Fashion & Finance An explosive cocktail Lesson 11 Castellanza, 17th November, 2010 Corporate Finance

Fashion & Finance: An explosive cocktail Summary 1Two worlds that meet together 2Why so explosive? 3Emanuel Ungaros history 4The Ferragamo strategy 5Some figures 6The decision to sell 7Other examples – success stories 2

Corporate Finance 1Two worlds that meet together Fashion & Finance Two different worlds that started to talk each other due to the changes in business arena larger size of the companies; new geographic markets; necessity of management and organization – not only style; interest of external investors; finance as a tool to grow. 3

Corporate Finance 2Why so explosive? Why very often fashion & finance are an explosive cocktail? fashion is a world of primadonna, stars; finance is a world of primadonna as well; in many cases people tend to invade the competencies of the other; success stories are those in which the competencies and the roles of the single individuals are respected and valued. 4

Corporate Finance 3Emanuel Ungaros history Transformed it into Emanuel Ungaro SA and opened the current house at 2, avenue Montaigne, Paris. Opened Emanuel Ungaro SARL, avenue Mac-Mahon in Paris Opening of the first ready-to-wear boutique, Ungaro Parallele, on the ground floor of the Fashion House. First contact with licenses. Emanuel Ungaro at the age of 22 started his career working alongside the designer Cristobal Balenciaga in Paris s Ungaro Parallele was opened in American Department Stores (Neiman Marcus, I. Magnin, Saks, Bloomingdales, Bonwit Teller) and in Japan (Takashimaya). Start of agreements with the licensor GFT. Creation of the Ungaro pour Hommes line. Opening of the Emanuel Ungaro Homme store at 2, avenue Montaigne. Opening of the first Emanuel Ungaro store in New York. 5

Corporate Finance 3Emanuel Ungaros history – cont. 80s Creation of the Ungaro Diffusion line in Europe. Creation of the fragrance for women, Diva. Opening of the Emanuel Ungaro showroom in Milan. Creation of the Emanuel/Emanuel Ungaro Bridge line Salvatore Ferragamo Group acquired Emanuel Ungaro SA. From 1997 to 2003 Creation of Fever collection. Creation of the Emanuel Ungaro Shoes and Handbag line, made by Salvatore Ferragamo. Creation of an Emanuel Ungaro Eyewear line, in partnership with Luxottica. Creation of the Ungaro Sun (Swimwear) line. Opening of the Emanuel Ungaro boutiques in London Rome, Moscow, Beijing, Shenzen, Singapore, Taipei and a new accessories boutique in Paris. 6

Corporate Finance Emanuel Ungaro is one of the most famous Fashion House in the world. The Company designs and commercialises clothes and accessories and is specialised in Haute Couture and Ready To Wear. During the last forty years, the Emanuel Ungaro House expanded to include boutiques and license agreements worldwide. Emanuel Ungaro is registered at the Chambre Syndicale de la Haute Couture. In 1996 Salvatore Ferragamo Group, which is one of the most important and internationally famous Italian luxury company, acquired the whole share capital of the Company. Salvatore Ferragamo is also the licensee for the Emanuel Ungaro footwear and handbags collection. 4The Ferragamo strategy 7

Corporate Finance The arrival of Ferragamo as new shareholder led to a strategic shift in 1997, with a focus on internalising the activities of the Company to better control the operations and the brand image of Emanuel Ungaro. The main components of the Ferragamo strategy were the following: Product: reshuffle of product portfolio, keeping the top lines but eliminating the bridge and the diffusion lines and developing of accessories line (bags & shoes). Production: have a better control of sourcing and reduce the licensing activities (e.g Japanese lines). Distribution: reduce the retail franchising activities and launch an aggressive retail strategy with the opening of several direct operated shops in key locations and the refurbishment of the existing boutiques. 4The Ferragamo strategy – cont. 8

Corporate Finance 4The Ferragamo strategy – cont. This effort implied closing significant sources of profit (licenses and franchises) and investing in high fixed costs. This strategy, that was not supported by an appropriate product range, together with the increased competition in the luxury industry since the late 1990s and the economic slowdown since 2001, has put Emanuel Ungaro in an difficult financial situation. In detail the main consequences of this strategy are: Increase of the Company revenues due to the expansion of retail network, that substituted the loss of Company and brand revenues caused by the decrease of the licensing activity. Significant decrease of profitability due to the increase of rental and personnel costs not entirely offset by retail gross margin. The disappearance of the bridge line in the United States and the gradual exit from the Japan marketplace 9

Corporate Finance 5Some figures The economic results of Emanuel Ungaro for the years ending December 31, are summarised below 10

Corporate Finance 6The decision to sell Poor results led the Ferragamo Board of Directors to decide to sell the Company. Not all the Directors agreed Deloitte was engaged in 2004 Sale was concluded in 2006 Acquirer: Mr. Asim Abdullah (Global Asset Capital, Llc), a High Net Worth Individual who made a fortune with Internet 11

Corporate Finance 7Other examples – success stories Valentino D&G Armani Gucci LVMH New investors - external management 12