Financial instruments and financial risk management

CASH AND CASH EQUIVALENTS

Cash and cash equivalents amount to Euro 85,209 thousand versus Euro 102,461 thousand as of December 31, 2011 and break down as follows:

(in thousands of Euro)	12.31.2012	12.31.2011
Short-term cash investments	84,627	102,369
Cheques	521	16
Cash on hand	61	76
TOTAL	85,209	102,461

“Short-term cash investments” earn interest at a floating rate.

For further details, please refer to the Analysis of the Net Financial Position in note 22 and to the Consolidated Cash Flow Statement included in the financial statements.

As of December 31, 2012, the Group has unutilised lines of credit for the amount of Euro 246,765 thousand. These funds are available for use on demand, because the conditions required for their availability are met.

Please note that this item includes Euro 4,117 thousand held by the Argentinian subsidiaries; use of this amount is temporarily subject to government restrictions that require an official authorisation of foreign payments (including dividend payouts).

OTHER FINANCIAL ASSETS

“Other financial assets” can be broken down as follows:

(in thousands of Euro)	12.31.2012	12.31.2011
Securities held for trading	15	11
Held-to-maturity investments	8,199	1,893
Assets for derivative financial instruments	15	8
TOTAL	8,229	1,912

“Securities held for trading” are measured at fair value based on official sources at the time the financial statements are drawn up. They represent readily marketable securities which are used by the companies to optimise cash management.
“Held-to-maturity investments” are valued at amortised cost and include bonds of a Spanish prime banking institution.
“Assets for derivative financial instruments” total Euro 15 thousand and refer to the fair value of forward foreign exchange contracts. Further details can be found in the analysis of financial instruments contained in note 39.

TRADE AND OTHER RECEIVABLES

Current receivables break down as follows:

(in thousands of Euro)	12.31.2012	12.31.2011
Trade receivables	156,245	179,663
Less: allowance for doubtful accounts	5,263	5,319
Trade receivables, net	150,982	174,344
Due from subsidiaries	4,179	4,311
Tax receivables	21,815	19,564
Other receivables	32,477	32,141
Other assets	3,559	2,800
TOTAL	213,012	233,160

“Trade receivables, net” are non-interest bearing and have an average due date of 42 days, against 45 days recorded at the end of the previous year.
It should be noted that as of December 31, 2012, the Group factored trade receivables for Euro 65,114 thousand (Euro 57,557 thousand as of December 31, 2011), including an amount of Euro 34,151 thousand which was not notified and for which the Group continues to manage collection services. The risks and benefits related to these receivables have been transferred to the factor; therefore these receivables have been derecognised in the Statement of Financial Position debiting the consideration received from the factoring company.

If the factoring transactions (Euro 65,114 thousand as of December 31, 2012 and Euro 57,557 thousand as of December 31, 2011) are excluded, new trade receivables show a decrease of Euro 15,860 thousand for the most part due to a slowdown in business during the last portion of the year 2012 compared to the previous year and to a negative exchange effect (Euro 4,575 thousand).

Further adjustments were booked to “Allowance for doubtful accounts” during the year for a total of Euro 706 thousand, against net utilisations of the allowance for the amount of Euro 731 thousand (see note 39 for further details). Writedowns, net of provisions not used during the period, were charged to Income Statement under the item “Variable cost of sales – Variable sales and distribution costs”.

“Due from Parent Company” as of December 31, 2012 is the amount receivable from the Parent Company CIR S.p.A. arising from the participation in the Group tax filing system on the part of the Italian companies of the Group.
See chapter F for the terms and conditions governing these receivables from CIR S.p.A..

“Tax receivables” as of December 31, 2012 include tax credits due to the Group companies by the tax authorities of the various countries. The increase in this item mainly reflects increased VAT credits. It does not include deferred taxes which are treated separately.

“Other receivables” are made up as follows:

(in thousands of Euro)	12.31.2012	12.31.2011
Amounts due from social security institutions	468	276
Amounts due from employees	293	235
Advances to suppliers	1,289	1,475
Due from others	30,427	30,155
TOTAL	32,477	32,141

"Due from others" include an indemnification asset of Euro 23,368 thousand owed by the seller of Systèmes Moteurs S.A.S.’s shares relating to the recovery of expenses charged by customers following claims on the quality of products sold, based on warranties given by the same seller (after possible partial indemnities obtained from insurers and suppliers). This amount was booked during the Purchase Price Allocation process as outlined in “Note 2.2 Business combinations”.

The item “Other assets” essentially includes accrued income and prepayments on royalties, insurance premiums, indirect taxes relating to buildings and on costs incurred for sales activities. The increase in this item reflects for the most part prepaid rents of subsidiary Sogefi Filtration do Brasil Ltda relating to the year 2013.

OTHER FINANCIAL ASSETS AVAILABLE FOR SALE

As of December 31, 2012, these totalled Euro 489 thousand, compared with Euro 490 thousand as of December 31, 2011 and break down as follows:

(in thousands of Euro)	12.31.2012	12.31.2011
Equity investments in other companies	489	490
Other securities	-	-
TOTAL	489	490

The balance of “Equity investments in other companies” essentially refers to the 22.62% shareholding in the company AFICO FILTERS S.A.E.. The equity investment was not classified as associate due to the lack of group’s members in the management bodies of the company.

FINANCIAL RECEIVABLES AND OTHER NON-CURRENT RECEIVABLES

As at December 31, 2012, there are no non-current trade receivables. The amount of Euro 918 thousand pertaining to subsidiary Systèmes Moteurs S.A.S. as at December 31, 2011 was reclassified under short-term items because it is repayable within the next twelve months.

“Other receivables” break down as follows:

(in thousands of Euro)	12.31.2012	12.31.2011
Substitute tax	576	576
Pension fund surplus	12,864	11,298
Other receivables	3,582	2,228
TOTAL	17,022	14,102

“Substitute tax” refers to the amount paid by the Holding Company Sogefi S.p.A. for the revaluation of buildings at the end of 2005.

“Pension fund surplus” refers to the subsidiaries Sogefi Filtration Ltd, since the company presents a reimbursement right for the contingent surplus at the end of the plan. For further details, refer to note 19.

The item “Other receivables” mainly includes tax credits, including fiscal credits on purchases of assets made by the Brazilian subsidiaries, and non-interest bearing guarantee deposits for leased properties. These receivables will be collected over the coming years.

The increase in the item reflects the non-current portion of prepaid rents of subsidiary Sogefi Filtration do Brasil Ltda relating to the year 2014 for the amount of Euro 590 thousand, tax credits of subsidiaries Allevard Rejna Autosuspensions S.A. and S.ARA Composite S.A.S. for the amount of Euro 447 thousand for research and development activities, and other receivables mainly consisting in tax credits for the remaining portion.

FINANCIAL DEBTS TO BANKS AND OTHER FINANCING CREDITORS

These break down as follows:

Current portion

(in thousands of Euro)	12.31.2012	12.31.2011
Bank overdrafts and short-term loans	8,377	9,827
Current portion of medium/long-term financial debts	89,596	46,962
of which: leases	814	1,674
TOTAL SHORT-TERM FINANCIAL DEBTS	97,973	56,789
Other short-term liabilities for derivative financial instruments	1,011	632
TOTAL SHORT-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS	98,984	57,421

 

Non-current portion

(in thousands of Euro)	12.31.2012	12.31.2011
Financial debts to banks	267,773	330,462
Other medium/long-term financial debts	8,821	7,916
of which: leases	4,880	5,686
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS	276,594	338,378
Other medium/long-term liabilities for derivative financial instruments	13,708	8,416
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS	290,302	346,794

 

Bank overdrafts and short-term loans

For further details, please refer to the Analysis of the Net Financial Position in note 22 and to the consolidated Cash Flow Statement included in the financial statements.

Current portion of medium/long-term financial debts

As of December 31, 2012, this item principally includes the following loans:

• the current portion of Euro 27,850 thousand of a Euro 100,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Unicredit S.p.A. in 2006 (the residual amount as of December 31, 2012 was Euro 33,276 thousand). The loan expires in March 2014 and has a floating interest rate corresponding to the 3-month Euribor plus a base spread of 70 basis points. The spread actually applied at the end of 2012 corresponded to 90 basis points. The loan is not secured against any of the company's assets. During the year, the Holding Company benefited from a temporary suspension of capital payments due on July 31 and on October 31, 2012 (for a total amount of Euro 11,100 thousand) granted to entities affected by the earthquake that affected the Mantua area in May 2012. As a result of this suspension, the final expiry date of the loan was put off from September 2013 to March 31, 2014;
• the current portion of Euro 10,000 thousand of a Euro 40,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from the Banca Europea degli Investimenti (BEI) in 2010 (the residual amount as of December 31, 2012 was Euro 34,838 thousand). The loan expires in April 2016 and has a floating interest rate corresponding to the 3-month Euribor plus an average spread of 256 basis points. The loan is not secured against any of the company's assets;
• the current portion of Euro 6,250 thousand of a Euro 25,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Banca Monte de Paschi di Siena S.p.A. in 2011 (the residual amount as of December 31, 2012 was Euro 24,793 thousand). The loan expires in December 2016 and has a floating interest rate corresponding to the 3-month Euribor plus a base spread of 150 basis points. The spread actually applied at the end of 2012 corresponded to 200 basis points. The loan is not secured against any of the company's assets;
• the current portion of Euro 6,000 thousand of a Euro 60,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Intesa Sanpaolo S.p.A. in 2011 (the residual amount as of December 31, 2012 was Euro 59,471 thousand), divided into two tranches of Euro 30,000 thousand each, with one tranche at amortised capital instalments starting in June 2013 and one of the revolving type made available in December 2012. The loan expires in December 2016 and has a floating interest rate corresponding to the 3-month Euribor plus a base spread of 200 basis points. The spread actually applied at the end of 2012 corresponded to 230 basis points. The loan is not secured against any of the company's assets;
• a Euro 6,533 thousand loan denominated in Brazilian real obtained by the subsidiary Sogefi Filtration do Brasil Ltda from Banco do Brasil in 2010 (the residual amount as of December 31, 2012 corresponded to the full amount). The loan expires in July 2013 and has a 4.5% fixed interest rate. The loan is not secured against any of the company's assets;
• a Euro 5,959 thousand loan (partly denominated in Euro and partly in Renminbi) obtained by the subsidiary Shanghai Sogefi Auto Parts Co., Ltd from Unicredit in 2012 (the residual amount as of December 31, 2012 corresponded to the full amount). The loan expires in May 2013 and has a floating interest rate corresponding to the six-monthly PBOC multiplied by 130% for the portion denominated in Renminbi, whereas the portion denominated in Euro has an interest rate established by Unicredit (“cost of funding”) plus a spread of 250 basis points. The loan is not secured against any of the company's assets;
• the current portion of Euro 4,677 thousand of a Euro 25,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Banca Carige S.p.A. in 2011 (the residual amount as of December 31, 2012 was Euro 23,602 thousand). The loan expires in September 2017 and has a floating interest rate corresponding to the 3-month Euribor plus a fixed spread of 225 basis points. During the year, the Holding Company benefited from a temporary suspension of the capital payment due on September 30, 2012 (for a total amount of Euro 1,142 thousand) granted to entities affected by the earthquake that affected the Mantua area in May 2012. As a result of this suspension, the final expiry date of the loan was put off from June 30, 2017 to September 30, 2017. The loan is not secured against any of the company's assets;
• the current portion of other minor medium/long-term loans, including financial lease payments in accordance with IAS 17.

Other short-term liabilities for derivative financial instruments

The item includes the short-term portion of the fair value of interest risk hedging contracts and exchange risk hedging contracts.
Reference should be made to chapter E for a further discussion of this matter.

Medium/long-term financial debts

This mainly includes the following loans:

• Euro 115,277 thousand reflect drawdowns on the five-year syndicated revolving loan for a total of Euro 200,000 thousand obtained by the Holding Company Sogefi S.p.A. on December 4, 2012 from banks IMI, BNP Paribas, ING Bank N.V. and Mediobanca, with a portion of Euro 120,000 thousand at amortised capital instalments and a portion of Euro 80,000 thousand of the revolving type, expiring in December 2017. Base spreads are 425 basis points on Euribor for the amortised portion and 350 basis points on Euribor for the revolving portion. In December, the Holding Company Sogefi S.p.A. paid Euro 4.6 million comprising up front fees, documentation fees and registry duty in relation to this loan. On December 20, 2012 the Holding Company Sogefi S.p.A. drew down the entire amount of Euro 120,000 thousand of the loan portion at amortised capital instalments.
  As at December 31, 2012 the spread applied to this syndicated loan was 425 basis points on 3-month Euribor.
  The loan is not secured against any of the company's assets.
  As it drew down the Euro 120 million portion of the new syndicated loan, the Holding Company Sogefi S.p.A. extinguished the syndicated loan of Euro 140 million obtained in June 2008 from lead banks Ing Bank N.V. and Intesa Sanpaolo S.p.A. which expires in June 2013;
• the medium-long term portion of Euro 5,426 thousand of the Euro 100,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Unicredit S.p.A. in 2006;
• the medium-long term portion of Euro 24,838 thousand of the Euro 40,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from the Banca Europea degli Investimenti (BEI) in 2010;
• the medium-long term portion of Euro 18,543 thousand of the Euro 25,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Banca Monte dei Paschi di Siena S.p.A. in 2011;
• the medium-long term portion of Euro 53,471 thousand of the Euro 60,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Intesa Sanpaolo S.p.A. in 2011;
• the medium-long term portion of Euro 18,925 thousand of the Euro 25,000 thousand loan obtained by the Holding Company Sogefi S.p.A. from Banca Carige S.p.A. in 2011.

On December 19, 2012, the Holding Company Sogefi S.p.A. extinguished the loan of Euro 40 million signed with Banca Nazionale del Lavoro S.p.A. in July 2011 and expiring in January 2013.

On December 21, 2012 the Holding Company Sogefi S.p.A. entered into a loan agreement for a total amount of Euro 15 million at amortised capital instalments with Banco do Brasil S.A.. The loan expires in December 2016 and provides for a fixed spread of 315 basis points on Euribor. As at December 31, 2012, the Holding Company Sogefi S.p.A. has not drawn down this loan.

Please note that as at December 31, 2012 the Canadian subsidiary Sogefi Engine Systems Canada Corp. has a loan agreement with GE Capital for a total amount of Euro 6,471 thousand, Euro 5,727 thousand of which are classified as medium/long-term loans. As at December 31, 2012 one contract provision concerning guarantees given to the bank was not complied with in full. GE Capital later issued a waiver to release the company from these guarantees. Considering the situation as at December 31, 2012, it was deemed appropriate to maintain the existing loan classification partly as short-term debts and partly as medium/long-term debts.

The item "Other medium/long-term financial debts" includes other minor loans, as well as financial lease payments in accordance with IAS 17.

It is specified that, contractually, the spreads of the loans of the Holding Company Sogefi S.p.A. are reviewed every six months on the basis of the computation of the consolidated NFP/normalised consolidated EBITDA ratio.

For an analysis of the covenants relating to loans outstanding at the end of the period, please refer to note 22.

Other medium/long-term financial liabilities for derivative financial instruments

The item includes the medium/long-term portion of the fair value of the interest risk hedging instruments.
Reference should be made to chapter E for a further discussion of this matter.

Finance leases

The Group has finance leases as well as rental and hire contracts for building, plant and machinery that, according to their type, cover almost the entire useful life of the asset concerned. The assets held under these leases, rental and hire contracts are booked in accordance with IAS 17 as though they were fixed assets owned by the company, disclosing their historical cost, depreciation, financial cost and residual liability.

Future payments deriving from these contracts can be summarised as follows:

(in thousands of Euro)	Instalments	Capital
Within 12 months	1,273	814
Between 1 and 5 years	3,782	2,618
Beyond 5 years	2,812	2,262
Total lease payments	7,867	5,694
Interests	(2,173)	-
TOTAL PRESENT VALUE OF LEASE PAYMENTS	5,694	5,694

The contracts included in this item refer to the following subsidiaries:

• Sogefi Filtration Ltd for a long-term rental contract for the production site in Tredegar. The contract expires in September 2022 and the original total amount of the contract was Euro 3,247 thousand; the future capital payments amount to Euro 2,577 thousand and the annual nominal rate of interest applied by the lessor is 11.37%.
  The Group has given sureties for this contract.
  This rental contract has been accounted for as financial leases, as required by IAS 17, where the present value of the rent payments coincided approximately with the fair value of the asset at the time the contract was signed.
• Allevard Rejna Autosuspensions S.A. has a lease contract for the Lieusaint production site. The contract expires in October 2014 and the original total amount of the contract was Euro 2,108 thousand, the future capital payments amount to Euro 673 thousand and the annual nominal rate of interest applied by the lessor is 3-month Euribor plus a spread of 60 basis points. The Group has not given any sureties for this contract.
  There are no restrictions of any nature on this lease. There is a purchase option at the end of the contracts to buy the assets at the price of Euro 1. Given that it is probable that the options will be exercised, considering the low redemption value of the assets, this contract has been accounted for as a finance lease, as foreseen by IAS 17.
  It should be noted that the lease agreements of the Fronville facility and part of the lease agreement of the Lieusaint facility have expired during the year 2012 and subsidiary Allevard Rejna Autosuspensions S.A. exercised the option to purchase at the price of Euro 305 thousand and Euro 3, respectively.
• Allevard Sogefi USA Inc. has entered into the following lease contracts for the Prichard production site relating to:

1. plants, machinery and improvements to the building for an original amount of Euro 1,213 thousand. The contract expires in May 2019, the future capital payments amount to Euro 832 thousand and the annual interest rate applied by the lessor is equal to 3.92%. The Group has given sureties for this contract;
2. plants, machinery and improvements to the building for an original amount of Euro 2,274 thousand. The contract expires in July 2019, the future capital payments amount to Euro 1,612 thousand and the annual interest rate applied by the lessor is equal to 3%. The Group has given sureties for this contract.
   There are no restrictions of any nature on these leases. Upon expiry of the contracts ownership of the assets is transferred to the lessee without payment of any purchase price. These contracts are therefore accounted for as financial leases, as required by IAS 17.

TRADE AND OTHER CURRENT PAYABLES

The amounts shown in the financial statements can be broken down into the following categories:

(in thousands of Euro)	12.31.2012	12.31.2011
Trade and other payables	307,984	314,841
Tax payables	12,203	8,615
TOTAL	320,187	323,456

 

Details of trade and other payables are as follows:

(in thousands of Euro)	12.31.2012	12.31.2011
Due to suppliers	212,891	218,217
Due to the parent company	597	433
Due to tax authorities for indirect and other taxes	10,846	9,698
Due to social and security institutions	20,710	20,931
Due to employees	30,024	27,911
Other payables	32,916	37,651
TOTAL	307,984	314,841

The amounts “Due to suppliers” are not subject to interest and on average are settled in 74 days, in line with the year 2011.
There is no significant concentration of payables due to any one supplier or small group of suppliers.

The amounts “Due to suppliers” decreased by Euro 5,326 thousand; this is due to a negative exchange effect for Euro 3,062 thousand, whereas the remainder is traced back to a slowdown of business during the last portion of the year 2012.

Item “Due to the Parent Company” reflects the consideration due for the fiscal surplus transferred by companies that have joined the CIR Group tax filing system. For further details, please refer to note 40.

The increase in amounts “Due to tax authorities for indirect and other taxes” reflects VAT debts for the most part relating to the Suspension Components Division and other tax debt relating to the Engine Systems Division.
The amounts “Due to employees” were impacted by pay rises, especially in South America, and larger bonus amounts to be paid.

“Other payables” reflect liabilities connected with product warranty risks of the Systèmes Moteurs Group and other liabilities booked to accounts during the Purchase Price Allocation process totalling Euro 25,934 thousand at December 31, 2012 (in comparison with July 31, 2011 the group has already returned Euro 6,020 thousands against these liabilities; for further details please see note 2.2).

The increase in “Tax payables” mainly reflects the higher tax burden of subsidiary Sogefi Engine Systems Canada Corp. resulting from the improved results achieved in this period and the unavailability of past losses to carry over (unlike the previous year). 

OTHER CURRENT LIABILITIES

“Other current liabilities” include adjustments to costs and revenues for the period so as to ensure compliance with the accruals based principle (accrued expenses and deferred income) and advances received from customers for orders still to be delivered.
The increase in the item for the amount of Euro 1,441 thousand mainly refers to advances paid by customers for tooling to be built.