Consolidated income statement

(in thousands of Euro) Note 2011 2010
    Amount % Amount %
Sales revenues 1,158,385 100.0 924,713 100.0
Variable cost of sales 805,898 69.6 622,963 67.4
CONTRIBUTION MARGIN   352,487 30.4 301,750 32.6
Manufacturing and R&D overheads 114,983 9.9 98,586 10.6
Depreciation and amortization 48,769 4.2 44,924 4.9
Distribution and sales fixed expenses 35,269 3.0 32,367 3.5
Administrative and general expenses 64,396 5.6 58,346 6.3
OPERATING RESULT   89,070 7.7 67,527 7.3
Restructuring costs 8,754 0.8 12,022 1.3
Losses (gains) on disposal 101 - (509) -
Exchange losses (gains) 866 0.1 220 -
Other non-operating expenses (income) 19,836 1.7 14,021 1.5
    - of which non-recurring   8,610   187  
EBIT   59,513 5.1 41,773 4.5
Financial expenses (income). net 12,680 1.1 9,554 1.0
Losses (gains) from equity investments - - (200) -
RESULT BEFORE TAXES AND NON-CONTROLLING INTERESTS   46,833 4.0 32,419 3.5
Income taxes 18,941 1.6 11,570 1.3
NET RESULT BEFORE NON-CONTROLLING INTERESTS   27,892 2.4 20,849 2.2
Loss (income) attributable to non-controlling interests    (3,156) (0.3) (2,028) (0.2)
GROUP NET RESULT   24,736 2.1 18,821 2.0
Earnings per share (EPS) (Euro):         
Basic   0.216   0.165  
Diluted   0.215   0.165  

 

 

SALES REVENUES

Revenues from the sale of goods and services

The Sogefi Group recorded net revenues for the amount of Euro 1,158,385 thousand during the period, compared with Euro 924,713 thousand in the previous year. Net of Euro 135,708 thousand realised by the Systèmes Moteurs Group, revenues would amount to Euro 1,022,677 thousand (+10.6% compared to 2010). Exchange rates being equal (at the average exchange rates of the previous year), corresponding revenues would amount to Euro 1,033,706 thousand (+11.8%).

Revenues from the sale of goods and services break down as follows:

By business sector:

(in thousands of Euro) 2011 2010
  Amount % Amount %
Engine systems 611,505 52.8 465,133 50.3
Suspension components 547,725 47.3 461,632 49.9
Intercompany eliminations (845) (0.1) (2,052) (0.2)
TOTAL 1,158,385 100 924,713 100

 

By geographical area of “destination”:

(in thousands of Euro) 2011 2010
  Amount % Amount %
France 246,932 21.3 207,377 22.4
Germany 158,304 13.7 119,873 13
Great Britain 97,060 8.4 79,043 8.5
Italy 79,400 6.9 71,562 7.7
Benelux 59,919 5.2 47,445 5.1
Spain 47,861 4.1 36,473 3.9
Russia 4,544 0.4 3,306 0.4
Other European Conturies 110,910 9.5 94,276 10.3
Mercosur 240,511 20.8 219,367 23.7
United States 53,971 4.7 18,616 2
China 17,246 1.5 12,639 1.4
India 13,325 1.2 9,685 1
Mexico 10,300 0.8 1,182 0.1
Canada 8,243 0.7 11 0
Rest of the World 9,859 0.8 3,858 0.5
TOTAL 1,158,385 100 924,713 100

Sogefi continued to pursue its strategy of strengthening its presence in non-European markets, with activity growing significantly in Mercosur (+9.6%), North America (+266.1% including the strong contribution from Systèmes Moteurs S.A.S.; on a like-for-like basis, the increase would have been by 46.1%), China (+36.4%) and India (+37.6%).

 

 

VARIABLE COST OF SALES
 
Details are as follows: 
(in thousands of Euro) 2011 2010
Materials 577,325 425,766
Direct labour cost  104,663 92,652
Energy costs  33,883 29,169
Sub-contracted work  26,999 20,217
Ancillary materials  18,415 16,599
Variable sales and distribution costs 39,900 35,512
Royalties paid to third parties on sales  3,888 4,191
Other variable costs 825 (1,143)
TOTAL 805,898 622,963

 

The inclusion of Systèmes Moteurs Group in the scope of consolidation caused a change in “Variable cost of sales” for the amount of Euro 102,092 thousand.
The percentage on revenues of “Variable cost of sales” rose to 69.6% from 67.4% in 2010. Such growth is nearly entirely accounted for by “Materials”, and their percentage on revenues rose from 46% al 49.8%. The increase is mostly due to the product mix of the Systèmes Moteurs group, on which materials have a greater impact than other factors, and to an increase in steel price, in spite of extra costs being nearly totally passed on to sales prices.

The percentage of “Direct labour costs” fell from 10% to 9% due to lower expenses linked to the use of welfare support provisions, an improvement in production efficiency following the increase in volumes, the different product mix of the Systèmes Moteurs group mentioned above, and to the wider use of temporary staff, whose cost is included in “Sub-contracted work”.

“Other variable costs” represent the effect generated by direct labour cost and fixed cost following the reduction (in 2011) or the increase (in 2010) of the inventory of finished goods or semi-finished products.

 

 

MANUFACTURING AND R&D OVERHEADS
 
These can be broken down as follows: 
(in thousands of Euro) 2011 2010
Labour cost 84,115 70,895
Materials, maintenance and repairs  23,515 19,807
Rental and hire charges 6,739 5,193
Personnel services  7,477 7,443
Technical consulting 3,733 2,786
Sub-contracted work   1,900 1,200
Insurance 3,156 1,728
Utilities 1,352 1,396
Capitalisation of internal construction costs   (18,376) (12,507)
Other 1,372 645
TOTAL 114,983 98,586


“Manufacturing and R&D overheads” show an increase of Euro 16,397 thousand, Euro 13,200 thousand of which incurred by the Systèmes Moteurs Group. On a like-for-like basis, an increase of Euro 3,197 thousand (+3.2%) is observed compared to the previous year (+ Euro 4,022 thousand if the effect of exchange rates is excluded).

 
If the Systèmes Moteurs Group is not considered, the increase regarded almost all the items and specifically:
  • “Labour cost”, which grew by Euro 1,423 thousand mainly due to the lower use of welfare support provisions in Europe, higher workforce in China and India, and inflation trends in South America. The increase was partly offset by a significant reduction in labour cost at subsidiary Sogefi Filtration Ltd as a result of the restructuring plan implemented during the year;
  • “Materials, maintenance and repairs”, up by Euro 1,928 thousand overall as a result to larger production volumes;
  • “Technical consulting”, which grew by Euro 507 thousand due to a more extensive use of them in the development of new products in subsidiary Allevard Rejna Autosuspensions S.A.; 
  • “Insurance”, which increased by Euro 1,258 thousand, basically due to a more accurate distribution between “ Manufacturing and R&D overheads” and “Administrative and general expenses” (as a consequence these costs are lower in the latter item).
 
“Capitalisation of internal construction costs” increased by Euro 2,445 thousand, in particular at subsidiary Filtrauto S.A.. Euro 864 thousand were capitalised to the Holding Company Sogefi S.p.A.; these relate to the development of Group's new integrated ITC system.
 
Total costs for Research and Development (not reported in the table) amount to Euro 26,053 thousand (2.2% of sales revenues); on a 
like-for-like basis they amount to Euro 21,257 thousand (2.1% of sales revenues) compared to Euro 20,224 thousand (2.2% of sales revenues) in the previous year.

 

DEPRECIATION AND AMORTISATION

Details are as follows:
(in thousands of Euro) 2011 2010
Depreciation of tangible fixed assets 36,252 34,673
of which: assets under finance leases  1,010 1,041
Amortisation of intangible assets 12,517 10,251
TOTAL 48,769 44,924


If the Systèmes Moteurs Group is excluded, “Depreciation and Amortisation” amount to Euro 43,834 thousand, compared to Euro 44,924 thousand in the same period of the previous year. The decrease is mostly originated from subsidiaries Filtrauto S.A., Allevard Rejna Autosuspensions S.A. and LPDN GmbH. Conversely, an uptrend is observed in all areas where the Group has been growing significantly (China, India, United States).

Industrial depreciation included in the total depreciation of tangible fixed assets amounted to Euro 34,793 thousand (Euro 31,389 thousand without Systèmes Moteurs) versus Euro 33,097 thousand in the same period of the previous year.
 
Amortisation of intangible assets refers principally to development costs capitalised in previous years.

 

 

DISTRIBUTION AND SALES FIXED EXPENSES

This item is made up of the following main components:

(in thousands of Euro) 2011 2010
Labour cost  21,204 19,318
Sub-contracted work 4,482 3,400
Advertising, publicity and promotion 3,771 4,081
Personnel services  2,920 2,596
Rental and hire charges 1,420 1,738
Consulting 838 665
Other 634 569
TOTAL 35,269 32,367


The trend of “Distribution and sales fixed expenses” reflects increased sales volumes; on a like-for-like basis, these costs turn out to have increased by Euro 568 thousand (+1.8%) overall compared with the previous year. 

 
The main changes, net of Systèmes Moteurs figures, are commented below:
  • the increase in “Labour cost” and “Personnel services” – by Euro 499 thousand overall – is mainly due to the increased volumes of the Suspension Components Division; 
  • “Sub-contracted work” and “Rental and hire charges” did not increase significantly overall, but reflect the new logistical approach focused on outsourcing management in the aftermarket segment of the Engine Systems Division;
  • the savings on “Advertising, publicity and promotion” are to be traced back to the centralisation of this function which is now a responsibility of the aftermarket segment of the Engine Systems Division. 

 

 

ADMINISTRATIVE AND GENERAL EXPENSES
 
These can be broken down as follows: 
(in thousands of Euro) 2011 2010
Labour cost  30,490 27,764
Personnel services  3,918 3,486
Maintenance and repairs 3,721 3,501
Cleaning and security 3,558 3,490
Consulting 4,547 5,101
Utilities 2,767 2,810
Rental and hire charges 3,743 3,455
Insurance 1,319 2,131
Participation des salaries 976 79
Administrative, financial and tax-related services provided by Parent Company 1,820 1,860
Audit fees 1,365 1,157
Directors' and statutory auditors' remuneration 1,368 1,653
Sub-contracted work 648 665
Other 4,156 1,194
TOTAL 64,396 58,346


“Administrative and general expenses” rise to Euro 60,287 thousand on a like-for-like basis, recording an increase of Euro 1,941 thousand (+3.3%).

 
The increase in “Labour cost” (+ Euro 880 thousand on a like-for-like basis) mainly originates from the inflation experienced by South American subsidiaries and higher bonuses.
 
The increase in “Personnel services” mainly relates to higher travelling expenses incurred by the Holding Company Sogefi S.p.A..
 
The decrease in “Consulting” fees is mostly originated from the French subsidiary Allevard Rejna Autosuspensions S.A..
The decrease in “Insurance” can be traced back to a more accurate classification under “Manufacturing and R&D overheads” and “Administrative and general expenses”.
 
The increase in “Participation des salaries” (profit-sharing scheme for employees of French subsidiaries) is due to the higher tax profit recorded in the year.
 
The increase in “Other” (+ Euro 1,964 thousand on a like-for-like basis) is mainly due to the actuarial valuation of the pension funds of the French subsidiaries, and to the fact that the welfare support provisions granted to subsidiary Filtrauto S.A. to maintain occupational levels have been used up. 
“Directors' and statutory auditors' remuneration” is made up of the remuneration of Holding Company Directors for the amount of Euro 1,290 thousand and of Holding Company Statutory Auditors for the amount of Euro 80 thousand.

 

 

RESTRUCTURING COSTS
 
These amount to Euro 8,754 thousand (compared with Euro 12,022 thousand the previous year) and relate to restructuring plans already under way mainly in the engine systems division aimed at downsizing the Llantrisant plant in Wales.
“Restructuring costs” are made up of the accruals to the “Provision for restructuring” (Euro 619 thousand, net of the not used provisions made during the previous years) and for the remaining part of costs incurred and paid during the year.

 

LOSSES (GAINS) ON DISPOSAL
 
Losses on disposal amount to Euro 101 thousand. As of December 31, 2010, gains for the amount of Euro 509 thousand had been booked to accounts.

 

EXCHANGE (GAINS) LOSSES
 
Net exchange losses as of December 31, 2011 amounted to Euro 866 thousand (Euro 220 thousand as of December 31, 2010). 

 

OTHER NON-OPERATING EXPENSES (INCOME) 
 
These amount to Euro 19,836 thousand compared with Euro 14,021 thousand the previous year. The following table shows the main elements: 
(in thousands of Euro) 2011 2010
Indirect taxes 6,972 6,249
Other fiscal charges   2,996 2,702
Imputed cost of stock option and stock grant plans 611 540
Other non-operating expenses (income) 9,257 4,530
TOTAL 19,836 14,021


“Indirect taxes” include tax charges such as property tax, taxes on sales revenues (French companies), non-deductible VAT and taxes on professional training.

“Other fiscal charges” consist of the cotisation économique territoriale (previously called taxe professionelle) relating to the French companies, which is calculated on the value of tangible fixed assets and on added value. The increase reflects Euro 398 thousand relating to subsidiary Systèmes Moteurs S.A.S..
 
The main components of “Other non-operating expenses (income)” are as follows:
 
of which non-recurring:
  • costs for the amount of Euro 4,395 thousand reflecting the fees of consultants who assisted the Holding Company Sogefi S.p.A. with the legal, financial and tax due diligence for the acquisition of the Systèmes Moteurs Group;
  • write-downs of assets for the amount of Euro 3,412 thousand relating to subsidiary Sogefi Filtration Ltd for the restructuring process under way;
  • costs for the amount of Euro 803 thousand relating to the recognition of the margin on finished products, semi-finished products and work in progress (the so-called “inventory step-up”) to income statement, recognised when the fair value of acquired Systèmes Moteurs Group's assets on change of control date was determined;
 
of which recurring:
  • provisions for legal disputes with employees and third parties mainly in the subsidiaries Sogefi Filtration do Brasil Ltda and Allevard Rejna Autosuspensions S.A. for a total of Euro 748 thousand;
  • pension costs for employees no longer on the books of Allevard Federn GmbH for the amount of Euro 148 thousand;
  • net actuarial gains for the amount of Euro 328 thousand originated from pension fund valuation;
  • other recurring costs for the amount of Euro 79 thousand.

 

FINANCIAL EXPENSES (INCOME), NET 
 
Financial expenses are detailed as follows:
(in thousands of Euro) 2011 2010
Interest on amounts due to banks   8,669 5,027
Financial charges under lease contracts 449 476
Financial component of pension funds and termination indemnities - 43
Loss on interest-bearing hedging instruments 1,302 2,446
Other interest and commissions 4,654 3,007
TOTAL FINANCIAL EXPENSES 15,074 10,999

 

Financial income is detailed as follows:

(in thousands of Euro) 2011 2010
Gain on interest-bearing hedging instruments 47 28
Interest on amounts given to banks 1,589 1,241
Financial component of pension funds and termination indemnities 541 -
Other interest and commissions 217 176
TOTAL FINANCIAL INCOME 2,394 1,445
TOTAL FINANCIAL EXPENSES (INCOME), NET 12,680 9,554


Financial expenses, net show an increase of Euro 3,126 thousand basically due to the higher net financial indebtedness as a result of the acquisition of the Systèmes Moteurs Group and to rising interest rates.

LOSSES (GAINS) FROM EQUITY INVESTMENTS

 

As of December 31, 2011, this item amounts to zero.

INCOME TAXES

(in thousands of Euro) 2011 2010
Current taxes  18,667 13,665
Deferred tax liabilities (assets)    (115) (2,312)
Income (expenses) from Group tax filing system 389 217
TOTAL 18,941 11,570


The year 2011 recorded a tax rate of 40.4% compared to 35.7% in the previous year.

 
The line “Income (expenses) from Group tax filing system” includes the payment for the fiscal surplus received from the companies that have joined the CIR Group tax filing system.
 
A reconciliation between the standard tax rate (that of the Holding Company Sogefi S.p.A.) and the effective tax rate for 2011 and 2010 is shown in the table below. Taxes have been calculated at the domestic rates applicable in the various countries. The differences between the rates applied in the various countries and the standard tax rate are included in the line “Other permanent differences and tax rate differentials”.
(in thousands of Euro) 2011 2010
    Tax rate
%		   Tax rate
%
Result before taxes 46,833 0 32,419 27.50%
Theoretical income taxes 12,879   8,915  
Effect of increases (decreases) with respect to the standard rate:        
Statutory amortisation of goodwill (249) 0 (257) (0.80%)
Non-deductible costs, net 6 0 346 1.10%
Use of deferred tax assets not recognised in previous years (487) 0 - 0.00%
Deferred tax assets on losses for the year not recognised in the financial statements 2,171 4.60% 576 1.80%
Taxed portion of dividends 1,008 2.20% 819 2.50%
Other permanent differences and tax rate differentials 3,614 7.60% 1,171 3.60%
Income taxes in the consolidated income statement  18,941 40.40% 11,570 35.70%


“Deferred tax assets on losses for the year not recognised in the financial statements” are mainly attributable to the French subsidiaries of the Suspension Components Division, for which there was no probability at the end of the year that such losses would be recovered. 

The “Taxed portion of dividends” refers to the portion of dividends received from Group companies that is not tax-exempt.
DIVIDENDS PAID 
 
Dividends paid during the year 2011 amounted to Euro 14,888 thousand, corresponding to a dividend per share of Euro 0.13.

The Company did not issue any shares other than ordinary shares; treasury shares are always excluded from the dividend.

 

 

EARNINGS PER SHARE (EPS) 
 
Basic EPS 
  2011 2010
Net result attributable to the ordinary shareholders (in thousands of Euro) 24,736 18,821
Weighted average number of shares outstanding during the year (thousands) 114,326 114,349
Basic EPS (Euro) 0.216 0.165

 

Diluted EPS 

The Company only has one category of potential ordinary shares, namely those deriving from the potential conversion of the stock options granted to Group employees.
  2011 2010
Net result attributable to the ordinary shareholders (in thousands of Euro) 24,736 18,821
Average number of shares outstanding during the year (thousands) 114,326 114,349
Weighted average number of shares potentially under option during the year (thousands) 2,024 3,440
Number of shares that could have been issued at fair value (thousands) (1,513) (3,440)
Adjusted weighted average number of shares outstanding during the year (thousands) 114,837 114,349
Diluted EPS (Euro) 0.215 0.165


The “Weighted average number of shares potentially under option during the year” represents the average number of shares that are potentially outstanding under stock option plans (only for potentially dilutive options, i.e. with an exercise price lower than the average annual fair value of the ordinary shares of Sogefi S.p.A.), for which the subscription right has vested but has not yet been exercised at the end of reporting period. These shares have a potentially dilutive effect on Basic EPS and are therefore taken into consideration in the calculation of Diluted EPS.

The “Number of shares that could have been issued at fair value” represents the normalisation factor, being the number of shares that would have been issued dividing the proceeds that would have been received from subscription of the stock options by the average annual fair value of the Sogefi S.p.A. ordinary shares, which in 2011 amounted to Euro 2.4062, compared to Euro 2.1410 in 2010.

Please note that 2,622,535 shares that could dilute Basic EPS in the future were not included in the calculation of Diluted EPS for 2011 because their exercise price is higher than the average annual fair value of the ordinary shares of Sogefi S.p.A. in 2011.