F I L A Fabbrica Italiana Lapis ed Affini S p A : FILA Group FY2023 Annual Report

(Translation from the Italian original which remains the definitive version)

F.I.L.A. GROUP 2023 ANNUAL REPORT

F.I.L.A. S.p.A. 2023 ANNUAL REPORT

F.I.L.A. - Fabbrica Italiana Lapis ed Affini S.p.A.

Via XXV Aprile 5 Pero (MI)

F.I.L.A. Group 2023 Annual Report
F.I.L.A. S.p.A. 2023 Annual Report
CONTENTS
I - General information	3
Corporate Bodies	3
Overview of the F.I.L.A. Group	4
Organisational structure	6
II - Directors' Report	8
Macroeconomic overview	8
Financial Highlights	9
F.I.L.A. Group's Financial Highlights	15
Adjusted financial performance	15
Business seasonality	17
Statement of Financial Position	18
Financial overview	21
Investments	25
Other information	26
Management and control	26
Treasury shares	26
Research and development and Quality Control	27
Related party transactions	29
Significant events in the year	30
Subsequent events	34
Outlook	34
Going Concern	35
Risk Management	36
Environment and Safety	53
Personnel	58
Corporate Governance	60
Reconciliation between Parent and Consolidated Equity	61
III - Consolidated Financial Statements as at and for the year ended December 31, 2023	64
Consolidated Financial Statements	64
Statement of Financial Position	64
Statement of Comprehensive Income	65
Statement of changes in equity	66
Statement of cash flows	67
Statement of financial position with indication of related party transactions pursuant to
CONSOB resolution No. 15519 of July 27, 2006	69
Statement of Comprehensive Income with indication of related party transactions pursuant to
CONSOB resolution No. 15519 of July 27, 2006	70
Notes to the Consolidated Financial Statements of the F.I.L.A. Group	71
Segment reporting	102
Business Segments - Statement of financial position	103
Business Segments - Statement of comprehensive income	104
Business Segments - Other Information	105
Subsequent events	174
Commitments and guarantees	174
Transactions with Related Parties	176
Disclosure pursuant to Article 149-duodecies of the Consob Issuers Regulation	186
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F.I.L.A. Group 2023 Annual Report

F.I.L.A. S.p.A. 2023 Annual Report

Attachments	187
Attachment 1- List of companies included in the consolidation scope and other equity
investments	187
Atypical and/or Unusual Transactions	188
Statement of the Manager in Charge of financial reporting and the Corporate Bodies	189
Independent Auditors' Report pursuant to Article 14 of Legislative Decree No. 39 of January 27,
2010	190
IV - Separate financial statements of F.I.L.A. S.p.A. at December 31, 2023	196
Separate financial statements of F.I.L.A. S.p.A	196
Statement of Financial Position	196
Statement of Comprehensive Income	197
Statement of changes in Equity	198
Statement of cash flows	199
Statement of Financial Position pursuant to CONSOB Resolution No. 15519 of July 27,
2006	201
Statement of Comprehensive Income pursuant to CONSOB Resolution No. 15519 of July 27,
2006	202
Notes to the Separate Financial Statements of F.I.L.A. S.p.A	203
Subsequent events	270
Atypical and/or Unusual Transactions	271
Final Considerations	272
Statement of the Manager in Charge of financial reporting and the Corporate Bodies	273
Board of Statutory Auditors' Report on the separate financial statements at December 31, 2023
prepared as per Article 153 of Legislative Decree No. 58/1998	274
Independent Auditors' Report pursuant to Article 14 of Legislative Decree No. 39 of January 27,
2010	290

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F.I.L.A. Group 2023 Annual Report

F.I.L.A. S.p.A. 2023 Annual Report

I - General information

Corporate Bodies

Board of Directors
Chairperson (*)	Giovanni Gorno Tempini
Honorary Chairperson	Alberto Candela
Chief Executive Officer (**)	Massimo Candela
Executive Director (**)	Luca Pelosin
Non-executive Director	Annalisa Matilde Barbera
Non-executive Director (*)	Giorgina Gallo
Non-executive Director (*)	Carlo Paris
Non-executive Director (*)	Donatella Sciuto

1. Independent director in accordance with Article 148 of the Consolidated Finance Act and Article 3 of the Code of Conduct.
   (**) Executive Director

Control, Risks and Related Parties Committee

Donatella Sciuto

Annalisa Matilde Barbera

Carlo Paris

Remuneration Committee

	Carlo Paris
	Annalisa Matilde Barbera
	Giorgina Gallo
Board of Statutory Auditors
Chairperson	Gianfranco Consorti
Standing Auditor	Sonia Ferrero
Standing Auditor	Pietro Michele Villa
Alternate Auditor	Stefano Amoroso
Alternate Auditor	Gianna Luzzati
Independent Auditors	KPMG S.p.A.

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F.I.L.A. Group 2023 Annual Report

F.I.L.A. S.p.A. 2023 Annual Report

Overview of the F.I.L.A. Group

The F.I.L.A. Group operates in the creativity tools market, producing and marketing colouring, design, modelling, writing and painting objects, such as pencils, crayons, modelling clay, chalk, oil colours, acrylics, watercolours, paints and paper for the fine arts, school and leisure.

The F.I.L.A. Group at December 31, 2023 operates through 25 production facilities and 33 subsidiaries across the globe and employs approx. 11,800 people, becoming a pinnacle for creative solutions in many countries with brands such as GIOTTO, DAS, LYRA, Canson, Maimeri, Daler- Rowney Lukas, Ticonderoga, Pacon, Strathmore, Princeton and Arches.

Founded in Florence in 1920 by two noble Tuscan families, della Gherardesca and Marchesi Antinori, F.I.L.A. S.p.A. (hereafter also the "Parent") has achieved strong international growth in the past 20 years, supported by a series of strategic acquisitions. Over the years, the Parent has acquired: (i) the Italian firm Adica Pongo in 1994, a leading producer of modelling clay for children; (ii) the Spanish firm Spanish Fila Hispania S.L. (formerly Papeleria Mediterranea S.L.) in 1997, the Group's former exclusive distributor in Spain; (iii) the French firm Omyacolor S.A. in 2000, a leading manufacturer of modelling putties and clays; (iv) the U.S. Dixon Ticonderoga Group in 2005, a leading producer and distributor of pencils in North America, with subsidiaries operating on the Canadian, Mexican, Chinese and European markets; (v) the German LYRA Group in 2008, which allowed the Group to enter the German, Scandinavian and Eastern Asian markets; (vi) the business unit operated by Lapiceria Mexicana in 2010, one of the main local competitors in the budget coloured and graphite pencils market; and (vii) the business unit operated by Maimeri S.p.A. in 2014, a manufacturer and distributor of paints and accessories for fine arts. In addition to these transactions, on the conclusion of an initiative which began with the acquisition of a significant influence in 2011, control of the Indian company DOMS Industries Pvt Ltd. was acquired in 2015 (viii). In 2016, the F.I.L.A. Group focused upon development through strategic Art&Craft sector acquisitions, seeking to become the leading market player. On February 3, 2016, F.I.L.A. S.p.A. acquired control of the Daler-Rowney Lukas Group, an illustrious brand producing and distributing materials and accessories on the arts and crafts market since 1783, with a direct presence in the United Kingdom, the Dominican Republic, Germany and the USA (ix). in September 2016, the F.I.L.A. Group acquired the entire share capital of St. Cuthberts Holding Limited and the operating company St. Cuthberts Mill Limited, a highly- renowned English paper mill, founded in 1907, located in the south-west of England and involved in the production of high quality artist's papers (x). In October 2016, F.I.L.A. S.p.A. acquired the Canson Group, founded in 1557 by the Montgolfier family, with headquarters in Annonay in France, production facilities in France and conversion and distribution centres in Italy, France, China, Australia and Brazil. Canson products are available in over 120 countries and the brand is the most

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F.I.L.A. S.p.A. 2023 Annual Report

respected globally involved in the production and distribution of high added value paper for the fine arts, design, leisure and schools, but also for artists' editions and technical and digital drawing materials (xi).

In June 2018, F.I.L.A. S.p.A., through its US subsidiary Dixon Ticonderoga Co. (U.S.A.), consolidated its role as a leading player on the US market with the acquisition of the US Group Pacon, which through brands such as Pacon, Riverside, Strathmore and Princeton, is a leader in the US schools and arts and crafts sector. Dixon Ticonderoga Co. (U.S.A.) was subsequently merged into Pacon Corporation (U.S.A.), which later changed its name to Dixon Ticonderoga Co. (U.S.A.) (xii).

On March 2, 2020, F.I.L.A.- Arches S.A.S., a French company wholly-owned by F.I.L.A. S.p.A., completed the purchase from the Ahlstrom-Munksjö Group of the fine art business unit specialised in fine art operating through the ARCHES® brand (xiii).

On February 8, 2022, the UK subsidiary Daler Rowney Ltd. acquired 100% of the UK company Creative Art Products Limited, located in Manchester (UK), which specialises in the schools segment and produces and distributes a wide range of art materials for children, both under the Scola brand and private label brands (xiv).

On December 20, 2023, the listing of the subsidiary DOMS Industries Limited on the National Stock Exchange of India was completed. Following the public listing, F.I.L.A. S.p.A. still remained a shareholder of the Indian company with a 30.6% interest (xv).

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F.I.L.A. Group 2023 Annual Report

F.I.L.A. S.p.A. 2023 Annual Report

Organisational structure

The F.I.L.A. S.p.A. organisational structure is reported below.

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F.I.L.A. Group 2023 Annual Report

F.I.L.A. S.p.A. 2023 Annual Report

F.I.L.A. GROUP AND F.I.L.A. S.p.A. 2023 DIRECTORS' REPORT

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F.I.L.A. Group 2023 Annual Report

F.I.L.A. S.p.A. 2023 Annual Report

1. - Directors' Report

Macroeconomic overview

After a challenging 2022, a year that was heavily impacted by geopolitical tensions, inflation in raw materials, and a tightening of monetary policy with further increases in interest rates, the macroeconomic landscape of 2023 was again complex and volatile.

The geopolitical uncertainty brought about by the Russia-Ukraine war, the conflict in the Middle East, and tensions tied to shipping traffic in the Suez Canal was certainly a risk factor for the global economy as a whole. The outlook for global GDP growth for 2024 point to a slowing at around 2.7% as a result of tight monetary policy and a deterioration in both consumer and business confidence. The risks of a downturn are largely tied to the conflict in the Middle East.

Stagnation in the euro area continued in 2023, reflecting the lack of dynamism in internal and foreign demand. The ongoing weakness of manufacturing and construction spread into the service sector. Employment, however, did not see a slowdown. In the latter months, inflation was lower than expected, and disinflation extended to all the main components of the basket, including those for which prices had started to rise with a greater delay. According to the projections of Eurosystem experts released in December 2023, consumer prices are expected to fall yet again: from 5.4% in 2023 to 2.7% in 2024, then to 2.1% in 2025 and 1.9% by 2026. Inflation also fell in the United States and United Kingdom in the latter part of 2023. Both the Federal Reserve and the Bank of England kept their rates unchanged, noting that monetary policy will remain tight until inflation falls back in line with their respective targets. The lowering of expectations surrounding the official rates in the United States and Europe has led to a loosening of conditions on the international financial markets.

The F.I.L.A. Group's target market featured a marked increase in sales volume on 2022, with a strong recovery in "School" products in India, Mexico and the United States. This volume effect was amplified following the application of a generalised price increase in order to calm the inflationary pressures that have impacted the entire value chain. At the same time, Europe experienced a significant de-stocking of customers, accentuated by the trend in interest rates.

Within this climate, management will focus, in line with the previous year, on containing fixed costs and streamlining processes, particularly with regard to the American subsidiary, with consequent improvement in Group margins. New marketing and sales initiatives will be implemented to better support revenue growth.

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F.I.L.A. Group 2023 Annual Report

F.I.L.A. S.p.A. 2023 Annual Report

Furthermore, efficiency gains in investments and in working capital are to be the levers used to continue pursuing our goal of reducing net debt.

The Indian company DOMS Industries Limited will continue to play a strategic role in the industrial projects of the F.I.L.A. Group. With the public listing on the Indian stock market of DOMS Industries Limited, the F.I.L.A. Group generated net cash of about Euro 69 million, which was mainly used for efficiency gains in the lines of credit in order to reduce interest expense.

The inflation and GDP figures for the main countries in which the F.I.L.A. Group companies operate are reported below:

		December 31, 2023	December 31, 2022
	Country	Inflation	GDP	Inflation	GDP
	Italy	6.53%	0.20%	11.75%	2.62%
	Spain	4.78%	1.25%	6.59%	3.80%
	Portugal	6.58%	1.03%	9.89%	4.86%
	Greece	4.29%	1.59%	8.27%	2.82%
Euro zone	France	5.75%	0.63%	6.07%	1.02%
	Turkey	44.59%	2.96%	77.37%	3.96%
	Germany	8.00%	(0.30%)	9.66%	1.28%
	Poland	10.77%	0.91%	17.33%	4.48%
	Sweden	6.99%	(0.63%)	11.56%	2.59%
North America	U.S.A.	3.89%	0.54%	7.10%	1.86%
Canada	4.06%	1.03%	6.67%	3.93%
	Mexico	5.71%	1.63%	8.01%	4.32%
Latin America	Chile	6.93%	(0.52%)	12.98%	(0.06%)
	Argentina	83.00%	0.46%	77.63%	7.92%
	China	2.19%	4.62%	1.84%	3.90%
BRICs	India	5.03%	5.68%	6.04%	5.68%
Brazil	4.21%	1.20%	6.05%	3.63%
	Russia	6.72%	(5.56%)	11.55%	3.83%
Others	South Africa	5.92%	1.12%	7.67%	4.03%
Australia	4.53%	1.91%	7.27%	5.87%
Source: OECD, November 2023

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