Anda di halaman 1dari 148

2010 ANNUAL REPORT

(Translation of the 2010 Annual report approved in Italian, solely for the convenience of international readers)

2010 Annual Report

TABLE OF CONTENTS

Letter to our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Companys data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Governance bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TODS Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Groups organizational chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution network as of December 31st 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Key consolidated financial figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Highlights of results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9 10 11 12 13 14 15 16

TOD'S Group - IAS/IFRS Annual Report as of December 31st 2010


Report on operations Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alternative indicators of performances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Groups activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Groups brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational structure of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Main events and operations during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Groups results in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reconciliation of the result for the period and net equity of the Group with the analogous values of the Parent Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Significant events occurring after the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Approval of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements Consolidated Profit & Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated comprehensive Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statement of Financial position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statement of changes in equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplementary notes 1. General notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Financial statements formats: choice of form and classification principles . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Highlights of the accounting principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Segment reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Assets with indefinite useful life. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Key money and Other intangible assets with definite useful life. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Tangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Investment property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15. Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16. Shareholders equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17. Bank overdrafts and financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18. Derivative financial instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19. Hedging of financial risks (IFRS 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. Deferred tax assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21. Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22. Provisions and potential liabilities and assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23. Reserves for employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24. Transactions with related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25. Personnel costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26. Financial income and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27. Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Table of contents 29 29 29 30 30 31 31 32 39 39 39 40 41 41 44 45 46 48 49 52 52 53 60 62 62 63 63 64 64 65 66 66 68 69 69 71 72 73 76 76 77 78 79 82 82 83

2010 Annual Report

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

86

TOD'S S.p.A. - IAS/IFRS Annual Report as of December 31st 2010


Report on operations Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alternative indicators of performances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating performances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information on Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Personal data processing disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management and coordination activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Significant events occurring after the end of the fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Motion for allocation of the profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements Profit & Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statement of Cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplementary notes 1. General notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Financial statements format: choice of form and classification principles. . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Highlights of the accounting principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Assets with indefinite useful life. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Tangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Investment property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Investments in subsidiaries, joint ventures, and associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14. Financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15. Shareholders equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16. Bank overdraft and financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17. Derivative financial instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18. Hedging of financial risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19. Deferred tax assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21. Provisions and potential liabilities and assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22. Reserves for employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23. Transactions with related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24. Personnel costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25. Financial income and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26. Income from equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27. Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28. Independent Auditors compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29. Certification of the Separate Financial Statements of TODS S.p.A. and the Consolidated Financial Statements of the TODS Group pursuant to Article 81-ter of Consob Regulation no. 11971 of May 14th, 1999, as amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 91 91 95 96 97 97 98 98 98 99 102 103 104 106 107 110 110 110 117 117 118 118 119 119 120 120 122 122 123 123 125 126 126 129 130 131 132 132 137 137 137 138 139 139

Report of the Board of Statutory Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

5 Table of contents

2010 Annual report

Diego Della Valle Chairman and Chief Executive Officer

2010 Annual Report

Letter to our Shareholders


Dear Shareholders, Our Group achieved excellent results once again this year. Sales grew at double digit rates, with excellent results in all our markets and product categories. In an operating context that had improved from 2009 but which had not yet returned to normal, our customers showed increasing appreciation for our products and their extremely high quality.These products are not related to fashion trends, instead representing timeless icons. Revenue growth sustained improved profitability, through our customary focus on costs and a lean production organisation in a perfect marriage of artisanal culture and efficiency. The companys location in the renowned Italian high-quality shoe district helps us recruit highly qualified personnel. Our Group has an extremely solid financial situation: a well-balanced inventory management, customarily high quality receivables, and a solidly positive cash balance. Once again this year, we invested the resources necessary both for opening new boutiques and for continuous updating of the image of existing shops. We introduced the new Tods Home concept at leading Tods brand boutiques: the stores are furnished like a real home, where customers can feel like welcome guests in an extremely friendly environment that best expresses Tods values: quality, tradition and exclusivity. To support brand development, we maintained close attention and adequate investments in research, while we continued to invest in advertising and marketing, with targeted advertising campaigns and special events to promote our Groups made in Italy products. In this regard, we recall the collaboration with Teatro alla Scala and the agreement as sole, exclusive sponsor for financing restoration work on the Coliseum in Rome. From a strictly financial point of view, 2010 was an extremely important year, marking the tenth year of listing.The overall result of this experience has been positive, not only due to the strong appreciation of our stock price from the listing price of 40 euros, but also due to the visibility that listing has given to our company, further reinforcing our dedication to rigour, discipline and managerial skill. In December, our stock was included in the FTSE Mib index, which is comprised of the 40 most representative stocks on the Italian stock exchange, major recognition for the solidity of our Group. We decided on a very interesting dividend for shareholders once again this year, increasing the ordinary dividend by over thirty per cent, in addition to the extraordinary dividend paid in October. The strong and continuous generation of cash leaves the Group with all the resources necessary for continuing its solid growth and expansion on international markets. As always, I would like to express my sincere appreciation to all Group employees, whose commitment is the foundation for our success, and to you shareholders, for your confidence in our company and acceptance of our strategy.We obviously extend our gratitude to all our supporters and loyal customers. Cordially,
Diego Della Valle Chairman of the Board of Directors

9 Letter to our Shareholders

2010 Annual Report

Companys data
Registered office TODS S.p.A. Via Filippo Della Valle, 1 63811 SantElpidio a Mare (Fermo) - Italy Tel. +39 0734 8661

Legal data Parent company Share Capital resolved euro 61,218,802 Share Capital subscribed and paid euro 61,218,802 Fiscal Code and Registration Number on Company Register of Court of Fermo: 01113570442 Registered with the Chamber of Commerce of Fermo under n. 114030 R.E.A.

Offices and Showrooms

Dusseldorf - Kaistrasse, 2 Hong Kong - Three Pacific Place, 1 Queens Road East London - Old Bond Street, 16 Milan - Corso Venezia, 30 Milan - Via Savona, 56 Milan - Via Serbelloni 1-4 Milan - Via della Spiga, 22 Milan - Viale Montenero 63 New York - 450,West 15th Street Paris Rue Royale, 20 Seoul 89-10, Cheongdam-dong, Kangnam-ku Shanghai - 1366 Nanjing West Road, Plaza 66 Tower 2 Tokyo Omotesando Building, 5-1-5 Jingumae Comunanza (AP) - Via Merloni, 7 Comunanza (AP) - Via S.Maria, 2-4-6 SantElpidio a Mare (FM) - Via Filippo Della Valle, 1 Bagno a Ripoli, Loc.Vallina (FI) - Via del Roseto, 60 Bagno a Ripoli, Loc.Vallina (FI) - Via del Roseto, 50 Tolentino (MC) - Via Sacharov 41/43

Production facilities

10 Companys data

2010 Annual Report

Corporate Governance bodies


Board of directors (1) Diego Della Valle Andrea Della Valle Luigi Abete Maurizio Boscarato Luigi Cambri Luca Cordero di Montezemolo Emanuele Della Valle Fabrizio Della Valle Emilio Macellari Pierfrancesco Saviotti Stefano Sincini Vito Varvaro Diego Della Valle Andrea Della Valle Fabrizio Della Valle Emilio Macellari Stefano Sincini Vito Varvaro Luigi Abete Luigi Cambri Pierfrancesco Saviotti Maurizio Boscarato Luigi Cambri Pierfrancesco Saviotti Luigi Abete Luigi Cambri Pierfrancesco Saviotti Enrico Colombo Gian Mario Perugini Fabrizio Redaelli Massimo Foschi Gilfredo Gaetani Deloitte & Touche S.p.A. Chairman Vice- Chairman

Executive Committee

Chairman

Compensation Committee

Chairman

Internal Control and Corporate Governance Committee Independent Directors Committee

Chairman

Chairman

Board of statutory (2) Auditors

Chairman Acting stat. auditor Acting stat. auditor Substitute auditor Substitute auditor

Indipendent Auditors (3) Manager charged with preparing a companys financial report
(1) (2)

Rodolfo Ubaldi

Term of the office: 2009-2011 (resolution of the Shareholders meeting as of April 20th 2009) Term of the office: 2010-2012 (resolution of the Shareholders meeting as of April 22nd 2010) (3) Term of the office: 2006-2011 (resolution of the Shareholders meeting as of April 28th 2006)

11 Corporate Governance bodies

2010 Annual Report

TODS Group
TODS S.p.A. Parent Company, owner of theTODS, HOGAN and FAY brands and licensee of the ROGER VIVIER brand. Del.Com. S.r.l. Subholding for operation of international subsidiaries and DOS in Italy. TODS International B.V. Subholding for operation of international subsidiaries and DOS in The Netherlands. An.Del. Usa Inc. Subholding for operation of subsidiaries in the United States. Del.Pav S.r.l. Company that operates DOS in Italy. Filangieri 29 S.r.l. Company that operates DOS in Italy. Re.Se.Del. S.r.l. Company for services. Gen.del. SA Company that operates DOS in Switzerland. TODS Belgique S.p.r.l. Company that operates DOS in Belgium. TODS Deutschland Gmbh Company that distributes and promotes products in Germany and manages DOS in Germany. TODS Espana SL Company that operates DOS in Spain. TODS France Sas Company that distributes and promotes products in France and manages DOS in France. TODS Luxembourg S.A. Company that operates DOS in Luxembourg. TODS Hong Kong Ltd Company that distributes and promotes products in Far East and South Pacific and manages DOS in Hong Kong. TODS Japan KK Company that operates DOS in Japan. TODS Korea Inc. Company that promotes products in Korea. TODS Macao Ltd Company that operates DOS in Macao. TODS Retail India Private Ltd Company that operates DOS in India. TODS Saint Barth Sas Not operating company. TODS (Shanghai) Trading Co. Ltd Company that operates DOS in China. TODS Singapore Pte Ltd Company that operates DOS in Singapore. TODS UK Ltd Company that operates DOS in Great Britain. Webcover Ltd Company that distributes and promotes products in Great Britain and manages DOS in Great Britain. Cal.Del. Usa Inc. Company that operates DOS in California (USA). Colo. Del. Usa Inc. Not operating company. Deva Inc. Company that distributes and promotes products in North America, and manages of DOS in New Jersey (USA). Flor. Del. Usa Inc. Company that operates DOS in Florida (USA). Hono. Del. Inc. Company that operates DOS in Hawai (USA). Il. Del. Usa Inc. Company that operates DOS in Illinois (USA). Neva. Del. Inc. Company that operates DOS in Nevada (USA). Or. Del. Usa Inc. Company that operates DOS in California (USA). TODS Tex. Del. Usa Inc. Company that operates DOS in Texas (USA). Holpaf B.V. Real estate company Sandel SA Not operating company. Un.Del. Kft Production company. Alban.Del Sh.p.k. Production company.

12 Composition of the Group

2010 Annual Report

Groups organizational chart

TODS S.p.A.
100% Gen.Del. SA Zurich - Switzerland S.C. Chf 200,000 1% TODS Hong Kong Ltd Hong Kong S.C. - Usd 16,550,000 TODS International BV Amsterdam - The Netherlands S.C. - Euro 2,600,200 100% 100% ALBAN.DEL Sh.p.k Tirana - Albania S.C. - Euro 720,000 TODS UK Ltd London - Great Britain S.C. - Gbp 350,000 50%

99%

100%

TODS (Shanghai)Trading Co.Ltd TODS India Retail Private Ltd 100% 50% 1% Shanghai - China Mumbai - India S.C. USD 6,000,000 S.C. INR 113,900,000 TODS Belgique S.p.r.l. Bruxelles - Belgium S.C. - Euro 300,000 TODS Japan KK Tokio - Japan S.C. - Jpy 100,000,000 TODS Saint Barth Sas Saint Barthlemy S.C. - Euro 500,000 10% Un.Del Kft Tata - Hungary S.C. - Huf 42,900,000 TODS Macao Lda Macao S.C. Mop 20,000,000 100% 100%

Webcover Ltd London - Great Britain S.C. - Gbp 1.000 100%

TODS Espana SL Madrid - Spain S.C. - Euro 468,539,77 TODS Korea Inc Seoul - Korea S.C.Won 1,600,000,000 TODS Singapore Ltd Singapore S.C. - Sgd 300,000 TODS Luxembourg S.A. Luxembourg S.C. Euro 31,000 Sandel SA San Marino S.C. - Euro 258,000

100%

100%

100%

100%

90%

50%

1%

99%

100%

An.Del. USA Inc. New York U.S.A. S.C. - Usd 3,700,000 100% 100% Colo.Del. USA Inc Denver, Co U.S.A. S.C. - Usd 10,000 Flor.Del. USA Inc. Tallahassee, Fl U.S.A. S.C. - Usd 10,000 Il.Del. USA Inc. Springfield, Il U.S.A. S.C. - Usd 10,000 Or.Del. USA Inc. Sacramento, Ca U.S.A. S.C. - Usd 10,000

Cal.Del. USA Inc. Beverly Hills, Ca U.S.A. S.C. - Usd 10,000 Deva Inc. Wilmington, DE U.S.A. S.C. - Usd 500,000 Hono.Del. Inc. Honolulu, Hi U.S.A. S.C. - Usd 10,000 Neva.Del. Inc. Carson City, Nv U.S.A. S.C. - Usd 10,000 TODS Tex. Del. Inc. Dallas,Tx U.S.A S.C. Usd 10,000 100%

100%

100%

100%

100%

100%

100%

100%

Del.Com S.r.l. S. Epidio a Mare- Italy S.C. - Euro 31,200 50% 100% Re.Se.Del. S.r.l. S. Elpidio a Mare - Italy S.C. - Euro 25,000 Filangieri 29 S.r.l. S. Epidio a Mare- Italy S.C. - Euro 100,000

Del.Pav. S.r.l. S. Elpidio a Mare - Italy S.C. - Euro 50,000

50% 100% TODS France Sas Paris - France S.C. - Euro 780,000 TODS Deutschland Gmbh Dusseldorf - Germany S.C. - Euro 153,387,56 Holpef B.V. Amsterdam - The Netherlands S.C. - Euro 5,000,000

100%

100%

13 Composition of the Group

2010 Annual Report

Distribution network as of December 31st 2010


EUROPE Italy Belgium France Germany Great Bretain Greece Luxembourg Netherlands Portugal Russia Spain Switzerland Turkey TOTAL (D) 40 1 11 9 5 1 1 1 2 1 1 17 (F) 6

1 5

USA USA

(D) 14

(F)

1 3 72

RoW Saudi Arabia Baharain U.A.E. Kuwait Lebanon Qatar TOTAL


(D) = DOS (F) = FRANCHISED STORES

(D)

(F) 2 2 5 2 2 1 14

ASIA Japan China Korea Philippines Hong Kong India Indonesia Macau Malaysia Singapore Taiwan Thailandia Usa TOTAL

(D) 30 22 8 8 2 1 2

(F) 1 4 7 2 1 3 1 2 1 14 3 1 40

73

DOS, 2010 new openings


Europe Capri Milan Milan Rome Ingolstadt Far East Seoul Osaka Tokyo Tokyo Tokyo Chengdu Fuzhou Hangzhou Shangai Shenzhen (Italy) (Italy) (Italy) (Italy) (Germany) (Korea) (Japan) (Japan) (Japan) (Japan) (China) (China) (China) (China) (China)

Franchised stores, 2010 new openings


Middle East Kaohsiung (Taiwan)

For a complete list of retail outlets operated by the DOS and franchising network, reference should be made to the corporate web site: www.todsgroup.com

14 Distribution network

2010 Annual Report

Key consolidated financial figures


2010 Revenues - % by brand Roger Vivier 2.8% P&L key figures (Euro mn) FY 10 Revenues EBITDA EBIT PRE TAX PROFIT Net income 787.5 193.1 24.5% 159.9 20.3% 163.4 20.7% 110.8 14.1% FY 09 713.1 158.7 22.2% 126.4 17.7% 126.5 17.7% 86.1 12.1% FY 08 707.6 155.6 22.0% 126.0 17.8% 125.4 17.7% 83.9 11.9%

FAY 11.4% HOGAN 34.1%

TODS 51.7%

2010 Revenues - % by region North America 6.8% Europe 20.8% RoW 18.4%

Key Balance Sheet figures (Euro mn) Dec. 31st, 10 Net working capital Net fixed capital Shareholders equity Net financial position Capital expenditures
(*)

Dec. 31st, 09 373.4 297.4 659.9 177.2 21.3

Dec. 31st, 08 308.2 309.7 602.6 72.8 40.8

298.7 363.2 618.4 96.5 96.1

Italy 54.0%

(*) Current Assets - Current Liabilities

2010 Revenues - % by product

Financial key figures (Euro mn) Dec. 31st, 10 Dec. 31st, 09 102.8 122.8 154.2 Dec. 31st, 08 (2.6) 116.5 89.2

Leather goods 15.6%

Free cash flow Appar. 12.6% Self financing Cash flow from operation

(44.7) 144.8 169.0

Shose 71.7%

15 Key consolidated financial figures

2010 Annual Report

Highlights of results
Revenues: 2010 revenues of 787.5 million euros, 773.8 million euros on a comparable exchange rate basis, for growth of 10.4% and 8.5%, respectively, as compared with 2009 revenues.The DOS network had sales of 403.8 million euros (+15.6%).
773.8

Revenues (Euro mn)

787.5 713.1 707.6

EBITDA: this totalled 193.1 million euros, up 21.7% from 2009 (158.7 million euros).The ratio of EBITDA to sales rose to 24.5%.

FY 10 comp. ex. rate basis

FY 10

FY 09

FY 08

EBITDA (Euro mn) 186.9 193.1 158.7 155.6

EBIT: this totalled 159.9 million euros (126.4 million euros in 2009), with growth of 33.5 million (+26.5%).

Net profit: consolidated net profit for FY 2010 was 110.8 million euros, up 28.6% from 2009.

FY 10 comp. ex. rate basis

FY 10

FY 09

FY 08

EBIT (Euro mn) 154.4 159.9 126.4 126.0

Net financial position (NFP): the Group had 171.7 million euros in liquid assets at December 31st 2010.The net financial position at the same date was 96.5 million euros (net of dividends paid for 153 million euros).

FY 10 comp. ex. rate basis

FY 10

FY 09

FY 08

Capital expenditures: 96.1 million euros were spent in 2010, including 66.3 million euros for the real estate purchased in Tokyo.

NFP (Euro mn) 177.2

108.3

96.5 72.8

Distribution network: a total of 15 new DOS were opened during the financial year: at December 31st 2010 the single brand distribution network comprised 149 DOS and 78 franchised stores.

free cash flow (*)

FY 10

FY 09

FY 08

(*) gross of dividends

16 Key consolidated financial figures

2010 Annual Report

Main Stock Market indicators (Euro) Official price at 01.04.2010 Official price at 12.30.2010 Minimum price in 2010 Maximum price in 2010 Market capitalization at 01.04.2010 Market capitalization at 12.30.2010 Extraordinary Dividend 2010 per share Dividend per share 2009 Dividend per share 2008 Number of outstanding shares 51.20 74.02 45.11 84.96 1,567,100,626 2,265,675,722 3.50 1.50 1.25 30,609,401

Earning per share (Euro) 3.56 2.80

Stock performance
95,00 85,00

2.71
euro

75,00 65,00 55,00 45,00 35,00 January-December 2010

FY 10

FY 09

FY 08

2010 Groups employees

The Groups employees FY 10 FY 09 2.840 2.829 FY 08 2.814 2.698 FY 07 2.472 2.421

BLC 34%

EX 1%

Year to date Average


EX = executives WHC = white collar employees BLC = blue collar employees

3.194 3.098

WHC 65%

17 Key consolidated financial figures

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18 2010 Annual Report

TIMEACTIVE

HOGANWORLD.COM

FAY.COM

FAY.COM

TOD'S GROUP IAS/IFRS ANNUAL REPORT AS OF DECEMBER 31ST 2010

REPORT ON OPERATIONS

Group 2010 Annual Report

Introduction
The Report of the Board of Directors on Operations is based on the TODS Group Consolidated Financial Statements at December 31st 2010, prepared in accordance with IAS/IFRS (International Accounting Standards IAS, and International Financial Reporting Standards IFRS) issued by the IASB and approved by the European Union at the same date. IAS/IFRS refers also to all revised International Accounting Standards (IAS) and all interpretative documents issued by the IFRIC (International Financial Reporting Interpretations Committee), previously nominated Standing Interpretations Committee (SIC). The Consolidated Financial Statements have been prepared on the assumption that the Group can operate as a going concern.The Group believes that there are no asset, liability, financial or organisational indicators of material uncertainties, as defined in paragraph 25 of IAS 1 on business continuity. The Report on Operations must be read together with the Financial Statements and Notes to the Financial Statements, which are an integral part of the 2010 Consolidated Annual Report. The Report on Operations also includes the additional information required by CONSOB, pursuant to the orders issued in implementation of Article 9 of Legislative Decree 38/2005 (Resolutions 15519 and 15520 of July 27th, 2006 and memorandum DEM/6064293 of July 28th 2006), as well as all subsequent notices containing provisions regarding financial disclosures.

Alternative indicators of performances


In order to strip the effects of changes in exchange rates with respect to the average values for the previous year from the results for the 2010 financial year, the typical economic reference indicators (Revenues, EBITDA and EBIT) have been recalculated by applying the average exchange rates for 2009, rendering them fully comparable with those for the previous reference period. Note that on the one hand, these principles for measurement of business performance represent a key to interpretation of results not envisaged in IFRSs, and on the other hand, must not be considered as substitutes for what is set out in those standards.

Groups activity
The TODS Group operates in the luxury sector under its proprietary brands (TODS, HOGAN and FAY) and licensed brands (ROGERVIVIER). It actively creates, produces and distributes shoes, leather goods and accessories, and apparel. The firms mission is to offer global customers top-quality products that satisfy their functional requirements and aspirations. Development of production. The Groups production structure is based on complete control of the production process, from creation of the collections to production and then distribution of the products. This approach is considered key to assuring the prestige of its brands. Shoes and leather goods are produced in Group-owned plants, with partial outsourcing to specialized workshops. All of these outsourcers are located in areas with a strong tradition of shoe and leather good production. This preference reflects the fact that an extremely high standard of professional quality is required to make these items, with a significantly high level of added value contributed to the final product by manual work. The Group relies exclusively on selected specialized outsourcers, which enables it to exploit their respective specializations in crafting the individual products sold as part of the apparel line. Distribution structure. The prestige of the Groups brands and the high degree of specialization necessary to offer the respective products to customers entails distribution through a network of similarly specialized stores. Accordingly, the Group relies principally on three channels: DOS (directly operated stores), franchised retail outlets, and a series of selected, independent multibrand stores. The Groups strategy is focused on development of the DOS and franchising networks, given that these channels offer greater control and more faithful transmission of the individual brands. It is also clear that, in particular
29 Report on operations

Group 2010 Annual Report

market situations, distribution through independent multibrand stores is more efficient. This channel is of key importance to the Group.

Groups brands

The TODS brand is positioned on the luxury market and combines tradition, top quality and modernity. It offers consumers shoes, leather goods, accessories and apparel whose design is exclusive, functional and never ostentatious, interpreting timeless elegance. TODS products embody the high quality of goods Made in Italy that are handcrafted for daily use while offering a sophisticated and elegant look. Certain products, such as the Gommino, the Ballerina and the D-Bag, beloved by celebrities and leaders around the world, have become icons representing a unique and recognisably elegant style for men and women

The HOGAN brand is positioned in the elegant luxury sportswear market, offering consumers contemporary style shoes, leather goods, accessories and apparel with an international vision. HOGAN products, which are distinguished by their innovative character and high quality, have created a unique style, contributing to changes in the fashion habits of consumers who want a functional, comfortable, but also sporty and elegant product for everyday life. HOGAN products are trend-setters in defining an elegant and sporty look. Some of its models are best sellers, such as its Interactive shoes.

This brand offers consumers a line of high-quality apparel that is distinguished by the technical treatment of fabrics, obsession for detail and extreme functionality, combining style and quality with excellence. FAY products can be worn everywhere: from the sports stadium to the office, and from the city to the countryside. In every season, the FAY collection offers innovative, recognisable products for men, women and children.

Organizational structure of the Group


The Groups organisational configuration rotates around TODS S.p.A. that is at the heart of the Groups organisation, its parent company that owns the TODS, HOGAN and FAY brands, holds the licenses to the ROGER VIVIER, and manages the Groups production and distribution.Through a series of sub-holdings, the organisation is rounded out by a series of commercial companies that are delegated complete responsibility for retail distribution through the DOS network. Certain of them, strategically located on international markets, are assigned major roles in product distribution, marketing and promotion, and public relations processes along the value chain, while simultaneously guaranteeing the uniform image that Group brands must have worldwide.

30 Report on operations

Group 2010 Annual Report

Foreign currency markets


Especially in the first half of the year, FY 2010 was dominated by the steady weakening of the euro against other major global currencies. As compared with the average exchange rates with major currencies for FY 2009, the changes in the Korean won and Japanese yen were particularly significant.

Average exchange rate 2010 vs 2009 (change %)

18 16 14 12 10 8 6 4 2 -

15.7 12.0 9.5 12.1

3.8

4.7

4.9

CHF

GBP

HKD

JPY

KRW

SGD

USD

Main events and operations during the period


Purchase of Omotesando building. In November 2010, the Group purchased the building in Tokyo (whose market value was appraised at JPY 7.2 billion, or about 66.3 million euros at the year-end exchange rate). This building has been used entirely by Tods Japan K.K. since 2005, as the headquarters for its administrative offices and location for the most important TODS flagship store in Japan.The purchase was made through acquisition by the Group of the entire share capital of Holpaf B.V., the holding company that constructed the building and owns it. This deal is classifiable as a related party transaction, insofar as Holpaf B.V. was indirectly controlled by Diego Della Valle & C. SAPA, a company belonging to Diego e Andrea Della Valle, and controlled by Diego Della Valle. Ten years after the first direct investment through its own operating organisation, the Japanese market now represents one of the drivers for the Groups strategy to consolidate and develop its business throughout the Asian and South Pacific areas. No longer needing the operating flexibility that characterised the start-up phase of the business, the Group decided to consolidate its presence in the Asia-Pacific region by purchasing the building.The decision was based on an assessment of the prospective purchase on the income and financial position of the company as compared with a property lease arrangement. The buildings distinctive architecture represents an important tool for promoting the visibility of the TODS brand in Japan and on Asian markets. In financial terms, the impact of acquisition of Holpaf B.V. on the Groups cash position was about 22.7 million euros, of which about 2.1 million euros for the transfer of shares and 20.6 million euros for reimbursement by Holpaf B.V. of a shareholder loan made by the previous owner. The impact of the deal on the overall net financial position at December 31st 2010 was about 63.0 million euros. This mainly reflected, aside from the outlays indicated above, the two bonds issued in 2006 by Holpaf B.V. to refinance the original purchase of the land and construction of the building that the Group has taken over.The fair value of the land and building at December 31st 2010 was 41.2 million euros. The impact on 2010 income was immaterial, with the positive effects (stemming from replacement of the lease instalments with depreciation of the building) being limited to just one month (December 2010). Payment of extraordinary dividend. On October 14th 2010, the parent TODS S.p.A. paid out an extraordinary dividend, approved by the Shareholders Meeting held on September 21st 2010, for a total of 107.1 million euros, at the rate of 3.50 euros per share.

31 Report on operations

Group 2010 Annual Report

This payment, in addition to the ordinary dividend totalling 45.9 million euros resolved by the Shareholders Meeting held to approve the 2009 annual report, was made in consequence of the large amount of cash on hand, but above all the Groups consolidated capacity to manage and generate cash.These conditions allowed it to pay out surplus cash to the shareholders without compromising the Groups equity, financial position and income, or realisation of its growth targets and implementation of planned investments. Development of Chinese market. FY 2010 was a very important year for consolidation of the Groups presence in mainland China, which has recently confirmed its position as a strategic market for the development of business, both by the Group and the entire luxury goods segment. With the five new DOS that opened (including the ROGER VIVIER boutique in Shanghai, the first store opened by this brand in China), the singlebrand network in China totalled 28 retail outlets at December 31st 2010, topped only by the Italian and Japanese networks.

Groups results in 2010


The Group performed outstandingly in FY 2010.The excellent earnings results, all of which grew at double-digit rates, were generated by development processes affecting all business segments and markets where the Group operates. Revenues during the year grew by 74.4 million euros, from 713.1 million euros in 2009 to 787.5 million euros in 2010 (773.8 million euros on a comparable exchange rate basis). Growth as measured by operating margins was even stronger. EBITDA and EBIT totalled 193.1 million euros and 159.9 million euros, respectively (FY 2009: EBITDA 158.7 million euros, EBIT 126.4 million euros). Net profit rose sharply: consolidated net profit was 110.8 million euros, up 28.6% from the 86.1 million euros reported in FY 2009.
Euro 000s Main economic indicators Sales revenues EBITDA Deprec., amort.,write-downs and advances EBIT Pre-Tax Consolidated net profit Foreign exchange impact on revenues Adjusted Sales revenues Foreign exchange impact on operating costs Adjusted EBITDA Foreign exchange impact on deprec.& amort. Adjusted EBIT EBITDA % EBIT % Adjusted EBITDA % Adjusted EBIT % Tax rate %

Year 10 787,539 193,059 (33,115) 159,944 163,352 110,786 (13,700) 773,839 7,500 186,859 700 154,444 24.5 20.3 24.1 20.0 32.2

Year 09 713,135 158,653 (32,205) 126,448 126,545 86,140

Change 74,404 34,406 (910) 33,496 36,807 24,646

% 10.4 21.7 2.8 26.5 29.1 28.6

713,135 158,653 126,448 22.2 17.7 22.2 17.7 31.9

60,704 28,206 27,996

8.5 17.8 22.1

32 Report on operations

Group 2010 Annual Report

Euro 000s Main Balance Sheet Indicators Net working capital (*) Non current assets Other current assets/liabilities Net assets held for sale Invested capital Net financial position Shareholders equity Capital expenditures Cash flow from operations Free cash flow

12.31.10 192,688 363,186 (33,928) 521,946 96,495 618,441 96,067 168,950 (44,708)

12.31.09 200,129 297,367 (14,752) 482,744 177,189 659,933 21,310 154,164 102,837

Change (7,441) 65,819 (19,176) 39,202 (80,694) (41,492) 74,757 14,786 (147,545)

(*)Trade receivables + inventories - trade payables

Revenues. Group consolidated (Euro mn) FY 10 % FY 09 % Change % revenues totalled 787.5 million DOS 403.8 51.3 349.3 49.0 54.5 15.6 euros in FY 2010, up 10.4% from FY Third parties (WS) 383.7 48.7 363.8 51.0 19.9 5.5 2009. Revenue growth accelerated Total 787.5 100.0 713.1 100.0 74.4 10.4 continuously over the course of the 900 year: +3.4% in Q1 2010, +7.4% in 800 Q2 2010, +15.5% in Q3 2010 and 700 +16.1% in Q4 2010. On a WS WS 48.70% 600 comparable exchange rate basis, i.e. WS using the same average exchange 500 DOS rates for FY 2009, revenues would 400 51.3% total 773.8 million euros, up 8.5% 300 from the previous year. DOS 200 DOS In FY 2010, revenues to third parties 100 totalled 383.7 million euros, up 5.5% 0 from 2009. Excellent results were FY 10 FY 09 reported on the entire DOS network. Total revenue in the direct channel was 403.8 million euros, or 51.3% of Group sales. Growth during the year was 15.6%, or 12.2% on a comparable exchange rate basis.The Same Store Sales Growth (SSSG) figure, calculated as the worldwide average of revenue growth rates reported at the DOS existing on January 1st 2009 with comparable data, was an outstanding 13% for all of FY 2010. At December 31st 2010, the Groups distribution network was comprised by 159 DOS and 71 franchised stores, compared with 149 DOS and 78 franchised stores at December 31st 2009. The TODS brand reported excellent results, with revenue of about 407 million euros in FY 2010, up 16.7% from FY 2009. Growth was 27.3% in Q4 2010 alone. Excellent results were reported for all product categories and in all markets where the Group operates. On a comparable exchange rate basis, the brand posted growth of 13.2% in FY 2010. HOGAN brand revenue totalled 268.3 million euros in FY 2010, up 4.4% from the previous year. Results were also positive in Italy.

33 Report on operations

Group 2010 Annual Report

The brand is reorganising its international presence, in view of reinforcing its image on foreign markets through, among other initiatives, collaboration with the renowned designer Karl Lagerfeld and the opening of the first DOS in Shanghai. The FAY brand reported revenue of 89.7 million euros in FY 2010, against 91.6 million euros in FY 2009, confirming in Q4 2010 the positive results generated the start of winter collection sales. Finally, the ROGER VIVIER brand reported revenue of 21.7 million euros in FY 2010, up 45.3% from the previous year.As has been said on numerous occasions before, analysis of the results generated by this brand is not yet entirely significant, insofar as it is still in the phase of launching and consolidating its exclusive cachet and prestige.

(Euro mn) TODS HOGAN FAY ROGER VIVIER Other Total

FY 10 407.0 268.3 89.7 21.7 0.8

% 51.7 34.1 11.4 2.7 0.1

FY 09 348.8 256.9 91.6 15.0 0.8

% 48.9 36.0 12.9 2.1 0.1

Change 58.2 11.4

% 16.7 4.4

(1.9) (2.2) 6.7 0.0 45.3 n.s.

787.5 100.0 RV 2.7% FAY 11.4% 900 800 700 600 500 400 TODS 51.7% 300 200 100 0

713.1 100.0

74.4 10.4

RV FAY RV FAY HOGAN HOGAN

HOGAN 34.1%

TODS

TODS

FY 10

FY 09

At the level of individual merchandise categories, the Group confirmed its uncontested leadership in its core shoe business.This category posted double-digit sales gains in FY 2010. Revenue totalled 564.6 million euros, up 11.6% from FY 2009. Leather good revenues also accelerated dramatically (+35% in Q4 2010, +16% in Q3 2010), being propelled by the excellent results of the entire TODS brand collection of handbags and accessories. The total revenues for leather goods and accessories in FY 2010 totalled 123.2 million euros, up 10.6% from the previous year. Finally, apparel revenues totalled 99.1 million euros in FY 2010, up 4.3% from FY 2009.

(Euro mn) Shoes Leather goods Apparel Other Total

FY 10 564.6 123.2 99.1 0.6

% 71.7 15.6 12.6 0.1

FY 09 506.1 111.4 95.0 0.6

% 71.0 15.6 13.3 0.1

Change 58.5 11.8 4.1 0.0

% 11.6 10.6 4.3 n.s.

787.5 100.0 900 800 Apparel 12.6% 700 600

713.1 100.0

74.4 10.4

Apparel Leather goods Apparel Leather goods

Leather goods 15.6% Shoes 71.7%

500 400 300 200 100 0 FY 10

Shoes

Shoes

FY 09

34 Report on operations

Group 2010 Annual Report

The Groups strength on the (Euro mn) FY 10 % FY 09 % Change % domestic market was confirmed, Italy 425.7 54.0 405.1 56.8 20.6 5.1 with Italian revenues totalling 425.7 Europe 163.7 20.8 150.7 21.1 13.0 8.6 million euros in FY 2010, up 5.1% North America 53.4 6.8 46.4 6.5 7.0 15.0 from the previous year. RoW 144.7 18.4 110.9 15.6 33.8 30.5 The results reported for the rest of Total 787.5 100.0 713.1 100.0 74.4 10.4 Europe were also positive, with the 900 Group posting total sales of 163.7 RoW 800 North million euros, up 8.6% from the 18.4% RoW America 700 RoW previous year. Excellent results 6.8% North Am. 600 North Am. were also reported on the United Europe Europe 500 States market, which experienced a Europe 20.8% big jump in sales (+23% in Q4 2010, 400 +13.5% in Q3 2010). Italy 300 54.0% Aggregate Group revenue on this Italy Italy 200 market totalled 53.4 million euros in 100 FY 2010, with growth of 15% from 0 FY 10 FY 09 the previous year. On a comparable exchange rate basis, this market grew by 10.2% in FY 2010.The Asia and Rest ofWorld area reported excellent results, with revenue of 144.7 million euros, up 30.5% from 2009. Sales went into overdrive in this area as well during Q4 2010 (+65% in Q4 2010, +25% in Q3 2010).The results posted by China, Hong Kong, Taiwan and South Korea were particularly outstanding. On a comparable exchange rate basis, the brand posted growth of 21.6% in FY 2010.

Operating results. Group EBIDTA leapt forward, from 158.7 million EBITDA (Euro mn) euros in FY 2009 to 193.1 million euros in FY 2010, for a change of 34.4 193.1 million euros, or +21.7%. EBITDA amounted to 24.5% of consolidated 186.9 revenues, up 230 basis points from FY 2009, when it was 22.2% of sales. 158.7 On a comparable exchange rate basis, or with application of the average cross rates for the previous year, EBIDTA would be about 186.9 million euros, or 24.1% of sales. Growing revenues had an especially significant impact on profit margins. Sales in FY 2010 were characterised by the significant weight of the like for like component,as well as a qualitative component that was more heavily impacted in 2010 than in 2009 by full-price sales rather than promotional sales, and by FY 10 FY 10 FY 09 the revenues realised on higher-profit markets (especially Asia).The impact of comp. ex. rates basis the product mix is also positive, being tied to growth in the contribution made to overall sales by leather goods, which guarantees higher profits than shoes. Industrial margins were also positively impacted by high production efficiency, resulting from the streamlining of industrial processes. On the contrary, lease and rental expenses, personnel expense, and marketing and communication expenses were up slightly, rising steadily during the year in support of continuous sales growth. The expense during the period for leases and rentals (leases for use of locations outside Italy, and royalties for use of licenses) totalled 58.7 million euros, for a change of 7.3 million euros from 2009 (when it was 51.4 million euros). The percentage of these costs in terms of revenues thus rose from 7.2% in 2009 to 7.5% in 2010. Aside from the changes in foreign exchange rates compared with the previous year (less than approximately 2 million euros on a comparable exchange rate basis), the incremental costs were mainly due to the new opening of DOS in 2010 and the growth in the variable component of leases and rents tied to sales performance, resulting from the steep rise in revenues in Asia.
35 Report on operations

Group 2010 Annual Report

The change in personnel costs is related principally to the increase in headcount.Wages and salaries totalled 117.8 million euros, compared with 107.3 million euros in the previous year, for an increase of 10.5 million euros in absolute terms. This cost is equal to 15.0% of Group revenues (15.1% in 2009.At December 31st 2010, the Group had 3,194 employees, 354 more than at December 31st 2009 (2,840 employees at that date). Most of the employees who were newly hired during 2010 were used to build up the Groups production organisation and operate new retail outlets. Depreciation costs were substantially the same as in the previous financial year. Amortisation, depreciation and impairment for FY 2010 totalled 32.1 million euros, as compared with 31.0 million euros in 2009. At December 31st 2010, amortisation and depreciation equalled 4.1% of Group revenues, as compared with 4.4% in the previous year.

GROUPS EMPLOYEES

3.194 2.840 2.814 2.472

FY 10

FY 09

FY 08

FY 07

Benefiting from this recovery in marginal costs, EBIT amounted to 159.9 million euros (126.4 million euros in 2009), for growth of 33.5 million euros. This represented a 26.5% increase, greater than the increase in EBITDA. EBIT in 2010 was equal to 20.3% of consolidated sales (FY 2009: 17.7%). On a comparable exchange rate basis, EBIT during the period would have been 154.4 million euros, representing 20.0% of consolidated sales. Accruals for doubtful accounts and generic risks totalled 1.0 million euros.

EBIT (Euro mn)

154.4

159.9 126.4

FY 10 comp. ex. rates basis

FY 10

FY 09

Net financial income was a positive 3.4 million euros in 2010, mainly due to the positive 2.5 million euros difference in net foreign exchange gains. By including the effect of foreign exchange risk hedging (negative 1.9 million euros), the total balance of foreign exchange gains and losses was still a positive 1.5 million euros. Interest income accrued on cash and cash equivalents totalled 2.1 million euros.

FINANCIAL INC/EXP. (Euro mn)

2.5

1.4

Other Foreign exch. gains & losses Net interests -0,5

36 Report on operations

Group 2010 Annual Report

Income taxes owed for the period (including the effects of deferred taxes) totalled 52.6 million euros.The tax rate was 32.2%, substantially the same as in 2009. Net profit was outstanding, amounting to 110.8 million euros in 2010, up 28.6% from 2009, when it totalled 86.1 million euros (+24.6 million euros). This profit is equal to 14.1% of consolidated revenues, as compared with 12.1% in the previous year.

Tax Rate

37.8% 32.2% 31.9% 33.1%

FY 10

FY 09

FY 08

FY 07

Capital expenditure. Capital expenditures totalled 96.1 million euros in 2010.This figure includes 66.3 million euros for the building in Tokyo that houses the head office of the subsidiary TODS Japan and the flagship store in Omotesando, which was bought in 2010. Net of this asset, capital expenditure during the period totalled 29.8 million euros, as compared with 21.3 million euros in 2009.
Tangible & Intangible assets Capital expenditures (Euro mn)
96.1

40.8 21.3

45.2 30.5

FY 10

FY 09

FY 08

FY 07

FY 06

Capital expenditure on the DOS network rose sharply (to about 16.1 million euros, from 10.7 million euros in the previous year), to set up the new stores opened during the year and renovation work on existing boutiques, which is performed on a rotating basis. Capital expenditure on industrial devices and equipment totalled 6.9 million euros (5.6 million euros in 2009), for normal and periodic replacement and modernisation activities.

INVESTMENT BY ALLOCATION

Other 7%

DOS 17%

Produc. 7%

Real estate invest. 69%

37 Report on operations

Group 2010 Annual Report

Net financial position and cash flow. The Groups net financial position at December 31st 2010 was 96.5 million euros, reflecting a change of 80.7 million euros from December 31st 2009 (177.2 million). Cash and cash equivalents of 171.7 million euros (which totalled 204 million euros at December 31st 2009) are set off against liabilities of 75.2 million euros (26.8 million euros at December 31st 2009).These liabilities include 41.2 million euros (about JPY 4.5 billion for the face value of the bonds that were granted) as the aggregate fair value (short and long-term) of the non-convertible bonds that the Group took over through acquisition of the controlling interest in Holpaf B.V.The latter company is owner of the Tokyo property where the Groups Japanese subsidiary has its head office.Those bonds had been issued by Holpaf B.V. to obtain the financial resources necessary for purchasing the property and remodelling the building. The overall impact of the acquisition on the Groups net financial position at December 31st 2010 was about 63.0 million euros.This amount includes not only the financial assets and liabilities contributed by Holpaf, but also the acquisition value of company shares (2.1 million euros) and 20.6 million euros for full repayment to the former shareholders for the loan they had made prior to the acquisition. In FY 2010, cash was also heavily impacted by the previously mentioned payment by the parent company to stockholders of an extraordinary dividend of 107.1 million euros, by drawing on available equity reserves, in addition to the 45.9 million euros paid upon approval of the 2009 annual report.
Euro 000s Net financial position Current financial assets Cash and cash equivalents Cash Current financial liabilities Current account overdraft Current share of medium-long term financing Current financial liabilities Current net financial position Non-current financial liabilities Financing Non-current financial liabilities Net financial position 12.31.10 171,729 171,729 (27,283) (5,146) (32,429) 139,300 (42,805) (42,805) 96,495 12.31.09 204,009 204,009 (18,480) (1,521) (20,001) 184,008 (6,819) (6,819) 177,189 Change (32,280) (32,280) (8,803) (3,625) (12,428) (44,708) (35,986) (35,986) (80,694)

Operating cash flow totalled 169.0 million euros in 2010, up 14.8 million euros from the 154.2 million euros generated in 2009, due to the positive and growing contribution of cash flow, confirming the Groups structural capacity to generate cash.
Euro 000s Statement of cash flow Profit loss for the period Non-cash items Cash Flow Changes in operating net working capital Cash Flow from operations Cash Flow generated (used) in investment activity Cash Flow generated (used) in financing activity Cash Flow received (used) continuing operations Cash Flow from assets held for sale Cash Flow received (used) Net financial position at the beginning of the period Net financial position at the end of the period Change in current net financial position Year 10 109,076 35,704 144,780 24,170 168,950 (98,101) (115,558) (44,708) (44,708) 184,008 139,300 (44,708) Year 09 85,668 37,166 122,834 31,330 154,164 (20,136) (31,191) 102,837 102,837 81,171 184,008 102,837

38 Report on operations

Group 2010 Annual Report

Working capital generated a positive 24.2 million euros during the financial year. Investments grew during FY 2010, totalling 29.8 million euros (with disinvestments totalling 0.5 million), net of the property asset acquired in Tokyo, as compared with 19.3 million euros in 2009.The total net investment of short-term cash resources for purchase of the Tokyo property impacted FY 2010 cash flow by 25.4 million euros. Net of dividend payments (totalling 153 million euros) and the effects of the property deal on the short-term net financial position, the total amount of liquidity generated by cash flow in FY 2010 would be 133.8 million euros, compared with 141.1 million euros in 2009 (gross of dividends paid that year).

Research and development


Given the particular nature of the Groups production, research and development activity consists of continuous technical/stylistic revision of models and constant improvement of the materials used to realise the product. Since this activity is exclusively ordinary, the associated costs are charged entirely to income in the year that they are incurred, and thus recognised as normal production costs. Research and development costs, as defined above, have assumed major importance due to operating realisation of projects connected with expansion of the existing product line with new types of merchandise that complement current ones. These will increase the number of brands offered and stimulate increased sales to end customers.

Reconciliation of the result for the period and net equity of the Group with the analogous values of the Parent Company
The following table illustrates the reconciliation of the result for the period and net equity of the Group with the analogous values of the Parent Company, in accordance with CONSOB memorandum DEM/6064293 dated July 28th 2006.
Euro 000s Parent Company Difference between book value of consolidated Companies and net equity method valuation Goodwill from Business combination Parent Company Goodwill from Business combination Group Others (*) Minority interest Group
(*) Mainly dividends and intercompany profits.

12.31.10 Net Profit Share.equity 82,974 30,202 552,853 82,637 (13,242) 11,789 (22,499) 6,903 618,441

12.31.09 Net Profit Share.equity 71,921 13,410 622,874 50,747 (13,242) 11,789 (17,517) 5,282 659,933

(4,100) 1,710 110,786

337 472 86,140

Corporate Governance
The Corporate Governance system. The corporate governance system of the parent company TODS S.p.A. is based on the traditional system, or Latin model.The corporate bodies are: the Shareholders Meeting, which has the prerogative of resolving at its ordinary and extraordinary meetings on the matters reserved to it by law or the articles of association; the Board of Directors, which is vested with full, unlimited authority for ordinary and extraordinary management of the Company, with the right to perform all those acts that it deems appropriate to implement and realise the corporate purpose, excluding only those reserved by law to the Shareholders Meeting;
39 Report on operations

Group 2010 Annual Report

the Board of Statutory Auditors, which is delegated by law to monitor i) compliance with the law, memorandum of association and compliance with the principles of proper management; ii) the adequacy of the organisational structure for matters falling under its purview, its internal control system and administrative and accounting system, as well as the adequacy of the latter in fairly reporting operating performance; iii) the adequacy of directives issued to TODS Group companies in regard to the information that they must provide in compliance with disclosure obligations; iv) the procedures for effective implementation of the corporate governance rules set out in the Corporate Governance Code adopted by the Group; Legislative Decree 39/2010 delegates the Board of Statutory Auditors the task of monitoring the process of financial disclosure and the effectiveness of the risk control and management systems, as well as independent audits and certification of the annual accounts and consolidated accounts, and the independence of the accounting firm retained to do so; the Manager in charge of preparing the company financial documents. The Board of Directors has set up several internal committees: the Executive Committee, the Internal Control and Corporate Governance Committee, the Compensation Committee and the Independent Directors Committee. The adopted corporate governance model is substantially based on the Corporate Governance Code for Listed Companies, in its latest version as prepared by the Corporate Governance Committee for Listed Companies (sponsored by Borsa Italiana S.p.A. and comprised by representatives from several of the leading Italian companies and experts in this area), whose principles have been implemented by TODS S.p.A. with a series of Board of Directors resolutions since November 2006, as well as the reference models represented by international best practice. In implementation of the Related Party Transactions Regulation adopted by CONSOB with Resolution no. 17221 of March 12th 2010, as amended by Resolution no. 17389 of June 23rd 2010,TODS S.p.A. modified (by extending them to all Group companies) its existing procedures governing the transparency and substantive fairness of related party transactions, to bring them in line with the principles set out in the cited CONSOB Regulation. It consequently appointed an Independent Directors Committee.This committee is delegated the role and relevant duties assigned by the Regulation to the committee comprised only of independent directors (modifications to the procedure for related party transactions; examination and issuance of binding opinions on the most significant transactions; the Internal Control and Corporate Governance Committee is instead delegated with responsibility for examination and issuance of non-binding opinions on less significant transactions).
Disclosure pursuant to Article 123-bis of Legislative Decree 58/1998 (TUF). At its meeting on March 14th

2011, the Board of Directors of the parent company TODS S.p.A. approved the annual Report on Corporate Governance and Shareholdings, which provides the disclosures mandated pursuant to Article 123-bis (1) of the Consolidated Law on Finance (T.U.F.).That report also analytically illustrates the corporate governance system of TODS S.p.A., and it includes not only the information required under Article 123-bis (2) T.U.F., but also a comprehensive examination of the status of implementation of the corporate governance principles recommended by the Corporate Governance Code in accordance with the comply or explain rule. The Report also satisfies the requirements imposed by CONSOB pursuant to Article 114(5) T.U.F. with notice DEM/11012984 of February 24th 2011, in regard to the remuneration, self-evaluation and succession plans of the Board of Directors. The reader is referred to the Annual Corporate Governance Report, which is available to the public together with this Report on Operations and accounting documentation. It may be consulted in the corporate section of the www.todsgroup.com website.

Significant events occurring after the end of the year


On January 21st 2011, the parent company TODS S.p.A. reached an agreement with the Italian Ministry of Cultural Affairs (Ministero per i Beni e le attivit culturali) and the Rome Special Fine Arts Service for Archaeological

40 Report on operations

Group 2010 Annual Report

Monuments (Soprintendenza speciale per i beni archeologici di Roma), for the purpose of financing restoration work on the Colosseum as sole and exclusive sponsor. The agreement calls for the sponsor to put up a total, all-inclusive amount of 25 million euros, to be disbursed over several years according to the actual progress of restoration work approved by the delegated Commissioner and the Fine Arts Service.

Business outlook
FY 2010 ended on a high note in terms of revenues, profit margins and profitability, with growth steadily accelerating over the course of the year. Sales and financial figures have confirmed that consumers appreciate the high quality products offered by the Groups brands. By being fairly unsusceptible to seasonal changes, they guarantee a status that goes beyond fashion. In regard to business forecasts for the current year, the Spring-Summer 2011 collection sales campaign results and the excellent sales trends suggested by distribution network figures for the beginning of the current season reasonably allow us to expect superb results again in 2011.

Approval of Financial Statements


The consolidated financial statements of the TODS Group were approved by the Board of Directors on March 14th 2011.

Milan, March 14th 2011 The Chairman of the Board of Directors Diego Della Valle

41 Report on operations

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42 2010 Annual Report

FINANCIAL STATEMENTS

Group 2010 Annual Report

Consolidated Profit & Loss


Euro 000s Notes Revenues Sales revenues Other revenues and income Total revenues and income Operating Costs Change in inventories of work in process and finished goods Costs of raw materials, supplies and materials for consumption Costs for services Costs of use of third party assets Costs of labour Other operating charges Total operating costs EBITDA Amortisation, depreciation and write-downs Amortisation of intangible assets Depreciation of tangible assets Other adjustments Total amortisation, depreciation and write-downs Provisions EBIT Financial income and charges Financial income Financial charges Total financial income (charges) Income (losses) from equity investments Profit before taxes Income taxes Consolidated profit Minority interests Net Profit of the group EPS (in euro) EPS diluted (in euro) Year 10 787,539 18,819 806,358 952 (178,829) (238,514) (58,714) (117,751) (20,443) (613,299) 193,059 9 10 11 15-22 (7,599) (24,476) (32,075) (1,040) 159,944 19,371 (15,963) 3,408 163,352 (52,566) 110,786 (1,710) 109,076 3.56 3.56 Year 09 713,135 15,454 728,589 (48,111) (145,998) (201,343) (51,377) (107,340) (15,767) (569,936) 158,653 (7,242) (23,237) (562) (31,041) (1,164) 126,448 14,256 (14,159) 97 126,545 (40,405) 86,140 (472) 85,668 2.80 2.80

22 25

26 26

20-27

6 6

44 Financial Statements

Group 2010 Annual Report

Consolidated Comprehensive Income


Euro 000s Year 10 Profit (loss) for the period (A) Other profits/(losses): Derivative financial instruments (cash flow hedge) (*) Profit/(loss) from foreign subsidiaries F/S translation Total other profits/(losses) (B) Total profit/(loss ) (A)+(B) Shareholders of Parent company Minority interests 110,786 (477) 1,736 1,259 112,045 110,146 1,899 Year 09 86,140 1,016 3,471 4,487 90,627 90,115 512

(*) Income taxes of the period include tax effect.

45 Financial Statements

Group 2010 Annual Report

Consolidated Statement of Financial position


Euro 000s Notes Non current assets Intangible fixed assets Assets with indefinite useful life Key money Others intangible assets Total Intangible fixed assets Tangible fixed assets Buildings and land (1) Plant and machinery Equipment Leasehold improvement Others Total Tangible fixed assets Other assets Real estate investments Equity investments Deferred tax assets Others Total other assets Total non current assets Current assets Inventories Trade receivables Tax receivables Derivative financial instruments Others Cash Total current assets Assets held for sale Total assets 12.31.10 12.31.09

8 9 9

149,024 27,679 12,380 189,083 105,721 3,962 12,573 30,595 21,252 174,103 46 20 32,027 7,789 39,882 403,068 203,136 119,560 3,856 2,084 12,263 171,729 512,628 915,696

149,024 31,823 10,613 191,460 40,720 4,991 11,852 29,794 18,550 105,907 49 20 22,472 7,579 30,120 327,487 196,051 107,999 2,215 594 9,006 204,009 519,874 847,361
to be continued

10 10 10 10 10

12 13 20

14 15 15 18 15

Note 1:This item includes 66.3 million euros for the value of the building acquired in a related party transaction (notes 10, 13 and 24).

46 Financial Statements

Group 2010 Annual Report

continuing

Euro 000s Notes Shareholders equity Share Capital Capital reserves Treasury stock Hedging and translation Retained earnings Accumulated earnings/losses Income for the period Group interest in Shareholders equity Minority interest Share Capital and reserves Income for the period Minority interest in Shareholders equity Total Shareholders equity Non-current liabilities Provisions for risks Deferred tax liabilities Reserve for employee Bank borrowings (2) Total non-current liabilities Current liabilities Trade payables Tax payables Derivative financial instruments Others Bank (2) Total current liabilities Liabilities held for sale Total Shareholders equity and liabilities 16 16 16 16 16 16 16 12.31.10 61,219 214,055 (4,263) 231,451 109,076 611,538 5,193 1,710 6,903 618,441 22 20 23 17 1,369 27,722 11,419 42,805 83,315 130,008 20,064 2,333 29,106 32,429 213,940 915,696 12.31.09 61,219 214,055 (5,333) 299,042 85,668 654,651 4,810 472 5,282 659,933 825 22,369 10,960 6,819 40,973 103,921 4,170 693 17,670 20,001 146,455 847,361

21 21 18 21 17

Note 2:These items include 41.2 million euros (of which 37.6 million euros for medium/long-term debt and 3.6 million euros for short-term debt) for the bonds that the Group took over following a related party transaction (notes 13, 17 and 24).

47 Financial Statements

Group 2010 Annual Report

Consolidated Statement of Cash Flows


Euro 000s Notes Profit (loss) for the period Non-cash adjustments: Amortizat., deprec., revaluat., and write-downs 9-10-11-14-15 Change in employee severance indemnity reserve 23 Change in deferred tax/liabilities 20 Other changes 22-23 Cash flow (a) Change in current assets and liabilities: Inventories 14 Trade receivables 15 Tax receivables 15 Other current assets 15 Trade payables 21 Tax payables 21 Other current liabilities 18-21 Change in operating working capital (b) Cash flow from operations (c) = (a)+(b) Net investments in intangible and tangible assets 9-10-12 Acquisition of Assets (Holpaf B.V.) 10 Other changes in fixed assets 9-10 Reduction (increase) of other non-current assets Cash flow generated (used) in investment activities (d) Dividends paid 5 Changes in long term loans 17 Medium-long term part of bonded loans (Holpaf B.V.) 17 Capital increase 16 Other changes in shareholders equity 16 Changes in minority interests Cash flow generated (used) in financing (e) Cash flow from continuing operations (f)=(c)+(d)+(e) Cash flow from assets held for sale (g) Cash flow generated (used) (h)=(e)+(g) Net Financial position at the beginning of the period Net Financial position at the end of the period Change in current net financial position Year 10 109,076 37,928 1,077 (4,202) 902 144,780 (11,084) (11,915) (1,641) (4,747) 26,087 15,894 11,576 24,170 168,950 (29,238) (66,267) (2,389) (207) (98,101) (153,047) (2,568) 37,578 858 1,621 (115,558) (44,708) (44,708) 184,008 139,300 (44,708) Year 09 85,668 37,369 1,121 (1,957) 633 122,834 40,278 (195) (603) 7,024 (9,193) (1,737) (4,244) 31,330 154,164 (19,335) 586 (1,387) (20,136) (38,262) (2,557) 4,664 4,610 354 (31,191) 102,837 102,837 81,171 184,008 102,837

48 Financial Statements

Group 2010 Annual Report

Consolidated Statement of changes in equity


Year 2010 In euro 000s Share capital Capital reserves Reserve for translation (5,333)

Retained earnings 384,710 109,076

Group Interest 654,651 109,076 1,070 110,146 (45,914) (107,133)

Minority interest 5,282 1,710 189 1,899 (838)

Total 659,933 110,786 1,259 112,045 (46,752) (107,133) 348 618,441

Balances as of 01.01.10 61,219 214,055 Profit/(Loss) recognized in the period Profit & Loss account Directly in equity Total Profit/(Loss) Dividends (results of 2009) Extraordinary Dividends Capital increase Share based payments Other Balances as of 12.31.10 61,219 214,055

1,070 1,070

109,076 (45,914) (107,133)

(4,263)

(212) 340,527

(212) 611,538

560 6,903

Year 2009 In euro 000s Share capital Capital reserves

Reserve for translation (9,780)

Retained earnings 332,497 85,668

Group Interest 597,662 85,668 4,447 90,115 (38,262) 4,664 309 163 654,651

Minority interest 4,929 472 40 512 (159)

Total 602,591 86,140 4,487 90,627 (38,421) 4,664 309 163 659,933

Balances as of 01.01.09 60,962 213,983 Profit/(Loss) recognized in the period Profit & Loss account Directly in equity Total Profit/(Loss) Dividends Capital increase 257 4,407 Share based payments 309 Other (4,644) Balances as of 12.31.09 61,219 214,055

4,447 4,447

85,668 (38,262)

(5,333)

4,807 384,710

5,282

Note: for detailed information about each Reserve, please refer to Note 16.

49 Financial Statements

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50 2010 Annual Report

SUPPLEMENTARY NOTES

Group 2010 Annual Report

1.

General notes

The Notes to the Consolidated Financial Statements were prepared in accordance with IAS/IFRS and supplemented by the additional information required by CONSOB and the orders it issued in implementation of Article 9 of Legislative Decree 38/2005 (Resolutions 15519 and 15520 of July 27th 2006 and memorandum DEM/6064293 of July 28th 2006, pursuant to Article 114(5) of the Consolidated Law on Finance-TUF), Article 78 of the Issuer Regulation, the EC document of November 2003 and, when applicable, the Italian Civil Code. Consistently with the financial statements for the previous year, certain information is provided in the Report by the Board of Directors on Operations. The consolidated financial statements at December 31st 2010 include the balance sheet and profit and loss account of TODS S.p.A. and its Italian and foreign subsidiaries, which are jointly referred to as the TODS Group. The consolidated financial statements are prepared on the basis of draft Financial Statements at December 31st 2010 (January 1st - December 31st) approved by the respective boards of directors or, if there was no board of directors, by the sole directors. Because the closing date of its fiscal year does not coincide with the reference date of the consolidated financial statements,Tods India Retail Pte. Ltd was included on the basis of interim financial statements for twelve months, referring to the date of the consolidated financial statements. The consolidated financial statements were approved by the Board of Directors ofTODS S.p.A. on March 14th 2011.

2.

Financial statements formats: choice of form and classification principles

For presentation of its operating income, assets and liabilities following transition to IFRS, the Group opted in favor of complete continuity of the balance sheet and profit and loss account formats envisaged for disclosures prepared pursuant to Italian GAAP in the presentation of its financial position. These financial statements, complemented as necessary by the Report of the Board of Directors on Operations and the notes to the financial statements, are considered to be those that provide the best organized representation of the Groups financial position and income. More specifically, the balance sheet format shows current items separately from non-current items (both assets and liabilities). On the profit and loss account, the format of representing revenues and costs by nature is followed, indicating the EBITDA and EBIT results as in the past, since they are considered representative indicators of company performance.The indirect method is used for the statement of cash flows.

3.

Highlights of the accounting principles

The consolidated financial statements are prepared in accordance with IAS/IFRS (International Accounting Standards-IAS, and International Financial Reporting Standards-IFRS) issued by the IASB, on the basis of the text published in the Official Journal of the European Union (OJEU). Furthermore, they are prepared on the basis of historic costs, with the sole exception of derivative financial instruments, which are measured at fair value.
Accounting principles, amendments, interpretations applicable since January 1st 2010 and not relevant for the Group

The following accounting standards are applicable since 1st January 2010 and refer to situations or cases that were not applied to TODS Group Financial Statements of the year ending at December 31st 2010: IFRS 3 (2008) - Business combinations.The updated version of IFRS 3 introduced major changes, principally in regard to: the regulations governing incremental acquisitions of subsidiaries; the option of fair value measurement of any third party interests acquired in a partial acquisition; the charging to income of all costs connected with the business combination and recognition at the acquisition date of the liabilities for conditional payments. IAS 27 (2008) - Consolidated and Separate Financial Statements.The changes to IAS 27 principally concern the accounting treatment of transactions or events that modify equity interests in subsidiaries and the allocation of losses by the subsidiary to minority interests.

52 Supplementary notes

Group 2010 Annual Report

The following amendments, interpretations are also applicable since January 1st 2010 and refer to situations or cases that were not applied to TODS Group Financial Statements of the year ending at December 31st 2010: Improvement to IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations. Amendments to IAS 28 - Investments in Associates and to IAS 31 - Interests in Joint Ventures consequential to the amendment to IAS 27. Improvements to IAS/IFRS (2009). Amendment to IFRS 2 - Share based Payment: Group Cash-settled Share-based Payment Transactions. IFRIC 17 - Distributions of Non-cash Assets to Owners. IFRIC 18 - Transfers of Assets from Customers. Amendment to IAS 39 - Financial Instruments: Recognition and Measurement: Eligible Hedged items. 3.1 Subsidiaries. Subsidiaries include all entities in which theTODS Group has direct or indirect control over the financial and operating policies of an entity in order to obtain benefits from its activity, as defined in IAS 27 Consolidated and Separate Financial Statements. The financial statements of subsidiaries are included on the consolidated financial statements from the date when control is acquired until such control terminates. Acquisitions of subsidiaries are recognized according to the cost method.The cost of a business combination is represented by the aggregate sum, at the acquisition date, of the fair values of the sold assets, the liabilities incurred or assumed, and the instruments representing capital issued in exchange for control of the acquired entity. The identifiable assets, liabilities, and potential liabilities of the acquired entity that satisfy the recognition criteria envisaged in IFRS 3 are recognised at their fair value on the date of purchase, with the exception of non-current assets (or groups available to sale) that are classified as held for sale in accordance with IFRS 5. The portion of the acquisition cost that exceeds the fair value of the acquired net assets is recognised as goodwill. If the acquisition cost is less than the fair value of the net assets of the acquired entity, the difference is recognised directly on the profit and loss account. Once control of an entity has been acquired, the transactions where the controlling entity acquires or transfers additional non-controlling interests without altering control over the subsidiary are transactions with shareholders and are thus recognised in equity. Subsidiaries are consolidated according to the line-by-line method from the date on which control is transferred to the Group. They are deconsolidated starting on the date when such control ceases. Intercompany transactions and the profits and losses generated by transactions between consolidated enterprises are eliminated from both the balance sheet and the profit and loss account. When necessary, the balance sheets and profit and loss accounts of the subsidiaries are adjusted in order to bring the applied accounting policies in line with those used by the Group. 3.2 Minority interests. Minority interests in the capital and reserves of the subsidiaries are indicated under shareholders equity as Minority interest.The minority interest in the acquired business is initially determined in an amount equal to their share of the fair value of the assets, liabilities, and potential liabilities recorded on the date of the original acquisition date and subsequently adjusted according to the changes in shareholders equity. Likewise, this account reflects the changes in minority interests and any losses allocable to them. 3.3 Transactions in foreign currency. i. Functional and reporting currency. All accounts recognised on the financial statements of the subsidiaries are measured by using the currency of the principal economic environment in which the entity operates (i.e. its functional currency). The Consolidated Financial Statements are stated in euro (rounded to the nearest thousand), since this is the currency in which most Group transactions are executed.
ii. Transactions in foreign currency. The financial statements of the individual Group entities are prepared in the functional currency of each individual enterprise. When the individual financial statements are prepared, the foreign currency transactions of Group enterprises are translated into the functional currency (currency of the prevalent

53 Supplementary notes

Group 2010 Annual Report

economic area in which each entity operates) by applying the exchange rate in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the date of the financial statements are translated by using the exchange rate in effect at the closing date. Non-monetary assets and liabilities are valued at their historic cost in foreign currency and translated by using the exchange rate in effect at the transaction date. The foreign exchange differences arising upon settlement of these transactions or translation of cash assets and liabilities are recognized on the profit and loss account, with the exception of those deriving from derivative financial instruments qualified as hedging of financial flows. In fact, these differences are recognized as a separate component of shareholders equity or on the profit and loss account.
iii. Presentation of financial statements drafted in foreign currency. In order to present the financial

statements of consolidated entities that are expressed in a functional currency different from the consolidation currency, the balance sheet items are translated using the exchange rates in effect at the end of the period, while items on the profit and loss account are translated using the average exchange rate for the period. The difference between the result for the period resulting from translation at the average exchange rates and the result of translation at the end of period rates, on the one hand, and the impact on assets and liabilities of changes in the exchange rate relationships between the beginning and end of the period, on the other hand, are recognized under shareholders equity in a special Translation reserve. The translation differences recognized under shareholders equity are transferred to the profit and loss account at the time of disposal or liquidation of the controlled entity. The rates applied to translation, compared with those used in the previous year, are indicated in the following table:
Year 2010 Exch. rates as Average of year end exch. rate 0.748 0.755 1.162 1.166 0.800 0.725 9.629 9.721 0.920 0.862 3.598 3.634 0.583 0.554 6.671 6.531 9.345 9.444 11.335 11.158 1.673 1.653 0.720 0.726 Year 2009 Exch. rates as Average of year end exch. rate 0.694 0.720 1.126 1.123 0.674 0.662 8.9518 9.2855 0.751 0.770 3.698 3.571 0.495 0.495 5.9989 5.6471 8.697 9.018 10.168 10.536 1.492 1.487 0.724 0.749

U.S. dollar UK pound sterling Swiss franc Hong Kong dollar Japanese yen Hungarian forint Singapor dollar Korean WON Macao Pataca Chinese Renmimbi Indian Rupia Albanian Lek

Base 1 1 1 100 100 1,000 1 10,000 100 100 100 100

3.4 Derivative financial instruments. The TODS Group uses derivate financial instruments (mainly currency futures contracts) to hedge the risks stemming from foreign exchange exposure deriving from its operating activity, without any speculative or trading purposes, and consistently with the strategic policies of centralized cash management dictated by the Board of Directors. When derivative transactions refer to a risk connected with the variability of forecast transaction cash flow, they are recognized according to the rules for cash flow hedge until the transaction is recorded on the books. Subsequently, the derivatives are treated in accordance with fair value hedge rules, insofar as they can be qualified as instruments for hedging changes in the value of assets or liabilities carried on the balance sheet. The hedge accounting method is used at every financial statement closing date. This method envisages posting derivatives on the balance sheet at their fair value. Posting of the changes in fair value varies according to the type of hedging at the valuation date: for derivatives that hedge forecast transactions (i.e. cash flow hedge), the changes are recognized in shareholders equity, while the portion for the ineffective amount is recognized on the profit and loss account, under financial income and expenses;
54 Supplementary notes

Group 2010 Annual Report

for derivatives that hedge receivables and payables recognized on the balance sheet (i.e. fair value hedge), the fair value differences are recognized entirely on the profit and loss account, adjusting operating margins. Furthermore, the value of the hedged item (receivables/payables) is adjusted for the change in value attributable to the hedged risk, using the item financial income and expenses as a contra-entry.

i.

3.5 Intangible fixed assets Goodwill. All business combinations are recognized by applying the acquisition method. Goodwill represents the portion of the cost paid for the acquisition that exceeds the Groups interest in the fair value of the assets, liabilities, and identifiable potential liabilities of the subsidiary or jointly controlled entity at the acquisition date. If the Groups interest in the fair value of assets, liabilities, and identifiable potential liabilities exceeds the cost of the acquisition (negative goodwill) after redetermination of these values, the excess is immediately recognized on the profit and loss account. For acquisitions prior to January 1st 2004, the date of transition to IAS/IFRS, goodwill retained the values recognized on the basis of the previous Italian GAAP, net of accumulated amortization up to the transition date. Goodwill is recognized on the financial statements at its cost adjusted for impairment losses. It is not subject to amortization, but the adequacy of the values is annually subjected to the impairment test, in accordance with the rules set forth in the section Impairment losses.
Trademarks. These are recognized according to the value of their cost and/or acquisition, net of accumulated amortization at the date of transition to IAS/IFRS.TODS, HOGAN and FAY trademarks are classified as intangible fixed assets with an indefinite useful life and thus are not amortized, insofar as: they play a primary role in the Groups strategy and are an essential driver thereof; the corporate structure, construed as organized property, plant, and equipment, and organization itself in a figurative sense, is closely correlated with and dependent on dissemination and development of the trademarks on the markets; the trademarks are proprietary, properly registered, and constantly protected pursuant to law, with options for renewal of legal protection, upon expiration of the registration periods, that are not burdensome, easily implemented, and without external impediments; the products sold by the Group with these trademarks are not subject to particular technological obsolescence, which is characteristic of the luxury market in which the Group operates; on the contrary, they are consistently perceived by the market as being innovative in the national and/or international context characteristic of each trademark, they are distinguished by market positioning and notoriety that ensures their dominance of the respective market segments, being constantly associated and compared with benchmark brands; in the relative competitive context, it can be affirmed that the investments made for maintenance of the trademarks are proportionately modest with respect to the large forecast cash flows. The adequacy of the values is annually subjected to the impairment test, in accordance with the rules set forth in the section Impairment losses.

ii.

iii. Research and development costs. The research costs for a project are charged fully to the profit and loss account of the period in which they are incurred. The development costs of an activity are instead capitalized if the technical and commercial feasibility of the relative activity and economic return on the investment are certain and definite, and the Group has the intention and resources necessary to complete the development. The capitalized costs include the costs for materials, labor, and an adequate portion of overhead costs. They are recognized at cost, net of accumulated amortization and depreciation (see below) and impairment losses. iv. Other intangible fixed assets. These are identifiable non-monetary intangible assets under the control of the company and capable of causing the Group to realize future economic benefits.

55 Supplementary notes

Group 2010 Annual Report

They are initially recognized at their purchase cost, including expenses that are directly attributable to them during preparation of the asset for its intended purpose or production, if the conditions for capitalization of expenses incurred for internally generated expenses are satisfied. The cost method is used for determining the value reported on subsequent statements, which entails posting the asset at its cost net of accumulated amortization and write-downs for impairment losses.
v. Subsequent capitalization. The costs incurred for these intangible fixed assets after purchase are capitalized only to the extent that they increase the future economic benefits of the specific asset they refer to. All the other costs are charged to the profit and loss account in the fiscal year in which they are incurred. vi. Amortization. Intangible fixed assets (excluding those with an indefinite useful life) are amortized on a straightline basis over the period of their estimated useful life, starting from the time the assets are available for use.

3.6 Tangible assets.


i. Property, plant, and equipment owned by the company. They are first recognized at their purchase cost or at the cost recalculated at the date of transition to IFRS, including any directly attributable ancillary expenses. Following first-time recognition, these assets are reported net of their accumulated depreciation and impairment losses (i.e. in accordance with the cost model). For those assets whose depreciation must be calculated using the component approach, the portions of cost allocable to the individual significant components characterized by a different useful life are determined. In this case, the value of land and buildings is kept separate, with only buildings being depreciated.

ii. Leasing. Lease agreements in which the Group assumes all the risks and benefits deriving from ownership of the asset are classified as finance leasing.The assets (real estate, plant, and machinery) possessed pursuant to these agreements are recorded under property, plant, and equipment at the lesser of their fair value on the date the agreement was made, and the current value of the minimum payments owed for leasing, net of accumulated depreciation and any impairment losses (according to the rules described in the section Impairment losses). A financial payable for the same amount is recognized instead under liabilities, while the component of interest expenses for finance leasing payments is reported on the profit and loss account according to the effective interest method. iii. Subsequent capitalizations. The costs incurred for property, plant, and equipment after purchase are

capitalized only to the extent that they increase the future economic benefits of the asset. All the other costs are charged to the profit and loss account in the fiscal year in which they are incurred.
iv. Real estate investments. Real estate investments are originally recognized at cost, and then recognized at

their cost as adjusted for accumulated depreciation and impairment losses. Depreciation is calculated on a systematic, straight-line basis according to the estimated useful life of the buildings.
v. Depreciation. Property, plant, and equipment were systematically depreciated at a steady rate according to the depreciation schedules defined on the basis of their estimated useful life. Land is not depreciated. The principal depreciation rates applied are as follows:
% depreciation 2.5-3% 12.5% 25% 25% 12% 20% 20%-25%

Industrial buildings Machinery and plant Equipments Forms and punches, clichs, molds and stamp Furniture and furnishings Office machines Cars and transport vehicles

56 Supplementary notes

Group 2010 Annual Report

The costs for leasehold improvements, which mainly include the costs incurred for set up and modernization of the DOS network and all the other real estate that is not owned but used by the Group (and thus instrumental to its activity) are depreciated according to the term of the lease agreement or the useful life of the asset, if this is shorter. 3.7 Impairment losses. In the presence of indicators, events, or changes in circumstances that presume the existence of impairment losses, IAS 36 envisages subjecting intangible fixed assets and property, plant and equipment to the impairment test in order to assure that assets with a value higher than the recoverable value are not recognized on the financial statements.This test is performed at least once annually for non-current assets with an indefinite life in the same way as that used for non-current assets that have not yet been placed in service. Confirmation of the recoverability of the values recognized on the balance sheet is obtained by comparing the book value at the reference date and the fair value net of sale costs (if available) or usage value. The usage value of a tangible or intangible fixed asset is determined according to the estimated future financial flows expected from the asset, as actualized through use of a discount rate net of taxes, which reflects the current market value of the current value of the cash and risks related to Groups activity, as well as the cash flows deriving from disposal of the asset at the end of its useful life. If it is not possible to estimate an independent financial flow for an individual asset, the cash generating unit to which the asset belongs and with which it is possible to associate future cash flows that can be objectively determined and independent from those generated by other operating units is identified. Identification of the cash generating units was carried out consistently with the organizational and operating architecture of the Group. If the impairment test reveals an impairment loss for an asset, its book value is reduced to the recoverable value by posting a charge on the profit and loss account, unless the asset is revalued. In that case, the write-down is recognized in the revaluation reserve. When the reasons for a write-down cease to exist, the book value of the asset (or the cash generating unit), with the exception of goodwill, is increased to the new value resulting from the estimate of its recoverable value, but not beyond the net book value that the asset would have had if the impairment loss had not been charged. The restored value is recognized immediately on the profit and loss account, unless the asset is revalued, in which case the restored value is recognized in the revaluation reserve. 3.8 Current assets. i. Financial assets. These are recognized and cancelled on the balance sheet according to the trading date and are initially valued at cost, including costs directly connected with the purchase. At the subsequent financial statement dates, the financial assets that the Group intends and is able to hold until maturity (securities held until maturity) are recognized at the cost amortized according to the effective interest method, net of impairment losses. Financial assets other than those held until maturity are classified as held for trading or available for sale, and are recognized at their fair value at the end of each period. When the financial assets are held for trading, the profits and losses deriving from changes in the fair value are recognized on the profit and loss account for the period. In the case of financial assets available for sale, the profits and losses deriving from changes in the fair value are recognized directly in shareholders equity until they are sold or have sustained a loss in value. At that time, the aggregate profits or losses that were previously recognized in shareholders equity are recognized on the profit and loss account of the period.
ii. Inventories. These are recognized at the lower of purchase cost and their assumed disposal value.The net disposal value represents the best estimate of the net sales price that can be realized through ordinary business processes, net of any production costs not yet incurred and direct sales costs. The cost of inventories is based on the weighted average cost method. The production cost is determined by including all costs that are directly allocable to the products, regarding for work in progress and/or semi-finished products the specific stage of the process that has been reached. The values that are thus obtained do not differ appreciably from the current production costs referring to the same classes of assets.

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Group 2010 Annual Report

A special depreciation reserve is set aside for the portion of inventories that are no longer considered economically useable, or with a presumed disposal value that is less than the cost recognized on the financial statements.
iii. Trade receivables and other receivables. These are valued and recognized on a prudent basis according

to their presumed disposal value, by means of adjusting the face value with a specific allowance for doubtful accounts determined as follows: receivables under litigation, with certain and precise evidence documenting the impossibility of collecting them, have been analytically identified and then written down; for other bad debts, prudent allowances for write-downs have been set aside, estimated on the basis of information updated at the date of this document.
iv. Cash. This includes cash on hand, bank demand deposits, and financial investments with a maturity of no more

than three months. These assets are highly liquid, easily convertible into cash, and subject to a negligible risk of change in value.
v. Assets held for sale. Non-current assets are classified as held for sale when their carrying value will be

recovered through disposal rather than through continuous use thereof. They are not amortised or depreciated and are recognised at the lesser of their carrying and fair value, net of sales costs. 3.9 Benefits for employees.
i. Defined contribution plans. The payments for eventual defined contribution plans are charged to the profit and loss account in the period that they are owed. ii. Defined benefit plans. For defined benefit plans, the cost of the provided benefits is determined by using the

projected unit credit method, carrying out actuarial valuations at the end of every fiscal year. The accumulated actuarial profits and losses not recognized at the beginning of the fiscal year are recognized only to the extent that they exceed 10% of the greater between the current volume of defined benefit plan liabilities of the Group and the fair value of the assets of the program at that date. The cost of past work services is recognized immediately in the amount in which the benefits have already accrued or is otherwise amortized at a constant rate by the average period in which it is expected that the benefits will accrue. The liabilities for benefits paid out after termination of the employment relationship reported on the financial statements represent the current value of liabilities for defined benefit plans adjusted to take into account the actuarial profits and losses that were not recognized and the costs for past work services that were not recognized, and reduced by the fair value of the program assets. Any net assets resulting from this calculation are limited to the value of the unreported actuarial losses and the cost for the past work services that were not recognized, plus the current value of any reimbursements and reductions in the future contributions to the plan.
iii. Share based payments. The payments based on shares are assessed at their fair value on the assignment date. This value is recognized on the profit and loss account on a straight-line basis throughout the period of accrual of the rights. This allocation is made on the basis of a management estimate of the stock options that will actually accrue in favor of vested employees, considering the conditions for use thereof not based on their market value. The fair value is determined by using the binomial method. The useful life utilized in the model has been adjusted according to an estimate by management in order to take into account the effects of non-transferability of the options, restrictions on exercise thereof, and the assumed behavior of individuals.

3.10 Payables.
Bank overdrafts and financing. Interest-bearing financing and bank overdrafts are recognized on the basis of the amounts collected, net of transaction costs, and subsequently valued at the amortized cost, using the effective interest method. i. ii. Trade payables and other payables. These are their face value.
58 Supplementary notes

Group 2010 Annual Report

3.11 Revenues recognition. Revenues are recognized on the profit and loss account when the significant risks and benefits connected with ownership of the transferred assets are transferred to the buyer. In reference to the principal types realized by the Group, revenues are recognized on the basis of the following principles: i. Sales of goods - retail. The Group operates in the retail channel through its DOS network. Revenues are recognised when the goods are delivered to customers. Sales are usually collected in the form of cash or through credit cards.
ii. Sales of goods - wholesale. The Group distributes products on the wholesale market. These revenues are

recognised when the goods are shipped and considering the estimated effects of returns at the end of the year.
iii. Provision of services. This income is recognised in proportion to the percentage of completion for the

service provided on the reference date.


iv. Royalties. These are recognised on the financial statements according to the principle of period allocation.

3.12 Financial income and expenses. These include all financial items recognized on the profit and loss account for the period, including interest expenses accrued on financial payables calculated by using the effective interest method (mainly current account overdrafts, medium-long term financing), foreign exchange gains and losses, gains and losses on derivative financial instruments (according to the previously defined accounting principles), received dividends, the portion of interest expenses deriving from accounting treatment of assets held under finance leasing (IAS 17) and employee reserves (IAS 19). Interest income and expenses are recognized on the profit and loss account for the period in which they are realized/incurred, with the exception of capitalized expenses. Dividend income contributes to the result for the period in which the Group accrues the right to receive the payment. 3.13 Income taxes. The income taxes for the period include determination both of current taxes and deferred taxes. They are recognized entirely on the profit and loss account and included in the result for the period, unless they are generated by transactions recognized directly to shareholders equity during the current or another period. In this case, the relative deferred tax liabilities are also recognized under shareholders equity. Current taxes on taxable income for the period represent the tax burden determined by using the tax rates in effect at the reference date, and any adjustments to the tax payables calculated during previous periods. Deferred tax liabilities refer to the temporary differences between the book values of assets and liabilities on the balance sheets of consolidated companies and the associated values relevant for determination of taxable income. The tax liability of all temporary taxable differences, with the exception of liabilities deriving from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, does not influence either the income (loss) reported on the financial statements or taxable income (tax loss). Deferred tax assets that derive from temporary deductible differences are recognized on the financial statements only to the extent that it is likely taxable income will be realized for which the temporary deductible difference can be used. No allocation is envisaged if the deferred tax asset derives from business combinations, or from the initial posting of an asset or liability in a transaction other than a business combination that, at the time of the transaction, does not influence either the income (loss) reported on the financial statements or taxable income (tax loss). The tax benefits resulting from tax losses are recognised on the financial statements in the period when those benefits are accrued, if it is likely that the Groups entity which recognised the tax loss will have sufficient taxable income before the right to use that benefit expires.The taxes in question (deferred tax assets and liabilities) are determined on the basis of a forecast of the assumed percentage weight of the taxes on the income of the fiscal years in which the taxes will occur, taking into account the specific nature of taxability and deductibility. The effect of change in tax rates is recognized on the profit and loss account of the fiscal year in which this change takes place.
59 Supplementary notes

Group 2010 Annual Report

3.14 Provisions. These are certain or probable liabilities that have not been determined at the date they occurred and in the amount of the economic resources to be used for fulfilling the obligation, but which can nonetheless be reliably estimated. They are recognized on the balance sheet in the event of an existing obligation resulting from a past event, and it is likely that the Group will be asked to satisfy the obligation. If the effect is significant, and the date of the presumed discharge of the obligation can be estimated with sufficient reliability, the provisions are recognized on the balance sheet by actualizing future financial flows. The provisions that can be reasonably expected to be discharged twelve months after the reference date are classified on the financial statements under non-current liabilities. Instead, the provisions for which the use of resources capable of generating economic benefits is expected to take place in less than twelve months after the reference date are recognized as current liabilities. 3.15 Share capital. Share capital. The total value of shares issued by the parent company is recognized entirely under shareholders equity, as they are the instruments representing its capital.
Treasury stock. The consideration paid for buy-back of share capital (treasury stock), including the expenses directly related to the transaction, is subtracted from shareholders equity. In particular, the par value of the shares reduces the share capital, while the excess value is recognized as an adjustment to additional paid-in capital.

i.

ii.

iii. Dividends. The allocation of dividends to persons possessing instruments representing share capital after

the reference date of the financial statement is not recognized under financial liabilities on the same reference date. 3.16 Statement of cash flow. The statement of cash flows is drafted using the indirect method. The net financial flows of operating activity are determined by adjusting the result for the period of the effects deriving from change to net operating working capital, non-monetary items, and all the other effects connected with investment and financing activities. Cash at the beginning and end of the period represents the net-short-term financial position of the Group.

4.

Segment reporting

The search for higher levels of operating efficiency has identified as key element for maximising profitability via the condivision of a significant portion of service activities (first and foremost production), both at the central and peripheral levels; on the contrary, aggressive segmentation of the business appears uneconomical, under current circumstances. At the operating level, the Groups organisation is based on an articulated matrix structure according to the different functions/activities in the value chain, alternatively according to brand, product, channel and geographical area.The overall organisation envisages a unified strategic vision of the business. This type of organisation is reflected in the ways in which management monitors and strategically focuses the Groups activities. The Report of the Board of Directors includes operating information, including a breakdown of consolidated revenues by BRAND, CHANNEL, PRODUCT and REGION, and INCOME STATEMENT for the business. Complete information is provided as follows.

60 Supplementary notes

Group 2010 Annual Report

2010 Capital expenditures


By investment allocation (Euro mn) FY 2010 FY 2009 By region (Euro mn)

16.1

15.3 12.0

FY 2010 FY 2009

10.7 6.9 5.6 6.8 5.0 4.2 3.3 1.5 1.9

8.8

4.0 0.1

Key money

DOS

Prod.

Altro

Italy

Europe

North. Am.

RoW

Not local.

The amounts are shown net of the property investment (the value of the asset was 66.3 million euros at December 31st 2010) made by the Group in Japan (note 10).

Distribution channel
TODS Group - Distribution channel Italy Europe USA RoW DOS FRANCHISED STORES DOS FRANCHISED STORES DOS FRANCHISED STORES DOS FRANCHISED STORES 12.31.10 40 6 32 11 14 73 54 159 71 12.31.09 36 8 31 13 14 68 57 149 78

Total DOS Total FRANCHISED STORES

106

99

12

12

12

TOD'S

59

62

HOGAN 10

DOS FY 2010

Franchised stores FY 2009

DOS FY 2010

Franchised stores FY 2009

61 Supplementary notes

Group 2010 Annual Report

3 2 2

7 6

FAY

ROGER VIVIER 1 1

DOS FY 2010

Franchised stores FY 2009

DOS FY 2010

Franchised stores FY 2009

5.

Dividends

In FY 2010, the Shareholders Meeting of the parent company TODS S.p.A. approved payment of a total 153 million euros, broken down as follows: i) ordinary dividends to be charged against the net profit for FY 2009 (Shareholders Meeting of April 22nd 2010), totalling 45,914,101.50 euros, at the rate of 1.50 euros per share; ii) extraordinary dividends, to be charged to the extraordinary reserve (Shareholders Meeting of September 21st 2010), for 107,132,903.50 euros, at the rate of 3.50 euros per share; in favour of the owners of the 30,609,401 outstanding ordinary shares comprising the share capital, entitled to participate in profits on the coupon detachment date (May 24th 2010 and October 11th 2010, respectively). Regarding the net profit for FY 2010 the parent company has proposed to distribute a dividend for two euros per share.The dividend is subject to approval by the annual Shareholders Meeting, and was not included among the liabilities reported on this balance sheet.The dividend proposed for FY 2010, totalling 61,218,802.00 euros on the basis of the currently outstanding shares (Note 16), is payable to all shareholders entered on the register of shareholders at the coupon detachment date.

6.

Earnings per share

The calculation of base and diluted earnings per share is based on the following: i. Reference Profit
Year 10 109,076 109,076 Year 09 85,668 85,668

Euro 000s For continuing and discontinued operations Profit used to determine basic earning per share Dilution effects Profit used to determine diluted earning per share Euro 000s For continuing operations Profit attributable to equity holders of the Company Income (Loss) from discontinued operations Profit used to determine basic earning per share Dilution effects Profit used to determine diluted earning per share

Year 10 109,076 109,076 109,076

Year 09 85,668 85,668 85,668

62 Supplementary notes

Group 2010 Annual Report

In both fiscal 2010 and 2009, there were no dilutions of net consolidated earnings, partly as a result of activities that were discontinued during the periods in question. ii. Reference number of shares
Year 10 30,609,401 30,609,401 Year 09 30,609,401 30,609,401

Weighted average number of shares to determine basic earning per share Share options Weighted average number of shares to determine diluted earning per share

iii. Base earnings per share. Calculation of the base earning per share for fiscal year 2010 is based on the net consolidated income allocable to holders of ordinary shares of the parent company TODS S.p.A., totalling 109,076 thousand euros (85,668 thousand euros in 2009), and on the average number of ordinary shares outstanding during the same period, totalling 30,609,401 (unchanged respect to year 2009). iv. Diluted earnings per share. Calculation of the diluted earnings per share for the period January-December 2010 coincides with calculation of earnings per share, insofar as conclusion of the Stock Options Plan in year 2009.

7.

Assets held for sale

The Group did not have any available for sale assets at December 31st 2010.

8.

Assets with indefinite useful life

Assets with indefinite useful life amount to 149,024 thousand euros, and are constituted as follows:
Euro 000s Trademarks Goodwill Consolidation differences Total 12.31.10 137,235 9,689 2,100 149,024 12.31.09 137,235 9,689 2,100 149,024

Trademarks. This item includes the values of the three proprietary brands of the Group (TODS, HOGAN and FAY).
Euro 000s Tods Hogan Fay Total 12.31.10 3,741 80,309 53,185 137,235 12.31.09 3,741 80,309 53,185 137,235

Goodwill and consolidation differences. These accounts reflect the differences between the amount paid to acquire the equity investments in subsidiaries, associated companies, and joint ventures, which is eliminated, and the corresponding interest in the shareholders equity of the entities at the acquisition date.

63 Supplementary notes

Group 2010 Annual Report

9.

Key money and Other intangible assets with definite useful life

The following table details the movements of these assets in the current and previous fiscal year:
Euro 000s Key money Balance as of 01.01.09 Translation differences Increases Decreases Impairment losses (Note 11) Other changes Amortization for the period Balance as of 12.31.09 Translation differences Increases Decreases Impairment losses (Note 11) Other changes Amortization for the period Balance as of 12.31.10 36,121 (19) 419 (478) Other Intangible assets Other trademarks Software 669 862 9,025 1,762 Other assets 1,408 24 (115)

Total 11,102 2,648 (115) (3,022) 10,613 5 5,233 (36) (3,435) 12,380

(4,220) 31,823 15 5

(198) 1,333 858

(2,504) 8,283 5 2,925 (2)

(320) 997 1,450 (34)

(4,164) 27,679

(242) 1,949

(2,911) 8,300

(282) 2,131

Goodwill represents the amounts paid for this purpose by the Group to take over certain leases of commercial spaces where some DOS operate (key money). The changes in Brands are comprised by long-term charges with a defined useful life incurred to protect the brands owned by the Group, classified as assets with an indefinite useful life.

10. Tangible fixed assets


At December 31st 2010 the net residual value of Groups tangible fixed assets was a 174.1 millions euros (FY 2009: 105.9 millions euros).
Euro 000s Land and buildings 41,952 (1) 27 Plant and machin. 5,845 1,155 (229) Leasehold improve 33,649 (470) 5,744 17 (245) (8,901) 29,794 1,864 8,252

Equip. 12,750 (6) 5,448 (858) (2) (5,480) 11,852 41 6,903 (420)

Others

Total

Balance as of 01.01.09 Translation differences Increases Decreases Impairment losses (Note 11) Other changes Depreciation for the period Balance as of 12.31.09 Translation differences Increases Decreases Impairment losses (Note 11) Other changes Depreciation for the period Balance as of 12.31.10

(1,258) 40,720 1 66,287

(1,780) 4,991 (1) 859 (121)

(1,287) 105,721

(1,766) 3,962

(5,803) 12,573

(9,315) 30,595

19,216 113,412 (90) (567) 5,869 18,243 (312) (1,382) (315) (562) (5,818) (23,237) 18,550 105,907 636 2,541 8,526 90,827 (155) (696) (6,305) (24,476) 21,252 174,103

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The item land and buildings consists primarily of the values of the buildings and land on which the parent company operating headquarters stand, the Omotesando building in Tokyo (to which the 66,267 thousand euros increase during the year is attributable), which is used by the parent company TODS Japan K.K. as its administrative head office and as the location for the most important TODS flagship store in Japan.The Group purchased the building in November 2010 through acquisition of the entire share capital of Holpaf B.V. (note 13).

11. Impairment losses


The recoverability of the residual value of assets with an indefinite and definite useful life, as well as property, plant and equipment, was determined to ensure that assets with a value higher than the recoverable value were not recognised on the financial statements, which refers to their value in use. The criterion used to determine value in use is based on the provisions of IAS 36, and is based on the current value of expected future cash flows (Discounted cash-flow analysis - DCF), which is presumed to derive from the continual use and disposal of an asset at the end of its useful life, discounted at a net interest rate that reflects current market rates for borrowing money and the specific risk associated with the individual cash generating unit. In application of the method prescribed by IAS 36, the TODS Group has identified the cash generating units (CGU) that represent the smallest, identifiable group of assets that can generate cash flows and which are fully independent on the consolidated financial statements. The organisational structure and type of business was considered in determining the CGU. The TODS Group subsequently identified the directly operated stores (DOS) as CGU.The impairment test was then carried out at the following levels: First level.The CGU identified at this level are represented by the individual DOS.The assets that may be exactly allocated to each DOS were tested. Second level.A single CGU at the level of the TODS Group was identified at this level, and the Groups assets as a whole were tested.This approach is based on the unified view of the business (also see IFRS 8 - Operating Segments, paragraph 4), organised as a matrix structure, which may be alternatively broken down by brand, product, channel and region, according to the different functions/activities on the value chain, where the transverse nature of many central and peripheral service activities (especially the supply chain, sales and distribution, finance and administration, legal, human resources and information technology), ensure maximisation of the levels of profitability. The recoverability of the amounts recognised on the financial statements was verified by comparing the net book value attributed to the CGU with the recoverable value (value in use). The value in use is represented by the discounted value of future cash flows that are expected from continuous use of the assets associated with the cash generating unit and by the terminal value attributable to them (the latter is applied only to the second level CGU). The discounted cash flow analysis was carried out by using the FY 2011 budget as its basis. That budget was prepared and approved by the Board of Directors of the parent company TODS S.p.A. on the assumption that the Group would be a going concern for the foreseeable future.The Board of Directors first assessed the methods and assumptions used in developing the model. In particular: i. The medium term projection of budget figures for FY 2011 was carried out on a time horizon limited to the foreseeable future, using an average rate of sales growth of 5%, a constant EBITDA margin and a constant tax rate of 33%.These prudent assumptions represent trends that are lower than the historic (including recent) trend of the Group. Consequently, the budget projections comply with the prescriptions of IAS 36. ii. The terminal value was determined as disposal value. In regard to strategic assets (brands), it was prepared according to the royalties method, using the same prudent growth rate used to extrapolate budget data (5%) for future projections, as well as the rates of return on brand positioned at the lower end of the market for licenses. iii. To determine the value in use, a WACC, net of taxes, of 8.84% was used (the WACC rate used at December 31st 2009 was 8.6%), determined by referring to the discounting rates used by a series of international analysts in financial reports on the Group. The analyses performed on the recoverability of Groups assets (including 137.2 million euros represented by proprietary brands and 11.8 million euros in goodwill from business combinations) showed that there was a

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positive difference between the value of forecast cash flows and the aggregate amount of assets (cover), exceeding 1 billion euros. Moreover, the analysis carried out at the level of individual cash generating units (DOS) did nt revealed indicators of impairment for each of the cash generating units (DOS). The sensitivity analysis performed on the impairment test in accordance with IAS 36, in order to reveal the effects produced on the value in use by a reasonable change in the basic assumptions (WACC, growth rates, EBITDA margin) and determination of the terminal value (perpetual annuity), did not reveal an appreciable impact on determination of the value in use and cover. Given the significant value assumed by the cover, it would be necessary to make unrealistic base assumptions to render the value in use equal to the book value of Group assets (the breakeven hypothesis).

12. Investment property


This account refers to a property owned by the Group as a real estate investment and leased to third parties.
Euro 000s Historic cost Accumulated depreciation Balance as of 01.01.10 Increases Decreases Depreciation for the period Balance as of 12.31.10 115 (66) 49 (3) 46

No changes in the fair value of this investment, about 250 thousand euros, have been recognised since this previous financial year.This estimate is based on the market prices for similar properties in terms of location and condition.

13. Equity investments


On November 26th 2010 (the closing date) the Group acquired 100% of the shares of Holpaf B.V., a Dutch company with head office in Amsterdam. This deal is classifiable as a related party transaction, insofar as Holpaf B.V. was indirectly controlled, through Goral Investment Holding B.V., by Diego DellaValle & C. SAPA, a company belonging to Diego and Andrea Della Valle, and controlled by Diego Della Valle (also see note 24). Holpaf B.V. owns a property (land and building) in the Shibuya district of Tokyo, on one of the most prestigious and heavily trafficked streets of the quarter popularly known as Omotesando.TODS Japan K.K. has used this building on an exclusive basis since 2005, pursuant to a lease agreement made on February 22nd 2005 with Holpaf B.V.The building houses the administrative offices of TODS Japan and also serves as the location for the most important TODS flagship store in Japan. The price for sale of the company shares was agreed in the total amount of JPY 230 million, about Euros 2.1 million at the exchange rate in effect on the closing date (JPY 110.92/EUR 1).This figure was based on the value of the pro-forma net equity of Holpaf B.V. at September 30th 2010, while also considering the Japanese tax liability for the higher market value of the property as opposed to its cost recognised for tax purposes, and adjustment of the price according to the differences between the net financial position of the acquired company at the closing date and the pro-forma net financial position at September 30th 2010. The transaction does not represent a business combination for accounting purposes.Therefore, as indicated in IFRS 3, the individual assets (principally comprised by the real property) and the individual liabilities that were acquired (substantially represented by bonds) have initially been recognised at their fair value, in accordance with the reference accounting standards (IAS 16, IAS 32 and IAS 39).
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The following table illustrates the principal effects of the financial position of Holpaf B.V. on the Groups consolidated assets and liabilities at December 31st 2010:
Euro mn Operating working capital Tangible fixed assets (Land and Building) Other non-current assets (liabilities) Capital invested Bonded loan - long term Net used cash flow Cash Bonded loan - short term Cash Impact on Equity (0.6) 66.3 (2.6) 63.0 (37.6) 25.4 2.2 (3.6) (1.4) 24.0

There was no material impact on income for the year, insofar as the acquisition was completed only on November 26th 2010. At the same time it acquired the share capital, the Group fully repaid a shareholder loan for 20.6 million euros, which had been granted by the previous owner before the acquisition, in accordance with the sale and purchase agreement signed by the parties. For a complete analysis of the transaction, please see the Disclosure drafted in compliance with the rules set out in the new Annex 3 of the Related Parties Regulation no. 17221/2010, which is also available on the corporate website www.todsgroup.com. The scope of consolidation at December 31st 2010 is fully illustrated as follows:
Parent Company TODS S.p.A. S. Elpidio a Mare - Italy Share Capital (S.C.) - euro 61,218,802 Direct subsidiaries TODS Deutsch. Gmbh Dusseldorf - Germany S.C. - euro 153,387.56 % held: 100% Del.Com S.r.l. S. Elpidio a Mare - Italy S.C. - Euro 31,200 % held: 100% Indirect subsidiaries Cal.Del. USA Inc. Beverly Hills, Ca - U.S.A. S.C. - Usd 10,000 % held: 100% Hono.Del. Inc. Honolulu, Hi - U.S.A. S.C. - Usd 10,000 % held: 100% Colo.Del. USA Inc. Denver, Co - U.S.A. S.C. - Usd 10,000 % held: 100% Il.Del. USA Inc. Springfield, Il - U.S.A. S.C.- Usd 10,000 % held: 100% Deva Inc. Wilmington, DE - U.S.A. S.C. - Usd 500,000 % held: 100% Neva.Del. Inc. Carson City, Nv - U.S.A. S.C. - Usd 10,000 % held: 100% Flor.Del. USA Inc. Tallahassee, Fl - U.S.A. S.C. - Usd 10,000 % held: 100% Or.Del. USA Inc. Sacramento, Ca - U.S.A. S.C. - Usd 10,000 % held: 100%
to be continued

TODS France Sas Paris - France S.C. - euro 780,000 % held: 100% Holpaf B.V. Amsterdam - Netherlands S.C. - Euro 5,000,000 % held: 100%

An.Del. USA Inc. New York - U.S.A S.C. - Usd 3,700,000 % held: 100%

TODS International BV Amsterdam - Netherlands S.C. - euro 2,600,200 % held: 100%

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Group 2010 Annual Report

continuing

Indirect subsidiaries TODS Tex Del USA Inc. Dallas,Tx - U.S.A S.C. - Usd 10,000 % held: 100% TODS Espana SL Madrid - Spain S.C. - euro 468,539.77 % held: 100% TODS Singapore Pte Ltd Singapore S.C. - Sgd 300,000 % held: 100% TODS Luxembourg SA Luxembourg S.C. - euro 31,000.00 % held: 50% TODS India Retail Pte Ltd Mumbai - India S.C. - INR 113,900,000 % held: 51% Alban.Del Sh.p.k. Tirana - Albania S.C. - euro 720,000 % held: 100% Gen.Del SA Geneva - Switzerland S.C. - Chf 200,000 % held: 100% TODS Hong Kong Ltd Hong Kong S.C. - Usd 16,550,000 % held: 100% Un.Del Kft Tata - Ungary S.C. - Huf 42,900,000 % held: 100% TODS Korea Inc. Seoul - Korea S.C. - Won 1,600,000,000 % held: 100% Re.Se.Del. S.r.l. S. Elpidio a Mare - Italy S.C.- euro 25,000.00 % held: 100% Sandel SA San Marino S.C. - euro 258,000 % held: 100% TODS Japan KK Tokio - Japan S.C. - Jpy 100,000,000 % held: 100% TODS UK Ltd London - Great Britain S.C. - Gbp 350,000.00 % held: 100% TODS Macao ltd Macao S.C. - MOP 20,000,000 % held: 100% Del.Pav. S.r.l. S. Elpidio a Mare - Italy S.C. - euro 50,000 % held: 50% TODS Belgique S.p.r.l. Bruxelles - Belgium S.C. - euro 300,000 % held: 100% TODS Saint Barth Sas Saint Barthlemy S.C. - euro 500,000 % held: 100% Webcover Ltd London - Great Britain S.C. - Gbp 1,000.00 % held: 50% TODS (Shanghai) Tr. Co Ltd Shanghai - China S.C. - USD 6,000,000 % held: 100% Filangieri 29 S.r.l. Napoli - Italy S.C.- euro 100,000 % held: 50%

It is assumed that the Group controls those companies in which it does not own more than 50% of the capital, and thus disposes of the same percentage of voting power at the Shareholders Meeting, where the Group has the power to exercise direct or indirect control of those companies financial and operating policies in view of realizing benefits from their activities.

14. Inventories
They totaled 203,136 thousand euros at December 31st 2010, and include:
Euro 000s Raw materials Semi-finished products Finished products Advances Write-down Total 12.31.10 51,485 5,702 158,412 1 (12,464) 203,136 12.31.09 47,819 6,239 150,601 21 (8,629) 196,051 Change 3,666 (537) 7,811 (20) (3,835) 7,085

The allowance for inventory write-downs reasonably reflects the technical and stylistic obsolescence of the Groups inventories at December 31st 2010.The impairment charged to income for FY 2010 totalled 5.7 million euros.

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15. Other current assets


15.1 Trade receivables. They represent Groups exposure in consequence of its wholesale distribution activity.
Euro 000s Trade receivables Impairment losses Net Trade receivables 12.31.10 122,716 (3,156) 119,560 12.31.09 111,348 (3,349) 107,999 Change 11,368 193 11,561

The allowances for doubtful accounts represent the reasonable estimate of impairment due to the specific and generic risk of not being able to collect the trade receivables recognised on the financial statements.The amount accrued for FY 2010 totalled 366 thousand euros.The following schedule shows the changes during the year in the allowances for doubtful accounts:
Euro 000s Balance as of 01.01.10 Increases Used during year Balance as of 12.31.10 3,349 366 (559) 3,156

15.2 Tax receivables. These total 3,856 thousand euros (FY 2009: 2,215 thousand euros) and are mainly comprised of receivables for Value Added Tax claimed by the Group from the tax authorities of the countries where it operates. 15.3 Other current assets.
Euro 000s Deferred costs Others Total other current assets 12.31.10 7,633 4,630 12,263 12.31.09 6,005 3,001 9,006 Change 1,628 1,629 3,257

The other current assets are shown net of impairment for 310 thousand euros.

16. Shareholders equity


16.1 Share capital. At December 31st 2010, the company share capital totalled 61,218,802 euros, and was divided into 30,609,401 shares having a par value of 2 euros each, fully subscribed and paid in. All shares have equal voting rights at the general meeting and participation in profits. At December 31st 2010 the Group did not own treasury shares in the parent TODS S.p.A., and it did not execute any transactions on those shares during the year. 16.2 Capital reserves. Capital reserves are exclusively related to share premium reserve, amounting to 214,055 thousand of euros as of 31 December 2010. Such reserve has not changed in respect of last year.

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Euro 000s

Additional Paid-in capital reserve 208,843 5.212 214,055

Stock options reserve 5,140 309 (805) (4,644) -

Total 213,983 309 4,407 (4,644) 214,055 214,055

Balance as of 01.01.09 Share based payments Options exercised/expired Others Balance as of 01.01.10 Share based payments Options exercised/expired Others Balance as of 12.31.10

214,055

16.3 Hedging and translation reserves. The following schedule illustrates the changes in fiscal 2010:
Euro 000s Balance as of 01.01.09 Increase in fair value of hedging derivatives Exchange differences Transfer to P&L Account of hedging derivatives Others Balance as of 01.01.10 Increase in fair value of hedging derivatives Exchange differences Transfer to P&L Account of hedging derivatives Others Balance as of 12.31.10 Translation reserve (8,698) 3,431 884 (5.267) 1,547 2,190 (3,720) (543) (66) (2,667) Hedging reserve (1,082) 132 Total (9,780) 132 3,431 884 (5.333) (2,667) 1,547 2,190 (4,263)

The hedging reserve includes the measured value of derivatives, for currency futures contracts (see Note 18), that hedge expected transactions (i.e. cash flow hedges). 16.4 Earnings reserves. These reserves include the equity reserves of the parent company TODS S.p.A., the difference between the shareholders equity of the subsidiaries, and the carrying values of the equity investments, as well as the effects of consolidation adjustments on shareholders equity.
Euro 000s Balance as of 01.01.09 Allocation of 2008 result Dividends Profit for the period Other changes Balance as of 01.01.10 Allocation of 2009 result Extraordinary Dividends Profit for the period Other changes Balance as 12.31.10 Retained earnings 249,743 44,492 Profit(loss) of period 82,754 (44,492) (38,262) 85,688 85,668 (39,754) (45,914) 109,076 109,076 Total 332,497 (38,262) 85,688 4,807 384,710 (153,047) 109,076 (212) 340,527

4,807 299,042 39,754 (107,133) (212) 231,451

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Group 2010 Annual Report

The profits reserve was drawn down by 107.1 million euros, being used to pay out the extraordinary dividend (at a rate of 3.50 euros per share) approved by Shareholders Meeting of the parent company at September 21st 2010 (Note 5).

17. Bank overdrafts and financing


The Groups bank borrowings at December 31st 2010 are broken down as follows:
Euro 000s Current account overdraft Financing - short term Total financing short-term Financing - long term Total Total Financing (short/long term) 12.31.10 27,283 5,146 32,429 42,805 75,234 47,951 12.31.09 18,480 1,521 20,001 6,819 26,820 8,340 Change 8,803 3,625 12,428 35,986 48,414 39,611

Financing. At December 31st 2010 they were represented by three position to medium-long term:
(Currency 000s) Type Mortgage loan Notes A-1 Notes A-2 Total Counterpart Currency Unicredit Bank Euro Intesa San Paolo Jpy Socit Europenne de Banque Jpy Maturity 2014 2017 2021 Res. Debt in currency 6,819 785,892 3,683,074 Res. Debt in Euro 6,819 7,233 33,899 47,951

The mortgage loan is a long-term floating rate loan contracted by the parent TODS S.p.A.The financial liabilities indicated as Notes A-1 and A-2 represent two amortised, non-convertible fixed-rate bonds denominated in yen, issued in 2006 by the subsidiary Holpaf B.V. to refinance the debt assumed for purchase of the land and construction of the building in Omotesando, which the Group took over following acquisition of the entire share capital of Holpaf B.V. (also see notes 13 and 24).The two bonds were fully subscribed by banks, and specifically by Intesa San Paolo (Notes A-1) and Socit Europenne de Banque (Notes A-2). The debt referred to at Notes A-1 and A-2 includes the residual debt for principal (Note A-1: 7,078 thousand euros, and Note A-2: 31,925 thousand euros) and the interest accrued for the year, 80 thousand euros and 914 thousand euros, respectively, and the effect of fair value measurement upon initial recognition, for 75 thousand euros and 1,060 thousand euros, respectively. For an analysis of the guarantees securing the two bonds, please see the section Provisions, contingent liabilities and assets (note 22). The following table illustrates the repayment schedule of principal (face value) for the aggregate amount of loans.
Euro 000s 2011 2012 2013 2014 2015 over 5 years Total Loan 1,592 1,665 1,741 1,821 Notes A-1 755 838 911 1,003 2,086 2,485 7,078 Notes A-2 1,805 2,415 2,497 2,575 2,667 19,965 31,925

6,818

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Group 2010 Annual Report

The breakdown by currency of the balance of bank overdrafts and financing at the reporting date is as follows:
12.31.10 Euro 000s Bank overdraft Financing Total Euro 6,818 6,818 Inr 2,072 2,072 Jpy 25,211 41,132 66,343 Total 27,283 47,951 75,234

12.31.09 Euro 000s Bank overdraft Financing Total

Euro 8,340 8,340

Inr 701 701

Jpy 17,779 17,779

Total 18,480 8,340 26,820

For interest rate sensitivity analysis (IFRS 7), see Note 19.

18. Derivative financial instruments


The TODS Group, characterised by its major presence on international markets, is exposed to exchange rate risk principally for revenues denominated in currencies other than the euro (see Note 19). In order to realise the objectives envisaged in the risk management policy adopted by the Group, derivative contracts were made for every single foreign currency to hedge a specific percentage of revenue (and cost) volumes expected in the individual currencies other than the functional currency. At each reporting date, the hedge accounting method is applied. This requires recognition of the derivatives in equity at their fair value and recognition of the changes in fair value, which varies according to the type of hedge at the valuation date. At the closing date of the financial statements, the notional amount of the currency futures agreements (sale and purchase) entered into by the Group are summarized as follows:
(Currency 000s) Notional in currency 24,000 407,000 1,552,000 6,150 13,300 10,300 12,050 1,780 Sale Notional in euro 17,961 39,189 14,284 7,145 10,637 6,011 12,050 1,336 108,613 Notional in currency 141,000 Purchase Notional in euro 13,576

US dollar Hong Kong dollar Japanese Yen British pound Swiss franc Singapor dollar Euro Canadian dollar Total

6,388 6,388 19,964

At the same date, the net fair value of foreign currency hedges was negative for 249 thousand euros, including assets for 2,084 thousand euros (FY 2009: 594 thousand euros) and liabilities for 2,333 thousand euros (FY 2009: 693 thousand euros).The net fair value of foreign currency hedges that were earmarked for cash flow hedges was 469 thousand euros (liability) at December 31st 2010.Against the contracts for these last hedges, which were closed between January and December 2010, 2,190 thousand euros in hedge derivatives were transferred to the profit and loss account, including 1,935 thousand euros recognised as a reduction in revenues and 255 thousand as an increase in costs.

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19. Hedging of financial risks (IFRS 7)


The TODS Group has implemented a system for monitoring its financial risks in accordance with the guidelines set out in the Corporate Governance Code of Listed Companies. As part of this policy, the Group constantly monitors the financial risks connected with its operations, in order to assess their potential negative impact and undertake appropriate action to mitigate them. The following analysis of risks faced by the TODS Group highlights the Groups level of exposure. It also includes a sensitivity analysis designed to quantify the potential impact of hypothetical fluctuations in benchmark parameters on final results.
i. Credit risk

Credit risk represents the exposure of the TODS Group to potential losses stemming from failure to discharge its obligations towards trading counterparties. Groups revenues are fairly broken down between revenues generated by the directly operated store network (51%) and non-captive sales to third parties (49%).The Group subjects these revenues to a hedging policy designed to streamline credit management and reduction in the associated risk. In particular, the Groups policy does not envisage granting credit to customers, with periodic analyses of the creditworthiness of all customers, both long-standing and potential ones, in order to monitor and prevent possible solvency crises. The following table illustrates the ageing of trade receivables outstanding at December 31st 2010:
In euro 000s From third parties Current 83,254 0>60 29,125 Overdue 60>120 6,827 Over 3,510 Total 122,716

The prudent estimate of losses on the entire credit mass existing at December 31st 2010 was 3.2 million euros.
ii. Liquidity risk

Liquidity risk is the risk that the Group will not dispose of the funds necessary to meet its short-term commitments and financial requirements.The principal factors that determine the Groups degree of liquidity are the resources generated or used by operating and investment activities and, on the other hand, the due dates or renewal dates of its payables or the liquidity of its financial investments and market conditions. In the specific case, the Groups profitability, and its current and historic capacity to generate cash and its relatively insignificant exposure to the banking system are factors that lead to the conclusion that it faces no liquidity risk over the foreseeable future. Also at December 31st 2010 financial resources were far higher than the Groups debt exposure: net financial position was 96.5 million euros, comprised by 171.7 million euros in assets and 75.2 million euros in liabilities, including 42.8 million euros in medium-long term liabilities. Moreover, the outstanding debt exposure at December 31st 2010 was heavily impacted by the payment of an extraordinary dividend of 107.1 million euros (note 5) and the previously mentioned acquisition of Holpaf B.V. (notes 13 and 24). The Groups policy for financial assets is to keep all of its available liquidity invested in demand bank deposits without recourse to financial instruments, even on the money market, and dividing the deposits amongst a reasonable number of bank counterparties, prudently selecting them according to the return on deposits and their solidity.
iii. Market risk

IFRS 7 includes in this category all risks that are directly or indirectly connected with the fluctuation in prices on physical and financial markets to which the company is exposed: exchange rate risk; interest rate risk; commodity risk, connected with the volatility of prices for the raw materials used in the production process.

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The TODS Group is exposed to exchange rate and interest rate risk, since there is no physical market subject to actual fluctuations in the purchase prices for raw materials used in the production process. The following paragraphs analyse the individual risks, using sensitivity analysis as necessary to highlight the potential risk on final results stemming from hypothetical fluctuations in benchmark parameters.As envisaged by IFRS 7, these analyses are based on simplified scenarios applied to the final results for the periods referred to. By their very nature, they cannot be considered indicators of the actual effects of future changes in benchmark parameters of a different asset and liability structure and financial position different market conditions, nor can they reflect the interrelations and complexity of the reference markets. Exchange rate risk. Due to its commercial operations, the Group is exposed to fluctuations in the exchange rates for currencies in which some of its commercial transactions are denominated (particularly USD, GBP, CHF and those of certain countries in the Far East), against a cost structure that is concentrated principally in the eurozone.The TODS Group realises greater revenues than costs in all these currencies; therefore, changes in the exchange rate between the euro and the aforementioned currencies can impact the Groups results. With the exception of the foregoing, the Group is not particularly exposed to foreign exchange risk.The residual component of this risk is connected principally with translation risk.This risk stems from the fact that the assets and liabilities of consolidated companies whose functional currency is different from the euro can have different countervalues in euros according to changes in foreign exchange rates. The measured amount of this risk is recognised in the translation reserve in equity. The Group monitors the changes in the exposure. No hedges of this risk existed at the reporting date. Governance of individual foreign currency operations by the Groups subsidiaries is highly simplified by the fact that they are wholly owned by the parent company. The Groups risk management policy aims to ensure that the average countervalue in euros of receipts on wholesale transactions denominated in foreign currencies for each collection (Spring/Summer and Fall/Winter) is equal to or greater than what would be obtained by applying the pre-set target exchange rates.The Group pursues these aims by entering into forward contracts for each individual currency to hedge a specific percentage of the expected revenue (and cost) volumes in the individual currencies other than the functional currency. These positions are not hedged for speculative or trading purposes, consistently with the strategic policies adopted for prudent management of cash flows. Consequently, the Group might forego opportunities to realise certain gains, but it avoids running the risks of speculation. The Group defines its exchange risk a priori according to the reference period budget for the reference period and then gradually hedges this risk upon acquisition of orders, in the amount according to which they correspond to budget forecasts. The process of hedging exchange rate risk inside the Group is broken down into a series of activities that can be grouped into the following distinct phases: definition of operating limits; identification and quantification of exposure; implementation of hedges; monitoring of positions and alert procedures. The breakdown of forward currency contracts (for sale and purchase) made by the Group is illustrated in Note 18. The balance sheet accounts denominated in foreign currency were identified for the sensitivity analysis. In order to determine the potential impact on final results, the potential affects of fluctuations in the exchange rate for the euro against the principal currencies to which the Group is exposed were analysed.The following table illustrates the sensitivity to reasonably likely changes in exchange rates on pre-tax profit (due to changes in the value of current assets and liabilities denominated in foreign currency) and Group equity (due to changes in the fair value of foreign exchange risk hedge instruments) while holding all other variables constant:

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Euro Currency CAD CHF GBP HKD JPY KRW RMB SGD USD EUR Other Total Euro 000s FY 2010 Country Canada Switzerland UK Hong Kong Japan South Korea China Singapore USA Europe n.a.

Impact on pre-tax profit 5% writedown of the foreign currency FY 2010 FY 2009 (7,012.2) (2,241.7) (1,110.2) (21,482.0) 3,564.9 6,237.5 (20,123.1) (9,563.9) (34,580.5) (14,718.8) 2,887.9 5,127.9 57,167.5 24,797.4 6,877.0 (27,787.6) (347,645.6) (309,861.5) (39,484.3) 5,859.2 (12,143.4) 4,004.3 (391,601.8) (339,629.3) Revaluation/Writedown foreign currency 5% -5%

Impact on pre-tax profit 5% revaluation of the foreign currency FY 2010 FY 2009 7,750.3 2,477.7 1,226.8 23,743.2 (3,940.2) (6,894.1) 22,241.3 10,570.7 38,220.5 16,268.2 (3,191.9) (5,667.7) (63,185.1) (27,407.6) (7,600.9) 30,712.6 384,239.9 342,478.5 43,640.5 (6,475.9) 13,421.6 (4,425.8) 432,823.0 375,379.8 Impact on pre-tax profit 432.8 (391.6) Impact on Shareholders equity (4,146.6) 2,416.9

The analysis did not include assets, liabilities and future commercial flows that were not hedged, since fluctuations in exchange rates impact income in an amount equal to what is recognised in the fair value of adopted hedge instruments. Interest rate risk. The exposure of the TODS Group to interest rate risk is limited to its own adjustable rate debt instruments, issued in the eurozone. Interest rate risk is hedged consistently with consolidated practice, which is designed to reduce the risks of interest rate volatility by simultaneously pursuing the aim of minimising associated financial expenses. Considering the insignificant amounts involved (Note 17), there were no current interest rate hedges current at December 31st, 2010. The sensitivity analysis carried out on interest rates has shown that a hypothetically unfavourable change of 10% in short-term interest rates applicable to the adjustable rate financial liabilities existing at December 31st 2010 would have a net pre-tax impact of about 56 thousand euros in additional expenses (FY 2009: 58 thousand euros). Finally, the financial liabilities (Notes A1 and A2) assumed in 2010 following the acquisition of Holpaf B.V. (notes 13 and 24) are subject to a fixed rate of 2.94% and 3.239%, respectively, which were consistent with applicable market rates.
iv. Categories of measurement at fair value

In accordance with IFRS 7, the financial instruments carried at fair value have been classified according to a hierarchy of levels that reflects the materiality of the inputs used to estimate their fair value.The following levels have been defined: Level 1 quoted prices obtained on an active market for the measured assets or liabilities; Level 2 inputs other than the quoted prices indicated hereinabove, which are observable either directly (prices) or indirectly (derived from prices) on the market; Level 3 inputs that are not based on observable market data. The fair value of derivative financial instruments existing at December 31st 2010 (Note 18) has been classified as Level 2.

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Group 2010 Annual Report

20. Deferred tax assets and liabilities


At the reporting date, recognition of the effects of deferred tax assets, determined on the basis of temporary differences between the pre-tax result on the financial statements and taxable income of consolidated subsidiaries, lead to the following tax assets and liabilities:
Euro 000s Deferred tax assets Deferred tax liabilities Net balance 12.31.10 32,027 (27,722) 4,305 12.31.09 22,472 (22,369) 103 Change 9,555 (5,353) 4,202

When determining future tax impact (IAS 12), reference was made to the presumed percentage weight of the taxes that will be imposed on income in the years when those taxes will be charged, according to current tax laws in the various countries involved and any changes in tax rates following currently known tax reforms, and that will be applicable starting from FY 2011. In this regard, no significant changes have been reported as at today by the tax departments in the countries where the Group operates. Following is reported the composition of the amount of deferred tax assets and liabilities at year end, highlighting items that mainly contributed to its determination:
Euro 000s Amortization, depreciation and write-downs Provisions Property, plant and equipment (leasing) Cost deductible over several years Inventory (internal profits and write-downs) Tax losses that can be carried forward Derivative financial instruments Other Total 12.31.10 Assets Liabilities 6,415 22,182 3,841 44 12.31.09 Assets Liabilities 5,694 17,291 3,997 710 9,501 5,634 187 746 22,472

1,746 14,099 7,999 343 1,425 32,027

246 1,409 27,722

93 988 22,369

Deferred tax assets, recognised by certain subsidiaries as losses that can be carried forward pursuant to local tax laws, and not yet used by the Group at December 31st 2010, totalled 7,999 thousand euros (FY 2009: 5,634 thousand euros). New deferred tax assets of 1.9 million euros were recognised on the 2010 financial statements for losses that can be carried forward.

21. Other current liabilities


Euro 000s Trade payables Tax payables Other liabilities Payables to employee Social security istitutions Other Total other liabilities 12.31.10 130,008 20,064 12.31.09 103,921 4,170 Change 26,087 15,894

7,731 5,558 15,817 29,106

4,659 5,042 7,969 17,670

3,072 516 7,848 11,436

76 Supplementary notes

Group 2010 Annual Report

Tax payables at December 31st 2010 include 16.5 million euros for the payable (net of prepayments and of receivables that can be offset upon payment) to institutions in the various countries where the Group operates and accrued on FY 2010 income (FY 2009: 0.4 million euros). Other includes advances from customers of 4.2 million euros, and 3.5 million euros for the variable portion of the compensation of parent company directors accrued in 2010 (note 24).

22. Provisions and potential liabilities and assets


22.1 Provisions. They include 1,369 thousand euros (825 thousand euros in 2009) as the prudent estimate of liabilities that the Group might incur if it loses a series of pending lawsuits. Accruals for the year totalled 673 thousand euros. 22.2 Potential liabilities and other commitments. i. Guarantees granted to third parties. At December 31st 2010, the Group granted a total of 2,295 thousand euros in guarantees (FY 2009: 1,925 thousand euros) to secure the contractual commitments of certain subsidiaries.
ii. Guarantees received from third parties. Guarantees received by the TODS Group from banks as security for contractual commitments totalled 12,706 thousand euros (11,843 thousand euros in 2009). Mortgages. Group real estate has been encumbered by the following mortgages:

iii.

Production plant at SantElpidio a Mare Referring to the loan obtained by the parent company (note 17), first mortgage in favour of the lending bank Unicredit, recognised for 30 million euros, as collateral for the lent principal and all expenses resulting from the loan agreement; Tokyo building As collateral for two bonds issued by the subsidiary Holpaf B.V. (note 17), a first mortgage in favour of Intesa San Paolo for JPY 1,000 million (9.2 million euros), and a first mortgage in favour of Socit Europenne de Banque for JPY 5,652.8 million (52.0 million euros), both as collateral for the principal and all expenses resulting from the loan agreement.
iv. Other guarantees. As additional security for repayment of the bonds indicated at sub-indent iii. b) hereinabove, the parent company TODS S.p.A. (when taking over the contractual obligations assumed by the previous guarantor, Holpaf B.V., vis--vis the subscribing banks), issued the following additional guarantees: a) Property Purchase Option: a put option granted to Intesa San Paolo on the Omotesando property, which may be exercised only if Holpaf B.V. defaults during the term of the bonds and the creditor demands payment of the mortgage. In this scenario,TODS S.p.A. must purchase the property at a specific price that varies over the term of the option (decreasing price, equal to the amount of the residual debt of the two bonds not repaid by Holpaf B.V. at the time of default). b) Earthquake Indemnity Letter; TODS S.p.A. has undertaken to hold harmless the rights to repayment of the bonds held by Intesa San Paolo and Socit Europenne de Banque even in the event of damage or destruction of the property in an earthquake; c) All Risks Indemnity Letter;TODS S.p.A. has undertaken to hold harmless the rights to repayment of the bonds held by Intesa San Paolo and Socit Europenne de Banque even in the event of damage or destruction of the property due to any event. At December 31st 2010, the residual face value of the principal for the two bonds amounted to JPY 4,238 million (39.0 million euros).

22.3 Derivative financial instruments. During the year, the Group used derivative financial instruments to hedge transactions in currencies other than the euro. For an analysis of this detail, see Note 18. All derivative contracts made with leading financial institutions will expire in 2011.

77 Supplementary notes

Group 2010 Annual Report

22.4 Lease agreements. The leases entered into by the Group are for rental of spaces used as offices, production plants, and DOS. At the reporting date, the rents still owed by the Group under current agreements were as follows:
Euro mn 2010 2010 2011 2012 2013 2014 2015 Over 5 years Total 56.7 46.9 38.6 35.1 29.6 111.0 317.9 2009 47.5 45.3 38.7 28.7 25.6 94.9 280.7

Operating lease instalments totalled euros 55.1 million in fiscal 2010.

23. Reserves for employees


23.1 Defined contribution plans. The Group has a defined contribution retirement plan (employee severance indemnities TFR) in favour of employees at Groups Italian companies with more than 50 employees (see the following section in this regard) and the Japanese and Korean subsidiaries. At December 31st 2010, the liability accrued vis--vis employees was 2,195 thousand euros (December 31st 2009: 1,477 thousand euros), and relating only to the two Asian companies, since the amounts accrued in favour of Italian employees have all been transferred to funds outside the Group.The amount charged to profit and loss for the period totals 586 thousand euros. 23.2 Defined benefit plans. Following the statutory amendments introduced beginning January 1st 2007, employee severance indemnities, a deferred payment plan in favour of all employees of the Groups Italian companies, were classified as a defined benefits plan (IAS 19) only for firms with less than 50 employees, for which the Groups obligation does not terminate with payment of the contributions accrued on the paid compensation, but extends until the end of the employment relationship (1). For these types of plans, the principle requires that the accrued amount be projected into the future in order to determine the amount to be paid upon termination of the employment relationship, with an actuarial assessment that accounts for the rate of rotation of employees, expected evolution of compensation, and other factors:
Euro 000s Year 10 Initial balance Current benefits Financial expenses Benefits paid Final balance 9,483 119 372 (750) 9,224 Year 09 9,562 173 440 (692) 9,483

(1) The statutory amendment envisaged that for firms with more than 50 employees, the employee severance indemnities accrued from January 1st 2007 had to be allocated to supplemental retirement plans (pension funds) or, alternatively, to aTreasury Fund set up at the INPS (Italian National Social Security Institute). Since all obligations of firms towards their employees ceased starting on January 1st 2007 , all accrued employee severance indemnities are covered by the rules governing defined contribution plans.

78 Supplementary notes

Group 2010 Annual Report

24. Transactions with related parties


In implementation of the Related Party Transactions Regulation adopted by CONSOB with Resolution no. 17221 of March 12th 2010, as amended by Resolution no. 17389 of June 23rd 2010, the TODS Group modified its existing procedures governing the transparency and substantive fairness of related party transactions, to bring them in line with the principles set out in the cited CONSOB Regulation. (The complete text of the Related Party Transactions Procedure of TODS S.p.A. can be found at www.todsgroup.com). The new related parties procedure was approved after receiving the favourable opinion of independent directors by the Board of Directors of the parent company on November 11th 2010 and came into force on January 1st 2011. However, in accordance with its own tradition of applying best practices on the market, before the new regulation issued by CONSOB came into force, the Group always subjected significant related party transactions to detailed investigation and, inter alia, the a priori favourable opinion of the Internal Control and Corporate Governance Committee (the committee that performed the relevant functions before the new regulation came into force). Consequently, significant related party transactions were previously subjected, and shall continue to be subjected in future, to a detailed investigation involving, inter alia: (i) a complete, prompt transmission of material information to the delegated Board of Directors committees (the Internal Control and Corporate Governance Committee and beginning January 1st 2011 the Independent Directors Committee, each within the ambit of their delegated responsibilities, where the majority or all members of these committees are independent directors), who in the performance of their functions also avail themselves of the assistance of independent experts; (ii) the issuance of an opinion (either binding or non-binding, as applicable) before approval of the transaction by the Board of Directors (or, if appropriate, by the body delegated to resolve on the transaction). Without prejudice to the principles of procedural fairness cited hereinabove, no unusual related party transactions, or other related party transactions that might compromise corporate assets or the completeness and fairness of Group accounting and other information were executed during the financial year.All transactions which are connected with the normal operations of TODS Group companies were executed solely on behalf of the Group by applying contractual conditions consistent with those that can theoretically be obtained on an arms length basis. Most significant transactions concluded during the period As previously described in note 13,TODS S.p.A. acquired the entire share capital of HOLPAF B.V. from Goral Investment Holding B.V., a Dutch company fully owned by Diego Della Valle & C. SAPA (a company owned by Diego and Andrea Della Valle, and controlled by Diego Della Valle) on November 25th 2010, after approval by the Board of Directors of TODS S.p.A., and after issuance of a favourable opinion by the Internal Control and Corporate Governance Committee (already in line with the CONSOB regulation that would enter into force on January 1st 2011, as previously mentioned). Through acquisition of the shareholding, the TODS Group acquired ownership of the Omotesando building (the companys sole asset).This building has been used entirely by the Group since 2005 under a lease agreement made on February 22nd 2005 by Tods Japan K.K. with HOLPAF B.V., as the seat for administrative offices and location for the most important flagship store of the TODS Group in Japan. The total price paid for acquisition of 100% of the shares of HOLPAF B.V. was JPY 230 million (equal to 2.1 million euros), considering the value of the pro-forma equity of the target company at September 30th 2010, the Japanese tax liability for the higher market value of the property as compared with its recognised tax cost, and the adjustment for differences between the net financial position of the acquired company at the closing date and its pro-forma net financial position at September 30th 2010.Pursuant to the agreement, the Group also fully repaid Goral Investment Holding B.V. for the shareholder loan previously made to HOLPAF B.V., in the amount of 20.6 million euros (principal and interest accrued at the share transfer date). For complete information about the transaction, please see the Disclosure drafted in compliance with the rules set out in the new Annex 3 of the Related Parties Regulation no. 17221/2010, which is also available on the corporate website www.todsgroup.com.

79 Supplementary notes

Group 2010 Annual Report

Developments of related party transactions pending at December 31st 2009 In continuation of contractual relationships already existing in 2009, the TODS Group continued to maintain a series of contractual relationship with related parties (directors/controlling or significant shareholders) in 2010. The principal object of the transactions was the sale of products, lease of sales spaces, show rooms and offices, use of the ROGER VIVIER brand license and the provision of advertising services.
i. Commercial transactions with related parties - Revenues
Sales of products Year 2010 Parent company (*) Directors Exec. with strat. respons. Other related parties Total Year 2009 Parent company (*) Directors Exec. with strat. respons. Other related parties Total 1,995 4 Rendering of services 11,111 Sales of assets Operating lease 53 68 Other operations

Euro 000s Royalties 1,716

1,999 1,372 12

11,111 9,141

1,716 635

121 13 21 88 32

1,384

9,141

635

34

120

ii.

Commercial transactions with related parties - Costs


Sales of products Rendering of services 89 3,162 Sales of assets Operating lease 7,262 612 Other operations 10

Euro 000s Royalties 1,884

Year 2010 Parent company (*) Directors Exec. with strat. respons. Other related parties Total Year 2009 Parent company (*) Directors Exec. with strat. respons. Other related parties Total

1,881

1,881 1,062

3,251

1,884 1,125

7,874 6,551

10 16

3,474

1,062

3,474

1,125

6,551

16

iii. Commercial transactions with related parties - Receivables and payables


Receivables and payables Euro 000s Parent company (*) Directors Exec. with strat. respons. Other related parties Total 12.31.10 Receivables Payables 8,519 1,682 4 1,365 12.31.09 Receivables Payables 8,193 726 12 1,406

8,523

3,047

8,205

2,132

(*) Companies directly or indirectly controlled by Chairman of the Board of Directors Diego Della Valle.

80 Supplementary notes

Group 2010 Annual Report

iv. Commercial transactions with unconsolidated subsidiaries


Receivables and payables Euro 000s Special Purpose Entities (**) Total 12.31.10 Receivables Payables 12.31.09 Receivables Payables 1,050 3 1,050 3

(*) Financial balances referred to the period prior to acquisition of the activities.

Given the insignificance of these amounts, they have not been separately listed in the accounts. Transactions between Group companies included in the scope of consolidation have been eliminated from the consolidated financial statements. Consequently, they have not been highlighted in these notes. Compensation of Directors, Statutory Auditors, and General Managers. The following table illustrates the compensation accrued in fiscal 2010 by each of the Directors, Statutory Auditors, Executives with Strategic Responsibilities of TODS S.p.A. (including for the activities that they performed at subsidiaries) for any reason and in any form:
Euro 000s Compensation for office Directors Diego Della Valle (*) Andrea Della Valle (**) Luigi Abete Maurizio Boscarato Luigi Cambri Luca C. di Montezemolo Emanuele Della Valle Fabrizio Della Valle (****) Emilio Macellari (****) Pierfrancesco Saviotti Stefano Sincini (***) Vito Varvaro Total Directors 925.7 625.7 24.7 25.7 25.7 24.8 24.5 225.2 225.7 25.0 309.7 25.7 2,488.1 Compensat. per part. in Commit. 6.7 6.7 5.7 7.5 12.9 0.2 6.7 6.7 12.4 6.7 6.7 78.9 Non cash benefits Bonus and other incentives 2,100.0 1,400.0
(2)

Compens. as employ.

Other compens.

148.2 (4) 6.2

(2)

480.0 111.0

(1)

3,500.0

745.4

Statutory Auditors Enrico Colombo (*****) 90.0 Gian Mario Perugini 60.0 Fabrizio Redaelli 60.0 Total Statutory Auditors 210.0 Executives with strategic responsibilities

(3) (4) (3)

33.2 11.3

2.5

423.1

44.5 606.3

Legend
(*) (**) (***

Chairman of Board of Directors Vice Chairman of Board of Directors ) Member of Executive Committee ) Chairman of the Statutory Board

(1) (2) (3) (4)

Director of subsidiary Consultant of TODS S.p.A. Statutory Auditor of subsidiary Member of the Compliance Program Supervisory Body

(****

No severance indemnity is provided for Directors and Executives with Strategic Responsibilities.
81 Supplementary notes

Group 2010 Annual Report

25. Personnel costs


The personnel costs incurred by the Group in FY 2010 as compared with those for FY 2009 are illustrated as follows:
Euro 000s Wages and salaries Social security contributions Employee sev. indem. (service cost) Stock options Total Year 2010 89,922 23,811 4,018 117,751 Year 2009 81,327 21,791 3,913 309 107,340 Change 8,595 2,020 105 (309) 10,411 2010 11.5 3.0 0.5 n.s 15.0 % on sales 2009 11.4 3.1 0.5 n.s 15.1

The following table illustrates the breakdown of Groups employees by category:


12.31.10 46 2,069 1,079 3,194 12.31.09 43 1,893 904 2,840 Average 10 46 1,997 1,003 3,046 Average 09 42 1,937 860 2,829

Executives White-collar employees Blue-collar employees Total

26. Financial income and expenses


The breakdown of financial income and expenses in fiscal 2010 is as follows:
Euro 000s Year 10 Income Interest income on current account Foreign exchange gains Other Total income Expenses Interest on medium-long term financing Interest on short term borrowings Foreign exchange losses Other Total expenses Total net income and expenses 2,131 17,035 205 19,371 (215) (453) (14,505) (790) (15,963) 3,408 Year 09 1,359 12,774 123 14,256 (260) (390) (12,573) (936) (14,159) 97 Change 772 4,261 82 5,115 45 (63) (1,932) 146 (1,804) 3,311

82 Supplementary notes

Group 2010 Annual Report

27. Income taxes


Tax expenses allocable to FY 2010, including deferred taxes, totalled 52.6 million euros, and are broken down into current and deferred taxes as follows:
Euro 000s Current taxes Deferred taxes Total Tax rate Year 10 57,008 (4,442) 52,566 32.2% Year 09 41,585 (1,180) 40,405 31.9%

The parent companys theoretical tax rate for FY 2010 (impact of theoretical tax on pre-tax profit) was 33.6%, determined by applying the IRES and IRAP tax rates applicable to 2010 taxable income as reported on the financial statements, while the theoretical tax rate for FY 2010 of other Group companies operating outside Italy varies from country to country according to local law. The following schedule reconciles theoretical taxes, calculated by using the theoretical tax rate of the parent company, and the taxes actually charged to income:
Euro mn Taxes Theoretical income taxes at the rate of parent company Tax effect of non-deductible or partially deductible costs Effect connected with the different rates of the foreign subsidiaries Effective income taxes 54.9 0.3 (2.6) 52.6 Rate % 33.6 0.2 (1.6) 32.2

83 Supplementary notes

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84 2010 Annual Report

REPORT OF INDEPENDENT AUDITORS

86 Report of Independent Auditors

87 Report of Independent Auditors

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88 2010 Annual Report

TOD'S S.p.A. - IAS/IFRS ANNUAL REPORT AS OF DECEMBER 31ST 2010

REPORT ON OPERATIONS

S.p.A. 2010 Annual Report

Introduction
The Report by the Board of Directors on Operations is based on the Separate Financial Statements of TODS S.p.A. at December 31st 2010, prepared in accordance with IAS/IFRS (International Accounting Standards IAS, and International Financial Reporting Standards - IFRSs) issued by the IASB and approved by the European Union at the same date, on the assumption of the companys status as a going concern.The Report on Operations must be read together with the Financial Statements and Notes to the Financial Statements, which are integral parts of the 2010 separate annual report.These documents include the additional information required by CONSOB, with the measures issued in implementation of Article 9 of Legislative Decree 38/2005 (resolutions 15519 and 15520 of July 27th 2006 and DEM/6064293 memorandum of July 28th 2006), as well as all subsequent notices containing provisions regarding financial disclosures. Separate Financial Statements is approved by the Board of Directors of TODS S.p.A. in March 14th 2011.

Alternative indicators of performances


In order to strip the effects of changes in exchange rates with respect to the average values for the previous year from the results for the 2010 financial year, the typical economic reference indicators (Revenues, EBITDA and EBIT) have been recalculated by applying the average exchange rates for 2009, rendering them fully comparable with those for the previous reference period. Note that on the one hand, these principles for measurement of business performance represent a key to interpretation of results not envisaged in IFRSs, and on the other hand, must not be considered as substitutes for what is set out in those standards.

Operating performances
In line with expectations, the company performed outstandingly in FY 2010, both in sales and margins results. Sales revenues are equal to 577.0 million euros in FY 2010 against 526.5 million euro in FY 2009, for an increase of 50.5 million euros. Net profit for the year amounts to 83.0 million euros which increases by 11.1 million euros (+15.4%) in respect of FY 2009. EBIT is equal to 124.2 million euros in FY 2010, against 106.5 million in FY 2009.

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Euro 000s Main economic indicators Sales revenues EBITDA Deprec., amort.,write-downs and advances EBIT Pre-Tax Consolidated net income Foreign exchange impact on revenues Adjusted Sales revenues Impact on operating cost Adjusted EBITDA Adjusted EBIT EBITDA % EBIT % Adjusted EBITDA % Adjusted EBIT %

Year 10 577,031 138,544 (14,390) 124,154 125,841 82,974 (5,600) 571,431 3,100 136,044 121,654 24.0 21.5 23.8 21.3

Year 09 526,491 120,592 (14,073) 106,519 106,856 71,921

Change 50,540 17,952 (317) 17,635 18,985 11,053

% 9.6 14.9 2.3 16.6 17.8 15.4

526,491 120,592 106,519 22.9 20.2 22.9 20.2

44,940 15,452 15,135

8.5 12.8 14.2

Euro 000s Main Balance Sheet Indicators Net working capital (*) Non current assets Other current assets/liabilities Invested capital Net financial position Shareholders equity Capital expenditures Cash flow from operations Free cash flow

12.31.10 178,402 221,227 96,296 495,925 56,929 552,854 13,600 141,915 (64,713)

12.31.09 205,911 221,704 75,209 502,824 120,050 622,874 9,164 121,155 79,323

Change (27,509) (477) 21,087 (6,899) (63,121) (70,020) 4,436 20,760 (144,036)

(*) Trade receivables + inventories - trade payables.

92 Report on operations

S.p.A. 2010 Annual Report

Revenues. Sales during the period totalled 577.0 million euros, up 50.5 million euros from 2009, when revenues were 526.5 million euros. On a comparable exchange rate basis, i.e. using the average exchange rates for FY 2009, revenues would have been 571.4 million euros in FY 2010.
Euro 000s FY 10 Brand TODS HOGAN FAY ROGER VIVIER Other Total Product Shoes Leather goods Apparel Other Total Region Italy Europe North America RoW Total % FY 09 % Change 33,524 11,846 (555) 5,476 248 50,540 35,289 9,766 5,198 287 50,540 21,138 2,843 4,096 22,462 50,540 % 15.8 5.4 (0.7) 57.9 7.7 9.6 9.2 17.6 6.2 10.3 9.6 6.1 2.5 16.9 53.2 9.6

245,072 42.5 231,676 40.1 81,882 14.2 14,939 2.6 3,461 0.6 577,031 100.0 419,423 72.7 65,108 11.3 89,431 15.5 3,069 0.5 577,031 100.0 369,573 64.1 114,506 19.8 28,297 4.9 64,654 11.2 577,031 100.0

211,548 40.2 219,830 41.8 82,437 15.7 9,463 1.8 3,213 0.65 526,491 100.0 384,134 73,0 55,342 10.5 84,233 16.0 2,782 0.5 526,491 100,0 348,435 66.2 111,663 21.2 24,201 4.6 42,192 8.0 526,491 100.0

The TODS brand reported excellent results: with revenues of 245.1 million euros, it grew by 15.8% compared with 2009. Growth was very strong in all product categories and in all markets. HOGAN brand revenue totalled 231.7 million euros in FY 2010, up 5.4% from the previous year.The brand is reorganising its presence at the international level in order to reinforce its image both the domestic and foreign markets. For this purpose, it has established a collaborative relationship with the famous designer Karl Lagerfeld. FAY brand revenues were substantially unchanged at 81.9 million euros in FY 2010 (FY 2009: 82.4 million euros). The ROGER VIVIER brand leapt upwards by 57.9% from 2009, with sales totalling 14.9 million euros.As has been remarked repeatedly, analysis of the results generated by this brand is not yet entirely significant, insofar as it is still in the phase of launching and consolidating its exclusive cachet and prestige. While the company confirms its unchallenged leadership in its core shoe business, where revenues grew by 9.2% in FY 2010 to 419.4 million euros, the strong growth in leather goods sales was particularly significant in comparison with FY 2009 (+17.6%), reflecting the excellent results of the entire collection of TODS brand handbags and accessories. Aggregate leather good and accessory revenues totalled 65.1 million euros in FY 2010. Finally, apparel revenues totalled 89.4 million euros in FY 2010, up 6.9% from FY 2009. The geographical breakdown of revenues shows the strength of the company on the domestic market, where revenues totalled 369.6 million euros in 2010, up 6.1% from 2009.The sales results for the rest of Europe were positive as well: revenues totalled 114.5 million euros, up 2.5% from the previous year. However, the best performance was reported on the American and Asian markets. The United States market reported outstanding results, where revenues grew by 16.9% to 28.3 million euros in FY 2010.The Asia and Rest of World area also reported fantastic growth. Sales reached 64.7 million euros, up 53.2% from 2009.The results posted in China, Hong Kong,Taiwan and South Korea were particularly brilliant.

93 Report on operations

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Operating results. EBITDA totalled 138.5 million euros in FY 2010, rising by 18.0 million euros in absolute terms from the previous year (+14.9%).At December 31st 2010 EBITDA amounted to 24.0% of sales, with the gross profit margin rising 110 basis points from FY 2009, when it hit 22.9% of revenues. On a comparable exchange rate basis, i.e. using the average exchange rates for 2009, EBITDA would have been 136.0 million euros, and it would have been equal to 23.8% of revenues. Gross operating profit in FY 2010 also benefited from the vigorous growth in sales volumes in terms of quality. The breakdown of 2010 revenues compared with the previous year is characterised by the greater contribution made by certain product categories (especially leather goods) that guarantee a higher sales margin for the company. The impact of improved production efficiency also had a positive impact on profitability. This was the result of continuous streamlining of industrial processes. The percentage impact of amortisation and depreciation did not change significantly, with these costs totalling 13.5 million euros in FY 2010 (13.1 million euros in FY 2009). Net of accruals for contingent liabilities and charges totalling 0.9 million euros, EBIT in FY 2010 totalled 124.2 million euros, up 17.6 million euros from EBIT in 2009. At December 31st 2010, EBIT represented 21.5% of company sales. In FY 2009 EBIT was 106.5 million euros, representing 20.2% of revenues. On a comparable exchange rate basis (average for 2009), EBIT would have been 121.7 million euros, or 21.3% of revenues. Net financial income amounted to 1.7 million euros, due to net foreign exchange gains and the major contribution made by interest accrued on cash. Pre-tax profit for 2010 totalled 125.8 million euros, compared with 106.9 million euros in 2009. Net of income taxes (including deferred taxes) for a total of 42.9 million euros (FY 2009: 34.9 million euros), which translated into a tax rate of 34.1%, (32.7% in the previous year), net profit for the year totalled 83.0 million euros, up 11.1 million euros compared with FY 2009, when it totalled 71.9 million euros. Net profit grew significantly: at December 31st 2010, net profit was 14.4% of revenues, compared with 13.7% in FY 2009. Capital expenditures. Capex totalled 13.6 million euros in FY 2010, up from 9.2 million euros in 2009.About 6.1 million euros were used for procurement of the accessory industrial equipment used to create its collections (lasts, hollow punches and moulds). A major share of capex (2.9 million euros) targeted development of corporate information systems, while 0.9 million euros was spent on protecting company brands, which represent a strategic asset. Net financial position (NFP). Net liquid assets at December 31st 2010 totalled 56.9 million euros, down 63.1 million euros from December 31st 2009 (120.1 million euros). Financial balances were heavily impacted by three transactions during the year. First of all, shareholders were paid an extraordinary dividend (Shareholders Meeting resolution of September 21st 2010) totalling 107.1 million euros, at the rate of 3.50 euros per share, in addition to the ordinary dividend of 45.9 million euros resolved upon approval of the 2009 annual report, with which the cash exceeding business requirements was distributed. Second of all, the entire share capital of Holpaf B.V. was acquired in November 2010.This is the Dutch company that owns the building that has housed the head office and flagship store of the subsidiary TODS Japan KK in Tokyo since 2005.The impact of the acquisition on the companys net financial position was about 24.1 million euros, of which 2.1 million euros for the transfer of company shares and 22 million euros for a capital grant to Holpaf B.V. so that it could repay the previous shareholders for a loan (for 20.6 million euros) granted by them before the sale of shares pursuant to the Sale & Purchase Agreement signed by the parties (TODS S.p.A. and Goral Investment Holding B.V.). Finally, in order to assure a balanced financial structure for certain indirect subsidiaries in the Far East, the company contributed 16.2 million euros to recapitalisation of the sub-holding TODS International B.V. On the liabilities side, the only financial exposure to the banking system remains the long-term loan obtained in 2003 and due in 2014.

94 Report on operations

S.p.A. 2010 Annual Report

Euro 000s Net financial position Current financial assets Cash and cash equivalents Cash Current financial liabilities Current account overdraft Current share of medium-long term financing Current financial liabilities Current net financial position Non-current financial liabilities Financing Non-current financial liabilities Net financial position

12.31.10 63,747 63,747 (1,591) (1,591) 62,156 (5,227) (5,227) 56,929

12.31.09 128,390 128,390 (1,521) (1,521) 126,869 (6,819) (6,819) 120,050

Change (64,643) (64,643) (70) (70) (64,713) 1,592 1,592 (63,121)

When stripped of the flows resulting from the transactions described above, the net financial position at December 31st 2010 would be 250.2 million euros.
Euro 000s Statement of cash flow Profit (loss) for the period of the Company Non-cash items Cash Flow (A) Changes in operating net working capital (B) Cash Flow from operations (C) = (A)+(B) Cash Flow generated (used) in investment activity (D) Cash Flow generated (used) in financing activity (E) Cash Flow received (used) (C+D+E) Net financial position at the beginning of the period Net financial position at the end of the period Change in current net financial position Year 10 82,974 23,085 106,059 35,856 141,915 (51,535) (155,093) (64,713) 126,869 62,156 (64,713) Year 09 71,921 21,170 93,091 28,064 121,155 (7,239) (34,593) 79,323 47,546 126,869 79,323

Operating cash flow continued to grow to 141.9 million euros from the previous year, when it totalled 121.2 million euros, confirming the structural capacity of the company to generate cash with its own industrial activity. Cash flow contributed 106.1 million euros, compared with 93.1 million euros in 2009. Working capital made a positive contribution of 35.9 million euros during the year. A total of 13.6 million euros were used for investments (gross of disposals of 0.6 million euros).These investments were made in financial assets, comprised principally, as previously mentioned, of the payment of 153.9 million euros in dividends, the recapitalisation of subsidiaries for 16.2 million, and the acquisition of the entire share capital of Holpaf B.V. (24.1 million euros).

Research and development


Given the particular nature of the production, research and development activity consists of continuous technical/stylistic revision of models and constant improvement of the materials used to realise the product. Since this activity is exclusively ordinary, the associated costs are charged entirely to income in the year that they are incurred, and thus recognised as normal production costs.

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S.p.A. 2010 Annual Report

Research and development costs, as defined above, have assumed major importance due to operating realisation of projects connected with expansion of the existing product line with new types of merchandise that complement current ones. These will increase the number of brands offered and stimulate increased sales to end customers.

Information on Share Capital


As of December 31st 2010, the share capital of TODS S.p.A. consists of 30,609,401 shares, with a par value of euro 2 euro each. In response to market suggestions to increase the liquidity of the shares of the parent company TODS S.p.A., and consequently facilitate investments by major institutional investors, the Della Valle family floated an Accelerated Bookbuilt Offer coordinated by Mediobanca, placing 3,060,000 shares with institutional investors on December 15th 2010.All these shares were sold at a price of 76 euros. Of these shares, 6.08% were offered by Diego Della Valle & C. S.A.P.A., 1.96% by Diego Della Valle and 1.96% by Andrea Della Valle. Following this sale, the direct and indirect participation in the share capital of the company owned by Mr Diego DellaValle, Chairman of the Board of Directors, fell to 56.762% at December 31st 2010, compared with his previous shareholding of 64.779%.
Shares owned by Directors, Statutory Auditors, General Managers, and Executives with strategic responsibilities. The following table shows all the shareholdings in Tods S.p.A. and in the companies controlled

by it, held, directly or indirectly, by Directors, Statutory Auditors, Generals Managers and Executives with strategic responsibilities, as contained in the declarations given to the company.
Company Owned Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. Tods S.p.A. 12.31.09 N of share held 19,834,624 868,716 435 5,000 5,000 273,200 3,200 750 N of shares buy N of shares sell (2,460,000) (600,000) 12.31.10 N of shares held 17,374,624 268,716 435 5,000 5,000 273,200 3,200 750 -

Diego Della Valle Andrea Della Valle Luigi Abete Maurizio Boscarato Luigi Cambri Emanuele Della Valle Fabrizio Della Valle Emilio Macellari Luca C. di Montezemolo Pierfrancesco Saviotti Stefano Sincini Enrico Colombo Gianmario Perugini Fabrizio Redaelli Rodolfo Ubaldi

Own shares and shares or quotas of controlling companies. As of December 31st 2010 the Company did not

possess any of its own share nor did it possess any shares or quotas of the controlling companies, neither Since the date on which the shares of the Company were listed on the Milan Stock Exchange, the Company has not been a party to any transactions with reference to its own shares.

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Personal data processing disclosure


The Company implemented and updated its Security Policy Document (SPD) in accordance with the Personal Data Protection Code.

Corporate Governance
The Corporate Governance system. The corporate governance system of the parent company TODS S.p.A. is based on the traditional system, or Latin model. The corporate bodies are: the Shareholders Meeting, which has the prerogative of resolving at its ordinary and extraordinary meetings on the matters reserved to it by law or the articles of association; the Board of Directors, which is vested with full, unlimited authority for ordinary and extraordinary management of the Company, with the right to perform all those acts that it deems appropriate to implement and realise the corporate purpose, excluding only those reserved by law to the Shareholders Meeting; the Board of Statutory Auditors, which is delegated by law to monitor i) compliance with the law, memorandum of association and compliance with the principles of proper management; ii) the adequacy of the organisational structure for matters falling under its purview, its internal control system and administrative and accounting system, as well as the adequacy of the latter in fairly reporting operating performance; iii) the adequacy of directives issued to TODS Group companies in regard to the information that they must provide in compliance with disclosure obligations; iv) the procedures for effective implementation of the corporate governance rules set out in the Corporate Governance Code adopted by the Group; Legislative Decree 39/2010 delegates the Board of Statutory Auditors the task of monitoring the process of financial disclosure and the effectiveness of the risk control and management systems, as well as independent audits and certification of the annual accounts and consolidated accounts, and the independence of the accounting firm retained to do so; the Manager in charge of preparing the company financial documents. The Board of Directors has set up several internal committees: the Executive Committee, the Internal Control and Corporate Governance Committee, the Compensation Committee and the Independent Directors Committee. The adopted corporate governance model is substantially based on the Corporate Governance Code for Listed Companies, in its latest version as prepared by the Corporate Governance Committee for Listed Companies (sponsored by Borsa Italiana S.p.A. and comprised by representatives from several of the leading Italian companies and experts in this area), whose principles have been implemented by Tods S.p.A. with a series of Board of Directors resolutions since November 2006, as well as the reference models represented by international best practice. In implementation of the Related Party Transactions Regulation adopted by CONSOB with Resolution no. 17221 of March 12th 2010, as amended by Resolution no. 17389 of June 23rd 2010,TODS S.p.A. modified (by extending them to all Group companies) its existing procedures governing the transparency and substantive fairness of related party transactions, to bring them in line with the principles set out in the cited CONSOB Regulation. It consequently appointed an Independent Directors Committee.This committee is delegated the role and relevant duties assigned by the Regulation to the committee comprised only of independent directors (modifications to the procedure for related party transactions; examination and issuance of binding opinions on the most significant transactions; the Internal Control and Corporate Governance Committee is instead delegated with responsibility for examination and issuance of non-binding opinions on less significant transactions). Disclosure pursuant to Article 123-bis of Legislative Decree 58/1998 (TUF). At its meeting on March 14th 2011, the Board of Directors of TODS S.p.A. approved the annual Report on Corporate Governance and Shareholdings, which provides the disclosures mandated pursuant to Article 123-bis (1) of the Consolidated Law on Finance (T.U.F.).That report also analytically illustrates the corporate governance system of TODS S.p.A., and it includes not only the information required under Article 123-bis (2) T.U.F., but also a comprehensive examination

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of the status of implementation of the corporate governance principles recommended by the Corporate Governance Code in accordance with the comply or explain rule. The Report also satisfies the requirements imposed by CONSOB pursuant to Article 114(5) T.U.F. with notice DEM/11012984 of February 24th 2011, in regard to the remuneration, self-evaluation and succession plans of the Board of Directors. The reader is referred to the Annual Corporate Governance Report, which is available to the public together with this Report on Operations and accounting documentation. It may be consulted in the corporate section of the www.todsgroup.com website.

Management and coordination activities


Although TODS S.p.A. is subject to the control (pursuant to Article 93 of Legislative Decree 58/1998) of DI.VI. Finanziaria S.A.p.A., neither this latter company or any other party has dictated policy or interferred in the management of TODS S.p.A. (or any of the subsidiaries of TODS S.p.A.). Indeed, management of the issuer and its subsidiaries was not subject to any influence by third parties outside the TODs Group. TODS S.p.A. is not subject to management and coordination by the parent company DI.VI. Finanziaria SapA or any other party pursuant to Sections 2497 et seq. Italian Civil Code. Pursuant to the Corporate Governance Code, transactions that have a particularly significant impact on TODs S.p.A. strategy, operations, assets, liabilities, and financial position are subject to exclusive review and approval by the Board of Directors of the issuer TODS S.p.A. Its members include independent directors without executive responsibilities at the company, in accordance with the rules set out in Article 3 of the Corporate Governance Code. The expertise and authority of the independent directors without executive responsibilities and their material impact on decisions taken by the Board of Directors represent a further guarantee that all decisions by the Board of Directors are taken exclusively on behalf of TODS S.p.A. without being influenced by instructions or interference by third parties representing interests opposed to the Companys. All subsidiaries of TODS S.p.A. are subject to management and coordination by the issuer.

Significant events occurring after the end of the fiscal year


On January 21st 2011,TODS S.p.A. reached an agreement with the Italian Ministry of Cultural Affairs (Ministero per i Beni e le attivit culturali) and the Rome Special Fine Arts Service for Archaeological Monuments (Soprintendenza speciale per i beni archeologici di Roma), for the purpose of financing restoration work on the Colosseum as sole and exclusive sponsor. The agreement calls for the sponsor to put up a total, all-inclusive amount of 25 million euros, to be disbursed over several years according to the actual progress of restoration work approved by the delegated Commissioner and the Fine Arts Service.

Business outlook
FY 2010 ended on a high note in terms of revenues, profit margins and profitability, with growth steadily accelerating over the course of the year. Sales and financial figures have confirmed that consumers appreciate the high quality products offered by the Groups brands. By being fairly unsusceptible to seasonal changes, they guarantee a status that goes beyond fashion. In regard to business forecasts for the current year, the Spring-Summer 2011 collection sales campaign results and the excellent sales trends suggested by distribution network figures for the beginning of the current season reasonably allow us to expect superb results again in 2011.

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S.p.A. 2010 Annual Report

Motion for allocation of the profit for the year


It is proposed that the net profit for FY 2010, 82,974,255.62 euros, be allocated as follows: i. 21,755,453.62 euros to the extraordinary reserve; ii. 61,218,802.00 euros, to be distributed to shareholders in the form of a dividend of 2.00 euros per share for each of the outstanding 30,609,801 shares. Milan, March 14th 2011 The Chairman of the Bord of Directors Diego Della Valle

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100 2010 Annual Report

FINANCIAL STATEMENTS

S.p.A. 2010 Annual Report

Profit & Loss


Euro 000s Notes Revenues Sales revenues (1) Other revenues and income Total revenues and income Operating Costs Change in inventories of work in process and finished goods Cost of raw materials, supplies and material for consumption Costs for services Costs of use of third party assets Costs of labour Other operating charges Total operating costs EBITDA Amortisation, depreciation and write-downs Amortisation of intangible assets Depreciation of tangible assets Other adjustments Total amortisation,depreciation and write-downs Provisions EBIT Financial income and charges Financial income Financial charges Total financial income (charges) Income (losses) from equity investments Profit before taxes Income taxes Profit for the year Year 10 577,031 15,012 592,043 6,739 (170,638) (208,676) (7,263) (62,224) (11,437) (453,499) 138,544 (3,419) (10,044) (13,463) (927) 124,154 11,422 (9,735) 1,687 125,841 (42,867) 82,974 Year 09 526,491 11,742 538,233 (29,820) (140,189) (173,511) (6,456) (58,723) (8,942) (417,641) 120,592 (3,010) (10,063) (13,073) (1,000) 106,519 11,023 (10,686) 337 106,856 (34,935) 71,921

24

7 7-10

21

25 25

19-27

EPS (Euro) EPS diluted (Euro)

2.71 2.71

2.35 2.35

Note 1: Sales revenues includes transactions with the Groups entities for 183.5 and 134.3 million euros, respectively, in the fiscal year 2010 and 2009.

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Comprehensive Income
Euro 000s Year 10 Profit/(loss) for the period (A) Other profit/(loss): Derivative financial instruments (cash flow hedge) (*) Total Other Comprehensive Income/(Losses) (B) Total profit/(loss) (A)+(B) 82,974 53 53 83,027 Year 09 71,921 819 819 72,740

(*) Income taxes of the period include tax effect.

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S.p.A. 2010 Annual Report

Statement of Financial Position


Euro 000s Notes Non-current assets Intangible fixed assets Assets with indefinite useful life Others Total Intangible fixed assets Tangible fixed assets Buildings and land Leasehold improvement Plant and machinery Equipment Others Total Tangible fixed assets Other assets Real estate investments Equity investments (1) Deferred tax assets Others Total other assets Total non current assets Current assets Inventories Trade receivables (2) Tax receivables Derivative financial instruments Others Cash Total current assets Total assets 12.31.10 12.31.09

6 7

150,476 12,339 162,815 38,845 666 3,289 11,475 4,137 58,412 46 143,196 7,251 1,208 151,701 372,928 137,993 165,460 8,442 1,992 7,407 63,747 385,041 757,969

150,476 10,574 161,050 40,070 981 4,252 10,991 4,360 60,654 49 102,773 3,119 1,187 107,128 328,832 137,508 167,452 6,836 356 7,701 128,390 448,243 777,075
to be continued

8 8 8 8 8

10 11 19

12 13 13 17 13

Note 1:The balance includes for 2.1 million euros the acquisition cost of Holpaf B.V. investment which is a transaction with a related party (Note 11 and 23). Note 2:Trade receivables includes receivables from Groups entities for 60.0 and 68.3 million euros, respectively, at December 31st 2010 and December 31st 2009.

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continuing

Euro 000s Notes Shareholders equity Share Capital Capital reserves Treasury stock Hedging and translation Retained earnings Income for the period Shareholders equity Non-current liabilities Provisions for risks Deferred tax liabilities Reserve for employee severance indemnity Bank borrowings Total non-current liabilities Current liabilities Trade payables (3) Tax payables Derivative financial instruments Other Bank Total current liabilities Total Shareholders equity and liabilities 15 15 15 15 15 12.31.10 61,219 213,975 74 194,612 82,974 552,854 1,200 24,192 7,972 5,227 38,591 125,051 14,788 595 24,499 1,591 166,524 757,969 12.31.09 61,219 213,975 21 275,738 71,921 622,874 665 21,666 8,158 6,819 37,308 99,049 3,326 353 12,644 1,521 116,893 777,075

21 19 22 16

20 20 17 20 16

Note 3: Trade payables includes payables to Groups entities for 6.1 and 4.0 million euros, respectively, at December 31st 2010 and December 31st 2009.

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Statement of Cash flow


Euro 000s Notes Profit (loss) for the period Non-cash adjustments: Amortizat., deprec., revaluat., and write-downs 7-8-10-12-13 Change in employee severance indemnity reserve 22 Change in deferred tax/liabilities 19 Other changes Cash flow (A) Change in current assets and liabilities: Inventories 12 Trade receivables 13 Tax receivables 13 Other current assets 13 Trade payables 20 Tax payables 20 Other current liabilities 20 Change in operating working capital (B) Cash flow from operations (C) = (A)+(B) Net investments in intangible and tangible assets 7-8 (1) (Increase) decrease of equity investments 11 Other changes in fixed assets 14 Reduction (increase) of other non-current assets Cash flow generated (used) in investment activities (D) Dividend paid 4 Changes in long term loans 16-22 Capital increase 15 Other changes in shareholders equity 15 Cash flow generated (used) in financing (E) Cash flow generated (used) (C+D+E) Year 10 82,974 23,835 321 (1,606) 535 106,059 (3,577) 1,642 (1,606) (3,234) 26,002 11,462 5,167 35,856 141,915 (12,986) (40,423) 1,892 (18) (51,535) (153,047) (2,099) 53 (155,093) (64,713) Year 09 71,921 19,349 379 1,152 290 93,091 25,879 8,998 (3,222) 3,329 (3,413) (340) (3,167) 28,064 121,155 (7,939) 1,436 (736) (7,239) (38,262) (2,123) 4,664 1,128 (34,593) 79,323

Net Financial position at the beginning of the period Net Financial position at the end of the period Change in current net financial position

126,869 62,156 (64,713)

47,546 126,869 79,323

Nota 1:The balance includes for 2.1 million euros the acquisition cost of Holpaf B.V. investment which is a transaction with a related party (Note 11 and 23).

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Statement of changes in equity


Year 2010 Euro 000s Share capital Balances as of 01.01.10 Profit/(Loss) recognized in the period Profit & Loss account Directly in equity Total Profit/(Loss) Dividends (distribution Income of year 2009) Extraordinary dividends Capital increase Share based payments Other Balances as of 12.31.10 61,219 Capital reserves 213,975 Reserve for translation 21 Retained earnings 347,659 82,974 53 53 82,974 (45,914) (107,133)

Total 622,874 82,974 53 83,027 (45,914) (107,133) 552,854

61,219

213,975

74

277,586

Year 2009 Euro 000s Share capital Balances as of 01.01.09 Profit/(Loss) recognized in the period Profit & Loss account Directly in equity Total Profit/(Loss) Dividends Capital increase Share based payments Other Balances as of 12.31.09 60,962 Capital reserves 213,903 Reserve for translation (798) Retained earnings 309,356 71,921 257 4,407 309 (4,644) 213,975 819 819 71,921 (38,262)

Total 583,423 71,921 819 72,740 (38,262) 4,664 309 622,874

61,219

21

4,644 347,659

Note: For detailed information on Reserves see also Note 15.

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SUPPLEMENTARY NOTES

S.p.A. 2010 Annual Report

1.

General notes

The Notes to the Separate Financial Statements were prepared in accordance with IAS/IFRS and supplemented by the additional information required by CONSOB and the orders it issued in implementation of Article 9 of Legislative Decree 38/2005 (Resolutions 15519 and 15520 of July 27th 2006 and memorandum DEM/6064293 of July 28th 2006, pursuant to Article 114(5) of the Consolidated Law on Finance-TUF), Article 78 of the Issuer Regulation, the EC document of November 2003 and, when applicable, the Italian Civil Code. Consistently with the financial statements for the previous year, certain information is provided in the Report by the Board of Directors on Operations. The Separate financial statements were approved by the Board of Directors of TODS S.p.A. on March 14th 2011.

2.

Financial statements format: choice of form and classification principles

On transition to IFRSs,TODS S.p.A. opted to continue using the same balance sheet and income statement formats used in its disclosures pursuant to Italian GAAP for presentation of its financial position and operating results.These financial statements, complemented as necessary by the Report of the Board of Directors on Operations and the notes to the financial statements, are considered to be those that provide the best organized representation of the company financial position and income. More specifically, the balance sheet format shows current items separately from non-current items (both assets and liabilities). On the profit and loss account, the format of representing revenues and costs by nature is followed, indicating the EBITDA and EBIT results as in the past, since they are considered representative indicators of company performance.The indirect method is used for the statement of cash flows.

3.

Highlights of the accounting principles

The consolidated financial statements are prepared in accordance with IAS/IFRS (International Accounting Standards-IAS, and International Financial Reporting Standards-IFRS) issued by the IASB, on the basis of the text published in the Official Journal of the European Union (OJEU). Furthermore, they are prepared on the basis of historic costs, with the sole exception of derivative financial instruments, which are measured at fair value. Accounting principles, amendments, interpretations applicable since January 1st 2010 and not relevant for the Group The following accounting standards are applicable since 1st January 2010 and refer to situations or cases that were not applied to TODS Group Financial Statements of the year ending at December 31st 2010: IFRS 3 (2008) - Business combinations.The updated version of IFRS 3 introduced major changes, principally in regard to: the regulations governing incremental acquisitions of subsidiaries; the option of fair value measurement of any third party interests acquired in a partial acquisition; the charging to income of all costs connected with the business combination and recognition at the acquisition date of the liabilities for conditional payments. IAS 27 (2008) - Consolidated and Separate Financial Statements.The changes to IAS 27 principally concern the accounting treatment of transactions or events that modify equity interests in subsidiaries and the allocation of losses by the subsidiary to minority interests. The following amendments, interpretations are also applicable since 1st January 2010 and refer to situations or cases that were not applied to TODS Group Financial Statements of the year ending at December 31st 2010: Improvement to IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations. Amendments to IAS 28 - Investments in Associates and to IAS 31 - Interests in Joint Ventures consequential to the amendment to IAS 27. Improvements to IAS/IFRS (2009). Amendment to IFRS 2 - Share based Payment: Group Cash-settled Share-based Payment Transactions.

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IFRIC 17 - Distributions of Non-cash Assets to Owners. IFRIC 18 - Transfers of Assets from Customers. Amendment to IAS 39 - Financial Instruments: Recognition and Measurement: Eligible Hedged items. 3.1 Transactions in foreign currency. The functional currency (the currency used in the principal economic area where the company operates) used to present the financial statements is the Euro. Foreign currency transactions are translated into the functional currency by applying the exchange rate in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the date of the financial statements are translated by using the exchange rate in effect at the closing date. Non-monetary assets and liabilities are valued at their historic cost in foreign currency and translated by using the exchange rate in effect at the transaction date. The foreign exchange differences arising upon settlement of these transactions or translation of cash assets and liabilities are recognized on the profit and loss account, with the exception of those deriving from derivative financial instruments qualified as hedging of financial flows. In fact, these differences are recognized as a separate component of shareholders equity or on the profit and loss account. 3.2 Derivative financial instruments. The company uses derivate financial instruments (mainly currency futures contracts) to hedge the risks stemming from foreign exchange exposure deriving from its operating activity, without any speculative or trading purposes, and consistently with the strategic policies of centralized cash management dictated by the Board of Directors. When derivative transactions refer to a risk connected with the variability of forecast transaction cash flow, they are recognized according to the rules for cash flow hedge until the transaction is recorded on the books. Subsequently, the derivatives are treated in accordance with fair value hedge rules, insofar as they can be qualified as instruments for hedging changes in the value of assets or liabilities carried on the balance sheet. The hedge accounting method is used at every financial statement closing date. This method envisages posting derivatives on the balance sheet at their fair value. Posting of the changes in fair value varies according to the type of hedging at the valuation date: for derivatives that hedge forecast transactions (i.e. cash flow hedge), the changes are recognized in shareholders equity, while the portion for the ineffective amount is recognized on the profit and loss account, under financial income and expenses; for derivatives that hedge receivables and payables recognized on the balance sheet (i.e. fair value hedge), the fair value differences are recognized entirely on the profit and loss account, adjusting operating margins. Furthermore, the value of the hedged item (receivables/payables) is adjusted for the change in value attributable to the hedged risk, using the item financial income and expenses as a contra-entry. 3.3 Intangible fixed assets. Goodwill. All business combinations are recognized by applying the acquisition method. Goodwill represents the portion of the cost paid for the acquisition that exceeds the companys interest in the fair value of the assets, liabilities, and identifiable potential liabilities of the subsidiary or jointly controlled entity at the acquisition date. If the companys interest in the fair value of assets, liabilities, and identifiable potential liabilities exceeds the cost of the acquisition (negative goodwill) after redetermination of these values, the excess is immediately recognized on the profit and loss account. For acquisitions prior to January 1st 2004, the date of transition to IAS/IFRS, goodwill retained the values recognized on the basis of the previous Italian GAAP, net of accumulated amortization up to the transition date. Goodwill is recognized on the financial statements at its cost adjusted for impairment losses. It is not subject to amortization, but the adequacy of the values is annually subjected to the impairment test, in accordance with the rules set forth in the section Impairment losses.
i. ii. Trademarks. These are recognized according to the value of their cost and/or acquisition, net of accumulated amortization at the date of transition to IAS/IFRS.Trademarks TODS, HOGAN e FAY are classified as intangible fixed assets with an indefinite useful life and thus are not amortized, insofar as:

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they play a primary role in company strategy and are an essential driver thereof; the corporate structure, construed as organized property, plant, and equipment, and organization itself in a figurative sense, is closely correlated with and dependent on dissemination and development of the trademarks on the markets; the trademarks are proprietary, properly registered, and constantly protected pursuant to law, with options for renewal of legal protection, upon expiration of the registration periods, that are not burdensome, easily implemented, and without external impediments; the products sold by the company with these trademarks are not subject to particular technological obsolescence, which is characteristic of the luxury market in which the company operates; on the contrary, they are consistently perceived by the market as being innovative and trendy, to the point of being models for imitation or inspiration; in the national and/or international context characteristic of each trademark, they are distinguished by market positioning and notoriety that ensures their dominance of the respective market segments, being constantly associated and compared with benchmark brands; in the relative competitive context, it can be affirmed that the investments made for maintenance of the trademarks are proportionately modest with respect to the large forecast cash flows. The adequacy of the values is annually subjected to the impairment test, in accordance with the rules set forth in the section Impairment losses.
iii. Research and development costs. The research costs for a project are charged fully to the profit and loss account of the period in which they are incurred. The development costs of an activity are instead capitalized if the technical and commercial feasibility of the relative activity and economic return on the investment are certain and definite, and the company has the intention and resources necessary to complete the development. The capitalized costs include the costs for materials, labor, and an adequate portion of overhead costs.They are recognized at cost, net of accumulated amortization and depreciation (see below) and impairment losses. iv. Other intangible fixed assets. These are identifiable non-monetary intangible assets under the control of

the company and capable of causing the company to realize future economic benefits. They are initially recognized at their purchase cost, including expenses that are directly attributable to them during preparation of the asset for its intended purpose or production, if the conditions for capitalization of expenses incurred for internally generated expenses are satisfied. The cost method is used for determining the value reported on subsequent statements, which entails posting the asset at its cost net of accumulated amortization and write-downs for impairment losses.
v. Subsequent capitalization. The costs incurred for these intangible fixed assets after purchase are capitalized only to the extent that they increase the future economic benefits of the specific asset they refer to.All the other costs are charged to the profit and loss account in the fiscal year in which they are incurred. vi. Amortization. Intangible fixed assets (excluding those with an indefinite useful life) are amortized on a straightline basis over the period of their estimated useful life, starting from the time the assets are available for use.

3.4 Tangible fixed assets.


i. Property, plant, and equipment owned by the company. They are first recognized at their purchase cost or at the cost recalculated at the date of transition to IFRS, including any directly attributable ancillary expenses. Following first-time recognition, these assets are reported net of their accumulated depreciation and impairment losses (i.e. in accordance with the cost model). For those assets whose depreciation must be calculated using the component approach, the portions of cost allocable to the individual significant components characterized by a different useful life are determined. In this case, the value of land and buildings is kept separate, with only buildings being depreciated.

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Leasing. Lease agreements in which the Company assumes all the risks and benefits deriving from ownership of the asset are classified as finance leasing.The assets (real estate, plant, and machinery) possessed pursuant to these agreements are recorded under property, plant, and equipment at the lesser of their fair value on the date the agreement was made, and the current value of the minimum payments owed for leasing, net of accumulated depreciation and any impairment losses (according to the rules described in the section Impairment losses).A financial payable for the same amount is recognized instead under liabilities, while the component of interest expenses for finance leasing payments is reported on the profit and loss account according to the effective interest method. ii. iii. Subsequent capitalizations. The costs incurred for property, plant, and equipment after purchase are capitalized only to the extent that they increase the future economic benefits of the asset.All the other costs are charged to the profit and loss account in the fiscal year in which they are incurred. iv. Real estate investments. Real estate investments are originally recognized at cost, and then recognized at

their cost as adjusted for accumulated depreciation and impairment losses. Depreciation is calculated on a systematic, straight-line basis according to the estimated useful life of the buildings.
v. Depreciation. Property, plant, and equipment were systematically depreciated at a steady rate according to the depreciation schedules defined on the basis of their estimated useful life. Land is not depreciated.The principal depreciation rates applied are as follows:
% depreciation 3% 12.5% 25% 25% 12% 20% 20%-25%

Industrial buildings Machinery and plant Equipments Forms and punches, clichs, molds and stamp Furniture and furnishings Office machines Car and transport vehicles

The costs for leasehold improvements, which mainly include the costs incurred for set up and modernization of the DOS network and all the other real estate that is not owned but used by the company (and thus instrumental to its activity) are depreciated according to the term of the lease agreement or the useful life of the asset, if this is shorter. 3.5 Impairment losses. In the presence of indicators, events, or changes in circumstances that presume the existence of impairment losses, IAS 36 envisages subjecting intangible fixed assets and property, plant and equipment to the impairment test in order to assure that assets with a value higher than the recoverable value are not recognized on the financial statements. As previously mentioned, this test is performed at least once annually for fixed assets with an indefinite useful life, and likewise for fixed assets that are not yet in use. Confirmation of the recoverability of the values recognized on the balance sheet is obtained by comparing the book value at the reference date and the fair value net of sale costs (if available) or usage value.The usage value of a tangible or intangible fixed asset is determined according to the estimated future financial flows expected from the asset, as actualized through use of a discount rate net of taxes, which reflects the current market value of the current value of the cash and risks related to the Group activity, as well as the cash flows deriving from disposal of the asset at the end of its useful life. If it is not possible to estimate an independent financial flow for an individual asset, the cash generating unit to which the asset belongs and with which it is possible to associate future cash flows that can be objectively determined and independent from those generated by other operating units is identified. Identification of the cash generating units was carried out consistently with the organizational and operating architecture of the Company.

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If the impairment test reveals an impairment loss for an asset, its book value is reduced to the recoverable value by posting a charge on the profit and loss account, unless the asset is revalued. In that case, the write-down is recognized in the revaluation reserve. When the reasons for a write-down cease to exist, the book value of the asset (or the cash generating unit), with the exception of goodwill, is increased to the new value resulting from the estimate of its recoverable value, but not beyond the net book value that the asset would have had if the impairment loss had not been charged.The restored value is recognized immediately on the profit and loss account, unless the asset is revalued, in which case the restored value is recognized in the revaluation reserve. 3.6 Investments in subsidiaries and associated companies. The investments in subsidiaries, joint ventures, and associated companies that are not classified as held for sale in compliance with IFRS 5 are recognised at their historic cost.The value recognised on the financial statements is periodically subjected to the impairment test, as envisaged by IAS 36, and adjusted for any impairment losses. 3.7 Current assets. Financial assets. These are recognized and cancelled on the balance sheet according to the trading date and are initially valued at cost, including costs directly connected with the purchase. At the subsequent financial statement dates, the financial assets that the company intends and is able to hold until maturity (securities held until maturity) are recognized at the cost amortized according to the effective interest method, net of impairment losses. Financial assets other than those held until maturity are classified as held for trading or available for sale, and are recognized at their fair value at the end of each period.When the financial assets are held for trading, the profits and losses deriving from changes in the fair value are recognized on the profit and loss account for the period. In the case of financial assets available for sale, the profits and losses deriving from changes in the fair value are recognized directly in shareholders equity until they are sold or have sustained a loss in value. At that time, the aggregate profits or losses that were previously recognized in shareholders equity are recognized on the profit and loss account of the period.
i. ii. Inventories. These are recognized at the lower of purchase cost and their assumed disposal value.The net disposal value represents the best estimate of the net sales price that can be realized through ordinary business processes, net of any production costs not yet incurred and direct sales costs. The cost of inventories is based on the weighted average cost method. The production cost is determined by including all costs that are directly allocable to the products, regarding for work in progress and/or semi-finished products the specific stage of the process that has been reached.The values that are thus obtained do not differ appreciably from the current production costs referring to the same classes of assets. A special depreciation reserve is set aside for the portion of inventories that are no longer considered economically useable, or with a presumed disposal value that is less than the cost recognized on the financial statements. iii. Trade receivables and other receivables. These are valued and recognized on a prudent basis according

to their presumed disposal value, by means of adjusting the face value with a specific allowance for doubtful accounts determined as follows: receivables under litigation, with certain and precise evidence documenting the impossibility of collecting them, have been analytically identified and then written down; for other bad debts, prudent allowances for write-downs have been set aside, estimated on the basis of information updated at the date of this document.
iv. Cash. This includes cash on hand, bank demand deposits, and financial investments with a maturity of no more

than three months. These assets are highly liquid, easily convertible into cash, and subject to a negligible risk of change in value.

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3.8 Employee benefits.


i Defined contribution plans. The payments for eventual defined contribution plans are charged to the profit

and loss account in the period that they are owed.


ii. Defined benefit plans. For defined benefit plans, the cost is determined by using the projected unit credit method, carrying out actuarial valuations at the end of every fiscal year. The accumulated actuarial profits and losses not recognized at the beginning of the fiscal year are recognized only to the extent that they exceed 10% of the greater between the current volume of defined benefit plan liabilities and the fair value of the assets of the program at that date.The cost of past work services is recognized immediately in the amount in which the benefits have already accrued or is otherwise amortized at a constant rate by the average period in which it is expected that the benefits will accrue. The liabilities for benefits paid out after termination of the employment relationship reported on the financial statements represent the current value of liabilities for defined benefit plans adjusted to take into account the actuarial profits and losses that were not recognized and the costs for past work services that were not recognized, and reduced by the fair value of the program assets. Any net assets resulting from this calculation are limited to the value of the unreported actuarial losses and the cost for the past work services that were not recognized, plus the current value of any reimbursements and reductions in the future contributions to the plan.

iii. Share based payments. The payments based on shares are assessed at their fair value on the assignment date. This value is recognized on the profit and loss account on a straight-line basis throughout the period of accrual of the rights.This allocation is made on the basis of a management estimate of the stock options that will actually accrue in favor of vested employees, considering the conditions for use thereof not based on their market value. The fair value is determined by using the binomial method.The useful life utilized in the model has been adjusted according to an estimate by management in order to take into account the effects of non-transferability of the options, restrictions on exercise thereof, and the assumed behavior of individuals.

3.9 Payables.
Bank overdrafts and financing. Interest-bearing financing and bank overdrafts are recognized on the basis of the amounts collected, net of transaction costs, and subsequently valued at the amortized cost, using the effective interest method. i. ii. Trade payables and other payables. These are their face value.

3.10 Revenues recognition. Revenues are recognized on the profit and loss account when the significant risks and benefits connected with ownership of the transferred assets are transferred to the buyer. In reference to the principal types realized by the company, revenues are recognized on the basis of the following principles: a. Sales of goods - retail. The company operates in the retail channel through its DOS network. Revenues are recognised when the goods are delivered to customers. Sales are usually collected in the form of cash or through credit cards; b. Sales of goods - wholesale. The company distributes products on the wholesale market. These revenues are recognised when the goods are shipped and considering the estimated effects of returns at the end of the year; c. Provision of services.This income is recognised in proportion to the percentage of completion for the service provided on the reference date; d. Royalties.These are recognised on the financial statements according to the principle of period allocation. 3.11 Financial income and expenses. These include all financial items recognized on the profit and loss account for the period, including interest expenses accrued on financial payables calculated by using the effective interest method (mainly current account overdrafts, medium-long term financing), foreign exchange gains and losses, gains and losses on derivative financial instruments (according to the previously defined accounting

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S.p.A. 2010 Annual Report

principles), received dividends, the portion of interest expenses deriving from accounting treatment of assets held under finance leasing (IAS 17) and employee reserves (IAS 19). Interest income and expenses are recognized on the profit and loss account for the period in which they are realized/incurred, with the exception of capitalized expenses. Dividend income contributes to the result for the period in which the company accrues the right to receive the payment. 3.12 Income taxes. The income taxes for the period include determination both of current taxes and deferred taxes.They are recognized entirely on the profit and loss account and included in the result for the period, unless they are generated by transactions recognized directly to shareholders equity during the current or another period. In this case, the relative deferred tax liabilities are also recognized under shareholders equity. Current taxes on taxable income for the period represent the tax burden determined by using the tax rates in effect at the reference date, and any adjustments to the tax payables calculated during previous periods. Deferred tax liabilities refer to the temporary differences between the book values of assets and liabilities on the balance and the associated values relevant for determination of taxable income.The tax liability of all temporary taxable differences, with the exception of liabilities deriving from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, does not influence either the income (loss) reported on the financial statements or taxable income (tax loss). Deferred tax assets that derive from temporary deductible differences are recognized on the financial statements only to the extent that it is likely taxable income will be realized for which the temporary deductible difference can be used. No allocation is envisaged if the deferred tax asset derives from business combinations, or from the initial posting of an asset or liability in a transaction other than a business combination that, at the time of the transaction, does not influence either the income (loss) reported on the financial statements or taxable income (tax loss). The tax benefits resulting from tax losses are recognized on the financial statements of the period in which the benefits accrued, if it is likely that taxable income will be realized and for which the tax loss can be used. The taxes in question (deferred tax assets and liabilities) are determined on the basis of a forecast of the assumed percentage weight of the taxes on the income of the fiscal years in which the taxes will occur, taking into account the specific nature of taxability and deductibility.The effect of change in tax rates is recognized on the profit and loss account of the fiscal year in which this change takes place. 3.13 Provisions. These are certain or probable liabilities that have not been determined at the date they occurred and in the amount of the economic resources to be used for fulfilling the obligation, but which can nonetheless be reliably estimated.They are recognized on the balance sheet in the event of an existing obligation resulting from a past event, and it is likely that the company will be asked to satisfy the obligation. If the effect is significant, and the date of the presumed discharge of the obligation can be estimated with sufficient reliability, the provisions are recognized on the balance sheet by actualizing future financial flows. The provisions that can be reasonably expected to be discharged twelve months after the reference date are classified on the financial statements under non-current liabilities. Instead, the provisions for which the use of resources capable of generating economic benefits is expected to take place in less than twelve months after the reference date are recognized as current liabilities. 3.14 Share capital. Share capital. The total value of shares issued by the parent company is recognized entirely under shareholders equity, as they are the instruments representing its capital.

i.

ii. Treasury stock. The consideration paid for buy-back of share capital (treasury stock), including the expenses directly related to the transaction, is subtracted from shareholders equity. In particular, the par value of the shares reduces the share capital, while the excess value is recognized as an adjustment to additional paidin capital.

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iii. Dividends. The allocation of dividends to persons possessing instruments representing share capital after the reference date of the financial statement is not recognized under financial liabilities on the same reference date.

3.15 Statement of cash flows. The statement of cash flows is drafted using the indirect method. The net financial flows of operating activity are determined by adjusting the result for the period of the effects deriving from change to net operating working capital, non-monetary items, and all the other effects connected with investment and financing activities. Cash at the beginning and end of the period represents the net-short-term financial position.

4.

Dividends

In FY 2010, the Shareholders Meeting of the parent company TODS S.p.A. approved payment of a total 153 million euros, broken down as follows: i) ordinary dividends to be charged against the net profit for FY 2009 (Shareholders Meeting of April 22nd 2010), totalling 45,914,101.50 euros, at the rate of 1.50 euros per share; ii) extraordinary dividends, to be charged to the extraordinary reserve (Shareholders Meeting of September 21st 2010), for 107,132,903.50 euros, at the rate of 3.50 euros per share; in favour of the owners of the 30,609,401 outstanding ordinary shares comprising the share capital, entitled to participate in profits on the coupon detachment date (May 24th 2010 and October 11th 2010, respectively). Regarding the net profit for FY 2010, totalling 82,974,255.62, the Board of Directors has proposed to distribute a dividend for two euro per share, totalling 61,218,802.00 euros.The dividend is subject to approval by the annual Shareholders Meeting, and was not included among the liabilities reported on this balance sheet.

5.

Earnings per share

The calculation of base and diluted earnings per share is based on the following:
i. Reference profit

Euro 000s For continuing and discontinued operations Profit used to determine basic earning per share Dilution effects Profit used to determine basic earning per share

Year 10 82,974 82,974

Year 09 71,921 71,921

Euro 000s For continuing operations Net profit of the year Income (loss) from discontinued operations Profit used to determine basic earning per share Dilution effects Profit used to determine diluted earning per share

Year 10 82,974 82,974 82,974

Year 09 71,921 71,921 71,921

In both fiscal 2010 and 2009, there were no dilutions of net consolidated earnings, partly as a result of activities that were discontinued during the periods in question.

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S.p.A. 2010 Annual Report

ii.

Reference number of shares


Year 10 30,609,401 30,609,401 Year 09 30,609,401 30,609,401

Weighted average number of shares to determine basic earning per share Share options Weighted average number of shares to determine diluted earning per share

iii. Base earnings per share. Calculation of the base earning per share for fiscal year 2010 is based on the net income allocable to holders of ordinary shares of TODS S.p.A., totalling euro 82,974 thousand (71,921 thousand euros in 2009), and on the average number of ordinary shares outstanding during the same period, totalling 30,609,401 (unchanged respect to year 2009). iv. Diluted earnings per share. Calculation of the diluted earnings per share for the period January-December 2010 coincides with calculation of earnings per share, insofar as conclusion of the Stock Options Plan in year 2009.

6.

Assets with indefinite useful life

These include 137,235 thousand euros for the value of Group owned brands and goodwill from business combinations for 13,241 thousand euros arisen before First Time Adoption of IAS/IFRS. The value of Brands is broken down amongst the various brands owned by the Company (TODS, HOGAN and FAY):
Euro 000s TODS brand HOGAN brand FAY brand Total 12.31.10 3,741 80,309 53,185 137,235 12.31.09 3,741 80,309 53,185 137,235

The balance of assets with an indefinite useful life did not change from its value at December 31st 2009.

7.

Other assets

The following table details the movements of these assets in the current and previous fiscal year:
Euro 000s Balance as of 01.01.09 Increases Decreases Impairment losses Other changes Amortization of the period Balance as of 01.01.10 Increases Decreases Impairment losses Other changes Amortization of the period Balance as of 12.31.10 Other trademarks 668 862 Software 8,981 1,753 Other assets 1,296 24 Total 10,945 2,639 (3,010) 10,574 5,184 (3,419) 12,339

(198) 1,332 858

(2,492) 8,242 2,909

(320) 1,000 1,417

(242) 1,948

(2,895) 8,256

(282) 2,135

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S.p.A. 2010 Annual Report

8.

Tangible fixed assets

The following table illustrates the changes during the current and previous fiscal year.

Euro 000s

Land and buildings 41,282 19

Plant and machin. 5,381 694 (200)

Equip. 11,830 5,145 853

Leasehold improve 1,409 162 (15)

Others 5,512 505 (154)

Total 65,414 6,525 (1,222) (10,063) 60,654 8,418 (616) (10,044) 58,412

Balance as of 01.01.09 Increases Decreases Impairment losses Other changes Depreciation of the period Balance as of 01.01.10 Increases Decreases Impairment losses Other changes Depreciation of the period Balance as of 12.31.10

(1,231) 40,070 9

(1,623) 4,252 712 (97)

(5,131) 10,991 6,281 (360)

(575) 981 108

(1,503) 4,360 1,308 (159)

(1,234) 38,845

(1,578) 3,289

(5,437) 11,475

(423) 666

(1,372) 4,137

9.

Impairment losses

The recoverability of the residual value of assets with an indefinite and definite useful life, as of property, plant and equipment and Equity Investments in subsidiaries (Assets) was determined to ensure that assets with a value higher than the recoverable value were not recognised on the financial statements, which refers to their value in use. The criterion used to determine value in use is based on the provisions of IAS 36, and is based on the current value of expected future cash flows (discounted cash-flow analysis - DCF), which is presumed to derive from the continual use and disposal of an asset at the end of its useful life, discounted at an interest rate (net of taxes) that reflects current market rates for borrowing money and the specific risk associated with the individual cash generating unit. The recoverability of Assets was verified by comparing the net book value with the recoverable value (value in use). The value in use is represented by the discounted value of future cash flows that are expected from Assets and by the terminal value attributable to them. The discounted cash flow analysis was carried out by using the FY 2010 budget as its basis.That budget was prepared and approved by the Board of Directors on the assumption that the Company would be a going concern for the foreseeable future: the Board of Directors first assessed the methods and assumptions used in developing the model. In particular: i. The medium-term projection of budget figures for FY 2011 was carried out on a time horizon limited to the foreseeable future, using an average rate of sales growth of 5%, a constant EBITDA margin and a constant tax rate of 32%.These prudent assumptions represent trends that are lower than the historic (including recent) trend of the Group. Consequently, the budget projections comply with the prescriptions of IAS 36. ii. The terminal value of strategic assets (brands), was determined by using the same prudent growth rate used to extrapolate budget data (5%) for future projections, as well as the rates of return on brands positioned at the lower end of the market for licenses. iii. To determine the value in use, a WACC, net of taxes, of 8.84% was used (the WACC rate used at December 31st 2009 was 8.6%), determined by referring to the discounting rates used by a series of international analysts in financial reports on the TODS Group.
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The analyses carried out on the recoverability of Company assets (including 137.2 million euros represented by proprietary brands and 13.2 million by goodwill from business combinations) and equity investments in subsidiaries (worth 143.2 million euros at December 31st 2010) did not show any sign of impairment. The sensitivity analysis performed on the impairment test in accordance with IAS 36, in order to reveal the effects produced on the value in use by a reasonable change in the basic assumptions (WACC, growth rates, EBITDA margin) and determination of the terminal value (perpetual annuity), did not reveal an appreciable impact on determination of the value in use and its coverage. Given the significant value assumed by the cover, it would be necessary to make unrealistic base assumptions to render the value in use equal to the book value of Group assets (the break-even hypothesis).

10. Investment property


The residual value of investment property at December 31st 2010 was euro 46 thousand. It consisted exclusively of real estate leased to third parties.The fair value of these investments is estimated to be euro 250 thousand, according to the market prices for similar properties available for rent at similar conditions.
Euro 000s Historic cost Accumulated depreciation Balance as of 01.01.10 Increases (decrease) Amortization of the period Balance as of 12.31.10

115 (66) 49 (3) 46

11. Investments in subsidiaries, joint ventures, and associated companies


The value of equity investments owned by the Company at December 31st 2010 totalled 143,196 thousand euros. On November 26th 2010 (the closing date) the Group acquired 100% of the shares of Holpaf B.V., a Dutch company with head office in Amsterdam. This deal is classifiable as a related party transaction, insofar as Holpaf B.V. was indirectly controlled, through Goral Investment Holding B.V., by Diego DellaValle & C. SAPA, a company belonging to Diego and Andrea Della Valle, and controlled by Diego Della Valle (also see note 23). Holpaf B.V. owns a property (land and building) in the Shibuya district of Tokyo, on one of the most prestigious and heavily trafficked streets of the quarter popularly known as Omotesando.TODS Japan K.K. has used this building on an exclusive basis since 2005, pursuant to a lease agreement made on February 22nd 2005 with Holpaf B.V.The building houses the administrative offices of TODS Japan and also serves as the location for the most important TODS flagship store in Japan.The price for sale of the company shares was agreed in the total amount of JPY 230 million, about euro 2.1 million at the exchange rate in effect on the closing date (JPY 110.92/EUR 1).This figure was based on the value of the pro-forma net equity of Holpaf B.V. at September 30th 2010, while also considering the Japanese tax liability for the higher market value of the property as opposed to its cost recognised for tax purposes, and adjustment of the price according to the differences between the net financial position of the acquired company at the closing date and the pro-forma net financial position at September 30th 2010. At the same time it acquired the shares, the company recapitalised Holpaf B.V. for 22 million euros (share premium), to provide it with the financial resources necessary for full repayment of a shareholder loan of 20.6 million euros, granted by the previous owners prior to the acquisition, pursuant to the Sale & Purchase Agreement signed by the parties (TODS S.p.A. and Goral Investment Holding B.V.). For a complete analysis of the transaction, please see the Disclosure drafted in compliance with the rules set out in the new Annex 3 of the Related Parties Regulation no. 17221/2010, which is also available on the corporate website www.todsgroup.com.

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Finally, in order to assure a balanced financial structure for certain indirect subsidiaries in the Far East, the company contributed 16.2 million euros to recapitalisation of the sub-holding TODS International B.V., consequently increasing the value of the shareholding by this amount. Finally, the value of the shareholdings in the indirect subsidiaries TODS Hong Kong Ltd and TODS Macao Lda increased by 121 thousand euros and 18 thousand euros, respectively, following the capital increases carried out by these companies, for the 1% share owned directly by TODS S.p.A The impairment tests performed at the reporting date showed no impairment (also see note 9). Information about the subsidiaries follows below:
Company TODS Deutsch, Gmbh Dusseldorf - Germany S.C - euro 153,387.56 % direct held: 100% TODS France Sas Paris - France S.C. - euro 780,000 % direct held: 100% An.Del, USA Inc, (*) New York - U.S.A. S.C. - Usd 3,700,000 % direct held: 100% TODS Internat, BV (*) Amsterdam - Netherlands S.C. - euro 2,600,200 % direct held: 100% Del.Com S.r.l. (*) S. Elpidio a Mare - Italy S.C. - euro 31,200 % direct held: 100% TODS Hong Kong Ltd Hong Kong S.C. - Usd 16,550,000 % direct held: 1% Holpaf BV Amsterdam - Netherlands S.C. - euro 5,000,000 % direct held: 100% Un.Del Kft Tata - Hungary S.C. - Huf 42,900,000 % direct held: 10% TODS Macao Lda Macao S.C. - Mop 20,000,000 % direct held: 1% Currency Shareholders equity Net profit (loss) Book value (Euro)

euro

10,340,840.89

1,596,178.86

3,153,387.56

euro

11,885,732.88

2,197,022.09

5,707,622.45

usd

34,691,339.67

(80,221.43)

34,656,431.69

euro

76,647,914.85

14,901,525.86

24,170,662.59

euro

80,005,331.49

8,416,077.65

51,107,501.41

hkd

447,986,898.33

101,345,198.23

129,046.56

jpy

3,040,015,876

(294,163,434)

24,083,377.88

huf

138,862,448.00

59,618,685.00

18,054.44

mop

15,933,272.21

2,770,880.86

18,551.07

(*) The figures for the companies that are directly controlled through sub holdings are reported on the Consolidated Financial Statement of TODS S.p.A.

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12. Inventories
Euro 000s Raw materials Semi-finished goods Finished products Advances Write-downs Total 12.31.10 51,298 5,543 92,551 1 (11,400) 137,993 12.31.09 47,812 6,143 91,997 21 (8,465) 137,508 Change 3,486 (600) 554 (20) (2,935) 485

The recognised allowance for inventory write-downs reasonably reflects the technical and stylistic obsolescence of Group inventories at December 31st 2010. Of the amount of allowances existing at December 31st 2009, 1.9 million euros were used during FY 2010.The amount accrued during FY 2010 totalled 4.8 million euros.

13. Other current assets


13.1 Trade receivables.
Euro 000s Third parties Groups entities Impairment loss Net trade receivables 12.31.10 108,608 59,962 (3,110) 165,460 12.31.09 102,358 68,319 (3,225) 167,452 Change 6,250 (8,357) 115 (1,992)

Receivables from third parties. These represent the credit exposure stemming from sales made through the

wholesale channel.
Receivables from subsidiaries. They include the Companys receivables from Group entities and stem primarily

from commercial transactions and, to a lesser extent, provision of services.


Allowances for bad debts. The amount of the adjustment to the face value of the receivables represents the best

estimate of the impairment loss determined against the specific and generic risk of inability to collect identified in the receivables recognised on the balance sheet. The changes in the allowances for bad debts are illustrated as follows:
Euro 000s Balance as of 01.01.10 Increase Decrease Balance as of 12.31.10 12.31.10 3,225 350 (465) 3,110 12.31.09 2,693 600 (68) 3,225

13.2 Tax receivables. Totalling 8,442 thousand euros (FY 2009: 6,836 thousand euros), they are largely represented by 3.5 million euros in receivables from the Italian subsidiaries that participated in the tax consolidation programme (see Note 27) and VAT receivables for 4.5 million euros.

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13.3 Other.
Euro 000s Prepaid expenses Financial assets (Note 14) Other Total 12.31.10 1,836 4,146 1,425 7,407 12.31.09 592 6,038 1,071 7,701 Change 1,244 (1,892) 354 (294)

14. Financial assets


Financial assets are comprised exclusively by loans granted to the Groups companies:
Euro 000s Current account overdraft Financing within 12 month Total current assets Financing beyond 12 months Total financial assets 12.31.10 925 3,221 4,146 4,146 12.31.09 3,410 2,628 6,038 6,038 Change (2,485) 593 (1,892) (1,892)

The amount of 3,221 thousand euros refers a loan denominated in JPY granted to the subsidiary TODS Japan KK. Repayment of the last instalment is scheduled for 2011.The balance at December 31st 2010 is denominated in the following currencies:
Euro 000s Current account overdraft Financing Total Euro 925 925 Jpy 3,221 3,321 Total 925 3,221 4,146

15. Shareholders equity


15.1 Share Capital. At December 31st 2010, the company share capital totalled 61,218,802 euros, and was divided into 30,609,401 shares having a par value of 2 euros each, fully subscribed and paid in. All shares have equal voting rights at the general meeting and participation in profits. 15.2 Capital reserves. The following schedule illustrates the changes in fiscal 2010:
Euro 000s Additional Paid-in capital reserve 208,763 5,212 213,975 Stock options reserve 5,140 309 (805) (4,644) -

Total 213,903 309 4,407 (4,644) 213,975


to be continued

Balance as of 01.01.09 Share based payments Options exercised Other Balance as of 01.01.10

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S.p.A. 2010 Annual Report

continuing

Euro 000s

Additional Paid-in capital reserve

Stock options reserve

Total

Share based payments Options exercised Other Balance as of 12.31.10

213,975

213,975

15.3 Hedging reserve. The derivatives resulting from forward currency contracts (see Note 17) used to hedge expected transactions (i.e. cash flow hedges) were recognised in the reserve for derivative financial instruments.
Euro 000s Hedging reserve Balance as of 01.01.09 Change in fair value of hedging derivates Transfer to Profit and Loss Account of hedging derivates Other Balance as of 01.01.10 Change in fair value of hedging derivates Transfer to Profit and Loss Account of hedging derivates Other Balance as of 12.31.10 (798) 529 290 21 (2,003) 2,056 74

15.4 Earning reserves. The following schedule illustrates the changes in fiscal 2010:
Euro 000s Retained earnings Balance as of 01.01.09 Allocation of 2008 result Dividends Profit for the period Other changes Balance as of 01.01.10 Allocation of 2009 result Extraordinary dividends Profit for the period Other changes Balance as of 12.31.10 239,511 31,583 Profit (loss) of the period 69,845 (31,583) (38,262) 71,921 71,921 (26,007) (45,914) 82,974 82,974 Total 309,356 (38,262) 71,921 4,644 347,659 (153,047) 82,974 277,586

4,644 275,738 26,007 (107,133) 194,612

The profits reserve was drawn down by 107.1 million euros, being used to pay out the previously mentioned extraordinary dividend.

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15.5 Information on distributable reserves. The following table provides information on the possible use and distribution of each specific account under shareholders equity and their possible use during the past three years:
In euro 000s Description Capital reserves Share capital Share premium Stock options reserve Hedging reserve Hedging reserve Retained earnings Legal Extraordinary
(1)

Possibility of use --A,B,C

Available amount --213,975 -

Uses in the preceding 3 years Coverage of losses Others -

(1)

B A,B,C

12,244 182,369

107,133

Pursuant to section 2431 Italian Civil Code, the entire amount of the reserve may be distributed only when the legal reserve has reached the limits

set forth in Section 2430 Italian Civil Code A - for capital increase B - for coverage of losses C - for distribution to shareholders

16. Bank overdraft and financing


Euro 000s Current account overdraft Financing Total 12.31.10 6,819 6,819 12.31.09 8,340 8,340 Change (1,521) (1,521)

The entire exposure to the bank system is comprised a long-term mortgage loan (see Note 21) denominated in euro.The portion payable after twelve months totals 5,227 thousand euros.The loan amortisation schedule is as follows:
Euro 000s 12.31.10 2010 2011 2012 2013 2014 Total 1,592 1,665 1,741 1,821 6,819 12.31.09 1,521 1,592 1,665 1,741 1,821 8,340

The loan is recognised at cost, a value that approximates its fair value, since the difference between the nominal and effective interest rates for the transaction are insignificant.

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S.p.A. 2010 Annual Report

17. Derivative financial instruments


Given the Companys major presence on international markets, it is exposed to exchange rate risk, principally for revenues denominated in currencies other than the euro (see Note 18).The principal currencies that pose this risk are the U.S. dollar, Hong Kong dollar, Swiss franc, and British pound. In order to realise the objectives envisaged in the risk management policy, derivative contracts were made for every single foreign currency to hedge a specific percentage of revenue (and cost) volumes expected in the individual currencies other than the functional currency. At each reporting date, the hedge accounting method is applied. This requires recognition of the derivatives in equity at their fair value and recognition of the changes in fair value, which varies according to the type of hedge at the valuation date. At the closing date, the notional amount of the currency futures sales agreements are summarized as follows:
Currency/000 Notional currency 24,000 407,000 350,000 6,150 5,800 1,780 Sale Notional Euro 17,961 48,818 3,221 7,145 4,639 1,636 73,491 Purchase Notional Notional currency Euro -

US dollar Hong Kong dollar Japanese Yen British pound Swiss Franc Canadian dollar Total

At the same date, the net fair value of foreign currency hedges was 1,397 thousand euros, including assets for 1,992 thousand euros (FY 2009: 356 thousand euros) and liabilities for 595 thousand euros (FY 2009: 353 thousand euros).The net fair value of foreign currency hedges that were earmarked for cash flow hedges was 118 thousand euros (asset) at December 31st 2010. Against the contracts for these last hedges, which were closed between January and December 2010, 2,056 thousand euros in hedge derivatives were transferred to the profit and loss account, recognised as a reduction in revenues.

18. Hedging of financial risks


The company has implemented a system for monitoring its financial risks in accordance with the guidelines set out in the Corporate Governance Code of Listed Companies.As part of this policy, the financial risks connected with its operations are constantly monitored in order to assess their potential negative impact and undertake appropriate action to mitigate them. These risks are analysed as follows, highlighting the companys level of exposure. It also includes a sensitivity analysis designed to quantify the potential impact of hypothetical fluctuations in benchmark parameters on final results.
i. Credit risk

Credit risk represents the exposure to potential losses stemming from failure to discharge obligations towards trading counterparties. The company generates its revenues through three main channels: Group companies (directly operated store network), franchisees and customers (multi-brand).There is practically no credit risk on receivables from the Company, since almost all the entities belonging to the TODS Group are wholly owned by the Group.The receivables from independent customers (franchisee e wholesale), are subject to a hedging policy designed to streamline credit management and reduce the associated risk. In particular, company policy does not envisage granting credit to customers, while the creditworthiness of all customers, both long-standing and potential ones, is periodically analysed in order to monitor and prevent possible solvency crises.

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S.p.A. 2010 Annual Report

The following table shows the ageing of trade receivables to third parties (and thus excluding intercompany positions) outstanding at December 31st 2010:
Euro 000s Third parties Current 74,780 0>60 23,625 Expired 60>120 6,816

Over 3,388

Total 108,609

The prudent estimate of losses on the entire credit mass existing at December 31st 2010 was 3.1 million euros.
ii. Liquidity risk

Liquidity risk is the risk that the company will not dispose of the funds necessary to meet its short-term commitments and financial requirements.The principal factors that determine the companys degree of liquidity are the resources generated or used by operating and investment activities and, on the other hand, the due dates or renewal dates of its payables or the liquidity of its financial investments and market conditions. In the specific case, the company faces no liquidity risk due to its profitability, current and historic capacity to generate cash, and its limited exposure to the banking system. At December 31st 2010 the companys cash and cash equivalents totalled 63.7 million euros; its debt exposure was 6.8 million euros, and was represented by a medium-long term loan (see Note 16). The Companys policy for financial assets is to keep all of its available liquidity invested in demand bank deposits without recourse to financial instruments, even on the money market, and dividing the deposits amongst a reasonable number of bank counterparties, prudently selecting them according to the return on deposits and their solidity.
iii. Market risk

IFRS 7 includes in this category all risks that are directly or indirectly connected with the fluctuation in prices on physical and financial markets to which the company is exposed: exchange rate risk; interest rate risk; commodity risk, connected with the volatility of prices for the raw materials used in the production process. The company is exposed to exchange rate and interest rate risk, since there is no physical market subject to actual fluctuations in the purchase prices for raw materials used in the production process. The following paragraphs analyse the individual risks, using sensitivity analysis as necessary to highlight the potential risk on final results stemming from hypothetical fluctuations in benchmark parameters.As envisaged by IFRS 7, these analyses are based on simplified scenarios applied to the final results for the periods referred to. By their very nature, they cannot be considered indicators of the actual effects of future changes in benchmark parameters of a different asset and liability structure and financial position different market conditions, nor can they reflect the interelations and complexity of the reference markets. Exchange rate risk. Due to its commercial operations, the company is exposed to fluctuations in the exchange rates for currencies in which some of its commercial transactions are denominated (particularly USD, GBP, CHF and those of certain countries in the Far East), against a cost structure that is concentrated principally in the eurozone. The company realises greater revenues than costs in all these currencies; therefore, changes in the exchange rate between the euro and the aforementioned currencies can impact the companys results. With the exception of the foregoing, the company is not particularly exposed to foreign exchange risk.The residual component of this risk is connected principally with translation risk.This risk stems from the fact that the assets and liabilities of consolidated companies whose functional currency is different from the euro can have different countervalues in euros according to changes in foreign exchange rates. The measured amount of this risk is recognised in the translation reserve in equity. The company monitors the changes in the exposure. No hedges of this risk existed at the reporting date. Governance of individual foreign currency operations by Group subsidiaries is highly simplified by the fact that they are wholly owned by the parent company.

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S.p.A. 2010 Annual Report

The companys risk management policy aims to ensure that the average countervalue in euros of receipts on wholesale transactions denominated in foreign currencies for each collection (Spring/Summer and Fall/Winter) is equal to or greater than what would be obtained by applying the pre-set target exchange rates. The company pursues these aims by entering into forward contracts for each individual currency to hedge a specific percentage of the expected revenue (and cost) volumes in the individual currencies other than the functional currency.These positions are not hedged for speculative or trading purposes, consistently with the strategic policies adopted for prudent management of cash flows. Consequently, the company might forego opportunities to realise certain gains, but it avoids running the risks of speculation. The company defines its exchange risk a priori according to the reference period budget for the reference period and then gradually hedges this risk upon acquisition of orders, in the amount according to which they correspond to budget forecasts.The process of hedging exchange rate risk is broken down into a series of activities that can be grouped into the following distinct phases: definition of operating limits; identification and quantification of exposure; implementation of hedges; monitoring of positions and alert procedures. The breakdown of forward currency contracts (for sale and purchase) outstanding at December 31st 2010 is illustrated in Note 17. The assets and liabilities that are denominated in foreign currency are identified as part of the sensitivity analysis of exchange rates. In order to determine the potential impact on final results, the potential effects of fluctuations in the cross rates for the euro and major non-EU currencies have been analysed.The following table illustrates the sensitivity to reasonably likely changes in exchange rates on pre-tax profit (due to changes in the value of current assets and liabilities denominated in foreign currency) while holding all other variables constant:
Euro Currency CAD CHF GBP HKD JPY KRW RMB SGD USD Other Total Country Canada Switzerland UK Hong Kong Japan South Korea China Singapore USA n.a. Impact on pre-tax profit 5% writedown of the foreign currency FY 2010 FY 2009 (7,012.2) (2,241.7) (883.2) (21,377.8) 24,657.3 19,040.3 55,077.4 16,319.6 (1,784.4) (11,217.9) (10.0) (7.7) (33.0) (2.7) (17,491.4) (11,562.1) 72,878.5 49,311.4 1,278.9 (2,094.3) 126,678.0 36,167.2 Impact on pre-tax profit 5% revaluation of the foreign currency FY 2010 FY 2009 7,750.3 2,477.7 976.1 23,628.1 (27,252.8) (21,044.6) (60,875.0) (18,037.5) 1,972.2 12,398.8 11.1 8.5 36.5 2.9 19,332.6 12,779.2 (80,550.0) (54,502.1) (1,413.5) 2,314.7 (140,012.5) (39,974.2)

Euro 000s FY 2010

Revaluation/Writedown foreign currency 5% -5%

Impact on pre-tax profit (140.0) 126.7

Impact on Shareholders equity (2,548.2) 1,314.1

The analysis did not include assets, liabilities and future commercial flows that were not hedged, since fluctuations in exchange rates impact income in an amount equal to what is recognised in the fair value of adopted hedge instruments.

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S.p.A. 2010 Annual Report

Interest rate risk. The companys exposure to changes in interest rates is limited to an adjustable rate loan denominated in euros. Interest rate risk is hedged consistently with consolidated practice, which is designed to reduce the risks of interest rate volatility by simultaneously pursuing the aim of minimising associated financial expenses. Considering the insignificant amounts involved (Note 16), there were no current interest rate hedges current at December 31st 2010.The sensitivity analysis carried out on interest rates has shown that a hypothetically unfavourable change of 10% in short-term interest rates applicable to the adjustable rate financial liabilities existing at December 31st 2010 would have a net pre-tax impact of about 10 thousand euros in additional expenses (FY 2009: 26 thousand euros).
iv. Categories of measurement at fair value

In accordance with IFRS 7, the financial instruments carried at fair value have been classified according to a hierarchy of levels that reflects the materiality of the inputs used to estimate their fair value.The following levels have been defined: Level 1 quoted prices obtained on an active market for the measured assets or liabilities; Level 2 inputs other than the quoted prices indicated hereinabove, which are observable either directly (prices) or indirectly (derived from prices) on the market; Level 3 inputs that are not based on observable market data. The fair value of derivative financial instruments existing at December 31st 2010 (Note 17) has been classified as Level 2.

19. Deferred tax assets and liabilities


At the reporting date, recognition of the effects of deferred tax assets, determined on the basis of temporary differences between the pre-tax result on the financial statements and taxable income, shows a net balance (liability) of 16,941 thousand euros (FY 2009: liability for 18,547 thousand euros):
Euro 000s Deferred tax assets Deferred tax liabilities Total 12.31.10 7,251 (24,192) (16,941) 12.31.09 3,119 (21,666) (18,547) Change 4,132 (2,526) 1,606

When determining future tax impact (IAS 12), reference was made to the presumed percentage weight of the taxes that will be imposed on income in the years when those taxes will be charged.The balance of deferred tax assets and liabilities at December 31st 2010 is shown in the following table, highlighting those components that contributed to their formation:
Euro 000s Amortization, depr. and write-downs Provisions Property, plants and equipment (leasing) Costs deductible over several years Partially deductible costs Inventory (write-downs) Derivative financial instruments Other Total 12.31.10 Assets Liabilities 82 (19,855) 314 (544) (3,746) 1,029 5,789 20 17 7,251 12.31.09 Assets Liabilities 48 (17,057) 171 (544) (3,997) 210 2,673 6 11 3,119

(47) (24,192)

(68) (21,666)

129 Supplementary Notes

S.p.A. 2010 Annual Report

Tax suspension reserves. The following information is provided on reserves in shareholders equity that, if distributed, will constitute taxable income for the company, in connection with the situation following the capital transactions carried out pursuant to the August 5th 2000 resolution of the extraordinary Shareholders Meeting: a. for the reserves in equity, only the extraordinary reserve remains; formed with income that was regularly subjected to taxation, it would not constitute taxable income for the company were it to be distributed; b. previously defined reserves have been converted into the form of share capital, as follows:
Euro Reserve for adjustments art. 15 paragraph 10 DL 429/82 Reserve for greater deduction of VAT Reserve for inflation adjustments pursuant to Law n. 72/83 Reserve for deduction art. 14 c. 3 - Law n. 64/86

149,256.04 508.19 81,837.76 5,783.80

for a total of euro 237,385.80, which, if distributed, would represent taxable income for the company.

20. Other current liabilities


20.1 Trade payables
Euro 000s Third parties Subsidiaries Total 12.31.10 118,936 6,115 125,051 12.31.09 95,086 3,963 99,049 Change 23,850 2,152 26,002

ToThird parties. These stem exclusively from commercial transactions as part of ordinary processes for purchase

of goods and services.


To subsidiaries. These represent payables to Group entities, principally for provision of services.

20.2 Tax payable. Totalling 14,788 thousand euros (FY 2009: 3,326 thousand euros), mainly include, for 11,330 thousand euros, the IRES (corporate income tax) and IRAP (regional tax on production activity) payables resulting from calculation of the tax liability for the financial year, net of prepayments and credits that may be offset upon payment (tax withholding charged to the company). The balance also includes 3,454 thousand euros in payables for tax withholding on compensation paid to employees and independent contractors. 20.3 Other.
Euro 000s Payable to employees Social security institutions Others Total 12.31.10 5,060 3,775 15,664 24,499 12.31.09 3,087 3,489 6,068 12,644 Change 1,973 286 9,596 11,855

Payables to employees reflected amounts accrued in their favour (including unused holiday leave) that had not yet been paid at the reporting date. Other liabilities is comprised principally of the variable portion of Directors compensation, totalling 3.5 million euros (note 23) and the estimate of returns at the end of the financial year.

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S.p.A. 2010 Annual Report

21. Provisions and potential liabilities and assets


21.1 Provisions. They include euro 1,200 thousand (euro 665 thousand in 2009) as the prudent estimate of liabilities that the Group might incur if it loses a series of pending lawsuits.Accruals for the year are equal to 577 thousand euros, of which 42 thousand euros for use of the provisions existing at December 31st 2009. 21.2 Potential liabilities and other commitments
Guarantees granted to others. A total of euro 57,348 thousand in suretyships had been granted to others at

December 31st 2010 (euro 46,752 thousand in 2009) to secure the contractual commitments of subsidiaries.The amount of 55,053 thousand euros is comprised by bank credit lines provided to the subsidiaries, for which the company acts as guarantor (FY 2009: 44,827 thousand euros).
Guarantees received from others. The guarantees received from banks to cover their own contractual

commitments totalled euro 7,171 thousand (euro 6,571 thousand in 2009).


Mortgages. A first mortgage on a owned building (production plant in SantElpidio a Mare) for euro 30 million was granted to the lender for a loan received by the company (see Note 16). This mortgage secures the lent capital and all expenses deriving from the agreement. Other guarantees. Following the acquisition of Holpaf B.V. (note 11), TODS S.p.A. became guarantor (by

taking over from the previous guarantor for the contractual obligations assumed by Holpaf B.V.) in favour of the banks that subscribed the two non-convertible, amortised and fixed-rate bond loans (Intesa San Paolo and Socit Europenne de Banque), issued in 2006 by the subsidiary Holpaf B.V. to refinance the debt assumed to purchase the land and construction of the building in Omotesando,Tokyo. In detail, these covenants concern: a) Property Purchase Option: a put option granted to Intesa San Paolo on the Omotesando property, which may be exercised only if Holpaf B.V. defaults during the term of the bonds and the creditor demands payment of the mortgage. In this scenario,TODS S.p.A. must purchase the property at a specific price that varies over the term of the option (decreasing price, equal to the amount of the residual debt of the two bonds not repaid by Holpaf B.V. at the time of default). b) Earthquake Indemnity Letter;TODS S.p.A. has undertaken to hold harmless the rights to repayment of the bonds held by Intesa San Paolo and Socit Europenne de Banque even in the event of damage or destruction of the property in an earthquake; c) All Risks Indemnity Letter;TODS S.p.A. has undertaken to hold harmless the rights to repayment of the bonds held by Intesa San Paolo and Socit Europenne de Banque even in the event of damage or destruction of the property due to any event. At December 31st 2010, the residual face value of the principal for the two bonds amounted to JPY 4,238 million. 21.3 Derivative financial instruments. For a detailed analysis of derivative financial instruments, used for the coverage of transaction in foreign currency, please see Note 17. All derivative contracts made with leading financial institutions will expire in 2011.

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S.p.A. 2010 Annual Report

21.4 Operating lease agreements. The operating leases entered into by the Company are for use of properties used to conduct its operating activities (offices, production plants). The amount of lease instalments payable after the reporting date pursuant to these agreements is as follows:
(Euro millions) 2010 2010 2011 2012 2013 2014 2015 Over 5 years Total 4.3 3.7 2.6 2.4 2.3 2.0 17.3 2009 4.1 3.1 2.8 1.6 1.4 0.8 13.8

The operating lease instalments allocable to fiscal 2010 totalled 4.7 million euros (Fiscal 2009 4.8 millions euros).

22. Reserves for employees


Following changes in the law, beginning January 1st 2007 all amounts for employee severance indemnities (TFR, a deferred benefits plan in favour of company employees) accrued after that date are covered by the rules applicable to defined contribution plans.These no longer require actuarial calculation and discounting processes, since all of the businesss obligations to employees have ceased (1).The following table illustrates the changes in liabilities during year 2010:
(Euro millions) Year 10 Initial Balance Financial expenses Benefits paid Final Balance 8,158 321 (507) 7,972 Year 09 8,381 379 (602) 8,158

23. Transactions with related parties


In implementation of the Related Party Transactions Regulation adopted by CONSOB with Resolution no. 17221 of March 12th 2010, as amended by Resolution no. 17389 of June 23rd 2010, the TODS Group modified its existing procedures governing the transparency and substantive fairness of related party transactions, to bring them in line with the principles set out in the cited CONSOB Regulation. (The complete text of the Related Party Transactions Procedure of TODS S.p.A. can be found at www.todsgroup.com). The new related parties procedure was approved after receiving the favourable opinion of independent directors by the Board of Directors of the parent company on November 11th 2010 and came into force on January 1st 2011. However, in accordance with its own tradition of applying best practices on the market, before the new regulation issued by CONSOB came into force, the Group always subjected significant related party transactions to detailed investigation and, inter alia, the a priori favourable opinion of the Internal Control and Corporate

(1) The statutory amendment envisaged that for firms with more than 50 employees, the employee severance indemnities accrued from January 1st 2007 had to be allocated to supplemental retirement plans (pension funds) or, alternatively, to a Treasury Fund set up at the Istituto Nazionale di Previdenza Sociale (Italian National Social Security Institute).

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S.p.A. 2010 Annual Report

Governance Committee (the committee that performed the relevant functions before the new regulation came into force). Consequently, significant related party transactions were previously subjected, and shall continue to be subjected in future, to a detailed investigation involving, inter alia: (i) a complete, prompt transmission of material information to the delegated Board of Directors committees (the Internal Control and Corporate Governance Committee and beginning January 1st 2011 the Independent Directors Committee, each within the ambit of their delegated responsibilities, where the majority or all members of these committees are independent directors), who in the performance of their functions also avail themselves of the assistance of independent experts; (ii) the issuance of an opinion (either binding or non-binding, as applicable) before approval of the transaction by the Board of Directors (or, if appropriate, by the body delegated to resolve on the transaction). Without prejudice to the principles of procedural fairness cited hereinabove, no unusual related party transactions, or other related party transactions that might compromise corporate assets or the completeness and fairness of Group accounting and other information were executed during the financial year. All transactions which are connected with the normal operations of TODS Group companies were executed solely on behalf of the Group by applying contractual conditions consistent with those that can theoretically be obtained on an arms length basis. Most significant transactions concluded during the period As previously described in note 11,TODS S.p.A. acquired the entire share capital of HOLPAF B.V. from Goral Investment Holding B.V., a Dutch company fully owned by Diego Della Valle & C. SAPA (a company owned by Diego and Andrea Della Valle, and controlled by Diego Della Valle) on November 25th 2010, after approval by the Board of Directors of TODS S.p.A., and after issuance of a favourable opinion by the Internal Control and Corporate Governance Committee (already in line with the CONSOB regulation that would enter into force on January 1st 2011, as previously mentioned). Through acquisition of the shareholding, the TODS Group acquired ownership of the Omotesando building (the companys sole asset).This building has been used entirely by the Group since 2005 under a lease agreement made on February 22nd 2005 by Tods Japan K.K. with HOLPAF B.V., as the seat for administrative offices and location for the most important flagship store of the TODS Group in Japan. The total price paid for acquisition of 100% of the shares of HOLPAF B.V. was JPY 230 million (equal to 2.1 million euros), considering the value of the pro-forma equity of the target company at September 30th 2010, the Japanese tax liability for the higher market value of the property as compared with its recognised tax cost, and the adjustment for differences between the net financial position of the acquired company at the closing date and its pro-forma net financial position at September 30th 2010. Pursuant to the agreement, the Group also fully repaid Goral Investment Holding B.V. for the shareholder loan previously made to HOLPAF B.V., in the amount of 20.6 million euros (principal and interest accrued at the share transfer date). For complete information about the transaction, please see the Disclosure drafted in compliance with the rules set out in the new Annex 3 of the Related Parties Regulation no. 17221/2010, which is also available on the corporate website www.todsgroup.com. Developments of related party transactions pending at December 31st 2009 In continuation of contractual relationships already existing in 2009, the TODS Group continued to maintain a series of contractual relationship with related parties (directors/controlling or significant shareholders) in 2010. The principal object of the transactions was the sale of products, lease of sales spaces, show rooms and offices, use of the ROGER VIVIER brand license and the provision of advertising services.

133 Supplementary Notes

S.p.A. 2010 Annual Report

i.

Commercial transactions with related parties - Revenues

Euro 000s Sales of products Year 2010 Parent company (*) Board Directors Executives with strat resp. Other related parties Total Year 2009 Parent company (*) Board Directors Executives with strat resp. Other related parties Total 1,931 Rendering of services 9,845 Sales of assets Royalties 1,716 Operating leases Other operations

1,931 1,305

9,845 7,984

1,716 635

22

1,305

7,984

635

22

ii.

Commercial transactions with related parties - Costs

Euro 000s Purchases of products Year 2010 Parent company (*) Board Directors Executives with strat resp. Other related parties Total Year 2009 Parent company (*) Board Directors Executives with strat resp. Other related parties Total 1,598 Rendering of services 87 3,162 Purchases of assets Royalties 1,884 Operating leases 2,909 612 Other operations

1,598 848

3,249

1,884 1,125

3,520 2,722

3,474

848

3,474

1,125

2,722

iii. Commercial transactions with related parties - Receivables and payables


Receivables and payables Euro 000s Parent company (*) Board Directors Executives with strat resp. Other related parties Total 12.31.10 Receivables Payables 7,282 1,499 1,365 12.31.09 Receivables Payables 7,033 688 1 1,406

7,282

2,864

7,034

2,094

(*) Companies directly or indirectly controlled by Chairman of the Board of Directors Diego Della Valle.

134 Supplementary Notes

S.p.A. 2010 Annual Report

Compensation of Directors, Statutory Auditors, and General Managers. The following table illustrates the compensation accrued in fiscal 2010 by each of the Directors, Statutory Auditors, Executives with strategic responsibilities of TODS S.p.A. (including for the activities that they performed at subsidiaries) for any reason and in any form:
Euro 000s Compensat. For office Directors Diego Della Valle (*) Andrea Della Valle (**) Luigi Abete Maurizio Boscarato Luigi Cambri Luca C. di Montezemolo Emanuele Della Valle Fabrizio Della Valle (****) Emilio Macellari (****) Pierfrancesco Saviotti Stefano Sincini (***) Vito Varvaro Total Statutory auditors Enrico Colombo (*****) Gian Mario Perugini Fabrizio Redaelli Total 925.7 625.7 24.7 25.7 25.7 24.8 24.5 225.2 225.7 25.0 309.7 25.7 2,488.1 90.0 60.0 60.0 210.0 2.5 423.1 Compensat. for part. in Commit. 6.7 6.7 5.7 7.5 12.9 0.2 6.7 6.7 12.4 6.7 6.7 78.9 Non cash benefits Bonus and other incentives 2,100.0 1,400.0
(2)

Compens. as emplo.

Other compens.

148.2 (4) 6.2

(2)

480.0 111.0

(1)

3,500.0

745.4
(3) (4) (3)

33.2 11.3

44.5 606.3

Executives with strategic responsibilities

Legend
(*) (**)

Chairman of Board of Directors Vice Chairman of Board of Directors Member of Executive Committee Chairman of the Statutory Board

(1) (2) (3) (4)

Director of subsidiary Consultant of TODS S.p.A. Statutory Auditor of subsidiary Member of the Compliance Program Supervisory Body

(***) (****)

Directors and Key Executives do not receive severance indemnities.

135 Supplementary Notes

S.p.A. 2010 Annual Report

Intercompany transactions. TODS S.p.A. has commercial and financial relationships with the companies in which it directly or indirectly owns a controlling equity interest. The transactions executed with them substantially involve the exchange of goods, provision of services and the provision of financial resources.They involve ordinary operations and are settled on an arms length basis.The following table shows the country breakdown of the value of commercial relationships with subsidiaries in 2010:
Euro 000s N Companies Italy 4 Albania 1 France 1 Germany 1 Great Britain 2 Luxembourg 1 Netherlands 2 Switzerland 1 Spain 1 Hungary 1 Belgium 1 Usa 10 Japan 1 Hong Kong 1 Singapore 1 Korea 1 Macao 1 China 1 Indian 1 Total 34 Receivables 23,736 26 4,234 3,498 2,796 150 375 1,819 246 602 119 8,578 180 17,040 18 12 3 124 109 63,664 12.31.10 Payable (474) (109) (1,036) (476) (438) (4) (611) (1,348) (140) (1,682) (3) (7) (6,327) Revenues/ (cost) net 66,784 (760) 10,185 6,562 7,819 621 1,033 6,779 1,387 (1,158) 1,507 14,876 255 54,594 78 90 16 338 22 171,028 Receivables 24,646 566 6,727 1,525 2,246 96 339 1,489 273 419 300 7,439 2,748 25,988 12 18 58 121 82 75,092 12.31.09 Payable (528) (49) (717) (329) (327) (2) (374) (882) (106) (676) (6) (3,996) Revenues/ (cost) net 53,817 (59) 7,379 2,248 5,631 619 1,040 5,567 1,004 (685) 972 12,249 360 31,290 79 101 13 148 27 121,799

The receivables and payables recognised by the Italian companies include the receivables and payables resulting from the tax consolidation programme, totalling 3,702 thousand euros and 212 thousand euros, respectively. Following below are the details of the financial and capital transactions executed in 2010:
Euro 000s TODS International B.V. TODS Hong Kong Ltd TODS Macao Ltd TODS Japan KK TODS France Sas ALBAN. DEL. Sh.p.k. Holpaf B.V. Total Year 2010 Capitalizations 16,200 121 18 Financing 12.31.10 12.31.09

3,221 700 225 22,000 38,339 4,146

2,628 3,200 210 6,038

136 Supplementary Notes

S.p.A. 2010 Annual Report

24. Personnel costs


The personnel costs incurred by the Group in FY 2010 as compared with those for FY 2009 are illustrated as follows:
Euro 000s Wages and salaries Social security contribution Employee sev. Indem. Total Year 10 45,384 14,001 2,839 62,224 Year 09 42,727 13,225 2,771 58,723 Change 2,657 776 68 3,501 % on revenues 2010 2009 7.9 8.1 2.4 2.5 0.5 0.5 10.8 11.2

The following table illustrates the breakdown of the Groups employees by category:
12.31.10 44 635 746 1,425 12.31.09 43 601 727 1,371 Aver. 10 44 632 734 1,410 Aver. 09 42 632 740 1,414

Executives White-collar employees Blue-collar employees Total

25. Financial income and expenses


The breakdown of financial income and expenses in fiscal 2010 is as follows:
Euro 000s Year 10 Income Interest income on current account Foreign exchange gains Other Total income Expenses Interest on medium-long term financing Foreign exchange losses Other Total expenses Total net income and expenses 1,560 9,468 394 11,422 (100) (8,925) (710) (9,735) 1,687 Year 09 941 9,061 1,021 11,023 (258) (9,631) (797) (10,686) 337 Change 619 407 (627) 399 158 706 87 951 1,350

26. Income from equity investments


Just as in the previous financial year, the Company did not receive dividends from its subsidiaries.

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S.p.A. 2010 Annual Report

27. Income taxes


The tax liability for fiscal 2010 (current and deferred) was 42.9 million euros, giving a tax rate of 34.1% (FY 2009: 32.7%). Income taxes for the period are broken down into current and deferred taxes, as follows:
Euro 000s Current taxes Deferred taxes Total Year 10 44,474 (1,607) 42,867 Year 09 32,723 2,212 34,935 Change 11,750 (3,819) 7,931

The theoretical tax rate for FY 2010 (the impact of theoretical taxes on pre-tax profit) was 33.6%, determined by applying the applicable tax rates for IRES (corporate income tax) and IRAP (regional tax on production activity) to the respective taxable bases as documented by the annual report at December 31st 2010.The following schedule reconciles theoretical taxes, calculated by using the theoretical tax rate of the parent company, and the taxes actually charged to income:
Euro 000s Taxes Theoretical income taxes Tax effect of non-deductible of partially deductible costs Non-deductible taxes Non taxable income Other Previous year taxes Effective income taxes 42,250 1,385 40 (252) (441) (116) 42,866 Rate % 33.6% 1.1% 0.0% (0.2%) (0.3%) (0.1%) 34.1%

Tax consolidation program. The company, exercising the option envisaged by the new version of the TUIR and the implementing decree pursuant to Article 129, together with the Italian subsidiaries that are presumably subject to a controlling relationship pursuant to Article 120 TUIR, decided to have the Group participate in the national tax consolidation program for IRES. According to this law,TODS S.p.A., as controlling company, has aggregated its income with that of the subsidiaries participating in the national tax consolidation program since fiscal 2004. It does so by fully offsetting all the positive and negative taxable amounts, thereby benefiting from any losses contributed by the subsidiaries and assuming the expenses transferred from those subsidiaries with positive taxable income. TODS S.p.A. essentially acts as a clearing house for taxable income (profits and losses) of all Group companies participating in the tax consolidation program, as well as financial relationships with revenue agency offices.At the same time, it recognizes liabilities or credits vis--vis those subsidiaries that produced tax losses and those that, on the contrary, transferred taxable income. Independently of the taxes that are paid, the companys net result is impacted exclusively by the income taxes accrued on its own taxable income.

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28. Independent Auditors compensation


Pursuant to Article 149-duodecies of the Issuers Regulation, the compensation received in FY 2010 by the independent auditor Deloitte & Touche S.p.A. and the companies belonging to its network are illustrated below, as broken down into auditing services and the provision of other services:

Type of service Auditing services Other services Auditing services Total Deloitte & Touche S.p.A Auditing services Total Deloitte & Touche

Company Deloitte & Touche S.p.A Deloitte & Touche S.p,A Deloitte & Touche S.p.A Deloitte & Touche (network)

Receiver TODS S.p.A. TODS S.p.A. Subsidiaries Subsidiaries

Fees 175 123 298 73 371

29. Certification of the Separate Financial Statements of TODS S.p.A. and the Consolidated Financial Statements of the TODS Group pursuant to Article 81-ter of Consob Regulation no. 11971 of May 14th 1999, as amended
1. The undersigned Stefano Sincini, Chief Executive Officer of TODS S.p.A., and Rodolfo Ubaldi, manager responsible for the drawing up of the financial reports of TODS S.p.A., certify, in accordance with the provisions of Article 154-bis, subsections 3 and 4, of Legislative Decree no. 58 of February 24th 1998: the adequacy in terms of the companys characteristics and effective application of administrative and accounting procedures for preparation of the Separate Financial Statements and Consolidated Financial Statements during the period January 1st 2010 to December 31st 2010. 2. a) They also certify that the Separate Financial Statements and Consolidated Financial Statements: have been prepared in compliance with the International Financial Reporting Standards recognised in the European Union pursuant to Regulation EC 1606/2002 of the European Parliament and Council of July 19th 2002. correspond with the account books and ledger entries; give a true and fair view of the assets, liabilities, income and financial position of the issuer and entities included in the scope of consolidation.

b) c)

3. report on operations provides a reliable analysis of the issuers operating performance and income, as well as the financial position of the issuer and all the businesses included in the scope of consolidation, together with a description of the principal risks and uncertainties to which they are exposed.

Milan, March 14th 2011 Stefano Sincini Chief Executive Officer Rodolfo Ubaldi Manager responsible for the drawing up of the financial reports

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REPORT OF THE BOARD OF STATUTORY AUDITORS

S.p.A. 2010 Annual Report

REPORT BY THE BOARD OF AUDITORS TO THE GENERAL MEETING OF SHAREHOLDERS OF TODS S.p.A., PURSUANT TO ARTICLE 153 OF LEGISLATIVE DECREE N 58/1998 AND ARTICLE 2429 OF THE ITALIAN CIVIL CODE
(Translation of the document issued in Italian solely for the convenience of international readers)
Dear Shareholders, In the year ended on December 31st, 2010, we discharged the supervisory tasks imposed under law, in accordance with the rules of conduct for the Board of Auditors as provided for by the Italian Board of Professional Accountants and Auditors, attending the meetings of corporate organs, carrying out periodic checks and meeting with the Independent Auditors managers, the Companys Internal Control managers and the Executive in charge of drawing up of the Companys accounting documents, to exchange information on the activities undertaken by them, and to assess the timetable of scheduled internal control operations. Pursuant to article 153 of legislative decree no. 58/1998 and section 2429 of the Italian Civil Code, as well as taking into account the indications provided by CONSOB, we report the following: we have supervised and checked compliance with the law and the instruments of incorporation; the directors provided us, with the required periodicity, information on the activities undertaken by them, and on the most significant economic, financial and capital transactions effected by the Company and its subsidiaries, ensuring us that the same were in accordance with law and the articles of association and were not manifestly imprudent or risky, in potential conflict of interest, in breach of the resolutions passed by the General Meeting of Shareholders or susceptible of compromising the integrity of the Companys assets; we have not found nor received information from the Board of Directors, the Independent Auditors or the Internal Control and Corporate Governance Committee regarding the existence of atypical and/or unusual transactions effected with third parties, related parties or between group companies; in the explanatory notes attached to the consolidated financial statements of the Tods Group, as well as in the explanatory notes attached to the separate financial statements of Tods S.p.A., the directors have provided an account of the transactions undertaken with other group companies and/or related parties during the course of the financial year. More specifically, the said explanatory notes contained a detailed description of the highly significant related-party transaction effected during the accounting, and entailing the acquisition of the entire share capital of Holpaf B.V, which owns the Omotesando building in Tokyo that houses not only the registered offices of the Japanese operations of the Tods Group but also the latters largest flagship store in Japan. Reference is here made to the aforesaid documents with regard to matters falling within our purview, and especially in respect of the features and economic effects of the transactions undertaken with other group companies and/or related parties. With regard to such transactions, the Board of Auditors, with the help of the Board of Directors and the Internal Control and Corporate Governance Committee, checked for the imposition of and compliance with procedures aimed at ensuring that the said transactions are concluded at suitable terms and in the Companys interest. Following due assessment, the Related-Party Transaction Procedure approved by the Board of Directors of Tods S.p.A. on 11 November 2010, was found to be fully compliant with the principles entrenched in the Regulations adopted pursuant to CONSOB Resolution no. 17221 of 12 March 2010 (and subsequently amended by CONSOB Resolution no. 17389 of 23 June 2010); since the conditions therefore have not been met, no mention has been made of atypical and/or unusual transactions; the information pertaining to transactions with group companies and/or related parties, contained, in particular, in the paragraphs Transactions with related entities in the explanatory notes attached to the IAS/IFRS consolidated financial statements of the Tods Group, and Transactions with related parties in the explanatory notes to the separate IAS/IFRS financial statements of Tods S.p.A., are adequate in light of the Companys size and structure; the independent auditors have expressed an opinion without comment on the financial statements, thereby attesting that the same are in accordance with the rules governing financial statements; neither complaints - pursuant to article 2408 of the Italian Civil Code - nor reports were received during the course of the financial year; the information received indicates that in 2010, Tods S.p.A. did not entrust the Independent Auditors nor any other subjects belonging to the network other tasks in addition to those pertaining to the auditing of the

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financial statements of the Company and its subsidiaries.The assessment carried out by the board of auditors in respect of independence of the auditing firm pursuant to article 19 of Legislative Decree no. 39/2010, revealed no critical aspects worthy of mention; during the course of the year we have issued our opinions as provided for by the law; during the course of the financial year we attended 7 meetings of the Board of Directors and 6 meetings of the Executive Committee. Furthermore, 6 meetings of the Board of Auditors were held; to the extent of our powers and purview, we oversaw and checked for compliance with the principles of good corporate governance and the appropriateness of the organisational structure and the instructions imparted by the Company to subsidiaries pursuant to article 114, paragraph 2 of Legislative Decree no. 58/1998, through direct observation, information gathered during meetings with company officers in charge of corporate organisation, and exchanges of significant information during meetings with the Independent Auditors and with the Executive in charge of drawing up of the Companys accounting documents; to the extent of our powers and purview, we oversaw and checked, pursuant to article 19 of Legislative Decree no. 39/2010, the appropriateness and efficacy of the internal control and risk management system, as well as the activities undertaken by staff in charge of internal control and the administrative/accounting system and the reliability of the latter to faithfully reflect corporate management, by obtaining information from the company officers in charge of the relevant corporate departments, examining corporate documents and analysing the results of the work undertaken by the Independent Auditors, attending Internal Control and Corporate Governance Committee meetings and meetings with the Executive Director in charge with the supervision of Internal Control as well as with the Executive in charge of drawing up of the Companys accounting documents; the financial reporting processed was monitored as required pursuant to article 19 of Legislative Decree no. 39/2010; following the contacts with the corresponding bodies of the subsidiaries, where no members of the board of auditors were already present, no material aspects have emerged; no significant aspects or issues worthy of mention arose during the meetings held with the Independent Auditors pursuant to article 150(3) of Legislative Decree no. 58/1998, nor have any significant shortfalls been found in the internal control system as far as the financial reporting process is concerned; we checked the procedures for the proper implementation of the rules of corporate governance entrenched in the Self-Regulatory Code of the Corporate Governance Committee of listed companies, adopted by the Board of Directors on November 13th, 2006. At the meeting of November 11th 2009, Tods S.p.As Board of Directors identified Tods (Shanghai) Trading Co. Ltd., as well as Tods France Sas,Tods Japan KK, Deva Inc., and Tods Hong Kong Ltd. - namely those companies which were identified in the meeting held on November 12th 2008, as strategically significant subsidiaries; through direct checks and information obtained from the Independent Auditors and the Executive in charge of Drawing up of the Companys accounting documents, we oversaw compliance with statutory provisions pertaining to the preparation and layout of the consolidated financial statements of the Tods Group, the separate financial statements of Tods S.p.A. and the related reports. Our oversight activities did not reveal any facts warranting a report to internal control organs or worthy of mention in this report; pursuant to article 19 of Legislative Decree no. 39/2010, the statutory auditing of the annual accounts and the consolidated accounts was duly monitored. The company adopted an Organizational and Managerial Model pursuant to Legislative Decree no. 231/2001. In light of the above, and with regard to matters falling within our purview, we have not found any reasons hindering the approval of the financial statements as at December 31st, 2010 and we have no comments to make on the proposed distribution of dividends as recommended in the directors report to the separate IAS/IFRS financial statements of Tods S.p.A. Milan, March 22nd, 2011 The Board of Auditors Dr. Enrico Colombo - Chairman Dr. Gian Mario Perugini - Auditor in office Dr. Fabrizio Redaelli - Auditor in office

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