SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b)

OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL

YEAR ENDED DECEMBER 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE

TRANSITION PERIOD FROM TO

Commission file number: 1 - 10230

BENETTON GROUP S.p.A.

(Exact name of Registrant as specified in its charter)

REPUBLIC OF ITALY

(Jurisdiction of incorporation or organization)

VIA VILLA MINELLI 1, 31050 PONZANO VENETO (TV), ITALY

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each Name of each exchange

class on which registered

AMERICAN DEPOSITARY NEW YORK STOCK EXCHANGE

SHARES EACH REPRESENTING

TWO ORDINARY SHARES PAR

VALUE EURO 1.30

Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE

Number of outstanding shares of each of the issuer's classes of capital or common stock as of December 31, 2002:

181,558,811 ORDINARY SHARES (PAR VALUE EURO 1.30)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 [X] Item 18 [ ]

Table of contents

6 1. Identity of Directors, Senior Management and Advisers

2. Offer statistics and expected timetable

3. Key information

11 4. Information on the Company

19 5. Operating and financial review and prospects

28 6. Directors, Senior Management and Employees

34 7. Major Shareholders and related party transactions

35 8. Financial information

36 9. The offer and listing

37 10. Additional information

45 11. Quantitative and qualitative disclosures about market risk

46 12. Description of securities other than equity securities

48 13. Defaults, dividend arrearages and delinquencies

14. Material modifications to the rights of security holders and use of proceeds

15.Controls and procedures

16. [Reserved]

50 17. Financial statements

103 18. Financial statements (not applicable)

1. Exhibits

Certain statements contained in this Form 20-F, including those statements contained under the captions "Information on the Company" and "Operating and Financial Review and Prospects" that are not statements of historical fact, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements can be generally identified by the use of terms such as "believes", "expects", "may", "will", "would", "could", "plans", or "anticipates", the negatives of such terms, or comparable terms.

In addition to the statements contained in this Form 20-F, the Company (or directors or executive officers of the Company authorized to speak on behalf of the Company) from time to time may make forward-looking statements, orally or in writing, regarding the Company and its business, including press releases, oral presentations, filings under the Securities Act, the Exchange Act or securities laws of other countries, and filings with other stock exchanges.

Such forward-looking statements represent the Company's judgment or expectations regarding the future, and are subject to risks and uncertainties that may cause actual events and the Company's future results to be materially different than expected by the Company or indicated by such statements. Accordingly, no assurance can be given that the results anticipated by the Company, or indicated by any such forward-looking statements, will be achieved.

Unless the context otherwise requires, the term the "Company" refers to Benetton Group S.p.A. (the parent company), and the terms the "Group" and "Benetton" refer to Benetton Group S.p.A. and its consolidated subsidiaries.

Item 1: Identity of Directors, Senior Management and Advisers. Not applicable

Item 2: Offer statistics and expected timetable. Not applicable

The Company publishes its Consolidated Financial Statements in Euro, the common European currency adopted by 12 of the 15 member countries of the European Union (namely, Austria, Belgium, Finland, France, Germany, Greece, Ireland, Holland, Italy, Luxembourg, Portugal and Spain, also collectively referred to in this annual report as the "Euro zone"). Financial data relating to years before 2001, which were originally published in Lire, have been translated into Euro using the fixed exchange rate of Euro 1.00=Lire 1,936.27. In this annual report, references to "Dollars" or "Usd" are to currency of the United States of America, and references to "Lira", "Lire" or "Italian Lire" are to the former currency of Italy which, as of February 28, 2002, is no longer legal tender in Italy. For convenience of the reader, this annual report contains translations of certain Euro amounts into Dollars at specified rates. These translations should not be construed as representations that the Euro amounts actually represent such Dollar amounts or could be converted into Dollars at the rate indicated or at any other rate. Unless otherwise indicated, the translations of Euro into Dollars have been made at the rate of Euro 1.00 = Usd 1.0485, the noon buying rate in the City of New York for cable transfers in Euro as certified for customs purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on December 31, 2002.

The following table sets forth selected consolidated financial data of the Company for the years indicated and should be read in conjunction with the Company's consolidated Financial Statements and the Notes thereto included in Item 17 of this Form 20-F. The income statement and balance sheet data presented below have been derived from the Company's Consolidated Financial Statements. Such Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in Italy ("Italian GAAP"), which differ in certain respects from accounting principles generally accepted in the United States ("U.S. GAAP"). For a discussion of the material differences between Italian GAAP and U.S. GAAP as they relate to Benetton's consolidated net income and shareholders' equity, see Note 30 of the Notes to Consolidated Financial Statements included in Item 17 of this Form 20-F.

Amounts in accordance with U.S. GAAP

Earning per share has been calculated in accordance with Statement of Financial Accounting Standard no. 128 "Earnings per share" which requires dual presentation of basic and diluted earnings per share.

(*) Exchange rate: Euro 1 = Usd 1.0485 as of December 31, 2002. (See Note 4 to the Consolidated Financial Statements)

(1) Translated at the Noon Buying Rate on the respective payment dates.

(2) Dividend paid on May 22, 2003 at the exchange rate of Euro 1 = Usd 1.172

(3) Restated to reflect a reverse split of the share approved by the Shareholders' Meeting on May 8, 2001.

The following table sets forth, for each of the years indicated, the high, low, average and year-end exchange rate for converting United States Dollars into Euro based on the Noon Buying Rate in New York City for cable transfers in Euro as certified for customs purposes by the Federal Reserve Bank of New York. The Noon Buying Rates are expressed in Usd per Euro 1.00.

(*) The average of the Noon Buying Rates on the last day of each month during the year.

The following table sets forth, for each month during the previous six months, the high and low exchange rate for United States Dollars into Euro based on the Noon Buying Rate in New York City for cable transfers in Euro as certified for customs purposes by the Federal Reserve Bank of New York. The Noon Buying Rates are expressed in Usd per Euro 1.00.

> Benetton's business is sensitive to changes in consumer spending patterns. Benetton's business is sensitive to changes in consumer spending patterns and may be affected by, among other factors, business conditions, interest rates, taxation, local economic conditions, uncertainties regarding future economic prospects and shifts in discretionary spending towards other goods and services. Customer preferences and economic conditions may differ or change from time to time in each market in which Benetton operates. Benetton's future performance will be subject to such factors, which are beyond its control, and there can be no assurance that such factors would not have a material adverse effect on the Group's results of operations.

> Benetton's success depends on its ability to predict fashion trends accurately. Benetton's sales and earnings depend to a significant extent upon its ability to anticipate and respond to changes in fashion trends and consumer preferences in a timely manner. If Benetton were to experience unsatisfactory customer acceptance of its merchandise, the Group would have lower than planned sales, greater than planned markdowns and lower gross margins earned on goods sold. Although Benetton is constantly reviewing emerging lifestyle and consumer preferences, any failure by Benetton to identify and respond to such trends in a timely manner could have a material adverse effect on the Group's business and results of operations.

> Benetton's business is subject to competitive pressures. Benetton operates in the highly competitive casualwear and sportswear sectors. Competition in these sectors may increase because there are few barriers to entry. Benetton competes with local, national and global department stores, specialty retailers, independent retail stores and manufacturing companies. In addition to traditional store-based retailers, Benetton also competes with direct marketers who target customers through catalogs. Benetton competes for customers principally on the basis of quality, assortment and presentation of merchandise, customer service, store ambience, sales and marketing programs and value. In addition to competing for sales, Benetton competes for favorable store locations and lease and purchase terms for its stores. Increased competition could result in pricing pressure and loss of market share, either of which could have a material adverse effect on the Group's financial condition and results of operations.

> Benetton's expansion and growth strategy has increased fixed costs and operating expenses. Although Benetton had traditionally distributed its products through independent sales representatives worldwide, in order to strengthen its image and market shares, Benetton has in the last few years instituted an investment program to sell its products directly through its own stores. As a result, Benetton operates over 90 retail store locations which have been carefully selected for the appropriate demographics and retail environment. These real property investments have led to increases in Benetton's fixed costs and operating expenses. In addition, these investments expose Benetton directly to any failure to correctly predict, or to changes in, the demographic or retail environment at any store location. Failure or changes in any areas in which the Group has megastores could have a material adverse effect on the Group's business and results of operations.

> Benetton is subject to risks associated with its strategies. As a part of its growth strategy, Benetton plans to renew the existing commercial network and to reposition the brands. Benetton's growth will be adversely affected if it is unable to (i) identify suitable markets and sites for new stores, (ii) maintain levels of service that are expected by customers, (iii) avoid reducing sales and profitability at existing third-party owned stores selling Benetton's products when opening directly-owned megastores in the same region or market area, (iv) manage inventory on an effective basis and (v) deliver products on a timely basis. In addition, there can be no assurance that the Group's systems, procedures, controls or resources will be adequate to support expanded operations. Moreover, there can be no assurance that this strategy will be successful or that the Group's overall net revenues will increase as a result of a renewal in the existing commercial network and the repositioning of the brands. If the Group is unable to manage its expansion effectively, its business and results of operations could be adversely affected.

> Benetton has a level of indebtedness which could place a burden on its operations and profitability. During 2002 Benetton reduced its indebtedness and will need to generate sufficient cash flow from operations to repay this indebtedness. The generation of cash flow, in turn, will be subject to Benetton's successful implementation of its strategy, as well as to financial, competitive, business and other factors, including factors beyond Benetton's control. Benetton's debt burden could have a material adverse effect on it, such as (i) limiting its ability to implement its business strategies and pursue other business opportunities, (ii) limiting its ability to obtain additional financing in the future for capital expenditures, acquisitions, working capital or other general corporate purposes and (iii) making it more vulnerable to withstand competitive pressures and reducing its flexibility in responding to changing business and economic conditions.

> Benetton is exposed to the impact of changes in interest rates. Benetton holds a variety of interest rate sensitive assets and liabilities to manage the liquidity and cash needs of its day-to-day operations. These interest rate sensitive assets and liabilities are subject to interest rate risk, which is, to some extent, reduced by the use of derivative financial instruments.

> Benetton is exposed to risks associated with its international operations. Benetton is exposed to risks associated with its international operations including risks relating to delayed payments from customers in certain countries or difficulties in the collection of receivables generally. Benetton's business is also subject to political and economic instability in the countries in which it does business, changes in regulatory requirements, language and other cultural barriers, tariffs and other trade barriers and price or exchange controls. If the Group's international operations were not successful, its business and results of operations would be adversely affected.

> Benetton's sales and operating results are subject to fluctuations in foreign currency exchange rates. As a result of its international operations, the Group's sales and operating results are, and will continue to be, affected by the impact of fluctuations in foreign currency exchange rates on product prices and certain operating expenses. Fluctuations in the exchange rates of certain foreign currencies relative to the Euro may have an adverse effect on the Group's sales and operating income and on the international competitiveness of its Italian-based operations. The appreciation of the Euro relative to other currencies has generally had, and in the future the appreciation of the Euro could have, an adverse effect on the Group's sales and operating incomes. While Benetton engages in foreign exchange hedging transactions to manage its foreign currency exposure, there can be no assurance that its hedging strategy will adequately protect its operating results from the effects of future exchange rate fluctuations.

Benetton Group S.p.A. is a limited liability company (Società per Azioni) organized under the laws of Italy. It was established in 1965 as a partnership by the Benetton family in Ponzano Veneto, Italy. It was reorganized as a limited liability company in 1978. The Company adopted the name Benetton Group S.p.A. in a corporate reorganization effective in December 1985. Prior to June 1986, the Company was wholly owned by the Benetton family. In June 1986, shareholders affiliated with the Benetton family sold shares representing approximately 11% of the Ordinary Shares to the public in Europe. (The Company received no proceeds from such offering). The Benetton family initiated the public offering of such Ordinary Shares in order to establish a liquid public market for the Company's Ordinary Shares and to facilitate the Company's access to the international capital markets.

In June 1989, the Company made a public offering of 7,000,000 American Depositary Shares ("ADS"), each representing the right to receive two Ordinary Shares and listed the ADSs on the New York Stock Exchange. A public offer of 11,000,000 newly issued shares was made in a 1994 global offering.

In 2002, total capital expenditures came to approximately Euro 170 million, including miscellaneous purchases (mainly of software and concessions, licenses and brands).

The Group spent around Euro 120 million on the acquisition of commercial enterprises and buildings, and on upgrades and improvements to sales space. This was in addition to the approximately Euro 610 million invested in previous years and includes, among others, the acquisition of the following premises: Bilbao (Spain), Boulevard Haussmann and Champs Elysées (France), Siena and Caltanissetta (Italy).

In the first part of 2003 the Group invested some Euro 66 million in tangible and intangible fixed assets during the first three months of 2003, compared with Euro 55 million in the first quarter of 2002. The majority of these investments (around Euro 59 million, in addition to approximately Euro 730 million invested in previous years) went into purchasing, modernizing and renovating buildings for use in commercial activities which are mainly located in Spain and Austria.

In the first half of 2003 the Group sold its sports equipment business (see "Sport Sector" in Item 4 below for a more detailed discussion of this sale). No other significant divestitures occurred in 2002 and the year to date.

Net debt stood at Euro 709 million at quarter end 2003, compared with Euro 756 million as of March 31, 2002 and Euro 613 million at the end of December 2002. The change relative to year end 2002 was partly due to the normal cyclical change in working capital, and partly to investments in the retail sector.

In 2002 technological renewal and upgrades involved operational and production investments amounting to some Euro 30 million, which were spent on improving operations and production by the manufacturing facilities in Italy and abroad.

The present term of the Company expires on December 31, 2050, unless extended by the shareholders in a general meeting.

The Company's principal offices are located at Via Villa Minelli 1, 31050 Ponzano Veneto - TV, Italy.

Its telephone number is +39-0422-519111.

Benetton is amongst the world leaders in the design, manufacture and marketing of distinctive casual apparel for men, women and children, which it markets principally under the brand names "United Colors of Benetton" and "Sisley". Following the 1997 acquisition of Benetton Sportsystem S.p.A., Benetton was active in the sportswear and sports equipment sector with brands such as Prince, Rollerblade, Nordica, Kästle, Killer Loop and Ektelon, but the equipment businesses were sold in 2003. In launching a new potential area of growth, the Group added a new sportswear brand, Playlife.

Benetton is traditionally known for knitwear and casual clothing in a wide array of colors, featuring fashionable Italian design and projecting a youthful image. Benetton's philosophy has been to offer product lines on a worldwide basis that have sufficient breadth to accommodate the needs of many markets. Benetton also licenses its trademarks for products manufactured and sold by others, including fragrances and cosmetics, watches, sunglasses, houseware and other fashion accessories, which complement its product lines.

There are no material government regulations concerning the individual business sectors of activity of the Group.

Since 2002 the Group's operations are divided into two primary sectors:

• casual, which also includes footwear, accessories and other complementary items, sold through the network of Benetton stores;
• sport, comprising sportswear, distributed mainly through the Playlife stores, and equipment, marketed only through sporting goods stores.

In the first half of 2003 the Company sold the sport equipment business to third parties (see "Sports Sector" in Item 4 below for a more detailed discussion of this sale).

> Products and trademarks

Benetton's philosophy consists in offering global product lines, supported by international communication campaigns designed to promote the Benetton name and products.

Benetton aims to offer products characterized by their creative use of exclusive designs. The Group produces two main collections each year for all its labels: spring/summer and fall/winter. For each collection the Group presents consistent and focused collections complemented by a growing number of fresh and updated easy-to-wear looks.

Benetton's casual wear principal international trademarks are described below.

> United Colors of Benetton. A global brand, and one of the most well known in the world, United Colors of Benetton has an international style that combines color, energy and practicality. The womenswear, menswear and childrenswear collections offer a coordinated look for everyday wear, for work and for leisure. Special attention is paid to ensuring an excellent quality/price ratio. Within the two traditional collections, the range is seasonally themed with continuous new introduction of required styles to ensure a swift response to the latest fashion trends. Benetton's commitment to research into innovative materials adds comfort and wearability to the garments. Children collections include 4 lines for different age groups: Newborn, from zero to 12 months, Baby, from 1 to 3 years, Kid, from 3 to 7 years, and Junior, from 8 to 12 years.

In 2002, as in 2001 the Euro zone continues to be the Group's main market of reference.

> Sisley. Sisley was established in Paris in 1968 as a manufacturer of a denim line. In 1974 the Group acquired exclusive rights to the label. Today, Sisley's independent design and commercial teams create complete collections for women and men, inspired by a stylish look, combined with attention to details and wearability. Over the years, Sisley has reinforced its independent identity, underpinned by a sustained increase in all principal world markets. The growth of its commercial network is based on a dual strategy: on the one hand, the opening of single-brand megastores such as those in Milan, Florence, Brussels and New York, and on the other hand, dedicating areas in multi-brand megastores.

In 2002, approximately 64% of the Group's net sales were products bearing the United Colors of Benetton brand name. 16% of total sales are related to Sisley, which offers products with a distinctive "fashion" content. Sisley's prices are, on the whole, higher than those of the United Colors of Benetton line.

The following table sets forth the Group's net sales for the sector by geographic area for the last three years.

> Seasonality. The sales of casual business show a certain seasonality connected to the main collections. Deliveries of the spring/summer base collections are mainly between December and February, whereas the fall/winter collections are concentrated between June and September of each year. A growing portion of our collections are delivered during periods of high sales volume.

> Distribution channels. Benetton coordinates the distribution of its casual wear collections in 120 countries principally through approximately 70 independent sales representatives, each of whom is assigned a geographical territory, although Benetton owns or leases some stores directly, as described below. This system of independent sales representatives was first developed by Benetton in Italy and later applied worldwide during Benetton's international expansion after 1978. The representatives receive commissions on sales realized by Benetton in their territories and, sometimes, own stores that sell Benetton products. The representatives manage the development of the network in the area, finding investors or store operators, presenting Benetton's collections to store owners, handling the placement of orders to Benetton and generally monitoring and assisting store owners within their territories. In order to speed up time to market, the Group has developed a business to business system which connects about 70% of its worldwide shops to the headquarters to present and order real time its ready-to-wear collections.

The following tables set forth the changes in the number of stores and outlets over the past five years.

The tables separately include stores in areas where Benetton has granted manufacturing licenses:

Storeowners do not pay Benetton any fees or other consideration for establishing a Benetton store or for use of the Company's tradenames, nor do they pay any royalty based on a percentage of sales or profits. The storeowners are authorized to display and sell Benetton goods, for which Benetton provides suggested guidelines. Stores rely both on location and store appearance as fundamental features of the Benetton retail strategy. Stores are usually located in central retail areas and are presented in a fashion that generally resembles Benetton configuration and design. Under Benetton's suggested guidelines, window displays are designed to allow a clear view of the colorful merchandise on the open shelves. Attention is given to matching the atmosphere of stores to the image of the products offered for sale, with distinctive and appropriate styles of fixtures.

Benetton has established logistical support systems to facilitate distribution of its products. A computerized information network in Europe and North America that links sales representatives to Benetton's central computer has been designed to facilitate rapid transmission of orders and to meet future needs.

In order to strengthen the Group's image and its market share, the expansion of the Benetton network is moving rapidly in the direction of large sales outlets with high quality services. The investment program involves the purchase or leasing of retail locations, characterized by their large dimensions and prestigious location in city centers and shopping malls.

The accelerated network renewal activity brought the result of 87 directly operated shops and of 153 megastores (shops with a selling surface exceeding 650 square meters) at the end of 2002. Megastores are run by either Benetton or by third parties.

Refurbished in order to house the complete men, women and children's casual wear collection, megastores offer the entire range of Benetton style and quality.

> Manufacturing

Benetton's manufacturing operations are based in its own factories and those of a network of subcontractors. Presently Benetton has 22 factories operating for the casual business, 15 of which are located in Italy and one each in Spain, Croatia, India, Portugal, Tunisia, Slovakia and Hungary. The Company utilizes almost 900 subcontractors in Italy to perform one or more steps in the production process. Subcontractors are located near the Company's production facilities in northeastern Italy, although subcontractors are also used outside Italy. The Company undertakes the highest value-added portions of the manufacturing process in its own facilities. In 2002 charges from subcontractors represented approximately 66% of Benetton's production costs. The principal raw materials purchased by the Company are wool, raw cotton, yarn, cloth and denim fabrics. Although the Company does not have formal, long-term contracts with its suppliers, it has not experienced interruptions in supply that have had material impact on its activity. The Company's manufacturing processes utilize modern technology and automatization to reduce costs and accelerate its execution.

In 2002, the production of casual clothing and accessories exceeded 104 million units. The production system was improved during the year. Based on the Italian manufacturing organization, the Benetton production system model can now count on a series of industrial clusters operating in Hungary, Croatia, Tunisia and Spain, consisting of facilities directly controlled by the Group and a network of selected, external suppliers. This system, which also benefits related businesses and the local economy was extended to Slovakia in 2002, following the analysis and planning of operations during the course of 2001. The most significant investments of 2002, totaling approximately Euro 30 million, involved principally the renewal and improvement of some of the production processes of the Italian manufacturing facilities.

The upgrade to the logistics center in Castrette in Italy brought daily capacity to 40,000 cartons of merchandise, with a capability to handle peak loads of up to 50,000 cartons. The upward trend in the Group's manufacturing output and the necessity of achieving greater integration, flexibility and speed, determined by the evolution of the commercial organization, notably the rapid development of the megastore and retail distribution network, have been sustained by the gradual introduction of state-of-the-art technology, without interruption to the center's operations. Having completed conversion of the first module of the upgrade, work started in 2001 on reorganizing a second area, entering service by the summer of 2002 and involving a trebling of the center's total capacity.

Benetton manufactures and markets sport garments and equipment for various sporting activities. The composition of sales by product line in year 2002 is as follows:

The unsatisfactory performance of the sport segment in 2001 was a further occasion for reflection and commitment by the Group. The overall results for the sportswear sector were not matched by those in the equipment sector, which has been particularly hard hit by the continuing downturn in the in-line skates market. As a result it was necessary to implement a targeted program of reorganization, which began to take effect in the second half of 2001. With a general attention to controlling costs and evaluating investments, this program called for the reorganization of the sales force, including in the United States where a new Managing Director and a worldwide brand manager for Prince were appointed. It involved an increase in outsourcing arrangements, optimization of the logistics system and consolidation of the brands' images as quality leaders, notably for the Nordica and Prince brands.

After this at the end of 2002, the decision was taken to sell the sports equipment business. This choice forms part of the strategy of focusing activities on the core business of clothing. In January 2003 the Group reached an agreement with the Tecnica group for the sale of the business activities relating to the Nordica brand. The sale became effective as from February 1, 2003. The overall price for the transaction was calculated based on an independent valuation of all business components, such as for example existing plant, machinery and inventory as of January 31, 2003. The value of the intellectual property alone, including the Nordica trademark, was set at Euro 38 million. Under this agreement, Benetton Group S.p.A. acquired 10% of Tecnica S.p.A.'s share capital with a guaranteed put (sale) option to be exercised as from February 1, 2008 and a call option for repurchase by Tecnica S.p.A. to be exercised between February 1, 2006 and January 31, 2008. The exercise price of the put (sale) option is equal to the price paid for the acquisition of 10% of Tecnica S.p.A.'s share capital plus a minimum fixed sum of Euro 350,000 for each year and any kind of contribution that the Company should make within the exercise date. The exercise price of the call option is equal to the price received for the sale of 10% of Tecnica's share capital plus interest. The exercise price will be increased if the Company makes any equity contributions to Tecnica and decreased if Tecnica's equity is reduced due to distributions of reserves or payments of dividends. The Tecnica shares so acquired were valued at around Euro 15 million. Tecnica is not a listed company.

In March 2003, the Benetton Group, through the American company Benetton Sportsystem USA Inc., signed a binding preliminary agreement for the sale of the Rollerblade brand to Prime Newco, a member of the Tecnica group, the purchaser of the Nordica brand. The price established for the Rollerblade brand alone amounted to Euro 20 million, payable upon completion of the sale, scheduled for June 30, 2003. On this date, subject to separate valuation, other components of the business and the entire interest in the Swiss subsidiary, Benetton Sportsystem Schweiz A.G., will also be transferred. As additional consideration with regard to the transfer of know-how, the Group will receive 1.5% of the Rollerblade brand sales for the next five years, with a minimum guaranteed payment of Euro 5 million; the Benetton Group is entitled to the operating profit for the first six months of 2003.

At the end of March the Group also formalized the sale of the Prince and Ektelon brands to Lincolnshire Management Inc., a U.S. private equity fund with existing interests in the sports equipment sector through its investment in Riddel Sport Group Inc. The price established for the sale of the Prince and Ektelon brands and the associated fixed assets is Euro 36.5 million, to be paid in two installments of Euro 26.5 million (generating interest) in January 2004 and Euro 10 million paid upon completion of the sale on April 30, 2003, at which time the other components, subject to separate valuation, were transferred at book value. This agreement completes the Benetton Group's departure from the sports equipment sector.

Net sales, costs and the operating loss for 2002, relating to the sports equipment business being sold, amounted to Euro 228, 260 and 32 million respectively. The corresponding figures for 2001 amounted to Euro 252, 304 and 52 million respectively.

After these operations Benetton's principal remaining sporting goods trademarks are relevant to the sportwear as described below.

> Playlife. Playlife has established itself as the Group's sports clothing brand. The men's and women's collections offer a sporty and comfortable look, designed to provide maximum freedom for leisure wear. This brand's philosophy can be summarised as dressing with leisurely style. This philosophy is well expressed by the various Playlife apparel, shoe and accessory lines and themes which are present in selected specialized chains and department stores and more importantly within the Playlife dedicated stores. There were 157 of these stores established by the end of 2002..

> Killer Loop. Together with Playlife, Killer Loop is the brand with which Benetton Group is focusing on leisure-time sport apparel. Men's, women's and children's collections are all targeted at a young, street-sport conscious consumers who can choose among a wide range of apparel, footwear and accessories with an emphasis on style and design. Playlife shops remain the priority distribution channel also for the Killer Loop soft wear offer. With an aim on concentrating attention and strengths on core category products, the decision was taken in 2001 to start selling snowboards under its license.

The following table sets forth the Group's net sales for the sector by geographic area for the last three years.

> Seasonality. Each business in the sport sector is characterized by seasonality depending on the nature of the related sports activity. The overall effect is to relatively concentrate sales in the second half of the year due to the effect of the winter sports collection, particularly sales of boots and skis.

> Distribution channels. Sports equipment was marketed through the traditional sports specialties distribution system, with particular emphasis on establishing dedicated display areas in the specialized sports stores for all the products within each of the ranges. Sportswear and soft collections under the Playlife and Killer Loop brands are mainly marketed through a chain of stores identified with the Playlife brand name. Playlife stores follow the traditional Benetton entrepreneurial formula and are of an average surface of 200 square meters. At the end of year 2002 there were about 157 Playlife shops, mainly in southern Europe.

> Manufacturing

The reorganization which occurred in 2001 substantially redesigned production organization for sport equipment. By the end of 2001 racquets and in-line skates were sourced in the Far East, whereas ski-boots were produced in Hungary. The Italian location in Trevignano remained a logistic center and ski production plant. With the sale of the sport equipment brands the locations cease their activity. Trevignano was sold on May 31, 2003.

> Logistics

Sport equipment logistics, coordinated by the headquarters, operated through three distribution centres: one each in the U.S.A., in the Far East and Italy. Benetton has integrated sportswear collections in its existing distribution systems successfully for the casual business.

Benetton Group S.p.A. is the holding company of the Benetton group of companies. The following table sets forth the significant subsidiaries owned, directly or indirectly, by Benetton Group S.p.A.

The significant subsidiaries in the Group are:

Benetton Group S.p.A. belongs to the Edizione Holding Group. Edizione Holding S.p.A. ("Edizione") is the holding company, with its registered office at Treviso, Calmaggiore 23 (Italy). Edizione has various investments in companies which operate in different business segments.

The following table sets forth the significant subsidiaries owned by Edizione, their respective business segments and controlling interest.

The Group operates 24 factories, 16 of which are located in Italy, many in the Treviso area. In addition there are one factories in Spain, India, Portugal, Tunisia, Hungary, Croatia, Slovakia and the U.S.A.

Information on the individual locations is provided in the table below:

(1) Trevignano was sold on May 31, 2003

Most of these factories, which the Company considers suitable and adequate for its strategic purposes, are owned by the Group. The Sahline factory in Tunisia and the Maia factory in Portugal are leased. The Ponzano Veneto, Gorizia, Piobesi Torinese, Prato and Vittorio Veneto factories are owned under finance leases. The Travesio factory is partially owned under finance leases.

The Company owns its headquarters in Ponzano Veneto, near Treviso, which includes offices, showrooms and design facilities covering approximately 24,000 square meters. Benetton's executive offices are located in an adjacent 17th-century villa occupying approximately 2,500 square meters. The Company also owns Villa Loredan, the sports sector headquarters which covers approximately 9,300 square meters.

At the end of 2002 the Group owned 35 properties in Europe and Japan related to its commercial activities. Some of these properties are dedicated to the direct management of shops by the Group; others are leased to third parties which manage the shops. In addition, the Group directly manages about 75 shops in various cities worldwide which are leased.

In this section, the Group explains its general financial condition and the results of its operations. The following discussion and analysis should be read in conjunction with the Group's consolidated financial statements and the related notes thereto for fiscal years 2002, 2001 and 2000 contained in Item 17 of this Form 20-F. The Group prepares its consolidated financial statements in accordance with Italian GAAP. Please see Note 29 to the consolidated financial statements, included elsewhere in this Form 20-F, for a discussion of the principal material differences between Italian GAAP and U.S. GAAP which apply to Benetton's consolidated financial statements.

The highlights of the Group's statement of income are presented below. They are based on the reclassified statement of income adopted for internal reporting purposes, which are officially incorporated as an integral part of an Italian securities filing and have been included as an attachment to this Form 20-F.

The Benetton Group's revenues were 5% lower in 2002, at Euro 1,992 million compared with Euro 2,098 million in the previous year.

This performance is due to the combined effect of various factors influencing the Group's sectors of activity.

The casual wear segment was hurt at the start of the year by European weather conditions due to the more severe winter condition and its longer duration as compared with prior year. As a result, consumer demand for the spring summer collection was lower than expected and the Group experienced lower than expected spring summer collection sales. This fact made it impossible to achieve the expected targets. Only in the third quarter did it see an improvement in performance, only to suffer the general downturn in the domestic and international markets towards year-end.

Given the general contraction in the sports sector, this segment posted a decline in sales across all its product lines throughout the year. However, at the end of the year the market showed slight signs of recovery as sales started to pick up, posting higher percentage increases than in the rest of the year and at the previous year-end. Total sales were also affected by foreign exchange movements, with the trend in currencies such as the dollar and the yen depressing turnover by 1%.

The sales of the manufacturing segment were mostly affected by the sale in 2002 of Color Service S.r.l., a part of the Olimpias group, which had contributed Euro 14 million to the revenues of this sector in 2001.

The Group's gross margin amounted to Euro 867 million, maintaining the same rate of turnover as last year, and benefiting from the ongoing efforts to optimize production, despite price cutting. In particular, it was the casual wear segment that, during the fourth quarter, was influenced by an aggressive commercial policy involving a drop in prices and hence the related margins. The gross margin for the sports segment was up by 2.2 percentage points, from 32.2 to 34.4%, as a result of improved performance in sports equipment.

Variable selling costs totaled Euro 123.7 million, or 6.2% of sales, posting yet another improvement mostly due to the lower costs incurred in the sports sector. As a percentage of sale, expenses in the casual wear sector were in line with the previous year.

General and administrative expenses were up by Euro 11 million (+2.2%) compared with 2001.

The more significant increases related to rents, costs for personnel working in directly-managed stores and significantly higher depreciation charges on investments in the real estate and retail sectors.

Advertising and sponsorship costs amounted to about Euro 102 million compared with Euro 112.6 million in 2001. The decrease is mainly attributable to the sports sector. In the casual wear segment, a portion of the costs that used to go toward Group brand building was devoted to product promotion in support of the development and management of the megastore network.

Income from operations, totaling some Euro 242.6 million, came to 12.2% of sales, 1.4 percentage points lower than in the previous year. Income from operations in the casual wear segment was still significantly affected by general expenses relating to retail, while the operating loss in the sports sector improved by 5.1% as percentage of sales.

The overall result of foreign exchange management was a net gain of Euro 8.6 million; this reflected the policy of hedging exchange risks and was principally influenced by currency market fluctuations during the period. In particular, there was a significant variation in the dollar and the yen with respect to the beginning of the year.

Net financial charges, which increased from 1.7 to 2.0% of sales, were influenced by the sale and maturity of some investments in securities bearing particularly good rates. The Group's average net indebtedness was substantially unchanged with respect to the previous period, despite the investment in support of retail operations, while the end-of-period indebtedness showed a marked improvement.

Other charges were mostly due to restructuring operations involving the sports segment. Plans for the sale of the businesses made it necessary to adjust the value of all components in the sports equipment sector to their disposal value and to take account of the related divestment costs.

The tax rate was influenced by the major impact of partially tax undeductible extraordinary items, deriving from the valuation at their realizable value of intangible and tangible fixed assets pertaining to the sports sector.

The net loss of Euro 9.8 million particularly reflected the aforementioned extraordinary operations. The 2001 financial year had closed with net income of Euro 148.1 million.

Without these extraordinary items, Group net income in 2002 would have amounted to approximately Euro 128 million.

> Financial situation - highlights. The more important elements of the balance sheet, with comparative figures as of December 31, 2001, are as follows:

The effect of the operation to restructure the sports segment, amounting to Euro 114 million, representing the total realizable value of the assets due to be sold, is shown separately from working capital.

The change in capital invested is due to the combined effect of the following factors:

• additions to tangible and intangible fixed assets by way of investments totaling approximately Euro 170 million;
• amortization, depreciation, writedowns and disposals of Euro 133, 69 and 20 million respectively;
• increase of Euro 37 million in operational reserves.

Net indebtedness amounted to Euro 613 million, down by over Euro 27 million (-4.2%) compared with the previous year. Average annual indebtedness was substantially in line with that of the previous year.

> 2001 compared to 2000

The increase in Benetton Group revenues was mainly attributable to the casual wear sector (9.5%); this result was mainly obtained in the European markets, which reported double-digit growth for the children's wear and Sisley labels.

In contrast, the sports segment reported a downturn in revenues, mainly due to sales of in-line skates whose market is suffering from a sharp contraction in demand. Other sporting products lines were affected by a drop in sales, reflecting trends in their respective markets.

The Group's gross margin remained over 43% of sales exceeding Euro 900 million, with an increase of almost Euro 30 million over 2000. Despite the decline in margins in the sport segment, the gross margin benefited from the improvement in the casual wear sector, where the gross margin came to 46.5%, versus 46,0% 2000.

Variable selling costs, totaling Euro 133.4 million, came to 6.3% of sales, with the related improvement mostly due to lower costs in the sports sector.

General and administrative expenses increased by almost Euro 60 million compared with 2000.

This increase was mainly due to costs associated with property development and the direct management of stores, following the sharp acceleration in new openings in 2001.

The more significant increases in costs related to rents, costs for in-store personnel and the depreciation of investments in the property and retail sectors.

Advertising and sponsorship costs fell from Euro 118.3 million in 2000 to Euro 112.6 million in 2001, mainly in the sport sector.

Income from operations, Euro 285.6 million, represented 13.6% of sales. Income was 1.7 percentage points lower than the corresponding figure for 2000, mainly due to the higher operating loss in the sport sector. Income from operations in the casual wear segment was hurt by the rise in general expenses related to commercial expansion, with the associated revenues not yet sufficient to absorb these costs.

The overall result of foreign exchange management was a net gain of Euro 7 million; this reflected the policy of hedging exchange risks and was principally influenced by fluctuations during the year in the U.S. dollar and Japanese yen.

The increase in net financial charges was due to the Group's higher amount of average net indebtedness, resulting from the sizeable investments in support of its commercial operations.

Other expenses included an extraordinary expense of Euro 14.7 million resulting from certain legal settlements and reorganization expenses relating to some of the Group's companies. Extraordinary income in 2000 was largely the net product of the capital gain on the disposal of Benetton Formula Ltd., and extraordinary expenses arising from the settlements with Eco Swiss China Time Ltd. and Bulova Corporation, from restructuring and from the settlement of legal disputes.

The Group's net income, net of the above extraordinary items, amounted to Euro 162.8 million, compared with Euro 174.1 million in 2000.

We have identified our most critical accounting policies to be those related to inventory valuation, asset impairment, income taxes and deferred Income taxes.

Inventories are stated using the cost method, which values inventories at the lower of the purchase or manufacturing cost (generally determined on a weighted average basis and their market value). Market value is determined based on the net realizable value, which generally is the merchandise selling price and includes any manufacturing costs to be incurred. The Company reviews its inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes) and uses markdowns to clear merchandise. Inventory value is reduced immediately when the selling price is marked down below cost. The Company's estimate of shortages can be affected by changes in merchandise mix and changes in actual shortage trends.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the undiscounted future cash flows from the long-lived assets are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the discounted future cash flows of the asset. Should a decision be made to close a store or facility, the result would be to accelerate depreciation over the revised useful life. Should locations be closed which are under long-term leases, the Company would record a charge for lease buyout expense or the difference between its rent and the rate at which the Company expects to be able to sublease the properties and related costs, as appropriate. The Company's estimate of future cash flows is based on its experience, knowledge and typically third-party advice or market data. However, these estimates can be affected by future economic conditions that can be difficult to predict.

The Company records reserves for estimates of probable settlements of foreign and domestic tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of these audits and appeals with taxing authorities may affect the ultimate settlement of these issues. The Company's effective tax rate in a given financial statement period may be impacted by changes in the mix and level of earnings.

Deferred income taxes are provided to reflect the net tax effects of temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws in each of the relevant jurisdictions. Deferred income taxes reflect the Company's assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of realization.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is reasonably certain that some portion or all of the deferred tax assets will not be realized. Actual income taxes could vary from these estimates due to future changes in income tax law or results from final review of the Company's and its subsidiaries' tax returns by taxing authorities.

The Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. However, if the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Management believes these critical accounting policies, among others, affect its more significant decisions and estimates used in the preparation of its consolidated financial statements.

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Borderds ("SFAS") No. 141, "Business Combinations" ("SFAS 141") which supersedes Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations", and amends or supersedes a number of related interpretations of APB 16. SFAS 141 addresses financial accounting and reporting for business combinations and requires that all business combinations within scope of SFAS 141 be accounted for using only the purchase method and changes the criteria to recognize intangible assets apart from goodwill. SFAS 141 is required to be adopted for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method that are completed after June 30, 2001. Management has assessed the impact of the adoption of SFAS 141 on its consolidated financial statements and believes the effect is not material.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") which supersedes APB Opinion No. 17, "Intangible Assets". SFAS 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. SFAS 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. In particular, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. Goodwill and intangible assets with indefinite useful lives will no longer be tested for impairment under SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The provisions of SFAS 142 are required to be applied starting with fiscal years beginning after December 15, 2001. SFAS 142 is required to be applied at the beginning of an entity's fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. For the Company, the effective date was the fiscal year beginning January 1, 2002 at which date the Company stopped the amortization of purchased goodwill. At December 31, 2001, the Company's unamortized purchased goodwill balance and consolidated differences was Euro 19.1 million. In June 2002, the Company completed its impairment tests of goodwill, calculated as of January 1, 2002, as required by SFAS 142. In doing so, the Company determined that its goodwill balances were not impaired; therefore no transitional impairment charge was recorded. The Company performs the annual impairment tests of goodwill required by SFAS 142 as of year-end. The Company determined based on its December 31, 2002 test that its goodwill balances were not impaired.

At December 31, 2002, the Company's unamortized purchased goodwill balance and consolidated differences were Euro 20.6 million.

The following reflects net result for the periods prior to adoption of SFAS 142 adjusted to exclude amortization of goodwill (in thousand Euro):

Upon adoption of SFAS 142 on January 1, 2002, the Company reevaluated its amortizable intangible assets and determined that their remaining useful lives were appropriate.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. For the Company, the effective date of SFAS 143 would be the fiscal year beginning January 1, 2003. The Company believes that the impact of the adoption of this new standard is not material.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 retains the current requirement to recognize an impairment loss only if the carrying amounts of long-lived assets to be held and used are not recoverable from their expected undiscounted future cash flows. However, goodwill is no longer required to be allocated to these long-lived assets when determining their carrying amounts. SFAS 144 requires that a long-lived asset to be abandoned, exchanged for a similar productive asset, or distributed to owners in a spin-off be considered held and used until it is disposed. SFAS 144 requires the depreciable life of an asset to be abandoned to be revised. SFAS 144 requires all long-lived assets to be disposed of by sale be recorded at the lower of its carrying amount or fair value less cost to sell and to cease depreciation (amortization). Future operating losses are no longer recognized before they occur. For the Company, the effective date of SFAS 144 was the fiscal year beginning January 1, 2002. Management has assessed the impact of the adoption of SFAS 144 on its consolidated financial statements and believes the impact is not material.

In April 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections." SFAS 145 rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt," which required that all gains and losses from extinguishment of debt to be aggregated and classified as an extraordinary item if material. SFAS 145 requires that gains and losses from extinguishment of debt be classified as extraordinary only if they meet criteria in Accounting Principles Board Opinion No. 30, thus distinguishing transactions that are part of recurring operations from those that are unusual or infrequent, or that meet the criteria for classification as an extraordinary item. SFAS 145 amends SFAS 13, "Accounting for Leases", to require that lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. In addition, SFAS 145 rescinds SFAS 44, "Accounting for Intangible Assets of Motor Carriers," and SFAS 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," which are not currently applicable to the Company. The provisions of SFAS No. 145 as they relate to the rescission of SFAS 4 shall be applied in fiscal year 2003. Certain provisions related to SFAS 13 are effective for transactions occurring after May 15, 2002. Management does not expect SFAS 145 to have a material impact on the Company's consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This standard will require companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The standard replaces the existing guidance provided by EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The standard is effective for fiscal years beginning after December 31, 2002. The Company does not expect the future adoption of this standard to have a material effect on its financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation --Transition and Disclosure, an amendment of FASB Statement No. 123". This Statement amends FASB Statement No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that Statement to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, this Statement amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim financial information. This Statement shall be effective for financial statements for fiscal years ending after December 15, 2002. Management does not expect to have impact on the consolidated financial statements. The Company does not grant stock-based compensation to employees.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement is effective prospectively for contracts entered into or modified after June 30, 2003 and prospectively for hedging relationships designated after June 30, 2003. The Company is in the process of analyzing the impact of adopting this Statement.

In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity". The Statement improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that these instruments be classified as liabilities in statements of financial position. This Statement is effective prospectively for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This statement shall be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. The Company is in the process of analyzing the impact of adopting this Statement.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN 45 requires a liability to be recognized at the time a company issues a guarantee for the fair value of the obligations assumed under certain guarantee agreements. The provisions for initial recognition and measurement of guarantee agreements are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The Company is in the process of assessing the impact of adopting FIN 45.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities". This interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", addresses consolidation by business enterprises of variable interest entities. FIN 46 explains the concept of a variable interest entity and requires consolidation where there is a controlling financial interest in a variable interest entity or where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. This interpretation applies immediately to variable interest entities created after January 31, 2003, and applies to non public enterprises as of the end of the first annual reporting period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Upon adoption of FIN 46, certain variable interest entities could be required to be included in our consolidated financial statements.

In 2002 Benetton utilized funds from operations and borrowings to finance capital expenditures and the expansion of its commercial activities.

The Group's cash and cash equivalents as of December 31, 2002 amounted to Euro 284 million, with an increase of about Euro 27 million compared to December 31, 2001. Cash and cash equivalents are mainly held in Euro. Cash and cash equivalents include liquidity, securities and other financial receivables that are not held as fixed assets.

Cash provided by operating activities increased to Euro 245 million in 2002 from Euro 217 million in 2001.

The Group's investing activity absorbed Euro 157 million in 2002 (as compared to Euro 277 million in 2001). These figures reflect the Group's commitment to the development of the commercial network through the acquisition of stores and megastores.

The following table sets forth the Group's financial debts by maturity year.

Debts expiring in 2003 are mainly related to a short term loan. Debts expiring beyond 2006 is mainly related to a long term loan of Euro 500 million granted by a pool of banks.

In the early part of 2002, the Company sold its entire holding of treasury shares at an average price of Euro 13.89 per share, realizing an overall loss of around Euro 0.7 million. During the second half of the year, the Company purchased 154,953 of its own shares at an average price of Euro 10.388 for a total amount of Euro 1.6 million; all the shares were later sold at an average price of Euro 10.422 with a gain of about Euro 5,000.

Other then as stated above, the Company did not purchase or sell shares or quotas in parent companies, directly or through subsidiaries, nominee companies or third parties in the course of 2002.

Benetton's policy is to maintain a certain degree of flexibility in its funding process by using a variety of financial instruments depending on market conditions. The Group uses instruments of modern portfolio management in allocating part of its temporary liquidity in treasury shares and interest-bearing securities. Interest rate swaps and forward rate agreements are used to manage the risks arising from changes in interest rates. Foreign currency exposures are managed by means of forward contracts and currency swaps. See "Item 11. Quantitative and qualitative disclosures about market risk".

At December 31, 2002 the Company had working capital of Euro 912 million, and unused and uncommitted bank credit facilities of approximately Euro 700 million.

The management of Benetton believes that its working capital is sufficient to meet the Company's requirements for the present and the foreseeable future. Furthermore, management expects that cash flow and medium-term financing arrangements will meet the Company's future debt obligations. The Group's capital requirements are primarily dependent on management's business plans regarding the levels and timing of capital expenditures and investments. Benetton is not currently subject to any commitment for capital expenditures which is individually material to the Group.

There are not legal or economic restrictions on the ability of Benetton's subsidiaries to transfer funds to the Company in the form of cash, loans or advances. According to some European countries' law dividends or profit distribution may only be made to the extent that the shareholders' equity of the relevant company exceeds the amount of the issued capital and the legal reserve.

> Research and development

The Company is strongly committed to continuous technological and design innovation of its products. Each year the product range is supported by new models and accessories in order to address new consumer demands and suggest new solutions for innovation-sensitive customers. Benetton's cost of research and development are included in its production costs and are not separately recorded.

In addition, in 2001 and 2002 the commitment of Benetton's 300 researchers was mainly dedicated to transferring to natural fibres the easycare and easywear characteristics of synthetics. This allows for instance to the easy ironing of such garments like jackets or no ironing of shirts and skirts.

Benetton's staff is involved in finding new fabrics as well as new processes to give consumers innovative products which respond and anticipate today's needs. Some examples are represented by the new "one-size" Undercolors lines developed in collaboration with Nylstar (the first European producer of polyamide threads) which utilize a truly revolutionary fibber, Meryl ®SkinlifE (a bacteriostatic, i.e. a fibber which maintains the natural level of bacteria presence on the skin, regardless of activity levels).

On the sport side Playlife launched a new creation of unisex stretch shoes called Playstretchy. Thanks to innovative construction techniques devised and developed by Playlife, Playstretchy is the first shoe that automatically gets longer, wider or roomier, molding itself to perfectly adapt to variations in the shape of the foot during the day. This is made possible by a new sole made of separate segments that move according to need, getting longer, wider, adjusting their position. The upper material is made of a special stretch material with the appearance of shiny or aged leather or suede, depending on the model.

Benetton's attention to everyday consumer needs is also demonstrated by its co-operation with Ace (part of the Procter & Gamble group), for testing bleach effects on colors and fibres. This venture has evolved into a co-marketing advertising campaign.

Benetton owns trademarks covering its brand names and various international patents with respect to different technologies relating primarily to sports equipment. In order to defend and preserve its intellectual property rights, the Group has from time to time turned to trademark and patent protection. Benetton also licenses its trademarks to third parties for the production of garments in certain countries and for the distribution of products worldwide.

The Group invested some Euro 66 million in tangible and intangible fixed assets during the first three months of 2003, compared with Euro 55 million in the first quarter of 2002. The majority of these investments (around Euro 59 million, in addition to a figure of some Euro 730 million invested in previous years) went into purchasing, modernizing and renovating buildings for use in retail activities.

Net indebtedness stood at Euro 709 million at quarter end 2003, compared with Euro 756 million as of March 31, 2002 and Euro 613 million at the end of December 2002. The change relative to year end 2002 was partly due to the normal cyclical change in working capital, and partly to investments in the retail sector.

In the first half of 2003 the Company sold the sport equipment business to third parties (see "Sports Sector" in Item 4 above for a more detailed discussion of this sale).

Effective as of May 12, 2003, Silvano Cassano has been appointed as Benetton's new Managing Director of the Company, replacing Luigi de Puppi.

In 2003 consolidated sales are expected to be affected by both the aggressive price policy applied on Benetton's two main casual collections and the increase in the sold quantities. Not taking into consideration the effects of the fluctuation of the currency (US Dollar and Japanese Yen), total sales are forecasted to be in line with last year's revenues. In 2003, the equipment sport business will only be consolidated for some months: the Nordica brand for one month, the Prince and Ektelon brands for four months and Rollerblade for six months. The consolidated operating result will thereafter no longer be affected by the sports equipment business operating loss.

Having concluded the process of internal reorganization and rationalization in the early part of the year and sold its businesses in the sports equipment sector, the Group's resources will be exclusively dedicated to its core business of casual and sportswear.

The Group has entered into certain off-balance sheet arrangements in the form of:

• guarantees to third parties;
• sale and purchase commitments.

"Guarantees" includes two guarantees worth approximately Euro 5.2 million issued in connection with the purchase and restoration of a building in Taranto and expiring at the end of April 2003.

The item "Sale commitments" refers to the option to sell a business branch in Pescara expiring at the end of 2003.

Purchase commitments relate to:

• preliminary agreements for the purchase of certain trading companies in various Italian cities for a total of approximately Euro 2.5 million, of which Euro 374,000 have already been paid by way of a downpayment;
• an option to purchase a building in Barcelona for approximately Euro 28.1 million, of which Euro 2.8 million have already been paid in advance; the building was purchased in January 2003;
• purchase of a building in Vienna for the amount of Euro 13.1 million; the building was purchased in February 2003.

The Company's Articles of Association provide for the Board of Directors to consist of a minimum of 3 and up to a maximum of 11 directors. Directors may be appointed for a period not exceeding 3 years and may be re-elected.

The Company's Board of Directors in office as at December 31, 2002 comprises of 11 directors as set forth below.

Luciano Benetton, Gilberto Benetton and Carlo Benetton are brothers; Giuliana Benetton is their sister; Alessandro Benetton is Luciano Benetton's son. Luciano Benetton, Gilberto Benetton, Carlo Benetton and Giuliana Benetton are the founders of the Company.

Effective as of May 12, 2003, Luigi de Puppi is no more Managing Director of the Company and Angelo Tantazzi is no more Director of the Company.

As of the same date Silvano Cassano replaced Luigi de Puppi as Managing Director and Sergio De Simoi replaced Angelo Tantazzi.

Mr. Silvano Cassano began his professional experience at Hertz in Italy in 1978 and after a period with American Express in Rome and then with Dial, he was asked to return to Hertz in 1990 as head of the Italian market. In 1999 he became General Manager Europe, handling in particular Hertz's relaunch in the British and German markets. From 2000 he directed the entire financial services sector for Fiat Auto, firstly as Managing Director of Fidis and later, from 2002, as Chairman of the Consumer Services Business Unit.

Mr. Sergio De Simoi has served as C.F.O. of Edizione Holding S.p.A. from 1989 to 2001. He has an economics degree from Ca' Foscari University in Venice. He is a board member of Autostrade S.p.A., 21 Investimenti S.p.A., Schemaventotto and other Edizione Holding S.p.A. foreign associated. In the past he has been C.F.O. in Chiari & Forti S.p.A. and Stefanel S.p.A.

Mr. Reginald Bartholomew has served as Director since 1999. Prior to becoming a Vice Chairman at Merrill Lynch, he had served in the United States government for almost 30 years in various capacities in the White House and the Secretaries of State and Defense. He was United States Ambassador to Italy during the first term of President Clinton.

Mr. Alessandro Benetton, the son of Mr. Luciano Benetton, joined the Group as Director in 1998. After graduating from Boston University he received a master's degree in Economics and Business at Harvard University.

He is the Chairman of 21 Investimenti S.p.A. and a member of the Boards of Directors of Edizione Holding S.p.A., Autogrill S.p.A. and Banca Nazionale del Lavoro.

Mr. Luigi Arturo Bianchi has served as Director since April 28, 2000. He received his degree in law, summa cum laude, from Milan University. He is a professor of commercial law at Bocconi University in Milan. As a lawyer at the law firm of Bonelli Erede Pappalardo in Milan, he gives advice, in particular, with respect to corporate matters, bankruptcy proceedings and banking law. He is a member of the Control Committee of the Borsa Italiana S.p.A., of the Board of Directors of Banca Nazionale del Lavoro S.p.A., of the Editorial Committee of the legal magazine "Rivista delle Società" and of the Scientific Committee of the journal "Legal Control of Accounts".

Mr. Gianni Mion has served as Director since 1990. He graduated from Venice University in 1966 with a degree in Economics.

He joined Edizione Holding S.p.A. as Managing Director in 1986. He is member of the Board of Directors of Autogrill S.p.A., Edizione Property S.p.A., 21 Investimenti S.p.A., Autostrade S.p.A. and Sagat.

Mr. Angelo Tantazzi has served as Director since 1995. After receiving his degree from Bocconi University in Milan in 1962, he studied at the Brookings Institute in Washington. He is an Associate Professor of Political Economy at the University of Bologna. He is the Chairman of Borsa Italiana S.p.A., the Chief Executive Officer of Prometeia Calcolo and a member of the Board of Directors of several financial institutions. He has worked as a consultant to many Italian government agencies and has been a member of the Board of Directors of the Central Statistical Office.

Mr. Ulrich Weiss has served as Director since 1997. After graduating from Hamburg University with a degree in Business Administration, he joined Deutsche Ueberseeische Bank, a part of the Deutsche Bank Group. He was a member of management of the Frankfurt branch of Deutsche Bank. From 1979 until his retirement in 1998, he was member of the Board of Managing Directors of Deutsche Bank. He is currently a member of the Advisory Board of Deutsche Bank and of other Supervisory Boards and Boards of Directors in Germany and Italy.

The term of the current Directors expires at the meeting when the Company's shareholders approve the financial statements for the year ending December 31, 2003.

The executive officers of the Company, as of December 31, 2002, are set forth below (in alphabetical order).

Starting from May 2003, Pier Francesco Facchini (C.F.O.), Ariodante Valeri (Commercial Officer) and Maximo Ibarra (Marketing and Strategies Officer) are new executive officers of the Company.

Aggregate compensation paid by the Company to its directors and executive officers as a group (20 people) was approximately Euro 9.3 million (approximately Usd 9.8 million) in 2002. No compensation related to 2002 results was paid to directors and executive officers pursuant the Company's Management Incentive Plan. The aggregate compensation amount above excludes the provision for termination indemnities required by Italian law, a part of every employee's normal remuneration, the payment of which is deferred until the date of termination of employment. The amount of the termination indemnities, which are payable in full regardless of the reasons for the termination of service, is determined by an employee's length of service and the overall rate of his latest annual remuneration. The provision for termination indemnities is charged to expenses on an accrual basis. There are no provisions for pension or other retirement benefits for directors or officers.

Once again in fiscal year 2002 the Benetton Group dedicated special attention to corporate governance rules. It adopted the main innovations introduced during the year by the Code of Conduct for Listed Companies (Codice di Autodisciplina delle Società Quotate) and adapted the managerial and decision-making aspects of its organization systems accordingly.

The Corporate Governance system, as described below, follows sound management and information principles, implemented through periodic review of the efficiency and effectiveness of the Corporate Governance rules.

> Ownership of the Company. As described more specifically under the section of the Directors'Report for the fiscal year 2002 entitled "Ownership of the Company" and based on the last available survey, Edizione Holding S.p.A. and its parent company Ragione S.A.p.A. di Gilberto Benetton & C. hold, respectively, stakes of 67.144% and 2.203% in the Company.

> Board of Directors. Directors. Offices and Delegation of Powers. During fiscal year 2002, the Board of Directors held eight meetings, during which it discussed and approved industrial and financial strategic plans, organizational proposals and general policies regarding the management of human resources, the corporate structure of the Benetton Group, business trends, extraordinary operations, and quarterly and half-year results. At these meetings, the Executive Directors fully informed the Board of Directors and the Board of Statutory Auditors with respect to any transactions that were atypical, unusual or with related parties.

When Board meetings are held, Directors are supplied, in reasonable advance, with the documentation and information necessary to enable the Board to take an informed decision on the matters submitted to it for review.

Transactions of particular importance with respect to their business, capital and financial features are submitted to the Board of Directors beforehand for approval.

In compliance with company by-law provisions, the present Board of Directors, which will remain in office until shareholders' approval of year-end financial statements for the year ending on December 31, 2003, consists of 11 (eleven) Directors. Of these, the Chairman (Luciano Benetton) and the Deputy Chairman (Carlo Benetton), hold wide executive and representative powers. The Managing Director (as of May 12, 2003, Silvano Cassano) has been entrusted with more detailed powers concerning routine management. The Directors Gilberto Benetton and Giuliana Benetton hold positions concerning, respectively, Group companies' financial strategy and design and styling guidelines for the various product ranges.

There are six Non-Executive Directors in office (Reginald Bartholomew, Alessandro Benetton, Luigi Arturo Bianchi, Gianni Mion, Sergio De Simoi and Ulrich Weiss). Four of them (Reginald Bartholomew, Luigi Arturo Bianchi, Sergio De Simoi and Ulrich Weiss) are "independent" vis-à-vis Company ownership and management, in accordance with the dictates of the Code of Conduct for Listed Companies, and actively participate in Board activities.

Since May 12, 2003 the Board's members Giuliana Benetton and Carlo Benetton have no more executive and representative powers. As already indicated under letter A. Silvano Cassano replaced Luigi de Puppi as Managing Director of the Company and Sergio De Simoi has been appointed Director after Angelo Tantazzi's exit.

The following table lists Directors who also hold offices in other non-group companies, also indicating the offices held. The table includes Directors appointed in the Shareholdings' Meeting on May 12, 2003.

> Compensation Committee and Committee for Proposed Appointments of Directors. For fiscal year 2002, compensation for individual Directors was established by the Board of Directors, as indicated in Note 26 to the Consolidated Financial Statement of the Benetton Group, following the determination of the aggregate compensation for the Board of Directors by the Shareholders at the General Meeting in accordance with the By-laws. The Board of Directors, in compliance with the Code of Conduct for Listed Companies, set up a Compensation Committee with the tasks indicated by the Code: in the absence of the Directors involved, the Committee makes proposals pertaining to the compensation of the Managing Directors and of the Directors with specific assignments. Moreover, the Committee, following the instructions of the Managing Directors, fix the criteria for the top management's compensation. In its performance of this activity the Committee may engage outside advisers.

The members of the Compensation Committee are Reginald Bartholomew, Ulrich Weiss and Gianni Mion, all of whom are non-executive Directors.

Directors are appointed on the basis of a list that is held at the Company's registered offices prior to the Shareholders' Meeting, accompanied by a comprehensive outline of the personal and professional qualifications of the persons on the list.

Given the Company's present ownership structure, the Board of Directors has not yet deemed it appropriate to establish a Committee for Proposed Appointments of Directors.

> Internal Audit. Internal Audit Committee. In 2001 the Board of Directors set up the Internal Audit Committees, formed by the Directors Ulrich Weiss, Luigi Arturo Bianchi, and Angelo Tantazzi (as of May 12, 2003, Sergio De Simoi), all of whom are non-executive Directors and independent from the issuer or any subsidiary thereof and their respective management in accordance with the requirements of US federal law. In addition to the Internal Audit Committee, the Company has selected and appointed the members to the Board of Statutory Auditors, established in accordance with Italian legal provisions (see Item 10 in "Memorandum and articles of association" below for a more detailed description of the Board of Statutory Auditors).

The Internal Audit Committee has the following tasks:

- make proposals for the establishment of an internal audit department responsible for the internal audit and to determine the duties of this department;

- review periodic reports from, and the executive plan of, the persons responsible for the internal audit, as well as to promote actions for the improvement of the internal audit system;

- report to the Board of Directors, at least every 6 months, in connection with its approval of year-end financial statements and the interim report, on the activities carried out and on the adequacy of the internal audit;

- monitor compliance with, and periodic revision of, corporate governance rules;

- verify, together with the head of the administrative function and the internal auditor, the adequacy of accounting principles;

- assess, together with the head of the administrative function and the internal auditor, proposals submitted by independent auditing firms for assignment of the independent audit, making a recommendation for assignment of the task that the Board of Directors has to submit to the Shareholders' Meeting;

- evaluate the results presented in the independent auditor's report.

During fiscal year 2002 the Committee performed its tasks under the chairmanship of Mr. Ulrich Weiss, in compliance with the rules of operation adopted by the Committee.

The functionality and adequacy of the internal audit system were assured by the Managing Director. Organization and information systems were found to be able to assure, also as regards subsidiaries, monitoring of the administrative and accounting system and of the central and decentralised organizational structure. Work continued on mapping of risks concerning all Group companies' businesses, as did operational and budget control of individual businesses and auditing of internal auditing systems by outside auditors. Non-executive Directors, the Board of Statutory Auditors, and the independent auditing firm all received adequate information in this respect.

In order to improve the effectiveness and efficiency of its internal auditing system, in early fiscal year 2003 the Company introduced the Internal Auditor position.

> Handling of Confidential Information. All confidential information is managed by the Managing Director, upon consultation with the Chairman. Together, the Managing Director and the Chairman also ensure that controls are carried out with regard to the classification of confidential information in accordance with current legislation.

The Managing Director supervises legal compliance with respect to proper disclosure of information relating to the Company and, to this end, arranges and co-ordinates all suitable action by the various internal structures.

The Board of Directors approves all press releases relating to resolutions on the year's financial statements, the interim report, and the quarterly report, as well as extraordinary decisions or operations that are subject to the approval of the Board of Directors.

All communications to and relations with the press, institutional investors and individual shareholders are conducted by the Media and Communications Department and the Investor Relations Department, respectively.

During fiscal year 2002, implementing the "Regulation for Markets Organized and Managed by Borsa Italiana S.p.A." (Regolamento dei Mercati Organizzati e Gestiti da Borsa Italiana S.p.A.), the Board of Directors officially adopted the "Code of Conduct for Internal Dealing". This is designed to regulate obligations of notification and disclosure concerning transactions undertaken in financial instruments issued by Benetton Group S.p.A. by those persons defined by the Code as "important persons".

The notification obligations imposed by the Code on the "important persons" envisage tighter timing and involve wider categories of subjects and securities than does the Regulation of Borsa Italiana S.p.A. Since Benetton Group S.p.A. shares are also listed on the Frankfurt stock exchange, the Code of Conduct also implements the obligations of notification and disclosure envisaged by the Wertpapierhandelsgesetz WpHG (Securities Trading Act), Section 15a, introduced by the 4. Finanzmarktförderungsgesetz (Fourth Financial Markets Promotion Act).

> Relations with Institutional Investors and with other Shareholders. The Investor Relations Department ensures correct management of relations with financial analysts, institutional investors and individual Italian and foreign shareholders. Among other activities, this department co-ordinates activities with financial experts.

> Code of Ethics. During fiscal year 2002, the Board of Directors, coming into line with the most advanced standards of corporate governance, officially adopted the "Code of Ethics". This is designed to instill correctness, equity, integrity, loyalty and professional rigor into operations, conduct and ways of working into both relationships inside the Group and those with persons and entities outside the company. The Code places a central focus on compliance with the laws and regulations of the countries where the Group is active, as well as on compliance with company procedures. This code is applicable to the members of the Board of Statutory Auditors, employees of all Group companies together with all those who, - directly or indirectly, permanently or temporarily - have dealings and relationships with the Group or, in any case, who are active in the pursuit of Group objectives. The Code of Ethics is available on the website of the Company www.benetton.com and may be obtained free of charge upon request.

This annual report on Form 20-F will also be available on our website www.benetton.com under the heading Investor Relations.

Approximately 4,730 people were employed in Italy. At the end of 2002, about 14% of them were members of labor unions. None of the Company's facilities in Italy are operated on a "closed shop" basis. Management considers the Company to have good labor relations and the Company has not experienced work stoppages that have had a material impact on its operations.

In Italy, collective bargaining agreements for blue collar workers and for white collar employees below management level are negotiated between unions and national associations of the companies within a particular industry. The most recent agreement regarding "Sistema Moda Italia" (broadly corresponding to the textile industry), which covers most of the Group's employees in Italy, was signed in 2000. The agreement, which will expire on December 31, 2004 with respect to its economic and regulatory provisions, increased the cost of labor on average about 1 % in 2002 compared to 2001.

The decrease in the number of employees in 2002 is mainly related to the Retail Division in the Group.

For "Other Business" the split is made considering the legal entities included in this category.

The directors Luciano, Gilberto, Giuliana and Carlo Benetton, indirectly hold equal interests in the entire share capital of Edizione Holding S.p.A., the parent company of Benetton Group S.p.A. and joint owner with Ragione S.A.p.A. di Gilberto Benetton e C. of 69.347% of its share capital.

The Benetton family directors - Luciano, Gilberto, Giuliana and Carlo Benetton (and their not legally separated consorts and children who are minors) - have not held shares or quotas in Benetton Group S.p.A. or in subsidiary companies, neither directly nor through subsidiaries, trust companies, or third parties, except as mentioned below with respect to Mr. Gilberto Benetton and Mr. Alessandro Benetton.

As indicated in the statements received, during 2002 no other equity investments in the Company have been held by its other directors and statutory auditors, except those indicated in the table below:

There are currently no stock-option plans involving the Company's shares.

(1) As reported by the shareholder to CONSOB (the Italian securities regulatory authority).

Edizione is a private Italian holding company wholly owned by the Benetton family, with its corporate headquarter and main office in Treviso, Italy. There have been no changes in the percentage ownership held by Edizione during the past three fiscal years. In light of Edizione's ownership of Ordinary Shares and the director and executive officer positions held by certain members of the Benetton family, Edizione and the Benetton family control the Company.

The breakdown of ownership by shareholder nature and by the size of shareholding is highlighted in the following tables:

(2) Ragione S.A.p.A. is the controlling shareholder of Edizione Holding S.p.A.

To the best of the Company's knowledge, to date there are no arrangements which may result in a change of control of the Company.

On July 7, 1998, Edizione Participations S.A. (formerly Edizione Finance S.A)., a Luxembourg Company that is wholly owned by Edizione, issued Italian Lire 600 billion (around Euro 310 million) of Guaranteed Exchangeable Notes due July 8, 2003 (the "Edizione Notes") at 100% of principal amount maturing in five years and accruing interest at an annual rate of 2%. Edizione is guarantor of the Edizione Notes. The Edizione Notes will be exchangeable for Ordinary Shares of the Company at any time after July 7, 2000 until the maturity date at a rate of 11,214,953 Company shares per Italian Lire 600 billion principal amount of Edizione Notes. Edizione Participations S.A. has the right to pay, in lieu of delivery of the Company's Ordinary Shares to any noteholder who has exercised its exchange rights, the cash value of the Company's Ordinary Shares that would otherwise be deliverable on the settlement date. To the best of the Company's knowledge, no directors or officers of the Company hold any of these Edizione Notes.

There are no other options outstanding to purchase Ordinary Shares from the Company or any of its subsidiaries.

The Benetton Group had trading and financial dealings with other subsidiaries of Edizione Holding S.p.A. 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.

These transactions relate primarily to services.

The relevant totals appear below:

> Interest of management in certain transactions

The Group has engaged in certain transactions which mainly relate to manufacturing and commercial activities with enterprises directly or indirectly controlled by, or under influence of, key management personnel. Management believes that the terms and conditions of those transactions to be no less favorable than those which would otherwise have been available from unaffiliated third parties. Furthermore, the value of the transactions is not material to the Group in relation to the aggregate manufacturing costs of the Group. No director, member of key management or associate of such person is indebted to the Group.

Our consolidated financial statements have been audited by independent auditors in accordance with auditing standards generally accepted in the United States and Italy. For a discussion of the principal differences between Italian GAAP and U.S. GAAP relevant to Benetton, please see Note 30 to the consolidated financial statements included elsewhere in this Form 20-F. A consolidated balance sheet is presented for fiscal 2002 and 2001 along with a consolidated statement of income, statement of cash flow and statement of change in shareholders' equity which are presented for fiscal 2002, 2001 and 2000. Reference is made to Item 17 for detailed financial information.

The Group sells in about 120 countries all over the world. Sales outside Italy are for an amount equal to Euro 1,084 thousand corresponding to 54% of the total revenues of the Group. Sales outside the Euro zone amount to Euro 620 thousand corresponding to 31% of total revenues.

The Group has been a party to a number of lawsuits, primarily with customers, which have arisen in the normal course of business. There are no current or pending legal proceedings which any member of the Group is party or to which any of their assets or properties is subject which, either individually or in the aggregate, are expected by Benetton to have a material adverse effect on its consolidated financial position, liquidity, results of operations or profitability.

The dividend policy of the Company is to maintain a debt/cash flow ratio capable of guaranteeing a high credit rating in order to sustain its strategy of investments in the commercial sector, through a significant strengthening of its distribution network, and preserve a self-financing capability for growth in future years. See "Item 3: Key information" and "Item 10: Additional information"

The Company's Ordinary Shares are listed and traded on the Mercato Telematico Azionario (MTA) the Italian screen-based dealer market ("Telematico"), and the Frankfurt Stock Exchange. The shares were initially listed and traded at the Milan Stock Exchange on July 28, 1986 and at the Frankfurt Stock Exchange on October 14, 1988. American Depositary Shares (ADSs), each representing the right to receive two Ordinary Shares, were initially listed for trading on the New York Stock Exchange on June 8, 1989.

On May 27, 1998 shareholders at the Extraordinary Shareholders' Meeting resolved to split the Company's Ordinary Shares. Therefore the Ordinary Shares' par value (Italian Lire 500 as of December 31, 1997) became Italian Lire 50 resulting in a holder of Ordinary Shares being entitled to receive ten Ordinary Shares for each Ordinary Share owned. Subsequently, the nominal value per Ordinary Share was increased to Italian Lire 250 by the transfer of a portion of the share premium reserve to share capital. As a result of such transactions, effective June 22, 1998, each ADS represented 20 Ordinary Shares.

In application of the resolution of the Extraordinary Shareholders' Meeting of May 8, 2001 and effective May 21, 2001, the Company's share capital has been converted into Euro and immediately after have been reverse split (every ten old shares correspond to one new share). As a consequence, the Company's share capital is now represented by 181,558,811 new Ordinary Shares of 1.30 Euro of nominal value for a total share capital of 236,026,454.30 Euro. In line with the reverse split in the Ordinary Shares the ratio between ADSs and shares has been changed from 1 ADS = 20 Ordinary Shares, to 1 ADS = 2 new Ordinary Shares.

As of December 31, 2002, the Company's share capital amounted to 236,026,454.30 Euro divided into 181,558,811 Ordinary Shares of 1.30 Euro each.

ADSs are evidenced by American Depositary Receipts (ADRs) issued by Morgan Guaranty Trust Company of New York, as Depositary, pursuant to a Deposit Agreement dated May 31, 1989 between Morgan Guaranty Trust Company of New York and the Company (the "Deposit Agreement"). As of the dividend payment date of May 22, 2003 there were 273.486 ADSs outstanding in the United States, representing 546.972 Ordinary Shares (0.30% of the total number of outstanding Ordinary Shares). At that date, there were 98 U.S. registered holders of ADSs.

In 2002, almost all securities of the Company were traded on the Milan's Stock Exchange.

Benetton's market capitalization decreased from Euro 2,309 million at the end of 2001 to Euro 1,543 million as of December 31, 2002.

The Benetton share reference price at the end of 2002 was 8.50 Euro (-33% compared with 12.72 Euro in 2001). The Midex index demonstrated a 18.65% decrease in 2002. The capitalization at the Milan Stock Exchange at the end of 2002 totaled Euro 1,543 million. During the course of the year, average daily share trades totaled approximately 267,634. During the course of the year, the average stock price was 12.19 Euro (15.65 Euro in 2001), remaining remarkably stable in a volatile market. In the last three years, the Benetton stock has decreased in value by 62.67%, while depreciation over the five year period 1998-2002 was 42,69%.

The table below sets forth the high and low closing prices for the Ordinary Shares on the Telematico and the high and low closing prices of the ADSs on the New York Stock Exchange for the periods indicated:

> Shareholders' rights in liquidation. If the Company is liquidated or wound-up, subject to preferential rights of the holders of any outstanding savings shares, holders of Ordinary Shares will be entitled to participate in any surplus assets remaining after payment of its creditors. Under the Company's Articles of Association, its shareholders in a general meeting determine how the liquidation will be conducted and appoint one or more liquidators, determine their powers and fix their remuneration.

> Purchase by the Company of its own shares. The Company may purchase up to 10% of its shares, subject to certain conditions and limitations provided by Italian law, including that its shareholders must approve the purchase. Also, the aggregate purchase price may not exceed the earnings reserve that the Company's shareholders have specifically approved. As long the Company owns these shares, these shares will not be entitled to dividends nor to subscribe for new shares in the case of capital increases, and their voting rights will be suspended. The Company must create in its balance sheet a corresponding reserve, which it may not distribute.

> Preemptive rights. Holders of Ordinary Shares are entitled to subscribe for issuances of new shares, debentures convertible into shares and rights to subscribe for shares in proportion to their holdings, unless holders of more than 50% of the Company's shares vote to waive these preemptive rights and such waiver is necessary in the interest of the Company. There can be no assurance that holders of ADSs may be able to fully exercise any preemptive rights.

> Minority shareholders' rights. Each shareholder may challenge any resolution on which he did not vote or in respect of which he dissented on the basis that it was not adopted in conformity with applicable law or the Articles of Association of the Company, within three months from the date of the resolution (if the resolution is subject to registration in the Companies Registry, within three months from the date of the registration). Directors and statutory auditors may also challenge shareholders' resolutions on this basis.

Shareholders representing at least 5% of the Company share capital can report to a tribunal facts relating to serious irregularities in the discharge of the duties of its directors and auditors. The tribunal can order an investigation at the petitioning shareholders' expense. If the reported irregularities exist, the tribunal can call a general meeting of the Company's shareholders to address the irregularities. If the circumstances warrant, the tribunal can discharge its directors and auditors and appoint a judicial administrator, specifying his powers and the time for which he will hold office. Before the expiration of his term, the judicial administrator must call and preside over a general meeting of the Company's shareholders to select new directors and auditors or to recommend placing the Company in liquidation.

Under Italian law, there are two types of general meetings of shareholders, ordinary general meetings and extraordinary general meetings. The Company must call ordinary general meetings at least once a year, within four to six months from December 31, the close of its fiscal year. Each year, therefore, the Company normally holds an ordinary general meeting in April or May. All general meetings must be held in Italy. At ordinary general meetings, participants pass upon matters such as approval of the annual accounts, election of directors, appointment of auditors, the remuneration of directors and auditors and declarations of dividends. Amendments to the Articles of Association (including any changes to the rights of holders of the Company's stock), the issuance of debentures, the appointment and conferral of powers on liquidators and increases in the share capital must be dealt with in extraordinary general meetings.

The Company's directors may call a general meeting by giving thirty days notice of the meeting in the Gazzetta Ufficiale, and specifying the place, date, hour and agenda of the meeting. Shareholders representing at least 10% of the Company's capital can require its directors to convene a general meeting without delay by presenting its directors with an agenda for the meeting. If the Company's directors, or its Board of Statutory Auditors acting in their stead, fail to call a meeting upon this demand, the president of the tribunal may order the calling of the meeting. Although a meeting can act without notice if all the Company's shareholders are represented and all its directors and statutory auditors are present, each person present can object to the discussion of matters on which she does not feel sufficiently informed.

A quorum for an ordinary general meeting at first calling consists of shareholders representing at least one-half of the Company's share capital. Under its Articles of Association, a quorum for an extraordinary general meeting at first calling consists of shareholders representing more than one-half of the Company's share capital, and resolutions must be adopted by at least two-thirds of the share capital represented at the meeting.

If a quorum is not present at the first calling of either an ordinary or an extraordinary general meeting, the Company's directors must call the meeting again. Unless otherwise specified, the Company's directors shall call the second meeting to assemble within thirty days from the date of the first meeting by giving eight days notice in the Gazzetta Ufficiale. There is no quorum requirement for ordinary general meetings at second calling, and the agenda shall be that of the first meeting.

The Company's Articles of Association stipulate identical quorum and voting requirements for extraordinary general meetings at first and second calling.

If a quorum is not present at an extraordinary general meeting at second calling, the Company's directors can call the meeting again within thirty days of the date of this extraordinary general meeting by giving eight days notice in the Gazzetta Ufficiale. Under the Company's Articles of Association, a quorum for an extraordinary general meeting at third calling consists of shareholders representing more than one-third of the share capital. The agenda shall be the same as that of the extraordinary general meeting at second calling, and resolutions must be passed by representatives of at least two-thirds of the share capital represented at the meeting.

All shareholders who are entered in the Company's share register at least five days before the day set for a meeting and those who, within the same time limit, have deposited their shares at its legal address or at the banking institutions indicated in the notice of the meeting, can participate in the meeting. Shareholders may retrieve their share certificates following the meeting.

Shareholders can attend a meeting by proxy if they confer a proxy in writing that specifically identifies the person representing the shareholder. No proxy may represent more than 200 shareholders.

The Company's Board of Directors currently consists of eleven directors. A person need not hold any of the Company's shares to qualify as a director. There is no mandatory retirement age for the Company's directors. The Company's directors are elected at ordinary general meetings by a majority of votes cast. A director may be removed from office at an ordinary general meeting at any time, but is entitled to receive damages if the removal is without cause.

Under Italian law, when a vacancy of one or more directors occurs, the Company's remaining directors, with the approval of its Board of Statutory Auditors, select replacements. The directors so appointed remain in office until the Company's next ordinary general meeting. If the number of the Company's directors falls below 6, the Company's Board of Statutory Auditors must immediately call a general meeting of its shareholders for the appointment of a new Board of Directors. The Company's general meeting of shareholders determines the remuneration of its directors. The Company's Board of Directors, after consulting with its Board of Statutory Auditors, establishes any additional remuneration its directors receive as compensation for their services as officers, if any.

Under Italian law, the Company's directors have a duty to exercise due care and a duty of loyalty. Unless they dissent and give notice to the Chairman of the Board of Statutory Auditors, the Company's directors are liable if they fail to supervise the general conduct of its affairs or prevent acts prejudicial to it of which they are aware. Directors may also be liable to the Company's creditors for failing in their duty to preserve its assets.

As a result of the directors' duty of loyalty, a director is forbidden from pursuing its own interests or third parties interests conflicting with the Company's interests. If a director, in a given transaction, has an interest in conflict with that of the Company either for his own account or for the account of third persons, he must inform the Board of Directors and the Board of Statutory Auditors and abstain from participating in the decisions concerning such transaction. According to Italian law, a resolution taken by one or more directors with a conflict of interests is voidable upon action of those directors who were absent or dissenting, if the resolution may harm the Company and subject to the fact that there was no majority to pass the resolution without the vote of the director(s) with a conflict of interests.

For further disclosure on the Company's Directors, see "Item 6: Directors, Senior Management and Employees".

The Company's Board of Statutory Auditors plays an essential supervisory role in its management. Among other responsibilities, they make sure the Company complies with applicable law and its Articles of Association and verify the keeping of its accounts. In addition, under its Articles of Association, the Company's Board of Directors regularly reports to its Board of Statutory Auditors on its activities and on the Company's more significant financial transactions, including transactions which might involve a conflict of interests. The Company's Board of Directors makes these reports at least once every three months.

Under Italian law, although the Compans statutory auditors meet at least once every three months, they can proceed at any time, either as a group or individually, with acts of inspection and supervision. The Company's statutory auditors also attend meetings of the Company's Board of Directors and shareholders meetings. The general meeting of the Company's shareholders sets the remuneration of its auditors at the time of their appointment. Under the Company's Articles of Association, meetings of its Board of Statutory Auditors may be called at any time by at least two auditors, and its Board of Statutory Auditors may call a shareholders' meeting or a meeting of its Board of Directors.

The Company's Board of Statutory Auditors consists of three standing members and two alternates. The members of the Board of Statutory Auditors currently in office are Mr. Angelo Casò, Mr. Filippo Duodo and Mr. Dino Sesani. Auditors serve terms of three years, and can be re-appointed. Under Italian law, auditors can only be removed for cause. At least one standing auditor and one alternate auditor must be selected from those enrolled in the Register of Public Accountants and have reviewed companies' accounts for a period of not less than three years. The other members of the Board of Statutory Auditors, who do not possess the above mentioned requirements, must have acquired at least three years of experience in administration and financial control or professional services, teaching or managing positions in fields strictly related to the Company activities, specifically listed in the Articles of Association. The Company's Articles of Association set forth the process for the appointment of its auditors, which takes place on the basis of lists that shareholders who, in the aggregate, own more than 5% of its Ordinary Shares present at an ordinary general meeting. People who already hold positions as auditors in more than five other companies listed in regulated Italian markets may not be appointed as auditors. The Company's Articles of Association also details procedures, based on these lists, for the replacement of auditors in the event a vacancy arises.

Under Italian law, the Company's auditors must take any shareholder complaint into account in their report at the Company's shareholders meeting. If shareholders representing at least 5% of the Company's share capital submit a complaint, its Board of Statutory Auditors must promptly investigate the complaint and submit their findings and recommendations at its next general meeting. The Company's Board of Statutory Auditors must call a general shareholders meeting immediately if the findings show an urgent necessity to take action.

The Company's Articles of Association do not contain any provisions that would have the effect of delaying, deferring or preventing a change in control of us and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company or any of its subsidiaries.

The Company's Articles of Association do not require shareholders to disclose their shareholdings.

The Group has had transactions in the normal course of business with various third parties. One material contract involving the Group is the "Agreement for the Sale and Purchase of Benetton (UK) Limited" between Benetton International N.V. S.A., Renault Group B.V. and Benetton Group S.p.A. with respect to the sale of the entire allotted and issued share capital of Benetton (UK) Ltd. This transaction was completed on March 15, 2000. The Company is a guarantor of the obligations of Benetton International N.V. S.A. under the sale and purchase agreement. Another material contract involving the Group is the long-term loan entered into by Benetton Gesfin S.p.A. on July 31, 2000. In 2003 the Company entered in certain material contracts for the sale to third parties of its sports equipments business:

1. Sale Agreement, dated as of January 31, 2003, between Benetton Group S.p.A. and Tecnica S.p.A. under which Benetton agreed to sell the Nordica brand to Tecnica for a consideration of Euro 38 million (for the intellectual property alone, including the Nordica trademark) and acquired 10% of the share capital of Tecnica for a consideration of Euro 15 million.
2. Binding Preliminary Agreement, dated as of March 5, 2003, between Benetton Sportsystem USA Inc. and Prime Newco, for the sale of the Rollerblade brand to Prime Newco, a member of the Tecnica Group, for a consideration of Euro 20 million, payable upon completion of the sale, is scheduled to June 30, 2003. On the closing date, subject to separate valuation, other components of the business and the entire interest in the Swiss subsidiary, Benetton Sportsystem Schweiz A.G., will also be transferred to Prime Newco. As additional consideration with regard to the transfer of know-how, the Group will receive 1.5% of the Rollerblade brand sales for the next five years, with a minimum guaranteed payment of Euro 5 million; the Benetton Group is entitled to the operating profit for the first six months of 2003.
3. Sale Agreement, dated as of April 30, 2003, between Benetton Sportsystem USA Inc. and Lincolnshire Management Inc. under which Benetton agreed to sell the Prince and Ektelon brands to Lincolnshire Management Inc. for a consideration of Euro 36.5 million, payable in two instalments of Euro 10 million (paid on April 30, 2003) and Euro 26.5 million (payable in January 2004).
4. In July 2002, Benetton Group S.p.A. issued a Euro 300 million bond called "Floating Rate Notes", repayable on July 26, 2005, bearing floating-rate interest, which was 3.74% at year end. The bonds are listed on the Luxembourg Bourse. This issue replaces a bond maturing in July 2002 amounting to approximately Euro 258 million.

Currently, there are no Italian exchange controls or other laws, decrees or regulations that restrict the export or import of capital or that affect the remittance of dividends or other payments to holders of the Company's securities who reside outside of Italy. The Company is not aware of any plans by the Italian authorities to institute any exchange controls or other regulations that would restrict the export or import of capital or that would affect the remittance of dividends or other payments to holders of ADSs or Ordinary Shares who reside outside of Italy.

Under the Deposit Agreement, the record holders of ADRs at the close of business on the date specified by the Depositary are entitled, after being timely informed by the Depositary of any meeting of holders of Ordinary Shares, to instruct the Depositary in writing as to the exercise of the voting rights, if any, pertaining to the Ordinary Shares represented by their respective ADSs. The Depositary will endeavor, insofar as practicable, to vote or cause to be voted the Ordinary Shares so represented in accordance with such instructions.

Neither Italian law nor the constituent documents of the Company impose any limitations on the right of nonresident or foreign owners to hold or vote the Ordinary Shares.

The following is a summary of certain United States federal and Italian tax matters. The summary contains a description of the principal United States federal and Italian tax consequences of the purchase, ownership and disposition of Ordinary Shares or ADSs by a US holder, as defined below. This summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase Ordinary Shares or ADSs.

In particular, the summary deals only with US holders who will hold Ordinary Shares or ADSs as capital assets and does not address the tax treatment of a US holder (i) who owns 10% or more of the voting shares directly or through attribution; (ii) who holds the Ordinary Shares or ADSs in connection with a permanent establishment or fixed base through which the US holder carries on or performs personal services; (iii) who holds Ordinary Shares or ADSs as a part of an integrated investment (including a "straddle") consisting of the Ordinary Shares or ADSs and one or more other positions; (iv) who is a securities dealer, an insurance company, a bank, a tax-exempt organization, or a partnership or other pass-through entity; or (v) whose functional currency is not the U.S. dollar. In addition, the following discussion does not address any aspect of state, local or non-US tax laws (other than certain Italian tax laws). This discussion is based in part on the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.

The summary is based upon tax laws and practice of the United States and Italy as in effect on the date of this annual report on Form 20-F and the income tax convention between the United States and Italy (the "Income Tax Convention"), in each case as in force and as applied in practice on the date of this annual report on Form 20-F and in each case subject to change, possibly on a retroactive basis. Prospective purchasers and current holders of Ordinary Shares or ADSs are advised to consult their own tax advisors as to the US, Italian or other tax consequences of the purchase, beneficial ownership and disposition of such shares or ADSs, including, in particular, the effect of any state, local or national tax laws.

For purposes of this section, a US holder means (i) an individual citizen or resident of the United States; (ii) a corporation, or other entity taxable as a corporation, created or organized under US law; or (iii) an estate or trust, the income of which is subject to US federal income taxation regardless of its source, or a trust, if a court within the United States is able to exercise primary jurisdiction over its administration and one or more US persons have the authority to control all of its substantial decisions.

> Italian taxation For purposes of the Income Tax Convention, the current estate tax convention between the United States and Italy (the "Estate Tax Convention") and the United States Internal Revenue Code of 1986, holders of American Depositary Receipts evidencing ADSs will be treated as the beneficial owners of the underlying shares represented by those ADSs.

> Income tax withholding on dividends. Italian law provides for the withholding of income tax at a 27% rate on dividends paid by Italian companies to shareholders who are not residents of Italy for tax purposes. Accordingly, the amount initially made available to the Depositary for payment to U.S. owners will reflect withholding at the 27% rate.

Under domestic Italian law, a non-resident holder of shares may recover up to four-ninths of the tax withheld on dividends by presenting evidence to the Italian tax authorities that income tax has been fully paid on the dividends in the non-resident holder's country of residence in an amount at least equal to the total refund claimed. Non-resident holders seeking such payments from the Italian tax authorities have incurred expenses and experienced extensive delays.

Under the Income Tax Convention, the rate of withholding tax on dividends is reduced to 15%, for holders that own less than 10% of the Ordinary Shares of a company.

Under current Italian law, all shares of Italian listed companies must be held in a centralized clearing system authorized by CONSOB. Under applicable tax provisions, if the shares are held through the centralized clearing system managed by Monte Titoli S.p.A. (the only such system currently authorized in Italy), no withholding tax on dividends is applied by the Company. Instead of the withholding tax a substitute tax (imposta sostitutiva) is applied on dividend distributions to non-resident holders of Ordinary Shares (or ADSs relating to such shares) at a rate equal to the withholding tax that would otherwise be due. The substitute tax is withheld by the resident or non-resident intermediary with which the shares are deposited and which participates in the Monte Titoli system (directly or through a foreign centralized clearing system participating in the Monte Titoli system). The procedures to be followed by a non-resident holder in order for the intermediary with which the shares are deposited to apply a reduced rate of tax pursuant to the Income Tax Convention are as follows.

The intermediary must receive (i) a declaration of the non-resident holder that contains certain information identifying the non-resident holder and indicating the existence of all the conditions necessary for the application of the Income Tax Convention and the determination of the applicable treaty rate of withholding and (ii) an appropriate certification by the US Internal Revenue Service on Form 6166 and a statement whereby the US holder represents to be a US resident individual or corporation and does not maintain a permanent establishment or a fixed base in Italy.

If the shares are deposited with a non-resident intermediary, such intermediary must appoint as its fiscal representative in Italy a bank or an investment services company that is resident in Italy, or the permanent establishment in Italy of a non-resident bank or investment services company, to carry out all duties and obligations relating to the application and administration of the substitute tax.

Since the Ordinary Shares underlying the ADSs will be held by the custodian in the centralized clearing system managed by Monte Titoli, the substitute tax regime described above will apply to the ADSs. In order to enable eligible US holders to obtain a reduction at source or a refund of withholding tax under the Treaty, the Company and the Depositary have agreed to certain procedures. In accordance with the procedures, the Depositary will send holders of the ADSs certain instructions before the dividend payment date specifying the documentation required in order to qualify for treaty relief and the deadlines for submission. The documentation generally will include the holder's declaration and the tax certification described in clauses (i) and (ii) above.

If a US holder does not provide documents to the Depositary that satisfy the requirements described above, the intermediary will withhold tax at the 27% rate. A US holder that qualifies for a reduced rate of tax on dividends pursuant to the Income Tax Convention but does not provide documents to the Depositary that satisfy the requirements described above, will be required to claim a refund of 12% of the dividend (representing the difference between 27% and the 15% rate provided by the Income Tax Convention) directly from the Italian tax authorities by filing an appropriate claim for refund with the Italian tax authorities, together with any required supporting documentation.

Capital gains derived by a US holder who is eligible for the benefits of the Income Tax Convention upon the sale or other disposition of Ordinary Shares or ADSs will not be subject to capital gains tax unless the shares or ADSs are part of the business property of a permanent establishment of the US holder in Italy or pertain to a fixed base available to a holder in Italy for the purpose of performing independent personal services. US holders who sell Ordinary Shares or ADSs may be required to produce a declaration establishing that the above-mentioned conditions under the Income Tax Convention have been satisfied.

> Transfer tax. An Italian transfer tax is normally payable on the transfer of shares in an Italian company. The transfer tax is currently payable at the following rates:

• 1.40 Euro per 1,000 Euro of the price at which the Ordinary Shares or ADSs are transferred when the transfer is made between private individuals;
• 0.50 Euro per 1,000 Euro of the price at which the Ordinary Shares or ADSs are transferred when the transfer is made between a bank and a private individual or through a stockbroker, or securities house;
• 0.12 Euro per 1,000 Euro of the price at which the Ordinary Shares or ADSs are transferred when the transfer is made between intermediaries.

The transfer tax will not be payable with respect to any transfer of Ordinary Shares or ADSs involving non-Italian residents concluded either on a regulated market or with the intervention of a bank or an investment services company. Deposits and withdrawals of Ordinary Shares in return for ADSs by non-Italian residents will not be subject to this transfer tax.

> Estate and gift tax. Italian estate tax no longer applies to transfers of Ordinary Shares or ADSs occurring after October 25, 2001. Italian gift tax no longer applies to transfers of Ordinary Shares or ADSs to a spouse, direct descendants or other relatives up to the fourth degree of kinship. Italian gift tax may be payable on transfers of Ordinary Shares and ADSs other than those described above, even if the Ordinary Shares or ADSs are held outside Italy, where the donors are Italian residents at the time of the gift. However, the tax is applicable only to the value of the transferred property in excess of Euro 180,760 in an amount equal to a fixed registration tax of Euro 129.11. Where an Italian tax resident is a beneficiary of the transfer deed, such deed, even if executed abroad, must be duly registered within 60 days at the Registry Office. Double taxation treaties may reduce Italian gift tax. Under the Estate Tax Convention, a credit for the amount of any estate tax imposed by Italy and attributable to the Ordinary Shares or ADSs will, subject to certain limitations, be allowed against the tax imposed in respect of the Ordinary Shares or ADSs by the United States on the estate of a deceased person who, at the time of death, was national of, or domiciled in, the United States. There is currently no gift tax convention between Italy and the United States.

> United States federal income taxation

> Taxation of dividends. Distributions paid with respect to Ordinary Shares or ADSs (including the amount of any Italian taxes withheld therefrom) generally will be includible in the gross income of a US holder as foreign source dividend income to the extent that such distributions are paid out of the Company's current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent, if any, the amount of a distribution exceeds the Company's current or accumulated earnings and profits as so computed, it will first reduce the US holder's adjusted tax basis in its Ordinary Shares or ADSs and, to the extent the distribution exceeds the holder's adjusted tax basis, it will be treated as capital gain. Dividends will not be eligible for the dividends received deduction which is generally available to US corporate shareholders.

Recently enacted legislation reduces to 15 percent the maximum tax rate for certain dividends received by individuals through taxable years beginning on or before December 31, 2008, so long as certain holding period requirements are met. Dividends received from "qualified foreign corporations" generally qualify for the reduced rate. A non-US corporation generally will be considered to be a qualified foreign corporation with respect to any dividends paid with respect to stock if that stock is readily tradable on an established securities market in the United States or if the corporation is eligible for the benefits of a comprehensive income tax treaty with the United States which the Secretary of the Treasury determines is satisfactory for purposes of this provision and which includes an exchange of information program. The Conference Report issued by the US Congress in connection with the new legislation states that a non-US corporation will be considered a qualified foreign corporation if it is eligible for the benefits of a comprehensive US income tax treaty (other than the US-Barbados tax treaty) that includes an exchange of information program (including the Income Tax Convention, as currently in effect) until the Treasury Department issues guidance. Therefore, dividends paid with respect to the ADSs will qualify for the reduced rate, but until further guidance is issued, no assurance can be given that the reduced rate will apply to dividends paid with respect to the Ordinary Shares. Special rules apply for purposes of determining the recipient's investment income (which limits deductions for investment interest) and foreign income (which may affect the amount of foreign tax credit) and to certain extraordinary dividends. US Holders who are individuals are advised to consult their own tax advisors regarding the possible applicability of the reduced rate under the new legislation and the related restrictions and special rules.

The amount of any cash distribution paid in Euros with respect to the Ordinary Shares or ADSs will be equal to the U.S. dollar value of the distribution, including the amount of any Italian taxes withheld therefrom, determined at the spot exchange rate in effect on the date the distribution is received (in the case of ADSs, the date the distribution is received by the Depositary), regardless of whether or not the distribution is in fact converted into U.S. dollars. A US holder should not recognize any foreign currency gain or loss if the Euros are converted into U.S. dollars on the day they are received. Any gain or loss upon a subsequent sale or other disposition of the Euros will be ordinary income or loss for US federal income tax purposes and will be US source gain or loss.

Subject to the limitations on foreign tax credits generally, a US holder may elect to treat the Italian tax withheld on dividends as foreign income tax eligible for credit against such US holder's US federal income taxes. A US holder will be denied a foreign tax credit if that US holder has not held the Ordinary Shares or ADSs for a minimum period or to the extent that US holder is under an obligation to make related payments with respect to substantially similar or related property. Amounts withheld in excess of the applicable Income Tax Convention rate in respect of dividends paid to a US holder that qualifies for the benefits of the Income Tax Convention will not be eligible for credit against the US holder's United States federal income tax liability, but the US holder may claim a refund from the Italian tax authorities. See "Italian Taxation - Income Tax Withholding on Dividends." As an alternative to claiming a foreign tax credit, a US holder may claim a deduction for Italian tax withheld, but only for a year in which the US holder elects to do so with respect to all foreign income taxes. If a US holder is denied a foreign tax credit due to the holding period requirement described above, however, the US holder may claim a deduction for the taxes for which the credit is disallowed even if such US holder claimed the foreign tax credit for other taxes in the same year. The overall limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by the Company will generally constitute "passive income," or, in the case of certain US holders, "financial services income." The rules relating to the determination of the foreign tax credit are complex, and therefore, each US holder is urged to consult with its tax advisor to determine whether and to what extent such holder would be entitled to this credit.

> Sales or other dispositions. A US holder will recognize capital gain or loss for US federal income tax purposes on the sale or other disposition of the Ordinary Shares or ADSs. Any such gain or loss generally will be US source gain or loss. Such gain or loss will be long-term capital gain or loss if the US holder owns the Ordinary Shares or ADSs for more than one year and will generally be taxed at a rate of 20%. Recently enacted legislation generally reduces to 15% the maximum tax rate for long-term capital gains of individuals from the sale of shares in taxable years beginning on or before December 31, 2008.

> Reportable Transactions. Under recently promulgated United States Treasury regulations, US Holders that participate in "reportable transactions" (as defined in the regulations) must attach to their federal income tax returns a disclosure statement on Form 8886. US Holders should consult their own tax advisers as to the possible obligation to file Form 8886 with respect to the purchase, ownership or disposition of ordinary shares, or any related transaction, including without limitation, the disposition of any Euros (or other foreign currency) received as a dividend or as proceeds from the sale of Ordinary Shares or ADSs.

The documents concerning the Company which are referred to in this Form 20-F may be inspected upon request at the Company's registered office, i.e. Via Villa Minelli, 1 31050 Ponzano Veneto, Treviso, Italy.

The Group is exposed to market risks from fluctuations in foreign currency rates and interest rates which may adversely effect its economic results. In order to mitigate the impact of these fluctuations the Group regularly assesses its risk exposure and manages such risk exposure through the use of financial derivative instrument such as spot, outright, foreign currency swap, interest rate swap and forward rate agreements. According to the Group's guidelines, financial derivative instruments are used only for hedging purposes and not for trading or other speculative purposes.