Financial instruments
The following table shows a comparison between the book value of the Group's financial instruments and their fair value.
An analysis of 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 29,696 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 standard market conditions.
The fair value of fixed-rate financial debts 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 convertible bond amounts to Euro 94,482 thousand (Euro 91,397 thousand as at 31 December 2015) and is classified as Level 1 in the fair value hierarchy, because the financial instrument is quoted on an active market.
(in thousands of Euro) | Book value | Fair value | ||
---|---|---|---|---|
12.31.2016 | 12.31.2015 | 12.31.2016 | 12.31.2015 | |
FINANCIAL ASSETS | ||||
Cash and cash equivalents | 93,661 | 121,892 | 93,661 | 121,892 |
Securities held for trading | - | 17 | - | 17 |
Held-to-maturity investments | 3,950 | 3,949 | 3,950 | 3,949 |
Assets for derivative financial instruments | 255 | 931 | 255 | 931 |
Current financial receivables | 1,676 | 1,438 | 1,676 | 1,438 |
Trade receivables | 158,466 | 143,489 | 158,466 | 143,489 |
Other receivables | 6,820 | 7,915 | 6,820 | 7,915 |
Other assets | 3,689 | 3,974 | 3,689 | 3,974 |
Other financial assets available for sale | 46 | 439 | 46 | 439 |
Non-current trade receivables | 4 | 4 | 4 | 4 |
Non-current financial receivables | 15,770 | 13,156 | 15,770 | 13,156 |
Other non-current receivables | 29,818 | 34,666 | 29,818 | 34,666 |
FINANCIAL LIABILITIES | ||||
Short-term fixed rate financial debts | 25,313 | 15,323 | 25,871 | 15,164 |
Other floating rate short-term financial debts | 122,895 | 76,965 | 122,895 | 76,965 |
Other short-term liabilities for derivative financial instruments | 400 | 325 | 400 | 325 |
Trade and other payables | 339,086 | 325,421 | 339,086 | 325,421 |
Other current liabilities | 8,197 | 9,686 | 8,197 | 9,686 |
Other non-current liabilities | 15,046 | 9,195 | 15,046 | 9,195 |
Other fixed rate medium/long-term financial debts | 130,634 | 151,210 | 147,326 | 159,426 |
Equity linked bond included embedded derivative (call option) | 82,035 | 78,627 | 94,482 | 91,397 |
Other floating rate medium/long-term financial debts | 45,528 | 129,660 | 45,528 | 129,660 |
Other medium/long-term liabilities for derivative financial instruments | 7,550 | 11,562 | 7,550 | 11,562 |
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 variety 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 41% 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, the net book value of the Group's floating-rate debts is entirely covered by hedging transactions made during the previous years (such hedges do not always meet the requirements of IAS 39 for treatment under hedge accounting).
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 at 31 December 2016, 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 | (25,312) | (19,609) | (18,386) | (42,146) | (99,251) | (33,278) | (237,983) |
TOTAL FLOATING RATE - ASSET | 99,542 | - | - | - | - | - | 99,542 |
TOTAL FLOATING RATE - LIABILITIES | (122,895) | (29,531) | (12,982) | (10,484) | (20) | (61) | (175,973) |
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 at 31 December 2016, including interest-rate hedges, would have the following effects:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 | ||
---|---|---|---|---|
Sensitivity Analysis | Net profit | Equity | Net profit |
Equity |
+ 100 basis points | 2,441 | 2,681 | 3,548 | 3,906 |
- 100 basis points | (2,488) | (2,734) | (3,650) | (4,023) |
The effect on Equity differs from the effect on the Income Statement by Euro 240 thousand (in the event of an increase in interest rates), and by Euro -246 thousand (in the event of a decrease in interest rates), which reflects the change in the 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 Parent 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 at 31 December 2016 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 at 31 December 2016, 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) | 12.31.2016 | 12.31.2015 | ||
---|---|---|---|---|
Sensitivity Analysis | Net profit | Equity | Net profit |
Equity |
+ 5% | (487) | (487) | (663) | (663) |
- 5% | 491 | 491 | 364 | 364 |
These effects are mainly due to the following exchange rates:
- EUR/GBP due to the net exposure for the trade payables and financial debt in Euro of UK companies and for the net financial debt in GBP of the Parent Company Sogefi S.p.A.;
- EUR/USD due to the net exposure for the trade payables and financial debt in Euro of the US subsidiaries and for the net financial debt in USD of the Parent Company Sogefi S.p.A.;
- EUR/BRL due to the net exposure for the trade payables in Euro of the Brazilian subsidiaries;
- EUR/RON due to the net exposure for the trade payables in Euro of the Romanian subsidiary S.C. Sogefi Air & Cooling S.r.l.
Please note also that a sensitivity analysis of the MEX/CAD exchange rate showed that a 5% appreciation/depreciation of the Peso would cause Group's net profit and equity to decrease/increase by Euro 432 thousand. This effect is due to the exposure for the trade payables and financial debt in CAD of the Mexican subsidiary.
With regard to the United Kingdom’s exit from the Euro area, the Group does not expect any significant impacts. Outlined below is a sensitivity analysis on the net assets of the UK subsidiaries: a 5% appreciation of the Euro against GBP would cause the net assets of UK subsidiaries to fall by Euro 958 thousand; a 5% depreciation of the Euro against GBP would cause the net assets of UK subsidiaries to increase by Euro 1,059 thousand.
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 (or at business unit level) 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 variation 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 at 31 December 2016 is represented by the book value of the financial assets shown in the financial statements (Euro 314,155 thousand), as well as by the nominal value of the guarantees given in favour of third parties, as mentioned in note 43 (Euro 9,836 thousand).
The exposure to credit risk is essentially linked to trade receivables which amounted to Euro 157,163 thousand as at 31 December 2016 (Euro 142,266 thousand as at 31 December 2015), written down by Euro 4,977 thousand (Euro 5,367 thousand as at 31 December 2015).
Receivables are backed by mainly insurance guarantees for Euro 4,345 thousand (Euro 5,327 thousand as at 31 December 2015). 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) | 12.31.2016 | 12.31.2015 |
---|---|---|
Opening balance | 5,367 | 5,170 |
Change to the scope of consolidation | - | - |
Accruals for the period | 1,578 | 1,554 |
Utilisations | (1,741) | (1,124) |
Provisions not used during the period | (294) | (56) |
Other changes | - | - |
Exchange differences | 67 | (177) |
TOTAL | 4,977 | 5,367 |
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) | 12.31.2015 | ||
---|---|---|---|
Gross value | Allowance for doubtful accounts | Net value | |
Receivables past due: | |||
0-30 days | 7,765 | (403) | 7,362 |
30-60 days | 2,967 | (82) | 2,885 |
60-90 days | 404 | (140) | 265 |
over 90 days | 7,463 | (4,592) | 2,871 |
Total receivables past due | 18,599 | (5,217) | 13,382 |
Total receivables still to fall due | 123,667 | (150) | 123,517 |
TOTAL | 142,266 | (5,367) | 136,899 |
(in thousands of Euro) | 12.31.2016 | ||
---|---|---|---|
Gross value | Allowance for doubtful accounts | Net value | |
Receivables past due: | |||
0-30 days | 11,108 | (442) | 10,666 |
30-60 days | 1,689 | (82) | 1,607 |
60-90 days | 594 | (26) | 568 |
over 90 days | 6,820 | (4,246) | 2,574 |
Total receivables past due | 20,211 | (4,796) | 15,415 |
Total receivables still to fall due | 136,952 | (181) | 136,771 |
TOTAL | 157,163 | (4,977) | 152,186 |
As at 31 December 2016, gross receivables past due had decreased by Euro 1,612 thousand compared to the previous year. The increase affects the 0-30 days bracket and mainly relates to the European subsidiaries due to delayed collection of amounts recovered in the early days of 2017.
The impact of gross receivables past due on total receivables stands at 12.9%, slightly down when compared to 13.1% in the previous year.
Past due receivables have been written down by 23.7% of the total (28.1% as at 31 December 2015) and 62.3% (61.5% as at 31 December 2015) 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 10.1% of total net receivables, compared to 9.8% 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 | (222) | (250) | (277) | (311) | (345) | (383) | (1,788) |
Finance lease Allevard Sogefi U.S.A. Inc. | (1,499) | (1,635) | (1,441) | (1,206) | (1,246) | (1,947) | (8,974) |
Private Placement USD 115 million Sogefi S.p.A. | (15,585) | (15,585) | (15,585) | (15,585) | (15,585) | (30,887) | (108,812) |
Private Placement EUR 25 million Sogefi S.p.A. | - | - | - | (24,953) | - | - | (24,953) |
Equity linked bond EUR 100 million Sogefi S.p.A. | - | - | - | - | (82,035) | - | (82,035) |
Sogefi Air & Cooling Canada Corp. loan | (1,045) | (1,090) | (848) | - | - | - | (2,983) |
Sogefi Filtration do Brasil Ltda loan | (5,319) | (804) | - | - | - | - | (6,123) |
Government financing | (518) | (239) | (229) | (85) | (37) | (61) | (1,169) |
Other fixed rate loans | (1,125) | (6) | (6) | (6) | (3) | - | (1,146) |
Future interests | (10,076) | (8,852) | (7,781) | (5,951) | (3,192) | (1,796) | (37,648) |
Future financial income on derivative instruments - interest risk hedging * | 1,384 | 1,168 | 953 | 936 | 664 | 395 | 5,500 |
TOTAL FIXED RATE | (34,005) | (27,293) | (25,214) | (47,161) | (101,779) | (34,679) | (270,131) |
Floating rate | |||||||
Cash and cash equivalents | 93,661 | - | - | - | - | - | 93,661 |
Financial assets | 3,950 | - | - | - | - | - | 3,950 |
Assets for derivative financial instruments | 255 | - | - | - | - | - | 255 |
Current financial receivables | 1,676 | - | - | - | - | - | 1,676 |
Non-current financial receivables | - | - | - | - | - | - | - |
Bank overdrafts and other short-term loans | (11,005) | - | - | - | - | - | (11,005) |
Sogefi S.p.A. loans | (83,134) | (20,437) | (11,404) | (9,737) | - | - | (124,712) |
Shanghai Sogefi Auto Parts Co., Ltd loans | (2,049) | - | - | - | - | - | (2,049) |
S.C. Sogefi Air & Cooling S.r.l. loan | (1,090) | (1,453) | (1,453) | (727) | - | - | (4,723) |
Sogefi (Shouzu) Auto Parts Co., Ltd loan | (21,810) | - | - | - | - | - | (21,810) |
Other floating rate loans | (3,807) | (91) | (125) | (20) | (20) | (61) | (4,124) |
Future interests | (1,658) | (616) | (314) | (95) | (4) | (5) | (2,692) |
Liabilities for derivative financial instruments - exchange risk hedging | (400) | - | - | - | - | - | (400) |
Future financial expenses on derivative instruments - interest risk hedging * | (5,091) | (2,121) | - | - | - | - | (7,212) |
TOTAL FLOATING RATE | (30,502) | (24,718) | (13,296) | (10,579) | (24) | (66) | (79,185) |
Trade receivables | 158,466 | - | - | - | - | - | 158,466 |
Trade and other payables | (339,086) | (15,046) | - | - | - | - | (354,132) |
TOTAL FINANCIAL INSTRUMENT - ASSET | 258,008 | - | - | - | - | - | 258,008 |
TOTAL FINANCIAL INSTRUMENT - LIABILITIES | (503,134) | (67,057) | (38,511) | (57,740) | (101,803) | (34,745) | (802,990) |
* The amount is different from “Net financial assets for derivatives – hedging of interest rate” (equal to a total of Euro 9,932 thousand) because it represents the non-discounted cash flows.
Hedging
a) Exchange risk hedges – not designated in hedge accounting
The Sogefi Group has entered the following contracts to hedge the exchange risk on financial and commercial balances. Note that even though the Group considers these instruments as exchange risk hedges from a risk 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 “Exchange (gains) losses” in the Income Statement (this difference is offset within Income Statement by the fair value change of the asset/liability denominated in a certain currency).
The fair value of these instruments was calculated using the forward curve of exchange rates as at 31 December 2016.
As at 31 December 2016, the following forward purchase/sale contracts were maintained to hedge the exchange risk on intercompany financial positions and on commercial positions:
Company | Forward purchase/Forward sale | Date opened | Currency exchange | Spot price | Date closed | Forward price | Fair value (*) at 12.31.2016 | |
---|---|---|---|---|---|---|---|---|
Sogefi S.p.A | A | GBP 2,000,000 | 12/21/2016 | €/currency | 0.84155 | 02/21/2017 | 0.84280 | (40) |
Sogefi S.p.A | A | GBP 3,000,000 | 12/14/2016 | €/currency | 0.83905 | 02/14/2017 | 0.84025 | (70) |
Sogefi S.p.A | A | GBP 3,000,000 | 12/16/2016 | €/currency | 0.83690 | 01/20/2017 | 0.83753 | (80) |
Sogefi S.p.A | V | USD 4,000,000 | 11/28/2016 | €/currency | 1.05480 | 01/30/2017 | 1.05850 | (9) |
Sogefi S.p.A | V | USD 7,500,000 | 12/01/2016 | €/currency | 1.06270 | 01/30/2017 | 1.06600 | (69) |
Sogefi S.p.A | V | USD 7,500,000 | 12/21/2016 | €/currency | 1.04250 | 01/23/2017 | 1.04480 | 74 |
Sogefi Filtration Ltd | V | EUR 600,000 | 11/30/2016 | GBP/currency | 0.85400 | 01/25/2017 | 0.85510 | (1) |
Sogefi Suspension Argentina S.A. | A | USD 1,000,000 | 12/01/2016 | ARS/currency | 15.91000 | 02/24/2017 | 16.83000 | (19) |
Sogefi Suspension Argentina S.A. | A | USD 1,000,000 | 11/16/2016 | ARS/currency | 15.51000 | 01/31/2017 | 16.42000 | (9) |
Allevard Molas do Brasil Ltda | A | EUR 200,000 | 11/24/2016 | BRL/currency | 3.58250 | 01/23/2017 | 3.66600 | (14) |
Allevard Molas do Brasil Ltda | V | USD 500,000 | 12/02/2016 | BRL/currency | 3.46450 | 02/22/2017 | 3.54000 | 35 |
Allevard Molas do Brasil Ltda | A | EUR 150,000 | 12/02/2016 | BRL/currency | 3.69820 | 02/22/2017 | 3.80950 | (14) |
Allevard Molas do Brasil Ltda | V | USD 350,000 | 12/15/2016 | BRL/currency | 3.38880 | 02/22/2017 | 3.44800 | 15 |
Allevard Molas do Brasil Ltda | V | USD 350,000 | 12/23/2016 | BRL/currency | 3.27150 | 01/18/2017 | 3.28930 | 2 |
Allevard Molas do Brasil Ltda | V | USD 400,000 | 12/23/2016 | BRL/currency | 3.27150 | 02/15/2017 | 3.31300 | 2 |
Sogefi MNR Engine systems India Private Limited | A | EUR 2,000,000 | 10/28/2016 | INR/currency | 72.88000 | 01/31/2017 | 74.34000 | (64) |
Allevard IAI Suspensions Private Ltd | A | EUR 350,000 | 12/01/2016 | INR/currency | 72.52000 | 03/01/2017 | 76.48000 | (11) |
(*) Positive fair value was recognised in “Other financial assets – Assets for derivative financial instruments”, whereas negative fair value was recognised in “Other short-term liabilities for derivative financial instruments”.
b) Exchange risk hedges – in hedge accounting
During 2013, the Parent Company Sogefi S.p.A. entered into the following Interest Rate Swap contracts and the relating cash flows started to be exchanged in June 2016. These contracts were originally aimed at hedging for the future indebtedness of the Parent Company Sogefi S.p.A., which was deemed to be highly probable; in the year 2015 they were associated to the new loan granted by Ing Bank N.V. for a total amount of Euro 30 million and passed the effectiveness test under IAS 39 carried out as at 31 December 2016:
Description of IRS | Date opened | Contract maturity | Notional | Fixed rate | Fair value at 12.31.2016 | Fair value at 12.31.2015 |
---|---|---|---|---|---|---|
Hedging of Sogefi S.p.A. future financial indebtedness | 02/21/2013 | 06/01/2018 | 10,000 | 1.660% | (293) | (349) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/19/2013 | 06/01/2018 | 10,000 | 1.650% | (291) | (347) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/21/2013 | 06/01/2018 | 5,000 | 1.660% | (147) | (175) |
TOTAL | 25,000 | (731) | (871) |
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 Parent 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 Parent Company 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 12.31.2016 | Fair value at 12.31.2015 |
---|---|---|---|---|---|---|
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 | 7,646 | 6,349 |
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 | 5,396 | 4,529 |
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 | 2,728 | 2,278 |
TOTAL | 115,000 | 15,770 | 13,156 |
d) derivatives no longer in hedge accounting
As at 31 December 2016, the Parent Company Sogefi S.p.A. holds the following interest rate swap contracts that, based on the effectiveness tests carried out on 30 June 2014 (for the first two tables reported below), and on 31 December 2014 (for the third table reported below) have become ineffective (the purpose of these derivative instruments was to hedge the risk of fluctuations in the cash flows arising from expected future indebtedness of the Parent Company Sogefi S.p.A.) and so that the hedging relationship was discontinued and the derivative contracts were reclassified as fair value through profit or loss instruments. The change in fair value compared to the last effectiveness test is recognised immediately in the income statement, whereas the reserve booked to Other Comprehensive Income (if any) is reclassified in the income statement over the same period of time as the differentials relating to the underlying hedged item.
Details are as follows:
Description of IRS | Date opened | Contract maturity | Notional | Fixed rate | Fair value at 12.31.2016 | Fair value at 12.31.2015 |
---|---|---|---|---|---|---|
Hedging of Sogefi S.p.A. future financial indebtedness | 02/10/2011 | 06/01/2018 | 10,000 | 3.679% | (575) | (909) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/23/2011 | 06/01/2018 | 10,000 | 3.500% | (570) | (897) |
Hedging of Sogefi S.p.A. future financial indebtedness | 03/11/2011 | 06/01/2018 | 10,000 | 3.545% | (577) | (908) |
Hedging of Sogefi S.p.A. future financial indebtedness | 03/23/2011 | 06/01/2018 | 10,000 | 3.560% | (578) | (910) |
Hedging of Sogefi S.p.A. future financial indebtedness | 03/28/2011 | 06/01/2018 | 10,000 | 3.670% | (596) | (939) |
Hedging of Sogefi S.p.A. future financial indebtedness | 05/13/2011 | 06/01/2018 | 10,000 | 3.460% | (564) | (887) |
Hedging of Sogefi S.p.A. future financial indebtedness | 06/24/2011 | 06/01/2018 | 10,000 | 3.250% | (533) | (834) |
Hedging of Sogefi S.p.A. future financial indebtedness | 06/28/2011 | 06/01/2018 | 10,000 | 3.250% | (533) | (834) |
Hedging of Sogefi S.p.A. future financial indebtedness | 11/28/2011 | 06/01/2018 | 10,000 | 2.578% | (431) | (668) |
TOTAL | 90,000 | (4,957) | (7,786) |
Description of IRS | Date opened | Contract maturity | Notional | Fixed rate | Fair value at 12.31.2016 | Fair value at 12.31.2015 |
---|---|---|---|---|---|---|
Hedging of Sogefi S.p.A. future financial indebtedness | 02/11/2013 | 06/01/2018 | 5,000 | 1.225% | (114) | (166) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/01/2013 | 06/01/2018 | 10,000 | 1.310% | (240) | (353) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/06/2013 | 06/01/2018 | 10,000 | 1.281% | (236) | (346) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/11/2013 | 06/01/2018 | 5,000 | 1.220% | (129) | (190) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/12/2013 | 06/01/2018 | 5,000 | 1.240% | (115) | (168) |
TOTAL | 35,000 | (834) | (1,223) |
Description of IRS | Date opened | Contract maturity | Notional | Fixed rate | Fair value at 12.31.2016 | Fair value at 12.31.2015 |
---|---|---|---|---|---|---|
Hedging of Sogefi S.p.A. future financial indebtedness | 02/07/2013 | 06/01/2018 | 15,000 | 1.445% | (391) | (580) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/11/2013 | 06/01/2018 | 5,000 | 1.425% | (129) | (191) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/19/2013 | 06/01/2018 | 10,000 | 1.440% | (260) | (385) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/11/2013 | 06/01/2018 | 5,000 | 1.420% | (113) | (165) |
Hedging of Sogefi S.p.A. future financial indebtedness | 02/13/2013 | 06/01/2018 | 5,000 | 1.500% | (135) | (200) |
TOTAL | 40,000 | (1,028) | (1,521) |
The discontinuation of hedge accounting had the following impact on the financial statements as at 31 December 2016:
- a financial income of Euro 3,869 thousand reflecting the change in fair value compared to 31 December 2015 was immediately recognised in the income statement;
- a financial expense of Euro 2,922 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 former underlying hedged item. As at 31 December 2016, an amount of Euro 3,589 thousand remains to be recycled to the income statement in the years 2017 and 2018.
e) fair value of derivatives in hedge accounting and no longer in hedge accounting
The fair value of all derivatives was calculated using the forward curves of exchange and interest rates as at 31 December 2016, also taking into account a credit valuation adjustment/debit valuation adjustment. The fair value amounts of derivatives are classified as Level 2 in fair value hierarchy, based on the significance of the inputs used in fair value measurements.
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 at 31 December 2016, gearing stands at 1.58 (1.69 as at 31 December 2015).
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 at 31 December 2016.
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 at 31 December 2016:
* relating to financial assets valued at cost, as permitted by IAS 39, insofar as a reliable fair value is not avaible.
** of which Euro 731 thousand relating to hedge instruments accounted according to the cash flow hedge method.
The following table therefore shows the fair value level of financial assets and liabilities measured at fair value, as of December 31, 2015:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents amount to Euro 93,661 thousand versus Euro 121,892 thousand as at 31 December 2015 and break down as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Short-term cash investments | 93,607 | 121,835 |
Cash on hand | 54 | 57 |
TOTAL | 93,661 | 121,892 |
“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 at 31 December 2016, the Group has unused lines of credit for the amount of Euro 298,254 thousand. These funds are available for use on demand, because the conditions required for their availability are met.
Please note that this item includes ARS (Argentine Peso) 18,595 thousand, i.e. the equivalent of Euro 1,110 thousand at the exchange rate in force on 31 December 2016 (ARS 13,619 thousand, the equivalent of Euro 966 thousand at the exchange rate in force on 31 December 2015) held by the Argentinian subsidiaries.
OTHER FINANCIAL ASSETS
“Other financial assets” can be broken down as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Securities held for trading | - | 17 |
Financial receivables | 1,676 | 1,438 |
Held-to-maturity investments | 3,950 | 3,949 |
Assets for derivative financial instruments | 255 | 931 |
TOTAL | 5,881 | 6,335 |
“Held-to-maturity investments” are measured at amortised cost and include bank term deposits.
“Assets for derivative financial instruments” amount to Euro 255 thousand and refer to the fair value of forward foreign currency 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) | 12.31.2016 | 12.31.2015 | ||||
---|---|---|---|---|---|---|
Gross | Write-downs | Net | Gross | Write-downs | Net | |
Raw, ancillary and consumable materials | 63,216 | 4,690 | 58,526 | 60,298 | 3,829 | 56,469 |
Work in progress and semifinished products | 16,251 | 384 | 15,867 | 14,171 | 283 | 13,888 |
Contract work in progress and advances | 41,001 | 54 | 40,947 | 39,190 | 12 | 39,178 |
Finished goods and goods for resale | 55,955 | 6,318 | 49,637 | 55,633 | 5,474 | 50,159 |
TOTAL | 176,423 | 11,446 | 164,977 | 169,292 | 9,598 | 159,694 |
The gross value of inventories increased by Euro 7,131 thousand compared to the previous year (the increase amounts to Euro 5,855 thousand at constant exchange rates), of which Euro 1,811 thousand reflect an increase in tooling for sale to customers included in “Contract work in progress and advances” (mostly relating to the Air and Cooling business unit), whereas the remaining portion originates from increased volumes.
Writedowns 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 increase in the provisions – by Euro 1,848 thousand – reflects the allocation of an additional Euro 3,119 thousand, partly offset by products scrapped during the year (Euro 1,252 thousand) and a negative currency exchange effect for Euro 19 thousand.
TRADE AND OTHER RECEIVABLES
Current receivables break down as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Trade receivables | 157,163 | 142,266 |
Less: allowance for doubtful accounts | 4,977 | 5,367 |
Trade receivables, net | 152,186 | 136,899 |
Due from Parent Company | 6,280 | 6,590 |
Tax receivables | 24,192 | 26,753 |
Other receivables | 6,820 | 7,915 |
Other assets | 3,689 | 3,974 |
TOTAL | 193,167 | 182,131 |
“Trade receivables, net” are non-interest bearing and have an average due date of 34 days, against 32 days recorded at the end of the previous year.
It should be noted that as at 31 December 2016, the Group factored trade receivables for Euro 98,937 thousand (Euro 88,972 thousand as at 31 December 2015), including an amount of Euro 60,804 thousand (Euro 48,487 thousand as at 31 December 2015) 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 98,937 thousand as at 31 December 2016 and Euro 88,972 thousand as at 31 December 2015) and the effect of exchange rates (Euro 744 thousand), net trade receivables increased by Euro 24,508 thousand as a result of the increase in the Group’s business activities in the last quarter of the year compared to the same quarter of the previous year, and a slight increase in average collection days.
Further adjustments were booked to “Allowance for bad debts” during the year for a total of Euro 1,578 thousand, against net utilisations of the allowance for the amount of Euro 2,035 thousand (see note 39 for further details). Writedowns, net of provisions not used during the period, were charged to Income Statement under the item “Variable cost of sales – Variable sales and distribution costs”.
“Due from Parent Company” as at 31 December 2016 is the amount receivable from the Holding 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. Outstanding receivables as at 31 December 2015 (totalling Euro 6,590 thousand) collected in 2016 amounted to Euro 5,683 thousand.
See chapter F for the terms and conditions governing these receivables from CIR S.p.A.
“Tax receivables” as at 31 December 2016 include tax credits due to the Group companies by the tax authorities of the various countries. This item decreased by Euro 2,561 thousand mainly because part of the tax receivables relating to research and development activities of the French subsidiary Sogefi Air & Refroidissement France S.A.S. were reclassified in long-term receivables.
It does not include deferred taxes which are treated separately.
“Other receivables” are made up as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Amounts due from social security institutions | 103 | 204 |
Amounts due from employees | 202 | 320 |
Advances to suppliers | 2,690 | 2,659 |
Due from others | 3,825 | 4,732 |
TOTAL | 6,820 | 7,915 |
The decrease in “Other receivables” refers for the most part to subsidiary Allevard Sogefi U.S.A. Inc. and reflects insurance indemnities received.
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 at 31 December 2016 amounted to Euro 262,482 thousand versus Euro 252,252 thousand at the end of the previous year and breaks down as follows:
(in thousands of Euro) | 2016 | ||||
---|---|---|---|---|---|
Land | Buildings, plant and machinery, commercial and industrial equipment | Other assets | Assets under construction and payments on account | TOTAL | |
Balance at January 1 | 14,299 | 201,861 | 5,343 | 30,749 | 252,252 |
Additions of the period | - | 25,648 | 2,634 | 30,481 | 58,763 |
Disposals during the period | (70) | (208) | (10) | 16 | (272) |
Exchange differences | (197) | 1,702 | (73) | (415) | 1,017 |
Depreciation for the period | - | (37,073) | (2,339) | - | (39,412) |
Writedowns/revaluations during the period | (56) | (5,609) | (464) | - | (6,129) |
Reclassification of non-current asset held for sale | (1,158) | (2,260) | - | - | (3,418) |
Other changes | - | 25,094 | 1,310 | (26,723) | (319) |
Balance at December 31 | 12,818 | 209,155 | 6,401 | 34,108 | 262,482 |
Historical cost | 12,881 | 831,790 | 28,639 | 35,157 | 908,467 |
of which: leases - gross value | - | 16,239 | 89 | 533 | 16,861 |
Accumulated depreciation | 63 | 622,635 | 22,238 | 1,049 | 645,985 |
of which: leases - accumulated depreciation | - | 8,667 | 89 | - | 8,756 |
Net value | 12,818 | 209,155 | 6,401 | 34,108 | 262,482 |
Net value - leases | - | 7,572 | - | 533 | 8,105 |
(in thousands of Euro) | 2015 | ||||
---|---|---|---|---|---|
Land | Buildings, plant and machinery, commercial and industrial equipment | Other assets | Assets under construction and payments on account | TOTAL | |
Balance at January 1 | 14,286 | 191,283 | 5,348 | 33,144 | 244,061 |
Additions of the period | - | 19,418 | 1,623 | 30,225 | 51,266 |
Disposals during the period | (2) | (203) | (28) | (27) | (260) |
Exchange differences | 15 | (4,939) | (352) | (326) | (5,602) |
Depreciation for the period | - | (35,351) | (1,729) | (25) | (37,105) |
Writedowns/revaluations during the period | - | (243) | - | - | (243) |
Reclassification of non-current asset held for sale | - | - | - | - | - |
Other changes | - | 31,896 | 481 | (32,242) | 135 |
Balance at December 31 | 14,299 | 201,861 | 5,343 | 30,749 | 252,252 |
Historical cost | 14,299 | 804,801 | 26,647 | 31,477 | 877,224 |
of which: leases - gross value | - | 13,751 | 86 | 369 | 14,206 |
Accumulated depreciation | - | 602,940 | 21,304 | 728 | 624,972 |
of which: leases - accumulated depreciation | - | 7,288 | 86 | - | 7.374 |
Net value | 14,299 | 201,861 | 5,343 | 30,749 | 252,252 |
Net value - leases | - | 6,463 | - | 369 | 6,832 |
Investments during the year amounted to Euro 58,763 thousand compared to Euro 51,266 thousand in the previous year.
The larger projects regarded 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 reflect investments in the following subsidiaries LPDN GmbH to develop new products and improve production processes; S.C. Sogefi Air & Cooling S.r.l., Sogefi Italy S.p.A. and Allevard Sogefi U.S.A. Inc. to expand production capacity and develop new products; and in the French companies Sogefi Suspensions France S.A. and Sogefi Filtration France S.A. to develop new products and improve production processes.
Among the most significant projects in the “Buildings, plant and machinery, commercial and industrial equipment” category, noteworthy are the investments in subsidiaries Sogefi Engine Systems Mexico S. de R.L. de C.V. for the new Mexican plant in Monterrey dedicated to the Suspensions business unit; ISSA S.A. to expand production capacity and improve production processes; Sogefi (Suzhou) Auto Parts Co., Ltd for the development of new products and extraordinary maintenance operations; Sogefi Suspensions France S.A. and Sogefi Air & Refroidissement France S.A.S. for the development of new products, the improvement of production processes and quality, and the adjustment of the production lines in compliance with health and safety rules and regulations.
During 2016, the S. Père site owned by the subsidiary Sogefi Filtration France S.A. (net book value Euro 113 thousand) was sold for Euro 700 thousand, and the corresponding gain of Euro 587 thousand was recognised in “Losses (gains) on disposal” in the Income statement.
“Depreciation for the period” has been recorded in the appropriate item in the Income Statement.
“Writedowns/revaluations during the period” totals Euro 6,129 thousand, Euro 3,105 thousand of which relate to the subsidiary Sogefi Filtration do Brasil Ltda (please see paragraph Impairment test of Sogefi Filtration do Brasil Ltda below for more details), whereas Euro 3,024 thousand relate to European companies.
Impairment losses less reversals are booked to “Other non-operating expenses (income)”.
“Reclassification of non-current assets held for sale” totals Euro 3,418 thousand and relates to the plot of land and building of the Lieusaint site owned by the subsidiary Sogefi Suspensions France S.A., which were reclassified to “Non-current assets held for sale” as it is considered highly probable that they will be sold during 2017.
“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 at 31 December 2016 includes Euro 269 thousand of advances for investments.
The main inactive assets, with a total net value of Euro 4,436 thousand, included in the item “Tangible fixed assets” mostly refer to investment properties of the Parent Company Sogefi S.p.A. (located in Mantova and San Felice del Benaco, for a total amount of Euro 4,398 thousand). The fair value of these assets as measured by an independent expert report exceeds their net book value. The book value of said assets will be recovered through their sale rather than through their continuous use. As we do 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 2016.
Guarantees
As at 31 December 2016, tangible fixed assets are encumbered by mortgages or liens totalling Euro 5,580 thousand to guarantee loans from financial institutions, compared to Euro 7,726 thousand as at 31 December 2015. Guarantees existing as at 31 December 2016 refer to subsidiaries Sogefi Air & Cooling Canada Corp., Allevard IAI Suspensions Private Ltd. and Sogefi Filtration do Brasil Ltda.
Purchase commitments
As at 31 December 2016, there are binding commitments to buy tangible fixed assets for Euro 2,373 thousand (Euro 1,709 thousand as at 31 December 2015) relating to the subsidiary Sogefi Suspensions France S.A. Said commitments will be settled within 12 months.
Leases
The carrying value of assets under financial leases as at 31 December 2016 was Euro 16,861 thousand, and the related accumulated depreciation amounted to Euro 8,756 thousand.
Please note that in 2016, subsidiary Allevard Sogefi USA Inc. re-negotiated the financial lease agreement entered into in 2013 after the purchase of additional assets, increasing its value by Euro 2,689 thousand. The new lease agreement presents for the same annual interest rate (3.24%) and term (June 2023) as the original one.
The financial aspects of the lease payments and their due dates are explained in note 16.
Impairment test of Sogefi Filtration do Brasil Ltda
At the end the fiscal year 2016, tangible and intangible fixed assets of the subsidiary Sogefi Filtration do Brasil Ltda were tested for impairment due to the negative economic and financial results of the subsidiary and the sluggish performance of the Brazilian car market. The impairment test was carried out in accordance with the procedure laid down in IAS 36 by comparing the net book value of these assets (totalling Euro 12.7 million, of which Euro 9.7 thousand tangible and Euro 3 million intangible fixed assets) 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.
We used Discounted Cash Flow Unlevered model in performing the test. The subsidiary took into account cash flows expected for 2017 as determined based on the budget and for the following 6 years (i.e. the estimated remaining useful life of the assets) approved by the Advisory Board of the Brazilian subsidiary on 24 February 2017.
Budget and plan were prepared taking into account forecasts for the automotive industry in Brazil made by major sources in the industry, based on the expectation that the subsidiary will recover revenues and margins so as to return to pre-crisis profitability levels.
A discount rate of 19.52%, which reflects the weighted average cost of capital, was used.
As regards the average cost of capital, we calculated a weighted average of the cost of debt (taking into consideration the benchmark 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: 21.7%
- levered beta of the industry: 1.08
- risk-free rate: 12.98% (annual average of the Brazilian sovereign debt over 10 years)
- risk premium: 8.2% (weighted average risk premium calculated by an independent source)
- debt cost: 17%
The test based on the present value of the estimated future cash flows turns out a value in use of the assets that is lower than their carrying value; as a result, a writedown of Euro 3,034 thousand has been posted, with Euro 2,640 thousand relating to tangible fixed assets and Euro 394 thousand to intangible assets.
INTANGIBLE ASSETS
The net balance as at 31 December 2016 was Euro 281,650 thousand versus Euro 284,050 thousand at the end of the previous year, and breaks down as follows:
(in thousands of Euro) | 2016 | ||||||
---|---|---|---|---|---|---|---|
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 | 79,362 | 34,505 | 22,185 | 14,843 | 6,516 | 126,639 | 284,050 |
Additions of the period | 18,653 | 1,485 | 10,159 | - | - | - | 30,298 |
Disposals during the period | (59) | - | - | - | - | - | (59) |
Exchange differences | (1) | (40) | 136 | - | - | - | 95 |
Amortisation for the period | (24,021) | (3,405) | (530) | (990) | (435) | - | (29,381) |
Writedowns during the period | (3,257) | - | - | - | - | - | (3,257) |
Other changes | 10,713 | 169 | (10,978) | - | - | - | (96) |
Balance at December 31 | 81,391 | 32,714 | 20,972 | 13,853 | 6,081 | 126,639 | 281,650 |
Historical cost | 211,718 | 65,031 | 25,253 | 19,215 | 8,437 | 149,537 | 479,191 |
Accumulated amortisation | 130,327 | 32,317 | 4,281 | 5,362 | 2,356 | 22,898 | 197,541 |
Net value | 81,391 | 32,714 | 20,972 | 13,853 | 6,081 | 126,639 | 281,650 |
(in thousands of Euro) | 2015 | ||||||
---|---|---|---|---|---|---|---|
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 | 77,773 | 36,033 | 19,767 | 15,833 | 6,951 | 126,639 | 282,996 |
Additions of the period | 16,971 | 2,248 | 11,158 | - | - | - | 30,377 |
Disposals during the period | (748) | - | (20) | - | - | - | (768) |
Exchange differences | (992) | (33) | 277 | - | - | - | (748) |
Amortisation for the period | (21,129) | (4,071) | (664) | (990) | (435) | - | (27,289) |
Writedowns during the period | - | - | (114) | - | - | - | (114) |
Other changes | 7,487 | 328 | (8,219) | - | - | - | (404) |
Balance at December 31 | 79,362 | 34,505 | 22,185 | 14,843 | 6,516 | 126,639 | 284,050 |
Historical cost | 184,219 | 64,388 | 25,788 | 19,215 | 8,437 | 149,537 | 451,584 |
Accumulated amortisation | 104,857 | 29,883 | 3,603 | 4,372 | 1,921 | 22,898 | 167,534 |
Net value | 79,362 | 34,505 | 22,185 | 14,843 | 6,516 | 126,639 | 284,050 |
Investments during the year amounted to Euro 30,298 thousand.
The increases in “Development costs” for the amount of Euro 18,653 thousand refer to the capitalisation of costs incurred by Group companies to develop new products in collaboration with leading motor vehicle manufacturers (after obtaining the nomination from the customer). The largest investments refer to the subsidiaries Sogefi Air & Refroidissement France S.A.S., Sogefi Filtration France S.A., Sogefi Air & Cooling Canada Corp., Sogefi Filtration Spain S.A., Allevard Sogefi U.S.A. Inc., and Sogefi Engine Systems Mexico S. de R.L. de C.V.
Increases in “Industrial patents and intellectual property rights, concessions, licences and trademarks” amount to Euro 1,485 thousand and refer mainly to the development and implementation in process of the new information system across the Sogefi Group. This integrated information system is amortised on a ten-year basis, based on its estimated useful life, starting from the date of implementation in each subsidiary.
Increases in “Other, assets under construction and payments on account”, for the amount of Euro 10,159 thousand, refer mainly to a large number of investments in the development and implementation of the new products not yet flowed into production. The highest development costs were recorded at subsidiaries Sogefi Suspensions France S.A., S.C. Sogefi Air & Cooling Srl, Allevard Sogefi U.S.A. Inc. and Sogefi Filtration d.o.o.
“Writedowns”, for the amount of Euro 3,257 thousand, reflect research and development projects of subsidiaries Sogefi Filtration do Brasil Ltda, Sogefi Filtration d.o.o., Sogefi Filtration France S.A., Sogefi Filtration Spain S.A. and Sogefi Air & Refroidissement France S.A.S. that cannot be recovered.
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 20,807 thousand of costs generated internally.
There are no intangible assets with an indefinite useful life except for goodwill.
Goodwill and impairment test
Goodwill is not amortised, but subjected each year to impairment test.
The Company identified five Cash Generating Units (CGUs):
- filtration
- air & cooling
- car suspension
- industrial vehicle suspension
- precision springs
For the moment, it is possible to identify goodwill deriving from external acquisitions in three CGUs: Filtration, Air&Cooling and Car Suspension.
The specific goodwill of the CGU “filtration” amounts to Euro 77,030 million, the goodwill of CGU “air&cooling” amounts to Euro 32,560 million, 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.
We used the Discounted Cash Flow Unlevered model. The Group took into account the cash flows projections expected for 2017 as determined based on the budget (approved by the Board of Directors on 23 January 2017) and the forecasts included in the 2018-2020 plan (adjusted to eliminate any estimated benefits from future projects and reorganisations) approved by the Board of Directors on 13 June 2016 and 27 February 2017. Budget and plan were prepared taking into account forecasts for the automotive segment made by major sources in the industry.
A discount rate of 8.34%, which reflects the weighted average cost of capital, was used. The same discount 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 risks.
The terminal value was calculated using the “perpetual annuity” approach, assuming a growth rate (“g-rate”) of 2% (assumed to be conservative when compared to the forecasts for the automotive segment available from major sources of the industry) and considering an operating cash flow based on the last year of the projection (the year 2020), 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, we calculated a weighted average of the cost of debt (taking into consideration the benchmark 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: 21.7%
- levered beta of the industry: 1.08
- risk-free rate: 3.0% (annual average of risk-free rates of 10 year sovereign debt of the key markets in which the Group operates, weighted by revenues)
- risk premium: 6.4% (weighted average risk premium calculated by an independent source for the key markets in which the Group operates, weighted by revenues)
- debt cost spread: 3.4% (estimate based on the 2017 budget)
As far as the sensitivity analysis goes, it should be noted that:
- the impairment test reached 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): 16.6% for CGU Filtration; 17.2% for CGU Air&Cooling; and 12.3% for CGU Car Suspension;
- the impairment test reached break-even point with a significant reduction in EBIT during the explicit period covered by the plan that was also applied to terminal value (all other plan assumptions being equal): -56.8% in CGU Filtration; -58.3% in CGU Air&Cooling; and -38.7% in CGU Car Suspension;
- the impairment test reached break-even point at the following decreasing rates of the terminal value “g-rate” (all other plan assumptions being equal): -10.9% in CGU Filtration; -10.7% in CGU Air&Cooling; and -3.4% in 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
As at 31 December 2016, there were no investments in joint ventures.
OTHER FINANCIAL ASSETS AVAILABLE FOR SALE
As at 31 December 2016, these assets totalled Euro 46 thousand (Euro 439 thousand as at 31 December 2015) and break down as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Equity investments in other companies | 46 | 439 |
Other securities | - | - |
TOTAL | 46 | 439 |
The decrease in this item basically reflects a writedown of the full amount of the equity investment in the company AFICO FILTERS S.A.E. (17.77% stake as at 31 December 2016 and 22.62% stake as at 31 December 2015) due to an impairment loss as the company’s economic and financial position worsened. The writedown, in the amount of Euro 392 thousand, was booked to “Losses (gains) from equity investments”.
At the end of the previous year, the equity investment had not been classified as associate due to the significant lack of Group’s members in the management bodies of the company (which means the Group did not exert significant influence on the company).
FINANCIAL RECEIVABLES AND OTHER NON-CURRENT RECEIVABLES
Non-current financial receivables total Euro 15,770 thousand (Euro 13,156 thousand as at 31 December 2015) and refer to the fair value of cross currency swap hedging contracts. For further details, please refer to note 39.
“Other receivables” break down as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Pension fund surplus | 9,955 | 23,368 |
Other receivables | 19,863 | 11,298 |
TOTAL | 29,818 | 34,666 |
“Other receivables” include an indemnification asset of Euro 9,955 thousand (Euro 23,368 thousand as at 31 December 2015) owed by the seller of Sogefi Air & Refroidissement France S.A.S.’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.
For further details, please refer to note 2, paragraph “Consolidation principles and accounting policies – Critical estimates and assumptions”.
The item “Other non-current receivables” also includes tax credits relating to the research and development activities of the French subsidiaries, other tax credits and non-interest bearing guarantee deposits for leased properties.
These receivables will be collected over the coming years. They increased by Euro 8,565 thousand, of which Euro 3,500 thousand reflect tax credits of subsidiary Sogefi Air & Refroidissement S.A.S. reclassified from current “Tax receivables”, Euro 4,179 thousand relate to tax credits originated from research and development activities of the French subsidiaries, and Euro 886 thousand other receivables.
DEFERRED TAX ASSETS
As at 31 December 2016, this item amounts to Euro 56,810 thousand compared to Euro 65,301 thousand as at 31 December 2015.
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 at 31 December 2016, non-current assets held for sale total Euro 3,418 thousand and relate to the plot of land and building of the Lieusaint site owned by subsidiary Sogefi Suspensions France S.A., which were reclassified to “Non-current assets held for sale” as it is highly probable that they will be sold during 2017.
FINANCIAL DEBTS TO BANKS AND OTHER FINANCING CREDITORS
These break down as follows:
Current portion
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Bank overdrafts and short-term loans | 11,005 | 17,843 |
Current portion of medium/long-term financial debts of which: leases |
137,203 1,721 |
74,445 1,252 |
TOTAL SHORT-TERM FINANCIAL DEBTS | 148,208 | 92,288 |
Other short-term liabilities for derivative financial instruments | 400 | 325 |
TOTAL SHORT-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS | 148,608 | 92,613 |
Non-current portion
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Financial debts to banks | 48,291 | 141,080 |
Other medium/long-term financial debts of which: leases |
209,906 9,039 |
218,417 8,135 |
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS | 258,197 | 359,497 |
Other medium/long-term liabilities for derivative financial instruments | 7,550 | 11,562 |
TOTAL MEDIUM/LONG-TERM FINANCIAL DEBTS AND DERIVATIVE FINANCIAL INSTRUMENTS | 265,747 | 371,059 |
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, 2016 (in thousands of Euro):
Company | Bank/Credit Institute | Signing date | Due date | Original amount loan | Interest rate | Current portion | Non-current portion | Total amount | Real Guarantees |
---|---|---|---|---|---|---|---|---|---|
Sogefi S.p.A. | BNP Paribas S.A. | Sep - 2014 | Sep - 2017 | 25,000 | Euribor 3m + 190 bps variable | 24,939 | - | 24,939 | N/A |
Sogefi S.p.A. | ING Bank | July - 2015 | Sep - 2020 | 30,000 | Euribor 3m + 190 bps variable | - | 29,879 | 29,879 | N/A |
Sogefi S.p.A. | Banca Carige S.p.A | July - 2011 | Sep - 2017 | 25,000 | Euribor 3m + 225 bps variable | 4,026 | - | 4,026 | N/A |
Sogefi S.p.A. | Banco do Brasil S.A. | Dec - 2012 | Apr - 2017 | 15,000 | Euribor 3m + 315 bps variable | 3,742 | - | 3,742 | N/A |
Sogefi S.p.A. | Mediobanca S.p.A | July - 2015 | Jan - 2017 | 20,000 | Euribor 3m + 130 bps variable | 19,996 | - | 19,996 | N/A |
Sogefi S.p.A. | Mediobanca S.p.A | Dec - 2015 | Jun - 2017 | 20,000 | Euribor 3m + 125 bps variable | 19,983 | - | 19,983 | N/A |
Sogefi S.p.A. | Banco do Brasil S.A. | Sep - 2015 | Sep - 2018 | 19,000 | Euribor 3m + 130 bps variable | 7,600 | 7,552 | 15,152 | N/A |
Sogefi S.p.A. | Banca Carige S.p.A | Nov - 2015 | Jun - 2019 | 10,000 | Euribor 3m + 130 bps variable | 2,848 | 4,289 | 7,137 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | ING Bank | Mar - 2015 | Jan - 2017 | 9,358 | 160% PBOC 1y | 9,358 | - | 9,358 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | Intesa SanPaolo S.p.A. | Nov - 2016 | May - 2017 | 5,350 | 120% PBOC 3m | 5,350 | - | 5,350 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | Unicredit S.p.A. | Nov - 2016 | Nov - 2017 | 4,097 | 115% PBOC 3m | 4,097 | - | 4,097 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | Commerz bank | July - 2016 | Jun - 2017 | 3,005 | 105% PBOC 6m | 3,005 | - | 3,005 | N/A |
Sogefi Air & Cooling Canada Corp. | Ge Capital | Sep - 2015 | Sep - 2019 | 4,229 | 4,207% fixed | 1,045 | 1,938 | 2,983 | YES |
Sogefi Filtration do Brasil Ltda | Banco do Brasil | Jul - 2014 | Aug - 2017 | 3,322 | 8 % fixed | 3,322 | - | 3,322 | N/A |
Sogefi Filtration do Brasil Ltda | Banco do Brasil | Sep - 2015 | Aug - 2018 | 2,915 | 17,96% fixed | 1,206 | 804 | 2,010 | YES |
Sogefi Filtration do Brasil Ltda | Banco Itau | Mar - 2016 | Mar - 2017 | 2,591 | 6,2% fixed | 791 | - | 791 | N/A |
S.C. Sogefi Air & Cooling S.r.l. | ING Bank | May - 2016 | May - 2020 | 4,723 | ROBOR 3m + 2,8% | 1,090 | 3,633 | 4,723 | N/A |
Shanghai Sogefi Auto Parts Co., Ltd | Bank of China | Jul - 2016 | Jan - 2017 | 2,049 | 105% PBOC 6m | 2,049 | - | 2,049 | N/A |
Other loans | 22,756 | 196 | 22,951 | ||||||
TOTAL | 137,203 | 48,291 | 185,494 |
The current portion of line “Other medium/long-term financial debts” includes Euro 15,585 thousand relating to the bond issue of USD 115,000 thousand.
This item also includes other minor loans, as well as financial lease payments in accordance with IAS 17.
Balance as at 31 December 2015 (in thousands of Euro):
Company | Bank/Credit Institute | Signing date | Due date | Original amount loan | Interest rate | Current portion | Non-current portion | Total amount | Real Guarantees |
---|---|---|---|---|---|---|---|---|---|
Sogefi S.p.A. | Intesa SanPaolo S.p.A. | Apr - 2011 | Dec - 2016 | 60,000 | Euribor 3m. +260 bps variabile | 7,868 | 0 | 7,868 | N/A |
Sogefi S.p.A. | BNP Paribas S.A. | Sep - 2014 | Sep - 2017 | 55,000 | Euribor 3m +190 bps variabile | 0 | 24,858 | 24,858 | N/A |
Sogefi S.p.A. | Mediobanca S.p.A. | Jul - 2014 | Jan - 2016 | 20,000 | Euribor 3m +170 bps variabile | 0 | 19,998 | 19,998 | N/A |
Sogefi S.p.A. | Banca Carige S.p.A. | Jul - 2011 |
Sep- 2017 |
25,000 | Euribor 3m +225bps variabile | 5,232 | 3,969 | 9,201 | N/A |
Sogefi S.p.A. | ING Bank | Jul - 2015 | Sep - 2020 | 30,000 | Euribor 3m +190bps variabile | 0 | 29,846 | 29,846 | N/A |
Sogefi S.p.A. | Mediobanca S.p.A. | Jul - 2015 |
Jan - 2017 |
20,000 | Euribor 3m +130bps variabile | 0 | 19,952 | 19,952 | N/A |
Sogefi S.p.A. | Banco do Brasil S.A. | Sep - 2015 | Sep - 2018 | 19,000 | Euribor 3m +130bps variabile | 3,800 | 15,124 | 18,924 | N/A |
Sogefi S.p.A. | Banco do Brasil S.A. | Dec - 2012 | Apr - 2017 | 15,000 | Euribor 3m +315bps variabile | 3,750 | 3,714 | 7,464 | N/A |
Sogefi S.p.A. | Banca Carige S.p.A. | Nov - 2015 | Jun -2019 | 10,000 | Euribor 3m +130bps variabile | 2,811 | 7,116 | 9,927 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | ING Bank | Jun - 2014 | Jan - 2017 | 11,415 | 8,80% fixed | 5,156 | 6,259 | 11,415 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | ING Bank | Jun - 2015 | Jan - 2017 | 5,235 | 8,01% fixed | 1,772 | 3,463 | 5,235 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | Unicredit S.p.A. | Jan - 2015 | Jun- 2016 | 7,876 | 7,28% fixed | 7,876 | 0 | 7,876 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | Unicredit S.p.A. | Nov - 2015 | Nov - 2016 | 6,498 | 6,96% fixed | 6,498 | 0 | 6,498 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | Commerzbank AG | Jan - 2015 | Jun - 2016 | 3,265 | 5,78% fixed | 3,265 | 0 | 3,265 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | Intesa SanPaolo S.p.A. | May - 2015 | Dec - 2016 | 4,466 | 6,72% fixed | 4,466 | 0 | 4,466 | N/A |
Sogefi (Suzhou) Auto Parts Co., Ltd | Intesa SanPaolo S.p.A. | May - 2015 | Dec - 2016 | 2,702 | 5,52% fixed | 2,702 | 0 | 2,702 | N/A |
Sogefi Filtration do Brasil Ltda | Banco Itau BBA International S.A. | Feb - 2013 | Mar - 2016 | 4,818 | 5,5% fixed | 4,818 | 0 | 4,818 | N/A |
Sogefi Filtration do Brasil Ltda | Banco do Brasil S.A. | Sep - 2015 | Aug - 2018 | 2,319 | 17,96% fixed | 640 | 1,679 | 2,319 | YES |
Sogefi Air & Cooling Canada Corp. | Ge Capital | Sep - 2015 | Sep - 2019 | 3,969 | 4,207% fixed | 941 | 2,799 | 3,740 | YES |
Sogefi Filtration Spain S.A. | Banco Sabadell S.A. | May - 2011 | May - 2016 | 7,000 | Euribor 3m + 225 bps variabile | 700 | 0 | 700 | N/A |
S.C. Sogefi Air & Cooling S.r.l. | ING Bank | May - 2013 | May - 2017 | 2,459 | ROBOR 3M +5,5% | 820 | 205 | 1,025 | N/A |
Other loans | 11,330 | 2,098 | 13,428 | ||||||
TOTAL | 74,445 | 141,080 | 215,525 |
As at 31 December 2016, the “Current portion of medium/long-term financial debts” totals Euro 137,203 thousand, Euro 100 million of which relating to the Parent Company Sogefi S.p.A. and reflects bank loan instalments or bonds underwritten during the previous years repayable by 31 December 2017. With regard to the current portions of financial debts payable within the following year, it should be noted that the Parent Company Sogefi S.p.A. has unused lines of credit for the amount of Euro 170,171 thousand. These funds are available for use on demand, because the conditions required for their availability are met.
In May 2016, the Parent Company chose to use the option provided for by the loan agreement to waive borrowing under the revolving portion (Euro 30 million not drawn at the time of the waiver) of the loan facility granted by Intesa Sanpaolo S.p.A. in April 2011 and expiring on 31 December 2016. With regard to the amortisable portion of the loan granted by Intesa Sanpaolo S.p.A. in April 2011 and expiring on 31 December 2016, the Parent Company paid the remaining instalments (Euro 8 million as at 31 December 2015) and extinguished the loan during the year.
The loan of Euro 20 million obtained from Mediobanca S.p.A. in July 2014, expiring in January 2016, was replaced with a loan for the same amount taken out with the same bank in December 2015, effective from January 2016 and expiring in June 2017, at a floating interest rate linked to the 3-month Euribor plus a spread of 125 basis points.
The existing loans are not secured by the Company’s assets. Furthermore, note that, contractually, the spreads relating to the loans of the Company 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 short-term liabilities for derivative financial instruments
The item includes the short-term portion of the fair value of the 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, 2016, details were as follows (in thousands of Euro):
Company | Bank/Credit Institute | Signing date | Due date | Original amount loan (in thousands) | Interest rate | Total amount at December 31, 2016 (in thousands of Euro) | Real guarantees |
---|---|---|---|---|---|---|---|
Sogefi S.p.A. | Private placement | May - 2013 | May - 2023 | USD 115,000 | Fixed coupon 600 bps | 93,228 | N/A |
Sogefi S.p.A. | Private placement | May - 2013 | May - 2020 | Euro 25,000 | Fixed coupon 505 bps | 24,953 | N/A |
Sogefi S.p.A. | Equity linked bond | May - 2014 | May - 2021 | Euro 100,000 | Fixed coupon 2% year | 82,035 | N/A |
Other financial debts | 9,689 | ||||||
TOTAL | 209,906 |
Please note that an amount of Euro 15,585 thousand relating to the bond issue of USD 115,000 thousand was classified under “Current portion of medium/long-term financial debts” because redemption will occur during the year 2017.
Line “Other medium/long-term financial debts” includes other minor loans, as well as financial lease payments in accordance with IAS 17.
As at 31 December 2015, details were as follows (in thousands of Euro):
Company | Bank/Credit Institute | Signing date | Due date | Original amount loan (in thousands) | Interest rate | Total amount at December 31, 2015 (in thousands of Euro) | Real guarantees |
---|---|---|---|---|---|---|---|
Sogefi S.p.A. | Private placement | May - 2013 | May - 2023 | USD 115,000 | Fixed coupon 600 bps | 105,302 | N/A |
Sogefi S.p.A. | Private placement | May - 2013 | May - 2020 | Euro 25,000 | Fixed coupon 505 bps | 24,940 | N/A |
Sogefi S.p.A. | Equity linked bond | May - 2014 | May - 2021 | Euro 100,000 | Fixed coupon 2% year | 78,627 | N/A |
Other financial debts | 9,548 | ||||||
TOTAL | 218,417 |
The balance in Euro of the bond of USD 115,000 thousand increased as a result of the variation in the Euro-to-USD exchange rate (hedged as detailed in section E).
Other medium/long-term financial liabilities for derivative financial instruments
This item amounts to Euro 7,550 thousand (Euro 11,562 thousand as at 31 December 2015) and breaks down as follows:
- Euro 731 thousand represent a liability corresponding to the fair value of interest rate swap (Irs) contracts designated in hedge accounting, entered into for a notional amount of Euro 25 million in 2013 and maturing in June 2018, whose purpose is to convert part of the existing medium/long-term loan taken out with Ing Bank N.V. from variable to fixed interest rate (the original purpose of these instruments was to hedge for future indebtedness of the Parent Company Capogruppo Sogefi S.p.A., deemed to be highly probable).
- Euro 6,819 thousand represent a liability corresponding to the fair value of interest rate swap (Irs) contracts previously designated in hedge accounting that were reclassified as financial liabilities at fair value through profit or loss during previous years; contracts for Euro 90 million were entered into in 2011 and Euro 75 million in 2013, maturing in June 2018. The purpose of these contracts was to hedge the risk of fluctuations in future cash flows arising from the expected future long-term indebtedness of the Parent Company Sogefi S.p.A., deemed to be highly probable according to future projections approved by management. These derivatives did not pass the effectiveness test required by IAS 39 in order to apply the hedge accounting rules.
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 | 2,158 | 1,721 |
Between 1 and 5 years | 7,779 | 6,710 |
Beyond 5 years | 2,411 | 2,329 |
Total lease payments | 12,349 | 10,760 |
Interests | (1,589) | - |
TOTAL PRESENT VALUE OF LEASE PAYMENTS | 10,760 | 10,760 |
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 3,095 thousand; the future capital payments amount to Euro 1,787 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 amounted 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:
- a) plants, machinery and improvements to the building for an original amount of Euro 1,518 thousand. The contract expires in May 2019, the future capital payments amount to Euro 409 thousand and the annual interest rate applied by the lessor is equal to 3.92%. The Group has given sureties for this contract;
- b) plants, machinery and improvements to the building for an original amount of Euro 2,729 thousand. The contract expires in July 2019, the future capital payments amount to Euro 815 thousand and the annual interest rate applied by the lessor is equal to 3%. The Group has given sureties for this contract.
- c) plants, machinery and improvements to the building for an original amount of Euro 5,662 thousand. Please note that in 2016, subsidiary Allevard Sogefi USA Inc. re-negotiated the financial lease agreement entered into in 2013 after the purchase of new machinery, increasing its value by Euro 2,154 thousand. The new lease agreement presents for the same annual interest rate (3.24%) and term (June 2023) as the original one. Overall residual principal amount is Euro 7,750 thousand.
- The Group has given sureties for this contract.
There are no restrictions of any nature on these leases. Upon expiry of the contracts ownership of the assets is transferred to the lessee without payment of any purchase price. These contracts are therefore accounted for as financial leases, as required by IAS 17.
TRADE AND OTHER CURRENT PAYABLES
The amounts shown in the financial statements can be broken down into the following categories:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Trade and other payables | 339,086 | 325,421 |
Tax payables | 8,664 | 6,071 |
TOTAL | 347,750 | 331,492 |
Details of trade and other payables are as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Due to suppliers | 262,884 | 255,400 |
Due to the parent company | 3,254 | 2,428 |
Due to tax authorities for indirect and other taxes | 11,359 | 8,607 |
Due to social and security institutions | 20,668 | 21,750 |
Due to employees | 31,992 | 29,719 |
Other payables | 8,929 | 7,517 |
TOTAL | 339,086 | 325,421 |
Amounts “Due to suppliers” are not interest-bearing and are settled on average in 66 days (70 days as at 31 December 2015).
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 7,484 thousand (by Euro 8,256 thousand at constant exchange rates); this is mainly due to business growth in the last portion of 2016 compared to the same period of the previous year.
Amounts “Due to parent company” reflect the consideration of Euro 1,390 thousand due for the fiscal surplus transferred by companies that have joined the CIR Group tax filing system; Euro 1,750 thousand represent the tax liability of subsidiary Sogefi Italy S.p.A. in connection with the CIR Group tax filing system, and Euro 114 thousand reflect outstanding Directors' remuneration charged back to the parent company Cir S.p.A. For further details, please refer to note 40.
The increase in amounts “Due to tax authorities for indirect and other taxes” mainly refers to VAT debts, outstanding withholding tax payments and other indirect taxes.
Item “Due to social and security institutions” decreased after the French subsidiaries changed contribution payment scheme from quarterly (in 2015) to monthly payments in the year 2016. The increase in “Due to employees” of Euro 2,273 thousand reflects for the most part provisions for vacation accrued and not utilised and for the variable portion of remuneration.
“Tax payables” are taxes accrued in 2016.
OTHER CURRENT LIABILITIES
“Other current liabilities” for the amount of Euro 8,197 thousand (Euro 9,686 as at 31 December 2015) include adjustments to costs and revenues for the period so as to ensure compliance with the accruals based principle (accrued expenses and deferred income), deferred margin on tooling sales and advances received from customers for orders still to be delivered.
LONG-TERM PROVISIONS AND OTHER PAYABLES
These are made up as follows:
Details of the main items are given below.
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Pension funds | 53,198 | 42,575 |
Provision for employment termination indemnities | 5,996 | 6,316 |
Provision for restructuring | 2,106 | 5,194 |
Provision for product warranties | 19,081 | 19,716 |
Provisions for disputes in progress and other risks | 8,936 | 5,414 |
TOTAL | 89,317 | 79,215 |
Pension funds
The amount of Euro 53,198 thousand represents the amount set aside at year end by the various Group foreign companies to cover the liabilities of their various pension funds. Changes in the pension funds occurred during the year are shown below:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Opening balance | 42,575 | 47,361 |
Cost of benefits charged to income statement | 3,380 | 3,941 |
"Other Comprehensive Income" | 12,929 | (7,176) |
Contributions paid | (2,939) | (2,921) |
Exchange differences | (2,747) | 1,370 |
TOTAL | 53,198 | 42,575 |
The following table shows all of the obligations deriving from “Pension funds” and the present value of the plan assets for the year 2016 and the two previous years.
(in thousands of Euro) | 12.31.2016 | 12.31.2015 | 12.31.2014 |
---|---|---|---|
Present value of defined benefit obligations | 221,176 | 221,701 | 222,291 |
Fair value of plan assets | 167,978 | 179,126 | 174,930 |
Deficit | 53,198 | 42,575 | 47,361 |
Changes in the "Present value of defined benefit obligations" for the year 2016 were as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Present value of defined benefit obligations at the beginning of the period | 221,701 | 222,291 |
Current service cost | 1,638 | 1,647 |
Financial expenses | 7,353 | 8,128 |
Remeasurement (gains)/losses | ||
- Actuarial (gains)/losses arising from changes in demographic assumptions | (6,777) | (305) |
- Actuarial (gains)/losses arising from changes in financial assumptions | 39,275 | (19,379) |
- Actuarial (gains)/losses arising from experience | (5,176) | 4,978 |
- Actuarial (gains)/losses arising from "Other long-term benefits" - Jubilee benefit | 332 | 164 |
Contribution paid by plan participants | 183 | 227 |
Settlements/Curtailments | (310) | - |
Exchange differences | (28,952) | 12,163 |
Benefits paid | (8,091) | (8,213) |
Present value of defined benefit obligations at the end of the period | 221,176 | 221,701 |
“Actuarial (gains)/losses arising from changes in demographic assumptions” are mainly due to revised mortality assumptions in British pension funds.
“Actuarial (gains)/losses arising from changes in financial assumptions” are mainly due to a diminished discount rate in British and French pension funds.
“Actuarial (gains)/losses arising from experience adjustments” reflect the difference between actuarial assumptions and what occurred in practice (for instance, in terms of employee turnover, wage inflation or inflation rate).
“Actuarial (gains)/losses relating to other long-term benefits” mainly relate to the French subsidiaries.
With regard to the balances of companies that use functional currencies other than the Euro, please note that the Income Statement items are translated into Euro using the average exchange rate of the reporting period; the present value of obligations at beginning and end of period was translated at the rate of exchange ruling at the relevant date.
Changes in the fair value of plan assets are illustrated in the table below:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Fair value of plan assets at the beginning of the period | 179,126 | 174,930 |
Interest income | 6,175 | 6,675 |
Remeasurement (gains)/losses: | ||
Return on plan assets | 14,393 | (7,530) |
Non investment expenses | (542) | (677) |
Contributions paid by the company | 1,737 | 1,718 |
Contributions paid by the plan participants | 183 | 227 |
Exchange differences | (26,205) | 10,792 |
Benefits paid | (6,889) | (7,009) |
Fair value of plan assets at the end of the period | 167,978 | 179,126 |
With regard to the balances of companies that use functional currencies other than the Euro, please note that the Income Statement items are translated into Euro using the average exchange rate of the reporting period, whereas the fair value of assets at beginning and end of period was translated at the rate of exchange ruling at the relevant date.
Details of the amounts recognised in Other comprehensive income are given below:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Return on plan assets (excluding amounts included in net interests expenses on net liability assets) | (14,393) | 7,530 |
Actuarial (gains)/losses arising from changes in demographic assumptions | (6,777) | (305) |
Actuarial (gains)/losses arising from changes in financial assumptions | 39,275 | (19,379) |
Actuarial (gains)/losses arising from experience | (5,176) | 4,978 |
Value of the net liability (asset) to be recognised in "Other Comprehensive income" | 12,929 | (7,176) |
The amounts charged to the Income Statement can be summarised as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Current service cost | 1,638 | 1,647 |
Net interest cost | 1,178 | 1,453 |
Actuarial (gains)/losses recognised during the year on "Other long-term benefits" - Jubilee benefit | 332 | 164 |
Non-management costs of plan assets | 542 | 677 |
Settlements/Curtailments | (310) | - |
TOTAL | 3,380 | 3,941 |
Items “Current service cost” and “Non-management costs of plan assets” are included in the various “Labour cost” lines of Income Statement items.
Line “Financial expenses, net” is included in “Financial expenses (income), net”.
“Actuarial (gains) losses related to jubilee benefits recognized during the year” and “Settlements/Curtailments” are included in “Other non-operating expenses (income)”.
Defined-benefit plans expose the Group to the following actuarial risks:
- Investment risk (only applies to British subsidiaries that hold plan assets): the present value of the defined-benefit obligation is calculated at a discount rate determined with reference to returns on AA- rated Eurozone corporate bonds; if the return on plan assets is lower than this rate, the plan will be in deficit. For this reason, and considering the long-term nature of plan liabilities, the British companies' funds diversified their portfolios to include investment in properties, debt instruments and equity instruments.
- Interest risk: a decrease in the discount rate will lead to an increase in plan liability; however, if plan assets are present, such increase will be partially offset by an increase in the return on plan investments.
- Longevity risk: the value of the defined-benefit obligation is calculated taking into account the best possible estimate of the mortality rate of plan beneficiaries; an increase in life expectancy leads to an increase in the resulting obligation.
- Inflation risk/wage inflation risk: the value of the definite-benefit plan with reference to employees in service is calculated taking into account future pay rises and inflation rate: an increase in these elements causes the relevant obligation to increase.
The following table shows the breakdown of “Pension funds” by geographical area of the relevant subsidiaries:
(in thousands of Euro) | 12.31.2015 | |||
---|---|---|---|---|
Great Britain | France | Other | TOTAL | |
Present value of defined benefit obligations | 195,409 | 22,650 | 3,642 | 221,701 |
Fair value of plan assets | 179,031 | - | 95 | 179,126 |
Deficit | 16,378 | 22,650 | 3,547 | 42,575 |
(in thousands of Euro) | 12.31.2016 | |||
Great Britain | France | Other | TOTAL | |
Present value of defined benefit obligations | 190,788 | 26,734 | 3,654 | 221,176 |
Fair value of plan assets | 167,781 | - | 197 | 167,978 |
Deficit | 23,007 | 26,734 | 3,457 | 53,198 |
Growing Deficit reduction in Great Britain and France can be traced back mainly to a diminished discount rate.
Note that the actuarial valuations of the “Pension funds” are carried out in collaboration with external specialists.
The following paragraphs summarise the pension systems in the geographical areas that affect the Group the most: Great Britain and France.
Great Britain
In Great Britain, pension plans are mainly private, being made with fund management companies and administered independently from the company.
They are classified as defined-benefit plans subject to actuarial valuation that are accounted for according to the corridor approach as provided for by IAS 19.
With regard to plan governance, administrators are representatives of employees, former employees and employer; they are required by law to act in the interest of the fund and of all main stakeholders and are responsible for the investment policies adopted for plan assets.
With regard to the nature of employee benefits, employees are entitled to a post-employment annuity calculated by multiplying a portion of the wage earned at retirement age by the number of years of service until retirement age.
The main assumptions used in the actuarial valuation of these “Pension funds” were as follows:
12.31.2016 | 12.31.2015 | |
---|---|---|
Discount rate % | 2.8 | 3.9 |
Expected annual wage rise % | 2,2-3,7 | 2.2-3.7 |
Annual inflation rate % | 2,2-3,2 | 2.2-3.2 |
Retirement age | 65 | 65 |
The diminished “Discount rate” versus the previous year reflects the downward trend in returns on AA-rated UK corporate bonds recorded in 2016. The “Discount rate” is calculated based on the returns on AA-rated UK corporate bonds (average duration of 15 years) adjusted for the longer average duration of the bond (19 years).
Changes in the present value of the UK funds obligation for 2016 and 2015 were as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Present value of defined benefit obligations at the beginning of the period | 195,409 | 196,097 |
Current service cost | 208 | 269 |
Financial expenses | 6,704 | 7,481 |
Remeasurement (gains)/losses: | ||
- Actuarial (gains)/losses arising from changes in demographic assumptions | (6,845) | - |
- Actuarial (gains)/losses arising from changes in financial assumptions | 35,911 | (13,825) |
- Actuarial (gains)/losses arising from experience | (4,941) | - |
Contribution paid by plan participants | 183 | 227 |
Exchange differences | (28,956) | 12,156 |
Benefits paid | (6,885) | (6,996) |
Present value of defined benefit obligations at the end of the period | 190,788 | 195,409 |
Changes in the fair value of UK plan assets are illustrated in the table below:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Fair value of plan assets at the beginning of the period | 179,031 | 174,858 |
Interest income | 6,168 | 6,668 |
Remeasurement (gains)/losses: | ||
Return on plan assets | 14,391 | (7,530) |
Non investment expenses | (542) | (677) |
Contribution paid by the company | 1,645 | 1,696 |
Contribution paid by plan participants | 183 | 227 |
Exchange differences | (26,210) | 10,785 |
Benefits paid | (6,885) | (6,996) |
Fair value of plan assets at the end of the period | 167,781 | 179,031 |
Allocations of the fair value of plan asset based on type of financial instrument were as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Debt instruments | 17.7% | 23.3% |
Equity instruments | 29.1% | 32.2% |
Real estate investments | 0.3% | 0.3% |
Cash | 11.3% | 13.7% |
Derivatives | 31.2% | 28.4% |
Other assets | 10.4% | 2.1% |
TOTAL | 100.0% | 100.0% |
The fair value of these financial instruments was measured based on quoted prices available in active markets.
Asset allocation at the end of the year 2016 shows an increase in derivative instruments and other assets (such as private equity, private debt, hedge funds, commodities). Such increase is due to the fund’s dynamic management strategy, which requires asset allocation to be adjusted to present economic conditions and future expectations on one hand. On the other hand, the strategy of one of the plans changed after a review of the Asset Liability Modelling (investment approach that identifies strategic asset allocation based on the nature and duration of a liability) also with a view to enhancing the efficiency of investment strategies, leading to the dismissal of investments classified as debt and equity instruments to invest in derivatives and other assets.
Debt instruments are mostly foreign corporate securities. Equity instruments are mostly foreign securities (emerging country securities constitute a minimal share ).
The Trustee Board periodically reviews the plan's investment strategies and diversifies them by risk and asset profitability. These strategies take into account the nature and duration of liabilities, the fund's financing needs and the employer's ability to meet the fund's commitments. The fund of subsidiary Sogefi Filtration Ltd uses derivative financial instruments to hedge the risk of changes in liability value connected with inflation, exchange and interest rates.
With regard to the impact of the defined-benefit plan of the UK companies on the Group's future cash flows, expected contributions to the plans for the next year total Euro 2,037 thousand.
Average bond duration as at 31 December 2016 is approximately 19 years.
In compliance with the IAS 19, a sensitivity analysis was performed to determine how the present value of the bond changes as the most significant actuarial assumptions change, other actuarial assumptions being equal.
Considering the peculiar operation of UK funds, the following actuarial assumptions are considered significant:
- Discount rate
- Wage inflation rate
- Life expectancy
An overview of the changes in the present value of the obligation triggered by changes in these actuarial assumptions is provided below:
(in thousands of Euro) | 12.31.2016 | |
---|---|---|
+1% | -1% | |
Discount rate | (31,512) | 40,632 |
Rate of salary increase | 1,507 | (1,630) |
(in thousands of Euro) | 12.31.2016 | |
+ 1 year | - 1 year | |
Life expectancy | 5,780 | (6,057) |
France
Pensions in France are essentially based on state pension plans and the responsibility of the company is limited to paying the contributions established by law.
In addition to this basic assistance guaranteed by the state, retiring employees are also entitled to other additional amounts under collective labour agreements that are determined based on length of service and salary level, and are only paid if the employee reaches retirement age in the company. An employee leaving the company before retirement age will lose these additional benefits.
These additional benefits are recognised as a liability for the company and, in accordance with IAS 19, they are considered as defined-benefit plans subject to actuarial valuation.
In addition to the retirement indemnity, a collective labour agreement provides for a “Jubilee benefit” (which is calculated with a different method at each different French subsidiary) that vests upon reaching 20, 30, 35 and 40 years of service with the company. Under the IAS 19, this “Jubilee benefit” falls under the residual category of “Other long-term benefits” and is subject to actuarial valuation; actuarial gains (losses) must be recognised in the Income Statement for that year. Employees will lose the bonus falling due upon the different service jubilee bonuses if they leave the company before reaching the years of service mentioned above.
The main assumptions used in the actuarial valuation of these “Pension funds” were as follows:
12.31.2016 | 12.31.2015 | |
---|---|---|
Discount rate % | 1.5 | 2.5 |
Expected annual wage rise % | 2.5 | 2.5 |
Annual inflation rate % | 1.8 | 1.8 |
Retirement age | 62-67 | 62-67 |
The “Discount rate” is calculated based on the returns on Eurozone AA-rated corporate bonds (average duration of 16.5 years).
Changes in the "Present value of defined benefit obligations" were as follows:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Present value of defined benefit obligations at the beginning of the period | 22,650 | 22,536 |
Current service cost | 1,314 | 1,275 |
Financial expenses | 568 | 541 |
Remeasurement (gains)/losses: | ||
- Actuarial (gains)/losses arising from changes in demographic assumptions |
(36) | (305) |
- Actuarial (gains)/losses arising from changes in financial assumptions | 3,243 | (187) |
- Actuarial (gains)/losses arising from experience | (99) | (460) |
- Acturial (gains)/losses related to "Other long-term benefits" - Jubilee benefit | 332 | 163 |
Settlements/Curtailments | (310) | -. |
Benefits paid | (928) | (913) |
Present value of defined benefit obligations at the end of the period | 26,734 | 22,650 |
“Actuarial (gains)/losses arising from experience adjustments” reflect the difference between actuarial assumptions and what occurred in practice (for instance, in terms of employee turnover, wage inflation or inflation rate).
The sensitivity analysis of the French funds was performed by varying the following actuarial assumptions:
- Discount rate
- Wage inflation rate
An overview of the changes in the present value of the obligation triggered by changes in these actuarial assumptions is provided below:
(in thousands of Euro) | 12.31.2016 | |
---|---|---|
+1% | -1% | |
Discount rate | (3,058) | 3,528 |
Rate of salary increase | 3,406 | (3,070) |
Provision for employment termination indemnities
This aspect only concerns the Group's Italian companies, where pensions are represented by state plans and the company's responsibility is limited to regular payment of social contributions each month.
In addition to state-provided pensions, employees are entitled by law to a termination indemnity that accrues in accordance with length of service and is paid when an employee leaves the company.
The termination indemnity is calculated based on the length of service and taxable remuneration of each employee.
The corresponding liability is put aside in a specific provision and the amounts accrued in previous years are subject to annual revaluation based on the official cost-of-life index and at the legal interest rates; it is not associated with any conditions or accrual periods, nor does it require any financial provision; as a result, there are no assets underlying the provision.
This termination indemnity is considered as a defined-benefit provision, but subject to actuarial valuation for the part relating to the expected future benefits in respect of past service (which is the part subject to annual revaluation).
Further to the amendments to the “Provision for employment termination indemnities” introduced by Law 296 of 27 December 2006 and subsequent decrees and regulations issued in the early part of 2007, for companies with 50 or more employees (Sogefi Italy S.p.A.), the portions of the provision accruing as from 1 January 2007 are transferred - at employee's option - to supplementary pension funds or to the treasury fund held by INPS (the Italian social security authority) or to supplementary pension schemes, and are considered as “defined-contribution plans”. These amounts therefore do not require actuarial valuation and are no longer booked to the “Provision for employment termination indemnities”. The “Provision for employment termination indemnities” accruing up to 31 December 2006 is still a “defined-benefit plan”, consequently requiring actuarial valuation, which however will no longer take account of the component relating to future wage inflation.
In accordance with the IAS 19, for companies with less than 50 employees (Parent Company Sogefi S.p.A.) the provision as at 31 December 2016 is entirely accounted for as a “Definite-benefit plan” and is subject to actuarial valuation.
The assumptions taken into consideration when carrying out the actuarial valuation of the “Provision for employment termination indemnities” were as follows:
Macroeconomic assumptions:
- annual discount rate (IBoxx Eurozone Corporate AA Index): 0.86% (1.39% as at 31 December 2015);
- annual inflation rate: 1.5% (as at 31 December 2015: 1.5% for 2016, 1.8% for 2017, 1.7% for 2018, 1.6% for 2019 and 2% from 2020 onward);
- annual increase in termination indemnity: 2.625% (as at 31 December 2015: 2.625% for 2016, 2.85% for 2017, 2.775% for 2018, 2.7% for 2019 and 3.0% from 2020 onward).
Demographic assumptions:
- rate of voluntary resignations: 3% - 10% of the workforce (same assumptions adopted as at 31 December 2015);
- retirement age: it was assumed that employees would reach the first of the requirements valid for mandatory general social security (same assumptions adopted as at 31 December 2015);
- probability of death: the RG48 mortality tables produced by the General State Accounting Body were used (same assumptions adopted as at 31 December 2015);
- probability of advanced settlement: an annual value of 2% - 3% each year was assumed (same assumptions adopted as at 31 December 2015);
- INPS' table split by age and gender was used for the probability of disability (same assumptions adopted as at 31 December 2015).
The provision changed as follows during the period:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Opening balance | 6,316 | 8,405 |
Accruals for the period | 147 | (162) |
Amounts recognised in "Other Comprehensive Income" | (13) | (351) |
Contributions paid | (454) | (1,576) |
TOTAL | 5,996 | 6,316 |
The amounts charged to the Income Statement can be summarised as follows:
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
Current service cost | 62 | 117 |
Curtailment | - | (345) |
Financial charges | 85 | 66 |
TOTAL | 147 | (162) |
Average bond duration as at 31 December 2016 is approximately 8 years.
The sensitivity analysis of the provision for employment termination indemnities is outlined below. The table below shows the changes in the provision triggered by changes in the following actuarial assumptions:
- Discount rate
- Wage inflation
(in thousands of Euro) | 12.31.2016 | |
---|---|---|
+0.5% | -0.5% | |
Discount rate | (196) | 206 |
Rate of salary increase | 5 | (4) |
Provision for restructuring
These are amounts set aside for restructuring operations that have been officially announced and communicated to those concerned, as required by IAS/IFRS.
The provision changed as follows during the period:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Opening balance | 5,194 | 19,296 |
Accruals for the period | 1,216 | 1,535 |
Utilisations | (3,621) | (14,438) |
Provisions not used during the period | (758) | (440) |
Other changes | 25 | (373) |
Exchange differences | 50 | (386) |
TOTAL | 2,106 | 5,194 |
“Utilisations” (booked as reductions of provisions previously accrued provisions) relate nearly entirely to subsidiaries Sogefi Filtration France S.A., Sogefi Suspension France S.A. and Sogefi Air & Refroidissement S.A.S.
Changes in “Accruals for the period” net of the “Provisions not used during the period” (amounts set aside during previous years in excess of amounts actually paid), total Euro 458 thousand; this figure is booked to the Income Statement under “Restructuring costs”.
“Other changes” include reclassifications to other balance sheet items.
Provision for product warranties
The provision changed as follows during the period:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Opening balance | 19,716 | 23,086 |
Accruals for the period | 2,279 | 14,623 |
Utilisations | (2,422) | (18,000) |
Provisions not used during the period | (515) | (2) |
Other changes | 37 | - |
Exchange differences | (14) | 9 |
TOTAL | 19,081 | 19,716 |
The item reflects for the most part liabilities connected with product warranty risks of the Systemes Moteurs Group for the amount of Euro 16,300 thousand. For further details, please refer to note 2, paragraph “Consolidation principles and accounting policies – Critical estimates and assumptions”.
The item also includes minor provisions for product warranties by Group companies.
Lawsuits and other risks
The provisions changed as follows during the period:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
Opening balance | 5,414 | 6,178 |
Accruals for the period | 5,188 | 2,853 |
Utilisations | (2,364) | (2,613) |
Provisions not used during the period | (229) | (817) |
Other changes | 620 | 373 |
Exchange differences | 307 | (560) |
TOTAL | 8,936 | 5,414 |
The provision includes liabilities toward employees and third parties. Amounts stated in the financial statements represent the best possible estimates of liabilities at year-end date.
The allocation of Euro 5,188 thousand mainly relates to subsidiaries Sogefi Filtration do Brasil Ltda and Sogefi Filtration Ltd for disputes with employees.
With regard to subsidiary Sogefi Filtration Ltd, please note that the company and the pension fund trustees received professional advice from leading consulting companies between 1990 and 2006, to equalise the conditions of the pension funds, as required by amended legislation. In 2007, it turned out that the above equalisation may not have been correctly applied. Sogefi Filtration Ltd therefore submitted a protective claim in 2009 against the consultants to the Birmingham High Court. In 2015, after obtaining an opinion from the Queen’s Counsel, the company filed a court claim to have the equalisation corrected. In 2016 the company started to hold consultations with the representative of fund beneficiaries seeking a compromise between the parties to resolve the matter. Such compromise may cover the matter as a whole or may address only certain specific issues and submit remaining issues to the Court’s decision. Consultations are still under way.
After the developments in 2016, the company deemed it appropriate to account for a provisions (in the past, the matter had been treated as a potential liability). The provision does not take into account for possible remedy against the consultants.
Other payables
“Other payables” amount to Euro 15,046 thousand (Euro 9,195 thousand as at 31 December 2015). The increase in the item (Euro 5,851 thousand) is mainly traced back to the following factors: Euro 2,459 thousand reflect advances paid by customers for the most part to subsidiary LPDN GmbH; Euro 966 thousand relate to subsidiary Sogefi Air & Refroidissement France S.A.S. and reflect research and development costs charged back to customers that will be accounted for as revenue over the life of the project starting at the time capitalised R&D costs are depreciated; and Euro 2,115 thousand reflect the fair value adjustment of the put option held by non-controlling shareholders of the Indian subsidiary as outlined below.
The item includes Euro 8,997 thousand (Euro 6,882 thousand as at 31 December 2015) which reflect the fair value of the liability associated with the exercise price of the put option held by non-controlling shareholders of subsidiary Sogefi M.N.R. Engine Systems India Pvt Ltd. on 30% of its share capital. The option may be exercised from the year 2016 onward. The fair value of such liability represents a reasonable estimate of the option exercise price, and was determined using the method that involves discounted cash flows method, based on the cash flows of the 2017 budget and the plan for 2018-2020 of the affected subsidiary. A discount rate of 14.36% was applied and terminal value was calculated using the “perpetual annuity” approach, assuming a growth rate of 7.6%, consistently with the sector performance in the Indian market.
Discount rate was calculated based on weighted average cost of capital and the following parameters (extrapolated from the main financial sources):
- financial structure of the industry: 21.7% (the same as the one used in the impairment test)
- levered beta of the industry: 1.08 (the same as the one used in the impairment test)
- risk-free rate: 7.22% (annual average of risk free rates of 10-year Indian securities)
- risk premium: 8.1%
DEFERRED TAX ASSETS AND LIABILITIES
The following details of deferred tax assets and liabilities are provided in light of the IAS/IFRS disclosure requirements.
(in thousands of Euro) | 12.31.2016 | 12.31.2015 | ||
---|---|---|---|---|
Amount of temporary differences | Tax effect | Amount of temporary differences | Tax effect | |
Deferred tax assets: | ||||
Allowance for doubtful accounts | 2,342 | 595 | 2,552 | 721 |
Fixed assets amortisation/writedowns | 31,488 | 7,934 | 31,744 | 9,212 |
Inventory writedowns | 4,828 | 1,540 | 4,421 | 1,466 |
Provisions for restructuring | 732 | 236 | 882 | 291 |
Other provisions - Other payables | 87,502 | 21,837 | 78,819 | 24,454 |
Fair value derivative financial instruments | 9,267 | 2,224 | 11,473 | 2,754 |
Other | 16,072 | 5,280 | 12,371 | 3,797 |
Deferred tax assets for tax losses incurred during the year | 454 | 113 | 5,962 | 2,009 |
Deferred tax assets for tax losses incurred during previous years | 54,031 | 17,051 | 66,338 | 20,597 |
TOTAL | 206,716 | 56,810 | 214,562 | 65,301 |
Deferred tax liabilities: | ||||
Accelerated/excess depreciation and amortisation | 87,747 | 25,238 | 68,490 | 18,704 |
Difference in inventory valuation methods | 557 | 139 | 622 | 155 |
Capitalisation of R&D costs | 43,303 | 13,383 | 44,785 | 14,968 |
Other | 42,997 | 5,190 | 27,044 | 2,437 |
TOTAL | 174,604 | 43,950 | 140,941 | 36,264 |
Deferred tax assets (liabilities) net | 12,860 | 29,037 | ||
Temporary differences excluded from the calculation of deferred tax assets (liabilities): | ||||
Tax losses carried forward | 89,356 | 28,079 | 100,779 | 32,532 |
The tax effect has been calculated on the basis of the rates applicable in the various countries, which are in line with those of the previous year, except for the tax rate applicable to UK subsidiaries, which decreased from 19% to 17% for deferred taxes expected to be reversed starting in 2020, and that applicable to French subsidiaries, which decreased from 34.43% to 28% for deferred taxes expected to be reversed starting in 2019. The negative impact of the changed tax rate applicable in France recognised in the Income Statement amounts to Euro 1 million.
The decrease in “Deferred tax assets (liabilities), net” compared to 31 December 2015 amounts to Euro 16,177 thousand and differs by Euro 1,764 thousand from the amount shown in the Income Statement under “Income taxes – Deferred tax liabilities (assets)” (Euro 14,413 thousand) due to:
- movements in Balance sheet items that did not have any effect on the income statement and therefore the related positive tax effect amounting to Euro 1,588 thousand has been accounted for as Other comprehensive income (expenses); negative effect of the fair value of derivatives designated as cash flow hedges was Euro 533 thousand; positive effect of actuarial gains/losses arising from the adoption of the IAS 19 was Euro 2,059 thousand; positive effect of other reclassifications was Euro 62 thousand;
- negative effect on the balance of deferred tax assets of tax losses of previous years reclassified from deferred tax assets to amounts receivable from CIR for Euro 2,322 thousand (without any impact on the Consolidated Income Statement); this amount reflects the share of tax losses for the year 2014 offset by taxable income generated by the CIR Group tax filing system for the year 2016;
- exchange differences with a negative effect of Euro 1,030 thousand.
The decrease in the tax effect relating to item “Fixed assets amortisations/writedowns” mainly relates to the Parent Company Sogefi S.p.A. It reflects deferred tax assets for IRAP tax recognised in previous years that have been de-recognised because it is no longer believed to be probable that taxable income will be available in the future against which such tax losses can be utilised.
The decrease in the tax effect relating to item “Other provisions - Other payables” – as opposed to the increased “Amount of temporary differences” – mostly originates from the lower tax rate applied by French subsidiaries.
The decrease in the tax effect relating to item “Fair value of derivatives” mainly relates to the Parent Company Sogefi S.p.A. and reflects the change in the fair value of CCS contracts as well as the portion of reserve previously booked to Other comprehensive income relating to IRS contracts no longer designated for hedge accounting recognised in Income Statement.
Item “Other” of deferred tax assets includes various types of items, such as for example costs for which tax deduction is deferred (for example, amounts allocated to remuneration accrued in 2016 not yet paid).
The increased tax effect relating to item “Other” of deferred tax assets and of item “Accelerated/excess depreciation and amortisation” of deferred tax liabilities mainly relates to subsidiary Allevard Sogefi U.S.A. Inc. and reflects the recognition of net deferred tax liabilities not recognised previously. At the same time, deferred tax assets on tax losses were recognised as explained in more detail below in the comment on “Deferred tax assets for tax losses incurred during previous years”.
“Deferred tax assets for tax losses incurred during the year” amount to Euro 113 thousand and relate to subsidiary Sogefi Filtration Spain S.A. These taxes were recognised because it is believed to be probable that taxable income will be available in the future against which such tax losses can be utilised.
“Deferred tax assets for tax losses incurred during previous years” relate to the Parent Company Sogefi S.p.A. (Euro 1,259 thousand, Euro 3,495 thousand as at 31 December 2015) and to subsidiaries Sogefi Italy S.p.A. (Euro 43 thousand; Euro 49 thousand as at 31 December 2015), Allevard Sogefi U.S.A. Inc. (Euro 8,221 thousand; Euro 8,615 thousand as at 31 December 2015; please note that the deferred tax assets utilised in view of the 2016 positive taxable income were partly offset for Euro 5,153 thousand, by the recognition of new deferred tax assets on losses incurred during previous years – previously included in “Temporary differences excluded from the calculation of deferred tax assets (liabilities)”). as at 31 December 2016, total net deferred tax assets amounted to Euro 1,639 thousand), Sogefi Suspensions France S.A. (Euro 3,651 thousand, Euro 4,243 thousand as at 31 December 2015), Sogefi Filtration Ltd (Euro 807 thousand; Euro 1,737 thousand as at 31 December 2015), Sogefi Filtration Spain S.A. (Euro 2,197 thousand; Euro 2,196 thousand as at 31 December 2015. United Springs S.A.S. (Euro 493 thousand, Euro 717 thousand as at 31 December 2015) and Sogefi Air & Refroidissement France S.A.S. (Euro 380 thousand, Euro 1,025 thousand as at 31 December 2015). These taxes were recognised because it is believed to be probable that taxable income will be available in the future against which such tax losses can be utilised. Such probability is determined based on the fact that losses have originated under extraordinary circumstances that are unlikely to occur again, such as restructuring plans currently under way or occurred in the past. It should also be noted that the losses incurred by the UK subsidiary can be carried forward indefinitely. The losses of the French and Spanish subsidiaries can be carried forward indefinitely but new law passed in 2012 in France and in 2016 in Spain has maintained a limit for the amount that can be utilised each year, making recovery time longer. The losses of the US subsidiary can be carried forward over a period of up to 20 years since they were incurred. It is probable that the losses of the Parent Company Sogefi S.p.A. and of subsidiary Sogefi Italy S.p.A. will be recovered taking into account that the companies have joined the CIR Group tax filing system in the past.
Note that the deferred tax assets relating to the “Allowance for doubtful accounts” and to the “Inventory writedowns” include amounts that will mainly be reversed in the twelve months following year end.
Column “Amount of temporary differences” of item “Other” of deferred tax liabilities includes:
- Euro 29,724 thousand relating to dividends expected to be paid out by the French, Canadian and Argentinian subsidiaries in the short term, subject to a 3%, 5% and 10% tax rate, respectively;
- Euro 2,311 thousand relating to the taxed portion of dividends expected to be paid to the French subsidiaries and the Parent Company Sogefi S.p.A. in the short term;
- Euro 9,955 thousand relating to the remaining amount due by the seller of Systemes Moteurs shares. Please note that when the arbitration award was paid (see note 2, paragraph “Consolidation principles and accounting policies – Critical estimates and assumptions” for more details), the tax treatment of the amounts payable by Dayco (from price adjustment of equity investments obtained by way of indemnification) was reassessed based on legal doctrine and case law available to date; the amount received was taxed at current tax rates, and an accrual was made for deferred tax liabilities on the outstanding amount payable;
- other minor items for the amount of Euro 1,007 thousand.
As regards the figures shown under "Temporary differences excluded from the calculation of deferred tax assets (liabilities)", deferred tax assets were not booked as, at year end, there was not a probability that they would be recovered. “Tax losses carried forward” relate to subsidiaries Sogefi Suspensions France S.A. (portion of losses not recognised in deferred tax assets because it can not be recovered in the specific period of the company's long-term plan), Sogefi Suspensions Argentina S.A., Sogefi Filtration do Brasil Ltda, S. ARA Composite S.A.S., Allevard IAI Suspensions Pvt Ltd and Chinese subsidiaries.
Please note that in 2016 the subsidiary Allevard Sogefi U.S.A. Inc. recognised all deferred tax assets included in this item as at 31 December 2015 and the corresponding net deferred tax liabilities not recognised previously, as mentioned above.
SHARE CAPITAL AND RESERVES
Share capital
The share capital of the Parent Company Sogefi S.p.A. is fully paid in and amounts to Euro 62,065 thousand as at 31 December 2016 (Euro 61,681 thousand as at 31 December 2015), split into 119,356,455 ordinary shares with a par value of Euro 0.52 each (118,618,055 shares as at 31 December 2015).
No shares are encumbered by rights, liens or limitations relating to dividend distribution.
As at 31 December 2016, the Company has 2,878,451 treasury shares in its portfolio, corresponding to 2.41% of share capital.
Movements in the shares outstanding are as follows:
(Shares outstanding) | 2016 | 2015 |
---|---|---|
No. shares at start of period | 118,618,055 | 118,521,055 |
No. shares issued for subscription of stock options | 738,400 | 97,000 |
No. of ordinary shares as of December 31 | 119,356,455 | 118,618,055 |
No. shares issued for subscription of stock options booked to "Other reserves" at December 31 | - | - |
Treasury shares | (2,878,451) | (3,252,144) |
No. of shares outstanding as of December 31 | 116,478,004 | 115,365,911 |
The following table shows the changes in the Group’s equity:
(in thousands of Euro) | Share capital | Share premium reserve | Reserve for treasury shares | Treasury shares | Translation reserve | Legal reserve | Cash flow hedging reserve | Sharebased incentive plans reserve | Actuarial gain/loss reserve | Tax on items booked in Other Comprehensive Income | Other reserves | Retained earnings | Net result for the period | Total |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2014 | 61,631 | 14,423 | 7,831 | (7,831) | 12,340 | 4,731 | (21,544) | (16,598) | (36,949) | 12,148 | 3,111 | 124,286 | 3,639 | 161,218 |
Paid share capital increase | 50 | 95 | - | - | - | - | - | - | - | - | - | - | - | 145 |
Allocation of 2014 net profit: Legal reserve Dividends Retained earnings |
- - - |
- - - |
- - - |
- - - |
300 - - |
- - - |
- - - |
- - - |
- - - |
- - - |
- - - |
(300) - 3,639 |
- - (3,639) |
- - - |
Recognition of share-based incentive plans | - | - | - | - | - | 642 | - | - | - | - | - | - | - | 642 |
Fair value measurement of embedded derivative (conversion option) | - | - | - | - | - | - | - | - | - | - | 9,090 | - | - | 9,090 |
Other changes | - | 406 | (406) | 406 | - | (712) | - | - | - | - | - | 202 | - | (104) |
Fair value measurement of cash flow hedging instruments: share booked to OCI | - | - | - | - | - | - | - | 1,336 | - | - | - | - | - | 1,336 |
Fair value measurement of cash flow hedging instruments: share booked to income statement | - | - | - | - | - | - | - | 3,495 | - | - | - | - | - | 3,495 |
Actuarial gain/loss | - | - | - | - | - | - | - | - | 7,527 | - | - | - | - | 7,527 |
Tax on items booked in Other Comprehensive Income | - | - | - | - | - | - | - | - | - | (3,583) | - | - | - | (3,583) |
Currency translation differences | - | - | - | - | - | - | (10,043) | - | - | - | - | - | - | (10.043) |
Net result for the period | - | - | - | - | - | - | - | - | - | - | - | - | 1.120 | 1.120 |
Balance at December 31, 2015 | 61,681 | 14,924 | 7,425 | (7,425) | 12,640 | 4,661 | (31,587) | (11,767) | (29,422) | 8,565 | 12,201 | 127,827 | 1,120 | 170,843 |
Paid share capital increase | 384 | 382 | - | - | - | - | - | - | - | - | - | - | - | 766 |
Allocation of 2015 net profit: Legal reserve Dividends Retained earnings |
- - - |
- - - |
- - - |
- - - |
- - - |
- - - |
- - - |
- - - |
- - - |
- - - |
- - - |
- - 1,120 |
- - (1,120) |
- - - |
Recognition of share-based incentive plans | - | - | - | - | - | 248 | - | - | - | - | - | - | - | 248 |
Fair value measurement of embedded derivative (conversion option) | - | - | - | - | - | - | - | - | - | - | - | - | - | - |
Other changes | - | 853 | (853) | 853 | - | (1,917) | - | - | - | - | - | 994 | - | (70) |
Fair value measurement of cash flow hedging instruments: share booked to OCI | - | - | - | - | - | - | - | (625) | - | - | - | - | - | (625) |
Fair value measurement of cash flow hedging instruments: share booked to income statement | - | - | - | - | - | - | - | 2,837 | - | - | - | - | - | 2,837 |
Actuarial gain/loss | - | - | - | - | - | - | - | - | (12.916) | - | - | - | - | (12.916) |
Tax on items booked in Other Comprehensive Income | - | - | - | - | - | - | - | - | - | 1,526 | - | - | - | 1,526 |
Currency translation differences | - | - | - | - | - | - | 993 | - | - | - | - | - | - | 993 |
Net result for the period | - | - | - | - | - | - | - | - | - | - | - | - | 9,336 | 9,336 |
??Balance at December 31, 2016 | 62,065 | 16,159 | 6,572 | (6,572) | 12,640 | 2,992 | (30,594) | (9,555) | (42,338) | 10,091 | 12,201 | 129,941 | 9,336 | 172,938 |
Share premium reserve
It amounts to Euro 16,159 thousand compared to Euro 14,924 thousand in the previous year.
The increase by Euro 382 thousand accounts for share subscriptions under stock option plans.
In 2016, the Parent Company Sogefi S.p.A. credited Euro 853 thousand to the Share premium reserve after the free grant of 373,693 treasury shares to 2011, 2012, 2013 and 2014 Stock Grant beneficiaries.
Treasury shares
Item “Treasury shares” reflects the purchase price of treasury shares. Movements during the year amount to Euro 853 thousand and reflect the free grant of 373,693 treasury shares as reported in the note to “Stock-based incentive plans reserve”.
Translation reserve
This reserve is used to record the exchange differences arising on the translation of foreign subsidiaries' financial statements.
Changes during the period show an increase of Euro 993 thousand.
Reserve for actuarial gains/losses
This reserve reflects the net impact of the application of the amendment to IAS 19 “Employee Benefits” on other actuarial gains (losses) as at 1 January 2012. The item also includes actuarial gains and losses accrued after 1 January 2012 and recognised under Other Comprehensive Income.
Stock-based incentive plans reserve
The reserve refers to credit to equity for stock-based incentive plans, assigned to Directors, employees and co-workers, resolved after 7 November 2002, including the portion relating to the stock grant plan approved in 2016.
In 2016, further to Stock Grant Plan beneficiaries exercising their rights under the 2011, 2012, 2013 and 2014 plans and due to the corresponding free grant of 373,693 treasury shares, the amount of Euro 868 thousand, corresponding to the fair value of those same shares at right (Unit) allocation date, was reclassified from “Stock-based incentive plans reserve” to “Share premium reserve” (which increased by Euro 853 thousand) and to “Retained earnings reserve” (which increased by Euro 15 thousand).
During 2016, the Company reclassified Euro 1,049 thousand to “Retained earnings reserve” after the 2006 Stock Option Plan expired and the 2012 Stock Grant Plan was cancelled because the Performance Units failed to meet market conditions within the term provided for by plan regulation.
While the increase by Euro 248 thousand refers to the cost of accruing plans.
Cash flow hedging reserve
This reserve has changed as a result of accounting for the cash flows deriving from instruments that for IAS 39 purposes are designated as “cash flow hedging instruments”. Changes during the period show an increase of Euro 2,212 thousand which breaks down as follows:
- decrease of Euro 710 thousand as a consequence of the change after 31 December 2015 in the fair value of the existing effective hedging contracts;
- increase of Euro 2,922 thousand reflecting the portion of reserve relating to contracts no longer in hedge accounting that will be reclassified to the Income Statement over the same period of time as the differentials relating to the underlying hedged item.
Other reserves
This item amounts to Euro 12,201 thousand (unchanged compared to 31 December 2015).
Retained earnings
These totalled Euro 129,941 thousand and include amounts of profit that have not been distributed.
The increase of Euro 994 thousand refers to the following events:
- the interest held by subsidiary Sogefi Suspensions France S.A. in S.ARA Composite S.A.S. increased from 95% to 95.65% through a share capital increase not subscribed by non-controlling interests that led to a negative amount of Euro 70 thousand being reclassified between non-controlling interests and Group's shareholders' equity;
- reclassification from the above mentioned "Stock-based incentive plans reserve" as outlined above for a total of Euro 1,064 thousand.
Tax on items booked in Other Comprehensive Income
The table below shows the amount of income taxes relating to each item of Other Comprehensive Income:
(in thousands of Euro) | 2016 | 2015 | ||||
---|---|---|---|---|---|---|
Gross value | Taxes | Net value | Gross value | Taxes | Net value | |
- Profit (loss) booked to cash flow hedging reserve | 2,212 | (533) | 1,679 | 4,831 | (1,731) | 3,100 |
- Actuarial gain (loss) | (12,916) | 2,059 | (10,857) | 7,527 | (1,852) | 5,675 |
- Profit (loss) booked to translation reserve | 899 | - | 899 | (9,834) | - | (9,834) |
- Total Profit (loss) booked in Other Comprehensive Income | (9,805) | 1,526 | (8,279) | 2,524 | (3,583) | (1,059) |
Tax-related restrictions applicable to certain provisions
The equity of Parent Company Sogefi S.p.A. includes Reserves under tax suspension and its share capital is subject to constraints under tax suspension after revaluation reserves were utilised in the past, for a total amount of Euro 24,164 thousand.
The Parent Company has made no allocations for deferred tax liabilities to such reserves, that, if distributed, would count towards taxable income of the Company, because it is not deemed likely that they will be distributed.
Non-controlling interests
The balance amounts to Euro 16,131 thousand and refers to the portion of shareholders' equity attributable to non-controlling interests.
The reserve increased by Euro 70 thousand during the year (decrease is booked to “Other changes” in the “Consolidated Statement of Changes in Equity”) traced back to the above mentioned changes in the interest held in subsidiary S.ARA Composite S.A.S.
Details of non-controlling interests are given below:
(in thousands of Euro) | % owned by third parties | Loss (profit) attributable to non-controlling interests | Shareholders' equity attributable to non-controlling | ||||
---|---|---|---|---|---|---|---|
Subsidiary's name | Region | 12.31.2016 | 12.31.2015 | 12.31.2016 | 12.31.2015 | 12.31.2016 | 12.31.2015 |
S.ARA Composite S.A.S. | France | 4.35% | 5.00% | (207) | (159) | 326 |
463 |
Iberica de Suspensiones S.L. | Spain | 50.00% | 50.00% | 4,941 | 4,239 | 12,496 | 15,557 |
Shanghai Allevard Spring Co., Ltd | China | 39.42% | 39.42% | 17 | (74) | 2,695 | 3,003 |
Allevard IAI Suspension Pvt Ltd | India | 25.77% | 25.77% | (96) | (80) | 545 | 461 |
Sogefi M.N.R. Engine Systems India Pvt Ltd | India | 30.00% | 30.00% | - | - | - | - |
Sogefi Italy S.p.A. | Italy | 0.12% | 0.12% | 4 | 5 | 69 | 69 |
TOTAL | 4,659 | 3,931 | 16,131 | 19,553 |
As required by IFRS 12, an overview of the key financial indicators of the companies showing significant non-controlling interests:
Shanghai Allevard Spring Co., Ltd | Iberica de Suspensiones S.L. | Sogefi M.N.R. Engine Systems India Pvt Ltd | |||||
---|---|---|---|---|---|---|---|
(in thousands of Euro) | 12.31.2016 | 12.31.2015 | 12.31.2016 | 12.31.2015 | 12.31.2016 | 12.31.2015 | |
Current assets | 4,982 | 5,380 | 25,980 | 35,233 | 25,342 | 21,304 | |
Non-current assets | 3,247 | 3,667 | 11,097 | 9,060 | 15,829 | 13,211 | |
Current Liabilities | 1,116 | 1,150 | 11,937 | 12,302 | 17,747 | 15,990 | |
Non-current Liabilities | - | - | 148 | 877 | 5,833 | 4,315 | |
Shareholders' equity attributable to the Holding | 4,418 | 4,894 | 12,496 | 15,557 | 17,591 | 14,210 | |
Non-controlling interests | 2,695 | 3,003 | 12,496 | 15,557 | - | - | |
Sales Revenue | 3,956 | 4,175 | 74,159 | 68,685 | 46,015 | 37,790 | |
Variable cost of sales | 2,222 | 2,462 | 43,424 | 41,223 | 32,146 | 26,262 | |
Other variable costs of sales | 267 | 272 | 4,936 | 4,706 | 1,295 | 1,009 | |
Fixed expenses | 1,408 | 1,570 | 11,677 | 10,693 | 6,577 | 5,439 | |
Non-operating expenses (income) | 12 | 28 | 221 | 805 | 997 | 1,343 | |
Income taxes | 5 | 30 | 4,019 | 2,780 | 1,732 | (2) | |
Income (loss) for the period | 42 | (187) | 9,882 | 8,478 | 3,268 | 3,739 | |
Income (loss) attributable to the Holding Company | 25 | (113) | 4,941 | 4,239 | 3,268 | 3,739 | |
Income (loss) attributable to the non-controlling | 17 | (74) | 4,941 | 4,239 | - | - | |
Income (loss) for the period | 42 | (187) | 9,882 | 8,478 | 3,268 | 3,739 | |
OCI attributable to the Holding Company | (153) | 279 | - | - | 215 | 596 | |
OCI attributable to non-controlling | (99) | 181 | - | - | - | - | |
OCI for the period | (252) | 460 | - | - | 215 | 596 | |
Total income (losses) attributable to the Holding | (128) | 166 | 4,941 | 4,239 | 3,483 | 4,335 | |
Total income (losses) attributable to non- controlling | (82) | 107 | 4,941 | 4,239 | - | - | |
Total income (losses) for the period | (210) | 273 | 9,882 | 8,478 | 3,483 | 4,335 | |
Dividends paid to non-controlling interests | 226 | 241 | 8,000 | 4,100 | - | - | |
Net cash inflow (out flow) from operating activities | 433 | 881 | 10,088 | 11,645 | 4,833 | 3,215 | |
Net cash inflow (out flow) from investing activities | (112) | (84) | (3,715) | 1,801 | (3,242) | (2,818) | |
Net cash inflow (out flow) from financing activities | (574) | (612) | (16,000) | (8,200) | 28 | (221) | |
Net cash inflow (out flow) | (253) | 185 | (9,627) | 5,246 | 1,619 | 176 |
ANALYSIS OF THE NET FINANCIAL POSITION
The following table provides details of the net financial position as required by Consob in its communication no. DEM/6064293 of 28 July 2006 with a reconciliation of the net financial position shown in the table included in the Report on operations:
(in thousands of Euro) | 12.31.2016 | 12.31.2015 |
---|---|---|
A. Cash | 93,661 | 121,892 |
B. Other cash at bank and on hand (held to maturity investments) | 3,950 | 3,949 |
C. Financial instruments held for trading | - | 17 |
D. Liquid funds (A) + (B) + (C) | 97,611 | 125,858 |
E. Current financial receivables | 1,931 | 2,369 |
F. Current payables to banks | 11,005 | 17,843 |
G. Current portion of non-current indebtedness | 137,203 | 74,445 |
H. Other current financial debts | 400 | 325 |
I . Current financial indebtedness (F) + (G) + (H) | 148,608 | 92,613 |
J. Current financial indebtedness, net (I) - (E) - (D) | 49,066 | (35,614) |
K. Non-current payables to banks | 48,291 | 141,080 |
L. Bonds issued | 200,216 | 208,869 |
M. Other non-current financial debts | 17,240 | 21,110 |
N. Convertible bond embedded derivative liability | - | - |
O. Non-current financial indebtedness (K) + (L) + (M) + (N) | 265,747 | 371,059 |
P. Net indebtedness (J) + (O) | 314,813 | 335,445 |
Non-current financial receivables | 15,770 | 13,156 |
Financial indebtedness, net including non-current financial receivables (as per the "Net financial position" included in the Report on operations) | 299,043 | 322,289 |
Details of the covenants applying to loans outstanding at year end are as follows (see note 16 for further details on loans):
- loan of Euro 15,000 thousand from Banco do Brasil S.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
- loan of Euro 20,000 thousand from Mediobanca S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
- loan of Euro 50,000 thousand from Unicredit S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
- loan of Euro 55,000 thousand from BNP Paribas S.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
- loan of Euro 30,000 thousand from Société Générale S.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
- loan of Euro 20,000 thousand from Mediobanca S.p.A.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
- loan of Euro 30,000 thousand from Ing Bank N.V.: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
- bond issue of USD 115,000 thousand: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4;
- bond issue of Euro 25,000 thousand: the ratio of consolidated net financial position to consolidated normalised EBITDA has to be less than or equal to 3.5; the ratio of consolidated normalised EBITDA to consolidated net financial expenses must not be less than 4.
As at 31 December 2016, the Company was in compliance with these covenants.
SALES REVENUES
Revenues from sales and services
During the year 2016, the sales revenues of the Sogefi Group amounted to Euro 1,574.1 million, up 5% from Euro 1,499.1 million in 2015 (+9.8% at constant exchange rates) thanks to the positive performance of all geographical areas except for South America.
Revenues from the sale of goods and services are as follows:
(in thousands of Euro) | 2016 | 2015 | ||
---|---|---|---|---|
Amount | % | Amount | % | |
Suspensions | 562,806 | 35.8 | 558,015 | 37.2 |
Filtration | 535,061 | 34.0 | 529,670 | 35.3 |
Air&Cooling | 480,237 | 30.5 | 415,264 | 27.7 |
Intercompany eliminations | (4,013) | (0.3) | (3,899) | (0.2) |
TOTAL | 1,574,091 | 100.0 | 1,499,050 | 100.0 |
In 2016 all business units contributed to the growth of Group revenues. Specifically, the Air&Cooling segment recorded an increase of 15.6% (18.4% at constant exchange rates).
The sales revenues of the Suspensions segment recorded a growth of 0.9% (6.2% at constant exchange rates), while the revenues of the Filtration segment grew by 1% (6.7% at constant exchange rates).
By geographical area of "destination":
(in thousands of Euro) | 2016 | 2015 | ||
---|---|---|---|---|
Amount | % | Amount | % | |
Europe | 957,205 | 60.8 | 943,796 | 63.0 |
Mercosur | 162,171 | 10.3 | 174,487 | 11.6 |
Nafta | 308,745 | 19.6 | 264,120 | 17.6 |
Asia | 139,578 | 8.9 | 111,135 | 7.4 |
Rest of the World | 6,392 | 0.4 | 5,512 | 0.4 |
TOTAL | 1,574,091 | 100.0 | 1,499,050 | 100.0 |
Growth in revenues was driven by significant development in North America (+16.9%) and Asia (+25.6%), while Europe grew by 1.4%. On the other hand, sales revenues in South America dropped by 7.1% (+15.8% at constant exchange rates), although the market has been showing initial signs of recovery, leading to a 13.9% increase in the fourth quarter of the year
VARIABLE COST OF SALES
Details are as follows:
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
Materials | 846,907 | 805,668 |
Direct labour cost | 123,237 | 123,118 |
Energy costs | 36,185 | 38,163 |
Sub-contracted work | 40,320 | 37,591 |
Ancillary materials | 20,477 | 20,338 |
Variable sales and distribution costs | 48,390 | 50,655 |
Royalties paid to third parties on sales | 5,648 | 5,223 |
Other variable costs | (946) | (1,627) |
TOTAL | 1,120,218 | 1,079,129 |
The impact of “Variable cost of sales” on sales revenues falls from 72.0% in 2015 to 71.2% in the current year thanks to improved productivity.
“Other variable costs” represent the effect generated by direct labour cost and fixed cost associated with the increase in the inventory of finished goods or semi-finished products
MANUFACTURING AND R&D OVERHEADS
These can be broken down as follows:
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
Labour cost | 110,545 | 108,965 |
Materials, maintenance and repairs | 31,245 | 31,050 |
Rental and hire charges | 9,838 | 10,189 |
Personnel services | 7,962 | 8,506 |
Technical consulting | 6,988 | 7,157 |
Sub-contracted work | 2,074 | 1,674 |
Insurance | 2,875 | 2,862 |
Utilities | 4,527 | 4,779 |
Capitalisation of internal construction costs | (29,277) | (28,596) |
Other | 754 | (541) |
TOTAL | 147,531 | 146,045 |
“Manufacturing and R&D overheads” show an increase of Euro 1,486 thousand (the increase would have been Euro 7,559 thousand at constant exchange rates).
This increase is due for the most part to items “Labour cost” and “Sub-contracted work” reflecting enhanced research and development efforts in Europe and Nafta.
With regard to item “Labour cost”, please note also that an amount of approximately Euro 2 million was reclassified to “Distribution and sales fixed expenses”.
The increase is also due to item “Other”, that includes for the most part contributions for research and development activities, down from 2015, and miscellaneous industrial services.
Item “Capitalization of internal construction costs” mainly reflects product development costs capitalised when their future benefit is deemed to be reasonably certain.
Total costs for Research and Development (not reported in the table) excluding capitalization amount to Euro 38,112 thousand (stable at 2.4% of sales).
DEPRECIATION AND AMORTISATION
Details are as follows:
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
Depreciation of tangible fixed assets | 39,414 | 37,082 |
of which: assets under finance leases | 1,504 | 1,200 |
Amortisation of intangible assets | 29,379 | 27,289 |
TOTAL | 68,793 | 64,371 |
Item “Depreciation and amortisation” amounts to Euro 68,793 thousand and increased by Euro 4,422 thousand compared to the previous year. Exchange rates being equal, the increment would have been Euro 8,070 thousand.
Depreciation of tangible assets amounts to Euro 39,414 thousand, and shows an increase of Euro 2,332 thousand compared to 2015, for the most part relating to non-European subsidiaries.
Amortisation of intangible assets increased by Euro 2,090 thousand, for the most part relating to European and North American subsidiaries that are the most active in research and development.
DISTRIBUTION AND SALES FIXED EXPENSES
This item is made up of the following main components:
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
Labour cost | 29,410 | 27,061 |
Sub-contracted work | 5,486 | 6,505 |
Advertising, publicity and promotion | 3,809 | 4,269 |
Personnel services | 2,701 | 3,263 |
Rental and hire charges | 1,726 | 1,838 |
Consulting | 1,006 | 1,160 |
Other | 748 | 1,102 |
TOTAL | 44,886 | 45,198 |
“Distribution and sales fixed expenses” are substantially stable compared to the previous year. Exchange rates being equal, this item would have increased by Euro 1,727 thousand.
“Labour cost” increased by Euro 2,349 compared to 2015, mainly because of a reclassification from the corresponding item of “Manufacturing and R&D overheads”.
“Sub-contracted work” decreased by Euro 1,019 thousand, mainly in subsidiaries Sogefi Air & Refroidissement France S.A.S. and Sogefi Filtration France S.A. thanks to cost savings in outsourced warehousing services.
“Advertising, publicity and promotion” decreased by Euro 460 thousand due to a reduction of marketing and communication efforts in the aftermarket segment.
Lastly, the item “Other” decreased by Euro 354 thousand as subsidiary Sogefi Filtration do Brasil Ltda internalised warehouse management.
ADMINISTRATIVE AND GENERAL EXPENSES
These can be broken down as follows:
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
Labour cost | 37,804 | 38,496 |
Personnel services | 4,563 | 4,870 |
Maintenance and repairs | 2,331 | 1,427 |
Cleaning and security | 1,954 | 1,812 |
Consulting | 6,752 | 5,699 |
Utilities | 3,129 | 3,478 |
Rental and hire charges | 3,765 | 3,903 |
Insurance | 1,531 | 1,856 |
Participation des salaries | 994 | 524 |
Administrative, financial and tax-related services provided by Parent Company | 500 | 850 |
Audit fees and related expenses | 1,599 | 1,622 |
Directors' and statutory auditors' remuneration | 778 | 774 |
Sub-contracted work | 1,033 | 461 |
Capitalisation of internal construction costs | (1,043) | (1,867) |
Indirect taxes (*) | 8,869 | 8,435 |
Other fiscal charges (*) | 3,728 | 3,423 |
Other | 6,779 | 8,379 |
TOTAL | 85,066 | 84,142 |
(*) As at 31 December 2016, items “Indirect taxes” and “Other fiscal charges”, previous included in “Other nonoperating expenses (income)” of the Income Statement, were classified to item “Administrative and general expenses” of the Income Statement for the purpose of better presentation. The corresponding values of the year 2015 were also reclassified to facilitate comparison.
“Administrative and general expenses” increased by Euro 924 thousand compared to 2015, which would have been Euro 4,054 thousand at constant exchange rates.
“Sub-contracted work” decreased by Euro 692 thousand, mainly in Parent Company Sogefi S.p.A. and subsidiary Sogefi Suspensions France S.A. thanks to a lower average number of employees.
The decrease in item “Personnel services” for the amount of Euro 307 thousand mainly reflects lower travel expenses.
“Maintenance and repairs” increased by Euro 904 thousand, mainly due to higher maintenance costs incurred in IT departments.
“Consulting” increased by Euro 1,053 thousand, mainly in subsidiary Sogefi Air & Refroidissement France S.A.S. for consulting services in the HR area, in subsidiary Sogefi Filtration do Brasil Ltda for legal consulting services and in the Parent Company Sogefi S.p.A. for an increased use of legal and tax consulting services compared to 2015.
The growth of item “Participation des salaries” is traced back to improved results in subsidiary Sogefi Filtration France S.A.
Services provided by the parent company CIR S.p.A. amounted to Euro 500 thousand (Euro 850 thousand in 2015). As part of its activity, the Parent Company Sogefi S.p.A. makes use of services provided by CIR S.p.A., its Parent Company, in areas such as strategic development, disposals and acquisitions, and services of an administrative, financial, fiscal and corporate nature.
Item “Directors' and statutory auditors' remuneration” remains stable and mostly relates to the Parent Company Sogefi S.p.A. for remuneration of Board members.
Item “Sub-contracted work” increased by Euro 572 thousand due to an increased use of temporary workers, especially in the French subsidiary Sogefi Gestion S.A.S. for IT services and in the French subsidiary Sogefi Suspensions France S.A. for general services.
“Indirect taxes” include tax charges such as property tax, taxes on sales revenues (taxe organic of the French companies), non-deductible VAT and taxes on professional training.
“Other fiscal charges” consist of the cotisation économique territoriale (previously called taxe professionnelle) relating to the French companies, which is calculated on the value of fixed assets and on added value.
Item “Other” decreased by Euro 1,600 thousand, mainly because of a reduction of provisions set aside previously and other minor overheads.
PERSONNEL COSTS
Personnel
Regardless of their destination, “Personnel costs” as a whole can be broken down as follows:
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
Wages, salaries and contributions | 296,913 | 293,194 |
Pension costs: defined benefit plans | 2,242 | 2,441 |
Pension costs: defined contribution plans | 1,842 | 2,018 |
Participation des salaries | 994 | 524 |
Imputed cost of stock option and stock grant plans | 248 | 642 |
Other costs | 212 | 332 |
TOTAL | 302,451 | 299,151 |
“Administrative and general expenses” increased by Euro 924 thousand compared to 2015, which would have been Euro 4,054 thousand at constant exchange rates.
“Sub-contracted work” decreased by Euro 692 thousand, mainly in Parent Company Sogefi S.p.A. and subsidiary Sogefi Suspensions France S.A. thanks to a lower average number of employees.
The decrease in item “Personnel services” for the amount of Euro 307 thousand mainly reflects lower travel expenses.
“Maintenance and repairs” increased by Euro 904 thousand, mainly due to higher maintenance costs incurred in IT departments.
“Consulting” increased by Euro 1,053 thousand, mainly in subsidiary Sogefi Air & Refroidissement France S.A.S. for consulting services in the HR area, in subsidiary Sogefi Filtration do Brasil Ltda for legal consulting services and in the Parent Company Sogefi S.p.A. for an increased use of legal and tax Consulting services compared to 2015.
The growth of item “Participation des salaries” is traced back to improved results in subsidiary Sogefi Filtration France S.A.
Services provided by the parent company CIR S.p.A. amounted to Euro 500 thousand (Euro 850 thousand in 2015). As part of its activity, the Parent Company Sogefi S.p.A. makes use of services provided by CIR S.p.A., its Parent Company, in areas such as strategic development, disposals and acquisitions, and services of an administrative, financial, fiscal and corporate nature.
Item “Directors' and statutory auditors' remuneration” remains stable and mostly relates to the Parent Company Sogefi S.p.A. for remuneration of Board members.
Item “Sub-contracted work” increased by Euro 572 thousand due to an increased use of temporary workers, especially in the French subsidiary Sogefi Gestion S.A.S. for IT services and in the French subsidiary Sogefi Suspensions France S.A. for general services.
“Indirect taxes” include tax charges such as property tax, taxes on sales revenues (taxe organic of the French companies), non-deductible VAT and taxes on professional training.
“Other fiscal charges” consist of the cotisation économique territoriale (previously called taxe professionnelle) relating to the French companies, which is calculated on the value of fixed assets and on added value.
Item “Other” decreased by Euro 1,600 thousand, mainly because of a reduction of provisions set aside previously and other minor overheads.
(Number of employees) | 2016 | 2015 |
---|---|---|
Managers | 97 | 99 |
Clerical staff | 1,705 | 1,849 |
Blue collar workers | 4,380 | 4,783 |
TOTAL | 6,182 | 6,731 |
Personnel benefits
Sogefi S.p.A. implements stock-based incentive plans for the employees of the Company and of its subsidiaries that hold important positions of responsibility within the Group. The purpose is to foster greater loyalty to the Group and to provide an incentive that will raise their commitment to improving business performance and generating value in the long term.
The stock-based incentive plans of Sogefi S.p.A. are first approved by the Shareholders’ Meeting.
Except as outlined at the following paragraphs “Stock grant plans”, “Stock option plans” and “Phantom stock option plans”, the Group has not carried out any other transaction that involves the purchase of goods or services with payments based on shares or any other kind of instrument representing portions of equity. As a result, it is not necessary to disclose the fair value of such goods or services.
In addition to the plan issued in 2016, The Group has issued plans from 2006 to 2015 of which the main details are provided blow.
Stock grant plans
The stock grant plans provide for the free assignment of conditional rights (called units) that cannot be transferred to third parties or other beneficiaries; each of them entitles to the free assignment of one Sogefi S.p.A. share. There are two categories of rights under these plans: Time-based Units, that vest upon the established terms and Performance Units, that vest upon the established terms provided that shares have achieved the target price value established in the regulation.
The regulation provides for a minimum holding period during which the shares held for the plan can not be disposed of.
All shares assigned under these plans will be treasury shares held by Sogefi S.p.A. According to the regulation, a pre-condition for assigning the shares is a continued employer-employee relationship or the continued appointment as a director/executive of the Company or one of its subsidiaries throughout the vesting period of the rights.
On 27 April 2016, the Board of Directors executed the 2016 stock grant plan approved by the Shareholders’ Meeting on the same day to assign a maximum of 750,000 conditional rights, restricted to employees of the Company and its subsidiaries, who were assigned a total of 500,095 Units (217,036 of which were Time-based Units and 283,059 Performance Units).
Time-based Units will vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on 27 July 2018 and ending on 27 April 2020.
Performance Units will vest at the same vesting dates established for Time-based Units, provided that the increase in price value of Sogefi S.p.A. shares at each vesting date is higher than the increase of the Sector Index (as defined in the Regulation) at that date.
The fair value of the rights assigned during 2016 has been determined at the time the rights were assigned using the binomial option pricing model (so-called Cox, Ross and Rubinstein model) for US options and amounts to Euro 665 thousand overall.
Input data used for measuring the fair value of the 2016 stock grant plan are provided below:
- curve of EUR/GBP/SEK/CHF-riskless interest rates as at 27 April 2016;
- prices of the underlying (equal to price of Sogefi S.p.A. share as at 27 April 2016, and equal to Euro 1.5) and of the securities included in the benchmark basket, again as at 27 April 2016;
- standard prices of Sogefi S.p.A. share and of the securities included in the benchmark basket during the period starting on 29 March 2016 and ending on 26 April 2016 for the determination of the stock grant Performance Units limit;
- historical volatility rate of stock and exchange rates during 260 days, as at 27 April 2016;
- null dividend yield for stock grant valuation;
- historical series of the logarithmic returns of involved securities and EUR/GBP, EUR/SEK and EUR/CHF exchange rates to calculate the correlation among securities and among the three non-EUR denominated securities and associated exchange rates (to adjust for estimated trends), calculated for the period starting on 27 April 2015 and ending on 27 April 2016.
The main characteristics of the stock grant plans approved during previous years and still under way are outlined below:
- 2011 stock grant plan to assign a maximum of 1,250,000 conditional rights, restricted to the Director who filled the post of Managing Director of the Holding Company at the date of issue of the relevant plan and to employees of the Company and its subsidiaries, who were assigned a total of 757,500 Units (320,400 of which were Time-based Units and 437,100 Performance Units).
Time-based Units were to vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on 20 April 2013 and ending on 20 January 2015.
Performance Units were to vest at the same vesting dates established for Time-based Units, provided that the price value of shares at vesting date would be at least equal to the percentage of the initial value indicated in the regulation. - 2012 stock grant plan to assign a maximum of 1,600,000 conditional rights, restricted to the Director who filled the post of Managing Director of the Holding Company at the date of issue of the relevant plan and to employees of the Company and its subsidiaries, who were assigned a total of 1,152,436 Units (480,011 of which were Time-based Units and 672,425 Performance Units).
Time-based Units were to vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on 20 April 2014 and ending on 31 January 2016.
Performance Units were to vest at the same vesting dates established for Time-based Units, provided that the increase in price value of Sogefi S.p.A. shares at each vesting date would be higher than the increase of the Sector Index (as provided for by the regulation) at that date. On 31 January 2016, 421,164 Performance Units expired as per regulation. - 2013 stock grant plan to assign a maximum of 1,700,000 conditional rights, restricted to employees of the Company and its subsidiaries, who were assigned a total of 1,041,358 Units (432,434 of which were Time-based Units and 608,924 Performance Units).
Time-based Units will vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on 20 April 2015 and ending on 31 January 2017.
Performance Units will vest at the same vesting dates established for Time-based Units, provided that the increase in price value of Sogefi S.p.A. shares at each vesting date is higher than the increase of the Sector Index (as provided for by the Regulation) at that date. On 31 January 2017, 175,109 Performance Units expired as per regulation. - 2014 stock grant plan to assign a maximum of 750,000 conditional rights, restricted to employees of the Company and its subsidiaries, who were assigned a total of 378,567 Units (159,371 of which were Time- based Units and 219,196 Performance Units).
Time-based Units will vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on 20 April 2016 and ending on 20 January 2018.
Performance Units will vest at the same vesting dates established for Time-based Units, provided that the increase in price value of Sogefi S.p.A. shares at each vesting date is higher than the increase of the Sector Index (as provided for by the Regulation) at that date. - 2015 stock grant plan to assign a maximum of 1,500,000 conditional rights, restricted to employees of the Company and its subsidiaries, who were assigned a total of 441,004 Units (190,335 of which were Time- based Units and 250,669 Performance Units).
Time-based Units will vest in tranches on a three-monthly basis, accounting for 12.5% of their respective total, starting on 20 October 2017 and ending on 20 July 2019.
Performance Units will vest at the same vesting dates established for Time-based Units, provided that the increase in price value of Sogefi S.p.A. shares at each vesting date is higher than the increase of the Sector Index (as provided for by the Regulation) at that date.
The imputed cost for 2016 for existing stock grant plans is Euro 248 thousand, and is booked to the Income Statement under “Other non-operating expenses (income)”.
The following table shows the total number of existing rights with reference to the 2011-2016 plans:
2016 | 2015 | |
---|---|---|
Not exercised/not exercisable at the start of the year | 1,877,871 | 2,024,255 |
Granted during the year | 500,095 | 441,004 |
Cancelled during the year | (717,307) | (409,398) |
Exercised during the year | (373,693) | (177,989) |
Not exercised/not exercisable at the end of the year | 1,286,966 | 1,877,871 |
Exercisable at the end of the year | 149,724 | 391,558 |
The line “Not exercised/not exercisable at the end of the period” refers to the total number of options, net of those exercised or cancelled during the current and previous years.
The line “Exercisable at the end of the period” refers to the total amount of options matured at the end of the period and not yet subscribed.
Stock option plans
The stock option plans provide beneficiaries with the opportunity to exercise an option to subscribe to newly-issued Sogefi shares at a set price and within a specific period of time. According to the regulation, a pre-condition for exercising the option is a continued employer-employee relationship with or the continued appointment as a director/executive of the Company or one of its subsidiaries throughout the vesting period.
The main characteristics of the stock option plans approved during previous years and still under way are outlined below:
- 2007 stock option plan restricted to employees of the foreign subsidiaries for a maximum of 715,000 shares (0.6% of the share capital as at 31 December 2016) with an initial subscription price of Euro 6.96, to be exercised between 30 September 2007 and 30 September 2017. On 22 April 2008, the Board of Directors, under the authority vested in it by the Shareholders’ Meeting, adjusted the exercise price from Euro 6.96 to Euro 5.78 to take into account the extraordinary portion of the dividend distributed by the Shareholders’ Meeting on the same date;
- 2008 stock option plan restricted to employees of the foreign subsidiaries for a maximum of 875,000 shares (0.73% of the share capital as at 31 December 2016) with a subscription price of Euro 2.1045, to be exercised between 30 September 2008 and 30 September 2018;
- 2009 stock option plan restricted to employees of the Company and its subsidiaries for a maximum of 2,335,000 shares (1.96% of the share capital as at 31 December 2016) with a subscription price of Euro 1.0371, to be exercised between 30 September 2009 and 30 September 2019;
- 2009 extraordinary stock option plan restricted to beneficiaries of 2007 and 2008 phantom stock option plans, still employed by the Company or by its subsidiaries, after having waived their rights under the above-mentioned phantom stock option plans, for a maximum of 1,015,000 shares (0.85% of share capital as at 31 December 2016) of which 475,000 (first Tranche options) with a subscription price of Euro 5.9054, to be exercised between 30 June 2009 and 30 September 2017 and 540,000 (second Tranche options) with a subscription price of Euro 2.1045, to be exercised between 30 June 2009 and 30 September 2018;
- 2010 stock option plan restricted to the Director who filled the post of Managing Director of the Holding Company at the date of issue of the relevant plan and to employees of the Company and its subsidiaries for a maximum of 2,440,000 shares (2.04% of the share capital as at 31 December 2016) with a subscription price of Euro 2.3012, to be exercised between 30 September 2010 and 30 September 2020.
Please note that the 2006 stock option plan restricted to employees of the Company and its subsidiaries expired on 30 September 2016 as per relevant regulation.
The following table shows the total number of existing options with reference to the 2006-2010 plans and their average exercise price:
2016 | 2015 | |||
---|---|---|---|---|
Number | Average price of the year | Number | Average price of the year | |
Not exercised/not exercisable at the start of the year | 4,190,737 | 3.16 | 4,863,937 | 3.26 |
Granted during the year | - | - | - | - |
Cancelled during the year | (306,800) | 3.26 | (230,600) | 5.00 |
Exercised during the year | (738,400) | 1.04 | (97,000) | 1.49 |
Expired during the year | (890,800) | 5.87 | (345,600) | 3.87 |
Not exercised/not exercisable at the end of the year | 2,254,737 | 2.77 | 4,190,737 | 3.16 |
Exercisable at the end of the year | 2,254,737 | 2.77 | 4,190,737 | 3.16 |
The line “Not exercised/not exercisable at the end of the period” refers to the total number of options, net of those exercised or cancelled during the current and previous years.
The line “Exercisable at the end of the period” refers to the total amount of options matured at the end of the period and not yet subscribed.
With reference to the options exercised during 2016, the average weighted price of the Sogefi share at the exercise dates is Euro 1.76.
Details of the number of options exercisable as at 31 December 2016 are given below:
Total | |
---|---|
Number of exercisable options remaining at December 31, 2015 | 4,190,737 |
Options matured during the year | - |
Options cancelled during the year | (306,800) |
Options exercised during the year | (738,400) |
Options expired during the year | (890,800) |
Number of exercisable options remaining at December 31, 2016 | 2,254,737 |
Phantom stock option plans
Unlike traditional stock option plans, phantom stock option plans do not envisage the granting of a right to subscribe or to purchase a share, but entail paying the beneficiaries an extraordinary variable cash amount corresponding to the difference between the Sogefi share price in the option exercise period and the Sogefi share price at the time the option was awarded.
In 2009, as shown in the paragraph entitled “Stock option plans”, the Holding Company gave the beneficiaries of the 2007 and 2008 phantom stock option plans the opportunity to waive the options of the above-mentioned plans and to join the 2009 extraordinary stock option plan.
The main characteristics of existing plan under way as at 31 December 2016 are as follows:
- 2007 phantom stock option plan restricted to the Director who filled the post of Managing Director of the Holding Company at the date of issue of the relevant plan, managers and project workers of the Holding Company and to managers of Italian subsidiaries, for a maximum of 1,760,000 options at the initial grant price of Euro 7.0854, adjusted to Euro 5.9054 in 2008, to be exercised between 30 September 2007 and 30 September 2017. Following subscription to the 2009 extraordinary stock option plan, 475,000 options were waived.
Details of the number of phantom stock options as at 31 December 2016 are given below:
12.31.2016 | |
---|---|
Not exercised/not exercisable at the start of the year | 840,000 |
Granted during the year | - |
Cancelled during the year | - |
Exercised during the year | - |
Not exercised/not exercisable at the end of the year | 840,000 |
Exercisable at the end of the year | 840,000 |
The fair value as at 31 December 2016 of the rights awarded was calculated using the Black-Scholes method and equals zero, versus Euro 8 thousand at the end of 2015
RESTRUCTURING COSTS
Restructuring costs amount to Euro 5,258 thousand (compared to Euro 7,332 thousand the previous year) and mainly relate to the European and South American subsidiaries for reorganising clerical employees and industrial workers.
“Restructuring costs” mainly include personnel costs and are made up of the accruals to the “Provision for restructuring” (Euro 458 thousand, net of provisions made during the previous years and not utilised) and for the remaining part (Euro 4,800 thousand) of costs incurred and paid during the year.
LOSSES (GAINS) ON DISPOSAL
Net gains amount to Euro 698 thousand (net gains for Euro 1,597 thousand as at 31 December 2015), Euro 587 thousand of which relate to the sale of the S. Père site of subsidiary Sogefi Filtration France S.A.
EXCHANGE (GAINS) LOSSES
Net exchange losses as at 31 December 2016 amounted to Euro 1,806 thousand (Euro 3,590 thousand as at 31 December 2015). Such differences mainly relate to the Mexican subsidiaries and reflect the depreciation of the Mexican Peso.
OTHER NON-OPERATING EXPENSES (INCOME)
These amount to Euro 26,724 thousand compared to Euro 20,098 thousand the previous year. The following table shows the main elements:
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
of which ordinary | ||
Write-downs of tangible and intangible fixed assets | 9,386 | 357 |
Imputed cost of stock options and stock grant | 248 | 642 |
Other ordinary expenses | 6,885 | 3,374 |
Total expenses (income) ordinary | 16,519 | 4,373 |
of which not ordinary | ||
Product warranty costs | 6,258 | 15,725 |
Write-downs of assets | 3,947 | - |
Total expenses (income) not ordinary | 10,205 | 15,725 |
TOTAL OTHER NON-OPERATING EXPENSES (INCOME) (*) | 26,724 | 20,098 |
(*) As at 31 December 2016, sub-items “Indirect taxes” and “Other fiscal charges”, previous included in “Other nonoperating expenses (income)” of the Income Statement, were classified to item “Administrative and general expenses” of the Income Statement. The corresponding values of the year 2015 were also reclassified to facilitate comparison.
Item “Writedowns of tangible and intangible fixed assets” amounts to Euro 9,386 thousand and relates to European subsidiaries for Euro 4,586 thousand (Euro 1,562 thousand of which for research and development projects that can no longer be recovered and Euro 3,024 thousand for plant and machinery that can no longer be used) and to subsidiary Sogefi Filtration do Brasil Ltda for Euro 4,800 thousand (Euro 3,034 thousand of which originate from the impairment test carried out at the end of 2016).
“Other ordinary expenses” amount to Euro 6,885 thousand and break down as follows:
- allocations to provisions for legal disputes with employees and third parties totalling Euro 3,800 thousand;
- strategic consulting fees for the amount of Euro 1,140 thousand;
- actuarial losses in the amount of Euro 332 thousand relating to “Other long-term benefits – Jubilee benefit” in the French subsidiaries;
- allocation to provisions for credit risks in subsidiaries Sogefi Italy S.p.A. and Allevard Sogefi USA Inc. totalling Euro 1,018 thousand;
- other ordinary expenses for the amount of Euro 595 thousand.
“Product warranty costs” include the writedown of Euro 4,000 thousand of the indemnification asset owed by the seller of Sogefi Air & Refroidissement France S.A.S. shares.
“Write-downs of assets” relate to the subsidiary Sogefi Filtration do Brasil Ltda.
FINANCIAL EXPENSES (INCOME), NET
Financial expenses are detailed as follows:
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
Interests on bonds | 13,076 | 12,823 |
Interest on amounts due to banks | 6,352 | 9,080 |
Financial charges under lease contracts | 585 | 663 |
Financial component of pension funds and termination indemnities | 1,195 | 1,431 |
Loss on interest-bearing hedging instruments | 4,984 | 4,279 |
Net loss on fair value derivatives not in cash flow hedge | - | 400 |
Adjustment fair value put option | 2,115 | 117 |
Other interest and commissions | 7,950 | 7,242 |
TOTAL FINANCIAL EXPENSES | 36,257 | 36,035 |
Financial income is detailed as follows:
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
Gain on Cross currency swap in cash flow hedge | 1,200 | 1,184 |
Net gain on fair value derivatives not in cash flow hedge | 947 | - |
Interest on amounts given to banks | 494 | 411 |
Fair value of the embedded derivative (call option) | - | 1,450 |
Moratory interests on Avoir Fiscal | 2,072 | - |
Other interest and commissions | 86 | 212 |
TOTAL FINANCIAL INCOME | 4,799 | 3,257 |
TOTAL FINANCIAL EXPENSES (INCOME), NET | 31,458 | 32,778 |
Net financial expenses show a decrease of Euro 1,320 thousand.
Item “Moratory interests on Avoir Fiscal” represents late payment interests in connection with the favourable outcome of a dispute with French tax authorities over the allowance of tax credits on foreign dividends from previous years, as outlined in the comment on item “Losses (gains) from equity investments”.
Item “Adjustment fair value put option” reflects the change in the fair value of the liability generated when the non-controlling shareholders of subsidiary Sogefi M.N.R. Engine Systems India Pvt Ltd. exercised their put option on 30% of its share capital. For further details, please refer to note 19.
Please note that item “Net gain on fair value derivatives not in cash flow hedge” is comprised of:
- a financial expense of Euro 2,922 thousand reflecting the portion of the reserve previously booked to Other Comprehensive Income that will be reclassified to Income Statement over the same period of time expected for the differentials relating to the former underlying hedged item;
- a financial income of Euro 3,869 thousand reflecting the change in the fair value of these derivatives compared to 31 December 2015.
LOSSES (GAINS) FROM EQUITY INVESTMENTS
“Losses (gains) from equity investments” amount to Euro 3,583 thousand (they equalled zero as at 31 December 2015) and break down as follows:
- gain of Euro 3,975 thousand for tax credits on foreign dividends of previous years recovered by the Parent Company Sogefi S.p.A. after the approval of French tax authorities. In this regard, please note that in 2005 the Parent Company Sogefi S.p.A. had requested an opinion of the Administrative Tribunal of Paris on a tax recoupment (avoir fiscal), net of 5% withholding tax, on dividends paid by the French subsidiaries in 2004, after amendments to French tax regulations had cancelled the right to tax credit starting from the year 2005. This Court of first instance and the Administrative Court of Appeals of Paris in the second instance rejected the allegations of Sogefi S.p.A.; the Company filed an appeal with the State Council who reversed those decisions and submitted the matter to the same Administrative Court.
On 2 June 2016, the Administrative Court of Appeals of Paris notified its decision to Sogefi S.p.A., allowing the Company’s requests. In September 2016, Sogefi S.p.A. received a total amount of Euro 6 million (of which Euro 4 million tax credit and Euro 2 million interest earned). This decision is final and can not be appealed. - loss of Euro 392 thousand relating to the writedown of the full amount of the equity investment in Afico Filters S.A.E. (classified to “Equity investments in other companies” under “Other financial assets available for sale”) due to an impairment loss as the company’s standing and financial position worsened during the year 2016.
INCOME TAXES
(in thousands of Euro) | 2016 | 2015 |
---|---|---|
Current taxes | 17,247 | 11,366 |
Deferred tax liabilities (assets) | 14,413 | 305 |
Gain (loss) from partecipation to fiscal consolidation | 977 | 1,242 |
TOTAL | 32,637 | 12,913 |
The year 2016 recorded a tax rate of 70% compared to 71.9% in the previous year.
A reconciliation between the standard tax rate (that of the Holding Company Sogefi S.p.A.) and the effective tax rate for 2016 and 2015 is shown in the table below. Taxes have been calculated at the domestic rates applicable in the various countries. The differences between the rates applied in the various countries and the standard Italian tax rate are included in the line “Other permanent differences and tax rate differentials”.
(in thousands of Euro) | 2016 | 2015 | ||
---|---|---|---|---|
Tax rate % | Tax rate % | |||
Result before taxes | 46,632 | 27.5% | 17,964 | 27.5% |
Theoretical income taxes | 12,824 | 4,940 | ||
Effect of increases (decreases) with respect to the standard rate: | ||||
Statutory amortisation of goodwill | (166) | -0.4% | - | 0.0% |
Non-deductible costs, net | (946) | -2.0% | 2,583 | 14.4% |
Use of deferred tax assets not recognised in previous years | (2,699) | -5.8% | (6,421) | -35.7% |
Deferred tax assets on losses for the year not recognised in the financial statements | 6,667 | 14.3% | 5,943 | 33.0% |
Taxed portion of dividends | 2,552 | 5.5% | 200 | 1.1% |
Other permanent differences and tax rate differentials | 14,405 | 30.9% | 5,668 | 31.6% |
Income taxes in the consolidated income statement | 32,637 | 70.0% | 12,913 | 71.9% |
Item “Use of deferred tax assets not recognised in previous years” mainly relates to subsidiaries Shanghai Sogefi Auto Parts Co., Ltd, Sogefi Filtration Ltd and Sogefi (Suzhou) Auto Parts Co., Ltd; use of past losses for which no deferred tax assets had been recognised in previous years resulted in no taxes being posted on the positive results of these companies.
“Deferred tax assets on losses for the year not recognised in the financial statements” are mainly attributable to subsidiary Sogefi Filtration do Brasil Ltda, for which there was no probability at the end of the year that such losses would be recovered.
The “Taxed portion of dividends” refers to the portion of dividends received from Group companies that is not tax-exempt and to the taxes on dividends paid by the French subsidiaries. In 2016 the items also includes foreign withholding taxes in connection with the repayment of capital reserves by subsidiary Allevard Sogefi U.S.A. Inc. to the Parent Company Sogefi S.p.A.
Item “Other permanent differences and tax rate differentials” mainly includes:
- Euro 1 million for the net liability arisen when the CIR Group transferred its tax surplus;
- Euro 0.9 million for the reversal of deferred tax assets for IRAP tax recognised in previous years by the Parent Company Sogefi S.p.A. that have been de-recognised because it is no longer believed to be probable that taxable income will be available in the future against which such tax losses can be utilised;
- Euro 1.1 million for the negative impact on net deferred tax assets of the French subsidiaries in view of a tax rate reduction from 34.43% to 28% that will be introduced in 2019;
- Euro 2.4 million originating from the tax rate differential in subsidiary Allevard Sogefi U.S.A. Inc. that applies tax rate of 40% approximately starting in 2016;
- Euro 1.7 million relating to costs (Euro 6 million approximately, Euro 2 million of which relate to the change in the fair value of the put option held by non-controlling shareholders of subsidiary Sogefi M.N.R. Engine Systems India Pvt Ltd. and Euro 4 million to the writedown of the liability owed by company Dayco, the seller of Sogefi Air & Refroidissement France S.A.S.) for which no tax benefit was calculated;
- Euro 6.7 million relating to the Systemes Moteurs claims (see note 2, paragraph “Consolidation principles and accounting policies – Critical estimates and assumptions” for more details). As a matter of fact, when the arbitration award was paid, the tax treatment of the amounts payable by Dayco (from price adjustment of equity investments obtained by way of indemnification) was reassessed based on legal doctrine and case law available to date; the amount received was taxed at current tax rates, and an accrual was made for deferred tax liabilities on the outstanding amount payable.
DIVIDENDS PAID
No dividends were paid to the Parent Company shareholders during the year 2016. Dividends paid to non- controlling interests amounted to Euro 8,230 thousand.
The Parent Company Sogefi S.p.A. did not issue any shares other than ordinary shares; treasury shares are always excluded from the dividend.
EARNINGS PER SHARE (EPS)
Basic EPS
2016 | 2015 | |
---|---|---|
Net result attributable to the ordinary shareholders (in thousands of Euro) | 9,336 | 1,120 |
Weighted average number of shares outstanding during the year (thousands) | 115,877 | 115,264 |
Basic EPS (Euro) | 0.081 | 0.010 |
Diluted EPS
The Company only has one category of potential ordinary shares, namely those deriving from the potential conversion of the stock options granted to Group employees.
2016 | 2015 | |
---|---|---|
Net result attributable to the ordinary shareholders (in thousands of Euro) | 9,336 | 1,120 |
Average number of shares outstanding during the year (thousands) | 115,877 | 115,264 |
Weighted average number of shares potentially under option during the year (thousands) | 684 | 2,868 |
Number of shares that could have been issued at fair value (thousands) | (417) | (2,136) |
Shares arising from the potential conversion of the convertible loan | 18,572 | 18,572 |
Adjusted weighted average number of shares outstanding during the year (thousands) | 134,716 | 134,568 |
Diluted EPS (Euro) | 0.069 | 0.008 |
The “Weighted average number of shares potentially under option during the year” represents the average number of shares that are potentially outstanding under stock option plans (only for potentially dilutive options, i.e. with an exercise price lower than the average annual fair value of the ordinary shares of Sogefi S.p.A.), for which the subscription right has vested but has not yet been exercised at the end of reporting period. These shares have a potentially dilutive effect on basic EPS and are therefore taken into consideration in the calculation of diluted EPS.
The “Number of shares that could have been issued at fair value” represents the normalisation factor, being the number of shares that would have been issued dividing the proceeds that would have been received from subscription of the stock options by the average annual fair value of the Sogefi S.p.A. ordinary shares, which amounted to Euro 1.7004 in 2016, compared to Euro 2.5133 in 2015.
Please note that 2,316,209 shares that could dilute basic EPS in the future were not included in the calculation of diluted EPS for 2016 because their exercise price is higher than the average annual fair value of the ordinary shares of Sogefi S.p.A. in 2016.