Benetton Bilancio 2007 ENGL

Benetton GroupAnnual Report 2007

Benetton Group S.p.A.

Villa Minelli

Ponzano Veneto (Treviso) - Italy

Share capital: Euro 237,482,715.60 fully paid-in

Tax ID/Treviso Company register: 00193320264

Directors and other officers 5Group structure at December 31, 2007 6Notice of Ordinary General Meeting 8Letter to the shareholders 11Disclaimer 12Key financial data - highlights 12

Contents 46 Glossary 481. Issuer profile 492. Information on ownership structure (pursuant to art. 123 bis TUF) as of 03.19.2008 513. Compliance 54

Consolidated statement of income 81Consolidated balance sheet - Assets 82Consolidated balance sheet - Shareholders’ equity and liabilities 83Shareholders’ equity - Statement of changes 84Statement of gains/(losses) recognized directlyin shareholders’ equity 86

Summary of main accounting standards and policies 89Financial risk management 101Comments on the principal items in the statement of income 108Comments on the principal asset items 120Comments on the principal items in shareholders’equity and liabilities 134

Brands 15Markets 17Financial communication 18Benetton on the stock market 19Financial calendar 20www.benettongroup.com/investors 21

The Benetton Group 5

Directors’ report 15

Corporate Governance report 45

Consolidated financial statements 81

Explanatory notes 89

Certification of the consolidatedfinancial statements 159

Auditors’ report 161

Supplementary schedules 163

Glossary 169

Supplementary information 22- Corporate Governance report 22- Benetton shares and shareholders 22- Stock option plan 22- Controlling interest 23- Relations with the holding company, its subsidiaries and other related parties 23

- Compliance with personal data protection laws 24- Principal organizational and corporate changes 24- Significant events after December 31, 2007 25- Outlook for 2008 25 Consolidated Group results 26- Consolidated statement of income 26

- Business segments 30- Balance sheet and financial position highlights 33- Financials by quarter 40 Benetton risk factors 41

Consolidated cash flow statement 87

Commentary on the cash flow statement 145 Supplementary information 146- Financial position 146- Segment information 148- Other information 153

4. Direction and coordination 55 5. Board of Directors 556. Treatment of corporate information 627. Board Committees 638. Nomination Committee 649. Remuneration Committee 64

10. Remuneration of Directors 65 11. Internal audit Committee 6612. Internal controls 6813. Directors’ interests and transactions with related parties 7014. Appointment of Statutory Auditors 7115. Statutory Auditors 72

16. Relations with shareholders 73 17. Shareholders’ meeting 7418. Changes since year end 74

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The Benetton Group

Directors and other officers

Board of Directors

Luciano Benetton Chairman

Carlo Benetton Deputy Chairman

Alessandro Benetton Deputy Chairman

Gerolamo Caccia Dominioni Chief Executive Officer

Gilberto Benetton Directors

Giuliana Benetton

Luigi Arturo Bianchi

Giorgio Brunetti

Alfredo Malguzzi

Gianni Mion

Robert Singer

Andrea Pezzangora Secretary to the Board

Board of Statutory Auditors

Angelo Casò Chairman

Antonio Cortellazzo Auditors

Filippo Duodo

Piermauro Carabellese Alternate Auditors

Marco Leotta

Independent Auditors

PricewaterhouseCoopers S.p.A.

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Group structure at December 31, 2007

Benetton InternationalEmirates L.L.C. Dubai

49%

Benetton Trading USA Inc.Lawrenceville

100%

Benetton Tunisia S.à r.l.Sahline

100%

Benetton India Pvt. Ltd.Gurgaon

100%

Benetton Real EstateBelgique S.A. Bruxelles

100%

Real Estate Latvia L.L.C.Riga

100%

Benetton Realty PortugalImobiliaria S.A. Porto

100%

Benetton RealtyNetherlands N.V. Amsterdam

100%

Benetton Denmark A.p.S.Copenhagen

100%

Benetton RetailPoland Sp. z o.o. Warsaw

100%

United Colors of Benettondo Brasil Ltda. Curitiba

100%

Benetton Giyim Sanayi veTicaret A.S. Istanbul

50%

United ColorsCommunication S.A. Lugano

100%

Benetton InternationalKish Co. Ltd. Kish Island

100%

Benetton Ungheria Kft.Nagykálló

100%

Benetton Real Estate Spain S.L.Barcelona

100%

Lairb Property Ltd.Dublin

100%

Benetton Japan Co, Ltd.Tokyo

100%

Benetton ManufacturingHolding N.V. Amsterdam

100%

Benetton Real Estate CSH S.r.l.Chisinau

100%

Kazan Real Estate Z.A.O.Moscow

100%

Benetton Real EstateAzerbaijan L.L.C. Baku

100%

Property Russia Z.A.O.Samara

100%

Estate Odessa L.L.C.Odessa

100%

Benetton Istanbul Real Estate EmlakYatirim Ve Insaat Ticaret Ltd.S.Istanbul 100%

Benetton Group S.p.A.Ponzano Veneto (TV)

Benind S.p.A.Ponzano Veneto (TV)

100%

Fabrica S.p.A.Ponzano Veneto (TV)

100%

Benetton Realty Spain S.L.Barcelona

100%

Benetton Real EstateInternational S.A. Luxembourg

100%

Benetton InternationalProperty N.V. S.A. Amsterdam

100%

Benetton Realty Russia O.O.O.Moscow

100%

S.I.G.I. S.r.l.Ponzano Veneto (TV)

100%

New Ben GmbHFrankfurt am Main

50%

100%

Benetton Trading Ungheria Kft.Nagykálló

Benetton Retail (1988) Ltd.London

100%

Benetton Retail Spain S.L.Barcelona

100%

Milano Report S.p.A.Bergamo

50%

Progetto Tre S.r.l.Bologna

50%

Bencom S.r.l.Ponzano Veneto (TV)

100%

Bentec S.p.A.Ponzano Veneto (TV)

100%

Benetton Deutschland GmbHMünchen

100%

Benair S.p.A.Ponzano Veneto (TV)

100%

Filatura di Vittorio Veneto S.p.A.Vittorio Veneto (TV)

50%

Olimpias Tunisia S.à r.l.Tunis

100%

Benetton International S.A.Luxembourg

100%

Benetton Australia Pty. Ltd.Hawthorne

100%

Olimpias S.p.A.Ponzano Veneto (TV)

100%

Benetton USA Corp.Wilmington

100%

Benetton Holding InternationalN.V.S.A. Amsterdam

100%

S.C. Benrom S.r.l.Miercurea Sibiului

100%100%

Benetton 2 Retail Comércio deProdutos Têxteis S.A. Porto

Benetton Istria D.O.O.Labin

100%

Benetton Commerciale TunisieS.à r.l. Sousse

100%

Shanghai Sisley Trading Co. Ltd.Shanghai

100%

Benetton ManufacturingTunisia S.à r.l. Shaline

100%

Benetton Croatia D.O.O.Osijek

100%

Benlim Ltd.Hong Kong

50%

Benetton Korea Inc.Seoul

50%

Benetton Retail Italia S.r.l.Ponzano Veneto (TV)

100%

Shanghai Benetton TradingCompany Ltd. Shanghai

100%

Benetton Asia Pacific Ltd.Hong Kong

100%

Benetton Retail DeutschlandGmbH München

100%

Kaliningrad Real Estate Z.A.O.Kaliningrad

100%

Benetton Mexicana S.A. de C.V.Mexico City

100%

Benetton Trading Taiwan Ltd.Taipei

100%

Benetton Beograd D.O.O.Beograd

100%

Benetton Realty France S.A.Paris

56.31%

(1)

Benetton France S.à r.l.Paris

100%

Benetton Real EstateKazakhstan L.L.P. Almaty

100%

Real Estate Russia Z.A.O.St. Petersburg

100%

Real Estate Ukraine L.L.C.Kiev

100%

Benetton Real EstateAustria GmbH Wien

97%

(3)

Benetton Argentina S.A.Buenos Aires

95%

(2)

La Crémière S.A.Genève

100%

Le Radar S.A.Genève

100%

Ponzano Children S.r.l.Ponzano Veneto (TV)

100%

Benetton France CommercialS.A.S. Paris

100%

(1) The remaining participation is directly owned by Benetton France S.à r.l.(2) The remaining participation is directly owned by Benetton Manufacturing Holding N.V.(3) The remaining participation is directly owned by Benetton International S.A.

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Benetton InternationalEmirates L.L.C. Dubai

49%

Benetton Trading USA Inc.Lawrenceville

100%

Benetton Tunisia S.à r.l.Sahline

100%

Benetton India Pvt. Ltd.Gurgaon

100%

Benetton Real EstateBelgique S.A. Bruxelles

100%

Real Estate Latvia L.L.C.Riga

100%

Benetton Realty PortugalImobiliaria S.A. Porto

100%

Benetton RealtyNetherlands N.V. Amsterdam

100%

Benetton Denmark A.p.S.Copenhagen

100%

Benetton RetailPoland Sp. z o.o. Warsaw

100%

United Colors of Benettondo Brasil Ltda. Curitiba

100%

Benetton Giyim Sanayi veTicaret A.S. Istanbul

50%

United ColorsCommunication S.A. Lugano

100%

Benetton InternationalKish Co. Ltd. Kish Island

100%

Benetton Ungheria Kft.Nagykálló

100%

Benetton Real Estate Spain S.L.Barcelona

100%

Lairb Property Ltd.Dublin

100%

Benetton Japan Co, Ltd.Tokyo

100%

Benetton ManufacturingHolding N.V. Amsterdam

100%

Benetton Real Estate CSH S.r.l.Chisinau

100%

Kazan Real Estate Z.A.O.Moscow

100%

Benetton Real EstateAzerbaijan L.L.C. Baku

100%

Property Russia Z.A.O.Samara

100%

Estate Odessa L.L.C.Odessa

100%

Benetton Istanbul Real Estate EmlakYatirim Ve Insaat Ticaret Ltd.S.Istanbul 100%

Benetton Group S.p.A.Ponzano Veneto (TV)

Benind S.p.A.Ponzano Veneto (TV)

100%

Fabrica S.p.A.Ponzano Veneto (TV)

100%

Benetton Realty Spain S.L.Barcelona

100%

Benetton Real EstateInternational S.A. Luxembourg

100%

Benetton InternationalProperty N.V. S.A. Amsterdam

100%

Benetton Realty Russia O.O.O.Moscow

100%

S.I.G.I. S.r.l.Ponzano Veneto (TV)

100%

New Ben GmbHFrankfurt am Main

50%

100%

Benetton Trading Ungheria Kft.Nagykálló

Benetton Retail (1988) Ltd.London

100%

Benetton Retail Spain S.L.Barcelona

100%

Milano Report S.p.A.Bergamo

50%

Progetto Tre S.r.l.Bologna

50%

Bencom S.r.l.Ponzano Veneto (TV)

100%

Bentec S.p.A.Ponzano Veneto (TV)

100%

Benetton Deutschland GmbHMünchen

100%

Benair S.p.A.Ponzano Veneto (TV)

100%

Filatura di Vittorio Veneto S.p.A.Vittorio Veneto (TV)

50%

Olimpias Tunisia S.à r.l.Tunis

100%

Benetton International S.A.Luxembourg

100%

Benetton Australia Pty. Ltd.Hawthorne

100%

Olimpias S.p.A.Ponzano Veneto (TV)

100%

Benetton USA Corp.Wilmington

100%

Benetton Holding InternationalN.V.S.A. Amsterdam

100%

S.C. Benrom S.r.l.Miercurea Sibiului

100%100%

Benetton 2 Retail Comércio deProdutos Têxteis S.A. Porto

Benetton Istria D.O.O.Labin

100%

Benetton Commerciale TunisieS.à r.l. Sousse

100%

Shanghai Sisley Trading Co. Ltd.Shanghai

100%

Benetton ManufacturingTunisia S.à r.l. Shaline

100%

Benetton Croatia D.O.O.Osijek

100%

Benlim Ltd.Hong Kong

50%

Benetton Korea Inc.Seoul

50%

Benetton Retail Italia S.r.l.Ponzano Veneto (TV)

100%

Shanghai Benetton TradingCompany Ltd. Shanghai

100%

Benetton Asia Pacific Ltd.Hong Kong

100%

Benetton Retail DeutschlandGmbH München

100%

Kaliningrad Real Estate Z.A.O.Kaliningrad

100%

Benetton Mexicana S.A. de C.V.Mexico City

100%

Benetton Trading Taiwan Ltd.Taipei

100%

Benetton Beograd D.O.O.Beograd

100%

Benetton Realty France S.A.Paris

56.31%

(1)

Benetton France S.à r.l.Paris

100%

Benetton Real EstateKazakhstan L.L.P. Almaty

100%

Real Estate Russia Z.A.O.St. Petersburg

100%

Real Estate Ukraine L.L.C.Kiev

100%

Benetton Real EstateAustria GmbH Wien

97%

(3)

Benetton Argentina S.A.Buenos Aires

95%

(2)

La Crémière S.A.Genève

100%

Le Radar S.A.Genève

100%

Ponzano Children S.r.l.Ponzano Veneto (TV)

100%

Benetton France CommercialS.A.S. Paris

100%

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Notice of Ordinary General Meeting

Shareholders are called to the Ordinary General Meeting to be held in first calling at 11.00 a.m. on April 24, 2008,

at Via Villa Minelli 1, Ponzano Veneto (TV), Italy, or in second calling, if needed, on April 28, 2008, same time and place.

Agenda

1. To examine the Annual Report as of December 31, 2007. Pertinent and related resolutions;

2. To determine the annual Directors’ emolument;

3. To appoint the Board of Statutory Auditors and to determine its emolument;

4. To authorise the Board of Directors to the purchase and sale of own shares. Related resolutions.

Pursuant to the law in force and provided by Art. 9 of the Articles of Association, the right to attend and vote is reserved

to those shareholders who shall submit the communication issued by their relevant intermediaries. The communication

must reach the Company at least two business days before the General Meeting’s date.

The shares will become available again after the General Meeting has taken place.

The shareholders may be represented by third parties through written proxy in accordance with the law. The Chairman

of the General Meeting shall verify the qualifications of the proxy holders and their right to intervene during the proceedings

of the General Meeting.

All relevant documentation on the proposed resolutions will be available, within the established period, at the headquarters

of the Company, at the office of Borsa Italiana S.p.A. and on the website of the Company www.benettongroup.com/investors.

Regarding the appointment of the Board of Statutory Auditors reference is made to the Company’s Articles of Association

as specifically stated in Art. 19 also available in the website of the Company www.benettongroup.com/investors, section

“Governance - Articles of Association”.

It is pointed out that the appointment of the Board of Statutory Auditors is done on the basis of lists presented by the

shareholders containing the names and numbering of the standing member candidates (3) separately from the alternate

member candidates (2). The candidates shall be in possession of the qualifications required by prevailing statutory and

regulatory provisions in force, including the provision of the Articles of Association above mentioned.

Lists may be presented by only those shareholders who own, alone or together with others, at least 2 (two) % of share

capital (according to the CONSOB Resolution n. 16319 dated January 29, 2008 pursuant to Article 144 septies of the

CONSOB Regulation no. 11971/99).

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The lists, signed by those presenting them, shall be filed at the Company’s registered office at least 15 (fifteen) days in advance of the

date set for the first calling of the Shareholders’ Meeting convened to vote on the appointment of statutory auditors, accompanied

by (i) information about the shareholders who have filed the lists, specifying their overall percentage interest in share capital, and

(ii) documentation confirming them as shareholders and the percentage of share capital they own, (iii) comprehensive details on

the personal characteristics and experience of the candidates, (iv) a statement by the candidates themselves confirming that they are

in possession of the requirements envisaged by prevailing statutory or regulatory requirements and the absence of any reasons for

incompatibility and/or ineligibility, (v) statements by the candidates in which they accept their candidacy and provide details of their

appointments as Directors or statutory auditors in other companies, (vi) any other information required by prevailing statutory and

regulatory provisions.

No shareholder may present or be involved in presenting more than one list, including through a third party or trust company.

No candidate may appear in more than one list, otherwise they will be disqualified.

Lists not observing the above provisions shall be treated as if they had not been presented.

The list shall be promptly published on the Company’s website at least ten days in advance of the date set for the first calling of the

Shareholders’ Meeting.

Holders of American Depositary Receipts (“ADRs”) representing the Company’s ordinary shares will receive voting instructions

from Deutsche Bank Trust Company Americas of New York as Depositary Bank.

Luciano Benetton

Chairman of the Board of Directors

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Letter to the shareholders

To our shareholders,

The year 2007 was one of intense work and good results: our quest for the new, an integral part of our DNA, reported a marked

acceleration, translating into ideas, solutions and concrete growth projects, which have boosted revenues by more than 9% and

net income by over 16% on the previous year.

We have generally made the entire system faster and more determined in delivering quality fashion at an affordable price, based

on our consumer credibility developed and established over more than 40 years.

We are now writing a new chapter in the history that has defined our identity, knowledge, quality and style: we imagine a future

with limitless growth projects, seeking the best opportunities for expansion on each occasion.

We can rely on our established guiding values, a network of renowned partners able to develop and renew itself and a

management team, led by the new CEO Gerolamo Caccia Dominioni, which seeks to understand the different nuances

of the markets, to analyze the demands of new customer segments, to produce and circulate information and ideas needed

to develop not only the business but also our corporate culture.

In pursuing our strategic goal of creating value for shareholders, who are consistently assured a large return on their investment

through our dividend policy, we intend to confirm our commitment and responsibility to those who contribute to the Group’s

work every day.

We wish to offer them even more reasons for belonging to this organization and for personal and professional development in

order to build an ever better, cohesive team. Likewise we will continue to be accountable to society and the natural environment.

Unique in its sector, our Group has known over the years how to build strong relationships and ties, not just economic ones,

in more than 120 countries. We are now focusing on extending our borders further to continue to grow responsibly and faster.

As always, we have the optimism, energy and courage to look at the world with tomorrow’s eyes.

Luciano Benetton, Chairman Benetton Group

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DisclaimerThis document contains forward-looking statements, specifically in the section entitled “Outlook for 2008”, relating to future events

and operating, economic and financial results of the Benetton Group. By their nature such forecasts contain an element of risk and

uncertainty because they depend on the occurrence of future events and developments. The actual results may differ, even significantly,

from those announced for a number of reasons, as described in the section on “Risk factors”.

Key financial data - highlightsThe Group’s financial statements for 2007 and comparative years have been drawn up in accordance with the International

Financial Reporting Standards (IFRS) adopted by the European Union which are in force at the date of preparing this report.

These standards do not differ, in any material respect, from those issued by the International Accounting Standards Board (IASB),

meaning that any application of the latter would not have any significant effect on the Group’s financial statements. Details of

the accounting policies and consolidation methods used for preparing the annual financial report can be found in the section

containing the Explanatory notes.

Key operating data (millions of Euro) 2007 % 2006 % Change %

Revenues 2,085 100.0 1,911 100.0 174 9.1

Gross operating profit 909 43.6 806 42.2 103 12.8

Contribution margin 763 36.6 669 35.0 94 14.1

EBITDA (A) 341 16.3 276 14.4 65 23.6

Ordinary EBITDA (A) 337 16.2 264 13.8 73 27.6

Operating profit 243 11.7 180 9.4 63 35.4

Net income for the year attributable to the Group 145 7 125 6.5 20 16.3

Key financial data (millions of Euro) 12.31.2007 12.31.2006

Working capital 652 623

Assets held for sale 6 7

Net capital employed 1,889 1,710

Net financial indebtedness 475 369

Total shareholders’ equity 1,414 1,341

Free cash flow (34) 21

Net operating investments/Capex 225 188

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Share and market data 12.31.2007 12.31.2006

Basic earnings per share (Euro) 0.80 0.69

Shareholders’ equity per share (Euro) 7.59 7.22

Dividend per share (Euro) 0.40 0.37

Pay out ratio (%) 50.00 49.00

Dividend yield 3.25 2.60

Price at year end (Euro) 12.29 14.47

Screen traded price: high (Euro) 14.82 15.61

Screen traded price: low (Euro) 10.77 9.62

Price per share/earnings per share 15.40 21.00

Price per share/shareholders’ equity per share 1.60 2.00

Market capitalization (thousands of Euro) 2,245,082 2,630,909

Average no. of shares outstanding 182,675,492 181,868,467

No. of shares outstanding 182,675,492 182,675,492

Financial ratios (in %) 12.31.2007 12.31.2006

ROE (net income/shareholders’ equity) 10.48 9.47

ROI (operating profit/net capital employed) 12.87 10.50

ROS (operating profit/revenues) 11.66 9.39

Income/revenues 6.97 6.54

Number of personnel 12.31.2007 12.31.2006

Total employees 8,896 8,894

Key operating data (millions of Euro) 2007 2006 Change A Operating profit 243 180 63 B - of which non-recurring expenses/(income) 3 (1) 4 C Depreciation and amortization 91 84 7 D Other non-monetary costs (net impairment and stock options) 7 12 (5) E - of which non-recurring 7 11 (4) F = A+C+D EBITDA 341 276 65 G = F+B-E Ordinary EBITDA 337 264 73

(A) In addition to the standard financial indicators required by IFRS, this document also contains a number of alternative performance indicators for the purposes of allowing a better appreciation of the Group’s financial and economic results. These indicators must not, however, be treated as replacing the standard ones required by IFRS.

The following table shows how EBITDA and ordinary EBITDA are made up.

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Directors’ report

BrandsThe United Colors of Benetton Adult brand grew by 9% in 2007, thanks to enlargement of the fashion collections offered to specific

market segments. In particular, the men’s range was well received by consumers, reaching its medium-term growth target of 20% of

total brand sales in 2007, partly thanks to the first dedicated stores and special corners, both designed to bring out the quality and

completeness of this collection.

As part of plans to diversify the offer by age group, the United Colors of Benetton Child brand (+15% over the year) focused on

maternity wear and clothing for the under-fives. The Benetton Baby label has been established with a series of stores dedicated to young

children and new mothers: there are plans to open 50 such stores in 2008 whose interiors have been specially designed to suit this kind

of purchase and to enhance the products on offer.

Color is traditionally one of Benetton’s principal innovations, as well as the brand’s democratic identity and its key success factor. It

is now the subject of the Color Project, an advanced quality system developed during the year and one of the first of its kind to be

able to ensure scientifically that a certain shade is faithfully reproduced at every stage of the creative and production process, from

the designer’s initial choice to the garment on the shelf. This project makes it possible to reduce approximations, subjective variables,

margins of error and wasted time in creating and producing collections. It forms part of Benetton’s plans to ensure ever higher quality

and greater flexibility and speed for the entire system: in particular, it helps ensure that garments ending up in stores are of colors that

satisfy fashion and market demands.

The Accessories sector, identified as one of the drivers of future growth, saw the opening of the first fully dedicated store in Rome,

featuring an attractive interior and sophisticated concept. The strategy of opening new UCB and Sisley accessories stores involves

expanding the offer in 2008, particularly by including luxury end products.

Having increased its sales by around 6%, Sisley confirmed the positive expectations for 2007 associated with the brand’s new

“glamour” identity, supported by a targeted program of new openings in Italy and abroad: about 50 new locations in the year.

The strong international growth potential for Sisley’s trendy, quality products is also supported by a renowned network of

business partners.

Sisley’s “glamour” image is being buttressed by a new style of communication which, through the lens of Camilla Akrans, a Scandinavian

photographer, will underline and reinforce the brand’s sophisticated, international spirit.

There was continued emphasis in 2007 on getting Sisley collections to market even earlier, with an increased number of “trend-setting”

proposals during the season. Over 50% of the Sisley collections will be developed in shorter timeframes to support the brand’s fashion

image and positioning. The “Sisley Limited Edition” project was also started to create a limited set of special, highly refined, sophisticated

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garments for men and women. The brand has also created the “Sisley Young” line for young fashion conscious customers. Both projects

seek to develop the business opportunities offered by consumer segments attracted by a refined product that breaks away from the

usual mould.

The new Gloss store concept for the Undercolors network, dedicated to underwear, nightwear and beachwear, was successfully

launched in 35 stores in Europe, with the goal of optimizing display of the different product lines: from the cheerful, ironic Fun line

to the conscious sensuality of Clean Sensuality. The flexibility of the display units also makes it possible to adapt the space according

to the seasons, emphasizing the themes of the beach collection in Spring/Summer and those of the nightwear collection in Fall/Winter.

The brand increased its sales by 12% over the year. The network will continue to expand in 2008 with over 30 new stores being added

in the Spring/Summer season, some of which will be large enough to accommodate the brand’s entire range.

The growth of Playlife (+23%) is the result of a global project to redefine brand position with a clearer identity based on American

college life. This has resulted in a new logo, a new store concept, using environmentally-friendly materials in terms of their

recyclability and production techniques, and a fresh philosophy of dressing. A total of 40 new stores were opened in Italy and in other

Mediterranean countries in 2007, as well as restyling existing stores.

2007 sales of core products by brand (millions of Euro)

Apparel 1,956 93.8%

Textile 88 4.2%Other and unallocated 41 2.0%

The Americas 50 2.4%

Asia 218 10.5%

Europe (included Italy) 1,805 86.6%

Rest of the world 12 0.5%

United Colors of Benetton 1,436 72.6%

Sisley 341 17.2%

Undercolors 84 4.3%Playlife 26 1.3%Killer Loop 11 0.6%

Other sales 79 4.0%

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MarketsThe Benetton Group enjoyed significant growth in 2007 in both mature and emerging markets, conquering new consumer segments

in the former and increasing its penetration of the latter. Its traditional ability to view the world as a single large market was matched by

its attentive exploration of the different economic, social and cultural environments in individual markets, adapting the business model,

strategy and expansion projects to the specific needs revealed on each occasion.

Management continued to focus on gaining detailed knowledge of individual markets to make the most of the growth opportunities

offered by the different types of consumer in the different local contexts. In this way the individual brands are increasingly able to tune

in with each market’s specific cycle, not only in terms of organization but also by offering products that respond to local styles and themes.

In addition to continued search for growth opportunities in mature markets, five priority areas of growth were identified during the year:

India, Turkey, Eastern Europe and the former Soviet Union, Mexico and China.

Revenues in Europe grew by more than 12% on 2006, with particularly good results in Italy (+11%), Spain (+11%), Greece (+24%),

Portugal (+11%) and France (+15%).

Russia reported extremely strong growth of over 40%, like in all East European countries and the former Soviet Union in general.

The hundredth store was opened in Russia at the start of 2007, taking the total number of stores in the former Soviet Union to over 150,

with plans to open many more, particularly large ones.

In the strategically important markets of Asia, excellent results were achieved in India (+58%) where there are 140 United Colors of

Benetton stores and the first Child and Undercolors stores have now been opened. The success of United Colors of Benetton in this

market has been confirmed in an independent survey, commissioned by the prestigious Times of India daily newspaper, which named

the brand as the favorite of young, demanding Indian consumers.

In September an agreement was signed with the Tata group of India to develop the Sisley brand in this country, with the first openings

planned in Hyderabad and Bangalore. This is a strategic partnership not only because it has created a preferential relationship with this

important, established Indian company, but also because it confirms Benetton’s ability to partner renowned businesses as a driver

of its success.

2007 revenues from third parties by geographical area (millions of Euro)

Apparel 1,956 93.8%



Asia 218 10.5%




Sisley 341 17.2%


Other sales 79 4.0%

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Financial communicationThe Investor Relations office, engaged as always in the fundamental task of maintaining a constant flow of information between the

Company and the market, organized 250 meetings with financial analysts and investors during 2007.

In fact, the activities of the IR office are based on a proactive process both inside and outside the Company. Top management is kept

constantly abreast of how the market perceives the Company, in order to optimize strategic decision-making.

Since the arrival of new top management, the IR office’s work has focused on seeking to facilitate reciprocal knowledge and contact

with the market.

The goal of ensuring maximum transparency, clarity and speed of market disclosure has been achieved also thanks to the various

communication channels used to reach the different targets concerned.

During the year the financial results were presented every quarter through public conference calls, accessible on the web thanks to a

system of audio-webcasting with slideshows. The IR office regularly organizes calls, meetings, company visits, presentations at broker

conferences and participation in roadshows with shareholders and investors in the major financial markets or at the Company’s head

office. Analysts who cover the Company are also involved in events such as presentations of new collections and store visits,

organized to launch new store concepts.

During 2007 several new brokers started to cover the Benetton stock, taking the total number following the Company to almost 20.

Over 120 notes on the Group were published during the year.

The list of analysts currently following the stock and the latest published reports can be found on the Investor Relations website.

Two “Shareholder Identification” studies were carried out during the year, the second one completed at the start of 2008, with the aim

of better identifying the geographical location and structure of institutional investors. The research showed a return of shareholders to

Italy and a growth in French holdings. Among European investors, Scandinavian investors are strongly represented, while the proportion

of North American investors continues to be significant.

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Benetton on the stock marketMost of the trading in Benetton ordinary shares during 2007 took place on the Italian Stock Exchange, run by Borsa Italiana S.p.A.,

and the Frankfurt Stock Exchange. On September 12, 2007 the Company’s Board of Directors decided to request the voluntary

delisting and deregistration of the American Depositary Shares (ADS) quoted on the New York Stock Exchange, and to request

voluntary deregistration and termination of its obligations under the Securities Exchange Act of 1934. On February 21, 2008 the

Board of Directors decided to send the Management Board of the Frankfurt Stock Exchange a request to delist the Company’s

ordinary shares from the German market. This decision was taken in view of the globalization of financial markets and the

internationalization of the Italian Stock Exchange.

The Group capitalized at Euro 2.2 billion at December 31, 2007.

Between the end of 2006 and end of 2007, the Benetton stock had an average price of Euro 12.43, reporting a high of Euro 14.82

on January 3 and a low of Euro 10.77 on September 17.

An average of approximately 786,000 shares were traded each day over the course of 252 days of trading.

The latest price of Benetton’s stock, for each market on which it is listed, can be found on the Investor Relations website.

2003-2007 dividend per share performance (Euro)

2003 2004 2005 2006 2007

3.8 3.93.5

2.63.25

2003 2004 2005 2006 2007

3.8 3.93.5

2.63.25

2003 2004 2005 2006 2007

0.38

0.34 0.34

0.37

0.40

2003 2004 2005 2006 2007

0.38

0.34 0.34

0.37

0.40

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Dividend yield trend (2003-2007, in %)

Financial calendarMeetings of the Board of Directors scheduled in 2008:

February Thursday 21 preliminary results for 2007

March Wednesday 19 2007 draft annual report

May Wednesday 14 2008 first-quarter report

August Friday 29 2008 half-year report

November Thursday 13 2008 third-quarter report

2003 2004 2005 2006 2007

3.8 3.93.5

2.63.25

2003 2004 2005 2006 2007

3.8 3.93.5

2.63.25

2003 2004 2005 2006 2007

0.38

0.34 0.34

0.37

0.40

2003 2004 2005 2006 2007

0.38

0.34 0.34

0.37

0.40

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Benetton Group share performance in 2007

www.benettongroup.com/investorsThe Group has continued to improve the Investors Relations website, promoting use of the web as the principal method of

disseminating its economic and financial information; this has ensured ever wider and more rapid communication with the financial

community, which sees our website as a broad, detailed source of updated information about the Company.

In particular, the Investor Relations office worked in 2007 on the major task of redesigning the website, which went on-line during

the first half of February 2008 at the time of presenting the preliminary results for 2007.

The new site has not only an original design but also a new, innovative structure making it more user-friendly and easier to navigate.

The site offers an ever wider range of financial information about the Group, which can be downloaded in various formats and is

constantly updated. There is also a section devoted to Corporate Governance, which has been completely reorganized to ensure

maximum accessibility to its contents.

The principal change making the Investor Relations website unique is the introduction of the Interactive Value Chain. Thanks to its

many multimedia contents (slideshows, videos, audio files) this innovative instrument allows users to discover everything they want

to know about the Benetton Group, from the various issues relating to brands to details of the Product, Operations, Commercial

and Communications functions, allowing the site’s different users to gain a complete picture of the Company.

Additional services and information are available at www.benettongroup.com/investors.

07.01 07.02 07.03 07.04 07.05 07.06 07.07 07.08 07.09 07.10 07.11 07.12

16

14

12

10

8

6

4

2

4,000,000

3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

VolumesPrice

11.133Q07 results

09.18Strategic partnership with Trent Ltd. for Sisley developmentin India

09.121H07 results

08.031H07 preliminary results

05.141Q07 results

04.26AGM

03.162006 results & new CEO appointment

02.072006 preliminary results & 2007forecasts

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Supplementary information Corporate governance reportThe information required by art. 124 bis of Italy’s Consolidated Law on Finance, art. 89 bis of the CONSOB Regulations and art. IA.2.6

of the Instructions accompanying the Stockmarket Regulations can be found in the “Corporate Governance report” appended to this

document and forming an integral part thereof.

Benetton shares and shareholdersTreasury shares. During the period in question, Benetton Group S.p.A. neither bought nor sold any treasury shares, or shares or stock

in holding companies, either directly or through subsidiaries, trustees or other intermediaries.

Shares held by Directors and statutory auditors. The Directors Luciano, Gilberto, Giuliana and Carlo Benetton directly and indirectly

own, in equal shares, the entire share capital of Edizione Holding S.p.A., the company which controls Benetton Group S.p.A. with an

interest of 66.73%.

Except as specified in the following table, none of the Directors, statutory auditors or managers with key positions in Benetton Group

S.p.A., their spouses, unless legally separated, or their minor children, has held shares during 2007 in Benetton Group S.p.A. or its

subsidiaries, either directly or through companies under their control, trust companies or other intermediaries.

Luciano Benetton, Chairman of the Board of Directors, and Gerolamo Caccia Dominioni, Chief Executive Officer, purchased 330,000

and 50,000 shares respectively in Benetton Group S.p.A. on January 16 and 17, 2008.

Stock option plan. The first vesting period envisaged by the stock option plan, approved in September 2004 by the Board of

Directors of Benetton Group S.p.A., came to an end in September 2006. As a result, a total of 1,337,519 options became exercisable,

meaning that their beneficiaries could subscribe to an equal number of the Company’s shares at a price of Euro 8.984 each up until

the plan’s end date in September 2013. Further to a review of the overall structure, scope and principles of the system of incentives,

in September 2006 management agreed with the Company to cancel the second “tranche” of the 2004 plan.

At December 31, 2007 there were 220,838 unexercised options left.

No. of shares No. No. No. of shares held as of of shares of shares held as of Type of Name & surname 12.31.2006 Company held purchased sold 12.31.2007 ownership

Alessandro Benetton 4,000 Benetton Group S.p.A. - - 4,000 Owned

Ulrich Weiss 3,500 Benetton Group S.p.A. - 3,500 - Owned

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A total of 3,520 options were exercised on February 28, 2008, causing the share capital of Benetton Group S.p.A. to increase to Euro

237,482,715.60, representing 182,679,012 shares. A total of 117,318 options were cancelled at the end of February 2008. As a result,

there are still 100,000 unexercised options left.

Details of the rules of this stock option plan can be found under “Regulations & Codes” in the Governance section of the Investor

Relations website www.benettongroup.com/investors/.

2004 stock option plan

Controlling interest. The majority shareholder is Edizione Holding S.p.A., an investment holding company wholly owned by the

Benetton family with registered office in Treviso (Italy). It owns 121,905,639 ordinary shares in the Company, representing a controlling

interest of 66.73% (which went up to 67.08% as from January 18, 2008).

Relations with the holding company, its subsidiaries and other related parties. The Benetton Group has trade

dealings with Edizione Holding S.p.A. (the holding company), with subsidiary companies of the same and with other parties which,

directly or indirectly, are linked by common interests with the majority shareholder. Trading relations with such parties are conducted

on an arm’s-length basis and using the utmost transparency, in compliance with the Group Procedure for related party transactions.

The total value of such transactions was nonetheless not significant in relation to the total value of the Group’s production. These

transactions mostly relate to the purchase and sale of goods and services.

Options New Options expired Options cancelled Options outstanding options Options and not in the period outstanding of which as of granted in exercised in exercised or lost due to termination as of exercisable as of 01.01.2007 the period the period in the period of employment 12.31.2007 12.31.2007

No. of options 220,838 220,838 220,838

Allocation ratio (%) 0.121 - - - - 0.121

Weighted average exercise price (Euro) 8.984 8.984 8.984

Market price (Euro) 14.47 12.29

Shareholders %

Edizione Holding S.p.A. 66.733

Institutional investors and banks 23.051

Other investors 10.216

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The Group’s Italian companies have elected to file for tax on a group basis as allowed by articles 117 et seq. of the Tax Consolidation

Act DPR 917/86, based on a proposal by the consolidating company Ragione S.A.p.A. di Gilberto Benetton e C., which decided to opt

for this type of tax treatment on June 15, 2007. The election lasts for three years, starting from the 2007 financial year and represents

a renewal of the previous election for the 2004-2006 tax period under Edizione Holding S.p.A. The relationships arising from

participation in the group tax election are governed by specific rules, approved and signed by all participating companies.

The related details are shown below:

Transactions have also taken place between companies directly or indirectly controlled by the Parent Company or between such companies and

the Parent Company itself. The Parent Company’s management considers that such transactions have been conducted on an arm’s length basis.

No Director, manager, or shareholder is a debtor of the Group.

Compliance with personal data protection laws. The Company has fulfilled its obligations under current legislation

regarding personal data protection.

In particular, the Company has used the Benetton Group’s information systems to adopt the minimum security measures required by

Italian Legislative Decree no. 196 of June 30, 2003 (Consolidated personal data protection act). All Group companies have complied

with the data security model adopted by the Parent Company, as described in the annual Privacy Protection Plan.

Principal organizational and corporate changes. During first quarter 2007, Benetton Real Estate International S.A.

purchased all the share capital in the company Kazan Real Estate Z.A.O. for the purposes of making a real estate investment in Kazan

(Russia) as part of the strategy of expanding trade in Eastern Europe. Benetton Real Estate International S.A. also set up Benetton Real

Estate Azerbaijan L.L.C. and Benetton Real Estate CSH S.r.l. (Moldavia) in order to have vehicles on hand for making investments

in commercial property in these respective regions.

(1) Of which Euro 11,568 thousand in advertising and promotion costs, corresponding to 19% of total advertising costs in 2007 (Euro 10,867 thousand in 2006).

(thousands of Euro) 12.31.2007 12.31.2006

Receivables 43,359 46,399

- of which for group tax election under Edizione Holding S.p.A. 21,483 45,742

- of which for group tax election under Ragione S.A.p.A di G. Benetton e C. 18,563 -

Payables 62,911 33,696

- of which for group tax election under Edizione Holding S.p.A. 15,819 32,566

- of which for group tax election under Ragione S.A.p.A di G. Benetton e C. 46,026 -

Purchases of raw materials 3,095 2,895

Other costs and services (1) 17,401 16,654

Product sales 152 190

Revenue from services and other income 1,393 660

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During second quarter 2007, with reference to development of the market in the Far East, Benetton Trading Taiwan Ltd. was set up with

offices in Taipei (Taiwan). This wholly-owned subsidiary of Benetton Manufacturing Holding N.V. is designated to take over the direct

operation of stores in Taiwan, previously managed by a local customer.

Benlim Ltd. (Hong Kong), a partnership between Benetton Asia Pacific Ltd. and a local distributor, subscribed to all the share capital

in Shanghai Sisley Trading Co. Ltd., a company based in Shanghai designated to manufacture Sisley products and directly and indirectly

market them in China.

As part of the process of simplifying the Group’s corporate structure, Benetton Retail Italia S.r.l. transferred its 50% interest in Milano

Report S.p.A. to Bencom S.r.l. Benetton Retailing Japan Co. Ltd. was also merged into Benetton Japan Co., Ltd.

The process of winding up Benetton Società di Servizi S.A., a Swiss registered company, and Benetton Slovakia s.r.o. was also completed.

During third quarter 2007, Benetton Mexicana S.A. de C.V. was set up as a subsidiary of Benetton Manufacturing Holding N.V. as part

of the commercial development strategy in Mexico.

During fourth quarter 2007, as part of plans to expand in Eastern Europe and Asia, Benetton Istanbul Real Estate Ltd. was set up as a

Turkish registered company and the purchase of Kaliningrad Real Estate Z.A.O., a Russian registered company, was completed. Both

companies are controlled by Benetton Real Estate International S.A.

Significant events after December 31, 2007. The delisting/deregistering of the Benetton stock from the New York Stock

Exchange became effective from January 21, 2008. As a result, the Company no longer has to comply with the reporting requirements

relating to the NYSE and SEC established by US law. All the documentation will continue to be published in English on the

Company’s website.

The process of delisting from the Deutsche Börse in Frankfurt was started on February 21, 2008.

An agreement was made in New York on February 29, 2008 which redefines the Group’s relationship with its principal customer in the

United States and Canada. Under this agreement the management of 54 stores previously operated by this customer will be transferred

to Benetton USA Corp. This operation will not have any immediate significant effect on the statement of income for 2008.

Outlook for 2008. Consolidated revenues for 2008 are expected to grow between 6% and 8% (on same segment activities),

thanks to the positive results of the Spring/Summer 2008 and the progress in backlog order for the Fall/Winter 2008, reflecting both

the new store openings and continued improvement in the performance of existing ones.

Margins are forecasted to grow at least 7% in comparison with 2007.

Investment of around 250 million should be made throughout the year, focusing on:

- complete the doubling of logistics hub in Castrette (Italy) and of production center in Tunisia;

- new store openings, in strategic markets;

- continue roll-out of Information Technology to enhance the evolution of the business.

Net financial indebtedness should amount approximately to 650 million at the end of the current year.

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Consolidated Group resultsConsolidated statement of income. Highlights from the Group’s statements of income for 2007 and 2006 are presented

below; they are based on a reclassification according to the function of expenses. The percentage changes are calculated with reference

to the absolute amounts.

(millions of Euro) 2007 % 2006 % Change % Revenues 2,085 100.0 1,911 100.0 174 9.1 Materials and subcontracted work 1,032 49.5 962 50.3 70 7.3 Payroll and related costs 83 4.0 81 4.2 2 2.6 Industrial depreciation and amortization 17 0.8 18 1.0 (1) (4.5) Other manufacturing costs 44 2.1 44 2.3 - (1.3) Cost of sales 1,176 56.4 1,105 57.8 71 6.4 Gross operating profit 909 43.6 806 42.2 103 12.8 Distribution and transport 60 2.9 63 3.3 (3) (5.7) Sales commissions 86 4.1 74 3.9 12 16.6 Contribution margin 763 36.6 669 35.0 94 14.1 Payroll and related costs 156 7.5 153 8.0 3 1.7 - of which non-recurring expenses/(income) - - 2 0.1 (2) n.s. Advertising and promotion (A) 61 2.9 72 3.7 (11) (14.7) Depreciation and amortization 74 3.5 66 3.5 8 11.5 Other expenses and income 229 11.0 198 10.4 31 15.8 - of which non-recurring expenses/(income) 3 0.1 (3) (0.2) 6 n.s. General and operating expenses 520 24.9 489 25.6 31 6.3 - of which non-recurring expenses/(income) 3 0.1 (1) - 4 n.s. Operating profit (B) 243 11.7 180 9.4 63 35.4 Financial (expenses)/income (30) (1.4) (18) (0.9) (12) 67.8 Net foreign currency hedging (losses)/gains and exchange differences (10) (0.6) (3) (0.2) (7) n.s. Income before taxes 203 9.7 159 8.3 44 27.5 Income taxes 53 2.5 31 1.6 22 68.2 Net income for the year 150 7.2 128 6.7 22 17.5 attributable to: - shareholders of the Parent Company 145 7.0 125 6.5 20 16.3 - minority interests 5 0.2 3 0.2 2 66.3(A) Of which 12 million invoiced by holding and related companies in 2007 (11 million in 2006). (B) Operating profit, before non-recurring items, amounts to 246 million, corresponding to 11.8% of revenues (179 million in 2006 with a margin of 9.4%).

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Group net revenues amounted to 2,085 million in 2007, having increased by 174 million (+9.1%) on the figure of 1,911 million reported

in 2006, with most of the growth coming from the apparel segment.

Apparel segment revenues from third parties came to 1,956 million, an increase of 184 million (+10.3%) on the 2006 figure of 1,772 million.

This improvement reflected:

- the increase in revenues from the partner-managed network, which benefited from the market’s favorable reception of the collections,

from commercial development initiatives and from the contribution of new store openings;

- the growth in sales by directly operated stores, also thanks to the contribution of the Milano Report partnership in Italy, consolidated

since August 2006.

The main driver of growth was the considerable improvement in sales volumes/mix (+12.2% on 2006). The appreciation of the Euro,

particularly against the Korean Won, Japanese Yen and US Dollar, had a negative impact of 19 million on sales.

The textile segment reported 88 million in revenues from third parties, down 7.1% due to growing demand for yarn and textiles from

markets with cheaper labor costs.

2007 revenues from third parties by activity (millions of Euro)

Revenues in the other and unallocated segment, which include sports equipment sales, came to 41 million, reporting a decrease

of 3 million on 2006.

Cost of sales increased by 71 million to 1,176 million, representing 56.4% of revenues compared with 57.8% in the prior year.

The individual segments reported the following trends in the cost of sales:

- apparel: cost of sales amounted to 1,071 million compared with 993 million in 2006, with the increase mostly due to the major growth

in sales volumes; the cost of sales margin went down to 54.7% from 56.0% in 2006; improved production efficiency and exchange rate

Apparel 1,956 93.8%



Asia 218 10.5%




Sisley 341 17.2%


Other sales 79 4.0%

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trends both benefited cost of sales;

- textile: cost of sales decreased by 27 million, with the margin down to 90.1% of revenues from 90.5% in 2006;

- other and unallocated: cost of sales decreased by 1 million, with a margin of 96.7% of revenues compared with 94.2% in 2006.

Gross operating profit confirmed its recovery by reporting a margin of 43.6% compared with 42.2% in 2006. Trends in the individual

segments were as follows:

- apparel: gross operating profit amounted to 886 million, representing 45.3% of revenues compared with 44.0% in 2006, having

benefited from increased volumes and ever more efficient supply chain management and sourcing, as well as from the weakness of the

Dollar, which was partly offset by currency hedges reported as net foreign currency hedging (losses)/gains and exchange differences;

- textile: gross operating profit was 22 million, representing 9.9% of revenues compared with 9.5% in 2006;

- other and unallocated: gross operating profit reported a margin of 3.3% compared with 5.8% in the prior year.

Selling costs (distribution, transport and sales commissions) increased to 146 million from 137 million in 2006 due to the growth in

apparel segment sales; at the same time these costs came down from 7.2% of revenues to 7.0% thanks to continued optimization of

logistics and transport, which offset higher petrol prices.

Contribution margin was 763 million compared with 669 million in 2006, representing 36.6% of revenues compared with 35.0% in the

prior year. The individual segments reported the following trends in contribution margin:

- apparel: contribution margin came to 747 million compared with 651 million in 2006, while improving from 36.7% to 38.2% of revenues;

- textile: contribution margin was 14 million, representing 6.2% of revenues up from 6.0% in the prior year;

- other and unallocated: contribution margin represented 2.6% of revenues compared with 5.3% the year before.

General and operating expenses amounted to 520 million, up from 489 million in 2006, and accounted for 24.9% of revenues compared

with 25.6% in the prior year. The individual segments reported the following trends in general and operating expenses:

- apparel: these expenses rose by 32 million to 511 million, reflecting expansion of the direct channel and particularly the consolidation

of Milano Report; these expenses accounted for 26.1% of revenues compared with 27.0% in 2006;

- textile: these expenses amounted to 8 million, representing 3.7% of revenues;

- other and unallocated: these expenses represented a net positive 0.2% of revenues due to the recognition of non-recurring income

and compared with a negative 1.1% in 2006.

General and operating expenses are discussed in more detail below:

- Non-industrial payroll and related costs increased by 3 million to 156 million, accounting for 7.5% of revenues, which was down on

2006. Analysis of these costs by individual segment shows that the increase was mainly attributable to the apparel segment as a result

of expanding the direct commercial network.

- Advertising and promotion costs were down to 61 million from 72 million in 2006, while decreasing from 3.7% to 2.9% of revenues,

with the goal of focusing campaigns to fit brand positioning; the second half of 2006 included the costs of the Group’s fortieth

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anniversary celebration, while fewer costs were incurred in 2007 for developing advertising campaigns for third-party customers.

Ignoring these effects, the Group’s advertising expenditure was in line with that of 2006.

- Non-industrial depreciation and amortization were 8 million higher at 74 million due to investments made in the period and earlier

that entered service during the year.

- Other expenses and income amounted to 229 million, corresponding to 11.0% of revenues compared with 10.4% in 2006. This line

item includes non-industrial general costs, additions to provisions, net operating expenses and other expenses and income, details of

which are as follows:

- non-industrial general costs amounted to 106 million, having increased by 10 million on 2006 due to a rise in costs for electricity and

gas, routine maintenance and cleaning, rental and hire, Directors’ fees and other services; these costs represented 5.1% of revenues,

virtually the same as in the prior year;

- additions to provisions, amounting to 16 million in 2006, came to 22 million this year, of which 17 million for doubtful accounts

(11 million in 2006); the provision for doubtful accounts provides 9% coverage compared with 10% in the prior year;

- net operating and other expenses increased from 87 million in 2006 to 101 million this year, representing 4.8% of revenues compared

with 4.6% in the prior year. The largest item included in the 2007 figure refers to 76 million in net rental expense (net of rental

income), which reported an increase of 6 million attributable to the apparel segment. Capital gains realized on fixed asset disposals

came to 11 million, of which 7 million classified as non-recurring mostly in relation to the sale of a retail business in Milan and of the

Kästle trademark. Other expenses also include a non-recurring indemnity of 4 million paid for the early termination of a lease relating

to a building owned by the Group.

Operating profit was 243 million compared with 180 million in 2006, reporting an increase in margin from 9.4% to 11.7%; operating

profit in the individual segments was as follows:

- the apparel segment reported 236 million in operating profit compared with 172 million in 2006, with the margin rising from 9.7% to 12.1%;

- the textile segment reported 6 million in operating profit, with the margin improving to 2.5% from 1.9% in 2006;

- the other and unallocated segment reported an operating profit margin of 2.4% compared with 6.4% in 2006.

The increase of 12 million in net financial expenses was largely due to the rise in interest rates and average indebtedness over the year,

in turn mostly due to the growth in volumes and higher investments. Net foreign currency hedging losses and exchange differences were

7 million higher than in 2006 due to the appreciation of the Euro and particularly due to Dollar hedges taken out at the end of 2006 and

in the first half of 2007 against US Dollar purchases invoiced in the second half of 2007.

The tax charge amounted to 53 million compared with 31 million in the prior year, representing a tax rate of 26.0%, up from 19.7% in 2006;

this increase is mainly due to the higher taxable income reported by Italian subsidiaries and the effect of applying the new finance act.

Net income for the year attributable to the Group was 145 million compared with 125 million in 2006, representing 7.0% of revenues

compared with 6.5% in the prior year.

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The average number of employees in each segment during the year was as follows:

- apparel: 7,337 (of whom 3,755 in the retail channel), compared with 6,779 (of whom 3,412 in the retail channel) in 2006;

- textile: 1,308 compared with 1,417 in 2006;

- other and unallocated: 251 compared with 240 in 2006.

Business segments. The Group’s activities are divided into three segments in order to provide the basis for effective administration

and decision-making, and to supply representative and significant information about company performance to financial investors.

The business segments are as follows:

- apparel, represented by the brands of United Colors of Benetton, Undercolors, Sisley, Playlife and Killer Loop. The information and

results relating to the real estate companies are also included in this segment;

- textile, consisting of production and sales activities for raw materials (fabrics, yarns and labels), semi-finished products and

industrial services;

- other and unallocated, includes activities relating to sports equipment produced for third parties by a Group manufacturing company.

For comparative purposes, segment results for 2007 and 2006 are shown below.

Segment results - 2007

Other and (millions of Euro) Apparel Textile unallocated Eliminations Consolidated

Revenues from third parties 1,956 88 41 - 2,085

Inter-segment revenues 1 137 - (138) -

Total revenues 1,957 225 41 (138) 2,085

Cost of sales 1,071 203 40 (138) 1,176

Gross operating profit 886 22 1 - 909

Selling costs 139 8 - (1) 146

Contribution margin 747 14 1 1 763

General and operating expenses 511 8 - 1 520

- of which non-recurring expenses/(income) 4 - (1) - 3

Operating profit 236 6 1 - 243

Depreciation and amortization 78 12 1 - 91

Other non-monetary costs (net impairment) 7 - - - 7

EBITDA 321 18 2 - 341

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Apparel segment results




Total revenues 1,774 254 44 (161) 1,911

Cost of sales 993 230 41 (159) 1,105

Gross operating profit 781 24 3 (2) 806


Contribution margin 651 15 3 - 669

General and operating expenses 479 10 - - 489

- of which non-recurring expenses/(income) 1 - (2) - (1)



Other non-monetary costs (net impairment and stock options) 12 - - - 12

EBITDA 253 19 4 - 276

(millions of Euro) 2007 % 2006 % Change %

Revenues from third parties 1,956 1,772 184 10.3

Inter-segment revenues 1 2 (1) 7.7

Total revenues 1,957 100.0 1,774 100.0 183 10.3

Cost of sales 1,071 54.7 993 56.0 78 7.8


Selling costs 139 7.1 130 7.3 9 7.2


General and operating expenses 511 26.1 479 27.0 32 6.7

- of which non-recurring expenses 4 0.2 1 0.1 3 n.s.


EBITDA 321 16.4 253 14.3 68 26.9

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Textile segment results

Other and unallocated segment results


Revenues from third parties 88 95 (7) (7.1)

Inter-segment revenues 137 159 (22) (13.6)

Total revenues 225 100.0 254 100.0 (29) (11.2)

Cost of sales 203 90.1 230 90.5 (27) (11.5)

Gross operating profit 22 9.9 24 9.5 (2) (8.0)

Selling costs 8 3.7 9 3.5 (1) (7.7)

Contribution margin 14 6.2 15 6.0 (1) (8.1)

General and operating expenses 8 3.7 10 4.1 (2) (19.4)

- of which non-recurring expenses/(income) - - - 0.1 - n.s.


EBITDA 18 7.7 19 7.5 (1) (8.7)



Inter-segment revenues - - - -

Total revenues 41 100.0 44 100.0 (3) (5.4)

Cost of sales 40 96.7 41 94.2 (1) (2.8)


Selling costs - 0.7 - 0.5 - 25.0


General and operating expenses - 0.2 - (1.1) - n.s.

- of which non-recurring income (1) (2.7) (2) (4.4) 1 (41.0)

Operating profit 1 2.4 3 6.4 (2) (64.0)

EBITDA 2 4.4 4 8.3 (2) (49.8)

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Balance sheet and financial position highlights. The most significant elements of the balance sheet and financial position,

compared with December 31, 2006 are as follows:

(millions of Euro) 12.31.2007 12.31.2006 Change

Working capital 652 623 29

- trade receivables 686 627 59

- inventories 336 331 5

- trade payables (385) (403) 18

- other operating receivables/(payables) (A) 15 68 (53)

Assets held for sale 6 7 (1)

Property, plant and equipment and intangible assets (B) 1,171 1,027 144

Non-current financial assets (C) 23 21 2

Other assets/(liabilities) (D) 37 32 5

Net capital employed 1,889 1,710 179

Net financial indebtedness (E) 475 369 106

Total shareholders’ equity 1,414 1,341 73(A) Other operating receivables and payables include VAT receivables and payables, sundry receivables and payables, holding company receivables and payables, receivables due from the tax authorities, deferred tax assets, accruals and deferrals, payables

due to social security institutions and employees, receivables and payables for fixed asset purchases etc. (B) Property, plant and equipment and intangible assets include all categories of assets net of the related accumulated depreciation, amortization, and impairment losses. (C) Non-current financial assets include unconsolidated investments and guarantee deposits paid and received. (D) Other assets/(liabilities) include the retirement benefit obligations, the provisions for legal and tax risks, the provision for sales agent indemnities, other provisions, current income tax liabilities and deferred tax assets in relation to the company

reorganization carried out in 2003.(E) Net financial indebtedness includes cash and cash equivalents and all short and medium/long-term financial assets and liabilities, as reported in the detailed statement discussed in the Explanatory notes.

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2007 and 2006 balance sheet structure (millions of Euro) - Assets

Capital employed: 1,710

Of which working capital 623

2007 2006



Total shareholders’ equity 1,341

Net financial indebtedness 369


2007 2006

Net financial indebtedness 475 Change in working capital 96

Payment of taxes 11

Payment of dividends 69

Interests paid, net 40

Total investments, net 230

20062007Equity by minorities 12

Cash flow from operating activities 258

Equity by minorities 2Change in working capital 28


2007

101Deficit of funds

2006

31Deficit of funds

Payment of taxes 24




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2007 and 2006 balance sheet structure (millions of Euro) - Liabilities



2007 2006






2007 2006


Payment of taxes 11








2007

101Deficit of funds

2006

31Deficit of funds

Payment of taxes 24




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Working capital was 29 million higher than at December 31, 2006, reflecting the combined effect of:

- an increase of 59 million in net trade receivables and limited growth in inventories, associated, albeit less than proportionately,

with the growth in sales volumes;

- a decrease of 18 million in trade payables due to the higher proportion of goods purchased for resale and of transport costs with

shorter-than-average terms of payment;

- a decrease of 53 million in other operating receivables/payables mostly as a result of the increase in payables relating to the group

tax filing.

Apart from the changes in working capital discussed above, net capital employed increased by 150 million, mainly reflecting a net

increase in property, plant and equipment and intangible assets following 267 million in gross operating investments during the year,

23 million in divestments, 98 million in depreciation, amortization and impairment net of impairment reversals and 2 million

in other changes.

The Group’s net financial indebtedness is discussed in detail in the Explanatory notes.

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Cash flows during 2007 are summarized below with comparative figures for the last year:

(millions of Euro) 2007 2006

Cash flow from operating activities before changes in working capital 343 258

Cash flow provided/(used) by changes in working capital (96) 28

Net interest paid/received - exchange differences (40) (25)

Payment of taxes (11) (24)

Cash flow provided by operating activities 196 237

Net operating investments/Capex (225) (188)

Non-current financial assets (5) (28)

Cash flow used by investing activities (230) (216)

Free cash flow (34) 21

Cash flow used by financing activities of which:

- payment of dividends (69) (64)

- net change in other sources of finance 54 27

Cash flow used by financing activities (15) (37)

Net decrease in cash and cash equivalents (49) (16)

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2007 2006






2007 2006


Payment of taxes 11








2007

101Deficit of funds

2006

31Deficit of funds

Payment of taxes 24




2007 and 2006 sources and applications of funds (millions of Euro) - Sources

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2007 2006






2007 2006


Payment of taxes 11








2007

101Deficit of funds

2006

31Deficit of funds

Payment of taxes 24




2007 and 2006 sources and applications of funds (millions of Euro) - Applications

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Cash flow from operating activities before changes in working capital amounted to 343 million compared with 258 million in 2006,

reflecting the improvement in EBITDA to 341 million.

Changes in working capital used 96 million in cash flow, having provided 28 million in cash flow in 2006, and mostly reflect:

- an increase in trade receivables and inventories, associated, albeit less than proportionately, with the growth in sales volumes;

- a decrease in trade payables due to the higher proportion of goods purchased for resale and of transport costs with shorter-than-average

terms of payment.

It should also be noted that there was a considerable improvement in receivables collection during 2006, with the target level of

performance now almost achieved.

Operating activities provided 196 million in cash flow compared with 237 million in 2006.

Cash flow used by investing activities increased to 230 million from 216 million in 2006, mainly due to 164 million in investments

in the commercial network. Investments in production, amounting to 56 million, related to the production centers in Istria (Croatia)

and Tunisia and to the logistics hub in Castrette di Villorba (Italy). Other investments amounted to 47 million, most of which in

information technology (introduction of SAP sales management software and installation of SAP applications at foreign subsidiaries),

as well as for the acquisition of an aircraft by Benair S.p.A.

Further information of an economic and financial nature is provided in the Explanatory notes to the consolidated financial statements.

Financials by quarter

(millions of Euro) 1st quarter 2nd quarter 1st half-year 3rd quarter Nine months 4th quarter

2007 quarters

Net revenues 460 530 990 514 1,504 581

Gross operating profit 192 231 423 220 643 266

Contribution margin 160 195 355 184 539 224

Operating profit 41 66 107 59 166 77

Net income attributable to the Group 27 43 70 33 103 42

Earnings per share (Euro)

- basic earnings per share 0.15 0.23 0.38 0.18 0.56 0.23

2006 quarters

Net revenues 416 482 898 474 1,372 539

Gross operating profit 179 201 380 199 579 227

Contribution margin 149 166 315 166 481 188

Operating profit 35 54 89 48 137 43

Net income attributable to the Group 24 40 64 30 94 31

Earnings per share (Euro)

- basic earnings per share 0.13 0.22 0.35 0.17 0.52 0.17

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Benetton risk factors Taking on risks is an integral part of doing business. Our Group has procedures for managing risks in the areas of greatest exposure,

namely strategic, market, operational, financial and legal/compliance risks.

Strategic risks. Strategic risks include the factors which influence the strategic opportunities and pose a threat to our Group.

More specifically, the Group must guarantee its ability:

- to take advantage of business opportunities that may develop in new geographical areas and business segments;

- to evaluate market potential correctly;

- to allocate resources generated on more profitable markets to potential growth areas;

- to seek out the world over specific skills and industrial areas in which to invest its know-how in order to ensure quality products and

processes;

- to protect its brands, which are essential for succeeding and competing on the market;

- in a global, complex market featuring international players, to choose and integrate the models best suited to a presence in each local

market (license vs. partnership; wholesale vs. retail).

Market risks. Market risks include the possible effects on our business arising from changes in the market.

- On the distribution front, competition could increase also because of the low barriers to entry. Benetton competes with local, national

and global department stores, with specialist retailers, independent retailers and manufacturers, as well as with e-commerce companies.

The Group’s principal focus is on product quality, assortment and presentation, store ambiance, customer service and sales and

marketing plans. It also competes for the most attractive commercial sites and terms of store rental and purchase.

- Our business is sensitive to changes in consumer spending decisions. It may also be influenced by the business environment, interest

rates, tax rules and rates, local economic conditions, uncertainty over the future economic outlook and shifts in spending towards other

goods and services. Consumer preferences and economic conditions may change from one market to the next.

- Our business is to some extent sensitive to the weather. An excessively mild winter, for example, may have consequences in terms of

lower sales of higher margin products, with a negative impact on our results and financial position.

- We must be able to combat deflationary price pressure associated with increased competition and changes in consumer preferences,

which could have negative effects on our results and financial position.

- The market for prime-location properties is very competitive. Our ability and that of our partners to find sites for new stores depends

on the availability of properties that meet our criteria, and the ability to negotiate terms that meet our financial targets. In addition,

we must be able to renew lease agreements for existing stores under the best terms possible.

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Operational risks. Operational risks refer to possible adverse consequences associated with processes, internal organization or

systems and external events relating to the current management of the business.

- The success of our strategies is influenced by the commercial network’s response. The policy of incentivizing our network of partners,

in keeping with the Benetton business model, had the goal of fostering greater investment capacity, in order to open new stores,

renovate existing ones and boost price competitiveness for the end customer. The success of this strategy depends on the ability to

involve and guide our network, establishing specific objectives and regularly checking the results achieved. It should be stressed that

our business model carries a risk of late customer payment and trouble in collecting credit in general.

- We are exposed to risks associated with commercial expansion and brand extension. Our actions are designed to develop the existing

commercial network and to strengthen our brands. Conversely, our growth could be negatively affected if we were not capable of:

identifying appropriate markets and locations for new stores; maintaining expected levels of customer service; preventing a drop in sales

and profits by stores selling Benetton products when we open directly operated megastores in the same regions or shopping areas;

managing inventories on the basis of effective needs; delivering goods in due time. Our Group’s systems, procedures and controls

must be capable of supporting expansion. If not, the success of these strategies would not be guaranteed.

- Our success also depends on the Group’s ability to offer products that meet with consumer tastes. Our level of sales and profits also

depends on the ability to anticipate and respond quickly to changes in fashion trends and consumer tastes. If our collections should fail

to meet with customer approval, this would result in lower-than-planned sales, higher discounts, lower margins and higher inventories.

- The Group’s strategy of growth and expansion has caused fixed and operating costs to rise. In order to enhance our image and market

share, we have also invested in selling our products through retail stores, even though our Group has traditionally distributed its

products through an extensive worldwide customer network. However, these retail activities have resulted in an increase in fixed and

operating costs. These investments also expose us to the risk that some of the chosen locations may prove to be unsuitable, due to

demographic changes or location of shopping areas.

- We must be able to organize and coordinate integrated production/logistics and commercial processes in order to meet the needs

of a commercial calendar that satisfies the demands of ever-more sophisticated consumers.

- Our future performance depends on our ability to develop the business in emerging markets. We are committed to taking forward the

new commercial strategies. We are devoting particular attention to emerging markets like China and India, also involving agreements

with large-scale retailers for the opening of “stores in store” in large shopping centers in the major cities. Our initiatives include the

creation of new partnerships to manage and develop commercial activity.

- We are making several changes to our information systems the very nature of which involves the risk of temporary business

interruption. The modifications involve replacing current company systems with the latest versions, implementing changes and buying

more integrated systems with new functions. We are aware of the risks associated with these activities, involving possible business

interruption and inaccuracy of the data transferred. We nonetheless consider that we have taken all the necessary steps to limit these

risks through testing, training and preparatory work, as well as through due commercial contact with suppliers of the replacement technology.

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Financial risks. We include in financial risks those associated with exchange rates, interest rates and credit.

Exchange rate risks. Our Group’s assets, liabilities, sales, costs and hence operating profit are and will continue to be affected by exchange

rate fluctuations in selling currencies and so in the price of products sold, the cost of sales and operating profit. Fluctuations in foreign

currency exchange rates against the Euro may negatively impact assets, liabilities, sales, costs, operating profit and the international

competitiveness of production by our different factories. Although we take out hedges to manage this exposure, there is a risk

that the strategies adopted could fail to protect the results from negative effects arising from future fluctuations.

Interest rate risks. We hold assets and liabilities that are sensitive to changes in interest rates and which are needed to manage liquidity

and financial requirements. These assets and liabilities are exposed to interest rate risk, which is sometimes hedged through the

use of derivatives.

Credit risk and country risk. Our Group is exposed to risks associated with the internationalization of its business, including risks

associated with late payment by customers in certain countries or with trouble in collecting credit in general. Our business is also

exposed to political and economic instability in certain countries where we operate, to changes in laws, to language or cultural barriers,

and to price or exchange rate controls.

Legal/compliance risks. Legal/compliance risks include:

- the possible inadequacy of company procedures designed to guarantee the observance of the principal laws in Italy and abroad affecting

the Group, such as those governing the activities of listed companies and their related groups (Italy’s Consolidated Law on Finance,

Italy’s CONSOB Regulations, Regulations of Borsa Italiana S.p.A., etc.). Issues associated with security, anti-trust and privacy regulations

are also of particular importance;

- the possible occurrence of events that negatively affect the credibility of our financial reporting (annual and interim financial reports),

the accuracy of market disclosures and the safeguarding of assets;

- the risk that an unexpected event interferes with the process of adopting Italian Law no. 262/2005 containing provisions to protect

investors and regulate financial markets, forcing management to revise priorities to ensure prompt compliance;

- the risks associated with the problems of keeping abreast of developments in the various sets of accounting standards adopted by our

Group (IFRS and local accounting principles);

- its international presence exposes the Group to different tax regimes. Changes in the related rules could expose the Group to risks

of non-compliance.

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Corporate Governance report

pursuant to art. 124 bis TUF, art. 89 bis CONSOB Issuer Regulations and IA.2.6 of the Instructions accompanying the Stockmarket Regulations

Traditional model of governance and control

Issuer:


Website:

www.benettongroup.com

Year to which the Report refers:

2007

Report approved on:

March 19, 2008

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Contents

Glossary 48

1. Issuer profile 49

2. Information on ownership structure (pursuant to art. 123 bis TUF) as of 03.19.2008 51

a) Structure of share capital 51

b) Restrictions on share transfer 51

c) Significant interests in share capital 51

d) Shares carrying special rights 52

e) Employee share ownership 52

f) Restrictions on voting rights 52

g) Shareholder agreements 52

h) Appointment and replacement of Directors and amendments to Articles of Association 52

i) Authority to increase share capital and authorizations to buy-back shares 53

l) Change of control clauses 53

m) Indemnity of Directors in the event of resignation, dismissal or termination

following a takeover bid 54

3. Compliance 54

4. Direction and coordination 55

5. Board of Directors 55

5.1. Composition at year end 55

5.2. Role of the Board of Directors 58

5.3. Other Executive Bodies 60

5.4. Independent Directors 61

5.5. Lead Independent Director 62

6. Treatment of corporate information 62

7. Board Committees 63

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8. Nominations Committee 64

9. Remuneration Committee 64

10. Remuneration of Directors 65

11. Internal Audit Committee 66

12. Internal Controls 68

12.1. Executive Director responsible for internal controls 68

12.2. Head of Internal Control 69

12.3. Organizational model under Italian Legislative Decree no. 231/2001 69

12.4. Independent auditors 70

12.5. Manager responsible for preparing the Company’s financial reports 70

13. Directors’ interests and transactions with related parties 70

14. Appointment of Statutory Auditors 71

15. Statutory Auditors 72

16. Relations with shareholders 73

17. Shareholders’ Meetings 74

18. Changes since year end 74

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Glossary

Code: the Corporate Governance Code for listed companies approved in March 2006 by the Corporate Governance Committee

and promoted by Borsa Italiana S.p.A. (the Italian Stock Exchange).

Civ. Cod./C.C.: the Italian Civil Code.

Board of Directors: the Board of Directors of Benetton Group S.p.A.

Issuer or the Company or the Parent Company: Benetton Group S.p.A.

Year: financial year to which this Report refers.

Group: Benetton Group S.p.A. and all the companies under its control.

Instructions accompanying the Stockmarket Regulations: the Instructions accompanying the Regulations of Markets organized

and managed by Borsa Italiana S.p.A.

Stockmarket Regulations: the Regulations of Markets organized and managed by Borsa Italiana S.p.A.

CONSOB Issuer Regulations: the Regulations for issuers, published by CONSOB (Italy’s Stock Exchange Commission) in its

resolution 11971/1999.

CONSOB Market Regulations: the Regulations for markets, issued by CONSOB in its resolution 16191/2007.

Report: the Corporate Governance Report that companies are required to prepare under art. 124 bis of TUF, art. 89 bis of the

CONSOB Issuer Regulations and art. IA.2.6. of the Instructions accompanying the Stockmarket Regulations.

TUF: Italian Legislative Decree no. 58 of February 24, 1998 (Italy’s Consolidated Law on Finance).

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1. Issuer profileThe Benetton Group paid particular attention to corporate governance in 2007, continuing to develop its decision-making/management,

organizational and control structures in accordance with Italian and international best practices.

Benetton Group S.p.A. has adopted the Corporate Governance Code for listed companies issued in 2006, in keeping with its specific

peculiarities and characteristics as described in this report.

The system of corporate governance, as outlined in this report, is based on the principles of fair and transparent management and

disclosure, and includes an ongoing process of verifying their proper application and effectiveness.

The Company has adopted the traditional system of corporate governance under which the company is governed by a Board of

Directors, while the body that oversees observance of the law, the Company’s Articles of Association and the principles of proper

administration is the Board of Statutory Auditors, while an independent auditing firm sees to the audit of the accounts.

The Internal Audit Committee (or Audit Committee for U.S. purposes) forming part of this system has assumed a fundamental role,

as better described in the specific paragraph on this topic, also because of the listing of Benetton shares on the New York Stock

Exchange - NYSE (up until January 2008).

The process of deregistering the Benetton stock from the NYSE, started in September 2007, was completed in January 2008.

The decision to abandon the US stockmarket was taken in view of the globalization of financial markets and the steady internationalization

of the Italian Stock Exchange, and after having seen that the volumes traded on the NYSE were very small and that even the larger

US shareholders traded the Benetton stock principally on the Italian Stock Exchange.

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Governance of the Company as of 12.31.2007

BOARD OF DIRECTORS

INDEPENDENT AUDITORS PricewaterhouseCoopers S.p.A.

SUPERVISORY & MONITORING BODY

Legislative Decree 231/01

L.A. BianchiGeneral Counsel

Head of Internal Control

DISCLOSURECOMMITTEE

Chief Financial OfficerHead of IR

Head of Media & Comm.Head of Admin. & Report.

General Counsel

EXECUTIVE1. L. Benetton, Chairman

2. A. Benetton, Deputy Chairman3. G. Caccia Dominioni(CEO from 06.01.07)

NON-EXECUTIVE4. C. Benetton, Deputy Chairman

5. G. Benetton6. G. Benetton

7. G. Mion

INDEPENDENT8. L.A. Bianchi9. G. Brunetti

10. A. Malguzzi11. R. Singer

BOARD OF STATUTORY AUDITORS

A. CasòA. Cortellazzo

F. Duodo

SHAREHOLDERS’ MEETING(66.73% Edizione Holding S.p.A.,

33.27% free float)

EXECUTIVE COMMITTEE

L. BenettonA. Benetton

G. Caccia DominioniG. Mion

HEAD OF INTERNAL CONTROL

INTERNAL AUDIT COMMITTEE & AUDIT

COMMITTEEfor SOX purposes

G. BrunettiA. MalguzziL.A. Bianchi

REMUNERATION COMMITTEE

R. SingerA. MalguzziG. Brunetti

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2. Information on ownership structure (pursuant to art. 123 bis TUF) as of 03.19.2008

a) Structure of share capitalAmount in Euro of subscribed and paid-in share capital: Euro 237,482,715.60 (Euro 237,478,139.60 as of 12.31.2007)

Number of share classes making up share capital: 1 (ordinary shares)

There are no shares with limited voting rights or without voting rights.

Other financial instruments carrying the right to subscribe to new shares:

Full details of the latest status of the current stock option plan can be found in the related paragraph forming part of the Directors’ report.

The stock option plan can be viewed in the Corporate Governance section of the Company’s website at www.benettongroup.com.

b) Restrictions on share transfer. There are no restrictions on the transfer of Benetton shares, or limits on their ownership,

nor are there any special requirements in order to become a shareholder.

c) Significant interests in share capital (as of 03.19.2008)

No. of shares % of share capital Listed/unlisted Rights and obligations

Ordinary shares 182,679,012 100% Borsa Italiana S.p.A. as per law Frankfurt Stock Exchange

Class of shares No. of shares Listed/ No. of outstanding servicing servicing Exercise unlisted instruments conversion/exercise conversion/exercise price

Stock options Unlisted 100,000 ordinary 100,000 Euro 8.98 (220,838 as of 12.31.07) (ratio 1:1)

% of % of Declarant Direct shareholder ordinary capital voting capital

Ragione S.A.p.A. di Gilberto Benetton e C. Edizione Holding S.p.A. 67.08 67.08

Zenit Asset Management AB Zenit Asset Management AB 2.62 2.62

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d) Shares carrying special rights. No shares have been issued granting special rights of control nor are there parties with

special powers as defined by Italian Law no. 474/1994.

e) Employee share ownership: mechanism for exercising voting rights. There is no employee share ownership scheme.

f) Restrictions on voting rights. There are no restrictions of any kind on the free and full exercise of voting rights by shareholders.

This is without prejudice to the requirements that must be fulfilled before being able to exercise voting rights, described in Paragraph 17.

g) Shareholder agreements. The Issuer is not aware of any agreements between shareholders pursuant to art. 122 TUF

(shareholder agreements).

h) Appointment and replacement of Directors and amendments to Articles of Association. The appointment and replacement of Directors is governed by prevailing laws and regulations, as reflected and supplemented within

the permitted limits, in the Articles of Association, which have been drawn up in compliance with the recommendations of the

Corporate Governance Code for listed companies. Art. 14 of the Company’s Articles of Association (available in the Corporate

Governance section of the website at www.benettongroup.com) establishes how Directors are appointed and replaced.

In particular, this article establishes that the Board of Directors is appointed by the Shareholders’ Meeting on the basis of lists presented

by the shareholders, filed at the Company’s registered office at least 15 days in advance of the date set for the first calling of the

Shareholders’ Meeting convened to vote on the appointment of Directors. The lists must be accompanied by (a) information about

the shareholders who have filed the lists, (b) documentation confirming them as shareholders and the percentage of share capital

they own, (c) comprehensive details on the personal characteristics and experience of the candidates, (d) details as to whether the

candidates qualify as independent Directors, (e) a statement by the candidates themselves confirming that they are in possession of

the requirements envisaged by prevailing statutory and regulatory provisions and the absence of any reasons for incompatibility and/

or ineligibility and (f) statements by the candidates in which they accept their candidacy and provide details of their appointments as

Directors or statutory auditors in other companies.

The lists must be promptly published on the Company’s website.

Lists may be presented by only those shareholders who own, alone or together with others, at least 2.5% of share capital, or the

minimum percentage envisaged by prevailing statutory and regulatory provisions in this regard. Details of such lower percentage and

the procedures for appointing Directors must be provided in the notice convening the Shareholders’ Meeting.

All the Directors requiring election, bar one, are taken from the list obtaining the highest number of votes in the Shareholders’ Meeting

(“Majority List”), in the consecutive order in which they appear on that list. One Director is taken from the list obtaining the second

highest number of votes in the Shareholders’ Meeting (“Minority List”), which must not be associated in any way, even indirectly,

with the Majority List; the Director elected in this case is the candidate at the head of this list.

No account is taken of lists that fail to obtain a percentage of votes corresponding to at least half of that required for their presentation.

The Articles of Association contain a mechanism that ensures that if one or more Directors vacates office during the year, he is replaced

by a Director from his same list, whether the Majority List or the Minority List.

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The majority required for amending the Articles of Association is the same as that specified in the same Articles of Association for

resolutions by the Shareholders’ Meeting in extraordinary session: meetings held in first and second calling have a quorum if attended by

shareholders representing more than half of share capital and can pass resolutions with the favorable vote of at least two-thirds of share

capital represented at the meeting. Meetings convened in third calling have a quorum if attended by shareholders representing more

than one third of share capital and can pass resolutions with the favorable vote of at least two thirds of share capital represented

at the meeting.

The Board of Directors is responsible for updating the Articles of Association to comply with the latest statutory and legal requirements.

i) Authority to increase share capital and authorizations to buy-back shares. The Extraordinary Shareholders’

Meeting held on September 9, 2004 resolved to empower the Board of Directors to increase share capital by up to Euro 6,500,000,

by issuing 5,000,000 shares, excluding pre-emption rights for shareholders, to service the stock option plan approved on July 15, 2004

(available in the Corporate Governance section of the Company’s website at www.benettongroup.com).

The Board of Directors has issued 3,233,577 options in execution of this authority, resolving at the same time to increase share capital

on one or more occasions by Euro 4,203,650 by issuing the same number of shares as that of the options.

Subsequently, in September 2006, further to a review of the overall, structure, scope and principles of the system of incentives and

having consulted the Remuneration Committee and obtained the agreement of management, the Board of Directors cancelled the Plan,

making the options linked to its second tranche no longer exercisable, ie. half of the total options issued, and revoking the associated

part of the authority to increase share capital (by another Euro 2,296,349.90).

Consequently, the Board of Directors is currently not in possession of any authority to increase share capital under art. 2443 of the

Italian Civil Code. As described in the paragraph on the stock option plan forming part of the Directors’ report and in a) of Section 2 above,

there are still 100,000 outstanding stock options carrying the right to subscribe to an equal number of shares.

The Board of Directors has not been granted any authority to issue equity instruments.

The Shareholders’ Meeting has not authorized the buy-back of shares, allowed by art. 2357 et seq. of the Italian Civil Code, to service

the exercise of options.

The Company does not own any treasury shares at the end of the year under review.

l) Change of control clauses. The Company and its subsidiaries have not made any significant agreements that become

effective, are amended or are terminated in the event of the contracting company’s change of control. An agreement has been made by

one of the Group’s Italian subsidiaries, as part of a partnership arrangement with equal interests in the capital of a company carrying out

retail activities in Italy, which establishes that, in the event of a change in the Company’s control, the partner may exercise an option to

sell its interest in the company at a market value determined by independent third parties. The sales of the company, whose shares are

the object of this put option, account for less than 2% of the Group’s consolidated revenues.

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m) Indemnity of Directors in the event of resignation, dismissal or termination following a takeover bid. The Company has made an agreement with the Chief Executive Officer whereby he will be paid an indemnity in the event of termination

of office for reasons other than resignation or cause. This indemnity is equal to the amount of his remuneration established for the

remainder of his mandate and may nonetheless not be lower than his fixed annual remuneration. The Chief Executive Officer has been

granted a mandate for the years 2007-2009 with a fixed annual remuneration of Euro 900,000.

There are no agreements of this kind between the Company and other Directors.

3. ComplianceBy Board resolution in February 2007, the Company has explicitly adopted the principles and recommendations of the Code in the

manner and terms disclosed annually in the Corporate Governance Report. The Company has not adopted any codes of self-regulation

issued by other entities.

As mentioned in the introductory paragraph, the listing of Benetton shares on the NYSE (up until January 2008) involved complying

with the legal and regulatory provisions established by the Securities Exchange Commission (SEC) and by NYSE for foreign private

issuers, including the Sarbanes Oxley Act of 2002 as subsequently amended and updated.

Compliance with this act has involved implementing and developing a particularly structured and effective system of internal controls,

capable of adequately mapping and constantly monitoring the administrative and control processes adopted by the Company and the

Group.

The Group’s corporate governance structure is heavily permeated with principles, processes and procedures that not only comply with

US legislation but also best international practice in general. More details in this regard can be found in Section 11 of this report relating

to Internal Control.

When adopting the resolution to delist and deregister, the Board of Directors, explicitly supported by the Internal Audit Committee,

informed the executive Directors, who in turn informed management, of its firm intention to basically maintain the high standards of

governance and internal control achieved during the period of listing on the NYSE, even though the Company is no longer subject

to US law.

The deregistration formed part of a more complex reorganization project in the finance area, which has resulted in a general

optimization of corporate organizational structure. In particular, the deregistration was an occasion for focusing the way internal controls

are monitored on the substantive aspects of such controls over the Company’s more important and riskier processes, helping reduce

the number of obligations least relevant to the Company’s specific needs. As a result, a number of areas of risk were revisited and the

audit programs were redefined also on the basis of current expansion plans and business strategy. Internal controls, in the broad sense,

have therefore been made more serviceable to company objectives.

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4. Direction and coordination Benetton Group S.p.A. is the Parent Company of a group of other companies but is not subject to direction and coordination - as defined

by articles 2497 et seq. of the Italian Civil Code - by its own holding company Edizione Holding S.p.A.

In fact, the Company is free to negotiate with third parties and, in keeping with such autonomy, there are no authorization or reporting

procedures involving the holding company, nor does the holding company have a centralized treasury function, which dictates or

otherwise financial and/or lending policy. The Group’s administration and control is structured within the Group itself, with Benetton

Group S.p.A. acting as the ultimate reporting entity. The Company also has a sufficient number of independent Directors to ensure

that their opinions carry a significant weight in Board decisions.

This conclusion is also supported by the following facts:

- there are no organizational structures dedicated to direction and coordination by the holding company;

- business, financial and strategic plans and budgets for the Group are limited to the Group and its members;

- the holding company Edizione Holding S.p.A. does not centrally manage relationships with public and private institutions.

In January 2004, all Italian subsidiaries owned, directly or indirectly, by Benetton Group S.p.A. acknowledged the role of direction and

coordination played by the Parent Company and have complied with the legal obligations to disclose this fact.

5. Board of Directors

5.1. Composition at year end. The Board of Directors in office at the close of 2007 will end its term in office with the approval

of the financial statements at December 31, 2009.

(1) List of origin (majority/minority). Not applicable. The Board was appointed before adopting the new provisions contained in the Articles of Association establishing appointment by list voting.(2) Exec./Non exec.: indicates if the Director qualifies as executive or otherwise.(3) Indep./Indep. TUF: indicates if the Director qualifies as independent under the criteria established by the Code and/or art. 148 TUF. The Company has adopted the criteria established by the Code in full without amendments (see Paragraph 5.5).(4) % BoD attendance: indicates the Director’s attendance record in percentage terms at Board meetings (the calculation of this percentage reflects the number of meetings attended by the Director relative to the number of Board meetings held during

the year or after the Director’s appointment).(5) Other appointments: indicates the total number of appointments held in other companies listed on regulated markets (in Italy or abroad) and in financial, banking, insurance or large companies.

In office Non Indep. % BoD Other Name Office since List (1) Exec. (2) exec. (2) Indep. (3) TUF (3) attendance (4) appointments (5)

Luciano Benetton Chairman 04.26.2007 (1) X 77.8% 1

Carlo Benetton Deputy Chairman 04.26.2007 (1) X 66.7% 2

Alessandro Benetton Deputy Chairman 04.26.2007 (1) X 88.9% 8

Gerolamo Caccia Dominioni CEO 04.26.2007 (1) X 71.4% 0

Giuliana Benetton Director 04.26.2007 (1) X 55.6% 1

Gilberto Benetton Director 04.26.2007 (1) X 66.7% 10

Gianni Mion Director 04.26.2007 (1) X 77.8% 10

Alfredo Malguzzi Director 04.26.2007 (1) X X X 100.0% 9

Robert Singer Director 04.26.2007 (1) X X X 77.8% 5

Giorgio Brunetti Director 04.26.2007 (1) X X X 88.9% 4

Luigi Arturo Bianchi Director 04.26.2007 (1) X X X 100.0% 3

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Following on from the previous table

Appendix “A” to this report contains a short curriculum vitae of every Director, listing the “other appointments” referred to in footnote

(5) above.

The following Directors ceased to hold office during the year:

See the footnotes to the two previous tables.

(6) E.C.: Executive Committee; C = Chairman; M = Member.(7) % E.C. attendance: indicates the Director’s attendance record in percentage terms at Executive Committee meetings. The Executive Committee did not meet in 2007.(8) N.C. Nominations Committee: the Company has not set up a Nominations Committee (see Section 8).(9) R.C.: Remuneration Committee; C = Chairman; M = Member.(10) % R.C.: indicates the Director’s attendance record in percentage terms at Remuneration Committee meetings (the calculation of this percentage reflects the number of meetings attended by the Director relative to the number of Remuneration

Committee meetings held during the year or after the Director’s appointment to this committee).(11) I.A.C.: Internal Audit Committee; C = Chairman; M = Member. (12) % I.A.C.: indicates the Director’s attendance record in percentage terms at Internal Audit Committee meetings (the calculation of this percentage reflects the number of meetings attended by the Director relative to the number of Internal Audit

Committee meetings held during the year or after the Director’s appointment to this committee).

% E.C. Name Office E.C. (6) attendance (7) N.C. (8) % N.C. (8) R.C. (9) % R.C. (10) I.A.C. (11) % I.A.C. (12)

Luciano Benetton Chairman C

Carlo Benetton Deputy Chairman

Alessandro Benetton Deputy Chairman M

Gerolamo Caccia Dominioni CEO M

Giuliana Benetton Director

Gilberto Benetton Director

Gianni Mion Director M

Alfredo Malguzzi Director M 100 M 100

Robert Singer Director C 100

Giorgio Brunetti Director M 100 C 100

Luigi Arturo Bianchi Director M 100

In office Non- % BoD Other Name Office from/to List (1) Exec. (2) exec. (2) Indep. (3) attendance (4) appointments (5)

Silvano Cassano Director 01.01.07 to 04.26.07 (1) X 0 1

Ulrich Weiss Director 01.01.07 to 04.26.07 (1) X 100 1

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Following on from the previous table

See the footnotes to the two previous tables.

Silvano Cassano held the office of Chief Executive Officer until November 2006; he stayed on as a Director until April 26, 2007.

Gerolamo Caccia Dominioni assumed the office of Director on April 26, 2007 and that of Chief Executive Officer on June 1, 2007.

During the period from November 2006 to June 1, 2007 the operational management of the Company and the Group was primarily

guaranteed by the executive powers granted to the Chairman, supplemented by a detailed system of delegated authority and powers

of attorney involving all the principal heads of department.

The Board of Statutory Auditors and the Internal Audit Committee have expressed their opinion on the adequacy and effectiveness

of this system of delegated authority and powers of attorney.

Maximum number of appointments allowed in other companies. The Board of Directors considers that the maximum number of

appointments that its own Directors may hold as a Director or statutory auditor of other listed companies, banks, insurance companies,

other financial organizations or other companies of significant size should be compatible with their effective performance of the office

accepted in the Company.

Accordingly the Board has adopted the following guidelines on the maximum number of appointments Directors may hold in other

companies:

a) an executive Director, apart from the office held in the Company, must not serve as:

i) an executive Director of another listed company, or of a bank, insurance company or other financial organization or a company with

net equity of more than Euro 10 billion;

ii) a non-executive Director or statutory auditor (or member of another control body) of more than three of the aforesaid companies;

b) a non-executive Director, apart from the office held in the Company, must not serve as:

i) an executive Director of more than one of the aforesaid companies and as a non-executive Director or statutory auditor (or member

of another control body) of more than three of such companies;

ii) a non-executive Director or statutory auditor of more than six of the aforesaid companies.

The total number of appointments held excludes companies in which Ragione S.A.p.A. di Gilberto Benetton e C. has a direct or indirect interest.

In any case, before accepting the office of Director or statutory auditor (or member of another control body) in another company which

is not directly or indirectly controlled by Benetton Group S.p.A. or in which the latter has a direct or indirect investment, executive

Directors must inform the Board of Directors, which precludes acceptance of the appointment if it considers it to be incompatible with

the executive Director functions already held and with the interests of Benetton Group S.p.A.

Name Office E.C. (6) % E.C. (7) N.C. (8) % N.C. (8) R.C. (9) % R.C. (10) I.A.C. (11) % I.A.C. (12)

Silvano Cassano Director

Ulrich Weiss Director C 100 C 100

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Also based on the above criteria, the Board of Directors considers that during the year under review none of its members has accepted

or held appointments in other companies whose number has prevented constant, attentive and effective performance of their role in

the Company.

This opinion has been formalized in a Board resolution and is being made public through this report.

5.2. Role of the Board of Directors. The Board of Directors met nine times during 2007; these meetings lasted an average of

two hours each. Senior managers from the Company and the Group with specific knowledge and responsibility regarding the subjects

being discussed were frequently invited to attend Board meetings.

The Board is due to hold nine meetings in 2008, two of which have already taken place (February 21 and March 19).

In accordance with the Articles of Association, the Board is responsible for examining and approving the strategic, business and financial

plans of the Company and the Group and their system of corporate governance. These matters are excluded from those delegated to

the Executive Committee and the Chief Executive Officer or to the executive Directors in general (see Paragraph 5.3).

During 2007 the Board examined and approved, amongst others, policies guiding Group operations, recommendations concerning

organization and corporate governance, general guidelines regarding human resources management, proposals to reorganize corporate

structure, operating performance, extraordinary operations and the quarterly, half-year and annual results.

Also thanks to the work of the Internal Audit Committee, the Board paid particular attention to the organizational, administrative

and accounting structure of the Company and the Group as established by the Chief Executive Officer, including the operation

of the internal control system and the procedures for managing conflicts of interest.

For the purposes of identifying the Group’s strategically important companies and thus relevant for the above analysis and review,

a materiality limit was first defined in terms of percentage of net capital and income before taxes with reference to the consolidated

balance sheet and statement of income respectively; this made it possible to identify the companies considered most important,

some of which were treated as a whole (Benetton Group S.p.A., Bencom S.r.l., Benind S.p.A., Olimpias S.p.A., S.I.G.I. S.r.l.) while

others were considered only with reference to certain operational processes (Benetton Asia Pacific Ltd., Benetton Realty France S.A.,

Benetton Korea Inc. and Benetton Japan Co., Ltd.).

Based on these results, and in view of the work of the Internal Control Committee on evaluating the adequacy of internal controls,

the Board of Directors, having obtained the favorable opinion of the Internal Control Committee, reached a positive conclusion

on the aforementioned organizational, administrative and accounting structure of the Company and the Group.

The Board of Directors reviewed the periodic reports by the Internal Audit Committee containing details of its work, its assessment

of the adequacy of internal controls, and its latest steps to ensure compliance with the Sarbanes Oxley Act (see Section 3).

The executive bodies reported to the Board of Directors and Board of Statutory Auditors at least once every three months on the

Group’s more important operations and activities, with particular reference to significant, atypical, unusual or related party transactions.

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The necessary documentation and information were provided to Directors in reasonable advance of Board meetings, such that they

were able to make decisions in an informed manner on the various issues being discussed.

The Board formalized, discussed and agreed a “self-evaluation report” on the size, composition and operation of the Board itself

and its committees. The overall assessment was positive, revealing that group discussion was both open and direct with respect and

appreciation shown for individual contributions. The Directors acknowledged that the conditions had been satisfied for them to carry

out their role in an informed and conscious fashion. On this occasion, certain managerial/operational issues affecting the business were

also identified for inclusion on the agendas of Board meetings in order to extend collective debate to these topics as well.

The independent Directors were in agreement with the above self-evaluation report and discussed it during their annual meeting

(see Paragraph 5.4).

The current system of delegated authority, along with the Procedure for Related Party Transactions and Significant Transactions, as discussed

below (see Section 13, particularly when one or more Directors has an interest, either directly or through a third party, in a significant

transaction or related party transaction) and the reporting procedures adopted, ensure that the Board is informed of all transactions with

a significant impact on the balance sheet, statement of income and financial position of the Company and its Group. In particular, this

Procedure defines “significant” transactions as those whose value exceeds Euro 5 million, which require the prior authorization of the Board

of Directors; in such a case every Director or statutory auditor is entitled to request that the value of the transaction be assessed by one or

more experts appointed for this purpose. The Procedure also calls for the prior approval of the Board of Directors for all those transactions

with a significant impact on the balance sheet, statement of income and financial position of the Company and the Group and whose

consideration, standing of the counterparty, subject-matter, method or timing of execution could affect the safekeeping of company assets.

The Company has also issued a group policy, also adopted by the Boards of Directors of its subsidiaries, for the exercise of powers

granted to its own proxyholders and to Directors and proxyholders of its subsidiaries. Under this policy, the executive Directors

of all Group companies, even if in possession of the related authority, must obtain prior approval from the Board of Directors

(or Shareholders’ Meeting) of their respective companies for the following transactions, should these fall outside the ordinary course

of intragroup business: issue of guarantees, grant or request for loans, purchase or sale of property, purchase or sale of shares in

companies and (with some exceptions) business units. The Board of Directors (or Shareholders’ Meeting) of the subsidiary in question

must subsequently report, through its Chairman, to the Chief Executive Officer of the Parent Company.

At the same time the Parent Company is also guaranteed a continuous, adequate flow of information thanks to the provisions of the

“Procedure for Corporate Information Disclosure” (see Section 6).

The Board has not received any declarations from its Directors that they are conducting activities in competition with the Issuer; the Company’s

shareholders have not authorized any exceptions to the non-compete provisions contained in art. 2390 of the Italian Civil Code.

Having examined the recommendations of the Remuneration Committee and consulted the Board of Statutory Auditors, the Board

of Directors has determined the remuneration of the executive Directors and other Directors holding particular office, allocating

accordingly the overall compensation due to Board members approved by the Shareholders’ Meeting.

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5.3. Other Executive Bodies Chief Executive Officers. The Board of Directors has granted operational powers to the Chairman, the Deputy Chairman and the

Chief Executive Officer.

Chairman - Deputy Chairman. The Chairman, Luciano Benetton, is vested with the powers of company representation and the

power to carry out all acts relating to the Company’s activities, with limitations on certain types of act and the following transactions

in particular:

- the purchase and sale of equity interests or corporate bonds for amounts exceeding Euro 25 million;

- the guarantee of obligations of parties other than subsidiaries for amounts exceeding Euro 25 million;

- the purchase and sale of business units and the purchase and sale of property for amounts exceeding Euro 25 million;

- the grant of loans and finance to parties other than subsidiaries for amounts exceeding Euro 5 million.

The Deputy Chairman, Alessandro Benetton, is vested with the powers of company representation and the power to carry out all

acts relating to the Company’s activities, with limitations on certain types of act and the following transactions in particular:

- the purchase and sale of equity interests or corporate bonds for amounts exceeding Euro 15 million;

- the guarantee of obligations of parties other than subsidiaries for amounts exceeding Euro 15 million;


- the grant of loans and finance to parties other than subsidiaries for amounts exceeding Euro 5 million.

The Board of Directors has appointed a second Deputy Chairman (Carlo Benetton), who has not been granted operational powers,

but who has been given the power to represent the Company if the Chairman is absent or otherwise unable.

Chief Executive Officer. The Chief Executive Officer, Gerolamo Caccia Dominioni, has been vested with the power to carry out all

acts relating to the Company’s ordinary administration and certain acts of extraordinary administration, with the following limitations:

- the purchase and sale of equity interests for amounts exceeding Euro 5 million;

- the purchase and sale of securities and bonds for amounts exceeding Euro 10 million;


- the grant of loans to parties other than subsidiaries for amounts exceeding Euro 2.5 million;

- the guarantee of loans to companies that are not wholly controlled, either directly or indirectly, by Benetton Group S.p.A.

In the Company’s model of governance, the Chief Executive Officer is its principal executive officer, being effectively responsible for

running the business.

The Board has decided to grant the aforementioned operational powers to the Chairman and the Deputy Chairman in order (a)

to guarantee continuity and stability in managing the activities of the Company and the Group, also operationally, giving them the

opportunity to have a wider, more effective role internationally and with institutions and (b) to benefit from their wealth of experience

and unquestionable business expertise gained in the Company’s particular sector, along with their extensive knowledge of the

Company and the Group.

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The Board has not considered it necessary to designate one of the independent Directors as Lead Independent Director (see Paragraph 5.5).

None of the other Directors has operational powers.

Executive Committee. The Executive Committee consists of the Chairman, Luciano Benetton, the Deputy Chairman, Alessandro

Benetton, the Chief Executive Officer, Gerolamo Caccia Dominioni, and the Director, Gianni Mion.

The meetings of the Executive Committee are attended by members of the Board of Statutory Auditors and the Chairman of the

Internal Audit Committee, none of whom is entitled to vote.

The Executive Committee’s responsibilities include reviewing strategic, business and financial plans for the Company and the Group,

as well as annual budgets and interim forecasts, presented by the Chief Executive Officer, and defining them prior to their examination by

the Board of Directors.

The Executive Committee also examines and approves particularly significant investment and divestment plans, the grant of loans and

the provision of guarantees, and analyzes the more significant issues relating to Company performance, also to enable the Board of

Directors to carry out its legal duties more effectively.

The Executive Committee did not meet in 2007 since its members decided to discuss the above matters directly in meetings of the

Board of Directors. The reasons for opting for a group discussion directly by the entire Board of Directors are mostly to do with the

absence in the first five months of the year of a Chief Executive Officer. In fact, in the Company’s model of governance the latter is the

person who stimulates, promotes and organizes the Executive Committee’s activities, when appropriate and/or necessary.

No Executive Committee meetings have been held so far in 2008, nor have any been planned as yet.

Reporting to the Board of Directors. The executive bodies have reported to the Board of Directors at least once every three months

on the activities carried out in the exercise of the authority vested in them.

Directors’ knowledge of company business and operations. In order to improve Directors’ knowledge of the business and its

operations, allowing them to fulfill their duties more effectively, the Chairman has seen to it that Board meetings have also discussed

matters associated with the Group’s institutional ends as well as initiatives that have been undertaken not always directly and/or solely

associated with the Company’s core business. The frequent participation at Board meetings of the Company’s senior managers,

invited to discuss specific items on the agenda, has also helped achieve this purpose.

5.4. Independent Directors. Once a year, the Board of Directors evaluates the qualifications of independence of all members

in accordance with the Code, also on the basis of information provided by the Directors themselves. The assessment is reported

and formalized during the Board meeting which approves the draft annual financial statements and is based on all the independence

requirements contained in the Code. The Board of Statutory Auditors verifies the criteria and procedures adopted by the Board for

verifying the independence of Directors and reports the results of this work in the report presented to the Shareholders’ Meeting.

The last report by the statutory auditors to the Shareholders’ Meeting (April 2007) expressed a favorable opinion.

The Articles of Association do not include any restrictions on the re-election of Directors.

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The independent Directors met once during the year without the presence of the other Directors. They discussed the matters

contained in the annual evaluation of the size, composition and operation of the Board of Directors, the adequacy of the Company’s

general organizational, administrative and accounting structure and the adequacy of information provided by subsidiaries to the

Parent Company.

5.5. Lead Independent Director. In view of the comments contained in Paragraph 5.3 about the Chief Executive Officer

(being the Company’s principal executive officer, separate from the Chairman of the Board of Directors), the conditions for appointing

a Lead Independent Director are not considered to exist.

On this subject it should be noted that the Chairman of the Board of Directors cannot be viewed as the “person who controls the

Issuer” (Application Principle 2.C.3 of the Code). This is because being only one of the members of the family which controls the

Company, adequate “counterweights” on the extension of his powers are deemed to exist.

6. Treatment of corporate informationThe Company adopted the “Procedure for Corporate Information Disclosure” in February 2007, which represents a formalization of

the set of existing company procedures designed to govern the preparation, circulation and publication of corporate information,

with particular reference to price sensitive information.

This procedure identifies and dictates the standards of conduct, the roles and responsibilities of individual company departments

variously involved in the process of preparing and publishing the annual statutory and consolidated financial reports, the Form 20-F

report, the interim financial reports (half-year and quarterly reports and related Form 6-K) and other information of a financial or

confidential and/or price sensitive nature. This procedure also contains the guidelines followed for managing, monitoring and updating

the internal system of administrative and accounting controls and related procedures, designed to allow management to issue the

certifications and declarations required under both Italian legislation and U.S. law (Sarbanes Oxley Act).

This procedure also requires all the Group’s employees and collaborators to adopt certain standards of general conduct with the prime

purpose of guaranteeing the confidentiality of the information learned in the performance of their duties.

The Chief Executive Officer, in agreement with the Chairman, oversees management of confidential information, as well as the process

of updating the Procedure for Corporate Information Disclosure.

Communications and relations with the press and institutional and private shareholders are the responsibility of the Media & Communications

and Investor Relations departments respectively.

Price sensitive information is publicly disclosed only after the related press release has received final approval from the Board of

Directors or Chief Executive Officer. The Media & Communications, Investor Relations and Corporate Affairs departments all take part

in the process of drawing up press releases, each with reference to their specific area of responsibility.

A collective body known as the Disclosure Committee also takes part in this process. Its rules of procedure were approved at the same

time as the Procedure for Corporate Information Disclosure (of which it forms an integral part).

The Disclosure Committee plays a primarily consultative role, acting as an instrument at the disposal of the Chief Financial Officer

(in charge of the Accounting, Finance and Control department) and the Chief Executive Officer in performing the controls required of

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them - with the associated responsibilities - regarding the correctness, with regard to current legislation, clarity, timeliness, completeness,

reliability and transparency of the information being disclosed to the market.

The Disclosure Committee consists of permanent members and members explicitly invited to take part in its meetings for the

purposes of discussing specific topics. The permanent members are the persons in charge of Accounting, Finance and Control, Media &

Communications, Investor Relations, Administration and Reporting and Corporate Affairs.

The work of this Committee - like the entire Procedure for Corporate Information Disclosure - forms part of the “Disclosures Controls

and Procedures” and “Internal Control Over Financial Reporting” required by Sections 302 and 404 respectively of the Sarbanes Oxley

Act, as well as part of the “Administrative and accounting procedures for preparing statutory and consolidated financial statements and

any other type of financial communication” under art. 154-bis of TUF.

The “Procedure for Corporate Information Disclosure” and the “Disclosure Committee Rules of Procedure” can be found in the

Corporate Governance section of the Company’s website at www.benettongroup.com.

Since the end of 2006 the Company has adopted a new set of Internal Dealing Regulations to replace those previously adopted in 2002.

In compliance with art. 114 of TUF and art. 152-sexies et seq. of the CONSOB Issuer Regulations, the latest Internal Dealing Regulations

contain new terms, conditions and procedures for the reporting and disclosure of transactions in Benetton stock by “Relevant Persons”

(as defined by the Regulations themselves). The Company has made provision for extended black-out periods preceding the approval

of the annual and interim financial reports, during which persons defined by the Regulations as Relevant Persons may not deal in

Benetton stock.

The Internal Dealing Regulations can be found in the Corporate Governance section of the Company’s website at www.benettongroup.com.

Still in relation to price sensitive information, the Company has also adopted and implemented a Register of Insiders, in compliance with

the provisions of art. 115-bis of TUF and art. 152-bis-quinquies of the CONSOB Issuer Regulations, after obtaining Board approval for

the related procedural rules. This Register currently contains the names of those persons who, by virtue of their work or profession or

the functions carried out on Benetton’s behalf, have access to price sensitive information regarding the Group. The Register of Insiders

Regulations can be found in the Corporate Governance section of the Company’s website at www.benettongroup.com.

7. Board CommitteesThe Company has not set up any committees within the Board of Directors other than those envisaged by the Code nor has it

combined in a single committee the duties performed by two or more committees envisaged by the Code.

Other committees not envisaged by the Code have however been set up outside the Board of Directors; these consist of committees

comprising heads of specific company departments whose purpose is to optimize organization and/or internal control and generally

seek to identify centers of responsibility for individual processes, procedures or stages of the same, both as part of the wider business

management process and as part of accounting and administrative procedures.

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8. Nominations CommitteeIn view of the Company’s current shareholder structure, the Board of Directors has not deemed it necessary to set up a Directors’

Nominations Committee.

9. Remuneration CommitteeThe Board of Directors nominated the following Directors as members of the Remuneration Committee for financial year 2007:

Robert Singer (Chairman), Alfredo Malguzzi and Giorgio Brunetti. This Committee is therefore entirely made up of independent

Directors who, as such, do not take part in share-based incentive schemes or earn remuneration which includes a variable part linked

to company results, thereby ensuring that their approach to the topics discussed by this Committee is entirely objective.

As expressly stated in the related rules of procedure, the Remuneration Committee makes recommendations for submission to the

Board of Directors, which decides without the presence of those directly concerned, who absent themselves from the meeting during

the debate and voting on the resolutions in their regard.

The Human Resources Director was invited by the Committee’s Chairman to attend its meetings and to act as its secretary with responsibility

for (i) taking the meeting’s minutes, (ii) working with the Committee in order to provide its members with the information they considered

necessary for carrying out their duties and (iii) keeping its members updated about actual trends in corporate remuneration policies.

The Remuneration Committee met twice in 2007. It took decisions regarding incentives and targets in the long and short-term incentive

schemes for the Chief Executive Officer and the short-term schemes for senior management, which were also subsequently examined

by the Board of Directors; it also analyzed the problems associated with managing the stock option plan and assessed the general

principles adopted for the remuneration of key management personnel, reporting its findings to the Board as part of the process of

approving short-term incentive schemes for management.

Once again in 2007, the Committee provided recommendations to the Board of Directors as to how it should divide up the overall

amount of Directors’ remuneration approved by the shareholders between the executive Directors and/or those with particular

responsibilities, as reported in the Explanatory notes to the consolidated financial statements of the Benetton Group.

The Committee’s Rules of Procedure allow it to use the services of external advisors at the Company’s expense, even if there is no

specific predetermined budget, provided the Company’s Chief Executive Officer or Chairman is asked beforehand. The Committee

nonetheless did not consider it necessary to use the services of any external advisors during 2007.

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10. Remuneration of DirectorsA significant part of the Chief Executive Officer’s remuneration is linked to the Company’s results on the basis of specific targets set

beforehand by the Board of Directors, after consulting the Remuneration Committee.

In keeping with and as a direct consequence of what was said in Paragraph 5.3 about the role of Directors with executive authority

(Chairman, Deputy Chairman and Chief Executive Officer), the remuneration of the Directors, except that of the Chief Executive

Officer, is not linked to the Company’s results, nor does any Director take part in share-based incentive schemes, again except for

the Chief Executive Officer.

“Attendance fees” are payable to independent Directors for their attendance at meetings of the Board of Directors and its committees.

A significant part of the remuneration of key management personnel is linked to the Company’s results on the basis of both quantitative

and qualitative objectives agreed with the Chief Executive Officer, after consulting the Remuneration Committee.

Details of the outstanding part of the stock option plan can be found in the related paragraph in the Directors’ report. There are

currently no other share-based incentive schemes.

Directors’ remuneration - including remuneration for committee membership and attendance fees

Key management personnel earned total remuneration of Euro 2,115,000 in 2007.

This amount refers to the total remuneration earned by Biagio Chiarolanza, Chief Operations Officer, by Emilio Foà, Chief Financial

Officer, by Andrea Negrin, Human Resources Director, and Adolfo Pastorelli, Chief Information Technology Officer.

(1) Up until approval of the financial statements at 12.31.2007. These figures refer to emoluments relating to 2007.(2) Director until 04.26.2007.

Emoluments Benefits Bonuses and Other Name of office (1) in kind other incentives remuneration Total

Luciano Benetton 1,600 1,600

Carlo Benetton 800 800

Alessandro Benetton 1,100 1,100

Gerolamo Caccia Dominioni 600 42 6 648

Gilberto Benetton 100 100

Giuliana Benetton 800 800

Luigi Arturo Bianchi 93 93

Giorgio Brunetti 112 112

Alfredo Malguzzi 93 93

Gianni Mion 50 50

Robert Singer 65 65

Ulrich Weiss (2) 15 15

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11. Internal Audit Committee The Internal Audit Committee consists of three independent, non-executive Directors. The Directors Giorgio Brunetti (Chairman),

Luigi Arturo Bianchi and Alfredo Malguzzi were appointed as members of this Committee on April 26, 2007.

Since Benetton shares are listed on the New York Stock Exchange, the Company has complied with the provisions of recent U.S.

legislation concerning foreign private issuers by vesting the Internal Audit Committee in 2005 with all the powers needed to fulfill the

requirements attributed to the audit committee by such legislation.

This decision, which was formally approved by the Company’s Board of Directors, was officially communicated to and approved by the

U.S. Securities Exchange Commission (SEC) in Washington. Such approval was obtained also thanks to the fact that the Committee is

entirely made up of independent Directors, one of whom (Giorgio Brunetti) qualifies as a “financial expert” under the definition of the

aforementioned legislation (in possession of “adequate experience in accounting and finance” as required by the Code).

The Internal Audit Committee’s rules of procedure establish that this body, insofar as allowed by Italian laws and regulations, shall have

all the authority, duties, powers and responsibilities required of the audit committee under U.S. law.

Early in 2007 the Board of Directors approved a number of amendments to the Internal Audit Committee’s rules of procedure in order

to bring its duties into line with those contained in the Code.

Accordingly and also for the purposes specified above, the Internal Audit Committee’s main duties now include:

- to assist the Board of Directors in defining guidelines for the system of internal controls and in determining the criteria for deciding

whether the risks facing the Company and its subsidiaries are compatible with sound, proper business management;

- to oversee the monitoring of internal controls by assisting the Board of Directors in evaluating the adequacy, effectiveness and actual

operation of the same;

- to assess, together with the Manager responsible for preparing the Company’s financial reports and the independent auditors,

the appropriateness of the accounting standards adopted and their consistency for the purposes of preparing the consolidated

financial statements;

- to receive, as the point of contact for the independent auditors, information and/or communications regarding the consolidated financial

report and Form 20-F concerning critical issues involving certain accounting practices and/or alternative accounting practices;

- to assess, with the assistance of the Manager responsible for preparing the Company’s financial reports and the Head of Internal

Control, the proposals presented by independent auditing firms for obtaining the audit contract;

- to monitor the effectiveness of the independent audit process and assess the results presented in the independent auditors’ report

and any management letter;

- to evaluate all auditing and other services provided by the independent auditors and express an opinion as to their appropriateness

and consistency as a necessary requirement prior to confirming their engagement;

- to assess and verify the independence of the independent auditors;

- to adopt procedures for receiving, recording and addressing the complaints received by the Company from employees or others

concerning accounting matters, internal accounting controls or auditing in general, guaranteeing the anonymity of the complainant

if an employee;

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- to receive the annual report from the Head of Internal Control on the application of the “Organizational and Operational Model”

envisaged by Italian Legislative Decree no. 231/2001, which has been adopted by the Company and also includes the Code of Ethics.

To evaluate whether to present the Board of Directors with recommendations for updating and/or amending the “Organizational and

Operational Model” envisaged by Italian Legislative Decree no. 231/2001, and its method of application;

- to report to the Board of Directors at least once every six months on the work performed.

The Committee carried out its duties in 2007 by meeting nine times, with the participation of the entire Board of Statutory Auditors,

in compliance with its rules of procedure. Committee meetings were frequently attended, at the Chairman’s invitation, by the Chief

Financial Officer (Manager responsible for preparing the Company’s financial reports), the Chief Executive Officer, representatives of

the independent auditors and company managers whose assistance the Committee requested on specific matters. The Head of Internal

Control was also invited by the Committee’s Chairman to attend its meetings and to act as its secretary with responsibility for taking the

meeting’s minutes and for working with the Committee in order to provide its members with the information they considered necessary

for carrying out their duties.

For the purposes of the Committee’s effective and efficient operation, the related rules of procedure explicitly provide that the

Committee, through its Chairman:

- shall have full access to all corporate documents, at any time and wherever such documents are located;

- shall have the authority to question Directors, employees, agents, consultants, customers and suppliers of the Company and/or its

subsidiaries;

- shall have the power to retain at the Company’s expense external advisors regarding legal, accounting and other matters when it sees

so fit, subject only to the obligation to report its expenditure at least once every six months to the Board of Directors.

The operation and adequacy of internal controls were guaranteed by the Board of Directors, together with the Internal Audit

Committee, also with the help of the related Internal Audit department run by its manager, who also holds the position of Head of

Internal Control and as such reports directly to the Chairman of the Internal Audit Committee.

The Internal Audit Committee continued during the year to receive, record and address complaints or protests presented by employees

and/or third parties concerning accounting matters, internal accounting controls or auditing in general, guaranteeing the anonymity

of complainants.

The complaints received by the Company were addressed directly to all the members of the Committee in accordance with the

“Procedure for Reporting Complaints to the Internal Audit Committee” adopted in 2005 in compliance with the US provisions on

whistleblowers contained in Section 10A of the Securities and Exchange Act of 1934 as amended by Section 301 of the Sarbanes Oxley Act.

This Procedure can be found in the Corporate Governance section of the Company’s website at www.benettongroup.com.

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12. Internal ControlsThe Company continued during 2007 to update the mapping of the more significant business processes affecting its results and balance

sheet. The following were described for each process reviewed: the activity, the control objective associated with the risks of this activity

and the existing controls. The Internal Audit department carried out numerous tests to verify the effectiveness and efficiency of the

controls over operating processes, information systems and the so-called “control environment”. Tests, carried out using a sample-based

approach, revealed a generally negligible percentage of negative results in the seven hundred or more checks performed.

The heads of each function in which a deficiency in controls was revealed promptly planned a series of measures designed to eliminate

the weakness or reduce the risk. In view of the listing of Benetton shares in the U.S., this process was also conducted in compliance

with the provisions of the Sarbanes Oxley Act.

Thanks to the collaboration of the heads of company departments, at year end the Internal Audit Committee was able to conclude

positively on the process of resolving the aforementioned weaknesses in control.

Based on the results of these tests and detailed information received from the Chief Executive Officer, the Internal Audit Committee

and Board of Directors are of the opinion that the internal controls are appropriate for the size and complexity of the Company and

the Group and that their design is capable, within reasonable limits, of preventing or in any case promptly intercepting any significant

errors in financial reports.

As part of the Board of Directors’ approval of Form 20-F in June 2007, the independent auditors issued a favorable opinion on the

Group’s internal controls.

The Board of Statutory Auditors has also received adequate information in this regard.

12.1. Executive Director responsible for internal controls. The Board of Directors has resolved to appoint the

Parent Company’s Chief Executive Officer as the Executive Director responsible for supervising the functionality of internal controls.

Acting in this role, the Chief Executive Officer has prepared and submitted a Control Risk Self-Assessment report to the Internal Audit

Committee; this document - whose contents and principles were agreed by the Board of Directors - provides a detailed list of the most

important risk factors relating to company processes. The Chief Executive Officer based this document on an evaluation of the potential

impact on the statement of income of the events considered, as well as of the probability of their occurrence. Apart from the principal

business risks (strategic, operational, financial and compliance), the analysis also contained proposals by the Head of Internal Control

for the introduction of key controls associated with these risks.

The Chief Executive Officer also confirmed the Head of Internal Control in office. The Board of Directors delegated the Chief Executive

Officer together with the Chairman of the Internal Audit Committee to determine the Head of Internal Control’s remuneration.

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12.2. Head of Internal Control. The Board of Directors resolved on March 31, 2003, after consulting the Internal Audit

Committee, to appoint Roberto Taiariol as the person responsible for checking that internal controls are always adequate,

fully operational and functioning.

The method of determining the remuneration of the Head of Internal Control is discussed in Paragraph 12.1.

The Head of Internal Control:

- is not in charge of any operational areas and does not report to any heads of operational areas, including the Accounting, Finance

and Control department;

- has constant direct access to all the information needed to carry out his duties;

- reports on his work to the Internal Audit Committee, the Board of Statutory Auditors and the Executive Director responsible for

supervising the functionality of internal controls (Chief Executive Officer);

- agrees a budget for this function with the Chief Executive Officer at the start of every year and has all the necessary powers for

managing it with complete autonomy.

The Head of Internal Control’s principal activities during the year were as follows:

- periodic tests of the functioning of internal controls;

- assistance to the Internal Audit Committee in performing its duties;

- discussion and exchange of information with the Internal Audit Committee, the Board of Statutory Auditors, the Chief Executive

Officer and the independent auditors;

- analysis of circumstantial reports concerning problems associated with the financial statements, the audit and system of control

in general;

- evaluation of the proposal to extend the engagement of the independent auditors;

- analysis of the proper segregation of duties in user profiles contained in information systems;

- verification of the observance of international standards in the work of some of the Group’s suppliers.

The Company has set up an Internal Audit department, of which the Head of Internal Control is in charge.

Some of the duties of the Internal Audit department are entrusted to outside firms of consultants, who are completely independent

of the Company and the Group. The involvement of outside consultants mostly relates to activities in the information technology sector,

where specific technical expertise is required.

12.3. Organizational model under Italian Legislative Decree no. 231/2001. The Company, together with its

strategically important subsidiaries, adopted in a Board resolution dated September 11, 2003, a model of organization, operation and

control in accordance with Italian Legislative Decree no. 231/2001, comprising:

- Code of Ethics;

- Operating procedures and reporting systems;

- Supervisory and Monitoring Body;

- Disciplinary system.

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During the course of 2007 the Supervisory and Monitoring Body, set up under art. 6.1.b of Italian Legislative Decree no. 231/2001,

consisting of Ulrich Weiss (Chairman until April 25, 2007), Luigi Arturo Bianchi (Chairman from April 26, 2007), the Head of Internal

Control and the Head of Corporate Affairs (from April 26, 2007), carried out controls on the operation and observance of the

Organizational and Operational Model adopted by the Company.

The Board of Directors will be asked in April 2008 to approve a new Organizational and Operational Model, updated in structure

as well as for the types of offence it is required to prevent.

The “Organizational and Operational Model” including the “Code of Ethics” can be found in the Corporate Governance section

of the Company’s website at www.benettongroup.com.

12.4. Independent Auditors. The Shareholders’ Meeting of April 26, 2007 appointed the auditing firm of PricewaterhouseCoopers S.p.A.

to audit the Company’s separate and consolidated financial statements for financial years 2007, 2008, 2009, 2010, 2011 and 2012 and to

perform a limited review of the half-year reports at June 30, 2008, 2009, 2010, 2011, 2012 and 2013.

12.5. Manager responsible for preparing the Company’s financial reports. In compliance with art. 20 of the

Articles of Association, introduced pursuant to art. 154 bis of TUF by shareholder resolution on April 26, 2007, the Board of Directors

appointed on the same date and after consulting the Board of Statutory Auditors, Emilio Foà, the Chief Financial Officer, as “Manager

responsible for preparing the Company’s financial reports”.

In accordance with the Articles of Association, this position is selected from amongst persons of proven professional experience in

accounting and finance and in possession of the integrity requirements envisaged by prevailing law for members of control bodies;

this position has the necessary authority and powers to obtain all the most suitable resources for carrying out the required duties.

13. Directors’ interests and transactions with related parties The Company’s Board of Directors adopted a new Procedure for Related Party Transactions and Significant Transactions in March 2006,

which included the latest recommendations on this subject contained in the Code and followed best domestic and international

practices in identifying the parties, the transactions and the procedures needed to facilitate proper reporting and disclosure.

This Procedure reiterates the central role played by the Board of Directors in the Company’s system of corporate governance,

ensuring that such transactions are always carried out in accordance with principles of substantial and procedural fairness.

This Procedure contains a wide definition (based on the recommendations of IAS 24) of related parties of Benetton Group S.p.A.

and stricter authorization and disclosure procedures for transactions with such parties, including the requirement, in certain cases,

for the Internal Audit Committee to issue a prior opinion on individual transactions.

The general principles under the Procedure are as follows:

- all related party transactions regardless of their value, including those carried out through subsidiaries, must be reported to the Board

of Directors and the Chairman of the Internal Audit Committee;

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- in the event of related party transactions that are atypical, unusual or concluded under non-standard terms and conditions, or in the case

of related party transactions whose value exceeds Euro 2.5 million, it is necessary to obtain the prior approval of the Board of Directors

based on the opinion of the Internal Audit Committee;

- transactions with related and other parties whose value exceeds Euro 5 million (ie. “Significant” transactions) require the prior

authorization of the Board of Directors;

- the Directors and statutory auditors may request that the value of the transaction be assessed by one or more experts appointed for

this purpose;

- the prior approval of the Board of Directors is required for transactions with a significant impact on the balance sheet, statement of

income and financial position of the Company and the Group and whose consideration, standing of the counterparty, subject-matter,

method or timing of execution could affect the safekeeping of company assets.

The Procedure also requires that a Director who, either directly or through a third party, has an interest in a company transaction,

even if such interest is potential or indirect, must leave the meeting at the time of voting or, if his presence is needed for the purposes

of maintaining the required quorum, he must abstain from voting.

The Procedure for Related Party Transactions and Significant Transactions was gradually extended over 2006 and 2007 to the Group’s

principal companies.

More details on related party transactions carried out during 2007 can be found in the section entitled “Relations with the holding

company, its subsidiaries and other related parties” forming part of the Directors’ report on the consolidated financial statements.

The full Procedure can be found in the Corporate Governance section of the Company’s website.

14. Appointment of Statutory Auditors The appointment and replacement of statutory auditors is governed by prevailing laws and regulations, as reflected and supplemented

within the permitted limits, in the Articles of Association, which have been drawn up in compliance with the recommendations of the

Code. In accordance with art. 19 of the Articles of Association the Board of Statutory Auditors consists of three standing members

and two alternate members, or four alternate members if one statutory auditor has been elected on a Minority List.

The Board of Statutory Auditors is appointed by the Shareholders’ Meeting on the basis of lists presented by the shareholders containing a

number of candidates that may not exceed that of the members requiring election. The lists must contain separate indications and numbering

for standing member candidates and alternate member candidates; there must be at least two alternate member candidates on each list.

Lists may be presented by only those shareholders who own, alone or together with others, at least 2.5% of share capital, or the minimum

percentage envisaged by the statutory and regulatory provisions governing the appointment of the Board of Statutory Auditors.

The lists are filed at the Company’s registered offices at least 15 days in advance of the date set for the first calling of the Shareholders’

Meeting convened to vote on the appointment of statutory auditors, accompanied by (a) information about the shareholders who have

filed the lists, (b) documentation confirming them as shareholders and the percentage of share capital they own, (c) comprehensive

details on the personal characteristics and experience of the candidates, (d) a statement by the candidates themselves confirming that

they are in possession of the requirements envisaged by prevailing statutory or regulatory requirements and the absence of any reasons

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for incompatibility and/or ineligibility, (e) statements by the candidates in which they accept their candidacy and provide details of their

appointments as Directors or statutory auditors in other companies.

The lists must be promptly published on the Company’s website.

No candidate may appear in more than one list, otherwise they will be disqualified.

The Shareholders’ Meeting appoints the first standing member candidate on the Minority List as the Chairman of the Board of Statutory Auditors.

Except for the applicability of statutory and regulatory requirements governing such an event, if only one list is presented then the three candidates

appearing on this list are elected by majority vote as standing statutory auditors, while two candidates are elected as alternate statutory auditors.

In such a case the Shareholders’ Meeting appoints the Chairman of the Board of Statutory Auditors with the legally required majority vote.

In the event of having to replace a statutory auditor, the replacement, including for the office of Chairman, is an alternate statutory

auditor belonging to the same list as the outgoing auditor, in the order specified therein. Further to any early vacation of office, the

Shareholders’ Meeting appoints the standing and/or alternate statutory auditors needed to complete the Board of Statutory Auditors,

stating that the term in office ends at the same time as that of the statutory auditors already in office. The procedure is as follows:

- in the event of having to replace auditors elected on the Majority List, the auditor or auditors, are elected by majority vote without the

need for a list and with the Chairman of the Board of Statutory Auditors possibly making a recommendation;

- in the event of having to replace a standing and/or alternate statutory auditor designated by the minority, the Shareholders’ Meeting

replaces them, with the legally required majority vote, by choosing from the candidates belonging to the same list as the outgoing

standing and/or alternate statutory auditor, in the order specified therein. Candidates must have confirmed their candidacy at least

15 days before the date set for the Shareholders’ Meeting in first calling.

15. Statutory Auditors The current composition of the Company’s Board of Statutory Auditors, appointed on May 16, 2005 for the three years 2005-2007,

is presented below. Its term in office therefore ends with the Shareholders’ Meeting called to approve the financial statements for 2007.

On this subject, CONSOB resolution no. 16319 of January 29, 2008 has established that 2% is the minimum share ownership

requirement for presenting lists of candidates for the election of a company’s Board of Statutory Auditors.

The current composition does not include any auditor representing the minority, as no related list of candidates was submitted.

(1) List of origin (majority/minority). (2) Indep.: indicates whether the statutory auditor qualifies as independent under the Code’s criteria (adopted in full by the Company). (3) % attend. B.S.A.: indicates the statutory auditor’s attendance record in percentage terms at meetings of the Board of Statutory Auditors (the calculation of this percentage reflects the number of meetings attended by the statutory auditor relative to

the number of meetings of the Board of Statutory Auditors held during the year or after the statutory auditor’s appointment).(4) Other appointments: indicates the total number of appointments held in companies described in Book V, Title V, Chapters V, VI and VII of the Italian Civil Code, as shown in the list, prepared in accordance with art. 144- quinquiesdecies of the

CONSOB Regulations and appended to the statutory auditors’ report on their supervisory activities required by para.1, art. 153 of TUF.

Indep. % attend. Other Name Office In office List (1) as per Code (2) B.S.A. (3) appointments (4)

Angelo Casò Chairman 05.16.2005 M X 100 34

Filippo Duodo Auditor 05.16.2005 M 81.8 23

Antonio Cortellazzo Auditor 05.16.2005 M X 100 16

Marco Leotta Alternate Auditor 05.16.2005 M X NA 19

Piermauro Carabellese Alternate Auditor 05.16.2005 M X NA 36

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Appendix “B” to this report contains a short curriculum vitae of every member of the Board of Statutory Auditors.

The Board of Statutory Auditors met 11 times during 2007.

There have been no changes in the composition of the Board of Statutory Auditors since the end of the financial year.

The Board of Statutory Auditors carries out any annual review of the independence qualifications of its members, formalizing the results

in the minutes of its meetings. This review uses the principles established by the Code.

The Chairman of the Board of Statutory Auditors and the standing member Antonio Cortellazzo both satisfy all the requirements

of independence contained in the Code. The standing member Filippo Duodo was appointed as one of the Company’s statutory

auditors for the first time in 1992 and has remained in office for more than nine years (thereby exceeding the maximum term

envisaged by the Code for the presumption of continued independence). The Board of Statutory Auditors nonetheless considers

that Filippo Duodo, like all its other members, satisfies all the criteria of independence and autonomy, allowing him to be described

as essentially independent.

The Company will also be extending to the statutory auditors the obligations applying to Directors in the event of having an interest

in one of the Issuer’s transactions, as illustrated in the Procedure for Related Party Transactions and Significant Transactions.

Once again in 2007, the Board of Statutory Auditors monitored the independence of the independent auditors, checking not only

observance of the related laws and regulations, but also the nature and amount of non-audit services provided to the Issuer and its

subsidiaries by the independent auditors and members of their network.

The Board of Statutory Auditors also continued to collaborate and exchange information with the Internal Audit department and the

Internal Audit Committee, facilitated by the attendance of the statutory auditors at all meetings of the Internal Audit Committee

(as allowed by the latter’s rules of procedure).

16. Relations with shareholdersThe Investor Relations department is responsible for ensuring the proper management of relations with financial analysts, institutional

investors and private shareholders, both foreign and domestic, which includes coordinating activities with the financial community.

The person in charge of handling investor relations is Mara di Giorgio, who is head of the related department.

In compliance with the principles of fairness, clarity and equal access to information, this department makes available on the website

www.benettongroup.com/investors extensive documentation and information about the Company, with particular reference to price

sensitive information.

As already mentioned, the following documents can be found in the Corporate Governance section of the Company’s website: Articles

of Association, Internal Dealing Regulations, Organizational and Operational Model (including Code of Ethics), Procedure for Related

Party Transactions and Significant Transactions, Procedure for Reporting Complaints to the Internal Audit Committee, the Disclosure

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Committee Rules of Procedure, the Procedure for Corporate Information Disclosure, the Stock Option Plan Rules, the Register of

Insiders Regulations, press releases and periodic financial information.

17. Shareholders’ MeetingsIn accordance with art. 9 of the Articles of Association, shareholders are entitled to take part in Shareholders’ Meetings if the Company

has received the legally required certificate from an authorized intermediary at least two business days before the date set for the

meeting itself. Certificates received in accordance with the above procedures are also valid for second or third callings of the meeting.

The shares remain restricted until after the Shareholders’ Meeting has taken place.

Shareholders may be represented by a proxy, who must be appointed by a written instrument of proxy prepared in the form specified

by law.

In accordance with art. 10 of the Articles of Association, the meeting’s Chairman, also with the assistance of persons specially appointed

for this purpose, confirms that the proxies are in order as well as the entitlements to attend the meeting, resolves any disputes,

and directs and moderates the debate, possibly establishing how long each speaker may have the floor, and decides the order and

methods of voting.

In view of the orderly and effective conduct of Shareholders’ Meetings and the related debate, the Company has not considered it

necessary to adopt a set of rules governing the procedure of such meetings; the powers of the chairman to moderate such meetings

have therefore proven sufficient for their intended purpose.

The Company makes available, mainly through its website, all the documentation needed to provide shareholders with adequate

information about the issues presented for their approval.

For the purpose of allowing resolutions to be adopted with the participation and adequate knowledge of attendees, this documentation

is supplemented by the information provided during Shareholders’ Meetings, both in documentary form and through debate on

the floor.

No significant changes in the Issuer’s market capitalization or composition of its shareholders took place during 2007.

18. Changes since year endThere have been no substantial changes in the Company’s corporate governance structure since the end of the financial year.

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Appendix “A”

Luciano Benetton. Born in 1935 in Treviso, Luciano Benetton started the Benetton Group in 1965 with his siblings Giuliana, Gilberto

and Carlo. He is now the Group’s Chairman and identifies and guides its development strategy. He was a member of the Italian Senate

from 1992 until 1994.

Other appointments

Carlo Benetton. Born in 1943 in Treviso, Carlo Benetton started the Benetton Group in 1965 with his siblings Luciano, Giuliana and

Gilberto; he analyzes projects relating to production, trends in different technological processes and new industrial locations in the

textile-apparel sector.

Other appointments

Alessandro Benetton. Alessandro Benetton was born in 1964 in Treviso. He is Chairman and Chief Executive Officer of 21 Investimenti

S.p.A., the merchant bank he founded through Edizione Holding in 1993. He is the son of Luciano Benetton and holds a BSc from the

University of Boston and an MBA from Harvard.

Other appointments

Office Company

Director Edizione Holding S.p.A.

Office Company

Chairman Maccarese S.p.A.

Deputy Chairman Edizione Holding S.p.A.

Office Company

Chairman and Chief Executive Officer 21 Investimenti S.p.A., 21 Investimenti Partners S.p.A., 21 Nextwork S.p.A.

Chairman 21 Partners S.G.R. S.p.A.

Deputy Chairman Nordest Merchant S.p.A.

Director Edizione Holding S.p.A., Autogrill S.p.A., Banca Popolare di Vicenza

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Gerolamo Caccia Dominioni. Born in 1955 in Milan, he has a degree in Economics & Business from Bocconi University.

After university he started his career in Philips Italia S.p.A. where he was in charge of the Strategy and Control division for

diversified businesses. In 1985 he joined the Time Warner Group where he held various posts until 1998, including Finance

Director - Time Warner Italy, General Manager - Warner Music Italy, Chairman and Chief Executive Officer - Warner Music

Italy. In 1998 he moved to Paris to Warner Music International where he held the position of Chairman Warner Music South

Europe. He later went to London as Chairman Warner Music Europe, subsequently becoming Vice Chairman & COO Warner

Music International.

Giuliana Benetton. Giuliana Benetton started the Benetton Group in 1965 together with her brothers Luciano, Gilberto and Carlo;

she looks after the design of knitwear collections, with the role of supervising and coordinating the various product lines.

She was born in 1937 in Treviso.

Other appointments

Gilberto Benetton. Born in 1941 in Treviso, Gilberto Benetton started the Benetton Group in 1965, together with his siblings Giuliana,

Luciano and Carlo.

He currently serves as Chairman of Edizione Holding S.p.A., the family holding company, where he oversees financial and real estate

investments.

Other appointments

Office Company

Director Edizione Holding S.p.A.

Office Company

Chairman Autogrill S.p.A., Edizione Holding S.p.A., Sintonia S.p.A.

Director Telecom Italia S.p.A., Allianz S.p.A., Atlantia S.p.A., Pirelli & C. S.p.A., Schemaventotto S.p.A., Sintonia S.A.

Member of Supervisory Board Mediobanca S.p.A.

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Gianni Mion. Born in 1943 in Vò (Padua), he is a graduate in Economics & Business from Venice’s Ca’ Foscari University and Chief

Executive Officer of Edizione Holding S.p.A. and Sintonia S.p.A.

He previously held important appointments in Gepi, Fintermica and Marzotto.

Other appointments

Alfredo Malguzzi. Born in 1962 in Lerici (La Spezia), he is a graduate in Business Administration, with a specialization in tax and

corporate law, from Milan’s Bocconi University.

He is a partner in the law firm of Pedersoli & Associati, corporate and tax advisors based in Milan.

He has worked as a professional accountant since 1991, providing corporate and national and international tax advisory services thanks

to the experience gained since 1985 working as an intern with leading national and international professional firms.

Formerly a lecturer at Bocconi University’s Management School in the administration and control sector (1990-1997), he is an expert

in tax. He is specialized in tax and corporate matters relating to mergers, acquisitions, disposals and company restructuring.

Other appointments

Office Company

Chief Executive Officer Edizione Holding S.p.A., Sintonia S.p.A.

Director Aeroporti di Roma S.p.A., Autogrill S.p.A., Atlantia S.p.A., Burgo Group S.p.A., Luxottica Group S.p.A., Schemaventotto S.p.A., Telecom Italia S.p.A., Sintonia S.A.

Office Company

Director Autogrill S.p.A., FinecoBank S.p.A., Borgo Scopeto e Caparzo S.r.l. Società Agricola, Nebula S.r.l.

Chairman of Board of Statutory Auditors Sator S.p.A., Consilium SGR p.A.

Auditor biG S.r.l., Egidio Galbani S.p.A., gruppo Lactalis Italia S.p.A.

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Robert Singer. Born in 1952 in New York City, Robert Singer has a masters degree in Science in Accounting from New York University.

He is currently the Chief Executive Officer of Barilla Holding S.p.A. He has a long career in the fashion sector as President and

Chief Operating Officer of Abercrombie and Fitch. Previously, he was Executive Vice President and Chief Financial Officer of

Gucci Group N.V.

Other appointments

Giorgio Brunetti. Born in 1937 in Venice, Mr. Brunetti has a degree in Economics and Business from Venice’s Ca’ Foscari University

and qualified in Business Management at the Centro Universitario di Organizzazione Aziendale (CUOA - University Business

Administration Center), which is part of the Department of Engineering of the University of Padua.

He began his academic career as an assistant lecturer at Ca’ Foscari, subsequently becoming Professor of Business Administration in

1978. In 1992 he became a lecturer at the Department of Business Administration at Bocconi University in Milan.

He is currently professor of Corporate Strategy at Bocconi University and the Chairman of its research center on “Imprenditorialità

e Imprenditori” (Entrepreneurship and Entrepreneurs).

Other appointments

Luigi Arturo Bianchi. He was born in 1958 in Milan. He is associate professor and in charge of the advanced course in Commercial Law

at Bocconi University in Milan. As a lawyer at the law firm of Bonelli Erede Pappalardo in Milan, he specializes in corporate matters,

bankruptcy proceedings and banking law.

He is a member of the Italian Stock Exchange’s Control Committee and of the Editorial Committee of the magazine “Rivista delle Società”.

Other appointments

Office Company

Chief Executive Officer Barilla Holding S.p.A.

Director Finba Iniziative S.r.l., GranMilano S.p.A., Barilla G. e R. Fratelli S.p.A., Barilla America Inc.

Office Company

Director Autogrill S.p.A., Carraro S.p.A., Messaggerie Italiane S.p.A.

Independent Auditor Gas and Energy Authority

Office Company

Director Anima S.G.R. S.p.A., Assicurazioni Generali S.p.A.

Auditor MBE Holding S.p.A.

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Appendix “B”

Angelo Casò - Chairman of the Board of Statutory Auditors. Angelo Casò (Milan, 1940) is a professional accountant registered in

Milan since 1965 and a registered auditor since 1971.

He has a degree in Economics & Business from Milan’s Bocconi University. Mr. Casò chaired the Fédération des Experts Comptables

Européens (FEE) from 1991 to 1993, having been its Deputy Chairman for six years.

He was a member of the International Auditing Practices Committee of IFAC (now IAASB) from 1993 to 2000 and a member of the

Board of IFAC (International Federation of Accountants) from 2001 to 2005.

Among his various appointments, he has also been a member of the Commission responsible for issuing Italian Accounting Principles

and Chairman of the Commission for establishing Standards of Conduct for Boards of Statutory Auditors set up by Italy’s National

Council of Professional Accountants.

He has chaired the Scientific Technical Committee of OIC (Organismo Italiano Contabilità - Italy’s Accounting Board) since 2004.

He currently serves as a Director of Aedes Immobiliare and Falck, and Chairman of the Board of Statutory Auditors of Rcs Libri, Indesit,

Mediobanca, Vittoria Assicurazioni, Bracco, Fiditalia, Sg Factoring, Sg Leasing, Edizione Holding.

Filippo Duodo - Statutory auditor. Filippo Duodo (Venice, 1939) is a professional accountant registered in Treviso and has been a

registered auditor since 1995. After his degree in Economics & Business from Venice’s Ca’ Foscari University in 1963, he has worked

as a professional corporate and tax advisor since 1970.

He has served as a Director of the Treviso branch of the Bank of Italy and, by decree of the Treasury Ministry, as special receiver of

Cassa Rurale di Preganziol and as Chairman of the Supervisory Committee of Finanziaria Ernesto Breda S.p.A., a listed company in

Milan being compulsorily wound up.

He has served as Chairman of the North-East Professional Accountants Association and as a statutory auditor of major groups.

He has been a statutory auditor of Eni S.p.A. and Snamprogetti S.p.A. since 1998.

Since 2002 he has been Chairman of the Board of Statutory Auditors of Sviluppi Immobiliari S.p.A., sub-holding company of Beni Stabili,

and Chairman of the Board of Statutory Auditors of Banca Meridiana of the Veneto Banca Group. Since 2001 he has been Chairman

of the Board of Statutory Auditors of CEPAV UNO and CEPAV DUE, both Eni consortia for the construction of high-speed rail links

between Milan and Bologna and Milan and Verona.

Antonio Cortellazzo - Statutory auditor. Antonio Cortellazzo (Este (Padua), 1937) has been a professional accountant since 1967

and a registered auditor since the official register was established. A graduate in Economics & Business, he has held important

appointments within the profession in Italy and abroad. He was a lecturer in Professional Method from 1999 to 2004 at Padua

University’s Department of Economics and at the Scuola Superiore della Pubblica Amministrazione Locale (a specialist training college

for local public administrators).

After holding important appointments in Credito Italiano, Banca Cattolica del Veneto, Banco Ambrosiano Veneto, Banca Intesa, and

listed companies like Grassetto, Safilo and Stefanel, he is currently a Director or statutory auditor of several companies in North-East

Italy, such as Carraro and Fondazione per la Ricerca Biomedica Avanzata Onlus (a charity for advanced biomedical research).

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Marco Leotta - Alternate auditor. Marco Leotta (Rome, 1956) is a professional accountant and registered auditor. After graduating

with a first-class degree cum laude in Economics from La Sapienza University in Rome in 1980, he joined Studio di Consulenza Legale

e Tributaria, the tax advisory practice of Andersen Legal, becoming an associate in 1986 and a partner in 1992. In 2003 he joined the

newly-formed firm of Studio Tributario e Societario as a partner.

Leotta has over twenty years of experience in providing corporate and tax advice and assistance to leading companies and Italian and

international groups, particularly with reference to mergers and acquisitions, reorganization processes and national and international

tax planning.

He is a member or Chairman of the Board of Statutory Auditors of several important Italian companies, some of which members

of multinational groups.

Piermauro Carabellese - Alternate auditor. Piermauro Carabellese (Milan, 1958) has been a partner in the firm of Negri-Clementi

Toffoletto Montironi & Soci since the start of 2003, with responsibility for tax. He is a tax specialist in the area of the tax structuring of

mergers and acquisitions and related financing. After graduating with a first-class degree in Business Administration from Milan’s Bocconi

University in 1982, he obtained a masters in tax from the same university in 1985.

He is a professional accountant, registered in Milan since 1984, and was a tax partner at PricewaterhouseCoopers from 1990 to 2002,

also serving as Managing Partner of the Italian tax practice. He has chaired the Commission set up by Italy’s Association of Professional

Accountants on international and community tax law.

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Consolidated financial statements

Consolidated statement of income

(A) Of which Euro 11,568 thousand charged by holding and related companies in 2007 (Euro 10,867 thousand in 2006).

(thousands of Euro) 2007 2006 Notes Revenues 2,085,272 1,910,975 1 Materials and subcontracted work 1,032,103 961,600 2 Payroll and related costs 83,257 81,175 3 Industrial depreciation and amortization 17,388 18,209 5 Other manufacturing costs 43,196 43,749 Cost of sales 1,175,944 1,104,733 Gross operating profit 909,328 806,242 Distribution and transport 60,031 63,690 Sales commissions 86,237 73,952 Contribution margin 763,060 668,600 Payroll and related costs 156,035 153,500 3 - of which non-recurring expenses - 2,108 Advertising and promotion (A) 61,019 71,537 4 Depreciation and amortization 73,642 66,031 5 Other expenses and income 229,188 198,000 6 - of which non-recurring expenses/(income) 3,096 (2,890) General and operating expenses 519,884 489,068 - of which non-recurring expenses/(income) 3,096 (782) Operating profit 243,176 179,532 Share of income/(loss) of associated companies 43 83 7 Financial (expenses)/income (29,735) (17,723) 8 Net foreign currency hedging (losses)/gains and exchange differences (10,333) (2,560) 9 Income before taxes 203,151 159,332 Income taxes 52,762 31,376 10 Net income for the year attributable to: 150,389 127,956 - shareholders of the Parent Company 145,330 124,914 - minority interests 5,059 3,042 Basic earnings per share (Euro) 0.80 0.69 Diluted earnings per share (Euro) 0.80 0.68

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Consolidated balance sheet - Assets

(B) Of which Euro 18,563 thousand due from holding and related companies (Euro 21,428 thousand at 12.31.2006).(C) Of which Euro 21,933 thousand due from holding and related companies (Euro 24,314 thousand at 12.31.2006).

(thousands of Euro) 12.31.2007 12.31.2006 Notes

Non-current assets

Property, plant and equipment 11

Land and buildings 656,439 611,317

Plant, machinery and equipment 75,541 67,484

Furniture, fittings and electronic devices 61,295 54,600

Vehicles and aircraft 24,648 10,501

Assets under construction and advances 61,795 10,376

Leased assets 5,285 7,886

Leasehold improvements 44,921 42,350

929,924 804,514

Intangible assets 12

Goodwill and other intangible assets of indefinite useful life 28,458 28,458

Intangible assets of finite useful life 212,273 194,152

240,731 222,610

Other non-current assets

Investments 2,066 2,445 13

Guarantee deposits 25,157 21,947 14

Medium/long-term financial receivables 5,147 3,461 15

Other medium/long-term receivables (B) 33,996 48,331 16

Deferred tax assets 163,050 172,446 17

229,416 248,630

Total non-current assets 1,400,071 1,275,754

Current assets

Inventories 336,063 330,706 18

Trade receivables 680,741 610,131 19

Tax receivables 27,586 35,523 20

Other receivables, accrued income and prepaid expenses (C) 88,051 81,034 21

Financial receivables 19,288 40,474 22

Cash and banks 133,841 180,738 23

Total current assets 1,285,570 1,278,606

Assets held for sale 5,771 7,035 24

TOTAL ASSETS 2,691,412 2,561,395

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Consolidated balance sheet - Shareholders’ equity and liabilities

(D) Of which Euro 46,026 thousand due to holding and related companies (Euro 13,813 thousand at 12.31.2006).(E) Of which Euro 15,819 thousand due to holding and related companies (Euro 19,838 thousand at 12.31.2006).

(thousands of Euro) 12.31.2007 12.31.2006 Notes

Shareholders’ equity

Shareholders’ equity attributable to the Group 25

Share capital 237,478 237,478 26

Additional paid-in capital 65,155 65,155

Fair value and hedging reserve (2,672) (2,396) 27

Other reserves and retained earnings 941,780 893,570 28

Net income for the year 145,330 124,914

1,387,071 1,318,721

Minority interests 27,613 22,288 29

Total shareholders’ equity 1,414,684 1,341,009

Liabilities

Non-current liabilities

Medium/long-term loans 399,553 341 30

Other medium/long-term payables (D) 58,248 25,244 31

Lease financing 2,292 5,244 32

Retirement benefit obligations 50,784 53,434 33

Other medium/long-term provisions and liabilities 26,380 27,545 34

537,257 111,808

Current liabilities

Trade payables 385,401 403,345 35

Other payables, accrued expenses and deferred income (E) 111,171 104,214 36

Current income tax liabilities 8,622 8,445 37

Other current provisions and liabilities 3,291 4,884 38

Current portion of lease financing 2,952 4,036 39

Current portion of medium/long-term loans 68 500,222 40

Financial payables and bank loans 227,966 83,432 41

739,471 1,108,578

Total liabilities 1,276,728 1,220,386

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 2,691,412 2,561,395

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Shareholders’ equity - Statement of changes

8584

Fair value Other reserves Currency Net Share Additional and hedging and retained translation income/ Minority (thousands of Euro) capital paid-in capital reserve earnings reserve (loss) interests Total

Balances as of 01.01.2006 236,026 56,574 123 850,052 7,262 111,873 13,050 1,274,960

Carryforward of 2005 net income - - - 111,873 - (111,873) - -

Dividends distributed as approved by Ordinary Shareholders’ Meeting of 05.09.2006 - - - (61,730) - - - (61,730)

Exercise of stock options 1,452 8,581 - - - - - 10,033

Valuation of stock options - - - 1,883 - - - 1,883

Changes in the period (IAS 39) - - (2,519) - - - - (2,519)

Allocation of shareholders’ equity to minority interests arising under a business combination - - - - - - 166 166

Allocation of surplus value to capitalized deferred charges (IFRS 3) - - - - - - 7,358 7,358

Dividends distributed to minority interests - - - - - - (2,144) (2,144)

Payment for future capital increases - - - - - - 1,500 1,500

Valuation of put option held by minority shareholders - - - (12,820) - - - (12,820)

Differences arising on Euro translation of financial statements of foreign consolidated companies - - - - (2,950) - (684) (3,634)

Net income for the year - - - - - 124,914 3,042 127,956

Balances as of 12.31.2006 237,478 65,155 (2,396) 889,258 4,312 124,914 22,288 1,341,009



Changes in the period (IAS 39) - - (276) - - - - (276)

Formation of new subsidiaries - - - - - - 638 638

Dividends distributed to minority interests - - - - - - (968) (968)

Increase in share capital - - - - - - 1,500 1,500



Balances as of 12.31.2007 237,478 65,155 (2,672) 946,582 (4,802) 145,330 27,613 1,414,684

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Fair value Other reserves Currency Net Share Additional and hedging and retained translation income/ Minority (thousands of Euro) capital paid-in capital reserve earnings reserve (loss) interests Total

Balances as of 01.01.2006 236,026 56,574 123 850,052 7,262 111,873 13,050 1,274,960



Exercise of stock options 1,452 8,581 - - - - - 10,033

Valuation of stock options - - - 1,883 - - - 1,883

Changes in the period (IAS 39) - - (2,519) - - - - (2,519)

Allocation of shareholders’ equity to minority interests arising under a business combination - - - - - - 166 166

Allocation of surplus value to capitalized deferred charges (IFRS 3) - - - - - - 7,358 7,358

Dividends distributed to minority interests - - - - - - (2,144) (2,144)

Payment for future capital increases - - - - - - 1,500 1,500

Valuation of put option held by minority shareholders - - - (12,820) - - - (12,820)



Balances as of 12.31.2006 237,478 65,155 (2,396) 889,258 4,312 124,914 22,288 1,341,009



Changes in the period (IAS 39) - - (276) - - - - (276)

Formation of new subsidiaries - - - - - - 638 638

Dividends distributed to minority interests - - - - - - (968) (968)

Increase in share capital - - - - - - 1,500 1,500



Balances as of 12.31.2007 237,478 65,155 (2,672) 946,582 (4,802) 145,330 27,613 1,414,684

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Statement of gains/(losses) recognized directly in shareholders’ equity

(thousands of Euro) 2007 2006 Gains/(losses) recognized directly in cash flow hedge reserve (2,662) (2,396) Gains/(losses) recognized directly in fair value reserve - - Gains/(losses) recognized directly in translation reserve (10,319) (3,634) Gains/(losses) recognized directly in shareholders’ equity (12,981) (6,030) Transfers from cash flow hedge reserve 2,386 (123) Transfers from fair value reserve - - Transfers from translation reserve 301 - Net income for the year 150,389 127,956 Net income recognized in the year 140,095 121,803 Attributable to: - shareholders of the Parent Company 135,940 119,445 - minority interests 4,155 2,358

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Consolidated cash flow statement

The Explanatory notes (pages 89 through 157) are to be considered an integral part of this report.

(A) Includes Euro 3,057 thousand in current account overdrafts (1,519 in 2006). The cash flow statement does not contain any material flows with related parties.

(thousands of Euro) 2007 2006 Operating activities Net income for the year attributable to the Group and minority interests 150,389 127,956 Income taxes expense 52,762 31,376 Income before taxes 203,151 159,332 Adjustments for: - depreciation and amortization 91,030 84,240 - net capital (gains)/losses and non-monetary items (2,677) 2,524 - net provisions charged to statement of income 22,251 17,099 - use of provisions (10,787) (25,928) - exchange differences 10,333 2,560 - share of (income)/losses of associated companies (43) (83) - net financial expenses/(income) 29,735 17,723 Cash flow from operating activities before changes in working capital 342,993 257,467 Cash flow provided/(used) by changes in working capital (95,535) 28,253 Payment of taxes (11,134) (24,136) Net interest paid/received (30,400) (21,496) Exchange differences (10,333) (3,207) Cash flow provided by operating activities 195,591 236,881 Investing activities Operating investments (256,781) (219,540) Operating divestments 31,325 31,764 Business combinations (211) (28,197) Sale of investments 3 62 Operations in non-current financial assets (3,868) (96) Cash flow used by investing activities (229,532) (216,007) Financing activities Net change in other sources of finance 54,201 26,564 Payment of dividends (68,558) (63,874) Cash flow used by financing activities (14,357) (37,310) Net decrease in cash and cash equivalents (48,298) (16,436) Cash and cash equivalents at the beginning of the year 179,219 196,327 Cash in companies acquired - 804 Translation differences and other movements (137) (1,476) Cash and cash equivalents at the end of the year (A) 130,784 179,219

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Explanatory notes

Group activities

Benetton Group S.p.A. (the “Parent Company”) and its subsidiary companies (hereinafter also referred to as the “Group”) primarily

manufacture and market fashion apparel in wool, cotton and woven fabrics, as well as leisurewear. The manufacture of finished articles

from raw materials is undertaken partly within the Group and partly using subcontractors, whereas selling is carried out through an

extensive commercial network both in Italy and abroad, consisting mainly of stores operated and owned by third parties.

The legal headquarters and other such information are shown on the last page of this document. The Parent Company is listed on the

Milan and Frankfurt stock exchanges.

On September 12, 2007 the Parent Company’s Board of Directors decided to request the voluntary delisting and deregistration of the

American Depositary Shares (ADS) quoted on the New York Stock Exchange (NYSE), and to request voluntary deregistration and

termination of its reporting obligations under the Securities Exchange Act of 1934. This decision was taken in view of the globalization

of financial markets and the internationalization of the Italian Stock Exchange, and after having seen that the volumes traded on the

New York Stock Exchange were very small and that even the larger US shareholders traded the Benetton stock principally on the

Milan Stock Exchange.

In addition, the process of delisting from the Deutsche Börse in Frankfurt was started on February 21, 2008.

These consolidated financial statements were approved by the Board of Directors of Benetton Group S.p.A. in a resolution dated

March 19, 2008.

Form and content of the consolidated financial statements

Starting from the 2006 nine-month report, the Group has classified its statement of income by function of expense rather than by nature

of expense as in the past. This modification has been made to present the consolidated financial statements and interim financial reports

on the same basis as that used by the Group’s Directors and management and by the financial community to analyze the Benetton

business. It should also be noted that the statement of income format used for the consolidated financial statements and interim financial

reports of the Benetton Group differs from the one used by Benetton Group S.p.A. for its individual annual financial statements. This is

because this Company principally acts as a financial holding company and provider of services to its subsidiaries.

The consolidated financial statements of the Group include the financial statements as of December 31 of Benetton Group S.p.A.

and all Italian and foreign companies in which the Parent Company holds, directly or indirectly, the majority of the voting rights.

The consolidated financial statements also include the accounts of certain companies in which the Group’s interest is 50%, or less,

and over which it exercises a significant influence such that it has control over their financial and operating policies. In particular,

the following companies have been consolidated:

a. Benetton Korea Inc., since the effective voting rights held by Benetton total 51% of all voting rights;

b. Benetton Giyim Sanayi ve Ticaret A.S. (a Turkish company), since the licensing and distribution agreements grant Benetton a dominant

influence over the company, as well as the majority of risks and rewards linked to its business activities;

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c. Milano Report S.p.A., a company which manages stores, mainly in Lombardy, selling Benetton-branded products, insofar as most of the

risks and rewards of the business are attributable to Benetton itself by virtue, amongst others, of the margins earned on sales;

d. New Ben GmbH, a German company, which manages stores selling Benetton-branded products, insofar as the shareholder agreement

gives Benetton the right to appoint the majority of the company’s Directors. In addition, most of the risks and rewards of the business

are attributable to Benetton;

e. Benlim Ltd., a company based in Hong Kong 50% controlled by Benetton Asia Pacific Ltd. set up for the purpose of manufacturing Sisley

products under license in China and marketing and distributing them in this country through Shanghai Sisley Trading Co. Ltd., a Chinese

company wholly-owned by Benlim Ltd. Benlim Ltd. has been consolidated because most of the risks and rewards of its business and

that of its subsidiary are attributable to Benetton. In particular, the licensing and distribution agreements between the parties give the

Group a dominant influence over these companies;

f. Shanghai Sisley Trading Co. Ltd., 50% controlled by the Group by virtue of the arrangements described in the previous point.

Financial statements of subsidiaries have been reclassified, where necessary, for consistency with the format adopted by the Parent

Company. Such financial statements have been adjusted so that they are consistent with the reference international accounting and

financial reporting standards.

These financial statements have been prepared on a “going concern” basis, matching costs and revenues to the accounting periods to

which they relate. The reporting currency is the Euro and all values have been rounded to thousands of Euro, unless otherwise specified.

Consolidation criteria

The method of consolidation adopted for the preparation of the consolidated financial statements is as follows:

a. Consolidation of subsidiary companies’ financial statements according to the line-by-line method, with elimination of the carrying value

of the shareholdings held by the Parent Company and other consolidated companies against the relevant shareholders’ equity.

b. When a company is consolidated for the first time, any positive difference emerging from the elimination of its carrying value on

the basis indicated in a. above, is allocated, where applicable, to the assets and liabilities of the subsidiary. The excess of the cost of

acquisition over the net assets is recorded as “Goodwill and other intangible assets of indefinite useful life”. Negative differences are

recorded in the statement of income as income.

c. Intercompany receivables and payables, costs and revenues, and all significant transactions between consolidated companies,

including the intragroup payment of dividends, are eliminated.

Unrealized intercompany profits and gains and losses arising from transactions between Group companies are also eliminated.

d. Minority interests in shareholders’ equity and the result for the period of consolidated subsidiaries are classified separately as “Minority

interests” under shareholders’ equity and as “Income attributable to minority interests” in the consolidated statement of income.

e. The financial statements of foreign subsidiaries are translated into Euro using period-end exchange rates for assets and liabilities and

average exchange rates for the period for the statement of income. Differences arising from the translation into Euro of foreign currency

financial statements are reflected directly in consolidated shareholders’ equity as a separate component.

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Accounting standards and policies

Application of IFRS. The Group’s financial statements for 2007 and comparative periods have been drawn up in accordance with the

International Financial Reporting Standards (IFRS) adopted by the European Union which are in force at the date of preparing this

report. These standards do not differ, in any material respect, from those issued by the International Accounting Standards Board

(IASB), meaning that any application of the latter would not have any significant effect on the Group’s financial statements.

IFRS 7 - Financial instruments: disclosures and an amendment to IAS 1 - Presentation of financial statements: additional disclosures

relating to capital both came into force in 2007.

- IFRS 7 calls for additional disclosures regarding the significance of financial instruments for an entity’s financial position and performance.

These disclosures incorporate some of the information previously required by IAS 32 - Financial instruments: disclosure and

presentation. The new accounting standard also requires the disclosure of information relating to the extent of risks arising from the use

of financial instruments, and a description of the objectives, policies and processes adopted by management for managing these risks.

Most of the information required by IFRS 7 about the Benetton Group is presented in the paragraph on “Financial risk management”

and in the notes on specific items contained in the financial statements;

- The amendment to IAS 1 requires disclosure of the objectives, policies and processes adopted for managing capital; the Group has

provided the necessary disclosures in the paragraph on “Capital management”.

Apart from those described above, no accounting standards or interpretations have been revised or issued, applicable from January 1, 2007,

that have had a significant impact on the Group’s consolidated financial statements.

New accounting standards.

- IFRS 8 - Operating Segments, supersedes IAS 14 - Segment Reporting with effect from January 1, 2009. The new accounting standard requires an

entity to base the information contained in its segment reporting on factors used by management for taking operating decisions, thereby requiring

operating segments to be identified on the basis of internal reports that are regularly reviewed by the entity’s management for the purposes of

allocating resources to the different segments and assessing their performance. The Group is evaluating the effects of adopting this standard.

Valuation criteria. The financial statements have been prepared on a historical cost basis, with the exception of the valuation of certain

financial instruments. The more important accounting policies adopted by the Group for valuing the contents of its financial statements

are detailed below:

Revenues. Revenues arise from ordinary company operations and include sales revenues and service revenues.

Revenues from product sales, net of any discounts and returns, are recognized when the company transfers the main risks and rewards

associated with ownership of the goods and when collection of the relevant receivables is reasonably certain. Revenues from sales by

directly operated stores are recognized when the customer pays. The Group’s policy regarding returns by customers is quite restrictive,

allowing these only in very specific circumstances (eg. defective goods, late shipment). At the end of each year the Group considers past

trends to estimate the overall amount of returns expected in the following year relating to sales in the year just ended. This amount is

then deducted from revenues reported in that year.

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Revenues from services are recorded with reference to the stage of completion of the transaction as of the balance sheet date.

Revenues are recorded in the financial period in which the service is provided, based on the percentage of completion method.

If revenues from the services cannot be estimated reliably, they are only recognized to the extent that the relative costs are recoverable.

Recognizing revenues using this method makes it possible to provide suitable information about the service provided and the economic

results achieved during the financial period. Royalties are recognized on an accruals basis in accordance with the substance of the

contractual agreements.

Financial income. Interest income is recorded on a time-proportion basis, taking account of the effective yield of the asset to which

it relates.

Dividends. Dividends from third parties are recorded when the shareholders’ right to receive payment becomes exercisable,

following a resolution of the shareholders of the company in which the shares are held.

Expense recognition. Expenses are recorded on an accruals basis.

Income and costs relating to lease contracts. Income and costs from operating lease contracts are recognized on a straight-line basis

over the duration of the contract to which they refer.

Income taxes. Current income taxes are calculated on the basis of taxable income, in accordance with applicable local regulations.

The Group’s Italian companies have elected to file for tax on a group basis as allowed by articles 117 et seq. of the Tax Consolidation

Act DPR 917/86, based on a proposal by the consolidating company Ragione S.A.p.A. di Gilberto Benetton e C., which decided to opt

for this type of tax treatment on June 15, 2007. The election lasts for three years, starting from the 2007 financial year and represents

a renewal of the previous election for the 2004-2006 tax period under Edizione Holding S.p.A. The relationships arising from

participation in the group tax election are governed by specific rules, approved and signed by all participating companies.

This participation enables the companies to record, and then transfer current taxes even when the taxable result is negative, recognizing

a corresponding receivable due from Edizione Holding S.p.A. and Ragione S.A.p.A. di Gilberto Benetton e C.; conversely, if the taxable

result is positive, the current taxes transferred give rise to a payable in respect of such companies.

The relationship between the parties, governed by contract, provides for the transfer of the full amount of tax calculated on the taxable

losses or income at current IRES (corporation tax) rates.

Deferred tax assets are recorded for all temporary differences to the extent it is probable that taxable income will be available against

which the deductible temporary difference can be utilized. The same principle is applied to the recognition of deferred tax assets on

the carryforward of unused tax losses.

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The carrying value of deferred tax assets is reviewed at every balance sheet date and, if necessary, reduced to the extent that it is no

longer probable that sufficient taxable income will be available to recover all or part of the asset. The general rule provides that,

with specific exceptions, deferred tax liabilities are always recognized.

Deferred tax assets and liabilities are calculated using tax rates which are expected to apply in the period when the asset is realized

or the liability settled, using the tax rates and tax regulations which are in force at the balance sheet date.

Tax assets and liabilities for current taxes are only offset if there is a legally enforceable right to set off the recognized amounts and

if it is intended to settle or pay on a net basis or to realize the asset and settle the liability simultaneously. It is possible to offset deferred

tax assets and liabilities only if it is possible to offset the current tax balances and if the deferred tax balances refer to income taxes

levied by the same tax authority.

Earnings per share. Basic earnings per share are calculated by dividing income attributable to Parent Company shareholders by the

weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are calculated by dividing the

income or loss attributable to Parent Company shareholders by the weighted average number of outstanding shares, taking account

of all potential ordinary shares with a dilutive effect (for example employee stock option plans).

Property, plant and equipment. These are recorded at purchase or production cost, including the price paid to buy the asset (net of

discounts and rebates) and any costs directly attributable to the purchase and commissioning of the asset. The cost of a commercial

property purchased is the purchase price or equivalent of the price in cash including all other directly attributable expenses such as legal

costs, registration taxes and other transaction costs. Financial expenses relating to assets requiring a significant period of time before

being ready for their planned use or sale are recognized as a cost in the year incurred. The cost of internally produced assets is the cost

at the date of completion of work. Property, plant and equipment are shown at cost less accumulated depreciation and impairment

losses, plus any recovery of asset value. Plant and machinery may have components with different useful lives. Depreciation is calculated

on the useful life of each individual component. In the event of replacement, new components are capitalized to the extent that they

satisfy the criteria for recognition as an asset, and the carrying value of the replaced component is eliminated from the balance sheet.

The residual value and useful life of an asset is reviewed at least at every financial year-end and if, regardless of depreciation already

recorded, an impairment loss occurs determined under the criteria contained in IAS 36, the asset is correspondingly written down in

value; if, in future years, the reasons for the write-down no longer apply, its value is restored. Ordinary maintenance costs are expensed

in full to the statement of income as incurred, while maintenance costs which increase the value of the asset are allocated to the related

assets and depreciated over their residual useful lives.

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The value of an asset is systematically depreciated over its useful life, on a straight-line basis, indicatively as shown below:

Land is not depreciated.

The commercial properties are depreciated over 50 years.

Leasehold improvement costs are depreciated over the shorter of the period during which the improvement may be used and the

residual duration of the lease contract.

Assets acquired under finance leases are recognized at their fair value at the start of the lease, while the corresponding lease installments are

recorded as a liability to the leasing company; assets are depreciated at the normal depreciation rate used for similar assets. In the case of sale

and leaseback transactions resulting in a finance lease, any gain resulting from the sale and leaseback is deferred and released to income over

the lease term. Leases for which the lessor effectively maintains all risks and rewards incidental to asset ownership are classified as operating

leases. Costs pertaining to operating leases are expensed to income on a straight-line basis over the length of the related agreement.

Intangible assets. Intangible assets are measured initially at cost, normally defined as their purchase price, inclusive of any non-refundable

purchase taxes and less any trade discounts and rebates; also included is any directly attributable expenditure on preparing the asset

for its intended use, up until the asset is capable of operating. The cost of an internally generated intangible asset includes only those

expenses which can be directly attributed or allocated to it as from the date on which it satisfies the criteria for recognition as an asset.

After initial recognition, intangible assets are carried at cost, less accumulated amortization and any accumulated impairment losses

calculated in accordance with IAS 36.

Goodwill is recognized initially by capitalizing, in intangible assets, the excess of the purchase cost over the fair value of the net assets

of the newly acquired. As required by IAS 38, at the time of recognition, any intangible assets that have been generated internally

by the acquired entity are eliminated from goodwill.

Goodwill is not amortized, but is submitted to an impairment test annually to identify any reductions in value, or more often whenever

there is any evidence of impairment loss (see impairment of non-financial assets).

Research costs are charged to the statement of income in the period in which they are incurred.

Items which meet the definition of “assets acquired as part of a business combination” are only recognized separately if their fair value

can be measured reliably.

Useful life (years)

Buildings 33 - 50

Plant and machinery 4 - 12

Industrial and commercial equipment 4 - 10

Other assets:

- office and store furniture, fittings and electronic devices 4 - 10

- vehicles 4 - 5

- aircraft 20

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Intangible assets are amortized unless they have indefinite useful lives. Amortization is applied systematically over the intangible asset’s

useful life, which reflects the period it is expected to benefit. The residual value at the end of the useful life is assumed to be zero, unless

there is a commitment by third parties to buy the asset at the end of its useful life or there is an active market for the asset. Management

reviews the estimated useful lives of intangible assets at every financial year end.

Normally, the amortization period for main brands ranges from 15 to 25 years; patent rights are amortized over the duration of their

rights of use, while deferred and commercial expenses are amortized over the remaining term of the lease contracts, with the exception

of “fonds de commerce” of French companies, which are amortized over 20 years.

Impairment losses of non-financial assets. The Group’s activities are divided into three segments which, apart from being the basis for

making strategic decisions, provide representative, accurate and significant information about its business performance. The three

segments identified are as follows:

- apparel;

- textile;

- other and unallocated.

The Benetton Group has identified assets and CGU’s within each segment (for example: stores operated directly and by third parties,

and textile segment factories) to be submitted to impairment testing as well as its method of implementation: for real estate and some

categories of asset (for example: “fonds de commerce”) fair value is used, while value in use is adopted for most of the other assets.

The carrying amounts of the Benetton Group’s property, plant and equipment and intangible assets are submitted to impairment testing

whenever there are obvious internal or external signs indicating that the asset or group of assets (defined as Cash-Generating Units

or CGUs) may be impaired.

In the case of goodwill, other intangible assets with indefinite lives and intangible assets not in use, the impairment test must be carried

out at least annually and, anyway, whenever there is evidence of possible impairment.

The impairment test is carried out by comparing the carrying amount of the asset or CGU with the recoverable value of the same,

defined as the higher of fair value (net of any costs to sell) and its value in use. Value in use is determined by calculating the present

value of future net cash flows expected to be generated by the asset or CGU. If the carrying amount is higher than the recoverable

amount, the asset or CGU is written down by the difference.

The conditions and methods applied by the Group for reversing impairment losses, excluding in any case those relating to goodwill that

may not be reversed, are as set out in IAS 36.

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Financial assets. All financial assets are measured initially at cost, which corresponds to the consideration paid including transaction costs

(such as advisory fees, stamp duties and payment of amounts required by regulatory authorities).

Classification of financial assets determines their subsequent valuation, which is as follows:

- held-to-maturity investments, loans receivable and other financial receivables: these are recorded at amortized cost, less any write-

downs carried out to reflect impairment losses. Gains and losses associated with this type of asset are recognized in the statement

of income when the investment is removed from the balance sheet on maturity or if it becomes impaired;

- available for sale financial assets: these are recorded at fair value, and gains and losses deriving from subsequent measurement are

recognized in shareholders’ equity. If the fair value of these assets cannot be determined reliably, they are measured at cost, as adjusted

for any impairment.

Each type of financial asset referred to above, outstanding at the reporting date, is specifically reported in the balance sheet or in the

Explanatory notes.

If it is no longer appropriate to classify an investment as “held-to-maturity” following a change of intent or ability to hold it until maturity,

it must be reclassified as “available for sale” and remeasured to fair value. The difference between its carrying amount and fair value remains

in shareholders’ equity until the financial asset is sold or otherwise transferred, in which case it is booked to the statement of income.

Investments in subsidiaries that are not consolidated on a line-by-line basis, because they are not yet operative or are in liquidation as

of the balance sheet date, are measured at fair value, unless this cannot be determined, in which case they are carried at cost. The

amount by which cost exceeds shareholders’ equity of subsidiary companies at the time they are acquired is allocated on the basis

described in paragraph b. of the consolidation methods. Investments in associated companies are valued using the equity method.

Investments in other companies, in which the interest held is less than 20%, are measured at fair value. The original value of these

investments is reinstated in future accounting periods should the reasons for such write-downs no longer apply.

All financial assets are recognized on the date of negotiation, i.e. the date on which the Group undertakes to buy or sell the asset.

A financial asset is removed from the balance sheet only if all risks and rewards associated with the asset are effectively transferred

together with it or, should the transfer of risks and rewards not occur, if the Group no longer has control over the asset.

Inventories. Inventories are valued at the lower of purchase or manufacturing cost, generally determined on a weighted average cost

basis, and their market or net realizable value.

Manufacturing cost includes raw materials and all attributable direct and indirect production-related expenses.

The calculation of estimated realizable value includes any manufacturing costs still to be incurred and direct selling expenses. Obsolete and

slow-moving inventories are written down in relation to their possibility of employment in the production process or to realizable value.

Trade receivables. These are stated at fair value, which reflects their estimated realizable value. The value initially recognized

is subsequently adjusted to take account of any write-downs reflecting estimated losses on receivables; additions to the provision

for doubtful accounts are recorded in “Other operating expenses and income” in the statement of income. Any medium/long-term

receivables that include an implicit interest component are discounted to present value using an appropriate market rate. Receivables

discounted without recourse, for which all risks and rewards are substantially transferred to the assignee, are derecognized from the

financial statements at their nominal value. Commissions paid to factoring companies for their services are included in service costs.

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Accruals and deferrals. These are recorded to match costs and revenues within the accounting periods to which they relate.

Cash and banks. These include cash equivalents held to meet short-term cash commitments and which are highly liquid and readily

convertible to known amounts of cash.

Retirement benefit obligations. The provision for employee termination indemnities (TFR) and other retirement benefit obligations,

included in this item, fall within the scope of IAS 19 (Employee benefits) being equivalent to defined benefit plans. The amount recorded

in the balance sheet is valued on an actuarial basis using the projected unit credit method. The process of discounting to present value

uses a rate of interest which reflects the market yield on securities issued with a similar maturity to that expected for this liability.

The calculation relates to TFR matured for employment services already performed and includes assumptions concerning future

increases in wages and salaries for foreign subsidiaries and Italian subsidiaries with less than 50 employees. Under the new TFR rules

introduced by Italian Law no. 296 of December 27, 2006, Italian subsidiaries with more than 50 employees may no longer include

future salary increases in their actuarial assumptions; this has produced a reduction in the present value of the obligation, which

has been recognized through the statement of income. Net cumulative actuarial gains and losses which exceed 10% of the Group’s

defined benefit obligation are recorded in the statement of income over the expected average remaining working life of the employees

participating in the plan (under the “corridor approach”). There are currently no post-employment benefit plans.

Share-based payments (stock options). The Group stock option plan provides for the physical delivery of the shares on the date of

exercise. Share-based payments are measured at fair value on the grant date. This value is booked to the statement of income on a

straight-line basis over the period during which the options vest and it is offset by an entry to a reserve in shareholders’ equity;

the amount booked is based on an estimate of the stock options which will effectively vest for staff so entitled, taking into account

the attached conditions not based on the market value of the shares.

Provisions for contingent liabilities. The Group makes provisions only when a present obligation exists for a future outflow of economic

resources as a result of a past event, and when it is probable that this outflow will be required to settle the obligation and a reliable

estimate can be made of the same. The amount recognized as provision is the best estimate of the expenditure required to settle the

present obligation completely, discounted to present value using a suitable pre-tax rate.

Any provisions for restructuring costs are recognized when the Group has drawn up a detailed restructuring plan and has announced

it to the parties concerned.

In the case of onerous contracts where the unavoidable costs of meeting the contractual obligations exceed the economic benefits

expected to be received under the contract, the present obligation is recognized and measured as a provision.

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Trade payables. These are stated at face value. The implicit interest component included in medium/long-term payables is recorded

separately using an appropriate market rate.

Financial liabilities. Financial liabilities are divided into two categories:

- liabilities acquired with the intention of making a profit from short-term price fluctuations or which form part of a portfolio which has the

objective of short-term profit-taking. These are recorded at fair value, with the related gains and losses booked to the statement of income;

- other liabilities, which are recorded on the basis of amortized cost.

Each type of financial liability referred to above, outstanding at the reporting date, is specifically reported in the balance sheet or in the

Explanatory notes.

Net investments in foreign operations. Exchange differences arising on a monetary item forming part of a net investment in a foreign

operation are initially recognized in a separate component of equity and reversed to income at the time of recognizing the gains or

losses on the investment’s disposal.

Foreign currency transactions and derivative financial instruments. Transactions in foreign currencies are recorded using the exchange rates

on the transaction dates. Exchange gains or losses realized during the period are booked to the statement of income. At the balance

sheet date, the Group companies have adjusted receivables and payables in foreign currency using exchange rates ruling at period-end,

booking all resulting gains and losses to the statement of income.

The Group uses derivative financial instruments only with the intent of managing and hedging its exposure to the risk of fluctuations in

exchange rates of currencies other than the Euro and in interest rates. As established by IAS, derivative financial instruments qualify as

hedging instruments only when at the inception of the hedge there is formal designation and documentation of the hedging relationship

and the entity’s risk management objective and strategy for undertaking the hedge. In addition, the Group checks at the inception of the

hedge and throughout its duration that the hedging instrument used in the hedging relationship is highly effective in offsetting changes in

the fair value of cash flows attributable to the hedged risk.

After initial recognition, derivative financial instruments are reported at their fair value. The method of accounting for gains and losses

relating to such instruments depends on the type and sustainability of the hedge. The objective of hedging transactions is to offset the

effect of exposures relating to hedged items on the statement of income.

Fair value hedges for specific assets and liabilities are recorded in assets and liabilities; the hedging instrument and the underlying item

are measured at fair value and the respective changes in value (which generally offset each other) are recognized in the statement of

income.

The valuation of financial instruments designated as hedges of the exposure to variability in cash flows or of a highly probable forecast

transaction (cash flow hedges) is recorded in assets (or liabilities); this valuation is made at fair value and the effective portion of

changes in value is recognized directly in an equity reserve, which is released to the statement of income in the financial periods in

which the related cash flows of the underlying item occur; the ineffective portion of the changes in value is recognized in the statement

of income. If a hedged transaction is no longer thought probable, the unrealized gains or losses, deferred in equity, are immediately

recognized in the statement of income.

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The shareholders’ equity of foreign subsidiaries is subject to hedging in order to protect investments in foreign companies from

fluctuations in exchange rates (translation exchange risk). Exchange differences resulting from these capital hedging transactions are

debited or credited directly to shareholders’ equity as an adjustment to the translation differences reserve and are reversed to income

at the time of disposal or settlement. Derivative instruments for managing interest and exchange rate risks, taken out on the basis of the

Group’s financial policy but which nonetheless do not meet the formal requirements to qualify for IFRS hedge accounting, are recorded

under financial assets/liabilities with changes in value reported through the statement of income.

Government capital grants. Any government capital grants are reported in the balance sheet by recording the grant as an adjusting entry

to the carrying value of the asset.

Identification of segments. The Group has identified “business” as the primary reporting basis for its segment information, since this is the

primary source of risks and rewards; geographical area is the basis for its secondary segment reporting.

The Group’s activities are divided into three segments in order to provide the basis for effective administration and decision-making,

and to supply representative and significant information about company performance to financial investors.

Inter-segment transactions are carried out under arm’s length terms and conditions.

The business segments are as follows:

- apparel, represented by the brands of United Colors of Benetton, Undercolors, Sisley, Playlife and Killer Loop. The information and

results relating to the real estate companies are also included in this segment;

- textile, consisting of production and sales activities for raw materials (fabrics, yarns and labels), semi-finished products and industrial

services;

- other and unallocated, includes activities relating to sports equipment produced for third parties by a Group manufacturing company.

The geographical areas defined by the Group for the purposes of secondary segment reporting in compliance with IAS 14 on the basis

of significance are as follows:

- Italy;

- Rest of Europe;

- Asia;

- The Americas;

- Rest of the world.

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Cash flow statement. In compliance with IAS 7, the cash flow statement, prepared using the indirect method, reports the Group’s

ability to generate cash and cash equivalents. Cash equivalents comprise short-term highly liquid financial investments that are readily

convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Therefore, an investment normally

qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Bank overdrafts

are also part of the financing activity, unless they are payable on demand and form an integral part of an enterprise’s cash and cash

equivalents management, in which case they are classified as a component of cash and cash equivalents. Cash and cash equivalents

included in the cash flow statement comprise the balance sheet amounts for this item at the reporting date. Cash flows in foreign

currencies are translated at the average exchange rate for the period. Income and expenses relating to interest, dividends received

and income taxes are included in cash flow from operating activities. The layout adopted by the Group reports separately:

- operating cash flow: operating cash flows are mainly linked to revenue-generation activities and are presented by the Group using the

indirect method; this method adjusts net profit or loss for the effects of items which did not result in cash outflows or generate liquidity

(i.e. non-cash transactions);

- investing cash flow: investing activities are reported separately because, amongst other things, they are indicative of investments/divestments

aimed at the future generation of revenues and positive cash flows;

- financing cash flow: financing activities consist of the cash flows which determine a change in the size and composition of shareholders’

equity and loans granted.

Use of estimates. Preparation of the report and related notes under IFRS has required management to make estimates and assumptions

regarding assets and liabilities reported in the balance sheet and the disclosure of contingent assets and liabilities at the reporting date.

The final results could be different from the estimates. The Group has used estimates for valuing assets subject to impairment testing

as previously described, for valuing share-based payments, provisions for doubtful accounts, depreciation and amortization, employee

benefits, deferred taxes and other provisions. The estimates and assumptions are reviewed periodically and the effects of any changes

are immediately reflected in the statement of income.

Accounting treatment of companies operating in hyperinflationary economies. The Group has not consolidated any subsidiaries in 2007

which operate in hyperinflationary economies.

Business combinations. The Group accounts for all business combinations by applying the purchase method. The cost of each

combination is determined as the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed,

and equity instruments issued by the acquirer, in exchange for control of the acquiree. Any costs directly attributable to a business

combination also form part of its overall cost.

Minority shareholders. Transactions between the Group and minority shareholders are regulated in the same way as transactions with

parties external to the Group. The sale of shareholding interests to minority shareholders by the Group generates gains or losses that

are recognized in the statement of income. The purchase of interests by minority shareholders is translated into goodwill, calculated

as the excess of the amount paid over the share of the carrying value of the subsidiary’s net assets.

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Financial risk management

The Benetton Group has always paid special attention to the identification, valuation and hedging of financial risk. In November 2005,

the Board of Directors of the Benetton Group approved the “Group Financial Policy”, which defines general principles and guidelines

on financial management and the management of financial risks, such as market risk (exchange rate and interest rate risks), counterparty

credit risk and liquidity risk.

Market risks

Foreign exchange rate risk. The Group is exposed to exchange rate fluctuations, which can impact on the economic results and the value

of shareholders’ equity. Specifically, based on the type of exposure, the Group identifies the following classes of risk:

- Exposure to economic exchange risk. The Group’s companies may have:

- costs and revenues denominated in currencies other than a company’s functional currency or other currency (usually US Dollars or

Euros) normally used in its reference market and whose exchange rate fluctuations can impact operating profit;

- trade receivables or payables denominated in currencies other than a company’s functional currency, where an exchange rate

fluctuation can determine the realization or the reporting of exchange rate differences;

- forecast transactions relating to future costs and revenues denominated in currencies other than the functional currency or another

currency (usually US Dollars or Euros) normally used in the companies’ reference market and whose exchange rate fluctuations can

impact on the operating profit.

- Exposure to transaction exchange risk. Group companies may have financial receivables or payables denominated in currencies other

than their functional currency whose exchange rate fluctuations can cause the realization or the reporting of exchange rate differences.

- Exposure to translation exchange risk. Some of the Group’s subsidiaries are located in countries which do not belong to the European

Monetary Union and their functional currency differs from the Euro, which is the Group’s reference currency:

- the statements of income of these companies are translated into Euro using the period’s average exchange rate, and, with revenues

and margins being the same in local currency, exchange rate fluctuations can impact on the value in Euro of revenues, costs and

economic results;

- assets and liabilities of these companies are translated at the period-end exchange rate and therefore can have different values

depending on exchange rate fluctuations. As provided for by the accounting standards adopted, the effects of such variations are

recognized directly in shareholders’ equity as translation differences.

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It is the Group’s policy to manage foreign exchange risk through derivative financial instruments such as currency forwards, currency

swaps, currency spot transactions and currency options to reduce or hedge the exposure to such risk. The maximum duration of

hedging transactions may vary, depending on the type of risk, from a minimum of two years to a maximum of five years. The Group’s

Financial Policy does not allow the undertaking of any transactions for the purposes of realizing gains from exchange rate fluctuations,

or any transactions in currencies to which there is not an underlying exposure or transactions in currencies designed to increase the

underlying exposure. Financial instruments are designated as part of a hedging relationship at the inception of the hedge. Fluctuations

in the market value of hedging instruments are therefore tied to changes in the market value of the underlying hedged item for the

entire duration of the hedge.

The notional amount, fair value and pre-tax effects on the statement of income and shareholders’ equity of outstanding derivative

financial instruments at December 31, 2007 are as follows:

The notional amounts represent the total absolute value of all transactions valued at the relevant forward exchange rate (or option

strike price).

Fair value has been calculated by discounting to present value (using the Black & Scholes model in the case of options) and translating

future cash flows using market parameters at the balance sheet (in particular, interest rates, exchange rates and volatility).

The effects on shareholders’ equity of economic exchange risk relate to hedges against future purchases and sales in currencies other

than the Euro (cash flow hedges) which, in accordance with international accounting standards, will be recorded in the statement of

income during 2008 when the related purchases and sales take place.

The effects on the statement of income of transaction exchange risk are offset by gains arising on adjustment of the value of the financial

receivables and payables underlying the hedging transaction.

The effects on shareholders’ equity of translation exchange risk are partially offset by losses arising on the translation of shareholders’

equity underlying the hedging transaction.

Effect on:

Shareholders’ Statement (thousands of Euro) Notional amounts Net fair value equity of income

Economic exchange risk 264,962 (5,481) (3,636) (1,830)

- fair value hedge 84,569 (1,391) - (1,376)

- cash flow hedge 180,393 (4,090) (3,636) (454)

Transaction exchange risk 469,879 (6,099) - (6,099)

- fair value hedge 469,879 (6,099) - (6,099)

Translation exchange risk 73,332 631 559 72

- cash flow hedge 73,332 631 559 72

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Sensitivity analysis. The potential pre-tax effects on the statement of income of a hypothetical 10% change in exchange rates against the

Euro, assuming that all other conditions remain equal, would not be significant at either December 31, 2007 or December 31, 2006

(being less than Euro one million); instead, the potential pre-tax effects on shareholders’ equity would be as follows:

The analysis includes derivative financial instruments, as well as trade receivables and payables, financial receivables and payables, and,

in the case of translation exchange risk, the shareholders’ equity of companies in which investments are held.

The effects on shareholders’ equity of economic exchange risk relate to hedges taken out against future purchases and sales in

currencies other than the Euro (cash flow hedges).

The effects on shareholders’ equity of translation exchange risk relate to the shareholders’ equity of companies whose capital employed

mostly consists of non-monetary assets whose value over time should offset currency fluctuations and which the Group hedges only in

a very few cases.

Interest rate risk. The Group’s companies use external financial resources in the form of loans and invest available liquidity in money-

market and capital-market instruments. Variations in market interest rates influence the cost and revenue of funding and investment

instruments, thus impacting on the Group’s financial expenses and income.

The Group’s Financial Policy allows it to use derivative financial instruments to hedge or reduce its exposure to interest rate risk.

At December 31, 2007 there are outstanding interest rate swaps with a notional value of Euro 50 million, and one cross-currency

interest rate swap with a notional value of approximately Euro 4 million; all these contracts will expire in the first six months of 2008.

The interest rate swaps have been taken out for the purposes of reducing the exposure to floating-rate interest but have not been

designated as hedges of the related interest rate risk for hedging accounting purposes; as a result, changes in their fair value are

recognized directly in the statement of income. Their fair value at December 31, 2007 was immaterial since they were due to expire

in about two months time.

The cross-currency interest rate swap has been taken out by the subsidiary Benetton Korea Inc. and has been designated as a hedge of

both interest rate and exchange rate risks attaching to a loan whose terms (amount, maturity, interest fixing) are identical to those of

the cross-currency interest rate swap.

Pre-tax shareholders’ equity effects 12.31.2007 12.31.2006

(millions of Euro) - 10% + 10% - 10% + 10%

Economic exchange risk 10 (9) 9 (8)

Transaction exchange risk - - - -

Translation exchange risk 19 (15) 11 (8)

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At December 31, 2007 the fair value of this instrument is basically matched by the same but opposite effect on the underlying hedged item.

Almost all of the interest-bearing debt consists of floating-rate loans and/or deposits and so their fair value is close to the value

recognized in the balance sheet.

Sensitivity analysis. The potential pre-tax effect on the statement of income of a hypothetical 10% increase in interest rates, applied to

the Group’s average interest-bearing debtor or creditor positions, would be to increase financial expenses by about Euro 2 million at

December 31, 2007 (around Euro 1 million at December 31, 2006). A similar change but in the opposite sense would occur if rates

were to fall by 10%.

Credit risk

The Group has different concentrations of credit risk depending on the nature of the activities which have generated the receivables.

Trade credit risk basically relates to wholesale sales and is limited by only making sales to customers with an established credit history.

Sales to retail customers are made in cash or using credit cards and other electronic cards.

Receivables which are partially or totally irrecoverable, if sufficiently significant, are written down on an individual basis. The amount

of the write-down takes into account a forecast of recoverable cash flows and their relevant collection date, as well as the fair value of

warranties. Collective provisions are made for receivables which are not subject to individual write-down, taking into account bad debt

history and statistical data.

Financial credit risk lies in the counterpart’s or the issuer’s inability to settle its financial obligations.

The Group invests liquidity in money-market and capital-market instruments. These instruments must have a minimum long-term issuer

and/or counterpart rating of S&P’s “A-“ (or equivalent) and/or a minimum short-term issuer and/or counterpart rating of S&P’s “A-2”

(or equivalent).

With the exception of bank deposits, the maximum investment allowed in all other instruments may not exceed 10% of the Group’s

liquidity investments, with a ceiling of Euro 20 million for each issuer/counterpart, in order to avoid excessive concentration in a

single issuer for sovereign issuers with rating lower than “A” (or equivalent) and for all other issuers with rating lower than “AA”

(or equivalent).

As of December 31, 2007 the Group’s liquidity was mainly invested in current accounts with leading financial institutions.

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The Group’s maximum exposure to credit risk at December 31, 2007 and 2006 is as follows:

Financial receivables individually impaired Financial receivables not individually impaired

Financial receivables Financial receivables not past due past due

of which of which due Not past due beyond Total past Past and 0-60 Beyond (thousands of Euro) 12.31.2007 5 years collateral due due Collateral Total renegotiated days 60 days Collateral

Non-current assets

Guarantee deposits 25,157 2,289 - 2 10 - 24,491 - 9 645 -

Medium/long-term financial receivables 5,147 1,292 - - - - 5,147 - - - -

Other medium/long-term receivables 10,781 - - 3,388 - - 7,393 - - - -

Current assets

Trade receivables 680,741 - 7,617 60,838 37,867 1,003 425,947 3,235 148,186 7,903 -

Other receivables 66,569 - - 138 78 - 64,539 - 1,240 574 -

Financial receivables 19,288 - - - - - 18,831 - 252 205 -

Financial receivables individually impaired Financial receivables not individually impaired

Financial receivables Financial receivables not past due past due

of which of which due Not past due beyond Total past Past and 0-60 Beyond (thousands of Euro) 12.31.2006 5 years collateral due due Collateral Total renegotiated days 60 days Collateral

Non-current assets

Guarantee deposits 21,947 4,965 - - 9 - 21,457 - 32 449 -

Medium/long-term financial receivables 3,461 1,215 - - - - 1,391 - 2,070 - -

Other medium/long-term receivables 23,903 353 - 6,950 72 - 16,881 - - - -

Current assets

Trade receivables 610,131 353 9,670 39,785 37,405 980 374,418 6,729 143,300 15,223 6,484

Other receivables 56,720 - - 1 - - 53,928 - 1,140 1,651 -

Financial receivables 40,474 - - - - - 38,249 - 2,046 179 -

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106 107

Liquidity risk

Liquidity risk can arise through the inability to access, at economically viable conditions, the financial resources needed to guarantee the

Group’s ability to operate.

The two main factors influencing the Group’s liquidity position are the resources generated or used by operating and investing activities,

and the maturity and renewal profiles of debt or liquidity profile of financial investments.

At December 31, 2007 the Group had unutilized “committed” credit facilities in the amount of Euro 400 million and “uncommitted”

credit facilities in the amount of around Euro 300 million.

Liquidity requirements are monitored by the Parent Company’s head office functions in order to guarantee effective access to financial

resources and/or adequate investment of liquidity.

Management feels that currently available funds and credit facilities, apart from those which will be generated by operating and financing

activities, will allow the Group to satisfy its requirements as far as investment, working capital management, and debt repayment at

natural maturity are concerned.

The Group’s financial liabilities at December 31, 2007 and 2006 are analyzed by due date in the following table; note that these amounts

include cash flows arising from future financial expenses.

Contractual Contractual Contractual Contractual Contractual Contractual maturity maturity maturity maturity maturity maturity beyond 5 (thousands of Euro) 12.31.2007 within 1 year 1-2 years 2-3 years 3-4 years 4-5 years years


Medium/long-term loans 489,183 19,850 18,083 18,123 19,817 413,310 -

Other medium/long-term payables 12,170 - 1,331 7,974 392 706 1,767

Lease financing 2,360 - 1,886 360 114 - -

Current liabilities

Trade payables 385,401 385,401 - - - - -

Other payables, accrued expenses and deferred income 76,140 76,140 - - - - -

Current portion of lease financing 3,111 3,111 - - - - -

Current portion of medium/long-term loans 68 68 - - - - -

Financial payables and bank loans 227,966 227,966 - - - - -

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Capital management

The Group’s objective is to create value for shareholders and to support the Group’s future development by maintaining an adequate

level of capitalization allowing cost-effective access to external sources of finance.

Particular attention is given to the debt-equity ratio and to the debt-EBITDA ratio when seeking to achieve the Group’s earnings and

cash generation targets.

A number of covenants relating to credit facilities and loans must also be observed. These call for:

- a ratio of 1 or less between net financial position and equity;

- a ratio of 3.5 or less between net financial position and EBITDA.

At December 31, 2007 the ratio between net financial position and equity is 0.3 while the ratio between net financial position

and EBITDA is 1.4.

Contractual Contractual Contractual Contractual Contractual Contractual maturity maturity maturity maturity maturity maturity beyond 5 (thousands of Euro) 12.31.2006 within 1 year 1-2 years 2-3 years 3-4 years 4-5 years years


Medium/long-term loans 341 - 68 71 74 128 -

Other medium/long-term payables 12,395 - 1,164 162 7,500 1 3,568

Lease financing 5,471 - 3,111 1,886 360 114 -

Current liabilities

Trade payables 403,345 403,345 - - - - -

Other payables, accrued expenses and deferred income 62,783 62,783 - - - - -

Current portion of lease financing 4,368 4,368 - - - - -

Current portion of medium/long-term loans 599,696 599,325 131 80 80 80 -

Financial payables and bank loans 83,432 83,432 - - - - -

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Comments on the principal items in the statement of income

[1] Revenues

Sales of core products are stated net of discounts.

Miscellaneous sales relate mainly to sports equipment produced for third parties by a subsidiary in Hungary, as well as the sale of semi-

finished products and sample items.

Other revenues refer mainly to the provision of services such as processing, to cost recharges and miscellaneous services including the

development of advertising campaigns.

Information on the individual segments can be found in the paragraph entitled “Supplementary information - Segment information”.

Sales of core products, by product category

(thousands of Euro) 2007 2006

Sales of core products 1,977,151 1,800,655

Miscellaneous sales 83,798 74,995

Royalty income 11,252 11,932

Other revenues 13,071 23,393

Total 2,085,272 1,910,975


Casual apparel, accessories and footwear 1,860,500 1,685,174

Fabrics and yarns 79,163 85,552

Leisure apparel, accessories and footwear 37,488 29,929

Total 1,977,151 1,800,655

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Sales of core products, by brand

The United Colors of Benetton brand also includes Euro 574,742 thousand in sales by the UCB Bambino brand (Euro 497,813 thousand

in 2006). “Other sales” refer to the sale of fabrics and yarns.

Cost of sales[2] Materials and subcontracted work

These include Euro 838,195 thousand (676,100 thousand in 2006) in costs for the purchase of raw materials, semi-finished products,

finished products and related materials and Euro 193,908 thousand (285,500 thousand in 2006) in costs for subcontracted work.

General and operating expenses

[3] Payroll and related costs

An analysis of the Group’s payroll and related costs is presented below, including industrial ones classified as part of the cost of sales,

and those relating to directly operated stores classified as part of general and operating expenses.

2007


United Colors of Benetton 1,435,288 1,287,316

Sisley 340,699 322,495

Undercolors 84,513 75,363

Playlife 26,092 21,288

Killer Loop 11,396 8,641

Other sales 79,163 85,552

Total 1,977,151 1,800,655

Industrial Non- Advertising wages, industrial division salaries and salaries and salaries and (thousands of Euro) related costs related costs related costs Total

Wages and salaries 60,074 119,498 1,132 180,704

Social security contributions 21,205 31,486 361 53,052

Provision for retirement benefit obligations 557 1,753 65 2,375

Other payroll and related costs 1,421 3,298 - 4,719

Total 83,257 156,035 1,558 240,850

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110 111

2006

Payroll and related costs have increased mainly as a result of growth in the number of directly operated stores.

The number of employees is analyzed by category below:

2007 2006 Period average

Management 95 95 95

White collar 5,003 4,788 4,896

Workers 2,400 2,386 2,393

Part-timers 1,398 1,625 1,512

Total 8,896 8,894 8,896

Industrial Non- Advertising wages, industrial division salaries and salaries and salaries and (thousands of Euro) related costs related costs related costs Total

Wages and salaries 58,287 118,286 1,128 177,701

Social security contributions 18,449 26,935 315 45,699

Provision for retirement benefit obligations 3,694 4,155 55 7,904

Stock option costs - 1,883 - 1,883

Other payroll and related costs 745 2,241 - 2,986

Total 81,175 153,500 1,498 236,173

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Stock options plan. The “Supplementary information” section of the Directors’ report details the stock options plan approved by the

Group’s Shareholders’ Meeting in September 2004. The estimated fair value of each share option granted by the plan is of Euro 1.874

(weighted average price).

The fair value was calculated using the Black & Scholes option price valuation method. The data considered for modeling purposes was

as follows:

Further details on the stock options plan are given below:

(*) Cancelled on 09.21.2006.

Vesting period: Vesting period: 2 years 4 years (*) Total

Number of options granted 1,616,788.5 1,616,788.5 3,233,577

Grant date 09.09.2004 09.09.2004

First exercise date 09.09.2006 09.09.2008

Expiring date 09.09.2013 09.09.2013

Average exercise date (estimated as mid-point between first exercise and expiring dates) 03.10.2010 03.10.2011

Dividend yield 4.16% 4.16%

Expected volatility (historic at 260 days) 27.60% 27.60%

Risk-free interest rate 3.493% 3.671%

Option life (years) 9.0 9.0 9.0

Expected average life (years) 5.5 6.5 6.0

Unit fair value in Euro (Black & Scholes) 1.831042 1.916344 1.873693

Total fair value in Euro 2,960,408 2,850,457 5,810,865

2007 2006 Weighted Weighted average average exercise exercise No. of options price No. of options price

Circulating at the beginning of the year 220,838 8.984 3,233,577 8.984

Granted - - - -

Annulled - - 1,896,058 -

Exercised - - 1,116,681 8.984

Circulating at year end 220,838 8.984 220,838 8.984

Exercisable at year end 220,838 8.984 220,838 8.984

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Options outstanding at December 31, 2007 have a remaining average weighted life of 5.7 years.

More details about the options exercised during 2006 can be found in the Corporate Governance section of the website (Internal

Dealing Notices) at www.benetton.com/investors.

Key senior management. The following persons have been identified as key senior managers of the Group:

The following table summarizes the total remuneration of key senior managers:

[4] Advertising and promotion

Advertising and promotion costs amount to Euro 61,019 thousand (Euro 71,537 thousand in 2006) and reflect the costs incurred for

developing advertising campaigns for the Group and also for third-party customers.

(*) Andrea Negrin resigned early in 2008; the position of Group Human Resources Director has been taken over by Giovanni Di Vaio with effect from 03.01.2008.

(*) The figures for 2006 include the remuneration, excluding Directors’ emoluments, of S. Cassano, P.F. Facchini and F. De Nardis who left the Group last year.(**) These amounts correspond to the fair value of options granted and charged to the statement of income in 2006.

Function

Biagio Chiarolanza Chief Operations Officer

Emilio Foà Chief Financial Officer

Andrea Negrin (*) Human Resources Director

Adolfo Pastorelli Chief Information Technology Officer

(thousands of Euro) 2007 2006 (*)

Short-term benefits 2,115 3,117

Deferred compensation - -

Other long-term benefits - -

Severance indemnity - 2,666

Stock-based compensation (**) - 1,883

Total 2,115 7,666

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[5] Depreciation and amortization

The Group’s depreciation and amortization charges for the period, including the industrial ones reported in the cost of sales, are analyzed as follows:

2007

2006

[6] Other expenses and income

Details of these amounts are provided in the following tables.

Industrial depreciation Non-industrial depreciation (thousands of Euro) and amortization and amortization Total

Depreciation of property, plant and equipment 17,239 46,366 63,605

Amortization of intangible assets 149 27,276 27,425

Total 17,388 73,642 91,030

Industrial depreciation Non-industrial depreciation (thousands of Euro) and amortization and amortization Total

Depreciation of property, plant and equipment 17,902 41,843 59,745

Amortization of intangible assets 307 24,188 24,495

Total 18,209 66,031 84,240


Non-industrial general costs 105,606 95,378

Other operating expenses/(income) 94,841 86,680

Additions to provisions 22,578 15,651

Other expenses/(income) 6,163 291

Total 229,188 198,000

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Non-industrial general costs

The following table reports all the remuneration, in whatever form, due in 2007 to each individual member of the Parent Company’s

Board of Directors and Board of Statutory Auditors.

(1) Until approval of the financial statements.


Other services 22,662 20,614

Consulting and advisory fees 13,930 13,313

Rental and hire costs 12,366 11,007

Travel and entertainment costs 9,932 9,918

Maintenance and cleaning 9,252 6,116

Electricity and gas 8,708 7,873

Sundry purchases 6,585 6,709

Directors and Statutory Auditors 6,284 5,362

Telephone and postage expenses 5,599 4,930

Insurance 4,349 4,112

Banking services 2,844 2,949

Surveillance and security 2,200 1,862

Other 895 613

Total 105,606 95,378

(thousands of Euro)

Name and surname Position held Duration of office (1) Gross remuneration

Luciano Benetton Chairman 12.2009 1,600

Carlo Benetton Deputy Chairman 12.2009 800

Alessandro Benetton Deputy Chairman 12.2009 1,100

Gerolamo Caccia Dominioni Chief Executive Officer 12.2009 648

Gilberto Benetton Director 12.2009 100

Giuliana Benetton Director 12.2009 800

Luigi Arturo Bianchi Director 12.2009 93

Giorgio Brunetti Director 12.2009 112

Alfredo Malguzzi Director 12.2009 93

Gianni Mion Director 12.2009 50

Robert Singer Director 12.2009 65

Ulrich Weiss Director 12.2006 15

Angelo Casò Chairman of the Board of Statutory Auditors 12.2007 62

Antonio Cortellazzo Statutory Auditor 12.2007 58

Filippo Duodo Statutory Auditor 12.2007 69

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Other operating expenses/(income)

Additions to provisions


Operating expenses:

- rental expense 144,626 116,281

- indirect taxes and duties 10,670 8,611

- other operating expenses 19,324 19,057

Total operating expenses 174,620 143,949

Operating income:

- rental income (68,418) (45,721)

- reimbursements and compensation payments (1,703) (3,640)

- other operating income (9,658) (7,908)

Total operating income (79,779) (57,269)

Total 94,841 86,680


Addition to provision for doubtful accounts 17,210 10,680

Addition to provision for sales agent indemnities 2,942 2,029

Addition to provision for legal and tax risks 2,426 2,942

Total 22,578 15,651

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Other expenses/(income)

The non-recurring income and expenses included in this heading are detailed in the section entitled “Supplementary information - Non-recurring

events and significant transactions”.

[7] Share of income/(loss) of associated companies

This amounts to Euro 43 thousand, most of which refers to income arising from dividends received from some of the Group’s minor

investments.


Other expenses:

- impairment of property, plant and equipment and intangible assets 8,470 13,632

- donations 3,004 2,714

- out-of-period expenses 2,067 2,362

- losses on disposal 1,355 1,132

- costs for expected obligations 140 2,723

- other sundry expenses 11,343 3,155

Total other expenses 26,379 25,718

Other income:

- gains on disposals of property, plant and equipment and intangible assets (10,810) (10,879)

- out-of-period income (4,251) (456)

- release of provisions (2,842) (9,179)

- reversal of impairment of property, plant and equipment and intangible assets (1,802) (3,503)

- other sundry income (511) (1,410)

Total other income (20,216) (25,427)

Total 6,163 291

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[8] Financial (expenses)/income

The increase in net financial expenses relative to 2006 is largely due to the rise in interest rates and average indebtedness over the year,

partly resulting from the growth in volumes and higher investments.

The time value of derivatives hedging economic, transaction and translation exchange risk has been recognized in the statement of

income for both fair value hedges and cash flow hedges.

[9] Net foreign currency hedging (losses)/gains and exchange differences

Exchange differences mainly originate from customer receipts and supplier payments and from currency hedges. This line item also

includes exchange differences arising from translation of receivables and payables in foreign currency at the year-end exchange rate.

(1) For the purposes of providing more representative information, the Group has stated financial expenses and income from derivatives net of intercompany transactions. This is why financial expenses and income for 2006 have been restated and adjusted although with no effect on their net balance.

(thousands of Euro) 2007 2006 (1)

Financial expenses:

- expenses from hedges of economic exchange risk (8,052) (6,578)

- expenses from hedges of transaction exchange risk (11,670) (7,951)

- expenses from hedges of translation exchange risk (66) (2,171)

- expenses from hedges of interest rate risk (1,684) (1,365)

- interest on bank loans (28,246) (19,433)

- early settlement trade discounts (2,288) (2,370)

- bank charges and commissions (2,268) (2,504)

- sundry other financial expenses (1,548) (2,242)

- interest on advances against receivables (399) (384)

- interest on loans from other lenders (376) (487)

- interest on bank overdrafts (308) (770)

Total financial expenses (56,905) (46,255)

Financial income:

- income from hedges of economic exchange risk 7,565 7,273

- income from hedges of transaction exchange risk 15,325 11,934

- income from hedges of translation exchange risk 24 2,575

- income from hedges of interest rate risk 1,782 1,851

- interest income on current, currency and deposit accounts 1,342 3,119

- interest income from receivables 980 1,574

- sundry other financial income 152 206

Total financial income 27,170 28,532

Financial (expenses)/income (29,735) (17,723)

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118 119

The net increase in this amount relative to 2006 is due to the Euro’s appreciation and particularly Dollar hedges taken out at the end

of 2006 and in the first half of 2007 against US Dollar purchases invoiced in the second half of 2007.

Net foreign currency hedging (losses)/gains and exchange differences are analyzed by exchange risk as follows:

[10] Income taxes

The balance includes current taxes and deferred tax income and expenses:


Economic exchange risk (8,616) (3,824)

Transaction exchange risk (2,156) 1,063

Translation exchange risk 147 369

Others 292 (168)

Total (10,333) (2,560)


Current taxes 45,443 15,677

Deferred tax income:

- reversal of intercompany profits (249) (1,138)

- impairment of investments 4,922 12,268

- additions, uses and releases from provisions for risks and other charges (1,097) 11,641

- taxes on a different depreciable/amortizable base

for property, plant and equipment and intangible assets - (4,073)

- carried forward tax losses (6,287) (620)

- fair value of derivatives (680) 2,122

- tax rate change effect on deferred tax income 13,994 -

- other 2,090 955

Total deferred tax income 12,693 21,155

Deferred tax expenses:

- reversal of excess depreciation and the application of finance lease accounting 1,257 (4,277)

- capital gains 773 (439)

- distributable earnings/reserves of subsidiaries 2,510 (560)

- tax effect of business combination (883) (564)

- tax rate change effect on deferred tax expenses (9,029) -

- other (2) 384

Total deferred tax expenses (5,374) (5,456)

Total 52,762 31,376

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The tax charge amounts to Euro 52,762 thousand compared with Euro 31,376 thousand in the prior year, representing a tax rate

of 26.0%, up from 19.7% in 2006; this increase is mainly due not only to the effect of applying the new finance act and particularly

the revised tax rate, causing a net negative impact of Euro 4,965 thousand, but also to higher taxable income reported by Italian

subsidiaries.

The reconciliation of the tax charge is as follows:

(in %) 2007 2006

Theoretical tax rate 37.25 37.25

Different tax rate of companies in profit (14.05) (16.17)

Different tax rate of companies in loss 7.56 6.21

Tax effect of distributable earnings/reserves of subsidiaries 1.32 0.79

Effect arising from business transfers (6.78) (11.51)

Amortization of excess consideration associated with acquisitions 0.20 0.25

Effect of carried forward tax losses (2.62) (0.39)

Effect of impairment of property, plant and equipment and intangible assets 0.49 1.59

Higher rate of IRAP (Italian regional business tax) 1.50 3.44

Tax rate change effect on deferred tax expenses/income 2.44 -

Other net effects (1.34) (1.78)

Reported tax rate 25.97 19.68

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Comments on the principal asset items

Non-current assets [11] Property, plant and equipment

The following table summarizes movements in property, plant and equipment during 2007 and 2006. The total amount

of Euro 929,924 thousand reported at the foot of the table is stated net of accumulated.

Furniture, Plant, fittings and Vehicles Assets under Land and machinery and electronic and construction Leased Leasehold (thousands of Euro) buildings equipment devices aircraft and advances assets improvements Total

Balance at 01.01.2006 565,205 68,535 42,273 10,470 10,957 7,728 37,835 743,003

Change in consolidation 245 296 224 - 17 1,047 674 2,503

Additions 66,559 9,064 33,608 1,301 18,883 235 22,471 152,121

Disposals (10,519) (2,467) (1,495) (194) (55) - (2,464) (17,194)

Depreciation (12,200) (17,714) (18,358) (1,090) - (1,050) (9,332) (59,744)

Impairment - (96) (3,815) - - (74) (8,004) (11,989)

Impairment reversals - 18 10 - - - - 28

Reclassification of assets held for sale (460) (4) (36) - - - (94) (594)

Reclassifications and translation differences 2,487 9,852 2,189 14 (19,426) - 1,264 (3,620)

Balance at 01.01.2007 611,317 67,484 54,600 10,501 10,376 7,886 42,350 804,514

Additions 60,695 14,324 31,030 18,361 77,785 - 15,921 218,116

Disposals (472) (12,239) (1,733) (163) (11) - (4,170) (18,788)

Depreciation (12,727) (17,318) (21,667) (1,252) - (564) (10,077) (63,605)

Impairment - (633) (2,392) (328) - - (2,027) (5,380)

Impairment reversals - - - - - - 977 977

Reclassification of assets held for sale - - (51) (2,484) - - (12) (2,547)

Reclassifications and translation differences (2,374) 23,923 1,508 13 (26,355) (2,037) 1,959 (3,363)

Balance at 12.31.2007 656,439 75,541 61,295 24,648 61,795 5,285 44,921 929,924

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Investments in property, plant and equipment in the year, totaling Euro 218,116 thousand, mainly related to:

- acquisitions of properties for commercial use and the modernization and refurbishment of stores for the purposes of expanding the

commercial network, particularly in Eastern Europe, Russia, Turkey, Italy and Portugal;

- plant, machinery and equipment purchased to boost production and distribution efficiency, particularly in Istria (Croatia), Tunisia

and Italy;

- the purchase of store furniture and fittings;

- the purchase of an aircraft by Benair S.p.A.

Leasehold improvements mainly refer to the cost of restructuring and modernizing stores belonging to third parties.

Disposals in the year amounted to Euro 18,788 thousand, most of which referred to the sale of production machinery, particularly in Istria.

Impairment losses recognized in the year, net of impairment reversals, amount to Euro 4,403 thousand, mainly for writing down certain

commercial properties to their recoverable amount; more details can be found in the paragraph on impairment testing.

The gross amount, accumulated depreciation and impairment and related net book value of the Group’s property, plant and equipment

are analyzed below:

12.31.2007 12.31.2006 Accumulated Accumulated depreciation and depreciation and (thousands of Euro) Gross impairment Net Gross impairment Net

Land and buildings 800,316 143,877 656,439 743,635 132,318 611,317

Plant, machinery and equipment 317,588 242,047 75,541 300,579 233,095 67,484

Furniture, fittings and electronic devices 183,627 122,332 61,295 164,945 110,345 54,600

Vehicles and aircraft 35,394 10,746 24,648 23,140 12,639 10,501

Assets under construction and advances 61,795 - 61,795 10,376 - 10,376

Leased assets 9,547 4,262 5,285 13,265 5,379 7,886

Leasehold improvements 142,040 97,119 44,921 139,998 97,648 42,350

Total 1,550,307 620,383 929,924 1,395,938 591,424 804,514

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The net book value of land and buildings is analyzed according to use as follows:

Leased assets are analyzed as follows:

The long-term portion of the outstanding principal contained in lease repayments at December 31, 2007 is recognized as “Lease

financing” under non-current liabilities, while the short-term portion is reported in current liabilities.


Commercial 533,425 488,411

Industrial 92,492 94,604

Other 30,522 28,302

Total 656,439 611,317


Land and buildings 5,959 5,959

Plant, machinery and equipment 236 3,954

Furniture, fittings and electronic devices 3,105 3,105

Leasehold improvements 247 247

(Accumulated depreciation) (4,262) (5,379)

Total 5,285 7,886

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[12] Intangible assets

The following table reports movements in the principal categories of intangible assets:

More details of the impairment of such assets can be found in the paragraph on “Impairment testing”.

Goodwill and Concessions, other intangible licenses, assets of indefinite Industrial trademarks and Deferred (thousands of Euro) useful life patents similar rights charges Other Total

Balance at 01.01.2006 8,510 1,027 16,957 102,459 22,796 151,749

Change in consolidation - - - 319 - 319

Additions 19,712 54 1,400 56,813 17,353 95,332

Disposals - - (5) (1,699) (83) (1,787)

Amortization - (256) (2,685) (15,316) (6,239) (24,496)

Impairment - - - (1,585) (58) (1,643)

Impairment reversals - - 2,500 974 - 3,474

Reclassification of assets held for sale - - - (1,011) - (1,011)

Reclassifications and translation differences 236 (22) 20 646 (207) 673

Balance at 01.01.2007 28,458 803 18,187 141,600 33,562 222,610

Additions - 268 2,372 26,819 20,163 49,622

Disposals - (10) (92) (2,695) (243) (3,040)

Amortization - (227) (2,742) (18,023) (6,433) (27,425)

Impairment - - (1) (3,089) - (3,090)

Impairment reversals - - - 825 - 825

Reclassifications and translation differences - 2,499 399 4,360 (6,029) 1,229

Balance at 12.31.2007 28,458 3,333 18,123 149,797 41,020 240,731

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“Concessions, licenses, trademarks and similar rights” include the net book value of the following brands:

“Deferred charges” mainly consist of lease surrender payments to obtain the lease of buildings for use as stores (“key money”), which

are amortized over the term of the related lease contracts (with the exception of “fonds de commerce” which are amortized over 20 years).

“Other” mostly refers to Euro 31,915 thousand in software purchase and development costs (of which Euro 30,586 thousand in internally

generated assets) and Euro 7,809 thousand in costs relating to assets under construction and advances (of which Euro 2,384 thousand

in internally generated assets). Significant investments were also made this year in developing and implementing SAP sales management

software and in installing SAP applications at foreign subsidiaries.

The gross amount, accumulated amortization and impairment and related net book value of the Group’s intangible assets are analyzed below:


Killer Loop 9,334 10,166

United Colors of Benetton 3,088 3,134

Sisley 506 499

Other 727 898

Total 13,655 14,697

12.31.2007 12.31.2006 Accumulated Accumulated amortization and amortization and (thousands of Euro) Gross impairment Net Gross impairment Net

Goodwill and other intangible assets of indefinite useful life 40,952 12,494 28,458 40,952 12,494 28,458

Industrial patents and intellectual property rights 6,443 3,110 3,333 3,683 2,880 803

Concessions, licenses, trademarks and similar rights 63,366 45,243 18,123 69,118 50,931 18,187

Deferred charges 241,490 91,693 149,797 219,780 78,180 141,600

Other 85,979 44,959 41,020 74,156 40,594 33,562

Total 438,230 197,499 240,731 407,689 185,079 222,610

124 125124 125

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Impairment testing

As required by IAS 36 and internal procedures, the Group has:

- checked the existence or otherwise of any indication that its property, plant and equipment and intangible assets of finite useful life

might be impaired;

- compared the recoverable amount of its intangible assets of indefinite useful life and of its intangible assets not yet available for use

with their corresponding carrying amounts. Such a comparison was carried out irrespective of the occurrence of events indicating

that the carrying amount of such assets might be impaired.

The results of impairment testing in 2007 are summarized in the following table which reports, by business segment, the impairment

losses recognized during the year and recorded in the statement of income under “Other expenses/(income)”.

The principal impairment losses and reversals recognized in 2007 as a result of impairment testing were as follows:

- commercial assets: all the impairment losses for the year refer solely to this class of assets and relate to stores operated both directly

and by partners. Each individual store is treated like a separate CGU, for which the present value of its net future cash flows is

determined in order to establish the asset’s value in use. If the value in use of the CGU is less than its carrying amount, an impairment

loss in respect of the CGU’s assets is recognized accordingly. The only exception to this method of testing relates to the “fonds de

commerce”, measured on the basis of fair value determined by expert appraisal. Impairment losses recognized in 2007 against the

commercial assets of certain stores reflected a reduction in their cash flows, caused by an unexpected decline in their sales (both actual

and future), except in some cases when it was possible to express a market value. These assets included furniture and fittings,

key money and leasehold improvements. All these assets were adjusted to their value in use, estimated on the basis of forecast future

cash flows. The impairment losses relate to stores mostly located in Japan, Austria, Sweden, Ireland and Germany. It should also be

noted that a total of Euro 1,802 thousand in impairment reversals were recognized in relation to the assets of certain directly

operated stores.

Other and (thousands of Euro) Apparel Textile unallocated Total

Property, plant and equipment:

- plant, machinery and equipment 633 - - 633

- furniture, fittings and electronic devices 2,392 - - 2,392

- vehicles and aircraft 328 - - 328

- leasehold improvements 2,027 - - 2,027

Total property, plant and equipment 5,380 - - 5,380

Intangible assets:

- intangible assets of finite useful life 3,090 - - 3,090

Total 8,470 - - 8,470

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126 127

A pre-tax rate of 7.0% was used for the purposes of discounting cash flows (except in Turkey where a rate of 12.9% was applied);

- goodwill: the principal assumptions adopted by the Group are listed below:

The Group has carried out sensitivity analyses, using different discount rates, for all assets tested for impairment under the value in use

method. The results of these simulations do not differ significantly from those presented above.

Other non-current assets

[13] Investments. Investments in subsidiary and associated companies relate mainly to commercial companies not included in the

consolidation because they were not yet operational or were in liquidation at the balance sheet date. Investments in other companies

are stated at cost and refer to minority stakes in a number of companies in Italy, Japan, Korea and Switzerland. Details are as follows:

Growth Specific rate beyond planning the specific Additions/ Pre-tax period planning Nature of goodwill 12.31.2006 (Impairment) 12.31.2007 discount rate (years) period

Acquisition Mari GmbH (Germany) 3,038 - 3,038 7.0% 5 -

Acquisition 50% Benetton Giyim Sanayi A.S. (Turkey) 5,708 - 5,708 12.9% 4 2.0%

Acquisition 50% Milano Report S.p.A. (Italy) 19,712 - 19,712 7.0% 4 2.0%

Total 28,458 - 28,458


Chesa Paravicini S.A. 1,479 1,479

Korea Fashion Physical Distribution 145 163

Benlim Ltd. - 571

Other investments 442 232

Total 2,066 2,445

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[14] Guarantee deposits. The guarantee deposits reported at December 31 primarily relate to lease contracts entered into by a Japanese

subsidiary and by an Indian subsidiary.

[15] Medium/long-term financial receivables. The overall balance of Euro 5,147 thousand includes loans mostly given by Group

subsidiaries to third parties, which earn interest at market rates. A total of Euro 3,100 thousand in new loans were granted during the

year, of which Euro 420 thousand repayable in 2008 and classified as current assets.

[16] Other medium/long-term receivables. This line item, totaling Euro 33,996 thousand, includes Euro 18,563 thousand in receivables

due from Ragione S.A.p.A. di Gilberto Benetton e C. for current taxes, calculated on taxable losses, as allowed in the rules governing

participation in the group tax election for Italian companies.

This line item also includes Euro 5,478 thousand in customer trade receivables (stated net of Euro 8,248 thousand in provisions for

doubtful accounts as detailed in the related note on trade receivables), Euro 5,297 thousand in receivables due for fixed asset disposals

and Euro 4,253 thousand in recoverable VAT, while the remainder relates to other sundry receivables.

[17] Deferred tax assets. The following table provides a breakdown of net deferred tax assets:


From 1 to 5 years 3,855 2,246

Beyond 5 years 1,292 1,215

Total 5,147 3,461

Translation differences and (thousands of Euro) 12.31.2006 Increases Decreases other movements 12.31.2007

Tax effect of eliminating intercompany profits 5,871 6,120 (5,871) - 6,120

Tax effect of provisions, costs and revenues relating to future periods for fiscal purposes 48,280 9,892 (22,018) (834) 35,320

Deferred taxes on reversal of excess depreciation and application of finance lease accounting (8,637) (3,001) 2,874 - (8,764)

Deferred taxes on capital gains taxable over a number of accounting periods (2,552) (1,758) 1,425 - (2,885)

Different basis for depreciation/amortization 126,723 - - - 126,723

Benefit on carried forward tax losses 16,751 10,813 (5,498) (1,265) 20,801

Deferred taxes on distributable earnings/reserves (5,068) (2,595) 84 - (7,579)

Tax effect of business combination (8,922) - 2,236 - (6,686)

Total 172,446 19,471 (26,768) (2,099) 163,050

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128 129

The Group offsets deferred tax assets against deferred tax liabilities for Italian companies that have made the group tax election and

for foreign subsidiaries to the extent legally allowed in their country of origin.

This balance is mostly attributable to taxes paid in advance as a result of differences in calculating the amortizable/depreciable base

of assets. The associated deferred tax assets have been recognized on the basis of the Group’s future expected profitability following

its reorganization in 2003. The balance also includes deferred tax assets recognized on provisions and costs already reported in the

financial statements that will become deductible for tax in future periods. The potential tax benefit associated with carried forward tax

losses of Group companies is about Euro 188 million (166 million in 2006) but has been adjusted to Euro 167 million for amounts that

are currently unlikely to be fully recovered. Details of these unrecognized benefits are analyzed by year of expiry as follows:

Current assets[18] Inventories. Inventories are analyzed as follows:

The valuation of closing inventories at weighted average cost is not appreciably different from their value at current purchase cost.

(thousands of Euro) 12.31.2007

From 1 to 3 years 4,928



Beyond 10 years 23,660

Unlimited 118,574

Total 167,039


Raw materials, other materials and consumables 90,705 89,184

Work in progress and semi-finished products 49,556 58,869

Finished products 193,709 182,189

Advances to suppliers 2,093 464

Total 336,063 330,706

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Inventories are stated net of the write-down provision. Movements in the write-down provision are as follows:

[19] Trade receivables. Short-term and long-term trade receivables and the related provisions recognized for doubtful accounts, are as

follows at December 31, 2007:

The total provision for doubtful accounts corresponds to 9% of trade receivables.

Movements in this provision during the year are summarized below:

Trade receivables include Euro 429 thousand in amounts due from associated and related companies and Euro 146 thousand due from

the holding company Edizione Holding S.p.A.

A total of Euro 23,435 thousand in receivables not yet due had been factored without recourse at December 31, 2007 (Euro 26,065 thousand

at December 31, 2006).

Translation (thousands of Euro) 12.31.2006 Additions Uses differences 12.31.2007

Raw materials, other materials and consumables 3,072 4,897 (3,007) (54) 4,908

Work in progress and semi-finished products 824 530 (824) - 530

Finished products 18,870 9,395 (10,298) (306) 17,661

Total 22,766 14,822 (14,129) (360) 23,099


Current trade receivables 740,876 679,888

(Provision for current doubtful accounts) (60,135) (69,757)

Current trade receivables 680,741 610,131

Non-current trade receivables 13,726 20,137

(Provision for non-current doubtful accounts) (8,248) (3,111)

Non-current trade receivables 5,478 17,026

Total trade receivables 686,219 627,157

Exchange Releases differences and (thousands of Euro) 12.31.2006 Additions Uses to income other changes 12.31.2007

Provision for doubtful accounts 72,868 17,110 (19,602) (1,721) (272) 68,383

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130 131

[20] Tax receivables. This balance includes:

[21] Other receivables, accrued income and prepaid expenses. This balance includes:


VAT recoverable 20,370 27,735

Tax credits 6,273 6,021

Other tax receivables 943 1,767

Total 27,586 35,523


Other receivables:

- other 52,033 41,791

- receivables from holding and related companies 22,024 24,314

Total other receivables 74,057 66,105

Accrued income:

- other income 77 1,039

- rental income and operating leases 650 128

Total accrued income 727 1,167

Prepaid expenses:

- rental expense and operating leases 8,969 8,954

- other operating costs 1,289 1,836

- taxes and duties 992 1,165

- rental and hire costs 333 427

- Directors’ emoluments 304 -

- insurance policies 715 477

- advertising and sponsorships 665 903

Total prepaid expenses 13,267 13,762

Total 88,051 81,034

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Other receivables, which total Euro 74,057 thousand (Euro 66,105 thousand at December 31, 2006), mostly refer to:

- receivables from holding and related companies of which Euro 21,483 thousand due from Edizione Holding S.p.A. in relation

to the group tax election for Italian companies;

- Euro 17,186 thousand in receivables associated with the future establishment of a partnership serving the Group’s commercial

development in Iran;

- Euro 17,154 thousand in advances to various suppliers;

- Euro 2,622 thousand in receivables for fixed asset disposals;

- Euro 1,347 thousand in advances given to employees.

[22] Financial receivables

The differentials on forward exchange contracts include the time value component of derivatives hedging economic, transaction and

translation risks as detailed below:


Other current financial receivables and assets 10,049 13,427

Differentials on forward exchange contracts 7,876 24,254

Current financial receivables from third parties 1,363 2,793

Total 19,288 40,474


Economic exchange risk:

- fair value hedge 566 -

- cash flow hedge 2,087 1,764

Total economic exchange risk 2,653 1,764

Transaction exchange risk:

- fair value hedge 4,664 19,837

Translation exchange risk:

- cash flow hedge 559 2,653

Total 7,876 24,254

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132 133

Since the differentials arising from fair value hedges refer to hedging instruments, the change in their value is considered to be offset

against the change in the underlying hedged item.

The differentials relating to cash flow hedges refer to exchange rate risk management. The amounts recognized in the balance

sheet represent the effect of hedging highly probable transactions such as future sales and purchases in currencies other than

the Euro which will take place by the end of the following year. As a result, it is reasonable to believe that the related effect of

hedging deferred in shareholders’ equity in the “Fair value and hedging reserve” will be recognized in the statement of income

in the next year.

Differentials from transactions hedging translation exchange risk include the balance sheet recognition of hedges outstanding at year end

against net investments in foreign subsidiaries.

Details of the amount released by the Group from reserves to the statement of income can be found in the specific table included in the

section containing the financial statements.

[23] Cash and banks

The time deposits are liquid funds belonging to the finance companies and the Parent Company. Average interest rates reflect market

returns for the various currencies concerned. The amount of checks is the result of customer payments, received in the last few days

of the reporting year.

[24] Assets held for sale. This balance includes the following amounts, reported at the lower of net book value and fair value less costs

to sell:

- Euro 3,224 thousand in relation to the factory in Pedimonte that is no longer operating after commencing plans to restructure the textile

sector at the end of 2005;

- Euro 2,484 thousand for an aircraft owned by one of the Group’s Italian subsidiaries;

- the remainder for the value of fixed assets relating to the disposal of a retail business by an Italian subsidiary, completed in January 2008.


Bank and post office current accounts in Euro 37,914 40,670

Checks 75,790 60,992

Bank current accounts in other currencies 18,729 29,649

Time deposits - 47,994

Cash in hand 1,408 1,433

Total 133,841 180,738

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Movements in this balance over the year are as follows:

(thousands of Euro)

Balance at 01.01.2007 7,035

Assets sold (3,811)

Reclassification from property, plant and equipment 2,547

Balance at 12.31.2007 5,771

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Comments on the principal items in shareholders’ equity and liabilities

Shareholders’ equity [25] Shareholders’ equity attributable to the Group

The Shareholders’ Meeting of Benetton Group S.p.A. resolved on April 26, 2007 to pay a dividend of Euro 0.37 per share,

totaling Euro 67,590 thousand; this dividend was paid on May 4, 2007.

Changes in shareholders’ equity during the period are detailed in the statement of changes contained in the “Consolidated

financial statements” section.

[26] Share capital. The share capital of Benetton Group S.p.A. amounts to Euro 237,478,139.60 at December 31, 2007 and

consists of 182,675,492 shares with a par value of Euro 1.30 each.

[27] Fair value and hedging reserve. This reserve amounts to Euro (2,672) thousand at December 31, 2007, which is stated net

of Euro 1,001 thousand in related tax and reports the changes in the effective hedging component of derivatives measured

at fair value.

[28] Other reserves and retained earnings:

These reserves amount to Euro 941,780 thousand (Euro 893,570 thousand at December 31, 2006) and include:

- Euro 47,500 thousand relating to the Parent Company’s legal reserve;

- Euro 534,194 thousand relating to other reserves of the Parent Company (Euro 523,289 thousand at December 31, 2006);

- Euro 21,452 thousand relating to monetary revaluation reserves in compliance with Italian Law no. 72 of March 19, 1983,

and Law no. 413 of December 30, 1991, and, in the case of a Spanish subsidiary, in compliance with Royal Decree no. 2607/96;

- Euro 338,629 thousand representing the shareholders’ equity of consolidated companies in excess of their carrying value,

together with other consolidation adjustments;

- Euro 4,807 thousand relating to share-based payments, valued at fair value on the grant date, and recognized in the statement

of income on a straight-line basis with a matching increase in this reserve;

- Euro (4,802) thousand relating to translation differences arising from the line-by-line consolidation of the financial statements

of certain subsidiaries expressed in a foreign currency.

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The first of the schedules below is a reconciliation of the shareholders’ equity and net income reported in the separate financial

statements of Benetton Group S.p.A. with the corresponding consolidated amounts; the second lists the percentage of shareholders’

equity in consolidated subsidiaries attributable to minority shareholders.

Reconciliation of shareholders’ equity and net income of Benetton Group S.p.A. with the corresponding consolidated amounts

12.31.2007 12.31.2006 Shareholders’ Net Shareholders’ Net (thousands of Euro) equity income equity income

Per the separate financial statements of Benetton Group S.p.A. prepared under IFRS 987,245 79,950 974,891 78,785

Portion of shareholders’ equity and net income of consolidated subsidiaries attributable to the Group, net of the carrying value of the related investments 875,314 171,773 822,755 140,631

Reversal of gains on transfer of businesses, net of deferred tax assets (540,915) - (540,915) 4,073

Reversal of write-down of investments by the Parent Company 325 7,351 10,252 10,790

Reversal of dividends paid to the Parent Company by consolidated subsidiaries - (110,000) - (110,467)

Deferred taxes on profits/reserves distributable by subsidiaries (7,578) (2,509) (5,069) 560

Allocation to non-current assets of the amount by which purchase of consideration for subsidiaries exceeds their net asset value at the date acquisition and related depreciation and amortization 87,576 (2,441) 73,959 (2,653)

Reversal of intercompany profits/losses on transfers of property, plant and equipment, net of the related tax effect 837 1,134 (297) 701

Effect of applying finance lease accounting to leased assets, net of the related tax effect 12,091 550 11,541 1,816

Elimination of intercompany profits included in the inventories of consolidated subsidiaries, net of the related tax effect (14,531) 717 (15,245) 321

Valuation of put options held by minority shareholders (13,437) (617) (12,820) -

Adjustment to reflect the equity value of associated companies - - - (6)

Net effect of other consolidation entries 144 (578) (331) 363

Per the Group consolidated financial statements 1,387,071 145,330 1,318,721 124,914

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136 137

[29] Minority interests. The following consolidated companies have portions of their shareholders’ equity attributable to

minority shareholders:

Liabilities Non-current liabilities

[30] Medium/long-term loans. Medium/long-term loans granted by banks and other lenders are as follows (net of deferred loan

arrangement costs):

This balance mostly refers to three loans repayable by 2012 totaling Euro 400 million, of which Euro 150 million from Intesa Sanpaolo

S.p.A., Euro 150 million from UniCredit Banca d’Impresa S.p.A. and Euro 100 million from BNL S.p.A. (BNP Paribas group).

These loans carry interest of one, two, three or six-month Euribor plus a spread ranging between 20 and 50 basis points depending

on the ratio between net financial position and EBITDA, and call for compliance with two financial covenants, observance of which is

verified every six months on the basis of the consolidated financial statements, namely:

- a ratio of 4 or above between EBITDA and net financial expenses;


(in %) 12.31.2007 12.31.2006

Foreign consolidated companies:

- New Ben GmbH (Germany) 50 50

- Benetton Korea Inc. (Korea) 50 50

- Benetton Giyim Sanayi ve Ticaret A.S. (Turkey) 50 50

- Milano Report S.p.A. (Italy) 50 50

- Benlim Ltd. (Hong Kong) 50 -

- Shanghai Sisley Trading Co. Ltd. (China) 50 -


Loan from Intesa Sanpaolo S.p.A. 149,730 -

Loan from UniCredit Banca d’Impresa S.p.A. 149,730 -

Loan from BNL S.p.A. (BNP Paribas group) 99,821 -

Loan from Ministry of Industry, Italian Law no. 46/1982 221 290

Other loans 51 51

Total 399,553 341

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Non-current loans mature as follows (thousands of Euro):

[31] Other medium/long-term payables

“Other payables due to holding and related companies” at December 31, 2007 all refer to amounts owed to Ragione S.A.p.A. di

Gilberto Benetton e C. for current taxes calculated on taxable income, as required under the rules governing relationships between

companies participating in the group tax election; these liabilities are due for settlement in 2009.

“Other payables due to third parties” include the value attributed to the put options held by minority shareholders in subsidiary

companies.

[32] Lease financing. Payables due to leasing companies for finance leases are shown in the following table. The short-term portion

of lease financing is classified in the current liabilities section of the balance sheet.

Year 12.31.2007

2009 121

2010 74

2011 77

2012 399,281

2013 and beyond -

Total 399,553


Other payables due to holding and related companies 46,026 13,813

Other payables due to third parties 7,552 7,513

Guarantee deposits received 3,802 3,880

Non-current liabilities for the purchase of fixed assets 868 38

Total 58,248 25,244

Minimum lease payments Principal portion

(thousands of Euro) 12.31.2007 12.31.2006 12.31.2007 12.31.2006

Within 1 year 3,111 4,368 2,952 4,036

From 1 to 5 years 2,360 5,471 2,292 5,244

Beyond 5 years - - - -

Total 5,471 9,839 5,244 9,280

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138 139

Minimum lease payments due to the leasing company are reconciled to their present value (i.e. principal portion) as follows:

The Group has purchased mainly buildings and machinery using lease financing. The average length of lease contracts is approximately

eight years. The interest rates defined at the date of signing the contract are indexed to the three-month Euribor rate. All lease contracts

are denominated in Euro and repayable in equal installments, with no contractual provisions for any changes in the original repayment

plan. The fair value of finance leases taken out by the Group approximates the carrying amount.

Amounts due to lessors are secured by rights over the leased assets.

[33] Retirement benefit obligations. These refer to provisions for post-employment benefit plans relating to Group employees, of which

Euro 48,061 thousand relates to provisions for employee termination indemnities (TFR) reported by the Group’s Italian companies.

The actuarial valuations of TFR at December 31, 2007 reflect the revised rules introduced in Italy’s Finance Act for 2007 passed on

December 27, 2006, and subsequent decrees and regulations issued in the first few months of 2007. Under these amendments:

- TFR accruing from January 1, 2007, both in the case of opting for its payment into a supplementary pension scheme or into the Treasury

Account at INPS (Italy’s social security agency), is treated like payments into a defined contribution plan and accounted for accordingly;

- TFR accruing up to December 31, 2006 continues to be treated like a defined benefit plan and accounted for in accordance with the

provisions of IAS 19 for this type of plan. However, as a result of the revised rules for TFR accruing from 2007, it has been necessary

to carry out a new actuarial valuation in order to exclude the component relating to future salary increases. This recalculation entailed

recognizing Euro 1,419 thousand in income in the statement of income in June 2007. This amount has been deducted from the provision

for retirement benefit obligations for the period and consists of the curtailment effect, less the actuarial gains and losses previously

unrecognized as a result of using the corridor method.


Minimum lease payments 5,471 9,839

(Outstanding financial expenses) (227) (559)

Present value of lease financing 5,244 9,280

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Movements in these obligations over the year and the related reconciliation between the net liability and the obligation’s present value,

as calculated under IAS 19, are as follows:

The expense charged to the statement of income under the “corridor method” for defined benefit plans is detailed as follows:

The total amount of expenses relating to defined benefit plans is reported under payroll and related costs; it should be noted that there

are no assets servicing the defined benefit plans.

(thousands of Euro)

Balance at 01.01.2007 53,434

Unrecognized actuarial (gains)/losses (273)

Actuarial (gains)/losses recognized due to regulation changes 4,059

Curtailment 01.01.2007 due to regulation changes (5,478)

Present value of obligation at 01.01.2007 51,742

Expense charged to the statement of income 3,794

Actuarial (gains)/losses for the year (59)

Indemnities paid in the year (4,860)

Exchange differences and other changes (164)

Present value of obligation at 12.31.2007 50,453

Unrecognized actuarial (gains)/losses (331)

Balance at 12.31.2007 50,784


Actuarial (gains)/losses recognized due to regulation changes 4,059 -

Curtailment 01.01.2007 due to regulation changes (5,478) -

Current service cost 1,688 5,591

Financial expenses 2,120 2,340

Amortization of actuarial (gains)/losses (14) (27)

Past service cost - -

Total 2,375 7,904

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140 141

The principal assumptions adopted for the calculation are as follows:

[34] Other medium/long-term provisions and liabilities

This item relates to the liabilities and probable risks which the Group does not expect will be resolved by the end of 2008.

Since it operates in a number of sectors on a global scale, the Benetton Group has an inherent exposure to legal risks.

The areas of greatest current exposure relate to claims filed by former commercial partners, former employees, subcontractors,

and third parties with industrial property rights in potential conflict with products distributed by the Benetton Group or with similar

rights to those of the Group. There are also a few immaterial unresolved tax disputes.

During 2007 the provision for legal and tax risks was utilized to the extent of Euro 511 thousand and increased by Euro 1,010 thousand

for disputes arising in the year. The sum of Euro 67 thousand, provided in prior periods, was released to income during the year after

the related disputes were settled in the Group’s favor.

The provision for sales agent indemnities, which reflects the risk associated with the possible termination of agency agreements as

established by law, was utilized to the extent of Euro 2,703 thousand and increased by Euro 2,942 thousand during the year.

Other provisions relate to the costs the Group will probably have to incur for the closure of certain directly operated stores; these

provisions were utilized to the extent of Euro 130 thousand over the year. The sum of Euro 555 thousand, provided in prior years

against store closures, was released to income during 2007 after the related stores continued to stay open, meaning that the reason

for the original provision no longer existed.

12.31.2007 12.31.2006

Discount rate 1.7%-4.6% 4.3%

Inflation rate 2.0% 2.0%

Expected rate of salary increases 1.0%-3.0% 5%-3.5%

Provision for Provision for legal and sales agent Other (thousands of Euro) tax risks indemnities provisions Total

Balance at 01.01.2007 7,091 18,314 2,140 27,545

Additions to provisions 1,010 2,942 64 4,016

Releases to income (67) - (555) (622)

Utilizations and other changes (1,609) (2,703) (247) (4,559)

Balance at 12.31.2007 6,425 18,553 1,402 26,380

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Current liabilities

[35] Trade payables. These represent the Group’s liabilities for the purchase of goods and services amounting to Euro 385,401

thousand.

[36] Other payables, accrued expenses and deferred income

Payables for the purchase of fixed assets mostly refer to the commercial network, Information Technology and the manufacturing division.

“Other payables due to holding and related companies” entirely refer to amounts owed to Edizione Holding S.p.A. under the group

tax election.

Other payables due to employees refer to amounts accruing and not paid at the end of December.

“Other payables due to third parties” include non-trade related payables, amongst which: remuneration owed to Directors, the liability

representing the valuation of put options held by minority shareholders in Group subsidiaries, payables due to insurance companies

and current guarantee deposits received.


Other payables:

- payables for the purchase of fixed assets 36,301 25,992

- other payables due to holding and related companies 15,819 19,838

- other payables due to employees 19,103 19,056

- other payables due to third parties 11,210 9,389

- payables due to social security and welfare institutions 9,773 8,608

- other payables due to tax authorities 7,120 7,533

- VAT 2,319 5,561

Total other payables 101,645 95,977

Accrued expenses:

- lease installments 6,135 4,762

- other expenses 328 922

- consulting and other fees 141 42

Total accrued expenses 6,604 5,726

Deferred income:

- rental income 1,672 1,826

- revenue from concession of rights 537 637

- other income 713 48

Total deferred income 2,922 2,511

Total 111,171 104,214

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Payables due to social security and welfare institutions relate to amounts owed to these institutions by Group companies and

their employees.

[37] Current income tax liabilities. These represent the amount payable by the Group for current income tax, stated net of taxes

paid in advance, tax credits and withholding taxes.

[38] Other current provisions and liabilities

This item relates to the Group’s provisions against legal and tax disputes or potential liabilities that it expects to be resolved

or settled during 2008.

The provision for legal and tax risks mostly refers to legal disputes likely to be settled in the short term.

Other provisions mostly refer to the costs to be incurred by the Group in 2008 for the closure of certain stores.

The utilizations mostly relate to the payment of costs relating to a store in the United Kingdom.

[39] Current portion of lease financing. This reports the portion of lease financing which is due within one year to the lessor.

The reconciliation between the present value of this liability and the minimum lease payments is provided in the note relating

to its non-current portion.

Provision for legal and Other (thousands of Euro) tax risks provisions Total

Balance at 01.01.2007 2,626 2,258 4,884

Additions to provisions 1,416 76 1,492

Releases to income (309) (188) (497)

Utilizations and other changes (746) (1,842) (2,588)

Balance at 12.31.2007 2,987 304 3,291

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[40] Current portion of medium/long-term loans

The floating-rate syndicated loan for Euro 500 million has matured and was repaid on July 31, 2007. The amount was stated net of

deferred loan arrangement costs.

[41] Financial payables and bank loans


Syndicated loan for Euro 500 million, matured in July 2007, underwritten by a syndicate of banks, carrying floating-rate interest of six-month Euribor + 0.25% spread - 499,917

Loan granted by Medio Credito del Friuli repayable in half-yearly installments in 2007, carrying 2.5% annual interest and secured by a property mortgage - 240

Loan from Ministry of Industry, Italian Law no. 46/1982 68 65

Total 68 500,222


Financial payables due to banks 195,282 39,588

Negative differentials on forward exchange contracts 19,500 27,943

Other current financial liabilities 9,657 12,817

Financial payables due to third parties 470 1,565

Current account overdrafts 3,057 1,519

Total 227,966 83,432

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The negative differentials on forward exchange contracts include the time value component of derivatives hedging economic,

transaction and translation risks as detailed below:

Since the differentials arising from fair value hedges refer to hedging instruments, the change in their value is deemed to be offset

against the change in the underlying hedged item.

The differentials relating to cash flow hedges refer to exchange rate risk management. The amounts recognized in the balance sheet

represent the effect of hedging highly probable transactions such as future sales and purchases in currencies other than the Euro which

will take place by the end of the following year. As a result, it is reasonable to believe that the related effect of hedging deferred in

shareholders’ equity in the “Fair value and hedging reserve” will be recognized in the statement of income in the next year.

Differentials from transactions hedging translation exchange risk include the balance sheet recognition of hedges outstanding at year

end against net investments in foreign subsidiaries.

Details of the amount released by the Group from reserves to the statement of income can be found in the specific table included

in the section containing the financial statements.


Economic exchange risk:

- fair value hedge 1,877 676

- cash flow hedge 5,723 5,379

Total economic exchange risk 7,600 6,055

Transaction exchange risk:

- fair value hedge 11,891 21,334

Translation exchange risk:

- fair value hedge 9 -

- cash flow hedge - 554

Total translation exchange risk 9 554

Total 19,500 27,943

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Commentary on the cash flow statement Cash flow from operating activities before changes in working capital amounted to Euro 342,993 thousand in the year, compared with

Euro 257,467 thousand in 2006, reflecting the improvement in EBITDA to Euro 340,874 thousand.

Changes in working capital used Euro 95,535 thousand in cash flow, having provided Euro 28,253 thousand in cash flow in 2006,

and mostly reflect:

- an increase in trade receivables and inventories, associated, albeit less than proportionately, with the growth in sales volumes;

- a decrease in trade payables due to the higher proportion of goods purchased for resale and of transport costs with shorter-than-average

terms of payment.

It should also be noted that there was a considerable improvement in receivables collection during 2006, with the target level of

performance now almost achieved.

Operating activities provided Euro 195,591 thousand in cash flow compared with Euro 236,881 thousand in 2006.

Cash flow used by investing activities increased to Euro 229,532 thousand from Euro 216,007 thousand in 2006, mainly due to higher

operating investments in 2007. These investments mainly related to the commercial network, development of the production centers

in Istria (Croatia) and Tunisia and of the hub in Castrette di Villorba (Italy) and to information technology (introduction of SAP sales

management software and installation of SAP applications at foreign subsidiaries), as well as for the acquisition of an aircraft by Benair S.p.A.

Divestments in the year mostly related to the apparel segment and referred to disposals of retail businesses, and of manufacturing

plant and machinery.

Cash flow used by financing activities included the payment of Euro 67,590 thousand in dividends to the shareholders of Benetton

Group S.p.A., the payment of Euro 968 thousand in dividends to minority shareholders of subsidiary companies and the net change in

other sources of finance of Euro 54,201 thousand.

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Supplementary information

Financial position Net financial indebtedness amounted to Euro 474,555 thousand at the end of 2007, reporting an increase of Euro 105,954 thousand

since December 31, 2006, and is analyzed as follows:

Most of the balance reported in “Cash and banks” refers to ordinary current accounts and short-term or overnight bank deposits,

with Euro 75,790 thousand relating to checks received from customers at the end of December 2007.

Financial payables, bank loans and lease financing mostly consist of short-term payables due to the banking system: Euro 99 million

drawn down against uncommitted credit lines and Euro 100 million drawn down against the committed credit line of Euro 500 million

maturing in June 2010. This facility carries interest of one, two, three or six-month Euribor plus a spread ranging between 27.5 and 60

basis points depending on the ratio between net financial position and EBITDA, and calls for compliance with three financial covenants,

observance of which is verified every six months on the basis of the consolidated financial statements, namely:


(thousands of Euro) 12.31.2007 12.31.2006 Change

Cash and banks 133,841 180,738 (46,897)

A Liquid assets 133,841 180,738 (46,897)

B Current financial receivables 19,288 40,474 (21,186)

Current portion of indebtedness (68) (500,222) 500,154

Financial payables, bank loans and lease financing (230,918) (87,467) (143,451)

C Current financial indebtedness (230,986) (587,689) 356,703

D = A+B+C Current net financial indebtedness (77,857) (366,477) 288,620

E Non-current financial receivables 5,147 3,461 1,686

Bank loans (399,553) (341) (399,212)

Lease financing (2,292) (5,244) 2,952

F Non-current financial indebtedness (401,845) (5,585) (396,260)

G = E+F Non-current net financial indebtedness (396,698) (2,124) (394,574)

H = D+G Net financial indebtedness (474,555) (368,601) (105,954)

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- a ratio of 3.5 or less between net financial position and EBITDA;

- a ratio of 1 or less between net financial position and equity.

Bank loans mostly refer to three five-year loans totaling Euro 400 million, of which Euro 150 million from Intesa Sanpaolo S.p.A.,

Euro 150 million from UniCredit Banca d’Impresa S.p.A. and Euro 100 million from BNL S.p.A. (BNP Paribas group).

These loans carry interest of one, two, three or six-month Euribor plus a spread ranging between 20 and 50 basis points depending

on the ratio between net financial position and EBITDA, and call for compliance with two financial covenants, observance of which

is verified every six months on the basis of the consolidated financial statements, namely:



Both the committed credit facility of Euro 500 million and the three loans totaling Euro 400 million also carry other covenants by

Benetton Group S.p.A. and, in some cases, by other Group companies, that are typically used in international finance, amongst which:

a. negative pledge clauses, which require any existing or future secured guarantees over assets in relation to lending transactions, bonds

and other instruments of credit to be extended to the above transactions on an equal footing;

b. pari passu clauses, under which no obligations may be taken on that are senior to those assumed in the two transactions described

above;

c. periodic reporting obligations;

d. cross default clauses, which entitle the lender to demand immediate repayment of the sums lent in the event of certain types of default

by other financial instruments issued by the Group;

e. restrictions on major asset disposals;

f. other clauses generally found in transactions of this kind.

These covenants are nevertheless subject to several exceptions and restrictions.

There are no relationships of a financial nature with the tax group consolidating companies Edizione Holding S.p.A. and Ragione S.A.p.A.

di Gilberto Benetton e C.

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148 149

Segment information Segment results - 2007




Total revenues 1,957 225 41 (138) 2,085

Cost of sales 1,071 203 40 (138) 1,176

Gross operating profit 886 22 1 - 909


Contribution margin 747 14 1 1 763

General and operating expenses 511 8 - 1 520

- of which non-recurring expenses/(income) 4 - (1) - 3


Share of income of associated companies -

Financial expenses (30)

Foreign currency hedging losses and exchange differences (10)

Income before taxes 203

Income taxes 53

Net income for the year attributable to the Group and minority interests 150


Other non-monetary costs 7 - - - 7

Earnings before interest, taxes, depreciation, amortization and other non-monetary costs 321 18 2 - 341

Total assets 2,539 186 18 (52) 2,691

Total liabilities 1,224 102 4 (53) 1,277

Capital employed 1,794 83 14 (2) 1,889

Total gross operating investments 257 10 - - 267

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Other non-monetary costs consist of any net impairment losses recognized for property, plant and equipment and intangible assets as a

result of impairment testing and of the cost of stock options allocated to the apparel segment.




Total revenues 1,774 254 44 (161) 1,911

Cost of sales 993 230 41 (159) 1,105

Gross operating profit 781 24 3 (2) 806


Contribution margin 651 15 3 - 669

General and operating expenses 479 10 - - 489

- of which non-recurring expenses/(income) 1 - (2) - (1)


Share of income of associated companies -

Financial expenses (18)

Foreign currency hedging losses and exchange differences (3)

Income before taxes 159

Income taxes 31

Net income for the year attributable to the Group and minority interests 128


Other non-monetary costs 12 - - - 12

Earnings before interest, taxes, depreciation, amortization and other non-monetary costs 253 19 4 - 276

Total assets 2,407 194 20 (60) 2,561

Total liabilities 1,149 122 7 (58) 1,220

Capital employed 1,604 95 13 (2) 1,710

Total gross operating investments 188 - - - 188

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150 151

Apparel segment results

Textile segment results


Revenues from third parties 1,956 1,772 184 10.3

Inter-segment revenues 1 2 (1) 7.7

Total revenues 1,957 100.0 1,774 100.0 183 10.3

Cost of sales 1,071 54.7 993 56.0 78 7.8


Selling costs 139 7.1 130 7.3 9 7.2


General and operating expenses 511 26.1 479 27.0 32 6.7

- of which non-recurring expenses 4 0.2 1 0.1 3 n.s.




Inter-segment revenues 137 159 (22) (13.6)

Total revenues 225 100.0 254 100.0 (29) (11.2)

Cost of sales 203 90.1 230 90.5 (27) (11.5)


Selling costs 8 3.7 9 3.5 (1) (7.7)


General and operating expenses 8 3.7 10 4.1 (2) (19.4)

- of which non-recurring expenses/(income) - - - 0.1 - n.s.


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Other and unallocated segment results

The number of employees in each segment is detailed below:

Information by geographical areaRevenues by geographical area and business segment

Revenues are allocated according to the geographical area in which customers are located.



Inter-segment revenues - - - -

Total revenues 41 100.0 44 100.0 (3) (5.4)

Cost of sales 40 96.7 41 94.2 (1) (2.8)


Selling costs - 0.7 - 0.5 - 25.0


General and operating expenses - 0.2 - (1.1) - n.s.

- of which non-recurring income (1) (2.7) (2) (4.4) 1 (41.0)

Operating profit 1 2.4 3 6.4 (2) (64.0)

Period 12.31.2007 12.31.2006 average

Apparel 7,386 7,287 7,337

Textile 1,268 1,348 1,308

Other and unallocated 242 259 251

Total 8,896 8,894 8,896

Rest of The Rest of (millions of Euro) Italy % Europe % Americas % Asia % the world % Total

Apparel 920 90.9 767 96.7 50 99.0 210 96.2 9 76.6 1,956

Textile 56 5.5 26 3.3 - 1.0 3 1.6 3 23.4 88

Other and unallocated 36 3.6 - - - - 5 2.2 - - 41

Total revenues 2007 1,012 100.0 793 100.0 50 100.0 218 100.0 12 100.0 2,085

Total revenues 2006 915 694 63 231 8 1,911

Change 97 99 (13) (13) 4 174

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Balance sheet information by geographical area - 2007

Assets are reported according to the geographical location of the related legal entity.

Balance sheet information by geographical area - 2006

Assets are reported according to the geographical location of the related legal entity.

Rest of The Rest of (thousands of Euro) Italy Europe Americas Asia the world Total

Total assets 1,740,242 705,486 37,130 163,325 45,229 2,691,412

Gross operating investments 117,006 128,930 395 13,219 7,938 267,488

Rest of The Rest of (thousands of Euro) Italy Europe Americas Asia the world Total

Total assets 1,668,685 652,964 38,243 161,675 39,828 2,561,395

Gross operating investments 79,074 99,703 10,371 8,391 6,002 203,541

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Other information

Relations with the holding company, its subsidiaries and other related parties. The Group’s relations with related parties are

discussed more fully in the Directors’ report.

Non-recurring events and significant transactions. In accordance with the disclosures required by CONSOB Circular DEM/6064293

of July 28, 2006, it is reported that the impact on the statement of income of the Group’s non-recurring events and transactions has

resulted in net expenses of Euro 3,096 thousand in 2007 and net income of Euro 782 thousand in 2006 as reported below:


Non-recurring payroll and related costs - 2,108

- supplementary remuneration for departing key senior managers - 1,483

- expenses for canceling second tranche of stock option plan - 1,130

- income for stock options cancelled upon termination of employment - (505)

Other expenses and income 3,096 (2,890)

- non-recurring other operating expenses/(income) - (1,500)

- reimbursements and compensation payments - (1,500)

- non-recurring other expenses/(income) 3,096 (1,390)

- impairment of property, plant and equipment and intangible assets 8,470 13,632

- store early closure expenses - 2,484

- indemnity for early termination of a property lease 3,787 -

- redundancy incentives - 2,250

- losses on disposals of property, plant and equipment and intangible assets - 154

- reversal of impairment of property, plant and equipment and intangible assets (1,802) (3,503)

- gains on disposals of property, plant and equipment and intangible assets (7,359) (8,403)

- release of provisions for store early closure and disputes - (7,904)

- other income - (100)

Total non-recurring expenses/(income) 3,096 (782)

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Atypical and/or unusual transactions. As required by the CONSOB Circular dated July 28, 2006, the Group has

not undertaken any atypical and/or unusual transactions, meaning those whose significance/materiality, nature of the

counterparties, purpose, method of determining the transfer price and timing, might give rise to doubts as to:

the fairness/completeness of the information contained in the financial statements, conflicts of interest, the safekeeping

of assets and interests of minority shareholders.

Business combinations. Acquisitions of companies, carried out solely for the purpose of obtaining the ownership of properties,

are not treated like business combinations.

Earnings. The key figures used for calculating basic and diluted earnings per share are as follows:

Research costs. The research costs, incurred by the Group in 2007 for creating new collections, have been expensed in full to the

statement of income in the amount of Euro 30 million, compared with Euro 22 million in 2006.

Lease contracts. The Group has rented stores through its subsidiaries operating in different countries, usually under long-term lease

contracts, in accordance with local legislation and customs. Early termination is usually only allowed for breach of contract. In specific

cases local legislation also allows the tenant to rescind the contract early. The amount of rent is fixed but some contracts contain clauses

allowing it to be raised or terms requiring the payment of increasing rents, on top of an established minimum, upon the achievement

of predetermined sales volumes. The rental expense and income recognized in the statement of income in 2007 amount respectively

to Euro 144,626 thousand (of which the variable portion is Euro 7,618 thousand) and Euro 68,418 thousand (of which Euro

46,242 thousand relating to sublets).

(*) In thousands of Euro.

12.31.2007 12.31.2006

Earnings used for calculating basic earnings per share (*) 145,330 124,914

Dilutive effects of potential ordinary shares (*) - -

Earnings used for calculating diluted earnings per share (*) 145,330 124,914

Weighted average number of ordinary shares used for calculating basic earnings per share 182,675,492 181,868,467

Dilutive effects of potential ordinary shares: stock option plan 61,261 558,678

Weighted average number of ordinary shares used for calculating diluted earnings per share 182,736,753 182,427,145

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At the balance sheet date, the Group’s future rental payments under non-cancelable lease contracts are as follows in each of the

following periods:

At the balance sheet date, the Group’s future rental income under non-cancelable lease contracts is as follows in each of the following periods:

The total amount of future rental income includes Euro 247,306 thousand in income from properties sub-let to third parties.

Significant events following the close of the financial year. The delisting/deregistering of the Benetton stock from the New York Stock

Exchange became effective from January 21, 2008. As a result, the Company no longer has to comply with the reporting requirements relating

to the NYSE and SEC established by US law. All the documentation will continue to be published in English on the Company’s website.

The process of delisting from the Deutsche Börse in Frankfurt was started on February 21, 2008.

An agreement was made in New York on February 29, 2008 which redefines the Group’s relationship with its principal customer in the

United States and Canada. Under this agreement the management of 54 stores previously operated by this customer will be transferred

to Benetton USA Corp. This operation will not have any immediate significant effect on the statement of income for 2008.

Guarantees given, commitments and other contingent liabilities


Within 1 year 130,306

Between 1 and 5 years 432,279


Total 981,797


Within 1 year 60,667

Between 1 and 5 years 164,906


Total 272,003


Unsecured guarantees given:

- sureties 3,311

Commitments:

- purchase commitments 22,907

Total 26,218

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Other commitments and rights

Benetton Korea Inc. Benetton Korea Inc. is a Korean company, of which 50% is owned by Benetton Japan Co., Ltd. (a company indirectly

wholly-owned by Benetton Group S.p.A.), 25% by Mr. Chang Sue Kim (a natural person) and 25% by F & F Co., Ltd. (a Korean company).

The shareholder agreement gives Benetton a call option over the shares held by the two Korean shareholders. This option may be

exercised at any time because there is a mechanism for calculating the price which takes account of shareholders’ equity at the option

exercise date and a perpetuity calculated on the basis of average net income in the previous two years.

The likelihood of exercising this option is currently considered to be remote.

Benetton Giyim Sanayi ve Ticaret A.S. (Turkey). Benetton International S.A. owns 50% of the shares in Benetton Giyim Sanayi A.S. (Turkey).

The shareholder agreement gives Benetton a call option over the remaining 50% of the shares which may be exercised in the event of

strategic “deadlock” in its management or “breach” of contract. Likewise, Boyner Holding A.S., the other shareholder, has a put option

over its 50% shareholding.

The exercise prices of these options are calculated as follows:

- in the event of “deadlock”, Benetton shall pay a price for exercising its call option corresponding to the fair value of the shares plus a

margin of 20%. Likewise, if Boyner Holding A.S. exercises its put option, the price receivable would be the fair value less 20%;

- in the event of “breach”, the fair value of the shares shall be reduced by 30% for the party causing the breach.

Even though the likelihood of exercising these options is currently thought to be remote, Benetton has recognized a liability in respect

of the estimated cost of the put option given to the other shareholders.

Milano Report S.p.A. Benetton Retail Italia S.r.l. purchased 50% of the shares in Milano Report S.p.A. in August 2006. The shareholder

agreement gives Benetton a call option over the remaining 50% of the shares, which may be exercised only after three years have

elapsed from the date Benetton purchased its 50% and only in the event of “deadlock” over the company’s management. Likewise,

Smalg S.p.A., the other shareholder, has a put option over its 50% shareholding.

The exercise prices of these options are calculated as follows:

- in the event of “deadlock”, Benetton shall pay a price for exercising its call option corresponding to the fair value of the shares plus a

margin of 10% or 20% depending on the circumstances;

- likewise, if Smalg S.p.A. exercises its put option, the price receivable would be the fair value less 10 or 20%.

Even though the likelihood of exercising these options is currently thought to be remote, Benetton has recognized a liability in respect

of the estimated cost of the put option given to the other shareholders.

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Contingent liabilities

The Group has an estimated Euro 39 million in contingent liabilities associated with ongoing legal disputes. The Group does not

consider it necessary to make any provision against such liabilities because it believes the likelihood of any outlay to be remote.

The subsidiary Bencom S.r.l. has had a partial tax inspection in recent months by the Tax Police for tax years 2004-2005-2006 in relation

to IRES (Italian corporate income tax), IRAP (Italian regional business tax) and VAT. The related report, received on October 18, raises

issues regarding the alleged evasive nature of permanent establishments set up abroad upon the introduction of the “Tremonti” reform

and the partial deductibility of sponsorship costs paid to amateur sports associations. These matters correspond to an estimated

Euro 65 million in additional tax. The Company’s Board of Directors considers the matters raised to be unsubstantiated and so has

decided not to make any provision against tax contingencies, also on the strength of authoritative external professional advice.

In addition, the subsidiary Benind S.p.A. has been in dispute since April 2007 with the Italian customs authorities which could give

rise to a liability of approximately Euro 6.5 million, plus as yet unquantified penalties. The Board of Directors of Benind S.p.A. has just

made provision against the related legal costs, believing it unlikely that any sum will be paid in respect of this dispute, also based on the

opinion of a respected outside consultant.

158 159

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Certification of the consolidated financial statements pursuant to art. 81-ter of CONSOB Regulation no. 11971 of May 14, 1999 and subsequent amendments and additions

The undersigned Gerolamo Caccia Dominioni as “Chief Executive Officer” and Emilio Foà as “Manager responsible for preparing the

financial reports” of Benetton Group S.p.A. attest, also taking account of the provisions of paragraphs 3 and 4, art. 154-bis of Italian

Legislative Decree no. 58 of February 24, 1998, that the accounting and administrative processes for preparing the consolidated financial

statements during 2007:

- are adequate in relation to the enterprise’s characteristics and

- have been effectively applied.

The adequacy of the accounting and administrative processes for preparing the consolidated financial statements at December 31, 2007

has been evaluated on the basis of the Internal Control - Integrated Framework published by the Committee of Sponsoring

Organizations of the Treadway Commission which represents the internationally generally accepted standard model.

It is also certified that the consolidated financial statements:

a) correspond to the underlying accounting records and books of account;

b) prepared in accordance with the International Financial Reporting Standards adopted by the European Union and with the measures

implementing Italian Legislative Decree no. 38/2005, are, based on our knowledge, able to provide a true and fair view of the issuer’s

balance sheet, results of operations and financial position and of all the companies included in the consolidation.

March 19, 2008

Chief Executive Officer

Signed by Gerolamo Caccia Dominioni

Manager responsible for preparing the Company’s financial reports

Signed by Emilio Foà

160 161

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Auditors’ report in accordance with article 156 of law decree n° 58 dated 24 february 1998

To the Shareholders of

Benetton Group SpA

1 We have audited the consolidated financial statements of Benetton Group SpA and its subsidiaries (“Benetton Group”) as of

31 December 2007, which comprise the balance sheet, the income statement, statement of changes in equity, cash flow statement

and related notes. These consolidated financial statements are the responsibility of the directors of Benetton Group SpA.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

2 We conducted our audit in accordance with the auditing standards and criteria recommended by CONSOB. Those standards and

criteria require that we plan and perform the audit to obtain the necessary assurance about whether the consolidated financial statements

are free of material misstatement and, taken as a whole, are presented fairly. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles

used and significant estimates made by the directors. We believe that our audit provides a reasonable basis for our audit opinion.

For the opinion on the consolidated financial statements of the prior period, which are presented for comparative purposes as

required by law, reference is made to our report dated 26 March 2007.

3 In our opinion, the consolidated financial statements of Benetton Group SpA as of 31 December 2007 comply with International

Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of

Legislative Decree n° 38/2005; accordingly, they have been drawn up clearly and give a true and fair view of the financial position,

results of operations, changes in equity and cash flows of Benetton Group SpA for the year then ended.

Treviso, 28 March 2008

PricewaterhouseCoopers SpA

Signed by

Roberto Adami

(Partner)

(This report has been translated from the original which was issued in accordance with Italian legislation. References in this report to the

Financial Statements refer to the Financial Statements in original Italian and not to their translation.)

162 163

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Supplementary schedules

The following schedules contain information which is additional to that shown in the Explanatory notes to the consolidated financial

statements, of which they form an integral part.

The information contained in the following schedules comprises:

- companies and groups included in the consolidation at December 31, 2007;

- production facilities;

- commercial buildings and land;

- information required by article 149-duodecies of the CONSOB Regulations;

- exchange rate table.

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Companies and groups included in the consolidation at December 31, 2007

Share Group Company name Location Currency capital interest

Companies and groups consolidated on a line-by-line basis:

Parent Company

Benetton Group S.p.A. Ponzano Veneto (Tv) Eur 237,478,139.60

Italian subsidiaries

Benetton Retail Italia S.r.l. Ponzano Veneto (Tv) Eur 5,100,000 100.000%

Olimpias S.p.A. Ponzano Veneto (Tv) Eur 47,988,000 100.000%

- Benair S.p.A. Ponzano Veneto (Tv) Eur 1,548,000 100.000%

Benind S.p.A. Ponzano Veneto (Tv) Eur 26,000,000 100.000%

Fabrica S.p.A. Ponzano Veneto (Tv) Eur 4,128,000 100.000%

Società Investimenti e Gestioni Immobiliari (S.I.G.I.) S.r.l. Ponzano Veneto (Tv) Eur 36,150,000 100.000%

Bentec S.p.A. Ponzano Veneto (Tv) Eur 12,900,000 100.000%

Bencom S.r.l. Ponzano Veneto (Tv) Eur 150,000,000 100.000%

- Ponzano Children S.r.l. Ponzano Veneto (Tv) Eur 110,000 100.000%

- Milano Report S.p.A. Bergamo Eur 1,000,000 50.000%

Foreign subsidiaries

- Olimpias Tunisia S.à r.l. (3) Tunis Tnd 100,000 100.000%

- Benetton Realty Russia O.O.O. Moscow Rub 473,518,999 100.000%

- La Crémière S.A. (1) Genève Chf 120,000 100.000%

- Le Radar S.A. (1) Genève Chf 100,000 100.000%

Benetton Deutschland GmbH (1) München Eur 2,812,200 100.000%

Benetton Holding International N.V. S.A. Amsterdam Eur 92,759,000 100.000%

- Benetton International S.A. Luxembourg Eur 133,538,470 100.000%

- Benetton Ungheria Kft. Nagykálló Eur 89,190 100.000%

- Benetton India Pvt. Ltd. Gurgaon Inr 929,241,000 100.000%

- Benetton Tunisia S.à r.l. Sahline Tnd 303,900 100.000%

- Benetton Denmark A.p.S. Copenhagen Dkk 125,000 100.000%

- United Colors Communication S.A. Lugano Chf 1,000,000 100.000%

- Benetton International Emirates L.L.C. Dubai Aed 300,000 100.000%

- Benetton Austria GmbH (1) Salzburg Eur 3,270,278 100.000%

- Benetton Giyim Sanayi ve Ticaret A.S. Istanbul Try 7,000,000 50.000%

- Lairb Property Ltd. Dublin Eur 260,000 100.000%

- Benetton Manufacturing Holding N.V. Amsterdam Eur 225,000 100.000%

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- Benetton Retail Deutschland GmbH München Eur 2,000,000 100.000%

- New Ben GmbH Frankfurt am Main Eur 5,000,000 50.000%

- Benetton Trading Ungheria Kft. Nagykálló Huf 50,000,000 100.000%

- Benetton Retail (1988) Ltd. London Gbp 58,200,000 100.000%

- Benetton Retail Spain S.L. Barcelona Eur 10,180,300 100.000%

- Benetton 2 Retail Comércio de Produtos Têxteis S.A. Porto Eur 500,000 100.000%

- S.C. Benrom S.r.l. Miercurea Sibiului Ron 1,416,880 100.000%

- Benetton Istria D.O.O. Labin Hrk 66,389,400 100.000%

- Benetton Manufacturing Tunisia S.à r.l. Sahline Tnd 350,000 100.000%

- Benetton Commerciale Tunisie S.à r.l. Sousse Tnd 2,786,300 100.000%

- Benetton Croatia D.O.O. Osijek Hrk 2,000,000 100.000%

- Benetton Trading Taiwan Ltd. Taipei Twd 115,000,000 100.000%

- Benetton Trading USA Inc. Lawrenceville Usd 379,147,833 100.000%

- United Colors of Benetton Do Brasil Ltda. (2) Curitiba Brl 78,634,578 100.000%

- Benetton Japan Co., Ltd. Tokyo Jpy 400,000,000 100.000%

- Benetton Korea Inc. Seoul Krw 2,500,000,000 50.000%

- Benetton Retail Poland Sp. z o.o. Warsaw Pln 200,000 100.000%

- Benetton Asia Pacific Ltd. Hong Kong Hkd 41,400,000 100.000%

- Shanghai Benetton Trading Company Ltd. Shanghai Usd 1,500,000 100.000%

- Benlim Ltd. (2) Hong Kong Hkd 11,700,000 50.000%

- Shanghai Sisley Trading Co. Ltd. Shanghai Cny 10,000,000 50.000%

Benetton Realty France S.A. Paris Eur 94,900,125 100.000%

Benetton Australia Pty. Ltd. Hawthorne Aud 500,000 100.000%

Benetton USA Corp. Wilmington Usd 100,654,000 100.000%

Benetton International Property N.V. S.A. Amsterdam Eur 17,608,000 100.000%

- Benetton Real Estate International S.A. Luxembourg Eur 116,600,000 100.000%

- Real Estate Russia Z.A.O. St. Petersburg Rub 10,000 100.000%

- Benetton Real Estate Austria GmbH Wien Eur 2,500,000 100.000%

- Benetton Realty Portugal Imobiliaria S.A. Porto Eur 100,000 100.000%

- Real Estate Ukraine L.L.C. Kiev Usd 7,921 100.000%

- Benetton France S.à r.l. Paris Eur 99,495,712 100.000%

- Benetton France Commercial S.A.S. Paris Eur 10,000,000 100.000%

- Property Russia Z.A.O. Samara Rub 10,000 100.000%

- Benetton Real Estate Kazakhstan L.L.P. Almaty Kzt 62,920,000 100.000%

- Real Estate Latvia L.L.C. Riga Lvl 130,000 100.000%

- Benetton Real Estate Belgique S.A. Bruxelles Eur 14,500,000 100.000%

- Kazan Real Estate Z.A.O. Moscow Rub 10,000 100.000%

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(1) In liquidation. (2) Non-operative. (3) Recently established company. (4) Newly-acquired company. (5) At cost since fair value cannot be determined (unlisted companies).


- Kaliningrad Real Estate Z.A.O. (4) Kaliningrad Rub 10,000 100.000%

- Benetton Istanbul Real Estate Emlak Yatirim ve Insaat Ticaret Limited Sirketi (3) Istanbul Try 11,725,000 100.000%

- Benetton Realty Spain S.L. Barcelona Eur 15,270,450 100.000%

- Benetton Real Estate Spain S.L. Barcelona Eur 150,250 100.000%

Investments in subsidiary companies carried at cost (5)

- Benetton Mexicana S.A. de C.V. (3) Mexico City Mxn 1,080,000 100.000%

- Benetton Beograd D.O.O. (2) Beograd Eur 500 100.000%

- Benetton Argentina S.A. (1) Buenos Aires Ars 150,000 100.000%

- Benetton Realty Netherlands N.V. (2) Amsterdam Eur 45,000 100.000%

- Benetton International Kish Co. Ltd. (2) Kish Island Irr 100,000,000 100.000%

- Benetton Real Estate Azerbaijan L.L.C. Baku Usd 130,000 100.000%

- Benetton Real Estate CSH S.r.l. Chisinau Mdl 30,000 100.000%

Investments in associated companies valued using the equity method

Progetto Tre S.r.l. (3) Bologna Eur 60,000 50.000%

Consorzio Generazione Forme - Co.Ge.F. (1) S. Mauro Torinese (To) Eur 15,492 33.333%

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Production facilities The facilities in which the Group carries out its production activities are as follows:

Location Production facilities (Square metres) Core business/Production

Castrette, Italy 92,800 Wool dyeing and packaging

Prato, Italy 10,500 Wool spinning

Prato, Italy 8,300 Wool spinning

Caserta, Italy 14,500 Wool spinning

Valdagno, Italy 11,100 Wool spinning and dyeworks

Grumolo delle Abbadesse, Italy 17,800 Dyeworks

Travesio, Italy 20,500 Weaving factory

Piobesi Torinese, Italy 15,500 Dyeworks

Soave, Italy 18,800 Dyeworks

Ponzano Veneto, Italy 22,400 Laundry, dyeworks, weaving and production of fabrics

Follina, Italy 9,800 Dyeworks

Vittorio Veneto, Italy 6,500 Spinning works

Osijek, Croatia 17,000 Wool apparel, weaving, dyeworks

Labin, Croatia 7,000 Weaving factory

Navrangpur (Gurgaon), India 5,400 Cotton apparel

Sahline, Tunisia 9,400 Cotton apparel, laundry and dyeworks

Nagykálló, Hungary 26,600 Apparel, footwear and sports equipment

Sibiu, Romania 1,920 Quality control

Production facilities held for sale

Gorizia, Italy 20,400

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Commercial buildings and landThe net book value of commercial buildings in each country is as follows:

Information required by article 149-duodecies of the CONSOB RegulationsPricewaterhouseCoopers S.p.A. is responsible for auditing the Benetton Group’s financial statements until the year ended December 31,

2012. The fees incurred in the year for auditing and other services provided by this firm are summarized below:

Exchange rate tableThe principal exchange rates used at December 31, 2007 are listed below.

(1) Other services mostly refer to tax advice.

(thousands of Euro) 2007 Audit fees: - Benetton Group S.p.A. 45 - subsidiaries 1,338 Total audit fees 1,383 Other services (1): - subsidiaries 40 Total fees 1,423

Exchange rate Average exchange at 12.31.2007 rate in 2007 Gbp British Pound 0.73335 0.68431 Jpy Japanese Yen 164.93000 161.24382 Usd US Dollar 1.47210 1.37034 Hkd Hong Kong Dollar 11.48000 10.69030 Cny Chinese Renminbi 10.75240 10.41748 Inr Indian Rupee 58.02100 56.41658 Krw Korean Won 1,377.96000 1,272.88671 Rub Russian Rouble 35.98600 35.01719

(thousands of Euro) 12.31.2007 12.31.2006 Italy 142,658 138,576 East European and ex Soviet Union countries 128,146 84,012 France 113,016 116,527 Spain 65,459 65,936 Japan 27,907 29,506 Portugal 19,337 16,377 Belgium 18,574 18,906 Austria 16,038 16,235 Switzerland 2,290 2,336 Total 533,425 488,411

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Glossary

Style and operations

Benetton Baby. New product line devoted to maternity wear and children up to 5 years old.

Clean Sensuality Line. The Undercolors line for women seeking sensual but elegant underwear.

Collection structure. This refers to the composition of a collection in terms of its segments, which may differ in products, size, goals and

timing. Given the different characteristics and positioning of the Benetton brands, the collection structure may vary from brand to brand

and from collection to collection, in order to ensure the required flexibility for an optimal response to market requirements.

Color Project. This is an advanced system, one of the first in the world, able to guarantee scientifically that a certain shade is faithfully

reproduced on different types of fabric.

Commercial network. Benetton Group commercial network includes stores mainly managed by independent partners for the

distribution of Benetton products in 120 countries. The relationship with the partners consists in the sale of goods and the authorization

to use the brand name, free of charge, as signage in the stores.

Corner. Display area fitted out using a specific concept, developed to bring out a collection’s key features.

Evergreen collection. This is a collection consisting of a very select range of articles that clearly communicate the brand’s personality,

while defining its values and market positioning. Articles therefore remain in the collection for at least 18 months.

Replenishable on-line.

Fun Line. The Undercolors line for people seeking cheerful and ironic underwear.

Lead time. Time period from the collection of the orders to the products shipment.

Manufacturing delocalization. Benetton Group works throughout the world in the search for specific competencies and international

industrial districts in which to take its know-how, so as to guarantee the quality of products and the satisfaction of customers. As such,

manufacturing has evolved into a “network of skills”, which depends on the best industrial capabilities available in the international

marketplace.

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Mature markets. These are the areas in Continental Europe where the Benetton Group boasts a historic presence and where new

consumer segments can be reached thanks to growing diversification of the products offered by our brands.

Priority emerging markets. These are the five areas of priority growth identified by the Benetton Group as: India, Turkey,

Eastern Europe, Mexico and China.

Reassortments. Reassortments include replenishments of products included in the collection, mainly in terms of colors and sizes.

Sisley Limited Edition. A limited edition line for Men/Women featuring very refined materials and a high fashion content, distributed

in selected stores in the Sisley network.

Sisley Young. A brand dedicated to children aged 8 to 12 with a heavy emphasis on fashion.

Store Concept. A store where the consumer can experience the brand identity, thanks to a specific choice of materials, lighting and

fittings designed specially for the different brands (Twins for UCB, Pentagram for Sisley, Academy for Playlife, Gloss for Undercolors)

and particular types of merchandise (Accessories, UCB Man, Benetton Baby, Sisley Young).

Time to market. Time period from the idea and design of the products to the arrival on the market (delivery to stores).

Administration and finance

Business combination. The bringing together of separate entities or businesses into one for the purposes of financial reporting.

Capital employed. It is used to indicate the total resources employed and includes the following: working capital; property, plant and

equipment; intangible assets; assets held for sale; equity investments; and other assets and liabilities.

CGU. Acronym for Cash Generating Unit. This is the smallest identifiable group of company assets that generates cash inflows that are

independent of the cash inflows from other assets.

Dividend yield. Ratio between the last dividend per share paid and the price per share. This ratio is used as immediate expression of

the stock return. For Benetton Group dividend yield, see Key financial data - highlights, where the ratio is calculated as dividend paid

(referred to the previous year) and price at period end.

EBITDA. Acronym for Earnings Before Interest, Taxes, Depreciation and Amortization, EBITDA is a measurement of operating profit

before non-monetary items and is equal to operating income (EBIT) plus depreciation, amortization, and other non-monetary costs.

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EPS. Acronym for Earnings Per Share. The EPS indicates the ratio between net income/(loss) for the year and number of shares

outstanding.

EV. Acronym for Enterprise Value, value of the company: EV represents the sum between market capitalization and net financial

indebtedness.

EVA. Acronym for Economic Value Added. This performance indicator is calculated as a difference between NOPAT and average cost

of capital employed, which is intended as capital employed multiplied by WACC (Weighted Average Cost of Capital). EVA therefore

represents a measure of residual operating profitability, i.e. net of the return on capital employed.

Fair value. Fair value is the amount for which an asset could be exchanged, or a liability extinguished, in an arm’s length transaction

between knowledgeable, willing parties.

Free cash flow. This item on the cash flow statement represents the sum of cash flows generated by operating and investing activities.

Gross operating investments. Investments in intangible assets, property, plant, and equipment, excluding gains on the acquisition of

business combinations, which are allocated to intangible assets, property, plant, and equipment.

Gross operating profit. This item on the statement of income by function of cost is equal to revenues less materials and subcontracted

work, payroll and related costs, industrial depreciation and amortization, and other manufacturing costs.

IAS / IFRS. Acronyms for International Accounting Standards and International Financial Reporting Standards, respectively, adopted by

Benetton Group.

Impairment testing. The activity by which the Group determines whether there is, as of the closing date of each financial reporting period,

objective evidence that an asset has undergone a long-term loss in value, including a measurement of the asset’s recoverable value.

Net financial indebtedness. This balance sheet item summarizes the Group’s financial position and includes:

- financial liabilities: bank loans and overdrafts, bonds, short-term financial payables, medium/long-term loans (short and long-term

portions), lease financing (short and long-term portions);

- financial assets: cash and banks, securities, financial receivables (short and medium/long-term).

This item complies with recommendations by CESR (Committee of European Securities Regulators) and CONSOB (Italy’s securities

regulator).

NOPAT. Acronym for Net Operating Profit After Taxes.

This is calculated as operating profit less the tax that pertains to it.

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Pay out ratio. Ratio between dividends and net income/(loss) for the year which represents the percentage of net income distributed

to the shareholders as dividend.

Revenues. This statement of income item includes: sales of core products, miscellaneous sales, royalty income, and other revenues, less discounts.

ROE. Acronym for Return On Equity, which represents the ratio between net income/(loss) for the year and average shareholders’

equity. The ROE measures the return on shareholders’ equity after remunerating the other sources of capital and indicates the return

for the shareholders.

ROIC. Acronym for Return On Invested Capital, which represents the ratio between operating profit and average capital employed.

The ROIC measures the return on the capital employed to service both shareholders and creditors.

Total net investment/(divestment). Investments in and divestments of property, plant and equipment, intangible assets, equity

investments, and other net non-operating investments.

WACC. Acronym for Weighted Average Cost of Capital, WACC represents the average cost of the different sources of capital of the

company, both as debt and equity. WACC is commonly used as discount rate for the operating cash flow of a company and to calculate EVA.

Working capital. It is used to indicate the capital used in the company’s ordinary operations and includes trade receivables, inventories,

and the net of other receivables and payables, less trade payables.

Market

ADR. Acronym for American Depositary Receipt. The ADR is a negotiable certificate that represents ownership of shares in a non-US

company. In 1989 Benetton Group was listed on the New York Stock Exchange, NYSE, through a Level III Program. Each Benetton ADR

represents two Benetton ordinary shares.

On September 12, 2007 the Parent Company’s Board of Directors decided to request the voluntary delisting and deregistration of the

ADS quoted on the NYSE. The delisting/deregistering of the Benetton stock from the New York Stock Exchange came into effect on

January 21, 2008, as a result of which the company’s ADRs have been kept under a Level I program.

ADR - Level I Program. The Benetton Group’s ADRs continue to be traded on the Over-the-Counter (OTC) market.

CUSPID. Acronym for Committee on Uniform Securities and Identification Procedures, standards body which creates and maintains

a classification system for securities. The Cuspid is a nine-character number that uniquely identifies a particular security in the US.

Benetton Group ADR CUSPID is 081795403.

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Free float. Percentage of shares in a listed company that are freely available to the investing public, meaning they are not held by a

strategic reference shareholder.

In the case of Benetton Group, Edizione Holding S.p.A., a company entirely under the control of the Benetton family, is regarded

as the reference shareholder.

ISIN. Acronym for International Securities Identification Number, a unique international code which identifies a securities issue.

Each country has a national numbering agency which assigns ISIN numbers for securities in that country. Benetton ordinary shares ISIN

is IT0003106777.

Issuer or the Company or the Parent Company. Benetton Group S.p.A.

SEDOL. Acronym for Stock Exchange Daily Official List number, a code used by the London Stock Exchange to identify foreign stocks

(London Stock Exchange). Benetton Group ordinary shares Sedol is 7128563, while for Benetton Group ADR it is 2091671.

Corporate Governance

Board of Directors. Main governing body for the administration of a company. The functionality of the Board of Directors is disciplined

by the Statutory Report of the company itself.

The Board of Directors of Benetton is invested with the widest possible powers for the ordinary and extraordinary administration

of the Company. The Board of Directors can delegate its powers to one or more of the Directors who will exercise them, jointly or

severally, in conformity with decisions taken by the Board of Directors. The Board of Directors may also entrust part of its authority

to an Executive Committee made up of certain Board members.

Board of Statutory Auditors. Internal body of a company, which is responsible for the control of the company management activities.

The Statutory Auditors monitor the compliance of the other governing bodies, in particular the Board of Directors, with the law and the

statutory report. Benetton Board of Statutory Auditors consists of three standing members and two alternate members, who can be

re-appointed. The members remain in office for three financial years to the date of the Shareholders’ Meeting for the approval of the

latest financial year results.

Code. The Corporate Governance Code for listed companies approved in March 2006 by the Corporate Governance Committee

and promoted by Borsa Italiana S.p.A. (the Italian Stock Exchange).

Code of Ethics. Official document of the Company and its subsidiaries, directly or indirectly controlled. The Code contains a set of

principles according to which the Company conducts its activity and that of the parties who operate on its behalf.

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CONSOB Issuer Regulations. The Regulations for issuers, published by CONSOB (Italy’s Stock Exchange Commission) in its

resolution 11971/1999.

CONSOB Market Regulations. The Regulations for markets, issued by CONSOB in its resolution 16191/2007.

Corporate Governance. Set of rules and relations referring to the company administration, ownership structure and management

efficiency to reach the company targets.

Executive Committee. Governing body for the administration of a company.

Benetton Executive Committee was set up in 2003 to ease and quicken the decisional processes of the Group. One of the Executive

Committee’s tasks is to define, upon proposal by the Chief Executive Officer, company and group industrial and financial plans,

strategies, the annual budget and interim adjustments for subsequent submittal to the Board of Directors. The Executive Committee

also examines and approves particularly important investment and disinvestment plans, lines of credit facilities, the furnishing of

guarantees and analyses the chief problems connected with company performance, so that the Board of Directors can accomplish its

legal duties more efficiently.

Instructions accompanying the Stockmarket Regulations. The Instructions accompanying the Regulations of Markets organized and

managed by Borsa Italiana S.p.A.

Report. The Corporate Governance Report that companies are required to prepare under art. 124-bis of TUF, art. 89-bis of the

CONSOB Issuer Regulations and art. IA.2.6. of the Instructions accompanying the Stockmarket Regulations.

Stock option plan. Document which governs the award of stock options for the subscription of shares at a predetermined price

(exercise price) at or by a certain date (Vesting period).

In September 2004, Benetton Board of Directors, in application of the powers authorized by the Extraordinary Shareholders’ Meeting,

approved a capital increase to service a stock option plan for Benetton top management, subject to achievement of the objectives for

creation of accumulated value envisaged in the 2004-2007 Guidelines. In September 2006, the first tranche of options under the Plan

was allocated to management, while it was also agreed to cancel the second tranche.

Stockmarket Regulations. The Regulations of Markets organized and managed by Borsa Italiana S.p.A.

TUF. Italian Legislative Decree no. 58 of February 24, 1998 (Italy’s Consolidated Law on Finance).

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Corporate information

Headquarters


Villa Minelli

31050 Ponzano Veneto (Treviso) - Italy

Tel. +39 0422 519111

Legal data

Share capital: Euro 237,482,715.60 fully paid-in

R.E.A. (Register of Commerce) no. 84146

Tax ID/Treviso Company register: 00193320264

Media & communications department

E-mail: [email protected]

Tel. +39 0422 519036

Fax +39 0422 519930

Investor relations

E-mail: [email protected]

Tel. +39 0422 519412

Fax +39 0422 519740

www.benettongroup.com

Graphic design: Fabrica - Catena di Villorba (Treviso)

Photographies: Attilio Vianello, Francesco Minucci

Consultancy and coordination: Ergon Comunicazione (Milan/Rome)

Printing: Grafiche Tintoretto (Treviso - Italy)

Benetton Bilancio 2007 ENGL

Documents

Transcript of Benetton Bilancio 2007 ENGL