Financial instruments and financial risk management


Financial instruments

The following table shows a comparison between the book value of the Group's financial instruments and their fair value.

Analysing the table shows that the fair value is different from the book value only in the case of short-term and long-term fixed-rate financial debts. This difference, corresponding to Euro 20,355 thousand, is generated by a recalculation of these loans at year-end date at current market rates.

The spreads of floating-rate loans are in line with market trends.

Fair value is classified as Level 2 in the fair value hierarchy (see paragraph “Categories of financial assets and liabilities stated in the financial statements and fair value hierarchy”) and was measured using generally accepted discounted cash flow models and a free-risk discount rate.

The fair value of the equity- linked bond (including the embedded derivative linked to the conversion option) is classified as Level 1 in the fair value hierarchy being the financial instrument listed in an active market.

(in thousands of Euro) Book value Fair value
  12.31.2014 12.31.2013 12.31.2014 12.31.2013
FINANCIAL ASSETS        
Cash and cash equivalents 124,033 125,344 124,033 125,344
Securities held for trading 18 14 18 14
Held-to-maturity investments 6,953 7,462 6,953 7,462
Assets for derivative financial instruments 519 32 519 32
Current financial receivables 2,000 - 2,000 -
Trade receivables 148,083 145,837 148,083 145,837
Other receivables 6,884 7,827 6,884 7,827
Other assets 3,599 3,692 3,599 3,692
Other financial assets available for sale 439 439 439 439
Non-current trade receivables 4 4 4 4
Non-current financial receivables 157 - 157 -
Other non-current receivables 34,626 31,582 34,626 31,582
FINANCIAL LIABILITIES        
Short-term fixed rate financial debts 11,268 7,685 11,731 8,058
Other floating rate short-term financial debts 66,666 75,950 66,666 75,950
Other short-term liabilities for derivative financial instruments 350 93 350 93
Trade and other payables 309,808 285,410 309,808 285,410
Other current liabilities 8,096 8,055 8,096 8,055
Other non-current liabilities 6,988 257 6,988 257
Other fixed rate medium/long-term financial debts 146,121 142,886 165,109 148,669
Equity linked bond included embedded derivative (call option) 86,067 - 86,971 -
Other floating rate medium/long-term financial debts 113,617 189,453 113,617 189,453
Other medium/long-term liabilities for derivative financial instruments 13,924 21,378 13,924 21,378

 

Financial risk management

Given that the Group operates on world markets, its activity is exposed to various kinds of financial risks, including fluctuations, up or down, of interest and exchange rates, and cash flow risks (for cash flows generated outside of the Eurozone). In order to minimise these risks, the Group uses derivatives as part of its risk management activities, whereas it does not use or hold derivatives or similar instruments purely for trading purposes.

The Group also has available a whole series of financial instruments other than derivatives, such as bank loans, financial leases, rentals, sight deposits, payables and receivables deriving from normal operating activities.
The Group handles its main hedging operations centrally. Precise instructions have also been issued, laying down guidelines on risk management, while procedures have been introduced to control all transactions in derivatives.

 

Interest risk

The interest risk to which the Group is exposed mainly arises from long-term debts.

These debts may be fixed or floating rate.

Floating rate debts, which represent 43% of the net book value of Group loans, expose the Group to a risk arising from interest rate volatility (cash flow risk).

With regard to this risk, for the purposes of the related hedging, the Group may use derivative contracts which limit the impacts on the Income Statement of changes in the interest rate. At present, hedging transactions cover around 78% of the net book value of the Group's floating-rate debts. After such transactions, floating-rate loans exposing the Group to a cash flow risk fall to 9% of the net book value of the Group's total loans (not all derivatives considered to be hedges from an operational point of view were designated in hedge accounting as of December 31, 2014).

The following table gives a breakdown, by maturity, of the book value of the Group's financial assets and liabilities instruments, which are exposed to interest rate risk as of December 31, 2014, split according to whether they are contractually at a fixed or floating rate (for further details see the table shown in the analysis of “Liquidity risk”):

(in thousands of Euro) within 12
months
between
1 and 2
years
between
2 and 3
years
between
3 and 4
years
between 4
and 5 years
beyond 5
years
Total
TOTAL FIXED RATE (10,621) (15,023) (18,945) (14,342) (14,265) (166,407) (239,603)
TOTAL FLOATING RATE - ASSET 133,523 - - - - - 133,523
TOTAL FLOATING RATE - LIABILITIES (67,015) (70,085) (34,334) (13,374) (9,748) - (194,556)

 

Financial instruments booked to “Total floating rate – Asset” refer to “Cash and cash equivalents” and “Other financial assets” (Securities held for trading, Held-to-maturity investments, Assets for derivative financial instruments).
Below there is a sensitivity analysis which shows the impact on the Income Statement, net of tax, and on Equity of a change in interest rates that is considered reasonably possible.

An increase or decrease in interest rates of 100 basis points, applied to floating-rate financial assets and liabilities in existence as of December 31, 2014, including interest-rate hedges, would have the following effects:

(in thousands of Euro) 12.31.2014 12.31.2013
Sensitivity Analysis Net profit

Equity

Net profit Equity
+ 100 basis points 4,508 4,849 951 7,943
- 100 basis points (4,685) (5,045) (960) (8,346)

 

The effect on Equity differs from the effect on the Income Statement by Euro 341 thousand (in the event of an increase in interest rates), and by Euro -360 thousand (in the event of a decrease in interest rates), which reflects the change in fair value of the instruments hedging the interest rate risk.

 

Foreign currency risk

As it operates at an international level, the Group is exposed to the risk that changes in exchange rates could have an impact on the fair value of some of its assets or liabilities.
Moreover, as can be seen from the segment information given in note 4, the Group produces and sells mainly in countries of the Eurozone, but it is potentially exposed to currency risk, above all in respect of the British Pound, Brazilian Real, US Dollar, Argentine Peso, Chinese Renminbi and Canadian Dollar.
Generally speaking, the Group is not particularly exposed to exchange risk, which is mainly related to the translation of foreign subsidiaries' financial statements, as the currencies in which the foreign operating companies bill and those in which they are invoiced tend to be much the same.

As regards borrowings, there are also policies stating that any funds raised from third parties have to be in the same currency as the functional currency of the company obtaining the loan. If any exception is made to this principle, then the risk is hedged through forward currency purchases.
More specifically, the Holding Company Sogefi S.p.A. made one private placement of bonds for the amount of USD 115 million in 2013. The exchange risk on this financing was hedged through cross currency swap contracts (please see paragraph “Hedging – Exchange risk hedges” for more details).

A sensitivity analysis is provided below, which shows the impact on the Income Statement, especially on “Exchange (gains) losses”, net of tax, and on Equity of a change that is considered reasonably possible in exchange rates of the main foreign currencies. Note that the exchange effect of translating the financial statements of foreign subsidiaries into Euro has not been taken into consideration here.
What has been taken into consideration are the financial assets and liabilities outstanding as of December 31, 2014 denominated in a currency other than the functional currency of the individual subsidiaries. This analysis also takes into account any changes in the fair value of the financial instruments used to hedge exchange risk.

As of December 31, 2014, exchange risk was concentrated mainly in transactions with the Euro.
A 5% appreciation or depreciation of the Euro against the other main currencies would have the following effects:

(in thousands of Euro) 12.31.2014 12.31.2013
Sensitivity Analysis Net profit

Equity

Net profit Equity
+ 5% (640) (640) (481) (481)
- 5% 712 712 540 540

 

These effects are mainly due to the following exchange rates:

  • EUR/CNY mainly due to the debt exposure for the trade and financial payables in Euro of Chinese subsidiaries;
  • EUR/BRL mainly due to the debt exposure for the trade payables in Euro of the Brazilian subsidiaries and to the financial debt exposure in Brazilian Real of Sogefi Filtration S.A.;
  • EUR/USD mainly due to the private placement noted above, in spite of the cross currency swaps that partly neutralise the effect of possible fluctuations in the relevant exchange rate.

It should be noted that a sensitivity analysis of the CAD/USD exchange rate showed that the economic effect and impact on equity in the event of a 5% appreciation/depreciation of the Canadian Dollar would cause Net profit and Group's equity to increase/decrease by Euro 474 thousand. This effect is due to the debt exposure for the trade and financial payables in USD of Canadian subsidiary.

 

Price risk

The Group is partially exposed to price risk as it makes purchases of various raw materials such as steel, plastics, aluminium, cellulose products.
The risk is handled in the best way possible thanks to centralised purchasing and a policy of having various suppliers for each kind of raw material, operating in different parts of the world.
We would also point out that price risk is generally mitigated by the Group's ability to pass on part of the increase in raw material costs to selling prices.
The price risk on Group investments classified as “Securities held for trading” and “Other financial assets available for sale” is not significant.

 

Credit risk

This is the risk that one of the parties signing a contract of a financial nature defaults on an obligation, thereby provoking a financial loss. This risk can derive from strictly commercial aspects (granting and concentration of credits), as well as from purely financial aspects (choice of counterparties used in financial transactions).

From a commercial point of view, the Group does not have excessive concentrations of credit risk as it operates on distribution channels, both Original Equipment and the Aftermarket, that make it possible not to depend too much on individual customers. For example, Original Equipment sales are largely to car and industrial vehicle manufacturers.
As regards the Aftermarket, on the other hand, the Group’s main customers are important international purchasing groups.
In order to minimise credit risk, however, procedures have in any case been implemented to limit the impact of any customer insolvencies.
As regards counterparties for the management of financial resources, the Group only has recourse to partners that have a safe profile and a high international standing.
The Group's maximum exposure to credit risk as of December 31, 2014 is represented by the book value of the financial assets shown in the financial statements (Euro 331,548 thousand), as well as by the nominal value of the guarantees given in favour of third parties, as mentioned in note 43 (Euro 11,607 thousand).

The exposure to credit risk is essentially linked to trade receivables which amounted to Euro 150,976 thousand as of December 31, 2014 (Euro 140,576 thousand as of December 31, 2013), written down by Euro 5,170 thousand (Euro 4,703 thousand as of December 31, 2013).

Receivables are backed by mainly insurance guarantees for Euro 6,633 thousand (Euro 6,174 thousand as of December 31, 2013). The Group does not have any other guarantees covering trade receivables.

The following table shows the changes in the allowance for doubtful accounts:

(in thousands of Euro) 12.31.2014 12.31.2013
Opening balance 4,703 5,263
Change to the scope of consolidation - -
Accruals for the period 631 491
Utilisations (11) (240)
Provisions not used during the period (202) (660)
Other changes - (36)
Exchange differences 49 (115)
TOTAL 5,170 4,703


The following is an ageing analysis of gross receivables and the related allowance for doubtful accounts to help evaluate credit risk:

(in thousands of Euro) 12.31.2013
  Gross value Allowance for doubtful accounts Net value
Receivables past due:      
0-30 days 6,791 (55) 6,736
30-60 days 4,740 (101) 4,639
60-90 days 2,060 (96) 1,964
over 90 days 7,926 (4,398) 3,528
Total receivables past due 21,517 (4,650) 16,867
Total receivables still to fall due 119,059 (53) 119,006
TOTAL 140,576 (4,703) 135,873

 

(in thousands of Euro) 12.31.2014
  Gross value Allowance for doubtful accounts Net value
Receivables past due:      
0-30 days 10,829 (19) 10,810
30-60 days 2,793 (384) 2,409
60-90 days 1,247 (88) 1,159
over 90 days 8,276 (4,679) 3,597
Total receivables past due 23,145 (5,170) 17,975
Total receivables still to fall due 127,831 - 127,831
TOTAL 150,976 (5,170) 145,806

 

As of December 31, 2014, gross receivables past due were Euro 1,628 thousand higher than at the end of the previous year. The increase is concentrated in the “0-30 days” bracket (Euro 4,038 thousand) and is mostly due to payments due owed by customers of the French subsidiaries that were put off until early 2015. This increase is partly offset by a decrease in the “30-60 days” past due bracket (Euro -1,947 thousand) and in the “60-90 days” bracket (Euro -813 thousand) mostly relating to subsidiaries Filtrauto S.A. and Sogefi Engine Systems Mexico S. de R.L. de C.V..

The impact of gross receivables past due on total receivables is unchanged from the previous year at 15.3%.
Past due receivables have been written down by 22.3% overall (21.6% as of December 31, 2013) and by 56.5% (55.5% as of December 31, 2013) considering only the “over 90 days” bracket. Writedowns refer mainly to disputed amounts or receivables that have been due for a significant period of time and can no longer be collected.
Net receivables past due account for 12.3% of total net receivables, compared to 12.4% in the previous year.
The item “Total receivables still to fall due” does not contain significant positions that have been renegotiated.

Considering the nature of the Sogefi Group's customers (cars and industrial vehicles manufacturers and important international purchasing groups), a Credit risk analysis by type of customer is not considered meaningful.

 

Liquidity risk

The Group is subject to a minimum amount of liquidity risk, namely having to handle a situation where it is not able to raise sufficient funds to meet its liabilities.
The Group has always taken an extremely prudent approach to its financial structure, using mainly medium/long-term funding, whereas forms of short-term financing are generally used only to cope with moments of peak requirement.
Its solid capital structure makes it relatively easy for the Group to find additional sources of financing.
It should also be mentioned that the Group has implemented a cash pooling system for all of the main European subsidiaries, which makes it possible to optimise liquidity and cash flow management at a supranational level.

The following table shows an analysis of the Group's financial assets and liabilities instruments by maturity, including the amount of future interests to be paid and trade receivables and payables:

(in thousands of Euro) within 12
months
between
1 and 2
years
between
2 and 3
years
between
3 and 4
years
between 4
and 5 years
beyond 5
years
Total
Fixed rate              
Finance lease Sogefi Filtration Ltd (195) (217) (244) (275) (304) (1,150) (2,385)
Finance lease Allevard Sogefi U.S.A. Inc. (719) (743) (768) (793) (604) (1,383) (5,010)
Private Placement USD 115 million Sogefi S.p.A. - - (13,536) (13,536) (13,536) (53,752) (94,360)
Private Placement USD 25 million Sogefi S.p.A. - - - - - (24,922) (24,922)
included embedded derivative (call option) - - - - - (86,067) (86,067)
Sogefi (Suzhou) Auto Parts Col., Ltd loan (6,436) (6,569) - - - - (13,005)
Sogefi Filtration do Brasil Ltda loan (41) (6,491) (3,541) - - - (10,073)
Systèmes Moteurs S.A.S. loan (437) - - - - - (437)
Sogefi Engine Systemes Canada Corp. loan (662) (705) (686) - - - (2,053)
Government financing (628) (630) (518) (239) (229) (183) (2,427)
Other fixed rate loans (2,150) (315) (245) - - - (2,710)
Future interest (9,726) (10,456) (9,580) (7,907) (7,044) (9,819) (54,532)
Future financial income on derivative instruments - interest risk hedging * 647 647 593 501 408 1,050 3,846
TOTAL FIXED RATE (20,347) (25,479) (28,525) (22,249) (21,309) (176,226) (294,135)
Floating rate              
Cash and cash equivalents 124,033 - - - - - 124,033
Financial assets 6,971 - - - - - 6,971
Assets for derivative financial instruments 519 - - - - - 519
Current financial receivables 2,000 - - - - - 2,000
Non-current financial receivables - - - - - - -
loans (13,426) - - - - - (13,426)
Sogefi S.p.A. loans (17,404) (66,665) (32,374) - (9,748) - (126,191)
Shanghai Sogefi Auto Parts Co., Ltd loans (2,654) - - - - - (2,654)
S.C. Systemes Moteurs SRL loan (827) (827) (207) - - - (1,861)
Sogefi (Shouzu) Auto Parts Co., Ltd loan (20,512) - - - - - (20,512)
Sogefi Filtration S.A. loan (1,400) (700) - - - - (2,100)
Systèmes Moteurs S.A.S. loan (3,500) - - - - - (3,500)
Sogefi Engine Systems Canada Corp. Loans (1,440) (703) (681) - - - (2,824)
Allevard Rejna Autosuspensions S.A. loan (4,000) - - - - - (4,000)
Other floating rate loans (1,502) (647) (1,072) - - - (3,221)
Future interest (3,871) (2,457) (990) (211) (122) - (7,651)
Liabilities for derivative financial instruments - exchange risk hedging (350) - - - - - (350)
Future financial expenses on derivative instruments - interest risk hedging * (4,091) (4,316) (4,334) (1,806) - - (14,547)
TOTAL FLOATING RATE 58,546 (76,315) (39,658) (2,017) (9,870) - (69,314)
Trade receivables 148,083 - - - - - 148,083
Trade and other payables (309,808) (223) (6,765) - - - (316,796)
TOTAL FINANCIAL INSTRUMENT - ASSET 281,606 - - - - - 281,606
TOTAL FINANCIAL INSTRUMENT - LIABILITIES (405,132) (102,017) (74,948) (24,266) (31,179) (176,226) (813,768)

* The amount is different from "Net financial liabilities for derivatives - hedging of interest rate" (equal to a total of Euro 13,767 thousand) because it represents the non-discounted cash flows

 

Hedging

a) exchange risk hedges – not designated in hedge accounting
The Sogefi Group has the following contracts to hedge the exchange risk on financial balances. Note that even though the Group considers these instruments as exchange risk hedges from a management point of view, it has chosen not to adopt hedge accounting, as this treatment is not considered suitable for the Group's operating requirements. It therefore measures such contracts at fair value, posting the differences to the Income Statement (this difference is offset within Income Statement by the fair value change of the asset/liability denominated in a certain currency).
Fair value was calculated using the forward curve of exchange rates as of December 31, 2014.

As of December 31, 2014, the Holding Company Sogefi S.p.A. held the following forward sale contracts to hedge exchange risk on intercompany financial positions:

Forward sale Date opened Spot price €/currency Date closed Forward price €/currency
USD 5,000,000 12/19/2014 1.24480 03/19/2015 1.24580
GBP 6,000,000 12/19/2014 0.79320 03/19/2015 0.79438

 

As of December 31, 2014, the fair value of these contracts was negative for Euro 242 thousand and was booked to “Other short-term liabilities for derivative financial instruments”.

The subsidiary Filtrauto S.A. holds the following forward purchase contract to hedge the exchange risk on trade positions:

Forward purchase Date opened Spot price €/currency Date closed Forward price €/currency
USD 250,000 11/12/2014 1.24630 01/05/2015 1.24666

 

As of December 31, 2014, the fair value of this contract amounted to Euro 5 thousand and was booked to “Other financial assets – Assets for derivative financial instruments”.

The subsidiary Systèmes Moteurs S.A.S. holds the following forward purchase contract to hedge the exchange risk on trade positions:

Forward purchase Date opened Spot price €/currency Date closed Forward price €/currency
CAD 10,000,000 11/28/2014 1.40570 01/28/2015 1.40800


As of December 31, 2014, the fair value of this contract was positive for Euro 3 thousand and was booked to “Other financial assets – Assets for derivative financial instruments”.

The subsidiary S.C. Systèmes Moteurs S.r.l. holds the following forward purchase contracts to hedge the exchange risk on trade and intercompany financial positions:

Forward purchase Date opened Spot price RON/currency Date closed Forward price RON/currency
EUR 3,100,000 11/28/2014 4.41730 01/28/2015 4.42660
EUR 400,000 12/10/2014 4.44300 01/09/2015 4.44650
EUR 200,000 12/19/2014 4.47900 01/15/2015 4.48380


As of December 31, 2014, the fair value of this contract was positive for Euro 45 thousand and was booked to “Other financial assets – Assets for derivative financial instruments”.

The subsidiary Sogefi Engine Systems Canada Corp. holds the following forward purchase contracts to hedge the exchange risk on trade positions:

Forward purchase Date opened Spot price CAD/currency Date closed Forward price CAD/currency
USD 7,700,000 12/04/2014 1.13900 01/02/2015 1.13990
USD 7,000,000 12/10/2014 1.14580 02/02/2015 1.14750
USD 7,900,000 12/11/2014 1.14700 03/02/2015 1.14930


and the following forward sale contract to hedge exchange risk on intercompany financial positions:

Forward purchase Date opened Spot price CAD/currency Date closed Forward price CAD/currency
MXN 75,000,000 12/17/2014 12.67060 02/19/2015 12.70460


As of December 31, 2014, the fair value of these contracts was positive for Euro 229 thousand and was booked to “Other financial assets – Assets for derivative financial instruments”.

The subsidiary Sogefi Engine Systems Mexico S. de R.L. de C.V. holds the following forward purchase contracts to hedge the exchange risk on trade positions:

Forward purchase Date opened Spot price MXN/USD Date closed Forward price MXN/USD
MXN 7,700,000 12/15/2014 14.77000 01/05/2015 14.78250
MXN 7,700,000 12/19/2014 14.50000 02/03/2015 14.53000


and the following forward purchase contract to hedge exchange risk on trade and intercompany financial positions:

Forward purchase Date opened Spot price MXN/currency Date closed Forward price MXN/currency
CAD 7,500,000 11/28/2014 12.11850 02/27/2015 12.16050

 

As of December 31, 2014, the fair value of these contracts was positive for Euro 236 thousand and was booked to “Other financial assets – Assets for derivative financial instruments”.

The subsidiary Systèmes Moteurs India Pvt. Ltd. holds the following forward purchase contract to hedge the exchange risk on intercompany financial

Forward purchase Date opened Spot price INR/currency Date closed Forward price INR/currency
EUR 2,000,000 10/31/2014 78.00000 01/30/2015 80.04000


As of December 31, 2014, the fair value of these contracts was negative for Euro 68 thousand and was booked to “Other short-term liabilities for derivative financial instruments”.

The subsidiary Allevard Molas do Brasil Ltda holds the following forward purchase contracts to hedge the exchange risk on trade positions:

Forward purchase Date opened Spot price BRL/currency Date closed Forward price BRL/currency
EUR 102,000

12/12/2014

3.22270 01/30/2015 3.27530
EUR 220,000 12/13/2014 3.22270 02/27/2015 3.30360
EUR 164,000 12/14/2014 3.22270 03/31/2015 3.33760


and the following forward sale contracts to hedge exchange risk on trade positions:

Forward purchase Date opened Spot price BRL/currency Date closed Forward price BRL/currency
USD 733,000 12/12/2014 2.59650 01/30/2015 2.62900
USD 942,000 12/12/2014 2.59650 02/27/2015 2.64580
USD 1,010,000 12/12/2014 2.59650 03/31/2015 2.66450


As of December 31, 2014, the fair value of these contracts was negative for Euro 40 thousand and was booked to “Other short-term liabilities for derivative financial instruments”.

The subsidiary Sogefi Filtration Argentina S.A. holds the following forward purchase contracts to hedge the exchange risk on trade positions:

Forward purchase Date opened Spot price ARP/currency Date closed Forward price ARP/currency
USD 200,000 12/30/2014 8.55200 01/30/2015 8.78000
USD 200,000 12/30/2014 8.55200 02/27/2015 8.96500


As of December 31, 2014 the fair value of those contracts amounts to zero.

b) Exchange risk hedges – in hedge accounting
In 2013, the Holding Company Sogefi S.p.A. entered into the following Interest Rate Swap contracts (in thousands of Euro) as part of a macro cash flow hedge strategy aimed at hedging the risk of fluctuations in future cash flows deriving from the envisaged future long term indebtedness of the Holding Company Sogefi S.p.A.. Future indebtedness is deemed to be highly probable in view of the 2015-2018 projections approved by management. Relating cash flows will be exchanged from 2016 onwards:

Description of IRS Date opened Contract maturity Notional Fixed rate Fair value at 12.31.2014 Fair value at 12.31.2013
Hedging of Sogefi S.p.A. future financial indebtedness 02/21/2013 06/01/2018 10,000 1.660% (281) (21)
Hedging of Sogefi S.p.A. future financial indebtedness 02/19/2013 06/01/2018 10,000 1.650% (277) (17)
Hedging of Sogefi S.p.A. future financial indebtedness 02/21/2013 06/01/2018 5,000 1.660% (139) (8)
TOTAL     25,000   (697) (46)

 
These financial instruments envisage payment by the Group of an agreed fixed rate and payment by the counterparty of the floating rate that is the basis of the underlying loan.

c) exchange risk hedges – in hedge accounting
During 2013, the Holding Company Sogefi S.p.A. entered into three cross currency swap (CCS) contracts maturing in June 2023, designated in hedge accounting, in order to hedge interest and exchange rate risk relating to the private placement of USD 115 million bonds. Under these contracts, a fixed interest receivable of 600 basis points on subscribed notional USD amount is collected by the Holding Company Sogefi S.p.A. on a quarterly basis against payment of a fixed interest payable on a notional amount in EUR corresponding to the USD notional amount converted at the fixed exchange rate of 1.3055 (totalling Euro 88,089 thousand).

Details of these contracts are as follows:

Description of CCSwap Date opened Contract maturity Notional (in thousands of Usd) Fixed rate Fair value at 12.31.2014 Fair value at 12.31.2013
Private placement USD 115 million (05/03/2013 maturity 06/01/2013), coupon 600 bps 04/30/2013 06/01/2023 55,000 6.0% USD receivable 5.6775% Euro payables 140 (4,363)
Private placement USD 115 million (05/03/2013 maturity 06/01/2013), coupon 600 bps 04/30/2013 06/01/2023 40,000 6.0% USD receivable 5.74% Euro payables 17 (3,320)
Private placement USD 115 million (05/03/2013 maturity 06/01/2013), coupon 600 bps 04/30/2013 06/01/2023 20,000 6.0% USD receivable 5.78% Euro payables (7) (1,698)
TOTAL     115,000   150 (9,381)

 

d) derivatives no longer in hedge accounting
As of December 31, 2014, the Group held the following Interest Rate Swap contracts that had become ineffective according to the effectiveness tests performed as of December 31, 2013 (with regard the first derivatives listed below) and as of June 30, 2014 (with regard to the other derivatives listed here), so that the hedging relationship was discontinued and the derivatives were reclassified as trading instruments. More specifically, the change in fair value since the last effectiveness test passed is immediately recognised in the Income Statement, whereas any reserve previously booked to Other Comprehensive Income is recognised in the Income Statement over the same period of time as the differentials relating to the underlying hedged item.
Details are as follows:

Derivative held by the subsidiary Sogefi Filtration S.A.:

Description of IRS Date opened Contract maturity Notional Fixed rate Fair value at 12.31.2014 Fair value at 12.31.2013
Hedging of Sogefi Filtration S.A. loan for Euro 7 million (05/30/2011 maturity 05/30/2016), rate Euribor 3 months + 225 bps 08/30/2011 05/30/2011 1,050 2.651% (24) (56)
TOTAL     1,050   (24) (56)


Derivatives held by the Holding Company Sogefi S.p.A.:

Description of IRS Date opened Contract maturity Notional Fixed rate Fair value at 12.31.2014 Fair value at 12.31.2013
Hedging of Sogefi S.p.A. loan for Euro 60 million (04/29/2011 maturity 12/31/2016), rate Euribor 3 months + 200 bps 05/11/2011 12/31/2016 16,000 2.99% (518) (986)
TOTAL     16,000   (518) (986)
Description of IRS Date opened Contract maturity Notional Fixed rate Fair value at 12.31.2014 Fair value at 12.31.2013
Hedging of Sogefi S.p.A. future financial indebtedness 02/10/2011 06/01/2018 10,000 3.679% (1,153) (1,117)
Hedging of Sogefi S.p.A. future financial indebtedness 02/23/2011 06/01/2018 10,000 3.500% (1,135) (1,108)
Hedging of Sogefi S.p.A. future financial indebtedness 03/11/2011 06/01/2018 10,000 3.545% (1,148) (1,128)
Hedging of Sogefi S.p.A. future financial indebtedness 03/23/2011 06/01/2018 10,000 3.560% (1,152) (1,127)
Hedging of Sogefi S.p.A. future financial indebtedness 03/28/2011 06/01/2018 10,000 3.670% (1,195) (1,182)
Hedging of Sogefi S.p.A. future financial indebtedness 05/13/2011 06/01/2018 10,000 3.460% (1,124) (1,092)
Hedging of Sogefi S.p.A. future financial indebtedness 06/24/2011 06/01/2018 10,000 3.250% (1,051) (1,001)
Hedging of Sogefi S.p.A. future financial indebtedness 06/28/2011 06/01/2018 10,000 3.250% (1,049) (1,002)
Hedging of Sogefi S.p.A. future financial indebtedness 11/28/2011 06/01/2018 10,000 2.578% (824) (712)
TOTAL     90,000   (9,831) (9,469)
Description of IRS Date opened Contract maturity Notional Fixed rate Fair value at 12.31.2014 Fair value at 12.31.2013
Hedging of Sogefi S.p.A. future financial indebtedness 02/11/2013 06/01/2018 5,000 1.225% (186) (51)
Hedging of Sogefi S.p.A. future financial indebtedness 02/01/2013 06/01/2018 10,000 1.310% (397) (119)
Hedging of Sogefi S.p.A. future financial indebtedness 02/06/2013 06/01/2018 10,000 1.281% (388) (109)
Hedging of Sogefi S.p.A. future financial indebtedness 02/11/2013 06/01/2018 5,000 1.220% (184) (50)
Hedging of Sogefi S.p.A. future financial indebtedness 02/12/2013 06/01/2018 5,000 1.240% (185) (27)
TOTAL     35,000   (1,340) (356)


According to the effectiveness tests carried out as of December 31, 2014, the derivatives listed below, aimed at hedging the risk of fluctuations in cash flows from 2015 onwards connected with expected future indebtedness, became ineffective as well:

Description of IRS Date opened Contract maturity Notional Fixed rate Fair value at 12.31.2014 Fair value at 12.31.2013
Hedging of Sogefi S.p.A. future financial indebtedness 02/07/2013 06/01/2018 15,000 1.445% (566) (79)
Hedging of Sogefi S.p.A. future financial indebtedness 02/11/2013 06/01/2018 5,000 1.425% (186) (30)
Hedging of Sogefi S.p.A. future financial indebtedness 02/19/2013 06/01/2018 10,000 1.440% (376) (62)
Hedging of Sogefi S.p.A. future financial indebtedness 02/11/2013 06/01/2018 5,000 1.420% (185) (52)
Hedging of Sogefi S.p.A. future financial indebtedness 02/13/2013 06/01/2018 5,000 1.500% (195) (36)
TOTAL     40,000   (1,508) (259)


The non-application of hedge accounting had the following impact on the financial statements as of December 31, 2014:

  • a financial charge of Euro 2,776 thousand was recognised in the Income Statement; this amount reflects the portion of the reserve previously booked to Other Comprehensive Income that will be recognised in the Income Statement over the same period of time as the differentials relating to the underlying hedged item.
  • a financial charge of Euro 1,168 thousand, reflecting the amount of the change in fair value since the previous effectiveness test (December 31, 2013), was recognised in the Income Statement.

e) fair value of derivative contracts in hedge accounting and no longer designated in hedge accounting
The fair value of all derivatives was calculated using the forward curves of exchange and interest rates as of December 31, 2014, also taking into account a credit valuation adjustment / debit valuation adjustment. The fair value amounts of derivatives are classified as Level 2 in a hierarchy of levels that describes the significance of the inputs used in fair value measurements.

 

Derivative embedded in the bond

As noted above, the Holding Company Sogefi S.p.A. issued a bond designated “€100,000,000 2 per cent. Equity Linked Bonds due 2021” under which terms the Company has the right to pay cash or offer a combination of ordinary shares and cash when the conversion rights are exercised - following the Extraordinary Shareholders Meeting on September 26, 2014 - passed the resolution to increase share capital, excluding option rights, under art. 2441, paragraph 5 of the Italian Civil Code, through the issue of shares exclusively for bond conversion.

Such right constitutes an embedded derivative that is booked to the appropriate item in the statement of financial position (financial liability).

On May 14, 2014, the Holding Company Sogefi S.p.A. separated the embedded derivative (call option on Company's shares) from the host contract (equity-linked bonds) in accordance with IAS 39 and determined that its fair value amounts to Euro 24,500 thousand. The fair value was classified as Level 2 in the fair value hierarchy. As of December 31, 2014, the fair value of the embedded derivative amounted to Euro 10,540 thousand, and the Euro 13,960 thousand increase was recognised in the Income Statement under item “Other financial income”.

The following parameters were used to measure fair value:

  • Three-month average price of the Sogefi stock as of December 31, 2014: Euro 2.2626 (the three-month average price was used due to the high volatility of the stock during the final months of 2014)
  • 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%

 

With regard to sensitivity, if the price of the Sogefi stock ruling as of December 31, 2014 had been used, the fair value of the embedded derivative would have been Euro 8,791 thousand; if the average price of December were used, the fair value of embedded derivative would amount to Euro 9,365 thousand.

 

Equity management

The main objectives pursued by the Group through its equity risk management are the creation of value for shareholders and the safeguarding of business continuity. The Group also sets itself the objective of maintaining an optimal equity structure so as to reduce the cost of indebtedness and meet the covenants established by the loan agreements.

The Group monitors equity on the basis of the net financial position/total equity ratio (gearing ratio). For the purposes of determination of the net financial position reference is made to note 22. Total equity is analysed in note 21.

As of December 31, 2014, gearing stands at 1.68 (1.61 as of December 31, 2013).

 

Categories of financial assets and liabilities stated in the financial statements and fair value hierarchy

In compliance with the requirements of IFRS 7, the table below provides the information on the categories of financial assets and liabilities held by the Group as of December 31, 2013.

For the financial instruments measured at fair value in the statement of financial position the IFRS 7 requires a classification by hierarchy determined by reference to the source of inputs used to derive the fair value. This classification uses the following three levels:

  • level 1: if the financial instrument is quoted in an active market;
  • level 2: if the fair value is determined using valuation techniques and the inputs used for the valuation (other than quoted prices of financial instruments) are observable in the market. Specifically, fair value was calculated using the forward curves of exchange and interest rates;
  • level 3: if the fair value is determined using valuation techniques and the inputs used for the valuation are non-observable in the market.

The following table therefore shows the fair value level of financial assets and liabilities measured at fair value, as of December 31, 2014.

(in thousands of Euro) Note Book value 2013 Receivables and financial assets Financial assets available for sale Held-to-maturity
investments
Financial
liabilities
Fair Value with changes booked in the Income Statement
              Amount Fair value hierarchy
Current assets                
Cash and cash equivalents 124,033 124,033 - - - -  
Securities held for trading 18 - - - - 18 1
Held-to-maturity investments 6,953 - - 6,953 - -  
Assets for derivative financial instruments 519 - - - - 519 2
Trade receivables 148,083 148,083 - - - -  
Other receivables 6,884 6,884 - - - -  
Other assets 3,599 3,599 - - - -  
Non-current assets                
Other financial assets available for sale 439 - 439* - - -  
Non-current trade receivables 4 4   -      
Other non-current receivables 34,626 34,626 - - - -  
Current liabilities                
Short-term fixed rate financial debts 11,268 - - - 11,268 -  
Short-term variable rate financial debts 66,666 - - - 66,666 -  
Other short-term liabilities for derivative financial instruments 350 - - - - 350 2
Trade and other payable 309,808 - - - 309,808 -  
Other current liabilities 8,096 - - - 8,096 -  
Non-current liabilities                
Medium/long-term fixed rate financial debts 146,121 - - - 146,121 -  
Equity linked bond included embedded derivative (call option) 86,067 - - - 86,067 - 2
Medium/long-term variable rate financial debts 113,617 - - - 113,617 -  
Other medium/long-term liabilities for derivative financial instruments 13,924 - - - - 13,924** 2

* relating to financial assets valued at cost, as permitted by IAS 39, insofar as a reliable fair value is not avaible.
** of which € 11,425 thousand relating to hedge instruments accounted according to the cash flow hedge method.

The following table therefore shows the fair value hierarchy of financial assets and liabilities measured at fair value, as of December 31, 2013:

(in thousands of Euro) Note Book value 2013 Receivables and financial assets Financial assets available for sale Held-to-maturity
investments
Financial
liabilities
Fair Value with changes booked in the Income Statement
              Amount Fair value hierarchy
Current assets                
Cash and cash equivalents 125,344 125,344 - - - - -
Securities held for trading 14 - - - - 14 1
Held-to-maturity investments 7,462 - - 7,462 - -  
Assets for derivative financial instruments 32 - - - - 32 2
Trade receivables 145,837 145,837 - - - -  
Other receivables 7,827 7,827 - - - -  
Other assets 3,692 3,692 - - - -  
Non-current assets                
Other financial assets available for sale 439 - 439* - - -  
Non-current trade receivables 4 4   -      
Other non-current receivables 31,582 31,582 - - - -  
Current liabilities                
Short-term fixed rate financial debts 7,685 - - - 7,685 -  
Short-term variable rate financial debts 75,950 - - - 75,950 -  
Other short-term liabilities for derivative financial instruments 93 - - - - 93 2
Trade and other payable 285,410 - - - 285,410 -  
Other current liabilities 8,055 - - - 8,055 -  
Non-current liabilities                
Medium/long-term fixed rate financial debts 142,886 - - - 142,886 -  
Medium/long-term variable rate financial debts 189,453 - - - 189,453 -  
Other medium/long-term liabilities for derivative financial instruments 21,378 - - - - 21,378** 2

* relating to financial assets valued at cost, as permitted by IAS 39, insofar as a reliable fair value is not avaible.
** of which € 20,336 thousand relating to hedge instruments accounted according to the cash flow hedge method.

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.