Annual Report • May 3, 2017
Annual Report
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The results for the year just ended are driving the Company forward, into a future marked by strong geographical consolidation and a growing dynamic dialogue with its customers worldwide. Although its heart remains in Italy, the major successes achieved by Brembo are the outcome of a company that continues to invest and produce over four continents, fully exploiting its competitive strengths. In fact, in its pursuit of an effective global expansion strategy, the Group has boosted growth, consolidating its presence both in fast-developing markets, such as China and India, and in Brembo's key markets, such as North America and Europe. The expansion of the Polish plant in Dabrowa, the inauguration in record times of the new Mexican plant in Escobedo together with the start of works on the adjoining cast-iron foundry, the completion of the new Homer plant in the USA — which is running at full production — and the start-up of works on a new plant to produce aluminium calipers in Nanjing in China: all this not only represents the tangible signs of Brembo's determination to develop these markets even more, but are also major projects that demonstrate the Group's commitment to combining global vision and local presence, to support its customers in whichever country they may be located. Research and development are key to Brembo's success, together with its substantial capacity to achieve ever more ambitious objectives and the dynamic and reactive way it is preparing to tackle future technological and market challenges.
BREMBO ANNUAL REPORT 2016
The expansion of the new Polish foundry in Dabrowa.
The Shareholders are convened to the Ordinary and Extraordinary Shareholders' Meetings to be held at the Company offices at Viale Europa 2, 24040 Stezzano (Bergamo) on 20 April 2017 at 10:30a.m. CET (single call) to resolve on the following
Stezzano, 3 March 2017
On behalf of the Board of Directors The Chairman Alberto Bombassei
| LETTER FROM THE CHAIRMAN | 8 |
|---|---|
| Company Officers | 12 |
| Summary of Group Results | 14 |
| DIRECTORS' REPORT ON OPERATIONS | 17 |
|---|---|
| Brembo and the Market | 18 |
| Sales Breakdown by Geographical Area and Application | 24 |
| Brembo's Consolidated Results | 26 |
| Group Structure | 32 |
| Brembo Worldwide | 34 |
| Performance of Brembo Companies | 36 |
| Investments | 42 |
| Research and Development | 46 |
| Risk Management Policy | 52 |
| Human Resources and Organisation | 60 |
| Environment, Safety and Health | 62 |
| Related Party Transactions | 64 |
| Further Information | 66 |
| Foreseeable Evolution | 69 |
| Corporate Governance and Ownership Structure Report | 70 |
| Information About the Brembo S.p.A. Dividend Proposal | 71 |
PALMARES 2016 77
| CONSOLIDATED FINANCIAL STATEMENTS 2016 | 85 |
|---|---|
| Consolidated Financial Statements at 31 December 2016 | 86 |
| Explanatory Notes to the Consolidated Financial Statements at 31 December 2016 |
96 |
| Statutory Auditors' Report | 168 |
| Independent Auditor's Report in Accordance with Articles 14 and 16 of Legislative Decree No. 39, dated 27 January 2010 |
170 |
| Attestation of the Consolidated Financial Statements Pursuant to Article 154-bis of Legislative Decree No. 58/98 |
172 |
| SEPARATE FINANCIAL STATEMENTS 2016 | 175 |
| Financial Statements of Brembo S.p.A. at 31 December 2016 | 176 |
| Statutory Auditors' Report | 186 |
| Attestation of Financial Statements of Brembo S.p.A. |
Pursuant to Article 154-bis of Legislative Decree No. 58/98 194
Worldwide economic activity, which Brembo must look at with ever increasing interest due its growing globalisation, performed better than expected in the second half of 2016, after a rather disappointing start, and, according to the IMF, should continue to strengthen, albeit at a slower pace than before the crisis. Italy also reported more encouraging growth than that predicted, although still a long way from the results recorded in the main European countries. The economy in the Eurozone is accelerating and companies are expanding at the fastest rate for almost six years. However, uncertainties remain about whether the problems that the most advanced countries have been experiencing for a decade have actually been resolved: growth in Europe is still considered to be fragile; Japan is struggling to get started again; in the United States, despite a burst of activity in the third quarter, 2016 saw an unexpected slowdown and the election of the new President has created fresh uncertainty on the world stage. As far as the main developing countries are concerned, the BRIC countries (Brazil, Russia, India and China) have been facing difficulties for some time: Brazil and Russia have stopped growing and fallen into recession; China continues to drive the world economy but has slowed its course and only India seems to be proceeding at a brisk pace.
In this scenario, the global light vehicle market, which generates more than three quarters of Brembo's turnover, reported 4.6% growth in 2016, more than double the previous year, due primarily to China and, surprisingly, to Europe. China, the world's top car market, returned to double-figure growth (+12.3%). In Europe, the Eastern European area (EU12) did even better (+15.9%), followed by Italy (+15.8%) and Spain (+10.9%), whilst Germany confirmed its number-one position in Europe for volumes of new registrations, albeit with a more modest increase. The U.S. market was virtually flat and the other main markets such as Russia, Brazil, Argentina and Japan contracted.
Brembo continued its growth, which had characterised the Group even during the turbulent years of the worldwide crisis. Turnover exceeded €2,279 million, up 9.9% compared to 2015; gross operating margin was nearly €444 million, with a 23.3% increase; net income exceeded €240 million, up 30.8%. The greatest contribution to growth was made by car applications, but significant increases were also recorded in commercial vehicle and motorbike applications.
At geographical level, the increase in revenues related to all the areas in which the Group operates, with the sole exception of South America, which continued to fall but reported a 23.8% rise in the fourth quarter, thus pointing to a possible reversal of trend. In Europe, Germany, which is Brembo's second top market at 23.2% of sales, rose by 9.7%. There were also good results in the United Kingdom, Italy and France. North America (USA, Mexico and Canada), Brembo's number-one market with 28% of sales, reported a 5.9% increase. In the Far East, the positive increase in sales in India and Japan was accompanied by record growth in China where turnover rose by 67.9%, also thanks to the contribution of the newly acquired Asimco Meilian Braking Systems (the increase in revenues was 29.7% on a like-for-like consolidation basis).
In addition to the excellent results, 2016 marked a turning point in the extent of Brembo's industrial expansion, focused on its geographical location rooted close to customer companies for a more effective, direct and dynamic working partnership. New production hubs have been opened or started up in our main markets in just one year and, once these are fully operational, the Group's casting capacity will rise by more than 300,000 tonnes per year. The five plants that have come on stream or are being built in the United States, Mexico, China, Italy and Poland satisfy the highest technological standards from the standpoint of construction, production processes, logistics and sustainability. Constant innovation of processes and products — including at existing production hubs in Italy and in other countries — reflects the emerging new opportunities offered by Industry 4.0, with regard to both the digitalisation of specific phases of production and cutting-edge training of current and new professionals.
The year also saw, amongst other things, a significant increase in the workforce, which grew by almost 1,200. This increase was the result both of new recruit ment to cope with the higher level of production, and the inclusion of 660 employees from Asimco Meilian Braking Systems. Today, the Group employs more than 9,000 people, including managers, middle managers, white-collar and blue-collar staff who work together in 15 countries over 3 continents with skill, passion, commitment and intelligence to maintain Brembo's technological leadership which is the foundation of our success.
The goals achieved by the Group from a financial standpoint, but also in terms of capitalisation, geographical footprint and operational size, have made it appropriate and logical to propose a voluntary withdrawal from the STAR segment of Borsa Italiana, where the Company has grown successfully for many years, but that no longer represents Brembo's true scope. This is another step taken looking to the future, toward another phase of growth and creation of value for all of our stakeholders.
The Chairman Alberto Bombassei
Built in record times, our new integrated plant for the production of aluminium calipers in Escobedo strengthens the Group's presence in North America.
Its casting capacity, in the region of 15,000 tonnes a year, will allow an annual production of 2 million aluminium calipers.
The General Shareholders' Meeting held on 29 April 2014 confirmed the number of Board members at 11 and appointed the Board of Directors for the three-year period 2014–2016, i.e., until the General Shareholders' Meeting called to approve the Financial Statements for the year ending 31 December 2016, based on the two lists submitted respectively by the majority shareholder Nuova FourB S.r.l. and a group of Asset Management Companies and other institutional investors (holding 2.11% of the share capital, overall).
| Chairman | Alberto Bombassei (1) (9) |
|---|---|
| Executive Deputy Chairman | Matteo Tiraboschi (2) (9) |
| Chief Executive Officer and General Manager | Andrea Abbati Marescotti (3) (9) |
| Directors | Cristina Bombassei (4) (9) Barbara Borra (5) Giovanni Cavallini (5) Giancarlo Dallera (6) Bianca Maria Martinelli (5) (7) Umberto Nicodano (8) Pasquale Pistorio (5) (10) Gianfelice Rocca (5) |
| BOARD OF STATUTORY AUDITORS (11) | |
| Chairwoman | Raffaella Pagani (7) |
| Acting Auditors | Sergio Pivato Milena T. Motta |
| Alternate Auditors | Marco Salvatore Myriam Amato (7) |
| INDEPENDENT AUDITORS | EY S.p.A. (12) |
| MANAGER IN CHARGE OF THE COMPANY'S FINANCIAL REPORTS |
Matteo Tiraboschi (13) |
| Audit & Risk Committee (14) (15) | Pasquale Pistorio (Chairman) Giovanni Cavallini Bianca Maria Martinelli (7) |
|---|---|
| Remuneration & Appointments Committee | Barbara Borra (Chairwoman) Giovanni Cavallini Umberto Nicodano |
| Supervisory Committee | Raffaella Pagani (Chairwoman of the Board of Statutory Auditors) (7) Sergio Pivato (Acting Auditor) Milena T. Motta (Acting Auditor) Alessandra Ramorino (16) Mario Bianchi (17) Mario Tagliaferri (18) |
(15) Effective 1 January 2016, the Board of Directors' meeting approved a new composition of the Audit & Risk Committee, given that the terms of office provided for by Brembo S.p.A's Corporate Governance Code had been exceeded by Directors G. Cavallini (Chairman) and G. Dallera (member).
Brembo S.p.A. Registered offices: CURNO (BG) - Via Brembo 25 Share capital: €34,727,914.00 – Bergamo Register of Companies Tax code and VAT Code No. 00222620163
| (euro thousand) | 31.12.2012 | 31.12.2013 | 31.12.2014 | 31.12.2015 | 31.12.2016 | % 2016/2015 |
|---|---|---|---|---|---|---|
| Sales of goods and services | 1,388,637 | 1,566,143 | 1,803,335 | 2,073,246 | 2,279,096 | 9.9% |
| Gross operating income | 171,709 | 213,502 | 279,800 | 359,919 | 443,714 | 23.3% |
| % on sales | 12.4% | 13.6% | 15.5% | 17.4% | 19.5% | |
| Net operating income | 89,543 | 122,848 | 178,449 | 251,282 | 327,464 | 30.3% |
| % on sales | 6.4% | 7.8% | 9.9% | 12.1% | 14.4% | |
| Result before taxes | 82,853 | 104,385 | 164,916 | 243,499 | 312,208 | 28.2% |
| % on sales | 6.0% | 6.7% | 9.1% | 11.7% | 13.7% | |
| Net result for the year | 77,845 | 89,016 | 129,054 | 183,962 | 240,632 | 30.8% |
| % on sales | 5.6% | 5.7% | 7.2% | 8.9% | 10.6% | |
| (euro thousand) | 31.12.2012 | 31.12.2013 | 31.12.2014 | 31.12.2015 | 31.12.2016 | % 2016/2015 |
|---|---|---|---|---|---|---|
| Net invested capital (1) | 741,221 | 776,735 | 839,510 | 878,569 | 1,110,693 | 26.4% |
| Equity | 393,824 | 429,207 | 536,330 | 687,547 | 882,310 | 28.3% |
| Net financial debt (1) | 320,694 | 320,489 | 270,387 | 160,688 | 195,677 | 21.8% |
| (euro thousand) | 31.12.2012 | 31.12.2013 | 31.12.2014 | 31.12.2015 | 31.12.2016 | % 2016/2015 |
|---|---|---|---|---|---|---|
| Personnel at end of year (No.) | 6,937 | 7,241 | 7,690 | 7,867 | 9,042 | 14.9% |
| Turnover per employee | 200.2 | 216.3 | 234.5 | 263.5 | 252.1 | -4.4% |
| Investments | 140,601 | 133,078 | 126,776 | 155,908 | 263,570 | 69.1% |
| 31.12.2012 | 31.12.2013 | 31.12.2014 | 31.12.2015 | 31.12.2016 | |
|---|---|---|---|---|---|
| Net operating income/Sales | 6.4% | 7.8% | 9.9% | 12.1% | 14.4% |
| Income before taxes/Sales | 6.0% | 6.7% | 9.1% | 11.7% | 13.7% |
| Investments/Sales | 10.1% | 8.5% | 7.0% | 7.5% | 11.6% |
| Net financial debt/Equity | 81.4% | 74.7% | 50.4% | 23.4% | 22.2% |
| Net adjusted interest expense (*)/Sales | 0.8% | 0.7% | 0.7% | 0.6% | 0.4% |
| Net adjusted interest expense (*)/Net operating income |
12.9% | 9.1% | 7.1% | 4.9% | 3.0% |
| ROI (2) | 12.1% | 15.8% | 21.3% | 28.6% | 29.5% |
| ROE (3) | 19.7% | 20.8% | 24.0% | 27.0% | 27.5% |
Notes
(1) A breakdown of these items is provided in the Statement of Financial Position included in this Directors' Report on Operations.
(3) Net income (loss) before minority interests / Equity x annualisation factor (days in the year/days in the reporting period).
(*) This item does not include exchange gains and losses.
(2) Net operating income / Net invested capital x annualisation factor (days in the year/days in the reporting period).
In order to better assess Brembo's performance in 2016, the worldwide macroeconomic scenario should be taken into consideration, with particular reference to the markets in which the Group operates.
According to the estimates of the International Monetary Fund (IMF) published in the January 2017 World Economic Outlook, worldwide gross domestic product (GDP) should rise by 3.4% in 2017 and 3.6% in 2018. The IMF has revised the estimates upwards for China, the United Kingdom, the United States and the Eurozone, whilst it has cut those for Italy and Mexico. For the most advanced economies the estimates rose slightly overall, due primarily to the positive contribution made by economic performance in the second half of 2016 and the expectation of a budget stimulus by the new U.S. Government. As far as the Eurozone is concerned, the IMF estimates a 1.6% increase in GDP both in 2017 (after the +1.7% of 2016) and in 2018. Amongst the main Euro area countries, Washington economists see Germany's GDP rising by 1.5%, both this year and next, France's GDP up by 1.3% in 2017 and 1.6% in 2018 and Spain's GDP rising by 2.3% and 2.1%, respectively.
The new production hub in Nanjing, China.
18
For the Eurozone, in January 2017 the value of the composite PMI (Purchasing Manager's Index) was 54.3 points, well above the 50 point threshold. Although slightly slower compared to the 54.4 points in December, this does indicate an expansion phase in the area's activity. According to the IMF, the Italian economy will grow by 0.7% in 2017 (after the 0.9% of 2016), with a 0.2% reduction in forecasts compared to last October, and by 0.8% in 2018, with a 0.3% cut compared to previous estimates. The downward forecast for Italy is the only one amongst the major advanced economies, which, overall, are expected to advance by 1.9% in 2017 and 2.0% in 2018, with an increase of 0.1 and 0.2 percentage points respectively over previous estimates. For its part, the Bank of Italy confirms 0.9% growth in Italy's GDP both for 2016 and for 2017, reporting high values in manufacturing performance, electricity consumption and goods transport, as well as a positive trend in business confidence indicators.
In November, manufacturing in the Eurozone reported 1.5% growth compared to the previous month; this is indicated by Eurostat which also specifies that there was 3.2% growth compared to November 2015. A positive production trend is also reported in Italy where monthly growth was 0.7%, whilst it rose by 3.2% over 12 months (+2.3% in Germany, +2.0% in France). The Bank of Italy also confirmed positive figures in the January 2017 Bulletin, according to which the unemployment rate this year will remain at 11.6%, just as in 2016, and then fall to 11.3% in 2018 and 10.9% in 2019.
As far as the United States is concerned, the uncertainty about the polices of the new U.S. administration and its global ramifications is the main reason why the forecasts are less reliable. Gross Domestic Product in the third quarter of 2016 grew faster than forecast, reaching +3.5% on an annual basis (from 1.4% in the previous period), due primarily to the contribution of net exports and change in inventories, as well as the expansion in private consumption which remained robust, even though investment continued to remain stagnant. Information on the fourth quarter, particularly regarding the labour market and the forward-looking indicators, suggest that economic activity is still buoyant. According to Federal Reserve reports, manufacturing production in the USA in December rose more than forecast and at the fastest rate for more than two years, reporting a rise of 0.8% thanks to good performance in the manufacturing sector and utilities, a further sign of steady economic growth: the most sustained increase since November 2014.
According to the Bank of Italy Bulletin, GDP growth in Japan slowed down to 1.3% (from 1.8%) on an annual basis, reflecting the persistent weakness in consumption and investment. The most recent data for the autumn months show a still uncertain picture. In the future, the expansionary budget measures approved in the summer could boost domestic demand.
In China, GDP grew by 6.7% in 2016 and, although stuck at the lowest level since 1990, it nonetheless achieved the +6.5% to +7% per year objective set by the Government's five-year plan. In the World Economic Outlook report the IMF revised the 2017 growth forecasts for China upwards by 0.3 percentage points, taking them to 6.5%, but leaving the 2018 estimates unchanged at 6.0%.
Brazil's economy remained in recession, even though the outlook is positive, since IMF experts stated that the effects of the economic and political shocks that rocked 2015 and 2016 will lessen during 2017. The year 2016 closed with GDP growth estimates revised downwards (-0.2% and -0.3% for 2016 and 2017, respectively) for the third quarter, reporting a decrease of -3.5% for the whole of 2016.
For those countries most affected by the fall in commodities prices, the market's recent robustness offers some relief, but intervention remains urgent for global macroeconomic stability. In those countries that cannot rely on a fixed exchange rate, this implies implementation of a restrictive monetary policy to meet the constant rise in inflation and guarantee fiscal consolidation. According to information published by the IMF, the average oil price for the three Brent, Dubai and West Texas Intermediate (WTI) qualities fell by 15.9%. A price recovery is forecast for 2017, with an estimated growth of 19.9 percentage points.
The U.S. dollar, after opening 2016 at 1.0465 (2 January), lost ground against the euro up to mid-February, then recovered value in March and depreciated again until it reached the level of 1.1569 on 3 May. From June the value of the U.S. currency experienced a phase of gradual recovery up to mid-October, when it depreciated again below the annual average of 1.106598. From 9 November, with the election of Donald Trump to the Presidency of the United States, the dollar appreciated sharply to reach 1.0364 on 20 December. At the end of the year, the currency stood at 1.0541.
Regarding the currencies of the other main markets in which Brembo operates at industrial and commercial level, the pound sterling, after opening the year at 0.7381 (4 January), depreciated steadily up to April and then recovered ground against the euro up to 27 June, the date on which it fell sharply following Brexit, slumping to 0.834. The fall against the euro became more marked in the second half of the year, reaching 0.90485 (17 October) followed by a reversal in trend up to the end of November. At the end of the year, the currency stood at 0.85618, above the annual average rate of 0.818896.
The Polish zloty, after opening 2016 down against the euro, gradually appreciated until it reached 4.234 (4 April), and then started to lose ground again up to June. Following a fluctuating phase in the third quarter, the last quarter of the year was marked by a constant fall in value, which resulted in the Polish currency reaching the level of 4.5005 (5 December) against the euro. At the end of the year, the currency stood at 4.4103, above the annual average rate of 4.363633.
The Czech koruna opened the year 2016 at 27.023 and then moved sideways in alternating phases of depreciation and appreciation, peaking at 27.151 (27 June). In July, the currency recovered against the euro up to the level of 27.014 (19 July), and then settled on values below the annual average of 27.034311. At the end of the year the currency stood at: 27.021.
The Swedish krona started the year down against the euro, and then recovered ground from the second half of February until it reached the rate of 9.1381 (22 April). This was followed by a steady downward trend up to 9 November, when it reached the level of 10.0025, after which it appreciated in December. At the end of the year, the currency stood at 9.5525, above the annual average rate of 9.467312.
In the east, the start of the year saw the Japanese yen gradually depreciate against the euro reaching the rate of 132.25 (29 January). It subsequently recovered value, rising steadily until it reached the rate of 111.17 (8 July). The second half of the year saw the Japanese currency enter a steady downward phase in November and December, after experiencing fluctuation up to the end of October. At the end of the year, the currency stood at 123.4, above the annual average rate of 120.313774.
The Chinese yuan/renminbi opened 2016 at 7.1208 against the euro (4 January) and then experienced alternating phases of depreciation and appreciation up to April, mainly below the annual average of 7.349579. From May the Chinese currency, after being initially high, moved sideways to settle mainly above the annual average and reaching the level of 7.5341 on 19 August. In the last quarter the currency appreciated again, ending the year at 7.3202.
The Indian rupee followed a similar trend to that of the Chinese yuan/renminbi. It opened the year at 72.617 against the euro (4 January) and then followed an overall downward trend to the level of 77.655 (11 February). The Indian currency then started to appreciate again, only to lose ground in April. Thereafter, it moved sideways, settling primarily on values above the annual average of 74.355278. It appreciated in the last quarter of the year until reaching 70.5475 on 20 December. At the end of the year, the currency stood at 71.5935.
In South America, the Brazilian real opened 2016 moving sideways around 4.4 against the euro up to the end of January, reaching 4.523. The Brazilian currency then recovered ground steadily until reaching 3.3872 (25 October). At the end of the year, the currency stood at 3.4305, below the annual average rate of 3.861627.
After starting the year at 18.5798, the Mexican peso experienced alternating phases of depreciation and appreciation up to May; it then followed a sideways movement with limited fluctuations up to September, when it lost value against the euro followed by recovery in October. In November, the Mexican currency depreciated again until reaching the level of 22.7062 (11 November). At the end of the year, the currency stood at 21.7719, above the annual average rate of 20.654970.
In the first two months of 2016, the Argentinean peso continued the downward trend recorded in the last quarter of 2015 and due to the introduction of a "flexible exchange rate" regime designed to deregulate the country's economy. The Argentinian currency opened the year at 14.220418 against the euro and reached the level of 17.280551 on 1 March. Between April and June the currency trend reversed, partially recovering ground against the euro and then losing it again in July. For the rest of the year it settled at values above the average for the period of 16.333592. At the end of the year the currency stood at: 16.7488.
The Russian rouble fell against the euro at the start of the year, touching the level of 91.766 (21 January), followed by a sharp reversal in trend and then a steady recovery in value until it reached 62.9938 (28 December). At the end of the year, the currency stood at 64.3, below the annual average rate (74.222360).
Brembo is the world leader and acknowledged innovator of the brake disc technology for automotive vehicles. It currently operates in 15 countries on 3 continents, through its production and business sites, and employs over 9,000 people worldwide. Manufacturing plants are located in Italy, Poland (Czestochowa, Dabrowa Górnicza, Niepolomice), the United Kingdom (Coventry), the Czech Republic (Ostrava-Hrabová), Germany (Meitingen), Mexico (Apodaca and Escobedo), Brazil (Betim), Argentina (Buenos Aires), China (Nanjing, Langfang), India (Pune) and the United States (Homer). Other companies located in Spain (Zaragoza), Sweden (Göteborg), Germany (Leinfelden-Echterdingen), China (Qingdao), Japan (Tokyo) and Russia (Moscow) carry out distribution and sales activities.
Brembo's reference market is represented by the most important manufacturers of cars, motorbikes, commercial vehicles and racing cars and motorbikes. Constant focus on innovation, as well as technological and process development, factors that have always been fundamental to Brembo's philosophy, have earned the Group a strong international leadership position in the research, design and production of high-performance braking systems for a wide range of road and racing vehicles. Brembo operates in both the original equipment market and the aftermarket. Its range of products for car and the commercial vehicle applications includes brake discs, brake calipers, the side-wheel module and, increasingly often, the complete braking system, including integrated engineering services that back the development of new models produced by Brembo's customers. In addition to brake discs and brake calipers, motorbike manufacturers are also offered brake master cylinders, light-alloy wheels and complete braking systems. In the car aftermarket, Brembo offers in particular brake discs, in addition to pads, drums, brake shoes, drumbrake kits and hydraulic components: a vast and safe range of products allows the company to meet the needs of nearly all European vehicles.
In 2016, Brembo's consolidated net sales amounted to €2,279,096 thousand, up 9.9% compared to €2,073,246 thousand in 2015.
Information on the performance of the individual applications and their related markets — as available to the company — is provided under the following headings.
In 2016, the global light vehicle market reported a 4.6% overall growth in sales compared to 2015, due primarily to China and both Western and Eastern Europe.
The Western European markets (EU15+EFTA) closed for the third consecutive year with a positive performance, with car registrations at +5.8% compared to 2015. All the main European markets contributed to growth, reporting sales increases: +4.5% in Germany, +2.3% in the United Kingdom, +5.1% in France, +15.8% in Italy and +10.9% in Spain. Germany remained the number-one country in Europe by sales volumes. The car registrations trend was also positive in Eastern Europe (EU12), reporting a 15.9% increase compared to 2015.
In Russia the negative trend started in 2013 continued, caused by the serious economic crisis suffered by the country. In 2016, light vehicle registrations fell by 11.0% compared to the previous year.
In the United States there was a slowdown in the recent years' growth of light vehicles sales, reporting a modest 0.5% rise compared to 2015. The Brazilian and Argentinean markets continued to shrink and closed 2016 with an overall decrease in sales of 14.1%.
In the Asian markets, China, after the slowdown in 2015, returned to a double-figure growth in light vehicle sales, recording an increase of +12.3% and once again confirming its number-one position in the world market. The Japanese market recovered though remaining negative, and in 2016 saw a 1.9% drop in sales (against the previous year's -10.0%).
In this context, Brembo's net sales of car applications in 2016 amounted to €1,736,159 thousand, accounting for 76.2% of Group turnover, up 12.3% on 2015. On a like-for-like consolidation basis, and hence excluding the contribution of Asimco Meilian Braking Systems (Langfang) Co. Ltd. from the 2016 results, there was a +9.3% increase in net sales for this segment.
Europe, the United States and Japan are Brembo's three most important markets in the motorbike sector.
In western Europe, overall motorbike registrations increased by 12.5% in 2016 compared to the previous year. All the main markets contributed to this growth. The increases recorded in Spain (+18.9%), followed by Germany (+13.4%), the United Kingdom (+13.4%), Italy (+13.3%) and France (+5.3%), were particularly positive.
Enduro motorbikes reported the greatest increase in registrations of all Western European countries (+45.7%) followed by the sport/touring motorbike segment (+30.3%), whilst there was a decline in the touring motorbike segment (-8.3%). Motorbikes between 900cc and 1000cc recorded a sharp increase of +55.4%.
In the United States, registrations of motorbikes, scooters and ATVs (All Terrain Vehicles) reported an overall decrease of 3.3% compared to 2015. The most significant drop concerned the scooter (-12.0%) and ATV (-4.7%) segments, followed by the Dual (-4.4%) and ON-HWY motorbike segments (-4.2%). OFF-HWY is the only segment that reported growth (+7.7%).
In Japan new motorbike registrations fell overall by -9.3%, which falls to-1.6% if only two-wheel vehicles with more than 50cc power are considered.
In Brazil the decrease was -21.6%, almost double the previous year (-11.0%).
Against this background, Brembo's net sales of motorbike applications amounted to €205,099 thousand in 2016, up 5.8% compared to €193,878 thousand in the previous year.
In 2016, the European commercial vehicles market (EU15+EFTA), Brembo's reference market, showed an 11.4% increase in registrations.
Sales of light commercial vehicles (up to 3.5 tonnes) increased overall by 11.3% compared to 2015. Italy, one of the top five European markets for volume of sales, reported a highly significant increase compared to last year (+50.0%). Similarly, all the other main countries grew: +8.5% Germany, +11.2% Spain, +8.2% France and +1.0% the UK. In Eastern European countries, sales rose by 15.6% compared to 2015.
The medium and heavy commercial vehicles segment (over 3.5 tonnes) also witnessed an uptrend in Europe in 2016, closing at +11.0% compared to the previous year. All the main European markets by sales volume reported growth: Italy led the way at +54.4%, followed by France +12.6%, Spain +10,1%, Germany +3,1% and the UK +1,5%. In Eastern Europe sales of commercial vehicles over 3.5 tonnes closed 2016 with a +17.1% increase on the previous year.
In 2016, Brembo's net sales of applications for this segment amounted to €224,480 thousand, up by 8.4% compared to €207,038 thousand for the previous year.
22
In the racing sector, where Brembo has maintained undisputed supremacy for years, the Group operates through three leading brands: Brembo Racing, braking systems for race cars and motorbikes; AP Racing, braking systems and clutches for race cars; Marchesini, magnesium and aluminium wheels for racing motorbikes.
From sales of applications for this segment in 2016, Brembo recorded net sales of €112,279 thousand, down by 10.1% from €124,924 thousand in 2015, due in part to the exclusion of Sabelt S.p.A. and Belt & Buckle S.r.o. from the consolidation area. On a likefor-like consolidation basis, the increase in net sales was +4.6%.
| (euro thousand) | 31.12.2016 | % | 31.12.2015 | % | Change | % |
|---|---|---|---|---|---|---|
| Italy | 256,646 | 11.3% | 247,652 | 11.9% | 8,994 | 3.6% |
| Germany | 528,299 | 23.2% | 481,439 | 23.2% | 46,860 | 9.7% |
| France | 83,425 | 3.7% | 80,906 | 3.9% | 2,519 | 3.1% |
| United Kingdom | 188,251 | 8.3% | 167,533 | 8.1% | 20,718 | 12.4% |
| Other European countries | 205,860 | 9.0% | 203,732 | 9.8% | 2,128 | 1.0% |
| India | 55,770 | 2.4% | 51,824 | 2.5% | 3,946 | 7.6% |
| China | 202,085 | 8.9% | 120,333 | 5.8% | 81,752 | 67.9% |
| Japan | 36,256 | 1.6% | 32,268 | 1.6% | 3,988 | 12.4% |
| Other Asian countries | 12,496 | 0.5% | 9,683 | 0.5% | 2,813 | 29.1% |
| South America (Argentina and Brazil) | 56,016 | 2.5% | 62,484 | 3.0% | (6,468) | -10.4% |
| North America (U.S.A., Mexico and Canada) | 637,458 | 28.0% | 601,754 | 29.1% | 35,704 | 5.9% |
| Other countries | 16,534 | 0.6% | 13,638 | 0.6% | 2,896 | 21.2% |
| Total | 2,279,096 | 100.0% | 2,073,246 | 100.0% | 205,850 | 9.9% |
| (euro thousand) | 31.12.2016 | % | 31.12.2015 | % | Change | % |
|---|---|---|---|---|---|---|
| Passenger Car | 1,736,159 | 76.2% | 1,546,193 | 74.6% | 189,966 | 12.3% |
| Motorbike | 205,099 | 9.0% | 193,878 | 9.4% | 11,221 | 5.8% |
| Commercial Vehicle | 224,480 | 9.8% | 207,038 | 10.0% | 17,442 | 8.4% |
| Racing | 112,279 | 5.0% | 124,924 | 5.9% | (12,645) | -10.1% |
| Miscellaneous | 1,079 | 0.0% | 1,213 | 0.1% | (134) | -11.0% |
| Total | 2,279,096 | 100.0% | 2,073,246 | 100.0% | 205,850 | 9.9% |
(percentage)
25
| (euro thousand) | 31.12.2016 | 31.12.2015 | Change | % |
|---|---|---|---|---|
| Sales of goods and services | 2,279,096 | 2,073,246 | 205,850 | 9.9% |
| Cost of sales, operating costs and other net charges/income* | (1,458,752) | (1,366,349) | (92,403) | 6.8% |
| Income (expense) from non-financial investments | 11,010 | 9,391 | 1,619 | 17.2% |
| Personnel expenses | (387,640) | (356,369) | (31,271) | 8.8% |
| GROSS OPERATING INCOME | 443,714 | 359,919 | 83,795 | 23.3% |
| % on sales of goods and services | 19.5% | 17.4% | ||
| Depreciation, amortisation and impairment losses | (116,250) | (108,637) | (7,613) | 7.0% |
| NET OPERATING INCOME | 327,464 | 251,282 | 76,182 | 30.3% |
| % on sales of goods and services | 14.4% | 12.1% | ||
| Net interest income (expense) from investments | (15,256) | (7,783) | (7,473) | 96.0% |
| RESULT BEFORE TAXES | 312,208 | 243,499 | 68,709 | 28.2% |
| % on sales of goods and services | 13.7% | 11.7% | ||
| Taxes | (69,213) | (57,694) | (11,519) | 20.0% |
| RESULT BEFORE MINORITY INTERESTS | 242,995 | 185,805 | 57,190 | 30.8% |
| % on sales of goods and services | 10.7% | 9.0% | ||
| Minority interests | (2,363) | (1,843) | (520) | 28.2% |
| NET RESULT | 240,632 | 183,962 | 56,670 | 30.8% |
| % on sales of goods and services | 10.6% | 8.9% | ||
| Basic and diluted earnings per share (euro) | 3.70 | 2.83 |
* The item is obtained by adding the following items of the Consolidated Statement of Income: "Other revenues and income", "Costs for capitalised internal works", "Raw materials, consumables and goods" and "Other operating costs".
Also in 2016, the Group recorded a very positive performance in terms of sales, thus confirming the constant uptrend of turnover it has been experiencing for several years. Net sales in 2016 amounted to €2,279,096 thousand, up 9.9% compared to the previous year. On a like-for-like consolidation basis — thus excluding the contribution of the results of the newly acquired Asimco Meilian Braking Systems (Langfang) Co. Ltd. for 2016 and those of Sabelt S.p.A. and Belt & Buckle S.r.o. for 2015, as they were disposed of in the previous year — Group's sales grew by 8.6%.
Nearly all applications contributed to revenue growth. Car applications contributed the most, closing the year with a 12.3% increase compared to 2015 (+9.3% excluding the contribution of Asimco Meilian Braking Systems (Langfang) Co. Ltd.), followed respectively by applications for commercial vehicles (+8.4%) and motorbikes (+5.8%), whereas the racing segment saw a 10.1% decrease due to the exclusion of Sabelt S.p.A. and Belt & Buckle S.r.o. from the consolidation area. On a like-for-like consolidation basis, the increase in net sales for this segment was +4.6%.
At geographical level, almost all the areas in which the Group operates reported growth. In Europe, Germany — Brembo's second reference market with 23.2% of sales — rose by 9.7% compared to 2015; a good sales performance was also recorded in the United Kingdom (+12.4%), whereas Italy and France saw a more modest growth (+3.6% and +3.1%, respectively). North America (USA, Mexico and Canada), Brembo's top market at 28.0% of sales, rose by 5.9%, whereas South America showed a 10.4% decrease. In the Far East, Brembo grew sharply in China (+67.9%), also thanks to the contribution of the newly acquired Asimco Meilian Braking Systems (Langfang) Co. Ltd. (on a like-for-like consolidation basis there was a 29.7% growth). India and Japan also showed a good performance (+7.6% and +12.4%, respectively).
In 2016, the cost of sales and other net operating costs amounted to €1,458,752 thousand, with a ratio of 64.0% to sales, slightly down compared to 65.9% for the previous year. Within this item, costs for capitalised internal works included in intangible assets amounted to €18,971 thousand compared to €11,982 thousand for 2015.
Income (expense) from non-financial investments amounted to €11,010 thousand, attributable to the result of the valuation of the BSCCB Group using the equity method (€8,841 thousand in 2015, in addition to €550 thousand relating to the disposal of Sabelt S.p.A. and Belt & Buckle S.r.o).
Personnel expenses for 2016 amounted to €387,640 thousand, with a 17.0% ratio to net sales, slightly down compared to the previous year (17.2%). At 31 December 2016, workforce numbered 9,042 (7,867 at 31 December 2015). The significant increase in Group's personnel (+1,175 people) was attributable both to the need to manage the increased level of production linked to the turnover growth, and to the inclusion of 660 staff of Asimco Meilian Braking Systems (Langfang) Co. Ltd., of which Brembo acquired control during the year.
Gross operating income for 2016 was €443,714 thousand compared to €359,919 thousand in the previous year, with a ratio to sales of 19.5% (17.4% in 2015).
Net operating income amounted to €327,464 thousand (14.4% of sales), compared to €251,282 thousand (12.1% of sales) in 2015, after depreciation, amortisation and impairment losses of property, plant, equipment and intangible assets for €116,250 thousand, compared to €108,637 thousand in 2015.
Net interest expense amounted to €15,367 thousand (€7,801 thousand in 2015) and consisted of net exchange losses of €5,483 thousand (net exchange gains of €4,600 thousand in 2015) and other net interest expense of €9,884 thousand (€12,401 thousand in the previous year).
Interest income from investments amounted to €111 thousand (€18 thousand in 2015) and was mainly attributable to the effects of valuing investments in associates using the equity method.
Result before taxes was positive at €312,208 thousand, compared to €243,499 thousand for the previous year. Estimated taxation amounted to €69,213 thousand, with a tax rate of 22.2% compared to 23.7% for 2015.
Group net result was €240,632 thousand, up 30.8% compared to €183,962 thousand for the previous year.
| (euro thousand) | 31.12.2016 | 31.12.2015 | Change |
|---|---|---|---|
| Property, plant and equipment | 746,932 | 589,777 | 157,155 |
| Intangible assets | 190,263 | 99,291 | 90,972 |
| Net financial assets | 33,856 | 36,630 | (2,774) |
| Other receivables and non-current liabilities | 53,832 | 59,642 | (5,810) |
| (a) Fixed capital | 1,024,883 | 785,340 | 239,543 |
| 30.5% | |||
| Inventories | 283,191 | 247,661 | 35,530 |
| Trade receivables | 357,392 | 311,217 | 46,175 |
| Other receivables and current assets | 43,830 | 36,386 | 7,444 |
| Current liabilities | (542,767) | (470,910) | (71,857) |
| Provisions / deferred taxes | (55,836) | (31,125) | (24,711) |
| (b) Net working capital | 85,810 | 93,229 | (7,419) |
| (8.0%) | |||
| (c) NET INVESTED CAPITAL (a)+(b) | 1,110,693 | 878,569 | 232,124 |
| 26.4% | |||
| (d) Equity | 882,310 | 687,547 | 194,763 |
| (e) Employees' leaving entitlement and other personnel provisions | 32,706 | 30,334 | 2,372 |
| Medium/long-term financial debt | 215,904 | 215,149 | 755 |
| Short-term net financial debt | (20,227) | (54,461) | 34,234 |
| (f) Net financial debt | 195,677 | 160,688 | 34,989 |
| 21.8% | |||
| (g) COVERAGE (d)+(e)+(f) | 1,110,693 | 878,569 | 232,124 |
| 26.4% | |||
GROUP NET RESULT
TURNOVER PER EMPLOYEE
The Group's Statement of Financial Position reflects reclassifications of consolidated accounting statements, as described in the following pages. In detail:
Net invested capital at the end of the year amounted to €1,110,693 thousand, up by €232,124 thousand compared to €878,569 thousand at 31 December 2015. Net financial debt for 2016 was €195,677 thousand, compared to €160,688 thousand at 31 December 2015. The €34,989 thousand increase in net financial debt for the year was mainly due to the following factors:
The Explanatory Notes to the Consolidated Financial Statements provide detailed information on the financial position and its assets and liabilities items.
30
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Net financial position at beginning of year (*) | (160,688) | (270,387) |
| Net operating income | 327,464 | 251,282 |
| Depreciation, amortisation and impairment losses | 116,250 | 108,637 |
| Gross operating income | 443,714 | 359,919 |
| Investments in property, plant and equipment | (231,431) | (137,511) |
| Investments in intangible assets | (32,139) | (18,397) |
| Investments in financial assets | 0 | (209) |
| Disposals | 2,821 | 1,807 |
| Amounts (paid)/received for the acquisition / disposal of subsidiaries, net of the relevant net financial position |
(72,801) | 12,396 |
| Net investments | (333,550) | (141,914) |
| Change in inventories | (35,070) | (27,502) |
| Change in trade receivables | (26,637) | (37,021) |
| Change in trade payables | 54,051 | 54,207 |
| Change in other liabilities | (19,311) | 12,322 |
| Change in receivables from others and other assets | 5,807 | (8,607) |
| Translation reserve not allocated to specific items | 2,147 | 4,927 |
| Change in working capital | (19,013) | (1,674) |
| Change in provisions for employee benefits and other provisions | 21,275 | 11,823 |
| Operating cash flows | 112,426 | 228,154 |
| Interest income and expense | (14,617) | (7,012) |
| Current taxes paid | (69,944) | (61,186) |
| (Interest income)/expense from investments, net of dividends received | (2,010) | 2,629 |
| Dividends paid in the year | (52,030) | (52,030) |
| Dividends paid in the year to minority interests | (800) | 0 |
| Net cash flows | (26,975) | 110,555 |
| Effect of translation differences on net financial position | (8,014) | (856) |
| Net financial position at end of year (*) | (195,677) | (160,688) |
(*) See Note 13 of the Explanatory Notes of the Consolidated Financial Statements for a reconciliation with financial statements data.
Brembo's Directors have identified several Alternative Performance Measures ("APMs") in the previous paragraphs, in order to provide a better understanding of the Brembo Group's operating and financial performance. These indicators are also tools that help the Directors to identify operating trends and take decisions about investments and allocation of resources and other operating decisions.
The following points enable a correct interpretation of the above-mentioned APMs:
The APMs indicated below have been selected and represented in the Report on Operations since the Group maintains that:
32
BREMBO S.P.A.
This table complies with Article 125 of Consob Resolution No. 11971 dated 14 May 1999.
34
35
The following figures were taken from the accounting situations and/or draft financial statements prepared by the companies in accordance with IAS/IFRS and approved by the respective Boards of Directors.
CURNO (ITALY)
Activities: analysis, design, development, application, production, assembly and sale of braking systems, light alloy castings for various sectors, including the car and motorbike industries.
The year 2016 closed with sales of goods and services of €843,630 thousand, up 8.0% compared to €780,802 thousand in 2015. The item "Other revenues and income" amounted to €40,819 thousand in 2016 against €32,984 thousand in 2015, whereas capitalised development costs in the year amounted to €17,055 thousand.
Gross operating income went from €112,156 thousand (14.4% of sales) in 2015 to €143,628 thousand (17.0% of sales) in 2016. Net operating income, after depreciation, amortisation and impairment losses of property, plant, equipment and intangible assets amounting to €35,816 thousand, closed at €107,812 thousand compared to €77,297 thousand for the previous year.
Net interest expense from financing activities amounted to €3,378 thousand, compared to €3,767 thousand for 2015. Income from investments amounted to €68,447 thousand and was mainly attributable to the distribution of dividends by some subsidiaries (Brembo Poland Spolka Zo.o., Brembo Scandinavia A.B., AP Racing Ltd., Corporacion Upwards '98 S.A. and Brembo SGL Carbon Ceramic Brakes S.p.A.).
During the reporting year, net income amounted to €138,393 thousand, compared to €103,313 thousand in 2015.
At 31 December 2016, the workforce numbered 3,034, increasing by 63 compared to 2,971 at the end of 2015.
COVENTRY (UNITED KINGDOM)
AP Racing is the market leader in the production of brakes and clutches for racing cars and motorbikes.
The company designs, assembles and sells cuttingedge, high-tech products throughout the world for the main F1, GT, Touring and Rally teams. It also produces and sells original equipment brakes and clutches for prestige car manufacturers.
Net sales for 2016 amounted to GBP 45,075 thousand (€55,044 thousand), compared to GBP 38,083 thousand (€52,457 thousand) in 2015. In the reporting year, net income amounted to GBP 4,390 thousand (€5,361 thousand), compared to GBP 3,882 thousand (€5,348 thousand) in 2015.
At 31 December 2016, the workforce numbered 134, eight more than at the end of 2015.
Activities: casting, production and sale of brake discs for the original equipment market.
On 19 May 2016, Brembo S.p.A. signed an agreement to acquire a 66% stake in Asimco Meilian Braking Systems (Langfang) Co. Ltd., a Chinese company that owns a foundry and a plant for the manufacturing of cast-iron brake discs. This company supplies local car manufacturers, mainly including joint ventures among Chinese firms and European and U.S. top players. Under the agreement, the remaining 34% of the share capital continued to be owned by the public company Langfang Assets Operation Co. Ltd., controlled by the Municipality of Langfang. The consideration paid for the transaction amounted to CNY 580,060 thousand (approximately €79.6 million).
Net sales as of 1 May 2016 were CNY 337,913 thousand (€45,977 thousand) and net income amounted to CNY 49,751 thousand (€6,769 thousand).
At 31 December 2016, the workforce numbered 660.
BUENOS AIRES (ARGENTINA)
Activities: production and sale of car brake discs for the original equipment market.
In 2011, Brembo acquired a 75% stake in the company based in Buenos Aires, Argentina. Under the agreement, Brembo exercised an option right on the remaining 25% in 2013; therefore, the company is currently fully owned by the Brembo Group.
Net sales amounted to ARS 325,524 thousand (€19,930 thousand), with a net loss of ARS 51,032 thousand (€3,124 thousand). In 2015, net sales amounted to ARS 191,205 thousand (€18,655 thousand) and net loss to ARS 29,447 thousand (€2,873 thousand).
At 31 December 2016, the workforce numbered 114, ten fewer than at 31 December 2015.
PUNE (INDIA)
The company is based in Pune, India, and was originally set up in 2006 as a joint venture held in equal stakes by Brembo S.p.A. and the Indian company Bosch Chassis Systems India Ltd. Since 2008, the company has been wholly owned by Brembo S.p.A.
In 2016, net sales totalled INR 4,726,954 thousand (€63,573 thousand), with a net income of INR 365,242 thousand (€4,912 thousand). In 2015, net sales amounted to INR 3,959,154 thousand (€55,625 thousand), with a net income of INR 278,236 thousand (€3,909 thousand).
At 31 December 2016, the workforce numbered 262, compared to 232 at 31 December 2015.
OSTRAVA-HRABOVÁ (CZECH REPUBLIC)
The company was formed in 2009 and started its production activity in 2011. It carries out the casting, processing and assembly of brake calipers and other aluminium components.
In 2016, net sales amounted to CZK 7,423,202 thousand (€274,584 thousand) compared to CZK 6,428,851 thousand (€235,618 thousand) in 2015, closing the year with a net income of CZK 527,984 thousand (€19,530 thousand) compared to a net income of CZK 437,062 thousand (€16,018 thousand) in 2015.
At 31 December 2016, the workforce numbered 891, increasing compared to 788 at the same date of the previous year.
LEINFELDEN – ECHTERDINGEN (GERMANY)
Activities: purchase and resale of vehicles, technical and sales services, as well as promotion of the sale of car brake discs.
The company, which is 100% owned by Brembo S.p.A., was formed in 2007. It specialises in buying cars for tests and encouraging and simplifying communications between Brembo and its German customers in the various phases of project planning and management. It also promotes aftermarket sales of car brake discs.
At 31 December 2016, net sales amounted to €1,859 thousand (€209 thousand for 2015), with a net income of €376 thousand (€28 thousand for 2015). Its workforce numbered eight.
Activities: production and sale of car brake discs for the original equipment market.
The company is headquartered in Betim, Minas Gerais, and promotes production and sales of car brake discs in the South American OEM.
Net sales for 2016 amounted to BRL 133,767 thousand (€34,640 thousand), with a net loss of BRL 31,848 thousand (€8,247 thousand). In 2015, net sales amounted to BRL 156,642 thousand (€42,432 thousand), with a net loss of BRL 76,134 thousand (€20,624 thousand).
At 31 December 2016, the workforce numbered 242, compared to 333 at the end of the previous year.
Brembo Japan Co. Ltd. is Brembo's commercial company that handles the Japanese racing market. Through the Tokyo office, it provides primary technical support to the OEM customers in the area. It also renders services to the other Group companies operating in Japan.
Net sales for 2016 amounted to JPY 613,614 thousand (€5,100 thousand), compared to JPY 587,030 thousand (€4,371 thousand) in 2015. Net income for the reporting year amounted to JPY 67,651 thousand (€562 thousand), compared to JPY 54,342 thousand (€405 thousand) in 2015.
At 31 December 2016, the workforce numbered 17, two more compared to the end of 2015.
APODACA (MEXICO)
Activities: production and sale of car brake discs for original equipment and the aftermarket; casting, production and sale of braking systems for cars and commercial vehicles.
As a result of the merger with Brembo México Apodaca S.A. de C.V. in 2010, the company is now 51% owned by Brembo North America Inc. and 49% owned by Brembo S.p.A.
In 2016, net sales amounted to USD 133,722 thousand (€120,841 thousand), with a net income of USD 6,390 thousand for the year (€5,774 thousand).
In 2015, net sales amounted to USD 103,948 thousand (€93,679 thousand), with a net income of USD 4,554 thousand (€4,104 thousand).
At 31 December 2016, the workforce numbered 500, compared to 353 at the end of 2015.
Activities: casting, processing and assembly of braking systems for cars and commercial vehicles.
The company, which is 100% owned by Brembo S.p.A., was formed in April 2016 and, when fully operational, will deal with the casting, processing and assembly of car and commercial vehicle brake systems. Brembo is in fact building a new plant for the production of aluminium calipers in Nanjing, China, near the current one. The new production hub, which will cover an area of about 40 thousand square metres, will have a casting capacity of more than 15 thousand tonnes and a production capacity of more than 2 million pieces a year, including calipers and spindles, and will be cutting-edge in terms of process integration and automation.
At 31 December 2016, net loss was CNY 3,234 thousand (€440 thousand) and had a workforce of 13.
NANJING (CHINA)
The company, a joint venture between Brembo S.p.A. and the Chinese group Nanjing Automobile Corp., was formed in 2001. Brembo Group acquired control over the company in 2008. In 2013, Brembo Group acquired full control from the Chinese partner Donghua Automotive Industrial Co. Ltd.
At 31 December 2016, net sales amounted to CNY 1,055,582 thousand (€143,625 thousand) and net income was CNY 3,314 thousand (€451 thousand); in 2015, sales amounted to CNY 756,262 thousand (€108,456 thousand) and net loss was CNY 701 thousand (€101 thousand).
At 31 December 2016, the workforce numbered 318, compared to 284 at the end of 2015.
NANJING (CHINA)
Activities: production and sale of foundry products for the automotive market, including the aftermarket.
The company, set up in 2009 and 100% held by Brembo S.p.A., acquired the foundry activities in 2010 from the Chinese company Donghua. The aim was to develop together with the company Brembo Nanjing Brake Systems Co. Ltd. an integrated industrial hub, including foundry and manufacture of brake calipers and discs for the car and commercial vehicle markets.
Net sales amounted to CNY 437,458 thousand at 31 December 2016 (€59,522 thousand), with a net income of CNY 128,551 thousand (€17,491 thousand), compared to net sales of CNY 335,378 thousand (€48,097 thousand) and a net income of CNY 4,364 thousand (€626 thousand) for 2015.
At 31 December 2016, the workforce numbered 221, compared to 207 at the end of 2015.
WILMINGTON, DELAWARE (USA)
Activities: development, casting, production and sale of brake discs for car original equipment and the aftermarket, and braking systems for cars, motorbikes and the racing sector.
Brembo North America Inc. is based in Homer, Michigan. It produces and sells OEM and aftermarket brake discs, as well as high-performance car braking systems. In 2010, a Research and Development Centre was opened at the facility in Plymouth, Michigan, to develop and market new solutions in terms of materials and designs for the U.S. market, backed by Brembo S.p.A. and local technical staff.
Net sales for 2016 amounted to USD 484,108 thousand (€437,474 thousand) compared to net sales amounting to USD 467,501 thousand (€421,314 thousand) for the previous year.
Net income was USD 21,568 thousand (€19,491 thousand) at 31 December 2016, compared to net income of USD 34,361 thousand (€30,966 thousand) for 2015.
At the end of the year, the workforce numbered 666, an increase of 106 compared to the end of 2015.
DABROWA GÓRNICZA (POLAND)
The company produces OEM braking systems for cars and commercial vehicles in the Czestochowa plant. In the Dabrowa Górnicza plant, it has a foundry for the production of cast-iron discs destined for use in its own production plant or by other Group companies. The Niepolomice plant processes steel disc hats to be assembled onto the light discs manufactured at the Group's plants located in China, the United States, and in the Dabrowa Górnicza plant as well.
In 2016, net sales amounted to PLN 1,790,093 thousand (€410,230 thousand), compared to PLN 1,559,500 thousand (€372,838 thousand) for 2015. At 31 December 2016, net income was PLN 402,473 thousand (€92,233 thousand), compared to PLN 343,609 thousand (€82,148 thousand) for the previous year.
At the end of the year, the workforce numbered 1,672, compared to 1,581 at the end of 2015.
MOSCOW (RUSSIA)
Founded in 2014, the Moscow-based company is wholly owned by Brembo S.p.A. It deals with promoting the sale of car brake discs for the aftermarket only.
Net sales reported amounted to RUB 33,418 thousand (€450 thousand) compared to RUB 24,965 thousand (€367 thousand) in 2015; net income was RUB 11,856 thousand (€160 thousand) compared to RUB 8,697 thousand (€128 thousand) at 31 December 2015.
At the end of the year, the workforce numbered 2, unchanged compared to the end of 2015.
GÖTEBORG (SWEDEN)
The company promotes the sale of brake discs for the car sector, destined exclusively for the aftermarket.
Net sales for the reporting year amounted to SEK 6,832 thousand (€722 thousand), with a net income of SEK 1,664 thousand (€176 thousand), compared to net sales of SEK 8,404 thousand (€898 thousand) and net income of SEK 2,845 thousand (€304 thousand) for 2015.
At 31 December 2016, the workforce numbered 1, unchanged compared to the same date of the previous year.
The company carries out sales activity exclusively for the aftermarket.
Net sales for 2016 amounted to €27,889 thousand, compared to €26,942 thousand for 2015. Net income amounted to €1,785 thousand compared to a net income of €420 thousand for 2015.
At 31 December 2016, the workforce numbered 75, compared to 71 at the end of 2015.
Activities: precision mechanical processing, lathe work, mechanical component production and similar activities, on its own account or on behalf of third parties.
The company was incorporated by Brembo S.p.A. in 2010. In the same year, it leased two companies from an important Brembo Group's supplier specialising in processing aluminium, steel and cast-iron pistons for brake calipers intended for use in the car, motorbike and industrial vehicle sectors, and in the production of other types of components, including small highprecision metallic parts and bridges for car brake calipers, as well as aluminium caliper supports for the motorbike sector, chiefly produced for the Brembo Group. In 2012, La.Cam. acquired the business units of both companies.
In 2016, net sales, which were mainly to Brembo Group companies, amounted to €39,151 thousand compared to €35,872 thousand in 2015. Net income for 2016 was €1,952 thousand, compared to a net income of €993 thousand at the end of 2015.
At 31 December 2016, the workforce numbered 189, compared to 198 for the previous year.
Formed in 2009 and fully controlled by Brembo S.p.A., the company carries out logistics and sale activities within the Qingdao technological hub for the aftermarket only.
Net sales for 2016 amounted to CNY 262,413 thousand (€35,704 thousand), compared to CNY 150,372 thousand (€21,565 thousand) for the previous year. Net income for the year was CNY 14,302 thousand (€1,946 thousand), up compared to CNY 4,414 thousand (€633 thousand) for 2015.
At 31 December 2016, the workforce numbered 23, two more than at the same date of 2015.
STEZZANO (ITALY
As a result of the joint venture agreements finalised in 2009 between Brembo and SGL Group, the company is 50% owned by Brembo S.p.A. and in turn controls 100% of the German company Brembo SGL Carbon Ceramic Brakes GmbH. Both companies carry out design, development, production and sale of braking systems in general, and particularly of OEM carbon ceramic brake discs for top-performance cars, as well as research and development activities concerning new materials and applications.
Net sales at 31 December 2016 amounted to €52,054 thousand, in line with €52,784 thousand for 2015. Net income for the year war €12,927 thousand, compared to net income of €7,746 thousand for 2015.
At 31 December 2016, the workforce numbered 125, five fewer than at the end of 2015.
MEITINGEN (GERMANY)
The company was formed in 2001. In 2009, in executing the joint venture agreement between Brembo and SGL Group, Brembo SGL Carbon Ceramic Brakes S.p.A. acquired 100% of the company.
Net sales for 2016 amounted to €103,608 thousand, up compared to €91,693 thousand for the previous year. At 31 December 2016, net income totalled €14,935 thousand, compared to a net income of €11,148 thousand for the previous year.
At 31 December 2016, the workforce numbered 301, compared to 296 at the end of 2015.
MILAN (ITALY)
Activities: research and development of innovative technologies for the production of technical and advanced ceramic materials, geomaterial processing and rock mass characterisation.
Brembo S.p.A. acquired 20% of this company by subscribing a capital increase in 2006.
Net sales for 2016 amounted to €2,439 thousand, with a net income of €556 thousand. In 2015, net sales were €1,594 thousand and net income amounted to €58 thousand.
In line with the direction followed until today, Brembo's investment management policy continued to develop in 2016, aiming to strengthen the Group's presence both in Italy and, above all, internationally. The most significant investments were concentrated in North America (42%), Italy (22%), Poland (18%) and China (13%).
Investments in Italy chiefly involved the purchase of plant, machinery and equipment to step up production automation, in addition to €17,055 thousand for development costs.
As part of its strategy of consolidation and development of Brembo's presence at the global level, the Group continued to invest in North America, its preferred industrial hub for expanding on the North American market. Several investment plans are currently being implemented in this area:
start of construction of a casting foundry, adjacent to the new plant, which will extend over an area of 25 thousand square metres and will be operational by 2017. When fully operational, it will have a casting capacity of about 100 thousand tonnes a year. The products manufactured in the new plant will be destined to leading European, American and Asian OEM manufacturers with production plants in Mexico. The total investment to be completed in 2017 will amount to €85 million.
In Eastern Europe, Brembo continued to implement its investment plan to be completed in 2017 and aimed at building and starting up a new plant in Niepolomice (Poland). The new plant will specialise in the processing of steel disc hats to be assembled onto the light discs manufactured at the Group's plants located in Poland, China and the United States. Brembo has also started to implement the plan to expand the production hub in Dabrowa Górnicza (Poland), which provides for the construction of a third casting line and new machining lines over a covered area of an additional 22 thousand square metres. The new plant, which will increase casting capacity by 100 thousand tonnes a year, will produce both 'grey' iron (used for brake discs) and 'spheroidal' cast iron (used for calipers bound for light commercial vehicles) in response to the steady rise in demand for floating brake discs and calipers recorded in Europe.
Again as part of its international expansion strategy, Brembo is investing about €100 million over the three-year period between 2016 and 2018 to build a new aluminium caliper production plant in Nanjing (China) close to the existing plant. The new production hub, which will be cutting-edge in terms of process integration and automation, will extend over an area of about 40 thousand square metres. It will have a casting capacity of more than 15 thousand tonnes and a production capacity of more than 2 million pieces a year (calipers and spindles). The products manufactured in the new plant will be destined to leading European, Asian, and American OEM manufacturers with production plants in China.
Group's total investments undertaken in 2016 at all operations amounted to €263,570 thousand, of which €231,431 thousand was invested in property, plant and equipment and €32,139 thousand in intangible assets.
Dabrowa, Poland.
Once completed, the new production hub in Nanjing will lead the way in terms of integration and automation of processes.
The plant, which extends over an area of about 40,000 square metres, will employ 450 people.
Constant monitoring of developments in transport vehicles and search for the best brake system for the new vehicles of the future: this is the guiding principle of Brembo's R&D activities. Based on this principle, all individual brake system components (caliper, disc, pad, suspension, control unit) are complementary to one another in optimising the braking function, which is being constantly refined in all its aspects: performance, comfort, duration, aesthetics and sustainability.
Since 2000, Brembo has devoted special research activities to mechatronic products, which are increasingly widespread in the automotive sector. In this area, Brembo has developed expertise that has been applied for years in the Electric Parking Brake and Brake By Wire (BBW) systems, among others. To meet the market's demand for increasingly tight development times, Brembo is committing significant resources to perfecting ever more sophisticated virtual simulation methodologies and uniform development processes in Brembo's Technical Centres located in Italy, North America, China and India.
In 2016, R&D activities mainly focused on the following aspects.
With reference to cast-iron discs, the Division's R&D departments continued the joint development of a new simulation methodology that also includes process parameters that may influence the disc's vibratory capacities (own frequencies). The year 2016 saw the successful completion of the verification phase on an extensive number of simulations. These allow Brembo to define those parameters that could improve the brake system's comfort characteristics with far greater accuracy, early in the design stage.
Work on cast-iron discs for heavy commercial vehicles — an application segment of particular interest for Brembo — has continued with a view to improving their performance, and contacts with potential new customers have been intensified. The study of new geometries has resulted, among other things, in a significant reduction in mass and an improvement in the disc's cooling and ventilation capacity, with consequent reduction in the braking system's operating temperatures. The new technical
solutions have been patented and will be fitted to vehicles that are due to start in production in the first half of 2017.
Product and process improvement work progressed for cast-iron discs for car applications. These improvements will be subsequently introduced in normal application developments for the world's leading car manufacturers. In addition, further analysis is being carried out of methods for disc fluid-dynamic calculation, considering the air flows inside the entire wheel side unit.
Particular attention is paid to reducing disc weight, which translates into a reduction in fuel consumption and the resultant environmental impact of the car (lower CO2 emission), a factor that drives the automotive market and all of Brembo's development activities. The new disc concept has to be seen in this light. Its production is now extending to the entire range of the Mercedes MRA platform, which combines two different materials: cast iron for the braking ring and thin steel laminate for the disc hat, resulting in a guaranteed weight reduction of up to 15%.
Disc aesthetics was also studied and improved, with a proof of concept that involved the co-cast disc in particular, and could be extended to the entire product range in the future. The results of this activity have been presented in the most important industry fairs and achieved resounding success.
Research, development and testing of non-conventional solutions are ongoing — a process that has also led to a number of patent applications being filed — for application to the cast-iron discs or the new generation of "light" discs. These activities include the study of forms, materials, technologies and surface treatments able to meet the needs of the new-generation vehicles, with a particular focus on environmental impact aspects (CO2 and particulates emission, minimising disc wear).
The development of innovative friction materials, complying with future legislative limits and designed for these types of disc, is also highly important. In this field Brembo can be considered to be the only manufacturer with the in-house expertise needed to develop new solutions.
In the motorbike sector, the development of composite materials for use on series discs is proceeding in two directions featuring different technologies. In January 2017, tests started with friction materials formulated for use with carbonceramic discs.
During 2016, the first front cylinder application project was configured using the "Mid-Range" concept which is expected to enter into series production at the end of 2018. A prototype with the same concepts, integrated in an innovative design, has also been developed for an important customer, which is currently assessing possible series applications.
The rear cylinder application project with the integrated microswitch is progressing and the joint trials of the new CBS actuator had a positive outcome with two important Indian customers: the supply contracts are currently being defined and, in parallel, discussions have been started with a new customer for developing the CBS version for scooters.
A new brake system that uses the recently patented caliper concept was tested positively on the vehicle and presented to a key customer for its appraisal. At the same time, the application of the new concept on other types of motorbike is being studied.
Trials of the new floating disc concept in the version with hat are planned for the beginning of 2017, whilst on-vehicle tests of the floating band version are continuing.
2016 also saw the start of a study of a new front brake caliper concept for small-displacement vehicles, with a major weight and cost reduction content; the prototype trials are planned for the first quarter of 2017 and the patent application is already being prepared.
The new front caliper for top-of-the-range vehicles, which is far lighter and features a lower operating temperature, has completed the first test phase positively and the start of production is planned for the end of 2017.
Finally, a new range of front cylinders, designed for the new generations of vehicles produced also for the European market, both in the mono-disc and dualdisc versions, are starting production at Brembo's Indian plant.
With reference to activities related to the racing world, the Carbon/Carbon brake system for racing applications project (F1, Le Mans Prototype 1 LMP1, Indy Racing League IRL and Super-Formula) features three distinct areas of activity:
In the racing sector simulation is used even more than in other sectors and in 2017 many plants will be approved with a double validation for the first time: testing and calculation. In fact, some of the Top Teams of F1 and LMP1 require full mechanical calculations for the caliper to be included in the hubcarrier calculation, a full calculation of the CC disc and full CFD (Computational Fluid Dynamics) calculations of the entire system.
Again in the simulation field, testing is continuing of new calculation methodologies for the structural part of the disc, for the thermo elastic and fatigue calculation, as well as for integrating the same calculation within the customer wheel unit (in other words, mechanical and thermal calculations with CFD).
These activities give an idea of the development framework for the calculation methodologies started by Brembo as soon as in 2012.
Another important area of work for 2016 was the fine tuning of the first complete BBW system that Brembo has supplied to an F1 team. Until 2014-2015, Brembo had developed BBW systems in which the control part of the hydraulic actuation was integrated by the F1 team. In 2016, for the first time Brembo's fully integrated BBW system was developed, in which the brake hydraulic functionality is integrated with the car's hydraulic control. This project and its future planned developments require the final assembly and inspection phase (currently carried out at a wellknown American aeronautic hydraulic components company with an Italian branch in Varese) to be made even more efficient and faster. For this reason a clean room (a room with controlled atmospheric pressure and particle pollution) is to be built at Brembo in the first months of 2017.
In the motorbike field, in the MotoGP class, one team, following on from specific development contracts, continues to have exclusive use of a new brake caliper developed by Brembo that contains two ground-breaking concepts that have proved to be particularly interesting and will also be offered to other teams during the coming season. In regulatory terms, 2016 saw several innovations in the Moto GP class, the most important of which is the abolition of aluminium-lithium alloys from brake calipers. This regulatory change meant that Brembo had to completely redo all the 2016 systems and the return to the 'traditional' material has not been painless: two development cycles were needed to obtain the same performance as the aluminium-lithium system. However, the effort made at the end of 2015 was repaid: in fact, no problems were encountered in races during 2016.
It also bears recalling that the tyre supplier was changed in 2016. A team with an exclusive relationship is trialling an "instrumented wheel" designed by Brembo, able to obtain the main coefficients describing the tyre's behaviour using mathematical models. Other teams are requesting these wheels to accelerate development of their respective motorbikes.
Finally, again as regards the racing sector, the studies to evaluate the potential performance of motorbike carbon clutches carried out by the subsidiary AP Racing were completed in 2016, with the production of prototypes. The prototypes have also worked perfectly on a motorbike and the next step will entail exploring prospects for future developments, including mechatronic.
At OE (Original Equipment) development level, mention should be made of the work carried out, again with AP Racing, on road systems dedicated to OE customers with strong sporting features. The work starts with the dimensioning and thermal simulation of the system (in the same ways as with racing cars) and could end with Brembo's new Carbo-Ceramic disc (CCMR) entering into production. In fact, Brembo can offer its customers the first CCMR disc developed in 2010/2011 but is also developing, alongside this, a new version, which is currently being tested.
Regarding Brembo's collaboration with Universities, existing agreements have been confirmed, including those with the Milan Polytechnic and Padua University, with important objectives in various technical development fields. In particular, a programme has started to study and simulate carbon densification processes on oxidised preforms. This is the first time that "chemical" simulation has been used within Brembo.
Mention should be made, regarding the Aeronautics Project, that the process to achieve Brembo production certification through the national agency ENAC is proceeding satisfactorily. This is the second certification (the first one was required for technical development and had been obtained through development of helicopter seats) that Brembo is undergoing with the European (EASA) and Italian (ENAC) agencies that oversee flight safety.
In this context, two projects have been confirmed: one is in full development, with a part of the project to be delivered in 2017; the second, after a brief pause requested by the customer, will restart towards the end of the summer. A third project was recently quoted and is currently being assessed by the customer. Finally, in February 2016 Brembo took part in the tender for the European "Clean Sky 2" project for the "development of materials and advanced systems for light aircraft (airplanes and helicopters) brake systems" section, the result of which is not yet known.
Brembo's need to offer customers an ever more integrated and efficient product, as reflected in the Group's philosophy, is fully expressed with the development of the entire brake system, including discs, calipers and pads. Brembo Friction, an entity dedicated to the study and production of brake pads, has set itself the goal of producing this fundamental brake system component, alongside the more traditional caliper and disc products so characteristic of Brembo's historic know-how. As the result of its constant research work, Brembo Friction can today boast a broad and varied offer, with materials designed and tailored to meet the needs of a vast range of customers, who value and demand Brembo pads more and more in their calipers. Brembo's materials catalogue includes more traditional product categories for use on cast-iron discs, with specialist solutions both for the more performance-focused European market and for the American and Asian markets, which are more comfort-oriented. It also extends to particular applications such as carbon-ceramic discs for racing cars and meets the most diverse needs, maintaining high quality and performance standards in each sector.
Following the most recent legislative directives, Brembo Friction has also already been engaged for several years in research and development into copper-free materials. This work has led to the successful assignment of a number of projects, both for the European market and for the Asian and U.S. markets, where series production will start in 2017. The continuous innovation that characterises Brembo Friction, just like the entire Brembo Group, is not limited to internal needs and customer requirements, but extends to partnership projects shared with other company divisions; projects that, more than any other, are able to express the potential of a brake system produced completely in-house. This branch of research includes: the development of materials for electric parking calipers, which are fitted more and more frequently on modern vehicles; research into materials for discs made of cast iron coated with chromium and tungsten carbides, which promise to achieve a lightness and wear resistance currently not achievable with conventional cast-iron discs; the development of mixtures for co-cast steel discs; research into materials for carbon-ceramic discs coated in silicon and silicon carbide for the German market.
However, achieving better and better performance is not the only driver of the ongoing research and innovation that characterizes Brembo Friction: an important objective is also to reduce the brake pad component's polluting agents and greenhouse gas emissions. These activities receive considerable support from the Friction laboratory, which in recent years has benefited from major investment in terms of equipment and is now able to carry out advanced analyses on different aspects of the pad system and raw materials. Further investment is planned for the future but the laboratory is already today a valuable instrument for achieving the evermore ambitious objectives that Brembo Friction has set itself.
Brembo pursues the goal of using the braking system to help reduce vehicle consumption and resultant CO2 emissions and particulates through the development of new solutions. These include: the use of methodologies to minimise caliper mass without reducing performance, the improvement of caliper functionality by defining new characteristics for the pairing of seal and piston and optimisation of a newconcept pad sliding system.
The product and process improvement work is ongoing in the same way as the search for solutions to reduce mass, increase performance and improve styling. In this area a new caliper designed specifically for high-performance cars is in the course of being developed, with the purpose of significantly reducing the on-track operating temperature and hence raise system performance.
The conquest of new market segments is being pursued through the study of new types of brake caliper. An initial type of caliper with innovative characteristics has been approved as internal concept by Brembo and by a major European customer, whilst the application development is currently underway. A second type of innovative caliper is being studied and concept approval is envisaged for the end of 2017.
In the first half of 2016, small series production started of a caliper produced using thixotropic aluminium alloys (lower casting temperature). The process used by Brembo, for which a patent has already been filed, is named BSSM (Brembo Semi-Solid Metal casting). This technology produces a weight reduction, with the same performance, ranging from 5% to 10% based on caliper geometry.
Mechatronic products, namely various configurations of electric parking brakes, already approved in-house both for cars and commercial vehicles, are being promoted with Brembo's customers. In this area, Brembo has been chosen by a major U.S. customer to supply a caliper with integrated electric parking for a commercial vehicle. Production is scheduled to start in 2018. On new design electric traction vehicles the brake system will undergo important changes, particularly as regards braking management and the interface with the vehicle. BBW systems, which Brembo has been studying for some time, have achieved a high performance and functional level. The industrialisation and planning stage for a production launch has already started and will be able to take shape as soon as the interest of some customers is confirmed by agreement.
The ongoing evolution of simulation methodologies is focused on aspects linked to brake system comfort and caliper functionality. Brembo's current objective is to develop the simulation capacity for the latest brake system component not yet simulated: friction material. From this standpoint, the possibility of using the friction project, thus being able to produce in-house advanced friction materials, is one of the strengths of Brembo which can position itself as a supplier of complete brake systems. On the other hand, the development of a methodology for simulating caliper functionality is aimed at establishing, during the design stage, the caliper characteristics that influence the car's pedal feel.
Vehicle evolution can be summarised in a few general trends: electrification, advanced driver assistance systems (ADAS), autonomous driving, low environmental impact, connectivity. The high level of integration will bring the brake system into dialogue with other vehicle systems, such as electric traction motors and new suspension/steering concepts. Such integration will allow for increased active safety and the optimisation of functions, such as regenerative braking.
In addition, the Technical Development Centres continue to grow as planned in support of Brembo's expansion in China and the USA, in line with the acquisition of important businesses in these two markets.
Advanced R&D activities, in which the new virtual
and augmented reality technologies are playing an ever greater role in the simulation and product development areas, are focusing on mechatronic systems for future vehicle brake systems and the development of new structural materials. Within this context, Brembo is continuing to develop a BBW system with the aim of hastening the development of individual brake system components and holding on to its lead as a product innovator. Furthermore, additional developments involving intelligent system integration continued, particularly with electric drive systems and the associated next-generation architecture. Also an innovative vehicle wheel-side architecture with electric drive motor and integrated, electronically controlled BBW brakes is in an advanced stage of study and was already unveiled at the Frankfurt Motor Show in September 2015.
Within the Advanced R&D activities as well, Brembo continued to cooperate with international Universities and Research Centres with the aim to constantly seek out new solutions to apply to brake discs and calipers, in terms of new materials, innovative technologies and mechanical components. The need to reduce product weight is leading the research function to evaluate the use of unconventional materials to produce structural components, such as technopolymers or reinforced light metal alloys. These partnerships also extend to methodological activities relating to development, involving the creation and use of increasingly sophisticated simulation and calculation tools.
The Rebrake project funded by the European Union under the Marie Curie programme and coordinated by Brembo together with Stockholm's Royal Institute of Technology (KTH) and Trento University is part of these initiatives. This project represents a major step forward for understanding the phenomena linked to tribology, namely the science that studies the behaviour and wear of friction materials, with a particular focus on the PM10 for which there is a 50% reduction target. The project started in March 2013 and is now in its final months, being due to end in February 2017. The skills acquired will be applied in many new projects implemented in the next few years and the relations with the Universities and Research Centres involved in the "Rebrake" project will continue well beyond the end of the project itself.
The logical continuation of the Rebrake project is represented by the LowBraSys project, which is also funded by the European Union as part of the Horizon 2020 programme. The project started in the second half of 2015 and will last 36 months, involving a consortium of 10 partners with Brembo in the role of coordinator. The methodologies and products partly developed in the Rebrake project will be applied to certain vehicles in this programme, with the aim of concretely proving their efficacy in terms of particulate emission reduction.
The COBRA project is also ongoing. This was launched in 2014 and funded under the "Life +" European programmes, in collaboration with the partners of Kilometro Rosso, Italcementi and Istituto Mario Negri, and with the consultancy firm PNO Italia. The aim of the project is to develop low environmental impact technology aimed at reducing water and energy consumption in the life cycle of the pad component, by replacing organic origin binders (phenol) with cement binders.
Finally, early 2015 saw the funding of the LIBRA project, which is still ongoing and aims to develop brake pads that use composite material (typically resin) rather than steel, with the ensuing advantages in terms of weight reduction.
Escobedo, Mexico.
Effective risk management is a key factor in maintaining the Group's value over time. In order to optimise this value, Brembo's Internal Control and Risk Management System (ICRMS) complies with the principles set out in Article 7 of the Corporate Governance Code of listed companies promoted by Borsa Italiana S.p.A. as amended in 2015 (hereafter referred to as "Corporate Governance Code") and, more generally, with national and international best practices.
This system represents the set of organisational structures, rules and procedures that allows the main business risks within the Group to be identified, measured, managed and monitored, while helping the company to be run in a manner that is sound, correct and consistent with the objectives defined by the Board of Directors, and favouring the adoption of informed decisions consistent with the risk profile, as well as dissemination of a proper understanding of risks, lawfullness and corporate values.
The Board of Directors is tasked with defining the general guidelines of the ICRMS, so that the main risks pertaining to Brembo S.p.A. and Group subsidiaries are properly identified, as well as adequately measured, managed and monitored. It shall also set criteria to ensure that such risks are compatible with sound and proper management of the company. The Board of Directors is aware that the control processes cannot provide absolute assurances that the company objectives will be achieved and the intrinsic risks of business prevented; however, it believes that the ICRMS may reduce and mitigate the likelihood and impact of risk events associated with wrong decisions, human error, fraud, violations of laws, regulations and company procedures, as well as unexpected events. The ICRMS is therefore subject to regular examination and controls, taking account of developments in the company's operations and reference context, as well as national and international best practices.
The Board of Directors has identified1 the other main corporate committees/functions relevant for risk management purposes, by defining their respective duties and responsibilities within the ICRMS scope. More specifically:
Risks are monitored at meetings held on at least a monthly basis, where results, opportunities and risks are analysed for each business unit and geographical
1 In this regard see the following documents published on Brembo's website in the Investor Relations/Corporate Governance/Principles and Codes section: Corporate Governance Manual, Organisation, Management and Control Model, the Brembo Group's Reference Layout for preparing accounting documents, Guidelines for the Risk Control and Management System.
region in which Brembo operates. The meetings also focus on determining the actions required to mitigate any risks. Brembo's general risk-management policies and the bodies charged with risk evaluation and monitoring are included in the Corporate Governance Manual, in the risk management policy and procedure, in the Organisation, Management and Control Model (as per Italian Legislative Decree No. 231/2001) and in the reference layout for preparing accounting documents (as per Article 154-bis of TUF), to which the reader is referred.
The Executive Director with responsibility for the Internal Control and Risk Management System fully enforces the risk management guidelines based on principles of prevention, cost effectiveness and ongoing improvement, as approved by the Board of Directors. In order to provide the organisation with the instruments for identifying and classifying the risk categories to which attention should be drawn, Brembo has developed a model which groups risk classes by type, based on the managerial level or corporate function from which they originate or that is responsible for monitoring and managing them.
The Internal Audit function evaluates the effectiveness and efficiency of the overall Internal Control and Risk Management System on a regular basis and reports the results to the Chairman, the Executive Deputy Chairman, the Chief Executive Officer, the Board of Statutory Auditors, the Audit & Risk Committee and the Supervisory Committee of Brembo S.p.A. with reference to specific risks connected with compliance with Legislative Decree No. 231/2001. On an annual basis, it also reports to the Board of Directors.
The first-tier family risks based on the risk management policy are:
Brembo's top risks for each of the above-mentio ned risk families are discussed below. The order in which they are discussed does not imply classification in terms of probability of occurrence or possible impact.
Based on its international footprint, Brembo is exposed to the country risk, which is however mitigated by the adoption of a policy of business diversification by product and geographical area so that the risk can be balanced at Group level.
In addition, Brembo constantly monitors the development of political, financial and security risks associated with countries in which the general political and economic climate and tax system could prove unstable in the future, so as to take any measures suited to mitigating the potential risks.
Brembo is exposed to risks associated with the evolution of technology, in other words, the risk that competing products will be developed that are technically superior because they are built based on innovative technologies. In order to maintain its competitive edge, Brembo invests sizeable resources in R&D, conducting applied and basic research on both existing and newly applied technologies, such as mechatronics. For additional information, see the "Research and Development" section in this Directors' Report on Operations. Product and process innovations — those currently being used, as well as those that may be used for production in the future — are patented to protect the Group's technological leadership.
Brembo targets the Luxury and Premium segments of the automotive sector and, in terms of geography, generates most of its sales from mature markets (Europe, North America and Japan). In order to mitigate the risk of segment/market saturation in the countries where it operates, the Group has long ago implemented a strategy aimed at diversifying into other geographical areas and is gradually broadening its product range, also by focusing on the midpremium segment.
Investments in certain countries may be influenced by major modifications of the local regulatory framework, which could result in changes in the economic conditions existing at the time of the investment. For this reason, before investing in foreign countries, Brembo assesses the country risk carefully in the short, medium and long term. In general, M&A activities are accurately coordinated in all their aspects in order to mitigate any investment risks.
The main operating risks inherent in the nature of the business are associated with the supply chain, the unavailability of production facilities, product marketing, international economic conditions, issues involving health, job safety and the environment and, to a lesser extent, the regulatory framework of the countries in which the Group operates.
Supply chain risk manifests as the volatility of raw material prices and dependence on strategic suppliers, which could jeopardise the company's production process and ability to fill orders from clients in a timely manner by suddenly suspending supply arrangements. To mitigate this risk, the Purchasing Department identifies alternate suppliers to ensure the availability of critical materials (supplier risk management programme). The supplier selection process, including an assessment of suppliers' financial solidity — an aspect that has taken on growing importance in the current scenario — has been reinforced. By diversifying its sources, Brembo can also reduce its risk exposure to price increases (a risk that is however partially offset by reflecting price increases in sales prices).
With reference to the risk of operational downtime at production facilities and continuity of operation, the company reinforced its risk mitigation process, through the planning of loss prevention engineering on the basis of U.S. NFPA (National Fire Protection Association) standards. The aim of this process was to eliminate risk factors in terms of probability of occurrence and to implement protective measures aimed at limiting the impact of this risk, thereby constantly enhancing the current operating continuity levels of the Group's production facilities.
Brembo considers the risk relating to the marketing of its products, in terms of their quality and safety, to be of fundamental importance. The Group has always been committed to mitigating this risk through robust quality controls. As part of this process, it has instituted a worldwide Supplier Quality Assurance function, specifically dedicated to quality control of components that do not meet Brembo's quality standards, in addition to constantly optimising its Failure Mode & Effect Analysis (FMEA).
The Group's primary risks relating to health, job safety and the environment can be of the following types:
The occurrence of these facts could result in substantial criminal and/or administrative penalties or pecuniary fines against Brembo. Furthermore, in particularly serious cases, the actions of public entities in charge of assessing the situation could interfere with Brembo's normal production activities, even causing production lines to halt or forcing the production facility to close. Brembo manages this type of risk by carrying out ongoing and systematic evaluations of its exposure to specific risks and reducing or eliminating those considered unacceptable. This procedure is organised within a Management System (which is compliant with international ISO 14001 and OHSAS 18001 standards and certified by an independent body) that covers health, job safety and environmental aspects.
Brembo therefore implements the activities necessary to allow it to effectively monitor and manage these aspects while scrupulously complying with applicable laws.
Some examples of activities that are currently underway include the definition and yearly review of:
In summary, although accidents and mistakes can happen, the Group has implemented systematic rules and management procedures that allow it to minimise the number of accidents, as well as the impact they may have. A clear-cut assignment of responsibility at all levels, the presence of independent internal control bodies that report to the company's highest officers and the application of the highest international management standards are the best way to guarantee the company's commitment to health, job safety and the environment.
The internationalisation strategies and, particularly, international industrial footprint development have also highlighted the need to strengthen operational management able to operate locally and communicate effectively with the functional departments of Business Units and Central Functions, in order to improve the efficiency and effectiveness of the quality system and the capacity of production processes.
Brembo is exposed to risks arising from the failure to rapidly comply with changing laws and new regulations in the sectors and markets in which it operates. To mitigate this risk, each compliance function stays abreast of the relevant legal and regulatory developments, with the assistance of outside consultants, where necessary, through a constant process of legal and regulatory updates and research.
Due to the complexity, lack of clarity and uncertain timetable of the laws and regulations concerning Worker Safety and Environmental Protection, in managing compliance risk in this field, the Group relies on a specific Quality & Environment Department (see operational risks - Environment, Safety and Health section) to obtain permits and licences and ensure that the related complexities are handled properly.
For information concerning other compliance risks, including those arising as a result of Brembo's listing within Borsa Italiana's STAR Segment, see the Corporate Governance and Ownership Structure Report available on Brembo's website (www.brembo. com, section Investors/Corporate Governance/ Corporate Governance Reports).
Compliance risk includes the risk that the company may incur administrative liability, which may be broken down into three levels:
The risk deemed most significant for the Group at a theoretical level relates to the case indicated in point 2 above, for the following reasons:
The probability that liability for offences committed outside Italy may be ascribed to the Parent is regarded as remote in light of the connection criteria set forth in the Italian Penal Code. However, it is theoretically plausible that a top manager or employee of Brembo S.p.A. might take action outside Italy in the context of his or her duties to the Parent or an international subsidiary. In the matter of corruption involving public officials, given the nature of its business, the Brembo Group does not engage in dealings with government officials, except in managing permits (such as building permits). As a result, offence-risk opportunities are considered to be very limited.
The mitigating measures taken by the Group are regarded as sufficient to significantly reduce its exposure to cases of risk and are aimed at ensuring the global spread of a culture of compliance through the establishment of specific principles of ethics and conduct, in addition to constant monitoring of legal changes, through implementation of the following:
With reference to litigation, the Legal & Corporate Department periodically monitors the progress of existing and potential litigations and determines the strategy to be applied and the most appropriate steps to take in managing them, involving specific corporate functions, when needed. The Administration and Finance Department is responsible for the recognition of the appropriate checks or impairment losses in connection with such risks and their effects on the Statement of Income.
The same ERP (Enterprise Resource Planning) software has been implemented at nearly all Group companies in order to prepare accurate and reliable financial reporting for the Group, while also improving the Internal Control and Risk Management System and the quality, timeliness and comparability of the data provided by the various consolidated companies.
In conducting its business, the Brembo Group is exposed to various financial risks, including market, commodities, liquidity and the credit risks. Financial risk management is the responsibility of the Parent's Central Treasury & Credit Department, which, together with the Group's CFO, evaluates all the company's main financial transactions and the related hedging policies.
Since most of the Group's financial debt is subject to variable interest rates, it is exposed to the risk of interest-rate fluctuations. To partially reduce this risk, the Group has entered into several medium/ long-term fixed rate loan agreements accounting for approximately 16.0% of gross financial position.
The objective is to eliminate the variability of the borrowing costs associated with a portion of debt and benefit from fixed rates. The Group's Central Treasury & Credit Department constantly monitors rate trends in order to evaluate in advance the need for any changes to the financial indebtedness structure.
Since Brembo operates in international markets, it is exposed to exchange rate risks. To mitigate these risks, the Group uses natural hedging (offsetting receivables and payables) and hedges only net positions in foreign currency, using mostly short-term financing denominated in the currency to be hedged. Other hedging instruments used by the company, where advisable, include forward contracts, which are also used to offset differences between receivables and payables. This policy reduces exchange risk exposure.
The Group is exposed to changes in prices of main raw materials and commodities. In 2016, no specific hedging transactions were undertaken. It should, however, be recalled that contracts in place with major customers include a periodic automatic indexation process linked to raw material price movements.
Liquidity risk can arise from Brembo's inability to obtain the financial resources necessary to guarantee its operation. The Central Treasury & Credit Department implements the main measures indicated below in order to minimise such risk:
Credit risk is the probability that a customer or one of the parties to a financial instrument will cause a financial loss by failing to perform an obligation. Exposure to credit risk arises, in particular, in relation to trade receivables. In this sense it should be noted that the parties with whom Brembo has commercial dealings are primarily leading car and motorbike makers with a high credit standing. The current macroeconomic context has made continuous credit monitoring increasingly important, so that situations where there is a risk of insolvency or late payment can be anticipated.
Following on from the above mitigation measures, and in order to minimise the volatility and financial impact of any detrimental event, under its risk management policy, Brembo has provided for the residual risks to be transferred to the insurance market, provided that they are insurable.
Brembo's changing needs through the years have been specifically reflected in its insurance coverage, which has been optimised to significantly decrease the company's exposure, especially to possible damages arising from the manufacturing and sale of its products. This has been achieved through risk management, aimed at identifying and analysing the most critical areas, such as the risks associated with countries whose laws are particularly detrimental for manufacturers of consumer goods.
All Brembo Group companies are covered against the following strategic risks: property all risks, general liability, general product liability, product recall. Additional coverage has been arranged locally based on the specific requirements of local legislation or collective labour contracts and/or corporate agreements or regulations.
Insurance analysis and transfer of the risks to which the Group is exposed are conducted in collaboration with an insurance broker, which supports this process with its international organisation and is responsible for the compliance and management of Group insurance programmes at global level.
Escobedo is one of the Group's most modern and cutting-edge plants, and was recently inaugurated by Chairman Alberto Bombassei. The plant, which extends over an area of 35,000 square metres, will create about 500 new jobs.
Organisational changes were introduced in 2016 to guarantee innovative processes and a sustainable organisational system, and provide a constant balance between the company's three main dimensions (business, functions, geographies) to assure optimum Group management.
Within the Central Departments, the new role of Chief Manufacturing Officer was introduced, in view of the competitive business context in which Brembo operates, the Group's industrial complexity and the growing need to ensure constant improvement in the efficiency of production processes at global level, as well as to give a fresh boost to innovation in the technology and industrial process field. This role reports directly to the CEO and is responsible for orienting, guiding and controlling the Operations and Optimisation areas, sharing responsibility with the Division/BU Managers for the first area, and with prime and sole responsibility for the second one. In addition, as part of the cross-business management of the manufacturing area, Brembo launched a process of plant managers rotation in the Motorbike plant in Curno (Italy), the Systems plant in Czestochowa (Poland) and the Disc Machining plants in Mapello (Italy), Dabrowa (Poland) and Nanjing (China). This is aimed at developing the professional skills and expertise of the respective professional family.
Moreover, in view of the Company's challenging organic and non-organic growth objectives and in keeping with the strategic plans and development activities of the Divisions and Business Units, the organisational placement of the Business Development & Marketing Department was changed, so that it reports to the Executive Vice President, and its current scope was extended through the creation of a Merger & Acquisition area.
With reference to the business areas, the function of Market Analysis and Product Planning Manager was introduced in the Systems Division, with the task of providing constant analysis of the state of the market for vehicles produced by the System
Division and assessing the innovative product requirements emerging from the ongoing relationship with customers. Within Performance Group, Brembo Performance Commercial, Technical, Operations, Quality Assurance and Purchasing functions were created in order to ensure possible synergies inside its various areas based in the headquarters and meet the specific needs of individual businesses.
As far as Group companies are concerned, in China the organisational structure of the technical area was revised with the creation of the role of China Technical Center Manager, who oversees the design, project engineering and testing functions. Again in this area the new role of APAC Aftermarket Director was introduced, with direct responsibility for all the Aftermarket activities for the Asia-Pacific region and the Qingdao site. AP Racing saw a management change, with the arrival of its new Managing Director.
During 2016, work continued on renewing provision of training and development, so that it is increasingly able to anticipate business requirements.
With this goal in mind, the new course catalogue, supplemented by a number of new and diverse training and development initiatives, particularly in the R&D and Manufacturing areas, was produced to accompany the launch of the 2016-2017 report on training needs. A structured technical-specialist skills mapping project started at the beginning of the year for the Manufacturing area produced a clear snapshot of training requirements, also in view of the digitalisation of Brembo's production sites throughout the world: a crucial aspect for leading the way for industrial revolution 4.0, as Brembo intends to do.
The development path for newly appointed Executives or those recently recruited from outside the Group was particularly important for management training in 2016, in addition to the routine delivery of catalogue courses. Now in its XII edition, "Leaders in Action" offered new managers strategic, economicfinancial, leadership and business planning skills. Started in May, this training plan concluded at the end of the year with the presentation of actual business projects — produced as an integral part of the development process — before top managers, who expressed a high level of satisfaction.
Another key event, like every year, was the Brembo Induction Programme (BIP), which offered the year's new recruits (white-collar staff, middle managers and executives) a comprehensive company overview presented by managers and specialists in as many as 30 classroom hours spread over two months. Now in its XIV edition, the BIP was translated simultaneously and directly streamed over the Intranet portal.
Catalogue management training was very well attended particularly for the "Finance for non experts" (on all 3 levels), and the "Developing interpersonal relations" sessions (on 2 levels). Finally, in 2016 a number of training paths, such as those focused on personnel management, were extended to some of the Group's European companies.
Technical-specialist training met with great interest both as regards specific skills for mechatronics in the safety field (with differentiated training paths based on the different roles, professional expertise and responsibilities in the R&D area) and in terms of the Systems Division's R&D Academy, where every course incorporates the latest Research and Development innovations.
In addition, as part of the diversified initiatives run by Brembo with various Universities in the broader University Relations programme, the third Brake Academy course received particularly positive feedback. This consisted of 8 sessions run by Brembo's R&D specialists for students at the Milan Polytechnic.
Training results are fully monitored through the satisfaction and effectiveness end-of-course data recorded both through feedback questionnaires and the difference between the entry and exit knowledge tests completed by those attending each training initiative Both these tools, measured and analysed together with a number of other indicators, have assured ISO 2008/EA 37 certification for the Brembo Academy this year as well.
Again in the Brembo Academy area, 2016 also saw the launch of the certification process for inhouse trainers: specialists and in-house personnel with valuable know-how who, after a thorough recruitment, training and assessment process, run classroom training with the same quality and the same satisfaction indicators recorded by external professional trainers.
In the Development area, it is worth mentioning the BYR (Brembo Yearly Review) performance management tool and process. This forms the basis for a global Talent Management and Succession Planning process that is increasingly effective, rigorous and founded on objective performance evaluation criteria.
In short, 727 training initiatives were implemented in 2016 for a total of 357 courses, 58,545 training hours and 5,772 participants.
Nanjing, China.
The 2016 results confirm the consistency of the strategy adopted by Brembo to tackle the safety and environmental issues as an integrated element in the sustainable business model, with the aim of meeting the expectations of all internal and external stakeholders.
A summary of the main results achieved during the year is given below.
In 2016, both the accident severity rate1 and the frequency rate2 fell significantly compared to previous years. The indicators used in Brembo for monitoring the accident phenomenon reported an overall reduction in terms of both occurrences and the average number of days lost per accident.
This highly positive result was achieved by reinforcing not only lagging actions, but also leading actions most of all. Three aspects contributed most to the reduction in accident rates:
To pursue further improvements in this area, work is currently underway to refine the software that analyses occurrences, identify improvement measures and support sites in:
• guiding the process of analysing the occurrence and identifying the root causes;
As in the past, one of the most significant actions in the environmental sustainability field is membership of the Carbon Disclosure Project (CDP) campaign, an international initiative launched in 2000, which aims to assess the strategies for responding to the challenge of climate change by companies. As in previous years, Brembo responded to the Climate Change questionnaire on CO2 emissions and, for the first time, also to the Water questionnaire on water use.
In brief, the main developments compared to previous years were:
• extension of the reporting scope, both for carbon dioxide emissions and water usage, to all the Group's production sites; in fact, after gradually adding new sites to the monitoring and reporting activity over the years, this year saw the initiative being extended to all of the Group's production sites. This provided a complete picture not only of CO2 emissions, but also of the mitigation actions designed to reduce the environmental impact created by the sites during the year. In fact, more than 20 important projects have been completed, allowing GHG emissions to be significantly reduced;
1 Accident severity rate: average number of calendar days lost due to an accident by each employee over a year.
2 Frequency rate: number of accidents occurring in one year, every 100 employees.
The Climate Change questionnaire4 scored A-, making Brembo one of the best performers in the industry sector in which the company is placed (consumer discretionary); the Water questionnaire scored B.
In addition to signing up to the Carbon Disclosure Project, for years Brembo has been constantly engaged on several fronts to ensure that its business develops in an eco-sustainable way. For instance, it is no coincidence that the most recently constructed plants have been built with the best technologies available, pre-tested on sites that are already operating, and significantly reducing the environmental impact.
Dabrowa, Poland.
3 Value for emissions classified as Scope 1 and Scope 2.
4 The score refers to 2015 since the figure is provided by CDP in October of the year after the reference year.
In compliance with Consob Regulation adopted with Resolution No. 17221 of 12 March 2010, as amended, Brembo S.p.A. adopted the Related Party Transactions Procedure. The procedure was approved by the Board of Directors of Brembo S.p.A. during the meeting held on 12 November 2010, after receiving the favourable opinion of the Audit & Risk Committee, which also acts as Related Party Transactions Committee since it meets the requirements set out by the abovementioned regulations. The procedure aims to ensure the full transparency and propriety of Related Party transactions and has been published in the Corporate Governance section of the Company's website.
In 2013, on the basis of a favourable opinion from the Audit & Risk Committee, the Board of Directors unanimously resolved not to proceed with amendments to the Related Party Procedure of Brembo S.p.A., partly in light of the efficacy shown in applied practice and partly because it had already been revised in previous years. The Board thus deems already adopted both the contents of the Recommendation and the wishes expressed by Consob regarding the first revision of the procedure.
The update to the Related Party Transactions Procedure incorporating the changes relating solely to organisational matters pertaining to the Company's Administration and Finance Department was approved by resolution of the Board of Directors of 10 May 2016, and with the favourable, unanimous opinion of the Audit & Risk Committee.
Detailed information on the Company's Related Party Transactions is provided in the Explanatory Notes to the Consolidated Financial Statements. During the reporting period, no atypical or unusual transactions were carried out with Related Parties. Furthermore, commercial transactions with Related Parties, also other than the Group companies, were carried out at fair market conditions. The financing transactions undertaken during the year with Related Parties are also discussed in Explanatory Notes to the Consolidated Financial Statements.
It should be noted that the Audit & Risks Committee, in its role as Related Party Transactions Committee, met on 5 May 2016 to preview the proposal for a settlement agreement with Impresa Fratelli Rota Nodari S.p.A., the majority shareholder of Innova Tecnologie S.r.l. in liquidazione, and with the latter itself. Having assessed the interests of the company on reaching the settlement and that the respective conditions were expedient and substantially correct, and having examined the possible risks, the Committee expressed a favourable opinion for signing the settlement agreement between the parties, the conditions of which are specified at point 4 of the Notes to the Consolidated Financial Statements.
The General Shareholders' Meeting of the Parent Brembo S.p.A. held on 21 April 2016 approved the Financial Statements for the year ended 31 December 2015, allocating the net income for the year amounting to €103,313 thousand as follows:
After receipt of the required authorisations from the Regulator, the public shareholder, MOFCOM (Ministry of Commerce) and AIC (Administration for Industry and Commerce), 19 May 2016 saw the closing of Brembo's acquisition of a 66% stake in Asimco Meilian Braking Systems (Langfang) Co. Ltd, a Chinese company that owns a foundry and a plant for the manufacturing of cast-iron brake discs. This company supplies local car manufacturers, mainly including joint ventures among Chinese firms and European and U.S. top players. Under the agreement signed on 28 September 2015, the remaining 34% of the share capital will continue to be owned by the public company Langfang Assets Operation Co. Ltd., controlled by the Municipality of Langfang.
The consideration for the transaction amounted to CNY 580,060 thousand (approximately €79.6 million).
The General Shareholders' Meeting held on 21 April 2016 passed a new plan for the buy-back and sale of own shares with the following objectives:
The maximum number of shares that may be purchased is 1,600,000 that, with the 1,747,000 own shares already held (2.616% of share capital), represent 5.01% of the Company's share capital. The minimum purchase price is €0.52 (fifty-two euro cents) and the maximum purchase price is €60.00 (sixty euro), for a maximum expected outlay of €96,000,000. The authorisation to buy back own shares has a duration of 18 months from the date of the shareholders' resolution.
Brembo has neither bought nor sold own shares in 2016.
The Company has adopted the opt-out system envisaged by Article 70, paragraph 8, and Article 71, paragraph 1-bis, of the Rules for Issuers (Board's Resolution dated 17 December 2012), thus opting out from the obligation to publish the required disclosure documents in the case of significant mergers, demergers, capital increase by way of contributions in kind, acquisitions and disposals.
Subsidiaries Formed Under and Governed by the Law of Countries Not Belonging to the European Union – Obligations Under Articles 36 and 39 of Market Regulations
In accordance with the requirements of Articles 36 and 39 of the Market Regulations (adopted with Consob Regulation No. 16191 of 29 October 2007 and amended with Resolution No. 16530 of 25 June 2008), the Brembo Group identified six subsidiaries
Escobedo, Mexico.
based in four countries not belonging to the European Union that are of significant importance, as defined under Paragraph 2 of the said Article 36, and therefore fall within the scope of application of the Regulations.
Brembo Group believes that its current administrative, accounting and reporting systems are adequate to ensure that the Parent's management and auditing firm receive any information regarding Statement of Income, Statement of Financial Position and Cash Flow figures, as necessary for preparing the consolidated financial statements.
For all companies included in the consolidation area, the Parent Brembo S.p.A. already has a copy of the By-laws and the composition and powers of the Corporate Bodies.
The reconciliation of Equity and Result for the year, as reported in the Parent's financial statements, and the Equity and Result for the year recognised in the Consolidated Financial Statements reveals that the Group's Equity at 31 December 2016 was €463,199 thousand higher than the figure reported in the Brembo S.p.A. Financial Statements. Consolidated Net Result for the year, amounting to €240,632 thousand, was €102,239 thousand higher than that of Brembo S.p.A.
| Net income 2016 |
Equity 31.12.2016 |
Net income 2015 |
Equity 31.12.2015 |
|---|---|---|---|
| 138,393 | 394,714 | 103,313 | 309,463 |
| 164,774 | 761,575 | 124,967 | 617,033 |
| 0 | 54,698 | 0 | 8,696 |
| (79,593) | 0 | (56,480) | 0 |
| 0 | (364,377) | 0 | (263,152) |
| 2,121 | 3,631 | (2,683) | 1,661 |
| (576) | (6,624) | 84 | (6,001) |
| 17,876 | 38,693 | 16,604 | 19,847 |
| (2,363) | (24,397) | (1,843) | (5,695) |
| 102,239 | 463,199 | 80,649 | 372,389 |
| 240,632 | 857,913 | 183,962 | 681,852 |
The data for the first few months of the year allow us to look to the future with prudent optimism, despite the scenario of severe global volatility.
Nanjing, China.
Brembo S.p.A.'s Corporate Governance and Ownership Structure Report pursuant to Article 123-bis of the Consolidated Law on Finance presented in an individual report, separate from the Directors' Report on Operations, has been published at the same time as the latter and is available on Brembo's website (www.brembo.com, Company, Corporate Governance, Corporate Governance Reports).
To conclude the description of the performance of the Brembo Group for the year ended 31 December 2016, based also on the examination of our Report concerning the Consolidated Financial Statements of the Brembo Group and the separate Financial Statements of Brembo S.p.A., in which we outlined the guidelines and operations, we submit for your approval our proposal for distributing Brembo S.p.A.'s net income amounting to €138,392,654.82, as follows:
Stezzano, 3 March 2017 On behalf of the Board of Directors The Chairman Alberto Bombassei
Homer, Michigan.
The new integrated plant in Nanjing will produce aluminium calipers with a casting capacity of more than 15,000 tonnes and a production capacity of more than 2 million pieces a year (including calipers and spindles).
Brembo stock closed 2016 at €57.50, with an increase of 31.12% compared to year-start. The stock performed extremely well, reaching a low for the period of €32.78 on 8 February and a high of €57.50 on 30 December. Over the year, Brembo overperformed both the FTSE MIB index, which closed down 7.24%, and the European Euro Stoxx Total Market Value Small (+2.82%) index, as well as against the BBG EMEA Automobiles Parts index, which at the year-end fell 0.37%.
During 2016, the most representative stock indices on the financial markets, except for Italy, performed positively. The year 2016 will definitely be remembered for the events linked to the Brexit referendum in the United Kingdom, the election of Donald Trump in the United States and the "no" victory in the Italian Constitutional Referendum. These events will presumably also have repercussions in 2017.
For 2017, world growth is expected to improve, despite the slowdown in the Eurozone and China.
In the first few months of 2017, the Brembo stock rose by a further 15.56 percentage points, closing at a new high of €66.45 on 14 March 2017.
| 31.12.2016 | 31.12.2015 | |
|---|---|---|
| Share capital (euro) | 34,727,914 | 34,727,914 |
| No. of ordinary shares | 66,784,450 | 66,784,450 |
| Equity (excluding net income for the year) (euro) | 256,321,515 | 206,149,731 |
| Net income for the year (euro) | 138,392,655 | 103,312,837 |
| Trading price (euro) | ||
| Minimum | 32.78 | 26.42 |
| Maximum | 57.50 | 44.96 |
| Year end | 57.50 | 44.68 |
| Market capitalisation (euro million) | ||
| Minimum | 2,189 | 1,764 |
| Maximum | 3,840 | 3,002 |
| Year end | 3,840 | 2,984 |
| Gross dividend per share | 1.0 (*) | 0.8 |
An overview of stock performance of Brembo S.p.A. is given below, compared with that of the previous year.
(*) To be approved by the General Shareholders' Meeting convened on 20 April 2017.
Further information and updates regarding stock performance and recent corporate information are provided on Brembo's website at: www.brembo.com – Investors section. Investor Relator: Matteo Tiraboschi.
New Testing plant in Stezzano (Italy).
| Formula 1 (calipers) | |
|---|---|
| Drivers | Nico Rosberg - Mercedes AMG Petronas Motorsport's |
| Manufacturers | Mercedes AMG Petronas Motorsport's |
| GP2 | |
| Drivers | Pierre Gasly - Prema Racing |
| Team Championship | Prema |
| GP3 | |
| Drivers | Charles Leclerc - ART Grand Prix |
| Team Championship | ART |
| 500 miglia Indianapolis | |
| Drivers | Alexander Rossi - Andretti Autosport Honda |
| European F3 Championship | |
| Drivers | Lance Stroll - Prema Powerteam |
| Team Championship | Prema Powerteam |
| Verizon IndyCar Series | |
| Drivers | Simon Pagenaud - #22 Team Penske |
| Team Championship | Team Penske |
| Formula V8 3.5 Series | |
| Drivers | Tom Dillmann - AVF |
| Team Championship | Arden Motorsport |
| Super Formula | |
| Drivers | Yuji Kunimoto - Team P.mu/Cerumo-Inging |
| Team Championship | P.mu/Cerumo-Inging |
| F3 Championship Japan | |
| Drivers | Kenta Yamashita - Team Tom's |
| Team Championship | Tom's |
The new cast-iron foundry in Homer, Michigan (USA).
CARS
| FIA World Endurance Championship | |
|---|---|
| LMP1 | R. Dumas, M. Lieb, N. Jani - #2 Porsche 919 Hybrid |
| LMP2 | G. Menezes, N. Lapierre, S. Richelmi 36 Signatech Alpine |
| GTE PRO | N.Thiim, M. Sorensen - #95 Aston Martin Vantage |
| GTE AM | F. Perrodo, E. Collard, R. Aguas - #83 Ferrari 458 |
| 24 Hours of Le Mans | |
| LMP1 | R. Dumas, N. Jani, M. Lieb - #2 Porsche 919 Hybrid |
| LMP2 | G. Menezes, N. Lapierre, S. Richelmi - #36 Signatech Alpine |
| GTE PRO | J. Hand, D. Muller, S. Bourdais - #68 Ford GT |
| GTE AM | W. Sweedler, T. Bell, J. Segal - #62 Ferrari 458 |
| Blancpain GT Series | |
| Drivers | D. Baumann, M. Buhk |
| Team Championship Mercedes AMG - Team HTP Motorsport | |
| IMSA WeatherTech SportsCar Championship | |
| LMPC | A. Popow, R. van der Zande - #8 LMPC Oreca FLM09 |
| GTD | C. Neilsen, A. Balzan - #63 Ferrari 488 |
| Pirelli World Challenge GT Series | |
| GTS | Manufacturers: Ford |
| GTA | Drivers: Martin Fuentes - Ferrari 458 Italia GT3 |
| Sprint-X GT | Drivers: D. Von Moltke |
| Sprint-X GTS | Drivers: K. Wilson |
| Team Championship: TRG Aston Martin | |
| NASCAR Camping World Truck Series | |
| Drivers | J. Sauter - #21 GMS Racing Allegiant Travel Chevrolet |
| SCORE International Overall & Trophy Truck Class | |
| Drivers | S. Eugenio - #7 Chevrolet Silverado |
| SCORE International Tecate SCORE Baja 1000 | |
| Team | R. MacCachren - #11 Ford F-150 |
| Rally Championships | |
| WRC2 | |
| Team | E. Lappi, J. Ferme - Skoda Fabia R5 |
| Rally Raid - Dakar | |
| Team | S. Peterhansel, J.P. Cottret - Peugeot 2008 DKR |
CARS
| Formula 1 (clutches) | ||
|---|---|---|
| Drivers | Nico Rosberg - Mercedes AMG Petronas Motorsport's | |
| Manufacturers | Mercedes AMG Petronas Motorsport's | |
| IRL | ||
| Drivers | Simon Pagenaud - Team Penske | |
| 500 miglia Indianapolis | ||
| Drivers | Alexander Rossi - Andretti Herta Motorsport | |
| GP2 | ||
| Drivers | Pierre Gasly - Prema Racing | |
| GP3 | ||
| Drivers | Charles Leclerc - ART Grand Prix | |
| European F3 Championship | ||
| Drivers | Lance Stroll - Prema Powerteam | |
| "Closed Wheels" championships | ||
| FIA World Endurance Championship | ||
| LMP1 | Drivers | R. Dumas, N. Jani, M. Lieb - Porsche 919 Hybrid |
| LMP1 - Indipendents | Drivers | D. Kraihamer, A. Imperatori, M. Tuscher - Rebellion Racing - Oreca |
| LMP2 | Drivers | G. Menezes, N. Lapierre, S. Richelmi - Alpine A460 Nissan |
| 24 Hours of Le Mans | ||
| LMP1 | Drivers | R. Dumas, N. Jani, M. Lieb - Porsche 919 Hybrid |
| LMP2 | Drivers | G. Menezes, N. Lapierre, S. Richelmi - Alpine A460 Nissan |
| Nascar | ||
| Sprint Cup | Drivers | J. Johnson - Hendricks Motorsport |
| Tudor United SportsCar Championship | ||
| P Class | Drivers | D. Cameron, E. Curran - Action Express - Coyote |
| LMPC Class | Drivers | A. Popow, R. van der Zande - Starworks Motorsport |
| GTLM Class | Drivers | O. Gavin, T. Milner - Corvette |
| ELMS | ||
| LMP2 | Drivers | S. Dolan, H. Tincknell, G. van der Garde - Oreca 05 |
| Blancpain | ||
| GT | Drivers | A. Buncombe, W. Reip, K. Chiyo - Nissan GTR Nismo GT3 |
| Team Championship RJN - Nissan GTR Academy - Nissan GTR Nismo GT3 |
| Open Class | ||
|---|---|---|
| Drivers | A. Parente, M. Ramos - McLaren 650S | |
| Team Championship | Toe Martin Motorsport - McLaren 650S | |
| Touring Car | ||
| British | Drivers | G. Sheddon - Team Dynamic - Honda |
| Manufacturers | Honda Yuasa Racing | |
| DTM | Drivers | M. Wittmann - BMW Team RMG |
| WTC | Drivers | J. M. Lopez - Citroën C-Elysee |
| Team Championship Citroën Sport | ||
| Australian V8 Supercar Drivers | S. Van Gisbergen - Red Bull Racing Holden | |
| Team Championship Triple Eight Racing | ||
| International TCR | Drivers | Stefano Comini - VW Golf GTI TCR |
| Team Championship Leopard Racing | ||
| Japanese Super GT | ||
| 500 Class | Drivers | H. Kovalainen, K. Hirate |
| Team Championship Lexus Team SARD | ||
| 300 Class | Drivers | T. Tsuchiya, I. Matsui |
| Team Championship Viva team | ||
| Rally Championships | ||
| FIA Rally Raid | ||
| FIA Rally Raid | Drivers | Nasser Al-Attiyah - Mini All4 Racing X-Raid |
CARS
| Moto GP | |
|---|---|
| Drivers | Marc Márquez - #93 Repsol Honda Team |
| Moto2 | |
| Drivers | Johann Zarco - #5 Ajo Motorsport |
| Manufacturers | Kalex |
| Moto3 | |
| Drivers | Brad Binder - Red Bull KTM Ajo |
| Manufacturers | KTM |
| World SBK Championships | |
| WSBK World Superbike | |
| Drivers | Jonathan Rea - Kawasaki Provec Team |
| Manufacturers | Kawasaki |
| World Superstock 1000 | |
| Drivers | Raffaele De Rosa - Althea Racing |
| BSB British Superbike | |
| Drivers | Shane Byrne - Be Wiser Ducati |
| American Superbike | |
| Drivers | Cameron Beaubier - Monster Energy Graves Yamaha |
| JSB Superbike Giappone | |
| Drivers | Katsuyuki Nakasuga - Yamaha Factory |
| Tourist Trophy Senior Superbike | |
| Drivers | Michael Dunlop - BMW Hawk Racing |
| North West 200 Senior Superbike | |
| Drivers | Michael Dunlop - BMW Hawk Racing |
| Macau Road Race Superbike | |
| Drivers | Peter Hickman - BMW Team Bathams |
| Endurance | |
| EWC | Anthony Delhalle - Suzuki Endurance Racing Team |
| Superstock | |
| Drivers | Alex Cudlin - Moto Ain CRT Aprilia |
| Off-Road Championships | |
| Motocross | |
| MX2 | Jeffrey Herlings - Red Bull Factory Team |
| Trial | |
| TR1 World Championship | Toni Bou - Montesa - HRC |
| Rally Raid | |
| Dakar | Toby Price - KTM Factory Racing |
| World Superbike | MOTORBIKES | |
|---|---|---|
| Drivers | Jonathan Rea - Kawasaki | |
| JSB | ||
| Drivers | Katsuyuki Nakasuga - Yamaha | |
| GP2 | ||
| Drivers | Yuuki Takahashi - Moriwaki | |
| (euro thousand) | of which with | of which with | ||||
|---|---|---|---|---|---|---|
| Notes | 31.12.2016 | related parties | 31.12.2015 | related parties | Change | |
| NON-CURRENT ASSETS | ||||||
| Property, plant, equipment and other equipment | 1 | 746,932 | 589,777 | 157,155 | ||
| Development costs | 2 | 49,324 | 40,843 | 8,481 | ||
| Goodwill and other indefinite useful life assets | 2 | 88,880 | 43,946 | 44,934 | ||
| Other intangible assets | 2 | 52,059 | 14,502 | 37,557 | ||
| Shareholdings valued using the equity method | 3 | 26,969 | 24,999 | 1,970 | ||
| Other financial assets (including investments in other | ||||||
| companies and derivatives) | 4 | 6,887 | 5,676 | 11,631 | 9,710 | (4,744) |
| Receivables and other non-current assets | 5 | 4,794 | 5,116 | (322) | ||
| Deferred tax assets | 6 | 57,691 | 55,552 | 2,139 | ||
| TOTAL NON-CURRENT ASSETS | 1,033,536 | 786,366 | 247,170 | |||
| CURRENT ASSETS | ||||||
| Inventories | 7 | 283,191 | 4 | 247,661 | 35,530 | |
| Trade receivables | 8 | 357,392 | 2,711 | 311,217 | 3,302 | 46,175 |
| Other receivables and current assets | 9 | 43,830 | 7 | 36,386 | 7,444 | |
| Current financial assets and derivatives | 10 | 901 | 814 | 87 | ||
| Cash and cash equivalents | 11 | 245,674 | 9,104 | 202,104 | 14,405 | 43,570 |
| TOTAL CURRENT ASSETS | 930,988 | 798,182 | 132,806 | |||
| TOTAL ASSETS | 1,964,524 | 1,584,548 | 379,976 |
The new integrated plant for the production of aluminium calipers in Escobedo, Mexico.
| (euro thousand) | Notes | 31.12.2016 | of which with related parties |
31.12.2015 | of which with related parties |
Change |
|---|---|---|---|---|---|---|
| GROUP EQUITY | ||||||
| Share capital | 12 | 34,728 | 34,728 | 0 | ||
| Other reserves | 12 | 135,719 | 137,250 | (1,531) | ||
| Retained earnings/(losses) | 12 | 446,834 | 325,912 | 120,922 | ||
| Net result for the year | 12 | 240,632 | 183,962 | 56,670 | ||
| TOTAL GROUP EQUITY | 857,913 | 681,852 | 176,061 | |||
| TOTAL MINORITY INTERESTS | 24,397 | 5,695 | 18,702 | |||
| TOTAL EQUITY | 882,310 | 687,547 | 194,763 | |||
| NON-CURRENT LIABILITIES | ||||||
| Non-current payables to banks | 13 | 210,659 | 904 | 211,886 | 1,796 | (1,227) |
| Other non-current financial payables and derivatives | 13 | 5,245 | 3,263 | 1,982 | ||
| Other non-current liabilities | 14 | 8,653 | 1,914 | 1,026 | 7,627 | |
| Non-current provisions | 15 | 21,667 | 15,294 | 6,373 | ||
| Provisions for employee benefits | 16 | 32,706 | 7,397 | 30,334 | 7,627 | 2,372 |
| Deferred tax liabilities | 6 | 31,622 | 13,001 | 18,621 | ||
| TOTAL NON-CURRENT LIABILITIES | 310,552 | 274,804 | 35,748 | |||
| CURRENT LIABILITIES | ||||||
| Current payables to banks | 13 | 225,592 | 41,474 | 147,398 | 16,878 | 78,194 |
| Other current financial payables and derivatives | 13 | 756 | 1,059 | (303) | ||
| Trade payables | 17 | 428,530 | 7,868 | 349,941 | 9,740 | 78,589 |
| Tax payables | 18 | 11,837 | 14,052 | (2,215) | ||
| Current provisions | 15 | 2,547 | 2,830 | (283) | ||
| Other current payables | 19 | 102,400 | 2,460 | 106,917 | 11,980 | (4,517) |
| TOTAL CURRENT LIABILITIES | 771,662 | 622,197 | 149,465 | |||
| TOTAL LIABILITIES | 1,082,214 | 897,001 | 185,213 | |||
| TOTAL EQUITY AND LIABILITIES | 1,964,524 | 1,584,548 | 379,976 | |||
88
| (euro thousand) | Notes | 31.12.2016 | of which with related parties |
31.12.2015 | of which with related parties |
Change |
|---|---|---|---|---|---|---|
| Sales of goods and services | 20 | 2,279,096 | 5,002 | 2,073,246 | 5,110 | 205,850 |
| Other revenues and income | 21 | 28,117 | 3,230 | 13,759 | 3,369 | 14,358 |
| Costs for capitalised internal works | 22 | 18,971 | 11,982 | 6,989 | ||
| Raw materials, consumables and goods | 23 | (1,125,968) | (81,037) | (1,053,804) | (74,762) | (72,164) |
| Income (expense) from non-financial investments | 24 | 11,010 | 9,391 | 1,619 | ||
| Other operating costs | 25 | (379,872) | (5,267) | (338,286) | (6,347) | (41,586) |
| Personnel expenses | 26 | (387,640) | (6,250) | (356,369) | (5,583) | (31,271) |
| GROSS OPERATING INCOME | 443,714 | 359,919 | 83,795 | |||
| Depreciation, amortisation and impairment losses | 27 | (116,250) | (108,637) | (7,613) | ||
| NET OPERATING INCOME | 327,464 | 251,282 | 76,182 | |||
| Interest income | 28 | 36,156 | 36,590 | (434) | ||
| Interest expense | 28 | (51,523) | (44,391) | (7,132) | ||
| Net interest income (expense) | 28 | (15,367) | (740) | (7,801) | (501) | (7,566) |
| Interest income (expense) from Investments | 29 | 111 | 18 | 93 | ||
| RESULT BEFORE TAXES | 312,208 | 243,499 | 68,709 | |||
| Taxes | 30 | (69,213) | (57,694) | (11,519) | ||
| RESULT BEFORE MINORITY INTERESTS | 242,995 | 185,805 | 57,190 | |||
| Minority interests | (2,363) | (1,843) | (520) | |||
| NET RESULT FOR THE YEAR | 240,632 | 183,962 | 56,670 | |||
| BASIC/DILUTED EARNINGS PER SHARE (euro) | 31 | 3.70 | 2.83 |
| (euro thousand) | 31.12.2016 | 31.12.2015 | Change |
|---|---|---|---|
| RESULT BEFORE MINORITY INTERESTS | 242,995 | 185,805 | 57,190 |
| Other comprehensive income/(losses) that will not be subsequently reclassified to income/(loss) for the year: |
|||
| Effect (actuarial income/loss) on defined benefit plans | (2,609) | 1,786 | (4,395) |
| Tax effect | 553 | (585) | 1,138 |
| Effect (actuarial income/loss) on defined benefit plans, for companies valued using the equity method |
(153) | 20 | (173) |
| Total other comprehensive income/(losses) that will not be subsequently reclassified to income/(loss) for the year |
(2,209) | 1,221 | (3,430) |
| Other comprehensive income/(losses) that will be subsequently reclassified to income/(loss) for the year: |
|||
| Effect of hedge accounting (cash flow hedge) of derivatives | 0 | 69 | (69) |
| Tax effect | 0 | (19) | 19 |
| Change in translation adjustment reserve | (10,406) | 16,575 | (26,981) |
| Total other comprehensive income/(losses) that will be subsequently | |||
| reclassified to income/(loss) for the year | (10,406) | 16,625 | (27,031) |
| COMPREHENSIVE RESULT FOR THE YEAR | 230,380 | 203,651 | 26,729 |
| Of which attributable to: | |||
| - Minority Interests | 2,289 | 1,841 | 448 |
| - the Group | 228,091 | 201,810 | 26,281 |
90
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 111,817 | 99,347 |
| Result before taxes | 312,208 | 243,499 |
| Depreciation, amortisation/impairment losses | 116,250 | 108,637 |
| Capital gains/losses | (654) | (674) |
| Income/expense from investments, net of dividends received | (2,121) | 2,611 |
| Financial portion of provisions for defined benefits and payables for personnel | 750 | 789 |
| Long-term provisions for employee benefits | 1,935 | 802 |
| Other provisions net of utilisations | 22,827 | 13,612 |
| Cash flows generated by operating activities | 451,195 | 369,276 |
| Paid current taxes | (69,944) | (61,186) |
| Uses of long-term provisions for employee benefits | (3,487) | (2,591) |
| (Increase) reduction in current assets: | ||
| inventories | (35,070) | (27,502) |
| financial assets | 293 | (389) |
| trade receivables | (26,637) | (37,021) |
| receivables from others and other assets | 5,119 | 1,150 |
| Increase (reduction) in current liabilities: | ||
| trade payables | 54,051 | 54,207 |
| payables to others and other liabilities | (17,712) | 12,788 |
| Translation differences on current assets | 3,052 | 3,550 |
| Net cash flows from/(for) operating activities | 360,860 | 312,282 |
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Investments in: | ||
| intangible assets | (32,139) | (18,397) |
| property, plant and equipment | (231,431) | (137,511) |
| financial assets (shareholdings) | 0 | (209) |
| Price for disposal or reimbursement value of fixed assets | 3,475 | 2,481 |
| Amounts (paid)/received for the acquisition/disposal of subsidiaries, net of cash and cash equivalents |
(69,465) | 9,280 |
| Net cash flows from/(for) investing activities | (329,560) | (144,356) |
| Dividends paid in the year | (52,030) | (52,030) |
| Dividends paid to minority interests in the year | (800) | 0 |
| Change in fair value of derivatives | 308 | (684) |
| Loans and financing granted by banks and other financial institutions in the year | 50,000 | 130,002 |
| Repayment of long-term loans | (69,649) | (233,657) |
| Net cash flows from/(for) financing activities | (72,171) | (156,369) |
| Total cash flows | (40,871) | 11,557 |
| Translation differences on cash and cash equivalents | (7,017) | 913 |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | 63,929 | 111,817 |
| Other reserves | ||||
|---|---|---|---|---|
| (euro thousand) | Share capital | Reserves | Treasury Shares | Retained earnings (losses) |
| Balance at 1 January 2015 | 34,728 | 122,745 | (13,476) | 257,922 |
| Allocation of profit for the previous year | 357 | 76,667 | ||
| Payment of dividends | ||||
| Disposal of Belt & Buckle S.r.o. and Sabelt S.p.A. | 1,129 | |||
| Buy-back of own shares for companies valued using the equity method |
(30) | |||
| Reclassification | 10,997 | (10,997) | ||
| Components of comprehensive income: Effect (actuarial income/loss) on defined benefit plans |
1,201 | |||
| Effect (actuarial income/loss) on defined benefit plans, for companies valued using the equity method |
20 | |||
| Effect of hedge accounting (cash flow hedge) of derivatives | 50 | |||
| Change in translation adjustment reserve | 16,577 | |||
| Net result for the year | ||||
| Balance at 1 January 2016 | 34,728 | 150,726 | (13,476) | 325,912 |
| Allocation of profit for the previous year | 277 | 131,655 | ||
| Payment of dividends | ||||
| Acquisition of Asimco Meilian Braking Systems (Langfang) Co. Ltd. | ||||
| Reclassification | 8,524 | (8,524) | ||
| Components of comprehensive income: Effect (actuarial income/loss) on defined benefit plans |
(2,056) | |||
| Effect (actuarial income/loss) on defined benefit plans, for companies valued using the equity method |
(153) | |||
| Change in translation adjustment reserve | (10,332) | |||
| Net result for the year | ||||
| Balance at 31 December 2016 | 34,728 | 149,195 | (13,476) | 446,834 |
| Equity | Equity of Minority Interests |
Share capital and reserves of Minority Interests |
Result of Minority Interests |
Group equity | Net result for the year |
|---|---|---|---|---|---|
| 536,330 | 5,357 | 5,727 | (370) | 530,973 | 129,054 |
| 0 | 0 | (370) | 370 | 0 | (77,024) |
| (52,030) | 0 | (52,030) | (52,030) | ||
| (374) | (1,503) | (1,503) | 1,129 | ||
| (30) | 0 | (30) | |||
| 0 | 0 | 0 | |||
| 1,201 | 0 | 1,201 | |||
| 20 | 0 | 20 | |||
| 50 | 0 | 50 | |||
| 16,575 | (2) | (2) | 16,577 | ||
| 185,805 | 1,843 | 1,843 | 183,962 | 183,962 | |
| 687,547 | 5,695 | 3,852 | 1,843 | 681,852 | 183,962 |
| 0 | 0 | 1,843 | (1,843) | 0 | (131,932) |
| (52,830) | (800) | (800) | (52,030) | (52,030) | |
| 17,213 | 17,213 | 17,213 | 0 | ||
| 0 | 0 | 0 | |||
| (2,056) | 0 | (2,056) | |||
| (153) | 0 | (153) | |||
| (10,406) | (74) | (74) | (10,332) | ||
| 242,995 | 2,363 | 2,363 | 240,632 | 240,632 | |
| 882,310 | 24,397 | 22,034 | 2,363 | 857,913 | 240,632 |
In the vehicle industry components sector, the Brembo Group is active in the research, design, production, assembly and sale of disc braking systems, wheels and light alloy and metal casting, in addition to mechanical processes in general.
The extensive product range consists of high-performance brake calipers, brake discs, wheel-side modules, complete braking systems and integrated engineering services, supporting the development of new models placed on the market by vehicle manufacturers. Brembo's products and services are used in the automotive industry, for light commercial and heavy industrial vehicles, motorbikes and racing competitions.
Manufacturing plants are located in Italy, Poland (Czestochowa, Dabrowa Górnicza, Niepolomice), the United Kingdom (Coventry), the Czech Republic (Ostrava-Hrabová), Germany (Meitingen), Mexico (Apodaca and Escobedo), Brazil (Betim), Argentina (Buenos Aires), China (Nanjing, Langfang), India (Pune) and the United States (Homer). Other companies located in Spain (Zaragoza), Sweden (Göteborg), Germany (Leinfelden-Echterdingen), China (Qingdao), Japan (Tokyo) and Russia (Moscow) carry out distribution and sales activities.
The Consolidated Financial Statements of the Brembo Group for the year ended 31 December 2016 have been prepared in compliance with the provisions of European Regulation No. 1606/2002 and the IFRS effective at 31 December 2016, issued by the International Accounting Standard Board (IASB) and adopted by EC Regulations. IFRS means all international accounting standards and all interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC).
The Consolidated Financial Statements include the Statement of Financial Position, the Statement of Income, the Statement of Comprehensive Income, the Statement of Cash Flows, the Statement of Changes in Equity, and
Department in Stezzano (Italy).
96
these Explanatory Notes, in accordance with IFRS requirements.
On 3 March 2017, the Board of Directors approved the consolidated Annual Report and requested that it be made available to the public and Consob, within the terms and according to the procedures provided for by applicable laws and regulations.
The Consolidated Financial Statements were prepared on the basis of draft Financial Statements for the year ended 31 December 2016, prepared by the Boards of Directors or, when available, of Financial Statements approved at the Shareholders' Meetings of the relevant consolidated companies, appropriately adjusted to align them with Group classification criteria and accounting standards. The new facilities of the Testing
The Consolidated Financial Statements have been prepared in accordance with the general principle of providing a true and fair presentation of the Group's assets and liabilities, financial position, statement of income results and cash flow, based on the following general assumptions: going concern, accrual accounting, consistency of presentation, materiality and aggregation, prohibition of offsetting and comparative information.
The administrative period and the closing date for preparing the Consolidated Financial Statements correspond to the ones for the Financial Statements of the Parent and all the consolidated companies. The Consolidated Financial Statements are presented in euro, which is the functional currency of the Parent, Brembo S.p.A., and all amounts are rounded to the nearest thousand unless otherwise indicated.
The Consolidated Financial Statements provide comparison figures for the previous year. When applying an accounting standard or retroactively recognising an adjustment, or reclassifying financial statement items, the Group includes an additional column showing the Statement of Financial Position for the first comparison year.
The Group made the following choices in relation to the presentation of the Financial Statements:
The Financial Statements presented herein comply with Consob resolution No. 15519 of 27 July 2006.
Preparing financial statements in compliance with the applicable accounting standards requires management to make estimates that may have a significant effect on the items reported in the accounts. Estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the current circumstances and given the information available at the reporting date. Actual results may differ from these estimates. Estimates and associated assumptions are reviewed on an ongoing basis. Revisions of estimates are recognised in the period in which such estimates are revised. Company management's decisions that have a significant impact on the financial statements and estimates, and have a significant risk of material adjustments to the book value of assets and liabilities in the next accounting period, are discussed in the notes to the individual financial statement entries.
The main estimates are used to recognise the capitalisation of development costs, recognition of taxes, impairment of non-financial assets, the actuarial assumptions used in the valuation of defined-benefit plans and measurement of the fair value of assets and liabilities acquired under business combinations. Other estimates relate to provisions for contingencies, inventory obsolescence, useful lives of certain assets, the recognition of lease contracts and the determination of the fair value of financial instruments, including derivatives.
In particular, the following items should be noted:
– Capitalisation of development costs: the initial capitalisation is based on management's judgment about the technical and economic feasibility of the project, usually when the project has reached a certain phase of the
98
development plan. The project's expected future cash flows, the discount rates to be applied and the periods in which expected benefits will be generated are taken into consideration to determine the amounts to be capitalised. Further information is given in Note 2 of these Explanatory Notes.
The valuation and measurement criteria used are based on IFRS in force as of 31 December 2016 and endorsed by the European Union.
The following standards, amendments and interpretations were applied for the first time from 1 January 2016:
Amendments to IFRS 11 require a joint operator which accounts for the acquisition of an interest in a joint arrangement to apply the relevant principles of IFRS 3 concerning business combinations. The amendments also clarify that an interest previously held in a joint arrangement is not subject to re-measurement when an additional interest is acquired in the same joint arrangement. In addition, an exclusion from the scope of IFRS 11 was added to clarify that the amendments do not apply when the parties who share control, including the entity preparing the financial statements, are under the joint control of the same ultimate controlling entity. The amendments must be applied prospectively for the financial years beginning on or after 1 January 2016 and their early adoption is allowed. These amendments have had no impact on the Group since no interests have been acquired in joint arrangements during the period in question.
The amendments clarify the principle contained in IAS 16 — Property, Plant and Equipment and in IAS 38 — Intangible Assets whereby revenues reflect a model of economic benefits generated from operating a business (to which the asset belongs) rather than the consumption of economic benefits through the use of the asset. It follows that a revenues-based method cannot be used for the depreciation of property, plant and equipment and could be used only in very limited circumstances for the amortisation of intangible assets. The amendments must be applied prospectively for the financial years starting on or after 1 January 2016 and early adoption is allowed. These amendments have had no impact on the Group since it does not use revenues-based methods for the depreciation of its non-current assets.
These improvements have been effective as of 1 January 2016, had no impact on the Group and include:
The amendment will allow entities to use the equity method to measure investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS which decide to change to the equity method in their separate financial statements will have to apply the change retrospectively, whilst, in the case of first time adoption of IFRS, the amendment will have to be applied from the date of transition to IFRS. The changes are effective for the financial years starting on or after 1 January 2016 and early adoption is allowed. These amendments had no impact on the Group.
Amendments to IAS 1 clarify some of the existing requirements. In detail:
the possibility of disaggregating specific items in the statements of profit or loss or other comprehensive income or statement of financial position;
the flexibility with which the entity presents the notes to the financial statements;
These amendments are effective for financial years starting on or after 1 January 2016 and early adoption is allowed. These amendments had no impact on the Group.
The amendments cover the issues that have arisen in the application of the exception relating to the investment entities envisaged by IFRS 10 — Consolidated Financial Statements. They clarify that the exemption from consolidation applies to the parent entity that is the subsidiary of an investment entity, when the investment entity itself measures all its subsidiaries at fair value. The amendments also clarify that only a subsidiary of an investment entity that is not itself an investment entity and that provides support services to the investment entity is consolidated, whilst all the other subsidiaries are measured at fair value. The amendments to IAS 28 — Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to elect to measure associates or joint ventures of an investment entity at fair value in measuring of their own investments in subsidiaries. These amendments have to be applied retrospectively and have no impact on the Group since it does not apply the consolidation exemption.
The following accounting standards and interpretations have already been issued but were not yet in force on the date these financial statements were prepared. The company intends to adopt these standards as of the date they enter into force.
In July 2015, the IASB issued the final version of IFRS 9 — Financial Instruments, which replaces IAS 39 — Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. This standard combines all aspects relating to financial instrument reporting: classification and measurement, impairment and hedge accounting. The standard is effective for the financial years beginning on or after 1 January 2018 and early adoption is allowed. With the exception of hedge accounting (which applies prospectively, but for a few exceptions), the principle has to be applied retrospectively, but it is not mandatory to provide comparative information. The Group will adopt the new standard as of the date it enters into force.
The Group does not expect that application of the classification and measurement requirements specified in IFRS 9 will have significant impacts on its financial statements. Loans, as well as trade receivables, are held for collection on the contractual due dates and are expected to generate cash flows consisting solely of the collection of principal and interest. The Group therefore expects that, in accordance with IFRS 9, they will continue to be measured at amortised cost. The Group will, however, analyse the features of the contractual cash flows of these instruments in greater detail before concluding whether they all meet the amortised cost measurement criteria in accordance with IFRS 9.
IFRS 9 requires the Group to record expected impairment losses for all its own obligations, loans and trade receivables, on an annual basis or based on the residual term. The Group, which is planning to adopt the simplified approach, does not expect significant impacts on its equity given that its trade receivables are largely due from counterparties with a high credit rating (primarily car manufacturers), although it will perform a more detailed analysis that considers all reasonable and supported information, including forecasts.
The Group expects that all existing hedges currently designated as effective hedges will continue to qualify for hedge accounting in accordance with IFRS 9. Given that IFRS 9 does not alter the general principle whereby an entity recognises effective hedges, the Group does not expect any significant impact from application of the standard. In the future, the Group will assess in greater detail the possible changes regarding the reporting of the time value of options, forward points and difference between the interest rates for two currencies.
IFRS 15 was issued in May 2014 and introduces a new five-step model that will be applied to revenues from contracts with customers. IFRS 15 provides for revenues to be measured for an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The new standard will replace all current requirements set out in IFRS standards on revenue recognition. The standard takes effect for financial years beginning on or after 1 January 2018, and will be applied using the full retrospective or modified approach. Early adoption is allowed. The Group plans to apply the new standard from the mandatory effective date, using the modified retrospective method.
The evaluation of the effects of the new standard is at the preliminary stage of a project plan that will be developed during 2017. In particular, the Group sells brake systems, equipment and study and design services based on written contracts or contracts implicit in commercial practice.
Application of the new standard is not expected to have an impact on contracts with customers in which the sale of the brake system is the only obligation. In fact, the Group is expecting that revenues will be recognised when control of the asset has been transferred to the customer, generally when the goods are delivered (the guarantees set out in the contracts are also general and not extended and, as a result, the Group expects that they will continue to be reported in accordance with IAS 37).
The Group also supplies equipment and study and design services, sold both separately and together with the brake systems. The Group currently considers these to be distinct elements and, generally, recognises such revenues when the risks and benefits are transferred to the customer. In accordance with IFRS 15, the allocation will take place based on the individual transaction price. As a result, there could be impacts on price allocation and the timing of recognition of the revenues relating to these sales. In general terms, the Group does not expect significant impacts on its own equity, although it will carry out a more detailed analysis considering all the information it has available, as indicated above.
IFRS 16 was published in January 2016 and replaces IAS 17, IFRIC 4, SIC-15 and SIC-27. IFRS 16 defines the principles for recognising, measuring, presenting and reporting leases. It requires lessees to recognise all leases on thebasis of a single lessee accounting model similar to that used to recognise finance leases in accordance with IAS 17. The standard provides for two exemptions for lessees' recognition: low-value leases (e.g., personal computers) and short-term leases (e.g., lease terms of 12 months or less). Upon lease commencement, the lessee recognises a liability for payments specified in the lease contract and right-of-use asset for the period of the contract. Lessees will recognise separately interest paid on the leasing liability and amortisation of the right-of-use asset. The lease liability is to be remeasured to reflect changes (for example: the lease contract conditions, a change in future lease payments caused by a change in an index or rate used to determine those payments). The lessee will generally recognise the remeasured amount of the lease liability as an adjustment to the right-of-use asset. Treatment as provided for by IFRS 16 will remain substantially unchanged for lessors, who will continue to classify each lease as an operating lease or a finance lease as provided for by IAS 17.
IFRS 16 will enter into force for years starting 1 January 2019 or thereafter with full retrospective or modified application. Early adoption is allowed, but not before the entity has adopted IFRS 15. The Group plans to apply the new standard as of the mandatory effective date, using the modified retrospective method.
Finally, other standards or amendments not yet endorsed by the European Union are summarised in the following table:
| Description | Endorsed at the reporting date |
Expected date of entry into force |
|---|---|---|
| IFRS 14 — Regulatory Deferral Accounts | NO | 1 January 2016 |
| Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture (issued in September 2014) |
NO | not defined |
| Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (issued in January 2016) |
NO | 1 January 2017 |
| Amendments to IAS 7: Disclosure Initiative (issued in January 2016) | NO | 1 January 2017 |
| Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions (issued in June 2016) |
NO | 1 January 2018 |
| Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (issued on 12 September 2016) |
NO | 1 January 2018 |
| Annual Improvements to IFRS Standards 2014-2016 Cycle (issued in December 2016) |
NO | 1 January 2018 |
| IFRIC Interpretation 22 — Foreign Currency Transactions and Advance Consideration (issued in December 2016) |
NO | 1 January 2018 |
| Amendments to IAS 40: Transfers of Investment Property (issued In December 2016) | NO | 1 January 2018 |
The Group did not opt for early adoption of new standards, interpretations or amendments that have been issued but have not entered into force yet.
The Consolidated Financial Statements include the Financial Statements of the Parent, Brembo S.p.A., at 31 December 2016, and the Financial Statements of the companies controlled by Brembo S.p.A. pursuant to IFRS 10. Control arises when the Group is exposed, or has rights, to variable returns from its involvement with the investee and at the same time has the ability to influence those returns through its power over the said investee.
Specifically, the Group controls an investee if, and only if, the Group has:
It is generally presumed that the majority of voting rights confers control. In support of this assumption, where the Group holds less than the majority of voting rights (or similar rights), the Group considers all facts and circumstances relevant to determining whether it controls the investee, including:
102
• the Group's actual and potential voting rights.
The Group reconsiders whether it controls an investee if the facts and circumstances indicate that there have been changes in one or more of the factors relevant to determining control. A subsidiary begins to be consolidated when the Group obtains control of it and ceases to be consolidated when the Group loses control. The assets, liabilities, revenues and costs of a subsidiary acquired or disposed of during the year are included in the Consolidated Financial Statements from the date the Group obtains control until the date the Group no longer controls the company.
Income (loss) for the year and other comprehensive income components are allocated to the shareholders of the Parent and minority interests, even if this results in a negative balance for the minority interests. Where necessary, the appropriate adjustments are applied to the financial statements of subsidiaries, so as to ensure compliance with the Group's accounting policies. All intragroup assets and liabilities, equity, revenues, costs and cash flows relating to transactions between Group entities are completely eliminated during the consolidation process.
Changes in percent interests in a subsidiary that do not entail a loss of control are accounted for at equity.
If the Group loses control of a subsidiary, it eliminates the related assets (including goodwill), liabilities, minority interests and other components of equity, while any profit or loss is recognised in the Statement of Income. The residual interest, if any, is measured at fair value.
The list of consolidated subsidiaries, associates and joint ventures that are accounted for using the equity method, along with information regarding their registered offices and the percentage of capital held, is included in section "Information About the Group" hereto. Corporate transactions carried out in 2016 are listed below:
Business combinations (established after the date of transition to IFRS) are accounted for using the purchase accounting method described in IFRS 3.
The value of the entity included in the aggregation is the sum of the fair value of the assets acquired and liabilities assumed, including contingent liabilities.
The cost of a business combination is identified as the fair value, at the date control is obtained, of the assets acquired, liabilities assumed and equity instruments issued for the purposes of the combination. That cost is then compared with the fair value of the identifiable assets, liabilities and contingent liabilities upon acquisition. Any excess of cost of the acquisition over the Group's share of the fair value of the identifiable assets, liabilities and contingent liabilities upon acquisition are recognised as goodwill. Any negative differences are charged directly to the Statement of income. If the initial cost of a business combination can only be determined provisionally, adjustments to the initial provisional values must be made within twelve months of the acquisition date. Minority interests are recognised on the basis of the fair value of the net assets acquired. If a business combination involves more than one transaction, with successive share purchases, each transaction is treated separately using the cost of the transaction and fair value information on the assets, liabilities and contingent liabilities at the date of each transaction to determine the amount of any differences. When the Group obtains control of a company through a subsequent share purchase, the previously held interests are accounted for based on the fair value of identifiable assets, liabilities and contingent liabilities, at the date control is acquired.
The acquiree measures contingent consideration at fair value at acquisition date. The change in fair value of contingent consideration classified as an asset or liability, in that it is a financial instrument falling within the scope of IAS 39, must be recognised in profit or loss or in Other Comprehensive Income. If the additional consideration is not within the scope of IAS 39, it is measured in accordance with the relevant IFRS. If the contingent consideration is classified as an equity instrument, the original amount is not remeasured and its subsequent settlement is recognised in equity.
Goodwill is initially recognised at cost, as the difference of the aggregate of the value of the consideration transferred and the amount attributed to minority interests compared to net identifiable assets acquired and liabilities assumed by the Group. If the consideration is lower than fair value of net assets of the acquired subsidiary, the difference is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any impairment losses. For the purposes of impairment testing, goodwill acquired in a business combination is allocated from the acquisition date to each of the Group's cash-generating units of the Group that is expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree have been assigned to those units.
If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that unit, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal. The goodwill associated with the operation disposed of is measured on the basis of the relative value of the operation disposed of and the portion of the cash-generating unit retained.
An associate is a company over which the Group exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.
A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets of the arrangement. Joint control is the contractually agreed sharing of control, which exists only when decisions about the relevant activities require the unanimousconsent of all parties sharing control.
Considerations used to determine significant influence or joint control are similar to those required to determine control of subsidiaries.
The Group's equity investments in associates and joint ventures are accounted for using the equity method. Under the equity method, an equity investment in an associate or a joint venture is initially recognised at cost. The carrying amount is increased or decreased to recognise the investor's share of the investee's profit or loss realised after the acquisition date. The goodwill related to the associate or joint venture is included in the carrying amount of the investment and is not tested separately for impairment.
The Statement of income reflects the Group's share of the profits or losses of the associate or joint venture. All changes in Other Comprehensive Income relating to such investees have been presented in the Group's Statement of other Comprehensive Income. In addition, when an associate or a joint venture recognises a change directly in equity, the Group recognises its share of that change, where applicable, in its Statement of Changes in Equity. Unrealised gains and losses on transactions between the Group and associates or joint ventures are eliminated in proportion to the interest held in the associates or joint ventures.
The aggregate share of the net result of associates and joint ventures attributable to the Group is recognised in the Statement of Income and represents the income or loss after taxes and the amounts attributable to the other shareholders of the associate or joint venture.
The financial statements of associates and joint ventures are prepared at the same reporting date as the Group's
Financial Statements. Where necessary, such financial statements are adjusted to bring them into line with the Group's accounting standards.
Once the equity method has been applied, at each reporting date the Group assesses whether there is objective evidence that the investments in the associates or joint ventures have become impaired. In such cases, the Group calculates the amount of the loss as the difference between the recoverable amount of the associate or joint venture and the carrying amount of the investment in its financial statements, and then accounts for that difference in the Statement of Income.
When significant influence over an associate or joint control of a joint venture is lost, the Group measures and recognises the residual investment at fair value. The difference between the carrying amount of the investment at the date significant influence or joint control is lost and the fair value of the residual investment and consideration received is recognised in the Statement of Income.
The financial statements of the Group Companies included in the Consolidated Financial Statements are denominated in the currency used in the primary market in which they operate (functional currency). The Group Consolidated Financial Statements are denominated in euro, which is the functional currency of the Parent Brembo S.p.A.
At year end, the assets and liabilities of subsidiaries, associate companies and joint ventures whose functional currency is not the euro are translated into the currency used to prepare the consolidated Group accounts at the exchange rate prevailing at that date. Statement of Income items are translated at the average exchange rate for the period (as it is considered to represent the average of the exchange rates prevailing on the dates of the individual transactions). The differences arising from the translation of initial equity at end-of-period exchange rates, and the differences arising as a result of the different method used for translating the result for the period are recognised under a specific heading of equity. If consolidated foreign companies are subsequently sold, accumulated conversion differences are recognised in the Statement of Income.
The following table shows the exchange rates used in the translation of financial statements denominated in currencies other than the Group's functional currency (euro).
| Euro against other currencies | 31.12.2016 | Average at December 2016 |
31.12.2015 | Average at December 2015 |
|---|---|---|---|---|
| U.S. Dollar | 1.054100 | 1.106598 | 1.088700 | 1.109625 |
| Japanese Yen | 123.400000 | 120.313774 | 131.070000 | 134.286506 |
| Swedish Krona | 9.552500 | 9.467312 | 9.189500 | 9.354485 |
| Polish Zloty | 4.410300 | 4.363633 | 4.263900 | 4.182785 |
| Czech Koruna | 27.021000 | 27.034311 | 27.023000 | 27.285003 |
| Mexican Peso | 21.771900 | 20.654970 | 18.914500 | 17.599483 |
| Pound Sterling | 0.856180 | 0.818896 | 0.733950 | 0.725986 |
| Brazil Real | 3.430500 | 3.861627 | 4.311700 | 3.691603 |
| Indian Rupee | 71.593500 | 74.355278 | 72.021500 | 71.175220 |
| Argentine Peso | 16.748800 | 16.333592 | 14.097200 | 10.249537 |
| Chinese Renminbi | 7.320200 | 7.349579 | 7.060800 | 6.972997 |
| Russian Rouble | 64.300000 | 74.222360 | 80.673600 | 68.006843 |
Transactions in currencies other than the functional currency are initially converted into the functional currency using the exchange rate prevailing at the date of the transaction. At the closing date of the accounting period, monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the exchange rate prevailing at that date. Exchange differences arising from such translation are recognised in the Statement of Income.
Non-monetary assets and liabilities denominated in currencies other than the functional currency that are carried at cost are translated using the exchange rate prevailing at the transaction date, while those carried at fair value are translated using the exchange rate prevailing on the date the fair value is determined.
Property, plant, equipment and other equipment are carried at cost, net of the related accumulated depreciation and any impairment in value. The cost includes the purchase or production price and direct costs incurred for bringing the asset to the location and condition necessary for it to be capable of being operated; interest expense is also included, if applicable under IAS 23.
Subsequent to initial recognition, the asset continues to be carried at cost and depreciated based on its remaining useful life net of any impairment in value, taking into account any residual value.
Land, including land linked to buildings, is recognised separately and is not depreciated since it is regarded as having an indefinite useful life.
Costs for improvements and transformations that increase the value of assets (i.e., they result in probable future economic benefits that can be reliably measured) are recognised in the assets section of the Statements of Financial Position as increases to the assets in question or as separate assets. Costs are written off in the year in which they are incurred, where they relate to maintenance or repair and do not lead to any significant and measurable increase in productive capacity or in the useful life of the relevant asset.
Depreciation and amortisation represent the economic and technical loss of value of the asset and is charged from when the asset is available for use; they are calculated using the straight-line method based on the rate considered representative of the useful life of the asset.
The range of expected useful lives of property, plant and equipment used for calculating depreciation is reported below:
| Category | Useful life |
|---|---|
| Land | Indefinite |
| Buildings | 10 - 35 years |
| Plant and machinery | 5 - 20 years |
| Industrial and commercial equipment | 2.5 - 10 years |
| Other assets | 4 - 10 years |
The residual values, useful lives and depreciation methods applied to property, plant and equipment are reviewed at the end of each year and prospectively corrected, where appropriate. Useful lives are unchanged compared to the previous year.
Assets held under finance leases (where the Group assumes substantially all the risks and rewards of ownership) are recognised and recorded at the inception of the lease under property, plant and equipment at the lower of fair value of the leased asset or the present value of the lease payments. The corresponding liability to the lessor is recorded under financial debt. The methods used to calculate depreciation and the subsequent valuation of the asset are consistent with those used for directly owned assets. Finance leases where the lessor retains substantially all the risks and rewards incident to ownership are classified as operating leases. Lease payments are recognised in the Statement of income on a straight-line basis over the lease term.
Improvements to third-party assets that can be considered fixed assets are capitalised to the appropriate asset category and depreciated over the shorter of their useful life or the lease term.
The Group recognises intangible assets when the following conditions are met:
Intangible assets are initially measured at cost; subsequent to initial recognition, they are carried at cost less amortisation (except for goodwill and other intangible assets with indefinite useful lives), which is calculated using the straight-line method (beginning on the date the assets are available for use) over their useful lives, and net of any impairment losses, taking into account any residual value. The useful life of assets is reviewed periodically.
An intangible asset generated in the development phase of an internal project is recognised as asset if the Group can demonstrate:
Development costs are recognised in the Statement of Income. Similarly, in the case of externally acquired intangibles that qualify as research and development costs, only the costs attributable to the development phase are recognised as assets, given that the above requirements are met.
Such costs are capitalised under "Development costs" and amortised when the development phase is concluded and the asset developed generates economic rewards. In the period in which internal development costs that can be capitalised are incurred, these costs are excluded from the Statement of Income item "Increase on internal works capitalised" and recognised in the item "Costs for capitalised internal works".
The range of expected useful lives of intangible fixed assets used for calculating amortisation is reported below:
| Category | Useful life |
|---|---|
| Development costs | 3 - 5 years |
| Goodwill and other fixed assets with indefinite useful lives | Indefinite |
| Industrial patents and similar rights | 5 - 10 years |
| Other intangible assets | 3 - 5 years |
The residual values, useful lives and amortisation methods applied to intangible assets are reviewed at the end of each year and prospectively corrected, where appropriate. Useful lives are unchanged compared to the previous year.
Goodwill, intangible assets with an indefinite life and development costs underway are systematically tested for impairment at least once a year, and whenever there are any indications of impairment.
Property, plant and equipment, as well as intangible assets that are subject to depreciation and amortisation are tested for impairment whenever indications of impairment arise.
Write-downs correspond to the difference between the carrying value and recoverable value of the assets in question. The recoverable value is the greater of the fair value of an asset or cash-generating unit less the costs of disposal and the value in use, determined as the present value of estimated future cash flows. The value in use is defined as the cash flows expected to arise from the use of an asset, or the sum of the cash flows in the case of more cash-generating units. The expected future cash flows are measured using the unlevered discounted cash flows method and each group of assets is discounted to the present value using the WACC method (weighted average cost of capital). If the recoverable amount is less than the carrying amount, the carrying amount is reduced to the recoverable amount, and, as a general rule, the impairment loss is recorded in the Statement of Income. When the impairment loss of an asset (except for goodwill) is subsequently reversed, the carrying value of the asset (or cash-generating unit) is increased to the new estimate of recoverable value, without exceeding the value prior to write-down.
Inventories of raw materials and finished products are stated at the lower of cost or market value and the corresponding net market value estimated from market trends.
The purchase cost includes costs incurred to bring each asset to the place it is stored. Manufacturing costs of finished products and semi-finished goods include direct costs and a portion of indirect costs that can be reasonably attributed to the products based on normal exploitation of the production capacity; interest expense is excluded. Work in progress is valued at production costs for the year, based on the progress report.
The cost of inventories of raw materials, finished goods, goods for resale and work-in-progress is calculated using the weighted mean cost method.
For raw materials, ancillaries and consumables, the presumable net realisable value corresponds to the replacement cost. For finished products and semi-finished goods, the presumable net realisable value corresponds to the estimated sales price in the ordinary course of business, less the estimated costs of completion and costs to sell.
Inventories that are obsolete or characterised by a long turnover period are written down on the basis of their possible useful life or realisable value, by creating a special inventory adjustment fund.
Cash and cash equivalents include cash balances, unrestricted deposits and other treasury investments with original maturities of up to three months. A treasury investment is considered as availability, when it is instantly convertible to cash with minimal risk of any fluctuation in value and, further, it is intended to meet short-term cash requirements and is not held as an investment.
For purposes of the Statement of Cash Flows, cash balances are stated net of bank overdrafts at the end of the period.
Provisions include certain or probable costs of a specific nature, the amount or settlement date of which could not be determined at year end. A provision is recognised when:
Provisions are recognised at the present value of the expected expenditure required to settle the obligation in question. Where the Group expects that some or all of the expenditure required to settle a provision to be reimbursed, such as for the case of insured risks, the reimbursement is treated as a separate asset and is recognised when, and only when, it is virtually certain that the reimbursement will be received. In this case, the expense relating to the provision is presented in the Statement of Income net of the amount recognised for the reimbursement. Provisions are periodically updated toreflect changes in cost estimates, timing and present value, if any; revisions to estimates are recognised under the same heading of the Statement of Income under which the original provision was recognised and in the Statement of Income of the period in which the change is made. When provisions are discounted to present value, the change resulting from the passage of time or interest rate fluctuations is recognised under "Net interest income (expense)".
Any provisions for restructuring costs are recognised when the company involved has approved a formal detailed plan and communicated it to affected parties.
Provisions for product warranty costs are recognised when products are sold. Initial recognition is based on historical experience. The initial estimate of the costs of warranty work is reviewed annually.
The difference between defined contribution plans, wholly unfunded defined benefit plans, wholly or partly funded defined benefit plans and other forms of long-term benefits is reported below.
Defined contribution plans are post-employment benefit plans under which a company pays contributions to an insurance company or pension fund and has no legal or constructive obligation to pay further contributions if, when the benefit right matures, the fund does not have sufficient assets to pay all benefits relating to employee service in the current or prior periods.
These contributions, which are paid for the services rendered by employees, are recognised in the same accounting period in which the services are rendered.
Defined benefit plans are post-employment benefit plans that entail a future obligation for the company. The company assumes actuarial and investment risks in relation to the plan.
To determine the present value of its obligations relating to such plans and the related service costs, the Group uses the "Projected Unit Credit Method".
This actuarial calculation method requires the use of unbiased and mutually compatible actuarial assumptions about demographic variables (mortality rate and employee turnover rate) and financial variables (discount rates and future increases in salary and benefits). When a defined benefit plan is wholly or partly funded by contributions paid either into a fund that is legally separate from the company or to an insurance company, any plan assets are measured at fair value. The obligation is therefore stated net of the fair value of the plan assets that will be used to directly meet such obligation.
Remeasurements, which include actuarial gains and losses, any changes in the effect of the assets ceiling (excluding net interest) and return on plan assets (excluding net interest) are recognised immediately in the Statement of Financial Position, debiting or crediting retained earnings through Other Comprehensive Income in the period in which they occur. Remeasurements are not reclassified through profit or loss in the following years.
Other long-term benefits refer to employee benefits other than post-employment benefits. They are accounted for in the same manner as defined benefit plans.
Own shares reacquired are recognised at cost and are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, or cancellation of the company's own shares. The difference between the carrying amount and the consideration, in case of reissue, is recognised in the share premium reserve.
Government grants are recognised at fair value, when there is reasonable assurance that all necessary conditions attached to them have been satisfied and the grants will be received.
Grants received in recognition of specific expenses are recognised as liabilities and credited to the Statement of Income on a systematic basis over the periods necessary to match the grant income with the related expenditure. Grants received for defined assets that are recognised as fixed assets are accounted for as non-current liabilities and credited to the Statement of Income in relation to the period in which depreciation or amortisation is charged for the relevant assets.
The Group measures financial instruments, such as derivatives, at fair value at the end of each financial period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value measurement assumes a sale of the asset or transfer of the liability taking place:
The principal or most advantageous market must be accessible to the Group.
Fair value measurement takes into account the characteristics of the asset or liability being measured that market participants would consider when pricing the asset or liability, assuming that market participants act with the aim of best satisfying their economic interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques appropriate to the circumstances and for which sufficient data for fair value measurement are available, thus maximising observable inputs and minimising the use of unobservable inputs.
All assets and liabilities, the fair value of which has been measured or recognised in the financial statements, are categorised based on the fair value hierarchy, as described below:
The fair value measurement is categorised in its entirety in the hierarchy level of the lowest level input that has been used for the measurement.
For assets and liabilities that are measured at fair value on a recurring basis, the Group determines whether shifts have occurred between hierarchy levels and revises the categorisation (based on the lowest level input that is significant to the entire fairvalue measurement) at the end of each financial period.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets are initially recognised at cost, which corresponds to fair value plus ancillary costs. Upon initial recognition, financial assets are classified, depending on their nature, in the following categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans, receivables and financial assets available for sale.
Loans and receivables (the category of greatest significance for the Group) are non-derivative financial assets, with fixed or determinable payments, that are not quoted in an active market. After initial recognition, such financial assets are measured at amortised cost, using the effective interest rate method, less impairment losses. Amortised cost is calculated by including any discounts, premiums or fees and/or costs, which are an integral part of the effective interest rate. The effective interest rate is recognised as interest income in the Statement of Income. Impairment losses are recognised in the Statement of Income as net interest expense. This category normally includes trade and other receivables.
When accounting for financial assets measured at amortised cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant. The carrying amount of an asset is reduced by recognising a write-down provision, and the amount of the loss is recognised in the Statement of Income. Loans and the associated write-down provisions are derecognised when there is no realistic prospect that they may be recovered in future and the guarantees have been enforced or transferred to the Group. If, in a subsequent year, the amount of an estimated impairment loss increases or decreases because of an event occurring after the impairment is recognised, the previously recognised impairment loss is increased or decreased by adjusting the provision.
Financial assets are removed from the Statement of Financial Position when the right to receive cash flows ceases, the Group transfers the right to receive cash flows from the asset to a third party, or the Group assumes a contractual obligation to pay them in full and without delay, and (1) it has transferred substantially all of the risks and rewards of ownership of the financial asset, or (2) it has neither transferred nor retained substantially all of the risks and rewards of the asset, but has transferred control of the asset.
Where the Group has transferred the rights to receive the cash flows from an asset, or has entered into a contractual arrangement whereby it retains its contractual right to receive the cash flows from the asset, but assumes a contractual obligation to pay cash flows to one or more beneficiaries (pass-through arrangement), it evaluates the extent to which it has retained the risks and rewards of ownership.
Equity investments in other entities are measured at fair value; when the fair value cannot be reliably determined, equity investments are measured at cost adjusted for impairment.
Upon initial recognition, financial liabilities are classified among financial liabilities at fair value through profit or loss, loans and financing or derivatives designated as hedging instruments. All financial liabilities are initially recognised at fair value, in addition to directly attributable transaction costs, in the cases of loans, financing and payables. The Group's financial liabilities extend to trade payables and other payables, loans and financing, including account overdrafts, guarantees issued and derivative financial instruments.
Loans and payables (the category of greatest significance for the Group) are measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the Statement of Income when the liability is extinguished, as well as through the amortisation process.
Amortised cost is calculated by including the discount or premium, as well as costs and fees, which are an integral part of the effective interest rate. Amortisation at the effective interest rate is included among net interest expense in the Statement of Income, on the basis of their classification.
Financial guarantees issued are contracts that require a payment to reimburse the holder of a debt instrument for a loss incurred by the holder due to default by the debtor on payment at the contractual due date. When the Group issues financial guarantees, the financial guarantee contracts are initially recognised as liabilities at fair value, plus the transaction costs directly attributable to issuing the guarantee. The liability is then measured at the greater of the best estimate of the outlay required to meet the guaranteed obligation at the reporting date and the initially recognised amount, less cumulative amortisation.
A financial liability is derecognised when the obligation underlying the liability is extinguished, cancelled or discharged. Where one existing financial liability is replaced by another attributable to the same borrower with substantially different conditions, or the conditions of an existing liability are substantially modified, such exchange or modification is accounted for by derecognising the original liability and recognising a new liability, with any differences between carrying amounts recognised in the Statement of Income.
A financial asset and a financial liability may be set off against one another, and the net balance presented in the Statement of Financial Position, if there is a legally enforceable right to set off the recognised amounts and the entity intends either to settle on a net basis or realise the asset and settle the liability simultaneously.
Loans, payables and other financial and/or trade liabilities with a fixed or determinable maturity are initially recognised at fair value, net of the transaction costs. After initial recognition, these payables are evaluated using the criterion of amortised cost at the effective interest rate.
Long-term debts for which an interest rate is not specified are recognised by discounting future cash flows at market rate, if the increase in payables arises from the passage of time, with subsequent recognition of interest through profit or loss, in item "Net interest income (expense)".
A financial liability is derecognised when the obligation underlying the liability is extinguished, cancelled or discharged.
Derivatives, including embedded derivatives separated from their host contracts, are initially recognised at fair value.
Derivatives are classified as hedging instruments when the relationship between the derivative and the object of the hedge is formally documented and the degree of coverage, which is periodically checked, is high.
When hedging derivatives hedge the risk of changes in the fair values of the hedged instruments, they are recognised at fair value through profit or loss. Accordingly, the hedged instruments are adjusted to reflect changes in fair value associated with the hedged risk.
When derivatives hedge the risk of changes in the cash flows of the hedged instruments (cash flow hedges), the hedges are designated on the basis of the exposure to changes in cash flows attributable to risks that may influence profit or loss at a later date. Such risks are generally associated with a recognised asset or liability (such as future payments of variable-rate debt).
The effective portion of the change in the fair value of the part of derivative contracts designated as hedges in accordance with the requirements of IAS 39 is recognised in the Statement of Comprehensive Income (hedging reserve). That reserve is then released to the profit or loss when the hedged transaction is recognised in Statement of Income.
By contrast, the ineffective portion of the change in fair value, along with the entire change in the fair value of derivatives not designated as hedges or that do not meet the requirements presented in IAS 39, is recognised directly in profit or loss.
Revenues are recognised in the Statement of Income on an accrual basis and to the extent that it is probable that the economic benefits associated with the sale of goods or provision of services will flow to the Group and the revenue can be reliably measured.
Revenues are recognised net of sales returns, discounts, allowances and taxes that are directly associated with the sale of the product or provision of the service.
Sales of goods and services are recognised at the fair value of the consideration received when the following conditions are met:
Revenues on the sale of equipment and study and design services to customers may be recognised as follows:
Interest income/expense is recognised as interest income/expense after being measured on an accrual basis.
Current tax assets and liabilities are measured as the amount that is expected to be recovered from or paid to the taxation authorities. The tax rates and laws used to calculate that amount are those enacted, or substantively enacted, at the reporting date in the countries in which the Group operates and generates its taxable income. Management periodically assesses the position assumed in the income tax return, where tax laws are subject to interpretation and recognises provisions, where appropriate.
Deferred tax assets and liabilities are recognised in order to reflect the temporary differences between the value attributed to an asset/liability for tax purposes and that attributed based on the accounting standards applied at the reporting date. They are measured using the tax rates that are expected to apply in the year when the assets will be realised or the liabilities will be settled, based on prevailing tax rates or those already enacted or substantially enacted at the reporting date.
Deferred tax assets are recognised for all deductible temporary differences, unused tax credits and unused tax losses eligible to be carried forward, to the extent it is probable that sufficient future taxable income will be available to permit the use of the deductible temporary differences, unused tax credits and unused tax losses carried forward, except for the cases of:
The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the extent it is no longer probable that there will be sufficient future taxable income to permit all or part of the credit concerned to be used. Unrecognised deferred tax assets are reviewed at each reporting date and are recognised to the extent it has become probable that taxable income will be sufficient to permit such deferred tax assets to be recovered.
Deferred tax liabilities are recognised on all taxable temporary differences, with the following exceptions:
Tax balances (current and deferred) attributable to amounts recognised directly in Equity are also recognised directly in Equity.
Current and deferred tax assets and liabilities are offset only when the legal right of offset exists; such amounts are recognised as receivables or payables in the Statement of Financial Position.
Dividends are recognised when the shareholders' right to receive payment is established under local law.
The Parent recognises a liability to account for the distribution to its shareholders of cash or non-cash assets once the distribution has been appropriately authorised and is no longer at the company's discretion. Under current Italian company law, a distribution is authorised when it has been approved by the shareholders. The corresponding amount is recognised directly in equity.
On 19 May 2016, Brembo S.p.A. acquired 66% of voting right stock in Asimco Meilian Braking Systems (Langfang) Co. Ltd., an unlisted company based in Langfang. This Chinese company owns a foundry and a plant for the manufacturing of cast-iron brake discs and supplies local car manufacturers, mainly including joint ventures among Chinese firms and European and U.S. top players.
The transaction has been accounted for using the acquisition method and the Group has decided to measure the minority interest in the acquired company based on the proportional amount of its interest in the net assets of the company acquired.
The Consolidated Financial Statements incorporates the result of Asimco Meilian Braking Systems (Langfang) Co. Ltd. as from 1 May 2016, the day designated conventionally as the acquisition date for accounting purposes only, as there are no significant movements between this date and the actual acquisition date and accounts are available on that date.
| Acquisition date fair value | ||||
|---|---|---|---|---|
| Net assets | (CNY thousand) | (euro thousand) | ||
| Property, plant and equipment | 213,134 | 29,259 | ||
| Intangible assets | 239,709 | 32,908 | ||
| Other receivables and non-current liabilities | 2,432 | 334 | ||
| Inventories | 47,068 | 6,462 | ||
| Trade receivables | 148,240 | 20,351 | ||
| Other receivables and current assets | 25,511 | 3,502 | ||
| Cash and cash equivalents | 74,056 | 10,167 | ||
| Trade payables | (178,739) | (24,538) | ||
| Other payables and current liabilities | (86,912) | (11,931) | ||
| Provisions / deferred taxes | (73,794) | (10,131) | ||
| Employees' leaving entitlement and other personnel provisions | (17,626) | (2,420) | ||
| Short-term financial debt | (24,298) | (3,336) | ||
| Total net assets measured at fair value | 368,781 | 50,627 | ||
| Minority interests (34% of net assets) | (125,386) | (17,213) | ||
| Group equity (66% of net assets) | (243,395) | (33,414) | ||
| Consideration agreed | 580,060 | 79,632 | ||
| Goodwill arising from acquisition | 336,665 | 46,218 | ||
| Cash flows at acquisition | ||||
| Subsidiary's cash and cash equivalents | 74,056 | 10,167 | ||
| Amount paid | (580,060) | (79,632) | ||
| Net cash flows at acquisition | (506,004) | (69,465) |
The breakdown of the acquisition date fair value of the assets and liabilities is as follows:
Trade receivables amounted to €20.4 million and correspond to their fair value, which represents the value that is expected to be received from these receivables.
Recognised goodwill is attributable to the synergies and other economic benefits created by aggregating the
commercial activities and transactions of Asimco Meilian Braking Systems (Langfang) Co. Ltd. with those of the Group.
The intangible assets identified using the acquisition method are indicated in Note 2 and the respective fair value has been determined, initially provisionally to prepare the consolidated half-year report and now definitively, with the support of an external advisor, based on the methods commonly used for this purpose by international valuation practice (such as for example the multi-period excess earnings method, for Customer Relationships, and relief from royalty, for Technology and Trademark). The useful life of Customer Relationships was estimated at 15 years.
Transaction costs of €1.3 million (including €1.1 million in 2015) were charged to income under Consultancy and Legal expenses and are included in operating cash flows in the Statement of Cash Flows.
Sales generated by Asimco Meilian Braking Systems (Langfang) Co. Ltd. after the acquisition date amounted to €45,977 thousand and net income to €6,769 thousand.
Based on the IFRS8 definition, an operating segment is a component of an entity:
In light of such definition, the Brembo Group's operating segments are five Divisions/Business Units: Discs, Systems, Motorbikes, Performance Group, After Market.
Each Division/Business Unit Director reports to the top management and periodically discusses with them operating activities, financial statements results, forecasts or plans.
The Group thus aggregated the operating segments as follows for the purposes of financial reporting:
The segments that are included in each aggregate are similar in terms of:
Transfer prices applied to transactions between segments for the exchange of goods and services are settled according to usual market conditions.
In light of the requirements of IFRS 8 in terms of revenues earned from major customers, where a single customer is defined as all companies that belong to a given Group, Brembo had three customers in 2016 who accounted for over 10% of consolidated net revenues. None of the single car manufacturers comprising such groups exceeded this limit.
120
The following table shows segment information on sales of goods and services and results at 31 December 2016 and 31 December 2015:
| (euro thousand) 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 2,292,679 2,087,724 1,980,193 1,799,376 310,654 293,225 (3,239) (3,247) 5,071 Sales Allowances and discounts (28,124) (25,436) (6,649) (9,881) (21,472) (15,552) 0 0 (3) Net sales 2,264,555 2,062,288 1,973,544 1,789,495 289,182 277,673 (3,239) (3,247) 5,068 Transport costs 18,115 16,437 13,276 12,583 4,839 3,854 0 0 Variable production costs 1,433,489 1,330,733 1,244,123 1,158,305 185,652 177,079 (3,239) (3,247) 6,953 Contribution margin 812,951 715,118 716,145 618,607 98,691 96,740 0 0 (1,885) Fixed production costs 297,703 268,432 279,343 246,940 18,056 17,478 (6) (7) 310 Production gross operating income 515,248 446,686 436,802 371,667 80,635 79,262 6 7 (2,195) BU personnel costs 137,169 122,730 89,189 77,578 37,270 37,518 0 0 10,710 BU gross operating income 378,079 323,956 347,613 294,089 43,365 41,744 6 7 (12,905) Costs for Central Functions 80,636 72,509 63,232 53,939 8,829 10,421 0 0 8,575 Operating income (loss) 297,443 251,447 284,381 240,150 34,536 31,323 6 7 (21,480) Extraordinary costs and |
Non-segment data | |
|---|---|---|
| 31.12.2015 | ||
| (1,630) | ||
| (3) | ||
| (1,633) | ||
| 0 0 |
||
| (1,404) | ||
| (229) | ||
| 4,021 | ||
| (4,250) | ||
| 7,634 | ||
| (11,884) | ||
| 8,149 | ||
| (20,033) | ||
| revenues 19,310 (4,328) 0 0 0 0 0 0 19,310 |
(4,328) | |
| Financial costs and revenues (16,301) (9,248) 0 0 0 0 0 0 (16,301) |
(9,248) | |
| Interest income (expense) from investments 11,121 6,399 0 0 0 0 0 0 11,121 |
6,399 | |
| Non-operating costs and revenues 635 (771) 0 0 0 0 0 0 635 |
(771) | |
| Result before taxes 312,208 243,499 284,381 240,150 34,536 31,323 6 7 (6,715) |
(27,981) | |
| Taxes (69,213) (57,694) 0 0 0 0 0 0 (69,213) |
(57,694) | |
| Result before minority interests 242,995 185,805 284,381 240,150 34,536 31,323 6 7 (75,928) |
(85,675) | |
| Minority interests (2,363) (1,843) 0 0 0 0 0 0 (2,363) |
(1,843) | |
| Net result 240,632 183,962 284,381 240,150 34,536 31,323 6 7 (78,291) |
(87,518) |
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A reconciliation between the annual Consolidated Financial Statements and the above information is provided below:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| SALES OF GOODS AND SERVICES | 2,279,096 | 2,073,246 |
| Scrap sales (in the segment report they are subtracted from "Variable production costs") |
(12,578) | (14,057) |
| Capital gains on sale of equipment (in the Consolidated Financial Statements they are included in "Other revenues and income") |
539 | 490 |
| Effect of adjustment of transactions among consolidated companies | (1,057) | 670 |
| Miscellaneous recharges (in the Consolidated Financial Statements they are included in "Other revenues and income") |
1,229 | 2,777 |
| Other | (2,674) | (838) |
| NET SALES | 2,264,555 | 2,062,288 |
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| NET OPERATING INCOME | 327,464 | 251,282 |
| Differences in preparation criteria of internal and statutory reports | (16,238) | 9,135 |
| Income (expense) from non-financial investments | (11,010) | (9,391) |
| Claim compensation and subsidies | (4,340) | (728) |
| Capital gains/losses on disposal of assets (in the segment report they are included in "Non-operating costs and revenues") |
12 | (470) |
| Different classification of banking expenses (in the segment report it is included in "Financial costs and revenues") |
935 | 1,453 |
| Other | 620 | 166 |
| OPERATING RESULT | 297,443 | 251,447 |
The breakdown of Group sales by geographic area of destination and by application is provided in the Directors' Report on Operations.
Statement of Financial Position data at 31 December 2016 and 31 December 2015 are provided in the tables below:
| Total | Discs/Systems/Motorbikes | After Market / Performance Group |
Interdivision | Non-segment data | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (euro thousand) | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 |
| Property, plant and equipment | 747,301 | 589,777 | 698,363 | 548,779 | 32,057 | 34,706 | 5 | 33 | 16,876 | 6,259 |
| Intangible assets | 140,610 | 58,448 | 117,734 | 35,812 | 15,680 | 15,850 | 0 | 0 | 7,196 | 6,786 |
| Financial assets and other non current assets/liabilities |
60,719 | 70,146 | 0 | 341 | 0 | 0 | 0 | 0 | 60,719 | 69,805 |
| (a) Total fixed assets | 948,630 | 718,371 | 816,097 | 584,932 | 47,737 | 50,556 | 5 | 33 | 84,791 | 82,850 |
| Inventories | 283,206 | 247,316 | 205,107 | 178,528 | 78,099 | 68,889 | 0 | (101) | 0 | 0 |
| Current assets | 405,723 | 351,054 | 321,092 | 265,314 | 53,602 | 60,292 | (65,393) | (29,858) | 96,422 | 55,306 |
| Current liabilities | (547,208) | (474,014) | (449,966) (336,162) | (78,983) | (62,328) | 65,393 | 29,858 | (83,652) | (105,382) | |
| Provisions for contingencies and charges and other provisions |
(41,625) | (17,865) | 0 | 0 | 0 | 0 | 0 | 0 | (41,625) | (17,865) |
| (b) Net working capital | 100,096 | 106,491 | 76,233 | 107,680 | 52,718 | 66,853 | 0 | (101) | (28,855) | (67,941) |
| NET INVESTED OPERATING | ||||||||||
| CAPITAL (a+b) | 1,048,726 | 824,862 | 892,330 | 692,612 | 100,455 | 117,409 | 5 | (68) | 55,936 | 14,909 |
| Extraordinary components | 61,967 | 53,707 | 53 | 53 | 0 | 0 | 15,487 | 13,146 | 46,427 | 40,508 |
| NET INVESTED CAPITAL | 1,110,693 | 878,569 | 892,383 | 692,665 | 100,455 | 117,409 | 15,492 | 13,078 | 102,363 | 55,417 |
| Group equity | 857,913 | 681,852 | 0 | 0 | 0 | 0 | 0 | 0 | 857,913 | 681,852 |
| Minority interests | 24,397 | 5,695 | 0 | 0 | 0 | 0 | 0 | 0 | 24,397 | 5,695 |
| (d) Equity | 882,310 | 687,547 | 0 | 0 | 0 | 0 | 0 | 0 | 882,310 | 687,547 |
| (e) Provisions for employee benefits |
32,706 | 30,334 | 0 | 0 | 0 | 0 | 0 | 0 | 32,706 | 30,334 |
| Medium/long-term financial debt | 215,904 | 215,149 | 0 | 0 | 0 | 0 | 0 | 0 | 215,904 | 215,149 |
| Short-term financial debt | (20,227) | (54,461) | 0 | 0 | 0 | 0 | 0 | 0 | (20,227) | (54,461) |
| (f) Net financial debt | 195,677 | 160,688 | 0 | 0 | 0 | 0 | 0 | 0 | 195,677 | 160,688 |
| (g) COVERAGE (d+e+f) | 1,110,693 | 878,569 | 0 | 0 | 0 | 0 | 0 | 0 | 1,110,693 | 878,569 |
The following should be noted in regard to the non-segment data:
Developed over an area of about 30,000 square metres, the new cast-iron foundry in Michigan will provide about 250 new jobs. The construction of an integrated hub in Michigan confirms and reinforces Brembo's interest in the North American market.
The Brembo Group is exposed to market, commodity, liquidity and credit risk, all of which are tied to the use of financial instruments.
Financial risk management is the responsibility of the central Treasury & Credit Department of Brembo S.p.A., which, together with the Finance Department, evaluates the main financial transactions and related hedging policies.
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices resulting from shifts in exchange rates, interest rates and equity security prices.
Interest rate risk applies to variable-rate financial instruments recognised in the Statement of Financial Position (particularly short-term bank loans, other loans, leases, bonds, etc.) that are not hedged by other financial instruments.
Since most of the Brembo's financial debt is subject to variable interest rates, Brembo is exposed to the risk of interest-rate fluctuations.
Brembo enters into interest rate hedging agreements (mainly interest rate swaps) to ensure guaranteed interest rates on a portion of its debt that are sustainable in relation to the hedges.
A sensitivity analysis was performed to analyse the effects of a change in interest rates of +/- 50 base points compared to the rates at 31 December 2016 and 31 December 2015, with other variables held constant. The potential impacts were calculated on the variable-rate financial assets and liabilities at 31 December 2016. The above change in interest rates would result in a higher (or lower) annual pre-tax expense of approximately €729 thousand (€750 thousand at 31 December 2015), gross of the tax effect.
The average quarterly net financial debt was used to provide the most reliable information possible.
126
Brembo deals in international markets with currencies other than the euro and is therefore exposed to exchange rate risk.
To mitigate this risk, Brembo uses natural hedging (offsetting receivables and payables) and hedges only net positions in foreign currency, using mostly short-term financing denominated in the currency to be hedged, in order to offset any unbalances; currency forward contracts are also used to hedge this risk category.
A sensitivity analysis is provided below to illustrate the effects on pre-tax result arising on a positive (negative) change in exchange rates.
Starting with the exposures at 31 December 2015 and 2016, a change calculated as the standard deviation of the exchange rate with respect to the average exchange rate was applied to the average exchange rates for 2015 and 2016 to measure exchange rate volatility.
| 31.12.2016 | 31.12.2015 | |||||
|---|---|---|---|---|---|---|
| (euro thousand) | Change % | Effect increase of exchange rate |
Effect decrease of exchange rate |
Change % | Effect increase of exchange rate |
Effect decrease of exchange rate |
| EUR/CNY | 1.51% | (1.8) | 1.9 | 2.74% | (61.9) | 65.4 |
| EUR/GBP | 5.44% | (8.0) | 9.0 | 2.45% | 4.2 | (4.4) |
| EUR/JPY | 4.55% | (18.0) | 19.8 | 2.39% | 4.3 | (4.5) |
| EUR/PLN | 1.42% | (1.0) | 1.0 | 1.96% | (2.3) | 2.4 |
| EUR/SEK | 2.16% | 0.5 | (0.5) | 1.11% | (0.7) | 0.7 |
| EUR/USD | 2.26% | (47.2) | 49.3 | 2.59% | (52.5) | 55.3 |
| EUR/INR | 1.86% | 0.0 | 0.0 | 3.16% | (0.5) | 0.5 |
| EUR/CZK | 0.07% | 0.2 | (0.2) | 1.00% | 2.0 | (2.0) |
| EUR/CHF | 0.92% | 0.2 | (0.2) | 3.20% | 13.4 | (14.3) |
| EUR/AUD | 3.02% | 0.0 | 0.0 | 4.26% | 0.1 | (0.1) |
| PLN/CNY | 2.29% | 0.0 | 0.0 | 2.22% | (4.6) | 4.8 |
| PLN/EUR | 1.42% | 45.5 | (46.8) | 1.98% | (0.4) | 0.4 |
| PLN/GBP | 5.94% | 0.8 | (0.9) | 2.63% | 0.5 | (0.5) |
| PLN/SEK | 2.44% | 0.1 | (0.1) | 2.14% | 0.0 | 0.0 |
| PLN/USD | 3.13% | (23.4) | 25.0 | 2.73% | 5.3 | (5.6) |
| PLN/CZK | 1.40% | 0.3 | (0.3) | 2.36% | 0.2 | (0.2) |
| PLN/CHF | 1.71% | 0.7 | (0.7) | 2.68% | (2.2) | 2.3 |
| GBP/EUR | 5.43% | 7.4 | (8.3) | 2.40% | (2.5) | 2.7 |
| GBP/USD | 6.25% | 44.8 | (50.8) | 1.78% | (2.0) | 2.1 |
| GBP/AUD | 7.98% | (6.4) | 7.5 | 4.79% | (10.5) | 11.5 |
| USD/CNY | 2.00% | 2.9 | (3.0) | 1.41% | 1.1 | (1.1) |
| USD/EUR | 2.30% | 131.9 | (138.1) | 2.58% | 113.5 | (119.6) |
| USD/MXN | 4.98% | (115.0) | 127.1 | 5.10% | 36.0 | (39.9) |
| BRL/EUR | 7.88% | 114.3 | (133.8) | 12.10% | 124.0 | (158.2) |
| BRL/JPY | 5.07% | 0.6 | (0.7) | N/A | N/A | N/A |
| BRL/USD | 7.59% | (13.5) | 15.7 | 13.02% | 43.8 | (56.9) |
| JPY/EUR | 4.53% | 2.6 | (2.8) | 2.40% | 2.3 | (2.4) |
| JPY/USD | 5.24% | 3.2 | (3.5) | 1.68% | 0.3 | (0.4) |
| CNY/EUR | 1.52% | 195.4 | (201.5) | 2.75% | 178.6 | (188.7) |
| CNY/JPY | 5.73% | 7.1 | (8.0) | 2.14% | 1.1 | (1.2) |
| CNY/USD | 1.97% | (225.9) | 234.9 | 1.40% | (61.6) | 63.3 |
| INR/EUR | 1.88% | 9.4 | (9.8) | 3.19% | 19.5 | (20.8) |
| INR/JPY | 4.91% | 18.2 | (20.1) | 2.44% | (8.2) | 8.6 |
| INR/USD | 0.93% | 14.5 | (14.8) | 2.53% | 30.3 | (31.9) |
| CZK/EUR | 0.07% | 8.5 | (8.5) | 0.99% | 16.5 | (16.9) |
| CZK/GBP | 5.46% | 26.0 | (29.0) | 1.91% | 15.0 | (15.5) |
| CZK/PLN | 1.40% | 3.3 | (3.4) | 2.34% | 7.6 | (8.0) |
| CZK/USD | 2.26% | (2.4) | 2.5 | 2.27% | (49.4) | 51.7 |
| ARS/BRL | 11.07% | 102.3 | (127.8) | 9.80% | 47.3 | (57.5) |
| ARS/EUR | 3.94% | 16.9 | (18.3) | 6.67% | (50.3) | 57.5 |
| ARS/USD | 4.39% | 1.8 | (2.0) | 6.87% | 3.4 | (3.9) |
The Group is exposed to changes in prices of main raw materials and commodities. In 2016, no specific hedging transactions were undertaken. However, it should be recalled that existing contracts with major customers provide for automatic periodic adjustment on the basis of commodities prices.
Liquidity risk can arise from a company's inability to obtain the financial resources necessary to guarantee Brembo's operation.
To mitigate liquidity risk, the Treasury and Credit area:
The following table provides information on payables, other payables and derivatives broken down by maturity. The maturities are determined based on the period from the date of the Statement of Financial Position to the expiry of the contractual obligations. The amounts shown in the table reflect undiscounted cash flows.
For fixed- and variable-rate financial liabilities, both principal and interest were considered for the different maturity periods; for variable-rate liabilities, the rate at 31 December 2016 plus the relevant spread.
| (euro thousand) | Carrying value |
Contractual cash flows |
Within 1 year | From 1 to 5 years |
Beyond 5 years |
|---|---|---|---|---|---|
| Non-derivative financial liabilities: | |||||
| Short-term credit lines and bank overdrafts | 181,745 | 181,745 | 181,745 | 0 | 0 |
| Payables to banks (loans and bonds) | 254,506 | 263,741 | 47,202 | 216,539 | 0 |
| Payables to other financial institutions | 6,001 | 6,566 | 614 | 2,304 | 3,648 |
| Trade and other payables | 440,999 | 440,999 | 440,999 | 0 | 0 |
| Derivative financial liabilities: | |||||
| Derivatives | 0 | 0 | 0 | 0 | 0 |
| Total | 883,251 | 893,051 | 670,560 | 218,843 | 3,648 |
Some of the Group's loan agreements require the satisfaction of financial covenants and the obligation for the Group to meet certain financial ratio levels.
In detail, the following covenants and relevant maximum thresholds are to be complied with:
If the covenants are not met, the financial institutions can request early repayment of the relevant loan. The value of the covenants is monitored at the end of each quarter. At 31 December 2016 these ratios were amply met by the Group.
Management believes that currently available lines of credit, apart from the cash flow generated by current operations, will allow Brembo to meet its financial requirements arising from investing activities, working capital management, and the payment of payables at their natural maturities.
In further detail, at 31 December 2016, unused bank credit facilities were 63.02% (a total of €492 million in credit facilities were available).
Credit risk is the risk that a customer or one of the parties to a financial instrument will cause a financial loss by failing to perform an obligation. Exposure to credit risk for the Group arises mainly in relation to trade receivables. Most parties which the Group does business with are leadingcar and motorbike manufacturers with high credit standings.
The Group evaluates the creditworthiness of all new customers using assessments from external sources and then assigns a credit limit.
To complete the disclosure of financial risks, the following information is provided:
a) the fair value hierarchy for the Group's assets and liabilities:
| 31.12.2016 | 31.12.2015 | ||||||
|---|---|---|---|---|---|---|---|
| (euro thousand) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |
| Financial assets (liabilities) measured at fair value | |||||||
| Embedded derivative | 0 | 0 | 556 | 0 | 0 | 864 | |
| Total financial assets (liabilities) measured at fair value | 0 | 0 | 556 | 0 | 0 | 864 | |
| Assets (liabilities) for which fair value is indicated | |||||||
| Current and non-current payables to banks | 0 | (258,050) | 0 | 0 | (256,898) | 0 | |
| Other current and non-current financial liabilities | 0 | (3,405) | 0 | 0 | (4,307) | 0 | |
| Total assets (liabilities) for which fair value is indicated | 0 | (261,455) | 0 | 0 | (261,205) | 0 |
Movements for the year of Level 3 were as follows:
| (euro thousand) | 31.12.2016 |
|---|---|
| Balance at beginning of year | 864 |
| Movements in Statement of Income | (308) |
| Balance at end of year | 556 |
b) a reconciliation between the classes of financial assets and liabilities identified in the Group's Statement of Financial Position and the types of financial assets and liabilities identified based on the requirements of IFRS 7:
| Carrying value | Fair value | |||||
|---|---|---|---|---|---|---|
| (euro thousand) | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | ||
| Available-for-sale financial assets | 307 | 307 | 307 | 307 | ||
| Loans, receivables and financial liabilities valued at amortised costs |
||||||
| Current and non-current financial assets (excluding derivatives) | 6,925 | 11,274 | 6,925 | 11,274 | ||
| Trade receivables | 357,392 | 311,217 | 357,392 | 311,217 | ||
| Loans and receivables | 32,071 | 32,931 | 32,071 | 32,931 | ||
| Cash and cash equivalents | 245,674 | 202,104 | 245,674 | 202,104 | ||
| Current and non-current payables to banks | (436,251) | (359,284) | (444,793) | (367,385) | ||
| Other current and non-current financial liabilities | (6,001) | (4,322) | (6,001) | (4,322) | ||
| Trade payables | (428,530) | (349,941) | (428,530) | (349,941) | ||
| Other current payables | (102,400) | (106,917) | (102,400) | (106,917) | ||
| Other non-current liabilities | (8,653) | (1,026) | (8,653) | (1,026) | ||
| Derivatives | 556 | 864 | 556 | 864 | ||
| Total | (338,910) | (262,793) | (347,452) | (270,894) |
The approach used to calculate fair value is the present value of the future cash flows expected to derive from the instrument being measured, determined by discounting the scheduled instalments at a rate equal to the forward rate curve applicable to each account payable. In detail:
The Group carries out transactions with parent companies, subsidiaries, associates, joint ventures, directors, key management personnel and other related parties. The Parent Brembo S.p.A. is a subsidiary of Nuova FourB S.r.l., which holds 53.522% of its share capital. Brembo did not engage in dealings with its parent in 2016, except for the dividend distribution.
Information pertaining to the fees paid to Directors, Statutory Auditors and General Manager (position held by the Chief Executive Officer) of Brembo S.p.A. and of other Group companies and additional information required is reported below:
| 31.12.2016 | 31.12.2015 | |||
|---|---|---|---|---|
| (euro thousand) | Directors | Auditors | Directors | Auditors |
| Emoluments for the office held | 2,010 | 216 | 2,010 | 216 |
| Participation in committees and specific tasks | 100 | 0 | 100 | 0 |
| Salaries and other incentives | 4,701 | 0 | 5,699 | 0 |
The item "Salaries and other incentives" includes the estimate of the cost of the 2016-2018 three-year plan accrued in 2016 and reserved for company's top managers, compensation paid as salaries for the function of employee and provisions for bonuses still to be paid.
The following table provides a summary of related party transactions with reference to balances of the Statement of Financial Position and Statement of Income.
| (euro thousand) | 31.12. 2016 | 31.12.2015 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| RELATED PARTIES | RELATED PARTIES | |||||||||||
| a) Weight of transactions or positions with related parties on items of the Statement of Financial Position |
Carrying value |
Total | Other* | Joint ventures |
Associates | % | Carrying value | Total | Other* | Joint ventures |
Associates | % |
| Other financial assets (including investments in other companies and derivatives) |
6,887 | 5,676 | 0 | 0 | 5,676 | 82.4% | 11,631 | 9,710 | 0 | 0 | 9,710 | 83.5% |
| Inventories | 283,191 | 4 | 0 | 4 | 0 | 0.0% | 247,661 | 0 | 0 | 0 | 0 | 0.0% |
| Trade receivables | 357,392 | 2,711 | 812 | 1,833 | 66 | 0.8% | 311,217 | 3,302 | 1,144 | 2,081 | 77 | 1.1% |
| Other receivables and current assets |
43,830 | 7 | 7 | 0 | 0 | 0.0% | 36,386 | 0 | 0 | 0 | 0 | 0.0% |
| Cash and cash equivalents | 245,674 | 9,104 | 9,104 | 0 | 0 | 3.7% | 202,104 | 14,405 | 14,405 | 0 | 0 | 7.1% |
| Non-current payables to banks | (210,659) | (904) | (904) | 0 | 0 | 0.4% | (211,886) | (1,796) | (1,796) | 0 | 0 | 0.8% |
| Other non-current liabilities | (8,653) | (1,914) | (1,914) | 0 | 0 | 22.1% | (1,026) | 0 | 0 | 0 | 0 | 0.0% |
| Provisions for employee benefits | (32,706) | (7,397) | (7,397) | 0 | 0 | 22.6% | (30,334) | (7,627) | (7,627) | 0 | 0 | 25.1% |
| Current payables to banks | (225,592) | (41,474) | (41,474) | 0 | 0 | 18.4% | (147,398) | (16,878) | (16,878) | 0 | 0 | 11.5% |
| Trade payables | (428,530) | (7,868) | (2,274) | (5,273) | (321) | 1.8% | (349,941) | (9,740) | (1,380) | (8,099) | (261) | 2.8% |
| Other current payables | (102,400) | (2,460) | (2,333) | (127) | 0 | 2.4% | (106,917) | (11,980) | (11,853) | (127) | 0 | 11.2% |
| 31.12. 2016 | 31.12.2015 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| RELATED PARTIES | RELATED PARTIES | |||||||||||
| b) Weight of transactions or positions with related parties on items of the Statement of Income |
Carrying value |
Total | Other* | Joint ventures |
Associates | % | Carrying value | Total | Other* | Joint ventures |
Associates | % |
| Sales of goods and services | 2,279,096 | 5,002 | 4,567 | 434 | 1 | 0.2% | 2,073,246 | 5,110 | 4,652 | 446 | 12 | 0.2% |
| Other revenues and income | 28,117 | 3,230 | 26 | 3,040 | 164 | 11.5% | 13,759 | 3,369 | 123 | 3,085 | 161 | 24.5% |
| Raw materials, consumables and goods |
(1,125,968) | (81,037) | (174) | (80,156) | (707) | 7.2% | (1,053,804) | (74,762) | (221) | (74,010) | (531) | 7.1% |
| Other operating costs | (379,872) | (5,267) | (4,353) | (85) | (829) | 1.4% | (338,286) | (6,347) | (5,499) | (296) | (552) | 1.9% |
| Personnel expenses | (387,640) | (6,250) | (6,250) | 0 | 0 | 1.6% | (356,369) | (5,583) | (5,583) | 0 | 0 | 1.6% |
| Net interest income (expense) | (15,367) | (740) | (776) | 0 | 36 | 4.8% | (7,801) | (501) | (726) | (1) | 226 | 6.4% |
* Other related parties include key management personnel of the entity and other related parties.
Sales of products, supply of services and the transfers of fixed assets between Group companies were carried out at prices reflecting fair market conditions, as is customary. The trading volumes reflect the internationalisation process aimed at constantly improving both operating and organisational standards and optimising synergies within the company. From a financial standpoint, the company's subsidiaries operate independently, although some benefit from various forms of centralised financing. Since 2008, a zero-balance cash-pooling system has
132
been effective, with Brembo S.p.A. as the pool leader. In 2013, an additional cash pooling arrangement was put in place, denominated in CNY, with Brembo Nanjing Foundry Co. Ltd. as pooler and Brembo Nanjing Brake Systems Co. Ltd. and Qingdao Brembo Trading Co. Ltd. as participants. The cash pooling is entirely based in China, and Citibank Nanjing is the service provider.
The key figures of Group companies are commented upon in the section of the Directors' Report on Operations "Group Structure and Performance of Brembo companies".
| COMPANY HEADQUARTERS |
SHARE CAPITAL | STAKE HELD BY GROUP COMPANIES | ||||
|---|---|---|---|---|---|---|
| Brembo S.p.A. | Curno (Bergamo) | Italy | Eur | 34,727,914 | ||
| AP Racing Ltd. | Coventry | United Kingdom | Gbp | 135,935 | 100% | Brembo S.p.A. |
| Brembo Deutschland GmbH | Leinfelden Echterdingen |
Germany | Eur | 25,000 | 100% | Brembo S.p.A. |
| Brembo North America Inc. | Wilmington, Delaware |
USA | Usd | 33,798,805 | 100% | Brembo S.p.A. |
| Brembo Nanjing Foundry Co. Ltd. | Nanjing | China | Cny | 315,007,990 | 100% | Brembo S.p.A. |
| Brembo Czech S.r.o. | Ostrava-Hrabová | Czech Republic | Czk | 605,850,000 | 100% | Brembo S.p.A. |
| La.Cam (Lavorazioni Camune) S.r.l. | Stezzano (Bergamo) |
Italy | Eur | 100,000 | 100% | Brembo S.p.A. |
| Qingdao Brembo Trading Co. Ltd. | Qingdao | China | Cny | 1,365,700 | 100% | Brembo S.p.A. |
| Brembo Japan Co. Ltd. | Tokyo | Japan | Jpy | 11,000,000 | 100% | Brembo S.p.A. |
| Brembo Poland Spolka Zo.o. | Dabrowa Górnizca | Poland | Pln | 144,879,500 | 100% | Brembo S.p.A. |
| Brembo Scandinavia A.B. | Göteborg | Sweden | Sek | 4,500,000 | 100% | Brembo S.p.A. |
| Brembo Nanjing Brake Systems Co. Ltd. | Nanjing | China | Cny | 177,022,179 | 100% | Brembo S.p.A. |
| Brembo Russia L.L.C. | Moscow | Russia | Rub | 1,250,000 | 100% | Brembo S.p.A. |
| Brembo (Nanjing) Automobile Components Co. Ltd. |
Nanjing | China | Cny | 101,484,000 | 100% | Brembo S.p.A. |
| 98.62% | Brembo S.p.A. | |||||
| Brembo Argentina S.A. | Buenos Aires | Argentina | Ars | 62,802,000 | 1.38% | Brembo do Brasil Ltda. |
| Apodaca | Mexico | 49% | Brembo S.p.A. | |||
| Brembo México S.A. de C.V. | Usd | 20,428,836 | 51% | Brembo North America Inc. | ||
| Brembo Brake India Pvt. Ltd. | Pune | India | Inr | 140,000,000 | 99.99% | Brembo S.p.A. |
| Brembo do Brasil Ltda. | Betim | Brazil | Brl | 103,803,201 | 99.99% | Brembo S.p.A. |
| Corporación Upwards '98 S.A. | Saragoza | Spain | Eur | 498,043 | 68% | Brembo S.p.A. |
| Asimco Meilian Braking Systems (Langfang) Co. Ltd. |
Langfang | China | Cny | 170,549,133 | 66% | Brembo S.p.A. |
| Brembo SGL Carbon Ceramic Brakes S.p.A. | Stezzano (Bergamo) |
Italy | Eur | 4,000,000 | 50% | Brembo S.p.A. |
| Petroceramics S.p.A. | Milan | Italy | Eur | 123,750 | 20% | Brembo S.p.A. |
| Brembo SGL Carbon Ceramic Brakes GmbH Meitingen | Germany | Eur | 25,000 | 100% | Brembo SGL Carbon Ceramic Brakes S.p.A. |
Details on the fees paid to the independent audit firm and other companies within its network pursuant to Article 149-duodecies of the Implementation Rules of Italian Legislative Decree No. 58 of 24 February 1998 are provided below:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Independent Auditors' fees for the provision of audit services: | ||
| - to the Parent Brembo S.p.A. | 210 | 210 |
| - to the subsidiaries (services provided by the network) | 415 | 343 |
| Independent Auditors' fees for the provision of auditing services for issuing attestation: |
||
| - to the Parent Brembo S.p.A. | 8 | 36 |
| Independent Auditors' fees for the provision of other services: | ||
| - to the Parent Brembo S.p.A. | 3 | 0 |
| - to the subsidiaries (services provided by the network) | 14 | 75 |
| Fees of entities belonging to the Independent Auditors' network for the provision of services: |
||
| - to the Parent Brembo S.p.A. | 83 | 101 |
| - other services rendered to subsidiaries | 91 | 38 |
The Group had no commitments at the closing date of the 2016 Financial Statements.
Pursuant to Consob Notice No. 6064293 dated 28 July 2006, it is hereby specified that during 2016 the company has not carried out any atypical and/or unusual transactions, as defined by the said Notice.
No othersignificant events occurred after the end of 2016 and up to 3 March 2017.
The cast-iron foundry already operating in Dabrowa will be expanded by 22,000 square metres, to increase its casting capacity by 100,000 tonnes a year.
The changes in property, plant and equipment are shown in the table below and described in this section.
| (euro thousand) | Land | Buildings | Plant and machinery |
Industrial and commercial equipment |
Other assets | Assets in course of construction and payments on account |
Total |
|---|---|---|---|---|---|---|---|
| Historical cost | 24,538 | 203,315 | 776,023 | 186,126 | 36,019 | 28,270 | 1,254,291 |
| Accumulated depreciation | 0 | (62,595) | (468,418) | (152,207) | (28,854) | 0 | (712,074) |
| Write-down provision | 0 | (155) | (1,594) | (8) | 0 | (483) | (2,240) |
| Balance at 1 January 2015 | 24,538 | 140,565 | 306,011 | 33,911 | 7,165 | 27,787 | 539,977 |
| Changes: | |||||||
| Translation differences | 55 | 2,211 | 7,700 | 577 | 198 | 439 | 11,180 |
| Change in consolidation area | (559) | (2,035) | (1,001) | (965) | (69) | (150) | (4,779) |
| Reclassification | 228 | 1,987 | 15,109 | 1,187 | 359 | (18,820) | 50 |
| Acquisitions | 104 | 4,223 | 41,497 | 12,017 | 2,248 | 77,422 | 137,511 |
| Disposals | 0 | (1) | (1,375) | (202) | (26) | 0 | (1,604) |
| Other | 0 | 0 | (655) | 0 | 0 | 0 | (655) |
| Depreciation | 0 | (9,780) | (63,616) | (12,493) | (3,074) | 0 | (88,963) |
| Impairment losses | 0 | (2,738) | (201) | 1 | 0 | (2) | (2,940) |
| Total changes | (172) | (6,133) | (2,542) | 122 | (364) | 58,889 | 49,800 |
| Historical cost | 24,366 | 208,500 | 819,455 | 194,266 | 37,030 | 87,160 | 1,370,777 |
| Accumulated depreciation | 0 | (71,568) | (513,217) | (160,233) | (30,229) | 0 | (775,247) |
| Write-down provision | 0 | (2,500) | (2,769) | 0 | 0 | (484) | (5,753) |
| Balance at 1 January 2016 | 24,366 | 134,432 | 303,469 | 34,033 | 6,801 | 86,676 | 589,777 |
| Changes: | |||||||
| Translation differences | 65 | (1,803) | (2,024) | (336) | (2) | 1,214 | (2,886) |
| Change in consolidation area | 0 | 11,293 | 16,836 | 361 | 544 | 225 | 29,259 |
| Reclassification | (136) | 41,663 | 27,146 | (5,419) | 953 | (64,399) | (192) |
| Acquisitions | 3,681 | 28,713 | 129,649 | 14,964 | 3,031 | 51,393 | 231,431 |
| Disposals | (246) | 174 | (1,676) | (662) | (117) | (265) | (2,792) |
| Depreciation | 0 | (11,292) | (70,023) | (12,838) | (2,721) | 0 | (96,874) |
| Impairment losses | 0 | (458) | (310) | (19) | 0 | (4) | (791) |
| Total changes | 3,364 | 68,290 | 99,598 | (3,949) | 1,688 | (11,836) | 157,155 |
| Historical cost | 27,730 | 285,872 | 977,772 | 192,684 | 43,304 | 75,117 | 1,602,479 |
| Accumulated depreciation | 0 | (82,799) | (572,277) | (162,600) | (34,815) | 0 | (852,491) |
| Write-down provision | 0 | (351) | (2,428) | 0 | 0 | (277) | (3,056) |
| Balance at 31 December 2016 | 27,730 | 202,722 | 403,067 | 30,084 | 8,489 | 74,840 | 746,932 |
During 2016, investments in property, plant and equipment amounted to €231,431 thousand, including €51,393 thousand on assets in course of construction.
As already noted in the Report on Operations, the Group continued its international development programme. This involved significant investments in production plants, machinery and equipment in North America, Poland and China, as well as in Italy.
The change in the consolidation area amounted to €29,259 thousand and referred to the inclusion of Asimco Meilian Braking Systems (Langfang) Co. Ltd into the Group's consolidation area.
Net disposals amounted to €2,792 thousand and refer to the normal cycle of machinery replacement, as it becomes unusable in production processes.
Total depreciation charges for 2016 amounted to €96,874 thousand (€88,963 thousand in 2015).
The following is a breakdown by category of the net carrying value of owned assets and assets held under finance lease:
| 31.12.2016 | 31.12.2015 | |||
|---|---|---|---|---|
| (euro thousand) | Leased | Not leased | Leased | Not leased |
| Land | 0 | 27,730 | 0 | 24,366 |
| Buildings | 0 | 202,722 | 0 | 134,432 |
| Plant and machinery | 0 | 403,067 | 104 | 303,365 |
| Industrial and commercial equipment | 0 | 30,084 | 3 | 34,030 |
| Other assets | 222 | 8,267 | 274 | 6,527 |
| Assets in course of construction and payments on account | 0 | 74,840 | 0 | 86,676 |
| Total | 222 | 746,710 | 381 | 589,396 |
Dabrowa, Poland.
Movements in intangible assets are shown in the table below and described in this section.
| Development costs |
Goodwill | Intangible assets with indefinite useful lives |
Sub-total | Industrial patents and similar rights |
Other intangible assets |
Total other intangible assets |
Total | |
|---|---|---|---|---|---|---|---|---|
| (euro thousand) | A | B | A+B | C | D | C+D | ||
| Historical cost | 115,238 | 62,154 | 1,033 | 63,187 | 31,217 | 72,492 | 103,709 | 282,134 |
| Accumulated amortisation | (70,678) | 0 | 0 | 0 | (27,076) | (61,465) | (88,541) | (159,219) |
| Write-down provision | (855) | (22,395) | (3) | (22,398) | (504) | 0 | (504) | (23,757) |
| Balance at 1 January 2015 | 43,705 | 39,759 | 1,030 | 40,789 | 3,637 | 11,027 | 14,664 | 99,158 |
| Changes: | ||||||||
| Translation differences | 118 | 3,157 | 0 | 3,157 | 3 | 231 | 234 | 3,509 |
| Change in consolidation area | (4,260) | 0 | 0 | 0 | (531) | (2) | (533) | (4,793) |
| Reclassification | 0 | 0 | 0 | 0 | 20 | (63) | (43) | (43) |
| Acquisitions | 12,141 | 0 | 0 | 0 | 1,034 | 5,222 | 6,256 | 18,397 |
| Disposals | (177) | 0 | 0 | 0 | (26) | 0 | (26) | (203) |
| Amortisation | (9,689) | 0 | 0 | 0 | (1,232) | (4,819) | (6,051) | (15,740) |
| Impairment losses | (995) | 0 | 0 | 0 | 1 | 0 | 1 | (994) |
| Total changes | (2,862) | 3,157 | 0 | 3,157 | (731) | 569 | (162) | 133 |
| Historical cost | 119,162 | 57,038 | 1,033 | 58,071 | 29,849 | 71,964 | 101,813 | 279,046 |
| Accumulated amortisation | (77,931) | 0 | 0 | 0 | (26,439) | (60,368) | (86,807) | (164,738) |
| Write-down provision | (388) | (14,122) | (3) | (14,125) | (504) | 0 | (504) | (15,017) |
| Balance at 1 January 2016 | 40,843 | 42,916 | 1,030 | 43,946 | 2,906 | 11,596 | 14,502 | 99,291 |
| Changes: | ||||||||
| Translation differences | 14 | (1,680) | (3) | (1,683) | (8) | (146) | (154) | (1,823) |
| Change in consolidation area | 0 | 46,218 | 399 | 46,617 | 0 | 32,509 | 32,509 | 79,126 |
| Reclassification | 0 | 0 | 0 | 0 | 50 | 94 | 144 | 144 |
| Acquisitions | 19,067 | 0 | 0 | 0 | 1,464 | 11,608 | 13,072 | 32,139 |
| Disposals | 0 | 0 | 0 | 0 | (20) | (9) | (29) | (29) |
| Amortisation | (9,899) | 0 | 0 | 0 | (1,031) | (6,954) | (7,985) | (17,884) |
| Impairment losses | (701) | 0 | 0 | 0 | 0 | 0 | 0 | (701) |
| Total changes | 8,481 | 44,538 | 396 | 44,934 | 455 | 37,102 | 37,557 | 90,972 |
| Historical cost | 137,593 | 99,560 | 1,429 | 100,989 | 31,267 | 116,557 | 147,824 | 386,406 |
| Accumulated amortisation | (87,881) | 0 | 0 | 0 | (27,403) | (67,859) | (95,262) | (183,143) |
| Write-down provision | (388) | (12,106) | (3) | (12,109) | (503) | 0 | (503) | (13,000) |
| Balance at 31 December 2016 | 49,324 | 87,454 | 1,426 | 88,880 | 3,361 | 48,698 | 52,059 | 190,263 |
The item "Development costs" includes costs for development, internal and external, for a gross historical cost of €137,593 thousand. During the reporting year, this item changed due to higher costs incurred in 2016, for development orders received both during the year and in previous years, for which additional development costs were incurred; amortisation amounting to €9,899 thousand was recognised for development costs associated with products that have already entered into mass production.
The gross amount includes development activities for projects underway totalling €24,642 thousand. The total amount of costs for capitalised internal works charged to the Statement of Income in the item "Costs for capitalised internal works" during the year amounted to €18,971 thousand (€11,982 thousand in 2015).
Impairment losses totalled €701 thousand and are recognised in the Statement of Income under "Amortisation, depreciation and impairment losses." Impairment losses refer to development costs incurred mainly by the Parent, Brembo S.p.A., in relation to projects that, consistently with the desire of the customer or Brembo, were not completed or underwent changes in terms of their end destination.
The item "Goodwill" arose from the following business combinations:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Discs – Systems and Motorbikes: | ||
| Brembo North America Inc. (Hayes Lemmerz) | 16,193 | 15,678 |
| Brembo México S.A. de C.V. (Hayes Lemmerz) | 986 | 954 |
| China Systems (Brembo Nanjing Brake Systems Co. Ltd.) | 956 | 991 |
| Brembo Brake India Pvt. Ltd. | 9,198 | 9,143 |
| China Discs (acquisition of Asimco Meilian Braking Systems (Langfang) Co. Ltd.) | 45,991 | 0 |
| After Market — Performance Group: | ||
| Corporación Upwards '98 (Frenco S.A.) | 2,006 | 2,006 |
| Ap Racing Ltd. | 12,124 | 14,144 |
| Total | 87,454 | 42,916 |
The change compared to 31 December 2015 was mainly attributable both to the consideration paid for acquiring the 66% stake in Asimco Meilian Braking Systems (Langfang) Co. Ltd. and recognised under goodwill, and to the change in consolidation differences.
CGUs are typically identified as the business being acquired and therefore tested for impairment. If the asset being tested for impairment refers to businesses operating in multiple business lines, it is attributed to all business lines in existence at the date of acquisition; this approach is consistent with valuations carried out at the acquisition date, which are typically based on the estimated recoverable amount of the entire investment.
The main assumptions used to determine the value in use of other cash-generating units relate to the discount rate and growth rate. Specifically, calculations used cash-flow projections for the 2017-2019 period covered by the corporate business plans. Cash flows for subsequent years were extrapolated using a prudential steady 1-1.5% medium- to long-term growth rate, on a case by case basis. The Group's discount rate used was 7.4% (Group WACC), which reflected the current market assessments of the time value of money and the risks specific to the asset in question. The previously mentioned impairment tests did not indicate the need to recognise any impairment loss.
In the event of a change in the WACC from 7.4% to 7.9% and the growth rate from 1% to 0.5% (or from 1.5% to 1%), no previously unimpaired goodwill would have become impaired.
In the event of a sales volume decrease that, depending on the CGU reference market, has been estimated in the range from -5% to -20%, no previously unimpaired goodwill would have become impaired.
The changes in the WACC, growth rate and sales volumes described above are deemed reasonable. In this respect, only changes beyond reasonable levels would have resulted in impairment.
With regard to possible future effects of the Brexit referendum held in the United Kingdom, given the current
uncertainty as to how the United Kingdom is to leave the European Union (which will be subject to specific negotiations, expected to occur over a period of two years), Brembo has assessed the situation and verified that the effects will probably be very modest, one reason for which is that most exports to the United Kingdom are transacted in euros and dollars and the subsidiary operating in England generates approximately 61% of its turnover on exports. Nonetheless, the possible impact on the Group, including as regards impairment indicators, will be monitored in coming periods, taking account of any new information in this area that may be brought to light.
The item amounted to €1,030 thousand and consists of the trademark Villar, owned by the subsidiary Corporación Upwards '98 S.A. For information concerning impairment testing methods, the reader is referred to the above section relating to goodwill. The impairment tests did not detect any impairment losses. The change in the consolidation area arising from the acquisition of Asimco Meilian Braking Systems (Langfang) Co. Ltd. equal to €399 thousand refers to the value of the Trademark.
Acquisitions of "Other intangible assets" totalled €13,072 thousand and refer for €1,464 thousand to the filing of specific patents and trademarks, and for the remaining amount, consist mainly of the share of the investment for the year associated with the gradual implementation and development of new features regarding the new ERP (Enterprise Resource Planning) system within the Group and the acquisition of other IT applications.
The change in the consolidation area associated with the inclusion of Asimco Meilian Braking Systems (Langfang) Co. Ltd. amounted to €32,509 thousand and refers to the value attributed to Customer Relationship (€25,776 thousand), the value of Technology (€1,510 thousand) and the right to use the land (€5,049 thousand).
This item includes the Group's share of Equity in companies that are accounted for using the equity method. The following table shows all relevant movements:
| 31.12.2015 | Write-ups/ Write-downs |
Dividends | Other changes | 31.12.2016 | |
|---|---|---|---|---|---|
| Gruppo Brembo SGL Carbon Ceramic Brakes | 24,650 | 11,010 | (9,000) | (153) | 26,507 |
| Petroceramics S.r.l. | 349 | 111 | 0 | 2 | 462 |
| Total | 24,999 | 11,121 | (9,000) | (151) | 26,969 |
The impact on the Statement of Income of shareholdings valued using the equity method refers to two items: the first, "Income (expense) from non-financial investments", is attributable to the effect of the valuation of the BSCCB Group using the equity method, whilst the second, "Interest income (expense) from investments", refers to the valuation of associates using the equity method.
The following is a breakdown of the assets, liabilities, costs and revenues associated with companies under common control and associate companies.
| Brembo Group SGL Carbon Ceramic Brakes | |||||
|---|---|---|---|---|---|
| (euro thousand) | 31.12.2016 | 31.12.2015 | |||
| Sales of goods and services | 151,406 | 140,413 | |||
| Other revenues and income | 1,628 | 1,687 | |||
| Raw materials, consumables and goods | (49,661) | (44,842) | |||
| Other operating costs | (34,539) | (35,545) | |||
| Personnel expenses | (32,725) | (30,190) | |||
| GROSS OPERATING INCOME | 36,109 | 31,523 | |||
| Depreciation, amortisation and impairment losses | (4,688) | (4,671) | |||
| NET OPERATING INCOME | 31,421 | 26,852 | |||
| Net interest income (expense) | (128) | (88) | |||
| RESULT BEFORE TAXES | 31,293 | 26,764 | |||
| Taxes | (9,441) | (7,883) | |||
| NET RESULT FOR THE YEAR | 21,853 | 18,881 | |||
| % ownership | 50% | 50% | |||
| Other consolidation adjustments | 83 | (600) | |||
| GROUP NET RESULT | 11,010 | 8,841 | |||
| Property, plant, equipment and other equipment | 30,444 | 26,721 | |||
| Other intangible assets | 350 | 257 | |||
| Other financial assets (including investments in other companies and derivatives) | 131 | 131 | |||
| Deferred tax assets | 2,343 | 1,627 | |||
| TOTAL NON-CURRENT ASSETS | 33,268 | 28,736 | |||
| Inventories | 16,639 | 16,880 | |||
| Trade receivables | 8,190 | 13,909 | |||
| Other receivables and current assets | 2,758 | 2,209 | |||
| Current financial assets and derivatives | 0 | 1 | |||
| Cash and cash equivalents | 31,484 | 20,308 | |||
| TOTAL CURRENT ASSETS | 59,071 | 53,307 | |||
| TOTAL ASSETS | 92,339 | 82,043 | |||
| Share capital | 4,000 | 4,000 | |||
| Other reserves | 19,495 | 29,739 | |||
| Retained earnings/(losses) | 6,876 | (3,943) | |||
| Net result for the year | 21,853 | 18,881 | |||
| TOTAL EQUITY | 52,224 | 48,677 | |||
| Other non-current liabilities | 141 | 102 | |||
| Non-current provisions | 2,225 | 3,720 | |||
| Provisions for employee benefits | 3,412 | 2,943 | |||
| Deferred tax liabilities | 2 | 5 | |||
| TOTAL NON-CURRENT LIABILITIES | 5,780 | 6,770 | |||
| Current payables to banks | 2,323 | 0 | |||
| Trade payables | 18,354 | 16,853 | |||
| Tax payables | 7,123 | 4,127 | |||
| Provisions | 15 | 15 | |||
| Other current payables | 6,520 | 5,601 | |||
| TOTAL CURRENT LIABILITIES | 34,335 | 26,596 | |||
| TOTAL LIABILITIES | 40,115 | 33,366 | |||
| TOTAL EQUITY AND LIABILITIES | 92,339 | 82,043 | |||
| % ownership | 50% | 50% | |||
| Goodwill | 1,033 | 1,033 | |||
| Other consolidation adjustments | (638) | (722) | |||
| CARRYING VALUE OF GROUP SHAREHOLDING | 26,507 | 24,650 |
142
| Petroceramics S.p.A. | ||||||
|---|---|---|---|---|---|---|
| (euro thousand) | 31.12.2016 | 31.12.2015 | ||||
| Sales of goods and services | 2,439 | 1,594 | ||||
| NET RESULT FOR THE YEAR | 556 | 58 | ||||
| % ownership | 20% | 20% | ||||
| GROUP NET RESULT | 111 | 12 | ||||
| Total current assets | 2,993 | 2,667 | ||||
| Total non-current assets | 387 | 269 | ||||
| Total current liabilities | 927 | 1,088 | ||||
| Total non-current liabilities | 141 | 102 | ||||
| TOTAL EQUITY | 2,312 | 1,746 | ||||
| % ownership | 20% | 20% | ||||
| CARRYING VALUE OF GROUP SHAREHOLDING | 462 | 349 |
This item is broken down as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Shareholdings in other companies | 307 | 307 |
| Receivables from associates | 5,676 | 9,710 |
| Derivatives | 0 | 417 |
| Other | 904 | 1,197 |
| Total | 6,887 | 11,631 |
The item "Shareholdings in other companies" mainly includes the 10% interest in International Sport Automobile S.a.r.l., the 2.8% interest in E-novia S.r.l. and 1.20% interest in Fuji Co.
The item "Receivables from associates" includes the receivable deriving from the loan granted by Brembo S.p.A. to Innova Tecnologie S.r.l. in liquidazione, in which Brembo S.p.A. holds a 30% interest. The loan, the nominal amount of which is €9 million, was reduced to €5,676 thousand following the settlement agreement reached in June with the majority shareholder of Innova Tecnologie S.r.l. in liquidazione, Impresa Fratelli Rota Nodari S.p.A. and with Innova Tecnologie S.r.l. in liquidazione.
In short, this agreement, submitted to the approval of the Related Party Transactions Committee, provides for (i) the waiver by Brembo of a portion of the receivable for repayment of the loan (€3,203 thousand of principal and €266 thousand of interest); (ii) the calculation of interest for 2016 at the legal rate, i.e., €35 thousand; (iii) the payment by Innova Tecnologie S.r.l. in liquidazione to Brembo of a portion of the remaining receivable (€600 thousand); (iv) the payment of the residual portion of that receivable following the sale to third parties of the property owned by Innova Tecnologie S.r.l. in liquidazione in proportion to the company's net assets upon the completion of the liquidation procedure, without prejudice to the majority shareholder's liability for any deficit, up to a maximum amount already agreed upon between the parties; and (v) the immediate waiver by Innova Tecnologie S.r.l. in liquidazione and Impresa Fratelli Rota Nodari S.p.A. (against the return of a performance guarantee previously
issued to Brembo) of all claims against Brembo. Although including the receivable among "Non-current assets", it is deemed that there are no elements hindering the recovery of the residual value.
"Other" includes interest-free security deposits for utilities and car rental agreements.
This item is broken down as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 | |
|---|---|---|---|
| Receivables from others | 4,670 | 4,857 | |
| Income tax receivables | 91 | 226 | |
| Non-income tax receivables | 33 | 33 | |
| Total | 4,794 | 5,116 |
The item "Receivables from others" includes the amount related to contributions towards a client for the acquisition of a ten-year exclusive supply arrangement, which was released to the Statement of Income in accordance with the supply schedule for the client, which began in late 2014.
Tax receivables mostly refer to applications for tax refunds.
The net balance of deferred tax assets and liabilities is broken down as follows:
| Total | 26,069 | 42,551 |
|---|---|---|
| Deferred tax liabilities | (31,622) | (13,001) |
| Deferred tax assets | 57,691 | 55,552 |
| (euro thousand) | 31.12.2016 | 31.12.2015 |
Deferred tax assets and liabilities were generated mainly due to temporary differences for capital gains with deferred taxation, other income items subject to future deductions or taxation, tax loss carryforwards and other consolidation adjustments.
Movements for the year are reported in the following table:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Balance at beginning of year | 42,551 | 41,028 |
| Change in consolidation area | (9,678) | 293 |
| Deferred tax liabilities generated | (9,362) | (1,384) |
| Deferred tax assets generated | 24,081 | 21,696 |
| Use of deferred tax assets and liabilities | (20,481) | (16,713) |
| Exchange rate fluctuations | (1,595) | (779) |
| Reclassification | 0 | (301) |
| Tax rate changes | 0 | (682) |
| Other movements | 553 | (607) |
| Balance at end of year | 26,069 | 42,551 |
| Assets | Liabilities | Net | |||||
|---|---|---|---|---|---|---|---|
| (euro thousand) | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | |
| Property, plant, equipment and other equipment | 11,869 | 12,482 | 30,613 | 18,167 | (18,744) | (5,685) | |
| Development costs | 28 | 28 | 0 | 0 | 28 | 28 | |
| Goodwill and other assets with indefinite useful lives |
0 | 0 | 0 | 12 | 0 | (12) | |
| Other intangible assets | 96 | 87 | 9,022 | 1,960 | (8,926) | (1,873) | |
| Other financial assets | 147 | 0 | 0 | 0 | 147 | 0 | |
| Trade receivables | 7,456 | 4,004 | 53 | 141 | 7,403 | 3,863 | |
| Inventories | 11,829 | 10,269 | 0 | 72 | 11,829 | 10,197 | |
| Other receivables and current assets | 863 | 2 | 134 | 111 | 729 | (109) | |
| Other financial liabilities | 222 | 527 | 13 | 75 | 209 | 452 | |
| Provisions | 9,123 | 6,451 | 0 | 0 | 9,123 | 6,451 | |
| Provisions for employee benefits | 7,942 | 9,944 | 1,196 | 1,225 | 6,746 | 8,719 | |
| Trade payables | 7 | 437 | 0 | 3 | 7 | 434 | |
| Cash and cash equivalents | 10 | 10 | 0 | 0 | 10 | 10 | |
| Other liabilities | 7,458 | 4,549 | 2,055 | 0 | 5,403 | 4,549 | |
| Other | 13,569 | 12,804 | 2,100 | 1,903 | 11,469 | 10,901 | |
| Tax losses | 636 | 4,626 | 0 | 0 | 636 | 4,626 | |
| Compensation balance between deferred tax assets and liabilities |
(13,564) | (10,668) | (13,564) | (10,668) | 0 | 0 | |
| Total | 57,691 | 55,552 | 31,622 | 13,001 | 26,069 | 42,551 |
The nature of temporary differences that generated deferred tax assets and liabilities is detailed below:
The measurement of deferred tax assets was made by assessing the existence of the prerequisites for their future recovery based on updated strategic plans. In detail, it should be noted that the consolidated subsidiary Brembo Poland Spolka Zo.o. is located in a "special economic zone" and is entitled to deduct from 25% to 50% of its investments from its current taxes owed through 2026. At 31 December 2016, the company had used all the existing credit at 31 December 2015 and the credit accrued in 2016.
Brembo Czech Sro. has two tax incentive plans, one of CZK 355.2 million (expiring in 2018) and another of CZK 133.7 million (expiring in 2021), on which the company has recognised deferred tax assets of CZK422.1 million (of which CZK 87.3 million used in 2016). At 31 December 2016, the unrecognised potential future tax benefit amounted to CZK 66.85 million (approximately €2.5 million), inasmuch as there is no certain evidence, according to current forecasts, that such benefit may be used before it expires.
It must be pointed out that:
• at 31 December 2016, the timing differences between the parent's share of the net assets of the subsidiary, associate or investee company, including the book value of goodwill, and the value of the investment or shareholding (cost) (as indicated in §38 of IAS 12) amounted to €372 million and were considered to be permanently reinvested, since these funds are used to fund current transactions and future business growth in those countries in which the same subsidiary is based; as a result, no deferred tax liability has been recognised on the taxable portion of such differences.
A breakdown of net inventories, which is stated net of the inventory write-down provision, is shown below:
| (euro thousand) 31.12.2016 31.12.2015 Raw materials 109,322 98,906 Work in progress 57,339 48,549 Finished products 93,190 82,413 Goods in transit 23,340 17,793 Total |
||
|---|---|---|
| 283,191 | 247,661 | |
The movement in the item is due to the rise in the volume of the Group's business and €6,462 thousand represents the inclusion of Asimco Meilian Braking Systems (Langfang) Co. Ltd. within the Group's consolidation area.
Movements in the inventory write-down provision are reported in the following table:
| (euro thousand) | 31.12.2015 | Provisions | Use/ Release |
Exchange rate fluctuations |
Reclassification | Change in consolidation area |
31.12.2016 |
|---|---|---|---|---|---|---|---|
| Inventory write-down provision | 35,615 | 14,758 | (7,968) | (788) | 0 | 36 | 41,653 |
The inventory write-down provision is determined in order to align the cost of inventories to their estimated realisable value; the provision increased due to higher depreciation calculated on obsolete goods as a result of faster renewal of product ranges.
At 31 December 2016, the balance of trade receivables compared to the previous year was as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Trade receivables Receivables from associates and joint ventures |
355,493 1,899 |
309,059 2,158 |
| Total | 357,392 | 311,217 |
Trade receivables grew due to the increase in sales volumes, in addition to the change in the consolidation area (€20,351 thousand).
The bad debt risk is not concentrated in any one area, as the Group has a large number of clients spread across the various geographical areas in which it operates.
Trade receivables are stated net of the provision for bad debts, which amounted to €6,923 thousand. Movements in the provision are shown below:
| (euro thousand) | 31.12.2015 | Provisions | Use/ Release |
Exchange rate fluctuations |
31.12.2016 |
|---|---|---|---|---|---|
| Provision for bad debts | 6,110 | 3,358 | (2,541) | (4) | 6,923 |
The Brembo Group's maximum credit risk exposure is the book value of the gross financial assets recognised in the Statement of Financial Position net of any amounts offset in accordance with IAS 32 and impairment losses recognised in accordance with IAS 39.
Brembo has no credit insurance contracts; however, its business partners are leading car and motorbike manufacturers with high credit standing.
To express the creditworthiness of financial assets the Group has elected to distinguish between clients who are listed or not listed on the stock exchange. Listed clients are clients that are listed on a stock market, directly or indirectly controlled by a listed company or closely connected to listed companies.
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Listed clients | 259,947 | 174,518 |
| Unlisted clients | 104,368 | 142,809 |
| Total | 364,315 | 317,327 |
The following table provides details on past due trade receivables that have not been adjusted for impairment, broken down by maturity.
| (euro thousand) | 31.12.2016 | Write-down 2016 | 31.12.2015 | Write-down 2015 |
|---|---|---|---|---|
| Current | 240,027 | 2 | 155,922 | 39 |
| Expired up to 30 days | 1,944 | 0 | 2,244 | 79 |
| Expired by 30 to 60 days | 10,870 | 0 | 11,920 | 26 |
| Expired by over 60 days | 7,106 | 2,142 | 4,433 | 2,082 |
| Total | 259,947 | 2,144 | 174,518 | 2,226 |
| % Ratio of expired receivables not written down | ||||
| to total exposure | 6.8% | 9.4% | ||
| Total expired receivables, not written down | 17.778 | 16.409 |
| (euro thousand) | 31.12.2016 | Write-down 2016 | 31.12.2015 | Write-down 2015 |
|---|---|---|---|---|
| Current | 97,817 | 302 | 134,738 | 403 |
| Expired up to 30 days | 1,486 | 0 | 1,983 | 0 |
| Expired by 30 to 60 days | 998 | 0 | 2,329 | 195 |
| Expired by over 60 days | 4,067 | 4,477 | 3,760 | 3,286 |
| Total | 104,368 | 4,779 | 142,809 | 3,884 |
| % Ratio of expired receivables not written down | ||||
| to total exposure | 2.0% | 3.2% | ||
| Total expired receivables, not written down | 2.073 | 4.590 |
Expired receivables from listed clients mainly refer to leading car manufacturers, and almost all the related repayment plans were defined at the beginning of 2017.
With regard to the portion of expired receivables from unlisted clients, most of this amount has already been collected in the first months of 2017.
This item is broken down as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Income tax receivables | 16,462 | 8,345 |
| Non-income tax receivables | 13,203 | 16,862 |
| Other receivables | 14,165 | 11,179 |
| Total | 43,830 | 36,386 |
The item "Income tax receivables" includes the receivable recognised by the Parent in prior years in relation to the application of an IRES refund, concerning the non-deductibility for IRAP purposes of personnel expenses and other applications for IRES and IRAP redund for an overall amount of €4,948 thousand, besides the tax credit for research and development calculated pursuant to Ministerial Decree of 27 May 2015, totalling €3,746 thousand.
The item "Non-income tax receivables" primarily includes VAT receivables and a receivable for which a refund has been requested in connection with previous years.
This item is broken down as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Derivatives | 556 | 447 |
| Security deposits | 342 | 365 |
| Other receivables | 3 | 2 |
| Total | 901 | 814 |
Cash and cash equivalents include:
| Cash and cash equivalents from the Statement of Cash Flows | 63,929 | 111,817 |
|---|---|---|
| Payables to banks: overdrafts and foreign currency advances | (181,745) | (90,287) |
| Total cash and cash equivalents | 245,674 | 202,104 |
| Cash-in-hand and cash equivalents | 139 | 124 |
| Bank and postal accounts | 245,535 | 201,980 |
| (euro thousand) | 31.12.2016 | 31.12.2015 |
The amounts shown can be readily converted into cash and the risk of change in value is not considered material. It is deemed that the book value of cash and cash equivalents approximates the fair value at the reporting date.
The change in the item refer for €69,465 thousand to the consideration paid for acquiring Asimco Meilian Braking Systems (Langfang) Co. Ltd., net of the latter's net financial position.
It should be noted that, with regard to the amount recognised in the Statement of Cash Flows, interest paid in the year totalled €9,975 thousand (€12,531 thousand in 2015).
Group consolidated equity at 31 December 2016 increased by €176,061 thousand compared to 31 December 2015. Movements for the year are given in the relevant statement.
The subscribed share capital of the Parent is fully paid up and amounted to €34,728 thousand at 31 December 2016. It is divided into 66,784,450 ordinary shares.
The table below shows the composition of the share capital and a reconciliation of the number of shares outstanding at 31 December 2015 and 31 December 2016:
| (No. of shares) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Ordinary shares issued | 66,784,450 | 66,784,450 |
| Own shares | (1,747,000) | (1,747,000) |
| Total shares outstanding | 65,037,450 | 65,037,450 |
As part of Brembo's buy-back plan, in 2016 the Company neither purchased nor sold own shares.
The General Shareholders' Meeting of the Parent Brembo S.p.A. held on 21 April 2016 approved the Financial Statements for the financial year ended 31 December 2015, allocating the net income for 2015 amounting to €103,313 thousand as follows:
148
This item rose by €17,213 thousand due to minority interests (equal to 34%) in the newly acquired company Asimco Meilian Braking Systems (Langfang) Co. Ltd.
This item is broken down as follows:
| 31.12.2016 | 31.12.2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| (euro thousand) | Due within one year |
Due after one year |
Due within one year |
Due after one year |
||||
| Payables to banks: | ||||||||
| - Overdrafts and advances | 181,745 | 0 | 181,745 | 90,287 | 0 | 90,287 | ||
| - loans | 43,847 | 210,659 | 254,506 | 57,111 | 211,886 | 268,997 | ||
| Total | 225,592 | 210,659 | 436,251 | 147,398 | 211,886 | 359,284 | ||
| Payables to other financial institutions | 756 | 5,245 | 6,001 | 1,059 | 3,263 | 4,322 | ||
| Derivatives | 0 | 0 | 0 | 0 | 0 | 0 | ||
| Total | 756 | 5,245 | 6,001 | 1,059 | 3,263 | 4,322 |
The following table provides details on loans and amounts due to other financial institutions:
| Portion | Portion due | |||||
|---|---|---|---|---|---|---|
| (euro thousand) | Original amount |
Amount at 31.12.2015 |
Amount at 31.12.2016 |
due within one year |
between 1 and 5 years |
Portion due after 5 years |
| Payables to banks: | ||||||
| BNL loan (€50 million) | 50,000 | (150) | 42,761 | 14,232 | 28,529 | 0 |
| UBI loan (€25 million) | 25,000 | 5,019 | 0 | 0 | 0 | 0 |
| Banca Popolare di Sondrio loan (€25 million) | 25,000 | 9,367 | 3,124 | 3,124 | 0 | 0 |
| UBI loan (€30 million) | 30,000 | 9,355 | 1,874 | 1,874 | 0 | 0 |
| EIB R&D loan (€55 million) | 55,000 | 40,686 | 32,558 | 8,134 | 24,424 | 0 |
| Mediobanca loan (€130 million) | 130,000 | 129,537 | 129,643 | (101) | 129,744 | 0 |
| Unicredit NY loan (USD 40.3 million) | 37,101 | 36,989 | 25,494 | 12,774 | 12,720 | 0 |
| Citibank Shanghai loan (CNY 200 million) | 22,727 | 2,574 | 0 | 0 | 0 | 0 |
| Bank Handlowy loan (€40 million) | 40,000 | 4,444 | 0 | 0 | 0 | 0 |
| EIB loan (€30 million, New Foundry Project) | 30,000 | 22,862 | 19,052 | 3,810 | 15,242 | 0 |
| BNP CAPEX LINE (CNY 50 million) | 5,902 | 4,862 | 0 | 0 | 0 | 0 |
| Citibank Brazil loan (BRL 5 million) | 1,946 | 1,161 | 0 | 0 | 0 | 0 |
| Santander loan (BRL 15 million) | 4,657 | 2,291 | 0 | 0 | 0 | 0 |
| Total payables to banks | 457,333 | 268,997 | 254,506 | 43,847 | 210,659 | 0 |
| Payables to other financial institutions: | ||||||
| Production Activity Ministry Law 46/82 | ||||||
| (CCM Project) | 2,371 | 296 | 0 | 0 | 0 | 0 |
| Finlombarda MIUR loan | 275 | 229 | 166 | 65 | 101 | 0 |
| MIUR BBW loan | 2,443 | 1,565 | 1,241 | 337 | 904 | 0 |
| Ministerio Industria España | 3,237 | 2,070 | 1,907 | 263 | 1,052 | 592 |
| Renault Argentina S.A. loan | 797 | 147 | 91 | 91 | 0 | 0 |
| Langfang municipality loan | 7,558 | 0 | 2,596 | 0 | 0 | 2,596 |
| FINAME Brembo Do Brasil Ltda. loan | 433 | 9 | 0 | 0 | 0 | 0 |
| Payables for leases | 20 | 6 | 0 | 0 | 0 | 0 |
| Total payables to other financial institutions | 17,134 | 4,322 | 6,001 | 756 | 2,057 | 3,188 |
| TOTAL | 474,467 | 273,319 | 260,507 | 44,603 | 212,716 | 3,188 |
In 2016, Brembo S.p.A. used in full the loan granted in 2014 by BNL amounting to €50 million. Following acquisition of the interest in Asimco Meilian Braking Systems Co. Ltd., a loan from other lenders in CNY was included in the consolidation area (equivalent value at at 31 December 2016 amounting to €2.6 million).
It should be noted that several loans require compliance with certain financial covenants. At the reporting date, all of these covenants had been met. At 31 December 2016, there was no financial debt secured by collateral.
The following table provides a breakdown of the Group's debt from financial leases. Instalments are given by principal and interest due.
| 31.12.2016 | 31.12.2015 | |||||
|---|---|---|---|---|---|---|
| (euro thousand) | Instalment | Interest | Principal | Instalment | Interest | Principal |
| Within 1 year | 0 | 0 | 0 | 3 | 0 | 3 |
| Between 1 and 5 years | 0 | 0 | 0 | 3 | 0 | 3 |
| Beyond 5 years | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 0 | 0 | 0 | 6 | 0 | 6 |
The Group has outstanding commercial lease agreements for several of its production facilities and its headquarters. The company has concluded that all significant risks and rewards typical of the ownership of the assets have not been transferred to the Group on the basis of the contractual terms and conditions (for example, the contractual terms do not cover most of the economic life of the commercial property, or the present value of the minimum lease payments does not essentially correspond to the fair value of the asset). It follows that such contracts have been accounted for as operating leases.
The following table provides a breakdown of operating lease instalments:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Within 1 year | 25,186 | 21,727 |
| Between 1 and 5 years | 72,732 | 75,423 |
| Beyond 5 years | 75,726 | 107,977 |
| Total | 173,644 | 205,127 |
The following table shows the structure of debt towards other lenders and loans, broken down by annual interest rate and currency:
| 31.12.2016 | 31.12.2015 | |||||
|---|---|---|---|---|---|---|
| (euro thousand) | Fixed rate | Variable rate | Total | Fixed rate | Variable rate | Total |
| Euro | 68,136 | 164,191 | 232,327 | 68,929 | 156,351 | 225,280 |
| US Dollar | 0 | 25,493 | 25,493 | 0 | 36,989 | 36,989 |
| Chinese Renminbi | 2,596 | 0 | 2,596 | 0 | 7,436 | 7,436 |
| Argentine Peso | 91 | 0 | 91 | 147 | 0 | 147 |
| Japanese Yen | 0 | 0 | 0 | 6 | 0 | 6 |
| Brazil Real | 0 | 0 | 0 | 1,170 | 2,291 | 3,461 |
| Total | 70,823 | 189,684 | 260,507 | 70,252 | 203,067 | 273,319 |
The average variable rate applicable to the Group's debt is 1.26% and the average fixed rate is 1.67%.
The following table shows the breakdown of the net financial position at 31 December 2016 (€195,677 thousand), and at 31 December 2015 (€160,688 thousand) based on the layout prescribed by Consob Communication No. 6064293 of 28 July 2006:
| (euro thousand) | 31.12.2016 | 31.12.2015 | |
|---|---|---|---|
| A | Cash | 139 | 124 |
| B | Other cash equivalents | 245,535 | 201,980 |
| C | Derivatives and securities held for trading | 556 | 447 |
| D | LIQUIDITY (A+B+C) | 246,230 | 202,551 |
| E | Current financial receivables | 345 | 367 |
| F | Current payables to banks | 181,745 | 90,287 |
| G | Current portion of non-current debt | 43,847 | 57,111 |
| H | Other current financial debts and derivatives | 756 | 1,059 |
| I | CURRENT FINANCIAL DEBT (F+G+H) | 226,348 | 148,457 |
| J | NET CURRENT FINANCIAL DEBT (I–E–D) | (20,227) | (54,461) |
| K | Non-current payables to banks | 210,659 | 211,886 |
| L | Bonds issued | 0 | 0 |
| M | Other non-current financial debts and derivatives | 5,245 | 3,263 |
| N | NON-CURRENT FINANCIAL DEBT (K+L+M) | 215,904 | 215,149 |
| O | NET FINANCIAL DEBT (J+N) | 195,677 | 160,688 |
The various components that gave rise to the change in net financial position during the current year are presented in the Statement of Cash Flows in the Report on Operations.
This item is broken down as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Social security payables | 1,439 | 28 |
| Payables to employees | 6,983 | 992 |
| Other payables | 231 | 6 |
| Total | 8,653 | 1,026 |
The changes in the items "Payables to employees", "Social security payables" and "Other payables" primarily consisted of the liability associated with the 2016-2018 three-year incentive plan reserved for top managers, to be settled in 2019.
It will be operational by the end of 2017, with a casting capacity of about 100,000 tonnes a year.
This item is broken down as follows:
| (euro thousand) | 31.12.2015 | Provisions | Use/ Release |
Exchange rate fluctuations |
Change in consolidation area |
Reclassification | 31.12.2016 |
|---|---|---|---|---|---|---|---|
| Provisions for contingencies and charges |
7,571 | 1,156 | (1,257) | 353 | 0 | 51 | 7,874 |
| Provision for product warranties | 10,553 | 9,169 | (3,334) | (140) | 92 | 0 | 16,340 |
| Total | 18,124 | 10,325 | (4,591) | 213 | 92 | 51 | 24,214 |
| of which short-term | 2,830 | 2,547 |
Provisions totalled €24,214 thousand, including product warranties, supplemental customer indemnities — in connection with the Italian agency contract — and the valuation of risks related to litigation underway, as well as an estimate of liabilities that could arise as a result of tax litigation underway.
Group companies provide post-employment benefits through defined contribution plans or defined benefit plans. In the case of defined contribution plans, the Group companies pay contributions to public or private insurance institutes based on legal or contractual obligations or on a voluntary basis. Once such contributions have been paid, the companies have no further payment obligations.
The employees of the UK subsidiary AP Racing Ltd. have the benefit of a corporate pension plan (AP Racing Pension Scheme), which is made up of two sections: the first is a defined contribution plan for employees hired after 1 April 2001, and the second is a defined benefit plan for those already in service at 1 April 2001 (and previously covered by the AP Group Pension Fund). The defined benefit plan is funded by employer and employee contributions made to a trustee that is legally separate from the enterprise providing benefits to its employees.
Following the consolidation of Asimco Meilian Braking Systems (Langfang) Co. Ltd., a plan valued at €2,420 thousand was added to the defined contribution plans. This relates to about 1,000 retired employees who are guaranteed payment of benefits until they reach the age of 85 and about 100 early retired employees who have guaranteed monthly payments until they reach pension age.
Brembo México S.A. de C.V., Brembo Japan Co. Ltd. and Brembo Brake India Pvt. Ltd. offer to their employees specific pension plans that qualify as a defined benefit plan.
Unfunded defined benefit plans include also the "Employees' leaving entitlement" provided by the Group's Italian companies, in accordance with current applicable regulations.
The value of defined benefit plans is calculated on an actuarial basis using the "Projected Unit Credit Method". The item "Other employee provisions" also refers to other employee benefits.
| (euro thousand) | 31.12.2015 | Change in consolidation area |
Provisions | Use/ Release |
Interest expense |
Exchange rate fluctuations |
Other | 31.12.2016 |
|---|---|---|---|---|---|---|---|---|
| Employees' leaving entitlement | 20,511 | 0 | 0 | (878) | 421 | 0 | 1,492 | 21,546 |
| Defined-benefit plans and other long-term benefits |
8,973 | 0 | 245 | (635) | 329 | (1,145) | 1,117 | 8,884 |
| Defined contribution plans | 850 | 2,420 | 1,690 | (1,974) | 0 | (44) | (666) | 2,276 |
| Total | 30,334 | 2,420 | 1,935 | (3,487) | 750 | (1,189) | 1,943 | 32,706 |
Liabilities at 31 December 2016 are given in the table below:
| Unfunded Plan (Employee's leaving entitlement) |
Funded Plan (Ap Racing plan) |
Brembo México plan |
Brembo Brake India plan |
Brembo Japan plan |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (euro thousand) | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 |
| A. Change in defined benefit obligation |
||||||||||
| 1. Defined benefit obligation at the end of prior year |
20,511 | 22,588 | 36,671 | 35,302 | 697 | 580 | 634 | 535 | 238 | 189 |
| 2. Service cost: | ||||||||||
| Current service cost | 0 | 0 | 0 | 0 | 130 | 76 | 94 | 108 | 50 | 28 |
| Past service cost | 0 | 0 | 0 | 0 | (29) | 0 | 0 | 0 | 0 | 0 |
| 3. Interest expense | 421 | 393 | 1,247 | 1,387 | 44 | 41 | 46 | 54 | 2 | 3 |
| 4. Cash flows: | ||||||||||
| Benefit payments from plan | 0 | 0 | (973) | (769) | 0 | 0 | (28) | (2) | 0 | 0 |
| Benefit payments from employer |
(878) | (1,095) | 0 | 0 | (33) | (6) | (34) | (9) | (2) | (2) |
| Other significant events | ||||||||||
| Increase (decrease) due to business combinations/ acquisitions/disposals |
0 | (229) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 6. Remeasurements: | ||||||||||
| Effects of changes in demographic assumptions |
0 | 0 | (794) | 0 | 0 | (5) | 0 | 0 | 0 | 0 |
| Effects of changes in financial assumptions |
1,492 | (1,146) | 8,739 | (996) | (111) | 0 | 37 | (40) | 0 | 0 |
| Effects of experience adjustments (changes occurred since the previous measurement not in line with assumptions) |
0 | 0 | (2,061) | (416) | 48 | 50 | (6) | (46) | 0 | 0 |
| 7. Effect of changes in foreign exchange rates |
0 | 0 | (5,248) | 2,163 | (98) | (39) | 6 | 34 | 14 | 20 |
| 8. Defined benefit obligations at end of year |
21,546 | 20,511 | 37,581 | 36,671 | 648 | 697 | 749 | 634 | 302 | 238 |
| Unfunded Plan (Employee's leaving entitlement) |
Funded Plan (Ap Racing plan) |
Brembo México plan |
Brembo Brake India plan |
Brembo Japan plan |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (euro thousand) | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | |
| B. Change in fair value of plan assets |
|||||||||||
| 1. Fair value of plan assets at the end of prior year |
0 | 0 | 29,089 | 27,210 | 0 | 0 | 178 | 83 | 0 | 0 | |
| 2. Financial Income | 0 | 0 | 996 | 1,078 | 0 | 0 | 12 | 11 | 0 | 0 | |
| 3. Cash flows: | |||||||||||
| Employer contributions | 0 | 0 | 569 | 625 | 0 | 0 | 3 | 97 | 0 | 0 | |
| Employer direct benefit payments |
878 | 1,095 | 0 | 0 | 33 | 6 | 34 | 9 | 0 | 0 | |
| Benefit payments from plan | 0 | 0 | (973) | (769) | 0 | 0 | (28) | (2) | 0 | 0 | |
| Benefit payments from employer |
(878) | (1,095) | 0 | 0 | (33) | (6) | (34) | (9) | 0 | 0 | |
| 4. Other significant events | |||||||||||
| 5. Remeasurements: | |||||||||||
| Return on plan assets (excluding interest income) |
0 | 0 | 4,727 | (719) | 0 | 0 | 1 | (15) | 0 | 0 | |
| 6. Effect of changes in foreign exchange rates |
0 | 0 | (4,179) | 1,664 | 0 | 0 | 1 | 4 | 0 | 0 | |
| 7. Fair value of plan assets at end of year |
0 | 0 | 30,229 | 29,089 | 0 | 0 | 167 | 178 | 0 | 0 | |
| E. Amounts recognised in the Statement of Financial Position |
|||||||||||
| 1. Defined benefit obligation | 21,546 | 20,511 | 37,581 | 36,671 | 648 | 697 | 749 | 634 | 302 | 238 | |
| 2. Fair value of plan assets | 0 | 0 | 30,229 | 29,089 | 0 | 0 | 167 | 178 | 0 | 0 | |
| 3. Funded status | 21,546 | 20,511 | 7,352 | 7,582 | 648 | 697 | 582 | 456 | 302 | 238 | |
| 5. Net liability (asset) | 21,546 | 20,511 | 7,352 | 7,582 | 648 | 697 | 582 | 456 | 302 | 238 |
| Unfunded Plan (Employee's leaving entitlement) |
Funded Plan Brembo México Brembo Brake India (Ap Racing plan) plan plan |
Brembo Japan plan |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (euro thousand) | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | |
| F. | Components of defined benefit cost |
||||||||||
| 1. Service cost: | |||||||||||
| Current service cost | 0 | 0 | 0 | 0 | 130 | 76 | 94 | 108 | 50 | 28 | |
| Past service cost | 0 | 0 | 0 | 0 | (29) | 0 | 0 | 0 | 2 | 0 | |
| Total service costs | 0 | 0 | 0 | 0 | 101 | 76 | 94 | 108 | 52 | 28 | |
| 2. Net interest expense: | |||||||||||
| Interest expense on DBO | 421 | 393 | 1,247 | 1,387 | 44 | 41 | 46 | 54 | 0 | 2 | |
| Interest (income) on plan assets |
0 | 0 | (996) | (1,078) | 0 | 0 | (12) | (11) | 0 | 0 | |
| Total net interest expense | 421 | 393 | 251 | 309 | 44 | 41 | 34 | 43 | 0 | 2 | |
| 3. Remeasurement on other long-term benefits |
0 | 0 | 0 | 0 | 0 | 0 | 6 | (79) | 0 | 0 | |
| 5. Defined benefit cost included in P&L |
421 | 393 | 251 | 309 | 145 | 117 | 134 | 72 | 52 | 30 | |
| 6. Remeasurements (recognised in Other Comprehensive Income): |
|||||||||||
| Effects of changes in demographic assumptions |
0 | 0 | (794) | 0 | 0 | (5) | 0 | 0 | 0 | 0 | |
| Effects of changes in financial assumptions |
1,492 | (1,146) | 8,739 | (996) | (111) | 0 | 30 | (21) | 0 | 0 | |
| Effects of experience adjustments (changes occurred since the previous measurement not in line with assumptions) |
0 | 0 | (2,061) | (416) | 48 | 50 | (6) | 14 | 0 | 0 | |
| Return on plan assets (excluding interest income) |
0 | 0 | (4,727) | 719 | 0 | 0 | (1) | 15 | 0 | 0 | |
| Total remeasurements included in OCI |
1,492 | (1,146) | 1,157 | (693) | (63) | 45 | 23 | 8 | 0 | 0 | |
| 7. Total defined benefit cost recognised in P&L and OCI |
1,913 | (753) | 1,408 | (384) | 82 | 162 | 157 | 80 | 52 | 30 |
| Unfunded Plan (Employee's leaving entitlement) |
Funded Plan (Ap Racing plan) |
Brembo México plan |
Brembo Brake India plan |
Brembo Japan plan |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (euro thousand) | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 |
| G. Net defined benefit liability (asset) reconciliation |
||||||||||
| (asset) | 20,511 | 22,588 | 7,582 | 8,092 | 697 | 580 | 456 | 452 | 238 | 189 |
| in P&L | 421 | 393 | 251 | 309 | 145 | 117 | 134 | 72 | 52 | 31 |
| included in OCI | 1,492 | (1,146) | 1,157 | (693) | (63) | 45 | 23 | 8 | 0 | 0 |
| Net transfers (including the effects of business combinations/disposals) |
0 | (229) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Employer contributions | 0 | 0 | (569) | (625) | 0 | 0 | (3) | (97) | 0 | 0 |
| Employer direct benefit payments |
(878) | (1,095) | 0 | 0 | (33) | (6) | (34) | (9) | (2) | (2) |
| exchange rates | 0 | 0 | (1,069) | 499 | (98) | (39) | 8 | 30 | 14 | 20 |
| liability (asset) at the end | 238 | |||||||||
| 0 | ||||||||||
| 0 | ||||||||||
| 0 | ||||||||||
| Total | 21,546 | 20,511 | ||||||||
| 37,581 | 36,672 | 648 | 697 | 751 | 633 | 0 | 0 | |||
| Plan assets | ||||||||||
| 1. Fair value of plan assets | ||||||||||
| Cash and cash equivalents | 0 | 0 | 51 | 10 | 0 | 0 | 0 | 0 | 0 | 0 |
| Equity instruments | 0 | 0 | 17,631 | 17,182 | 0 | 0 | 0 | 0 | 0 | 0 |
| Debt instruments | 0 | 0 | 12,549 | 11,899 | 0 | 0 | 0 | 0 | 0 | 0 |
| Assets held by insurance company |
0 | 0 | 0 | 0 | 0 | 0 | 167 | 177 | 0 | 0 |
| Total | 0 | 0 | 30,231 | 29,091 | 0 | 0 | 167 | 177 | 0 | 0 |
| 2. Fair value of assets that have quoted market prices |
||||||||||
| Cash and cash equivalents | 0 | 0 | 51 | 10 | 0 | 0 | 0 | 0 | 0 | 0 |
| Equity instruments | 0 | 0 | 17,631 | 17,182 | 0 | 0 | 0 | 0 | 0 | 0 |
| Debt instruments | 0 | 0 | 12,549 | 11,899 | 0 | 0 | 0 | 0 | 0 | 0 |
| 1. Net defined benefit liability 2. Defined benefit cost included 3. Total remeasurements 4. Other significant events 5. Cash flows: 7. Effect of changes in foreign 8. Net defined benefit of year H. Defined benefit obligation 1. Defined benefit obligation by participant status Actives Vested deferred Retirees |
21,546 21,546 0 0 |
20,511 20,511 0 0 |
7,352 0 22,626 14,955 |
7,582 0 22,991 13,681 |
648 648 0 0 |
697 697 0 0 |
584 751 0 0 |
456 633 0 0 |
302 0 0 0 |
| Unfunded Plan (Employee's leaving entitlement) |
Funded Plan (Ap Racing plan) |
Brembo México plan |
Brembo Brake India plan |
Brembo Japan plan |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (euro thousand) | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | |
| J. Significant actuarial assumptions |
|||||||||||
| Weighted-average assumptions to determine benefit obligations |
|||||||||||
| 1. Discount rate | 1.50% | 2.10% | 2.70% | 3.85% | 8.25% | 7.00% | 6.90% | 7.75% | 0.60% | 0.85% | |
| 2. Rate of salary increase | 0.00% | 0.00% | N/A | N/A | 4.50% | 4.50% | 9.50% | 9.50% | N/A | N/A | |
| 3. Rate of price inflation | 0.00% | 0.00% | 3.50% | 3.30% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | |
| 4. Rate of expected salary increases |
1.50% | 1.50% | 3.50% | 3.30% | 3.50% | 3.50% | 0.00% | 0.00% | 2.50% | 2.00% | |
| Weighted-average assumptions to determine defined benefit cost |
|||||||||||
| 1. Discount rate | 2.10% | 1.80% | 3.85% | 3.70% | 7.00% | 7.00% | 7.75% | 8.00% | N/A | N/A | |
| 2. Rate of salary increase | 0.00% | 0.00% | N/A | N/A | 4.50% | 4.50% | 9.50% | 11.00% | N/A | N/A | |
| 3. Rate of price inflation | 0.00% | 0.00% | 3.30% | 3.20% | 0.00% | 0.00% | 0.00% | 0.00% | N/A | N/A | |
| 4. Rate of expected salary increases |
1.50% | 1.75% | 3.30% | 3.20% | 3.50% | 3.50% | 0.00% | 0.00% | N/A | N/A |
By applying a uniform change in the discount rate by ± 25 basis points, the consolidated liabilities would have been respectively lower/higher by approximately €2.5 million compared to the base liabilities value of €60.5 million. The average duration of the plans is 16.68 years.
Dabrowa, Poland.
At 31 December 2016, trade payables were as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Trade payables | 422,936 | 341,581 |
| Payables to associates and joint ventures | 5,594 | 8,360 |
| Total | 428,530 | 349,941 |
The increase in this item is due primarily to the rise in the level of investments and the normal business activities during the year, as well as the change in the consolidation area amounting to €24,538 thousand.
This item reflects the net amount due for the current taxes of the Group's companies.
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Tax payables | 11,837 | 14,052 |
Other current payables at 31 December 2016 are given in the table below:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Tax payables other than current taxes | 8,997 | 8,636 |
| Social security payables | 16,948 | 18,945 |
| Payables to employees | 46,474 | 52,234 |
| Other payables | 29,981 | 27,102 |
| Total | 102,400 | 106,917 |
The movement in "Payables to employees", "Social security payables" and "Other payables" relates primarily to the payment made in may for the liability regarding the 2013-2015 three-year incentive plan reserved for the company's top managers.
The item "Other payables" also includes deferred income for a public grant received by Brembo Poland released to profit or loss in accordance with the related amortisation plans to which it refers.
Breakdown of sales of goods and services was as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Italy | 256,646 | 247,652 |
| Abroad | 2,022,450 | 1,825,594 |
| Total | 2,279,096 | 2,073,246 |
The breakdown of Group sales by geographic area of destination and by application is provided in the Directors' Report on Operations.
These are made up of:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Miscellaneous recharges | 6,626 | 6,365 |
| Gains on disposal of assets | 1,767 | 1,058 |
| Miscellaneous grants | 6,952 | 2,217 |
| Other revenues | 12,772 | 4,119 |
| Total | 28,117 | 13,759 |
The item "Miscellaneous grants" includes grants for research and development projects amounting to €1,866 thousand and a tax credit for research and development investment of €3,746 thousand, already discussed in note 9.
"Other revenues" include an insurance refund for €7,816 thousand for the flooding caused by the Yun Tai Shan river around Nanjing, where Brembo has two production sites including a cast-iron foundry, mechanical processing and disc, drum and caliper assembly.
This item refers to the capitalisation of development costs incurred during the year, amounting to €18,971 thousand €11,982 thousand in 2015).
The item is broken down as follows:
| Total | 1,125,968 | 1,053,804 |
|---|---|---|
| Purchase of consumables | 97,641 | 95,142 |
| Purchase of raw materials, semi-finished and finished products | 1,028,327 | 958,662 |
| (euro thousand) | 31.12.2016 | 31.12.2015 |
Income (expense) from non-financial investments amounted to €11,010 thousand, attributable to the result of the valuation using the equity method of the BSCCB Group (€8,841 thousand, plus €550 thousand relating to the disposal of Sabelt S.p.A. and Belt & Buckle S.r.o, in 2015).
These costs are broken down as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Transports | 54,681 | 55,485 |
| Maintenance, repairs and utilities | 104,123 | 88,858 |
| Contracted work | 73,891 | 66,389 |
| Rent | 35,628 | 29,830 |
| Other operating costs | 111,549 | 97,724 |
| Total | 379,872 | 338,286 |
This item mainly includes the costs of travels, quality-related costs, insurance costs, as well as fees for legal, technical and commercial consulting.
Breakdown of personnel expenses is as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Wages and salaries | 280,720 | 255,180 |
| Social security contributions | 59,002 | 57,459 |
| Employees' leaving entitlement and other personnel provisions | 11,927 | 10,751 |
| Other costs | 35,991 | 32,979 |
| Total | 387,640 | 356,369 |
The average number and the year-end number of Group employees by category were as follows:
| Managers | White-collar | Blue-collar | Total | |
|---|---|---|---|---|
| 2016 average | 125 | 2,609 | 5,914 | 8,648 |
| 2015 average | 111 | 2,392 | 5,337 | 7,840 |
| Change | 14 | 217 | 577 | 808 |
| Total at 31.12.16 | 129 | 2,693 | 6,220 | 9,042 |
| Total at 31.12.15 | 112 | 2,450 | 5,305 | 7,867 |
| Change | 17 | 243 | 915 | 1,175 |
The significant rise in the Group's workforce (+1,175) can be attributed not only to the need to meet the increased production levels caused by a larger turnover, but also the inclusion of 660 employees of Asimco Meilian Braking Systems (Langfang) Co. Ltd., control of which was acquired during the year.
The item is broken down as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Amortisation of intangible assets: | ||
| Development costs | 9,899 | 9,689 |
| Industrial patents and similar rights for original work | 799 | 940 |
| Licences, trademarks and similar rights | 232 | 292 |
| Other intangible assets | 6,954 | 4,819 |
| Total | 17,884 | 15,740 |
| Depreciation of property, plant and equipment: | ||
| Buildings | 11,292 | 9,751 |
| Leased buildings | 0 | 29 |
| Plant and machinery | 70,023 | 63,565 |
| Leased plant and machinery | 0 | 51 |
| Industrial and commercial equipment | 12,836 | 12,491 |
| Leased industrial and commercial equipment | 2 | 2 |
| Other property, plant and equipment | 2,663 | 3,015 |
| Other leased property, plant and equipment | 58 | 59 |
| Total | 96,874 | 88,963 |
| Impairment losses: | ||
| Property, plant and equipment | 791 | 2,940 |
| Intangible assets | 701 | 994 |
| Total | 1,492 | 3,934 |
| TOTAL AMORTISATION, DEPRECIATION AND IMPAIRMENT LOSSES | 116,250 | 108,637 |
Comments on impairment losses are provided in the notes to the Statement of Financial Position items.
This item is broken down as follows:
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Exchange rate gains | 32,727 | 33,105 |
| Interest income from employee's leaving entitlement and other personnel provisions | 996 | 1,077 |
| Interest income | 2,433 | 2,408 |
| Total interest income | 36,156 | 36,590 |
| Exchange rate losses | (38,210) | (28,505) |
| Interest expense from employees' leaving entitlement and other personnel provisions | (1,746) | (1,866) |
| Interest expense | (11,567) | (14,020) |
| Total interest expense | (51,523) | (44,391) |
| TOTAL NET INTEREST INCOME (EXPENSE) | (15,367) | (7,801) |
An analysis of the item is provided in the comment on the Statement of Financial Position item presented in Note 3 of these Explanatory notes.
This item is broken down as follows:
| Total | 69,213 | 57,694 |
|---|---|---|
| Estimated tax payables and taxes from previous years | (43) | 542 |
| Deferred tax (assets) and liabilities | 5,762 | (2,917) |
| Current taxes | 63,494 | 60,069 |
| (euro thousand) | 31.12.2016 | 31.12.2015 |
The following is a reconciliation of theoretical and actual tax burden:
| (euro thousand) | 31.12.2016 | 31.12.2015 | ||
|---|---|---|---|---|
| Theoretical income taxes | 70,752 | 53,607 | ||
| Prior years' taxes | (43) | 542 | ||
| Tax incentive effects | (19,269) | (14,438) | ||
| Unallocated DTA effect | 6,234 | 7,440 | ||
| Other differences | 6,508 | 6,602 | ||
| Current and deferred taxes (excluding IRAP) | 64,182 | 53,753 | ||
| Current and deferred IRAP | 5,031 | 3,941 | ||
| Total | 69,213 | 57,694 | ||
The Group's tax rate was 22.2% (23.7% at 31 December 2015).
Basic earnings per share were €3.70 at 31 December 2016 (€2.83 at 31 December 2015) and were calculated by dividing the net result for the year attributable to holders of ordinary equity instruments of the Parent by the weighted average number of ordinary shares outstanding in 2016, amounting to 65,037,450 (2015: 65,037,450). The weighted average did not change since no share capital transactions took place during the reporting year.
Diluted earnings per share are identical to basic earnings per share inasmuch as no diluting transactions were undertaken.
Stezzano, 3 March 2017 On behalf of the Board of Directors The Chairman Alberto Bombassei
The new Polish foundry in Dabrowa will supply discs to the adjoining manufacturing plant, as well as calipers and brackets, with an innovative cast-iron production process with the most advanced mechanical features. Once fully operational, the new plant will employ about 200 people.
Report of the Board of Statutory Auditors on the Consolidated Financial Statements for the Year Ended 31 December 2016
Shareholders of the Parent, Brembo S.p.A., this Statutory Auditors' Report concerns Brembo Group's Consolidated Financial Statements.
This Report was prepared in accordance with the tasks assigned to the Board of Statutory Auditors by Legislative Decree No. 58/1998 and Legislative Decree No. 39/2010, as amended by Legislative Decree 135/2016. In this regard, it refers to the Directors' Report on Operations accompanying the Financial Statements at 31 December 2016 of the Parent Brembo S.p.A.
Based on these assumptions, the Board of Statutory Auditors notes as follows1 :
During the monitoring activity, no significant facts have emerged that need to be mentioned in this Report.
BremboGroup's Consolidated Financial Statements for the year ended 31 December 2016 were prepared in accordance with the provisions of European Regulation No. 1606/2002 and the IFRS effective at 31 December 2016, issued by the International Accounting Standard Board (IASB) and adopted by EC Regulations.
The comparative figures at 31 December 2015 have been restated according to the same principles as those used at 31 December 2016.
1 The Board of Statutory Auditors has been identified with the "Internal Control and Audit Committee" pursuant to Legislative Decree No. 39/2010, as amended, which assigns functions of supervision of the financial reporting process, the efficacy of internal control systems, internal auditing and risk management, the statutory auditing of the annual and consolidated accounts and the independence of the statutory auditors.
The Consolidated Financial Statements submitted to the forthcoming General Shareholders' Meeting for their analysis include the following summary results, expressed in thousands of euro:
| Non-current assets | 1,033,536 |
|---|---|
| Current assets | 930,988 |
| Non-current assets held for sale and/or disposal Groups and/or discontinued operations | – |
| Total assets | 1,964,524 |
| Equity and liabilities | |
| Equity | 882,310 |
| Non-current liabilities | 310,552 |
| Current liabilities | 771,662 |
| Non-current liabilities held for sale and/or included in discontinued operations | – |
| Total equity and liabilities | 1,964,524 |
| Statement of Income | |
| (euro thousand) |
| Gross operating income | 443,714 |
|---|---|
| Net operating income | 327,464 |
| Result before taxes | 312,208 |
| Net result before minority interests | 242,995 |
| Group net result | 240,632 |
In our opinion, the Consolidated Financial Statements 2016 present a fair picture of Brembo Group's equity, financial situation and operating result for the year ended 31 December 2016, in compliance with generally accepted accounting standards for the Consolidated Financial Statements.
In conclusion, the Board of Statutory Auditors deems the Directors' Report on Group Operations correct, comprehensive and consistent with the Consolidated Financial Statements. Furthermore, in completion of this report, we refer you to the report drawn up by the Board of Statutory Auditors on the Separate Financial Statements of Brembo S.p.A. at and for the year ended 31 December 2016, which contains all information requested by the supervisory authority and applicable laws and regulations.
Stezzano, 20 March 2017
BOARD OF STATUTORY AUDITORS
signed Raffaella Pagani (Chairwoman) signed Milena Motta (Acting Auditor) signed Sergio Pivato (Acting Auditor)
170
3 March 2017
172
Brembo celebrated 10 years of operations in India, opening a new large production facility near the plant already operating in Pune.
| of which with | of which with | |||||
|---|---|---|---|---|---|---|
| (euro) | Notes | 31.12.2016 | related parties | 31.12.2015 | related parties | Change |
| NON-CURRENT ASSETS | ||||||
| Property, plant, equipment and other equipment | 1 | 132,933,220 | 121,970,397 | 10,962,823 | ||
| Development costs | 2 | 46,595,703 | 39,614,818 | 6,980,885 | ||
| Other intangible assets | 2 | 13,368,630 | 11,911,779 | 1,456,851 | ||
| Shareholdings | 3 | 335,880,192 | 253,911,063 | 81,969,129 | ||
| Other financial assets (including investments in other | ||||||
| companies and derivatives) | 4 | 6,022,929 | 5,703,274 | 10,517,429 | 9,781,017 | (4,494,500) |
| Receivables and other non-current assets | 5 | 124,616 | 178,783 | (54,167) | ||
| Deferred tax assets | 6 | 12,137,080 | 13,401,652 | (1,264,572) | ||
| TOTAL NON-CURRENT ASSETS | 547,062,370 | 451,505,921 | 95,556,449 | |||
| CURRENT ASSETS | ||||||
| Inventories | 7 | 106,147,333 | 100,359,043 | 5,788,290 | ||
| Trade receivables | 8 | 184,989,843 | 80,090,041 | 155,475,372 | 45,405,823 | 29,514,471 |
| Other receivables and current assets | 9 | 14,686,341 | 6,552 | 14,313,249 | 373,092 | |
| Current financial assets and derivatives | 10 | 12,478,280 | 11,857,414 | 35,145,757 | 34,634,097 | (22,667,477) |
| Cash and cash equivalents | 11 | 55,920,067 | 8,596,259 | 57,263,150 | 12,743,804 | (1,343,083) |
| TOTAL CURRENT ASSETS | 374,221,864 | 362,556,571 | 11,665,293 | |||
| TOTAL ASSETS | 921,284,234 | 814,062,492 | 107,221,742 |
The new cast-iron foundry in Escobedo, Mexico.
| Notes | 31.12.2016 | of which with related parties |
31.12.2015 | of which with related parties |
Change |
|---|---|---|---|---|---|
| 12 | 34,727,914 | 34,727,914 | 0 | ||
| 12 | 130,743,218 | 130,670,191 | 73,027 | ||
| 12 | 90,850,383 | 40,751,626 | 50,098,757 | ||
| 12 | 138,392,655 | 103,312,837 | 35,079,818 | ||
| 394,714,170 | 309,462,568 | 85,251,602 | |||
| 13 | 182,696,529 | 903,969 | 167,264,097 | 1,795,762 | 15,432,432 |
| 13 | 1,005,065 | 1,452,383 | (447,318) | ||
| 14 | 6,479,099 | 1,913,574 | 119,956 | 6,359,143 | |
| 15 | 10,159,150 | 5,804,993 | 4,354,157 | ||
| 16 | 21,075,472 | 46,458 | 20,048,037 | 45,775 | 1,027,435 |
| 221,415,315 | 194,689,466 | 26,725,849 | |||
| 13 | 76,050,391 | 17,211,819 | 43,172,228 | 12,378,280 | 32,878,163 |
| 13 | 13,584,838 | 13,182,650 | 45,472,010 | 44,834,103 | (31,887,172) |
| 17 | 159,405,982 | 16,339,202 | 144,270,442 | 17,157,978 | 15,135,540 |
| 18 | 2,001,867 | 6,822,538 | (4,820,671) | ||
| 15 | 2,547,371 | 2,830,000 | (282,629) | ||
| 19 | 51,564,300 | 2,355,553 | 67,343,240 | 11,675,668 | (15,778,940) |
| 305,154,749 | 309,910,458 | (4,755,709) | |||
| 526,570,064 | 504,599,924 | 21,970,140 | |||
| 921,284,234 | 814,062,492 | 107,221,742 | |||
178
| (euro) | Notes | 31.12.2016 | of which with related parties |
31.12.2015 | of which with related parties |
Change |
|---|---|---|---|---|---|---|
| Sales of goods and services | 20 | 843,630,455 | 147,556,893 | 780,801,597 | 105,095,348 | 62,828,858 |
| Other revenues and income | 21 | 40,818,754 | 30,682,926 | 32,983,575 | 27,236,184 | 7,835,179 |
| Costs for capitalised internal works | 22 | 17,055,080 | 11,325,565 | 5,729,515 | ||
| Raw materials, consumables and goods | 23 | (378,452,146) | (92,565,092) | (356,716,036) | (88,901,752) | (21,736,110) |
| Other operating costs | 24 | (172,717,688) | (14,603,470) | (156,520,325) | (14,912,265) | (16,197,363) |
| Personnel expenses | 25 | (206,706,244) | (6,249,540) | (199,718,431) | (5,583,567) | (6,987,813) |
| GROSS OPERATING INCOME | 143,628,211 | 112,155,945 | 31,472,266 | |||
| Depreciation, amortisation and impairment losses | 26 | (35,816,397) | (34,858,836) | (957,561) | ||
| NET OPERATING INCOME | 107,811,814 | 77,297,109 | 30,514,705 | |||
| Interest income | 27 | 3,877,435 | 7,558,222 | (3,680,787) | ||
| Interest expense | 27 | (7,255,792) | (11,325,464) | 4,069,672 | ||
| Net interest income (expense) | 27 | (3,378,357) | 288,547 | (3,767,242) | (441,901) | 388,885 |
| Interest income (expense) from investments | 28 | 68,447,346 | 86,333,234 | 54,507,855 | 71,378,612 | 13,939,491 |
| RESULT BEFORE TAXES | 172,880,803 | 128,037,722 | 44,843,081 | |||
| Taxes | 29 | (34,488,148) | (24,724,885) | (9,763,263) | ||
| NET RESULT | 138,392,655 | 103,312,837 | 35,079,818 |
| (euro) | 31.12.2016 | 31.12.2015 | Change |
|---|---|---|---|
| NET RESULT | 138,392,655 | 103,312,837 | 35,079,818 |
| Other comprehensive income/(losses) that will not be subsequently reclassified to income/(loss) for the year |
|||
| Effect (actuarial income/loss) on defined benefit plans | (1,461,964) | 1,122,146 | (2,584,110) |
| Tax effect | 350,872 | (468,116) | 818,988 |
| Total other comprehensive income/(losses) that will not be | |||
| subsequently reclassified to income/(loss) for the year | (1,111,092) | 654,030 | (1,765,122) |
| Other comprehensive income/(losses) that will be subsequently reclassified to income/(loss) for the year |
|||
| Effect of hedge accounting (cash flow hedge) of derivatives | 0 | 67,829 | (67,829) |
| Tax effect | 0 | (18,653) | 18,653 |
| Total other comprehensive income/(losses) that will be | |||
| subsequently reclassified to income/(loss) for the year | 0 | 49,176 | (49,176) |
| COMPREHENSIVE RESULT | 137,281,563 | 104,016,043 | 33,265,520 |
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| (euro) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Cash and cash equivalents at beginning of year | 40,640,878 | 95,524,769 |
| Result before taxes | 172,880,803 | 128,037,722 |
| Depreciation, amortisation/impairment losses | 35,816,397 | 34,858,836 |
| Capital gains/losses | (407,762) | (330,792) |
| Write-ups/Write-downs of shareholdings | 17,885,888 | 16,872,757 |
| Financial portion of provisions for payables for personnel | 411,438 | 381,460 |
| Other provisions net of utilisations | 12,128,507 | 5,451,090 |
| Cash flows generated by operating activities | 238,715,271 | 185,271,073 |
| Paid current taxes | (35,268,127) | (32,418,686) |
| Uses of long-term provisions for employee benefits | (845,968) | (921,043) |
| (Increase) reduction in current assets: | ||
| inventories | (10,798,978) | (6,399,578) |
| financial assets | (3,433,795) | (2,100) |
| trade receivables and receivables from other Group companies | (29,089,815) | (20,325,045) |
| receivables from others and other assets | (2,690,230) | 692,096 |
| Increase (reduction) in current liabilities: | ||
| trade payables and payables to other Group companies | 15,135,540 | 22,624,701 |
| payables to others and other liabilities | (9,227,038) | 9,407,012 |
| Net cash flows from/(for) operating activities | 162,496,860 | 157,928,430 |
| (euro) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Investments in: | ||
| intangible assets | (23,972,731) | (17,324,951) |
| property, plant and equipment | (32,571,659) | (22,178,697) |
| financial assets (shareholdings) | (112,276,480) | (9,703,882) |
| Price for disposal, or reimbursement value of fixed and intangible assets | 1,698,044 | 772,704 |
| Price for disposal, or reimbursement value of shareholdings | 12,421,463 | 500,233 |
| Net cash flows from/(for) investing activities | (154,701,363) | (47,934,593) |
| Dividends paid in the year | (52,029,960) | (52,029,960) |
| Loans to Group companies and amounts payable to companies participating in the centralised treasury system |
(4,797,027) | (55,776,768) |
| Change in fair value valuation of derivatives | 307,551 | (684,214) |
| Loans and financing granted by banks and other financial institutions in the year | 50,000,000 | 130,002,439 |
| Repayment of long-term loans and other liabilities | (34,783,893) | (186,389,225) |
| Net cash flows from/(for) financing activities | (41,303,329) | (164,877,728) |
| Total cash flows | (33,507,832) | (54,883,891) |
| Cash and cash equivalents at end of year | 7,133,046 | 40,640,878 |
| Other reserves | ||||||
|---|---|---|---|---|---|---|
| (euro) | Share capital | Reserves | Treasury Shares | Retained earnings/(losses) |
Result for the year | Equity |
| Balance at 1 January 2015 | 34,727,914 | 132,742,625 | (13,475,897) | 34,657,526 | 68,824,318 | 257,476,486 |
| Allocation of profit for the previous year | 357,168 | 16,437,190 | (16,794,358) | 0 | ||
| Payment of dividends | (52,029,960) | (52,029,960) | ||||
| Reclassification (**) | 10,997,119 | (10,997,119) | 0 | |||
| Rounding off | (1) | (1) | ||||
| Components of comprehensive income: | ||||||
| Effect (actuarial income/loss) on defined benefit plans |
654,030 | 654,030 | ||||
| Effect of hedge accounting (cash flow hedge) of derivatives (*) |
49,176 | 49,176 | ||||
| Net result | 103,312,837 | 103,312,837 | ||||
| Balance at 1 January 2016 | 34,727,914 | 144,146,088 | (13,475,897) | 40,751,626 | 103,312,837 | 309,462,568 |
| Allocation of profit for the previous year | 276,531 | 51,006,346 | (51,282,877) | 0 | ||
| Payment of dividends | (52,029,960) | (52,029,960) | ||||
| Reclassification (***) | (203,504) | 203,504 | 0 | |||
| Rounding off | (1) | (1) | ||||
| Components of comprehensive income: | ||||||
| Effect (actuarial income/loss) on defined | ||||||
| benefit plans | (1,111,092) | (1,111,092) | ||||
| Net result | 138,392,655 | 138,392,655 | ||||
| Balance at 31 December 2016 | 34,727,914 | 144,219,115 | (13,475,897) | 90,850,383 | 138,392,655 | 394,714,170 |
(*) Hedging reserve net of the related tax effect.
182
(**) Restricted portion of Own share reserve from retained earnings following the General Shareholders' Meeting held on 23 April 2015 authorising the buy-back of own shares. (***) A portion of the restricted reserve Re. Article 6, paragraph 2, of Legislative Decree No. 38/2005 was reclassified under retained earnings, since it is no longer subject to nondistributability.
Production of the new cast-iron disc foundry adjoining to the Escobedo, plant will be bound for the main original equipment manufacturers (OEM) in Europe, America and Asia operating in Mexico. The new facility will extend over an area of 25,000 square metres and will employ about 200 people.
This report refers to the activity carried out by the Board of Statutory Auditors1 during the year ended 31 December 2016.
The Board of Statutory Auditors, whose term of office will expire with the General Shareholders' Meeting called on 20 April 2017 to approve the Financial Statements for the year ended 31 December 2016, carried out the supervisory activities requested by Article 2403 of the Italian Civil Code, Article 149 of Legislative Decree No. 58/1998 and, in its capacity as Internal Control & Audit Committee, it discharged its oversight duties as per Article 19 of Legislative Decree No. 39/2010, monitoring the observance of the principles of proper administration, and particularly the suitability of the organisational, administrative and accounting structures adopted by the Company and the concrete functioning thereof. They also monitored the concrete implementation of the corporate governance rules set forth by relevant applicable regulations. The Board of Statutory Auditors also monitored the independence of the Independent Auditors.
In performing its function, the Board of Statutory Auditors:
In most cases, meetings of the Board of Statutory Auditors were held on the same day as the Audit & Risk Committee and Supervisory Committee meetings, covering a number of items discussed jointly in order to optimise the exchange of information and share opinions amongst parties with relevant duties in the area of internal controls.
1 The Board of Statutory Auditors composed of Raffaella Pagani (Chairwoman), Milena Motta (Acting Auditor), Sergio Pivato (Acting Auditor) was appointed by the General Shareholders' Meeting held on 29 April 2014 for the three years from 2014 to 2016, i.e., until the General Shareholders' Meeting called to approve the Financial Statements for the year ended 31 December 2016. The Statutory Auditors were elected based on the two lists filed respectively by the majority shareholder Nuova FourB S.r.l. and a group of Asset Management Companies and other institutional investors (holding 2.11% of the share capital, overall). The members of the Board of Statutory Auditors are also members of the Supervisory Committee.
Pursuant to Article 153 of Legislative Decree No. 58/1998 and Article 2459, paragraph 2, of the Italian Civil Code, and in accordance with Consob recommendations, the following information is reported:
The Board of Statutory Auditors also acknowledged that the winding up procedures for the Chinese company Brembo China Brake Systems Co. Ltd. were completed and the company was de-registered in December 2016.
2 Resolution No. 17221 dated 12 March 2010 and Resolution No. 17389 dated 23 June 2010.
3 With regard to the audit appointment, it should be noted that, upon reasoned proposal submitted by the Board of Statutory Auditors, the Shareholders' Meeting of 23 April 2013 appointed EY S.p.A. as independent auditors for the years 2013 to 2021.
financial statements, thereby allowing the audit of the annual and interim accounts. In detail, as of 31 December 2016 the Companies to which such regulations apply are the subsidiaries indicated by Brembo as being significant for the control system and financial reporting purposes.
to request the partial or total refund of the variable components of remuneration (or to withhold deferred components of remuneration) that had been granted based on data and information which subsequently proved to be manifestly incorrect or resulting from cases of fraudulent behaviour or gross negligence on the part of the beneficiaries.
The results of these activities are described in detail in the Committee's periodic reports to the Board of Directors. In general terms, the Supervisory Committee confirmed the stability of the general structure of the 231 Model, including in light of the legislative changes in 2016, and that the assurance/monitoring activities performed by the Internal Audit, the 231 Risk Assessment and the internal measures aimed at dissemination and training relating to 231 Model continue on an ongoing basis.
| (euro thousand) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Independent Auditors' fees for the provision of audit services: | ||
| to the Parent Brembo S.p.A. | 210 | 210 |
| to the subsidiaries (services provided by the network) | 415 | 343 |
| Independent Auditors' fees for the provision of auditing services for issuing attestation: |
||
| to the Parent Brembo S.p.A. | 8 | 36 |
| Independent Auditors' fees for the provision of other services: | ||
| to the Parent Brembo S.p.A. | 3 | 0 |
| to the subsidiaries (services provided by the network) | 14 | 75 |
| Fees of entities belonging to the Independent Auditors' network for the provision of services: |
||
| to the Parent Brembo S.p.A. | 83 | 101 |
| other services rendered to subsidiaries | 91 | 38 |
The Board of Statutory Auditors has considered the non-audit services and related fees to be appropriate for the extent and complexity of the work carried out and hence compatible with the statutory audit function, there being no anomalies that impact the Independent Auditors' independence criteria.
On the basis of the activity performed and information obtained, the Board of Statutory Auditors therefore believes that it may confirm that there have been no findings of omissions, censurable conduct, irregularities or other material facts that would need to be reported to the Oversight Authorities or mentioned in this Report. The Board of Statutory Auditors thus expresses a favourable opinion on the approval of Brembo's Financial Statements for the year ended 31 December 2016 and the proposed allocation of net income and distribution of dividend as formulated by the Board of Directors.
With this Shareholders' Meeting, the Board of Statutory Auditors expires having completed its three-year term. The Shareholders' Meeting is therefore called upon to appoint the new Supervisory Body for the three-year term 2017/2019.
Stezzano, 20 March 2017
BOARD OF STATUTORY AUDITORS signed Raffaella Pagani (Chairwoman) signed Milena Motta (Acting Auditor) signed Sergio Pivato (Acting Auditor)
3 March 2017
194
BREMBO S.p.A. Headquarters c/o Kilometro Rosso Science and Technology Park Viale Europa, 2 - 24040 Stezzano (BG) Italy Tel. +39 035 605.2111 - www.brembo.com E-mail: [email protected] - [email protected]
Editorial consulting by C·Consulting snc (Milan) Graphic project and illustrations by Briefing sas (Milan) Typeset and printed by Secograf (S. Giuliano Mil.) Translated by Koinè (Trieste)
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