SUPPLY CHAIN PROFILE

Around 460 suppliers1 are engaged by Moncler in the manufacture of its products. They are grouped into four categories: raw materials, façon, finished products and services.

Raw material suppliers primarily provide fabrics, down, leathers, accessory components (buttons, zips, ribbons, elastics, etc.) and furs. Fabrics are sourced primarily from Japan and Italy. Suppliers of accessory components are almost exclusively Italian; furs are sourced primarily in Europe, while down is purchased from European and North American suppliers with supply chains in both Europe and Asia.

Façon manufacturers are specialist garment manufacturers with high technical know-how that receive from Moncler all the raw materials necessary and manufacture the final product. The production process is carefully monitored by Moncler experts, who check compliance with required standards through a strict methodology and weekly on-site inspections.

This process is applied to jackets, trousers, skirts, dresses and, starting from 2015, all knitwear. Most of these suppliers are located in Eastern Europe, where a long manufacturing tradition guarantees high technical expertise and a suitable production capacity.

As of August 31, 2015, Moncler acquired a small production unit located in Romania. This site marks the first phase of a project to partially integrate the production chain with the aim of creating a hub excellence in R&D for down jackets. Finished products suppliers manufacture products on behalf of Moncler on the basis of the technical design received,  sourcing the raw materials themselves on the basis of Moncler standards, with the exception of strategic materials such as down, nylon and logoed materials, which are provided directly by the Company. Throughout the manufacturing phase, the supplier cooperates constantly with Moncler experts, who supervise the entire process closely to ensure that the final product satisfies the high quality standards required.

Cut and sew products (T-shirts, polo shirts, fleeces), hats, scarves, gloves, footwear, handbags and small leather goods are generally produced in this way. Cut and sew products suppliers are vertically organised and located in Europe and Turkey. Soft accessories suppliers (hats, gloves and scarves) are instead largely Italian with a high level of specific know-how, while footwear and handbags are produced by European suppliers, mostly located in Italy.

Service suppliers assist Moncler in the pattern making and quality control processes and are mostly located near the Company itself. Where possible, the Group chooses to work with local suppliers situated near its main sites so as to benefit from logistics advantages and to generate income and jobs for the local communities where the Company operates.

Over the years Moncler has rationalised its supply chain and is progressively reducing the number of suppliers it works with in an effort to exercise greater control over supply and develop closer partnerships with those suppliers who share the values and expectations of the Group, also in terms of environmental and social standards.

The majority of our suppliers (93%) are located2 in EMEA, primarily in Italy.
Moncler diversifies its purchasing turnover across a number of partners so as to avoid dependency on suppliers, which would represent a business risk. In terms of concentration,

the 50 biggest suppliers of the Group account for 72.4% of the value of orders.
The Group is careful to identify on a timely basis any critical situation that could give rise to potential interruptions to supply and seeks to mitigate the effects accordingly.

NOTES

¹ Percentage calculated on the total number of suppliers.

² For façon manufacturers and finished products suppliers, geographic location is given by the Country of manufacture (“made in”) while for service and raw material suppliers the location is given by the Country in which the supplier’s head office is registered.

RESPONSIBLE SOURCING

At Moncler excellence means quality, style and elegance, but also a commitment to promoting respect for workers’ rights, animal welfare and the environment throughout the supply chain.

Moncler’s relationship with its suppliers goes beyond commercial aspects. It encompasses the continuous sharing of best practices, with a view to ensuring the responsible and sustainable growth of business in accordance with the principles of the Group’s Code of Ethics, which all partners are bound to uphold by contract1.

Moncler believes in the value of stable relationships built on trust and cooperation and seeks long-term relationships with suppliers that can

guarantee reliability in their manufacturing performance while at the same time endorsing the same values as the Group.

Moncler commissions regular audits to check compliance throughout the supply chain with applicable laws and the principles of the Code of Ethics. Audits are conducted by a qualified independent body of recognised experience, engaged by the Group to ensure maximum impartiality of judgement.

Social and ethical audits focus on fundamental human rights and workers’ rights, with particular emphasis placed on forced labour, child labour, freedom of association, working hours, minimum

wages and, last but not least, occupational health and safety.

The scope of audits and the suppliers and sub-contractors subjected to them are selected by the Internal Audit division on the basis of a risk analysis. The risk analysis takes into account various factors, such as the amount of orders placed with the supplier, the type of good or service provided and geographic location, as well as other parameters, including number of employees and plants and/or the use of sub- contractors and their geographic location.

In addition to this, Moncler is updating its own vendor rating system with the inclusion of new indicators which will also include sustainability issues. Each indicator will be weighted and will contribute towards the final evaluation of each individual supplier, based on scores achieved in the different areas.

The macro-areas of the vendor rating system are:

• Risk (country risk, financial risk, number of sub-contractors, etc.);

• Service (technological capacity, innovation, timely delivery, etc.);

• Quality (defect rate in manufacturing, quality grievances reported to client service, etc.);
• Costs (competitiveness of prices, logistics costs, etc.);
• Ethics (working conditions, environmental practices, animal welfare, etc.).

In 2015 a total of 45 social and ethical audits were conducted, covering approximately 26% of Moncler’s total value of orders. Another 120 audits were also conducted on animal welfare in the down supply chain.

The social audits found one case of improper management of temporary workers of foreign origin. Such conduct is considered unacceptable by Moncler and accordingly the supply agreement in place with the supplier was promptly terminated.

Moncler has a policy of “zero tolerance” of any major compliance breach. Nevertheless, the Group is committed to raising awareness throughout its supply chain and steering continuous improvement in suppliers by requiring the implementation of corrective actions where found necessary. In 2015 the main

areas of non-compliance were related to aspects linked to the formalisation of employment contracts and aspects of occupational health and safety.

Building on the progress already made, Moncler is committed to continuing to expand its social and ethical audit programme to include environmental audits. The three-year audit plan aims to achieve an 80% coverage of the value of orders, added to which is a programme to certify down suppliers according to the DIST Protocol, which envisages audits of the entire down supply chain.

Another step forward will be made in 2016 in fostering greater responsibility in the Group’s business partners with the distribution of a Supplier Code of Conduct and a related operating manual, designed to help steer Moncler’s

partners in achieving compliance in their operations.

The Supplier Code of Conduct takes inspiration from the Universal Declaration of Human Rights and the main conventions sponsored by the ILO and sets forth the mandatory requirements to become or continue as a supplier of the Moncler Group. Issues addressed include the formalisation and management of employment contracts, wage levels and working hours, freedom of association, employee training, a ban on child and forced labour, equal opportunities, environmental and occupational health and safety standards, animal welfare, product safety and the safety of materials supplied and ethical business management.

SUPPLIER ENGAGEMENT AND DIALOGUE

Supplier relations are a strategic issue for Moncler.
As such, constant channels of communication and interaction are essential to promoting profitable collaboration and mutually advantageous relationships.
Supplier engagement is encouraged through regular insti- tutional meetings but also on a daily basis through contacts with Moncler experts and inspectors, tasked with overseeing the various activities involved in production.
Moncler’s experts provide specialist support in all stages of production processes in order to transfer technical know-how and resolve any critical issues.

With a view to promoting mutual knowledge, consolidating its relationship with its supply chain, discussing contractual and operational issues and

involve partners in the sustainability objectives that the Company has set itself and is implementing, in 2015 Moncler organised two meetings with domestic and international suppliers representing the various supply categories.

A total of 45 suppliers involved in the production of jackets and in the provision of raw materials (fabrics, accessory components, furs and down) were invited to the encounters, representing 67% and 63% respectively of the value of Group orders in the categories of reference. The various issues addressed in the first meeting included an analysis of sub-contracting agreements, an illustration of the initiatives pursued by Moncler to protect the brand, a presentation of the findings of ethical, social and brand

protection audits conducted in 2014 and the quality, service and product safety objectives that Moncler intends to pursue together with its production partners. The second meeting instead focused on key aspects of the General Conditions of Purchase, an in- depth look at the principles set forth in the Code of Ethics and the provisions of the Organisation, Management and Control Model as per Italian Legislative Decree 231/2001 and an overview of the initiatives and outcomes of the Group’s efforts to combat counterfeiting.

It was also explained to suppliers why Moncler had decided to introduce an audit process: because it is an opportunity for mutual understanding, constructive dialogue and continuous growth and improvement towards excellence.