185000000 IT Holding Finance SA

The Board of Directors
IT Holding S . p . A .
REPORT OF THE AUDITORS
We have audited the accompanying consolidated balance sheet of IT Holding S.p.A. and its subsidiaries (“the Group”)
as of 31 December 2004, and the related consolidated statements of income, changes in the shareholders' equity and
cash flows for the year then ended. These consolidated financial statements are the responsibility of the parent
Company's management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audit.
We conducted our audit in accordance with the auditing standards recommended by Consob, the Italian Commission
for Listed Companies and the Stock Exchange. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements
and are, as a whole, reliable. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Reference should be made to the ruport dated 30 September 2004 for our opinion on the prior year figures which
are presented for comparative purposes.In our opinion, the consolidated financial statements give a true and fair
view of the financial position of the Group as of 31 December 2004, and the results of its operations and its cash
flows for the year then ended in accordance with International Financial Reporting Standards.
Without qualifying our opinion, we draw your attention to the following matters:
The Group incurred heavy net losses for the years ended 3l December 2004 and 2003 and the Group's net financial
debt as of 31 December 2004 is considerable. As reported in the notes, the financial statements have been prepared
on a going concern basis as management believes that the measures taken by the Group aimed at ensuring the
Group's ability to repay the debt maturing in 2005 and focusing on its core profitable operations, in order to
strengthen its market position and facilitate the planned growth for the next few year, will allow the Group to return
to profitability in the medium term.
The measures taken to repay the debt maturing in 2005, commenced during 2004, included the partial repurchase,
and subsequent cancellation, of the Ferrè Finance 7% 05/05 bonds for a nominal amount of Euro 25 million. The
repurchase was made using the proceeds on the sale of the fragrance company. It also involved the placing of new
Senior Notes 2012 for Euro 150 million, with an eight-years maturity, and the taking out of a new five-year loan of
Euro 85 million, granted by a pool of banks led by San Paolo IMI S.p.A.. This loan was used to repay in advance
the original loan of the same amount (original due date: December 2005). In early 2005, the Group a) finalized the
tender offer made by IT Holding Finance S.A. for the purchase of the Ferrè Finance 7% 05/05 notes for a nominal
value of approximately Euro 80.4 million and b) placed another bond issue (Additional Senior Notes 2012) for
Euro 35 million. The funds obtained with this placing will be used to repurchase or reimburse the Ferrè Finance
7% 05/05 bonds which expire in May 2005. The Directors have called an extraordinary meeting of the holding
company's shareholders in April 2005 to approve a proposal to change article 5 of the bylaws and to grant the
Board, pursuant to article 2443 of the Civil Code, the power to increase the share capital, with the exclusion of the
option in accordance with paragraph 5 of article 2441 of the Italian Civil Code.
The focusing on its core business, aimed at developing the businesses of the Ferrè, Extè and Malo brands, mainly
comprises the sale of the companies active in the fragrance and eyewear businesses, of Gigli S.p.A., the indirect
owner of the Romeo Gigli brand, and of the Gentryportofino business unit and brand.
As commented in note 30 to the consolidated financial statements, the subsidiary Ittierre S.p.A. has received
summons further to claims for damages on the basis of alleged breach of contract in relation to a design
collaboration agreement signed prior to 31 December 1996. In this respect and with regard to any other potential
litigation, reference should be made to the description in the notes to the consolidated financial statements of the hold
harmless agreement signed with the parent company P.A. Investments S.A. to hold harmless and indemnify IT
Holding S.p.A. and its subsidiaries from any negative consequences of situations which arose before 31 December
1996.
Naples, 5 April 2005
KPMG S.p.A.
Giovanni Enrico Esposito
Director of Audit
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