marcolin bond report as of and for the six...

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MARCOLIN BOND REPORT

AS OF AND FOR THE SIX MONTHS ENDED

JUNE 30, 2014

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DISCLAIMER The following information is confidential and does not constitute an offer to sell or a solicitation of an offer to buy any securities of Marcolin S.p.A. or any of its subsidiaries or affiliates.

Statements on the following pages which are not historical facts are forward‐looking statements. All forward‐looking statements involve risks and uncertainties which could affect Marcolin’s actual results and could cause its actual results to differ materially from those expressed in any forward‐looking statements produced by, or on behalf of, Marcolin.

The financial information contained herein has not been subject to audit procedures, and has been derived from the management accounts, which could differ in some instances from the statutory financial statements.

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TABLE OF CONTENTS

OVERVIEW .......................................................................................................................................................................... 4

PRESENTATION OF FINANCIAL INFORMATION ................................................................................................................... 6

SUMMARY CONSOLIDATED INFORMATION ....................................................................................................................... 7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................... 12

APPENDIX A – PRO‐FORMA COMBINED FINANCIAL INFORMATION ................................................................................ 24

APPENDIX B – MARCOLIN: OTHER FINANCIAL INFORMATION ......................................................................................... 26

APPENDIX C – VIVA: OTHER FINANCIAL INFORMATION ................................................................................................... 28

Marcolin Bond Report as of and for the six months ended June 30, 2014 Overview

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OVERVIEW

This report as of and for the six months ended June 30, 2014 should be read in conjunction with the annual report for the year ended December 31, 2013. This report focuses on the material changes in our results of operations and financial position from those disclosed in the report for the year ended December 31, 2013. In a departure from the previously issued annual financial report, this report focuses on the consolidated results for the Group. Both in the IQ Report and in this report, the results of operations of the Group, which includes Marcolin, Cristallo and Viva, are discussed as those of one entity (whereas in the previous annual report the results of Marcolin and Viva were discussed separately). This is consistent with the strategy to fully integrate Viva, its operations and its brands into the Marcolin Group. Stand‐alone income statement information for both Viva and Marcolin can be found in Appendices B and C – Other Financial Information. Marcolin is a leading global designer, manufacturer and distributor of branded sunglasses and prescription frames. We believe we are the world’s fourth largest eyewear wholesale player by revenue, with a broad portfolio of 22 licensed brands that appeal to key demographics across five continents. Marcolin manages primarily a licensed brand business, and we design, manufacture (or contract to manufacture) and distribute eyewear primarily bearing the brand names we have obtained pursuant to long‐term, exclusive license agreements. We focus on high‐performing brands with eyewear accessory lines that enjoy international awareness. The Marcolin portfolio includes iconic labels such as Tom Ford, Roberto Cavalli, Tod’s, Montblanc, Zegna, Pucci, Swarovski, Guess, Diesel, Timberland, Gant and Harley‐Davidson. The long tenure of licenses provides Marcolin with strong revenue visibility. The Group is now present in all leading countries throughout the world through its affiliates, partnerships and exclusive distribution agreements with major players. The Marcolin Group has a strong brand portfolio, with a good balance between luxury brands (high‐end products distinguished by their exclusivity and distinctiveness and often characterized by a higher retail price) and mainstream ("diffusion") products (products influenced by fashion and market trends positioned in the mid and upper‐mid price segments targeting a wider customer base), men's and women's products, and prescription frames and sunglasses. The luxury segment includes glamorous fashion brands such as Tom Ford, Tod’s, Balenciaga, Roberto Cavalli, Montblanc and now Zegna, Agnona and Pucci (the latter three brands will be launched in 2015), and the diffusion segment includes Diesel, Swarovski, DSquared2, Just Cavalli, Timberland, Cover Girl, Kenneth Cole New York and Kenneth Cole Reaction. The house brands are the traditional "Marcolin" brand as well as National and Web. Acquisition and Integration of Viva

In December 2013, Marcolin bought the Viva International group (hereafter also “Viva”) by acquiring 100% of the capital of Viva Optique, Inc. Viva is a leading eyewear wholesale designer and distributor of premium eyewear. Viva’s net sales are concentrated mainly in the diffusion category, with a strong position in prescription frames. Consistent with the growth strategy being pursued by Marcolin, the Viva acquisition has developed the Group into a true global player by expanding its scale, geographical presence, brand portfolio and product range. The Viva Group has added to the diffusion portfolio the brands Guess, Guess by Marciano, Gant, Harley Davidson, and other brands targeted specifically to the U.S. market. The diversity of the brands managed, the completion of the "diffusion" product range and the balance achieved between men's and women's products, and also between eyeglasses and sunglasses, are among the strategic factors behind this important acquisition. Moreover, Viva’s strong presence in the overseas market will enable Marcolin, which up to now has been concentrated in Europe, to become stronger in the United States by covering one third of the market, while continuing to focus on the Far East and Europe. The Viva acquisition has especially boosted Marcolin's presence on the American market, where Marcolin used to have fewer operations. Marcolin is now a wholesaler present in over 100 countries with a wide distribution network across five continents.

Marcolin Bond Report as of and for the six months ended June 30, 2014 Overview

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The complementarily distinctive characteristics and specific expertise of the Marcolin Group and the Viva Group have given rise to a globally competitive eyewear company, to which Marcolin brings its know‐how and background, enabling to offer significant added value to the market in terms of both product range and global distribution. The acquisition will bring important synergies to the Marcolin Group in terms of organization, cost structure and sourcing (through common management and stronger bargaining power with some suppliers), thanks to opportunities arising from the integration of the sales and distribution networks. The integration process is fully in line with the defined plans, with the main efforts spent in the first half of 2014 in the U.S., Europe (especially the U.K.) and Hong Kong.

The status of the VIVA integration as of June 30, 2014 is summarized as follows:

‐ Synergies from Shared Services: Efficiencies will be generated starting from the second half of 2014 through the reduction of overlaps between foreign subsidiaries, savings in property executive management and back‐office personnel, consolidation of corporate functions, and shared usage of operational, office, and distribution networks: • reorganization of foreign subsidiaries in progress: focusing mainly on the U.S., Europe (the U.K.) and Hong Kong;

the integration activities are proceeding in line with the integration plans; • sales force integration: U.S. fully executed; U.K. almost completed; France, Hong Kong and Brazil in progress as

planned; • corporate functions and back‐office functions restructuring in progress: fully in line with the integration plan. ‐ Operational Synergies: Efficiencies through the consolidation of warehouse facilities, IT systems and procurement department savings: • warehouse and logistics consolidation: mainly focusing on the U.S., Europe and Hong Kong, the integration plan is

being followed; significant improvements in terms of efficiency and service quality already being implemented; • IT: SAP rollout in progress as planned: U.S. go‐live foreseen for Q4 2014. U.K. and HK within August. Full

integration of sales order collection system foreseen by end of Fall 2014 in the U.S. ‐ Synergies from elimination of redundancies at Executive level: Analysis of redundancies completed. Execution in U.S., U.K. and Hong Kong in advanced phase of completion.

Merger of Marcolin with Cristallo

During the year ended December 31, 2013, procedures for the merger of Cristallo S.p.A. (“Cristallo”‐ the vehicle incorporated for the acquisition of Marcolin by PAI partners) into Marcolin commenced within the scope of an extensive reorganization and optimization plan for the business, industrial and strategic purposes of the Group of which Cristallo and Marcolin are part. In contrast to a direct merger, the reverse merger enabled Marcolin to retain its own business and legal relationships, with significant savings in terms of costs and organizational demands. The main objective of the merger was to shorten the chain of command in order to improve flexibility and operational efficiency, reduce corporate and administrative expenses, and rationalize the financial indebtedness involving the Group companies, thereby resulting in greater financial stability. The merger, expressly required under financing agreements, was a condition for the medium/long‐term credit facilities foreseen under the Senior Term and Revolving Facilities Agreement of October 14, 2012, as those credit facilities could be issued solely upon the effective completion of the merger. The deed of merger was stipulated on October 28, 2013 and became effective for tax, accounting and legal purposes on the same date.

Marcolin Bond Report as of and for the six months ended June 30, 2014 Presentation of Financial Information

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PRESENTATION OF FINANCIAL INFORMATION

This document focuses on the consolidated results for the Group which includes Marcolin, Cristallo and Viva. The discussion of the Group as one single entity is consistent with the strategy to fully integrate Viva and its operations and business into the Marcolin Group. Stand‐alone income statement information for both Marcolin and Viva can be found in Appendices B and C – Other Financial Information. Marcolin was acquired by Cristallo on December 5, 2012, and in October 2013 Cristallo underwent a reverse merger with and into Marcolin, in connection with a corporate reorganization of the Group’s holding structure. In December 2013, Marcolin obtained control over Viva by acquiring 100% of the capital of Viva Optique, Inc. Accordingly, the Marcolin Group’s results of operations for the six months ended June 30, 2014 include the Viva Group’s results. In accordance with Management’s objectives of fully integrating the Viva Group, and in order to provide a meaningful period‐on‐period discussion, the results for the six months ended June 30, 2013 have been adjusted to include the Viva Group’s results of operations for that period. We believe that such disclosure provides relevant information to enhance period‐on‐period comparability. This document presents the following financial information:

1) Summary financial information as of and for the six months ended June 30, 2014; 2) Management’s discussion and analysis of the financial condition and results of operations as of and for the six

months ended June 30, 2014; 3) Appendices – Other Financial Information

a) Pro Forma – Other Financial Information as of and for the twelve months ended June 30, 2014; b) Marcolin – Other Financial Information as of and for the six and the twelve months ended June 30, 2014; c) Viva – Other Financial Information as of and for the six and the twelve months ended June 30, 2014.

The consolidated income statement, consolidated statement of financial position, consolidated cash flow statement and other financial information of the Group as of and for the six months ended June 30, 2014 are derived from the unaudited interim condensed consolidated financial statements of the Marcolin Group as of and for the six months ended June 30, 2014. Non‐IFRS and Non‐U.S. GAAP Measures

The summary financial information set forth below contains certain non‐IFRS and non‐U.S. GAAP financial measures including “Pro‐Forma Combined Adjusted Run‐Rate EBITDA,” “EBITDA,” “EBITDA margin,” “Adjusted EBITDA,” “Adjusted EBITDA margin,” “Total debt”, “Net debt,” “Capital expenditures” and “Movements in working capital.”

The non‐IFRS and non‐U.S. GAAP financial measures are not measurements of performance or liquidity under IFRS or U.S. GAAP.

Marcolin Bond Report as of and for the six months ended June 30, 2014 Summary Financial Information

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SUMMARY CONSOLIDATED INFORMATION

Summary Consolidated Income Statement Information

For the six months ended June 30, 2013 2014

(Constant Perimeter) (As reported)

Revenue(1) 190,619 194,338 Cost of sales (73,014) (76,692)Gross profit 117,605 117,646Selling and marketing costs (86,792) (88,253) General and administrative expenses (18,030) (14,853)Other operating income and expenses 2,363 1,597 Effects of accounting for associates 239 193 Operating profit(2) 15,385 16,330Net finance costs(3) (6,808) (9,640)Profit before taxes 8,577 6,690 Income tax expense (4,754) (4,337)Net profit for the period (4) 3,823 2,353

(1) With the same consolidation perimeter, including Viva’s 2013 half‐year results, net sales are up by 2.0% from June 30, 2013. The increase in the revenues at constant exchange rates is 4.9%. We calculate net sales for the first half of 2014 using constant exchange rates by applying the prior‐period average exchange rates (of the U.S.$ and the other currencies relevant for the Group against the €) to the current financial data expressed in the original currency, in order to eliminate the impact of currency fluctuations.

(2) Operating profit was affected by a number of extraordinary items both for the six‐month period ended June 30, 2013 and for the six‐month period ended June 30, 2014. Please see “Adjusted EBITDA” for further details on such items.

(3) Included within net finance costs for the six‐month period ended June 30, 2014 are costs incurred in connection with the bond issued and the refinancing of existing debt facilities. See “Management’s Discussion And Analysis of Financial Condition and Results of Operations ‐ Net Finance Costs” for a description of the net finance costs for the period. Net finance costs for the six‐month period ended June 30, 2013 include net finance costs of €3.4 million relating to Cristallo S.p.A., on the existing bank loan facilities.

(4) The net profit for the six months ended June 30, 2013 presented in the Offering Memorandum – “Unaudited Pro Forma Consolidated Financial Information” includes certain pro‐forma adjustments considered to represent the increase in finance costs arising from the Offering (€1.5 million net of the tax effect, relating to gross deductible financial costs of €2.4 million). For the six months ended June 30, 2014, such expenses from the bond notes (issued in Q4 2013) are already included in the consolidated results, and therefore this information is not comparable.

Summary Consolidated Statement of Financial Position Information

As of December 31,

As of June 30,

2013 2014 (As reported) (As reported)

(In € thousands) Property, plant and equipment 23,489 22,821 Intangible assets 34,655 40,866 Goodwill 256,917 257,576 Inventories 72,907 74,893Trade receivables 72,468 88,893 Cash and cash equivalents 38,536 30,611 Other current and non‐current assets 50,110 48,879Total assets 549,082 564,540

Long‐term borrowings 195,891 196,248 Short‐term borrowings 17,707 17,947 Trade payables 64,711 78,422 Other long‐term and short‐term liabilities 55,797 53,692Total liabilities 334,106 346,310 Total equity 214,976 218,230Total liabilities and equity 549,082 564,540


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Summary Consolidated Cash Flow Statement Information

For the six months ended June 30,

2013 2014

(Constant Perimeter) (As reported) (In € thousands)

Net cash from operating activities 9,086 926 Net cash (used in) investing activities(a) (56,565) (9,767)Net cash from/(used in) financing activities 31,230 543 Effect of foreign exchange rates 53 374

Net increase/(decrease) of cash and cash equivalents (16,197) (7,925)(a)

Including investments of €53.6 million, relating to the acquisition of the minority interest in Marcolin by Cristallo, completed and settled during the six months ended June 30, 2013. Other Financial Information



EBITDA(1) 19,925 21,241

Adjusted EBITDA(2) 24,053 24,126

Adjusted EBITDA margin(3) 12.6% 12.4%

Capital expenditures(4) 3,042 9,831

Net indebtedness 168,906 175,466

Movements in working capital (755) (2,223)

(1) We define EBITDA as profit for the period plus income tax expense, net finance costs, amortization and

depreciation and bad debt provision. EBITDA is a Non‐GAAP Financial Measure. The following table sets forth the calculation of EBITDA for the periods indicated.



Net profit for the period 3,823 2,353Income tax expense 4,754 4,337 Net finance costs 6,808 9,640 Amortization and depreciation 4,269 4,612 Bad debt provision 271 299 EBITDA (a) 19,925 21,241

(a) The 2013 EBITDA with a constant perimeter uses a different reclassification of the financial discount and exchange difference presented in the

Offering Memorandum (833,190 U.S.$). In the tables above the EBITDA for the first half 2013 is presented consistently with the first half 2014, with the same reclassification of Marcolin Group, so the data is comparable. (2) We define adjusted EBITDA as EBITDA adjusted for the effect of several non‐recurring transactions which

primarily relate to one‐off charges, non‐recurring costs in relation to changes in management, and other extraordinary items (certain items of which relate to Cristallo’s acquisition of Marcolin). The following table sets forth the calculation of adjusted EBITDA for the periods indicated.


2013 2014


EBITDA 19,925 21,241Costs related to PAI acquisition(a) 1,467 ‐ Costs related to VIVA integration(b) ‐ 2,183 Senior management changes(c) 1,440 701 Exceptional termination of licenses(d) 961 ‐ Other(e) 260 ‐

Adjusted EBITDA 24,053 24,126


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(a) Costs related to PAI acquisition refer primarily to advisory fees and expenses related to the mandatory tender offer and consequent obligations.

(b) Costs related to Viva integration incurred for the integration process of Viva as described in “Overview – Acquisition and Integration of Viva”. (c) Senior management changes relate to non‐recurring employment termination expenses incurred in connection with the change in top

management, including the head of the Brazilian branch and Italian management. (d) Exceptional termination of licenses in 2013 relates primarily to expenses and losses incurred on the John Galliano and Miss Sixty licenses that

were terminated prior to their contractual expiration date. The John Galliano license was terminated following the impairment to the reputation of the brand, as a result of a scandal involving the designer, while the Miss Sixty license was terminated following the licensor’s initiation of insolvency procedures, resulting in damage to the brand reputation and a decrease in sales beyond the ordinary course of business.

(e) Other relates to non‐recurring expenses incurred in the development of certain licenses and new business.

(3) We define the adjusted EBITDA margin as adjusted EBITDA divided by revenue.

(4) Capital expenditure consists of investments for the period in property, plant and equipment and intangible assets, as presented in the cash flow statement. The table below sets forth a breakdown of capital expenditure for the periods indicated.


2013 2014


Property, plant and equipment 1,349 1,221 Intangible assets(a) 1,693 8,611

Total capital expenditure 3,042 9,831

(a) Investments of €8.6 million in intangible assets, mainly related to the lump sum agreed by the Parent Company to two licensors in order to extend licensing agreement periods. Specifically, €6.1 million refers to the extension of Diesel licensing agreement to include 2017 and 2018, and €0.7 million refers to the extension of Swarovski licensing agreement until December 31, 2015. In addition, intangible assets under formation include Viva’s ERP software change, and the Parent Company’s software and business application implementation totaling €1.8 million.

(5) We define net debt as the total consolidated debt net of cash and cash equivalents. The table below sets forth the calculation of net debt for the periods indicated.

As of December 31, 2013 As of June 30, 2014(As reported) (As reported)

(In € thousands) Cash and cash equivalents (38,536) (30,611)Financial receivables (8,890) (8,118)Long‐term borrowings 195,891 196,248 Short‐term borrowings (a) 17,707 17,947 Net indebtedness 166,172 175,466 (a) Includes current portion of long‐term debt.

(6) We define movements in working capital as the movements in trade and other receivables, inventories, trade payables, other liabilities, tax liabilities and use of provisions.


2013 2014


(Increase)/decrease in trade receivables (7,249) (16,941) (Increase)/decrease in other receivables 690 (2)(Increase)/decrease in inventories 8,394 471 Increase/(decrease) in trade payables (4,382) 13,711Increase/(decrease) in other liabilities 1,734 892 Increase/(decrease) in current tax liabilities 1,227 969(Use) of provision (1,168) (1,323)



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Other Financial and Non‐Financial Data and Key Performance Indicators

Revenue, sales volume and average price per unit by geographic segment

For the six months ended June 30, 2013

(Constant Perimeter) % of total 2014

(As Reported) % of total

Revenue (In € thousands) Italy 44,892 23.6% 46,695 24.0% Of which Italy Domestic(1) 12,214 6.4% 15,345 7.9% Of which Italy Export(2) 32,678 17.1% 31,350 16.1%France 22,008 11.5% 21,444 11.0%Rest of Europe 26,524 13.9% 29,019 14.9%North America 84,657 44.4% 81,659 42.0%Rest of World(3) 12,539 6.6% 15,521 8.0%Total 190,619 100.0% 194,338 100.0%

Sales Volume(4) (units in thousands)

Italy 910 11.8% 1,009 12.4% Of which Italy Domestic(1) 241 3.1% 370 4.5% Of which Italy Export(2) 669 8.7% 639 7.8%France 473 6.1% 504 6.2%Rest of Europe 836 10.8% 1,086 13.3%North America 4,895 63.5% 4,867 59.6%Rest of World(3) 594 7.7% 703 8.6%Total 7,709 100.0% 8,169 100.0%

Average price per unit(5) (€ per unit) Italy 49.3 46.3 Of which Italy Domestic(1) 50.7 41.5 Of which Italy Export(2) 48.8 49.0 France 46.5 42.6 Rest of Europe 31.7 26.7 North America 17.3 16.8 Rest of World 21.1 22.1

24.7 23.8

(1) Italy Domestic relates to the revenue generated by Marcolin’s sales of products to the Italian market. (2) Italy Export relates to the revenue generated by Marcolin’s sales of products to the markets in which we do not have an operating subsidiary, mainly in the Far East and Middle East. (3) Rest‐of‐World sales relates to the sales generated by Brazilian and other non‐North American and non‐European subsidiaries (for example Marcolin do Brasil Ltda, Viva Brasil Ltda, Marcolin Asia Ltd.). (4) Sales volumes correspond to sales made to wholesale customers expressed in thousands of units. (5) Average price is calculated as revenue divided by sales volume.

Revenue amounted to €194.3 million for the six months ended June 30, 2014, an increase of €3.7 million, or 2.0%, from the €190.6 million for the six months ended June 30, 2013. At constant exchange rates, the first half‐year 2014 revenue was €199.9 million, up by €9.3 million, or 4.9%, from the same period of last year. We calculate the 2014 half‐year net sales with a constant currency by applying the prior‐period average exchange rates (of the U.S.$ and the other currencies relevant for the Group against the €) to the current financial data expressed in the original currency, in order to eliminate the impact of currency fluctuations. Currency fluctuation strongly impacted North America revenue, which at constant exchange rates was €86.7 million for the first half of 2014 instead of the €81.7 million shown in the table, an increase of 2.4% from the same period of 2013.


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Revenue, sales volume and average price per unit by brand type




Revenue (In € thousands) Luxury brands 86,616 45.4% 85,004 43.7% Diffusion brands 105,919 55.6% 112,812 58.0% Other(1) (1,916) ‐1.0% (3,478) ‐1.8%Total 190,619 100.0% 194,338 100.0%

Sales volume(2) (units in thousands)

Luxury brands 1,090 14.1% 1,165 14.3% Diffusion brands 6,619 85.9% 7,004 85.7%Total 7,709 100.0% 8,169 100.0%

Average price per unit(3) (€ per unit)

Luxury brands 79.5 73.0 Diffusion brands 16.0 16.1

24.7 23.8

(1) Other relates primarily to unallocated end‐of‐period adjustments for discounts, and to a lesser extent, returns. (2) Sales volume corresponds to sales made to wholesale customers expressed in thousands of units. (3) Average price is calculated as revenue divided by sales volume.

Revenue, sales volume and average price per unit by product type




Revenue (In € thousands) Sunglasses 95,725 50.2% 101,878 52.4%Prescription frames 96,810 50.8% 95,938 49.4%Others(1) (1,916) ‐1.0% (3,478) ‐1.8%Total 190,619 100.0% 194,338 100.0%

Sales volume(2) (units in thousands) Sunglasses 4,416 57.3% 4,668 57.1% Prescription frames 3,293 42.7% 3,501 42.9%Total 7,709 100.0% 8,169 100.0%

Average price per unit(3) (In € per unit)

Sunglasses 21.7 21.8 Prescription frames 29.4 27.4

24.7 23.8

(1) Others relates primarily to unallocated end‐of‐period adjustments for discounts and, to a lesser extent, returns. (2) Sales volume corresponds to sales made to wholesale customers expressed in thousands of units. (3) Average price is calculated as revenue divided by sales volume.

Marcolin Bond Report as of and for the six months ended June 30, 2014 MD&A

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition and results of operations in the periods set forth below. The following discussion should also be read in conjunction with “Presentation of Financial Information and Other Data” and “Selected Consolidated Financial Information.” The discussion in this section may contain forward‐looking statements that reflect our plans, estimates and beliefs and involve risks and uncertainties.

Unless the context indicates otherwise, in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” references to “we,” “us,” “our,” or the “Marcolin Group” refer to Marcolin, including Cristallo, Viva and the consolidated group.

Key Factors Affecting Our Financial Condition and Results of Operations General economic conditions and consumer discretionary spending Our performance is affected by the economic conditions of the markets in which we operate and trends in consumer discretionary spending. In a global scenario of improvement for the world economy, the Italian eyewear sector industry has performed well after closing 2013 with growth (+7.2%). The positive trend for exports continued in the first quarter of 2013 for both sunglasses and prescription frames. Certain markets continue to fuel this performance: the United States, France, Germany and some emerging countries are driving our export growth. Sunglasses are consolidating their 2013 position, and have returned to dominate the sector. The monthly export performance, although not yet very significant, is still indicative of constant, solid growth from the same period of the previous year, when the best‐performing period was the fourth quarter. This is an excellent beginning indicating the possibility of good annual results. With respect to Italian style, eyewear contributes increasingly to the trade balance of the “made in Italy” fashion system, as it is one of the sectors with the highest export growth. This growth is particularly significant in the United States, where other sectors have experienced more difficulty in recovering. 2013 may be considered a year of recovery for Italian eyewear exports in the two top markets, Europe and America (which collectively account for nearly 80% of Italian eyewear exports), and 2014 appears to be a year of consolidation of this positive trend, sustained by the cautious optimism of the international markets (source: ANFAO). For the Marcolin Group the revenue for the six months ended June 30, 2014 has grown, at constant exchange rates, by about 4.9% compared to the revenue recorded for the same period in 2013 (on a constant perimeter basis, i.e. including both the results of Marcolin and Viva for both periods). We calculate the 2014 semiannual net sales using constant currencies by applying the prior‐period average exchange rates (of the U.S.$ and the other currencies relevant for the Group against the €) to the current financial data expressed in the original currency, in order to eliminate the impact of currency fluctuations. We believe that such results, excluding the impact of period‐on‐period currency fluctuations, provide additional useful information to investors regarding the operating performance on a local currency basis. Licensing agreements Licenses – key facts for the year 2013 and the six months ended June 30, 2014 In the six months ended June 30, 2014, the Marcolin Group continued with its efforts to rationalize and optimize both the brands and collections offered to its clients, a process that was launched in 2013. Such process has included the following activities:

• for the purpose of product innovation, a new collection using metal was created in 2013 for the Tom Ford brand, the "Essential" line, combining Italian design, Marcolin's expertise and available production capabilities. Sales of the Essential line products commenced in February 2014;

• Balenciaga was re‐launched, after the fashion house's designer change, with a sophisticated and elegant


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collection having great complexity, which was presented at the end of 2013 to a distinctive group of selected retailers; in January 2014, the group of distributors was extended, while continuing to focus on just a few prestigious names. The positive performance of the license is reflected in the €3.0 million net sales increase of the first half of 2014, and in the growth of the portfolio orders;

• an important strategic alliance was created at the end of 2013 with the stipulation of licenses for the prestigious eyewear brands Ermenegildo Zegna and Agnona. The licensing agreement has a ten‐year duration and involves the exclusive design, manufacture and global distribution of sunglasses and prescription frames. Given that typically, when we enter into an agreement with a new licensor, there is a time lag between the date of the agreement and the date on which the agreement begins to generate revenue, we estimate that the initial Ermenegildo Zegna and Couture collections, as well as the Agnona collection, should be launched in January 2015, and start generating revenues from that date;

• the Diesel and Swarovski licenses have been renegotiated, resulting in improved terms and conditions for the Group. The Swarovski license for €0.7 million was renegotiated in January 2014, and the Diesel license for €6.1 million was renegotiated in March 2014;

• at the end of April 2014 Marcolin exercised its option to renew the Tom Ford license, extending the license period from January 2016 to December 2022;

• on May 6, 2014, Viva renewed the licensing agreement with Skechers USA, Inc., an award‐winning global leader in the lifestyle and performance footwear industry;

• on June 9, 2014, Marcolin Group and Emilio Pucci announced the stipulation of a worldwide exclusive license agreement for the design, production and distribution of sunglasses and eyeglasses for Emilio Pucci brand. The five‐year, renewable license will become effective in January 2015.

Other licensing events occurring after the IIQ closing are: • on July 2, 2014, the Group and M.lle Catherine Deneuve announced the renewal of their licensing agreement,

initially launched through a licensing partnership with Viva International in 1989, for the design, production and worldwide distribution of Catherine Deneuve optical frames and sunglasses.

Payments related to licenses In renegotiating or renewing licenses or obtaining new licenses, the Group may incur additional expenses or cash outflows. In 2012 we amended and extended the TOD’s license, and terminated the Hogan license and converted it into a supply agreement, in each case prior to their respective contractual expiration dates. These contracts were terminated and renegotiated to improve the financial terms and conditions for Marcolin. In particular, we renegotiated a new TOD’s license with lower MAG royalty thresholds and extended the license term to 2018, and we entered into a supply agreement with Hogan (through which we supply on demand, and as such we bear no inventory risk). In addition, during the first six months of 2014 Marcolin agreed to pay a lump sum over the course of the renegotiated license in order to extend the license agreement duration for Diesel and Swarovski, improving terms and conditions of the two licenses. Distribution In the first part of 2014, following a review of our global operations, Marcolin made certain changes to the management of our Brazilian subsidiary and reorganized (centralized) the Foreign Europe Management. The recent Viva acquisition and the consequential integration process began with the review of the distribution network and sales force, with the objective of maximizing the distribution synergies possible and promoting cost efficiencies. The sales force integration in the U.S. has been fully executed, in the U.K. it is almost complete, and in Hong Kong and France it is still in progress, in line with the defined integration plans. The restructuring of the Italian sales force resulted in an increase in revenues and orders for the six months ended June 30, 2014, as presented in the tables of Net Revenues by destination market. In 2013 Marcolin and the Rivoli Group, an important eyewear business with a strong presence in the Middle East, stipulated a medium/long‐term agreement for the distribution of Marcolin products in the Middle East. Marcolin assigned the brand management of Diesel and Swarovski to the Rivoli Group beginning November 2014. The partnership is expected to further boost the Italian eyewear company's presence in the Middle East, with Rivoli as the main distributor of the portfolio brands.


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Within the framework of the Viva integration project, the Group has reorganized the sales department by streamlining the sales force; the marketing departments have been joined under one leadership. These synergies are expected to provide results starting from the second half of the year. Efficiency and cost control initiatives Within the framework of the Viva integration, we have combined the two U.S. sales teams in the optical channel, given a significant increase in the share of certain Marcolin legacy brands (namely Diesel, Timberland, Cover Girl and Kenneth Cole). Also in the U.S., we have joined the Marketing Departments under new leadership. These streamlining measures have generated considerable, unplanned savings. In Hong Kong and the United Kingdom, after the H1 close we consolidated Viva operations into Marcolin entities:

‐ we created the Hong Kong Branch of Marcolin UK to serve the entire client base of VIVA and Marcolin in APAC and manage jointly the sourcing operations out of China;

‐ we transferred VIVA UK’s international business to Marcolin SpA for EMEA and LATAM clients; ‐ we transferred the VIVA UK’s Domestic business to Marcolin UK.

These initiatives will start to generate the planned synergies in the second half of 2014. Changes in management team composition In the six months ended June 30, 2014, the Group continued strengthening its management team by hiring new, experienced managers. In particular, a new HR Group Director joined the Group with the objective of continuing to strengthen the management team. Furthermore, the Marcolin management reorganization resulted in the new role of Corporate Managing Director, assisted by the Group CFO and the USA CFO. Group Comparison of six months ended June 30, 2013 against six months ended June 30, 2014 Presentation of Financial Information This document focuses on the consolidated results for the Group that includes Marcolin, Cristallo and Viva. The discussion of the Group as one single entity is consistent with the strategy to fully integrate Viva and its operations and brands into the Marcolin Group. Stand‐alone income statement information for both Viva and Marcolin can be found in Appendices B and C – Other Financial Information. Marcolin was acquired by Cristallo on December 5, 2012, and in October 2013 Cristallo underwent a reverse merger with and into Marcolin, in connection with a corporate reorganization of the Group’s holding structure. The Marcolin Group’s consolidated financial statements for the six months ended June 30, 2013 include Cristallo’s results of operations. In December 2013, Marcolin obtained control over Viva by acquiring 100% of the capital of Viva Optique, Inc. Accordingly, the Marcolin Group’s results of operations for the six months ended June 30, 2014 include the Viva Group’s results. In accordance with Management’s objectives of fully integrating the Viva Group, and in order to provide a meaningful period‐on‐period discussion, the results for the six months ended June 30, 2013 have been adjusted to include the Viva Group’s results of operations for that period. We believe that such disclosure provides relevant information to enhance period‐on‐period comparability. The consolidated income statement, consolidated statement of financial position, consolidated cash flow statement and other financial information of the Group as of and for the six months ended June 30, 2014 are derived from the unaudited interim condensed consolidated financial statements of the Marcolin Group as of and for the six months ended June 30, 2014.


15

For the six months ended June 30,2013

(Constant Perimeter) % of revenue 2014

(As Reported) % of revenue

(In € thousands, except percentages) Revenue 190,619 100.0% 194,338 100,0%Cost of sales (73,014) ‐38.3% (76,692) ‐39.5%Gross profit 117,605 61.7% 117,646 60.5%Selling and marketing costs (86,792) ‐45.5% (88,253) ‐45.4%General and administrative expenses (18,030) ‐9.5% (14,853) ‐7.6%Other operating income and expenses 2,363 1.2% 1,596 0.8%Effects of accounting for associates 239 0.1% 193 0.1%Operating profit 15,385 8.1% 16,330 8.4%Net finance costs (6,808) ‐3.6% (9,640) ‐5.0%Profit before taxes 8,577 4.5% 6,690 3.4%Income tax expense (4,754) ‐2.5% (4,337) ‐2.2%Net profit for the period 3,823 2.0% 2,353 1.2%

Revenue The following tables set forth an analysis of our revenues by product type and brand type for the periods indicated.


(Constant Perimeter)

% of total

2014(As

Reported) % of total

Change

Revenue by brand type (In € thousands) amount % Luxury brands (1) 86,616 45.4% 85,004 43.7% (1,612) ‐1.9% Diffusion brands 105,919 55.6% 112,812 58.0% 6,893 6.5%Others(2)) (1,916) ‐1.0% (3,478) ‐1.8% (1,562) 81.5%Total 190,619 100.0% 194,338 100.0% 3,719 2.0%

(1) The decrease was affected by the new classification of Swarovski in 2014 as a diffusion brand.

(2) “Other” primarily relates to unallocated end‐of‐period adjustments for discounts and returns.


(Constant Perimeter)

% of total

2014 (As Reported)

% of total

Change

Revenue by product type (In € thousands) amount %Sunglasses 95,725 50.2% 101,878 52.4% 6,153 6.4%Prescription frames 96,810 50.8% 95,938 49.4% (872) ‐0.9%Others(1) (1,916) ‐1.0% (3,478) ‐1.8% (1,562) 81.5%Total 190,619 100.0% 194,338 100.0% 3,719 2.0%

(1) Other primarily relates to unallocated end‐of‐period adjustments for discounts and, to a lesser extent, returns. The revenue for the six months ended June 30, 2014 was impacted positively by the introduction of the Viva brands, particularly Guess, to the Marcolin brand portfolio. Revenue amounted to €194.3 million for the six months ended June 30, 2014, an increase of €3.7 million, or 2.0%, from the €190.6 million for the six months ended June 30, 2013. At constant exchange rates revenue rose by 4.9%. We calculate the 2014 half‐year net sales with a constant currency by applying the prior‐period average exchange rates (of the U.S.$ and the other currencies relevant for the Group


16

against the €) to the current financial data expressed in the original currency, in order to eliminate the impact of currency fluctuations. The increase in revenue is attributable to an increase in sales volumes, from 7.709 million units for the six months ended June 30, 2013 to 8.169 million units for the six months ended June 30, 2014, which was partially offset by a decrease in the average price per unit, from €24.7 for the six months ended June 30, 2013 to €23.8 for the six months ended June 30, 2014. The percentage of revenue generated by sales of luxury brand items decreased from 45.4% for the six months ended June 30, 2013 to 43.7% for the six months ended June 30, 2014. The decrease is attributable to a reduction in the average price per unit, from €79.5 for the six months ended June 30, 2013 to €73.0 for the six months ended June 30, 2014, which was partially offset by an increase in sales volume, from 1.090 million units for the six months ended June 30, 2013 to 1.165 million units for the six months ended June 30, 2014. The decrease was affected by the new classification of Swarovski as a diffusion brand, instead of a luxury brand, pursuant to a repositioning of the brand on the market, as specified in the footnote to the respective table. Under constant conditions, the luxury segment grew by 8.2%. The percentage of net revenues generated by diffusion brand products was 55.6% for the six months ended June 30, 2013 and 58.0% for the six months ended June 30, 2014. The average price per unit is in line with the first half of 2013 (€16.1 for the first six months of 2014, compared to €16.0 for the same period of 2013), but volumes rose from 6.619 million in 2013 to 7.004 million in 2014. The percentage of revenue generated by sales of sunglass items increased from 50.2% for the six months ended June 30, 2013 to 52.4% for the six months ended June 30, 2014. Such increase was attributable to an increase in sales volumes, from 4.416 million units for the six months ended June 30, 2013 to 4.668 million units for the six months ended June 30, 2014, with the average price per unit in line with that of 2013 (€21.7 for the six months ended June 30, 2013 and €21.8 for the six months ended June 30, 2014). The increase in revenue generated by sales of sunglasses was partially offset by a decrease in revenue generated by sales of prescription frames, mainly attributable to a decrease in the average price per unit, from €29.4 for the six months ended June 30, 2013 to €27.4 for the six months ended June 30, 2014, partially offset by an increase in sales volumes, from 3.293 million units for the six months ended June 30, 2013 to 3.501 million units for the six months ended June 30, 2014. The total increase in revenue was partially offset by an increase in unallocated end‐of‐period adjustments for discounts and returns, from €1.9 million for the six months ended June 30, 2013 to €3.5 million for the six months ended June 30, 2014. The discounts rose mainly on account of the sales mix in the large retail chain channel for Italy export and a higher discount rate for the European optical channel served by branches with growing sales. Revenue by geographical segment Revenue is segmented by reference to the geographic area in which the reporting entity resides. The following tables set forth an analysis of our revenue by “geographic segment” for the periods indicated. See also “‐ Revenue by market destination” for an analysis of revenue by the “destination market”.


(Constant Perimeter) % of total

2014 (As Reported)

% of total

Change

Revenue (In € thousands) amount %Italy 44,892 23.6% 46,695 24.0% 1.803 4.0% Of which Italy Domestic(1) 12,214 6.4% 15,345 7.9% 3,131 25.6% Of which Italy Export(2) 32,678 17.1% 31,350 16.1% (1,328) ‐4.1%France 22,008 11.5% 21,444 11.0% (564) ‐2.6%Rest of Europe 26,524 13.9% 29,019 14.9% 2,496 9.4%North America 84,657 44.4% 81,659 42.0% (2,998) ‐3.5%Rest of World(3) 12,539 6.6% 15,521 8.0% 2,982 23.8%Total 190,619 100.0% 194,338 100.0% 3,719 2.0%

(1) Italy Domestic relates to the revenue generated by Marcolin’s sales of products to the Italian market. (2) Italy Export relates to the revenue generated by Marcolin’s sales of products to the markets in which Marcolin does not have an operating subsidiary, mainly in the Far East and Middle East. (3) Rest‐of‐World sales volumes relate to the sales generated by Brazilian and other non‐North American and non‐European subsidiaries.


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Italy Italy revenues amounted to €46.7 million for the six months ended June 30, 2014, an increase of €1.8 million, or 4.0%, from €44.9 million for the six months ended June 30, 2013, attributable to a €3.1 million increase in Italy Domestic revenue.

• Italy Domestic revenues amounted to €15.3 million for the six months ended June 30, 2014, an increase of €3.1 million, or 25.6%, from €12.2 million for the six months ended June 30, 2013. Italy Domestic revenue accounted for 7.9% of the total revenue for the six months ended June 30, 2014, compared to 6.4% for the six months ended June 30, 2013. The increase in Italy Domestic revenue is attributable to an increase in sales volumes, partially offset by a decrease in the average price per unit. In particular, sales volumes increased by 53.5%, from 241 thousand units for the six months ended June 30, 2013 to 370 thousand units for the six months ended June 30, 2014, while the average price per unit decreased from €50.7 for the six months ended June 30, 2013 to €41.5 for the six months ended June 30, 2014;

• Italy Export revenue amounted to €31.4 million for the six months ended June 30, 2014, a decrease of €1.3 million, or 4.1%, from €32.7 million for the six months ended June 30, 2013. Italy Export revenue accounted for 16.1% of the total revenue for the six months ended June 30, 2014, compared to 17.1% for the six months ended June 30, 2013. The decrease in Italy Export revenue is attributable to a decrease in sales volumes, which was partially offset by an increase in the average price per unit. In particular, sales volumes decreased by 4.4%, from 669 thousand units for the six months ended June 30, 2013 to 639 thousand units for the six months ended June 30, 2014, and the average price per unit rose from €48.8 for the six months ended June 30, 2013 to €49.0 for the six months ended June 30, 2014.

France France revenues amounted to €21.4 million for the six months ended June 30, 2014, a decrease of €0.6 million, from €22.0 million for the six months ended June 30, 2013, attributable to a decrease in the average price per unit sold, partially offset by an increase in sales volumes. In particular, the average price per unit decreased from €46.5 for the six months ended June 30, 2013 to €42.6 for the six months ended June 30, 2014, which was partially offset by an increase sales volumes of 6.55%, from 473 thousand units for the six months ended June 30, 2013 to 504 thousand units for the six months ended June 30, 2014. Rest of Europe Rest‐of‐Europe revenues amounted to €29.0 million for the six months ended June 30, 2014, an increase of €2.5 million, or 9.4%, from the €26.5 million for the six months ended June 30, 2013, attributable to an increase in sales volumes, partially offset by a decrease in the average price per unit sold. In particular, sales volumes increased from 836 thousand units for the six months ended June 30, 2013 to 1.086 million units for the six months ended June 30, 2014, while the average price per unit decreased from €31.7 for the six months ended June 30, 2013 to €26.7 for the six months ended June 30, 2014. North America North America revenues amounted to €81.7 million for the six months ended June 30, 2014, a decrease of €3.0 million, or 3.5%, from €84.7 million for the six months ended June 30, 2013, largely attributable to a lower average price per unit sold. In particular, the average price per unit fell from €17.3 for the six months ended June 30, 2013 to €16.8 for the six months ended June 30, 2014. To a lesser extent, sales volumes slightly decreased from 4.895 million units for the six months ended June 30, 2013 to 4.867 million units for the six months ended June 30, 2014. The fluctuation of the U.S.$ strongly impacted the revenues of first half‐year 2014. As noted, at constant exchange rates, the like‐for‐like sales grew from the €84.7 million of H1 2013 to €86.7 million for H1 2014, an increase of €2.0 million, or 4.9%. Rest of World Rest‐of‐World revenues amounted to €15.5 million for the six months ended June 30, 2014, an increase of €3.0 million, or 23.8%, from the €12.5 million for the six months ended June 30, 2013, attributable to an increase in sales volumes and in the average price per unit sold. In particular, sales volumes increased strongly by 18.4% in comparison with the same period of last year, from 594 thousand units for the six months ended June 30, 2013 to 703 thousand units for the six months ended June 30, 2014, and the average price per unit increased from €21.1 for the six months ended June 30, 2013 to €22.1 for the six months ended June 30, 2014.


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Revenues by destination market The table below sets forth Marcolin’s revenue by destination market. This information provides relevant information, as it shows the geographic concentration of our customers, rather than our distribution entities.


2013 % of total 2014 % of total

Revenue (In € thousands)

Italy 14,430 7.6% 16,491 8.5%

Rest of Europe 57,906 30.4% 57,963 29.8%Europe 72,336 37.9% 74,454 38.3%USA 73,746 38.7% 73,797 38.0%Asia 14,295 7.5% 16,724 8.6%Rest of World 30,243 15.9% 29,362 15.1%

Total 190,619 100.0% 194,338 100.0%

Sales volume (in thousands of units, except %)

Italy 366 4.8% 502 6.1%

Rest of Europe 1,630 21.1% 1,687 20.7%Europe 1,996 25.9% 2,189 26.8%USA 4,499 58.4% 4,682 57.3%Asia 422 5.5% 464 5.7%Rest of World 792 10.3% 834 10.2%

Total 7,709 100.0% 8,169 100.0%

Average price per unit (€ per unit)

Italy 39.4 32.9

Rest of Europe 35.5 34.4 Europe 36.2 34.0 USA 16.4 15.8 Asia 33.9 36.1 Rest of World 38.2 35.2

24.7 23.8

As a result of the business initiatives aimed to strengthen relationships with customers, and the great attention dedicated to the reorganization of the Domestic market, in particular the reorganization of the independent agents, the Italian market has strongly expanded in comparison with the same period of last year, from €14.4 million or 7.6% of total revenues to €16.5 million or 8.5% of total revenues. Cost of sales The cost of sales amounted to €76.7 million for the six months ended June 30, 2014, an increase of €3.7 million, or 5.0%, from the €73.0 million for the six months ended June 30, 2013. The cost of sales as a percentage of revenue is 39.5% for the six months ended June 30, 2014 compared to 38.3% for the six months ended June 30, 2013. The June YTD gross margin is 1.2% below that of the first half of 2013. In general, the decrease is predominantly due to the sales mix in North America (lower optical sales and higher retail sunglass), as well as close‐out sales, and, to a latter extent, to an increase in inventory provisions. The decision taken one year ago to selectively reduce the prices generate a negative variance almost offset by the recovery in the volumes triggered by the said price reduction. In the First Half we had a positive variance of the Brand Mix (as growth has been generated by higher margin Brands) but a significant currency headwind as the US and Brasilian portion of the Business has reduced its contribution to Group’s Profitability in Euro. Cost variance has been slightly negative. The following table sets forth an analysis of cost of sales for the periods indicated:


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(Constant Perimeter) % of

revenue 2014

(As reported) % of revenue

Change

(In € thousands, except percentages) (amount) %Material and finishing products

54,521 28.6% 55,415 28.5% 894 1.6%

Personnel expenses 9,451 5.0% 9,837 5.1% 386 4.1%Outsourcing 3,323 1.7% 4,657 2.4% 1,334 40.1%Other expenses 5,719 3.0% 6,783 3.5% 1,064 18.6%Total 73,014 38.3% 76,692 39.5% 3,678 5.0%

The increase in cost of sales is attributable to the combined effect of the following changes: • Materials and finished products amounted to €55.4 million for the six months ended June 30, 2014, an increase of

1.6%, from the €54.5 million for the six months ended June 30, 2013. Materials and finished products as a percentage of revenue is 28.5% for the six months ended June 30, 2014 and 28.6% for the six months ended June 30, 2013.

• Personnel expenses relating to production amounted to €9.8 million for the six months ended June 30, 2014, an increase of 4.1%, from the €9.5 million for the six months ended June 30, 2013. Personnel expenses as a percentage of revenue is 5.1% for the six months ended June 30, 2014 compared to 5.0% for the six months ended June 30, 2013.

• Outsourcing amounted to €4.7 million for the six months ended June 30, 2014, an increase of €1.3 million, or 40.1%, from the €3.3 million for the six months ended June 30, 2013. Outsourcing as a percentage of revenue is 2.4% for the six months ended June 30, 2014, compared to 1.7% for the six months ended June 30, 2013.

• Other expenses amounted to €6.8 million for the six months ended June 30, 2014, an increase of €1.1 million or 18.6% from €5.7 million for the six months ended June 30, 2013. Other expenses as a percentage of revenue is 3.5% for the six months ended June 30, 2014, compared to 3.0% for the six months ended June 30, 2013. In both periods, other expenses primarily related to transport and customs charges and, to a lesser extent, depreciation and amortization of assets associated with production activities. The increase in other expenses is mainly attributable to higher transport and customs charges.

Selling and marketing costs Selling and marketing costs amounted to €88.3 million for the six months ended June 30, 2014, an increase of €1.5 million, or 1.7%, from the €86.8 million for the six months ended June 30, 2013. Selling and marketing costs as a percentage of revenue is 45.4% for the six months ended June 30, 2014, compared to 45.5% for the six months ended June 30, 2013. The following table sets forth an analysis of selling and marketing costs for the periods indicated.


(Constant Perimeter) % of revenue 2014

(As Reported) % of revenue

Change

(In € thousands, except percentages) (amount) %Royalties 24,018 12.6% 23,956 12.3% (63) ‐0.3%Of which VRA 21,431 11.2% 21,048 10.8% (384) ‐1.8%Of which MAG 2,587 1.4% 2,908 1.5% 321 12.4%Personnel Expenses 29,881 15.7% 29,163 15.0% (718) ‐2.4%Advertising and PR 13,181 6.9% 13,845 7.1% 664 5.0%Commissions 4,589 2.4% 5,210 2.7% 621 13.5%Other costs 15,122 7.9% 16,079 8.3% 957 6.3%Total 86,792 45.5% 88,253 45.4% 1,461 1.7%

The €1.5 million increase in selling and marketing costs is primarily attributable to the combination of the following changes: • Royalties amounted to €23.9 million for the six months ended June 30, 2014, a decrease of 0.3%, from the €24.0

million for the six months ended June 30, 2013. Royalties as a percentage of revenue is 12.3% for the six months ended June 30, 2014, compared to 12.6% for the six months ended June 30, 2013.


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• Personnel expenses relating to selling and marketing amounted to €29.2 million for the six months ended June 30, 2014, a decrease of €0.7 million, or 2.4%, from the €29.9 million for the six months ended June 30, 2013. Personnel expenses as a percentage of revenue is 15.0% for the six months ended June 30, 2014, compared to 15.7% for the six months ended June 30, 2013.

• Advertising and PR amounted to €14.0 million for the six months ended June 30, 2014, an increase of €0.7 million, or 5.0%, from the €13.2 million for the six months ended June 30, 2013. Advertising and PR expenses as a percentage of revenue is 7.1% for the six months ended June 30, 2014, compared to 6.9% for the six months ended June 30, 2013. In the first six months of 2014, costs were incurred for additional advertising and public relations activities; greater advertising investments were made in the house brands and for the Venice International Convention, held in June 2014, which all the Group’s top customers attended, including those acquired through the Viva acquisition.

• Commissions amounted to €5.2 million for the six months ended June 30, 2014, an increase of €0.6 million, or 13.5%, from the €4.6 million for the six months ended June 30, 2013. Commission expense as a percentage of revenue is 2.7% for the six months ended June 30, 2014, compared to 2.4% for the six months ended June 30, 2013. Commissions are charged on sales made through our direct sales channels.

General and administrative expenses General and administrative expenses amounted to €14.9 million for the six months ended June 30, 2014, a decrease of €3.2 million, or 17.6%, from €18.0 million for the six months ended June 30, 2013. General and administrative expenses as a percentage of revenue is 7.6% for the six months ended June 30, 2014, compared to 9.5% for the six months ended June 30, 2013. The decrease in general and administrative expenses is attributable to a decrease in legal consulting fees incurred; during the six months ended June 30, 2013, Cristallo incurred legal consulting fees of €1.2 million in relation to the mandatory full tender offer for the entire share capital of Marcolin, which was completed in February 2013. In addition, the decrease in G&A expenses is the result of the successful actions taken by the Group to improve efficiency and contain costs triggered by Viva Integration. Other operating income and expenses Other operating income and expenses resulted in net income of €1.6 million for the six months ended June 30, 2014, compared to the net operating income of €2.4 million for the six months ended June 30, 2013. In both periods other net operating income primarily relates to prior period adjustments, refunded transport costs, and other income and expenses. Net finance costs Net finance costs amounted to €9.6 million for the six months ended June 30, 2014, compared to €6.8 million for the six months ended June 30, 2013. The increase in finance costs is primarily attributable to an increase in interest expense recognized particularly as a result of the bond notes issued in November 2013. Income tax expense The income tax expense amounted to €4.3 million for the six months ended June 30, 2014, a decrease of €0.4 million, or 8.77%, compared to the €4.8 million for the six months ended June 30, 2013. The decrease in income tax expense is primarily attributable to the decrease in profit before tax. Working Capital The table below sets forth a summary of the movements in the Group’s working capital, as derived from our consolidated cash flow statements for the periods indicated.


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(Increase)/decrease in trade receivables (7,249) (16,941) (Increase)/decrease in other receivables 690 (2)

(Increase)/decrease in inventories 8,394 471

Increase/(decrease) in trade payables (4,382) 13,711

Increase/(decrease) in other liabilities 1,734 892

Increase/(decrease) in current tax liabilities 1,227 969

(Use) of provision (1,168) (1,323)


• The fluctuations in cash flows generated /(absorbed) by movements in working capital are largely attributable to

movements in trade and other receivables, inventories and trade payables, most of which relate to the timing of receivable collection or payable settlement, mainly due to seasonality.

• Nearly the entire increase in trade receivables concerns non‐overdue receivables and is attributable to the seasonality difference between the second‐quarter 2014 sales compared to the last‐quarter 2013 sales. With a constant perimeter, the Group’s (including Viva) twelve‐month average days sales outstanding (DSO) at June 30, 2014 is substantially consistent with its 2013 full‐year DSO (87 days).

• The increase in trade payables is primarily attributable to non‐recurrent payables for the extension of two licensing agreements (Diesel and Swarovski), and guaranteed minimum royalties that will be paid after June 30 since they accrue in the second half of the year.

Capital Expenditures Our capital expenditures have primarily consisted of the maintenance and modernization of our production and logistics facilities, and investments in obtaining new licenses or extending/improving terms and conditions of existing licenses. Capital expenditures in property, plant and equipment over the period covered by this analysis primarily relate to the maintenance and replacement of production plant and machinery. The following table sets forth our capital expenditures for the periods indicated as derived from our cash flow statement.


2013 2014


Property, plant and equipment 1,349 1,221 Intangible assets(a) 1,693 8,611

Total capital expenditure 3,042 9,831

(a) Investments of €8.6 million in intangible assets, mainly related to the lump sum agreed by the Parent Company to two licensors in order to

extend licensing agreement periods. Specifically, €6.1 million refers to the extension of Diesel licensing agreement to include 2017 and 2018, and €0.7 million refers to the extension of Swarovski licensing agreement until December 31, 2015. In addition, intangible assets under formation include Viva’s ERP software change, and the Parent Company’s software and business application implementation totaling €1.8 million.

Liquidity (Cash and cash equivalents) As of June 30, 2014, the €7.9 million decrease in cash and cash equivalents from December 31, 2013 , and the changes in the Group’s cash position as compared to that disclosed in our report as of and for the year ended December 31, 2013 are presented in the Cash Flow Statement below. Cash Flow Statement The following table sets forth our consolidated cash flow statements for the periods indicated:


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2013 2014

Marcolin Group Marcolin Group


(In € thousands) Operating activities

Profit before income tax expense 8,577 6,690

Depreciation, amortization and impairments 4,270 4,515

Accruals to provisions other accruals 4,057 9,401

Adjustments to other non‐cash items (656) (6,595)

Cash flows from operating activities before changes in working capital and tax and interest paid 16,248 14,010


Income taxes paid (1,860) (1,979)

Interest paid (4,548) (8,883)

Net cash flows provided by operating activities 9,086 926

Investing activities (Purchase) of property, plant and equipment (1,349) (1,221)

Proceeds from the sale of property, plant and equipment 96 64

(Purchase) of intangible assets (1,693) (8,611)

(Acquisition) of investment (53,619) ‐

Net cash (used in) investing activities (56,565) (9,767)

Financing activities Net proceeds from/(repayments of) borrowings 25,360 543

Other cash flows from financing activities (21,430) ‐

Capital contribution payment 27,300 ‐

Net cash from/(used in) financing activities 31,230 543

Net increase/(decrease) in cash and cash equivalents (16,249) (8,298)

Effect of foreign exchange rate changes 53 374

Cash and cash equivalents at beginning of period 68,621 38,536

Cash and cash equivalents at end of period 52,424 30,611

Net cash flows from operating activities Net cash flows from operating activities amounted to €0.9 million for the six months ended June 30, 2014, a decrease of €8.2 million from the €9.1 million for the six months ended June 30, 2013. The reduction is primarily attributable to the interest paid in the period, in addition to the effect of the previously noted movements in working capital. Net cash flows used in investing activities Net cash flows used in investing activities amounted to €9.8 million for the six months ended June 30, 2014, compared to €56.6 million for the six months ended June 31, 2013. Investing activities for the six months ended June 30, 2014 primarily related to: • Investments in tangible assets of €1.2 million, mainly referring to purchases of plant and machinery for euro 420

thousand, equipment for 361 thousand, hardware for euro 110 thousand, and factory restructuring for euro 147 thousand).

• Investments of €8.6 million in intangible assets, mainly related to the lump sum paid by the Parent Company to two licensors in order to extend licensing agreement periods. Specifically, €6.1 million refers to the extension of Diesel licensing agreement to include 2017 and 2018, and €0.7 million refers to the extension of Swarovski licensing agreement until December 31, 2015. In addition, intangible assets under formation include Viva’s ERP software change, and the Parent Company’s software and business application implementation totaling €1.8 million.

Investing activities for the six months ended June 30, 2013 primarily related to: • Investments of €1.3 million in property, plant and equipment, of which €0.5 million refers to fixtures and fittings,

€0.4 million to production plant and machinery and €0.1 million to leasehold improvements.

• Investments of €1.7 million in intangible assets, relating primarily to investments in the operations of two companies, Eyestyle.com S.r.l. and Eyestyle Retail S.r.l., including website development costs.


23

• Investments of €53.6 million, relating to the acquisition of the minority interest in Marcolin by Cristallo, completed and settled during the six months ended June 30, 2013.

Net cash flows from/used in financing activities Net cash flows used in financing activities amounted to €0.5 million for the six months ended June 30, 2014, consisting of net repayments of borrowings, compared to the cash generated from financing activities of €31.2 million for the six months ended June 30, 2013, mainly relating to a €27.3 million capital increase from the Parent Company. Capital Resources As of June 30, 2014, our total financial debt was €214.2 million (as of December 31, 2013 it was 213.6 million). The main component of the total financial debt is the bond, which was issued in November 2013, has a maturity date of November 14, 2019 and a nominal value of €200 million, and bears interest at 8.5%. Interest on this bond is paid in half‐yearly installments. The other components of total financial debt relate primarily to current financial liabilities, including bank payables. We also have liquidity available under a revolving credit facility, €2.0 million of which was drawn as of December 31, 2013. Other information/Quantitative and Qualitative Disclosures about Market Risk As of June 30, 2014, there were no material changes in the risk factors disclosed in our report as of and for the year ended December 31, 2013.

Marcolin Bond Report as of and for the six months ended June 30, 2014 APPENDIX

24

APPENDIX A – PRO‐FORMA COMBINED FINANCIAL INFORMATION

Financial Information for the Twelve Months Ended June 30, 2014

The summary financial information presented for the twelve months ended June 30, 2014 is calculated by taking the results of operations for the six months ended June 30, 2014, and adding to them the difference between the results of operations for the full year ended December 31, 2013 and for the six months ended June 30, 2013. The financial information for the twelve months ended June 30, 2014 is not necessarily indicative of the results that may be expected for the year ended December 31, 2014, and should not be used as the basis for or prediction of an annualized calculation. Pro‐Forma Financial Information

The summary pro‐forma consolidated financial information as of and for the twelve months ended June 30, 2014 has been prepared to simulate the main effects of the Viva acquisition.

The summary pro‐forma consolidated financial information is presented for illustrative purposes only and does not purport to represent what the actual results of operations would have been if the events for which the pro‐forma adjustments were made had occurred on the dates assumed, nor does it purport to project our results of operations for any future period or our financial condition at any future date. Our future operating results may differ materially from the pro‐forma amounts set out, including changes in operating results.

The accounting principles used for the preparation of the Unaudited Pro Forma Consolidated Financial Information are the International Financial Reporting Standards endorsed by the European Union (“IFRS”).

It should be noted that Viva prepares its consolidated financial statements in U.S. dollars in accordance with the generally accepted accounting principles in the United States (“US GAAP”). In order to provide information which is homogeneous with that of Marcolin, the historical income statements and statements of financial position of Viva have been adjusted, based on a preliminary analysis, to reflect the different accounting principles adopted by Marcolin compared to those of Viva.

Summary Pro‐Forma Consolidated Financial Information

(in € thousands except percentages)

As of and for twelve months ended June 30, 2014 (pro forma)

Pro forma combined revenues …………………………………………..……………………………………………………………………………………….. 348,598Pro forma combined EBITDA (1) ……………………………………………………………………………………………………………………………………. 28,077Pro forma combined Adjusted EBITDA (2) …………………………….………………………………………………………………………………………. 38,360Pro forma combined Adjusted EBITDA margin (3) ………………….……………………………………………………………………………………… 11.0%Pro forma combined Adjusted run‐rate EBITDA (2) …………………….………………………………………………………………………………... 46,860Pro forma combined Adjusted run‐rate EBITDA margin ……………….……………………………………………………………………………… 13.4%Consolidated cash and cash equivalents (4) ……………………………….………………………………………………………………….…………….. 30,611 Consolidated Total financial debt (5) …………………………………………………………………………………………………………………………..... 214,194Consolidated Net financial debt (6) ……………………………………………………………………………………………………………….……………… 175,466 Pro forma combined cash interest expenses (7) ………………………………………………………………………………….………………………... 17,000

Marcolin Bond Report as of and for the six months ended June 30, 2014 APPENDIX

25

(1) The following table sets forth the calculation of the pro‐forma combined EBITDA for the period indicated.

(in € thousands)


Marcolin EBITDA (a) ………………………………………………………………………………………………………..……………………………………………. 17,968Viva EBITDA (b) ………………………………………………………………………………………………………………………...………………………………….. 10,109 Pro forma combined EBITDA …………………………………………………………………………………………………………………………………. 28,077

(a) See “—Marcolin Other Financial Information” ‐ Footnote 1 for the calculation of Marcolin EBITDA. (b) See “—Viva Other Financial Information” ‐ Footnote 1 for the calculation of Viva EBITDA. Viva EBITDA is calculated by translating the LTM Viva

EBITDA into euro at the average exchange rate for the twelve months ended June 30, 2014.

(2) The following table sets forth the calculation of pro‐forma combined adjusted EBITDA and pro‐forma combined adjusted run‐rate EBITDA for the periods indicated:

(in € thousands)


Marcolin Adjusted EBITDA (a) …………………………………………………………………………………..…………………………………………………. 25,670Viva Adjusted EBITDA (b) ………………………………………………………………………………………….…………...…………………………………… 11,517Management fee adjustment (c) ……………………………………………………………………………...…………………………………………………. 788 Joint venture adjustment (d) …………………………………………………………………….…………………………………………………………………. 385 Pro forma combined Adjusted EBITDA ………………………………………………………………………………………………………………… 38,360

Full year synergies (e) …………………………………………………………………………………………………...……………………………………………. 8,500 Pro forma combined Adjusted run‐rate EBITDA …………………………………………………………………………………………………… 46,860

(a) See “Appendix B – Marcolin other Financial Information” for the calculation of Marcolin Adjusted EBITDA. (b) See “Appendix C – Viva other Financial Information” for the calculation of Viva Adjusted EBITDA. Viva Adjusted EBITDA is calculated by

translating the LTM Viva Adjusted EBITDA into euro at the average exchange rate for the twelve months ended June 30, 2014. (c) Viva’s management fee adjustment relates to the elimination of fees charged by Viva’s selling Parent Company to the Viva Group for services

relating to tax, commercial insurance and administration, and technical accounting support. (d) As Marcolin currently operates in Germany, management is considering terminating Viva’s joint venture in Germany and absorbing the

operations into Marcolin Group for the business in Germany. The adjustment reflects the contribution of 50% of the EBITDA of Viva’s joint venture in Germany, as the other 50% is already included in the Viva EBITDA.

(e) Full‐year synergies include €3.9 million from shared services, €3.2 million from operational synergies and €1.4 million from the elimination of duplicate executive functions. Shared service synergies include efficiencies generated through the reduction of overlaps between foreign subsidiaries, savings in property executive management and back‐office personnel, consolidation of corporate functions, and shared usage of operational, office, and distribution networks. Operational synergies include efficiencies generated through the consolidation of warehouse facilities in the U.S., consolidation of IT systems and procurement department savings.

(3) Pro‐forma combined adjusted EBITDA margin is pro‐forma combined adjusted EBITDA divided by pro‐forma combined revenues.

(4) Cash and cash equivalents is derived from the Marcolin Consolidated Statement of Financial Position as of June 30, 2014.

(5) Consolidated total financial debt represents the consolidated short‐term and long‐term borrowings of the Marcolin group.

(6) Consolidated net debt represents consolidated total debt less consolidated cash and cash equivalents and other

current and non‐current financial assets. (7) Pro‐forma combined cash interest expense represents the interest expense in connection with the €200 million

bond issued (8.5% interest rate).

Marcolin Bond Report as of and for the six months ended June 30, 2014 APPENDIX B

26

APPENDIX B – MARCOLIN: OTHER FINANCIAL INFORMATION

For the year ended

December 31, For the six months ended June 30,

For the twelve months ended June

30, 2013 2013 2014 2014

(In € thousands) EBITDA(1)

16,596 12,524 13,896 17,968Adjusted EBITDA(2)

26,949 16,652 15,373 25,670Adjusted EBITDA margin(3)

13.2% 14.8% 13.1% 12.2%Capital expenditures(4) 4,244 2,704 8,560 10,100Net indebtedness(5) 178,291 98,967 194,260 194,260



(2) In the Bond Report as of and for the year ended December 31, 2013 the net indebtedness as at December 31, 2013 was € 84.451 million, representing a like‐for‐like perimeter excluding the effects of the Viva acquisition. The Marcolin Group’s actual net indebtedness was €178.291 million, as presented in the table above, including the Viva acquisition but excluding Viva’s net financial position/indebtedness. The “pro‐forma” net indebtedness for the period ended June 30, 2014 (excluding the cash disbursement for the Viva acquisition) is € 100.185 million.

For the year ended December 31,


For the twelve months ended

June 30, 2013 2013 2014 2014

(In € thousands)

Net profit for the period (11,399) 1,589 (571) (13,559)Income tax expense 821 2,869 2,139 91 Net finance costs 21,529 5,409 9,068 25,188 Amortization and depreciation 5,195 2,570 3,093 5,718 Bad debt provision 450 86 167 531 EBITDA 16,596 12,524 13,896 17,968

(2) We define adjusted EBITDA as EBITDA adjusted for the effect of several non‐recurring transactions which

primarily relate to one‐off charges, non‐recurring costs in relation to changes in management, and other extraordinary items, certain items of which relate to Cristallo’s acquisition of Marcolin. The following table sets forth the calculation of adjusted EBITDA for the periods indicated.




June 30, 2013 2013 2014 2014

(In € thousands)EBITDA 16,596 12,524 13,896 17,968Costs related to PAI acquisition(a) 1,912 1,467 ‐ 445Costs related to VIVA acquisition(b) 1,042 ‐ ‐ 1,042Costs related to VIVA integration(c) ‐ ‐ 776 776Senior management changes(d) 2,789 1,440 701 2,050Restructuring of sales force (e) 1,404 ‐ ‐ 1,404 Exceptional termination of licenses(f) 2,330 961 ‐ 1,369 Other(g) 876 260 ‐ 616 Adjusted EBITDA 26,949 16,652 15,373 25,670

(a) Costs related to PAI acquisition primarily relate to advisory fees and expenses incurred related to the mandatory tender offer and consequent

obligations. (b) Costs Marcolin incurred for the Viva acquisition. (c) One‐off costs incurred by Marcolin for the Viva integration process described in “Overview – Acquisition and Integration of Viva”. (d) Senior management changes relate to non‐recurring termination of employment expenses incurred in connection with the change in Italian

and subsidiary management. (e) Restructuring of sales force relates to costs incurred for restructuring the sales force, as described in the “Marcolin Bond Report as of and for

year ended December 31, 2013” and in the Overview of this Document. (f) Exceptional termination of licenses relate primarily to the expenses and losses incurred on the John Galliano and Miss Sixty licenses that were

terminated prior to their contractual expiration date. The John Galliano license was terminated following the impairment to the reputation of

Marcolin Bond Report as of and for the six months ended June 30, 2014 APPENDIX B

27

the brand as a result of a scandal involving the designer, while the Miss Sixty license was terminated following the licensor’s initiation of insolvency procedures, resulting in damage to the brand reputation and a decrease in sales beyond the ordinary course of business.

(g) Other relates to non‐recurring expenses incurred in the development of certain licenses and new business.

(3) We define adjusted EBITDA margin as adjusted EBITDA divided by revenue.

(4) Capital expenditure consists of investments for the period in property, plant and equipment and intangible assets,

as presented in our cash flow statement. The table below sets forth a breakdown of capital expenditure for the periods indicated.




June 30,

2013 2013 2014 2014 (In € thousands)

Property, plant and equipment 2,615 1,011 1,128 2,732 Intangible assets 1,629 1,693 7,432 7,368Total capital expenditure 4,244 2,704 8,560 10,100

(5) We define net debt as the total consolidated debt net of cash. The table below sets forth the calculation of net

debt for the periods indicated.

For the year ended December 31, As of June 30,2013 2014

(In € thousands) Cash and cash equivalents (20,238) (17,276)Financial receivables (8,890) (298)Long‐term borrowings 194,012 194,632 Short‐term borrowings (a) 13,407 17,202 Net indebtedness 178,291 194,260

(a) Includes current portion of long‐term debt.

(6) In the Bond Report as of and for the year ended December 31, 2013 the net indebtedness as at December 31,

2013 was € 84.451 million, representing a like‐for‐like perimeter excluding the effects of the Viva acquisition. The Marcolin Group’s actual net indebtedness was €178.291 million, as presented in the table above, including the Viva acquisition but excluding Viva’s net financial position/indebtedness. The “pro‐forma” net indebtedness for the period ended June 30, 2014 (excluding the cash disbursement for the Viva acquisition) is € 100.185 million.

Marcolin Bond Report as of and for the six months ended June 30, 2014

28

APPENDIX C – VIVA: OTHER FINANCIAL INFORMATION

All the information presented in the following tables is expressed in U.S.$.

For the year ended December

31, For the six months ended June 30,


June 30, 2013 2013 2014 2014

(In $ thousands) EBITDA(1)

13,500 8,889 10,066 14,677Adjusted EBITDA(2)

13,500 8,889 11,994 16,605Adjusted EBITDA margin(3)

7.2% 8.6% 11.4% 8.8%Capital expenditures(4) 624 446 1,738 1,916Net indebtedness (16,713) (14,791) (25,671) (25,671)






June 30, 2013 2013 2014 2014

(In $ thousands)Net profit for the period 3,776 2,935 4,006 4,847Income tax expense 2,938 2,353 3,012 3,597 Net finance costs 1,991 1,122 785 1,654 Amortization and depreciation 4,327 2,232 2,081 4,176 Bad debt provision 468 247 181 402 EBITDA 13,500 8,889 10,066 14,677

(2) We define adjusted EBITDA as EBITDA adjusted for the effect of several non‐recurring transactions which

primarily relate to one‐off charges, non‐recurring costs in relation to changes in management and restructuring of the sales force, and other extraordinary items incurred in the integration process.




June 30, 2013 2013 2014 2014

(In $ thousands)

EBITDA 13,500 8,889 10,066 14,677One‐off costs related to Viva integration ‐ ‐ 1,929 1,929Adjusted EBITDA 13,500 8,889 11,994 16,605

(3) We define adjusted EBITDA margin as adjusted EBITDA divided by revenue.

(4) Capital expenditure consists of investments for the period in property, plant and equipment and intangible assets,

as presented in our cash flow statement. The table below sets forth a breakdown of capital expenditure for the periods indicated.




June 30,

2013 2013 2014 2014 (In $ thousands)

Property, plant and equipment 624 446 126 304 Intangible assets 1,612 1,612Total capital expenditure 624 446 1,738 1,916

Marcolin Bond Report as of and for the six months ended June 30, 2014

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(5) We define net debt as the total consolidated debt, net of cash. The table below sets forth the calculation of net

debt for the periods indicated.

For the year ended December 31, As of June 30,2013 2014

(In $ thousands) Cash and cash equivalents (25,235) (18,215)Financial receivables ‐ (10,682)Long‐term borrowings 2,592 2,208 Short‐term borrowings (a) 5,930 1,017 Net indebtedness (16,713) (25,671)

(a) Includes current portion of long‐term debt.

marcolin bond report as of and for the six...

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