Quarterly Report • Aug 25, 2017
Quarterly Report
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| Company officers | Page 2 |
|---|---|
| Key performance indicators | Page 3 |
| Interim report on operations | Page 5 |
| Half-year condensed consolidated financial statements: | |
| Consolidated income statement | Page 18 |
| Consolidated statement of comprehensive income | Page 18 |
| Consolidated statement of financial position | Page 19 |
| Consolidated statement of cash flows | Page 20 |
| Consolidated statement of changes in net equity | Page 21 |
| Explanatory notes | Page 22 |
| Certification of the half-year condensed consolidated financial statements |
| pursuant to art. 81-ter of Consob Regulation 11971 dated 14 May 1999 | |
|---|---|
| and subsequent amendments and additions | Page 57 |
| External auditors' report on the limited review of the half-year | |
| condensed consolidated financial statements | Page 58 |
| GIUSEPPE DE'LONGHI | Chairman |
|---|---|
| FABIO DE'LONGHI | Vice Chairman and Chief Executive Officer |
| ALBERTO CLÒ ** | Director |
| RENATO CORRADA ** | Director |
| SILVIA DE'LONGHI | Director |
| CARLO GARAVAGLIA | Director |
| CRISTINA PAGNI ** | Director |
| STEFANIA PETRUCCIOLI** | Director |
| GIORGIO SANDRI | Director |
| SILVIO SARTORI | Director |
| LUISA MARIA VIRGINIA COLLINA** | Director |
| CESARE CONTI | Chairman |
|---|---|
| GIANLUCA PONZELLINI | Standing member |
| PAOLA MIGNANI | Standing member |
| PIERA TULA | Alternate auditor |
| ALBERTA GERVASIO | Alternate auditor |
E Y S.P.A. ***
RENATO CORRADA ** SILVIO SARTORI STEFANIA PETRUCCIOLI**
ALBERTO CLÒ ** CARLO GARAVAGLIA CRISTINA PAGNI **
* The company officers were elected at the shareholders' meeting of 14 April 2016 for the period 2016-2018.
** Independent directors.
*** The engagement to audit the financial statements for 2010-2018 was approved at the shareholders' meeting of 21 April 2010.
| (€/million) | 2nd quarter 2017 |
% revenues | 2nd quarter 2016 |
% revenues | Change | Change % |
|---|---|---|---|---|---|---|
| Revenues | 437.1 | 100.0% | 411.6 | 100.0% | 25.5 | 6.2% |
| Revenues like- for-like (*) | 428.9 | 411.6 | 17.3 | 4.2% | ||
| Revenues at constant exchange rates(**) | 431.6 | 412.5 | 19.1 | 4.6% | ||
| Net industrial margin | 206.1 | 47.1% | 197.5 | 48.0% | 8.5 | 4.3% |
| Net industrial margin like- for-like (*) | 206.2 | 48.1% | 197.5 | 48.0% | 8.6 | 4.4% |
| EBITDA before non-recurring expenses/stock option costs |
53.1 | 12.2% | 55.0 | 13.4% | (1.9) | (3.5%) |
| EBITDA like- for-like (*) | 53.0 | 12.4% | 52.3 | 12.7% | 0.7 | 1.4% |
| EBIT | 37.8 | 8.7% | 40.3 | 9.8% | (2.5) | (6.3%) |
| Profit (loss) pertaining to the Group | 31.1 | 7.1% | 24.6 | 6.0% | 6.5 | 26.3% |
| (€/million) | 1st half 2017 |
% revenues | 1st half 2016 |
% revenues | Change | Change % |
|---|---|---|---|---|---|---|
| Revenues | 827.6 | 100.0% | 771.9 | 100.0% | 55.7 | 7.2% |
| Revenues like- for-like (*) | 811.3 | 771.9 | 39.4 | 5.1% | ||
| Revenues at constant exchange rates(**) | 814.7 | 773.1 | 41.7 | 5.4% | ||
| Net industrial margin | 396.3 | 47.9% | 381.8 | 49.5% | 14.5 | 3.8% |
| Net industrial margin like- for-like (*) | 395.8 | 48.8% | 381.8 | 49.5% | 14.0 | 3.7% |
| EBITDA before non-recurring expenses/stock option costs |
105.3 | 12.7% | 106.6 | 13.8% | (1.2) | (1.2%) |
| EBITDA like- for-like (*) | 104.7 | 12.9% | 103.9 | 13.5% | 0.8 | 0.8% |
| EBIT | 76.3 | 9.2% | 79.8 | 10.3% | (3.5) | (4.4%) |
| Profit (loss) pertaining to the Group | 56.2 | 6.8% | 49.4 | 6.4% | 6.7 | 13.6% |
(*) The like-for-like figures are shown net of the effects of the consolidation of NPE S.r.l. included in the scope of consolidation following the signing of the business lease agreement.
(**) Constant currency figures are calculated excluding the impact of exchange differences and hedging carried out by the Group in the current period and the comparison period.
| (€/million) | 30.06.2017 | 30.06.2016 | 31.12.2016 |
|---|---|---|---|
| Net working capital | 289.4 | 233.3 | 253.7 |
| Net working capital like- for- like (*) | 271.9 | 233.3 | 249.1 |
| Net capital employed | 785.1 | 694.5 | 706.4 |
| Net financial assets/(Net debt) | 131.0 | 173.5 | 307.6 |
| of which: | |||
| - Net bank financial position |
140.2 | 205.9 | 307.5 |
| - Other financial receivables/(payables) |
(9.2) | (32.4) | 0.1 |
| Net equity | 916.1 | 868.0 | 1,014.0 |
| Net working capital/Net revenues | 15.2% | 12.5% | 13.8% |
| Net working capital/Net revenues like- for-like (*) | 14.5% | 12.5% | 13.6% |
(*) The like-for-like figures are shown net of the effects of the consolidation of NPE S.r.l.
The De'Longhi Group closed the first half of 2017 with good growth in revenues; the performance was characterized, as expected, by an increase in sales volumes including in the second quarter despite the difficulties encountered in a few core markets.
As mentioned in the report for the first quarter, the commercial initiatives, the attention paid to the points of sale, the intensification of R&D activities, the growing investments in advertising, as well as promotional campaigns, led to a recovery in organic growth.
Revenues, which increased 7.2% with respect to the first half of 2016, were driven by higher sales volumes, above all for coffee and comfort. Turnover also benefitted from the inclusion of NPE S.r.l. in the scope of consolidation, as well as the positive exchange effect which was, then, offset by a negative price effect.
Like-for-like, revenues would have risen 5.1% to €811.3 million.
At constant exchange rates revenues would have amounted to €814.7 million, an increase of 5.4% against the first half of 2016.
In terms of markets, revenues increased in Europe (+€30.1 million or 5.9%) thanks, above all, to the contribution of the North East where good results were reported in Poland, the Czech Republic and Russia (where the market was also boosted by a positive exchange effect); sales fell in the United Kingdom where demand slowed due to the negative impact of Brexit.
In the South East positive results were recorded in Germany, Spain, France and Switzerland which more than offset the decrease in sales recorded in Italy linked to weak consumption and different timing of a few promotions. Sales improved in the MEIA region, (+€1.6 million or +2.5%) thanks also the positive exchange effect, despite the decision to reduce the inventory held by a few important distributors; this strategy caused revenues to decline in a few markets in the first half of 2017 but will deliver positive results in coming quarters.
Good results were also posted in the APA region (+ €24.0 million or +12.0%), thanks specifically to higher sales in the United States/Canada, Australia, China and the positive exchange effect.
The breakdown of revenues by product line shows solid growth for coffee machines and comfort. The increase in revenues for coffee (+16.0%) was boosted by the good performance of externally manufactured fully automatic and Nespresso brand machines, thanks also to the distribution begun in the United States and Switzerland. Comfort benefitted from the good sell in of air conditioning products and a favorable end of the season for heating. As for the food preparation segment, double digit growth was posted in the sale of handblenders.
The net industrial margin rose €14.5 million against the first half of 2016 to €396.3 million and went from 49.5% to 47.9% of revenues. The result reflects a positive mix effect which, however, was not sufficient to offset the negative impact of the consolidation of NPE S.r.l. and the price adjustments made in a few markets (above all, Russia) in order to offset the strengthening of the local currency and be more competitive.
Like-for-like, the net industrial margin would have amounted to €395.8 million or 48.8% of revenues.
The increase in sales volumes recorded in the second quarter of the year is in line with the Group's strategy to concentrate on taking the steps needed to return to organic growth after a 2016 during which the focus was on protecting margins. The foundation needed for the anticipated growth was laid in the first half of 2017 and the markets were resupplied with products based on the sales trends expected to materialize in the second half. As a result of this activity higher supply chain costs were incurred which impacted margins in the first half.
The increase, in absolute terms, of the industrial margin did not translate into higher EBITDA as it was offset by higher promotional and advertising expenses (+ €8.5 million), R&D costs, the higher supply chain costs linked to the increased volumes transported and tariffs, as well as the costs connected to stock options plans (which amounted to €1.8 million in the half).
EBITDA before non-recurring and stock option costs amounted to €105.3 million (€106.6 million in the first half of 2016), and went from 13.8% of revenues to 12.7%. Like-for-like, EBITDA would have amounted to €106.5 million (compared to €106.6 million in the first half of 2016) or 13.1% of revenues.
EBIT amounted to €76.3 million in the first half of 2017 or 9.2% of revenues (€79.8 million or 10.3% of revenues in the first six months of 2016), after amortization and depreciation of €27.3 million, higher with respect to the first half of 2016 explained by the recent investments made in production which are now operating at capacity.
Financial expenses fell from the €13.2 million recorded in the first half of 2016 to €11.2 million in the first half of 2017 due, above all, to lower currency management costs and despite increased factoring compared to the same period of 2016.
Non-recurring net financial income includes the change in fair value of the earn-out payable as a result of the Braun Household acquisition, net of the impact of the early termination of the USPP and the relative hedge (previously recognized under net equity).
Profit pertaining to the Group amounted to €56.2 million in the first six months of 2017 (€49.4 million in the same period of 2016).
The net financial position came to a positive €131.0 million at 30 June 2017 (versus €173.5 million at 30 June 2016), €140.2 million of which relating to the net position with banks (€205.9 million at 30 June 2016). The twelve month comparison with the net position with banks shows a decrease of €65.7 million (in the prior twelve month period an improvement of €84.4 million was posted) linked to non-recurring cash-outs, the most important of which include the investment plan (the first tranche of the new investment in the production facility in Romania, the acquisition of Eversys, the purchase of a real estate complex in Treviso), payment of higher dividends and the consolidation of NPE S.r.l..
Normalized net cash flow came to €128.1 million in the last twelve months (€152.2 million in the previous twelve months).
Net working capital was €56.1 million higher at 30 June 2017 compared to 30 June 2016 due mainly to the consolidation of NPE S.r.l., the increase in sales (concentrated mainly in the second quarter of 2017), as well as the decision to increase inventories in a few markets in order to support the expected sales flow.
The recovery of the world economy is stabilizing. Trade, supported by the investment trends in the majority of the world economies, gained momentum beginning year-end 2016. Volatility in the financial markets is low. Uncertainty about global economic policies is still high, however, which could negatively impact investors' valuations. The timing and details of the fiscal expansion announced at the beginning of the year in the United States have yet to be defined. Any protectionist measures could have repercussions for international trade.
After recording a generalized decline in the spring months, in the last week of June yields for government bonds of advanced economies rose again, albeit to a limited degree, as a result also of the increasing expectation that monetary conditions in the United States will be less accommodating and signs of greater economic activity in the Euro zone. In the latter the sovereign risk premiums decreased, including as a result of the outcome of the French elections. In the Euro zone the latest indications point in different directions: the signals of increased economic growth have intensified, while in the last few months inflation has been lower than expected. The ECB's Governing Council believes it will be necessary to maintain an extremely accommodative monetary policy in order to ensure the necessary level of inflation over the long term.
Based on recent estimates, GDP growth in Italy continued and should benefit from the favorable trend of the services sector, in line with business forecasts, and the recovery in manufacturing value added after the temporary decrease recorded at the beginning of the year. In the first part of the year exports continued to grow, though at a quicker pace in markets outside the European Union. Employment continued to increase in the first quarter. Inflation rose slightly due largely to the increase in regulated energy prices, but the underlying dynamic is still sluggish.
The first half of 2017 was characterized by several events relating to new strategic and organizational initiatives, including the Eversys acquisition, the expansion of the R&D space and headquarters, the beginning of construction at the new Romanian plant, as well as the decision to take advantage of the current favorable market conditions to improve the financial structure.
On 13 June 2017 the acquisition of the Swiss Group Eversys, active in the design and integrated production of espresso coffee makers for professional users, was finalized. This transaction marks the entry of the De'Longhi Group in the professional espresso coffee machine market, with a focus on the fully automatic models. The company acquired, which brings with it a wealth of highly innovative technology and a management team with proven experience in the sector, aims at a leading position in the global market for professional coffee makers, also due to the technological, industrial and distribution synergies which De'Longhi is able to ensure.
Eversys coffee makers are characterized by the highly innovative approach and premium brand positioning. The company was able, in a few years, to gain an outstanding reputation and win clients among the main restaurant and luxury hotel chains, owing not only to the qualitative excellence of its machines, but also to the introduction of a modular structure which facilitates the maintenance process. The agreement calls for the purchase of 40% of Swiss Group Eversys, with the option to acquire the remaining 60% through a "put & call" mechanism to be exercised by June 30, 2021. The initial cash out reached around CHF 21 million which includes consideration of CHF 17.4 million and a shareholder loan for the remainder to finance the investments envisaged in the business plan.
Work on strengthening the production platform in Romania continued in the first half with the first tranche of investments made in the construction of a new manufacturing facility.
At the beginning of June, as part of the development plan for its businesses, the Group acquired its headquarters in Treviso. The investment plan calls for the construction of a new building in the same location in order to increase the space that is currently available. The purchase, which qualified as a related party transaction, is subject to Consob Regulation n. 17221/2010 and the provisions of the De'Longhi Group's "Procedures for Related Party Transactions" insofar as the seller is controlled by De'Longhi S.p.A.'s largest shareholder. The price of the transaction, €16.4 million, was based on the appraisals of independent experts and the favorable opinion of De'Longhi S.p.A.'s Risk and Control Committee.
As part of its financial strategy and in order to sustain current operations, as well as the 2017-2018 investment plan, the Group decided to take advantage of particularly favorable market conditions and complete a few financial transactions which included:
(i) the issue and placement of unsecured, non-convertible notes with US institutional investors (the "US Private Placement") for an amount of Euro 150 million. The issue, which was subscribed by Pricoa Capital Group, part of the US group Prudential Financial Inc., was also completed in order to redeem the outstanding USD 85 million USPP, issued in 2012, as the economic conditions were no longer competitive. The securities were issued in a single tranche, have a duration of 10 years and expire in June 2027. This issue is part of a private shelf facility based on which Pricoa group companies can subscribe bonds with a 3-year duration for up to USD 300 million;
(ii) an amendment to the securitization agreement which resulted in a significant drop in factoring costs and a simplification of the related operating procedures;
(iii) the signing, in June and July, of two 4/5 year fixed rate loans (thanks to hedges) for a total of €195 million with two premiere lenders.
In the first half of 2017 marketing and communication activities continued with a view to supporting the Group's three main brands and strengthening the commercial presence in stores and online.
In many countries both traditional advertising campaigns and digital communication tools were used to support and strengthen the position of the De'Longhi brand.
The new Primadonna EVO was launched in order to expand the selection of fully automatic coffee machines and strengthen the range of premium products.
As for Kenwood, two new food preparation machines were launched in the first part of 2017, the new Chef and Cooking Chef.
With respect to Braun, the new ironing systems TexStyle 7Pro and TexStyle 9 were launched in the first months of the year in order to strengthen the brand's presence in the iron segment. Sales in the half for handblenders were driven by the new models launched in 2016.
Investments in distribution networks continued, namely in Mexico, where direct distribution is expected to be up and running in the second half of 2017.
The reclassified consolidated income statement is summarized as follows:
| (€/million) | 1st half 2017 | % revenues | 1st half 2016 | % revenues |
|---|---|---|---|---|
| Revenues | 827.6 | 100.0% | 771.9 | 100.0% |
| Change 2017/2016 | 55.7 | 7.2% | ||
| Materials consumed & other production costs | (431.4) | (52.1%) | (390.1) | (50.5%) |
| (production services and payroll costs) | ||||
| Net industrial margin | 396.3 | 47.9% | 381.8 | 49.5% |
| Services and other operating expenses | (201.5) | (24.3%) | (190.9) | (24.7%) |
| Payroll (non-production) | (89.5) | (10.8%) | (84.3) | (10.9%) |
| EBITDA before non-recurring expenses / stock option | ||||
| costs | 105.3 | 12.7% | 106.6 | 13.8% |
| Change 2017/2016 | (1.2) | (1.2%) | ||
| Other non-recurring expenses/stock option costs | (1.8) | (0.2%) | (2.7) | (0.4%) |
| EBITDA | 103.5 | 12.5% | 103.9 | 13.5% |
| Amortization | (27.3) | (3.3%) | (24.1) | (3.1%) |
| EBIT | 76.3 | 9.2% | 79.8 | 10.3% |
| Change 2017/2016 | (3.5) | (4.4%) | ||
| Financial income (expenses) | (11.2) | (1.4%) | (13.2) | (1.7%) |
| Non-recurring financial income (expenses) | 9.9 | 1.2% | - | 0.0% |
| Profit (loss) before taxes | 74.9 | 9.0% | 66.6 | 8.6% |
| Income taxes | (18.7) | (2.3%) | (16.9) | (2.2%) |
| Profit (loss) after taxes | 56.2 | 6.8% | 49.6 | 6.4% |
| Profit (loss) pertaining to minority interests | - | 0.0% | 0.2 | 0.0% |
| Profit (loss) pertaining to the Group | 56.2 | 6.8% | 49.4 | 6.4% |
The net industrial margin reported in the reclassified income statement differs by Euro 80.3 million in the first half 2017 (Euro 67.1 million in the first half 2016) from the consolidated income statement; this is because, in order to represent period performance better, productionrelated payroll and service costs have been reclassified from payroll and services respectively. The nominal costs of the stock option plan, included in payroll costs, are shown separately in the income statement as they were not included in the comparison period. Net revenues amounted to €827.6 million in the first half of 2017, an increase of 7.2% with respect to the first half of 2016 (€771.9 million).
Like-for-like, revenues would have amounted to €811.3 million, an increase of 5.1%.
Revenues benefitted from a positive exchange effect of €14.1 million; at constant exchange rates, therefore, growth would have amounted to €41.7 million (+5.4%), driven by an increase in volumes and a favorable mix, which almost entirely offset the negative price effect in a few key markets (primarily in Russia and Ukraine).
The net industrial margin rose €14.5 million against the first half of 2016 to €396.3 million and went from 49.5% to 47.9% of revenues. The decline reflects, in addition to the consolidation of NPE S.r.l., the increase in costs and price adjustments made in a few markets.
Like-for-like, the net industrial margin would have amounted to €395.8 million or 48.8% of revenues.
EBITDA before non-recurring costs/stock option costs came to €105.3 million or 12.7% of revenues (€106.6 million or 13.8% of revenues in the first half of 2016). The decline is linked to non-recurring items which skews the comparison between the two periods, mainly the change in the scope of consolidation connected to the acquisition of NPE S.r.l.
Net of the change in the scope of consolidation, EBITDA would have come to €106.5 million (13.1% of revenues) in the first half of 2017, largely in line with the same period of the prior year, despite larger investments in promotional campaigns (€8.5 million) and R&D, as well as higher supply chain costs due to increased procurement in the first half and higher tariffs.
EBIT amounted to €76.3 million in the first six months of 2017 or 9.2% of revenues (€79.8 million or 10.3% of revenues in the same period of 2016), after amortization and depreciation of €27.3 million, higher with respect to the first half of 2016 (€24.1 million) explained by the investments made which are now operating at capacity.
Financial expenses fell by €2.0 million from the €13.2 million recorded in the first half of 2016 to €11.2 million in the first half of 2017 due, above all, to lower currency management costs and more efficient securitization of receivables. Non-recurring financial income includes the change in fair value of the earn-out payable as a result of the Braun Household acquisition, net of the impact of the early termination of the USPP and the relative hedge (previously recognized under net equity).
Profit pertaining to the Group amounted to €56.2 million in the first six months of 2017 (€49.4 million in the same period of 2016) after tax of €18.7 million.
The De'Longhi Group has identified three operating segments which coincide with the Group's three main business regions: Europe (North East and South West), MEIA (Middle East, India and Africa) and APA (Asia, Pacific, Americas).
Each segment is responsible for all aspects of the Group's brands and services different markets.
This breakdown is in line with the tools used by Group management to run operations, as well as evaluate the company's performance and make strategic decisions.
The results by operating segment can be found in the Explanatory Notes.
The following table summarizes sales performance in the Group's various business regions:
| (€/million) | 1st half 2017 |
% revenues | 1st half 2016 |
% revenues | Change | Change % |
|---|---|---|---|---|---|---|
| North East Europe | 192.6 | 23.3% | 173.9 | 22.5% | 18.7 | 10.7% |
| South West Europe | 347.1 | 41.9% | 335.7 | 43.5% | 11.5 | 3.4% |
| EUROPE | 539.7 | 65.2% | 509.6 | 66.0% | 30.1 | 5.9% |
| MEIA (Middle East/India/Africa) | 64.2 | 7.8% | 62.6 | 8.1% | 1.6 | 2.5% |
| United States and Canada | 86.4 | 10.4% | 72.1 | 9.3% | 14.4 | 20.0% |
| Australia and New Zealand | 52.5 | 6.3% | 48.2 | 6.2% | 4.3 | 8.9% |
| Japan | 21.9 | 2.6% | 20.3 | 2.6% | 1.6 | 7.8% |
| Other countries area APA | 62.9 | 7.6% | 59.1 | 7.7% | 3.7 | 6.3% |
| APA (Asia/Pacific/Americas) | 223.7 | 27.0% | 199.6 | 25.9% | 24.0 | 12.0% |
| Total revenues | 827.6 | 100.0% | 771.9 | 100.0% | 55.7 | 7.2% |
All commercial areas posted a positive performance in the first half of 2017, albeit with different dynamics.
Revenues in Europe (€539.7 million) were 5.9% higher than in the first half of 2016; in the first half of 2017 sales in the North East were up compared to the prior year (+10.7%) thanks to the good performances posted in Russia, Poland and the Czech Republic. In the second quarter of 2017 significant growth in volumes was recorded in Russia where price adjustments were made in order to be more competitive.
Sales were down in the United Kingdom due to the unfavorable market conditions as the first negative signals linked to Brexit materialized. The drop in consumption in the main product categories exceeded expectations. De'Longhi and Braun brand products reported organic growth and improved market shares. As for Kenwood brand products, further steps were taken to become more competitive which resulted recently in the recovery of leadership in the United Kingdom in all the main product categories.
In the South West sales increased by 3.4% compared to the first six months of 2016 thanks to the positive contribution of the main markets (Germany, France, Switzerland and the Iberian Peninsula) which offset the negative performance reported in Italy linked to weak consumption and different timing of a few promotions.
A positive reversal in the trend, compared to prior quarters, was reported in the MEIA region where in the second quarter revenues increased, also as a result of the positive exchange effect. A few markets in this region continue to operate in what are still uncertain economic situations and despite the decision to reduce the inventory held by a few important distributors which penalized the first half of 2017, but will most certainly deliver positive results in coming quarters.
Positive results were posted in the APA region (+ €24.0 million or +12.0%), above all in the United States/Canada, Australia, China thanks also to the positive exchange effect. Growth in the United States was driven by the successful launch of the complete range of Nespresso brand products, as well as the expanded distribution of Braun products and to the good performance of portable air conditioners. A good performance was reported in Australia where leadership in coffee machines was confirmed and the market share for food preparation products continues to rise. Growth in China was fueled by the good performance of all the brands, as well as good growth in online sales.
The reclassified consolidated statement of financial position is presented below:
| (€/million) | 30.06.2017 | 30.06.2016 | 31.12.2016 | Change 30.06.17 – 30.06.16 |
Change 30.06.17 – 31.12.16 |
|---|---|---|---|---|---|
| - Intangible assets | 326.9 | 321.6 | 327.8 | 5.3 | (0.9) |
| - Property, plant and equipment | 216.9 | 193.2 | 196.5 | 23.7 | 20.4 |
| - Financial assets | 27.1 | 8.5 | 8.0 | 18.6 | 19.1 |
| - Deferred tax assets Non-current assets |
43.4 614.2 |
44.5 567.7 |
38.4 570.7 |
(1.1) 46.5 |
5.0 43.5 |
| - Inventories | 416.3 | 381.9 | 320.8 | 34.5 | 95.6 |
| - Trade receivables | 256.6 | 214.9 | 372.8 | 41.7 | (116.2) |
| - Trade payables | (327.2) | (318.2) | (365.3) | (9.0) | 38.2 |
| - Other payables (net of receivables) | (56.5) | (45.3) | (74.5) | (11.2) | 18.0 |
| Net working capital | 289.4 | 233.3 | 253.7 | 56.1 | 35.6 |
| Total non-current liabilities and | |||||
| provisions | (118.4) | (106.5) | (118.0) | (11.9) | (0.4) |
| Net capital employed | 785.1 | 694.5 | 706.4 | 90.6 | 78.7 |
| (Net financial assets) (*) | (131.0) | (173.5) | (307.6) | 42.5 | 176.7 |
| Total net equity | 916.1 | 868.0 | 1,014.0 | 48.2 | (97.9) |
| Total net debt and equity | 785.1 | 694.5 | 706.4 | 90.6 | 78.7 |
(*)The net financial position at 30 June 2017 includes €9.2 million in net financial liabilities (€32.4 million at 30 June 2016) relating to the fair value of derivatives and the financial debt connected to business combinations and pension funds.
In the first half of 2017, as part of the development plan for its businesses, the Group made a few important investments (already described in the first part of this report) which included mainly the acquisition of Eversys, the purchase of the real estate complex in Treviso and the first tranche of the new investments in production at the Romanian plant.
Net working capital amounted to €289.4 million at 30 June 2017, up against the €233.3 million reported at 30 June 2016 due mainly to the consolidation of NPE S.r.l., the increase in sales (concentrated mainly in the second quarter of 2017), as well as the decision to increase inventories in a few markets in order to support the expected sales flow in the second half of the year. Like-for-like, working capital would have come to €271.9 million.
| (€/million) | 30.06.2017 | 30.06.2016 | 31.12.2016 | Change 30.06.17 – 30.06.16 |
Change 30.06.17 – 31.12.16 |
|---|---|---|---|---|---|
| Cash and cash equivalents | 446.5 | 335.4 | 461.4 | 111.1 | (14.9) |
| Other financial receivables | 10.2 | 10.7 | 25.7 | (0.5) | (15.5) |
| Current financial debt | (97.9) | (60.7) | (108.3) | (37.2) | 10.4 |
| Net current financial position | 358.8 | 285.4 | 378.8 | 73.4 | (20.0) |
| Non-current financial debt | (227.8) | (112.0) | (71.2) | (115.8) | (156.6) |
| Total net financial position | 131.0 | 173.5 | 307.6 | (42.5) | (176.7) |
| of which: | |||||
| - Position with banks and other financial payables | 140.2 | 205.9 | 307.5 | (65.7) | (167.4) |
| - Financial assets/(liabilities) other than bank debt (fair value of derivatives, financial debt related to business combinations and pension funds) |
(9.2) | (32.4) | 0.1 | 23.2 | (9.3) |
Details of the net financial position are as follows:
The net financial position came to a positive €131.0 million at 30 June 2017 (versus €307.6 million at 31 December 2016 and €173.5 million at 30 June 2016).
There was a noticeable increase in non-current financial debt at 30 June 2017 as a result of the financing transactions described above.
The net financial position reflects a few specific financial items, including primarily the fair value measurement of derivatives and the residual debt owed on business combinations which show a negative balance of €9.2 million at 30 June 2017 (negative for €32.4 million at 30 June 2016 and positive for €0.1 million at 31 December 2016).
Net of these items, the net position with banks reached €140.2 million at 30 June 2017 after the negative cash flow recorded in the half of €167.4 million (negative €4.2 million in the first six months of 2016), explained primarily by the investment plan described above, the higher dividends paid and the negative cash flow pertaining to NPE S.r.l.. Excluding these items, cash flow would have been positive for €34.6 million in the half (versus €84.4 million in the first half of 2016).
The twelve month comparison with the net financial position at 30 June 2016 reflects the same non-recurring flows. Cash absorption reached €65.7 million (compared to positive cash flow of €84.4 million in the previous 12 month period); normalized cash flow would have amounted to €128.1 million (€152.2 million in the previous 12 month period).
The statement of cash flows is presented on a condensed basis as follows:
| (€/million) | 30.06.2017 (6 months) |
30.06.2016 (6 months) |
31.12.2016 (12 months) |
|---|---|---|---|
| Cash flow by current operations and changes in working capital | 38.9 | 100.5 | 243.0 |
| Cash flow by ordinary investment activities | (31.3) | (21.5) | (55.1) |
| Cash flow by ordinary operating activities | 7.6 | 79.0 | 187.9 |
| Cash flow by non recurring investment activities | (44.1) | - | - |
| Cash flow by operating activities | (36.5) | 79.0 | 187.9 |
| Dividends paid | (119.6) | (65.8) | (65.8) |
| Cash flow by changes in cash flow hedge reserves | (8.1) | (11.2) | 4.2 |
| Cash flow by other changes in net equity | (12.5) | (17.4) | (7.5) |
| Cash flow absorbed by changes in net equity | (140.1) | (94.4) | (69.1) |
| Cash flow for the period | (176.7) | (15.4) | 118.8 |
| Opening net financial position | 307.6 | 188.9 | 188.9 |
| Closing net financial position | 131.0 | 173.5 | 307.6 |
Cash flow from operations in the first half of 2017 came to a positive €7.6 million (versus a positive €79.0 million in the first half of 2016) and reflects a few non-recurring items including the cash absorbed by the NPE S.r.l., the first tranche of investments at the production facility in Romania and the increase in net working capital described above.
Net cash flow from operations was impacted by €44.1 million in non-recurring investments relating to the purchase of non-controlling interests and the property in Treviso.
First-half cash flows were also negatively impacted by changes in net equity: the payment of €119.6 million in dividends (versus €65.8 million in the first half of 2016), the negative impact of the fair value measurement of hedging instruments which came to €8.1 million and the negative exchange differences of €12.5 million resulted in a negative net change of €140.1 million (versus €94.4 million in the first half of 2016).
The De'Longhi Group had 8,531 employees at 30 June 2017, detailed as follows:
| 30.06.2017 | 31.12.2016 | 30.06.2016 | |
|---|---|---|---|
| Blue collar | 5,391 | 4,210 | 3,683 |
| White collar | 3,037 | 2,974 | 2,829 |
| Senior managers | 103 | 102 | 93 |
| Total | 8,531 | 7,286 | 6,605 |
| Average employees 1st half 2017 | 8,147 | 7,163 | 6,598 |
The Group's workforce increased by 984 employees in the first six months of the year (and by 1,549 employees in the twelve-month period) due mainly to the change in the scope of consolidation and the hiring of blue collar workers at production facilities in China and Romania to replace workers from temporary agencies.
In addition to the information required by IFRS, this document presents other financial measures which provide further analysis of the Group's performance. These indicators must not be treated as alternatives to those required by IFRS.
More in detail, the non-GAAP measures used include:
Net industrial margin is calculated as total revenues minus the cost of materials consumed and of productionrelated services and payroll.
EBITDA is an intermediate measure that derives from EBIT after adding back depreciation, amortization and impairment of property, plant and equipment and intangible assets. EBITDA is also presented net of non-recurring items, including the stock option plan costs, which are reported separately on the face of the income statement.
Net working capital: this measure is the sum of inventories, trade receivables, current tax assets and other receivables, minus trade payables, current tax liabilities and other payables.
Net capital employed: this measure is the sum of net working capital, intangible assets, property, plant and equipment, equity investments, other non-current receivables, and deferred tax assets, minus deferred tax liabilities, employee benefits and provisions for contingencies and other charges.
Net debt/(net financial position): this measure represents gross financial liabilities less cash and cash equivalents and other financial receivables. The individual line items in the statement of financial position used to determine this measure are analysed later in this report.
The figures contained in this document, including some of the percentages, have been rounded relative to their full euro amount. As a result, some of the totals in the tables may differ from the sum of the individual amounts presented.
Reference should be made to the Group Annual Report at 31 December 2016.
Reference should be made to the Group Annual Report at 31 December 2016.
Below is a brief reconciliation between the net equity and profit reported by the parent company De'Longhi S.p.A. and the figures shown in the consolidated financial statements:
| (€/thousands) | Net equity 30.06.2017 |
Profit (loss) after taxes 1st half 2017 |
|---|---|---|
| De'Longhi S.p.A. financial statements | 327,771 | 45,715 |
| Share of subsidiaries' equity and results for period attributable to the Group, | ||
| after deducting carrying value of the investments | 617,717 | 20,340 |
| Allocation of goodwill arising on consolidation and related amortization and reversal of goodwill recognized for statutory purposes |
21,260 | (1,203) |
| Elimination of intercompany profits | (48,710) | (8,981) |
| Other adjustments | (1,922) | 289 |
| Consolidated financial statements | 916,116 | 56,160 |
| Minority interests | - | - |
| Group portion | 916,116 | 56,160 |
Related party transactions fall within the normal course of business by Group companies. Information on related party transactions is summarized in Appendix 3 to the Explanatory notes.
Pursuant to Art. 3 of Consob Resolution n. 18079 of 20 January 2012, the Board of Directors resolved to exercise the opt-out clause provided under Art. 70, paragraph 8 and Art. 71, paragraph 1-bis of Consob Regulation n. 11971/99 which grants the option to waive the mandatory publication of informational documents relating to significant mergers, spin-offs, capital increases through in-kind transfers, acquisitions and disposals.
As part of its financial strategy and in order to sustain current operations as well as the 2017-2018 investment plan, the Group decided to take advantage of particularly favorable market conditions and to lower the current cost of debt by taking out two loans, one of which was disbursed in July 2017 and, therefore, is not reflected in this half-year financial report.
There have been no other significant events since the end of the reporting period other than what is described above.
The first half of 2017 stood out for the return to organic growth attributable to the increased investments in advertising, research and development, as well as the strengthening of a few commercial and business support structures.
The Group confirms its growth and profitability targets for 2017.
Treviso, 28 July 2017
For the Board of Directors Vice Chairman and Chief Executive Officer Fabio de' Longhi
Half-year condensed consolidated financial statements
| (€/000) | Notes | 1st half 2017 of which non | recurring | 1st half 2016 | of which non recurring |
|---|---|---|---|---|---|
| Revenues from sales and services | 1 | 814,902 | 761,988 | ||
| Other revenues | 1 | 12,734 | 9,908 | ||
| Total consolidated revenues | 827,636 | 771,896 | |||
| Raw and ancillary materials, consumables and goods | 2 | (457,543) | (380,235) | ||
| Change in inventories of finished products and work in progress | 3 | 93,103 | 50,703 | ||
| Change in inventories of raw and ancillary materials, consumables and goods | 3 | 13,430 | 6,522 | ||
| Materials consumed | (351,010) | (323,010) | |||
| Payroll costs | 4-8 | (129,396) | (117,488) | (2,419) | |
| Services and other operating expenses | 5-8 | (241,987) | (217,973) | (88) | |
| Provisions | 6-8 | (1,692) | (9,573) | (214) | |
| Amortization | 7 | (27,268) | (24,070) | ||
| EBIT | 76,283 | 79,782 | (2,721) | ||
| Financial income (expenses) | 9 | (11,248) | (13,232) | ||
| Non recurring Financial income (expenses) | 1 0 |
9,858 | - | ||
| PROFIT (LOSS) BEFORE TAXES | 74,893 | 66,550 | |||
| Income taxes | 1 1 |
(18,733) | (16,908) | ||
| CONSOLIDATED PROFIT (LOSS) AFTER TAXES | 56,160 | 49,642 | |||
| Profit (loss) pertaining to minority interests | 2 8 |
- | 203 | ||
| PROFIT (LOSS) PERTAINING TO THE GROUP | 56,160 | 49,439 | |||
| EARNINGS PER SHARE (in Euro) | 2 7 |
||||
| - basic | € 0.38 | € 0.33 | |||
| - diluted | € 0.37 | € 0.33 | |||
Appendix 3 reports the effect of related party transactions on the income statement, as required by CONSOB Resolution 15519 of 27 July 2006.
| (€/000) | 1st half 2017 | 1st half 2016 |
|---|---|---|
| Consolidated profit (loss) after taxes | 56,160 | 49,642 |
| Change in fair value of cash flow hedges and financial assets available for sale - |
(8,053) | (11,581) |
| - Tax effect on change in fair value of cash flow hedges and financial assets available for sale |
1,344 | 2,562 |
| - Differences from translating foreign companies' financial statements into Euro |
(24,323) | (12,453) |
| Total other comprehensive income will subsequently reclassified to profit (loss) for the year | (31,032) | (21,472) |
| Total other comprehensive income will not subsequently reclassified to profit (loss) for the year | - | - |
| Other components of comprehensive income | (31,032) | (21,472) |
| Total comprehensive income | 25,128 | 28,170 |
| Total comprehensive income attributables to: | ||
| Owners of the parent | 25,128 | 27,967 |
| Minority interests | - | 203 |
Half-year condensed consolidated financial statements
| ASSETS (€/000) |
Notes | 30.06.2017 | 31.12.2016 |
|---|---|---|---|
| NON-CURRENT ASSETS | |||
| INTANGIBLE ASSETS | 326,871 | 327,792 | |
| - Goodwill | 1 2 |
97,080 | 97,080 |
| - Other intangible assets | 1 3 |
229,791 | 230,712 |
| PROPERTY, PLANT AND EQUIPMENT | 215,551 | 195,095 | |
| - Land, property, plant and machinery - Other tangible assets |
1 4 1 5 |
124,157 91,394 |
110,723 84,372 |
| EQUITY INVESTMENTS AND OTHER FINANCIAL ASSETS | 30,501 | 12,720 | |
| - Equity investments | 1 6 |
23,719 | 4,739 |
| - Receivables - Other non-current financial assets |
1 7 1 8 |
3,375 3,407 |
3,283 4,698 |
| DEFERRED TAX ASSETS | 1 9 |
43,371 | 38,379 |
| TOTAL NON-CURRENT ASSETS | 616,294 | 573,986 | |
| CURRENT ASSETS | |||
| INVENTORIES TRADE RECEIVABLES |
2 0 2 1 |
416,348 256,625 |
320,786 372,777 |
| CURRENT TAX ASSETS | 2 2 |
10,839 | 9,787 |
| OTHER RECEIVABLES CURRENT FINANCIAL RECEIVABLES AND ASSETS |
2 3 2 4 |
39,775 10,194 |
32,328 25,676 |
| CASH AND CASH EQUIVALENTS | 2 5 |
446,493 | 461,430 |
| TOTAL CURRENT ASSETS | 1,180,274 | 1,222,784 | |
| NON-CURRENT ASSETS HELD FOR SALE | 2 6 |
1,323 | 1,389 |
| TOTAL ASSETS | 1,797,891 | 1,798,159 | |
| NET EQUITY AND LIABILITIES (€/000) |
30.06.2017 | 31.12.2016 | |
| NET EQUITY | |||
| GROUP PORTION OF NET EQUITY | 916,112 | 1,010,627 | |
| - Share capital | 2 7 |
224,250 | 224,250 |
| - Reserves | 2 8 |
635,702 | 618,966 |
| - Profit (loss) pertaining to the Group | 56,160 | 167,411 | |
| MINORITY INTERESTS | 2 8 |
- | 3,420 |
| TOTAL NET EQUITY | 916,112 | 1,014,047 | |
| NON-CURRENT LIABILITIES | |||
| FINANCIAL PAYABLES | 231,199 | 75,883 | |
| - Bank loans and borrowings (long-term portion) | 2 9 |
75,840 | - |
| - Other financial payables (long-term portion) | 3 0 |
155,359 | 75,883 |
| DEFERRED TAX LIABILITIES | 1 9 |
28,297 | 27,576 |
| NON-CURRENT PROVISIONS FOR CONTINGENCIES AND OTHER CHARGES | 90,148 | 90,439 | |
| - Employee benefits - Other provisions |
3 1 3 2 |
45,782 44,366 |
42,707 47,732 |
| TOTAL NON-CURRENT LIABILITIES | 349,644 | 193,898 | |
| CURRENT LIABILITIES | |||
| TRADE PAYABLES | 327,152 | 365,315 | |
| FINANCIAL PAYABLES | 97,904 | 108,279 | |
| - Bank loans and borrowings (short-term portion) | 2 9 |
50,650 | 29,376 |
| - Other financial payables (short-term portion) | 3 0 |
47,254 | 78,903 |
| CURRENT TAX LIABILITIES | 3 3 |
37,249 | 29,528 |
| OTHER PAYABLES | 3 4 |
69,830 | 87,092 |
| TOTAL CURRENT LIABILITIES | 532,135 | 590,214 | |
| TOTAL NET EQUITY AND LIABILITIES | 1,797,891 | 1,798,159 |
Appendix 3 reports the effect of related party transactions on the statement of financial position, as required by CONSOB Resolution 15519 of 27 July 2006.
Half-year condensed consolidated financial statements
| Notes | 1st half 2017 | 1st half 2016 |
|---|---|---|
| Profit (loss) pertaining to the Group | 56,160 | 49,439 |
| Income taxes for the period | 18,733 | 16,908 |
| Amortization | 27,268 | 24,070 |
| Net change in provisions and other non-cash items | (2,521) | 3,761 |
| Cash flow generated by current operations (A) | 99,640 | 94,178 |
| Change in assets and liabilities: | ||
| Trade receivables | 114,820 | 155,172 |
| Inventories | (106,531) | (57,227) |
| Trade payables | (28,560) | (58,636) |
| Other changes in net working capital | (23,871) | (20,360) |
| Payment of income taxes | (16,620) | (12,645) |
| Cash flow generated (absorbed) by movements in working capital (B) | (60,762) | 6,304 |
| Cash flow generated by current operations and movements in working capital (A+B) | 38,878 | 100,482 |
| Investment activities: | ||
| Investments in intangible assets | (6,386) | (4,978) |
| Other cash flows for intangible assets | 1 6 |
(50) |
| Investments in property, plant and equipment Other cash flows for property, plant and equipment |
(44,645) (47) |
(17,678) 878 |
| Net investments in equity investments and in minority interest | (20,291) | 341 |
| Cash flow absorbed by investment activities (C) | (71,353) | (21,487) |
| Dividends paid | (119,600) | (65,780) |
| Change in currency translation reserve Increase (decrease) in minority interests |
(14,344) - |
(15,970) (91) |
| New loans | 245,000 | - |
| Payment of interests on loans | (2,375) | (1,620) |
| Repayment of loans and other net changes in sources of finance | (91,143) | (18,035) |
| Cash flow generated (absorbed) by changes in net equity and by financing activities (D) | 17,538 | (101,496) |
| Cash flow for the period (A+B+C+D) | (14,937) | (22,501) |
| Opening cash and cash equivalents 2 5 |
461,430 | 357,910 |
| Increase (decrease) in cash and cash equivalents (A+B+C+D) | (14,937) | (22,501) |
The Statement of Cash Flows at 30.06.2016 was restated in order to show net working capital net of the effect of the translation of intercompany balances expressed in currencies other than the Euro included in the cash flows generated by changes in net equity.
Appendix 2 presents the statement of cash flows in terms of net financial position.
Half-year condensed consolidated financial statements
| (€/000) | SHARE CAPITAL |
SHARE PREMIUM RESERVE |
LEGAL RESERVE |
EXTRAORDINARY RESERVES |
FAIR VALUE AND CASH FLOW HEDGE RESERVES |
STOCK OPTION RESERVES |
CURRENCY TRANSLATION RESERVE |
PROFIT (LOSS) CARRIED FORWARD |
PROFIT (LOSS) PERTAINING TO GROUP |
GROUP PORTION OF NET EQUITY |
MINORITY INTERESTS |
TOTAL NET EQUITY |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at 31 December 2015 | 224,250 | 162 | 15,573 | 21,733 | 4,793 | - 45,652 |
441,187 | 149,533 | 902,883 | 2,973 | 905,856 | |
| Allocation of 2015 result as per AGM resolution of 14 April | ||||||||||||
| 2016 | ||||||||||||
| - distribution of dividends | (1,791) | (63,989) | (65,780) | (65,780) | ||||||||
| - allocation to reserves | 3,368 | 146,165 | (149,533) | - | - | |||||||
| Other changes in minority interests | - | (293) | (293) | |||||||||
| Movements from transactions with shareholders | - | - | 3,368 | (1,791) | - | - - |
82,176 | (149,533) | (65,780) | (293) | (66,073) | |
| Profit (loss) after taxes | - | - | ||||||||||
| Other components of comprehensive income | (9,019) | (12,453) | 49,439 | 27,967 | 203 | 28,170 | ||||||
| Comprehensive income (loss) | - | - | - | - | (9,019) | - (12,453) |
- | 49,439 | 27,967 | 203 | 28,170 | |
| Balance at 30 June 2016 | 224,250 | 162 | 18,941 | 19,942 | (4,226) | - 33,199 |
523,363 | 49,439 | 865,070 | 2,883 | 867,953 |
| Balance at 31 December 2016 | 224,250 | 162 | 18,941 | 19,942 | 8,642 | 366 | 48,798 | 522,115 | 167,411 | 1,010,627 | 3,420 | 1,014,047 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Allocation of 2016 result as per AGM resolution of 11 April | ||||||||||||
| 2017 | ||||||||||||
| - distribution of dividends | (121) | (119,479) | (119,600) | (119,600) | ||||||||
| - allocation to reserves | 6,288 | 161,123 | (167,411) | - | - | |||||||
| Fair Value stock option | 1,795 | 1,795 | 1,795 | |||||||||
| Other changes in minority interests | (1,838) | (1,838) | (3,420) | (5,258) | ||||||||
| Movements from transactions with shareholders | - | - | 6,288 | (121) | - | 1,795 | - | 39,806 | (167,411) | (119,643) | (3,420) | (123,063) |
| Profit (loss) after taxes | 56,160 | 56,160 | 56,160 | |||||||||
| Other components of comprehensive income | (6,709) | (24,323) | - | (31,032) | (31,032) | |||||||
| Comprehensive income (loss) | - | - | - | - | (6,709) | - | (24,323) | - | 56,160 | 25,128 | - | 25,128 |
| Balance at 30 June 2017 | 224,250 | 162 | 25,229 | 19,821 | 1,933 | 2,161 | 24,475 | 561,921 | 56,160 | 916,112 | - | 916,112 |
The De'Longhi Group is headed up by the parent De'Longhi S.p.A., a company with its registered office in Treviso whose shares are listed on the Italian stock exchange run by Borsa Italiana.
The Group is active in the production and distribution of coffee machines, small appliances for food preparation and cooking, domestic cleaning and ironing, air conditioning and portable heaters; the companies included in the scope of consolidation are listed in Appendix 1 to the Explanatory notes.
The half-year financial report includes the condensed consolidated financial statements, which have been prepared in accordance with IFRS (International Financial Reporting Standards) and particularly with the recommendations of IAS 34 – Interim Financial Reporting, which requires interim financial statements to be prepared in a condensed format with fewer disclosures than in annual financial statements.
The half-year condensed consolidated financial statements at 30 June 2017 comprise the income statement, the statement of comprehensive income, the statement of financial position, the statement of cash flows and the statement of changes in net equity, all of which have been prepared in a full format that is comparable with the annual consolidated financial statements.
The explanatory notes are presented in a condensed format and, therefore, are limited to the information needed by users to understand the financial statements for the first half of 2017.
These financial statements are presented in thousands of Euro, unless otherwise indicated.
The half-year condensed consolidated financial statements have used the same consolidation procedures and accounting policies as those described in the annual report, to which the reader should refer.
The same accounting policies as those described in the annual report, to which the reader should refer, were used.
The publication of the half-year condensed consolidated financial statements for the period ended 30 June 2017 was authorized by the Board of Directors on 28 July 2017.
The Commission Regulation (EU) n. 2016/1905 of 22 September 2016 adopts IFRS 15 - Revenue from Contracts with Customers.
The new standard contains a 5–point guide relating to the treatment of all customer contracts with the exception of contracts relating to leasing, insurance, financial instruments and non-monetary exchanges.
The five points relate to: identifying the contract, identifying performance obligations, determining the transaction price, allocating the transaction price to performance obligations, recognition of revenue.
The standard establishes that the revenue must be recognized when the obligation is performed, namely when the promised good (or service) is transferred to the customer.
The consideration in the contract with the customer may include fixed, variable or both amounts. In the case of variable components, the consideration must be estimated correctly based on reasonably available information (historical, current and forecasts).
The amounts owed for royalties are an exception as they may be recognized only after the underlying sale or usage has been completed.
The standard provides specific indications with respect to the allocation of the transaction price between the performance obligations, amendment of the transaction price and the definition of incremental contract costs.
The operating guide, which constitutes an integral part of the standard, provides great detail about various topics including sales with the right of return, consignment agreements, and deferred delivery sale agreements.
With Regulation 2016/2067 of 22 November 2016 the European Commission adopted IFRS 9 – Financial Instruments which introduces new requirements for the classification and measurement of financial assets previously reported based on IAS 39.
The new standard divides all financial assets into two classifications, namely those measured at amortized cost and those measured at fair value.
Financial assets that satisfy two conditions are measured at amortized cost: the objective of the entity's business model is to hold the financial asset to collect the contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
All other financial assets must be measured at fair value through profit or loss or through other comprehensive income.
The changes introduced in the above mentioned regulations will be applicable beginning on or after 1 January 2018.
The Group did not apply any new standards, interpretations or amendments endorsed, but not yet applicable, in advance; application of these revised standards is not, however, expected to have a material impact on the Group's income statement or net equity.
International Standard Board (IASB) published the new standard IFRS 16 - Leases which has yet to be endorsed by the European Union which is applicable beginning on or after 1 January 2019.
The new standard eliminates the distinction between financial and operating leases for lessors and establishes a single category.
As for the lessee, the standard does not introduce significant changes, leaving the distinction between the two categories and the relative accounting treatment unchanged.
A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the identified asset's use and to obtain substantially all the economic benefits from that use.
Based on IFRS 16, the lessor recognizes a right-of-use asset, treated similarly to other goods and amortized, and an interest-bearing liability for leasing.
The liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease, if that can be readily determined, or at the borrowing rate.
Leases with a term of less than twelve months without purchase options and leases when the underlying asset has a low value may be recognized as an expense over the term of the lease or based on another systematic basis.
The new principle was not adopted in advance by the Group.
These half-year financial statements, prepared in accordance with IFRS, contain estimates and assumptions made by the Group relating to assets and liabilities, costs, revenues and contingent liabilities at the reporting date. These estimates are based on past experience and assumptions considered to be reasonable and realistic, based on the information available at the time of making the estimate.
The assumptions relating to these estimates are periodically reviewed and the related effects reflected in the income statement in the same period: actual results could therefore differ from these estimates.
For more information about the principal assumptions used by the Group see the section "Estimates and Assumptions" found in the notes to the consolidated financial statements at 31 December 2016.
The more complex valuations, including relative to the loss in value of non-current assets, are typically completed when the annual report is being prepared as all the necessary information is available, with the exception of any instances when impairment indicators evidence loss in value.
Similarly, the actuarial valuations needed to determine the provisions relative to employee benefits are normally carried out at year-end, when the annual report is prepared, with the exception of when a plan is amended or liquidated.
The following exchange rates have been used:
| 30.06.2017 | 30.06.2016 | Change % | 31.12.2016 | |||||
|---|---|---|---|---|---|---|---|---|
| Currency | Period-end Exchange rate |
Average Exchange rate |
Period-end Exchange rate |
Average Exchange rate |
Period end Exchange rate |
Average Exchange rate |
Period-end Exchange rate |
|
| US dollar | USD | 1.14120 | 1.08252 | 1.11020 | 1.11553 | 2.8% | (3.0%) | 1.0541 |
| British pound | GBP | 0.87933 | 0.86006 | 0.82650 | 0.77849 | 6.4% | 10.5% | 0.85618 |
| Hong Kong dollar | HKD | 8.90680 | 8.41587 | 8.61350 | 8.66540 | 3.4% | (2.9%) | 8.1751 |
| Chinese renminbi (yuan) | CNY | 7.73850 | 7.44174 | 7.37550 | 7.29366 | 4.9% | 2.0% | 7.3202 |
| Australian dollar | AUD | 1.48510 | 1.43559 | 1.49290 | 1.52206 | (0.5%) | (5.7%) | 1.4596 |
| Canadian dollar | CAD | 1.47850 | 1.44449 | 1.43840 | 1.48539 | 2.8% | (2.8%) | 1.4188 |
| Japanese yen | JPY | 127.75000 | 121.65859 | 114.05000 | 124.50150 | 12.0% | (2.3%) | 123.4 |
| Malaysian ringgit | MYR | 4.89860 | 4.74994 | 4.43010 | 4.57476 | 10.6% | 3.8% | 4.7287 |
| New Zeland dollar | NZD | 1.55540 | 1.52917 | 1.56160 | 1.64848 | (0.4%) | (7.2%) | 1.5158 |
| Polish zloty | PLN | 4.22590 | 4.26846 | 4.43620 | 4.36861 | (4.7%) | (2.3%) | 4.4103 |
| South Africa rand | ZAR | 14.92000 | 14.30999 | 16.44610 | 17.20373 | (9.3%) | (16.8%) | 14.457 |
| Singapore dollar | SGD | 1.57100 | 1.52003 | 1.49570 | 1.54018 | 5.0% | (1.3%) | 1.5234 |
| Russian rouble | RUB | 67.54490 | 62.73488 | 71.52000 | 78.41223 | (5.6%) | (20.0%) | 64.3 |
| Turkish lira | TRY | 4.01340 | 3.93792 | 3.20600 | 3.25875 | 25.2% | 20.8% | 3.70720 |
| Czech koruna | CZK | 26.19700 | 26.78705 | 27.13100 | 27.03945 | (3.4%) | (0.9%) | 27.021 |
| Swiss franc | CHF | 1.09300 | 1.07640 | 1.08670 | 1.09601 | 0.6% | (1.8%) | 1.07390 |
| Brazilian real | BRL | 3.76000 | 3.43929 | 3.58980 | 4.13492 | 4.7% | (16.8%) | 3.4305 |
| Croatian kuna | HRK | 7.41030 | 7.44883 | 7.52810 | 7.56099 | (1.6%) | (1.5%) | 7.5597 |
| Ukrainian hryvnia | UAH | 29.74370 | 28.96553 | 27.56380 | 28.40308 | 7.9% | 2.0% | 28.7386 |
| Romanian Leu | RON | 4.55230 | 4.53637 | 4.52340 | 4.49559 | 0.6% | 0.9% | 4.539 |
| South Korean won | KRW | 1,304.56000 | 1,235.58462 | 1,278.48000 | 1,318.80833 | 2.0% | (6.3%) | 1,269.36 |
| Chilean peso | CLP | 758.21400 | 714.13062 | 735.50000 | 769.26150 | 3.1% | (7.2%) | 704.945 |
| Mexican peso | MXN | 20.58390 | 21.02797 | 20.63470 | 20.15993 | (0.2%) | 4.3% | 21.7719 |
| Swedish krona | SEK | 9.63980 | 9.59544 | 9.42420 | 9.30152 | 2.3% | 3.2% | 9.5525 |
Source: Bank of Italy
The first half of 2017 was characterized by a few events linked to the Group's development strategy.
On 12 April 2017, the De'Longhi Group reached an agreement, which was finalized on 13 June 2017, for the acquisition of 40% of the Swiss Group Eversys, with the option to acquire the remaining 60% through a "put & call" mechanism to be exercised by June 30, 2021 (but not earlier than 2 years following the closing date).
This transaction marks the entry of the De'Longhi Group in the professional espresso coffee machine market, with a focus on the fully automatic models.
The initial cash-out for the 40% interest and the shareholder loan amounted to approximately CHF 21 million. See note 16. Equity Investments for more information.
At the beginning of June, the Group acquired the property where its Treviso headquarters are located. The investment plan calls for the construction of new headquarters in the same location in order to increase the space that is currently available. See note 14. Land, property, plant and machinery for more information.
On 14 June 2017, the parent company De'Longhi S.p.A. finalized the issue and placement of unsecured, nonconvertible notes with US institutional investors (the "US Private Placement") for an amount of €150 million. The issue was also completed in order to redeem the outstanding USD 85 million USPP issued in 2012, and allowed the Group to take advantage of the particularly favorable market conditions to gather additional funds to meet the Group's current operating needs; see note 30. Other financial payables for more information.
In June and July 2017, two 4/5 year fixed rate loans (as a result of hedges) were entered into with two premiere lenders for a total of €195 million; see note 29. Bank payables for more information.
There were no significant changes in the scope of consolidation in the first half of 2017.
The Group's business is traditionally seasonal, with first-half revenues and profit proportionately lower than those of the year as a whole.
Revenues, comprising revenues from sales and services and other revenues, are broken down by region as follows:
| (€/million) | 1st half 2017 | % of revenues | 1st half 2016 | % of revenues | Change | Change % |
|---|---|---|---|---|---|---|
| North East Europe | 192,616 | 23.3% | 173,939 | 22.5% | 18,677 | 10.7% |
| South West Europe | 347,131 | 41.9% | 335,667 | 43.5% | 11,464 | 3.4% |
| EUROPE | 539,747 | 65.2% | 509,606 | 66.0% | 30,141 | 5.9% |
| MEIA (Middle East/India/Africa) | 64,222 | 7.8% | 62,645 | 8.1% | 1,577 | 2.5% |
| United States and Canada | 86,449 | 10.4% | 72,058 | 9.3% | 14,391 | 20.0% |
| Australia and New Zealand | 52,451 | 6.3% | 48,153 | 6.2% | 4,298 | 8.9% |
| Japan | 21,905 | 2.6% | 20,315 | 2.6% | 1,590 | 7.8% |
| Other countries area APA | 62,862 | 7.6% | 59,119 | 7.7% | 3,743 | 6.3% |
| APA (Asia/Pacific/Americas) | 223,667 | 27.0% | 199,645 | 25.9% | 24,022 | 12.0% |
| Total revenues | 827,636 | 100.0% | 771,896 | 100.0% | 55,740 | 7.2% |
More details about revenues by operating segment can be found in note 39. Operating segments.
"Other revenues" are broken down as follows:
| 1st half 2017 | 1st half 2016 | Change | |
|---|---|---|---|
| Freight reimbursement | 2,446 | 2,368 | 78 |
| Commercial rights | 1,425 | 1,112 | 313 |
| Out-of-period gains | 44 | 18 | 26 |
| Damages reimbursed | 199 | 422 | (223) |
| Other income | 8,620 | 5,988 | 2,632 |
| Total | 12,734 | 9,908 | 2,826 |
The breakdown is as follows:
| 1st half 2017 | 1st half 2016 | Change | |
|---|---|---|---|
| Finished products | 216,297 | 186,596 | 29,701 |
| Parts | 183,765 | 161,473 | 22,292 |
| Raw materials | 49,529 | 25,574 | 23,955 |
| Other purchases | 7,952 | 6,592 | 1,360 |
| Total | 457,543 | 380,235 | 77,308 |
The breakdown is as follows:
| 1st half 2017 | 1st half 2016 | Change | |
|---|---|---|---|
| Change in inventories of finished products and work in progress | 93,103 | 50,703 | 42,400 |
| Change in inventories of raw and ancillary materials, consumables and goods |
13,430 | 6,522 | 6,908 |
The difference between the overall change in inventories reported in the income statement and the change in balances reported in the statement of financial position is mainly due to differences arising on the translation of foreign company financial statements.
These costs include €38,149 thousand in production-related payroll (€30,773 thousand at 30 June 2016). The figures relating to the cost of employee benefits provided by certain Group companies in Italy and abroad are reported in note 31. Employee Benefits.
This item includes €1,795 thousand relating to the fair value of the stock option plan recognized in the period; see note 28. Reserves for additional information.
No non-recurring income/expenses were recorded in the first half of 2017 (€2,419 thousand in the first half of 2016).
The average employees reached 8,147 in the first half of 2017, an increase of 1,549 employees with respect to the first half of 2016.
The Group's workforce at 30 June 2017 can be broken down as follows:
| 30.06.2017 | 30.06.2016 | 31.12.2016 | |
|---|---|---|---|
| Blue collar | 5,391 | 3,683 | 4,210 |
| White collar | 3,037 | 2,829 | 2,974 |
| Senior managers | 103 | 93 | 102 |
| Total | 8,531 | 6,605 | 7,286 |
These are detailed as follows:
| 1st half 2017 | 1st half 2016 | Change | |
|---|---|---|---|
| Advertising and promotional expenses | 80,024 | 71,536 | 8,488 |
| Transport (for purchases and sales) | 37,807 | 31,237 | 6,570 |
| Subcontracted work | 21,857 | 19,637 | 2,220 |
| Rentals and leasing | 16,953 | 16,772 | 181 |
| Travel | 9,545 | 9,465 | 80 |
| Consulting services | 8,723 | 8,643 | 80 |
| After-sale expenses | 8,890 | 7,272 | 1,618 |
| Storage and warehousing | 7,552 | 7,207 | 345 |
| Insurance | 4,193 | 4,468 | (275) |
| Commissions | 3,373 | 3,917 | (544) |
| Power | 4,062 | 3,653 | 409 |
| Maintenance | 2,107 | 2,299 | (192) |
| Postage, telegraph and telephones | 1,924 | 1,892 | 32 |
| Statutory auditors' emoluments and Directors' emoluments | 1,685 | 1,684 | 1 |
| Other utilities, cleaning, security, waste disposal | 1,437 | 1,268 | 169 |
| Other sundry services | 14,377 | 12,049 | 2,328 |
| Total services | 224,509 | 202,999 | 21,510 |
| Sundry taxes | 15,712 | 12,705 | 3,007 |
| Other | 1,766 | 2,269 | (503) |
| Total other operating expenses | 17,478 | 14,974 | 2,504 |
| Total services and other operating expenses | 241,987 | 217,973 | 24,014 |
At 30 June 2016 the item includes non-recurring expenses of €88 thousand incurred for the reorganization of a few foreign subsidiaries. No non-recurring income/expenses were recorded in the first half of 2017.
At 30 June 2017 this figure includes mainly provisions for contingencies and other charges of €4,397 thousand (€7,968 thousand at 30 June 2016 which includes €214 thousand incurred for the reorganization of a few foreign subsidiaries).
Please refer to note 32. Other provisions for non-current contingencies and charges.
These are detailed as follows:
| 1st half 2017 | 1st half 2016 | Change | |
|---|---|---|---|
| Amortization of intangible assets | 5,944 | 5,220 | 724 |
| Depreciation of property, plant and equipment | 21,324 | 18,850 | 2,474 |
| Total | 27,268 | 24,070 | 3,198 |
More details about amortization and depreciation can be found in the tables reporting movements in intangible assets and property, plant and equipment.
This item included in the first half of 2016 expenses relating to the restructuring and reorganization of a few foreign subsidiaries which amounted to €2,721 thousand and recognized directly in the relative lines of the income statement (€2,419 thousand payroll costs, €88 thousand cost of services, €214 thousand provisions). No non-recurring income/(expenses) are recorded in the first half of 2017.
Net financial income and expenses are broken down as follows:
| 1st half 2017 | 1st half 2016 | Change | |
|---|---|---|---|
| Exchange differences and gains (losses) on currency hedges | (749) | (2,460) | 1,711 |
| Gains on equity investments | 433 | 983 | (550) |
| Net interest expense | (2,815) | (2,955) | 140 |
| Financial discounts | (6,764) | (7,107) | 343 |
| Other financial income (expenses) | (1,353) | (1,693) | 340 |
| Other net financial income (expenses) | (10,932) | (11,755) | 823 |
| Financial income (expenses) | (11,248) | (13,232) | 1,984 |
"Exchange differences and gain (losses) on currency hedges" include the rate differentials on derivatives that hedge currency risk.
"Gains on equity investments" include the income generated by the interest held in the TCL/DL joint venture, dedicated to the manufacture of air conditioners, consolidated using the equity method. The figure for the first half of 2016 also includes the income generated by the sale of the minority interest held in DeLclima S.p.A. as a result of the public takeover bid.
"Net interest expense" includes both interest payable on the Group's financial debt (recalculated using the amortized cost method), as well as the financial cost of factoring receivables without recourse.
Non-recurring financial income includes the change in fair value of the earn-out payable as a result of the Braun Household acquisition, net of the impact of the early termination of the USPP and the relative hedge (previously recognized in the cash flow hedge reserve).
These are analyzed as follows:
| 1st half 2017 | 1st half 2016 | Change | |
|---|---|---|---|
| Current income taxes: | |||
| - Income taxes | 20,771 | 18,145 | 2,626 |
| - IRAP (Italian regional business tax) | 1,921 | 704 | 1,217 |
| Deferred (advance) income taxes | (3,959) | (1,941) | (2,018) |
| Total | 18,733 | 16,908 | 1,825 |
"Deferred (advance) income taxes" include the taxes calculated on the temporary differences arising between the accounting values of assets and liabilities and the corresponding tax base (particularly for taxed provisions recognized by the parent company and its subsidiaries). They also include the benefit arising from the carryforward of unused tax losses which are likely to be used in the future.
| 30.06.2017 | 31.12.2016 | ||||
|---|---|---|---|---|---|
| Gross | Net | Gross | Net | Change | |
| Goodwill | 103,827 | 97,080 | 103,827 | 97,080 | - |
The value of goodwill did not change during the first half.
Goodwill is not amortized because it is considered to have an indefinite useful life. Instead, it is tested for impairment at least once a year to identify any evidence of loss in value.
The objective of the impairment test is to determine the value in use of the CGU to which the goodwill refers, meaning the present value of the future cash flows expected to be derived from ongoing use of the assets; any cash flows arising from extraordinary events are therefore ignored.
In particular, value in use is determined using the discounted cash flow method for forecast cash flows contained in three-year plans approved by management.
The impairment test carried out at the end of 2016 on the basis of discount rates reflecting current market assessments of the time value of money and the risks specific to the individual cash-generating units, did not reveal any evidence that these assets might have suffered an impairment loss.
Estimating the recoverable amount of the CGUs requires management to make judgements and estimates. In fact, several factors also associated with developments in the difficult market context could make it necessary to reassess the value of goodwill. The Group will be constantly monitoring those circumstances and events that might make it necessary to perform new impairment tests.
No events of significance have occurred in the first half of 2017 such as might suggest that the carrying amount could have suffered any loss of value.
Further information can be found in the explanatory notes to the financial statements at 31 December 2016.
These are analyzed as follows:
| 30.06.2017 | 31.12.2016 | ||||
|---|---|---|---|---|---|
| Gross | Net | Gross | Net | Change | |
| New product development costs | 82,203 | 15,022 | 80,005 | 15,719 | (697) |
| Patents | 37,316 | 4,947 | 36,699 | 5,085 | (138) |
| Trademarks and similar rights | 280,981 | 186,616 | 280,919 | 188,221 | (1,605) |
| Work in progress and advances | 16,232 | 15,803 | 13,121 | 12,692 | 3,111 |
| Other | 22,378 | 7,403 | 23,343 | 8,995 | (1,592) |
| Total | 439,110 | 229,791 | 434,087 | 230,712 | (921) |
| New product development costs |
Patents | Trademarks and similar rights |
Work in progress and advances |
Other | Total | |
|---|---|---|---|---|---|---|
| Net opening balance | 15,719 | 5,085 | 188,221 | 12,692 | 8,995 | 230,712 |
| Additions | 2,357 | 634 | 65 | 3,111 | 219 | 6,386 |
| Amortization | (2,895) | (755) | (1,667) | - | (627) | (5,944) |
| Translation differences and other movements (*) |
(159) | (17) | (3) | - | (1,184) | (1,363) |
| Net closing balance | 15,022 | 4,947 | 186,616 | 15,803 | 7,403 | 229,791 |
The following table reports movements in the main asset categories during the first half 2017:
(*) The amounts relating to "Other movements" mostly refer to reclassifications of certain intangible assets.
The main additions refer to the capitalization of new product development projects, based on detailed reporting and analysis of the costs incurred and the estimated future utility of such projects.
The Group has capitalized a total of €5,468 thousand in development costs as intangible assets during the first half of 2017; the increase of €2,357 thousand in "New product development costs" for projects already completed at 30 June 2017, and €3,111 thousand in "Work in progress and advances" for projects still in progress.
The Group has incurred some €25.2 million in research and development costs during the first half of 2017 (€24.1 million in the first half of 2016).
"Patents" mostly refer to internal development costs and the subsequent cost of filing for patents and to costs for developing and integrating data processing systems.
"Trademarks and similar rights" include €79.8 million for the "De'Longhi" trademark, as well as €95.0 million for the perpetual license over the Braun Household brand, treated as having an indefinite useful life under the criteria specified in IAS 38, taking into account, above all, brand awareness, economic performance, characteristics of the target market, the specific brand strategies and the amount of the investments made to support the brands. The impairment test carried out at the end of 2016 did not reveal any evidence that these assets might have suffered an impairment loss. No events of significance have occurred in the first half of 2017 such as might suggest that the carrying amount of trademarks could have suffered any impairment loss.
These are analyzed as follows:
| 30.06.2017 | 31.12.2016 | ||||
|---|---|---|---|---|---|
| Gross | Net | Gross | Net | Change | |
| Land and buildings | 94,815 | 70,472 | 79,642 | 56,900 | 13,572 |
| Plant and machinery | 138,751 | 53,685 | 136,373 | 53,823 | (138) |
| Total | 233,566 | 124,157 | 216,015 | 110,723 | 13,434 |
The following table reports movements during the first half 2017:
| Land and buildings | Plant and machinery | Total | |
|---|---|---|---|
| Net opening balance | 56,900 | 53,823 | 110,723 |
| Additions | 17,016 | 3,328 | 20,344 |
| Disposals | (7) | 18 | 11 |
| Depreciation | (2,450) | (4,677) | (7,127) |
| Translation differences and other movements (*) | (987) | 1,193 | 206 |
| Net closing balance | 70,472 | 53,685 | 124,157 |
(*) The amounts relating to "Other movements" mostly refer to the reclassifications of "Work in progress and advances".
The increase in "Land and buildings" refers to the Group's purchase of the Treviso property and the surrounding area. This investment is part of the project to expand R&D which calls for the construction of a new center dedicated to new product development, along with new offices and general services. The purchase, which qualified as a related party transaction, is subject to Consob Regulation n. 17221/2010 and the provisions of the De'Longhi Group's "Procedures for Related Party Transactions" insofar as the seller is controlled by De'Longhi S.p.A.'s largest shareholder. The price of the transaction, €16.4 million, was based on the appraisals of independent experts and the favorable opinion of De'Longhi's Risk and Control Committee.
The investments in "Plant and machinery" refer mainly to the purchase of systems at the Chinese plant and the expansion of the coffee machine production lines in Italy.
The balance of property, plant and equipment includes the following assets purchased under finance lease (reported at their net book value):
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Plant and equipment | 3,942 | 4,142 | (200) |
| Other | - | 2 | (2) |
| Total | 3,942 | 4,144 | (202) |
Information on the financial liability arising under the related lease agreements can be found in note 30. Other financial payables.
Details of other tangible assets are as follows:
| 30.06.2017 | 31.12.2016 | |||||
|---|---|---|---|---|---|---|
| Gross | Net | Gross | Net | Change | ||
| Industrial and commercial equipment | 273,250 | 47,730 | 261,141 | 43,916 | 3,814 | |
| Other | 78,457 | 22,831 | 76,620 | 22,874 | (43) | |
| Work in progress and advances | 20,832 | 20,833 | 17,582 | 17,582 | 3,251 | |
| Total | 372,539 | 91,394 | 355,343 | 84,372 | 7,022 |
The following table reports movements during the first half 2017:
| Industrial and commercial equipment |
Other | Work in progress and advances |
Total | |
|---|---|---|---|---|
| Net opening balance | 43,916 | 22,874 | 17,582 | 84,372 |
| Additions | 9,557 | 3,676 | 11,068 | 24,301 |
| Disposals | (9) | (61) | - | (70) |
| Depreciation | (10,484) | (3,713) | - | (14,197) |
| Translation differences and other movements(*) | 4,750 | 55 | (7,817) | (3,012) |
| Net closing balance | 47,730 | 22,831 | 20,833 | 91,394 |
(*) The amounts relating to "Other movements" mostly refer to the reclassifications of "Work in progress and advances".
The additions to "Industrial and commercial equipment" mostly refer to the purchase of moulds for manufacturing new products.
The increase in "Work in progress" refers to the first tranche of the investments made in the Romanian production facility and the initial investments linked to the development of the new headquarters.
Details of equity investments are as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Equity investments consolidated using the equity method | 23,667 | 4,678 | 18,989 |
| Other equity investments available-for-sale | 52 | 61 | (9) |
| Total | 23,719 | 4,739 | 18,980 |
"Equity investments consolidated using the equity method" refers to the associates and equity investments contractually subject to joint control accounted for using the equity method in accordance with IAS 28 – Investments in associates and joint ventures.
The change in the value of equity investments consolidated using the equity method in the first half of 2017 can be broken down as follows:
| 30.06.2017 | |
|---|---|
| Opening net balance | 4,678 |
| Acquisition 40% of the Eversys Group | 18,825 |
| Portion of JV's net profit | 433 |
| Exchange differences | (269) |
| Closing net balance | 23,667 |
On 13 June 2017 the acquisition of the Swiss Group Eversys, active in the design and integrated production of espresso coffee makers for professional users, was finalized. The agreement calls for the purchase of 40% of the Swiss Group Eversys, with the option to acquire the remaining 60% through a "put & call" mechanism to be exercised by June 30, 2021. Based on the agreements signed, the investment was configured like an acquisition of a non-controlling interest accounted for using the equity method. The cash-out of €18,825 thousand includes the consideration paid, €16,125 thousand, and the fair value of the option on the remaining interest (€2,700 thousand).
The balance at 30 June 2017 includes €3,375 thousand in security deposits (€3,283 thousand at 31 December 2016).
At 30 June 2017, these refer for €3,278 thousand, to the shareholder loan granted relative to the Eversys Group acquisition and the investments called for in the business plan, as well as € 129 thousand related to the fair value measurement of interest rate swaps connected to the loan granted to the parent company De'Longhi S.p.A. by Intesa S.Paolo. At 31 December 2016, these refer to the fair value of derivatives which amounted to €4,698 thousand.
Deferred tax assets and deferred tax liabilities are detailed as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Deferred tax assets | 43,371 | 38,379 | 4,992 |
| Deferred tax liabilities | (28,297) | (27,576) | (721) |
| Net asset balance | 15,074 | 10,803 | 4,271 |
"Deferred tax assets" and "Deferred tax liabilities" include the taxes calculated on temporary differences between the carrying amount of assets and liabilities and their corresponding tax base (particularly taxed provisions recognized by the parent company and its subsidiaries) and the tax effects associated with the allocation of higher values to fixed assets as a result of allocating goodwill arising on consolidation. They also include the benefit arising from the carryforward of unused tax losses which are likely to be used in the future.
Details of the net balance are as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Temporary differences | 7,381 | 5,490 | 1,891 |
| Tax losses | 7,693 | 5,313 | 2,380 |
| Net asset balance | 15,074 | 10,803 | 4,271 |
The change in the net asset balance also reflects the increase recognized in net equity of €1,344 thousand relating to "Fair value and cash flow hedge reserve".
"Inventories", shown net of an allowance for obsolete and slow-moving goods, can be broken down as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Finished products and goods | 348,044 | 268,057 | 79,987 |
| Raw, ancillary and consumable materials | 76,269 | 64,115 | 12,154 |
| Work in progress and semi-finished products | 26,194 | 22,972 | 3,222 |
| Inventory writedown allowance | (34,159) | (34,358) | 199 |
| Total | 416,348 | 320,786 | 95,562 |
The value of inventories, influenced by seasonality, is stated after deducting an allowance for obsolete or slowmoving goods totalling €34,159 thousand (€34,358 thousand at 31 December 2016) in relation to products and raw materials that are no longer of strategic interest to the Group.
These are detailed as follow:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Trade receivables | |||
| - due within 12 months | 266,656 | 388,071 | (121,415) |
| - due beyond 12 months | 225 | 255 | (30) |
| Allowance for doubtful accounts | (10,256) | (15,549) | 5,293 |
| Total trade receivables | 256,625 | 372,777 | (116,152) |
Trade receivables, which are influenced by seasonality, are stated net of an allowance for doubtful accounts of €10,256 thousand, representing a reasonable estimate of the expected risk at the reporting date. The allowance refers to a number of disputed receivables or those whose collection is otherwise in doubt and takes account of the fact that a significant proportion of the receivables are covered by insurance policies with major insurers.
These are detailed as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Tax payments on account | 5,534 | 3,903 | 1,631 |
| Other direct tax receivables | 4,297 | 4,614 | (317) |
| Tax refunds requested | 1,008 | 1,270 | (262) |
| Total | 10,839 | 9,787 | 1,052 |
There are no current tax assets due beyond 12 months.
"Other receivables" are analyzed as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| VAT | 18,571 | 13,067 | 5,504 |
| Advances to suppliers | 7,936 | 6,257 | 1,679 |
| Other tax receivables | 3,664 | 3,612 | 52 |
| Prepaid insurance costs | 1,335 | 1,216 | 119 |
| Employees | 286 | 229 | 57 |
| Other | 7,983 | 7,947 | 36 |
| Total | 39,775 | 32,328 | 7,447 |
This item doesn't include amounts due beyond 12 months.
"Current financial receivables and assets" are analyzed as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Fair value of derivatives | 10,076 | 25,576 | (15,500) |
| Other financial receivables | 118 | 100 | 18 |
| Total current financial receivables and assets | 10,194 | 25,676 | (15,482) |
More details on the fair value of derivatives can be found in note 30. Other financial payables.
This balance consists of surplus liquidity in current bank accounts, mostly relating to customer payments received at the end of the period and temporary cash surpluses.
A few of the Group's foreign companies have a total of €525.0 million in cash in current accounts held at the same bank. These cash balances form part of the international cash pooling system and are partially offset by €518.4 million in overdrafts at the same bank pertaining to other foreign companies. This bank therefore acts as a "clearing house" for the Group's positive and negative cash balances. Considering the substance of the transactions and technical workings of the international cash pooling system, the positive and negative cash balances have been netted against one another in the consolidated statement of financial position, as allowed by IAS 32. The bank in question has been given a lien over all the cash balances within the international cash pooling system in respect of this service.
The cash balances at 30 June 2017 include €456 thousand in current accounts of a few subsidiaries which are restricted having been given as collateral.
The item refers to the value of a freehold property of a branch that was classified under non-current assets held for sale, as required under IFRS 5 – Non-current assets held for sale and discontinued operations, insofar as the Group initiated a program to locate a buyer and complete the disposal.
The amount corresponds to the net carrying amount, insofar as it is not less than the fair value of the assets held for sale, net of the selling costs.
| 31.12.2016 | Translation difference |
30.06.2017 | |
|---|---|---|---|
| Non-current asset held for sale | 1,389 | (66) | 1,323 |
Net equity is made up as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Group portion | 916,112 | 1,010,627 | (94,515) |
| Minority interests | - | 3,420 | (3,420) |
| Total | 916,112 | 1,014,047 | (97,935) |
The primary objective of the Group's capital management is to maintain a solid credit rating and adequate capital ratios in order to support its business and maximize value for shareholders.
Movements in the equity accounts are reported in one of the earlier schedules forming part of the financial statements; comments on the main components and their changes are provided below.
The annual general meeting (AGM) of De'Longhi S.p.A. held on 11 April 2017 approved a dividend totalling €119,600 thousand, which was paid in full during the semester.
Share capital is made up of 149,500,000 ordinary shares of par value €1.5 each, for a total of €224,250 thousand.
During the Annual General Meeting held on 14 April 2016, shareholders of De'Longhi S.p.A. resolved to increase share capital against payment by up to a maximum nominal amount of €3,000,000 by 31 December 2022 through the issue, including on one or more occasions, of a maximum of 2,000,000 ordinary shares with a par value of €1.5 each pari passu with all shares outstanding at the issue date, to service the stock option plan.
Stock options on a total of 1,830,000 shares had been assigned at 31 December 2016; the remaining options on 170,000 shares were assigned on 4 April 2017.
Earnings per share are calculated by dividing the earnings for the year by the weighted average number of the Company's shares outstanding during the period.
| 30.06.2017 | |
|---|---|
| Weighted average number of shares outstanding | 149,500,000 |
| Weighted average number of diluted shares outstanding | 151,411,713 |
The dilutive effect of the stock option plan was not significant at 30 June 2017, therefore the diluted earnings per share (€0.37) is in line with the basic earnings per share (€0.38).
These are analyzed as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Share premium reserve | 162 | 162 | - |
| Legal reserve | 25,229 | 18,941 | 6,288 |
| Other reserves: | |||
| - Extraordinary reserve | 19,821 | 19,942 | (121) |
| - Fair value and cash flow hedge reserve | 1,933 | 8,642 | (6,709) |
| - Stock option reserve | 2,161 | 366 | 1,795 |
| - Currency translation reserve | 24,475 | 48,798 | (24,323) |
| - Profit (loss) carried forward | 561,921 | 522,115 | 39,806 |
| Total | 635,702 | 618,966 | 16,736 |
The "Share premium reserve" was set up following the public offering at the time of the parent company's listing on the Milan stock exchange on 23 July 2001 which was subsequently reduced following the demerger transaction in favour of DeLclima S.p.A. to €162 thousand.
The "Legal reserve" had a balance of €18,941 thousand at 31 December 2016. The increase of €6,288 thousand is explained by the allocation of profit for the year approved by shareholders during De'Longhi S.p.A.'s AGM held on 11 April 2017.
The "Extraordinary reserve" decreased by €121 thousand due to the allocation of the profit for the year, as approved by shareholders of De'Longhi S.p.A. during the above AGM.
The "Fair value and cash flow hedge reserve" reports a positive balance of €1,933 thousand, net of €547 thousand in tax.
The change in the "Fair value and cash flow hedge" reserve in first half 2017, recognized in the statement of comprehensive income for the year, is attributable to the fair value of the cash flow hedge and available-for-sale securities of €8,053 thousand net of €1,344 thousand in tax.
The "Stock option" reserve amounted to €2,161 thousand which corresponds to the fair value of the options at the assignment date, recognized on a straight-line basis from the grant date through vesting.
During the Annual General Meeting held on 14 April 2016 shareholders approved the stock-based incentive plan "Stock option plan 2016-2022" reserved for the Chief Executive Officer of the parent company De'Longhi S.p.A. and a limited number of Group managers and key resources.
Please refer to the Annual financial report at 31 December 2016 and to Compensation Report for more information on the Plan.
For the purposes of valuation under IFRS 2 - Share-based payments, two different tranches were defined for each award which contain the same number of options broken down equally into the plan's two exercise periods. The fair value per share of the options assigned in 2016 amounted to € 5.3072 for the first tranche and to €5.2488 for the second. The fair value per share of the options assigned in 2017 amounted to €7.6608 for the first tranche and to €7.4442 for the second.
The fair value of the stock options is determined using the Black-Scholes model which takes into account the conditions for the exercise of the right, the current share price, expected volatility, a risk free interest rate, as well as the non-vesting conditions.
Volatility is estimated based on the data of a market provider and corresponds to the estimated volatility of the stock over the life of the plan.
The assumptions used to determine the fair value of the options assigned are shown below:
| 2017 award | 2016 award | |
|---|---|---|
| Expected dividends (Euro) | 0.80 | 0.43 |
| Estimated volatility (%) | 28.09% | 33.23% |
| Historic volatility (%) | 31.12% | 36.067% |
| Market interest rate | Euribor 6M | Euribor 6M |
| Expected life of the options (years) | 2.142/3.158 | 2.51 / 3.53 |
| Exercise price (Euro) | 20.4588 | 20.4588 |
"Profit (loss) carried forward" includes the retained earnings of the consolidated companies and the effects of consolidation adjustments and adjustments to comply with Group accounting policies. The net increase posted in the year reflects the profit carried forward from the previous year of €167,411 thousand, net of dividends paid, allocation to other reserves, as well as the difference between the amount owed for the purchase of the noncontrolling interest in E-Services S.r.l. and the percentage of net equity acquired.
At 31 December 2016 the minority interests in net equity amount to €3,420 thousand and refer to the noncontrolling interest (49%) held in E-Services S.r.l., acquired in the half by the parent company De'Longhi S.p.a which, at the date of this report, owns 100% of the company.
Below is a reconciliation between the net equity and profit reported by the parent company, De'Longhi S.p.A., and the figures shown in the consolidated financial statements:
| Net equity 30.06.2017 |
Profit (loss) after taxes 1st half 2017 |
|
|---|---|---|
| De'Longhi S.p.A. financial statements | 327,771 | 45,715 |
| Share of subsidiaries' equity and results for period attributable to the Group, after | ||
| deducting carrying value of the investments | 617,717 | 20,340 |
| Allocation of goodwill arising on consolidation and related amortization and reversal | ||
| of goodwill recognized for statutory purposes | 21,260 | (1,203) |
| Elimination of intercompany profits | (48,710) | (8,981) |
| Other adjustments | (1,922) | 289 |
| Consolidated financial statements | 916,116 | 56,160 |
| Minority interests | - | - |
| Group portion | 916,116 | 56,160 |
"Bank loans and borrowings" (including the current portion) are analyzed as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Overdrafts | 131 | 651 | (520) |
| Short-term loans in Euro or foreign currency | 50,519 | 28,725 | 21,794 |
| Long-term loans in Euro or foreign currency | 75,840 | - | 75,840 |
| Total bank loans and borrowings | 126,490 | 29,376 | 97,114 |
During the first half of 2017 a new 5-year floating rate loan of €95,000 thousand was granted by Intesa Sanpaolo S.p.A. which is subject to half-yearly financial covenants beginning on 31 December 2017. The loan is repayable in half-yearly instalments beginning on 29 December 2017. An interest rate swap (IRS) was used to hedge interest rate risk which made it possible to exchange floating rate debt for fixed rate debt at an annual "all-in" cost of 0.61%. The change in the fair value of the IRS came to a positive €129 thousand at 30 June 2017 and is recognized under other non-current financial assets.
Significant events after 30 June 2017 include the granting by Unicredit S.p.A. on 4 July 2017 of a second 4-year floating rate loan of €100,000 thousand which is repayable in half-yearly instalments and is subject to half-yearly financial covenants beginning on 31 December 2017. An interest rate swap (IRS) was used to hedge interest rate risk which made it possible to exchange floating rate debt for fixed rate debt at an annual "all-in" cost of 0.62%. The loan agreement was finalized after the close of the half and, therefore, had no impact on the statement of financial position.
This balance, inclusive of the current portion, is made up as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Private placement (short-term portion) | 216 | 7,365 | (7,149) |
| Negative fair value of derivatives | 7,424 | 5,356 | 2,068 |
| Payables to lease companies (short-term portion) | 597 | 776 | (179) |
| Other short term financial payables | 39,017 | 65,406 | (26,389) |
| Total short-term payables | 47,254 | 78,903 | (31,649) |
| Private placement (one to five years) | 42,750 | 29,453 | 13,297 |
| Payables to lease companies (one to five years) | 123 | 338 | (215) |
| Other financial payables (one to five years) | 5,219 | 1,422 | 3,797 |
| Total long‐term payables (one to five years) | 48,092 | 31,213 | 16,879 |
| Private placement (beyond five years) | 107,138 | 44,403 | 62,735 |
| Other financial payables (beyond five years) | 129 | 267 | (138) |
| Total long‐term payables (beyond five years) | 107,267 | 44,670 | 62,597 |
| Total other financial payables | 202,613 | 154,786 | 47,827 |
On 14 June 2017 the parent company De'Longhi S.p.A., after having received approval from the Board of Directors on 9 June 2017, completed the issue and placement of €150 million in unsecured, non-convertible notes with US institutional investors (the "US Private Placement"). At the same time as the new issue, which was subscribed by Pricoa Capital Group, part of the US group Prudential Financial Inc., the Group redeemed the USD 85 million bond loan issued in 2012. Banca IMI (Intesa Sanpaolo Group) acted as the financial advisor for the transaction.
The securities were issued in a single tranche, have a duration of 10 years, expire in June 2027, and an average life of 7 years. The notes will accrue interest from the subscription date at a fixed rate of 1.65% per annum.
The notes will be repaid yearly in equal instalments beginning June 2021 and ending June 2027, without prejudice to the Company's ability to repay the entire amount in advance.
The securities are unrated and are not intended to be listed on any regulated markets. The notes are subject to half-yearly financial covenants in line with those contemplated in other existing loan transactions. At 30 June 2017 the covenants had not been breached. The issue is not secured by collateral of any kind.
The "Negative fair value of derivatives" refers to hedges on currencies, foreign currency receivables and payables, as well as on future revenue streams.
"Other short term financial payables" refer mainly to factoring without recourse, as well as the earn-out payable under the Braun sales agreement linked to the sales performance of the Braun brand over the first five years following the acquisition. These also include the remaining short-term portion of the pension fund liabilities pertaining to a subsidiary which were transferred to third parties and the portion of a loan granted to an Italian subsidiary (MIUR).
"Other financial payables (one to five years)" refer primarily to the fair value of the put & call options on the Eversys Group, the variable amounts payable connected to the purchase of non-controlling interests and the remainder of the long-term portion of the pension fund liabilities of a foreign subsidiary.
Details of the net financial position are as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| A. Cash | 128 | 139 | (11) |
| B. Cash equivalents | 446,365 | 461,291 | (14,926) |
| C. Securities | - | - | - |
| D. Total liquidity (A+B+C) | 446,493 | 461,430 | (14,937) |
| E. Current financial receivables and other securities | 10,194 | 25,676 | (15,482) |
| of which: | |||
| Fair value of derivatives | 10,076 | 25,576 | (15,500) |
| F. Current bank loans and borrowings | (31,729) | (29,376) | (2,353) |
| G. Current portion of non-current debt | (18,921) | - | (18,921) |
| H. Other current financial payables | (47,254) | (78,903) | 31,649 |
| of which: | |||
| Fair value measurement of derivatives, financial payables linked to business | |||
| combinations and pension fund transactions | (14,767) | (29,375) | 14,608 |
| I. Current financial debt (F+G+H) | (97,904) | (108,279) | 10,375 |
| J. Net current financial receivables (payables) (D+E+I) | 358,783 | 378,827 | (20,044) |
| K1. Non-current financial receivables | 3,407 | 4,698 | (1,291) |
| of which: | |||
| Fair value of derivatives | 129 | 4,698 | (4,569) |
| K2. Non-current bank loans and borrowings | (75,840) | - | (75,840) |
| L. Bonds | (149,889) | (73,856) | (76,033) |
| M. Other non-current payables | (5,470) | (2,027) | (3,443) |
| of which: | |||
| financial payables linked to business combinations and pension fund | |||
| transactions | (4,604) | (798) | (3,806) |
| N. Non-current financial debt (K+L+M) | (227,792) | (71,185) | (156,607) |
| Total | 130,991 | 307,642 | (176,651) |
For a better understanding of changes in the Group's net financial position, reference should be made to the full consolidated statement of cash flows, appended to the present explanatory notes, and the condensed statement presented in the interim report on operations.
Details of financial receivables and payables with related parties are reported in Appendix 3.
The fair value of the outstanding derivatives at 30 June 2017 is provided below:
| Fair Value at 30.06.2017 | |
|---|---|
| FX forward agreements | (814) |
| Derivatives hedging foreign currency receivables/payables | (814) |
| FX forward agreements | 3,466 |
| IRS on parent company loans | 129 |
| Derivatives hedging expected cash flows | 3,595 |
| Total fair value of the derivatives | 2,781 |
These are made up as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Provision for severance indemnities | 13,903 | 14,119 | (216) |
| Defined benefit plans | 18,712 | 18,055 | 657 |
| Other employee benefits | 13,167 | 10,533 | 2,634 |
| Total employee benefits | 45,782 | 42,707 | 3,075 |
The provision for severance indemnities includes amounts payable to employees of the Group's Italian companies and not transferred to supplementary pension schemes or the pension fund set up by INPS (Italy's national social security agency). This provision has been classified as a defined benefit plan, governed as such by IAS 19 - Employee benefits.
Some of the Group's foreign companies provide defined benefit plans for their employees. Some of these plans have assets servicing them, but severance indemnities, as an unfunded obligation, do not. These plans are valued on an actuarial basis to express the present value of the benefit payable at the end of service that employees have accrued at the reporting date.
The amounts of the obligations and assets to which they refer are set out below:
Provision for severance indemnities:
Movements in the period are summarized below:
| Net cost charged to income | 1st half 2017 |
|---|---|
| Current service cost | 93 |
| Interest cost on obligations | 113 |
| Total | 206 |
| Change in present value of obligations | ||||
|---|---|---|---|---|
| Present value at 1 January 2017 | 14,119 | |||
| Current service cost | 93 | |||
| Utilization of provision | (422) | |||
| Interest cost on obligations | 113 | |||
| Present value at 30 June 2017 | 13,903 |
Movements in the period are as follows:
| Net cost charged to income | 1st half 2017 |
|---|---|
| Current service cost | 592 |
| Interest cost on obligations | 140 |
| Total | 732 |
| Change in present value of obligations | ||||
|---|---|---|---|---|
| Present value at 1 January 2017 | 18,055 | |||
| Net cost charged to income | 732 | |||
| Benefits paid | (270) | |||
| Translation differences and other movements | 195 | |||
| Present value at 30 June 2017 | 18,712 |
The outstanding liability at 30 June 2017 of €18,712 thousand (€18,055 thousand at 31 December 2016) refers to a few subsidiaries (mainly in Germany and Japan).
The other employee benefits refer to an incentive plan 2015 – 2017 for which relative provisions were made. The plan, benefitting the Chief Executive Officer, as well as a few other executives of De'Longhi Group was approved by the Company's Board of Directors on 11 November 2015. For more information please refer to the Annual Report on Remuneration.
These are analyzed as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Agents' leaving indemnity provision and other retirement provisions | 1,814 | 1,807 | 7 |
| Product warranty provision | 32,265 | 31,985 | 280 |
| Provisions for contingencies and other charges | 10,287 | 13,940 | (3,653) |
| Total | 44,366 | 47,732 | (3,366) |
Movements are as follows:
| 31.12.2016 | Utilization | Net Accruals | Currency translation differences and other movements |
30.06.2017 | |
|---|---|---|---|---|---|
| Agents' leaving indemnity provision and other retirement provisions |
1,807 | - | 7 | - | 1,814 |
| Product warranty provision | 31,985 | (7,497) | 7,378 | 399 | 32,265 |
| Provisions for contingencies and other charges |
13,940 | (1,817) | (2,988) | 1,152 | 10,287 |
| Total | 47,732 | (9,314) | 4,397 | 1,551 | 44,366 |
The agents' leaving indemnity provision covers the payments that might be due to departing agents in accordance with art. 1751 of the Italian Civil Code, as applied by collective compensation agreements in force.
The product warranty provision has been established, for certain consolidated companies, on the basis of estimated under-warranty repair and replacement costs for sales taking place by 30 June 2017. It takes account of the provisions of Decree 24/2002 and of European Community law.
The "Provision for contingencies and other charges" includes the provision of €5,545 thousand (€8,206 thousand at 31 December 2016) for liabilities arising from product complaints (limited to the Group's insurance deductible), the provision of €2,377 thousand (€3,989 thousand at 31 December 2016) for restructuring and reorganization and provisions made by the parent company, as well as a few subsidiaries, relating to commercial risks and other charges.
The item "Tax liabilities" refers to the Group's direct tax and doesn't include tax due beyond 12 months. As a result of the participation of De'Longhi S.p.A. and a few Italian subsidiaries in the national tax consolidation regime as part of the tax group formed by the parent company De'Longhi Industrial S.A., resident in Italy for tax purposes this item also includes €19,175 thousand owed related parties. See Appendix 3. "Transactions and balances with related parties" for more information.
These are detailed as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Employees | 33,259 | 33,088 | 171 |
| Indirect taxes | 7,462 | 21,065 | (13,603) |
| Social security institutions | 4,664 | 6,723 | (2,059) |
| Withholdings payables | 3,056 | 4,931 | (1,875) |
| Other taxes | 942 | 1,366 | (424) |
| Advances | 553 | 154 | 399 |
| Other | 19,894 | 19,765 | 129 |
| Total | 69,830 | 87,092 | (17,262) |
These are detailed as follows:
| 30.06.2017 | 31.12.2016 | Change | |
|---|---|---|---|
| Guarantees given to third parties | 2,163 | 2,203 | (40) |
| Other commitments | 6,500 | 4,815 | 1,685 |
| Total | 8,663 | 7,018 | 1,645 |
"Other commitments" mainly consist of contractual obligations pertaining to the subsidiaries.
In addition to the above, the Group guarantees the commitments of the companies involved in the factoring of trade receivables without recourse, the total exposure for which amounted to €108,742 at 30 June 2017.
The following table presents the hierarchical levels in which the fair value measurements of financial instruments have been classified at 30 June 2017. As required by IFRS 7, the hierarchy comprises the following levels:
| Financial instruments measured at fair value | Level 1 | Level 2 | Level 3 |
|---|---|---|---|
| Derivatives: | |||
| - derivatives with positive fair value | - | 10,205 | - |
| - derivatives with negative fair value | - | (7,424) | - |
| Available-for-sale financial assets: | |||
| - equity investments | 52 | - | - |
| - other non-current financial assets | - | - | - |
| Financial payables linked to business combinations | (11,177) |
There were no transfers between the levels during the period.
No significant changes took place in the tax position in the period ending on 30 June 2017.
Appendix 3 contains the information concerning transactions and balances with related parties required by CONSOB Circulars 97001574 dated 20 February 1997, 98015375 dated 27 February 1998 and DEM/2064231 dated 30 September 2002; all transactions have fallen within the Group's normal operations and have been settled under arm's-length terms and conditions.
Transactions and balances between the parent company and subsidiaries are not reported since these have been eliminated upon consolidation.
As required under IFRS 8, the Group's activities were broken down into three operating segments (Europe, APA, MEIA) based on business region.
Each segment is responsible for all aspects of the Group's brands and services different markets; the revenues and the margins, therefore, generated by each operating segment (based on business region) may not coincide with the revenues and margins of the relative markets (based on geographic area) given the sales made by a few Group companies outside of their respective geographical areas and the intragroup transactions not allocated based on destination.
Information relating to operating segments is presented below:
| 1st half 2017 | |||||
|---|---|---|---|---|---|
| Europe | APA | MEIA | Eliminations (**) | Consolidated | |
| total | |||||
| (*) Revenues |
631,867 | 450,770 | 51,856 | (306,857) | 827,636 |
| EBITDA | 67,693 | 29,975 | 5,236 | 645 | 103,549 |
| Amortization | (19,541) | (7,694) | (33) | - | (27,268) |
| EBIT | 48,152 | 22,281 | 5,203 | 645 | 76,281 |
| Financial income (expenses) | (1,388) | ||||
| Profit (loss) before taxes | 74,893 | ||||
| Income taxes | (18,733) | ||||
| Profit (loss) after taxes | 56,160 | ||||
| Profit (loss) pertaining to | |||||
| minority interests | - | ||||
| Profit (loss) for the period | 56,160 | ||||
(*) The revenues for each segment include revenues generated by both third parties and other Group operating segments.
(**)Eliminations refer to intersegment revenues related to transactions between operating segments, eliminated on a consolidated basis.
| 30 June 2017 | ||||||
|---|---|---|---|---|---|---|
| Europe | APA | MEIA | Eliminations | Consolidated total |
||
| Total assets | 1,173,989 | 721,743 | 37,947 | (135,788) | 1,797,891 | |
| Total liabilities | (746,741) | (257,117) | (13,705) | 135,784 | (881,779) |
Half-year financial report at 30 June 2017
Half-year condensed consolidated financial statements
| Europa | APA | 1st half 2016 MEIA |
Eliminations (**) | Consolidated total |
|
|---|---|---|---|---|---|
| Revenues(*) | 578,932 | 410,034 | 54,323 | (271,393) | 771,896 |
| EBITDA | 69,687 | 29,115 | 4,845 | 205 | 103,852 |
| Amortization | (17,790) | (6,253) | (27) | - | (24,070) |
| EBIT | 51,897 | 22,862 | 4,818 | 205 | 79,782 |
| Financial income (expenses) | (13,232) | ||||
| Profit (loss) before taxes | 66,550 | ||||
| Income taxes | (16,908) | ||||
| Profit (loss) after taxes | 49,642 | ||||
| Profit (loss) pertaining to | |||||
| minority interests | 203 | ||||
| Profit (loss) for the period | 49,439 |
(*) The revenues for each segment include revenues generated by both third parties and other Group operating segments.
(**) Eliminations refer to intersegment revenues related to transactions between operating segments, eliminated on a consolidated basis.
| 31 December 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Europa | APA | MEIA | Eliminations | Consolidated | |||
| total | |||||||
| Total assets | 1,152,003 | 741,795 | 45,245 | (140,884) | 1,798,159 | ||
| Total liabilities | (640,857) | (271,185) | (12,957) | 140,887 | (784,112) | ||
The Group is exposed to the following financial risks as part of its normal business activity: credit, liquidity and market risks (relating primarily to currency and interest rate).
This condensed half-year financial report does not contain all the information and explanatory notes relative to financial risk management that must be included in the annual report. For additional information in this regard refer to the notes to the consolidated financial statements at 31 December 2016.
As part of its financial strategy and in order to sustain current operations, as well as the 2017-2018 investment plan, the Group decided to take advantage of the particularly favorable market conditions and to lower the current cost of debt by taking out two loans, one of which was disbursed in July 2017 and, therefore, is not reflected in this half-year financial report. See note 29. Bank loans and borrowings.
There have been no other significant events since the end of the reporting period other than what is described above.
Treviso, 28 July 2017
De'Longhi S.p.A. Vice Chairman and Chief Executive Officer Fabio de' Longhi
These appendices contain additional information to that reported in the explanatory notes, of which they form an integral part.
This information is contained in the following appendices:
Half-year condensed consolidated financial statements
(Appendix 1 to the Explanatory Notes)
| LIST OF COMPANIES CONSOLIDATED ON A LINE-BY-LINE BASIS | Interest held at 30/06/2017 | |||||
|---|---|---|---|---|---|---|
| Company name | Registered office | Currency | Share capital (1) | Directly | Indirectly | |
| LINE-BY-LINE METHOD: | ||||||
| DE'LONGHI APPLIANCES S.R.L. | Treviso | EUR | 200,000,000 | 100% | ||
| DE'LONGHI AMERICA INC. | Upper Saddle River | USD | 9,100,000 | 100% | ||
| DE'LONGHI FRANCE S.A.R.L. | Clichy | EUR | 2,737,500 | 100% | ||
| DE'LONGHI CANADA INC. | Mississauga | CAD | 1 | 100% | ||
| DE'LONGHI DEUTSCHLAND GMBH | Neu-Isenburg | EUR | 2,100,000 | 100% | ||
| DE'LONGHI BRAUN HOUSEHOLD GMBH | Neu-Isenburg | EUR | 100,000 | 100% | ||
| DE'LONGHI ELECTRODOMESTICOS ESPANA S.L. | Barcellona | EUR | 3,066 | 100% | ||
| DE'LONGHI CAPITAL SERVICES S.R.L. (2) | Treviso | EUR | 53,000,000 | 11.32% | 88.68% | |
| E- SERVICES S.R.L. | Treviso | EUR | 50,000 | 100% | ||
| DE'LONGHI KENWOOD A.P.A. LTD | Hong Kong | HKD | 73,010,000 | 100% | ||
| TRICOM INDUSTRIAL COMPANY LIMITED | Hong Kong | HKD | 171,500,000 | 100% | ||
| PROMISED SUCCESS LIMITED | Hong Kong | HKD | 28,000,000 | 100% | ||
| ON SHIU (ZHONGSHAN) ELECTRICAL APPLIANCE CO.LTD. | Zhongshan City | CNY | USD 21,200,000 | 100% | ||
| DE'LONGHI-KENWOOD APPLIANCES (DONG GUAN) | ||||||
| CO.LTD. | Qing Xi Town | CNY | HKD 285,000,000 | 100% | ||
| DE LONGHI BENELUX S.A. | Luxembourg | EUR | 181,730,990 | 100% | ||
| DE'LONGHI JAPAN CORPORATION | Tokyo | JPY | 450,000,000 | 100% | ||
| DE'LONGHI AUSTRALIA PTY LTD. | Prestons | AUD | 28,800,001 | 100% | ||
| DE'LONGHI NEW ZEALAND LTD. | Auckland | NZD | 16,007,143 | 100% | ||
| ZASS ALABUGA LLC | Elabuga | RUB | 95,242,767 | 100% | ||
| DE'LONGHI LLC | Mosca | RUB | 3,944,820,000 | 100% | ||
| KENWOOD APPLIANCES LTD. | Havant | GBP | 30,586,001 | 100% | ||
| KENWOOD LIMITED | Havant | GBP | 26,550,000 | 100% | ||
| KENWOOD INTERNATIONAL LTD. | Havant | GBP | 20,000,000 | 100% | ||
| KENWOOD APPL. (SINGAPORE) PTE LTD. | Singapore | SGD | 500,000 | 100% | ||
| KENWOOD APPL. (MALAYSIA) SDN.BHD. | Subang Jaya | MYR | 1,000,000 | 100% | ||
| DE'LONGHI-KENWOOD GMBH | Wr Neudorf | EUR | 36,336 | 100% | ||
| DELONGHI SOUTH AFRICA PTY.LTD. | Maraisburg | ZAR | 100,332,501 | 100% | ||
| DE'LONGHI KENWOOD HELLAS S.A. | Atene | EUR | 452,520 | 100% | ||
| DE'LONGHI PORTUGAL UNIPESSOAL LDA | Matosinhos | EUR | 5,000 | 100% | ||
| ARIETE DEUTSCHLAND GMBH | Dusseldorf | EUR | 25,000 | 100% | ||
| CLIM.RE. S.A. | Luxembourg | EUR | 1,239,468 | 4% | 96% | |
| ELLE S.R.L. | Treviso | EUR | 10,000 | 100% | ||
| DE'LONGHI BOSPHORUS EV ALETLERI TICARET ANONIM SIRKETI |
Istanbul | TRY | 6,200,000 | 100% | ||
| DE'LONGHI PRAGA S.R.O. | Praga | CZK | 200,000 | 100% | ||
| KENWOOD SWISS AG | Baar | CHF | 1,000,000 | 100% | ||
| DL HRVATSKA D.O.O. | Zagabria | HRD | 20,000 | 100% | ||
| DE'LONGHI BRASIL - COMÉRCIO E IMPORTAÇÃO Ltda | São Paulo | BRL | 43,857,581 | 100% | ||
| DE'LONGHI POLSKA SP. Z.O.O. | Varsavia | PLN | 50,000 | 0.1% | 99.9% | |
| DE'LONGHI APPLIANCES TECHNOLOGY SERVICES (Shenzen) Co. Ltd |
Shenzen | CNY | USD 175,000 | 100% | ||
| DE'LONGHI UKRAINE LLC | Kiev | UAH | 549,843 | 100% | ||
| DE'LONGHI TRADING (SHANGHAI) CO. LTD | Shanghai | CNY | USD 945,000 | 100% | ||
| DE'LONGHI KENWOOD MEIA F.ZE | Dubai | USD | AED 2,000,000 | 100% | ||
| DE'LONGHI ROMANIA S.R.L. | Cluj-Napoca | RON | 47,482,500 | 10% | 90% | |
| DE'LONGHI KENWOOD KOREA LTD | Seoul | KRW | 900,000,000 | 100% | ||
| DL CHILE S.A. | Santiago del Cile | CLP | 3,079,066,844 | 100% | ||
| DE'LONGHI SCANDINAVIA AB | Stockholm | SEK | 5,000,000 | 100% | ||
| DELONGHI MEXICO SA DE CV | Bosques de las Lomas |
MXN | 2,576,000 | 100% | ||
| NPE S.R.L. | Treviso | EUR | 10,000 | 100% |
| DL-TCL HOLDINGS (HK) LTD. | Hong Kong | HKD | USD 5,000,000 | 50% |
|---|---|---|---|---|
| TCL-DE'LONGHI HOME APPLIANCES (ZHONGSHAN) CO.LTD. |
Zhongshan City | CNY | USD 5,000,000 | 50% |
| EVERSYS HOLDING S.A. | Ardon | CHF | 4,100,000 | 40% |
| EVERSYS S.A. | Ardon | CHF | 2,500,000 | 40% |
| Company name | Registered office | Currency | Share capital |
|---|---|---|---|
| Subsidiary companies: | |||
| DE'LONGHI LTD. | Wellingborough | GBP | 4,000,000 |
(1) Figures at 31 December 2016, unless otherwise specified.
(2) The articles of association, approved by the extraordinary shareholders' meeting held on 29 December 2004, give special rights to De'Longhi S.p.A. (holding 89% of the voting rights) for ordinary resolutions (approval of financial statements; declaration of dividends, nomination of directors and statutory auditors, purchase and sale of companies, grant of loans to third parties); voting rights are proportional as far as other resolutions are concerned, except for the preferential right to receive dividends held by the shareholder Kenwood Appliances Ltd.
(Appendix 2 to the Explanatory Notes)
| 1st half 2017 | 1st half 2016 | |
|---|---|---|
| Profit (loss) pertaining to the Group | 56,160 | 49,439 |
| Income taxes for the period | 18,733 | 16,908 |
| Amortization | 27,268 | 24,070 |
| Net change in provisions and other non-cash items | (2,521) | 3,761 |
| Cash flow generated by current operations (A) | 99,640 | 94,178 |
| Change in assets and liabilities: | ||
| Trade receivables | 114,820 | 155,172 |
| Inventories | (106,531) | (57,227) |
| Trade payables | (28,560) | (58,636) |
| Other changes in net working capital | (23,871) | (20,360) |
| Payment of income taxes | (16,620) | (12,645) |
| Cash flow generated (absorbed) by movements in working capital (B) | (60,762) | 6,304 |
| Cash flow generated by current operations and movements in working capital (A+B) | 38,878 | 100,482 |
| Investment activities: | ||
| Investments in intangible assets | (6,386) | (4,978) |
| Other cash flows for intangible assets Investments in property, plant and equipment |
1 6 (44,645) |
(50) (17,678) |
| Other cash flows for property, plant and equipment | (47) | 878 |
| Net investments in equity investments and in minority interest | (24,334) | 341 |
| Cash flow absorbed by investment activities (C) | (75,396) | (21,487) |
| Dividends paid | (119,600) | (65,780) |
| Fair value and cash flow hedge reserve | (8,054) | (11,227) |
| Change in currency translation reserve | (12,479) | (17,293) |
| Increase (decrease) in minority interests | - | (91) |
| Cash flow absorbed by changes in net equity (D) | (140,133) | (94,391) |
| Cash flow for the period (A+B+C+D) | (176,651) | (15,396) |
| Opening net financial position | 307,642 | 188,855 |
| Cash flow for the period (A+B+C+D) | (176,651) | (15,396) |
| Closing net financial position | 130,991 | 173,459 |
The Statement of Cash Flows at 30.06.2016 was restated in order to show net working capital net of the effect of the translation of intragroup balances expressed in currencies other than the Euro included in the cash flows generated by changes in net equity.
(Appendix 3 to the Explanatory Notes)
| CONSOLIDATED INCOME STATEMENT (€/000) |
1st half 2017 | of which with related parties |
1st half 2016 | of which with related parties |
|---|---|---|---|---|
| Revenues from sales and services | 814,902 | 630 | 761,988 | 378 |
| Other revenues | 12,734 | 891 | 9,908 | 349 |
| Total consolidated revenues | 827,636 | 771,896 | ||
| Raw and ancillary materials, consumables and goods | (457,543) | (19,657) | (380,235) | (17,045) |
| Change in inventories of finished products and work in progress | 93,103 | 50,703 | ||
| Change in inventories of raw and ancillary materials, consumables and goods | 13,430 | 6,522 | ||
| Materials consumed | (351,010) | (323,010) | ||
| Payroll costs | (129,396) | (117,488) | ||
| Services and other operating expenses | (241,987) | (2,662) | (217,973) | (2,767) |
| Provisions | (1,692) | (9,573) | ||
| Amortization | (27,268) | (24,070) | ||
| EBIT | 76,283 | 79,782 | ||
| Financial income (expenses) | (11,248) | (13,232) | ||
| Non recurring Financial income (expenses) | 9,858 | - | ||
| PROFIT (LOSS) BEFORE TAXES | 74,893 | 66,550 | ||
| Income taxes | (18,733) | (16,908) | ||
| CONSOLIDATED PROFIT (LOSS) AFTER TAXES | 56,160 | 49,642 | ||
| Profit (loss) pertaining to minority interests | - | 203 | ||
| PROFIT (LOSS) PERTAINING TO THE GROUP | 56,160 | 49,439 |
De'Longhi S.p.A.
Half-year financial report at 30 June 2017
Half-year condensed consolidated financial statements
| ASSETS (€/000) |
30.06.2017 | of which with related parties |
31.12.2016 | of which with related parties |
|---|---|---|---|---|
| NON-CURRENT ASSETS | ||||
| INTANGIBLE ASSETS | 326,871 | 327,792 | ||
| - Goodwill - Other intangible assets |
97,080 229,791 |
97,080 230,712 |
||
| PROPERTY, PLANT AND EQUIPMENT | 215,551 | 195,095 | ||
| - Land, property, plant and machinery - Other tangible assets |
124,157 91,394 |
110,723 84,372 |
||
| EQUITY INVESTMENTS AND OTHER FINANCIAL ASSETS | 30,501 | 12,720 | ||
| - Equity investments - Receivables - Other non-current financial assets |
23,719 3,375 3,407 |
3,278 | 4,739 3,283 4,698 |
|
| DEFERRED TAX ASSETS | 43,371 | 38,379 | ||
| TOTAL NON-CURRENT ASSETS | 616,294 | 573,986 | ||
| CURRENT ASSETS | ||||
| INVENTORIES TRADE RECEIVABLES CURRENT TAX ASSETS OTHER RECEIVABLES CURRENT FINANCIAL RECEIVABLES AND ASSETS CASH AND CASH EQUIVALENTS |
416,348 256,625 10,839 39,775 10,194 446,493 |
1,200 147 |
320,786 372,777 9,787 32,328 25,676 461,430 |
989 241 |
| TOTAL CURRENT ASSETS | 1,180,274 | 1,222,784 | ||
| NON-CURRENT ASSETS HELD FOR SALE | 1,323 | 1,389 | ||
| TOTAL ASSETS | 1,797,891 | 1,798,159 | ||
| NET EQUITY AND LIABILITIES (€/000) |
30.06.2017 of which with related parties |
31.12.2016 | of which with related parties |
|
| NET EQUITY | ||||
| GROUP PORTION OF NET EQUITY - Share capital - Reserves - Profit (loss) pertaining to the Group |
916,112 224,250 635,702 56,160 |
1,010,627 224,250 618,966 167,411 |
||
| MINORITY INTERESTS TOTAL NET EQUITY |
- 916,112 |
3,420 1,014,047 |
||
| NON-CURRENT LIABILITIES FINANCIAL PAYABLES |
231,199 | 75,883 | ||
| - Bank loans and borrowings (long-term portion) - Other financial payables (long-term portion) |
75,840 155,359 |
- 75,883 |
||
| DEFERRED TAX LIABILITIES | 28,297 | 27,576 | ||
| NON-CURRENT PROVISIONS FOR CONTINGENCIES AND OTHER CHARGES | 90,148 | 90,439 | ||
| - Employee benefits - Other provisions |
45,782 44,366 |
42,707 47,732 |
||
| TOTAL NON-CURRENT LIABILITIES | 349,644 | 193,898 | ||
| CURRENT LIABILITIES | ||||
| TRADE PAYABLES | 327,152 | 4,884 | 365,315 | 9 6 |
| FINANCIAL PAYABLES | 97,904 | 108,279 | ||
| - Bank loans and borrowings (short-term portion) - Other financial payables (short-term portion) |
50,650 47,254 |
29,376 78,903 |
||
| CURRENT TAX LIABILITIES | 37,249 | 19,175 | 29,528 | 13,269 |
| OTHER PAYABLES | ||||
| 69,830 | 500 | 87,092 | 500 | |
| TOTAL CURRENT LIABILITIES | 532,135 | 590,214 |
In compliance with the guidelines and methods for identifying significant transactions, especially those with related parties covered by the De'Longhi S.p.A. rules on corporate governance, we shall now present the following information concerning income and expenses for the first half 2017 and credit/debit balances at 30 June 2017 from related party transactions:
| (€/million) | Revenues | Raw material and other costs |
Trade and other receivables |
Financial receivables |
Trade and other payables |
|---|---|---|---|---|---|
| Related parties: (1) | |||||
| DL Radiators S.r.l. | 0.9 | - | 0.8 | - | 0.6 |
| TCL-De'Longhi Home Appliances (Zhongshan) Co.Ltd. | 0.1 | 19.7 | - | - | 3.9 |
| Gamma S.r.l. | 0.1 | 2.6 | 0.1 | - | 1.0 |
| De'Longhi Industrial S.A. | 0.4 | - | 0.4 | - | 19.2 |
| Eversys Holding S.A. | - | - | - | 3.3 | - |
| TOTAL RELATED PARTIES | 1.5 | 22.3 | 1.3 | 3.3 | 24.6 |
(1) Commercial relationships.
De'Longhi S.p.A. and a few Italian subsidiaries adhered to the national tax consolidation regime (Presidential Decree. n. 917/1986 - articles 117 through 129, and Decree of 9.6.2004), as part of a tax group formed by the parent company De'Longhi Industrial S.A.; the agreement entered into covers the three-year period 2016-2018 and may be renewed. The €19.2 million included in tax payables is comprised of the taxes payable by the members of the tax group through De'Longhi Industrial S.A..
The amount owed DL Radiators S.r.l. refers mainly to taxes payable in prior years when the companies were part of De'Longhi S.p.A.'s tax Group.
The purchase of the property in Treviso from Gamma S.r.l., described in the explanatory notes above, is not shown in this statement at 30 June 2017 as the consideration has already been paid.
The undersigned Fabio de'Longhi, Chief Executive Officer, and Stefano Biella, as Financial Reporting Officer of De'Longhi S.p.A., attest, also taking account of the provisions of paragraphs 3 and 4, art. 154-bis, of Decree 58 dated 24 February 1998:
that the accounting and administrative processes for preparing the half-year condensed consolidated financial statements during the first half of 2017:
They also certify that the half-year condensed consolidated financial statements at 30 June 2017:
Lastly, they certify that the interim report on operations contains references to important events that took place in the first six months of the year and their impact on the half-year condensed consolidated financial statements, together with a description of the principal risks and uncertainties in the remaining six months of the year, as well as information on significant related party transactions.
Treviso, 28 July 2017
Fabio de' Longhi Stefano Biella
Chief Executive Officer Financial Reporting Officer
EY S.p.A. Via Isonzo, 11 37126 Verona
Tel: +39 045 8312511 Fax: +39 045 8312550 ey.com
To the Shareholders of De'Longhi S.p.A.
We have reviewed the interim condensed consolidated financial statements, comprising the consolidated statement of financial position as of June 30, 2017, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in net equity, the consolidated statement of cash flow and the related explanatory notes of De'Longhi S.p.A. and its subsidiaries (the "De'Longhi Group"). The Directors of De'Longhi S.p.A. are responsible for the preparation of the interim condensed consolidated financial statements in conformity with the International Financial Reporting Standard applicable to interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.
We conducted our review in accordance with review standards recommended by Consob (the Italian Stock Exchange Regulatory Agency) in its Resolution no. 10867 of July 31, 1997. A review of interim condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (ISA Italia) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the interim condensed consolidated financial statements.
Based on our review, nothing has come to our attention that causes us to believe that the interim condensed consolidated financial statements of De'Longhi Group as of June 30, 2017 are not prepared, in all material respects, in conformity with the International Financial Reporting Standard applicable to interim financial reporting (IAS 34) as adopted by the European Union.
Verona, July 31, 2017
EY S.p.A. Signed by: Daniele Tosi, Partner
This report has been translated into the English language solely for the convenience of international readers
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