Annual Report • Mar 30, 2018
Annual Report
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These financial statements were approved by the Board of Directors on 16 March 2018.
This report is available on the Internet at the address www.emakgroup.it
Emak S.p.A. • Via Fermi, 4 • 42011 Bagnolo in Piano (Reggio Emilia) ITALY Tel. +39 0522 956611 • Fax +39 0522 951555 – www.emakgroup.it • www.emak.it Capitale Sociale Euro 42.623.057,10 Interamente versato • Registro delle Imprese N. 00130010358 • R.E.A. 107563 Registro A.E.E. IT08020000000632 • Registro Pile/Accumulatori IT09060P00000161 Meccanografico RE 005145 • C/C Postale 11178423 • Partita IVA 00130010358 • Codice Fiscale 00130010358
| Organizational chart of Emak Group as at 31 December 2017 3 | ||
|---|---|---|
| Main shareholders of Emak S.p.A. 4 | ||
| Corporate Bodies of Emak S.p.A. 5 | ||
| Emak Group Profile 6 | ||
| Production structure 8 | ||
| 2017 Annual Directors' Report 9 | ||
| Main strategic lines of action 10 | ||
| Policy of analysis and management of risks related to the Group's business 10 | ||
| 1. | Main economic and financial figures for the Group 13 | |
| 2. | Scope of consolidation 14 | |
| 3. | Economic and financial results of Emak Group 14 | |
| 4. | Results of Group companies 20 | |
| 5. | Research and development 23 | |
| 6. | Human resources 25 | |
| 7. | Dealings with related parties 25 | |
| 8. | Plan to purchase Emak S.p.A. shares 26 | |
| 9. | Corporate governance and other information required by Issuers Regulations 26 | |
| 10. | Disputes 27 | |
| 11. | Other information 27 | |
| 12. | Business outlook 27 | |
| 13. | Significant events occurring during the period and positions or transactions arising from atypical and | |
| unusual transactions, significant and non-recurring 28 | ||
| 14. | Subsequent events 28 | |
| 15. | Reconciliation between shareholders' equity and net profit of the parent company Emak and | |
| consolidated equity and the results 29 | ||
| 16. | Proposal for the allocation of profit for the financial year and dividend 30 | |
| Emak Group - Consolidated Financial Statements 2017 32 | ||
| Consolidated Income Statement 33 | ||
| Statement of consolidated financial position 34 | ||
| Statement of changes in consolidated equity for the Emak Group at 31.12.2016 and at 31.12.2017 35 | ||
| Consolidated Cash Flow Statement 36 | ||
| Explanatory notes to the consolidated financial statements of Emak Group 37 | ||
| Independent Auditors'report on the consolidated financial statement 88 | ||
| Emak S.p.A. - Separate financial statements at 31 December 2017 93 | ||
| Financial statements 94 | ||
| Emak S.p.A. – Income Statement 94 | ||
| Emak S.p.A. – Statement of financial position 95 | ||
| Emak S.p.A. – Statement of changes in equity at December 31, 2016 and December 31, 2017 96 | ||
| Cash Flow Statement Emak S.p.A. 97 | ||
| Emak S.p.A. Explanatory notes to the financial statement 98 | ||
| Certification of financial statements and consolidated financial statements pursuant to art. 154-bis, | ||
| paragraph 5 of the Decree. 58/1998 (Consolidated Law on Finance) 150 | ||
| Independent Auditors' report on the separate financial statements 151 |
The share capital of Emak S.p.A. consists of 163,934,835 shares with a par value of 0.26 euros per share. The Company has been listed on the Milan Stock Exchange since June 25, 1998. Since September 2001 the stock has been included in the Segment of Equities with High Requirements (STAR).
On May 23, 2017, the majority shareholder Yama S.p.A., through an accelerated bookbuilding procedure, completed the placement of a stake of approximately 10% of Emak S.p.A.'s share capital. Following completion of the transaction, Yama holds the 65.181% of Emak's share capital.
At the time of publication of this report, on the basis of notifications received pursuant to Article 120 of Legislative Decree 58/1998, the shareholder structure of the Company is as follows.
Board of Directors
The Ordinary General Meeting of the Shareholders of the Parent Company, Emak S.p.A. on 22 April 2016 appointed the Board of Directors and the Board of Statutory Auditors for the financial years 2016-2018 and conferred also the engagement for the independent audit for the financial years 2016-2024.
Independent Auditor Deloitte & Touche S.p.A.
Federico Cattini
The Emak Group operates on the global market with a direct presence in 13 countries and a distribution network covering 5 continents.
The Group offers a wide range of products with recognised trademarks and refers to a target clientele highly diversified into three business segments:
• The Outdoor Power Equipment segment includes activities for the development, manufacture and marketing of products for gardening and forestry activities and small machines for agriculture, such as brush cutters, lawnmowers, garden tractors, chainsaws, motor hoes and walking tractors. The Group distributes its own products with the main trademarks: Oleo-Mac, Efco, Bertolini, Nibbi and Staub (the latter only to the French market). The Group's offer is directed to professionals and to private users with high expectations. The Group mainly operates in the specialised dealer channel, distributing its products through its own sales branches and, where not present directly, through a network of 150 distributors in more than 100 countries throughout the world.
The Group's reference market (considered as the channel of specialised dealers, excluding the large-scale retail trade) has an estimated value of 7-8 billion Euros. In mature markets such as North America and Western Europe, demand is predominantly relates to replacement: the main driver is the trend of the economy and of the "gardening" culture. In emerging markets, such as the Far East, Eastern Europe and South America, demand is predominantly for the "first buy": the main driver in these areas is economic growth, the evolution of agricultural mechanisation and the relative policies of support. A further factor that influences demand is the price of commodities: the trend in the price of oil can influence the demand for
alternative energy sources, such as wood for heating and consequently a demand for chainsaws; the trend in the price of agricultural commodities influences investments ion agricultural machinery.
Weather conditions are a factor that can influence the trend in demand for products in the segment (brushcutters, lawnmowers and garden tractors in spring-summer and chainsaws in autumn-winter).
The Pumps and High Pressure Water Jetting line brings together activities for the development, manufacture and marketing of products (i) for agriculture, such as centrifugal and diaphragm pumps for spraying and weeding; (ii) for industry, including industrial pumps, high-pressure systems and machines for urban cleaning; (iii) for cleaning, that is, professional and semi-professional pressure washers, floor washingdrying machines and vacuum cleaners. The Group distributes its own products with the Comet, HPP, Lemasa, PTC Waterjetting Equipment, PTC Urban Cleaning Equipment and Lavor brand names. Customers of the Group include producers of spraying and weeding machines with regards to pumps for agriculture; builders and contractors in the industrial sector; specialised dealers and the large-scale retail trade for washing products.
The market has a global value estimated at between 3.5 and 4.5 billion Euros.
The pumps market for agriculture is mainly composed of Italian operators. The demand is strongly driven by the trend of the economic cycle, demographic growth and the consequent increase in the demand for agricultural products; in developing countries demand is linked to the development of agricultural mechanisation and relative policies of support.
The market of products for the industrial sector is continuously growing and demand is linked to the trend of several sectors/fields of application in which the systems are used, such as: hydro-demolition; water-washing and ship repairs; refineries; mines and quarries; the petroleum industry; underwater washing; the iron and steel industry; foundries; chemical processing plant; energy production; paper mills; transport; municipalities; food; automobile and engine manufacturing.
The demand for cleaning products is mainly linked to the economic cycle trend, the increase in hygienic standards, especially in emerging countries, and the development of the "do-it-yourself" culture in mature markets.
The Components and Accessories segment includes activities for the development, manufacture and marketing of products the most representative of which are line and heads for brush-cutters, accessories for chainsaws (e.g. sharpeners), pistols, valves and nozzles for high pressure cleaners and for agricultural applications, precision farming (sensors and computers), seats and technical parts for tractors. In this sector the Group operates partly through its own brands, Tecomec, Geoline, Geoline Electronic, Mecline, Sabart, and Raico, and partly distributing products for third party brands. The main customers of the Group are producers in the Outdoor Power Equipment sector, of spraying and weeding machines, of high pressure cleaners, high pressure washing systems and specialised distributors.
The demand for components and accessories is linked to the economic cycle (business OEM) and the intensity of use of machines (aftermarket). The high pressure water jetting sector is linked to the economic cycle, to investments in the end markets for applications and hydrodynamic units. For products intended for the agricultural sector, demand is strongly linked to the growth of the economic cycle and in particular to the trend of agricultural commodity prices, demographic growth and the consequent increase in demand for agricultural products.
In general, the Group's activity is influenced by seasonal fluctuations in demand. Products for gardening follow the end customer's purchase model: most sales are concentrated in spring-summer, the period in which gardening activities are concentrated. The demand for forestry products is higher in the second part of the year while the demand for products in the Pumps and High Pressure Water Jetting sector is concentrated in the first half-year (marked seasonality in the demand for pumps for agriculture). The demand for products for industry and cleaning, on the other hand, is evenly distributed throughout the year.
The production model is flexible, focused on the high added value phases of engineering, industrialisation and assembly. The production plant are oriented towards "lean manufacturing", with the involvement of the supply chain on the basis of the extended factory model.
With particular reference to the Outdoor Power Equipment segment, in portable products (such as brushcutters and chainsaws), the motor is integrated in the machine and is entirely designed and drawn by the Group. The components are then made by external suppliers and then assembled internally. With regards to products on wheels (lawnmowers, garden tractors, motor hoes and rotary cultivators), the motor is acquired from primary producers and the machine is then assembled internally. With regards to lawnmowers, the Group produces the body of its products internally with a vertical process that goes from the processing of the metal sheet to the painting and final assembly.
With regards to the products in the Pumps and High Pressure Water Jetting section, the pumps for agriculture and those for industry are fully designed in the Group's Research and Development structure; the components are made externally by selected suppliers and then assembled internally. The pumps are the core of the high pressure cleaners and other high pressure plant, while the motor and other mechanical components and the frame are acquired and then assembled internally.
As regards the Components and Accessories sector, the production model varies according to the product. The wire for brush-cutters follows an entirely vertical process, from the purchase of the raw material to the processing, to the packaging of the finished product. The heads for brush-cutters and the pistols for high pressure cleaners are partly produced internally, with regards to the plastic moulding, followed by assembly of the mechanical components purchased from external suppliers. The precision farming line involves the design of the electronic parts and development of the software, which are the added value parts of the product, carried out internally, as is the final assembly. The most significant parts of the forestry line are designed and developed by the Group, with assembly of the components made externally. Other products, considering the type of processing required, which makes internal manufacture inefficient, are made and assembled by specific suppliers on the basis of the designs developed by the Group's R&D department.
Production volumes can easily change to adapt to fluctuations in demand through flexible management, and seasonal peaks can be satisfied through overtime or additional shifts, without the need for additional investments.
| Segment | Company | Location | Output |
|---|---|---|---|
| Emak | Bagnolo in Piano (RE) – Italy | Chaisaws, brushcutters, power cutters, cultivators, flailmowers, transporters |
|
| OPE | Pozzilli (IS) - Italy | Lawnmowers and rotary tillers | |
| Emak Tailong | Zhuhai - China | Cylinders | |
| Emak Jiangmen | Jiangmen - China | Chainsaws, bruscutters for price sensitive segment | |
| Comet | Reggio Emilia - Italy | Pumps, motor pumps and control units for agriculture and industry and pressure washers for the cleaning sector |
|
| Valley | Paynesville, Minnesota - USA | Components and accessories for industrial and agricultural sector |
|
| P.T.C. | Rubiera (RE) - Italy | Hydrodynamic units | |
| PWJ | Lemasa | Indaiatuba - Brazil | High pressure pumps |
| Lavorwash | Pegognaga (MN) – Italy | High pressure washers, vacuum cleaners, industrial and professional cleaning systems |
|
| Yong Kang Lavorwash Equipment | Yongkang – China | High pressure washers, vacuum cleaners for Latin American markets |
|
| Lavorwash Brasil | Ribeirao Preto - Brazil | High pressure washers for cleaning sector | |
| Tecomec | Reggio Emilia - Italy | Accessories for agricultural machinery for spraying and weeding and accessories and components for pressure washers |
|
| Speed France | Arnas - France | Nylon line and heads for brushcutters | |
| Speed North America | Wooster, Ohio - USA | Nylon line for brushcutters | |
| C&A | Speed Line South Africa | Pietermaritzburg - South Africa | Nylon line for brushcutters |
| Speed Industrie | Mohammedia - Morocco | Nylon line for brushcutters | |
| Speed South America | Providencia, Santiago - Chile | Nylon line for brushcutters | |
| Ningbo | Ningbo - China | Accessories and components for high pressure washing and chain saws and brushcutters |
|
| Geoline Electronic | Poggio Rusco (MN) - Italy | Computers, control units and electronic control systems for agricultural machines for spraying and weeding |
Every production site has specific characteristics that vary according to the production carried on inside. Overall, the Group uses 19 production sites.
2017 Annual Directors' Report
The main goal of the Emak Group is the creation of value for its stakeholders.
In order to achieve this objective, the Group focuses on:
Group believes that an effective management of risks is a key factor for the maintenance of value over time. For the purpose of achieving its strategic objectives, the Group establishes guidelines for its risk management policy through its governance structure and Internal Control System.
As part of its industrial activity, Emak Group is exposed to a series of risks, the identification, assessment and management of which are assigned to Managing Directors, also in the role of Executives Directors appointed pursuant to the self-regulatory Code of Borsa Italiana S.p.A., to business area managers and the Audit Committee, which is responsible of supporting the Board of Directors on issues relating to internal control and risk management.
The Directors responsible for the internal control system oversee the risk management process by implementing the guidelines defined by the Board of Directors in relation to risk management and by verifying their adequacy.
With the aim of preventing and managing more significant risks, the Group has a risk classification model, subdividing them on the basis of the company department from which that may derive or from which they can be managed, which provides for an assessment of the risks on the basis of an estimate of economicfinancial impacts and the probability of occurrence.
The Board of Directors attributes the Committee the tasks of assisting it, giving advice and making proposals, in the performance of its takes regarding the internal control system and risk management and, in particular, in the definition of the guidelines for the internal control system and the periodic evaluation of its suitability, efficiency and effective functioning. The Committee supervises Internal Audit activities and examines, more generally, problems relating to the internal control system and risk management.
In addition to the above activities are those performed by the Internal Audit department, which evaluates the suitability of the internal control system and risk management, of which it is an integral part, with respect to the reference context in which the Group operates. In this sense, in the exercise of their role, Internal Audit checks the functioning and appropriateness of the risk management system, with particular attention to continuous improvement and management policies.
As part of this process, different types of risk are classified on the basis of the assessment of their impact on the achievement of the strategic objectives, that is to say, on the basis of the consequences that the occurrence of the risk may have in terms of compromised operating or financial performance, or of compliance with laws and/or regulations.
The main strategic-operating risks to which the Emak Group is subject are:
The Group operates on a global scale, in a sector characterized by a high level of competition and in which sales are concentrated mainly in mature markets with moderate or low rates of growth in demand.
Performances are closely correlated to factors such as the level of prices, product quality, trademarks and technology, which define the competitive positioning of operators on the market. The competitive position of the Group. which compares with global players that often have greater financial resources as well as greater diversification in terms of geography, makes particularly significant the exposure to risks typically associated with market competitiveness.
The Group mitigates the country risk by adopting a business diversification policy by product and geographic area, such as to allow risk balancing. The Group also constantly monitors the positioning of its competitors in order to intercept any impacts on its commercial offer. In order to reduce the risk of saturation of the segments / markets in which it operates, the Group is progressively expanding its product range, also paying attention to "price sensitive" segments.
The Group adopts international expansion strategy, and this exposes it to a number of risks related to economic conditions and local policies of individual countries and by fluctuations in exchange rates. These risks may impact on consumption trends in the different markets and may be relevant in emerging economies, characterized by greater socio- political volatility and instability than mature economies.
Investments made in a number of countries, therefore, could be influenced by substantial changes in the local macro-economic context, which could generate changes in the economic conditions that were present at the time of making the investment. The Group's performances are therefore more heavily influenced by this type of risk than in the past. The Group coordinates all the M&A activity profiles for the purpose of mitigating the risks. In addition, the Group has set up constant monitoring in order be able to intercept possible socio-political or economic changes in such countries so as to minimize any consequent impact.
Weather conditions may impact on the sales of certain product families. Generally, weather conditions characterized by drought can cause contractions in the sale of gardening products such as lawnmowers and garden tractors, while winters with mild climate adversely affect sales of chainsaws.
The Group is able to respond quickly to changes in demand by leveraging on flexible production.
The Group operates in an industry where product development in terms of quality and functionality is an important driver for the maintenance and growth of its market share.
The Group responds to this risk with continuous investment in research and development in order to continue to offer innovative and competitive products compared to those of its main competitors in terms of price, quality, and functionality.
The Group is exposed to risks associated with health and safety at work and the environment, which could involve the occurrence work-related accidents and illness, environmental pollution phenomena or the failed compliance of specific legal regulations. The risks associated with such phenomena may lead to penal or administrative sanctions against the Group. The Group manages these types of risks through a system of procedures aimed the systematic control of risk factors as well as to their reduction within acceptable limits. All this is organized by implementing different management systems required by the standards of different countries and international standards of reference.
The Group's results are influenced by the actions of a number of large customers, with which there are no agreements involving minimum purchase quantities. As a result, the demand of such customers for fixed volumes of products cannot be guaranteed and it is impossible to rule out that a loss of important customers or the reduction of orders made by them could have negative effects on the Group's economic and financial results.
Over the last few years, the Group has increasingly implemented a policy of diversifying customers, including through acquisitions.
The Group's economic results are influenced by the trend in the price of raw materials and components. The main raw materials used are copper, steel, aluminum and plastic materials. Their prices can fluctuate significantly during the year since they are linked to official commodity prices on the reference markets. The Group does not use raw material price hedging instruments but mitigates risk through supply contracts. The Group has also created a system for monitoring the economic-financial performance of suppliers in order to mitigate the risks inherent in possible supply disruptions and has set up a management relationship with suppliers that guarantees flexibility of supply and quality in line with the policies of the Group.
The Group is exposed to potential liability risks towards customers or third parties in relation to product liability due to possible design and/or manufacturing defects in the Group's products, also attributable to third parties such as suppliers and assemblers. Moreover, in the event that products are defective or do not meet technical and legal specifications, the Group, also by order of control authorities, could be obliged to withdraw such products from the market. In order to manage and reduce these risks, the Group has entered into a master group insurance coverage that minimizes risks only to insurance deductibles.
As part of the development strategy, the Group has implemented acquisitions of companies that have enabled it to increase its presence on the market and seize growth opportunities. With reference to these investments, specified in the financial statements as goodwill, there is no guarantee that the Group will be able to reach the benefits initially expected from these operations. The Group continuously monitors the performance against the expected plans,, putting in place the necessary corrective actions if there are unfavorable trends which, when assessing the congruity of the values recorded in the financial statements, lead to significant changes in the expected cash flows used for the impairment tests.
In the ordinary performance of its operating activities, the Emak Group is exposed to various risks of a financial nature. For detailed analysis, reference should be made to the appropriate section of the Notes to Annual Financial Statements in which the disclosures as per IFRS no. 7 are set out.
With the aim of reducing the financial impact of any harmful event, Emak has arranged to transfer residual risks to the insurance market, when insurable.
In this sense, Emak, as part of its risk management, has taken steps to customize insurance coverage in order to significantly reduce exposure, particularly with regard to possible damages arising from the manufacturing and marketing of products.
All companies of the Emak Group are today insured against major risks considered as strategic, such as: product liability and product recall, general civil liability and property all risks. Other insurance coverage has been taken out at the local level in order to respond to regulatory requirements or specific regulations.
The analysis and insurance transfer of the risks to which the Group is exposed is carried out in collaboration with an insurance broker who, through an international network, is also able to assess the adequacy of the management of the Group's insurance programs on a global scale.
| Income statement (€/000) | ||
|---|---|---|
| Y 2017 | Y 2016 | |
| Revenues from sales | 422,155 | 391,879 |
| EBITDA before non ordinary expenses (*) |
45,612 | 40,479 |
| EBITDA (*) |
43,932 | 39,469 |
| EBIT | 29,977 | 21,869 |
| Net profit | 16,435 | 17,683 |
| Investment and free cash flow (€/000) | ||
| Y 2017 | Y 2016 | |
| Investment in property, plant and equipment | 14,802 | 12,159 |
| Investment in intangible assets | 2,626 | 2,386 |
| Free cash flow from operations (*) |
30,390 | 35,283 |
| Statement of financial position (€/000) | 31.12.2017 | 31.12.2016 |
| Net capital employed | 312,799 | 261,751 |
| Net debt | (125,294) | (80,083) |
| Total equity | 187,505 | 181,668 |
| Other statistics | Y 2017 | Y 2016 |
| EBITDA / Net sales (%) | 10.4% | 10.1% |
| EBIT / Net sales (%) | 7.1% | 5.6% |
| Net profit / Net sales (%) | 3.9% | 4.5% |
| EBIT / Net capital employed (%) | 9.6% | 8.4% |
| Debt / Equity | 0.67 | 0.44 |
| Number of employees at period end | 2,029 | 1,686 |
| Share information and prices | ||
| 31.12.2017 | 31.12.2016 | |
| Earnings per share (€) | 0.099 | 0.108 |
| Equity per share (€) (*) |
1.13 | 1.10 |
| Official price (€) | 1.44 | 0.91 |
| Maximum share price in period (€) | 2.08 | 0.91 |
| Minimum share price in period (€) | 0.90 | 0.60 |
| Stockmarket capitalization (€ / million) | 236 | 149 |
| Average number of outstanding shares | 163,537,602 | 163,537,602 |
| Number of shares comprising share capital | 163,934,835 | 163,934,835 |
| Cash flow per share: net profit + amortization/depreciation (€) (*) |
0.186 | 0.216 |
| Dividend per share (€) | 0.035 | 0.035 |
(*) See section "Definitions of alternative performance indicators"
Compared to 31 December 2016, the Lavorwash Group, acquired on 3 July 2017, entered the consolidation area, the economic data for the second half of the year and the balance sheet as at 31 December 2017 are included in the data of this annual financial report. For more information on the acquisition of the Lavorwash Group, please refer to the explanatory notes to this report.
In paragraph 4 "Results of Group companies", adequate information is also provided, pursuant to IFRS 3 Business Combinations, in order to represent the consolidated economic data of the Emak Group, including the companies belonging to the new scope, as if they had operated as a single Group since 1 January 2016.
Emak Group achieved a consolidated turnover of € 422,155 thousand, compared to € 391,879 thousand of last year, an increase of 7.7%. This improvement is due to the contribution of the change in the scope of consolidation by 7.5%, to the negative effect of the exchange rate by 0.1% and to an organic growth of 0.3%.
The change in scope of consolidation contributed to the increase in turnover in the amount of € 29,610 thousand.
Ebitda for the period reached € 43,932 thousand (an incidence of 10.4% on sales) compared to € 39,469 thousand in 2016 (an incidence of 10.1% on sales), with an increase of 11.3% (a decrease of 1% on an equal area).
The increase in the result for the period is attributable to the favorable sales mix between the three segments of the Group and to the effect of the change in the scope of consolidation which had an impact of € 4,842 thousand.
Personnel costs increased compared to the previous year, mainly due to the change in the scope of consolidation, which entailed the entry of no. 322 employees on 3 July 2017. Overall, the Group employed an average of no. 2,047 resources (no. 1,830 in 2016).
During the year, non-ordinary revenues were recorded for € 150 thousand and non-ordinary charges for € 1,830 thousand mainly related to the expenses for the acquisition of the Lavorwash Group and for company reorganizations. Non-ordinary charges recognized in 2016 amounted to € 1,010 thousand.
By adjusting the figure for both years from the amounts mentioned above, EBITDA would be equal to € 45,612 thousands equal to 10.8% of revenues, compared to € 40,479 thousand in the previous year, with a margin of 10.3%
Operating result for 2017 amounts to € 29,977 thousand, with a margin on revenues of 7.1% compared to € 21,869 thousand (5.6% of revenues) of 2016, an increase of 37.1% (19.8% on an equal consolidation basis).
The figure "Amortization and depreciation" amount to € 13,955 thousand against € 17,600 thousand in the previous year
The 2017 figure includes the devaluation of the value of the goodwill of the company Geoline Electronic for a total of € 590 thousand, while the previous year included the devaluation of the goodwill of Lemasa LTDA for an amount of € 4,811 thousand.
The ratio of operating profit to invested capital is 9.6% (10.1% excluding the above mentioned non ordinary charges) compared to 8.4% of 2016 (8.7% excluding the non ordinary charges).
The net profit for the year is € 16,435 thousand against € 17,683 thousand for the previous financial year.
Figure "Financial income" is € 1,807 thousand compared to € 7,105 thousand of last year. Amounts include income arising from the estimate of the liability for the commitment to purchase the remaining stake in Lemasa for € 281 thousand in 2017 and € 5,115 thousand in 2016.
Item "Financial expenses" amounts to € 4,820 thousand compared to € 6,056 thousand in 2016. The average annual exposure to the banking system in line with the same period - despite the increase in the last quarter due to the acquisition of the Lavorwash Group -, the lower interest rate applied to the Group on loans and lower charges for the discounting of payables for the future purchase of equity investments contributed to the decline. 2016 figure also included higher charges for € 360 thousand as a major consideration paid in settlement of the pro-rata price for the purchase of the shareholding in the subsidiary S.I.Agro Mexico
2017 currency management is negative for € 4,218 thousand compared to a profit of € 3,407 thousand of last year. The result is affected by the unfavourable trend in the US dollar / Euro exchange rate which led to a negative valuation of the Group's currency position at the end of the period.
The balance recorded in 2016 had benefited from a positive exchange rate difference of a financial nature for € 1,685 thousand emerging from the conversion into share capital of the intercompany loan previously granted by the company Comet S.p.A. to the subsidiary Comet do Brasil and the revaluation of the US dollar against the euro.
The tax rate amounted to 29.0% compared to 33.3% in the previous year, influenced by the reduction to 24% of the IRES tax rate for Italian companies in force from 2017 and from the change in the tax rate in force from the financial year 2018 for the US controlled companies which impacted on the early and deferred taxation.
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Net non-current assets (*) | 150,962 | 116,128 |
| Net working capital (*) | 161,837 | 145,623 |
| Total net capital employed | 312,799 | 261,751 |
| Equity attributable to the Group | 184,783 | 180,173 |
| Equity attributable to non controlling interests | 2,722 | 1,495 |
| Net debt | (125,294) | (80,083) |
(*) See section "Definitions of alternative performance indicators"
Net non-current assets at December 31, 2017 amount to € 150,962 thousand compared to € 116,128 thousand at December 31, 2016.
During 2017 Emak Group invested € 17,428 thousand in property, plant and equipment and intangible assets, as follows:
Investments broken down by geographical area are as follows:
Net working capital moves from € 145,623 thousand at December 31, 2016 to € 161,837 thousand, with an decrease of € 16,214 thousand. The ratio of net working capital is 38.3% compared to 37.2% of last year. The net working capital on 2017 "pro forma" turnover is 35%.
The following table reports the change in net working capital in 2017 compared with the previous year:
| €/000 | Y 2017 | Y 2016 |
|---|---|---|
| Net working capital at 1 January 2017 | 145,623 | 154,508 |
| Increase/(decrease) in inventories | 10,264 | (11,281) |
| Increase/(decrease) in trade receivables | (6,323) | (131) |
| (Increase)/decrease in trade payables | (7,685) | 2,166 |
| Change in scope of consolidation (acquisition) | 16,829 | 140 |
| Other changes | 3,129 | 221 |
| Net working capital at 31 December 2017 | 161,837 | 145,623 |
The increase in net working capital is mainly due to the impact of the acquisition of Lavorwash Group.
Net financial position is € 125,294 thousand at December 31, 2017 against € 80,083 thousand at December 31, 2016.
The following table shows the movements in the net financial position of 2017:
| €/000 | Y 2017 | Y 2016 |
|---|---|---|
| Opening NFP | (80,083) | (99,383) |
| Ebtida | 43,932 | 39,469 |
| Financial income and expenses | (3,013) | 1,049 |
| Income from/(expenses on) equity investment | 389 | 205 |
| Exchange gains and losses | (4,218) | 3,407 |
| Income taxes | (6,700) | (8,847) |
| Cash flow from operations, excluding changes in operating assets and liabilities |
30,390 | 35,283 |
| Changes in operating assets and liabilities | (4,348) | 11,892 |
| Cash flow from operations | 26,042 | 47,175 |
| Change in tangible and intangible assets | (16,308) | (17,600) |
| Other equity changes | (6,426) | (4,313) |
| Changes from exchange rates and translation reserve | 3,301 | (5,450) |
| Change in scope of consolidation | (51,820) | (512) |
| Closing NFP | (125,294) | (80,083) |
Item "change in scope of consolidation" refers to the acquisition of Lavorwash Group and the business A1 Mist Sprayers Resources. For more information, see the explanatory note 7 of the consolidated financial statements. Operating cash flow, net of taxes, is € 30,390 thousand in spite of € 35,283 thousand of the previous year. The positive result at Ebitda level and lower taxes for the period have only partially compensated the negative currency management (mainly attributable to the end-of-period valuation of open items in foreign currency).
Details of the net financial position is analyzed as follows:
| Net financial position | 31/12/2017 | 31/12/2016 | |
|---|---|---|---|
| A. | Cash | 40,812 | 32,545 |
| B. | Other cash at bank and on hand (held-to-maturity investments) | - | - |
| C. | Financial instruments held for trading | - | - |
| D. | Liquidity funds (A+B+C) | 40,812 | 32,545 |
| E. | Current financial receivables | 7,549 | 545 |
| F. | Current payables to banks | (36,570) | (11,833) |
| G. | Current portion of non current indebtedness | (31,956) | (32,862) |
| H. | Other current financial debts | (10,151) | (2,469) |
| I. | Current financial indebtedness (F+G+H) | (78,677) | (47,164) |
| J. | Current financial indebtedness, net (I+E+D) | (30,316) | (14,074) |
| K. | Non-current payables to banks | (80,084) | (63,249) |
| L. | Bonds issued | - | - |
| M. Other non-current financial debts | (15,646) | (12,858) | |
| N. | Non-current financial indebtedness (K+L+M) | (95,730) | (76,107) |
| O. | Net financial indebtedness (J+N) | (126,046) | (90,181) |
| P. | Non current financial receivables | 752 | 10,098 |
| Q. | Net financial position (O+P) | (125,294) | (80,083) |
Short-term debt mainly includes:
Long-term financial payables include, further the non-current portion of loan principal repayments, debt for the purchase of the remaining minority shares in the amount of € 14,587 thousand
Actualized financial liabilities (short term and medium-long term) for the purchase of the remaining minority shares and for the regulation of acquisition operations with deferred price subject to contractual constraints, in the amount of € 23,891 thousand related to the following companies:
Equity at December 31, 2017 is € 187,505 thousand against € 181,668 thousand at December 31, 2106.
| OUTDOOR POWER EQUIPMENT |
PUMPS AND HIGH PRESSURE WATER JETTING |
COMPONENTS AND ACCESSORIES |
Netting | Other not allocated / | Consolidated | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| €/000 | 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 |
| Sales to third parties | 168,402 | 177,006 | 138,770 | 102,916 | 114,983 | 111,957 | - | - | 422,155 | 391,879 |
| Intersegment sales | 1,851 | 1,522 | 1,456 | 1,411 | 7,767 | 6,674 - | 11,074 - | 9,607 | ||
| Revenues from sales | 170,253 | 178,528 | 140,226 | 104,327 | 122,750 | 118,631 - | 11,074 - | 9,607 | 422,155 | 391,879 |
| Ebitda | 9,400 | 10,996 | 19,546 | 14,008 | 17,372 | 17,009 - | 2,386 - | 2,544 | 43,932 | 39,469 |
| Ebitda/Total Revenues % | 5.5% | 6.2% | 13.9% | 13.4% | 14.2% | 14.3% | 10.4% | 10.1% | ||
| Operating result | 3,787 | 4,827 | 15,503 | 6,306 | 13,073 | 13,280 - | 2,386 - | 2,544 | 29,977 | 21,869 |
| Operating result/Totale Revenues % | 2.2% | 2.7% | 11.1% | 6.0% | 10.7% | 11.2% | 7.1% | 5.6% | ||
| Net financial expenses | - 3,013 |
1,049 | ||||||||
| Profit befor tax | 23,135 | 26,530 |
The table below shows the breakdown of "sales to third parties" in 2017 by business sector and geographic area, compared with the same period last year.
| OUTDOOR POWER EQUIPMENT |
PUMPS AND COMPONENTS AND TOTAL HIGH PRESSURE WATER ACCESSORIES JETTING |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| €/000 | Y 2017 | Y 2016 | Var. % | Y 2017 | Y 2016 | Var. % | Y 2017 | Y 2016 | Var. % | Y 2017 | Y 2016 | Var. % |
| Europe Americas Asia, Africa and Oceania |
140,968 8,104 19,330 |
148,692 7,192 21,122 |
(5.2) 12.7 (8.5) |
64,766 57,086 16,918 |
44,560 47,784 10,572 |
45.3 19.5 60.0 |
76,500 25,829 12,654 |
72,167 28,717 11,073 |
6.0 (10.1) 14.3 |
282,234 91,019 48,902 |
265,419 83,693 42,767 |
6.3 8.8 14.3 |
| Total | 168,402 | 177,006 | (4.9) | 138,770 102,916 | 34.8 | 114,983 | 111,957 | 2.7 | 422,155 | 391,879 | 7.7 |
Sales on the European market were characterized by good performance in Eastern countries, while in the Western European countries the weakness of the first nine months, mainly due to unfavourable weather conditions, was only partially mitigated by signs of recovery during the course of the last quarter.
In the Americas area, Latin American markets made the biggest contribution to growth. In the Asia, Africa and Oceania area the negative trend of the first nine months continued due to lower sales in the Middle East.
EBITDA for the segment was impacted by the decrease in sales, only partially mitigated by the recovery of the contribution margin and the decrease of fixed costs. The item also recorded non-recurring costs for € 440 thousand.
The segment's turnover includes the contribution of the Lavorwash Group in all areas for a total amount, starting from 3 July 2017, of € 29,610 thousand.
Sales in Europe benefited from the contribution of the consolidation of Lavorwash and the good performance at the organic level, especially in the Eastern countries. Sales in the Americas area recorded a general increase. In the Asia, Africa and Oceania area, the increase in sales was driven by the markets of the Middle East and the Far East.
The increase in EBITDA was mainly due to the increase in sales and the expansion of the scope of consolidation. EBITDA for the period includes non-recurring costs for an amount of € 1,258 thousand.
Sales on the European market were generally growing, especially in Western European countries. The Americas area saw sales growth in South American markets and a decline, concentrated in the fourth quarter, in those of the North. In the Asia, Africa and Oceania area, the increase in sales is mainly attributable to the Far East, Australia and South Africa markets.
Ebitda in absolute terms increased due to the increase in revenues, despite the increase in the cost of raw materials.
The Parent Company achieved net revenues of € 125,426 thousand against € 128,001 thousand in 2016, a decrease of 2%.
Sales were penalized mainly by lower sales in Italy and in the Far East countries. The trend registered on the European markets and in America was positive.
Ebitda of the year amounts to € 3,812 thousand, compared to € 4,590 thousand of last year. The result was mainly affected by lower sales volumes.
Operating result is negative for € 1,133 thousand compared to a negative result of € 1,508 thousand in 2016; the figure of 2017 includes the devaluation of the value of the goodwill of the Brazilian company Emak do Brasil for an amount of € 780 thousand; in 2016 this figure included the goodwill devaluation of the Brazilian company Emak Do Brasil and of the German company Emak Deutschland for a total amount of € 1,725 thousand.
The company ends the year with a net profit of € 2,759 thousand compared to € 7,010 thousand in 2016. Compared to 2016, the result was affected by:
lower dividends received by the controlled companies;
currency management negative for € 2,288 thousand in spite of a positive value of € 1,420 thousand in 2016;
the recognition of tax revenues relating to previous years.
The net negative financial position moves from € 17,206 thousand at 31 December 2016 to € 18,689 thousand, mainly due to higher investments made, the lower amount of dividends received and the higher amount of dividends paid during the year.
At 31 December 2017 the Emak Group was organized in a structure with Emak S.p.A. at the top, possessing direct and indirect controlling interests in the equity of 36 companies.
The economic figures of the subsidiary companies, drawn up in compliance with IAS/IFRS international accounting standards, are shown below:
| 31/12/2017 | 31/12/2016 | |||||
|---|---|---|---|---|---|---|
| Company | Head office | Net sales | Net profit | Net sales | Net profit | |
| Parent company | ||||||
| Emak S.p.A. | Bagnolo in Piano (Italy) | 125,426 | 2,759 | 128,001 | 7,010 | |
| Fully consolidated companies | ||||||
| Emak France Sas | Rixheim (France) | 27,712 | 55 | 30,344 | 257 | |
| Jiangmen Emak Outdoor Power Equipment Co. LtdJiangmen City (China) | 24,532 | 549 | 23,474 | 43 | ||
| Victus Emak Sp. Z o.o. | Poznam (Poland) | 14,248 | 388 | 12,954 | 359 | |
| Emak Deutschland GmbH | Fellbach-Oeffingen (Germany) | 10,340 | (711) | 11,914 | (843) | |
| Emak Suministros Espana SA | Madrid (Spain) | 8,532 | 558 | 7,327 | 340 | |
| Emak U.K. LTD | Burntwood (UK) | 3,828 | 4 | 5,499 | 130 | |
| Tailong (Zhuhai) Machinery Equipment Ltd. | Zhuhai (China) | 4,113 | 319 | 3,682 | 357 | |
| Epicenter LLC | Kiev (Ukraine) | 4,032 | 168 | 3,830 | 236 | |
| Emak Do Brasil Industria LTDA | Curitiba (Brazil) | 1,939 | (539) | 1,793 | 290 | |
| Tecomec Srl | Reggio Emilia (Italy) | 50,522 | 3,355 | 47,989 | 3,423 | |
| Speed France Sas | Arnax (France) | 20,833 | 2,557 | 21,593 | 2,877 | |
| Speed North America Inc. | Wooster, Ohio (USA) | 11,458 | 944 | 10,513 | 658 | |
| Speed Line South Africa (Pty) Ltd. | Pietermaritzburg (South Africa) | 1,481 | 233 | 1,154 | 144 | |
| Ningbo Tecomec Manufacturing Co. Ltd. | Ningbo City (China) | 11,628 | 434 | 11,754 | 375 | |
| Geoline Electronic S.r.l. | Poggio Rusco, Mantova (Italy) | 877 | (225) | 1,324 | (139) | |
| Speed Industrie Sarl | Mohammedia (Marocco) | 2,144 | 39 | 2,074 | 221 | |
| Speed Line South America | Providencia (RCH) | 1,506 | (146) | 936 | (178) | |
| Comet Spa | Reggio Emilia (Italy) | 60,220 | 2,709 | 58,702 | 1,077 | |
| Comet France Sas | Wolfisheim (France) | 5,723 | 229 | 5,238 | 242 | |
| Comet USA | Burnsville, Minnesota (USA) | 9,354 | 2,351 | 8,775 | 1,390 | * |
| Valley Industries LLP | Paynesville, Minnesota (USA) | 22,272 | 2,186 | 20,651 | 2,426 | * |
| PTC Srl | Rubiera, Reggio Emilia (Italy) | 10,660 | 408 | 8,018 | 287 | |
| S.I. Agro Mexico | Guadalajara (Mexico) | 5,230 | 453 | 5,084 | 197 | |
| Comet do Brasil Investimentos LTDA | Indaiatuba (Brazil) | 0 | (1,531) | - | 745 | |
| Lemasa S.A. | Indaiatuba (Brazil) | 12,645 | 2,246 | 9,726 | 1,038 | |
| Sabart Srl | Reggio Emilia (Italy) | 22,879 | 1,673 | 23,272 | 1,820 | |
| Raico Srl | Reggio Emilia (Italy) | 12,798 | 226 | 12,544 | 103 | |
| Ptc Waterblasting | Burnsville - Minnesota (USA) | 53 | (217) | |||
| Lavorwash S.p.a | Pegognaga - MN (I) | 24,085 | 3,681 | 1 | ||
| Lavorwash France S.a.r.l. | La Courneuve (F) | 1,316 | (140) | 1 | ||
| Lavorwash GB Ltd | St. Helens Merseyside (UK) | 372 | (0) | 1 | ||
| Lavorwash Iberica S.l. | Tarragona (E) | 710 | 75 | 1 | ||
| Lavorwash Polska SP ZOO | Bydgoszcz (PL) | 946 | 4 | 1 | ||
| Lavorwash Brazil Ind. E Com. Ltda | Ribeirao Preto (BR) | 702 | (359) | 1 | ||
| Yong Kang Lavorwash Equipment Co. Ltd | Yongkang City (RPC) | 7,351 | 832 | 1 | ||
| Yongkang Lavor Trading Co. Ltd. | Yongkang City (RPC) | 637 | 51 | 1 | ||
1 On July 3, 2017 the subsidiary Comet S.p.A. has completed the acquisition of the Lavorwash Group, consequently the income statement of the companies entered the scope of consolidation from that date and the results shown for these companies refer exclusively to the second half of 2017
* It should be noted that the net result of Comet Usa includes income tax calculated on the result of its subsidiary, Valley Industries LLP. The latter company is, in fact, subject to a tax regime that provides for taxation of profits to be directly imposed on the shareholders.
It should also be noted that the net income of the individual companies includes any dividends collected during each year.
The following elements are disclosed with reference to some companies in the Group:
The company Emak Deutschland recorded a turnover that was down compared to the previous year which, despite a better product mix and costs in line with the same period, led to a loss at the end of the year.
Despite the increase in turnover and intermediate margins, the company Emak do Brasil closed the year 2017 with a loss. There was an exchange rate loss relating to the valuation of payables.
The company Geoline Electronic S.r.l. recorded a lower turnover than last year which caused the loss at the end of the year.
The company Speed South America S.p.A. has developed higher sales than last year but not yet sufficient to cover the entire cost structure. The company's business prospects leave the expectation of achieving positive results in future years.
Comet do Brasil was incorporated as a financial holding company for the acquisition of the company, Lemasa. The loss is due to the recognition of the implicit interests deriving from the discounting of the debt for the acquisition of equity investments.
The negative result of the Ptc Waterblasting is related to its start-up phase.
The company Lavorwash Brasil closes with a loss following the low turnover volumes achieved in semester that do not cover the structural costs.
The following consolidated figures have been prepared in line with the information required pursuant to IFRS 3-Business Combinations in order to provide shareholders, other stakeholders and the financial market with a better perception of the significant income size of the new Emak Group, in the its configuration subsequent to the acquisition of the Lavorwash Group, which took place on 3 July 2017. For this purpose and for information purposes only, the consolidated economic data of the Emak Group have been prepared to represent the economic situation of the New Emak Group as a result of the acquisition, as if the Emak Group and the companies belonging to the new perimeter they operated as a single group attributable to Emak S.p.A. as of 1 January 2016 It should however be pointed out that if the income statement of the companies subject to the acquisition were included in the Emak Group, in those periods, the same economic results as shown below would not necessarily have occurred.
| Thousand of Euro | Year 2017 | Year 2016 |
|---|---|---|
| Revenues from sales | 461,764 | 461,828 |
| Other operating incomes | 3,983 | 3,320 |
| Change in inventories | 14,225 | (14,656) |
| Raw materials, consumable and goods | (255,038) | (233,360) |
| Personnel expenses | (85,598) | (82,989) |
| Other operating costs | (88,934) | (84,981) |
| Ebitda (*) | 50,402 | 49,162 |
| Amortization, depreciation and impairment losses | (14,415) | (18,628) |
| Operating result | 35,987 | 30,534 |
| Financial income and expenses | (2,994) | 1,064 |
| Exchange gains and losses | (4,010) | 4,012 |
| Income from equity investments | 389 | 205 |
| Profit before taxes | 29,372 | 35,815 |
| Income taxes | (8,771) | (12,328) |
| Net Profit | 20,601 | 23,487 |
| Ebitda % (*) | 10.9% | 10.6% |
| EBITDA before non ordinary expenses (*) | 52,507 | 50,172 |
| EBITDA before non ordinary expenses % (*) | 11.4% | 10.9% |
(*) See section "Definitions of alternative performance indicators"
Research and development is one of the fundamental pillars on which to base the strategy of continuous growth and success for the Group. The Group, in fact, considers investment in research as a means for obtaining competitive advantage in national and international markets to be of strategic importance. For this reason, where possible, the Group covers its products with international patents.
The activity focuses on product innovation, considered as the development of new, more efficient technologies in terms of performance, less energy consuming and with lower impacts from an environmental point of view. In addition, the Group has for some years set up cooperation projects with the academic world, with the aim of the reciprocal exchange of know-how from a continuous improvement point of view for its products and performance levels.
The main activities carried out by the Group companies during 2017, subdivided by business lines, are shown below.
Besides the consolidation of the sales of the products launched in the second half of 2016, including the new professional 25cc top handle chainsaw (developed for pruning olives and fruit trees and characterised by an excellent weight/power ratio), a 40cc brush-cutter for developing markets and a compact rotary cultivator for private use, in 2017 there was the launch of a series of important products for the company. These included, in particular, a further professional top handle chainsaw with 35cc for pruning operations on tall plants, a chainsaw lime of 51cc and 56cc designed for developing markets and a renewed line of professional rotary cultivators for intensive use in agriculture.
The development of important technologies for the future also continued during the year, such as:
Within the sphere of the range of products for agriculture, the development of centrifugal pumps intended for sale in the North and South American markets has been completed. The main feature of these products is a high flow rate of water at low pressure with very contained dimensions. In addition, the new series of membrane pumps intended to be fitted on sprayers has been completed and industrialised. The modular design and the development of the internal fluid dynamics have made it possible to obtain high performance levels in terms of flow and priming capability with a high level of efficiency and low noise. With regards to the industrial products, the development of pumps in the medium-high pressure fields with the HPP brand has been completed. In the field of very high pressure pumps, the Group has invested in new simulation software for analysing vibrations, hydrodynamics and working under stress in order to better understand the physical phenomena relating to hydrodynamic units. This software has also helped in the study of the life-cycle of fourth generation high pressure valves, besides enabling a reduction in the number of real prototypes that contribute significantly to a reduction in environmental impact. Finally, a new rotating nozzle fitted with an efficient speed regulation system, controllable by means of a magnetic brake, has been developed. Specially developed for treating surfaces, it can be used manually or with a pistol or automated.
With regards to the washing products, in 2017 the Group created a series of new products that will renew and extend the product range. In particular, a new pressure washer has been developed for amateur use fitted with an electronic system to regulate engine speed, which makes it possible to regulate the pressure according to circumstances, thereby controlling energy consumption and avoiding the wasting of water. In the professional range, three new cold water pressure washers have been launched, replacing the previous models, characterised by a renewed design and new solutions that ensure greater efficiency at the same performance levels. An ash separator powered by a rechargeable 18V lithium-ion battery has been launched on the market during the year, fitted with a switch to select speed, saving energy or at maximum power. Developed with the aim of extending the range, a product has been introduced with a compact design but, most of all, with a lower environmental impact thanks to the energy-saving function.
The development and implementation of cutting systems for brush-cutters, electric and battery trimmers continued during the year, in cooperation with leading global manufacturers. The projects developed were mainly focused on the research of new material for wires, heads and blades, besides the identification of new aerodynamic forms with the aim of reducing energy consumption, noise and vibrations, as required by new international standards. With regards to machines and accessories dedicated to the maintenance of chainsaws, developed continues on the range of professional products.
With regards to the line of accessories intended for the agricultural sector, research and development was further directed towards projects for the feeding/farming integration of electronic control systems. The objective was to obtain, with this new generation of products, the development of solutions for managing soil treatments according to the efficiency of crop production. In addition, the range of flowmeters and sensors intended for spraying and weeding machines was completed. Finally, with the support of Italian universities, a research project was launched for the collection of data for the generation of work maps for the development of applications for cloud platforms.
As part of the development of products for the industrial washing sector, further investments were made in research aimed at implementing and extending the range of pressure regulating valves. This initiative was carried out in cooperation with the University of Modena and Reggio Emilia, which tested and supported the project in the study and experimental phase for various technical solutions, also involving the registration of industrial patents. Moreover, in 2017, development continued on the professional range with the introduction of a catalogue of new products for high pressure and flow uses. The line intended for heads and rotary nozzles for industrial applications was also further extended.
The breakdown of personnel by country as at 31 December 2017, compared with the previous year, is shown in the following table:
| Employees at | 31.12.2016 | Ch. in scope of consolidation |
Other movements |
31.12.2017 |
|---|---|---|---|---|
| Italy | 850 192 |
4 | 1,046 | |
| France | 142 | 5 | (4) | 143 |
| UK | 10 | 5 | 1 | 16 |
| Spain | 20 | 1 | 3 | 24 |
| Germany | 23 | - | 2 | 25 |
| Poland | 38 | 5 | (8) | 35 |
| China | 307 | 88 | 6 | 401 |
| Usa | 92 | - | 8 | 100 |
| Ukraine | 34 | - | (1) | 33 |
| South Africa | 6 | - | 4 | 10 |
| Brasil | 112 | 19 | 3 | 134 |
| Mexico | 13 | - | 1 | 14 |
| Morocco | 30 | - | 2 | 32 |
| Chile | 9 | - | 7 | 16 |
| Total | 1,686 | 315 | 28 | 2,029 |
Further information on staff management policies and training can be found in the appropriate sections of the "Non-financial report" available on the website www.emakgroup.it, in the "Sustainability" section.
Emak S.p.A. is controlled by Yama S.p.A., which holds 65.181% of its share capital and which, as a nonoperating holding company, is at the head of a larger group of companies operating mainly in the production of machinery and equipment for agriculture and gardening and of components for motors, and in real estate. The Emak Group has limited supply and industrial service dealings with such companies, as well as dealings of a financial nature deriving from the equity investment of a number of companies in the Emak Group in the tax consolidation headed by Yama S.p.A..
Professional services of legal and fiscal nature, provided by entities subject to significant influence of certain directors, are another type of related party transactions.
The majority of the above dealings carried out in the period by the Emak Group with related parties are of a normal and recurring nature, falling within the ordinary exercise of industrial activity. The above transactions are all regulated under current market conditions, in compliance with framework resolutions approved periodically by the Board of Directors. Reference can be made to the notes to the accounts at paragraph 38.
During the year, no extraordinary operations with related parties have not been carried out. If transactions of this nature had taken place, enforcement procedures approved by the Board of Directors in implementation to art. 4, Reg. Consob. 17221/2010, published on the company website at https://www.emakgroup.it/itit/investor-relations/corporate-governance/altre-informazioni/ would be applied.
* * * * * * *
The determination of the remuneration of Directors and Auditors and Managers with strategic responsibility in the Parent company occurs as part of the governance framework illustrated to the Shareholders and to the public through the report as per art. 123-ter of Leg. Dec. 58/98, available on the site www.emak. The remuneration of Directors and Auditors and Managers with strategic responsibility in the parent company is also regulated by suitable protection procedures that provide for the Parent Company to perform control and harmonization activities.
At December 31, 2017, the Company held 397,233 treasury shares in portfolio for an equivalent value of € 2,029 thousand.
On April 28, 2017, the Shareholders' Meeting renewed the authorization to purchase and dispose of treasury shares for the purposes laid down by it. During 2017 there were no purchases or sales of own shares, leaving the balances at beginning of year unchanged.
Even after the end of the period and until the date of approval by the Board of Directors, of this report are no changes in the consistency of the portfolio of treasury shares.
Emak S.p.A. adopted the Code of Conduct, approved by the Committee established at the Italian Stock Exchange as reformulated in July 2015 and available on the website www.borsaitaliana.it. Details of Emak's compliance with the Code's provisions are set out in the "Report on corporate governance and ownership structures", provided for by arts. 123-bis of Legislative Decree 58/98, according to the "comply or explain" scheme.
As already mentioned, the "Remuneration Report" prepared pursuant to art. 123-ter of Legislative Decree 58/98, shows the remuneration policy adopted by the company to its directors and executives with strategic responsibilities. The document also describes in detail by type and quantified entities the fees paid to them, even by subsidiaries, as well as stocks and movements of Emak titles in their possession during the year.
Both reports are available to the public at the company's registered office and on the website: www.emakgroup.it, in the section "Investor Relations > Corporate Governance"
* * * * * * *
It has to be underlined the adoption by the most important companies of the Group, of the Organization and Management Model, art. 6, Legislative Decree 231/01, calibrated on individual specific reality and periodically expanded in a modular form, in line with the extension of the liability of companies for ever new crimes.
The Model makes use, in the different companies of the Group, of Supervisory Committees, furnished with autonomous powers of action and control regarding its effective and efficient application.
* * * * * * *
Emak Group has implemented and updated an Ethical Code, in which the company's chosen ethical principles are set out and which the Directors, Auditors, Employees, Consultants and Partners of the parent company, as well as of its subsidiary companies, are required to follow.
The model, as per art. 6, Leg. Dec. 231/01, and the Ethical Code are both available for consultation at the internet address web www.myemak.com, in the section Organization and certifications.
The Company has resolved to make use, with effect from 31 January 2013, of the right to derogate from the obligation to publish the informative documents prescribed in the event of significant merger, demerger, share capital increase through the transfer of goods in kind, acquisition and disposal operations, pursuant to art. 70, paragraph 8, and art. 71, paragraph 1-bis of Consob Issuers Regulations, approved with resolution no. 11971 of 4/5/1999 and subsequent modifications and integrations
* * * * * * *
On May 23, 2017, the major shareholder, Yama S.p.A, sold approximately 10% of the share capital of Emak SpA. As a result of this transaction, it currently holds 65.181% of the Issuer's share capital.
* * * * * * *
The consolidated non-financial declaration of Emak S.p.A. for 2017, prepared in accordance with Legislative Decree. 254/16, constitutes a separate report ("Sustainability Report") with respect to this management report, as provided for by Art. 5 paragraph 3, letter b) of Legislative Decree 254/16, and is available on the website www.emakgroup.it, in the "Sustainability" section.
There were no disputes in progress that might lead to liabilities in the financial statements other than those already described in note 34 of the consolidated financial statements.
With regard to the requirements of article 36 of the Market Rules - Consob Resolution No. 16191 dated October 29, 2007, Emak reports to have currently the control of four large companies, incorporated and regulated under the law of a state outside the European Union:
For all companies Emak S.p.A. has complied with current legislation, including the filing at the registered office, for the benefit of the public, of the financial statements of subsidiaries prepared for the purposes of preparing the consolidated financial statements.
Emak Group has initiated a process of technological innovation and unification of the information systems to the Microsoft Dynamics AX platform, with the aim of streamlining group's processes in support of an increasingly international business development. At the same time, it will continue to pursue its value creation objectives by focusing on operating costs and working capital efficiency. Investments in support of innovation and new technologies applied to both products and production processes, but above all for the
benefit of end customers, are expected to increase. Finally, on the short term, the Group will commit itself to achieving all the synergies deriving from the recent acquisition of Lavorwash.
The significant events that occurred during the period and positions or transactions arising from atypical and unusual transactions, significant and non recurring are set out in note 7 of consolidated financial statements.
On January 29, 2018, the parent company Emak S.p.A. it acquired the remaining 39%, still held by the founder, of the Ukrainian subsidiary Epicenter LLC, bringing its stake to 100%. The price for the acquisition of this stake amounts to € 340 thousand.
Starting from the beginning of 2018, the Group has implemented a reorganization of its commercial activities in the United States in the Pumps and High Pressure Water Jetting segment. Specifically, the company Comet USA conferred in Valley the business of industrial pumps in order to maximize logistical, operational and management efficiencies. The new organization will also allow to focus the energies on the future developments of the activities on the US territory. Following the reorganization, the Put & Call option in place with the minority shareholder in Valley, for the purchase of the remaining 10%, was extended indefinitely
On March 6, 2018 the parent company Emak S.p.A. has signed a binding agreement for the sale of 100% of the share capital of Raico S.r.l. for a consideration of € 5,500 thousand. The closing of the transaction, with payment and transfer of shares, is expected by the end of March.
Raico is specialised in the distribution of spare parts and accessories for agricultural tractors, industrial and construction machines, with a turnover of around € 12.8 million, EBITDA of € 0.5 million and a net negative financial position of € 0.7 million at 31 December 2017.
In the last part of the year, the Parent Company, following an assessment aimed at improving the organization at the Bagnolo in Piano (RE) headquarters, due to the logic of efficiency and renewal, initiated a procedure relating to a plan to early retirement on voluntary basis referred to in articles 4, 5 and 24 of law n. 223/91. On December 13, 2017, trade union consultation was carried out and was signed with the Trade Unions. and company RSU an Agreement, aimed primarily at employees who have acquired the right to a pension within 24 months following the termination of the employment relationship, envisaging, during 2018, the possibility of leaving, on a voluntary basis, the staff who respect this requirement.
In February 2018, the first individual conciliation agreements were signed for 12 people and 20 more people are expected to be released by the end of 2018.
In accordance with the CONSOB Communication dated July 28 2006, the following table provides a reconciliation between net income for 2017 and shareholders' equity at December 31, 2017 of the Group (Group share), with the corresponding values of the parent company Emak S.p.A.
| €/000 | Equity at 31.12.2017 |
Result for the year ending 31.12.2017 |
Equity at 31.12.2016 |
Result for the year ending 31.12.2016 |
|---|---|---|---|---|
| Equity and result of Emak S.p.A. | 150,487 | 2,759 | 153,600 | 7,010 |
| Equity and result of consolidated subsidiaries | 257,912 | 22,859 | 197,184 | 17,875 |
| Effect of the elimination of the accounting value of shareholdings |
(235,316) | 1,282 | (167,939) | 3,917 |
| Elimination of dividends | - | (10,600) | - | (11,286) |
| Elimination of other intergroup items and profits |
13,888 | (194) | (1,382) | (38) |
| Evaluation of equity investment in associated | 534 | 329 | 205 | 205 |
| Total consolidated amount | 187,505 | 16,435 | 181,668 | 17,683 |
| Non controlling interest | (2,722) | (270) | (1,495) | (88) |
| Equity and result attributable to the Group | 184,783 | 16,165 | 180,173 | 17,595 |
Shareholders,
We submit for your approval the financial statements at December 31, 2017, which reports a profit of € 2,759,434.00. We also propose the distribution of a dividend of € 0.035 for each share outstanding.
We invite you to approve this resolution:
<< The Shareholders' Meeting of Emak S.p.A.
with regard to point 1.1 to the agenda
a) to approve the Directors' Report and the financial statements at December 31, 2017, showing a net profit of € 2,759,434.00;
with regard to point 1.2 to the agenda
Bagnolo in Piano (RE), 16 March 2018
On behalf of the Board of Directors The Chairman Fausto Bellamico
The chart below shows, in accordance with recommendation CESR/05-178b published on November 3, 2005, the criteria used for the construction of key performance indicators that management considers necessary to the monitoring the Group performance.
Emak Group Consolidated Financial Statements 2017
Thousand of Euro
| CONSOLIDATED INCOME STATEMENT | Notes | Year 2017 | of which to related parties |
Year 2016 | of which to related parties |
|---|---|---|---|---|---|
| Revenues from sales | 10 | 422,155 | 1,308 | 391,879 | 1,788 |
| Other operating incomes | 10 | 3,684 | 2,589 | ||
| Change in inventories | 14,168 | (12,116) | |||
| Raw materials, consumable and goods | 11 | (234,565) | (6,640) | (198,172) | (3,157) |
| Personnel expenses | 12 | (80,055) | (73,039) | ||
| Other operating costs and provisions | 13 | (81,455) | (2,531) | (71,672) | (2,995) |
| Amortization, depreciation and impairment losses | 14 | (13,955) | (17,600) | ||
| Operating result | 29,977 | 21,869 | |||
| Financial income | 15 | 1,807 | 8 | 7,105 | 12 |
| Financial expenses | 15 | (4,820) | (6,056) | ||
| Exchange gains and losses | 15 | (4,218) | 3,407 | ||
| Income from/(expenses on) equity investment | 21 | 389 | 205 | ||
| Profit befor taxes | 23,135 | 26,530 | |||
| Income taxes | 16 | (6,700) | (8,847) | ||
| Net profit (A) | 16,435 | 17,683 | |||
| (Profit)/loss attributable to non controlling interests | (270) | (88) | |||
| Net profit attributable to the Group | 16,165 | 17,595 | |||
| Basic earnings per share | 17 | 0.099 | 0.108 | ||
| Diluted earnings per share | 17 | 0.099 | 0.108 |
| CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME |
Notes Year 2017 |
Year 2016 | |
|---|---|---|---|
| Net profit (A) | 16,435 | 17,683 | |
| Profits/(losses) deriving from the conversion of foreign company accounts |
(5,330) | (190) | |
| Actuarial profits/(losses) deriving from defined benefit plans () Income taxes on OCI () |
(470) 133 |
(137) 1 |
|
| Total other components to be included in the comprehensive income statement (B) |
(5,667) | (326) | |
| Total comprehensive income for the perdiod (A)+(B) | 10,768 | 17,357 | |
| Comprehensive net profit attributable to non controlling interests Comprehensive net profit attributable to the Group |
(166) 10,602 |
(88) 17,269 |
(*) Items will not be classified in the income statement
In accordance with the CONSOB resolution no. 15519 of July 27 2006, the effects of transactions with related parties on the consolidated income statement are shown in the scheme and are further described and discussed in note 38.
| ASSETS | Notes | 31.12.2017 | of which to related parties |
31.12.2016 | of which to related parties |
|---|---|---|---|---|---|
| Non-current assets | |||||
| Property, plant and equipment | 18 | 73,275 | 61,651 | ||
| Intangible assets | 19 | 20,327 | 8,380 | ||
| Goodwill | 20 | 67,112 | 14,670 | 52,241 | 14,847 |
| Equity investments in other companies | 21 | 230 | 230 | ||
| Equity investments in associates | 21 | 4,284 | 3,955 | ||
| Deferred tax assets | 30 | 9,068 | 7,370 | ||
| Other financial assets | 26 | 752 | 297 | 10,098 | 334 |
| Other assets | 23 | 65 | 63 | ||
| Total non-current assets | 175,113 | 14,967 | 143,988 | 15,181 | |
| Current assets | |||||
| Inventories | 24 | 155,727 | 127,362 | ||
| Trade and other receivables | 23 | 109,394 | 1,227 | 96,940 | 1,681 |
| Current tax receivables | 30 | 5,428 | 4,791 | ||
| Other financial assets | 26 | 7,348 | 449 | 468 | 449 |
| Derivative financial instruments | 22 | 201 | 77 | ||
| Cash and cash equivalents | 25 | 40,812 | 32,545 | ||
| Total current assets | 318,910 | 1,676 | 262,183 | 2,130 | |
| TOTAL ASSETS | 494,023 | 16,643 | 406,171 | 17,311 |
| SHAREHOLDERS' EQUITY AND LIABILITIES | Notes | 31.12.2017 | of which to related parties |
31.12.2016 | of which to related parties |
|---|---|---|---|---|---|
| Shareholders' Equity | |||||
| Shareholders' Equity of the Group | 27 | 184,783 | 180,173 | ||
| Non-controlling interest | 2,722 | 1,495 | |||
| Total Shareholders' Equity | 187,505 | 181,668 | |||
| Non-current liabilities | |||||
| Loans and borrowings due to banks and other lenders | 29 | 95,730 | 76,107 | ||
| Deferred tax liabilities | 30 | 9,622 | 6,391 | ||
| Employee benefits | 31 | 10,932 | 9,137 | ||
| Provisions for risks and charges | 32 | 2,265 | 1,566 | ||
| Other non-current liabilities | 33 | 579 | 668 | ||
| Total non-current liabilities | 119,128 | 93,869 | |||
| Current liabilities | |||||
| Trade and other payables | 28 | 101,515 | 3,444 | 77,849 | 3,425 |
| Current tax liabilities | 30 | 4,676 | 4,184 | ||
| Loans and borrowings due to banks and other lenders | 29 | 78,469 | 46,770 | ||
| Derivative financial instruments | 22 | 208 | 394 | ||
| Provisions for risks and charges | 32 | 2,522 | 1,437 | ||
| Total current liabilities | 187,390 | 3,444 | 130,634 | 3,425 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 494,023 | 3,444 | 406,171 | 3,425 |
In accordance with the CONSOB resolution no. 15519 of July 27 2006, the effects of related party transactions on the financial position are shown in the scheme and are further described and discussed in note 38.
| OTHER RESERVES | RETAINED EARNINGS | EQUITY ATTRIBUTABLE |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Thousand of Euro | SHARE CAPITAL |
SHARE PREMIUM |
Legal reserve |
Revaluation reserve |
Cumulative translation adjustment |
Reserve IAS 19 |
Other reserves |
Retained earnings |
Net profit of the period |
TOTAL GROUP |
TO NON CONTROLLING INTERESTS |
TOTAL |
| Balance at 31.12.2015 | 42,519 | 40,529 | 2,361 | 1,138 | 6,882 | (832) | 30,900 | 34,649 | 8,846 | 166,992 | 1,496 | 168,488 |
| Profit reclassification | 348 | 4,410 | (8,846) | (4,088) | (89) | (4,177) | ||||||
| Net profit for the period | (190) | (136) | 17,595 | 17,269 | 88 | 17,357 | ||||||
| Balance at 31.12.2016 | 42,519 | 40,529 | 2,709 | 1,138 | 6,692 | (968) | 30,900 | 39,059 | 17,595 | 180,173 | 1,495 | 181,668 |
| Profit reclassification | 350 | 11,521 | (17,595) | (5,724) | (91) | (5,815) | ||||||
| Other changes | (268) | (268) | 1,152 | 884 | ||||||||
| Net profit for the period | (5,226) | (337) | 16,165 | 10,602 | 166 | 10,768 | ||||||
| Balance at 31.12.2017 | 42,519 | 40,529 | 3,059 | 1,138 | 1,466 | (1,305) | 30,900 | 50,312 | 16,165 | 184,783 | 2,722 | 187,505 |
The share capital is show n net of the nominal value of treasury shares in the portfolio amounted to € 104 thousand
The share premium reserve is stated net of the premium value of treasury shares amounting to € 1,925 thousand
| ( €/000 ) | Notes | 1 Y 2017 | 1 Y 2016 (1) |
|---|---|---|---|
| Cash flow from operations | |||
| Net profit for the period | 16,435 | 17,683 | |
| Amortization, depreciation and impairment losses | 14 | 13,955 | 17,600 |
| Financial expenses from discounting of debts | 15 | 1,691 | 2,023 |
| Income from equity investment | 21 | (389) | (205) |
| Financial income from adjustment of estimated liabilities for | (281) | (5,115) | |
| outstanding commitment associates' shares | 15 | ||
| Capital (gains)/losses on disposal of property, plant and equipment | (184) | (115) | |
| Decreases/(increases) in trade and other receivables | 4,336 | 2,903 | |
| Decreases/(increases) in inventories | (13,713) | 12,127 | |
| (Decreases)/increases in trade and other payables | 5,269 | (2,871) | |
| Change in employee benefits | (44) | 168 | |
| (Decreases)/increases in provisions for risks and charges | (12) | (320) | |
| Change in derivative financial instruments | (297) | (102) | |
| Cash flow from operations | 26,766 | 43,776 | |
| Cash flow from investing activities | |||
| Change in property, plant and equipment and intangible assets | (16,164) | (13,816) | |
| (Increases) and decreases in financial assets | 1,257 | (4,145) | |
| Proceeds from disposal of property, plant and equipment Change in scope of consolidation |
184 (40,905) |
115 (443) |
|
| Cash flow from investing activities | (55,628) | (18,289) | |
| Cash flow from financing activities | |||
| Change in equity | (612) | (136) | |
| Change in short and long-term loans and borrowings | 35,201 | (26,970) | |
| Change in finance leases | - | (26) | |
| Dividends paid | (5,815) | (4,177) | |
| Cash flow from financing activities | 28,774 | (31,309) | |
| Total cash flow from operations, investing and financing activities | (88) | (5,822) | |
| Net exchange differences | 836 | (2,172) | |
| INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 748 | ||
| OPENING CASH AND CASH EQUIVALENTS | 27,020 | ||
| CLOSING CASH AND CASH EQUIVALENTS | 27,768 | ||
| ADDITIONAL INFORMATION ON THE CASH FLOW STATEMENT | |||
| ( €/000 ) RECONCILIATION OF CASH AND CASH EQUIVALENTS |
1 Y 2017 | 1 Y 2016 (1) | |
| Opening cash and cash equivalents, detailed as follows: | 25 | 27,020 | |
| Cash and cash equivalents | 32,545 | ||
| Overdrafts | (5,525) | ||
| Closing cash and cash equivalents, detailed as follows: | 25 | 27,768 | |
| Cash and cash equivalents Overdrafts |
40,812 (13,044) |
||
| Other information: Income taxes paid |
(11,419) | ||
| Financial interest income | 304 | ||
| Financial expenses paid | (1,802) | ||
| Change in related party receivables and service transactions | 454 | ||
| Change in related party payables and service transactions | 19 | ||
| Change in trade and other receivables related to tax assets | (451) | ||
| Change in trade payables and other liabilities related to tax liabilities Change in related party financial assets |
(920) 37 |
(7,994) 35,014 27,020 35,014 42,518 (7,504) 27,020 32,545 (5,525) (5,890) 1,010 (2,808) 254 158 2,216 832 38 |
(1) Some items have been reclassified to make them comparable to December 31, 2017
In accordance with the CONSOB resolution no. 15519 of July 27 2006, the effects of related party transactions on the financial statements are identified in the section Other information.
Emak S.p.A. (hereinafter "Emak" or the "Parent Company") is a public company, with registered offices in Via Fermi, 4 in Bagnolo in Piano (RE). It is listed on the Italian stock market (MTA) on the STAR segment.
Emak S.p.A. is controlled by Yama S.p.A., an industrial holding company, which holds the majority of its capital and appoints, in accordance with law and statute, the majority of the members of its governing bodies. Emak S.p.A., nonetheless, is not subject to management or coordination on the part of Yama, and its Board of Directors makes its own strategic and operating choices in complete autonomy.
Values shown in these notes are in thousands of Euros, unless otherwise stated.
The Board of Directors of Emak S.p.A. on March 16, 2018 approved the Financial Report to December 31, 2017, and ordered his immediate notification under Art. 154-ter, paragraph 1-ter TUF, to the Board of Auditors and to the Auditing firm in order for them to carry out their relative duties. In connection with this communication, the company has issued an appropriate press release with the key figures of the financial statements and the dividend proposal made to the General Meeting of Shareholders.
The financial statements and consolidated financial statements are subject to statutory audit by Deloitte & Touche S.p.A.
The main accounting policies used in the preparation of these consolidated financial statements are explained below and, unless otherwise indicated, have been uniformly adopted for all periods presented.
The consolidated financial statements of the Emak Group (hereinafter "the Group") have been prepared in accordance with the IFRS standards issued by the International Accounting Standards Board and adopted by the European Union at the date of preparing this report. The term IFRS also refers to all valid International Accounting Standards (IAS) still in force, as well as all interpretations of the International Financial Reporting Interpretations Committee (IFRIC), previously known as the Standing Interpretations Committee (SIC).
The consolidated financial statements have been prepared under the historical cost method, except for those financial assets and liabilities (including derivative instruments) measured at fair value.
On the basis of information available and of the current and foreseeable income and financial situation, the directors have drawn up the financial statements according to the going concern assumption.
On the basis of factors known to us, that is, the current situation and future forecasts of key economic, statement of financial position and financial figures for the Group, and of an analysis of the Group's risks, there are no significant uncertainties that may compromise the Group's status as a going concern.
In accordance with the provisions of IAS 1, the consolidated statement of financial position is constituted by the following reports and documents:
The preparation of financial statements under IFRS requires management to make use of accounting estimates. The matters involving a high degree of judgement or complexity and the areas in which the assumptions and estimates could have a significant impact on the consolidated financial statements are discussed in note 5.
With reference to Consob Resolution no. 15519 of 27 July 2006 regarding the presentation of financial statements, it should be noted that the income statement and the statement of financial position show dealings with related parties.
The consolidated financial statements of the Emak Group include the financial statements of Emak S.p.A. and the Italian and foreign companies over which Emak exercises direct or indirect control by governing their financial and operating policies and receiving the related benefits, according to the criteria established by IFRS 10.
The acquisition of subsidiaries is accounted for using the purchase method ("Acquisition method"), except for those acquired in 2011 from Yama Group. The cost of acquisition initially corresponds to the fair value of the assets acquired, the financial instruments issued and the liabilities at the date of acquisition, ignoring any minority interests. The excess of the cost of acquisition over the group's share of the fair value of the net assets acquired is recognized as goodwill.
If the cost of acquisition is lower, the difference is directly expensed to income (note 2.6). The financial statements of subsidiaries are included in the consolidated accounts starting from the date of taking control to when such control ceases to exist. Minority interests and the amount of profit or loss for the period attributable to minorities are shown separately in the consolidated statement of financial position and income statement.
Subsidiaries are consolidated line-by-line from the date that the Group obtains control.
It is noted that:
Compared to 31 December 2016, entered in the scope of consolidation:
Transactions, balances and unrealized profits relating to operations between Group companies are eliminated. Unrealized losses are similarly eliminated, unless the operation involves a loss in value of the asset transferred. The financial statements of the enterprises included in the scope of consolidation have been suitably adjusted, where necessary, to align them with the accounting principles adopted by the Group.
Associated companies are companies in which the Group exercises significant influence, as defined by IAS 28 - Investments in Associates and joint venture, but not control over financial and operating policies. Investments in associated companies are accounted for with the equity method starting from the date the significant influence begins, up to when such influence ceases to exist.
The scope of consolidation at December 31, 2017 following the acquisitions and mergers during the year include the following companies consolidated using the full consolidation method:
| Name | Head office | Share capitale |
Currency | % consolidated |
Held by | % of equity investment |
|---|---|---|---|---|---|---|
| Parent company | ||||||
| Emak S.p.A. | Bagnolo in Piano - RE (I) | 42,623,057 | € | |||
| Italy | ||||||
| Comet S.p.A. | Reggio Emilia (I) | 2,600,000 | € | 100.00 Emak S.p.A. | 100.00 | |
| PTC S.r.l. (1) | Rubiera - RE (I) | 55,556 | € | 100.00 Comet S.p.A. | 90.00 | |
| Raico S.r.l. | Reggio Emilia (I) | 20,000 | € | 100.00 Emak S.p.A. | 100.00 | |
| Sabart S.r.l. | Reggio Emilia (I) | 1,900,000 | € | 100.00 Emak S.p.A. | 100.00 | |
| Tecomec S.r.l. | Reggio Emilia (I) | 1,580,000 | € | 100.00 Emak S.p.A. | 100.00 | |
| Geoline Electronic S.r.l. | Poggio Rusco - MN (I) | 100,000 | € | 51.00 Tecomec S.r.l. | 51.00 | |
| Lavorwash S.p.A. (4) | Pegognaga - MN (I) | 3,186,161 | € | 97.78 Comet S.p.A. | 83.11 | |
| Europe | ||||||
| Emak Suministros Espana SA | Getafe - Madrid (E) | 270,459 | € | 90.00 Emak S.p.A. | 90.00 | |
| Comet France SAS | Wolfisheim (F) | 320,000 | € | 100.00 Comet S.p.A. | 100.00 | |
| Emak Deutschland Gmbh | Fellbach - Oeffingen (D) | 553,218 | € | 100.00 Emak S.p.A. | 100.00 | |
| Emak France SAS | Rixheim (F) | 2,000,000 | € | 100.00 Emak S.p.A. | 100.00 | |
| Emak U.K. Ltd | Burntwood (UK) | 342,090 | GBP | 100.00 Emak S.p.A. | 100.00 | |
| Epicenter LLC | Kiev (UA) | 19,026,200 | UAH | 61.00 Emak S.p.A. | 61.00 | |
| Speed France SAS | Arnas (F) | 300,000 | € | 100.00 Tecomec S.r.l. | 100.00 | |
| Victus-Emak Sp. Z o.o. | Poznan (PL) | 10,168,000 | PLN | 100.00 Emak S.p.A. | 100.00 | |
| Lavorwash France S.A.R.L. | La Courneuve (F) | 37,000 | € | 100.00 Lavorwash S.p.A. | 100.00 | |
| Lavorwash GB Ltd | St. Helens Merseyside (UK) | 900,000 | GBP | 100.00 Lavorwash S.p.A. | 100.00 | |
| Lavorwash Polska SP.ZOO | Bydgoszcz (PL) | 163,500 | PLN | 100.00 Lavorwash S.p.A. | 100.00 | |
| Lavorwash Iberica S.L. | Tarragona (E) | 80,000 | € | 99.00 Lavorwash S.p.A. | 99.00 | |
| America | ||||||
| Comet Usa Inc | Burnsville - Minnesota (USA) | 231,090 | USD | 100.00 Comet S.p.A. | 100.00 | |
| Comet S.p.A. | 99.63 | |||||
| Comet do Brasil Investimentos LTDA | Indaiatuba (BR) | 51,777,052 | BRL | 100.00 | PTC S.r.l. | 0.37 |
| Emak do Brasil Industria LTDA | Curitiba (BR) | 8,518,200 | BRL | 99.98 Emak S.p.A. | 99.98 | |
| Lemasa industria e comércio de equipamentos de | ||||||
| alta pressao S.A. (2) | Indaiatuba (BR) | 14,040,000 | BRL | 100.00 Comet do Brasil LTDA | 70.00 | |
| PTC Waterblasting LLC | Burnsville - Minnesota (USA) | 10 0,000 |
USD | 100.00 Comet Usa Inc | 100.00 | |
| S.I. Agro Mexico | Guadalajara (MEX) | 1,000,000 | MXM | 85.00 Comet S.p.A. | 85.00 | |
| Speed South America S.p.A. | Providencia - Santiago (RCH) | 444,850,860 | CLP | 100.00 Speed France SAS | 100.00 | |
| Valley Industries LLP (3) | Paynesville - Minnesota (USA) | - | USD | 100.00 Comet Usa Inc | 90.00 | |
| Speed North America Inc. | Wooster - Ohio (USA) | 10 | USD | 100.00 Speed France SAS | 100.00 | |
| Lavorwash S.p.A. | 99.99 | |||||
| Lavorwash Brasil Ind. Ltda | Ribeirao Preto (BR) | 8,305,769 | BRL | 100.00 | Comet do Brasil LTDA | 0.01 |
| Rest of the Word | ||||||
| Jiangmen Emak Outdoor Power Equipment Co.Ltd Jiangmen (RPC) | 25,532,493 | RMB | 100.00 Emak S.p.A. | 100.00 | ||
| Ningbo Tecomec Manufacturing Co. Ltd | Ningbo City (RPC) | 8,029,494 | RMB | 100.00 Tecomec S.r.l. | 100.00 | |
| Speed Industrie Sarl | Mohammedia (MA) | 1,445,000 | MAD | 100.00 Speed France SAS | 100.00 | |
| Tai Long (Zhuhai) Machinery Manufacturing Ltd | Zhuhai (RPC) | 16,353,001 | RMB | 100.00 Emak S.p.A. | 100.00 | |
| Speed Line South Africa Ltd | Pietermaritzburg (ZA) | 100 | ZAR | 51.00 Speed France SAS | 51.00 | |
| Yongkang Lavor Wash Equipment Co. Ltd | Yongkang City (RPC) | 63,016,019 | RMB | 100.00 Lavorwash S.p.A. | 100.00 | |
| Yongkang Lavor Trading Co. Ltd | Yongkang City (RPC) | 3,930,579 | RMB | 100.00 Lavorwash S.p.A. | 100.00 |
(1) P.T.C. S.r.l. is consolidated at 100% as a result of the "Put and Call Option Agreement" which regulates the acquisition of the remaining 10%.
(2) Lemasa is consolidated at 100% as a result of the "Put and Call Option Agreement" which regulates the acquisition of the remaining 30%.
(3) Valley Industries LLP is consolidated at 100% as a result of the "Put and Call Option Agreement" which regulates the acquisition of the remaining 10%.
(4) Lavorwash S.p.A. is consolidated at 97.78% as a result of the "Put and Call Option Agreement" which regulates the acquisition of the remaining 14.67%.
The associated company Cifarelli S.p.A., based in Voghera (Italy) with a share capital of € 374,400, is owned at 30% by Emak S.p.A. and consolidated since 1 October 2016 with the equity method. Despite the presence of a put & call agreement for the acquisition of the remaining 70%, the Group does not hold control pursuant to IFRS 10.
Transactions included in the financial statements of each group company are recorded using the currency of the primary economic environment in which the company operates (functional currency). The consolidated financial statements are presented in Euro, the functional and presentation currency of the Parent Company.
Transactions in foreign currencies are translated at the exchange rates at the dates of the transactions. Gains and losses arising from foreign exchange receipts and payments in foreign currency and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in income. Gains and losses realized on cash flow hedges whose hedged items are still unrealized are posted to the comprehensive income statement.
The financial statements of all Group companies are prepared in accordance with IAS / IFRS in accordance with the accounting principles of Emak S.p.A.
The financial statements with functional currency different from the presentation currency of the consolidated financial statements are translated as follows:
| Amount of foreign for 1 Euro | Average 2017 | 31.12.2017 | Average 2016 | 31.12.2016 |
|---|---|---|---|---|
| GB Pounds (UK) | 0.88 | 0.89 | 0.82 | 0.86 |
| Renminbi (China) | 7.63 | 7.80 | 7.35 | 7.32 |
| Dollar (Usa) | 1.13 | 1.20 | 1.11 | 1.05 |
| Zloty (Poland) | 4.26 | 4.18 | 4.36 | 4.41 |
| Zar (South Africa) | 15.05 | 14.81 | 16.26 | 14.46 |
| Uah (Ukraine) | 30.02 | 33.73 | 28.28 | 28.74 |
| Real (Brazil) | 3.61 | 3.97 | 3.86 | 3.43 |
| Dirham (Morocco) | 10.95 | 11.24 | 10.85 | 10.66 |
| Peso Mexican (Mexico) | 21.33 | 23.66 | 20.67 | 21.77 |
| Peso Chilean (Chile) | 732.61 | 737.29 | 748.48 | 704.95 |
The main exchange rates used for the translation in Euro of the financial statements expressed in foreign currencies are the following:
Land and buildings largely comprise production facilities, warehouses and offices; they are stated at historical cost, plus any legal revaluations carried out in years prior to the first-time adoption of IAS/IFRS, less the accumulated depreciation of the buildings. Other assets are recorded at historical cost, less accumulated depreciation and impairment. Historical cost includes all the directly attributable costs of purchasing the assets.
Subsequent expenditure is added to the carrying amount of the asset only when it is probable that this expenditure will generate future economic benefits and these costs can be measured reliably. Expenditure on other repairs and maintenance is expensed to income in the period incurred.
Land is not depreciated. Other assets are depreciated on a straight-line basis over their estimated useful lives generally as follows:
The residual value and useful life of assets is reviewed and amended, if necessary, at the end of each financial year.
If the carrying amount of any asset is higher than the estimated recoverable amount, it is immediately reduced to realizable value.
Assets held under finance leases, which substantially transferred to the Group all the risks and rewards of ownership, are recognized in the financial position as Group assets at their fair value determined according to the value of future payments to be made. The principal element of repayments to be made is recorded as financial liabilities. The interest element is charged to the income statement so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Leases for which the lessor retains a significant portion of the risks and rewards incident to ownership are classified as operating leases, whose payments are recognized as an expense in the income statement over the lease term on a straight-line basis.
Government grants obtained for investments in buildings and machinery are treated as deferred income, which is recognized in the income statement over the period required to match these grants with the related costs.
These are intangible assets with a finite life. The development costs of new products are capitalized only if the following conditions are met:
Development costs include only that expenditure which can be attributed directly to the development process and do not include costs for internal resources.
Development costs are amortized on the base of an estimate of the period in which it is expected that such activities generate cash flows and for any period not exceeding 5 years from commencement of production of the developed products.
All other development costs are charged to the income statement as incurred.
Trademarks and licenses are valued at historical cost. Trademarks and licenses have a finite useful life and are stated after deducting accumulated amortization. Amortization is calculated on a straight-line basis so as to spread the asset's cost over its estimated useful life and in any case for a period not exceeding 10 years.
Other intangible assets are recorded as prescribed by IAS 38 – Intangible assets, when it is identifiable, it is probable that it will generate future economic benefits and its cost can be measured reliably.
Intangible assets are recognized at purchase cost and amortized on a systematic basis over their estimated useful lives, which cannot exceed 10 years, except for the fair value of the customer list arisen during the acquisition of Lavorwash S.p.A, which is amortized in 14 years.
The goodwill deriving from the purchase of subsidiaries, classified under non-current assets, is initially recorded at cost value the excess of the consideration paid and the amount recorded for minority interests, recognized as of the acquisition date, compared to the net assets identifiable acquired and liabilities assumed by the Group. If the consideration is less than the fair value of net assets of the subsidiary acquired, the difference is recognized in the income statement.
Goodwill is considered by the Emak Group an asset with an indefinite useful life. Consequently, this asset is not amortized but is subject to regular checks to detect any impairment.
Goodwill is allocated to the business units that generate separately identifiable cash flows and monitored in order to allow the verification of impairment.
Goodwill relating to associates is included in the value of the investment.
Assets with an indefinite life are not amortized or depreciated but are reviewed annually for any impairment. Assets subject to amortization or depreciation are reviewed for impairment every time that events or changes in circumstances indicate that their carrying value might not be recoverable. The impairment loss recognized is the amount by which the carrying amount of an asset exceeds its recoverable amount, corresponding to the higher of the asset's net selling price and its value in use. For the purposes of measuring impairment, assets are classified together into the smallest identifiable groups that generate cash inflows (cashgenerating units) as required by IAS 36.
The aforementioned impairment test necessarily requires making subjective valuations based on information available within the Group, on reference market prospects and on historical trends. In addition, if there appears to be a potential reduction in value, the Group makes a calculation of the value using what it considers to be suitable valuation techniques.
The same value checks and the same valuation techniques are applied to intangible and property, plant and equipment with a defined useful life when there are indicators that predict difficulties in recovering the relative net book value through use.
The correct identification of indicators of the existence of a potential reduction in value, as well as estimates for establishing values, mainly depend on factors and conditions that may vary over time, also to a significant degree, thereby influencing the valuations and estimates made by the directors.
Property held for long-term capital appreciation and buildings held to earn rentals are measured at cost, less depreciation and any impairment losses.
The Group classifies financial assets and investments into the following categories: financial assets at fair value (with changes reported through the income statement), loans and receivables, held-to-maturity investments and financial assets held for sale. The classification depends on the purpose for which the investment has been made. The classification is made upon the asset's initial recognition and is reviewed at every statement of financial position date.
(a) Marketable financial assets at fair value (with the value of fluctuations posted in the income statement)
This category includes securities that have been acquired principally for the purpose of generating a profit from short-term fluctuations in price (or for temporarily investing surplus cash balances), this category is classified in current assets on the basis of the period-end price, with gains and losses recognized directly in the income statement. Unless derivative financial instruments are also classified as held for trading, if not defined as hedging instruments.
This balance includes loans given, securities held to maturity and other receivables deriving from financial activities that the Group has the intention and ability to hold to maturity. They are classified as non-current assets except those falling due within 12 months which are reclassified to current assets.
These financial assets are characterized by determinable payments with fixed maturities. These assets are valued using the amortized cost method, with gains recognized directly in the income statement using the effective yield method.
Investments in associates are accounted for using the equity method in accordance with IAS 28. The item also includes minority interests in corporations, valued at amortized cost, adjusted for any impairment losses.
(d) Financial assets available-for-sale
Financial assets available-for-sale is a residual category relating to those assets not belonging to the previous three categories. They are reported as non-current assets unless management intends to sell them within 12 months of the statement of financial position date.
Purchases and sales of these assets are recognized on the transaction date, which is the date on which the Group commits to purchase or sell the asset.
Unrealized gains and losses arising on changes in the fair value of non-monetary securities classified as available for sale are recorded in the comprehensive income statement. When these instruments are sold or written down, the cumulative fair value adjustments are recorded in the income statement as gains or losses on investments in securities.
Investments in all financial assets not recorded at fair value through the income statement are recognized initially at fair value plus the related transaction costs. An investment is eliminated from the accounting records when the right to its cash flows is extinguished or when the Group has transferred substantially all the risks and rewards of its ownership to third parties.
The fair value of listed investments is determined with reference to the market price reported at the close of trading on the statement of financial position date. In the absence of an active market for a financial asset or if the securities have been suspended from listing, the Group establishes fair value using valuation techniques. These techniques include the use of recent arm's length transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models, bearing in mind the issuer's specific characteristics.
The Group assesses at each statement of financial position date whether there is any objective evidence that a financial asset or group of financial assets may be impaired. If such evidence exists for the availablefor-sale assets, the amount of the loss – measured as the difference between the asset's acquisition cost and current fair value less any impairment loss previously recognized in net profit or loss – is removed from equity and posted to the income statement. Impairment losses recognized in the income statement for equity instruments are not recovered through subsequent credits to the income statement.
In this items are to be classified as assets held for sale and disposal when:
These assets are measured at the lower of their carrying amount and fair value less costs to sell. Assets reclassified to this category cease to be amortized.
Inventories are measured at the lower of cost and net realizable value. Cost is determined using the weighted average cost method. The cost of finished products and work in progress includes raw material costs, direct labor costs, general manufacturing costs and other direct and indirect costs incurred in bringing the inventories to their present location and condition. Net realizable value is determined using prevailing selling prices less estimated costs of completion and sale.
Obsolete or slow-moving stocks are devalued on the basis of the presumed possibility of their use or of their future realizable value, by creating an appropriate provision that has the effect of reducing the inventories value.
Trade receivables are recognized initially at fair value and subsequently measured at depreciated cost, using the effective interest method. They are recorded net of a bad debt provision, deducted directly from accounts receivable to bring the evaluation at their estimated realizable value.
A provision for the impairment of trade receivables is recognized when there is objective evidence that the Group will be unable to collect all the amounts according to the original terms and conditions. The amount of the provision for such loss is charged to the income statement.
Trade and other payables, due under normal commercial terms, are not discounted but are recognized at cost (identified by their face value), representing the expenditure required for their settlement.
Cash and cash equivalents include cash on hand, demand deposits with banks and short-term financial investment with original maturities of three months or less highly liquid, net of overdrafts. Bank overdrafts are classified in the statement of financial position under short-term loans and borrowings under current liabilities.
In the consolidated cash flow cash and cash equivalents have been shown net of bank overdrafts at the closing date.
Ordinary shares are classified under equity.
If a company of the Group purchases shares in the Parent company, the consideration paid, including any attributable transaction costs less the related tax, is deducted as treasury shares from the total equity pertaining to the Group until such time as these shares are cancelled or sold. Any proceeds from their sale, less directly attributable transaction costs and the related tax, are recognized in equity pertaining to the Group.
In accordance with the requirements of International accounting standard IAS 32, costs sustained for the increase in share capital (that is, registration costs or other charges due to regulation authorities, amounts paid to legal advisors, auditors or other professionals, printing costs, registration costs and stamp duty), are accounted for as a reduction in equity, net of any connected tax benefit, to the extent to which they are marginal costs directly attributable to the share capital operation and would have been avoided otherwise.
Loans and borrowings are recognized initially at fair value, less the related transaction costs. They are subsequently measured at amortized cost; the difference between the amount received, less transaction costs, and the amount repayable is recognized in the income statement over the term of the loan, using the effective interest method.
Loans and borrowings are classified as current liabilities if the Group does not have an unconditional right to defer the extinguishment of the liability to at least 12 months after the statement of financial position date.
Current taxes are the taxes accrued in accordance with the rules in force at the date of the financial statement in the various countries in which the Group operates; also include adjustments to prior years' taxes.
Deferred tax assets and liabilities are recorded to reflect all temporary differences at the reporting date between the carrying amount of an asset / liabilities for tax purposes and allocated according to the accounting principles applied.
Deferred tax assets and liabilities are calculated using tax rates established by current regulations.
Deferred tax assets are recognized on all temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized.
The same principle applies to the recognition of deferred tax assets on utilizable tax losses.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and possibly reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of all or part of the deferred tax asset to be utilized. These assets are restored if the reasons for them no longer apply.
As a general rule, apart from specific exceptions, deferred tax liabilities must always be recognized.
Income taxes (current and deferred) relating to items recognized directly in Equity are also recognized directly in Equity.
Current tax assets and liabilities are offset only if the company has a legally enforceable right to set off the recognized amounts and if it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities may be offset only if the company is able to offset current tax assets against current tax liabilities and if the deferred taxes refer to income taxes levied by the same taxation authority.
The employee termination indemnity comes within the sphere of defined benefit plans, subject to actuarial evaluations (deaths, the probability of terminations, etc.) and expresses the current value of the benefit, payable at the termination of employment, which employees have accrued up to the statement of financial position date.
The costs relating to the increase in the current value of the liability, arising as the time of payment approaches, are included among financial charges. All other costs included in the provision are posted to the income statement as a staff cost. Actuarial gains and losses are accounted for in the statement of changes in comprehensive income in the year in which they occur.
Provisions for risks and charges are recognized when the Group has legal or constructive obligation arising from past events, is likely to be asked to pay the balance of the obligation and a reliable estimate can be made of the related amount.
Revenues are recognized in the income statement on an accruals and temporal basis and are recognized to the extent that it is probable that the economic benefits associated with the sale of goods or the provision of services will flow to the Company and their amount can be reliably measured.
Revenues are accounted net of returns, discounts, rebates and taxes directly associated with the sale of goods or the provision of the service.
Sales are recognized at the fair value of the consideration received for the sale of products and services, when there are the following conditions:
• are substantially transferred the risks and rewards of ownership of the property;
Government grants are recognized at fair value when there is reasonable assurance that the grants will be received and all the conditions attaching to them have been satisfied.
Government grants related to costs (eg. operating grants) are recognized as revenue on a systematic basis over a number of years so as to match the costs that the grant is intended to offset.
Government grants related to assets (eg. facility grants) are recorded in non-current liabilities and gradually released to the income statement on a systematic basis over the useful life of the asset concerned.
Financial income and expenses are recognized on an accrual basis using the effective interest rate and include exchange gains and losses and gains and losses on derivatives charged to the income statement.
Dividends on the Parent company's ordinary shares are reported as liabilities in the financial statements in the year in which the shareholders approve their distribution.
Basic earnings per share are calculated by dividing the Group's net profit by the weighted average number of shares outstanding during the period, excluding treasury shares. Emak S.p.A. does not have any potential ordinary shares.
The cash flow statement has been prepared using the indirect method.
Cash and cash equivalents included in the cash flow statement comprise the cash-related balances at the reporting date. Interest income and expense, dividends received and income taxes are included in cash flow generated by operations.
The following IFRS accounting standards, amendments and interpretations were first adopted by the Group starting January 1, 2017:
This standard is applicable as from 1 January 2018. The amendments to IFRS 15, Clarifications to IFRS 15 – Revenue from Contracts with Customers, it's been approved by European Union on 6 November 2017.
On basis of the carried out analysis, Directors expect that application of IFRS 15 will not have any significant effect on revenue amounts and on disclosure reported in consolidated financial statements.
The new standard must be applied to reporting period beginning on 1 January 2018 and thereafter.
On basis of the carried out analysis, Directors expect that application of IFRS 9 will not have any significant effect on amounts and on disclosure reported in consolidated financial statements. In particular, overall estimated effect by the application of the new accounting standard could produce an overall negative impact on the Net Equity at December 31, 2017 not more than € 200 thousand, mainly attributable to fair value measurements of other investment in other companies.
• IFRS 16 – Leases (issued on 13 January 2016) intended to replace IAS 17 – Leases, as well as IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The new standard provides a new definition of lease and introduces a criteria based on the control (right of use) of an asset to differentiate between lease and service agreements identifying which distinctive: asset identification, right of replacement of the asset, right to obtain all economic benefits arising out of use of the asset and right to control the use of the asset underlying the agreement.
The standard introduces a single lessee accounting model for recognizing and measuring lease agreements, which provides for the underlying asset – including assets underlying operating leases – to be recognized in the statement of financial position as assets and lease financial liability providing the possibility to not recognize as lease the agreements concerning "low-value assets" and agreements with a duration equal and/or less 12 months. To the opposite, no significant changes are introduced by the Standard for lessor accounting.
The standard applies for reporting period beginning on or after 1 January 2019. Early adoption is only allowed for early adopters of IFRS 15 – Revenue from Contracts with Customers. Directors expect that adoption of IFRS 16 could have a significant effect on amounts and on disclosure reported in consolidated financial statements. However, is not possible to provide a reasonable estimate as long as
the Company will complete a detail analysis on agreements. The effect will mainly concern the accounting of the related real estate leases and the operating leases of cars and means of transport.
• Document "Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts" (issued on 12 September 2016). The amendment provides entities meeting a criterion for engaging in predominantly insurance activities with the option to continue current IFRS accounting and to defer the application of IFRS 9 (from 1 January 2018) to financial activities, before the IASB replaces current IFRS 4 with the new standard currently being prepared, based on which financial liabilities are assessed. Directors do not expect a significant effect on consolidated financial statements by adopting of these changes.
The European Union has not yet completed its endorsement process for the standards and amendments below reported at the date of these Financial Statements.
or receive the amount in question. Therefore, the interpretation does not provide any new mandatory disclosure; however, the entity should assess whether is necessary to provide disclosures on the management consideration done in relation to the uncertainty inherent to the recognition of the income taxes, in accordance with IAS 1. This interpretation apply as from 1 January 2019, though early adoption is allowed. Directors do not expect a significant effect on consolidated financial statements by adopting of these interpretation.
The Group's objectives for managing capital are:
The Group manages capital structure in proportion to the risk. In order to maintain or adjust its capital structure, the group may vary the amount of dividends paid to shareholders and the return on capital to shareholders, and it may issue new shares, or sell assets to reduce the level of debt.
During recent years the group's dividend policy has been to "pay out" around 40% of net profit attributable to the Group reported in the consolidated financial statements.
The Group monitors its capital on the basis of the ratio between net financial position and equity, and between net financial position and Ebitda.
The Group's strategy is to maintain the relationship NFP / Equity ratio to a value not greater than 1 and a value in the long term, not exceeding 3 for the ratio NFP / EBITDA, in order to ensure access to finance at a limited cost while maintaining a high credit rating. This debt target could be revised in case of changes in the macroeconomic situation or breached for a short period in case of "Mergers & Acquisitions" operations. Considering the seasonality of the business, this ratio is subject to change during the year.
The NFP / Equity and NFP / EBITDA before non ordinary expanses ratios at 31 December 2017 and 31 December 2016 are as follows.
| €/000 | Dec. 31 17 | Dec. 31 16 |
|---|---|---|
| Net financial position (note 9) | 125,294 | 80,083 |
| Total equity | 187,505 | 181,668 |
| Ebitda before non ordinary expanses (1) | 45,612 | 40,479 |
| Nfp/Equity | 0.67 | 0.44 |
| Nfp/Ebitda | 2.75 | 1.98 |
(1) EBITDA has been calculated excluding costs and income for disputes, M&A operations and restructuring and workforce reorganization, as detailed in Note 3 of the Directors' Report
The ratio between Nfp at 31 December 2017 and Ebitda "pro-forma 2017 before non-ordinary expenses" (see note 4.3 of the management report) is 2.39.
The Group's business is exposed to a number of different financial risks: market risk (including interest rate risk, exchange rate risk and market prices risk), credit risk and liquidity risk. The Group's policies for managing and controlling financial risks focus on the unpredictability of financial markets and seek to minimize the potentially negative effects on the consolidated results. The Group uses derivative financial instruments to hedge certain risks.
Hedging of the Group's financial risks is managed by a head office function working in close collaboration with the individual operating units.
The Group's interest rate risk relates to its long-term loans and borrowings. Variable rate loans expose the Group to the cash flow risk associated with interest rates. Fixed rate loans expose the Group to the fair value risk associated with interest rates.
The Group's policy is based on constantly monitoring its level and structure of debt and on the trend in interest rates and macroeconomic variables that might directly influence them, with the goal of optimizing the cost of money.
At December 31 2017, financings with banking institutions and financial leasing companies are at variable rates and, consequently, the Group has set up hedging operations aimed at limiting the effects of interest rate fluctuations.
The Group conducts its business internationally and is exposed to exchange risk arising from currency used, mainly U.S. dollars, Japanese yen, British pound, Chinese renminbi, Polish zloty, South African rand, Ukrainian hryvnia, Brazilian reais and Mexican peso. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and the net investments in foreign companies.
The Group's policy is based on the research of natural hedging receivables and payables and is limited to partially covering the net positions in foreign currencies mainly using forward contracts.
The group is exposed to fluctuations in the price of raw materials. This exposure is mostly towards suppliers of parts since their price is generally tied by contract to the trend in market prices for raw materials. The raw materials of greatest use refer to aluminum, steel, brass, metal alloys, plastic and copper.
The Group has adopted policies to ensure that products are sold to customers of proven creditworthiness and that certain types of receivable are insured.
Prudent liquidity risk management implies maintaining sufficient financial availability of cash and marketable securities, funding through an adequate amount of bank credit.
Consequently, the treasury of the Group carries out the following activities:
Counterparties to derivative contracts and operations performed on liquid funds are restricted to primary financial institutions.
The Group has maintained its high level of creditworthiness on the part of credit institutes and analysts; credit lines already abundantly exceed requirements.
Derivative financial instruments are used exclusively for hedging purposes with the intent of reducing the risks of foreign currency and interest rate fluctuation. In line with its risk management policy, in fact, the Group does not carry out derivative operations for speculative purposes.
When such operations are not accounted for as hedging operations they are recorded as trading operations. As established by IAS 39, derivative financial instruments may qualify for special hedge accounting only if at the inception of the hedge the hedging relationship is formally designated and documented, the hedge is expected to be highly effective and the effectiveness of the hedge can be measured reliably.
Derivatives are initially recognized at cost and adjusted to fair value at subsequent statement of financial position dates.
On the basis of the above, and of contracts entered into, the accounting methods adopted are as follows:
Fair value hedge: the fair value variations of the hedging instrument are posted to the Income Statement together with variations in the fair value of the hedged transactions.
Cash flow hedge: the variations in fair value which are intended and proved to be effective for hedging future cash flows are posted to the Comprehensive Income Statement, while the ineffective portion is posted immediately to the Income Statement. If contractual commitments or planned hedging operations lead to the creation of an asset or liability, when this occurs the profits or losses on the derivative which have been posted directly to the Comprehensive Income Statement adjust the opening cost of acquisition or holding value of the asset or liability. For financial cash flow hedgings that do not lead to the creation of an asset or liability, the amounts which have been posted directly to the Comprehensive Income Statement are transferred to the Income Statement in the same period in which the contractual commitment or planned hedging operation are posted to the Income Statement.
Derived financial instruments not defined as hedging instruments: the variations in fair value are posted to the Income Statement.
The accounting method adopted for a hedge is applied until it expires, is sold, terminates, is exercised or is no longer defined as a hedge. Accumulated profits or losses from the hedging instrument recorded directly in the Statement of Comprehensive Income are maintained until the related operation effectively occurs. If the operation to which the hedge relates is no longer expected to occur, the accumulated profits or losses recorded directly in the Statement of Comprehensive Income are transferred to the Income Statement for the relevant period.
The fair value of financial instruments with a quoted market price in an active market (such as publicly traded derivatives and securities held for trading and for sale) is based on the market price at the statement of financial position date. The market price used for the Group's financial assets is the bid price; the market price for financial liabilities is the offer price.
The fair value of financial instruments not quoted in an active market (for example, derivatives quoted over the counter) is determined using valuation techniques. The Group uses various methods and makes assumptions that are based on existing market conditions at the statement of financial position date. Longterm payables are valued using quoted market or trading prices for the specific or similar instruments. Other methods, such as estimating the present value of future cash flows, are used to determine the fair value of the other financial instruments. The fair value of forward currency contracts is determined using the forward exchange rates expected at the statement of financial position date.
It is assumed that the face value less estimated doubtful receivables approximates the fair value of trade receivables and payables. For the purposes of these notes, the fair value of financial liabilities is estimated by discounting contractual future cash flows at the current market rate available to the group for similar financial instruments.
The preparation of the consolidated financial statements and the related notes under IFRS has required management to make estimates and assumptions affecting the value of reported assets and liabilities and the disclosures relating to contingent assets and liabilities at the statement of financial position date. Actual results could differ from these estimates. Estimates are used for recording provisions for doubtful accounts receivable and inventory obsolescence, amortization and depreciation, write-downs to assets, postemployment benefits, taxes and other provisions. Estimates and assumptions are reviewed periodically and the effects of any change are immediately reflected in the income statement.
The assessment that goodwill is recorded in the financial statements for a value not higher than their recoverable value (so-called impairment test) provides, first of all, to test the endurance of the value of the goodwill divided into the Cash Generating Unit (CGU). The calculation of the recoverable amount is carried out in accordance with the criteria established by IAS 36 and is determined in terms of value in use by discounting the expected cash flows from the use of the asset or of a CGU, as well as from the expected value of the asset at its disposal at the end of its useful life. This process involves the use of estimates and assumptions to determine both the amount of future cash flows and the corresponding discount rates. The future cash flows are based on the most recent economic-financial plans drawn up by the Management of each CGU in relation to the functioning of the production assets and the market context. With reference to the business in which the company operates, the factors that have the greatest relevance in the estimates of future cash flows are attributable to the intrinsic difficulty of formulating future forecasts, to the feasibility of market strategies in highly competitive contexts, as well as to the risks of macroeconomic nature related to the geographic areas in which the Emak Group operates. The discount rates reflect the cost of money for the period forecast and the specific risks of the activities and countries in which the Group operates and are based on observable data in the financial markets.
In this context, it should be noted that the situation caused by the persistent difficulties of the economic and financial scenario has implied the need to make assumptions regarding the future outlook which is characterized by uncertainty. As a result, it cannot be excluded that the actual results obtained will be different from the forecasts, and therefore adjustments, even of significant amounts, which obviously cannot today be estimated or foreseeable, to the book value of the relative items may be necessary.
IFRS 8 provides for information to be given for certain items in the financial statements on the basis of the operational segments of the company.
An operating segment is a component of a company:
IFRS 8 is based on the so-called "Management approach", which defines sectors exclusively on the basis of the internal organizational and reporting structure used to assess performance and allocate resources.
According to these definitions, the operating segments of Emak Group are represented by three Divisions/ Business Units with which develops, manufactures and distributes its range of products:
The directors separately observe the results by business sector in order to make decisions about resource allocation and performance verification.
The performance of the sectors is evaluated on the basis of the measured result that is consistent with the result of the consolidated financial statements.
Below are the main economic and financial data broken down by operating segment:
| OUTDOOR POWER EQUIPMENT |
PUMPS AND HIGH PRESSURE WATER JETTING |
COMPONENTS AND ACCESSORIES |
Other not allocated / Netting |
Consolidated | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| €/000 | 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 | 31.12.2017 | 31.12.2016 |
| Sales to third parties | 168,402 | 177,006 | 138,770 | 102,916 | 114,983 | 111,957 | - | - | 422,155 | 391,879 |
| Intersegment sales | 1,851 | 1,522 | 1,456 | 1,411 | 7,767 | 6,674 - | 11,074 - | 9,607 | ||
| Revenues from sales | 170,253 | 178,528 | 140,226 | 104,327 | 122,750 | 118,631 - | 11,074 - | 9,607 | 422,155 | 391,879 |
| Ebitda | 9,400 | 10,996 | 19,546 | 14,008 | 17,372 | 17,009 - | 2,386 - | 2,544 | 43,932 | 39,469 |
| Ebitda/Total Revenues % | 5.5% | 6.2% | 13.9% | 13.4% | 14.2% | 14.3% | 10.4% | 10.1% | ||
| Operating result | 3,787 | 4,827 | 15,503 | 6,306 | 13,073 | 13,280 - | 2,386 - | 2,544 | 29,977 | 21,869 |
| Operating result/Totale Revenues % | 2.2% | 2.7% | 11.1% | 6.0% | 10.7% | 11.2% | 7.1% | 5.6% | ||
| Net financial expenses | - 3,013 |
1,049 | ||||||||
| Profit befor tax | 23,135 | 26,530 | ||||||||
| Income taxes | 6,700 | 8,847 | ||||||||
| Net profit | 16,435 | 17,683 | ||||||||
| Net profit/Total Revenues% | 3.9% | 4.5% | ||||||||
| STATEMENT OF FINANCIAL POSITION | ||||||||||
| Net debt | 27,297 | 24,595 | 91,969 | 43,929 | 7,031 | 12,385 - | 1,003 - | 826 | 125,294 | 80,083 |
| Shareholders' Equity | 176,986 | 180,308 | 44,002 | 38,428 | 48,975 | 45,361 - | 82,458 - | 82,429 | 187,505 | 181,668 |
| Total Shareholders' Equity and Net debt |
204,283 | 204,903 | 135,971 | 82,357 | 56,006 | 57,746 - | 83,461 - | 83,255 | 312,799 | 261,751 |
| Net non-current assets (*) | 136,604 | 133,224 | 76,648 | 44,938 | 19,076 | 19,377 - | 81,366 - | 81,411 | 150,962 | 116,128 |
| Net working capital | 67,679 | 71,679 | 59,323 | 37,419 | 36,930 | 38,369 - | 2,095 - | 1,844 | 161,837 | 145,623 |
| Total net capital employed | 204,283 | 204,903 | 135,971 | 82,357 | 56,006 | 57,746 - | 83,461 - | 83,255 | 312,799 | 261,751 |
| (*) The net non-current assets of the Outdoor Power Equipment area includes the amount of Equity investments for 81,150 thousand Euro | ||||||||||
| OTHER STATISTICS |
| Number of employees at period end | 801 | 799 | 704 | 379 | 516 | 501 | 8 | 7 | 2,029 | 1,686 |
|---|---|---|---|---|---|---|---|---|---|---|
| Amortization, depreciation and 5,613 6,169 4,043 7,702 4,299 3,729 13,955 17,600 impairment losses Investment in property, plant and 8,346 6,010 3,767 3,951 5,315 4,584 17,428 |
OTHER INFORMATIONS | ||||
|---|---|---|---|---|---|
| equipment and in intangible assets | 14,545 |
For the comments of the economic part, reference should be made to chapter 3 of the Directors Report.
On January 27, the US subsidiary Valley Industries LLP (segment Pumps and High Pressure Water Jetting) acquired assets, brand and client portfolio of A1 Mist Sprayers Resources for a consideration of \$ 2 million.
With this transaction, Valley will expand its product offering with a new range of sprayers to apply to quad, and pick up the third point of small tractors. The company will also expand its distribution network from a territorial point of view and distribution channels as well as its technical expertise on the use of the sprayer.
The fair value of assets and liabilities subject to business combination with effect as of 27 January 2017, the price paid and the financial cost are detailed below:
| Fair Value | Fair value of | |
|---|---|---|
| adjustments | acquired assets | |
| 334 | - | 334 |
| 10 | - | 10 |
| 94 | - | 94 |
| (37) | - | (37) |
| 401 | - | 401 |
| 100% | ||
| 401 | ||
| 1,472 | ||
| 1,873 | ||
| 1,780 | ||
| 93 | ||
| Book values |
Based on the provisions of IFRS 3, the difference between the price paid and the corresponding share of equity has been allocated as goodwill given the coincidence between the fair value and book value of assets and liabilities acquired.
On 3 July, the subsidiary Comet S.p.A. has completed the closing of the 83.11% acquisition of the Lavorwash Group based in Pegognaga (MN), active in the design, production and marketing of a wide range of machines for both hobby and professional use in the cleaning sector. The Lavorwash Group has production plants in Italy, China and Brazil, and distribution subsidiaries in Spain, France, Great Britain, Poland and China. The Lavorwash offer is a perfect complement to the activities of the Emak Group in the Pompe and High Pressure Water Jetting segment. In particular, with the acquisition of Lavorwash, Emak enriches its product range for washing, positioning itself among the first operators in the cleaning sector.
The price paid by the Group to sellers amounted to € 57.4 million (of which € 2.6 million paid in December 2017 as a price adjustment). An additional 14.67% share is governed by a Put & Call option agreement to be exercised in the course of 2020, to be valorised on the basis of the results obtained in the period 2018-2019. On the basis of the contractual agreements, which provide for a maximum value (CAP) for the year, the shareholding subject to "Put and Call option" has been valued on the basis of the economic-financial results forecast by the management for the next two years. Following these assessments, the value referred to
14.67% of the Lavorwash Group and subject to the Put and Call Agreement was quantified in € 10,854 thousand.
The fair value of the assets and liabilities aggregated with effect from 3 July 2017, the price paid and the deferred financial cost are detailed below:
| €/000 | Book values | Fair Value adjustments |
Fair value of acquired assets |
|---|---|---|---|
| Non-current assets | |||
| Property, plant and equipment | 7,703 | 1,364 | 9,067 |
| Intangible fixed assets | 82 | 12,984 | 13,066 |
| Goodwill | 253 | - | 253 |
| Deferred tax assets | 1,247 | - | 1,247 |
| Other non current financial assets | 42 | - | 42 |
| Other receivables | 13 | - | 13 |
| Current assets | |||
| Inventories | 18,007 | - | 18,007 |
| Trade and other receivables | 18,970 | - | 18,970 |
| Current tax assets | 342 | - | 342 |
| Other financial assets | 1 | - | 1 |
| Cash and cash equivalents | 18,245 | - | 18,245 |
| Non-current liabilities | |||
| Loans and borrowings due to banks and other lenders | (4) | - | (4) |
| Deferred tax liabilities | (148) | (4,003) | (4,151) |
| Employee benefits | (1,840) | - | (1,840) |
| Provisions for risks and charges | (558) | - | (558) |
| Current liabilities | |||
| Trade and other payables | (17,156) | - | (17,156) |
| Current tax liabilities | (2,184) | - | (2,184) |
| Loans and borrowings due to banks and other lenders | (7) | - | (7) |
| Provisions for risks and charges | (1,208) | - | (1,208) |
| Total net assets acquired | 41,800 | 10,345 | 52,145 |
| % interest held | 97.78% | ||
| Equity of the Group acquired | 50,987 | ||
| Goodwill | 17,237 | ||
| Post closing acquisition price | 68,224 | ||
| Purchase price paid in July 2017 (83.11% share) | 54,795 | ||
| Settlement paid in December 2017 (referred to the 83.11% share) | 2,575 | ||
| Put & call 2020 deferred price | 10,854 | ||
| Cash and cash equivalents | 18,245 | ||
| Net cash outflow | 39,125 |
The difference between the acquisition price paid and the fair value of the assets, liabilities and contingent liabilities at the acquisition date was recognized as goodwill. The fair value measurement of tangible and intangible assets was carried out by an independent professional; the fair value adjustments refer for € 386 thousand to plants and machinery, for € 978 thousand to other tangible assets, for € 5,490 thousand to the definite useful life trademark and for € 7,494 thousand to other intangible assets, mainly the "customer list". The evaluation prepared by the expert defined the estimated useful life to be attributed to the trademark (10 years) and to the "customer list" (14 years).
Compared to the interim management report of 30 September 2017, the value of the goodwill was changed following the updating of the provisional price initially paid and subject to adjustment, and the possibility given by the IFRS 3 to change over the twelve months the allocation of the acquisition price to the balance sheet items.
On 5 May 2017, was agreed with the minority shareholder "Savage Investments" the 12 month deferral of the exercise of the Put & Call options on the remaining 10% minority stake in the Valley Industries LLP company, expiring originally in the first half of 2017. In January 2018, following the reorganization of the Comet Usa-Valley Group companies, the Put & Call option was extended indefinitely.
During the first half of 2017, Comet USA fully paid the share capital of the subsidiary P.T.C. Waterblasting LLC for \$ 285 thousand ( of which \$ 185 thousand through conversion of intercompany loan).
In December, the company Comet S.p.A. has signed an agreement establishing the early exercise of the "Put and call Option Agreemement" which regulates the purchase of the remaining 10% of the company P.T.C. Srl. The contractual terms provide that the option will be exercised by 30 April 2018 for a price set at € 176 thousand, by changing the original deadline that envisaged the possibility of exercise in the year 2019, and that the exercise price is established on the basis of the economic-financial results for the 2015-2016- 2017 financial years. The company P.T.C. S.r.l., on the basis of the previous "Put and Call Option Agreement", was already 100% consolidated.
Works for the construction of the new R&D centre started in July 2016 go on, at the Parent Company Emak S.p.A.
At December 31, 2017, the portion of the investment already recorded under fixed assets amounted to approximately € 2,800 thousand, compared to a total investment of € 5,500 thousand.
Concerning the project for the implementation of the new ERP Microsoft Dynamics 365 system in some Group's companies, it has to be highlighted that activities are proceeding according to the forecasted plans with the aim to get to "go live" within end 2018. Overall forecasted investment for the ongoing projects will amount to €2,000 thousand, of which € 856 thousand already accounted for as of 31 December 2017.
As already specified in the paragraph "Main shareholders of Emak", of the Directors' report, on May 23, 2017, the major shareholder Yama S.p.A. has completed the placement of a stake of approximately 10% of Emak S.p.A.'s share capital, thus coming to hold 65.181% of Emak's share capital.
No events/operations as per Consob Communication DEM/6064293 of 28 July 2006 have been recorded during the financial period 2017. As indicated in this Communication "atypical and/or unusual operations are considered as operations that, due to their significance/materiality, the nature of the counterparties, the object of the transaction, the means for determining the transfer price and the time of the event (near the close of the period), may give rise to doubts with regards to: the correctness/completeness of the information in the financial statements, conflicts of interest, the protection of company assets, the safeguarding of minority interests".
It is shown in the table below details of the net financial position, which includes the net financial debt determined according to ESMA criteria (based on the format required by Consob communication no. 6064293 of 28 July 2006).
| Net financial position | 31/12/2017 | 31/12/2016 | |
|---|---|---|---|
| A. | Cash | 40,812 | 32,545 |
| B. | Other cash at bank and on hand (held-to-maturity investments) | - | - |
| C. | Financial instruments held for trading | - | - |
| D. | Liquidity funds (A+B+C) | 40,812 | 32,545 |
| E. | Current financial receivables | 7,549 | 545 |
| F. | Current payables to banks | (36,570) | (11,833) |
| G. | Current portion of non current indebtedness | (31,956) | (32,862) |
| H. | Other current financial debts | (10,151) | (2,469) |
| I. | Current financial indebtedness (F+G+H) | (78,677) | (47,164) |
| J. | Current financial indebtedness, net (I+E+D) | (30,316) | (14,074) |
| K. | Non-current payables to banks | (80,084) | (63,249) |
| L. | Bonds issued | - | - |
| M. | Other non-current financial debts | (15,646) | (12,858) |
| N. | Non-current financial indebtedness (K+L+M) | (95,730) | (76,107) |
| O. | Net indebtedness (J+N) | (126,046) | (90,181) |
| P. | Non current financial receivables | 752 | 10,098 |
| Q. | Net financial position (O+P) | (125,294) | (80,083) |
The net financial position at December 31, 2017, includes € 23,891 thousand, of which € 9,304 thousand as the current portion, referring to payables for the purchase of the remaining minority shareholding and for the settlement of purchase transactions with deferred price subject to contractual restrictions (Note 29). These payables refer to the following companies:
Compared to the previous year, payables for the purchase of equity investments recorded an increase of € 10,854 thousand referring to the acquisition of the Lavorwash Group and an increase of € 83 thousand referring to the acquisition of the assets of A1 Mist Sprayers Resources Inc.
To guarantee current and future debts for the purchase of the equity investment in the company Lemasa, an amount of 27,361 thousand Brazilian Reais is deposited in an Escrow Account, equal to an amount of 6,887 thousand Euro, recorded under the item "Current financial receivables" of the table above.
At 31 December 2017, net financial debts include amounts receivable from related parties for the amount of € 746 thousand, of which € 449 thousand are short-term, attributable to the receivable from Yama S.p.A. for the guarantees included in the contract in favor of Emak S.p.A. as part of the so-called "Operazione Greenfield" through which Emak S.p.A. acquired in 2011 the companies Comet S.p.A., Tecomec S.r.l., Sabart S.r.l. and Raico S.r.l.
The Group's revenues amount to € 422,155 thousand, compared to € 391,879 thousand of last year, and are recorded net of returns for € 1,453 thousand, against € 1,528 thousand of last year.
The increase in sales is attributable to the consolidation of the Lavorwash Group in the revenues of the year for an amount of € 29,610 thousand.
Details of revenues from sales are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Net sales revenues (net of discounts and rebates) | 419,467 | 389,182 |
| Revenues from recharged transport costs | 4,141 | 4,225 |
| Returns | (1,453) | (1,528) |
| Total | 422,155 | 391,879 |
Other operating income is analyzed as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Capital gains on property, plant and equipment | 237 | 113 |
| Recovery of warrants costs | 131 | 107 |
| Insurance refunds | 76 | 117 |
| Advertising reimbursement | 258 | 239 |
| Government grants | 305 | 170 |
| Recovery of administrative costs | 242 | 209 |
| Recovery of costs canteen | 107 | 102 |
| Revenues for rents | 533 | 346 |
| Other operating income | 1,795 | 1,186 |
| Total | 3,684 | 2,589 |
The increase of the item is attributable for € 479 thousand to the consolidation of the Lavorwash Group.
The "Revenues for rents" refers to income from the rents of part of the production building located in Jiangmen (China), leased starting from April, 2016.
The "Other operating income" includes € 308 thousand due to the registration of a reimbursement received in the context of a pending case awaiting judgment. In the uncertainty of the outcome of the case, a provision for the same amount was made between the current provisions for risks and charges (note 32).
The cost of raw materials, semi-finished products and goods is analyzed as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Raw materials, semi-finished products and goods | 231,447 | 194,767 |
| Other purchases | 3,118 | 3,405 |
| Total | 234,565 | 198,172 |
The increase of the item "Raw materials, semi-finished products and goods" is attributable for € 15,121 thousand to the consolidation of the Lavorwash Group and to the increase of stock.
Details of these costs are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Wage and salaries | 54,600 | 49,550 |
| Social security charges | 15,810 | 14,451 |
| Employee termination indemnities | 2,664 | 2,390 |
| Other costs | 1,816 | 1,545 |
| Directors' emoluments | 1,507 | 1,218 |
| Temporary staff | 3,658 | 3,885 |
| Total | 80,055 | 73,039 |
The details of staff by country is shown in heading 6 of the Directors' Report.
The effect of the consolidation of the Lavorwash Group weighed on the personnel expenses for € 4,974 thousand; with the same scope of consolidation as the previous year, the personnel expenses would have been equal to € 75,081 thousand, in increase compared to the values of the previous year.
The costs for the year include reorganization costs in some companies of the Group for an amount of € 466 thousand.
Details of these costs are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Subcontract work | 12,173 | 11,589 |
| Maintenance | 4,078 | 3,745 |
| Trasportation | 17,927 | 15,002 |
| Advertising and promotion | 3,639 | 3,362 |
| Commissions | 6,612 | 5,923 |
| Travel | 3,500 | 3,090 |
| Postals and telecommunications | 998 | 903 |
| Consulting fees | 5,822 | 3,828 |
| Driving force | 2,234 | 2,240 |
| Various utilities | 1,143 | 1,004 |
| Services and bank fees | 1,009 | 967 |
| Costs of after sales warranty | 1,396 | 1,151 |
| Insurances | 1,507 | 1,344 |
| Other services | 6,953 | 6,331 |
| Services | 68,991 | 60,479 |
| Rents, rentals and the enjoyment of third party assets | 7,970 | 7,454 |
| Increases in provisions (note 32) | 860 | 285 |
| Credit losses | 124 | 54 |
| Increases in provision for doubtful accounts (note 23) | 742 | 1,062 |
| Capital losses on property, plant and equipment | 53 | 2 |
| Other taxes (not on income) | 1,318 | 1,185 |
| Grants | 121 | 140 |
| Other costs | 1,276 | 1,011 |
| Other expenses | 3,634 | 3,454 |
| Total Other operating costs | 81,455 | 71,672 |
The increase registered in the items is attributable to the entrance of the Lavorwash Group in the area of consolidation.
The increase of the transportation costs is referred for € 1,232 thousand to the effect of the entrance of the Lavorwash group in the area of consolidation. The additional increase is attributable both to an increase of the purchase volume of raw materials and finished products, and to a different mix of the selling markets for the products and of the related routes, compared to the previous year.
The increase of the consulting fees is attributable to the costs borne for the operations of M&A realized during the year and to the costs lacking the capitalization requirements borne for the implementation of the new informative system in some companies of the Group.
In 2017 this item includes € 1,264 thousand as costs M&A; in the previous year these costs amounted to € 377 thousand.
Details of these amounts are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Amortization of intangible assets (note 19) | 2,817 | 2,542 |
| Depreciaton of property, plant and equipment (note 18) | 10,548 | 10,247 |
| Impairment losses | 590 | 4,811 |
| Total | 13,955 | 17,600 |
The depreciation and amortization at December 31, 2017 amounted to € 13,955 thousand of which € 590 thousand as a partial impairment loss of goodwill allocated to the CGU Geoline Electronic S.r.l. recognized after the impairment test for which details are provided in Note 20. The previous fiscal year included a partial impairment loss of goodwill allocated to the subsidiary Lemasa LTDA for an amount equal to € 4,811 thousand.
"Financial income" is analyzed as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Income from adjustment to fair value of derived instruments for hedging interest rate risk |
209 | 225 |
| Interest of trade receivables | 226 | 258 |
| Interest on bank and postal current accounts | 199 | 237 |
| Financial income of debt adjustment estimate for purchase commitment of remaining shares of subsidiaries |
281 | 5,115 |
| Other financial income | 892 | 1,270 |
| Financial income | 1,807 | 7,105 |
"Financial income of debt adjustment estimate for purchase commitment of remaining shares of subsidiaries" refers to the reduction of the deferred value of the put and call option on the purchase commitments of the shares of the company Lemasa LTDA. The acquisition of Lemasa, which took place in 2015, has provided for the valuation of the deferred portion of the price on the basis of the economic and financial results realized by the target company in the years 2015-2017. At December 31, 2017 the value of the deferred price, originally estimated using forecasts, has been adjusted using the data in the financial statement and determining the inclusion of financial income for € 281 thousand.
"Other financial income" includes € 764 thousand (€ 1,210 thousand in the previous year) as interest income accrued on the escrow account with the escrow account contract part of the acquisition of company Lemasa and accrual to the Group.
| €/000 | FY 2017 | FY 2016 | |
|---|---|---|---|
| Interest on medium-term bank loans and borrowings | 1,948 | 2,427 | |
| Interest on short-term bank loans and borrowings | 311 284 |
||
| Costs from adjustment to fair value and fixing of derived instruments for hedging interest rate risk |
239 | 428 | |
| Financial charges from valuing employee terminations indemnities (note 31) | 81 | 103 | |
| Financial expenses from discounting debts | 1,691 | 2,023 | |
| Other financial costs | 550 | 791 | |
| Financial expenses | 4,820 | 6,056 |
The reduction in interest on bank loans compared to the previous year is due to the reduction in average interest rates applied to bank loans.
"Financial expenses from discounting debts" refer to charges due to the discounting on liabilities for the acquisition of equity investments which will be settled in the future.
The previous fiscal year the item "Other financial costs" included € 360 thousand for the amount paid in settlement of the pro-rata price for the purchase of the investment in the subsidiary S.I.Agro Mexico.
Reference should be made to Note 22 for more details on derived instruments for hedging interest rate risk.
The breakdown of "exchange gains and losses" is as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Profit / (Loss) on exchange differences on trade transactions | (2,726) | 8 |
| Profit / (Loss) on exchange differences on financial assets | (1,492) | 3,399 |
| Exchange gains and losses | (4,218) | 3,407 |
The item referring to trade transactions also includes the effect of the valuations of currency hedging at fair value.
The exchange rate management was negatively affected by the trend of US Dollar; the exchange losses related to this currency are mainly caused by the effect of the valuation with the exchange rate at the end of the period of the net assets.
"Profit on exchange differences on financial transactions" included in 2016 the recording of positive exchange difference for an amount of around € 1,685 thousand deriving from the conversion into share capital of the intercompany loan, previously granted by Comet S.p.A. to the subsidiary Comet do Brasil.
The item "Income from investments revaluation in associated companies" amounting to € 389 thousand (€ 205 thousand at 31 December of the previous year), refers to the result of the equity valuation of the associated company Cifarelli S.p.A.
The tax charge in 2017 for current and deferred tax assets and liabilities amounts to € 6,700 thousand (€ 8,847 thousand in the previous year).
This amount is made up as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Current income taxes | 7,882 | 7,333 |
| Taxes from prior years | 243 | (252) |
| Deferred tax assets (note 30) | (438) | 1,747 |
| Deferred tax liabilities (note 30) | (987) | 19 |
| Total | 6,700 | 8,847 |
Current income taxes include the cost of IRAP (regional company tax) to € 875 thousand, compared to € 735 thousand in 2016.
Tax calculated on the gross income differs from the theoretical amount that would be determined using the rate of the country where the headquarters of the Parent company are, for the following reasons:
| €/000 | FY 2017 | % Rate | FY 2016 | % Rate |
|---|---|---|---|---|
| Profit before taxes | 23,135 | 26,530 | ||
| Theoretical tax charges | 6,455 | 27.9 | 8,330 | 31.4 |
| Effect of IRAP differences calculated on different tax base | 106 | 0.5 | 178 | 0.7 |
| Non-taxable income | (340) | (1.5) | (1,961) | (7.4) |
| Non-deductible costs | 494 | 2.1 | 2,109 | 8.0 |
| Differences in rates with other countries | (127) | (0.5) | (255) | (1.0) |
| Previous period taxes | 244 | 1.1 | (252) | (0.9) |
| Taxes on financial charges concerning the discounting of payables for equity investments |
546 | 2.4 | 685 | 2.6 |
| Other differences | (678) | (2.9) | 11 | 0.0 |
| Effective tax charge | 6,700 | 29.0 | 8,847 | 33.3 |
The effective tax rate is 29%, against 33.3% at 31 December 2016.
The tax rate for the year was affected negatively by the recording of higher costs posted with reference to disputes of tax nature (Note 32) for € 379 thousand, recorded at the item "Previous period taxes", of the fiscal effect of the reduction of the value of the Goodwill for € 165 thousand and of the non-recognition of deferred tax assets on tax losses for an amount equal to € 548 thousand. These effects affected the tax rate for the 4.7%.
The tax rate of the year was affected positively by the reduction from 27.5% to 24% of the IRES fiscal rate for Italian companies, applicable from the year 2017, the recording of an income for € 666 thousand recorded following the successful outcome of an interpolation related to the so-called "ACE" facility presented in the past and referred to previous years, as well as the recognition of tax incentives for € 534 thousand (€ 564 thousand in the previous year). In addition, had a positive effect on the tax charge of the year, the adjustment of the tax liabilities for deferred tax liabilities at the lower rate in force since 2018, mainly referring to the companies Comet Usa and Speed North America. The effect, recorded in the income statement under deferred tax liabilities, amounts to approximately € 500 thousand.
The tax rate of the previous year was affected positively by the recording of non-taxable income arising from the adjustment of the estimate of commitments for the acquisition of equity interests for an amount equal to € 1,739 thousand (with a positive effect of 6.5% on the tax rate) and the recording of minor previous period taxes for € 252 thousand. On the other hand, the tax rate of the previous year was affected negatively by the recording of non-deductible costs for tax purposes referring to the tax effect of the reduction in the value of goodwill for € 1,636 thousand (with a negative effect of 6.2% on the tax rate) and the non-recording of advanced taxes on tax losses for € 155 thousand.
"Basic" earnings per share are calculated by dividing the net profit for the period attributable to the Parent company's shareholders by the weighted average number of ordinary shares outstanding during the period, excluding the average number of ordinary shares purchased or held by the Parent company as treasury shares (see note 37). The Parent company has only ordinary shares outstanding.
| FY 2017 | FY 2016 | |
|---|---|---|
| Net profit attributable to ordinary shareholders in the parent company (€/000) | 16,165 | 17,595 |
| Weighted average number of ordinary shares outstanding | 163,537,602 | 163,537,602 |
| Basic earnings per share (€) | 0.099 | 0.108 |
Diluted earnings per share are the same as basic earnings per share.
Changes in property, plant and equipment are shown below:
| €/000 | 31.12.2016 | Change in scope of consolidation |
Increases | Decreases | Exchange differences |
Reclassification | Other movements |
31.12.2017 |
|---|---|---|---|---|---|---|---|---|
| Lands and buildings | 46,018 | 6,283 | 204 | (714) | 1,639 | 53,430 | ||
| Accumulated depreciation | (17,437) | (232) | (1,292) | 166 | (173) | (18,968) | ||
| Lands and buildings | 28,581 | 6,051 | (1,088) | - | (548) | 1,466 | - | 34,462 |
| Plant and machinery | 85,007 | 7,143 | 4,616 | (2,718) | (1,972) | 2,303 | 25 | 94,404 |
| Accumulated depreciation | (65,856) | (6,181) | (4,564) | 1,525 | 1,324 | (10) | (73,762) | |
| Plant and machinery | 19,151 | 962 | 52 | (1,193) | (648) | 2,303 | 15 | 20,642 |
| Other assets | 97,035 | 22,159 | 3,388 | (1,141) | (807) | 384 | 319 | 121,337 |
| Accumulated depreciation | (85,865) | (20,531) | (4,692) | 1,123 | 650 | 39 | (109,276) | |
| Other assets | 11,170 | 1,628 | (1,304) | (18) | (157) | 423 | 319 | 12,061 |
| Advances and fixed assets in progress | 2,749 | 760 | 6,594 | (8) | (60) | (3,591) | (334) | 6,110 |
| Cost | 230,809 | 36,345 | 14,802 | (3,867) | (3,553) | 735 | 10 | 275,281 |
|---|---|---|---|---|---|---|---|---|
| Accumulated depreciation (note 14) | (169,158) | (26,944) | (10,548) | 2,648 | 2,140 | (134) | (10) | (202,006) |
| Net book value | 61,651 | 9,401 | 4,254 | (1,219) | (1,413) | 601 | 0 | 73,275 |
| €/000 | 31.12.2015 | Change in scope of consolidation |
Increases | Decreases | Exchange differences |
Reclassification | Other movements |
31.12.2016 |
|---|---|---|---|---|---|---|---|---|
| Lands and buildings | 45,269 | - | 1,121 | - | (372) | - | - | 46,018 |
| Accumulated depreciation | (15,926) | - | (1,591) | - | 80 | - | - | (17,437) |
| Lands and buildings | 29,343 | - | (470) | - | (292) | - | - | 28,581 |
| Plant and machinery | 79,495 | 115 | 3,789 | (1,797) | 450 | 2,758 | 197 | 85,007 |
| Accumulated depreciation | (62,011) | (115) | (4,468) | 1,185 | (310) | (146) | 9 | (65,856) |
| Plant and machinery | 17,484 | 0 | (679) | (612) | 140 | 2,612 | 206 | 19,151 |
| Other assets | 93,657 | 518 | 4,577 | (1,228) | 149 | (1,244) | 606 | 97,035 |
| Accumulated depreciation | (82,564) | (518) | (4,188) | 1,116 | 180 | 118 | (9) | (85,865) |
| Other assets | 11,093 | 0 | 389 | (112) | 329 | (1,126) | 597 | 11,170 |
| Advances and fixed assets in progress | 2,316 | - | 2,672 | (7) | (13) | (1,416) | (803) | 2,749 |
| Cost | 220,737 | 633 | 12,159 | (3,032) | 214 | 98 | 0 | 230,809 |
| Accumulated depreciation (note 14) | (160,501) | (633) | (10,247) | 2,301 | (50) | (28) | 0 | (169,158) |
| Net book value | 60,236 | 0 | 1,912 | (731) | 164 | 70 | 0 | 61,651 |
During 2017, the item "Other intangible assets" was reclassified to the item "Land and buildings" for an amount of € 601 thousand for a better representation of the rights to use the land in concession by the Chinese subsidiary Emak Jiangmen.
Increases refer mainly to investments:
Changes in the scope of consolidation refer to the fair value of tangible fixed assets acquired as part of the acquisition of the Lavorwash Group, for a net book value of € 9,067 thousand, and the acquisition of the assets of A1 Mist Sprayers Resoruces Inc. for € 334 thousand.
The decreases mainly refer to the sale of production equipment and plants disposed by the production process.
No indicators of impairment of tangible assets were recorded.
There are no assets subject to restrictions following secured guarantees.
Over the years, the Group has benefited from a number of capital grants provided in accordance with Law 488/92 to the subsidiary Comag S.r.l. (from 1 January 2015 merged into the company Emak S.p.A.). The grants received are credited to income over its remaining useful life of the assets to which they relate and are shown in the statement of financial position as deferred income.
All receivables related to these contributions are received.
Intangible assets report the following changes:
| €/000 | 31.12.2016 | Change in scope of consolidation |
Increases | Amortizations | Exchange differences |
Reclassification | Other movements |
31.12.2017 |
|---|---|---|---|---|---|---|---|---|
| Development costs | 554 | 138 | (264) | 95 | 38 | 561 | ||
| Patents | 2,744 | 30 | 854 | (1,143) | (11) | 150 | 36 | 2,660 |
| Concessions, licences and trademarks |
841 | 5,542 | 81 | (298) | (109) | 1 | 6,058 | |
| Other intangible assets | 3,507 | 7,504 | 119 | (1,112) | (208) | (601) | 9,209 | |
| Advanced payments and fixed assets in progress |
734 | 1,434 | (9) | (246) | (74) | 1,839 | ||
| Net book value | 8,380 | 13,076 | 2,626 | (2,817) | (337) | (601) | 0 | 20,327 |
| €/000 | 31.12.2015 | Change in scope of consolidation |
Increases | Amortizations | Exchange differences |
Reclassification | Other movements |
31.12.2016 |
|---|---|---|---|---|---|---|---|---|
| Development costs | 896 | - | 75 | (417) | - | - | - | 554 |
| Patents | 2,237 | - | 1,692 | (1,304) | 6 | 56 | 57 | 2,744 |
| Concessions, licences and trademarks |
763 | - | 18 | (25) | 155 | (70) | - | 841 |
| Other intangible assets | 3,671 | - | 88 | (796) | 325 | 39 | 180 | 3,507 |
| Advanced payments and fixed assets in progress |
551 | - | 513 | - | - | (95) | (235) | 734 |
| Net book value | 8,118 | 0 | 2,386 | (2,542) | 486 | (70) | 2 | 8,380 |
The fair value of the intangible fixed assets acquired during the operations of M&A in equal to € 13,076 thousand, of which € 12,984 thousand deriving from the allocation of part of the price paid for the acquisition of the Lavorwash Group.
Research and development costs directly recorded in the Group's income statement amount to € 7,142 thousand.
All intangible fixed assets have a defined residual life and are amortized at constant rates on the basis of their remaining useful life, except for the trade mark of the subsidiary Lemasa, allocated in occasion of the acquisition of the same company.
As previously said, after the acquisition of the Lavorwash Group, from the process of Purchase Price Allocation, implemented by the company with the support of an independent professional, arose the existence of a fair value equal to € 5,490 for the trade mark with defined useful life and equal to € 7,494 thousand for other intangible assets, mainly referred to the so called "Customer List". The valuation arranged by the expert has also identified the estimated useful life to be allocated to these categories: 10 years for the trade mark and 14 years for the Customer List.
The goodwill of € 67,112 thousand reported at December 31, 2017 is detailed below:
| Cash Generating Unit (CGU) |
Description | 31.12.2016 | Change in scope of consolidation |
Impairment losses (Note 14) |
Exchange differences |
31.12.2017 |
|---|---|---|---|---|---|---|
| Victus | Goodwill from the acquisition of Victus-Emak Sp. z o.o. | 845 | - | - | 47 | 892 |
| Victus | Goodwill from the acquisition of company branch Victus IT | 4,673 | - | - | 262 | 4,935 |
| Emak | Goodwill from the merger of Bertolini S.p.A. | 2,074 | - | - | - | 2,074 |
| Tailong | Goodwill from the acquisition of Tailong Machinery Ltd. | 2,859 | - | - | (177) | 2,682 |
| Tecomec | Goodwill from the acquisition of Gruppo Tecomec | 2,807 | - | - | - | 2,807 |
| Speed France | Goodwill from the acquisition of Speed France | 2,854 | - | - | - | 2,854 |
| Comet | Goodwill from the acquisition of Gruppo Comet | 2,279 | - | - | - | 2,279 |
| Comet | Goodwill from the merger of HPP | 1,974 | - | - | - | 1,974 |
| PTC | Goodwill from transfer of the business PTC | 360 | - | - | - | 360 |
| PTC | Goodwill from the acquisition of Master Fluid | 523 | - | - | - | 523 |
| PTC | Goodwill from the acquisition of Acquatecninca S.r.l. | 353 | - | - | - | 353 |
| Valley | Goodwill from the acquisition of Valley LLP | 12,333 | - | - | (1,494) | 10,839 |
| Valley | Goodwill from the acquisition of A1 | - | 1,472 | - | (161) | 1,311 |
| Geoline | Goodwill from the acquisition of Geoline Electronic S.r.l. | 2,088 | - | (590) | - | 1,498 |
| S.I.Agro Mexico | Goodwill from the acquisition of S.I.Agro Mexico | 634 | - | - | - | 634 |
| Lemasa | Goodwill from the acquisition of Lemasa LTDA | 15,585 | - | - | (1,978) | 13,607 |
| Lavorwash | Goodwill from the acquisition of Lavorwash Gruoup | - | 17,490 | - | - | 17,490 |
| Total | 52,241 | 18,962 | (590) | (3,501) | 67,112 |
The difference, if compared to December 31, 2016, is mainly attributable to the portion of the price allocated at goodwill for the acquisition of the Lavorwash Group, and to exchange differences in the consolidation. In particular:
Since the acquisition values of the shareholdings in the Greenfield Operation are greater than the equity values of the acquired companies at 31 December 2011, the excess of € 33,618 thousand has been eliminated by adjusting down equity in the consolidated financial statements.
The Group checks the recoverability of goodwill at least once a year, or more frequently if there are indicators of loss in the value. This check is carried out by calculating the recoverable value of the relevant Cash Generating Unit (CGU), using the "Discounted cash flow" method.
The more relevant factors in the estimate of future cash flows are attributable to the intrinsic difficulty in the formulation of future forecasts, to the feasibility of market strategies in highly competitive contexts, and to macroeconomic risks connected to geographical areas in which the Emak Group operates.
All the impairment tests relating to goodwills recorded at 31 December 2017 have been approved by the Board of Directors taking account of the opinion of the Risk Control Committee.
In the basic assumption, the discount rate used to discount the expected cash flows has been established by single market area. This rate (WACC) reflects the current market assessments of the time value of money over the period considered and the specific risks of Emak Group companies.
The discount rates used correspond to an estimate net of taxation calculated on the basis of the following main assumptions:
For the purpose of carrying out the impairment test on goodwill values, the Discounted cash flow has been calculated in the basis of the following assumptions:
On the basis of the agreements entered into for the acquisition of Lemasa, part of the deferred price and the value of the put & call to be regulated in future financial years will be valued with relation to the economicfinancial results that the CGU achieves; the value of goodwill was originally recorded using the best estimate of the current value of the deferred exercise price and options price, established on the basis of the originally prepared business plan.
As already anticipated, considering the results recorded by the company Geoline Electronic Srl, which develops and produces electronic control systems for applications in the agriculture sector, the Board of Directors has approved a new industrial plan, used for the verification of impairment on the goodwill
allocated to this CGU. The impairment test was carried out by applying over the five years a WACC of 7.83%, which takes into account the tax rate of 27.9%, and a long-term growth rate "g" equal to 2 %. This valuation showed a partial reduction in value of € 590 thousand, attributed entirely to goodwill and recognized under the item "Amortization, depreciation and impairment losses " of the Income Statement.
The impairment test procedure, applied to the other CGU, in compliance with the provisions of IAS 36 and applying criteria issued by the Board of Directors, has not led others impairment losses on goodwill. In addition, also on the basis of the indications contained in the joint document issued by the Bank of Italy, Consob and Isvap (supervisory body for private insurance) no. 4 of 3 March 2010, the Group has drawn up sensitivity analyses on the results of the test with respect to variations in the underlying assumptions effecting the use value of the CGU. Also in the event of a positive or negative variation of the WACC of 5%, of the long-term growth rate (g) of 50 bps and of 5% of the cash flows, the analyses would nevertheless indicate no losses in value.
The amount of the balance of "Equity Investments" is € 230 thousand and it refers mainly to the 15.41% percentage of equity investment in Netribe S.r.l., a company operating in the sector I.T.
This investment is valued at its cost of € 223 thousand.
Investments are not subject to impairment losses; risks and benefits associated with the possession of the investment are negligible.
"Investments in associates" amounting to € 4,284 thousand (€ 3,955 thousand at 31 December of the previous year), refers to the proportionate interest in the value of the Group in the company Cifarelli S.p.A., obtained by applying the equity method. The value of the investment in the associated company was adjusted at December 31, 2017 for a value of € 329 thousand, recorded under the Income Statement "Income from equity investments revaluation in associated companies" for a value equal to € 389 thousand, considered net of the adjustments for dividends distributed in 2017 equal to € 60 thousand.
The financial statements values relate to changes in the fair value of financial instruments for:
All derivative financial instruments belonging to this heading are valued at fair value at the second hierarchical level, that is, the estimate of their fair value has been carried out using variables other than prices quoted in active markets and which are observable (on the market) either directly (prices) or indirectly (derived from prices).
In the case in point, the fair value recorded is equal to the "market to market" estimation provided by independent sources, which represents the current market value of each contract calculated at the date at the closing date of the Financial Statements.
Accounting for the underexposed instruments is at fair value. According to the IFRS principles these effects were accounted in the income statement of the current year.
The current value of these contracts at December 31, 2017 is shown as follows:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Positive fair value assessment exchange rate hedge | 189 | 77 |
| Positive fair value assessment exchange rate options | 12 | - |
| Total derivative financial instrument assets | 201 | 77 |
| Negative fair value assessment exchange rate hedge | 51 | 91 |
| Negative fair value assessment IRS and interest rate options | 157 | 303 |
| Total derivative financial instrument liabilities | 208 | 394 |
At December 31, 2017 appear outstanding forward contracts of purchase in foreign currencies for:
| Company | Nominal value (€/000) |
Exchange rate (average) |
Due to (*) | ||
|---|---|---|---|---|---|
| Forward contracts for foreign currencies purchases | |||||
| Cnh/Euro | Emak Spa | Cnh | 24,000 | 7.95 | 13/06/2018 |
| Cnh/Usd | Emak Spa | Cnh | 10,000 | 6.64 | 14/02/2018 |
| Usd/Euro | Sabart Srl | Usd | 2,000 | 1.19 | 03/08/2018 |
| Usd/Euro | Emak France | Usd | 744 | 1.19 | 15/03/2018 |
| Gbp/Euro | Comet Spa | Gbp | 200 | 0.90 | 27/12/2018 |
| Euro/Pln | Victus | € | 2,200 | 4.26 | 17/05/2018 |
| Usd/Pln | Victus | Usd | 190 | 3.54 | 29/03/2018 |
| Euro/Gbp | Emak UK Ltd. | € | 800 | 0.89 | 04/06/2018 |
| Euro/Mxn | SI Agro Mexico | € | 1,114 | 22.20 | 31/07/2018 |
| Euro/Usd | Comet U.S.A. Inc. | € | 800 | 1.20 | 20/04/2018 |
(*) The expiry date is indicative of the last contract
Finally, on December 31, 2017 IRS contracts and options on interest rates are also in force, with the aim of covering the risk of variability of interest rates on loans.
The Parent company Emak S.p.A. and the subsidiaries Tecomec S.r.l., Comet S.p.A. and Comet USA Inc. have signed IRS contracts and options on interest rates for a total notional value of € 47,591 thousand; the expiration of the instruments is so detailed:
| Bank | Company | Notional Euro (€/000) |
Date of the operation |
Due to |
|---|---|---|---|---|
| UniCredit | Emak S.p.A. | 250 | 22/05/2013 | 29/03/2018 |
| Banca Popolare Comm. Industria | Emak S.p.A. | 2,000 | 30/06/2015 | 31/12/2019 |
| Carisbo | Emak S.p.A. | 1,388 | 24/09/2015 | 12/06/2020 |
| Mediobanca | Emak S.p.A. | 3,750 | 24/09/2015 | 31/12/2020 |
| Banca Monte dei Paschi di Siena | Emak S.p.A. | 2,250 | 24/09/2015 | 31/12/2020 |
| Banca Nazionale del Lavoro | Emak S.p.A. | 5,000 | 29/09/2017 | 22/04/2020 |
| Cariparma | Emak S.p.A. | 7,500 | 26/10/2017 | 11/05/2022 |
| UniCredit | Comet S.p.A. | 300 | 22/05/2013 | 29/03/2018 |
| UniCredit | Comet S.p.A. | 3,778 | 06/08/2015 | 20/03/2020 |
| Banca Nazionale del Lavoro | Comet S.p.A. | 1,778 | 06/08/2015 | 20/03/2020 |
| Carisbo | Comet S.p.A. | 1,389 | 24/09/2015 | 12/06/2020 |
| Bper | Comet S.p.A. | 9,000 | 20/09/2017 | 29/12/2023 |
| Ubi Banca | Comet S.p.A. | 4,500 | 20/09/2017 | 29/12/2023 |
| Carisbo | Tecomec S.r.l. | 1,389 | 24/09/2015 | 12/06/2020 |
| MPS | Tecomec S.r.l. | 1,500 | 24/09/2015 | 31/12/2020 |
| Intesa San Paolo | Comet USA Inc | 1,819 | 27/02/2013 | 19/02/2019 |
| Total | 47,591 |
The average interest rate resulting from the instruments is equal to 0.27%.
All contracts, although having the purpose and characteristics of a hedging strategy, do not respect the rules to be formally recognized as such, so all changes in fair value are expensed in the income statement of the period.
Derivative contracts on interest rate and currency stipulated to hedge future cash flows associated with investments and which meet the requirements of IAS 39 are recognized according to the criteria of "hedge accounting".
The value of all these contracts (relating to interest and exchange rates) at December 31, 2017 is an overall negative fair value of € 7 thousand.
Details of these amounts are as follows:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Trade receivables | 109,577 | 96,728 |
| Provision for doubtful accounts | (5,315) | (4,676) |
| Net trade receivables | 104,262 | 92,052 |
| Trade receivables from related parties (note 38) | 373 | 628 |
| Prepaid expenses and accrued income | 1,570 | 1,132 |
| Other receivables | 3,189 | 3,128 |
| Total current portion | 109,394 | 96,940 |
| Other non current receivables | 65 | 63 |
| Total non current portion | 65 | 63 |
The item "Other short-term receivables" includes:
All non-current receivables mature within five years. There are no trade receivables maturing beyond one year.
The movement in the provision for bad debts is as follows:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Opening balance | 4,676 | 3,963 |
| Change in scope of consolidation | 708 | 2 |
| Provisions (note 13) | 742 | 1,062 |
| Decreases | (754) | (375) |
| Exchange differences | (57) | 24 |
| Closing balance | 5,315 | 4,676 |
The book value reported in the statement of financial position corresponds to its fair value.
Inventories are detailed as follows:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Raw, ancillary and consumable materials | 45,706 | 35,566 |
| Work in progress and semi-finished products | 23,429 | 21,232 |
| Finished products and goods | 86,592 | 70,564 |
| Total | 155,727 | 127,362 |
Inventories at December 31, 2017 are stated net of provisions amounting to € 9,913 thousand (€ 6,578 thousand at December 31 2016) intended to align the obsolete and slow moving items to their estimated realizable value. The value of the inventories at December 31, 2017 referring to the Lavorwash Group is equal to € 17,927 thousand (€ 18,007 thousand at the acquisition date).
The inventories provision is an estimate of the loss in value expected by the Group, calculated on the basis of past experience, historic trends and market expectations.
Details of changes in the provision for inventories are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Opening balance | 6,578 | 5,806 |
| Change in scope of consolidation | 2,687 | - |
| Provisions | 1,130 | 1,249 |
| Effect of exchange differences | (50) | 20 |
| Uses | (432) | (497) |
| Closing balance | 9,913 | 6,578 |
The decreases in the provision refer to obsolete material disposed of during the year.
Cash and cash equivalents are detailed as follows:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Bank and post office deposits | 40,680 | 32,413 |
| Cash | 132 | 132 |
| Total | 40,812 | 32,545 |
For the purposes of the cash flow statement, closing cash and cash equivalents comprise:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Cash and cash equivalents | 40,812 | 32,545 |
| Overdrafts (note 29) | (13,044) | (5,525) |
| Total | 27,768 | 27,020 |
The item "Other non-current financial assets" amounts to € 752 thousand, compared to € 10,098 thousand at 31 December 2016. The difference is mainly attributable to the classification, from current to non-current, of the value of the escrow account, as explained as follows.
The item includes an amount of € 297 thousand as medium-long-term portion of the receivable due from the parent company, Yama S.p.A., by way of the reinstatement of equity recognized by Yama to the Group in relation to costs sustained by a number of companies and relating to the period in which Yama S.p.A. exercised control over them. The right emerges from agreements and guarantees issued upon the transfer of the affiliated companies.
The "Other current financial assets", amounting to € 7,348 thousand, mainly include:
Over the fiscal year 2017 the value of the escrow account was partially released in favour of the Group, after agreement with the selling party, for a value of 8,088 thousand Brasilian Reais, equal to an equivalent of € 2,036 thousand.
Share capital is fully paid up at 31 December 2017 and amounts to € 42,623 thousand, remaining unchanged during the year under examination, and it consists of 163,934,835 ordinary shares of par value € 0.26 each.
All shares have been fully paid.
The adjustment of the share capital for purchase of treasury shares, equal to € 104 thousand, represents the nominal value of treasury shares held at December 31, 2017 (Note 37).
Compared to the previous year, the overall amount paid by Emak S.p.A. to purchase on the market of own shares, fully exposed to the reduction of the share capital, has been attributed to an adjustment to the nominal value of the share capital and the share premium adjustment to the share premium reserve.
As for the sale and purchase of shares made during the period, please refer to the appropriate section of the Directors' Report.
At 31 December 2017, the share premium reserve amounts to € 40,529 thousand, and consists of premiums on newly issued shares, net of share premium treasury shares held at December 31, 2017 amounted to € 1,925 thousand. The reserve is shown net of charges related to the capital increase amounted to € 1,598 thousand and adjusted for the related tax effect of € 501 thousand.
The legal reserve at December 31 2017 of € 3,059 thousand (€ 2,709 thousand at December 31 2016).
At 31 December 2017 the revaluation reserve includes the reserves deriving from the revaluation as per Law 72/83 for € 371 thousand and as per Law 413/91 for € 767 thousand. No changes occurred during the year.
At 31 December 2017 the reserve for conversion differences for a positive amount of € 1,466 thousand is entirely attributable to the differences generated from the translation of balances into the Group's reporting currency.
The negative variation of € 5,226 thousand is mainly attributable to the currency depreciation generated from the translation of the financial statements of consolidated subsidiaries belonging to the Brazilian currency area for € 1,686 thousand, to the Chinese area for € 1,676 thousand and to the American area for € 2,076 thousand.
At 31 December 2017 the IAS 19 reserve is equal a negative amount of € 1,305 thousand, for the actuarial valuation difference of post-employment benefits to employees.
At 31 December 2017 Other reserves include:
"Retained Earnings" in the consolidated accounts is subject to a non-distributable restriction amounting to € 6,831 thousand.
Details of the restrictions and distributability of reserves are contained in the specific table in the notes to the financial statements of the Parent company Emak S.p.A.
Details of trade and other payables are set out below:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Trade payables | 80,229 | 59,720 |
| Payables due to related parties (note 38) | 2,632 | 1,553 |
| Payables due to staff and social security institutions | 11,339 | 9,779 |
| Advances from customers | 3,246 | 2,741 |
| Accrued expenses and deferred income | 466 | 225 |
| Other payables | 3,603 | 3,831 |
| Total | 101,515 | 77,849 |
The book value reported in the statement of financial position corresponds to fair value.
The increase in the item "Trade payables" is attributable to greater purchase volumes in the fiscal year and to the entrance in the area of consolidation of the Lavorwash Group, that has caused the consolidation at the acquisition date of trade payables for an amount equal to € 13,866 thousand. At December 31, 2017 these payables related to the Lavorwash Group amount to € 14,544 thousand.
The change in the items "Payables due to staff and social security institutions" and "Advances from customers" is attributable to the extension of the area of consolidation, that contributed for a value respectively of € 1,394 thousand € 750 thousand at 31 December 2017.
The item "Other payables" includes € 812 thousand, against € 1,872 thousand at 31 December 2016, for current IRES (Italian corporate income tax) payable accounted for a number of Group companies to the parent company, Yama S.p.A., and arising from the relationships that govern the tax consolidation as per art. 117 and following of Presidential Decree no. 917/1986, in which they participate.
Details of short-term loans and borrowings are as follows:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Bank loans | 55,468 | 38,841 |
| Overdrafts (note 25) | 13,044 | 5,525 |
| Liabilities for purchase of equity investments | 9,304 | 1,559 |
| Financial accrued expenses and deferred income | 16 | 329 |
| Other loans | 637 | 516 |
| Total current portion | 78,469 | 46,770 |
The carrying amount of short-term loans and lease finance approximates their current value.
The item "Liabilities for purchase of equity investments" includes:
led to the recognition in the income statement of financial costs due to the discounting of such debt for € 634 thousand;
The item "Other loans" includes:
Long-term loans and borrowings are detailed as follows:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Bank loans | 80,084 | 63,250 |
| Liabilities for purchase of equity investments | 14,587 | 11,976 |
| Other loans | 1,059 | 881 |
| Total non current portion | 95,730 | 76,107 |
"Liabilities for purchase of equity investments" refers to debts outstanding at the end of the year for the purchase of minority equity investments. This item includes:
These debts represent the best estimate of the discounted debt related to the Put and Call Option to be paid to selling shareholders and could change on the basis of the trend of some economic-financial indicators regulated by the purchase contract.
"Other loans" includes € 1,055 thousand as non-current portion of the loan from Simest S.p.A. illustrated previously.
| €/000 | 31.12.2016 | Increases | Decreases | Exchange effect |
Other movements |
31.12.2017 |
|---|---|---|---|---|---|---|
| Bank loans | 63,250 | 48,125 | (30,103) | (1,188) | - | 80,084 |
| Liabilities for purchase of equity investments | 11,976 | 8,207 | (4,954) | (1,608) | 966 | 14,587 |
| Other loans | 881 | 402 | (224) | - | - | 1,059 |
| Total | 76,107 | 56,734 | (35,281) | (2,796) | 966 | 95,730 |
The other movements refer to the implicit interests accrued during the year and recorded as an increase of the discounted debts to pay in future fiscal years.
Some medium and long term loans are subjected to financial Covenants verified, mainly, on the basis of the consolidated ratios Pfn/Ebitda and Pfn/Equity. At December 31, 2017 the Group respects all the reference parameters foreseen by the contract.
The medium and long term loans are reimbursed under the following repayment plans:
| €/000 | Due within 2 years |
Due within 3 years |
Due within 4 years |
Due within 5 years |
Total due within 5 years |
Due beyond 5 years |
|---|---|---|---|---|---|---|
| Bank loans | 34,238 | 20,981 | 10,393 | 7,292 | 72,904 | 7,180 |
| Liabilities for purchase of equity investments | 616 | 13,971 | - | - | 14,587 | - |
| Other loans | 355 | 352 | 352 | - | 1,059 | - |
| Total | 35,209 | 35,304 | 10,745 | 7,292 | 88,550 | 7,180 |
The interest rates applied on short and medium-long term loans are as follows:
on bank loans in Euro, Euribor plus a fixed spread is applied;
on bank loans in British pounds, the "base rate" Bank of England plus a fixed spread is applied;
The book value of items in the financial statements does not differ from its fair value.
Deferred tax assets are detailed below:
| €/000 | 31.12.2016 | Ch. in scope of consolidation |
Increases | Decreases | Other movements |
Exchange differences |
31.12.2017 |
|---|---|---|---|---|---|---|---|
| Deferred tax on impairment losses of assets | 432 | - | 48 | (51) | - | (2) | 427 |
| Reversal of unrealized intercompany gains | 1,994 | 411 | 87 | - | - | - | 2,492 |
| Provision for inventory obsolescence | 1,365 | 541 | 278 | (169) | - | (2) | 2,013 |
| Losses in past financial periods | 988 | - | 93 | (297) | - | (43) | 741 |
| Provisions for bad debts | 359 | 82 | 46 | (26) | - | 1 | 462 |
| Other deferred tax assets | 2,232 | 213 | 1,069 | (640) | 78 | (19) | 2,933 |
| Total (note 16) | 7,370 | 1,247 | 1,621 | (1,183) | 78 | (65) | 9,068 |
The portion of taxes which are expected to reverse within the following 12 months is estimated to be in line with the decrease registered in 2017.
The recognition of deferred tax assets depends on the existence of conditions for their future recovery on the basis of updated strategic plans.
The exploitation of past tax losses is of unlimited duration.
"Other deferred tax assets" mainly includes receivables for facilitation "ACE", the tax effect related to the discounting of Employee Indemnities and other provisions subject to deferred taxation.
| €/000 | 31.12.2016 | Ch. in scope of consolidation |
Increases | Decreases | Other movements |
Exchange differences |
31.12.2017 |
|---|---|---|---|---|---|---|---|
| Deferred tax on property IAS 17 | 1,199 | - | - | (28) | - | - | 1,171 |
| Deferred tax on depreciations | 3,385 | 4,003 | - | (483) | - | (273) | 6,632 |
| Other deferred tax liabilities | 1,807 | 148 | 419 | (895) | 415. | (75) | 1,819 |
| Total (note 16) | 6,391 | 4,151 | 419 | (1,406) | 415 | (348) | 9,622 |
Other deferred tax liabilities refers mainly to revenues that will be fiscally recognized in future financial periods.
Deferred tax liabilities from change in scope of consolidation are attributable for € 4,003 thousand to deferred tax liabilities on the asset value expressed at fair value deriving from the acquisition of the Lavorwash Group.
The portion of taxes which are expected to reverse within the following 12 months is estimated to be in line with the decrease registered in 2017.
At December 31, 2017, no deferred tax liabilities for taxes on retained earnings of subsidiaries have been recognized as the Group does not believe, at the time, that these profits will be distributed in the foreseeable future.
It should be noted, moreover, that deferred taxes relating to the revaluation reserves, which are reserves in partial tax suspension, have not been allocated since it is unlikely that there will be any operations carried out giving rise to taxation.
As regards American companies, tax assets and liabilities relating to deferred tax assets and liabilities have been adjusted on the basis of the lower tax rate applicable from the 2018 financial year.
The tax credits amount at December 31 2017 to € 5,428 thousand, against € 4,791 thousand at December 31 2016, and refer to VAT credits, surplus payments on account of direct tax and other tax credits.
Current tax debts amount to € 4,676 thousand at December 31 2017, compared with € 4,184 thousand a year earlier, and they refer to payables for direct tax for the period, VAT and withholding taxes. The contribution on this item of the variation of the scope of consolidation after the acquisition of the Lavorwash Group was equal to € 2,184 thousand (value at the acquisition date).
A number of Group companies participate in the tax consolidation submitted by the parent company, Yama S.p.A., as per arts. 117 and following of Presidential Decree no. 917/1986: current IRES taxes payable by these companies are accounted for in the heading "Other payables" (Note 28).
At December 31 2017 such benefits refer principally to the discounted liability for employment termination indemnity payable at the end of an employee's working life, amounting to € 10,288 thousand against € 8,513 thousand at December 31 2016. The valuation of the indemnity leaving fund (TFR), carried out according to the nominal debt method, in force at the closing date, would be € 9,469 thousand against € 8,250 at December 31 2016.
Movements in this liability are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Opening balance | 9,137 | 8,932 |
| Current service cost and other provisions | 228 | 345 |
| Actuarial (gains)/losses | 470 | 137 |
| Interest cost on obligation (note 15) | 81 | 103 |
| Change in area of consolidation | 1,840 | 36 |
| Disbursements | (824) | (416) |
| Closing balance | 10,932 | 9,137 |
The principal economic and financial assumptions used, for the calculations of TFR, in accordance with IAS 19, are as follows:
| FY 2017 | FY 2016 | |
|---|---|---|
| Annual inflation rate | 1.5% | 0.4% |
| Rising discount rate | 0.9% | 1.1% |
| Rate of dismissal | 1.0% | 1.0% |
Demographic assumptions refer to the most recent statistics published by ISTAT.
In the 2018 financial year, payments are expected to be in line with 2017, net of the payment attributable to the effects of the corporate restructuring procedure started at December 2017 relatively to the Parent Company, for more information see the specific paragraph of the Directors' Report.
Movements in these provisions are detailed below:
| €/000 | 31.12.2016 | Change in scope of consolidation |
Increases | Decreases | Exchange differences |
Other movements |
31.12.2017 |
|---|---|---|---|---|---|---|---|
| Provisions for agents' termination indemnity | 1,468 | 486 | 178 | (35) | - | - | 2,097 |
| Other provisions | 98 | 72 | 54 | (47) | (9) | - | 168 |
| Total non current portion | 1,566 | 558 | 232 | (82) | (9) | - | 2,265 |
| Provisions for products warranties | 480 | 639 | 100 | (76) | 1 | 81 | 1,225 |
| Other provisions | 957 | 569 | 948 | (1,108) | 12 | (81) | 1,297 |
| Total current portion | 1,437 | 1,208 | 1,048 | (1,184) | 13 | - | 2,522 |
The provision for agents' termination indemnity is calculated on the basis of agency relationships in force at the close of the financial year, it refers to the probable indemnity which will have to be paid to the agents. The year allocation of € 178 thousand, was recorded under the provisions in the item "Other operating expenses" in the income statement. The change in the scope of consolidation has contributed on this item for € 486 thousand.
Other non-current provisions, equal to € 168 thousand, have been allocated for:
The product warranty provision refers to future costs for repairs on warranty which will be incurred for products sold covered by the legal and/or contractual warranty period; the allocation is based on estimates extrapolated from the historic trend. The change in the scope of consolidation has caused an increase of this item equal to € 639 thousand.
The "Other provisions", for the current part, refers to the best possible estimate of probable liabilities, details of which are given below:
interests through the auditing institution with acceptance. In accordance with the opinion of to the legal defenders, was allocated an additional amount of € 81 thousand related to the year 2015.
The reduction of the item "Other provisions" mainly refers to:
The reconciliation led to the recognition of higher taxes already accrued in previous years for € 571 thousand and interest for € 136 thousand. The payment, which took place in March 2017, was carried out net of what was already provisionally paid, amounting to € 326 thousand, while awaiting for judgement.
The entire amount of € 579 thousand (€ 668 thousand at 31 December 2016) refers to the deferred income relating to capital grants received pursuant to Law 488/92 by Comag S.r.l., now merged into Emak S.p.A., and allocated to subsequent financial periods. The part of the grant receivable within a year is recorded in current liabilities under accrued expenses and deferred income (note 28) and amounts to € 89 thousand.
The Group has not further outstanding disputes in addition to those already discussed in these notes.
The Group is exposed to a variety of financial risks associated with its business activities:
As described in the section "Management of financial risk", the Emak Group constantly monitors the financial risks to which it is exposed, so as to minimize potential negative effects on financial results.
Qualitative and quantitative information is given below regarding the nature of such risks for the Emak Group.
The quantitative figures shown below have no value for forecasting purposes, specifically, the sensitivity analysis on market risks are unable to reflect the complexity and associated reactions of the market as a result of each change hypothesized.
The maximum theoretical exposure to credit risk for the Group at 31 December 2017 is the accounting value of financial assets shown in the financial statements.
It should be pointed out that the credit granted to clients involves specific assessments of solvency and generally the Group obtains guarantees, both financial and otherwise, against credits granted for the supply of products addressed to some countries. Certain categories of credits to foreign customers are also covered by insurance with primary companies.
Credit positions are subject to constant analysis and possible individual devaluation in the case of singularly significant positions that are in a condition of partial or total insolvency.
The total devaluation is estimated on the basis of recoverable flows, from relative collection data, from the costs and expenses of future recovery, as well as possible guarantees in force. For those credits that are not subject to individual devaluation, bad debt provisions are allocated on an overall basis, taking account of historical experience and statistical data.
At December 31 2017 there were no significant positions of insolvency subject to individual devaluation. At December 31 2017 Trade receivables and Other receivables, equal to € 109,394 thousand (€ 96,940 thousand at 31 December 2016), include € 12,418 thousand (€ 11,450 thousand at 31 December 2016) outstanding by more than 3 months. This value has been rescheduled according to repayment plans agreed with the clients.
The value of amounts receivable covered by insurance or by other guarantees at December 31 2017 is € 23,854 thousand (€ 19,665 thousand at December 31 2016).
At December 31 2017 the first 10 customers account for 13.7% of total trade receivables (20% at December 31 2016), while the top customer represents 3.1% of the total (5.4% at December 31 2016).
Liquidity risk can occur as a result of the inability to obtain financial resources necessary for the Group's operations at acceptable conditions.
The main factors determining the Group's liquidity situation are, on the one hand, the resources generated or absorbed in its operating and activities and by investment, and on the other hand, by the expiry or renewal of debt or by the liquidity of financial commitments and market conditions.
Consequently, the Group's treasury sets up the following activities:
The characteristics and nature of the expiry of debts and of the Group's financial activities are set out in Notes 25 and 29 relating respectively to Cash and Cash Equivalents and Loans and borrowings.
The management considers that currently unused funds and credit lines, amounting to € 128 million, as well as those which will be generated from operating and financial activities, will allow the Group to meet its requirements deriving from investment activities, the management of working capital and the repayment of debts at their natural maturity dates.
The Group is exposed to risks deriving from fluctuations in exchange rates, which may affect the economic result and value of equity.
The net balances at December 31 2017 for which the Group is exposed to exchange rate risk as a result of the use of a currency different from Group companies' local reporting currency are as follows:
| Credit position in US Dollars | 25,515 thousand |
|---|---|
| Credit position in Zloty | 881 thousand |
| Credit position in GB Pound | 599 thousand |
| Debt position in Yen | 14,923 thousand |
| Debt position in Renminbi | 48,721 thousand |
| Debt position in Euro | 11,767 thousand |
| Debt position in Swiss Francs | 59 thousand |
| Debt position in Brazilian Reais | 28 thousand |
| Debt position in Taiwanese Dollars | 6 thousand |
• in cases in which the companies in the Group incur costs expressed in different currencies from those of their respective revenues, the fluctuation of exchange rates may affect the operating result of such companies.
In the 2017 financial period, the overall amount of revenues directly exposed to exchange risk represented around 9.4% of the Group's aggregate turnover (9% in the 2016 financial period), while the amount of costs exposed to exchange risk is equal to 20.2% of aggregate Group turnover (18.1% in the 2016 financial period).
The main currency exchanges to which the Group is exposed are the following:
There are no significant commercial flows with regards to other currencies.
The Group's policy is to cover, partially, net currency flows, typically through the use of forward contracts, evaluating the amounts and expiry dates according to market conditions and net future exposure, with the objective of minimizing the impact of possible variations in future exchange rates.
• With regards to commercial activities, the companies in the Group are able to hold commercial credits and debits expressed in currencies which are different from the currency in which they keep their accounts and the variation in exchange rates may result in the realization or ascertainment of exchange risks.
The Group's policy is to partly cover, after appropriate evaluation of exchange rate trends, exposed positions resulting from credits and debits expressed in a currency different from that in which the company keeps its accounts.
The potential loss of fair value of the net balance of financial assets/liabilities subject to the risk of variation in exchange rates held by the Group at December 31 2017, as a result of a hypothetical unfavorable and immediate variation of 10% in all relevant single exchange rates, would amount to around € 2,752 thousand (€ 3,075 thousand at December 31 2016).
The companies of the Group utilize external financial resources in the form of debt and invest liquid funds in monetary and financial market instruments. Variations in market interest rates influence the cost and return of the various forms of financing and utilization, affecting the level of the Group's financial expenditure and income.
The Group uses derivative financial instruments to cover interest rate risk.
Although these transactions are made for hedging purposes, the accounting standards will not allow hedge accounting treatment. Therefore, fluctuations in their values may affect the Company's financial results.
The possible effects of variations in interest rates are analyzed for their potential impact in terms of cash flows, since almost all the Group's financial assets and liabilities accrue variable interest.
A hypothetical, instantaneous and unfavorable negative variation of one base point in annual interest rates in force at December 31 2017 applicable to financial liabilities at a variable interest rate would result in a greater net cost, on an annual basis, of around € 1,013 thousand (€ 727 thousand at December 31 2016). The above calculation takes into consideration the total amounts of financial liabilities net of the total amount of IRS operations carried out for hedging purposes and liabilities for the purchase of minority shares of equity investments and of fixed rate financing.
As described in Note 22, the Group holds a number of derivative financial instruments whose value is linked to the trend in exchange rates (forward currency purchase and sales operations) and the trend in interest rates.
Although these operations have been entered into for hedging purposes, accounting principles do not permit their treatment using hedge accounting. As a result, changes in underlying values may affect the economic results of the Group.
The potential loss of fair value of derivative financial instruments held by the Group at December 31 2017 as a result of a hypothetical unfavorable and immediate variation of 10% in underlying values would amount to around € 70 thousand (€ 628 thousand at December 31 2016).
The Group has commitments for purchases of fixed assets not accounted in the financial statements at December 31 2017 for an amount of € 4,039 thousand (€ 3,289 thousand at December 31 2016).
These commitments relate to the purchase of equipment, plant and machinery and the new R&D center under construction and for the ERP Transformation project of some companies of the Group.
The group has € 4,134 thousand in guarantees granted to third parties at December 31 2017, relating to guarantee policies for customs rights and bank guarantees.
The shares representing the capital of Comet do Brasil Investimentos LTDA, Lemasa and Lavorwash S.p.A. are subject to a lien in favor of credit institutions that provided the financing functional to the purchase of the same.
Please note that with respect to shares held directly or indirectly by the Parent Company Emak S.p.A. the following contractual agreements are in force:
Share capital is fully paid up at December 31 2017 and amounts to € 42,623 thousand and it consists of 163,934,835 ordinary shares of par value € 0.26 each.
| 31.12.2017 | 31.12.2016 |
|---|---|
| 163,934,835 | 163,934,835 |
| (397,233) | (397,233) |
| 163,537,602 | 163,537,602 |
The dividends for 2016 approved by the shareholders on April 28 2017, totaling € 5,724 thousand, were paid during 2017.
At December 31 2016 the company held in portfolio 397,233 treasury shares for a value of € 2,029 thousand.
During 2017 no treasury shares were purchased or sold.
Therefore, at December 31 2017 the company held 397,233 treasury shares in portfolio for a value of € 2,029 thousand.
In January and February 2018 no treasury shares were acquired or sold by Emak S.p.A.. As a result, the holding and value of treasury shares is unchanged with respect to December 31 2017.
The transactions entered into with related parties by the Emak Group in the year 2017 mainly relate to two different types of usual nature relations, within the ordinary course of business, adjusted to market conditions and with the parent Yama S.p.A. and certain subsidiary companies.
It is in first place for the exchange of goods and provision of services of industrial and real estate activities. Among the companies under the direct control of Yama, some have provided during the period to the Emak Group components, materials of production, as well as the leasing of industrial surfaces. On the other hand, certain companies of Yama Group bought from Emak Group products for the completion of their respective range of commercial offer. The conduct of these operations is responding to a compelling logic and industrial and commercial purposes.
Secondly, relations of a tax nature and usual character attain the equity investment of the Parent company Emak S.p.A. and of the subsidiaries Comet S.p.A., Tecomec S.r.l., Sabart S.r.l. and Raico S.r.l. to the tax consolidation under Articles. 117 et seq., Tax Code, which involves Yama, as consolidating company. The criteria and procedures for the settlement of such transactions are established and formalized in agreements of consolidation, based on the principle of equal treatment between participants.
A further area of relationships with "related parties" is derived from the performance of professional services for legal and fiscal nature, provided by entities subject to significant influence of certain directors.
The nature and extent of the usual and commercial operations described above is shown in the following two tables.
| €/000 | Net sales | Trade receivables |
Other receivables for tax consolidation |
Total trade and other receivables |
Financial revenues |
Current financial asset |
Non current financial asset |
|---|---|---|---|---|---|---|---|
| SG Agro D.o.o. | 429 | 65 | - | 65 | - - |
- | |
| Cofima S.r.l | - | - | - | - | - - |
- | |
| Euro Reflex D.o.o. | 605 | 291 | - | 291 | - - |
- | |
| Garmec S.r.l. | 110 | 8 | - | 8 | - - |
- | |
| Mac Sardegna S.r.l. | 93 | - | - | - | - - |
- | |
| Selettra S.r.l. | 1 | - | - | - | - - |
- | |
| Yama Immobiliare S.r.l. | - | - | - | - | 8 | - | - |
| Yama S.p.A. | - | 9 | 854 | 863 | - 449 |
297 | |
| Cifarelli S.p.A. | 70 | - | - | - | - - |
- | |
| Total (notes 23 - 26) | 1,308 | 373 | 854 | 1,227 | 8 | 449 | 297 |
Sale of goods and services, trade and other receivables and financial asset:
Purchase of goods and services and trade and other payables:
| €/000 | Purchases of raw and finished products |
Other costs | Trade payables | Other payables for tax consolidation |
Total trade and other payables |
|---|---|---|---|---|---|
| SG Agro D.o.o. | 21 | - | - | - | - |
| Cofima S.r.l. | 1,484 | 57 | 637 | - | 637 |
| Euro Reflex D.o.o. | 1,767 | 49 | 333 | - | 333 |
| Garmec S.r.l. | 42 | 34 | 13 | - | 13 |
| Mac Sardegna S.r.l. | - | 4 | 20 | - | 20 |
| Selettra S.r.l. | 350 | 2 | 124 | - | 124 |
| Yama Immobiliare S.r.l. | - | 1,827 | - | - | - |
| Yama S.p.A. | - | - | - | 812 | 812 |
| Cifarelli S.p.A. | 2,976 | - | 1,336 | - | 1,336 |
| Other related parties | - | 558 | 169 | - | 169 |
| Total (note 28) | 6,640 | 2,531 | 2,632 | 812 | 3,444 |
The remunerations of the Directors and Auditors of the Parent company for the financial year 2017, the different components of the total remuneration, the remuneration policy adopted, the procedures followed for their calculation and the shareholdings in the Group owned by the above officers, are set out in the "Remuneration report", drawn up pursuant to art. 123-ter, Leg. Dec. 58/98 and available on the company website www.emakgroup.it, in the section "Investor Relations > Corporate Governance".
During the year there are no other significant intercompany transactions with related parties outside the Group, other than those described in these notes.
For the description of subsequent events please refer to the note 14 of the Directors' report.
Deloitte & Touche S.p.A. Centro Direzionale Eurotorri Piazza Italo Pinazzi 67/A 43122 Parma Italia
Tel: +39 0521 976011 Fax: +39 0521 976012 www.deloitte.it
To the Shareholders of Emak S.p.A.
We have audited the consolidated financial statements of Emak S.p.A. and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at December 31, 2017, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of national regulations issued pursuant to art. 9 of Italian Legislative Decree no. 38/05.
We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of Emak S.p.A. (the "Company") in accordance with the ethical requirements applicable under Italian law to the audit of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The consolidated financial statements of the Emak Group as of 31 December 2017 include goodwill of Euro 67,112 thousand, including Euro 18,801 thousand deriving from acquisitions made in the current year related to the Lavorwash Group for Euro 17,490 thousand, and the A1 Mist Sprayers Resources business unit for Euro 1,311 thousand.
Ancona Bari Bergamo Bologna Brescia Cagliari Firenze Genova Milano Napoli Padova Palermo Parma Roma Torino Treviso Verona
Codice Fiscale/Registro delle Imprese Milano n. 03049560166 – R.E.A. Milano n. 172039 | Partita IVA IT 03049560166
Il nome Deloitte si riferisce a una o più delle seguenti entità: Deloitte Touche Tohmatsu Limited, una società inglese a responsabilità limitata ("DTTL"), le member firm aderenti al suo network e le entità a esse correlate. DTTL e ciascuna delle sue member firm sono entità giuridicamente separate e indipendenti tra loro. DTTL (denominata anche "Deloitte Global") non fornisce servizi ai clienti. Si invita a leggere l'informativa completa relativa alla descrizione della struttura legale di Deloitte Touche Tohmatsu Limited e delle sue member firm all'indirizzo www.deloitte.com/about.
Sede Legale: Via Tortona, 25 – 20144 Milano | Capitale Sociale: Euro 10.328.220.00 i.v.
Goodwill is not amortized, but is tested for impairment at least annually, as stated by IAS 36 – Impairment of Assets. Impairment tests are performed by comparing the recoverable values of the cash generating units (CGU) identified by the Group - determined according to the method of value in use - and the carrying amounts, which take into account both the goodwill and the other assets allocated to CGU.
As a result of the impairment test, the Group has recorded goodwill impairment losses of Euro 590 thousand in relation to the cash-generating unit (CGU) represented by Geoline Electronic S.r.l., an Italian subsidiary operating in the "Components and Accessories" segment, which had reported lower results than expected.
The evaluation process adopted by Management to identify possible impairment is based on assumptions about, among other matters, the forecast cash flows of the cash-generating units (CGUs), the appropriate discounting rate (WACC) and the long-term growth rate (g-rate). The assumptions reflected in the long-term plans of the CGUs concerned are influenced by future expectations and market conditions, which are affected by uncertainties especially with regard to Lemasa CGU (Brazil), who operates in geographical area marked by economic instability, and whose goodwill as of 31 December 2017, also following the write downs made in previous years, amounts to Euro 13,607 thousand.
In view of the significance of the goodwill reported in the financial statements, the subjective nature of the estimates made to determine the cash flows of the CGUs and the key variables of the impairment model, and the many unpredictable factors that might influence the performance of the markets in which the Group operates, we considered the impairment test of goodwill to be a key audit matter of the audit of the consolidated financial statements of the Emak Group as of 31 December 2017.
The explanatory notes of consolidated financial statements in the paragraphs "2.6 Goodwill", "2.7 Impairment of assets", and "5. Key accounting estimates and assumptions", describe the Management assessment process and the note 20 reports the significant assumptions and disclosures on the items subject to impairment tests, including a sensitivity analysis that illustrates the effects deriving from changes in the key variables used to carry out the impairment tests.
We firstly examined the approach adopted by Management to determine the value in use of the CGUs, analysing the methods and assumptions applied by management to carry out the impairment test.
In the context of our audit work we performed the following procedures, among others, partly with assistance from experts:
We also examined the adequacy of the information disclosed about the impairment tests and its consistency with the requirements of IAS 36.
The Directors are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of national regulations issued pursuant to art. 9 of Italian Legislative Decree no. 38/05, and, within the terms established by law, for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they have identified the existence of the conditions for the liquidation of the Company or the termination of the business or have no realistic alternatives to such choices.
The Board of Statutory Auditors is responsible for overseeing, within the terms established by law, the Group's financial reporting process.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with International Standards on Auditing (ISA Italia), we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.
Conclude on the appropriateness of Management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
We communicate with those charged with governance, identified at an appropriate level as required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence applicable in Italy, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors' report.
The Shareholders' Meeting of Emak S.p.A. has appointed us on April 22, 2016 as auditors of the Company for the years from December 31, 2016 to December 31, 2024.
We declare that we have not provided prohibited non-audit services referred to in art. 5 (1) of EU Regulation 537/2014 and that we have remained independent of the Company in conducting the audit.
We confirm that the opinion on the financial statements expressed in this report is consistent with the additional report to the Board of Statutory Auditors, in its role of Audit Committee, referred to in art. 11 of the said Regulation.
The Directors of Emak S.p.A. are responsible for the preparation of the report on operations and the report on corporate governance and the ownership structure of Emak Group as at December 31, 2017, including their consistency with the related consolidated financial statements and their compliance with the law.
We have carried out the procedures set forth in the Auditing Standard (SA Italia) n. 720B in order to express an opinion on the consistency of the report on operations and some specific information contained in the report on corporate governance and the ownership structure set forth in art. 123-bis, n. 4 of Legislative Decree 58/98, with the consolidated financial statements of Emak Group as at December 31, 2017 and on their compliance with the law, as well as to make a statement about any material misstatement.
In our opinion, the above-mentioned report on operations and some specific information contained in the report on corporate governance and the ownership structure are consistent with the consolidated financial statements of Emak Group as at December 31, 2017 and are prepared in accordance with the law.
With reference to the statement referred to in art. 14, paragraph 2 (e), of Legislative Decree 39/10, made on the basis of the knowledge and understanding of the Group and of the related context acquired during the audit, we have nothing to report.
The Directors of Emak S.p.A. are responsible for the preparation of the non-financial statement pursuant to Legislative Decree 30 December 2016, no. 254.
We verified the approval by the Directors of the non-financial statement.
Pursuant to art. 3, paragraph 10 of Legislative Decree 30 December 2016, no. 254, this statement is subject of a separate attestation issued by us.
DELOITTE & TOUCHE S.p.A.
Signed by Domenico Farioli Partner
Parma, Italy March 29, 2018
This report has been translated into the English language solely for the convenience of international readers.
| € | Notes | Year 2017 | of which to related parties |
Year 2016 | of which to related parties |
|---|---|---|---|---|---|
| Revenues from sales | 8 | 125,425,877 | 32,177,519 | 128,001,224 | 29,161,036 |
| Other operating incomes | 8 | 456,805 | 1,400 | 428,182 | |
| Change in inventories | 3,434,425 | (9,104,367) | |||
| Raw materials, consumable and goods | 9 | (80,936,263) | (28,386,543) | (71,708,995) | (26,566,710) |
| Personnel expenses | 10 | (24,697,104) | (23,742,074) | ||
| Other operating costs and provisions | 11 | (19,872,125) | (896,187) | (19,284,347) | (990,059) |
| Amortization, depreciation and impairment losses | 12 | (4,944,401) | (6,097,790) | ||
| Operating result | (1,132,786) | - | (1,508,167) | - | |
| Financial income | 13 | 5,544,914 | 5,254,631 | 7,957,235 | 7,762,974 |
| Financial expenses | 13 | (692,222) | (8,943) | (696,216) | (15,928) |
| Exchange gains and losses | 13 | (2,288,067) | #RIF! | 1,420,012 | #RIF! |
| Profit befor taxes | 1,431,839 | - | 7,172,864 | - | |
| Income taxes | 14 | 1,327,595 | (162,379) | ||
| Net profit | 2,759,434 | 7,010,485 |
Statement of other comprehensive income
| Notes | Year 2017 | Year 2016 | |
|---|---|---|---|
| 2,759,434 | 7,010,485 | ||
| 29 | (207,000) | (61,000) | |
| 58,000 | (2,000) | ||
| (149,000) | (63,000) | ||
| 2,610,434 | 6,947,485 | ||
(*) Items will not be classified in the income statement
In accordance with the CONSOB resolution no. 15519 of July 27 2006, the effects of transactions with related parties on the consolidated income statement are shown in the scheme and are further described and discussed in note 36.
| € | Notes | 31.12.2017 | of which to related parties |
31.12.2016 | of which to related parties |
|---|---|---|---|---|---|
| Non-current assets | |||||
| Property, plant and equipment | 16 | 29,415,087 | 27,250,824 | ||
| Intangible assets | 17 | 2,338,252 | 1,581,974 | ||
| Goodwill | 18 | 2,074,305 | 2,074,305 | 2,074,305 | 2,074,305 |
| Equity investments | 19 | 97,397,145 | 98,176,874 | ||
| Deferred tax assets | 28 | 2,215,690 | 1,656,373 | ||
| Other financial assets | 21 | 18,071,986 | 18,071,986 | 5,725,026 | 5,725,026 |
| Other assets | 22 | 3,350 | 2,400 | ||
| Total non-current assets | 151,515,815 | 20,146,291 | 136,467,776 | 7,799,331 | |
| Current assets | |||||
| Inventories | 23 | 36,808,185 | 33,373,760 | ||
| Trade and other receivables | 22 | 40,708,259 | 12,036,246 | 45,940,835 | 12,089,075 |
| Current tax assets | 28 | 1,154,694 | 2,260,201 | ||
| Other financial assets | 21 | 1,883,168 | 1,883,168 | 1,405,916 | 1,398,025 |
| Derivative financial instruments | 20 | 79,003 | - | ||
| Cash and cash equivalents | 24 | 8,337,136 | 21,425,447 | ||
| Total current assets | 88,970,445 | 13,919,414 | 104,406,159 | 13,487,100 | |
| TOTAL ASSETS | 240,486,260 | 34,065,705 | 240,873,935 | 21,286,431 |
| € | Notes | 31.12.2017 | of which to related parties |
31.12.2016 | of which to related parties |
|---|---|---|---|---|---|
| Capital and reserves | |||||
| Issued capital | 42,519,776 | 42,519,776 | |||
| Share premium | 40,529,032 | 40,529,032 | |||
| Other reserves | 34,516,139 | 34,314,615 | |||
| Retained earnings | 32,922,131 | 36,237,037 | |||
| Total equity | 25 | 150,487,078 | 153,600,460 | ||
| Non-current liabilities | |||||
| Loans and borrowings due to banks and other landers | 27 | 29,854,300 | 296,848 | 28,157,517 | 333,954 |
| Deferred tax liabilities | 28 | 1,267,372 | 1,675,545 | ||
| Employee benefits | 29 | 3,768,874 | 3,777,006 | ||
| Provisions for risks and charges | 30 | 346,952 | 311,292 | ||
| Other non-current liabilities | 31 | 578,737 | 667,530 | ||
| Total non-current liailities | 35,816,235 | 296,848 | 34,588,890 | 333,954 | |
| Current liabilities | |||||
| Trade and other payables | 26 | 35,553,118 | 6,439,675 | 33,150,925 | 8,827,699 |
| Current tax liabilities | 28 | 975,589 | 876,632 | ||
| Loans and borrowings due to banks and other landers | 27 | 17,130,820 | 478,030 | 17,472,098 | 1,956,523 |
| Derivative financial instruments | 20 | 74,898 | 132,917 | ||
| Provisions for risks and charges | 30 | 448,522 | 1,052,013 | ||
| Total current liabilities | 54,182,947 | 6,917,705 | 52,684,585 | 10,784,222 | |
| TOTAL EQUITY AND LIABILITIES | 240,486,260 | 7,214,553 | 240,873,935 | 11,118,176 |
In accordance with the CONSOB resolution no. 15519 of July 27 2006, the effects of transactions with related parties on the consolidated income statement are shown in the scheme and are further described and discussed in note 36.
| OTHER RESERVES | RETAINED EARNINGS | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| €/000 | SHARE CAPITAL |
SHARE PREMIUM | Legal reserve |
Revaluation reserve |
Reserve IAS 19 |
Other reserves |
Retained earnings |
Net profit for the period |
TOTAL |
| Total at 31.12.2015 | 42,519 | 40,529 | 2,361 | 1,138 | (369) | 30,900 | 26,710 | 6,953 | 150,741 |
| Change in treasury shares | 0 | ||||||||
| Payment of dividends | (4,088) | (4,088) | |||||||
| Reclassification of 2015 net profit | 348 | 2,517 | (2,865) | 0 | |||||
| Other changes | 0 | ||||||||
| Net profit for 2016 | (63) | 7,010 | 6,947 | ||||||
| Total at 31.12.2016 | 42,519 | 40,529 | 2,709 | 1,138 | (432) | 30,900 | 29,227 | 7,010 | 153,600 |
| Change in treasury shares | 0 | ||||||||
| Payments of dividends | (5,723) | (5,723) | |||||||
| Reclassification of 2016 net profit | 350 | 937 | (1,287) | 0 | |||||
| Others | 0 | ||||||||
| Net profit for 2017 | (149) | 2,759 | 2,610 | ||||||
| Total at 31.12.2017 | 42,519 | 40,529 | 3,059 | 1,138 | (581) | 30,900 | 30,164 | 2,759 | 150,487 |
The share capital is show n net of the nominal value of treasury shares in the portfolio amounted to € 104 thousand
The share premium reserve is stated net of the premium value of treasury shares amounting to € 1,925 thousand
| €/000 | Notes | 2017 | 2016 |
|---|---|---|---|
| Cash flow from operations | |||
| Net profit for the period | 2,759 | 7,010 | |
| Amortization, depreciation and impairment losses | 12 | 4,944 | 6,098 |
| Capital (gains)/losses on disposal of property, plant and equipment | (4) | (7) | |
| Dividends income | (4,834) | (7,550) | |
| Decreases/(increases) in trade and other receivables | 5,778 | 2,546 | |
| Decreases/(increases) in inventories | (3,434) | 9,104 | |
| (Decreases)/increases in trade and other payables | 2,004 | (3,539) | |
| Change in provisions for employee benefits | 29 | (8) | (75) |
| (Decreases)/increases in provisions for risks and charges | 30 | (568) | (437) |
| Change in derivate financial instruments | (137) | (80) | |
| Cash flow from operations | 6,500 | 13,070 | |
| Cash flow from investing activities | |||
| Dividends income | 4,834 | 7,550 | |
| Increases in property, plant and equipment and intangible assets | (7,084) | (6,723) | |
| (Increases) and decreases in financial assets | (12,825) | (1,240) | |
| Gains from disposal of property, plant and equipment | 4 | 7 | |
| Cash flow from investing activities | (15,071) | (406) | |
| Cash flow from financing activities | |||
| Dividends paid | (5,723) | (4,088) | |
| Change in short and long-term loans and borrowings | (1,515) | (13,360) | |
| Change in equity | (149) | (63) | |
| Cash flow from financing activities | (7,387) | (17,511) | |
| NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | (15,958) | (4,847) | |
| OPENING CASH AND CASH EQUIVALENTS | 21,425 | 26,273 | |
| CLOSING CASH AND CASH EQUIVALENTS | 5,467 | 21,425 | |
| ADDITIONAL INFORMATION ON THE CASH FLOW STATEMENT | |||
| €/000 | 2017 | 2016 | |
| RECONCILIATION OF CASH AND CASH EQUIVALENTS | |||
| Opening cash and cash equivalents, detailed as follows: | 24 | 21,425 | 26,273 |
| Cash and cash equivalents | 21,425 | 26,375 | |
| Overdrafts | - | (102) | |
| Closing cash and cash equivalents, detailed as follows: | 24 | 5,467 | 21,425 |
| Cash and cash equivalents | 8,337 | 21,425 | |
| Overdrafts | (2,870) | - | |
| Other information: | |||
| Income taxes paid | (50) | (40) | |
| Interest paid | (595) | (592) | |
| Interest on financings to subsidiary companies | 352 | 201 | |
| Interest on financings to parent company | 8 | 12 | |
| Interest on financings from subsidiary companies | (9) | (16) | |
| Interest receivable on bank account | 114 | 82 | |
| Interest receivable on trade receivables | 69 | 66 | |
| Effects of exchange rate changes | 1,354 | 292 | |
| Change in related party financial assets transactions | (12,832) | 792 | |
| Change in related party financial liabilities transactions | (1,515) | (1,238) | |
| Change in trade receivables and others toward related parties | 53 | 1,685 | |
| Change in trade payables and others toward related parties | (2,388) | 1,456 | |
| Change in trade receivables and others related to fiscal assets | 547 | 728 | |
| Change trade in payables and others related to fiscal liabilities | (309) | (236) |
In accordance with the CONSOB resolution no. 15519 of July 27 2006, the effects of transactions with related parties on the consolidated income statement are shown in the section Other information.
Emak S.p.A. (hereinafter "Emak" or "the "Company") is a public limited company, listed on the Italian stock market on the STAR segment, with registered offices in Via Fermi, 4 Bagnolo in Piano (RE).
Emak S.p.A. is controlled by Yama S.p.A., an industrial holding company, which holds the majority of its capital and appoints, pursuant to the law and the company's bylaws, the majority of the members of its governing bodies. Emak S.p.A., nonetheless, is not subject to management or coordination on the part of Yama, and its Board of Directors makes its own strategic and operating choices in complete autonomy.
The Board of Directors of Emak S.p.A. on March 16, 2018 approved the Financial Statements for the year to December 31, 2017, and ordered immediate notification under Art. 154-ter, paragraph 1-ter TUF, to the Board of Auditors and to the Auditing firm in order for them to carry out their relative duties. In connection with this communication, the company issued an appropriate press release with the key figures of the financial statements and the dividend proposal made to the General Meeting of Shareholders.
The financial statements for the financial year will be submitted for approval by the General Meeting of Shareholders called for 27 April 2018.
Emak S.p.A., as the parent company, has also prepared the consolidated financial statements of the Emak Group at 31 December 2017, also approved by the Board of Directors of Emak S.p.A. in the meeting of 16 March 2018; both sets of financial statements are subject to statutory audit by Deloitte & Touche S.p.A.
Values shown in the notes are in thousands of Euros, unless otherwise stated.
The main accounting standards used for the preparation of these financial statements are set out below and, unless otherwise indicated, have been uniformly adopted for all periods presented.
The financial statements have been prepared in accordance with the IFRS issued by the International Accounting Standards Board and adopted by the European Union at the date of preparing this report. The term IFRS also refers to all revised international accounting standards (IAS) and all interpretations by the International Financial Reporting Interpretations Committee (IFRIC), previously named the Standing Interpretations Committee (SIC).
The financial statements have been prepared under the historical cost method, except for those financial assets and liabilities (including derivative instruments) measured at fair value.
On the basis of information available and of the current and foreseeable income and financial situation, the directors have drawn up the financial statements according to the going concern assumption.
On the basis of factors known to us, that is, the current situation and future forecasts of key economic, statement of financial position and financial figures for Emak and for the Group, and of an analysis of the Group's risks, there are no significant uncertainties that may compromise the Group's status as a going concern.
The company has adopted the following formats for its financial statements as required by IAS 1:
4.
The preparation of financial statements under IFRS requires management to make use of accounting estimates. The matters involving a high degree of judgement or complexity and the areas in which the assumptions and estimates could have a significant impact on the financial statements are discussed in note
With reference to Consob Resolution n. 15519 of July 27 2006 on the financial statements, it should be noted that the income statement and statement of financial position show dealings with related parties.
(a) The financial statements are presented in Euros, which is the functional currency of the company. The notes to the accounts show thousands of Euros unless where otherwise indicated.
(b) Transactions and balances
A foreign currency transaction is translated using the rate of exchange at the date of the transaction. Exchange gains and losses arising upon receipt and payment of the foreign currency amounts and upon translation at closing rates of monetary items denominated in a foreign currency are reported in the income statement. Gains and losses realized on cash flow hedges whose hedged items are still unrealized are posted to the comprehensive income statement.
Land and buildings largely comprise production facilities, warehouses and offices. They are stated at historical cost, plus any legal revaluations in years prior to the first-time adoption of IAS/IFRS, less the accumulated depreciation of the buildings. Other assets are recorded at historical cost, less accumulated depreciation and impairment.
Historical cost includes all the directly attributable costs of purchasing the assets.
Subsequent expenditure is added to the carrying amount of the asset or is accounted for as a separate asset only when it is probable that this expenditure will generate future economic benefits and these costs can be measured reliably. Expenditure on other repairs and maintenance are charged to the income statement in the period incurred.
Land is not depreciated. Other assets are depreciated on a straight-line basis over their estimated useful lives as follows:
The residual value and the useful life of assets are reviewed and modified, if necessary, at the end of each year.
If the carrying amount of any asset is higher than the estimated recoverable amount, it is immediately reduced to realizable value.
Leases for which the company has substantially all the risks plus the right of redemption are classified as finance leases. The related assets are recognized under property, plant and equipment at the value of the future lease payments.
The principal element of repayments to be made is recorded as financial liabilities. The interest element is charged to the income statement so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Leases for which the lessor retains a significant portion of the risks and rewards incident to ownership are classified as operating leases, whose payments are recognized as an expense in the income statement over the lease term on a straight-line basis.
Government grants for investments in buildings and plant are recognized in the income statement over the period necessary to match them with relative costs and are treated as deferred income.
(a) Development costs
These are intangible assets with a finite life.
Development costs include only that expenditure which can be attributed directly to the development process. Costs for internal requirements are not capitalized.
Capitalized development costs are amortized on the basis of the estimate period in which is expected that the assets will generate cash flow, anyway not exceeding 5 years, commencing from the start of production of the products developed.
All other development costs are charged to the income statement.
Trademarks and licenses have a definite useful life and they are valued at historical cost and shown net of accumulated depreciation. Amortization is calculated on a straight-line basis so as to spread the asset's cost over its estimated useful life, which for this category is 10 financial years.
Other intangible assets are recognized in accordance with IAS 38 - Intangible assets, when the asset is identifiable, it is probable that future economic benefits and its costs can be measured reliably. Intangible assets are recorded at cost and amortized over the period of estimated useful life and in any case for a period not exceeding 10 years.
Goodwill deriving from the acquisition of subsidiaries, classified among non-current assets, is initially recognised at cost, represented by the difference between the consideration paid and the amount recorded for minority interests at the acquisition date, and the identifiable net assets acquired and liabilities taken on. If the consideration is less than the fair value of the net assets of the acquired subsidiary, the difference is recognised in the income statement.
Goodwill is considered as an asset with an indefinite useful life. As a result, this asset is not amortized, but is subject periodically to checks to identify any impairment.
Goodwill is allocated to the operating units that generate separately identifiable financial flows and which are monitored in order to allow for verification of any impairment.
Goodwill relating to associates is included in the value of the investment and is not amortized, but subject to impairment tests if indicators of loss in the value arise.
Assets with an indefinite life are not amortized or depreciated but are reviewed annually for any impairment. Assets subject to depreciation or amortization are reviewed for impairment every time that events or changes in circumstances indicate that their carrying value might not be recoverable. The impairment loss recognized is the amount by which the carrying amount of an asset exceeds its recoverable amount, corresponding to the higher of the asset's net selling price and its value in use. For the purposes of measuring impairment,
assets are classified together into the smallest identifiable groups that generate cash inflows (cashgenerating units).
The aforementioned impairment test necessarily requires the making subjective valuations based on information available within the Group, on reference market prospects and historical trends. In addition, if there appears to be a potential reduction in value, the Group makes a calculation of the value using what it considers to be suitable valuation techniques. The same value checks and the same valuation techniques are applied to intangible and property, plant and equipment with a defined useful life when there are indicators that predict difficulties in recovering the relative net book value through use.
The correct identification of indicators of the existence of a potential reduction in value, as well as estimates for establishing values mainly depend on factors and conditions that may vary over time, also to a significant degree, thereby influencing the valuations and estimates made by the directors.
Property held for long-term capital appreciation and buildings held to earn rentals are measured at cost, less depreciation and any impairment losses.
The company classifies financial assets and investments into the following categories: financial assets at fair value (with changes reported through the income statement), loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investment has been made. The classification is made upon the asset's initial recognition and is reviewed at every statement of financial position date.
(a) Marketable financial assets at fair value (with the value of fluctuations posted in the income statement)
This category includes securities that have been acquired principally for the purpose of generating a profit from short-term fluctuations in price (or for temporarily investing surplus cash balances). This category is classified in current assets on the basis of the period-end price, with gains and losses recognized directly in the income statement. Unless they qualify for hedge accounting, derivatives are also classified as held for trading.
This balance includes loans given, and other receivables deriving from financial activities. They are classified as non-current assets except those falling due within 12 months which are reclassified to current assets. These financial assets feature determinable payments with fixed maturities, and the fact that the company has the intent and ability to hold them to maturity.
These assets are valued using the amortized cost method, with gains recognized directly in the income statement using the effective yield method.
This item includes shares in subsidiaries and interests in joint-stock companies accounted for using the cost method as adjusted for any impairment losses.
Available-for-sale financial assets is a residual category relating to those assets not belonging to the previous three categories. They are reported as non-current assets unless management intends selling them within 12 months of the statement of financial position date.
Purchases and sales of these assets are recognized on the transaction date, which is the date on which the company commits to purchase or sell the asset.
Unrealized gains and losses arising on changes in the fair value of non-monetary securities classified as available for sale are recorded in the comprehensive income statement. When these instruments are sold or
written down, the cumulative fair value adjustments are recorded in the income statement as gains or losses on investments in securities.
Investments in all financial assets not recorded at fair value through the income statement are recognized initially at fair value plus the related transaction costs. An investment is eliminated from the accounting records when the right to its cash flows is extinguished or when the group has transferred substantially all the risks and rewards of its ownership to third parties.
The fair value of listed investments is determined with reference to the market price reported at the close of trading on the statement of financial position date. In the absence of an active market for a financial asset or if the securities have been suspended from listing, the company establishes fair value using valuation techniques. These techniques include the use of recent arm's length transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models, bearing in mind the issuer's specific characteristics.
The company assesses at each statement of financial position date whether there is any objective evidence that a financial asset or group of financial assets may be impaired. If such evidence exists for the availablefor-sale assets, the amount of the loss – measured as the difference between the asset's acquisition cost and current fair value less any impairment loss previously recognized in net profit or loss – is removed from equity and posted to the income statement. Impairment losses recognized in the income statement for equity instruments are not recovered through subsequent credits to the income statement.
Assets held for sale are classified in this category when:
This condition is met only if the sale is considered highly probable and the asset (or group of assets) is available for an immediate sale in its current state. The first condition is met when the Management is committed to the selling, that should happen within twelve months from the classification date of this item. These assets are measured at the lower of their carrying amount and fair value less costs to sell. Assets reclassified to this category cease to be depreciated.
Inventories are measured at the lower of cost and net realizable value. Cost is determined using the weighted average cost method. The cost of finished products and work in progress includes raw material costs, direct labor costs, general manufacturing costs and other direct and indirect costs incurred in bringing the inventories to their present location and condition. Net realizable value is determined using prevailing selling prices less estimated costs of completion and sale.
Obsolete or slow-moving stocks are devalued on the basis of the presumed possibility of their use or of their future realizable value, by creating an appropriate provision that has the effect of reducing the inventories value.
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost, using the effective interest method. They are recorded net of a bad debt provision, deducted directly from accounts receivable to bring the evaluation at their estimated realizable value.
A provision for the impairment of trade receivables is recognized when there is objective evidence that the company will be unable to collect all the amounts according to the original terms and conditions. The amount of the provision for such loss is charged to the income statement.
Trade and other payables, due under normal commercial terms, are not discounted but are recognized at cost (identified by their face value), representing the expenditure required for their settlement.
Cash and cash equivalents include cash on hand, demand deposits with banks and short-term financial investments that are highly liquid and originally mature in three months or under, less bank overdrafts. Bank overdrafts are classified in the statement of financial position under short-term loans and borrowings under current liabilities.
In the consolidated cash flow cash statement and cash equivalents have been shown net of bank overdrafts at the closing date.
Ordinary shares are classified under equity.
Any proceeds from their sale, less directly attributable transaction costs and the related tax, are recognized in equity pertaining to the Society.
In accordance with the requirements of International accounting standard IAS 32, costs sustained for the increase in share capital (that is, registration costs or other charges due to regulation authorities, amounts paid to legal advisors, auditors or other professionals, printing costs, registration costs and stamp duty), are accounted for as a reduction in equity, net of any connected tax benefit, to the extent to which they are marginal costs directly attributable to the share capital operation (and would have been avoided otherwise).
Loans and borrowings are recognized initially at fair value, less the related transaction costs. They are subsequently measured at amortized cost; the difference between the amount received, less transaction costs, and the amount repayable is recognized in the income statement over the term of the loan, using the effective interest method.
Loans and borrowings are classified as current liabilities if the company does not have an unconditional right to defer the extinguishment of the liability to at least 12 months after the statement of financial position date.
Current taxes are accrued in accordance with the rules in force at the date of the financial statement and include adjustments to prior years' taxes.
Deferred tax assets and liabilities are recorded to reflect all temporary differences at the reporting date between the carrying amount of an asset / liabilities for tax purposes and allocated according to the accounting principles applied.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the statement of financial position date.
Deferred tax assets are recognized on all temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized.
The same principle applies to the recognition of deferred tax assets on utilizable tax losses.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and possibly reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of all or part of that deferred tax asset to be utilized. Any such reductions are reversed if the reasons for them no longer apply. As a general rule, apart from specific exceptions, deferred tax liabilities must always be recognized.
Income taxes (current and deferred) relating to items recognized directly in equity are also recognized directly in equity.
Current tax assets and liabilities are offset only if the company has a legally enforceable right to set off the recognized amounts and if it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities may be offset only if the company is able to offset current tax assets against current tax liabilities and if the deferred taxes refer to income taxes levied by the same taxation authority.
Beginning from 2016, Emak has exercised the option for consolidated IRES taxation for the three - year period 2016 - 2018 with its parent Yama. The tax assets and liabilities entries by virtue of the consolidation converge with the corresponding balances recorded by the consolidating company Yama. The reciprocal accounting entries between Emak and Yama are regulated in accordance with the consolidation agreement signed on September 12, 2016.
Employee termination indemnities fall into the category of defined benefit plans for valuation on an actuarial basis (death rates, expected changes in remuneration etc.) and reflect the present value of the benefit, payable at the end of employment, which employees have matured at the statement of financial position date.
The costs relating to the increase in the obligation's present value, arising as the time of payment approaches, are recorded as financial expenses. All other costs relating to the provision are reported as payroll costs in the income statement. All actuarial gains and losses are recognized in the period in which they occur.
Provisions for risks and charges are recognized when the company has a legal or constructive obligation as a result of past events, it is probable that a payment will be required to settle the obligation and a reliable estimate can be made of the related amount.
Revenues are recognized in the Income Statement on an accruals and temporal basis and are recognized to the extent that it is probable that the economic benefits y associated with the sale of goods or the provision of services will flow to the Company and their amount can be reliably measured.
Revenues are accounted net of returns, discounts, rebates and taxes directly associated with the sale of goods or the provision of the service.
Sales are recognized at the fair value of the compensation received for the sale of products and services, when there are the following conditions:
Government grants are recognized at fair value when there is reasonable assurance that the grants will be received and all the conditions attaching to them have been satisfied.
Government grants related to costs (e.g. operating grants) are recognized as revenue on a systematic basis over a number of years so as to match the costs that the grant is intended to offset.
Government grants related to assets (e.g. facility grants) are recorded in non-current liabilities and gradually released to the income statement on a systematic basis over the useful life of the asset concerned.
Financial income and expenses are recognized on an accrual basis using the effective interest rate and include dividends received from subsidiaries, exchange gains and losses and gains and losses on derivatives charged to the income statement.
Dividends on ordinary shares are reported as liabilities in the financial statements in the year in which the shareholders approve their distribution.
Basic earnings per share are calculated by dividing the company's net profit by the weighted average number of shares outstanding during the period, excluding treasury shares. The company does not have any potential ordinary shares.
The cash flow statement has been prepared using the indirect method.
Cash and cash equivalents included in the cash flow statement comprise the cash-related balances at the reporting date. Cash flows in foreign currency have been translated at the average rate for the period. Interest income and expense, dividends received and income taxes are included in cash flow generated by operations.
The following IFRS accounting standards, amendments and interpretations were first adopted by the Group starting January 1, 2017
Accounting standards, amendments and IFRS/IFRIC interpretations endorsed by the European Union, but not yet mandatory applicable and not early adopted from the Group on 31 December 2017
This standard is applicable as from 1 January 2018. The amendments to IFRS 15, Clarifications to IFRS 15 – Revenue from Contracts with Customers, it's been approved by European Union on 6 November 2017. On basis of the carried out analysis, Directors expect that application of IFRS 15 will not have any significant effect on revenue amounts and on disclosure reported in separate financial statements.
The new standard must be applied to reporting period beginning on 1 January 2018 and thereafter.
On basis of the carried out analysis, Directors expect that application of IFRS 9 will not have any significant effect on amounts and on disclosure reported in separate financial statements. In particular, overall estimated effect by the application of the new accounting standard could produce an overall negative impact on the Net Equity at December 31, 2017 not more than € 200 thousand, mainly attributable to fair value measurements of other investment in other companies.
• IFRS 16 – Leases (issued on 13 January 2016) intended to replace IAS 17 – Leases, as well as IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases— Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The new standard provides a new definition of lease and introduces a criteria based on the control (right of use) of an asset to differentiate between lease and service agreements identifying which distinctive: asset identification, right of replacement of the asset, right to obtain all economic benefits arising out of use of the asset and right to control the use of the asset underlying the agreement.
The standard introduces a single lessee accounting model for recognizing and measuring lease agreements, which provides for the underlying asset – including assets underlying operating leases – to be recognized in the statement of financial position as assets and lease financial liability providing the possibility to not recognize as lease the agreements concerning "low-value assets" and agreements with a duration equal and/or less 12 months. To the opposite, no significant changes are introduced by the Standard for lessor accounting.
The standard applies for reporting period beginning on or after 1 January 2019. Early adoption is only allowed for early adopters of IFRS 15 – Revenue from Contracts with Customers. Directors expect that adoption of IFRS 16 could have an effect on amounts and on disclosure reported in separate financial statements. However, is not possible to provide a reasonable estimate as long as the Company will complete a detail analysis on agreements. The effect will mainly concern the accounting of the related real estate leases and the operating leases of cars and means of transport.
• Document Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (issued on 12 September 2016). The amendment provides entities meeting a criterion for engaging in predominantly insurance activities with the option to continue current IFRS accounting and to defer the application of IFRS 9 (from 1 January 2018) to financial activities, before the IASB replaces current IFRS 4 with the new standard currently being prepared, based on which financial liabilities are assessed. Directors do not expect a significant effect on separate financial statements by adopting of these changes
The European Union has not yet completed its endorsement process for the standards and amendments below reported at the date of these Financial Statements.
for income taxes should be recognized in the financial statements when it is probable that entity will pay or receive the amount in question. Therefore, the interpretation does not provide any new mandatory disclosure; however, the entity should assess whether is necessary to provide disclosures on the management consideration done in relation to the uncertainty inherent to the recognition of the income taxes, in accordance with IAS 1. This interpretation apply as from 1 January 2019, though early adoption is allowed. Directors do not expect a significant effect on separate financial statements by adopting of these interpretation.
The Company's business is exposed to a number of different financial risks: market risk (including currency risk, fair value risk and market price risk), credit risk and liquidity risk. The Company's policies for managing and controlling financial risks focus on the unpredictability of financial markets and seek to minimize the potentially negative effects on the financial results. The Company uses derivative financial instruments to hedge certain risks.
Hedging of the Company's financial risks is managed by a head office function working in close collaboration with the individual operating units.
(i) Interest rate risk
The Company's interest rate risk relates to its long-term loans and borrowings. Variable rate loans expose the Company to the cash flow risk associated with interest rates. Fixed rate loans expose the Company to the fair value risk associated with interest rates.
The Company's policy is based on constantly monitoring its level and structure of debt and on the trend in interest rates and macroeconomic variables that might directly influence them, with the goal of optimizing the cost of money. At December 31, 2017, the Company's bank loans and borrowings and finance leases all carried variable interest and consequently, the company has set up hedging operations aimed at limiting the effects of interest rate fluctuations.
The Company conducts its business internationally and is exposed to exchange risk associated with the currencies used, mainly US dollars, yen and renminbi. Currency risk derives from future commercial transactions, from recognized assets and liabilities and net investments in foreign enterprises. The Company's policy, in line with the directives shared across the Group, is based on research of natural hedging receivables and payables and is limited to partially covering the net positions in foreign currencies mainly using forward contracts.
The Company is exposed to fluctuations in the price of raw materials. This exposure is mostly towards suppliers of parts since their price is generally tied by contract to the trend in market prices for raw materials. The Company usually enters into medium-term contracts with certain suppliers for the purpose of managing and limiting the risk of fluctuations in the price of its main raw materials such as aluminum, sheet metal, plastic and copper, as well as semi-finished products such as motors.
The Company has adopted policies to ensure that products are sold to customers of proven creditworthiness and that certain types of receivable are insured.
Prudent management of liquidity risk implies the maintenance of sufficient liquid funds and marketable securities, and the availability of funding through adequate credit lines.
Consequently, the treasury, in accordance with the general directives of the Group, carries out the following activities:
Counterparties to derivative contracts and operations performed on liquid funds are restricted to primary financial institutions.
The company, through a financial management of the Group has maintained high levels of reliability on the part of banks and analysts. Lines of credit available significantly exceed requirements.
Derivative financial instruments are used exclusively for hedging purposes with the intent of reducing the risks of foreign currency fluctuation. In line with its risk management policy, in fact, the Group does not carry out derivative operations for speculative purposes.
When such operations are not accounted for as hedging operations they are recorded as trading operations.
As established by IAS 39, derivative financial instruments may qualify for special hedge accounting only if at the inception of the hedge the hedging relationship is formally designated and documented, the hedge is expected to be highly effective and the effectiveness of the hedge can be measured reliably. Derivatives are initially recognized at cost and adjusted to fair value at subsequent statement of financial position dates.
On the basis of the above, and of stipulated contracts, the accounting methods adopted are as follows:
Hedge accounting is discontinued when the hedging instrument expires, is sold, terminated or exercised, or no longer meets the criteria for hedge accounting. The cumulative gains or losses on the hedging instrument recognized directly in the Comprehensive Income Statement remain until the forecast transaction effectively occurs. If the forecast transaction is no longer expected to occur, the cumulative gains or losses recognized directly in Comprehensive Income Statement are transferred to the Income Statement for the period.
The current value of financial instruments with a quoted market price in an active market (such as publicly traded derivatives and securities held for trading and for sale) is based on the market price at the statement of financial position date. The market price used for the company's financial assets is the bid price; the market price for financial liabilities is the offer price.
The current value of financial instruments not quoted in an active market (for example, derivatives quoted over the counter) is determined using valuation techniques. The company uses various methods and makes assumptions that are based on existing market conditions at the statement of financial position date. Longterm payables are valued using quoted market or trading prices for the specific or similar instruments. Other methods, such as estimating the present value of future cash flows, are used to determine the fair value of the other financial instruments. The current value of forward currency contracts is determined using the forward exchange rates expected at the statement of financial position date.
It is assumed that the face value less estimated doubtful receivables approximates the fair value of trade receivables and payables. For the purposes of these notes, the fair value of financial liabilities is estimated by discounting contractual future cash flows at the current market rate available to the company for similar financial instruments.
The preparation of the financial statements and the related notes under IFRS has required management to make estimates and assumptions affecting the value of reported assets and liabilities and the disclosures relating to contingent assets and liabilities at the statement of financial position date. Actual results could differ from these estimates. Estimates are used for recording provisions for doubtful accounts receivable and inventory obsolescence, amortization and depreciation, write-downs to assets, post-employment benefits,
taxes and other provisions. Estimates and assumptions are reviewed periodically and the effects of any change are immediately reflected in the income statement.
The assessment that goodwill, as well as equity investments in subsidiaries, is recorded in the financial statements for a value not higher than their recoverable value (so-called impairment test) provides, first of all, to test the endurance of the value of the goodwill divided into the Cash Generating Unit (CGU). The calculation of the recoverable amount is carried out in accordance with the criteria established by IAS 36 and is determined in terms of value in use by discounting the expected cash flows from the use of a CGU, as well as from the expected value of the asset at its disposal at the end of its useful life. This process involves the use of estimates and assumptions to determine both the amount of future cash flows and the corresponding discount rates. The future cash flows are based on the most recent economic-financial plans drawn up by the Management of each CGU in relation to the functioning of the production assets and the market context. With reference to the business in which the company operates, the factors that have the greatest relevance in the estimates of future cash flows are attributable to the intrinsic difficulty of formulating future forecasts, to the feasibility of market strategies in highly competitive contexts, as well as to the risks of macroeconomic nature related to the geographic areas in which the Emak Group operates. The discount rates reflect the cost of money for the period forecast and the specific risks of the activities and countries in which the Group operates and are based on observable data in the financial markets.
In this context, it should be noted that the situation caused by the persistent difficulties of the economic and financial scenario has implied the need to make assumptions regarding the future outlook which is characterized by uncertainty. As a result, it cannot be excluded that the actual results obtained will be different from the forecasts, and therefore adjustments, even of significant amounts, which obviously cannot today be estimated or foreseeable, to the book value of the relative items may be necessary. The financial statements heading most affected by the use of estimates is shareholdings in subsidiaries and associates included among non-current assets, where the estimates are used to establish any devaluations and recoveries of value. Any effects are not, however, particularly critical or material, considering their low significance in relation to the underlying account headings.
Works for the construction of the new R&D centre started in July 2016 go on. At December 31, 2017, the portion of the investment already recorded under fixed assets amounted to approximately € 2,800 thousand, compared to a total investment of € 5,500 thousand.
Concerning the Group's project for the implementation of the new ERP Microsoft Dynamics 365 system, it has to be highlighted that activities are proceeding according to the forecasted plans with the aim to get to "go live" within end 2018. Overall forecasted investment for the ongoing projects will amount to € 2,000 thousand, of which € 730 thousand already accounted for as of 31 December 2017.
As already specified in the paragraph "Main shareholders of Emak", of the Directors' report, on May 23, 2017, the major shareholder Yama S.p.A. has completed the placement of a stake of approximately 10% of Emak S.p.A.'s share capital, thus coming to hold 65.181% of Emak's share capital.
No events/operations as per Consob Communication DEM/6064293 of 28 July 2006 have been recorded during the financial period 2017. As indicated in this Communication "atypical and/or unusual operations are considered as operations that, due to their significance/materiality, the nature of the counterparties, the object of the transaction, the means for determining the transfer price and the time of the event (near the close of the period), may give rise to doubts with regards to: the correctness/completeness of the information
in the financial statements, conflicts of interest, the protection of company assets, the safeguarding of minority interests".
In the table below are shown details of the net financial position, which includes the net financial debt determined according to ESMA criteria (based on the format required by Consob communication no. 6064293 of 28 July 2006):
| €/000 | 31/12/2017 31/12/2016 | |
|---|---|---|
| A. Cash | 8,337 | 21,425 |
| B. Other cash at bank and on hand (held-to-maturity investments) | - | - |
| C. Financial instruments held for trading | - | - |
| D. Liquidity funds (A+B+C) | 8,337 | 21,425 |
| E. Current financial receivables | 1,962 | 1,406 |
| F. Current payables to banks | (2,903) | (28) |
| G. Current portion of non current indebtedness | (13,396) | (15,267) |
| H. Other current financial debts | (907) | (2,310) |
| I. Current financial indebtedness (F+G+H) | (17,206) | (17,605) |
| J. Current financial indebtedness, net (I+E+D) | (6,907) | 5,226 |
| K. Non-current payables to banks | (28,502) | (26,953) |
| L. Bonds issued | - | - |
| M. Other non-current financial debts | (1,352) | (1,204) |
| N. Non-current financial indebtedness (K+L+M) | (29,854) | (28,157) |
| O. Net indebtedness (J+N) | (36,761) | (22,931) |
| P. Non current financial receivables | 18,072 | 5,725 |
| Q. Net financial position (O+P) | (18,689) | (17,206) |
At December 31, 2017 the net financial position includes:
At December 31, 2016 the net financial position included:
the short-term loan granted by Emak S.p.A. to the subsidiary Comet USA for € 949 thousand a financial receivable for the reinstatement of assets to the parent company Yama S.p.A., for a value of € 449 thousand, recorded under current financial receivables;
the financial payable for equity reinstatement due to the subsidiary, Tecomec S.r.l., for an amount of € 334 thousand, recorded under Other non-current financial payables;
Sales revenues amount to € 125,426 thousand, compared with € 128,001 thousand in the prior year. They are stated net of € 427 thousand in returns, compared with € 632 thousand in the prior year. The revenue was mainly penalized by lower sales realized in Italy and in Far East Countries, counterbalanced positively by the trend registered in European markets and in America.
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Net sales revenues (net of discounts and rebates) | 123,468 | 126,024 |
| Revenues from recharged transport costs | 2,385 | 2,609 |
| Returns | (427) | (632) |
| Total | 125,426 | 128,001 |
Other operating income is analysed as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Subsidies for operation | 194 | 167 |
| Capital gains on tangible fixed assets | 6 | 7 |
| Insurance refunds | 22 | 21 |
| Other operative revenues | 235 | 233 |
| Total | 457 | 428 |
The heading, "Subsidies for operation" refers to the contribution as per Law 488/92 for € 99 thousand and to the Fondimpresa contribution of € 25 thousand, granted with relation to costs sustained by the Company for staff training, to the tax credit for research and development planned in accordance with art. 1, paragraph 35 of the Law of 23 December 2014, n. 190, for a value of € 63 thousand, and, finally, to tax credit Bonus School for € 7 thousand .
The heading is analyzed as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Raw materials | 51,148 | 43,735 |
| Finished products | 28,115 | 26,097 |
| Consumable materials | 293 | 286 |
| Other purchases | 1,380 | 1,591 |
| Total | 80,936 | 71,709 |
The increase of the costs for raw materials and finished products is attributable to an increase of the purchase volumes compared to previous year. This trend caused a positive change of the inventories at the end of the period for a total value equal to € 3,434 thousand.
Details of these costs are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Wage and salaries | 16,347 | 15,929 |
| Social security charges | 5,186 | 5,070 |
| Employee termination indemnities | 1,201 | 1,139 |
| Other costs | 155 | 225 |
| Directors' emoluments | 550 | 486 |
| Temporary staff | 1,258 | 893 |
| Total | 24,697 | 23,742 |
Personnel expenses increased, compared to the previous year, due to the salary dynamic measured by the performance remuneration policies and for the activation, in 2017, of a corporate welfare plan aimed at all employees. Furthermore, the higher production volumes recorded in the current year in the Bagnolo in Piano (RE) and Pozzilli (IS) plants were reflected in an increase in costs for temporary staff.
The breakdown of employees by grade is the following:
| Average number of employees in year |
Number of employees at this date |
|||
|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | |
| Executives | 16 | 15 | 16 | 15 |
| Office staff | 190 | 182 | 187 | 183 |
| Factory workers | 246 | 249 | 247 | 252 |
| Total | 452 | 446 | 450 | 450 |
Details of these costs are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Subcontract work | 1,683 | 1,811 |
| Transportation | 7,160 | 6,116 |
| Advertising and promotion | 1,001 | 874 |
| Maintenance | 1,657 | 1,759 |
| Commissions | 1,154 | 1,224 |
| Consulting fees | 1,626 | 1,668 |
| Costs of after sales warranty | 628 | 680 |
| Insurance | 359 | 344 |
| Travel | 368 | 293 |
| Postals and telecommunications | 218 | 199 |
| Other services | 2,227 | 2,496 |
| Services | 18,081 | 17,464 |
| Rents, rentals and the enjoyment of third party assets | 769 | 782 |
| Increases in provisions | 37 | 38 |
| Increases in provision for doubtful accounts (note 22) | 194 | 352 |
| Other taxes (not on income) | 310 | 293 |
| Other operating costs | 481 | 355 |
| Other costs | 985 | 1,000 |
| Total | 19,872 | 19,284 |
The increase of the transportation costs, compared to the previous year, is attributable both to an increase of the purchase volume of raw materials and finished products, and to a different mix of the selling markets for the products and of the related routes.
Details of these amounts are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Depreciation of property, plant and equipment (note 16) | 3,692 | 3,819 |
| Amortization of intangible assets (note 17) | 472 | 554 |
| Impairment losses (note 19) | 780 | 1,725 |
| Total | 4,944 | 6,098 |
"Impairment losses" relate to investments in subsidiaries of the company Emak Do Brasil Industria Ltda, as described in note 19. In 2016 this item included the amount of the impairment of the investment in the Brazilian company Emak do Brazil and in the German company Emak Deutschland, for a total amount of € 1,725 thousand.
Financial income" is analyzed as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Dividends from subsidiaries | 4,834 | 7,550 |
| Dividends from associates | 61 | - |
| Interest on trade receivables | 69 | 66 |
| Interest on loans to subsidiaries (note 36) | 352 | 200 |
| Interest on financial assets granted to parent company (note 36) | 9 | 12 |
| Interest on bank and post office accounts | 114 | 82 |
| Costs from adjustment to fair value and closure of derivates instruments for hedging interest rate risk |
65 | 42 |
| Other financial income | 41 | 5 |
| Financial income | 5,545 | 7,957 |
The heading "Dividends from shareholdings in subsidiaries" refers to the dividends received from the subsidiaries Emak Suministros Espana S.A, Tecomec S.r.l., Sabart S.r.l., Victus-Emak Sp.Z.o.o. (see note 36).
The heading "Dividends from shareholdings in associates" refers to the dividends received from the associated company Cifarelli S.p.A.
"Financial expenses" are analyzed as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Interest on long-term bank loans and borrowings | 425 | 467 |
| Interest on short-term bank loans and borrowings | 1 | 15 |
| Interest on loans to related parties (note 36) | 9 | 16 |
| Financial charges from valuing employee termination ind. (note 29) | 38 | 49 |
| Proceeds from adjustment to fair value derived instruments for hedging interest rate risk |
89 | 145 |
| Other financial costs | 130 | 4 |
| Financial expense | 692 | 696 |
The details of the "Exchange gains and losses" heading are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Exchange rate gains | 1,871 | 2,897 |
| Unrealized gains/(losses) | (1,932) | 1,608 |
| Exchange rate losses | (2,227) | (3,085) |
| Exchange gains and losses | (2,288) | 1,420 |
This amount is made up as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Current income taxes | 325 | 229 |
| Taxes from prior years | 94 | 144 |
| Deferred tax liabilities (note 28) | 408 | 213 |
| Deferred tax assets (note 28) | 501 | (748) |
| Total | 1,328 | (162) |
"Current income taxes", for the year 2017, amount to a positive value of € 325 thousand and includes:
The value of the item "Income taxes for previous years" is given by a positive effect of € 94 thousand, of which € 83 thousand concerning the retrocession of greater facilitation "ACE" for the tax consolidation pertaining the fiscal year 2016, but recognized in the following year.
The theoretical tax charge, calculated using the ordinary rate, is reconciled to the effective tax charge as follows:
| €/000 | FY 2017 | % rate | FY 2016 | % rate |
|---|---|---|---|---|
| Profit before taxes | 1,432 | 7,173 | ||
| Theoretical tax charges | 400 | 27.9 | 2,252 | 31.4 |
| Effect of IRAP differences calculated on different tax base |
13 | 0.9 | (248) | (3.5) |
| Dividends | (1,133) | (79.1) | (1,973) | (27.5) |
| Non-deductible costs | 318 | 22.2 | 686 | 9.6 |
| Current and advance taxes of previous years |
(622) | (43.4) | (143) | (2.0) |
| ACE facilitation | (140) | (9.8) | (550) | (7.7) |
| Other differences | (164) | (11.5) | 138 | 1.9 |
| Effective tax charge | (1,328) | (92.8) | 162 | 2.2 |
The item "Current and advance taxes of previous years" mainly includes income for € 666 thousand, corresponding to the so-called "ACE" facilitation, accrued in previous years (2012 - 2015) and recorded in 2017, following a favourable response to the application for the application presented by the Company to the Revenue Agency.
The item "Other differences" mainly includes the benefit deriving from the increase in the fiscally recognized cost of new capital goods, c.d. super amortization, provided for by the 2017 Budget Law.
It should be noted that the fiscal management of 2016 for current taxes, deferred tax assets and liabilities amounted to a negative net value of € 162 thousand, net of the positive effect of taxes of previous years for € 200 thousand. This result was mainly due to a negative effect of € 200 thousand for the adjustment to the
provision for tax risks and a positive effect of € 344 thousand, corresponding to the "ACE" concerning the 2011 - 2013 tax periods. , which the Italian Revenue Agency recognized in the previous financial year as pertaining, upon request of the company.
"Basic" earnings per share are calculated by dividing the net profit for the period of the Group attributable to the Company's Shareholders by the weighted average number of ordinary shares outstanding during the period, excluding the average number of treasury shares held (see note 17 of the Consolidated Financial Statements).
Changes in property, plant and equipment are shown below:
| €/000 | FY 31.12.2016 | Increases | Decreases | Other movements |
FY 31.12.2017 |
|---|---|---|---|---|---|
| Lands and buildings | 29,977 | 9 | - | - | 29,986 |
| Accumulated depreciation | (11,900) | (688) | - | - | (12,588) |
| Lands and buildings | 18,077 | (679) | - | - | 17,398 |
| Plant and machinery | 16,814 | 993 | (37) | 15 | 17,785 |
| Accumulated depreciation | (14,174) | (684) | 37 | - | (14,821) |
| Plant and machinery | 2,640 | 309 | - | 15 | 2,964 |
| Other assets | 59,103 | 1,513 | (133) | 275 | 60,758 |
| Accumulated depreciation | (53,489) | (2,321) | 125 | - | (55,685) |
| Other assets | 5,614 | (808) | (8) | 275 | 5,073 |
| Advances and fixed assets in progress |
920 | 3,350 | - | (290) | 3,980 |
| Cost | 106,814 | 5,865 | (170) | - | 112,509 |
| Accumulated depreciation (note 12) |
(79,563) | (3,693) | 162 | - | (83,094) |
| Net book value | 27,251 | 2,172 | (8) | - | 29,415 |
| €/000 | FY 31.12.2015 | Increases | Decreases | Other movements |
FY 31.12.2016 |
|---|---|---|---|---|---|
| Lands and buildings | 29,899 | 78 | - | - | 29,977 |
| Accumulated depreciation | (10,822) | (1,078) | - | - | (11,900) |
| Lands and buildings | 19,077 | (1,000) | - | - | 18,077 |
| Plant and machinery | 16,076 | 620 | (80) | 198 | 16,814 |
| Accumulated depreciation | (13,565) | (689) | 80 | - | (14,174) |
| Plant and machinery | 2,511 | (69) | - | 198 | 2,640 |
| Other assets | 56,024 | 2,591 | (118) | 606 | 59,103 |
| Accumulated depreciation | (51,555) | (2,052) | 118 | - | (53,489) |
| Other assets | 4,469 | 539 | - | 606 | 5,614 |
| Advances and fixed assets in progress |
1,158 | 566 | - | (804) | 920 |
| Cost | 103,157 | 3,855 | (198) | - | 106,814 |
| Accumulated depreciation (note 12) |
(75,942) | (3,819) | 198 | - | (79,563) |
| Net book value | 27,215 | 36 | - | - | 27,251 |
No evidence of impairment indicators has been reported for property, plant and equipment.
The increases relate to:
land and buildings category for some improvements on the building used as spare parts pole in Bagnolo in Piano, achieved in the first months of the year, for € 9 thousand;
The heading, "Advances and fixed assets in progress" refers to sums paid for the development of equipment and molds for production for € 239 thousand and € 3,057 thousand in advanced payment for the construction of the new research and development center at its headquarters in Bagnolo in Piano (RE).
The decreases relate to:
The Company does not hold goods that a subject to restrictions on entitlement and ownership.
Over the years the company, Comag S.r.l., merged into Emak S.p.A.in 2015 financial year, has benefitted from a number of capital grants paid in accordance with Law 488/92. The contributions paid are posted to the income statement according to the residual possibility of use of the fixed assets to which they refer and are recorded in the statement of financial position under deferred income.
All receivable relating to these contributions have been received.
Intangible assets report the following changes:
| €/000 | FY 31.12.2016 | Increase | Decrease | Other movements |
FY 31.12.2017 |
|---|---|---|---|---|---|
| Development costs | 1,830 | 120 | - | 38 | 1,988 |
| Accumulated amortization | (1,825) | (12) | - | - | (1,837) |
| Development costs | 5 | 108 | - | 38 | 151 |
| Patents and intellectual property rights | 7,903 | 306 | - | 35 | 8,244 |
| Accumulated amortization | (6,845) | (342) | - | - | (7,187) |
| Patents | 1,058 | (36) | - | 35 | 1,057 |
| Concessions, licences and trademarks | 123 | 7 | - | - | 130 |
| Accumulated amortization | (91) | (9) | - | - | (100) |
| Concessions, licences and trademarks | 32 | (2) | - | - | 30 |
| Other intangible assets | 1,125 | 95 | - | - | 1,220 |
| Accumulated amortization | (921) | (110) | - | - | (1,031) |
| Other intangible assets | 204 | (15) | - | - | 189 |
| Advanced payments and fixed assets in progress |
283 | 701 | - | (73) | 911 |
| Cost | 11,264 | 1,229 | - | - | 12,493 |
| Accumulated depreciation (note 12) | (9,682) | (473) | - | - | (10,155) |
| Net book value | 1,582 | 756 | - | - | 2,338 |
| €/000 | FY 31.12.2015 | Increase | Decrease | Other movements |
FY 31.12.2016 |
|---|---|---|---|---|---|
| Development costs | 1,830 | - | - | - | 1,830 |
| Accumulated amortization | (1,716) | (109) | - | - | (1,825) |
| Development costs | 114 | (109) | - | - | 5 |
| Patents and intellectual property rights | 6,965 | 923 | - | 15 | 7,903 |
| Accumulated amortization | (6,493) | (352) | - | - | (6,845) |
| Patents | 472 | 571 | - | 15 | 1,058 |
| Concessions, licences and trademarks | 112 | 11 | - | - | 123 |
| Accumulated amortization | (83) | (8) | - | - | (91) |
| Concessions, licences and trademarks | 29 | 3 | - | - | 32 |
| Other intangible assets | 917 | 28 | - | 180 | 1,125 |
| Accumulated amortization | (836) | (85) | - | - | (921) |
| Other intangible assets | 81 | (58) | - | 180 | 204 |
| Advanced payments and fixed assets in progress |
295 | 183 | - | (195) | 283 |
| Cost | 10,120 | 1,144 | - | - | 11,264 |
| Accumulated depreciation (note 12) | (9,128) | (554) | - | - | (9,682) |
| Net book value | 992 | 590 | - | - | 1,582 |
The increase in "Patents and intellectual property rights" refers to the purchase of licenses for the start of the project to implement the product traceability at the production site in Pozzilli (IS). The increase in "Other intangible assets" includes for the most advances for the development of new products and advances for the launch of the project to implement the new ERP Microsoft Dynamics 365 system of the Group (note 5). All the intangible assets have a finite residual life and are amortized on a straight-line basis over the following periods:
| • | Development costs | 5 years |
|---|---|---|
| • | Intellectual property rights | 3 years |
| • | Concessions, licences, trademarks and similar rights | 10/15 years |
Research and development costs directly posted to the income statement amount to € 4,907 thousand.
The amount of € 2,074 thousand refers to the positive difference arising from the acquisition from the Parent company Yama S.p.A. and further to the merger of the company Bertolini S.p.A into Emak S.p.A..
The Company checks the recoverability of goodwill at least once a year, or more frequently if there are indicators of loss in the value. This check is carried out by calculating the recoverable value of the relevant Cash Generating Unit (CGU), using the "Discounted cash flow" method.
With regard to the goodwill arising from the merger of the company Bertolini S.p.A into Emak S.p.A., the plan date of the CGU Emak S.p.A were considered, being this the minimum level at which the goodwill is monitored by the management for internal management purposes.
The impairment tests relating to goodwill recorded at 31 December 2017 have been approved by the Board of Directors taking account of the opinion of the Risk Control Committee.
For the purpose of carrying out the impairment test on goodwill values, the Discounted cash flow has been calculated in the basis of the following assumptions:
Furthermore, also on the basis of the indications contained in the joint document of the Bank of Italy, Consob and Isvap no. 4 of 3 March 2010, the Company proceeded to draw up a sensitivity analysis on the results of the impairment test of the CGU Emak SpA, with respect to changes in the basic assumptions that affect the value in use of the investment. Also in the case of a positive or negative change of 5% of the WACC, half a percentage point of the growth rate "g" and 5% of the cash flows; these analyses do not lead to impairment losses.
Details of equity investments are as follows:
| €/000 | 31.12.2016 | Increases | Decreases | 31.12.2017 |
|---|---|---|---|---|
| Equity investments | ||||
| - in subsidiaries | 94,202 | - | (780) | 93,422 |
| - in associates | 3,750 | - | - | 3,750 |
| - in other companies | 225 | - | - | 225 |
| TOTAL | 98,177 | - | (780) | 97,397 |
Investments in subsidiaries amounted to 93,422 thousand. The registered movements during the year is related to the impairment of € 780 thousand referred to the equity investment in the company Emak Do Brasil Industria Ltda.
The values of investments in subsidiaries and associates are set out in detail in Annexes 1 and 2.
The Company therefore carried out an impairment test of the equity investments that show indicators of impairment, or object of previous devaluations, in order to identify any losses and / or reversal of impairment losses to be recognized in the Income Statement, following the procedure set forth in IAS 36, and then comparing the book value of the individual equity investments with the value in use given by the current value of the estimated cash flows that are expected to derive from the continuous use of the asset subject to impairment test.
There is a connection between the subsidiaries and the cash generating units ("CGU") identified for implementing the aforementioned impairment tests.
The impairment test was therefore implemented for equity investments in Emak Do Brasil Ltda, Emak Deutschland GmbH, Sabart S.r.l., Epicenter Llc, and Victus Sp Z.o.o.
The factors that are most relevant in the estimates of future cash flows are attributable to the intrinsic difficulty of formulating future forecasts, to the feasibility of market strategies in highly competitive contexts, as well as to the macro-economic risks related to the geographical areas in which the Emak Group operates.
For the tests was used the discounted cash flow method (Discounted Cash Flow Unlevered) deriving from the 2018 budgets, prepared by the individual subsidiaries, as well as from the assumptions at the base of the forecasts, set out over a period of 3-5 years, relating to the individual CGU. These forecasts for the explicit period are in line with forecasts on the performance of the operating segment to which each company belongs (as estimated by the most relevant sources in the sector), and represent the best management estimate on the future operating performance of the individual subsidiaries during the period considered, and excluding any transactions of non-ordinary nature and / or transactions not yet defined at the end of the financial year.
The impairment tests were approved by the Company's Board of Directors on February 28, 2018.
The discount rates in the impairment tests were calculated using as baseline the risk-free rates and the market premiums relating to the different countries to which belong the equity investments under assessment.
The terminal value was calculated with the "perpetuity growth" formula, assuming a growth rate "g-rate" of 2% and considering an operating cash flow based on the last year of explicit forecast, adjusted to "perpetuity" project a stable situation, specifically by using the following main assumptions:
a balance between investments and amortization (in the logic of considering a level of investments necessary for the maintenance of the business);
change in working capital equal to zero.
The value obtained by summing the discounted cash flows of the explicit period and the terminal value ("Enterprise Value") is deducted the net financial debt at the reference date of the valuation, in this case on 31 December 2017, in order to obtain the economic value of the investments subject to assessment ("Equity Value").
The average cost of capital is the result of the weighted average cost of debt (calculated considering the reference rates plus a "spread").
the cost of equity is determined using the value of beta levered and the financial structure of a panel of comparable companies, with the only exceptions of the risk-free rate and the risk premium, specific for each country.
The WACC used to discount cash flows were respectively 8.80% for Victus Sp Z.o.o. (Poland), 6.13% for Emak Deutschland Gmbh (Germany), 7.02% for Sabart S.r.l. (Italy), 21.27% for Epicenter Llc (Ukraine), while a WACC of 14.53% was used for the CGU Emak Do Brasil Ltda located in Brazil.
The impairment tests carried out on these subsidiaries did not show any impairment losses to be recognized in the income statement as at 31 December 2017 with the exception of the company Emak Do Brasil for which an impairment loss of Euro 780 thousand has emerged, and therefore, a full write-down of the residual carrying amount previously recorded was carried out.
Future cash flows derive from plans drawn up taking into account the critical and macroeconomic risks that distinguish the scope in which the subsidiary operates and has shown that the value of the investment, at the estimated conditions, is no longer recoverable.
Furthermore, also on the basis of the indications contained in the joint document of the Bank of Italy, Consob and Isvap no. 4 of 3 March 2010, the Company proceeded to draw up a sensitivity analysis on the results of the impairment test with respect to changes in the basic assumptions that may affect the value in use of the investment. Even in the case of a positive change of 5% of the WACC, or negative of half a percentage point of the growth rate "g" or of 5% of the cash flows, the analyzes do not show any losses in value.
Finally, precise, recalling as disclosed in Note 37 "Subsequent Events", that on 6 March 2018, the parent company Emak S.p.A. has signed a binding agreement for the sale of 100% of the share capital of Raico S.r.l. for a consideration of 5,500 thousand euros. This fair value, determined between two independent third parties, is higher than the book value of the investment and therefore there are no indicators of loss of value.
The heading equity investments in associated companies amounts to € 3,750 thousand and refers to the acquisition of 30% of Cifarelli S.p.A. carried out last year.
Investments in other companies relate to:
The financial statements values relate to changes in the fair value of financial instruments:
All derivative financial instruments belonging to this heading are valued at fair value at the second hierarchical level, that is, the estimate of their fair value has been carried out using variables other than Prices quoted in active markets and which are observable (on the market) either directly (prices) or indirectly (derived from prices).
In the case in point, the fair value recorded is equal to the "market to market" estimation provided by the bank, which represents the current market value of each contract calculated at the date at the closing date of the Financial Statements.
At December 31, 2017 appear outstanding forward contracts of purchase in foreign currencies for:
| Nominal value (€/000) |
Exchange rate | Due to (*) | |||
|---|---|---|---|---|---|
| Forward contracts for foreign currencies purchases | |||||
| Cnh/Euro | Emak Spa | Cnh | 24,000 | 7.95 | 13/06/2018 |
| Cnh/Usd | Emak Spa | Cnh | 10,000 | 6.64 | 14/02/2018 |
(*) The expiry date is indicative of the last contract
The accounting for the overexposed instruments takes place at fair value. The current value of forward purchase contracts in foreign currency led to the recognition of a positive fair value of € 79 thousand. In accordance with the reference accounting standards, these effects have been recognized in the income statement in the current period.
At December 31, 2017, Emak S.p.A. has taken out a number of IRS contracts and options on interest rates, with the aim of covering the risk of variability of interest rates on loans, for a notional total of € 22,138 thousand.
The expiry of the instruments is as follows:
The recorded value of these contracts at December 31, 2017 is a total negative fair value of € 75 thousand.
The average interest rate resulting from the instruments is equal to 0.10%.
All the contracts, while having the purpose and characteristics of hedging operations, do not formally comply with the rules for being accounted for as such; for this reason all the changes in fair value have been recorded in the income statement in the relevant financial period.
The "Other non-current financial assets" amounted to € 18,072 thousand, against € 5,725 thousand in the previous year and refer to loans quoted in Euros and U.S. Dollars, granted to subsidiaries amounting to € 17,775 thousand and receivables for capital replenishment to the parent company in the amount of € 297 thousand.
"Other current financial assets" amounting to € 1,883 thousand refer to the U.S. Dollar loan granted to the controlled company Comet Usa for € 834 thousand (€ 949 thousand at December 31, 2016), to the loan granted to the subsidiary Raico S.r.l. for € 600 thousand and for the remaining € 449 thousand to receivables for capital replenishment for the parent company Yama S.p.A., already mentioned in the preceding paragraph, for the current portion.
The interest rates applied to loans granted by Emak to the subsidiaries have been established in accordance with the framework resolutions that define the nature and terms of conduct. In general, the yield varies depending on:
A breakdown of the heading is shown below:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Trade receivables | 29,989 | 34,936 |
| Provision for doubtful accounts | (2,233) | (2,146) |
| Net trade receivables | 27,756 | 32,790 |
| Receivables from related parties (note 36) | 12,036 | 12,089 |
| Prepaid expenses and accrued income | 283 | 285 |
| Other receivables | 633 | 777 |
| Total current portion | 40,708 | 45,941 |
| Other non current receivables | 3 | 2 |
| Total non current portion | 3 | 2 |
The item "Other current receivables" includes the receivable deriving from the relationship that regulates the tax consolidation with the parent company Yama S.p.A. and relating to the contribution to the Group of accrued benefits for the year which, as at 31 December 2017, amounted to € 398 thousand (€ 550 thousand at 31 December 2016).
Trade receivables have an average maturity of 88 days.
All non-current receivables mature within five years. There are no trade receivables due after one year.
"Trade receivables" are analyzed by geographical area as follows:
| €/000 | Italy | Europe | Rest of the world |
Total |
|---|---|---|---|---|
| Trade receivables | 12,982 | 6,821 | 10,186 | 29,989 |
| Related parties receivables | 471 | 6,222 | 5,343 | 12,036 |
The movement in the provision for bad debts is as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Opening balance | 2,146 | 1,907 |
| Increases (note 11) | 194 | 352 |
| Decreases | (107) | (113) |
| Closing balance | 2,233 | 2,146 |
The book value of this balance approximates its fair value.
Inventories are detailed as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Raw, ancillary and consumable materials | 17,873 | 17,128 |
| Work in progress and semi-finished products | 6,484 | 6,001 |
| Finished products and goods | 12,451 | 10,245 |
| Total | 36,808 | 33,374 |
Inventories are stated net of a provision of € 1,626 thousand at December 31, 2017 (€ 1,723 thousand at December 31, 2016) intended to align obsolete and slow-moving items to their estimated realizable value.
Details of changes in the provision for inventories are as follows:
| €/000 | FY 2017 | FY 2016 |
|---|---|---|
| Opening balance | 1,723 | 1,723 |
| Increase | 213 | 420 |
| Uses | (310) | (420) |
| Closing balance | 1,626 | 1,723 |
The inventories provision is a management estimate of the loss in value expected, calculated on the basis of past experience, historic trends and market expectations.
None of the company's inventories at December 31, 2017 act as security against its liabilities.
Cash and cash equivalents are detailed as follows:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Bank and post office deposits | 8,327 | 21,417 |
| Cash | 10 | 8 |
| Total | 8,337 | 21,425 |
For the purposes of the cash flow statement, closing cash and cash equivalents comprise:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Cash and cash equivalents | 8,337 | 21,425 |
| Overdrafts (note 27) | (2,870) | - |
| Total | 5,467 | 21,425 |
Share capital is fully paid up at 31 December 2017 and amounts to € 42,623 thousand, remaining unchanged during the year under examination, and it consists of 163,934,835 ordinary shares of par value €
0.26 each. This amount is presented net of the nominal value of own shares owned at 31 December 2017, equal to € 104 thousand.
All shares have been fully paid.
The total value of treasury shares held at 31 December 2017 amounted to € 2,029 thousand and has not changed compared to the previous year.
This sum was allocated for the nominal value (€ 104 thousand) to adjust the share capital and for the corresponding share premium (€ 1,925 thousand) to adjust the share premium reserve.
As for the sale and purchase of shares made during the period, please refer to the appropriate section of the Directors' Report.
At 31 December 2017, the share premium reserve amounts to € 40,529 thousand, and consists of premiums on newly issued shares, net of share premium treasury shares held at December 31, 2017. The reserve is shown net of charges related to the capital increase amounted to € 1,598 thousand and adjusted for the related tax effect of € 501 thousand.
The legal reserve at December 31, 2017 of € 3,059 thousand (€ 2,709 thousand at December 31 2016).
At 31 December 2017 the revaluation reserve includes the reserves deriving from the revaluation as per Law 72/83 for € 371 thousand and as per Law 413/91 for € 767 thousand. No changes occurred during the year.
The extraordinary reserve amounts to € 27,088 thousand at December 31 2017, inclusive of all allocations of earnings in prior years.
At 31 December 2017 other reserves also include:
These reserves have remained unchanged compared to the previous year.
The following table analyses equity according to its origin, its possible uses and distribution:
| Summary of uses in past three years |
|||||
|---|---|---|---|---|---|
| Nature/Description | Available | Coverage of | Distribubtion | ||
| (€/000) | Amount | Possible use | portion | losses | of profits |
| Share capital | 42,519 | ||||
| Capital reserve | |||||
| Share premium reserve (§) | 40,529 | A-B-C | 40,529 | - | - |
| Revaluation reserve under Law 72/83 (#) | 371 | A-B-C | 371 | - | - |
| Revaluation reserve under Law 413/91 (#) | 767 | A-B-C | 767 | - | - |
| Merger surplus reserve (£) | 3,562 | A-B-C | 3,562 | - | - |
| Other untaxed reserve (#) | 122 | A-B-C | 122 | - | - |
| Reserves formed from earnings | |||||
| Legal reserve | 3,059 | B | - | - | - |
| Extraordinary reserve | 27,088 | A-B-C | 27,088 | - | - |
| Untaxed reserve (#) | 129 | A-B-C | 129 | - | - |
| Profits brought forward in FTA | 2,230 | A-B | 2,230 | - | - |
| Valutation reserve | (581) | (581) | - | - | |
| Profits brought forward | 27,933 | A-B-C | 27,933 | - | - |
| Total | 105,209 | 102,150 | - | - | |
| Undistributable portion (*) | (7,709) | - | - | ||
| Distributable balance | 94,441 | - | - | ||
| Net profit for the period (**) | 2,759 | 2,621 | - | - | |
| Total equity | 150,487 |
A: for share capital increases
B: for covering losses
C: for distribution to shareholders
(#) Subject to tax payable by the company in the event of distribution;
(£) Subject to taxation of the company, in the event of distribution, for the value of € 394 thousand;
(*) Equal to the reserve First Time Adoption (€ 2,230 thousand), the share of long-term costs not yet amortized (€ 151 thousand) in addition to the share of necessary future allocation to the legal reserve (€ 5,328 thousand). This bond bears specifically on the share premium reserve (§);
(**) Subject to obliged allocation to the legal reserve for € 138 thousand.
Details of these amounts are as follows:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Trade payables | 22,993 | 18,474 |
| Payables due to related parties (note 36) | 6,440 | 8,828 |
| Payables due to staff and social security institution | 2,990 | 2,813 |
| Other payables | 3,130 | 3,036 |
| Total | 35,553 | 33,151 |
The heading "Other payables" includes a guarantee received from a customer for € 2,164 thousand, amounts payable to Directors and employees for € 565 thousand and the current part of the contribution as per Law 488/92 of the company Comag S.r.l., merged by incorporation into Emak S.p.A. (note 31).
Trade payables do not accrue interest and are normally settled at around 72 days.
The heading includes amounts in foreign currencies as follows:
"Trade payables" and "Payables due to related parties" are analyzed by geographical area below:
| €/000 | Italy | Europe | Rest of the world |
Total |
|---|---|---|---|---|
| Trade payables | 16,022 | 2,252 | 4,719 | 22,993 |
| Related parties payables | 1,023 | 420 | 4,997 | 6,440 |
The book value reported in the statement of financial position corresponds to fair value.
Loans and borrowings at December 31, 2017 do not include any secured payables.
Details of current loans and borrowings are as follows:
| €/000 | 31.12.2017 | 31.12.2016 |
|---|---|---|
| Overdrafts (note 24) | 2,870 | - |
| Bank loans | 13,396 | 15,268 |
| Financial accrued expense and deferred income | 35 | 30 |
| Financial debts from related parties (note 36) | 478 | 1,956 |
| Other current loans | 352 | 218 |
| Total current | 17,131 | 17,472 |
The heading "Financial debts from related parties" refers to the interest-bearing loan granted by the subsidiary, Sabart S.r.l., for € 29 thousand and the debt for the equity reinstatement due to the subsidiary, Tecomec S.r.l., for the current portion of € 449 thousand.
The heading "Other current loans" refers to the granting of a subsidized loan on the part of Simest S.p.A. in accordance with Law 133/08.
Short-term loans and borrowings are repayable as follows:
| €/000 | Due within 6 months |
Due within 6 and 12 months |
Total |
|---|---|---|---|
| Bank loans | 5,979 | 7,417 | 13,396 |
| Financial debts from related parties (note 36) | 29 | 449 | 478 |
| Total | 6,008 | 7,866 | 13,874 |
The interest rates applied to loans granted to Emak by subsidiaries have been established in accordance with the framework resolutions that define the nature and terms of conduct. Generally the yield varies depending on:
The details of long-term loans is as follows:
| €/000 | 31.12.2016 | Increase | Decrease | 31.12.2017 |
|---|---|---|---|---|
| Bank loans | 26,953 | 13,125 | (11,576) | 28,502 |
| Financial debts from related parties (note 36) | 334 | - | (37) | 297 |
| Other financial loans | 870 | 402 | (218) | 1,055 |
| Total non current portion | 28,157 | 13,527 | (11,831) | 29,854 |
The heading "Financial debts from related parties" of € 297 thousand refers to the debt for the equity reinstatement due to the subsidiary, Tecomec S.r.l., for the long-term portion.
The heading "Other financial loans" refers to a loan granted by Simest S.p.A. in accordance with Law 133/08, through which Italian companies are assisted in their internationalization processes through loans at subsidized rates. The short-term portion is shown under "Other short-term loans and borrowings".
Long and medium-term loans and borrowings are repayable as follows:
| €/000 | Due within 2 years |
Due within 3 years |
Due within 4 years |
Due within 5 years |
Total due within 5 years |
Due beyond 5 years |
|---|---|---|---|---|---|---|
| Bank loans | 14,072 | 8,806 | 3,750 | 1,874 | 28,502 | - |
| Financial debts from related parties | 37 | 37 | 37 | 38 | 149 | 148 |
| Other financial loans | 352 | 351 | 352 | - | 1,055 | - |
| Total | 14,461 | 9,194 | 4,139 | 1,912 | 29,706 | 148 |
The interest rates refer to 3-6 months Euribor plus an average spread of 1.031 percentage points.
A number of medium-long-term loans are subject to finance covenants assessed on the basis of consolidated Nfp/Ebitda and Nfp/Equity ratios. At December 31, 2017 the Company complied with all the benchmarks set by contract.
Deferred tax assets are detailed below:
| €/000 | 31.12.2016 | Increases | Decreases | Other movements |
31.12.2017 |
|---|---|---|---|---|---|
| Deferred-taxes on inventory write-downs | 409 | - | (23) | - | 386 |
| Deferred-taxes on bad debts | 128 | - | - | - | 128 |
| Other deferred tax assets | 1,119 | 857 | (333) | 59 | 1,702 |
| Total (note 14) | 1,656 | 857 | (356) | 59 | 2,216 |
The portion of taxes which are expected to reverse within the following 12 months is estimated to be in line with the decrease registered in 2017.
The heading "Other deferred tax assets" mainly includes:
a receivable of € 1,100 thousand, as tax benefits carried forward, corresponding to ACE (aid for economic growth pursuant to Article 1, Law 201/2011), accrued in previous years (2012 - 2015) and recognized as due by the Italian Revenue Agency in 2017, following a favourable response to the application not to apply presented by the Company;
an amount of € 109 thousand referring to the incentives for deferred settlement in favour of top management;
the deferred tax effect of accounting for post-employment benefits according to IAS 19, for € 101 thousand;
an amount of € 397 thousand, corresponding to provisions for inventory write-downs, recognized in previous years and at the time taken to tax;
deferred tax assets for € 103 thousand relating to the product warranty provision referring to future costs for warranties.
Deferred tax liabilities are detailed below:
| €/000 | 31.12.2016 | Increases | Decreases | 31.12.2017 |
|---|---|---|---|---|
| Deferred taxes on capital gains on disposals of fixed assets |
8 | 1 | (4) | 5 |
| Deferred taxes on real estate IAS 17 | 1,188 | - | (23) | 1,165 |
| Other deferred tax liabilities | 479 | 106 | (488) | 97 |
| Total (note 14) | 1,675 | 107 | (515) | 1,267 |
The portion of the taxes which will reverse in the next 12 months amounted to about € 125 thousand.
The "Other deferred tax liabilities" heading refers to unrealized foreign exchange gains in 2017.
It should be noted that no deferred taxes were allocated in respect of the revaluation reserves, which are reserves in partial suspension of the tax, as it is likely that there will be no transactions that would give rise to taxation. The total amount of these taxes at December 31, 2017 is € 340 thousand.
The current tax assets amount at December 31, 2017 to € 1,155 thousand, against € 2,260 thousand at December 31, 2016, and refer to:
The decrease of current tax assets, compared to the previous year, is attributable on one side to tax reimbursements obtained in 2017 and, on the other, to what already provisionally paid in relation to a tax dispute, defined during the year, by means of judicial conciliation (note 30).
Current tax liabilities amount to € 976 thousand at December 31, 2017 compared with € 877 thousand a year earlier and all refer to withholding taxes.
The liability refers to the time-discounted debt for termination indemnity due at the end of an employee's working life, amounting to € 3,769 thousand. The amount of termination indemnity calculated according to the nominal debt method in force at the closing date would be € 3,456 thousand.
Movements in this liability are as follows:
| €/000 | 2017 | 2016 |
|---|---|---|
| Opening balance | 3,777 | 3,852 |
| Actuarial (gains)/losses | 207 | 61 |
| Interest cost on obligation (note 13) | 38 | 49 |
| Disbursements | (253) | (185) |
| Closing balance | 3,769 | 3,777 |
The principal economic and financial assumptions used are as follows:
| FY 2017 | FY 2016 | |
|---|---|---|
| Annual inflation rate | 1.5% | 0.4% |
| Discount rate | 0.9% | 1.1% |
| Dismissal rate | 1.0% | 1.0% |
Demographic assumptions refer to the most recent statistics published by ISTAT.
Payments in 2018 are expected to be in line with 2017, net of the payment attributable to the staff reorganization plan, started at December 2017; for more information see the note 37.
Movements in this balance are analyzed below:
| €/000 | 31.12.2016 | Increase | Decrease | Other movements |
31.12.2017 |
|---|---|---|---|---|---|
| Provisions for agents' termination indemnity | 286 | 37 | (1) | - | 322 |
| Other provisions | 25 | - | - | - | 25 |
| Total non current portion | 311 | 37 | (1) | - | 347 |
| Provisions for products warranties | 350 | - | - | 81 | 431 |
| Other provisions | 702 | - | (603) | (81) | 18 |
| Total current portion | 1,052 | - | (603) | - | 449 |
The provision for agents' termination indemnity is calculated with reference to the agency contracts in existence at year end and refers to the indemnity that is likely to be paid to agents.
Other provisions in the long term, equal to € 25 thousand, relate to legal and other costs accrued in respect of the conduct of tax disputes pertaining to the company Bertolini S.p.A. (incorporated at the time) for which Emak, based on the opinion expressed by its defenders, does not expect to mobilize additional funds to incumbent liabilities.
The warranty provision relates to future costs for warranty repairs that will be incurred for products sold covered by the guarantee period and/or contract, the provision is based on estimates extrapolated from historical trends.
The heading, "Other provisions" (current portion), of € 18 thousand, refers to the higher estimate of liabilities presently considered as probable, with relation to provisions equal to the value of the deductibles on claims for product civil liability.
The decrease in the item "Other provisions" in the current portion, equal to € 603 thousand (including the legal defense costs for € 32 thousand) is due to a tax dispute following assessment, carried out by the Tax Authorities concerning the years 2008-2009-2010, based on disputes relating to transfer pricing. The dispute ended through judicial conciliation, accepted by Emak, even if fully convinced of the correctness of his actions, on the basis of considerations concerning:
The conciliation led to the recognition of higher taxes already accrued in previous years for € 571 thousand and interest for € 136 thousand. The payment, which took place in March 2017, was carried out net of what was already provisionally paid, amounting to € 326 thousand, while awaiting for judgement (note 28).
The total amount of € 579 thousand (€ 668 thousand at December 31, 2016) refers to the deferred income relating to capital grants received as per Law 488/92 by Comag S.r.l., now merged into Emak S.p.A. in the year 2015, and spread over subsequent financial periods. The part of the grant receivable within one year is included in current liabilities under "Other payables" and amounts to € 89 thousand.
At the date of December 31, 2017 the Company does not have any disputes other than those referred to in these notes. In the Director's opinion, at the closing date, there were no reasonable grounds for the occurrence of additional future liabilities with respect to those already disclosed in these notes.
The Company is exposed to a variety of financial risks associated with its business activities:
As described in the section "Management of financial risk", The Company constantly monitors the financial risks to which it is exposed, so as to minimize potential negative effects on financial results.
Qualitative and quantitative information is given below regarding the nature of such risks for the Company. The quantitative figures shown below have no value for forecasting purposes, specifically, the sensitivity analysis on market risks are unable to reflect the complexity and associated reactions of the market as a result of each change hypothesized.
The maximum theoretical exposure to credit risk for the Company at 31 December 2017 is the accounting value of financial assets shown in the financial statements.
The credit granted to the clients involves specific assessments of solvency and generally the Company obtains guarantees, both financial and otherwise, against credits granted for the supply of products. Certain categories of credits to foreign customers are also covered by insurance with SACE.
Credit positions are subject to constant analysis and possible individual devaluation in the case of singularly significant positions that are in a condition of partial or total insolvency.
The total devaluation is estimated on the basis of recoverable flows, from relative collection data, from the costs and expenses of future recovery, as well as possible guarantees in force. For those credits that are not subject to individual devaluation, bad debt provisions are allocated on an overall basis, taking account of historical experience and statistical data.
At December 31, 2017 there were no significant positions of insolvency subject to individual devaluation, allocation to the bad debt provision was made on the basis of a constant analysis of outstanding amounts as a whole.
At December 31, 2017 "Trade receivables" and "Other receivables", equal to € 40,711 thousand (€ 45,943 thousand at December 31, 2016), include € 5,793 thousand (€ 5,820 thousand at December 31, 2016) outstanding by more than 3 months. This value has been rescheduled according to repayment plans agreed with the clients.
The maximum exposure to credit risk deriving from trade receivables at the end of the financial period, broken down by geographical area (using the SACE reclassification) is as follows:
| €/000 | 2017 | 2016 |
|---|---|---|
| Trade receivables due from customers with SACE 1 rating | 22,488 | 25,748 |
| Trade receivables due from customers with SACE 2 e 3 rating | 4,526 | 5,202 |
| Trade receivables due from customers with non-insurable SACE |
2,975 | 3,986 |
| Total (Note 22) | 29,989 | 34,936 |
Countries with SACE 1 rating are those for which insurance covers 90% of the amounts receivable. Countries with SACE 2 rating are those for which insurance covers 85% of the amounts receivable, and those with SACE 3 rating, 80%, SACE provides no coverage for non-Insurable or suspended countries.
The value of amounts receivable covered by SACE insurance or by other guarantees at December 31, 2017 is € 8,782 thousand.
At December 31, 2017 the 10 most important customers (not including companies belonging to the Emak Group) account for 42.9% of total trade receivables, while the top customer represents 11.3% of the total.
Liquidity problems can occur as a result of the inability to obtain financial resources necessary for the Company's operations at acceptable conditions.
The main factors determining the Company's liquidity situation are, on the one hand, the resources generated or absorbed in its operating and investment activities, and on the other hand, by the expiry or renewal of debt or by the liquidity of financial commitments and market conditions.
As noted in the section "Financial risk management" the Company, in line with the general directives of the Group reduces the liquidity risk and optimizes the management of financial resources: gives rise to the following activities:
the pursuit of a correct balance between short-term and medium-long-term debt;
limited credit exposure to a single financial institute;
The characteristics and nature of the expiry of debts and of the Company's financial activities are set out in Notes 24 and 27 relating respectively to "Cash and Cash Equivalents" and "Loans and borrowings".
The management considers that currently unused funds and credit lines, amounting to € 48,025 thousand, as well as those which will be generated from operating and financial activities, will allow the Company to meet its requirements deriving from investment activities, the management of working capital and the repayment of debts at their natural maturity dates.
The Company is exposed to risks deriving from fluctuations in exchange rates, which may affect the economic result and value of equity.
Specifically in cases in which the Company incurs costs expressed in different currencies from those of their respective revenues, the fluctuation of exchange rates may affect the operating result.
In 2017 the overall amount of revenues directly exposed to exchange risk represented around 14.7% of the turnover (14.5% in 2016), while the amount of costs exposed to exchange risk is equal to 31.7% of turnover (26% in 2016).
The main currency exchanges to which the Company is exposed are the following:
There are no significant commercial flows with regards to other currencies.
The Company's policy is to cover net currency flows, typically through the use of forward contracts, evaluating the amounts and expiry dates according to market conditions and net future exposure, with the objective of minimizing the impact of possible variations in future exchange rates.
The potential loss of fair value of the net balance of financial assets/liabilities subject to the risk of variation in exchange rates held by the Company at December 31, 2017, as a result of a hypothetical unfavorable and immediate variation of 10% in all relevant single exchange rates, would amount to around € 1,112 thousand (€ 2,086 thousand at December 31, 2016).
The Company utilizes external financial resources in the form of debt and invest liquid funds in monetary and financial market instruments. Variations in market interest rates influence the cost and return of the various forms of financing and utilization, affecting the level of the Company's financial expenditure and income.
The Company at December 31, 2017 holds certain derivative financial instruments whose value is linked to interest rates.
Although these transactions are made for hedging purposes, the accounting standards will not allow hedge accounting treatment. Therefore, fluctuations in their values may affect the Company's financial results.
The possible effects of variations in interest rates are analyzed for their potential impact in terms of cash flows, since almost all the Group's financial assets and liabilities accrue variable interest.
A hypothetical, instantaneous and unfavorable negative variation of one base point in annual interest rates in force at December 31 2017 applicable to financial liabilities at a variable interest rate would result in a greater net cost, on an annual basis, of around € 234 thousand (€ 295 thousand at December 31 2016). The above calculation takes into consideration the total amounts of financial liabilities net of the total amount of IRS operations carried out for hedging purposes.
The Company as of December 31, 2017 does not hold any derivative financial instruments to hedge exchange rate (operations of currency purchases), and the trend in interest rates.
Although these transactions are made for hedging purposes, the accounting standards will not allow hedge accounting treatment. Therefore, fluctuations in their values may affect the Company's financial results.
The potential loss of fair value of the exchange rate derivative financial instruments outstanding at December 31, 2017, as a result of an instant hypothetical and unfavourable 10% change in the underlying values, would be approximately € 177 thousand.
It should be noted that as part of the contract for the acquisition of the 30% of the company Cifarelli S.p.A was defined a "Put and Call Option" for the acquisition of the 70%, to be exercised in 2020.
The Company has commitments for the purchase of fixed assets not recorded in the financial statements at 31 December 2017 for the amount of € 4,039 thousand (€ 3,289 thousand at 31 December 2016). These commitments refer to the acquisition of equipment, plant and machinery for € 439 thousand, for € 2,700 thousand to the construction of the new building for the research and development center at its headquarters in Bagnolo in Piano and for € 900 thousand to ERP Transformation project at Group level. Accounting for these commitments will take place on the basis of the progress made in implementing them.
They amount to € 3,003 thousand and are made up as follows:
These amount to € 109,348 thousand, and refer to the balance of credit line available or used as at December 31, 2017, broken down as follows:
| €/000 | Value of collateral | Amount guaranteed |
|---|---|---|
| Emak Deutschland GmbH | 2,601 | 2,601 |
| Emak France SAS | 37 | 37 |
| Emak U.K. Ltd. | 1,749 | 1,749 |
| Jiangmen Emak Outdoor Power Equipment Co. Ltd. |
203 | 203 |
| Victus Emak SP. Z.O.O. | 750 | 750 |
| Tecomec S.r.l. | 3,778 | 3,778 |
| Comet S.p.A | 10,203 | 10,203 |
| Comet S.p.A. (operation Lemasa) | 23,922 | 13,290 |
| Comet S.p.A. (operation Lavorwash) | 66,105 | 44,070 |
| Total | 109,348 | 76,681 |
Share capital is fully paid up at December 31, 2017 and amounts to € 42,623 thousand. It consists of 163,934,835 ordinary shares of par value € 0.26 each.
| 31.12.2017 | 31.12.2016 | |
|---|---|---|
| Number of ordinary shares | 163,934,835 | 163,934,835 |
| Treasury shares | (397,233) | (397,233) |
| Total outstanding shares | 163,537,602 | 163,537,602 |
The dividends for 2016 approved by the shareholders on 28 April 2017, totaling € 5,724 thousand, were paid during 2017.
At December 31, 2016 the Company held in portfolio 397,233 treasury shares for a value of € 2,029 thousand.
During 2017 no treasury shares were purchased or sold by Emak S.p.A..
Therefore at December 31, 2017 the company held 397,233 treasury shares in portfolio for a value of € 2,029 thousand.
In January and February 2018 no treasury shares were acquired or sold by Emak S.p.A.. As a result, the holding and value of treasury shares is unchanged with respect to December 31, 2017.
Emak adopted in accordance with the law an assurance procedure for the operations typically extraordinary, entered into with related parties, which defines and governs all the potential relationships of this nature, to be applied to all entities of the Group. This procedure, originally introduced and approved November 12, 2010,
was subject to review and rationalization during 2013, while retaining the characteristics of full adequacy to regulatory requirements. The revised procedure was approved by the Board of Directors on January 31, 2014.
The procedure is available on the website at https://www.emakgroup.it/it-it/investor-relations/corporategovernance/altre-informazioni/.
With regards to the group of companies under its control, transactions for the supply and purchase of goods and services carried out by Emak correspond to the industrial and commercial supply chain relating to its normal business activity.
It should be noted that all transactions relating to the exchange of goods and the provision of services that occurred in 2017 in the group fall within ordinary business of Emak and have been adjusted based on market conditions (ie, conditions equivalent to those that would be applied in relations between independent parties).These conditions correspond with aims strictly industrial and commercial and of Group financial management optimization. The execution of these transactions is governed by specific and analytical procedures and programmatic documents ("framework resolutions"), approved by the Board of Directors, with the assistance and consent of the independent directors, meeting in the Audit and Risk Committee.
The operations carried out in 2017 with parties belonging to the Emak Group and the values of such relations in force at the closing date of the financial year are shown below.
Receivables for loans and interest:
| Companies belonging to Emak S.p.A. (€/000) |
Financial income | Current financial assets |
Non current financial assets |
|
|---|---|---|---|---|
| Emak Deutschland GmbH | 36 | - | 2,400 | |
| Emak UK Ltd. | 2 | - | 158 | |
| Comet S.p.A. | 220 | - | 14,800 | |
| Comet USA Inc. | 36 | 834 | - | |
| Jiangmen Emak Outdoor Power Equipment | 7 | - | - | |
| Raico S.r.l. | 14 | 600 | - | |
| Epicenter Llc. | 37 | - | 417 | |
| Total (note 13 and note 21) | 352 | 1,434 | 17,775 |
Payables for loans and interests:
| Companies belonging to Emak S.p.A. (€/000) |
Financial charges | Current financial liability |
Non current financial liability |
|
|---|---|---|---|---|
| Sabart S.r.l. | 1 | 29 | - | |
| Tecomec S.r.l. | 8 | 449 | 297 | |
| Total (note 27) | 9 | 478 | 297 |
Other reports related to financial nature concerning the relationship of the guarantee referred to in paragraph 34 above.
Sale of goods and services and receivables:
| Companies belonging to Emak S.p.A. (€/000) |
Net sales | Other Net Revenues |
Dividends | Total | Trade and other receivables |
|---|---|---|---|---|---|
| Emak Suministros Espana SA | 4,132 | - | 214 | 4,346 | 1,143 |
| Emak Deutschland Gmbh | 2,439 | - | - | 2,439 | 204 |
| Emak UK Ltd. | 1,880 | - | - | 1,880 | 704 |
| Emak France SAS | 9,098 | - | - | 9,098 | 2,447 |
| Jiangmen Emak Outdoor Power Equipment Co. Ltd. |
1,356 | - | - | 1,356 | 308 |
| Victus Emak Sp. z.o.o. | 8,261 | - | 841 | 9,102 | 997 |
| Tailong (Zhuhai) Machinery Manufacturing Equipment Ltd. |
9 | - | - | 9 | 3 |
| Epicenter Llc. | 1,784 | - | - | 1,784 | 437 |
| Emak Do Brasil Industria Ltda | 388 | - | - | 388 | 2,435 |
| Comet S.p.A. | 115 | - | - | 115 | 268 |
| Comet USA Inc. | 1,193 | - | - | 1,193 | 2,595 |
| Sabart S.r.l. | 260 | - | 1,778 | 2,038 | 75 |
| Raico S.r.l. | 33 | - | - | 33 | 7 |
| Tecomec S.r.l. | 146 | 1 | 2,000 | 2,147 | 110 |
| Geoline Elettronic S.r.l. | 2 | - | - | 2 | 1 |
| Total (C) | 31,096 | 1 | 4,833 | 35,930 | 11,734 |
Purchase of goods and services and payables:
| Companies belonging to Emak S.p.A. (€/000) |
Purchases of raw and finished products |
Other costs | Total costs | Trade and others payables |
|---|---|---|---|---|
| Emak Suministros Espana SA | 7 | 14 | 21 | 3 |
| Emak Deutschland Gmbh | 20 | 123 | 143 | - |
| Emak UK Ltd. | - | 20 | 20 | 15 |
| Emak France SAS | 27 | 83 | 110 | 22 |
| Jiangmen Emak Outdoor Power Equipment Co. Ltd. |
20,989 | 31 | 21,020 | 4,112 |
| Comet USA | - | 148 | 148 | 47 |
| Victus Emak Sp. z.o.o. | - | 28 | 28 | 12 |
| Tailong (Zhuhai) Machinery Manufacturing Equipment Ltd. |
1,483 | - | 1,483 | 400 |
| Epicenter Llc. | - | 2 | 2 | 1 |
| Emak Do Brasil Industria Ltda | - | 135 | 135 | 321 |
| Comet S.p.A. | 394 | - | 394 | 124 |
| Comet France | - | 6 | 6 | - |
| Sabart S.r.l. | 5 | - | 5 | 2 |
| Tecomec S.r.l. | 297 | 3 | 300 | 67 |
| Ningbo Tecomec | 858 | - | 858 | 117 |
| Speed France SAS | 531 | 9 | 540 | 51 |
| Total (D) | 24,611 | 602 | 25,213 | 5,294 |
Emak S.p.A. is part of the larger group of companies that are owned by Yama S.p.A., its parent company.
Firstly, the dealings entered into in the 2017 financial year with companies directly controlled by Yama are exclusively of an ordinary commercial nature, all coming under Emak's typical activities and all at arm's length. Some companies supply Emak with components and materials, others buy products from Emak to complete their respective commercial product range.
Secondly, dealings of a financial nature and of a usual character derive from Emak S.p.A.'s equity investment in the tax consolidation as per arts. 117 and following of the TUIR (the Consolidated Law on Income Tax) with the controlling company, Yama S.p.A., the latter in its capacity as consolidator. The criteria and means for regulating such dealings are established and formalised in consolidation agreements, based on the parity of treatment of the participants (note 22). The operations illustrated in paragraph 21 of these Notes are also of a financial nature.
Other dealings with "other related parties" consist in professional services of a legal and tax nature, provided by bodies subject to significant influence on the part of a number of directors.
Details of the transactions entered into in 2017 with Yama and with other related parties not controlled by Emak are shown below, as well as indications of the entity of such dealings in force at the closing date of the financial year.
Sale of goods and services and receivables:
| Releted parties (€/000) | Net sales | Other Net Revenues |
Trade and others receivables |
|---|---|---|---|
| SG Agroo d.o.o. | 233 | - | - |
| Euro Reflex D.o.o. | 606 | - | 291 |
| Garmec S.r.l. | 20 | - | 2 |
| Mac Sardegna S.r.l. | 153 | - | - |
| Selettra S.r.l. | 1 | - | - |
| Yama S.p.A. | - | - | 9 |
| Cifarelli S.p.A. | 69 | - | - |
| Total (E) | 1,082 | - | 302 |
| Total C+E (note 22) | 32,178 | 1 | 12,036 |
Purchase of goods and services:
| Releted parties (€/000) | Purchases of raw materials and finished products |
Other costs | Total costs | Trade payables |
|---|---|---|---|---|
| Cofima S.r.l. | 613 | 53 | 666 | 283 |
| Garmec S.r.l. | 37 | - | 37 | - |
| Euro Reflex D.o.o. | 1,682 | 43 | 1,725 | 316 |
| Mac Sardegna S.r.l. | - | 4 | 4 | 20 |
| Selettra S.r.l. | 346 | 2 | 348 | 124 |
| Cifarelli S.p.A. | 1,098 | - | 1,098 | 286 |
| Total (F) | 3,776 | 102 | 3,878 | 1,029 |
| Other related parties (G) | - | 192 | 192 | 117 |
| Totals D+F+G (note 26 and 27) | 28,387 | 896 | 29,283 | 6,440 |
Relationships of financial nature and related income:
| Companies belonging to Yama Group (€/000) |
Financial income | Current financial assets |
Non current financial assets |
Dividends |
|---|---|---|---|---|
| Yama S.p.A. | 9 | 449 | 297 | |
| Cifarelli S.p.A. | 61 | |||
| Total (note 21) | 9 | 449 | 297 | 61 |
* * * * * * *
Other significant dealings on the part of Emak with related parties are those concerning the remuneration of company officers, established in compliance with general meeting resolutions which have established, for the three-year period of office, maximum global remunerations and, with regards to the Directors, bonus schemes. The resolutions of the Board of Directors regarding the remuneration are taken with the opinion of the Committee, composed exclusively of independent Directors. More detailed information regarding the remuneration policy, the procedures used for its adoption and implementation, as well as a description of each of the headings making up remuneration, are disclosed in the report drawn up by the Company pursuant to art. 123-ter 58/98, and which is available on the website.
Costs incurred during the financial period for the remuneration of Emak S.p.A.'s directors and auditors are as follows:
| (€/000) | FY 2017 | FY 2016 |
|---|---|---|
| Emoluments of directors and statutory auditors | 435 | 802 |
| Benefits in kind | 9 | 9 |
| Wage and salaries | 670 | 725 |
| Employee termination indemnities | 48 | 49 |
| Total | 1,162 | 1,585 |
The variable incentive part of the remuneration allocated to the executive directors, included in the amounts shown in the table, is established on a three-year basis, corresponding to the expiry of the current Board mandate.
The total debt for remuneration of Directors and Auditors of the Parent Company at December 31, 2017 amounted to € 584 thousand.
In the ending year no other relationships of significant amount of current nature with related parties occurred.
On January 29, 2018, Emak SpA acquired the remaining 39%, still held by the founder, of the Ukrainian subsidiary Epicenter LLC, bringing its shareholding to 100%. The price for the acquisition of this share amounts to € 340 thousand.
On March 6, 2018 Emak S.p.A. has signed a restricted agreement for the sale of 100% of the share capital of Raico S.r.l. for a countervalue of € 5,500 thousand.
The closing of the transaction, with payment and transfer of shares, is expected by the end of March.
Raico is specialized in the distribution of components and accessories for agricultural tractors, industrial and construction machines, with a turnover of approximately € 12.8 million, a Gross Operating Margin of € 0.5 million and a passive Net Financial Position of € 0.7 million at December 31, 2017.
In the last part of the year, the Parent Company, following an assessment aimed at improving the organization at the Bagnolo in Piano (RE) headquarters, due to the logic of efficiency and renewal, initiated a procedure relating to a plan to early retirement on voluntary basis referred to in articles 4, 5 and 24 of law n. 223/91. On December 13, 2017, trade union consultation was carried out and was signed with the Trade Unions and company RSU an Agreement, aimed primarily at employees who have acquired the right to a pension within 24 months following the termination of the employment relationship, envisaging, during 2018, the possibility of leaving, on a voluntary basis, the staff who respect this requirement.
In February 2018, the first individual conciliation agreements were signed for 12 people and 20 more people are expected to be released by the end of 2018.
For the proposal of allocation of the net profit for the year and distribution of dividends, please refer to note 15 of the Directors Report.
The following schedules, forming an integral part of the explanatory notes to the financial statements, are provided as appendices:
| 31.12.2016 | Changes | 31.12.2017 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Values in the | % | Subscriptions | Values in | % | ||||||||
| Number of | financial | direct | And | Other | Sales | Depreciations | Number of | the financial | direct | |||
| shares | statements | total | shareholding | acquisitions | movements | shares | statements | total | shareholding | |||
| €/000 | shareholding | €/000 | shareholding | |||||||||
| Italy | ||||||||||||
| Comet S.p.A. | 5,000,000 | 27,232 | 100 | 100 | 5,000,000 | 27,232 | 100 | 100 | ||||
| Raico S.r.l. | 1 share | 5,488 | 100 | 100 | 1 share | 5,488 | 100 | 100 | ||||
| Sabart S.r.l. | 1 share | 21,011 | 100 | 100 | 1 share | 21,011 | 100 | 100 | ||||
| Tecomec S.r.l. | 1 share | 27,418 | 100 | 100 | 1 share | 27,418 | 100 | 100 | ||||
| Spain | ||||||||||||
| Emak Suministros | ||||||||||||
| Espana SA | 405 | 572 | 90 | 90 | 405 | 572 | 90 | 90 | ||||
| Germany | ||||||||||||
| Emak Deutschland | 10,820 | - | 100 | 100 | 10,820 | - | 100 | 100 | ||||
| Gmbh | ||||||||||||
| Great Britain | ||||||||||||
| Emak UK Ltd | 342,090 | 691 | 100 | 100 | 342,090 | 691 | 100 | 100 | ||||
| France | ||||||||||||
| Emak France SAS | 2,000,000 | 2,049 | 100 | 100 | 2,000,000 | 2,049 | 100 | 100 | ||||
| China | ||||||||||||
| Jiangmen Emak | ||||||||||||
| Outdoor Power | - | 2,476 | 100 | 100 | - | 2,476 | 100 | 100 | ||||
| Equipment Co. Ltd. | ||||||||||||
| Tailong (Zhuhai) | ||||||||||||
| Machinery Manufacturing | - | 2,550 | 100 | 100 | - | 2,550 | 100 | 100 | ||||
| Equipment Ltd. | ||||||||||||
| Poland | ||||||||||||
| Victus Emak Sp. z.o.o. | 32,800 | 3,605 | 100 | 100 | 32,800 | 3,605 | 100 | 100 | ||||
| Ukraine | ||||||||||||
| Epicenter LLC | 1 share | 330 | 61 | 61 | 1 share | 330 | 61 | 61 | ||||
| Brazil | ||||||||||||
| Emak do Brasil Industria | ||||||||||||
| Ltda (note 19) | 8,516,200 | 780 | 99.9 | 99.9 | (780) | 8,516,200 | - | 99.9 | 99.9 | |||
| Total investments in subsidiaries | 94,202 | 93,422 | ||||||||||
| Italy | ||||||||||||
| Cifarelli S.p.A. | 216,000 | 3,750 | 30.0 | 30.0 | 216,000 | 3,750 | 30.0 | 30.0 | ||||
| Total associates | 3,750 | 3,750 |
| €/000 | Registered office | Value in the financial statements |
% Share | Share Capital | Equity (*) | Profit/(Loss) of | |
|---|---|---|---|---|---|---|---|
| Total | Attributable to Emak S.p.A. |
the year * | |||||
| Emak Suministros Espana SA | Madrid | 572 | 90 | 270 | 3,611 | 3,250 | 558 |
| Emak Deutschland Gmbh | Fellbach Oeffingen |
0 | 100 | 553 | (1,270) | (1,270) | (711) |
| Emak UK Ltd | Burntwood | 691 | 100 | 468 | 881 | 881 | 4 |
| Emak France SAS | Rixheim | 2,049 | 100 | 2,000 | 7,390 | 7,390 | 55 |
| Jiangmen Emak Outdoor Power Equipment Co. Ltd. | Jiangmen | 2,476 | 100 | 3,616 | 15,705 | 15,705 | 549 |
| Tailong (Zhuhai) Machinery Manufacturing Equipment Ltd. | Zhuhai | 2,550 | 100 | 2,316 | 6,045 | 6,045 | 319 |
| Victus Emak Sp. z.o.o. | Poznan | 3,605 | 100 | 2,387 | 8,557 | 8,557 | 388 |
| Epicenter LLC. | Kiev | 330 | 61 | 727 | 1,246 | 760 | 168 |
| Emak do Brasil Industria Ltda | Curitiba | 0 | 99.9 | 1,976 | (1,716) | (1,699) | (539) |
| Tecomec S.r.l. | Reggio Emilia | 27,418 | 100 | 1,580 | 29,045 | 29,045 | 3,355 |
| Comet S.p.A. | Reggio Emilia | 27,232 | 100 | 2,600 | 30,668 | 30,668 | 2,709 |
| Sabart S.r.l. | Reggio Emilia | 21,011 | 100 | 1,900 | 7,648 | 7,648 | 1,673 |
| Raico S.r.l | Reggio Emilia | 5,488 | 100 | 20 | 2,926 | 2,926 | 226 |
| Total investments in subsidiaries | 93,422 | ||||||
| Cifarelli S.p.A. | Voghera (PV) | 3,750 | 30 | 374 | 7,943 | 2,383 | 1,439 |
| Total investments in associates | 3,750 |
(*) Amounts resulting from the reporting package of subsidiaries prepared in accordance with IAS / IFRS for the purpose of of preparation of the consolidated financial statements.
| (€/000) | ||
|---|---|---|
| FINANCIAL POSITION | 31.12.2016 | 31.12.2015 |
| Assets | ||
| A) Amounts receivable from shareholders for | - | - |
| outstanding payments | ||
| B) Fixed assets | 76,609 | 77,709 |
| C) Current assets | 8,085 | 7,651 |
| D) Prepayment and accrued income | 21 | 14 |
| Total assets | 84,715 | 85,374 |
| Liabilities | ||
| A) Equity: | ||
| Share capital | 16,858 | 16,858 |
| Reserves | 37,011 | 38,228 |
| Net profit | 501 | 653 |
| B) Provisions for risks and charges | 263 | 263 |
| C) Employment benefits | 2 | 46 |
| D) Amounts payable | 30,007 | 29,218 |
| E) Accruals and deferred income | 73 | 108 |
| Total liabilities | 84,715 | 85,374 |
| INCOME STATEMENT | 31.12.2016 | 31.12.2015 |
|---|---|---|
| A) Revenues from sales | 227 | 56 |
| B) Production costs | (1,575) | (987) |
| C) Financial income and expenses | 4,343 | 3,296 |
| D) Adjustments to the value of financial assets | (2,900) | (2,040) |
| E) Extraordinary income and expenses | - | - |
| Profit before taxes | 95 | 325 |
| Income taxes | 406 | 328 |
| Net profit | 501 | 653 |
Schedule of fees relating to the 2017 financial period for audit services and other services, subdivided by type.
| Type of service | Entity providing the service | Beneficiary | Fees (€/000) |
|---|---|---|---|
| Audit | Deloitte & Touche S.p.A. | Emak S.p.A. | 135 |
| Audit | Deloitte & Touche S.p.A. | Italian controlled companies | 163 |
| Audit | Deloitte & Touche S.p.A. Network | Foreign controlled companies | 136 |
| Other services | Deloitte & Touche S.p.A. Network | Foreign controlled companies | 63 |
The above information is provided in accordance with art. 160, paragraph 1-bis of Legislative Decree 24 February 1998, no. 58 and with article 149-duodecies of the CONSOB Regulations contained in Consob resolution no. 19971 of 14 May 1999 and subsequent modifications.
of administrative and accounting procedures for the preparation of the company's individual financial statements and the consolidated financial statements for the financial period ending December 31, 2017.
3.1 the individual financial statements and consolidated financial statements for the financial period:
3.2 The Directors' Report contains a reliable analysis of operating trends and results, as well as of the current situation of the issuer and of the entities included in the consolidation, together with a description of the main risks and uncertainties to which they are exposed.
Date: 16 March 2018
The executive in charge of preparing the accounting statements: Aimone Burani
The CEO: Fausto Bellamico
Deloitte & Touche S.p.A. Centro Direzionale Eurotorri Piazza Italo Pinazzi 67/A 43122 Parma Italia
Tel: +39 0521 976011 Fax: +39 0521 976012 www.deloitte.it
To the Shareholders of Emak S.p.A.
We have audited the financial statements of Emak S.p.A. (the Company), which comprise the statement of financial position as at December 31, 2017, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as at December 31, 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of national regulations issued pursuant to art. 9 of Italian Legislative Decree no. 38/05.
We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements applicable under Italian law to the audit of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The separate financial statements of Emak S.p.A. as of 31 December 2017 report equity investments in subsidiaries of Euro 93,422 thousand and goodwill of Euro 2,074 thousand.
The Company has verified the recoverability of the investments for which it has identified impairment indicators and goodwill, as stated by IAS 36 – Impairment of Assets. Impairment tests are performed by comparing the recoverable values - determined according to the method of value in use - and the related carrying amounts.
Ancona Bari Bergamo Bologna Brescia Cagliari Firenze Genova Milano Napoli Padova Palermo Parma Roma Torino Treviso Verona
Codice Fiscale/Registro delle Imprese Milano n. 03049560166 – R.E.A. Milano n. 172039 | Partita IVA IT 03049560166
Il nome Deloitte si riferisce a una o più delle seguenti entità: Deloitte Touche Tohmatsu Limited, una società inglese a responsabilità limitata ("DTTL"), le member firm aderenti al suo network e le entità a esse correlate. DTTL e ciascuna delle sue member firm sono entità giuridicamente separate e indipendenti tra loro. DTTL (denominata anche "Deloitte Global") non fornisce servizi ai clienti. Si invita a leggere l'informativa completa relativa alla descrizione della struttura legale di Deloitte Touche Tohmatsu Limited e delle sue member firm all'indirizzo www.deloitte.com/about.
Sede Legale: Via Tortona, 25 – 20144 Milano | Capitale Sociale: Euro 10.328.220.00 i.v.
As a result of impairment tests, the Company has recorded an impairment loss of Euro 780 thousand in relation to the investment held in the subsidiary Emak Do Brasil Industria Ltda. The evaluation process adopted by Management to identify possible impairment is complex and based on assumptions about, among other matters, the forecast cash flows of the cash-generating units (CGUs), the appropriate discounting rate (WACC) and the long-term growth rate (g-rate). These assumptions, reflected in the long-term plans of the CGUs concerned, are influenced by future expectations and market conditions, which represent elements of uncertainty when making estimates, with particular reference to equity investments already written down in previous years, Emak Do Brasil Ltda, Emak Deutschland Gmbh, Epicenter Llc, and for which the continuation of structural crises and adverse economic factors had previously contributed to departures from the forecasts made by Management.
In view of the significance of the amount of the investments in subsidiaries and of the goodwill reported in the financial statements, the subjective nature of the estimates made to determine the cash flows of the CGUs and the key variables of the impairment model, and the many unpredictable factors that might influence the performance of the market in which the companies operate, we considered the impairment test of the investments in subsidiaries and the goodwill to be a key audit matter of the separate financial statements of Emak S.p.A. as of 31 December 2017.
The explanatory notes of separate financial statements in the paragraphs "2.5 Goodwill", "2.6 Impairment of assets", "2.8 Financial assets and equity investments" and "4. Key accounting estimates and assumptions", describe the Management assessment process and the notes 18 and 19 report the significant assumptions and disclosures on the items subject to impairment tests, including a sensitivity analysis that illustrates the effects deriving from changes in the key variables used to carry out the impairment tests.
We firstly examined the approach adopted by Management to assess the recoverability of the investments in subsidiaries and the goodwill, analysing the methods used and assumptions used to carry out the impairment tests.
In the context of our audit work we performed the following procedures, among others, partly with assistance from experts:
We also examined the adequacy of the information disclosed by the Company about the impairment tests and its consistency with the requirements of IAS 36.
The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of national regulations issued pursuant to art. 9 of Italian Legislative Decree no. 38/05 and, within the terms established by law, for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they have identified the existence of the conditions for the liquidation of the Company or for the termination of the operations or have no realistic alternative to such choices.
The Board of Statutory Auditors is responsible for overseeing, within the terms established by law, the Company's financial reporting process.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with International Standards on Auditing (ISA Italia), we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
We communicate with those charged with governance, identified at an appropriate level as required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence applicable in Italy, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors' report.
The Shareholders' Meeting of Emak S.p.A. has appointed us on April 22, 2016 as auditors of the Company for the years from December 31, 2016 to December 31, 2024.
We declare that we have not provided prohibited non-audit services referred to in art. 5 (1) of EU Regulation 537/2014 and that we have remained independent of the Company in conducting the audit.
We confirm that the opinion on the financial statements expressed in this report is consistent with the additional report to the Board of Statutory Auditors, in its role of Audit Committee, referred to in art. 11 of the said Regulation.
The Directors of Emak S.p.A. are responsible for the preparation of the report on operations and the report on corporate governance and ownership structure of Emak S.p.A. as at December 31, 2017, including their consistency with the related financial statements and their compliance with the law.
We have carried out the procedures set forth in the Auditing Standard (SA Italia) n. 720B in order to express an opinion on the consistency of the report on operations and some specific information contained in the report on corporate governance and ownership structure set forth in art. 123-bis, n. 4 of Legislative Decree 58/98 with the financial statements of Emak S.p.A. as at December 31, 2017 and on their compliance with the law, as well as to make a statement about any material misstatement.
In our opinion, the above-mentioned report on operations and information contained in the report on corporate governance and ownership structure are consistent with the financial statements of Emak S.p.A. as at December 31, 2017 and are prepared in accordance with the law.
With reference to the statement referred to in art. 14, paragraph 2 (e), of Legislative Decree 39/10, made on the basis of the knowledge and understanding of the entity and of the related context acquired during the audit, we have nothing to report.
DELOITTE & TOUCHE S.p.A.
Signed by Domenico Farioli Partner
Parma, Italy March 29, 2018
This report has been translated into the English language solely for the convenience of international readers.
Emak S.p.A. 42011 Bagnolo in Piano (RE) Italy www.emakgroup.com www.linkedin.com/company/emak-s-p-a-
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