Notes to the Consolidated Financial Statements

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 euros (€) 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.

SCOPE OF CONSOLIDATION

As of 31 December 2013, 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 has not changed compared to the Consolidated Financial Statements as of 31 December 2012. 

COMPLIANCE WITH INTERNATIONAL ACCOUNTING STANDARDS

The Consolidated Group Financial Statements of the Piaggio Group as of 31 December 2013 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 endorsed by the European Commission, as well as in compliance with the provisions established in Article 9 of Legislative Decree no. 38/2005 (Consob Resolution no. 15519 dated 27 July 2006 containing the “Provisions for the presentation of financial statements", Consob Resolution no. 15520 dated 27 July 2006 containing the “Changes and additions to the Regulation on Issuers adopted by Resolution no. 11971/99”, Consob communication no. 6064293 dated 28 July 2006 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 investment property and 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.
These Consolidated Financial Statements were 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 Statement of Changes in Consolidated Shareholders’ 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 profit attributable to the parent company and to non-controlling interests.

Consolidated Statement of Comprehensive Income
The Consolidated Statement of Comprehensive Income is presented as provided for by IAS 1 revised. Items presented in "Other comprehensive income(losses)" are grouped based on whether they are potentially reclassifiable to profit or loss.

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 Consolidated Statement of Cash Flows include the Consolidated 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.

Statement of Changes in Consolidated Shareholders' Equity
The Statement of Changes in Consolidated Shareholders' Equity is presented as provided for in IAS 1 revised.

This includes the statement of comprehensive income, separately indicating amounts attributable to shareholders of the parent as well as the quota pertaining to non-controlling interests, amounts of transactions with shareholders and any effects of retrospective application or 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 the Group 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 the attachments.

As of 31 December 2013 subsidiaries and affiliated companies of Piaggio & C. S.p.A. were as follows:

 SubsidiariesAffiliated companiesTotal
 Italy AbroadTotalItaly AbroadTotal 
Companies:
  • consolidated on a line-by-line basis
2212323
  • consolidated with the equity method
2355
Total companies2212323528
 

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 the present value at the date of acquisition. The positive difference between the acquisition cost and the share of the Group at 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 recognised instead in profit and loss 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 affiliated 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 on the date of the transaction. Monetary assets and liabilities in foreign currency are translated at the exchange rate in effect at the end of the reporting period.

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 below.

 

CurrencySpot exchange rate 31 December 2013Average exchange rate 2013Spot exchange rate 31 December 2012Average exchange rate 2012
US Dollar1.37911.328121.31941.28479
Pounds Sterling0.83370.8492550.81610.810871
Indian Rupee85.36677.9372.56068.5973
Singapore Dollars1.74141.661881.61111.60546
Chinese Renminbi8.34918.164638.22078.10523
Croatian Kuna7.62657.578627.55757.52167
Japanese Yen144.72129.663113.61102.492
Vietnamese Dong28,801.0727,660.1727,776.3227,027.53629
Canadian Dollars1.46711.368371.31371.28421
Indonesian Rupiah16,866.3913,907.557312,714.0012,045.7
Brasilian real3.25762.868662.70362.50844
  

2.2 Accounting policies

The most significant accounting policies adopted to prepare the Consolidated Financial Statements as of 31 December 2013 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 definite useful life are measured at acquisition cost or production cost net of amortisation and accumulated impairment losses. Borrowing costs related to the acquisition, construction or production of certain activities that require a significant period of time before they are ready for use or sale (qualifying assets), are capitalised along with 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 the present value at the date of acquisition. The positive difference between the acquisition cost and the share of the Group at 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 recognised instead in profit and loss 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.
At the disposal of part of or of an entire company previously acquired from whose acquisition 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 remeasured in the light of the different values of shareholders' equity of 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 recognised in profit or loss 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 definite useful life.

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 costs3-5 years
Industrial Patent and Intellectual Property Rights3-5 years
Other5 years
Trademarks15 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. Borrowing costs related to the acquisition, construction or production of certain activities that require a significant period of time before they are ready for use or sale (qualifying assets), are capitalised along with 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 recognised in profit or loss 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.

The depreciation periods of Plant, property and equipment are summarised below:

 

LandLand is not depreciated
Buildings33-60 years
Plant10-15 years
Machinery10-20 years
Equipment and other3-10 years
 

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. In 2007, on the basis of clarification from IFRIC, the Group reclassified as receivables the rentals paid in advance to obtain the availability of land where its production sites are situated.
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 recognised in profit or loss 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
The Group had no investment property in previous financial statements. As from 2013, this item comprises the recognition in this category of the Spanish site previously used for the manufacture and storage of vehicles which, following the transfer of production activities to Italy, is now available for rent or sale, as decided by the Board of Directors of Nacional Motor in July. During the first-time adoption of this standard, also with the support of the Parent Company Immsi SpA, a more appropriate criterion to represent fair value was identified (IAS 40). The adoption of IAS 40 had not effects.
Real estate investments are eliminated from the financial statements when they are disposed of or when they may not be used over time and future economic benefits from their sales 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 from the date in which this item was classified as held for sale.

Financial assets
Financial assets are recognised and deleted from the financial statements based on the negotiation date and are initially measured at fair value, represented by the initial increased amount, with the exception of assets held for negotiation, of costs relative to the transaction.
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 and 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 finished products, the market value is represented by the estimated net realisable value (price lists minus the costs to sell and distribution costs).
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 provisions for write-downs. 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.

Factoring
The Group sells a significant part of its trade receivables through factoring and in particular, sells trade receivables without recourse. Following these sales with the total and unconditional transfer to the transferee of the risks and benefits transferred, the receivables are eliminated from the financial statements.
In the case of transfers with recourse, as the risks and benefits are not transferred, the relative receivables remain in the statement of financial position until the transferred sum has been paid. In this case any advance payments collected by the factor are recognised under payables as amounts due to other lenders.

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 sales 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 and 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 the present value of the hedging instruments: 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, and commodity prices. The Group also uses derivatives to manage these risks, according to procedures in line with the Group's risk management policies.
Derivatives are initially measured at fair value represented by the initial amount.
Derivative financial instruments are only used with the intent of hedging, to protect from fluctuating exchange rate and interest rates, and from changes in the market price of commodities. In line with IAS 39, financial derivatives 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 the income statement, 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 hedging instrument or hedging ceases, but the transaction covered by hedging is not yet realised, profits and losses, recognised in equity, are instead recognised in profit or loss when the transaction takes place. 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 accrued 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 pay must be recalculated by actuarial evaluations at the end of each period applying the Projected Unit Credit Method.
Since the 2012 Half-year Financial Report, 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 in 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 is 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 since 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 applied by the tax authorities and when they may be lawfully offset in the same tax jurisdiction.

Payables
Payables are recognised at fair value and then measured based on the amortised cost method.

Reverse factoring
To guarantee suppliers easier credit conditions, the Group has established factoring agreements, and typically supply chain financing or reverse factoring agreements. Based on the agreements, suppliers may, at their discretion, transfer receivables due from the Group to a lender and collect amounts before the due date.
In some cases, payment terms are extended further in agreements between the supplier and the Group; these extensions may be interest or non-interest bearing.
The Group has established a specific policy to assess the nature of reverse factoring operations. Based on the content of agreements, which differs by area of origin, the Finance function, at a central level, analyses the clauses of agreements in qualitative terms, as well as legal aspects in order to assess regulatory references and the type of transaction assignment (as provided for by IAS 39 AG57 b). In some cases, as payment terms have been extended, quantitative analysis is carried out to verify the materiality of changes in contract terms, based on quantitative tests as required by IAS 39 AG 62.
In this context, relations, for which a primary obligation with the supplier is maintained and any deferment, if granted, does not significantly change payment terms, are still classified as trade liabilities.

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 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 accrual basis and include interest payable on financial payables calculated using the effective interest rate method, exchange differences payable and losses on derivative financial instruments. 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 or credited to 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 2013, for a further three years, the Parent Company signed up 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 a single global income equal to the algebraic sum of taxable amounts (income or loss) realised by individual companies that opt for this type of group taxation.
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 provisions 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.

The critical measurement processes and key assumptions used by the Group in adopting IFRS and that may have a significant impact on figures in the Consolidated Financial Statements or for which a risk exists that significant differences in value may arise in relation to the carrying amount of assets and liabilities in the future are summarised below.

Recoverable value of non-current assets
Non-current assets include Property, Plant and Equipment, Goodwill, Other Intangible Assets, Investments and Other Financial Assets. The Group periodically revises the carrying amount of non-current assets held and used and of assets held for sale, when facts and circumstances make this necessary. This analysis is carried out at least annually for Goodwill, and whenever facts and circumstances make it necessary. Analysis of the recoverability of the carrying amount of Goodwill is generally based on estimates of expected cash flows from the use or sale of the asset and adequate discount rates to calculate the fair value. When the carrying amount of a non-current asset is impaired, the Group recognises a write-down equal to the excess between the carrying amount of the asset and its recoverable value through use or sale, determined with reference to cash flows of the most recent company plans.

Recoverability of deferred tax assets
The Group has deferred tax assets from deductible temporary differences and theoretical tax benefits from losses to be carried forward.
In estimating recoverable value, the Group considered the results of the company plan in line with the results used for impairment testing. Net deferred tax assets allocated on this basis refer to temporary differences and tax losses which, to a significant extent, may be recovered over an indefinite period, and are therefore compatible with a context in which an end to current difficulties and uncertainties and an upswing in the economy could take longer than the time frame of the above-mentioned estimates.

Pension schemes and other post-employment benefits
Provisions for employee benefits and net financial borrowing costs are measured using an actuarial method that requires the use of estimates and assumptions to determine the net value of the obligation. The actuarial method considers financial parameters such as the discount rate and growth rates of salaries and considers the likelihood of potential future events occurring on the basis of demographic parameters such as relative mortality rates and employee resignations or retirements.

The assumptions used for the measurement are explained in section 36 “Retirement funds and employee benefits”.

Provisions for write-downs
The provisions for write-downs reflect Management's estimate of expected losses related to receivables. Based on past experience, provisions are made for expected losses on receivables. Management carefully monitors the quality of receivables and current and forward-looking conditions of the economy and reference markets. Estimates and assumptions are periodically revised and the effects of any change are recognised in profit or loss.

Provision for obsolete inventories
The provision for obsolete inventories reflects Management's estimate of impairment losses expected by the Group, determined on the basis of past experience. Anomalous market price trends could have an effect on future inventory write-downs.

Provision for product warranties
At the time of a product's sale, the Group makes provisions relative to estimated costs for the product warranty. This provision is estimated on the basis of historical information about the nature, frequency and average cost of warranty jobs.

Potential liabilities
The Group recognises a liability for ongoing legal disputes when it expects a probable financial outflow and when the amount of the losses arising therefrom may be reasonably estimated. If a financial outflow is possible, but the amount cannot be determined, it is recorded in the notes to the Financial Statements. The Group is subject to legal and tax proceedings concerning complex and difficult legal issues, of varying degrees of uncertainty, including facts and circumstances relative to each case, jurisdiction and different applicable laws. Given the uncertainties concerning these issues, it is hard to predict with certainty the outflow arising from these disputes and it is therefore possible that the value of provisions for legal proceedings and disputes of the Group may vary as a result of future developments in proceedings underway.
The Group monitors the status of ongoing proceedings and consults its legal and tax advisers.

Amortisation/depreciation
The cost of assets is amortised on a straight line basis over their estimated useful life. The economic useful life of Group assets is determined by Directors at the time of purchase; the calculation is based on historical experience gained in years of operations and on knowledge of technological innovations that may make the asset obsolete and no longer economical.
The Group periodically evaluates technological and segment changes, in order to update the remaining useful life. This periodic updating could change the amortisation/depreciation period and therefore amortisation/depreciation charges of future years.

Income tax
The Group is subject to different income tax laws in various jurisdictions. Group tax liabilities are determined in accordance with Management valuations of transactions of which the tax effect is not certain at the end of the reporting period. The Group recognises the liabilities that could arise from future inspections of tax authorities based on an estimate of taxes that will be due. If the outcome of inspections differs from Management's estimates, significant effects on current and deferred taxes could arise.

Transactions with subsidiaries and related parties
Transactions with subsidiaries and related parties are indicated in specific sections of the Report on Operations and Notes, referred to herein.          

New accounting standards, amendments and interpretations applied as from 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 commencing from or after 1 July 2012.

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.

It should be noted that the Group adopted IAS 19 revised in advance, as from 30 June 2012. 

Amendments and interpretations applied as from 1 January 2013 and not relevant to the Group
The following amendments and interpretations, applicable as from 1 January 2013, regulate specific cases and case histories which are not present within the Group as of the date of these Financial Statements:

  • On 20 December 2010, the IASB issued a minor amendment to IAS 12 – Income Taxes which requires entities 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). Following this amendment, SIC-21 Income taxes – Recovery of Revalued Non-Depreciable Assets – will no longer be applicable. The amendment is applicable in a retrospective manner from 1 January 2013.
  • 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 the 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.

Approved accounting standards, amendments and interpretations which are already applicable but not adopted in advance by the Group
The competent bodies of the European Union approved the following accounting standards and amendments:

  • On 12 May 2011, the IASB issued the 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 departs 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 from 1 January 2014. The application of this new principle would have no effect for the Group.
  • 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 from 1 January 2014. After its issue IAS 28 – Investments in Associates was amended to include jointly controlled entities within its scope of application, as of the date the standard became effective The application of this new principle would have no effect for the Group.
  • On 12 May 2011, the IASB issued the 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 from 1 January 2014.
  • 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 29 May 2013, the IASB issued an amendment to IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets, which regulates disclosure on the recoverable amount of assets subject to impairment, if the amount is based on the fair value net of costs to sell. The amendments must be adopted retroactively, commencing from 1 January 2014. Application in advance is permitted for periods in which the entity has already adopted IFRS 13.
  • On 27 June 2013, the IASB issued some minor amendments to IAS 39 – Financial Instruments: recognition and measurement - Novation of Derivatives and Continuation of Hedge Accounting The amendments allow for the continuation of hedge accounting if a financial derivative, designated as a hedging instrument, is novated following the adoption of the law or regulations in order to replace the original counterparty to guarantee the successful outcome of the obligation undertaken and if certain conditions are met. This amendment will also be included in IFRS 9 - Financial instruments The amendments must be adopted retroactively, commencing from 1 January 2014.

At the date of these Financial Statements, competent bodies of the European Union had not completed the approval process necessary for the application of the following accounting standards and amendments:

  • On 12 November 2009, the IASB published IFRS 9 – Financial Instruments. This standard was 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 the new standard adopts a single approach for financial assets, based on financial instrument management and the characteristics of contractual cash flows of financial assets, to determine measurement criteria, replacing the rules of IAS 39. For financial liabilities instead, the main change concerns the accounting treatment of fair value changes of a financial liability designated as a financial liability measured at fair value through profit or loss, in the case where 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 recognised in profit or loss.
  • On 20 May 2013, the IASB issued IFRIC 21 - Levies, an interpretation of IAS 37 - Provisions, Contingent Liabilities and Contingent Assets. IFRIC 21 provides clarifications on when an entity must recognise a liability for the payment of levies imposed by governments, other than levies regulated by other standards (e.g. IAS 12 – Income tax). IAS 37 establishes criteria for the recognition of a liability, including the existence of the current obligation of the entity as the result of a past event (known as the binding fact). The interpretation clarifies that the binding fact, which gives rise to a liability for the payment of the tax, is described in the reference standard from which the payment arises. IFRIC 21 is effective from years commencing from 1 January 2014.

B) SEGMENT REPORTING

3. Operating segment reporting

The organisational structure of the Group is based on 3 Geographic Segments, involved in the production and sale of vehicles, relative spare parts and assistance in areas under their responsibility: EMEA and the Americas, India and Asia Pacific 2W. Operating segments are identified by Management, in line with the management and control model used.
In particular, the structure of disclosure corresponds to the structure of periodic reporting analysed by the Chairman and Chief Executive Officer for business management purposes.
Each Geographic Segment has production sites and a sales network dedicated to customers in the relative segment. Specifically:

  • EMEA and the Americas have production sites and deal with the distribution and sale of two-wheeler and commercial vehicles;
  • India has production sites and deals with the distribution and sale of two-wheeler and commercial vehicles;
  • Asia Pacific 2W has production sites and deals with the distribution and sale of two-wheeler vehicles.

Central structures and development activities currently dealt with by EMEA and the Americas, are handled by individual segments.    

INCOME STATEMENT/ NET CAPITAL EMPLOYED BY OPERATING SEGMENT

  EMEA and AmericasIndiaAsia Pacific 2WTotal
 
Sales volumes
(unit/000)
2013220.9233.3101.4555.6
2012278.2224.7112.6615.5
Change(57.4)8.6(11.2)(59.9)
Change %-20.6%3.8%-10.0%-9.7%
 
Net turnover
(millions of euros)
2013699.1320.1193.4 1,212.5
2012837.3357.8211.1 1,406.2
Change(138.2)(37.7)(17.7)(193.6)
Change %-16.5%-10.5%-8.4%-13.8%
 
Gross margin
(millions of euros)
2013216.871.868.9357.5
2012254.082.281.6417.9
Change(37.2)(10.5)(12.7)(60.4)
Change %-14.6%-12.7%-15.6%-14.5%
 
EBITDA
(millions of euros)
2013146.8
2012176.2
Change(29.4)
Change %-16.7%
 
EBIT
(millions of euros)
201362.6
201296.6
Change(33.9)
Change %-35.2%
 
Net profit
(millions of euros)
2013(6.5)
201242.1
Change(48.6)
Change %-115.5%
 
Capital employed
(millions of euros)
2013559.1144.8163.8867.7
2012541.9151.8138.1831.7
Change17.3(7.0)25.736.0
Change %3.2%-4.6%18.6%4.3%
 
Of which assets
(millions of euros)
2013907.7245.2203.81,356.8
2012932.6263.7186.61,382.9
Change(24.8)(18.5)17.2(26.1)
Change %-2.7%-7.0%9.2%-1.9%
 
Of which liabilities
(millions of euros)
2013348.6100.440.0489.1
2012390.8111.948.5551.2
Change(42.2)(11.5)(8.5)(62.1)
Change %-10.8%-10.3%-17.5%-11.3%
   

C) INFORMATION ON THE CONSOLIDATED INCOME STATEMENT

4. Net revenues

Revenues are shown net of premiums recognised to customers (dealers).
This item does not include transport costs, which are recharged to customers (€/000 22,670) and invoiced advertising cost recoveries (€/000 4,554), 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 geographic segment is shown in the following table:

20132012Changes
 Amount%Amount%Amount%
In thousands of Euros 
EMEA and Americas699,06257.65837,25559.54(138,193)-16.51
India320,09226.40357,79525.44(37,703)-10.54
Asia Pacific 2W193,38115.95211,10215.01(17,721)-8.39
Total1,212,535100.001,406,152100.00(193,617)-13.77
 

In 2013, net sales revenues decreased generally compared to figures for the previous year (-13.8%). This downturn, which concerned all geographic segments, was exacerbated by the devaluation of Asian currencies, which had an impact of approximately € 53 million on the decrease in turnover.

5. Costs for materials 

These totalled €/000 714,453 compared to €/000 835,352 in 2012.
The percentage accounting for net revenues decreased, from 59.4% in 2012 to 58.9% in the current period following the lower impact of purchases of scooters from the Chinese affiliated company Zongshen Piaggio Foshan, which are sold on European and Asian markets and whose value during 2013 amounted to €/000 23,143 (€/000 32,802 in 2012).

The following table details the content of this financial statement item:

20132012Change
In thousands of Euros 
Raw, ancillary materials, consumables and goods705,693818,503(112,810)
Change in inventories of raw, ancillary materials, consumables and goods 1,1446,886(5,742)
Change in work in progress of semifinished and finished products7,6169,963(2,347)
Total costs for purchases714,453835,352(120,899)
    

6. Costs for services, leases and rentals

Below is a breakdown of this item:

20132012Change
In thousands of Euros
Employee costs14,77619,998(5,222)
External maintenance and cleaning costs7,5858,101(516)
Energy, telephone and telex costs19,10621,568(2,462)
Postal expenses1,029528501
Commissions payable2,3435881,755
Advertising and promotion23,84927,709(3,860)
Technical, legal and tax consultancy and services25,72730,294(4,567)
Company boards operating costs2,1972,17126
Insurance3,8323,854(22)
Outsourced manufacturing13,17115,446(2,275)
Transport costs (vehicles and spare parts)32,64240,050(7,408)
Sundry commercial expenses7,74816,052(8,304)
Expenses for public relations2,7652,381384
Product warranty costs10,48512,145(1,660)
Quality-related events1,6606,143(4,483)
Bank costs and factoring charges4,9025,662(760)
Lease and rental costs14,88718,179(3,292)
Other13,26915,155(1,886)
Insurance from Group companies51510
Services from Group companies2,1342,10727
Lease and rental costs of Group companies1,7351,752(17)
Total costs for services205,893249,934(44,041)
 

The decrease was basically due to the reduction in the volume of activities.
The saving of €/000 3,292 in costs for leases and rentals is due to the concentration of spare parts at the new warehouse, which made it possible to close other logistics warehouses rented in Italy and France. Costs for leases and rentals include lease rentals for business properties of €/000 7,893, as well as lease payments for car hire, computers and photocopiers.
The item “Other” includes costs for temporary work of €/000 707.

7. Employee costs 

Employee costs include €/000 11,439 mainly relating to costs for mobility plans for the Pontedera, Noale and Martorelles production sites.
The decrease recorded in the year is due to the reduction in average staff numbers and to the greater impact on the work force in India.

   

 20132012Change
In thousands of Euros 
Salaries and wages 150,484 163,377 (12,893)
Social security contributions 40,800 43,097 (2,297)
Termination benefits 8,271 8,681 (410)
Other costs 12,101 8,264 3,837
Total211,656223,419(11,763)
 

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

 

Average number
20132012Change
Level 
Senior management 96 95 1
Middle management 573 574 (1)
White collars 2,161 2,202 (41)
Blue collars 5,343 5,477 (134)
Total8,1738,348(175)
 
Number as of
31 December 201331 December 2012Change
Level
Senior management 95 96 (1)
Middle management 572 573 (1)
White collars 2,132 2,214 (82)
Blue collars 4,889 5,246 (357)
Total7,6888,129(441)
   

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

As of 31.12.2012IncomingOutgoingRelocationsAs of 31.12.13
Level
Senior management 96 8 (11)2 95
Middle management 573 35 (59)23 572
White collars 2,214 200 (263)(19) 2,132
Blue collars 5,246 3,062 (3,413)(6) 4,889
Total (*) 8,129 3,305 (3,746)0 7,688
(*) of which fixed-term contracts
 

The reduction in staff is mainly due to the Spanish site being closed down and a general downturn in demand which decreased fixed-term contracts.
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 2013

grafico_0.png       

 

8. Amortisation, depreciation and impairment costs

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

 

 20132012Change
In thousands of Euros
Tangible assets
Buildings4,7784,497281
Plant and equipment17,70115,7421,959
Industrial and commercial equipment14,05414,849(795)
Other assets1,8761,913(37)
Total depreciation of tangible fixed assets38,40937,0011,408
Write-down of property, plant and equipment425425
Total depreciation of property, plant and equipment and impairment costs38,83437,0011,833
 
 20132012Change
In thousands of Euros
Intangible assets
Development costs 23,66921,3732,296
Industrial Patent and Intellectual Property Rights15,05615,626(570)
Concessions, licences, trademarks and similar rights4,8234,8230
Other1,158798360
Total amortisation of intangible fixed assets44,70642,6202,086
Write-down of intangible assets605605
Total amortisation of intangible assets and impairment costs45,31142,6202,691
 

As set out in more detail in the paragraph on intangible assets, as from 1 January 2004, goodwill is no longer amortised, but tested annually for impairment.
The impairment test carried out as of 31 December 2013 confirmed the full recoverability of the amounts recorded in the financial statements.
The impairment of property, plant and equipment mainly refers to plants and equipment of the Spanish site at Martorelles that can no longer be used and so their allocated use has been changed.
The write-down of intangible assets mainly refers to development projects that Management, with the approval of the new industrial plan, decided to abandon.

9. Other operating income  

This item consists of:

20132012Change
In thousands of Euros
Operating grants4,7512,3162,435
Increases in fixed assets from internal work32,22539,084(6,859)
Other revenue and income:
- Rent receipts531348183
- Capital gains on assets and investments548425123
- Sale of miscellaneous materials1,032891141
- Recovery of transport costs22,67024,958(2,288)
- Recovery of advertising costs4,5545,091(537)
- Recovery of sundry costs5,5995,5909
- Compensation2,0801,0141,066
- Compensation for quality-related events1,5812,833(1,252)
- Licence rights and know-how2,1042,295(191)
- Sponsorship 3,0823,793(711)
- Other income10,58112,660(2,079)
Total other operating income91,338101,298(9,960)
 

The decrease in other operating income is mainly due to a reduction in assets.
This item includes €/000 3,584 for state and EU contributions for research projects. The grants are recognised in profit or loss, with reference to the amortisation and depreciation of capitalised costs for which the grants were received. This item also includes contributions for exports (€/000 1,167) received from the Indian subsidiary.

10. Other operating costs

This item consists of:

20132012Change
In thousands of Euros
Provision for future risks6231,944(1,321)
Provisions for product warranties8,54012,379(3,839)
  
Duties and taxes not on income3,5644,347(783)
Various subscriptions96294517
Capital losses from disposal of assets3847377
Miscellaneous expenses5,2191,2273,992
Losses on receivables2,0081981,810
Total sundry operating costs12,1376,7245,413
 
Write-down of current receivables3,7991,4932,306
 
Total25,09922,5402,559
 

The increase is mainly connected to the increase in miscellaneous costs, that mostly include contingent liabilities.

11. Income/(loss) from investments

Net income from investments refers to €/000 2,100 for the equity valuation of the investment in the Zongshen Piaggio Foshan joint venture, €/000 154 for dividends from non-controlling interests and €/000 10 for the equity valuation of affiliated companies.

12. Net financial expanse and similar

Below is the breakdown of borrowing costs and income:

20132012Change
In thousands of Euros
Income:
- Interest receivable from clients 81 142 (61)
- Bank and post office interest payable 910 824 86
- Interest payable on financial receivables 409 509 (100)
‘– Income from fair value measurements 1,148 494 654
- Other 73 47 26
Total financial income2,6212,016605
 
20132012Change
In thousands of Euros 
Borrowing costs payable to affiliated companies 105 300(195)
Borrowing costs paid to others:1,916
- Interest payable on bank accounts 5,311 3,395  
- Interest payable on debenture loans 14,381 14,672 (291)
- Interest payable on bank loans 14,101 14,388 14,388 (287)
- Interest payable to other lenders 2,098 2,654 2,654 (556)
- Interest to suppliers52793434
- Cash discounts to clients 360 553 553 (193)
- Bank charges on loans 1,831 2,151 2,151 (320)
- Borrowing costs from discounting back termination benefits 1,608 2,001 (393)
- Interest payable on lease agreements 114 180 180 (66)
- Other20514263
Total borrowing costs Vs others40,53640,229307
Total borrowing costs40,64140,529112
Costs capitalised on Property, Plant and Equipment 1,6223,538(1,916)
Costs capitalised on Intangible Assets2,1493,382(1,233)
Total Capitalised Costs 3,7716,920(3,149)
Total borrowing costs36,87033,6093,261
   
Costs capitalised on Property, Plant and Equipment 1,6223,538(1,916)
Costs capitalised on Intangible Assets2,1493,382(1,233)
Total Capitalised Costs 3,7716,920(3,149)
 
Total borrowing costs36,87033,6093,261
 
20132012Change
In thousands of Euros
Exchange gains 10,474 11,016 (542)
Exchange losses10,85011,676(826)
Total net exchange gains/(losses)(376)(660)284
    
Net financial income (borrowing costs)(34,625)(32,253)(2,372)
 
Net financial expense and similar(34,625)(32,253)(2,372)
 

The balance of net financial expense and similar in 2013 was equal to €/000 34,625, registering an increase compared to the sum of €/000 32,253 of the previous year. This increase is mainly due to a lower capitalisation of interest for work in progress amounting to €3.1 million partially offset by the improvement of €0.8 million in the balance of Financial Income and Borrowing Expenses and currency management.
The average rate used during 2013 for the capitalisation of borrowing costs (because of general loans), was equal to 8.67%.

13. Taxes

The item "Income taxes" is detailed below:

20132012Change
In thousands of euro
Current taxes22,45030,923(8,473)
Taxes relative to previous years833465368
Deferred tax liabilities(11,083)(5,601)(5,482)
Non-recurrent costs24,59424,594
Total taxes36,79425,78711,007
 

Taxes for 2013 amounted to €/000 36,794. The value includes €/000 24,594 for the non-recurrent cost relative to the tax assessment of the Parent Company in the first few months of 2014. This amount, discussed in note 48, consists of €/ML 5.1 relating to findings for regional production tax purposes, which will entail a financial outlay divided in 5 quarterly instalments (4 instalments of €/ML 1 in 2014 and the last one in March 2015). The remaining €/ML 19.5 that will not entail any financial outlay, relate to the findings for income tax purposes and originate from the offsetting of:

  1. tax losses for previous years on which the deferred tax had been recognised (impact on the income statement of €/ML 15.5);
  2. tax losses related to the  Consolidated Tax Convention, that the Parent Company participates in and that gave rise to the recognition of an expense from consolidation for a remainder of €/ML 4.

The item current taxes includes expenses Consolidated Tax Convention of €/000 1,989.
In 2012, taxes were equal to €/000 25,787 and accounted for 38.0% of profit before tax.    

Reconciliation in relation to the theoretical rate is shown below:

 2013
In thousands of Euros 
Profit before tax30,266
Theoretical rate27.50%
 
Theoretical income taxes 8,323
Effect arising from changes in Profit before tax and deferred tax liabilities (8,600)
Tax effect arising from taxes on income produced abroad 4,146
Expenses (income) from the Consolidated Tax Mechanism 1,818
Indian tax on the distribution of dividends 4,087
Regional production tax (IRAP) and other local taxes 2,906
Taxes relative to previous years 24,594
Other differences(480)
 
Income taxes recognised in the financial statements 36,794
 

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 profit before tax.

14. Profit/(losses) from assets held for disposal or sale

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:

20132012
Net profit€/000(6,528) 42,074
Earnings attributable to ordinary shares€/000(6,528)42,074 42,074
Average number of ordinary shares in circulation 359,877,159 363,015,833
Earnings per ordinary share(0.018)0.116
Adjusted average number of ordinary shares 360,502,825 363,570,251
Diluted earnings per ordinary share(0.018)0.116
 

The potential effects deriving from stock option plans were considered when calculating diluted earnings per share. 

D) INFORMATION ON THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION - ASSETS

16. Intangible assets 

The table below shows the breakdown of intangible assets as of 31 December 2013 and 31 December 2012, as well as movements during the period.


Development costsPatent rightsConcessions, licences and trademarksGoodwillOtherAssets under development and advancesTotal
In thousands of euros
As of 1 January 2012
Historical cost102,694200,320148,296557,3224,90843,8031,057,343
Provisions for write-down0
Accumulated amortisation(57,297)(160,811)(75,961)(110,382)(3,472)(407,923)
Net carrying amount45,39739,50972,335446,9401,43643,803649,420
2012
Investments14,64115,78659128,55659,574
Transitions in the period15,0752,91441(18,030)
Amortisation(21,373)(15,626)(4,823)(798)(42,620)
Disposals(6)(27)00(7)(40)
Write-downs0
Exchange differences(790)(226)(10)(1,598)(2,624)
Other movements(2,884)130120(2,742)
Total movements for the year4,6632,951(4,823)0(164)8,92111,548
As of 31 December 2012
Historical cost104,710217,857148,283557,3225,64352,7241,086,539
Provisions for write-down0
Accumulated amortisation(54,650)(175,397)(80,771)(110,382)(4,371)(425,571)
Net carrying amount50,06042,46067,512446,9401,27252,724660,968
2013
Investments10,90115,4250038722,04548,758
Transitions in the period39,3872100285(39,693)0
Amortisation(23,669)(15,056)(4,823)(1,158)0(44,706)
Disposals(172)(46)0(1)0(219)
Write-down(605)(605)
Exchange differences(3,523)(429)0(66)(2,178)(6,196)
Other changes(3,874)(284)6860(3,472)
Total movements for the year19,050(369)(4,823)0133(20,431)(6,440)
As of 31 December 2013
Historical cost125,623230,024149,074557,3227,01032,2931,101,346
Provisions for write-down0
Accumulated amortisation(56,513)(187,933)(86,385)(110,382)(5,605)(446,818)
Net carrying amount69,11042,09162,689446,9401,40532,293654,528
   

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

Value as of 31 December 2013Value as of 31 December 2012Change

For the periodUnder development and advancesTotalFor the periodUnder development and advancesTotalFor the periodUnder development and advancesTotal
In thousands of euros
R&D costs69,11026,94096,05050,06049,15899,21819,050(22,218)(3,168)
Patent rights42,0915,17247,26342,4603,09545,555(369)2,0771,708
Concessions, licences and trademarks62,68962,68967,51267,512(4,823)0(4,823)
Goodwill446,940446,940446,940446,940000
Other1,4051811,5861,2724711,743133(290)(157)
Total622,23532,293654,528608,24452,724660,96813,991(20,431)(6,440)
 

Intangible assets decreased overall by €/000 6,440 mainly due to the translation of figures of Asian companies into Euros. Investments for the year were offset by disposals and amortisation for the period.
Increases mainly refer to the capitalisation of development costs for new products and new engines, as well as the purchase of software.
During 2013, borrowing costs for €/000 2,149 were capitalised.

Development costs 
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 26,940 that represent costs for which the conditions for capitalisation exist, but in relation to products that will go into production in future years.

Development expenditure for new projects capitalised in 2013 mainly refers to new engines for Aprilia and Moto Guzzi motorcycles, the new naked Guzzi motorcycle, new 3V low emission engines for new scooters, the Vespa 946 and the Vespa Primavera, as well as the new version of the MP3 and new Scarabeo, P121 and P122 scooters.
At the end of 2013, some development projects which Management decided to abandon, following the approval of the new industrial plan, were impaired by €/000 605.
Borrowing costs attributable to the development of products which require a considerable period of time to be realised 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. At the end of 2013, based on the new industrial plan, the Group redefined the useful life of some projects already amortised, changing the useful life from 3 to 5 years. In particular, the item refers to projects in the last year of amortisation of which the Group will continue to benefit financially also in the next two years, that have technical characteristics which do not make them obsolete and for which new investments are not planned. The accounting effects of this change are as follows:

     

New valuationPrevious valuationChange
In thousands of Euros
Annual amortisation23,66927,704(4,035)

During 2013, development expenditure amounting to €/000 16,900 was directly recognised in profit or loss.

Industrial Patent and Intellectual Property Rights
This item comprises software for €/000 14,903 and patents and know-how. It includes assets under construction for €/000 5,172.
Patents and know-how mainly refer to the Vespa, GP 800, MP3, RSV4, MP3 hybrid and 1200 cc engine. Increases for the period refer mainly to the purchase of various licences, upgrades and implementation of the new PLM area R&D (Product Lifecycle Management) system, as well as the implementation of projects relative to the business area, production, personnel and administration.

Industrial patent and intellectual property rights costs are amortised over three years.

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

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Guzzi trademark21,12522,750(1,625)
Aprilia trademark41,50944,702(3,193)
Minor trademarks5560(5)
Total Trademark62,68967,512(4,823)
 

The Aprilia and Guzzi trademarks are amortised over a period of 15 years, expiring in 2026.

Goodwill
Goodwill derives from the greater value paid compared to the corresponding portion of the subsidiaries shareholders’ equity at the time of purchase, less the related accumulated amortisation until 31 December 2003.
Goodwill was attributed to cash generating units.

EMEA and AMERICASINDIAASIA PACIFIC 2W TOTAL
In thousands of Euros    
31 12 2013305,311109,69531,934446,940
31 12 2012305,311109,69531,934446,940
 

The organisational structure of the Group is based on 3 Geographic Segments (CGUs), involved in the production and sale of vehicles, relative spare parts and assistance in areas under their responsibility: EMEA and the Americas, India and Asia Pacific 2W. Each Geographic Segment has production sites and a sales network dedicated to customers in the relative segment. Central structures and development activities currently dealt with by EMEA and the Americas, are handled by individual CGUs.
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 (value in use). 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 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:

  1. use of the 2014-2017 Industrial Plan (approved by the Board of Directors on 19 March 2014);
  2. the WACC discount rate;
  3. in addition to the period, an estimated growth rate (g rate).

In particular, for discount cash flows, the Group has 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.

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.

   

2013EMEA and AmericasAsia Pacific 2WIndia
WACC7.0%10.17%10.85%
G1.5%2.0%2.0%
Growth rate during the Plan period   8.9%11.1%10.3%
 
2012EMEA and AmericasAsia Pacific 2WIndia
WACC8.25%11.61%11.33%
G1.5%2.0%2.0%
Growth rate during the Plan period   2.1%6.7%9.0%
 

Growth rates used in the Plan are supported by sector analyses and studies; the difference between the growth rates in the Plan period used in 2013 compared to the figures considered in 2012 is due to the change in the macroeconomic scenario and the market, as well as the result of the strategic guidelines contained in the new 2014-2017 Plan approved by the Board of Directors.
The reduction in the WACC in relation to the previous period is mainly attributable to the decrease in the interest rate for risk-free activities. This rate was determined based on the present year and Bloomberg and Domodoran sources.
Analyses did not identify any impairment losses. Therefore no write-down was recognised in consolidated data as of 31 December 2013.
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 the case of a positive or negative change of 0.5% of the WACC and G used, analyses would not identify impairment losses.
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.

Other intangible assets
These totalled €/000 1,586 and mainly consist of costs sustained by Piaggio Vietnam.

17. Property, plant and equipment

The table below shows the breakdown of plant, property and equipment as of 31 December 2013 and 31 December 2012, as well as movements during the period.


LandBuildingsPlant and equipmentEquipmentOther assetsAssets under development and advancesTotal
In thousands of euros
As of 1 January 2012
Historical cost31,586131,760335,935471,52943,34351,5161,065,669
Provisions for write-down(1,339)(1,339)
Accumulated depreciation(46,950)(266,346)(439,050)(37,113)(789,459)
Net carrying amount31,58684,81069,58931,1406,23051,516274,871
2012
Investments1,8475,0069,6121,01160,91678,392
Transitions in the period13,90832,9303,0391,426(51,303)0
Depreciation(4,497)(15,742)(14,849)(1,913)(37,001)
Disposals0(399)(64)(43)(32)(538)
Write-downs00
Exchange differences(1,106)(2,709)(13)(147)(842)(4,817)
Acquisition of Tecnocontrol2,1136,4561,142689,779
Other movements324221(133)(83)0329
Total movements for the year012,58925,763(1,266)3198,73946,144
As of 31 December 2012
Historical cost31,586148,663375,802483,82544,45660,2551,144,587
Provisions for write-down(1,427)(1,427)
Accumulated depreciation(51,264)(280,450)(452,524)(37,907)(822,145)
Net carrying amount31,58697,39995,35229,8746,54960,255321,015
2013
Investments1,1844,0807,60377725,20138,845
Transitions in the period14,17735,7075,720776(56,380)0
Depreciation(4,778)(17,701)(14,054)(1,876)(38,409)
Disposals(24)(78)(781)(81)(159)0(1,123)
Write-down(362)(17)(46)(425)
Exchange differences(2,822)(8,467)(12)(428)(1,436)(13,165)
Transfer to Real Estate Investment(3,522)(3,053)(771)(7,346)
Other changes3,417(150)10803,375
Total movements for the year(3,546)4,63015,122(991)(848)(32,615)(18,248)
As of 31 December 2013
Historical cost28,040153,593398,588492,64944,84227,6401,145,352
Provisions for write-down(362)(1,409)(46)(1,817)
Accumulated depreciation(51,564)(287,752)(462,357)(39,095)(840,768)
Net carrying amount28,040 102,029 110,474 28,883 5,701 27,640 302,767 
 

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

Value as of 31 December 2013Value as of 31 December 2012Change

For the periodUnder development and advancesTotalFor the periodUnder development and advancesTotalFor the periodUnder development and advancesTotal
In thousands of euros
Land28,04028,04031,58631,586(3,546)0(3,546)
Buildings102,0292,328104,35797,39914,806112,2054,630(12,478)(7,848)
Plant and equipment110,47410,688121,16295,35231,460126,81215,122(20,772)(5,650)
Equipment28,88314,15043,03329,87413,18943,063(991)961(30)
Other assets5,7014746,1756,5498007,349(848)(326)(1,174)
Total275,12727,640302,767260,76060,255321,01514,367(32,615)(18,248)
 

Property, plant and equipment mainly refer to Group production facilities in Pontedera (Pisa), Noale (Venice), Mandello del Lario (Lecco), Baramati (India) and Vinh Phuc (Vietnam).

During the year, land, property and general equipment of the Spanish site at Martorelles were transferred to non-instrumental investment property, as defined by IAS 40. The reason for this change in use is due to the decision taken by Management to permanently stop production at the Spanish site and to start negotiations to rent the property and sell equipment to third parties. Production stopped as from March 2013.

The increases mainly relate to the construction of moulds for new vehicles launched during the period. Borrowing costs attributable to the construction of assets which require a considerable period of time to be ready for use are capitalised as a part of the cost of the actual assets.
During 2013, borrowing costs for €/000 1,622 were capitalised.

Land
Land is not depreciated.
Land mainly refers to Group production facilities in Pontedera (Pisa), Noale (Venice) and Mandello del Lario (Lecco). The item also includes land in Pisa, with a warehouse.
The decrease of €/000 3,546 refers to the reclassification of the Spanish site under investment property, as well as €/000 24 for the expropriation of land in the Noale area.
Buildings
The item Buildings, net of accumulated depreciation, comprises:

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Industrial buildings101,19396,5174,676
Ancillary buildings437477(40)
Light constructions399405(6)
Assets under construction2,32814,806(12,478)
Total104,357112,205(7,848)
 

Industrial buildings refer to Group production facilities in Pontedera (Pisa), Noale (Venice), Mandello del Lario (Lecco), Baramati (India) and Vinh Phuc (Vietnam). The item also includes a building at Pisa used as a warehouse.

The decrease of €/000 7,848 refers to €/000 3,053 relative to the reclassification of the Spanish site under investment property and to €/000 2,870 for the devaluation of the Indian Rupee and Vietnamese Dong.

As of 31 December 2013, the net values of assets held under leases were as follows:

 

As of 31 December 2013
In thousands of Euros
Mandello del Lario site (land and building)13,027
Total13,027
 

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.

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

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
General plants 83,983 69,407 14,576
Automatic machinery 10,209 6,913 3,296
Furnaces and sundry equipment 588 733 (145)
Other 15,694 18,299 (2,605)
Assets under construction 10,688 31,460 (20,772)
Total121,162126,812(5,650)
 

Plant and equipment refer to Group production facilities in Pontedera (Pisa), Noale (Venice), Mandello del Lario (Lecco), Baramati (India) and Vinh Phuc (Vietnam).
The item “Other” mainly includes non-automatic machinery and robotic centres.
The decrease of €/000 5,650 is mainly due to the exchange effect following the devaluation of the Indian Rupee and Vietnamese Dong.
During 2013, €/000 771 relative to general plant equipment of the Spanish site was reclassified under investment property.
Assets under construction amount to €/000 10,688.

Equipment  

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Industrial equipment 28,828 29,623 (795)
Commercial equipment 55 251 (196)
Assets under construction 14,150 13,189 961
Total43,03343,063(30)
 

The item Equipment, equal to €/000 43,033, mainly refers to production equipment in Pontedera (Pisa), Noale (Venice) and Mandello del Lario (Lecco) already being depreciated and assets under construction for €/000 14,150.

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.

Other assets
As of 31 December 2013 the item Other assets comprised the following:

MANCA TABELLA

Reversals of assets
The Parent Company still has assets subject to impairment reversals in compliance with specific regulations or during merger transactions.

The table below gives detailed figures for financial statement items, with reference to the law provision or to the merger transaction.

 

Reversals Law 575/65 and 72/83Reversals for merger 1986Econ. Reversals 1988Reversals Law 413/91Revers. in departure of article 2425Reversals for merger 1990Reversals for merger 1996Reversals Law 242/2000Total Revers.
In thousands of Euros
Property, plant and equipment
Industrial buildings480 - 5844151201,6681,549 - 4,816
Plant and equipment133263 - - - 42 - 1,9302,368
Industrial and commercial equipment - 331 - - - 2,484 - 3,4386,253
Office furniture and equipment - 58 - - - 101 - - 159
Electronic office equipment - - - - - 27 - - 27
Transport equipment - - - - - 13 - - 13
Total tangible assets6136525844151204,3351,5495,36813,636
Intangible assets
Aprilia trademark - - - - - 21,691 - 25,82347,514
Guzzi trademark103 - - - 258 - - - 361
Total intangible assets103 - - - 25821,691 - 25,82347,875
General total 71665258441537826,0261,54931,19161,511
 

Warranties
As of 31 December 2013 the Group had no buildings with mortgages.

18. Investment property

As already indicated above, Management decided to transfer Plant, property and equipment of the Spanish site at Martorelles to non-instrumental investment property, as defined by IAS 40. The fair value recognised as of 31 December 2013 was confirmed by a specific valuation of an independent expert, who made an evaluation of the "Fair Value less cost of disposal" based on a market approach (as provided for in IFRS 13). The fair value measurement did not generate differences compared to the previous cost measurement.

19. Investments 

Investments comprise:

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Investments in joint ventures7,9385,8382,100
Investments in affiliated companies2142113
Total8,1526,0492,103
 

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

Carrying amount as of 31 December 2013
In thousands of Euros
Accounted for using the equity method:
Zongshen Piaggio Foshan Motorcycles Co. Ltd – China7,938
Total joint ventures7,938
 

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 7,938 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 2013
In thousands of Euros45%*
Working capital5,419
Total assets4,465
NET CAPITAL EMPLOYED9,884
 
Provisions41
Consolidated debt 1,775
Shareholders’ equity8,068
TOTAL SOURCES OF FINANCING9,884

* Group ownership

Investments in affiliated companies
This item comprises:

Carrying amount as of 31 December 2012Adjustments Carrying amount as of 31 December 2013
In thousands of Euros
Affiliated companies
Immsi Audit S.c.a.r.l.1010
S.A.T. S.A. – Tunisia00
Depuradora D'Aigues de Martorelles S.C.C.L.55(7)48
Pontech Soc. Cons. a.r.l. – Pontedera14610156
Total affiliated companies2113214
 

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

 

As of 31 December 2013 As of 31 December 2012Change
In thousands of Euros
Financial receivables due from third parties 30 (30)
Fair value of hedging derivatives 10,305 12,854 (2,549)
Investments in other companies 163 163 0
Total10,46813,047(2,579)
 

The item "Fair value of hedging derivatives" refers to €/000 4,233 relative to the fair value of the cross currency swap for a private debenture loan, €/000 5,972 relative to the fair value of the cross currency swap for a medium-term loan of the Indian subsidiary and €/000 100 relative to the cross currency swap for an intercompany loan granted by the Parent Company to the Indian subsidiary. For further details, see section 44 “Information on financial instruments” of the Notes.                               

The breakdown of the item “Investments in other companies" is shown in the table below:

As of 31 December 2013As of 31 December 2012 Change
In thousands of Euros
Other companies:
Consorzio Pisa Ricerche 7676-
A.N.C.M.A. – Rome22-
GEOFOR S.p.A. – Pontedera4747-
ECOFOR SERVICE S.p.A. – Pontedera22-
Mitsuba Italia SpA00-
Consorzio Fiat Media Center – Turin33-
S.C.P.S.T.V.2121-
IVM1212-
Total other companies163163-
     

21. Current and non-current tax receivables

Receivables due from tax authorities consist of:

 As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
VAT receivables 21,772 16,412 5,360
Income tax receivables 2,915 1,636 1,279
Other receivables due from the public authorities 1,902 1,739 163
Total tax receivables26,58919,7876,802
 

Non-current tax receivables totalled €/000 2,974, compared to €/000 1,195 as of 31 December 2012, while current tax receivables totalled €/000 23,615 compared to €/000 18,592 as of 31 December 2012. The increase is mainly due to higher VAT receivables of the Parent Company.

 22. Deferred tax assets

Deferred tax assets and liabilities are recognised at their net value when they may be offset in the same tax jurisdiction.
The item totalled €/000 33,660, down on the figure of €/000 36,714 as of 31 December 2012. During 2013, deferred tax assets decreased mainly due to the use of tax losses to offset taxable income in relation to the non-recurrent cost referred to in section 45 on Disputes.

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.

   

 Amount of temporary differencesTax rateTax effect
In thousands of Euros
    
Provisions for risks6,14027.5% - 31.4%; 1,906
 4,52131.40% 1,420
 1,70939.65% 677
 33426.00% 87
    
Provision for product warranties9,83631.40% 3,089
 15238.40% 58
 12125.00% 30
    
Provisions for write-down9,84027.50% 2,706
 32739.65% 129
 42027.50% 115
 38826.00% 101
 838.40% 3
 230.00% 1
    
Provisions for obsolete stock23,86631.40% 7,494
 2,39839.65% 951
 31238.40% 120
 8567.50% 64
 7920.00% 16
    
Other changes5,27239.65% 2,090
 5,58933.99% 1,900
 3,98930.00% 1,197
 3,6557.5%/20%/21% 712
 31233.33% 104
 30726.00% 80
 22533.25% 75
 26127.50% 72
 16138.40% 62
 12525.00% 31
 9525.00% 24
 6320.00% 13
 3130.00% 9
 4417.00% 8
 520.00% 1
 (20,190)27.5/31.4%(6,118)
    
Total for provisions and other changes61,253 19,225
    
Deferred tax assets already recognised   13,930
    
Deferred tax assets not booked   5,295
    
PIAGGIO & C. S.P.A. 70,266 27.50% 19,323
Piaggio Group Americas Inc. 26,604 39.65% 10,548
Nacional Motor S.A.U. 25,976 30.00% 7,793
Derbi Racing S.L. 8,529 30.00% 2,559
Piaggio Group Japan Corporation 2,360 36.10% 852
PT Piaggio Indonesia 1,628 25.00% 407
Total out of tax losses135,363 41,482
    
Deferred tax assets already recognised   19,730
    
Deferred tax assets not booked   21,752
 

23. Trade receivables (current and non current)

As of 31 December 2013 current trade receivables amounted to €/000 75,722 compared to €/000 63,079 as of 31 December 2012.
As of 31 December 2013 no trade receivables were recognised under non-current assets. As of 31 December 2012 this item amounted to €/000 28.

Their breakdown was as follows:

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Trade receivables due from customers 74,858 62,161 12,697
Trade receivables due from JV 848 946 (98)
Trade receivables due from parent companies 10 - 10
Trade receivables due from affiliated companies 6 - 6
Total75,72263,10712,615
 

Receivables due from Group companies valued at equity comprise amounts due from Zongshen Piaggio Foshan Motorcycles.
Receivables due from affiliated companies regard amounts due from Immsi Audit.

The item "Trade receivables" comprises receivables referring to normal sales transactions, recorded net of the provision for bad debts of €/000 25,430.

Movements of provisions were as follows:

  
In thousands of euros  
Opening balance as of 1 January 201326,177
Increases for allocations1,319
Decreases for use(2,066)
Other changes
Closing balance as of 31 December 201325,430
 

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 2013 trade receivables still due, sold without recourse totalled €/000 62,873.
Of these amounts, Piaggio received payment prior to natural expiry, of €/000 60,869.

As of 31 December 2013, advance payments received from factoring companies and banks, for trade receivables sold with recourse totalled €/000 23,871 with a counter entry recorded in current liabilities.

24. Other current and non-current receivables

Other non-current receivables totalled €/000 13,368 against €/000 13,781 as of 31 December 2012, whereas other current receivables totalled €/000 26,514 compared to €/000 37,301 as of 31 December 2012. They consist of:

 

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Other non-current receivables:
Sundry receivables due from Group companies 138 (138)
Sundry receivables due from affiliated companies 231 234 (3)
Prepaid expenses 9,864 10,643 (779)
Advances to employees 67 84 (17)
Security deposits 621 443 178
Receivables due from others 2,585 2,239 346
Total non-current portion13,36813,781(413)
 

Receivables due from affiliated companies regard amounts due from the Fondazione Piaggio (Foundation).

 

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Other current receivables:
Sundry receivables due from the Parent Company 6,759 6,359 400
Sundry receivables due from JV 372 194 178
Sundry receivables due from affiliated companies 31 57 (26)
Accrued income 701 631 70
Prepaid expenses 4,751 8,162 (3,411)
Advance payments to suppliers 599 5,503 (4,904)
Advances to employees 2,859 2,136 723
Fair Value of hedging derivatives 3 3
Security deposits 215 263 (48)
Receivables due from others 10,224 13,996 (3,772)
Total current portion26,51437,301(10,787)
 

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.
The item Fair Value of hedging derivatives comprises the fair value of hedging transactions on the exchange risk on forecast transactions recognised on a cash flow hedge basis (€/000 3 current portion).

25. Inventories  

This item comprises:

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Raw materials and consumables92,33097,750(5,420)
Provisions for write-down(13,522)(13,352)(170)
Net value78,80884,398(5,590)
Work in progress and semifinished products 19,48320,678(1,195)
Provisions for write-down(852)(852)0
Net value18,63119,826(1,195)
Finished products and goods129,910143,049(13,139)
Provisions for write-down(19,587)(26,264)6,677
Net value110,323116,785(6,462)
Advances 46 77(31)
Total207,808221,086(13,278)
 

The reduction in the provision for the write-down of end products is mainly due to the scrapping of some obsolete spare parts.

26. Other current financial assets

This item comprises:

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Securities 838 838
Time deposits 1,260 (1,260)
Total 8381,260(422)
 

The value as of 31 December 2013 refers to a short-term, guaranteed capital, variable yield investment of the Chinese subsidiary FPVT to effectively use temporary liquidity. The value for 2012 referred to the sum collected from the sale of a licence in France, which according to local legislation, had been frozen in a bank deposit, until expiry of the three-year period granted by law for any claimants.

27. Cash and cash equivalents

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

 

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Bank and postal deposits57,30071,424(14,124)
Cash on hand4559(14)
Securities9,15914,627(5,468)
Total66,50486,110(19,606)
 

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

28. Assets held for sale

As of 31 December 2013, 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

As of 31 December 2013, there were no receivables due after 5 years.  

INFORMATION ON THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION - LIABILITIES

31. Share capital and reserves

Share capital
The change in share capital during 2013 was as follows:


In thousands of Euros 
Subscribed and paid up capital205,941
Treasury shares purchased as of 31 December 2012(6,437)
Share capital as of 1 January 2013199,504
 
Exercise of stock options86
Cancellation of treasury shares6,066
Purchase of treasury shares (286)
Sale of treasury shares200
 
Share Capital as of 31 December 2013205,570

On 15 April 2013 the General Shareholders' Meeting of Piaggio & C, resolved to annul 11,049,021 treasury shares of the Company, subject to elimination of the nominal value of ordinary shares in circulation and without a reduction in the amount of share capital.
During the year, 150,000 new ordinary shares were issued, offered to and subscribed by stock option plan beneficiaries.
Therefore, as of 31 December 2013, the nominal share capital of Piaggio & C., fully subscribed and paid up, was equal to €206,026,903.84 divided into 360,894,880 ordinary shares.

Shares in circulation and treasury shares

no. of shares20132012
Situation as of 1 January
Shares issued 371,793,901371,793,901
Treasury portfolio shares11,726,5216,844,080
Shares in circulation 360,067,380364,949,821
 
Movements for the year
Exercise of stock options150,000
Cancellation of treasury shares(11,049,021)
Purchase of treasury shares 512,1694,882,441
Sale of treasury shares to exercise stock options(350,000)
 
Situation as of 31 December
Shares issued 360,894,880371,793,901
Treasury portfolio shares839,66911,726,521
Shares in circulation 360,055,211360,067,380
 

During the year, 512,169 ordinary shares were purchased and 350,000 treasury shares were sold to stock option plan beneficiaries. As of 31 December 2013, the Parent Company held 839,669 treasury shares, equal to 0.23% of the share capital.
In accordance with international accounting standards, the acquisitions were recognised as a decrease in shareholders' equity.

As of 31 December 2013, according to the shareholder ledger and notices received pursuant to article 120 of Legislative Decree no. 58/1998 and other information available, the following shareholders held voting rights, either directly or indirectly, exceeding 5% of the share capital:

 

DeclarerDirect shareholder% of ordinary share capital% of shares with voting rights
Omniaholding S.p.A.IMMSI S.p.A.50.63250.632
Omniaholding S.p.A.0.0280.028
Total50.66050.660
Diego della Valle Diego della Valle & C. S.a.p.a.5.44915.4491
Total5.44915.4491
Financiere de l’Echiquier Financiere de l’Echiquier5.13085.1308
Total5.13085.1308
    

Share premium reserve
The share premium reserve as of 31 December 2013 increased by €/000 188, following the subscription of 150,000 new shares.

Legal reserve

The legal reserve increased by €/000 2,309 as a result of the allocation of earnings for the last period.

Other reserves

This item consists of:

 

In thousands of eurosAs of 31 December 2013As of 31 December 2012Change
Translation reserve(27,063)(16,902)(10,161)
Stock option reserve13,38513,3850
Financial instruments’ fair value reserve(1,565)(3,269)1,704
IFRS transition reserve(5,859)(5,859)0
Total other reserves(21,102)(12,645)(8,457)
Consolidation reserve9939930
Total (20,109)(11,652)(8,457)
 

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.

Dividends paid and proposed
In May 2013, dividends totalling €/000 33,087 were paid. In May 2012, dividends totalling €/000 29,877 were paid.

 

 Total amountDividend per share
2013201220132012
In millions of euros 



Resolved and paid during the year 33,087 29,877 0.0920.082
   

Capital and reserves of non-controlling interest
The end of period figures refer to non-controlling interests in Piaggio Hrvatska Doo and Aprilia Brasil Industria de Motociclos S.A.

Other components of the Statement of Comprehensive Income

The figure is broken down as follows:

 Reserve for measurement of financial instrumentsGroup translation reserveProfit reserveGroup totalShare capital and reserves attributable to non-controlling interestsTotal other components of the Statement of Comprehensive Income
In thousands of Euros
As of 31 December 2013
Items that will not be reclassified in the income statement
Remeasurements of post-employment benefits522522522
Total 005225220522
Items that may be reclassified in the income statement
Total translation gains (losses)(10,161)(10,161)(11)(10,172)
Total profits (losses) on cash flow hedge instruments1,704  1,704 1,704
Total 1,704(10,161)0(8,457)(11)(8,468)
Other components of the Statement of Comprehensive Income1,704(10,161)522(7,935)(11)(7,946)
 
As of 31 December 2012
Items that will not be reclassified in the income statement
Remeasurements of post-employment benefits(4,498)(4,498)(4,498)
Total 00(4,498)(4,498)0(4,498)
Items that may be reclassified in the income statement
Total translation gains (losses)(3,815)(3,815)(3)(3,818)
Total profits (losses) on cash flow hedge instruments(1,759)  (1,759) (1,759)
Total (1,759)(3,815)0(5,574)(3)(5,577)
Other components of the Statement of Comprehensive Income(1,759)(3,815)(4,498)(10,072)(3)(10,075)
 

The tax effect relative to other components of the Statement of Comprehensive Income is broken down as follows:

 

As of 31 December 2013As of 31 December 2012
 Gross valueTax (expense)/ benefitNet valueGross valueTax (expense)/ benefitNet value
In thousands of Euros
Remeasurements of post-employment benefits708(186)522(5,759)1,261(4,498)
Total translation gains (losses)(10,172)(10,172)(3,818)(3,818)
Total profits (losses) on cash flow hedge instruments2,292(588)1,704(2,065)306(1,759)
Other components of the Statement of Comprehensive Income(7,172)(774)(7,946)(11,642)1,567(10,075)
          

32. Current and non-current financial liabilities

In 2013, the Group’s overall debt increased by €/000 60,121, from €/000 491,616 to €/000 551,737. Net of the fair value measurement of financial derivatives to hedge the exchange risk and interest rate risk, and the adjustment of relative hedged items, as of 31 December 2013 total financial debt of the Group increased by €/000 63,760.

Financial liabilities as of 31 December 2013Financial liabilities as of 31 December 2012Change
 CurrentNon-currentTotalCurrentNon-currentTotalCurrentNon-currentTotal
In thousands of Euros 
Gross financial debt116,872426,098542,970115,042364,168479,2101,83061,93063,760
Fair Value of hedging derivatives8,7678,76712,40612,406(3,639)(3,639)
Total 116,872434,865551,737115,042376,574491,6161,83058,29160,121
 

This increase is attributable to a greater use of available medium-term credit lines.
Net financial debt of the Group amounted to €/000 475,628 as of 31 December 2013 compared to €/000 391,840 as of 31 December 2012.

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Liquidity66,50486,110(19,606)
 
Securities8381,260(422)
Current financial receivables8381,260(422)
 
Payables due to banks (52,092)(61,943)9,851
Current portion of bank financing(33,180)(31,363)(1,817)
Amounts due to factoring companies(23,871)(19,179)(4,692)
Amounts due under leases(5,809)(936)(4,873)
Current portion of payables due to other lenders(1,920)(1,621)(299)
Current financial debt(116,872)(115,042)(1,830)
 
Net current financial debt (49,530)(27,672)(21,858)
   
Payables due to banks and lenders(227,587)(160,277)(67,310)
Debenture loan(195,318)(193,550)(1,768)
Amounts due under leases0(5,809)5,809
Amounts due to other lenders(3,193)(4,532)1,339
Non-current financial debt (426,098)(364,168)(61,930)
 
NET FINANCIAL DEBT*(475,628)(391,840)(83,788)

* 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“. The indicator does not include financial assets and liabilities arising from the fair value measurement of financial derivatives used as hedging, the fair value adjustment of relative hedged items equal to €/000 8,767 and relative accruals.

Financial liabilities included in non-current liabilities totalled €/000 426,098 against €/000 364,168 as of 31 December 2012, whereas financial liabilities included in current liabilities totalled €/000 116,872 compared to €/000 115,042 as of 31 December 2012.
The attached tables summarise the breakdown of financial debt as of 31 December 2013 and 31 December 2012, as well as changes for the period.

Accounting balanceas of 31.12.2012Repayments New issues Reclassification to the current portion Exchange delta Other changes Book valueAs of 31.12.2013
In thousands of Euros
Non-current portion:
Bank financing 160,277 106,328 (37,492)(1,526) 227,587
Bonds 193,550 1,768 195,318
Other medium-/long-term loans:
- of which leases 5,809 (5,809) -
- of which amounts due to other lenders 4,532 581 (1,920) 3,193
Total other loans 10,3410581(7,729)003,193
 
Total 364,1680106,909(45,221)0242426,098
 
Accounting balanceas of 31.12.2012Repayments New issues Reclassification from the current portion Exchange delta Other changes Book valueAs of 31.12.2013
In thousands of Euros
Current portion:
Current account overdrafts 1,970 11,721 (3) 13,688
Current account payables59,973(19,869)(1,700) 38,404
Bonds 0 -
Payables due to factoring companies19,179(8) 4,700 23,871
Current portion of medium-/long-term loans:
- of which leases936(936)5,809 5,809
- of which due to banks31,363(31,479)37,492(4,312) 116 33,180
- of which amounts due to other lenders1,621(1,621)1,920 1,920
Total other loans 33,920(34,036)045,221(4,312)11640,909
 
Total 115,042(53,913)16,42145,221(6,015)116116,872
                 

The breakdown of the debt is as follows:

 Accounting balance
 as of 31.12.2013
Accounting balance 
as of 31.12.2012
Nominal value
as of 31.12.2013
Nominal value
as of 31.12.2012 
In thousands of Euros     
Bank financing312,859253,583314,384253,699
Bonds195,318193,550201,799201,799
Other medium-/long-term loans:
of which leases5,8096,7455,8096,745
of which amounts due to other lenders28,98425,33228,98425,332
Total other loans 34,79332,07734,79332,077
Total 542,970479,210550,976487,575
 

The table below shows the debt servicing schedule as of 31 December 2013:

 Nominal value as of 31.12.2013Amounts falling due within 12 monthsAmounts falling due after 12 monthsAmounts falling due in
  2015201620172018Beyond
In thousands of Euros         
Bank financing314,38485,272229,112146,96130,68919,67918,08313,700
- including opening of credit lines and bank overdrafts157,09252,092105,000105,000
-of which medium/long-term bank loans157,29233,180124,11241,96130,68919,67918,08313,700
Bonds201,7990201,799150,0009,6699,66932,461
Other medium-/long-term loans:
of which leases5,8095,8090
of which amounts due to other lenders28,98425,7913,1931,930312314317320
Total other loans 34,79331,6003,1931,930312314317320
Total 550,976116,872434,104148,891181,00129,66228,06946,481
 

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

Accounting balance
as of 31.12.2012
Accounting balance
as of 31.12.2013
Notional value 
as of 31.12.2013
Applicable interest rate
In thousands of Euros 
Euro 429,052 493,245 501,251 4.54%
   
Indian Rupee 25,291 21,445 21,445 10.14%
Indonesian Rupiah 2,989 2,906 2,906 9.54%
US Dollar 3,032 6,137 6,137 1.78%
Vietnamese Dong 14,894 16,197 16,197 15.97%
Japanese Yen 3,952 3,040 3,040 1.80%
Total currencies other than euro50,15849,72549,72510.46%
Total 479,210542,970550,9765.07%
 

Medium and long-term bank debt amounts to €/000 260,767 (of which €/000 227,587 non-current and €/000 33,180 current) and consists of the following loans:

  • a €/000 53,571 medium-term loan from the European Investment Bank to finance Research & Development investments planned for the period 2009-2012. The loan will fall
  • due in February 2016 and has an initial amortisation quota of 14 six-monthly instalments to be repaid at a variable rate equal to the six-month Euribor plus a spread of 1.323%. Contract terms require covenants (described below). An interest rate swap was taken out on the loan to hedge the interest rate risk (for more details, see section 44);
  • a €/000 60,000 medium-term loan from the European Investment Bank to finance Research & Development investments planned for the period 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%. Contract terms require covenants (described below);
  • a medium-term revolving syndicated loan of €/000 103,475 (nominal value of €/000 105,000) granted in December 2011 and finalised in January 2012, as suspension conditions had been met. The loan, of a total value of €/000 200,000, has an irrevocable duration of 4 years and because of this commitment undertaken by the lenders, inter-annual use may be extended up to final maturity. Consequently, the loan is classified under non-current liabilities. Contract terms require covenants (described below);
  • a €/000 9,912 medium-term loan for USD/000 19,000 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 will fall due on 15 January 2018 and has an amortisation quota of six-monthly instalments from January 2014. Contract terms include a guarantee of the Parent Company and some covenants (described below). Cross currency swaps were taken out on the loan to hedge the exchange risk and interest rate risk (for more details, see note 44);
  • a €/000 11,517 medium-term loan for USD/000 17,850 granted by International Finance Corporation to the subsidiary Piaggio Vehicles Private Limited with interest accruing at a variable rate. The loan will fall due on 15 July 2019 and has an amortisation quota of six-monthly instalments from July 2015. Contract terms include a guarantee of the Parent Company and some covenants (described below). Cross currency swaps were taken out on the loan to hedge the exchange risk and interest rate risk (for more details, see note 44);
  • a €/000 14,364 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 will fall due on 15 July 2018 and has an amortisation quota of six-monthly instalments from July 2014. Contract terms include a guarantee of the Parent Company and some covenants (described below). Cross currency swaps were taken out on the loan to hedge the exchange risk and interest rate risk (for more details, see note 44);
  • €/000 3,832 of loans from various banks pursuant to Italian Law no. 346/88 on subsidised applied research;
  • a €/000 3,196 loan from Banca Intesa granted pursuant to Italian Law no. 297/99 on subsidised applied research;
  • a €/000 900 eight-year subsidised loan from ICCREA in December 2008 granted under Italian Law 100/90. 

In December 2013, a bilateral revolving loan of €/000 20,000 was undersigned, maturing in June 2015. As of 31 December 2013 the loan was undrawn. Contract terms do not include covenants.
All the above financial liabilities are unsecured.

The item Bonds for €/000 195,318 (nominal value of €/000 201,799) refers to:

  • €/000 143,837 (nominal value of €/000 150,000) related 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- and Ba3 rating respectively with a stable outlook;
  • €/000 51,481 (nominal value of €/000 51,799) related 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 2013 the fair value measurement of the debenture loan was equal to €/000 55,754 (the fair value is determined based on IFRS relative to fair value hedging). Cross currency swaps were taken out on this loan to hedge the exchange risk and interest rate risk (for more details, see note 44).   

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 in profit or loss. 

Medium-/long-term payables due to other lenders equal to €/000 10,922 of which €/000 3,193 due after the year and €/000 7,729 as the current portion, are detailed as follows:

  • a property lease for €/000 5,809 granted by Unicredit Leasing (including the entire current portion);
  • subsidised loans for a total of €/000 5,113 provided by the Italian Ministry of Economic Development and Italian Ministry of Education, University and Research using regulations to encourage exports and investment in research and development (non-current portion of €/000 3,193).

Financial advances received from factoring companies and banks, on the sale of trade receivables with recourse, totalled €/000 23,871.

Covenants
In line with market practices for borrowers with a similar credit rating, main loan contracts require compliance with:

  1. financial covenants, on the basis of which the company undertakes to comply with certain levels of contractually defined financial indices, with the most significant comprising the ratio of the net financial debt/gross operating margin (EBITDA), measured on the consolidated perimeter of the Group, according to definitions agreed on with lenders;
  2. negative pledges according to which the company may not establish collaterals or other constraints on company assets;
  3. "pari passu" clauses, on the basis of which the loans will have the same repayment priority as other financial liabilities, and change of control clauses, which are effective if the majority shareholder loses control of the company;
  4. limitations on the extraordinary operations the company may carry out.

The measurement of financial covenants and other contract commitments is monitored by the Group on an ongoing basis. According to results as of 31 December 2013, all covenants had been met.

The high-yield debenture loan issued by the company in December 2009 requires compliance with typical covenants of international high-yield market practices. In particular, the company must observe the EBITDA/Net financial borrowing costs index, based on the threshold established in the prospectus, to increase financial debt defined during issue. In addition, the prospectus includes some obligations for the issuer, which limit, inter alia, the capacity to:

  1. pay dividends or distribute capital;
  2. make some payments;
  3. grant collaterals for loans;
  4. merge with or establish some companies;
  5. sell or transfer own assets.

Failure to comply with the covenants and other contract commitments of the loan and debenture loan, if not remedied in agreed times, may give rise to an obligation for the early repayment of the outstanding amount of the loan.

33. Current and non-current trade payables

As of 31 December 2013 no trade payables were recognised under non-current liabilities. As of 31 December 2012, this item amounted to €/000 259. “Trade payables” included in current liabilities totalled €/000 346,164, against €/000 392,893 as of 31 December 2012.

 

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Amounts due to suppliers 334,960 375,770 (40,810)
Trade payables due to companies valued at equity 10,492 16,613 (6,121)
Amounts due to parent companies 712 769 (57)
Total 346,164 393,152 (46,988)
of which reverse factoring 123,108 49,786 73,322
Total 346,164393,152(46,988)
 

To facilitate credit conditions for its suppliers, the Group has used factoring agreements since 2012, mainly supply chain financing and reverse factoring agreements, as described in more detail in “accounting policies and measurement criteria applied by the Group”, to which reference is made. These operations did not change the primary obligation, nor substantially changed payment terms, so their nature is the same and they are still classified as trade liabilities.
As of 31 December 2013, the value of trade payables covered by reverse factoring or supply chain financing agreements was equal to €/000 123,108 (€/000 49,786 as of 31 December 2012).

34. Current and non-current portion of provisions

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

Balance as of 31 December 2012AllocationsApplicationsReclassificationsDelta exchange rateBalance as of 31 December 2013
In thousands of Euros
Provision for product warranties14,8368,540(9,806)(905)(187)12,478
Provision for quality-related events789(1,694)9050
Risk provisions on investments247(8)239
Provisions for contractual risks3,935(19)3,916
Provisions for guarantee risks5858
Provision for tax risks175,130(17)5,130
Other provisions for risks 5,513671(1,476)86(70)4,724
Total 25,39514,341(13,020)86(257)26,545
 

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

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Non-current portion:   
Provision for product warranties3,8264,501(675)
Provision for quality-related events
Risk provisions on investments239247(8)
Provision for contractual risks3,9163,935(19)
Other provisions for risks and charges 3,1023,669(567)
Total non-current portion11,08312,352(1,269)
 
As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Current portion:   
Provision for product warranties 8,652 10,335 (1,683)
Provision for quality-related events 789 (789)
Provisions for risk on guarantee 58 58 0
Provision for tax risks5,130 17 5,113
Other provisions for risks and charges 1,622 1,844 (222)
Total current portion15,46213,0432,419
 

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 8,540 and €/000 9,806 was used in relation to costs incurred during the period.
The fund for quality-related events was used entirely for costs borne during the year relating to faulty components from suppliers.
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 and the affiliated company Acciones Depuradora , as well as costs 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 risk provision for taxes refers to the allocation of estimated charges, following the inspection by the Italian Tax Authority for the 2009, 2010 and 2011 periods, which terminated with the issue of Formal Notices of Assessment (PVC) mainly concerning transfer pricing.
“Other provisions” include provisions for legal risks for €/000 2,970. Allocations made during the year amounted to €/000 84.

 

35. Deferred tax liabilities

 
Deferred tax liabilities totalled €/000 5,722 compared to €/000 6,639 as of 31 December 2012. The change is mainly related to the non-recognition of deferred tax assets on reserves of the Indian subsidiary which are considered as not to be transferred as dividends to the Parent Company.

 

36. Retirement funds and employee benefits

   

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Retirement funds 1,082 1,101 (19)
Termination benefits 48,748 49,369 (621)
Total49,83050,470(640)
 

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 “Termination benefits”, comprising severance pay of employees of Italian companies, includes termination benefits indicated in defined benefit plans. 

Their breakdown was as follows:

In thousands of Euros
Opening balance as of 1 January 201349,369
Cost for the period8,271
Actuarial losses recognised as Shareholders' Equity(585)
Interest cost1,608
Use and transfers of retirement funds(9,915)
Other changes
Closing balance as of 31 December 201348,748
 

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 3.39%

Annual rate of inflation2.00%

Annual rate of increase in termination benefits 3.00%

 

As regards the discount rate, the iBoxx Corporates A rating with a 10+ duration as of 31 December was used as the valuation reference. If the iBoxx Corporates AA rating with a 10+ duration had been used, the value of actuarial losses and the provision as of 31 December would have been higher by € 948 thousand.

The table below shows the effects, in absolute terms, as of 31 December 2013, which would have occurred following changes in reasonably possible actuarial assumptions:

 Provision for termination benefits
In thousands of Euros
Turnover rate 2%48,670
Turnover rate -2%47,690
Inflation rate 0.25%49,444
Inflation rate - 0.25%48,012
Discount rate 0.50%46,674
Discount rate - 0.50%50,919
 

The average financial duration of the bond ranges from 10 to 12 years.
Estimated future amounts are equal to:

 

YearFuture amounts
In thousands of Euros
13,555
23,410
33,190
43,438
52,934
 

The subsidiary operating in Indonesia has provisions for employees identified as defined benefit plans. As of 31 December 2013, these provisions amounted to €/000 18.

37. Current and non-current tax payables

“Tax payables” included in current liabilities totalled €/000 12,587, against €/000 15,757 as of 31 December 2012. As of 31 December 2013 no tax payables were recognised under non-current liabilities. As of 31 December 2012, this item amounted to €/000 555.

Their breakdown was as follows:

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Due for income taxes 2,870 4,285 (1,415)
Due for non-income tax 30 65 (35)
Tax payables for:
- VAT 2,283 3,076 (793)
- Tax withheld at source 6,140 5,079 1,061
- other 1,264 3,807 (2,543)
Total 9,687 11,962 (2,275)
Total12,58716,312(3,725)
 

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)

   

As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Non-current portion:  
Payables to employees 1 19 (18)
Guarantee deposits 1,722 2,003 (281)
Accrued expenses0
Deferred income 1,123 1,160 (37)
Fair Value of hedging derivatives 1,102 2,841 (1,739)
Other payables 200 400 (200)
Total non-current portion4,1486,423(2,275)
       
As of 31 December 2013As of 31 December 2012Change
In thousands of Euros
Current portion:
Payables to employees 15,807 19,133 (3,326)
Guarantee deposits 179 (179)
Accrued expenses 5,956 8,450 (2,494)
Deferred income 523 1,206 (683)
Amounts due to social security institutions 8,388 8,827 (439)
Fair Value of hedging derivatives 972 1,521 (549)
Sundry payables due to companies valued at equity 58 58
Sundry payables due to affiliated companies 26 127 (101)
Sundry payables due to parent companies 6,390 60 6,330
Other payables 7,296 10,842 (3,546)
Total 45,41650,345(4,929)
 

Other payables included in non-current liabilities totalled €/000 4,148 against €/000 6,423 as of 31 December 2012, whereas other payables included in current liabilities totalled €/000 45,416 compared to €/000 50,345 as of 31 December 2012.

Amounts due to employees include the amount for holidays accrued but not taken of €/000 8,369 and other payments to be made for €/000 7,439.

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 related to losses within the framework of the Consolidated Tax Convention and for the amount of €/000 3,990 are related to the non- recurrent cost discussed in note 46.

The item Fair value of hedging derivatives refers to the fair value (€/000 1,102 non-current portion and €/000 735 current portion) of an interest rate swap for hedging, recognised on a cash flow hedge basis as provided for in IAS 39 (see section 44) and the fair value of derivatives to hedge the foreign exchange risk on forecast transactions recognised on a cash flow hedge basis (€/000 237 current portion).
The item Accrued expenses includes €/000 4,069 for interest on hedging derivatives and relative hedged items measured at fair value.

 

39. Share-based incentive plans

Since 2010, Piaggio has no longer approved any incentive plans based on the allocation of financial instruments.
Stock option plans adopted assign rights free of charge to purchase Piaggio shares on a 1:1 ratio.
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 500,000 option rights were exercised, while 70,000 option rights were waived.

 

RightsNo. of optionsAverage exercise price (euro)Market price (euro)
Rights existing as of 31.12.2012 3,940,000 1.71
- of which exercisable as of 31.12.2012 3,940,000  
New rights assigned in 2013
Rights exercised in 2013(500,000)1.612.04
Rights waived in 2013(70,000)
Rights existing as of 31.12.2013 3,370,000  1.72
- of which exercisable as of 31.12.2013 3,370,000  
 

As of 31 December 2013, 3,370,000 option rights had been assigned for a corresponding number of shares.
Options are divided as follows, by assignment plan:

 

 Number of rights as of 31 December 2013Period when rights may be exercisedExercise price (€)
Assignment 15 January 2009 390,000 15 Jan 2012 - 15 Jan 20141.2218
Assignment 11 May 2009 200,000 11 May 2012 - 11 May 20141.2237
Assignment 18 December 2009 2,780,000 18 Dec 2012 - 18 Dec 20141.826
Total 3,370,000   
 

At the date of publication of this document, 390,000 option rights relative to the assignment of 15 January 2009 had expired. Options therefore amount to 2,980,000.
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 are available on the Issuer's institutional website www.piaggiogroup.com under Governance.

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 periodOptions held at the end of the period
 PositionNo. of optionsAverage exercise priceAverage maturityNo. of optionsAverage exercise priceAverage maturity
Assignment 18 December 2009General Manager Finance250,0001.82618.12.2014250,0001.82618.12.2014
    

 

40. Breakdown of liabilities by geographic segment

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


41. 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.

 

42. Information on related parties

Revenues, costs, payables and receivables as of 31 December 2013 involving parent companies, subsidiaries and affiliated companies relate to the sale of goods or services which are a part of normal operations of the Group.
Transactions are carried out at normal market values, depending on the characteristics of the goods and services provided.
The procedure for transactions with related parties, pursuant to article 4 of Consob Regulation no. 17221 of 12 March 2010 as amended, approved by the Council on 30 September 2010, is published on the institutional site of the Issuer www.piaggiogroup.com, under Governance.    

Relations with Parent Companies

 Piaggio & C. S.p.A. is subject to the management and coordination of IMMSI S.p.A. pursuant to article 2497 et seq. of the Italian Civil Code. During the period, this management and coordination concerned the following activities:

  • As regards mandatory financial disclosure, and in particular the financial statements and reports on operations of the Group, IMMSI has produced a group manual containing the accounting standards adopted and options chosen for implementation, in order to give a consistent and fair view of the consolidated financial statements.
  • IMMSI has defined procedures and times for preparing the budget and in general the industrial plan of Group companies, as well as final management analysis to support management control activities.
  • IMMSI has also provided services for the development and management of Company assets, with a view to optimising resources within the Group, and provided property consultancy services and other administrative services.
  • Lastly, IMMSI has provided consultancy services and assistance to the Company and subsidiaries concerning extraordinary financing operations, organisation, strategy and coordination, as well as services intended to optimise the financial structure of the Group.
  •   In 2013, for a further three years, the Parent Company signed up to the National Consolidated Tax Mechanism 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 a single global income equal to the algebraic sum of taxable amounts (income or loss) realised by individual companies that opt for this type of group taxation.

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. Under the National Consolidated Tax Convention, companies may, pursuant to Article 96 of Presidential Decree no. 917/86, allocate the excess of interest payable which is not deductible to one of the companies so that, up to the excess of Gross Operating Income produced in the same tax period by other subjects party to the consolidation (or, in the presence of specific legal requirements, from foreign companies), the amount may be used to reduce the total income of the Group.  

Piaggio & C. S.p.A. has undertaken a rental agreement for offices owned by Omniaholding S.p.A.. This agreement, signed in normal market conditions, was previously approved by the Related-Party Transactions Committee, as provided for by the procedure for transactions with related parties adopted by the Company.
In addition, Omniaholding S.p.A. has undersigned Piaggio & C. bonds for a value of € 2.9 million on the financial market, and collected related interest. 

Pursuant to article 2.6.2, section 13 of the Regulation of Stock Markets organised and managed by Borsa Italiana S.p.A., the conditions as of article 37 of Consob regulation no. 16191/2007 exist.    

Transactions with subsidiaries 

The main relations with subsidiaries, eliminated in the consolidation process, refer to the following transactions:

Piaggio & C. S.p.A.

  • sells vehicles, spare parts and accessories to sell on respective markets, to:
    • Piaggio Hrtvaska
    • Piaggio Hellas
    • Piaggio Group Americas
    • Piaggio Vehicles Private Limited
    • Piaggio Vietnam 
  • sells components to: 
    • Piaggio Vehicles Private Limited
    • Piaggio Vietnam 
  • grants licences for rights to use the brand and technological know-how to: 
    • Piaggio Vehicles Private Limited
    • Piaggio Vietnam 
  • provides support services for scooter and engine industrialisation to: 
    • Piaggio Vehicles Private Limited
    • Piaggio Vietnam 
  • provides support services for staff functions of other Group companies; 
  • issues guarantees for the Group's subsidiaries, for medium-term loans.

Piaggio Vietnam

  • sells vehicles, spare parts and accessories, which it has manufactured in some cases, to the following companies to sell on their respective markets:
    • Piaggio Indonesia
    • Piaggio Group Japan
    • Piaggio & C. S.p.A.

Piaggio Vehicles Private Limited

  • sells vehicles, spare parts and accessories to Piaggio & C. S.p.A, to sell on their respective markets, as well as components and engines to use in its manufacturing 

Piaggio Vespa provides

  • back office business and administration services as well as credit management services to Piaggio & C. S.p.A.. 

Piaggio Hrtvaska, Piaggio Hellas, Piaggio Group Americas and Piaggio Vietnam

  • distribute vehicles, spare parts and accessories purchased by Piaggio & C. on their respective markets. 

Piaggio Indonesia and Piaggio Group Japan

  •  provide a vehicle, spare part and accessory distribution service to Piaggio Vietnam for their respective markets.

Piaggio France, Piaggio Deutschland, Piaggio Limited, Piaggio Espana and Piaggio Vespa

  • provide a sales promotion service and after-sales services to Piaggio & C. S.p.A. for their respective markets. 

Piaggio Asia Pacific

  • provides a sales promotion service and after-sales services to Piaggio Vietnam in the Asia Pacific region. 

Foshan Piaggio Vehicles Technologies R&D provides:

  • Piaggio & C. S.p.A.:
    • with a component and vehicle design/development service;
    • scouting of local suppliers; 
  • Piaggio Vietnam:
    • scouting of local suppliers; 

Piaggio Advanced Design Center: 

  • provides a vehicle and component research/design/development service to Piaggio & C. S.p.A.

Aprilia Racing provides:  

  • to Piaggio & C. S.p.A. 
    • a racing team management service;
    • a vehicle design service.

Atlantic 12

  • rents a property to Piaggio & C. S.p.A..       

Relations between subsidiaries and JV Zongshen Piaggio Foshan Motorcycle Co. Ltd

Main intercompany relations between subsidiaries and JV Zongshen Piaggio Foshan Motorcycle Co. Ltd, refer to the following transactions: 

Piaggio & C. S.p.A.

  • grants licences for rights to use the brand and technological know-how to Zongshen Piaggio Foshan Motorcycle Co. Ltd.. 

Zongshen Piaggio Foshan Motorcycle Co. Ltd

  • sells vehicles, spare parts and accessories, which it has manufactured in some cases, to the following companies to sell on their respective markets:
    • Piaggio Vietnam
    • Piaggio & C. S.p.A..

The table below summarises relations described above and financial relations with parent companies, subsidiaries and affiliated companies as of 31 December 2013 and relations during the year, as well as their overall impact on financial statement items.

 


Fondazione PiaggioZongshen Piaggio FoshanIMMSI AuditIs MolasStudio D’UrsoOmniaholdingIMMSITotal% of accounting item
In thousands of euros
Income statement
revenues from sales343 343 0.03%
costs for materials 23,143 - 23,143 3.24%
costs for services and lease and rental costs - 3 780 49 73 65 2,950 3,920 1.90%
other operating income - 427 124 50 601 0.66%
other operating costs 1 14 15 0.06%
borrowing costs 105 203 308 0.84%
taxes6,1776,17716.79%
          
Assets
other non-current receivables 231 231 1.73%
current trade receivables - 848 6 10 864 1.14%
other current receivables - 372 31 - 6,759 7,162 27.01%
 
Liabilities
financial liabilities falling due after one year 2,900 2,900 0.67%
current trade payables - 10,492 - - - 20 692 11,204 3.24%
other current payables 26 58 - - - 6,390 6,474 14.25%
         

43. Contract commitments and guarantees

Contract commitments of the Piaggio Group are summarised based on their expiry.

 

 In 1 yearBetween 2 and 5 yearsAfter 5 yearsTotal
In thousands of Euros
Operating leases 4,712 7,876 380 12,968
   

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 Port200
Guarantee of BCC-Fornacette issued for the Group to Poste Italiane – Rome, to guarantee contract obligations for the supply of vehicles1,321
Guarantee of Banco di Brescia issued to the local authorities of Scorzè, to guarantee payment of urbanisation and construction charges relative to the Scorzè site166
Guarantee of Banca Intesa San Paolo issued to the Ministry of the Interior of Algeria, to guarantee contract obligations for the supply of vehicles140
Guarantee of Banca Intesa San Paolo issued to the Ministry of the Defense of Algeria, to guarantee contract obligations for the supply of vehicles158
Guarantee of Monte dei Paschi di Siena issued to Chen ShinRubber for € 300,000, to guarantee contract obligations for the supply of vehicles300
                   

44. Information on financial instruments

This section 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.

The carrying amount of financial assets and liabilities broken down in IAS 39 categories is indicated below.

 

Financial assets as of 31 December 2013Loans and receivablesInvestments held to maturityHedging derivativesFinancial instruments at fair value available for saleTotal
In thousands of euros
Non-current assets
Financial receivables0
Fair value of hedging derivatives10,30510,305
Investments in other companies163163
     
Total non-current assets0010,30516310,468
 
Current assets
Trade receivables75,72275,722
Other financial assets838838
Bank and postal deposits57,30057,300
Securities9,1599,159
 
Total current assets143,019000143,019
 
Total 143,019010,305163153,487
Financial assets as of 31 December 2012




Non-current assets
Financial receivables3030
Fair value of hedging derivatives12,85412,854
Investments in other companies163163
Trade receivables2828
 
Total non-current assets58012,85416313,075
 
Current assets
Trade receivables63,07963,079
Other financial assets1,2601,260
Bank and postal deposits71,42471,424
Securities14,62714,627
 
Total current assets150,390000150,390
 
Total 150,448012,854163163,465
   
Financial liabilities as of 31 December 2013Payables at fair valueHedging derivativesOther financial liabilities at amortised costTotal
In thousands of Euros
Non-current liabilities
Bank financing124,112103,475227,587
Bonds195,318195,318
Other loans3,1933,193
Leases0
Hedging derivatives8,7678,767
Total non-current liabilities127,3058,767298,793434,865
 
Current liabilities
Bank financing85,27285,272
Other loans25,79125,791
Leases5,8095,809
Hedging derivatives0
Total current liabilities116,87200116,872
 
Total 244,1778,767298,793551,737
Financial liabilities as of 31 December 2012



In thousands of Euros
Non-current liabilities
Bank financing160,277160,277
Bonds193,550193,550
Other loans4,5324,532
Leases5,8095,809
Hedging derivatives12,40612,406
Total non-current liabilities170,61812,406193,550376,574
 
Current liabilities
Bank financing92,42288493,306
Other loans20,80020,800
Leases936936
Hedging derivatives0
Total current liabilities114,1580884115,042
 
Total 284,77612,406194,434491,616
     

Current and non-current financial liabilities 

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

Fair Value Measurement

IFRS 13 – Fair value measurement applies as from 1 January 2013. The Standard defines fair value on the basis of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In the absence of an active market or market that does not operate regularly, fair value is measured by valuation techniques. The standard defines a fair value hierarchy:

  • level 1 – quoted prices in active markets for assets or liabilities measured;
  • level 2 – inputs other than quoted prices included within Level 1 that are observable directly (prices) or indirectly (derived from prices) on the market;
  • level 3 – inputs not based on observable market data.

The valuation techniques referred to levels 2 and 3 must take into account adjustment factors that measure the risk of insolvency of both parties. To this end, the standard introduces the concepts of Credit Value Adjustment (CVA) and Debit Value Adjustment (DVA): CVA makes it possible to include the counterparty credit risk in the fair value measurement; DVA reflects the risk of insolvency of the Group.

IFRS 7 also requires the fair value of debts recognised on an amortised cost basis to be measured, for disclosure purposes only.
The table below indicates these values as of 31 December 2013:

    Nominal valueCarrying amountFair Value *
In thousands of Euros
High yield debenture loan                   150,000 143,837160,605
Private debenture loan                      51,799 51,48155,754
EIB (R&D loan 2009-2012)                     53,57153,57152,822
EIB (R&D loan 2013-2015)                     60,00060,00055,985
Revolving syndicated loan                    105,000 103,47599,878
 

*the value deducts DVA related to the issuer, i.e. it includes the risk of insolvency of Piaggio.

For liabilities due within 18 months, the carrying amount is basically considered the same as the fair value.

FAIR VALUE HIERARCHY

The table below shows the assets and liabilities measured and recognised at fair value as of 31 December 2013, by hierarchical level of fair value measurement.

 Level 1Level 2Level 3
In thousands of Euros
ASSETS MEASURED AT FAIR VALUE
Investment property7,346
Hedging financial derivatives10,305
Investments in other companies163
Other assets3
Total10,3087,509
 
LIABILITIES MEASURED AT FAIR VALUE
Hedging financial derivatives(275)
Financial liabilities at fair value recognised through profit or loss (96,084)
Other liabilities (2,074)
Total (98,158)(275)
 

The value of the former Spanish site of Martorelles, transferred during 2013, from property, plant and equipment to non-instrumental property investment, was confirmed by a specific appraisal conducted by an independent expert who made an evaluation of the "Fair Value less cost of disposal" based on a market approach (as provided for in IFRS 13). The measurement took account of comparable transactions carried out on the local market, along with the effect of negotiations underway for the rental of property.
The fair value confirmed the value of the cost at which the property was registered during initial qualification of the investment as investment property. No effects on the income statement in the year were recorded.
The measurement of the cross currency relative to the Vietnamese subsidiary was classified as hierarchical level 3. This classification reflects the illiquidity of the local market which does not allow for measurement using 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 2,479, rather than €/000 (275) (included under financial hedging instruments - level 3) and accrued expenses on financial derivatives equal to €/000 965.
The following tables show Level 2 and Level 3 changes during 2013:

 

LEVEL 2
In thousands of Euros
Balance as of 31 December 2012(95,622)
Gain (loss) recognised in profit or loss5,765
Increases/(Decreases)2,007
Balance as of 31 December 2013(87,850)
 
 Level 3
In thousands of Euros
Balance as of 31 December 2012(33)
Gain (loss) recognised in profit or loss(79)
Increases/(Decreases)7,346
Balance as of 31 December 20137,234
 

The increase of €/000 7,346 is relative to the above mentioned non-instrumental investment property.

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, in order to reduce management costs and dedicated resources, 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. A cash pooling zero balance system is used between the Parent Company and European companies to reset the receivable and payable balances of subsidiaries on a daily basis, for a more effective and efficient management of liquidity in the Eurozone.

As of 31 December 2013 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 revolving credit facility of €/000 200,000 maturing in December 2015;
  • a revolving credit facility of €/000 20,000 maturing in June 2015;
  • a loan of €/000 53,571 maturing in February 2016;
  • a loan of €/000 60,000 maturing in December 2019.  

 

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 2013, the Group had a liquidity of €/000 66,504, €/000 115,000 of undrawn irrevocable credit lines and €/000 132,350 of revocable credit lines, as detailed below:

 

As of 31 December 2013As of 31 December 2012
In thousands of Euros
Variable rate with maturity within one year - irrevocable until maturity59,000
Variable rate with maturity beyond one year - irrevocable until maturity115,000200,000
Variable rate with maturity within one year - cash revocable101,350140,198
Variable rate with maturity within one year - with revocation for self-liquidating typologies31,00034,000
Total undrawn credit lines247,350433,198
 

The table below shows the timing of future payments in relation to trade payables:

 Within 30 daysBetween 31 and 60 daysBetween 61 and 90 daysOver 90 daysTotal
In thousands of Euros
Trade payables 205,611 80,713 27,161 32,679 346,164
 

Management considers that currently available funds, as well as funds that will be generated from operations and loans, will enable the Group to meets its requirements relative to investments, the management of working capital and repayment of loans on expiry and will ensure an adequate level of operating and strategic flexibility.

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;
  • 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 exchange risk due to 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.

 

Cash flow hedging

As of 31 December 2013, the Group has undertaken the following futures operations (recognised based on the regulation date), relative to payables and receivables already recognised to hedge the transaction exchange risk:

   

CompanyOperationCurrency Amount in local currencyValue in euro (forward exchange rate) Average maturity
In thousands

Piaggio & C. Purchase CNY20,4002,45508/01/2014
Piaggio & C. Purchase JPY88,00064708/01/2014
Piaggio & C. Purchase USD10,7007,82608/01/2014
Piaggio & C. Sale CAD32022731/01/2014
Piaggio & C. Sale GBP8501,01621/02/2014
Piaggio & C. Sale INR424,0004,97224/01/2014
Piaggio & C. Sale JPY75,00053128/02/2014
Piaggio & C. Sale SEK1,90021328/02/2014
Piaggio & C. SaleUSD2,5501,86717/02/2014
Piaggio IndonesiaPurchase 3,920-16/01/2014
Piaggio Vehicles Private LimitedSaleUSD1,8381,35514/01/2014
Piaggio VietnamPurchase3,700-07/01/2014
 

As of 31 December 2013, the Group had undertaken the following transactions to hedge the business exchange risk:

CompanyOperationCurrency Amount in local currencyValue in € (forward exchange rate) Average maturity
In thousands

Piaggio & C. Purchase CNY212,25025,47027/05/2014
Piaggio & C. Sale GBP10,78012,85801/07/2014
 

To hedge the exchange 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 2013 the total fair value of hedging instruments for the economic exchange risk recognised on a hedge accounting basis was negative by €/000 234. During 2013, losses under other components of the Statement of Comprehensive Income were recognised amounting to €/000 234 and profit from other components of the Statement of Comprehensive Income was reclassified under profit/loss for the year amounting to €/000 384.

The net balance of cash flows during 2013 is shown below, divided by main currency:

 

 Cash Flow 2013
In millions of euro 
Pound Sterling18.9
Indian Rupee31.0
Croatian Kuna2.8
US Dollar10.5
Canadian Dollar7.1
Swiss Franc(1.2)
Indonesian Rupiah13.4
Vietnamese Dong20.8
Chinese Yuan*(28.3)
Japanese Yen(8.6)
Total cash flow in foreign currency66.4

 * cash flow partially in euro 

In view of the above, an assumed appreciation/deprecation of 3% of the Euro would have generated potential losses for €/000 1,937 and potential profits for €/000 2,057 respectively. 

Interest rate risk

This risk arises from fluctuating interest rates and the impact this may have on future cash flows arising from variable rate financial assets and liabilities. The Group regularly measures and controls its exposure to the risk of interest rate changes, as established by its management policies, in order to reduce fluctuating borrowing costs, and limit the risk of a potential increase in interest rates. This objective is achieved through an adequate mix of fixed and variable rate exposure, and the use of derivatives, mainly interest rate swaps and cross currency swaps.
As of 31 December 2013, the following hedging derivatives were in use:

Hedging of financial flows (cash flow hedging)

  • an interest rate swap to cover a variable rate loan for a nominal amount of €/000 117,857 (as of 31 December 2013 for €/000 53,571) 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 2013, the fair value of the instrument was negative by €/000 1,837; 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 €/000 322 and €/000 -331 respectively.  

Fair value hedging derivatives (fair value hedging and fair value options)

 

  • 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 in profit or loss. As of 31 December 2013 the fair value of the instrument was equal to €/000 4,233. The net economic effect arising from the measurement of the instrument and underlying private debenture loan was equal to €/000 115; 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 related tax effect, of €/000 108 and €/000 -93 respectively, 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 -15 and €/000 21 respectively;
  • a cross currency swap to hedge loans relative to the Indian subsidiary for $/000 19,000 granted by International Finance Corporation. The purpose of the instruments is to hedge the exchange risk and interest rate risk, turning the loan from US dollars to Indian Rupees, and half of said loan from a variable rate to a fixed rate. As of 31 December 2013 the fair value of the instruments was equal to €/000 4,190. 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 50 and €/000 -52 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 -5 and €/000 5 respectively;
  • a cross currency swap to hedge loans relative to the Indian subsidiary for $/000 17,850 granted by International Finance Corporation. The purpose of the instruments is to hedge the exchange risk, turning the loan from US dollars to Indian Rupees, and to hedge the interest rate risk on the US dollar. As of 31 December 2013 the fair value of the instruments was equal to €/000 1,782. 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 -6 and €/000 6 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 -9 and €/000 9 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 instruments 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 2013 the fair value of the instruments was negative by €/000 275. 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 €/000 137 and €/000 -140 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 -5 and €/000 5 respectively.

 

As of 31 December 2013, the Group had a cross currency swap relative to the Indian subsidiary to hedge the intercompany loan of $/000 5,000 granted by the Parent Company. The purpose of the instrument is to hedge the exchange risk and interest rate risk, turning the loan from Euros to Indian Rupees and from a variable to a fixed rate. Based on hedge accounting principles, this derivative is classified as non-hedging and therefore is measured at fair value with measurement effects recognised in profit or loss. As of 31 December 2013 the fair value of the instrument was equal to €/000 100. 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 60 and €/000 -62 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 -32 and €/000 33 respectively.

   

FAIR VALUE
In thousands of Euros 
Piaggio & C. S.p.A. 
Interest Rate Swap(1,837)
Cross Currency Swap4,233
Piaggio Vehicles Private Limited 
Cross Currency Swap5,972
 Cross Currency Swap 100
Piaggio Vietnam 
Cross Currency Swap(275)
 

As of 31 December 2013, variable rate debt, net of financial assets, and considering hedging derivatives, was equal to €/000 162,521. Consequently a 1% increase or decrease in the Euribor above this net exposure would have generated higher or lower interest of €/000 1,625 per year.       

Credit risk

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

As of 31 December 2013As of 31 December 2012
In thousands of Euros
Liquid assets57,30071,424
Securities9,15914,627
Financial receivables8381,260
Trade receivables75,72263,107
Total 143,019150,418
 

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 the 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.

 

45. Disputes    

Piaggio opposed the proceedings undertaken by the consumer association Altroconsumo, in accordance with article 140 of the Code of Consumers, opposing, also with the filing of a specific technical report written by an independent expert, the alleged existence of a design defect and hazardous nature of the Gilera Runner first series, which was manufactured and sold by Piaggio from 1997 to 2005. In the case put forward by Altroconsumo, the erroneous design would make the vehicle in question more hazardous in the event of an accident with frontal impact, referring as an example to two accidents occurring in 1999 and 2009 to Mr Gastaldi and Mr Stella respectively, following which the Gilera Runner burst into flames. 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 effects of the ruling were subsequently suspended by the Court of Pontedera with a ruling (“inaudita altera parte”) of 28 March 2013, concerning the appeal made by Piaggio, in accordance with article 700 of the Italian Code of Civil Proceedings. Following the cross examination with Altroconsumo, the suspension ruling was confirmed by the Court of Pontedera on 3 June 2013. Altroconsumo appealed against the suspension ruling before the Board at the Court of Pisa. The Board therefore ordered a new technical appraisal, having established contradictions between i) the appraisal of the Court-appointed expert Professor Cantore in proceedings brought by Altroconsumo and ii) the appraisal of the Court-appointed expert Professor Cantore in proceedings brought by Mr Stella in a separate ruling for the compensation of damages. The deadline for completing the appraisal and filing the report has been set for October 2014.
Piaggio has also taken action before the Court of Pontedera for a final dismissal of the ruling of the Court of Pisa of 29 January 2013. The case has been adjourned to 6 November 2014 pending the filing of the appraisal relative to the appeal stage.

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) in August 2009 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, Piaggio 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 2012, 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. The case has been adjourned to 12 January 2016 for specification of the pleadings. 

Da Lio S.p.A., by means of a writ received on 15 April 2009, summoned the Parent 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 186-ter of the Italian Code of Civil Proceedings, on 7 June 2011, ordering Piaggio to pay the sum of Euro 109,586.60, in addition to interest relative to sums which were not disputed. During 2012, testimonial evidence was presented. After the decision taken based on testimonial evidence, the Judge admitted a technical/accounting appraisal requested by Da Lio, to take place in May 2014.

In June 2011 Elma srl, a Piaggio dealer since 1995, started two separate proceedings against the Parent Company, claiming the payment of approximately €2 million for alleged breach of the sole agency ensured by Piaggio for the Rome area and an additional €5 million 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 for Elma to settle outstanding sums owing of approximately €966,000.
During the case, Piaggio requested the payment of bank guarantees that ensured against the risk of default by the dealer issued in its favour by three banks. 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). Trial proceedings took place and a hearing will be held on 24 April 2013 to examine evidence. After reaching a decision at the aforesaid hearing, the Judge rejected requests for preliminary examination of Elma and set the hearing for 17 December 2015 for closing arguments.
As regards the matter, Elma has also brought a case against a former senior manager of the Company with the Court of Rome, claiming compensation for damages: Piaggio appeared in the proceedings, requesting, among others, that the case be moved to the Court of Pisa. At the hearing of 27 January 2014, the Judge ruled on the preliminary exceptions and preliminary briefs.

In a writ received on 29 May 2007, Gammamoto S.r.l. in liquidation, an Aprilia licensee in Rome, brought a case against the Parent 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 admitted testimonial evidence and evidence for examination requested by the parties, establishing the hearing for the preliminary investigation on 12 November 2012. After defining the closing arguments of the hearing of 26 June 2013, the terms for final statements and relative replies were granted, and the case was ruled on.

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. After questioning the witnesses, the case was adjourned to the hearing of 10 July 2014 for the specification of closing arguments. 

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 at over 5 billion Naira (approximately €20 million), 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, inter alia, the lack of jurisdiction of the Nigerian Court to rule on the dispute due to the existence of an arbitration clause in the agreement. After various provisional hearings, the Judge admitted one of the preliminary exceptions made by Piaggio, based on the absence of notification of the writ of summons of the judgement. Autobahn appealed against the ruling and is waiting for the appeal date to be set.

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.    

As regards tax claim rulings involving the Parent Company Piaggio & C S.p.A. (hereinafter "the Company"), two appeals are ongoing against two tax assessments notified to the Company and relative to the 2002 and 2003 tax years respectively. These assessments originate from an audit conducted by the Italian Tax Authority in 2007 at the Company's offices, following information filed in the Formal Notice of Assessment issued in 2002 following 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.
As regards the dispute relative to the 2002 tax period, the Italian Tax Authority in April 2013 appealed to the Supreme Court of Cassation and the Company filed against this appeal; as regards this period, the date of the hearing still has to be set.
As regards the dispute relative to the 2003 tax period, the Italian Tax Authority appealed to the Supreme Court of Cassation in January 2014 and the Company is about to file against this appeal.
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.

The main tax disputes of other Group companies concern Piaggio Vehicles PVT Ltd e Piaggio France S.A..

With reference to the Indian subsidiary, some disputes concerning different tax years from 1998 to 2011 are ongoing related 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, requesting payment of the amounts claimed. The company therefore filed an appeal against the claims of the Local Authorities, which however rejected the considerations made by the companies. It therefore filed an appeal with the Tribunal Administratif and is waiting for the date of the hearing to be set. 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.

The tax assessment by the Italian Tax Authority concerning Piaggio & C. S.p.A. and the 2010 tax period ended in October 2013 with the issue of the Formal Notice of Assessment, containing findings relative to 2009, 2010 and 2011 on transfer pricing.
The findings mainly concern the provision of intergroup services for subsidiaries located in countries with ordinary tax systems, where realised income has been regularly taxed.
The Company, despite stating that it has always acted in compliance with laws and in strict compliance with OECD guidelines and without any tax exploitation whatsoever, to prevent tax litigation with reference to assessment aspects, that concern contrasting positions with outcomes that are hard to predict, considered it appropriate to agree to the settlement proposal made by the Italian Tax Authority.
To confirm the accuracy and transparency of its operations, the Company has also stated that the Italian Tax Authority has not applied any sanctions as concerns transfer pricing, acknowledging the suitability of documents presented (the Master file) and national documents pursuant to Law Decree no. 78/2010).
The above procedure will involve a financial outlay, for production tax only, of €5.1 million, while the overall impact on the income statement for 2013 is equal to €24.6 million, due to the above outlay as well as the use, for the purposes of corporate income tax, of previous tax losses to offset the total sum of the proposals.

   

46. Significant non-recurring events and operations   

In 2012 and 2013, with reference to the 2009, 2010 and 2011 tax periods, tax inspections of Piaggio & C S.p.A. were conducted by the Italian Tax Authority, which terminated with the issue in late 2013 of a Formal Notice of Assessment concerning transfer pricing.
After explaining the correct nature of its operations to the Italian Tax Authority the Company decided to benefit from the system of paying lower fines pursuant to Legislative Decree no. 218/1997, to settle its position and avoid tax litigation and therefore considerably lowered the initial requests of the inspectors.
The operation, recognised in 2013 as taxes in the income statement, comes under significant non-recurrent transactions, as defined by Consob Communication DEM/6064293 of 28 July 2006.
For 2012, no significant non-recurrent transactions were recorded.

   

47. Transactions arising from atypical and/or unusual operations    

During 2013 and 2012, the Group did not record any significant atypical and/or unusual operations, as defined by Consob Communication DEM/6037577 of 28 April 2006 and DEM/6064293 of 28 July 2006.

   

48. Events occurring after the end of the period

   

24 February 2014  The company Foshan Piaggio Vehicles Technology R&D Co. LTD obtained all necessary authorisations from the local authorities to start the sale of two-wheeler products in China.

14 March 2014  Following the completion of the tax assessment which began in 2012 – discussed in more detail in the section “Disputes” - and solely to prevent tax litigation with reference to assessment aspects, that concern contrasting positions with outcomes that are hard to predict, Piaggio & C. S.p.A. considered it appropriate to agree to the settlement proposal made by the Italian Tax Authority that will involve a financial outflow, only as concerns regional production tax, of €5.1 million, while the overall impact on the income statement is equal to €24.6 million, including the use for the purposes of corporate income tax of previous losses to offset the total sum of the proposals.

19 March 2014  Approval of the 2014-2017 Industrial Plan.

           

49. Authorisation for publication

This document was published on 7 April 2014 and authorised by the Chairman and Chief Executive Officer.

           

Milan, 20 March 2014for the Board of Directors
Chairman and Chief Executive Officer
Roberto Colaninno