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Piaggio & C

Annual Report Mar 25, 2020

4466_10-k-afs_2020-03-25_805ba951-a089-4851-80e2-30cd54cb1112.pdf

Annual Report

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REPORT ON OPERATIONS 2
KEY OPERATING AND FINANCIAL DATA 4
GROUP PROFILE 6
PIAGGIO AND FINANCIAL MARKETS15
SIGNIFICANT EVENTS DURING THE YEAR20
FINANCIAL POSITION AND PERFORMANCE OF THE GROUP23
BACKGROUND29
RESULTS BY TYPE OF PRODUCT 37
RISKS AND UNCERTAINTIES 44
EVENTS OCCURRING AFTER THE END OF THE PERIOD 50
OPERATING OUTLOOK51
TRANSACTIONS WITH RELATED PARTIES 52
CORPORATE GOVERNANCE53
OTHER INFORMATION 55
STATEMENT OF RECONCILIATION BETWEEN SHAREHOLDERS' EQUITY
AND NET PROFIT FOR THE PERIOD OF THE PARENT COMPANY AND CONSOLIDATED COMPANIES 57
ECONOMIC GLOSSARY58
CONSOLIDATED NON-FINANCIAL STATEMENT - LEGISLATIVE DECREE NO. 254
OF 30 DECEMBER 2016 60
CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 117
CONSOLIDATED INCOME STATEMENT119
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME120
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 121
CONSOLIDATED STATEMENT OF CASH FLOWS123
CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY 124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS126
ATTACHMENTS 201
PIAGGIO GROUP COMPANIES 201
INFORMATION PURSUANT TO ARTICLE 149-DUODIECIES OF THE CONSOB REGULATION ON ISSUERS 204
CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS PURSUANT
TO ARTICLE 154-BIS OF LEGISLATIVE DECREE 58/98 206
REPORT OF THE INDEPENDENT AUDITORS ON THE CONSOLIDATED FINANCIAL STATEMENTS 207
SEPARATE FINANCIAL STATEMENTS OF THE PARENT COMPANY AS OF 31 DECEMBER 2019 214
INCOME STATEMENT216
STATEMENT OF COMPREHENSIVE INCOME 217
STATEMENT OF FINANCIAL POSITION218
STATEMENT OF CASH FLOWS 219
CHANGES IN SHAREHOLDERS' EQUITY220
NOTES TO THE FINANCIAL STATEMENTS222
ATTACHMENTS 294
PIAGGIO GROUP COMPANIES 294
INFORMATION PURSUANT TO ARTICLE 149-DUODIECIES OF THE CONSOB REGULATION ON ISSUERS 294
INFORMATION ON COMPANY MANAGEMENT AND COORDINATION ACTIVITIES 294
CERTIFICATION OF THE FINANCIAL STATEMENTS PURSUANT
TO ARTICLE 154-BIS OF LEGISLATIVE DECREE 58/98297
REPORT OF THE INDEPENDENT AUDITORS ON THE FINANCIAL STATEMENTS OF THE PARENT COMPANY299
REPORT OF THE BOARD OF STATUTORY AUDITORS ON THE FINANCIAL
STATEMENTS AS OF 31 DECEMBER 2019 306

REPORT ON OPERATIONS

KEY OPERATING AND FINANCIAL DATA 4
GROUP PROFILE 6
PIAGGIO AND FINANCIAL MARKETS15
SIGNIFICANT EVENTS DURING THE YEAR20
FINANCIAL POSITION AND PERFORMANCE OF THE GROUP23
BACKGROUND29
RESULTS BY TYPE OF PRODUCT 37
RISKS AND UNCERTAINTIES 44
EVENTS OCCURRING AFTER THE END OF THE PERIOD 50
OPERATING OUTLOOK51
TRANSACTIONS WITH RELATED PARTIES 52
CORPORATE GOVERNANCE53
OTHER INFORMATION 55
STATEMENT OF RECONCILIATION BETWEEN SHAREHOLDERS' EQUITY
AND NET PROFIT FOR THE PERIOD OF THE PARENT COMPANY AND CONSOLIDATED COMPANIES 57
ECONOMIC GLOSSARY58
CONSOLIDATED NON-FINANCIAL STATEMENT - LEGISLATIVE DECREE NO. 254
OF 30 DECEMBER 2016 60

KEY OPERATING AND FINANCIAL DATA

2019 2018
IN MILLIONS OF EUROS
Data on financial position
Net revenues 1,521.3 1,389.5
Gross industrial margin 458.8 423.6
Operating income 104.5 92.8
Profit before tax 80.7 67.8
Net profit 46.7 36.1
.Non-controlling interests
.Group 46.7 36.1
Data on financial performance
Net capital employed (NCE) 813.6 821.2
Consolidated net debt1 (429.7) (429.2)
Shareholders' equity 383.8 392.0
Balance sheet figures and financial ratios
Gross margin as a percentage of net revenues (%) 30.2% 30.5%
Net profit as a percentage of net revenues (%) 3.1% 2.6%
ROS (Operating income/net revenues) 6.9% 6.7%
ROE (Net profit/shareholders' equity) 12.2% 9.2%
ROI (Operating income/NCE) 12.8% 11.3%
EBITDA 227.8 201.8
EBITDA/net revenues (%) 15.0% 14.5%
Other information
Sales volumes (unit/000) 611.3 603.6
Investments in property, plant and equipment and intangible assets 140.9 115.3
Employees at the end of the period (number) 6,222 6,515
Social indicators
Carbon Disclosure Project Score Climate Change B C
Carbon Disclosure Project Score Water Security B B

1 Figures for 2019 include the effects of IFRS 16 on the recognition of operating leases. The effect of the adoption of the new standard on Net Debt as of 31.12.2019 resulted in an increase of financial liabilities equal to ¤/ML 20.4.

Results by operating segments

EMEA and
AMERICAS
INDIA ASIA
PACIFIC 2W
TOTAL
2019 243.6 269.5 98.2 611.3
Sales volumes 2018 235.4 282.5 85.7 603.6
(units/000) Change 8.2 (12.9) 12.4 7.7
Change % 3.5% -4.6% 14.5% 1.3%
2019 867.6 430.3 223.4 1,521.3
Turnover
(million euros)
2018 797.4 410.8 181.4 1,389.5
Change 70.2 19.5 42.0 131.8
Change % 8.8% 4.8% 23.2% 9.5%
2019 3,604 1,871 949 6,424
Average number of staff 2018 3,651 2,181 866 6,698
(no.) Change (47) (310) 83 (274)
Change % -1.3% -14.2% 9.6% -4.1%
Investment in property,
plant and equipment
and intangible assets
2019 101.8 29.0 10.1 140.9
2018 95.8 15.5 4.0 115.3
Change 6.0 13.5 6.1 25.6
(million euros) Change % 6.3% 86.8% 152.6% 22.2%

GROUP PROFILE

The Piaggio Group, based in Pontedera (Pisa, Italy) is Europe's largest manufacturer of two-wheeler motor vehicles and an international leader in its field. The Group is also a major player worldwide in the commercial vehicles market.

Mission

The mission of the Piaggio Group is to generate value for its shareholders, customers and employees, by acting as a global player that creates superior quality products, services and solutions for urban and extraurban mobility that respond to evolving needs and lifestyles.

To stand out as a player that contributes to the social and economic growth of the communities in which it operates, considering, in its activities, the need to protect the environment and the collective well-being of the community. To be an Italian global player in the light mobility segment, standing out for its superior design, creativity and tradition. To become a leading European company with a world-class reputation, championing a business model based on the values of quality and tradition, and on the ongoing creation of value.

Values

  • Value for customers: Managing and developing a fast, flexible organisation, in which all processes, persons and external partners (suppliers and dealers) are focused on the generation of value perceivable by the customer.
  • Value for shareholders: Achieving returns on capital employed to meet the expectations of shareholders and ensure ongoing growth.
  • Value of people: Nurturing the capabilities and talents of each individual, attracting and retaining the highest-value resources.
  • Value of brands: Investing in brand strength as leverage for developing market share and building a unique and distinctive market positioning.
  • Customer-focused innovation: Developing innovative products that stand out for their unique style, quality, safety, energy efficiency and low environmental impact.
  • Internationalisation: Becoming a truly multinational business in terms of organisation, culture, global market presence and respect for local culture in each of the countries in which the Group operates, and being exemplary in the way its international human resources are managed.

COMPANY STRUCTURE AT 31 DECEMBER 2019

COMPANY BODIES

BOARD OF DIRECTORS
Chairman and Chief Executive Officer Roberto Colaninno (1), (2)
Deputy Chairman Matteo Colaninno
Directors Michele Colaninno
Giuseppe Tesauro (3), (4), (5), (6), (7)
Graziano Gianmichele Visentin (4), (5), (6), (7)
Maria Chiara Carrozza
Federica Savasi
Patrizia Albano
Andrea Formica (5), (6), (7)
BOARD OF STATUTORY AUDITORS
Chairman Piera Vitali
Statutory Auditors Giovanni Barbara
Daniele Girelli
Alternate Auditors Fabrizio Piercarlo Bonelli
Gianmarco Losi
SUPERVISORY BODY
Antonino Parisi
Giovanni Barbara
Ulisse Spada
Chief Financial Officer Alessandra Simonotto
Officer in charge of preparing financial reports Alessandra Simonotto
Independent Auditors PricewaterhouseCoopers S.p.A.
Board Committees Appointment Proposal Committee
Remuneration Committee
Internal Control and Risk Management Committee
Related-Party Transactions Committee

(1) Director responsible for the internal control system and risk management

(2) Executive Director

(3) Lead Independent Director

(4) Member of the Appointment Proposal Committee

(5) Member of the Remuneration Committee

(6) Member of the Internal Control and Risk Management Committee

(7) Member of the Related-Party Transactions Committee

All information on the powers reserved for the Board of Directors, the authority granted to the Chairman and CEO, as well as the functions of the various Committees of the Board of Directors, can be found in the Governance section of the Issuer's website www.piaggiogroup.com.

ORGANISATIONAL STRUCTURE

As of 31 December 2019 the structure of Piaggio & C. S.p.A.'s organisation was based on the following front-line functions.

  • Finance Management: responsible for administration, tax, finance, planning and control and information technology, and for the coordination and reporting of sustainability activities.
  • Corporate and Legal: this function is responsible for providing assistance for all legal aspects, including assistance for contracts, managing problems concerning litigation involving the Group, guaranteeing protection of the Group's trademarks at a worldwide level, and the management of obligations concerning company law.
  • Human Resources Department: this function is responsible for recruiting, managing and developing human resources, as well as managing industrial relations.
  • Marketing and Communications: this function is responsible for managing and coordinating at a global level sales communication, digital marketing and customer experience activities, as well as monitoring brand image and awareness of the Group's brands and managing the Museums and historical archives of Group brands. This function also manages and coordinates communication activities and relations with the media and end consumers, and guarantees the management and coordination of relations with product and racing media at a global level.
  • Product Development and Marketing Division: this division is responsible for identifying market/customer needs and opportunities arising from technological innovation and developments in laws and standards, in order to assist the definition of vehicle concepts, as part of product range development, and is also responsible for design activities at a global level for the Group's brands.
  • Racing: this function is responsible for racing activities.
  • Two-wheeler Product Development: this function is responsible for activities focussing on technological innovation, engineering, reliability, quality and regulatory activities for scooters, motorcycles and two-wheeler engines, and for protecting industrial property relative to the Group's technical patents and models.
  • Three-, Four-wheeler Product Development: this function is responsible for activities concerning design, engineering, reliability and quality relative to three- and four-wheeler commercial vehicles and engines.
  • Manufacturing Technologies: this function is responsible for guaranteeing production technology innovation and change, managing infrastructure and plants, and ensuring the development of new industrial sites worldwide.
  • Purchasing: this function is responsible for purchasing and supplier management.
  • Materials Management: this function is responsible for managing vehicle distribution logistics and optimising commercial and production planning processes.
  • Two-Wheeler Italy and EMEA Market,
  • Three-, Four-Wheeler EMEA Market and Emerging Markets:
  • each department, for the area and products in its management, is responsible for achieving sales targets, defining price policies for single markets and identifying appropriate actions to develop the sales network, through the coordination of sales companies in Europe, and for managing corporate sales to major clients and the central public administration sector at a European level.
  • EMEA production: this function is responsible for guaranteeing the manufacture and quality of engines, motorcycles, scooters and commercial vehicles.

  • Asia Pacific 2 Wheeler: this function is responsible for coordinating the companies Piaggio Vietnam, Piaggio Asia Pacific, Piaggio Group Japan and Piaggio Indonesia, to guarantee business and industrial profitability, turnover, market share and customer satisfaction for the Group's two-wheeler vehicles, by managing production and sales on reference markets.

  • China: this function is responsible for monitoring operations in the area, coordinating the Company Foshan Piaggio Vehicles Technology Research & Development.
  • Piaggio Vehicles Private Limited: this function is responsible for guaranteeing business and industrial profitability, turnover, market share and customer satisfaction for the Group's commercial vehicles and scooters in India, by managing production and sales on reference markets.
  • Piaggio Group Americas: this function is responsible for guaranteeing business profitability, turnover, market share and customer satisfaction, for its reference area, by managing sales of Group products.
  • Business Unit Aftersales: this function is responsible for managing after-sales activities, defining the range of spare parts and accessories, establishing prices in conjunction with the sales department, guaranteeing turnover is achieved and ensuring the distribution of the Group's spare parts and accessories, as well as the management of customer care activities.
  • Internal Audit: this function is responsible for developing all activities concerning and functional to internal auditing, in order to improve the effectiveness and efficiency of the internal control system and evaluate its operation.
  • Corporate Press Office: this function oversees media management and coordination for Corporate activities, inviting the press to attend institutional events, preparing notices and issuing press releases.
  • Investor Relations: this function is responsible for promoting relations and engaging with the national and international financial community.

With reference to this organisational structure, on 23 October 2018, the Board of Directors of Piaggio & C. SpA, as part of the project to reorganise the product and marketing strategy areas, assigned Michele Colaninno authority to operate in this sector, with powers to manage and coordinate the following company functions, at worldwide level, involved in the product strategy creation and development process: Product Development and Marketing Division, Marketing, Communications and Racing Department.

STRATEGY AND AREAS OF DEVELOPMENT

Business strategy

The Piaggio Group aims to create value by adopting a strategy which:

  • consolidates its leadership position on the European two-wheeler market and on the Indian light commercial vehicles market;
  • increases its presence on international markets, with particular reference to the Asian area;
  • increases the operating efficiency of all company processes, with a focus on industrial productivity.

EMEA and Americas

Europe Two-wheeler – lever market recovery, consolidating a leadership position in the scooter segment. Focus on the Aprilia and Moto Guzzi brands to improve sales and profitability in the motorcycle segment. Expand the range of electric vehicles, targeting its technological and design leadership, and the distribution network.

America Two-Wheeler segment - growth, with the introduction of the premium products Aprilia and Moto Guzzi and consolidation of the sales network.

Europe Commercial Vehicles - maintain growth based on eco-sustainable solutions, with a product range featuring new engines with zero or low environmental impact and lower emissions.

India

Two-wheelers - consolidate the scooter market position through expansion of the Vespa and Aprilia brand ranges. Commercial vehicles - growth in volumes and profitability, through the consolidation of a strong competitive position on the local three-wheeler market and a focus on the export of vehicles to Africa and Latin America.

Asia Pacific 2W

Development: the aim is to increase scooter sales in the entire area (Vietnam, Indonesia, Thailand, Malaysia and Taiwan), exploring opportunities for motorcycles with a medium capacity engine, consolidating penetration in the premium segment of the Chinese market.

Key Assets

The Group will aim to consolidate its business position by levering and investing in the potential of its key assets: – distinctive brands, recognised worldwide;

  • an extensive sales network on reference markets;
  • competency in research and development, focussed on innovation, safety and the environment;
  • a strong international presence, with local operations for all core company processes, from marketing to research and development, production and purchasing.

Sustainability strategy

The Group's Corporate Social Responsibility (CSR) strategic objectives – which are largely integrated with and connected to the development of the long-term plan – are based on the following areas:

  • Economic: timely, correct, in-depth information to stakeholders.
  • Creating value while respecting business ethics.
  • Product: technological investments to meet the need for sustainable mobility innovation to develop products that are environmentally friendly, safe and cost-effective.
  • Environmental: decreasing energy consumption, reducing CO2 emissions and emissions of other pollutants conserving natural resources - waste management.
  • Social: developing, training and promoting human resources so that everyone's expectations and aspirations are met. Engaging with customers in order to establish relations based on transparency and trust - developing Company Advocacy in partnership with the dealer network – selling products that are environmentally friendly, reliable, safe and cost-effective. Engaging and cooperating with suppliers through shared development projects respecting human rights. Fighting against corruption. Engaging and supporting local communities through social, cultural and educational initiatives.

Investor Relations Shareholding structure Share performance Main share indicators Dividends Group ratings

PIAGGIO AND FINANCIAL MARKETS

INVESTOR RELATIONS

Piaggio considers financial disclosure to be of vital importance in building a relationship of trust with the financial market.

In particular the Investor Relations function engages institutional and individual investors as well as financial analysts in an ongoing dialogue, producing transparent, timely and accurate information to promote a correct perception of the Group's value.

In 2019 there were numerous opportunities to interact with the financial community, with the Group meeting more than 160 investors on main European financial markets during road shows and conferences.

Initiatives also included direct meetings and conference calls, managed daily by the IR function, and institutional communication events concerning quarterly results.

To ensure adequate reporting and compliance with Borsa Italiana and Consob regulations, the Company's website is promptly and continually updated with all information concerning the Group and key corporate documents, published in both Italian and English.

In particular, press releases disclosed to the market, the Company's periodic financial reports, the Corporate Social Responsibility Report, and data on business and financial performance are all published online, along with the material used in meetings with the financial community, Piaggio share consensus, as well as corporate governance documents (articles of association, insider trading and material concerning shareholders' meetings).

Contacts Investor Relations Department Raffaele Lupotto – Executive Vice President, Head of Investor Relations Email: [email protected]

Tel: +39 0587 272286 Fax: +39 0587 276093

SHAREHOLDING STRUCTURE

As of 31 December 2019, share capital comprised 358,153,644 ordinary shares. At the same date, the shareholding structure recorded in the shareholders' register, supplemented by notices received pursuant to Article 120 of Legislative Decree no. 58/1998 and other available information, was the following:

Piaggio and financial markets

Investor Relations Shareholding structure Share performance Main share indicators Dividends Group ratings

SHARE PERFORMANCE

Piaggio & C. SpA has been listed on the Milan Stock Exchange since 11 July 2006. The Piaggio share closed 2019 at 2.75 euro, up by 51% compared to the start of the year, outperforming main benchmarks.

Investor Relations Shareholding structure Share performance Main share indicators Dividends Group ratings

MAIN SHARE INDICATORS

2019 2018
Official share price on the last day of trading (euro) 2.75 1.83
Number of shares (no.) 358,153,644 358,153,644
Treasury shares (no.) 898,818 793,818
Earnings per share (euro)
Basic earnings 0.131 0.101
Diluted earnings 0.131 0.101
Shareholders' equity by share (euro) 1.07 1.10
Market capitalisation (millions of Euros)4 984.2 654.2

DIVIDENDS

The Shareholders' Meeting of Piaggio & C. S.p.A. of 12 April 2019 resolved to distribute a dividend of 9.0 eurocents per ordinary share. During April this year, therefore, dividends were distributed to a total value of ¤/000 32,155. During 2018, dividends totalling ¤/000 19,698 were paid.

In the meeting of 26 July 2019, the Board of Directors approved a new policy to distribute dividends with the distribution of an interim dividend during the year (rather than a single distribution), to align with other international companies in the two-wheeler sector, also with the aim of optimising cash flow management, considering the seasonal nature of the business. The Board of Directors, having approved the Interim Financial Statements as of 30 June 2019 and Directors' Report pursuant to Article 2344-bis of the Civil Code, therefore resolved to allocate an interim dividend for 2019 equal to 5.5 eurocents, including taxes, for each entitled ordinary share (against a dividend of 9 eurocents resolved for all of 2018), for a total amount of ¤/000 19,650.

TOTAL AMOUNT DIVIDEND PER SHARE
2019 2018 2019 2018
¤/000 ¤/000 ¤ ¤
Of the previous year's result 32,155 19,698 0.090 0.055
Interim dividend on 2019 result 19,650 0.055

SUMMARY OF DIVIDENDS PAID BY PIAGGIO & C. SPA IN 2019 AND 2018

YEAR 2019 2018
Detachment date 23 April 2019 23 April 2018
Payment date 25 April 2019 25 April 2018
Dividend per share (euro) 0.09 0.055
Detachment date 23 September 2019
Payment date 25 September 2019
Dividend per share (euro)5 0.055

Piaggio and financial markets

Investor Relations Shareholding structure Share performance Main share indicators Dividends Group ratings

GROUP RATINGS

31/12/2019 31/12/2018
Standard & Poor's
Corporate BB- BB
Outlook Stable Stable
Moody's
Corporate Ba3 B1
Outlook Stable Stable

SIGNIFICANT EVENTS DURING THE YEAR

16 January 2019 – The rating agency Moody's Investors Service (Moody's) notified its revised rating of the Piaggio Group (PIA.MI), increasing it from "B1" to "Ba3".

23 March 2019 – During the "Aprilia all Star" event, the MotoGP team unveiled the new RSV4 1100 Factory and the 225 CV special X version, to celebrate the ten years of the RSV4.

1 April 2019 - The Piaggio Group opened Istanbul's first Motoplex, to reach a total of 500 stores worldwide, which flank the traditional two-wheeler distribution network with over 3,300 dealers. In recent months Motoplexes have also been inaugurated in Spain (Madrid and Malaga), in Germany (Berlin), in Malta and in Greece (Patras). In the Asia-Pacific area, new Motoplexes were opened in the Taiwanese capital Taipei, in Da Nang in Vietnam, and in China in Ningbo (one of the country's most ancient cities), Chengdu (the provincial capital of Sichuan) and Hefei (the provincial capital of Anhui).

28 June 2019 - The extraordinary Shareholders' Meeting met to examine and approve the proposed amendment to articles 5, 7, 8, 12 and 27 of the Articles of Association. Specifically: i) paragraph 4 relative to a resolution to increase capital was eliminated from Article 5, as the term for subscription had expired; ii) Article 7 was supplemented with the indication of an additional national newspaper in which to publish the excerpt of the notice convening the Shareholders' Meeting; iii) paragraph 4 was added to Article 8, which establishes that the Company is not required to appoint a subject that shareholders may appoint as proxy to represent them at the Shareholders' Meeting pursuant to Article 135-undecies of Legislative Decree 58/1998; iv) paragraph 3 of Article 12 was amended, in order to clarify that each list presented for renewal of the Board may now contain a number of candidates equal to the maximum number of Board members provided for in the Articles of Association, thus eliminating the previously existing obligation; v) lastly, Article 27 was amended, introducing a new paragraph, 2, in order to establish the possibility for the Board of Directors of the Company to resolve the payment of an interim dividend, in compliance with applicable regulations and laws, in effect from time to time. The Articles of Association not directly affected by the amendments were unchanged.

4 July 2019 - The European Investment Bank (EIB) and the Piaggio Group signed a 7-year, ¤70 million loan agreement, to support investment plan Research and Development projects that will be carried out at Piaggio Group sites over the 2019-2021 period. The loan agreement signed with the EIB will support the development of innovative technological solutions for products and processes in the areas of active and passive safety and sustainability (including electric engines and reduced consumption in combustion engines), with the aim of consolidating the scooter, motorcycle and commercial vehicle ranges. The loan will also further consolidate the Group's financial structure, extending the average duration and reducing the average cost of debt.

26 July 2019 - The Board of Directors approved a new policy to distribute dividends with the distribution of an interim dividend during the year (rather than a single distribution), to align with other international companies in the two-wheeler sector, also with the aim of optimising cash flow management, considering the seasonal nature of the business. The Board of Directors, having approved the Interim Financial Statements as of 30 June 2019 and Directors' Report pursuant to Article 2344-bis of the Civil Code, therefore resolved to allocate an interim dividend for 2019 equal to 5.5 eurocents, including taxes, for each entitled ordinary share (against a dividend of 9 eurocents resolved for all of 2018), for a total amount of ¤/000 19,650.

27 August 2019 - Piaggio received notification of a first degree ruling issued following the proceedings brought by one of its suppliers in 2009 (in relation to which information was provided in the annual and interim financial statements), ordering it to pay a total amount of approximately seven million, six hundred thousand euros and to publish the ruling in two national newspapers and two specialist journals. Piaggio filed an appeal with the Appeal Court of Florence, also requesting the suspension of the enforcement of the ruling. The first hearing will take place on 20 December 2020.

1 October 2019 - Alessandra Simonotto, Head of Administration and Financial Reporting, as well as Financial Reporting Officer for the company, continued her career path within the group, taking over the position of CFO, with effect from 1 October 2019, with relative powers and functions, following the resignation, for personal reasons, of Simone Montanari.

FINANCIAL POSITION AND PERFORMANCE OF THE GROUP

CONSOLIDATED INCOME STATEMENT

Consolidated income statement (reclassified)

2019 2018 CHANGE
IN MILLIONS
OF EUROS
ACCOUNTING
FOR A %
IN MILLIONS
OF EUROS
ACCOUNTING
FOR A %
IN MILLIONS
OF EUROS
ACCOUNTING
FOR A %
Net revenues 1,521.3 100.0% 1,389.5 100.0% 131.8 9.5%
Cost to sell6 (1,062.5) -69.8% (966.0) -69.5% (96.5) 10.0%
Gross industrial margin6 458.8 30.2% 423.6 30.5% 35.3 8.3%
Operating expenses (354.3) -23.3% (330.8) -23.8% (23.5) 7.1%
EBITDA6 227.8 15.0% 201.8 14.5% 26.1 12.9%
Amortization and Depreciation (123.3) -8.1% (109.0) -7.8% (14.3) 13.1%
Operating income 104.5 6.9% 92.8 6.7% 11.8 12.7%
Result of financial items (23.9) -1.6% (24.9) -1.8% 1.1 -4.3%
Profit before tax 80.7 5.3% 67.8 4.9% 12.8 18.9%
Taxes (33.9) -2.2% (31.8) -2.3% (2.2) 6.8%
Net profit 46.7 3.1% 36.1 2.6% 10.7 29.6%

Net revenues

2019 2018 CHANGE
IN MILLIONS OF EUROS
EMEA and Americas 867.6 797.4 70.2
India 430.3 410.8 19.5
Asia Pacific 2W 223.4 181.4 42.0
Total 1,521.3 1,389.5 131.8
Two-wheelers 1,055.1 957.9 97.2
Commercial Vehicles 466.2 431.6 34.6
Total 1,521.3 1,389.5 131.8

In terms of consolidated turnover, the Group closed 2019 with net revenues up compared to 2018 (+9.5%; +7.7% with constant exchange rates). All geographic segments recorded positive trends (Asia Pacific +23.2%; +18.0% with constant exchange rates; EMEA and Americas +8.8%; India +4.8%; +2.0% with constant exchange rates). As regards product type, the increase in turnover was greater for Two-Wheeler Vehicles (+10.1%) and more moderate for Commercial Vehicles (+8.0%). As a result, the percentage of Commercial Vehicles accounting for overall turnover dropped from 31.1% in 2018 to the current figure of 30.6%; vice versa, the percentage of Two-wheelers rose from 68.9% in 2018 to the current figure of 69.4%.

The gross industrial margin of the Group increased compared to the previous year (¤+ 35.3 million), and was equal to 30.2% (30.5% in 2018).

Amortisation/depreciation included in the gross industrial margin was equal to ¤31.4 million (¤31.2 million in 2018).

6 For a definition of the parameter, see the "Economic Glossary".

Alternative non-GAAP performance measures

Operating expenses in 2019 went up compared to the previous year, and amounted to ¤354.3 million (¤330.8 million in 2018). Growth was related to the increase in sales and higher amortisation and depreciation included in operating expenses (¤+14.1 million compared to 2018, of which ¤7.0 million due to the adoption of the new standard IFRS 16).

This performance resulted in a consolidated EBITDA which was higher than the previous year, and equal to ¤227.8 million (¤201.8 million in 2018). In relation to turnover, EBITDA was equal to 15.0% (14.5% in 2018). The improvement was also due to the adoption of the new accounting standard IFRS 16, that had a positive effect on the analysed parameter of ¤7.6 million. In terms of Operating Income (EBIT), performance was better compared to 2018, with a consolidated EBIT equal to ¤104.5 million, up by ¤11.8 million over 2018; in relation to turnover, EBIT was equal to 6.9% (6.7% in 2018).

The result of financial items improved compared to the previous year by ¤1.1 million, with Net Charges amounting to ¤23.9 million (¤24.9 million in 2018). This improvement would be higher considering that non-recurrent net income was recognised in 2018 and that the new accounting standard IFRS 16 was adopted from 2019.

Taxes for the period were equal to ¤33.9 million, while they amounted to ¤31.8 million in 2018. In 2019 the impact of taxes on profit before tax was estimated as equal to 42.1% (46.8% in 2018).

Adjusted net profit stood at ¤46.7 million (3.1% of turnover), up on the figure for the previous year of ¤36.1 million (2.6% of turnover).

Operating data

VEHICLES SOLD

2019 2018 CHANGE
IN THOUSANDS OF UNITS
EMEA and Americas 243.6 235.4 8.2
India 269.5 282.5 (12.9)
Asia Pacific 2W 98.2 85.7 12.4
Total 611.3 603.6 7.7
Two-wheelers 399.6 393.1 6.5
Commercial Vehicles 211.7 210.5 1.2
Total 611.3 603.6 7.7

During 2019, the Piaggio Group sold 611,300 vehicles worldwide, registering a growth of 1.3% in volume over the previous year, when 603,600 units were sold. 2W sales were up in Asia Pacific (+14.5%) and in EMEA and the Americas (+3.5%). In India instead, the number of vehicles sold recorded a slight downturn (-4.6%). As regards the type of products sold, the increase mainly referred to two-wheeler vehicles (+1.6), while commercial vehicles reported a more or less stable trend (+0.6%). For a more detailed analysis of market trends and results, see relative sections.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION7

STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER
2019
AS OF 31 DECEMBER
2018
CHANGE
IN MILLIONS OF EUROS
Net working capital (115.9) (59.5) (56.4)
Property, plant and equipment 272.7 276.5 (3.8)
Intangible assets 676.2 658.9 17.3
Rights of use 36.5 36.5
Financial assets 9.7 8.7 0.9
Provisions (65.6) (63.4) (2.2)
Net capital employed 813.6 821.2 (7.6)
Net financial debt 429.7 429.2 0.5
Shareholders' equity 383.8 392.0 (8.1)
Sources of financing 813.6 821.2 (7.6)
Non-controlling interests (0.2) (0.2) 0.0

Net working capital as of 31 December 2019 was negative (¤115.9 million), generating a cash flow of approximately ¤56.4 million during 2019.

Property, plant and equipment which includes investment property, totalled ¤272.7 million as of 31 December 2019, decreasing by ¤3.8 million compared to figures for the previous year. Depreciation for the year (¤40.4 million), impairment costs (¤3.4 million), disposals (¤0.2 million), and the reclassification of assets acquired through finance leases under rights of use, decreased the carrying amount by approximately ¤10.7 million and other movements (¤0.1 million), were only partially offset by investments for the year equal to approximately ¤51.0 million.

Intangible assets totalled ¤676.2 million, up by approximately ¤17.3 million compared to 31 December 2018. This increase is mainly due to investments for the period (¤89.9 million) that exceeded amortisation (¤70.4 million) and impairment costs (¤2.3 million).

Rights of use, equal to ¤36.5 million, represent the current value of future operating lease payments, as required by the adoption of the new accounting standard IFRS 16 and include the net carrying amount of leased assets which had been classified as property, plant and equipment as of 31 December 2018. The amount of the reclassification was equal to ¤10.7 million.

Financial assets which total ¤9.7 million, increased by ¤0.9 million compared to figures for the previous year.

Provisions totalled ¤65.6 million, up on the figure as of 31 December 2018 (¤63.4 million).

As fully described in the next section on the "Consolidated Statement of Cash Flows", net financial debt as of 31 December 2019 was equal to ¤429.7 million, compared to ¤429.2 million as of 31 December 2018. Excluding the effect of adopting the new accounting standard IFRS 16 (¤20.4 million), debt decreased by ¤19.9 million, due to the positive performance of operations, which enabled the payment of dividends (¤32.2 million relative to 2018 and ¤19.6 million relative to the interim divided on 2019 results) and funding of the investments programme.

Shareholders' equity as of 31 December 2019 amounted to ¤383.8 million, down ¤8.1 million compared to 31 December 2018.

7 For a definition of individual items, see the "Economic Glossary".

CONSOLIDATED STATEMENT OF CASH FLOWS

Alternative non-GAAP performance measures

The Consolidated Statement of Cash Flows, prepared in accordance with international accounting standards, is presented in the Consolidated Financial Statements and Notes as of 31 December 2019; the following is a comment relating to the summary statement shown.

CHANGE IN CONSOLIDATED NET DEBT 2019 2018 CHANGE
IN MILLIONS OF EUROS
Opening Consolidated Net Debt (429.2) (446.7) 17.5
Cash Flow from Operating Activities 165.2 144.5 20.7
(Increase)/Reduction in Working Capital 48.8 14.0 34.8
Net Investments (140.9) (115.3) (25.6)
Other changes (18.7) 3.5 (22.2)
Change in Shareholders' Equity (54.9) (29.2) (25.7)
Total Change (0.5) 17.5 (18.0)
Closing Consolidated Net Debt (429.7) (429.2) (0.5)

During 2019 the Piaggio Group used financial resources amounting to ¤0.5 million.

Cash flow from operating activities, defined as net profit, minus non-monetary costs and income, was equal to ¤165.2 million.

Working capital generated a cash flow of approximately ¤48.8 million; in detail:

  • the collection of trade receivables8 generated cash flows for a total of ¤9.4 million;
  • stock management generated cash flows for a total of ¤9.4 million;
  • supplier payment trends generated cash flows of ¤44.9 million;
  • the movement of other non-trade assets and liabilities had a negative impact on cash flows by approximately ¤14.9 million.

Investing activities used financial resources for a total of ¤140.9 million, of which ¤39.6 million in capitalised development costs and ¤101.3 million in property, plant and equipment and intangible assets. Dividends paid in the year were equal to ¤51.8 million.

Other changes mainly include the recognition of a financial payable for operating lease agreements, following the adoption of the new accounting standard IFRS 16.

As a result of the above financial dynamics, which involved a cash flow of ¤0.5 million, the net debt of the Piaggio Group amounted to ¤– 429.7 million.

ALTERNATIVE NON-GAAP PERFORMANCE MEASURES

In accordance with Consob Communication DEM/6064293 of 28 July 2006 as amended (Consob Communication no. 0092543 of 3 December 2015 that enacts ESMA/2015/1415 guidelines on alternative performance measures), Piaggio, in its Report on Operations, refers to some alternative performance measures, in addition to IFRS financial measures (Non-GAAP Measures).

These are presented in order to measure the trend of the Group's operations to a better extent and should not be considered as an alternative to IFRS measures.

In particular the following alternative performance measures have been used:

  • EBITDA: defined as "Operating income" before the amortisation/depreciation and impairment costs of intangible assets and property, plant and equipment, as resulting from the consolidated income statement.
  • Gross industrial margin: defined as the difference between net revenues and the cost to sell;
  • Cost to sell: this includes costs for materials (direct and consumables), accessory purchase costs (transport of incoming material, customs, warehousing), employee costs for direct and indirect manpower and related expenses, work carried out by third parties, energy costs, depreciation of property, plant, machinery and industrial equipment, maintenance and cleaning costs net of sundry cost recovery recharged to suppliers.
  • Consolidated net debt: this consists of gross financial debt, including payables for rights of use, minus cash on hand and other cash and cash equivalents, as well as other current financial receivables. Consolidated net debt does not include other financial assets and liabilities arising from the fair value measurement of financial derivatives used as hedging and the fair value adjustment of related hedged items. The notes to the Consolidated Financial Statements include a table indicating the statement of financial position items used to determine the measure.

BACKGROUND

THE MACROECONOMIC FRAMEWORK

During 2019, global economic growth reported a modest slowdown, to stand at a figure of 3%. This trend was more evident in the real economy, involving in particular the industrial and manufacturing sectors, which were considerably affected by trade tensions between the US and China; the rates dispute, along with the matter of Brexit, contributed to a sharp decline in investments.

The US economy decelerated, however recording a growth of 2.3% thanks to a boost from consumption, which accounted for over two thirds of economic activity. Growth in capital expenditure and exports waned considerably, while salaries started to decrease, reflecting the increasing rigidity of the labour market, while inflation stabilised.

The two main economic strongholds in Asia reported signs of a slowdown: in China (+6.2%) investments and consumption were strongly impacted by the uncertainty over the trade war; the Yuan appreciated against the Dollar, but inflation went up. In India, GDP decreased (by around +5.8%), while the cut in interest rates made by the Reserve Bank has not yet had an effect on the real economy, due to a clamp down on credit in the non-financial sector, while consumption fell, affected by the low rate of employment. Economic growth in Japan stabilised (+0.9%); the effects of the expansive monetary policy eased off and at the same time, domestic demand fell considerably, negatively affected by an increase in excise duties.

The economy in the Euro area ended the period recording a strong downturn (just +1.1% compared to +1.9% in 2018); continuing uncertainties over geopolitical factors, the growing threat of protectionism and vulnerabilities of emerging market weakened confidence, particularly in the manufacturing sector. In this context, inflation drivers remained low and indicators of inflation expectations pointed to a decrease. Considerable monetary stimulus is therefore necessary to ensure favourable financial conditions to support growth.

GDP in Italy amounted to 0.2%, slowing down considerably compared to 2018. Company investment prospects improved slightly compared to the start of the year, thanks in part to tax relief being re-introduced for capital expenditure. Growth is still being driven by private consumer trends, supported by an increase in employment and the introduction of the "citizen's income scheme"; the net foreign component had a negative impact due to the slowdown in exports of goods and services and increase in imports, mainly due to the global trade crisis.

THE MARKET

Two-wheelers

Currently available figures for monitored markets, and specifically the performance of the two-wheeler segment (scooters and motorcycles) are reported below.

India, the most important two-wheeler market, reported a significant reversal in its trend in 2019, closing the year with less than 18.6 million vehicles sold, down by 14.2% compared to 2018.

The People's Republic of China posted another decrease (-5.2%), closing the period with just over 6.5 million units sold.

The Asian area, termed Asean 5, reported a slight increase in 2019 (+0.8% compared to 2018) ending the period with over 13.7 million units sold. Indonesia, the main market in this area, reported slight growth (+1.6% compared to 2018), with total volumes of just under 6.5 million items. Thailand recorded a slight decline in 2019 (1.7 million units sold; -3.3% compared to 2018); Malaysia reported a considerable increase compared to the previous year (nearly 547 thousand units sold; +15.9% compared to 2018). Sales in Vietnam trended downwards in 2019 (3.3 million units sold; -3.9 % compared to 2018), while the Philippines recorded another increase (1.7 million units sold; +7.2% compared to 2018).

Volumes of other Asian area countries (Singapore, Hong Kong, South Korea, Japan, Taiwan, New Zealand and Australia) decreased slightly in overall all terms, compared to the previous year, with around 1.3 million units sold (-3.0%). In particular, Taiwan continued the trend of the previous year, closing the period with approximately 705 thousand units sold (-6.6% compared to 2018). Japan continued its negative performance, with sales down to 362.5 thousand units (-1.8% compared to 2018).

The North American market recorded a slight increase (+0.3%) compared to 2018 (519,976 vehicles sold in 2019).

Brazil, the leading market in South America, continued its positive trend, and thanks to a considerable increase in sales (+13.2%) ended the year with 1.084 million vehicles sold.

Europe, the reference area for Piaggio Group activities, performed well in 2019, with an overall increase of 8.1% in sales compared to 2018 (+7.9% for the motorcycle segment and +8.2% for scooters), ending the period with approximately 1.384 million units sold.

The scooter market

Europe

The European scooter market in 2019 accounted for 689,000 registered vehicles, with sales up by 8.2% compared to 2018.

MARKET VEHICLE REGISTRATIONS CHANGE CHANGE %
2019 2018 OVERALL < 50 CC > 50 CC
Italy 149,111 143,452 5,659 3.9% -5.5% 5.2%
France 134,961 115,248 19,713 17.1% 27.5% 7.2%
Spain 117,541 107,097 10,444 9.8% 30.7% 7.0%
Holland 60,160 58,059 2,101 3.6% 3.1% 20.5%
Germany 57,038 54,522 2,516 4.6% -2.3% 10.8%
Greece 34,849 30,742 4,107 13.4% 2.8% 14.5%
United Kingdom 25,582 24,643 939 3.8% 6.9% 3.1%
Europe 689,020 636,641 52,379 8.2% 11.2% 6.6%

North America

In 2019, the North American market still reported a downturn (-3.8%), with 25,274 units sold:

MARKET VEHICLE REGISTRATIONS CHANGE CHANGE %
2019 2018 OVERALL < 50 CC > 50 CC
USA 21,371 22,615 (1,244) -5.5% -13.9% 4.1%
Canada 3,903 3,654 249 6.8% 11.6% -14.9%
North America 25,274 26,269 (995) -3.8% -8.8% 3.0%

Asia

The main scooter market in the Asean 5 area is Indonesia, with over 6.1 million items sold, reporting an increase of 5.2% compared to 2018. The automatic scooter segment reported considerable growth in 2019 (+5.5% compared to 2018, with nearly 5.7 million units sold). The Cub segment also increased slightly in 2019, closing at +1.1% at 459 thousand units.

India

After years of growth, the automatic scooter market fell by 16.0% in 2019, closing at 5.8 million units sold. The 125 cc segment was the best performer, with 5.7 million units sold in 2019, accounting for 97.7% of the total automatic scooter market. The 150 cc segment reported a considerable decline (-38.7%), mainly related to sales of the Aprilia SR 150, with 21,389 units sold in 2019. The 50 cc scooter segment is not operative in India.

The motorcycle market

Europe

With approximately 695,000 units registered, the motorcycle market ended 2019 with a 7.9% increase. The 50 cc segment also performed well (+15.0%) closing with 38,629 units sold, while the over 50 cc segment increased by 7.5%, closing the period with 656,808 units sold.

MARKET VEHICLE REGISTRATIONS CHANGE CHANGE %
2019 2018 OVERALL < 50 CC > 50 CC
France 150,358 131,675 18,683 14.2% 19.90% 13.5%
Germany 133,450 126,459 6,991 5.5% -22.0% 5.6%
Italy 103,030 96,767 6,263 6.5% 10.1% 6.3%
United Kingdom 81,448 80,857 591 0.7% 29.6% 0.4%
Spain 78,761 67,826 10,935 16.1% 12.2% 16.2%
Europe 695,437 644,536 50,901 7.9% 15.0% 7.5%

North America

The motorcycle market in North America (USA and Canada) recorded a slight increase in 2019 (+0.5%), closing the period with 494,702 units compared to 491,997 the previous year.

MARKET VEHICLE REGISTRATIONS CHANGE CHANGE %
2019 2018 OVERALL < 50 CC > 50 CC
USA 438,526 434,640 3,886 0.9% 16.1% 0.4%
Canada 56,176 57,357 (1,181) -2.1% 3.0% -2.3%
North America 494,702 491,997 2,705 0.5% 13.9% 0.1%

Asia

India is the most important motorcycle market in Asia, selling 12 million units in 2019, accounting for a 12.9% decrease.

The motorcycle market in the Asean 5 area is far less important than the scooter sector. Sales of motorcycles in Vietnam were not significant. In other countries, the highest sales were recorded in Indonesia; however with 373 thousand units sold it reported a decrease of 34.6% compared to the previous year.

Commercial Vehicles

Europe

In 2019, the European market for light commercial vehicles (vehicles with a maximum mass of up to 3.5 tons) where the Piaggio Group operates, continued its growth trend, selling 2,115,650 units, with an increase of 2.8% compared to 2018 (source ACEA data). In detail, the trends of main European reference markets are as follows: Germany (+6.9%), France (+4.5%), Italy (+3.4%), UK (+2.4%) and Spain (+0.3%).

India

The Indian three-wheeler and LCV cargo market (the latter with vehicles that have a mass below 2 tonnes), on which Piaggio Vehicles Privates Limited - the Piaggio & C. S.p.A. subsidiary - operates, reported the following trends:

MARKET VEHICLE REGISTRATIONS CHANGE CHANGE %
2019 2018
Cargo 123,214 126,443 (3,229) -2.6%
Passengers 563,740 591,841 (28,101) -4.7%
Total 3W India 686,954 718,284 (31,330) -4.4%
4W LCV <2 Tons 210,333 226,524 (16,191) -7.1%

Background The macroeconomic framework The market The regulatory framework

THE REGULATORY FRAMEWORK

European Union

European Green Deal

The new European Commission published an initial document outlining the "European Green Deal" programme, which aims to tackle climate change by achieving the following objectives: a 50% reduction in CO2 emissions by 2030 and climate neutrality (zero emissions) by 2050. The European Commission has identified various action areas and announced that new, stricter emission limits will be announced during 2021 for vehicles with internal combustion engines, and if necessary, the current CO2 limits for cars and light commercial vehicles will be revised. The Commission will also publish an Action Plan on the circular economy by March 2020 with new measures for the end of life of vehicles and chemical substances, and will work on proposed legislation to ensure a safe and sustainable value chain for batteries of electric vehicles. The timing for achieving objectives will be detailed further in the work programme that the Commission will publish during 2020.

Emissions

With the new Regulation (EU) 2019/631 approved in April 2019, European institutions approved new limits for CO2 emissions for cars and light commercial vehicles post-2020. An EU fleet-wide target of 147 g CO2 /km by 2030 for the average emissions of new light commercial vehicles (95g CO2 /km for cars), has been confirmed, and a gradual reduction in CO2 emissions (g/Km) of 15% by 2025 and 31% by 2030, compared to 2021, has been decided. However, the new Regulation still allows manufacturers producing less than 22,000 units a year to request an extension. During 2020, the Commission will work on a study on future post-Euro 6 limits for cars. A Euro 7 proposal for cars is expected for the end of 2021. Any developments for cars will have inevitable consequences on the two-wheeler segment (L category), with a new proposal for post-Euro 5 expected from the Commission.

Sound emissions

During 2018, the European Commission started consultations on the presentation of proposed legislation for new Euro 5 noise limits. After the study published in November 2017 gave a favourable opinion on a drastic reduction in noise limits, the Commission requested a second study and at the same time a second costs/benefits analysis of any reduction in noise limits for L category vehicles. The start of this second study requested by the European Commission on noise levels of vehicles was postponed to the beginning of 2020. Proposed legislation from the Commission is therefore expected in 2022.

To prevent a drastic reduction in noise limits, ACEM, the European Association of Motorcycle Manufacturers, is working on a shared strategy of which the key focus is to revise ASEP noise test procedures bearing in mind real driving conditions. Moreover, a more holistic approach to noise has been defined, which takes into account the widespread practice of motorcyclists replacing original exhausts, necessary controls on the road, and different riding styles.

CO2 taxation

At present, only three European countries tax Category L vehicles based on CO2 emissions: Austria, Spain and Norway. In all three nations, vehicles with a power up to 125 cc are exempt (therefore category L1, L2 and L3 vehicles up to 125 cc). At present, a similar tax scheme for France is being debated, while no initiatives in this regard have been taken by Italian Ministries.

Brexit and type approvals in the United Kingdom

With the United Kingdom leaving the EU on 31 January 2020, a transition period for bilateral relations has started, and will end on 31 December 2020, while European legislation will continue to apply until agreements on main issues for future trade and political relations have been reached. To enable manufacturers of motorcycles and mopeds holding a UK type approval to continue to register and sell these vehicles after Brexit, Regulation (EU) 2019/26, approved in January 2019, gives manufacturers the chance to request a switch from UK type approval to a new type approval granted by an approval authority of one of the EU27.

Braking systems

At present, the obligation to use ABS braking systems only applies to L3 category vehicles, with the exception of 125 cc vehicles. Under Article 79 of Regulation (EU) 168/2013, the European Commission will submit a report to the European Parliament and to the Council on the need to extend this obligation to the subcategory L3e-A1 (125 cc). To this end, the Commission began a study in June 2019 on the feasibility of making ABS mandatory for these vehicles. The study will be completed by July 2020 and, based on results, the Commission will assess the possibility of finalising proposed legislation by the end of 2020.

Electric vehicle batteries

With a growing focus on electric mobility and increasing use of new, zero-emission vehicles, the topic of batteries and their environmental sustainability has recently come to the attention of the public and consequently of institutions. In 2019 the European Commission launched a public consultation to obtain feedback from stakeholders in support of proposed legislation introducing new rules and standards to ensure the placing on the market of standardised, high performance batteries that are safe and sustainable. The Commission's proposal will probably be presented during 2020 and will address issues that are crucial for the electric mobility sector.

End of life of vehicles

At present the EU Directive on the end of life of vehicles does not apply to two-wheelers. Manufacturers of cars and commercial vehicles are required to meet specific targets on the recycling and reuse of materials, comply with vehicle design obligations to facilitate the recovery of components, publish a manual on dismantling and collect and be responsible for the collection and disposal of end of life vehicles. The European Commission is evaluating the hypothesis of extending the scope to Category L vehicles. Any proposed legislation could be tabled by the Commission by the end of 2020. Similarly, the French government is deciding whether to extend the End of Life requirements, in France, to cover scooters and motorcycles. European manufacturers meeting as members of ACEM have decided to adopt a proactive approach, starting a debate on measures necessary to establish an End of Life Vehicle regime suitable for two-wheelers.

Business relations with the EU/US

In April 2019, following the case of EU state aid for Airbus/Boeing, the US government issued a list of products to be subject to customs' duties if imported into the US. Two-wheelers (motorcycles/scooters over 500 cc and under 800 cc) and some spare parts/accessories initially on the first list published were then removed from the second list of customs' duties presented in October 2019. The Airbus/Boeing case will be discussed during 2020, and could expose the EU to the risk of new repercussions from the US.

General vehicle safety regulation

As regards cars and light commercial vehicles, in 2018 revision of the General Vehicle Safety Regulation (GVSR) got underway. European institutions reached an agreement on the new Regulation in April 2019. The new wording (which still has to be published in the European Journal), introduces the obligation to use new active safety devices ADAS (Advanced Driver Assistance Systems) and non-ADAS for light commercial vehicles. As regards passive safety, the new GVSR extends the scope of some Regulations (including ECE94 for moderate overlap tests and ECE95 for side impact tests) to category N1 vehicles, previously exempt from these obligations, and technical application rules for front, side and rear crash tests, as well as any exemptions, are also being defined. The Piaggio Group, together with national and international trade associations, is taking an active part in the negotiations which are being held in Geneva and at European level, with a view to promoting rules for application which are not detrimental to vehicles concerned.

Background The macroeconomic framework The market The regulatory framework

Italy

Incentives for electric vehicles

In late December 2019, after numerous interventions from the industry, Government approved the decree renewing incentives for the purchase of electric vehicles in 2020, thanks also to resources allocated during 2019 which were not used.

The requirements to use the incentives have not changed over the previous year: the mandatory scrapping of an L1 to L7 category vehicle, from Euro 0 to Euro 3, and a sum of 30% of the purchase price allocated, up to a maximum of 3,000 euros per purchase of an electric or hybrid vehicle in categories L1 to L7. Vehicles registered in the name of one or more family members that benefit from the incentive may also be scrapped.

Highway code reform

The Bill amending the Highway Code was presented to parliament. The Bill's proposals include the possibility for 125 cc motorcycles to transit on motorways and main extra-urban roads, if ridden by persons aged 18 and over with a category A, B or higher licence. In addition, access to motorways should also be allowed for electric motorcycles over 11 kW. Negotiations are ongoing and the reform should be discussed and approved in Parliament in the first half of 2020.

Micromobility

In June 2019, the Ministry for Transport published the ministerial decree authorising the trial of so-called "micromobility devices". The ruling grants applicant local authorities 24 months to trial the use of these devices, also through sharing services, provided they install specific road signs. The use of four categories of devices has been authorised (monowheels, hoverboards, segways and scooters), on three types of routes (pedestrian, cycle paths and 30 km/h zones). The main requirements are: minimum age of 18 or holder of an AM licence - maximum speed of 20 km/h (in pedestrian areas 6 km/h) - no seating arrangements - obligation to have front and rear lights - CE marking pursuant to the Directive 2006/42/EC. The Budget voted in December 2019 therefore introduced some new aspects, putting electric scooters on the same level as electric bicycles (defined as "rail cycles" by the highway code). The same rules for electric bicycles will apply to electric scooters, without the obligation to have insurance, a licence or wear a safety helmet. The restrictions set out in the trial Ministerial Decree will still apply to other devices (hoverboards, segways and monowheels).

India

Bharat stage VI – emissions

In January 2016, the Indian Ministry of Transport decided to step up the transition from Bharat Stage IV (BS IV) on emissions, to Bharat Stage VI (BS VI) initially planned for 2024. The new BS VI will become mandatory in India for all vehicles manufactured from 1 April 2020 onwards (four-wheelers, light commercial vehicles and two-/threewheelers). The regulation will include an update on: emission limits and standards; testing requirements and test cycles; requirements for on-board diagnostic systems (introduced for the first time for two-wheelers); durability levels for individual vehicle categories; new fuel standards.

The purpose of adopting BS VI is to update Indian regulations, making them more stringent and aligning them with European regulations (Euro 6 for cars).

"FAME" scheme - incentives

The Indian government recently announced its intention to have only electric three-wheelers by April 2023 and electric two-wheelers by April 2025. This strategy, which is part of the FAME (Faster Adoption of Electrical Mobility) scheme the Indian government adopted in 2015, aims to provide incentives for the purchase of electric and hybrid two-, three- and four-wheelers. In April 2019, the transition to the second stage of the scheme was officially announced, with new funds allocated for a total of 1.4 billion USD and incentives targeting the purchase of electric vehicles and development of charging infrastructure.

RESULTS BY TYPE OF PRODUCT

The Piaggio Group is comprised of and operates by geographic segments (EMEA and the Americas, India and Asia Pacific) to develop, manufacture and distribute two-wheeler and commercial vehicles.

Each Geographic Segment has production sites and a sales network dedicated to customers in the relative segment. Specifically:

– EMEA and the Americas have production sites and deal with the distribution and sale of two-wheeler and commercial vehicles;

– India has production sites and deals with the distribution and sale of two-wheeler and commercial vehicles;

– Asia Pacific 2W has production sites and deals with the distribution and sale of two-wheeler vehicles.

For details of results and final capital invested by each operating segment, reference is made to the Notes to the Consolidated Financial Statements.

The volumes and turnover in the three geographic segments, also by product type, are analysed below.

2019 2018 CHANGE % CHANGE
VOLUMES
SELL-IN
(UNITS/
000)
TURNOVER
(MILLION
EUROS)
VOLUMES
SELL-IN
(UNITS/
000)
TURNOVER
(MILLION
EUROS)
VOLUMES TURNOVER VOLUMES TURNOVER
EMEA and Americas 224.5 767.6 219.1 708.9 2.4% 8.3% 5.4 58.7
of which EMEA 213.5 710.4 207.7 656.1 2.8% 8.3% 5.8 54.3
(of which Italy) 49.4 167.0 45.0 149.2 9.9% 12.0% 4.5 17.8
of which America 10.9 57.2 11.4 52.8 -3.9% 8.4% (0.4) 4.4
India 77.0 64.1 88.3 67.7 -12.8% -5.3% (11.3) (3.6)
Asia Pacific 2W 98.2 223.4 85.7 181.4 14.5% 23.2% 12.4 42.0
Total 399.6 1,055.1 393.1 957.9 1.6% 10.1% 6.5 97.2
Scooters 363.0 737.9 357.2 682.5 1.6% 8.1% 5.8 55.4
Motorcycles 36.6 183.7 36.0 147.5 1.8% 24.6% 0.7 36.2
Spare Parts and Accessories 132.1 125.2 5.5% 6.9
Other 1.4 2.7 -48.3% (1.3)
Total 399.6 1,055.1 393.1 957.9 1.6% 10.1% 6.5 97.2

TWO-WHEELERS

Two-wheeler vehicles can mainly be grouped into two product segments: scooters and motorcycles, in addition to the related spare parts and accessories business, the sale of engines to third parties, involvement in main twowheeler sports championships and technical service.

The world two-wheeler market comprises two macro areas, which clearly differ in terms of characteristics and scale of demand: economically advanced countries (Europe, United States, Japan) and emerging nations (Asia Pacific, China, India, Latin America).

In the first macro area, which is a minority segment in terms of volumes, the Piaggio Group has a historical presence, with scooters meeting the need for mobility in urban areas and motorcycles for recreational purposes.

In the second macro area, which in terms of sales, accounts for most of the world market and is the Group's target for expanding operations, two-wheeler vehicles are the primary mode of transport.

Main results

During 2019, the Piaggio Group sold a total of 399,600 two-wheeler vehicles worldwide, accounting for a net turnover equal to approximately ¤1,055.1 million, including spare parts and accessories (¤132.1 million, +5.5%). The overall growth in both volumes (+1.6%) and turnover (+10.1%) was generated by the excellent performance of Asia Pacific (+14.5% volume; +23.2% turnover; +18.0% at constant exchange rates) and EMEA and the Americas (+2.4% volumes; +8.3% turnover; +7.9% with constant exchange rates).

Market positioning9

On the European market, the Piaggio Group achieved a 14.1% share in 2019 (14.5% in 2018), confirming its leadership position in the scooter segment, where it reached a 24.1% share (-1.2% over 2018). In Italy, the Piaggio Group is a well-established leader in the scooter segment (29.9%) and an important player on the domestic two-wheeler market (a 19.4% share in 2019 and a 19.2% share in 2018).

The Group, with its own sites in India and Vietnam, also operates in the "premium" segment of the Indian market and in Asia Pacific countries. In particular, Piaggio is one of the leading segment operators in Vietnam, which is the Group's main market in the Asian area.

On the North American market, Piaggio consolidated its position, decreasing its share from 23.9% in 2018 to 23.7% in 2019. The Group is also committed to consolidating its operations in the motorcycle segment, with the Aprilia and Moto Guzzi brands.

9 Market shares are calculated based on "sell out" volumes, i.e. sales by the distribution network to end purchasers. Market shares for 2018 might differ from figures published last year, due to final vehicle registration data, which some countries publish with a few months' delay, being updated.

The distribution network

EMEA

In EMEA, the Piaggio Group has a direct sales presence in main European countries. On other European markets and in the Middle East and Africa, it operates through importers.

In December 2019, the Group's sales network comprised 1,145 partners managing around 2,800 sales agency agreements for various brands. 43% of these dealers sell only Group brands (one or more), without handling competitors' products.

At present, the Piaggio Group is active in 80 countries in the area and in 2019 further consolidated its sales activities. Actions targeting the distribution network followed market trends in the area, focussing on a better qualitative/ quantitative balance for the sales network.

In addition, new sales and after-sales quality standards continued to be distributed, geared to offering end customers a better experience throughout the customer journey.

Guidelines on the distribution network cover the following areas:

    1. improving customer experience at the sales outlet, consolidating the project to implement the new retail format which is consistent with the premium positioning of Piaggio products;
    1. consolidating local coverage, through a quality-based selection of the network, with the objective of increasing the weight of exclusive Group dealers;
    1. consolidating retail channel activities through a gradual increase in the importance of the primary network;
    1. improving dealers' financial performance by expanding areas of expertise and offering them the chance to sell products and services attributable to the Piaggio Group;
    1. improving the service level for dealers, through dedicated training and appropriate support tools;
    1. continually improving service for end customers, through an integrated platform to manage the entire customer life cycle and customer loyalty.

Americas

In the Americas, the Piaggio Group is directly present in the United States and Canada, while in Latin America it operates through a network of importers. At the end of 2019, the Group had 215 partners, of which 164 in the United States, 39 in Canada and a network of 12 importers in Central and South America.

In 2019, the process to streamline and consolidate the distribution network continued, through the replacement and appointment of new partners to support the growth of Piaggio brands with a special focus on the motorcycle segment and on consolidating the Group's presence in the scooter segment.

Asia Pacific

In Asia Pacific, the Piaggio Group is directly present in Vietnam, Indonesia, China and Japan, while on other markets it operates through importers.

The distribution network is developed on an ongoing basis, in line with the Group's strategic objectives that plan to expand operations in the region.

Past and future actions in the Asia Pacific area include:

  • an increase in sales outlets, and consolidation of the sales service and other services;
  • consolidation of a local presence, with a more focussed, detailed geo-marketing study;
  • growth in the size of the sales and after-sales area;
  • the gradual channelling of the Corporate Identity towards a Motoplex concept, which is therefore increasingly widespread and uniform in all countries.

In Vietnam, the lead nation of the entire Asia Pacific area, the Group had 84 sales outlets throughout the country by the end of 2019, of which 46% Motoplexes. In Indonesia, Japan and China, Piaggio has a network of 43 (65% Motoplex), 54 (16% Motoplex) and 33 (100% Motoplex) sales outlets respectively.

In other areas of Asia Pacific, the number of sales outlets totalled 253 at the end of 2019, with major changes to the current network focussed on the Motoplex concept (43%), with 12 distributors operating in 11 nations - Thailand, Singapore, Taiwan, Australia, Malaysia, South Korea, New Zealand, Cambodia, Hong Kong, the Philippines and Macau. In 2019, 1 Vespa store was opened in Vietnam, 2 Vespa stores in Taiwan, 1 Vespa-Aprilia-Moto Guzzi store in New Zealand and 2 Piaggio-Vespa stores in Thailand.

India

In India, Piaggio Vehicles Private Limited had 260 dealers as of 31 December 2019, up considerably on the figure of 229 dealers at the end of 2018. At present, the network covers main areas throughout the country.

Investments

Investments mainly targeted the following areas:

  • developing new products and face lifts for existing products;
  • improving and modernising current production capacity.

As regards product investments in particular, considerable resources were allocated to developing new products to market on both European and Asian (Vietnamese and Indian) markets.

Industrial investments were also made, targeting safety, quality and the productivity of production processes.

COMMERCIAL VEHICLES

2019 2018 CHANGE % CHANGE
VOLUMES
SELL-IN
(UNITS/
000)
TURNOVER
(MILLION
EUROS)
VOLUMES
SELL-IN
(UNITS/
000)
TURNOVER
(MILLION
EUROS)
VOLUMES TURNOVER VOLUMES TURNOVER
EMEA and Americas 19.2 100.0 16.3 88.5 17.4% 13.0% 2.8 11.5
of which EMEA 14.8 91.9 14.3 84.4 3.9% 8.8% 0.6 7.5
(of which Italy) 4.2 51.0 3.7 46.2 12.4% 10.4% 0.5 4.8
of which America 4.3 8.2 2.1 4.1 111.1% 98.5% 2.3 4.1
India 192.5 366.2 194.2 343.1 -0.8% 6.7% (1.6) 23.1
TOTAL 211.7 466.2 210.5 431.6 0.6% 8.0% 1.2 34.6
Ape 206.7 358.5 204.7 330.7 1.0% 8.4% 2.1 27.8
Porter 4.4 54.5 4.0 47.6 10.9% 14.5% 0.4 6.9
Quargo 0.3 1.2 0.9 3.2 -63.4% -61.5% (0.6) (2.0)
Mini Truk 0.2 0.6 0.9 2.4 -78.8% -76.6% (0.7) (1.9)
Spare Parts and Accessories 51.4 47.7 7.8% 3.7
TOTAL 211.7 466.2 210.5 431.6 0.6% 8.0% 1.2 34.6

The Commercial Vehicles category includes three- and four-wheelers with a maximum mass below 3.5 tons (category N1 in Europe) designed for commercial and private use, and related spare parts and accessories.

Main results

In 2019, the Commercial Vehicles business generated a turnover of approximately ¤466.2 million, including approximately ¤51.4 million relative to spare parts and accessories, registering an 8.0% increase over the previous year. During the year, 211,700 units were sold, up by 0.6% compared to 2018.

Revenues increased in all geographic segments.

On the Indian three-wheeler market, Group sales reversed their trend, from 167,362 units in 2018 to 164,515 units in 2019, down by 1.7%; exports instead went up by 10.1%. Related turnover increased by 7.5%. On the four-wheeler domestic market, sales of Piaggio Vehicles Private Limited were equal to 491 units in 2019.

On the EMEA and Americas market, the Piaggio Group sold 19,200 units, generating a total net turnover of approximately ¤100.0 million, including spare parts and accessories for ¤16.1 million. The growth in sales of 17.4% was supported by the considerable increase in sales on US markets (+111.1% volumes; +98.5% turnover).

Market positioning10

The Piaggio Group operates in Europe and India on the light commercial vehicles market, with vehicles designed for short-range mobility in urban areas (European range) and suburban areas (the product range for India).

In Europe, the Group acts as operator on these markets in a niche segment (urban mobility), thanks to its range of low environmental impact products.

Piaggio operates in India in the passenger vehicle and cargo sub-segments of the three-wheeler market. It also operates on the four-wheeler light commercial vehicles (LCV) market (cargo vehicles for goods transport) with the Indian Porter range.

On the Indian three-wheeler market, Piaggio Vehicles Private Limited slightly increased its market share in 2019, to 23.9% (23.3% in 2018). Detailed analysis of the market shows that Piaggio Vehicles Private Limited maintained its market leader position in the goods transport segment (cargo segment) with a share of 41.8% (44.9% in 2018). The Passenger segment increased its share, to 20.0% (18.7% in 2018). On the four-wheeler market, Piaggio Vehicles Private Limited played a marginal role, with its share decreasing to 0.2% (0.8% in 2018).

10 Market shares are calculated based on "sell out" volumes, i.e. sales by the distribution network to end purchasers. Market shares for 2018 might differ from figures published the previous year, due to final vehicle registration data, which some countries publish with a few months' delay, being updated.

The distribution network

Europe and Overseas

During the year, Piaggio's sales network went through considerable change, based on the current project to develop a new four-wheeler vehicle that will expand the product range and make its mark in a competitive scenario which differs from the current situation.

Following the assessment process in 2018, to define a distribution format which basically separates three-wheeler sales and assistance from four-wheeler sales and assistance, two macro activities were implemented in parallel, in the year: the management and rationalisation of the current network which, apart from withdrawals, will mainly continue to operate in the future, only for the Ape range, and the recruiting of new operators, that will form the main part of the network that will operate for the new commercial vehicle.

The separation of the channel dedicated to three-wheelers and the channel dedicated to four-wheelers began by branding the four-wheeler stores with the new Piaggio Commercial logo (around 140). With the launch of the new vehicle, the separation will be completed, implementing the line dedicated to the Ape brand for relative sales and service points. Moreover, the division between the two brands will be channelled externally creating a dedicated Ape website in the first half of 2020.

As regards the figures, the European network ended 2019 with approximately 400 operators, through the closure of 26 former dealerships and the opening of 40 new Piaggio Commercial dealers (of whom 6 in Italy, 15 in France, 9 in Spain, 7 in Germany and 3 in Greece/Benelux). Coverage of market potential in the new business segment on the four main markets accounts for around 90%.

The profile of the newly acquired network, mainly from the truck segment, is very high in terms of financial, organisational and professional aspects, and scale, and boasts numerous locations, making it possible to effectively manage areas with considerable potential through just one mandate.

In 2019, besides opening in Macedonia, leading operators were selected for all countries where Piaggio does not have a direct presence, to successfully complete recruiting in the first half of the new year, thanks to the appeal guaranteed by the upcoming launch. In this case as well, through a suitable revision of the mandate, it may be possible to operate on the same market at the same time as the current network, only for the Ape brand, and with new specialised Piaggio Commercial importers.

As regards non-European areas, with a view to developing the quality of Piaggio's operations, the process to revise the distribution network continued, with results continually being consolidated. We are now present in 27 countries, including importers in Latin America, Africa, the Middle East, South East Asia and Pacific Asia. More specifically, the perimeter now includes Zambia and New Caledonia and on markets where we are already active, we have replaced five operators (Bolivia, Chile, Mexico, Colombia and Cambodia).

In keeping with the company's general objectives and guidelines for Network Development, the aim in 2020 is to further expand coverage and increase the quality of the Network's activities, maximising efficiency, above all in cases of recently appointed operators, who are still stepping up the organisational and commercial stages.

India

In India, Piaggio Vehicles Private Limited had 464 dealers as of 31 December 2019, up on the 424 dealers in 2018.

Investments

Investments mainly targeted the following areas:

  • developing new products and face lifts for existing products;
  • improving and modernising current production capacity.

Industrial investments were also made, targeting safety, quality and the productivity of production processes.

Strategic risks Financial risks Operating risks

RISKS AND UNCERTAINTIES

Due to the nature of its business, the Group is exposed to different types of risks. To mitigate exposure to these risks, the Group has adopted a structured and integrated system to identify, measure and manage company risks, in line with industry best practices (i.e. CoSO ERM). Scenarios applicable to Group operations are mapped, involving all organisational units, and are updated on an annual basis. These scenarios are grouped referring to external, strategic, financial or operational risk, also considering sustainability issues and in particular "ESG" ("Environmental, Social, Governance related") risks, i.e. which are related to environmental aspects, personnel, social matters, human rights and the fight against active and passive corruption. For details, see the Consolidated Non-Financial Statement.

EXTERNAL RISKS

Risks related to the macroeconomic and geopolitical context

To mitigate any negative effects arising from the macroeconomic and geopolitical context, the Piaggio Group continued its strategic vision, diversifying operations at international level - in particular in Asia where growth rates of economies are still high, and consolidating the competitive positioning of its products. To achieve this, the Group focuses on research activities, and in particular on the development of engines with a low consumption and a low or zero environmental impact.

As regards Great Britain's decision to leave the European Community, the Group considers the effects on global sales and profitability as negligible. In fact, the Group's turnover on the British market accounts for less than 2% of total turnover.

Risks connected to consumer trends

Piaggio's success depends on its ability to manufacture products that cater for consumer's tastes and can meet their needs for mobility. Levering customer expectations and emerging needs, with reference to its product range and customer experience, is essential for the Group to maintain a competitive edge.

Through market analysis, focus groups, concept and product testing, investments in research and development and sharing a roadmap with suppliers and partners, Piaggio can seize emerging market trends to renew its own product range.

Customer feedback enables Piaggio to evaluate customer satisfaction levels and fine tune its own sales and aftersales service model.

Risks related to a high level of market competition

Over the last few years, the characteristics and dynamics of the competitive background of markets on which the Group operates have changed considerably, above all regarding prices, also due to a declining demand worldwide. In addition, the Group is exposed to the actions of competitors that, through technological innovation or replacement products, could obtain products with better quality standards and streamline costs, offering products at more competitive prices.

Piaggio has tried to tackle this risk, which could have a negative impact on the financial position and performance of the Group, by manufacturing high quality products that are innovative, cost-effective, reliable and safe, and by consolidating its presence in Asia.

Risk relative to the regulatory and legal framework

Numerous national and international laws and regulations on safety, noise levels, consumption and the emission of pollutant gases apply to Piaggio products. Strict regulations on atmospheric emissions, waste disposal, the drainage and disposal of water and other pollutants also apply to the Group's production sites.

Unfavourable changes in the regulatory and/or legal framework at a national and international level could mean that products can no longer be sold on the market, forcing manufacturers to invest to renew their product ranges and/or renovate/upgrade production plants.

To deal with these risks, the Group has always invested in research and development into innovative products, anticipating any restrictions on current regulations. Moreover, the Group, as one of the sector's leading manufacturers, is often requested to be represented on parliamentary committees appointed to discuss and formulate new laws.

Risks connected with natural events

The Group operates through industrial sites located in Italy, India and Vietnam. These sites could be affected by natural events, such as earthquakes, typhoons, flooding and other catastrophes that may damage sites and also slow down/interrupt production and sales.

Continual renewal of the sites prevents these risk scenarios. The potential impact of these risks is mitigated by specific insurance cover taken out for various sites based on their relative importance.

Risk connected with the use of new technologies

The Piaggio Group is exposed to risk from the difficulty of keeping abreast with new product and production process technologies. To tackle this risk, the R&D centres at Pontedera, Noale (thanks also to Aprilia Racing's experience in MotoGP racing in Italy) and PADc – the Piaggio Advance Design Center in Pasadena are dedicated to research, development and trialling new technological solutions, while Piaggio Fast Forward in Boston is studying innovative solutions to anticipate and meet future mobility needs.

Risks connected with the sales network

The Group's business is closely related to the sales network's ability to guarantee end customers a high quality sales and after-sales service. Piaggio deals with this risk by establishing specific technical/professional standards to adopt in contracts, and by adopting periodic controls.

Risks connected with external offences

As regards this category, the main potential risks refer to fraudulent events connected with cyber attacks. These risks may stop activities supporting production and sale or compromise the confidentiality of personal data managed by the Group. To mitigate the occurrence of these risks, Piaggio has adopted a system of controls to improve the Group's IT security.

STRATEGIC RISKS

Reputational and Corporate Social Responsibility risks

In carrying out its operations, the Group could be exposed to stakeholders' perception of the Group and its reputation and their loyalty changing for the worse because of the release of detrimental information or due to sustainability requirements in the Corporate Governance Report not being met, as regards economic, environmental, social and product-related aspects.

Risks connected with the definition of strategies

In defining its strategic objectives, the Group could make errors of judgement with a consequent impact on its image and financial performance.

Risks connected with the adoption of strategies

In carrying out its operations, the Group could be exposed to risks from the wrong or incomplete adoption of strategies, with a consequent negative impact on achieving the Group's strategic objectives.

FINANCIAL RISKS

Risks connected with exchange rate trends

The Piaggio Group undertakes operations in currencies other than the euro and this exposes it to the risk of fluctuating exchange rates of different currencies.

Exposure to business risk consists of envisaged payables and receivables in foreign currency, taken from the budget for sales and purchases reclassified by currency and accrued on a monthly basis.

The Group's policy is to hedge at least 66% of the exposure of each reference month.

Exposure to the settlement risk consists of receivables and payables in foreign currency acquired in the accounting system at any moment. The hedge must at all times be equal to 100% of the import, export or net settlement exposure for each currency.

During the year, currency exposure was managed based on a policy that aims to neutralise the possible negative effects of exchange rate variations on company cash flow. This was achieved by hedging economic risk, which refers to changes in company profitability compared to the planned annual economic budget, based on a reference change (the "budget change"), and transaction risk, which refers to differences between the exchange rate at which receivables and payables are recognised in currency in the financial statements and the exchange rate at which the relative amount received or paid is recognised.

The Group has assets and liabilities which are sensitive to changes in interest rates and are necessary to manage liquidity and financial requirements. These assets and liabilities are subject to an interest rate risk and are hedged by derivatives or by specific fixed-rate loan agreements.

For a further description, reference is made to section 44 of the Notes to the Consolidated Financial Statements.

Strategic risks Financial risks Operating risks

Risks connected with insufficient cash flows and access to the credit market

The Group is exposed to the risk arising from the production of cash flows that are not sufficient to guarantee Group payments due, or adequate profitability and growth to achieve its strategic objectives. Moreover, this risk is connected with the difficulty the Group may have in obtaining loans or a worsening in conditions of loans necessary to support Group operations in appropriate time frames.

To deal with these risks, cash flows and the Group's credit line needs are monitored or managed centrally under the control of the Group's Treasury in order to guarantee an effective and efficient management of financial resources as well as optimise the debt maturity standpoint.

In addition, the Parent Company finances the temporary cash requirements of Group companies by providing direct short-term loans regulated in market conditions or guarantees.

Risks connected with credit quality of counterparties

This risk is connected with any downgrading of the credit rating of customers and consequent possibility of late payments, or the insolvency of customers and consequent failure to receive payments.

To balance this risk, the Parent Company evaluates the financial reliability of its business partners and stipulates agreements with primary factoring companies in Italy and other countries for the sale of trade receivables without recourse.

Risks connected with deleverage

This risk is connected with compliance with covenants and targets to reduce loans, to maintain a sustainable debt/ equity balance.

To offset this risk, the measurement of financial covenants and other contract commitments is monitored by the Group on an ongoing basis.

OPERATING RISKS

Risks relative to the product

The "Product" category includes all risks concerning faults due to a nonconforming quality and safety and consequent recall campaigns that could expose the Group to: the costs of managing campaigns, replacing vehicles, claims for compensation and above all if faults are not managed correctly and/or are recurrent, damage to its reputation. A product nonconformity may be due to potential errors and/or omissions of suppliers, or internal processes (i.e. during product development, production, quality control).

To mitigate these risks, Piaggio has established a Quality Control system, it tests products during various stages of the production process and carefully sources its suppliers based on technical/professional standards. The Group has also defined plans to manage recall events and has taken out insurance to protect the Group against events attributable to product defects.

Risks connected with the production process/business continuity

The Group is exposed to risk connected with possible interruptions to company production, due to the unavailability of raw materials or components, skilled labour, systems or other resources.

To deal with these risks, the Group has necessary maintenance plans, invests in upgrading machinery, has a flexible production capacity and sources from several suppliers of components to prevent the unavailability of one supplier Strategic risks Financial risks Operating risks

affecting company production. Moreover, the operating risks related to industrial sites in Italy and other countries are managed through specific insurance cover assigned to sites based on their relative importance.

Risks connected with the supply chain

In carrying out its operations, the Group sources raw materials, semi-finished products and components from a number of suppliers. Group operations are conditioned by the ability of its suppliers to guarantee the quality standards and specifications requested for products, as well as relative delivery times. To mitigate these risks, the Group qualifies and periodically evaluates its suppliers based on professional/technical/financial criteria in line with international standards.

Risks connected with the environment and with health and safety

The Group has production sites, research and development centres and sales offices in different nations and so is exposed to the risk of not being able to guarantee a safe working environment, with the risk of causing potential harm to property or people and exposing the Group to legal sanctions, lawsuits brought by employees, costs for compensation payments and reputational harm.

To mitigate these risks, Piaggio adopts a sustainable development model that is based on environmental sustainability, in terms of safeguarding natural resources and the possibility that the ecosystem might absorb the direct and indirect impact of production activities. Specifically, Piaggio seeks to minimise the environmental impact of its industrial activities through careful definition of the technological transformation cycle and using the best technologies and most modern methods of production.

The risks related to accidents/injuries sustained by personnel are mitigated by aligning processes, procedures and structures with applicable Occupational Safety laws, as well as best international standards.

These commitments, set out in the Code of Ethics11 and confirmed by top management in the Group's "environmental policy" which is the basis for environmental certification (ISO 14001) and health and safety certification (ISO 45001 for Italian sites and Vietnam and BS OHSAS 18001 for India) already awarded and maintained at production sites, is a mandatory benchmark for all company sites no matter where they are working.

Risks connected with processes and procedures adopted

The Group is exposed to the risk of shortcomings in planning its company processes or errors and deficiencies in carrying out operations.

To deal with this risk, the Group has established a system of directives comprising organisational notices and Manuals/Policies, Management Procedures, Operating Procedures and Work Instructions. All documents relative to Group processes and procedures are part of the single Group Document Information System, with access that is regulated and managed on the company intranet.

Risks relative to human resources

The main risks the Group is exposed to concerning human resources management include the ability to recruit expertise, professionalism and experience necessary to achieve objectives. To offset these risks, the Group has established specific policies for recruitment, career development, training, remuneration and talent management, which are adopted in all countries where the Group operates according to the same principles of merit, fairness and transparency, and focussing on aspects that are relevant for the local culture.

In Europe, the Piaggio Group operates in an industrial context with a strong trade union presence, and is potentially

11 Code of Ethics - Article 8: "Without prejudice to compliance with the specific applicable regulation, the Company pays attention to environmental issues in its decisions, also adopting - where operationally and economically feasible and compatible - environmentally friendly production technologies and methods, with the aim of reducing the environmental impact of its activities".

Risks and uncertainties External risks

Strategic risks Financial risks Operating risks

exposed to the risk of strikes and interruptions to production activities.

In the recent past, the Group was not affected by major interruptions to production because of strikes. To avoid the risk of interruptions to production activities, as far as possible, the Group bases its relations with trade union organisations on dialogue.

Legal risks

The Piaggio Group legally protects its products and brands throughout the world. In some countries where the Group operates, laws do not offer certain standards of protection for intellectual property rights. This circumstance could render the measures adopted by the Group to protect itself from the unlawful use of these rights by third parties inadequate.

Within the framework of its operations, the Group is involved in legal and tax proceedings. As regards some of the proceedings, the Group could be in a position where it is not able to effectively quantify potential liabilities that could arise. A detailed analysis of the main disputes is provided in the specific paragraph in the Notes to the Consolidated Financial Statements.

Risks relative to internal offences

The Group is exposed to risks of its employees committing offences, such as fraud, active and passive corruption, acts of vandalism or damage that could have negative effects on its business results in the year, and also harm the image and integrity of the Company and its reputation. To prevent these risks, the Group has adopted a Model pursuant to Legislative Decree no. 231/2001 and a Code of Ethics which sets out the principles and values the entire organisation takes inspiration from.

Risks relative to reporting

The Group is exposed to the risk of possible inadequacies in its procedures that are intended to ensure compliance with Italian and relevant foreign regulations applicable to financial disclosure, running the risk of fines and other sanctions. In particular there is a risk that financial reporting for Group stakeholders is not accurate and reliable due to significant errors or the omission of material facts and that the Group provides disclosure required by applicable laws in a manner which is inadequate, inaccurate or untimely.

To deal with these risks, the financial statements are audited by Independent Auditors. Moreover, the control activities required by Italian Law 262/2005 were extended to cover the most important subsidiaries, Piaggio Vehicles Pvt. Ltd., Piaggio Vietnam Co.Ltd., Aprilia Racing Srl and Piaggio Group Americas Inc.

EVENTS OCCURRING AFTER THE END OF THE PERIOD

24 January 2020 – The Piaggio Group announced it has already started the production of three-wheeler vehicles in India conforming to new emission regulations, Bharat Stage VI - becoming the first manufacturer of three-wheelers in the country to have updated its entire range to the new standards. The models, which run on diesel, have an entirely new control unit, a 599 cc engine, 5 gears and a new, aluminium clutch. The updated cargo range features a larger cabin, while the passenger version has been fitted with new doors designed for even greater passenger safety. Lastly, alternative fuel models are equipped with one of the most advanced transmission systems in the sector, and feature an ultra hi-tech 3-valve, 230 cc engine. The Piaggio Group has always focussed in particular on the engineering of its products to reduce emissions to a minimum. This attentive policy has allowed it to comply with the new regulation ahead of schedule without any risk of negative impacts on production or sales.

10 February 2020 - The Piaggio Group presented the new Aprilia SXR 160 for the Indian market. With an amazingly sporty and hi-tech style, the Aprilia SXR 160 is destined to become the leading light in the premium two-wheeler segment in India, expanding the range and potential number of top-end products, that already include the Vespa and Aprilia SR 150.

12 February 2020 – the Piaggio Medley was unveiled with an entirely new look, for an even more dynamic, highperformance and technological version. The 125 and 150 cc versions of the Piaggio i-get engines made their début on the new Piaggio Medley: both 4-valve, electronic engines are liquid cooled, delivering 11 and 12.1 kW respectively, and are some of the most powerful in their category. The Piaggio Medley also has new connectivity features for the first time ever in the high-wheel medium scooter segment.

OPERATING OUTLOOK

Despite the likely impact of the Covid-19 virus on the world economy, at least in the first half of the year, the Group is managing the effects on its supply chain without any particular impact for its production sites (located in Italy, India and Vietnam), and will continue to operate to consolidate its positioning on global markets.

Moreover, considering its product portfolio and diversified production and sales presence on international markets enabling it to mitigate any negative effects, the Group is committed to:

  • confirming its leadership position on the European two-wheeler market, optimally levering expected recovery by further consolidating the scooter and motorcycle product ranges;
  • maintaining current positions on the European commercial vehicles markets, further consolidating the sales network;
  • consolidating its presence in Asia Pacific, exploring new opportunities in countries in the area, with a particular focus on the premium segment of the market;
  • strengthening sales on the Indian scooter market thanks to the Vespa and Aprilia product ranges;
  • increasing the penetration of commercial vehicles in India, thanks to the introduction of new engines.

From a technological point of view, the Piaggio Group will continue research to develop new solutions for current and future mobility challenges through the efforts of Piaggio Fast Forward (Boston) and to explore the new frontiers of design through PADc (Piaggio Advanced Design center) in Pasadena.

More generally, the Group is committed - as it always has been - to increasing productivity in 2020 with a strong focus on streamlining costs and investments, carefully monitoring the situation so that it can take measures, where necessary, to guarantee the satisfaction of all its stakeholders.

TRANSACTIONS WITH RELATED PARTIES

Revenues, costs, payables and receivables as of 31 December 2019 involving parent companies, subsidiaries and affiliated companies refer to the sale of goods or services which are a part of normal operations of the Group.

Transactions are carried out at normal market values, depending on the characteristics of the goods and services provided. Information on transactions with related parties, including information required by Consob in its communication of 28 July 2006 DEM/6064293, is given in the notes to the Consolidated Financial Statements and notes to the separate Financial Statements of the Parent Company.

The procedure for transactions with related parties, pursuant to Article 4 of Consob Regulation no. 17221 of 12 March 2010 as amended, approved by the Board on 30 September 2010, is published on the institutional site of the Issuer , under .

INVESTMENTS OF MEMBERS OF THE BOARD OF DIRECTORS AND MEMBERS OF THE CONTROL COMMITTEE

Members of the board of directors and members of the control committee of the Issuer do not hold shares in the Issuer.

CORPORATE GOVERNANCE

PROFILE

The Company is organised in accordance with the traditional administration and control model mentioned in Articles 2380-bis and following of the Italian Civil Code, with the Shareholders' Meeting, the Board of Directors and the Board of Statutory Auditors.

The Chairman and Chief Executive Officer of the Company is Roberto Colaninno, the Deputy Chairman is Matteo Colaninno.

The Board of Directors has given the Director Michele Colaninno powers to operate in the context of the development of Group operations and product and marketing strategies.

The Company has adopted the Corporate Governance Code approved by the Corporate Governance Committee in March 2006 and last updated in July 2018, aligning it with the corporate governance principles in the Code.

The Company is subject to the management and coordination of IMMSI S.p.A. pursuant to Article 2497 and following of the Italian Civil Code.

BOARD OF DIRECTORS

The Board of Directors of the Company in office at the date of this Report comprises nine members, appointed by the Ordinary General Meeting of Shareholders of 16 April 2018 based on the two lists of candidates submitted by the majority shareholder IMMSI S.p.A. and by the Legal Practice Trevisan & Associati. The Board of Directors will remain in office until the date of the Ordinary General Meeting of Shareholders called for approval of the Financial Statements for the financial year ending 31 December 2020.

The majority of the Board of Directors are non-executive, independent directors, and their number and authority are such that they ensure that their opinion has a significant weight in the Issuer's Board decisions. Non-executive directors and independent directors bring their specific competencies to Board discussions, contributing to the making of decisions that conform to corporate interests.

COMMITTEES

The Appointment Proposal Committee, the Remuneration Committee, the Internal Control and risk management Committee and the Related Parties Transactions Committee have been established within the Board.

INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM

The internal control and risk management system requires the Board, after consulting with the Internal Control and Risk Management Committee, to define guidelines for the internal control and risk management system which comprises all processes to identify, measure, manage and monitor main risks. This system helps ensure efficient and effective company operations, the reliability of financial information, compliance with laws and regulations as well as the company's articles of association and with internal procedures, and the safeguarding of company assets. In this context, the Board of Directors is assisted by a Director appointed to oversee operation of the internal control and risk management system and an Internal Control and risk management Committee.

The Board of Directors, in response to a proposal by the Director in charge of the internal control and risk management system and having obtained the opinion of the Internal Control and risk management Committee and the Board of Statutory Auditors, appointed the Internal Auditing Supervisor to verify that the internal control and risk management system is operative and adequate, ensuring that he/she receives adequate means to carry out his/her functions, including - as regards the operating structure and internal organisational procedures - access to information needed for his/her position.

BOARD OF STATUTORY AUDITORS

The Board of Statutory Auditors in office at the date of this Report was appointed by the Ordinary General Meeting of Shareholders of 16 April 2018, based on the two lists of candidates submitted by the majority shareholder IMMSI S.p.A. and by the Legal Practice Trevisan & Associati, in compliance with Article 24.2 of the Company Articles of Association, and will remain in office until approval of the Financial Statements for the year ending 31 December 2020.

CORPORATE GOVERNANCE REPORT

The Company produces an annual Report on Corporate Governance and Corporate Ownership, describing the corporate governance system adopted by the Issuer, and containing information on corporate ownership and the internal control and risk management system. The entire report is available on the website of the Issuer under Governance.

OTHER INFORMATION

PERSONAL DATA PROCESSING – LEGISLATIVE DECREE NO. 196 OF 30 JUNE 2003 – REGULATION (EU) 679 OF 27 APRIL 2016 (GDPR – GENERAL DATA PROTECTION REGULATION)

As regards obligations in applicable legislation on data privacy, Piaggio & C. S.p.A., as Data Controller, has adopted various security measures listed in this legislation.

Following the entry into force of Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data (GDPR), the company has completed the process to align with regulations.

The Company is responsible, in accordance with law and in its capacity as "Controller", for all personal data processing it carries out and in view of this responsibility, adopts adequate security measures in relation to risks for the rights and freedoms of natural persons. To guarantee effective data processing, the Board of Directors has appointed an officer from its members who, in the name and on behalf of the Company, independently takes decisions as to the purposes and procedures of personal data processing and instruments used, including the adoption and monitoring of security measures and their adequacy, and supervises all personal data processing activities carried out by the Company.

In compliance with the GDPR, and considering that the Company's operations involve, inter alia, the regular and systematic monitoring of the personal data of natural persons, a Data Protection Officer (DPO) has also been appointed, as provided for by Articles 37-39 of the GDPR, who acts as consultant to company functions on privacy, and inspects personal data management activities, as the reference point within the Company for all matters concerning personal data processing and as the interface with the Italian Data Protection Authority.

ARTICLE 36 OF THE CONSOB REGULATION ON MARKETS (ADOPTED WITH CONSOB RESOLUTION NO. 16191/2007 AS AMENDED): CONDITIONS FOR LISTING COMPANIES CONTROLLING COMPANIES ESTABLISHED AND GOVERNED ACCORDING TO LAWS OF NON-EU MEMBER STATES ON THE STOCK EXCHANGE

As regards regulatory requirements on conditions for listing companies controlling companies established and governed according to laws of non-EU Member States on the stock exchange and material importance for the purposes of consolidated financial statements, the following is reported:

  • at 31 December 2019, regulatory provisions of Article 36 of the Regulation on Markets applied to the subsidiaries: Piaggio Vehicles Private Limited; Piaggio Vietnam Co Ltd; Piaggio Group Americas Inc; Zongshen Piaggio Foshan Motorcycle Co. Ltd; Foshan Piaggio Vehicles Technology R&D Co Ltd; Piaggio Advanced Design Center Corporation; Piaggio Fast Forward Inc.; Piaggio Group Japan; PT Piaggio Indonesia; Piaggio China Co. LTD; Piaggio Asia Pacific PTE Ltd;
  • adequate procedures for ensuring full compliance with the above regulation have been adopted.

ARTICLE 37 OF THE CONSOB REGULATION ON MARKETS: CONDITIONS PREVENTING THE LISTING OF SHARES OF SUBSIDIARIES SUBJECT TO THE MANAGEMENT AND COORDINATION OF ANOTHER COMPANY

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

ARTICLE 2428 OF THE ITALIAN CIVIL CODE

The information required by Article 2428, paragraphs 1, 2, 3 and 6 is given in the Report on Operations. Information on financial instruments, objectives and policies of the Group concerning financial risk management is given in section F of the Notes to the Consolidated Financial Statements and in section E of the Parent Company's Financial Statements. Information about secondary sites of the Parent Company is given in section A of the Parent Company's Financial Statements.

STATEMENT OF RECONCILIATION BETWEEN SHAREHOLDERS' EQUITY AND NET PROFIT FOR THE PERIOD OF THE PARENT COMPANY AND CONSOLIDATED COMPANIES

SHAREHOL
DERS' EQUITY
31/12/2018
2019
RESULT
OTHER
MOVEMENTS
SHAREHOL
DERS' EQUITY
31/12/2019
IN THOUSANDS OF EUROS
Piaggio & C. SpA 317,385 46,211 (54,271) 309,325
Net profit and shareholders' equity of subsidiaries 232,200 68,338 (82,087) 218,451
Elimination of the carrying amount of investments (149,571) (62,557) 75,287 (136,841)
Elimination of the effects of intergroup transactions (8,062) (5,243) 6,177 (7,128)
Piaggio Group 391,952 46,749 (54,894) 383,807

ECONOMIC GLOSSARY

Net working capital: defined as the net sum of: Trade receivables, Other current and non-current receivables, Inventories, Trade payables, Other current and non-current payables, Current and non-current tax receivables, Deferred tax assets, Current and non-current tax payables and Deferred tax liabilities.

Net property, plant and equipment: consist of property, plant, machinery and industrial equipment, net of accumulated depreciation, investment property and assets held for sale.

Net intangible assets: consist of capitalised development costs, costs for patents and know-how and goodwill arising from acquisition/merger operations carried out by the Group.

Rights of use: refer to the discounted value of lease payments due, as provided for by IFRS 16.

Financial assets: defined by the Directors as the sum of investments, other non-current financial assets and fair value adjustment of financial liabilities.

Provisions: consist of retirement funds and employee benefits, other long-term provisions and the current portion of other long-term provisions.

Gross industrial margin: defined as the difference between "Revenues" and corresponding "Cost to sell" of the period.

Cost to sell: include the cost for materials (direct and consumables), accessory purchase costs (transport of incoming material, customs, movements and warehousing), employee costs for direct and indirect manpower and related expenses, work carried out by third parties, energy costs, depreciation of property, plant, equipment and industrial equipment, external maintenance and cleaning costs net of sundry cost recovery recharged to suppliers.

Operating expenses: consist of employee costs, costs for services, leases and rentals, and additional operational expenditure net of operating income not included in the gross industrial margin. Operating expenses also include amortisation and depreciation not included in the calculation of the gross industrial margin.

Consolidated EBITDA: defined as "Operating income" before the amortisation/depreciation and impairment costs of intangible assets, property, plant and equipment and rights of use, as resulting from the consolidated income statement.

Net capital employed: determined as the algebraic sum of "Net fixed assets", "Net working capital" and provisions.

In some cases, data could be affected by rounding off defects due to the fact that figures are represented in millions of Euros; changes and percentages are calculated from figures in thousands of Euros and not from rounded off figures in millions of Euros.

General

Consolidated non-financial statement - Legislative Decree no. 254 of 30 December 2016

Social and environmental-oriented policies and guidelines Description of the process to identify material issues for Non-Financial Statement purposes The business model Risk Management Governance of sustainability The Environmental Dimension The Social Dimension

CONSOLIDATED NON-FINANCIAL STATEMENT - LEGISLATIVE DECREE NO. 254 OF 30 DECEMBER 2016

GENERAL

This "Non-Financial Statement" (hereinafter also "NFS" or statement), is published by Piaggio & C. S.p.A. (hereinafter "Piaggio" or the "Group") in compliance with Legislative Decree no. 254/2016 (Implementation of Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups).

REPORTING
PERIOD
– Financial year 2019 (from 1 January to 31 December 2019). Data
relative to 2018 are presented for comparison. The analysis for some
data over 3 financial years is given in the 2019 CSR Report, available at
www piaggio com.
BOUNDARY – The information and figures in the NFS refer to wholly owned subsidiaries12
(Italian and foreign) and the Fondazione Piaggio and the activities they
engaged in over the course of the year, unless otherwise indicated. For
further details on the scope of consolidation for various topics addressed,
see the table in the section "Contents of the NFS".
Information on the Fondazione Piaggio, which is not included in the scope
of consolidation of the Group, refers to qualitative aspects useful for
understanding its focus on the social fabric, even though this information
is not included in the scope of consolidation of quantitative information of
the NFS.
The report duly indicates when aggregate data derive from estimates. In
some cases, data could be affected by rounding off defects due to the fact
that figures are represented in millions of Euros; changes and the incidence
in percent were calculated based on data expressed in thousands and not
on the rounded figures expressed in millions.
CONTENT – The contents of the NFS were selected based on a process of materiality,
focussing on the non-financial topics required by the Directive. All
sustainability issues are fully described in the 2019 CSR Report available
at www.piaggio.com.
REPORTING
STANDARD
– The 2019 Non-Financial Statement has been prepared in compliance with
the "GRI Standards" (GRI-Referenced), published by Global Reporting
Initiative in 2016.

The "Table of correspondence with Legislative Decree no. 254/2016 - material topics – GRI Standards – core option" which clearly identifies the non-financial material topics for the Piaggio Group and standards used to report on each topic, is included at the end of the statement. This table also contains specific information in compliance with requirements of Legislative Decree no. 254/2016.

12 See the attachment to the 2019 Consolidated Financial Statements "Piaggio Group Companies".

SOCIAL AND ENVIRONMENTAL-ORIENTED POLICIES AND GUIDELINES

The Social Dimension

The Piaggio Group has established a system of policies, including its anti-corruption policy and environmental, training, safety and quality policies, to guarantee compliance with principles of fairness, transparency, honesty and integrity in keeping with international standards on responsible business management.

The Group operates in diverse geographic, legal and cultural contexts. Therefore its policies and guidelines are put in place by each company through their own operating procedures and practices.

The cornerstone of the system is the Group's Code of Ethics - not only for employees, but also for suppliers who must sign and comply with the Code in order to work with Piaggio.

DESCRIPTION OF THE PROCESS TO IDENTIFY MATERIAL ISSUES FOR NON-FINANCIAL STATEMENT PURPOSES

The contents are based on principles of materiality, the inclusion of stakeholders, the context of sustainability and completeness. The quality of information and adequacy of its presentation is guaranteed by principles of fairness, clarity, accuracy, timeliness, comparability and reliability.

Materiality analysis

The analysis process was conducted by the Group Consolidated Financial Statements and Sustainability Unit. The process comprises 4 stages:

    1. identification of sustainability issues;
    1. identification and involvement of relevant stakeholders;
    1. assessment of the significance of topics;
    1. approval by the Board of Directors.

The stage to identify sustainability topics that are relevant for the sector and Piaggio was based on a number of sources, including company policies and principles on conduct, the 2018 Sustainability Report and stakeholder engagement initiatives.

The Piaggio Group has always paid considerable attention to engaging with stakeholders, i.e. all entities inside and outside the organisation whose activities have an impact on company operations. In fact stakeholders are defined as having an interest in or expectations (social, economic, professional, human) of the company.

Based on this definition, the Group has identified a series of categories of stakeholders in relation to its operations.

The Group's top managers and a small but representative sample of categories of external stakeholders, were requested to compile a materiality form, combined and used to construct the materiality matrix. The 15 topics previously selected were positioned along the two axes:

– the x-axis shows the significance for Piaggio;

– the y-axis shows the significance for external stakeholders.

Of the 15 topics identified, only biodiversity did not exceed the materiality threshold. Piaggio's production sites are not located in protected areas or areas with high levels of biodiversity. The sole exception is the Scorzè site, which although located in an industrial zone, conveys its waste water into the drainage basin of the Venetian Lagoon. As such, the production site is subject to restrictions imposed by specific laws.

The 2019 matrix was examined and approved by the Board of Directors of Piaggio & C. S.p.A. in the meeting of 24 February 2020.

Priorities for the company

Contents of the Non-Financial Statement

Based on the results of materiality analysis, the format of the 2019 Non-Financial Statement was defined, focussing on non-financial material topics, as referred to in Legislative Decree no. 254 of 30 December 2016. Similarly, the level of materiality of the topics - in turn broken down into detailed subtopics - influenced the level of depth with which the individual topics and GRI indicators were investigated, as well as the choice of the most suitable reporting tool to represent them (Consolidated Financial Statements and Corporate Governance Report). The following table shows:

– the material topics for the company, represented by dimension,

– the impact on stakeholders,

– the relative section in the Non-Financial Statement or reference to the most appropriate reporting document and

– the reporting boundary.

MATERIALITY DIAGRAM

The Social Dimension

DIMENSION TOPIC INTERNAL
IMPACT
EXTERNAL
IMPACT
RELATIVE SECTION
IN THE NFS / OTHER
DOCUMENT
REPORTING
PERIMETER13
GOVERNANCE
OF
SUSTAINABILITY
– Fighting against
corruption
All Group companies -
Human resources
Public administration
sector -
Suppliers – Customers -
Lenders
NFS: Governance of
sustainability and CSR
Report
All Group companies
– Compliance with
laws and regulations
All Group companies -
Human resources
Public Administration -
Suppliers - Customers
- Lenders - Local
communities
NFS: Governance of
sustainability and CSR
Report
All Group companies
– Respecting human
rights
All Group companies -
Human resources
Suppliers NFS: Governance of
sustainability and CSR
Report
All Group companies
RISK
MANAGEMENT
– Risk management All Group companies -
Human resources
Customers - Local
communities and the
external environment
Risk Management All Group companies
ECONOMIC – Transparency
– Creating economic
value
All Group companies -
Human resources
Shareholders and
Lenders - Suppliers
Consolidated Financial
Statements and
Corporate Governance
Report
All Group companies
PRODUCT – Product innovation
and sustainable
mobility
– Safety and reliability
Piaggio & C - Piaggio
Vietnam - Piaggio
Vehicles Private Limited
– Piaggio Advance
Design Center (PADC)
– Piaggio Fast Forward -
Foshan Piaggio Vehicles
Technologies (FPVT)
Customers NFS: The business
model and the
Corporate Governance
Report
Piaggio & C - Piaggio
Vietnam - Piaggio
Vehicles Private Limited
– PADC – Piaggio Fast
Forward – FPVT
– Meeting customer
requirements
All Group companies Customers and dealers Corporate Governance
Report
Piaggio & C - Piaggio
Vietnam - Piaggio
Vehicles Private Limited
ENVIRONMEN
TAL
– Energy efficiency
– Waste handling
– Conserving water
resources
All Group companies Local Communities -
Suppliers
NFS: The environmental
dimension and the
Corporate Governance
Report
All Group companies
SOCIAL – Developing human
capital
– Health and safety
Human resources NFS: The social
dimension and the
Corporate Governance
Report
All Group companies
– Responsible
management of the
supply chain
Piaggio & C - Piaggio
Vietnam - Piaggio
Vehicles Private Limited
– PADC –Piaggio Fast
Forward - FPVT
Suppliers NFS: The social
dimension and the
Corporate Governance
Report
Piaggio & C - Piaggio
Vietnam – Piaggio
Vehicles Private Limited
- PADC – Piaggio Fast
Forward – FPVT
– Supporting local
communities
All Group companies Local Communities NFS: The social
dimension and the
Corporate Governance
Report
Fondazione Piaggio - All
Group companies

For details of the stakeholder map and stakeholder engagement process, see the section "The commitment of the Piaggio Group" in the 2019 CSR Report.

13 Any exceptions are reported in a note at the time of reporting.

THE BUSINESS MODEL

The Piaggio Group Business Model

The Social Dimension

The Piaggio Group places its ongoing search for solutions for the mobility of people and things at the centre of its business model.

The Group's ultimate goal is the creation of long-term value through the effective and efficient use and management of available resources, constantly guided by the principles and values that make up the Code of Ethics.

Our resources

FINANCIAL

Shareholders, bondholders and banks ensure that Piaggio has the financial resources it needs, on condition that their expected return on invested capital is met.

HUMAN

Human resources, and the skills, abilities and dedication offered by individuals, represent a key factor in Piaggio's competitiveness and growth at a global level. Everything we do as individuals or as a team is shaped by our strategic vision, result-driven approach, constant commitment to customer satisfaction, desire for innovation and awareness of the future needs of the market, to generate value for each and every stakeholder. People are the key element that enables us to meet challenges in an increasingly dynamic and competitive international scenario. It is for these reasons that Piaggio places such central importance on people in the organisation, assuring them our respect and protection in all Group companies.

INTELLECTUAL

The Piaggio Group is aware of the great value of innovation and research and believes in the importance of sharing knowledge and ideas and in the stimulus that it can give to improving technologies, processes and products. For this reason the Piaggio Group has always been engaged on many fronts to consolidate the synergy between its research and development centres, the world of research and its industrial sector.

Every year, the Group's intensive research and development activities lead to patents being filed in the countries where it works.

PRODUCTION

The Piaggio Group operates on a global scale, with production sites in:

  • Pontedera, the main technical headquarters of the Group, which manufactures Piaggio, Vespa and Gilera brand two-wheeler vehicles, light transport vehicles for the European market and engines for scooters, motorcycles and Ape vehicles;
  • Noale (Venice), the technical centre for the development of motorcycles for the entire Group, and the headquarters of Aprilia Racing;
  • Scorzè (Venice), a factory for the production of two-wheeler vehicles for the brands Aprilia, Scarabeo and Derbi, and for Wi-bikes;
  • Mandello del Lario (Lecco), a factory which produces Moto Guzzi vehicles and engines;
  • Baramati (India, in the state of Maharashtra), with plants dedicated to the manufacture of three- and four-wheeler commercial vehicles, Vespa and Aprilia brand scooters and engines;
  • Vinh Phuc (Vietnam) where Vespa and Piaggio scooters and engines are produced.
  • Boston (USA) research centre for the development of new solutions for people mobility and goods and the production of robots for goods transport.

The Piaggio Group also operates via a joint venture company in China (Zongshen Piaggio Foshan Motorcycles, in Foshan, in the province of Guangdong), which is 45% owned by Piaggio (and therefore not consolidated in the Group's results).

Consolidated non-financial statement - Legislative Decree no. 254 of 30 December 2016

General Social and environmental-oriented policies and guidelines Description of the process to identify material issues for Non-Financial Statement purposes The business model Risk Management Governance of sustainability The Environmental Dimension The Social Dimension

COMMERCIAL

The Piaggio Group has a direct sales presence in main countries in Europe, the USA, Canada, India, Vietnam, Indonesia, China and Japan, while it operates through importers in other markets of the Middle East, Africa, Central and Latin America and Asia Pacific.

How we build our strategic advantage

ORGANISATIONAL STRUCTURE

The Piaggio Group is structured into and operates within geographic segments (EMEA and the Americas, India and Asia Pacific), for the development, manufacture and distribution of two-wheeler and commercial vehicles, as well as new mobility solutions.

Each geographic segment is equipped with production facilities and a sales network specifically dedicated to customers in this region.

The Group boasts an agile and flexible production capacity, enabling it to adapt quickly to the needs of the market.

A UNIQUE BRAND PORTFOLIO

The Piaggio Group sells two-wheeler vehicles under the brands Piaggio, Vespa, Aprilia, Moto Guzzi, Gilera, Derbi and Scarabeo and commercial vehicles under the brands Ape and Porter. Some of the Piaggio Group brands are the most prestigious and historic in the world of motorcycle racing: from Gilera (established in 1909), to Moto Guzzi (established in 1921), Derbi (1922) and Aprilia (1945),which has made a name for itself as one of the most successful manufacturers taking part in the world speed and superbike championships. In the scooter sector, the legendary Vespa brand has been synonymous with two-wheel mobility since 1946, and with over 18 million units produced to date, it represents a commercial success story of incredible longevity, as well as being one of the most recognisable icons of Italian style and technology in the world.

Since November 2019, the American affiliate Piaggio Fast Forward has been selling the GITA in California. This smart robot is powered by electric motors and equipped with sensors and cameras, to follow people and avoid obstacles, and can transport up to 40 pounds.

DISTRIBUTION AND SERVICE NETWORK

Piaggio distributes its products in more than 100 countries. It has an extensive distribution and sales network of qualified and reliable partners.

Since the right location is essential in order to enable each brand to express its values, for a number of years Piaggio has been using a new distribution format called "Motoplex", joined by more than 500 sales points around the world. The Motoplex concept is based on the idea of showcasing "brand islands", giving the customer the real experience of the brand represented.

PRODUCT RANGE

The main objective of the Piaggio Group is to meet the most progressive needs for mobility, through a deep understanding of people and their habits, reducing the environmental impact and fuel consumption of its vehicles, ensuring customers excellent levels of performance. In its effort to ensure the sustainability of its products, the Piaggio Group takes into account the entire life cycle, which comprises the design, procurement of raw materials, production proper, use of the product by customers and, finally, decommissioning, which consists in disassembly at the end of service life and in the disposal and/or recycling of the components and raw materials.

The Piaggio Group product range includes scooters, motorcycles and mopeds with engine displacements ranging from 50 to 1,400 cc, as well as light commercial three- and four-wheeler vehicles, plus smart robots for goods transports starting from November 2019.

In a society which is increasingly aware of the issue of sustainability, creating products with low environmental impact, in factories that are safe, non-polluting and do not waste resources, is becoming vital for survival.

Constant focus is placed on research into vehicles that are at the cutting edge in terms of:

  • Environmental credibility: products that can avoid or at least reduce pollutant gas and CO2 emissions in town and out-of-town use; this is achieved by introducing electric engines and further developing traditional engine technologies (increasingly sophisticated internal combustion engines), as well as making more use of renewable, sustainable energy sources;
  • reliability and safety: vehicles that enable a growing number of users to get about town easily, helping to reduce traffic congestion and guaranteeing high standards of active, passive and preventive safety;
  • recyclability: products that minimise environmental impact at the end of their life cycle;
  • cost-effectiveness: vehicles with lower running and maintenance costs.

Consolidated non-financial statement - Legislative Decree no. 254 of 30 December 2016

General Social and environmental-oriented policies and guidelines Description of the process to identify material issues for Non-Financial Statement purposes The business model Risk Management Governance of sustainability The Environmental Dimension The Social Dimension

QUALITY CONTROL

Piaggio has a comprehensive quality management system to monitor end product quality levels in the various stages of the production process and prior to dispatch to the customer. The standard procedures introduced in all Piaggio Group plants enable the constant monitoring of the quality of all the vehicles produced, ensuring product standards that fully meet both regulatory and type approval specifications and the expectations of the end customer.

SUPPLY CHAIN

Some components are purchased externally in line with a global sourcing model that guarantees the quality and economy of the products supplied.

Piaggio ensures its suppliers sign its Code of Ethics, and as from this year requires suppliers to sign a "Sustainability Statement" in order for them to be included on the Supplier List for Italy, and ensure compliance with Piaggio's ethical values throughout the production cycle and sales of its products. Sustainability for Piaggio does not begin and end at the gates of its factories.

ENVIRONMENTAL SUSTAINABILITY

Piaggio aims at applying a model of sustainable development that not only satisfies the expectations of stakeholders (investors, shareholders, staff, suppliers, community, public administration) by guaranteeing economic and social sustainability, but also roots its actions in environmental sustainability, meaning the ability to safeguard natural resources and the ability for the ecosystem to absorb direct and indirect impacts generated by production activities. Specifically, Piaggio seeks to minimise the environmental impact of its industrial activities by carefully defining the manufacturing technological cycle and by using the best technology and the most modern production methods. The pursuit of these environmental sustainability goals is blazing a trail of ongoing improvement of environmental performance.

Results

REMUNERATION TO LENDERS

During 2019, dividends for ¤/000 51,805 were distributed.

The Piaggio share closed 2019 at 2.75 euro, up by 51% compared to the start of the year, outperforming main benchmarks.

EMPLOYEES

In 2019, the Piaggio Group employed 6,424 people (annual average figures), providing them and their family members with a health scheme. In the same period, accident statistics stayed at the minimum physiological level, at all sites. Moreover, 89,942 hours of training were delivered.

During 2019, none of the Piaggio Group companies were affected by episodes concerning employee discrimination or the breach of employee rights.

R&D

In 2019, the Piaggio Group continued its policy of retaining technological leadership in the sector, allocating total resources of ¤57.6 million to research and development, of which ¤39.6 million capitalised under intangible assets as development costs.

2019 2018
CAPITALISED EXPENSES TOTAL CAPITALISED EXPENSES TOTAL
IN MILLIONS OF EUROS
Two-wheelers 23.5 15.2 38.7 25.5 14.8 40.3
Commercial Vehicles 16.1 2.8 18.9 7.8 2.7 10.5
Total 39.6 18.0 57.6 33.3 17.5 50.8
EMEA and Americas 28.0 15.0 43.0 26.8 14.8 41.6
India 8.5 1.4 9.9 4.7 1.6 6.3
Asia Pacific 2W 3.1 1.6 4.8 1.8 1.1 2.9
Total 39.6 18.0 57.6 33.3 17.5 50.8

* The data indicated do not include research, development and prototype costs incurred by Piaggio Fast Foward for Gita, the new powered robot.

The Social Dimension

Patents are registered in countries where Piaggio operates on a continual basis, thanks to intense research and development carried out by the Group at its research centres. As of 31 December 2019, the number of new patented solutions remained high, confirming the Group's strong focus on intellectual property.

Piaggio has been at the forefront of advanced ICE (Internal Combustion Engines) since 2009, with its MP3 Hybrid. The wealth of knowledge developed with the Hybrid Project has enabled it to develop the Liberty eMail, which went on sale in 2011.

This line of research has generated the electric powertrain which is fitted on the new Vespa Primavera Elettrica, the Vespa Elettrica 70 km/h and the Vespa Primavera X (Range Extender), as well as the WiBike.

Plus the S&S system - a micro-hybrid engine for scooters - has also been developed.

RISK MANAGEMENT

The Piaggio Group started an Enterprise Risk Management (ERM) project to define and implement a structured, integrated system to identify, measure and manage company risks in line with applicable best practices. During 2019, the campaign to update the Group's risk profile, involving company managers across the Group, identified 160 risk scenarios, comprising 25 categories which were grouped into 4 level-one macro-categories (External, Operational, Financial, Strategic Risks). In this framework, issues concerning environmental and social aspects, human resources, human rights and the fight against corruption were all analysed, as explained below.

Environment

The analysis refers to the actual and potential effects of the Group's operations on the environment considering, for example, atmospheric emissions, noise impact, waste disposal management, the use and safeguarding of natural resources and protection of biodiversity, as well as compliance with national and international environmental legislation.

Greenhouse gases (mainly CO2 ) and Volatile Organic Compounds (VOCs), released by solvents used in painting, are some of the most hazardous substances for air pollution generated by automotive operators. Structural actions on the Group's production plants, carried out over time, guarantee limited pollutant emissions.

The structure of Piaggio's production sites has been designed based on support mechanisms that use energy from fossil fuels. The use of Use or resources at the production facilities and offices of all affiliates is monitored daily, with the aim of optimising energy use and reducing consumption.

Operations to clean up sites were necessary because of historical site contamination: the pollutants removed had not been used for several decades by the sites, proving the historical nature of the contamination. Other cases of ground contamination have never concerned the Group's operations: the classification, management and transport of waste produced comply with sector regulations.

The volume of water used in the production process is monitored monthly, to safeguard its conservation; a part of this water is re-used.

Lastly, all Piaggio sites have ISO 14001 environmental certification and investments are made each year to reduce the environmental impact of production sites.

Despite a considerable risk level, in line with other industry operators, control measures adopted significantly reduce environmental risks.

The Environmental Dimension The Social Dimension

Employees

This area covers numerous aspects, such as the management of human capital, including career development, the remuneration and training system, the promotion of diversity and inclusion, as well as aspects relative to occupational health and safety and trade union relations.

Piaggio operates globally with employees in Europe, the Americas and Asia. It promotes diversity in age, culture, ethnics, religion, political opinion, civil status, gender, physical ability, sexual orientation, encouraging different ways to achieve and reach the highest levels of performance within a single and broader-ranging organisational set-up of the Group. The integration of disabled people into the workforce is also made possible in practice by the accessibility of company facilities and the existence of a relative company procedure.

Piaggio adopts a system of recruitment, development and salary packages for personnel which recognises and rewards merit and performance. Development tools are used to build on and continually improve skills, while empowering potential, recognising and rewarding outstanding performance. Reward policies remunerate people and their contribution based on principles of meritocracy and transparency. The above mechanisms reduce potential risks related to these aspects to a residual level which is not significant.

The Piaggio Group acknowledges the role of trade union organisations and workers' representatives and is committed to establishing relations with them focussed on attention, dialogue and a common understanding; in fact, assessment and continual engagement are considered essential for identifying the best solutions for the company's specific needs. For these reasons and despite the high number of employees with trade union membership, strikes are infrequent.

As regards occupational health and safety, testing motorcycles with a medium and large engine capacity entails the highest risk levels. Generally, the risk of accidents/injuries to personnel is mitigated by aligning processes, procedures and structures to applicable occupational safety laws and international best standards, and promoting safe behaviour, through targeted training.

Social sphere

The social sphere includes aspects concerning Piaggio's relations with consumers, as well as the effects of the business on the community.

In the first case, product quality and reliability are essential and key to obtaining and guaranteeing customer satisfaction and safety. In the "Product – Operational Risk" category, risk scenarios relating to potential product defects have been mapped. To mitigate these risks, Piaggio has established a Quality Control system, it tests products during various stages of the production process and carefully sources its suppliers based on technical/professional standards. The Group is also committed to being awarded and maintaining certification of its quality management systems at global level (ISO 9001).

The Group undertakes to redistribute economic value generated to support social solidarity initiatives and promote local areas. During 2019, the Piaggio Group continued to support activities of the Vespa for Children project, a humanitarian charity active in the fields of health and social care for children in developing countries. The collaboration between the Piaggio Group and (RED) - an association founded in 2006 by Bono and Bobby Shriver - which has contributed US\$ 360 million to the Global Fund for the fight against AIDS, Tuberculosis and Malaria - continued. Numerous cultural events were held in Italy, through the Piaggio Foundation and Piaggio Museum (exhibitions,

conferences), as well as scientific and artistic initiatives. The Asian subsidiary was involved in projects supporting local associations that help families in need and provide education for smaller children, and also endorsed a training programme for local hospital staff, in association with the Bambin Gesù Hospital in Rome.

The Indian subsidiary aided charity work in the Baramati area to support schools and villages, and was also involved in activities to raise awareness of road safety.

The Environmental Dimension The Social Dimension

Human rights

As set out in the Code of Ethics, adopted in 2004 and updated during 2017, Piaggio specifically prohibits any form of discrimination or forced labour. This Code has been distributed to all subsidiaries and clearly states the principles and values the entire organisation takes inspiration from.

Based on the significant and specific nature of the Indian market, the following have been adopted: the Code of Business Conduct & Ethics and Whistle Blower Policy since December 2016; the latter is designed to protect people reporting infringements of the Code, and therefore to guarantee the Code's validity; a Policy on the Prevention of Sexual Harassment of women at the workplace.

Based on prevention and control mechanisms established in the Code of Ethics and adopted by all Group subsidiaries, no risk scenarios relative to the violation of human rights were identified.

Fighting against corruption

The fight against both active and passive corruption comes under the risk categories "Internal/external offences" of the Group's risk model. In its Code of Ethics, Piaggio strictly prohibits any practice of corruption, request for and/or provision of preferential treatment, of any collusive behaviour, solicitation, whether direct/indirect and/or through third parties, of personal benefits of any kind for oneself and/or for others, of material benefits and/or any other advantage of any extent in favour of third parties.

A number of processes, procedures, roles and responsibilities have been defined to achieve the above objective, as regards business negotiations/relations with the public administration sector and with private entities.

The controls briefly described above decrease residual risk relative to episodes of active/passive corruption to a negligible level.

TOPIC RISK CONTROLS GRI14
Energy efficiency Air pollution attributable to:
– Uncontrolled greenhouse gas
emissions
– Uncontrolled emissions of
Volatile Organic Compounds (i.e.
paint/varnish solvents))
– Lower number of infrastructure
works / initiatives to reduce
energy consumption / needs
– Increase in vehicle emission levels
– ISO 14001 environmental
certification
– Infrastructure improvements
aimed at a rational use of energy
– Energy consumption monitoring
plans
– Development of alternative
engines (i.e. hybrid / electric)
– 305.1 Direct (Scope 1) GHG
emissions
– 305.2 Energy indirect (Scope 2)
GHG emissions
– 305.3 Other indirect (Scope 3)
GHG emissions
– 302.1 Energy consumption
within the organization
Waste handling Soil / water pollution attributable
to:
– No waste classification /
characterisation
– Uncontrolled spills and
discharges into the sewage
system
– ISO 14001 environmental
certification
– Water waste treatment
– 306.1 Water discharge by quality
and destination
– 306.2 Waste by type and
disposal method
– 306.3 Significant spills
– 306.5 Water bodies affected by
water discharge and/or runoff
Conserving water
resources
– Uncontrolled use of water
resources
– ISO 14001 environmental
certification
– Water use monitoring
– Reuse of water for production
activities
– 303.1 Water withdrawal by
source
– 303.2 Water sources significantly
affected by withdrawal of water
– 303.3 Water recycled and
reused

The Social Dimension

TOPIC RISK CONTROLS GRI14
Developing human capital – Lack of competencies and
professional expertise necessary
to implement strategic / business
objectives
– Loss of key personnel
– Tensions in relations the company
has with trade unions
– Mapping key competencies
/ professional expertise and
defining adequate retention plans
– Performance review systems
– Training courses and continuing
professional development
– Relations with trade union
organisations based on attention,
dialogue and a common
understanding;
– 401.1 New employee hires and
employee turnover
– 404.2 Programmes for upgrading
employee skills and transition
assistance programs
– 404.3 Percentage of employees
receiving regular performance
and career development reviews
– 407.1 Operations and suppliers
in which the right to freedom
of association and collective
bargaining may be at risk
Health and safety – Worker Injuries / onset of
occupational diseases
– BS OHSAS 18001 and ISO 45001
certification
– Periodic occupational health and
safety training
– Personal protective equipment
and operating instructions
– 403.2 Types of injury and rates
of injury, occupational diseases,
lost days, and absenteeism, and
number of work-related fatalities
– 403.3 Workers with high
incidence or high risk of diseases
related to their occupation
Product innovation and
sustainable mobility
– Reduced level of technological
innovation in the product range
– Regulatory measures aimed at
limiting the transit of vehicles
with internal combustion engines,
in order to reduce emissions and
offset climate change
– Reduced recyclability /
recoverability of vehicles at end
of life
– Use of materials / substances
that are harmful for the
environment
– Considerable investments in
research and development
– Development of alternative
engines (i.e. hybrid / electric)
– Product conformity to the REACH
Regulation 1907/2006 and End of
Life Directive 2000/53/EC
– Use of environmentally-friendly,
recyclable materials
– 201.2 Financial implications and
other risks and opportunities due
to climate change
– 301.1 Materials used by weight
or volume
– 301.2 Recycled input materials
used
– 301.3 Reclaimed products and
their packaging materials
Safety and reliability Faulty products for reasons
attributable to:
– Errors/ omissions of suppliers
– Errors/omissions during the
product development stage
– Errors/ omissions during the
production stage
– Errors/ omissions during the
quality control stage
– Supplier audits
– Product testing during various
stages of the production process
– ISO 9001 quality certification
– 416.1 Assessment of the health
and safety impacts of product
and service categories
– 416.2 Incidents of non
compliance concerning the health
and safety impacts of products
and services
Meeting customer
requirements
Service quality level not in line with
customer requirements, for reasons
attributable to:
– the sales network / after-sales
service (e.g. lengthy diagnostics /
delivery times, use of non-original
spare parts, etc.)
– reduced sales network / after
sales service coverage
– Periodic appraisal of supplier
performance based on
international standards
– Customer satisfaction analysis
and preparation of action plans
if areas for improvement are
identified with reference to the
service provided by the network
– Geo-marketing system for
optimal area through the network

The Social Dimension

TOPIC RISK CONTROLS GRI14
Responsible management
of the supply chain
– Suppliers not conforming to
environmental sustainability
principles (e.g. regarding energy
use, atmospheric emissions,
waste management, safeguarding
water resources, protecting
biodiversity, etc.)-
– Suppliers not conforming to social
sustainability principles (e.g. with
reference to the development
of human resources, industrial
relations, occupational health
and safety, support for local
communities, charity activities,
etc.,)
– Breach of the Group Code of
Ethics by suppliers
– Obligation to have ISO 14001
certification
– Obligation to provide suppliers
with ethical certification for the
supply chain
– Obligation to sign the Group
Code of Ethics
– 308.1 New suppliers that were
screened using environmental
criteria
– 308.2 Negative environmental
impacts in the supply chain and
actions taken
– 414.1 New suppliers that were
screened using social criteria
– 414.2 Negative social impacts
in the supply chain and actions
taken
– 408.1 Operations and suppliers
at significant risk for incidents of
child labor
– 409.1 Operations and suppliers
at significant risk for incidents of
forced or compulsory labor
Supporting local
communities
– Reduced number of initiatives
aimed at developing the area
where the Group operates and
promoting social inclusion
values (e.g. partnerships with
non-profit/ non-government,
volunteer associations, etc.)
– Organisation of events at the
Piaggio Museum
– Piaggio Foundation cultural
project
– Charity activities and
sponsorships
– 413.1 Operations with local
community engagement, impact
assessments, and development
programs
Respecting human rights Incidents of discrimination or
exclusion of employees for reasons
related for example to age, culture,
ethnic origin, religion, political
opinion, civil status, gender,
physical ability, sexual orientation
– Prohibition on any type of
discrimination, harm to personal
dignity in the Code of Ethics
– Use of instruments, including
organisational tools, to ensure
respect for human rights and the
principles in the Group Code of
Ethics
– 406.1 Incidents of discrimination
and corrective actions taken
Fighting against corruption – Unlawful collusion / corruption
by employees
– Obligation to sign the Group
Code of Ethics
– Use of instruments, including
organisational tools, to ensure
respect for the principles in the
Group Code of Ethics
– 205.1 Operations assessed for
risks related to corruption
Transparency – Information in mandatory
financial disclosure (e.g. the
annual report, interim report,
interim report on operations /
sustainability report) which is
untruthful
– Mandatory financial information
is audited by an external body
– Non-Financial Statement audited
by an external body
– Formal undertaking, by all
company functions, on achieving
sustainability objectives establish
and reporting, on an annual basis,
of any gaps with results actually
achieved
– 419.1 Non-compliance with laws
and regulations in the social and
economic area
Creating economic value Failure to achieve established
growth objectives for reasons
attributable to:
– competitive dynamics
– sales network
– political / macroeconomic
instability of countries where the
Group operates
– Brand positioning initiatives
– Rationalisation of the sales
network based on current and
future
– Market diversification
– 201.1 Direct economic value
generated and distributed

14 Some GRI indicators are not covered by reporting.

GOVERNANCE OF SUSTAINABILITY

The Social Dimension

Piaggio has a specific governance system inspired by international best practices, which covers all company, decision-making and operational processes, along the entire value chain.

  • The Board of Directors examines and approves strategic, industrial and financial plans, including the annual budget and Group's Business Plan, supplementing main guidelines to promote a sustainable business model and lay the foundations for creating long-term value. The Board approves the Sustainability Report and Non-Financial Statement pursuant to Legislative Decree 254/16 (NFS).
  • The Ethics Committee, which is tasked, among others, with monitoring sustainability issues related to business operations, develops organisational regulations and rules of conduct in line with international best practices, in the context of Corporate Social Responsibility.

The Committee duties include the following:

  • Monitors instruments, conduct, and relations between management and company personnel and all stakeholders;
  • Optimises relations with local communities and stakeholders;
  • Measures ethical standards, which are an integral part of the good governance of a company;
  • Implements the provisions in the Code of Ethics, including the activity concerning the receipt and management of reports of frauds that may involve employees, managers and partners of Piaggio & C. and of Group companies;
  • supervise the CSR Report and NFS.

All operations concerning relations between the Piaggio Group and the external world are analysed and revised by the Committee, with the aim of guaranteeing to all stakeholders that the information cycle is managed transparently. Starting from the assumption that transparency best describes the purpose of corporate social responsibility today, the Committee acts as a "guarantor" for investors, consumers and opinion leaders, to make sure company conduct is based on conformity to laws at all times, on fairness and on the truthfulness of disclosures to the public.

  • The Internal Control and Risk Management Committee, required, among others, to review the contents of the Sustainability Report and NFS which are significant for the Internal Control and Risk Management System, as well as the main rules and company procedures related to this System and which are significant for stakeholders.
  • The Financial Reporting Officer coordinates the preparation of the Non-Financial Statement and CSR Report, assisted by the CSR Manager. S/he presents both documents to the Ethics Committee and then submits them to the Board of Directors for approval.
  • The CSR Manager and Consolidated Financial Statements and Sustainability Unit. To monitor sustainability issues more effectively, a CSR Manager was appointed, and the "Consolidated Financial Statements Unit", became the "Consolidated Financial Statements and Sustainability" Unit. The "Consolidated Financial Statements and Sustainability" as instructed by the Financial Reporting Officer manages all sustainability issues: definition of the Sustainability Plan and monitoring of progress, preparation of reporting, relations with international organisations.

The system for responsible business management

In achieving its mission, the Group has adopted tools and organisational instruments in order to respect environmental and social values.

Code of Ethics

Piaggio & C. has adopted a Code of Ethics since 2004 for the Organisational Model pursuant to Italian Legislative Decree 231/2001.

The Code of Ethics was last updated in 2017, with the introduction of an article on safeguarding human rights, aimed in particular at preventing "modern slavery". Through this article, the company expresses its commitment to recognising and ensuring the utmost respect for the principles that protect human rights, as shared at international level and articulated in a number of international conventions: In particular, respect for personal dignity, for the individual and the prohibition of any type of discrimination.

These principles, already embraced by the company as they are implicit in its code of ethics, have been described more specifically, in order to align the code with the ethical and social values that inspire the Piaggio Group's activities.

The company also issues a Modern Slavery Statement, annually, designed to ensure that the Group's activities comply with the regulatory provisions set out under the Modern Slavery Act 2015, as issued by the British Parliament and which all companies operating in the UK must observe.

The Code of Ethics, available on the Company's website (www.piaggiogroup.com/Governance), is in force at all Group's companies and sets out the principles and values which the entire company organisation takes inspiration from in a clear and transparent manner:

– complying with the laws of countries where Piaggio operates;

The Environmental Dimension The Social Dimension

  • dismissing and condemning unlawful and improper behaviour;
  • preventing breaches of lawfulness, constant search for transparency and openness in managing the business;
  • seeking excellence and market competitiveness;
  • respecting, protecting and valuing human resources;

– pursuing sustainable development while respecting the environment and rights of future generations.

The Group's Code of Ethics sets out the social and ethical responsibilities of each member of the company's organisation. In particular the ethical and social responsibilities of senior management, middle management, employees and suppliers are defined in order to prevent any party acting in the name of and on behalf of Group companies, from adopting a conduct which is irresponsible or unlawful.

The articles of the Code of Ethics also set forth an important principle on how to manage relations with policy makers: "The company does not make contributions or offer advantages and/or benefits to political parties and trade unions or to their representatives or candidates without prejudice to compliance with applicable law".

All employees and suppliers are required to sign and respect the Group's Code of Ethics in order to be able to work with Piaggio.

Based on the specific nature and significance of India, the following have been prepared and in effect for some years now at the Indian affiliate:

  • the Code of Business Conduct & Ethics;
  • the Whistle Blower Policy, specifically designed to protect and guarantee whistle blowers of alleged breaches of the Code, and protect the Code's effectiveness;
  • a Policy on the Prevention of Sexual Harassment of women in the workplace.

Organisational model pursuant to Legislative Decree no. 231/2001

The internal audit and risk management system of Piaggio & C. is completed by the Organisational, Management and Control Model for the prevention of crimes pursuant to Legislative Decree no. 231/2001 ("Model"), which Piaggio & C. has adopted since 2004 and which was last updated as approved by the Board of Directors on 26 July 2019.

The Model starts with the Code of Ethics, followed by general principles of internal control and guidelines for conduct, and is divided into two parts.

The first part is general, and includes an overview of the legal framework, followed by an introduction to the Model's function and operation within the Company; sections are also included on the disciplinary system, as well as a description of the role, composition, functioning and duties of the Supervisory Body.

Compliance with Law 179/2017, an entirely new section was introduced in 2018 with regulations on whistle-blowing designed to protect workers that report unlawful activities and irregularities that come to their knowledge during their work.

To guarantee the confidentiality of the identity of the person reporting information, the Company, in compliance with applicable legislation, believes that the management of reported information must involve the Supervisory Body appointed pursuant to Legislative Decree no. 231/2001. The system to protect whistleblowers, introduced by Law 179/2017 and implemented by Article 6 of Legislative Decree 231/2001, indirectly assigns the Supervisory Body the task of receiving and managing information reported on alleged offences and breaches of the Model or Code. The Company has therefore set up two communication channels: one via fax (0587.219027) and an IT channel via the dedicated SB e-mail address ([email protected]).

The second, "special" section of the Model formalises specific decision-making protocols by "sensitive process" in relation to the individual categories of offences the section refers to.

The Social Dimension

The Model pursuant to Legislative Decree 231/2001, which is widely distributed by e-mail to all Piaggio Group employees in Italy, and published on the company Intranet, is constantly monitored and periodically updated. Piaggio & C. has also established a "Fraud Policy" with information channels for receiving, analysing and processing reported fraud that may involve employees, directors and partners of Piaggio and Group Companies. The policy is another instrument that the Piaggio Group has adopted to prevent infringement of the principles of lawfulness, transparency, fairness and loyalty which inspire the Model. 231/2001.

The Model is available on the corporate web site (www.piaggiogroup.com) in the section Governance/ System.

Social and environmental-oriented policies and guidelines

The Piaggio Group has a system of Policies aimed at guaranteeing compliance with principles of fairness, transparency, honesty and integrity in line with international standards on responsible business management.

The Group operates in diverse geographic, legal and cultural contexts. Therefore its policies and guidelines are put in place by each company through their own operating procedures and practices.

Anti-corruption policy

As stated in the Code of Ethics, in pursuing its mission the Group ensures, through appropriate tools, including organisational tools, compliance with the absolute prohibition of any practice of bribery, request for and/or provision of preferential treatment, of any collusive behaviour, solicitation, whether direct/indirect and/or through third parties, of personal benefits of any kind for oneself and/or for others, of material benefits and/or any other advantage of any extent in favour of third parties, whether they be private or public entities or government representatives, both Italian and foreign.

When participating in public tenders or competitions called by Public Administration as well as in any negotiations or contracts entered into with both Public Administration and private entities, all those involved must behave in good faith and in accordance with the law, correct commercial practice and current regulations, as well as with the corresponding company procedures, avoiding any situation from which violation of laws and/or principles of fairness and transparency in the conduct of negotiations may arise. Such negotiations must be conducted only by those previously and expressly authorised to do so, respecting roles and in accordance with corporate procedures. Adequate mechanisms for traceability of information flows towards the contracting party must also be put in place. Any request for advantages, any intimidating and/or constrictive or oppressive behaviour on the part of Public Administration officials or third contracting parties or which come to the knowledge of operators must be immediately reported.

Functional managers who liaise with the Public Administration must:

  • provide their partners with guidelines regarding which operative conduct to follow in formal and informal contacts with various public subjects, according to the characteristics of each individual area of activity, sharing their knowledge of regulations and their awareness of situations liable to crime;
  • provide for adequate tracing mechanisms as regards official information channels with the Public Administration;
  • maintain and request on the part of those having relations with Public Administration conduct characterised by fairness, transparency, traceability and in good faith, respecting the roles and responsibilities attributed; strictly observe and enforce, also with specific reference to relations with the Public Administration, company procedures aimed at abstractly identifying and tracing the functions and positions responsible and appointed for relations with the Public Administration, in compliance with corporate roles;
  • make clear, truthful, complete and traceable statements to the public authorities and exhibit complete, truthful and unaltered documents and data;
  • maintain correct and clear conduct such as to avoid inducing the counterparty into even potential error. All consultants, suppliers, customers, and whoever is related to the Group, are committed to complying with laws and regulations in force in all countries where the Group operates.

No relation will be initiated or continued with those who do not intend to comply with such principles. When appointing these subjects to operate as representatives and/or in the interest of the Group towards the Public

The Environmental Dimension The Social Dimension

Administration, the appointment must be in writing, with a specific binding clause requiring compliance with the principles of ethics and conduct adopted by the Group.

Identical conduct guidelines to those indicated for relations with the Public Administration must also be adopted with regard to relations with any private third party, such as suppliers, customers, competitors, partners and/or any contractual counterparty. In this regard, the section on corporate crimes was updated in the Model, implementing Legislative Decree no. 38 of 15 March 2017 (implementing framework decision 2003/568/GAI of the Council, of 22 July 2003, on the fight against corruption in the private sector), new aspects introduced by Article 2635 of the Italian Civil Code on "private to private corruption" and the new circumstance of "inducement to corruption among private individuals", which punishes acts of corruption even if the bribe is not accepted (Article 2635 bis of the Italian Civil Code).

When contributions, grants or financial support are requested from the State, the public corporations or the European Union, all employees involved in such procedures must:

  • be correct and truthful when using and presenting documents and declarations that are complete and pertinent to the activities for which such benefits can be legitimately requested and obtained;
  • once the requested outpayment has been obtained, the sum should be employed for the goals to which it was originally requested and obtained. The people in charge of administrative/accounting functions must verify that each operation and transaction is: legitimate, consistent, congruous, authorised, verifiable; correctly and adequately registered, so that the process of decision, authorisation and implementation can be verified; supported by correct, authentic and appropriate documentation, so that careful inspections can be carried out at any time regarding the characteristics and the motivations of the operation, and the individuation of those who have authorised, carried out, registered and verified the operation itself.

No incidents of corruption occurred in the reporting year.

Guidelines for compliance with laws and local regulations

Group companies must comply with local laws and regulations and must conduct their activities in line with the Code of Ethics and its core values of honesty, integrity and respect for people. The Code of Ethics underpins Piaggio's commitment to behave in a responsible and respectful manner, and helps staff and contractors to make informed, ethical and legal decisions. Suppliers all over the world who wish to do business with Piaggio must sign the Group's general supply conditions, which include the Code of Ethics.

During 2019, none of the Piaggio Group companies were affected by episodes concerning employee discrimination or the breach of employee rights. Moreover, no infringement procedures have been filed against the Piaggio Group for the breach of anti-competitive or anti-trust laws.

As of 31 December 2019, there were no sanctions in place concerning non-compliance with laws and regulations on environmental matters, marketing, advertising, promotions, sponsorships and the supply and use of products. Finally, no cases regarding the breach of consumer privacy or loss of consumer data were reported in 2019.

Guidelines for respecting human rights

The Social Dimension

The Piaggio Group conforms to the Guiding Principles on Business and Human Rights adopted by the United Nations in 2011 and the ILO Declaration on Fundamental Principles and Rights at Work adopted in 1998.

It recognises the importance of its role in condemning any violation of human rights and to this end improves and continually aligns its policies and controls, to prevent any potential violation that could affect the Group or its procurement chain.

Group companies comply with national and international laws and regulations and conduct their activities in compliance with the Code of Ethics. The Code of Ethics was supplemented in 2017 with a clause specifically dedicated to human rights. Suppliers all over the world who wish to do business with Piaggio must sign the Group's general supply conditions, which include the Code of Ethics and observe its values.

To maintain the highest standards of ethical, moral and legal conduct, Piaggio encourages its employees to report any allegedly nonconforming conduct, guaranteeing they will not be affected by harmful consequences.

The Whistleblowing Policy, initially developed for the Group's Indian company, aims to provide a safe means for employees and other parties concerned to report violations that come to their knowledge in the context of their work activities. For this purpose, in compliance with Law 179/2017, an entirely new section with regulations on whistleblowing designed to protect workers that report unlawful activities and irregularities that come to their knowledge during their work was added to the last revision of the Organisational, Management and Control Model pursuant to Legislative Decree no. 231/2001 .

THE ENVIRONMENTAL DIMENSION

Piaggio has organised its processes and activities through a management system which focuses on Quality, the Environment and the Health and Safety of Workers, with a view to providing a model of sustainable development that not only guarantees lasting success, but which also ensures that the expectations of stakeholders are met (including investors, shareholders, partners, suppliers, the social community and public administration).

Environmental sustainability - understood as the ability to protect and safeguard natural resources, combined with the capacity of the ecosystem to absorb the direct and indirect impacts generated by manufacturing activities - is among the key focal points of Group Policy, as expressed by the company's senior management team. This concept provides the basis for the environmental certification (ISO 14001) process that has already been launched (or is being continued) at the various production sites, and is an essential point of reference for every Group company, wherever they may operate.

The Group has been committed for years now to identifying, reducing, eliminating and/or keeping the environmental impact of our activities and products under control through strict compliance with applicable requirements and the improvement of processes and behaviours.

Specifically, Piaggio seeks to minimise the environmental impact of its industrial activities by carefully defining the product design, the manufacturing technological cycle and by using the best technology and the most modern production methods. Pursuing these objectives generates continual improvement in environmental performance, not only in production but also throughout the product life cycle.

Quantitative data on the mitigation of the environmental impact resulting from the Group's operations are reported on in the sections below.

With these objectives in mind, initiatives and goals for the future focus on the following areas:

– maintaining environmental certification awarded to all production sites;

  • reducing energy consumption;
  • reducing emissions of CO2 and other pollutants;
  • conserving water resources;
  • waste handling and recovering;
  • absence of soil contamination;
  • environmental spending and investments.

Environmental Management System

The Social Dimension

The Piaggio Group has defined a specific organisational structure to achieve the environmental sustainability objectives of its production sites.

The responsibilities and roles of the Environmental Management System (EMS) with Organisational Units / Functions involved are reported in the Quality, Environmental and Occupational Health and Safety Management Manuals, for sites in Italy.

ENVIRONMENTAL ORGANISATIONAL STRUCTURE OF ITALIAN SITES OF THE PIAGGIO GROUP

ENVIRONMENTAL MANAGEMENT SYSTEM
Management Representative Quality System Manager
Management System Manager General Systems Manager
Coordination and control Environmental Manager
Audits Process Auditor (Internal Auditor)

The head of the Environmental Management System reports to the representative of the Processes Quality & Cost Engineering Department on the performance of the Management System and about any need for improvement. The Environmental Management System manager, a position held by the General Plants manager, has power of attorney to perform his duties and responsibilities, while Environmental Managers are appointed by the Environmental Management System manager and appointed after obtaining approval of their affiliated Manager.

The subsidiaries in Vietnam and India (PVPL) have EHS (Environment Health and Safety) teams which work full-time on environmental, health and safety issues, with clearly defined roles and responsibilities. Piaggio Vietnam's EHS team is led by the Technology and Maintenance Manager who reports to the Director of Operations while a full-time employee is responsible for the management of environmental issues. The environmental team at PVPL, consisting of senior management, engineers and operators, is part of the Maintenance Department and reports to the Director of Operations.

Environmental certification

For several years now, the Piaggio Group has implemented an environmental management system at its sites in Italy, India and Vietnam, in compliance with UNI EN ISO 14001. At the end of 2019, certification was renewed for a further three years for its Italian sites.

Energy consumption

The aim of the Group is to optimise plant management and minimise energy waste. Energy is procured through leading energy companies whose production is mainly from renewable sources, while energy for the company operating in Holland is sourced entirely from renewable sources.

Although the structure of the company's production sites has been designed to run on fossil fuels, Piaggio is engaged in optimising the management of existing sites to cut consumption. Specifically, when reconfiguring or restructuring plants, the Technology functions carry out evaluations and analysis with a view to introducing machinery and methods that minimise environmental impact.

Having an extensive monitoring network of main energy carriers is important for achieving noticeable results, especially in more complex activities. In this regard, since 2016, the Pontedera site has adopted measures to reduce energy waste, with a smart metering system that can use, observe and compare in real time (with a delay of 3 hours) the consumption recorded by over 90 meters at the site; the technology applied has made it possible reduce consumption by over 17% in three years. Changes in consumption at other Italian sites, which are negligible in quantitative terms compared to the Pontedera site, are due to variations in production volumes and heating system management based on recorded outdoor temperatures.

Consumption and emissions for sites where vehicles and engines are produced are reported separately, below. Data

The Social Dimension

from the Boston research centre, which began manufacturing a small lot of robots for goods' transport in December 2019, have been included in the scope of non-production companies, as the figures are negligible.

PIAGGIO GROUP ENERGY CONSUMPTION

PONTEDERA NOALE AND
SCORZÈ
MANDELLO
DEL LARIO
BARAMATI VINH PHUC TOTAL SITES
2019 33,210 3,750 713 26,603 15,763 80,039
Electricity
(Thousand KWh)
2018 33,239 3,865 638 28,866 14,451 81,059
Change 2019-2018 -0.1% -3.0% 11.8% -7.8% 9.1% -1.3%
Methane/Natural
Gas (Sm3
)
2019 5,281,812 329,017 147,399 5,758,228
2018 5,185,857 382,753 146,071 5,714,681
Change 2019-2018 1.9% -14.0% 0.9% 0.8%
2019 1,740 26 1,766
GPL15(Ton.) 2018 1,898 20 1,918
Change 2019-2018 -8.3% 30.0% -7.9%
2019 2,470 120 20 6,745 730,902 740,257
Diesel fuel15 / 16
(Litres)
2018 2,174 171,617 646,584 820,375
Change 2019-2018 13.6% -96.1% 13.0% -9.8%

The Group also operates through commercial companies (distributors and selling agencies) and research centres located on various reference markets. The energy use of these sites cannot always be recorded, as the sites are sometimes located on property which is not owned, where communal services are shared with other occupants. For 2019, their consumption of electricity was estimated to be equal to 883 thousand KWh. Of this amount, 41 thousand KWh is from certified renewable sources.

Starting from this year, all sites have been monitored for consumption, referred to company vehicles and testing and development activities.

FUEL CONSUMPTION FOR TESTING AND COMPANY VEHICLES - 201917

PONTEDERA NOALE AND
SCORZÈ
MANDELLO
DEL LARIO
BARAMATI VINH PHUC TOTAL
Petrol (litres) 268,503 79,657 41,335 160,360 91,691 641,547
Methane/Natural Gas (Sm3
)
181 181
GPL (Ton) 114 6 120
Diesel fuel (Litres) 57,413 39,363 6,669 175,410 3,500 282,355
CNG (Ton) 9 9

17 Some values are based on estimates.

15 Some values are based on estimates.

16 Data on the Mandello and Noale and Scorzè sites have been finalised for the first time, as the figures were not considered significant in the past.

PIAGGIO GROUP ENERGY CONSUMPTION IN GJ18

ELECTRICITY METHANE /
NATURAL GAS
LPG DIESEL FUEL TOTAL
2019 288,137 224,628 81,431 26,344 620,540
Sites 2018 294,534 222,930 88,411 29,871 635,746
Change 2019-2018 -2.2% 0.8% -7.9% -11.8% -2.4%
PETROL METHANE
/ NATURAL
LPG DIESEL FUEL CNG TOTAL

GAS

Testing and company cars 2019 20,602 6 5,497 10,048 430 36,583

Emissions of CO2 and other pollutants

Greenhouse gases (mainly CO2 ) and Volatile Organic Compounds (VOCs), released by solvents used in painting, are some of the most hazardous substances for air pollution generated by automotive operators.

Structural works (replacement of boilers and restructuring of distribution networks), carried out over time and already described in previous financial statements, show that changes made have been appropriate. In 2019, emissions were basically in line with figures for previous years, with a slight increase mainly related to the increase in production volumes in Vietnam.

TON PONTEDERA19 NOALE AND
SCORZÈ
MANDELLO
DEL LARIO
BARAMATI VINH PHUC TOTAL
2019 direct 20 10,598 650 291 1,861 2,191 15,591
indirect 10,979 1,240 236 21,814 13,633 47,902
2018 direct 20 10,335 752 287 2,522 1,890 15,786
indirect 10,989 1,278 211 23,670 9,555 45,703
direct 20 2.5% -13.6% 1.4% -26.2% 15.9% -1.2%
Change 2019-2018 indirect -0.1% -3.0% 11.8% -7.8% 42.7% 4.8%

DIRECT AND INDIRECT CO2 EMISSIONS OF PIAGGIO GROUP PRODUCTION SITES

For sites located in Italy, the conversion criteria of the "Emission Trading" Directive (Directive 2003/87/EC) were used to determine gases with a greenhouse effect resulting from the use of diesel, fuel oil and methane.

With reference to CO2 emissions, the industrial plant at Pontedera comes under the sensitivity area classification of the "Emission Trading" directive (Directive 2003/87/EC) which implements the Kyoto Protocol. The site is classed as a "Group A" site, relative to companies releasing the lowest amount of CO2 indicated in the Directive.

CO2 emissions are almost entirely due to the combustion of methane, marginally to the combustion of diesel fuel in back-up power generators and extremely small amounts from the combustion of VOCs in the painting postcombuster.

The monitoring and reporting of CO2 emissions from the Pontedera plant are governed by a specific Group procedure, which is periodically audited in-company and annually audited by a certification body.

CO2 emissions at Piaggio's Pontedera site are certified by a certification body accredited by the National Competent Authority in March of each year.

20 CO2 emissions deriving from the combustion of methane, natural gas, diesel fuel and LPG used at plants.

18 The figures are calculated using conversion standards defined by the GRI guidelines (1,000 m3 of natural gas = 39.01 GJ; 1 Kwh = 0.0036 GJ). For LPG, a standard conversion factor of one kilogram of LPG = 46.1 MJ was used. For diesel fuel, the figure in the Ministry of the Environment 2019 table of national standard parameters was used. For CNG, a standard conversion factor of one ton of CNG = 48.383 GJ was used.

19 The figure on direct emissions published last year in the table differs from that later certified by the certification body accredited by the National Competent Authority (ANC), which instead was equal to 10,373 tons.

The CO2 emissions from the use of company cars and from testing and development activities are reported below.

DIRECT CO2 EMISSIONS OF PIAGGIO GROUP PRODUCTION SITES FOR TESTING ACTIVITIES AND COMPANY VEHICLES

TON PONTEDERA NOALE AND
SCORZÈ
MANDELLO
DEL LARIO
BARAMATI VINH PHUC TOTAL
2019 1,171 291 115 896 37 2,510

Overall, direct emissions of the Group in 2019 were equal to 18,101 tons.

OTHER SIGNIFICANT EMISSIONS AT THE PRODUCTION SITES OF THE PIAGGIO GROUP20

PONTEDERA NOALE AND
SCORZÈ
MANDELLO
DEL LARIO
BARAMATI VINH PHUC TOTAL
2019 33.8 425.4 2.7 461.9
COV (Ton.) 2018 30.8 601.0 3.3 635.1
Delta 2019/2018 9.7% -29.2% -18.2% -27.3%

In 2019, the reduction in VOC released by the Group's Indian and Vietnamese sites was significant.

Conserving water resources

Piaggio has always recognised the immense value of the natural resources it uses and has developed production processes designed to reduce water consumption. At the Pontedera site, water supply wells have inverters that can regulate system flow rates based on the amount of water required by the hydraulic loop.

WATER SUPPLIES

M3 PONTEDERA NOALE AND
SCORZÈ
MANDELLO
DEL LARIO
BARAMATI VINH PHUC TOTAL SITES
Water from wells 176,957 4,687 10,262 191,906
2019 Water from the mains 63,196 13,368 552 278,334 113,898 469,348
Total 240,153 18,055 10,814 278,334 113,898 661,254
Water from wells 222,973 9,288 12,775 245,036
2018 Water from the mains 60,357 11,866 526 321,474 129,334 523,557
Total 283,330 21,154 13,301 321,474 129,334 768,593
Change 2019-2018 Total -15.2% -14.6% -18.7% -13.4% -11.9% -14.0%

Thanks to actions taken and a mindful approach, water use fell significantly at all production sites.

As regards waste water, environmental respect is ensured with processes to treat and purify waste water.

The destination of waste water produced, estimated to be equivalent to the amount of water supply used, for each production site is reported below:

  • Pontedera: all industrial and most non-industrial waste water is conveyed to a chemical/physical purification plant outside the site. After biological treatment, the waste is discharged into an open channel. A small part of the waste-water coming from the toilets located in two areas of the factory, is directly discharged into the public sewer system;
  • Noale: all buildings are connected to the public sewer system. The waste water is of a non-industrial origin only (from toilets and the site canteen);

20 Reported data are also based on processing using estimates.

  • Scorzè: the plant is not served by the public sewer system, so waste water is biologically purified at the site and then conveyed to the local Rio Desolino canal;
  • Mandello del Lario: the plant discharges a part of waste water directly into the public sewer system (non-industrial waste water, canteen waste water, etc.), while waters used in the cooling plants are discharged into the Torrente Valletta stream;
  • Baramati: waste water is treated and used for irrigation purposes;

The Social Dimension

Vinh Phuc: the site has a chemical/physical purification plant for waste from painting pre-treatment operations before it is conveyed to the public sewer systems, where all other site waste (non-industrial waste) is sent. The final destination is in the public sewer system.

For Commercial companies, water use, which is only for toilet facilities and comes from the mains, coincides with waste water. The water use of these sites cannot always be recorded, as the sites are sometimes located on property which is not owned, where communal services are shared with other occupants. Use was estimated to be equal to 15,519 m3 in 2019.

New industrial drains, currently being built, will go into operation at Pontedera in 2020, to entirely separate waste, improving and optimising purification treatments.

Only the Baramati and Vinh Phuc sites re-use some of the water collected. Approximately 173,631 m3 of water were recycled and re-used by the Indian site in 2019, equal to 62.4% of the total amount drawn by the site. At the Vietnamese factory, waste water recovery amounted to 14,610 m3 /y, equal to approximately 12.8%.

Waste handling and recovering

Handling and recovering waste is a fundamental part of the Group's environmental policy.

In this context, Italian sites consolidated their percentages of recovered waste in 2019, with the Mandello del Lario facility recovering nearly all waste produced.

Lastly, it should be noted that the separation of hazardous from non-hazardous waste and the possibility of recovering waste is affected by local regulations.

With the overall amount of waste produced going up considerably, the percentage of hazardous waste and its allocation in the last three years was basically stable.

Based on an analysis per type, most of the waste produced was metal waste (iron, aluminium, turning material, etc.) and packaging material (cardboard, wood, etc.). For example at the Pontedera site, approximately 3,500 tons of packaging and 1,500 tons of metal are produced, with these two categories comprising nearly 80% of waste generated.

WASTE PRODUCED AT PIAGGIO GROUP PRODUCTION SITES

The Social Dimension

TON PONTEDERA NOALE AND
SCORZÈ
MANDELLO
DEL LARIO
BARAMATI VINH PHUC TOTAL
2019 Total waste 8,356 829 249 3,054 1,267 13,756
Hazardous 9.7% 1.7% 1.5% 22.0% 65.2% 16.9%
For disposal 21.4% 6.2% 1.5% 34.1% 74.4% 27.8%
For recycling 78.6% 93.8% 98.5% 65.9% 25.6% 72.2%
Total waste 6,488 882 172 2,366 1,430 11,338
Hazardous 11.1% 1.6% 2.7% 11.9% 75.6% 18.5%
2018 For disposal 5.5% 5.3% 2.7% 8.0% 66.4% 13.6%
For recycling 94.5% 94.7% 97.3% 92.0% 33.6% 86.4%
Change 2019-2018 Total 28.8% -6.0% 45.0% 29.1% -11.4% 21.3%

Avoiding soil contamination

In 2019, as in previous years, no spills or polluting events of significance occurred at any of Piaggio's sites. At the Mandello and Pontedera, decontamination initiatives are under way due to historic contaminations of the sites. These situations emerged during demolition work in Mandello and during environmental monitoring campaigns in Pontedera. In both cases, the pollutants found have not been used in the production sites for several decades, providing the historical nature of their origin. In accordance with legal obligations, the two situations have been reported to the relevant authorities and managed according to their instructions.

Environmental spending and investments

As proof of the Group's commitment to environmental sustainability, investments were made in the environment at the Italian sites during 2019, above all for the start of the project to develop the new cataphoresis plant and the new industrial drains system.

ENVIRONMENTAL SPENDING AND INVESTMENTS IN ITALY

EURO 2019 2018
Waste disposal, emissions management and and environmental clean-up costs 669,950 465,282
Costs for prevention and environmental management 980,718 738,422
Total 1,650,668 1,203,704

Logistics

The Group has consolidated its logistics model aimed at benefiting from the synergies among various distribution centres in Europe and identifying opportunities for optimisation, paying particular attention to service quality aspects. To optimise distribution the model calls for targeted management of departures and routes to travel. The procedure also disciplines:

  • the vehicles and equipment used by logistics operators certified by Piaggio, in accordance with the relevant quality standards;
  • the replacement of vehicles for internal shuttling with others equipped with systems to cut CO2 emissions;
  • the packaging collection service to manage the pick-up of packaging from dealers and its disposal according to local regulations in force;
  • the disposal and sorting of waste material (e.g., due to decontainerisation) and packaging substitution;

– printing only documents which are necessary.

To reduce transfer needs to a minimum the model requires manufactured vehicles to be stored at the distribution hub adjacent to the production site and that imports of vehicles manufactured overseas are stored at the distribution hub corresponding to the product type.

Thanks to centralised management of all logistics centres (Pontedera, Scorzè, Mandello):

  • the number of trips needed to transfer stock between centres has been optimised;
  • the use of electronic archives for storing shipment documents has been consolidated and paper copies reduced;
  • printing of shipping documents to be sent to end customers has been minimised, and electronic documents are used whenever possible.

As part of vehicle distribution activities (for the contract valid for 2017-2019), the strategy to improve operating activities already underway continued. These activities led to an optimisation in vehicle distribution in 2019, by 1.73% for two-wheelers and 0.47% for commercial vehicles respectively, compared to 2018. As for the new vehicle distribution contract, stipulated for the 2020-2022 period, the planning of transport to directly managed markets was re-insourced. The utmost attention will be paid to distribution operations, in this scenario.

As part of activities to streamline the distribution warehouses at the Pontedera production hub, the crating process was reviewed, with vehicles only being crated during the dispatch stage. This has made it possible to combine the uncrated and crated vehicle warehouses, and since April 2019, all transit of crated vehicles to the external warehouse has been stopped, with this warehouse no longer used. The same crating strategy has also been adopted for scooters arriving from overseas (excluding units from India), thus reducing the transit necessary for these vehicles in Europe. Activities have started to have paperless transport documents as far as possible so that hard copy documents can be nearly entirely phased out.

The production centres in India and Vietnam also set up procedures aimed at minimising the number of trips for shipping produced vehicles and consumption of packing materials.

THE SOCIAL DIMENSION

Developing human resources

Human resources, with their skills, capacities and dedication, are a key factor in Piaggio's competitiveness and growth.

Everything we do as individuals or as a team is shaped by our strategic vision, our results-driven approach, our constant commitment to customer satisfaction, our desire for innovation and our awareness of future market scenarios, to generate value for each and every stakeholder. People are the key element that enables us to meet challenges in an increasingly dynamic and competitive international scenario.

It is for these reasons that Piaggio places such central importance on people in the organisation, assuring them our respect and protection in all Group companies.

Staff

Over the years, the Group has always focussed on aligning its organisation with international best practices. During 2019, it continued reorganisation activities to support its goals of achieving business growth, innovation and developing new products, while maintaining efficiency and productivity targets.

As of 31 December 2019, Group employees totalled 6,222, down overall by 4.5% compared to 31 December 2018.

COMPANY EMPLOYEES BY GEOGRAPHIC SEGMENT AS OF 31 DECEMBER

EMPLOYEE/STAFF NUMBERS 2019 2018
EMEA and Americas 3,483 3,586
of which Italy 3,199 3,324
India 1,749 2,026
Asia Pacific 2W 990 903
Total 6,222 6,515

AVERAGE NUMBER OF COMPANY EMPLOYEES BY PROFESSIONAL CATEGORY

EMPLOYEE/STAFF NUMBERS 2019 2018
Senior management 105 98
Middle management 671 631
White collars 1,728 1,708
Blue collars 3,920 4,261
Total 6,424 6,698

COMPANY EMPLOYEES BY EDUCATIONAL QUALIFICATIONS AS OF 31 DECEMBER 2019

EMPLOYEE/STAFF NUMBERS GRADUATE HIGH
SCHOOL
MIDDLE
SCHOOL
PRIMARY
SCHOOL
TOTAL
EMEA and Americas 777 1,718 946 42 3,483
of which Italy 593 1,636 933 37 3,199
India 549 1,200 0 0 1,749
Asia Pacific 2W 365 623 2 0 990
Total 1,691 3,541 948 42 6,222

An entry turnover rate of 5% and leaving turnover rate of 8.3% were recorded for the Group in 2019 (excluding staff on a fixed-term contract).

GROUP EMPLOYEE TURNOVER AS OF 31 DECEMBER 2019

STAFF AS OF
31 DECEMBER 2019
MEN WOMEN TOTAL < 31 31-40 41-50 > 50 TOTAL %
TURNOVER
INCOMING
EMEA & Americas 3,460 113 33 146 74 34 25 13 146 4.2%
Senior Management/Middle
Management/White Collars
1,462 112 33 145 73 34 25 13 145 9.9%
Blue collars 1,998 1 1 1 1 0.1%
India 1,277 106 3 109 36 62 10 1 109 8.5%
Senior Management/Middle
Management/White Collars
668 98 3 101 28 62 10 1 101 15.1%
Blue collars 609 8 8 8 8 1.3%
Asia Pacific 600 9 5 14 5 8 1 0 14 2.3%
Senior Management/Middle
Management/White Collars
258 8 5 13 5 7 1 13 5.0%
Blue collars 342 1 1 1 1 0.3%
TOTAL 5,337 228 41 269 115 104 36 14 269 5.0%
Senior Management/Middle
Management/White Collars
2,388 218 41 259 106 103 36 14 259 10.8%
Blue collars 2,949 10 0 10 9 1 0 0 10 0.3%
LEAVERS
EMEA & Americas 3,460 203 56 259 21 36 24 178 259 7.5%
Senior Management/Middle
Management/White Collars
1,462 111 21 132 20 34 22 56 132 9.0%
Blue collars 1,998 92 35 127 1 2 2 122 127 6.4%
India 1,277 135 5 140 33 64 30 13 140 11.0%
Senior Management/Middle
Management/White Collars
668 114 5 119 23 56 29 11 119 17.8%
Blue collars 609 21 21 10 8 1 2 21 3.4%
Asia Pacific 600 31 13 44 17 22 5 0 44 7.3%
Senior Management/Middle
Management/White Collars
258 11 9 20 5 10 5 20 7.8%
Blue collars 342 20 4 24 12 12 24 7.0%
TOTAL 5,337 369 74 443 71 122 59 191 443 8.3%
Senior Management/Middle
Management/White Collars
2,388 236 35 271 48 100 56 67 271 11.3%
Blue collars 2,949 133 39 172 23 22 3 124 172 5.8%

Personnel management policies

Piaggio adopts a system of recruitment, development and salary packages for personnel which recognises and rewards merit and performance. Any type of discrimination is specifically forbidden by the Code of Ethics. The primary focus on human resources and the development of core competencies for business development are the cornerstone of relationships with people and are reflected in the following corporate policies:

COMPETITIVE ORGANISATION

The Group pursues an innovative organisation as a way of creating a competitive edge and supporting a multicultural, multinational, lean dimension focussed on the customer and on generating value.

In its relations with staff and regardless of the work they carry out, Piaggio respects the principles set forth by the Group's Code of Ethics in all circumstances, as well as the laws in force in the geographic areas where it operates.

Piaggio does not resort to child labour according to the age limits in force in the various countries or to forced labour and adheres to main international laws, such as the UN Convention on the Rights of the Child (UNCRC) and the 1998 Human Rights Act.

General Consolidated non-financial statement - Legislative Decree no. 254 of 30 December 2016

Social and environmental-oriented policies and guidelines Description of the process to identify material issues for Non-Financial Statement purposes The business model Risk Management Governance of sustainability The Environmental Dimension The Social Dimension

RECRUITMENT AND INTERNAL MOBILITY

During 2019, resourcing mainly concerned high-level professional and specialist profiles. Recruitment is now fully supported by digital tools, so that a common methodology can be adopted at a global level.

Alongside external recruitment, the number of positions filled by internal candidates has remained steady, with a view to job rotation and career development.

CAREER DEVELOPMENT

Development and career paths at Piaggio are mainly based on the assessment of managerial and technical skills, behaviour, performance and potential, with the aim of creating a pool of highly-motivated individuals to fill key positions.

The development of the core skills necessary to remain in step with evolving markets and business is a priority. This is why the Group's human resources development policies focus on building, maintaining and developing factors that are instrumental for competing in international contexts which are continually evolving.

The Group's managerial and professional competencies model

Piaggio has identified a managerial skills model, which constitutes the set of behaviours to be put into practice each day, in order to ensure the success of the manager in question and the Group as a whole at global level.

At the same time, Piaggio has developed a reference model regarding the various professional skills required, which represent the shared assets of professionalism and expertise that constitute the true foundation of the company, and serve as the only real guarantee of continuity and quality of results.

In 2019, detailed gap analysis was conducted, in order to set up training and continual professional development plans.

THE GROUP'S MANAGERIAL COMPETENCIES MODEL

Development paths

The goal of development tools is to build and improve the managerial and professional skills required by the respective models, while bringing potential to fruition and assessing and rewarding excellent performance and safeguarding specific technical know-how. Specifically, the tools used by Piaggio include:

– development plans, which identify the actions to be taken for employee development;

  • job rotation and participation in strategic or international projects;
  • management and professional training (see "training" section);
  • the talent management programme for younger employees (see the "talent management" section).

Consolidated non-financial statement - Legislative Decree no. 254 of 30 December 2016

General Social and environmental-oriented policies and guidelines Description of the process to identify material issues for Non-Financial Statement purposes The business model Risk Management Governance of sustainability The Environmental Dimension The Social Dimension

During 2019, the development measures pursued by the company were consolidated, in order to reinforce the Group's international presence and its growth in keeping with strategic business choices. With a view to efficiency and a greater autonomy in managing talented resources, training was delegated to individual affiliates, to give emphasis to specific needs at local level.

Career paths

Resources are encouraged to follow a career path focussed on continual improvement through training and development of their expertise, so they can successfully tackle the changes and challenges of the near future. Performance appraisal processes for succession planning are created to develop the technical expertise and managerial skills of resources, in order to consolidate the Group's leadership role. Expatriation and job rotation, plus Talent Development programmes are key to encouraging the growth of resources and laying the foundations for shaping the managers of tomorrow.

In line with market best practices, Piaggio deploys a number of tools for the supervision and management of succession plans with regard to key Group positions, and in 2019, the Group used the global IT platform to test the methodology implemented, which also takes into account the skills and performances recorded each year.

EVALUATION

The Group places great importance on using transparent criteria and methods for reviewing employees with respect to: – performance,

  • managerial and professional competencies and language skills,
  • international mobility,
  • potential,

as regards their specific role and company needs.

Both the evaluator and the person being evaluated are given the opportunity to share the result of the performance and skills assessment, and to add to this with suggestions for the establishment of the individual development and training path, to be implemented in accordance with a clearly defined time scale through the dedicated SAP SuccessFactors IT platform.

Employees are evaluated by comparing their competencies against the company model for their specific role, as evidenced by concrete and observable behavioural indicators relative to their everyday work. The review process is managed in an integrated way through a dedicated IT platform and provides the information necessary for the processes of succession planning, management reviews and a gap analysis of professional competencies, which are conducted across the Group.

PERCENTAGE OF EMPLOYEES WHO RECEIVED PERFORMANCE AND CAREER DEVELOPMENT REVIEWS IN 201921

GEOGRAPHIC SEGMENT EMEA&AMERICAS OF WHICH ITALY ASIA PACIFIC 2W INDIA
Senior management 100% 100% 100% 100%
Middle management 100% 100% 100% 100%
White collars 100% 100% 100% 100%
Blue collars - - 100% -

Talent Management: The talent development programme

Programmes to manage young talent are one of the main tools used for development, attraction and retention. The programmes are aimed at employees around the world who show a high potential, great enthusiasm for their work and the courage to undertake new paths, in order to identify and ensure a growth path for the most deserving resources. In general, these programmes allow talented employees to access customised development plans, which comprise: – job rotation;

  • strategic and international projects;
  • events involving top and senior management;
  • coaching and personalised training.

The programmes include Piaggio Way, which involves employees of all geographic areas of the Group. At present 51

21 The figures regard members of the company who have been employed for at least six months at the time of the evaluation.

Consolidated non-financial
statement - Legislative
Decree no. 254 of 30
December 2016
General
Social and environmental-oriented policies and guidelines
Description of the process to identify material issues for Non-Financial Statement purposes
The business model
Risk Management
Governance of sustainability
The Environmental Dimension
The Social Dimension

employees are involved, in addition to a community of 50 students who have completed their development plan and who still remain active in the programme.

The geographic breakdown of active participants is as follows: 53% EMEA, 22% India, 25% Asia Pacific. A structured Talent Review process is conducted each year to verify programme participation.

TRAINING

Training hours are in line with the previous year, when a specific training and continuing professional development campaign was started for all Italian employees on health and safety, which is the most significant area in terms of undertaking. Technical/professional training in Europe and America increased considerably, besides managerial and language training in Asia.

HOURS OF TRAINING22 BY TRAINING AREA

THEMATIC AREA 2019 2018
EMEA AME
RICAS
INDIA ASIA
PACIFIC 2W
TOTAL EMEA
AMERICAS
INDIA ASIA
PACIFIC 2W
TOTALE
Managerial training 7,379 7,428 3,185 17,992 5,685 11,942 1,371 18,998
Technical – professional
training
18,566 5,123 1,218 24,907 12,218 7,110 4,166 23,494
Language training 5,367 928 2,896 9,191 4,616 - 132 4,748
Health and safety
training
22,902 10,262 4,688 37,852 29,418 8,674 3,059 41,151
TOTAL 54,214 23,741 11,987 89,942 51,937 27,726 8,728 88,391

TOTAL TRAINING HOURS BY PROFESSIONAL CATEGORY

PROFESSIONAL CATEGORY 2019 2018
Senior management 982 1,466
Middle management 12,007 12,100
White collars 29,464 36,724
Blue collars 37,712 36,434
Other workers23 9,777 1,667
Total 89,942 88,391
Total per-capita 24 12.9 13.3

22 The figure does not include hours of on-the-job training.

23 This category includes agency workers and interns.

24 The calculation of the average per-capita hours is performed using the hours provided by the Group as the numerator (excluding those for non-salaried workers) and the total number of employees as of 31/12 as the denominator.

The Social Dimension

TRAINING HOURS BY GENDER

THEMATIC AREA 2019 2018
MEN WOMEN TOTAL MEN WOMEN TOTAL
Managerial training 14,578 3,414 17,992 16,368 2,630 18,998
Technical – professional
training
20,240 4,667 24,907 18,353 5,142 23,494
Language training 6,807 2,384 9,191 2,977 1,771 4,748
Health and safety
training
30,719 7,133 37,852 31,343 9,808 41,151
Total 72,344 17,598 89,942 69,041 19,351 88,391

REWARDS

Reward policies are designed to reward individuals and recognise their contribution to the company, according to the criteria of competitiveness, fairness and meritocracy, which are openly shared throughout the evaluation processes, in order to motivate and retain those individuals who make significant contributions to the achievement of business results.

The Group reward system is differentiated for the various professional groups in the company and consists of a fixed salary component and variable objective and benefits-based incentive systems.

Salary packages

Piaggio offers to new recruits and all its employees a salary package in line with best market practices. Accordingly, Piaggio has adopted a structured salary review process based on:

  • comparing salaries with market benchmarks, considering the market positioning of the company as a whole and the review of individual organisational roles, which is periodically revised. Comparisons are conducted using internationally-recognised methods, with the support of specialist consultants;
  • setting out guidelines for the salary review process that take into account company results and focus on criteria of meritocracy, competitiveness, internal fairness and sustainability;
  • specific identification of fixed and variable salary components, in accordance with guidelines, with meritocracy logics and retention needs relative to strategic resources for the business.

An analysis performed on a single country basis did not reveal any significant differences between the basic salary and remuneration of men compared to women with the same category, experience and assigned duties. This basic uniformity in salaries for male and female staff is also confirmed by analysis of the minimum salary of new recruits and guaranteed compliance with limits of local legislation.

25 Categories not reported in individual geographic segments do not have any female employees or their small numbers would make the calculation insignificant.

Objective-based incentive systems

The achievement of excellent results in terms of objectives set by the company is rewarded through variable incentive systems, focused on business-related qualitative and quantitative objectives as well as on the internal efficiency of each area of responsibility.

The full process of setting objectives and reviewing results is conducted with employees, using objective criteria.

Benefits

Piaggio offers a benefits package in line with best local market practices, which is structured on an organisational basis. Benefits include, by way of example:

  • company car;
  • private health insurance;
  • company medical centre at various sites;

– agreements with local groups and facilities of interest for employees.

The Social Dimension

Benefits are provided to full-time as well as to part-time employees without differentiation.

DIVERSITY AND EQUAL OPPORTUNITIES

Piaggio operates globally with a diversity of employees, in terms of age and gender, in Europe, the Americas and Asia. Staff diversity represents values and opportunities arising from various different ways of pursuing and achieving the highest levels of performance within a single, broader Group organisational design.

Managing diversity for Piaggio means recognising and respecting differences in the context of a common company culture, so the Group rejects any form of discrimination on the basis of gender, age, nationality, ethnic background, ideology or religion. It operates in strict compliance with law and with contractual requirements, and in keeping with the customs, practices and usages of each country in which Piaggio operates.

The Group's concrete commitment to embracing diversity is reflected by its adoption of a Code of Ethics, conformity to international laws on equal opportunities and use of policies that protect forms of diversity already found within the company.

The Group seeks to spread its culture and values throughout the world through shared digital platforms (company intranet and tools supporting the work of HR such as the Success Factor, Piaggio Global Training), with a view to creating the conditions for promoting an international mindset and a building a truly multinational organisation, in which all employees can benefit from equal opportunities.

Human resources management processes are conducted applying the same principles of merit, fairness and transparency in all the countries in which the Group operates, with the accent placed on aspects of relevance for the local culture.

Piaggio selects and hires its staff based solely on the candidates' characteristics and experiences and the requirements of the position. As shown in the graph below(26), Piaggio promotes and supports the recruitment of candidates from many parts of the world, to contribute to the international mindset that is a key value for the Group.

In order to promote and sustain intercultural exchange and diversity management, the Group encourages the international mobility of its people, enabling the reciprocal secondment of employees between Group companies.

26 Figures include senior managers, first- and second-level executives reporting to top management at Piaggio & C SpA, and the first- and second-level executives of subsidiaries. The term local refers to the national level and local senior managers means senior managers with nationality the same as the country where they work.

Female employment

Female employees at Piaggio play a fundamental role at all levels of the organisational structure. Their presence, which is equal to 20.8%, is in line with the previous year, with an increase in white-collar and managerial positions.

COMPANY EMPLOYEES BY GENDER AND GEOGRAPHIC SEGMENT AS OF 31 DECEMBER

2019 2018
MEN WOMEN MEN WOMEN
EMEA and Americas 2,397 1,086 2,474 1,112
of which Italy 2,179 1,020 2,271 1,053
India 1,717 32 1,971 55
Asia Pacific 810 180 749 154
Total 4,924 1,298 5,194 1,321

COMPANY EMPLOYEES BY CONTRACT TYPE, GENDER AND GEOGRAPHIC SEGMENT AS OF 31 DECEMBER 2019

EMPLOYEE/ OPEN-ENDED CONTRACT
STAFF NUMBERS MEN WOMEN TOTAL MEN WOMEN TOTAL
EMEA and Americas 17 6 23 2,380 1,080 3,460
of which Italy 17 5 22 2,162 1,015 3,177
India 466 6 472 1,251 26 1,277
Asia Pacific 318 72 390 492 108 600
Total 801 84 885 4,123 1,214 5,337

Equal opportunities are offered to employees of both genders, with concrete initiatives in place to help people strike a balance between work and domestic life. Such initiatives include alternatives to full-time work.

The Social Dimension

COMPANY EMPLOYEES BY PROFESSION, GENDER AND GEOGRAPHIC SEGMENT AS OF 31 DECEMBER 2019

EMPLOYEE/ FULL TIME PART TIME
STAFF NUMBERS MEN WOMEN TOTAL MEN WOMEN TOTAL
EMEA and Americas 2,390 916 3,306 7 170 177
of which Italy 2,172 853 3,025 7 167 174
India 1,717 32 1,749 0 0 0
Asia Pacific 810 180 990 0 0 0
Total 4,917 1,128 6,045 7 170 177

PART-TIME EMPLOYMENT IN ITALY AS OF 31 DECEMBER 2019

Young employees

Within the Group, the company's largest population is in the 41-50 age group. The generational mix is essential for more experienced workers, who can set an example and pass on skills and abilities learned over time, to impart their knowledge to younger employees.

COMPANY EMPLOYEES BY PROFESSIONAL CATEGORY AND AGE BRACKET AS OF 31 DECEMBER

EMPLOYEE/STAFF NUMBERS UP TO 30 31-40 41-50 > 50 TOTAL
Senior management 0 9 35 62 106
Middle management 4 197 280 186 667
2019 White collars 287 584 471 366 1,708
Blue collars 910 733 1,252 846 3,741
Total 1,201 1,523 2,038 1,460 6,222
Senior management 0 8 31 61 100
Middle management 5 189 274 172 640
2018 White collars 265 607 494 372 1,738
Blue collars 1,162 711 1,258 906 4,037
Total 1,432 1,515 2,057 1,511 6,515

COMPANY EMPLOYEES UP TO 30 YEARS OF AGE BY GEOGRAPHIC SEGMENT AS OF 31 DECEMBER 2019

Parental/maternity leave

Our companies apply laws passed by pertinent national legislation.

The Group does not discriminate in any way against women who take maternity leave. Indeed, to support workchild care balance, a horizontal part-time contract has been granted to 181 employees in Italy. In addition, as further support for work-life balance, employees at the Pontedera site can benefit from an agreement for childcare support (see the Industrial Relations section).

As demonstration of the above, the following information has been provided for the companies where the phenomenon is more numerically significant27.

EMEA & AMERICAS (INCLUDING ITALY) ASIA PACIFIC
MEN WOMEN TOTAL MEN WOMEN TOTAL
Employees on maternity leave during 2019 25 12 37 106 34 140
Employees returning in 2019 after maternity leave 25 18 43 87 32 119
Employees returning in 2018 after maternity leave 25 20 45 94 29 123
Employees returning to work and on the pay
roll 12 months after returning from maternity
leave
24 19 43 82 26 108
Retention rate (%) 96.00% 95.00% 95.56% 87.23% 89.66% 87.80%

ENGAGEMENT AND DIALOGUE WITH STAFF

The Piaggio Group's internal communication guidelines are designed to keep employees informed with regard to business performance and prospects, bringing them closer to top management strategies.

The system is based on the conviction that sharing strategic objectives with every employee is a key factor to success. Piaggio uses communication and information tools which respect and empower the social and cultural realities within the Group.

In particular, in Italy there is an active national intranet portal, "PiaggioNet", which provides information on the Group, with company news and the latest on the product ranges of the various brands, as well as a range of staff services (e.g. online coupons, transfer management, manuals/internal procedures, Piaggio Global Training platform and direct access to the online company publication Wide Piaggio Group Magazine, which is also published on the Group's websites, is updated on a continual basis and available in Italian and English versions). Through specific intranet stations ("Piaggio InfoPoint"), located in the Italian factories of the Piaggio Group, blue collars also have access to news (company news, new products) and to many services using their corporate badge.

Similar information is made available to the employees of foreign subsidiaries through the dedicated intranet portal "PiaggioNet International", whose contents are published in English.

Additional specific initiatives are provided for employees of premises in Vietnam and India, for example:

– forums dedicated to employees in India (V-Speak);

– a quarterly meeting at Piaggio Vietnam with management to share quarterly results and targets for the next quarter;

  • The Social Dimension
  • INDIA E–Care: this is an online platform where external consultants deal with various personal problems of employees and their families, guaranteeing confidentiality;
  • Piaggio Vietnam Annual Safety training/Monthly Safety coordinator meeting/Safety Driving contest: these are activities that increase safety awareness.

Industrial relations

The Piaggio Group acknowledges the role of trade union organisations and workers' representatives and is committed to establishing relations with them focussed on attention, engagement and a common understanding; in fact ongoing dialogue is considered as fundamental for finding the best solutions to specific company needs.

The Group's approach lies in involving workers and their representatives in the pursuit of company objectives, establishing a continuous dialogue with them. The solutions and conduct adopted in various countries where the Group operates are in line with the social and institutional context, but are always consistent with the fundamental principles and overall needs of the Group.

Piaggio complies with the labour legislation of countries where it operates. The minimum notice to give in the case of major organisational changes depends on the country where the employee works and on local applicable legislation.

Italy

During 2019, dialogue and discussion continued with trade unions and workers' representatives, with the aim of seeking shared solutions, in order to respond to market situations and to manage the effect of these on employees. Collective negotiations have made it possible to identify shared management tools, that can tackle various scenarios safeguarding Company competencies.

The National Collective Bargaining Agreement (CCNL) is valid throughout Italy. In the case of major organisational changes, provisions of law and of the relative collective bargaining agreement are complied with.

At the end of negotiations which began in 2017, a draft version of a 2nd level (supplementary) collective agreement was signed on 23 January 2020 with national and provincial branches of trade unions and trade union representatives of Pontedera, Noale, Scorzè and Mandello del Lario, for production units in Italy, valid up until 31 December 2022 and that has been approved by workers in February 2020.

As regards the Pontedera site, which is now fully established as a centre of excellence in innovation, research and design and in the production of vehicles and engines, a new trade union agreement was signed for the use of the Solidarity Contract from November 2018 to March 2019, subsequently renewed from October 2019 to January 2020. In July 2019, a mobility procedure was launched for 180 employees in order to downsize staff activities and structurally rebalance the production workforce, also promoting generation turnover.

The Ordinary Redundancy Fund was used occasionally during 2019 at the Noale unit, where motorcycle design and development activities are carried out.

On 26 November 2018, an agreement with local trade unions and trade union representatives was signed at the Ministry of Labour and Social Policies, to continue the Special Redundancy Fund for reorganisation at the Scorzè unit from 9 January 2019 to 8 January 2020.

On the same date, a procedure was started for a collective decease in staff, approved by workers, and concerning 105 people overall, in order to promote an easier management of structural excesses.

On 13 December 2019, an agreement with local trade unions and trade union representatives was signed at the Ministry of Labour and Social Policies, to continue the Special Redundancy Fund for reorganisation at the Scorzè unit from 9 January 2020 to 8 January 2021. At the same time, a procedure for the collective decrease in personnel was started, agreed by staff and concerning a total of 100 people.

At the Mandello del Lario production unit, the increase in work related to the summer production peak was managed in 2019 by using contractual multi-week hours, as well as agency workers.

Membership of trade union organisations at Italian sites is shown in the table below:

The Social Dimension

2019 2018
PONTEDERA NOALE AND
SCORZÈ
MANDELLO
DEL LARIO
PONTEDERA NOALE AND
SCORZÈ
MANDELLO
DEL LARIO
FIOM 211 119 35 248 125 41
UILM 239 1 2 285 1 2
FIM 283 142 23 326 141 21
UGL 97 5
USB 45 36
CGIL/CISL/UIL 1 1
Total number of employees who are 876 262 60 901 267 64
members of a trade union 35.05% 50.48% 64.51% 35.8% 51.3% 68.8%

Company micro-conflicts, mainly attributable to a single trade union association, were down on previous years, even though the total number of hours of industrial unrest went up, due to conflict at a national or sector level. The table below provides a summary of the hours lost due to strikes in the last two years at the company's sites in Italy:

2019 2018
general/category 22,303 1,400
No. of hours lost due to strikes company 8,292 14,526
Total 30,595 15,926
% hours lost compared to hours general/category 1.18% 0.07%
company 0.44% 0.8%
worked of which Pontedera compared to hours worked in Pontedera 1.83% 0.89%
Total 1.61% 0.83%
general/category 2,788 175
No. of days lost due to strikes company 1,036 1,816
Total 3,824 1,991

A structured company welfare system has been established in Italy, with services that aim to increase the well-being of employees and their families, in economic and social terms. In particular, two childcare agreements are in place for employees at the Pontedera site.

Moreover, a national trade union agreement at the end of 2011 established a private health insurance fund (Métasalute) for metal and steel processing workers in Italy; the company started paying its contributions to the fund in 2012. Membership of the plan, which was initially on a voluntary basis, has been automatic for all Group employees since October 2017.

The scheme also includes health benefits/services for employees:

  • at Pontedera, the company medical centre for employees has specialists (an optician, an orthopaedic specialist, a lung specialist, a dermatologist and an ENT specialist) for consultations during working hours;
  • at Noale/Scorzè and Mandello del Lario, all employees are entitled to paid time off for specialist consultations outside the company and for clinical analyses.

All sites also offer employees vaccinations free of charge.

India

The Indian subsidiary has always based trade union relations on cooperation, seeking to establish an ongoing dialogue and exchange of views. The company and the trade unions acknowledge that it is in the mutual interest of employees and the Piaggio Group to guarantee and pursue greater productivity and higher quality of products, as well as ensuring excellent factory operating process function, all of which enable the company to remain competitive in an environment like the automotive sector which, even in India, constantly demands innovation in its work processes.

Consolidated non-financial statement - Legislative Decree no. 254 of 30 December 2016

General Social and environmental-oriented policies and guidelines Description of the process to identify material issues for Non-Financial Statement purposes The business model Risk Management Governance of sustainability The Environmental Dimension The Social Dimension

In India, trade unions have a two-tier structure: one at company level and the other at local/area level; this structure is also replicated at the Indian subsidiary where the trade union system comprises a company trade union committee with Piaggio workers' representatives, and a central trade union committee, which is the highest hierarchical level, with members selected by the trade union. Currently, the company trade union committee (appointed in September 2019 and with an annual term of office) is made up of 8 members.

At the Indian subsidiary, a collective bargaining agreement is negotiated and signed, at regular intervals. The contract is for four years and was renewed in 2018, following trade union negotiations without any episodes of conflict.

In 2019, besides signing the above agreement, main activities concerning industrial relations focused on:

  • reaching and achieving the blue collar productivity levels established in the new agreement. Based on these indicators, levels of manpower connected with varying levels of production were established;
  • implementation of a flexible temporary labour model. The use of temporary blue-collar workers is related to production volumes based on pre-established ratios;
  • adopting other provisions in the agreement concerning salaries and other aspects (regulations on collective closures, the introduction of automation processes, flexibility in operating roles, training, etc.);
  • maintaining and improving positive and cooperative relations with workers and trade unions;
  • guaranteeing compliance with labour laws, also following new government regulations (e.g. on the use of apprenticeships, regulations concerning pension funds, etc.);
  • employee engagement to improve business climate and, accordingly, employee motivation. In line with this approach, Piaggio organised numerous activities to involve its employees, including sports' competitions, health checks-ups and prevention, initiatives to raise awareness of environmental issues and the purchase of books for employees' children.

Vietnam

In Vietnam, trade union representatives at a company level (selected by a company trade union committee) are tasked with protecting employees, helping them to understand aspects concerning labour regulations and company policies, and providing economic support for some company initiatives benefiting employees.

In particular, the current Trade Union Committee, elected in February 2014 and comprising 15 members who will remain in office for 6 years, made an excellent contribution in 2019, having sponsored and assisted the company in a number of initiatives to bolster employee motivation.

In October 2019, the new Trade Union Committee was elected, basically conforming previous appointments. The main events are outlined below, following on from those organised last year:

  • "Safety Riding Contest" & "Safety Forklift Riding", lasting half a day, which promoted employee awareness on the subject of safety. It was also presented to local authorities to emphasise the company's strong focus on safety issues;
  • the 6-month "Road Safety" campaign (starting in September 2018 and ending in March 2019), to increase awareness of safe road use, for all employees. This campaign, with specific monthly initiatives, was also organised as most blue-collar workers travel to work by motorcycle/scooter;
  • the "Nutrition Day" for employees' children: in June, paediatric doctors met with employees to provide advice on the nutrition and health of their children. The half-day event was attended by approximately 300 children, mainly the sons and daughters of blue-collar workers. In particular, the children, who were entertained with games, entertainers and small gifts, were examined by 12 national nutrition doctors;
  • the "Piaggio Vietnam Summer Vacation" lasting 3 days in August, when employees with their families were given a contribution to spend 3 days' holiday at a location selected in conjunction with the Company and trade union representatives;

– an "Outing day", a team-building event lasting one day, held in August for all employees.

"Year End Party", for all employees, including management, to share results achieved and goals for 2020.

A company football tournament was also held, to increase team spirit through sport. No strikes took place in 2019.

The Social Dimension

Occupational health and safety

Safeguarding and improving the health and safety of workers has always been integral to the Group's operations and is a strategic commitment which is positioned among the Group's more general objectives. This principle is valid and adopted in all countries where the Group operates. In particular, the Group has taken concrete actions for:

  • continual developments towards a safer working environment, based on assessing all aspects of safety at work and the associated systems, beginning with planning new activities or when reviewing existing ones;
  • safer conduct through education, information and awareness of all workers, to enable them to perform their duties safely and to become accountable with respect to Health and Safety at Work.

All employees guarantee and work together to put in place effective occupational health and safety programmes, to safeguard their own and others' safety.

Prevention and protection activities to safeguard the health of workers in a complex industrial context like the Piaggio Group, both in Italy and abroad, can only be achieved through an adequately structured organisation which specifically aims to foster a "culture" of safety within the company. Therefore, the belief that prevention must focus on behaviours and daily activities is today disseminated at all levels. This approach has led the Piaggio Group to adopt very similar safety management standards in all the countries in which it operates, regardless of the presence of less stringent regulatory constraints with respect to the Group's standards. From this perspective, the sites in Italy, Vietnam and India have a certified Occupational Health and Safety management system; the Indian site is certified to BS OHSAS 18001, while Italian and Vietnamese sites are certified to ISO 45001:2018 by an accredited certification body. Audits are conducted annually and were once again concluded successfully in 2019.

In line with Occupational Health and Safety Management System requirements, the Group has identified safety training as the key driver for disseminating a culture and fostering a conduct focussed on safety leadership and for generating commitment and steering conduct.

Promoting health is another important aspect for Piaggio, and this is achieved based on two areas of action: free testing and information campaigns on healthy lifestyles. Each Group site has a health unit for prevention, surveillance and first aid, manned by specialist medical and paramedical staff.

Italy

During the year, implementation of the SAP H&S IT application continued, with the assistance of the Information Technology department. This software is dedicated to managing Health and Safety aspects and covers the following in particular: risk assessment, health surveillance, managing deliveries of personal protective equipment, overseeing audit management processes, reporting, managing tracking notes. Modules currently being developed will be implemented and closed during 2020.

The objectives that will be pursued with these projects are:

  • maintaining legislative compliance;
  • standardising the management of Health and Safety aspects and applicable KPIs at international level;
  • strengthening control over the scheduling of programmes in order to achieve objectives set;
  • streamlining reporting operations;
  • increasing access to information by all stakeholders.

The Social Dimension

FREQUENCY INDEX28 - ITALY

2019 2018
M W TOT M W TOT
Pontedera 1.2 1.7 1.4 1.0 1.6 1.2
Noale and Scorzè 0.8 0.0 0.7 0.4 0.7 0.5
Mandello del Lario 0.5 0.0 0.5 0.7 0.0 0.7

SEVERITY INDEX29 – ITALY

2019 2018
M W TOT M W TOT
Pontedera 19.6 36.1 24.5 16.6 44.3 24.5
Noale and Scorzè 18.6 0.0 15.1 12.2 9.3 11.6
Mandello del Lario 15.1 0.0 14.3 9.8 0.0 9.2

OCCUPATIONAL DISEASES IN ITALY

2019
REPORTED ACKNOWLE
DGED
REPORTED ACKNOWLE
DGED
Pontedera 75 (*) 70 (*)
Noale and Scorzè 0 0 0 0
Mandello del Lario 0 0 1 0

(*) To date, the outcome from INAIL concerning occupational diseases reported in the year considered is not known.

NUMBER OF FATAL ACCIDENTS IN ITALY

2019 2018
M W TOT M W TOT
Pontedera 0 0 0 1 (a) 0 1
Noale and Scorzè 0 0 0 0 0 0
Mandello del Lario 0 0 0 0 0 0

(a) An accident occurring while commuting

As regards external companies operating at Piaggio's Italian production sites, 6 accidents were recorded for 2019, only regarding the Pontedera site (7 in 2018).

The number of accidents is calculated considering only accidents in the workplace, excluding accidents reported pursuant to Article 53 of Italian Presidential Decree no. 1124/65. Pursuant to Article 53, both commuting accidents and accidents not considered reliable (due to the lack of a violent cause or lack of a causal link or lack of work activity) are reported.

29 The severity index is calculated as Ig = (working days lost / hours worked) x 100,000.

28 The Frequency Index is: IF = (No. of accidents * 100,000) / Hours worked.

The Social Dimension

India

In order to guarantee the highest occupational health and safety standards, the Indian subsidiary has an organisational structure that operatively involves the "Occupier" (employer), which is a single person for various production sites who has responsibility for the health, safety and well-being of all employees in the work place, Factory Managers and a Safety Committee comprising 20 members that includes executives, managers and white collars. The Safety Committee meets at regular intervals to plan, revise and discuss action plans necessary to establish and disseminate an awareness and safety culture in the work place among employees. The presence of a Health & Safety team guarantees that the entire system may operate effectively.

In line with the Group's approach, a great deal has been invested in training over the last few years as a key driver to increase employee accountability in relation to safety and, consequently, to promote a proactive approach to and engagement with safety issues.

FREQUENCY INDEX - INDIA

2019 2018
M W TOT M W TOT
Engine & Commercial Vehicles 0.0 0.0 0.0 0.011 0.0 0.01
2W India 0.0 0.0 0.0 0.0 0.0 0.0
Spare Parts 0.0 0.0 0.0 0.0 0.0 0.0

SEVERITY INDEX IN INDIA

2019 2018
M W TOT M W TOT
Engine & Commercial Vehicles 0.0 0.0 0.0 1.019 0.0 1.0
2W India 0.0 0.0 0.0 0.0 0.0 0.0
Spare Parts 0.0 0.0 0.0 0.0 0.0 0.0

OCCUPATIONAL DISEASES IN INDIA

2019 2018
REPORTED ACKNOWLE
DGED
REPORTED ACKNOWLE
DGED
Engine & Commercial Vehicles 0 0 0 0
2W India 0 0 0 0
Spare Parts 0 0 0 0

Compared to a considerable national trend, the number of occupational diseases reported at Indian sites was equal to zero and reflects the Piaggio Group's commitment to achieving the objective of guaranteeing healthy workplaces.

NUMBER OF FATAL ACCIDENTS IN INDIA

2019
M W TOT M W TOT
Engine & Commercial Vehicles 0 0 0 0 0 0
2W India 0 0 0 0 0 0
Spare Parts 0 0 0 0 0 0

General

Consolidated non-financial statement - Legislative Decree no. 254 of 30 December 2016

Social and environmental-oriented policies and guidelines Description of the process to identify material issues for Non-Financial Statement purposes The business model Risk Management Governance of sustainability The Environmental Dimension The Social Dimension

Vietnam

The main priority of the company is compliance with local laws, international health and safety standards and Piaggio Group policies. In this framework, it guarantees the achievement of objectives to improve workers' health and safety through a dedicated H&S facility.

In accordance with Group guidelines, suppliers and external companies that operate at the site are contractually bound to comply with occupational health and safety policies, respect Piaggio Vietnam procedures and programmes, and observe the instructions given to them. Any breach thereof is a breach of the contract and sufficient reason for termination of the same; in the interests of improvement, the company organises specific safety courses for "contractors" in order to raise standards regarding these issues.

Moreover, a Safety Committee was established involving members of all functions and chaired by the production manager. The Committee members are responsible for managing any safety-related issues within their functional area and for taking the required corrective actions. They also conduct periodic audits of the entire site and report to the committee on all relevant aspects regarding safety, so that corrective actions may be promptly taken.

In order to effectively implement general health and safety regulations, a programme of activities is defined each year, based on operating plans, that are updated on an ongoing basis.

In parallel with training and awareness-raising activities, a number of initiatives have been adopted aimed at building a culture of safety and at raising the awareness of employees and their families on this issue; these include: "Forklift safety", "Road Safety Campaign".

FREQUENCY INDEX - VIETNAM

2019 2018
M W TOT M W TOT
Vietnam 0.06 0.0 0.05 0.0 0.0 0.0

SEVERITY INDEX IN VIETNAM

2019 2018
M W TOT M W TOT
Vietnam 0.05 0.0 0.05 0.0 0.0 0.0

OCCUPATIONAL DISEASES IN VIETNAM

2019 2018
REPORTED ACKNOWLE
DGED
REPORTED ACKNOWLE
DGED
Vietnam 0 0 0 0

Compared to a considerable national trend, the number of occupational diseases reported at the Vietnamese site was equal to zero and reflects the Piaggio Group's commitment to achieving the objective of guaranteeing healthy workplaces.

Number of fatal accidents in Vietnam

2019 2018
M W TOT M W TOT
Vietnam 0 0 0 0 0 0

As regards external companies operating at Piaggio's Vietnamese site, no accidents were reported in 2019.

The Social Dimension

Responsible management of the supply chain

Piaggio Group produces vehicles that are sold under its brand on the various markets around the world. The only exception regards vehicles purchased by the Chinese subsidiary Zongshen Piaggio Foshan (about 17,210 units in 2019, equivalent to 2.8% of vehicles sold).

Piaggio is a leader in engine technology and produces engines at its plans both for internal production and to meet the demand of other manufacturers.

All the other components that constitute a vehicle are purchased externally and assembled in-company.

Italian plants

In 2019, Italian plants purchased merchandise and spare parts for an overall value of ¤415 million (excluding complete vehicles) from 683 suppliers.

The first ten suppliers made up 18.73% of total purchases.

GEOGRAPHIC LOCALISATION OF THE SUPPLIERS OF ITALIAN PLANTS30

GEOGRAPHIC SEGMENT 2019 2018
EMEA 67.5% 65.7%
China+Taiwan 19.4% 20.8%
Vietnam 6.0% 5.8%
India 6.2% 6.7%
Japan 0.4% 0.3%
Others 0.5% 0.7%

In 2019 payments were made to suppliers for approximately ¤641 million.

Indian plants

In 2019, plants in India purchased raw materials, merchandise and spare parts for an overall value of ¤318 million from around 620 suppliers.

The first ten suppliers made up 36% of the total purchases.

GEOGRAPHIC LOCATION OF THE SUPPLIERS TO INDIAN PLANTS

GEOGRAPHIC SEGMENT 2019 2018
India 96.0% 95.1%
Other 4.0% 4.9%

In 2019 payments were made to suppliers for approximately ¤500 million.

30 For the calculation of the percentages, the value of incoming goods for orders - open orders was taken into consideration.

Vietnamese plants

In 2019, plants in Vietnam purchased merchandise and spare parts for an overall value of ¤172 million from around 230 suppliers.

The first ten suppliers made up 36% of the total purchases.

The Social Dimension

GEOGRAPHIC LOCALISATION OF THE SUPPLIERS OF VIETNAMESE PLANTS

GEOGRAPHIC SEGMENT 2019 2018
Vietnam 59.0% 53.3%
China+Taiwan 18.4% 21.3%
EMEA 18.2% 20.1%
India 1.8% 2.0%
Others 2.6% 3.3%

In 2019 payments were made to suppliers for approximately ¤177 million.

Group relations with suppliers are based on loyalty, impartiality and respect of equal opportunities of all parties concerned.

The Piaggio Group is convinced that responsibility is a commitment which goes beyond the boundaries of the Company and must positively involve everyone in the Company-supplier chain; this is why suppliers worldwide that wish to do business with Piaggio have to sign the general conditions of supply of the Piaggio Group which include the "Code of Ethics and Guidelines for doing business". As from this year Piaggio requires suppliers to sign a "Sustainability Statement" in order for them to be included on the Supplier List for Italy, and ensure compliance with Piaggio's ethical values throughout the production cycle and sales of its products.

In line with the Group's guidelines, every year the Purchasing Unit seeks to improve the procurement process by promoting the technical skills of buyers and focusing on the management of the various goods categories.

Over the last few years, Piaggio Group Management has started a process of common development with its suppliers by setting up a specific department called "Vendor Assessment" as well as assigning the "Finance" Function to define and monitor activities of possible risks areas involving financial and corporate issues, guaranteeing the complete independence between corporate areas involved in the procurement processes, as well as meeting the needs of all stakeholders.

Corporate Finance Area

The responsibility for activities relating to the monitoring of the financial and corporate reliability of Strategic Suppliers rests with the Corporate Finance Area.

In 2019, Group Supplier analysis and monitoring continued, as did the mapping of controlling partners/shareholders (identified as "Beneficial Owners") of strategic partners. Furthermore, on the subject of compliance, controls of any politically exposed persons and/or subjects included on anti-terrorist lists (or in any case on lists of possible offences that could harm the company's reputation) among Suppliers continued, in order to mitigate "reputation risk". All possible company variations that may affect perceived risk are presented to a Suppliers' Committee (comprising the Purchasing Manager, Managers of Production Development (2W, 3-4W), the Manager of Administration and Credit Management, as well as the Finance Manager and the Chief Financial Officer) during periodic meetings in order to identify corrective and performance improvement actions, whenever critical issues are identified.

In the last part of 2019, activities began to define a new company procedure to assess Suppliers, in terms of their being legal entities and members of groups, identifying possible risks in the control chain.

The Financial Assessment of Aprilia Racing Strategic Suppliers continued in 2019, along with an analysis of the financial and corporate reliability of the main Sponsor Companies of the Team, including the monitoring of possible reputation risk.

The Social Dimension

Vendor Assessment

The purpose of the Vendor Assessment department within the Piaggio Group is to forge a long-lasting, mutually satisfying relationship with a network of highly qualified partners. In addition to managing the Supplier Qualification Process, the function has the task of doing an evaluation of the purchasing performance through Vendor Rating Campaigns.

Supplier relations are defined by specific company processes comprising two fundamental stages: new supplier qualification and periodic supplier monitoring.

New supplier qualification is an inter-functional process based on specific standards that lead to a potential supplier being included in the Supplier List, for its chosen goods' category; after an initial documentary prequalification stage, a multidisciplinary, supplier qualification team is involved, with specific positions giving a technical, economic/ financial and corporate rating on goods' categories.

Suppliers are periodically monitored through six-monthly assessment sessions, called "Vendor Rating Campaigns", during which supplies for the period in question are reviewed based on the quality of the business relationship, the technical-scientific cooperation, compliance with delivery schedules and the quality of the product supplied. This provides a reference framework for procurement strategies and actions concerning suppliers. The process involves:

  • Assignment of a Vendor Rating Index, which measures the performance of the vendor using a weighted average of the assessments made by corporate functions (for direct materials, the relevant functions are R&D, Quality, Manufacturing and Spare Parts);
  • Assignment of a Criticality Rating that takes into account the Quality function's assessment, to decide whether a supplier is "critical" for the purposes of granting them new supply agreements.

At present, Criticality Ratings have been assigned to most Group suppliers of European production sites only. In terms of "spending", the indicator for 2019 covered 99% of purchases of direct materials and 50% of services and works provided. The evaluation process was also carried out in Vietnam and India.

Suppliers Portal

To ensure the effective and efficient management of supplier relationships, the Supplier Portal, based on the SRM-SAP system, is available in Italy, India and Vietnam.

The "SRM – Suppliers Portal" system is a computer tool to exchange information and documents on purchasing materials, components, equipment and services in real time between all company functions and suppliers, so as to guarantee the proper and transparent management of all purchasing process stages: purchase requests to purchase orders, price lists and supply programmes, incoming goods, invoices and information on payments.

In particular, the Portal ensures the achievement of the following objectives:

  • greater collaboration with suppliers, through self-service, connectivity, document and information sharing tools;
  • greater efficiency of purchasing processes, through the implementation of automated tools, and greater compliance with purchasing procedures;
  • minimisation of manual activities;
  • quality and accuracy of information;
  • reducing business processes and communication times;
  • low use of paper (including through the use of the ature);
  • reducing invoicing anomalies, in particular for digital invoicing, which has been in force in Italy since 1/1/2019;
  • visibility of the entire authorisation process, from purchase orders to orders.

Supporting local communities

The Social Dimension

FONDAZIONE PIAGGIO31

While 2018 was a ground-breaking year for the Piaggio Foundation, with the expansion of the Museum and launch of the ambitious programme of high-level cultural and scientific events, 2019 firmly established it as a leading cultural and scientific hub for an ever-growing area.

PIAGGIO MUSEUM

During the year, the Piaggio Museum continued its development process and further improved display facilities, with new furnishings and systems for the Vespa Room, enhancing the aesthetics and ease-of-use for visitors. New models of the Vespa, Ape, new mopeds and new motorcycles, all with considerable historical value and of great interest to fans, were added to the collections on show.

The Museum's appeal was highly appreciated by visitors the world over, who awarded it a Certificate of Excellence for the fourth year running on Tripadvisor, with it joining the Hall of Fame.

The number of visitors also went up, with figures at just under 80,000, up by 10% over 2018.

PIAGGIO HISTORICAL ARCHIVE

In 2019, as has been the case in recent years, the Piaggio Historical Archive contributed significantly to many of the activities of the Piaggio Foundation. It continued its valuable role in supporting research and in managing requests for meetings and consultations from scholars and researchers (with a significant increase in requests for advice regarding high-profile scientific research within the academic sector), as well as assisting with the Museum's teaching activities and the iconographic and documentary research for books and publications and for the preparation of exhibitions and internal and external events. Work on the Fuoriporta. Un viaggio alla scoperta del gusto e dello stile italiani (Taking a trip. Travels to discover the history of Italian flavours and style exhibition) (15 May-10 November 2019), in association with the long-standing cooking magazine "Cucina italiana" was particularly important. The Archive was valuable in work to check the Museum's information content, with the aim of revising the explanatory texts of the models (over 200 items) in general.

The Archive has also continued to grow and strengthen its partnership with the Piaggio internal offices, providing advice and information on historical matters and selecting and sending images, in particular for the execution of a number of licensing projects, beginning with the impressive file-based publication Vespa che passione! (A passion for Vespa!) 62 issues, edited by Centuaria: the Historical Archive managed the iconography research and historical supervision. It also contributed recently to the launch of Ciao. L'indimenticabile ciclomotore italiano ( (Ciao. The great Italian scooter), an upcoming publication of 50 issues, edited by Centauria. Support was also provided for image searches to provide inspiration for the new Lifestyle collections.

CULTURAL PROJECT

The activities and events organised or promoted by the Piaggio Foundation during the year are part of a widerranging cultural project designed to convey the historical and current values of the Piaggio Group to visitors, and to transform the Museum into a scientific, artistic and cultural meeting place which can be visited again and again.

31 Information on the Fondazione Piaggio (Piaggio Foundation), which is not included in the scope of consolidation of the Group, refers to qualitative aspects useful for understanding its focus on the social fabric, even though this information is not included in the scope of consolidation of quantitative information of the NFS.

Consolidated non-financial statement - Legislative Decree no. 254 of 30 December 2016

General Social and environmental-oriented policies and guidelines Description of the process to identify material issues for Non-Financial Statement purposes The business model Risk Management Governance of sustainability The Environmental Dimension The Social Dimension

CHARITY ACTIVITIES AND SPONSORSHIPS

2019 saw the consolidation of the collaboration between the Piaggio Group and (RED) - an association founded in 2006 by Bono and Bobby Shriver - which has contributed US\$360 million to the Global Fund for the fight against AIDS, Tuberculosis and Malaria. The aid provided by (RED) to the Global Fund had an impact on more than 70 million people through activities such as prevention, treatment, counselling, HIV testing and support services.

The partnership was expanded to include not only the Vespa 946 (RED), but the Vespa Primavera (RED) too, which will be available on the market from spring 2020. The Vespa 946 (RED) is sold in Europe, Asia, the Pacific Area and the United States. For each Vespa 946 (RED) sold, US\$150 will be donated to the Global Fund and the fight against AIDS. A concrete and valuable contribution, thanks to which (RED) will be able to guarantee more than 500 days of medical care to save lives threatened by HIV and help prevent the transmission of the virus from HIV-infected mothers to their unborn children.

Charity events supporting partnerships were also organised in Europe, Asia and India. In Europe, and particularly in Paris, the window displays of MOTOPLEX stores were painted red in support of the (RED) project for World Aid's Day.

Piaggio Fast Forward, the Piaggio Group's robot company has announced its partnership with Red, presenting Gita32 (RED), its first limited-edition capsule collection. For each Gita-Red sold, US\$50 will be donated to the Global Fund. The last stage in the MotoGP season, in Valencia, also supported the global fund. Aprilia motorbikes were decked out in red, with a special (RED) livery and all sponsors waived their visibility to support the cause.

In the US and Canada, Vespa (RED) products were the stars of the Shopathon charity marathon and were put on sale through Amazon.

Lastly, (RED) accompanied participants in the MOTO GUZZI Experience event held in Tunisia from 23 November to 2 December. Participants paid tribute to the cause, having their photograph taken on the Star Wars set, wearing the Vespa (RED) t-shirts.

During 2019, the Piaggio Group continued to support activities of the Vespa for Children project, a humanitarian charity initiative which, by involving the Group's companies, intends setting up charitable projects to promote social solidarity in the fields of health and social care for children in developing countries.

Piaggio Vietnam in particular has been very active in the support of local associations that deal with families in need and education for children.

The Indian subsidiary has also supported a number of local initiatives for non-profit organisations working in the fields of health and education.

In Italy, Piaggio took part, also under the aegis of the Vespa for Children project, in various events held in 2019 to help the community, donating vehicles for charity auctions and raising funds for the Italian Association for Cancer Research, AIRC, the International Organization for Migration (IOM) and the children's charity Fondazione Laureus.

The Group took part in some very important cultural events, such as the Mantova Literature Festival, not to mention other events organised by the Vespa World Club.

Lastly, for some years now, for the end of the year holidays, together with the entire Immsi Group, Piaggio Group fosters educational and rehabilitative activities for disabled children affected by brain damage by making a donation to the "Casa del Sole Onlus" association, in the name of all the employees of the Immsi and Piaggio groups. In forty years of activities, the non-profit making organisation Casa del Sole Onlus has assisted over five thousand children affected by brain damage and been a valuable source of help for their families.

The partnership between Moto Guzzi and Canottieri Moto Guzzi was renewed in 2019. During the Open House event at Mandello del Lario, last September, the Canottieri rowing team starred in the event, recounting its success stories from the Open House stage.

32 For a further description of the Gita, please see the section "The business model".

TABLE OF CORRESPONDENCE LEGISLATIVE DECREE NO. 254/2016 - MATERIAL TOPICS – GRI STANDARDS

NOTES Data on the consumption of the
Rome and Milan offices are not
considered relevant.
Emissions of commercial offices
are not indicated. Data on the
emissions of the Rome and
Milan offices are not considered
relevant.
The indicator only considers
VOC (volatile organic
compounds) released by
solvents used in painting.
Waste production of commercial
offices, research centres and
the Rome and Milan offices is
considered as not relevant, as it
is equivalent to municipal waste.
The indicator is treated only
from a qualitative point of view.
REPORTING
PERIMETER
Production sites and
commercial companies
Production sites Production sites Production sites Production sites Production sites
REFERENCE CHAPTER
/ PARAGRAPH
The Environmental
Dimension - Energy
consumption
The Environmental
Dimension - Emissions of
CO2 and other pollutants
The Environmental
Dimension - Emissions of
CO2 and other pollutants
The Environmental
Dimension - Emissions of
CO2 and other pollutants
The Environmental
Dimension - Waste
handling and recovery
- Soil contamination
TOPIC SPECIFIC
STANDARD/DISCLOSURE
GRI 302-1: Energy consumption
within the organization
GRI 305-1: Direct greenhouse gas
(GHG) emissions (Scope 1)
GRI 305-2: Energy indirect
greenhouse gas (GHG) emissions
(Scope 2)
GRI 305-7: NOX, SOX, and other
significant air emissions
GRI 306-2: Total weight of waste
by type and disposal method
volume of significant spills The Environmental Dimension
Gri 306-3: total number and
POLICIES
ADOPTED
Policy adopted to monitor
technological leadership in
the sector
Environmental policy - The
Environmental Dimension
Environmental policy - The
Environmental Dimension
RISKS IDENTIFIED Chapter The business
The risk related to an
actual or presumed
product defect due to
safety/technological
levels and a potential
inadequate quality/
model
recall action
Chapter Risk
Management
Paragraph Environment
Risk of environmental
damage attributable
to the Group's
responsibility, with a
potential impact on the
surrounding community
Chapter Risk
Management
Risk of environmental
damage attributable
Paragraph Environment
to the Group's
responsibility, with a
potential impact on the
surrounding community
TOPIC Product innovation
and sustainable
mobility
Energy efficiency Waste handling
CREE NO. 254/2016
LEGISLATIVE DE-
TOPIC AS OF
ENVIRONMENT
107 PIAGGIO GROUP
NOTES relevant.
Data on the use of the Rome and
Milan offices are not considered
REPORTING
PERIMETER
The entire Group Production sites Production sites Production sites and
commercial companies
The entire Group Italy
REFERENCE CHAPTER
/ PARAGRAPH
by source The Environmental Dimension
- Conserving water resources
The Environmental
Dimension - Conserving
water resources
The Environmental
Dimension - Conserving
water resources
The Environmental
Dimension - Conserving
water resources
Governance of
sustainability - The
system for responsible
business management
The environmental
dimension -
Environmental spending
and investments
TOPIC SPECIFIC
STANDARD/DISCLOSURE
GRI 303-1: Total water withdrawal GRI 303-2: Water sources
significantly affected by
withdrawal of water
GRI 303-3: Percentage and total
volume of water recycled and
reused
GRI 306-1: Water discharge by
quality and destination
GRI 307-1: Monetary value
of significant fines and total
number of non-monetary
sanctions for non-compliance
with environmental laws and
regulations
- Total environmental protection
expenditures and investments
by type
POLICIES
ADOPTED
Environmental policy - The Environmental Dimension Environmental policy - The
Environmental Dimension
RISKS IDENTIFIED Chapter Risk
Management
Risk of environmental
Paragraph Environment
damage attributable
to the Group's
responsibility, with a
potential impact on the
surrounding community
Chapter Risk
Management
Risk of environmental
damage attributable
Paragraph Environment
to the Group's
responsibility, with a
potential impact on the
surrounding community
TOPIC Conserving water resources Broad-ranging
CREE NO. 254/2016
LEGISLATIVE DE-
TOPIC AS OF
ENVIRONMENT
108
NOTES The Group provides data on
the purchases of its production
sites relative to the purchase
of goods and spare parts.
Purchases of commercial
companies and research centres
are not considered, as they are
residual and not relevant.
The Group provides information
about charity activities
promoted in the year, and
initiatives taken by the
Fondazione Piaggio and Museo
Piaggio.
Tax sanctions are not included.
REPORTING
PERIMETER
Production sites The entire Group The entire Group
REFERENCE CHAPTER
/ PARAGRAPH
The social dimension -
Responsible management
of the supply chain
The social dimension
- Supporting local
communities
Governance of
sustainability - The
system for responsible
business management
TOPIC SPECIFIC
STANDARD/DISCLOSURE
GRI 204-1: Proportion of
spending on local suppliers at
significant locations of operation
GRI 413-1: Operations with local
community engagement
GRI 419-1: Non compliance with
laws and regulations in the social
and economic area
POLICIES
ADOPTED
Policy adopted to produce
vehicles that guarantee a
high level of active, passive
The adoption of this policy
is demonstrated by the
Group's commitment to
maintaining certification
of its quality management
systems (ISO 9001/ ISO
16949).
and preventive safety.
Policy adopted to qualify
and periodically evaluate
suppliers based on
financial criteria in line with
technical/professional/
international standards
Policies adopted to
establish roots in the
area and increase value
for the community. The
Fondazione Piaggio is an
example of the Group's
focus on the community.
RISKS IDENTIFIED Chapter Risk
The risk related to an
actual or presumed
product defect due to
safety/technological
levels and a potential
inadequate quality/
Management
Paragraph Social
recall action
Risk relative to
management of the
Group's supply chain:
supplier breach,
excess reliance on
individual/critical
suppliers, management
of partnerships and
alliances
Chapter Risk
Management
Paragraph Social
Chapter Risk
Management
TOPIC Safety and reliability Responsible
management of the
supply chain
Supporting local
communities
Broad-ranging
CREE NO. 254/2016
LEGISLATIVE DE-
TOPIC AS OF
SOCIAL
NOTES The Group reports the
turnover rate by professional
category and geographic
segment.
The Group reports on the
retention rate.
The indicator is treated only
from a qualitative point of
view.
The average of the training
hours is calculated only on the
group total.
REPORTING
PERIMETER
The entire Group The entire Group Italy Vietnam EMEA &
Americas
The entire Group The entire Group The entire Group
REFERENCE CHAPTER
/ PARAGRAPH
The Social Dimension
- Staff
The social dimension -
Personnel management
policies - Rewarding
The social dimension -
Personnel management
policies - Diversity and
equal opportunities
The social dimension -
Personnel management
policies - Rewarding
The social dimension -
Personnel management
policies - Diversity and
equal opportunities
The social dimension -
Personnel management
policies - Training
TOPIC SPECIFIC
STANDARD/DISCLOSURE
GRI 401-1: New employee hires
and employee turnover
GRI 401-2: Benefits provided to
full-time employees that are not
time employees, by significant
provided to temporary or part-
locations of operation
GRI 401-3: Parental leave GRI 202-1: Ratios of standard
entry level wage by gender
compared to local minimum
wage
GRI 202-2: Proportion of senior
management hired from the
local community
GRI 404-1: Average hours of
training per year per employee
by gender, and by employee
category
POLICIES
ADOPTED
Policies adopted to
manage personnel (e.g.
recruitment and internal
mobility, development
and careers, training,
industrial relations,
diversity and equal
opportunities)
RISKS IDENTIFIED Chapter Risk Management
Paragraph on Personnel
Risk arising from
a lack of skills,
professionalism and
experience of company
resources, the
inadequate sizing of
the structure and trade
union tensions
TOPIC Developing human
capital
CREE NO. 254/2016
LEGISLATIVE DE-
TOPIC AS OF
EMPLOYEES
110
NOTES The Group reports employee
data.
REPORTING
PERIMETER
The entire Group The companies PFF,
PADC and PCSM are
excluded.
The entire Group Italy, EMEA, Vietnam,
India
Italy Production sites
REFERENCE CHAPTER
/ PARAGRAPH
The social dimension -
Personnel management
policies - Development
and careers
The social dimension -
Personnel management
policies - Appraisal
The social dimension -
Personnel management
policies - Diversity and
equal opportunities
The social dimension -
Personnel management
policies - Diversity and
equal opportunities
The social dimension -
Industrial relations
The social dimension -
Occupational health and
safety
TOPIC SPECIFIC
STANDARD/DISCLOSURE
GRI 404-2: Programs for
upgrading employee skills and
transition assistance programs
GRI 404-3: Percentage of
employees receiving regular
performance and career
development reviews, by gender
and by employee category
GRI 405-1: Diversity of
governance bodies and
employees
GRI 405-2: Ratio of basic salary
and remuneration of women
to men by employee category,
by significant locations of
operation
GRI 402-1: Minimum notice
periods regarding operational
changes, including whether
these are specified in collective
agreements
GRI 403-2: Type of injury and
rates of injury, occupational
diseases, lost days, and
absenteeism, and total number
of work-related fatalities, by
region and by gender
POLICIES
ADOPTED
Occupational health and
safety (OHSAS 18001)
RISKS IDENTIFIED Chapter Risk
Management
Paragraph on Personnel
Risk arising from
a lack of skills,
professionalism and
experience of company
resources, the
inadequate sizing of
the structure and trade
union tensions Chapter Risk
Management
accidents sustained
by personnel of the
Risk of injuries/
Group's offices / sites
Paragraph on Personnel
TOPIC Developing human
capital
Health and safety
CREE NO. 254/2016
LEGISLATIVE DE-
TOPIC AS OF
EMPLOYEES
111 PIAGGIO GROUP

REPORT OF THE INDEPENDENT AUDITORS ON THE CONSOLIDATED NON-FINANCIAL STATEMENT - LEGISLATIVE DECREE NO. 254 OF 30 DECEMBER 2016

Independent auditor's report on the consolidated nonfinancial statement

pursuant to article 3, paragraph 10, of Legislative Decree No. 254/2016 and article 5 of CONSOB Regulation No. 20267 of January 2018

To the Board of Directors of Piaggio & C. SpA

Pursuant to article 3, paragraph 10, of Legislative Decree No. 254 of 30 December 2016 (the "Decree") and article 5 of CONSOB Regulation No. 20267/2018, we have performed a limited assurance engagement on the consolidated non-financial statement of Piaggio & C. SpA and its subsidiaries (hereafter the "Group" or "Piaggio Group") for the year ended 31 December 2019 prepared in accordance with article 4 of the Decree, presented in a specific section of the Annual report, and approved by the Board of Directors on 26 February 2020 (hereafter the "NFS").

Responsibility of Management and those charged with Governance for the NFS

The Directors are responsible for the preparation of the NFS in accordance with article 3 and 4 of the Decree and with the "GRI-Sustainability Reporting Standards" defined in 2016 (hereafter the "GRI Standards"), identified by them as the reporting standards.

The Directors are responsible, in accordance with the law, for the implementation of internal controls necessary to ensure that the NFS is free from material misstatement, whether due to fraud or unintentional errors.

Moreover, the Directors are responsible for identifying the content of the NFS, within the matters mentioned in article 3, paragraph 1, of the Decree, considering the activities and characteristics of the Group and to the extent necessary to ensure an understanding of the Group's activities, its performance, its results and related impacts.

Finally, the Directors are responsible for defining the business and organisational model of the Group and, with reference to the matters identified and reported in the NFS, for the policies adopted by the Group and for the identification and management of risks generated and/or faced by the Group.

The Board of Statutory Auditors is responsible for overseeing, in the terms prescribed by law, compliance with the Decree.

Report of the Independent Auditors on the consolidated non-financial statement - Legislative Decree no. 254 of 30 December 2016

Auditor's Independence and Quality Control

We are independent in accordance with the principles of ethics and independence set out in the Code of Ethics for Professional Accountants published by the International Ethics Standards Board for Accountants, which are based on the fundamental principles of integrity, objectivity, competence and professional diligence, confidentiality and professional behaviour. Our audit firm adopts International Standard on Quality Control 1 (ISQC Italy 1) and, accordingly, maintains an overall quality control system which includes processes and procedures for compliance with ethical and professional principles and with applicable laws and regulations.

Auditor's responsibilities

We are responsible for expressing a conclusion, on the basis of the work performed, regarding the compliance of the NFS with the Decree and with the GRI Standards. We conducted our engagement in accordance with "International Standard on Assurance Engagements ISAE 3000 (Revised) – Assurance Engagements Other than Audits or Reviews of Historical Financial Information" (hereafter "ISAE 3000 Revised"), issued by the International Auditing and Assurance Standards Board (IAASB) for limited assurance engagements. The standard requires that we plan and apply procedures in order to obtain limited assurance that the NFS is free of material misstatement. The procedures performed in a limited assurance engagement are less in scope than those performed in a reasonable assurance engagement in accordance with ISAE 3000 Revised ("reasonable assurance engagement") and, therefore, do not provide us with a sufficient level of assurance that we have become aware of all significant facts and circumstances that might be identified in a reasonable assurance engagement.

The procedures performed on the NFS were based on our professional judgement and consisted in interviews, primarily with company personnel responsible for the preparation of the information presented in the NFS, analysis of documents, recalculations and other procedures designed to obtain evidence considered useful.

In particular, we performed the following procedures:

    1. analysis of the relevant matters reported in the NFS relating to the activities and characteristics of the Group, in order to assess the reasonableness of the selection process used, in accordance with article 3 of the Decree and the with the reporting standards adopted;
    1. analysis and assessment of the criteria used to identify the consolidation area, in order to assess their compliance with the Decree;
    1. comparison of the financial information reported in the NFS with those reported in Piaggio Group's Consolidated Financial Statements;
    1. understanding of the following matters:
  • − business and organisational model of the Group, with reference to the management of the matters specified by article 3 of the Decree;
  • − policies adopted by the Group with reference to the matters specified in article 3 of the Decree, actual results and related key performance indicators;
  • − main risks, generated and/or faced by the Group, with reference to the matters specified in article 3 of the Decree.

With reference to those matters, we compared the information obtained with the information presented in the NFS and carried out the procedures described under point 5 a) below;

2 of 3

Report of the Independent Auditors on the consolidated non-financial statement - Legislative Decree no. 254 of 30 December 2016

PIAGGIO GROUP CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019

CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019

CONSOLIDATED INCOME STATEMENT119
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME120
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 121
CONSOLIDATED STATEMENT OF CASH FLOWS123
CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY 124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS126
ATTACHMENTS 201
PIAGGIO GROUP COMPANIES 201
INFORMATION PURSUANT TO ARTICLE 149-DUODIECIES OF THE CONSOB REGULATION ON ISSUERS 204
CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS PURSUANT
TO ARTICLE 154-BIS OF LEGISLATIVE DECREE 58/98 206
REPORT OF THE INDEPENDENT AUDITORS ON THE CONSOLIDATED FINANCIAL STATEMENTS 207

Consolidated Income Statement

Consolidated Financial Statements as of 31 December 2019

Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

CONSOLIDATED INCOME STATEMENT

2019 2018
TOTAL of which
related parties
TOTAL of which
related parties
NOTES IN THOUSANDS OF EUROS
4 Net revenues 1,521,325 112 1,389,546 2,772
5 Cost for materials (927,511) (14,377) (838,270) (20,026)
6 Cost for services and leases and rentals (239,086) (2,227) (222,974) (3,817)
7 Employee costs (228,323) (218,224)
8 Depreciation and impairment costs of property, plant and equipment (42,735) (40,982)
8 Amortisation and impairment costs of intangible assets (72,695) (68,005)
8 Depreciation of rights of use (7,854)
9 Other operating income 124,118 436 114,014 423
10 Net reversals (impairment) of trade and other receivables (2,629) (2,212)
11 Other operating costs (20,064) (20) (20,115) (97)
Operating income 104,546 92,778
12 Income/(loss) from investments 1,030 919 482 474
13 Financial income 3,495 21 7,775 17
13 Borrowing costs (28,193) (207) (33,378) (82)
13 Net exchange gains/(losses) (194) 193
Profit before tax 80,684 67,850
14 Taxes for the period (33,935) 6,121 (31,775) 3,808
Profit from continuing operations 46,749 36,075
Assets held for sale:
15 Profits or losses arising from assets held for sale
Net Profit (loss) for the period 46,749 36,075
Attributable to:
Owners of the Parent 46,749 36,075
Non-controlling interests 0 0
16 Earnings per share (figures in ¤) 0.131 0.101
16 Diluted earnings per share (figures in ¤) 0.131 0.101

Note: The effects from adopting IFRS 16 are described in the section of the Notes "New accounting standards, amendments applicable from 1 January 2019".

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

2019 2018
NOTES IN THOUSANDS OF EUROS
Net Profit (loss) for the period (A) 46,749 36,075
Items that will not be reclassified in the income statement
46 Remeasurements of defined benefit plans (2,453) (1,019)
Total (2,453) (1,019)
Items that may be reclassified in the income statement
46 Profit (loss) deriving from the translation of financial statements of foreign companies
denominated in foreign currency
(347) (3,027)
46 Share of Other Comprehensive Income of subsidiaries/associates valued with the equity method 61 (88)
46 Total profits (losses) on cash flow hedges 85 206
Total (201) (2,909)
Other Comprehensive Income (B)33 (2,654) (3,928)
Total Profit (loss) for the period (A + B) 44,095 32,147
Attributable to:
Owners of the Parent 44,092 32,122
Non-controlling interests 3 25

33 Other Profits (and losses) take account of relative tax effects.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018
TOTAL of which
related parties
TOTAL of which
related parties
NOTES IN THOUSANDS OF EUROS
ASSETS
ASSETS
17 Intangible assets 676,183 658,888
18 Property, plant and equipment 263,496 266,198
19 Rights of use 36,486
20 Investment Property 9,203 10,269
39 Investments 8,910 7,934
40 Other financial assets 3,512 6,029
25 Long-term tax receivables 14,114 17,399
21 Deferred tax assets 63,190 59,250
23 Trade receivables
24 Other receivables 13,638 81 16,625 94
Total non-current assets 1,088,732 1,042,592
29 Assets held for sale
Current assets
23 Trade receivables 78,195 992 86,557 1,264
24 Other receivables 31,706 14,601 33,507 15,262
25 Short-term tax receivables 18,538 7,368
22 Inventories 214,682 224,108
40 Other financial assets 3,789 2,805
41 Cash and cash equivalents 190,746 188,740
Total current assets 537,656 543,085
Total assets 1,626,388 1,585,677

Note: The effects from adopting IFRS 16 are described in the section of the Notes "New accounting standards, amendments applicable from 1 January 2019".

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018
TOTAL of which
related parties
TOTAL of which
related parties
NOTES IN THOUSANDS OF EUROS
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
45 Share capital and reserves attributable to the owners of the Parent 384,015 392,163
45 Share capital and reserves attributable to non-controlling interests (208) (211)
Total shareholders' equity 383,807 391,952
Non-current liabilities
42 Financial liabilities falling due after one year 463,587 512,498
42 Financial liabilities for rights of use 19,996 4,579
30 Trade payables
31 Other long-term provisions 12,116 9,504
32 Deferred tax liabilities 7,762 2,806
33 Retirement funds and employee benefits 38,997 41,306
34 Tax payables
35 Other long-term payables 6,437 5,939
Total non-current liabilities 548,895 572,053
Current liabilities
42 Financial liabilities falling due within one year 135,033 113,502
42 Financial liabilities for rights of use 8,408 1,553
30 Trade payables 478,688 5,701 432,722 8,402
34 Tax payables 14,934 14,635
35 Other short-term payables 42,171 23 48,220 6,725
31 Current portion of other long-term provisions 14,452 12,593
Total current liabilities 693,686 621,672
Total Shareholders' Equity and Liabilities 1,626,388 1,585,677

Note: The effects from adopting IFRS 16 are described in the section of the Notes "New accounting standards, amendments applicable from 1 January 2019".

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

CONSOLIDATED STATEMENT OF CASH FLOWS

This statement shows the factors behind changes in cash and cash equivalents, net of short-term bank overdrafts, as required by IAS 7.

2019 2018
TOTAL of which
TOTAL
of which
related parties related parties
NOTES IN THOUSANDS OF EUROS
OPERATING ACTIVITIES
Net Profit (loss) for the period 46,749 36,075
14 Taxes for the period 33,935 31,775
8 Depreciation of property, plant and equipment 40,441 40,360
8 Amortisation of intangible assets 70,356 65,574
8 Depreciation of rights of use 7,854 0
Provisions for risks and retirement funds and employee benefits 21,278 18,540
Write-downs / (Reinstatements) 8,210 6,503
Losses / (Gains) on the disposal of property, plants and equipment (3) 137
13 Financial income (3,495) (7,775)
12 Dividend income (111) (8)
13 Borrowing costs 28,193 33,378
Income from public grants (5,194) (4,565)
Portion of earnings of associates (919) (474)
Change in working capital:
23 (Increase)/Decrease in trade receivables 5,997 272
(4,388)
810
24 (Increase)/Decrease in other receivables (2,902) 674
(11,429)
(5,212)
22 (Increase)/Decrease in inventories 9,426 (5,486)
30 Increase/(Decrease) in trade payables 45,966 (2,701)
20,947
(973)
35 Increase/(Decrease) in other payables (5,551) (6,702)
2,114
(1,150)
31 Increase/(Decrease) in provisions for risks (8,743) (7,812)
33 Increase/(Decrease) in retirement funds and employee benefits (13,508) (12,126)
Other changes 5,920 4,851
Cash generated from operating activities 283,899 206,191
Interest paid (35,103) (31,168)
Taxes paid (33,126) (26,974)
Cash flow from operating activities (A) 215,670 148,049
INVESTMENT ACTIVITIES
18 Investment in property, plant and equipment (50,992) (37,148)
Sale price, or repayment value, of property, plant and equipment 179 860
17 Investment in intangible assets (89,880) (78,130)
Sale price, or repayment value, of intangible assets 66 72
Public grants collected 2,697 2,845
Purchase of financial assets 0 (1)
Dividends cashed 111 8
Collected interests 3,285 510
CASH FLOW FROM INVESTMENT ACTIVITIES (B) (134,534) (110,984)
FINANCING ACTIVITIES
45 Purchase of treasury shares (212) (1,537)
45 Outflow for dividends paid (51,805) (19,698)
42 Loans received 63,081 166,148
42 Outflow for repayment of loans (82,217) (120,343)
42 Lease payments for rights of use (8,557) (1,145)
CASH FLOW FROM FINANCING ACTIVITIES (C) (79,710) 23,425
Increase / (Decrease) in cash and cash equivalents (A+B+C) 1,426 60,490
OPENING BALANCE 188,386 127,894
Exchange differences 916 2
CLOSING BALANCE 190,728 188,386

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

SHARE
CAPITAL
SHARE
PREMIUM
RESERVE
LEGAL
RESERVE
RESERVE FOR
MENT OF
FINANCIAL
MEASURE-
INSTRUMENTS
IAS
TRANSITION
RESERVE
GROUP
TRANSLATION
RESERVE
TREASURY
SHARES
EARNINGS
RESERVE
SOLIDATED
GROUP CON-
SHAREHOL-
DERS' EQUITY
SHARE
CAPITAL AND
RESERVES
ATTRIBUTABLE
TROLLING
TO NON-CON-
INTERESTS
TOTAL
DERS'
SHAREHOL-
EQUITY
NOTES IN THOUSANDS OF EUROS
As of 1 January 2019 207,614 7,171 20,125 (114) (15,525) (27,607) (1,537) 202,036 392,163 (211) 391,952
Profit for the period 46,749 46,749 46,749
Other Comprehensive
Income
46
85 (289) (2,453) (2,657) 3 (2,654)
Total profit (loss)
for the period
0 0 0 85 0 (289) 0 44,296 44,092 3 44,095
Transactions with
shareholders:
Allocation of profits
45
1,779 (1,779) 0
Distribution of dividends
45
(32,155) (32,155) (32,155)
Purchase of treasury shares
45
(212) (212) (212)
2019 interim dividend
45
(19,650) (19,650) (19,650)
Other movements
45
(223) (223) (223)
As of 31 December 2019 207,614 7,171 21,904 (29) (15,525) (27,896) (1,749) 192,525 384,015 (208) 383,807

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

SHARE
CAPITAL
SHARE
PREMIUM
LEGAL
RESERVE
RESERVE FOR
MEASURE-
IAS
TRANSITION
GROUP
TRANSLATION
TREASURY
SHARES
EARNINGS
RESERVE
SOLIDATED
GROUP CON-
SHARE
CAPITAL AND
TOTAL
SHAREHOL-
RESERVE MENT OF
FINANCIAL
INSTRUMENTS
RESERVE RESERVE DERS' EQUITY
SHAREHOL-
RESERVES
ATTRIBUTABLE
TROLLING
INTERESTS
TO NON-CON-
DERS'
EQUITY
NOTES IN THOUSANDS OF EUROS
As of 1 January 2018 207,614 7,171 19,095 (320) (11,505) (24,467) 0 187,708 385,296 (236) 385,060
Profit for the period 36,075 36,075 36,075
Other Comprehensive
Income
46
206 (3,140) (1,019) (3,953) 25 (3,928)
Total profit (loss)
for the period
0 0 0 206 0 (3,140) 0 35,056 32,122 25 32,147
Transactions with
shareholders:
Allocation of profits
45
1,030 (1,030) 0
Distribution of dividends
45
(19,698) (19,698) (19,698)
Adoption of IFRS 9
45
(4,020) (4,020) (4,020)
Purchase of treasury shares
45
(1,537) (1,537) (1,537)
As of 31 December 2018 207,614 7,171 20,125 (114) (15,525) (27,607) (1,537) 202,036 392,163 (211) 391,952

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A) GENERAL ASPECTS

Piaggio & C. S.p.A. (the Company) is a joint-stock company established in Italy at the Register of Companies of Pisa. The address of the registered office is Viale Rinaldo Piaggio 25 - Pontedera (Pisa). The main activities of the company and its subsidiaries are set out in the Report on Operations.

These Financial Statements are expressed in euros (¤) since this is the currency in which most of the Group's transactions take place. Foreign operations are included in the consolidated financial statements according to the standards indicated in the notes below.

Scope of consolidation

As of 31 December 2019, the structure of the Piaggio Group was as indicated in the Report on Operations and is the structure referred to herein.

The scope of consolidation has changed compared to the Consolidated Financial Statements as of 31 December 2018 due to the liquidation of the company Piaggio Group Canada on 25 October 2019.

Compliance with international accounting standards

These Consolidated Financial Statements of the Piaggio Group as of 31 December 2019 have been drafted in compliance with the International Accounting Standards (IAS/IFRS) in force at that date, issued by the International Accounting Standards Board and approved by the European Union, as well as in compliance with the provisions established in Article 9 of Legislative Decree no. 38/2005 (Consob Resolution no. 15519 of 27/7/06 containing "Provisions for the presentation of financial statements", Consob Resolution no. 15520 of 27/7/06 containing "Changes and additions to the Regulation on Issuers adopted by Resolution no. 11971/99", Consob communication no. 6064293 of 28/7/06 containing "Corporate reporting required in accordance with Article 114, paragraph 5 of Legislative Decree 58/98). The interpretations of the International Financial Reporting Interpretations Committee ("IFRIC"), previously the Standing Interpretations Committee ("SIC"), were also taken into account.

Moreover, international accounting standards have been uniformly adopted for all Group companies.

The financial statements of subsidiaries, used for consolidation and those of the joint venture consolidated using the equity method, have been appropriately modified and reclassified, where necessary, to bring them in line with the international accounting standards and classification criteria used by the Group on a consistent basis.

The Financial Statements have been prepared on a historical cost basis, amended as required for the measurement of investment property and some financial instruments, and on a going-concern basis. The Group did not identify any significant uncertainties (as of paragraph 25 of IAS 1) about its operations as a going concern, also in view of actions already established to meet changed levels of demand, and the Group's industrial and financial flexibility. These Consolidated Financial Statements were audited by PricewaterhouseCoopers S.p.A..

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Other information

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

1. FORM AND CONTENT OF THE FINANCIAL STATEMENTS

Form of the consolidated financial statements

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

Consolidated Income Statement

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

Consolidated Statement of Comprehensive Income

The Consolidated Statement of Comprehensive Income is presented in accordance with the provisions of IAS 1 amended. Items presented in "Other comprehensive income (expense)" are grouped based on whether they are potentially reclassifiable to profit or loss.

Consolidated Statement of Financial Position

The Consolidated Statement of Financial Position is presented in opposite sections with separate indication of assets, liabilities and shareholders' equity.

In turn, assets and liabilities are reported in the Consolidated Financial Statements on the basis of their classification as current and non-current.

Consolidated Statement of Cash Flows

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

Statement of Changes in Consolidated Shareholders' Equity

The Statement of Changes in Consolidated Shareholders' Equity is presented as provided for in IAS 1 revised. It includes the total statement of comprehensive income while separately reporting the amounts attributable to owners of the Parent company as well as the quota pertaining to non-controlling interests, the amounts of operations with shareholders acting in this capacity and potential effects of retrospective application or of the retroactive calculation pursuant to IAS 8. Reconciliation between the opening and closing balance of each item for the period is presented.

Contents of the Consolidated Financial Statements

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

As of 31 December 2019 subsidiaries and associates of Piaggio & C. S.p.A. were as follows:

COMPANIES: SUBSIDIARIES ASSOCIATES TOTAL
ITALY ABROAD TOTAL ITALY ABROAD TOTAL
- consolidated on a line-by-line basis 2 20 22 22
- consolidated with the equity method 2 3 5 5
Total companies 2 20 22 2 3 5 27

2. CONSOLIDATION PRINCIPLES AND EVALUATION CRITERIA

2.1 Principles of consolidation

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

Subsidiaries

Subsidiaries are companies in which the Group exercises control. This control exists when the Group is exposed, or is entitled to receive variable returns from its involvement in the company and has the capacity to influence such variable returns through its power over the controlled company. The acquisition of subsidiaries is recognised according to the acquisition method. The cost of acquisition is determined by the sum of present values at the date control of the given assets was obtained, liabilities borne or undertaken and financial instruments issued by the Group in exchange for control of the acquired company.

In the case of acquisitions of companies, acquired and identifiable assets, liabilities and potential liabilities are recognised at the present value at the date of acquisition. The positive difference between the acquisition cost and the share of the Group at the fair value of said assets and liabilities is classified as goodwill and recognised in the financial statements as an intangible asset. Any negative difference ("negative goodwill") is recognised instead in profit or loss at the date of acquisition.

The financial statements of subsidiaries are included in the Consolidated Financial Statements starting from the date when control is acquired until control ceases.

The portions of shareholders' equity and income attributable to non-controlling interests are separately indicated in the Consolidated Statement of Financial Position and Consolidated Income Statement respectively.

Associates and joint arrangements

Associates are companies in which the Group has considerable influence but not control of financial and operational policies.

The Group adopts IFRS 11 for all joint arrangements. According to IFRS 11, investments in joint arrangements are classified as joint operations or joint ventures depending on the contractual obligations and rights of each investor. The Group has classified the only joint arrangement agreement in place as being a joint venture.

In adopting the equity method, the investment in an associate or joint venture is initially recognised at cost and the carrying amount is increased or decreased to recognise the portion attributable to the Group of profit or loss of the investee realised after the date of acquisition. The portion of profit (loss) for the period of the investee attributable to the Group is recognised separately in consolidated profit or loss. Dividends received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount of the investment are also due to changes in items of other comprehensive income of the investee (e.g. changes arising from translation differences of items in foreign currency). The portion of these changes, attributable to the Group, is recognised under other components of consolidated comprehensive income. If the portion of losses of an entity in an associate or joint venture is equal to or exceeds its interest in the associate or joint venture, the Group discontinues recognising its share of further losses. After the interest is reduced to zero, additional losses are recognised by a provision (liability) only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate, or joint venture. If the associate or joint venture subsequently reports profits, the Group resumes recognising its portion of those profits only after its portion of the profits equals the share of losses not recognised. Profit and losses arising from "upwards" or "downwards" transactions between a Group and an associate or joint venture are recognised in the consolidated

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

financial statements only as regards the portion attributable to minority interest in the associate or joint venture. The portion of profit or loss of the associate or joint venture arising from these transactions, attributable to the Group, is eliminated in the consolidated income statement under "Income/(loss) from investments", with a counter entry of the asset's value, in "upwards" transactions, and of the value of the investment, in "downwards transactions".

Transactions eliminated during the consolidation process

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

Transactions in foreign currency

Transactions in foreign currency are recorded at the exchange rate in effect on the date of the transaction. Monetary assets and liabilities in foreign currency are translated at the exchange rate in effect at the reporting date.

Consolidation of foreign companies

The separate financial statements of each company belonging to the Group are prepared in the currency of the primary economic environment in which they operate (the functional currency). For the purposes of the Consolidated Financial Statements, the financial statements of each foreign entity are in euro, which is the functional currency of the Group and the presentation currency of the Consolidated Financial Statements.

All assets and liabilities of foreign companies in a currency other than the euro which come under the scope of consolidation are translated, using exchange rates in effect at the reporting date (currency exchange rates method). Income and costs are translated at the average exchange rate of the period. Translation differences arising from the application of this method, as well as translation differences arising from a comparison of initial shareholders' equity translated at current exchange rates and the same equity translated at historical rates, are recognised in the statement of comprehensive income and allocated to a specific reserve in shareholders' equity until disposal of the investment. Average exchange rates for translating the cash flows of foreign subsidiaries are used in preparing the Consolidated Statement of Cash Flows.

The exchange rates used to translate the financial statements of companies included in the scope of consolidation into euros are shown in the table below.

CURRENCY SPOT EXCHANGE
RATE
31 DECEMBER 2019
AVERAGE
EXCHANGE
RATE 2019
SPOT EXCHANGE
RATE
31 DECEMBER 2018
AVERAGE
EXCHANGE
RATE 2018
US Dollar 1.1234 1.11947 1.1450 1.18095
Pounds Sterling 0.85080 0.877771 0.89453 0.884706
Indian Rupee 80.1870 78.83614 79.7298 80.73324
Singapore Dollars 1.5111 1.52728 1.5591 1.59261
Chinese Yuan 7.8205 7.73549 7.8751 7.80808
Croatian Kuna 7.4395 7.41796 7.4125 7.41816
Japanese Yen 121.94 122.00576 125.85 130.39588
Vietnamese Dong 25,746.15 25,793.13707 26,230.56 26,984.72276
Canadian Dollars 1.4598 1.48548 1.5605 1.52936
Indonesian Rupiah 15,573.69 15,840.81508 16,565.86 16,802.30086
Brazilian Real 4.5157 4.41343 4.4440 4.30849

2.2 Accounting policies

The most significant accounting policies adopted to prepare the Consolidated Financial Statements as of 31 December 2019 are outlined below.

Intangible assets

As provided for in IAS 38 - Intangible Assets, an intangible asset which is purchased or internally generated, is recognised as an asset only if it is identifiable, controllable and future economic benefits are expected and its cost may be measured reliably.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Intangible assets with a definite useful life are measured at acquisition cost or production cost net of amortisation and accumulated impairment losses. Borrowing costs related to the acquisition, construction or production of certain assets that require a significant period of time before they are ready for use or sale (qualifying assets), are capitalised along with the asset.

Amortisation is referred to the expected useful life and commences when the asset is available for use.

Goodwill

In the case of acquisitions of companies, acquired and identifiable assets, liabilities and potential liabilities are recognised at the present value at the date of acquisition. The positive difference between the acquisition cost and the share of the Group at the fair value of said assets and liabilities is classified as goodwill and recognised in the financial statements as an intangible asset. Any negative difference ("negative goodwill") is recognised instead in profit or loss at the date of acquisition.

Goodwill is not amortised but tested annually for impairment, or more frequently if specific events or changed circumstances indicate that an asset may be impaired, as provided for in IAS 36 - Impairment of Assets.

After initial recognition, goodwill is recognised at cost net of any accumulated impairment losses.

At the disposal of part of or an entire company previously acquired from whose acquisition goodwill arose, the corresponding residual value of goodwill is considered when measuring the capital gain or loss of the disposal.

Development costs

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

All other development costs are recognised in profit or loss when they are incurred.

Other intangible assets

As provided for in IAS 38 – Intangible Assets, other intangible assets which are purchased or internally generated are recognised as assets if it is probable that use of the asset will generate future economic benefits and the cost of the asset can be reliably measured.

These assets are recognised at acquisition or production cost and are amortised on a straight line basis over their estimated useful life, if they have a definite useful life.

Other intangible assets recognised following the acquisition of a company are accounted for separately from goodwill, if their fair value may be reliably measured.

The amortisation period for an intangible asset with a useful life is revised at least at the end of each reporting period. If the expected useful life of the asset differs from estimates previously made, the amortisation period is changed accordingly.

The amortisation periods of intangible assets are shown below:

Development costs 3-5 years
Industrial Patent and Intellectual Property Rights 3-5 years
Other 5 years
Trademarks 15 years
Licences 10 years

Property, plant and equipment

The Piaggio Group has decided to adopt the cost method on first-time application of the IAS/IFRS, as allowed by IFRS 1. For the measurement of property, plant and equipment, therefore, the preference was not to use the fair value method. Property, plant and equipment were booked at the purchase or production cost and were not revalued. Borrowing costs related to the acquisition, construction or production of certain assets that require a significant period of time before they are ready for use or sale (qualifying assets), are capitalised along with the asset.

Costs incurred after acquisition are capitalised only if they increase the future economic benefits of the asset they refer to. All other costs are recognised in profit or loss when they are incurred. Property, plant and equipment under construction are measured at cost and depreciated starting from the period in which they are put into operation.

Depreciation is determined, on a straight line basis, on the cost of the assets net of their relative residual values, based on their estimated useful life.

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

Land Land is not depreciated
Buildings 33-60 years
Plant and machinery 5 -15 years
Equipment 4-20 years
Other assets 3-10 years

Profits and losses arising from the sale or disposal of assets are measured as the difference between the sale revenue and net carrying amount of the asset and are recognised in profit or loss for the period.

Lease agreements as lessor

Lease agreements for property, plant and machinery entered into as lessor require the recognition of an asset representing the right of use of the leased asset, and a financial liability for the obligation to undertake contract payments. In particular, the lease liability is initially recognised as being equal to the present value of future payments to make, adopting a discount rate equal to the implicit interest rate of the lease, of if this cannot easily be determined, by using the incremental financing rate of the lessor. After initial recognition, the lease liability is recognised at amortised cost using the effective interest rate and is redetermined following contract renegotiation, changes in rates, or changes in the recognition of any contract options.

The right of use is initially recorded at cost and then adjusted to take into account recognised depreciation charges, any impairment losses and effects related to any redetermination of lease liabilities.

The Group has opted for some simplifications, allowed by the Standard, excluding agreements of less than 12 months (short term, calculated on the residual duration, on first-time adoption), and of a value below 5 thousand euros (low value).

The Group has its own production plants even in countries where ownership rights are not allowed. Rental paid in advance, to obtain the availability of land where own production sites are located, is recognised as a right of use.

Impairment

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

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

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

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

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

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Investment Property

As permitted by IAS 40, non instrumental property and buildings held for rental and/or asset appreciation purposes are measured at fair value. Investment properties are eliminated from the financial statements when they are disposed of or when they may not be used over time and future economic benefits from their sales are not expected.

Transactions with affiliates and related parties

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

Non-current assets held for sale

Non-current assets (or disposal groups) that are classified as held for sale are measured at the lower of the carrying amount and fair value less costs to sell.

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

Financial assets

IFRS 9 adopts a single approach to analysing and classifying all financial assets, including those containing embedded derivatives. Classification and measurement consider the business model of the financial asset and the contractual characteristics of cash flows that may be obtained from the asset. Depending on the characteristics of the instrument and business model adopted, the following three categories are determined:

(i) financial assets measured at amortised cost; (ii) financial assets measured at fair value, with the effects recognised in other comprehensive income (OCI); (iii) financial assets measured at fair value, with the effects recognised in profit or loss.

The financial asset is measured at amortised cost if both the following conditions are met:

– the business model holds the financial asset only to collect the relative cash flows; and

– the contractual terms of the financial asset give rise on specified dates to cash flows that only represent the return on the financial asset.

According to the amortised cost method, the value of initial recognition is subsequently adjusted to take into account repayments of principal, any impairment and amortisation of the difference between the repayment value and value of initial recognition.

Amortisation is based on the internal effective interest rate that represents the rate which, at the time of initial recognition, makes the present value of expected cash flows equal to the value of initial recognition.

Receivables and other financial assets measured at amortised cost are presented in the statement of financial position net of the relative provision for write-downs.

Financial assets representing debt instruments whose business model covers the possibility of collecting contractual cash flows and realising capital gains from sale (the hold to collect and sell business model), are measured at fair value, recognising the effects in OCI.

In this case, changes in fair value of the instrument are recognised as shareholders' equity in OCI. The total of changes in fair value, recognised in a shareholders' equity reserve that includes OCI, is reversed to profit or loss when the instrument is deleted from the accounts. Interest expense is recognised in profit or loss using the effective interest rate, exchange differences and write-downs.

A financial asset representing a debt instrument that has not been measured at amortised cost or at fair value through other comprehensive income is measured at fair value with the effects recognised in profit or loss.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Inventories

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

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

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

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

Receivables

Trade receivables and other receivables are initially recognised at fair value and subsequently recognised based on the amortised cost method, net of the provisions for write-downs.

IFRS 9 establishes a new model for the impairment/write-down of these assets, with the aim of providing useful information for financial statement users on relative expected losses. According to this model, the Group measures receivables on an expected loss basis, replacing the provisions in IAS 39 which typically measure receivables on an incurred loss basis. For trade receivables, the Group adopts a simplified approach which does not require the recognition of periodic changes in credit risk, but instead the recognition of an expected credit loss (ECL) calculated over the ECL lifetime. In particular, the policy adopted by the Group involves the stratification of trade receivables in categories based on past due days, defining the allocation based on the historical experience of credit losses, adjusted to take into account specific forecasts referred to creditors and the economic environment.

Trade receivables are wholly written down in the absence of a reasonable expectation of their recovery, or in the case of inactive counterparties.

The carrying amount of the asset is reduced through the use of a provision for write-downs and the amount of the loss is recognised in the income statement.

When payment of amounts due exceeds standard terms of payment granted to clients, the receivable is discounted.

Factoring

The Group sells a significant part of its trade receivables through factoring and in particular, sells trade receivables without recourse. Following these sales with the total and unconditional transfer to the transferee of the risks and benefits transferred, the receivables are eliminated from the financial statements.

In the case of transfers in which the risks and benefits are not transferred, the relative receivables remain in the statement of financial position until the transferred sum has been paid. In this case any advance payments collected by the factor are recognised under payables as amounts due to other lenders.

Cash and cash equivalents

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

Treasury shares

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

Financial liabilities

Financial liabilities include financial payables, including amounts payable for advances on the sale of receivables, as well as other financial liabilities, including financial derivatives and liabilities for assets recognised regarding finance lease agreements.

Pursuant to IFRS 9, they include trade and other payables.

Financial liabilities are recognised at fair value net of additional transaction costs. After initial recognition, loans are measured at amortised cost, calculated using the effective interest rate. With the introduction of IFRS 9, in the event of the renegotiation of a financial liability that does not qualify as "extinction of the original debt", the difference between i) the book value of the pre-change liability and ii) the present value of the cash flows of the revised debt, discounted at the original rate (IRR), is accounted for in the income statement.

Financial liabilities hedged by derivatives are recognised at present value, according to procedures established for

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

hedge accounting: gains and losses arising from subsequent measurements at present value are recognised in profit or loss and are offset by the effective portion of the loss and again arising from subsequent measurements at present value of the hedging instrument. On initial recognition, a liability may be designated at fair value recognised in profit or loss when this eliminates or considerably reduces a lack of uniformity in the measurement or recognition (sometimes defined as "asymmetric accounting") that would otherwise arise from the measurement of an asset or liability or recognition of relative profit and loss on different bases. This fair value designation is exclusively applied to some financial liabilities in currency subject to exchange risk hedging.

Derivatives and measurement of hedging transactions

Group assets are primarily exposed to financial risks from changes in exchange and interest rates. The Group uses derivatives to hedge risks arising from changes in foreign currency and interest rates in particular irrevocable commitments and planned future transactions. The use of these instruments is regulated by written procedures on the use of derivatives, in line with risk management policies of the Group. As permitted by IFRS 9, the Group has opted to continue to adopt the provisions on hedge accounting in IAS 39, rather than in IFRS 9.

Derivatives are initially recognised at fair value, represented by the initial amount and aligned with the fair value at subsequent ends of reporting periods. Financial derivatives are used solely for hedging purposes, in order to reduce exchange risk, interest rate risk and the risk of changes in the market price. In line with IAS 39, financial derivatives may qualify for hedge accounting, only when the hedging instrument is formally designated and documented, is expected to be highly effective and this effectiveness can be reliably measured and is highly effective throughout the reporting periods for which it is designated. When financial instruments may be measured by hedge accounting, the following accounting treatment is adopted:

  • Fair value hedge: if a financial derivative is designated as a hedge of the exposure to changes in present value of a recognised asset or liability, attributable to a particular risk and could affect profit or loss, the gain or loss from the subsequent change in present value of the hedging instrument is recognised in profit or loss. The gain or loss on the hedged item, attributable to the hedged risk, changes the carrying amount of the hedged item and is recognised in profit or loss;
  • Cash flow hedge: if an instrument is designated as a hedge of the exposure to variability in cash flows of a recognised asset or liability or of a highly probable forecast transaction which could affect profit or loss, the effective portion of the gain or loss on the financial instrument is recognised in the Statement of Comprehensive Income. Accumulated gain or loss is reversed from the Statement of Comprehensive Income and recognised in profit or loss in the same period as the hedging transaction. The gain or loss associated with hedging or the part of hedging which is ineffective, is immediately recognised in profit or loss. If the hedging instrument or hedging ceases, but the transaction covered by hedging is not yet realised, profits and losses, recognised in equity, are instead recognised in profit or loss when the transaction takes place. If the transaction to be hedged is deemed no longer probable, gains or losses deferred in the Statement of Comprehensive Income are recognised immediately in profit or loss.

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

Long-term provisions

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

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

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

Retirement funds and employee benefits

Liabilities relative to employee benefits paid on or after termination of employment for defined benefit plans are determined separately for each plan, based on actuarial hypotheses estimating the amount of future benefits that employees will accrue at the reporting date (the "projected unit credit method"). Liabilities, recognised in the financial statements net of any assets serving the plan, are entered for the period when the right accrues. Liabilities are measured by independent actuaries.

The cost components of defined benefits are recognised as follows:

  • the costs relative to services are recognised in the Income Statement under employee costs;
  • net borrowing costs of liabilities or assets with defined benefits are recognised in the Income Statement as financial income/(borrowing costs), and are determined by multiplying the value of the net liability/(asset) by the rate used

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

to discount the obligations, taking account of the payment of contributions and benefits during the period; – the remeasurement components of net liabilities, which include actual gain and losses, the return on assets (excluding interest income recognised in the Income Statement) and any change in the limit of the assets, are immediately recognised as "Other comprehensive income (expense)". These components must not be reclassified to the Income Statement in a subsequent period.

Termination benefits

Termination benefits are recognised at the closest of the following dates: i) when the Group can no longer withdraw the offer of such benefits and ii) when the Group recognises the costs of restructuring.

Tax assets and liabilities

Deferred taxes are determined based on the temporary differences between the value of the asset and liability and their tax value. Deferred tax assets are measured only to the extent to which it is likely that adequate future taxable sums exist against which the deferred taxes can be used. The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent to which it is no longer likely that sufficient taxable income exists allowing for all or a portion of said assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, considering the rates in effect or which are known to come into effect. Deferred taxes are directly recognised in profit or loss, except for items directly recognised in the statement of comprehensive income, in which case relative deferred taxes are also recognised in the statement of comprehensive income.

In the case of reserves of undistributed profits of subsidiaries and since the Group is able to control distribution times, deferred taxes are allocated for the reserves when distribution is expected in the future.

Deferred tax assets and liabilities are recognised at their net value when applied by the tax authorities and when they may be lawfully offset in the same tax jurisdiction.

Payables

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

Reverse factoring

To guarantee suppliers easier credit conditions, the Group has established factoring agreements, and typically supply chain financing or reverse factoring agreements. Based on the agreements, suppliers may, at their discretion, transfer receivables due from the Group to a lender and collect amounts before maturity.

In some cases, payment terms are extended further in agreements between the supplier and the Group; these extensions may be interest or non-interest bearing.

The Group has established a specific policy to assess the nature of reverse factoring operations. Based on the content of agreements, which differs by area of origin, the Finance function, at a central level, analyses the clauses of agreements in qualitative terms, as well as legal aspects in order to assess regulatory references and the type of transaction assignment (as provided for by IAS 9 B3 3.1). In some cases, as payment terms have been extended, quantitative analysis is carried out to verify the materiality of changes in contract terms, based on quantitative tests as required by IAS 9 B3.3.6.

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

Recognition of revenues

Based on the five-step model introduced by IFRS 15, the Group measures revenues after identifying the contracts with its customers and relative performance to provide (transfer of goods and/or services), after determining the transaction price it considers due in exchange for performance, and evaluating the procedure for satisfying the performance (performance at a given time versus performance over time).

In particular, the Group measures revenues only if the following requirements have been met (requirements to identify the "contract" with the customer):

  • a. the contract has been approved by the parties to the contract (in writing, verbally or in compliance with other standard business practices) and the parties undertake to meet their respective obligations; an agreement therefore exists between the parties that establishes the rights and obligations to be met, regardless of the form by which the agreement is made;
  • b. the Group can identify each party's rights in relation to the goods or services to be transferred;

  • c. the Group can identify the payment terms for the goods or services to be transferred;

  • d. the contract has commercial substance; and
  • e. it is probable that the Group will receive the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer.

If the above requirements are not met, the relative revenues are recognised when: (i) the Group has already transferred control of the goods and/or provided the services to the customer and all or nearly all of the consideration from the customer has been received and cannot be reimbursed; or (ii) the contract has ended and the consideration received by the Group from the customer cannot be reimbursed.

If the above requirements are instead met, the Group adopts the following rules for recognition.

Revenues for the sale of vehicles and spare parts are recognised when control of the good is transferred to the purchaser, or when the customer can use in full the good or substantially benefit from it.

Revenues are represented net of discounts, including, among others, sales incentive programmes and bonuses to customers, as well as taxes directly connected with the sale of the goods.

Revenues from the provision of services are recognised when the services are provided based on their progress.

Revenues also include lease payments recognised on a straight line basis for the duration of the contract.

Public grants

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

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

Financial income

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

Borrowing costs

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

Dividends

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

Income tax

Taxes represent the sum of current and deferred tax assets and liabilities.

Taxes allocated under accounting circumstances of individual companies included in the scope of consolidation are recognised in the consolidated financial statements, based on taxable income estimated in compliance with national laws in force at the end of the reporting period, considering applicable exemptions and tax receivables owing. Income taxes are recognised in the income statement, with the exception of those taxes relative to items directly deducted from or charged to the statement of comprehensive income.

Taxes are recorded under "Tax payables" net of advances and withheld taxes. Taxes due in the event of the distribution of reserves as withheld taxes recognised in the financial statements of individual Group companies are not allocated, as their distribution is not planned.

In 2019, for a further three years, the Parent Company signed up to the National Consolidated Tax Convention pursuant to Articles 117 to 129 of the Consolidated Income Tax Act (T.U.I.R.) of which IMMSI S.p.A. is the consolidating company, and to whom other IMMSI Group companies report to. The consolidating company determines a single global income equal to the algebraic sum of taxable amounts (income or loss) realised by individual companies that opt for this type of group taxation.

The consolidating company recognises a receivable from the consolidated company which is equal to the corporate tax to be paid on the taxable income transferred by the latter. Whereas, in the case of companies reporting tax losses, the consolidating company recognises a payable related to corporate tax on the portion of loss actually used to determine global overall income or calculated as a decrease of overall income for future tax periods, according to procedures in Article 84, based on the criterion established by the consolidation agreement.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Earnings per share

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

Use of estimates

The preparation of the financial statements and notes in compliance with IFRS requires management to make estimates and assumptions which have an impact on the values of assets and liabilities and on disclosure regarding contingent assets and liabilities at the end of the reporting period. Actual results could differ from estimates. Estimates are used to measure intangible assets tested for impairment (see § Impairment losses) and to identify provisions for bad debts, for obsolete inventories, amortisation and depreciation, impairment of assets, employee benefits, taxes, restructuring provisions and other allocations and funds. Estimates and assumptions are periodically revised and the effects of any change are immediately recognised in profit or loss.

In the current world economic and financial crisis, assumptions made as to future trends are marked by a considerable degree of uncertainty. Therefore the possibility in the next reporting period of results that differ from estimates cannot be ruled out, and these could require even significant adjustments which at present cannot be predicted or estimated. The critical measurement processes and key assumptions used by the Group in adopting IFRS and that may have a significant impact on figures in the Consolidated Financial Statements or for which a risk exists that significant differences in value may arise in relation to the carrying amount of assets and liabilities in the future are summarised below.

Recoverable value of non-current assets

Non-current assets include Property, Plant and Equipment, Goodwill, Other Intangible Assets, Investment Property, Investments and Other Financial Assets. The Group periodically revises the carrying amount of non-current assets held and used and of assets held for sale, when facts and circumstances make this necessary. This analysis is carried out at least annually for Goodwill, and whenever facts and circumstances make it necessary. Analysis of the recoverability of the carrying amount of Goodwill is generally based on estimates of expected cash flows from the use or sale of the asset and adequate discount rates to calculate the fair value. For investment property, the Group appoints an independent expert at the end of each reporting period (six-monthly or annually) to measure the "Fair value less cost of disposal" based on a market approach. When the carrying amount of a non-current asset is impaired, the Group recognises a write-down equal to the excess between the carrying amount of the asset and its recoverable value through use or sale, determined with reference to cash flows of the most recent company plans.

Recoverability of deferred tax assets

The Group has deferred tax assets from deductible temporary differences and theoretical tax benefits from losses to be carried forward. In estimating recoverable value, the Group considered the results of the company plan in line with the results used for impairment testing. Net deferred tax assets allocated on this basis refer to temporary differences and tax losses which, to a significant extent, may be recovered over an indefinite period, and are therefore compatible with a context in which an end to current difficulties and uncertainties and an upswing in the economy could take longer than the time frame of the above-mentioned estimates. As regards Piaggio & C. SpA, which is party to the IMMSI Group National Consolidated Tax Convention, the recovery of deferred tax assets is related to results forecast for the company, and also to the taxable amounts of companies which are part of the IMMSI Group National Consolidated Tax Convention.

Pension schemes and other post-employment benefits

Provisions for employee benefits and net borrowing costs are measured using an actuarial method that requires the use of estimates and assumptions to determine the net value of the obligation. The actuarial method considers financial parameters such as the discount rate and growth rates of salaries and considers the likelihood of potential future events occurring on the basis of demographic parameters such as relative mortality rates and employee resignations or retirements. The assumptions used for the measurement are explained in section 33 "Retirement funds and employee benefits".

Provisions for bad debts

The provision for bad debts reflects management's estimate of expected losses related to receivables. The Group adopts the simplified approach of IFRS 9 and recognises expected losses for all trade receivables based on the residual duration, defining the allocation based on the historical experience of credit losses, adjusted to take into account specific forecasts referred to creditors and the economic environment (Expected Credit Loss – ECL concept).

Provision for obsolete inventories

The provision for obsolete inventories reflects management's estimate of impairment losses expected by the Group, determined based on past experience. Anomalous market price trends could have an effect on future inventory writedowns.

Provision for product warranties

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

Potential liabilities

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

The Group monitors the status of ongoing proceedings and consults its legal and tax advisers.

Depreciation

The cost of assets is depreciated on a straight line basis over their estimated useful life, which for rights of use coincides with the assumed contract duration. The economic useful life of Group assets is determined by Directors at the time of purchase; the calculation is based on historical experience gained in years of operations and on knowledge of technological innovations that may make the asset obsolete and no longer economical.

The Group periodically evaluates technological and segment changes, in order to update the remaining useful life. This periodic updating could change the amortisation/depreciation period and therefore amortisation/depreciation charges of future years.

Income tax

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

Rounding off

All amounts in the tables and in these notes have been rounded off to thousands of Euros.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

2.3 New accounting standards, amendments and interpretations applied as from 1 January 2019

IFRS 16 "Leases"

In January 2016, the IASB published IFRS 16 "Leases". This new standard replaced IAS 17. The main change concerns the accounting of lease agreements by lessees that, according to IAS 17, were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). With IFRS 16, operating leases are treated for accounting purposes as finance leases. According to the new standard, an asset representing the right of use of the leased asset is recognised, as well as a financial liability for the obligation to make lease payments. In particular, the lease liability is initially recognised as being equal to the present value of future payments to make, adopting a discount rate equal to the implicit interest rate of the lease, of if this cannot easily be determined, by using the incremental borrowing rate of the lessor. After initial recognition, the lease liability is recognised at amortised cost using the effective interest rate and is redetermined following contract renegotiation, changes in rates, or changes in the recognition of any contract options.

The right of use is initially recorded at cost and then adjusted to take into account recognised depreciation charges, any impairment losses and effects related to any redetermination of lease liabilities.

The IASB has provided for the optional exemption for certain leasing contracts and low value and short-term leases. The standard mainly has an effect on the recognition of the Group's operating leases.

The Group opted to use the simplified transition approach, and therefore comparative amounts of the year prior to firsttime adoption were not modified. Assets recognised for rights to use are measured for the amount of the lease debt at the time of adoption.

As from 1 January 2019, the adoption of the new standard resulted in the following - with reference to the financial statements:

– the recognition of rights of use in the statement of financial position and corresponding financial liability as separate from other items:

AS OF 31 DECEMBER 2018
IN MILLIONS OF EUROS
+ Commitments for operating leases 29
- short-term operating leases (1)
- operating leases of a moderate value (1)
- operating leases, no IFRS 16 compliance (5)
- discounting effect (1)
Total rights of use 21

– in the income statement, the recognition within operating costs of the depreciation of rights of use, and in the financial section of interest expense accrued on liabilities, unless capitalised, replacing operating lease payments (with the exception of short-term and low value payments), previously recognised as operating costs;

– in the cash flow statement, the recognition of reimbursements of lease liability principal in net cash flows from financing activities, while interest expense is recorded in net cash flows from operations if recognised in the income statement.

The effects of adopting IFRS 16 on the financial statements as of 31 December 2019 are summarised in the following table.

IN THOUSANDS OF EUROS PUBLISHED
2019
EFFECT OF
IFRS 16
IFRS 16
RECLASSIFICA
TIONS
2019 WI
THOUT THE
ADOPTION OF
IFRS 16
Rights of use 36,486 19,120 17,366 0
Property, plant and equipment 263,496 (9,939) 273,435
Financial payables > 12 months 463,587 (6,862) 470,449
Financial liabilities for operating leases > 12 months 19,996 13,134 6,862 0
Financial payables < 12 months 135,033 (1,161) 136,194
Financial liabilities for operating leases < 12 months 8,408 7,247 1,161 0
Other non-current receivables 13,638 (7,219) 20,857
Other current receivables 31,706 (208) 31,914
Depreciation of rights of use (7,854) (6,975) (879) 0
Depreciation (42,735) 879 (43,614)
Costs for services, leases and rentals (239,086) 7,627 (246,713)
Borrowing costs (28,193) (1,067) (27,126)
Effect on the income statement before taxes (415)
Impact on Net Debt (higher debt) 20,381

The following should be noted:

  • Goods purchased through finance leases and corresponding liabilities classified at 31 December 2018 respectively under Property, plant and machinery, and Financial liabilities have been reclassified in 2019 under Rights of use and Financial liabilities for rights of use;
  • accordingly, the depreciation of assets is now recognised as the depreciation of rights of use.
  • The change in the item "Other non-current receivables" refers to leases paid in advance by Asian companies for concessions on land where production sites are located being reclassified under the item rights of use.
  • The change in the item "Other current receivables" refers to lease payments paid in advance by the company PT Piaggio Indonesia for a lease agreement that started in September 2019 being reclassified under the item rights of use.

IFRS 9 "Financial Instruments"

In October 2017, the IASB published an amendment to IFRS 9 "Prepayment features with negative compensation". The amendment confirms that when a financial liability recognised at amortised cost is changed without this resulting in derecognition, the relative profit or loss must be immediately recognised in profit or loss. The profit or loss are measured as the difference between the previous cash flow and the flow redetermined based on the change. This amendment, applicable from 1 January 2019, did not have a significant impact on the financial statements or disclosure.

IAS 28

The amendments issued in October 2017 clarify that entities must apply the provisions of IFRS 9 "Financial instruments" to non-current investments in associates and joint ventures for which the equity method is not applied. The amendments are applicable from 1 January 2019 and did not have a significant impact on the financial statements or on disclosure.

Annual amendments to IFRS 2015–2017 (IFRS 3, IFRS 11, IAS 12 and IAS 23)

In December 2017, the IASB published its annual improvements to IFRS 2015–2017 (IFRS 3, IFRS 11, IAS 12 and IAS 23). The amendments are applicable from 1 January 2019 and did not have a significant impact on the financial statements or on disclosure.

IAS 19

In February 2018, the IASB published some amendments to IAS 19, that will require companies to revise assumptions for determining the cost and borrowing costs at each change of the plan. The amendments are applicable from 1 January 2019 and did not have a significant impact on the financial statements or on disclosure.

IFRIC 23

In June 2017 the IASB published interpretation IFRIC 23 - "Uncertainty over Income Tax Treatments" which provides information on how to account for uncertainties over the tax treatment of a given phenomenon in the recognition of income taxes. IFRIC 23 became effective on 1 January 2019 and did not have a significant impact on the financial statements or on disclosure.

2.4 Accounting standards amendments and interpretations not yet applicable

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

  • In May 2017, the IASB issued the new standard IFRS 17 Insurance Contracts. The new standard will replace IFRS 4 and will be effective from 1 January 2021.
  • In October 2018, the IASB published some amendments to IAS 1 and IAS 8 that provide clarifications on the definition of "materiality". These amendments will apply from 1 January 2020.
  • In October 2018, the IASB published some amendments to IFRS 3 that amend the definition of "business". These amendments will apply from 1 January 2020.
  • In September 2019, the IASB published some amendments to IFRS 9, IAS 39 and IFRS 7 with some findings on the reform determining interbank rates. The findings concern the recognition of hedging and imply that a change in the interbank rate (IBOR) should not generally cause the accounting closure of hedging operations. However, the effects of all ineffective hedging should continue to be recognised in the income statement. Given the extensive nature of hedging that involves contracts based on interbank rates, the findings will concern companies from all sectors. These amendments will apply from 1 January 2020.

The Group will adopt these new standards, amendments and interpretations, based on the application date indicated, and will evaluate potential impact, when the standards, amendments and interpretations are endorsed by the European Union.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

B) SEGMENT REPORTING

3. Operating segment reporting

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

Each Geographic Segment has production sites and a sales network dedicated to customers in the relative segment. Specifically:

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

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

INCOME STATEMENT/NET CAPITAL EMPLOYED BY OPERATING SEGMENT

EMEA AND
AMERICAS
INDIA ASIA
PACIFIC 2W
TOTAL
2019 243.6 269.5 98.2 611.3
Sales volumes 2018 235.4 282.5 85.7 603.6
(unit/000) Change 8.2 (12.9) 12.4 7.7
Change % 3.5% -4.6% 14.5% 1.3%
2019 867.6 430.3 223.4 1,521.3
Turnover 2018 797.4 410.8 181.4 1,389.5
(millions of Euros) Change 70.2 19.5 42.0 131.8
Change % 8.8% 4.8% 23.2% 9.5%
2019 252.9 119.0 86.9 458.8
Gross margin 2018 242.4 110.8 70.4 423.6
(millions of Euros) Change 10.5 8.2 16.6 35.3
Change % 4.3% 7.4% 23.5% 8.3%
2019 227.8
EBITDA 2018 201.8
(millions of Euros) Change 26.1
Change % 12.9%
EBIT 2019 104.5
2018 92.8
(millions of Euros) Change 11.8
Change % 12.7%
2019 46.7
Net profit 2018 36.1
(millions of Euros) Change 10.7
Change % 29.6%
2019 535.8 134.2 143.6 813.6
Capital employed 2018 556.0 129.7 135.4 821.2
(millions of Euros) Change (20.3) 4.5 8.1 (7.6)
Change % -3.6% 3.5% 6.0% -0.9%
2019 946.7 273.3 203.2 1,423.2
Of which receivable 2018 928.3 267.8 187.9 1,384.0
(millions of Euros) Change 18.4 5.5 15.3 39.2
Change % 2.0% 2.1% 8.1% 2.8%
2019 410.9 139.0 59.6 609.6
Of which payable 2018 372.3 138.1 52.4 562.8
(millions of Euros) Change 38.6 1.0 7.2 46.8
Change % 10.4% 0.7% 13.7% 8.3%

C) INFORMATION ON THE CONSOLIDATED INCOME STATEMENT

4. Net revenues ¤/000 1,521,325

Revenues are shown net of premiums recognised to customers (dealers).

This item does not include transport costs, which are recharged to customers (¤/000 27,204) and invoiced advertising cost recoveries (¤/000 3,757), which are posted under other operating income.

The revenues for disposals of Group core business assets essentially refer to the marketing of vehicles and spare parts on European and non-European markets.

Revenues by geographic segment

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

IN THOUSANDS OF EUROS 2019 2018 CHANGES
AMOUNT % AMOUNT % AMOUNT %
EMEA and Americas 867,647 57.0 797,413 57.4 70,234 8.8
India 430,304 28.3 410,758 29.6 19,546 4.8
Asia Pacific 2W 223,374 14.7 181,375 13.1 41,999 23.2
Total 1,521,325 100.0 1,389,546 100.0 131,779 9.5

In 2019, net sales revenues went up by 9.5% compared to the previous year. For a more detailed analysis of trends in individual geographic segments, see comments in the Report on Operations.

5. Costs for materials ¤/000 (927,511)

The percentage of costs accounting for net sales went up, from 60.3% in 2018 to 61% in the current period. The item includes ¤/000 14,377 (¤/000 20,026 in 2018) for purchases of scooters from the Chinese subsidiary Zongshen Piaggio Foshan Motorcycle Co. Ltd., that are sold on European and Asian markets.

The following table details the content of this item:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Raw, ancillary materials, consumables and goods (915,779) (843,357) (72,422)
Change in inventories of raw, ancillary materials, consumables and goods 5,455 8,394 (2,939)
Change in work in progress of semifinished and finished products (17,187) (3,307) (13,880)
Total (927,511) (838,270) (89,241)

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

6. Costs for services and leases and rental costs ¤/000 (239,086)

Below is a breakdown of this item:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Employee costs (16,884) (15,932) (952)
External maintenance and cleaning costs (8,921) (8,007) (914)
Energy and telephone costs (15,732) (14,874) (858)
Postal expenses (838) (649) (189)
Commissions payable (456) (579) 123
Advertising and promotion (49,002) (39,920) (9,082)
Technical, legal and tax consultancy and services (20,429) (18,540) (1,889)
Company boards operating costs (2,747) (2,631) (116)
Insurance (4,568) (3,958) (610)
Insurance from related parties (33) (35) 2
Outsourced manufacturing (19,565) (18,118) (1,447)
Outsourced services (15,506) (14,261) (1,245)
Transport costs (vehicles and spare parts) (38,282) (35,605) (2,677)
Sundry commercial expenses (9,703) (7,937) (1,766)
Expenses for public relations (3,110) (2,746) (364)
Product warranty costs (1,990) (1,356) (634)
Quality-related events (1,871) (3,663) 1,792
Bank costs and factoring charges (5,418) (5,163) (255)
Other services (11,197) (9,415) (1,782)
Services from related parties (2,103) (2,134) 31
Lease and rental costs (10,640) (15,803) 5,163
Costs for leases and rentals of related parties (91) (1,648) 1,557
Total costs for services, leases and rental costs (239,086) (222,974) (16,112)

In 2019, the Group increased its costs for services, leases and rentals by ¤/000 16,112.

The item "Other" includes costs for temporary work of ¤/000 1,956.

Costs for leases and rental costs for 2019 were adjusted by ¤/000 7,627 following the adoption of the new accounting standard IFRS 16, which requires operating lease costs to be recognised as depreciation of rights of use and as borrowing costs relative to the assumed debt.

7. Employee costs ¤/000 (228,323)

Employee costs include ¤/000 3,718 relating to costs for redundancy plans mainly for the Pontedera and Noale production sites.

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Salaries and wages (171,860) (161,764) (10,096)
Social security contributions (43,344) (43,158) (186)
Termination benefits (8,074) (7,946) (128)
Other costs (5,045) (5,356) 311
Total (228,323) (218,224) (10,099)

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

AVERAGE NUMBER
LEVEL 2019 2018 CHANGE
Senior management 105 98 7
Middle management 671 631 40
White collars 1,728 1,708 20
Blue collars 3,920 4,261 (341)
Total 6,424 6,698 (274)
NUMBER AS OF
LEVEL 31 DECEMBER 2019 31 DECEMBER 2018 CHANGE
Senior management 106 100 6
Middle management 667 640 27
White collars 1,708 1,738 (30)
Blue collars 3,741 4,037 (296)
Total 6,222 6,515 (293)

Average employee numbers were affected by seasonal workers in the summer (on fixed-term employment contracts). In fact the Group uses fixed-term employment contracts to handle typical peaks in demand in the summer months.

In 2019, the Group reduced employee numbers, continuing its restructuring, streamlining and organisational cutbacks. As of 31 December 2019, Group employees totalled 6,22234 , down by 293 compared to 31 December 2018.

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

LEVEL AS OF 31.12.18 INCOMING LEAVERS RELOCATIONS AS OF 31.12.19
Senior management 100 7 (7) 6 106
Middle management 640 50 (71) 48 667
White collars 1,738 248 (225) (53) 1,708
Blue collars 4,037 1,773 (2,068) (1) 3,741
Total 6,515 2,078 (2,371) 0 6,222

DISTRIBUTION OF THE WORKFORCE BY GEOGRAPHIC SEGMENT AS OF 31 DECEMBER 2019

34 Of which 885 were on fixed-term contracts.

8. Amortisation/depreciation and impairment costs ¤/000 (123,284)

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

IN THOUSANDS OF EUROS 2019 2018 CHANGE
PROPERTY, PLANT AND EQUIPMENT
Buildings (4,916) (5,072) 156
Plant and machinery (20,670) (21,544) 874
Industrial and commercial equipment (9,186) (9,528) 342
Other assets (5,669) (4,216) (1,453)
Total depreciation of property, plant and equipment (40,441) (40,360) (81)
Impairment costs of property, plant and equipment (2,294) (622) (1,672)
Total depreciation of property, plant and equipment and impairment costs (42,735) (40,982) (1,753)
IN THOUSANDS OF EUROS 2019 2018 CHANGE
INTANGIBLE ASSETS
Development costs (30,240) (30,128) (112)
Industrial Patent and Intellectual Property Rights (35,072) (30,522) (4,550)
Concessions, licences, trademarks and similar rights (4,823) (4,823) 0
Other (221) (101) (120)
Total amortisation of intangible assets (70,356) (65,574) (4,782)
Impairment costs of intangible assets (2,339) (2,431) 92
Total amortisation of intangible assets and impairment costs (72,695) (68,005) (4,690)
IN THOUSANDS OF EUROS 2019 2018 CHANGE
RIGHTS OF USE:
Land (169) (169)
Buildings (5,031) (5,031)
Plant and equipment (856) (856)
Industrial and commercial equipment (108) (108)
Other assets (1,690) (1,690)
Total depreciation of rights of use (7,854) 0 (7,854)

Costs for the depreciation of rights of use were calculated for the first time in 2019, following the adoption of IFRS 16. The recognition of these costs is conceptually offset by the reversal of rental payments. This item includes depreciation relative to assets made available through finance lease agreements, which came until last year under the depreciation of property, plant and equipment in the previous year (¤/000 879 in 2019).

As indicated in more detail in the section on intangible assets, goodwill was tested for impairment, confirming the full recoverability of values indicated in the financial statements.

Impairment costs of intangible assets refer to development projects for which production plans were reviewed in the context of the Group's Business Plan.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

9. Other operating income ¤/000 124,118

This item consists of:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Operating grants 5,194 4,565 629
Increases in fixed assets from internal work 51,471 47,394 4,077
Other revenue and income:
- Rent receipts 5,723 4,671 1,052
- Capital gains on the disposal of assets 124 181 (57)
- Sale of miscellaneous materials 1,132 1,361 (229)
- Recovery of transport costs 27,204 24,639 2,565
- Recovery of advertising costs 3,757 3,633 124
- Recovery of sundry costs 3,644 2,701 943
- Compensation 756 1,932 (1,176)
- Compensation for quality-related events 1,422 3,019 (1,597)
- Licence rights and know-how 2,887 2,571 316
- Sponsorship 3,475 2,683 792
- Other income 16,893 14,241 2,652
- Other Group income 436 423 13
Total 124,118 114,014 10,104

The item contributions includes ¤/000 885 for state and EU contributions for research projects. The grants are recognised in profit or loss, with reference to the amortisation and depreciation of capitalised costs for which the grants were received. This item also includes contributions for exports (¤/000 2,180) received from the Indian subsidiary. In compliance with paragraph 125 of Law no. 124/2017 of 4 August 2017, details per project of funds received during 2019 are given in the section "Other information" of the Report on Operations.

10. Net reversals (impairment) of trade and other receivables ¤/000 (2,629)

This item consists of:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Reversals 12 7 5
Losses on receivables (130) (23) (107)
Write-down of receivables in working capital (2,511) (2,196) (315)
Total (2,629) (2,212) (417)

11. Other operating costs ¤/000 (20,064)

This item consists of:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Provision for future risks (1,175) (72) (1,103)
Provisions for product warranties (10,051) (10,522) 471
Duties and taxes not on income (4,426) (4,293) (133)
Various subscriptions (1,145) (1,160) 15
Capital losses from disposal of assets (121) (318) 197
Losses from changes in the fair value of investment property (1,066) (1,254) 188
Miscellaneous expenses (2,080) (2,496) 416
Total sundry operating costs (8,838) (9,521) 683
Total (20,064) (20,115) 51

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

The item Losses from changes in the fair value of investment property relates to the depreciation noted in the expert appraisal of the Spanish site of Martorelles. For more details on how fair value is determined, reference is made to note 42.

12. Income/(loss) from investments ¤/000 1,030

Net income from investments comprise the following:

  • ¤/000 906 relative to the portion of income attributable to the Group from the Zongshen Piaggio Foshan Motorcycle Co. Ltd. joint venture, valued at equity;
  • ¤/000 13 relative to the portion of income attributable to the Group from the minority investment in Pontech;
  • ¤/000 93 of dividends received from the minority investment in IVM;
  • ¤/000 18 dividends received from the minority interest in Ecofor Service Pontedera.

13. Net financial income (borrowing costs) ¤/000 (24,892)

Below is the breakdown of borrowing costs and income:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Income:
- Interest receivable from Parent Companies 21 17 4
- Interest receivable from clients 57 52 5
- Bank and post office interest payable 884 363 521
- Interest payable on financial receivables 2,391 2,242 149
- Income from fair value measurements 611 (611)
- Other 142 4,490 (4,348)
Total financial income 3,495 7,775 (4,280)
Expenses:
- Interest payable on bank accounts (3,951) (4,319) 368
- Interest payable on debenture loans (12,646) (17,530) 4,884
- Interest payable on bank loans (5,681) (6,326) 645
- Interest payable to other lenders (2,608) (2,229) (379)
- Interest to suppliers (563) (493) (70)
- Cash discounts to clients (796) (674) (122)
- Bank charges on loans (974) (1,065) 91
- Income from fair value measurements (347) 0 (347)
- Borrowing costs from discounting back termination and termination benefits (221) (465) 244
- Interest on finance lease agreements (143) (168) 25
- Interest payable on operating lease agreements (860) (860)
- Financial charges with parents companies for operating leases (207) (207)
- Other (209) (426) 217
Total borrowing costs (29,206) (33,695) 4,489
Costs capitalised on property, plant and equipment 182 115 67
Costs capitalised on intangible assets 831 202 629
Total Capitalised Costs 1,013 317 696
Total net borrowing costs (28,193) (33,378) 5,185
Exchange gains 11,785 15,295 (3,510)
Exchange losses (11,979) (15,102) 3,123
Total net exchange gains/(losses) (194) 193 (387)
Net financial income (borrowing costs) (24,892) (25,410) 518

The balance of financial income (charges) in 2019 was negative by ¤/000 24,892, less than the previous year (-¤/000 25,410), due to the reduction in average debt and its lower cost. This improvement, partially offset by currency

management, would be even higher, considering that figures for 2018 included ¤/000 901 from non-recurrent net income generated by the liability management operation on the high yield debenture loan and that the new accounting standard IFRS 16 was adopted in 2019, resulting in the recognition of charges for ¤/000 1,067.

During 2019, borrowing costs for ¤/000 1,013 were capitalised (in the previous year, borrowing costs for ¤/000 317 had been capitalised).

The average rate used during 2019 for the capitalisation of borrowing costs (because of general loans), was equal to 3.9% and also refers to loans obtained by the Vietnamese company in local currency (5.6% in 2018).

Interest payable to other lenders mainly refers to interest payable to factoring companies and banks for the sale of trade receivables.

14. Taxes ¤/000 (33,935)

The item "Income taxes" is detailed below:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Current taxes (32,121) (31,044) (1,077)
Deferred tax assets/liabilities (1,814) (731) (1,083)
Total (33,935) (31,775) (2,160)

In 2019 the impact of taxes on profit before tax was estimated as equal to 42.1% (46.8% in 2018). The decrease in taxation is mainly due to the cut in the tax rate applicable in India, starting from 1 April 2019, and to the agreement signed with the Revenue Agency during 2019, to access the special tax regime established by the regulations that introduced the Patent Box scheme. These effects were partially offset by the recognition of deferred tax liabilities on distributable reserves of the Indian subsidiary, which are controlled by the Group and will be distributed as part of the wider-ranging liquidity management policy adopted at Group level.

The item current taxes includes net income from the Consolidated Tax Convention of ¤/000 6,121.

Reconciliation in relation to the theoretical rate is shown below:

IN THOUSANDS OF EUROS 2019 2018
Profit before tax 80,684 67,850
Theoretical rate 24.00% 24.00%
Theoretical income taxes (19,364) (16,284)
Effect arising from tax differences and the difference between foreign tax rates and the theoretical rate (199) (4,740)
Tax effect arising from losses for the year not offset (5,857) (7,556)
Tax effect arising from deferred taxes (1,814) (731)
Taxes on income generated abroad (4,910) (2,528)
Expenses/income from the Consolidated Tax Convention 6,121 3,808
Indian tax on the distribution of dividends (6,737) (2,007)
Regional production tax and other local taxes (676) (588)
Other differences (499) (1,149)
Income taxes recognised in the financial statements (33,935) (31,775)

Theoretical tax rates were determined applying the corporate tax rate in effect in Italy (24.0%) to profit before tax. The effect arising from the rate of regional production tax and other taxes paid abroad was determined separately, as these taxes are not calculated on the basis of profit before tax.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

15. Gain/(loss) from assets held for disposal or sale ¤/000 0

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

16. Earnings per share

Earnings per share are calculated as follows:

2019 2018
Net profit
¤/000
46,749 36,075
Earnings attributable to ordinary shares
¤/000
46,749 36,075
Average number of ordinary shares in circulation 357,273,610 357,915,567
Earnings per ordinary share ¤ 0.131 0.101
Adjusted average number of ordinary shares 357,273,610 357,915,567
Diluted earnings per ordinary share ¤ 0.131 0.101

D) INFORMATION ON OPERATING ASSETS AND LIABILITIES

17. Intangible assets ¤/000 676,183

Intangible assets increased overall by ¤/000 17,295 mainly due to investments for the year which were only partially balanced by amortisation for the period.

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

During 2019, borrowing costs for ¤/000 831 were capitalised.

The table below shows the breakdown of intangible assets as of 31 December 2018 and 31 December 2019, as well as movements during the financial years.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

DEVELOPMENT COSTS PATENT RIGHTS AND KNOW-HOW SIONS,
LICENCES
CONCES
AND TRA
DEMARKS
GOODWILL OTHER TOTAL
IN
SERVICE
ASSETS
UNDER
MENT AND
DEVELOP
ADVANCES
TOTAL IN
SERVICE
ASSETS
UNDER
MENT AND
DEVELOP
ADVANCES
TOTAL IN
SERVICE
MENT AND
ASSETS
UNDER
DEVELOP
ADVANCES
TOTAL IN
SERVICE
ASSETS
UNDER
MENT AND
DEVELOP
ADVANCES
TOTAL
IN THOUSANDS OF EUROS
Historical cost 232,890 15,054 247,944 361,842 3,431 365,273 155,074 557,322 6,809 2 6,811 1,313,937 18,487 1,332,424
Provisions for write-down (1,007) (1,018) (2,025) (2,157) (2,157) 0 (3,164) (1,018) (4,182)
Accumulated amortisation (165,664) (165,664) (284,888) (284,888) (111,677) (110,382) (6,654) (6,654) (679,265) 0 (679,265)
Assets as of 01 01 2018 66,219 14,036 80,255 74,797 3,431 78,228 43,397 446,940 155 2 157 631,508 17,469 648,977
Investments 13,261 20,038 33,299 18,628 25,556 44,184 611 11 25 36 32,511 45,619 78,130
Entry into service in the period 8,045 (8,045) 0 1,947 (1,947) 0 27 (27) 0 10,019 (10,019) 0
Amortisation (30,128) (30,128) (30,522) (30,522) (4,823) (101) (101) (65,574) 0 (65,574)
Disposals (41) (41) (20) (20) (11) (11) (72) 0 (72)
Write-downs (1,571) (500) (2,071) (360) (360) 0 (1,931) (500) (2,431)
Exchange differences (12) (78) (90) (48) (6) (54) 2 2 (58) (84) (142)
Other movements 0 0 0 0 0 0
Movements in 2018 (10,446) 11,415 969 (10,375) 23,603 13,228 (4,212) 0 (72) (2) (74) (25,105) 35,016 9,911
Historical cost 257,677 26,935 284,612 381,477 27,034 408,511 128,021 557,322 7,517 7,517 1,332,014 53,969 1,385,983
Provisions for write-down (1,572) (1,484) (3,056) (360) (360) 0 (1,932) (1,484) (3,416)
Accumulated amortisation (200,332) (200,332) (316,695) (316,695) (88,836) (110,382) (7,434) (7,434) (723,679) 0 (723,679)
Assets as of 31 12 2018 55,773 25,451 81,224 64,422 27,034 91,456 39,185 446,940 83 0 83 606,403 52,485 658,888
Investments 9,706 29,916 39,622 17,870 31,873 49,743 484 31 515 28,060 61,820 89,880
Entry into service in the period 18,485 (18,485) 0 14,948 (14,948) 0 31 (31) 0 33,464 (33,464) 0
Amortisation (30,240) (30,240) (35,072) (35,072) (4,823) (221) (221) (70,356) 0 (70,356)
Disposals (9) (9) (18) (18) (39) (39) (66) 0 (66)
Write-downs (2,043) (284) (2,327) (12) (12) 0 (2,055) (284) (2,339)
Exchange differences 88 (81) 7 (1) (2) (3) 1 1 88 (83) 5
Other movements 0 0 171 171 171 0 171
Movements in 2019 (4,013) 11,066 7,053 (2,285) 16,923 14,638 (4,823) 0 427 0 427 (10,694) 27,989 17,295
Historical cost 291,228 38,272 329,500 413,157 43,957 457,114 190,737 557,322 8,447 8,447 1,460,891 82,229 1,543,120
Provisions for write-down (2,043) (1,755) (3,798) (12) (12) 0 (2,055) (1,755) (3,810)
Accumulated amortization (237,425) (237,425) (351,008) (351,008) (156,375) (110,382) (7,937) (7,937) (863,127) 0 (863,127)
Assets as of 31 12 2019 51,760 36,517 88,277 62,137 43,957 106,094 34,362 446,940 510 0 510 595,709 80,474 676,183

Development costs ¤/000 88,277

Development costs include costs for products and engines referable to projects for which, as regards the period of the useful life of the asset, revenues are expected that allow for at least the costs incurred to be recovered. This item also includes assets under development for ¤/000 36,517 that represent costs for which the conditions for capitalisation exist, but in relation to products that will go into production in future years.

Development expenditure for new projects capitalised in 2019 refers to the study of new vehicles and new engines (including a new commercial vehicle in partnership with the Foton Motor Group), that will feature as the top products in the 2019-2021 range.

Borrowing costs attributable to the development of products which require a considerable period of time to be realised are capitalised as a part of the cost of the actual assets. Development costs included under this item are amortised on a straight line basis over a period of 3 to 5 years (lead products), in consideration of their remaining useful life.

During 2019, development expenditure amounting to ¤/000 18,000 was directly recognised in profit or loss. Writedowns concern development projects for which production plans were revised as part of the update to the Business Plan.

Industrial patent rights and know-how ¤/000 106,094

This item includes assets under development for ¤/000 43,957.

Increases for the period mainly refer to new calculation, design and production techniques and methodologies developed by the Group, referring to main new products in the 2019-2021 range.

Costs for industrial patent and intellectual property rights are amortised on a straight line basis over a period of 3 to 5 years, in consideration of their remaining useful life.

Trademarks, concessions and licences ¤/000 34,362

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

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Guzzi trademark 11,375 13,000 (1,625)
Aprilia trademark 22,351 25,544 (3,193)
Minor trademarks 25 30 (5)
Foton licence 611 611 0
Total 34,362 39,185 (4,823)

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

The Foton licence was acquired following agreements signed in 2018 between Piaggio and the Foton Motor Group for the development and manufacture of a new range of light commercial four-wheelers that will be launched on the market starting from 2020.

The licence will be amortised over 10 years, from production start-up.

Goodwill ¤/000 446,940

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

IN THOUSANDS OF EUROS EMEA AND AMERICAS INDIA ASIA PACIFIC 2W TOTAL
31 12 2019 305,311 109,695 31,934 446,940
31 12 2018 305,311 109,695 31,934 446,940

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

As specified in the section on accounting standards, from 1 January 2004 goodwill is no longer amortised, but is tested annually or more frequently for impairment if specific events or changed circumstances indicate the possibility of it having been impaired, in accordance with the provisions of IAS 36 Impairment of Assets (impairment test).

The possibility of reinstating booked values is verified by comparing the net carrying amount of individual cash generating units with the recoverable value (value in use). This recoverable value is represented by the present value of future cash flows which, it is estimated, will be derived from the continual use of goods referring to cash generating units and by the terminal value attributable to these goods.

The recoverability of goodwill is verified at least once per year (as of 31 December), even in the absence of indicators of impairment losses.

The main assumptions used by the Group to determine future cash flows, relative to a four-year period, and the consequent recoverable value (value in use) refer to:

a. a hypothesis of estimated cash flows over a four-year period, inferred from budget data for 2020 supplemented by forecast data for 2021-2023, approved by the Board of Directors of the Company, along with an impairment test performed on 24 February 2020;

b. the WACC discount rate;

c. in addition to the period, a growth rate (g rate) has been estimated.

In particular, for discounting cash flows, the Group has adopted a discount rate (WACC) which differs based on different cash generating units. This reflects market valuations of the fair value of money and takes account of specific risks of activities and the geographic segment in which the cash generating unit operates.

In the future cash flows discounting model, a terminal value is entered at the end of the cash flow projection period, to reflect the residual value each cash-generating unit should produce. The terminal value represents the current value, at the last year of the projection, of all subsequent cash flows calculated as perpetual income, and was determined using a growth rate (g rate) which differed by CGU, to reflect the different growth potentials of each CGU.

EMEA AND AMERICAS ASIA PACIFIC 2W INDIA
2019
WACC 5.2% 7.6% 9.8%
G 1.0% 2.0% 2.0%
Growth rate during the Plan period 5.0% 5.2% 5.7%
2018
WACC 6.4% 8.7% 11.1%
G 1.0% 2.0% 2.0%
Growth rate during the Plan period 6.9% 6.6% 4.6%

The terminal value growth rate (g rate) is specific for CGUs, considering the area's growth potential.

The medium-/long-term growth rate (g rate) for determining the Terminal Value of each CGU was considered as reasonable and prudent, in the light of:

– analysts' expectations for the Piaggio Group (source: Analyst Reports 2019-2020);

– the long-term real GDP growth trend expected for main countries where the Group operates (source: Economist Intelligence Unit – EIU);

– forecasts for the reference sector (source: Freedonia, «Global Motorcycle», May 201835).

The WACC was determined based on the previous year.

The growth rate during the period of the Plan was determined using the trend expected for the reference sector as the benchmark (source: Freedonia, «Global Motorcycle», May 2018).

Analyses did not identify any impairment losses. Therefore no impairment was reflected in consolidated data as of 31 December 2019.

In addition, and on the basis of information in the document produced jointly by the Bank of Italy, Consob and Isvap no. 2 of 6 February 2009, the Group conducted sensitivity analysis of test results in relation to changes in basic assumptions (use of the growth rate in producing the terminal value and discount rate) which affect the value in use of cash generating units. In the case of a positive or negative change of 0.5% of the WACC and G used, analyses would not identify impairment losses.

In all cases, the value in use of the Group was higher than the net carrying amount tested.

35 Study valid for a two-year period.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Given that the recoverable value was determined based on estimates, the Group cannot ensure that there will be no impairment losses of goodwill in future financial periods.

Given the current market weakness, the various factors used in processing estimates could require revision; the Piaggio Group will constantly monitor these factors as well as the existence of impairment losses.

Other intangible assets ¤/000 510

This item mainly refers to costs incurred by Piaggio Vietnam.

18. Property, plant and equipment ¤/000 263,496

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

The increases mainly relate to the construction of moulds for new vehicles launched during the period.

Borrowing costs attributable to the construction of assets which require a considerable period of time to be ready for use are capitalised as a part of the cost of the actual assets. During 2019, borrowing costs for ¤/000 182 were capitalised.

The table below shows the breakdown of property, plant and equipment as of 31 December 2018 and 31 December 2019, as well as movements during the period.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements

Attachments

LAND BUILDINGS PLANT AND MACHINERY EQUIPMENT OTHER ASSETS TOTAL
IN
SERVICE
ASSETS
UNDER
STRUCTION
AND
CON
ADVANCES
TOTAL IN
SERVICE
ASSETS
UNDER
STRUCTION
AND
CON
ADVANCES
TOTAL IN
SERVICE
ASSETS
UNDER
STRUCTION
AND
CON
ADVANCES
TOTAL IN
SERVICE
ASSETS
UNDER
STRUCTION
AND
CON
ADVANCES
TOTAL IN
SERVICE
ASSETS
UNDER
STRUCTION
AND
ADVANCES
CON
TOTAL
IN THOUSANDS OF EUROS
Historical cost 27,640 167,730 1,969 169,699 475,729 8,025 483,754 508,427 3,467 511,894 52,353 1,287 53,640 1,231,879 14,748 1,246,627
Reversals 0 0 0 0 0 0 0
Provisions for write-down 0 (483) (483) (2,408) (2,408) (64) (64) (2,955) 0 (2,955)
Accumulated
depreciation
(73,833) (73,833) (362,119) (362,119) (489,011) (489,011) (45,696) (45,696) (970,659) 0 (970,659)
Assets as of 01 01 2018 27,640 93,897 1,969 95,866 113,127 8,025 121,152 17,008 3,467 20,475 6,593 1,287 7,880 258,265 14,748 273,013
Investments 664 1,319 1,983 4,139 11,917 16,056 8,742 5,484 14,226 3,960 923 4,883 17,505 19,643 37,148
Entry into service 1,858 (1,858) 0 10,982 (10,982) 0 1,509 (1,509) 0 1,444 (1,444) 0 15,793 (15,793) 0
Depreciation (5,072) (5,072) (21,544) (21,544) (9,528) (9,528) (4,216) (4,216) (40,360) 0 (40,360)
Disposals (20) (20) (16) (127) (143) (1) (170) (171) (656) (7) (663) (693) (304) (997)
Write-downs (622) (622) 0 0 0 (622) 0 (622)
Exchange differences (354) (5) (359) (1,528) (145) (1,673) 0 49 (1) 48 (1,833) (151) (1,984)
Other movements 0 0 0 0 0 0 0
Movements in 2018 0 (3,546) (544) (4,090) (7,967) 663 (7,304) 722 3,805 4,527 581 (529) 52 (10,210) 3,395 (6,815)
Historical cost 27,640 169,761 1,425 171,186 486,249 8,688 494,937 513,415 7,272 520,687 54,308 758 55,066 1,251,373 18,143 1,269,516
Reversals 0 0 0 0 0 0 0
Provisions for write-down (622) (622) (483) (483) (2,408) (2,408) (64) (64) (3,577) 0 (3,577)
Accumulated
depreciation
(78,788) (78,788) (380,606) (380,606) (493,277) (493,277) (47,070) (47,070) (999,741) 0 (999,741)
Assets as of 31 12 2018 27,640 90,351 1,425 91,776 105,160 8,688 113,848 17,730 7,272 25,002 7,174 758 7,932 248,055 18,143 266,198
Investments 393 2,457 2,850 2,267 27,562 29,829 7,411 3,891 11,302 5,293 1,718 7,011 15,364 35,628 50,992
Entry into service 993 (993) 0 16,132 (16,132) 0 5,982 (5,982) 0 534 (534) 0 23,641 (23,641) 0
Depreciation (4,916) (4,916) (20,670) (20,670) (9,186) (9,186) (5,669) (5,669) (40,441) 0 (40,441)
Disposals 0 (74) (74) (1) (1) (101) (101) (176) 0 (176)
Write-downs 0 (618) (618) (1,676) (1,676) 0 (2,294) 0 (2,294)
Exchange differences 70 (10) 60 53 (76) (23) 0 55 55 178 (86) 92
Other movements 0 (10,699) (10,699) (4) (4) 132 (303) (171) (10,571) (303) (10,874)
Movements in 2019 0 (3,460) 1,454 (2,006) (13,610) 11,354 (2,256) 2,526 (2,091) 435 244 881 1,125 (14,300) 11,598 (2,702)
Historical cost 27,640 171,245 2,879 174,124 474,683 20,042 494,725 517,148 5,181 522,329 55,514 1,639 57,153 1,246,230 29,741 1,275,971
Reversals 0 0 0 0 0 0 0
Provisions for write-down (622) (622) (1,101) (1,101) (3,983) (3,983) (64) (64) (5,770) 0 (5,770)
Accumulated
depreciation
(83,732) (83,732) (382,032) (382,032) (492,909) (492,909) (48,032) (48,032) (1,006,705) 0 (1,006,705)
Assets as of 31 12 2019 27,640 86,891 2,879 89,770 91,550 20,042 111,592 20,256 5,181 25,437 7,418 1,639 9,057 233,755 29,741 263,496

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

On 1 January 2019, the net value of assets held through finance lease agreements, equal ¤/000 10,706 and consisting of the Pontedera painting plant for the Vespa and vehicles supporting the Aprilia Racing Team, was reclassified under rights of use, as required by the adoption of the new accounting standard IFRS 16.

Land ¤/000 27,640

Land is not depreciated.

Land mainly refers to Group production facilities in Pontedera (Pisa), Noale and Scorzè (Venice) and Mandello del Lario (Lecco). The item also includes land in Pisa, with a warehouse.

Buildings ¤/000 89,770

The item Buildings, net of accumulated depreciation, comprises:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Industrial buildings 85,997 89,473 (3,476)
Ancillary buildings 444 430 14
Light constructions 450 448 2
Assets under construction 2,879 1,425 1,454
Total 89,770 91,776 (2,006)

Industrial buildings refer to Group production facilities in Pontedera (Pisa), Noale and Scorzè (Venice), Mandello del Lario (Lecco), Baramati (India) and Vinh Phuc (Vietnam). The item also includes a building at Pisa used as a warehouse. Buildings are depreciated on a straight-line basis using rates considered suitable to represent their useful life.

Plant and machinery ¤/000 111,592

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

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
General plants 73,870 74,457 (587)
Automatic machinery 5,555 14,119 (8,564)
Furnaces and sundry equipment 270 275 (5)
Other 11,855 16,309 (4,454)
Assets under construction 20,042 8,688 11,354
Total 111,592 113,848 (2,256)

Plant and machinery refer to Group production facilities in Pontedera (Pisa), Noale and Scorzè (Venice), Mandello del Lario (Lecco), Baramati (India) and Vinh Phuc (Vietnam).

The "Other" item mainly includes non-automatic machinery and robotic centres.

Equipment ¤/000 25,437

The item Equipment mainly refers to production equipment at Pontedera (Pisa), Noale and Scorzè (Venice), Mandello del Lario (Lecco), Baramati (India) and Vinh Phuc (Vietnam).

Main investments in equipment concerned moulds for new vehicles launched during the year or scheduled to be launched in the first half of next year, moulds for new engines and specific equipment for assembly lines.

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Industrial equipment 20,247 17,720 2,527
Commercial equipment 9 10 (1)
Assets under construction 5,181 7,272 (2,091)
Total 25,437 25,002 435

Other plant, property and equipment ¤/000 9,057 The item Other assets comprises:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
EDP systems 2,689 2,923 (234)
Office furniture and equipment 2,379 2,119 260
Vehicles 831 695 136
Others 1,519 1,437 82
Assets under construction 1,639 758 881
Total 9,057 7,932 1,125

Warranties

As of 31 December 2019, the Group had no buildings with mortgages.

19. Rights of use ¤/000 36,486

The item "Rights of use" includes operating lease agreements, finance lease agreements and lease instalments paid in advance for the use of property.

The Group has stipulated rental/hire contracts for offices, plants, warehouses, company accommodation, cars and forklift trucks. The rental/lease agreements are typically for a fixed duration, but extension options are possible.

These agreements may also include service components. The Group opted to include only the component relative to the rental/hire payment in the recognition of rights of use.

The rental/hire agreements do not have any covenants to be met, nor require guarantees to be provided in favour of the lessor.

Until 31 December 2018, finance leases had been classified under property, plant and equipment. As from 1 January 2019, these items have been reclassified under rights of use.

As from 1 January 2019, lease payments made in advance by Asian companies for concessions on land where production sites are located and for the rental of property have been reclassified under the item rights of use.

IN THOUSANDS AS OF 31 DECEMBER 2019 AS OF 1 JANUARY 2019
OF EUROS OPERA FINANCE RENTAL/ TOTAL OPERA FINANCE RENTAL/ TOTAL CHANGE
TING LEASES HIRE PAY TING LEASES HIRE
LEASES MENTS LEASES PAYMENTS
MADE IN MADE IN
ADVANCE ADVANCE
Land 294 7,282 7,576 153 7,381 7,534 42
Buildings 14,878 144 15,022 15,403 163 15,566 (544)
Plant and machinery 9,844 9,844 10,699 10,699 (855)
Equipment 108 108 182 182 (74)
Other assets 3,841 95 3,936 5,286 7 5,293 (1,357)
Total 19,121 9,939 7,426 36,486 21,024 10,706 7,544 39,274 (2,788)
IN THOUSANDS OF EUROS LAND BUILDINGS PLANT AND
MACHINERY
EQUIPMENT OTHER AS
SETS
TOTAL
As of 31 12 2018
Adoption of IFRS 16 as from 1 Jan 2019 7,534 15,566 10,699 182 5,293 39,274
Increases 128 4,351 1 31 325 4,836
Depreciation (169) (5,031) (856) (108) (1,690) (7,854)
Exchange differences 83 136 3 8 230
Movements in 2019 42 (544) (855) (74) (1,357) (2,788)
As of 31 12 2019 7,576 15,022 9,844 108 3,936 36,486

Future lease rental commitments are detailed in note 42.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

20. Investment Property ¤/000 9,203

Investment property refers to the Spanish site of Martorelles, where production was stopped in March 2013 and relocated to Italian sites.

IN THOUSANDS OF EUROS
Opening balance as of 1 January 2019 10,269
Fair value adjustment (1,066)
Closing balance as of 31 December 2019 9,203

The net carrying amount as of 31 December 2019 was determined by a specific appraisal conducted by an independent expert who measured the "Fair Value less cost of disposal" based on a market approach (as provided for in IFRS 13). This analysis identified the total value of the investment as ¤/000 9,203. In this regard, the valuation took account of the current status of the property, the project to convert the area, for the development of a retail centre prepared by the Group, together with comparable transactions. Following the site redevelopment project, an agency management contract was given to a Spanish property company, to seek investors interested in the property.

The Group uses the "fair value model" as provided for in IAS 40, thus the measurement updated during 2019 resulted in profit adjusted to fair value, equal to ¤/000 1,066 being recognised under other costs in the income statement for the period.

If the cost criterion had still been used instead of fair value, the value of the Martorelles site would have been equal to ¤/000 5,935.

During 2019, costs incurred for management of the site amounted to ¤/000 483.

21. Deferred taxes ¤/000 63,190

Deferred tax assets and liabilities are recognised at their net value when they may be offset in the same tax jurisdiction. Their breakdown was as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Deferred tax assets 78,475 75,433 3,042
Deferred tax liabilities (15,285) (16,183) 898
Total 63,190 59,250 3,940

The main effects recognised in the year are attributable to changes in temporary differences.

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

  • tax regulations of countries where it operates, the impact of regulations in terms of temporary differences and any tax benefits arising from the use of previous tax losses;
  • taxable income expected in the medium/long term for each single company and the economic and tax impact. In this framework, the Group made reference to the plans from the reprocessing of the Group plan approved by the Board of Directors on 24 February 2020. As regards Piaggio & C. SpA, which is part of the National Consolidated Tax Convention of the IMMSI Group, the recovery of deferred tax assets is related to and confirmed by company forecasts and by taxable amounts of companies that are part of the above convention, as indicated in the long-term plans approved by their respective Boards;
  • the tax rate in effect in the year when temporary differences occur.

Based on a prudential approach, it was decided to not wholly recognise the tax benefits arising from losses that can be carried over and from temporary differences.

TEMPORARY DIFFERENCES TAX RATE TAX EFFECT
IN THOUSANDS OF EUROS
4,663 24%/27.9% 1,298
4,257 27.90% 1,188
Provisions for risks 8,920 2,486
11,697 27.90% 3,263
1,223 24.68% 302
419 24.00% 101
237 32.08% 76
157 25.00% 39
54 25.00% 14
Provision for product warranties 13,787 3,795
16,985 24.00% 4,076
1,564 24.00% 375
117 24.68% 29
18 32.08% 6
Provisions for bad debts 18,684 4,486
20,639 27.90% 5,758
1,669 24.68% 412
1,927 16.29% 314
161 32.08% 52
157 25.00% 39
79 25.00% 20
37 24.00% 9
47 18.00% 9
Provisions for obsolete stock 24,716 6,613
43,145 24%/27.9% 11,702
12,258 24%/27.9% 2,945
14,881 15% 19.6%; 2,740
8,260 25.17% 2,079
7,487 24.68% 1,847
1,419 24.71% 351
1,287 25.00% 322
1,239 25%/30% 315
509 17.00% 87
233 32.08% 75
278 24.00% 67
207 25% 33.33%; 66
186 25.00% 46
187 24%/27.9% 45
91 31.16% 28
15 30.00% 5
8 18.00% 2
11 19.00% 2
6 25.00% 1
Offsetting of Deferred Tax Liabilities (53,324) 24%/27.9% (14,570)
Other changes 38,383 8,155
Total for provisions and other changes 104,490 25,535
Deferred tax assets already recognised 23,486
Deferred tax assets not booked 2,049
Piaggio & C. S.p.A. 139,735 24.00% 33,536
Nacional Motor S.A. 34,367 25.00% 8,592
Piaggio Group Americas Inc. 19,652 24.68% 4,849
Piaggio Fast Forward Inc. 37,144 24.71% 9,178
Piaggio Group Japan 4,799 32.08% 1,540
Piaggio Concept Store Mantova S.r.l. 3,255 24.00% 781
Aprilia Racing s.r.l. 2,236 24.00% 537
Offsetting of Deferred Tax Liabilities (2,862) 25.00% (715)
Total out of tax losses 238,326 58,298
Deferred tax assets already recognised 39,704
Deferred tax assets not booked 18,594

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

22. Inventories ¤/000 214,682

This item comprises:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Raw materials and consumables 110,954 104,701 6,253
Provision for write-down (10,429) (10,602) 173
Net value 100,525 94,099 6,426
Work in progress and semi-finished products 19,167 18,623 544
Provision for write-down (852) (852) 0
Net value 18,315 17,771 544
Finished products and goods 113,825 132,387 (18,562)
Provision for write-down (19,778) (20,295) 517
Net value 94,047 112,092 (18,045)
Advances 1,795 146 1,649
Total 214,682 224,108 (9,426)

As of 31 December 2019, inventories had decreased by ¤/000 9,426.

23. Current and non-current trade receivables ¤/000 78,195

As of 31 December, no non-current trade payables were recorded for the periods compared. Current trade receivables are broken down as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Trade receivables due from customers 77,203 85,293 (8,090)
Trade receivables due from JV 969 1,252 (283)
Trade receivables due from parent companies 23 12 11
Total 78,195 86,557 (8,362)

Receivables due from joint ventures refer to amounts due from Zongshen Piaggio Foshan Motorcycles Co. Ltd. Receivables due from parent companies regard amounts due from Immsi.

The item Trade receivables comprises receivables referring to normal sale transactions, recorded net of a provision for bad debts of ¤/000 26,169.

Movements in the provision for bad debts were as follows:

IN THOUSANDS OF EUROS
Opening balance as of 1 January 2019 24,754
Increases for allocations 2,365
Decreases for use (864)
Other changes (86)
Closing balance as of 31 December 2019 26,169

The Group sells, on a rotating basis, a large part of its trade receivables with and without recourse. Piaggio has signed contracts with some of the most important Italian and foreign factoring companies as a move to optimise the monitoring and the management of its trade receivables, besides offering its customers an instrument for funding their own inventories, for factoring classified as without the substantial transfer of risks and benefits. On the contrary, for factoring without recourse, contracts have been formalised for the substantial transfer of risks and benefits. As of 31 December 2019 trade receivables that have not come due, sold without recourse totalled ¤/000 100,629. Of these amounts, Piaggio received payment prior to natural expiry of ¤/000 100,525.

As of 31 December 2019, advance payments received from factoring companies and banks for trade receivables sold with recourse totalled ¤/000 9,946 with a counter entry recorded in current liabilities.

24. Other current and non-current receivables ¤/000 45,344

They consist of:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS
Receivables due from parent companies 13,260 13,260 14,205 14,205 (945) 0 (945)
Receivables due from joint ventures 1,313 1,313 1,034 1,034 279 0 279
Receivables due from affiliated companies 28 81 109 23 94 117 5 (13) (8)
Accrued income 2,616 2,616 1,369 1,369 1,247 0 1,247
Deferred charges 4,219 10,751 14,970 2,880 13,673 16,553 1,339 (2,922) (1,583)
Advance payments to suppliers 2,446 2,446 2,625 2,625 (179) 0 (179)
Advances to employees 1,245 31 1,276 2,133 45 2,178 (888) (14) (902)
Fair value of hedging derivatives 123 123 4 4 119 0 119
Security deposits 299 1,362 1,661 263 1,309 1,572 36 53 89
Receivables due from others 6,157 1,413 7,570 8,971 1,504 10,475 (2,814) (91) (2,905)
Total 31,706 13,638 45,344 33,507 16,625 50,132 (1,801) (2,987) (4,788)

The reduction is affected by the reclassification under rights of use of lease payments made in advance by Asian companies for the use of land and buildings, following the adoption of the new accounting standard IFRS 16. Receivables due from associates are amounts due from the Fondazione Piaggio and Immsi Audit.

Receivables due from parent companies refer to the recognition of accounting effects relating to the transfer of taxable bases pursuant to the Group Consolidated Tax Convention.

Receivables due from joint ventures refer to amounts due from Zongshen Piaggio Foshan Motorcycle Co. Ltd.

The item Fair Value of hedging derivatives comprises the fair value of hedging transactions on the exchange risk on forecast transactions recognised on a cash flow hedge basis.

Other receivables are recognised net of a provision for bad debts of ¤/000 5,884

Movements in the provision for bad debts were as follows:

IN THOUSANDS OF EUROS
Opening balance as of 1 January 2019 6,076
Increases for allocations 146
Decreases for use (149)
Other changes (189)
Closing balance as of 31 December 2019 5,884

25. Current and non-current tax receivables ¤/000 32,652

Receivables due from tax authorities consist of:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS
VAT 13,385 4,209 17,594 3,360 5,138 8,498 10,025 (929) 9,096
Income tax 2,141 9,886 12,027 2,538 12,235 14,773 (397) (2,349) (2,746)
Other 3,012 19 3,031 1,470 26 1,496 1,542 (7) 1,535
Total 18,538 14,114 32,652 7,368 17,399 24,767 11,170 (3,285) 7,885

The change is mainly related to higher VAT receivables of the Parent Company.

26. Breakdown of operating receivables by measurement method

The table below shows the breakdown of operating receivables by measurement method:

AS OF 31 DECEMBER 2019 ASSETS
MEASURED
AT FVPL
ASSETS
MEASURED
AT FVOCI
FINANCIAL
DERIVATIVES
ASSETS
AT AMORTISED
COST
TOTAL
AS OF 31 DECEMBER 2019
Non-current
Tax receivables 14,114 14,114
Other receivables 13,638 13,638
Total non-current
operating receivables
- 27,752 27,752
Current
Trade receivables 78,195 78,195
Tax receivables 18,538 18,538
Other receivables 123 31,583 31,706
Total current operating
receivables
123 128,316 128,439
Total operating receivables 123 156,068 156,191
AS OF 31 DECEMBER 2018
Non-current
Tax receivables 17,399 17,399
Other receivables 16,625 16,625
Total non-current operat
ing receivables
- - - 34,024 34,024
Current
Trade receivables 86,557 86,557
Tax receivables 7,368 7,368
Other receivables 4 33,503 33,507
Total current operating
receivables
- - 4 127,428 127,432
Total operating receivables - - 4 161,452 161,456

27. Receivables due after 5 years ¤/000 0

As of 31 December 2019, there were no receivables due after 5 years.

28. Breakdown of assets by geographic segment

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

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

29. Assets held for sale ¤/000 0

As of 31 December 2019, there were no assets held for sale.

30. Current and non-current trade payables ¤/000 478,688

As of 31 December 2019 and as of 31 December 2018, no trade payables were recorded under non-current liabilities. Trade payables recorded as current liabilities are broken down as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Amounts due to suppliers 472,987 424,320 48,667
Trade payables to JV 5,318 6,671 (1,353)
Trade payables due to other related parties 24 (24)
Amounts due to affiliates 26 55 (29)
Amounts due to parent companies 357 1,652 (1,295)
Total 478,688 432,722 45,966
of which reverse factoring 197,640 181,578 16,062

To facilitate credit conditions for its suppliers, the Group has used factoring agreements since 2012, mainly supply chain financing and reverse factoring agreements, as described in more detail in "Accounting policies and measurement criteria applied by the Group", to which reference is made. These operations did not change the primary obligation, nor substantially changed payment terms, so their nature is the same and they are still classified as trade liabilities. As of 31 December 2019, the value of trade payables covered by reverse factoring or supply chain financing agreements was equal to ¤/000 197,640 (¤/000 181,578 as of 31 December 2018).

31. Provisions (current and non-current portion) ¤/000 26,568

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

IN THOUSANDS OF EUROS BALANCE AS OF
31 DECEMBER
2018
ALLOCA
TIONS
USES RECLASSIFI
CATIONS
EXCHANGE
DIFFERENCES
BALANCE
AS OF 31
DECEMBER 2019
Provision for product warranties 16,594 10,051 (7,396) 63 23 19,335
Provision for contractual risks 2,972 2,059 (1,227) 12 3,816
Risk provision for legal disputes 1,788 610 (50) 10 2,358
Provisions for risk on guarantee 58 58
Other provisions for risks 685 385 (70) 1 1,001
Total 22,097 13,105 (8,743) 63 46 26,568

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

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS
Provision for product warranties 12,498 6,837 19,335 11,233 5,361 16,594 1,265 1,476 2,741
Provisions for contractual risks 816 3,000 3,816 662 2,310 2,972 154 690 844
Risk provision for legal disputes 695 1,663 2,358 575 1,213 1,788 120 450 570
Provisions for risk on guarantee - 58 58 58 - 58 (58) 58 -
Other provisions for risks and charges 443 558 1,001 65 620 685 378 (62) 316
Total 14,452 12,116 26,568 12,593 9,504 22,097 1,859 2,612 4,471

The product warranty provision relates to allocations for technical assistance on products covered by customer service which are estimated to be provided over the contractually envisaged warranty period. This period varies according to the type of goods sold and the sales market, and is also determined by customer take-up to commit to a scheduled maintenance plan.

The provision increased during the period by ¤/000 10,051 and ¤/000 7,396 was used in relation to costs incurred during the period.

The provision for litigation concerns labour litigation and other legal proceedings.

32. Deferred tax liabilities ¤/000 7,762

The increase compared to the balance as of 31 December 2018 (¤/000 2,806) is mainly due to the recognition of deferred tax liabilities on distributable reserves of the Indian subsidiary, which are controlled by the Group and are distributed, as part of the wider-ranging liquidity management policy adopted at a Group level.

33. Retirement funds and employee benefits ¤/000 38,997

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Retirement funds 868 769 99
Post-employment benefits provision 38,129 40,537 (2,408)
Total 38,997 41,306 (2,309)

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

The item "Termination benefits provision", comprising severance pay of employees of Italian companies, includes termination benefits indicated in defined benefit plans.

Their breakdown was as follows:

IN THOUSANDS OF EUROS
Opening balance as of 1 January 2019 40,537
Cost for the year 8,074
Actuarial losses recognised in Equity 2,809
Interest cost 221
Uses and transfers of retirement funds (13,508)
Other movements (4)
Closing balance as of 31 December 2019 38,129

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

Technical annual discount rate 0.37%
Annual rate of inflation 1.50% as from 2019
Annual rate of increase in termination benefits 2.625% as from 2019

As regards the discount rate, the Group uses the iBoxx Corporates AA rating with a 7-10 duration as the valuation reference. If the iBoxx Corporates A rating with a 7-10 duration had been used, the value of actuarial losses and the provision as of 31 December 2019 would have been lower by ¤/000 865.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

The table below shows the effects, in absolute terms, as of 31 December 2019, which would have occurred following changes in reasonably possible actuarial assumptions:

IN THOUSANDS OF EUROS PROVISION FOR TERMINATION BENEFITS
Turnover rate +2% 37,722
Turnover rate -2% 38,568
Inflation rate +0.25% 38,672
Inflation rate - 0.25% 37,585
Discount rate +0.50% 37,258
Discount rate -0.50% 39,021

The average financial duration of the bond ranges from 9 to 24 years. Estimated future amounts are equal to:

IN THOUSANDS OF EUROS
YEAR FUTURE AMOUNTS
1 5,283
2 2,965
3 1,881
4 2,073
5 952

The affiliates operating in Germany and Indonesia have provisions for employees identified as defined benefit plans. As of 31 December 2019, these provisions amounted to ¤/000 129 and ¤/000 187 respectively. The amount of profits / (losses) recognized in the statement of comprehensive income related to foreign companies amounted to ¤/000 -326.

34. Current and non-current tax payables ¤/000 14,934

Their breakdown was as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON TOTALS CURRENT NON TOTALS CURRENT NON TOTALS
CURRENT CURRENT CURRENT
Due for income tax 8,291 8,291 8,511 8,511 (220) 0 (220)
Due for non-income tax 134 134 50 50 84 0 84
Tax payables for:
- VAT 1,089 1,089 2,010 2,010 (921) 0 (921)
- Tax withheld at source 5,144 5,144 3,803 3,803 1,341 0 1,341
- Other 276 276 261 261 15 0 15
Total 6,509 6,509 6,074 6,074 435 0 435
TOTAL 14,934 0 14,934 14,635 0 14,635 299 0 299

As of 31 December 2019 and as of 31 December 2018, no tax payables were recorded under non-current liabilities. The item includes tax payables recorded in the financial statements of individual consolidated companies, set aside in relation to tax charges for the individual companies on the basis of applicable national laws.

Payables for withheld taxes made refer mainly to withheld taxes on employees' earnings, on employment termination payments and on self-employed earnings.

35. Other payables (current and non-current) ¤/000 48,608

This item comprises:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON TOTALS CURRENT NON TOTALS CURRENT NON TOTALS
CURRENT CURRENT CURRENT
To employees 17,712 471 18,183 17,452 17,452 260 471 731
Guarantee deposits 3,247 3,247 2,750 2,750 0 497 497
Accrued expenses 4,122 4,122 3,782 3,782 340 0 340
Deferred income 1,303 2,649 3,952 1,403 3,113 4,516 (100) (464) (564)
Amounts due to social security
institutions
8,765 8,765 8,584 8,584 181 0 181
Fair value of derivatives 46 46 16 16 30 0 30
To JV 3 3 31 31 (28) 0 (28)
To associates 9 9 5 5 4 0 4
To parent companies 11 11 6,689 6,689 (6,678) 0 (6,678)
Other 10,200 70 10,270 10,258 76 10,334 (58) (6) (64)
Total 42,171 6,437 48,608 48,220 5,939 54,159 (6,049) 498 (5,551)

Amounts due to employees include the amount for holidays accrued but not taken of ¤/000 9,900 and other payments to be made for ¤/000 7,812.

Payables due to associates refer to various amounts due to the Fondazione Piaggio (Foundation).

Payables to parent companies consist of payables to Immsi.

The item fair value of hedging derivatives mainly refers to the fair value of hedging derivatives relative to the exchange risk on forecast transactions recognised on an cash flow hedge basis.

The item Accrued liabilities includes ¤/000 313 for interest on hedging derivatives and relative hedged items measured at fair value.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

36. Breakdown of operating payables by measurement method

The table below shows the breakdown of operating payables by measurement method:

IN THOUSANDS OF EUROS LIABILITIES
MEASURED
AT FVPL
FINANCIAL
DERIVATIVES
LIABILITIES
AT AMORTISED
COST
TOTAL
AS OF 31 DECEMBER 2019
Non-current
Tax payables
Other payables 6,437 6,437
Total non-current operating payables - 6,437 6,437
Current
Trade payables 478,688 478,688
Tax payables 14,934 14,934
Other payables 46 42,125 42,171
Total current operating payables 46 535,747 535,793
Total operating payables 46 542,184 542,230
AS OF 31 DECEMBER 2018
Non-current
Tax payables
Other payables 5,939 5,939
Total non-current operating payables - 5,939 5,939
Current
Trade payables 432,722 432,722
Tax payables 14,635 14,635
Other payables 16 48,220 48,236
Total current operating payables 16 495,577 495,593
Total operating payables 16 501,516 501,532

37. Payables due after 5 years

The Group has loans due after 5 years, which are referred to in detail in Note 42 Financial Liabilities. With the exception of the above payables, no other long-term payables due after five years exist.

38. Breakdown of liabilities by geographic segment

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

E) INFORMATION ON FINANCIAL ASSETS AND LIABILITIES

This section provides information on the carrying amount of financial assets and liabilities held, and in particular:

  • specifically describes the type of financial assets and liabilities;
  • the accounting standards adopted;

– describes how fair value is determined, how measurements and estimates are made, and the uncertainties involved.

The Group holds the following financial assets and liabilities:

IN THOUSANDS
OF EUROS
ASSETS
MEASURED
ASSETS
MEASURED
FINANCIAL
DERIVATIVES
ASSETS
AT AMORTISED
TOTAL
AT FVPL AT FVOCI COST
FINANCIAL ASSETS AS OF 31 DECEMBER 2019
Non-current
Other financial assets 37 3,475 3,512
Total non-current financial
assets
37 - 3,475 - 3,512
Current
Other financial assets 3,789 3,789
Cash and cash equivalents 128,565 128,565
Securities 62,116 62,116
Total current financial
assets
- - 3,789 190,681 194,470
Total financial assets 37 - 7,264 190,681 197,982
FINANCIAL ASSETS AS OF 31 DECEMBER 2018
Non-current
Other financial assets 37 5,992 6,029
Total non-current financial
assets
37 - 5,992 - 6,029
Current
Other financial assets 2,805 2,805
Cash and cash equivalents 131,282 131,282
Securities 57,396 57,396
Total current financial
assets 2,805 188,678 191,483
Total financial assets 37 - 8,797 188,678 197,512
IN THOUSANDS LIABILITIES FAIR VALUE FINANCIAL LIABILITIES TOTAL
OF EUROS MEASURED
AT FVPL
ADJUSTMENT DERIVATIVES AT AMORTISED
COST
FINANCIAL LIABILITIES AS OF 31 DECEMBER 2019
Non-current
Bank loans
178,092 178,092
Bonds 3,269 282,099 285,368
Other loans 127 127
Liabilities for rights of use 19,996 19,996
Total non-current liabilities 3,269 480,314 483,583
Current liabilities
Bank loans 110,756 110,756
Bonds 3,265 11,022 14,287
Other loans 9,990 9,990
Liabilities for rights of use 8,408 8,408
Total current liabilities 3,265 140,176 143,441
Total 6,534 620,490 627,024
FINANCIAL LIABILITIES AS OF 31 DECEMBER 2018
Non-current
Bank loans 207,239 207,239
Bonds 5,475 291,694 297,169
Other loans 160 160
Leases 7,930 7,930
Hedging derivatives -
Total non-current financial
liabilities
- 5,475 - 507,023 512,498
Current
Bank loans 89,741 89,741
Bonds 2,563 10,325 12,888
Other loans 9,636 9,636
Leases 1,237 1,237
Hedging derivatives -
Total current financial
liabilities - 2,563 - 110,939 113,502
Total financial liabilities - 8,038 - 617,962 626,000

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

39. Investments ¤/000 8,910

The investments heading comprises:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Interests in joint ventures 8,753 7,786 967
Investments in associates 157 148 9
Total 8,910 7,934 976

The increase in the item Interests in joint ventures refers to the equity valuation of the investment in the Zongshen Piaggio Foshan Motorcycles Co. Ltd. joint venture.

Investments in Joint Ventures ¤/000 8,753

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
JOINT VENTURE
Accounted for using the equity method:
Zongshen Piaggio Foshan Motorcycles Co. Ltd 8,753 7,786 967
Total joint ventures 8,753 7,786 967

The investment in Zongshen Piaggio Foshan Motorcycles Co. Ltd was classified under the item "joint ventures" in relation to agreements made in the contract signed on 15 April 2004 between Piaggio & C. S.p.A. and its historical partner Foshan Motorcycle Plant, and the Chinese company Zongshen Industrial Group Company Limited.

Piaggio & C. S.p.A. has a 45% interest in Zongshen Piaggio Foshan Motorcycles Co. Ltd. of which 12.5% via the direct subsidiary Piaggio China Company Ltd. The carrying amount of the investment refers to shareholders' equity pro-quota adjusted to take into account the measurement criteria adopted by the Group.

The table below summarises main financial data of the joint venture:

IN THOUSANDS OF EUROS ACCOUNTS
AS OF 31 DECEMBER 2019
ACCOUNTS
AS OF 31 DECEMBER 2018
ZONGSHEN PIAGGIO FOSHAN MOTORCYCLE CO. LTD
45% * 45% *
Working capital 9,327 4,198 6,647 2,991
Net financial debt 4,052 1,823 667 300
Total assets 10,034 4,515 14,507 6,528
Net capital employed 23,413 10,536 21,821 9,819
Provisions 248 112 209 94
Net financial debt 0 0 0 0
Shareholders' equity 23,165 10,424 21,611 9,725
Total sources of financing 23,413 10,536 21,821 9,819
* Group ownership
Shareholders' equity attributable to the Group 10,424 9,725
Elimination of margins on internal transactions (1,671) (1,939)
Value of the investment 8,753 7,786
IN THOUSANDS OF EUROS
RECONCILIATION OF SHAREHOLDERS' EQUITY
Opening balance as of 1 January 2019 7,786
Profit (Loss) for the period 638
Statement of Comprehensive Income 61
Elimination of margins on internal transactions 268
Closing balance as of 31 December 2019 8,753

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Investments in associates ¤/000 157

This item comprises:

IN THOUSANDS OF EUROS CARRYING AMOUNT AS
OF 31 DECEMBER 2018
ADJUSTMENT CARRYING AMOUNT AS
OF 31 DECEMBER 2019
ASSOCIATES
Immsi Audit S.c.a.r.l. 10 10
S.A.T. S.A. – Tunisia 0 0
Depuradora D'Aigues de Martorelles 27 (4) 23
Pontech Soc. Cons. a.r.l. – Pontedera 111 13 124
Total associates 148 9 157

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

40. Other current and non-current financial assets ¤/000 7,301

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS
Fair Value of hedging derivatives 3,789 3,475 7,264 2,805 5,992 8,797 984 (2,517) (1,533)
Investments in other companies 37 37 37 37 0 0 0
Total 3,789 3,512 7,301 2,805 6,029 8,834 984 (2,517) (1,533)

The item Fair Value derivatives includes the fair value measurement of the Cross Currency Swap on the private debenture loan. For more details see section 44 "Financial risks" of the Notes.

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

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
OTHER COMPANIES
A.N.C.M.A. – Rome 2 2 0
ECOFOR SERVICE S.p.A. – Pontedera 2 2 0
Consorzio Fiat Media Center – Turin 3 3 0
S.C.P.S.T.V. 21 21 0
IVM 9 9 0
Total other companies 37 37 0

41. Cash and cash equivalents ¤/000 190,746

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

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Bank and postal deposits 128,565 131,282 (2,717)
Cheques 18 18
Cash on hand 47 62 (15)
Securities 62,116 57,396 4,720
Total 190,746 188,740 2,006

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

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

Reconciliation of cash and cash equivalents recognised in the statement of financial position as assets with cash and cash equivalents recognised in the Statement of Cash Flows

The table below reconciles the amount of cash and cash equivalents above with cash and cash equivalents recognised in the Statement of Cash Flows.

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Liquidity 190,746 188,740 2,006
Current account overdrafts (18) (354) 336
Closing balance 190,728 188,386 2,342

42. Current and non-current financial liabilities and financial liabilities for rights of use ¤/000 627,024

In 2019, the Group's overall debt increased slightly (+ ¤/000 1,024), despite the recognition of payables for rights of use (¤/000 20,38136 as of 31 December 2019) under financial liabilities in the financial statements as from 1 January 2019, following the adoption of the new accounting standard IFRS 16; reference is made to the relative effects in the section "New accounting standards, amendments and interpretations adopted from 1 January 2019". Net of this change and the fair value measurement of financial derivatives to hedge the exchange risk and interest rate risk, and the adjustment of the related hedged items, as of 31 December 2019 total financial debt of the Group had decreased by ¤/000 25,876. Moreover, the adoption of a new dividend distribution policy starting from 2019, with the distribution of an interim dividend during the year (rather than a single dividend), led to an advance outflow of ¤/000 19,650.

IN THOUSANDS OF EUROS FINANCIAL LIABILITIES
AS OF 31 DECEMBER 2019
FINANCIAL LIABILITIES
AS OF 31 DECEMBER 2018
CHANGE
CURRENT NON
CURRENT
TOTAL CURRENT NON
CURRENT
TOTAL CURRENT NON
CURRENT
TOTAL
Financial liabilities 135,033 463,587 598,620 113,502 512,498 626,000 21,531 (48,911) (27,380)
Gross financial debt 131,768 460,318 592,086 110,939 507,023 617,962 20,829 (46,705) (25,876)
Fair value adjustment 3,265 3,269 6,534 2,563 5,475 8,038 702 (2,206) (1,504)
Financial liabilities for rights of use 8,408 19,996 28,404 0 0 0 8,408 19,996 28,404
Total 143,441 483,583 627,024 113,502 512,498 626,000 29,939 (28,915) 1,024

Net financial debt of the Group amounted to ¤/000 429,744 as of 31 December 2019 compared to ¤/000 429,222 as of 31 December 2018.

36 The amount of ¤/000 28,404 indicated in the next table comprises ¤/000 20,381 previously not recognised in the financial statements, but indicated under commitments, and ¤/000 8,023 previously recognised under gross financial liabilities, as this item refers to payables for finance leases.

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Liquidity 190,746 188,740 2,006
Securities 0
Current financial receivables 0 0 0
Payables due to banks (81,032) (47,033) (33,999)
Current portion of bank loans (29,724) (42,708) 12,984
Debenture loan (11,022) (10,325) (697)
Amounts due to factoring companies (9,946) (9,291) (655)
Amounts due under leases (1,237) 1,237
Financial liabilities for rights of use (8,408) (8,408)
of which amounts due under finance leases (1,161) (1,161)
of which amounts due under operating leases (7,247) (7,247)
Current portion of payables due to other lenders (44) (345) 301
Current financial debt (140,176) (110,939) (29,237)
Net current financial debt 50,570 77,801 (27,231)
Payables due to banks and lenders (178,092) (207,239) 29,147
Debenture loan (282,099) (291,694) 9,595
Amounts due under leases (7,930) 7,930
Financial liabilities for rights of use (19,996) (19,996)
of which amounts due under finance leases (6,862) (6,862)
of which amounts due under operating leases (13,134) (13,134)
Amounts due to other lenders (127) (160) 33
Non-current financial debt (480,314) (507,023) 26,709
Net Financial Debt36 (429,744) (429,222) (522)
Effect of the adoption of IFRS 16 (20,381) 0 (20,381)

The tables above and below show payables for finance leases, and payables for operating leases, on separate rows, for an easier understanding. Both types of payable are combined under the item liabilities for rights of use, as required by IFRS 16, adopted from 1 January 2019. As of 31 December 2018, payables for finance leases were recognised under the item "Financial liabilities".

The tables below analyse the movements of the net financial position year on year.

36 Pursuant to Consob Communication of 28 July 2006 and in compliance with the recommendation of the CESR of 10 February 2005 "Recommendation for the consistent implementation of the European Commission's Regulation on Prospectuses". The indicator does not include financial assets and liabilities arising from the fair value measurement of financial derivatives for hedging and otherwise, the fair value adjustment of relative hedged items equal to ¤/000 6,534 and relative accruals.

Consolidated Financial Statements as of 31 December 2019 Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position

Attachments

Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity

Notes to the Consolidated Financial Statements

IN THOUSANDS OF EUROS CASH FLOWS CASH FLOWS
BALANCE
AS OF
31.12.2017
MOVEMEN
TS
REPAY-
MENTS
NEW ISSUES RECLASSIFI-
CATIONS
EXCHAN-
GE DELTA
OTHER
CHANGES
BALANCE
AS OF
31.12.2018
MOVE
MENTS
REPAY-
MENTS
NEW
ISSUES
FICATIONS EXCHANGE
RECLASSI-
DELTA OTHER
CHANGES
BALANCE
AS OF
31.12.2019
Liquidity 128,067 60,671 2 188,740 1,090 916 190,746
Securities 0 0
Current financial receivables 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Current account overdrafts (173) (181) (354) 354 (18) (18)
Current account payables (59,520) 27,965 (13,486) (1,638) (46,679) 19,397 (53,135) (597) (81,014)
Current portion of medium-/
long-term bank loans
(49,994) 52,062 (1,400) (42,760) (302) (314) (42,708) 42,835 (29,769) (75) (7) (29,724)
Total current bank loans (109,687) 0 80,027 (15,067) (42,760) (1,940) (314) (89,741) 0 62,586 (53,153) (29,769) (672) (7) (110,756)
Debenture loan (9,625) 9,669 (10,359) (10) (10,325) 10,360 (11,050) (7) (11,022)
Amounts due to factoring
companies
(14,613) 5,322 (9,291) 9,291 (9,946) (9,946)
Amounts due under
finance leases
(1,144) 1,145 (1,238) (1,237) 1,237 0
Liabilities for rights of use 0 0 0 0 8,557 (16,964) (1) (8,408)
of which amounts due
under finance leases
0 1,257 (2,417) (1) (1,161)
of which amounts due
under operating leases
0 7,300 (14,547) (7,247)
Current portion of payables
due to other lenders
(331) 325 (345) 6 (345) 334 (33) (44)
Current financial debt (135,400) 0 96,488 (15,067) (54,702) (1,934) (324) (110,939) 0 91,128 (63,099) (56,579) (672) (15) (140,176)
Net current financial debt (7,333) 60,671 96,488 (15,067) (54,702) (1,932) (324) 77,801 1,090 91,128 (63,099) (56,579) 244 (15) 50,570
Medium-/long-term
bank loans
(125,259) 25,000 (151,100) 42,760 (256) 1,616 (207,239) 29,769 (110) (512) (178,092)
Debenture loan (304,592) 168,497 (168,497) 10,359 2,539 (291,694) 11,050 (1,455) (282,099)
Amounts due under
finance leases
(9,168) 1,238 (7,930) 7,930 0
Liabilities for rights of use 0 0 0 0 7,797 (230) (27,563) (19,996)
of which amounts due
under finance leases
0 (6,750) (112) (6,862)
of which amounts due
under operating leases
0 14,547 (230) (27,451) (13,134)
Amounts due to other
lenders
(344) (162) 345 1 (160) 33 (127)
Non-current financial debt (439,363) 0 193,497 (319,759) 54,702 (255) 4,155 (507,023) 0 0 0 56,579 (340) (29,530) (480,314)
NET FINANCIAL DEBT (446,696) 60,671 289,985 (334,826) 0 (2,187) 3,831 (429,222) 1,090 91,128 (63,099) 0 (96) (29,545) (429,744)
of which the effect
of IFRS 16
7,300 (230) (27,451) (20,381)

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Financial liabilities ¤/000 592,086

Financial liabilities are broken down as follows:

IN THOUSANDS OF EUROS ACCOUNTING
BALANCE
AS OF 31.12.2019
ACCOUNTING
BALANCE
AS OF 31.12.2018
NOMINAL
VALUE
AS OF 31.12.2019
NOMINAL
VALUE
AS OF 31.12.2018
Bank loans 288,848 296,980 290,165 298,815
Bonds 293,121 302,019 302,101 312,460
Other loans:
of which leases 9,167 9,178
of which amounts due to other lenders 10,117 9,796 10,117 9,796
Total other loans 10,117 18,963 10,117 18,974
Total 592,086 617,962 602,383 630,249
IN THOUSANDS OF EUROS ACCOUNTING
BALANCE AS OF
31.12.2019
ACCOUNTING
BALANCE AS OF
31.12.2018
CHANGE
Current financial debt 131,768 110,939 20,829
Non-current financial debt 460,318 507,023 (46,705)
Financial debt 592,086 617,962 (25,876)
Gross debt, fixed rate 329,313 359,658 (30,345)
Gross debt, variable rate 262,773 258,304 4,469
Financial debt 592,086 617,962 (25,876)

The table below shows the repayment schedule as of 31 December 2019:

IN THOUSANDS OF EUROS AMOUNTS FALLING DUE IN
NOMINAL
VALUE
AS OF
31.12.2019
AMOUNTS
FALLING
DUE
WITHIN 12
MONTHS
AMOUNTS
FALLING
DUE AFTER
12 MONTHS
2021 2022 2023 2024 AFTER
Bank loans 290,165 110,802 179,363 45,035 94,805 39,523
- including opening of credit
lines and bank overdrafts
81,032 81,032
- of which medium/long-term
bank loans
209,133 29,770 179,363 45,035 94,805 39,523
Bonds 302,101 11,050 291,051 11,051 30,000 250,000
Other loans 10,117 9,990 127 23 23 23 23 35
Total 602,383 131,842 470,541 56,109 124,828 39,546 23 250,035
IN THOUSANDS OF EUROS ACCOUNTING
BALANCE
ACCOUNTING
BALANCE
NOMINAL
VALUE
APPLICABLE
INTEREST RATE
AS OF 31.12.2018 AS OF 31.12.2019
Euro 561,509 555,601 565,898 2.62%
Indian Rupee 24 9 9 9.25%
Indonesian Rupiah 193 193 7.62%
US Dollar 14,410 17,091 17,091 3.03%
Vietnamese Dong 39,286 16,404 16,404 6.57%
Japanese Yen 2,733 2,788 2,788 2.60%
Total currencies other than euro 56,453 36,485 36,485
Total 617,962 592,086 602,383 2.74%

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

Medium and long-term bank debt amounts to ¤/000 207,816 (of which ¤/000 178,092 non-current and ¤/000 29,724 current) and consists of the following loans:

  • a ¤/000 39,940 medium-term loan (nominal value of ¤/000 40,000) from the European Investment Bank to finance Research & Development investments planned for the 2016-2018 period. The loan will mature in December 2023 and has a repayment schedule of 7 fixed-rate annual instalments. Contract terms require covenants (described below);
  • a ¤/000 116,326 loan (nominal value of ¤/000 117,500), a syndicate loan for a total of ¤/000 250,000 signed in June 2018 and comprising a ¤/000 187,500 four-year tranche (with a year's extension at the discretion of the borrower) as a revolving credit line (of which a nominal value of ¤/000 55,000 used as of 31 December 2019 ) and a tranche as a five-year loan with amortisation of ¤/000 62,500. Contract terms require covenants (described below);
  • a ¤/000 8,148 medium-term loan (nominal value of ¤/000 8,160) granted by UBI Banca. The loan will fall due on 30 June 2021 with a repayment schedule of quarterly instalments;
  • a ¤/000 17,961 medium-term loan (nominal value of ¤/000 18,000) granted by Banca Popolare Emilia Romagna. The loan will fall due on 1 December 2023 and has a repayment schedule of six-monthly instalments;
  • a ¤/000 6,820 loan from Banco BPM with a repayment schedule of six-monthly instalments and last payment in July 2022 (equal to ¤/000 6,820). This loan has an additional tranche of ¤/000 12,500 granted as a revolving credit line, entirely drawn as of 31 December 2019 (recognised under current account payables). Contract terms require covenants (described below);
  • a ¤/000 5,472 medium-term loan (nominal value of ¤/000 5,500) granted by Interbanca-Banca IFIS. The loan will fall due on 30 September 2022 and has a quarterly repayment schedule. Contract terms require covenants (described below);
  • a ¤/000 7,048 medium-term loan (nominal value of ¤/000 7,052) granted by Banca del Mezzogiorno, maturing on 2 January 2023 and with six-monthly repayment schedule. This loan has an additional tranche of ¤/000 20,000 granted as a revolving credit line, entirely drawn as of 31 December 2019 (recognised under current account payables). Contract terms require covenants (described below);
  • a ¤/000 5,961 medium-term loan for VND/000 153,473,465 granted by VietinBank to the affiliate Piaggio Vietnam (for a total amount of VND/000 414,000,000) to fund the Research & Development investment plan. The loan matures in June 2021, with a repayment schedule in 7 six-monthly instalments, starting from June 2018, with a fixed rate for the first year, followed by a variable rate;
  • a ¤/000 140 loan from Intesa SanPaolo granted pursuant to Italian Law no. 346/88 on subsidised applied research.

As of 31 December 2019, the loan of ¤/000 70,000 granted by the European Investment Bank on 4 July 2019 was not yet granted, as decided by the Parent Company under the contract flexibility granted (18-month period of use).

All the above financial liabilities are unsecured.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

The item Bonds for ¤/000 293,121 (nominal value of ¤/000 302,101) refers to:

  • a ¤/000 22,059 private debenture loan (nominal value of ¤/000 22,101), (US Private Placement) issued on 25 July 2011 for \$/000 75,000 wholly subscribed by an American institutional investor, payable in 5 annual portions from July 2017, with a semi-annual coupon. As of 31 December 2019, the fair value measurement of the debenture loan was equal to ¤/000 28,635 (the fair value is determined based on IFRS relative to fair value hedging). A Cross Currency Swap has been taken out on this debenture loan to hedge the exchange risk and interest rate risk;
  • ¤/000 29,915 (nominal value of ¤/000 30,000) for a five-year private debenture loan issued on 28 June 2017 and wholly subscribed by Fondo Sviluppo Export, the fund set up by SACE and managed by Amundi SGR. The issue has no specific rating or listing on a regulated market;
  • ¤/000 241,147 (nominal value of ¤/000 250,000) related to a high-yield debenture loan issued on 30 April 2018 for a nominal amount of ¤/000 250,000, maturing on 30 April 2025 and with a semi-annual coupon with fixed annual nominal rate of 3.625%. Standard & Poor's and Moody's assigned a BB- rating with a stable outlook and a Ba3 rating with a stable outlook respectively.

The company may repay in advance:

  • all or part of the amount of the high yield debenture loan issued on 30 April 2018, according to the conditions indicated in the indenture. The value of prepayment options was not deducted from the original contract, as these are considered as being closely related to the host instrument, as provided for by IAS 9 b4.3.5;
  • all or part of the amount of the private placement issued on 28 June 2017, according to the conditions indicated in the contract. The value of prepayment options was not deducted from the original contract, as these are considered as being closely related to the host instrument, as provided for by IFRS 9 b4.3.5.

Financial advances received from factoring companies and banks, on the sale of trade receivables with recourse, totalled ¤/000 9,946.

Medium-/long-term payables due to other lenders equal to ¤/000 171 of which ¤/000 127 due after the year and ¤/000 44 as the current portion, are detailed as follows:

– a loan for ¤/000 9 granted by BMW Finance for the purchase of cars;

– a subsidised loan for a total of ¤/000 162 from the Region of Tuscany, related to regulations on incentives for investments in research and development (non-current portion equal to ¤/000 127).

Covenants

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

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

The measurement of financial covenants and other contract commitments is monitored by the Group on an ongoing basis.

The high yield debenture loan issued by the company in April 2018 provide for compliance with covenants which are typical of international practice on the high yield market. In particular, the company must observe the EBITDA/Net borrowing costs index, based on the threshold established in the Prospectus, to increase financial debt defined during issue. In addition, the Prospectus includes some obligations for the issuer, which limit, inter alia, the capacity to:

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

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

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

Amortised Cost and Fair Value Measurement

All financial liabilities are measured in accordance with accounting standards and based on the amortised cost method (except for liabilities with hedging derivatives measured at Fair Value Through Profit & Loss, for which the same measurement criteria used for the derivative are applied). According to this criterion, the nominal amount of the liability is decreased by the amount of relative costs of issue and/or stipulation, in addition to any costs relating to refinancing of previous liabilities. The amortisation of these costs is determined on an effective interest rate basis, and namely the rate which discounts the future flows of interest payable and reimbursements of principle at the net carrying amount of the financial liability.

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

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

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

The table below shows the fair value of payables measured using the amortised cost method as of 31 December 2019:

IN THOUSANDS OF EUROS NOMINAL VALUE CARRYING AMOUNT FAIR VALUE 37
High yield debenture loan 250,000 241,147 264,388
Private debenture loan 2021 22,101 22,059 21,436
Private debenture loan 2022 30,000 29,915 30,629
EIB (R&D loan 2016-2018) 40,000 39,940 39,701
Loan from B. Pop. Emilia Romagna 18,000 17,961 17,753
Loan from Banco BPM 6,820 6,820 7,204
Revolving syndicated loan 55,000 54,163 54,792
Syndicated loan maturing in 2023 62,500 62,163 62,245
Loan from UBI 8,160 8,148 8,145
Loan from MCC 7,052 7,048 7,011
Loan from Banca IFIS 5,500 5,472 5,648
VietinBank medium-term loan 5,961 5,961 5,930

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

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Fair value hierarchy

The table below shows the assets and liabilities measured and recognised at fair value as of 31 December 2019, by hierarchical level of fair value measurement.

IN THOUSANDS OF EUROS LEVEL 1 LEVEL 2 LEVEL 3
ASSETS MEASURED AT FAIR VALUE
Investment Property 9,203
Financial derivatives:
- of which financial assets 6,946
- of which other receivables 123
Investments in other companies 37
Total assets 7,069 9,240
LIABILITIES MEASURED AT FAIR VALUE
Financial derivatives
- of which financial liabilities
- of which other payables (46)
Financial liabilities at fair value recognised through profit or loss (28,635)
Total liabilities (28,681)
General total (21,612) 9,240

Investment property relative to the Martorelles site was measured as hierarchical level 3. This value was confirmed by a specific valuation of an independent expert, who measured the "Fair value less cost of disposal" based on a market approach (as provided for by IFRS 13). The valuation took account of comparable transactions on the local market, and the project to convert the area (from an industrial to a commercial site, as approved by the local authorities on 18 February 2014), referring however the value of the investment to its current status. Consequently, an accompanying 10% increase or decrease in all the variables based on the valuation of the investment would have generated a higher value of around ¤/000 2,500 and a lower value of ¤/000 2,600, with an equivalent greater or lesser impact on the income statement for the period.

The following tables show Level 2 and Level 3 changes during 2019:

IN THOUSANDS OF EUROS LEVEL 2
Balance as of 31 December 2018 (31,714)
Gain (loss) recognised in profit or loss (347)
Gain (loss) recognised in the statement of comprehensive income 89
(Increases)/Decreases 10,360
Balance as of 31 December 2019 (21,612)
LEVEL 3
Balance as of 31 December 2018 10,306
Gain (loss) recognised in profit or loss (1,066)
Increases/(Decreases)
Balance as of 31 December 2019 9,240

Financial liabilities for rights of use ¤/000 28,404

As required by IFRS 16, financial payables for rights of use include both finance lease liabilities, which up until 31 December 2018 had been included under financial liabilities, and payments due of operating lease agreements, previously recognised as off-balance sheet guarantees.

IN THOUSANDS OF EUROS AMOUNTS FALLING DUE IN
CARRYING
AMOUNT
AS OF
31.12.2019
AMOUNTS
FALLING
DUE
WITHIN 12
MONTHS
AMOUNTS
FALLING
DUE AFTER
12 MONTHS
2021 2022 2023 2024 OLTRE
Rights of use
- of which operating leases 20,381 7,247 13,134 5,003 3,986 2,557 921 668
- of which finance leases 8,023 1,161 6,862 1,180 1,199 1,218 1,267 1,998
Total 28,404 8,408 19,996 6,183 5,185 3,775 2,188 2,666

The table below shows the repayment schedule as of 31 December 2019:

Payables for finance leases, already recognised as of 31 December 2018 according to IAS 17, were equal to ¤/000 8,023 (nominal value of ¤/000 8,033) and are broken down as follows:

– a Sale&Lease back agreement for ¤/000 7,930 (nominal value of ¤/000 7,940) granted by Albaleasing on a production plant of the Parent Company. The agreement is for ten years, with quarterly repayments (non-current portion equal to ¤/000 6,781);

– a finance lease for ¤/000 93 granted by VFS Servizi Finanziari to the company Aprilia Racing for the use of vehicles (non-current portion equal to ¤/000 81).

Payables for rights of use include payables with the parent companies Immsi and Omniaholding for ¤/000 6,132 (¤/000 4,579 non-current portion).

F) MANAGEMENT OF FINANCIAL RISK

This section describes all financial risks to which the Group is exposed and how these risks could affect future results.

43. Credit risk

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

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018
Liquid assets 128,565 131,282
Securities 62,116 57,396
Financial receivables 7,301 8,834
Other receivables 45,344 50,132
Tax receivables 32,652 24,767
Trade receivables 78,195 86,557
Total 354,173 358,968

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

44. Financial risks

The financial risks the Group is exposed to are liquidity risk, exchange risk, interest rate risk and credit risk. The management of these risks, in order to reduce management costs and dedicated resources, is centralised and treasury operations take place in accordance with formal policies and guidelines which are applicable to all Group companies.

Liquidity risk and capitals management

The liquidity risk arises from the possibility that available financial resources are not sufficient to cover, in due times and procedures, future payments arising from financial and/or commercial obligations. To deal with these risks, cash flows and the Group's credit line needs are monitored or managed centrally under the control of the Group's Treasury in order to guarantee an effective and efficient management of the financial resources as well as optimise the debt's maturity standpoint.

In addition, the Parent Company finances the temporary cash requirements of Group companies by providing direct short-term loans regulated in market conditions or guarantees. A cash pooling zero balance system is used between the Parent Company and European companies to reset the receivable and payable balances of subsidiaries on a daily basis, for a more effective and efficient management of liquidity in the Eurozone.

As of 31 December 2019 the most important sources of financing irrevocable until maturity granted to the Parent Company were as follows:

  • a debenture loan of ¤/000 250,000 maturing in April 2025;
  • a debenture loan of \$/000 32,000 maturing in July 2021;
  • a debenture loan of ¤/000 30,000 maturing in June 2022;
  • a credit line of ¤/000 250,000 comprising a Revolving Credit Facility of ¤/000 187,500 maturing in July 2022 and a loan of ¤/000 62,500 maturing in July 2023;
  • Revolving credit facilities for a total of ¤/000 32,500, with final settlement in July 2022;
  • loans for a total of ¤/000 155,834, with final settlement in 2027.

Other Group companies also have irrevocable loans totalling ¤/000 19,322 with final settlement in September 2022.

As of 31 December 2019, the Group had a liquidity of ¤/000 190,746, ¤/000 215,813 of undrawn credit lines irrevocable to maturity and ¤/000 147,263 of revocable credit lines, as detailed below:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018
Variable rate with maturity within one year - irrevocable until maturity
Variable rate with maturity after one year - irrevocable until maturity 215,813 165,000
Variable rate with maturity within one year - cash revocable 128,263 126,225
Variable rate with maturity within one year - with revocation for self-liquidating typologies 19,000 19,000
Total undrawn credit lines 363,076 310,225

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

IN THOUSANDS WITHIN BETWEEN BETWEEN OVER TOTAL AS OF
OF EUROS 30 DAYS 31 AND 60 DAYS 61 AND 90 DAYS 90 DAYS 31 DECEMBER 2019
Trade payables 284,459 105,159 13,583 75,487 478,688

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

Exchange Risk

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

This policy analyses:

  • the transaction exchange risk: the policy wholly covers this risk which arises from differences between the recognition exchange rate of receivables or payables in foreign currency in the financial statements and the recognition exchange rate of actual collection or payment. To cover this type of exchange risk, the exposure is naturally offset in the first place (netting between sales and purchases in the same currency) and if necessary, by signing currency future derivatives, as well as advances of receivables denominated in currency;
  • the translation exchange risk: arises from the translation into euro of the financial statements of subsidiaries prepared in currencies other than the euro during consolidation. The policy adopted by the Group does not require this type of exposure to be covered;
  • the economic exchange risk: arises from changes in company profitability in relation to annual figures planned in the economic budget on the basis of a reference change (the "budget change") and is covered by derivatives. The items of these hedging operations are therefore represented by foreign costs and revenues forecast by the sales and purchases budget. The total of forecast costs and revenues is processed monthly and relative hedging is positioned exactly on the average weighted date of the economic event, recalculated based on historical criteria. The economic occurrence of future receivables and payables will occur during the budget year.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Cash flow hedging

As of 31 December 2019, the Group had undertaken the following futures transactions (recognised based on the regulation date) relative to payables and receivables already recognised to hedge the transaction exchange risk:

COMPANY OPERATION CURRENCY
FORWARD
EXCHANGE
RATE
AMOUNT
IN CURRENCY
VALUE IN LOCAL
CURRENCY
(FORWARD
EXCHANGE RATE)
AVERAGE
MATURITY
IN THOUSANDS IN THOUSANDS
Piaggio & C. Purchase CAD 200 137 31/01/2020
Piaggio & C. Purchase CNY 47,000 6,015 07/02/2020
Piaggio & C. Purchase JPY 220,000 1,832 08/02/2020
Piaggio & C. Purchase SEK 4,500 424 03/01/2020
Piaggio & C. Purchase USD 12,000 10,809 13/02/2020
Piaggio & C. Sale SEK 2,000 191 03/01/2020
Piaggio & C. Sale USD 56,650 50,778 19/03/2020
Piaggio Vietnam Purchase ¤ 4,500 116,550,500 08/02/2020
Piaggio Vietnam Sale USD 18,000 419,613,000 05/02/2020
Piaggio Vespa BV Sale GBP 361 423 25/03/2020
Piaggio Vespa BV Sale SGD 800 528 25/03/2020
Piaggio Vespa BV Sale USD 9,850 8,714 21/04/2020
Piaggio Vehicles Private
Limited
Sale USD 7,667 548,684 03/02/2020
Piaggio Vehicles Private
Limited
Sale ¤ 5,182 416,278 01/03/2020

As of 31 December 2019, the Group had undertaken the following transactions to hedge the business exchange risk:

COMPANY OPERATION CURRENCY AMOUNT
IN CURRENCY
VALUE IN LOCAL
CURRENCY
(FORWARD
EXCHANGE RATE)
AVERAGE
MATURITY
IN THOUSANDS IN THOUSANDS
Piaggio & C. Purchase CNY 211,000 26,494 05/07/2020
Piaggio & C. Sale GBP 11,550 13,496 06/07/2020

To hedge the economic exchange risk alone, cash flow hedging is adopted with the effective portion of profits and losses recognised in a specific shareholders' equity reserve. Fair value is determined based on market quotations provided by main traders.

As of 31 December 2019, the total fair value of hedging instruments for exchange risk recognised on an hedge accounting basis was positive by ¤/000 78. During 2019, gains were recognised in other components of the Statement of Comprehensive Income for ¤/000 78 and gains from other components of the Statement of Comprehensive Income were reclassified to profit/loss for the year for ¤/000 89.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

The net balance of cash flows during 2019 is shown below, divided by main currency:

IN MILLIONS OF EUROS CASH FLOW 2019
Canadian Dollar 7.0
Pound Sterling 17.8
Swedish Krone 4.3
Japanese Yen (3.6)
US Dollar 57.9
Indian Rupee (14.2)
Chinese Yuan38 (55.1)
Vietnamese Dong (53.9)
Singapore dollar (2.5)
Indonesian Rupiah 32.4
Total cash flow in foreign currency (9.9)

In view of the above, an assumed appreciation/deprecation of 3% of the euro would have generated potential profits for ¤/000 288 and potential losses for ¤/000 306 respectively.

Interest rate risk

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

As of 31 December 2019, the following hedging derivatives were in use:

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

– a Cross Currency Swap to hedge the private debenture loan issued by the Parent Company for a nominal amount of \$/000 32,000. The purpose of the instrument is to hedge both the exchange risk and interest rate risk, turning the loan from US dollars to euro, and from a fixed rate to a variable rate; the instrument is accounted for on a fair value hedge basis, with effects arising from the measurement recognised in profit or loss. As of 31 December 2019, the fair value of the instrument was equal to ¤/000 6,946. The net economic effect arising from the measurement of the instrument and underlying private debenture loan was equal to ¤/000 -347; sensitivity analysis of the instrument and its underlying, assuming a 1% increase and decrease in the shift of the variable rates curve, showed a potential impact on the Income Statement, net of the related tax effect, of ¤/000 8 and ¤/000 -8 respectively, assuming constant exchange rates; whereas assuming a 1% reversal and write-down of exchange rates, sensitivity analysis identified a potential impact on the income statement, net of the relative tax effect, of ¤/000 -6 and ¤/000 6 respectively.

IN THOUSANDS OF EUROS FAIR VALUE
PIAGGIO & C. S.P.A.
Cross Currency Swap 6,946

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

G) INFORMATION ON SHAREHOLDERS' EQUITY

45. Share capital and reserves ¤/000 383,807

Share capital ¤/000 207,614

During the period, the nominal share capital of Piaggio & C. did not change.

The structure of Piaggio & C's share capital, equal to ¤207,613,944.37, fully subscribed and paid up, is indicated in the next table:

STRUCTURE OF SHARE CAPITAL AS OF 31 DECEMBER 2019

NO. OF SHARES % COMPARED
TO THE SHARE
CAPITAL
MARKET
LISTING
RIGHTS
AND
OBLIGATIONS
Ordinary shares 358,153,644 100% Electronic stock
market
Right to vote in
the Ordinary and
Extraordinary Sha
reholders' Meetings
of the Company

The Share of the Company are without par value, are indivisible, registered and issued on a dematerialisation basis, in the centralised management system of Monte Titoli S.p.A..

At the date of these financial statements, no other financial instruments with the right to subscribe to new issue shares had been issued, nor were there share based incentive plans in place involving increases, also without a consideration, in share capital.

Treasury shares ¤/000 (1,749)

During the period, 105,000 treasury shares were acquired. Therefore, as of 31 December 2019, Piaggio & C. held 898,818 treasury shares, equal to 0.251% of the shares issued.

SHARES IN CIRCULATION AND TREASURY SHARES

NO. OF SHARES 2018
Situation as of 1 January
Shares issued 358,153,644 358,153,644
Treasury portfolio shares 793,818 0
Shares in circulation 357,359,826 358,153,644
Movements for the period
Purchase of treasury shares 105,000 793,818
Situation as of 31 December
Shares issued 358,153,644 358,153,644
Treasury portfolio shares 898,818 793,818
Shares in circulation 357,254,826 357,359,826

Share premium reserve ¤/000 7,171

The share premium reserve as of 31 December 2019 was unchanged compared to 31 December 2018.

Legal reserve ¤/000 21,904

The legal reserve as of 31 December 2019 had increased by ¤/000 1,779 as a result of the allocation of earnings for the previous year.

186 PIAGGIO GROUP

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Financial instruments' fair value reserve ¤/000 (29)

The financial instruments fair value reserve is negative and refers to the effects of cash flow hedge accounting in foreign currencies, interest and specific business transactions. These transactions are described in full in the note on financial instruments.

Dividends ¤/000 51,805

The Shareholders' Meeting of Piaggio & C. S.p.A. of 12 April 2019 resolved to distribute a dividend of 9.0 eurocents per ordinary share. During April this year, therefore, dividends were distributed to a total value of ¤/000 32,155. During 2018, dividends totalling ¤/000 19,698 were paid.

In the meeting of 26 July 2019, the Board of Directors approved a new policy to distribute dividends with the distribution of an interim dividend during the year (rather than a single distribution), to align with other international companies in the two-wheeler sector, also with the aim of optimising cash flow management, considering the seasonal nature of the business. The Board of Directors, having approved the Interim Financial Statements at 30 June 2019 and Directors' Report pursuant to Article 2344-bis of the Civil Code, therefore resolved to allocate an interim dividend for 2019 equal to 5.5 eurocents, including taxes, for each entitled ordinary share (against a dividend of 9 eurocents resolved for all of 2018), for a total amount of ¤/000 19,650.

TOTAL AMOUNT DIVIDEND PER SHARE
2019 2018 2019 2018
¤/000 ¤/000 ¤ ¤
Of the previous year's result 32,155 19,698 0.090 0.055
Interim dividend on 2019 result 19,650 0.055

Earnings reserve ¤/000 192,525

Capital and reserves of non-controlling interest ¤/000 (208)

The end of period figures refer to non-controlling interests in Aprilia Brasil Industria de Motociclos S.A.

46. Other components of the Statement of Comprehensive Income ¤/000 (2,654)

The figure is broken down as follows:

RESERVE FOR
MEASUREMENT
OF FINANCIAL
INSTRUMENTS
GROUP
TRANSLATION
RESERVE
EARNINGS
RESERVE
GROUP TOTAL SHARE CAPITAL
AND RESERVES
ATTRIBUTABLE
TO NON-CON
TROLLING
INTERESTS
TOTAL OTHER
COMPONEN
TS OF THE
STATEMENT OF
COMPREHENSI
VE INCOME
IN THOUSANDS OF EUROS
As of 31 December 2019
Items that will not be reclassified in
the income statement
Remeasurements of defined benefit
plans
(2,453) (2,453) (2,453)
Total 0 0 (2,453) (2,453) 0 (2,453)
Items that may be reclassified in
the income statement
Total translation gains (losses) (350) (350) 3 (347)
Portion of components of the
Statement of Comprehensive
Income of subsidiaries/associates
valued with the equity method
61 61 61
Total profits (losses) on cash flow
hedges
85 85 85
Total 85 (289) 0 (204) 3 (201)
Other components of the Statement
of Comprehensive Income
85 (289) (2,453) (2,657) 3 (2,654)
As of 31 December 2018
Items that will not be reclassified in
the income statement
Remeasurements of defined benefit
plans
(1,019) (1,019) (1,019)
Total 0 0 (1,019) (1,019) 0 (1,019)
Items that may be reclassified in
the income statement
Total translation gains (losses) (3,052) (3,052) 25 (3,027)
Portion of components of the
Statement of Comprehensive
Income of subsidiaries/associates
valued with the equity method
(88) (88) (88)
Total profits (losses) on cash flow
hedges
206 206 206
Total 206 (3,140) 0 (2,934) 25 (2,909)
Other components of the Statement
of Comprehensive Income
206 (3,140) (1,019) (3,953) 25 (3,928)

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

AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018
GROSS
VALUE
TAX
(EXPENSE) /
BENEFIT
NET
VALUE
GROSS
VALUE
TAX
(EXPENSE) /
BENEFIT
NET
VALUE
IN THOUSANDS OF EUROS
Remeasurements of defined
benefit plans
(3,135) 682 (2,453) (1,273) 254 (1,019)
Total translation gains
(losses)
(347) (347) (3,027) (3,027)
Portion of components
of the Statement of
Comprehensive Income
of subsidiaries/associates
valued with the equity
method
61 61 (88) (88)
Total profits (losses) on
cash flow hedges
112 (27) 85 271 (65) 206
Other components
of the Statement of
Comprehensive Income
(3,309) 655 (2,654) (4,117) 189 (3,928)

H) OTHER INFORMATION

47. Share-based incentive plans

As of 31 December 2019, there were no incentive plans based on financial instruments.

48. Fees for Directors, Statutory Auditors and Key Managers

For a complete description and analysis of fees of Directors and Statutory Auditors, reference is made to the remuneration report available from the registered office, and on the Company's website in the section "Governance". At present, the Company has not identified any Key Senior Managers.

IN THOUSANDS OF EUROS 2019
Directors 2,405
Statutory auditors 180
Total fees 2,585

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

49. Information on related parties

Revenues, costs, payables and receivables as of 31 December 2019 involving parent companies, subsidiaries and affiliated companies refer to the sale of goods or services which are a part of normal operations of the Group. Transactions are carried out at normal market values, depending on the characteristics of the goods and services provided.

Information on transactions with related parties, including information required by Consob in its communication of 28 July 2006 no. DEM/6064293, is reported below.

The procedure for transactions with related parties, pursuant to Article 4 of Consob Regulation no. 17221 of 12 March 2010 as amended, approved by the Board on 30 September 2010, is published on the institutional site of the Issuer , under Governance.

Relations with Parent Companies

Piaggio & C. S.p.A. is controlled by the following companies:

% OF OWNERSHIP
DESIGNATION REGISTERED OFFICE TYPE AS OF 31 DECEMBER
2019
AS OF 31 DECEMBER
2018
IMMSI S.p.A. Mantova - Italy Direct parent company 50.0703 50.6287
Omniaholding S.p.A. Mantova - Italy Final parent company 0.0215 0.0215

Piaggio & C. S.p.A. is subject to the management and coordination of IMMSI S.p.A. pursuant to Article 2497 and subsequent of the Italian Civil Code. During the period, management and coordination comprised the following activities:

  • as regards mandatory financial disclosure, and in particular the financial statements and reports on operations of the Group, IMMSI has produced a group manual containing the accounting standards adopted and options chosen for implementation, in order to give a consistent and fair view of the consolidated financial statements.
  • IMMSI has defined procedures and times for preparing the budget and in general the business plan of Group companies, as well as final management analysis to support management control activities.
  • IMMSI has also provided services for the development and management of Company assets, with a view to optimising resources within the Group, and provided property consultancy services and other administrative services.
  • IMMSI has provided consultancy services and assistance for the Company and subsidiaries concerning extraordinary financing operations, organisation, strategy and coordination, as well as services intended to optimise the financial structure of the Group.

In 2019, for a further three years, the Parent Company39 signed up to the National Consolidated Tax Mechanism pursuant to Articles 117 to 129 of the Consolidated Income Tax Act (T.U.I.R.) of which IMMSI S.p.A. is the consolidating company, and to whom other IMMSI Group companies report to. The consolidating company determines a single global income equal to the algebraic sum of taxable amounts (income or loss) realised by individual companies that opt for this type of group taxation.

The consolidating company recognises a receivable from the consolidated company which is equal to the corporate tax to be paid on the taxable income transferred by the latter. Whereas, in the case of companies reporting tax losses, the consolidating company recognises a payable related to corporate tax on the portion of loss actually used to determine global overall income or calculated as a decrease of overall income for future tax periods, according to procedures in Article 84, based on the criterion established by the consolidation agreement.

Moreover, under the National Consolidated Tax Mechanism, companies may, pursuant to Article 96 of Presidential Decree 917/86, allocate the excess of interest payable which is not deductible to one of the companies so that, up to the excess of Gross Operating Income produced in the same tax period by other subjects party to the consolidation, the amount may be used to reduce the total income of the Group.

39 Aprilia Racing and Piaggio Concept Store Mantova were also party to the national consolidated tax convention, of which IMMSI S.p.A. is the consolidating company.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Piaggio & C. S.p.A. has two office lease agreements with IMMSI, one for property in Via Broletto 13 in Milan, and the other for property in Via Abruzzi 25 in Rome. A part of the property in Via Broletto 13 in Milan is sub-leased by Piaggio & C. S.p.A. to Piaggio Concept Store Mantova Srl.

Piaggio & C. S.p.A. has undertaken a rental agreement for offices owned by Omniaholding S.p.A.. This agreement, signed in normal market conditions, was previously approved by the Related Parties Transactions Committee, as provided for by the procedure for transactions with related parties adopted by the Company.

Piaggio Concept Store Mantova Srl has a lease contract for its sales premises and workshop with Omniaholding S.p.A.. This agreement was signed in normal market conditions.

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

Transactions with Piaggio Group companies

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

Piaggio & C. S.p.A.

– sells vehicles, spare parts and accessories to sell on respective markets, to:

  • Piaggio Hrvatska
  • Piaggio Hellas
  • Piaggio Group Americas
  • Piaggio Vehicles Private Limited
  • Piaggio Vietnam
  • Piaggio Concept Store Mantova

– sells components to:

  • Piaggio Vehicles Private Limited
  • Piaggio Vietnam

– grants licences for rights to use the brand and technological know how to:

  • Piaggio Vehicles Private Limited
  • Piaggio Vietnam

– provides support services for scooter and engine industrialisation to:

  • Piaggio Vehicles Private Limited
  • Piaggio Vietnam

– subleases a part of the rented property to:

• Piaggio Concept Store Mantova

– has cash pooling agreements with:

  • Piaggio France
  • Piaggio Deutschland
  • Piaggio España
  • Piaggio Vespa

– provides support services for staff functions to other Group companies;

– issues guarantees for the Group's subsidiaries, for medium-term loans.

Piaggio Vietnam sells vehicles, spare parts and accessories, which it has manufactured in some cases, for sale on respective markets, to:

  • Piaggio Indonesia
  • Piaggio Group Japan
  • Piaggio & C. S.p.A.
  • Foshan Piaggio Vehicles Technology R&D

Piaggio Vehicles Private Limited sells vehicles, spare parts and accessories, for sale on respective markets, and components and engines to use in manufacturing, to Piaggio & C. S.p.A..

Piaggio Vehicles Private Limited and Piaggio Vietnam reciprocally exchange materials and components to use in their manufacturing activities.

Piaggio Hrvatska, Piaggio Hellas, Piaggio Group Americas and Piaggio Vietnam – distribute vehicles, spare parts and accessories purchased by Piaggio & C. S.p.A. on their respective markets.

Piaggio Indonesia and Piaggio Group Japan

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

Piaggio France, Piaggio Deutschland, Piaggio Limited, Piaggio España and Piaggio Vespa – provide a sales promotion service and after-sales services to Piaggio & C. S.p.A. for their respective markets.

Piaggio Asia Pacific

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

Foshan Piaggio Vehicles Technology R&D provides to:

– Piaggio & C. S.p.A.:

  • component and vehicle design/development service;
  • scouting of local suppliers;

– Piaggio Vietnam:

  • scouting of local suppliers;
  • a distribution service for vehicles, spare parts and accessories on its own market.

Piaggio Advanced Design Center:

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

Aprilia Racing provides to Piaggio & C. :

  • a racing team management service;
  • vehicle design service.

Relations between Piaggio Group companies and JV Zongshen Piaggio Foshan Motorcycle Co. Ltd.

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

Piaggio & C. S.p.A.

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

Foshan Piaggio Vehicles Technology R&D

– sells vehicles to Zongshen Piaggio Foshan Motorcycle Co. Ltd. for sale on the Chinese market.

Zongshen Piaggio Foshan Motorcycle Co. Ltd

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

The table below summarises relations described above and financial relations with parent companies, subsidiaries and affiliated companies as of 31 December 2019 and relations during the year, as well as their overall impact on financial statement items.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

IN THOUSANDS OF EUROS
Income statement
FOSHAN PONTEDERA &
TECNOLOGIA
ITEM
Revenues from sales 112 112 0.01%
Costs for materials (14,377) (14,377) 1.55%
Costs for services (9) (755) (86) (1,253) (2,103) 0.94%
Insurance (33) (33) 0.72%
Leases and rentals (47) (44) (91) 0.85%
Other operating income 346 37 3 50 436 0.35%
Other operating costs (2) (1) (17) (20) 0.10%
Write-down/Impairment of
investments
906 13 919 89.22%
Financial income 21 21 0.60%
Borrowing costs (14) (193) (207) 0.73%
Taxes 6,121 6,121
Assets Other non-current receivables 81 81
0.59%
Current trade receivables 969 23 992 1.27%
Other current receivables 1,313 28 13,260 14,601 46.05%
Liabilities
Financial liabilities for rights of
use > 12 months
156 4,423 4,579 22.90%
Financial liabilities for rights of
use < 12 months
144 1,409 1,553 18.47%
Current trade payables 5,318 25 34
1
323 5,701 1.19%
Other current payables 9 3 11 23 0.05%
PIAGGIO GROUP

50. Contract commitments and guarantees

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

IN THOUSANDS OF EUROS IN 1 YEAR BETWEEN 2
AND 5 YEARS
AFTER 5 YEARS TOTAL
IAS 16 operating leases 2,807 679 1,657 5,143
Other commitments 8,154 1,586 1,744 11,484
Total 10,961 2,265 3,401 16,627

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

TYPE AMOUNT ¤/000
A guarantee of BCC-Fornacette issued to Pisa Customs Authorities for handling Piaggio goods at the Pisana
docks and at Livorno Port
200
Guarantee of BCC-Fornacette issued in favour of Poste Italiane – Rome to guarantee contract obligations for the
supply of vehicles
1,321
Guarantee of BCC-Fornacette issued in favour of Motoride Spa to reimburse VAT following the deductible tax
surplus
298
Guarantee of Banco di Brescia issued to the local authorities of Scorzè, to guarantee payment of urbanisation
and construction charges relative to the Scorzè site
166
Guarantee of Banca Intesa SanPaolo issued to the Ministry of the Interior of Algeria, to guarantee contract
obligations for the supply of vehicles
140
Guarantee of Banca Intesa SanPaolo issued to the Ministry of the Defence of Algeria, to guarantee contract
obligations for the supply of vehicles
158
Guarantee of Banca Nazionale del Lavoro issued in favour of Poste Italiane – Rome to guarantee contract
obligations for the supply of vehicles (5,000 tricycles)
475
Guarantee of Banca Nazionale del Lavoro issued in favour of Poste Italiane – Rome to guarantee contract
obligations for the supply of vehicles
469

51. Disputes

Canadian Scooter Corp. (CSC), sole distributor of Piaggio for Canada, summoned Piaggio & C. S.p.A., Piaggio Group Americas Inc. and Nacional Motor S.A to appear before the Court of Toronto (Canada) in August 2009 to obtain compensation for damages sustained due to the alleged infringement of regulations established by Canadian law on franchising (the Arthur Wishart Act). The proceedings have been suspended at present, as attempts at settlement are still pending, due to no action being taken by the other party. Piaggio is assessing the possibility of filing a petition for an "order to dismiss" the proceedings, due to inactivity.

In 2010, Piaggio took action to establish an arbitration board through the Arbitration Chamber of Milan, for a ruling against some companies of the Case New Holland Group (Italy, Netherlands and the USA), to recover damages under contractual and non-contractual liability relating to the execution of a supply and development contract of a new family of utility vehicles (NUV). In the award notified to the parties on 3 August 2012, the Board rejected the claims made by the Company. The Company appealed against this award before the Appeal Court of Milan, which established the first hearing for 4 June 2013. The hearing for closing arguments set for 12 January 2016 was adjourned to 26 January 2016. With the ruling of 8 June 2016, the Court of Appeal of Milan rejected Piaggio's appeal. The Company filed an appeal with the Court of Cassation.

Da Lio S.p.A., by means of a complaint received on 15 April 2009, summoned the Parent Company before the Court of Pisa to claim compensation for the alleged damages sustained for various reasons as a result of the termination of supply relationships. The Company appeared in court requesting the rejection of all opposing requests. Da Lio requested a joinder with the opposition concerning the injunction obtained by Piaggio to return the moulds retained by the supplier at the end of the supply agreement. Judgements were considered and a ruling issued pursuant to Article 186-ter of

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

the Italian Code of Civil Procedure, on 7 June 2011, ordering Piaggio to pay the sum of Euro 109,586.60, plus interest relative to sums which were not disputed. During 2012, testimonial evidence was presented. After reaching a decision at the end of testimonial evidence, the Judge admitted a technical/accounting court-appointed expert requested by Da Lio to quantify the amount of interest claimed by Da Lio and value of stock. The technical appraisal was completed at the end of 2014. The case was adjourned to 23 September 2016 for specification of the pleadings and a decision was reached. Subsequently, the Court of Pisa had to reassign the case, and after the interruption, the newly appointed Judge decided to re-examine the proceedings and has set the hearing for closing arguments. The parties submitted their closing arguments again, exchanging relative pleadings and answer briefs. In a ruling published on 8 August 2019, the Court of Pisa ordered Piaggio in the first instance to pay a total of ¤7,600,000 and to publish the ruling in two national newspapers and two specialist journals. Piaggio, assisted by its lawyers providing counsel in the appeal proceedings who had indicated the many reasons for filing an appeal and the grounds of the Company, filed an appeal before the Appeal Court of Florence, requesting the ruling to be revised and its enforcement to be suspended. The first hearing will take place on 20 December 2020. The risk was assessed as possible and not as likely.

In June 2011 Elma srl, a Piaggio dealer since 1995, started two separate proceedings against the Parent Company, claiming the payment of approximately ¤2 million for alleged breach of the sole agency ensured by Piaggio for the Rome area and an additional ¤5 million as damages for alleged breach and abuse of economic dependence by the Company. Piaggio opposed the proceedings undertaken by Elma, fully disputing its claims and requesting a ruling for Elma to settle outstanding sums owing of approximately ¤966,000.

During the case, Piaggio requested the enforcement of bank guarantees that ensured against the risk of default by the dealer issued in its favour by three banks. Elma attempted to stop enforcement of the guarantees with preventive proceedings at the Court of Pisa (Pontedera section): the proceedings ended in favour of Piaggio that collected the amounts of the guarantees (over ¤400,000). Trial proceedings took place and a hearing was held on 24 April 2013 to examine evidence. After reaching a decision at the aforesaid hearing, the Judge rejected requests for preliminary examination of Elma and set the hearing for 17 December 2015 for closing arguments, which was adjourned to 3 March 2016 and was then not held as the judge was transferred. The case was reassigned to a new Judge, who set the hearing for 19 July 2018, which was adjourned to 4 October 2018 and then to 10 January 2019. In the latter hearing, although the parties had already filed their closing arguments, the Judge adjourned the case, for closing arguments to be made, to the hearing of 9 April 2019. In ruling no. 1211/2019, published on 25 November 2019, the Court of Pisa ruled in favour of Piaggio. The Judge rejectedall claims made by Elma, ruling it to pay Piaggio the sum of ¤966,787.95 plus interest on arrears, deducting the amount of ¤419,874.14, already received by Piaggio through enforcing the guarantee. Piaggio will have to pay Elma (offsetting the amount) the sum of ¤58,313.42 plus legal interest. On 14 January 2020, Piaggio filed for bankruptcy against Elma, while on 15 January 2020 Elma filed an appeal with the Appeal Court of Florence, against the aforementioned ruling, summoning Piaggio to appear at the hearing of 28 April 2020.

As regards the matter, Elma has also brought a case legal action against a former senior manager of the Company before the Court of Rome, claiming compensation for damages: Piaggio appeared in the proceedings, requesting, among other things, that the case be moved to the Court of Pisa. At the hearing of 27 January 2014, the Judge ruled on the preliminary exceptions and did not admit preliminary briefs. The hearing for closing arguments set for 21 December 2015 and subsequently adjourned, was not held as the Judge, on petition of Elma, re-opened the preliminary investigation, admitting testimonial evidence and setting the hearing for 25 May 2016. On this date, examination of the witnesses began and the hearing was adjourned to 24 October 2016 to continue the preliminary investigation. The Judge set the hearing for 11 April 2017 to reach a settlement between the parties, which was not successful. The Judge therefore admitted an accounting expert requested by Elma, although with a far more limited scope than the petition filed by the opposing party, adjourning the case to the hearing of 9 October 2018 for closing arguments. The expert's appraisal was filed on October 2018. The parties exchanged their closing arguments and respective answer briefs. In a ruling of 31 May 2019 (published on 3 June 2019) the Ordinary Court of Rome, Civil Section XII, rejected the claim made by Elma S.r.l., also ordering it to pay the expert's fees and legal fees. Elma filed an appeal before the Appeal Court of Rome, summoning Piaggio to appear at the hearing of 15 April 2020.

In a complaint received on 29 May 2007, Gammamoto S.r.l. in liquidation, an Aprilia licensee in Rome, started a legal action against the Parent Company before the Court of Rome for contractual and non-contractual liability. The Company fully opposed the injunction disputing the validity of Gammamoto's claims and objecting to the lack of jurisdiction of the Judge in charge. The Judge, accepting the petition formulated by the Company, declared its lack of jurisdiction with regards to the dispute. Gammamoto has continued proceedings through the Court of Venice. The Judge admitted testimonial evidence and evidence for examination requested by the parties, establishing the hearing for the preliminary investigation on 12 November 2012. After defining the closing arguments of the hearing of 26 June 2013, the terms for

final statements and relative replies were granted, and the case was not ruled on. The Court of Venice issued a ruling in favour of Piaggio, filed on 17 February 2014. Gammamoto appealed and at the first hearing on 23 October 2014 the Court decided to rule without proceeding with the preliminary investigation requested by the opposing party, and in particular without ordering a technical appraisal.

In a ruling of 8 April 2019 (published on 12 June 2019), the Court of Appeal of Venice, Civil section III, rejected the appeal made by Gammamoto S.r.l. in liquidation, as it was without grounds, confirming the ruling of the first instance, and ordering Gammamoto to pay legal fees. The terms for filing an appeal with the Court of Cassation have expired. The proceedings are therefore closed.

The company TAIZHOU ZHONGNENG summoned Piaggio before the Court of Turin, requesting the annulment of the Italian part of the 3D trademark registered in Italy protecting the form of the Vespa, as well as a ruling denying the offence of the counterfeiting of the 3D trademark in relation to scooter models seized by the Guardia di Finanza (Italian tax police) at the 2013 EICMA trade show, based on the petition filed by Piaggio, in addition to compensation for damages. At the first hearing for the parties to appear, set for 4 February 2015 and adjourned to 5 February 2015, the Judge lifted reservations, arranging for a technical appraisal to establish the validity of the Vespa 3D trademark and the infringement or otherwise of Znen scooter models, setting the hearing for the court-appointed expert to be sworn in on 18 March 2015, which was adjourned to 29 May 2015. At that hearing, the Judge set the deadline for filing the final expert's appraisal for 10 January 2016, and the discussion hearing for 3 February 2016. During this hearing, the Judge, considering the preliminary investigation as completed, set the hearing for closing arguments for 26 October 2016. In a ruling of 6 April 2017, the Court of Turin upheld in full the validity of the 3D Vespa mark of Piaggio, and the counterfeiting of the same by the Znen "VES" scooter.

The Court of Turin also recognised the protection of Vespa in accordance with copyright, confirming the creative nature and artistic value of its form, declaring that the scooter "VES" by Znen infringes Piaggio copyright. The opposing party appealed against the sentence at the Appeal Court of Turin, where the first hearing took place on 24 January 2018. The case was adjourned to the hearing of 13 June 2018 for closing arguments, after which statements of defence and answer briefs were exchanged. The Court of Appeal of Turin rejected the appeal made by Zhongneng in a ruling published on 16 April 2019. The terms for filing an appeal with the Court of Cassation are pending.

In a writ of 27 October 2014 Piaggio summoned the companies PEUGEOT MOTOCYCLES ITALIA S.p.A., MOTORKIT s.a.s. di Turcato Bruno e C., GI.PI. MOTOR di Bastianello Attilio and GMR MOTOR s.r.l. before the Court of Milan to obtain the recall of Peugeot "Metropolis" motorcycles from the market, and to establish the infringement and counterfeiting of some European patents and designs owned by Piaggio, as well as a ruling for the compensation for damages for unfair competition, and the publication of the ruling in some newspapers.

In the hearing for the first appearance of 4 March 2015, the Judge set the deadline for filing pleadings pursuant to Article 183.6 of the Italian Code of Civil Procedure and appointed an expert witness.

The hearing for swearing in the expert took place on 6 October 2015. On 23 December 2016, the expert submitted his provisional report to the parties and the final report was filed on 2 May 2017. The Judge adjourned the case to the hearing of 28 February 2018 for closing arguments. At the hearing of 28 February 2018, the Judge ordered an addition to the expert's appraisal, filed on 20 June 2018 and set the deadlines for closing arguments and the exchange of final statements. The case is pending a decision.

Piaggio started a similar legal action against Peugeot Motocycles SAS before the Tribunal de Grande Instance in Paris. As a result of the Piaggio action ("Saisie Contrefaçon"), several documents were obtained by a bailiff and tests carried out to prove the infringement of the Piaggio MP3 motorcycle by the Peugeot "Metropolis" motorcycle. The hearing took place on 8 October 2015 for the appointment of the expert, who will examine the findings of the Saisie Contrefaçon. On 3 February 2016 the hearing took place to discuss the preliminary briefs exchanged between the parties. The hearing to assess preliminary findings, set for 29 September 2016, was adjourned to 9 February 2017 and then to 6 September 2017. In February 2018, a preliminary expert's appraisal was filed defining documents based on which a ruling will be made on the counterfeiting alleged by Piaggio. The hearing was held on 29 January 2019 and proceedings were adjourned to the hearing of 17 October 2019. Subsequently, the term deadline for filing briefs was extended.

PEUGEOT MOTOCYCLES SAS summoned Piaggio to appear before the Court of Milan, claiming that the patent based on which Piaggio filed a claim for counterfeiting would be voidable, due to a previously existing Japanese patent. Piaggio appeared in court, claiming that the action taken by Peugeot could not proceed further and that the patent application referred to by Peugeot was irrelevant. During the hearing of 20 February 2018, the Judge established the deadlines for filing preliminary briefs and the case was adjourned to the hearing of 22 May 2018, after which an expert's appraisal

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

was ordered, with the date of 15 January 2019 set for the filing. After the expert's appraisal was filed (confirming the validity of Piaggio's patent), and discussed during the hearing of 29 January 2019, the Judge requested further technical confirmations from the expert, establishing a deadline (15 April) by which Peugeot must request additions to the appraisal. On the outcome of the hearing, the Judge set the subsequent hearing for 15 December 2020 for the summary pleadings.

In November 2017, the Company filed two petitions with the Court of Beijing (People's Republic of China) on the infringement and counterfeiting of some marks ("Case 1") and designs ("Case 2") relative to the "Scarabeo" vehicle by Chinese companies which are part of Jincheng Group Co., Ltd. Following the above actions, the opposing party submitted a petition for invalidation (an administrative proceeding regarding the Chinese Patent Re-examination Board) of the registration of one of the two designs relative to an old model of the Scarabeo vehicle (no longer in production). The latter proceeding ended with the invalidation of the registration of the old Scarabeo design. Piaggio appealed against this decision, submitting a petition to suspend Case 2 pending the outcome of the petition against the invalidation, which was rejected on 9 December 2019.

For Case 1, the ruling in the first instance was issued in favour of Piaggio. The Court of Beijing ascertained the unlawful use of Aprilia trademarks by Jincheng, ordering it to pay compensation amounting to RMB 1,500,000, besides legal fees of RMB 211,958. Jincheng has filed an appeal. Proceedings are pending acceptance by the Appeal Court of Beijing. The amounts allocated by the Company for the potential risks deriving from the current dispute appear to be consistent with the predictable outcome of the disputes.

As regards tax disputes involving the Parent Company Piaggio & C. S.p.A., two appeals are ongoing against two tax assessments notified to the Company and related to the 2002 and 2003 tax years respectively. These assessments originate from the Italian Revenue Agency accessing the Parent Company's offices in 2007, following information filed in the report of findings issued in 2002 as a result of a general control.

The Parent Company obtained a favourable ruling concerning these assessments, in both the first and second instance, and with reference to both tax periods. The Italian Revenue Agency filed an appeal with the Court of Cassation and the Company filed related appeals against it on 27 May 2013, with reference to the tax litigation made related to the 2002 tax period, and on 10 March 2014, for the tax litigation made relative to the 2003 tax period. On 22 May 2019, the Company filed an application for a settlement concession pursuant to Article 6 of Law Decree 119/2018, paying the amounts required by this law and on 10 June 2019, filed relative applications for suspension. The above rulings are therefore suspended at present, pending the final closure of proceedings.

Lastly, on 22 December 2017, Piaggio & C. S.p.A. received two notices of assessment issued by the Revenue Agency - Regional Department of Tuscany - Major Taxpayers Section - both relative to the 2012 tax period and concerning transfer pricing for corporate income tax and regional production tax purposes. As regards both notices, the Company, convinced of its reasons and in keeping with OECD guidelines and the Decree of 14 May 2018, and with no intention of tax instrumentalisation, started a cross-examination stage with the Assessing Department, submitting an application for control with acceptance on 23 January 2018, in order to reach a quick settlement with the Revenue Agency.

As no agreement has been reached with the Department, and to avoid the final deadline lapsing and making the assessment final, the Company filed an appeal with the Provincial Tax Department of Florence on 11 June 2018 and 25 July 2018, concerning production tax and corporate income tax respectively. The appeals were presented together and following the hearing of 13 November 2019, the first instance body ruled in favour of the Company with a sentence filed on 15 January 2020. The Company is therefore waiting for the Revenue Agency to either appeal against this decision before the Regional Tax Commission or to abandon the case.

The Company was also successful before the Income Tax Appellate Tribunal with reference to appeals filed against assessment orders received on completion of the assessment of income generated by Piaggio & C. S.p.A. in India during the 2009-2010, 2010-2011, 2011-2012 and 2012-2013 Indian tax periods, involving sums for approximately ¤1.4 million, ¤1.2 million, ¤1 million and ¤0.9 million respectively, including interest.

With reference to the tax litigation relative to the 2009-2010 and 2010-2011 tax periods, the Indian tax authorities filed an appeal with the High Court against the decision taken in the first instance; a date for the hearing has yet to be set; as regards the disputes relative to the 2011-2012 and 2012-2013 tax periods, the Company is waiting to see if the local tax authorities decide to appeal against the High Court's decisions, or to abandon the case.

In compliance with local laws, the Parent Company has already paid part of the amounts related to the appeals to the Indian tax authorities, for a total of ¤0.8 million; a part of the above amounts was reimbursed to the Company following the first instance rulings in its favour.

The Company has not considered allocating provisions for these disputes, considering the rules in its favour, in the first instance, and the positive opinions expressed by consultants appointed as counsel. Therefore, Company considers a favourable outcome of the rulings and subsequent reimbursement of amounts paid with reference to the Indian disputes as likely.

Moreover, the Parent Company received a VAT assessment order from the Indian tax authorities relative to the 2010- 2011 tax period, concerning the non-application of VAT to intergroup transactions with Piaggio Vehicles PVT Ltd relative to royalties. The amount of the dispute including interest is approximately ¤0.7 million, of which a small part already paid to the Indian Tax Authorities, in compliance with local law. The Company decided to appeal against the decision before the High Court, filing an action on 17 June 2019.

The main tax disputes of other Group companies concern Piaggio Vehicles PVT Ltd, PT Piaggio Indonesia, Piaggio France S.A. and Piaggio Hellas S.A.

With reference to the Indian subsidiary, some disputes concerning different tax years from 1998 to 2015 are ongoing related to direct and indirect tax assessments and for a part of which, considering positive opinions expressed by consultants appointed as counsel, provisions have not been made in the financial statements. The Indian company has already partly paid the amounts contested, as required by local laws, that will be paid back when proceedings are successfully concluded in its favour.

With reference to PT Piaggio Indonesia, the Company filed an appeal before the Tax Court against the claim concerning transfer pricing for the 2015 period; the ruling is pending and should be issued in January 2020. On 10 October 2019, the Indonesian company also appealed against the claim concerning withholding taxes, relative to the 2015 tax period; as regards this dispute, the company is waiting for the date of the first hearing to be set.

As regards the French company, a favourable ruling was issued in December 2012 by the Commission Nationale des Impots directes et des taxes sur le chiffre d'affaires, the decision-making body ruling prior to legal proceedings in disputes with the French tax authorities concerning a general audit of the 2006 and 2007 periods. The French tax authorities however upheld their claims against the Company, requesting payment of the amounts claimed and issuing related notices (one for withholding tax and the other for corporate income tax and VAT).

The Company appealed against the notices and appeals were filed against the findings on withholding tax and corporate income tax, before the Tribunal Administratif. Appeals were lodged against decisions taken against the Company on 7 September 2015 and 8 July 2016 before the Cour Administrative d'Appel de Versailles. Following the hearing on 23 January 2018, appeal judges issued a sentence in favour of the Company. The amount in question, equal to approximately ¤3.7 million, including interest, initially paid in full to the French tax authorities, was then reimbursed following the ruling handed down by the Cour Administrative d'Appel de Versailles. This last ruling was appealed against by the French financial administration before the Conseil d'Etat that, in a ruling of 4 October 2019, put the case before the Cour Administrative d'Appel de Versailles to review the decision at a second level, identifying a lack of grounds. The Company is therefore waiting for the date of the hearing to be set before this Court.

The Company did not consider it necessary to make provisions, in view of the positive indications from professionals appointed to act as counsel, also in view of the petition filed with the Court Administrative d'Appel de Versailles, and the ruling issued in favour of the Company by this Court.

On 8 April 2015, Piaggio Hellas S.A. received a Tax Report following a general assessment for the 2008 tax period, with findings for approximately ¤0.5 million, including sanctions. On 12 June 2015, the Company appealed against the report with the Tax Center – Dispute Resolution Department. Following the unfavourable outcome of this appeal, the Company appealed before the Administrative Court of Appeal, which ruled in favour of the local tax authorities in a ruling of 27 April 2017. The Company therefore appealed before the Supreme Court. The amount in question was paid in full to the Greek tax authorities. Based on positive opinions from professionals appointed as counsel, the Company considers a favourable outcome and subsequent reimbursement of amounts paid as likely.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

52. Significant non-recurring events and operations

No significant, non-recurring operations were recorded in 2019. Instead, the following are reported for 2018:

  • on 9 April 2018, the Parent Company exercised the call option of the debenture loan issued by the Company on 24 December 2014 for a total amount of ¤/000 250,000 and maturing on 30 December 2021.
  • On 9 May 2018, the remaining portion of this loan (equal to approximately ¤168,497 thousand) was paid back at the price of 101.25%, after the finalisation of the exchange offer launched on 9 April.
  • The transaction resulted in the following being recognised in profit or loss for 2018:
  • financial charges related to premiums paid to bond holders that did not take up the exchange offer and costs of the repaid loan not yet amortised (¤3,530 thousand);
  • financial income (net of costs from the exchange of outstanding securities), from the operation to change the original liability with a new bond issued at more favourable conditions for the issuer (¤4,431 thousand).

This transaction came under significant non-recurrent transactions, as defined by Consob Communication no. DEM/6064293 of 28 July 2006.

53. Transactions arising from atypical and/or unusual transactions

During 2019 and 2018, the Group did not record any significant atypical and/or unusual transactions, as defined by CONSOB Communication DEM/6037577 of 28 April 2006 and DEM/6064293 of 28 July 2006.

54. Events occurring after the end of the period

After 31 December 2019 and up until the date of approval of these financial statements, no event occurred having a significant impact on financial performance and position, as determined by paragraph 9 of IAS 10.

However, at the end of the reporting period, a factor of macroeconomic instability came to light, related to the spread of Covid 19 (Coronavirus) which, in the first few weeks of 2020 initially affected the economy in China and then in other countries. This factor could also have a considerable impact on global prospects for future growth, affecting the general macro-economic scenario and financial and property markets, also in light of decisions taken by government authorities to contain the spread of the epidemic.

This factor refers to an event which occurred after the reporting period, which does not therefore require adjustments to be made to the financial statement balances pursuant to paragraphs 21 and 22 of IAS 10. This is because even though the Coronavirus occurred in the People's Republic of China close to the end of the reporting period, it was only at the end of January 2020 that the World Health Organisation declared an international emergency, and it was only from late January 2020 when cases in other countries were also diagnosed, leading to specific decisions being taken in China as well as in other nations.

On 21 February 2020, the authorities of the Region of Lombardy and Veneto ordered the lockdown of some towns and adopted containing measures.

At present, following assessments made based on available information, and as it is not possible to determine, with a sufficient degree of reliability, the impacts that may affect the economy and reference sector in the first quarter of 2020 and following months - also in view of the possibility that this emergency may pass in coming months as a result of the containment measures taken by governments, competent authorities as well as the central banks of countries affected by the spread of the virus - it is considered that this circumstance does not constitute an element that may impact the estimate process with reference to the financial statements at 31 December 2019.

The Group is managing the effects on its supply chain without any particular impact on production sites (situated in Italy, India and Vietnam) and also on its own distribution chain, continuing to operate to consolidate its positioning on global markets.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

55. Authorisation for publication

This document was published on 25 March 2020 authorised by the Chairman and Chief Executive Officer.

Mantova, 26 February 2020 for the Board of Directors

Chairman and Chief Executive Officer Roberto Colaninno

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

ATTACHMENTS

Piaggio Group companies

Companies and material investments of the Group are listed below.

The list presents the companies divided by type of control and method of consolidation.

The following are also shown for each company: the company name, the registered office, the country of origin and the share capital in the original currency, in addition to the percentage held by Piaggio & C. S.p.A. or by other subsidiaries. It should be noted that the percentage share of ownership corresponds to the percentage share of the voting rights exercised at Ordinary General Meetings of Shareholders.

% OF THE HOLDING
COMPANY NAME REGISTERED
OFFICE
COUNTRY SHARE CAPITAL CURRENCY DIRECT INDIRECT MEANS % TOTAL INTEREST
Parent company:
Piaggio & C. S.p.A. Pontedera (Pisa) Italy 207,613,944.37 Euro
Subsidiaries:
Aprilia Brasil Industria de Motociclos S.A. Manaus Brazil 2,020,000.00 R\$ 51% Aprilia World Service Holding
do Brasil Ltda
51%
Aprilia Racing S.r.l. Pontedera (Pisa) Italy 250,000.00 Euro 100% 100%
Aprilia World Service Holding do
Brasil Ltda.
São Paulo Brazil 2,028,780.00 R\$ 99.999950709% Piaggio Group Americas Inc 99.999950709%
Foshan Piaggio Vehicles Tecnology
Research and Development Co Ltd
Foshan City China 10,500,000.00 RMB 100% Piaggio Vespa B.V. 100%
Nacional Motor S.A. Barcelona Spain 60,000.00 Euro 100% 100%
Piaggio Advanced Design
Center Corp.
Pasadena USA 100,000.00 USD 100% 100%
Piaggio Asia Pacific PTE Ltd. Singapore Singapore 100,000.00 sin\$ 100% Piaggio Vespa B.V. 100%
Piaggio China Co. LTD Hong Kong China 12,500,000 auth.
capital (12,136,000
subscribed
and paid up)
USD 100% 100%
Piaggio Concept Store Mantova S.r.l. Mantova Italy 100,000.00 Euro 100% 100%
Piaggio Deutschland Gmbh Düsseldorf Germany 250,000.00 Euro 100% Piaggio Vespa B.V. 100%
Piaggio España S.L.U. Alcobendas Spain 426,642.00 Euro 100% 100%
Piaggio Fast Forward Inc. Boston USA 14,753.30 USD 86.08% 86.08%
Piaggio France S.A.S. Clichy Cedex France 250,000.00 Euro 100% Piaggio Vespa B.V. 100%
Piaggio Group Americas Inc New York USA 2,000.00 USD 100% Piaggio Vespa B.V. 100%
Piaggio Group Japan Tokyo Japan 99,000,000.00 Yen 100% Piaggio Vespa B.V. 100%
Piaggio Hellas S.A. Athens Greece 1,004,040.00 Euro 100% Piaggio Vespa B.V. 100%
Piaggio Hrvatska D.o.o. Split Croatia 400,000.00 HKD 100% Piaggio Vespa B.V. 100%
Piaggio Limited Bromley Kent United
Kingdom
250,000.00 GBP 0,0004% 99,9996% Piaggio Vespa B.V. 100%
Piaggio Vehicles Private Limited Maharashtra India 340,000,000.00 INR 99.9999971% 0.0000029% Piaggio Vespa B.V. 100%
Piaggio Vespa B.V. Breda Holland 91,000.00 Euro 100% 100%
Piaggio Vietnam Co Ltd Hanoi Vietnam 64,751,000,000.00 VND 63.5% 36.5% Piaggio Vespa B.V. 100%
PT Piaggio Indonesia Jakarta Indonesia 4,458,500,000.00 Rupiah 1% 99% Piaggio Vespa B.V. 100%

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

% OF THE HOLDING
COMPANY NAME REGISTERED
OFFICE
COUNTRY SHARE CAPITAL CURRENCY DIRECT INDIRECT MEANS % TOTAL INTEREST
Congshen Piaggio Foshan Motorcy-
cle Co. Ltd
Foshan City China 255,942,515.00 RMB 32.50% 12.50% Piaggio China Co. LTD 45%
REGISTERED
COMPANY NAME
% OF THE HOLDING
OFFICE COUNTRY SHARE CAPITAL CURRENCY DIRECT INDIRECT MEANS % TOTAL INTEREST
Foshan City
Zongshen Piaggio Foshan Motorcy-
cle Co. Ltd
China 255,942,515.00 RMB 32.50% 12.50% Piaggio China Co. LTD 45%
List of investments in affiliated companies as of 31 December 2019
REGISTERED
OFFICE
COMPANY NAME
COUNTRY SHARE CAPITAL CURRENCY DIRECT % OF THE HOLDING
INDIRECT
MEANS % TOTAL INTEREST
Barcelona
Depuradora D'Aigues de Martorelles
Soc. Coop. Catalana Limitada
Spain 60,101.21 Euro 22% Nacional Motor S.A. 22%
Mantova
Immsi Audit S.c.a.r.l.
Italy 40,000.00 Euro 25% 25%
Pontedera (PI)
Pont - Tech, Pontedera
& Tecnologia S.c.r.l.
Italy 469,069.00 Euro 20.45% 20.45%
Tunis
S.A.T. Societé d'Automobiles
et Triporteurs S.A.
Tunisia 210,000.00 TND 20% Piaggio Vespa B.V. 20%

Information pursuant to Article 149-duodiecies of the Consob Regulation on Issuers

This statement, prepared pursuant to Article 149 duodecies of the Consob Regulation on Issuers, indicates the fees for 2019 paid for auditing services and services other than auditing services provided by the independent auditors and entities of its network.

TYPE OF SERVICE SUBJECT
PROVIDING
THE SERVICE
RECIPIENT FEES
FOR 2019
IN EUROS
Auditing services PWC Parent Company Piaggio & C 369,314
PWC Subsidiaries 148,571
PWC network Subsidiaries 394,332
Auditing services for the NFS and CSR Report PWC Parent Company Piaggio & C 54,000
Certification services PWC Parent Company Piaggio & C 50,000
PWC network Subsidiaries 65,513
Other services PWC Parent Company Piaggio & C 233,000
Total 1,314,730

N.B.: Sums of subsidiaries operating in currencies other than the euro and agreed on in a local currency have been converted to the average exchange rate of 2019.

Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Changes in Consolidated Shareholders' Equity Notes to the Consolidated Financial Statements Attachments

CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS PURSUANT TO ARTICLE 154-BIS OF LEGISLATIVE DECREE 58/98

    1. The undersigned Roberto Colaninno (Chairman and Chief Executive Officer) and Alessandra Simonotto (Appointed Executive) of Piaggio & C. S.p.A. hereby certify, also in consideration of article 154-bis, sections 3 and 4, of Legislative Decree no. 58 of 24 February 1998:
  • the appropriateness with regard to the company's characteristics and
  • the actual application of administrative and accounting procedures for the formation of the Consolidated Financial Statements as of 31 December 2019.
    1. With regard to the above, no relevant aspects are to be reported.
    1. Moreover
  • 3.1 The Consolidated Financial Statements:
  • a. have been prepared in compliance with the international accounting standards endorsed by the European Community pursuant to regulation (EC) no. 1606/2002 of the European Parliament and Council of 19 July 2002;
  • b. correspond to accounting records;
  • c. give a true and fair view of the consolidated statement of financial position and results of operations of the Issuer and of all companies included in the scope of consolidation;
  • 3.2The Report on Operations includes reliable analysis of the trend of operations and operating results, as well as the situation of the Issuer and companies included in the scope of consolidation, as well as a description of main risks and uncertainties to which they are exposed.

Date: 26 February 2020

Chairman and Chief Executive Officer Executive in charge

REPORT OF THE INDEPENDENT AUDITORS ON THE CONSOLIDATED FINANCIAL STATEMENTS

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2019, and of the result of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/05.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of this report. We are independent of Piaggio & C. SpA (the Company) pursuant to the regulations and standards on ethics and independence applicable to audits of financial statements under Italian law. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were

Key Audit Matters Auditing procedures performed in response to key audit matters

Goodwill, which amounted to Euro 447 million as of 31 December 2019, is considered a significant item, equal to approximately 27 per cent of total assets.

Given the complex valuation processes in respect of a number of variables and the high degree of professional judgement required for this financial statement area, we paid special attention to management's estimates relating to the recoverability of the goodwill recognised in the financial statements in accordance with international accounting standard "IAS 36 – Impairment of Assets" adopted by the European Union. Management calculated the present value of expected future cash flows to determine the recoverable amount of each cash generating unit identified to which goodwill was allocated, to be compared with the carrying amount of assets and liabilities attributed to the respective cash generating unit.

In this respect, the main activities carried out by management were related to the confirmation of the allocation of goodwill to the cash generating units considering the current organisational structure, the estimate of the expected future cash flows, the methods used to calculate the discount rate and the steady growth rate of the financial cash flows beyond the reference time period.

We obtained an understanding of and evaluated the allocation process of goodwill to the cash generating units on the basis of the current organisational structure, which did not change compared with the previous years. We also obtained an understanding of and evaluated the estimates made by management with regard to the expected cash flows over a four-year period, inferred from budget data for 2020 and supplemented by forecast data for 2021- 2023 (the "Plan"). As part of this process we examined sector studies and reviews. Furthermore, with the support of PwC network experts, we retraced the methods used to calculate the discount rate and of the steady growth rate of financial cash flows beyond the time period of the Plan approved by management. The analysis was specifically focused on the cash generating units identified by management, verifying also the correct determination of the carrying amount of assets and liabilities attributed to each single cash generating unit. With the support of PwC network experts, we conducted sensitivity analyses in relation to the significant assumptions adopted by management in order to determine whether there was any impairment of goodwill. Finally, we verified the information included in the explanatory notes to the consolidated financial statements as of 31 December 2019.

Assessment of the recoverability of deferred tax assets

Note D21) to the consolidated financial statements "Deferred tax assets"

Deferred tax assets in the consolidated financial statements of the Piaggio Group as of 31 December 2019 amounted to Euro 63.2 million and primarily related to temporary differences mainly due to provisions, as well as prior years tax losses.

Our audit procedures consisted of assessing the reasonableness of the estimates made by management in forecasting the future taxable profit of the Piaggio Group companies, included in the plan approved by the Board of Directors on 24 February 2020.

3 of 7

7 of 7

PIAGGIO & C. SPA SEPARATE FINANCIAL STATEMENTS OF THE PARENT COMPANY AS OF 31 DECEMBER 2019

INCOME STATEMENT216
STATEMENT OF COMPREHENSIVE INCOME 217
STATEMENT OF FINANCIAL POSITION218
STATEMENT OF CASH FLOWS 219
CHANGES IN SHAREHOLDERS' EQUITY220
NOTES TO THE FINANCIAL STATEMENTS222
ATTACHMENTS 294
PIAGGIO GROUP COMPANIES 294
INFORMATION PURSUANT TO ARTICLE 149-DUODIECIES OF THE CONSOB REGULATION ON ISSUERS 294
INFORMATION ON COMPANY MANAGEMENT AND COORDINATION ACTIVITIES 294
CERTIFICATION OF THE FINANCIAL STATEMENTS PURSUANT
TO ARTICLE 154-BIS OF LEGISLATIVE DECREE 58/98297
REPORT OF THE INDEPENDENT AUDITORS ON THE FINANCIAL STATEMENTS OF THE PARENT COMPANY299
REPORT OF THE BOARD OF STATUTORY AUDITORS ON THE FINANCIAL
STATEMENTS AS OF 31 DECEMBER 2019 306

Income statement

Separate Financial Statements of the Parent Company as of 31 December 2019

Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

INCOME STATEMENT

2019 2018
TOTAL of which
related parties
TOTAL of which
related parties
NOTES IN THOUSANDS OF EUROS
3 Net revenues 863,811 86,139 799,573 86,618
4 Cost for materials (533,455) (102,680) (480,289) (94,099)
5 Cost for services and leases and rentals (171,244) (44,769) (163,360) (41,618)
6 Employee costs (157,381) (157,161)
7 Depreciation and impairment costs of property, plant and equipment (22,671) (23,237)
7 Amortisation and impairment costs of intangible assets (66,103) (61,314)
7 Depreciation of rights of use (3,435)
8 Other operating income 123,787 49,104 113,305 36,827
9 Net reversals (impairment) of trade and other receivables (1,473) (1,943)
10 Other operating costs (14,454) (542) (12,847) (859)
Operating income 17,382 12,727
11 Income/(loss) from investments 47,926 47,816 45,148 45,140
12 Financial income 1,653 1,420 5,607 554
12 Borrowing costs (21,712) (201) (26,445) (82)
12 Net exchange gains/(losses) (1,301) (447)
Profit before tax 43,948 36,590
13 Taxes for the period 2,263 5,589 (1,012) 3,808
Profit from continuing operations 46,211 35,578
Assets held for sale:
14 Profits or losses arising from assets held for sale
Net Profit (loss) for the period 46,211 35,578

Note: The effects from adopting IFRS 16 are described in the section of the Notes "New accounting standards, amendments applicable from 1 January 2019".

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

STATEMENT OF COMPREHENSIVE INCOME

2019 2018
NOTES IN THOUSANDS OF EUROS
Net Profit (loss) for the period (A) 46,211 35,578
Items that will not be reclassified in the income statement
41 Remeasurements of defined benefit plans (2,055) (750)
41 Share of Other Comprehensive Income of subsidiaries/associates measured
with the equity method
(403) (293)
Total (2,458) (1,043)
Items that may be reclassified in the income statement
41 Total profits (losses) on cash flow hedges 85 206
41 Share of Other Comprehensive Income of subsidiaries/associates measured
with the equity method
27 (2,714)
Total 112 (2,508)
Other Comprehensive Income (B)40 (2,346) (3,551)
Total Profit (loss) for the period (A + B) 43,865 32,027

40 Other Profits (and losses) take account of relative tax effects

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

STATEMENT OF FINANCIAL POSITION

AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018
TOTAL of which
related parties
TOTAL of which
related parties
NOTES IN THOUSANDS OF EUROS
ASSETS
Non-current assets
15 Intangible assets 570,106 558,845
16 Property, plant and equipment 159,487 169,362
17 Rights of use 18,228
18 Investment Property
34 Investments 156,129 152,140
35 Other financial assets 3,801 289 6,029
23 Long-term tax receivables 8,024 10,348
19 Deferred tax assets 44,752 41,855
22 Other receivables 9,923 81 6,059 94
Total non-current assets 970,450 944,638
26 Assets held for sale
Current assets
21 Trade receivables 43,599 20,616 48,063 22,978
22 Other receivables 88,617 80,741 64,923 55,164
23 Short-term tax receivables 11,399 3,086
20 Inventories 154,901 166,463
35 Other financial assets 15,878 12,407 14,797 11,993
36 Cash and cash equivalents 18,843 22,944
Total current assets 333,237 320,276
TOTAL ASSETS 1,303,687 1,264,914
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
40 Capital 207,614 207,614
40 Share premium reserve 7,171 7,171
40 Legal reserve 21,904 20,125
40 Other reserves (27,219) (27,423)
40 Retained earnings (losses) 53,644 74,320
40 Net Profit (loss) for the period 46,211 35,578
Total shareholders' equity 309,325 317,385
Non-current liabilities
37 Financial liabilities falling due after one year 461,600 506,637
37 Financial liabilities for rights of use > 12 months 13,178 4,579
28 Other long-term provisions 8,766 7,263
29 Retirement funds and employee benefits 37,198 39,622
30 Tax payables
31 Other long-term payables 1,987 2,403
Total non-current liabilities 522,729 555,925
Current liabilities
37 Financial liabilities falling due within one year 100,536 62,797
37 Financial liabilities for rights of use < 12 months 4,414 1,484
27 Trade payables 307,804 21,450 273,299 21,818
30 Tax payables 5,694 4,784
31 Other short-term payables 44,548 14,665 43,324 12,196
28 Current portion of other long-term provisions 8,637 7,400
Total current liabilities 471,633 391,604
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 1,303,687 1,264,914

Note: The effects from adopting IFRS 16 are described in the section of the Notes "New accounting standards, amendments applicable from 1 January 2019".

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

STATEMENT OF CASH FLOWS

This statement shows the factors behind changes in cash and cash equivalents, net of short-term bank overdrafts, as required by IAS 7.

2019 of which
related parties
2018 of which
related parties
NOTES IN THOUSANDS OF EUROS
OPERATING ACTIVITIES
Net Profit (loss) for the period 46,211 35,578
13 Taxes for the period (2,263) 1,012
7 Depreciation of property, plant and equipment 20,377 22,615
7 Amortisation of intangible assets 64,048 59,383
7 Depreciation of rights of use 3,435
Provisions for risks and retirement funds and employee benefits 16,204 14,319
Write-downs / (Reinstatements) (42,075) (40,664)
Losses / (Gains) on the disposal of property, plants and equipment 20 265
12 Financial income (1,653) (5,607)
Dividend income (110) (8)
12 Borrowing costs 21,712 26,445
Income from public grants (937) (1,028)
Change in working capital:
21 (Increase)/Decrease in trade receivables 3,139 2,362 (2,661) (4,627)
22 (Increase)/Decrease in other receivables (27,705) (25,564) (11,613) (8,275)
20 (Increase)/Decrease in inventories 11,562 (5,574)
27 Increase/(Decrease) in trade payables 34,505 (368) 9,537 2,797
31 Increase/(Decrease) in other payables 809 2,469 1,753 338
28 Increase/(Decrease) in provisions for risks (5,678) (6,357)
29 Increase/(Decrease) in retirement funds and employee benefits (13,124) (12,391)
Other changes 35,930 5,360 (3,482) 2,178
Cash generated from operating activities 164,407 81,522
Interest paid (28,622) (24,491)
Taxes paid (4,726) (2,482)
CASH FLOW FROM OPERATING ACTIVITIES (A) 131,059 54,549
INVESTMENT ACTIVITIES
16 Investment in property, plant and equipment (23,653) (21,957)
Sale price, or repayment value, of property, plant and equipment 138 42
15 Investment in intangible assets (77,390) (71,079)
Sale price, or repayment value, of intangible assets 26 62
Investment in non-current financial assets (2,526) (2,840)
Loans provided (21,924) (11,241)
Repayment of loans provided 52
Sale price of financial assets 842
Grants collected 633 728
Collected interests 1,260 523
Dividends from investments 42,044 32,309
CASH FLOW FROM INVESTMENT ACTIVITIES (B) (81,340) (72,611)
FINANCING ACTIVITIES
40 Purchase of treasury shares (212) (1,537)
40 Outflow for dividends paid (51,805) (19,698)
37 Loans received 60,446 152,662
37 Outflow for repayment of loans (58,829) (99,859) (2,900)
37 Repayment of liabilities for rights of use (3,129) (1,108)
CASH FLOW FROM FINANCING ACTIVITIES (C) (53,529) 30,460
Increase / (Decrease) in cash and cash equivalents (A+B+C) (3,810) 12,398
OPENING BALANCE 22,592 10,066
Exchange differences 43 128
CLOSING BALANCE 18,825 22,592

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

SHARE CAPITAL SHARE
PREMIUM
RESERVE
LEGAL
RESERVE
NET CAPITAL
GAIN FROM
CONTRIBUTION
RESERVE FOR
MEASUREMENT
OF FINANCIAL
INSTRUMENTS
IAS
TRANSITION
RESERVE
TRANSLATION
RESERVE
TREASURY
SHARES
EARNINGS
RESERVE
TOTAL
SHAREHOL-
DERS' EQUITY
NOTES IN THOUSANDS OF EUROS
As of 1 January 2019 207,614 7,171 20,125 152 (114) 1,769 (29,230) (1,537) 111,435 317,385
Profit for the period 46,211 46,211
Other Comprehensive
Income
41
85 27 (2,458) (2,346)
Total profit (loss)
for the period
0 0 0 0 85 0 27 0 43,753 43,865
Distribution of profit for 2018
as resolved by the or-dinary
meeting of shareholders
- To shareholders (32,155) (32,155)
- To shareholders' equity 1,779 (1,779)
Adoption of IFRS 16 92
Purchase of treasury shares
40
(212) (212)
2019 interim dividend
40
(19,650) (19,650)
Other changes
As of 31 December 2019 207,614 7,171 21,904 152 (29) 1,861 (29,203) (1,749) 101,604 309,325

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

SHARE CAPITAL SHARE
PREMIUM
RESERVE
LEGAL
RESERVE
NET CAPITAL
GAIN FROM
CONTRIBUTION
RESERVE FOR
MEASUREMENT
OF FINANCIAL
INSTRUMENTS
IAS
TRANSITION
RESERVE
TRANSLATION
RESERVE
TREASURY
SHARES
EARNINGS
RESERVE
TOTAL
DERS' EQUITY
SHAREHOL-
NOTES IN THOUSANDS OF EUROS
As of 1 January 2018 207,614 7,171 19,095 152 (320) 5,789 (26,516) 0 97,628 310,613
Profit for the period 35,578 35,578
Other Comprehensive
Income
41
206 (2,714) (1,043) (3,551)
Total profit (loss)
for the period
0 0 0 0 206 0 (2,714) 0 34,535 32,027
Distribution of profit for 2017
as resolved by the ordinary
meeting of shareholders
- To shareholders (19,698) (19,698)
- To shareholders' equity 1,030 (1,030)
Adoption of IFRS 9 (4,020) (4,020)
Purchase of treasury shares (1,537) (1,537)
Other changes
As of 31 December 2018 207,614 7,171 20,125 152 (114) 1,769 (29,230) (1,537) 111,435 317,385

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

NOTES TO THE FINANCIAL STATEMENTS

A) GENERAL ASPECTS

Piaggio & C. S.p.A. (the Company) is a joint-stock company established in Italy at the Register of Companies of Pisa. The address of the registered office is Viale Rinaldo Piaggio 25 - Pontedera (Pisa). The main operations of the Company and its subsidiaries are described in the Report on Operations of the Consolidated Financial Statements. These Financial Statements are expressed in Euros (¤) since this is the currency in which most of the Company's transactions take place.

Compliance with international accounting standards

These Financial Statements of the Piaggio Group as of 31 December 2019 have been drafted in compliance with the International Accounting Standards (IAS/IFRS) in force at that date, issued by the International Accounting Standards Board and approved by the European Union, as well as in compliance with the provisions established in Article 9 of Legislative Decree no. 38/2005 (Consob Resolution no. 15519 of 27/7/06 containing "Provisions for the presentation of financial statements", Consob Resolution no. 15520 of 27/7/06 containing "Changes and additions to the Regulation on Issuers adopted by Resolution no. 11971/99", Consob communication no. 6064293 of 28/7/06 containing "Corporate reporting required in accordance with Article 114, paragraph 5 of Legislative Decree 58/98). The interpretations of the International Financial Reporting Interpretations Committee ("IFRIC"), previously the Standing Interpretations Committee ("SIC"), were also taken into account.

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

These Financial Statements are audited by PricewaterhouseCoopers S.p.A..

1. FORM AND CONTENT OF THE FINANCIAL STATEMENTS

Form of the financial statements

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

Income Statement

The Income Statement is presented with items classified by nature. The overall Operating Income is shown, which includes all income and cost items, irrespective of their repetition or fact of falling outside normal operations, except for the items of financial operations included under Operating Income and profit before tax. In addition, income and cost items arising from assets held for sale or to be discontinued, including any capital gains or losses net of the tax element, are recognised in a specific item of the Financial Statements which precede financial performance.

Statement of Comprehensive Income

The Statement of Comprehensive Income is presented in accordance with the provisions of IAS 1 amended. Items presented in "Other comprehensive income(expense)" are grouped based on whether they are potentially reclassifiable to profit or loss.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Statement of Financial Position

The Statement of Financial Position is presented in opposite sections with separate indication of assets, liabilities and shareholders' equity.

In turn, assets and liabilities are reported in the Financial Statements on the basis of their classification as current and non-current.

Statement of Cash Flows

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

Statement of Changes in Shareholders' Equity

The Statement of Changes in Shareholders' Equity is presented as provided for in IAS 1 revised. The Statement includes overall profit (loss) for the period. Reconciliation between the opening and closing balance of each item for the period is presented.

2. ACCOUNTING POLICIES ADOPTED BY THE COMPANY

The most significant accounting policies adopted to prepare the Financial Statements as of 31 December 2019 are outlined below.

Intangible assets

As provided for in IAS 38 - Intangible Assets, an intangible asset which is purchased or internally generated is recognised as an asset only if it is identifiable, controllable and future economic benefits are expected and its cost may be measured reliably. Borrowing costs related to the acquisition, construction or production of certain assets that require a significant period of time before they are ready for use or sale (qualifying assets), are capitalised along with the asset. Intangible assets with a definite useful life are measured at acquisition cost or production cost net of amortisation and accumulated impairment losses. Amortisation is referred to the expected useful life and commences when the asset is available for use.

Goodwill

In the case of acquisitions of companies, acquired and identifiable assets, liabilities and potential liabilities are recognised at the present value at the date of acquisition. The positive difference between the acquisition cost and share of the Company at the fair value of said assets and liabilities is classified as goodwill and recognised in the financial statements as an intangible asset. Any negative difference ("negative goodwill") is recognised instead in profit or loss at the date of acquisition.

Goodwill is not amortised but tested annually for impairment, or more frequently if specific events or changed circumstances indicate that an asset may be impaired, as provided for in IAS 36 - Impairment of Assets. After initial recognition, goodwill is recognised at cost net of any accumulated impairment losses.

At the disposal of part of or an entire company previously acquired from whose acquisition goodwill arose, the corresponding residual value of goodwill is considered when measuring the capital gain or loss of the disposal.

Development costs

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

All other development costs are recognised in profit or loss when they are incurred.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Other intangible assets

As provided for in IAS 38 – Intangible Assets, other intangible assets which are purchased or internally generated are recognised as assets if it is probable that use of the asset will generate future economic benefits and the cost of the asset can be reliably measured.

These assets are recognised at acquisition or production cost and are amortised on a straight line basis over their estimated useful life, if they have a definite useful life.

Other intangible assets recognised following the acquisition of a company are accounted for separately from goodwill, if their fair value may be reliably measured.

The amortisation period for an intangible asset with a useful life is revised at least at the end of each reporting period. If the expected useful life of the asset differs from estimates previously made, the amortisation period is changed accordingly.

The amortisation periods of intangible assets are shown below:

Development costs 3-5 years
Industrial Patent and Intellectual Property Rights 3-5 years
Other 5 years
Trademarks 15 years
Licences 10 years

Property, plant and equipment

The Company has decided to adopt the cost method on first-time application of the IAS/IFRS, as allowed by IFRS 1. For the measurement of property, plant and equipment, therefore, the preference was not to use the fair value method. Property, plant and equipment were booked at the purchase or production cost and were not revalued. Borrowing costs related to the acquisition, construction or production of certain assets that require a significant period of time before they are ready for use or sale (qualifying assets), are capitalised along with the asset.

Costs incurred after acquisition are capitalised only if they increase the future economic benefits of the asset they refer to. All other costs are recognised in profit or loss when they are incurred. Property, plant and equipment under construction are measured at cost and depreciated starting from the period in which they are put into operation.

Depreciation is determined, on a straight line basis, on the cost of the assets net of their relative residual values, based on their estimated useful life.

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

Land Land is not depreciated
Buildings 33 years
Plant and machinery From 5 to 15 years
Equipment From 4 to 5 years
Other assets From 5 to 10 years

Profits and losses arising from the sale or disposal of assets are measured as the difference between the sale revenue and net carrying amount of the asset and are recognised in profit or loss for the period.

Lease contracts

Lease agreements for property, plant and machinery entered into as lessor require the recognition of an asset representing the right of use of the leased asset, and a financial liability for the obligation to undertake contract payments. In particular, the lease liability is initially recognised as being equal to the present value of future payments to make, adopting a discount rate equal to the implicit interest rate of the lease, of if this cannot easily be determined, by using the incremental financing rate of the lessor. After initial recognition, the lease liability is recognised at amortised cost using the effective interest rate and is redetermined following contract renegotiation, changes in rates, or changes in the recognition of any contract options.

The right of use is initially recorded at cost and then adjusted to take into account recognised depreciation charges, any impairment losses and effects related to any redetermination of lease liabilities.

The Company has opted for some simplifications, allowed by the Standard, excluding agreements of less than 12 months (short term, calculated on the residual duration, on first-time adoption), and of a value below 5 thousand euros (low value).

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Investments in subsidiaries, associates and joint ventures

Investments in subsidiaries, associates and joint ventures are recognised in the financial statements according to the equity method, as allowed by IAS 27 and as provided for by IAS 28 (Investments in Associates and Joint Ventures). Subsidiaries, associates and joint venture are included in the financial statements from when control, significant influence or joint control commences until it ceases.

The financial statements of subsidiaries, associates and joint ventures, are appropriately modified and reclassified, where necessary, to bring them in line with the international accounting standards and uniform classification criteria used by the Group.

In adopting the equity method, the investment in a subsidiary, associate or joint venture is initially recognised at cost and the carrying amount is increased or decreased to recognise the portion attributable to the investor of profit or loss of the investee realised after the date of acquisition. The portion of profit (loss) for the period of the investee attributable to the investor is recognised separately in profit or loss. Dividends received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount of the investment are also due to changes in items of other comprehensive income of the investee (e.g. changes arising from translation differences of items in foreign currency). The portion of these changes, attributable to the investor, is recognised under other components of comprehensive income. If the portion of losses of an entity in a subsidiary, associate or joint venture is equal to or exceeds its interest in the subsidiary, associate or joint venture, the entity discontinues recognising its share of further losses. After the interest is reduced to zero, additional losses are recognised by a provision (liability) only to the extent that the entity has incurred legal or constructive obligations or made payments on behalf of the associate, subsidiary or joint venture. If the subsidiary, associate or joint venture subsequently reports profits, the entity resumes recognising its portion of those profits only after its portion of the profits equals the share of losses not recognised. Profit and losses arising from "upwards" or "downwards" transactions between an entity and a subsidiary, associate or joint venture are recognised in the entity's financial statements only as regards the portion attributable to minority interest in the subsidiary, associate or joint venture. The portion of profit or loss of the subsidiary, associate or joint venture arising from these transactions, attributable to the investor, is eliminated in the income statement under "earnings from investments", with a counter entry of the asset's value, in "upwards" transactions, and of the value of the investment, in "downwards transactions".

If there is objective evidence of an impairment loss, the investment is tested for impairment, as described in the relative section, to which reference is made.

Separate financial statements are prepared in the currency of the primary economic sector in which the subsidiary, associate or joint venture operates (functional currency). For the purposes of adopting the equity method, the financial statements of each foreign entity are in euro, which is the functional currency of Piaggio & C. SpA and the presentation currency of the separate Financial Statements.

All assets and liabilities of foreign companies in a currency other than the euro are translated, using exchange rates in effect at the reporting date (currency exchange rates method). Income and costs are translated at the average exchange rate of the period. Translation differences arising from the application of this method, as well as translation differences arising from a comparison of initial shareholders' equity translated at current exchange rates and the same equity translated at historical rates, are recognised in the statement of comprehensive income and allocated to a specific reserve in shareholders' equity until disposal of the investment.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

The exchange rates used to translate the financial statements of subsidiaries, associates and joint ventures into euro are shown in the table below.

CURRENCY SPOT EXCHANGE
RATE 31 DECEMBER
2019
AVERAGE
EX-CHANGE
RATE 2019
SPOT
EXCHANGE RATE
31 DECEMBER 2018
AVERAGE
EX-CHANGE RATE
2018
US Dollar 1.1234 1.11947 1.1450 1.18095
Pounds Sterling 0.85080 0.877771 0.89453 0.884706
Indian Rupee 80.1870 78.83614 79.7298 80.73324
Singapore Dollars 1.5111 1.52728 1.5591 1.59261
Chinese Yuan 7.8205 7.73549 7.8751 7.80808
Croatian Kuna 7.4395 7.41796 7.4125 7.41816
Japanese Yen 121.94 122.00576 125.85 130.39588
Vietnamese Dong 25,746.15 25,793.13707 26,230.56 26,984.72276
Canadian Dollars 1.4598 1.48548 1.5605 1.52936
Indonesian Rupiah 15,573.69 15,840.81508 16,565.86 16,802.30086
Brazilian Real 4.5157 4.41343 4.4440 4.30849

Impairment

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

The recoverable amount is the greater of the net sale price and value in use. In measuring the value in use, estimated future cash flows are discounted at their fair value, using a rate gross of taxes, which reflects current market changes in the fair value of money and specific risks of the asset.

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

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

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

Investment Property

The Company has no investment property. As permitted by IAS 40, non instrumental property and buildings held for rental and/or asset appreciation purposes are measured at fair value. Investment properties are eliminated from the financial statements when they are disposed of or when they may not be used over time and future economic benefits from their sales are not expected.

Transactions with affiliates and related parties

Relations with subsidiaries and related parties are indicated in the specific section of the Notes, to which reference is made.

Non-current assets held for sale

Non-current assets (or disposal groups) that are classified as held for sale are measured at the lower of the carrying amount and fair value less costs to sell.

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

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Financial assets

IFRS 9 adopts a single approach to analysing and classifying all financial assets, including those containing embedded derivatives. Classification and measurement consider the business model of the financial asset and the contractual characteristics of cash flows that may be obtained from the asset. Depending on the characteristics of the instrument and business model adopted, the following three categories are determined:

(i) financial assets measured at amortised cost; (ii) financial assets measured at fair value, with the effects recognised in other comprehensive income (OCI); (iii) financial assets measured at fair value, with the effects recognised in profit or loss.

The financial asset is measured at amortised cost if both the following conditions are met:

  • the business model holds the financial asset only to collect the relative cash flows; and
  • the contractual terms of the financial asset give rise on specified dates to cash flows that only represent the return on the financial asset.

According to the amortised cost method, the value of initial recognition is subsequently adjusted to take into account repayments of principal, any impairment and amortisation of the difference between the repayment value and value of initial recognition.

Amortisation is based on the internal effective interest rate that represents the rate which, at the time of initial recognition, makes the present value of expected cash flows equal to the value of initial recognition. Receivables and other financial assets measured at amortised cost are presented in the statement of financial position net of the relative provision for write-downs.

Financial assets representing debt instruments whose business model covers the possibility of collecting contractual cash flows and realising capital gains from sale (the hold to collect and sell business model), are measured at fair value, recognising the effects in OCI.

In this case, changes in fair value of the instrument are recognised as shareholders' equity in OCI. The total of changes in fair value, recognised in a shareholders' equity reserve that includes OCI, is reversed to profit or loss when the instrument is deleted from the accounts. Interest expense is recognised in profit or loss using the effective interest rate, exchange differences and write-downs.

A financial asset representing a debt instrument that has not been measured at amortised cost or at fair value through other comprehensive income is measured at fair value with the effects recognised in profit or loss.

Inventories

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

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

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

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

Receivables

IFRS 9 establishes a new model for the impairment/write-down of these assets, with the aim of providing useful information for financial statement users on relative expected losses. According to this model, the Company measures receivables on an expected loss basis, replacing the provisions in IAS 39 which typically measure receivables on an incurred loss basis. For trade receivables, the Company adopts a simplified approach which does not require the recognition of periodic changes in credit risk, but instead the recognition of an expected credit loss (ECL) calculated over the ECL lifetime. In particular, the policy adopted by the Company involves the stratification of trade receivables in categories based on past due days, defining the allocation based on the historical experience of credit losses, adjusted to take into account specific forecasts referred to creditors and the economic environment.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Trade receivables are wholly written down in the absence of a reasonable expectation of their recovery, or in the case of inactive counterparties.

The carrying amount of the asset is reduced through the use of a provision for write-downs and the amount of the loss is recognised in the income statement. When payment of amounts due exceeds standard terms of payment granted to clients, the receivable is discounted.

Factoring

The Company sells a significant part of its trade receivables through factoring and in particular, sells trade receivables without recourse. Following these sales with the total and unconditional transfer to the transferee of the risks and benefits transferred, the receivables are eliminated from the financial statements.

In the case of transfers in which the risks and benefits are not transferred, the relative receivables remain in the statement of financial position until the transferred sum has been paid. In this case any advance payments collected by the factor are recognised under payables as amounts due to other lenders.

Cash and cash equivalents

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

Treasury shares

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

Financial liabilities

Financial liabilities include financial payables, including amounts payable for advances on the sale of receivables, as well as other financial liabilities, including financial derivatives and liabilities for assets recognised regarding finance lease agreements. Pursuant to IFRS 9, they include trade and other payables.

Financial liabilities are recognised at fair value net of additional transaction costs. After initial recognition, loans are measured at amortised cost and calculated using the effective interest rate. With the introduction of IFRS 9, in the event of the renegotiation of a financial liability that does not qualify as "extinction of the original debt", the difference between i) the book value of the pre-change liability and ii) the present value of the cash flows of the revised debt, discounted at the original rate (IRR), is accounted for in the income statement.

Financial liabilities hedged by derivatives are recognised at present value, according to procedures established for hedge accounting: gains and losses arising from subsequent measurements at present value are recognised in profit or loss and are offset by the effective portion of the loss and again arising from subsequent measurements at present value of the hedging instrument. On initial recognition, a liability may be designated at fair value recognised in profit or loss when this eliminates or considerably reduces a lack of uniformity in the measurement or recognition (sometimes defined as "asymmetric accounting") that would otherwise arise from the measurement of an asset or liability or recognition of relative profit and loss on different bases. This fair value designation is exclusively applied to some financial liabilities in currency subject to exchange risk hedging.

Derivatives and measurement of hedging transactions

Company assets are primarily exposed to financial risks from changes in exchange and interest rates. The Company uses derivatives to hedge risks arising from changes in foreign currency and interest rates in particular irrevocable commitments and planned future transactions. The use of these instruments is regulated by written procedures on the use of derivatives, in line with risk management policies. As permitted by IFRS 9, the Company has opted to continue to adopt the provisions on hedge accounting in IAS 39, rather than in IFRS 9. Derivatives are initially recognised at fair value, represented by the initial amount and aligned with the fair value at subsequent ends of reporting periods. Financial derivatives are used solely for hedging purposes, in order to reduce exchange risk, interest rate risk and the risk of changes in the market price. In line with IAS 39, financial derivatives may qualify for hedge accounting, only when the hedging instrument is formally designated and documented, is expected to be highly effective and this effectiveness can be reliably measured and is highly effective throughout the reporting periods for which it is designated. When financial instruments may be measured by hedge accounting, the following accounting treatment is adopted:

– Fair value hedge: if a financial derivative is designated as a hedge of the exposure to changes in present value of a recognised asset or liability, attributable to a particular risk and could affect profit or loss, the gain or loss from the subsequent change in present value of the hedging instrument is recognised in profit or loss. The gain or loss on Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

the hedged item, attributable to the hedged risk, changes the carrying amount of the hedged item and is recognised in profit or loss;

– Cash flow hedge: if an instrument is designated as a hedge of the exposure to variability in cash flows of a recognised asset or liability or of a highly probable forecast transaction which could affect profit or loss, the effective portion of the gain or loss on the financial instrument is recognised in the Statement of Comprehensive Income. Accumulated gain or loss is reversed from the Statement of Comprehensive Income and recognised in profit or loss in the same period as the hedging transaction. The gain or loss associated with hedging or the part of hedging which is ineffective, is immediately recognised in profit or loss. If the hedging instrument or hedging ceases, but the transaction covered by hedging is not yet realised, profits and losses, recognised in equity, are instead recognised in profit or loss when the transaction takes place. If the transaction to be hedged is deemed no longer probable, gains or losses deferred in the Statement of Comprehensive Income are recognised immediately in profit or loss. If hedge accounting cannot be applied, gains or losses from measurement at present value of the financial derivative are immediately recognised in profit or loss.

Long-term provisions

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

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

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

Retirement funds and employee benefits

Liabilities relative to employee benefits paid on or after termination of employment for defined benefit plans are determined separately for each plan, based on actuarial hypotheses estimating the amount of future benefits that employees will accrue at the reporting date (the "projected unit credit method"). Liabilities, recognised in the financial statements net of any assets serving the plan, are entered for the period when the right accrues. Liabilities are measured by independent actuaries.

The cost components of defined benefits are recognised as follows:

  • the costs relative to services are recognised in the Income Statement under employee costs;
  • net borrowing costs of liabilities or assets with defined benefits are recognised in the Income Statement as financial income/(borrowing costs), and are determined by multiplying the value of the net liability/(asset) by the rate used to discount the obligations, taking account of the payment of contributions and benefits during the period;
  • the remeasurement components of net liabilities, which include actual gain and losses, the return on assets (excluding interest income recognised in the Income Statement) and any change in the limit of the assets, are immediately recognised as "Other comprehensive income (expense)". These components must not be reclassified to the Income Statement in a subsequent period.

Termination benefits

Termination benefits are recognised at the closest of the following dates: i) when the Company can no longer withdraw the offer of such benefits and ii) when the Company recognises the costs of restructuring.

Tax assets and liabilities

Deferred taxes are determined based on the temporary taxable differences between the value of the asset and liability and their tax value. Deferred tax assets are measured only to the extent to which it is likely that adequate future taxable sums exist against which the deferred taxes can be used. The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent to which it is no longer likely that sufficient taxable income exists allowing for all or a portion of said assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, considering the rates in effect or which are known to come into effect. Deferred taxes are directly recognised in profit or loss, except for items directly recognised in the statement of comprehensive income, in which case relative deferred taxes are also recognised in the statement of comprehensive income.

Deferred tax assets and liabilities are recognised at their net value when applied by the tax authorities and when they may be lawfully offset in the same tax jurisdiction.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Payables

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

Reverse factoring

To guarantee suppliers easier credit conditions, the Company has established factoring agreements, and typically supply chain financing or reverse factoring agreements. Based on the agreements, suppliers may, at their discretion, transfer receivables due from the Company to a lender and collect amounts before the due date.

In some cases, payment terms are extended further in agreements between the supplier and the company; these extensions may be interest or non-interest bearing.

The Company has established a specific policy to assess the nature of reverse factoring operations. Based on the content of agreements, which differs by area of origin, the Finance function, at a central level, analyses the clauses of agreements in qualitative terms, as well as legal aspects in order to assess regulatory references and the type of transaction assignment (as provided for by IAS 9 B3 3.1). In some cases, as payment terms have been extended, quantitative analysis is carried out to verify the materiality of changes in contract terms, based on quantitative tests as required by IAS 9 B3.3.6.

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

Recognition of revenues

Based on the five-step model introduced by IFRS 15, the Company measures revenues after identifying the contracts with its customers and relative performance to provide (transfer of goods and/or services), after determining the transaction price it considers due in exchange for performance, and evaluating the procedure for satisfying the performance (performance at a given time versus performance over time).

In particular, the Company measures revenues only if the following requirements have been met (requirements to identify the "contract" with the customer):

  • a. the contract has been approved by the parties to the contract (in writing, verbally or in compliance with other standard business practices) and the parties undertake to meet their respective obligations; an agreement therefore exists between the parties that establishes the rights and obligations to be met, regardless of the form by which the agreement is made;
  • b. the Company can identify each party's rights in relation to the goods or services to be transferred;
  • c. the Company can identify the payment terms for the goods or services to be transferred;
  • d. the contract has commercial substance; and
  • e. it is probable that the Company will receive the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer.

If the above requirements are not met, the relative revenues are recognised when: (i) the Company has already transferred control of the goods and/or provided the service to the customer and all or nearly all of the consideration from the customer has been received and cannot be reimbursed; or (ii) the contract has ended and the consideration received by the Company from the customer cannot be reimbursed.

If the above requirements are instead met, the Company adopts the following rules for recognition.

Revenues for the sale of vehicles and spare parts are recognised when control of the good is transferred to the purchaser, or when the customer can use in full the good or substantially benefit from it. Revenues are represented net of discounts, including, among others, sales incentive programmes and bonuses to customers, as well as taxes directly connected with the sale of the goods.

Revenues from the provision of services are recognised when the services are provided based on their progress. Revenues also include lease payments recognised on a straight line basis for the duration of the contract.

Public grants

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

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

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Financial income

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

Borrowing costs

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

Dividends

Dividends are recognised on an accrual basis, and therefore at the time when, following the resolution to distribute dividends by the subsidiary, the relative right to payment arises. In compliance with IAS 27 Revised "Separate Financial Statements", dividends distributed by subsidiaries, associates and joint ventures are recognised minus their investment value.

Income tax

Taxes represent the sum of current and deferred tax assets and liabilities.

Taxes allocated on the basis of estimated taxable income determined in compliance with national laws in force at the year end are recorded, taking account of applicable exemptions and tax credits due. Income tax is recognised in profit or loss, with the exception of items directly charged or credited to shareholders' equity, in which case the tax effect is directly recognised in shareholders' equity.

Taxes are recorded under "Tax payables" net of advances and withheld taxes.

As from the 2007 reporting period, the Company has been party to the National Consolidated Tax Convention pursuant to Articles 117 to 129 of the Consolidated Income Tax Act (T.U.I.R) of which IMMSI S.p.A. is the consolidating company, and to whom other IMMSI Group companies report to. Participation in the agreement was renewed starting from 2019 and will last for three years, up until the tax period ending at 31.12.2021.

Based on the procedure, the consolidating company determines one taxable base for the group of companies that are party to the National Consolidated Tax Convention, and may therefore offset taxable income against tax losses in one tax return. Each company which is party to the National Consolidated Tax Convention transfers taxable income (taxable income or loss) to the consolidating company. The latter recognises a receivable from the consolidated company which is equal to the corporate tax to be paid. Whereas, in the case of companies reporting tax losses, the consolidating company recognises a payable related to corporate tax on the portion of loss actually offset at a Group level.

Use of estimates

The preparation of the financial statements and notes in compliance with IFRS requires management to make estimates and assumptions which have an impact on the values of assets and liabilities and on disclosure regarding contingent assets and liabilities at the end of the reporting period. Actual results could differ from estimates. Estimates are used to measure intangible assets tested for impairment (see § Impairment losses) and to identify provisions for bad debts, for obsolete inventories, amortisation and depreciation, impairment of assets, employee benefits, taxes, restructuring provisions and other allocations and funds. Estimates and assumptions are periodically revised and the effects of any change are immediately recognised in profit or loss.

In the current world economic and financial crisis, assumptions made as to future trends are marked by a considerable degree of uncertainty. Therefore the possibility in the next reporting period of results that differ from estimates cannot be ruled out and these could require even significant adjustments which at present cannot be predicted or estimated. The critical measurement processes and key assumptions used by the Company in adopting IFRS and that may have a significant impact on figures in the Financial Statements or for which a risk exists that significant differences in value may arise in relation to the carrying amount of assets and liabilities in the future are summarised below.

Recoverable value of non-current assets

Non-current assets include Property, Plant and Equipment, Goodwill, Other Intangible Assets, Investment Property, Investments and Other Financial Assets. The Company periodically revises the carrying amount of non-current assets held and used and of assets held for sale, when facts and circumstances make this necessary. This analysis is carried out at least annually for Goodwill, and whenever facts and circumstances make it necessary. Analysis of the recoverability of the carrying amount of Goodwill is generally based on estimates of expected cash flows from the use or sale of the asset and adequate discount rates to calculate the fair value. When the carrying amount of a non-current asset is

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

impaired, the Company recognises a write-down equal to the excess between the carrying amount of the asset and its recoverable value through use or sale, determined with reference to cash flows of the most recent company plans.

Recoverability of deferred tax assets

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

Pension schemes and other post-employment benefits

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

The assumptions used for the measurement are explained in section 29 "Retirement funds and employee benefits".

Provisions for bad debts

The provision for bad debts reflects management's estimate of expected losses related to receivables. The Company adopts the simplified approach of IFRS 9 and recognises expected losses for all trade receivables based on the residual duration, defining the allocation based on the historical experience of credit losses, adjusted to take into account specific forecasts referenced to creditors and the economic environment (Expected Credit Loss – ECL concept).Provision for obsolete inventories

The provision for obsolete inventories reflects management's estimate of impairment losses expected by the Company, determined based on past experience. Anomalous market price trends could have an effect on future inventory writedowns.

Provision for product warranties

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

Potential liabilities

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

The Company monitors the status of ongoing proceedings and consults its legal and tax advisers.

Depreciation

The cost of assets is amortised/depreciated on a straight line basis over their estimated useful life. The economic useful life of Company assets is determined by Directors at the time of purchase; the calculation is based on historical experience gained in years of operations and on knowledge of technological innovations that may make the asset obsolete and no longer economical.

The Company periodically evaluates technological and segment changes, in order to update the remaining useful life. This periodic updating could change the amortisation/depreciation period and therefore amortisation/depreciation charges of future years.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Income tax

The Company is subject to Italian income tax laws. Tax liabilities are determined based on management valuations referred to transactions of which the tax effect is not certain at the end of the reporting period. The Company recognises the liabilities that could arise from future inspections of tax authorities based on an estimate of taxes that will be due. If the outcome of inspections differs from management's estimates, significant effects on current and deferred taxes could arise.

Rounding off

All amounts in the tables and in these notes have been rounded off to thousands of Euros.

New accounting standards, amendments and interpretations adopted from 1 January 2019

IFRS 16 "Leases"

In January 2016, the IASB published IFRS 16 "Leases". This new standard replaced IAS 17. The main change concerns the accounting of lease agreements by lessees that, according to IAS 17, were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). With IFRS 16, operating leases are treated for accounting purposes as finance leases. According to the new standard, an asset representing the right of use of the leased asset is recognised, as well as a financial liability for the obligation to make lease payments. In particular, the lease liability is initially recognised as being equal to the present value of future payments to make, adopting a discount rate equal to the implicit interest rate of the lease, of if this cannot easily be determined, by using the incremental borrowing rate of the lessor. After initial recognition, the lease liability is recognised at amortised cost using the effective interest rate and is redetermined following contract renegotiation, changes in rates, or changes in the recognition of any contract options.

The right of use is initially recorded at cost and then adjusted to take into account recognised depreciation charges, any impairment losses and effects related to any redetermination of lease liabilities.

The IASB has provided for the optional exemption for certain leasing contracts and low value and short-term leases. The standard mainly has an effect on the recognition of the Group's operating leases.

The Company opted to use the simplified transition approach, and therefore comparative amounts of the year prior to first-time adoption were not modified. Assets recognised for rights to use are measured for the amount of the lease debt at the time of adoption.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

As from 1 January 2019, the adoption of the new standard resulted in the following - with reference to the financial statements:

– the recognition of rights of use in the statement of financial position and corresponding financial liability as separate from other items:

AS OF 31 DECEMBER 2018
IN MILLIONS OF EUROS
+ Commitments for operating leases 14.5
- short-term operating leases (0.5)
- operating leases of a moderate value (0.5)
- operating leases, no IFRS 16 compliance (3.0)
- sub-lease agreements (0.5)
- discounting effect (0.5)
Total rights of use 9.5

– in the income statement, the recognition within operating costs of the depreciation of rights of use, and in the financial section of interest expense accrued on liabilities, unless capitalised, replacing operating lease payments (with the exception of short-term and low value payments), previously recognised as operating costs.

– in the cash flow statement, the recognition of reimbursements of lease liability principal in net cash flows from financing activities, while interest expense is recorded in net cash flows from operations if recognised in the income statement.

The effects of adopting IFRS 16 on the financial statements as of 31 December 2019 are summarised in the following table.

IN THOUSANDS OF EUROS PUBLISHED
2019
EFFECT OF
IFRS 16
IFRS 16
RECLASSIFICA
TIONS
2019
WITHOUT THE
ADOPTION
OF IFRS 16
Rights of use 18,228 8,385 9,843 0
Property, plant and equipment 159,487 (9,843) 169,330
Financial payables > 12 months 461,600 (6,781) 468,381
Financial liabilities for operating leases > 12 months 13,178 6,397 6,781 0
Financial payables < 12 months 100,536 (1,149) 101,685
Financial liabilities for operating leases < 12 months 4,414 3,265 1,149 0
Other non-current financial assets 3,801 289 3,512
Other current financial assets 15,878 146 15,732
Depreciation of rights of use (3,435) (2,579) (856) 0
Depreciation (22,671) 856 (23,527)
Costs for services, leases and rentals (171,244) 2,837 (174,081)
Other operating income 123,787 (105) 123,892
Financial income 1,653 14 1,639
Borrowing costs (21,712) (317) (21,395)
Effect on the income statement before taxes (150)
Impact on Net Debt (higher debt) 9,516

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

The following should be noted:

  • Goods purchased through finance leases and corresponding liabilities classified at 31 December 2018 respectively under Property, plant and machinery, and Financial liabilities have been reclassified in 2019 under Rights of use and Financial liabilities for rights of use;
  • accordingly, the depreciation of assets is now recognised as the depreciation of rights of use.

IFRS 9 "Financial Instruments"

In October 2017, the IASB published an amendment to IFRS 9 "Prepayment features with negative compensation". The amendment confirms that when a financial liability recognised at amortised cost is changed without this resulting in derecognition, the relative profit or loss must be immediately recognised in profit or loss. The profit or loss are measured as the difference between the previous cash flow and the flow redetermined based on the change. This amendment, applicable from 1 January 2019, did not have a significant impact on the financial statements or disclosure.

IAS 28

The amendments issued in October 2017 clarify that entities must apply the provisions of IFRS 9 "Financial instruments" to non-current investments in associates and joint ventures for which the equity method is not applied. The amendments are applicable from 1 January 2019 and did not have a significant impact on the financial statements or on disclosure.

Annual amendments to IFRS 2015–2017 (IFRS 3, IFRS 11, IAS 12 and IAS 23)

In December 2017, the IASB published its annual improvements to IFRS 2015–2017 (IFRS 3, IFRS 11, IAS 12 and IAS 23). The amendments are applicable from 1 January 2019 and did not have a significant impact on the financial statements or on disclosure.

IAS 19

In February 2018, the IASB published some amendments to IAS 19, that will require companies to revise assumptions for determining the cost and borrowing costs at each change of the plan. The amendments are applicable from 1 January 2019 and did not have a significant impact on the financial statements or on disclosure.

IFRIC 23

In June 2017 the IASB published interpretation IFRIC 23 -"Uncertainty over Income Tax Treatments" which provides information on how to account for uncertainties over the tax treatment of a given phenomenon in the recognition of income taxes. IFRIC 23 became effective on 1 January 2019 and did not have a significant impact on the financial statements or on disclosure.

Accounting standards, amendments and interpretations not yet applicable

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

  • In May 2017, the IASB issued the new standard IFRS 17 Insurance Contracts. The new standard will replace IFRS 4 and will be effective from 1 January 2021.
  • In October 2018, the IASB published some amendments to IAS 1 and IAS 8 that provide clarifications on the definition of "materiality". These amendments will apply from 1 January 2020.
  • In October 2018, the IASB published some amendments to IFRS 3 that amend the definition of "business". These amendments will apply from 1 January 2020.
  • In September 2019, the IASB published some amendments to IFRS 9, IAS 39 and IFRS 7 with some findings on the reform determining interbank rates. The findings concern the recognition of hedging and imply that a change in the interbank rate (IBOR) should not generally cause the accounting closure of hedging operations. However, the effects of all ineffective hedging should continue to be recognised in the income statement. Given the extensive nature of hedging that involves contracts based on interbank rates, the findings will concern companies from all sectors. These amendments will apply from 1 January 2020.

The Company will adopt these new standards, amendments and interpretations, based on the application date indicated, and will evaluate potential impact, when the standards, amendments and interpretations are endorsed by the European Union.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

OTHER INFORMATION

Departures pursuant to Article 2423, section 4 of the Italian Civil Code

No exceptional circumstances occurred requiring departures from legal provisions concerning Financial Statements pursuant to Article 2423, section 4 of the Italian Civil Code.

Article 2428 of the Italian Civil Code

The information required by Article 2428, paragraphs 1, 2, 3 and 6 is given in the Report on Operations. Information on financial instruments, objectives and financial risk management policies is given in Section E of these notes. The registered office of the Company is in Viale R. Piaggio 25 56025 Pontedera (Pisa). Other offices of the Company are in Via G. Galilei 1 Noale (Venice) and in via E.V. Parodi 57 Mandello del Lario (Lecco).

B) INFORMATION ON THE INCOME STATEMENT

3. Net revenues ¤/000 863,811

Revenues for disposals of company core business assets essentially refer to the marketing of vehicles and spare parts on European and non-European markets. They are recognised net of premiums paid to customers and include sales to Group companies amounting to ¤/000 86,139.

Revenues by geographic segment

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

IN THOUSANDS OF EUROS 2019 2018 VARIAZIONI
AMOUNT % AMOUNT % AMOUNT %
EMEA and Americas 841,328 97.40 777,172 97.20 64,156 8.26
Asia Pacific 21,148 2.45 20,726 2.59 422 2.03
India 1,335 0.15 1,675 0.21 (340) (20.28)
TOTAL 863,811 100.00 799,573 100.00 64,238 8.03

Revenues by type of product

The breakdown of revenues by type of product is shown in the following table:

IN THOUSANDS OF EUROS 2019 2018 VARIAZIONI
AMOUNT % AMOUNT % AMOUNT %
Two-wheelers 763,941 88.44 711,186 88.95 52,755 7.42
Commercial Vehi-cles 99,870 11.56 88,387 11.05 11,483 12.99
TOTAL 863,811 100.00 799,573 100.00 64,238 8.03

In 2019, net sales revenues increased by ¤/000 64,238.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

4. Costs for materials ¤/000 (533,455)

This item totalled ¤/000 533,455 compared to ¤/000 480,289 as of 31 December 2018, with an increase of 11% and includes costs for purchases from Group companies amounting to ¤/000 102,680.

The percentage of costs for materials accounting for net sales went up, from 60% in 2018 to 61.7% in 2019.

Costs for materials include costs for transport and outsourcing services relative to purchased assets.

The following table details the content of this item:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Raw, ancillary materials, consumables and goods (521,566) (485,832) (35,734)
Change in inventories of raw, ancillary materials, consumables and goods 2,268 1,554 714
Change in work in progress of semifinished and finished products (14,157) 3,989 (18,146)
Total costs for purchases (533,455) (480,289) (53,166)

5. Costs for services and leases and rental costs ¤/000 (171,244)

This item totalled ¤/000 171,244 compared to ¤/000 163,360 as of 31 December 2018 and includes costs from Group companies and other related parties amounting to ¤/000 44,769. Below is a breakdown of this item:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Employee costs (6,917) (6,744) (173)
External maintenance and cleaning costs (6,161) (5,636) (525)
Energy and telephone costs (9,356) (8,626) (730)
Postal expenses (565) (373) (192)
Commissions payable (20,849) (20,729) (120)
Advertising and promotion (15,768) (13,083) (2,685)
Technical, legal and tax consultancy and services (8,008) (10,645) 2,637
Company boards operating costs (2,634) (2,474) (160)
Insurance (2,554) (2,402) (152)
Outsourced manufacturing (18,022) (15,606) (2,416)
Outsourced services (8,318) (7,885) (433)
Transport costs (vehicles and spare parts) (25,568) (24,043) (1,525)
Internal shuttle services (251) (285) 34
Sundry commercial expenses (5,145) (4,644) (501)
Public relations (1,640) (1,016) (624)
Product warranty costs (1,641) (1,275) (366)
Costs for quality-related events (1,837) (3,665) 1,828
Bank costs and factoring charges (4,195) (3,790) (405)
Misc services provided in the business year (3,557) (2,696) (861)
Other services (20,385) (17,268) (3,117)
Lease and rental costs (7,873) (10,475) 2,602
Total costs for services (171,244) (163,360) (7,884)

Costs for quality-related events were partially offset by compensation received, recognised under "Other operating income" and amounting to ¤/000 1,432.

Third party work of ¤/000 18,022 refers to the processing of production components by outsourced suppliers.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Expenses for company boards are shown in the table below:

IN THOUSANDS OF EUROS 2019
Directors 2,337
Statutory auditors 161
Supervisory Body 62
Internal Control Committee 41
Remuneration Committee 30
Reimbursement of expenses 3
Total fees 2,634

Business services include services for the disposal of waste and water treatment amounting to ¤/000 1,782.

Other services include ¤/000 16,086 for technical, sports and promotional services for Group brands supplied by the subsidiary Aprilia Racing, ¤/000 1,272 for technical services supplied by the subsidiaries Foshan Piaggio Vehicles Technology Research and Development Co Ltd and Piaggio Advanced Design Center Corp. and ¤/000 1,000 for management services supplied by the parent company IMMSI S.p.A.

Insurance costs include ¤/000 33 paid with related parties.

Lease and rental costs include ¤/000 52 paid with related parties.

Costs for leases and rental costs for in 2019 were adjusted by ¤/000 2,837 following the adoption of the new accounting standard IFRS 16, which requires operating lease costs to be recognised as depreciation of rights of use and as borrowing costs relative to the assumed debt.

6. Employee costs ¤/000 (157,381)

Employee costs are broken down as follows:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Salaries and wages (108,817) (108,365) (452)
Social security contributions (36,485) (36,229) (256)
Termination benefits (7,777) (7,682) (95)
Other costs (4,302) (4,885) 583
Total (157,381) (157,161) (220)

The workforce as of 31 December 2019 totalled 3,149, of which 22 members of staff on a fixed-term contract.

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

AVERAGE NUMBER
LEVEL 2019 2018 CHANGE
Senior management 76 72 4
Middle management 241 232 9
White collars 863 876 (13)
Blue collars 2,098 2,259 (161)
Total 3,278 3,439 (161)
NUMBER AS OF
LEVEL 31 DECEMBER 2019 31 DECEMBER 2018 CHANGE
Senior management 79 73 6
Middle management 230 232 (2)
White collars 851 871 (20)
Blue collars 1,989 2,099 (110)
Total 3,149 3,275 (126)

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

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

LEVEL AS OF 31.12.18 INCOMING LEAVERS RELOCATIONS AS OF 31.12.19
Senior management 73 4 (2) 4 79
Middle management 232 5 (13) 6 230
White collars 871 60 (74) (6) 851
Blue collars 2,099 101 (207) (4) 1,989
Total (*) 3,275 170 (296) 0 3,149
(*) of which fixed-term
contracts
13 22

7. Amortisation/depreciation and impairment costs ¤/000 (92,209)

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

IN THOUSANDS OF EUROS 2019 2018 CHANGE
PROPERTY, PLANT AND EQUIPMENT:
Buildings (4,165) (4,145) (20)
Plant and machinery (6,512) (8,552) 2,040
Industrial and commercial equipment (9,062) (9,428) 366
Other assets (638) (490) (148)
Total depreciation of property, plant and equipment (20,377) (22,615) 2,238
Impairment costs of property, plant and equipment (2,294) (622) (1,672)
Total depreciation of property, plant and equipment and impairment costs (22,671) (23,237) 566

Impairment costs of property, plant and equipment refer to the disposal of assets under construction no longer necessary for Company activities.

IN THOUSANDS OF EUROS 2019 2018 CHANGE
INTANGIBLE ASSETS:
Development costs (24,900) (24,811) (89)
Industrial Patent and Intellectual Property Rights (34,603) (30,026) (4,577)
Concessions, licences, trademarks and similar rights (4,545) (4,546) 1
Total amortisation of intangible assets (64,048) (59,383) (4,665)
Write-down of intangible assets (2,055) (1,932) (123)
Total depreciation of intangible assets and impairment costs (66,103) (61,315) (4,788)

As indicated in more detail in the section on intangible assets, goodwill was tested for impairment, confirming the full recoverability of values indicated in the financial statements.

Impairment costs of intangible assets refer to development projects for which production plans were reviewed in the context of the Company's 2020-2023 Business Plan.

Amortisation of the item "Concessions, licences, trademarks and similar rights" refers to amortisation of the Aprilia brand for ¤/000 2,915, of the Guzzi brand for ¤/000 1,625 and of other brands from the merged company Aprilia for ¤/000 5.

The item "Industrial Patent and Intellectual Property Rights" includes amortisation relative to software equal to ¤/000 6,147.

IN THOUSANDS OF EUROS 2019 2018 CHANGE
RIGHTS OF USE:
Buildings (1,532) (1,532)
Plant and machinery (856) (856)
Other assets (1,047) (1,047)
Total depreciation of rights of use (3,435) 0 (3,435)

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Costs for the depreciation of rights of use were calculated for the first time in 2019, following the adoption of IFRS 16. The recognition of these costs is conceptually offset by the reversal of rental payments.

8. Other operating income ¤/000 123,787

This item consists of:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Operating grants 1,371 1,028 343
Increases in fixed assets from internal work 37,676 39,051 (1,375)
Other revenue and income:
- Expenses recovered in invoices 22,994 21,037 1,957
- Rent receipts 486 528 (42)
- Contingent assets from measurement 0 0 0
- Capital gains on the disposal of assets 53 38 15
- Recovery of transport costs 147 251 (104)
- Recovery of business costs 2,941 2,857 84
- Recovery of registration costs 17 4 13
- Recovery of advertising costs 1 0 1
- Recovery of stamp duty 829 779 50
- Recovery of labour costs 5,065 4,273 792
- Recovery of supplier costs 595 629 (34)
- Recovery of warranty costs 47 35 12
- Recovery of taxes from customers 500 662 (162)
- Recovery of sundry costs 1,496 1,266 230
- Provision of services to group companies 11,168 9,498 1,670
- Licence rights and know-how 31,596 21,140 10,456
- Commission receivable 1,962 2,030 (68)
- Compensation from damage to third parties 707 1,842 (1,135)
- Compensation from third parties for quality-related events 1,432 3,019 (1,587)
- Sponsorship 164 205 (41)
- Clearance of payables 22 325 (303)
- Other income 2,518 2,808 (290)
Total other operating income 123,787 113,305 10,482

The increase amounted to ¤/000 10,482.

This item includes income from Group companies for a total of ¤/000 49,104.

Operating grants refer to:

– ¤/000 937 refers to other public grants concerning research projects;

– ¤/000 387 for funding for professional training provided by trade associations;

– ¤/000 47 for the portion relative to the year, of sums received from a customer for product development.

During the period, internal costs for development projects and know how of ¤/000 36,317 were capitalised, in addition to internal costs for the development of software for ¤/000 668 and internal costs for the construction of property, plant and equipment, amounting to ¤/000 691.

Expenses recovered in invoices refer to costs for preparation, advertising, insurance, transport and packaging charged to clients directly in product sales invoices.

This item also includes charges made to other Group companies amounting to ¤/000 575 and to third parties for ¤/000 921 for the recovery of sundry costs.

Licence rights were obtained from the subsidiaries Piaggio Vehicles (¤/000 17,604) and Piaggio Vietnam (¤/000 11,956), as well as from the associate Zongshen Piaggio Foshan Motorcycle Co. Ltd. (¤/000 286).

Income (¤/000 12) was also generated from the associate Zongshen Piaggio Foshan Motorcycle Co. Ltd. for technical assistance concerning the sale of know-how.

Income from the recovery of labour costs mainly refers to amounts charged to Group companies for the use of personnel. The recovery of costs from suppliers refers to amounts charged for the reprocessing of materials and final inspections, and for failure to supply assembly lines with material.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

The recovery of tax duties mainly refers to dealers being charged stamp duty on vehicle conformity certificates.

9. Net reversals (impairment) of trade and other receivables ¤/000 (1,473)

This item consists of:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Losses on receivables (1) (20) 19
Write-down of receivables in working capital (1,472) (1,923) 451
Total (1,473) (1,943) 470

10. Other operating costs ¤/000 (14,454)

This item consists of:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Allocation for litigation (450) (450)
Provision for future risks (689) (689)
Total provisions for risks (1,139) 0 (1,139)
Provisions for product warranties (6,835) (6,111) (724)
Total other provisions (6,835) (6,111) (724)
Stamp duty (955) (883) (72)
Duties and taxes not on income (1,458) (1,512) 54
Local tax, formerly council tax (1,372) (1,226) (146)
Various subscriptions (941) (922) (19)
Social charges (627) (588) (39)
Capital losses from disposal of assets (72) (6) (66)
Miscellaneous expenses (1,055) (1,599) 544
Total sundry operating costs (6,480) (6,736) 256
Total other operating costs (14,454) (12,847) (1,607)

In total, other operating costs, which include costs from Group companies of ¤/000 542, increased by ¤/000 1,607.

Stamp duty of ¤/000 955 mainly refers to the tax due on vehicle conformity certificates. This cost is charged to Dealers and the recovered amount is entered under "Other operating income".

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

11. Income/(loss) from investments ¤/000 47,926

This item consists of:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Positive differences from the equity method valuation in subsidiaries 68,277 59,581 8,696
Positive differences from the equity method valuation in associates 712 313 399
Negative differences from the equity method valuation in subsidiaries (21,173) (14,754) (6,419)
Dividends from the investments of non-controlling interests 110 8 102
Total 47,926 45,148 2,778

Dividends from investments of non-controlling interests were distributed by the companies IVM (¤/000 92) and Ecofor Service Pontedera (¤/000 18).

The tables below show the positive and negative differences for investments in subsidiaries and associates, valued using the Equity Method.

IN THOUSANDS OF EUROS 2019 2018 CHANGE
POSITIVE DIFFERENCES FROM THE EQUITY METHOD VALUATION IN SUBSIDIARIES
Piaggio Vespa B.V. 15,622 8,457 7,165
Piaggio China 267 114 153
Piaggio Vehicles Pvt. 34,530 37,338 (2,808)
Piaggio Vietnam 17,259 13,325 3,934
Piaggio España 566 323 243
Piaggio Indonesia 8 0 8
Piaggio Advanced Design Center Corporation 25 24 1
Total 68,277 59,581 8,696
IN THOUSANDS OF EUROS 2019 2018 CHANGE
POSITIVE DIFFERENCES FROM THE EQUITY METHOD VALUATION IN ASSOCIATES
Pontedera & Tecnologia 14 16 (2)
Zongshen Piaggio Foshan Motorcycle 698 297 401
Total 712 313 399
IN THOUSANDS OF EUROS 2019 2018 CHANGE
NEGATIVE DIFFERENCES FROM THE EQUITY METHOD VALUATION IN SUBSIDIARIES
Piaggio China 0
Nacional Motor (1,510) (1,669) 159
Aprilia Racing (1,154) (440) (714)
Piaggio Indonesia (1) 1
Piaggio Fast Forward (17,871) (11,474) (6,397)
Piaggio Concept Store (638) (612) (26)
FCIIC Atlantic 0 (558) 558
Total (21,173) (14,754) (6,419)

12. Net financial income/(borrowing costs) ¤/000 (21,360)

This item consists of:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Total financial income 1,653 5,607 (3,954)
Total borrowing costs (21,712) (26,445) 4,733
Total net exchange gains/(losses) (1,301) (447) (854)
Net financial income (borrowing costs) (21,360) (21,285) (75)

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

The balance of financial income (borrowing costs) in 2019 was negative by ¤/000 21,360, up by ¤/000 75 compared to the figure of ¤/000 21,285 for the previous year. In 2019, the adoption of the new accounting standard IFRS 16 led to the recognition of net borrowing costs for ¤/000 303

Below is the breakdown of borrowing costs and income:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Financial income:
- From subsidiaries 1,385 537 848
- From subsidiaries for operating leases 14 14
- From the Parent company 21 17 4
Financial income from third parties:
- Interest receivable from clients 45 43 2
- Bank and post office interest payable 3 5 (2)
- Interest income on tax receivables 169 80 89
- Income from fair value measurements - 489 (489)
- Other 16 4,436 (4,420)
Total financial income from third parties 233 5,053 (4,820)
Total financial income 1,653 5,607 (3,954)

The amount of ¤/000 1,385 recognised as financial income from subsidiaries refers to interest from financing activities relative to the subsidiaries Nacional Motor (¤/000 29), Piaggio Fast Forward (¤/000 1,267) and Aprilia Racing (¤/000 89).

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Borrowing costs with Parent Companies:
- Interest expense on operating leases with Parent Companies (201) 0 (201)
Borrowing costs with Parent Companies:
- Interest payable on a debenture loan (12,646) (17,530) 4,884
- Interest payable on bank accounts (285) (192) (93)
- Interest payable on bank loans (4,781) (4,900) 119
- Interest to suppliers (563) (493) (70)
- Interest payable to other lenders (843) (546) (297)
- Interest payable on sub-discount factor operations (702) (613) (89)
- Cash discounts to clients (796) (674) (122)
- Income from fair value measurements (347) 0 (347)
- Bank charges on loans (974) (1,061) 87
- Interest on finance lease agreements (140) (160) 20
- Interest payable on operating lease agreements (116) 0 (116)
Borrowing costs from discounting back termination and termination benefits (215) (454) 239
- Other (2) (6) 4
Total borrowing costs with third parties (22,410) (26,629) 4,219
Total borrowing costs (22,611) (26,629) 4,018
Costs capitalised on Property, Plant and Equipment 153 18 135
Costs capitalised on Intangible Assets 746 166 580
Total Capitalised Costs 899 184 715
Total borrowing costs (21,712) (26,445) 4,733

During 2019, borrowing costs for ¤/000 899 were capitalised (184 in 2018). The average rate used for the capitalisation of borrowing costs (because of general loans), was equal to 3.60% (3.75% in 2018).

Interest payable to other lenders mainly refers to interest payable to factoring companies and banks for the sale of trade receivables.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

IN THOUSANDS OF EUROS 2019 2018 CHANGE
EXCHANGE DIFFERENCES FROM SALE
- Exchange gains 6,056 8,258 (2,202)
- Exchange losses (7,638) (8,593) 955
Total exchange gains (losses) (1,582) (335) (1,247)
EXCHANGE DIFFERENCES FROM MEASUREMENT
- Exchange gains 781 398 383
- Exchange losses (500) (510) 10
Total valuation exchange gains (losses) 281 (112) 393
Net exchange gains/(losses) (1,301) (447) (854)

13. Taxes ¤/000 2,263

The item "Income taxes" is detailed below:

IN THOUSANDS OF EUROS 2019 2018 CHANGE
Current taxes 100 793 (693)
Deferred tax assets/liabilities 2,275 (2,033) 4,308
Taxes of previous years (112) 228 (340)
Total taxes 2,263 (1,012) 3,275

During 2019, taxes generated a total income of ¤/000 2,263

Current taxes generated income of ¤/000 100 and comprise:

– ¤/000 (4,837) from taxes on income produced abroad;

– ¤/000 (652) from regional production tax on income for the year;

– ¤/000 5,589 from income related to transfers within the framework of the Consolidated Tax Convention.

Deferred tax represents the effects on income generated by the deferred tax assets and liabilities.

As regards deferred tax liabilities, during the year new provisions were made for ¤/000 (637), and provisions from previous years were released for ¤/000 1,153.

With regard to deferred tax assets, on the other hand, new provisions amounted to ¤/000 8,199, while the release of amounts allocated in previous years came to ¤/000 (6,440).

The negative balance of taxes from previous years amounted to ¤/000 112.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Reconciliation in relation to the theoretical rate is shown below:

IN THOUSANDS OF EUROS 2019 2018
REVENUE TAXES ON INCOME
Profit before tax 43,948 36,590
Theoretical rate 24.00% 24.00%
Theoretical tax (10,548) (8,782)
Effect due to changes in Profit Before Taxes due to the adoption of tax laws 11,586 12,868
Reversal of deferred corporate tax liabilities allocated in previous years for temporary changes 1,027 1,106
Reversal of deferred corporate tax assets allocated in previous years for temporary changes (803) (3,727)
Reversal of deferred tax assets allocated in previous years for tax losses 5,589 (3,808)
Taxes on income generated abroad (4,837) (2,448)
Taxes relative to previous years (384) 22
Expenses (income) from the Consolidated Tax Convention (5,589) 3,808
Tax affect arising from deferred corporate tax liabilities for temporary changes (636) (431)
Tax affect arising from deferred corporate tax assets for temporary changes 1,974 706
Tax effect arising from the adjustment of deferred corporate income tax assets allocated
for the tax loss of previous years
4,937 340
REGIONAL PRODUCTION TAX (IRAP)
Regional production tax on net revenues for the year (652) (567)
Regional production tax referred to previous years 272 206
Reversal of deferred regional production tax liabilities allocated in previous years for temporary changes 126 125
Reversal of deferred regional production tax assets allocated in previous years for temporary changes (48) (419)
Tax affect arising from deferred regional production tax liabilities for temporary changes (27)
Tax affect arising from deferred regional production tax assets for temporary changes 248 16
Income taxes recognised in the financial statements 2,263 (1,012)

Theoretical tax rates were determined applying the corporate tax rate in effect in Italy (24%) to profit before tax. The impact arising from the regional production tax rate was determined separately, as this tax is not calculated on the basis of profit before tax.

14. Gain/(loss) on assets held for disposal or sale ¤/000 0

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

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

C) INFORMATION ON OPERATING ASSETS AND LIABILITIES

15. Intangible assets ¤/000 570,106

Intangible assets increased overall by ¤/000 11,261 following investments net of disposals and amortisation for the period.

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

During 2019, borrowing costs for ¤/000 611 were capitalised, applying an average interest rate of 3.6%.

The table below shows the breakdown of intangible assets as of 31 December 2018 and 31 December 2019, as well as movements during the two years.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements

Attachments

DEVELOPMENT COSTS PATENT RIGHTS AND KNOW-HOW SIONS,
LICENCES
MARKS
CONCES-
AND TRADE-
GOODWILL OTHER TOTAL
IN SERVICE ASSETS
UNDER
MENT AND
DEVELOP-
ADVANCES
TOTAL IN SERVICE ASSETS
UNDER
MENT AND
DEVELOP-
ADVANCES
TOTAL IN SERVICE ASSETS
UNDER
MENT AND
DEVELOP-
ADVANCES
TOTAL IN SERVICE ASSETS
UNDER
MENT AND
DEVELOP-
ADVANCES
TOTAL
IN THOUSANDS OF EUROS
166,893 11,454 178,347 350,069 3,296 353,365 209,105 463,926 0 1,189,993 14,750 1,204,743
Provisions for write-down (1,007) (1,007) (2,157) (2,157) 0 (3,164) 0 (3,164)
Accumulated amortisation (114,339) (114,339) (274,521) (274,521) (168,204) (95,375) 0 (652,439) 0 (652,439)
Assets as of 01 01 2018 51,547 11,454 63,001 73,391 3,296 76,687 40,901 368,551 0 0 0 534,390 14,750 549,140
13,262 13,323 26,585 18,580 25,305 43,885 611 0 32,453 38,628 71,081
Entry into service 3,483 (3,483) 0 1,670 (1,670) 0 0 0 5,153 (5,153) 0
(24,811) (24,811) (30,026) (30,026) (4,546) 0 (59,383) 0 (59,383)
(1,572) (1,572) (360) (360) 0 (1,932) 0 (1,932)
(41) (41) (20) (20) 0 (61) 0 (61)
Other movements 0 0 0 0 0 0
Total movements for the period (9,679) 9,840 161 (10,156) 23,635 13,479 (3,935) 0 0 0 0 (23,770) 33,475 9,705
182,564 21,294 203,858 368,132 26,931 395,063 209,716 463,926 0 1,224,338 48,225 1,272,563
Provisions for write-down (1,572) (1,572) (360) (360) 0 (1,932) 0 (1,932)
Accumulated amortisation (139,124) (139,124) (304,537) (304,537) (172,750) (95,375) 0 (711,786) 0 (711,786)
Assets as of 31 12 2018 41,868 21,294 63,162 63,235 26,931 90,166 36,966 368,551 0 0 0 510,620 48,225 558,845
9,649 18,228 27,877 17,866 31,647 49,513 0 27,515 49,875 77,390
Entry into service 11,781 (11,781) 0 14,815 (14,815) 0 0 26,596 (26,596) 0
(24,900) (24,900) (34,603) (34,603) (4,545) 0 (64,048) 0 (64,048)
(2,044) (2,044) (11) (11) 0 (2,055) 0 (2,055)
(8) (8) (18) (18) 0 (26) 0 (26)
Other movements 0 0 0 0 0 0
Total movements for the period (5,522) 6,447 925 (1,951) 16,832 14,881 (4,545) 0 0 0 0 (12,018) 23,279 11,261
202,399 27,741 230,140 399,650 43,763 443,413 209,716 463,926 0 1,275,691 71,504 1,347,195
Provisions for write-down (2,044) (2,044) (11) (11) 0 (2,055) 0 (2,055)
Accumulated amortisation (164,009) (164,009) (338,355) (338,355) (177,295) (95,375) 0 (775,034) 0 (775,034)
Assets as of 31 12 2019 36,346 27,741 64,087 61,284 43,763 105,047 32,421 368,551 0 0 0 498,602 71,504 570,106

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Development costs ¤/000 64,087

Development costs include costs for products and engines in projects for which there is an expectation, for the period of the useful life of the asset, to see net sales at such a level in order to allow the recovery of the costs incurred. Development expenditure for new projects capitalised in 2019 refers to the study of new vehicles and new engines (including a new commercial vehicle in partnership with the Foton Motor Group), that will feature as the top products

in the 2019-2021 range. Borrowing costs attributable to the development of products which require a considerable period of time to be realised are capitalised as a part of the cost of the actual assets. Development costs included under this item are amortised on a straight line basis over a period of 3 to 5 years (lead products), in consideration of their remaining useful life.

During 2019, development expenditure amounting to ¤/000 15,544 was directly recognised in profit or loss.

Pursuant to Article 2426, section 5 of the Italian Civil Code, the value of research and development costs still to be amortised equal to ¤/000 64,087 is unavailable in the shareholders' equity.

Industrial Patent and Intellectual Property Rights ¤/000 105,047

This item comprises patents for ¤/000 3,472, know-how for ¤/000 76,804 and software for ¤/000 24,771. As regards software, the increase for the year amounted to ¤/000 11,358 and mainly refers to the purchase of various licences, as well as the implementation of commercial, production, personnel and administration projects.

Investments in know how amount to ¤/000 36,057 and mainly refer to new calculation, design and production techniques and methodologies developed by the Company, principally for new products in the 2019-2021 range. As regards patent rights, costs for ¤/000 2,098 were capitalised.

Costs for industrial patent and intellectual property rights are amortised on a straight line basis over a period of 3 to 5 years, in consideration of their remaining useful life.

Trademarks, concessions and licences ¤/000 32,421

The item Trademarks, concessions and licences is broken down as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Guzzi trademark 11,375 13,000 (1,625)
Aprilia trademark 20,410 23,325 (2,915)
Minor trademarks 25 30 (5)
Foton licence 611 611 0
Total Trademark 32,421 36,966 (4,545)

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

The value of other brands acquired with the Aprilia merger decreased during the year by ¤/000 5 following amortisation calculated on the basis of the estimated useful life.

The Foton licence was acquired following agreements signed in 2018 between Piaggio and the Foton Motor Group for the development and manufacture of a new range of light commercial four-wheelers that will be launched on the market starting from 2020.

The licence will be amortised over 10 years, from production start-up.

As specified in information on accounting standards, as from 1 January 2005 goodwill is no longer amortised, but is tested for impairment annually, or more frequently if specific events or changed circumstances indicate the possibility of impairment, in accordance with IAS 36 Impairment of Assets (impairment test).

In compliance with IAS 36 the methodology adopted is based on the unlevered version of discounted cash flows.

The main assumptions used by the Company to determine future cash flows, relative to a four-year period, and the consequent recoverable value (value in use) refer to:

  • a. a hypothesis of estimated cash flows over a four-year period, inferred from budget data for 2020 supplemented by forecast data for 2021-2023, approved by the Board of Directors of the Company, along with an impairment test performed on 24 February 2020;
  • b. the WACC discount rate;

c. in addition to the period, a growth rate (g rate) has been estimated.

Goodwill ¤/000 368,551

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

In particular, for discount cash flows, the Company has adopted a discount rate (WACC) which differs based on different cash generating units. This reflects market valuations of the fair value of money and takes account of specific risks of activities and the geographic segment in which the cash generating unit operates.

In the future cash flows discounting model, a terminal value is entered at the end of the cash flow projection period, to reflect the residual value each cash-generating unit should produce. The terminal value represents the current value, at the last year of the projection, of all subsequent cash flows calculated as perpetual income, and was determined using a growth rate (g rate) which differed by CGU, to reflect the different growth potentials of each CGU.

EMEA AND AMERICAS ASIA PACIFIC 2W INDIA
2019
WACC 5.2% 7.6% 9.8%
G 1.0% 2.0% 2.0%
Growth rate during the Plan period 5.0% 5.2% 5.7%
2018
WACC 6.4% 8.7% 11.1%
G 1.0% 2.0% 2.0%
Growth rate during the Plan period 6.9% 6.6% 4.6%

The terminal value growth rate (g rate) is specific for CGUs, considering the area's growth potential.

The medium-/long-term growth rate (g rate) for determining the Terminal Value of each CGU was considered as reasonable and prudent, in the light of:

– analysts' expectations for the Company (source: Analyst Reports 2019-2020);

– the long-term real GDP growth trend expected for main countries where the Group operates (source: Economist Intelligence Unit – EIU);

– forecasts for the reference sector (source: Freedonia, «World Motorcycle», May 201941).

This rate was determined based on the previous year.

The growth rate during the period of the Plan was determined using the trend expected for the reference sector as the benchmark (source: Freedonia, "World Motorcycle", May 2019).

Analyses did not identify any impairment losses. Therefore no impairment was reflected in the data of the separate financial statements as of 31 December 2019.

In addition, and on the basis of information in the document produced jointly by the Bank of Italy, Consob and Isvap no. 2 of 6 February 2009, the Company conducted sensitivity analysis of test results in relation to changes in basic assumptions (use of the growth rate in producing the terminal value and discount rate) which affect the value in use of cash generating units. In the case of a positive or negative change of 0.5% of the WACC and G used, analyses would not identify impairment losses.

In all cases, the value in use of the Company was higher than the net carrying amount tested.

Given that the recoverable value was estimated, the Company cannot guarantee the absence of goodwill impairment in future financial periods.

Given the current market weakness, the various factors used in processing estimates could require revision; the Company will constantly monitor these factors as well as the existence of impairment losses.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

16. Property, plant and equipment ¤/000 159,487

Property, plant and equipment decreased overall by ¤/000 9,875. Investments for the period amount to ¤/000 23,653 and mainly refer to moulds for new vehicles and engines that will be launched in the subsequent year, to drive shaft processing lines, engine test benches and the experimental workshop at Pontedera.

Borrowing costs attributable to the construction of assets which require a considerable period of time to be ready for use are capitalised as a part of the cost of the actual assets.

During 2019 borrowing costs for ¤/000 153 were capitalised, applying an average interest rate of 3.6%.

The table below shows the breakdown of property, plant and equipment as of 31 December 2018 and 31 December 2019, as well as movements during the two years.

LAND BUILDINGS PLANT AND MACHINERY EQUIPMENT OTHER ASSETS TOTAL
IN SERVICE ASSETS
STRUCTION
AND
UNDER CON
ADVANCES
TOTAL IN SERVICE ASSETS
STRUCTION
AND
ADVANCES
UNDER CON
TOTAL IN SERVICE ASSETS
STRUCTION
AND
UNDER CON
ADVANCES
TOTAL IN SERVICE ASSETS
STRUCTION
AND
UNDER CON
ADVANCES
TOTAL IN SERVICE STRUCTION
AND
ASSETS UN
DER D CON
ADVANCES
TOTAL
IN THOUSANDS OF EUROS
Historical cost 27,568 135,931 1,823 137,754 303,372 1,537 304,909 478,925 3,467 482,392 24,841 36 24,877 970,637 6,863 977,500
Reversals 4,816 4,816 2,368 2,368 6,253 6,253 199 199 13,636 0 13,636
Provisions for write-down 0 0 0 (2,318) (2,318) 0 0 (2,318) 0 (2,318)
Accumulated depreciation (66,241) (66,241) (262,777) (262,777) (466,019) (466,019) (23,216) (23,216) (818,253) 0 (818,253)
Assets as of 01 01 2018 27,568 74,506 1,823 76,329 42,963 1,537 44,500 16,841 3,467 20,308 1,824 36 1,860 163,702 6,863 170,565
Investments 72 974 312 1,286 4,101 2,185 6,286 8,638 5,484 14,122 272 302 574 14,057 8,283 22,340
Entry into service 856 (856) 0 655 (655) 0 1,509 (1,509) 0 36 (36) 0 3,056 (3,056) 0
Depreciation (4,145) (4,145) (8,552) (8,552) (9,428) (9,428) (490) (490) (22,615) 0 (22,615)
Write-downs (622) (622) 0 0 0 (622) 0 (622)
Disposals 0 (6) (127) (133) (2) (170) (172) (1) (1) (9) (297) (306)
Exchange differences 0 0 0 0 0 0 0
Other movements 0 0 0 0 0 0 0
Total movements for
the year
72 (2,937) (544) (3,481) (3,802) 1,403 (2,399) 717 3,805 4,522 (183) 266 83 (6,133) 4,930 (1,203)
Historical cost 27,640 138,734 1,279 140,013 305,429 2,940 308,369 483,600 7,272 490,872 22,226 302 22,528 977,629 11,793 989,422
Reversals 4,816 4,816 2,368 2,368 6,253 6,253 199 199 13,636 0 13,636
Provisions for write-down (622) (622) 0 (2,318) (2,318) 0 (2,940) 0 (2,940)
Accumulated depreciation (71,359) (71,359) (268,636) (268,636) (469,977) (469,977) (20,784) (20,784) (830,756) 0 (830,756)
Assets as of 31 12 2018 27,640 71,569 1,279 72,848 39,161 2,940 42,101 17,558 7,272 24,830 1,641 302 1,943 157,569 11,793 169,362
Investments 371 1,062 1,433 2,238 8,010 10,248 7,164 3,891 11,055 523 394 917 10,296 13,357 23,653
Entry into service 169 (169) 0 2,228 (2,228) 0 5,982 (5,982) 0 245 (245) 0 8,624 (8,624) 0
Depreciation (4,165) (4,165) (6,513) (6,513) (9,062) (9,062) (637) (637) (20,377) 0 (20,377)
Write-downs 0 (618) (618) (1,676) (1,676) 0 (2,294) 0 (2,294)
Disposals 0 (69) (69) (2) (2) (87) (87) (158) 0 (158)
Exchange differences 0 0 0 0 0 0 0
Adoption of IFRS 16 0 (10,699) (10,699) 0 0 (10,699) 0 (10,699)
Other movements 0 0 0 0 0 0 0
Total movements for
the year
0 (3,625) 893 (2,732) (13,433) 5,782 (7,651) 2,406 (2,091) 315 44 149 193 (14,608) 4,733 (9,875)
Historical cost 27,640 139,273 2,172 141,445 280,099 8,722 288,821 487,115 5,181 492,296 22,889 451 23,340 957,016 16,526 973,542
Reversals 4,816 4,816 2,368 2,368 6,253 6,253 199 0 199 13,636 0 13,636
Provisions for write-down (622) (622) (618) (618) (3,893) (3,893) 0 (5,133) 0 (5,133)
Accumulated depreciation (75,523) (75,523) (256,121) (256,121) (469,511) (469,511) (21,403) (21,403) (822,558) 0 (822,558)
Assets as of 31 12 2019 27,640 67,944 2,172 70,116 25,728 8,722 34,450 19,964 5,181 25,145 1,685 451 2,136 142,961 16,526 159,487

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity

Notes to the financial statements

On 1 January 2019, the net value of assets held through finance lease agreements, equal ¤/000 10,699 and consisting of the Pontedera painting plant for the Vespa, was reclassified under rights of use, as required by the adoption of the new accounting standard IFRS 16.

Land ¤/000 27,640

The value of land has not changed compared to the previous year.

Income statement

Attachments

Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements

Buildings ¤/000 70,116

Buildings decreased overall by ¤/000 2,732. The negative imbalance is due to new investments made during the year amounting to ¤/000 1,433 and to the decrease from depreciation for the period of ¤/000 4,165.

Capitalisation of ¤/000 1,433 refers to office buildings and mainly to renovation works at sites at Pontedera, Mandello del Lario, Noale and Scorzè.

During the period, capitalisation amounting to ¤/000 540 was recognised, of which ¤/000 169 relative to investments made in previous years.

Plant and machinery ¤/000 34,450

The item decreased overall by ¤/000 7,651. The negative imbalance is due to new investments made in the year for ¤/000 10,248, the decrease from amortisation and depreciation for the period of ¤/000 6,513, the disposal of residual costs for ¤/000 69, the write-down of residual costs for ¤/000 618 and reclassification under Rights of use of ¤/000 10,699 relative to the leased painting plant, following the adoption of the new accounting standard IFRS 16.

Capitalisation mainly concerned investments for production lines of new vehicles and the purchase of new machinery for mechanical processing.

During the period, capitalisation amounting to ¤/000 4,466 was recognised, of which ¤/000 2,228 relative to investments made in previous years.

Equipment ¤/000 25,145

The item increased overall by ¤/000 315. The positive imbalance is due to depreciation for the period amounting to ¤/000 9,062 the disposal of residual costs for ¤/000 2, new investments for ¤/000 11,055 and the write-down of residual costs for ¤/000 1,676.

Capitalisation relative to equipment concerned moulds for new vehicles launched during the year or scheduled to be launched in the first half of next year, moulds for new engines and specific equipment for assembly lines. During the period, capitalisation amounting to ¤/000 13,146 was recognised, of which ¤/000 5,982 relative to investments made in previous years.

Other plant, property and equipment ¤/000 2,136

As of 31 December 2019, the item Other assets, including assets under construction, comprised the following:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER
2019
AS OF 31 DECEMBER
2018
CHANGE
EDP systems 1,021 1,065 (44)
Office furniture and equipment 207 268 (61)
Vehicles 124 28 96
Cars 784 582 202
Total 2,136 1,943 193

The item increased overall by ¤/000 193. The positive imbalance is due to new investments made during the year amounting to ¤/000 917, partially offset by amortisation for the period of ¤/000 637 and the disposal of residual costs for ¤/000 87.

During the period, capitalisation amounting to ¤/000 768 was recognised, of which ¤/000 245 relative to investments made in previous years.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Warranties

As of 31 December 2019 the Company did not own land and buildings encumbered by mortgage liens or privileges in favour of banks to secure loans obtained in previous years.

17. Rights of use ¤/000 18,228

The Company has stipulated rental/hire contracts for offices, plants, warehouses, company accommodation, cars and forklift trucks. The rental/lease agreements are typically for a fixed duration, but extension options are possible. These agreements may also include service components.

the Company opted to include only the rent component in the recognition of rights of use.

The rental/hire agreements do not have any covenants to be met, nor require guarantees to be provided in favour of the lessor.

Until 31 December 2018, finance leases for material assets had been classified under property, plant and equipment. As from 1 January 2019, these values, which amounted to ¤/000 10,699 as of 31/12/2018, have been reclassified under rights of use, in accordance with the new accounting standard IFRS 16.

The following tables show the breakdown of rights of use as of 31 December 2019, as well as movements during the year.

IN THOUSANDS OF EUROS AS OF 31 DECEMBER
2019
AS OF 31 DECEMBER
2018
CHANGE
Buildings 5,713 5,713
Plant and machinery 9,843 9,843
Other assets 2,672 2,672
Total 18,228 0 18,228
IN THOUSANDS OF EUROS BUILDINGS PLANT AND
MACHINERY
OTHER
ASSETS
TOTAL
Historical cost 12,839 12,839
Accumulated depreciation (2,140) (2,140)
Property, plant and equipment covered by finance leases as
of 31 12 2018, already recognised under fixed assets
0 10,699 0 10,699
Adoption of IFRS 16 01.01.2019 5,527 10,699 3,386 19,612
Increases 1,718 333 2,051
Depreciation (1,532) (856) (1,047) (3,435)
Decreases 0
Exchange differences 0
Other movements 0
Movements in 2019 186 (856) (714) (1,384)
Historical cost 7,245 12,839 3,719 23,803
Accumulated depreciation (1,532) (2,996) (1,047) (5,575)
Assets as of 31 12 2019 5,713 9,843 2,672 18,228

18. Investment Property ¤/000 0

As of 31 December 2019 no investment property was held.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

19. Deferred tax assets ¤/000 44,752

In compliance with IAS 12, the item indicates the net balance of deferred tax assets and liabilities. This net balance is broken down in the table below:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Deferred tax assets 57,537 55,137 2,400
Deferred tax liabilities (12,785) (13,282) 497
Total 44,752 41,855 2,897

Deferred tax assets total ¤/000 57,537, compared to ¤/000 55,137 as of 31 December 2018, with an increase of ¤/000 2,400.

The balance of deferred tax assets as of 31 December 2019 refers to:

– ¤/000 24,001 for allocations made for temporary differences;

– ¤/000 33,536 for allocations made for tax losses generated under the National Consolidated Tax Convention of which IMMSI S.p.A. is the consolidating company.

The positive change of ¤/000 2,400 is attributable to:

  • ¤/000 (6,440) from the recognition in profit of loss of deferred tax assets recognised in previous years;
  • ¤/000 (8) from the recognition in profit of loss of deferred tax assets recognised in previous years;
  • ¤/000 8,199 from the recognition in profit of loss of new deferred tax assets;
  • ¤/000 649 from the recognition in profit and loss of new deferred tax assets.

Deferred tax assets were recognised in light of forecast results of Piaggio & C. S.p.A., and the foreseeable use of relative tax benefits in future years based on the plan approved by the Board of Directors on 24 February 2020. As Piaggio & C. S.p.A. is part of the National Consolidated Tax Convention of the IMMSI Group, the recovery of deferred tax assets is related to and confirmed by taxable amounts of companies that are part of the above convention, as indicated in the long-term plans approved by their respective Boards.

Details of items affected by the allocation of deferred tax assets as well as the amount of deferred tax assets already recognised and not recognised are shown in the table below.

IN THOUSANDS OF EUROS AMOUNT TAX EFFECT 24% TAX EFFECT 3.9%
Nacional Motor goodwill 12,919 3,101 504
Discounting termination benefit 5,465 1,312
Derbi trademark 8,167 1,960 318
Provisions for risks 8,913 2,139 345
Provision for product warranties 11,697 2,807 456
Provisions for bad debts 16,985 4,076
Provisions for obsolete stock 20,639 4,953 805
A.C. IFRS 9 1,568 376
Other changes 3,246 779 42
Total for provisions and other changes 89,599 21,503 2,470
2007 tax loss including Moto Guzzi transferred to IMMSI 10,981 2,635
2011 tax loss transferred to IMMSI 1,024 246
2012 tax loss transferred to IMMSI 26,625 6,390
2013 tax loss transferred to IMMSI 30,553 7,333
2014 tax loss transferred to IMMSI 18,668 4,480
2015 tax loss transferred to IMMSI 24,257 5,822
2016 tax loss transferred to IMMSI 12,448 2,987
2017 tax loss transferred to IMMSI 10,851 2,604
2019 tax loss transferred to IMMSI 4,328 1,039
Total out of tax losses 139,735 33,536 0
Losses from the fair value measurement of financial instruments 28
Deferred tax assets already recognised 57,537
Deferred tax assets not recognised for provisions and other changes 0

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

IN THOUSANDS OF EUROS VALUES AS OF
31 DECEMBER
2018
PORTION TO
THE INCOME
STATEMENT
PORTION
TO THE
STATEMENT
OF COM
PREHENSIVE
INCOME
PORTION TO
THE INCOME
STATEMENT
PORTION TO
THE STATE
MENT OF
COMPREHEN
SIVE INCOME
VALUES AS OF
31 DECEMBER
2019
DEFERRED TAX ASSETS FOR:
Temporary changes 21,988 (851) (8) 2,223 649 24,001
Losses generated within the
framework of tax consolidation
33,149 (5,589) 5,976 33,536
Total 55,137 (6,440) (8) 8,199 649 57,537

Overall, the movement of deferred tax assets can be summarised as follows:

As of 31 December 2019, deferred tax liabilities totalled ¤/000 12,785 compared to ¤/000 13,282 as of 31 December 2018, recording a positive change of ¤/000 497.

They refer to:

  • ¤/000 3,152 for the surplus value recognised by the merged company Aprilia in 2005 for buildings already held through leases, and purchased back by Aprilia Leasing S.p.A.
  • ¤/000 662 for temporary changes in taxable income that will be annulled next year;
  • ¤/000 2,957 for depreciation charges minus tax-recognised goodwill values;
  • ¤/000 483 for tax-deducted costs, off the accounts, in relation to the application of IAS/IFRS;
  • ¤/000 2,363 for allocation of the merger loss to the Aprilia brand, arising from its merger in 2005;
  • ¤/000 3,168 for allocation of the merger loss to the Guzzi brand, arising from its merger in 2008.

Deferred tax liabilities were reduced in the period by ¤/000 1,152 following issue of the relative portion, and increased overall by ¤/000 655 due to new provisions, of which ¤/000 19 to the statement of comprehensive income.

Deferred tax assets and liabilities were determined applying the tax rate in effect in the year when temporary differences occur.

20. Inventories ¤/000 154,901

This item comprises:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Raw materials and consumables 71,787 67,993 3,794
Provision for write-down (4,382) (3,883) (499)
Net value 67,405 64,110 3,295
Work in progress and semi-finished products 17,881 17,111 770
Provision for write-down (852) (852) 0
Net value 17,029 16,259 770
Finished products and goods 85,508 102,354 (16,846)
Provision for write-down (15,404) (16,295) 891
Net value 70,104 86,059 (15,955)
Advances 363 35 328
TOTAL 154,901 166,463 (11,562)

As of 31 December 2019 inventories had decreased by ¤/000 11,562 in line with production volumes and sales in the year.

Changes in the obsolescence fund are summarised in the table below:

IN THOUSANDS OF EUROS AS OF
31 DECEMBER 2018
USE ALLOCATION AS OF
31 DECEMBER 2019
Raw materials 3,882 (1,607) 2,107 4,382
Work in progress and semi-finished products 852 852
Finished products and goods 16,295 (6,665) 5,774 15,404
TOTAL 21,029 (8,272) 7,881 20,638

21. Current trade receivables ¤/000 43,599

Current trade receivables decreased by 4,464. No non-current trade receivables were recorded for either period.

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Trade receivables 22,983 25,085 (2,102)
Trade receivables due from subsidiaries 19,627 21,985 (2,358)
Trade receivables due from affiliated companies 966 981 (15)
Trade receivables due from parent companies 23 12 11
Total 43,599 48,063 (4,464)

Trade receivables are recorded net of a provision for bad debts equal to ¤/000 22,096.

Trade receivables comprise receivables referred to normal sales operations and include receivables in foreign currency for a total value, at the exchange rate in effect as of 31 December 2019, taking account of exchange risk hedging, of ¤/000 8,237.

The item "Trade receivables" includes invoices to issue amounting to ¤/000 387 relative to normal business transactions and credit notes to issue amounting to ¤/000 11,763 mainly referring to premiums to pay to the sales network in Italy and abroad for having reached targets.

Trade receivables are usually sold to factoring companies and mainly on a without recourse and advance payment collection basis.

The Company sells a large part of its trade receivables with and without recourse. Piaggio has signed contracts with some of the most important Italian and foreign factoring companies as a move to optimise the monitoring and the management of its trade receivables, besides offering its customers an instrument for funding their own inventories, for factoring classified as without the substantial transfer of risks and benefits. On the contrary, for factoring without recourse, contracts have been formalised for the substantial transfer of risks and benefits. As of 31 December 2019, trade receivables still due, sold without recourse, totalled ¤/000 64,526. Of this amount, Piaggio received advance payments for ¤/000 64,422. As of 31 December 2019, advance payments received from factoring companies and banks for trade receivables sold with recourse totalled ¤/000 9,946, with a counter entry recorded in current liabilities.

Movements of the provisions for write-down relative to trade receivables were as follows:

IN THOUSANDS OF EUROS
Opening balance as of 1 January 2019 20,810
Decreases for use recognised in profit or loss (39)
Reclassifications from the provision for bad debts relative to long-term receivables
Reclassifications to the provision for litigation
Increases for allocations 1,325
Closing balance as of 31 December 2019 22,096

During the period, the provision for bad trade debts was used to cover losses amounting to ¤/000 39.

Allocations to the provision were made against risks arising from the valuation of relative receivables as of 31 December 2019.

Trade receivables due from subsidiaries and associates refer to the supply of products undertaken in normal market conditions.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

22. Other current and non-current receivables ¤/000 98,540

Their breakdown was as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON TOTALS CURRENT NON TOTALS CURRENT NON TOTALS
CURRENT CURRENT CURRENT
Due to subsidiaries 66,991 66,991 40,220 40,220 26,771 0 26,771
Due to affiliated companies 1,340 81 1,421 1,056 94 1,150 284 (13) 271
Due to parent companies 12,410 12,410 13,888 13,888 (1,478) 0 (1,478)
Receivables due from employees 1,230 1,230 2,090 2,090 (860) 0 (860)
Due from social security institutions 315 43 358 1,460 25 1,485 (1,145) 18 (1,127)
Amounts due to suppliers 110 110 95 95 15 0 15
Supplier advances 162 162 140 140 22 0 22
Invoices and credit to issue 1,940 1,940 1,444 1,444 496 0 496
Sundry receivables from third parties 1,017 1,017 2,507 2,507 (1,490) 0 (1,490)
Fair value of derivatives 123 123 4 4 119 0 119
Other receivables 2,979 9,799 12,778 2,019 5,940 7,959 960 3,859 4,819
TOTAL 88,617 9,923 98,540 64,923 6,059 70,982 23,694 3,864 27,558

Receivables due from social security institutions refer to sums receivable from and payable by the Italian National Social Security Institute (INPS) for termination benefit accrued by employees on solidarity contracts.

The item "Other" includes guarantee deposits amounting to ¤/000 877 and prepaid expenses amounting to ¤/000 8,914

Receivables due from employees refer to advances paid for secondments, sick leave, contract advances, cash provisions, etc.

Sundry receivables mainly refer to receivables due from Italian and foreign parties, originating from transactions not related to typical activities.

Other current receivables are recognised net of a write-down provision of ¤/000 5,884.

Movements of the provision for bad debts relative to sundry receivables were as follows:

IN THOUSANDS OF EUROS
Opening balance as of 1 January 2019 5,887
Decreases for use (149)
Increases for allocations 146
Closing balance as of 31 December 2019 5,884

During the measurement of relative receivables as of 31 December 2019, a further allocation to the provision of ¤/000 146 was necessary.

23. Current and non-current tax receivables ¤/000 19,423

Tax receivables are broken down as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS
VAT 10,628 61 10,689 1,996 26 2,022 8,632 35 8,667
Income tax 482 7,944 8,426 857 10,297 11,154 (375) (2,353) (2,728)
Other 289 19 308 233 25 258 56 (6) 50
Total 11,399 8,024 19,423 3,086 10,348 13,434 8,313 (2,324) 5,989

The positive net change amounted to ¤/000 5,989.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

24. Breakdown of operating receivables by measurement method

The table below shows the breakdown of operating receivables by measurement method:

IN THOUSANDS
OF EUROS
ASSETS
MEASURED
AT FVPL
ASSETS
MEASURED
AT FVOCI
FINANCIAL
DERIVATIVES
ASSETS
AT AMORTISED
COST
TOTAL
OPERATING ASSETS AS OF 31 DECEMBER 2019
Non-current assets
Tax receivables 8,024 8,024
Other receivables 9,923 9,923
Total non-current operat
ing receivables
0 0 0 17,947 17,947
Current assets
Trade receivables 43,599 43,599
Other receivables 123 88,494 88,617
Tax receivables 11,399 11,399
Total current operating
receivables
0 0 123 143,492 143,615
Total 0 0 123 161,439 161,562
OPERATING ASSETS AS OF 31 DECEMBER 2018
Non-current assets
Tax receivables 10,348 10,348
Other receivables 6,059 6,059
Total non-current operat
ing receivables
0 0 0 16,407 16,407
Current assets
Trade receivables 48,063 48,063
Other receivables 4 64,919 64,923
Tax receivables 3,086 3,086
Total current operating
receivables
0 0 4 116,068 116,072
Total 0 0 4 132,475 132,479

25. Receivables due after 5 years ¤/000 0

As of 31 December 2019, there were no receivables due after 5 years.

26. Assets held for sale ¤/000 0

As of 31 December 2019, there were no assets held for sale.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

27. Trade payables (current) ¤/000 307,804

All trade payables are included in current liabilities.

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT LIABILITIES:
Amounts due to suppliers 286,352 251,481 34,871
Trade payables due to subsidiaries 15,809 15,089 720
Trade payables due to associates 5,304 5,085 219
Trade payables due to parent companies 338 1,641 (1,303)
Trade payables due to other related parties 1 3 (2)
Total 307,804 273,299 34,505

The item comprises trade payables of ¤/000 293,298 for the purchase of goods, materials and services for business operations and ¤/000 14,506 for the purchase of assets.

The item includes payables in foreign currency for a total value, at the exchange rate in effect at 31 December 2019, taking account of hedging on exchange risk, of ¤/000 45,892.

To facilitate credit conditions for its suppliers, the Company has used factoring agreements since 2012, mainly supply chain financing and reverse factoring agreements, as described in more detail in "accounting policies adopted by the Company", to which reference is made. These operations did not change the primary obligation, nor substantially changed payment terms, so their nature is the same and they are still classified as trade liabilities.

As of 31 December 2019, the value of trade payables covered by reverse factoring or supply chain financing agreements was equal to ¤/000 148,679. (¤/000 128,027 as of 31 December 2018).

28. Provisions (current and non-current portion) ¤/000 17,403

IN THOUSANDS OF EUROS BALANCE AS OF
31 DECEMBER
2018
ALLOCATIONS USES BALANCE AS OF
31 DECEMBER
2019
Provisions for risks
Provisions for risk on investments 11 90 (8) 93
Provision for contractual risks 2,311 689 3,000
Risk provision for legal disputes 1,212 450 1,662
Provision for guarantee risks 58 58
Total provisions for risks 3,592 1,229 (8) 4,813
Provisions for expenses
Provision for product warranties 10,484 6,835 (5,622) 11,697
Other reserves 50 354 (48) 356
Provision for environmental clean-ups 537 537
Total provisions for expenses 11,071 7,189 (5,670) 12,590
Total provisions for risks and charges 14,663 8,418 (5,678) 17,403

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

They consist of:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS
Provisions for risk on investments 93 93 11 11 82 0 82
Provision for product warranties 8,188 3,509 11,697 7,339 3,145 10,484 849 364 1,213
Promotional expense fund 40 40 45 45 (5) 0 (5)
Provision for competition 316 316 5 5 311 0 311
Provision for contractual risks 3,000 3,000 2,310 2,310 0 690 690
Risk provision for legal disputes 1,662 1,662 1,213 1,213 0 449 449
Provision for guarantee risks 58 58 58 58 0 0 0
Provision for environmental clean-ups 537 537 537 537 0 0 0
Total 8,637 8,766 17,403 7,400 7,263 14,663 1,237 1,503 2,740

The provision for risks on investments refers to ¤/000 90 relative to the subsidiary Aprilia Racing and to ¤/000 3 to the subsidiary Piaggio Indonesia.

Provisions were made in compliance with the equity method valuation and the related risk provisions refer to the Parent Company's commitment for the re-capitalisation of the investees.

The provision for contract risks refers mainly to charges which could arise from a supply contract.

The provision for litigation totalled ¤/000 1,662.

The provision for risks on guarantees provided refers to charges expected for guarantees issued on the transfer of company equity investments.

The provision for product warranties of ¤/000 11,697 refers to potential liabilities related to the sale of products. The provision refers to allocations for technical assistance on products covered by customer service which are estimated to be provided over the contractually envisaged warranty period. This period varies according to the type of goods sold to the sales market and to the customer acceptance of a scheduled maintenance plan.

The provision increased during the year by ¤/000 6,835 for new allocations and was used for ¤/000 5,622 for expenses sustained referring to sales in previous years.

29. Retirement funds and employee benefits ¤/000 37,198

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Provision for retirement 139 142 (3)
Post-employment benefits provision 37,059 39,480 (2,421)
Total 37,198 39,622 (2,424)

The provision for retirement mainly consists of provision for supplementary customer allowances, representing the amounts payable to agents if agency agreements are terminated for reasons not attributable to them. During the year, the provision was increased by ¤/000 8 for benefits accrued during the period and reduced by ¤/000 11 for uses during the period.

Movements for post-employment benefits provision are as follows:

IN THOUSANDS OF EUROS
Opening balance as of 1 January 2019 39,480
Cost for the year 7,777
Actuarial losses recognised in Shareholders' equity 2,704
Interest cost 215
Uses and transfers of retirement funds (13,113)
Other movements (4)
Closing balance as of 31 December 2019 37,059

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Economic/technical assumptions

The economic/technical assumptions used to discount the value are described in the table below:

Technical annual discount rate 0.37%
Annual rate of inflation 1.50% as from 2019
Annual rate of increase in termination benefits 2.625% as from 2019

As regards the discount rate, the Company uses the iBoxx Corporates AA rating with a 7-10 duration as the valuation benchmark. If the iBoxx Corporates A rating with a 7-10 duration had been used, the value of actuarial losses and the provision as of 31 December 2019 would have been lower by ¤/000 837.

The table below shows the effects, in absolute terms, as of 31 December 2019, which would have occurred following changes in reasonably possible actuarial assumptions:

IN THOUSANDS OF EUROS PROVISION FOR TERMINATION BENEFITS
Turnover rate +2% 36,667
Turnover rate -2% 37,482
Inflation rate +0.25% 37,584
Inflation rate - 0.25% 36,533
Discount rate +0.50% 36,217
Discount rate -0.50% 37,923

The average financial duration of the bond is 9 years.

Estimated future amounts are equal to:

IN THOUSANDS OF EUROS
YEAR FUTURE AMOUNTS
1 5,184
2 2,926
3 1,842
4 2,035
5 914

30. Current tax payables ¤/000 5,694

All tax payables are included in current liabilities. Their breakdown was as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Due for income taxes 1,735 1,189 546
Other tax payables for:
- VAT 32 (32)
- Tax withheld at source 3,854 3,528 326
- Duty and tax records to pay 105 35 70
Total other tax payables 3,959 3,595 364
Total 5,694 4,784 910

Current tax payables refer wholly to taxes to pay abroad for income generated abroad during 2019, mainly for royalties, technical consultancy services and other services for the subsidiary Piaggio Vietnam.

Payables for regional production tax are entered offset against relative receivables. Regional production tax due for the year amounted to ¤/000 652.

Payables for withheld taxes paid refer to the income of employee and outsourced work and commission.

31. Other payables (current and non-current) ¤/000 46,535

Their breakdown was as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS
Amounts due to subsidiaries 14,655 14,655 5,971 5,971 8,684 0 8,684
Amounts due to affiliated companies 9 9 22 22 (13) (13)
Amounts due to parent companies 0 6,203 6,203 (6,203) 0 (6,203)
Payables to employees 10,581 10,581 10,791 10,791 (210) 0 (210)
Amounts due to social security
institutions
7,626 7,626 7,553 7,553 73 0 73
Amounts due to company boards 605 605 609 609 (4) 0 (4)
Amounts due for temporary
funding
512 512 521 521 (9) 0 (9)
Amounts due for financial
statement assessments
244 244 210 210 34 0 34
Amounts due to customers 1,906 1,906 3,021 3,021 (1,115) 0 (1,115)
Payables from the fair value mea
surement of financial instruments
46 46 16 16 30 0 30
Accrued expenses 3,073 3,073 3,156 3,156 (83) 0 (83)
Deferred income 987 1,917 2,904 672 2,333 3,005 315 (416) (101)
Other payables 4,304 70 4,374 4,579 70 4,649 (275) 0 (275)
Total 44,548 1,987 46,535 43,324 2,403 45,727 1,224 (416) 808

As regards the non-current portion:

– Other payables refer to ¤/000 70 for a guarantee deposit .

As regards the current portion:

  • amounts due to employees refer to the amount for holidays accrued but not taken of ¤/000 8,708 and other payments to be made for ¤/000 1,873;
  • contributions of ¤/000 512 refer to contributions relative to subsidies for research activities not yet acquired;
  • amounts due to clients mainly refer to premiums paid for achieving sales targets that will be paid at the end of the reporting period and to credit notes for returns;
  • deferred income refers to ¤/000 337 from contributions for research activities to recognise in the income statement under amortisation, ¤/000 141 from royalties, ¤/000 509 from income related to extended warranties on vehicles
  • accrued expenses refer to ¤/000 412 relative to interest expense, ¤/000 2,630 relative to interest on bonds and ¤/000 31 relative to interest on lease agreements.

deferred income comprises ¤/000 1,047 from contributions to recognise in the income statement in relation to amortisation, ¤/000 78 from royalties for years after 2020, ¤/000 729 from income related to extended warranties on vehicles for years after 2020, and ¤/000 63 from income related to scheduled maintenance packages, also for years after 2020;

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

32. Breakdown of operating payables by measurement method

The table below shows the breakdown of operating payables by measurement method:

IN THOUSANDS OF EUROS DERIVATIVES
AT FVPL
FINANCIAL
DERIVATIVES
LIABILITIES AT
AMORTISED
COST
TOTAL
OPERATING LIABILITIES AS OF 31 DECEMBER 2019
Non-current liabilities
Tax payables -
Other payables 1,987 1,987
Total non-current liabilities - - 1,987 1,987
Current liabilities
Trade payables 307,804 307,804
Tax payables 5,694 5,694
Other payables 46 44,502 44,548
Total current liabilities - 46 358,000 358,046
Total - 46 359,987 360,033
OPERATING LIABILITIES AS OF 31 DECEMBER 2018
Non-current liabilities
Tax payables -
Other payables 2,403 2,403
Total non-current liabilities - - 2,403 2,403
Current liabilities
Trade payables 273,299 273,299
Tax payables 4,784 4,784
Other payables 16 43,308 43,324
Total current liabilities - 16 321,391 321,407
Total - 16 323,794 323,810

33. Payables due after 5 years

The Company has loans due after 5 years; details are given in Note 37 Financial Liabilities. Apart from these loans, no other long-term payables due after five years have been recorded.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

D) INFORMATION ON FINANCIAL ASSETS AND LIABILITIES

This section provides information on the carrying amount of financial assets and liabilities held, and in particular:

  • specifically describes the type of financial assets and liabilities;
  • the accounting standards adopted;

– describes how fair value is determined, how measurements and estimates are made, and the uncertainties involved.

The Company holds the following financial assets and liabilities:

IN THOUSANDS ASSETS ASSETS FINANCIAL ASSETS TOTAL
OF EUROS MEASURED MEASURED DERIVATIVES AT AMORTISED
AT FVPL AT FVOCI COST
FINANCIAL ASSETS AS OF 31 DECEMBER 2019
Non-current assets
Other financial assets 37 3,475 289 3,801
Total non-current assets 37 0 3,475 289 3,801
Current assets
Other financial assets 3,471 12,407 15,878
Cash and cash equivalents 18,843 18,843
Securities 0
Total current assets 0 0 3,471 31,250 34,721
Total 37 0 6,946 31,539 38,522
FINANCIAL ASSETS AS OF 31 DECEMBER 2018
Non-current assets
Other financial assets 37 5,992 6,029
Total non-current assets 37 0 5,992 0 6,029
Current assets
Other financial assets 2,804 11,993 14,797
Cash and cash equivalents 22,944 22,944
Securities 0
Total current assets 0 0 2,804 34,937 37,741
Total 37 0 8,796 34,937 43,770

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

IN THOUSANDS
OF EUROS
LIABILITIES
MEASURED
FAIR VALUE
ADJUSTMENT
FINANCIAL
DERIVATIVES
LIABILITIES
AT AMORTISED
TOTAL
AT FVPL COST
FINANCIAL LIABILITIES AS OF 31 DECEMBER 2019
Non-current liabilities
Bank loans 176,105 176,105
Bonds 3,269 282,099 285,368
Other loans 127 127
Rights of use -
Leases -
Hedging derivatives -
Total non-current liabilities - 3,269 - 458,331 461,600
Current liabilities
Bank loans 76,268 76,268
Bonds 3,265 11,022 14,287
Other loans 9,981 9,981
Rights of use -
Leases -
Hedging derivatives -
Total current liabilities - 3,265 - 97,271 100,536
Total - 6,534 - 555,602 562,136
FINANCIAL LIABILITIES AS OF 31 DECEMBER 2018
Non-current liabilities
Bank loans 201,388 201,388
Bonds 5,475 291,694 297,169
Other loans 150 150
Leases 7,930 7,930
Hedging derivatives -
Total non-current liabilities - 5,475 - 501,162 506,637
Current liabilities
Bank loans 39,160 39,160
Bonds 2,563 10,325 12,888
Other loans 9,622 9,622
Leases 1,127 1,127
Hedging derivatives -
Total current liabilities - 2,563 - 60,234 62,797
Total - 8,038 - 561,396 569,434

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

34. Investments ¤/000 156,129

The investments heading comprises:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Investments in subsidiaries 149,681 146,447 3,234
Investments in associates 6,448 5,693 755
Total 156,129 152,140 3,989

Movements for the period are shown below:

IN THOUSANDS OF EUROS COMPANY TRANSACTIONS
CARRYING
AMOUNT
AS OF
31/12/2018
2019 RE
SULT
TRAN
SLATION
RESERVE
IAS 19
DISCOUN
TING
RESERVE
DECREASES
FOR THE
DISTRIBU
TION OF
DIVIDENDS
CAPITALISA
TION
CARRYING
AMOUNT
AS OF
31/12/2019
SUBSIDIARIES
Piaggio Vespa B.V. 21,007 15,622 62 (16,100) 20,591
Piaggio Vehicles Pvt Ltd 102,299 34,529 (506) (392) (32,832) 103,098
Nacional Motor 2,754 (1,510) 5,650 6,894
Piaggio Vietnam Co Ltd 13,582 17,259 405 (18,276) 12,970
Piaggio China Ltd 2,133 267 17 14 2,431
Aprilia racing s.r.l. 1,064 (1,064) 0
Piaggio España SL 2,728 566 (560) 2,734
Piaggio Indonesia 0
Piaggio Advanced Design Center 308 25 6 339
Piaggio Fast Forward Inc. (1,812) 1,812 0
Piaggio Concept Store Mantova S.r.l. 572 (638) (10) 700 624
Total subsidiaries 146,447 63,244 (16) (402) (67,768) 8,176 149,681
ASSOCIATES
Zongshen Piaggio Foshan 5,572 698 44 6,314
Pontech Soc. Cons. a.r.l. 111 13 124

Immsi Audit S.c.a.r.l. 10 10 Fondazione Piaggio onlus 0 Total associates 5,693 711 44 0 0 0 6,448 Total investments 152,140 63,955 28 (402) (67,768) 8,176 156,129

Investments in subsidiaries ¤/000 149,681

The following company transactions concerned investments in subsidiaries during the year:

– Piaggio Vespa B.V., the recognition of dividends for ¤/000 16,100;

– Piaggio Vehicles, the recognition of dividends for ¤/000 32,832;

– Nacional Motor, capitalisation of ¤/000 5,650;

– Piaggio Vietnam, the recognition of dividends for ¤/000 18,276;

– Piaggio China, capitalisation of ¤/000 14;

– Piaggio España, the recognition of dividends for ¤/000 560;

– Piaggio Fast Forward, the capitalisation of ¤/000 1,812 and impairment of financial receivables for ¤/000 16,059 in relation to the loss recorded in the year;

– Piaggio Concept Store Mantova, capitalisation of ¤/000 700.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Investments in associates ¤/000 6,448.

Investments in affiliated companies did not change in relation to company transactions.

35. Other current and non-current financial assets ¤/000 19,679

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS CURRENT NON
CURRENT
TOTALS
Financial receivables due from
subsidiaries
12,261 12,261 11,993 11,993 268 0 268
Financial receivables due from
subsidiaries for rights of use
146 289 435 146 289 435
Fair value of hedging derivatives 3,471 3,475 6,946 2,804 5,992 8,796 667 (2,517) (1,850)
Investments in other companies 37 37 37 37 0 0 0
Total 15,878 3,801 19,679 14,797 6,029 20,826 1,081 (2,228) (1,147)

The item Financial receivables due from subsidiaries refers to loans to Nacional Motor for ¤/000 250, to Piaggio Fast Forward for ¤/000 3,011 and to Aprilia Racing for ¤/000 9,000.

The item "Fair value of hedging derivatives" refers to the fair value of the Cross Currency Swap on the private debenture loan, of which details are given in section 39.

The table below shows the composition of investments in other companies:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
OTHER COMPANIES:
A.N.C.M.A. – Rome 2 2 0
ECOFOR SERVICE S.p.A. – Pontedera 2 2 0
Consorzio Fiat Media Center – Turin 3 3 0
S.C.P.S.T.V. 21 21 0
IVM 9 9 0
Total other companies 37 37 0

36. Cash and cash equivalents ¤/000 18,843

This item mainly includes short-term or on demand bank deposits. Cash and cash equivalents are broken down as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Bank and postal deposits 18,818 22,919 (4,101)
Cash on hand 25 25 0
Total 18,843 22,944 (4,101)

Reconciliation of cash and cash equivalents recognised in the statement of financial position with cash and cash equivalents recognised in the Statement of Cash Flows

The table below reconciles the amount of cash and cash equivalents above with cash and cash equivalents recognised in the Statement of Cash Flows.

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Cash and cash equivalents 18,843 22,944 (4,101)
Current account overdrafts (18) (352) 334
Closing balance 18,825 22,592 (3,767)

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

37. Current and non-current financial liabilities and financial liabilities for rights of use ¤/000 579,728

In 2019, overall debt increased by ¤/000 10,294, due to the recognition of payables for rights of use (¤/000 17,592 as of 31 December 2019) under financial liabilities in the financial statements as from 1 January 2019, following the adoption of the new accounting standard IFRS 16; reference is made to the relative effects in the section "New accounting standards, amendments and interpretations adopted from 1 January 2019". Net of this change and the fair value measurement of financial derivatives to hedge the exchange risk and interest rate risk, and the adjustment of related hedged items, as of 31 December 2019 total financial debt of the Group decreased by ¤/000 5,794.

Moreover, the adoption of a new dividend distribution policy starting from 2019, with the distribution of an interim dividend during the year (rather than a single dividend), led to an advance outflow of ¤/000 19,650.

IN THOUSANDS OF EUROS FINANCIAL LIABILITIES AS OF 31 DECEMBER 2019 FINANCIAL LIABILITIES AS OF 31 DECEMBER 2018 CHANGE
CURRENT NON
CURRENT
TOTAL CURRENT NON
CURRENT
TOTAL CURRENT NON
CURRENT
TOTAL
Financial liabilities 100,536 461,600 562,136 62,797 506,637 569,434 37,739 (45,037) (7,298)
Gross financial liabilities 97,271 458,331 555,602 60,234 501,162 561,396 37,037 (42,831) (5,794)
Fair value adjustment 3,265 3,269 6,534 2,563 5,475 8,038 702 (2,206) (1,504)
Financial liabilities for rights of use 4,414 13,178 17,592 4,414 13,178 17,592
Total 104,950 474,778 579,728 62,797 506,637 569,434 42,153 (31,859) 10,294

Net financial debt of the Group amounted to ¤/000 541,943 as of 31 December 2019 compared to ¤/000 526,459 as of 31 December 2018.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Liquidity 18,843 22,944 (4,101)
Short-term financial receivables due from subsidiaries 12,261 11,993 268
Short-term financial receivables due from subsidiaries
for rights of use
146 146
Current financial receivables 12,407 11,993 414
Current account overdrafts (18) (352) 334
Current account payables (50,500) 0 (50,500)
Current portion of bank loans (25,750) (38,808) 13,058
Bonds (11,022) (10,325) (697)
Amounts due to factoring companies (9,946) (9,291) (655)
Finance leases (1,127) 1,127
Liabilities for rights of use (4,414) (4,414)
of which amounts due under finance leases (1,149) (1,149)
of which amounts due under operating leases (3,265) (3,265)
Current portion of payables due to other lenders (35) (331) 296
Current financial debt (101,685) (60,234) (41,451)
Consolidated debt/net current debt (70,435) (25,297) (45,138)
Payables due to banks and lenders (176,105) (201,388) 25,283
Debenture loan (282,099) (291,694) 9,595
Finance leases (7,930) 7,930
Liabilities for rights of use (13,177) (13,177)
of which amounts due under finance leases (6,781) (6,781)
of which amounts due under operating leases (6,396) (6,396)
Amounts due to other lenders (127) (150) 23
Non-current financial debt (471,508) (501,162) 29,654
NET FINANCIAL DEBT42 (541,943) (526,459) (15,484)

The tables above and below show payables for finance leases, and payables for operating leases, on separate rows, for an easier understanding and greater comparability between data for the two years.

The tables below analyse the movements of the net financial position year on year.

42 Pursuant to Consob Communication of 28 July 2006 and in compliance with the recommendation of the CESR of 10 February 2005 "Recommendation for the consistent implementation of the European Commission's Regulation on Prospectuses". The indicator does not include financial assets and liabilities arising from the fair value measurement of financial derivatives for hedging and otherwise, the fair value adjustment of relative hedged items equal to ¤/000 6,534 and relative accruals.

BALANCE CASH FLOWS CASH FLOWS
AS OF
31.12.2017
MOVE
MENTS
REPAY-
MENTS
NEW
ISSUES
CATIONS
RECLASSIFI-
EXCHANGE
DELTA
OTHER CHANGES BALANCE AS
OF 31.12.2018
MOVE-
MENTS
REPAY-
MENTS
NEW CATION EXCHANGE
ISSUES RECLASSIFI-
DELTA OTHER
CHANGES
BALANCE AS
OF 31.12.2019
IN THOUSANDS OF EUROS
Liquidity 10,239 12,705 22,944 (4,144) 43 18,843
receivables subsidiaries
Short-term financial
14,171 11,241 0 (81) (13,338) 11,993 21,924 54 (21,710) 12,261
Financial receivables
Operating Leases
Subsidiaries for
(52) 93 105 146
Current financial
receivables
14,171 0 0 11,241 0 (81) (13,338) 11,993 0 (52) 21,924 93 54 (21,605) 12,407
Current account
overdrafts
(173) (179) (352) 352 (18) (18)
Current account payables (15,000) 15,000 0 (50,500) (50,500)
Current portion of medium-
/long-term bank loans
(42,785) 44,551 (1,400) (38,859) (315) (38,808) 38,859 (25,795) (6) (25,750)
Total current bank loans (57,958) 0 59,551 (1,579) (38,859) 0 (315) (39,160) 0 39,211 (50,518) (25,795) 0 (6) (76,268)
Debenture loan (9,625) 9,669 (10,359) (10) (10,325) 10,360 (11,050) (7) (11,022)
Due to factoring
companies
(14,613) 5,322 (9,291) 9,291 (9,946) (9,946)
Due under finance leases (1,108) 1,108 (1,127) (1,127) 1,127 0
Liabilities for ROU 1,885 (4,815) 0 (2,930)
- due under finance leases 1,128 (2,277) (1,149)
- due under operating
leases
757 (2,538) 0 (1,781)
Liabilities for ROU with
Parent Companies
1,243 (2,727) 0 (1,484)
Current payables due to
other lenders
(317) 317 (331) (331) 319 (23) (35)
Current financial debt (83,621) 0 75,967 (1,579) (50,676) 0 (325) (60,234) 0 62,309 (60,464) (43,283) 0 (13) (101,685)
Net current financial debt (59,211) 12,705 75,967 9,662 (50,676) (81) (13,663) (25,297) 0 58,113 (38,540) (43,190) 97 (21,618) (70,435)
Payables due to banks
and lenders
(115,763) 25,000 (151,100) 38,859 1,616 (201,388) 25,795 (512) (176,105)
Debenture loan (304,592) 168,497 (168,497) 10,359 2,539 (291,694) 11,050 (1,455) (282,099)
Due under finance leases (9,057) 1,127 (7,930) 7,930 0
Liabilities for ROU 0 (4,242) (4,356) (8,598)
- due under finance leases (6,780) (1) (6,781)
- due under operating
leases
0 0 2,538 (4,355) (1,817)
Liabilities for ROU with
Parent Companies
0 2,727 (7,306) (4,579)
Due to other lenders (319) (162) 331 (150) 23 (127)
Non-current financial debt (429,731) 0 193,497 (319,759) 50,676 0 4,155 (501,162) 0 0 0 43,283 0 (13,629) (471,508)
NET FINANCIAL DEBT (488,942) 12,705 269,464 (310,097) 0 (81) (9,508) (526,459) 0 58,113 (38,540) 93 97 (35,247) (541,943)

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements

Attachments

Financial liabilities ¤/000 555,602

Financial liabilities are broken down as follows:

IN THOUSANDS OF EUROS ACCOUNTING
BALANCE
AS OF 31.12.2019
ACCOUNTING
BALANCE
AS OF 31.12.2018
NOMINAL VALUE
AS OF 31.12.2019
NOMINAL VALUE
AS OF 31.12.2018
Bank loans 252,373 240,548 253,690 242,211
Bonds 293,121 302,019 302,101 312,460
Other loans 10,108 18,829 10,108 18,840
Total 555,602 561,396 565,899 573,684
IN THOUSANDS OF EUROS ACCOUNTING BALANCE
AS OF 31.12.2019
ACCOUNTING BALANCE
AS OF 31.12.2018
CHANGE
Current financial debt (97,271) (60,234) (37,037)
Non-current financial debt (458,331) (501,162) 42,831
Financial debt (555,602) (561,396) 5,794
Gross debt, fixed rate (329,304) (359,658) 30,354
Gross debt, variable rate (226,298) (201,738) (24,560)
Financial debt (555,602) (561,396) 5,794

The table below shows the repayment schedule as of 31 December 2019:

AMOUNTS FALLING DUE IN
IN THOUSANDS OF EUROS NOMINAL
VALUE
AS OF
31.12.2019
AMOUNTS
FALLING
DUE
WITHIN 12
MONTHS
AMOUNTS
FALLING
DUE AFTER
12 MONTHS
2021 2022 2023 2024 AFTER
Bank loans 253,690 76,313 177,377 43,049 94,805 39,523 0 0
Bonds 302,101 11,050 291,051 11,051 30,000 250,000
Other medium-/long-term loans 10,108 9,981 127 23 23 23 23 35
Total 565,899 97,344 468,555 54,123 124,828 39,546 23 250,035

Medium and long-term bank debt amounts to ¤/000 201,855 (of which ¤/000 176,105 non-current and ¤/000 25,750 current) and consists of the following loans:

  • a ¤/000 39,940 medium-term loan (nominal value of ¤/000 40,000) from the European Investment Bank to finance Research & Development investments planned for the 2016-2018 period. The loan will mature in December 2023 and has a repayment schedule of 7 fixed-rate annual instalments. Contract terms require covenants (described below);
  • a ¤/000 116,326 loan (nominal value of ¤/000 117,500), a syndicate loan for a total of ¤/000 250,000 signed in June 2018 and comprising a ¤/000 187,500 four-year tranche (with a year's extension at the discretion of the borrower) as a revolving credit line (of which a nominal value of ¤/000 55,000 used as of 30 December 2019 ) and a tranche as a five-year loan with amortisation of ¤/000 62,500. Contract terms require covenants (described below);
  • a ¤/000 8,148 medium-term loan (nominal value of ¤/000 8,160) granted by UBI Banca. The loan will fall due on 30 June 2021 with a repayment schedule of quarterly instalments;
  • a ¤/000 17,961 medium-term loan (nominal value of ¤/000 18,000) granted by Banca Popolare Emilia Romagna. The loan will fall due on 1 December 2023 and has a repayment schedule of six-monthly instalments;
  • a ¤/000 6,820 loan from Banco BPM with a repayment schedule of six-monthly instalments and last payment in July 2022 (equal to ¤/000 6,820). This loan has an additional tranche of ¤/000 12,500 granted as a revolving credit line, entirely drawn as of 31 December 2019 (recognised under current account payables). Contract terms require covenants (described below);

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

  • a ¤/000 5,472 medium-term loan (nominal value of ¤/000 5,500) granted by Interbanca-Banca IFIS. The loan will fall due on 30 September 2022 and has a quarterly repayment schedule. Contract terms require covenants (described below);
  • a ¤/000 7,048 medium-term loan (nominal value of ¤/000 7,052) granted by Banca del Mezzogiorno, maturing on 2 January 2023 and with six-monthly repayment schedule. This loan has an additional tranche of ¤/000 20,000 granted as a revolving credit line, entirely drawn as of 31 December 2019 (recognised under current account payables). Contract terms require covenants (described below);
  • a ¤/000 140 loan from Intesa SanPaolo granted pursuant to Italian Law no. 346/88 on subsidised applied research.

As of 31 December 2019, the loan of ¤/000 70,000 granted by the European Investment Bank on 4 July 2019 was not yet granted, as decided by the Company under the contract flexibility granted (18-month period of use).

All the above financial liabilities are unsecured.

The item Bonds for ¤/000 293,121 (nominal value of ¤/000 302,101) refers to:

  • a ¤/000 22,059 private debenture loan (nominal value of ¤/000 22,101), (US Private Placement) issued on 25 July 2011 for \$/000 75,000 wholly subscribed by an American institutional investor, payable in 5 annual portions from July 2017, with a semi-annual coupon. As of 31 December 2019 the fair value valuation of the debenture loan was equal to ¤/000 28,635 (the fair value was determined based on IFRS relative to fair value hedging). A Cross Currency Swap has been taken out on this debenture loan to hedge the exchange risk and interest rate risk;
  • ¤/000 29,915 (nominal value of ¤/000 30,000) for a five-year private debenture loan issued on 28 June 2017 and wholly subscribed by Fondo Sviluppo Export, the fund set up by SACE and managed by Amundi SGR. The issue has no specific rating or listing on a regulated market;
  • ¤/000 241,147 (nominal value of ¤/000 250,000) related to a high-yield debenture loan issued on 30 April 2018 for a nominal amount of ¤/000 250,000, maturing on 30 April 2025 and with a semi-annual coupon with fixed annual nominal rate of 3.625%. Standard & Poor's and Moody's assigned a BB- rating with a stable outlook and a Ba3 rating with a stable outlook respectively.

The Company may repay in advance:

  • all or part of the amount of the high yield debenture loan issued on 30 April 2018, according to the conditions indicated in the indenture. The value of prepayment options was not deducted from the original contract, as these are considered as being closely related to the host instrument, as provided for by IAS 9 b4.3.5;
  • all or part of the amount of the private placement issued on 28 June 2017, according to the conditions indicated in the contract. The value of prepayment options was not deducted from the original contract, as these are considered as being closely related to the host instrument, as provided for by IFRS 9 b4.3.5.

Financial advances received from factoring companies and banks, on the sale of trade receivables with recourse, totalled ¤/000 9,946.

Medium-/long-term payables due to other lenders equal to ¤/000 162 of which ¤/000 127 due after the year and ¤/000 35 as the current portion, are detailed as follows:

– a subsidised loan for a total of ¤/000 162 from the Region of Tuscany, related to regulations on incentives for investments in research and development (non-current portion equal to ¤/000 127).

Covenants

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

    1. financial covenants, on the basis of which the company undertakes to comply with certain levels of contractually defined financial indices, with the most significant comprising the ratio of net financial debt/gross operating margin (EBITDA), measured on the consolidated perimeter of the Group, according to definitions agreed on with lenders;
    1. negative pledges according to which the company may not establish collaterals or other constraints on company assets;
    1. "pari passu" clauses, on the basis of which the loans will have the same repayment priority as other financial

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

liabilities, and change of control clauses, which are effective if the majority shareholder loses control of the company;

  1. limitations on the extraordinary operations the company may carry out.

The measurement of financial covenants and other contract commitments is monitored by the Group on an ongoing basis.

The high yield debenture loan issued by the company in April 2018 provide for compliance with covenants which are typical of international practice on the high yield market. In particular, the company must observe the EBITDA/Net borrowing costs index, based on the threshold established in the Prospectus, to increase financial debt defined during issue. In addition, the Prospectus includes some obligations for the issuer, which limit, inter alia, the capacity to:

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

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

Amortised Cost and Fair Value Measurement

All financial liabilities are measured in accordance with accounting standards and based on the amortised cost method (except for liabilities with hedging derivatives measured at Fair Value Through Profit & Loss, for which the same measurement criteria used for the derivative are applied). According to this criterion, the nominal amount of the liability is decreased by the amount of relative costs of issue and/or stipulation, in addition to any costs relating to refinancing of previous liabilities. The amortisation of these costs is determined on an effective interest rate basis, and namely the rate which discounts the future flows of interest payable and reimbursements of principle at the net carrying amount of the financial liability.

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

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

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

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

The table below shows the fair value of payables measured using the amortised cost method as of 31 December 2019:

IN THOUSANDS OF EUROS NOMINAL VALUE CARRYING AMOUNT FAIR VALUE43
High yield debenture loan 250,000 241,147 264,388
Private debenture loan 2021 22,101 22,059 21,436
Private debenture loan 2022 30,000 29,915 30,629
EIB (loan R&D 2016-2018) 40,000 39,940 39,701
Loan from Banca . Pop. Emilia Romagna 18,000 17,961 17,753
Loan from Banco BPM 6,820 6,820 7,204
Revolving syndicated loan 55,000 54,163 54,792
Syndicated loan maturing in 2023 62,500 62,163 62,245
Loan from UBI 8,160 8,148 8,145
Loan from MCC 7,052 7,048 7,011
Loan from Banca IFIS 5,500 5,472 5,648

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

Fair value hierarchy

The table below shows the assets and liabilities measured and recognised at fair value as of 31 December 2019, by hierarchical level of fair value measurement.

IN THOUSANDS OF EUROS LEVEL 1 LEVEL 2 LEVEL 3
ASSETS MEASURED AT FAIR VALUE
Investment Property
Financial derivatives:
- of which financial assets 6,946
- of which other receivables 123
Investments in other companies 37
Total assets 7,069 37
LIABILITIES MEASURED AT FAIR VALUE
Financial derivatives
- of which financial liabilities
- of which other payables (46)
Financial liabilities at fair value recognised through profit or loss (28,635)
Total liabilities (28,681)
General total (21,612) 37

The following tables show Level 2 and Level 3 changes during 2019:

IN THOUSANDS OF EUROS LEVEL 2
Balance as of 31 December 2018 (31,714)
Gain (loss) recognised in profit or loss (347)
Gain (loss) recognised in the statement of comprehensive income 89
(Increases)/Decreases 10,360
Balance as of 31 December 2019 (21,612)
LEVEL 3
Balance as of 31 December 2018 37
Gain (loss) recognised in profit or loss -
Increases/(Decreases) -
Balance as of 31 December 2019 37

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

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Financial liabilities for rights of use ¤/000 17,592

As required by IFRS 16, financial payables for rights of use include both finance lease liabilities, which up until 31 December 2018 had been included under financial liabilities, and payments due of operating lease agreements, previously recognised as off-balance sheet guarantees.

The table below shows the repayment schedule as of 31 December 2019:

AMOUNTS FALLING DUE IN
IN THOUSANDS OF EUROS CARRYING
AMOUNT
AS OF
31.12.2019
AMOUNTS
FALLING
DUE
WITHIN 12
MONTHS
AMOUNTS
FALLING
DUE AFTER
12 MONTHS
2021 2022 2023 2024 OLTRE
Rights of use
- of which operating leases 9,662 3,265 6,397 2,262 2,068 1,447 620 -
- of which finance leases 7,930 1,149 6,781 1,168 1,186 1,205 1,224 1,998
Total 17,592 4,414 13,178 3,430 3,254 2,652 1,844 1,998

Payables for finance leases, already recognised in the financial statements as of 31 December 2018 according to IAS 17, were equal to ¤/000 7,930 (nominal value of ¤/000 7,940) and refer to a Sale&Lease back agreement for a production facility of the Parent Company granted by Albaleasing. The agreement is for ten years, with quarterly repayments (noncurrent portion equal to ¤/000 6,781).

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

E) MANAGEMENT OF FINANCIAL RISK

This section describes all financial risks to which the Company is exposed and how these risks could affect future results.

38. Credit risk

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

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018
Liquid assets 18,843 22,944
Securities
Financial receivables 15,878 14,797
Trade receivables 43,599 48,063
Tax receivables 19,423 13,434
Other receivables 98,540 70,982
Total 196,283 170,220

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

39. Financial risks

The financial risks the Company is exposed to are liquidity risk, exchange risk, interest rate risk and credit risk. The management of these risks, in order to reduce management costs and dedicated resources, is centralised and treasury operations take place in accordance with formal policies and guidelines which are applicable to all Group companies.

Liquidity risk and capitals management

The liquidity risk arises from the possibility that available financial resources are not sufficient to cover, in due times and procedures, future payments arising from financial and/or commercial obligations. To deal with this risk, cash flows and the Company's credit line needs are monitored or managed centrally under the control of the Treasury in order to guarantee an effective and efficient management of financial resources as well as optimise the debt's maturity standpoint.

In addition, the Company finances the temporary cash requirements of subsidiaries by providing direct short-term loans regulated in market conditions or guarantees. A cash pooling zero balance system is used between the Company and European companies to reset the receivable and payable balances of subsidiaries on a daily basis, for a more effective and efficient management of liquidity in the Eurozone.

As of 31 December 2019, the most important sources of financing irrevocable until maturity granted to the Company were as follows:

  • a debenture loan of ¤/000 250,000 maturing in April 2025;
  • a debenture loan of \$/000 32,000 maturing in July 2021;
  • a debenture loan of ¤/000 30,000 maturing in June 2022;
  • a credit line of ¤/000 250,000 comprising a Revolving Credit Facility of ¤/000 187,500 maturing in July 2022 and a loan of ¤/000 62,500 maturing in July 2023;
  • Revolving credit facilities for a total of ¤/000 32,500, with final settlement in July 2022;
  • loans for a total of ¤/000 155,834, with final settlement in 2027.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

As of 31 December 2019, the Company had a liquidity of ¤/000 18,843, ¤/000 202,500 of undrawn credit lines irrevocable to maturity and ¤/000 85,010 of revocable credit lines, as detailed below:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018
Variable rate with maturity within one year - irrevocable until maturity 0
Variable rate with maturity after one year - irrevocable until maturity 202,500 165,000
Variable rate with maturity within one year - cash revocable 66,010 51,257
Variable rate with maturity within one year - with revocation for self-liquidating
typologies
19,000 19,000
Total 287,510 235,257

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

IN THOUSANDS
OF EUROS
AS OF
31 DECEMBER 2019
WITHIN
30 DAYS
BETWEEN
31 AND 60 DAYS
BETWEEN
61 AND 90 DAYS
OVER
90 DAYS
Amounts due to suppliers 286,352 134,511 74,887 5,138 71,816
Amounts due to
subsidiaries
15,809 8,776 5,663 1,047 323
Amounts due to affiliates 5,304 2,688 951 813 852
Amounts due to parent
companies
338 318 20
Trade payables due to other
related parties
1 1
Total trade payables 307,804 146,294 81,521 6,998 72,991

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

Exchange Risk

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

This policy analyses:

  • the transaction exchange risk: the policy wholly covers this risk which arises from differences between the recognition exchange rate of receivables or payables in foreign currency in the financial statements and the recognition exchange rate of actual collection or payment. To cover this type of exchange risk, the exposure is naturally offset in the first place (netting between sales and purchases in the same currency) and if necessary, by signing currency future derivatives, as well as advances of receivables denominated in currency;
  • the economic exchange risk: arises from changes in company profitability in relation to annual figures planned in the economic budget on the basis of a reference change (the "budget change") and is covered by derivatives. The items of these hedging operations are therefore represented by foreign costs and revenues forecast by the sales and purchases budget. The total of forecast costs and revenues is processed monthly and relative hedging is positioned exactly on the average weighted date of the economic event, recalculated based on historical criteria. The economic occurrence of future receivables and payables will occur during the budget year.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

At the end of the reporting period, the Company's exposure to exchange risk was as follows:

AS OF USD GBP CHF CNY YEN SGD CAD SEK HKD INR JPY RMB PLZ VND TOTAL
31 DECEMBER 2019
IN THOUSANDS OF EUROS
Non-current assets
Financial receivables 0
Trade receivables 0
Long-term tax receivables 0
Fair value of derivatives 0
Total non-current assets 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Current assets
Trade and other receivables 9,008 (291) 1,184 261 (176) (200) 17,437 728 190 21,256 49,397
Fair value of derivatives 0
Other financial assets 3,011 3,011
Bank and postal deposits 2,682 1,102 1,119 201 2 25 279 5,410
Securities 0
Total current assets 14,701 811 0 2,303 201 263 (151) 79 0 17,437 728 190 0 21,256 57,818
Total assets 14,701 811 0 2,303 201 263 (151) 79 0 17,437 728 190 0 21,256 57,818
Non-current liabilities
Bank loans 0
Bonds
Other loans
0
0
Leases 0
Fair value of derivatives 0
Total non-current liabilities 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Current liabilities
Bank loans 0
Trade and other payables 27,946 559 27 13,092 137 834 2 59 3,405 20 1 12 46,094
Other loans 0
Leases 0
Fair value of derivatives 0
Total current liabilities 27,946 559 27 13,092 0 137 0 834 2 59 3,405 20 1 12 46,094
Total liabilities 27,946 559 27 13,092 0 137 0 834 2 59 3,405 20 1 12 46,094

At the end of the reporting period, the company had no financial liabilities in currency subject to exchange risk.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Cash flow hedging

As of 31 December 2019, the Group had undertaken the following futures transactions (recognised based on the regulation date) relative to payables and receivables already recognised to hedge the transaction exchange risk:

OPERATION CURRENCY AMOUNT IN LOCAL
CURRENCY/000
VALUE IN EURO
(FORWARD EXCHANGE
RATE) ¤/000
AVERAGE MATURITY
Purchase CAD 200 137 31/01/2020
Purchase CNY 47,000 6,015 07/02/2020
Purchase JPY 220,000 1,832 08/02/2020
Purchase SEK 4,500 424 03/01/2020
Purchase USD 12,000 10,809 13/02/2020
Sale SEK 2,000 191 03/01/2020
Sale USD 56,650 50,778 19/03/2020

As of 31 December 2019, the Company had undertaken the following transactions to hedge the business exchange risk:

OPERATION CURRENCY AMOUNT IN LOCAL
CURRENCY/000
VALUE IN EURO
(FORWARD EXCHANGE
RATE) ¤/000
AVERAGE MATURITY
Purchase CNY 211,000 26,494 05/07/2020
Sale GBP 11,550 13,496 06/07/2020

To hedge the economic exchange risk alone, cash flow hedging is adopted with the effective portion of profits and losses recognised in a specific shareholders' equity reserve. Fair value is determined based on market quotations provided by main traders.

As of 31 December 2019, the total fair value of hedging instruments for exchange risk recognised on an hedge accounting basis was positive by ¤/000 78. Therefore as of 31 December 2019 gains were recognised in other components of the Statement of Comprehensive Income for ¤/000 78. During 2019 previous year losses from other components of the Statement of Comprehensive Income were reclassified to profit/loss for the year for ¤/000 12. The net balance of cash flows during 2019 is shown below, divided by main currency:

IN MILLIONS OF EURO CASH FLOW 2019
Pound Sterling 17.8
Canadian Dollar 6.2
Swedish Krone 4.3
Japanese Yen (4.8)
US Dollar (39.1)
Chinese Yuan42 (73.8)
Total cash flow in foreign currency (89.4)

In view of the above, an assumed appreciation/deprecation of 3% of the euro would have generated potential profits for ¤/000 2,602 and potential losses for ¤/000 2,763 respectively.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Interest rate risk

This risk arises from fluctuating interest rates and the impact this may have on future cash flows arising from variable rate financial assets and liabilities. The Company regularly measures and controls its exposure to the risk of interest rate changes, as established by its management policies, in order to reduce fluctuating borrowing costs, and limit the risk of a potential increase in interest rates. This objective is achieved through an adequate mix of fixed and variable rate exposure, and the use of derivatives, mainly interest rate swaps and cross currency swaps. As of 31 December 2019, the following hedging derivatives were in use:

Derivatives for fair value hedging

– a Cross Currency Swap to hedge the private debenture loan issued by the Parent Company for a nominal amount of \$/000 32,000. The purpose of the instrument is to hedge both the exchange risk and interest rate risk, turning the loan from US dollars to euro, and from a fixed rate to a variable rate; the instrument is accounted for on a fair value hedge basis, with effects arising from the measurement recognised in profit or loss. As of 31 December 2019, the fair value of the instrument was equal to ¤/000 6,946. The net economic effect arising from the measurement of the instrument and underlying private debenture loan was positive, equal to ¤/000 -347; sensitivity analysis of the instrument and its underlying, assuming a 1% increase and decrease in the shift of the variable rates curve, showed a potential impact on the Income Statement, net of the related tax effect, of ¤/000 8 and ¤/000 -8 respectively, assuming constant exchange rates; whereas assuming a 1% reversal and write-down of exchange rates, sensitivity analysis identified a potential impact on the income statement, net of the relative tax effect, of ¤/000 -6 and ¤/000 6 respectively.

IN THOUSANDS OF EUROS FAIR VALUE
Cross Currency Swap 6,946

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

F) INFORMATION ON SHAREHOLDERS' EQUITY

40. Share capital and reserves ¤/000 309,325

Share capital ¤/000 207,614

During the period, the nominal share capital of Piaggio & C. did not change.

The structure of Piaggio & C's share capital, equal to ¤207,613,944.37, fully subscribed and paid up, is indicated in the next table:

STRUCTURE OF SHARE CAPITAL AS OF 31 DECEMBER 2019

NO. OF SHARES % COMPARED
TO THE SHARE
CAPITAL
MARKET
LISTING
RIGHTS AND
OBLIGATIONS
Ordinary shares 358,153,644 100% Electronic stock
market
Right to vote in
the Ordinary and
Extraordinary Sha
reholders' Meetings
of the Company

The Share of the Company are without par value, are indivisible, registered and issued on a dematerialisation basis, in the centralised management system of Monte Titoli S.p.A..

At the date of these financial statements, no other financial instruments with the right to subscribe to new issue shares had been issued, nor were there share based incentive plans in place involving increases, also without a consideration, in share capital.

Treasury shares ¤/000 (1,749)

During the period, 105,000 treasury shares were acquired. Therefore, as of 31 December 2019, Piaggio & C. held 898,818 treasury shares, equal to 0.251% of the shares issued.

SHARES IN CIRCULATION AND TREASURY SHARES

NO. OF SHARES 2019 2018
Situation as of 1 January
Shares issued 358,153,644 358,153,644
Treasury portfolio shares 793,818 0
Shares in circulation 357,359,826 358,153,644
Movements for the period
Purchase of treasury shares 105,000 793,818
Situation as of 31 December
Shares issued 358,153,644 358,153,644
Treasury portfolio shares 898,818 793,818
Shares in circulation 357,254,826 357,359,826

Share premium reserve ¤/000 7,171

The share premium reserve as of 31 December 2019 was unchanged compared to 31 December 2018.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Legal reserve ¤/000 21,904

The legal reserve as of 31 December 2019 had increased by ¤/000 1,779 as a result of the allocation of earnings for the previous year.

Other reserves ¤/000 (27,219)

This item consists of:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018 CHANGE
Net capital gain from contribution 152 152 0
IFRS transition reserve 1,862 1,769 93
Financial instruments' fair value reserve (29) (114) 85
Translation reserve from the valuation of investments
using the equity method
(29,204) (29,230) 26
Total other reserves (27,219) (27,423) 204

The financial instruments fair value provision is negative and refers to the effects of cash flow hedge accounting in foreign currencies and interest. These transactions are described in full in the note on financial instruments.

Dividends ¤/000 51,805

The Shareholders' Meeting of Piaggio & C. S.p.A. of 12 April 2019 resolved to distribute a dividend of 9.0 eurocents per ordinary share. During April this year, therefore, dividends were distributed to a total value of ¤/000 32,155. During 2018, dividends totalling ¤/000 19,698 were paid.

In the meeting of 26 July 2019, the Board of Directors approved a new policy to distribute dividends with the distribution of an interim dividend during the year (rather than a single distribution), to align with other international companies in the two-wheeler sector, also with the aim of optimising cash flow management, considering the seasonal nature of the business. The Board of Directors, having approved the Interim Financial Statements at 30 June 2019 and Directors' Report pursuant to Article 2344-bis of the Civil Code, therefore resolved to allocate an interim dividend for 2019 equal to 5.5 eurocents, including taxes, for each entitled ordinary share (against a dividend of 9 eurocents resolved for all of 2018), for a total amount of ¤/000 19,650.

TOTAL AMOUNT DIVIDEND PER SHARE
2019 2018 2019 2018
¤/000 ¤/000 ¤ ¤
Of the previous year's result 32,155 19,698 0.090 0.055
Interim dividend on 2019 result 19,650 0.055

Earnings reserve ¤/000 101,604

The composition of reserves as of 31 December 2019 was as follows:

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2019
Earnings reserve 101,604
Of which:
Earnings reserve from the valuation of investments with the equity method 69,082
Retained earnings (losses) (13,689)
Profit (loss) for the period 46,211

Individual items of Shareholders' equity are analytically presented in the table below, based on origin, availability and use in previous years.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

TYPE/DESCRIPTION AMOUNT POSSIBLE
USE
PORTION
AVAILABLE
2014 USES TO
COVER LOSSES
IN THOUSANDS OF EUROS
Share capital 207,614
Capital reserves:
Share premium 7,171 A,B,C(*) 7,171
Profit reserves:
Legal reserve 21,904 B ---
Net capital gain from contribution 152 A,B 152
IAS transition reserve 1,862 A,B 1,862
Financial instruments' fair value reserve (29)
Translation reserve from the valuation of invest
ments with the equity method
(29,204)
Total Reserves 1,856 9,185
Earnings reserve from the valuation of invest
ments with the equity method:
- Discounting the DBO (1,389)
- Financial gains 70,471 A,B 70,471
Treasury shares (1,749)
Reserve for actuarial gains (losses) relative to
termination benefit
(9,928)
Stock option reserve 11,195 A,B,C 11,195
Retained earnings (losses) 4,694 A,B,C 4,694 1,649
Interim dividend (19,650)
Total retained earnings (losses) 53,644
Profits (losses) for the period 46,211
Total shareholders' equity 309,325 95,545

Key:

A: to increase capital

B: to cover losses

C: to allocate to shareholders

(*) wholly available to increase capital and cover losses. For other uses prior adjustment (also by transfer from the share premium reserve) of the legal reserve to 20% of the Share Capital is necessary. As of 31 December 2019 this adjustment would be equal to ¤/000 19,619.

Pursuant to Article 2426, section 5 of the Italian Civil Code, the value of research and development costs still to be amortised as of 31 December 2019, equal to ¤/000 64,087, is unavailable in shareholders' equity.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

41. Other Comprehensive Income (Expense) ¤/000 (2,346)

The value of other components of the Statement of Comprehensive Income is broken down as follows:

RESERVE FOR
MEASUREMENT
OF FINANCIAL
INSTRUMENTS
EARNINGS
RESERVE
TOTAL OTHER
COMPONENTS OF THE
STATEMENT OF
COMPREHENSIVE INCOME
IN THOUSANDS OF EUROS
As of 31 December 2019
Items that will not be reclassified in the income
statement
Remeasurements of defined benefit plans (2,055) (2,055)
Portion of components of the Statement of Comprehen
sive Income of subsidiaries/associates measured with
the equity method
(403) (403)
Total 0 (2,458) (2,458)
Items that may be reclassified in the income statement
Total income (losses) for the fair value adjustment of
financial assets available for sale
0
Total profits (losses) on cash flow hedges 85 85
Portion of components of the Statement of
Comprehensive Income of subsidiaries/associates
measured with the equity method
27 27
Total 85 27 112
Other components of the Statement
of Comprehensive Income
85 (2,431) (2,346)
As of 31 December 2018
Items that will not be reclassified in the income
statement
Remeasurements of defined benefit plans (750) (750)
Portion of components of the Statement of Comprehen
sive Income of subsidiaries/associates measured with
the equity method
(293) (293)
Total 0 (1,043) (1,043)
Items that may be reclassified in the income statement
Total income (losses) for the fair value adjustment of
financial assets available for sale
0
Total profits (losses) on cash flow hedges 206 206
Portion of components of the Statement of Comprehen
sive Income of subsidiaries/associates measured with
the equity method
(2,714) (2,714)
Total 206 (2,714) (2,508)
Other components of the Statement of Comprehensive
Income
206 (3,757) (3,551)

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

AS OF 31 DECEMBER 2019 AS OF 31 DECEMBER 2018
GROSS
VALUE
TAX
(EXPENSE) /
BENEFIT
NET
VALUE
GROSS
VALUE
TAX
(EXPENSE) /
BENEFIT
NET
VALUE
IN THOUSANDS OF EUROS
Remeasurements of defined
benefit plans
(2,704) 649 (2,055) (987) 237 (750)
Total profits (losses) on
cash flow hedges
112 (27) 85 272 (65) 207
Portion of components
of the Statement of
Comprehensive Income
of subsidiaries/associates
measured with the equity
method
(376) (376) (3,008) (3,008)
Other components
of the Statement of
Comprehensive Income
(2,968) 622 (2,346) (3,723) 172 (3,551)

G) OTHER INFORMATION

42. Share-based incentive plans

As of 31 December 2019, there were no incentive plans based on financial instruments.

43. Fees for Directors, Statutory Auditors and Key Managers

For a complete description and analysis of fees of Directors and Statutory Auditors, reference is made to the remuneration report available from the registered office, and on the Company's website in the section "Governance". At present, the Company has not identified any Key Senior Managers.

IN THOUSANDS OF EUROS 2019
Directors 2,405
Statutory auditors 180
Total fees 2,585

44. Information on related parties

Revenues, costs, payables and receivables as of 31 December 2019 involving parent companies, subsidiaries and affiliated companies refer to the sale of goods or services which are a part of normal operations of the Group.

Transactions are carried out at normal market values, depending on the characteristics of the goods and services provided.

Information on transactions with related parties, including information required by Consob in its communication of 28 July 2006 no. DEM/6064293, is reported below.

The procedure for transactions with related parties, pursuant to Article 4 of Consob Regulation no. 17221 of 12 March 2010 as amended, approved by the Board on 30 September 2010, is published on the institutional site of the Issuer www piaggiogroup com, under Governance.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Relations with Parent Companies

Piaggio & C. S.p.A. is controlled by the following companies:

% OF OWNERSHIP
DESIGNATION REGISTERED
OFFICE
TYPE AS OF
31 DECEMBER 2019
AS OF
31 DECEMBER 2018
Immsi S.p.A. Mantova - Italy Direct parent company 50.0703 50.6287
Omniaholding S.p.A. Mantova - Italy Final parent company 0.0215 0.0215

During 2019, transactions on the shares of parent companies were not carried out directly or indirectly. Piaggio & C. S.p.A. is subject to the management and coordination of IMMSI S.p.A. pursuant to Article 2497 and following of the Italian Civil Code. During the period, this management and coordination concerned the following activities:

  • as regards mandatory financial disclosure, and in particular the financial statements and reports on operations of the Group, IMMSI has produced a group manual containing the accounting standards adopted and options chosen for implementation, in order to give a consistent and fair view of the consolidated financial statements.
  • IMMSI has defined procedures and times for preparing the budget and in general the business plan of Group companies, as well as final management analysis to support management control activities.
  • IMMSI has also provided services for the development and management of Company assets, with a view to optimising resources within the Group, and provided property consultancy services and other administrative services.
  • IMMSI has provided consultancy services and assistance for the Company and subsidiaries concerning extraordinary financing operations, organisation, strategy and coordination, as well as services intended to optimise the financial structure of the Group.

In 2019, for a further three years, the Company signed up to the National Consolidated Tax Convention pursuant to Articles 117 to 129 of the Consolidated Income Tax Act (T.U.I.R) of which IMMSI S.p.A. is the consolidating company, and to whom other IMMSI Group companies report to. The consolidating company determines a single global income equal to the algebraic sum of taxable amounts (income or loss) realised by individual companies that opt for this type of group taxation.

The consolidating company recognises a receivable from the consolidated company which is equal to the corporate tax to be paid on the taxable income transferred by the latter. Whereas, in the case of companies reporting tax losses, the consolidating company recognises a payable related to corporate tax on the portion of loss actually used to determine global overall income or calculated as a decrease of overall income for future tax periods, according to procedures in Article 84, based on the criterion established by the consolidation agreement.

Moreover, under the National Consolidated Tax Mechanism, companies may, pursuant to Article 96 of Presidential Decree 917/86, allocate the excess of interest payable which is not deductible to one of the companies so that, up to the excess of Gross Operating Income produced in the same tax period by other subjects party to the consolidation, the amount may be used to reduce the total income of the Group.

Piaggio & C. S.p.A. has undertaken a rental agreement for offices owned by Omniaholding S.p.A.. This agreement, signed in normal market conditions, was previously approved by the Related Parties Transactions Committee, as provided for by the procedure for transactions with related parties adopted by the Company.

Piaggio & C. S.p.A. has two office lease agreements with IMMSI, one for property in Via Broletto 13 in Milan, and the other for property in Via Abruzzi 25 in Rome. A part of the property in Via Broletto 13 in Milan is sub-leased by Piaggio & C. S.p.A. to Piaggio Concept Store Mantova Srl.

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

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

Transactions with Piaggio Group companies

The main intercompany relations with subsidiaries refer to the following transactions:

Piaggio & C. S.p.A.

– sells vehicles, spare parts and accessories to sell on respective markets, to:

  • Piaggio Hrvatska
  • Piaggio Hellas
  • Piaggio Group Americas
  • Piaggio Vehicles Private Limited
  • Piaggio Vietnam
  • Piaggio Concept Store Mantova

– sells components to:

  • Piaggio Vehicles Private Limited
  • Piaggio Vietnam

– grants licences for rights to use the brand and technological know how to:

  • Piaggio Vehicles Private Limited
  • Piaggio Vietnam

– provides support services for scooter and engine industrialisation to:

  • Piaggio Vehicles Private Limited
  • Piaggio Vietnam

– subleases a part of the rented property to:

• Piaggio Concept Store Mantova

– has cash pooling agreements with:

  • Piaggio France
  • Piaggio Deutschland
  • Piaggio España
  • Piaggio Vespa

– provides support services for staff functions to other Group companies;

  • issues guarantees for the Group's subsidiaries, for medium-term loans.
  • purchases vehicles, spare parts and accessories from:
  • Piaggio Vehicles Private Limited
  • Piaggio Vietnam

– receives a vehicle, spare parts and accessories distribution service on respective markets from:

  • Piaggio Hrvatska
  • Piaggio Hellas
  • Piaggio Group Americas
  • Piaggio Vehicles Private Limited
  • Piaggio Vietnam

– receives a sales promotion service and after-sales services on respective markets from:

  • Piaggio France
  • Piaggio Deutschland
  • Piaggio Limited
  • Piaggio España
  • Piaggio Vespa

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

  • receives a components and vehicles design/development service and a local supplier scouting service from Foshan Piaggio Vehicles Technologies R&D;
  • receives a vehicle and components research/design/development service from Piaggio Advanced Design Center;
  • receives a racing team management service and vehicle design service from Aprilia Racing.

Relations between Piaggio & C. S.p.A. and JV Zongshen Piaggio Foshan Motorcycle Co. Ltd

Main intercompany relations between Piaggio & C S.p.A. and JV Zongshen Piaggio Foshan Motorcycle Co. Ltd, refer to the following transactions:

Piaggio & C. S.p.A.

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

Zongshen Piaggio Foshan Motorcycle Co. Ltd

– sells vehicles, spare parts and accessories, which it has manufactured in some cases, to Piaggio & C. S.p.A. for subsequent sale.

The table below summarises relations described above and financial relations with parent companies, subsidiaries and affiliated companies as of 31 December 2019 and relations during the year, as well as their overall impact on financial statement items.

9 Attachments 44 715 4,119 377 102
OTHER
PAYABLES
WITHIN
THE YEAR
1,029 8,270 14,665 32.9%
TRADE
PAYABLES
57 1,325 25 323 1 15 115 137 57 583 943 302 89 18 1 270 5,914 284 5,723 5,268 21,450 7.0%
FINANCIAL
PAYABLES
FOR
RIGHTS OF
USE DUE
WITHIN
THE YEAR
1,409 75 1,484 0.0%
FINANCIAL
PAYABLES
FOR
RIGHTS OF
USE DUE
AFTER THE
YEAR
4,423 156 4,579 0.0%
FINANCIAL
VABLES
DUE
WITHIN
THE YEAR
RECEI
9,000 250 146 3,011 12,407 78.1%
CEIVABLES
DUE
WITHIN
THE YEAR
OTHER RE
492 0 460 28 12,410 260 103 125 609 107 46 392 48 55 28 108 20,327 16,145 27,405 280 1,313 80,741 91.1%
TRADE
RECEI
VABLES
34 5 23 1,759 3 2,267 2,149 1,526 662 5 11,220 963 20,616 42.9%
OTHER
VABLES
DUE
AFTER
THE YEAR
RECEI
81 81 1.3%
CEIVABLES
DUE
AFTER THE
FINAN
CIAL RE
YEAR
289 289 7.6%
TAXES 5,589 5,589 N.A.
ROWING
BOR
COSTS
(193) (8) (201) 0.9%
FINANCIAL
INCOME
89 21 29 14 1,267 1,420 85.9%
RESULT
FROM
EQUITY
TION POS/
VALUA
(NEG)
(1,154) (1,510) 25 (638) 566 (17,871) 34,530 15,622 17,259 13 9 698 267 47,816 99.8%
OTHER
TING
OPERA
COSTS
(2) (17) (2) (21) (500) (542) 3.7%
OTHER
OPERATING
INCOME
1,365 469 37 50 371 142 166 82 5 111 979 84 1,480 121 97 22,502 60 19,810 860 313 49,104 39.7%
COSTS
VICES,
LEASES
AND
FOR SER
RENTALS
(115) (16,198) (9) (3,542) (755) (1,330) (86) (8) (692) (26) (5,129) (4,376) (6,554) (225) (53) (3) (2,645) (338) (2,700) (100) 26.1%
COSTS
FOR MA
TERIALS
1,335 (33,883) 21,148 (54,825) (13,857) 86,139 (102,680) (44,769) 19.2%
REVENUES
FROM
SALES
625 1,754 35,966 21,994 3,145 172 10.0%
IN THOUSANDS OF EUROS Aprilia Racing Srl Aprilia Brasil Industria S.A. Fondazione Piaggio Foshan Piaggio Vehicles Technology
R&D Co. Ltd
Immsi Audit IMMSI S.p.A. Is Molas S.p.A. Nacional Motor S.A. Omniaholding Piaggio Advanced Design Center
Corporation
Piaggio Asia Pacific Ltd Piaggio Concept Store Mantova Piaggio Deutschland GMBH Piaggio España SLU Piaggio Fast Forward Piaggio France SAS Piaggio Group
Americas Inc.
Piaggio Group Japan Piaggio Hellas S.A. Piaggio Hrvatska DOO Piaggio Limited Piaggio Vehicles Pvt. Ltd Piaggio Vespa B.V. Piaggio Vietnam Co. Ltd Pontedera & Tecnologia S.C.AR.L PT Piaggio Indonesia Zongshen Piaggio Foshan Motorcycle
Co. Ltd
Piaggio China TOTAL % of accounting item

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity

289 PIAGGIO GROUP

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

45. Contract commitments and guarantees

Contract commitments of the Company are summarised based on their expiry.

IN THOUSANDS OF EUROS IN 1 YEAR BETWEEN
2 AND 5 YEARS
AFTER
5 YEARS
TOTAL
IAS 16 operating leases 2,215 558 1,657 4,430
Other commitments 2,826 938 3,764
Total 5,041 1,496 1,657 8,194

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

TYPE AMOUNT ¤/000
A guarantee of Piaggio & C. for USD 11,000,000 relative to the working capital loan of USD 10,000,000 granted by
Hongkong and Shanghai Banking Corporation to the subsidiary Piaggio Vietnam
of which drawn
of which undrawn
0
8,902
A guarantee of Piaggio & C. for USD 17,250,000 relative to the working capital loan of USD 15,000,000 granted by BNP
Paribas to the subsidiary Piaggio Vietnam
of which drawn
of which undrawn
39
13,313
A guarantee of Piaggio & C. for the credit line of the loan granted by VietinBank to the subsidiary Piaggio Vietnam
of which drawn
of which undrawn
5,961
0
A guarantee of Piaggio & C. for USD 5,500,000 relative to the working capital loan of USD 5,000,000 granted by
Hongkong and Shanghai Banking Corporation to the subsidiary Piaggio Indonesia
of which drawn
of which undrawn
4,451
A guarantee of Piaggio & C. for USD 6,000,000 relative to the working capital loan of USD 5,000,000 granted by
ANZ to the subsidiary Piaggio Indonesia
of which drawn
of which undrawn
193
4,258
A warrant to grant credit of Piaggio & C. to guarantee the credit line from Intesa SanPaolo to the subsidiary Piaggio
Group Americas for USD 19,000,000
of which drawn
of which undrawn
3,739
712
A warrant to grant credit of Piaggio & C. to guarantee the credit line from Intesa SanPaolo to the subsidiary Piaggio
Group Japan for USD 4,500,000
of which drawn
of which undrawn
2,788
1,217

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

TYPE IMPORTO ¤/000
A guarantee of BCC-Fornacette issued to Pisa Customs Authorities for handling Piaggio goods at the Pisana docks
and at Livorno Port
200
Guarantee of BCC-Fornacette issued in favour of Poste Italiane – Rome to guarantee contract obligations for the
supply of vehicles
1,321
Guarantee of BCC-Fornacette issued in favour of Motoride Spa to reimburse VAT following the deductible tax surplus 298
Guarantee of Banco di Brescia issued to the local authorities of Scorzè, to guarantee payment of urbanisation and
construction charges relative to the Scorzè site
166
Guarantee of Banca Intesa SanPaolo issued to the Ministry of the Interior of Algeria, to guarantee contract obligations
for the supply of vehicles
140
Guarantee of Banca Intesa SanPaolo issued to the Ministry of the Defence of Algeria, to guarantee contract
obligations for the supply of vehicles
158
Guarantee of Banca Nazionale del Lavoro issued in favour of Poste Italiane – Rome to guarantee contract obligations
for the supply of vehicles (5,000 tricycles)
475
Guarantee of Banca Nazionale del Lavoro issued in favour of Poste Italiane – Rome to guarantee contract obligations
for the supply of vehicles
459

46. Disputes

For details of litigation, see the same section in the Notes to the Consolidated Financial Statements.

47. Grants, contributions, paid appointments and economic benefits from the public administration

In compliance with paragraph 125 of Law no. 124/2017 of 4 August 2017, details per project are given below of funds received during 2019, and revenues from sales to public administrations:

PROJECTS FUNDING ENTITY 2019
FUNDS
FIGURES IN EURO
C-MOBILE EUROPEAN COMMISSION 52,202.07
SAFE-STRIP EUROPEAN COMMISSION 21,125.00
eCAIMAN EUROPEAN COMMISSION 121,431.18
RESOLVE EUROPEAN COMMISSION 73,961.57
CENTAURO ARTEA 143,233.25
FUTURE-RADAR EUROPEAN COMMISSION 9,492.11
DRIVE2THEFUTURE EUROPEAN COMMISSION 105,000.00
ADAMO ARTEA 93,847.81
SAFE INEA 12,563.00
Total 632,855.99
CUSTOMER 2019
REVENUES FROM SALES
FIGURES IN EURO
Carabinieri 77,805.00
C.I.S.A.M. Centro Interforze Studi 14,980.00
Italian local authorities 379,428.85
Animal husbandry institute 11,175.50
Schools and Universities 20,160.25
Territorial government department 14,713.04
Local health authorities 2,000.00
Total 520,262.64

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

48. Significant non-recurring events and operations

No significant, non-recurring operations were recorded in 2019. Instead, the following are reported for 2018:

– on 9 April 2018, the Company exercised the call option of the debenture loan issued by the Company on 24 December 2014 for a total amount of ¤/000 250,000 and maturing on 30 December 2021.

  • On 9 May 2018, the remaining portion of this loan (equal to approximately ¤168,497 million) was paid back at the price of 101.25%, after the finalisation of the exchange offer launched on 9 April.
  • The transaction resulted in the following being recognised in profit or loss for 2018:
  • financial charges related to premiums paid to bond holders that did not take up the exchange offer and costs of the repaid loan not yet amortised (¤3,530 thousand);
  • financial income (net of costs from the exchange of outstanding securities), from the operation to change the original liability with a new bond issued at more favourable conditions for the issuer (¤4,431 thousand).

This transaction came under significant non-recurrent transactions, as defined by Consob Communication no. DEM/6064293 of 28 July 2006.

49. Transactions arising from atypical and/or unusual transactions

During 2019 and 2018, the Company did not record any significant atypical and/or unusual operations, as defined by Consob Communication DEM/6037577 of 28 April 2006 and DEM/6064293 of 28 July 2006.

50. Events occurring after the end of the period

After 31 December 2019 and up until the date of approval of these financial statements, no event occurred having a significant impact on financial performance and position, as determined by paragraph 9 of IAS 10.

However, at the end of the reporting period, a factor of macroeconomic instability came to light, related to the spread of Covid 19 (Coronavirus) which, in the first few weeks of 2020 initially affected the economy in China and then in other countries. This factor could also have a considerable impact on global prospects for future growth, affecting the general macro-economic scenario and financial and property markets, also in light of decisions taken by government authorities to contain the spread of the epidemic.

This factor refers to an event which occurred after the reporting period, which does not therefore require adjustments to be made to the financial statement balances pursuant to paragraphs 21 and 22 of IAS 10. This is because even though the Coronavirus occurred in the People's Republic of China close to the end of the reporting period, it was only at the end of January 2020 that the World Health Organisation declared an international emergency, and it was only from late January 2020 when cases in other countries were also diagnosed, leading to specific decisions being taken in China as well as in other nations.

On 21 February 2020, the authorities of the Region of Lombardy and Veneto ordered the lockdown of some towns and adopted containing measures.

At present, following assessments made based on available information, and as it is not possible to determine, with a sufficient degree of reliability, the impacts that may affect the economy and reference sector in the first quarter of 2020 and following months - also in view of the possibility that this emergency may pass in coming months as a result of the containment measures taken by governments, competent authorities as well as the central banks of countries affected by the spread of the virus - it is considered that this circumstance does not constitute an element that may impact the estimate process with reference to the financial statements at 31 December 2019.

The Company is managing the effects on its supply chain without any particular impact on production sites and also on its own distribution chain, continuing to operate to consolidate its positioning on global markets.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

51. Proposal to allocate profit

The Financial Statements as of 31 December 2019 record a profit for the period equal to ¤46,210,954.66. The Board of Directors of Piaggio & C S.p.A. proposes allocating profit as follows:

  • ¤2,310,547.73 to the legal reserve;
  • ¤5,330,867.93 to the reserve from the measurement of investments with the equity method
  • ¤38,569,539.00 to shareholders as a dividend, of which ¤19,650,390.43 as prepayment already paid.

Moreover, considering the reserves available in the financial statements for ¤5,562,741.94 net of development costs pursuant to Article 2426 no. 5 of the Civil Code - and purchases of treasury shares made by the Company, as well as the prospects of the Group, the Board propose to distribute a dividend equal to Euro 0.11, gross of taxes, per ordinary share having the right to it for a maximum total of ¤39,299,405.86 allocated as follow: (i) Euro 729,866.86 of the retained earnings reserve; and (ii) Euro 38,569,539.00 of the net residual profit of 2019 following the allocations to the legal reserve and to the reserve for equity-accounted investees.

Moreover, on 25 September 2019, the company paid an interim dividend equal to ¤0.055, with coupon detachment date of 23 September 2019 and payment date of 25 September 2019, the Board proposes paying, as the balance of the interim payment already made, a dividend equal to ¤0.055 for each entitled ordinary share, for a maximum total of ¤19,649,015.43 deducted from the profit of the year, with detachment date of coupon no. 14 on 20 April 2020, the record date coinciding with 21 April 2020 and payment date of 22 April 2020.

52. Authorisation for publication

This document was published on 25 March 2020 authorised by the Chairman and Chief Executive Officer.

Mantova, 26 February 2020 for the Board of Directors

Chairman and Chief Executive Officer Roberto Colaninno

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

ATTACHMENTS

Piaggio Group companies

Reference is made to attachments to the Consolidated Financial Statements.

Information pursuant to Article 149-duodiecies of the Consob Regulation on Issuers

This statement, prepared pursuant to Article 149 duodecies of the Consob Regulation on Issuers, indicates the fees for 2019 paid for auditing services and services other than auditing services provided by the independent auditors and entities of its network.

TYPE OF SERVICE SUBJECT
PROVIDING
THE SERVICE
FEES
FOR 2019
FIGURES IN EURO
Auditing services PWC 369,314
Auditing services for the NFS and CSR Report PWC 54,000
Certification services PWC 50,000
Other services PWC 233,000
Total 706,314

Information on company management and coordination activities

The Company is subject to the management and coordination of IMMSI S.p.A..

Pursuant to Article 2497-bis, section 4 of the Italian Civil Code, main data of the last financial statements of the parent company IMMSI S.p.A, with registered office in Mantova (MN), Piazza Vilfredo Pareto 3 – tax code 07918540019, for the year ended 31 December 2018, are summarised below. The above essential data were taken from the Financial Statements for the year ended 31 December 2018. To fully understand the financial position of IMMSI S.p.A as of 31 December 2018, as well as the financial performance of the company in the year ending at this date, reference is made to the financial statements, and the report of the independent auditors, available in the forms and according to procedures established by law.

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

INCOME STATEMENT

IN THOUSANDS OF EUROS 2018 2017
Financial income 27,126 29,939
Of which related parties and intergroup 27,030 25,017
Borrowing costs (19,768) (25,685)
Of which related parties and intergroup (9,540) (15,040)
Income/(loss) from investments -
Operating income 4,516 4,452
Of which related parties and intergroup 2,358 2,356
Costs for materials (29) (37)
Costs for services, leases and rentals (3,521) (3,615)
Of which related parties and intergroup (384) (428)
Employee costs (1,137) (1,104)
Depreciation of plant, property and equipment (50) (67)
Amortisation of goodwill
Amortisation of intangible assets with a definite life
Other operating income 217 114
Of which related parties and intergroup 85 83
Other operating costs (752) (778)
Profit before tax 6,602 3,219
Taxes 143 (175)
Of which related parties and intergroup - -
Profit after taxes from continuing operations 6,746 3,044
Profit or loss arising from assets held for disposal or sale - -
Net profit for the period 6,746 3,044

STATEMENT OF COMPREHENSIVE INCOME

IN THOUSANDS OF EUROS 2018 2017
Net profit for the period 6,746 3,044
Items that may be reclassified to profit or loss:
Effective portion of profit (losses) from instruments to hedge cash flows 130 221
Items that will not be reclassified in the income statement:
Gains (losses) from the fair value measurement of financial assets (1,591) (18,057)
Actuarial gains (losses) relative to defined benefit plans 9 9
Total profit (loss) for the period 5,294 (14,782)

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

STATEMENT OF FINANCIAL POSITION

IN THOUSANDS OF EUROS AS OF 31 DECEMBER 2018 AS OF 31 DECEMBER 2017
NON-CURRENT ASSETS
Intangible assets -
Plant, property and equipment 238 68
Investment Property 74,650 74,114
Investments in subsidiaries and associates 307,331 310,331
Other financial assets 260,580 -
Of which related parties and intergroup
260,580
Tax receivables - -
Deferred tax assets - -
Trade receivables and other receivables 12,726 6
Of which related parties and intergroup
12,720
Total non-current assets 655,525 384,519
ASSETS HELD FOR DISPOSAL
CURRENT ASSETS
Trade receivables and other receivables 8,647 26,770
Of which related parties and intergroup
8,386
26,350
Tax receivables 268 191
Inventories - -
Works in progress to order - -
Other financial assets 2,767 239,261
Of which related parties and intergroup
-
234,916
Cash and cash equivalents 2,865 5,281
Total current assets 14,547 271,503
Total assets 670,072 656,022
SHAREHOLDERS' EQUITY
Share capital 178,464 178,464
Reserves and retained earnings 176,073 174,481
Net profit for the period 6,746 3,044
Total shareholders' equity 361,283 355,989
NON-CURRENT LIABILITIES
Financial liabilities - 102,017
Trade payables and other payables 162 208
Retirement fund and similar obligations 333 318
Other long-term provisions - -
Deferred tax assets/liabilities 19,447 19,375
Total non-current liabilities 19,942 121,918
LIABILITIES RELATED TO ASSETS HELD FOR DISPOSAL - -
CURRENT LIABILITIES
Financial liabilities 282,689 175,101
Trade payables 2,118 1,450
Of which related parties and intergroup
605
442
Current taxes 576 522
Other payables 3,463 1,042
Of which related parties and intergroup
2,002
2
Current portion of other long-term provisions - -
Total current liabilities 288,847 178,115
Total Shareholders' Equity and Liabilities 670,072 656,022

Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Changes in shareholders' equity Notes to the financial statements Attachments

CERTIFICATION OF THE FINANCIAL STATEMENTS PURSUANT TO ARTICLE 154-BIS OF LEGISLATIVE DECREE 58/98

    1. The undersigned Roberto Colaninno (Chairman and Chief Executive Officer) and Alessandra Simonotto (Appointed Executive) of Piaggio & C. S.p.A. hereby certify, also in consideration of article 154-bis, sections 3 and 4, of Legislative Decree no. 58 of 24 February 1998:
  • the appropriateness with regard to the company's characteristics and
  • the actual application of administrative and accounting procedures for the formation of the Separate Financial Statements as of 31 December 2019.
    1. With regard to the above, no relevant aspects are to be reported.
  • Moreover

3.1 the financial statements:

  • a. have been prepared in compliance with the international accounting standards endorsed by the European Community pursuant to regulation (EC) no. 1606/2002 of the European Parliament and Council of 19 July 2002;
  • b. correspond to accounting records;
  • c. give a true and fair view of the statement of financial position and results of operations of the Issuer;

3.2 The Report on Operations includes reliable analysis of the trend of operations and operating results, as well as the situation of the Issuer and a description of main risks and uncertainties to which they are exposed.

Date: 26 February 2020

Chairman and Chief Executive Officer Executive in charge

REPORT OF THE INDEPENDENT AUDITORS ON THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of this report. We are independent of the Company pursuant to the regulations and standards on ethics and independence applicable to audits of financial statements under Italian law. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and

3 of 6

We declare that we did not provide any prohibited non-audit services referred to in article 5,
paragraph 1, of Regulation (EU) No. 537/2014 and that we remained independent of the Company in
conducting the statutory audit.
We confirm that the opinion on the financial statements expressed in this report is consistent with the
additional report to the board of statutory auditors, in its capacity as audit committee, prepared
pursuant to article 11 of the aforementioned Regulation.
Report on Compliance with other Laws and Regulations
Opinion in accordance with Article 14, paragraph 2, letter e), of Legislative Decree
No. 39/10 and Article 123-bis, paragraph 4, of Legislative Decree No. 58/98
The directors of Piaggio & C. SpA are responsible for preparing a report on operations and a report on
the corporate governance and ownership structure of Piaggio & C. SpA as of 31 December 2019,
including their consistency with the relevant financial statements and their compliance with the law.
We have performed the procedures required under auditing standard (SA Italia) No. 720B in order to
express an opinion on the consistency of the report on operations and of the specific information
included in the report on corporate governance and ownership structure referred to in article 123-bis,
paragraph 4, of Legislative Decree No. 58/98, with the financial statements of Piaggio & C. SpA as of 31
December 2019 and on their compliance with the law, as well as to issue a statement on material
misstatements, if any.
In our opinion, the report on operations and the specific information included in the report on
corporate governance and ownership structure mentioned above are consistent with the financial
statements of Piaggio & C. SpA as of 31 December 2019 and are prepared in compliance with the law.
With reference to the statement referred to in article 14, paragraph 2, letter e), of Legislative Decree
No. 39/10, issued on the basis of our knowledge and understanding of the Company and its
environment obtained in the course of the audit, we have nothing to report.
Florence, 24 March 2020
PricewaterhouseCoopers SpA
Signed by
Francesco Forzoni
(Partner)
This report has been translated into English from the Italian original solely for the convenience of
international readers

REPORT OF THE BOARD OF STATUTORY AUDITORS ON THE FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019

We would like to thank all colleagues for their valuable help in preparing this document.

This report is available on the Internet at: www piaggiogroup com

Disclaimer

This Financial Report as of 31 December 2019 has been translated into English solely for the convenience of the international reader. In the event of conflict or inconsistency between the terms used in the Italian version of the report and the English version, the Italian version shall prevail, as the Italian version constitutes the sole official document.

Management and Coordination IMMSI S.p.A. Share capital ¤207,613,944.37, fully paid up Registered office: Viale R. Piaggio 25, Pontedera (Pisa) Pisa Register of Companies and Tax Code 04773200011 Pisa Economic and Administrative Index no. 134077

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