Notes to the Consolidated Financial Statements as of 31 December 2012

A) General aspects

Piaggio & C. S.p.A. (the Company) is a joint-stock company established in Italy at the Register of Companies of Pisa. The addresses of the registered office and places where the Group conducts its main business operations are listed in the introduction to the financial statements. The main operations of the Company and its subsidiaries (the Group) are described in the Report on Operations.
These Financial Statements are expressed in euro (€) since this is the currency in which most of the Group’s transactions take place. Foreign operations are included in the consolidated financial statements according to the standards indicated in the notes below.
For a greater clarity and comparison of information in the Consolidated Financial Statements as of 31 December 2012, some changes have been made to the statement of financial position and some items have been reclassified in the financial statements and notes relative to information presented for comparative purposes.

Scope of consolidation

As of 31 December 2012, the structure of the Piaggio Group was as indicated in the Report on Operations and is the structure referred to herein.
The scope of consolidation changed compared to the Consolidated Financial Statements as of 31 December 2012 due to a new company being incorporated in the United States on 8 October 2012 and the end of the process liquidating the company P&D. The changes, of a limited extent, do not affect the comparability of data with previous periods.

Compliance with international accounting standards

The Consolidated Financial Statements of the Piaggio Group as of 31 December 2012 have been drafted in compliance with the International Accounting Standards (IAS/IFRS) in force at that date, issued by the International Accounting Standards Board and approved by the European Commission, as well as in compliance with the provisions established in Article 9 of Italian Legislative Decree no. 38/2005 (Consob Resolution no. 15519 dated July 27/7/06 containing the “Provisions for the presentation of financial statements", Consob Resolution no. 15520 dated July 27/7/06 containing the “Changes and additions to the Regulation on Issuers adopted by Resolution no. 11971/99”, Consob communication no. 6064293 dated 28/7/06 July containing the “Corporate reporting required in accordance with Article 114, paragraph 5 of Legislative Decree no. 58/98"). The interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), previously the Standing Interpretations Committee (“SIC”), were also taken into account.
Moreover, international accounting standards have been uniformly adopted for all Group companies.
The financial statements of subsidiaries, used for consolidation, have been appropriately modified and reclassified, where necessary, to bring them in line with the international accounting standards and uniform classification criteria used by the Group.

The Financial Statements have been prepared on a historical cost basis, amended as required for the measurement of some financial instruments, and on a going-concern basis. In fact, despite the difficult economic and financial context, the Group has evaluated that there are no significant doubts about its continuing as a going concern (as defined in section 25 of IAS 1), also in relation to actions already identified to adapt to changing levels in demand, as well as the industrial and financial flexibility of the Group.
The Consolidated Financial Statements are audited by PricewaterhouseCoopers S.p.A..

Other information 

A specific paragraph in this Report provides information on any significant events occurring after the end of the period and on the operating outlook.

1. Form and content of the financial statements

Form of the consolidated financial statements

The Group has chosen to highlight all changes generated by transactions with non-shareholders within two statements reporting trends of the period, respectively named the "Consolidated Income Statement" and "Consolidated Statement of Comprehensive Income". The Financial Statements are therefore composed of the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and these notes.

Consolidated Income Statement

The Consolidated Income Statement is presented with the items classified by nature. The overall Operating Income is shown, which includes all income and cost items, irrespective of their repetition or fact of falling outside normal operations, except for the items of financial operations included under Operating Income and Profit before tax. In addition, the income and cost items arising from assets that are held for disposal or sale, including any capital gains or losses net of the tax element, are recorded in a specific item preceding income attributable to the parent company and to non-controlling interests.

Consolidated Statement of Comprehensive Income

The Consolidated Statement of Comprehensive Income is presented in accordance with the provisions of adjusted version of IAS 1. It reports the Net Profit attributable to shareholders of the parent company and to minority shareholders.

Consolidated Statement of Financial Position

The Consolidated Statement of Financial Position is presented in opposite sections with separate indication of assets, liabilities, and shareholders’ equity.
In turn, assets and liabilities are reported in the Consolidated Financial Statements on the basis of their classification as current and non-current.

Consolidated Statement of Cash Flows

The Consolidated Statement of Cash Flows is divided into cash-flow generating areas. The Consolidated Statement of Cash Flows model adopted by the Piaggio Group has been prepared using the indirect method. The cash and cash equivalents recorded in the Statement of Cash Flows include the Statement of Financial Position balances for this item at the reference date. Financial flows in foreign currency have been converted at the average exchange rate for the period. Income and costs related to interest, dividends received and income taxes are included in the cash flow generated from operations.

Consolidated net debt

The statement of consolidated net debt has been prepared pursuant to Consob Communication of 28 July 2006 and in compliance with the recommendation of the CESR of 10 February 2005 “Recommendation for the consistent implementation of the European Commission’s Regulation on Prospectuses”.

Consolidated Statement of Changes in Shareholders' Equity

The Consolidated Statement of Changes in Shareholders' Equity is presented as provided for in IAS 1 revised.
It includes the Statement of Comprehensive Income while separately reporting the amounts attributable to shareholders of the parent company as well as the quota pertaining to third parties, the amounts of operations with shareholders acting in this capacity and potential effects of retrospective application or of the retrospective calculation pursuant to IAS 8. Reconciliation between the opening and closing balance of each item for the period is presented.

Contents of the Consolidated Financial Statements

The Consolidated Financial Statements of Piaggio & C. include the Financial Statements of the Parent Company Piaggio & C. S.p.A. and Italian and foreign companies in which it has direct or indirect control, which are listed in section M.

As of 31 December 2012 subsidiaries and affiliated companies of Piaggio & C. S.p.A. were as follows:

  Subsidiaries Affiliated companies Total
  Italy Abroad Total Italy Abroad Total  
Companies:
- consolidated on a line-by-line basis 2 21 23 23
- consolidated with the equity method 1 1 1
- valued at cost 2 2 4 4
Total companies 2 21 23 2 3 5 28
  

2. Principles of consolidation and accounting policies

2.1 Principles of consolidation

Assets and liabilities, and income and costs, of consolidated companies are recognised on a global integration basis, eliminating the carrying amount of consolidated investments in relation to the relative shareholders' equity at the time of purchase or underwriting. The carrying amount of investments has been eliminated against the shareholders' equity of subsidiaries/affiliated companies, assigning to non-controlling interests under specific items the relative portion of shareholders' equity and relative net profit due for the period, in the case of subsidiaries consolidated on a line-by-line basis.

Subsidiaries

Subsidiaries are companies in which the Group has a major influence. This influence exists when the Group has direct or indirect power to determine the financial and operational policies of a company in order to gain benefits from its operations. The acquisition of subsidiaries is recognised according to the acquisition method. The cost of acquisition is determined by the sum of present values at the date control of the given assets was obtained, liabilities borne or undertaken and financial instruments issued by the Group in exchange for control of the acquired company.
In the case of acquisitions of companies, acquired and identifiable assets, liabilities and potential liabilities are recognised at present value at the date of acquisition. The positive difference between the acquisition cost and share of the Group in the present value of said assets and liabilities is classified as goodwill and recognised in the financial statements as an intangible asset. Any negative difference (“negative goodwill”) is recorded instead in the income statement at the date of acquisition.
The financial statements of subsidiaries are included in the Consolidated Financial Statements starting from the date when control is acquired until control ceases.
The portions of shareholders' equity and income attributable to non-controlling interests are separately indicated in the Consolidated Statement of Financial Position and Consolidated Income Statement respectively.

Affiliated companies

Affiliated companies are companies in which the Group has considerable influence but not joint control of financial and operational policies. The Consolidated Financial Statements include the portion relative to the Group of income of affiliated companies, accounted for using the equity method, starting from the date when it commences to have considerable influence and ending when said influence ceases. In the event any portion attributable to the Group of losses of the associated company exceeds the book value of investment in the financial statements, the value of the investment is reset to zero and the portion of further losses is not recorded, except in cases where and to the extent in which the Group is required to be held liable for said losses.

Jointly controlled companies

Jointly controlled companies are companies in which the Group has joint control of operations, as defined by contractual agreements. These joint venture agreements require the establishment of a separate entity in which each participating organisation has a share known as a joint control shares. The Group records joint control investments using the equity method.

As regards transactions between a Group company and a jointly controlled company, unrealised profits and losses are eliminated to an extent equal to the percentage of the investment of the Group in the jointly controlled company, with the exception of unrealised losses that constitute evidence of an impairment of the transferred asset.

Transactions eliminated during the consolidation process

In preparing the Consolidated Financial Statements, all balances and significant transactions between Group companies have been eliminated, as well as unrealised profits and losses arising from intergroup transactions. Unrealised profits and losses generated from transactions with affiliated companies or jointly controlled companies are eliminated based on the value of the investment of the Group in the companies.

Transactions in foreign currency

Transactions in foreign currency are recorded at the exchange rate in effect at the end of the reporting period and are translated at the exchange rate in effect at that date. Exchange differences arising when monetary items are settled or translated at rates different from those at which they were translated when initially recognised in the period or in previous financial statements are reported in the income statement.

Consolidation of foreign companies

The separate financial statements of each company belonging to the Group are prepared in the currency of the primary economic environment in which they operate (the functional currency). For the purposes of the Consolidated Financial Statements, the financial statements of each foreign entity are in euro, which is the functional currency of the Group and the presentation currency of the Consolidated Financial Statements.
All assets and liabilities of foreign companies in a currency other than the euro which come under the scope of consolidation are translated, using exchange rates in effect at the end of the reporting period (currency exchange rates method). Income and costs are translated at the average exchange rate of the period. Translation differences arising from the application of this method, as well as translation differences arising from a comparison of initial shareholders' equity translated at current exchange rates and the same equity translated at historical rates, are recognised in the statement of comprehensive income and allocated to a specific reserve in shareholders' equity until disposal of the investment. Average exchange rates for translating the cash flows of foreign subsidiaries are used in preparing the Consolidated Statement of Cash Flows.
During the first-time adoption of IFRSs, cumulative translation differences arising from the consolidation of foreign companies outside the euro zone were not reset to zero, as allowed by IFRS 1 and have therefore been maintained.
The exchange rates used to translate the financial statements of companies included in the scope of consolidation into euros are shown in the table.

 

Currency Spot exchange rate 31 December 2012 Average exchange rate 2012 Spot exchange rate 31 December 2011 Average exchange rate 2011
US Dollar 1.3194 1.28479 1.2939 1.39196
Pounds Sterling 0.8161 0.810871 0.8353 0.867884
Indian Rupee 72.560 68.5973 68.713 64.88590
Singapore Dollars 1.6111 1.60546 1.6819 1.74887
Chinese Renminbi 8.2207 8.10523 8.1588 8.99600
Croatian Kuna 7.5575 7.52167 7.537 7.43904
Japanese Yen 113.61 102.492 100.20 110.95900
Vietnamese Dong 27,776.32 27,027.53629 27,699.67 29,168.37557
Canadian Dollars 1.3137 1.28421 1.3215 1.37610
Indonesian Rupiah 12,714.00 12,045.7 11,731.50 12,206.50000
 

2.2 Accounting policies

The most significant accounting policies adopted to prepare the Consolidated Financial Statements as of 31 December 2012 are outlined below.

Intangible assets

As provided for in IAS 38, an intangible asset which is purchased or self-created is recognised as an asset only if it is identifiable, controllable and future economic benefits are expected and its cost may be measured reliably.
Intangible assets with a finite life are measured at acquisition cost or production cost net of amortisation and accumulated impairment losses. For an asset that justifies capitalisation, the cost also includes any borrowing costs that are directly attributable to acquisition, construction or production of the asset.
Amortisation is referred to the expected useful life and commences when the asset is available for use.

Goodwill

In the case of acquisitions of companies, acquired and identifiable assets, liabilities and potential liabilities are recognised at present value at the date of acquisition. The positive difference between the acquisition cost and share of the Group in the present value of said assets and liabilities is classified as goodwill and recognised in the financial statements as an intangible asset. Any negative difference (“negativegoodwill”) is recorded instead in the income statement at the date of acquisition.
Goodwill is not amortised but tested annually for impairment, or more frequently if specific events or changed circumstances indicate that an asset may be impaired, as provided for in IAS 36 - Impairment of Assets.
After initial recognition, goodwill is recognised at cost net of any accumulated impairment losses.
On the disposal of part of or an entire company previously acquired and from the acquisition of which goodwill arose, the corresponding residual value of goodwill is considered when measuring the capital gain or loss of the disposal.
During first-time adoption of IFRSs, the Group opted not to retroactively apply IFRS 3 - Business Combinations to acquisitions of companies that took place before 1 January 2004. As a result, the goodwill generated on acquisitions prior to the date of transition to IFRSs was maintained at the previous value, determined according to Italian accounting standards, subject to assessment and recognition of any impairment losses.
After 1 January 2004, and following acquisitions made during 2004, additional goodwill was generated, the amount of which was measured again in the light of the different values of shareholders' equity in the acquired companies in relation to provisions in IFRS 3.

Development costs

Development costs of projects for the manufacture of vehicles and engines are recognised as assets only if all of the following conditions are met: the costs can be reliably measured and the technical feasibility of the product, the volumes and expected prices indicate that costs incurred during development will generate future economic benefits. Capitalised development costs include only costs incurred that may be directly attributed to the development process.
Capitalised development costs are amortised on a systematic criterion basis, starting from the beginning of production through the estimated life of the product.
All other development costs are recorded in the income statement when they are incurred.

Other intangible assets

As provided for in IAS 38 – Intangible Assets, other intangible assets which are purchased or self-created are recognised as assets if it is probable that use of the asset will generate future economic benefits and the cost of the asset can be reliably measured.
These assets are recognised at acquisition or production cost and amortised on a straight line basis over their estimated useful life, if they have a finite useful life.
Intangible assets with an indefinite useful life are not amortised but tested annually for impairment, or more frequently if there is an indication that an asset may be impaired.
Other intangible assets recognised following the acquisition of a company are accounted for separately from goodwill, if their present value may be reliably measured.
The amortisation period for an intangible asset with a useful life is revised at least at the end of each reporting period. If the expected useful life of the activity differs from estimates previously made, the amortisation period is changed accordingly.
The amortisation periods of intangible assets are shown below:

  
Development costs 3-5 years
Industrial Patent and Intellectual Property Rights 3-5 years
Other 5 years
Trademarks 15 years
 

Property, plant and equipment

The Piaggio Group has decided to adopt the cost method on first-time application of the IAS/IFRS, as allowed by IFRS 1. For the measurement of property, plant and equipment, therefore, the fair value method was not used. Property, plant and equipment were booked at the purchase or production cost and were not revalued. For an asset that justifies capitalisation, the cost also includes any borrowing costs that are directly attributable to acquisition, construction or production of the asset.

Costs incurred after acquisition are capitalised only if they increase the future economic benefits of the asset they refer to. All other costs are recorded in the income statement when they are incurred. Property, plant and equipment under construction are measured at cost and depreciated starting from the period in which they are put into operation.
Depreciation is determined, on a straight line basis, on the cost of the assets net of their relative residual values, based on their estimated useful life.
Land is not depreciated.

Assets held through finance lease agreements, on the basis of which all risks and benefits related to ownership are basically transferred to the Group, are recognised as Group assets at their fair value, or if lower, at the present value of minimum payments due for the lease. The corresponding liability vis-à-vis the lessor is recognised in the financial statements as a financial payable. The assets are depreciated applying the criterion and rates used for assets owned by the company.
Leases in which the lessor basically retains all risks and benefits related to ownership are classified as operating leases. The costs referred to operating leases are recognised on a line-by-line basis in the income statement over the term of the lease agreement.

The Group has its own production plants even in countries where ownership rights are not allowed. Up until 2006, it classified the rentals paid in advance to obtain the availability of land where its production sites are situated as land, and relative portion of rent as depreciation, on the assumption that local laws did not allow for the acquisition of ownership, and the 90 year duration of the agreement classified it as a finance lease.

From 2007 onwards and on the basis of clarification from IFRIC, the Group reclassified rentals paid in advance to obtain the availability of land where its production sites are situated as receivables.

Profits and losses arising from the sale or disposal of assets are measured as the difference between the sale revenue and net book value of the asset and are entered in the income statement for the period.

Impairment

At the end of the reporting period, the Group reviews the book value of its tangible and intangible assets to determine whether there is any indication that these assets may be impaired (impairment test). If there is an indication that an asset may be impaired, the asset's recoverable amount is estimated to determine the amount of the write-down. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the asset's cash generating unit.

The recoverable amount is the higher of an asset's fair value less costs to sell (if available) and its value in use. In measuring the value in use, estimated future cash flows are discounted at their fair value, using a rate net of taxes, which reflects current market changes in the fair value of money and specific risks of the asset.

If the recoverable amount of an asset (or of a cash generating unit) is estimated to be lower than the relative carrying amount, the carrying amount of the asset is reduced to the lower recoverable value. An impairment loss is immediately recognised in profit or loss, unless the asset concerns land or property other than investment property recognised at revalued values. In said case, the loss is recorded in the relative reversal reserve.

When the conditions that gave rise to an impairment loss no longer exist, the carrying amount of the asset (or of a cash generating unit), except for goodwill, is increased to the new value arising from an estimate of its recoverable amount, up to the net carrying amount applicable to the asset if no impairment loss had been recognised. The reversal of the impairment loss is immediately recognised in profit or loss.

An intangible asset with an indefinite useful life is tested annually for impairment, or more frequently if there is an indication that an asset may be impaired.

Investment property

International accounting standards regulate the accounting treatment of property used for production or administrative purposes (IAS 16) differently from investment property (IAS 40). As provided for by IAS 40, non-instrumental property held to earn rentals and/or for capital appreciation and/or both is measured at cost net of depreciation and accumulated impairment losses.
Investment property is eliminated from the financial statements when it is disposed of or when it may not be used over time and future economic benefits from its sale are not expected.

Non-current assets held for sale

Non-current assets (or disposal groups) that are classified as held for sale are measured at the lower of the carrying amount and fair value less costs to sell.
Non-current assets (and disposal groups) are classified as held for sale when it is expected that their carrying amount will be recovered through a sale rather than through their use in company operations. This condition is only met when the sale is highly probable, the asset (or disposal group) is available for immediate sale and management is committed to a plan to sell, which should take place within 12 months of classification as held for sale.

Financial assets

Financial assets are recognised and reversed from the financial statements, based on the trading date and are initially measured at cost, including any charges directly connected with the purchase.

At subsequent end of reporting periods, the financial assets the Group intends and can retain up until maturity (securities held until maturity) are recognised at amortised cost based on the effective interest rate method, net of reversals for impairment losses.

Financial assets other than those held to maturity are classified as held for trading or for sale, and are measured at fair value at the end of each period. When financial assets are held for trading, profits and losses arising from changes in fair value are recognised in profit or loss for the period; in the case of financial assets held for sale, profits and losses arising from changes in fair value are recognised in the statement of comprehensive income, allocated to a specific reserve of shareholders' equity until sold, recovered or disposed of.

Inventories

Inventories are recognised as the lower of the purchase or production cost, determined by assigning to products the costs directly incurred in addition to the portion of indirect costs reasonably attributable to the performance of production activities in normal production capacity conditions, and the market value at the end of the reporting period.

The purchase or production cost is determined based on the weighted average cost method.

As regards raw materials and work in progress, the market value is represented by the estimated net realisable value of corresponding finished products minus completion costs. As regards end products, the market value is represented by the estimated net realisable value (price lists).

The lower measurement based on market trends is eliminated in subsequent years, if the trends no longer exist.

Obsolete, slow moving and/or excess inventories are impaired in relation to their possible use or future realisation, in a provision for the write-down of inventories.

Receivables

Trade receivables and other receivables are initially recognised at fair value and subsequently recognised based on the amortised cost method, net of the provision for bad debts. Losses on receivables are recognised when there is objective evidence that the Group is not able to recover the amount due from the other party on the basis of contractual terms.

When payment of amounts due exceeds standard terms of payment granted to clients, the receivable is discounted. To determine the effect, cash collection times were estimated applying a discount rate corresponding to the 20-year Euribor Swap plus a spread of listings for A rating government securities to expected financial flows.

Factoring

The Group sells a significant part of its trade receivables through factoring. Factoring may be without recourse, and in this case no risks of recourse or liquidity exist, as corresponding amounts of the balance of trade receivables are reversed when the receivable is sold to the factor.

For factoring with recourse, the risk of non-payment and the liquidity risk are not transferred, and therefore relative receivables remain in the statement of financial position until payment by the client of the amount due. In this case any advance payments collected by the factor are recognised under payables as amounts due to other lenders.

In the case of reverse factoring, relations for which a primary obligation with the supplier is maintained and any deferment, if granted, does not significantly change terms, are still classified as trade liabilities.

Cash and cash equivalents

Cash and cash equivalents includes cash on hand, current bank accounts, deposits payable on demand and other high liquidity short term financial investments, which are readily convertible into cash and not affected by any major risk of a change in value.

Treasury shares

Treasury shares are recognised as a reduction of shareholders' equity. The original cost of treasury shares and revenues arising from subsequent sale are recognised as movements of shareholders' equity.

Financial liabilities

Financial liabilities are recognised based on amounts cashed net of relative transaction costs. After initial recognition, loans are measured at amortised cost, calculated using the effective interest rate. Financial liabilities hedged by derivatives are measured at fair value, according to procedures established for hedge accounting and applicable to present value hedge: profits and losses arising from subsequent measurements at present value, due to changes in interest rates, are recognised in profit or loss and offset by the effective portion of the loss and profit arising from subsequent measurements at present value of the hedging instrument. On initial recognition, a liability may be designated at fair value recognised in profit or loss when this eliminates or considerably reduces a lack of uniformity in the measurement or recognition (sometimes defined as "asymmetric accounting") that would otherwise arise from the measurement of an asset or liability or recognition of relative profit and loss on different bases. This fair value designation is exclusively applied to some financial liabilities in currency subject to exchange risk hedging.

Derivatives and measurement of hedging operations

Group assets are primarily exposed to financial risks from changes in exchange and interest rates. The Group uses derivatives to hedge risks arising from changes in foreign currency and interest rates in particular irrevocable commitments and planned future transactions. The use of these instruments is regulated by written procedures on the use of derivatives, in line with the Group's risk management policies.

Derivatives are initially recognised at cost, and adjusted to fair value at subsequent end of reporting periods.

Derivative financial instruments are only used with the intent of hedging, in order to reduce the exchange risk, interest rate risk and risk of changes in market prices. In line with IAS 39, financial instruments may qualify for hedge accounting, only when the hedging instrument is formally designated and documented, is expected to be highly effective and this effectiveness can be reliably measured and is highly effective throughout the reporting periods for which it is designated.

When financial instruments may be measured by hedge accounting, the following accounting treatment is adopted:

  • Fair value hedge: If a financial derivative is designated as a hedge of the exposure to changes in present value of a recognised asset or liability, attributable to a particular risk and could affect profit or loss, the gain or loss from the subsequent change in present value of the hedging instrument is recognised in profit or loss. The gain or loss on the hedged item, attributable to the hedged risk, changes the carrying amount of the hedged item and is recognised in profit or loss. 
  • Cash flow hedge: If an instrument is designated as a hedge of the exposure to variability in cash flows of a recognised asset or liability or of a highly probable forecast transaction which could affect profit or loss, the effective portion of the gain or loss on the financial instrument is recognised in the statement of comprehensive income. Accumulated gain or loss is reversed from other shareholders' equity and recognised in profit or loss in the same period as the hedging transaction. The gain or loss associated with hedging or the part of hedging which is ineffective, is immediately recognised in profit or loss. If the transaction is still expected to occur and the hedge relationship ceases, the amounts accumulated in equity will be retained in equity until the hedged item affects profit or loss. If hedge accounting ceases for a cash flow hedge relationship, gains and losses deferred in other shareholders' equity are recognised immediately in profit or loss.

If hedge accounting cannot be applied, gains and losses from measurement at present value of the financial derivative are immediately recognised in profit or loss.

Long-term provisions

The Group recognises provisions for risks and charges when it has a legal or implicit obligation to third parties and it is likely that Group resources will have to be used to meet the obligation and when the amount of the obligation itself can be reliably estimated.

Changes in estimates are recognised in profit or loss when the change takes place.

If the effect is considerable, provisions are calculated discounting future cash flows estimated at a discount rate gross of taxes, to reflect current market changes in the fair value of money and specifics risks of the liability.

Retirement funds and employee benefits

With adoption of the IFRS, the termination benefit accruing up to 31 December 2006 is considered an obligation with defined benefits to be recognised according to IAS 19 - Employee Benefits. As a result, severance must be recalculated by actuarial evaluations at the end of each period applying the Projected Unit Credit Method.
Since the 2012 Interim Financial Statements, the Group has adopted IAS 19 revised, in advance (published in the Gazzetta Ufficiale of 6 June 2012).
The amendment to IAS 19 – Employee benefits requires disclosure of the provision deficit or surplus in the statement of financial position, and separate recognition of cost items linked to employment and net borrowing costs in profit and loss, and recognition of actuarial gains and losses resulting from the remeasurement in each period of assets and liabilities in "Other comprehensive income”. In addition, the performance of assets included in net borrowing costs must be calculated based on the discount rate of liabilities and no longer on the expected return of assets.

Stock Option Plan

As provided for by IFRS 2 - Share-based Payment, the total amount of the present value of stock options at the date of assignment is recognised wholly in profit or loss under employee costs, with a counter entry recognised directly in shareholders' equity, if the grantees of the instruments representing capital become owners of the right on assignment. If a "maturity period" is required, in which certain conditions are necessary before grantees become holders of the right, the cost for payments, determined on the basis of the present value of options at the date of assignment, is recognised under employee costs on a straight line basis for the period between the date of assignment and maturity, with a counter entry directly recognised in shareholders' equity.
Determination of fair value based on the Black Scholes method.
Changes in the present value of options subsequent to the date of assignment do not have any effect on initial recognition.

Tax assets and liabilities

Deferred taxes are determined based on the temporary differences between the value of the asset and liability and their tax value. Deferred tax assets are measured only to the extent to which it is likely that adequate future taxable sums exist against which the deferred taxes can be used. The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent to which it is no longer likely that sufficient taxable income exists allowing for all or a portion of said assets to be recovered.
Deferred taxes are determined based on tax rates expected for the period in which the tax assets are realised, considering the rates in effect or which are known to come into effect. Deferred taxes are directly recognised in profit or loss, except for items directly recognised in shareholders' equity, in the case that relative deferred taxes are also recognised in shareholders' equity.
In the case of reserves of undistributed profits of subsidiaries and because the Group is able to control distribution times, deferred taxes are allocated for the reserves when distribution is expected in the future.
Deferred tax assets and liabilities are recognised at their net value when they may be offset in the same tax jurisdiction.

Payables

Payables are recognised at their nominal value, considered representative of their settlement value.

Recognition of revenues

According to IFRS, sales of goods are recognised when the goods are dispatched and the company has transferred the significant risks and benefits connected with ownership of the goods to the purchaser.
Revenues are recognised net of returns, discounts, rebates and premiums, as well as taxes directly connected with the sale of the goods and provision of services. Financial revenues are recognised on an accrual basis.

Grants

Equipment grants are recognised in the financial statements when their payment is certain and are recognised in profit or loss based on the useful life of the asset for which the grants have been provided.

Operating grants are recognised in the financial statements, when their payment is certain and are recognised in profit or loss in relation to costs for which the grants have been provided.

Financial income

Financial income is recognised on an accrual basis and includes interest payable on invested funds, exchange differences receivable and income from financial instruments, when not offset in hedging transactions. Interest receivable is recognised in profit or loss when it matures, considering the actual return.

Borrowing Costs

Borrowing costs are recognised on an accrual basis and include interest payable on financial payables calculated using the effective interest rate method, exchange differences payable and losses on derivatives. The rate of interest payable of finance lease payments is recognised in profit or loss, using the effective interest rate method.

Dividends

Dividends recognised in profit or loss, from non-controlling interests, are recognised on an accrual basis, and therefore at the time when, following the resolution to distribute dividends by the subsidiary, the relative right to payment arises.

Income tax

Taxes represent the sum of current and deferred tax assets and liabilities.
Taxes allocated under statutory accounting circumstances of individual companies included in the scope of consolidation are recognised in the consolidated financial statements, based on taxable income estimated in compliance with national laws in force at the end of the reporting period, considering applicable exemptions and tax receivables owing. Income tax is recognised in profit or loss, with the exception of items directly charged to or from shareholders' equity, in which case the tax effect is directly recognised in shareholders' equity.
Taxes are recorded under “Tax payables” net of advances and withheld taxes. Taxes due in the event of the distribution of reserves as withheld taxes recognised in the financial statements of individual Group companies are not allocated, as their distribution is not planned.
In 2010, for a further three years, the Parent Company was party to the National Consolidated Tax Convention pursuant to articles 117 - 129 of the Consolidated Income Tax Act (T.U.I.R.) of which IMMSI S.p.A. is the consolidating company, and to whom other IMMSI Group companies report to. The consolidating company determines one global overall income equal to the algebraic sum of taxable income (income or losses) realised by individual companies that opt for this Group taxation method.

The consolidating company recognises a receivable from the consolidated company which is equal to the corporate tax to be paid on the taxable income transferred by the latter. Whereas, in the case of companies reporting tax losses, the consolidating company recognises a payable related to corporate tax on the portion of loss actually used to determine global overall income.

Earnings per share

Basic earnings per share are calculated dividing the profit or loss attributable to shareholders of the Parent Company by the weighted average of ordinary shares in circulation during the period. Diluted earnings per share are calculated dividing the profit or loss attributable to shareholders of the Parent Company by the weighted average of ordinary shares in circulation adjusted to take account of the effects of all potential ordinary shares with a dilutive effect. Shares related to the stock option plan are considered as shares that may be potentially issued. The adjustment to make to the number of stock options to calculate the number of adjusted shares is determined by multiplying the number of stock options by the subscription cost and dividing it by the share market price.

Use of estimates

The preparation of the financial statements and notes in compliance with IFRS requires management to make estimates and assumptions which have an impact on the values of assets and liabilities and on disclosure regarding contingent assets and liabilities at the end of the reporting period. Actual results could differ from estimates. Estimates are used to measure intangible assets tested for impairment (see § Impairment losses) and to identify allocations for bad debts, for obsolete inventories, amortisation and depreciation, impairment of assets, employee benefits, taxes, restructuring provisions and other allocations and funds. Estimates and assumptions are periodically revised and the effects of any change are immediately recognised in profit or loss.
In the current world economic and financial crisis, assumptions made as to future trends are marked by a considerably degree of uncertainty. Therefore the possibility in the next reporting period of results that differ from estimates cannot be ruled out, and these could require even significant adjustments which at present cannot be predicted or estimated.

Transactions with subsidiaries and related parties

Transactions with subsidiaries and related parties are described in the Report on Operations, referred to herein.

New accounting standards, amendments and interpretations applied as from 1 January 2012

Since the 2012 Interim Financial Statements, the Group has adopted IAS 19 revised, in advance (published in the Gazzetta Ufficiale of 6 June 2012).

In this regard:

  • during the first time adoption of international accounting standards, the Company had chosen, from possible options allowed by IAS 19, to systematically recognise actuarial components in the income statement as “Employee costs”; under the “revised” version of this standard, endorsed by the European Commission, and in order to provide information which is reliable and more relevant, these components are directly recognised as "Valuation reserves" in shareholders' equity, with the reserves being immediately recognised in the "Statement of Comprehensive Income", without being recorded in the income statement; IAS 19 “revised" therefore excludes the possibility of systematically recognising actuarial components in the income statement; 
  • this amendment, considering the retrospective application required as of IAS 8, has given rise to the following effects on the financial statements:
    • the actuarial loss recognised in 2011, for adjustment to results of calculations made by the external actuary with reference to defined benefit obligations in relation to personnel, for an amount equal to 756 thousand euro was not recorded in the income statement for 2011, with a decrease in net profit for 2011 of 756 thousand euro and a concurrent positive change, of the same amount, under the item “Valuation reserves" included in the statement of financial position and the item “Actuarial Gains (Losses) relative to defined benefit plans”, recorded in the “Statement of Comprehensive Income” for 2011;
    • the actuarial loss arising from the adjustment to results of calculations made by the external actuary with reference to defined benefit obligations in relation to personnel, for an amount equal to 5,722 thousand euro was not recorded in the income statement for 2012, with an increase in net profit for 2012 equal to 4,473 thousand euro and a concurrent negative change, of the same amount, under the item “Valuation reserves" included in the statement of financial position and the item “Actuarial Gains (Losses) relative to defined benefit plans”, recorded in the “Statement of Comprehensive Income” for the first half of 2012.

Technical valuations are based on the assumptions outlined below:

  
Technical annual discount rate
3.25%
Annual rate of inflation
2.00%
Annual rate of increase in post-employment benefits
3.00%

To value the discount rate, the iBoxx Eurozone Corporates A index with a 10+ duration as of 31 December 2012 considered most significant in relation to the indicator used as of 31 December 2011 (AA with a 10+ duration) was adopted. This change was treated as a prospective change in estimate as provided for by IAS 8. Thus if the previous index had been used, the actuarial loss arising from the adjustment to results of calculations made by the external actuary with reference to employee benefit obligations would have been higher by 2,385 thousand euro.

  • the adoption of IAS 19 revised as described above did not give rise to changes in initial or final shareholders' equity, but only resulted in a different quantification of the items “Valuation reserves" and “Profit (Loss) for the year”, recorded in the "Statement of changes in shareholders' equity" and in the statement of financial position.

Accounting standards, amendments and interpretations which are not yet applicable and adopted in advance by the Group

The competent bodies of the European Union approved the following accounting standards and amendments:

  • On 20 December 2010 the IASB issued a minor amendment to IAS 12 – Income Taxes which requires businesses to measure deferred tax assets and liabilities arising from an asset based on the manner in which the carrying amount of the asset will be recovered (through continual use or sale). Consequently SIC-21 Income taxes – Recovery of Revalued Non-Depreciable Assets – will no longer be applicable. The amendment is applicable in a retrospective manner as of 1 January 2013. 
  • On 16 June 2011 the IASB issued an amendment to IAS 1 – Presentation of Financial Statements to require entities to group all items presented in "Other comprehensive income" based on whether they are potentially reclassifiable to profit or loss. The amendment is applicable to financial years started after or on 1 July 2012.
  • On 12 May 2011 the IASB issued standard IFRS 10 - Consolidated Financial Statements which will replace SIC-12 Consolidation - Special Purpose Entities and parts of IAS 27 - Consolidated and Separate Financial Statements that will be renamed Separate Financial Statements and will regulate the accounting treatment of investments in separate financial statements. The new standard deviates from existing standards by identifying the concept of control, according to a new definition, as the determinant factor for the purposes of consolidation of a company in the consolidated financial statements of the parent company. It also provides a guide for determining the existence of control where this is difficult to establish (effective control, potential votes, specific-purpose company, etc.). The standard is applicable in a retrospective manner as of 1 January 2014.
  • On 12 May 2011 the IASB issued the standard IFRS 11 – Joint arrangements which will replace IAS 31 – Interests in Joint Ventures and SIC-13 – Jointly Controlled Entities - Non-Monetary Contributions by Venturers. The new standard provides methods for identifying joint arrangements based on the rights and obligations under such arrangements rather than their actual legal form and establishes the equity method as the only accounting treatment for jointly controlled entities in consolidated financial statements. The standard is applicable in a retrospective manner as of 1 January 2014. After the issue the standard IAS 28 – Investments in Associates was amended to include jointly controlled entities within its field of application, as of the date the standard became effective.
  • On 12 May 2011 the IASB issued standard IFRS 12 – Disclosure on interests in other entities which is a new and complete standard on disclosures to provide on all types of investments including in subsidiaries, joint arrangements, associates, special purpose entities and unconsolidated structured entities. The standard is applicable in a retrospective manner as of 1 January 2014.
  • On 12 May 2011 the IASB issued the standard IFRS 13 – Fair Value Measurement which explains how fair value is to be determined for financial statements and applied to all the standards which require it or allow fair value measurement or the disclosure of information based on fair value. The standard shall be applicable as of 1 January 2013.  
  • On 16 December 2011, the IASB issued some amendments to IAS 32 – Financial Instruments: presentation, to clarify the use of some criteria for offsetting financial assets and liabilities contained in IAS 32. The amendments are applicable in a retrospective manner for years commencing from or after 1 January 2014.
  • On 16 December 2011, the IASB issued some amendments to IFRS 7 – Financial Instruments: Disclosures. The amendment requires information concerning the effects or potential effects of agreements offsetting financial assets and liabilities on balance sheet situation. Amendments are applicable for years commencing from or after 1 January 2013 and for interim periods subsequent to this date. Disclosure shall be provided in a retrospective manner.  

At the date of issue of these Consolidated Financial Statements, competent bodies of the European Union had not completed the approval process necessary for the application of these amendments and standards.

  • On 12 November 2009, the IASB published IFRS 9 – Financial Instruments which was later amended on 28 October 2010. The standard, which is applicable from 1 January 2015 in a retrospective manner, represents the first part of a process to entirely phase out and replace IAS 39 with new criteria for classifying and recognising financial assets and liabilities and for eliminating financial assets (derecognition) from the financial statements. In particular for financial assets, the new standard uses a single approach based on procedures for financial instruments' management and on characteristics of contract cash flows of financial assets to determine valuation criteria replacing the different regulations of IAS 39. For financial liabilities, the main change concerns the accounting treatment of fair value changes of a financial liability designated as a financial liability recognised at fair value in the income statement, in the case where the changes are due to a change in the creditworthiness of the liability. According to this new standard, the changes will be recognised as "Other comprehensive income" and will no longer be recorded in the income statement.

B) Segment reporting

3.Operating segment reporting

As stated in the 2011 Financial Statements, as from 24 January 2012 the Piaggio Group has an organisation based on geographic segments, EMEA and Americas, India and Asia Pacific 2W.

As previously illustrated in comments on the Piaggio Group financial position and performance, consolidated EBITDA was defined as the "Operating Income" gross of amortisation of intangible assets and depreciation of plant, property and equipment, as reported within the income statement.

Consolidated Income Statement/ Net employed capital by geographic segment
    EMEA and Americas India Asia Pacific 2W Total
Sales volumes (unit/000) 2012 278.2 224.7 112.6 615.5
2011 323.5 225.0 104.8 653.3
Change (45.3) (0.3) 7.8 (37.7)
Change % -14.0% -0.1% 7.5% -5.8%
 
Net turnover (millions of euro) 2012 837.3 357.8 211.1 1,406.2
2011 933.9 395.0 187.5 1,516.5
Change (96.6) (37.3) 23.6 (110.3)
Change % -10.3% -9.4% 12.6% -7.3%
 
Gross margin (millions of euro) 2012 254.0 82.2 81.6 417.9
2011 284.1 97.6 72.6 454.3
Change (30.1) (15.3) 9.0 (36.4)
Change % -10.6% -15.7% 12.5% -8.0%
 
EBITDA (millions of euro) 2012 176.2
2011 199.8
Change (23.6)
Change % -11.8%
 
EBIT (millions of euro) 2012 96.6
2011 104.8
Change (8.2)
Change % -7.8%
 
Net profit (millions of euro) 2012 42.1
2011 46.3
Change (4.2)
Change % -9.0%
 
Capital employed (millions of euro) 2012 541.9 151.8 138.1 831.7
2011 524.9 157.1 100.2 782.1
Change 17.0 (5.3) 37.9 49.6
Change % 3.2% -3.4% 37.9% 6.3%
 
Of which receivable (millions of euro) 2012 932.6 263.7 186.6 1,382.9
2011 946.4 249.5 160.7 1,356.6
Change (13.8) 14.2 25.9 26.2
Change % -1.5% 5.7% 16.1% 1.9%
 
Of which payable (millions of euro) 2012 390.8 111.9 48.5 551.2
2011 421.5 92.4 60.6 574.5
Change (30.8) 19.5 (12.0) (23.3)
Change % -7.3% 21.1% -19.9% -4.1%
   

C) Information on the Consolidated Income Statement

4. Net revenues €/000 1,406,152

Revenues are shown net of premiums recognised to customers (dealers).
This item does not include transport costs, which are recharged to customers (€/000 24,958) and invoiced advertising cost recoveries (€/000 5,091), which are posted under other operating income.
The revenues for disposals of Group core business assets essentially refer to the marketing of vehicles and spare parts on European and non-European markets.

Revenues by geographic segment

The breakdown of revenues by geographical segment is shown in the following table:

2012 2011 Changes
  Amount % Amount % Amount %
In thousands of Euros
EMEA and Americas 837,255 59.54 933,897 61.58 (96,642) -10.35
India 357,795 25.44 395,047 26.05 (37,252) -9.43
Asia Pacific 2W 211,102 15.01 187,519 12.37 23,583 12.58
Total 1,406,152 100.00 1,516,463 100.00 (110,311) -7.27
 

In 2012 net sales revenues decreased on the whole compared to figures for the previous year. Increases on Asian markets partially offset the downturns in India and Europe.

5. Costs for materials €/000 835,352

These totalled €/000 835,352 compared to €/000 904,060 in 2011.

The percentage of costs accounting for net sales went down, decreasing from 59.6% in 2011 to 59.4% in the current period, following the reduction in engines purchased from external sources. The following table details the content of this financial statement item:

2012 2011 Change
In thousands of Euros
Raw, ancillary materials, consumables and goods 818,503 902,689 (84,186)
Change in inventories of raw, ancillary materials, consumables and goods 6,886 (4,573) 11,459
Change in work in progress of semifinished and finished products 9,963 5,944 4,019
Total costs for purchases 835,352 904,060 (68,708)
 

This item includes €/000 32,802 for costs relative to purchases of scooters from the Chinese subsidiary Zongshen Piaggio Foshan, which are sold on European and Asian markets.

6. Costs for services and leases and rental costs €/000 249,934

Below is a breakdown of this item:

2012 2011 Change
In thousands of Euros
Employee costs 19,998 19,121 877
External maintenance and cleaning services 8,101 7,380 721
Energy, telephone and telex 21,568 18,926 2,642
Postal expenses 528 686 (158)
Commissions payables 588 610 (22)
Advertising and promotion 27,709 31,012 (3,303)
Technical, legal and tax consultancy and services 30,294 32,687 (2,393)
Company boards operating costs 2,171 2,114 57
Insurance 3,854 4,019 (165)
Outsourced manufacturing 15,446 20,972 (5,526)
Transport costs (vehicles and spare parts) 40,050 43,192 (3,142)
Sundry commercial expenses 16,052 17,342 (1,290)
Expenses for public relations 2,381 2,242 139
Product warranty costs 12,145 10,305 1,840
Quality-related events 6,143 10,478 (4,335)
Bank costs and factoring charges 5,662 6,926 (1,264)
Lease and rental costs 18,179 16,834 1,345
Other 15,155 18,045 (2,890)
Insurance from Group companies 51 66 (15)
Services from companies of the Group 2,107 1,892 215
Lease and rental costs of Group companies 1,752 1,635 117
Total costs for services 249,934 266,484 (16,550)
 

The reduction was caused by a decrease in volumes of assets and by the manufacture of aluminium components for engines becoming an internal process in April 2012, following the acquisition of Tecnocontrol.
Costs for leases and rentals include lease rentals for business properties of €/000 9,532, as well as lease payments for car hire, computers and photocopiers.
The item “Other” includes costs for temporary work of €/000 644.

7. Employee costs €/000 223,419

As already indicated, published data relative to the previous year, have been restated to make them uniform with current data.
As regards employee costs, €/000 685 were recorded, relative to stock option costs, as required by international accounting standards, as well as charges connected with the mobility plans for the Pontedera, Noale and Martorelles production sites (in the latter case, costs do not take into account the restructuring stage which began on 15 February 2013).
The reduction during the year is due, among others, to a considerable part of variable costs related to incentive systems for personnel at all levels, not being included, due to personnel failing to reach their objectives.

 

2012 2011 Change
In thousands of Euros
Salaries and wages 163,377 172,697 (9,320)
Social security contributions 43,097 48,122 (5,025)
Post-employment benefits 8,681 8,892 (211)
Other costs 8,264 18,645 (10,381)
Total 223,419 248,356 (24,937)
 

Below is a breakdown of the headcount by actual number and average number:

LevelAverage number20122011Change
Senior management   95 100 (5)
Middle Management   574 504 70
White collars   2,202 2,100 102
Manual labour   5,477 5,033 444
Total   8,348 7,737 611

LevelNumber as of31.12.201231.12.2011Change
Senior management   96 97 (1)
Middle Management   573 515 58
White collars   2,214 2,127 87
Manual labour   5,246 4,880 366
Total   8,129 7,619 510
 

Movements in employee numbers in the two periods are compared below:

Level As of 31/12/2011 Incoming Leavers Relocations As of 31/12/2012
Senior management 97 2 (5) 2 96
Middle Management 515 92 (55) 21 573
White collars 2,127 381 (282) (12) 2,214
Blue collars 4,880 4,394 (4,017) (11) 5,246
Total (*) 7,619 4,869 (4,359) 0 8,129
(*) of which fixed-term contracts 1,917 4,324 (4,118) (92) 2,031
   

The increase in employees is mainly due to the new two-wheeler plant in India.
Average employee numbers were affected by seasonal workers in the summer (on fixed-term employment contracts).
In fact the Group uses fixed-term employment contracts to handle typical peaks in demand in the summer months.

Distribution of the workforce by geographic segment as of 31 December 2012

distribution-of-the_0.gif

8. Amortisation/depreciation and impairment costs €/000 79,621

Amortisation and depreciation for the period, divided by category, is shown below:

Property, plant and equipment: 2012 2011 Change
In thousands of Euros
Buildings 4,497 4,095 402
Plant and equipment 15,742 14,075 1,667
Industrial and commercial equipment 14,849 15,198 (349)
Other assets 1,913 1,851 62
Total depreciation of tangible fixed assets 37,001 35,219 1,782
 

Intangible assets: 2012 2011 Change
In thousands of Euros
Development costs 21,373 28,315 (6,942)
Industrial Patent and Intellectual Property Rights 15,626 21,512 (5,886)
Concessions, licences, trademarks and similar rights 4,823 9,039 (4,216)
Other 798 928 (130)
Total amortisation of intangible fixed assets 42,620 59,794 (17,174)
 

As set out in more detail in the paragraph on intangible assets, as of 1 January 2004, goodwill is no longer amortised, but tested annually for impairment.
The impairment test carried out as of 31 December 2012 confirmed the full recoverability of the amounts recorded in the financial statements.
The decrease in the item amortisation of intangible assets is due to particularly high figures for the previous year related to measures to renew the range and also to the changed useful life of the Aprilia and Moto Guzzi brands, to which reference is made in the comment on the specific item of assets.

9. Other operating income €/000 101,298

This item consists of:

2012 2011 Change
In thousands of Euros
Operating grants 2,316 3,492 (1,176)
Increases in fixed assets from internal work 39,084 38,804 280
Other revenue and income:
- Rent receipts 348 522 (174)
- Capital gains on assets and investments 425 6,095 (5,670)
- Sale of miscellaneous materials 891 1,058 (167)
- Recovery of transport costs 24,958 25,318 (360)
- Recovery of advertising costs 5,091 8,244 (3,153)
- Recovery of sundry costs 5,590 6,364 (774)
- Compensation 1,014 954 60
- Compensation for quality-related events 2,833 5,424 (2,591)
- Licence rights and know-how 2,295 3,268 (973)
- Sponsorship 3,793 3,417 376
- Other income 12,660 19,602 (6,942)
Total other operating income 101,298 122,562 (21,264)
 

The decrease in other operating income is mainly due to a reduction in assets.

Operating grants mainly refer to government and EU funding for research projects. €/000 441 of these grants refers to the benefit arising from tax receivables for research and development activities as provided for by article 1 sections 280-284 of Law no. 296/2006 (2007 Budget) amended by Law 244/2007 (2008 Budget). The grants are recognised in profit or loss, with reference to the amortisation and depreciation of capitalised costs for which the grants were received.
Capital gains on assets in 2011 basically included those relative to the sale of property in Lugnano.

10. Other operating costs €/000 22,540

This item consists of:

2012 2011 Change
In thousands of Euros
Allocation for future risks 1,944 331 1,613
Total allocations for risks 1,944 331 1,613
    
Allocation for product warranties 12,379 12,041 338
Total other allocations 12,379 12,041 338

Duties and taxes not on income 4,347 2,257 2,090
Various subscriptions 945 922 23
Capital losses from disposal of assets 7 83 (76)
Miscellaneous expenses 1,227 2,294 (1,067)
Losses on receivables 198 1,299 (1,101)
Total sundry operating expenses 6,724 6,855 (131)

Impairment of receivables in working capital 1,493 1,096 397
Total impairment 1,493 1,096 397
Total 22,540 20,323 2,217
 

The increase is mainly related to the increase in the items “non-income taxes" and “allocation for future risks” only partially offset by the reduction in losses on receivables and miscellaneous expenses.

11. Income/(loss) from investments €/000 3,530 

Net income from investments refers to €/000 3,550 relative to the equity valuation of the investment in the Zongshen Piaggio Foshan joint venture, €/000 15 relative to dividends from minority investments and €/000 – 35 relative to the equity valuation of investments in affiliated companies.

12. Net financial income/(borrowing costs) €/000 (32,253)

Below is the breakdown of borrowing costs and income:

2012 2011 Change
In thousands of Euros
Income:
- Interest receivable from affiliated companies
- Interest receivable from clients 142 147 (5)
- Bank and post office interest payable 824 2,284 (1,460)
- Interest payable on financial receivables 509 597 (88)
‘ –Interest on hedging 494 177 317
- Other 47 882 (835)
Total financial income 2,016 4,087 (2,071)
 

 20122011Change
In thousands of euro
Borrowing costs payable to affiliated companies 300 103 197
Borrowing costs paid to others:
- Interest payable on bank accounts 2,167 638 1,529
- Interest payable on debenture loans 14,672 13,246 1,426
- Interest payable on bank loans 8,551 8,315 236
- Interest payable to other lenders 2,799 3,051 (252)
- Cash discounts to clients 553 867 (314)
- Bank charges on loans 2,151 463 1,688
- Hedging costs - 184 (184)
- Borrowing costs from discounting back post employment benefits 2,001 2,262 (261)
- Interest payable on lease agreements 180 205 (25)
- Other 235 2,519 (2,284)
Total borrowing costs Vs others 33,309 31,750 1,559
Total borrowing costs 33,609 31,853 1,756
 

2012 2011 Change
In thousands of Euros
Exchange gains 11,016 13,149 (2,133)
Exchange losses 11,676 14,081 (2,405)
Total net exchange gains/(losses) (660) (932) 272
Net financial income (borrowing costs)(32,253)(28,698)(3,555)

The balance of financial income (borrowing costs) in 2012 was negative by €/000 32,253, registering an increase compared to the sum of €/000 28,698 of the previous year. This change was affected by the increase in debt along with an increase in costs and charges for debt refinancing. In 2012, borrowing costs amounting to €/000 6,920 were capitalised, in compliance with IAS 23.

13. Taxes €/000 25,787

As already indicated, published data relative to the previous year, have been restated to make them uniform with current data. The item "Income taxes" is detailed below:

2012 2011 Change
In thousands of Euros
Current taxes 31,388 39,024 (7,636)
Deferred tax liabilities (5,601) (6,712) 1,111
Total 25,787 32,312 (6,525)
 

Taxes for 2012 were equal to €/000 25,787, and account for 38.0% of profit before tax. In 2011, taxes were equal to €/000 32,312, and accounted for 41.1% of profit before tax.

The major decrease compared to 2011 is due to lower profit before tax and to the recognition of deferred tax assets on temporary differences that will be cancelled in future years.

Reconciliation in relation to the theoretical rate is shown below:

2012
In thousands of Euros
Profit before tax 67,861
Theoretical rate 27.5%
Theoretical income taxes 18,662
 
Tax effect arising from the difference in foreign tax rates and theoretical Italian rates 8,305
Effect arising from changes in Profit before tax due to the application of tax regulations (2,082)
Tax effect arising from deferred tax assets for time changes and tax losses (3,629)
Tax effect arising from deferred tax liabilities allocated for time changes (2,031)
Tax effect arising from taxes on income produced abroad 2,632
Other differences (276)
Expenses (income) from the Consolidated Tax Convention (22)
Income taxes referred to previous years 465
Tax effect arising from tax benefits (5,935)
Tax on the distribution of dividends 6,312
Regional production tax and other local taxes 3,386
 
Income taxes recognised in the financial statement 25,787
 

Theoretical tax rates were determined applying the corporate tax rate in effect in Italy (27.5%) to profit before tax. The effect arising from the rate of regional production tax and other taxes paid abroad was determined separately, as these taxes are not calculated on the basis of earnings before tax.

14. Gain/(loss) from assets held for disposal or sale €/000 0

At the end of the reporting period, there were no gains or losses from assets held for disposal or sale.

15. Earnings per share

Earnings per share are calculated as follows:

2012 2011
Net income €/000 42,074 46,260
Earnings attributable to ordinary shares €/000 42,074 46,260
Average number of ordinary shares in circulation at 371,793,901 371,793,901
Earnings per ordinary share 0.113 0.124
Adjusted average number of ordinary shares 372,348,319 374,048,592
Diluted earnings per ordinary share 0.113 0.124

The potential effects deriving from stock option plans were considered when calculating diluted earnings per share. As already indicated, published data relative to the previous year, have been restated to make them uniform with current data.

D) Information on the Consolidated Statement of Financial Position - Assets

16. Intangible assets €/000 660,968

The table below shows the breakdown of intangible assets as of 31 December 2012 and 31 December 2011, as well as movements during the period.

Development costs Patent rights Concessions, licences and trademarks Goodwill Other Assets under development and advances Total
In thousands of Euros       
Historical cost 102,694 200,320 148,296 557,322 4,908 43,803 1,057,343
Provisions for write-down 0
Accumulated amortisation (57,297) (160,811) (75,961) (110,382) (3,472) (407,923)
Assets as of 31/12/2011 45,397 39,509 72,335 446,940 1,436 43,803 649,420
Investments 14,641 15,786 591 28,556 59,574
Transitions in the period 15,075 2,914 41 (18,030)
Amortisation (21,373) (15,626) (4,823) (798) (42,620)
Disposals (6) (27) 0 0 (7) (40)
Write-downs 0
Exchange differences (790) (226) (10) (1,598) (2,624)
Other movements (2,884) 130 12 0 (2,742)
Total changes 4,663 2,951 (4,823) 0 (164) 8,921 11,548
Historical cost 104,710 217,857 148,283 557,322 5,643 52,724 1,086,539
Provisions for write-down 0
Accumulated amortisation (54,650) (175,397) (80,771) (110,382) (4,371) (425,571)
Assets as of 31/12/2012 50,060 42,460 67,512 446,940 1,272 52,724 660,968
 

The breakdown of intangible assets for the previous and under construction is as follows:

Value as of 31 December 2012 Value as of 31 December 2011 Change
For the period Under construction and advances Total For the period Under construction and advances Total For the period Under construction and advances Total
In thousands of Euros
R&D costs 50,060 49,158 99,218 45,397 39,986 85,383 4,663 9,172 13,835
Patent rights 42,460 3,095 45,555 39,509 3,697 43,206 2,951 (602) 2,349
Concessions, licences and trademarks 67,512 67,512 72,335 72,335 (4,823) 0 (4,823)
Goodwill 446,940 446,940 446,940 446,940 0 0 0
Other 1,272 471 1,743 1,436 120 1,556 (164) 351 187
Total 608,244 52,724 660,968 605,617 43,803 649,420 2,627 8,921 11,548
 

Increases mainly refer to the capitalisation of development costs for new products and new engines, as well as the purchase of software.

Development costs €/000 99,218

Development costs include costs for products and engines in projects for which there is an expectation, for the period of the useful life of the asset, to see net sales at such a level in order to allow the recovery of the costs incurred. This item also includes assets under construction for €/000 49,158 that represent costs for which the conditions for capitalisation exist, but in relation to products that will go into production in future years.
Costs for the development of new projects capitalised during 2012 mainly refer to new models of the Vespa 946 and the New Vespa LX, to the new Piaggio X10 and Moto Guzzi California and the new Lem and 1,400 cc engines.
Borrowing costs relative to loans for long-term product development are capitalised as a part of the cost of the actual assets.
Development costs included under this item are amortised on a straight line basis over 5 years (founding products) or 3 years, in consideration of their remaining useful life.
During 2012, development costs of approximately 19.1 million euro were recognised directly in profit or loss.

Industrial Patent and Intellectual Property Rights €/000 45,555

This item comprises software for €/000 13,567 and patents and know-how. It includes assets under construction for €/000 3,095.
Patents and know-how refer mainly to Vespa vehicles, the GP 800, MP3, RSV4, MP3 Hybrid and 1200cc engine and to the NT3 prototype. Increases for the period mainly concern software and implementation of the SRM platform in India and Vietnam and installation of SAP in Indonesia.
Industrial patent and intellectual property rights costs are amortised over three years.

Trademarks, concessions and licences €/000 67,512

The item Concessions, Licences, Trademarks and similar rights, is broken down as follows:

As of 31 December 2012 As of 31 December 2011 Change
In thousands of euros
Guzzi trademark 22,750 24,375 (1,625)
Aprilia trademark 44,702 47,895 (3,193)
Minor brands 60 65 (5)
Total trademarks 67,512 72,335 (4,823)
 

As of 31 December 2012, the residual useful life of the Moto Guzzi and Aprilia brands was revised, in compliance with IAS 38, section 104 (as of 31/12/2011, the residual useful life for both brands was 8 years). In particular, the revision of the residual useful life is based on the assumption related to the potential and future economic benefits arising from the considerable investments made in recent years by the Piaggio Group to renew the range of Moto Guzzi and Aprilia products that change the expectations and potential of future economic benefits related to the industrial and commercial use of both brands. As provided for by IAS/IFRS, the residual useful life of the Moto Guzzi and Aprilia brands was therefore extended to 2026, changing the annual depreciation allowance calculated on the residual net carrying amount. This change was applied on an annual and forward-looking basis starting from 2012, as provided for by IAS 8.

The accounting effects are as follows:

Aprilia trademark Moto Guzzi trademark
Expected useful life
Previous valuation Up to 2019 Up to 2019
New valuation Up to 2026 Up to 2026
Annual amortisation
€/000 Previous valuation 5,987 3,047
New valuation 3,193 1,625
Annual charge of deferred taxes
€/000 Previous valuation (794) (955)
New valuation (423) (509)
Annual net impact on the Income Statement
€/000 Previous valuation 5,193 2,092
New valuation 2,770 1,116
Difference 2,423 976
 

Goodwill €/000 446,940

In order to respond to market demand more effectively and efficiently, keep a steady focus on product specifics and create organisational and operational synergies to optimise costs, the Group, as already referred to in the 2011 Financial Statements, and as from 24 January 2012, has an organisation based on geographic segments, establishing the new CGUs Emea and Americas, India and Asia Pacific 2W.

EMEA and Americas India Asia Pacific 2W Total
In thousands of Euros        
31. 12. 2012 305,311 109,695 31,934 446,940
31.12.2011 305,311 109,695 31,934 446,940
 

As specified in the section on accounting standards, from 1 January 2004 goodwill is no longer amortised, but is tested annually or more frequently for impairment if specific events or changed circumstances indicate the possibility of it having been impaired, in accordance with the provisions of IAS 36 Impairment of Assets (impairment test).
The possibility of reinstating booked values is verified by comparing the net book value of individual cash generating units with the recoverable value (usage value). This recoverable value is represented by the present value of future cash flows which, it is estimated, will be derived from the continual use of goods referring to cash generating units and by the final value attributable to these goods.
The recoverability of goodwill is verified at least once per year (as of 31 December), even in the absence of indicators of impairment losses.
The main sostituire assumptions used by the Group to determine future financial flows, relative to a four-year period, and the consequent recoverable value (value in use) refer to:

a. the use of 2013 Budget figures (approved by the Board of Directors on 17 December 2012) and management estimates for data relative to 2014-2016;

b. the WACC discount rate.

In particular, to discount cash flows, the Group adopted a discount rate (WACC) which differs based on different cash generating units. This reflects market valuations of the fair value of money and takes account of specific risks of activities and the geographic segment in which the cash generating unit operates. The average discount rate of the Group, net of taxes, is equal to 10.3%.
In the future cash flows discounting model, a final value is entered at the end of the cash flow projection period, to reflect the residual value each cash-generating unit should produce. The final value represents the current value, at the last year of the projection, of all subsequent cash flows calculated as perpetual income, and was determined using a growth rate (g rate) which differed by CGU, to reflect the different growth potentials of each CGU.

EMEA and Americas India Asia Pacific 2W
WACC 8.25% 11.33% 11.61%
G 1.5% 2.0% 2.0%
 

Analyses did not identify any impairment losses. Therefore no impairment was recognised in consolidated data as of 31 December 2012.
In addition, and on the basis of information in the document produced jointly by the Bank of Italy, Consob and Isvap (the insurance watchdog) no. 2 of 6 February 2009, the Group conducted sensitivity analysis of test results in relation to changes in basic assumptions (use of the growth rate in producing the final value and discount rate) which affect the value in use of cash generating units.
In all cases, the value in use of the Group was higher than the net carrying amount tested.

Given that the recoverable value was estimated, the Group cannot ensure that there will be no impairment losses of goodwill in future financial periods.
Given the current market crisis, the various factors utilised in the estimates could require revision; the Piaggio Group will constantly monitor these factors as well as the existence of impairment losses.

The item Goodwill arises from the greater value paid compared to the corresponding portion of shareholders' equity of companies in which the Group has investments on purchase, minus relative amortisation charges up to 31 December 2003. During first-time adoption of IFRSs, the Company opted not to retroactively apply IFRS 3 - Business Combinations to acquisitions of companies that took place before 1 January 2004; as a result, the goodwill generated on acquisitions prior to the date of transition to IFRSs was maintained at the previous value, determined according to Italian accounting standards, subject to assessment and recognition of any impairment losses.

For all the transactions listed below, the difference between the carrying amount of the investment and the net book value has been attributed to goodwill.

The transactions which gave rise to this item are:

  • the acquisition by MOD S.p.A. of the Piaggio & C. Group, completed during 1999 and 2000 (net value as of 1st January 2004: €/000 330,590);
  • the acquisition, completed in 2001, by Piaggio & C. S.p.A. of 49% of the company Piaggio Vehicles Pvt. Ltd from the partner Greaves Ltd (net value as of 1 January 2004: €/000 5,192). This is inaddition to the subsequent acquisition by Simest S.p.A. of a 14.66% stake in the share capital of Piaggio Vehicles Pvt. Ltd;
  • the acquisition, by Piaggio & C. S.p.A., of 100% of Nacional Motor S.A. in October 2003, at a price of €/000 35,040 with goodwill net of amortisation of €/000 31,237 as of 1 January 2004;
  • the acquisition, by Piaggio & C. S.p.A. of 100% of Aprilia S.p.A. in December 2004.

As part of the agreements for the acquisition of Aprilia, the company issued warrants and financial instruments in favour of Banks acting as creditors with respect to Aprilia and the selling shareholders; these could be exercised in periods determined by the respective regulations as of the date of approval of the consolidated financial statements as of 31 December 2007.
The initial purchase cost adjustment relating to the payment of Warrants and EMH Financial Instruments equal to €/000 70,706 was entered as goodwill.

Other intangible assets €/000 1,743

These totalled €/000 1,743 and mainly consist of charges sustained by Piaggio Vietnam.

17. Property, plant and equipment €/000 321,015

The table below shows the breakdown of plant, property and equipment as of 31 December 2012 and 31 December 2011, as well as movements during the period.

 

Land Buildings Plant and equipment Equipment Other assets Assets under development and advances Total
In thousands of Euros       
Historical cost 31,586 131,760 335,935 471,529 43,343 51,516 1,065,669
Reversals 0
Provisions for write-down (1,339) (1,339)
Accumulated depreciation (46,950) (266,346) (439,050) (37,113) (789,459)
Assets as of 31/12/2011 31,586 84,810 69,589 31,140 6,230 51,516 274,871
Investments 1,847 5,006 9,612 1,011 60,916 78,392
Transitions in the period 13,908 32,930 3,039 1,426 (51,303) 0
Depreciation (4,497) (15,742) (14,849) (1,913) (37,001)
Disposals 0 (399) (64) (43) (32) (538)
Impairment 0 0
Exchange differences (1,106) (2,709) (13) (147) (842) (4,817)
Acquisition of Tecnocontrol 2,113 6,456 1,142 68 9,779
Other movements 324 221 (133) (83) 0 329
Total changes 0 12,589 25,763 (1,266) 319 8,739 46,144
Historical cost 31,586 148,663 375,802 483,825 44,456 60,255 1,144,587
Reversals 0
Provisions for write-down (1,427) (1,427)
Accumulated depreciation (51,264) (280,450) (452,524) (37,907) (822,145)
Assets as of 31/12/2012 31,586 97,399 95,352 29,874 6,549 60,255 321,015
 

The breakdown of plant, property and equipment for the period and under construction is as follows:

Value as of 31 December 2012 Value as of 31 December 2011 Change
For the period Under construction and advances Total For the period Under construction and advances Total For the period Under construction and advances Total
In thousands of Euros
Land 31,586 31,586 31,586 31,586 0 0 0
Buildings 97,399 14,806 112,205 84,810 18,253 103,063 12,589 (3,447) 9,142
Plant and equipment 95,352 31,460 126,812 69,589 24,155 93,744 25,763 7,305 33,068
Equipment 29,874 13,189 43,063 31,140 8,493 39,633 (1,266) 4,696 3,430
Other assets 6,549 800 7,349 6,230 615 6,845 319 185 504
Total 260,760 60,255 321,015 223,355 51,516 274,871 37,405 8,739 46,144
 

The item Plant, property and equipment was affected by the acquisition of the company Tecnocontrol. The effects are indicated in a specific row and concern a value of €/000 2,113 for Buildings, €/000 6,456 for Plant and Machinery, €/000 1,142 for Equipment and €/000 68 for Other assets. For more details, see the comments on Corporate Structure in the Report on Operations.
Plant, property, and equipment mainly refer to Group production facilities in Pontedera (Pisa), Noale (Venice), Mandello del Lario (Lecco), Barcelona (Spain), Baramati (India) and Vinh Phuc (Vietnam).
Increases principally concern moulds for new vehicles launched in the period, the construction of the new spare parts warehouse at Pontedera, completion of the Vespa plant in India and development of the new engines plant in Vietnam. Borrowing costs relative to loans for the construction of assets that are long-term prior to being ready for use are capitalised as a part of the cost of the actual assets.

Land €/000 31,586

Land is not depreciated. Land mainly refers to Group production facilities in Pontedera (Pisa), Noale (Venice), Mandello del Lario (Lecco) and Barcelona (Spain). The item also includes land at Pisa which was transferred in December 2009 by the Parent Company to a property fund, consolidated on a line-by-line basis.

Buildings €/000 112,205

The item Buildings, net of accumulated depreciation, comprises:

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Industrial buildings 96,517 83,971 12,546
Ancillary buildings 477 564 (87)
Light constructions 405 275 130
Assets under construction 14,806 18,253 (3,447)
Total 112,205 103,063 9,142
 

Industrial buildings refer to Group production facilities in Pontedera (Pisa), Noale (Venice), Mandello del Lario (Lecco), Barcelona (Spain), Baramati (India) and Vinh Phuc (Vietnam). The item also includes a building at Pisa which was transferred in December 2009 by the Parent Company to a property fund, consolidated on a line-by-line basis.
As of 31 December 2012, the net values of assets held under leases were as follows:

As of 31 December 2012
In thousands of Euros
Mandello del Lario site (land and building) 13,239
Total 13,239
 

Future lease rental commitments are detailed in note 32.
Buildings are depreciated on a straight-line basis using rates considered suitable to represent their useful life.
Production buildings are depreciated on the basis of rates between 3% and 5%, while lightweight constructions are depreciated using rates between 7% and 10%.

Plant and equipment €/000 126,812

The item Plant and equipment, net of accumulated depreciation, consists of:

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
General plants 69,407 49,398 20,009
Automatic machinery 6,913 3,535 3,378
Furnaces and sundry equipment 733 864 (131)
Other 18,299 15,792 2,507
Assets under construction 31,460 24,155 7,305
Total 126,812 93,744 33,068
 

Plant and equipment refer to Group production facilities in Pontedera (Pisa), Noale (Venice), Mandello del Lario (Lecco), Barcelona (Spain), Baramati (India) and Vinh Phuc (Vietnam).
The “Other” item mainly includes non-automatic machinery and robotic centres.

Plant and equipment are depreciated using the following rates:

  • non-specific plants: 10%;
  • specific plant and non-automatic equipment: 10%;
  • specific plant and automatic equipment: 17.5%;
  • furnaces and sundry equipment: 15%;
  • robotic work centres: 22%.

Assets under construction amount to €/000 31,460.

Equipment €/000 43,063

The item Equipment, equal to €/000 43,063, mainly refers to production equipment of Piaggio & C. S.p.A., Nacional Motor S.A., Piaggio Vehicles Pvt. Ltd. and Piaggio Vietnam Co Ltd already being depreciated and assets under construction for €/000 13,189.
Main investments in equipment concerned moulds for new vehicles launched during the year or scheduled to be launched in the first half of next year, moulds for new engines and specific equipment for assembly lines.
Industrial and commercial equipment is depreciated using rates considered appropriate by Group companies to represent its useful life and in particular:

  • testing and monitoring equipment: 30%;
  • miscellaneous and small-scale equipment: 25%.

Other plant, property and equipment €/000 7,349

As of 31 December 2012 the item Other assets comprised the following:

   As of 31 December 2012    As of 31 December 2011    Change 
 In thousands of Euros        
 EDP systems    829    1,012   (183) 
 Office furniture and equipment    3,734    3,625   109 
 Vehicles    1,446    1,345   101 
 Other    540    248   292 
 Assets under construction    800    615   185 
 Total   7,349   6,845   504 

Reversals of assets

The Parent Company still has assets subject to impairment reversals in compliance with specific regulations or during merger operations.
The table below gives detailed figures for financial statement items and with reference to the legal provision or merger operation.

Reversals Law 575/65 and 72/83 Reversals for merger 1986 Econ. Reversals 1988 Reversals Law 413/91 Revers. in departure of article 2425 Reversals for merger 1990 Reversals for merger 1996 Reversals Law 242/2000 Total Revers.
In thousands of euro
Property, plant and equipment
Industrial buildings 480 - 584 415 120 1,668 1,549 - 4,816
Plant and equipment 133 263 - - - 42 - 1,930 2,368
Industrial and commercial equipment - 331 - - - 2,484 - 3,438 6,253
Office furniture and equipment - 58 - - - 101 - - 159
Electronic office equipment - - - - - 27 - - 27
Transport equipment - - - - - 13 - - 13
Tangible assets total 613 652 584 415 120 4,335 1,549 5,368 13,636
Intangible assets
Aprilia trademark - - - - - 21,691 - 25,823 47,514
Guzzi trademark 103 - - - 258 - - - 361
Intangible assets total 103 - - - 258 21,691 - 25,823 47,875
General total 716 652 584 415 378 26,026 1,549 31,191 61,511
 

Warranties

As of 31 December 2012, the Group had buildings encumbered by mortgage liens in favour of financing institutions to secure loans obtained in previous years, of which the balance to repay is €/000 123.

18. Investment Property €/000 0

As of 31 December 2012 no investment property was held.

19. Investments €/000 6,049

The Investments heading comprises:

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Interests in joint ventures 5,838 2,288 3,550
Investments in affiliated companies 211 194 17
Total 6,049 2,482 3,567
 

The increase in the item interests in joint ventures refers to the equity valuation of the investment in the Zongshen Piaggio Foshan Motorcycles Co. Ltd. joint venture.
The value of investments in affiliated companies was adjusted during the year to the corresponding value of shareholders' equity.

Investments in Joint Ventures €/000 5,838

Joint venture Carrying amount as of 31 December 2012
In thousands of Euros
Accounted for using the equity method:
Zongshen Piaggio Foshan Motorcycles Co. Ltd – China 5,838
Total joint ventures 5,838
 

The investment in Zongshen Piaggio Foshan Motorcycles Co. Ltd was classified under the item “joint ventures” in relation to agreements made in the contract signed on 15 April 2004 between Piaggio & C. S.p.A. and its historical partner Foshan Motorcycle Plant, and the Chinese company Zongshen Industrial Group Company Limited.
The investment of Piaggio & C. S.p.A. in Zongshen Piaggio Foshan Motorcycles is equal to 45% of which 12.5% is held through the direct subsidiary Piaggio China Company Ltd.. The carrying amount of the investment is equal to €/000 5,838 and reflects shareholders' equity pro-quota adjusted to take into account the measurement criteria adopted by the Group, as well as the recoverable value determined during impairment testing by the Parent Company.
The table below summarises main financial data of the joint ventures:

Zongshen Piaggio Foshan Motorcycle Co. Financial Statements as of 31 December 2012
In thousands of euro 45%*
Working capital 3,069
Total assets 5,622
Net Capital Employed 8,691
Provisions 343
Consolidated debt 858
Shareholders’ equity 7,490
Total sources of financing 8,691
* Group ownership

Investments in Associates €/000 211

This item comprises:

Affiliated companies Carrying amount as of 31 December 2011 Revers. Write-down Carrying amount as of 31 December 2012
In thousands of Euros
Accounted for using the cost method:
Immsi Audit S.c.a.r.l. 10 10
S.A.T. S.A. – Tunisia 0 0
Depuradora D'Aigues de Martorelles S.C.C.L. 3 52 55
Pontech Soc. Cons. a.r.l. – Pontedera 181 (35) 146
Total affiliated companies 194 52 (35) 211
 

The value of investments in affiliated companies was adjusted during the year to the corresponding value of shareholders' equity.

20. Other non-current financial assets €/000 13,047

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Financial receivables due from third parties 30 32 (2)
Fair Value of hedging derivatives 12,854 11,639 1,215
Investments in other companies 163 165 (2)
Total 13,047 11,836 1,211
 

The item "Fair value of hedging derivatives" refers to €/000 9,937 from the fair value of the cross currency swap relative to a private debenture loan, to €/000 2,819 from the fair value of the cross currency swap relative to a medium-term loan of the Indian subsidiary and to €/000 98 from the fair value of the cross currency swap relative to a medium-term loan of the Vietnamese subsidiary. For more details, see attachment H - Information on financial instruments.
The value of investments in other companies decreased by €/000 2 following the disposal of investments in Sviluppo Italia Liguria (- 5 €/000) and increase in the increase in the investment in IVM (+ 3 €/000).

Their breakdown is as follows:

Other companies: Carrying amount as of 31 December 2011 Increases Disposals Carrying amount as of 31 December 2012
In thousands of Euros
Accounted for using the cost method:
Sviluppo Italia Liguria S.c.p.a. 5 (5) 0
Consorzio Pisa Ricerche 76 76
A.N.C.M.A. – Rome 2 2
GEOFOR S.p.A. – Pontedera 47 47
ECOFOR SERVICE S.p.A. – Pontedera 2 2
Mitsuba Italia SpA 0 0
Consorzio Fiat Media Center – Turin 3 3
S.C.P.S.T.V. 21 21
IVM 9 3 12
Total other companies 165 3 (5) 163
 

21. Current and non-current tax receivables €/000 19,787

Receivables due from tax authorities consist of:

  As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
VAT receivables 16,412 26,873 (10,461)
Income tax receivables 1,636 645 991
Other receivables due from the public authorities 1,739 703 1,036
Total tax receivables 19,787 28,221 (8,434)
 

Non-current tax receivables amounted to €/000 1,195 compared to €/000 976 as of 31 December 2011, while current tax receivables amounted to €/000 18,592 compared to €/000 27,245 as of 31 December 2011, mainly due to the decrease in VAT receivables of the Parent Company and Indian subsidiary. The item “other receivables due from the public administration" mainly includes the advance payment of regional production tax.

22. Deferred tax assets €/000 36,714

Deferred tax assets total €/000 36,714, up compared to €/000 32,843 as of 31 December 2011. During 2012, deferred tax assets increased considerably, due to the registration of deferred taxes on temporary differences that will be cancelled in future years and on tax losses that will be offset against future taxable income.

As part of measurements to define deferred tax assets, the Group mainly considered the following:

1.tax regulations of countries where it operates, the impact of regulations in terms of temporary differences and any tax benefits arising from the use of previous tax losses;

2.the taxable income expected for each company, in the mid term, and the economic and tax effects arising from implementation of the organisational structure.

In view of these considerations, and with a prudential approach, it was decided to not wholly recognise the tax benefits arising from losses that can be carried over and from temporary differences.

As of 31 December 2012  Amount of temporary
differences
Tax rate Tax effect Recognised Not
recognised
In thousands of Euros
 
  6,463 27.5/31.4% 2,001
  334 20.00% 67
  1,516 36.87% 559
Provisions for risks 8,313   2,627    
  12,278 31.40% 3,855
  190 30.00% 57
  81 38.40% 31
  152 25.00% 38
Provision for product warranties 12,700   3,981    
 
 
  11,184 27.50% 3,076
  170 20.00% 34
  440 27.50% 121
  7 38.40% 3
  555 36.87% 205
Provisions for bad debts 12,356   3,438    
 
  29,929 31.40% 9,398
  426 7.50% 32
  3,885 31.40% 1,220
  264 38.40% 101
  372 20.00% 74
  3,133 36.87% 1,155
  71 20.00% 14
Provisions for obsolete stock 38,079   11,995    
 
(16,242) 27.5/31.4% (5,085)
3,936 30% 1,181
663 33.33% 221
230 32.56% 75
7,322 33.99% 2,489
307 20.00% 61
81 23.00% 19
87 25.00% 22
  185 38.40% 71
  301 20.00% 60
  2,957 7.50% 222
  3,601 19.00% 684
  200 25.00% 50
39 30.00% 12
  6,112 36.87% 2,254
  171 100.00% 171
  5 20.00% 1
  41 17.00% 7
  125 27.50% 34
Other changes 10,123   2,548    
 
Total for provisions and other changes 81,571   24,588 12,296 12,291
       
Piaggio & C 87,951 27.50% 24,187
Piaggio Indonesia 937 25.00% 234
Nacional Motor 18,614 30.00% 5,584
Piaggio Japan 2,586 36.10% 934
Piaggio Group of Americas 29,777 36.87% 10,979
Derbi Racing SL 8,529 30.00% 2,559
Total out of tax losses 148,394   44,477 24,418 20,059
 

23. Trade receivables €/000 63,107

As of 31 December 2012 current trade receivables amounted to €/000 63,079 compared to €/000 65,560 as of 31 December 2011.
At the same date, non-current trade receivables amounted to €/000 28.

Their breakdown was as follows:

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Trade receivables 62,161 63,107 (946)
Receivables due from Group companies valued at equity 946 2,408 (1,462)
Receivables due from affiliated companies - 45 (45)
Total 63,107 65,560 (2,453)
 

Receivables due from Group companies valued at equity comprise amounts due from Zongshen Piaggio Foshan Motorcycles.

The item "Trade receivables" comprises receivables referring to normal sale transactions, recorded net of the provision for bad debts of €/000 26,177.

Movements of provisions were as follows:

  
In thousands of Euros
Opening balance as of 1 January 2012 26,124
Increases for allocations 1,255
Decreases for use (1,180)
Other changes (22)
Closing balance as of 31 December 2012 26,177
 

The Group sells a large part of its trade receivables with and without recourse. Piaggio has signed contracts with some of the most important Italian and foreign factoring companies as a move to optimise the monitoring and the management of its trade receivables, besides offering its customers an instrument for funding their own inventories, for factoring classified as without the substantial transfer of risks and benefits. On the contrary, for factoring without recourse, contracts have been formalised for the substantial transfer of risks and benefits. As of 31 December 2012 trade receivables still due, sold without recourse totalled €/000 66,242.

Of these amounts, Piaggio received payment prior to natural expiry, of €/000 64,516.

As of 31 December 2012, advance payments received from factoring companies and banks, for trade receivables sold with recourse totalled €/000 19,179 with a counter entry recorded in current liabilities.

24. Other current and non-current receivables €/000 51,082

Other receivables recorded under non-current assets totalled €/000 13,781 compared to €/000 15,165 as of 31 December 2011, whereas those recorded under current assets are equal to €/000 37,301 against €/000 28,028 as of 31 December 2011. They comprise the following:

 

Other non-current receivables: As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Receivables due from Group companies 138 138 0
Receivables due from affiliated companies 234 267 (33)
Prepaid expenses 10,643 12,265 (1,622)
Advances to employees 84 99 (15)
Security deposits 443 324 119
Receivables due from others 2,239 2,072 167
Total non-current portion 13,781 15,165 (1,384)
 

Receivables due from Group companies comprise amounts due from AWS do Brasil.
Receivables due from affiliated companies regard amounts due from the Fondazione Piaggio (Foundation).

Other current receivables: As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Receivables due from the Parent Company 6,359 6,259 100
Receivables due from Group companies valued at equity 194 140 54
Receivables due from affiliated companies 57 57 0
Accrued income 631 2,941 (2,310)
Prepaid expenses 8,162 2,026 6,136
Advance payments to suppliers 5,503 2,543 2,960
Advances to employees 2,136 576 1,560
Fair Value of hedging derivatives 987 (987)
Security deposits 263 203 60
Receivables due from others 13,996 12,296 1,700
Total current portion 37,301 28,028 9,273
 

Receivables due from the Parent Company regard the assignment of tax receivables that took place within the group consolidated tax procedure.
Receivables due from Group companies valued at equity comprise amounts due from Zongshen Piaggio Foshan.
Receivables due from affiliated companies are amounts due from the Fondazione Piaggio and Immsi Audit.

25. Inventories €/000 221,086

This item comprises:

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Raw materials and consumables 97,750 103,126 (5,376)
Provisions for write-down (13,352) (13,152) (200)
Net value 84,398 89,974 (5,576)
Work in progress and semifinished products 20,678 23,246 (2,568)
Provisions for write-down (852) (852) 0
Net value 19,826 22,394 (2,568)
Finished products and goods 143,049 150,649 (7,600)
Provisions for write-down (26,264) (26,160) (104)
Net value 116,785 124,489 (7,704)
Advances 77 131 (54)
Total 221,086 236,988 (15,902)
 

26. Other current financial assets €/000 1,260

This item comprises:

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Locked-up deposits 1,260 - 1,260
Total 1,260 0 1,260
 

This item refers to the collection of monies from the sale of a licence in France, which according to local legislation, is currently in the form of a bank deposit pending the expiry of the quarterly period indicated by the law for any claimants.

27. Cash and cash equivalents €/000 86,110

The item, which mainly includes short-term and on demand bank deposits, is broken down as follows:

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Bank and postal deposits 71,424 151,394 (79,970)
Cash on hand 59 52 7
Securities 14,627 441 14,186
Total 86,110 151,887 (65,777)
 

The item Securities refers to deposit agreements entered into by the Indian subsidiary to effectively use temporary liquidity.

28. Assets held for sale €/000 0

As of 31 December 2012, there were no assets held for sale.

29. Breakdown of assets by geographic segment

As regards the breakdown of assets by geographic segment, reference is made to the section on segment reporting.

30. Receivables due after 5 years €/000 0

As of 31 December 2012, there were no receivables due after 5 years.

Information on the Consolidated Statement of Financial Position - Liabilities

31. Share capital and reserves €/000 439,873

Share capital €/000 199,504

During the period, share capital changed, following the purchase of 4,882,441 treasury shares. This is broken down as follows:

  
In thousands of Euros
Subscribed and paid up capital 205,941
Treasury shares purchased as of 31 December 2011 (3,732)
Share capital as of 1 January 2012 202,209
 
Purchase of treasury shares (2,705)
 
Share Capital as of 31 December 2012 199,504
 

Therefore, as of 31 December 2012 the Parent company held 11,726,521 treasury shares, equal to 3.15% of the share capital.
In accordance with international accounting standards, the acquisitions were recognised as a decrease of shareholders' equity.

Share premium reserve €/000 3,493

The share premium reserve as of 31 December 2012 was unchanged and equal to €/000 3,493.

Legal reserve €/000 14,593

The legal reserve increased by €/000 2,352 as a result of the allocation of earnings for the last period.

Other reserves €/000 (14,797)

This item consists of:


As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros   
Translation reserve (16,902) (13,087) (3,815)
Stock option reserve 13,385 12,700 685
Financial instruments’ fair value reserve (3,269) (1,510) (1,759)
Termination benefit adjustment reserve (3,145) 1,447 (4,592)
IFRS transition reserve (5,859) (5,859) 0
Total other reserves (15,790) (6,309) (9,481)
Consolidation reserve 993 993 0
Total (14,797) (5,316) (9,481)
 

As already indicated, following the adoption of IAS 19 Revised, in advance, published data relative to the half-year period of the previous year have been restated to make them uniform with current data.
The financial instruments fair value provision is negative and refers to the effects of cash flow hedge accounting in foreign currencies, interest and specific business transactions. These transactions are described in full in the note on financial instruments.
The consolidation reserve was generated after the acquisition - in the month of January 2003 - of the shareholding in Daihatsu Motor Co. Ltd in P&D S.p.A., equal to 49% of the share capital, by Piaggio & C. S.p.A.

Distributed dividends €/000 29,877

In May 2012, dividends amounting to €/000 29,877 were paid. In May 2011, dividends amounting to €/000 25,684 had been paid.

Performance reserve €/000 235,835

Non-controlling interests capital and reserves €/000 1,245

The end of period amount refers to minority interest in Piaggio Hrvatska Doo.

Other net profit (losses) €/000 (6,257)

The value of Other net income (losses) is composed as follows

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
The effective portion of net profit (losses) on cash flow hedging instruments generated in the period (1,069) (1,510) 441
The effective portion of net profit (losses) on cash flow hedging instruments restated in the consolidated income statement
(690) 227 (917)
Effective portion of profits (losses) on cash flow hedges (1,759) (1,283) (476)
Actuarial gains (losses) relative to defined benefit plans (4,498) 763 (5,261)
Total gains (losses) (6,257) (520) (5,737)
         

32. Current and non-current financial liabilities €/000 491,616

During 2012, the Group’s overall debt reported a decrease of €/000 7,845, dropping from €/000 499,461 to €/000 491,616. Total financial debt of the Group, net of the fair value measurement of financial derivatives to hedge foreign exchange risk and interest rate risk as of 31 December 2012 decreased by €/000 8,576.

Financial liabilities as of 31 December 2012 Financial liabilities as of 31 December 2011 Change
  Current Non-current Total Current Non-current Total Current Non-current Total
In thousands of Euros 
Gross financial debt 115,042 364,168 479,210 170,261 317,525 487,786 (55,219) 46,643 (8,576)
Fair Value of hedging derivatives 12,406 12,406 11,675 11,675 731 731
Total 115,042 376,574 491,616 170,261 329,200 499,461 (55,219) 47,374 (7,845)
 

This reduction is mainly attributable to the repayment of loan instalments due, using available resources, partially offset by the granting of new loans. The Group’s net debt totalled €/000 391,840 as of 31 December 2012 compared to €/ 000 335,899 as of 31 December 2011, as can be seen in the table on net financial debt included in the financial statements. Non-current financial liabilities totalled €/000 364,168 against €/000 317,525 as of 31 December 2011, whereas current financial liabilities totalled €/000 115,042 compared to €/000 170,261 as of 31 December 2011.

The attached tables summarise the breakdown of financial debt as of 31 December 2012 and as of 31 December 2011, as well as changes for the period.

Book value
As of
31.12.2011
Repayments  New issues  Reclassification to the current portion  Exchange delta  Other changes  Book value
As of
31.12.2012
In thousands of euros
Non-current portion:
Bank financing 112,768 78,412 (32,174) 694 577 160,277
Bonds 191,859 1,691 193,550
Other medium-/long-term loans:
of which leasing 6,745 (936) 5,809
of which amounts due to other lenders 6,153 (1,621) 4,532
Total other loans 12,898 0 0 (2,557) 0 0 10,341
 
Total 317,525 0 78,412 (34,731) 694 2,268 364,168

Book value
As of
31.12.2011
Repayments  New issues  Reclassification to the current portion  Exchange delta  Other changes  Book value
As of
31.12.2012
In thousands of euros
Current portion:
Current account overdrafts 85 1,885 1,970
Current account payables 22,864 36,423 686 59,973
Bonds -
Payables due to factoring companies 20,085 (906) 19,179
Current portion of medium-/long-term loans:
- of which leasing 894 (894) 936 936
- of which due to banks 122,428 (123,434) 32,174 195 31,363
- of which amounts due to other lenders 3,905 (3,905) 1,621 1,621
Total other loans 127,227 (128,233) 0 34,731 0 195 33,920
   
Total 170,261 (129,139) 38,308 34,731 686 195 115,042
 

The breakdown of the debt is as follows:

  Book value
As of 31.12.2012
Book value
As of 31.12.2011
Nominal value
As of 31.12.2012
Nominal value
As of 31.12.2011
In thousands of Euros         
Bank financing 253,583 258,145 253,699 259,031
Debenture loan 193,550 191,859 201,799 201,799
Other medium-/long-term loans:
of which leasing 6,745 7,639 6,745 7,639
of which amounts due to other lenders 25,332 30,143 25,332 30,143
Total other loans 32,077 37,782 32,077 37,782
Total 479,210 487,786 487,575 498,612
 

The table below shows the debt servicing schedule as of 31 December 2012:

  Nominal value as of 31/12/2012 Amounts falling due within 12 months Amounts falling due after 12 months Amounts falling due in
    2014 2015 2016 2017 Beyond
In thousands of Euros                 
Bank financing 253,699 93,422 160,277 33,381 42,445 31,395 20,384 32,672
- including opening of credit lines and bank overdrafts 61,943 61,943 0
- of which medium/long-term bank loans 191,756 31,479 160,277 33,381 42,445 31,395 20,384 32,672
Debenture loan 201,799 0 201,799 150,000 9,669 42,130
Other medium-/long-term loans:
- of which leasing 6,745 936 5,809 5,809
- of which amounts due to other lenders 25,332 20,800 4,532 1,630 1,639 312 314 637
Total other loans 32,077 21,736 10,341 7,439 1,639 312 314 637
Total 487,575 115,158 372,417 40,820 44,084 181,707 30,367 75,439
     

The following table analyses financial debt by currency and interest rate.

Book value
As of 31.12.2011
Book value
As of 31.12.2012
Notional value
As of 31.12.2012
Applicable
interest rate
In thousands of Euros  
Euro 438,248 429,052 437,417 4.54%
     
Indian Rupee 12,069 25,291 25,291 10.33%
Indonesian Rupiah 1,619 2,989 2,989 8.00%
US Dollar 17,003 3,032 3,032 2.25%
Vietnamese Dong 14,605 14,894 14,894 18.22%
Japanese Yen 4,242 3,952 3,952 1.90%
Total currencies other than euro 49,538 50,158 50,158 11.38%
Total 487,786 479,210 487,575 5.24%
 

Medium and long-term bank debt amounts to €/000 191,640 (of which €/000 160,277 non-current and €/000 31,363 current) and consists of the following loans:

  • a €/000 75,000 medium-term loan, granted by the European Investment Bank, to fund investments in Research & Development, planned for 2009-2012. The loan will fall due in February 2016 and has an amortisation quota of 14 six-monthly instalments at a variable rate linked to the six-month Euribor plus a spread of 1.323%. The contractual terms envisage loan covenants but exclude guarantees. It should be noted that, with reference to the 2012 period, these parameters were comfortably met. An interest rate swap was taken out for this loan, to hedge the interest rate risk (for more details, see attachment H);
  • a €/000 60,000 medium-term loan, granted by the European Investment Bank, to fund investments in Research & Development, planned for 2013-2015. The loan will fall due in December 2019 and has an amortisation quota of 11 six-monthly instalments at a fixed rate of 2.723%. The contractual terms envisage loan covenants but exclude guarantees. It should be noted that, in reference to the 2012 period, these parameters were comfortably met;
  • a €/000 25,211 medium-term loan for USD/000 36,850 granted by International Finance Corporation (a World Bank member) to the subsidiary Piaggio Vehicles Private Limited with interest accruing at a variable rate. The loan falls due on 15 July 2019 and will be paid back based on an amortisation quota of six-monthly instalments starting from January 2014. The contract terms require a guarantee provided by the Parent Company and, in line with market practice, compliance with financial parameters. It should be noted that, with reference to the 2012 period, these parameters were comfortably met. Cross currency swaps were taken out for this loan, to hedge the exchange risk and interest rate risk (for more details, see attachment H);
  • a €/000 14,894 medium-term loan for USD/000 19,680 granted by International Finance Corporation to the subsidiary Piaggio Vietnam with interest accruing at a variable rate. The loan falls due on 15 January 2018 and will be paid back based on an amortisation quota of six-monthly instalments starting from January 2014.The contract terms require a guarantee provided by the Parent Company and, in line with market practice, compliance with financial parameters. It should be noted that, with reference to the 2012 period, these parameters were comfortably met.Cross currency swaps were taken out for this loan, to hedge the exchange risk and interest rate risk (for more details, see attachment H);
  • a medium-term revolving syndicated loan of €/000 884 (nominal value of €/000 1,000) granted by Monte dei Paschi di Siena in December 2011 and finalised in January 2012, as suspension conditions had been met. The loan, of a total value of €/000 40,000, is for 18 months minus one day and was undersigned to strengthen the liquidity position of the existing equivalent loans which are near maturity.
  • a €/000 6,250 five-year unsecured loan from GE Capital Interbanca stipulated in September 2008;
  • €/000 3,645 of loans from various banks pursuant to Italian Law no. 346/88 on subsidised applied research;
  • a €/000 4,556 loan from Banca Intesa granted pursuant to Italian Law no. 297/99 on subsidised applied research;
  • a €/000 1,200 eight-year subsidised loan from ICCREA in December 2008 granted under Italian Law 100/90;

The medium-term revolving syndicated loan of €/000 200,000 and the revolving loan of €/000 20,000 had been undrawn as of 31 December 2012.

The item Bonds for €/000 193,550 (nominal value of €/000 201,799) refers to:

  • €/000 142,109 (nominal value of €/000 150,000) relative to a high-yield debenture loan issued on 4 December 2009 for a nominal amount of €/000 150,000, falling due on 1 December 2016 and with a semi-annual coupon with fixed annual nominal rate of 7%. Standard & Poor’s and Moody’s assigned a BB- rating with a stable outlook and a Ba2 rating with a negative outlook respectively;
  • €/000 51,441 (nominal value of €/000 51,799) relative to a private debenture loan (US Private Placement) issued on 25 July 2011 for $/000 75,000 wholly subscribed by an American institutional investor, payable in 5 annual portions from July 2017, with a semi-annual coupon with fixed annual nominal rate of 6.50%. As of 31 December 2012, the fair value measurement of the debenture loan was equal to €/000 61,574. A cross currency swap was taken out for this debenture loan, to hedge the exchange risk and interest rate risk (for more details, see attachment H).  

The items Medium-/long-term bank debt and Bonds include loans which, in accounting terms, have been recognised on an amortised cost basis (revolving loan, high-yield debenture loan and private debenture loan). According to this criterion, the nominal amount of the liability is decreased by the amount of relative costs of issue and/or stipulation, in addition to any costs relating to refinancing of previous liabilities. The amortisation of these costs is determined on an effective interest rate basis, and namely the rate which discounts the future flows of interest payable and reimbursements of capital at the net carrying amount of the financial liability. Some liabilities were recognised at fair value, with relative effects recognised as profit and loss.

Medium-/long-term payables due to other lenders equal to €/000 12,898 of which €/000 10,341 due after the year and €/000 2,557 as the current portion, are detailed as follows:

  • a property lease for €/000 6,745 granted by Unicredit Leasing (non-current portion equal to €/000 5,809);
  • subsidised loans for a total of €/000 6,153 provided by the Italian Ministry of Economic Development and Italian Ministry of Education using regulations to encourage exports and investment in research and development (non-current portion of €/000 4,532).  

Financial advances received from factoring companies and banks, on the sale of trade receivables with recourse, total €/000 19,179.

33. Current and non-current trade payables €/000 393,152

As of 31 December 2012, non-current trade payables totalled €/000 259 against €/000 235 as of 31 December 2011, whereas current trade payables totalled €/000 392,893 compared to €/000 375,263 as of 31 December 2011.

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Amounts due to suppliers 375,770 356,595 19,175
Trade payables due to companies valued at equity 16,613 18,124 (1,511)
Amounts due to parent companies 769 779 (10)
Total 393,152 375,498 17,654
 

The growth is basically due to new business or supply chain financing agreements for trade payables.

34. Reserves (current and non-current portion) €/000 25,395

The breakdown and changes in provisions for risks during the period were as follows:

Balance as of 31 December 2011 Allocations Applications Reclassifications Delta exchange rate Balance as of 31 December 2012
In thousands of Euros
Provision for product warranties 14,735 12,379 (12,218) (60) 14,836
Provision for quality-related events 392 750 (353) 789
Risk provisions on investments 195 52 247
Provisions for contractual risks 3,993 (58) 3,935
Provisions for guarantee risks 76 (18) 58
Provision for tax risks 36 (19) 17
Other reserves for risks 6,117 1,194 (1,640) (116) (42) 5,513
Total 25,544 14,375 (14,306) (116) (102) 25,395
 

The breakdown between the current and non-current portion of long-term provisions is as follows:

Non-current portion As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Provision for product warranties 4,501 4,523 (22)
Provision for quality-related events 0 242 (242)
Risk provisions on investments 247 195 52
Provision for contractual risks 3,935 3,993 (58)
Other reserves for risks and charges 3,669 3,476 193
Total non-current portion 12,352 12,429 (77)
 

Current portion As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Provision for product warranties 10,335 10,212 123
Provision for quality-related events 789 150 639
Provisions for guarantee risks 58 76 (18)
Provision for tax risks 17 36 (19)
Other reserves for risks and charges 1,844 2,641 (797)
Total current portion 13,043 13,115 (72)
 

The product warranty provision relates to allocations for technical assistance on products covered by customer service which are estimated to be provided over the contractually envisaged warranty period. This period varies according to the type of goods sold and the sales market, and is also determined by customer take-up to commit to a scheduled maintenance plan.
The provision increased during the period by €/000 12,379 and €/000 12,218 was used in relation to charges incurred during the period.
The provision for quality-related events covers possible costs that could arise as a result of faulty components provided by suppliers. Allocations made during the year amounted to €/000 750.
Risk provisions for investments were set up to cover the portion of negative shareholders' equity of the subsidiaries Piaggio China Co. Ltd and AWS do Brasil, as well as charges that may arise from said.
The provision of contractual risks refers mainly to charges which may arise from the ongoing negotiation of a supply contract.
The provision for tax risks concerns council tax for the Scorzè site.
“Other provisions” include the provision for legal risks for €/000 3,511. The sum of €/000 381 was allocated to this provision during the year.

35. Deferred tax liabilities €/000 6,639

This item amounts to €/000 6,639 compared to €/000 9,852 as of 31 December 2011. The change is mainly related to the decrease in deferred taxes registered for reserves of the Indian subsidiary that will be taxed when they are transferred to the Parent Company.

36. Retirement funds and employee benefits €/000 50,470

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Retirement funds 1,101 1,191 (90)
Post-employment benefits provision 49,369 45,412 3,957
Total 50,470 46,603 3,867
 

Retirement funds comprise provisions for employees allocated by foreign companies and additional customer indemnity provisions, which represent the compensation due to agents in the case of the agency contract being terminated for reasons beyond their control. Uses refer to the payment of benefits already accrued in previous years, while allocations refer to benefits accrued in the period.

The item “Post-employment benefits provision”, comprising termination benefits of employees of Italian companies, includes post-employment benefits indicated in defined benefit plans.

Their breakdown was as follows:

  
In thousands of Euros
Opening balance as of 1 January 2012 45,412
Cost for the period 8,681
Interest cost 2,002
Actuarial (gain) or loss 5,722
Use and transfers of retirement funds (12,446)
Other movements (2)
Closing balance as of 31 December 2012 49,369
 

The economic/technical assumptions used by Group companies operating in Italy to discount the value are shown in the table below:

  
Technical annual discount rate
3.25%
Annual rate of inflation
2.00%
Annual rate of increase in post-employment benefits
3.00%

To value the discount rate, the iBoxx Eurozone Corporates A index with a 10+ duration as of 31 December 2012 considered most significant in relation to the indicator used as of 31 December 2011 (AA with a 10+ duration) was adopted. If the previous index had been used, the value of actuarial losses and the provision would have been higher by 2,385 thousand euro.
The subsidiary operating in Indonesia has provisions for employees identified as defined benefit plans. As of 31 December 2012, these provisions amounted to €/000 52.
With regard to the 2007-2009 incentive plan approved by the General Meeting of Shareholders on 7 May 2007, for executives of the Company or of its Italian and/or foreign subsidiaries, in compliance with article 2359 of the Italian Civil Code, as well as for directors having powers in the aforesaid subsidiaries ("2007-2009 plan") during the year 150,000 option rights expired.

As of 31 December 2012, 3,940,000 option rights had been assigned for a corresponding number of shares.

Detailed information on the 2007-2009 Plan is available in the documents published by the Issuer in accordance with article 84-bis of Consob Regulation on Issuers. These documents can be viewed on the institutional website www.piaggiogroup.com, under Investors / Financial Press Releases.

As previously mentioned in the section on consolidation principles, the cost of payments, corresponding to the present value of options which the company determined applying the Black-Scholes valuation model, that uses the average historical volatility of the share of the Company and average interest rate of loans with a maturity equal to the duration of the agreement, is recognised under employee costs on a straight line basis in the period between the date of assignment and date of accrual, with a counter entry directly recognised in shareholders' equity.

As required by Consob, the table below shows the options assigned to Board members, General Directors and Senior Management with strategic responsibilities:

Options held at the start of the period Options held at the end of the period
  Position No. of options Average exercise price Average maturity No. of options Average exercise price Average maturity
Gabriele Galli General
Manager
Finance
250,000 1.826 18/12/2014 250,000 1.826 18/12/2014

37. Current and non-current tax payables €/000 16,312

"Current tax payables" totalled €/000 15,757 as against €/000 20,920 as of 31 December 2011, whereas non-current tax payables amounted to €/000 555 compared to €/000 2,539 as of 31 December 2011.
Their breakdown was as follows:

As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Due for income taxes 4,285 5,763 (1,478)
Due for non-income tax 65 - 65
Tax payables for:
- VAT 3,076 5,217 (2,141)
- Tax withheld at source 5,079 5,496 (417)
- other 3,807 6,983 (3,176)
Total 11,962 17,696 (5,734)
Total 16,312 23,459 (7,147)
 

The item includes tax payables recorded in the financial statements of individual consolidated companies, set aside in relation to tax charges for the individual companies on the basis of applicable national laws.

Tax payables on non-income tax refer to taxes on the dividend distributed by the Indian subsidiary. Payables for withheld taxes made refer mainly to withheld taxes on employees’ earnings, on employment termination payments and on self-employed earnings.

38. Other payables (current and non-current) €/000 56,768

 

Non-current portion: As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Payables to employees 19 25 (6)
Guarantee deposits 2,003 332 1,671
Accrued liabilities 0
Deferred income 1,160 2,344 (1,184)
Fair Value of hedging derivatives 2,841 2,847 (6)
Other payables 400 400 0
Total non-current portion 6,423 5,948 475


 
Current portion: As of 31 December 2012 As of 31 December 2011 Change
In thousands of Euros
Payables to employees 19,133 25,772 (6,639)
Guarantee deposits 179 1,492 (1,313)
Accrued liabilities 8,450 15,424 (6,974)
Deferred income 1,206 1,315 (109)
Amounts due to social security institutions 8,827 9,719 (892)
Fair Value of hedging derivatives 1,521 961 560
Sundry payables due to affiliated companies 127 32 95
Sundry payables due to parent companies 60 43 17
Other payables 10,842 9,960 882
Total 50,345 64,718 (14,373)
 

Other payables included in non-current liabilities totalled €/000 6,423 against €/000 5,948 as of 31 December 2011, whereas other payables included in current liabilities totalled €/000 50,345 compared to €/000 64,718 as of 31 December 2011.
Amounts due to employees include the amount for holidays accrued but not taken of €/000 10,652 and other payments to be made for €/000 8,500.
Payables due to affiliated companies refer to various amounts due to the Fondazione Piaggio and Immsi Audit.
Payables to parent companies consist of payables to Immsi and Omniaholding.
The item Fair value of hedging derivatives refers to the fair value (€/000 2,841 non-current portion and €/000 1,137 current portion) of an interest rate swap for hedging, recognised on a cash flow hedge basis as provided for in IAS 39 (see attachment H) and the fair value of derivatives to hedge the foreign exchange risk of forecast transactions recognised on a cash flow hedge basis (€/000 384 current portion).
The item Accrued liabilities includes €/000 3,431 for interest on hedging derivatives and relative hedged items measured at fair value.

39. Breakdown of liabilities by geographic segment

As regards the breakdown of liabilities by geographic segment, reference is made to the section on segment reporting.

40. Payables due after 5 years

The Group has loans due after 5 years, which are referred to in detail in Note 32 Financial Liabilities.
With the exception of the above payables, no other long-term payables due after five years exist.

E) Transactions with related parties

The main business and financial relations of Group companies with related parties have already been described in the specific paragraph in the Report on Operations to which reference is made here. To supplement this information, the following table provides an indication by company of outstanding items as of 31 December 2012, as well as their contribution to the respective financial statement items.

Fondazione Piaggio Piaggio China AWS do Brasil Zongshen Piaggio Foshan IMMSI Audit Studio D’Urso Omniaholding IMMSI Total % of accounting item
In thousands of Euros           
Income statement
revenues from sales 591 591 0.04%
costs for materials 32,802 - 32,802 3.93%
costs for services, lease and rentals 32 - 41 760 94 57 2,926 3,910 1.56%
other operating income 1 364 60 50 475 0.47%
other operating costs 4 1 5 0.02%
borrowing costs 300 203 503 1.50%
 
Assets
other non-current receivables 234 138 372 2.70%
current trade receivables - 946 - - 946 1.50%
other current receivables 32 194 25 - 6,359 6,610 17.72%
 
Liabilities
financial liabilities falling due after one year 2,900 2,900 0.77%
current trade payables - 6 - 16,607 - - - 769 17,382 4.42%
other current payables 32 - - 1 94 16 44 187 0.37%
     

F) Commitments and risks

41. Guarantees provided

The main guarantees issued by banks on behalf of Piaggio & C. S.p.A in favour of third parties are listed below:

Type Amount €/000
Guarantee of BCC-Fornacette to Livorno Customs Authorities for handling Piaggio goods at Livorno Port 200
Guarantee of BCC-Fornacette issued for the Group to Poste Italiane – Rome to guarantee contract obligations for the supply of vehicles 1,321
Guarantee of BCC-Fornacette issued for the Group to Poste Italiane – Rome to guarantee contract obligations for the supply of vehicles 204
Guarantee of Banca Intesa San Paolo issued to the Ministry of the Interior of Algeria, to guarantee contract obligations for the supply of vehicles 140
Guarantee of Banca Intesa San Paolo issued to the Ministry of the Interior of Algeria, to guarantee contract obligations for the supply of vehicles 158
Guarantee of Monte dei Paschi di Siena issued to FoshanNanhai - China, for EUR 600,000 to guarantee contract obligations for the supply of vehicles
of which drawn 0
of which undrawn 600
Guarantee of Monte dei Paschi di Siena issued to Daihatsu for Yen 50,000,000, to guarantee contract obligations for the supply of vehicles
of which drawn 0
of which undrawn 440
Guarantee of Monte dei Paschi di Siena issued to Chen ShinRubber for EUR 300,000, to guarantee contract obligations for the supply of vehicles
of which drawn 0
of which undrawn 300
                                 

G) Non-recurrent transactions

During 2012 and 2011, the Group did not undertake significant non-recurrent transactions.

H) Information on financial instruments

This attachment provides information about financial instruments, their risks, as well as the sensitivity analysis in accordance with the requirements of IFRS 7, effective as of 1 January 2007.

As of 31 December 2012 and as of 31 December 2011 existing financial instruments were allocated as follows within the Piaggio Group's Consolidated Financial Statements:

    As of 31 December 2012 As of 31 December 2011 Change
Notes In thousands of Euros
  Assets
  Non-current assets      
20 Other financial assets 13,047 11,836 1,211
  of which financial receivables 30 32 (2)
  of which from the measurement of derivatives 12,854 11,639 1,215
  of which investments in other companies 163 165 (2)
     
  Current assets      
26 Other financial assets 1,260 0 1,260
  
  Liabilities
  Non-current liabilities      
32 Financial liabilities falling due after one year 376,574 329,200 47,374
  of which bonds 193,550 191,859 1,691
  of which bank financing 160,277 112,768 47,509
  of which leasing 5,809 6,745 (936)
  of which other lenders 4,532 6,153 (1,621)
  of which the fair value of hedging derivatives 12,406 11,675 731
  
  Current liabilities    
32 Financial liabilities falling due within one year 115,042 170,261 (55,219)
  of which bank financing 93,306 145,377 (52,071)
  of which leasing 936 894 42
  of which other lenders 20,800 23,990 (3,190)
     

Current and non-current liabilities

Current and non-current liabilities are covered in detail in the section on financial liabilities of the notes, where liabilities are divided by type and detailed by expiry date.

Financial risks 

The financial risks the Group is exposed to are liquidity risk, exchange risk, interest rate risk and credit risk.

The management of these risks is centralised and treasury operations take place in accordance with formal policies and guidelines which are applicable to all Group companies.

Liquidity risk and capitals management

The liquidity risk arises from the possibility that available financial resources are not sufficient to cover, in due times and procedures, future payments arising from financial and/or commercial obligations. To deal with these risks, cash flows and the Group’s credit line needs are monitored or managed centrally under the control of the Group’s Treasury in order to guarantee an effective and efficient management of the financial resources as well as optimise the debt’s maturity standpoint.
In addition, the Parent Company finances the temporary cash requirements of Group companies by providing direct short-term loans regulated in market conditions or guarantees.

As of 31 December 2012 the most important sources of financing irrevocable until maturity granted to the Parent Company were as follows:

  • a debenture loan of €/000 150,000 maturing in December 2016;
  • a debenture loan of €/000 75,000 maturing in July 2021;
  • a loan of €/000 75,000 maturing in February 2016;
  • a loan of €/000 60,000 maturing in December 2019;
  • a loan of €/000 6,250 maturing in September 2013.

Other Group companies also have the following irrevocable loans:

  • a loan of €/000 36,850 maturing in July 2019;
  • a loan of €/000 19,680 maturing in July 2018.  

As of 31 December 2012, the Group had a liquidity of €/000 86,110, €/000 259,000 of undrawn irrevocable credit lines and €/000 174,198 of revocable credit lines, as detailed below:

 

 As of 31 December 2012As of 31 December 2011
In thousands of Euros
Variable rate with maturity within one year - irrevocable until maturity 59,000 100,000
Variable rate with maturity beyond one year - irrevocable until maturity 200,000 4,100
Variable rate with maturity within one year - cash revocable 140,198 180,045
Variable rate with maturity within one year - with revocation for self-liquidating typologies 34,000 20,700
Total undrawn credit lines 433,198 304,845
 

Exchange Risk

The Group operates in an international context where transactions are conducted in currencies different from euro. This exposes the Group to risks arising from exchange rates fluctuations. For this purpose, the Group has an exchange rate risk management policy which aims to neutralise the possible negative effects of the changes in exchange rates on company cash-flows.

This policy analyses:

  • the exchange risk: the policy wholly covers this risk which arises from differences between the recognition exchange rate of receivables or payables in foreign currency in the financial statements and the recognition exchange rate of actual collection or payment. To cover this type of exchange risk, the exposure is naturally offset in the first place (netting between sales and purchases in the same currency) and if necessary, by signing currency future derivatives, as well as advances of receivables denominated in currency.

As of 31 December 2012, Piaggio & C. S.p.A. had forward purchase contracts (recognised on a regulation date basis):

  • for a value of CNY/000 14,200 corresponding to €/000 1,744 (valued at the forward exchange rate), with average maturity on 7 January 2013;
  • for a value of GBP/000 650 corresponding to €/000 792 (valued at the forward exchange rate), with average maturity on 29 January 2013;
  • for a value of JPY/000 270,000 corresponding to €/000 2,514 (valued at the forward exchange rate), with average maturity on 7 January 2013;
  • for a value of USD/000 1,450 corresponding to €/000 1,120 (valued at the forward exchange rate), with average maturity on 7 January 2013;    

and forward sales contracts:

  • for a value of CAD/000 370 corresponding to €/000 286 (valued at the forward exchange rate), with average maturity on 13 March 2013;
  • for a value of CNY/000 2,100 corresponding to €/000 258 (valued at the forward exchange rate), with average maturity on 7 January 2013;
  • for a value of GBP/000 620 corresponding to €/000 756 (valued at the forward exchange rate), with average maturity on 27 March 2013;
  • for a value of JPY/000 25,000 corresponding to €/000 242 (valued at the forward exchange rate), with average maturity on 31 January 2013;
  • for a value of SEK/000 1,600 corresponding to €/000 186 (valued at the forward exchange rate), with average maturity on 31 January 2013;
  • for a value of USD/000 2,890 corresponding to €/000 2,221 (valued at the forward exchange rate), with average maturity on 20 February 2013.  

Details of other operations ongoing at other Group companies are given below:

  • sales for USD/000 1,301 on the company Piaggio Vehicles Private Limited with average maturity on 18 February 2013;
  • the settlement exchange risk: arises from the conversion into euro of the financial statements of subsidiaries prepared in currencies other than the euro during consolidation. The policy adopted by the Group does not require this type of exposure to be covered.
  • the business risk: arises from changes in company profitability in relation to annual figures planned in the economic budget on the basis of a reference change (the "budget change") and is covered by derivatives. The items of these hedging operations are therefore represented by foreign costs and revenues forecast by the sales and purchases budget. The total of forecast costs and revenues is processed monthly and relative hedging is positioned exactly on the average weighted date of the economic event, recalculated based on historical criteria. The economic occurrence of future receivables and payables will occur during the budget year.

As of 31 December 2012, the Group had the following transactions to hedge the business risk:

  • for a value of CNY/000 249,500 corresponding to €/000 30,183 (valued at the forward exchange rate), with average maturity on 17 June 2013;

To hedge the business risk alone, cash flow hedging is adopted with the effective portion of profits and losses recognised in a specific shareholders' equity reserve. Fair value is determined based on market quotations provided by main traders.
As of 31 December 2012, the total fair value of hedging instruments for exchange risk recognised on an hedge accounting basis was negative by €/000 384. During 2012, losses were recognised in other components of the Statement of Comprehensive Income amounting to €/000 384 and losses from other components of the Statement of Comprehensive Income were reclassified to profit/loss for the year for €/000 583.

The net balance of cash flows during 2012 is shown below, divided by main currency:

 

Cash Flow     2012
In millions of euro 
Pound Sterling 24.2
Indian Rupee 52.3
Croatian Kuna 3.9
US Dollar 2.9
Canadian Dollar 5.4
Swiss Franc (2.2)
Vietnamese Dong 40.9
Chinese Yuan* (59.0)
Japanese Yen (15.5)
Total cash flow in foreign currency 52.9
* cash flow partly in Euro

In view of the above, an assumed appreciation/deprecation of 3% of the euro would have generated potential losses for €/000 1,538 and potential profits for €/000 1,633 respectively.

Interest rate risk

This risk arises from fluctuating interest rates and the impact this may have on future cash flows arising from financial assets and liabilities. The Group regularly measures and controls its exposure to interest rates changes and manages such risks also resorting to derivative instruments, mainly Interest Rate Swaps and Cross Currency Swaps, as established by its own management policies.

As of 31 December 2012, the following hedging derivatives were in use:

  • an interest rate swap to cover a variable rate loan for a nominal amount of €/000 117,857 (as of 31 December 2012 for €/000 75,000) granted by the European Investment Bank. The structure has fixed step-up rates, in order to stabilise financial flows associated with the loan; in accounting terms, the instrument is recognised on a cash flow hedge basis, with profits/losses arising from the fair value measurement allocated to a specific reserve in shareholders' equity; as of 31 December 2012, the fair value of the instrument was negative by €/000 3,978; sensitivity analysis of the instrument, assuming a 1% increase and decrease in the shift of the variable rates curve, shows a potential impact on Shareholders' Equity, net of the relative tax effect, equal to €/000 723 and €/000 -746 respectively;
  • a cross currency swap to hedge the private debenture loan issued by the Parent Company for a nominal amount of $/000 75,000. The purpose of the instrument is to hedge both the exchange risk and interest rate risk, turning the loan from US dollars to euro, and from a fixed rate to a variable rate; the instrument is accounted for on a fair value hedge basis, with effects arising from the measurement recognised as profit and loss. As of 31 December 2012, the fair value of the instrument was equal to €/000 9,938. The net economic effect arising from the recognition of the instrument and underlying private debenture loan is equal to €/000 301; sensitivity analysis of the instrument, and its underlying, assuming a 1% increase and decrease in the shift of the variable rates curve, showed a potential impact on the income statement, net of the relative tax effect, is negligible assuming constant exchange rates; whereas assuming a 1% reversal and write-down of exchange rates, sensitivity analysis identified a potential impact on the income statement, net of the relative tax effect, of €/000 -82 and €/000 83 respectively;
  • a cross currency swap to hedge a loan relative to the Indian subsidiary for $/000 36,850 granted by International Finance Corporation. The purpose of the instrument is to hedge the exchange risk and interest rate risk, turning the loan from US dollars to Indian Rupees, and a third of said loan from a variable rate to a fixed rate; As of 31 December 2012, the fair value of the instrument was equal to €/000 2,569. The sensitivity analysis of the instrument, and its underlying, assuming a 1% increase and decrease in the shift of the variable rates curve, showed a potential impact on the Income Statement, net of the relative tax effect of €/000 83 and €/000 -87 respectively, assuming constant exchange rates. Assuming a 1% reversal and write-down of the exchange rate of the Indian Rupee, sensitivity analysis of the instrument and its underlying identified a potential impact on the Income Statement, net of the relative tax effect, of €/000 -22 and €/000 22 respectively;
  • a cross currency swap to hedge a loan relative to the Vietnamese subsidiary for $/000 19,680 granted by International Finance Corporation. The purpose of the instrument is to hedge the exchange risk and partially hedge the interest rate risk, turning the loan from US dollars at a variable rate into Vietnamese Dong at a fixed rate, except for a minor portion (24%) at a variable rate. As of 31 December 2012, the fair value of the instrument was equal to €/000 (196). Sensitivity analysis of the instrument, and its underlying, assuming a 1% increase and decrease in the shift of the variable rates curve, showed a potential impact on the Income Statement, net of the relative tax effect, is €/000 204 and €/000 -211 respectively, assuming constant exchange rates; assuming a 1% reversal and write-down of the exchange rate of the Vietnamese Dong, sensitivity analysis of the instrument and its underlying identified a potential impact on the Income Statement, net of the relative tax effect, of €/000 -10 and €/000 10 respectively.

 

Fair Value
Piaggio & C. SpA 
Interest Rate Swap (3,978)
Cross Currency Swap 9,937
Piaggio Vehicles Private Limited 
Cross Currency Swap 2,569
Piaggio Vietnam 
Cross Currency Swap (196)
 

As of 31 December 2012, variable rate debt, net of financial assets and considering hedging derivatives, was equal to €/000 58,459. Consequently, a 1% increase or decrease in the Euribor above this net value would have generated greater or lower interest of €/000 585 per year.

Credit risk

The Group considers that its exposure to credit risk is as follows:

As of 31 December 2012 As of 31 December 2011
In thousands of Euros
Liquid assets 71,424 151,394
Securities 14,627 441
Financial receivables 1,260
Trade receivables 63,107 65,560
Total 150,418 217,395
 

The Group monitors or manages credit centrally by using established policies and guidelines. The portfolio of trade receivables shows no signs of concentrated credit risk in light of the broad distribution of our licensee or distributor network. In addition, most trade receivables are short-term. In order to optimise credit management, the Company has established revolving programmes with some primary factoring companies for selling its trade receivables without recourse in Europe and the United States.

Hierarchical fair value valuation levels

As regards financial instruments recorded in the balance sheet at fair value, IFRS 7 requires these values to be classified on the basis of hierarchical levels which reflect the significance of the inputs used in determining fair value. These levels are as follows:

  • level 1 – quoted prices for similar instruments;
  • level 2 – directly and indirectly observable market inputs other than Level 1 inputs;
  • level 3 – inputs not based on observable market data.

The table below shows the assets and liabilities valued at fair value as of 31 December 2012, by fair value measurement hierarchical level.

 

Level 1 Level 2 Level 3
In thousands of Euros
Financial assets
Hedging financial derivatives 12,756 98
Investments in other companies 163
Total 12,756 261
 
Financial liabilities
Hedging financial derivatives (250) (294)
Financial liabilities at fair value recognised as profit or loss. (103,766)
Other liabilities (4,362)
Total (108,378) (294)
   

Hierarchical level 3 includes items transferred from level 2 and refers to the measurement of the cross currency swap taken out for the Vietnamese subsidiary. This classification reflects the illiquidity of the local market, which does now allow for a valuation based on conventional criteria. If valuation techniques typical of liquid markets had been adopted, which is not the case for the Vietnamese financial market, derivatives would have had a negative fair value totalling €/000 3,786, rather than €/000 -196 (included under financial hedging instruments - level 3) and accrued liabilities on financial hedging instruments equal to €/000 1,002.

The following tables show Level 2 and Level 3 changes during 2012:

Level 2
In thousands of Euros
Balance as of 31 December 2011 (54,241)
Profit (loss) recognised in the consolidated income statement (583)
Increases/(Decreases) (40,751)
Level 3 reclassification (47)
Balance as of 31 December 2012 (95,622)
 

Level 3
In thousands of Euros
Balance as of 31 December 2011 0
Profit (loss) recognised in the consolidated income statement
Increases/(Decreases) (245)
Other changes 165
Level 2 reclassification 47
Balance as of 31 December 2012 (33)
   

I) Disputes 

Piaggio opposed the proceedings undertaken by Altroconsumo, opposing the alleged existence of a design defect and hazardous nature of the Gilera Runner first series, filing a specific technical appraisal. The trial judge rejected the claim, ordering Altroconsumo to pay Piaggio's legal fees. Following the appeal made by Altroconsumo, a technical appraisal was ordered to ascertain the existence of the design defect claimed by Altroconsumo. Following the results of the appraisal and hearing held on 18 December 2012, the Board informed the parties on 29 January 2013 that Altroconsumo's appeal had been upheld, ruling Piaggio to (i) inform owners of the hazardous nature of the product, (ii) publish the ruling of the Board in some newspapers and specialised magazines (iii) recall the product. The company is evaluating actions to take.

The Canadian Scooter Corp. (CSC), sole distributor of Piaggio for Canada, summoned Piaggio & C. S.p.A., Piaggio Group Americas Inc. and Nacional Motor S.A to appear before the Court of Toronto (Canada) to obtain compensation for damages sustained due to the alleged infringement of regulations established by Canadian law on franchising (the Arthur Wishart Act). Proceedings have been stopped while a settlement of the dispute is being defined.

By means of the deed of 3 June 2010, the Company took action to establish an arbitration board through the Arbitration Chamber of Milan, for a ruling against some companies of the Case New Holland Group (Italy, Holland and the US), to recover damages under contractual and non-contractual liability relating to the execution of a supply and development contract of a new family of utility vehicles (NUV). In the award notified to the parties on 3 August, the Board rejected the claims made by the Company. The Company has appealed against this award to the Appeal Court of Milan, which has established the first hearing for 4 June 2013.

Da Lio S.p.A., by means of a writ received on 15 April 2009, summoned the Company before the Court of Pisa to claim compensation for the alleged damages sustained for various reasons as a result of the termination of supply relationships. The Company appeared in court requesting the rejection of all opposing requests. Da Lio requested a joinder with the opposition concerning the injunction obtained by Piaggio to return the moulds retained by the supplier at the end of the supply agreement. Judgements were considered and a ruling issued pursuant to article 186ter of the Italian Code of Civil Proceedings, on 7 June 2011, ordering Piaggio to pay the sum of EUR 109,586.60, in addition to interest, relative to sums which were not disputed. During 2012, testimonial evidence was presented and the Judge postponed the continuation of the investigation to the hearing of 7 February 2013.

In June 2011 Elma srl, a Piaggio dealer since 1995, started two separate proceedings against the Company, claiming the payment of (i) approximately 2 million euro for alleged breach of the sole agency ensured by Piaggio for the Rome area and (ii) an additional 5 million euro as damages for alleged breach and abuse of economic dependence by the Company. Piaggio opposed the proceedings undertaken by Elma, fully disputing its claims and requesting a ruling that Elma pay sums still owing of approximately 966,000 euro.
During the proceedings, Piaggio requested payment of the bank guarantees issued in its favour by three banks against the risk of default by the dealer. Elma attempted to stop payment of the guarantees with preventive proceedings at the Court of Pisa (Pontedera section): the proceedings ended in favour of Piaggio that collected the amounts of the guarantees (over 400,000 euro). Trial proceedings have begun and the next hearing for the admission of evidence, will be held on 24 April 2013.
As regards the case, Elma has also brought a case against a former senior manager of the Company with the Court of Rome: Piaggio appeared in the proceedings, requesting, among others, that the case be moved to the Court of Pisa. The first hearing will be held on 18 March 2013.

In a writ received on 29 May 2007, Gammamoto S.r.l. in liquidation, a former Aprilia licensee in Rome, brought a case against the Company before the Court of Rome for contractual and non-contractual liability. The Company fully opposed the injunction disputing the validity of Gammamoto’s claims and objecting to the lack of jurisdiction of the Judge in charge. The Judge, accepting the petition formulated by the Company, declared its lack of jurisdiction with regards to the dispute. Gammamoto has continued proceedings through the Court of Venice. The Judge has admitted testimonial evidence and evidence for examination requested by the parties, establishing the hearing for the preliminary investigation on 12 November 2012. The next preliminary hearing will be held on 6 February 2013.

Leasys–Savarent S.p.A., summoned to appear before the Court of Monza by Europe Assistance in relation to the rental supply of Piaggio vehicles to the Italian Postal System, summoned the Company as a guarantee, also filing for damages against Piaggio for alleged breach of the supply agreement. The Court of Monza declared its lack of jurisdiction concerning the applications filed against Piaggio, and Leasys-Savarent therefore summoned Piaggio to appear before the Court of Pisa. The trial was suspended while awaiting the resolution of the dispute pending before the Court of Monza, which turned down the application of Leasys-Savarent. Leasys-Savarent continued proceedings through the Court of Pisa, applying only for damages against Piaggio. On the hearing of 5 October 2011, the parties requested the admission of preliminary briefs and the Judge deferred its decision. After making its decision, the Judge admitted some of the testimonial evidence requested and rejected the request for a Court-appointed expert. The hearing for the examination of evidence to be held on 26 June 2012 has been postponed to 20 March 2013.

Following the appeal made by the Company pursuant to article 700 of the Italian Code of Civil Proceedings, the Court of Naples, as a precautionary measure, issued an injunction against LML Italia S.r.l., a company distributing models of scooters in Italy manufactured by LML India Ltd, preventing it from using the “Piaggio”, “Vespa” and “Vespa PX” brands on its sales information, advertising and promotional materials, stating that the continual matching of LML products with the Vespa manufactured by Piaggio constituted grounds for unfair competition. This ruling was also confirmed in an appeal. Piaggio therefore obtained a ruling from the Court of Naples in its favour: the Court considered LML responsible for acts of unfair competition to the detriment of the Company and prohibited it from using Piaggio trademarks; the relative sentence was also published, as ruled by the Judge, in some newspapers and specialised magazines.

In August 2012, the Nigerian company Autobahn Techniques Ltd brought a case against Piaggio & C. S.p.a. and PVPL before the High Court of Lagos (Nigeria) claiming compensation for alleged damage, estimated as over 5 billion Naira (approximately 20 million euro), arising from the alleged breach by the Company of the exclusive distribution agreement signed between the parties in 2001. Piaggio appeared before the court, preliminarily claiming the lack of jurisdiction of the Nigerian Court to rule on the dispute due to the existence of an arbitration clause in the agreement. The next hearing, established to discuss the preliminary exceptions of Piaggio, will be held on 20 February 2013.

The amounts allocated by the Company for the potential risks deriving from the current dispute appear to be consistent with the predictable outcome of the disputes.

Tax disputes involving the Parent Company Piaggio & C. S.p.A. (hereinafter "the Company"), concern two appeals against tax assessments notified to the Company and relative to the 2002 and 2003 tax periods. These assessments originate from an audit by the Inland Revenue Office in 2007 at the Company, following findings in the Formal Notice of Assessment produced in 2002 after a general audit.
The Company has obtained a favourable ruling concerning these assessments, in both the first and second instance, and with reference to both tax periods.

For both cases, the Company has not considered it necessary to allocate provisions, in view of the positive opinions expressed by consultants appointed as counsel.

As regards the tax assessments notified on 31 January 2012, already indicated in the 2011 Financial Statements, the Company, also considering the moderate amounts, decided to settle the assessment, solely for the purposes of settling the dispute and without acknowledging the claims of the revenue office, paying the amount determined during the settlement process of 24 April 2012.

The main tax disputes of other Group companies concern P&D S.p.A. in liquidation, Piaggio Vehicles PVT Ltd and Piaggio France S.A..

More specifically, and with reference to P&D S.p.A., a dispute arose in relation to the tax assessment issued by the Inland Revenue Office for the 2002 tax year concerning VAT based on the audit made in 1999, with an outcome in favour of the company, with judgement in the second instance becoming final. Liquidation of the subsidiary was completed in December 2012.

With reference to the Indian subsidiary, some disputes concerning different tax years from 1998 to 2010 are ongoing relative to direct and indirect tax assessments and for a part of which, considering positive opinions expressed by consultants appointed as counsel, provisions have not been made in the financial statements. The Indian company has already partly paid the amounts contested, as required by local laws, that will be paid back when proceedings are successfully concluded in its favour.

As regards the French company, a favourable ruling was issued in December 2012 by the Commission Nationale des Impots directes et des taxes sur le chiffre d’affaires, the decision-making body ruling prior to legal proceedings in disputes with the French tax authorities concerning a general audit of the 2006 and 2007 periods. The French tax authorities however upheld its claims against the company. An appeal has therefore been made to the Tribunal Administratif (first instance) against the claims. The Company has not considered allocating provisions necessary, in view of the positive opinions expressed by consultants appointed as counsel, as well as the opinion of the above Commission.

L) Subsequent events

To date, no events have occurred after 31 December 2012 that make additional notes or adjustments to these Financial Statements necessary.

Report on Operations for significant events after 31 December 2012.  

M) Companies in which the Group has investments

42. Piaggio Group companies

In accordance with Consob resolution no. 11971 dated 14 May 1999, and subsequent amendments (article 126 of the Regulation), the list of the Group’s companies and major investments is provided below. The list presents the companies divided by type of control and method of consolidation.
The following are also shown for each company: the company name, the registered office, the country of origin and the share capital in the original currency, in addition to the percentage held by Piaggio & C. S.p.A. or by other subsidiaries.
In a separate column there is an indication of the percentage of voting rights at the ordinary general meeting should it be different from the investment percentage in the share capital.

List of companies included in the scope of consolidation on a line-by-line basis as of 31 December 2012

Company name Registered office Country Share capital Currency % Group ownership Held by % % votes
 
Parent company
PIAGGIO & C. S.P.A. Pontedera (Pisa) Italy 205,941,272.16 Euro  
 
Subsidiaries
Aprilia Brasil Industria de Motociclos S.A. Manaus Brazil 2,020,000.00 Reais 51% Aprilia World Service Holding do Brasil Ltda 51%  
Aprilia Racing s.r.l. Pontedera (Pisa) Italy 250,000.00 Euro 100% Piaggio & C. S.P.A. 100%  
Aprilia World Service Holding do Brasil Ltda. São Paulo Brazil 2,028,780.00 Reais 99.99995% Piaggio Group Americas Inc 99.99995%  
Atlantic 12- Property investment fund Milan Italy 11,293,012.00 Euro 100% Piaggio & C. S.P.A. 100%
Derbi Racing S.L. Barcelona Spain 3,006.00 Euro 100% Nacional Motor S.A. 100%  
Foshan Piaggio Vehicles Technology Research and Development Co Ltd Foshan City China 10,500,000.00 Rmb 100% Piaggio Vespa B.V. 100%
Nacional Motor S.A. Barcelona Spain 1,588,422.00 Euro 100% Piaggio & C. S.P.A. 100%  
Piaggio Advanced Design Center Corp. California USA 100,000.00 USD 100% Piaggio & C. S.P.A. 100%
Piaggio Asia Pacific PTE Ltd. Singapore Singapore 100,000.00 Sin$  100% Piaggio Vespa B.V. 100%  
Piaggio China Co. LTD Hong Kong China 12,500,000 auth. capital (12,100,000 subscribed and paid up) USD 99.99999% Piaggio & C. S.P.A. 99.99999%  
Piaggio Deutschland GmbH Kerpen Germany 250,000.00 Euro 100% Piaggio Vespa B.V. 100%  
Piaggio Espana S.L.U. Alcobendas Spain 426,642.00 Euro 100% Piaggio & C. S.P.A. 100%
Piaggio France S.A.S. Clichy Cedex France 1,209,900.00 Euro 100% Piaggio Vespa B.V. 100%
   

Company name Registered office Country Share capital Currency % Group ownership Held by % % votes
  
Piaggio Group Americas Inc New York USA 2,000.00 USD 100% Piaggio Vespa B.V. 100%
Piaggio Group Canada Inc. Toronto Canada 10,000.00 CAD 100% Piaggio Group Americas Inc 100%
Piaggio Group Japan Tokyo Japan 99,000,000.00 Yen 100% Piaggio Vespa B.V 100%
Piaggio Hellas S.A. Athens Greece 2,704,040.00 Euro 100% Piaggio Vespa B.V. 100%  
Piaggio Hrvatska D.o.o. Split Croatia 400,000.00 Kuna 75% Piaggio Vespa B.V. 75%  
Piaggio Limited Bromley Kent United Kingdom 250,000.00 Gbp 100% Piaggio Vespa B.V. 99.9996%  
            Piaggio & C. S.P.A. 0.0004%  
Piaggio Vehicles Private Limited Maharashtra India 340,000,000.00 Rupees 100% Piaggio & C. S.P.A. 99.999997%  
            Piaggio Vespa B.V. 0.000003%  
Piaggio Vespa B.V. Breda Holland 91,000.00 Euro 100% Piaggio & C. S.P.A. 100%  
Piaggio Vietnam Co Ltd Hanoi Vietnam 64,751,000,000.00 Dong 100% Piaggio & C. S.P.A. 63.5%
            Piaggio Vespa B.V. 36.5%  
PT Piaggio Indonesia Jakarta Indonesia 4,458,500,000.00 Rupiah 100% Piaggio & C. S.P.A. 1%  
            Piaggio Vespa B.V. 99%  
     

List of companies included in the scope of consolidation with the equity method as of 31 December 2012

 

Company name Registered office Country Share capital Currency % Group ownership Held by % % votes
 
Zongshen Piaggio Foshan Motorcycle Co. LTD. Foshan City China 29,800,000.00 USD 45% Piaggio & C. S.P.A.

Piaggio China Co. LTD
32.5%

12.5%
 
                                 

List of investments in affiliated companies as of 31 December 2012

Company name Registered office Country Share capital Currency % Group ownership Held by % % votes
 
Depuradora D’Aigues de Martorelles Soc. Coop. Catalana Limitada Barcelona Spain 60,101.21 euro 22% Nacional Motor S.A. 22%  
Immsi Audit S.c.a.r.l. Mantua Italy 40,000.00 euro 25% Piaggio & C. S.P.A. 25%
Pont - Tech, Pontedera & Tecnologia S.c.r.l. Pontedera (Pisa) Italy 884,160.00 euro 20.44% Piaggio & C. S.P.A. 20.44%  
S.A.T. Societé d’Automobiles et Triporteurs S.A. Tunis Tunisia 210,000.00 TND  20% Piaggio Vespa B.V. 20%  
               

N) Information pursuant to article 149 duodecies of the Consob Regulation on Issuers

The following statement was prepared, provided pursuant to article 149 duodecies of the Consob Regulation on Issuers, indicates the fees for 2012 for auditing services and other services provided by the same auditing firm and entities belonging to the auditing firm’s network, the Independent Auditors and members of its organisation.

Type of service Subject providing the service Recipient Notes Fees for 2012
In euro
Auditing services PricewaterhouseCoopers SpA Parent Company Piaggio & C. SpA 319,160
PricewaterhouseCoopers SpA Subsidiaries 11,450
PwC network Subsidiaries 377,560
 
Certification services PwC network Subsidiaries 36,000
Other services PwC network Parent Company Piaggio & C. SpA 1) 39,250
PwC network Subsidiaries 2,500
         
Total       785,920
 

N.B. Sums of subsidiaries operating in currencies other than the Euro and agreed on in a local currency have been converted to the average exchange rate of 2012. 

1. Activities mainly related to the auditing of the Corporate Social Responsibility Report.

* * *

 

This document was published on 20 March 2013 authorised by the Chairman and Chief Executive Officer.

Mantua, 27 February 2013 For the Board of Directors

/f/ Roberto Colaninno

Chairman and Chief Executive Officer
Roberto Colaninno