185000000 IT Holding Finance SA

IT HOLDING S.p.A. Notes to the consolidated financial statements for the year ended December 31, 2003
exchange rates. Income and expenses in respect of interest, dividends received and taxation on profits are included in
the cash flow from operating activities.
Expenses for Opening or Modernizing Stores
Expenses for opening or modernizing stores under lease contracts are capitalized under tangible assets when it is
probable that future economic benefits in excess of the originally assessed standard of performance of the existing
asset will flow to the Group. Expenses for opening or modernizing stores are depreciated over the remaining duration
of the lease contract. All other expenditures are recognized in the income statement as expenses as incurred.
Going concern
The Group incurred a significant net loss for the year ended December 31, 2003 of approximately €62.7 million. This
included the prudent write-down of intangible assets amounting to approximately €55million, gross of the tax effect,
as commented in more detail in note 18.
Furthermore, the Groups net financial debt is considerable and a portion thereof amounting to approximately
€221million is due in 2005.
These consolidated financial statements have been prepared on a going concern basis.
The Directors expect an improvement in the forthcoming year in the Group’s results which will depend more on
measure to recover profitability and efficiency than on assumption of growth in operating volumes. They plan to
achieve this aim by focusing on the core apparel and accessories business, leveraging both own and licensed brands.
The IT Holding Group plans to reduce its financial debt by taking the following measures:
• strategic refocusing which should generate a recovery in profitability in the short term;
• improvement in the management of working capital, despite the substantial stability of the volume of operations;
• investment control. Most of the investments required to relaunch the Ferré brands were completed before the end
of the year 2003;
• the sale of non-strategic business activities, which led to the sale of the perfume business in March 2004,
generating €31.5 million;
• the sale of Romeo Gigli and Gentryportofino brands which had a negative impact on profitability.
Furthermore, in order to repay the Ferré bond maturing in May 2005, with the assistance of banks, an extraordinary
financing transaction is underway to refinance IT HOLDING Group debt.
The structure of the transaction, which is still being defined, provides for the following:
(a) the issue of a high-yield bond maturing in seven to ten years, to replace the "Ferré Finance 05/05" bond
maturing in May 2005;
(b) the subscription of a syndicated loan to refinance the "€ 85,000,000.00 Dual Tranche Syndicated Facility"
(headed by Sanpaolo IMI S.p.A.) signed on April 10, 2003.
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