Financial instruments and financial risk management

CASH AND CASH EQUIVALENTS

Cash and cash equivalents amount to Euro 124,033 thousand versus Euro 125,344 thousand as of December 31, 2013 and break down as follows:

(in thousands of Euro)	12.31.2014	12.31.2013
Short-term cash investments	123,976	123,747
Cheques	-	1,539
Cash on hand	57	58
TOTAL	124,033	125,344

 

“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, 2014, the Group has unused lines of credit for the amount of Euro 268,088 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 4,013 thousand (Euro 3,276 thousand as of December 31, 2013) 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)	12.31.2014	12.31.2013
Securities held for trading	18	14
Financial receivables	2,000	-
Held-to-maturity investments	6,953	7,462
Assets for derivative financial instruments	519	32
TOTAL	9,490	7,508

 

“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.
“Financial receivables” mainly relate to subsidiary Sogefi Filtration Argentina S.A..
“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 519 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.

INVENTORIES

The breakdown of inventories is as follows:

(in thousands of Euro)	12.31.2014			12.31.2013
	Gross	Write-downs	Net	Gross	Write-downs	Net
Raw, ancillary and consumable materials	55,863	4,141	51,722	54,396	4,030	50,366
Work in progress and semifinished products	14,126	569	13,557	12,789	339	12,450
Contract work in progress and advances	29,573	21	29,552	31,134	113	31,021
Finished goods and goods for resale	54,984	5,673	49,311	56,223	6,933	49,290
TOTAL	154,546	10,404	144,542	154,542	11,415	143,127

 

The gross value of inventories is stable compared to the previous period (exchange rates being equal, it would have decreased by Euro 1,572 thousand).

Write-downs consist for the most part of accruals for raw materials that can no longer be used for current production and for obsolete or slow-moving finished goods, goods for resale and ancillary materials. The provision decreased by Euro by 1,011 thousand as a result of products scrapped during the year (Euro 571 thousand), obsolete materials sold (Euro 395 thousand), reclassification between gross value and relating provisions (Euro 559 thousand); these were partly offset by further accruals for Euro 456 thousand and a positive exchange rate effect of Euro 58 thousand.

TRADE AND OTHER RECEIVABLES

Current receivables break down as follows:

(in thousands of Euro)	12.31.2014	12.31.2013
Trade receivables	150,976	140,572
Less: allowance for doubtful accounts	5,170	4,703
Trade receivables, net	145,806	135,869
Due from Parent Company	2,277	9,968
Tax receivables	22,564	20,504
Other receivables	6,884	7,827
Other assets	3,599	3,692
TOTAL	181,130	177,860

 

“Trade receivables, net” are non-interest bearing and have an average due date of 37 days, against 35 days recorded at the end of the previous year.
It should be noted that as of December 31, 2014, the Group factored trade receivables for Euro 78,784 thousand (Euro 79,541 thousand as of December 31, 2013), including an amount of Euro 45,814 thousand (Euro 46,026 thousand as of December 31, 2013) 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.

Excluding the factoring transactions (Euro 78,784 thousand as of December 31, 2014 and Euro 79,541 thousand as of December 31, 2013) and the positive effect of exchange rates (Euro 1,384 thousand), net trade receivables show an increase of Euro 7,796 thousand as a result of the increase in the Group’s business activities which occurred in the last quarter of the year with respect to the same quarter of the previous year.

Further adjustments were booked to “Allowance for bad debts” during the year for a total of Euro 631 thousand, against net utilisations of the allowance for the amount of Euro 213 thousand (see note 39 for further details). The balance in the Allowance for bad debts increased by Euro 49 thousand due to the exchange rate effect. Write-downs, 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, 2014 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. Euro 9,305 thousand of the receivables outstanding as of December 31, 2013 were collected during the year 2014.
See chapter F for the terms and conditions governing these receivables from CIR S.p.A..

“Tax receivables” as of December 31, 2014 include tax credits due to the Group companies by the tax authorities of the various countries. The increase in this item relates for the most part to withholding taxes and taxes paid on imports relating to Allevard Rejna Argentina S.A. that could not be offset against tax debt for the year due to the negative result for year of the subsidiary, and to tax credits of Systèmes Moteurs S.A.S. arisen in connection with grants relating to research and development activities. It does not include deferred taxes which are treated separately.

“Other receivables” are made up as follows:

(in thousands of Euro)	12.31.2014	12.31.2013
Amounts due from social security institutions	383	195
Amounts due from employees	796	252
Advances to suppliers	3,006	1,984
Due from others	2,699	5,396
TOTAL	6,884	7,827

 

The decrease in “Other receivables” includes a Euro 2,498 thousand indemnity paid by a supplier of subsidiary Filtrauto S.A. in connection with quality issues arisen during year 2009.

The item “Other assets” mainly includes accrued income and prepayments on insurance premiums, rents, indirect taxes relating to buildings and on costs incurred for sales activities.

TANGIBLE FIXED ASSETS

The net carrying amount of tangible fixed assets as of December 31, 2014 amounted to Euro 244,061 thousand versus Euro 236,415 thousand at the end of the previous year and breaks down as follows:

(in thousands of Euro)	2014
	Land	Buildings, plant and machinery, commercial and industrial equipment	Other assets	Assets under construction and payments on account	TOTAL
Balance at January 1	15,444	185,920	4,957	30,094	236,415
Additions of the period	-	16,051	1,729	24,498	42,278
Disposals during the period	(1,251)	(2,520)	(30)	(13)	(3,814)
Exchange differences	93	4,629	156	878	5.756
Depreciation for the period	-	(33,667)	(1,658)	-	(35,325)
Writedowns/revaluations during the period	-	(1,315)	(10)	(35)	(1,360)
Reclassification of non-current asset held for sale	-	-	-	-	-
Other changes	-	22,185	204	(22,278)	111
Balance at December 31	14,286	191,283	5,348	33,144	244,061
Historical cost	14,286	803,835	26,802	33,872	878,795
of which: leases - gross value	-	10,694	77	-	10,771
Accumulated depreciation	-	612,552	21,454	728	634,734
of which: leases - accumulated depreciation	-	5,551	72	-	5,623
Net value	14,286	191,283	5,348	33,144	244,061
Net value - leases	-	5,143	5	-	5,148

 

(in thousands of Euro)	2013
	Land	Buildings, plant and machinery, commercial and industrial equipment	Other assets	Assets under construction and payments on account	TOTAL
Balance at January 1	15,711	198,230	5,443	32,961	252,345
Additions of the period	48	17,377	1,162	17,443	36,030
Disposals during the period	(115)	(1,611)	17	(162)	(1,871)
Exchange differences	(200)	(9,191)	(564)	(1,261)	(11,216)
Depreciation for the period	-	(34,506)	(1,633)	-	(36,139)
Writedowns/revaluations during the period	-	(2,181)	(39)	-	(2,220)
Reclassification of non-current asset held for sale	-	-	-	-	-
Other changes	-	17,802	571	(18,887)	(514)
Balance at December 31	15,444	185,920	4,957	30,094	236,415
Historical cost	15,444	771,336	25,282	30,788	842,850
of which: leases - gross value	331	11,375	68	-	11,774
Accumulated depreciation	-	585,416	20,325	694	606,435
of which: leases - accumulated depreciation	-	4,363	41	-	4,404
Net value	15,444	185,920	4,957	30,094	236,415
Net value - leases	331	7,012	27	-	7,370

 

Investments during the year amounted to Euro 42,278 thousand compared with Euro 36,030 thousand in the previous year.

The larger projects relate to the “Assets under construction and payments on account” and “Buildings, plant and machinery, commercial and industrial equipment” categories.

Major investments in the “Assets under construction and payments on account” category mainly reflect investments in: subsidiary Allevard Rejna Autosuspensions S.A. to increase the production capacity of cold-forming processes for stabilizer bars; subsidiary  Allevard Sogefi U.S.A. Inc. to expand both the production capacity and the plant; subsidiary Filtrauto S.A. to develop new products and improve manufacturing processes; subsidiary Sogefi (Suzhou) Auto Parts Co., Ltd to increase production capacity; and subsidiary Sogefi Filtration do Brasil Ltda to increase the production capacity of the new Brazilian plant in Atibaia and adapt it to meet the needs of engine system manufacture.

Among the most significant projects in the “Property, plant and equipment, industrial and commercial equipment” category, noteworthy are the investments in subsidiary LPDN GmbH to improve production processes and for maintenance purposes, in subsidiary Sogefi (Suzhou) Auto Parts Co., Ltd to increase production capacity at a new production line for springs and a production line for engine cooling systems, in subsidiary Sogefi Engine Systems Mexico S. de R.L. de C.V. to expand production capacity for the development of new products, and in subsidiaries Filtrauto S.A. and Sogefi Engine Systems Canada Corp. to improve production processes and develop new products.

“Disposals during the period” total Euro 3,814 thousand and refer for the most part to the sale of two industrial buildings. One building and adjoining land (net book value of Euro 3,020 thousand) formerly owned by subsidiary Sogefi Filtration Ltd (in Llartrisant) generated Euro 81 thousand gains that were credited to “Losses (gains) on disposal”; the plant and adjoining land (net book value of Euro 384 thousand) of subsidiary United Springs Ltd (in West Bromwich) generated no economic benefit.

“Depreciation for the period” has been recorded in the appropriate item in the Income Statement.

“Write-downs/revaluations during the period” total Euro 1,360 thousand, of which Euro 1,285 thousand reflect write-downs of a property (Euro 1 million) and of industrial machinery (Euro 285 thousand) connected with the shutdown of the Lieusaint plant of French subsidiary Allevard Rejna Autosuspensions S.A., and the remaining portion reflects diminished impairment losses and reversals.
Impairment losses less reversals are booked to “Other non-operating expenses (income)”.

“Other changes” refer to the completion of projects that were under way at the end of the previous year and their reclassification under the pertinent items.

The balance of “Assets under construction and payments on account” as of December 31, 2014 includes Euro 43 thousand of advances for investments.

The main retired from active use assets, with a total net value of Euro 9,714 thousand, included in the item “Tangible fixed assets” mostly refer to the Lieusaint production site of the subsidiary Allevard Rejna Autosuspensions S.A. that was written down as noted above and to a property complex of the Holding Company Sogefi S.p.A. (located in Mantova and San Felice del Benaco). The book value of said assets will be recovered through their sale rather than through their continuous use. As the Group does not expect to sell them within one year, they are not subject to the accounting treatment envisaged by IFRS 5 and depreciation is continued.

No interest costs were capitalised to “Tangible fixed assets” during the year 2014.

Guarantees
As of December 31, 2014, tangible fixed assets are encumbered by mortgages or liens totalling Euro 6,652 thousand to guarantee loans from financial institutions, compared to Euro 9,463 thousand as of December 31, 2013. Guarantees existing as of December 31, 2014 refer to subsidiaries Sogefi Engine Systems Canada Corp., Allevard IAI Suspensions Private Ltd., Systèmes Moteurs S.A.S., United Springs B.V. and Sogefi M.N.R. Filtration India Private Ltd..

Purchase commitments
As of December 31, 2014, there are binding commitments to buy tangible fixed assets for Euro 323 thousand (Euro 1,907 thousand as of December 31, 2013) relating to the subsidiaries Allevard Rejna Autosuspensions S.A. and United Springs S.A.S.. Said commitments will be settled within 12 months.

Leases
The carrying value of assets under financial leases as of December 31, 2014 was Euro 10,771 thousand, and the related accumulated depreciation amounted to Euro 5,623 thousand.
The gross value of fixed assets under financial leases decreased by Euro 1,003 thousand compared to December 31, 2013; the decrease relates to subsidiary Allevard Rejna Autosuspensions S.A. that exercised its purchase option at the end of a lease contract to buy the asset under lease at the price of Euro 1.
The financial aspects of the lease payments and their due dates are explained in note 16.

INTANGIBLE ASSETS

The net balance as of December 31, 2014 was Euro 282,996 thousand versus Euro 262,725 thousand at the end of the previous year, and breaks down as follows:

(in thousands of Euro)	2014
	Development costs	Industrial patents and intellectual property rights, concessions, licences and trademarks	Other, assets under construction and payments on account	Customer Relationship	Trade name Systemes Moteurs	Goodwill	TOTAL
Balance at January 1	70,799	28,064	13,014	16,823	7,386	126,639	262,725
Additions of the period	21,016	10,151	10,962	-	-	-	42,129
Disposals during the period	-	(7)	-	-	-	-	(7)
Exchange differences	1,875	33	588	-	-	-	2,496
Amortisation for the period	(17,412)	(3,353)	(485)	(990)	(435)	-	(22,675)
Writedowns during the period	(1,739)	-	(85)	-	-	-	(1,824)
Other changes	3,234	1,145	(4,227)	-	-	-	152
Balance at December 31	77,773	36,033	19,767	15,833	6,951	126,639	282,996
Historical cost	171,609	61,982	22,659	19,215	8,437	149,537	433,439
Accumulated amortisation	93,836	25,949	2,892	3,382	1,486	22,898	150,443
Net value	77,773	36,033	19,767	15,833	6,951	126,639	282,996

(in thousands of Euro)	2013
	Development costs	Industrial patents and intellectual property rights, concessions, licences and trademarks	Other, assets under construction and payments on account	Customer Relationship	Trade name Systemes Moteurs	Goodwill	TOTAL
Balance at January 1	60,896	4,967	21,441	17,813	7,821	126,639	239,577
Additions of the period	27,830	14,104	5,913	-	-	-	47,847
Disposals during the period	(8)	(6)	-	-	-	-	(14)
Exchange differences	(2,344)	(21)	(422)	-	-	-	(2,787)
Amortisation for the period	(17,079)	(1,983)	(706)	(990)	(435)	-	(21,193)
Writedowns during the period	(753)	-	(66)	-	-	-	(819)
Other changes	2,257	11,003	(13,146)	-	-	-	114
Balance at December 31	70,799	28,064	13,014	16,823	7,386	126,639	262,725
Historical cost	152,258	48,533	17,657	19,215	8,437	149,537	395,637
Accumulated amortisation	81,459	20,469	4,643	2,392	1,051	22,898	132,912
Net value	70,799	28,064	13,014	16,823	7,386	126,639	262,725

 

Investments during the year amounted to Euro 42,129 thousand.

The increases in “Development Costs” for the amount of Euro 21,016 thousand refer to the capitalisation of costs incurred by Group companies to develop new products in collaboration with leading motor vehicle manufacturers (after being nominated by the customer). The largest investments refer to the subsidiaries Systèmes Moteurs S.A.S., Filtrauto S.A., Sogefi Engine Systems Canada Corp., Sogefi Filtration do Brasil Ltda and Sogefi (Suzhou) Auto Parts Co., Ltd.

Increases in “Industrial patents and intellectual property rights, concessions, licences and trademarks” amount to Euro 10,151 thousand and refer nearly entirely to the development and implementation of the new information system across the Sogefi Group. The integrated information system will be depreciated over a ten-year period starting from implementation date at each subsidiary.

Increases in “Other, assets under construction and payments on account”, for the amount of Euro 10,962 thousand, refer mainly to a large number of investments in the development and implementation of the new products not yet flowed into production. The largest investments went to fund development costs posted by subsidiaries Allevard Sogefi U.S.A. Inc., Allevard Rejna Autosuspensions S.A., Sogefi Filtration d.o.o. and S.C. Systèmes Moteurs S.r.l..

The item does not include advances to suppliers for the purchase of fixed assets.

“Development costs” principally include costs generated internally, whereas “Industrial patents and intellectual property rights, concessions, licences and trademarks” consist of factors that are acquired externally for the most part.
“Other, assets under construction and payments on account” include around Euro 15,358 thousand of costs generated internally.

The line “Write-downs during the period” includes write-downs of development costs for the amount of Euro 1,658 thousand capitalised in previous years by subsidiary Filtrauto S.A. that are no longer recoverable.

There are no intangible assets with an indefinite useful life except for goodwill.

Goodwill and impairment test

From January 1, 2004 goodwill is no longer amortised, but subjected each year to impairment test.

The Company has identified five Cash Generating Units (CGUs):

• engine systems – fluid filters
• engine systems – air intake and cooling (“Systemes Moteurs” Group)
• car suspension
• industrial vehicle suspension
• precision springs

For the moment, it is possible to identify goodwill deriving from external acquisitions in three CGUs: engine systems - fluid filters, engine systems - air intake and cooling and car suspension.

The specific goodwill of “CGU Engine Systems – Fluid Filters” amounts to Euro 77,030 thousand; the goodwill of “CGU Engine Systems – Air Intake and Cooling” amounts to Euro 32,560 thousand; and the goodwill of “CGU Car Suspension” amounts to Euro 17,049 thousand.

Impairment tests have been carried out in accordance with the procedure laid down in IAS 36 to check whether there have been any losses in the value of this goodwill, by comparing the book value of the individual CGUs with their value in use, given by the present value of estimated future cash flows that are expected to result from the continuing use of the asset being tested for impairment.
The Discounted Cash Flow Unlevered method was used. The Group took into account the cash flow projections expected for 2015 as determined based on the budget and the forecasts included in the 2016-2018 projection update for the following years (adjusted to eliminate any estimated benefits from future projects and reorganisations) approved by the Board of Directors on January 19, 2015. Projections are prepared by management and approved by the Board of Directors for the sole purposes of the impairment test. Both budget and the projection update are prepared taking into account forecasts of automotive industry performance drawn up by major industry sources and adopting a conservative approach.

A discounting rate of 9.91%, which reflects the weighted average cost of capital, was used. The same discounting rate is used for all three CGUs. As a matter of fact, the three CGUs operate in the same sector and deal with the same kind of customers, and it is estimated that they are exposed to the same risk.

The terminal value was calculated using the “perpetual annuity” approach, assuming a growth rate of 2% – which is a conservative assumption when compared to forecasts for the automotive industry by authoritative industry sources – and considering an operating cash flow based on the last year of the projection (the year 2018), adjusted to project a stable situation “in perpetuity”, based on the following main assumptions:

• a balance between capital investment and depreciation (according to the rationale of considering the level of investment needed to “maintain” the business);
• change in working capital equal to zero.

As regards the average cost of capital, the Group calculated a weighted average cost of debt (taking into consideration the budget interest rates plus a “spread”) and the Company's own cost of capital, based on parameters for a group of firms operating in the European car components sector which are considered by the leading industry analysts to be Sogefi's “peers”. The values used to calculate the average cost of capital (extrapolated from the main financial sources) are as follows:

• financial structure of the industry: 19.3%
• levered beta of the industry: 1.17
• risk-free rate: 4.0% (annual average risk-free rates of 10 year bonds of the key markets in which the Group operates, weighted by sales revenues per market)
• risk premium: 6.4% (risk premium of the key markets in which the Group operates calculated by a primary source, weighted by sales revenues per market)
• debt cost spread: 3.6% (estimate based on the 2015 budget)

As far as the sensitivity analysis goes, it should be noted that:

• the impairment test reaches the break-even point at the following discounting rates (growth rate of terminal value remaining unchanged at 2% and all other plan assumptions being equal): 12.7% for CGU Engine Systems - Fluid Filters; 13.4% for CGU Engine Systems - Air Intake and Cooling; and 10.9% for CGU Car Suspension.
• the impairment test reaches the break-even point with a significant reduction in EBIT during the explicit projection period, which was also applied to determine the terminal value: -26% for CGU Engine Systems - Fluid Filters; -30% for CGU Engine Systems - Air Intake and Cooling and -12% for CGU Car Suspension.

The test based on the present value of the estimated future cash flows turns out a value in use of the CGUs that exceeds their carrying value, so no writedown has been posted.

INVESTMENTS IN JOINT VENTURES

There were no investments in joint ventures as of December 31, 2014.

OTHER FINANCIAL ASSETS AVAILABLE FOR SALE

As of December 31, 2014, these totalled Euro 439 thousand (unchanged from December 31, 2013) and break down as follows:

(in thousands of Euro)	12.31.2014	12.31.2013
Equity investments in other companies	439	439
Other securities	-	-
TOTAL	439	439

 

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 (which means the Group does not exert significant influence on the company).

FINANCIAL RECEIVABLES AND OTHER NON-CURRENT RECEIVABLES

Non-current financial receivables total Euro 157 thousand and refer to the fair value of cross-currency swap hedging instruments. For further details, please refer to note 39.

“Other receivables” break down as follows:

(in thousands of Euro)	12.31.2014	12.31.2013
Pension fund surplus	-	2,876
Other receivables	34,626	28,706
TOTAL	34,626	31,582

 

As of December 31, 2014, subsidiary Sogefi Filtration Ltd records a Euro 15,468 thousand deficit in pension funds, versus a Euro 2,876 thousand surplus as of December 31, 2013. For further details, please refer to note 19.

“Other receivables” include an indemnification asset of Euro 23,368 thousand owed by the seller of Systèmes Moteurs S.A.S.' shares – booked upon the PPA of the Systemes Moteurs Group – 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). Sogefi S.p.A. initiated international arbitration proceedings against the seller of Systèmes Moteurs S.A.S.' shares to collect the receivables, as provided for by the acquisition contract. The proceedings are still pending. For further details, please refer to note 19, paragraph “Provision for product warranties”.

The item “Other receivables” includes tax credits relating to research and development activities of the French subsidiaries, VAT credits of subsidiary Sogefi (Suzhou) Auto Parts Co., Ltd, tax 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.

DEFERRED TAX ASSETS

As of December 31, 2014, this item amounts to Euro 71,126 thousand compared with Euro 59,620 thousand as of December 31, 2013.
This amount relates to the expected benefits on deductible temporary differences, booked to the extent that it is probable that it will be recovered. Reference should be made to note 20 for a further discussion of this matter.

NON-CURRENT ASSETS HELD FOR SALE

As of December 31, 2014, there are no non-current assets held for sale.

FINANCIAL DEBTS TO BANKS AND OTHER FINANCING CREDITORS

These break down as follows:

Current portion

(in thousands of Euro)	12.31.2014	12.31.2013
Bank overdrafts and short-term loans	13,426	6,885
Current portion of medium/long-term financial debts	64,508	76,750
of which: leases	914	1,118
TOTAL SHORT-TERM FINANCIAL DEBTS	77,934	83,635
Other short-term liabilities for derivative financial instruments	350	93
TOTAL SHORT-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS	78,284	83,728

 

Non-current portion

(in thousands of Euro)	12.31.2014	12.31.2013
Financial debts to banks	131,617	213,675
Other medium/long-term financial debts	203,648	118,664
of which: leases	6,481	6,607
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS	335,265	332,339
Other medium/long-term liabilities for derivative financial instruments	24,464	21,378
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS	359,729	353,717

 

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 and non-current portions of medium/long-term financial debts

Details are as follows:

Position as of December 31, 2014 (in thousands of Euro):

Company	Bank/Credit Institute	Signing date	Due date	Original amount loan	Interest rate	Current portion (in thousands of Euro)	Non-current portion (in thousands of Euro)	Total amount (in thousands of Euro)	Real Guarantees
Sogefi S.p.A.	Intesa SanPaolo S.p.A.	Apr - 2011	Dec - 2016	60,000	Euribor 3m + 230 bps variable	8,000	37,736	45,736	N/A
Sogefi S.p.A.	BNP Paribas S.A.	Sep - 2014	Sep - 2019	55,000	Euribor 3m + 290 bps variable	-	24,777	24,777	N/A
Sogefi S.p.A.	Mediobanca S.p.A.	Jul - 2014	Jan - 2016	20,000	Euribor 3m + 170 bps variable	-	19,948	19,948	N/A
Sogefi S.p.A.	Banca Carige Italia S.p.A.	Jul - 2014	Sep - 2017	25,000	Euribor 3m + 225 bps variable	5,040	9,143	14,183	N/A
Sogefi S.p.A.	Banco do Brasil S.A.	Dec - 2012	Apr - 2017	15,000	Euribor 3m + 315 bps variable	3,750	7,435	11,185	N/A
Sogefi S.p.A.	Unicredit S.p.A.	Jul - 2014	Jul - 2019	50,000	Euribor 3m + 200 bps variable	-	9,748	9,748	N/A
Sogefi (Suzhou) Auto Parts Co., Ltd	ING Bank	Mar - 2013	Mar - 2016	9,164	9.79% fixed	4,312	4,852	9,164	N/A
Sogefi (Suzhou) Auto Parts Co., Ltd	ING Bank	Mar - 2013	Mar - 2016	3,840	9.79% fixed	2,124	1,716	3,840	N/A
Sogefi (Suzhou) Auto Parts Co., Ltd	Unicredit S.p.A.	Oct - 2014	Jun - 2015	9,567	7.28% fixed	9,567	-	9,567	N/A
Sogefi (Suzhou) Auto Parts Co., Ltd	Unicredit S.p.A.	Nove - 2014	Jun - 2015	4,612	7.28% fixed	4,612	-	4,612	N/A
Sogefi (Suzhou) Auto Parts Co., Ltd	Commerzbank AG	Dec - 2014	Jun - 2015	3,112	6.42% fixed	3,112	-	3,112	N/A
Allevard Rejna Autosuspensions S.A.	CIC Bank S.A.	May - 2014	May - 2015	4,000	Euribor 12m + 150 bps variable	4,000	-	4,000	N/A
Sogefi Filtration do Brasil Ltda	Banco Itau BBA International S.A.	Feb - 2013	Mar - 2016	6,450	5.5% fixed	-	6,450	6,450	N/A
Sogefi Filtration do Brasil Ltda	Banco do Brasil S.A.	Jul - 2014	Aug - 2017	3,517	8% fixed	-	3,517	3,517	N/A
Sogefi Engine Systems Canada Corp.	Ge Capital	Nov - 2012	Nov - 2017	3,022	B/A 3m + 4.65% variable	663	1,385	2,048	YES
Sogefi Engine Systems Canada Corp.	Ge Capital	Nov - 2012	Nov - 2017	3,022	6.23% fixed	662	1,392	2,054	YES
Systèmes Moteurs Sas	CIC Bank S.A.	May - 2014	May - 2015	3,500	Euribor 12m + 150 bps variable	3,500	-	3,500	N/A
Sogefi Filtration S.A.	Banco Sabadell S.A.	May - 2011	May - 2016	7,000	Euribor 12m + 225 bps variable	1,400	700	2,100	N/A
Other loans						13,766	2,818	16,583	N/A
TOTAL						64,508	131,617	196,124

 

Line “Other loans” includes other minor loans, as well as financial lease payments in accordance with IAS 17.

Position as of December 31, 2013 (in thousands of Euro):

Company	Bank/Credit Institute	Signing date	Due date	Original amount loan	Interest rate	Current portion (in thousands of Euro)	Non-current portion (in thousands of Euro)	Total amount (in thousands of Euro)	Real Guarantees
Sogefi S.p.A.	Unicredit S.p.A.	Jun - 2006	Mar - 2014	100,000	Euribor 3m + 110 bps variable	5,550	-	5,550	N/A
Sogefi S.p.A.	European Investment Bank - tr. A	Dec - 2010	Apr - 2016	20,000	Euribor 3m + 316 bps variable	5,000	7,444	12,444	N/A
Sogefi S.p.A.	European Investment Bank - tr. B	Dec - 2010	Apr - 2016	20,000	Euribor 3m + 187 bps variabile	5,000	7,443	12,443	N/A
Sogefi S.p.A.	Banca Monte dei Paschi di Siena S.p.A.	Mar - 2011	Mar - 2017	25,000	Euribor 3m + 225 bps variable	6,250	13,905	20,155	N/A
Sogefi S.p.A.	Intesa San Paolo S.p.A.	Apr - 2011	Dec-2016	60,000	Euribor 3m + 260 bps variable	8,000	15,603	23,603	N/A
Sogefi S.p.A.	Banca Carige Italia S.p.A.	Jul - 2011	Sep - 2017	25,000	Euribor 3m + 225 bps variable	4,855	14,126	18,981	N/A
Sogefi S.p.A.	Ge Capital Interbanca S.p.A.	Oct - 2011	Jun - 2017	10,000	Euribor 3m + 230 bps variable	2,000	4,956	6,956	N/A
Sogefi S.p.A.	Syndacate loan	Dec - 2012	Dec - 2017	200,000	Euribor 3m + 475 bps variable	-	116,235	116,235	N/A
Sogefi S.p.A.	Banco do Brasil S.A.	Dec - 2012	Apr - 2017	15,000	Euribor 3m + 315 bps variable	3,750	11,157	14,907	N/A
Allevard Rejna Autosuspensions S.A.	CIC Bank	May - 2013	May - 2014	4,000	Euribor 3m + 150 bps variable	4,000	-	4,000	N/A
Systèmes Moteurs Sas	CIC Bank	May - 2013	May - 2014	3,500	Euribor 12m + 150 bps variable	3,500	-	3,500	N/A
Sogefi Filtration S.A.	Banco Sabadell S.A.	May - 2011	May -2016	7,000	Euribor 3m + 225 bps variable	1,400	2,100	3,500	N/A
Shanghai Sogefi Auto Parts Co., Ltd	Unicredit S.pA.	May - 2013	May - 2014	5,400	7.28% fixed	5,096	-	5,096	N/A
Sogefi (Suzhou) Auto Parts Co., Ltd (*)	ING Bank	Mar - 2013	Mar - 2015	3,972	9.84% fixed - 12.30% fixed	-	3,972	3,972	N/A
Sogefi Engine Systems Canada Corp.	Ge Capital	Nov - 2012	Nov - 2017	2,897	B/A 3m+4.65% variable	600	1,963	2,563	YES
Sogefi Engine Systems Canada Corp.	Ge Capital	Nov - 2012	Nov - 2017	2,897	6.16% fixed	597	1,969	2,566	YES
Sogefi Filtration do Brasil Ltda	Banco Itau BBA International S.A.	Feb - 2013	Mar - 2016	6,376	5.5% fixed	-	6,377	6.377	N/A
Other loans						21,152	6,425	27,577	N/A
TOTAL						76,750	213,675	290,425

^{(*) The amount is originated by some loans stipulated from March to September 2013, whose tax rate is included in the indicated range (tax min. 9.84% - tax max. 12.30%).}

Other short-term liabilities for derivative financial instruments

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

Other medium/long-term financial debts

As of December 31, 2014, details were as follows:

Company	Bank/Credit Institute	Signing date	Due date	Original amount loan (in thousands)	Interest rate	Total amount at December 31, 2014 (in thousands of Euro)	Real guarantees
Sogefi S.p.A.	Private placement	May - 2013	May - 2023	USD 115,000	Fixed coupon 600 bps	94,359	N/A
Sogefi S.p.A.	Private placement	May - 2013	May - 2020	Euro 25,000	Fixed coupon 505 bps	24,922	N/A
Sogefi S.p.A.	Equity linked bond	May - 2014	May - 2021	Euro 100,000	Fixed coupon 2% year	75,527	N/A
Other financial debts						8,840	N/A
TOTAL						203,648

 

Line “Other loan” includes other minor loans, as well as financial lease payments in accordance with IAS 17.

As of December 31, 2013, details were as follows:

Company	Bank/Credit Institute	Signing date	Due date	Original amount loan (in thousands)	Interest rate	Total amount at December 31, 2013 (in thousands of Euro)	Real guarantees
Sogefi S.p.A.	Private placement	May - 2013	May - 2023	USD 115,000	Fixed coupon 600 bps	82.908	N/A
Sogefi S.p.A.	Private placement	May - 2013	May - 2020	Euro 25,000	Fixed coupon 505 bps	24.926	N/A
Other financial debts						10.830	N/A
TOTAL						118.664

 

On May 13, 2014, the Board of Directors passed a resolution to issue the convertible bonds designated “€ 100,000,000 2 per cent. Equity Linked Bonds due 2021”, which were placed with institutional investors on May 14, 2014. Bond settlement occurred on May 21, 2014; the bonds were issued and investors paid the subscription price for a total amount of Euro 100 million (transaction costs relating to bond issuance amount to Euro 1,817 thousand). Bond term is seven years from date of settlement. The bonds were quoted on the Third Market (MTF) of the Vienna Stock Exchange starting June 13, 2014, have a minimum denomination of Euro 100 thousand and carry a coupon payable half-yearly at a fixed annual interest rate of 2%.
On September 26, 2014, the Extraordinary Shareholders Meeting resolved a capital increase in cash instalments, excluding option rights, under art. 2441, paragraph 5 of the Italian Civil Code, for a maximum total nominal value of Euro 9,657,528.92 to be released in a single or several issues of up to 18,572,171 ordinary shares of Sogefi issued exclusively for bond conversion. Under the terms and conditions of the bond, Sogefi S.p.A. had the right to deliver ordinary shares of Sogefi, or pay cash or offer a combination of ordinary shares and cash when the conversion rights were exercised.
On final maturity (May 21, 2021), the bonds will be repaid in a single instalment, unless they are redeemed early or converted.

The Holding Company Sogefi S.p.A. may repay the Bonds fully at any time prior to maturity at their nominal value plus outstanding accrued interest in the cases set forth by the Bond Terms, in line with market practices, including (i) when early conversion or redemption rights have been exercised for at least 85% of the original nominal amount of the Convertible Bonds, and (ii) when the dealing price of the Company's ordinary shares exceeds a certain threshold on certain specific dates as defined in the Bond Terms.
Bondholders may redeem their Bonds in cash prior to maturity at the nominal value of the Bonds plus outstanding accrued interest if a Change of Control Event (when an entity or individual other than the current controlling entity or individuals acquires more than 50% of shares with voting rights, directly or indirectly, as defined in the Bond Terms) and a Free Float Event (when the free float of ordinary shares drops below 20%, as defined in the Bond Terms) occur.
The fair value of these options was deemed to be immaterial.

The conversion option in the bond is a US-style option and constitutes an embedded derivative with economic characteristics and risks that are not closely related to the host contract; as a result, its fair value was booked to “Other medium/long-term financial liabilities for derivative financial instruments”.
On May 14, 2014 (placement date), the Holding Company Sogefi S.p.A. separated the embedded derivative (call option on treasury shares of the Holding Company Sogefi S.p.A.) from the host contract (equity-linked bonds) in accordance with IAS 39 guidance on hybrid instruments and determined that its fair value amounted to Euro 24,500 thousand. Such fair value was classified as Level 2 in the fair value hierarchy and was determined based on a mathematical financial model (binomial model), using the stock price of Sogefi shares, the issue price of newly-issued shares as defined in the Bond Terms (identified as the strike price) at Euro 5.3844, the 7-year risk-free rate and the volatility of the Sogefi stock over a one-year period.
The book value of the host contract at placement date was found to be equal to the residual amount after separation of the embedded derivative, namely:

(in thousands of Euro)
Fair value of the hybrid instrument (net of Euro 1,817 million of transaction costs connected with the issuing of equity-linked bonds)	98,183
Fair value of the embedded derivative (call option)	(24,500)
Difference corresponding to the initial book value of the host instrument	73,683

 

After initial recognition, the embedded derivative was measured at fair value and any changes were immediately booked to the Income Statement; the host contract was recognised at amortised cost. Such amortised cost was determined using an effective interest rate, as defined in IAS 39, of 6.79%. The interest rate owed and paid to bondholders is 2%.

As of December 31, 2014, the fair value of the embedded derivative had decreased by Euro 13,960 thousand (the fair value was measured with the same method outlined above), whereas the amortised cost of the host contract had increased by Euro 3,067 thousand (because of the difference of interests calculated using the effective interest rate as defined in IAS 39 and the interest rate actually paid); such changes were booked to the Income Statement under items “Other financial income” and “Interest expenses and other financial expenses”, respectively. The following parameters were used to measure the fair value of the embedded derivative:

• Three-month average price of the Sogefi stock as of December 31, 2014: Euro 2.26
• Exercise price: Euro 5.3844
• 7-year BTP yield as of December 31, 2014: 1.43%
• Average annual volatility of the Sogefi stock as of December 31, 2014: 45.2%

The fair value of the equity-linked bonds due 2021 amounted to Euro 86,971 thousand as of December 31, 2014 (fair value measured based on a quoted price per unit of the instrument of Euro 86.971 on the Third market (MTF) of the Vienna Stock Exchange as of December 31, 2014).
Under a resolution of the Board of Directors passed on January 19, 2015 and a Deed Poll executed on January 28, 2015 under British law (notified to Agent on January 29, 2015), the Holding Company Sogefi S.p.A. unilaterally waived the right to settle the convertible bonds in cash rather than by conversion into ordinary shares when the conversion options are exercised by bondholders under the Bond Terms. Such renouncement is final, irrevocable and unconditional. Under British law, such renouncement has the same effect as an amendment to the Bond Terms. Please read note 47 “Subsequent events” for more details.

In July 2014, the Holding Company Sogefi S.p.A. signed a revolving loan agreement for a total amount of Euro 20 million with Mediobanca S.p.A.. Final expiry is in January 2016 and the interest rate is linked to the 3-month Euribor plus a base spread of 170 basis points. The Holding Company Sogefi S.p.A. has drawn down the entire loan amount starting July 2014.

In July 2014, the Holding Company Sogefi S.p.A. signed a revolving loan agreement for a total amount of Euro 50 million with Unicredit S.p.A.. Final expiry is in July 2019 and the interest rate is linked to the 3-month Euribor plus a base spread of 200 basis points. The Holding Company Sogefi S.p.A. has drawn down a Euro 10 million portion of the loan starting December 2014. The remaining portion is available at demand until final expiry of the loan agreement.

In September 2014, the Holding Company Sogefi S.p.A. signed a loan agreement for a total amount of Euro 55 million with BNP Paribas S.A.. Principal is divided into a revolving portion amounting to Euro 30 million (expiry in September 2019) and a bullet portion amounting to Euro 25 million (expiry in September 2017). In December 2014, the Holding Company Sogefi S.p.A. drew down the entire bullet portion of Euro 25 million. As of December 31, 2014, the interest rate charged on this portion was linked to the 3-month Euribor plus a spread of 290 basis points.

Starting May 2014, the Holding Company Sogefi S.p.A. drawn down and repaid several portions of the revolving portion of the loan from Intesa Sanpaolo S.p.A. for the amount of Euro 30 million which will expire in December 2016. As of October 2014, the entire portion had been drawn down and the interest rate charged on it was linked to the 3-month Euribor plus a spread of 230 basis points.

With regard to the drawdowns and the issuance of the equity-linked bonds outlined above, the Holding Company Sogefi S.p.A. has made several advance repayments during 2014:

• with regard to the Syndicated Loan obtained in 2012, a first partial repayment of Euro 84 million (net book value at payment date was Euro 82,574 thousand) was made in May 2014 and a second final repayment of Euro 36 million (net book value at payment date was Euro 34,359 thousand) in full settlement of the Euro 120 million term loan portion was made in December 2014. When these two repayments were made, the IRS contracts designed in hedge accounting for a total notional value of Euro 120,000 thousand were terminated. With the repayment made in December 2014, the Holding Company Sogefi S.p.A. waived the revolving portion of Euro 80 million (which had never been used) and terminated the loan agreement;
• the loan obtained from Banca Monte dei Paschi di Siena S.p.A. in 2011 for Euro 18,750 thousand (net book value at payment date was Euro 18,614 thousand) expiring in March 2017 was repaid in June 2014;
• the loan obtained from GE Capital S.p.A. in 2011 for Euro 6,500 thousand (net book value at payment date was Euro 6,463 thousand) expiring in June 2017 was repaid in June 2014;
• the loan obtained from the European Investment Bank in 2010 for Euro 20,000 thousand (net book value at payment date was Euro 19,915 thousand) expiring in April 2016 was repaid in July 2014.

The advance repayment of these loans had the following impact on the Income Statement:

• a negative impact of Euro 3,337 thousand reflecting the difference between the redeemed amounts and the net book value of the repaid loans including miscellaneous charges totalling Euro 12 thousand;
• a negative impact of Euro 1,913 thousand relating to the termination of the IRS contracts related to the repaid loans.

Such expenses were booked to “Financial expenses (income), net”.

In March 2014, the Holding Company Sogefi S.p.A. redeemed the loan obtained from Unicredit S.p.A. in June 2006 for a principal amount of Euro 100 million when it paid the final instalment of Euro 5,550 thousand as per loan agreement.

In November 2014, the Holding Company Sogefi S.p.A. entered into a revolving loan agreement with Société Générale S.A. for a principal amount of Euro 30 million which will expire in November 2019. As of December 31, 2014, the Holding Company Sogefi S.p.A. has not drawn down this loan.

The existing loans are not secured by the Holding Company Sogefi S.p.A.'s assets. Furthermore, note that, contractually, the spreads relating to 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 the note below entitled “Analysis of the financial position”.

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 and exchange 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, the financial cost and the residual liability.

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

(in thousands of Euro)	Instalments	Capital
Within 12 months	1,306	914
Between 1 and 5 years	5,038	3,948
Beyond 5 years	2,826	2,533
Total lease payments	9,170	7,395
Interests	(1,775)	-
TOTAL PRESENT VALUE OF LEASE PAYMENTS	7,395	7,395

 

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 3,402 thousand; the future capital payments amount to Euro 2,385 thousand and the annual nominal rate of interest applied by the lessor is 11.59%.
  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 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 1,318 thousand. The contract expires in May 2019, the future capital payments amount to Euro 646 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 2,471 thousand. The contract expires in July 2019, the future capital payments amount to Euro 1,257 thousand and the annual interest rate applied by the lessor is equal to 3%. The Group has given sureties for this contract.
  3. plants, machinery and improvements to the building for an original amount of Euro 3,580 thousand. The contract expires in June 2023, the future capital payments amount to Euro 3,107 thousand and the annual interest rate applied by the lessor is equal to 3.24%. 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.
It should be noted that the lease agreement of the Lieusaint facility expired in October 2014 and subsidiary Allevard Rejna Autosuspensions S.A. exercised the option to purchase at the price of Euro 1.

TRADE AND OTHER CURRENT PAYABLES

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

(in thousands of Euro)	12.31.2014	12.31.2013
Trade and other payables	309,808	285,410
Tax payables	5,323	4,557
TOTAL	315,131	289,967

 

Details of trade and other payables are as follows:

(in thousands of Euro)	12.31.2014	12.31.2013
Due to suppliers	242,383	223,573
Due to the parent company	142	130
Due to tax authorities for indirect and other taxes	10,144	8,442
Due to social and security institutions	20,514	21,671
Due to employees	30,049	27,572
Other payables	6,576	4,022
TOTAL	309,808	285,410

 

The amounts “Due to suppliers” are not subject to interest and on average are settled in 74 days, in line with the year 2013.
There is no significant concentration of payables due to any one supplier or small group of suppliers.

The amounts “Due to suppliers” increased by Euro 18,810 thousand (by Euro 15,792 thousand exchange rates being equal); this is mainly due to business growth in the last portion of 2014 compared to the same period of the previous year.

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, which amounts to Euro 128 thousand. For further details, please refer to note 40.

The increase in amounts “Due to tax authorities for indirect and other taxes” reflects VAT debts and other tax debt for the most relating to the Chinese subsidiaries.

The increase in line “Other payables” is mainly due to a reclassification of certain amounts between this item and amounts due to suppliers.

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.