The Benetton Group Annual Report 1996

The Benetton Group
The Benetton Group achieved a number of important firsts in 1996. Consolidated net income reached a
record level, net borrowings were turned into a substantial cash surplus (for the first time in the Group's
history) and, as a consequence, net financial charges were a negligible percentage of consolidated
revenues. These highly significant results derive from continuous innovations that have enhanced the
Group’s business systems combined, in recent years, with incisive action to contain both fixed and
variable costs.
Consolidated net income amounted to Lire 246 billion, an improvement of 11.5% with respect to 1995.
Net financial charges of Lire 12.6 billion compare with Lire 46.6 billion in 1995. Self-financing amounted
to Lire 668 billion. Net liquidity of Lire 133 billion follows an improvement of Lire 273 billion during the
year, despite the payment of dividends totaling about Lire 80 billion in 1996. Operating capital has
fallen by almost Lire 150 billion, from Lire 1,285 billion to Lire 1,137 billion, while consolidated stockholders'
equity of Lire 1,821 billion is 10% higher than at the end of 1995.
Consolidated revenues of Lire 2,871 billion (Lire 2,939 billion in 1995) were influenced by the marked
appreciation of the lira against major currencies (over 8% on average), as well as by the disposal and
consequent deconsolidation of certain businesses no longer considered strategic to the optimization of
the Group’s commercial and distribution systems.
Volume rose by almost 4% overall. Substantial growth was achieved within the EU, notably in France,
the UK, Spain, Portugal and Germany, as well as in Eastern Europe and some parts of the Middle East.
Despite the appreciation of the lira, gross margin has remained at more than 40%, while operating
income was 14% of revenues.
The ongoing development and renewal of the retail network has contributed to the rise in the volume
of products sold. Work continued in 1996 with, in particular, the opening of new megastores in London
(the world’s largest Benetton store), New York, San Francisco, Barcelona, Moscow and Riyadh. These
stores offer complete ranges of clothing and accessories covering all Benetton brands, thereby
consolidating public awareness and the Group's image.
On the industrial front, work was completed on the Castrette manufacturing facilities, which are
currently the most advanced of their kind in the world. Investment in innovation has also focused on
applying the latest technology to data processing and applications systems and, above all, to the
continual enhancement of integrated logistics. Here, new automated systems have considerably
improved efficiency and the speed of customer service, while reducing transport expenses by more
than Lire 10 billion. This raises the net savings achieved in 1996 to almost Lire 45 billion, as a result of
projects to reorganize and optimize activities in various sectors of the business, and in certain markets
such as Japan.
The Group Parent, Benetton Group SpA, reported net income of around Lire 125 billion, representing
5.9% of revenues. These were 5% higher than in 1995, following growth in the volume of garments sold
despite the appreciation of the lira against export currencies. The cost of sales rose by Lire 133 billion,
reflecting the increased volume of production and normal cost inflation.
Rises in selling, general and administrative expenses mainly reflected prudent provisions against business
risks (notably credit collection), and higher agents' commissions under a policy designed to enhance
the effectiveness of distribution arrangements while expanding the sales network.
Income from operations, Lire 259 billion, was 12.2% of revenues. Careful management of the exchange
exposures specifically associated with commercial activities resulted in net gains of Lire 141 billion, partly
due to the strengthening of the lira.
The self-financing generated during the year, Lire 387 billion, was particularly significant to the treasury
position.