185000000 IT Holding Finance SA

Sourcing
We purchase substantially all of the fabrics and other materials used in our apparel production process directly
from suppliers and undertake quality control procedures on all such materials before we deliver them to the
third-party contractors who will undertake the cutting, sewing and assembly. Materials used in our production of
accessories, underwear, leather apparel and certain knitwear typically are purchased directly by contractors from
suppliers designated by us, although we also purchase directly certain materials used in the production of
accessories. We maintain an in-house fabrics research unit that develops new fabrics and other materials. We
often commission exclusive production runs of these and other custom fabrics for use in our collections.
In an average season, we source materials from more than 1,000 suppliers, more than 90% of which are located in
Italy. We have never experienced any significant difficulty in contracting with suppliers or receiving adequate
supplies of fabrics or other materials. Our planning process takes into account supply of raw materials, production
lead times and customer orders. Suppliers typically make deliveries within 30 days of receiving a purchase order,
with certain special materials requiring up to 90 days for delivery. Although, from time to time, we experience
brief delays in shipments from suppliers, none of these delays has ever had a material effect on our results of
operations. We maintain online links with many of our principal suppliers in order to enhance further the
flexibility and efficiency of our sourcing function and production process.
The most important raw material used in the manufacturing of our Malo knitwear is cashmere. We purchase our
cashmere directly from its place of origin, typically Mongolia or China, in either raw “flock” or processed “yarn”
form. Flock accounts for approximately one-third of our total purchases of cashmere. Purchasing cashmere in
flock form allows us to more easily monitor the quality and cost of the cashmere we use in our production process.
The cost of cashmere typically accounts for approximately one-third of the total direct costs of producing our Malo
knitwear. Other raw materials used in our Malo knitwear include cotton and wool. The market price of cashmere
has fluctuated widely in recent years, and is at present relatively low. In order to benefit from these cyclical
fluctuations in cashmere prices, we have adopted a policy of purchasing excess raw material at times when prices
are low. We maintain relationships with several suppliers of cashmere and do not believe that we are dependent on
any single supplier, either in flock or in yarn. We purchase cashmere from the same group of suppliers used by
most producers of cashmere knitwear. See the section entitled “Risk Factors—Risks Related to Our Business—
Increases in the cost of materials used to manufacture our products can decrease our profitability”.
Manufacturing
In general, we rely on a network of third-party contractors to manufacture our finished goods, showroom samples
and accessory prototypes. We contract out the manufacture of our goods to a large number of apparel and
accessory manufacturing companies, the great majority of which are located in Italy. These contractors typically
are specialized in the production of a particular garment or accessory, for example, shirts or shoes, or in a particular
process, such as printing or cutting. Certain of our contractors may in turn outsource part of their production to
subcontractors.
Our first-line Ferré-branded products are manufactured at our directly operated facility in Bologna, Italy. In
addition, we conduct approximately 40% of the weaving (typically the initial and more complex phases) involved
in the production of our Malo knitwear at our directly operated manufacturing facilities in Campi Bisenzio and
Piacenza. We outsource the remaining part of this weaving and a greater percentage of the tailoring and finishing
for our Malo knitwear products to approximately 50 to 60 specialized third-party contract manufacturers. Due to
the high level of sophistication and specific manufacturing expertise required for the production of high-end
cashmere knitwear products, our Malo knitwear products have traditionally relied more heavily on internal
production capabilities than our other apparel and accessories. In the future, however, we intend to increase our
use of third-party contractors to produce our Malo-branded apparel and accessories lines, subject to our close
direction and quality control.
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