185000000 IT Holding Finance SA

Trends in the Luxury Goods Industry
The luxury goods industry consists primarily of producers, manufacturers, distributors, wholesalers and retailers of
apparel, perfume, cosmetics, jewelry, watches, accessories and other similar products. According to a report
published in 2003 by Altagamma, a non-profit association of Italian consumer and luxury goods companies
(“Altagamma”), the apparel and accessories segments of the luxury goods industry together accounted for an
estimated 49% of luxury goods sold worldwide in 2003.
Altagamma also estimated that the compound annual growth rate of the luxury goods market in terms of sales was
9.0% for the period from 1994 to 2001. Since the events of September 11, 2001 and the general worldwide
economic slowdown that ensued, luxury goods sales have remained essentially flat. Market observers, however,
are forecasting that the demand for luxury goods will recover somewhat from 2005 onwards
Licensed Designer Brands
We produce apparel and accessories under brands, which we either own or which are licensed to us. Our portfolio
of licensed brands includes D&G Dolce & Gabbana, Versus, Versace Jeans Couture, Just Cavalli and C’N’C
Costume National. We intend to retain our existing licenses, as well as bid for and win new licenses that
complement our existing portfolio of brands. We are exposed, however, to the risk that our existing licensors will
choose not to renew these license agreements. See “Risk Factors—We are dependent on our ability to negotiate,
maintain and renew license agreements with the owners of leading brands” for a discussion of our dependence on
our licensed brands. Moreover, even if we are able to renew our licenses when they expire, the future profitability
of our licensed brands may be impacted by the continuing efforts of licensors to assert greater control over license
terms.
Growth of Accessories Business
During 2004, our accessories business accounted for 8.2% of our consolidated net revenues and, we believe,
approximately 9.9% of our consolidated EBITDA. We increased the net revenues of our accessories business from
€24.6 million in 2002 to €58.3 million in 2004 (equivalent to a compound annual growth rate of approximately
54% during that span) and believe that our portfolio of attractive brands and our unmatched production and
distribution synergies leave us well-positioned to exploit projected growth trends in this market segment and to
meet competition as it emerges.
Exchange Rate Fluctuations
We conduct, and will continue to conduct, transactions in currencies other than euro, particularly U.S. dollars,
British pounds, Swiss francs, Canadian dollars and Hong Kong dollars. Consequently, our results are affected by
fluctuations in the value of the euro against these and other currencies, particularly the U.S. dollar. The euro
appreciated against the U.S. dollar by 22.9% during 2003 and 7.0% during 2004, based on the average U.S. dollar
to euro exchange rates for 2002, 2003 and 2004. This trend has negatively affected our revenues. Although the
negative impact from exchange rate fluctuations has been partially offset by gains on hedging contracts, we
recorded net gain on foreign exchange of €0.9 in 2004, and net losses of €1.2 million in 2003 and €2.1 million in
2002.
Seasonality
We experience seasonal fluctuations in the level of our revenues. These fluctuations occur because the majority of
our revenues are recognized in the first quarter of each year, when we deliver most of the orders we receive for
apparel and accessories from our Spring-Summer collections, and in the third quarter of each year, when we deliver
most of the orders we receive for apparel and accessories from our Fall-Winter collections. In addition, revenues in
the third quarter from the sale of our higher priced Fall and Winter collections are typically higher than those in the
first quarter of our financial year, although margins are higher overall in the first quarter. The nature of our
production cycle also means that we have greater working capital requirements in the first and third quarters of
38