2007 ANNUAL REPORT - Tod's Spa | Tod's Group Spa · · 2017-02-032007 Annual Report 9 Letter to...

2007 ANNUAL REPORT

TABLE OF CONTENTS

Letter to our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Company’s data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Corporate Governance bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11TOD’S Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Group’s organizational chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Distribution network as of December 31st, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Key consolidated financial figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

TOD’S Group - IAS/IFRS Annual Report as of December 31st, 2007

Report of the Board of DirectorsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Alternative indicators of performances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Group’s activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Group’s brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Organizational structure of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Foreign currency markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Group results in 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Reconciliation of the result for the period and net equity of the Groupwith the analogous values of the parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Significant events occurring after the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Business outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Approval of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Financial StatementsProfit & Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Funds Flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Consolidated statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Supplementary notes1. General notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482. Financial statement formats: choice of form and classification principles. . . . . . . . . . . . . . . . . . . . . . . . . . . 483. Highlights of the accounting principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585. Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586. Segment reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 597. Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618. Assets with indefinite userful life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629. Assets with definite useful life.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6310. Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6411. Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6412. Investment property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6513. Equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6514. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6615. Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6716. Shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6717. Bank overdrafts and financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6918. Derivative financial instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7019. Hedging of financial risks (IFRS 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7020. Deferred tax assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7421. Other current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7522. Provisions and potential liabilities and assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7523. Share based payments (stock options) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7624. Reserves for employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7825. Transactions with related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7926. Personnel costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8127. Financial income and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8228. Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

2007 Annual report

4 Table of contents

TOD’S s.p.a. - IAS/IFRS Annual report as of December 31st, 2007

Report on operationIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89Alternative indicators of performances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89Operating performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Intercompany transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94Information on the Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94Personal data processing disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Company ownership structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96Management and coordination activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96Significant events occurring after the end of the fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96Business outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96Motion for allocation of the income for the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Financial StatementsProfit & Loss Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99Fund flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101Statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Supplementary notes1. General notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1042. Financial statement formats: choice of form classification principles.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1043. Highlights of the accounting principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044. Dividens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1135. Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1136. Assets with indefinite useful life. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1147. Assets with definite useful life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1158. Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1159. Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11610. Investment property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11611. Investment in subsidiaries, joint ventures and associated companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11612. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11813. Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11814. Financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11915. Shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12016. Bank overdraft and financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12217. Derivative financial instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12218. Hedging of financial risks (IFRS 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12319. Deferred tax assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12620. Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12721. Provisions and potential liabilities and assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12822. Share based payments (stock options) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12923. Reserves for employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13024. Trandactions with related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13125. Personnel costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13326. Financial income and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13427. Income from investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13428. Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13429. Independent Auditors compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13530. Certification of the Separate Financial Statements of TOD’S S.p.A

and the Consolidated Financial Statements of the TOD’S Group purcuant to Article 81-terof Consob Regulation no. 11971 of May 14th, 1999, as amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

Report of the Board of Statutory Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

2007 Annual report

5 Table of contents

2007 Annual Report

Diego Della ValleChairman and Chief Executive Officer

2007 Annual Report

9 Letter to our Shareholders

Letter to our Shareholders

Dear Shareholders,Once again, our Group’s results for the year are very good.This is further confirmation of the solid nature of our growth,which has been continuous, year after year, since the day of listing of the company, even in an exchange rate and economicsituation which is not ideal, while the other groups in our sector continue to act in an aggressive manner.We should also emphasise that the growth in turnover has been reflected in a good increase in profits.The most important aspects of our development strategy have remained unchanged since the time of listing. In the light ofour experience over the last eight years and,with regard to the near future,we believe that the strategic decisions have beenthe right ones, not only in terms of growth but also, and even more importantly,with regard to the consolidation of the trademarks on the international markets.We have focused on the development of new formats for the stores, some of which are already in operation and haveachieved considerable success. By means of a prudent investment strategy, which will adapt to the priorities as and whenthese arise, all our stores will soon express this new image, which is geared towards improving the sales results first andforemost.Great attention is dedicated to research into product innovation, as this is a determining factor for growth and developmentin markets which are more overcrowded than ever with products and brand names.We have also dedicated a great deal of attention to the rationalisation and development of the production aspects, bearingin mind that, if the markets continue to follow our progress in this way, our needs will grow, and we will have to take carenot to be taken by surprise. Although we decided to invest with care during the current year, we are in any case workingon the basis of highly innovative and prestigious marketing and advertising operations,with a view to ensuring that our productsstand out in all the world markets, and that their presentation will always be adapted as far as possible to the local situation.We have dedicated considerable attention to the company’s personnel structure, with additional recruitment andimprovements where necessary. We take great care over the management of our human resources and their objectives,areas in which great determination and discipline are essential.Substantially speaking, we believe that in such turbulent times as these the companies operating in the luxury sector whichare able to improve and show good growth are those whose products are strong and instantly recognisable,with prestigious,well known brand names, a good combination of direct and indirect channel distribution and maximum visibility, as these arethe essential factors if the required economic returns are to be achieved.We also believe that, even though ours is an international company, it is in a position to continue to be dynamic and flexiblein terms of costs and decision-making capacities.Our objective remains unchanged, and to a significant extent it has already been achieved – we want to make our Groupone of the major players in the world of luxury, with products universally recognised as excellent and company’s resultsamong the best in the sector, while at the same time retaining control of the entire operating cycle, from the creation andmanufacture of the products to their distribution.This year, as in the past, our wish was to offer generous returns to our shareholders, and we have decided to confirm thedividend of last year, as this guarantees an interesting yield while at the same time leaving the Group with a satisfactory levelof funding, which is in fact even greater than our investment forecasts strictly require.Once again, I wish to express my sincere and personal thanks to all those involved in the Group for the dedication,commitment and motivation which they apply to their work.I also wish to thank all the shareholders, for their continuing belief in us and the confidence that stimulates us towards evergreater achievements.

With my kindest regards,

Diego Della ValleChairman of the Board of Directors

2007 Annual Report

10 Company’s data

Company’s data

Registered office

TOD’S S.p.a.Via Filippo Della Valle, 163019 Sant’Elpidio a Mare (Ascoli Piceno) - ItalyTel. +39 0734 8661

Legal data Parent company

Share capital resolved Euro 64,000,000Sahare capital subscribed and paid euro 60,961,840Fiscal Code and registration number on Company Register of Court of Ascoli Piceno: 01113570442 Registered with the Chamber of Commerce of Ascoli Piceno under n. 114030 R.E.A.

Offices e Show rooms Dusseldorf - Kaistrasse, 2Hong Kong - Three Pacific Place, 1 Queen’s Road EastLondra - Old Bond Street, 16Milano - Corso Venezia, 30Milano - Via Savona, 56 Milano - Via Serbelloni 1-4 Milano - Via della Spiga, 22Milano - Viale Montenero 63New York - 450,West 15th StreetParigi - Rue Royale, 20Tokyo - Omotesando Building, 5-1-5 JingumaeSeoul - 89-10, Cheongdam-dong, Kangnam-kuShanghai - 1366 Nanjing West Road, Plaza 66 Tower 2

Production facilities Comunanza (AP) - Via Merloni, 7Comunanza (AP) - Via S.Maria, 2-4-6Sant’Elpidio a Mare (AP) - Via Filippo Della Valle, 1Bagno a Ripoli, Loc.Vallina (FI) - Via del Roseto, 60Bagno a Ripoli, Loc.Vallina (FI) - Via del Roseto, 50Tolentino (MC) - Via Sacharov 41/43

2007 Annual Report

11 Corporate Governance bodies

Corporate Governance bodies

Board of directors (1) Diego Della Valle ChairmanAndrea Della Valle Vice- ChairmanLuigi AbeteMaurizio BoscaratoLuigi CambriLuca Cordero di MontezemoloEmanuele Della ValleFabrizio Della ValleEmilio MacellariPierfrancesco SaviottiStefano Sincini

Executive Committee Diego Della Valle ChairmanAndrea Della ValleFabrizio Della ValleEmilio MacellariStefano Sincini

Compensation Luigi Abete ChairmanCommittee Luigi Cambri

Pierfrancesco Saviotti

Internal Control and Maurizio Boscarato ChairmanCorporate Governance Luigi CambriCommittee Pierfrancesco Saviotti

Board of statutory (2) Enrico Colombo ChairmanAuditors Gian Mario Perugini Acting stat. auditor

Fabrizio Redaelli Acting stat. auditorMassimo Foschi Substitute auditorGilfredo Gaetani Substitute auditor

Indipendent Auditors (3) Deloitte & Touche S.p.a.

Manager charged with preparing Rodolfo Ubaldia company’s financial report

(1) Term of the office: 2006-2008 (resolution of the Shareholders’ meeting as of April 28th, 2006)(2) Term of the office: 2007-2009 (resolution of the Shareholders’ meeting as of April 27th, 2007)(3) Term of the office: 2006-2011 (resolution of the Shareholders’ meeting as of April 28th, 2006)

2007 Annual Report

12 Composition of the Group

TOD’S S.p.a.Parent company, owner of the Tod’s, Hogan andFay brands and licensee of the Roger Vivier andDerek Lam brands (*)

Del.Com. S.r.l.Subholding for operation of nationalsubsidiaries.

TOD’S International B.V.Subholding for operation of internationalsubsidiaries and DOS in The Netherlands.

An.Del. Usa Inc.Subholding for operation of subsidiariesin the United States.

Del.Pav S.r.l.Company that operates DOS in Italy.

Deva Mode S.r.l.Company that operates DOS in Italy.

Filangieri 29 S.r.l.Company that operates DOS in Italy.

Re.Se.Del. S.r.l.Company for services.

Spiga 22 S.r.l.Company that operates DOS in Italy.

Via Roma 40 S.r.l.Company that operates DOS in Italy.

Gen.del. SACompany that operates DOS in Switzerland.

TOD’S Belgique S.p.r.l.Company that operates DOS in Belgium.

TOD’S Deutschland GmbhCompany that distributes and promotesproducts in Germany and manages DOS in Germany.

TOD’S Espana SLCompany that operates DOS in Spain.

TOD’S France SasCompany that distributes and promotesproducts in France and manages DOS in France.

TOD’S Luxembourg S.A.Company that operates DOS in Luxembourg.

TOD’S Hong Kong LtdCompany that distributes and promotesproducts in Far East and South Pacific and manages DOS in Hong Kong.

TOD’S Japan KKCompany that operates DOS in Japan.

TOD’S Korea Inc.Company that promotes products in Korea.

TOD’S Macao LtdCompany that operates DOS in Macao.

TOD’S Retail India Private LtdCompany that operates DOS in India.

TOD’S Saint Barth SasCompany that operates DOS in Saint Barth.

TOD’S (Shanghai) Trading Co. LtdCompany that operates DOS in China.

TOD’S Singapore Pte LtdCompany that operates DOS in Singapore.

TOD’S UK LtdCompany that operates DOS in Great Britain.

Webcover LtdCompany that operates DOS in Great Britain.

Cal.Del. Usa Inc.Company that operates DOS in California(USA).

Colo. Del. Usa Inc.Company that operates DOS in Colorado(USA).

Deva Inc.Company that distributes and promotesproducts in North America, and manages of DOS in New Jersey (USA).

Flor. Del. Usa Inc.Company that operates DOS in Florida(USA).

Hono. Del. Inc.Company that operates DOS in Hawai(USA).

Il. Del. Usa Inc.Company that operates DOS in in Illinois(USA).

Neva. Del. Inc.Company that operates DOS in Nevada(USA).

Or. Del. Usa Inc.Company that operates DOS in California(USA).

Sandel SAProduction Company.

Un.Del. KftProduction Company.

(*) Shoes, leather goods and accessory lines

TOD’S Group

Group’s organizational chart

2007 Annual Report

13 Composition of the Group

TOD’S S.p.a.

Gen.Del SAGinevra - Switzerland

S.C. - Chf 200,000

TOD’S Belgique S.p.r.l.Bruxelles - BelgiumS.C. - Euro 300,000

TOD’S Japan KKTokio - Japan

S.C. - Jpy 10,000,000

TOD’S Saint Barth SasSaint Barthélemy

S.C. - Euro 500,000

Un.Del KftTata - Hungary

S.C. - Huf 42,900,000

TOD’S Macao LdaMacao

S.C. Mop 850,000

Cal.Del. USA Inc.Beverly Hills, Ca U.S.A.

S.C. - Usd 10,000

Deva Inc.Wilmington, DE U.S.A.

S.C. - Usd 500,000

Hono.Del. Inc.Honolulu, Hi U.S.A.S.C. - Usd 10,000

Neva.Del. Inc.Carson City, Nv U.S.A.

S.C. - Usd 10,000

Deva Mode S.r.l.S.Elpidio a Mare - Italy

S.C. - Euro 50,000

Via Roma 40 S.r.l.S.Elpidio a Mare - Italy

S.C. - Euro 50,000

Del.Pav. S.r.l.S.Elpidio a Mare - Italy

S.C. - Euro 50,000

TOD’S Espana SLMadrid - Spain

S.C. - Euro 468,539.77

TOD’S Korea IncSeoul - Korea

S.C.Won 100,000,000

TOD’S Singapore Ltd.Singapore

S.C. - Sgd 300,000

TOD’S Luxembourg S.A.Luxembourg

S.C. Euro 31,000.00

Sandel SASan Marino

S.C. - Euro 258,000

Colo.Del. USA Inc.Denver, Co U.S.A.S.C. - Usd 10,000

Flor.Del. USA Inc.Tallahassee, Fl U.S.A.

S.C. - Usd 10,000

Il.Del. USA Inc.Springfield, Il U.S.A.S.C. - Usd 10,000

Or.Del. USA Inc.Sacramento, Ca U.S.A.

S.C. - Usd 10,000

Spiga 22 S.r.l.Milano - Italy

S.C. - Euro 50,000

Re.Se.Del. S.r.l.S.Elpidio a Mare - Italy

S.C. - Euro 25,000

Filangieri 29 S.r.l.Napoli - Italy

S.C. - Euro 100,000

TOD’S International BVAmsterdam - The Netherlands

S.C. - Euro 2,600,200

TOD’S France SasParis - France

S.C. - Euro 780,000

TOD’S Deutschland GmbhDusseldorf - GermanyS.C. - Euro 153,387.56

TOD’S India Retail Private LtdMunbai - India

S.C. INR 113,900,00

An.Del. USA Inc.New York U.S.A.

S.C. - Usd 3,700,000

Del.Com S.r.l.S.Elpidio a Mare - Italy

S.C. - Euro 31,200

100%

99%

100%

100%

100%

90%

99%

1%

10%

1%

100%

100%

100%

100%

100%

100%

50%

100%

100%

100%

100%

50%

100%

100%

100%

100%

100%

100%

100%

50%

100%

100%

100%

100%

100%

TOD’S (Shanghai) Trading Co.LtdShanghai - China

S.C. USD 6,000,000

TOD’S UK LtdLondon - Great Britain

S.C. - Gbp 350,000

TOD’S Hong Kong LtdHong Kong

S.C. - Usd 50,000

100% 50% 1%Vebcover Ltd

London - Great BritainS.C. - Gbp 1,000

50%

Distribution network as of December 31st, 2007

2007 Annual Report

14 Distribution network

EUROPE (D) (F)Italy 34 9Belgium 1France 11Germany 7Great Britain 5 1Greece 1Luxembourg 1Netherlands 1Portugal 1Russia 3Spain 1Switzerland 3Turkey 1TOTAL 64 16

ROW (D) (F)St. Barth. 1Saudi Arabia 1United Arab E. 4Kuwait 1Lebanon 2TOTAL 1 8

ASIA (D) (F)Japan 29 1China 10Korea 7 7Philippines 1Hong Kong 7Indonesia 2Macao 1Malaysia 1Singapore 3 1Taiwan 12Thailandia 3U.S.A. 1TOTAL 47 39(F)

U.S.A. (D) (F)U.S.A. 13

(D) = DOS (F) = FRANCHISING

2007 Annual Report

15 Distribution network

DOS, 2007 new openings

Italy

ParmaStrada della Repubblica 26

Usa

New York750 Madison Avenue

Far East

Hong KongHarbour City, G309Ground Floor, Gateway Arcade

Kanazawa Maiatoria Kanazawa Korinbo 1F, 2-4-3,Korinbo, Ishikawa

KyotoTakashimaya2F,52 NishiiruchinchoKawaramachi,Shijodoori,Shimogyo-ku

MacaoResort Hotel shop 2510, Baia deNostra Senora de EsperanceEntrada de Cotai

Pusan (*)Hyundai Pusan 1/Floor 62-5Beomil-Dong Dong-Gu

SendaiFujisaki department store Omachi bldg. 1st floor3-2-17, Ichiban cho,Aoba-ku

Seoul (*)429 Apkujung-DongKangnam-Gu

Seoul (*)Hyundai Department Store 159-7 Sam Sung Dong, Kangnam-Gu

Seoul (*)Galleria Department StoreLuxury Hall West 494,Apkujung-Dong Kangnam-Gu

Seoul (*)Hyunday Department Store “1”Mok-Dong – Yangchun-Gu

Seoul (*)Hyunday Department Store “2”Mok-Dong – Yangchun-Gu

Seoul (*)Hyunday CoexSam Sung Dong, Kang-Gu

TokyoShibuya SeibuB-Building 2F, 21-1 Udagawa-cho, Shibuya-Ku

TokyoMaronouchi3-1-1 Kokusai Building, 1FMaronouchi Chiyoda Ward

YokohamaSogo Department Store,B 1st Floor 2-18-1 Takashimaya,Nishi-Ku

Franchised Stores, 2007 new openings

Europe

LisbonaAvenida de Liberdade 196

Far East

ShenyangSeibu Department Store, Shop1008, No 219, QingNian Avenue

SingaporeUnit 026-091, Lunge North, 2ndFloor,Terminal 2, Changi Airport

TaipeiCKS International Airport,Terminal 2, No 9, Hang-Jhan S. Rd,Dayuan

TaipeiUni-President HankyuNo. 789, Jhonghua 5th Road,Cianjhen District,Kaohsiung City 806

Middle East

Beirut24,Avenue du Parc

(*) Network in franchising conversion

For a complete list of retail outlets operated by the DOS and franchising network, reference should be made to the corporate web site: www.todsgroup.com

2007 Annual Report

16 Key consolidated financial figures

Key consolidated financial figuresP&L key figures (in euro mn)

FY 07 FY 06 FY 05 FY 04

Revenues 657.1 573.0 503.0 420.8

EBITDA 153.0 23.3% 137.5 24.0% 112.9 22.4% 88.9 21.1%

EBIT 126.5 19.3% 113.7 19.8% 90.1 17.9% 67.1 15.9%

PRE TAX 126.7 19.3% 113.2 19.8% 91.9 18.3% 66.9 15.9%

Key Balance Sheet figures (in euro mn)

31 dic 07 31 dic 06 31 dic 05

Net working capital 291.6 262.0 218.0

Net fixed capital 299.2 282.8 279.7

Shareholders’ equity 566.8 522.9 478.5

Net financial position 73.5 90.6 97.0

Capital expenditures 45.2 30.5 21.4

Financial key figures (in euro mn)

31 dic 07 31 dic 06 31 dic 05

Free cash flow (18.5) (8.2) 40.7

Self financing 110.1 99.6 86.2

Cash flow from operations 60.5 46.9 76.7

Revenues (in euro mn)

2007 Revenues - % by brand

EBITDA (in euro mn) EBIT (in euro mn)

2007 Revenues - % by region

2007 Revenues - % by product

FY 07 FY 06 FY 05 FY 04

657.1

573.0

503.0

420.8

FY 07 FY 06 FY 05 FY 04

153.0

137.5

112.9

88.9

FY 07 FY 06 FY 05 FY 04

126.5113.7

90.1

67.1

TOD’S 53%

HOGAN 31%

FAY 14%

RogerVivier

2%

Europe24%

NorthAmerica

10%

RoW15%

Italy51%

Leathergoods21%

Appar.14%

Shoes65%

45.00

50.00

55.00

60.00

65.00

70.00

75.00

January-December 2007

in e

uro

2007 Annual Report

17 Key consolidated financial figures

The Group’s employees

FY 07 FY 06 FY 05 FY 04

Year to date 2,472 2,280 2,176 2,082

Average 2,421 2,233 2,169 2,024

EX = executives

WHC = white collar employees

BLC = blue collar employees

Earning per share (euro) Stock performance

FY 07 FY 06 FY 05 FY 04

2.54

2.18

1.76

1.27

2007 Group’s employees

BLC32%

WHC67%

EX1%

Principal Stock Market indicators (in euro)

Official price at 01.02.2007 61.83

Official price at 12.28.2007 48.08

Minimum price in 2007 40.05

Maximum price in 2007 74.80

Market capitalization at 01.02.07 1,879,748,240

Market capitalization at 12.28.07 1,465,522,634

Dividend per share 2007 1.25

Dividend per share 2006 1.25

Average number of outstanding shares 30,442,913

Average number of outstanding options 1,334,139

Total average number 31,777,051

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18 2007 Annual Report

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TOD’S GROUP - IAS/IFRS ANNUAL REPORTAS OF DECEMBER 31ST, 2007

REPORT OF THE BOARD OF DIRECTORS

Introduction

The Report of the Board of Directors on Operations is based on the TOD’s Group Consolidated FinancialStatements at December 31st, 2007, prepared in accordance with IAS/IFRS (International Accounting Standards– IAS, and International Financial Reporting Standards –IFRS) issued by the IASB and approved by the EuropeanUnion at the same date. The Report on Operation must be read together with the Financial Statements andNotes to the Financial Statements, which are an integral part of the 2007 Consolidated Annual Report.The Report on Operation also includes the additional information required by CONSOB, pursuant to theorders issued in implementation of Article 9 of Legislative Decree 38/2005 (Resolutions 15519 and 15520 of July27th, 2006 and memorandum DEM/6064293 of July 28th, 2006).

Alternative indicators of performances

In order to strip the effects of changes in exchange rates with respect to the average values for the previous yearfrom the results for the 2007 financial year, the typical economic reference indicators (Revenues, EBITDA, andEBIT) have been recalculated by applying the average exchange rates for 2006, rendering them fully comparablewith those for the previous reference period.Note that on the one hand, these principles for measurement of business performance represent a key tointerpretation of results not envisaged in IFRSs, and on the other hand, must not be considered as substitutes forwhat is set out in those standards.

Group’s activity

The TOD’S Group operates in the luxury sector under its proprietary brands (TOD’S, HOGAN and FAY) andlicensed brands (ROGER VIVIER and DEREK LAM). It actively creates, produces and distributes shoes, leathergoods and accessories, and apparel.The company’s mission is to offer top-quality products that satisfy the practicaldemands and desires of consumers worldwide.

Development of production. The Group’s production structure is based on complete control of theproduction process, from creation of the collections to production and then distribution of the products.Thisapproach is considered key to assuring the prestige of its brands.Shoes and leather goods are produced in Group-owned plants,with partial outsourcing to specialized workshops.All of these outsourcers are located in areas with a strong tradition of shoe and leather good production.Thispreference reflects the fact that an extremely high standard of professional quality is required to make these items,with a significantly high level of added value contributed to the final product by manual work.The Group relies exclusively on selected specialized outsourcers, which enables it to exploit their respectivespecializations in crafting the individual products sold as part of the apparel line.

Distribution structure. The prestige of the Group’s brands and the high degree of specialization necessary tooffer the respective products to customers entails distribution through a network of similarly specialized stores.Accordingly, the Group relies principally on three channels: DOS (directly operated stores), franchised stores, anda series of selected independent multibrand stores.Group’s strategy is focused on development of the DOS and franchising networks, given that these channels offergreater control and more faithful transmission of the individual brands. It is also clear that, in particular marketsituations, distribution through independent multibrand stores is more efficient.This channel is of key importanceto the Group.

29 Report on operation

Annual Report Group(12.31.07)



Group’s brands

The TOD’S brand is positioned on the luxury market and combines tradition, top quality and modernity. It offersconsumers shoes, leather goods, accessories and apparel whose design is exclusive, functional and neverostentatious, interpreting timeless elegance.TOD’S products embody the high quality of goods “Made in Italy” that are handcrafted for daily use while offeringa sophisticated and elegant look. Certain products, such as the Driving Shoe or the D-Bag, beloved by celebritiesand leaders around the world, have become icons representing a unique and recognisably elegant style for menand women.

The HOGAN brand is positioned in the elegant luxury sportswear market, offering consumers contemporarystyle shoes, leather goods, accessories and apparel with an international vision.HOGAN products, which are distinguished by their innovative character and high quality, have created a uniquestyle, contributing to changes in the fashion habits of consumers who want a functional, comfortable, but alsosporty and elegant product for everyday life.HOGAN products are trend-setters in defining an elegant and sporty look. Some of its models are best sellers,such as its Interactive shoes.

This brand offers consumers a line of high-quality apparel that is distinguished by the technical treatment of fabrics,obsession for detail and extreme functionality, combining style and quality with excellence. FAY products can beworn everywhere: from the sports stadium to the office, and from the city to the countryside. In every season,the FAY collection offers innovative, recognisable products for men, women and children.

Organizational structure of the Group

The organisational structure of the Group headed by TOD’S S.p.a., the parent company that owns the TOD’S,HOGAN,and FAY brands, holds the licenses to the ROGER VIVIER and DEREK LAM brands, and manages Group’sproduction and distribution. Through a series of subholdings, the organisation is rounded out by a series ofcommercial companies that are delegated complete responsibility for retail distribution though the DOS network.Certain of them, strategically located on international markets, are assigned major roles in product distribution,marketing and promotion, and public relations processes along the “value chain”, while simultaneouslyguaranteeing the uniform image that Group’s brands must have worldwide.



Foreign currency markets

In 2007, foreign currency markets were dominated by the sharp appreciation of the euro against all majorcurrencies. Compared with the average values for 2006, the U.S. dollar and Hong Kong dollar depreciated by 8.3%and 8.7%, respectively, while the Japanese yen fell by more than nine percentage points (9.3%).The euro appreciated to a lesser degree against European currencies. It remained substantially stable against theBritish pound, while it appreciated by 4.2% against the Swiss franc.

Group’s results in 2007

The Group’s earning performance in the 2007 financial year were influenced by the sharp appreciation of the euro,which had a major impact on TOD’S Group’s results, both in terms of sales prices in non-eurozone currencies andits profits.

In spite of the negative foreign currency trends, the TOD’S Group posted revenues of 657.1 million euros, up14.7% from the 2006 financial year. EBIT for the year was 126.5 million euros, up by 12.8 million euros. On acomparable exchange rate basis (average of exchange rates reported in the 2006 financial year), sales growthwould have been 16.9% and EBIT would have risen 16.0%.

Principal economic indicators (In Euro 000’s) Year 07 Year 06 Change %

Sales revenues 657,089 573,013 84,076 14.7

EBITDA 152,973 137,474 15,499 11.3

Deprec., amort., writedowns and advances (26,441) (23,735) (2,706) 11.4

EBIT 126,532 113,739 12,793 11.2

Pre-tax 126,669 113,176 13,493 11.9

Consolidated net income 78,726 66,816 11,910 17.8

Foreign exchange impact on revenues 12,700

Adjusted Sales revenues 669,789 573,013 96,776 16.9

Foreign exchange impact on operating cost (6,800)

Adjusted EBITDA 158,873 137,474 21,399 15.6

Foreign exchange impact on deprec. & amort. (500)

Adjusted EBIT 131,932 113,739 18,193 16.0

EBITDA % 23.3 24.0

EBIT % 19.3 19.8

Adjusted EBITDA % 23.7 24.0

Adjusted EBIT % 19.7 19.8

Tax rate % 37.8 41.0

0

100

200

300

400

500

600

700

FY 07 FY 06

WS

DOS



Principal Balance Sheet indicators (In Euro 000’s) 12.31.07 12.31.06 Change

Net working capital (*) 208,453 164,206 44,247

Non current assets 299,244 282,805 16,439

Other current assets/liabilities (15,486) (15,712) 226

Net asset held for sale 1,006 1,050 (44)

Invested capital 493,217 432,349 60,868Net financial position 73,541 90,573 (17,032)

Shareholders’ equity 566,758 522,922 44,421

Capital expenditures 45,199 30,504 14,695

Cash flow from operations 60,506 46,940 13,566

Free cash flow (18,514) (8,128) (10,386)

(*) Trade receivables + inventories – trade payables

Revenues. Consolidated revenues totalled 657.1 million euros, up 14.7% from the 2006 financial year. On acomparable exchange rate basis, and consequently using the same average exchange rates as in 2006, revenueswould have totalled 669.8 million euros, up 16.9%.

The revenues posted on the DOSnetwork totalled 318.1 millioneuros, for an increase of 12.3%from 2006.On a comparable exchange ratebasis, growth climbs to 15.6%.

The organic growth measuredfor all of 2007 was particularlyimportant: Same Store Sales Growth(SSSG), which is the worldwideaverage of revenue growth ratesreported by DOS existing at January 1st, 2006, was 12.4%, althoughglobal sales underwent a markedslowdown during the Christmasseason, consistently with the rest ofthe industry.

At December 31st, 2007 the Group’s distribution network consisted of 125 DOS and 63 franchised stores,compared with 110 DOS and 63 franchised stores at December 31st, 2006 .Sales to wholesale customers also made a positive contribution to consolidated revenues. Financial year 2007revenues from this channel totalled 339 million euros, up 17% (or 18.1% on a comparable exchange rate basis)from the previous year.

All the Group’s brands posted sales gains, with extraordinary improvements for HOGAN and ROGER VIVIER:when stripped of the impact caused by appreciation of the euro, all brands reported double-digit growth.

(In euro mn) FY 07 % FY 06 % Change %

DOS 318,1 48,4 283,2 49,4 34,9 12,3

WS 339,0 51,6 289,8 50,6 49,2 17,0

Total 657,1 100,0 573,0 100,0 84,1 14,7

WS 52%

DOS 48%

0

100

200

300

400

500

600

700

FY 07 FY 06

Apparel

Leather goods

Shoes

0

100

200

300

400

500

600

700

FY 07 FY 06

RV

FAY

HOGAN

TODíS



In more detail, TOD’S brandrevenues continued growing: 10%on a comparable exchange ratebasis. At current exchange rates,sales for the 2007 financial yeartotalled 347.6 million euros, up6.5% from the previous year.

The FAY brand also reported goodresults, with 90 million euros inconsolidated revenues for the 2007financial year, up 9.2% from theprevious year.As previously mentioned, theHOGAN brand reported excellentresults, with its 2007 revenues upby 28.3% to 199.5 million euros.It accomplished this thanks to theenormous success of the brand onboth the Italian market and in theother countries where it operates.

ROGER VIVIER brand revenues were also excellent, confirming the steeply climbing sales reported earlier in theyear, which were driven by the immense success of its entire collection of shoes and accessories. Revenues for FY2007 totalled 16 million euros, up 146% from 2006, accounting for 2.4% of aggregate TOD’S Group’s revenues.

The breakdown by merchandise segment shows that shoes made the greatest contribution to Group’s sales,representing 65% of aggregate consolidated revenues. FY 2007 revenues total 427.2 million euros, up 19.5% from2006, or 21.3% on a comparable exchange rate basis.

Leather good and accessoryrevenues totalled 139.2 millioneuros, posting a 4.3% gain from FY2006, partly in consequence of theafore-mentioned slowdown in salesduring the Christmas 2007 season,which fell short of managementexpectations.

The continued appreciation of theeuro had a significant impact on this segment, considering that saleson Asian and American markets are particularly important. Whenstripped of the foreign exchangeimpact, the growth in revenues was more than double the actual rate (8.7%).


TOD’S 347.6 52.9 326.4 57.0 21.2 6.5

HOGAN 199.5 30.4 155.5 27.1 44.0 28.3

FAY 90.0 13.7 82.4 14.4 7.6 9.2

ROGER VIVIER 16.0 2.4 6.5 1.1 9.5 146.0

Other 4.0 0.6 2.2 0.4 1.8 78.5

Total 657.1 100.0 573.0 100.0 84.1 14.7


Shoes 427.2 65.0 357.5 62.4 69.7 19.5

Leather goods 139.3 21.2 133.5 23.3 5.7 4.3

Apparel 89.2 13.6 80.9 14.1 8.3 10.2

Other 1.5 0.2 1.1 0.2 0.4 14.7

Total 657.1 100.0 573.0 100.0 84.1 14.7

TOD’S53%

HOGAN31%

FAY14%

RV 2%

Apparel14%

Shoes65%

Leathergoods21%



Finally, apparel revenues totalled 89.2 million euros in FY 2007, up 10.2% from 2006.

All Group’s brands posted excellentresults on the Italian market, whererevenues totalled 333.5 millioneuros in FY 2007, up by 19.3% fromthe previous year.Double-digit growth rates were alsoreported in the rest of Europe.Totalling 160.8 million euros,Group’s revenues in FY 2007 roseby 10.6% (11% on a comparableexchange rate basis) from 2006.

The excellent results realised onthe American market in the firstpart of 2007 were confirmed by thefull-year results. On a comparableexchange rate basis, sales rose by19.6%,or by 10.4% when correctedto reflect the unfavourable changein the Euro/USD exchange rate. Sales on this market totalled 66.3 million euros, representing about 10.1% ofGroup’s sales.Finally, revenues elsewhere in the world accelerated sharply during the last quarter, mainly due to the excellentresults posted in the Far East. For the entire year, growth was 17.2% on a comparable exchange rate basis (or 9.6%when corrected for the foreign exchange impact). Revenues in this area totalled 96.5 million euros, or 14.7% ofGroup’s sales.

Operating results. Although it did not cause a significant impact on period results, the principal change in theGroup’s financial position during the year was represented by inclusion from 3Q 2007 of the profit and lossgenerated by the sales outlets on the Korean local market (excluding duty free shops).At the beginning of August(coinciding with the end of sales of the spring-summer collection), the Group assumed direct management of theexisting seven boutiques in Seoul and Pusan (five to the TOD’S brand and two to the HOGAN brand), which hadbeen operated up that time under a franchising relationship by the partner Hyundai Department Store Co.

EBITDA for FY 2007 was 153.0 million euros and represents 23.3% of consolidated revenues. Compared with the2006 figure (137.5 million euros), the indicator showed growth of 15.5 million euros, or 11.3%. When stripped ofthe impact of changes in foreign exchange rates from the average rates ofFY 2006, EBITDA would total 158.9 million euros, representing 23.7% ofGroup’s revenues in this case.

The cost of leases and rentals continued to rise in FY 2007, up by 5.8million euros at the Group level from FY 2006. The DOS networkunderwent major consolidation in 2007,materialising in the extension of aseries of contracts at strategic locations. At the same time, the royaltiespaid to the licensors of the ROGER VIVIER and DEREK LAM brands grewfollowing the rise in sales of both brands’ products.

RoW

North America

Europe

Italy

0

100

200

300

400

500

600

700

FY 07 FY 06


Italy 333.5 50.7 279.6 48.8 53.9 19.3

Europe 160.8 24.5 145.4 25.3 15.5 10.6

North America 66.3 10.1 60.0 10.5 6.3 10.4

RoW 96.5 14.7 88.0 15.4 8.4 9.6

Total 657.1 100.0 573.0 100.0 84.1 14.7

NorthAmerica

10%RoW15%

Italy51%

Europe24%

EBITDA (in euro mn)

FY 07 FY 07 FY 06comparable exch.

rate basis

158.9

153.0

137.5



With constant attention to human capital, considered a strategic element of the Group’s development prospects,spending continued to rise on personnel, and particularly its contribution to profitability.

Notwithstanding the constant growth in employees, whose number rose from 2,280 at January 1st,2007 to 2,472 at December 31st, 2007, the portion of profit marginsrepresented by personnel costs continued shrinking.

The ratio of this cost component to revenues fell from 14% in FY 2006 to13.6%, albeit in the presence of further growth in absolute value of 8.9million euros, with this growth being correlated principally with theaforementioned growth in the employment base (particularly due toexpansion of the DOS network) and systematic evolution in payscales.In terms of EBIT, profitability continued to rise more than EBITDA in FY 2007.

EBIT continued to benefit from the steady improvement in the rate ofrotation of non-current assets, which causes a decrease in the impact ofdepreciation and amortisation on revenues, in spite of heavy spending oninvestments in FY 2007.

Depreciation, amortisation and writedowns during the year totalled 25.6million euros, representing 3.9% of Group’s revenues. In the previous year,these costs totalled 23.4 million euros, or 4.1% of revenues. Consequently,EBIT in FY 2007 totalled 126.5 million euros, for growth of 11.2% from FY2006, when it totalled 113.7 million euros. At December 31st, 2007 itrepresented 19.3% of period revenues (FY 2006: 19.8%).When stripped of the impact of changes in foreign exchange rates,EBIT would climb to 131.9 million euros, here representing 19.7% ofGroup’s revenues.

Net financial income during the period was 0.1 million euros (FY 2006: -0.6million euros), due to interest income of 2.8 million euros accrued on theimmense average amount of Group’s cash reserves, which was set off by anet foreign exchange loss in FY 2007 of 1.1 million euros.

Including the impact of foreign exchange rate risk hedging (a positive 2.1 million euros), the overall balance of foreign exchange gains/losses was1 million euros.

EBIT (in euro mn)

FY 07 FY 07 FY 06comparable exch.

rate basis

131.9 126.5

113.7

FINANCIAL INC/EXP. (in euro mn)

-1.1

2.1

-0.9

Foreign exch.gains & losses

Net interests

Other

GROUP’S EMPLOYEES

FY 07 FY 06 FY 05 FY 04

2.472

2.280

2.176

2.082



The pre-tax result was subject to 47.9 million euros in income taxes(including deferred taxes), for a tax rate of 37.8%, significantly improvedfrom the 41.0% reported in fiscal 2006.The fiscal 2007 figure benefitspartially from the effects connected with substantial changes made by theItalian government to business taxes, whose effects will be fully applied infiscal 2008.

Consolidated net profit for the year was excellent, totalling 78.7million euros (+11.9 million from FY 2006). At December 31st, 2007,the result was equal to 12.0% of consolidated earnings, compared with11.7% in the previous year.

Investments in non-current assets. Investments for FY were up sharply from the previous year. Spendingon non-current assets during the period totalled 45.2 million euros, against 30.5 million euros in 2006.About 60% of investments during the period, 27.3 million euros, was allocated to the DOS network,both in order to expand the distribution network and remodelexisting stores.

A total of 16.2 million euros (key money) was spent to acquire use ofcertain prestigious locations in Milan and Rome, cities where thedistribution network is undergoing profound consolidation, throughthe expansion of spaces dedicated to the HOGAN brand and theopening of a store dedicated entirely to the FAY brand.

A total of 7.8 million euros in productive investments were made during2007, for routine substitution and modernization of industrial devices andequipment, while investments in the information system area weresignificantly increased.

A total of 5.1 million euros were dedicated to implementation and development of new and existing software, inview of steadily improving integration and harmonization of information systems at the Group level, as well asstreamlining of information flows.

Net financial position and changes in cash flows. Net financial assets at December 31st, 2007 totalled 73.5million euros: financial assets of 95.8 million euros were offset by financial liabilities totalling 22.2 million euros,including 10.2 million euros collectible starting from 2009.At December 31st, 2006 the net financial position was 90.6 million euros, comprised by assets of 111.3 millioneuros and liabilities of 20.7 million euros.

Tax Rate

INVESTMENT BY ALLOCATION

FY 07 FY 06 FY 05 FY 04

37.8%

41.0%41.4%

42.1%

DOS25%

Produc.17% Other

22%

Key money36%



Net financial position (in Euro 000’s) 12.31.07 12.31.06 Change

Current financial assets

Cash and cash equivalents 95,753 111,335 (15,582)

Cash 95,753 111,335 (15,582)Current financial liabilities

Current account overdraft (10,496) (6,943) (3,553)

Current share of medium-long term financing (1,482) (2,103) 621

Financial leasing

Current financial liabilities (11,978) (9,046) (2,932)Current net financial position 83,775 102,289 (18,514)Non-current financial liabilities

Financial leasing

Financing (10,234) (11,716) 1,482

Non-current financial liabilities (10,234) (11,716) 1,482Net financial position 73,541 90,573 (17,032)

The change in cash flows showed continued growth in this item during FY 2007, which rose to 110.1 million from99.6 million in FY 2006.

Funds flow statement (in Euro 000’s) Year 07 Year 06

Profit (loss) for the period of the Group 77,332 66,112Non-cash items 32,783 33,454

Cash Flow 110,115 99,566Changes in operating net working capital (49,609) (52,626)

Cash Flow from operations 60,506 46,940Cash Flow generated (used) in investment activity (42,661) (28,317)

Cash Flow generated (used) in financing activity (36,403) (26,809)

Cash Flow received (used) continuing operations (18,558) (8,186)Cash Flow from assets held for sale 44 58

Cash Flow received (used) (18,514) (8,128)

Net financial position at the beginning of the period 102,289 110,417

Net financial position at the end of the period 83,775 102,289

Change in current net financial position 18,514 8,128

The growth in credit exposure at year-end to wholesale customers and inventories, connected with theaccumulation of finished product stocks for the next spring-summer collection at production plant warehousesand on the DOS network was consistent with Group financial dynamics.The cash flow that was temporarily usedto finance the growth in working capital was 49.6 million euros.There was significant growth in the cash flow generated by operations,which rose from 46.9 million euros in 2006to 60.5 in the current year, used to finance investment activity and payment of about 38 million euros in dividendsto shareholders of the parent company.



Research and development

Given the particular nature of Group production, research and development activity consists of continuoustechnical/stylistic revision of models and constant improvement of the materials used to realise the product.Since this activity is exclusively ordinary, the associated costs are charged entirely to income in the year that theyare incurred, and thus recognised as normal production costs.Research and development costs, as defined above, have assumed major importance due to operating realisationof projects connected with expansion of the existing product line with new types of merchandise that complementcurrent ones.These will increase the number of brands offered and stimulate increased sales to end customers.

Reconciliation of the result for the period and net equity of the Group with the analogousvalues of the parent company

The following table illutrates the reconciliation of the result for the period and net equity of the Group with theanalogous values of the parent company, in accordante with CONSOB memorandum DEM/6064293 dated July28th, 2006.

12.31.07 12.31.06(In Euro 000’s) Net profit Share equity Net profit Share equity

Parent company 60,360 554,516 56,906 525,997Difference between book value of consolidatedcompanies and net equity method valuation 18,295 18,143 12,356 7,251

Goodwill from Business combinationParent company (13,242) (13,242)

Goodwill from Business combination Group 11,871 11,871

Other (*) (1,323) (9,597) (3,150) (12,024)

Minority interest 1,394 5,067 704 3,069

Consolidated financial statement 78,726 566,758 66,816 522,922

(*) Mainly dividends and intercompany profits.

Corporate Governance

The corporate governance of the parent company, Tod’s S.p.A., is based on the traditional system, the “Latinmodel”: the corporate bodies are comprised by the Shareholders’ Meeting, the Board of Directors and the Boardof Statutory Auditors. In turn, the Board of Directors is broken down into committees.The adopted form of governance is substantially inspired by the Corporate Governance Code, in its latest versionas prepared by the Committee for Corporate Governance of Listed Companies (constituted by Borsa ItalianaS.p.A. and formed by representatives of leading Italian companies and relevant experts). Its principles wereimplemented by the Company with a series of Board of Directors resolutions adopted starting from November2006, and the models offered by international best practice.At its meeting on March 28th, 2008, the Board of Directors of the parent company approved the annual CorporateGovernance Report. Reference should be made to that report for detailed illustration of the corporategovernance system of Tod’s S.p.A. and the Group it controls. The Report was published with the financialstatements in the corporate section of the web site www.todsgroup.com.



Significant events occurring after the end of the year

Starting from January 1st, 2008, the Group formally acquired the three DOS in Shanghai and Beijing through itssubsidiary TOD’S (Shanghai) Trading Co. Ltd, which are identified on the 2007 financial statements as specialpurpose entities.The take-over of another two sales outlets, in Hangzhou and Chengdu, is currently underway.Following exercise of a purchase option previously granted to a local buyer, sale of the San Marino plant iscurrently being formalised,where production activities permanently ceased in early 2006.The agreed price for theentire property is 2.3 million euros, for a net gain of about 1.3 million.

Business outlook

The positive data received at the start of the Spring/Summer 2008 season are complemented by initial ordersreceived for the Fall/Winter 2008/2009 season.Accordingly, and in spite of the challenging economic and foreign exchange situation, it is believed that revenuesand profits will continue growing in FY 2008.

Approval of Financial Statements

The consolidated financial statements of the TOD’S Group were approved by the Board of Directors onMarch 28th, 2008.

Milan, March 28th, 2008

The Chairman of the Board of DirectorsDiego Della Valle

FINANCIAL STATEMENTS

Profit & Loss

In Euro 000’s References to notes Year 07 Year 06

RevenuesSales revenues 657,089 573,013

Others revenues and income 12,965 9,216

Total revenues and income 670,054 582,229Operating CostsChange in inventories of work in process and finished goods 30,296 35,751

Costs of raw materials, supplies and material for consumption (187,103) (170,867)

Costs for services (213,991) (180,274)

Costs of use of third party assets (38,660) (32,898)

Costs of labour 26 (89,327) (80,409)

Other operating charges (18,296) (16,058)

Total operating costs (517,081) (444,755)EBITDA 152,973 137,474Amortisation, depreciation and write-downsAmortisation of intangible assets 9 (5,141) (4,740)

Amortisation of tangible assets 10 (20,423) (18,639)

Other adjustments 9-10 (494)

Total amortisation, Depreciation and Write-downs (26,058) (23,379)Provisions 15-22 (383) (356)

EBIT 126,532 113,739Financial income and chargesFinancial income 27 9,948 9,701

Financial charges 27 (9,811) (10,264)

Total financial income (charges) 137 (563)Income (losses) from equity investments

Profit before taxes 126,669 113,176Income taxes 28 (47,943) (46,360)

Consolidated net income 78,726 66,816Minority interests (1,394) (704)

Net income of the Group 77,332 66,112

EPS (in Euro) 2.54 2.18

EPS diluted (in Euro) 2.43 2.08

42 Financial Statements

Annual Report Group(12.31.07)Annual Report Group(12.31.07)

Balance Sheet

In Euro 000’s References to notes 12.31.07 12.31.06

Non current assets Intangible fixed assets

Assets with indefinite useful life 8 148,961 148,114

Key money 9 40,124 26,968

Others 9 9,451 4,981

Total intangible fixed assets 198,536 180,063Property, plant and equipment

Buildings and land 10 41,338 41,704

Plant and machinery 10 7,184 8,034

Equipment 10 11,761 9,775

Leasehold improvement 10 24,413 29,219

Others 10 16,012 14,010

Total property, plant and equipment 100,708 102,742Other assets

Real estate investments 12 56 60

Equity investments 13 20 20

Deferred tax assets 20 12,146 17,245

Others 4,531 4,158

Total other assets 16,753 21,483Total non current assets 315,997 304,288Current assetsInventories 14 218,731 183,656

Trade receivables 15 108,410 85,328

Tax receivables 15 2,670 5,815

Derivative financial instruments 18 3,763 1,219

Others 15 18,671 18,260

Cash 95,753 111,335

Total current assets 447,998 405,613Assets held for sale 7 1,021 1,081

Total assets 765,016 710,982

to be continued





Annual Report Group(12.31.07)Annual Report Group(12.31.07)

to be continued

In Euro 000’s References to notes 12.31.07 12.31.06

Shareholders’ equityShare capital 16 60,962 60,804

Capital reserves 16 215,938 210,638

Treasury stock 16

Hedging and translation reserve 16 (4,245) (1,406)

Retained earnings 16 211,704 183,705

Income for the period 16 77,332 66,112

Group interest in Shareholders’ equity 561,691 519,853Minority interestMinority interest in share capital and reserves 3,673 2,365

Minority interest in income for the period 1,394 704

Minority interest in Shareholders’ equity 5,067 3,069Total Shareholders’ equity 566,758 522,922Non-current liabilitiesProvisions for risks 22 434 403

Deferred tax liabilities 20 17,581 20,516

Reserve for employee severance indemnity 24 10,571 11,789

Others 3,000

Bank borrowings 17 10,234 11,716

Total non-current liabilities 41,820 44,424Current liabilitiesTrade payables 21 118,688 104,778

Tax payables 21 7,594 14,265

Derivative financial instruments 18 759 518

Others 21 17,404 14,998

Banks 17 11,978 9,046

Total current liabilities 156,423 143,605Liabilities held for sale 7 15 31

Total shareholders’ equity and liabilities 765,016 710,982




Funds Flow statement

In Euro 000’s References to notes Year 07 Year 06

Profit (loss) for the period of the Group 77,332 66,112Adjustments to the items without effect on liquidity:Amortisation, depreciation, revaluation and write-down 9-10-11-15 27,381 23,824

Change in employee severance indemnity reserve 24 555 1,088

Change in deferred tax/liabilities 20 2,164 5,186

Increase (reduction) in reserves for risk and charges 22-26 2,683 3,356

Cash flow (A) 110,115 99,566Changes in current assets and liabilities:Inventories 14 (36,305) (39,270)

Trade receivables 15 (23,380) (24,073)

Tax receivables 15 3,145 (1,601)

Other current assets 15 (2,955) (5,731)

Trade payables 21 13,910 13,143

Tax payables 21 (6,671) 3,793

Other current liabilities 21 2,647 1,113

Changes in operating working capital (B) (49,609) (52,626)Cash flow from operations (C) = (A)+(B) 60,506 46,940Net investments in intangible and tangible assets 7-8-9 (44,098) (29,158)

(Increase) reduction of equity investments 13

Other changes in fixed assets 7-8-9 1,806 1,613

Reduction (increase) of other non-current assets (369) (772)

Cash flow generated (used) in investment activities (D) (42,661) (28,317)Dividend paid 5 (38,002) (30,250)

Changes in long term loans 17 (255) (1,702)

Capital increase 16 3,374 6,431

Other changes in shareholders’ equity 16 (3,518) (1,333)

Changes in minority interests 1,998 45

Cash flow generated (used) in financing (E) (36,403) (26,809)Cash flow from continuing operations (F)=(C)+(D)+(E) (18,558) (8,186)Cash flow from assets held for sale (G) 44 58

Cash flow generated (used) (H)=(F)+(G) (18,514) (8,128)



Change in current net financial position (18,514) (8,128)



Consolidated statement of changes in equity

Year 2007 Reserve(In Euro 000’s) Share Capital for Retained Group Minority

capital reserves translation earnings(*) Interest interest Total

Balance as of 01.01.07 60,804 210,638 (1,406) 249,817 519,853 3,069 522,922Increase in fairvalue of derivatives 2,669 2,669 2,669

Transfers of hedging derivativesto Profit and Loss Account (2,105) (2,105) (2,105)

Translation differences (3,403) (3,403) (96) (3,499)

Other movements (174) (174) (101) (275)

Result for the period 77,332 77,332 1,394 78,726

Total profit (loss) recognizedin the period 60,804 210,638 (4,245) 326,975 594,172 4,266 598,438Share-based payments 2,652 2,652 2,652

Options exercised 158 2,648 63 2,869 2,869

Contribution 1,024 1,024

Dividends (38,002) (38,002) (223) (38,225)

Balance as of 12.31.07 60,962 215,938 (4,245) 289,036 561,691 5,067 566,758

Year 2006 Reserve(In Euro 000’s) Share Capital for Retained Group Minority

capital reserves translation earnings(*) Interest interest Total

Balance as of 01.01.06 60,500 202,021 (1,014) 213,970 475,477 3,024 478,501Increase in fair value of derivatives 2,090 2,090 2,090

Transfers of hedging derivativesto Profit and Loss Account (1,009) (1,009) (1,009)

Translation differences (1,925) (1,925) (1,925)

Other movements 452 (15) 437 63 500

Result for the 66,112 66,112 704 66,816

Total profit (loss) recognizedin the period 60,500 202,021 (1,406) 280,067 541,182 3,791 544,973Share-based payments 3,416 3,416 3,416

Options exercised 304 5,201 5,505 5,505

Contribution

Dividends (30,250) (30,250) (722) (30,972)

Balance as of 12.31.06 60,804 210,638 (1,406) 249,817 519,853 3,069 522,922

Note: for detailed information about each Reserve see Note 16

SUPPLEMENTARY NOTES

48 Supplementary notes

Annual Report(12.31.07)

1. General notes

The Notes to the Consolidated Financial Statements were prepared in accordance with IAS/IFRS and supplementedby the additional information required by CONSOB and the orders it issued in implementation of Article 9 ofLegislative Decree 38/2005 (Resolutions 15519 and 15520 of July 27th, 2006 and memorandum DEM/6064293 of July28th, 2006, pursuant to Article 114(5) of the Consolidated Law on Finance-TUF), Article 78 of the Issuer Regulation,the EC document of November 2003 and, when applicable, the Italian Civil Code. Consistently with the financialstatements for the previous year,certain information is provided in the Report by the Board of Directors on Operations.

The consolidated financial statements at December 31st, 2007 include the balance sheet and profit and loss accountof TOD’S S.p.a. and its Italian and foreign subsidiaries, which are jointly referred to as the TOD’S Group. Theconsolidated financial statements are prepared on the basis of draft Financial Statements at December 31st, 2007(January 1st – December 31st) approved by the respective boards of directors or, if there was no board of directors,by the sole directors.

Because the closing date of its fiscal year does not coincide with the reference date of the consolidated financialstatements,Tod’s India Retail Pte. Ltd was included on the basis of interim financial statements for twelve months,referring to the date of the consolidated financial statements.

The consolidated financial statements were approved by the Board of Directors of TOD’S S.p.a.on March 28th, 2008,and on the same date that body authorized its publication.

2. Financial statement formats: choice of form and classification principles

For presentation of its operating income, assets and liabilities following transition to IFRS, the Group opted in favorof complete continuity of the balance sheet and profit and loss account formats envisaged for disclosures preparedpursuant to Italian GAAP in the presentation of its financial position.These financial statements, complemented asnecessary by the Report of the Board of Directors on Operations and the notes to the financial statements, areconsidered to be those that provide the best organized representation of the Group’s financial position and income.More specifically, the balance sheet format shows current items separately from non-current items (both assets andliabilities). On the profit and loss account, the format of representing revenues and costs by nature is followed,indicating the EBITDA and EBIT results as in the past, since they are considered representative indicators ofcompany’s performance. The “indirect” format is used for the statement of cash flows.

3. Highlights of the accounting principles

The Consolidated Financial Statements were prepared in compliance with IAS/IFRS (International AccountingStandards-IAS, and International Financial Reporting Standards-IFRS), according to the historic cost method, withthe sole exception of derivative financial instruments, which are recognised at their fair value.

i. New principles applicable to the Group from 2007. IFRS 7, “Financial Instruments: Disclosures”, isapplicable from January 1st, 2007. It fully substituted the disclosure envisaged by IAS 30 “Disclosures in the FinancialStatements of Banks and Similar Financial Institutions” and introduced new requirements for improving theinformation on financial instruments provided in company’s financial statements.The provisions of this standard,which the Group adopted in FY 2006 before the mandatory deadline, did not impact measurement andclassification of Group’s financial instruments, but merely expanded the scope of the disclosure in regard to thenature and procedures for hedging credit, liquidity and market risks (i.e. interest rate and exchange rate).



ii. Amendments to existing principles. The amendments to IAS 1, “Presentation of Financial Statements”took effect on January 1st, 2007. These amendments, approved by the EU in January 2006 (EC Regulation n°108-2006)require that the company present a disclosure permitting users of its financial statements to assess its objectives,policies and capital management procedures.

iii. Interpretations of existing principles applicable to the Group from 2007. IFRIC 10,“Interim FinancialReporting and Impairment”, provides information on certain aspects regarding the recognition and reversal on thefinancial statements of impairment losses for goodwill and certain financial assets. In particular, IFRIC 10 envisagesthat if the value of goodwill or a financial asset recognised on an interim financial statement represented by equityinstruments is impaired, this impairment cannot be reversed on subsequent interim or annual financial statementsif the reasons for the impairment cease to exist. Application of this interpretation had no impact on the Group’sfinancial statements.

iv. Interpretations of existing principles applicable to the Group from 2007 and material to Groupoperations. The following interpretations of existing principles, whose application by the Group becamemandatory on January 1st, 2007, are not applied on the Group’s financial statements:• IFRIC 7, which provides information on how to apply the requirements of IAS 29 in a financial year when an

entity recognises the existence of hyperinflation for the first time in the economy of its functional currency.Pursuant to IFRIC 7, the entity must recalculate its book values in accordance with IAS 29 as if the economyhad always been hyperinflationary;

• IFRIC 8, “Scope of IFRS 2”, regarding transactions where an entity makes share-based payments for anamount that is apparently zero or insufficient. In particular, IFRIC 8 specifies that if the value of theidentifiable service appears less than the fair value of the assigned instrument of own capital (or thesustained liability), it is presumed that an additional service has been or will be received;

• IFRIC 9, “Reassessment of Embedded Derivatives”, which clarifies certain aspects of the treatment ofembedded derivatives within the framework of IAS 39: the decision to separate the embedded derivativesfrom the primary contract and to recognise them separately as derivatives must be taken when the companybecomes party to the contract, or at the time of initial recognition.

v. Principles adopted by the Group. On November 2nd, 2006 the IFRIC issued the interpretative documentIFRIC 11, “IFRS 2 – Group and Treasury Share Transactions”.Applicable from the 2008 financial statements, theinterpretation regulates application of IFRS 2 (“Share-based Payments”) on certain types of plans that envisagepayments based on the shares of a group company (e.g. of the parent company) granted to employees of othercompanies in the same group.Accounting treatment of share-based payments for which the company must acquiretreasury stock is also defined. Early adoption of this interpretation by the Group did not entail recognition ofeffects on existing plans.

vi. Standards, changes and interpretations that will come into effect on financial statements afterthose at December 31st, 2007. The following standards were not adopted by the Group in advance:• IFRS 8 – “Operating segments”.This standard fully substitutes IAS 14 “Segment Reporting”, thereby aligning

sector disclosures with the requirements of US GAAP (SFAS 131 “Disclosures about Segments of anEnterprise and Related Information”). Specifically, a method is introduced whereby the segments areidentified according to the same procedures used to prepare internal operating reports for top management.IFRS 8 applies to financial statements for the financial years beginning on or after January 1st, 2009

• IAS 23 “Borrowing Costs”. The new version of this standard removed the option according to whichcompanies can immediately recognise in income those financial expenses that are borne for assets thatnormally require a certain period of time in order to prepare the asset for use or for sale.The standard willbe prospectively applied to the financial expenses associated with capitalised assets starting from January 1st,2009.The principle is applicable from January 1st, 2009.



• IAS 1,“Presentation of Financial Statements”. Applicable from January 1st, 2009, revision of the standard didnot introduce substantial changes in the currently valid version.

• IFRIC 12,“Service Concession Arrangements”.This applies to private sector operators that provide typicalpublic sector services (e.g. roads, airports, electrical and water supplies under concession arrangements).IFRIC 13 applies starting from January 1st, 2008.

• IFRIC 13, “Customer Loyalty Programmes”.The standard addresses companies that offer their customersforms of award credits for purchase of their goods and services as part of the sales transactions. IFRIC 13applies starting from July 1st, 2008.

• IFRIC 14, “The Limit on a Defined Benefit Asset Minimum”.Assets for defined benefit plans and minimumfunding requirements. The interpretation sets out the procedures for determining the threshold amountestablished by IAS 19 for recognition of assets servicing the plans and provides an explanation of theaccounting effects caused by the presence of a minimum plan funding clause.

The Group is currently analysis the applicability of these new principles and any impact on the financial statements.

3.1 Subsidiaries. All entities, including special purpose entities, in which the TOD’S Group can directly orindirectly determine the financial and operating policies of those entities such as to realise benefits from theiractivity are considered subsidiaries.In regard to special purpose entities, while the Group does not formally participate in their risk capital, it doesoperate in China through five commercial ventures (boutiques) that fall in this category and thus satisfy therequirements for consolidation.

Acquisitions of subsidiaries are recognised according to the cost method.The cost of a business combination isrepresented by the aggregate sum, at the acquisition date, of the fair values of the sold assets, the liabilitiesincurred or assumed, and the instruments representing capital issued in exchange for control of the acquiredentity.The identifiable assets, liabilities, and potential liabilities of the acquired entity that satisfy the recognition criteriaenvisaged in IFRS 3 are recognised at their fair value on the date of purchase, with the exception of non-currentassets (or groups available to sale) that are classified as held for sale in accordance with IFRS 5.The portion of the acquisition cost that exceeds the fair value of the acquired net assets is recognised as goodwill.If the acquisition cost is less than the fair value of the net assets of the acquired entity, the difference is recogniseddirectly on the profit and loss account.Subsidiaries are consolidated according to the line-by-line method from the date on which control is transferredto the Group.They are deconsolidated starting on the date when such control ceases.

Intercompany transactions and the profits and losses generated by transactions between consolidated enterprisesare eliminated from both the balance sheet and the profit and loss account.

When necessary, the balance sheets and profit and loss accounts of the subsidiaries are adjusted in order to bringthe applied accounting policies in line with those used by the Group.

3.2 Minority interests. Minority interests in the capital and reserves of the subsidiaries are indicated undershareholders’ equity as “Minority interest”. The minority interest in the acquired business is initially determinedin an amount equal to their share of the fair value of the assets, liabilities, and potential liabilities recorded on thedate of the original acquisition date and subsequently adjusted according to the changes in shareholders’ equity.

3.3 Foreign currency transactionsi. Functional and reporting currency. All accounts recognised on the financial statements of thesubsidiaries are measured by using the currency of the principal economic environment in which the entityoperates (i.e. its functional currency).The Consolidated Financial Statements are stated in Euro (rounded to thenearest thousand), since this is the currency in which most Group’s transactions are executed.



ii. Transactions in foreign currency. The financial statements of the individual Group’s entities are preparedin the functional currency of each individual enterprise.When the individual financial statements are prepared, theforeign currency transactions of Group’s enterprises are translated into the functional currency (currency of theprevalent economic area in which each entity operates) by applying the exchange rate in effect at the date of thetransaction. Monetary assets and liabilities denominated in foreign currencies at the date of the financialstatements are translated by using the exchange rate in effect at the closing date. Non-monetary assets andliabilities are valued at their historic cost in foreign currency and translated by using the exchange rate in effect atthe transaction date.The foreign exchange differences arising upon settlement of these transactions or translation of cash assets andliabilities are recognized on the profit and loss account, with the exception of those deriving from derivativefinancial instruments qualified as hedging of financial flows. In fact, these differences are recognized as a separatecomponent of shareholders’ equity or on the profit and loss account.

iii. Presentation of financial statements drafted in foreign currency. In order to present the financialstatements of consolidated entities that are expressed in a functional currency different from the consolidationcurrency, the balance sheet items are translated using the exchange rates in effect at the end of the period, whileitems on the profit and loss account are translated using the average exchange rate for the period.The differencebetween the result for the period resulting from translation at the average exchange rates and the result oftranslation at the end of period rates, on the one hand, and the impact on assets and liabilities of changes in theexchange rate relationships between the beginning and end of the period,on the other hand, are recognized undershareholders’ equity in a special “Translation reserve”.The translation differences recognized under shareholders’ equity are transferred to the profit and loss accountat the time of disposal or liquidation of the controlled entity.The rates applied to translation, compared with those used in the previous year, are indicated in the following table:

Year 2007 Year 2006Exch. rates as Average Exch. rates as Average

Base of year end exch. rate of year end exch. rate

U.S. dollar 1 0.679 0.731 0.759 0.797

UK pound sterling 1 1.364 1.462 1.489 1.467

Swiss franc 1 0.604 0.609 0.622 0.636

Hong Kong dollar 100 8.7108 9.365 9.765 10.261

Japanese yen 100 0.606 0.621 0.637 0,685

Hungarian forint 1,000 3.941 3.979 3.972 3.791

Singapor dollar 1 0.473 0.485 0.495 0.502

Korean WON 10,000 7.2571 7.8618 8.165 8.349

Macao Pataca 100 8.474 9.092

Chinese Renminbi 100 9.3002 9.603

Indian Rupia 100 1.724 1.768

3.4 Deriviative financial instruments. The TOD’S Group uses derivate financial instruments (mainlycurrency futures contracts) to hedge the risks stemming from foreign exchange exposure deriving from itsoperating activity, without any speculative or trading purposes, and consistently with the strategic policies ofcentralized cash management dictated by the Board of Directors.When derivative transactions refer to a risk connected with the variability of forecast transaction cash flow, theyare recognized according to the rules for cash flow hedge until the transaction is recorded on the books.Subsequently, the derivatives are treated in accordance with fair value hedge rules, insofar as they can be qualifiedas instruments for hedging changes in the value of assets or liabilities carried on the balance sheet.



The hedge accounting method is used at every financial statement closing date.This method envisages postingderivatives on the balance sheet at their fair value. Posting of the changes in fair value varies according to the typeof hedging at the valuation date:• for derivatives that hedge forecast transactions (i.e. cash flow hedge), the changes are recognized in

shareholders’ equity, while the portion for the ineffective amount is recognized on the profit and lossaccount, under financial income and expenses;

• for derivatives that hedge receivables and payables recognized on the balance sheet (i.e. fair value hedge), thefair value differences are recognized entirely on the profit and loss account, adjusting operating margins.Furthermore, the value of the hedged item (receivables/payables) is adjusted for the change in valueattributable to the hedged risk, using the item financial income and expenses as a contra-entry.

3.5 Intangible fixed assetsi. Goodwill. All business combinations are recognized by applying the acquisition method. Goodwillrepresents the portion of the cost paid for the acquisition that exceeds the Group’s interest in the fair value ofthe assets, liabilities, and identifiable potential liabilities of the subsidiary or jointly controlled entity at theacquisition date.If the Group’s interest in the fair value of assets, liabilities, and identifiable potential liabilities exceeds the cost ofthe acquisition (negative goodwill) after redetermination of these values, the excess is immediately recognized onthe profit and loss account.

For acquisitions prior to January 1st, 2004, the date of transition to IAS/IFRS, goodwill retained the valuesrecognized on the basis of the previous Italian GAAP, net of accumulated amortization up to the transition date.Goodwill is recognized on the financial statements at its cost adjusted for impairment losses. It is not subjectto amortization, but the adequacy of the values is annually subjected to the impairment test, in accordancewith the rules set forth in the section Impairment losses.

ii. Trademarks. These are recognized according to the value of their cost and/or acquisition, net ofaccumulated amortization at the date of transition to IAS/IFRS.TOD’S,HOGAN and FAY trademarks are classifiedas intangible fixed assets with an indefinite useful life and thus are not amortized, insofar as:• they play a primary role in Group’s strategy and are an essential driver thereof;• the corporate structure, construed as organized property, plant, and equipment, and organization itself in a

figurative sense, is closely correlated with and dependent on dissemination and development of thetrademarks on the markets;

• the trademarks are proprietary, properly registered, and constantly protected pursuant to law, with optionsfor renewal of legal protection, upon expiration of the registration periods, that are not burdensome, easilyimplemented, and without external impediments;

• the products sold by the Group with these trademarks are not subject to particular technologicalobsolescence, which is characteristic of the luxury market in which the Group operates; on the contrary,they are consistently perceived by the market as being innovative and trendy, to the point of being modelsfor imitation or inspiration;

• in the national and/or international context characteristic of each trademark, they are distinguished bymarket positioning and notoriety that ensures their dominance of the respective market segments, beingconstantly associated and compared with benchmark brands;

• in the relative competitive context, it can be affirmed that the investments made for maintenance of thetrademarks are proportionately modest with respect to the large forecast cash flows.

The adequacy of the values is annually subjected to the impairment test, in accordance with the rules set forth inthe section Impairment losses.



iii. Research and development costs. The research costs for a project are charged fully to the profit and lossaccount of the period in which they are incurred.The development costs of an activity are instead capitalized if the technical and commercial feasibility of therelative activity and economic return on the investment are certain and definite, and the Group has the intentionand resources necessary to complete the development.

The capitalized costs include the costs for materials, labor, and an adequate portion of overhead costs.They arerecognized at cost, net of accumulated amortization and depreciation (see below) and impairment losses.

iv. Other intangible fixed assets. These are identifiable non-monetary intangible assets under the control ofthe company and capable of causing the Group to realize future economic benefits.They are initially recognized at their purchase cost, including expenses that are directly attributable to them duringpreparation of the asset for its intended purpose or production, if the conditions for capitalization of expensesincurred for internally generated expenses are satisfied.The cost method is used for determining the value reported on subsequent statements, which entails posting theasset at its cost net of accumulated amortization and writedowns for impairment losses.

v. Subsequent capitalization. The costs incurred for these intangible fixed assets after purchase arecapitalized only to the extent that they increase the future economic benefits of the specific asset they refer to.All the other costs are charged to the profit and loss account in the fiscal year in which they are incurred.

vi. Amortization. Intangible fixed assets (excluding those with an indefinite useful life) are amortized on astraight-line basis over the period of their estimated useful life, starting from the time the assets are available for use.

3.6 Tangible assets i. Property, plant, and equipment owned by the company. They are first recognized at their purchase cost orat the cost recalculated at the date of transition to IFRS, including any directly attributable ancillary expenses.Following first-time recognition, these assets are reported net of their accumulated depreciation and impairment losses(i.e. in accordance with the cost model).For those assets whose depreciation must be calculated using the component approach, the portions of cost allocableto the individual significant components characterized by a different useful life are determined. In this case, the value ofland and buildings is kept separate,with only buildings being depreciated.

ii. Leasing. Lease agreements in which the Group assumes all the risks and benefits deriving from ownershipof the asset are classified as finance leasing.The assets (real estate, plant, and machinery) possessed pursuant tothese agreements are recorded under property, plant, and equipment at the lesser of their fair value on the datethe agreement was made, and the current value of the minimum payments owed for leasing, net of accumulateddepreciation and any impairment losses (according to the rules described in the section Impairment losses). Afinancial payable for the same amount is recognized instead under liabilities, while the component of interestexpenses for finance leasing payments is reported on the profit and loss account according to the effectiveinterest method.

iii. Subsequent capitalizations. The costs incurred for property, plant, and equipment after purchase arecapitalized only to the extent that they increase the future economic benefits of the asset.All the other costs arecharged to the profit and loss account in the fiscal year in which they are incurred.

iv. Real estate investments. Real estate investments are originally recognized at cost, and then recognized attheir cost as adjusted for accumulated depreciation and impairment losses.Depreciation is calculated on a systematic, straight-line basis according to the estimated useful life of the buildings.



v. Depreciation. Property, plant and equipment were systematically depreciated at a steady rate according tothe depreciation schedules defined on the basis of their estimated useful life. Land is not depreciated.The principaldepreciation rates applied are as follows:

% depreciation

Industrial buildings 3%

Machinery and plant 12.5%

Sundry equipment 25%

Forms and punches, clichés, molds and stamp 25%

Furniture and furnishings 12%

Office machines 20%

Cars and transport vehicles 20%-25%

The costs for leasehold improvements, which mainly include the costs incurred for set up and modernization ofthe DOS network and all the other real estate that is not owned but used by the Group (and thus instrumentalto its activity) are depreciated according to the term of the lease agreement or the useful life of the asset, if thisis shorter.

3.7 Impairment losses. In the presence of indicators, events, or changes in circumstances that presume theexistence of impairment losses, IAS 36 envisages subjecting intangible fixed assets and property, plant and equipmentto the impairment test in order to assure that assets with a value higher than the recoverable value are notrecognized on the financial statements.This test is performed at least once annually for non-current assets with anindefinite life in the same way as that used for non-current assets that have not yet been placed in service.Confirmation of the recoverability of the values recognized on the balance sheet is obtained by comparing the bookvalue at the reference date and the fair value net of sale costs (if available) or usage value.The usage value of a tangibleor intangible fixed asset is determined according to the estimated future financial flows expected from the asset, asactualized through use of a discount rate net of taxes, which reflects the current market value of the current valueof the cash and risks related to the Group’s activity, as well as the cash flows deriving from disposal of the asset atthe end of its useful life.If it is not possible to estimate an independent financial flow for an individual asset, the cash generating unit to whichthe asset belongs and with which it is possible to associate future cash flows that can be objectively determined andindependent from those generated by other operating units is identified. Identification of the cash generating unitswas carried out consistently with the organizational and operating architecture of the Group.If the impairment test reveals an impairment loss for an asset, its book value is reduced to the recoverable value byposting a charge on the profit and loss account,unless the asset is revalued. In that case, the writedown is recognizedin the revaluation reserve.When the reasons for a writedown cease to exist, the book value of the asset (or the cash generating unit),with theexception of goodwill, is increased to the new value resulting from the estimate of its recoverable value, but notbeyond the net book value that the asset would have had if the impairment loss had not been charged.The restoredvalue is recognized immediately on the profit and loss account, unless the asset is revalued, in which case therestored value is recognized in the revaluation reserve.

3.8 Current assetsi. Financial assets. These are recognized and cancelled on the balance sheet according to the trading date andare initially valued at cost, including costs directly connected with the purchase.At the subsequent financial statement dates, the financial assets that the Group intends and is able to hold untilmaturity (securities held until maturity) are recognized at the cost amortized according to the effective interestmethod, net of impairment losses.



Financial assets other than those held until maturity are classified as held for trading or available for sale, and arerecognized at their fair value at the end of each period.When the financial assets are held for trading, the profitsand losses deriving from changes in the fair value are recognized on the profit and loss account for the period. Inthe case of financial assets available for sale, the profits and losses deriving from changes in the fair value arerecognized directly in shareholders’ equity until they are sold or have sustained a loss in value.At that time, theaggregate profits or losses that were previously recognized in shareholders’ equity are recognized on the profitand loss account of the period.

ii. Inventories. These are recognized at the lower of purchase cost and their assumed disposal value.The netdisposal value represents the best estimate of the net sales price that can be realized through ordinary businessprocesses, net of any production costs not yet incurred and direct sales costs.The cost of inventories is based on the weighted average cost method.The production cost is determined byincluding all costs that are directly allocable to the products, regarding – for work in progress and/or semi-finishedproducts – the specific stage of the process that has been reached.The values that are thus obtained do not differappreciably from the current production costs referring to the same classes of assets.

A special depreciation reserve is set aside for the portion of inventories that are no longer considered economicallyuseable, or with a presumed disposal value that is less than the cost recognized on the financial statements.

iii. Trade receivables and other receivables. These are valued and recognized on a prudent basis accordingto their presumed disposal value, by means of adjusting the face value with a specific allowance for doubtfulaccounts determined as follows:• receivables under litigation, with certain and precise evidence documenting the impossibility of collecting

them, have been analytically identified and then written down;• for other bad debts, prudent allowances for writedowns have been set aside, estimated on the basis of

information updated at the date of this document.

iv. Cash. This includes cash on hand, bank demand deposits, and financial investments with a maturity of nomore than three months.These assets are highly liquid, easily convertible into cash, and subject to a negligible riskof change in value.

v. Assets held for sale. Non-current assets are classified as held for sale when their carrying value will berecovered through disposal rather than through continuous use thereof.They are not amortised or depreciatedand are recognised at the lesser of their carrying and fair value, net of sales costs.

3.9 Benefits for employeesi. Defined contribution plans. The payments for eventual defined contribution plans are charged to theprofit and loss account in the period that they are owed.

ii. Defined benefit plans. For defined benefit plans, the cost of the provided benefits is determined by usingthe projected unit credit method, carrying out actuarial valuations at the end of every fiscal year.The accumulatedactuarial profits and losses not recognized at the beginning of the fiscal year are recognized only to the extent thatthey exceed 10% of the greater between the current volume of defined benefit plan liabilities of the Group andthe fair value of the assets of the program at that date.The cost of past work services is recognized immediatelyin the amount in which the benefits have already accrued or is otherwise amortized at a constant rate by theaverage period in which it is expected that the benefits will accrue.



The liabilities for benefits paid out after termination of the employment relationship reported on the financialstatements represent the current value of liabilities for defined benefit plans adjusted to take into account theactuarial profits and losses that were not recognized and the costs for past work services that were notrecognized, and reduced by the fair value of the program assets.Any net assets resulting from this calculation arelimited to the value of the unreported actuarial losses and the cost for the past work services that were notrecognized, plus the current value of any reimbursements and reductions in the future contributions to the plan.

iii. Share based payments. The payments based on shares are assessed at their fair value on the assignmentdate. This value is recognized on the profit and loss account on a straight-line basis throughout the period ofaccrual of the rights.This allocation is made on the basis of a management estimate of the stock options that willactually accrue in favor of vested employees, considering the conditions for use thereof not based on theirmarket value.The fair value is determined by using the binomial method.The useful life utilized in the model has been adjustedaccording to an estimate by management in order to take into account the effects of non-transferability of theoptions, restrictions on exercise thereof, and the assumed behavior of individuals.

3.10 Payablesi. Bank overdrafts and financing. Interest-bearing financing and bank overdrafts are recognized on the basisof the amounts collected, net of transaction costs, and subsequently valued at the amortized cost, using theeffective interest method..

ii. Trade payables and other payables. These are their face value

3.11 Recognition of revenues. Revenues are recognized on the profit and loss account when the significantrisks and benefits connected with ownership of the transferred assets are transferred to the buyer. In referenceto the principal types realized by the Group, revenues are recognized on the basis of the following principles:i. Sales of goods – retail. The Group operates in the retail channel through its DOS network. Revenues arerecognised when the goods are delivered to customers. Sales are usually collected in the form of cash or throughcredit cards.ii. Sales of goods – wholesale. The Group distributes products on the wholesale market.These revenues arerecognised when the goods are shipped.iii. Provision of services. This income is recognised in proportion to the percentage of completion for theservice provided on the reference date.iv. Royalties. These are recognised on the financial statements according to the principle of period allocation.

3.12 Financial income and expenses. These include all financial items recognized on the profit and lossaccount for the period, including interest expenses accrued on financial payables calculated by using the effectiveinterest method (mainly current account overdrafts, medium-long term financing), foreign exchange gains andlosses, gains and losses on derivative financial instruments (according to the previously defined accountingprinciples), received dividends, the portion of interest expenses deriving from accounting treatment of assets heldunder finance leasing (IAS 17) and employee reserves (IAS 19).Interest income and expenses are recognized on the profit and loss account for the period in which they arerealized/incurred, with the exception of capitalized expenses.Dividend income contributes to the result for the period in which the Group accrues the right to receivethe payment.



3.13 Income taxes. The income taxes for the period include determination both of current taxes and deferredtaxes.They are recognized entirely on the profit and loss account and included in the result for the period,unless theyare generated by transactions recognized directly to shareholders’ equity during the current or another period. Inthis case, the relative deferred tax liabilities are also recognized under shareholders’ equity.

Current taxes on taxable income for the period represent the tax burden determined by using the tax rates in effectat the reference date, and any adjustments to the tax payables calculated during previous periods.

Deferred tax liabilities refer to the temporary differences between the book values of assets and liabilities on thebalance sheets of consolidated companies and the associated values relevant for determination of taxable income.The tax liability of all temporary taxable differences, with the exception of liabilities deriving from initial recognitionof an asset or liability in a transaction other than a business combination that, at the time of the transaction, doesnot influence either the income (loss) reported on the financial statements or taxable income (tax loss).

Deferred tax assets that derive from temporary deductible differences are recognized on the financial statementsonly to the extent that it is likely taxable income will be realized for which the temporary deductible difference canbe used. No allocation is envisaged if the deferred tax asset derives from business combinations, or from the initialposting of an asset or liability in a transaction other than a business combination that, at the time of the transaction,does not influence either the income (loss) reported on the financial statements or taxable income (tax loss).The tax benefits resulting from tax losses are recognized on the financial statements of the period in which thebenefits accrued, if it is likely that taxable income will be realized and for which the tax loss can be used.The taxes in question (deferred tax assets and liabilities) are determined on the basis of a forecast of the assumedpercentage weight of the taxes on the income of the fiscal years in which the taxes will occur, taking into account thespecific nature of taxability and deductibility.The effect of change in tax rates is recognized on the profit and lossaccount of the fiscal year in which this change takes place.

3.14 Provisions. These are certain or probable liabilities that have not been determined at the date theyoccurred and in the amount of the economic resources to be used for fulfilling the obligation, but which cannonetheless be reliably estimated.They are recognized on the balance sheet in the event of an existing obligationresulting from a past event, and it is likely that the Group will be asked to satisfy the obligation.If the effect is significant, and the date of the presumed discharge of the obligation can be estimated with sufficientreliability, the provisions are recognized on the balance sheet by actualizing future financial flows.

The provisions that can be reasonably expected to be discharged twelve months after the reference date areclassified on the financial statements under non-current liabilities. Instead, the provisions for which the use ofresources capable of generating economic benefits is expected to take place in less than twelve months after thereference date are recognized as current liabilities.

3.15 Share capitali. Share capital. The total value of shares issued by the parent company is recognized entirely undershareholders’ equity, as they are the instruments representing its capital.

ii. Treasury stock. The consideration paid for buy-back of share capital (treasury stock), including theexpenses directly related to the transaction, is subtracted from shareholders’ equity. In particular, the par valueof the shares reduces the share capital, while the excess value is recognized as an adjustment to additionalpaid-in capital.



iii. Dividends. The allocation of dividends to persons possessing instruments representing share capital afterthe reference date of the financial statement is not recognized under financial liabilities on the same reference date.

3.16 Statement of cash flows.The statement of cash flows is drafted using the indirect method.The net financialflows of operating activity are determined by adjusting the result for the period of the effects deriving from changeto net operating working capital, non-monetary items, and all the other effects connected with investment andfinancing activities.Cash at the beginning and end of the period represents the net-short-term financial position of the Group.

4. Dividends

The Shareholders’ Meeting of TOD’S S.p.a. held on April 27th, 2007 resolved to distribute Euro 38.002.350 toshareholders, equal to Euro 1.25 for each of the 30,401,880 shares comprising the share capital at the paymentdate.The dividend was paid to all shareholders entered on the Register of Shareholders at the ex-coupon date.The Board of Directors of the parent company has submitted a motion for payment of a dividend of Euro 1.25(one) per share for fiscal 2007.This dividend is subject to approval by the annual Shareholders’ Meeting and wasnot included in the liabilities reported in these financial statements.The dividend proposed for 2007,which would total Euro 38,101,150, is payable to all shareholders entered on theRegister of Shareholders at the ex-coupon date.

5. Earnings per share

The calculation of base and diluted earnings per share is based on the following:

i. Reference Profit

For continuing operations (in Euro 000’s) Year 07 Year 06

Profit used to determine basic earning per share 77,332 66,112

Dilution effects

Profit used to determine diluted earning per share 77,332 66,112

For continuing and discontinued operations (in Euro 000’s) Year 07 Year 06

Profit attributable to equity holders of the Company 77,332 66,112

Income (loss) from discontinued operations

Profit used to determine basic earning per share 77,332 66,112Dilution effects


In both fiscal 2007 and 2006, there were no dilutions of net consolidated earnings, partly as a result of activitiesthat were discontinued during the periods in question.

ii. Reference number of shares

Year 07 Year 06

Weighted average number of shares to determine basic earning per share 30,442,913 30,324,296

Share options 1,334,139 1,479,634

Weighted average number of shares to determine diluted earning per share 31,777,051 31,803,930



The options assigned pursuant to the Stock Options Plan represent the only ordinary shares with dilution effect(Note 23).

iii. Base earnings per share. Calculation of the base earning per share for fiscal 2007 is based on the netconsolidated income allocable to holders of ordinary shares of the parent company TOD’S S.p.a., totaling Euro77,332 thousand (66.112 thousand in 2006), and on an average number of ordinary shares outstanding during thesame period totaling 30,442,913 (30,324,296 in fiscal 2006).There were no dilution effects on calculation of thebase earnings in either 2007 or 2006.

iv. Diluted earnings per share. Calculation of the diluted earning per share for fiscal 2007 is based on the netconsolidated income allocable to holders of ordinary shares of the parent company TOD’S S.p.a., totaling Euro77,332 thousand (66.112 thousand in 2006), and on an average number of potential ordinary shares outstandingduring the same period totaling 31.777.051 (31,803,930 in fiscal 2006).

6. Segment reporting

In order to provide information of the balance sheet, profit and loss account, and financial position by sector, theGroup has chosen a regional breakdown as the primary reporting format for illustrating sector figures. Thisrepresentation stems from the consideration that the risks and benefits of the Group, at the current stage in thedevelopment process, are significantly influenced by the regions where it operates. The regions identified forpresentation are as follows:• Italy• Europe• North America• Rest of WorldIn the secondary reporting format, for sectors of activity, the information is illustrated according to distributionchannel, identified as follows:• wholesale distribution• direct distribution through DOS

6.1 Primary reporting format – results by geographical segments

Year 2007 North Rest of Not(In Euro mn) Italy Europe America World localized Total

Revenues 333.5 160.8 66.3 96.5 657.1

Inter-segment sales

Operating costs (182.8) (102.1) (61.7) (67.0) (117.0) (530.6)

Operating result (EBIT) 150.7 58.7 4.6 29.5 (117.0) 126.5 Financial income charges 0.1

Income before taxes 126.6 Income taxes (47.9)

Consolidated net income 78.7




Revenues 279.5 145.4 60.0 88.1 573.0

Inter-segment sales

Operating costs (157.0) (96.4) (52.6) (56.9) (96.4) (459.3)

Operating result (EBIT) 122.5 49.0 7.4 31.2 (96.4 ) 113.7 Financial income charges (0.5)

Income before taxes 113.2 Income taxes (46.4)

Consolidated net income 66.8

6.2 Primary reporting format – assets and liabilities by geographical segments


Assets 306.8 136.9 63.6 87.6 170.1 765.0

Investments on equity - - - - - -

Total assets 306.8 136.9 63.6 87.6 170.1 765.0 Liabilities (*) 54.2 20.6 8.9 15.1 99.4 198.2

Other information Gross investments in tangible and intangible assets 23.6 2.2 2.7 5.8 10.9 45.2

Amortisation and deprec. 9.9 4.8 3.9 3.0 4.4 26.0

No cash items others 0.4 0.4

(*) excluding Shareholders’ equity


Assets 266.1 124.2 58.2 75.2 187.3 711.0

Investments on equity - - - - - -

Total assets 266.1 124.2 58.2 75.2 187.3 711.0Liabilities (*) 41.0 19.6 9.4 11.5 106.6 188.1

Other information Gross investments in tangible and intangible assets 5.6 4.2 8.5 3.0 9.2 30.5

Amortisation and deprec. 10.3 4.1 2.9 2.3 3.7 23.3

No cash items others - - - - - -

(*) excluding Shareholders’ equity



6.3 Secondary reporting format – business segment

Sales revenues (In Euro 000’s) Year 07 % Year 06 % Change %

DOS 318,091 48.4 283,212 49.4 34,879 12.3

Wholesale 338,998 51.6 289,801 50.6 49,197 17.0

Total 657,089 100.0 573,013 100.0 84,076 14.7

Year 2007 – Other information Third Not(In Euro mn) parties DOS localized Total

Assets 288.4 306.4 170.2 765.0

Gross investments in tangibleand intangible assets 4.9 29.4 10.9 45.2

Year 2006 – Other information Third Not(In Euro mn) parties DOS localized Total

Assets 251.4 272.3 187.3 711.0

Gross investments in tangibleand intangible assets 7.5 13.8 9.2 30.5

7. Assets held for sale

In 2007, the Group permanently ceased production operations at its San Marino plant (owned by the subsidiarySan.Del. SA), where certain residual phases of the shoemaking process were carried out. Following expansion ofthe production capacity of Group’s plants in the Marche, and considering the high levels of efficiency they havereached, it was decided to concentrate all production at these plants.The assets and liabilities that are available for sale were already classified on the 2006 balance sheet as “disposalgroups held for sale”, and were separately recognised on the balance sheet.The residual value of the classes ofassets and liabilities at December 31st, 2007 is summarised as follows:

(In Euro 000’s) 12.31.07

Consolidation differences 147

Buildings 840

Other 34

Total assets 1,021Financial leasing (15)

Net assets 1,006

On the other hand, the expenses allocable to the period were insignificant (depreciation and amortisation for atotal of 60 thousand euros).At the same time as disposal of production activities, a local producer was granted an option for purchase of theplant (building).That option was exercised by the contractual deadline at the beginning of 2008.The agreed saleprice is 2.3 million euros. No expenses were charged to the Group for the disposal overall.



8. Assets with indefinite useful life

The changes in assets with an indefinite useful life that occurred in 2007 are shown in the following table:

Consolid.(In Euro 000’s) Trademarks Goodwill differ. Total

Balance as of 01.01.06 136,060 9,689 2,182 147,931Translation differences

Increases 330 330

Decreases

Other changes

Impairment losses

Balance as of 12.31.06 136,390 9,689 2,182 148,261Assets held for sale (Note 7) (147) (147)

Balance as of 01.01.07 136,390 9,689 2,035 148,114Translation differences

Increases 847 847

Decreases

Other changes

Impairment losses (Note 11)

Balance as of 12.31.07 137,237 9,689 2,035 148,961Assets held for sale (Note 7)

Balance as of 12.31.07 137,237 9,689 2,035 148,961

Trademarks. This item includes the values of the three proprietary brands of the Group (TOD’S, HOGAN andFAY).The changes during the period consist of permanent charges incurred for protection and dissemination ofthe brands.The residual value is distributed amongst the different trademarks as follows:

(In Euro 000’s) 12.31.07 12.31.06

TOD’S 3,742 3,246

HOGAN 80,310 80,088

FAY 53,185 53,056

Total 137,237 136,390

Goodwill and consolidation differences. These accounts reflect the differences between the amount paid toacquire the equity investments in subsidiaries, associated companies, and joint ventures, which is eliminated, andthe corresponding interest in the shareholders’ equity of the entities at the acquisition date.



9. Assets with definite useful life

The following table details the movements of these assets in the current and previous fiscal year:

Other intangible assetsOther Other

(In Euro 000’s) Goodwill trademarks Software assets Total

Balance as of 01.01.06 30,564 170 1,484 1,049 2,703Translation differences

Increases 150 3,001 306 3,307

Decreases (19) (19)

Impairment losses

Other changes 5 580 (600) (20)

Amortization for the period (3,751) (43) (825) (122) (990)

Balance as of 01.01.07 26,968 127 4,221 633 4,981Translation differences (43)

Increases 16,250 5,156 1,262 6,418

Decreases (25) (49) (74)

Impairment losses (Note 11)

Other changes 214

Amortization for the period (3,265) (43) (1,683) (148) (1,874)

Balance as of 12.31.07 40,124 84 7,669 1,698 9,451

Goodwill represents the amounts paid for this purpose by the Group to take over certain leases of commercialspaces where some DOS operate (key money).



10. Property, plant and equipment

At December 31st, 2007 the net residual value of Group property, plant and equipment was 100.7 million euros (FY2006: 102.7 million euros).The following table illustrates the changes in the current and previous reference period.

Land plantand and Leasehold

(In Euro 000’s) buildings machinery Equip. improve. Others Total

Balance as of 01.01.06 39,876 9,436 8,911 27,322 12,988 98,533Translation differences (10) (25) (1,287) (286) (1,608)

Increases 3,997 605 5,299 10,877 6,661 27,439

Decreases (5) (395) (387) (1,261) (2,048)

Impairment losses

Other changes

Amortization for the period (1,263) (2,002) (4,015) (7,268) (4,092) (18,640)

Balance as of 12.31.06 42,600 8,034 9,775 29,257 14,010 103,676Assets held for sale (Note 7) (896) (38) (934)

Balance as of 01.01.07 41,704 8,034 9,775 29,219 14,010 102,742Translation differences (1) (33) (1,627) (242) (1,903)

Increases 863 1,165 7,098 5,681 6,872 21,679

Decreases (20) (388) (310) (308) (1,026)

Impairment losses (Note 11) (3) (398) (24) (425)

Other changes

Amortization for the period (1,284) (1,995) (4,688) (8,156) (4,296) (20,419)

Balance as of 12.31.07 41,282 7,184 11,761 24,409 16,012 100,648Assets held for sale (Note 7) 56 4 60

Balance as of 12.31.07 41,338 7,184 11,761 24,413 16,012 100,708

Property includes the value of the building that houses the parent company’s headquarters, acquired under afinance lease whose contractual obligations were extinguished in the previous financial year, with formalredemption of the asset.The residual value of the building at the reporting date is as follows:

(In Euro 000’s) 12.31.07 12.31.06

Historic cost 21,610 20,993

Accumulated depreciation (5,414) (4,761)

Net Value 16,196 16,232

11. Impairment losses

The possibility of recovering the residual value of indefinite and definite useful life assets, as well as property, plantand equipment, is measured annually at the reporting date, or whenever there is an indication that the asset maybe impaired, in order to assure that assets are not recognized on the balance sheet at a value exceeding itsrecoverable amount (measurement of value in use). The recoverable value consists of the current value ofexpected future cash flows discounted by a net income tax rate reflecting current market values of borrowingcosts and the specific risk connected with the individual cash generating unit.The tests carried out at the reporting date did not reveal any indicators of impairment, with the exception of twocash generating units (DOS), whose assets were written down (0.4 million euros).



12. Investment property

The residual value of the property owned by the Group as a real estate investment and leased to third parties is56 thousand euros. No changes in the fair value of this investment, about 250 thousand euros, have beenrecognised since this previous financial year.This estimate is based on the market prices for similar properties interms of location and condition.

(In Euro 000’s)

Historic cost 115

Accumulated depreciation (55)

Balance as of 01.01.07 60Increases

Decreases

Depreciation for the period (4)

Balance as of 12.31.07 56

13. Equity investments

The following list illustrates the entire scope of consolidation at December 31st, 2007

Parent company

TOD’S S.p.a.S.Elpidio a Mare - ItalyShare capital (C.S.) - Euro 60,961,840

Direct subsidiaries

TOD’S Deutsch. Gmbh TOD’S France Sas An.Del. USA Inc. TOD’S Internat. BVDusseldorf - Germany Paris - France New York - U.S.A Amsterdam – NetherlandsC.S. - Euro 153,387.56 C.S. - Euro 780,000 C.S. - Usd 3,700,000 C.S. - Euro 2,600,200% held: 100% % held: 100% % held: 100% % held: 100%

Del.Com S.r.l.S.Elpidio a Mare - ItalyC.S. - Euro 31,200% held: 100%

Indirect subsidiaries

Cal.Del. USA Inc. Colo.Del. USA Inc. Deva Inc. Flor.Del. USA Inc.Beverly Hills, Ca - U.S.A. Denver, Co - U.S.A. Wilmington, DE – U.S.A. Tallahassee, Fl - U.S.A.C.S. - Usd 10,000 C.S. - Usd 10,000 C.S. - Usd 500,000 C.S. - Usd 10,000% held: 100% % held: 100% % held: 100% % held: 100%

Hono.Del. Inc. Il.Del. USA Inc. Neva.Del. Inc. Or.Del. USA Inc.Honolulu, Hi - U.S.A. Springfield, Il - U.S.A. Carson City, Nv - U.S.A. Sacramento, Ca - U.S.A.C.S. - Usd 10,000 C.S. - Usd 10,000 C.S. - Usd 10,000 C.S. - Usd 10,000% held: 100% % held: 100% % held: 100% % held: 100%Società controllate indirette

Gen.Del SA Sandel SA TOD’S Belgique S.p.r.l. TOD’S Espana SLGinevra - Switzerland San Marino Bruxelles - Belgium Madrid – SpainC.S. - Chf 200,000 C.S. - Euro 258,000 C.S. - Euro 300,000 C.S. - Euro 468,539.77% held: 100% % held: 100% % held: 100% % held: 100%

to be continued



to be continued

Indirect subsidiaries

TOD’S Hong Kong Ltd TOD’S Japan KK TOD’S Saint Barth Sas TOD’S Singapore Pte Ltd Hong Kong Tokio - Giappone Saint Barthélemy SingaporeC.S. - Usd 50,000 C.S. - Jpy 100,000,000 C.S. - Euro 500,000 C.S. - Sgd 300,000% held: 100% % held: 100% % held: 100% % held: 100%

Un.Del Kft TOD’S UK Ltd Webcover Ltd TOD’S Luxembourg SATata - Hungary London - Great Britain London - Great Britain LuxembourgC.S. - Huf 42,900,,000 C.S. - Gbp 350,000 C.S. - Gbp 1,000 C.S. - Euro 31,000% held: 100% % held: 100% % held: 50% % held: 50%

TOD’S Korea Inc. TOD’S Macao Ltd TOD’S (Shanghai) TOD’S India RetailRetail Pte Ltd Tr.Co Ltd Pte LtdSeoul - Korea Macao Shanghai – Cina Mumbai - IndiaC.S. - Won 100,000,000 C.S. – MOP 850,000 C.S. – USD 6,000,000 C.S. – INR 113,900,000% held: 100% % held: 100% % held: 100% % held: 51%

Deva Mode S.r.l. Spiga 22 S.r.l. Via Roma 40 S.r.l. Filangieri 29 S.r.l.S.Elpidio a Mare – Italy S.Elpidio a Mare - Italy S.Elpidio a Mare - Italy Napoli - ItalyC.S. - Euro 50,000 C.S. - Euro 50,000 C.S. - Euro 50,000 C.S. - Euro 100,000% held: 100% % held: 100% % held: 100% % held: 50%

Del.Pav. S.r.l. Re.Se.Del. S.r.l.S.Elpidio a Mare- Italy S.Elpidio a Mare- Italy C.S. - Euro 50,000 C.S. - Euro 25,000% held: 50% % held: 50%

Special Purpose Entities

DOS Shanghai DOS Pechino DOS Hangzhou DOS Chengdu

It is assumed that the Group controls those companies in which it does not own more than 50% of the capital,and thus disposes of the same percentage of voting power at the Shareholders’ Meeting,where the Group has thepower to exercise direct or indirect control of those companies’ financial and operating policies in view ofrealizing benefits from their activities.The special purpose entities have been temporarily excluded from the scope of consolidation due to theirinsignificant dimensions and irrelevance to operations.

14. Inventories

They totalled Euro 218.7 million at December 31st, 2007, and include:

(In Euro 000’s) 12.31.07 12.31.06 Change

Raw materials 43,737 36,162 7,575

Semi-finished products 20,859 15,391 5,468

Finished products 156,461 133,183 23,278

Advances 1 17 (16)

Writedown (2,327) (1,097) (1,230)

Total 218,731 183,656 35,075



The accrued writedowns reflect technical and stylistic obsolescence of certain Group’s inventories at December31st, 2007.The entire writedown recognised at December 31st, 2006 was carried forward into 2007.

15. Other current assets

15.1 Trade receivables

(In Euro 000’s) 12.31.07 12.31.06 Change

Trade receivable 111,205 87,825 23,380

Impairment losses (2,795) (2,497) (298)

Net trade receivables 108,410 85,328 23,082

The trade receivables refer principally to the Group’s wholesale business.The recognised writedown representsthe best estimate of the impairment loss determined for the risk of bad debts, both specific and generic, associatedwith the receivables recognised on the balance sheet.The writedown charged to the profit and loss account forfiscal 2007 totalled Euro 385 thousand euros (including 300 thousand euros for year-end impairment).The changes in the reserve for impairment losses are illustrated as follows:

(In Euro 000’s)

Balance as of 01.01.07 2,497Increases 385

Used during year (87)

Balance as of 12.31.07 2,795

15.2 Tax receivables. These total 2,670 thousand euros (FY 2006: 5,815 thousand euros) and are mainlycomprised of receivables for Value Added Tax claimed by the Group from the tax authorities of the countrieswhere it operates.

15.3 Other current assets

(In Euro 000’s) 12.31.07 12.31.06 Change

Deferred costs 10,992 9,391 1,601

Others 7,679 8,869 (1,190)

Total other current assets 18,671 18,260 411

The amount is net of a writedown of 285 thousand euros.

16. Shareholders’ equity

16.1 Capital stock. At December 31st, 2007, a total of 32,000,000 ordinary shares had been authorised for issueat a par value of Euro 2 each.They include 1,750,000 ordinary shares to service the management and Group’spersonnel stock option plans (see Note 23). At the same date, 30,480,920 subscribed shares had been issued,including 79,040 new share certificates issued in 2007 following exercise of the second tranche of options by thebeneficiaries of the aforementioned stock options plan. Following these new issues, subscribed and fully paid-incapital totalled 60,961,840 euros at December 31st, 2007.



Subscribed ResolvedN° of shares Euro N° of shares Euro

Balance as of 01.01.06 30,250,000 60,500,000 32,000,000 64,000,000Options exercised 151,880 303,760


Balance as of 12.31.07 30,480,920 60,961,840 32,000,000 64,000,000

16.2 Capital reserves. Due to exercise of the stock options mentioned above, as well as recognition inshareholders’ equity of the fair value of those that can be exercised at the subsequent strike dates envisaged inthe stock options plan, the capital reserves changed as follows:

Additional StockPaid-in capital options

(In Euro 000’s) reserve reserve Total

Balance as of 01.01.06 199,500 2,521 202,021Share based payments 3,416 3,416

Options exercised 6,127 (926) 5,201



Balance as of 12.31.07 208,843 7,095 215,938

The increase in additional paid-in capital includes not only the amount of the share premium paid upon exerciseof the options but also the fair value of the exercised options themselves (499 thousand euros), which had beenpreviously recognised in the stock options reserve.The latter was also reduced through resetting of the plan atDecember 31st, 2007 (forfeiture due to resignations).

16.3 Hedging and translation reserves.The following schedule illustrates the changes in fiscal 2007:

Translation Hedging(In Euro 000’s) reserve reserve Total

Balance as of 01.01.06 20 (1,034) (1,014)Increase in fair value of hedging derivatives 2,090 2,090

Exchange differences (1,925) (1,925)

Transfer to Profit & Loss Account of hedging derivatives (1,009) (1,009)

Others 452 452

Balance as of 01.01.07 (1,905) 499 (1,406)Increase in fair value of hedging derivatives 2,669 2,669

Exchange differences (3,403) (3,403)

Transfer to Profit & Loss Account of hedging derivatives (2,105) (2,105)

Others

Balance as of 12.31.07 (5,308) 1,063 (4,245)

The hedging reserve includes the measured value of derivatives, for currency futures contracts (see Note 18), thathedge expected transactions (i.e. cash flow hedges).

16.4 Earnings reserves. These reserves include the equity reserves of the parent company TOD’S S.p.a., thedifference between the shareholders’ equity of the subsidiaries, and the carrying values of the equity investments,as well as the effects of consolidation adjustments on shareholders’ equity.



Retained Profit (loss)(In Euro 000’s) earnings of period Total

Balance as of 01.01.06 160,585 53,385 213,970Allocation of 2005 result 23,135 (23,135) -

Dividends (30,250) (30,250)

Profit for the period 66,112 66,112

Other changes (15) (15)


Dividends (38,002) (38,002)



Balance as of 12.31.07 211,704 77,332 289,036

17. Bank overdrafts and financing

The amount of Group’s borrowings from banks at December 31st, 2007 is as follows:

(In Euro 000’s) 12.31.07 12.31.06 Change

Current account overdraft 10,234 6,943 3,291

Financing 11,978 13,819 (1,841)

Total 22,212 20,762 1,450

The portion due after twelve months, represented solely by the principal of loans falling due in fiscal 2009 or later,was Euro 10,234 thousand. Financial liabilities were recognised at cost.This value approximates the amortised cost,since the differential between the nominal and effective interest rates of the transactions was insignificant.

Financing. This account reflects two medium-long term loans, for a residual debt of Euro 11,185 thousand(mortgage loan due December 2014) and Euro 531 thousand (due March 2013, a loan that had been assumed bythe subsidiary Sandel SA, whose assets are held for sale – Note 7). The principal reimbursement schedule isillustrated as follows:

(In Euro 000’s) 12.31.07 12.31.06

2007 2,103

2008 1,482 1,482

2009 1,549 1,549

2010 1,621 1,621

2011 1,696 1,696

2012 1,774

Over 5 years 3,594 5,368

Total 11,716 13,819

For the sensitivity analysis on interest rate (IFRS 7) see Note 19.

Lease payables.The only financial payable connected with finance leases is the one for the industrial plant in SanMarino (see Note 7).



The balance of bank overdrafts and financing at the reporting date is denominated in the following currencies:

12.31.07 (In Euro 000’s) Euro Jpy Total

Overdrafts 749 9,747 10,496

Financing 11,716 11,716

Total 12,465 9,747 22,212

12.31.06 (In Euro 000’s) Euro Jpy Total

Overdrafts 124 6,819 6,943

Financing 13,819 13,819

Total 13,943 6,819 20,762

18. Derivative financial instruments

The TOD’S Group, chararacterised by its major presence on international markets, is exposed to exchange raterisk principally for revenues denominated in currencies other than the euro (see Note 19). In order to realise theobjectives envisaged in the risk management policy adopted by the Group, derivative contracts were made forevery single foreign currency to hedge a specific percentage of revenue (and cost) volumes expected in theindividual currencies other than the functional currency.At each reporting date, the hedge accounting method isapplied.This requires recognition of the derivatives in equity at their fair value and recognition of the changes infair value, which varies according to the type of hedge at the valuation date.At the closing date of the financial statements, the notional amount of the currency futures sales agreementsentered into by the Group are summarized as follows:

Notional Notionalamount in amount in

(Currency/000) For. currency Euro

US dollar 33,300 24,353

Hong Kong dollar 393,000 36,804

Japanese Yen 1,620,000 10,053

British pound 6,050 8,843

Swiss franc 8,000 4,871

Singapor dollar 7,200 3,490

Euro 8,950 8,950

Total 97,364

At the same date, the net fair value of foreign currency hedges was 3,004 thousand euros, including assets for3,763 thousand euros (FY 2006: 1,219 thousand euros) and liabilities for 759 thousand euros (FY 2006: 518thousand euros).The net fair value of foreign currency hedges that were earmarked for cash flow hedges was 908thousand euros (assets) at December 31st, 2008.A total of 2,105 thousand euros in hedges was transferred to the income statement against the contracts for theselast-mentioned hedges that were closed between January and December 2007, increasing revenues for that period.

19. Hedging of financial risks (IFRS 7)

The TOD’S Group has implemented a system for monitoring its financial risks in accordance with the guidelinesset out in the Corporate Governance Code of Listed Companies. As part of this policy, the Group constantlymonitors the financial risks connected with its operations, in order to assess their potential negative impact andundertake appropriate action to mitigate them.



The following analysis of risks faced by the TOD’S Group highlights the Group’s level of exposure. It also includesa sensitivity analysis designed to quantify the potential impact of hypothetical fluctuations in benchmarkparameters on final results.

i. Credit riskCredit risk represents the exposure of the TOD’S Group to potential losses stemming from failure to dischargeits obligations towards trading counterparties.Group’s revenues are fairly broken down between revenues generated by the directly operated store network (FY2007: 48.4%) and non-captive sales to third parties (FY 2007: 51.6%).The Group subjects these revenues to ahedging policy designed to streamline credit management and reduction in the associated risk. In particular,Group’s policy does not envisage granting credit to customers, with periodic analyses of the creditworthiness ofall customers, both long-standing and potential ones, in order to monitor and prevent possible solvency crises.

At December 31st,2007 trade receivables totalled 111.2 million euros (87.8 million euros at December 31st,2006).Thefollowing table breaks down these receivables, with separate indication of overdue amounts and current amounts:

Overdue(Euro/000) Current 0>60 60>120 Over 120 Total

From third parties 77,623 20,965 3,521 5,158 107,267

Special Purpose entities 1,071 299 547 2,021 3,938

Total 78,694 21,264 4,068 7,179 111,205

The prudent estimate of losses on the entire credit mass existing at December 31st, 2007 was 2.8 million euros.

ii. Liquidity risk Liquidity risk is the risk that the Group will not dispose of the funds necessary to meet its short-termcommitments and financial requirements.The principal factors that determine the Group’s degree of liquidity arethe resources generated or used by operating and investment activities and, on the other hand, the due dates orrenewal dates of its payables or the liquidity of its financial investments and market conditions.

In the specific case, the Group faces no liquidity risk due to its profitability, current and historic capacity togenerate cash, and its limited exposure to the banking system.As the following table shows, the Group’s financialresources at December 31st, 2007 are far higher than its debt exposure.

Net financial position (In Euro 000’s) 12.31.07 12.31.06 Change

Current financial assets

Cash and cash equivalents 95,753 111,335 (15,582)

Cash 95,753 111,335 (15,582)Current financial liabilities

Current account overdraft (10,496) (6,943) (3,553)

Current share of medium-long term financing (1,482) (2,103) 621

Financial leasing

Current financial liabilities (11,978) (9,046) (2,932)Current net financial position 83,775 102,289 (18,514)Non-current financial liabilities

Financial leasing

Financing (10,234) (11,716) 1,482




iii. Market riskIFRS 7 includes in this category all risks that are directly or indirectly connected with the fluctuation in prices onphysical and financial markets to which the company is exposed:- exchange rate risk;- interest rate risk;- commodity risk, connected with the volatility of prices for the raw materials used in the production process.

The TOD’S Group is exposed to exchange rate and interest rate risk, since there is no physical market subject toactual fluctuations in the purchase prices for raw materials used in the production process.The following paragraphs analyse the individual risks, using sensitivity analysis as necessary to highlight thepotential risk on final results stemming from hypothetical fluctuations in benchmark parameters.As envisaged byIFRS 7, these analyses are based on simplified scenarios applied to the final results for the periods referred to. Bytheir very nature, they cannot be considered indicators of the actual effects of future changes in benchmarkparameters of a different asset and liability structure and financial position different market conditions, nor canthey reflect the interelations and complexity of the reference markets.

Exchange rate risk. Due to its commercial operations, the Group is exposed to fluctuations in the exchangerates for currencies in which some of its commercial transactions are denominated (particularly USD, GBP, CHFand those of certain countries in the Far East), against a cost structure that is concentrated principally in theeurozone.The TOD’S Group realises greater revenues than costs in all these currencies; therefore, changes in theexchange rate between the euro and the aforementioned currencies can impact the Group’s results.With the exception of the foregoing, the Group is not particularly exposed to foreign exchange risk.The residualcomponent of this risk is connected principally with “translation risk”.This risk stems from the fact that the assetsand liabilities of consolidated companies whose functional currency is different from the euro can have differentcountervalues in euros according to changes in foreign exchange rates. The measured amount of this risk isrecognised in the “translation reserve” in equity.The Group monitors the changes in the exposure. No hedges of this risk existed at the reporting date.Governance of individual foreign currency operations by Group’s subsidiaries is highly simplified by the fact thatthey are wholly owned by the parent company.

The Group’s risk management policy aims to ensure that the average countervalue in euros of receipts onwholesale transactions denominated in foreign currencies for each collection (Spring/Summer and Fall/Winter) isequal to or greater than what would be obtained by applying the pre-set target exchange rates.The Group pursuesthese aims by entering into forward contracts for each individual currency to hedge a specific percentage of theexpected revenue (and cost) volumes in the individual currencies other than the functional currency.These positionsare not hedged for speculative or trading purposes, consistently with the strategic policies adopted for prudentmanagement of cash flows.Consequently, the Group might forego opportunities to realise certain gains, but it avoidsrunning the risks of speculation.The Group defines its exchange risk a priori according to the reference period budget for the reference period andthen gradually hedges this risk upon acquisition of orders, in the amount according to which they correspond tobudget forecasts.

The process of hedging exchange rate risk inside the Group is broken down into a series of activities that can begrouped into the following distinct phases:• definition of operating limits;• identification and quantification of exposure;• implementation of hedges;• monitoring of positions and alert procedures.



The following table illustrates the breakdown of notional and fair values:

Notional Notionalamount in amount in

(Currency/000) for. currency euro

US dollar 33,300 24,353


Japanese Yen 1,620,000 10,053



Singapor dollar 7,200 3,490

Euro 8,950 8,950

Total 97,364

The assets and liabilities that are denominated in foreign currency are identified as part of the sensitivity analysisof exchange rates.The potential effect of fluctuations in the benchmark rates (EUR/USD, EUR/GBP, EUR/YEN,EUR/SGD, EUR/HKD, EUR/CHF) were analysed to determine their potential impact on final results.The following table illustrates the sensitivity to reasonably likely changes in exchange rates on pre-tax profit (dueto changes in the value of current assets and liabilities denominated in foreign currency) and Group equity (dueto changes in the fair value of foreign exchange risk hedge instruments) while holding all other variables constant:

(In euro) Impact on Impact onpre-tax profit - 5% writedown pre-tax profit - 5% revaluation

Currency Country of the foreign currency of the foreign currency

CHF Switzerland (31,255.1) 34,545.1

GBP UK (3,351.2) 3,704.0

HKD Hong Kong (25,648.0) 28,347.8

JPY Japan 12,447.7 (13,758.0)

KRW South Korea 20,518.1 (22,677.9)

SGD Singapore (29,979.3) 33,135.1

USD USA (10,186.0) 11,258.2

Other currencies n.a. 892.6 (986.5)

Total (66,561.3) 73,567.7

(In euro/000) Revaluation/writedown Impact onforeign currency Shareholders’ equity

5% (7,952.2)2007

-5% 7,194.8

The analysis did not include assets, liabilities and future commercial flows that were not hedged, since fluctuations inexchange rates impact income in an amount equal to what is recognised in the fair value of adopted hedge instruments.

Interest rate risk. The exposure of the TOD’S Group to interest rate risk is limited to its own adjustable ratedebt instruments, issued in the eurozone. Interest rate risk is hedged consistently with consolidated practice,which is designed to reduce the risks of interest rate volatility by simultaneously pursuing the aim of minimisingassociated financial expenses. Considering the insignificant amounts involved (Note 17), there were no currentinterest rate hedges current at December 31st, 2007.



The sensitivity analysis carried out on interest rates has shown that a hypothetically unfavourable change of 10% inshort-term interest rates applicable to the adjustable rate financial liabilities existing at December 31st, 2007 wouldhave a net pre-tax impact of about 50 thousand euros in additional expenses.

20. Deferred tax assets and liabilities

At December 31st, 2007, measurement of the effects of deferred tax assets and liabilities, determined on the basisof temporary differences between the income reported on the financial statements and the taxable income of theindividual subsidiaries led to recognition of the following assets and liabilities on the balance sheet:

(In Euro 000’s) 12.31.07 12.31.06 Change

Deferred tax assets 12,146 17,245 (5,099)

Deferred tax liabilities (17,581) (20,516) 2,935

Net balance (5,435) (3,271) (2,164)

When determining future tax impact (IAS 12), reference was made to the presumed percentage weight of thetaxes that will be imposed on income in the years when those taxes will be charged, according to current tax lawsin the various countries involved and any changes in tax rates following currently known tax reforms, and that willbe applicable starting from FY 2008.The principal changes are illustrated as follows:

(In Euro 000’s) Tax rate 2008 Tax rate 2007

Italy (IRES) 27.5% 33%

Germany (Körperschaftsteuer) 15% 25%

In consequence of these changes, the impact of deferred taxes was recalculated for the deferred tax assets andliabilities recognised in previous years by using the tax rates known in those periods, and consequently recognisingthe resulting charges/gains in income for FY 2007. An exception is made for those assets/liabilities whose changeswere previously recognised directly in equity pursuant to IFRSs, although this case does not apply to the Group’sbalance sheet.These changes in deferred taxes due to the change in tax rates had a net positive impact of about 1 million euroson income for FY 2007, following the reduction in deferred tax liabilities and assets by 2.9 and 1.9 million euros,respectively.

In FY 2007, the Group’s Italian subsidiaries also availed themselves of the possibility of making a one-off adjustmentto temporary differences between the value of assets and liabilities carried on the balance sheet with thoserecognised for tax purposes. This adjustment was made by paying a substitute tax (see Note 28). In order tostreamline the system of taxing business income, Italian tax authorities approved a reform to reduce thetemporary differences between statutory income and taxable income, resulting from extremely complex taxregulations (which permitted recognition of costs and revenues even if they were not recognised on the incomestatement). One of the features of this reform is full recognition for both statutory and tax purposes of costs andrevenues determined in accordance with IFRSs (applied by the parent company). In order to accelerate thisprocess, companies were given the possibility of recognising previously generated differences all at once, withoutwaiting for natural reversal of these differences in future years.Exercise of this option by the Group entailed reversing the reserve for deferred taxes by 2 million euros.



The balance of deferred tax assets and liabilities at December 31st is shown in the following table, highlighting thosecomponents that contributed to their formation:

12.31.07 12.31.06(In Euro 000’s) Assets Liabilities Assets Liabilities

Amortization, depreciation and writedowns 3,551 11,789 3,389 13,850

Provisions

Property, plant and equipment (leasing) 4,505 5,348

Costs deductible over several years 208 493

Partially deductible costs 650 745

Inventory (internal profits and writedowns) 6,335 9,561

Tax losses that can be carried forward 712 2,120

Derivative financial instruments 91 272 204 232

Other 599 1,015 733 1,086

Total 12,146 17,581 17,245 20,516

The deferred tax assets recognized for tax losses that can be carried forward but not yet used by the Group atDecember 31st, 2007 totalled Euro 712 thousand (Euro 2,120 thousand at December 31st, 2006).New deferred taxassets were recognized on the 2007 financial statements for Euro 523 thousand in losses that can be carriedforward. In the same period, previously recognized deferred tax assets of Euro 1,739 thousand were used.

21. Other current liabilities

(In Euro 000’s) 12.31.07 12.31.06 Change

Trade payables 118,688 104,778 13,910

Tax payables 7,594 14,265 (6,671)

Other liabilitiesPayables to employee 4,558 4,083 475

Social security institutions 4,057 2,911 1,146

Other 8,789 8,004 785

Total other liabilities 17,404 14,998 2,406

Tax payables include Euro 3.6 million due (net of tax prepayments) to the tax authorities of the various countrieswhere the Group operates that had accrued on fiscal 2007 income (Euro 11.3 million in fiscal 2006).

22. Provisions and potential liabilities and assets

22.1 Provisions. They include Euro 434 thousand (Euro 403 thousand in 2006) as the prudent estimate ofliabilities that the Group might incur if it loses a series of pending lawsuits. Accruals for the year totalled 83thousand euros.



22.2 Potential liabilities and other commitmentsi. Guarantees granted to third parties. At December 31st, 2007, the Group had granted a total of 17,457thousand euros in guarantees (FY 2006: 611 thousand euros) to secure the contractual commitments of certainsubsidiaries.

ii. Guarantees received from third parties. Guarantees received by the TOD’S Group from banks assecurity for contractual commitments totalled Euro 12,679 thousand (Euro 7,576 thousand in 2006).

iii. Mortgages. A first mortgage on a Group-owned building (production plant in Sant’Elpidio a Mare) for Euro30 million was granted to the lender for a loan received by the parent company.This mortgage secures the lentcapital and all expenses deriving from the agreement.

22.3 Derivative financial instruments. During the year, the Group used derivative financial instruments tohedge transactions in currencies other than the euro. For an analysis of this detail, see Note 18. All derivativecontracts made with leading financial institutions will expire in 2007.

22.4 Lease agreements. The leases entered into by the Group are for rental of spaces used as offices,production plants, and DOS.At the reporting date, the rents still owed by the Group under current agreementswere as follows:

(In Euro mn) 2007 2006

2007 33.6

2008 38.0 32.4

2009 37.4 31.6

2010 34.1 29.6

2011 32.2 28.0

2012 23.8

Over 5 years 83.8 81.6

Total 249.3 236.8

Operating lease instalments totalled Euro 35.8 million in fiscal 2007.

23. Share based payments (stock options)

The Group maintains a stock options plan in favour of directors, employees and collaborators, approved in 2005by the Board of Directors of the parent company TOD’S S.p.a., in implementation of a shareholders’ meetingresolution to promote employee fidelity over the medium term.The plan, whose four-year term runs from 2005 to 2009, envisages granting a maximum 1,750,000 gratuitous,personal options on ordinary stock. These options may not be exchanged between living persons and areexercisable at the dates envisaged in the plan regulation, upon achievement of the assigned targets and objectives.Each option gives the grantees the right to subscribe one ordinary share of TOD’S S.p.a. at the price of Euro 36.3,equal to the average stock market price of the stock during the 30 days prior to the resolution that establishedall the conditions.The key aspects of the plan are illustrated as follows.



Exercise N° of optionsprice that can be

Tranche (euro) (*) exercised Conditions of exercise

Fiscal 2006 1 36.3 (**)10% a) achievement of 2005 targetsb) employment by group

Fiscal 2007 2 36.3 (**)20% a) achievement of 2006 targetsb) employment by group

Fiscal 2008 3 36.3 30% a) achievement of 2007 targetsb) employment by group

Fiscal 2009 4 36.3 40% a) achievement of 2008 targetsb) employment by group

(*) With respect to the total number of granted options(**) Right accrued

In 2007, the plan beneficiaries accrued the right to exercise their options for the second tranche, correspondingto 20% of all the options that had been originally granted. The following changes in the number of granted optionstook place in FY 2007:

Number of options 2007 2006

At the first of January 1,378,040 1,572,400Exercised 1st tranche (800)

Exercised 2nd tranche (*) (78,240) (151,880)

Expired (2,880) (42,480)

At the end of December 1,296,120 1,378,040

(*) Out of a total of 304.880 exercisable options

At the end of the fiscal year, the options not yet exercised are broken down as follows by year of exercise:

Number of options that can be exercised

Fiscal 2008 (*) 686,360

Fiscal 2009 609,760

Total 1,296,120

(*) Including 2,400 and 226,640 options for the first and second tranches, respectively.

The value of the options is based on an appraisal drafted and certified by an independent actuary, who used thebinomial method to determine their fair value, on the basis of a typically risk neutral assumption.The assumptions used in the appraisal are described as follows:• the risk free rate curve is deduced from the Euroswap rates at the vesting date (bootstrap technique);• the expected volatility of the stock was determined on the basis of its historic volatility over one year (260 stock

market trading days), calculated in reference to the vesting date (the index turned out to be 0.1902);• forecast dividend rate of the underlying security: 1.15%;• possibility of deferring exercise of the accrued options to the following tranche (with the sole exception

of the Chairman and Vice Chairman);• possibility of exercising the option at any time the exercise windows were open.The aggregate cost reported on the financial statements for the services received in fiscal 2007 and recognizedwith share based payments was Euro 2.7 million.



Aside from the foregoing, there are no other incentive plans based on financial instruments offered to directors,employees and collaborators by the parent company or Group’s subsidiaries.

Furthermore, no loans or guarantees were granted either by the parent company or other Group’s companies tothe grantees of the options in order to facilitate their exercise.

24. Reserves for employees

24.1 Defined contribution plans. The Group has a defined contribution pension plan for employees of itsJapanese subsidiary.At December 31st, 2007, the liability accrued in favor of employees was Euro 798 thousand (Euro 571 thousand inDecember 2006), while the amount charged to the profit and loss account was Euro 375 thousand, against Euro364 thousand in 2006.

24.2 Defined benefit plans. The employee severance indemnities, a deferred compensation plan in favor of theemployees of the Group’s Italian companies, qualify as a defined benefit plan (IAS 19), because the Group’sobligation is not discharged by payment of the contributions accrued on the paid compensation but continues untilthe end of the employment relationship.For these types of plans, the principle requires that the accrued amount be projected into the future in order todetermine the amount to be paid upon termination of the employment relationship, with an actuarial assessmentthat accounts for the rate of rotation of employees, expected evolution of compensation, and other factors.The statutory amendments imposed effective January 1st, 2007 on companies with more than 50 employeesentailed major changes in termination benefits (TFR).The new rules envisage that the amounts of TFR accruedstarting from January 1st, 2007 be allocated to supplemental retirement funds or, alternatively, to a treasury fundset up at the Istituto Nazionale di Previdenza Sociale (INPS).Consequently, in FY 2007 the actuarial liabilities recognised at December 31st, 2006 had to be recalculated, byexcluding the component applicable to future wage and salary increases, which had been considered in previouscalculations. This redefinition generated recognition of prior period income totalling 0.7 million euros for FY 2007.Furthermore, since all obligations of companies towards their employees ceased effective January 1st, 2007, allaccrued TFR is now covered by the rules imposed for defined contribution plans,which no longer require actuarialcalculation and discounting.The changes during the year in the aggregate liability accrued towards Group’s employees current at December31st, 2007 are illustrated as follows:

(In Euro 000’s) Year 07 Year 06

Initial balance 11,218 10,216Adjustment initial balance (676)

Current benefits 398 1,761

Financial expenses 458 486

Benefits paid (1,625) (1,245)

Final balance 9,773 11,218



25. Transactions with related parties

During fiscal 2007, the TOD’S Group participated in a number of transactions with parties that have an interestin the Group itself (mainly directors).These transactions, which were all exclusively in the Group’s interest, werecarried out by applying contractual conditions that would theoretically be applied in an arm’s length transaction,in compliance with the governance rules aimed at assuring their regularity, transparency, and substantial fairness.The principal object of transactions with related parties was the sale of products, lease of spaces for retail outlets,show rooms, and offices, the user license for the Roger Vivier brand, provision of advertising services.The following table illustrates the details of these transactions: considering the insignificance of the amounts, theywere not separately indicated in the financial statements. The transactions amongst Group companies included inthe scope of consolidation were eliminated from the consolidated financial statements, and thus they are notshown in these notes.

i. Commercial transactions with unconsolidated subsidiaries

Revenues and costs Year 2007 Year 2006(In Euro 000’s) Capitalized Capitalized

Costs Revenues expenses Costs Revenues expenses

Selling of productsSpecial Purpose Entities 3,058 2,560

Total 3,058 2,560

Receivables and payables 12.31.07 12.31.06(In Euro 000’s) Receivables Payables Receivables Payables

Special Purpose Entities 3,938 3,337

Total 3,938 3,337

ii. Commercial transactions with other related entities – Revenue and costs


Costs Revenues expenses Costs Revenues expenses

Selling of productRoger Vivier Paris S.a.s 20 2,059 133 1,270

Ordinary leasesImmobiliare De.Im. S.r.l. 2,814 111 2,232 84

Difran S.a.s. 188 184

Holpaf BV 2,814 2,903

User license contract “Roger Vivier”Gousson - Consultadoria & Mark. Lda 776 8,303 768 3,707

Advertising servicesForma Pura S.r.l. 2,039 1,814

Total 8,651 10,473 8,034 5,061



iii. Commercial transactions with other related entities – receivables and payables

Receivables and payables 12.31.07 12.31.06(In Euro 000’s) Receivables Payables Receivables Payables

Roger Vivier Paris S.a.s 578 37 312 134

Immobiliare De.Im. S.r.l. 84 245 434

Difran S.a.s. 56

Holpaf BV 6 6

Gousson - Consultadoria & Mark. Lda 6,455 508 1,715 418

Forma Pura S.r.l. 636 606

Total 7,117 1,488 2,461 1,164

iv. Compensation of Directors,Statutory Auditors, and General Managers. The following table illustratesthe compensation accrued in fiscal 2007 by each of the Directors, Statutory Auditors, and General Managers ofTOD’S S.p.a. (including for the activities that they performed at subsidiaries) for any reason and in any form:

(In Euro 000’s) Bonus andCompensation Non-cash other Other compensation

for office benefits incentives Amount Nature

Directors (term of office 2006-2008)

Diego Della Valle (*)(***) 392.2

Andrea Della Valle (**) (***) 290.0 5.2 (1)

Luigi Abete 29.7

Maurizio Boscarato 32.7 148.2 (2)

Luigi Cambri 37.6

Luca C. di Montezemolo 24.7

Emanuele Della Valle 24.0

Fabrizio Della Valle (***) 32.0

Emilio Macellari (***) 32.2 480.0 (2)

Pierfrancesco Saviotti 36.7

Stefano Sincini (***) 316.2 126.0 (1)

Total Directors 1,248.0 759.4Statutory Auditors (term of office 2007-2009)

Enrico Colombo (****) 60.4 28.3 (3)

Gian Mario Perugini 40.0 18.9 (3)

Fabrizio Redaelli 40.0

Total Statutory Auditors 140.4 47.2General Manager

Stefano Sincini 353 208

Legend(*) Chairman of Board of Directors(**) Vice Chairman of Board of Directors(***) Member of the Executive Committee(****) Chairman of the Statutory Board(1) Director of subsidiary(2) Consultant of TOD’S S.p.A (3) Statutory Auditor of subsidiary



v. Share-based payment. The following table summarises the relevant information on stock options grantedto members of the Board of Directors, General Managers and Executives with strategic responsabilities (Note 23).

Granted 2007 Exercised 200701.01.07 Number Exercise Number Exercise 12.31.07Options of price of price Options

held options (euro) options (euro) held

Diego Della Valle 468,000 36.3 468,000

Andrea Della Valle 369,000 36.3 369,000

Luigi Abete 12,000 36.3 12,000

Maurizio Boscarato 10,800 2,400 36.3 8,400

Luigi Cambri 10,800 2,400 36.3 8,400

Luca C. di Montezemolo 10,800 36.3 10,800

Emanuele Della Valle 12,000 36.3 12,000

Fabrizio Della Valle 54,000 36.3 54,000

Emilio Macellari 54,000 12,000 36.3 42,000

Pierfrancesco Saviotti 10,800 36.3 10,800

Stefano Sincini 54,000 36.3 54,000

Total 1,066,200 16,800 1,049,400

26. Personnel costs

The personnel costs incurred by the Group’s in FY 2007 as compared with those for FY 2006 are illustratedas follows:

(In Euro 000’s) % of salesYear 2007 Year 2006 Change 2007 2006

Wages and salaries 68,328 61,386 6,942 10.4 10.7

Social security contributions 17,931 16,094 1,837 2.7 2.8

Employee sev. indem. (service cost) 2,563 2,211 352 0.4 0.4

Stock options 505 718 (213) 0.1 0.1

Total 89,327 80,409 8,918 13.6 14.0

The following table illustrates the breakdown of Group employees by category:

12.31.07 12.31.06 Average 07 Average 06

Executives 33 32 32 31

White-collar employees 1,643 1,433 1,579 1,385

Blue-collar employees 796 815 810 817

Total 2,472 2,280 2,421 2,233



27. Financial income and expenses

The breakdown of financial income and expenses in fiscal 2007 is as follows:

(In Euro 000’s) Year 07 Year 06 Change

Income

Interest income on current account 2,744 2,533 211

Foreign exchange gains 7,149 7,127 22

Other 55 41 14

Total income 9,948 9,701 247Expenses

Interest on medium-long term financing (525) (420) (105)

Interest on leasing payables (4) (67) 63

Interest on short term borrowings (141) (93) (48)

Foreign exchange losses (8,191) (8,774) 583

Other (950) (910) (40)

Total expenses (9,811) (10,264) 453Total net income and expenses 137 (563) 700

28. Income taxes

Tax expenses allocable to FY 2007, including deferred taxes, totalled 47.9 million euros, and are broken down intocurrent and deferred taxes as follows:


Current taxes 47,387 41,707

Deferred taxes (Note 20) 1,589 4,653

Deferred taxes – amendement on tax rate (Note 20) (1,033)

Total 47,943 46,360Tax rate 37.8% 41.0%

As previously mentioned in Note 20, following the tax reform enacted by the Italian government, the Group’sItalian subsidiaries will avail themselves of the possiblity of adjusting the temporary differences between thevalues of assets and liabilities carried on the balance sheet with those recognised for tax purposes throughpayment of a substitute tax of 0.8 million euros that will be paid in 2008-2010, and consequent reversal of 2 millioneuros in deferred tax liabilities that had been previously recognised on the balance sheet.



The parent company’s theoretical tax rate for FY 2007 (impact of theoretical tax on pre-tax profit) was 39.6%,determined by applying the IRES and IRAP tax rates applicable to 2007 taxable income as reported on thefinancial statements. The theoretical tax rate for FY 2007 of other Group’s companies operating outside Italyvaries from country to country according to local law. The following schedule reconciles theoretical taxes,calculated by using the theoretical tax rate of the parent company, and the taxes actually charged to income:

(In Euro mn) Taxes %

Theoretical income taxes at the rate of parent company 50.2 39.6Tax effect of non-deductible orpartially deductible costs 1.7 1.4

Effects connected with the different rates of theforeign subsidiaries (2.1) (1.7)

Other (*) (1.9) (1.5)

Effective income taxes 47.9 37.8

(*) Principally the effects of changes in tax rates

REPORT OF INDEPENDENT AUDITORS

86 Report of Independent Auditors


AUDITORS’ REPORT PURSUANT TO ART. 156 OF LEGISLATIVE DECREE N°. 58OF FEBRUARY 24TH, 1998

(Translation of the Report of Independent Auditors issued in Italian by Deloitte & Touche S.p.A.on March 31st, 2008, solely for the convenience of international readers)

To the Shareholders of TOD’S S.p.A.

1. We have audited the consolidated financial statements of TOD’S S.p.A. (and subsidiaries) (the TOD’S Group),which comprise the balance sheet as at December 31, 2007, and the income statement, statement of changesin equity and cash flow statement for the year then ended, and a summary of significant accounting policiesand other explanatory notes.These consolidated financial statements are the responsibility of the Company’sDirectors. Our responsibility is to express an opinion on these consolidated financial statements based onour audit.

2. We conducted our audit in accordance with the Auditing Standards recommended by CONSOB, the ItalianCommission for listed Companies and the Stock Exchange. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidated financial statements arefree of material misstatement.An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the consolidated financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by the Directors, as well as evaluating the overall financialstatement presentation.We believe that our audit provides a reasonable basis for our opinion.

For the opinion on the prior year consolidated financial statements, the balances of which are presented forcomparative purposes, reference should be made to our auditors’ report issued on March 30, 2007.

3. In our opinion, the consolidated financial statements present fairly the financial position of the TOD’S Groupas of December 31, 2007, and the results of its operations and its cash flows for the year then ended inaccordance with IFRS as adopted by the European Union and the requirements of national regulations issuedpursuant to art. 9 of Italian Legislative Decree n° 38/2005.

DELOITTE & TOUCHE S.p.A.

Signed byRoberto LolatoPartner

Rome (Italy), March 31st, 2008

TOD’S S.P.A. - IAS/IFRS ANNUAL REPORTAS OF DECEMBER 31ST, 2007

REPORT ON OPERATION


Introduction

The Report of the Board of Directors on Operation is based on the Separate Financial Statements of TOD’s S.p.A.at December 31st, 2007, prepared in accordance with IAS/IFRS (International Accounting Standards – IAS, andInternational Financial Reporting Standards –IFRS) issued by the IASB and approved by the European Union at thesame date.The Report on Operation must be read together with the Financial Statements and Notes to the FinancialStatements, which are an integral part of the 2007 Separate Financial Statements.The Report on Operation alsoincludes the additional information required by CONSOB, pursuant to the orders issued in implementation ofArticle 9 of Legislative Decree 38/2005 (Resolutions 15519 and 15520 of July 27th, 2006 and memorandumDEM/6064293 of July 28th, 2006.

Alternative indicators of performances

In order to strip the effects of changes in exchange rates with respect to the average values for the previous yearfrom the results for the 2007 financial year, the typical economic reference indicators (Revenues, EBITDA and EBIT)have been recalculated by applying the average exchange rates for 2006, rendering them fully comparable with thosefor the previous reference period.Note that on the one hand, these principles for measurement of business performance represent a key tointerpretation of results not envisaged in IFRSs, and on the other hand, must not be considered as substitutes forwhat is set out in those standards.

Operating performance

The 2007 financial year ended with a profit of 60.4 million euros, up 3.5 million euros from 2006, when netprofit was 56.9 million euros. Revenues during the period totalled 506.3 million euros, while EBIT totalled 87.7million euros.

Principal economic indicators (in Euro 000’s) Year 07 Year 06 Change %

Sales revenues 506,346 457,453 48,893 10.7

EBITDA 99,124 105,468 (6,344) (6.0)

Deprec., amort., writedowns and advances (11,387) (9,872) (1,515) 15.3

EBIT 87,737 95,596 (7,859) (8.2)

Pre-tax 91,967 96,755 (4,788) (4.9)

Net income 60,360 56,906 3,454 6.1

Foreign exchange effects on revenues 7,600

Adjusted sales revenues 513,946 457,453 56,493 12.3

Foreign exchange effects on expenses (1,900)

Adjusted EBITDA 104,824 105,468 (644) (0.6)

Foreign exchange effects on amortization

Adjusted EBIT 93,437 95,596 (2,159) (2.3)

EBITDA % 19.6 23.1

EBIT % 17.3 20.9

Adjusted EBITDA % 20.4 23.1

Adjusted EBIT % 18.2 20.9




Principal Balance Sheet indicators (In Euro 000’s) 12.31.07 12.31.06 Change

Net working capital(*) 206,477 168,758 37,719

Current and non-current assets 224,972 218,557 6,415

Other net assets/(liabilities) 91,248 89,801 1,447

Invested capital 522,697 477,116 45,581Net financial position 31,819 48,881 (17,062)

Shareholders’ equity 554,516 525,997 28,519

Capital expenditures 18,021 16,360 1,661

Cash flow from operations 27,948 44,008 (16,060)

Free cash flow (18,453) (17,869) (584)

(*) Trade receivables + inventories – trade payables

The FY 2007 financial figures were heavily impacted by the sharp appreciation in the euro, which severelyconditioned sale prices in non-eurozone currencies and operating profits. On a comparable exchange rate basis(i.e. using the average of exchange rates reported during 2006 financial year), revenues and EBIT would have been513.9 million and 93.4 million euros, respectively.

Revenues. In spite of the sharply appreciated value of the euro (revenues were 7.6 million euros lower due toexchange rate fluctuations), company’s revenues rose once again in 2007 financial year. Sales during the financialyear topped 500 million euros (506.3 million euros), up 48.9 million euros from 2006, or 10.7% (+12.3% on acomparable exchange rate basis).

(In Euro 000’s) Year 07 % Year 06 % Change %

By BrandTod’s 231,227 45.7 231,791 50.7 (564) (0.2)

Hogan 170,964 33.8 136,455 29.8 34,509 25.3

Fay 84,280 16.6 78,377 17.1 5,903 7.5

RV 13,188 2.6 6,204 1.4 6,984 112.6

Other 6,687 1.3 4,626 1.0 2,061 44.6

Total 506,346 100.0 457,453 100.0 48,893 10.7By productShoes 329,229 65.0 284,338 62.2 44,891 15.8

Leather goods & accessories 91,082 18.0 92,227 20.2 (1,145) (1.2)

Apparel 82,570 16.3 77,596 17.0 4,974 6.4

Other 3,465 0.7 3,292 0.7 173 5.3

Total 506,346 100.0 457,453 100.0 48,893 10.7By RegionItaly 289,869 57.2 251,123 54.9 38,746 15.4

Europe 125,260 24.7 119,896 26.2 5,364 4.5

North America 41,259 8.1 40,763 8.9 496 1.2

Rest of world 49,958 9.9 45,671 10.0 4,287 9.4

Total 506,346 100.0 457,453 100.0 48,893 10.7


The TOD’S brand, which contributed 231.2 million euros, or 45.7% of total sales, confirmed its position as thecompany’s principal brand. As the most international of all the Group’s brands, it was also the one that sufferedthe most from appreciation of the euro: on a comparable exchange rate basis, revenues would have been 237.4million euros, with a growth rate of 2.4%.The HOGAN brand turned in an excellent performance, with revenuesof 171 million euros, up 25.3% from 2006 (136.5 million euros). At December 31st, 2007, sales by this brandrepresented 33.8% of company’s revenues, against 29.8% in FY 2006.The FAY brand also grew at a healthy rate: sales totalled 84.3 million euros, up 7.5% from the 78.4 million eurosreported in the previous year. ROGER VIVIER brand sales continued rising rapidly, confirming the popularity of itsshoes, leather goods and accessories on the market.

All brands reported strong growth in shoe sales, for an average of 15.8% (+17.2% at 2006 exchange rates). FY 2007revenues were 329.2 million euros, representing 65% of company’s sales. In the previous year, revenues in thissegment totalled 284.3 million euros, or 62.2% of revenues.Sales of leather goods and accessories totalled 91.1 million euros.This component of sales, particularly importanton the American and Asian markets, was heavily impacted by the changes in exchange rates. On a comparableexchange rate basis, sales in this segment would have been 94.6 million euros, with a growth rate of 2.6%.Apparel sales, which are largely represented by the FAY brand, rose at a healthy rate of 6.4% during the year. FY2007 revenues in this segment were 82.3 million euros, against 77.6 million euros in the previous year.

The regional breakdown of sales shows growth on all markets where the company operates.The Italian marketwas expanding sharply, reflecting the performance of HOGAN and FAY brands, whose revenues have a strongimpact on sales in this market. Revenues in FY 2007 rose to 289.9 million euros, up 15.4% from 2006. TheAmerican and Asian markets also performed very well:when stripped of the impact of changes in foreign exchangerates, revenues on the two markets totalled 45.4 and 53.4 million euros, respectively, with growth rates of 11.5%and 17%.Revenues in Europe totalled 125.3 million euros, representing 24.7% of all sales at December 31st, 2007.The foreign exchange impact was insignificant.

Operating results. Just like revenues, operating results were also impacted by appreciation of the euro.Theamount of this impact is estimated to be about 5.7 million euros.On a comparable exchange rate basis, EBITDA and EBIT in FY 2007 would have been 104.8 million euros (atcurrent exchange rates: 99.1 million euros) and 93.4 million euros (at current exchange rates: 87.7 million euros),respectively, representing 20.4% and 18.2% of revenues for the period. At December 31st, 2006, the same indicatorstotalled 105.5 million and 95.6 million euros, respectively, and represented 23.1% and 20.9% of revenues.Operating performance for the year was characterised by erosion in sales margins due to the previouslymentioned appreciation of the euro against leading international currencies, as well as to reorganisation of themark-ups granted to Group’s subsidiaries. Lease and rental costs also rose, to 6.3 million euros, up 1.8 millioneuros from 2006.These higher costs include the royalties paid for licensed brands, due to the increase in revenuesfrom the previous year.Labour costs changed at a healthy rate, rising by 4.2 million euros, from 44.3 million euros in FY 2006 to 48.5 millioneuros in the current period. This reflected implementation of plans to reinforce the company’s organisationalstructure.The company’s headcount at December 31st, 2007 was 1,322 employees, 112 more than at January 1st, 2007 (1,210employees on that date).




Depreciation and amortisation for non-current assets as a percentage of earnings remained constant (2.2%).Theseexpenses totalled 11.0 million euros in FY 2007 (FY 2006: 9.5 million euros), up 1.5 million euros.Net financial income was virtually unchanged (+ 0.1 million euros), since the 2.2 million euros in interest incomeaccrued on the company’s huge average cash balances (in accordance with company’s financial policy, excess cashwas always placed in risk-free investments), mainly offset by financial expenses (1 million euros) and the negativedifference between foreign exchange gains and losses (0.5 million euros). Including the impact of hedges, thedifference between financial income and expenses was a positive 2.9 million euros.The pre-tax result (which included dividends of 4.1 million euros from subsidiaries) was subject to a total of 31.6million euros income taxes (FY 2006: 39.8 million euros), including the impact of deferred taxes.The tax rate forthe period was 34.4%, compared with 41.2% in the previous year, partially exploiting the substantial changes madeby the Italian government to business taxes in the national budget act.The effects of these changes will be fullyapplicable in FY 2008.

Investments. The investments made in non-current assets in FY 2007 totalled 18 million euros, compared with16.4 million euros in the previous year.Significant resources were dedicated during the year to the information system sector: 5.1 million euros wereinvested in software, principally for the integration of information systems, as well as streamlining of IT flows.Atotal of 7.8 million euros was invested in the production sector, for normal replacement and upgrading of industrialdevices and equipment. The remaining amount of investments in FY 2007 was dedicated to company-ownedproperty and leasehold improvements and to protection of the TOD’S, HOGAN and FAY brands.

Net financial position. Net cash and cash equivalents at December 31st, 2007 totalled 31.8 million euros, against48.9 million euros at the beginning of the year.


Current financial assetsCash and cash equivalents 43,004 61,517 (18,513)

Cash 43,004 61,517 (18,513)Current financial liabilitiesCurrent account overdraft (122) 122

Current share of medium-long term financing (1,391) (1,329) (62)

Financial leasing

Current financial liabilities (1,391) (1,451) 60Current net financial position 41,613 60,066 (18,453)Non-current financial liabilitiesFinancial leasing

Financing (9,794) (11,185) 1,391



Bank borrowings, represented by a long-term loan, showed a reduction of 17.1 million euros in net cash atDecember 31st, 2007, mainly attributable to the structural financing of growth in working capital.

Funds flow statement (in Euro 000’s) Year 07 Year 06

Profit (loss) for the period 60,360 56,906Non-cash items 12,643 18,659

Cash flow 73,003 75,565Changes in operating net working capital (45,055) (31,557)

Cash flow from operations 27,948 44,008Cash flow generated (used) in investment activity (9,214) (36,680)

Cash flow generated (used) in financing activity (37,187) (25,197)

Cash flow received (used) (18,453) (17,869)



Change in current net financial position (18,453) (17,869)

The growth in year-end credit exposure to wholesale customers and inventories, with the latter being connectedwith the accumulation of stocks of finished products for the next Spring/Summer collection, temporarily used 45.1million euros in cash flow (31.6 million euros for FY 2006).The use of 17.4 million euros to finance net investment activity was offset by 8.2 million euros in financial inflowsresulting from repayment by subsidiaries of a portion of loans and capital grants made in previous years.At the consolidated level, a capital increase was carried out to cover the increase in the stock options plan, whilethe payment of about 38 million euros in dividends had a major impact..

Research and development

Considering the peculiar nature of company’s production, research and development focused on continuoustechnical and stylistic revision of models and constant improvement of the materials used to make products.Since this activity is of an exclusively ordinary nature, the relative costs are charged entirely to the profit and lossaccount for the year in which they are incurred, and thus are recognized together with normal production costs.Research and development costs, as defined above, assumed major importance in consequence of the operatingimplementation of projects for expansion of the existing product line with new types of merchandise, which areintended to augment the array of branded goods and further stimulate sales.




Intercompany transactions

Tod’s S.p.A. also operates through directly or indirectly controlled subsidiary companies.Transactions carried outwith such companies are relative to the exchange of goods, the rendering of services, and the provision of financialresources.All such transactions refer ordinary operations, and are settled at market conditions, i.e. the conditionswhich are or would be applied between two independent parties.The table below discloses the breakdown by region of the amounts related to commercial and financialrelationship happened in 2007 between Tod’s S.p.A. and the individual subsidiaries:

(In Euro 000’s) 12.31.07 12.31.06Revenues Revenues

(costs) (costs)No Companies Receivables Payables net Receivables Payables net

Italy 7 15,282 (238) 52,100 12,673 (266) 47,941

San Marino 1 (345) (1,498) 368 (865) (2,467)

France 1 9,115 (2,289) 9,753 12,783 (479) 12,552

Germany 1 1,961 (426) 6,202 4,433 (151) 9,167

UK 2 3,732 (327) 8,667 5,794 (168) 8,796

Luxembourg 1 134 720 184 774

Netherlands 1 775 (1) 1,212 307 (1) 1,483

Switzerland 1 1,096 (4) 3,338 2,326 (3) 4,093

Spain 1 474 1,424 328 1,546

Hungary 1 470 (358) (574) 450 (375) (731)

Belgium 1 409 987 634 (2) 1,232

Usa 9 13,130 (1,442) 16,747 11,586 (1,267) 19,463

Saint Barthelémy 1 358 (28) 589 337

Japan 1 4,704 (7) 54 7,022 (706) (1,868)

Hong Kong 1 21,990 (321) 36,557 17,773 (2,419) 33,889

Singapore 1 42 (5) 102 66 (1) 160

Korea 1 132 127 7

Macao 1 28 27

Special purpose entities 5 5 97 97

Total 32 73,837 (5,763) 135,922 77,420 (6,703) 136,464

Information on the Share Capital

As of December 31st, 2007, the share capital of TOD’S S.p.A. consists of 30,480,920 shares,with a par value of Euro2 euro each. On the same date, Mr. Diego Della Valle, Chairman of the Board of Directors, owns, directly orindirectly, 63.4% of share capital of the company.

Shares owned by Directors, Statutory Auditors, General Managers, and Executives with strategicresponsibilities. The following table shows all the shareholdings in Tod’s S.p.A. and in the companies controlledby it, held, directly or indirectly, by Directors, Statutory Auditors, Director Generals and Executives with strategicresponsibilities, as contained in the declarations given to the company.


N° of shares N° of sharesCompany held as of N° of share N° of shares held as of

owned 12.31.06 purchased sold 12.31.07

Diego Della Valle Tod’s S.p.A 18,094,200 1,841,752 600,000 19,335,952

Andrea Della Valle Tod’s S.p.A 1,457,300 600,000 857,300

Luigi Abete Tod’s S.p.A

Maurizio Boscarato Tod’s S.p.A 2,400 2,400

Luigi Cambri Tod’s S.p.A 580 2,400 2,545 435

Emanuele Della Valle Tod’s S.p.A 5,000 5,000

Fabrizio Della Valle Tod’s S.p.A

Emilio Macellari Tod’s S.p.A 2,000 15,000 12,000 5,000

Luca C, di Montezemolo Tod’s S.p.A 273,200 273,200

Pierfrancesco Saviotti Tod’s S.p.A 3,200 3,200

Stefano Sincini Tod’s S.p.A

Enrico Colombo Tod’s S.p.A

Gianmario Perugini Tod’s S.p.A

Fabrizio Redaelli Tod’s S.p.A 500 250 750

See Note 23 in regard to changes during the year resulting from exercise of the second tranche of options grantedto directors.

Own shares and shares or quotas of controlling companies. As of December 31st, 2007 the company didnot possess any of its own share nor did it possess any shares or quotas of the controlling companies. Since thedate on which the shares of the company were listed on the Milan Stock Exchange, the Company has not been aparty to any transactions with reference to its own shares.

Personal data processing disclosure

The company implemented and updated its Security Policy Document (SPD) in accordance with the Personal DataProtection Code.

Corporate Governance

The corporate governance of Tod’s S.p.A., is based on the traditional system, the “Latin model”: the corporatebodies are comprised by the Shareholders’ Meeting, the Board of Directors and the Board of Statutory Auditors.In turn, the Board of Directors is broken down into committees.The adopted form of governance is substantially inspired by the Corporate Governance Code, in its latest versionas prepared by the Committee for Corporate Governance of Listed Companies (constituted by Borsa ItalianaS.p.A. and formed by representatives of leading Italian companies and relevant experts). Its principles wereimplemented by the Company with a series of Board of Directors resolutions adopted starting from November2006, and the models offered by international best practice.At its meeting on March 28th, 2008, the Board of Directors approved the annual Corporate Governance Report.Reference should be made to that report for detailed illustration of the corporate governance system of Tod’sS.p.A. and the Group it controls.The Report was published with the financial statements in the corporate sectionof the web site www.todsgroup.com.




Company’s ownership structure

For complete information on the company’s ownership structure, provided in accordance with Article 123 bis ofthe Consolidated Law on Financial Intermediation, reference should be made to the annual CorporateGovernance Report, which was published together with this document as illustrated above.

Management and coordination activities

Although Tod’s S.p.A. is subject to the control (pursuant to Article 93 of Legislative Decree 58/1998) of DI.VI.Finanziaria SapA, neither this latter company or any other party has dictated policy or interferred in themanagement of Tod’s S.p.A. (or any of the subsidiaries of Tod’s S.p.A.). Indeed, management of the issuer and itssubsidiaries was not subject to any influence by third parties outside the TOD’s S.p.A..Tod’s S.p.A. is not subject tomanagement and coordination by the parent company DI.VI. Finanziaria SapA or any other party pursuant toSections 2497 et seq. Italian Civil Code. Pursuant to the Corporate Governance Code, transactions that have aparticularly significant impact on TOD’s S.p.A.Group’s strategy,operations, assets, liabilities, and financial position aresubject to exclusive review and approval by the Board of Directors of the issuer Tod’s S.p.A. Its members includeindependent directors without executive responsibilities at the company, in accordance with the rules set out inArticle 3 of the Corporate Governance Code.The expertise and authority of the independent directors withoutexecutive responsibilities and their material impact on decisions taken by the Board of Directors represent a furtherguarantee that all decisions by the Board of Directors are taken exclusively on behalf of Tod’s S.p.A. without beinginfluenced by instructions or interference by third parties representing interests opposed to the Group’s.All subsidiaries of Tod’s S.p.A. are subject to management and coordination by the issuer.

Significant events occurring after the end of the fiscal year

No significant events occurred after the end of FY 2007 that had an impact on company’s activities.

Business outlook

The positive data received at the start of the Spring/Summer 2008 season are complemented by initial ordersreceived for the Fall/Winter 2008/2009 season.Accordingly, and in spite of the challenging economic and foreign exchange situation, it is believed that revenuesand profits will continue to rise in FY 2008.

Motion for allocation of the income for the year

It is proposed that the net income for fiscal 2007, Euro 60,360,209.96, be allocated as follows:i. Euro 31,616.00 to the legal reserve, until it reaches one fifth of capital stock, as envisaged by Section 2430

Italian Civil Code;ii. Euro 22,227,443.96 to the extraordinary reserve;iii. Euro 38,101,150.00 to be paid to shareholders as a dividend, in the amount of Euro 1.25 for each of the

30,480,920 shares of outstanding stock.


The Chairman of the Board of DirectorsDiego Della Valle

FINANCIAL STATEMENTS



Profit & Loss Account

In Euro 000’s Reference to notes Year 07 Year 06

RevenuesSales revenues 506,346 457,453

Other revenues and income 10,253 7,447

Total revenues and income 516,599 464,900Operating CostsChange in inventories of work in process and finished goods 18,528 27,467

Cost of raw materials, supplies and material consumption (180,662) (167,762)

Cost for services (189,178) (157,975)

Cost of use of third party assets (6,349) (4,584)

Cost of labour 25 (48,521) (44,330)

Other operating charges (11,293) (12,248)

Total Operating Costs (417,475) (359,432)EBITDA 99,124 105,468Amortization, Depreciation and Write-downs

Amortization of intangible assets 7 (1,834) (937)

Amortization of tangible assets 8 (9,170) (8,585)

Other adjustments 9

Total Amortization, Depreciation and Write-downs (11,004) (9,522)Provisions 21 (383) (350)

EBIT 87,737 95,596Financial income and chargesFinancial income 26 7,707 6,748

Financial charges 26 (7,593) (8,189)

Total financial income (charges) 114 (1,441)Income (losses) from equity investments 27 4,116 2,600

Profit before tax 91,967 96,755Income taxes 28 (31,607) (39,849)

Net income 60,360 56,906

EPS 5 1.98 1.88

EPS diluted 5 1.90 1.79

Note: Sales revenues includes transactions with Group’s entities for 154.7 and 155.9 million euros, respectively, in the fiscal year 2007 and 2006.



Balance Sheet

In Euro 000’s Reference to notes 12.31.07 12.31.06

Non-current assetsIntangible fixed assets

Assets with indefinite useful life 6 150,476 149,629

Others 7 9,066 4,815

Total intangible fixed assets 159,542 154,444Property, plant and equipmentBuildings and land 8 40,637 40,976

Leasehold improvements 8 1,167 1,207

Plant and machinery 8 6,464 6,994

Equipment 8 10,911 8,899

Others 8 6,251 6,037

Total property, plant and equipment 65,430 64,113Other assetsReal estate investments 10 56 60

Equity investments 11 102,643 108,025

Deferred tax assets 19 1,773 2,181

Others 14 2,522 5,215

Total other assets 106,994 115,481Total non-current assets 331,966 334,038Current assetsInventories 12 161,147 134,921

Trade receivables 13 158,974 136,699

Tax receivables 13 9,125 10,704

Derivative financial instruments 17 3,696 865

Others 13 14,392 16,936

Cash 43,004 61,517

Total current assets 390,338 361,642Total assets 722,304 695,680

Note:Trade receivables includes receivables from Group’s entities for 64,3 and 62,3 million euros, respectively, at December 31st, 2007 and December 31st, 2006.

to be continued



to be continued

In Euro 000’s Reference to notes 12.31.07 12.31.06

Shareholders’ equityShare capital 15 60,962 60,804

Capital reserves 15 215,734 210,459

Treasury stock

Hedging and translation reserve 15 1,167 489

Retained earnings 15 216,293 197,339

Income for the period 15 60,360 56,906

Group interest in shareholders’ equity 554,516 525,997Non-current liabilitiesProvisions for risks 400 369

Deferred tax liabilities 19 16,395 19,254

Reserve for employee severance indemnity 23 8,661 10,082

Bank borrowings 16 9,794 11,185

Total non-current liabilities 35,250 40,890Current liabilitiesTrade payables 20 113,644 102,862

Tax payables 20 3,185 12,850

Derivative financial instruments 17 7 209

Other 20 14,311 11,421

Banks 16 1,391 1,451

Total current liabilities 132,538 128,793Total shareholders’ equity and liabilities 722,304 695,680

Note:Trade payables includes payables to Group’s entities for 5,8 and 6,7 million euros, respectively, at December 31st , 2007 and December 31st,December 2006.



Fund flow statement

In Euro 000’s Period PeriodReference to notes Jan-Dec 07 Jan-Dec 06

Profit (loss) for the period 60,360 56,906Non-cash adjustments:Amortization, deprec,, revaluation and write-downs 7-8-10 12,529 10,041

Change in employee severance indemnity reserve 23 (63) 875

Change in deferred tax/liabilities 19 (2,451) 4,484

Other changes 2,628 3,259

Cash flow (A) 73,003 75,565Change in current assets and liabilities:Inventories 12 (27,456) (34,045)

Trade receivables 13 (22,573) (9,766)

Tax receivables 13 1,579 (4,411)

Other current assets 13 (410) (3,371)

Trade payables 20 10,782 13,090

Tax payables 20 (9,665) 5,107

Other current liabilities 20 2,688 1,839

Change in operating working capital (B) (45,055) (31,557)Cash flow from operations (C) = (A)+(B) 27,948 44,008Net investments in intangible and tangible assets 6-7-8 (17,416) (15,507)

(Increase) decrease of equity investments 11 5,382 (10,888)

Financing 14 2,780 (10,328)

Reduction (increase) of other non-current 40 43

Cash flow generated (used) in investment activities (D) (9,214) (36,680)Dividends paid 4 (38,002) (30,250)

Change in long term loans 16 (2,749) (1,329)

Capital Increase 15 3,325 6,400

Other changes in shareholders’ equity 15 239 (18)

Cash flow generated (used) in financing (E) (37,187) (25,197)Cash flow generated (used) (F) = (C)+(D)+(E) (18,453) (17,869)



Change in net financial position (18,453) (17,869)



Statement of changes in equity

Period January-December 2007(In Euro 000’s)

ReserveShare Capital for Retained

capital reserves translation earnings Total

Balance as of 01.01.07 60,804 210,459 489 254,245 525,997Increase in fair value of derivatives 3,482 3,482

Transfer of hedging derivativesto Profit and Loss Account (2,804) (2,804)

Other movements 10 10

Result for the period 60,360 60,360

Total Profit (loss)recognized in the period 60,804 210,459 1,167 314,615 587,045Share-based payments 2,597 2,597

Options exercised 158 2,678 40 2,876

Dividends (38,002) (38,002)

Balance as of 12.31.07 60,962 215,734 1,167 276,653 554,516

Period January-December 2006(In Euro 000’s)

ReserveShare Capital for Retained

capital reserves translation earnings Total

Balance as of 01.01.06 60,500 202,021 (1,083) 228,207 489,645Increase in fair value of derivatives 2,571 2,571

Transfer of hedging derivatives to Profit and Loss Account (1,481) (1,481)

Translation differencesOther movements (77) 482 (626) (221)

Result for the period 56,906 56,906

Total Profit (loss)recognized in the period 60,500 201,944 489 284,487 547,420Share-based payments 3,314 3,314

Options exercised 304 5,201 8 5,513

Dividends (30,250) (30,250)

Balance as of 12.31.06 60,804 210,459 489 254,245 525,997

SUPPLEMENTARY NOTES



1. General notes

The notes to the separate financial statements were prepared in accordance with IAS/IFRS (InternationalAccounting Standards-IAS, and International Financial Reporting Standard -IFRSs), issued by the InternationalAccounting Standards Board, pursuant to the text published in the Official Journal of the European Union (OJEU).The Notes include the additional information required by CONSOB and the measures it issued in implementationof Article 9 of Legislative Decree 38/2005 (Resolutions 15519 and 15520 of July 27th, 2006 and memorandumDEM/6064293 of July 28th, 2006, pursuant to Article 114(5) TUF), Article 78 of the Issuer’s Regulation, the ECdocument of November 2003 and, as applicable, the Italian Civil Code.Consistently with the financial statements for the previous year, certain information is provided in the Report ofthe Board of Directors on Operation.The separate financial statements were approved by the Board of Directors of TOD’S S.p.a. on March 28th, 2008,when it also authorised their publication.

2. Financial statement formats: choice of form classification principles

On transition to IFRSs,TOD’S S.p.a. opted to continue using the same balance sheet and income statement formatsused in its disclosures pursuant to Italian GAAP for presentation of its financial position and operating results.These financial statements, complemented as necessary by the Report of the Board of Directors on Operationand the notes to the financial statements, are considered to be those that provide the best organizedrepresentation of the company’s financial position and income.More specifically, the balance sheet format shows current items separately from non-current items (both assetsand liabilities).On the profit and loss account, the format of representing revenues and costs by nature is followed,indicating the EBITDA and EBIT results as in the past, since they are considered representative indicators ofcompany’s performance.The “indirect” format is used for the statement of cash flows.

3. Highlights of the accounting principles

The Separate Financial Statements were prepared in accordance with IAS/IFRS, pursuant to IAS 27, 28 and 31, onthe basis of the historic cost method, with the sole exception of derivative financial instruments, which weremeasured at their fair value.

i. New principles applicable to the company from 2007. IFRS 7, “Financial Instruments: Disclosures”, isapplicable from January 1st, 2007. It fully substituted the disclosure envisaged by IAS 30 “Disclosures in the FinancialStatements of Banks and Similar Financial Institutions” and introduced new requirements for improving the informationon financial instruments provided in company’s financial statements.The provisions of this standard,which the companyadopted in FY 2006 before the mandatory deadline, did not impact measurement and classification of company’sfinancial instruments, but merely expanded the scope of the disclosure in regard to the nature and procedures forhedging credit, liquidity and market risks (i.e. interest rate and exchange rate).

ii. Amendments to existing principles. The amendments to IAS 1, “Presentation of Financial Statements”took effect on January 1st, 2007.These amendments, approved by the EU in January 2006 (EC Regulation no. 108-2006) require that the company present a disclosure permitting users of its financial statements to assess itsobjectives, policies and capital management procedures.

iii. Interpretations of existing principles applicable to the company from 2007. IFRIC 10, “InterimFinancial Reporting and Impairment”, provides information on certain aspects regarding the recognition andreversal on the financial statements of impairment losses for goodwill and certain financial assets. In particular,


IFRIC 10 envisages that if the value of goodwill or a financial asset recognised on an interim financial statementrepresented by equity instruments is impaired, this impairment cannot be reversed on subsequent interim orannual financial statements if the reasons for the impairment cease to exist.Application of this interpretation hadno impact on the company’s financial statements.

iv. Interpretations of existing principles applicable to the company from 2007 and material tocompany’s operations. The following interpretations of existing principles, whose application by the companybecame mandatory on January 1st, 2007, are not applied on the company’s financial statements:• IFRIC 7, which provides information on how to apply the requirements of IAS 29 in a financial year when an

entity recognises the existence of hyperinflation for the first time in the economy of its functional currency.Pursuant to IFRIC 7, the entity must recalculate its book values in accordance with IAS 29 as if the economyhad always been hyperinflationary;

• IFRIC 8, “Scope of IFRS 2”, regarding transactions where an entity makes share-based payments for anamount that is apparently zero or insufficient. In particular, IFRIC 8 specifies that if the value of theidentifiable service appears less than the fair value of the assigned instrument of own capital (or thesustained liability), it is presumed that an additional service has been or will be received;

• IFRIC 9, “Reassessment of Embedded Derivatives”, which clarifies certain aspects of the treatment ofembedded derivatives within the framework of IAS 39: the decision to separate the embedded derivativesfrom the primary contract and to recognise them separately as derivatives must be taken when the companybecomes party to the contract, or at the time of initial recognition.

v. Principles adopted by the company. On November 2nd, 2006 the IFRIC issued the interpretative documentIFRIC 11, “IFRS 2 – Group and Treasury Share Transactions”. Applicable from the 2008 financial statements, theinterpretation regulates application of IFRS 2 (“Share-based Payments”) on certain types of plans that envisagepayments based on the shares of a group company (e.g. of the parent company) granted to employees of othercompanies in the same group.Accounting treatment of share-based payments for which the company must acquiretreasury stock is also defined. Early adoption of this interpretation by the company did not entail recognition ofeffects on existing plans.

vi. Standards, changes and interpretations that will come into effect on financial statements afterthose at December 31st, 2007. The following standards were not adopted by the Company in advance:• IFRS 8 – “Operating segments”.This standard fully substitutes IAS 14 “Segment Reporting”, thereby aligning

sector disclosures with the requirements of US GAAP (SFAS 131 “Disclosures about Segments of anEnterprise and Related Information”). Specifically, a method is introduced whereby the segments areidentified according to the same procedures used to prepare internal operating reports for top management.IFRS 8 applies to financial statements for the financial years beginning on or after January 1st, 2009.

• IAS 23 “Borrowing Costs”. The new version of this standard removed the option according to whichcompanies can immediately recognise in income those financial expenses that are borne for assets thatnormally require a certain period of time in order to prepare the asset for use or for sale.The standard willbe prospectively applied to the financial expenses associated with capitalised assets starting from January 1st,2009.The principle is applicable from January 1st, 2009.

• IAS 1,“Presentation of Financial Statements”.Applicable from January 1st, 2009, revision of the standard didnot introduce substantial changes in the currently valid version.

• IFRIC 12,“Service Concession Arrangements”.This applies to private sector operators that provide typicalpublic sector services (e.g. roads, airports, electrical and water supplies under concession arrangements).IFRIC 13 applies starting from January 1st, 2008.

• IFRIC 13, “Customer Loyalty Programmes”.The standard addresses companies that offer their customersforms of award credits for purchase of their goods and services as part of the sales transactions. IFRIC 13applies starting from July 1st, 2008.




• IFRIC 14, “The Limit on a Defined Benefit Asset Minimum”.Assets for defined benefit plans and minimumfunding requirements. The interpretation sets out the procedures for determining the threshold amountestablished by IAS 19 for recognition of assets servicing the plans and provides an explanation of theaccounting effects caused by the presence of a minimum plan funding clause.

The company is currently analysis the applicability of these new principles and any impact on the financial statements.

3.1 Transactions in foreign currency. The functional currency (the currency used in the principal economicarea where the company operates) used to present the financial statements is the Euro.Foreign currency transactions are translated into the functional currency (currency of the prevalent economic areain which each entity operates) by applying the exchange rate in effect at the date of the transaction. Monetaryassets and liabilities denominated in foreign currencies at the date of the financial statements are translated byusing the exchange rate in effect at the closing date. Non-monetary assets and liabilities are valued at theirhistoric cost in foreign currency and translated by using the exchange rate in effect at the transaction date.

The foreign exchange differences arising upon settlement of these transactions or translation of cash assets andliabilities are recognized on the profit and loss account, with the exception of those deriving from derivativefinancial instruments qualified as hedging of financial flows. In fact, these differences are recognized as a separatecomponent of shareholders’ equity or on the profit and loss account.

3.2 Derivative financial instruments. The company uses derivate financial instruments (mainly currencyfutures contracts) to hedge the risks stemming from foreign exchange exposure deriving from its operatingactivity,without any speculative or trading purposes, and consistently with the strategic policies of centralized cashmanagement dictated by the Board of Directors.When derivative transactions refer to a risk connected with the variability of forecast transaction cash flow, theyare recognized according to the rules for cash flow hedge until the transaction is recorded on the books.Subsequently, the derivatives are treated in accordance with fair value hedge rules, insofar as they can be qualifiedas instruments for hedging changes in the value of assets or liabilities carried on the balance sheet.

The hedge accounting method is used at every financial statement closing date.This method envisages postingderivatives on the balance sheet at their fair value. Posting of the changes in fair value varies according to the typeof hedging at the valuation date:• for derivatives that hedge forecast transactions (i.e. cash flow hedge), the changes are recognized in

shareholders’ equity, while the portion for the ineffective amount is recognized on the profit and lossaccount, under financial income and expenses;

• for derivatives that hedge receivables and payables recognized on the balance sheet (i.e. fair value hedge), thefair value differences are recognized entirely on the profit and loss account, adjusting operating margins.Furthermore, the value of the hedged item (receivables/payables) is adjusted for the change in valueattributable to the hedged risk, using the item financial income and expenses as a contra-entry.

3.3 Intangible fixed assets.i. Goodwil. All business combinations are recognized by applying the acquisition method.Goodwill representsthe portion of the cost paid for the acquisition that exceeds the company’s interest in the fair value of the assets,liabilities, and identifiable potential liabilities of the subsidiary or jointly controlled entity at the acquisition date.If the company’s interest in the fair value of assets, liabilities, and identifiable potential liabilities exceeds the costof the acquisition (negative goodwill) after redetermination of these values, the excess is immediately recognizedon the profit and loss account.


For acquisitions prior to January 1st, 2004, the date of transition to IAS/IFRS, goodwill retained the valuesrecognized on the basis of the previous Italian GAAP, net of accumulated amortization up to the transition date.Goodwill is recognized on the financial statements at its cost adjusted for impairment losses. It is not subject toamortization, but the adequacy of the values is annually subjected to the impairment test, in accordance with therules set forth in the section Impairment losses.

ii. Trademarks. These are recognized according to the value of their cost and/or acquisition, net ofaccumulated amortization at the date of transition to IAS/IFRS.Trademarks TOD’S, HOGAN e FAY are classifiedas intangible fixed assets with an indefinite useful life and thus are not amortized, insofar as:• they play a primary role in company’s strategy and are an essential driver thereof;• the corporate structure, construed as organized property, plant, and equipment, and organization itself in a

figurative sense, is closely correlated with and dependent on dissemination and development of thetrademarks on the markets;

• the trademarks are proprietary, properly registered, and constantly protected pursuant to law, with optionsfor renewal of legal protection, upon expiration of the registration periods, that are not burdensome, easilyimplemented, and without external impediments;

• the products sold by the company with these trademarks are not subject to particular technologicalobsolescence, which is characteristic of the luxury market in which the company operates; on the contrary,they are consistently perceived by the market as being innovative and trendy, to the point of being models forimitation or inspiration;

• in the national and/or international context characteristic of each trademark, they are distinguished by marketpositioning and notoriety that ensures their dominance of the respective market segments, being constantlyassociated and compared with benchmark brands;

• in the relative competitive context, it can be affirmed that the investments made for maintenance of thetrademarks are proportionately modest with respect to the large forecast cash flows.

The adequacy of the values is annually subjected to the impairment test, in accordance with the rules set forth inthe section Impairment losses.

iii. Research and development costs. The research costs for a project are charged fully to the profit and lossaccount of the period in which they are incurred.The development costs of an activity are instead capitalized if the technical and commercial feasibility of therelative activity and economic return on the investment are certain and definite, and the company has the intentionand resources necessary to complete the development.

The capitalized costs include the costs for materials, labor, and an adequate portion of overhead costs.They arerecognized at cost, net of accumulated amortization and depreciation (see below) and impairment losses.

iv. Other intangible fixed assets. These are identifiable non-monetary intangible assets under the control ofthe company and capable of causing the Group to realize future economic benefits.They are initially recognized at their purchase cost, including expenses that are directly attributable to them duringpreparation of the asset for its intended purpose or production, if the conditions for capitalization of expensesincurred for internally generated expenses are satisfied.The cost method is used for determining the value reported on subsequent statements, which entails posting theasset at its cost net of accumulated amortization and writedowns for impairment losses.




v. Subsequent capitalization. The costs incurred for these intangible fixed assets after purchase arecapitalized only to the extent that they increase the future economic benefits of the specific asset they refer to.All the other costs are charged to the profit and loss account in the fiscal year in which they are incurred.

vi. Amortization. Intangible fixed assets (excluding those with an indefinite useful life) are amortized on astraight-line basis over the period of their estimated useful life, starting from the time the assets are available for use.

3.4 Tangible fixed assets i. Property,plant,and equipment owned by the company. They are first recognized at their purchase costor at the cost recalculated at the date of transition to IFRS, including any directly attributable ancillary expenses.

Following first-time recognition, these assets are reported net of their accumulated depreciation and impairmentlosses (i.e. in accordance with the cost model).

For those assets whose depreciation must be calculated using the component approach, the portions of costallocable to the individual significant components characterized by a different useful life are determined. In thiscase, the value of land and buildings is kept separate, with only buildings being depreciated.

ii. Leasing. Lease agreements in which the company assumes all the risks and benefits deriving from ownershipof the asset are classified as finance leasing.The assets (real estate, plant, and machinery) possessed pursuant tothese agreements are recorded under property, plant, and equipment at the lesser of their fair value on the datethe agreement was made, and the current value of the minimum payments owed for leasing, net of accumulateddepreciation and any impairment losses (according to the rules described in the section Impairment losses). Afinancial payable for the same amount is recognized instead under liabilities, while the component of interestexpenses for finance leasing payments is reported on the profit and loss account according to the effectiveinterest method.

iii. Subsequent capitalizations.The costs incurred for property,plant,and equipment after purchase are capitalizedonly to the extent that they increase the future economic benefits of the asset.All the other costs are charged to theprofit and loss account in the fiscal year in which they are incurred.

iv. Real estate investments. Real estate investments are originally recognized at cost,and then recognized at their costas adjusted for accumulated depreciation and impairment losses.Depreciation is calculated on a systematic, straight-line basis according to the estimated useful life of the buildings.

v. Depreciation. Property, plant and equipment were systematically depreciated at a steady rate according tothe depreciation schedules defined on the basis of their estimated useful life. Land is not depreciated.The principaldepreciation rates applied are as follows:

% depreciation

Industrial buildings 3%

Machinery and plant 12.5%

Sundry equipment 25%

Forms and punches, clichés, molds and stamp 25%

Furniture and furnishings 12%

Office machines 20%

Cars and transport vehicles 20%-25%


The costs for leasehold improvements, which mainly include the costs incurred for set up and modernization ofthe DOS network and all the other real estate that is not owned (and thus instrumental to its activity) aredepreciated according to the term of the lease agreement or the useful life of the asset, if this is shorter.

3.5 Impairment losses. In the presence of indicators, events, or changes in circumstances that presume theexistence of impairment losses, IAS 36 envisages subjecting intangible fixed assets and property, plant and equipmentto the impairment test in order to assure that assets with a value higher than the recoverable value are notrecognized on the financial statements.As previously mentioned, this test is performed at least once annually for fixed assets with an indefinite useful life,and likewise for fixed assets that are not yet in use.Confirmation of the recoverability of the values recognized on the balance sheet is obtained by comparing the bookvalue at the reference date and the fair value net of sale costs (if available) or usage value.The usage value of a tangibleor intangible fixed asset is determined according to the estimated future financial flows expected from the asset, asactualized through use of a discount rate net of taxes, which reflects the current market value of the current valueof the cash and risks related to the company’s activity, as well as the cash flows deriving from disposal of the asset atthe end of its useful life.If it is not possible to estimate an independent financial flow for an individual asset, the cash generating unit to whichthe asset belongs and with which it is possible to associate future cash flows that can be objectively determined andindependent from those generated by other operating units is identified. Identification of the cash generating unitswas carried out consistently with the organizational and operating architecture of the company.If the impairment test reveals an impairment loss for an asset, its book value is reduced to the recoverable value byposting a charge on the profit and loss account,unless the asset is revalued. In that case, the writedown is recognizedin the revaluation reserve.

When the reasons for a writedown cease to exist, the book value of the asset (or the cash generating unit),with theexception of goodwill, is increased to the new value resulting from the estimate of its recoverable value, but notbeyond the net book value that the asset would have had if the impairment loss had not been charged.The restoredvalue is recognized immediately on the profit and loss account, unless the asset is revalued, in which case therestored value is recognized in the revaluation reserve.

3.6 Investments in subsidiaries and associated companies.The investments in subsidiaries, joint ventures,and associated companies that are not classified as held for sale in compliance with IFRS 5 are recognised at theirhistoric cost.The value recognised on the financial statements is periodically subjected to the impairment test, asenvisaged by IAS 36, and adjusted for any impairment losses.

3.7 Current assets.i. Financial assets. These are recognized and cancelled on the balance sheet according to the trading date andare initially valued at cost, including costs directly connected with the purchase.At the subsequent financial statement dates, the financial assets that the company intends and is able to hold untilmaturity (securities held until maturity) are recognized at the cost amortized according to the effective interestmethod, net of impairment losses.




Financial assets other than those held until maturity are classified as held for trading or available for sale, and arerecognized at their fair value at the end of each period.When the financial assets are held for trading, the profitsand losses deriving from changes in the fair value are recognized on the profit and loss account for the period. Inthe case of financial assets available for sale, the profits and losses deriving from changes in the fair value arerecognized directly in shareholders’ equity until they are sold or have sustained a loss in value.At that time, theaggregate profits or losses that were previously recognized in shareholders’ equity are recognized on the profitand loss account of the period.

ii. Inventories. These are recognized at the lower of purchase cost and their assumed disposal value.The netdisposal value represents the best estimate of the net sales price that can be realized through ordinary businessprocesses, net of any production costs not yet incurred and direct sales costs.The cost of inventories is based on the weighted average cost method.The production cost is determined byincluding all costs that are directly allocable to the products, regarding – for work in progress and/or semi-finishedproducts – the specific stage of the process that has been reached.The values that are thus obtained do not differappreciably from the current production costs referring to the same classes of assets.A special depreciation reserve is set aside for the portion of inventories that are no longer consideredeconomically useable, or with a presumed disposal value that is less than the cost recognized on the financialstatements.

iii. Trade receivables and other receivables. These are valued and recognized on a prudent basis accordingto their presumed disposal value, by means of adjusting the face value with a specific allowance for doubtfulaccounts determined as follows:• receivables under litigation, with certain and precise evidence documenting the impossibility of collecting

them, have been analytically identified and then written down;• for other bad debts, prudent allowances for writedowns have been set aside, estimated on the basis of

information updated at the date of this document.

iv. Cash. This includes cash on hand, bank demand deposits, and financial investments with a maturity of nomore than three months.These assets are highly liquid, easily convertible into cash, and subject to a negligible riskof change in value.

3.8 Employee benefits.i. Defined contribution plans. The payments for eventual defined contribution plans are charged to theprofit and loss account in the period that they are owed.

ii. Defined benefit plans. For defined benefit plans, the cost is determined by using the projected unit creditmethod, carrying out actuarial valuations at the end of every fiscal year. The accumulated actuarial profits andlosses not recognized at the beginning of the fiscal year are recognized only to the extent that they exceed 10%of the greater between the current volume of defined benefit plan liabilities and the fair value of the assets of theprogram at that date.The cost of past work services is recognized immediately in the amount in which the benefitshave already accrued or is otherwise amortized at a constant rate by the average period in which it is expectedthat the benefits will accrue.

The liabilities for benefits paid out after termination of the employment relationship reported on the financialstatements represent the current value of liabilities for defined benefit plans adjusted to take into account theactuarial profits and losses that were not recognized and the costs for past work services that were notrecognized, and reduced by the fair value of the program assets. Any net assets resulting from this calculation arelimited to the value of the unreported actuarial losses and the cost for the past work services that were notrecognized, plus the current value of any reimbursements and reductions in the future contributions to the plan.

iii. Share based payments. The payments based on shares are assessed at their fair value on the assignmentdate. This value is recognized on the profit and loss account on a straight-line basis throughout the period ofaccrual of the rights.This allocation is made on the basis of a management estimate of the stock options that willactually accrue in favor of vested employees,considering the conditions for use thereof not based on their market value.The fair value is determined by using the binomial method.The useful life utilized in the model has been adjustedaccording to an estimate by management in order to take into account the effects of non-transferability of theoptions, restrictions on exercise thereof, and the assumed behavior of individuals.

3.9 Payablesi. Bank overdrafts and financing. Interest-bearing financing and bank overdrafts are recognized on the basisof the amounts collected, net of transaction costs, and subsequently valued at the amortized cost, using theeffective interest method.

ii. Trade payables and other payables. These are their face value.

3.10 Recognition of revenues. Revenues are recognized on the profit and loss account when the significantrisks and benefits connected with ownership of the transferred assets are transferred to the buyer. In referenceto the principal types realized by the company, revenues are recognized on the basis of the following principles:a. Sales of goods – retail.The company operates in the retail channel through its DOS network. Revenues are

recognised when the goods are delivered to customers. Sales are usually collected in the form of cash orthrough credit cards.

b. Sales of goods – wholesale.The company distributes products on the wholesale market.These revenues arerecognised when the goods are shipped;

c. Provision of services. This income is recognised in proportion to the percentage of completion for theservice provided on the reference date.

d. Royalties – These are recognised on the financial statements according to the principle of period allocation.

3.11 Financial income and expenses. These include all financial items recognized on the profit and loss accountfor the period, including interest expenses accrued on financial payables calculated by using the effective interest method(mainly current account overdrafts,medium-long term financing), foreign exchange gains and losses, gains and losses onderivative financial instruments (according to the previously defined accounting principles), received dividends, theportion of interest expenses deriving from accounting treatment of assets held under finance leasing (IAS 17) andemployee reserves (IAS 19).Interest income and expenses are recognized on the profit and loss account for the period in which they arerealized/incurred,with the exception of capitalized expenses.Dividend income contributes to the result for the period in which the company accrues the right to receivethe payment.





3.12 Income taxes. The income taxes for the period include determination both of current taxes and deferredtaxes.They are recognized entirely on the profit and loss account and included in the result for the period, unlessthey are generated by transactions recognized directly to shareholders’ equity during the current or anotherperiod. In this case, the relative deferred tax liabilities are also recognized under shareholders’ equity.Current taxes on taxable income for the period represent the tax burden determined by using the tax rates ineffect at the reference date, and any adjustments to the tax payables calculated during previous periods.

Deferred tax liabilities refer to the temporary differences between the book values of assets and liabilities on thebalance and the associated values relevant for determination of taxable income.The tax liability of all temporarytaxable differences, with the exception of liabilities deriving from initial recognition of an asset or liability in atransaction other than a business combination that, at the time of the transaction, does not influence either theincome (loss) reported on the financial statements or taxable income (tax loss).Deferred tax assets that derive from temporary deductible differences are recognized on the financial statementsonly to the extent that it is likely taxable income will be realized for which the temporary deductible differencecan be used. No allocation is envisaged if the deferred tax asset derives from business combinations, or from theinitial posting of an asset or liability in a transaction other than a business combination that, at the time of thetransaction, does not influence either the income (loss) reported on the financial statements or taxable income(tax loss).The tax benefits resulting from tax losses are recognized on the financial statements of the period in which thebenefits accrued, if it is likely that taxable income will be realized and for which the tax loss can be used.The taxes in question (deferred tax assets and liabilities) are determined on the basis of a forecast of the assumedpercentage weight of the taxes on the income of the fiscal years in which the taxes will occur, taking into accountthe specific nature of taxability and deductibility.The effect of change in tax rates is recognized on the profit andloss account of the fiscal year in which this change takes place.

3.13 Provisions. These are certain or probable liabilities that have not been determined at the date theyoccurred and in the amount of the economic resources to be used for fulfilling the obligation, but which cannonetheless be reliably estimated.They are recognized on the balance sheet in the event of an existing obligationresulting from a past event, and it is likely that the company will be asked to satisfy the obligation.If the effect is significant, and the date of the presumed discharge of the obligation can be estimated with sufficientreliability, the provisions are recognized on the balance sheet by actualizing future financial flows.The provisions that can be reasonably expected to be discharged twelve months after the reference date areclassified on the financial statements under non-current liabilities. Instead, the provisions for which the use ofresources capable of generating economic benefits is expected to take place in less than twelve months after thereference date are recognized as current liabilities.

3.14 Share capital i. Share capital. The total value of shares issued by the company is recognized entirely under shareholders’equity, as they are the instruments representing its capital.

ii. Treasury stock. The consideration paid for buy-back of share capital (treasury stock), including theexpenses directly related to the transaction, is subtracted from shareholders’ equity. In particular, the par value ofthe shares reduces the share capital, while the excess value is recognized as an adjustment to additional paid-incapital.

iii. Dividends. The allocation of dividends to persons possessing instruments representing share capital afterthe reference date of the financial statement is not recognized under financial liabilities on the same reference date.


3.15 Statement of cash flows. The statement of cash flows is drafted using the indirect method. The netfinancial flows of operating activity are determined by adjusting the result for the period of the effects derivingfrom change to net operating working capital, non-monetary items, and all the other effects connected withinvestment and financing activities.Cash at the beginning and end of the period represents the net-short-term financial position.

4. Dividends

The Shareholders’ Meeting of April 27th, 2007 approved the payment of 38,002,350 euros in dividends, at the rateof 1.25 (one and 25/100) euros for each of the 30,401,880 shares representing the capital stock at the paymentdate.The dividend was paid to all shareholders entered in the Register of Shareholders at the coupon payment date.For the 2007 net profit of 60,360,209.96 euros, the Board of Directors proposed payment of a 1.25 (one and25/100) euro dividend per share, for a total of 38,101,150.00 euros.The dividend is subject to approval by theshareholders at the annual Shareholders’ Meeting called for April 22nd, 2008 and was not recognised in liabilitieson this balance sheet.

5. Earnings per share

The calculation of base and diluted earnings per share is based on the following:

i. Reference profit

For continuing operations (In Euro 000’s) Year 07 Year 06


Dilution effects


For continuing and discontinued operations (In Euro 000’s) Year 07 Year 06

Net profit of the year 60,360 56,906

Income (loss) from discontinued operations

Profit used to determine basic earning per share 60,360 56,906Dilution effects


In both fiscal 2007 and 2006, there were no dilutions of net earnings.

ii. Reference number of shares

Year 07 Year 06

Weighted average number of shares to determine basic earning per share 30,442,913 30,324,296

Share options 1,334,139 1,479,634

Weighted average number of shares to determine diluted earning per share 31,777,051 31,803,930

The options assigned pursuant to the Stock Options Plan represent the only ordinary shares with dilution effect.




iii. Base earnings per share. Calculation of the base earning per share for fiscal 2007 is based on the netincome allocable to holders of ordinary shares of the TOD’S S.p.A., totaling Euro 60,360 thousand (56,906thousand in 2006), and on an average number of ordinary shares outstanding during the same period totaling30,442,913 (30,324,296 in fiscal 2006).There were no dilution effects on calculation of the base earnings in either2007 or 2006.

iv. Diluted earnings per share. Calculation of the base earning per share for fiscal 2007 is based on the netincome allocable to holders of ordinary shares of the TOD’S S.p.A., totaling Euro 60,360 thousand (56,906thousand in 2006), and on an average number of potential ordinary shares outstanding during the same periodtotaling 31,777,051 (31,803,930 in fiscal 2005).

6. Assets with indefinite useful life

The changes in assets with an indefinite useful life are shown in the following table:

(In Euro 000’s) Trademarks Goodwill Total

Balance as of 01.01.06 136,060 13,239 149,299Increases 330 330

Decreases


Impairment losses

Balance as of 01.01.07 136,387 13,242 149,629Increases 847 847

Decreases

Other changes

Impairment losses

Balance as of 12.31.07 137,234 13,242 150,476

The residual value of trademarks is divided amongst the Company’s various proprietary brands (TOD’S, HOGANand FAY):

(In Euro 000’s) 12.31.07 12.31.06

TOD’S brand 3,741 3,243

HOGAN brand 80,309 80,088

FAY brand 53,184 53,056

Total 137,234 136,387

The changes during the period consist of permanent charges incurred for protection and dissemination of the brands.

7. Assets with definite useful life

The following table details the movements of these assets:

(In Euro 000’s) Other Othertrademarks Software assets Total

Balance as of 01.01.06 170 1,380 1,014 2,564Increases 2,978 229 3,207

Decreases (19) (19)

Impairment losses

Other changes 580 (580)

Amortization of the period (43) (785) (109) (937)Balance as of 01.01.07 127 4,134 554 4,815

Increases 5,139 988 6,127

Decreases (42) (42)

Impairment losses

Other changes

Amortization of the period (43) (1,655) (136) (1,834)

Balance as of 12.31.07 84 7,618 1,364 9,066

8. Property, plant and equipment

The following table illustrates the changes during the current and previous fiscal year.

(In Euro 000’s) Land Plantand and Leasehold

buildings machin. Equip. improve. Others Total

Balance as of 01.01.06 38,292 8,211 8,020 962 5,223 60,708Increases 3,876 530 4,988 627 2,801 12,822

Decreases (9) (4) (394) (25) (401) (833)

Impairment losses

Other changes

Amortization of the period (1,183) (1,743) (3,715) (357) (1,586) (8,584)

Balance as of 12.31.06 40,976 6,994 8,899 1,207 6,037 64,113Increases 863 1,158 6,750 335 1,941 11,047

Decreases (11) (373) (1) (178) (563)

Impairment losses

Other changes

Amortization of the period (1,202) (1,677) (4,365) (374) (1,549) (9,167)

Balance as of 12.31.07 40,637 6,464 10,911 1,167 6,251 65,430





Property includes the value of the building that houses the company’s headquarters, acquired under a finance leasewhose contractual obligations were extinguished in the previous financial year, with formal redemption of theasset.The residual value of the building at the reporting date is as follows:

(In Euro 000’s) 12.31.07 12.31.06

Historic cost 21,610 20,993

Accumulated depreciation (5,414) (4,761)

Net value 16,196 16,232

9. Impairment losses

The recoverable amount of an asset with an indefinite useful life is measured annually at the reporting date, orwhenever there is an indication that the asset may be impaired, in order to assure that assets are not recognizedon the balance sheet at a value exceeding its recoverable amount (measurement of value in use).The recoverablevalue consists of the current value of expected future cash flows discounted by a net income tax rate reflectingcurrent market values of borrowing costs and the specific risk connected with the individual cash generating unit.The tests carried out at the reporting date did not reveal any impairment.

10. Investment property

The residual value of investment property at December 31st, 2007 was Euro 56 thousand. It consisted exclusivelyof real estate leased to third parties.The fair value of these investments is estimated to be Euro 253 thousand,according to the market prices for similar properties available for rent at similar conditions.The following table illustrates the book values of investment property:

(In Euro 000’s)

Historic Cost 115

Accumulated depreciation (55)

Balance as of 01.01.07 60Increases

Decreases

Amortization of the period (4)

Balance as of 12.31.07 56

11. Investments in subsidiaries, joint ventures and associated companies

At December 31st, 2007, the value of investments owned by the company totalled 102,643 thousand euros (atDecember 31st, 2006: 108,025 thousand euros), 102,623 thousand euros of which being invested in subsidiaries (atDecember 31st, 2006: 108,005 thousand euros).The 5,383 thousand euro change is for partial repayment by the subsidiary Del.Com.S.rl. of previous capital grants.Tests performed at the reporting date did not reveal any impairment.The following table provides information onthe subsidiaries:


Shareholders’ Net profit Book valueCompany Currency equity (loss) (Euro)

TOD’S Deutsch. GmbhDusseldorf - Germany

S.C. - Euro 153.387,56

% direct held: 100% Euro 5,394,848.82 1,510,517.50 3,153,387.56

TOD’S France Sas (**)

Paris - France

S.C. - Euro 780.000

% direct held: 100% Euro 7,761,507.40 1,778,435.93 5,707,622.45

An.Del. USA Inc. (*)

New York - U.S.A

S.C. - Usd 3.700.000

% direct held: 100% Usd 30,918,733.22 2,352,566.59 34,656,431.69

TOD’S Internat. BV (*)

Amsterdam – Netherlands

S.C. - Euro 2.600.200

% direct held: 100% Euro 23,673,193.52 5,786,656.51 7,970,662.59

Del.Com S.r.l. (*)

S.Elpidio a Mare – Italy

S.C. - Euro 31.200

% direct held: 100% Euro 59,567,639.00 2,743,430.20 51,107,501.41

TOD’S Hong Kong LtdHong Kong

S.C. - Usd 50.000

% direct held: 1% Hkd 122,578,104.03 49,004,089.39 7,954.53

Un.Del KftTata – Hungary

S.C. - Huf 42.900.000

% direct held: 10% Huf 58,756,939.39 (7,317,494.44) 18,054.44

TOD’S Macao LdaMacao

S.C. – Mop 850,000

% direct held: 1% Mop 300,459.47 (549,540.53) 865.00

(*) The figures for the companies that are directly controlled through subholdings are reported on the Consolidated Financial Statement of TOD’S S.p.a.




12. Inventories

(In Euro 000’s) 12.31.07 12.31.06 Change

Raw materials 43,646 35,959 7,687

Semi-finished goods 20,767 15,091 5,676

Finished products 99,060 84,951 14,109

Advances 1 17 (16)

Depreciation reserve (2,327) (1,097) (1,230)

Total 161,147 134,921 26,226

The accrued writedowns reflect technical and stylistic obsolescence of certain inventories at December 31st, 2007.The provisions accrued at December 31st, 2006 were entirely used in 2007.

13. Other current assets

13.1 Trade receivables.

(In Euro 000’s) 12.31.07 12.31.06 Change

Third parties 97,487 76,876 20,611

Group’s entities 64,274 62,312 1,962

Impairment loss (2,787) (2,489) (298)

Net trade receivables 158,974 136,699 22,275

Receivables from others.These represent the credit exposure stemming from sales made through the wholesalechannel.

Receivables from subsidiaries.They include the Company’s receivables from Group’s entities and stem primarilyfrom commercial transactions and, to a lesser extent, provision of services.

Allowances for bad debts.The amount of the adjustment to the face value of the receivables represents the bestestimate of the impairment loss determined against the specific and generic risk of inability to collect identified inthe receivables recognised on the balance sheet.The changes in the allowances for bad debts are illustrated asfollows:

(In Euro 000’s) 12.31.07 12.31.06

Balance as of 01.01.07 2,489 2,197Increase 385 350

Decrease (87) (58)

Balance as of 12.31.07 2,787 2,489

13.2 Tax receivables. Totalling 9,125 thousand euros (FY 2006: 10,704 thousand euros), they consist principallyof 4.2 million euros in receivables for Value Added Tax, and 4.7 million euros in receivables from the Italiansubsidiaries that participated in the Tax Consolidation Programme (see Note 28).


13.3 Other.

(In Euro 000’s) 12.31.07 12.31.06 Change

Prepaid expenses 3,834 3,913 (79)

Financial assets (Note 14) 7,126 7,250 (124)

Other 3,432 5,773 (2,341)

Total 14,392 16,936 (2,544)

14. Financial assets

Financial assets are comprised exclusively of positions vis-à-vis Group’s companies.

(In Euro 000’s) 12.31.07 12.31.06 Change

Current account overdraft 4,701 4,701 -

Financing within 12 months 2,425 2,549 (124)

Total current assets 7,126 7,250 (124)Financing beyond 12 months 2,122 4,779 (2,657)

Total financial assets 9,248 12,029 (2,781)

The balance at December 31st, 2007 is denominated in the following currencies:

(In Euro 000’s) Euro Jpy Total

Current account overdraft 4,701 4,701

Financing 4,547 4,547

Total 4,701 4,547 9,248

The amount of 4,547 thousand euros refers to a loan denominated in JPY, granted in 2006 to the subsidiary TOD’SJapan KK.




15. Shareholders’ equity

15.1 Capital stock. At December 31st, 2007, at total of 32,000,000 ordinary shares had been authorised forissue at a par value of Euro 2 each. They include 1,750,000 ordinary shares to service the management andGroup’s personnel stock option plans (see Note 22).At the same date, 30,480,920 subscribed shares had been issued, including 79,040 new share certificates issuedin 2007 following exercise of the second tranche of options by the beneficiaries of the aforementioned stockoptions plan. Following these new issues, subscribed and fully paid-in capital totalled 60,961,840 euros atDecember 31st, 2007.

Subscribed ResolvedN° of shares Euro N° of shares Euro



Balance as of 12.31.07 30,480,920 60,961,840 32,000,000 64,000,000

15.2 Capital reserves. Due to the stock options plan, recognition of the fair value of options that could beexercised during the period, together with partial exercise thereof, as indicated above, caused the followingchanges in capital reserves:

(In Euro 000’s) Additional Stockpaid-in capital options

reserve reserve Total



Other (77) (77)



Other

Balance as of 12.31.07 208,763 6,971 215,734

The increase in additional paid-in capital includes not only the amount of the share premium paid upon exerciseof the options but also the fair value of the exercised options themselves (451 thousand euros), which had beenpreviously recognised in the stock options reserve.The latter was also reduced through resetting of the plan atDecember 31st, 2007 (forfeiture due to resignations).

15.3 Hedging reserve. The derivatives resulting from forward currency contracts (see Note 17) used to hedgeexpected transactions (i.e. cash flow hedges) were recognised in the reserve for derivative financial instruments.

(In Euro 000’s) Hedging reserve

Balance as of 01.01.06 (1,083)Change in fair value of hedging derivatives 2,571

Other changes 482

Transfer to Profit and Loss Account of hedging derivatives (1,481)

Balance as of 01.01.07 489Increase in fair value of hedging derivatives 3,482

Transfer to Profit and Loss Account of hedging derivatives (2,804)

Other changes

Balance as of 12.31.07 1,167

15.4 Earning reserves.

(in Euro 000’s) Retained Profit (loss)earnings for the period Total

Balance as of 01.01.06 183,958 44,249 228,207Allocation of 2005 result 13,999 (13,999)

Dividends (30,250) (30,250)




Dividends (38,002) (38,002)


Other changes 50 50

Balance as of 12.31.07 216,293 60,360 276,653

15.5 Information on distributable reserves.The following table provides information on the possible use anddistribution of each specific account under shareholders’ equity and their possible use during the past three years:

(In Euro 000’s) Possibility Available Uses in the preceding 3 years Description of use amount Coverage of losses Others

Capital reservesShare capital - - - -

Share premium A,B,C (1) 208,763 - -

Stock options reserve -

Hedging reserveHedging reserve - - - -

Retained earningsLegal B 12,161 - -

Extraordinary A,B,C 204,132 - -

Legenda(1) Pursuant to section 2431 Italian Civil Code, the entire amount of the reserve may be distributed only when the legal reserve has reached the limitsset forth in Section 2430 Italian Civil CodeA - for capital increaseB - for coverage of lossesC - for distribution to shareholders





16. Bank overdraft and financing

(In Euro 000’s) 12.31.07 12.31.06 Change

Current account overdraft 122 (122)

Financing 11,185 12,514 (1,329)

Total 11,185 12,636 (1,451)

The entire exposure to the banking system is denominated in Euro.The portion payable after 12 months totalsEuro 9,794 thousand, which is entirely attributable to Financing.This is comprised by a long-term loan securedby a mortgage (see Note 21), whose residual principal totals Euro 11,185 thousand, and whose repayment isschedule is as follows:

(In Euro 000’s) 12.31.07 12.31.06

2007 1,329

2008 1,390 1,390

2009 1,454 1,454

2010 1,521 1,521

2011 1,591 1,591

2012 1,664

Over 5 years 3,565 5,229

Total 11,185 12,514

The loans is recognised at cost, a value that approximates its fair value, since the difference between the nominaland effective interest rates for the transaction are insignificant.

Debiti leasing. No loans resulting from finance lease agreements were recognised on the 2007 balance sheet,as they had been discharged in the previous year.

17. Derivative financial instruments

Given the company’s major presence on international markets, it is exposed to exchange rate risk, principally forrevenues denominated in currencies other than the Euro (see Note 18).The principal currencies that pose thisrisk are the U.S. dollar, Hong Kong dollar, Swiss franc, and British pound.In order to realise the objectives envisaged in the risk management policy, derivative contracts were made forevery single foreign currency to hedge a specific percentage of revenue (and cost) volumes expected in theindividual currencies other than the functional currency.At each reporting date, the hedge accounting method is applied.This requires recognition of the derivatives inequity at their fair value and recognition of the changes in fair value, which varies according to the type of hedgeat the valuation date.At the closing date of the financial statements, the notional amount of the currency futures sales agreements aresummarized as follows:

(Currency/000) Notional amount inForeign currency euro

US dollar 32,300 23,601



Swiss Franc 8,000 4,871

74,119


At the same date, the net fair value of foreign currency hedges was 3,689 thousand euros, including assets for3,696 thousand euros (FY 2006: 865 thousand euros) and liabilities for 7 thousand euros (FY 2006: 209 thousandeuros). The net fair value of foreign currency hedges that were earmarked for cash flow hedges was 1,120thousand euros (liabilities) at December 31st, 2007.A total of 2,804 thousand euros in hedges was transferred to the income statement against the contracts for theselast-mentioned hedges that were closed between January and December 2007, increasing revenues for thatperiod.

18. Hedging of financial risks (IFRS 7)

The company has implemented a system for monitoring its financial risks in accordance with the guidelines set outin the Corporate Governance Code of Listed Companies.As part of this policy, the financial risks connected withits operations are constantly monitored in order to assess their potential negative impact and undertakeappropriate action to mitigate them.These risks are analysed as follows, highlighting the company’s level of exposure. It also includes a sensitivityanalysis designed to quantify the potential impact of hypothetical fluctuations in benchmark parameters on finalresults.

i. Credit riskCredit risk represents the exposure to potential losses stemming from failure to discharge obligations towardstrading counterparties.Company’s revenues are realised through sales to Group’s companies (the directly operated store network) andto third parties.There is practically no credit risk on receivables from the Group, since almost all the entitiesbelonging to the TOD’S Group are wholly owned by the Group.The receivables from independent customers aresubject to a hedging policy designed to streamline credit management and reduce the associated risk. In particular,company’s policy does not envisage granting credit to customers,while the creditworthiness of all customers, bothlong-standing and potential ones, is periodically analysed in order to monitor and prevent possible solvency crises.At December 31st, 2007 trade receivables from independent customers totalled 97.5 million euros (76.9 millioneuros at December 31st, 2006). The following table breaks down these receivables, with separate indication ofoverdue amounts and current amounts:

(In Euro 000’s) ExpiredCurrent 0>60 60>120 Over Total

Third parties 68,706 19,792 2,557 2,494 93,549

Special Purpose entities 1,071 299 547 2,021 3,938

Total 69,777 20,091 3,104 4,515 97,487

The prudent estimate of losses on the entire credit mass existing at December 31st, 2007 was 2.8 million euros.

ii. Liquidity riskLiquidity risk is the risk that the company will not dispose of the funds necessary to meet its short-termcommitments and financial requirements.The principal factors that determine the company’s degree of liquidityare the resources generated or used by operating and investment activities and, on the other hand, the due datesor renewal dates of its payables or the liquidity of its financial investments and market conditions.In the specific case, the company faces no liquidity risk due to its profitability, current and historic capacity togenerate cash, and its limited exposure to the banking system.As the following table shows, the company’s financialresources at December 31st, 2007 are far higher than its debt exposure.





Current financial assetsCash and cash equivalents 43,004 61,517 (18,513)

Cash 43,004 61,517 (18,513)Current financial liabilitiesCurrent account overdraft (122) 122

Current share of medium-long term financing (1,391) (1,329) (62)

Financial leasing 0

Current financial liabilities (1,391) (1,451) 60Current net financial position 41,613 60,066 (18,453)Non current financial liabilitiesFinancial leasing

Financing (9,794) (11,185) 1,391


iii. Market riskIFRS 7 includes in this category all risks that are directly or indirectly connected with the fluctuation in prices onphysical and financial markets to which the company is exposed:- exchange rate risk;- interest rate risk;- commodity risk, connected with the volatility of prices for the raw materials used in the production process.The company is exposed to exchange rate and interest rate risk, since there is no physical market subject to actualfluctuations in the purchase prices for raw materials used in the production process.The following paragraphs analyse the individual risks, using sensitivity analysis as necessary to highlight thepotential risk on final results stemming from hypothetical fluctuations in benchmark parameters.As envisaged byIFRS 7, these analyses are based on simplified scenarios applied to the final results for the periods referred to. Bytheir very nature, they cannot be considered indicators of the actual effects of future changes in benchmarkparameters of a different asset and liability structure and financial position different market conditions, nor canthey reflect the interelations and complexity of the reference markets.

Exchange rate risk. Due to its commercial operations, the company is exposed to fluctuations in the exchangerates for currencies in which some of its commercial transactions are denominated (particularly USD, GBP, CHFand those of certain countries in the Far East), against a cost structure that is concentrated principally in theeurozone. The company realises greater revenues than costs in all these currencies; therefore, changes in theexchange rate between the euro and the aforementioned currencies can impact the company’s results.With the exception of the foregoing, the company is not particularly exposed to foreign exchange risk. Theresidual component of this risk is connected principally with “translation risk”.This risk stems from the fact thatthe assets and liabilities of consolidated companies whose functional currency is different from the euro can havedifferent countervalues in euros according to changes in foreign exchange rates. The measured amount of this riskis recognised in the “translation reserve” in equity.The company monitors the changes in the exposure. No hedges of this risk existed at the reporting date.Governance of individual foreign currency operations by Group’s subsidiaries is highly simplified by the fact thatthey are wholly owned by the company.The company’s risk management policy aims to ensure that the average countervalue in euros of receipts onwholesale transactions denominated in foreign currencies for each collection (Spring/Summer and Fall/Winter) isequal to or greater than what would be obtained by applying the pre-set target exchange rates.The companypursues these aims by entering into forward contracts for each individual currency to hedge a specific percentageof the expected revenue (and cost) volumes in the individual currencies other than the functional currency.These


positions are not hedged for speculative or trading purposes, consistently with the strategic policies adopted forprudent management of cash flows.Consequently, the company might forego opportunities to realise certain gains,but it avoids running the risks of speculation.The company defines its exchange risk a priori according to the reference period budget for the reference periodand then gradually hedges this risk upon acquisition of orders, in the amount according to which they correspondto budget forecasts.The process of hedging exchange rate risk is broken down into a series of activities that can be grouped into thefollowing distinct phases:• definition of operating limits;• dentification and quantification of exposure;• implementation of hedges;• monitoring of positions and alert procedures.The following table illustrates the breakdown of notional and fair values:

(Currency/000) Notional amount inForeign currency euro

US dollar 32,300 23,601




74,119

The assets and liabilities that are denominated in foreign currency are identified as part of the sensitivity analysisof exchange rates.The potential effect of fluctuations in the benchmark rates (EUR/USD, EUR/GBP, EUR/YEN,EUR/SGD, EUR/HKD, EUR/CHF) were analysed to determine their potential impact on final results.The following table illustrates the sensitivity to reasonably likely changes in exchange rates on pre-tax profit (dueto changes in the value of current assets and liabilities denominated in foreign currency) while holding all othervariables constant:

(In Euro)Impact on pre-tax - 5% writedown Impact on pre-tax - 5% revaluation

Currency Country of the foreign currency of the foreign currency

CHF Switzerland (40,531.0) 44,797.5

GBP UK (72,584.5) 80,225.0

HKD Hong Kong (65,237.2) 72,104.3

JPY Japan (10,529.8) 11,638.2

KRW South Korea 14,500.7 (16,027.1)

SGD Singapore (32,230.8) 35,623.5

USD USA (289,422.8) 319,888.4

Altre valute n.a. (1,086.3) 1,200.6

Total (497,121.7) 549,450.3

(In Euro 000’s) Revaluation / writedown Impact onforeign currency Shareholders’ equity

5% 1,338.62007

-5% (1,479.5)

The analysis did not include assets, liabilities and future commercial flows that were not hedged, since fluctuationsin exchange rates impact income in an amount equal to what is recognised in the fair value of adopted hedgeinstruments.




Interest rate risk. The company’s exposure to changes in interest rates is limited to an adjustable rate loandenominated in euros. Interest rate risk is hedged consistently with consolidated practice, which is designed toreduce the risks of interest rate volatility by simultaneously pursuing the aim of minimising associated financialexpenses. Considering the insignificant amounts involved (Note 16), there were no current interest rate hedgescurrent at December 31st, 2007.

The sensitivity analysis carried out on interest rates has shown that a hypothetically unfavourable change of 10% inshort-term interest rates applicable to the adjustable rate financial liabilities existing at December 31st, 2007 wouldhave a net pre-tax impact of about 50 thousand euros in additional expenses.

19. Deferred tax assets and liabilities

At December 31st, 2007, measurement of the effects of deferred tax assets and liabilities, determined on the basisof temporary differences between the income reported on the financial statements and the taxable income, showsa net balance (liabilities) of Euro 14,622 thousand (Euro 17,703 thousand in fiscal 2006):

(In Euro 000’s) 12.31.07 12.31.06 Change

Deferred tax assets 1,773 2,181 (408)

Deferred tax liabilities (16,395) (19,254) 2,859

Net balance (14,622) (17,073) 2,451

When determining future tax impact (IAS 12), reference was made to the presumed percentage weight of thetaxes that will be imposed on income in the years when those taxes will be charged. In particular, the changes intax rates introduced by the 2008 Italian National Budget Act were considered. Starting from 2008 income, this lawenvisaged a 5.5 point cut in the corporate income tax (IRES) rate, which was reduced from 33% to 27.5%.In consequence of these changes, the impact of deferred taxes was recalculated for the deferred tax assets andliabilities recognised in previous years by using the tax rates known in those periods, and consequently recognisingthe resulting charges/gains in income for FY 2007.An exception is made for those assets/liabilities whose changeswere previously recognised directly in equity pursuant to IFRSs, although this case does not apply to the company’sbalance sheet.These changes in deferred taxes due to the change in tax rates had a net positive impact of about 2.8 million euroson income for FY 2007, following the reduction in deferred tax liabilities and assets by 2.9 and 0.1 million euros,respectively.

In FY 2007, the company also availed itself of the possibility of making a one-off adjustment to temporarydifferences between the value of assets and liabilities carried on the balance sheet with those recognised fortax purposes.This adjustment was made by paying a substitute tax (see Note 28). In order to streamline thesystem of taxing business income, Italian tax authorities approved a reform to reduce the temporary differencesbetween statutory income and taxable income, resulting from extremely complex tax regulations (whichpermitted recognition of costs and revenues even if they were not recognised on the income statement). Oneof the features of this reform is full recognition for both statutory and tax purposes of costs and revenuesdetermined in accordance with IFRSs (applied by the parent company). In order to accelerate this process,companies were given the possibility of recognising previously generated differeces all at once, without waitingfor natural reversal of these differences in future years.Exercise of this option by the company entailed reversing the reserve for deferred taxes by 2 million euros.The balance of deferred tax assets and liabilities at December 31st is shown in the following table, highlightingthose components that contributed to their formation:


(In Euro 000’s) 12.31.07 12.31.06Assets Liabilities Assets Liabilities

Amortization, depr. and write-downs 130 (11,496) 247 (13,213)

Provisions 86 (410) 75 (492)

Property, plant and equipment (leasing) (4,312) (5,323)

Cost deductible over several year 350

Partially deductible costs 650 745

Inventory (internal profits and write-downs) 735 411

Derivative financial instruments 183

Other 172 (177) 170 (226)

Total 1,773 (16,395) 2,181 (19,254)

Tax suspension reserves. The following information is provided on reserves in shareholders’ equity that, ifdistributed, will constitute taxable income for the company, in connection with the situation following the capitaltransactions carried out pursuant to the August 5th, 2000 resolution of the extraordinary Shareholders’ Meeting:a. for the reserves in equity, only the extraordinary reserve remains; formed with income that was regularly

subjected to taxation, it would not constitute taxable income for the company were it to be distributed;b. previously defined reserves have been converted into the form of share capital, as follows:

(In Euro)

reserve for adjustments art. 15 paragraph 10 DL 429/82 149,256.04

reserve for greater deduction of VAT 508.19

reserve for inflation adjustments pursuant to Law n° 72/83 81,837.76

reserve for deduction art. 14 paragraph 3 – Law n° 64/86 5,783.8

for a total of Euro 237,385.80, which, if distributed, would represent taxable income for the company.

20. Other current liabilities

20.1 Trade payables

(In Euro 000’s) 12.31.07 12.31.06 Change

Third parties 107,879 96,113 11,766

Subsidiaries 5,765 6,749 (984)

Total trade payables 113,644 102,862 10,782

To Third parties. These stem exclusively from commercial transactions as part of ordinary processes forpurchase of goods and services.To subsidiaries. These represent payables to Group’s entities, principally for provision of services.

20.2 Tax payables. Tax payables total 2,405 thousand euros (fiscal 2006: 12,850 thousand euros), including2,045 thousand euros payable (net of tax prepayments) for determining the tax liability for the fiscal year, includingthe liability contributed by the subsidiaries participating in the national Tax Consolidation Programme (Note 28).




20.3 Other

(In Euro 000’s) 12.31.07 12.31.06 Change

Payables to employees 2,882 2,684 198

Social security institutions 2,854 2,040 814

Others 8,575 6,697 1,878

Total 14,311 11,421 2,890

Payables to employees reflected amounts accrued in their favour (including unused holiday leave) that had not yetbeen paid at the reporting date.

21. Provisions and potential liabilities and assets

21.1 Provisions. They include Euro 400 thousand (Euro 369 thousand in 2006) as the prudent estimate ofliabilities that the Group might incur if it loses a series of pending lawsuits. No provisions were set aside in fiscal2007.

21.2 Potential liabilities and other commitmGuarantees granted to others. A total of Euro 17,457 thousand in suretyships had been granted to others atDecember 31st, 2007 to secure the contractual commitments of subsidiaries.

Guarantees received from others. The guarantees received from banks to cover their own contractualcommitments totalled Euro 12,679 thousand.

Mortgages. A first mortgage on a owned building (production plant in Sant’Elpidio a Mare) for Euro 30 millionwas granted to the lender for a loan received by the company (see Note 16).This mortgage secures the lent capitaland all expenses deriving from the agreement.

21.3 Derivative financial instruments. For a detailed analysis of derivative financial instruments, used for thecoverage of transaction in foreign currency, please see Note 17. All derivative contracts made with leading financialinstitutions will expire in 2008.

21.4 Operating lease agreements. The operating leases entered into by the company are for use ofproperties used to conduct its operating activities (offices, production plants).The amount of lease instalmentspayable after the reporting date pursuant to these agreements is as follows:

(In Euro mn) 2007 2006

2007 3.6

2008 3.8 3.4

2009 3.6 3.4

2010 3.4 3.2

2011 3.2 3.0

2012 2.9

Over 5 years 3.6 6.2

Total 20.5 22.8

The operating lease instalments allocable to fiscal 2007 totalled Euro 4.3 million euros (Fiscal 2006 3.5 millionseuros).


22. Share based payments (stock options)

The stock options plan approved in May 2005 by the Board of Directors in favour of directors, employees andcollaborators of the company and the TOD’S Group envisages that a maximum of 1,750,000 options be grantedin the four-year period 2005-2009 for ordinary shares. These options are gratuitous, personal and non-transferrable between living persons.The options can be exercised at the dates envisaged in the regulation, on condition that assigned targets be met.Each option gives the grantees the right to subscribe one ordinary share of TOD’S S.p.a. at the price of Euro 36.3,equal to the average stock market price of the stock during the 30 days prior to the resolution that establishedall the conditions.The key aspects of the plan are illustrated as follows.

Exercise (*)Number ofprice options that

Tranche (Euro) can be exercised Conditions of exercise

Fiscal 2006 1 36.3 (**)10% a) achievement of 2005 target

b) employment by group

Fiscal 2007 2 36.3 (**)20% a) achievement of 2006 target


Fiscal 2008 3 36.3 30% a) achievement of 2007 target


Fiscal 2009 4 36.3 40% a) achievement of 2008 target


(*) With respect to the total number of granted options(**) Right to exercise accrued

A total of 1,522,800 options were granted to company’s directors, employees and collaborators (including1,182,000 options to the Directors and General Manager, see Note 24).

In 2007, the plan beneficiaries accrued the right to exercise their options for the second tranche, correspondingto 20% of all the options that had been originally granted. The following changes in the number of granted optionstook place in FY 2007:

Number of options 2007 2006

At the first of January 1,333,400 1,522,800Exercised 1st tranche (800)

Exercised 2nd tranche (70,880) (146,920)

Expired (2,880) (42,480)

At the end of December 1,270,360 1,333,400

At the end of the fiscal year, the options not yet exercised are broken down as follows by year of exercise:

Number of options That can be exercised

Fiscal 2008 (*) 675,320

Fiscal 2009 595,040

Total 1,270,360

(*) Including 2,400 and 226,640 options for the first and second tranches, respectively




The value of the options is based on an appraisal drafted and certified by an independent actuary, who used thebinomial method to determine their fair value, on the basis of a typically risk neutral assumption.The assumptions used in the appraisal are described as follows:• the risk free rate curve is deduced from the Euroswap rates at the vesting date (bootstrap technique);• the expected volatility of the stock was determined on the basis of its historic volatility over one year (260

stock market trading days), calculated in reference to the vesting date (the index turned out to be 0.1902);• orecast dividend rate of the underlying security: 1.15%;• possibility of deferring exercise of the accrued options to the following tranche (with the sole exception of

the Chairman and Vice Chairman);• possibility of exercising the option at any time the exercise windows were open.The aggregate cost reported on the financial statements for the services received in fiscal 2006 and recognizedwith share based payments was Euro 2.6 million.Aside from what is described above, there are no other incentive plans based on financial instruments granted todirectors, employees and collaborators.

Furthermore, neither the parent company nor any other Group’s company granted loans or guarantees to thegrantees of stock options in order to facilitate their exercise.

23. Reserves for employees

The employee severance indemnities, a deferred compensation plan in favor of the employees of the company,qualifyas a defined benefit plan (IAS 19), because the obligation is not discharged by payment of the contributions accruedon the paid compensation but continues until the end of the employment relationship.For these types of plans, the principle requires that the accrued amount be projected into the future in order todetermine the amount to be paid upon termination of the employment relationship,with an actuarial assessment thataccounts for the rate of rotation of employees, expected evolution of compensation, and other factors.The statutory amendments imposed effective January 1st, 2007 on companies with more than 50 employees entailedmajor changes in termination benefits (TFR).The new rules envisage that the amounts of TFR accrued starting fromJanuary 1st, 2007 be allocated to supplemental retirement funds or, alternatively, to a treasury fund set up at theIstituto Nazionale di Previdenza Sociale (INPS).Consequently, the actuarial liabilities recognised at December 31st, 2006 had to be recalculated, by excluding thecomponent applicable to future wage and salary increases, which had been considered in previous calculations.Thisredefinition generated recognition of prior period income totalling 0.7 million euros for FY 2007.Furthermore, since all obligations of companies towards their employees ceased effective January 1st, 2007,all accruedTFR is now covered by the rules imposed for defined contribution plans,which no longer require actuarial calculationand discounting.

The changes during the year in the aggregate liability accrued towards employees current at December 31st, 2007are illustrated as follows:


Initial balance 10,083 9,207Adjustment initial balance (734)

Current benefits 266 1,469

Financial expenses 404 435

Benefits paid (1,358) (1,028)

Final balance 8,661 10,083

24. Transactions with related parties

The company has implemented a formal system of rules within its own corporate governance system regardingthe handling of transactions with related parties, as defined in IAS 24. The company’s governance system wasrecently revised on the basis of the New Corporate Governance Code issued by Borsa Italiana. The rulesgoverning transactions with related parties are found in a document entitled Guidelines for Transactions withRelated Parties (Linee guida per le operazioni con parti correlate).These guidelines were adopted by the Boardof Directors in order to formalise all procedures approved by the Board of Directors that are considerednecessary to ensure the regularity and transparency of any transactions to be executed with stakeholders in thecompany, as well as their substantial fairness, such as to assure that the executed transactions actually satisfy theexclusive interest of the company, with application of contractual conditions that do not diverge from those thatcould theoretically be obtained through negotiation with third parties.

During fiscal 2007, the principal object of transactions with related parties was the sale of products, lease of spacesfor retail outlets, show rooms, and offices, the user license for the Roger Vivier brand, provision of advertisingservices.The following table illustrates the details of these transactions: considering the insignificance of the amounts, theywere not separately indicated in the financial statements.

24.1 Commercial transactions with related entities – revenues and costs


Costs Revenues costs Costs Revenues costs

Selling of products

Roger Vivier Paris S.a.s 20 1,430 79 17

Ordinary leases

Immobiliare De.Im. S.r.l. 2,814 111 2,232 84

User license contract for the “Roger Vivier” brand

Gousson - Consultadoria & Mark. Lda 776 7,367 768 3,411

Advertising services

Forma Pura S.r.l. 2,039 1,814

Total 5,649 8,908 4,893 3,512

24.2 Commercial transactions with related entities – receivables and payables

Receivables and payables 12.31.07 12.31.06(Euro/000) Receivables Payables Receivables Payables

Roger Vivier Paris S.a.s 537 5 79

Immobiliare De.Im. S.r.l. 84 245 434

Holpaf BV

Gousson - Consultadoria & Mark. Lda 5,728 508 1,420 418

Forma Pura S.r.l. 636 606

Total 6,349 1,389 1,859 1,103





24.3 Compensation of Directors, Statutory Auditors, General Managers, and Executives withstrategic responsibilities. The following schedule illustrates the compensation accrued in FY 2007 by eachDirector, Statutory Auditor, General Manager and Executive with strategic responsibilities at TOD’S S.p.A.(including for their activities at subsidiaries), for any reason and in any form:

(In Euro 000’s) Non Bonus and Other compensationCompensation cash other

for office benefits incentives Amount Nature

Directors (terms of the office 2006-2008)

Diego Della Valle (*)(***) 392.2

Andrea Della Valle (**) (***) 290.0 5.2 (1)

Luigi Abete 29.7

Maurizio Boscarato 32.7 148.2 (2)

Luigi Cambri 37.6

Luca C. di Montezemolo 24.7

Emanuele Della Valle 24.0

Fabrizio Della Valle (***) 32.0

Emilio Macellari (***) 32.2 480.0 (2)

Pierfrancesco Saviotti 36.7

Stefano Sincini (***) 316.2 126.0 (1)

Total Directors 1,248.0 759.4Statutory auditors (terms of the office 2007-2009)

Enrico Colombo (****) 60.4 28.3 (3)

Gian Mario Perugini 40.0 18.9 (3)

Fabrizio Redaelli 40.0

Total Statutory Auditors 140.4 47.2General Directors

Stefano Sincini 353 208

Legend(*) Chairman of Boear of Directors(**) Vice Chairman of Board of directors(***) Member of the executive committee(****) Chairman of the Statutory Board(1) Director of subsidiary(2) Consultant of TOD’S S.p.a.(3) Statutory Auditors of subsidiary

24.4 Share-based payment. The following table summarises the information on stock options granted tomembers of the Board of Directors, General Managers and Executives with strategic responsabilities (Note 22).

Granted 2007 Exercised 200701.01.07 exercise exercise 12.31.07options number of price number of price options

held options (Euro) options (Euro) held

Diego Della Valle 468,000 36.3 468,000

Andrea Della Valle 369,000 36.3 369,000

Luigi Abete 12,000 36.3 12,000

Maurizio Boscarato 10,800 2,400 36.3 8,400

Luigi Cambri 10,800 2,400 36.3 8,400

Luca C. di Montezemolo 10,800 36.3 10,800

Emanuele Della Valle 12,000 36.3 12,000

Fabrizio Della Valle 54,000 36.3 54,000

Emilio Macellari 54,000 12,000 36.3 42,000

Pierfrancesco Saviotti 10,800 36.3 10,800

Stefano Sincini 54,000 36.3 54,000

Total 1,066,200 16,800 1,049,400

25. Personnel costs

The cost of labour in fiscal 2007 and 2006 is broken down as follows:

(In Euro 000’s) % of salesYear 2007 Year 2006 Change 2007 2006

Wages and salaries 35,406 32,215 3,191 7.0 7.0

Social security contributions 10,995 9,953 1,042 2.2 2.2

Employee sev. indem. 1,669 1,547 122 0.3 0.3

Stock options 451 615 (164) 0.1 0.1

Total 48,521 44,330 4,191 9.6 9.7

The breakdown of company’s employees by category is illustrated as follows:

12.31.07 12.31.06 Average 07 Average 06

Executives 33 32 32 31

White-collar employees 584 479 557 474

Blue-collar employees 705 699 707 697

Total 1,322 1,210 1,296 1,203





26. Financial income and expenses

The breakdown of financial income and expenses in fiscal 2007 is as follows:


IncomeInterest income on current account 2,004 1,773 231

Foreign exchange gains 5,656 4,942 714

Other 47 33 14

Total income 7,707 6,748 959ExpensesInterest on medium-long term financing (513) (490) (23)

Foreign exchange losses (6,196) (6,865) 669

Other (884) (834) (50)

Total expenses (7,593) (8,189) 596Total net income and expenses 114 (1,441) 1,555

27. Income from investments

The company received 4.1 million euros in dividends from subsidiaries in FY 2007 (FY 2006: 2.6 million euros).

28. Income taxes

The tax liability for fiscal 2007 (current and deferred) was 31.6 million euros, giving a tax rate of 34.4% (FY 2006:41.2%). Income taxes for the period are broken down into current and deferred taxes, as follows:


Current taxes 33,286 35,259 (1,973)

Deferred taxes (1,679) 4,590 (6,269)

Total 31,607 39,849 (8,242)

As previously mentioned in Note 19, following the tax reform enacted by the Italian government, the company willavail itself of the possiblity of adjusting the temporary differences between the values of assets and liabilitiescarried on the balance sheet with those recognised for tax purposes through payment of a substitute tax of 0.8million euros that will be paid in 2008-2010, and consequent reversal of 2 million euros in deferred tax liabilitiesthat had been previously recognised on the balance sheet.

The theoretical tax rate for FY 2007 (impact of theoretical tax on pre-tax profit) was 39.6%, determined byapplying the IRES and IRAP tax rates applicable to 2007 taxable income as reported on the financial statementsat December 31st, 2007.The following schedule reconciles theoretical taxes, calculated by using the theoretical taxrate of the parent company, and the taxes actually charged to income:


(In Euro 000’s) Taxes %

Theoretical income taxes 36,413 39.6%Tax effect of non-deductible of partially deductible costs 1,084 1.1%

Non-deductible taxes 113 0.1%

Share based payments 90 0.1%

Non taxable income (58) (0.1%)

Dividends (1,291) (1.3%)

Other (497) (0.5%)

Substitute tax 774 0.8%

Change on deferred tax assets/liabulities (5,021) (5.5%)

Effective income taxes 31,607 34.4%

Tax consolidation program.The company, exercising the option envisaged by the new version of the TUIR andthe implementing decree pursuant to Article 129, together with the Italian subsidiaries that are presumably subjectto a controlling relationship pursuant to Article 120 TUIR, decided to have the Group participate in the nationaltax consolidation program for IRES.According to this law,TOD’S S.p.A., as controlling company, has aggregated its income with that of the subsidiariesparticipating in the national tax consolidation program since fiscal 2004. It does so by fully offsetting all thepositive and negative taxable amounts, thereby benefiting from any losses contributed by the subsidiaries andassuming the expenses transferred from those subsidiaries with positive taxable income.TOD’S S.p.A. essentially acts as a “clearing house” for taxable income (profits and losses) of all Group’s companiesparticipating in the tax consolidation program, as well as financial relationships with revenue agency offices.At thesame time, it recognizes liabilities or credits vis-à-vis those subsidiaries that produced tax losses and those that,on the contrary, transferred taxable income.Independently of the taxes that are paid, the company’s net result is impacted exclusively by the income taxesaccrued on its own taxable income.

29. Independent Auditors compensation

Pursuant to Article 149-duodecies of the Issuers Regulation, the compensation received in FY 2007 by theindependent auditor Deloitte & Touche S.p.a. and the companies belonging to its network are illustrated below, asbroken down into auditing services and the provision of other services:

FeesType of service Company Receiver (Euro/000)

Auditing services Deloitte & Touche Spa TOD’S S.p.A. 156

Other services Deloitte & Touche Spa TOD’S S.p.A. 144

Auditing services Deloitte & Touche Spa Subsidiaries 147

Total Deloitte & Touche Spa 447Auditing services Deloitte & Touche (network) Subsidiaries 62

Total Deloitte & Touche 509




30. Certification of the Separate Financial Statements of TOD’S S.p.A. and theConsolidated Financial Statements of the TOD’S Group pursuant to Article 81-ter ofConsob Regulation n°11971 of May 14th, 1999, as amended

1. The undersigned Stefano Sincini, Chief Executive Officer of TOD’S S.p.A., and Rodolfo Ubaldi, managerresponsible for the drawing up of the financial reports of TOD’S S.p.A., certify, in accordance with the provisionsof Article 154-bis, subsections 3 and 4, of Legislative Decree n°. 58 of February 24th, 1998:

• the adequacy in terms of the company’s characteristics and• effective application

of administrative and accounting procedures for preparation of the Separate Financial Statements andConsolidated Financial Statements during the period January 1st, 2007 to December 31st, 2007.

2. They also certify that the Separate Financial Statements and Consolidated Financial Statements:a) correspond with what is set out in the books and accounting records;b) as far as is known, having been prepared in accordance with the International Financial Reporting Standards

adopted by the European Union, and the measures issued in implementation of Article 9 of LegislativeDecree n° 38 of 2005, adequately, truthfully and fairly represent the assets, liabilities, operating result andfinancial position of the Issuer and the group of companies included in the scope of consolidation.


Stefano Sincini Rodolfo UbaldiChief Executive Officer Manager responsible for the drawing

up of the financial reports

REPORT OF THE BOARD OF STATUTORY AUDITORS

REPORT BY THE BOARD OF AUDITORS TO THE GENERAL MEETING OF SHARE-HOLDERS OF TOD’S S.P.A., PURSUANT TO ARTICLE 153 OF LEGISLATIVE DECREEN° 58/1998 AND SECTION 2429 OF THE ITALIAN CIVIL CODE

Dear Shareholders,In the year ended on December 31st, 2007, we discharged the supervisory tasks imposed under law, in accordancewith the rules of conduct for the Board of Auditors, attending the meetings of corporate organs, carrying outperiodic checks and meeting with the Independent Auditors’ managers, the Company’s Internal Control managersand the Executive in charge of Drawing up of the Company’s accounting documents, appointed during the courseof the year, to exchange information on the activities undertaken by them, and to assess the timetable of scheduledinternal control operations.Pursuant to article 153 of legislative decree no. 58/1998 and section 2429 of the Italian Civil Code, as well as takinginto account the indications in CONSOB notices no. DEM/1025564 of April 6th, 2001, as further amended andextended, we report the following:• We have supervised and checked compliance with the law and the instruments of incorporation.• The directors provided us,with the required periodicity, information on the activities undertaken by them, and

on the most significant economic, financial and capital transactions effected by the Company and itssubsidiaries, ensuring us that the same were in accordance with law and the articles of association and werenot manifestly imprudent or risky, in potential conflict of interest, in breach of the resolutions passed by theGeneral Meeting of Shareholders or susceptible of compromising the integrity of the Company’s assets.

• We have not found nor received information from the Board of Directors, the Independent Auditors or theInternal Control and Corporate Governance Committee regarding the existence of atypical and/or unusualtransactions effected with third parties, related parties or between group companies.

• In particular in the directors’ report on company management attached to the separate financial statementsof Tod’s S.p.A., as well as in the explanatory notes attached to the consolidated financial statements of the Tod’sGroup and the separate financial statements of Tod’s S.p.A., to which reference is here made (with regard tomatters falling within our purview, and especially in respect of the features of the transactions and theireconomic effects), the directors have provided an account of the ordinary transactions undertaken with othergroup companies and/or related parties during the course of the financial year.With regard to such transactions, the Board of Auditors, with the help of the Board of Directors and theInternal Control and Corporate Governance Committee, checked for the imposition of and compliance withprocedures aimed at ensuring that the said transactions are concluded at suitable terms and in theCompany’s interest.

• since the conditions therefor have not been met, no mention has been made of atypical and/or unusualtransactions.The information pertaining to transactions with group companies and/or related parties, contained, in particular,in the paragraphs “Transactions with related entities” in the explanatory notes attached to the IAS/IFRSconsolidated financial statements of the Tod’s Group, “Transactions with group companies” in the directors’report on company management “Transactions with related parties” in the explanatory notes to the separateIAS/IFRS financial statements of Tod’s S.p.A., are adequate in light of the Company’s size and structure.

• The independent auditors have expressed an opinion without comment on the financial statements, therebyattesting that the same are in accordance with the rules governing financial statements and therefore with theCompany’s books, the relevant provisions of the Italian Civil Code and national and international AccountingPrinciples;

• On November 13th, 2007, a shareholder lodged a complaint pursuant to section 2408 of the Italian Civil Code,following which the Board of Auditors launched the relevant investigations and consultations, undertaking toreport its findings, in accordance with the procedures contemplated under applicable regulations, as notifiedto the complainant shareholder by registered letter of November 29th, 2007.The complaint referred to thealleged unlawfulness of article 14, paragrapn 1 of Tod’s S.p.A.’s Articles of Association, insofar as the said

138 Report of the Board of Statutory Auditors


paragraph rpvodies that, in the case where the Chairman and/or Deputy Chairman of the Board is absent orotherwise unavailab,e the General Meeting of Shareholders is to be chaired “by another person appointed forsuch purpose by the Board itself”. In particular, the shareholder contended that article 14 paragraph 1 of theArticles of Association are in conflict with the Civil Code, asserting that the Articles of Association cannotinvest the Board of Directors with the power to appoint the person who is to chair the General Meeting ofShareholders, in the asbence of the administrative organ’s Chairman or Deputy Chairman, since in the absenceof the latter, the chair of the General Meeting of Shareholders must be selected by the said meeting itself. Insuch regard, the Board of Auditors ascertained that,while the current language of article 14 of the Tod’s S.p.A.’sArticles of Association appear lawful on the basis of an authoritative interpretation provided by the CompaniesCommission of the Notarial Board of Milan, in its recommendation no. 83 of November 22nd, 2005 (“Articlesof the Articles of Association for identifying the chair of the general meeting of shareholders [sections 2371 and2479-bis of the Italian Civil Code]”), in a recent decision (Court of Civil Cassation, decision no. 19160 ofSeptember 13th, 2007), the First Section of the Supreme Court quite unexpected set aside the said interpretationthat has long been entrenched in corporate practice and confirmed by the Notarial Commission.With regard to the chair of the general meeting of shareholders of joint-stock companies, the Supreme Courtin fact held that “the clause [of the Articles of Association] invest[ing] the Board of Directors with the powerof appointment, is in clear conflict with section 2371 of the Italian Civil code which, in respect of suchsubordinate hypothesis, requires, on the other hand, the general meeting of shareholders to be chaired by aperson by the majority of the shareholders present.There is no doubt that this requirement must be deemedimperative, given the absence of an express statutory provision allowing for a different procedure to beentrenched in the Articles of Association.” Accordingly, the Board of Auditors determined that article 14, paragraph 1, of Tod’s S.p.A.’s Articles ofAssociation stands in conflict with Supreme Court’s interpretation of section 2371 of the Italian Civil Code.In light of these considerations, on December 3rd, 2007, the Board of Auditors notified the Board of Directorsof two possible alternatives, to wit:1. the calling of an extraordinary general meeting of shareholders in order to examine a motion for the

amendment of the company’s Articles of Association with a view to bringing the same in line with the recentdecision of the Supreme Court, or, should the Board of Directors deem an amendment to the Articles ofAssociation inappropriate at the moment, to wait until the recent case law is further consolidated; 2.

1. the calling of a Board meeting to pass resolution requiring the Board itself, in the case where the Chairmanor Deputy Chairman of the Board of Directors is absent or otherwise unable to chair the General Meetingof Shareholders, to abstain from applying the principle entrenched in article 14, parapgrah 1 of the Articlesof Association – insofar as the same provides for the chair of the General Meeting of Shareholders to beappointed by the Board – inviting the General Meeting of Shareholders to directly elect its chair.

Following the aforesaid notification, the Board of Directors, opted for the alternative set forth in point 1, andcalled a Special General Meeting of Shareholders for the approval of the proposed amendments to the Articlesof Association;

• no reports were received during the course of the financial year• the information received from the Independent Auditors indicates that in 2007,Tod’s S.p.A. entrusted the same

with three tasks in addition to those pertaining to the auditing of the financial statements of the Company andits subsidiaries, such tasks being summarised in terms of subject-matter and fees as follows:a) completion of agreed auditing procedures on the sales of footwear bearing the Tod’s and Hogan trade mark,

on Tod’s S.p.A.’s global and French market, for the financial years from 2000 to 2006, as for January 2007, foran overall fee of euro 4,500, plus expenses;

b) “technical-methodological” support to the Tod’s S.p.A. Workgroup in respect of the analysis of theprocedures designed to ensure compliance with Law no. 262/05, for an overall fee of euro 92,000,plus expenses;

c) activities in support of the project launched by Tod’s S.p.A. with a view to adopting an organisational modelpursuant to Law no. 231/2001 on corporate liability, for an overall fee of euro 47,500 plus expenses.



Following the involvement of the board of auditors in the assessment of the independence of the auditing firm,no critical aspects have emerged which are worthy of mention.

• During the course of the year we have issued our opinion pursuant to Section 154-bis, paragraph 1 ofLegislative Decree no. 58/1998.

• During the course of the financial year we attended 8 meetings of the Board of Directors and 4 meetings ofthe Executive Committee. Furthermore, 7 meetings of the Board of Auditors, were held.

• To the extent of our powers and purview, we oversaw and checked for compliance with the principles of goodcorporate governance and the appropriateness of the organisational structure and the instructions impartedby the Company to subsidiaries pursuant to article 114, paragraph 2 of Legislative Decree no. 58/1998, throughdirect observation, information gathered during meetings with company’s officers in charge of corporateorganisation, and exchanges of significant information during meetings with the Independent Auditors and withthe Executive in charge of Drawing up of the Company’s accounting documents.

• To the extent of our powers and purview,we oversaw and checked the appropriateness of the internal controlsystem, and the activities undertaken by staff in charge of internal control and the administrative/accountingsystem and the reliability of the latter to faithfully reflect corporate management, by obtaining information fromthe company officers in charge of the relevant corporate departments, examining corporate documents andanalysing the results of the work undertaken by the Independent Auditors, attending Internal Control andCorporate Governance Committee meetings and meetings with the Executive in charge of Drawing up of theCompany’s accounting documents.

• Following the contacts with the corresponding bodies of the subsidiaries, where no members of the board ofauditors were already present, no material aspects have emerged.

• No significant aspects or issues worthy of mention arose during the meetings held with the IndependentAuditors pursuant to article 150(3) of Legislative Decree no. 58/1998.

• We checked the procedures for the proper implementation of the rules of corporate governance entrenchedin the new edition of the Self-Regulatory Code of the Corporate Governance Committee of listed companies,adopted by the Board of Directors on November 13th, 2006. At the meeting of November 13th, 2007,Tod’sS.p.A’s Board of Directors identified Tod’s France Sas,Tod’s Japan KK, Deva Inc., and Tod’s Hong Kong Ltd., as“strategically significant subsidiaries”;

• Through direct checks and information obtained from the Independent Auditors and the Executive in chargeof Drawing up of the Company’s accounting documents, we oversaw compliance with statutory provisionspertaining to the preparation and layout of the consolidated financial statements of the Tod’s Group, theseparate financial statements of Tod’s S.p.A. and the related reports. Our oversight activities did not reveal anyfacts warranting a report to internal control organs or worthy of mention in this report.

At the time of writing, the organisational, management and control model within the meaning of LegislativeDecree no. 231/2001, is under preparation by Deloitte & Touche S.p.A. pursuant to a mandate issued to the latterby Tod’s S.p.A.’s Board of Directors on November 13th, 2007.In light of the above, and with regard to matters falling within our purview, we have not found any reasonshindering the approval of the financial statements as at December 31st, 2007 and we have no comments to makeon the proposed distribution of dividends as recommended in the directors’ report to the separate IAS/IFRSfinancial statements of Tod’s S.p.A.

Milan, April 4th, 2008The Board of Auditors

Dr. Enrico Colombo – Chairman Dr. Gian Mario Perugini – Acting Statutory AuditorDr. Fabrizio Redaelli – Acting Statutory Auditor



REPORT OF INDEPENDENT AUDITORS

142 Report of Independent Auditors


AUDITORS’ REPORT PURSUANT TO ART. 156 OF LEGISLATIVE DECREE N°. 58OF FEBRUARY 24TH, 1998

(Translation of the Report of Independent Auditors issued in Italian by Deloitte & Touche S.p.A.on March 31st, 2008, solely for the convenience of international readers)

To the Shareholders ofTOD’S S.p.A.

1. We have audited the financial statements of TOD’S S.p.A.,which comprise the balance sheet as at December31, 2007, and the income statement, statement of changes in equity and cash flow statement for the yearthen ended, and a summary of significant accounting policies and other explanatory notes.These financialstatements are the responsibility of the Company’s Directors.Our responsibility is to express an opinion onthese financial statements based on our audit.

2. We conducted our audit in accordance with the Auditing Standards recommended by CONSOB, the ItalianCommission for listed Companies and the Stock Exchange. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles used and significantestimates made by the Directors, as well as evaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for our opinion.

For the opinion on the prior year financial statements, the balances of which are presented for comparativepurposes, reference should be made to our auditors’ report issued on March 30, 2007.

3. In our opinion, the financial statements present fairly the financial position of TOD’S S.p.A. as at December31, 2007, and the results of its operations and its cash flows for the year then ended in accordance with IFRSas adopted by the European Union and the requirements of national regulations issued pursuant to art. 9 ofItalian Legislative Decree n° 38/2005.

DELOITTE & TOUCHE S.p.A.

Signed byRoberto LolatoPartner

Rome (Italy), March 31st, 2008

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