ACCT 2102 Florida State University Benetton Group Annual Report Paper

ACCT 2102 Florida State University Benetton Group Annual Report Paper
Gruppo Benetton
Bilancio consolidato 2004
Benetton Group Annual Report 2004
Benetton Group Annual Report 2004
Benetton Group S.p.A.
Villa Minelli
Ponzano Veneto [Treviso] – Italy
Share Capital: Euro 236,026,454.30 fully paid
Tax ID/Treviso Company register: 00193320264
The Benetton Group
5 Directors and other officers
7 Letter to Shareholders from the Chairman and Founder
of the Benetton Group, Luciano Benetton
8 Financial highlights
11 Directors’ report
Markets, trademarks and licenses
12 Production organization
14 Human resources
Information Technology
INDEX
15 Accounting, tax and corporate organization
Investor Relations
16 Communications
17 Corporate Governance
2
25 Supplementary information
Benetton shares and shareholdings
27 Performance of Benetton shares
29 Relationships between the parent company,
its subsidiaries and other related parties
Management of financial risks
30 Privacy and the protection of personal data
31 Directors
Principal organizational and corporate changes
32 Significant events since year-end
Outlook for 2005
33 Group consolidated results
Consolidated statement of income
35 Performance by activity
37 Financial situation – highlights
42 Impact of introducing IAS/IFRS
Development of the relative regulatory framework
IAS/IFRS conversion process for the Benetton Group
47 Consolidated financial statements
48 Consolidated balance sheet reclassified according
to financial criteria
50 Consolidated statement of income with revenues
and cost of sales reclassified
52 Consolidated balance sheet – Assets
54 Consolidated balance sheet – Liabilities, Shareholders’
equity and Memorandum accounts
56 Consolidated statement of income
59 Statement of changes in minority interests
INDEX
58 Statement of changes in Shareholders’ equity
60 Consolidated statement of cash flow
3
62 Companies and groups included in the consolidation
as of December 31, 2004
65 Notes to the consolidated financial statements
Activities of the Group
Form and content of the consolidated financial statements
66
67
70
73
82
90
91
Principles of consolidation
Accounting principles and valuation criteria
Supplementary information
Comments on principal asset items
Comments on principal liability and equity items
Memorandum accounts
Comments on principal items in the statement of income
100 Auditors’ report
101 Glossary
107 2005 financial calendar
Main consolidated companies as of December 31, 2004
Benetton Group SpA
Ponzano Veneto [Tv]
100%0%
Benind SpA
Ponzano Veneto [Tv]
100%
Benetton Retail Italia Srl
Ponzano Veneto [Tv]
100%
Bentec SpA
Ponzano Veneto [Tv]
100%
Bencom Srl
Ponzano Veneto [Tv]
100%
Olimpias SpA
Ponzano Veneto [Tv]
50%
Filatura di Vittorio Veneto SpA
Vittorio Veneto [Tv]
100%
Benair SpA
Ponzano Veneto [Tv]
100%
SIGI Srl
Ponzano Veneto [Tv]
100%
Buenos Aires 2000 Srl
Ponzano Veneto [Tv]
100%
Fabrica SpA
Ponzano Veneto [Tv]
100%
Colors Magazine Srl
Ponzano Veneto [Tv]
100%
Benetton International SA
Luxembourg
3%
Benetton Real Estate Austria
GmbH, Wien
100%
Benetton Retail Ungheria Kft
Nagykallo
100%
Benetton Retail [1988] Ltd
London
100%
Denware Ltd
London
100%
Benetton Retail Spain SL
Barcelona
100%
Benetton Retail Deutschland
GmbH, München
51%
New Ben GmbH
Frankfurt am Main
100%
Benetton International
Property NV SA, Amsterdam
100%
Benetton 2 Retail Comércio
de Produtos Têxteis SA, Maia
[Portugal]
100%
Benetton Realty Spain SL
Barcelona
100%
Benetton Real Estate
International SA, Luxembourg
97%
Benetton Real Estate Austria
GmbH, Wien
100%
Benetton France Sàrl
Paris
100%
Benetton Realty Russia OOO
Moscow
100%
Benetton Realty Portugal
Imobiliaria SA, Maia [Portugal]
100%
Benetton Real Estate
Belgique SA, Bruxelles
100%
Benetton Real Estate Spain SL
Barcelona
100%
Benetton Deutschland GmbH
München
100%
Benetton USA Corp.
Wilmington
100%
Benetton Australia Pty Ltd
Sydney
100%
Benetton Realty France SA
Paris
100%
Benetton Holding International
NV SA, Amsterdam
100%
Benetton Argentina SA
Buenos Aires
100%
Benetton Austria GmbH
Salzburg
100%
DCM Benetton India Ltd
New Delhi
100%
Benetton Ungheria Kft
Nagykallo
100%
100%
United Colors Communication SA Benetton Trading USA Inc
Lawrenceville
Lugano
100%
Benetton Manufacturing
Holding NV, Amsterdam
100%
Benetton Croatia doo
Osijek
100%
Benetton Têxtil – Confecção
de Têxteis SA, Maia [Portugal]
100%
Benetton Slovakia sro
Dolny Kubin
100%
Benetton Manufacturing
Tunisia Sàrl, Sahline
100%
Benetton Japan Co Ltd
Tokyo
50%
Benetton Korea Inc
Seoul
100%
Benetton Retailing Japan Co Ltd
Tokyo
100%
Benetton Finance SA
Luxembourg
100%
Benetton Società di Servizi SA
Lugano
100%
Lairb Property Ltd
Dublin
100%
Benetton Tunisia Sàrl
Sahline
100%
Benetton Trading Sàrl
Sahline
100%
Benetton Asia Pacific Ltd
Hong Kong
100%
United Colors of Benetton
Do Brasil Ltda, Curitiba
Directors and other officers
Luciano Benetton [1]
Chairman
Carlo Benetton
Deputy Chairman
Silvano Cassano [2]
Managing Director
Giuliana Benetton
Gilberto Benetton
Alessandro Benetton
Reginald Bartholomew
Luigi Arturo Bianchi
Sergio De Simoi
Gianni Mion
Ulrich Weiss
Directors
Pierluigi Bortolussi
Secretary to the Board
Board of Statutory Auditors
Angelo Casò
Chairman
Filippo Duodo
Dino Sesani
Auditors
Antonio Cortellazzo
Marco Leotta
Alternate Auditors
Independent Auditors
PricewaterhouseCoopers S.p.A.
Powers granted
[1]
Company representation and power to carry out
[2]
Power to carry out any action relating to the
any action that is consistent with the Company’s
ordinary administration of the Company as well
purposes, except for those expressly reserved
as certain acts of extraordinary administration
by law to the Board of Directors and to the
subject to limits on values.
Shareholders’ Meeting, with limitation on some
categories of action.
D I R E C TO R S A N D OT H E R O F F I C E R S
Board of Directors
5
Letter to Shareholders from the Chairman and Founder of the Benetton Group,
Luciano Benetton
Dear Shareholders,
In fact, we are convinced that being entrepreneurs means believing in the future and in our abilities,
taking advantage of difficult times in the market to become more competitive. And to invest more in
the distribution network as well as in pricing policies that are more attractive to the customer.
In 2005, in particular, we intend to increase our commitment, earmarking resources of more than
200 million euro for development: with investments directed at restyling stores and new openings,
as well as at the product, in order to achieve an even more excellent quality-price ratio, and at style
and service to the network.
These are important commitments that we take on with conviction and optimism because we
believe in our network distribution model – a widespread presence in the world, in large capitals
as well as in smaller towns – in cooperation with partners who, in turn, believe and invest in our
common development plan.
And these are responsible choices, directed towards future growth, which can be achieved only
by those with substantial economic strength and constantly reducing financial position.
Luciano Benetton
Chairman of the Benetton Group
L E T T E R TO S H A R E H O L D E R S
2004 closes with the distribution of dividends totaling 50% of net income [which was higher
than forecasted], demonstrating the policy of the Benetton Group to create value for the
shareholders and the market.
During the year, we confirmed our talent for exporting, making 50% of total sales abroad. Having
always adopted the practice of thinking and planning with a long-term entrepreneurial mentality,
we intend to stay ahead of the competition, concentrating on emerging markets like China and
India, where we are already among the principal western players in the clothing sector. In the
Chinese market, we distribute our products; and India, where we produce and distribute, is our
bridgehead to entry into other Asian countries.
7
Financial highlights
Key operating data [millions of euro]
Revenues
Cost of sales
Gross operating income
Contribution margin
EBITDA
Income from operations
Net income/[loss] for the year
2004
1,686
929
757
653
317
217
123
Key financial data [millions of euro]
Working capital
Assets due to be sold
Net capital employed
Net financial position
Shareholders’ equity
Self-financing
Investments in tangible
and intangible fixed assets
Purchase of equity investments
2004
688
8
1,668
431
1,230
312
2003
729
8
1,655
468
1,174
327
2002
798
114
1,768
613
1,141
349
2001
811
1,896
640
1,241
374
2000
772
1,723
536
1,175
311
152
22
151
19
169
1
311

305
7
Financial ratios [in %]
Return on equity [ROE]
Return on investments [ROI]
EBITDA
Return on sales [ROS]
Net income [loss]/Revenues
2004
10.0
13.0
18.8
12.9
7.3
2003
9.2
14.0
18.0
12.5
5.8
2002
[0.9]
13.7
18.8
12.2
[0.5]
2001
11.9
15.1
19.0
13.6
7.1
2000
20.7
17.9
19.8
15.3
12.1
2004
0.68
6.77
0.34
50
3.9
9.74
10.18
8.33
14.3
1.4
1,768
181,558,811
181,558,811
2003
0.59
6.47
0.38
64
3.8
9.11
11.30
5.90
15.4
1.4
1,654
181,558,811
181,558,811
2002
[0.05]
6.29
0.35
n.a.
4.8
8.50
15.90
8.50
n.a.
1.4
1,543
181,341,018
181,558,811
2001
0.82
6.86
0.41
50
3.6
12.72
22.44
9.75
15.5
1.9
2,309
180,720,969
181,558,811
2000
1.35
6.50
0.46
37
4.8
22.01
24.20
18.71
16.5
3.4
3,996
180,505,910
181,558,811
Share and market data
Earnings/[Loss] per share [euro] [1]
Shareholders’ equity per share [euro] [1]
Dividend per share [euro] [1]
Pay out ratio [%]
Dividend yield
Share price: December 31 [euro]
Screen-based market: high [euro]
Screen-based market: low [euro]
Price/earnings ratio [P/E]
Share price/Shareholders’ equity per share
Market capitalization [millions of euro]
Average no. of shares outstanding [2]
Number of shares outstanding
%
100.0
55.1
44.9
38.7
18.8
12.9
7.3
2003
1,859
1,049
810
696
335
232
108
[1]
Restated after a reverse split of the shares approved by Shareholders’ Meeting on May 8, 2001.
[2]
Net of treasury shares held during the year.
%
100.0
56.4
43.6
37.4
18.0
12.5
5.8
2002
1,992
1,124
868
744
376
243
[10]
%
100.0
56.4
43.6
37.3
18.8
12.2
[0.5]
2001
2,098
1,189
909
776
398
286
148
%
100.0
56.7
43.3
37.0
19.0
13.6
7.1
2000
%
2,018 100.0
1,138
56.4
880
43.6
740
36.7
400
19.8
309
15.3
243
12.1
2004 revenues by activity [in %]
Sportswear and equipment 4.4%
Manufacturing and other 6.4%
Casual 89.2%
Ricavi 2004 per area geografica (in %)
2004 revenues by geographical area [in %]
Ricavi netti
FINANCIAL HIGHLIGHTS
Rest of the world 0.3%
Asia 10.3%
The Americas 4.3%
Europe 85.1%
9
Net revenues [millions of euro]
Ricavi netti
1,686
2004
1,859
2003
1,992
2002
2,098
2001
2,018
2000
Total capital expenditures and self-financing [millions of euro]
174
2004
312
170
2003
327
170
2002
349
311
2001
374
312
311
Total capital expenditures
Self-financing
2000
The Benetton Group, in 2004, can be briefly summarized as follows: consolidated revenues of 1,686
million euro, impacted by the sale of the sports equipment business [completed during the first half
of 2003] and by continuing unfavorable trends in the principal foreign currency exchange rates;
increasing net income, in line with forecasts, and a satisfying cash flow, with a significant gain in
efficiency on the costs front; balance sheet strength, confirmed as being of the first order.
With consumers being very cautious in their spending and a deflationary trend generated by
both economic uncertainty and the ending of the multifiber agreement with China, the market is
presenting complex challenges. The economic environment, in the principal European markets in
particular, continues to be cautious.
In conclusion, we believe that we have strong foundations for the competitive relaunch of our
business model in the medium term, which will enable the Group to compete in all international
markets in future years.
Silvano Cassano
Managing Director
D I R E C TO R S ’ R E P O RT
But the Group can count on significant strengths to compete in this highly competitive situation.
I would particularly like to mention, on the one hand, a network of expert and experienced partners
who work for and invest in the brand; and on the other, a management team that combines
the traditional innovative Benetton culture with new and ambitious management and planning
capabilities.
11
Directors’ report
Markets, trademarks and licenses
The areas with highest growth in 2004 were Eastern European countries and Russia, followed
by Spain and Switzerland where our presence was further consolidated. In a market of primary
importance like Germany, our position was strengthened by a joint venture agreement and
purchase of stores to be managed directly. The retail network has reached 200 stores in the
principal international capitals of fashion; this is strategic for the protection of commercial
positions which are already important or tactical for future development. In 2004, there were
new openings in Paris, in the prestigious Boulevard Haussmann, as well as in Berlin, Stuttgart,
“Our market response must travel at the same speed as
our ideas.” Fabrizio De Nardis, Chief Commercial Officer
Stockholm, Fukuoka in Japan and St. Moritz in Switzerland.
Regarding emerging countries, plans for commercial agreements are being studied in
Middle-Eastern markets and an organization has been set up in India, controlled from Hong
Kong, which is directly managing production and sales in the local market.
D I R E C TO R S ’ R E P O RT
12
The stores network has been involved in a program to change internal architecture, developed
following specific and consistent concepts with a more precise and distinctive positioning of
the various brands. During 2004, the new Twins concepts were launched for UCB, designed
to express the various styles in the collections more effectively, and for Undercolors. In 2005,
Pentagram, the new Sisley concept will make its debut.
Also in 2004, a progressive sales policy action was introduced which, confirming the central
role and value of the partner-entrepreneur system, aims to achieve greater competitiveness
based on more pronounced flexibility in terms of pricing and margins, which should guarantee
benefits both to the sales network, providing investment to keep it fresh and efficient, and to
the final customer.
In terms of product mix, a program was started to enhance the accessory collections
of the various brands, with the twofold objective of completing the proposed “looks” and
of providing interesting independent purchasing opportunities. A single team is involved in
this, combining design, marketing and sourcing skills.
On the license front, during 2004, development continued, in cooperation with highly
experienced and competent companies and producers, in sectors [from furnishing to
publishing, from fabrics to décor, from perfume to stationery] in which Benetton taste, design
and “way of life” make an innovative and unique contribution. In particular, agreements were
signed in the jewelry and contraceptive sectors and the widening of the product ranges offered
continued, from toys to children’s books, with Benny the sheep, the Benetton brand mascot,
as the star.
Production organization
Capital expenditure was directed above all towards the managerial independence of
production centers in Croatia, Hungary and Tunisia, which operate complete cycles [from
“The production organization has its head in Italy and its
operations arm without borders.” Biagio Chiarolanza, Chief Operating Officer
raw material to finished product] and on quality control systems which fully meet the strictest
Benetton Group standards.
In an ever more competitive scenario, the production organization, which maintains its
strategic heart [design, planning, coordination and programming] in Italy, is arranged into a
dual production line: in Italy, based mainly on a logic of speed of response to the market,
and abroad, where efficiency is combined with the necessary cost control. The process of
decentralization of production activities within Europe continued during the year.
Special attention was given to the “sourced products” area, with total outsourcing of
production, reserved for particular products and specific markets like China. This area
of activity, among other things, has triggered competitive benefits within the Benetton
organization, in terms of cost reduction and shortening of production times.
In 2004, the Hong Kong sourcing platform was completed, which, with 40 specialists, ensures
faster action and better customer service in the markets of China, Far Eastern countries, Japan
and the United States.
In addition, the new “multi-hub” model was designed and implemented for management
of the international logistics platform. This model is supported by a centralized I.T. system,
accessible to the various logistics centers, which is able to coordinate and optimize, from the
2004 net sales by brand [in %]
United Colors of Benetton 72.0%
Other 6.4%
Playlife 2.0%
Killer Loop 0.7%
Sisley 18.9%
Net sales by brand [in %]
United Colors of Benetton
72.0 %
Sisley
18.9%
Other
6.4%
Playlife
2.0%
2004
2003
United Colors of Benetton
67.5%
Sisley
19.0%
Playlife
1.4%
Other
6.2%
Rollerblade
3.3%
13
Nordica
0.3%
Ricavi x settore di attività
Prince and Ektelon
1.5%
Killer Loop
0.8%
Revenues by activity [in %]
Casual
89.2%
Sportswear
and equipment
4.4%
Manufacturing
and other
6.4%
2004
2003
Casual
84.9%
Sportswear
and equipment
8.6%
Manufacturing
and other
6.5%
D I R E C TO R S ’ R E P O RT
Killer Loop
0.7%
headquarters, dispatches of products according to required delivery date and geographic
location of the customer, combining timeliness of information and better control of the
business.
The new Product Technical function was brought into operation, which, acting as a link
between product, operations and commercial functions, focuses efforts and resources on
the common objectives of innovation and programming, also working with research centers,
universities and laboratories.
D I R E C TO R S ’ R E P O RT
Human resources
During the year, Human Resources function concentrated on the development of an
organization which is able to merge the innovative capacity of new resources with the company
culture that encompasses the experience and strong managerial tradition of Benetton.
14
“The human capital at the center of the company,
a mix of innovative abilities and historical knowledge.”
Andrea Negrin, Human Resources Officer
One of the many projects under development to be implemented was Project Vivaio, aimed at
identifying company resources of high-potential young people, to be integrated, in line with the
company’s multicultural and international vision, with talents coming from all over the world,
people with innovative abilities to be fitted into the three key areas of sales and marketing,
product and operations.
Another important project implemented in the year was the Product Technology Center, a
center of excellence which cooperates with the most prestigious international institutes
and universities [from the Massachusetts Institute of Technology to The Milan Politecnico],
dedicated to the development of new and innovative materials, fabrics and products to be
introduced into the production lines.
Information technology
The most significant initiative in the year was part of Project Phoenix, of which the main
objective is to support the core business through total systems integration. A new production
planning project was initiated which provides for a complete review of the process and for
“Investments in Information Technologies are the new frontier
of competition.” Adolfo Pastorelli, Chief Information Technology
application and technological updating of the systems used. This project forms part of a
complete review of the production and log …
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