Interim / Quarterly Report • Sep 24, 2020
Interim / Quarterly Report
Open in ViewerOpens in native device viewer
SIX MONTHLY REPORT 2020
| Company Officers | 6 |
|---|---|
| Summary of Group Results | 8 |
| Directors' Report on Operations | 11 |
| Brembo and the Market | 12 |
| Sales Breakdown by Geographical Area and Application | 18 |
| Brembo's Consolidated Results | 20 |
| Group Structure | 26 |
| Performance of Brembo Companies | 28 |
| Investments | 34 |
| Research and Development | 36 |
| Risk Management Policy | 42 |
| Human Resources and Organisation | 52 |
| Environment, Safety and Health | 54 |
| Related Party Transactions | 58 |
| Further Information | 59 |
| Significant Events After 30 June 2020 | 62 |
| Foreseeable Evolution | 62 |
| Brembo S.p.A. Stock Performance | 66 |
|---|---|
| Condensed Consolidated Six Monthly Financial Report at 30 June 2020 | 69 |
| Consolidated Financial Statements at 30 June 2020 | 70 |
| Explanatory Notes to the Condensed Consolidated Six Monthly Financial Report at 30 June 2020 | 80 |
| Independent Auditors' Reports | 124 |
| Attestation of the Manager in Charge of the Company's Financial Reports | 125 |
The General Shareholders' Meeting of the Parent Brembo S.p.A. held on 23 April 2020 confirmed the number of Board members at 11 and appointed the Board of Directors for the three-year period 2020-2022, i.e., until the General Shareholders' Meeting called to approve the Financial Statements for the year ending 31 December 2022.
| Chairman | Alberto Bombassei (1) (8) |
|---|---|
| Executive Deputy Chairman | Matteo Tiraboschi (2) (8) |
| Chief Executive Officer | Daniele Schillaci (3) (8) |
| Directors | Valerio Battista (4) (9) Cristina Bombassei (5) (8) Laura Cioli (4) Nicoletta Giadrossi (4) (6) Elisabetta Magistretti (4) Umberto Nicodano (7) Elizabeth M. Robinson (4) Gianfelice Rocca (4) |
| Board of Statutory Auditors(10) | |
| Chairwoman | Raffaella Pagani (6) |
| Acting Auditors | Mario Tagliaferri Paola Tagliavini |
| Alternate Auditors | Myriam Amato (6) Stefania Serina |
| Independent Auditors | EY S.p.A. (11) |
|---|---|
| Manager in Charge of the Company's Financial Reports |
Andrea Pazzi (12) |
| Committees | |
| Audit, Risk & Sustainability Committee (13) | Laura Cioli (Chairwoman) Nicoletta Giadrossi Elisabetta Magistretti |
| Remuneration & Appointments Committee | Nicoletta Giadrossi (Chairwoman) Laura Cioli Elizabeth M. Robinson |
| Supervisory Committee | Giovanni Canavotto (Chairman) (14) Elisabetta Magistretti Alessandra Ramorino (15) |
| (1) The Chairman is the Company's legal representative and has powers of ordinary management, within the limits of the law. (2) The Executive Deputy Chairman is the Company's legal representative; the Board of Directors granted him special powers to manage the Company. (3) The Board of Directors granted the Chief Executive Officer, Daniele Schillaci, special powers to manage the Company, as well as powers, pursuant to Article 2381 of the Italian Civil Code, with reference to occupational health and safety (as per Legislative Decree No. 81/2008, as amended by Legislative Decree No. 106/2009), environmental protection and waste management. (4) Independent and Non-executive Directors pursuant to Article 148, paragraph 3, of TUF (as required by Articles 147-ter, paragraph 4, and 147-quater of TUF) and Article 2.2.3, paragraph 3, of the Rules of Borsa Italiana S.p.A. and the Corporate Governance Code of Brembo S.p.A. (Article 3.C.1). (5) The Director also holds the position of Executive Director in charge of the Internal Control and Risk Management System, as well as of Chief CSR Officer. |
(6) Director/Statutory Auditor elected from a minority list. (7) Non-executive Director. (8) Executive Directors. (9) This Director also holds the position of Lead Independent Director. (10) This Board holds the role of Internal Control & Audit Committee pursuant to Article 19 of Legislative Decree No. 39/2010. (11) The General Shareholders' Meeting held on 23 April 2013 assigned the mandate until the approval of the 2021 Financial Statements. (12) Appointed by the Board of Directors on 23 April 2020 pursuant to Article 27-bis of the By-laws. The appointment remains valid until the expiry of the current Board of Directors' term of office, i.e., until the General Shareholders' Meeting approving the Financial Statements for the year ending 31 December 2022. (13) This Committee also acts as the Related Party Transactions Committee. (14) External Advisor. (15) Chief Internal Audit Officer. |
Registered offices: CURNO (BG) – Via Brembo 25 Share capital: €34,727,914.00 – Bergamo Register of Companies Tax code and VAT Code No. 00222620163
| (euro thousand) | 30.06.2016 | 30.06.2017 | 30.06.2018 | 30.06.2019 | 30.06.2020 | % 2020/2019 |
|---|---|---|---|---|---|---|
| Revenue from contracts with customers | 1,146,838 | 1,262,448 | 1,339,687 | 1,323,840 | 951,113 | -28.2% |
| Gross operating income | 226,501 | 255,528 | 259,880 | 270,582 | 143,291 | -47.0% |
| % on revenue from contracts with customers | 19.8% | 20.2% | 19.4% | 20.4% | 15.1% | |
| Net operating income | 173,339 | 189,497 | 186,105 | 174,455 | 38,791 | -77.8% |
| % on revenue from contracts with customers | 15.1% | 15.0% | 13.9% | 13.2% | 4.1% | |
| Result before taxes | 166,018 | 186,477 | 180,609 | 167,875 | 24,678 | -85.3% |
| % on revenue from contracts with customers | 14.5% | 14.8% | 13.5% | 12.7% | 2.6% | |
| Net result for the period | 127,079 | 136,688 | 140,113 | 123,448 | 19,958 | -83.8% |
| % on revenue from contracts with customers | 11.1% | 10.8% | 10.5% | 9.3% | 2.1% | |
| (euro thousand) | 30.06.2016 | 30.06.2017 | 30.06.2018 | 30.06.2019 | 30.06.2020 | % 2020/2019 |
|---|---|---|---|---|---|---|
| Net invested capital | 1,046,967 | 1,232,875 | 1,415,082 | 1,743,190 | 1,994,850 | 14.4% |
| Equity | 756,064 | 943,055 | 1,124,531 | 1,288,478 | 1,373,132 | 6.6% |
| Net financial debt | 259,432 | 259,697 | 263,050 | 434,477 | 597,499 | 37.5% |
| (euro thousand) | 30.06.2016 | 30.06.2017 | 30.06.2018 | 30.06.2019 | 30.06.2020 | % 2020/2019 |
|---|---|---|---|---|---|---|
| Personnel at end of period (No.) | 8,883 | 9,429 | 10,384 | 10,579 | 10,731 | 1.4% |
| Turnover per employee | 129.1 | 133.9 | 129.0 | 125.1 | 88.6 | -29.2% |
| Net investments | 113,210 | 161,496 | 120,829 | 101,860 | 73,374 | -28.0% |
| 30.06.2016 | 30.06.2017 | 30.06.2018 | 30.06.2019 | 30.06.2020 | |
|---|---|---|---|---|---|
| Net operating income/ Revenue from contracts with customers |
15.1% | 15.0% | 13.9% | 13.2% | 4.1% |
| Income before taxes/ Revenue from contracts with customers |
14.5% | 14.8% | 13.5% | 12.7% | 2.6% |
| Net investments/Revenue from contracts with customers |
9.9% | 12.8% | 9.0% | 7.7% | 7.7% |
| Net financial debt/Equity | 34.3% | 27.5% | 23.4% | 33.7% | 43.5% |
| Adjusted net interest expense(*)/Revenue from contracts with customers |
0.4% | 0.3% | 0.3% | 0.6% | 0.7% |
| Adjusted net interest expense (*)/Net operating income |
2.6% | 2.3% | 2.4% | 4.4% | 17.0% |
| ROI | 29.0% | 27.9% | 24.2% | 19.1% | 9.2% |
| ROE | 29.5% | 26.9% | 24.2% | 17.9% | 9.4% |
Notes:
ROI: Net operating income (rolling 12 months)/Net invested capital
ROE: Net income (loss) before minority interests (rolling 12 months) (net of Result from discontinued operations)/Equity.
(*) This item does not include exchange gains and losses.
This is the true challenge: aiming for objectives that just yesterday were inconceivable, in harmony with humankind and the environment.
In order to properly assess Brembo's performance for the first half of 2020, as well as its outlook for the future, an analysis of the worldwide macroeconomic scenario is given here below, with particular reference to the markets in which the Group operates.
The current environment necessitates particular caution in conducting analyses and preparing forecasts, including in light of the most recent estimates published by the IMF (International Monetary Fund), which revised downwards its economic growth estimates for 2020, while also announcing that the recovery next year would be even slower than initially predicted. A stronger impact than foreseen and a slower recovery than expected: these were the lines along which the IMF updated its global economic forecast during the Covid-19 pandemic, which continues to create uncertainty amongst businesses at the international level. The IMF observed that voluntary social distancing and heightened workplace safety standards continued to have an adverse impact on the recovery of economic activity even after businesses reopened. In the event of a second wave of the disease, the timing of this recovery would be pushed back into 2021.
As regards the global economy, the IMF forecasts a 4.9% decline in GDP (Gross Domestic Product) in 2020, 1.9 percentage points below the estimates published in April a figure that is obviously marked by the utmost uncertainty. IMF's Chief Economist Gita Gopinath stated: "We are now projecting a deeper recession in 2020 and a slower recovery in 2021" compared to the April forecasts. In 2021, global GDP is expected to grow by 5.4% (compared to the 5.8% forecast in April). In 2021, GDP would thus be approximately 6.5 percentage points lower than the January 2020 forecasts, before the pandemic. Global trade will contract by nearly 12%. The world's main developed economies will be most severely affected in 2020, with the United States forecast to contract by 8%, whereas the Eurozone is expected to decline by 10.2%. In both cases, the growth rates are down by 2 percentage points compared to the April estimates. A negative outlook for 2020 is also in store for the economies of Latin America, where Covid-19 transmission is on the rise, with Brazil's economy set to shed 9.1%, Mexico's 10.5% and Argentina's 9.9%. China — where businesses began to reopen earlier and case numbers were very low — was the only major global economy for which growth is forecast in 2020, now estimated at 1.0% compared to the 1.2% forecast in April.
The Eurozone's economy is expected to decline by 10.2% in 2020, followed by a 6.0% bounce back in 2021. According to the IMF's updated estimates, the German economy will contract by 7.8% this year to then expand by 5.4% in 2021. The Fund expects that France's GDP will fall by 12.5% in 2020 and grow by 7.3% in 2021, whereas Spain is forecast to decrease by 12.8% and then expand by 6.3% in 2021. In the United Kingdom, which is out of the EU and at grips with Brexit, the decline will exceed 10.0%. However, there seem to be some positive signs from the Eurozone's economy: the indications provided by the PMI (Purchasing Managers Index), which measures the opinions of purchasing managers at major companies within the area, support confidence in a recovery in the third quarter of 2020. "While second quarter GDP of the Eurozone is still likely to have dropped at an unprecedented rate, the rise in the PMI adds to expectations that the lifting of restrictions will help bring the downturn to an end," commented Chris Williamson, Chief Business Economist at IHS Markit, "although it will likely take up to three years before the Eurozone regains its pre-pandemic level of GDP."
Unfortunately, the worst estimates are those for Italy, where GDP is expected to decline by 12.8% in 2020, an additional 3.7 percentage points beyond the previous estimate of
-9.1%. Growth in 2021 has been revised upwards to +6.3%, 1.5 percentage points higher than forecast in April. The consequences of the coronavirus are also being felt at the level of government debt and the deficit for the current year. From 134.8% in 2019, debt is expected to rise to 166.1% of GDP in 2020, to then decline to 161.9% in 2021. According to an analysis by the Confindustria Research Centre, in April industrial production decreased by 19.1% (-28.4% in March), with sharp declines in automotive, textiles/apparel, rubber/ plastic and transport.
Turning to the American situation, in 2020 the GDP of the United States — the country most severely affected by the pandemic — will decline by 8%, to then expand by 4.5% in 2021. This is the picture painted by the WEO (World Economic Outlook) published by the IMF. Compared to the April forecasts, the 2020 figure has been revised downwards by 2.1 percentage points, whereas the 2021 figure has been revised downwards by 0.2 percentage points. The Federal Reserve, the U.S. central bank, which has also decided to keep rates unchanged until the end of 2022 to contain the economic shock caused by the Covid-19 pandemic and to aid the recovery, has released negative GDP estimates: -6.5% in 2020, followed by a bounce back of 5% in 2021 and of 3.5% in 2022. The job market will also be considerably affected by the negative situation caused by the pandemic: the unemployment rate will climb to 9.3% in 2020, to then fall to 6.5% in 2021 and then further to 5.5% in 2022.
The economy of the BRICS (Brazil, Russia, India and China) has been very severely affected by the current situation. Brazil will see its economy contract by 9.1% in 2020, with a recovery of 3.6% in 2021. India, where transmission continues to increase, will see its GDP decline by 4.5%, whereas the decline in Russia is expected to amount to 6.6%. Within this scenario, China is the exception: in April it began to end its lockdown, and the IMF continues to forecast that it will achieve overall growth in 2020, although it will only reach 1.0%, its lowest level since the 70s. The growth rate will increase robustly in 2021 (to over 8.0%) — naturally assuming that the risk of a second wave of Covid-19 transmission is avoided.
According to the IMF, Japan's economy will limit its losses to 5.8%, although the recovery in 2021 will be smaller (+2.4%). The slower recovery was immediately reflected in oil prices: the IMF, in its update to the WEO published in June, sets the estimate of the arithmetic average of the prices of the three qualities of oil, Brent, Dubai and WTI (West Texas Intermediate), at 36.18 dollars a barrel for the end of 2020 and 37.54 dollars a barrel for the end of 2021, up from a low of 19 dollars a barrel in April. This indicates a recovery, albeit still of a very partial extent, in the demand for oil at the international level, following the sharp decline due to the epidemic.
In the first half of 2020, the world's main currencies were affected by the impact of the Covid-19 pandemic on the major global economies. Currencies experienced severe volatility, due in part to the measures taken by the main central banks in response to the health and economic emergency.
The U.S dollar began by appreciating sharply against the single currency until mid-February, to then reverse course completely and depreciate to its highest rate for the period of 1.1456 (9 March). The U.S. currency then entered a phase of rapid appreciation, driving the rate down to the low for the first six months of 1.0707 (20 March), followed by a lateral phase. It ended the half-year with further abrupt depreciation to 1.1198, above the average half-yearly rate of 1.1015.
Turning to the currencies of the other major markets in which Brembo operates at the commercial and industrial level, the pound sterling opened the period in a lateral phase at around 0.85, to then appreciate to its low for the period of 0.8299 (18 February). The currency then abruptly reversed course to reach a high for the period of 0.9299 (19 March), and then appreciated again, returning to around the average for the period of 0.8743 and closing at 0.9124.
The Polish zloty began the first half of 2020 by appreciating slightly, reaching a low rate for the period of 4.2219 (14 January). After a brief lateral phase, the currency then depreciated sharply, reaching a high of 4.6146 (24 March). The currency then moved in a lateral channel of 4.50-4.60 to then appreciate around mid-
May to values equal to the period average of 4.4136, a channel that was maintained until period-end at 4.4560.
The Czech koruna began the first half of 2020 by appreciating slightly, reaching a low for the period of 24.7930 on 17 February. This was followed by a sharp depreciation that drove the rate up to the high for the period of 27.8080 (24 March). After a volatile phase in the channel 27-27.50, the koruna appreciated around mid-May, climbing above the average for the period of 26.3421 to end the half-year at 26.7400.
The Swedish krona began the first half of 2020 in a lateral channel between 10.50 and 10.70 to then undergo sharp, constant depreciation, reaching a high of 11.1523 (19 March). It then appreciated sharply and steadily, reaching the low for the period of 10.3978 (8 June). The currency began to depreciate slightly near the end of the half-year. At the end of the period, the currency stood at 10.4948, below the half-yearly average rate (10.6610).
In the East, the Japanese yen began the period by depreciating slightly to around 123, after which it reversed course consistently, despite severe volatility, reaching the low for the period of 114.6500 (6 May). The currency then depreciated sharply, reaching its high for the period of 123.7700 on 5 June. At the end of the period, the currency again appreciated sharply to 120.6600, above the half-yearly average rate (119.2072).
The Chinese yuan/renminbi began the first half of 2020 by appreciating to around 7.60 to then reach a low for the period of 7.5538 (19 February). The currency then depreciated sharply, bringing it to around 8, to then once again reverse course around mid-March. After the ensuing lateral phase, around mid-May, the renminbi depreciated sharply, reaching a high for the period of 8.0349 (5 June). At the end of the period, the currency appreciated slightly to 7.9219, far above the halfyearly average rate (7.7481).
The Indian rupee began the half-year by appreciating constantly and uninterruptedly, driving the rate down to a low for the period of 77.2345 on 19 February. The rupee then entered a period of depreciation, with the rate rising to over 85, to then appreciate once again around early March. After a lateral phase that lasted until mid-May, the currency depreciated further, reaching the high for the period of 86.0570 (11 June). There was slight appreciation in the final phase of the half-year to close at 84.6235, above the average rate for the period of 81.6766.
In the Americas, the Brazilian real began the reporting period at the low for the half-year of 4.4870. A long, constant period of depreciation then began, bringing the rate to a high for the period of 6.3925 on 14 May. The currency then entered a period of sharp appreciation around early June, to close the half-year, after further depreciation, at 6.1118, above the halfyearly average of 5.4169.
The Mexican peso opened the period at around 21, to then fluctuate laterally. It ended the period appreciating slightly, reaching its low for the half year of 20.0690 on 19 February. The currency then depreciated decisively, reaching its high for the half year of 27.0896 on 6 April. The peso then moved in a lateral channel, with slight appreciation around mid-May, to close the period with further depreciation to 25.9470, far above the average rate for the half-year of 23.8571.
The Argentine peso began the half-year with a lateral phase that led it to reach a low for the period of 66.1395 on 28 January. It then initially depreciated around early March to above 71. After slight appreciation, the Argentine peso then entered a long phase of constant depreciation, driving the rate to a high for the period of 79.1918 on 29 June, after which it closed at 78.7859, far in excess of the average rate for the period of 71.0329.
Finally, the Russian rouble began the period by reaching the low for the period of 68.0410 on 10 January. The currency then depreciated sharply, reaching its high for the period of 88.1385 on 30 March. In the second part of the half-year the currency appreciated slowly and constantly, nearing the average for the period around early June. In the final part of the half-year, it depreciated slightly, closing at 79.6300, a value far above the average rate for the period of 76.6825.
Brembo is the world leader and acknowledged innovator of the brake disc technology for automotive vehicles. It currently operates in 14 countries on 3 continents, through its production and business sites, and employs over 10,000 people worldwide. Manufacturing plants are located in Italy, Poland (Częstochowa, Dąbrowa Górnicza, Niepołomice), the United Kingdom (Coventry), the Czech Republic (Ostrava-Hrabová), Germany (Meitingen), Mexico (Apodaca and Escobedo), Brazil (Betim), China (Nanjing, Langfang), India (Pune) and the United States (Homer). Other companies located in Spain (Zaragoza), Sweden (Göteborg), Germany (Leinfelden-Echterdingen), China (Qingdao), Japan (Tokyo) and Russia (Moscow) carry out distribution and sales activities.
Brembo's reference market is represented by the most important manufacturers of cars, motorbikes, commercial vehicles and racing cars and motorbikes. Constant focus on innovation, as well as technological and process development — factors that have always been fundamental to Brembo's philosophy — have earned the Group a strong international leadership position in the research, design and production of high-performance braking systems for a wide range of road and racing vehicles. Brembo operates in both the original equipment market and the aftermarket. Brembo's range of products for car and commercial vehicle applications includes brake discs, brake calipers, the side-wheel module and, increasingly often, the complete braking system, including integrated engineering services. All of these back the development of new models produced by vehicle manufacturers. In addition to brake discs and brake calipers, motorbike manufacturers are also offered brake master cylinders, light-alloy wheels and complete braking systems. In the car aftermarket, Brembo offers in particular brake discs, in addition to pads, drums, brake shoes, drum-brake kits and hydraulic components: a vast and reliable range of products allows the company to meet the needs of nearly all European vehicles.
In the first half of 2020, Brembo's consolidated net sales amounted to €951,113 thousand, down by 28.2% compared to the same period of 2019 (€1,323,840 thousand).
Information on the performance of the individual applications and their related markets — as available to the Company — is provided under the following headings. All markets shrank markedly, mainly due to the severe measures that all countries adopted to combat the spread of the Covid-19 pandemic. The lockdown restrictions were initially implemented in China, to then spread at a global level in Europe, Asia, the USA and South America.
During the first five months of 2020, the global light vehicle market showed a significant decrease in sales (29.7%).
The Western European market (EU14+EFTA+United Kingdom) closed the first five months of 2020 with a -43.5% decline in registrations compared to the first five months of 2019. All the main markets reported a decline: Germany -35%, France -48.5%, Italy -50.4%, the United Kingdom -51.4%, and Spain -54.2%. The trend was also negative in Eastern Europe (EU12), with car registrations down by 35.4% compared to the first five months of 2019.
In Russia, light vehicle registrations closed the first five months of 2020 down 25.7% compared to the same period of the previous year.
In the United States, the first five months of 2020 showed a decline, with light vehicle sales decreasing by 22.9% overall, compared to the same period of 2019. In the reporting period, Brazil and Argentina also reported an overall 39.5% decline in sales.
In Asian markets, China closed the first five months of 2020 on a negative note with light vehicle sales down -24.8% compared to the same period of 2019. Japan also closed the same period negatively, with a 19.3% decline in sales.
Within this scenario, Brembo's net sales of car applications in the first half of 2020 amounted to €709,317 thousand, accounting for 74.7% of the Group's turnover, down by 27.7% compared to the same period of 2019 (€981,709 thousand).
Europe, the United States and Japan are Brembo's three most important markets in the motorbike sector.
In Europe, the top motorbike markets in terms of registrations are: Italy, Germany, France, Spain and the United Kingdom. In the first five months of 2020, sales of motorbikes and scooters in Italy decreased by 38.0% compared to the same period of 2019 (motorbikes: -40.2%; motorbikes with displacements over 500cc alone: -41.0%; scooters: -37.0%). Similarly, all other main European countries reported a decrease compared to the first five months of 2019: -31% in France, -37% in Spain, -3% in Germany, and -36% the UK.
In the United States, registrations of motorbikes, scooters and ATVs (All Terrain Vehicles, quadricycles for recreation and work) declined by 3.3% in the first quarter of 2020 compared to the same period of 2019. ATVs alone decreased by 1.6%, while motorbikes and scooters together dropped by 4.0%.
In the first five months of the year, the Japanese market, considering displacements over 50cc overall, showed a 4.2% decrease, whereas the figure for motorbikes with displacements over 125cc alone was +3.2%.
India (motorbikes and scooters) decreased by 44.3% in the first four months of 2020, whereas Brazil reported a 32.4% decline in registrations.
Brembo's net sales of motorbike applications in the first half of 2020 amounted to €90,338 thousand, decreasing by 34.0% over the same period of 2019 (€136,892 thousand).
(-40.3%) and the United Kingdom (-49.6%). In Eastern European countries this segment decreased by 23.7% compared to the same period of 2019.
Similarly, the segment of medium and heavy commercial vehicles (over 3.5 tonnes) declined in Europe in the first five months of 2020, closing at -38.6% compared to the same period of the previous year. Among the top European markets by sales volume, a negative performance was reported by Germany (-33.4%), France (-41.0%) and Italy (-29.4%). In Eastern European countries, sales of commercial vehicles over 3.5 tonnes decreased by 16.6% in the first five months of the year compared to the same period of the previous year.
In the first half of 2020, Brembo's net sales of applications in this segment amounted to €102,170 thousand, down by 25.6% compared to €137,383 thousand for the same period of 2019.
In the racing sector, where Brembo has maintained undisputed supremacy for years, the Group operates through three leading brands: Brembo Racing, braking systems for race cars and motorbikes; AP Racing, braking systems and clutches for race cars; Marchesini, magnesium and aluminium wheels for racing motorbikes.
In the first half of 2020, Brembo's net sales of applications in this segment amounted to €48,894 thousand, down by 27.5% compared to €67,412 thousand for the first half of 2019.
In the first five months of 2020, the European commercial vehicles market (EU+EFTA+United Kingdom) — Brembo's reference market — showed a 38.1% decrease in registrations compared to the same period of 2019.
In detail, sales of light commercial vehicles (up to 3.5 tonnes) declined overall by 36.4% in Europe. Among the top European markets by sales volume, a negative performance compared to the first five months of the previous year was reported by Italy (-42.4%), Germany (-26.6%), Spain (-51.2%), France
| (euro thousand) | 30.06.2020 | % | 30.06.2019 | % | Change | % |
|---|---|---|---|---|---|---|
| Italy | 107,873 | 11.3% | 144,990 | 11.0% | (37,117) | -25.6% |
| Germany | 182,136 | 19.2% | 269,773 | 20.4% | (87,637) | -32.5% |
| France | 40,376 | 4.2% | 52,128 | 3.9% | (11,752) | -22.5% |
| United Kingdom | 63,397 | 6.7% | 106,503 | 8.0% | (43,106) | -40.5% |
| Other European countries | 123,145 | 12.9% | 158,815 | 12.0% | (35,670) | -22.5% |
| India | 26,724 | 2.8% | 47,207 | 3.6% | (20,483) | -43.4% |
| China | 140,596 | 14.8% | 144,022 | 10.9% | (3,426) | -2.4% |
| Japan | 12,082 | 1.3% | 13,750 | 1.0% | (1,668) | -12.1% |
| Other Asian countries | 13,793 | 1.5% | 15,370 | 1.2% | (1,577) | -10.3% |
| South America (Argentina and Brazil) | 12,737 | 1.3% | 22,721 | 1.7% | (9,984) | -43.9% |
| North America (USA, Mexico and Canada) | 220,212 | 23.2% | 337,739 | 25.5% | (117,527) | -34.8% |
| Other countries | 8,042 | 0.8% | 10,822 | 0.8% | (2,780) | -25.7% |
| Total | 951,113 | 100.0% | 1,323,840 | 100.0% | (372,727) | -28.2% |
| (euro thousand) | 30.06.2020 | % | 30.06.2019 | % | Change | % |
|---|---|---|---|---|---|---|
| Passenger Car | 709,317 | 74.7% | 981,709 | 74.2% | (272,392) | -27.7% |
| Motorbike | 90,338 | 9.5% | 136,892 | 10.3% | (46,554) | -34.0% |
| Commercial Vehicle | 102,170 | 10.7% | 137,383 | 10.4% | (35,213) | -25.6% |
| Racing | 48,894 | 5.1% | 67,412 | 5.1% | (18,518) | -27.5% |
| Miscellaneous | 394 | 0.0% | 444 | 0.0% | (50) | -11.3% |
| Total | 951,113 | 100.0% | 1,323,840 | 100.0% | (372,727) | -28.2% |
Sales Breakdown by Application
| (euro thousand) | 30.06.2020 | 30.06.2019 | Change | % |
|---|---|---|---|---|
| Revenue from contracts with customers | 951,113 | 1,323,840 | (372,727) | -28.2% |
| Cost of sales, operating costs and other net charges/income (*) | (607,624) | (823,816) | 216,192 | -26.2% |
| Income (expense) from non-financial investments | 1,884 | 5,901 | (4,017) | -68.1% |
| Personnel expenses | (202,082) | (235,343) | 33,261 | -14.1% |
| GROSS OPERATING INCOME | 143,291 | 270,582 | (127,291) | -47.0% |
| % on revenue from contracts with customers | 15.1% | 20.4% | ||
| Depreciation, amortisation and impairment losses | (104,500) | (96,127) | (8,373) | 8.7% |
| NET OPERATING INCOME | 38,791 | 174,455 | (135,664) | -77.8% |
| % on revenue from contracts with customers | 4.1% | 13.2% | ||
| Net interest income (expense) and interest income (expense) from investments |
(14,113) | (6,580) | (7,533) | 114.5% |
| RESULT BEFORE TAXES | 24,678 | 167,875 | (143,197) | -85.3% |
| % on revenue from contracts with customers | 2.6% | 12.7% | ||
| Taxes | (4,503) | (36,991) | 32,488 | -87.8% |
| Result from discontinued operations | 62 | (6,753) | 6,815 | -100.9% |
| RESULT BEFORE MINORITY INTERESTS | 20,237 | 124,131 | (103,894) | -83.7% |
| % on revenue from contracts with customers | 2.1% | 9.4% | ||
| Minority interests | (279) | (683) | 404 | -59.2% |
| NET RESULT | 19,958 | 123,448 | (103,490) | -83.8% |
| % on revenue from contracts with customers | 2.1% | 9.3% | ||
| Basic and diluted earnings per share (euro) | 0.06 | 0.38 |
(*) The item is obtained by adding the following items of the Consolidated Statement of Income: "Other revenues and income", "Costs for capitalised internal works", "Raw materials, consumables and goods" and "Other operating costs".
In the first half of 2020, Brembo's net sales amounted to €951,113 thousand, down by 28.2% compared to the same period of 2019, following the lockdown measures adopted in all the countries where the Group operates to contain the spread of the Covid-19 virus. Details on the lockdown restrictions implemented by the Group' companies are given in section "Impacts of the Covid-19 Pandemic on the Condensed Six Monthly Financial Report at 30 June 2020" of this Report.
Car applications, which accounted for 74.7% of Group's sales, closed the reporting period with a 27.7% decrease, as a result of the strong decline in the light vehicle market. In the first half of 2020, a negative performance was also reported by the other sectors in which the Group operates: applications for commercial vehicles (-25.6%), the motorbike segment (-34.0%) and the racing segment (-27.5%).
At geographical level, and with specific reference to Europe, Germany dropped by 32.5% compared to the first half of 2019. Similarly, all other European countries reported a decrease: France (-22.5%), Italy (-25.6%), and the United Kingdom (-40.5%). In North America (USA, Mexico and Canada), sales decreased by 34.8%, whereas South America reported a 43.9% decline. In the Far East, Brembo recorded a slightly decreasing performance in China (-2.4%) that, after a drop in the first quarter (-29.3%), recovered sharply in the second quarter (+23.2%), whereas Japan and, especially, India reported a more marked decline (-12.1% and -43.4%, respectively).
During the first half of 2020, the cost of sales and other net operating costs amounted to €607,624 thousand, with a ratio of 63.9% to sales, up on 62.2% for the first half of 2019. Within this item, development costs capitalised under intangible assets amounted to €10,975 thousand compared to €14,035 thousand in the first half of the previous year.
Income (expense) from non-financial investments amounted to €1,884 thousand and was attributable to the effects of valuing the investment in the BSCCB Group using the equity method (€5,901 thousand in the first half of 2019).
Personnel expenses amounted to €202,082 thousand, with a ratio to revenues of 21.2%, increasing compared to that of the same period of the previous year (17.8%). At 30 June 2020, workforce numbered 10,731 (10,868 at 31 December 2019 and 10,579 at 30 June 2019); the average workforce in the period amounted to 10,832 (10,655 for the first half of 2019).
Gross operating income was €143,291 thousand compared to €270,582 thousand for the first half of 2019, with a ratio to sales of 15.1% (20.4% for the same period of 2019). Margins declined due to the decrease in volumes generated by the spread of the Covid-19 virus at global level, offset however by the measures adopted by Brembo, as described in further detail in the relevant section of this Report.
Net operating income amounted to €38,791 thousand (4.1% of sales), compared to €174,455 thousand (13.2% of sales) for the first half of 2019, after depreciation, amortisation and impairment losses of €104,500 thousand, compared to depreciation, amortisation and impairment losses amounting to €96,127 thousand in the same period of 2019.
Net interest expense amounted to €14,168 thousand (€6,703 thousand in the first half of 2019) and consisted of net exchange rate losses of €7,589 thousand (gains of €1,045 thousand in the first half of 2019) and interest expense of €6,579 thousand (€7,748 thousand for the first half of 2019).
Net interest expense from investments, which amounted to €55 thousand (net interest income of €123 thousand in the first half of 2019) were attributable to the effects of valuing investments in associates using the equity method.
Result before taxes was positive at €24,678 thousand compared to €167,875 thousand in the first half of 2019. Based on tax rates applicable for the year under current tax regulations, estimated taxation amounted to €4,503 thousand, with a tax rate of 18.2% compared to 22.0% for the same period of the previous year.
The result from discontinued operations was positive for €62 thousand (negative for €6,753 thousand in the first half of 2019), and was attributable to the contribution of the company Brembo Argentina S.A. in dissolution and winding up procedure, reclassified to this item following the Group's decision, taken in June 2019, on discontinuation of its industrial operations at the Buenos Aires plant.
The Group's net result for the reporting period amounted to €19,958 thousand (2.1% of sales), declining compared to €123,448 thousand for the first half of 2019 (9.3% of sales).
| Change | ||
|---|---|---|
| (53,443) | ||
| 224,103 | 228,281 | (4,178) |
| 222,090 | 50,227 | 171,863 |
| 64,219 | 58,046 | 6,173 |
| 1,715,769 | 1,595,354 | 120,415 |
| 7.5% | ||
| 379,235 | 342,203 | 37,032 |
| 347,320 | 391,925 | (44,605) |
| 105,648 | 95,870 | 9,778 |
| (506,484) | (623,404) | 116,920 |
| (46,579) | (42,956) | (3,623) |
| 279,140 | 163,638 | 115,502 |
| 70.6% | ||
| (59) | (354) | 295 |
| 1,994,850 | 1,758,638 | 236,212 |
| 13.4% | ||
| 1,373,132 | 1,388,015 | (14,883) |
| 25,471 | 25,584 | (113) |
| 751,338 | 375,005 | 376,333 |
| (153,839) | (28,816) | (125,023) |
| 597,499 | 346,189 | 251,310 |
| 72.6% | ||
| (1,252) | (1,150) | (102) |
| 1,994,850 | 1,758,638 | 236,212 |
| 13.4% | ||
| 30.06.2020 1,205,357 |
31.12.2019 1,258,800 |
The Group's Statement of Financial Position reflects reclassifications of consolidated accounting statements, as described in the following pages. In detail:
Net Invested Capital at the end of the first half of 2020 amounted to €1,994,850 thousand, up by €236,212 thousand compared to €1,758,638 thousand at 31 December 2019.
Net financial debt at 30 June 2020 was €597,499 thousand, compared to €346,189 thousand at 31 December 2019. The €251,310 thousand increase for the period was mainly attributable to the combined effect of the following factors:
The Explanatory Notes to the Condensed Consolidated Six Monthly Financial Report provide detailed information on the financial position and its assets and liabilities items.
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| NET FINANCIAL POSITION AT BEGINNING OF PERIOD (*) | (346,189) | (136,911) |
| Net operating income | 38,791 | 174,455 |
| Depreciation, amortisation and impairment losses | 104,500 | 96,127 |
| Gross operating income | 143,291 | 270,582 |
| Investments in property, plant and equipment | (59,715) | (86,362) |
| of which right of use assets | (4,508) | (15,686) |
| Investments in intangible assets | (14,168) | (18,620) |
| Investments in financial assets | (177,590) | (113) |
| IFRS 16 initial recognition | 0 | (177,113) |
| Disposals | 509 | 3,122 |
| Net investments | (250,964) | (279,086) |
| Change in inventories | (52,051) | (28,671) |
| Change in trade receivables | 43,734 | (48,471) |
| Change in trade payables | (108,203) | (62,733) |
| Change in other liabilities | (7,463) | (31,556) |
| Change in receivables from others and other assets | (3,704) | (2,365) |
| Translation reserve not allocated to specific items | (7,069) | (349) |
| Change in working capital | (134,756) | (174,145) |
| Change in provisions for employee benefits and other provisions | 25,967 | (4,296) |
| Operating cash flows | (216,462) | (186,945) |
| Interest income and expense | (13,950) | (6,394) |
| Result from discontinued operations | 62 | (6,753) |
| Current taxes paid | (22,936) | (25,902) |
| Dividend paid in the period to minority shareholders | (640) | (800) |
| Interest (income)/expense from investments, net of dividends received | 3,196 | 179 |
| Dividends paid in the period | 0 | (71,541) |
| Net cash flows | (250,730) | (298,156) |
| Effect of translation differences on net financial position | (580) | 590 |
| NET FINANCIAL POSITION AT END OF PERIOD (*) | (597,499) | (434,477) |
(*) See Note 13 of the Explanatory Notes to the Consolidated Financial Statements for a reconciliation with financial statements data.
Brembo's Directors have identified some alternative performance measures ("APMs") in the previous paragraphs, in order to provide a better understanding of the Brembo Group's operating and financial performance. These indicators are also tools that help the Directors to identify operating trends and take decisions about investments, allocation of resources and other operating decisions.
The following points enable a correct interpretation of the abovementioned APMs:
The APMs indicated below have been selected and represented in the Directors' Report on Operations:
| Brembo S.p.A. | |||||
|---|---|---|---|---|---|
| 100% | Ap Racing Ltd. Coventry UK |
100% | Brembo Japan Co. Ltd. Tokyo Japan |
100% | Brembo North America Inc. Wilmington, Delaware - USA |
| 100% | Brembo Czech S.r.o. Ostrava-Hrabová Czech Republic |
100% | Qingdao Brembo Trading Co. Ltd. Qingdao - China |
49% | 51% Brembo México |
| 100% | Brembo Deutschland GmbH Leinfelden-Echterdingen - Germany |
100% | Brembo Nanjing Brake Systems Co. Ltd. Nanjing - China |
99.99% | S.A. de C.V. Apodaca - Mexico Brembo |
| 100% | Brembo Poland Spolka Zo.o. Dąbrowa Górnicza - Poland |
99.99% | Brembo Brake India Pvt. Ltd. Pune - India |
Do Brasil Ltda. Betim - Brazil 1.38% |
|
| 100% | Brembo Scandinavia A.B. Göteborg Sweden |
40% Brembo (Nanjing) |
98.62% | Brembo Argentina S.A. Buenos Aires - Argentina |
|
| 100% | Brembo Russia Llc. Moscow Russia |
60% | Automobile Components Co. Ltd. Nanjing - China Brembo Huilian |
in dissolution and winding up procedure* |
|
| 100% | La.Cam (Lavorazioni Camune) S.r.l. Stezzano - Italy |
66% | (Langfang) Brake Systems Co. Ltd. Langfang - China |
||
| 68% | Corporación Upwards 98 S.A. Zaragoza - Spain |
1.20% | Fuji Co. Shizuoka Japan |
||
| 50% | Brembo SGL Carbon Ceramic Brakes S.p.A. Stezzano - Italy |
||||
| Brembo SGL Carbon 100% Ceramic Brakes GmbH Meitingen - Germany |
|||||
| 30% | Innova Tecnologie S.r.l. In liquidazione Almenno San Bartolomeo - Italy |
||||
| 20% | Infibra Technologies S.r.l. Pisa Italy |
||||
| 20% | Petroceramics S.p.A. Milan Italy |
||||
| 10% | International Sport Automobile S.A.R.L. Levallois Perret - France |
due to the COVID context. | * registration before the Argentine PRC is still pending | ||
| 3.28% | E-Novia S.p.A. Milan Italy |
This table complies with Article 125 | of Consob Resolution No. 11971 dated 14 May 1999. | ||
| Pirelli & C. S.p.A. |
The following figures were taken from the accounting situations and/or draft financial statements at 30 June 2020 prepared by the companies in accordance with IAS/IFRS and approved by the respective Boards of Directors.
Curno (Italy)
Activities: analysis, design, development, application, production, assembly and sale of braking systems, light alloy castings for various sectors, including the car and motorbike industries.
The first half of 2020 closed with revenue from contracts with customers of €363,824 thousand compared to €494,524 thousand for the first half of 2019. The item "Other revenues and income" amounted to €20,183 thousand compared to €28,491 thousand for the same period of 2019, whereas capitalised development costs in the half-year totalled €8,528 thousand compared to €10,460 thousand for the same period of the previous year.
Gross operating income amounted to €42,769 thousand (11.8% of sales) compared to €92,344 thousand (18.7% of sales) in the first half of 2019. Net operating income, after depreciation, amortisation and impairment losses of property, plant, equipment and intangible assets amounting to €31,956 thousand, closed at €10,813 thousand compared to €64,885 thousand for the same period of the previous year.
Net interest expense from financing activities amounted to €1,723 thousand compared to €1,673 thousand for the first half of 2019. Income from investments amounted to €9,512 thousand and was attributable to the distribution of dividends by some subsidiaries. In addition, a provision for current taxes and deferred tax assets and liabilities was made in the amount of €925 thousand.
In the reporting period, net income amounted to €17,677 thousand, compared to €89,976 thousand for the same period of 2019.
At 30 June 2020, the workforce numbered 3,118, with a reduction of 36 compared to 3,154 at the end of the first half of 2019.
Coventry (United Kingdom)
Activities: production and sale of braking systems and clutches for road and racing vehicles.
AP Racing is the market leader in the production of brakes and clutches for racing cars and motorbikes.
The company designs, assembles and sells cutting-edge, hightech products throughout the world for the main F1, GT, Touring and Rally teams. It also produces and sells original equipment brakes and clutches for prestige car manufacturers.
Net sales for the first half of 2020 amounted to GBP 15,101 thousand (€17,272 thousand) compared to GBP 25,611 thousand (€29,317 thousand) in the first half of 2019. In the reporting period, net income amounted to GBP 113 thousand (€130 thousand), compared to GBP 2,605 thousand (€2,982 thousand) in the same period of 2019.
At 30 June 2020, the workforce numbered 146, two more than at the end of June 2019.
Pune (India)
Activities: development, production and sale of braking systems for motorbikes.
The company is based in Pune, India, and was originally set up in 2006 as a joint venture held in equal stakes by Brembo S.p.A. and the Indian company Bosch Chassis Systems India Ltd. Since 2008, the company has been wholly owned by Brembo S.p.A.
In the first half of 2020, net sales amounted to INR 2,559,067 thousand (€31,332 thousand), with a net income of INR 128,312 thousand (€1,571 thousand). In the same period of 2019, net sales totalled INR 4,248,354 thousand (€53,696 thousand), with a net income of INR 381,967 thousand (€4,828 thousand). The workforce numbered 583 at 30 June 2020, compared to 334 at the end of the first half of 2019.
Ostrava-Hrabová (Czech Republic)
The company was formed in 2009 and started its production activity in 2011. It carries out the casting, processing and assembly of brake calipers and other aluminium components. In the first half of 2020, net sales amounted to CZK 1,883,249 thousand (€71,492 thousand) compared to CZK 2,997,325 thousand (€116,701 thousand) in the first half of 2019. Net loss for the reporting period was CZK 344,847 thousand (€13,091 thousand) compared to a net income of CZK 46,045 thousand (€1,793 thousand) for the first half of 2019.
The workforce numbered 961 at 30 June 2020, increasing by 39 compared to the same period of 2019.
Leinfelden – Echterdingen (Germany)
Activities: purchase and resale of vehicles, technical and sales services, as well as promotion of the sale of car brake discs.
The company, which is 100% owned by Brembo S.p.A., was formed in 2007. It specialises in buying cars for tests and encouraging and simplifying communications between Brembo and its German customers in the various phases of project planning and management. It also promotes the sale of brake discs for the car aftermarket only.
At 30 June 2020, net sales amounted to €1,107 thousand (€1,160 thousand for the first half of 2019), with a net income of €430 thousand, compared to €472 thousand in the first half of 2019.
Its workforce numbered eight.
Brembo Do Brasil Ltda.
Betim (Brazil)
Activities: production and sale of brake discs for the original equipment market.
The company is headquartered in Betim, Minas Gerais, and specialises in the manufacturing and sales of car brake discs in the South American OE market.
Net sales for the first half of 2020 amounted to BRL 66,281 thousand (€12,236 thousand), with a net loss of BRL 4,997 thousand (€922 thousand). In the same period of 2019, net sales amounted to BRL 95,493 thousand (€22,000 thousand), with a net income of BRL 2,574 thousand (€593 thousand).
The workforce at 30 June 2020 numbered 222, compared to 240 at the same date of the previous year.
Langfang (China)
Activities: casting, production and sale of brake discs for the original equipment market.
In 2016, Brembo S.p.A. acquired a 66% stake in Brembo Huilian (Langfang) Brake Systems Co. Ltd. (formerly Asimco Meilian Braking Systems (Langfang) Co. Ltd.), a Chinese company that owns a foundry and a plant for the manufacturing of cast-iron brake discs. This company supplies local car manufacturers, mainly including joint ventures among Chinese firms and European and U.S. top players. The remaining 34% of the share capital continue to be owned by the public company Langfang Assets Operation Co. Ltd., controlled by the Municipality of Langfang. The consideration for the transaction amounted to CNY 580,060 thousand (approximately €79.6 million).
Net sales for the first half of 2020 amounted to CNY 233,249 thousand (€30,104 thousand) and net income to CNY 11,072 thousand (€1,429 thousand). In the first half of 2019, net sales amounted to CNY 260,526 thousand (€33,980 thousand) and net income was CNY 15,182 thousand (€1,980 thousand).
At 30 June 2020, the workforce numbered 617, compared to 639 for the first half of 2019.
Tokyo (Japan)
Activities: sale of braking systems for the racing sector and original equipment for cars.
Brembo Japan Co. Ltd. is Brembo's commercial company that handles the Japanese racing market. Through the Tokyo office, it provides primary technical support to the OEM customers in the area. It also renders services to the other companies in the Brembo Group operating in Japan.
Net sales for the first half of 2020 amounted to JPY 317,051 thousand (€2,660 thousand) compared to JPY 334,084 thousand (€2,688 thousand) for the first half of 2019. Net income for the reporting period was JPY 32,010 thousand (€269 thousand), compared to JPY 37,438 thousand (€301 thousand) for the first half of 2019.
At 30 June 2020, the workforce totalled 18 employees, one less than in the first half of 2019.
Activities: production and sale of car brake discs for original equipment and the aftermarket; casting, production and sale of braking systems for cars and commercial vehicles.
As a result of the merger with Brembo México Apodaca S.A. de C.V. in 2010, the company is now 51% owned by Brembo North America Inc. and 49% owned by Brembo S.p.A.
In the first half of 2020, net sales amounted to USD 111,588 thousand (€101,310 thousand), with net income for the period totalling USD 5,759 thousand (€5,229 thousand). In the first half of 2019, net sales amounted to USD 135,448 thousand (€119,890 thousand), with net income for the period totalling USD 10,642 thousand (€9,420 thousand).
The workforce numbered 1,087 at 30 June 2020, increasing compared to 1,039 at the same date of the previous year.
Nanjing (China)
Activities: casting, processing and assembly of braking systems for cars and commercial vehicles.
The company, which is 60% owned by Brembo S.p.A. and 40% owned by Brembo Brake India Pvt. Ltd., was set up in April 2016 and carries out casting, processing and assembly of braking systems for cars and commercial vehicles.
Net sales amounted to CNY 364,405 thousand (€47,032 thousand), with a net loss of CNY 2,290 thousand (€296 thousand); in the first half of 2019, net sales amounted to CNY 354,690 thousand (€46,262 thousand) and net loss was CNY 584 thousand (€76 thousand).
At 30 June 2020, the workforce numbered 333, compared to 303 at the same date of the previous year.
Nanjing (China)
Activities: development, production and sale of OEM brake discs for cars and braking systems for cars and commercial vehicles.
The company, a joint venture between Brembo S.p.A. and the Chinese group Nanjing Automobile Corp., was formed in 2001. Brembo Group acquired control over the company in 2008. In 2013, Brembo Group acquired full control from the Chinese partner Donghua Automotive Industrial Co. Ltd.
On 1 July 2017, the merger of Brembo Nanjing Foundry Co. Ltd. into Brembo Nanjing Brake Systems Co. Ltd. became effective. The transaction aimed at developing an integrated industrial hub, including foundry and manufacture of brake calipers and discs for the car and commercial vehicle markets.
At 30 June 2020, net sales amounted to CNY 444,578 thousand (€57,379 thousand) and net income was CNY 26,032 thousand (€3,360 thousand); in the first half of 2019, net sales amounted to CNY 489,301 thousand (€63,819 thousand) and net income was CNY 27,107 thousand (€3,536 thousand).
The workforce numbered 571 at 30 June 2020, compared to 587 at the end of the first half of 2019.
Wilmington, Delaware (USA)
Activities: development, casting, production and sale of brake discs for car original equipment and the aftermarket, and braking systems for cars, motorbikes and the racing sector.
Brembo North America Inc. is based in Homer, Michigan. It produces and sells OEM and aftermarket brake discs, as well as high-performance car braking systems. In 2010, a Research and Development Centre was opened at the facility in Plymouth (Michigan) to develop and market new solutions in terms of materials and designs for the U.S. market.
At 30 June 2020, net sales amounted to USD 121,222 thousand (€110,057 thousand); in the same period of the previous year, the company reported net sales amounting to USD 215,258 thousand (€190,532 thousand). Net income was USD 2,528 thousand (€2,295 thousand) at 30 June 2020 compared to USD 21,396 thousand (€18,938 thousand) in the first half of 2019. At the end of the period, the workforce numbered 642, a decrease of 41 compared to the end of the first half of 2019.
Dąbrowa-Górnicza (Poland)
Activities: development, casting, production and sale of brake discs and braking systems for cars and commercial vehicles.
The company produces OEM braking systems for cars and commercial vehicles in the Częstochowa plant. In the Dąbrowa-Górnicza plant, it has a foundry for the production of cast-iron discs destined for use in its own production plant or by other Group companies. The Niepołomice plant processes steel disc hats to be assembled onto the light discs manufactured at the Group's plants located in China, the United States, and in the Dąbrowa-Górnicza plant as well.
Net sales amounted to PLN 805,789 thousand (€182,569 thousand) in the first half of 2020 compared to PLN 1,106,746 thousand (€257,866 thousand) in the first half of 2019. Net income at 30 June 2020 amounted to PLN 39,948 thousand (€9,051 thousand) compared to net income of PLN 128,959 thousand (€30,047 thousand) for the same period of the previous year.
The workforce numbered 2,150 at period-end, decreasing compared to 2,211 at the end of the first half of 2019.
Moscow (Russia)
Founded in July 2014, the Moscow-based company is wholly owned by Brembo S.p.A. It deals with promoting the sale of car brake discs for the aftermarket only.
In the first half of 2020, net sales amounted to RUB 27,299 thousand (€356 thousand) and net income was RUB 1,725 thousand (€22 thousand); in the first half of 2019, net sales amounted to RUB 31,930 thousand (€433 thousand) and net income was RUB 14,811 thousand (€201 thousand).
At 30 June 2020, the workforce numbered 3, unchanged compared to the same period of the previous year.
Göteborg (Sweden)
Zaragoza (Spain)
The company promotes the sale of brake discs for the car sector, destined exclusively for the aftermarket.
Net sales for the period amounted to SEK 5,586 thousand (€524 thousand), with a net income of SEK 3,119 thousand (€293 thousand), compared to net sales of SEK 5,325 thousand (€506 thousand) and net income of SEK 2,571 thousand (€244 thousand) for the first half of 2019.
At 30 June 2020, the workforce numbered 2, one more compared to 30 June 2019.
Activities: sale of brake discs and drums for cars, distribution of the brake shoe kits and pads.
The company carries out sales activities exclusively for the aftermarket.
Net sales amounted to €9,934 thousand in the first half of 2020, compared to €15,528 thousand in the first half of 2019. Net income was €327 thousand, compared to €992 thousand for the first six months of 2019.
The workforce numbered 71 at 30 June 2020, four less compared to the end of June 2019.
Stezzano (Italy)
Activities: precision mechanical processing, lathe work, mechanical component production and similar activities, on its own account or on behalf of third parties.
The company was incorporated by Brembo S.p.A.in 2010. In the same year, it leased from an important Group's supplier two companies specialising in processing aluminium, steel and cast-iron pistons for brake calipers intended for use in the car, motorbike and industrial vehicle sectors, and in the production of other types of components, including small high-precision metallic parts and bridges for car brake calipers, as well as aluminium caliper supports for the motorbike sector, chiefly produced for the Brembo Group. In 2012, La.Cam. acquired the business units of both companies.
In the first half of 2020, net sales amounted to €14,247 thousand and were almost entirely to Brembo Group companies. Net income totalled €148 thousand. In the same period of the previous year, net sales were €20,171 thousand, with a net income of €858 thousand.
The workforce numbered 168 at 30 June 2020, compared to 176 at 30 June 2019.
Qingdao (China)
Activities: logistics and marketing activities in the economic and technological development hub of Qingdao.
Formed in 2009 and fully controlled by Brembo S.p.A., the company carries out logistics and marketing activities within the Qingdao technological hub for the aftermarket only.
In the first half of 2020, net sales amounted to CNY 125,932 thousand (€16,253 thousand), compared to CNY 157,977 thousand (€20,605 thousand) for the same period of the previous year.
The company closed the first half of the year with a net income of CNY 5,823 thousand (€752 thousand), compared to a net income of CNY 4,059 thousand (€529 thousand) in the first half of 2019.
The workforce numbered 31 at 30 June 2020, unchanged compared to the same date of 2019.
Stezzano (Italy)
Activities: design, development, production and sale of carbon ceramic brake discs.
As a result of the joint venture agreements finalised in 2009 between Brembo and SGL Group, the company is 50% owned by Brembo S.p.A. and in turn controls 100% of the German company Brembo SGL Carbon Ceramic Brakes GmbH. Both companies carry out design, development, production and sale of braking systems in general, and particularly of OEM carbon ceramic brake discs for top-performance cars, as well as research and development activities concerning new materials and applications.
At 30 June 2020, net sales amounted to €17,651 thousand, compared to €30,108 thousand for the same period of 2019. Net income for the reporting period was €7,354 thousand compared to a net income of €14,807 thousand for the first half of 2019. The workforce numbered 150 at 30 June 2020, increasing by one compared to the same date of the previous year.
Meitingen (Germany)
Activities: design, development, production and sale of carbon ceramic brake discs.
The company was formed in 2001. In 2009, in executing the joint venture agreement between Brembo and SGL Group, Brembo SGL Carbon Ceramic Brakes S.p.A. acquired 100% of the company.
Net sales for the first half of 2020 amounted to €47,725 thousand, compared to €58,209 thousand for the same period of the previous year. At 30 June 2020, net income was €3,076 thousand, compared to €6,961 thousand for the same period of the previous year.
The workforce numbered 384 at 30 June 2020, decreasing by 12 compared to the same date of the previous year.
Activities: research and development of innovative technologies for the production of technical and advanced ceramic materials, geomaterial processing and rock mass characterisation.
Brembo S.p.A. acquired 20% of this company by subscribing a capital increase in 2006.
Net sales for the first half of 2020 totalled €761 thousand, compared to €1,427 thousand for the same period of the previous year. The company closed the reporting period with a net income of €215 thousand, compared to €508 thousand for the same period of 2019.
Activities: development, design, industrialisation, manufacturing, installation and marketing of fibre optic sensors systems.
On 5 February 2020, Brembo acquired a 20% interest in Infibra Technologies S.r.l., for a consideration of €800 thousand. The company is specialised in the development, design, industrialisation, manufacturing, installation and marketing of fibre optic sensors systems and photonic subsystems for sensing and communications. The agreement with the current shareholders envisages Brembo's right to exercise a call option on the remaining 80% interest in the second half of 2024. Net sales for the first half of 2020 amounted to €17 thousand. The company closed the half year with a net loss of €11 thousand.
In the first half of 2020 Brembo's investment management policy, albeit in scaled-down form due to the lockdowns implemented in various countries to combat the effects of the Covid-19 pandemic, continued in line with the guidelines followed to date, with the aim of strengthening the Group's presence not only in Italy, but also at the international level.
Group's total net investments undertaken in the first half of 2020 at all operations amounted to €73,374 thousand, of which €54,712 thousand was invested in property, plant and equipment, €14,127 thousand in intangible assets, and €4,535 thousand in leased assets. The most significant investments were concentrated in Italy (45.2%), North America (22.0%), Poland (12.7%) and the Czech Republic (10.0%).
In Italy, works on the new building in Curno, which will house the new Carbon Factory, continued. The new building has been designed in view of progressively verticalising — within a single production facility adjacent to Brembo's current hub — the entire development, processing and production process for raw components used in carbon-fibre discs and pads for racing applications. Brembo's Carbon Factory will produce semi-finished carbon-carbon discs and pads — to be distinguished from the carbon-ceramic discs intended for high-performance street vehicles manufactured in Stezzano (Italy) and Germany — for equipping the cars and motorbikes used by the racing teams in all major motor competitions, starting with F1 and MotoGP. The building occupies an area of approximately 7,000 square metres, in addition to the 10,000 square metres of green space, parking and logistics and storage areas planned as part of the project. After having installed and started up the first systems in the previous year, additional machines will continue to be installed in 2020 for a gradual increase in production capacity, reaching full operation in 2022.
The other investments in property, plant and equipment made by the Group primarily related to purchases of plant, machinery and equipment to increase the level of automation of production and constantly improve the mix and quality of factories.
With regard to investments in intangible assets, development costs for the first half of 2020 amounted to €10,934 thousand, borne by the Parent and the U.S. subsidiary.
The developments in transport vehicles inform Brembo's R&D activity, which has always focused on designing the best brake system for the vehicles of tomorrow. The main themes of today's vehicle trends are the switch to electric, autonomous driving capability, reduced emissions and environmental impact, connectivity and overall affordability. Each component of the brake system — from calipers to discs, from pads to suspensions, all the way to control units — complements the others in the optimisation of the braking function, which Brembo constantly seeks to perfect, not only in terms of pure performance, but also of comfort, duration, aesthetics and environmental sustainability.
For many years Brembo has been conducting specific research on mechatronic products, which are increasingly widespread in the automotive sector, thus honing skills that have been applied to systems such as electric parking brakes and Brake-By-Wire systems for some time now.
Since the market requires constantly shorter time to market, the Group strongly concentrates its efforts and resources also on implementing cutting-edge simulation methods, in which new virtual reality and augmented reality technologies are increasingly applied, in addition to designing uniform development processes at Brembo's Technical Centres based in Italy, Poland, North America, China and India.
In the first half of 2020, R&D activities mainly focused on the following aspects.
With regard to cast-iron discs, the simulation method was consolidated, so as to be able to identify more accurate parameters capable of improving the comfort level offered by a brake system, as early as the design phase. This methodology is now used in all new development projects, providing access to a database that can be used to refine calculation results even further.
Cooperation with various entities also continued in investigating simulation methods tied to system comfort and disc fluiddynamics, with a focus on air flow within the entire wheel-side unit.
According to precise guidelines applied throughout the automotive sector and all of Brembo's development activities, considerable attention is paid to new solutions that are able to reduce disc weight, as a lower weight translates into lower vehicle fuel consumption, and consequently a smaller environmental impact (reduced CO2 emissions). This is an aspect that has become even more important due to the entry into force of the new European Regulation setting the new emissions limits for manufacturers.
Work on discs for heavy commercial vehicles — an application segment which is of particular interest to Brembo — continued with a focus on improving performance. Research activities therefore intensified with several customers, also outside Europe. The applications developments related to such customers will be started and should then be finalised during the next two years. In addition, a share of the business of an important new European customer was acquired, further increasing market share in this specific segment of the market.
In car applications, after having worked with a major German customer to develop the concept for the light brake disc currently installed in the entire platform of core vehicles, Brembo was also selected as the supplier of this product for the next generation of vehicles within this platform. The application development phase for the new models — some of which are fully electric — to be presented in the second half of the year was completed in the first half of 2020.
The introduction of light discs — which offer an up to 15% reduction in weight over a traditional disc thanks to a combination of two different materials (cast iron for the braking ring and a thin steel laminate for the disc hat) — can also be extended to applications designed for ultra-high performance vehicles by increasing disc size and, above all, by optimising disc geometry in terms of fluid dynamics efficiency.
The light disc has also been successfully developed for other important manufacturers, which are already using it in some of their new models.
In addition, work proceeded on researching, developing and testing unconventional solutions — also resulting in the filing of several patent applications — to be applied to cast-iron brake discs, with a focus on the study of shapes, materials, technologies and surface treatments in collaboration with European research centres and suppliers. Particular attention is being devoted to the new needs of hybrid and electric vehicles, which use regenerative braking and thus introduce new requirements for brake discs.
These new solutions, which aim to reduce environmental impact (lower emissions of CO2, fine particulates and wheel dust) and improve aesthetics and corrosion resistance, have met with strong interest among Brembo's main clients. In addition to the application developments that are underway with some of these customers, production of the first vehicles equipped with this type of disc by a German customer has begun in the first half of 2020.
The Technical Development Centres at the Group's U.S. and Chinese facilities continued to strengthen their expertise, allowing Brembo to acquire valuable orders within local markets and increasingly act as a strategic supplier of brake discs to major global players.
The development target for composite street motorbike discs has been confirmed; new samples will soon be arriving so that concept validation may be finalised.
The revision of costs of the next-generation handlebar master cylinders project is still ongoing and a decision regarding the competitiveness of the new concept is expected by the third quarter of 2020.
The design phase of the first calipers with the new styling for the Indian market was completed in the first half of 2020. The design of the four-piston front calipers and handlebar master cylinder was also formulated.
In-vehicle development of the new low-vibration disc/hat concept continued. An advanced configuration that facilitates assembly of the component has been identified; this configuration will be developed in detail and tested in the second half of 2020.
Motorbike Brake-By-Wire systems have reached the second development phase, requiring a considerable commitment to finalise new system features. This phase will be completed in the second half of 2020, when project status will be presented to the customer.
The definition of the second testing plan for high-performance discs using innovative materials has instead been postponed. As regards the disc weight/performance issue, another new concept for motorbike discs will be assessed in the second half of 2020.
The planning of the second phase of development of Affida pads for motorbike applications has been postponed to the second half of 2020.
The requirement-setting phase for the new off-road range also continues. The caliper content has been defined and definition of the handlebar master cylinder content (brake and clutch) will be completed soon.
The product plan for developing specific components for the scooters to be manufactured by Brembo Brake India is being prepared.
New product types in the two-wheel segment are being evaluated and the Motorbike Innovation Road Map, which includes ten additional projects beyond those mentioned above, has also been drawn up. In the second half of 2020 the requirements for each project will be set, the resources to be assigned will be determined and the timetable will be drawn up.
Regarding the racing world, the Carbon/Carbon brake system for racing applications project (F1, LMP – Le Mans Prototype, IRL – Indy Racing League, and Super-Formula) includes three distinct areas, whose activities were further ongoing in the first half of 2020 and will continue in the years to come:
An ambitious 48 V electro-mechanical Brake-By-Wire project with hydraulic actuator and a safety concept based on F1 experience was launched with a major customer of a World Motorsport Championship. The project was used in a race on four wheels at the beginning of the 2019-20 season and a further development has been already agreed upon for 2021.
Finally, negotiations are in progress with a major customer to introduce an update of the racing-derived CCMR Brembo carbon ceramic disc for their upcoming Gran Turismo vehicles. As regards the simulation field, testing is continuing of new calculation methodologies for the structural part and thermal properties of the disc, for the thermoelastic and fatigue calculation, as well as for integrating the calculation within the customer wheel unit — in other words, mechanical and thermal calculations with computational fluid dynamics (CFD) solutions. The new methodology based on friction mapping for brake sizing is now well established and further experimental and theoretical development of the concept moved forward in the first half of 2020.
In the MotoGP class of motorbike applications, new systems are available to all clients, including a new brake caliper ensuring amplified force and an anti-drag system. Along the lines of the F1 initiatives, a series of new projects were confirmed with a major Italian motorbike manufacturer. The projects will be governed by a development contract with the manufacturer and will concern new brake and clutch systems.
Finally, the new carbon-fibre and carbon-ceramic clutch prototypes were created by the subsidiary AP Racing, also supplied exclusively to an Italian racing team. This is the fourth clutch model designed and tested by AP Racing to be placed on the market with the same client.
Mention should also be made of collaboration between Brembo and E-novia for electronic development, as well as development synergies that will allow both organisations to grow in the coming years. E-Novia brought an ABS brake system for bicycles based on the concept developed and patented by Brembo Performance in 2016, whereas Brembo brought to the racetrack electromechanical systems with electronics developed by eNovia according to Brembo's specifications.
Due to the extensive experience it has gained over the years, Brembo Friction may now be considered a well established project, constantly focused on continuous improvement. Today's customers are expecting increasingly flexible and customised friction materials, with requests that can only be met specifically and reactively through synergistic research and development work with all other Brembo departments. Brake pads with increasingly advanced performance characteristics, paired with both carbon ceramic and cast iron discs, designed for applications with increasingly more challenging objectives, require extremely sophisticated development processes.
Once again, the market is showing every confidence in Brembo Friction, whose excellence is confirmed by the most demanding car manufacturers, which choose Brembo's pads for their topend applications. All main markets — including the European one, which is very demanding when it comes to performance, and markets that are more demanding in terms of comfort, such as the U.S. and Asia, but also the more innovative markets, such as those focusing on electric calipers — can now benefit from Brembo's know-how on Cu-free (i.e. copper-free) friction materials.
The constant drive to innovation enabled the development of friction materials for light discs with extreme thermo-mechanical durability, such as those for the German market, coated with Si-Sic (silicon-silicon carbide).
Statistical models such as DOE and Montecarlo also began to see constantly increasing use starting last year, as such models are capable of optimising friction material formulations and identifying the raw materials that most influence their chemical and physical properties.
The development of friction materials with an increasingly lower environmental impact (for example, reduced emissions of greenhouse gases such as CO2 and fine particulate) reflects the ever-growing environmental focus of global research. Projects such as AFFIDA and LIBRA flow from Brembo's increasingly close focus on the environment.
AFFIDA, the natural extension of the COBRA project (which was part of the European Life+ project), in collaboration with the Mario Negri Institute, seeks to bring the innovative technology already developed by COBRA to the OE market. The project involves the study of cement-based materials to replace the phenolic binders commonly used in all friction materials. The new materials must perform on a par with their traditional predecessors, while also meeting the high-performance standards required by the sporting applications and limiting fine particulate emissions and environmental impact. Various car and motorbike manufacturers are asking to use AFFIDA pads when developing their new applications. The prototype pre-industrialisation phase has now been successfully completed using a press created with ad hoc technology that enables customers' demands to be met and specific activity involving the individual brand has been launched to ensure further optimisation of the process,
yielding optimal performance and comfort. The introduction of the cement-based binder proved decisive in reducing volatile organic compound (VOC) emissions, with important positive repercussions for the environment.
The LIBRA project, which has been ongoing since 2015, eliminated the steel backing plate in brake pads, replacing it with high-performance composite materials. The advantages are clear: from a lighter pad, with the resulting reduction in the overall brake system's weight, to a shorter production process. One of the top U.S. automotive firms is currently involved in intensive development, which has resulted in increasing recognition of the competitiveness and innovation achieved by the LIBRA project, and has even decided to use these components in its parking systems. A press fully devoted to manufacturing these specific pads was installed at the end of 2019 to prepare for SOP (Start of Production) of the product and the shift to mass production. The new goal to be achieved by the end of 2020 is to transfer the innovation and technology applied to these pads, now used for parking, to rear brake pads. Finally, the constant demand from the market for brake systems increasingly integrated into the new vehicles resulted in the development of a new concept for a brake pad with embedded sensors. In the first half of 2020, using specific sensors embedded in the friction material, the first tests were performed, showing that real-time measurement of braking torque is possible.
With reference to the Car and Commercial Vehicle Division, the goal of using the braking system to help reduce vehicle consumption and resultant CO2 emissions and particulates is being pursued through the development of new solutions. In detail, the use of methodologies to minimise caliper mass for the same performance, the improvement of caliper functionality by defining new characteristics for the pairing of seal and piston and optimisation of a new-concept pad sliding system continue to feature among the main areas of development.
After consolidating the technical solutions for fixed calipers, resulting in the assignment in 2019 of a share of the business relating to a platform of fully electric vehicles created by a major German manufacturer, the Group's focus shifted to the study and application of floating calipers for commercial vehicles. The concept approval phase was successfully completed and the product, which represents the current state of the art, was proposed to a major European customer for the renewal of its range of commercial vehicles, which was assigned in the first half of 2020.
The product and process improvement work is constantly ongoing in the same way as the search for solutions to reduce mass, optimise performance and improve styling. Two examples of this continuous improvement are the Dyadema® caliper, which entered into production in the second half of 2019 and has been designed with the goal of considerably reducing track operating temperatures, and the Flexira™ caliper, developed to meet the needs of several new market segments.
In 2016, Brembo had started the small-series production of a caliper produced using thixotropic aluminium alloys, i.e., at a lower temperature than casting. This process, for which Brembo has filed a patent application, is known as "BSSM" (Brembo Semi-Solid Metal casting) and offers a reduction in weight of 5 to 10%, depending on caliper geometry, without any decrease in performance. Concept approval is currently underway, whereas start of production for the first vehicles is expected in late 2022. Brembo's first mechatronic products, namely various configurations of electric parking brakes, already approved in-house both for cars and commercial vehicles, are being promoted with the Group's customers.
In commercial vehicle applications, Brembo has developed, and continues to develop, mechatronic parking solutions for vehicles up to 7.5 tonnes. The production is underway with a major Italian manufacturer.
With regard to next-generation electric-drive vehicles, brake systems will change considerably in the coming years, above all as regards braking management and the interface with the vehicle. systems, which Brembo has long been studying, have now reached a high level of performance and functionality, thus ensuring that the electrical braking system is ready for industrialisation and distribution. The industrialisation and launch planning phase has begun and pre-development activity is in progress with an important US manufacturer, with Brembo set to become the first in the world to enter into production in 2022.
Forming partnerships with the new players that have entered the electric vehicles market is a strategic priority: within this framework, a US customer has entrusted Brembo with supplying a front brake system for an electric commercial vehicle.
The ongoing evolution of simulation methodologies is focused on aspects linked to brake system comfort and caliper functionality. Brembo's objective is to develop the simulation capacity for the entire brake system, including the friction material. From this standpoint, the ability to rely on the know-how and installed capacity within the Brembo Friction project represents a strength for the Group, which can position itself as a supplier of complete brake systems. On the other hand, the development of a methodology for simulating caliper functionality is aimed at establishing, during the design stage, the caliper characteristics that influence a constant performance over time and the car's pedal feel.
Advanced R&D activities constantly monitor the evolution of vehicles, which can be summarised in a few general trends: electrification, advanced driver assistance systems (ADASs), autonomous driving, low environmental impact, and connectivity. The high level of integration will bring the brake system into dialogue with other vehicle systems, such as electric-drive motors and new suspension/steering concepts. Such integration will allow for increased active safety and the optimisation of functions, such as regenerative braking.
Brembo is continuing to develop and refine a new Brake-By-Wire system, whose peculiarity lies in its "decentralised" architecture, in which each wheel side has its own electromechanical actuator for generating and controlling the required braking force. This architecture is proving ideally suited to future vehicles with high-level autonomous driving capability, in addition to ensuring a greater control of the vehicle dynamics also in traditional vehicles.
The functions ensured by a Brake-By-Wire system optimise braking energy regeneration using electric-drive motors and containment of the average wear and tear of the entire brake system, with positive effects in terms of environmental impact. Mechatronics and system integration entail the development of new components for Brembo's products, including sensors, mechanisms and electric motors. Brembo is therefore coordinating a group of companies based in the Lombardy region within the framework of the funded project "Inproves", with the aim of creating brushless motors based on permanent magnets offering very high levels of performance, specifically designed for the brakes of the future. The first prototypes of motors designed by Brembo for its Brake-By-Wire actuators were created in 2019, while a prototyping line for these motors is under construction in 2020.
In addition, Brembo continued to conduct R&D activities in cooperation with international universities and research centres with the aim to constantly seek out new solutions to apply to brake discs and calipers, in terms of new materials, innovative technologies and mechanical components. The need to reduce product weight is leading the research function to evaluate the use of unconventional materials, such as technopolymers or reinforced light metal alloys, to produce structural components. These partnerships also extend to methodological activities relating to development, involving the creation and use of increasingly sophisticated simulation and calculation tools.
Another initiative in this area is Brembo's investment in Infibra Technologies, a spin-off of the academic institution Scuola Superiore Sant'Anna di Pisa, specialised in developing photonic sensors through the use of fibre-optics as the sensor element. After the success of the LowBraSys project — funded by the European Union as part of its Horizon 2020 programme with the aim of proving that fine particle emissions can be reduced, work continued with other projects financed at the European level, such as MODALES (MOdify Drivers' behaviour to Adapt for Lower EmissionS), involving Brembo as a development partner.
The goal of the MODALES project is to promote an understanding of the variability due to user (driver) behaviour and that due to vehicular emissions from powertrain, brakes and tyres. Its aim is to modify users' behaviour also through dedicated training.
Effective risk management is a key factor in maintaining the Group's value over time. In this regard, within the framework of its Corporate Governance system, the Group defined Brembo's Internal Control and Risk Management System (ICRMS) in compliance with the principles set out in Article 7 of the Corporate Governance Code of listed companies promoted by Borsa Italiana S.p.A. (hereafter referred to as "Corporate Governance Code")1 and, more generally, with national and international best practices.
This system represents the set of organisational structures, rules and procedures that allows the main business risks within the Group to be identified, measured, managed and monitored, while helping the company to be run in a manner that is sound, correct and consistent with the objectives defined by the Board of Directors, and favouring the adoption of informed decisions consistent with the risk profile, as well as dissemination of a proper understanding of risks, lawfulness and corporate values. The Board of Directors is tasked with defining the general guidelines of the ICRMS, so that the main risks pertaining to Brembo S.p.A. and Group subsidiaries are properly identified, as well as adequately measured, managed and monitored. It shall also set criteria to ensure that such risks are compatible with sound and proper management of the Company. The Board of Directors is aware that the control processes cannot provide absolute assurances that the company objectives will be achieved and the intrinsic risks of business prevented; however, it believes that the ICRMS may reduce and mitigate the likelihood and impact of risk events associated with wrong decisions, human error, fraud, violations of laws, regulations and company procedures, as well as unexpected events. The ICRMS is therefore subject to regular examination and controls, taking account of developments in the Company's operations and reference context, as well as national and international best practices.
The Board of Directors has identified2 the other main corporate committees/functions relevant for risk management purposes, by defining their respective duties and responsibilities within the ICRMS scope. More specifically:
Risks are monitored at meetings held on at least a monthly basis, where results, opportunities and risks are analysed for each GBU (global business unit) and geographical region in which Brembo operates. The meetings also focus on determining the actions required to mitigate any risks. Brembo's general risk-management policies and the bodies charged with risk evaluation and monitoring are included in the Corporate Governance Manual, in the Risk Management Policy and Procedure, in the Organisational, Management and Control Model (as per Italian Legislative Decree No. 231/2001) and in the reference layout for preparing accounting documents (as per Article 154-bis of TUF), to which the reader is referred.
1 It means the Corporate Governance Code currently in force (July 2018).
2 In this regard, see the following documents published on Brembo's website in Investor Relations/Corporate Governance/Principles and Codes section: Corporate Governance Manual, Brembo S.p.A.'s Organisational, Management and Control Model, the Brembo Group's Reference Layout for preparing accounting documents, Guidelines for the Brembo S.p.A. Internal Control and Risk Management System.
The Executive Director with responsibility for the Internal Control and Risk Management System fully enforces the risk management guidelines based on principles of prevention, cost effectiveness and ongoing improvement, as approved by the Board of Directors. In order to provide the organisation with the instruments for defining the risk categories to which attention should be drawn, Brembo has developed a model which identifies and classifies risk classes by type, based on the managerial level or corporate function from which they originate or that is responsible for monitoring and managing them.
The Internal Audit function evaluates the effectiveness and efficiency of the overall Internal Control and Risk Management System on a regular basis and reports the results to the Chairman, the Executive Deputy Chairman, the Chief Executive Officer, the Board of Statutory Auditors, the Audit, Risk & Sustainability Committee and the Supervisory Committee of Brembo S.p.A. with reference to specific risks connected with compliance with Legislative Decree No. 231/2001. At least on an annual basis, it also reports to the Board of Directors.
The first-tier family risks based on the risk management policy are:
Brembo's top risks for each of the above-mentioned risk families are discussed below. The order in which they are discussed does not imply classification in terms of probability of occurrence or possible impact.
Based on its international footprint, Brembo is exposed to the country risk, which is however mitigated by the adoption of a policy of business diversification by product and geographical area, so that the risk can be balanced at Group level.
In addition, Brembo constantly monitors the development of political, financial and security risks associated with countries in which the general political and economic climate and tax system could prove unstable in the future, so as to take any mitigating measures;
Following the spread of the Covid-19 pandemic, operations at all Group's plants (Italy, the United Kingdom, Poland, Czech Republic, the United States, Mexico, Brazil, China and India) were temporarily suspended for a period that varied from one country to the next.
Brembo has been following developments relating to the spread of the pandemic very closely since its outbreak, establishing a dedicated task force and promptly adopting all necessary measures to prevent, monitor and contain the virus at all of its locations worldwide, with the aim of protecting the health of employees and contractors (rearrangement of production layouts, sanitisation of the premises, personal protective equipment, temperature measurement, heat scans, blood tests, hygiene rules and social distancing, extended remote working, etc.).
Brembo continues to monitor events very closely and will promptly adopt further containment measures, should the crisis continue. For further details see section "Impacts of the Covid-19 Pandemic on the Condensed Six Monthly Financial Report at 30 June 2020" of this Report.
Brembo is exposed to risks associated with the evolution of technology, in other words, the risk that competing products will be developed that are technically superior because they are built based on innovative technologies. In order to maintain its competitive edge, Brembo invests sizeable resources in R&D, conducting applied and basic research on both existing and newly applied technologies, such as mechatronics.
For additional information, see the "Research and Development" section in this Directors' Report on Operations. Product and process innovations — those currently being used, as well as those that may be used for production in the future — are patented to protect the Group's technological leadership.
Brembo targets the top-end segments of the automotive sector and, in terms of geography, generates most of its sales in Europe, North America and China. In order to reduce the risk of segment/market saturation in the countries where it operates, the Group has long ago implemented a strategy aimed at diversifying into other geographical areas and is gradually
broadening its product range, also by focusing on the midpremium segment.
Investments in certain countries may be influenced by major modifications of the local regulatory framework, which could result in changes in the economic conditions existing at the time of the investment. For this reason, before investing in foreign countries, Brembo assesses the country risk carefully in the short, medium and long term. In general, M&A activities are accurately coordinated in all their aspects in order to mitigate any investment risks.
Brembo continues to engage in ongoing development aimed at strengthening its Sustainability Model and fulfilling its legal non-financial disclosure requirements under Legislative Decree No. 254/2016. Initially with support from a specialised consulting firm, Brembo updated its sustainability risk assessment system, using measurement criteria in line with the Group's risk management methodology.
Brembo manages the risks linked to climate change, as well as the increase in regulatory requirements regarding a reduction in greenhouse gas emissions and, more generally, the growing pressure being applied by civil society and the end consumer to the development of products and industrial processes with a lower environmental impact. The focus on climate change risk has intensified and an in-depth analysis of the related risks is currently underway. Brembo considers the risk arising from the use of resources, such as water, with reference to all production sites, particularly those located in geographical areas marked by water scarcity; it also pays equal attention to risks linked to the pollution of waterbodies due to any contamination.
Safety in the workplace is always a priority where the relevant risks are assessed and managed by the competent functions. In addition, Brembo's supply chain is becoming more and more globalised and strategic; therefore, suppliers are required to operate in accordance with the sustainability standards identified by the Group. Moreover, considering that potential risk factors exist within the supply chain, Brembo is implementing numerous measures aimed at all its suppliers, both in Italy and abroad, to promote the safeguard of the environment and ensure appropriate working conditions with a view to continuous improvement.
The main operating risks inherent in the nature of the business are associated with the supply chain, the unavailability of production facilities, product marketing, IT, issues involving health, job safety and the environment and, to a lesser extent, the regulatory framework of the countries in which the Group operates.
Supply chain risk manifests as the volatility of raw material prices and dependence on strategic suppliers, which could jeopardise the company's production process and ability to fill orders from clients in a timely manner by suddenly suspending supply arrangements. To mitigate this risk, the Purchasing Department constantly monitors the market in order to identify alternate suppliers to ensure, where possible, the availability of critical materials (supplier risk management programme). The supplier selection process also includes an assessment of suppliers' financial solidity. Any fluctuations in the main cost factors are covered by passing them on in sales prices through an indexing mechanism.
Natural or accidental events (such as earthquakes or fires), malicious behaviour (acts of vandalism) or malfunctioning of systems may result in damage to assets, the unavailability of production facilities and discontinuity of operation of such facilities. Brembo therefore reinforced its risk mitigation process, through the planning of loss prevention engineering based on standards recognised at an international level. The aim of this process was to reduce as much as possible the risk of occurrence of these events and to implement protective measures aimed at limiting the impact of this risk, thereby constantly enhancing the current operating continuity levels of the Group's production facilities.
Brembo considers the risk relating to the marketing of its products, in terms of their quality, safety and traceability, to be of fundamental importance. The Group has always been committed to mitigating this risk through robust quality controls. As part of this process, it has instituted a worldwide Supplier Quality Assurance function, specifically dedicated to quality control of components that do not meet Brembo's quality
standards, in addition to constantly optimising its Failure Mode & Effect Analysis (FMEA).
Brembo attaches much importance to the operating continuity of its IT systems. In this regard, it has implemented risk mitigation measures aimed at guaranteeing network connectivity and data availability and safety, while also ensuring compliance with the European data protection regulation (GDPR) and the national laws applicable in each EU member country. These issues are growing in importance in light of the start of the Group's smart factory (Industry 4.0) process.
The Group's primary risks relating to health, job safety and the environment can be of the following types:
The occurrence of these could result in substantial criminal and/ or administrative penalties or pecuniary fines against Brembo. Furthermore, in particularly serious cases, the actions of public entities in charge of assessing the situation could interfere with Brembo's normal production activities, even causing production lines to halt or forcing the production facility to close. Brembo manages this type of risk by carrying out ongoing and systematic evaluations of its exposure to specific risks and reducing or eliminating those considered unacceptable. This procedure is organised within a Management System (which is compliant with international ISO 14001 and OHSAS 18001 standards and certified by an independent body) that covers job health and safety, as well as environmental aspects.
Brembo therefore implements all the activities necessary to allow it to effectively monitor and manage these aspects while scrupulously complying with applicable laws.
Some examples of activities that are currently underway include the definition and yearly review of:
out under the laws governing the sector or regulations imposed by the Group (e.g., authorisation renewals, periodic controls, reports to public entities, etc.);
• "Audit Plans", which check and monitor the extent to which the System is being applied and encourage continuous improvement.
In summary, although accidents and mistakes can happen, the Group has implemented systematic rules and management procedures that allow it to minimise the number of accidents, as well as the impact they may have. A clear-cut assignment of responsibility at all levels, the presence of independent internal control bodies that report to the company's highest officers and the application of the highest international management standards are the best way to guarantee the company's commitment to health, job safety and the environment.
The internationalisation strategies and, particularly, international industrial footprint development have also highlighted the need to strengthen operational management able to operate locally and communicate effectively with the Global Business Units and Global Central Functions, in order to improve the efficiency and effectiveness of the quality system and the capacity of production processes.
Brembo is exposed to risks arising from the failure to rapidly comply with changing laws and new regulations in the sectors and markets in which it operates. To mitigate this risk, each compliance function stays abreast of the relevant legal and regulatory developments, with the assistance of outside consultants, where necessary, through a constant process of legal and regulatory updates and research.
With reference to the risk of non-compliance with tax laws and regulations, or of operating in conflict with the principles or spirit of the systems in the jurisdictions in which the Group operates, in accordance with the guidelines laid down in the Global Tax Strategy and the Brembo S.p.A.'s Tax Strategy adopted in 2019, Brembo pursues the goal of proactively managing the tax risk by ensuring that such risk is timely recognised, properly measured, monitored and contained through the Tax Control Framework implemented in 2019 and fully applied beginning in 2020.
With regard to compliance risk on issues related to workers' health and safety and environmental protection, and in light of the complexity and lack of clarity of the applicable laws and regulations, and the uncertain and often lengthy period of time
needed to obtain the necessary authorisations and patents, the Group relies on specific functions, such as the Health & Safety function and the Energy & Environment Department (see Operating Risks – Environment, Safety and Health section), tasked with handling the related complexities.
With reference to other compliance risks, reference should be made to the Corporate Governance and Ownership Structure Report available on Brembo's website (www.brembo.com, Company, Corporate Governance, Corporate Governance Reports section).
Among compliance-related risks, attention should be drawn to the risk associated with breaches of national, international and industry regulations, and unethical professional behaviour in breach of the Company's ethics policy that expose it to vicarious administrative liability, in addition to undermining the Group's reputation on the market. Such risk may be broken down into three levels:
The risk deemed most significant for the Group at a theoretical level relates to the case indicated in point 2 above, for the following reasons:
The probability that liability for offences committed outside Italy may be ascribed to the Parent is regarded as remote in light of the connection criteria set forth in the Italian Penal Code. However, it is theoretically plausible that a top manager or employee of Brembo S.p.A. might take action outside Italy in the context of his or her duties to the Parent or an international subsidiary. In the matter of corruption involving public officials, given the nature of its business, the Brembo Group does not engage in dealings with government officials, except in managing permits (such as building permits). As a result, offence-risk opportunities are considered to be very limited. The mitigating measures taken by the Group are regarded as sufficient to significantly reduce its exposure to cases of risk and are aimed at ensuring the global spread of a culture of compliance through the establishment of specific principles of ethics and conduct, in addition to constant monitoring of legal changes, through implementation of the following:
Compliance Guidelines disseminated throughout the Group have been drawn and that the management deems adequate and capable of effectively preventing offences.
With reference to litigation, the Legal & Corporate Department periodically monitors the progress of existing and potential litigations and determines the strategy to be applied and the most appropriate steps to take in managing them, involving specific corporate functions, when needed. The Administration and Finance Department is responsible for the appropriate provisions or write-downs related to such risks and their economic effects.
The same ERP (Enterprise Resource Planning) software has been implemented at nearly all Group companies in order to prepare accurate and reliable financial reporting for the Group, while also improving the Internal Control and Risk Management System and the quality, timeliness and comparability of the data provided by the various consolidated companies.
In conducting its business, the Brembo Group is exposed to various financial risks, including market, commodities, liquidity and credit risks. Financial risk management is the responsibility of the Parent's Treasury & Credit Department, which, together with the Group's Administration and Finance Department, evaluates the main financial transactions and related hedging policies.
Since the Group's financial debt is partly subject to variable interest rates, it is exposed to the risk of interest-rate fluctuations. To reduce this risk, the Group has entered into several medium/ long-term fixed rate loan agreements, as well as specific hedging contracts (IRS), which account — including lease liabilities — for approximately 38% of gross financial position. The objective is to eliminate the variability of the borrowing costs associated with a portion of debt and benefit from fixed rates. The Group's Central Treasury & Credit Department constantly monitors rate trends in order to evaluate in advance the need for any changes to the financial indebtedness structure.
Since Brembo operates in international markets, it is exposed to exchange rate risks. To mitigate this risk, the Group uses natural hedging (offsetting receivables and payables) and hedges only net positions in foreign currency, using mostly, and where advisable, forward contracts in order to reduce exchange rate risk exposure.
The Group is exposed to changes in prices of main raw materials and commodities. In the first half of 2020, no specific hedging transactions were undertaken. However, it should be recalled that existing contracts with major customers provide for automatic periodic adjustment on the basis of commodities prices.
Liquidity risk can arise from Brembo's inability to obtain the financial resources necessary to guarantee its operations. The Central Treasury & Credit Department implements the main measures indicated below in order to minimise such risk:
Credit risk is the probability that a customer or one of the parties to a financial instrument will cause a financial loss by failing to perform an obligation. Exposure to credit risk arises, in particular, in relation to trade receivables. In this sense, it should be noted that the parties with whom Brembo has commercial dealings are primarily leading car and motorbike makers with a high credit standing. The current macroeconomic context has made continuous credit monitoring increasingly important, so that situations where there is a risk of insolvency or late payment can be anticipated.
Following on from the above mitigation measures, and in order to minimise the volatility and financial impact of any detrimental event, under its Risk Management Policy, Brembo has provided for the residual risks to be transferred to the insurance market, provided that they are insurable.
Brembo's changing needs through the years have been specifically reflected in its insurance coverage, which has been optimised to significantly decrease the company's exposure to intrinsic risks related to the type of activities carried out by Brembo. All Brembo Group companies are currently covered against the following strategic risks: property all risks, general liability, general product liability, product recall. Additional coverage has been arranged locally based on the specific requirements of local legislation or collective labour contracts and/or corporate agreements or regulations.
Insurance analysis and transfer of the risks to which the Group is exposed are conducted in collaboration with a highstanding insurance broker, which supports this process with its international organisation and is responsible for the compliance and management of Group insurance programmes at global level.
In the first half of 2020 the Brembo Group implemented a new organisational model designed to ensure that it is successful in overcoming the future challenges posed by the international and market scenario.
Under the new model, centred on customer relations and global product development, within the framework of a reinforced, coherent brand strategy, Global Business Units (GBUs), Global Central Functions (GCFs) and Regions/Countries remain the organisation's key components. However, interactions between them are balanced to ensure optimal management of the Company's future complexity and size, with the aim of providing the Group with increasingly global processes. The new organisation also features simpler reporting lines, clear responsibilities for each role, increasingly streamlined, empowered processes and a strong commitment to, and focus on, Advanced R&D, digitalisation and artificial intelligence applications.
The five Global Business Units, which continue to report to the CEO, are fully, exclusively responsible at the global level for setting commercial strategy, managing customer relations and conducting product technical development.
The Global Central Functions, which report to the Chairman, Executive Deputy Chairman and CEO, formulate functional strategies at the Group level to provide effective support for the implementation of business plans and design common processes, systems and standards through resources specifically assigned to each GBU through an internal customer report. At the global level, the GCFs also provide guidance, direction and monitoring, methods, uniform know-how, teaching and service on an ongoing basis within each function, thereby ensuring the development of its professional family.
The Advanced R&D area has also been expanded; it will continue to focus on long-term product innovation, accompanying it with a focus on artificial intelligence and digital transformation applied to products and processes.
Finally, the Business Process Transformation and Cost Efficiency area has been created; it will be tasked with proposing and coordinating projects designed to achieve cost efficiency and reengineer processes across all areas of the company, in addition to managing cost-engineering processes.
Under the new model, the Regions/Countries will be responsible for implementing the strategies of the GBUs at the local level, contributing to the formulation of business strategies within their respective geographical areas and ensuring the execution of the function strategy at the level of the Region or Country concerned, with full responsibility for profit and loss in the relevant Region or Country and the power to represent the Group before local authorities/institutions.
In the first half of 2020, severely impacted by the Covid-19 pandemic, the Company continued to focus its efforts on designing training activities for the Group personnel.
There is a wide range of management and technical skills that has been organised within courses disseminated via a new online flexible and constantly updated catalogue, designed to make it easier to identify a learning path dedicated to a specific skill or created for a particular professional family.
"Knowledge Management" is one of the key projects in 2020, focusing on certification of employees with specific types of know-how who, after a specific training and mentoring process, will be able to spread their knowledge within the organisation. Some of them, like the external professionals, will become teachers at the Brembo Academy in addition to the 50 trainers already certified and active for a considerable institutional, managerial and technical section of the internal catalogue. The two Professional Family Academies, R&D and Manufacturing, are examples of this, as are the transversal workshops such as Data Science, EPB (Electric Parking Brake) and Train-the-Trainer. The planning and execution of courses were of course suspended in mid-February 2020, in accordance with the decrees of the President of the Council of Ministers and the restrictions established by the Company to contain the spread of Covid-19.
However, Brembo Academy — the company organisation accredited by the Region of Lombardy to provide training services — remained active, focusing its energies on identifying
the tools needed to be able to continue to provide, immediately after the lockdown, mandatory training on health and safety pursuant to Legislative Decree No. 81/06, on a virtual basis and thus also accessible to those working remotely.
In the first half of 2020, training modules, available directly on the specific Brembo platform, began worldwide distribution of training courses designed to offer basic, practical managerial skills, available in Italian and English, in addition to institutional knowledge such as the new release of Data Classification & Protection.
The new Cyber-Security and Phishing course, divided into various steps, is another important worldwide training project provided via e-learning. Designed by Training and ICT, it is intended to train all personnel assigned company e-mail accounts in techniques for protecting the Company's data and know-how from dangerous outside attacks.
Brembo's commitment to environmental sustainability and safety continues to be an increasingly strategic and essential factor for developing the Group's business.
The process launched within Brembo for the ongoing improvement of environmental sustainability issues continues in view of concrete pursuit of the SDGs of the UN Agenda for Sustainable Development, for which the Group has pledged its support.
In view of the serious global health situation caused by Covid-19, which affected the entire Group's normal operations, in most of the first half of 2020 the project timetable was mainly focused on refining the management tools prepared in previous years rather than on launching new initiatives or projects.
The decision to adopt this approach was made to streamline the existing tools, so as to provide more effective support to improve performance when business resumes. In particular, the areas of activity touched on the aspects described below. Energy Management: development of the Brembo Energy Platform, a tool that allows constant monitoring of the energy consumption of all the Group's plants, was completed. Release for the final sites to be connected is currently in progress. The platform for monitoring types of consumption other than electricity, such as water, natural gas and compressed air, is also being extended in parallel.
Environment and Energy Management System: approximately three years after the launch of Brembo's new Environment and Energy Management System, a process of developing and optimising the System's procedures and requirements has been launched to simplify its application by the plants.
The development of a software application that will support environmental governance processes at the Group's plants was also completed in the first half of 2020; more specifically, these processes relate to risk assessment and those necessary to ensure satisfaction of the application requirements of both a mandatory and voluntary nature. The platform will be made available to the plants in the second half of the year.
Circular Economy: in the first half of 2020, one of the Group's cast iron foundries was awarded authorisation by the competent authorities to begin the testing phase for the replacement of certain raw materials with other materials sourced from waste recovery processes. Testing will be launched in the first few months of the second half of the year and will take approximately one year.
Sustainability and energy efficiency goals: the sustainability goal for 2020 (calculated as a percent reduction in CO2 emissions due to improvement actions with respect to the previous year's emissions) has been set at 2.5%. In addition, starting in 2020 all the Group's factories located in Mexico are to be powered by electrical energy from renewable sources and certificates of origin are to be obtained in sufficient quantity to cover all electricity consumed by the Italian factories.
The energy efficiency goal (calculated as a percent reduction in energy consumption due to improvement actions compared to the previous year) has been set at 1.75%. When setting the goal, the effects that the Covid-19 state of emergency has had on Brembo's factories, forced to undergo long periods of inactivity, were taken into consideration. The related energy efficiency projects have already been launched.
With regard to workplace health and safety issues, the first half of 2020 was severely conditioned by the Covid-19 pandemic, which absorbed most of the resources and activities planned. On the one hand, the extended lockdown resulted in the prolonged absence of the workforce from facilities, while, on the other, it allowed the measures required for safe resumption of business to be prepared.
In particular, the entire Health & Safety function collaborated with the Human Resources Department, occupational physicians, the employer and Worker Health Representatives to formulate protocols for the measures to combat and contain the spread of the virus and the actions to be taken to ensure the highest possible level of safety upon the resumption of business and to reduce the impact of the pandemic on Brembo.
The main actions taken by Brembo were:
After the containment measures had been implemented and personnel returned to production facilities, a monitoring and supervision plan was prepared and applied to ensure constant verification of compliance with and application of the measures contained in the protocols. An audit plan has been drawn up on the basis of specific check-lists also involving the Plant Manager, Plant Health and Safety Supervisor and Department Managers. For this initial phase, the frequency of these audits is planned to be at least fortnightly.
In addition to management of the pandemic, the work that is expected to lead the Group's facilities to achieve ISO 45001 certification of its Workplace Health and Safety Management System continued.
In detail:
In addition, the pilot project of the Behaviour-Based Safety programme was launched to correct behaviour in view of health and safety at the Dabrowa plant. The project, which involves approximately 2,000 Polish workers, was inspired by the consideration that approximately 75% of accidents are due to engaging in improper behaviour or to distractions.
This programme is based on the observation of operators during working activities by specifically trained personnel in order to reinforce their positive behaviours and correct the behaviours regarded as improper or more at risk of causing accidents. Involving factory personnel is fundamental; after adequate training, they are tasked with observing and identifying these behaviours.
With regard to the performance of safety indicators, in the first five months of 2020 there was a sharp improvement in the Incident Rate, which amounted to 1.07 (1.16 in the same period of 2019). There was also a significant improvement in terms of accident severity: throughout the Group there were no accidents with permanent injury and only five accidents of a total of 44 qualify as severe (in any event without permanent injury).
In compliance with Consob Regulation adopted with Resolution No. 17221 of 12 March 2010, as amended, Brembo S.p.A. adopted the Related Party Transactions Procedure. The procedure was approved for the first time by the Board of Directors of Brembo S.p.A. during the meeting held on 12 November 2010, after receiving the favourable opinion of the Audit, Risk & Sustainability Committee, which also acts as Related Party Transactions Committee since it meets the requirements set out by the above-mentioned regulations. Said procedure was constantly updated to comply with the regulatory provisions in force from time to time, as well as with the existing practices. The procedure aims to ensure the full transparency and propriety of Related Party Transactions. The updated edition of Brembo's Related Party Transaction Procedure is available on Brembo's website (www.brembo. com, section Company, Corporate Governance, Governance Documents).
Brembo has examined and assessed the impact of Legislative Decree No. 49/2019 which transposed into Italian law the Directive EU 2017/828 (the so called "Shareholders' Rights II") on related parties and is expecting implementing regulations to be issued by Consob to implement any necessary amendments to the Procedure (reference legislation — Legislative Decree No. 49/2019, Article 1).
Detailed information on the Company's Related Party Transactions is provided in the Explanatory Notes to the Condensed Consolidated Six Monthly Financial Report. During the reporting period, no atypical or unusual transactions were carried out with Related Parties. Furthermore, commercial transactions with Related Parties, also other than the Group companies, were carried out at fair market conditions. The financing transactions undertaken during the period with Related Parties are also discussed in the Explanatory Notes to the Condensed Consolidated Six Monthly Financial Report.
The World Health Organization (WHO) announced the spread of the disease Covid-19 from China, particularly from the Wuhan district in early January 2020; it then declared Covid-19 a global health emergency of international concern on 30 January. February saw the virus spread to Europe and America, resulting to the global lockdown in March and April.
Brembo has been following developments relating to the spread of the Covid-19 very closely since its outbreak, establishing a dedicated task force and promptly adopting all necessary measures to monitor, prevent and contain the pandemic at all of its locations worldwide.
In the first half of 2020, all Group's plants were subject to lockdown periods, whose length varied from one country to the next: China (from 24 January to 13/16 February), Italy (from 16 March to 27 April), United States (from 23 March to 17 May), Brazil (from 24 March to 24 May), United Kingdom (from 25 March to 14 April), India (from 25 March to 4 May), Poland (from 27 March to 2 April), Czech Republic (from 28 March to 2 April) and Mexico (from 6 April to 18 May).
In view of the production sites' reopening, the Group has defined all necessary measures aimed at combating the virus and protecting the health of employees and contractors such as: rearrangement of production layouts, sanitisation of the premises, purchases of personal protective equipment, temperature measurement with heat scans, circulation of hygiene rules and social distancing, and extended remote working.
Moreover, after an initial donation of €150,000 in support of treatment facilities at Bergamo's Pope John XXIII Hospital, Brembo decided to support research into combating Covid-19 by donating €1 million to three première Bergamo institutions: Pope John XXIII Hospital, the Bergamo Hospital Research Foundation (FROM) and the Mario Negri Institute, which are committed to the area most severely affected by the pandemic, through a combination of clinical and pharmacological research. With reference to financial aspects, in adopting the prudential approach proposed by the Board of Directors in its extraordinary meeting on 20 March 2020, the Shareholders' Meeting held on 23 April resolved not to distribute dividends drawing on the 2019 profit. This decision was made in order to support the Group's financial solidity and limit future economic and financial impacts. To face this difficult time for the market, between April and May 2020, the Group's financial structure was further reinforced by entering into new medium/long-term loans for a total amount of €425 million, in addition to available short-term credit lines for €384 million, which have not been used. These new loans enabled the Group to extend the average life of its debt, at costs in line with current levels.
Redundancy schemes and other forms of public support were activated to protect workers in all countries and contain the cost of idle personnel. In addition, plans were drawn up to contain discretionary, sponsorship and marketing costs and reduce or postpone investments, while also renegotiating several supply and lease contracts and implementing measures to contain working capital.
When preparing the Condensed consolidated half-yearly financial statements, the main financial and operational risks to which the Group is exposed (as described in the "Risk Management Policy" chapter of this Report) have been analysed to assess any negative effects deriving from the Covid-19 pandemic. With specific regard to credit risk, it should be noted that Brembo's main counterparties — major car and motorbike manufacturers with high credit ratings — essentially discharged their commercial obligations at the end of June. In addition, there are no problems with the supply chain or particular financial tensions involving the Group's strategic suppliers to be reported. In general, the analysis conducted did not identify any critical issues capable of having significant impacts on the Group's operating results and financial position.
When preparing the Condensed Consolidated Six Monthly Financial Report, impairment tests are conducted on the values of recognised goodwill whenever impairment indicators are detected. Since the Covid-19 pandemic, in light of its intensity and unpredictability, represents an external potential impairment
indicator, the impairment tests have been recalculated, assessing the performance of the various CGUs according to a more up-to-date forecast of the current year and multi-scenario assumptions for the following years, while applying corrections to the volumes and margins of the company business plans prepared prior to Covid-19. For further details please refer to the Explanatory Notes to the Condensed Consolidated Six Monthly Financial Report.
In March 2020, Brembo adopted a non-speculative long-term approach and acquired a 2.22% interest (equal to €86,509 thousand) in the share capital of Pirelli S.p.A., a company that stands out in its sector as a player of excellence in terms of history, brand, leadership and pursuit of innovation. In the second quarter of 2020, Brembo acquired a further stake for €20,000 thousand, increasing its interest to 2.78%. At 30 June 2020, the equity investment was measured at fair value, pursuant to IFRS 9, leading to a €1,662 thousand impairment of its value and of Group Equity, as reported in the Consolidated Statement of Comprehensive Income. An equity swap derivative contract with a nominal value of €70 million, maturing on 23 July 2020, for the purchase of an additional 20 million shares of Pirelli S.p.A., was also entered into on 13 May 2020.
On 5 February 2020, Brembo acquired a 20% interest in Infibra
Technologies S.r.l., for a consideration of €800 thousand. The company is specialised in the development, design, industrialisation, manufacturing, installation and marketing of fibre optic sensors systems and photonic subsystems for sensing and communications. The agreement with the current shareholders envisages Brembo's right to exercise a call option on the remaining 80% interest in the second half of 2024.
The General Shareholders' Meeting of the Parent Brembo S.p.A. held on 23 April 2020 approved the Financial Statements for the financial year ended 31 December 2019, allocating net income for the year amounting to €179,152,879.80 thousand as follows:
The General Shareholders' Meeting held on 23 April 2020 passed a new plan for the buy-back and sale of own shares with the following objectives:
The maximum number of shares that may be purchased is 8,000,000 that, with the 10,035,000 own shares already held (3.005% of share capital), represents 5.401% of the Company's share capital.
Own shares can be bought back and disposed of up to a maximum of €144 million:
The authorisation to buy back own shares is valid for a period of 18 months from the date of the resolution by the General Shareholders' Meeting.
Brembo has neither bought nor sold own shares in the first half of 2020.
In accordance with the requirements of Articles 36 and 39 of the Market Regulations (adopted with Consob Resolution No. 16191 of 29 October 2007 and amended with Resolution No. 16530 of 25 June 2008), Brembo Group identified six subsidiaries based in four countries not belonging to the European Union that are of significant importance, as defined under paragraph 2 of the same Article 36, and therefore fall within the scope of application of the Regulations.
Brembo Group believes that its current administrative, accounting and reporting systems are adequate to ensure that the Parent's management and auditing firm receive any information regarding Statement of Income, Statement of Financial Position and Cash Flow figures, as necessary for preparing the consolidated financial statements.
For all companies included in the consolidation area, the Parent Brembo S.p.A. already has a copy of the By-laws and the composition and powers of the Corporate Bodies.
The Company has adopted the opt-out system envisaged by Article 70, paragraph 8, and Article 71, paragraph 1-bis of the Rules for Issuers (Board's Resolution dated 17 December 2012), thus opting out from the obligation to publish the required disclosure documents in the case of significant mergers, de-mergers, capital increase by way of contributions in kind, acquisitions and disposals.
On 23 July 2020, the equity swap derivative contract signed in May was finalised.
Accordingly, Brembo S.p.A. acquired 20 million shares in Pirelli S.p.A. for a total consideration of €75,454 thousand, increasing its stake to 4.78%.
No further significant events occurred after the end of the first half of the year and until 29 July 2020.
The strategies adopted by the Company and the measures taken in response to the severe Covid-19 pandemic described above allowed it to weather these difficult months while protecting the Group's margin levels and its financial solidity. Hoping that the worst stage has passed, the Group looks to the future with the confidence that its solid fundamentals will consolidate the sustainability of the business.
Stezzano, 29 July 2020
On behalf of the Board of Directors
The Executive Deputy Chairman Matteo Tiraboschi
SIX MONTHLY REPORT 2020 Directors' Report on Operations
Brembo stock closed the first half of 2020 at €8.225, down 25.6% compared to 31 December 2019. The stock reached a high for the period of €11.17 on 2 January and a low of €5.91 on 3 April 2020.
down 17.6%, and the BBG EMEA Automobiles Parts index declined by 23.3%.
After an essentially stable kick-off, the first half of 2020 was impacted by the crisis generated by the Covid-19 pandemic, whose effects are still severely affecting the global economy and financial markets, and in particular the automotive sector.
During the same period, the FTSE MIB index closed the year
An overview of stock performance of Brembo S.p.A. at 30 June 2020 is given in the following table, compared with that at 31 December 2019.
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Share capital (euro) | 34,727,914 | 34,727,914 |
| No. of ordinary shares | 333,922,250 | 333,922,250 |
| Equity (excluding net income for the period) (euro) | 615,510,558 | 438,667,185 |
| Net income for the period (euro) | 17,676,839 | 179,152,880 |
| Trading price (euro) | ||
| Minimum | 5.91 | 8.20 |
| Maximum | 11.17 | 11.88 |
| Period end | 8.23 | 11.06 |
| Market capitalisation (euro million) | ||
| Minimum | 1,973 | 2,738 |
| Maximum | 3,730 | 3,967 |
| Period end | 2,748 | 3,693 |
| Gross dividend per share | N/A | 0.00 (*) |
(*) Approved by the General Shareholders' Meeting of 23 April 2020.
Further information and updates regarding stock performance and recent corporate information are available on Brembo's website at www.brembo.com – Investors section Investor Relations Manager: Laura Panseri.
There is a type of innovation that springs from sustainable thinking, which looks to tomorrow, weighing it in terms of quality of life. C'è un'innovazione che nasce da un pensiero sostenibile, che guarda al domani misurandolo in qualità della vita.
| of which with | of which with | |||||
|---|---|---|---|---|---|---|
| (euro thousand) | Notes | 30.06.2020 | related parties | 31.12.2019 | related parties | Change |
| NON-CURRENT ASSETS | ||||||
| Property, plant, equipment and other equipment | 1 | 1,016,936 | 1,064,307 | (47,371) | ||
| Right of use assets | 1 | 188,421 | 194,493 | (6,072) | ||
| Development costs | 2 | 91,006 | 87,241 | 3,765 | ||
| Goodwill and other indefinite useful life assets | 2 | 82,113 | 83,883 | (1,770) | ||
| Other intangible assets | 2 | 50,984 | 57,157 | (6,173) | ||
| Shareholdings valued using the equity method | 3 | 40,789 | 43,149 | (2,360) | ||
| Other financial assets (including investments in other companies and derivatives) |
4 | 181,301 | 107,916 | 7,078 | 3,716 | 174,223 |
| Receivables and other non-current assets | 5 | 14,358 | 12,901 | 1,457 | ||
| Deferred tax assets | 6 | 62,901 | 54,617 | 8,284 | ||
| TOTAL NON-CURRENT ASSETS | 1,728,809 | 1,604,826 | 123,983 | |||
| CURRENT ASSETS | ||||||
| Inventories | 7 | 379,235 | 3 | 342,203 | 219 | 37,032 |
| Trade receivables | 8 | 347,320 | 1,993 | 391,925 | 2,094 | (44,605) |
| Other receivables and current assets | 9 | 105,648 | 95,870 | 9,778 | ||
| Current financial assets and derivatives | 10 | 2,352 | 1,439 | 913 | ||
| Cash and cash equivalents | 11 | 415,254 | 304,793 | 110,461 | ||
| TOTAL CURRENT ASSETS | 1,249,809 | 1,136,230 | 113,579 | |||
| ASSETS FROM DISCONTINUED OPERATIONS | 1,452 | 1,435 | 17 | |||
| TOTAL ASSETS | 2,980,070 | 2,742,491 | 237,579 |
| (euro thousand) | Notes | 30.06.2020 | of which with related parties |
31.12.2019 | of which with related parties |
Change |
|---|---|---|---|---|---|---|
| GROUP EQUITY | ||||||
| Share capital | 12 | 34,728 | 34,728 | 0 | ||
| Other reserves | 12 | 76,760 | 107,325 | (30,565) | ||
| Retained earnings/(losses) | 12 | 1,211,513 | 983,809 | 227,704 | ||
| Net result for the period | 12 | 19,958 | 231,301 | (211,343) | ||
| TOTAL GROUP EQUITY | 1,342,959 | 1,357,163 | (14,204) | |||
| TOTAL MINORITY INTERESTS | 30,173 | 30,852 | (679) | |||
| TOTAL EQUITY | 1,373,132 | 1,388,015 | (14,883) | |||
| NON-CURRENT LIABILITIES | ||||||
| Non-current payables to banks | 13 | 579,291 | 196,558 | 382,733 | ||
| Long-term lease liabilities | 13 | 171,117 | 177,283 | (6,166) | ||
| Other non-current financial payables and derivatives | 13 | 930 | 1,164 | (234) | ||
| Other non-current liabilities | 14 | 13,040 | 5,272 | 9,472 | 3,782 | 3,568 |
| Non-current provisions | 15 | 15,781 | 12,494 | 3,287 | ||
| Provisions for employee benefits | 16 | 25,471 | 3,420 | 25,584 | 2,633 | (113) |
| Deferred tax liabilities | 6 | 28,318 | 28,410 | (92) | ||
| TOTAL NON-CURRENT LIABILITIES | 833,948 | 450,965 | 382,983 | |||
| CURRENT LIABILITIES | ||||||
| Current payables to banks | 13 | 242,923 | 257,655 | (14,732) | ||
| Short-term lease liabilities | 13 | 19,204 | 18,700 | 504 | ||
| Other current financial payables and derivatives | 13 | 1,640 | 1,061 | 579 | ||
| Trade payables | 17 | 365,793 | 7,254 | 473,996 | 8,223 | (108,203) |
| Tax payables | 18 | 2,753 | 6,135 | (3,382) | ||
| Current provisions | 15 | 2,480 | 2,052 | 428 | ||
| Other current liabilities | 19 | 137,938 | 1,937 | 143,273 | 1,988 | (5,335) |
| TOTAL CURRENT LIABILITIES | 772,731 | 902,872 | (130,141) | |||
| LIABILITIES FROM DISCONTINUED OPERATIONS | 259 | 639 | (380) | |||
| TOTAL LIABILITIES | 1,606,938 | 1,354,476 | 252,462 | |||
| TOTAL EQUITY AND LIABILITIES | 2,980,070 | 2,742,491 | 237,579 |
| (euro thousand) | Notes | 30.06.2020 | of which with related parties |
30.06.2019 | of which with related parties |
Change |
|---|---|---|---|---|---|---|
| Revenue from contracts with customers | 20 | 951,113 | 130 | 1,323,840 | 241 | (372,727) |
| Other revenues and income | 21 | 8,147 | 1,847 | 15,490 | 1,969 | (7,343) |
| Costs for capitalised internal works | 22 | 10,975 | 14,035 | (3,060) | ||
| Raw materials, consumables and goods | 23 | (431,363) | (15,169) | (623,790) | (30,903) | 192,427 |
| Income (expense) from non-financial investments | 24 | 1,884 | 5,901 | (4,017) | ||
| Other operating costs | 25 | (195,383) | (4,594) | (229,551) | (2,821) | 34,168 |
| Personnel expenses | 26 | (202,082) | (2,248) | (235,343) | (4,169) | 33,261 |
| GROSS OPERATING INCOME | 143,291 | 270,582 | (127,291) | |||
| Depreciation, amortisation and impairment losses | 27 | (104,500) | (96,127) | (8,373) | ||
| NET OPERATING INCOME | 38,791 | 174,455 | (135,664) | |||
| Interest income | 28 | 88,216 | 24,492 | 63,724 | ||
| Interest expense | 28 | (102,384) | (31,195) | (71,189) | ||
| Net interest income (expense) | 28 | (14,168) | 18 | (6,703) | 8 | (7,465) |
| Interest income (expense) from investments | 29 | 55 | 123 | (68) | ||
| RESULT BEFORE TAXES | 24,678 | 167,875 | (143,197) | |||
| Taxes | 30 | (4,503) | (36,991) | 32,488 | ||
| Result from discontinued operations | 32 | 62 | (6,753) | 6,815 | ||
| RESULT BEFORE MINORITY INTERESTS | 20,237 | 124,131 | (103,894) | |||
| Minority interests | (279) | (683) | 404 | |||
| NET RESULT FOR THE PERIOD | 19,958 | 123,448 | (103,490) | |||
| BASIC/DILUTED EARNINGS PER SHARE (euro) | 31 | 0.06 | 0.38 |
| (euro thousand) | 30.06.2020 | 30.06.2019 | Change |
|---|---|---|---|
| RESULT BEFORE MINORITY INTERESTS | 20,237 | 124,131 | (103,894) |
| Other comprehensive income/(losses) that will not be subsequently reclassified to income/(loss) for the period: |
|||
| Effect of actuarial income/(loss) on defined benefit plans | (980) | (533) | (447) |
| Tax effect | 170 | 195 | (25) |
| Fair value measurement of investments | (1,662) | 0 | (1,662) |
| Total other comprehensive income/(losses) that will not be subsequently reclassified to income/(loss) for the period |
(2,472) | (338) | (2,134) |
| Other comprehensive income/(losses) that will be subsequently reclassified to income/(loss) for the period |
|||
| Effect of hedge accounting (cash flow hedge) of derivatives | (1,127) | (616) | (511) |
| Tax effect | 233 | 148 | 85 |
| Change in translation adjustment reserve | (31,114) | 8,672 | (39,786) |
| Total other comprehensive income/(losses) that will be subsequently reclassified to income/(loss) for the period |
(32,008) | 8,204 | (40,212) |
| COMPREHENSIVE RESULT FOR THE PERIOD | (14,243) | 131,997 | (146,240) |
| Of which attributable to: | |||
| - Minority Interests | (39) | 844 | (883) |
| - the Group | (14,204) | 131,153 | (145,357) |
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 168,559 | 195,871 |
| Result before taxes | 24,678 | 167,875 |
| Depreciation, amortisation/impairment losses | 104,500 | 96,127 |
| Capital gains/losses | (555) | (1,236) |
| Income/expense from investments, net of dividends received | 3,160 | 75 |
| Financial portion of provisions for defined benefits and payables for personnel | 199 | 290 |
| Long-term provisions for employee benefits | 1,206 | 1,192 |
| Other provisions net of utilisations | 26,749 | (2,903) |
| Result from discontinued operations | 62 | (6,753) |
| Cash flows generated by operating activities | 159,999 | 254,667 |
| Current taxes paid | (22,936) | (25,902) |
| Uses of long-term provisions for employee benefits | (1,988) | (2,585) |
| (Increase) reduction in current assets: | ||
| inventories | (52,051) | (28,671) |
| financial assets | 85 | (54) |
| trade receivables | 43,734 | (48,471) |
| receivables from others and other assets | (2,751) | (1,712) |
| Increase (reduction) in current liabilities: | ||
| trade payables | (108,203) | (62,733) |
| payables to others and other liabilities | (3,558) | (27,607) |
| Translation differences on current assets | (3,199) | 63 |
| Net cash flows from/(for) operating activities | 9,132 | 56,995 |
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| Investments in: | ||
| property, plant and equipment | (59,715) | (86,362) |
| of which right of use assets | (4,508) | (15,686) |
| intangible assets | (14,168) | (18,620) |
| financial assets | (177,590) | (113) |
| Price for disposal or reimbursement value of fixed assets | 1,064 | 4,358 |
| Net cash flows from/(for) investing activities | (250,409) | (100,737) |
| Dividends paid in the period | 0 | (71,541) |
| Dividend paid to minority shareholders in the period | (640) | (800) |
| Change in fair value of derivatives | (1,184) | (1,822) |
| New lease agreements | 3,664 | 15,686 |
| Reimbursement of lease liabilities | (12,183) | (12,578) |
| Loans and financing granted by banks and other financial institutions in the period | 425,000 | 101,279 |
| Repayment of long-term loans and other financing | (62,614) | (50,714) |
| Net cash flows from/(for) financing activities | 352,043 | (20,490) |
| Total cash flows | 110,766 | (64,232) |
| Translation differences on cash and cash equivalents | (4,960) | 564 |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | 274,365 | 132,203 |
| Other reserves | ||||
|---|---|---|---|---|
| (euro thousand) | Share capital | Reserves | Treasury shares | Retained earnings (losses) |
| Balance at 1 January 2019 | 34,728 | 122,260 | (13,476) | 817,219 |
| Allocation of profit for the previous year | 166,808 | |||
| Payment of dividends | ||||
| Components of comprehensive income: | ||||
| Effect of actuarial income/(loss) on defined benefit plans | (338) | |||
| Effect of hedge accounting (cash flow hedge) of derivatives | (468) | |||
| Change in translation adjustment reserve | 8,511 | |||
| Net result for the period | ||||
| Balance at 30 June 2019 | 34,728 | 130,303 | (13,476) | 983,689 |
| Balance at 1 January 2020 | 34,728 | 132,130 | (24,805) | 983,809 |
| Allocation of profit for the previous year | 1,125 | 230,176 | ||
| Payment of dividends | ||||
| Components of comprehensive income: | ||||
| Effect of actuarial income/(loss) on defined benefit plans | (810) | |||
| Fair value measurement of investments | (1,662) | |||
| Effect of hedge accounting (cash flow hedge) of derivatives | (894) | |||
| Change in translation adjustment reserve | (30,796) | |||
| Net result for the period | ||||
| Equity | Equity of Minority Interests |
Share capital and reserves of Minority Interests |
Result of Minority Interests |
Group equity | Net result for the period |
|---|---|---|---|---|---|
| 1,228,822 | 29,742 | 26,615 | 3,127 | 1,199,080 | 238,349 |
| 0 | 0 | 3,127 | (3,127) | 0 | (166,808) |
| (72,341) | (800) | (800) | (71,541) | (71,541) | |
| (338) | 0 | (338) | |||
| (468) | 0 | (468) | |||
| 8,672 | 161 | 161 | 8,511 | ||
| 124,131 | 683 | 683 | 123,448 | 123,448 | |
| 1,288,478 | 29,786 | 29,103 | 683 | 1,258,692 | 123,448 |
| 1,388,015 | 30,852 | 29,092 | 1,760 | 1,357,163 | 231,301 |
| 0 | 0 | 1,760 | (1,760) | 0 | (231,301) |
| (640) | (640) | (640) | 0 | ||
| (810) | 0 | (810) | |||
| (1,662) | 0 | (1,662) | |||
| (894) | 0 | (894) | |||
| (31,114) | (318) | (318) | (30,796) | ||
| 20,237 | 279 | 279 | 19,958 | 19,958 | |
| 1,373,132 | 30,173 | 29,894 | 279 | 1,342,959 | 19,958 |
In the vehicle industry components sector, Brembo Group is active in the research, design, production, assembly and sale of disc braking systems, wheels and light alloy and metal casting, in addition to mechanical processes in general.
The extensive product range consists of high-performance brake calipers, brake discs, wheel-side modules, complete braking systems and integrated engineering services, supporting the development of new models placed on the market by vehicle manufacturers. Brembo's products and services are used in the automotive industry, for light commercial and heavy industrial vehicles, motorbikes and racing competitions.
Manufacturing plants are located in Italy, Poland (Częstochowa, Dąbrowa Górnicza, Niepołomice), the United Kingdom (Coventry), the Czech Republic (Ostrava-Hrabová), Germany (Meitingen), Mexico (Apodaca and Escobedo), Brazil (Betim), China (Nanjing, Langfang), India (Pune) and the United States (Homer). Other companies located in Spain (Zaragoza), Sweden (Göteborg), Germany (Leinfelden-Echterdingen), China (Qingdao), Japan (Tokyo) and Russia (Moscow) carry out distribution and sales activities.
The Condensed Consolidated Six Monthly Financial Report at 30 June 2020 has been prepared in accordance with Article 154-ter of Legislative Decree No. 58/98 and applicable Consob provisions, as well as the provisions of IAS 34 – Interim Financial Reporting, and has been subjected to a limited audit according to the criteria recommended by Consob. In further detail, the Financial Report for the period ended 30 June 2020 has been prepared in condensed form and does not contain all the information and notes required for the consolidated annual financial statements. Consequently, the Report should be read in conjunction with the Consolidated Financial Statements for the year ended 31 December 2019.
The Condensed Consolidated Six Monthly Financial Report comprises the Consolidated Statement of Financial Position, the Consolidated Statement of Income, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity, and these Explanatory Notes; it includes the situation at 30 June 2020 of Brembo S.p.A., the Parent, and the companies controlled by Brembo S.p.A. pursuant to IFRS 10.
On 29 July 2020, the Board of Directors approved the Condensed Consolidated Six Monthly Financial Report and requested that it be made available to the public and Consob, within the terms and according to the procedures provided for by applicable laws and regulations.
The accounting standards, consolidation principles and measurement criteria adopted to prepare the Condensed Consolidated Six Monthly Financial Report comply with those used to prepare the Consolidated Financial Statements at 31 December 2019, to which specific reference is made.
With reference to the new standards or amendments already issued that were applied for the first time from 1 January 2020, the following is reported.
On 28 May 2020, the IASB (International Accounting Standards Board) published an amendment to IFRS 16 governing the accounting treatment by lessees of changes, if any, granted by lessors to instalments relating to operating lease contracts. The amendment introduces a practical expedient that simplifies the accounting treatment of such concessions when they are a direct consequence of the Covid-19 pandemic, exempting the lessee from assessing whether they entail a lease modification, and instead allowing it to account for them as a variable lease payment in the period in which the concession is granted.
The amendment will only be applicable to European companies after it is endorsed by the European Union, which is expected to occur in the third or fourth quarter of 2020.
As of 30 June 2020, Brembo Group was in negotiations with the main owners of the properties with which it has ongoing operating lease contracts. Any significant reductions in rent, whether already granted or resulting from the negotiations, will be accounted for after endorsement from the EU, where possible by applying the practical expedient.
The other standards that entered into effect on 1 January 2020 (Amendments to IFRS 3: Definition of a Business; Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform; Amendments to IAS 1 and IAS 8: Definition of Material and Conceptual Framework for Financial Reporting issued on 29 March 2018) did not have any impact on the Group's Condensed Consolidated Six Monthly Financial Report.
Description Endorsed at the reporting date Date of entry into force of the standard Amendments to IFRS 4 – Insurance Contracts – deferral of IFRS 19 (issued on 25 June 2020) YES 1 January 2021 Amendments to IAS 1 — Presentation of Financial Statements: Classification of Liabilities as Current or Non-current NO 1 January 2022 Amendments to • IFRS 3 — Business Combinations; • IAS 16 — Property, Plant and Equipment; • IAS 37 — Provisions, Contingent Liabilities and Contingent Assets • Annual Improvements 2018-2020 (all issued on 14 May 2020) NO 1 January 2022 IFRS 17– Insurance Contracts (issued in May 2017) NO 1 January 2023
Other standards or amendments, not yet entered into force at the reporting date, are summarised in the following table:
The Group did not opt for early adoption of new standards, interpretations or amendments that have been issued but have not entered into force yet.
The Condensed Consolidated Six Monthly Financial Report has been prepared on the basis of the half-yearly financial statements at 30 June 2020 drawn up by the Boards of Directors of the relevant consolidated companies.
Due to the type of business, data included in the Condensed Consolidated Six Monthly Financial Report are not influenced by material seasonal or cyclical effects, compared to full year data.
The Condensed Consolidated Six Monthly Financial Report has been prepared in accordance with the general principle of providing a true and fair presentation of the Group's assets and liabilities, financial position, statement of income results and cash flows, based on the following general assumptions: going concern, accrual accounting, consistency of presentation, materiality and aggregation, prohibition of offsetting, and comparative information.
The Condensed Consolidated Six Monthly Financial Report is presented in euro, which is the functional currency of the Parent, Brembo S.p.A., and all amounts are rounded to the nearest thousand unless otherwise indicated.
Preparing financial statements in compliance with the applicable accounting standards requires management to make estimates that may have a significant effect on the items reported in the accounts. Estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the current circumstances and given the information available at the reporting date. Actual results may differ from these estimates. Estimates and associated assumptions are reviewed on an ongoing basis. Revisions of estimates are recognised in the period in which such estimates are revised. Management's decisions that have a significant impact on the financial statements and estimates, and have a significant risk of material adjustments to the book value of assets and liabilities in the next accounting period, are discussed in the notes to the individual financial statement entries.
The main estimates are used to recognise the capitalisation of development costs, taxes (including the estimate of any tax liabilities associated with tax litigation, underway or that is likely to occur), impairment of non-financial assets, and the actuarial assumptions used in the valuation of defined benefit plans. Other estimates relate to provisions for contingencies, product warranties, inventory obsolescence, useful lives of certain assets, the designation of lease contracts and the determination of the fair value of financial instruments, including derivatives.
It should also be noted that certain measurement processes, particularly the most complex ones such as the determination of any impairment for non-current assets, are typically carried out in full only during preparation of the Annual Financial Statements, when all necessary information is available, unless impairment indicators require immediate analysis. Since the Covid-19 pandemic, in light of its intensity and unpredictability, represents an external potential impairment indicator, impairment tests have been conducted, as described in detail in Note 3 of these Explanatory Notes. Actuarial valuations necessary to determine provisions for employee benefits are conducted in complete form when preparing the Annual Financial Statements and in simplified form when preparing this Six Monthly Financial Report.
The list of consolidated subsidiaries, associates and joint ventures that are accounted for using the equity method, along with information regarding their registered offices and the percentage of capital held, is included in the paragraph "Information About the Group" of these Explanatory Notes.
Compared to the first half of 2019 and 31 December 2019, no corporate transactions impacting the Group consolidation area were performed in the first half of 2020.
As of 30 June 2019, Brembo discontinued its industrial operations at the Buenos Aires plant with the ensuing placement in liquidation of the subsidiary Brembo Argentina S.A. Pursuant to IFRS 5, the company's assets and liabilities have been reclassified to "Assets/Liabilities from discontinued operations", whereas its Statement of Income items have been reclassified to "Result from discontinued operations". Further information on the details of these items is given in Note 32 of these Explanatory Notes.
The following table shows the exchange rates used in the translation of six monthly accounting statements denominated in currencies other than the functional one (euro).
| Euro against other currencies | 30.06.2020 | Average at June 2020 | 30.06.2019 | Average at June 2019 |
|---|---|---|---|---|
| U.S. Dollar | 1.119800 | 1.101452 | 1.138000 | 1.129771 |
| Japanese Yen | 120.660000 | 119.207159 | 122.600000 | 124.293309 |
| Swedish Krona | 10.494800 | 10.660961 | 10.563300 | 10.518739 |
| Polish Zloty | 4.456000 | 4.413618 | 4.249600 | 4.291943 |
| Czech Koruna | 26.740000 | 26.342135 | 25.447000 | 25.683785 |
| Mexican Peso | 25.947000 | 23.857114 | 21.820100 | 21.653889 |
| Pound Sterling | 0.912430 | 0.874320 | 0.896550 | 0.873585 |
| Brazilian Real | 6.111800 | 5.416938 | 4.351100 | 4.340674 |
| Indian Rupee | 84.623500 | 81.676639 | 78.524000 | 79.118191 |
| Argentine Peso | 78.785900 | 71.032888 | 48.567800 | 46.814389 |
| Chinese Renminbi | 7.921900 | 7.748053 | 7.818500 | 7.666976 |
| Russian Rouble | 79.630000 | 76.682517 | 71.597500 | 73.721479 |
Based on the IFRS 8 definition, an operating segment is a component of an entity:
In light of such definition, the Brembo Group's operating segments are five Divisions/Business Units: Discs, Systems, Motorbikes, Performance Group, After Market.
Each Division/Business Unit Director reports to the top management and periodically discusses with them operating activities, financial statements results, forecasts or plans.
The Group thus aggregated the operating segments as follows for the purposes of financial reporting:
The segments that are included in each aggregate are similar in terms of:
Transfer prices applied to transactions between segments for the exchange of goods and services are settled according to usual market conditions.
In light of the requirements of IFRS 8 in terms of revenues earned from major customers, where a single customer is defined as all companies that belong to a given Group, Brembo had three customers in the first half of 2020 who accounted for over 10% of consolidated net revenues. None of the single car manufacturers comprising such groups exceeded this limit.
| Total | Discs/Systems/Motorbikes | After Market/ Performance Group |
Interdivision | Non-segment data | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (euro thousand) | 30.06.2020 | 30.06.2019 | 30.06.2020 | 30.06.2019 | 30.06.2020 | 30.06.2019 | 30.06.2020 | 30.06.2019 | 30.06.2020 | 30.06.2019 |
| Sales | 972,400 | 1,354,259 | 799,133 | 1,147,197 | 175,523 | 208,813 | (1,633) | (1,839) | (623) | 88 |
| Allowances and discounts |
(18,630) | (23,506) | (1,718) | (3,201) | (16,912) | (20,302) | 0 | 0 | 0 | (3) |
| Net sales | 953,770 | 1,330,753 | 797,415 | 1,143,996 | 158,611 | 188,511 | (1,633) | (1,839) | (623) | 85 |
| Transport costs | 7,274 | 9,700 | 4,598 | 7,006 | 2,675 | 2,675 | 0 | 0 | 1 | 19 |
| Variable production costs |
586,024 | 823,088 | 484,225 | 702,941 | 102,698 | 120,636 | (1,633) | (1,839) | 734 | 1,350 |
| Contribution margin | 360,472 | 497,965 | 308,592 | 434,049 | 53,238 | 65,200 | 0 | 0 | (1,358) | (1,284) |
| Fixed production costs | 192,468 | 197,856 | 179,668 | 186,107 | 11,555 | 10,857 | 0 | 0 | 1,245 | 892 |
| Production gross operating income |
168,004 | 300,109 | 128,924 | 247,942 | 41,683 | 54,343 | 0 | 0 | (2,603) | (2,176) |
| BU personnel costs | 83,239 | 98,231 | 52,603 | 63,811 | 22,559 | 25,008 | 0 | 0 | 8,077 | 9,412 |
| BU gross operating income |
84,765 | 201,878 | 76,321 | 184,131 | 19,124 | 29,335 | 0 | 0 | (10,680) | (11,588) |
| Costs for Central Functions |
50,100 | 51,103 | 36,337 | 38,868 | 6,120 | 6,489 | 0 | 0 | 7,643 | 5,746 |
| OPERATING INCOME (LOSS) |
34,665 | 150,775 | 39,984 | 145,263 | 13,004 | 22,846 | 0 | 0 | (18,323) | (17,334) |
| Extraordinary costs and revenues |
5,879 | 14,864 | 0 | 0 | 0 | 0 | 0 | 0 | 5,879 | 14,864 |
| Financial costs and revenues |
(14,411) | (7,521) | 0 | 0 | 0 | 0 | 0 | 0 | (14,411) | (7,521) |
| Income (expense) from investments |
1,921 | 6,006 | 0 | 0 | 0 | 0 | 0 | 0 | 1,921 | 6,006 |
| Non-operating costs and revenues |
(3,314) | (3,002) | 0 | 0 | 0 | 0 | 0 | 0 | (3,314) | (3,002) |
| Result before taxes | 24,740 | 161,122 | 39,984 | 145,263 | 13,004 | 22,846 | 0 | 0 | (28,248) | (6,987) |
| Taxes | (4,503) | (36,991) | 0 | 0 | 0 | 0 | 0 | 0 | (4,503) | (36,991) |
| Result before minority interests |
20,237 | 124,131 | 39,984 | 145,263 | 13,004 | 22,846 | 0 | 0 | (32,751) | (43,978) |
| Minority interests | (279) | (683) | 0 | 0 | 0 | 0 | 0 | 0 | (279) | (683) |
| NET RESULT | 19,958 | 123,448 | 39,984 | 145,263 | 13,004 | 22,846 | 0 | 0 | (33,030) | (44,661) |
The following table shows segment information on operating data at 30 June 2020 and 30 June 2019:
A reconciliation between the Consolidated Six Monthly Financial Report and the above operating data is provided below:
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| REVENUE FROM CONTRACTS WITH CUSTOMERS | 951,113 | 1,323,840 |
| Scrap sales (in the segment report they are subtracted from "Variable production costs") |
(4,359) | (7,669) |
| Differences between internal and statutory reports relating to developments activities | 6,566 | 6,415 |
| Capital gains on sale of equipment (in the Consolidated Financial Statements they are included in "Other revenues and income") |
421 | 1,463 |
| Effect of adjustment of transactions among consolidated companies | (134) | (69) |
| Miscellaneous recharges (in the Consolidated Financial Statements they are included in "Other revenues and income") |
942 | 621 |
| Reclassification of Brembo Argentina's revenues | 0 | 6,095 |
| Other | (779) | 57 |
| NET SALES | 953,770 | 1,330,753 |
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| NET OPERATING INCOME | 38,791 | 174,455 |
| Differences between internal and statutory reports relating to developments activities | 2,809 | (1,228) |
| Other differences between internal and statutory reports | (2,613) | (3,166) |
| Income (expense) from non-financial investments | (1,884) | (5,901) |
| Claim compensation and subsidies | (2,569) | (7,487) |
| Capital gains/losses on disposal of assets (in the segment report they are included in "Non-operating costs and revenues") |
(108) | (252) |
| Different classification of banking expenses (in the segment report it is included in "Financial costs and revenues") |
301 | 442 |
| Reclassification of Brembo Argentina | 23 | (6,360) |
| Other | (85) | 272 |
| OPERATING RESULT | 34,665 | 150,775 |
The breakdown of Group sales by geographic area of destination and by application is provided in the Directors' Report on Operations.
Segment information on Statement of Financial Position data at 30 June 2020 and 31 December 2019 is provided in the following table:
| Total | Discs/Systems/Motorbikes | After Market / Performance Group |
Interdivision | Non-segment data | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (euro thousand) | 30.06.2020 | 31.12.2019 | 30.06.2020 | 31.12.2019 | 30.06.2020 | 31.12.2019 | 30.06.2020 | 31.12.2019 | 30.06.2020 | 31.12.2019 |
| Property, plant and equipment | 1,205,357 | 1,258,800 | 1,092,842 1,156,099 | 73,950 | 69,931 | 5 | 5 | 38,560 | 32,765 | |
| Intangible assets | 133,097 | 141,040 | 108,914 | 116,272 | 17,506 | 18,374 | 0 | 0 | 6,677 | 6,394 |
| Financial assets and other non-current assets/liabilities |
138,703 | 63,356 | 384 | 443 | 0 | 0 | 0 | 0 | 138,319 | 62,913 |
| (a) Total fixed assets | 1,477,157 | 1,463,196 | 1,202,140 1,272,814 | 91,456 | 88,305 | 5 | 5 | 183,556 | 102,072 | |
| Inventories | 379,941 | 342,254 | 268,861 | 249,074 | 110,190 | 92,241 | 0 | 0 | 890 | 939 |
| Current assets | 470,122 | 495,826 | 291,968 | 353,795 | 59,807 | 44,827 | (8,223) | (15,312) | 126,570 | 112,516 |
| Current liabilities | (524,146) | (631,815) | (294,422) | (416,045) | (83,971) | (87,489) | 8,223 | 15,312 | (153,976) | (143,593) |
| Provisions for contingencies and charges and other provisions |
(39,107) | (33,699) | (493) | 0 | 0 | 0 | 0 | 0 | (38,614) | (33,699) |
| (b) Net working capital | 286,810 | 172,566 | 265,914 | 186,824 | 86,026 | 49,579 | 0 | 0 | (65,130) | (63,837) |
| NET INVESTED OPERATING CAPITAL (a+b) |
1,763,967 | 1,635,762 | 1,468,054 1,459,638 | 177,482 | 137,884 | 5 | 5 | 118,426 | 38,235 | |
| Extraordinary components | 230,883 | 122,876 | 53 | 53 | 0 | 0 | 0 | 0 | 230,830 | 122,823 |
| NET INVESTED CAPITAL | 1,994,850 | 1,758,638 | 1,468,107 1,459,691 | 177,482 | 137,884 | 5 | 5 | 349,256 | 161,058 | |
| Group equity | 1,342,959 | 1,357,163 | 0 | 0 | 0 | 0 | 0 | 0 | 1,342,959 1,357,163 | |
| Minority interests | 30,173 | 30,852 | 0 | 0 | 0 | 0 | 0 | 0 | 30,173 | 30,852 |
| (d) Equity | 1,373,132 | 1,388,015 | 0 | 0 | 0 | 0 | 0 | 0 | 1,373,132 1,388,015 | |
| (e) Provisions for employee benefits |
25,471 | 25,584 | 0 | 0 | 0 | 0 | 0 | 0 | 25,471 | 25,584 |
| Medium/long-term financial debt |
751,338 | 375,005 | 0 | 0 | 0 | 0 | 0 | 0 | 751,338 | 375,005 |
| Short-term financial debt | (155,091) | (29,966) | 0 | 0 | 0 | 0 | 0 | 0 | (155,091) | (29,966) |
| (f) Net financial debt | 596,247 | 345,039 | 0 | 0 | 0 | 0 | 0 | 0 | 596,247 | 345,039 |
| (g) COVERAGE (d)+(e)+(f) | 1,994,850 | 1,758,638 | 0 | 0 | 0 | 0 | 0 | 0 | 1,994,850 1,758,638 |
The following should be noted in regard to the non-segment data:
The Brembo Group is exposed to market, commodity, liquidity and credit risk, all of which are tied to the use of financial instruments.
Financial risk management is the responsibility of the central Treasury & Credit Department of Brembo S.p.A., which, together with the Administration & Finance Department, evaluates the main financial transactions and related hedging policies.
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices resulting from shifts in exchange rates, interest rates and equity security prices.
Interest rate risk applies to variable-rate financial instruments recognised in the Statement of Financial Position (particularly short-term bank loans, other loans, leases, bonds, etc.) that are not hedged by other financial instruments.
In order to fix the financial burden relating to a part of its debt, Brembo has entered into fixed-rate financing contracts and interest rate swaps. However, the Company continues to be exposed to interest-rate risk due to the fluctuation of variable rates.
A sensitivity analysis was performed to analyse the effects of a change in interest rates of +/- 50 base points compared to the rates at 30 June 2020 and 31 December 2019, with other variables held constant. The potential impacts were calculated on the variable-rate financial liabilities at 30 June 2020. The aforementioned change in interest rates would result in a higher (or lower) annual net pre-tax expense of approximately €1,273 thousand (€683 thousand at 31 December 2019), gross of the tax effect.
The average weekly gross financial debt was used to provide the most reliable information possible.
Brembo deals in international markets with currencies other than the euro and is therefore exposed to exchange rate risk.
To mitigate this risk, Brembo uses natural hedging (offsetting receivables and payables) and hedges only net positions in foreign currency, using mostly short-term financing denominated in the currency to be hedged, in order to offset any unbalances; currency forward contracts are also used to hedge this risk category.
A sensitivity analysis is provided below to illustrate the effects on pre-tax result arising on a positive (negative) change in exchange rates.
Starting with the exposures at the end of June 2020 and at the end of 2019, a change calculated as the standard deviation of the exchange rate with respect to the average exchange rate was applied to the average exchange rates for the first half of 2020 and for all 2019 to measure exchange rate volatility.
| 30.06.2020 | ||||||
|---|---|---|---|---|---|---|
| (euro thousand) | Change % | Effect of exchange rate increase |
Effect of exchange rate decrease |
Change % | Effect of exchange rate increase |
Effect of exchange rate decrease |
| EUR/CNY | 1.66% | (67.7) | 69.9 | 1.37% | (48.3) | 49.6 |
| EUR/GBP | 2.82% | 1.9 | (2.0) | 2.36% | 10.4 | (10.9) |
| EUR/JPY | 1.73% | (78.1) | 80.9 | 2.23% | (16.1) | 16.9 |
| EUR/PLN | 2.84% | 60.9 | (64.4) | 0.78% | (5.7) | 5.8 |
| EUR/SEK | 1.75% | 7.7 | (8.0) | 1.47% | 16.5 | (17.0) |
| EUR/USD | 1.59% | 66.3 | (68.4) | 1.22% | 16.9 | (17.3) |
| EUR/INR | 3.11% | 3.6 | (3.8) | 1.50% | 0.4 | (0.4) |
| EUR/CZK | 3.71% | 1.7 | (1.8) | 0.49% | (0.3) | 0.3 |
| EUR/CHF | 0.88% | (0.2) | 0.2 | 1.67% | 0.1 | (0.1) |
| PLN/CNY | 2.99% | 6.0 | (6.4) | 1.42% | 7.2 | (7.4) |
| PLN/EUR | 2.85% | (149.0) | 157.7 | 0.77% | (73.5) | 74.7 |
| PLN/GBP | 2.02% | 0.2 | (0.2) | 2.25% | 0.3 | (0.3) |
| PLN/JPY | 4.16% | 1.1 | (1.2) | 2.62% | 0.8 | (0.9) |
| PLN/USD | 3.70% | 6.0 | (6.4) | 1.67% | (2.7) | 2.8 |
| PLN/CZK | 1.16% | 0.8 | (0.8) | 0.53% | 0.0 | 0.0 |
| PLN/CHF | 3.49% | 2.9 | (3.1) | 2.01% | 6.5 | (6.8) |
| GBP/EUR | 2.82% | 10.8 | (11.4) | 2.35% | 39.8 | (41.7) |
| GBP/USD | 2.97% | 3.2 | (3.4) | 2.62% | (5.8) | 6.1 |
| GBP/AUD | 3.37% | (2.9) | 3.1 | 2.13% | (0.9) | 1.0 |
| USD/CNY | 1.03% | 4.7 | (4.8) | 2.15% | (3.4) | 3.5 |
| USD/EUR | 1.59% | 187.6 | (193.7) | 1.22% | 54.8 | (56.2) |
| USD/MXN | 10.58% | 44.2 | (54.7) | 1.41% | 30.8 | (31.7) |
| BRL/EUR | 11.31% | 0.9 | (1.1) | 3.07% | 15.1 | (16.0) |
| BRL/USD | 11.54% | 37.5 | (47.2) | 4.06% | 16.7 | (18.1) |
| JPY/EUR | 1.74% | 3.9 | (4.0) | 2.23% | 5.1 | (5.3) |
| JPY/USD | 1.49% | 0.6 | (0.7) | 1.46% | 0.9 | (1.0) |
| CNY/EUR | 1.64% | 63.0 | (65.1) | 1.38% | 246.2 | (253.1) |
| CNY/JPY | 2.03% | 3.9 | (4.0) | 3.41% | 4.9 | (5.2) |
| CNY/USD | 1.04% | (40.1) | 40.9 | 2.15% | (100.5) | 104.9 |
| INR/EUR | 3.13% | 40.2 | (42.8) | 1.49% | (11.2) | 11.6 |
| INR/JPY | 3.85% | 32.1 | (34.6) | 2.37% | 35.2 | (36.9) |
| INR/USD | 2.85% | 18.4 | (19.5) | 1.47% | (5.2) | 5.4 |
| CZK/EUR | 3.75% | 78.5 | (84.6) | 0.49% | 15.6 | (15.7) |
| CZK/GBP | 2.17% | (0.3) | 0.3 | 2.22% | (0.5) | 0.5 |
| CZK/PLN | 1.16% | 0.2 | (0.2) | 0.53% | 4.6 | (4.7) |
| CZK/USD | 4.40% | (16.5) | 18.0 | 1.40% | (0.4) | 0.4 |
The Group is exposed to changes in prices of main raw materials and commodities. In the first half of 2020, no specific hedging transactions were undertaken. However, it should be recalled that existing contracts with major customers provide for automatic periodic adjustment on the basis of commodities prices.
Liquidity risk can arise from a company's inability to obtain the financial resources necessary to guarantee Brembo's operation.
To mitigate liquidity risk, the Treasury & Credit area:
The following table provides information on payables, other payables and derivatives broken down by maturity. The maturities are determined based on the period from the reporting date to the expiry of the contractual obligations. The amounts shown in the table reflect undiscounted cash flows and the fair value of existing derivative liabilities.
For fixed- and variable-rate financial liabilities, both principal and interest were considered for the different maturity periods; for variable-rate liabilities, the rate at 30 June 2020 plus the relevant spread was used.
| (euro thousand) | Carrying value | Contractual cash flows |
Within 1 year | From 1 to 5 years |
Beyond 5 years |
|---|---|---|---|---|---|
| Non-derivative financial liabilities | |||||
| Short-term credit lines and bank overdrafts | 140,889 | 140,889 | 140,889 | 0 | 0 |
| Payables to banks (loans and bonds) | 681,325 | 705,899 | 106,861 | 358,094 | 240,944 |
| Payables to other financial institutions | 1,204 | 1,207 | 275 | 920 | 12 |
| Lease liabilities | 190,321 | 190,321 | 19,204 | 59,514 | 111,603 |
| Trade and other payables | 376,860 | 376,860 | 376,860 | 0 | 0 |
| Derivative financial liabilities | |||||
| Derivatives | 1,366 | 1,366 | 1,366 | 0 | 0 |
| Total | 1,391,965 | 1,416,542 | 645,455 | 418,528 | 352,559 |
Some of the Group's loan agreements require the satisfaction of financial covenants and the obligation for the Group to meet certain financial ratio levels.
In detail, the following covenants and relevant maximum thresholds are to be complied with:
If the covenants are not met, the financial institutions can request early repayment of the relevant loan.
The values of these covenants are monitored at the end of each quarter, and at 30 June 2020 the Group had complied with the covenants in question by a considerable margin. On the basis of the most updated estimates for 2020, the aforementioned financial ratios are expected to be met.
Management believes that currently available lines of credit, apart from the cash flow generated by current operations, will allow Brembo to meet its financial requirements arising from investing activities, working capital management, and the payment of payables at their natural maturities.
In further detail, at 30 June 2020, unused bank credit facilities were 73% of the total (a total of €525.4 million in credit facilities were available).
Credit risk is the risk that a customer or one of the parties to a financial instrument will cause a financial loss by failing to perform an obligation. Exposure to credit risk for the Group arises mainly in relation to trade receivables. Most parties with which the Group does business are leading car and motorbike manufacturers with high credit standings.
The Group evaluates the creditworthiness of all new customers using assessments from external sources and then assigns a credit limit.
To complete the disclosure of financial risks, the following information is provided:
a) the fair value hierarchy for the Group's assets and liabilities:
| 30.06.2020 | 31.12.2019 | |||||
|---|---|---|---|---|---|---|
| (euro thousand) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 |
| Financial assets (liabilities) measured at fair value | ||||||
| Forward contracts denominated in foreign currency | 0 | 1,087 | 0 | 0 | (347) | 0 |
| Interest rate swaps | 0 | (1,362) | 0 | 0 | (252) | 0 |
| Embedded derivative | 0 | 0 | 1,213 | 0 | 0 | 1,480 |
| Equity swaps | 0 | 70,229 | 0 | 0 | 0 | 0 |
| Total financial assets (liabilities) measured at fair value | 0 | 69,954 | 1,213 | 0 | (599) | 1,480 |
| Assets (liabilities) for which fair value is indicated | ||||||
| Current and non-current payables to banks | 0 | (669,720) | 0 | 0 | (325,275) | 0 |
| Current and non-current lease liabilities | 0 | (190,322) | 0 | 0 | (195,983) | 0 |
| Other current and non-current financial liabilities | 0 | (1,205) | 0 | 0 | (1,439) | 0 |
| Total assets (liabilities) for which fair value is indicated | 0 | (861,246) | 0 | 0 | (522,697) | 0 |
The equity swap derivative amounting to €70,229 thousand includes €3,947 thousand cash not yet used by the banking counterparty for the purchase of shares, whereas the remainder is attributable to the value of the shares already purchased by the bank and their fair value adjustment at 30 June 2020.
Movements for the period of Level 3 were as follows:
| (euro thousand) | 30.06.2020 |
|---|---|
| Opening value | 1,480 |
| Movements from reserve for payment/collection of differentials | (267) |
| Closing value | 1,213 |
b) a reconciliation between the classes of financial assets and liabilities identified in the Group's Statement of Financial Position and the types of financial assets and liabilities identified based on the requirements of IFRS 7:
| Carrying value | Fair value | ||||
|---|---|---|---|---|---|
| (euro thousand) | 30.06.2020 | 31.12.2019 | 30.06.2020 | 31.12.2019 | |
| Available-for-sale financial assets | 106,687 | 1,788 | 106,687 | 1,788 | |
| Loans, receivables and financial liabilities valued at amortised costs: |
|||||
| Current and non-current financial assets (excluding derivatives) | 4,433 | 5,249 | 4,433 | 5,249 | |
| Trade receivables | 347,320 | 391,925 | 347,320 | 391,925 | |
| Loans and receivables | 61,250 | 57,813 | 61,250 | 57,813 | |
| Cash and cash equivalents | 415,254 | 304,793 | 415,254 | 304,793 | |
| Current and non-current payables to banks | (822,214) | (454,213) | (850,923) | (461,509) | |
| Current and non-current lease liabilities | (190,321) | (195,983) | (190,321) | (195,983) | |
| Other current and non-current financial liabilities | (1,204) | (1,626) | (1,204) | (1,626) | |
| Trade payables | (365,793) | (473,996) | (365,793) | (473,996) | |
| Other current liabilities | (137,938) | (143,273) | (137,938) | (143,273) | |
| Other non-current liabilities | (13,040) | (9,472) | (13,040) | (9,472) | |
| Derivatives | 71,167 | 881 | 71,167 | 881 | |
| Total | (524,399) | (516,114) | (553,108) | (523,410) |
The approach used to calculate fair value is the present value of the future cash flows expected to derive from the instrument being measured, determined by discounting the scheduled instalments at a rate equal to the forward rate curve applicable to each account payable. In detail:
The Group carries out transactions with parents, subsidiaries, associates, joint ventures, directors, key management personnel and other related parties. The Parent Brembo S.p.A. is a subsidiary of Nuova FourB S.r.l., which holds 53.523% of its share capital. Brembo did not engage in dealings with its parent in the first half of 2020.
Information pertaining to the fees paid to Directors and Statutory Auditors of Brembo S.p.A. and of other Group companies and additional information required is reported below:
| 30.06.2020 | 30.06.2019 | |||
|---|---|---|---|---|
| (euro thousand) | Directors | Auditors | Directors | Auditors |
| Emoluments and other incentives for the office held | 2,895 | 98 | 1,045 | 98 |
| Participation in committees and specific tasks | 78 | 0 | 78 | 0 |
| Salaries and other incentives | 1,601 | 0 | 2,912 | 0 |
The item "Salaries and other incentives" includes the estimate of the cost of the 2019-2021 three-year plan reserved for the Company's top managers and accrued in the reporting period, remuneration paid as salaries for the employee function and provisions for bonuses still to be paid.
The following table provides a summary of related party transactions with reference to balances of the Statement of Financial Position and Statement of Income:
| (euro thousand) | 30.06.2020 | 31.12.2019 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Related Parties | Related Parties | |||||||||||
| a) Weight of transactions or positions with related parties on items of the Statement of Financial Position |
Carrying value |
Total | Other* | Joint ventures |
Associates | % | Carrying value |
Total | Other* | Joint ventures |
Associates | % |
| Other financial assets (including investments in other companies and derivatives) |
181,301 | 107,916 | 104,899 | 0 | 3,017 | 59.5% | 7,078 | 3,716 | 0 | 0 | 3,716 | 52.5% |
| Inventories | 379,235 | 3 | 3 | 0 | 0 | 0.0% | 342,203 | 219 | 0 | 219 | 0 | 0.1% |
| Trade receivables | 347,320 | 1,993 | 7 | 1,928 | 58 | 0.6% | 391,925 | 2,094 | 14 | 2,005 | 75 | 0.5% |
| Other non-current liabilities | (13,040) | (5,272) | (5,272) | 0 | 0 | 40.4% | (9,472) | (3,782) | (3,782) | 0 | 0 | 39.9% |
| Provisions for employee benefits |
(25,471) | (3,420) | (3,420) | 0 | 0 | 13.4% | (25,584) | (2,633) | (2,633) | 0 | 0 | 10.3% |
| Trade payables | (365,793) | (7,254) | (1,107) | (5,909) | (238) | 2.0% | (473,996) | (8,223) | (1,267) | (6,624) | (332) | 1.7% |
| Other current liabilities | (137,938) | (1,937) | (1,810) | (127) | 0 | 1.4% | (143,273) | (1,988) | (1,860) | (128) | 0 | 1.4% |
| 30.06.2020 | 30.06.2019 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Related Parties | Related Parties | |||||||||||
| b) Weight of transactions or positions with related parties on items of the Statement of Income |
Carrying value |
Total | Other* | Joint ventures |
Associates | % | Carrying value |
Total | Other* | Joint ventures |
Associates | % |
| Revenue from contracts with customers |
951,113 | 130 | 0 | 130 | 0 | 0.0% | 1,323,840 | 241 | 0 | 237 | 4 | 0.0% |
| Other revenues and income | 8,147 | 1,847 | 12 | 1,745 | 90 | 22.7% | 15,490 | 1,969 | 12 | 1,873 | 84 | 12.7% |
| Raw materials, consumables and goods |
(431,363) | (15,169) | 0 (15,122) | (47) | 3.5% | (623,790) (30,903) | (2) (30,692) | (209) | 5.0% | |||
| Other operating costs | (195,383) | (4,594) | (3,740) | (411) | (443) | 2.4% | (229,551) | (2,821) | (1,698) | (500) | (623) | 1.2% |
| Personnel expenses | (202,082) | (2,248) | (2,248) | 0 | 0 | 1.1% | (235,343) | (4,169) | (4,163) | (6) | 0 | 1.8% |
| Net interest income (expense) |
(14,168) | 18 | 18 | (1) | 1 | -0.1% | (6,703) | 8 | (12) | (1) | 21 | -0.1% |
* Other related parties include key management personnel of the entity and other related parties.
Sales of products, supply of services and the transfer of fixed assets between Group companies were carried out at prices reflecting fair market conditions. The trading volumes reflect the internationalisation process aimed at constantly improving both operating and organisational standards and optimising synergies within the Company. From a financial standpoint, the subsidiaries operate independently, although some benefit from various forms of centralised financing. Since 2008, a zero-balance cash-pooling system has been effective, with Brembo S.p.A. as the pool leader. In 2013, an additional cash pooling arrangement was put in place, denominated in CNY, with Brembo Nanjing Brake Systems Co. Ltd. as pooler and Brembo Nanjing Automobile Components Co. Ltd., Qingdao Brembo Trading Co. Ltd. and Brembo Huilian (Langfang) Brake Systems Co. Ltd. as participants. The cash pooling is entirely based in China, and Citibank China is the service provider.
The key figures of Group companies are commented upon in the sections of the Directors' Report on Operations "Group Structure" and "Performance of Brembo Companies".
| COMPANY | HEADQUARTERS | SHARE CAPITAL | STAKE HELD | BY GROUP COMPANIES | ||
|---|---|---|---|---|---|---|
| Brembo S.p.A. | Curno (Bergamo) | Italy | Eur | 34,727,914 | ||
| AP Racing Ltd. | Coventry | United Kingdom | Gbp | 135,935 | 100% Brembo S.p.A. | |
| Brembo Deutschland GmbH | Leinfelden Echterdingen |
Germany | Eur | 25,000 | 100% Brembo S.p.A. | |
| Brembo North America Inc. | Wilmington, Delaware |
USA | Usd | 33,798,805 | 100% Brembo S.p.A. | |
| Brembo Czech S.r.o. | Ostrava-Hrabová | Czech Republic | Czk | 605,850,000 | 100% Brembo S.p.A. | |
| La.Cam (Lavorazioni Camune) S.r.l. | Stezzano (Bergamo) |
Italy | Eur | 100,000 | 100% Brembo S.p.A. | |
| Qingdao Brembo Trading Co. Ltd. | Qingdao | China | Cny | 1,365,700 | 100% Brembo S.p.A. | |
| Brembo Japan Co. Ltd. | Tokyo | Japan | Jpy | 11,000,000 | 100% Brembo S.p.A. | |
| Brembo Poland Spolka Zo.o. | Dąbrowa Górnicza | Poland | Pln | 144,879,500 | 100% Brembo S.p.A. | |
| Brembo Scandinavia A.B. | Göteborg | Sweden | Sek | 4,500,000 | 100% Brembo S.p.A. | |
| Brembo Nanjing Brake Systems Co. Ltd. | Nanjing | China | Cny | 492,030,169 | 100% Brembo S.p.A. | |
| Brembo Russia Llc. | Moscow | Russia | Rub | 1,250,000 | 100% Brembo S.p.A. | |
| Brembo Argentina S.A. in dissolution | 98.62% Brembo S.p.A. | |||||
| and winding up procedure | Buenos Aires | Argentina | Ars | 62,802,000 | 1.38% Brembo do Brasil Ltda. | |
| 49% Brembo S.p.A. | ||||||
| Brembo México S.A. de C.V. | Apodaca | Mexico | Usd | 20,428,836 | 51% Brembo North America Inc. | |
| Brembo (Nanjing) Automobile Components | Nanjing | China | Cny | 235,194,060 | 60% Brembo S.p.A. | |
| Co. Ltd. | 40% Brembo Brake India Pvt. Ltd. | |||||
| Brembo Brake India Pvt. Ltd. | Pune | India | Inr | 140,000,000 99.99% Brembo S.p.A. | ||
| Brembo do Brasil Ltda. | Betim | Brazil | Brl | 159,136,227 99.99% Brembo S.p.A. | ||
| Corporación Upwards '98 S.A. | Zaragoza | Spain | Eur | 498,043 | 68% Brembo S.p.A. | |
| Brembo Huilian (Langfang) Brake Systems Co. Ltd. |
Langfang | China | Cny | 170,549,133 | 66% | Brembo S.p.A. |
| Brembo SGL Carbon Ceramic Brakes S.p.A. | Stezzano (Bergamo) |
Italy | Eur | 4,000,000 | 50% | Brembo S.p.A. |
| Petroceramics S.p.A. | Milan | Italy | Eur | 123,750 | 20% | Brembo S.p.A. |
| Infibra Technologies S.r.l. | Pisa | Italy | Eur | 53,133 | 20% | Brembo S.p.A. |
| Brembo SGL Carbon Ceramic Brakes GmbH | Meitingen | Germany | Eur | 25,000 | 100% | Brembo SGL Carbon Ceramic Brakes S.p.A. |
The Group had no commitments at 30 June 2020.
Pursuant to Consob Notice No. 6064293 dated 28 July 2006, it is hereby specified that during the first half of 2020 the Company did not carry out any atypical and/or unusual transactions, as defined by the said Notice.
On 23 July 2020, the equity swap derivative contract signed in May was finalised. Accordingly, Brembo S.p.A. acquired 20 million shares in Pirelli S.p.A. for a total consideration of €75,454 thousand, increasing its stake in the company to 4.78%.
No other significant events occurred after the end of the first half of the year and up to 29 July 2020.
The changes in property, plant and equipment are shown in the table below and described in this section.
| Plant and | Industrial and commercial |
Assets in course of construction and payments on |
|||||
|---|---|---|---|---|---|---|---|
| (euro thousand) | Land | Buildings | machinery | equipment | Other assets | account | Total |
| Historical cost | 31,301 | 398,384 | 1,261,071 | 227,951 | 63,006 | 108,796 | 2,090,509 |
| Accumulated depreciation | 0 | (109,663) | (711,554) | (186,503) | (38,822) | 0 | (1,046,542) |
| Write-down provision | 0 | (13) | (2,242) | 0 | 0 | (375) | (2,630) |
| Balance at 1 January 2019 | 31,301 | 288,708 | 547,275 | 41,448 | 24,184 | 108,421 | 1,041,337 |
| Changes: | |||||||
| Translation differences | 71 | 2,176 | 4,063 | 194 | 169 | 877 | 7,550 |
| Reclassification | 0 | 11,830 | 42,129 | 3,353 | (194) | (57,090) | 28 |
| Acquisitions | 8 | 2,268 | 22,466 | 5,939 | 1,689 | 38,306 | 70,676 |
| Disposals | 0 | (768) | (702) | (37) | (13) | (166) | (1,686) |
| Other | 0 | 0 | (901) | (40) | (3) | (2) | (946) |
| Depreciation | 0 | (8,986) | (54,312) | (9,404) | (2,457) | 0 | (75,159) |
| Impairment losses | 0 | 0 | (8) | 0 | 0 | (59) | (67) |
| Total changes | 79 | 6,520 | 12,735 | 5 | (809) | (18,134) | 396 |
| Historical cost | 31,380 | 414,797 | 1,326,160 | 236,905 | 63,792 | 90,667 | 2,163,701 |
| Accumulated depreciation | 0 | (119,556) | (763,893) | (195,452) | (40,417) | 0 | (1,119,318) |
| Write-down provision | 0 | (13) | (2,257) | 0 | 0 | (380) | (2,650) |
| Balance at 30 June 2019 | 31,380 | 295,228 | 560,010 | 41,453 | 23,375 | 90,287 | 1,041,733 |
| Historical cost | 31,911 | 433,396 | 1,406,365 | 250,247 | 68,480 | 63,986 | 2,254,385 |
| Accumulated depreciation | 0 | (128,980) | (811,555) | (203,968) | (42,830) | 0 | (1,187,333) |
| Write-down provision | 0 | (13) | (2,404) | (18) | 0 | (310) | (2,745) |
| Balance at 1 January 2020 | 31,911 | 304,403 | 592,406 | 46,261 | 25,650 | 63,676 | 1,064,307 |
| Changes: | |||||||
| Translation differences | (27) | (4,727) | (11,112) | (948) | (229) | (1,914) | (18,957) |
| Reclassification | 294 | 2,224 | 26,967 | 5,459 | 330 | (38,474) | (3,200) |
| Acquisitions | 0 | 1,592 | 13,219 | 3,203 | 686 | 36,507 | 55,207 |
| Disposals | 0 | 0 | (194) | (224) | 0 | (77) | (495) |
| Depreciation | 0 | (9,519) | (57,621) | (9,998) | (2,773) | 0 | (79,911) |
| Impairment losses | 0 | 0 | 0 | 0 | 0 | (15) | (15) |
| Total changes | 267 | (10,430) | (28,741) | (2,508) | (1,986) | (3,973) | (47,371) |
| Historical cost | 32,178 | 429,751 | 1,414,597 | 255,039 | 68,596 | 59,999 | 2,260,160 |
| Accumulated depreciation | 0 | (135,766) | (848,533) | (211,268) | (44,932) | 0 | (1,240,499) |
| Write-down provision | 0 | (12) | (2,399) | (18) | 0 | (296) | (2,725) |
| Balance at 30 June 2020 | 32,178 | 293,973 | 563,665 | 43,753 | 23,664 | 59,703 | 1,016,936 |
In the first half of 2020, investments in property, plant and equipment amounted to €55,207 thousand, including €36,507 thousand in assets in course of construction. Net disposals amounted to €495 thousand and refer to the normal cycle of machinery replacement, as it becomes unusable in production processes.
Total depreciation charges for the first half of 2020 amounted to €79,911 thousand (€75,159 thousand at 30 June 2019).
The following table shows the movements in item "Right of use assets":
| (euro thousand) | Land | Buildings | Other assets | Total |
|---|---|---|---|---|
| Historical cost | 0 | 0 | 204 | 204 |
| Accumulated depreciation | 0 | 0 | (99) | (99) |
| Balance at 1 January 2019 | 0 | 0 | 105 | 105 |
| Changes: | ||||
| Translation differences | 0 | 10 | 8 | 18 |
| Effect of IFRS 16 FTA | 0 | 166,640 | 10,473 | 177,113 |
| New contracts/leases for the period | 0 | 8,652 | 7,034 | 15,686 |
| Unwinding of lease contract | 0 | (1,428) | (8) | (1,436) |
| Depreciation | 0 | (7,104) | (2,484) | (9,588) |
| Total changes | 0 | 166,770 | 15,023 | 181,793 |
| Historical cost | 0 | 173,634 | 17,703 | 191,337 |
| Accumulated depreciation | 0 | (6,864) | (2,575) | (9,439) |
| Balance at 30 June 2019 | 0 | 166,770 | 15,128 | 181,898 |
| Historical cost | 705 | 190,548 | 23,119 | 214,372 |
| Accumulated depreciation | 0 | (13,978) | (5,901) | (19,879) |
| Balance at 1 January 2020 | 705 | 176,570 | 17,218 | 194,493 |
| Changes: | ||||
| Translation differences | (25) | (2,901) | (266) | (3,192) |
| New contracts/leases for the period | 7 | 1,039 | 3,462 | 4,508 |
| Unwinding of lease contract | 0 | 0 | 27 | 27 |
| Other | 3,683 | 0 | 0 | 3,683 |
| Depreciation | (55) | (7,201) | (3,842) | (11,098) |
| Total changes | 3,610 | (9,063) | (619) | (6,072) |
| Historical cost | 4,595 | 188,305 | 25,686 | 218,586 |
| Accumulated depreciation | (280) | (20,798) | (9,087) | (30,165) |
| Balance at 30 June 2020 | 4,315 | 167,507 | 16,599 | 188,421 |
Note 13 provides information on the Group's financial commitment with respect to leased assets.
Changes in intangible assets are shown in the table below and described in this section.
| Intangible assets |
Industrial | Total other | ||||||
|---|---|---|---|---|---|---|---|---|
| Development | with indefinite | patents and | Other intangible | intangible | ||||
| (euro thousand) | costs | Goodwill A |
useful lives B |
Sub-total A+B |
similar rights C |
assets D |
assets C+D |
Total |
| Historical cost | 182,299 | 92,911 | 1,401 | 94,312 | 39,008 | 127,840 | 166,848 | 443,459 |
| Accumulated amortisation | (108,607) | 0 | 0 | 0 | (29,737) | (82,909) | (112,646) | (221,253) |
| Write-down provision | (388) | (11,587) | (3) | (11,590) | (1,089) | 0 | (1,089) | (13,067) |
| Balance at 1 January 2019 | 73,304 | 81,324 | 1,398 | 82,722 | 8,182 | 44,931 | 53,113 | 209,139 |
| Changes: | ||||||||
| Translation differences | 50 | 514 | 3 | 517 | 2 | 242 | 244 | 811 |
| Reclassification | 0 | 0 | 0 | 0 | 11 | 58 | 69 | 69 |
| Acquisitions | 14,009 | 0 | 0 | 0 | 401 | 4,210 | 4,611 | 18,620 |
| Other | 0 | 0 | 0 | 0 | 0 | (474) | (474) | (474) |
| Amortisation | (5,411) | 0 | 0 | 0 | (658) | (4,262) | (4,920) | (10,331) |
| Impairment losses | (982) | 0 | 0 | 0 | 0 | 0 | 0 | (982) |
| Total changes | 7,666 | 514 | 3 | 517 | (244) | (226) | (470) | 7,713 |
| Historical cost | 195,394 | 93,399 | 1,404 | 94,803 | 39,448 | 131,905 | 171,353 | 461,550 |
| Accumulated amortisation | (114,036) | 0 | 0 | 0 | (30,421) | (87,200) | (117,621) | (231,657) |
| Write-down provision | (388) | (11,561) | (3) | (11,564) | (1,089) | 0 | (1,089) | (13,041) |
| Balance at 30 June 2019 | 80,970 | 81,838 | 1,401 | 83,239 | 7,938 | 44,705 | 52,643 | 216,852 |
| Historical cost | 209,139 | 94,665 | 1,404 | 96,069 | 42,542 | 138,436 | 180,978 | 486,186 |
| Accumulated amortisation | (119,828) | 0 | 0 | 0 | (31,090) | (91,642) | (122,732) | (242,560) |
| Write-down provision | (2,070) | (12,183) | (3) | (12,186) | (1,089) | 0 | (1,089) | (15,345) |
| Balance at 1 January 2020 | 87,241 | 82,482 | 1,401 | 83,883 | 10,363 | 46,794 | 57,157 | 228,281 |
| Changes: | ||||||||
| Translation differences | 48 | (1,765) | (5) | (1,770) | (16) | (341) | (357) | (2,079) |
| Reclassification | 0 | 0 | 0 | 0 | 290 | (3,040) | (2,750) | (2,750) |
| Acquisitions | 10,934 | 0 | 0 | 0 | 175 | 3,059 | 3,234 | 14,168 |
| Disposals | 0 | 0 | 0 | 0 | (31) | (10) | (41) | (41) |
| Amortisation | (6,232) | 0 | 0 | 0 | (699) | (4,560) | (5,259) | (11,491) |
| Impairment losses | (985) | 0 | 0 | 0 | (1,000) | 0 | (1,000) | (1,985) |
| Total changes | 3,765 | (1,765) | (5) | (1,770) | (1,281) | (4,892) | (6,173) | (4,178) |
| Historical cost | 220,127 | 92,077 | 1,399 | 93,476 | 42,851 | 137,640 | 180,491 | 494,094 |
| Accumulated amortisation | (126,066) | 0 | 0 | 0 | (31,680) | (95,738) | (127,418) | (253,484) |
| Write-down provision | (3,055) | (11,360) | (3) | (11,363) | (2,089) | 0 | (2,089) | (16,507) |
| Balance at 30 June 2020 | 91,006 | 80,717 | 1,396 | 82,113 | 9,082 | 41,902 | 50,984 | 224,103 |
The item "Development costs" includes costs for development, internal and external, for a gross historical cost of €220,127 thousand. They refer to development projects, agreed upon with end customers and confirmed, that at the reporting date have neither been suspended or cancelled. During the reporting period, this item changed due to higher costs incurred for works begun in the first half of 2020, for orders received both during the half-year period and in previous periods, for which additional development costs were incurred; amortisation amounting to €6,232 thousand was recognised for development costs of orders regarding products that have already entered into production.
The gross amount includes development activities for projects underway totalling €45,351 thousand. The total amount of costs for capitalised internal works charged to the Statement of Income in the item "Costs for capitalised internal works" in the reporting period amounted to €10,975 thousand (first half of 2019: €14,035 thousand).
Impairment losses totalled €985 thousand (€982 thousand in the first half of 2019) and are recognised in the Statement of Income under "Amortisation, depreciation and impairment losses". Impairment losses refer to development costs incurred mainly by the Parent, Brembo S.p.A., in relation to projects that, consistent with the desire of the customer or Brembo, were not completed or underwent changes in terms of their end destination.
The item "Goodwill" arose from the following business combinations:
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Discs - Systems - Motorbikes: | ||
| Brembo North America Inc. (Hayes Lemmerz) | 15,243 | 15,194 |
| Brembo México S.A. de C.V. (Hayes Lemmerz) | 928 | 925 |
| Brembo Nanjing Brake Systems Co. Ltd. | 884 | 895 |
| Brembo Brake India Pvt. Ltd. | 7,781 | 8,212 |
| Brembo Huilian (Langfang) Brake Systems Co. Ltd. | 42,498 | 43,049 |
| After Market – Performance Group: | ||
| Corporación Upwards '98 (Frenco S.A.) | 2,006 | 2,006 |
| Ap Racing Ltd. | 11,377 | 12,201 |
| Total | 80,717 | 82,482 |
The change compared to 31 December 2019 was attributable to the change in consolidation differences.
CGUs are typically identified as the business being acquired and therefore tested for impairment. If the asset being tested for impairment refers to businesses operating in multiple business lines, it is attributed to all business lines in existence at the date of acquisition; this approach is consistent with valuations carried out at the acquisition date, which are typically based on the estimated recoverable amount of the entire investment.
The main assumptions used to determine the value in use of the cash-generating unit relate to the discount rate, the long-term growth rate and the cash flows arising on corporate business plans.
When preparing the Condensed Consolidated Six Monthly Financial Report, impairment tests are conducted on the values of recognised goodwill whenever impairment indicators are detected. Since the Covid-19 pandemic, in light of its intensity and unpredictability, represents an external potential impairment indicator, although the
Group had positive net operating income at 30 June 2020 and its market capitalisation was far in excess of its equity, the impairment tests were conducted by assessing the performance of the various CGUs on the basis of a more up-to-date forecast of the current year (5+7 Forecast) and multi-scenario assumptions for the subsequent years. The 5+7 Forecast was prepared by using specific short-term forecasts for each region and GBU (global business unit) of reference, including the effects of the cost containment measures and investments defined during the lockdown, in addition to the information obtained through constant direct contact with customers. With regard to the subsequent years, on the basis of the forecasts prepared prior to the pandemic, various corrections were applied according to the specific outflow rates of the various CGUs for the fourth quarter or the second half of 2020. A break-even scenario, below which specific assets would need to be written down, was also simulated.
The scenario deemed most representative of those prepared was then identified, without using an average or applying probability or weighting indices. The Group's discount rate (Group WACC) used was 6.31% (7.29% in 2019), which reflected the current market assessments of the time value of money and the risks specific to the asset in question. The previously mentioned impairment tests did not indicate the need to recognise any impairment loss.
A sensitivity analysis was also performed on the most representative scenario by applying a variation in the WACC from 6.31% to 6.81% or in the growth rate from 1.0% to 0.5% (or from 1.5% to 1.0%). In this case as well, no goodwill not previously written down would become impaired.
This item includes €1,030 thousand related to the Villar trademark, owned by the subsidiary Corporación Upwards '98 S.A., and for the remaining part the value of the trademark LF of Brembo Huilian (Langfang) Brake Systems Co. Ltd.
The value of trademarks was tested for impairment as described in the previous section. For information concerning impairment-testing methods, the reader is referred to the above discussion relating to goodwill.
Acquisitions of "Other intangible assets" totalled €3,234 thousand and refer for €175 thousand to the filing of specific patents and trademarks, and for the remaining amount mainly to the share of the investment for the reporting period associated with the development of new features regarding the new ERP (Enterprise Resource Planning) system within the Group and the acquisition of other IT applications.
This item includes the amounts attributable to the Group related to the shareholdings valued using the equity method. The following table shows all relevant movements:
| (euro thousand) | 31.12.2019 | Acquisitions and underwritings |
Write-ups/ Write-downs |
Dividends | 30.06.2020 |
|---|---|---|---|---|---|
| Brembo Group SGL Carbon Ceramic Brakes | 42,224 | 0 | 1,884 | (5,000) | 39,108 |
| Petroceramics S.p.A. | 925 | 0 | 36 | (80) | 881 |
| Infibra Technologies S.r.l. | 0 | 800 | 0 | 0 | 800 |
| Total | 43,149 | 800 | 1,920 | (5,080) | 40,789 |
It should be noted that the impact on the Statement of Income of valuation of shareholdings using the equity method is classified in two items: "Income (expense) from non-financial investments", attributable to the effect of the valuation using the equity method of the BSCCB Group, and "Interest income (expense) from investments", attributable to the valuation of associates using the equity method.
The investment in Brembo SGL Carbon Ceramic Brakes S.p.A. was written up by €1,884 thousand, mainly to account for net income for the period.
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Shareholdings in other companies | 106,687 | 1,788 |
| Receivables from associates | 3,017 | 3,716 |
| Derivatives | 70,820 | 712 |
| Other | 777 | 862 |
| Total | 181,301 | 7,078 |
This item is broken down as follows:
The item "Shareholdings in other companies" includes the 10% interest in International Sport Automobile S.a.r.l., the 1.20% interest in Fuji Co., and the 3.28% interest in E-Novia S.p.A.
In March 2020, Brembo adopted a non-speculative long-term approach and acquired a 2.22% stake (equal to €86,509 thousand) in the share capital of Pirelli S.p.A., a company that stands out in its sector as a player of excellence in terms of history, brand, leadership and pursuit of innovation. In the second quarter of 2020, Brembo acquired additional shares for €20,000 thousand, increasing its stake to 2.78%. At 30 June 2020, the equity investment was measured at fair value, pursuant to IFRS 9, leading to a €1,662 thousand impairment of its value and of Group Equity, as reported in the Consolidated Statement of Comprehensive Income.
The further change of €52 thousand on 31 December 2019 is attributable to the Parent's interest in consortium funds intended for research.
The item "Receivables from associates" includes the receivable deriving from the loan granted by Brembo to Innova Tecnologie S.r.l. in liquidazione, in which Brembo S.p.A. holds a 30% interest. The loan, the nominal amount of which is €9 million, was recognised for €3,017 thousand following the settlement agreement reached in 2016 with the majority shareholder of Innova Tecnologie S.r.l. in liquidazione, Impresa Fratelli Rota Nodari S.p.A. and Innova Tecnologie S.r.l. in liquidazione, and the subsequent €2,000 thousand reimbursement occurred in 2019 after the building was sold to third parties, as well as further €700 thousand in the first half of 2020. The residual value is deemed recoverable for €1,282 thousand, whereas the remaining part is covered by a provision for risks.
The item "Derivatives" refers to the fair value of derivative assets embedded in commercial contracts with customers to cover the exchange rate risk against USD and JPY. Moreover, an equity swap derivative contract with a nominal value of €70 million, maturing on 23 July 2020, for the purchase of an additional 20 million shares of Pirelli S.p.A., was entered into on 13 May 2020.
"Other" includes interest-free security deposits for utilities and car rental agreements.
This item is broken down as follows:
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Receivables from others | 14,000 | 12,589 |
| Income tax receivables | 324 | 278 |
| Non-income tax receivables | 34 | 34 |
| Total | 14,358 | 12,901 |
The item "Receivables from others" mainly includes the amounts related to contributions towards clients for the acquisition of long-term exclusive supply arrangements, which were released to the Statement of Income in accordance with the supply schedule for the clients.
Income tax receivables mostly refer to applications for tax refunds.
The net balance of deferred tax assets and liabilities at 30 June 2020 is broken down as follows:
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Deferred tax assets | 62,901 | 54,617 |
| Deferred tax liabilities | (28,318) | (28,410) |
| Total | 34,583 | 26,207 |
Deferred tax assets and liabilities were generated mainly due to temporary differences for capital gains with deferred taxation, other income items subject to future deductions or taxation, prior years' tax losses and other consolidation adjustments.
Movements for the period are reported in the following table:
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| Balance at beginning of period | 26,207 | 39,006 |
| Deferred tax liabilities generated | (1,246) | (615) |
| Deferred tax assets generated | 16,867 | 7,684 |
| Use of deferred tax assets and liabilities | (3,150) | (13,383) |
| Exchange rate fluctuations | (1,821) | 315 |
| Other movements | (2,274) | 342 |
| Balance at end of period | 34,583 | 33,349 |
The recognition of deferred tax assets was made by assessing the existence of the prerequisites for their future recovery based on updated strategic plans. In particular, it should be noted that the consolidated subsidiary
Brembo Poland Spolka Zo.o. is located in a "special economic zone" and is entitled to deduct a percentage from 25% to 50% of its investments from its current taxes owed through 2026. At 30 June 2020, the company had used all the existing credit at 31 December 2019 besides the credit accrued in the first half of 2020.
Brembo Czech S.r.o. has two tax incentive plans, one of CZK 132.6 million (expiring in 2021) and another of CZK 63.78 million (expiring in 2029), respectively, on which the company recognised deferred tax assets equivalent to the total value that is expected to be recovered.
It should also be noted that:
A breakdown of net inventories, which are stated net of the inventory write-down provision, is shown below:
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Raw materials | 160,691 | 143,177 |
| Work in progress | 70,012 | 68,010 |
| Finished products | 133,114 | 110,032 |
| Goods in transit | 15,418 | 20,984 |
| Total | 379,235 | 342,203 |
Movements in the inventory write-down provision are reported in the following table:
| (euro thousand) | 31.12.2019 | Provisions | Use/Release | Exchange rate fluctuations |
Reclassification | 30.06.2020 |
|---|---|---|---|---|---|---|
| Inventory write-down provision | 47,784 | 21,081 | (4,984) | (1,078) | 55 | 62,858 |
The inventory write-down provision is determined in order to align the cost of inventories to their estimated realisable value; the provision increased due to higher depreciation calculated on obsolete goods as a result of faster renewal of product ranges.
At 30 June 2020, the balance of trade receivables compared to the end of the previous year was as follows:
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Accounts receivable from customers | 345,334 | 389,845 |
| Receivables from associates and joint ventures | 1,986 | 2,080 |
| Total | 347,320 | 391,925 |
The bad debt risk is not concentrated in any one area, as the Group has a client portfolio spread across the various geographical areas in which it operates.
Accounts receivable from customers are recognised net of the provision for bad debts, which amounted to €5,325 thousand. Movements in the provision for bad debts are shown below:
| Exchange rate | ||||||
|---|---|---|---|---|---|---|
| (euro thousand) | 31.12.2019 | Provisions | Use/Release | fluctuations | Reclassification | 30.06.2020 |
| Provision for bad debts | 4,448 | 1,227 | (269) | (87) | 6 | 5,325 |
Brembo Group's maximum credit risk exposure is the book value of the gross financial assets recognised in the Statement of Financial Position net of any amounts offset in accordance with IAS 32 and impairment losses recognised in accordance with IFRS 9.
Brembo has no credit insurance contracts; however, its business partners are leading car and motorbike manufacturers with high credit standing.
To express the creditworthiness of financial assets the Group has elected to distinguish between clients who are listed or not listed on the stock exchange. Listed clients are those listed on a stock market, directly or indirectly controlled by a listed company or closely connected to listed companies.
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Listed clients | 267,902 | 318,086 |
| Unlisted clients | 84,743 | 78,287 |
| Total | 352,645 | 396,373 |
The following table provides details on trade receivables that have not been adjusted for impairment, broken down by maturity.
| (euro thousand) | 30.06.2020 | Write-down 2020 | 31.12.2019 | Write-down 2019 |
|---|---|---|---|---|
| Current | 247,002 | 0 | 293,047 | 0 |
| Expired up to 30 days | 3,842 | 0 | 7,983 | 0 |
| Expired by 30 to 60 days | 4,517 | 71 | 9,661 | 0 |
| Expired by over 60 days | 12,541 | 1,959 | 7,395 | 1,930 |
| Total | 267,902 | 2,030 | 318,086 | 1,930 |
| % ratio of expired receivables not written down | ||||
| to total exposure | 7.0% | 7.3% | ||
| Total expired receivables, not written down | 18,870 | 23,109 |
| (euro thousand) | 30.06.2020 | Write-down 2020 | 31.12.2019 | Write-down 2019 |
|---|---|---|---|---|
| Current | 74,329 | 0 | 69,450 | 30 |
| Expired up to 30 days | 1,190 | 0 | 2,346 | 2 |
| Expired by 30 to 60 days | 3,525 | 0 | 2,706 | 65 |
| Expired by over 60 days | 5,699 | 3,295 | 3,785 | 2,421 |
| Total | 84,743 | 3,295 | 78,287 | 2,518 |
| % ratio of expired receivables not written down | ||||
| to total exposure | 8.4% | 8.1% | ||
| Total expired receivables, not written down | 7,119 | 6,349 |
The increase in expired receivables from listed clients, referring essentially to leading car manufacturers, was mainly due to delays by the customer in accepting charges for development and equipment costs related to the lockdown due to the Covid-19 pandemic. These positions are expected to be recovered in the third quarter of 2020.
With regard to the portion of expired receivables from unlisted clients, most of this amount has already been defined and collected after the end of the first half of 2020.
This item is broken down as follows:
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Income tax receivables | 58,432 | 50,680 |
| Non-income tax receivables | 32,510 | 28,256 |
| Other receivables | 14,706 | 16,934 |
| Total | 105,648 | 95,870 |
The item "Income tax receivables" includes the receivable recognised by the Parent in prior years in relation to the application of an IRES refund, concerning the non-deductibility for IRAP purposes of personnel expenses, and other applications for IRES and IRAP refund totalling €4,610 thousand, besides the €15,037 thousand R&D tax credit calculated pursuant to Ministerial Decree dated 27 May 2015.
The item "Non-income tax receivables" primarily includes VAT receivables of subsidiaries located in Poland and China.
"Other receivables" mainly include advances paid to suppliers for goods and services, and other accrued income.
This item is broken down as follows:
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Derivatives | 1,713 | 768 |
| Security deposits | 524 | 656 |
| Other receivables | 115 | 15 |
| Total | 2,352 | 1,439 |
The item "Derivatives" refers to the fair value of derivative assets embedded in commercial contracts with customers to cover the exchange rate risk against USD and JPY.
Cash and cash equivalents include:
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Bank and postal accounts | 415,054 | 304,587 |
| Cash-in-hand and cash equivalents | 200 | 206 |
| Total cash and cash equivalents | 415,254 | 304,793 |
| Payables to banks: overdrafts and foreign currency advances | (140,889) | (136,234) |
| Cash and cash equivalents from the Statement of Cash Flows | 274,365 | 168,559 |
The items listed above can be converted readily into cash and are not exposed to a significant risk that their value may change. It is deemed that the book value of cash and cash equivalents approximates the fair value at the reporting date.
It should be noted that, with regard to the amount recognised in the Statement of Cash Flows, interest paid in the half year totalled €6,724 thousand (€6,382 thousand at 30 June 2019).
Group consolidated equity at 30 June 2020 increased by €14,204 thousand compared to 31 December 2019. Movements are given in the relevant statement within the Condensed Consolidated Six Monthly Financial Report.
The subscribed and paid up share capital amounted to €34,728 thousand at 30 June 2020. It is divided into 333,922,250 ordinary shares.
The table below shows the composition of the share capital and the number of shares outstanding at 31 December 2019 and 30 June 2020:
| (No. of shares) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Ordinary shares issued | 333,922,250 | 333,922,250 |
| Own shares | (10,035,000) | (10,035,000) |
| Total shares outstanding | 323,887,250 | 323,887,250 |
As part of Brembo's buy-back plan, the Company neither purchased nor sold own shares in the first half of 2020.
The General Shareholders' Meeting of the Parent Brembo S.p.A. held on 23 April 2020 approved the Financial Statements for the financial year ended 31 December 2019, allocating net income for the year amounting to €179,152,879.80 thousand as follows:
This item changed due to dividends paid to minority shareholders, as well as to the change in consolidation differences.
This item is broken down as follows:
| 30.06.2020 | 31.12.2019 | |||||
|---|---|---|---|---|---|---|
| (euro thousand) | Due within one year |
Due after one year |
Total | Due within one year |
Due after one year |
Total |
| Payables to banks: | ||||||
| - overdrafts and advances | 140,889 | 0 | 140,889 | 136,234 | 0 | 136,234 |
| - loans | 102,034 | 579,291 | 681,325 | 121,421 | 196,558 | 317,979 |
| Total | 242,923 | 579,291 | 822,214 | 257,655 | 196,558 | 454,213 |
| Lease liabilities | 19,204 | 171,117 | 190,321 | 18,700 | 177,283 | 195,983 |
| Payables to other financial institutions | 274 | 930 | 1,204 | 462 | 1,164 | 1,626 |
| Derivatives | 1,366 | 0 | 1,366 | 599 | 0 | 599 |
| Total | 20,844 | 172,047 | 192,891 | 19,761 | 178,447 | 198,208 |
The following table provides a breakdown of "Payables to banks":
| (euro thousand) | Amount at 31.12.2019 |
Amount at 30.06.2020 |
Portion due within one year |
Portion due between 1 and 5 years |
Portion due after 5 years |
|---|---|---|---|---|---|
| Payables to banks: | |||||
| Banca Popolare di Sondrio loan (€75 million) | 56,233 | 43,739 | 24,992 | 18,747 | 0 |
| BNL loan (€80 million) | 54,967 | 38,316 | 28,319 | 9,997 | 0 |
| Mediobanca loan (€130 million) | 44,964 | 24,986 | 24,986 | 0 | 0 |
| BNL loan (€300 million) | 0 | 299,220 | 0 | 149,420 | 149,800 |
| Banca Popolare di Sondrio loan (€125 million) | 0 | 125,123 | 223 | 74,914 | 49,986 |
| BNL loan (€100 million) | 99,889 | 99,923 | 52 | 62,383 | 37,488 |
| UBI loan (USD 35 million) | 20,753 | 15,618 | 10,419 | 5,199 | 0 |
| Banamex loan (USD 30 million) | 22,231 | 17,813 | 8,930 | 8,883 | 0 |
| EIB loan (€30 million, New Foundry Project) | 7,620 | 5,715 | 3,810 | 1,905 | 0 |
| Citi Nanjing loan (RMB 100 million) | 11,322 | 10,872 | 303 | 10,569 | 0 |
| Total payables to banks | 317,979 | 681,325 | 102,034 | 342,017 | 237,274 |
The most significant transactions finalised in the first half of 2020 included two medium-term loans granted by BNL in the amount of €300 million and Banca Popolare di Sondrio in the amount of €125 million.
It should be noted that several loans require compliance with certain financial covenants. At the end of the reporting period, all of these covenants had been met. Even on the basis of the most updated estimates for 2020, all the required financial ratios are expected to be met. At 30 June 2020, there was no financial debt secured by collateral.
The following table shows the structure of loans, broken down by annual interest rate and currency at 30 June 2020:
| 30.06.2020 | 31.12.2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| (euro thousand) | Fixed rate | Variable rate | Total | Fixed rate | Variable rate | Total | ||
| Euro | 198,649 | 439,577 | 638,226 | 240,551 | 24,749 | 265,300 | ||
| US Dollar | 0 | 33,431 | 33,431 | 0 | 42,983 | 42,983 | ||
| Chinese Renmimbi | 0 | 10,872 | 10,872 | 0 | 11,322 | 11,322 | ||
| Total | 198,649 | 483,880 | 682,529 | 240,551 | 79,054 | 319,605 |
The average variable rate applicable to the Group's debt is 1.20% and the average fixed rate is 0.83%.
The Brembo Group entered into an IRS directly with the Parent, Brembo S.p.A., for a remaining notional amount of €100 million at 30 June 2020, hedging the change in interest rate risk associated with a specific outstanding loan. This IRS falls within the requirement set forth in the accounting standards relating to hedge accounting (cash flow hedge).
The €1,282 thousand change in fair value at 30 June 2020 was recognised as a component of comprehensive income, net of the tax effect, given that the hedge is fully effective.
Changes in the "Cash flow hedge reserve" are shown below, gross of tax effects:
| 30.06.2020 |
|---|
| 225 |
| 1,282 |
| (155) |
| 1,352 |
The following table shows the breakdown of "Other financial liabilities".
| (euro thousand) | Amount at 31.12.2019 |
Amount at 30.06.2020 |
Portion due within one year |
Portion due between 1 and 5 years |
Portion due after 5 years |
|---|---|---|---|---|---|
| Other financial liabilities: | |||||
| Payables to other financial institutions: | |||||
| MIUR BBW loan | 188 | 0 | 0 | 0 | 0 |
| Libra loan | 75 | 69 | 11 | 46 | 12 |
| Ministerio Industria España | 1,363 | 1,135 | 263 | 872 | 0 |
| Total payables to other financial institutions | 1,626 | 1,204 | 274 | 918 | 12 |
| Lease liabilities | 195,983 | 190,321 | 19,204 | 59,514 | 111,603 |
| Total other financial liabilities | 197,609 | 191,525 | 19,478 | 60,432 | 111,615 |
The following table shows the reconciliation of the net financial position at 30 June 2020 (€597,499 thousand) and at 31 December 2019 (€346,189 thousand) based on the layout prescribed by Consob Communication No. 6064293 of 28 July 2006:
| (euro thousand) | 30.06.2020 | 31.12.2019 | |
|---|---|---|---|
| A | Cash | 200 | 206 |
| B | Other cash equivalents | 415,054 | 304,587 |
| C | Derivatives and securities held for trading | 1,713 | 768 |
| D | LIQUIDITY (A+B+C) | 416,967 | 305,561 |
| E | Current financial receivables | 639 | 671 |
| F | Current payables to banks | 140,889 | 136,234 |
| G | Current portion of non-current debt | 102,034 | 121,421 |
| H | Other current financial debts and derivatives | 20,844 | 19,761 |
| I | CURRENT FINANCIAL DEBT (F+G+H) | 263,767 | 277,416 |
| J | NET CURRENT FINANCIAL DEBT (I–E–D) | (153,839) | (28,816) |
| K | Non-current payables to banks | 579,291 | 196,558 |
| L | Bonds issued | 0 | 0 |
| M | Other non-current financial debts and derivatives | 172,047 | 178,447 |
| N | NON-CURRENT FINANCIAL DEBT (K+L+M) | 751,338 | 375,005 |
| O | NET FINANCIAL DEBT (J+N) | 597,499 | 346,189 |
The various components that gave rise to the change in net financial position during the reporting period are presented in the Statement of Cash Flows in the Directors' Report on Operations.
This item is broken down as follows:
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Social security payables | 1,659 | 1,087 |
| Payables to employees | 8,318 | 5,997 |
| Other payables | 3,063 | 2,388 |
| Total | 13,040 | 9,472 |
Items "Payables to employees", "Social security payables" and "Other payables" include the liability associated with the 2019-2021 three-year incentive plan reserved for top managers, to be settled in 2022.
This item is broken down as follows:
| (euro thousand) | 31.12.2019 | Provisions | Use/Release | Exchange rate fluctuations |
Other | 30.06.2020 |
|---|---|---|---|---|---|---|
| Provisions for contingencies and charges |
4,891 | 1,070 | (354) | (283) | 4 | 5,328 |
| Provision for product warranties |
9,655 | 6,256 | (2,799) | (179) | 0 | 12,933 |
| Total | 14,546 | 7,326 | (3,153) | (462) | 4 | 18,261 |
| of which short-term | 2,052 | 2,480 |
Provisions totalled €18,261 thousand, including, in addition to the provision for product warranties, the supplemental customer indemnities — in connection with the Italian agency contract — and the valuation of risks related to litigation underway.
Group companies provide post-employment benefits through defined contribution plans or defined benefit plans. In the case of defined contribution plans, the Group companies pay contributions to public or private insurance institutes based on legal or contractual obligations or on a voluntary basis. Once such contributions have been paid, the companies have no further payment obligations.
Defined contribution plans include a plan relating to Brembo Huilian (Langfang) Brake Systems (Langfang) Co. Ltd and reserved for approximately 70 early retired employees, who have guaranteed monthly payments until they reach pension age.
The employees of the UK subsidiary AP Racing Ltd. have the benefit of a corporate pension plan (AP Racing Pension Scheme), which is made up of two sections: the first is a defined contribution plan for employees hired after 1 April 2001, and the second is a defined benefit plan for those already in service at 1 April 2001 (and previously covered by the AP Group Pension Fund). The defined benefit plan is funded by employer and employee contributions made to a trustee that is legally separate from the enterprise providing benefits to its employees.
Brembo México S.A. de C.V., Brembo Japan Co. Ltd. and Brembo Brake India Pvt. Ltd. offer to their employees specific pension plans that qualify as defined benefit plans.
Unfunded defined benefit plans include also the "Employees' leaving indemnity" provided by the Group's Italian companies, in accordance with current applicable regulations.
The value of funds is calculated on an actuarial basis using the "Projected Unit Credit Method". The item "Other employee provisions" also refers to other employee benefits.
Liabilities at 30 June 2020 are given in the table below:
| (euro thousand) | 31.12.2019 | Provisions | Use/Release | Interest expense |
Exchange rate fluctuations |
Other | 30.06.2020 |
|---|---|---|---|---|---|---|---|
| Employees' leaving entitlement | 18,755 | 0 | (409) | 104 | 0 | (324) | 18,126 |
| Defined benefit plans and other long-term benefits |
5,362 | 235 | (521) | 95 | (484) | 1,304 | 5,991 |
| Defined contribution plans | 1,467 | 971 | (1,058) | 0 | (26) | 0 | 1,354 |
| Total | 25,584 | 1,206 | (1,988) | 199 | (510) | 980 | 25,471 |
At 30 June 2020, trade payables were as follows:
| Total | 365,793 | 473,996 |
|---|---|---|
| Payables to associates and joint ventures | 6,147 | 6,956 |
| Trade payables | 359,646 | 467,040 |
| (euro thousand) | 30.06.2020 | 31.12.2019 |
This item reflects the net amount due for the current taxes of the Group's companies.
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Tax payables | 2,753 | 6,135 |
Other current payables at 30 June 2020 are given in the table below:
| (euro thousand) | 30.06.2020 | 31.12.2019 |
|---|---|---|
| Tax payables other than current taxes | 10,189 | 9,653 |
| Social security payables | 16,724 | 18,750 |
| Payables to employees | 44,377 | 56,089 |
| Other payables | 66,648 | 58,781 |
| Total | 137,938 | 143,273 |
"Other payables" also include deferred income in the form of public grants received and released to the Statement of Income in accordance with the related amortisation plans to which they refer, in addition to deferred income amounting to €40,427 thousand (€35,436 thousand at 31 December 2019) in the form of grants received by customers towards brake system development activities suspended until the conclusion of the development activity and then recognised over the useful lives of the products to which the grants refer.
The item is broken down as follows:
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| Revenue from sales of brake systems | 937,430 | 1,304,716 |
| Revenue from equipment | 6,217 | 9,643 |
| Revenue from study and design activities | 6,973 | 8,828 |
| Revenue from royalties | 493 | 653 |
| Total | 951,113 | 1,323,840 |
The breakdown of Group sales by geographic area of destination and by application is provided in the Directors' Report on Operations.
These are made up of:
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| Miscellaneous recharges | 2,070 | 3,050 |
| Gains on disposal of assets | 558 | 1,284 |
| Miscellaneous grants | 3,312 | 8,467 |
| Other revenues | 2,207 | 2,689 |
| Total | 8,147 | 15,490 |
The item "Miscellaneous grants" includes grants for research and development projects amounting to €135 thousand and a tax credit for research and development investment of €2,385 thousand, calculated pursuant to Ministerial Decree of 27 May 2015.
This item refers to the capitalisation of development costs incurred during the period, amounting to €10,975 thousand (first half of 2019: €14,035 thousand).
The item is broken down as follows:
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| Purchase of raw materials, semi-finished and finished products | 389,315 | 566,341 |
| Purchase of consumables | 42,048 | 57,449 |
| Total | 431,363 | 623,790 |
Income (expense) from non-financial investments amounted to €1,884 thousand and is attributable to the effects of valuing the investment in the BSCCB Group using the equity method (first half of 2019: €5,901 thousand).
These costs are broken down as follows:
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| Transports | 21,549 | 28,807 |
| Maintenance, repairs and utilities | 62,774 | 75,808 |
| Contracted work | 34,534 | 41,700 |
| Rents (where IFRS 16 is not applicable) | 9,648 | 11,511 |
| Other operating costs | 66,878 | 71,725 |
| Total | 195,383 | 229,551 |
The item "Other operating costs" mainly includes the costs of travels, quality-related costs, insurance costs, as well as fees for legal, technical and commercial consulting.
The breakdown of personnel expenses is as follows:
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| Wages and salaries | 145,455 | 168,632 |
| Social security contributions | 33,384 | 37,617 |
| Employees' leaving entitlement and other personnel provisions | 6,389 | 7,781 |
| Other costs | 16,854 | 21,313 |
| Total | 202,082 | 235,343 |
The average number and the period-end number of Group employees by category were as follows:
| Managers | White-collar | Blue-collars | Total | |
|---|---|---|---|---|
| H1 2020: average | 143 | 3,118 | 7,571 | 10,832 |
| H1 2019: average | 142 | 3,133 | 7,380 | 10,655 |
| Change | 1 | (15) | 191 | 177 |
| Total at 30 June 2020 | 142 | 3,128 | 7,461 | 10,731 |
| Total at 30 June 2019 | 142 | 3,132 | 7,305 | 10,579 |
| Change | 0 | (4) | 156 | 152 |
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| Amortisation of intangible assets: | ||
| Development costs | 6,232 | 5,411 |
| Industrial patents and similar rights for original work | 527 | 495 |
| Licences, trademarks and similar rights | 172 | 163 |
| Other intangible assets | 4,560 | 4,262 |
| Total | 11,491 | 10,331 |
| Depreciation of property, plant and equipment: | ||
| Buildings | 9,519 | 8,986 |
| Plant and machinery | 57,621 | 54,312 |
| Industrial and commercial equipment | 9,998 | 9,404 |
| Other property, plant and equipment | 2,773 | 2,457 |
| Right of use assets | 11,098 | 9,588 |
| Total | 91,009 | 84,747 |
| Impairment losses: | ||
| Property, plant and equipment | 15 | 67 |
| Intangible assets | 1,985 | 982 |
| Total | 2,000 | 1,049 |
| TOTAL AMORTISATION, DEPRECIATION AND IMPAIRMENT LOSSES | 104,500 | 96,127 |
The item is broken down as follows:
Further information on item "Impairment losses" is given in Note 2 of these Explanatory Notes.
This item is broken down as follows:
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| Exchange rate gains | 86,674 | 22,984 |
| Interest income from employee's leaving entitlement and other personnel provisions | 350 | 413 |
| Interest income | 1,192 | 1,095 |
| Total interest income | 88,216 | 24,492 |
| Exchange rate losses | (94,263) | (21,939) |
| Interest expense from employees' leaving entitlement and other personnel provisions | (549) | (703) |
| Lease interest expense | (2,508) | (2,489) |
| Interest expense | (5,064) | (6,064) |
| Total interest expense | (102,384) | (31,195) |
| TOTAL NET INTEREST INCOME (EXPENSE) | (14,168) | (6,703) |
An analysis of the item is provided in the comment to the Statement of Financial Position item presented in Note 3 of these Explanatory notes.
This item is broken down as follows:
| (euro thousand) | 30.06.2020 | 30.06.2019 |
|---|---|---|
| Current taxes | 17,092 | 32,192 |
| Deferred tax (assets) and liabilities | (12,471) | 6,314 |
| Prior years' taxes and other tax payables | (118) | (1,515) |
| Total | 4,503 | 36,991 |
The Group's actual tax rate was 18.2% (22.2% at 31 December 2019 - 22.0% at 30 June 2019).
Basic earnings per share were €0.06 at 30 June 2020 (€0.38 at 30 June 2019), and were calculated by dividing the net income or loss for the period attributable to holders of ordinary equity instruments of the Parent by the weighted average number of ordinary shares outstanding in the first half of 2020, amounting to 323,887,250 (325,187,250 in the first half of 2019). Diluted earnings per share are identical to basic earnings per share inasmuch as no share capital transactions were undertaken in the reporting period.
On 30 June 2019, Brembo discontinued its industrial operations at the Buenos Aires plant. As a result, the subsidiary Brembo Argentina S.A. has been placed in liquidation. Brembo took this decision as it was impossible to boost new projects because of the downtrend experienced by the Argentinian automotive sector and its quite discouraging recovery market, as well as because all main manufacturers decided not to proceed with industrial projects nor to launch new models.
Consequently, in accordance with IFRS 5, the Company's asset and liability items, net of intercompany payables, have been reclassified to "Assets/Liabilities from discontinued operations", whereas the Statement of Income items have been reclassified to "Result from discontinued operations", as shown here below.
| (euro thousand) | 30.06.2020 |
|---|---|
| Revenue from contracts with customers | 211 |
| Other operating costs | (160) |
| Personnel expenses | (29) |
| GROSS OPERATING INCOME | 22 |
| Depreciation, amortisation and impairment losses | 0 |
| NET OPERATING INCOME | 22 |
| Net interest income (expense) | 40 |
| RESULT FROM DISCONTINUED OPERATIONS | 62 |
| Trade receivables | 188 |
| Other receivables and current assets | 12 |
| Cash and cash equivalents | 1,252 |
| TOTAL CURRENT ASSETS | 1,452 |
| TOTAL ASSETS | 1,452 |
| Non-current provisions | (20) |
| TOTAL NON-CURRENT LIABILITIES | (20) |
| Trade payables | (152) |
| Other current payables | (87) |
| TOTAL CURRENT LIABILITIES | (239) |
| TOTAL LIABILITIES | (259) |
Stezzano, 29 July 2020
On behalf of the Board of Directors
The Executive Deputy Chairman Matteo Tiraboschi
EY S.p.A. Viale Papa Giovanni XXIII, 48 24121 Bergamo
Tel: +39 035 3592111 Fax: +39 035 3592550 ey.com
Review report on the interim condensed consolidated six monthly financial statements (Translation from the original Italian text)
To the Shareholders of Brembo S.p.A.
We have reviewed the condensed consolidated six monthly financial statements, comprising the statement of financial position, the statements of income, the statement of comprehensive income, the statement of changes in equity and cash flows and the related explanatory notes of Brembo S.p.A. and its subsidiaries (the " Brembo Group") as of June 30, 2020. The Directors of Brembo S.p.A. are responsible for the preparation of the interim condensed consolidated six monthly financial statements in conformity with the International Financial Reporting Standard applicable to interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.
We conducted our review in accordance with review standards recommended by Consob (the Italian Stock Exchange Regulatory Agency) in its Resolution no. 10867 of 31 July 1997. A review of interim condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (ISA Italia) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the interim condensed consolidated financial statements.
Based on our review, nothing has come to our attention that causes us to believe that the interim condensed consolidated financial statements of Brembo Group as of June 30, 2020 are not prepared, in all material respects, in conformity with the International Financial Reporting Standard applicable to interim financial reporting (IAS 34) as adopted by the European Union.
Bergamo, July 29, 2020
EY S.p.A. Signed by: Marco Malaguti, Statutory Auditor
This report has been translated into the English language solely for the convenience of international readers
EY S.p.A. Sede Legale: Via Lombardia, 31 - 00187 Roma Capitale Sociale Euro 2.525.000,00 i.v. Iscritta alla S.O. del Registro delle Imprese presso la C.C.I.A.A. di Roma Codice fiscale e numero di iscrizione 00434000584 - numero R.E.A. 250904 P.IVA 00891231003 Iscritta al Registro Revisori Legali al n. 70945 Pubblicato sulla G.U. Suppl. 13 - IV Serie Speciale del 17/ 2/ 1998 Iscritta all'Albo Speciale delle società di revisione Consob al progressivo n. 2 delibera n.10831 del 16/ 7/ 1997
A member firm of Ernst & Young Global Limited
Furthermore, the interim Report on Operations contains a reliable analysis of significant related party transactions.
Stezzano, 29 July 2020
Matteo Tiraboschi Andrea Pazzi
Executive Deputy Chairman Manager in Charge of the Company's Financial Reports
Soprattutto per chi ha un pensiero responsabile nel guardare al domani come Brembo. Su questo tema si dipana un racconto, che incrocia illustrazioni ed elementi testuali, ispirato all'arte moderna e contemporanea, dove emergono con nitidezza gli aspetti di innovazione, energia e dinamicità riconoscibili in Brembo, nel suo riflettere e nel suo agire. L'impegno di Brembo nei confronti della sostenibilità è tangibile e concreto in ogni sua attività. Dall'innovazione tecnologica dei processi, al fine di ridurre i consumi e l'impatto ambientale, al riciclo e smaltimento, nel costante rispetto dell'ambiente, fino alla tutela del bene più prezioso, l'uomo. La cura dei rapporti umani, della qualità del lavoro e della vita stessa dai propri dipendenti, come l'aiuto di comunità svantaggiate sono un dogma per Brembo. Il racconto ci descrive numeri, azioni, pensieri e strategie, Above all for those who, like Brembo, take a responsible view of the future. It is against this backdrop that a story unfolds, interweaving illustrations and textual elements, drawing inspiration from modern and contemporary art, and clearly bringing into focus the aspects of innovation, energy and dynamism that set Brembo apart, in its way of thinking and acting. Brembo's commitment to sustainability is tangible and concrete in its every activity. From technological innovation of processes —aimed at reducing consumption and environmental impact— and waste recycling and disposal —ensuring constant respect for the environment through to its most valuable asset: people. Tending to human relationships and to the quality of the work and life of its employees, together with helping disadvantaged communities, are unquestioned values for Brembo. The story provides us with numbers, actions, concepts and
dove il filo conduttore è, sempre, un pensiero responsabile.
strategies, all tied together by responsible thinking.
Lo stile delle illustrazioni richiama immediatamente il Futurismo, facendone proprie le tematiche: velocità, dinamismo, forza, potenza, sintesi, macchina e tecnologia. The style of the illustrations immediately evokes Futurism, adopting its themes: speed, dynamism, strength, power, concision, machine and technology.
Linee forti e dinamiche tagliano le immagini fondendo tra loro i soggetti che le compongono in un delicato ed elegante equilibrio geometrico. Strong, dynamic lines cut across the images, fusing their subjects into a delicate, elegant composition in geometric balance.
La tecnologia, che procede inarrestabile nella sua evoluzione, pone ininterrottamente nuovi traguardi e nuove sfide, da affrontare e da vincere. I valori originali restano immutati, solidi e fermi, ma le sfide cambiano, adeguandosi alle esigenze di un mondo che progredisce rapidamente. Technology's unstoppable development constantly sets new milestones and poses new challenges to be faced and overcome. The original values remain unchanged, solid and unmoving, but the challenges change, shifting to the needs of a world of rapid progress.
Il linguaggio futurista viene quindi reinterpretato in chiave contemporanea. La natura e l'uomo, gli elementi costanti nel racconto, non sono più antagonisti ma dialogano, diventando parte armonica di un tutto e, fondendosi in un unico messaggio, danno vita così ad una nuova visione di Futuro. Futurist language is thus reinterpreted from a contemporary perspective. Nature and humanity —the constant elements of the tale— are no longer antagonists but engage in dialogue, becoming a harmonious part of the whole, merging to form a single message and thus breathing life into a new vision of the Future.
BREMBO S.p.A. Headquarters c/o Parco Scientifico Tecnologico Kilometro Rosso Viale Europa, 2 - 24040 Stezzano (BG) Italy Tel. +39 035 605.2111 - www.brembo.com E-mail: [email protected] - [email protected]
Editorial Consultancy: Lemon Comunicazione (Bergamo) Art work: PoliedroStudio srl (Telgate, Bergamo) Illustrations: Alessandro Vairo (Brescia) Typeset: Secograf (San Giuliano Milanese) Translation: Koinè (Trieste)
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.