1H2010. BasicNet Group continued enhancing the value sector-performance.

•   Licensee Aggregate Sales: Euro 175 million (or +15%)
•   Royalty income and sourcing commissions: Euro 15.3 million (or +24%)
•   25 new sales outlets flying Group banners unveiled in Italy
•   Aggregate sales honed impressive growth across the Asian market
•   BasicNet listing performance delivered outstanding growth, or +44.5%, as from year onset
Operational and financial highlights of your Group's performance for the period include :

Turin, July 30, 2010 – As called to meet at the date hereof under the chairmanship of Marco Boglione, the Board of Directors of BasicNet S.p.A. approved the Interim Financial Report 2010 for the six months ended June 30, 2010.

Continuing to gain superior headway over the last six months were aggregate sales (+15%) and direct sales revenue (+10%), reflecting the resilience of our business even in these challenging times. Taking shape at the macroeconomic level throughout 1Q2010 were additional elements of adversity. In lockstep with the imbalances amassed in the public sector balance sheets by many Euroland economies, the negative sentiment and speculative stress exerted on the European single-currency spiked turmoil across the FOREX markets, placing in evidence, over the course of May 2010, the latest surge led by demand for EUR/USD which has now broken to yet another fresh multi-day day high of some 12% (so should be read the impact under “FOREX gains/(losses).

Against this backdrop, the BasicNet Business Model, organized around licensing, worked toward mitigating the latest round of setbacks and, not least, to building up an impressive increase in royalty income and sourcing commissions, which grew 24% from the year-earlier period to reach Euro 15.3 million.

Looking at directly-managed commercial activities, a strategically astute thrust has been exerted in terms of pricing in a clear intent to seize growth opportunities as they arise. Although having to relinquish some direct sales marginality, all of this paved the way to capturing all-new market shares. As mentioned earlier, also affecting marginality on direct sales was the stronger stance taken by the U.S. dollar, the currency in which most of our goods and merchandise are purchased and, not least, the sizeable increase in raw material prices, particularly rubber, cotton and wool prices, across the international marketplace.

Gaining headway (+6% from 1H2009) was capital investment toward communication. Indeed, strategically acute commercial development initiatives have been intensified, whether through meaningful sponsorship arrangements across the international plateau, such as, just to mention a few, sponsorship of the Virgin Formula 1 Racing Team, the British team competing for the time in the Formula 1 World Race 2010, sponsorship of Borussia Dortmund, one of the leading teams of Germany’s Bundesliga football league, and sponsorship of F.C. Valencia Club de Futbol in Spain, or a more powerful advertising thrust exerted through leading press dailies and weeklies in lockstep with billboard advertising campaigns across the homeland.

EBITDA at June 31, 2010 was Euro 15.3 million, or 1% more than the year-earlier period. Albeit having absorbed greater depreciation as a result of the capital investment ploughed into the programmed unveiling of bolt-on shops and stores flying the Group banner across the homeland, EBIT at June 30, 2010 was Euro 12 million, or unchanged from the year-earlier period. 

In order to ensure an immediate grasp of the movement for the period on the net result delivered at June 30, 2010, the following chart portrays the FOREX route followed by the EUR/USD over the last six months, as presented on a comparative basis with the year-earlier period. Looking at the chart, we can see that the U.S. dollar came back with a fury to the upside in May 2010, regaining footing against the Greenback bullish downside in May 2009, with a break back above 12% on a comparative basis with the year-earlier period.

 

In aggregate, foreign exchange differences culminated into a Euro 1.4 million foreign exchange loss, with regard to June 30, 2009, affecting the Net Result for the period, which, at June 30, 2010, stands at Euro 6.8 million (June 30, 2009: Euro 8.1 million).

Taken as a whole, Group net financial indebtedness, comprising medium-term financing and finance leases, moved from Euro 59.3 million at December 31, 2009 to Euro 69.5 million at June 30, 2010, reflecting an increase of Euro 10.2 million. Looking back to the year before, Group net financial indebtedness at June 30, 2009 amounted to Euro 69.5 million, all of which after the dividend pay-outs made over the period (i.e. in June 2009 for an amount totaling Euro 9.7 million), the current portion of long-term loans repaid (Euro 2.7 million), the capital investment ploughed into fixed assets (Euro 5.8 million) and the 8% revenue growth financed over the period. The Debt/Equity ratio places in evidence a balanced stance, all of which in full compliance with the covenants contemplated by certain loan facility agreements.

At the consolidated balance sheet level (Statement of financial position), current assets reflect, on a comparative basis with December 31, 2009, an increase in receivables (Euro 8.7 million), driven through by upbeat commercial activities, and an increase in inventory (Euro 11.7 million), whether due to procurement requirements spiked by recently unveiled shops and stores or bolt-on merchandise-in-transit earmarked for shipping to customers in successive months. Currently in place with respect to the latter aggregate are step-actions designed toward fine-tuning the inventory cycle vis-à-vis consignment seasonal bias.

Non-current liabilities moved downward by way of attendant consequence of the loans and financing repaid over the period, whilst current liabilities increased from December 31, 2009, substantially as a result of the upward route followed by supplier payables (Euro 12.5 million), current bank borrowings (Euro 11.6 million) and income tax provisioned.
Moving upward some Euro 5.8 million was capital investment ploughed toward enhancing the value of strategic activities.

BUSINESS DEVELOPMENT
Bolt-on trademark development was secured by renewing existent trademark license agreements and sealing all-new license agreements in a strategic intent to expand territorial reach into other geographies:

•   looking at the Kappa® and Robe di Kappa® trademarks, license agreements have been renewed in respect of the Hong Kong, Argentina and Paraguay territories, whilst all-new license agreements have been sealed for the Slovakia, Taiwan, South Korea, Singapore, Malaysia, Indonesia and Vietnam territories;
•   looking at the Superga® trademark, understandings have been reached in respect of all-new commercial license agreements for South Korea and Thailand, and in respect of the distribution of underwear and sleepwear for the Italian territory;
•   looking at the K-Way® trademark, an all-new three-year license agreement has been sealed in respect of Japan.

Priming direct market footprint at the level of franchised sales outlets operating under the Group banners across the homeland were twenty-five all-new shops and stores unveiled in the review. In consequence, the shops and stores open for business across the homeland at June 30, 2010 totaled 168 in number.

In February 2010, IntesaSanpaolo S.p.A. and BasicItalia S.p.A. reached an arrangement under which significant finance facilities may be accessed to start up franchised sales outlets operating under the Group banners, thereby encouraging franchised business start-ups and creating employment opportunities.

Carried forward over the last six months was a communication thrust focused around billboard and press advertising campaigns. In addition thereto, the review period witnessed the Group renewing, through its Licensee BasicItalia S.p.A., the sponsorship arrangements contracted with the Football Clubs U.C. Sampdoria and A.S. Rome and for three and seven football seasons, respectively.

Inked in April 2010 were arrangements to sponsor under the K-Way® brand identity the development of an innovative vehicle that combines research, eco-sustainability and safety. Developed by Turin Polytechnic, the innovative vehicle, known as the K-Way Motus, is a result of collaboration between two specialist firms and the Italian design house, Giugiaro Design. Showcased from 13th April at the Sea World Congress in Detroit, the K-Way Motus will be in the running for showcasing next September at the Progressive Automotive X Prize.

In January 2010, AnziBesson Trademark S.r.l., an entity priding itself on title ownership to the AnziBesson® brand, was incorporated, in exchange for Euro 168 thousand, with clear focus steered toward relaunching and enhancing the value of that historic brand, widely regarded as one of the market leaders in skiwear. As global and exclusive trademark licensee, BasicNet S.p.A. will make available its business model and its extensive knowledge of pioneered applications, just as it did in the past for more recently acquired brands, i.e. Superga® e K-Way®.

By way of ensuring strategically acute operational management of the activities arising from the BasicNet Retail Project, seeing incorporation through BasicItalia S.p.A. were BasicOutlet S.r.l. and AlloSpaccio S.r.l., the declared strategic intent of which is to manage and operate directly the Outlets and the Spacci (factory shop outlets) operating under the Group banners.   

BasicOutlet entered into operation as a result of acquiring six outlets at the shopping centers located at Valmontone (Rome), Vicolungo (Novara), Casteguelfo (Bologna), Franciacorta (Brescia), Molfetta (Bari) and Foiano della Chiana (Arezzo), respectively.

Yet again through BasicItalia S.p.A., April 2010 bears witness to the incorporation of BasicCRS S.r.l., an entity providing all those services associated with Group branded product sales and aftermarket sales.

BASICNET LISTING
Going against the tide followed by the All-Share stock exchange index (down 16%), the BasicNet listing performance from January 1, 2010 through June 30, 2010 carved out upward trending and culminated into a 44.5% uplift.

TREASURY SHARES
At June 30, 2010, BasicNet held 2,122,000 treasury shares, or 3.479% of share capital, representing an aggregate capital investment of some Euro 3 million. At June 30, 2010, the shares in portfolio place in evidence the stock exchange quotation struck was Euro 6 million.

On April 30, 2010, the Annual General Meeting (AGM) passed resolution, by way of ordinary resolution, authorizing the acquisition, on one or more occasions, of up to 3,000,000 ordinary shares, for an aggregate amount not in excess of Euro 5,000,000. As from May 3, 2010, i.e. the date on which the programmed purchases of treasury shares authorized at the AGM takes effect, no treasury share purchases have been made.
 

SIGNIFICANT POST-BALANCE SHEET EVENTS
BUSINESS OUTLOOK FOR THE REST OF THE YEAR
Unveiled across the homeland in the course of July 2010 were three RDK® single-brand stores, thereby bringing the total number of sales outlets to 171. Scheduled to be unveiled by year-end 2010 are 30 more new shops and stores.

In 2H2010, the Group will be committed to seeking out new licensing opportunities across the international landscape and, not least, fine-tuning the production and commercial licensee network.  Remaining a key priority of the subsidiary BasicItalia S.p.A. will be a strategic thrust toward building up the network of stores operating under the Group banner.

Looking at communication, seeing renewal or onset by a number of Group Licensees were sponsorship arrangements representing a form of investment in sports disciplines or teams or international fame and prestige such as the Fulham Football Club and the Portsmouth Football Club in England, the Real Valladolid Club de Fútbol in Spain, the Racing Metro Parisian Rugby Team and, not least, the Les Voiles de Saint Tropez sailing event in France.

Notwithstanding the headway gained by commercial performance throughout 1H2010, ubiquitously uncertain global economic fundamentals and weak consumption, coupled with exchange rate wild gyrations and raw material costs hostage to increases, it remains virtually impossible to predict what route will be taken by the key financial performance indicators, even though the overall backdrop remains positive in tone.

Managing Director Franco Spalla comments: “The flexibility of the BasicNet Business Model has enabled us to gain a bolder market foothold around the globe notwithstanding an ubiquitously opaque recovery in demand and exchange rate gyrations coming back with such a fury as to culminate into an abrupt depreciation of the Euro against the U.S. dollar. In 2H2010, we will continue to be committed to consolidating our market footprint across the homeland and across the international landscape, steering a keen eye toward evolving economic fundamentals across the marketplace, whether in terms of consumer confidence, foreign exchange fluctuations or raw material price increases�.

Defined below are the financial key performance indicators as adopted herein:

Direct Turnover: Consolidated direct sales plus royalty income and sourcing commissions on purchases
EBITDA: Operating margin before depreciation and amortization
EBIT: Operating margin
Cash Flow: Net income plus depreciation and amortization

Paolo Cafasso, the Officer entrusted with responsibility to draw up the financial statement schedules, hereby confirms, pursuant to Article 154-bis, paragraph two, of the Financial Act, that the accounting disclosures presented herein agree with the underlying accounting records and ledgers.

Set forth as an attachment hereto are the financial statement schedules.