MONCLER ANNUAL REPORT AT 31 DECEMBER 2020BOARD OF DIRECTORS REPORT 5958

with labour and environmental laws and with the principles of Moncler s Code of Ethics and Code of Conduct for Suppliers. Moncler performs audits at these third-party manufacturers and at their sub-suppliers verifying also the compliance with dedicated health measures within the plants given the Covid- 19 pandemic. The risk cannot be excluded, however, that any one of these might not fully comply with the agreements entered into with Moncler in terms of quality, timely delivery and compliance with applicable regulations.

RISKS ASSOCIATED WITH THE DISTRIBUTION NETWORK

Moncler generates an increasing portion of its revenues through the retail channel, consisting of directly operated mono-brand stores (DOS). The Group has over the years demonstrated the ability to open new stores in the most prestigious locations in the most important cities in the world and within high profile department stores, despite competition among key players in the luxury goods sector to secure a strong position in that sector. This is the reason why the fact that the Group might face difficulties in opening new stores, which could have a negative impact on the growth of the business, should not be excluded.

In addition, by its nature, the retail business is characterised by a great incidence of fixed costs, mainly related to rental agreements. Although Moncler s management showed the ability in the years to develop a profitable retail business, it cannot be excluded that a potential turnover slowdown could reduce the Group s capability to generate profits.

In the Covid-19 span, Moncler has negotiated temporary store rents reductions with the main landlords with which it has business relationships.

RISKS RELATED TO BRAND AND PRODUCT COUNTERFEITING AND THE PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

The luxury goods market is known to be characterised by brand s and product s counterfeiting.

Moncler has made considerable investments in the adoption of innovative technologies, which allow products to be tracked along the value chain, to prevent and mitigate the effects of counterfeiting of its brand and products and to protect its intellectual property rights in the territories in which it operates. However, it cannot be excluded that the presence on the market of significant quantities of counterfeit products may adversely affect the image of the Brand, with a negative impact on sales and operating results.

RISKS RELATED TO THE EVOLUTION OF THE REGULATORY FRAMEWORK

Moncler operates in a complex international environment and is subject, in the various jurisdictions in which it operates,

to rules and regulations which are constantly monitored, especially for all matters relating to the health and safety of workers, environmental protection, rules around manufactur- ing of products and their composition, consumer protection, the protection of intellectual and industrial property rights, competition rules, fiscal and customs rules, and, in general, all relevant regulatory provisions.

The Group operates following the legal provisions in force and has established processes that guarantee knowledge of the specific local regulations where it operates and of the regulatory amendments that gradually take place. Nevertheless, since the legislation on some matters, especially on tax issues, is characterised by a high degree of complexity and subjectivity, it cannot be excluded that a different interpretation to that of the Group could have a significant impact on the results. In this regard, Moncler is engaged in a program for the definition of preventive agreements (Advance Pricing Agreements) with the Tax Authorities of the main countries in which the Group operates.

The enactment of new legislation or amendments to existing laws which may require, by way of example the adoption of more stringent production standards, could lead to costs of compliance linked to the production processes or to the features of the products, or could even limit the Group s operations with a negative impact on the financial results.

EXCHANGE RATE RISKS

Moncler operates in international markets using currencies other than the Euro, of which mainly Yen, U.S. Dollar, Renminbi, Hong Kong Dollar, Korean Yuan and British pound. Therefore, it is exposed to the risk associated with fluctuations in exchange rates, equal to the transaction amount (mainly income) which are not covered by a matching transaction of the same currency. The Group has implemented a strategy to gradually hedge the risks related to exchange rate fluctuations, limiting its actions to the so called transactional risk , and has adopted a stringent policy on currency risk that sets the minimum limit of coverage per currency at 75%.

However, also due to the so called translational risk , arising from the translation in Euro of financial statements of foreign companies denominated in local currency, it cannot be excluded that significant changes in exchange rates could have a positive or negative impact on the Group s results and financial position. For more information, please refer to the specific section 9.1 of the Notes to the Financial Statements.

INTEREST RATE RISKS

The Group has no significant financial agreements active by third parties as it is fully capable of self-financing. However, the Group may make use of loans from third parties, specif- ically bank loans; in case it should choose to resort to such loans, it would be subject to the risk of interest rate risk revision. The Group, in order to partially hedge the interest rate risk, has entered into some hedging transactions.

However, any significant fluctuations in interest rates

could lead to an increase in borrowing costs, with a negative impact on the Group s financial results. For more information, please refer to the specific section of the Notes to the Financial Statements 9.1.

CREDIT RISK

Moncler operates in accordance with the credit control policies aimed at reducing the risks resulting from insolvency of its wholesale customers. These policies are based on preliminary in-depth analysis of the reliability of the customers and based on eventual insurance coverage and/or guaranteed form of payment. In addition, the Group has no significant concentrations of credit.

However, it cannot be excluded that the difficulty of some clients may result in losses on receivables, with a negative impact on the Group s financial results. Moncler monitors and manages with particular attention its exposure with wholesale customers with significant orders, also by requesting and obtaining bank guarantees and money deposits in advance of shipments. For more information, please refer to the section 9.2 of the Notes to the Financial Statements.

LIQUIDITY RISK

The Group has implemented financial planning process aimed at reducing the liquidity risk, also taking into consideration the seasonality of the business. Based upon the financial requirements, credit lines required to meet those needs are planned with the financial institutions and are classified between short-term and long-term.

Moreover, given the risk of losing the capital, the Group follows strict rules to balance its deposits and cash liquidity in an appropriate number of highly rated bank institutions, avoiding the concentration and using only risk-free financial products. For more information, please refer to the section 9.3 of the Notes to the Financial Statements.

CYBER RISKS

The sector s rapid technological evolution and the growing organisational and technological complexity of the Group s activities expose the Company to the potential risk of cyber-attacks.

In relation to this, Moncler has adopted a governance structure and cyber risk management model based on international standards, which includes procedures, training, assessment and periodic risk reviews. These have led to the adoption of the best technology available, to the co-working with the best partners to strengthen the protection of the Company perimeter, to the control of third parties that interact with Moncler systems, also with new contractual provisions, in order to guarantee solid business continuity tools and processes. In addition, a penetration test plan is in place, supported by specialised technicians, which identifies any necessary improvements of corporate IT security.

RISKS RELATED TO DEVELOPMENT AND INTEGRATION WITH STONE ISLAND (SPORTSWEAR COMPANY S.P.A.)

In December 2020 Moncler S.p.A. and Sportswear Company S.p.A. (owner of the Stone Island brand) signed an agreement under which Stone Island will join Moncler.

While awaiting the deal to be closed within the first half of 2021, the two Companies have begun to coordinate operations. In that integration process, Moncler and Stone Island bring together their entrepreneurial and managerial cultures while fully respecting each Brand s identity and autonomy. The process is taking place under the guidance of a Strategic Committee and a Integration Committee, made up of the two Companies senior management.

Although both parties are sensitive to the other s culture and their focus is on mutual priorities, because of the complexity and delicacy of the integration process, it cannot be excluded that delays will occur, or predetermined strategies will be adjusted along the way.