital Resources
As of September 30, 2014, our total financial debt was €225.5 million (as of December 31, 2013 it was 213.6 million).
The main component of the total financial debt is the HY Bond, which was issued in November 2013, with maturity on
November 14, 2019 and a nominal value of €200 million, and a coupon of 8.5%. Interest on this bond is paid in half-
yearly installments.
The other components of total financial debt relate primarily to current financial liabilities, including bank payables.
The €25 million revolving credit facility was drawn for €12 million, as of September 30, 2014, while it was fully
undrawn as of 31 December 2013.
16. Other information/Quantitative and Qualitative Disclosures about Market Risk
As of September 30, 2014, there were no material changes in the risk factors disclosed in our report as of and for the
year ended December 31, 2013.
Marcolin Bond Report as of and for the nine months ended September 30, 2014
25
APPENDIX – PRO-FORMA CONSOLIDATED FINANCIAL INFORMATION
1. Financial Information for the Twelve Months Ended September 30, 2014
The summary financial information presented for the twelve months ended September 30, 2014 is calculated by
taking the results of operations for the nine months ended September 30, 2014, and adding to them the difference
between the results of operations for the full year ended December 31, 2013 and for the nine months ended
September 30, 2013.
The financial information for the twelve months ended September 30, 2014 is not necessarily indicative of the results
that may be expected for the year ended December 31, 2014, and should not be used as the basis for or prediction of
an annualized calculation.
2. Pro-Forma Financial Information
The summary pro-forma consolidated financial information as of and for the twelve months ended September 30,
2014 has been prepared to simulate the main effects of the Viva acquisition.
The summary pro-forma consolidated financial information is presented for illustrative purposes only and does not
purport to represent what the actual results of operations would have been if the events for which the pro-forma
adjustments were made had occurred on the dates assumed, nor does it purport to project our results of operations
for any future period or our financial condition at any future date. Our future operating results may differ materially
from the pro-forma amounts set out, including changes in operating results.
The accounting principles used for the preparation of the Unaudited Pro Forma Consolidated Financial Information are
the International Financial Reporting Standards endorsed by the European Union (“IFRS”).
It should be noted that Viva prepares its consolidated financial statements in U.S. dollars in accordance with the
generally accepted accounting principles in the United States (“US GAAP”). In order to provide information which is
homogeneous with that of Marcolin, the historical income statements and statements of financial position of Viva
have been adjusted, based on a preliminary analysis, to reflect the different accounting principles adopted by
Marcolin compared to those of Viva.
3. Summary Pro-Forma Consolidated Financial Information
(in € thousands except percentages)
As of and for twelve
months ended
September 30, 2014 (pro forma)
Pro-forma combined revenues …………………………………………..……………………………………………………………………………………….. 349,193
Pro-forma combined EBITDA (1)
……………………………………………………………………………………………………………………………………. 23,722
Pro-forma combined adjusted EBITDA (2)
…………………………….………………………………………………………………………………………. 37,689
Pro-forma combined adjusted EBITDA margin (3)
………………….……………………………………………………………………………………… 10.8%
Pro-forma combined adjusted run-rate EBITDA (2)
…………………….………………………………………………………………………………... 46,189
Pro-forma combined adjusted run-rate EBITDA margin ……………….……………………………………………………………………………… 13.2%
Consolidated cash and cash equivalents (4)
……………………………….………………………………………………………………….…………….. 33,691
Consolidated total financial debt (5)
…………………………………………………………………………………………………………………………..... 225,477
Consolidated net financial debt (6)
……………………………………………………………………………………………………………….……………… 184,426
Pro-forma combined cash interest expense (7)
………………………………………………………………………………….………………………... 17,000
Marcolin Bond Report as of and for the nine months ended September 30, 2014
26
(1) The following table sets forth the calculation of the pro-forma combined EBITDA for the period indicated.
(in € thousands)
As of and for twelve
months ended
September 30, 2014 (pro forma)
Marcolin EBITDA ………………………………………………………………………………………………………..……………………………………………. 16,327
Viva EBITDA (a)
………………………………………………………………………………………………………………………...………………………………….. 7.394
Pro-forma combined EBITDA …………………………………………………………………………………………………………………………………. 23,722
(a) Viva EBITDA is calculated by translating the last twelve-month (LTM) Viva EBITDA into euros at the average exchange rate for the twelve
months ended September 30, 2014.
(2) The following table sets forth the calculation of the pro-forma combined adjusted EBITDA and pro-forma
combined adjusted run-rate EBITDA for the periods indicated:
(in € thousands)
As of and for twelve
months ended
September 30, 2014 (pro forma)
Marcolin adjusted EBITDA …………………………………………………………………………………..…………………………………………………. 25,824
Viva adjusted EBITDA (a)
………………………………………………………………………………………….…………...…………………………………… 11,125
Management fee adjustment (b)
……………………………………………………………………………...…………………………………………………. 303
Joint venture adjustment (c)
…………………………………………………………………….…………………………………………………………………. 437
Pro-forma combined adjusted EBITDA ………………………………………………………………………………………………………………… 37,689
Full year synergies (d)
…………………………………………………………………………………………………...……………………………………………. 8,500
Pro-forma combined adjusted run-rate EBITDA …………………………………………………………………………………………………… 46,189
(a) Viva adjusted EBITDA is calculated by translating the LTM Viva adjusted EBITDA into euros at the average exchange rate for the twelve months
ended September 30, 2014.
(b) Viva’s management fee adjustment relates to the elimination of fees charged by Viva’s selling Parent Company to the Viva Group for services
relating to tax, commercial insurance and administration, and technical accounting support.
(c) As Marcolin currently operates in Germany, management is considering terminating Viva’s joint venture in Germany and absorbing the
operations into the Marcolin Group for the business in Germany. The adjustment reflects the contribution of 50% of the EBITDA of Viva’s joint
venture in Germany, as the other 50% is already included in the Viva EBITDA.
(d) Full-year synergies include €3.9 million from shared services, €3.2 million from operational synergies and €1.4 million from the elimination of
duplicate executive functions. Shared service synergies include efficiencies generated through the reduction of overlaps between foreign
subsidiaries, savings in property executive management and back-office personnel, consolidation of corporate functions, and shared usage of
operational, office, and distribution networks. Operational synergies include efficiencies generated through the consolidation of warehouse
facilities in the U.S., consolidation of IT systems and procurement department savings.
(3) Pro-forma combined adjusted EBITDA margin is pro-forma combined adjusted EBITDA divided by pro-forma
combined revenues.
(4) Cash and cash equivalents is derived from the Marcolin Consolidated Statement of Financial Position as of
September 30, 2014.
(5) Consolidated total financial debt represents the consolidated short-term and long-term borrowings of the
Marcolin Group.
(6) Consolidated net debt represents consolidated total debt less consolidated cash and cash equivalents and other
current and non-current financial assets.
(7) Pro-forma combined cash interest expense represents the interest expense in connection with the €200 million
bond issued (8.5% interest rate).