SOURCE: VALENTINO FASHION GROUP

March 22, 2007 14:10 ET

VALENTINO FASHION GROUP : THE ANNUAL REPORT ON THE YEAR 2006 APPROVED BY THE BOARD OF DIRECTORS

Milano -- (MARKET WIRE) -- March 22, 2007 -- THE ANNUAL REPORT ON THE YEAR 2006 APPROVED BY THE BOARD OF DIRECTORS

CONSOLIDATED SALES: +13.6% - NET INCOME: +9.8% - DIVIDEND: +30%

- Consolidated sales: EUR 1,963.3 million (+13.6% vs 2005: EUR 1,728.0 million)

- Operating result: EUR 230.4 million (+18% vs 2005: EUR 195.2 million)

- Net income: EUR 157.2 million (+9.8% vs 2005: EUR 143.2 million, +24.2% vs 2005 adjusted EUR 126.6 million)

- Net financial debt: EUR 340.9 million (vs EUR 333.5 milion as at 31/12/2005)

- Proposed dividend: EUR 0.65 for each share (+30% vs EUR 0.50 in the year 2005)

Milan, 22nd March 2007 - The Board of Directors of Valentino Fashion Group S.p.A., held today in Milan, approved the Company's and the Group's accounts for the year ended at 31st December 2006, along with the Directors' Report. The said documents will be published pursuant to the law.

the group [1]

Sales

Consolidated net sales amounted to EUR 1,963.3 million in the year 2006, up by 13.6% from EUR 1,728.0 million in the previous year.

The growth was the result of the positive trend of sales achieved by all the business units, which showed double-digit growth rates.

+-------------------------+-------+-------+--------+
|(EUR millions)           | 2006  | 2005  | Var. % |
+-------------------------+-------+-------+--------+
|Hugo Boss                |1,495.5|1,309.4|    14.2|
+-------------------------+-------+-------+--------+
|Valentino                |  239.5|  209.1|    14.5|
+-------------------------+-------+-------+--------+
|Marlboro Classics /Other |  293.3|  266.3|10.1 (*)|
|brands                   |       |       |        |
+-------------------------+-------+-------+--------+
|Other and elisions       |    -65| (56.8)|        |
+-------------------------+-------+-------+--------+
|Total                    |1,963.3|1,728.0|    13.6|
+-------------------------+-------+-------+--------+
(*) +12.5% on like-for-like brands marketed

Main contributors to the 2006 performance of all brands were the brand extension and the increase in the directly operated stores (DOS).

In particular:

- sales of the women's collections reached EUR 420 million, rising by 36% (Boss +69%, Valentino +15%, Marlboro Classics +52%, M Missoni +39%);

- sales of footwear and leather accessories increased by 27% to EUR 211 million (Boss +28%, Valentino Garavani +34%);

- the expansion of the directly operated stores network, 76 new openings during the year, supported a 28% rise of sales. With EUR 302 million, the ratio of direct sales to consolidated sales thus rose from 14% in 2005 to 15% in 2006. Directly operated stores were 284 at year's end.

In 2006 sales showed a positive development trend on all markets.

+-------------------------+-------+-------+-----+
|(EUR millions)           | 2006  | 2005  |Var %|
+-------------------------+-------+-------+-----+
|Italy                    |  209.0|  188.1| 11.1|
+-------------------------+-------+-------+-----+
|Germany                  |  355.8|  324.2|  9.7|
+-------------------------+-------+-------+-----+
|Other European Countries |  780.0|  670.0| 16.4|
+-------------------------+-------+-------+-----+
|Americas                 |  343.6|  295.1| 16.4|
+-------------------------+-------+-------+-----+
|Asia                     |  180.2|  164.5|  9.5|
+-------------------------+-------+-------+-----+
|Other countries          |   31.7|   27.4| 15.7|
+-------------------------+-------+-------+-----+
|Total products and       |1,900.3|1,669.3| 13.8|
|services                 |       |       |     |
+-------------------------+-------+-------+-----+
|Royalties                |   63.0|   58.7|  7.3|
+-------------------------+-------+-------+-----+
|Total                    |1,963.3|1,728.0| 13.6|
+-------------------------+-------+-------+-----+
EBIT

Year's EBIT was EUR 230.4 million (11.7% on sales), up by 18.0% on EUR 195.2 million in 2005 (11.3% on sales), thanks to progress reported by all brands. In detail:

+-------------------------+-----+------+------+
|(EUR millions)           |2006 | 2005 |Var. %|
+-------------------------+-----+------+------+
|Hugo Boss                |184.4| 162.9|  13.2|
+-------------------------+-----+------+------+
|Valentino                | 31.3|  27.4|  14.2|
+-------------------------+-----+------+------+
|Marlboro Classics/other  | 19.7|  15.0|  31.3|
|brands                   |     |      |      |
+-------------------------+-----+------+------+
|Other and elisions       |(5.0)|(10.1)|      |
+-------------------------+-----+------+------+
|Total                    |230.4| 195.2|  18.0|
+-------------------------+-----+------+------+
Pre-tax result

Pre-tax result was EUR 216.9 million, increased by 19.4% on EUR 181.6 million in 2005.

Taxes

Taxes amounted to EUR 59.7 million in the year 2006, with a 27.5% impact on pre-tax profit (21.2% in 2005). 2005 tax rate benefited from the extraordinary effect of the revaluation of some assets made pursuant to Italian Budget Law. The adjusted tax rate would have been 30.3% of pre-tax profit.

Net income

Consolidated net income, including income attributable to minority

shareholders, was EUR 157.2 million (2005: EUR 143.2 million), a 9.8% increase. After considering last year's fiscal extraordinary effects, net income would have risen by 24.2% on 2005[2] adjusted income (EUR 126.6 million).

Group net income

Net income attributable to the Parent Company's shareholders was EUR 95.2 million, 5.2% higher than in the previous year (EUR 90.5 million), while the positive change would be equal to 28.8% if compared with 2005 Group's adjusted[3] net income (EUR 73.9 million).

Staff

Group's employees were 10,988 at 31st December 2006, against 9,844 at 2005 year's end. The staff increase was mainly attributable to Hugo Boss expansion of in-house production capacity and logistics, as well as the to direct retail development.

Investments

Year's investments amounted to EUR 118.9 million (2005: EUR 95.1 million). The most significant were projects relating to the direct retail business and distribution network, Hugo Boss extension of production capacity and expansion of some operating sites, as well as the upgrade of the Group's information technology.

Net financial debt

Group's net financial debt was EUR 340.9 million as at 31st December 2006, against EUR 333.5 million at last year's end and EUR 392.9 million as at 30th September 2006.

VALENTINO FASHION GROUP S.P.A. [4]

Sales

The Parent Company's sales amounted to EUR 251.4 million.

Net income

Net income was EUR 41.0 million.

Net financial debt

Valentino Fashion Group S.p.A. net financial debt was EUR 233.4 million as at 31st December 2006.

Shareholders' equity

The Parent Company's shareholders' equity amounted to EUR 240.4 million at 2006 year's end.

PROJECTIONS FOR 2007

In 2007, Valentino Fashion Group will continue to register organic growth at a sustained pace along the lines set in 2006: development of the women's lines, the footwear and accessories collections, and direct retail.

The sizable wholesale backlog and the direct retail performance in the first two months support expectations and our projection for significant revenue growth - at comparable exchange rates - in 2007. Management also expects to improve profitability in 2007, with operating and before-tax income rising more than proportionally to the increase in turnover. Chairman Antonio Favrin of Valentino Fashion Group S.p.A. says, "We are encouraged by these results: the combination of the prestigious fashion & luxury brand portfolio ensures the Group huge opportunities for growth through brand extension. The hallmarks of our brands are volume and innovative forms of communication, expressing modernity, the joy of living, style, and also art and culture: this will be the engine of growth for us in the major markets, to increasingly capture the attention and favour of new consumers. We are present throughout the world with a highly advanced integrated distribution and logistics platform.. With major investment and deep passion, we have built systems, organisational structure, and innovation to compete in distribution and to respond to consumers' new desires. These will be the key points in our development strategy."

DIVIDEND DISTRIBUTION

The Board of Directors will propose that the Shareholders' Meeting approve a dividend distribution totalling EUR 48.2 million (EUR 37.1 million in 2006), to be paid on 24th May 2007 (coupon detachment date: 21st May 2007) equal to EUR 0.65 for each of 74,106,302 ordinary shares.

CALL FOR ORDINARY SHAREHOLDERS' MEETING

The Board of Directors has resolved to call an Ordinary Shareholders' Meeting for 10 May 2007 on first call and 11 May 2007 on second call, to adopt resolutions on the following agenda: 1) resolutions pursuant to art. 2364, points 1 and 2, of the Italian Civil Code; 2) extension of the Independent Auditors' mandate to adjust duration of the term to that prescribed by art. 159, paragraph 4, of Italian Legislative Decree 24 February 1998, no. 58, as amended by Italian Legislative Decree 29 December 2006, no. 303.

******

This press release is available on the Company's website: www.valentinofashiongroup.com

For further information: Investor Relations Tel. 02/62491442 e-mail: investor.relations@valentino.com

Consolidated income statement

Income statement

+-------------------------+----------+--------+--------+--------+-------+
|Income statement         |          |        |        |        |       |
+-------------------------+----------+--------+--------+--------+-------+
|                         |     2006 |        |   2005 |        |Change |
+-------------------------+----------+--------+--------+--------+-------+
|(millions of euro)       |          |        |        |        |       |
+-------------------------+----------+--------+--------+--------+-------+
|Net sales                |  1.963,3 |100,00% |1.728,0 |100,00% | 235,3 |
+-------------------------+----------+--------+--------+--------+-------+
|Cost of goods sold       |(1.006,9) |-51,30% |   -910 |-52,70% | -96,9 |
+-------------------------+----------+--------+--------+--------+-------+
|Gross profit             |    956,4 | 48,70% |    818 | 47,30% | 138,4 |
+-------------------------+----------+--------+--------+--------+-------+
|Product research and     |      -56 | -2,80% |    -47 | -2,70% |    -9 |
|development costs        |          |        |        |        |       |
+-------------------------+----------+--------+--------+--------+-------+
|Advertising, marketing   |   -142,7 | -7,30% | -128,1 | -7,40% | -14,6 |
|and promotion costs      |          |        |        |        |       |
+-------------------------+----------+--------+--------+--------+-------+
|Selling and distribution |     -370 |-18,80% | -307,7 |-17,80% | -62,3 |
|costs                    |          |        |        |        |       |
+-------------------------+----------+--------+--------+--------+-------+
|General and              |   -144,4 | -7,40% | -133,6 | -7,70% | -10,8 |
|administrative costs     |          |        |        |        |       |
+-------------------------+----------+--------+--------+--------+-------+
|Operating income         |    243,3 | 12,40% |  201,6 | 11,70% |  41,7 |
+-------------------------+----------+--------+--------+--------+-------+
|Other non-recurring      |    -12,9 | -0,70% |   -6,4 | -0,40% |  -6,5 |
|(costs)/revenues         |          |        |        |        |       |
+-------------------------+----------+--------+--------+--------+-------+
|EBIT                     |    230,4 | 11,70% |  195,2 | 11,30% |  35,2 |
+-------------------------+----------+--------+--------+--------+-------+
|Net financial            |    -13,5 | -0,70% |  -13,6 | -0,80% |   0,1 |
|income/(charges)         |          |        |        |        |       |
+-------------------------+----------+--------+--------+--------+-------+
|Income before taxes      |    216,9 | 11,00% |  181,6 | 10,50% |  35,3 |
+-------------------------+----------+--------+--------+--------+-------+
|Taxes                    |    -59,7 | -3,00% |  -38,4 | -2,20% | -21,3 |
+-------------------------+----------+--------+--------+--------+-------+
|Net income before        |    157,2 |  8,00% |  143,2 |  8,30% |    14 |
|minorities               |          |        |        |        |       |
+-------------------------+----------+--------+--------+--------+-------+
|Minority interest        |      -62 | -3,20% |  -52,7 | -3,10% |  -9,3 |
+-------------------------+----------+--------+--------+--------+-------+
|Group net income         |     95,2 |  4,80% |   90,5 |  5,20% |   4,7 |
+-------------------------+----------+--------+--------+--------+-------+

+-------------------------+---------+
|Income statement         |         |
+-------------------------+---------+
|                         |Ch. in % |
+-------------------------+---------+
|(millions of euro)       |         |
+-------------------------+---------+
|Net sales                |  13,60% |
+-------------------------+---------+
|Cost of goods sold       | -10,60% |
+-------------------------+---------+
|Gross profit             |  16,90% |
+-------------------------+---------+
|Product research and     | -19,10% |
|development costs        |         |
+-------------------------+---------+
|Advertising, marketing   | -11,40% |
|and promotion costs      |         |
+-------------------------+---------+
|Selling and distribution | -20,20% |
|costs                    |         |
+-------------------------+---------+
|General and              |  -8,10% |
|administrative costs     |         |
+-------------------------+---------+
|Operating income         |  20,70% |
+-------------------------+---------+
|Other non-recurring      |     n.s |
|(costs)/revenues         |         |
+-------------------------+---------+
|EBIT                     |  18,00% |
+-------------------------+---------+
|Net financial            |   0,70% |
|income/(charges)         |         |
+-------------------------+---------+
|Income before taxes      |  19,40% |
+-------------------------+---------+
|Taxes                    | -55,50% |
+-------------------------+---------+
|Net income before        |   9,80% |
|minorities               |         |
+-------------------------+---------+
|Minority interest        | -17,60% |
+-------------------------+---------+
|Group net income         |   5,20% |
+-------------------------+---------+
Note: Valentino Fashion Group S.p.A. is the beneficiary company of the partial proportional demerger, effective from 1st July 2005, of the apparel business of Marzotto S.p.A. As a consequence, in order to allow a homogenous comparison of the year 2006 financial and economic results with those of the previous year, pro-forma accounts for the year 2005 have also been prepared.

Consolidated balance sheet

+-------------------------+--------+--------+------+
|Balance sheet            |        |        |      |
+-------------------------+--------+--------+------+
|(millions euro)          |31.12.06|31.12.05|Change|
+-------------------------+--------+--------+------+
|Trade receivables        |   264,1|   242,9|  21,2|
+-------------------------+--------+--------+------+
|Other receivables        |    84,9|      73|  11,9|
+-------------------------+--------+--------+------+
|Inventories              |     391|   349,1|  41,9|
+-------------------------+--------+--------+------+
|Trade payables and other |  -372,5|  -337,8| -34,7|
|liabilities              |        |        |      |
+-------------------------+--------+--------+------+
|Net working capital      |   367,5|   327,2|  40,3|
+-------------------------+--------+--------+------+
|Other non-recurring      |   120,3|   109,8|  10,5|
|assets1                  |        |        |      |
+-------------------------+--------+--------+------+
|Investments              |     0,4|     0,4|     -|
+-------------------------+--------+--------+------+
|Net tangible fixed assets|   285,9|   253,3|  32,6|
+-------------------------+--------+--------+------+
|Intangible fixed assets  |      96|      87|     9|
+-------------------------+--------+--------+------+
|Goodwill and trademarks  |   304,2|   303,7|   0,5|
+-------------------------+--------+--------+------+
|Medium/long-term assets  |   806,8|   754,2|  52,6|
+-------------------------+--------+--------+------+
|Non-current liabilities  |  -114,8|   -85,3| -29,5|
|and provision            |        |        |      |
+-------------------------+--------+--------+------+
|Deferred taxes provision |   -51,2|   -47,6|  -3,6|
+-------------------------+--------+--------+------+
|Net invested capital     | 1.008,3|   948,5|  59,8|
+-------------------------+--------+--------+------+
|Short-term financial     |   174,2|   191,1| -16,9|
|liabilities              |        |        |      |
+-------------------------+--------+--------+------+
|Cash & cash equivalents  |   -66,6|   -75,6|     9|
|and short-term financial |        |        |      |
|assets                   |        |        |      |
+-------------------------+--------+--------+------+
|Medium/long-term         |   233,3|   218,4|  14,9|
|financial liabilities    |        |        |      |
+-------------------------+--------+--------+------+
|Medium/long-term         |       -|    -0,4|   0,4|
|financial assets         |        |        |      |
+-------------------------+--------+--------+------+
|Net financial debt       |   340,9|   333,5|   7,4|
+-------------------------+--------+--------+------+
|Minority interest        |   246,2|   234,8|  11,4|
+-------------------------+--------+--------+------+
|Group net equity         |   421,2|   380,2|    41|
+-------------------------+--------+--------+------+
|Financing of net invested| 1.008,3|   948,5|  59,8|
|capital                  |        |        |      |
+-------------------------+--------+--------+------+
Income statement of Valentino Fashion Group S.p.A.
+-------------------------+-------+--------+------+--------+
|Income statement         |       |        |      |        |
+-------------------------+-------+--------+------+--------+
|                         |  2006 |        | 2005 |        |
+-------------------------+-------+--------+------+--------+
|(millions of euro)       |       |        |      |        |
+-------------------------+-------+--------+------+--------+
|Net sales                | 251,4 |100,00% |124,3 |100,00% |
+-------------------------+-------+--------+------+--------+
|Cost of goods sold       |-169,8 |-67,50% |-81,9 |-65,90% |
+-------------------------+-------+--------+------+--------+
|Gross profit             |  81,6 | 32,50% | 42,4 | 34,10% |
+-------------------------+-------+--------+------+--------+
|Product research and     |    -7 | -2,80% | -3,3 | -2,60% |
|development costs        |       |        |      |        |
+-------------------------+-------+--------+------+--------+
|Advertising, marketing   |  -7,7 | -3,10% | -4,2 | -3,40% |
|and promotion costs      |       |        |      |        |
+-------------------------+-------+--------+------+--------+
|Selling and distribution | -35,2 |-14,00% |-16,6 |-13,40% |
|costs                    |       |        |      |        |
+-------------------------+-------+--------+------+--------+
|General and              |   -21 | -8,40% | -9,6 | -7,70% |
|administrative costs     |       |        |      |        |
+-------------------------+-------+--------+------+--------+
|Operating income         |  10,7 |  4,20% |  8,7 |  7,00% |
+-------------------------+-------+--------+------+--------+
|Other non-recurring      |    -1 | -0,40% | -2,5 | -2,00% |
|(costs)/revenues         |       |        |      |        |
+-------------------------+-------+--------+------+--------+
|EBIT                     |   9,7 |  3,80% |  6,2 |  5,00% |
+-------------------------+-------+--------+------+--------+
|Net financial            |  -7,2 | -0,40% | -1,9 | -1,50% |
|income/(charges)         |       |        |      |        |
+-------------------------+-------+--------+------+--------+
|Dividends from           |  40,9 | 16,40% | 30,2 | 24,30% |
|consolidated             |       |        |      |        |
|participations           |       |        |      |        |
+-------------------------+-------+--------+------+--------+
|Income before taxes      |  43,4 | 17,30% | 34,5 | 27,80% |
+-------------------------+-------+--------+------+--------+
|Taxes                    |  -2,4 | -1,00% |  3,6 |  2,90% |
+-------------------------+-------+--------+------+--------+
|Net income               |    41 | 16,30% | 38,1 | 30,70% |
+-------------------------+-------+--------+------+--------+
Note: Valentino Fashion Group S.p.A. is the beneficiary company of the partial proportional demerger, effective from 1st July 2005, of the apparel business of Marzotto S.p.A. As a consequence, any comparison with the previous year are not significant as the figures for the year 2005 mainly referred to the second year half.

Balance sheet of Valentino Fashion Group S.p.A.

+-------------------------+--------+--------+
|Balance sheet            |        |        |
+-------------------------+--------+--------+
|(millions euro)          |31.12.06|31.12.05|
+-------------------------+--------+--------+
|Trade receivables        |   100,5|    91,7|
+-------------------------+--------+--------+
|Other receivables        |     7,3|     5,3|
+-------------------------+--------+--------+
|Inventories              |    52,3|    40,3|
+-------------------------+--------+--------+
|Trade payables and other |  -102,1|   -93,7|
|liabilities              |        |        |
+-------------------------+--------+--------+
|Net working capital      |      58|    43,6|
+-------------------------+--------+--------+
|Other non-recurring      |    13,8|    14,1|
|assets1                  |        |        |
+-------------------------+--------+--------+
|Investments              |   395,5|   395,5|
+-------------------------+--------+--------+
|Net tangible fixed assets|    13,6|    11,5|
+-------------------------+--------+--------+
|Intangible fixed assets  |     9,2|     9,3|
+-------------------------+--------+--------+
|Medium/long-term assets  |   432,1|   430,4|
+-------------------------+--------+--------+
|Non-current liabilities  |   -15,6|   -16,2|
|and provision            |        |        |
+-------------------------+--------+--------+
|Deferred taxes provision |    -0,7|    -0,8|
+-------------------------+--------+--------+
|Net invested capital     |   473,8|     457|
+-------------------------+--------+--------+
|Short-term financial     |  -202,9|    -214|
|liabilities              |        |        |
+-------------------------+--------+--------+
|Cash & cash equivalents  |      10|      10|
|and short-term financial |        |        |
|assets                   |        |        |
+-------------------------+--------+--------+
|Medium/long-term         |  -159,5|  -136,1|
|financial liabilities    |        |        |
+-------------------------+--------+--------+
|Medium/long-term         |     119|     119|
|financial assets         |        |        |
+-------------------------+--------+--------+
|Net financial debt       |   233,4|   221,1|
+-------------------------+--------+--------+
|Net equity               |   240,4|   235,9|
+-------------------------+--------+--------+
|Financing of net invested|   473,8|     457|
|capital                  |        |        |
+-------------------------+--------+--------+
[1] 2006 consolidated figures are compared with 2005 pro-forma ones, as the Group has been operational since 1st July 2005.

[2] Net income (2005 annual accounts: EUR 143.2 million) - 2005 extraordinary positive effect (EUR 16.6 million)

[3] Group net income (2005 annual accounts: EUR 90.5 million) - 2005 extraordinary positive effect (EUR 16.6 million)

[4] As per the reasons stated above, a comparison with previous year's results is not available

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