Annual Report • Mar 29, 2019
Annual Report
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These financial statements were approved by the Board of Directors on 14 March 2019.
This report is available on the Internet at the address www.emakgroup.com
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 2018 3 | ||
|---|---|---|
| Main shareholders of Emak S.p.A. 4 | ||
| Corporate Bodies of Emak S.p.A 5 | ||
| Emak Group Profile 6 | ||
| Productive structure 8 | ||
| 2018 Annual Directors'report 10 | ||
| Main strategic lines of action 11 | ||
| Policy of analysis and management of risks related to the Group's business 11 | ||
| 1. | Main economic and financial figures for the Group 14 | |
| 2. | Scope of consolidation 15 | |
| 3. | Economic and financial resutls of Emak Group 15 | |
| 4. | Results of Group companies 21 | |
| 5. | Research and development 24 | |
| 6. | Human resources 26 | |
| 7. | Dealings with related parties 26 | |
| 8. | Plan to purchase Emak S.p.A. shares 27 | |
| 9. | Corporate governance and other information required by Issuers Regulations 27 | |
| 10. | Disputes 28 | |
| 11. | Other information 28 | |
| 12. | Business outlook 28 | |
| 13. | Significant events occurring during the period and positions or transactions arising from atypical and | |
| unusual transactions, significant and non-recurring 29 | ||
| 14. | Subsequent events 29 | |
| 15. | Reconciliation between shareholders' equity and net profit of the parent company Emak and | |
| consolidated equity and the results 30 | ||
| 16. | Proposal for the allocation of profit for the financial year and dividend 31 | |
| Emak Group - Consolidated Financial Statements 2018 33 | ||
| Consolidated Income Statement 34 | ||
| Statement of consolidated financial position 35 | ||
| Statement of changes in consolidated equity for the Emak Group at 31.12.2017 and at 31.12.2018 36 | ||
| Consolidated Cash Flow Statement 37 | ||
| Explanatory notes to the consolidated financial statements of Emak Group 38 | ||
| Independent Auditors'report on the consolidated financial statement 92 | ||
| Emak S.p.A. - Separate financial statements at 31 December 2018 97 | ||
| Emak S.p.A.-Income Statement 98 | ||
| Statement of financial position 99 | ||
| Emak S.p.A. – Statement of changes in equity at December 31, 2017 and December 31, 2018 100 | ||
| Cash Flow Statement Emak S.p.A. 101 | ||
| Emak S.p.A. Explanatory notes to the financial statement 102 | ||
| Certification of financial statements and consolidated financial statements pursuant to art. 154-bis, | ||
| paragraph 5 of the Decree. 58/1998 (Consolidated Law on Finance) 158 | ||
| Independent Auditors' report on the separate financial statements 159 |
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).
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.
65.2%
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.
| Board of Directors | |
|---|---|
| Chairman and Chief Executive Officer | Fausto Bellamico |
| Deputy Chairman | Aimone Burani |
| Executive Director | Stefano Slanzi |
| Lead Independent Director | Massimo Livatino |
| Independent Director | Alessandra Lanza |
| Elena Iotti | |
| Directors | Francesca Baldi |
| Ariello Bartoli | |
| Luigi Bartoli (*) | |
| Paola Becchi | |
| Giuliano Ferrari | |
| Vilmo Spaggiari | |
| Guerrino Zambelli | |
| Marzia Salsapariglia | |
| Audit Committee, Remuneration Committee, Related Party | |
| Transactions Committee, Nomination Committee | |
| Chairman | Massimo Livatino |
| Components | Alessandra Lanza |
| Elena Iotti | |
| Financial Reporting Officer | Aimone Burani |
| Supervisory Body as per Legislative Decree 231/01 | |
| Chairman | Sara Mandelli |
| Acting member | Roberto Bertuzzi |
| Board of Statutory Auditors | |
| Chairman | Paolo Caselli |
| Acting auditors | Gianluca Bartoli |
| Francesca Benassi | |
| Alternate auditor | Maria Cristina Mescoli |
| Federico Cattini | |
| Independent Auditor | Deloitte & Touche S.p.A. |
(*) Appointed executive director from 1 January 2019
The Emak Group operates on the global market with a direct presence in 14 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 in 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 segment the Group operates partly through its own brands, Tecomec, Geoline, Mecline, Sabart (Raico for the first quarter 2018), and partly distributing products for third party brands. The main customers of the Group are producers in the Outdoor Power Equipment segment, 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 segment 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 segment 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 Group concentrates its investments on phases of high added value in the manufacture of its products. From the point of view of economic efficiency and value creation, the Group focuses on Research and Development, engineering, industrialization and assembly activities. The supply chain is strongly integrated and involved in the development of its products according to the principles of the extended factory. The production plants have been subject to specific rationalization projects over the years, with a revision of the production layouts based on a "lean manufacturing" approach, and the involvement of all the employees taking part in various ways in the product creation process, from development to manufacture.
The Group utilises four production sites: two in Italy and two in China. The parent company plant in Bagnolo in Piano deals with the production of portable products, such as semi-professional and professional brushcutters and chainsaws. The production model is focused on assembly: the products are entirely developed and designed internally; the components are produced according to the technical specifications provided by the Group and are assembled internally in the Group's facilities. The Pozzilli factory is dedicated to the production of wheel-based products such as lawnmowers and small tractors. The production model for this range of products provides for the purchase of the motor from leading world producers and its assembly inside the machine. With particular reference to the lawn-mower range, the shell is produced internally with a vertical process that goes from the processing of the sheet metal to the painting. The Chinese production facility of Jiangmen replicates that of the parent company, making products intended mainly for price-sensitive markets such as the Far East, South-East Asia and South America. The second Chinese factory, in Zuhai, is specialised in the production of cylinders for the two-stroke motors of the Group's portable products.
The manufacture of products in this segment is carried out in three Italian factories: one Chinese, two Brazilian and one in the United States. Pumps for the agricultural sectors, those for industrial applications up to 1,200 bars, machines in the cleaning sector such as semi-professional and professional high-pressure water jet machines and urban cleaning equipment are manufactured in Italy. The Chinese plant is dedicated to the production of low-pressure industrial pumps and machines in the cleaning segment such as high-pressure water jet machines and extractors aimed at serving the Asian and South American markets. The Brazilian factories are dedicated, one to the production of very high pressure pumps (up to 2,800 bars) and plant for various sectors such as the oil & gas, sugar cane, shipbuilding and automotive sectors, and the other to the manufacture of machines in the cleaning segment (such as high-pressure water jet machines) for the South American market. The American plant assembles (on a small scale) products for agriculture intended for the local market.
The Group has a total of eight factories for manufacturing the products of this segment, located in different countries, focused on specific products and with different production processes. The internal manufacture of a number of products is not cost-effective, due to the type of processing required, and so they are manufactured and assembled by specific suppliers on the basis of the designs developed by the Group's R&D department.
Most of the facilities (France, USA, Chile, Morocco, South Africa) are dedicated to the production of nylon thread for the brush-cutters. The reason for localised facilities is the need to have production near the end markets, considering the production process followed. This product, in fact, follows an entirely vertical process, from the purchase of the raw material to processing to the packaging of the final product.
The Chinese factory is dedicated to the production of heads for brush-cutters and pistols for high-pressure water jet machines. These products require the internal production of plastic moulds, followed by the assembly of the mechanical components.
The precision farming line is produced in Italy, with the design of electric parts and the development of software, the added value parts of the products, all carried out internally, as well as the final assembly. The most important products of the forestry line are designed and developed by the Group, which assembles the externally manufactured components in Italy.
Overall, the production volumes can be easily adjusted to match fluctuations in demand through flexible management of the plants, so that seasonal peaks can be accommodated through overtime or additional shifts, without requiring 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 for internal combustion engine | ||||
| 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 |
||||
| PWJ | P.T.C. | Rubiera (RE) - Italy | High and ultra high pressure units and machines for urban cleaning |
|||
| 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 and vacuum cleaners for price sensitive segment |
||||
| 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 |
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.
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 economic-financial 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 management of 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 unfavourable 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 2018 the United States government introduced a number of legislative measures to impose a series of customs tariffs on the importation of steel and aluminium originating from Europe and on a number of categories of "made in China" finished products.
An initial analysis (with the situation still evolving) has not revealed critical elements that could affect the Group's performance.
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.
| Y 2018 | Y 2017 | |
|---|---|---|
| Revenues from sales | 452,825 | 422,155 |
| EBITDA before non ordinary expenses (*) |
50,763 | 45,612 |
| EBITDA (*) |
49,449 | 43,932 |
| EBIT | 33,976 | 29,977 |
| Net profit | 25,647 | 16,435 |
| Y 2018 | Y 2017 | |
|---|---|---|
| Investment in property, plant and equipment | 14,699 | 14,802 |
| Investment in intangible assets | 3,495 | 2,626 |
| Free cash flow from operations (*) |
41,120 | 30,390 |
| 31.12.2018 | 31.12.2017 | |
|---|---|---|
| Net capital employed (*) |
323,247 | 312,799 |
| Net debt | (117,427) | (125,294) |
| Total equity | 205,820 | 187,505 |
| Y 2018 | Y 2017 | |
|---|---|---|
| EBITDA / Net sales (%) | 10.9% | 10.4% |
| EBIT / Net sales (%) | 7.5% | 7.1% |
| Net profit / Net sales (%) | 5.7% | 3.9% |
| EBIT / Net capital employed (%) | 10.5% | 9.6% |
| Debt / Equity | 0.57 | 0.67 |
| Number of employees at period end | 1,999 | 2,029 |
| 31.12.2018 | 31.12.2017 | |
|---|---|---|
| Earnings per share (€) | 0.155 | 0.099 |
| Equity per share (€) (*) |
1.25 | 1.13 |
| Official price (€) | 1.25 | 1.44 |
| Maximum share price in period (€) | 1.64 | 2.08 |
| Minimum share price in period (€) | 1.16 | 0.90 |
| Stockmarket capitalization (€ / million) | 205 | 236 |
| 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 (€) | (*) 0.251 |
0.186 |
| Dividend per share (€) | 0.045 | 0.035 |
(*) See section "Definitions of alternative performance indicators"
Compared to December 31, 2017, only the economic results of Raico S.r.l. for the first quarter have been consolidated, following its dismissal on March 30, 2018.
Starting from August 1, 2018, the Brasilian company Spraycom S.A. has entered into the scope of consolidation, as a consequence of the subscription of a 51% stake of the share capital by the subsidiary Tecomec S.r.l..
2017 annual report included only the last six month of the income statement of Lavorwash Group, acquired on July 3, 2017.
There are also changes in the percentage of shares held in Epicenter (from 61% to 100%) and Lavorwash S.p.A. (from 97.78% to 98.40% following the purchase of shares by minority shareholders).
Emak Group achieved a consolidated turnover of € 452,825 thousand, compared to € 422,155 thousand of last year, an increase of 7.3%. This improvement is due to the contribution of the change in the scope of consolidation by 7.1%, to the negative effect of the exchange rate by 1.4% and to an organic growth of 1.6%.
The effect of the change in scope of consolidation is determined by the contribution of Lavorwash Group in the first half 2018 for € 39,252 thousand and the exit of Raico S.r.l. (dismissed on March 30, 2018) from the scope of consolidation, which in the period April – December 2017 had a turnover of € 9,450 thousand.
Ebitda for the period reached € 49,449 thousand (an incidence of 10.9% on sales) compared to € 43,932 thousand in 2017 (an incidence of 10.4% on sales), with an increase of 12.6%.
The increase in the result was positively influenced for € 7,425 thousand by the consolidation of the Lavorwash Group in the first half of 2018, while it has had a negative impact the deconsolidation of Raico S.r.l. which had contributed € 331 thousand in the period April-December 2017.
The result was affected by a general increase in the cost of raw materials.
Personnel costs increased due to the inclusion in the consolidation area for the entire year of the Lavorwash group. Overall, the Group employed on an average 2,154 resources (2,047 in 2017). The increase in other operating costs is mainly due to the expansion of the consolidation area.
During the year, non-ordinary revenues were recorded for 1,182 thousand euros (150 thousand euros in 2017) and non-ordinary expenses for 2,496 thousand euros (1,830 thousand euros in 2017) mainly related to personnel reorganization charges of Emak S.p.A. (for more details, see note 7 of these consolidated financial statements).
Adjusting the figure for both periods of non-ordinary values, Ebitda would amount to € 50,763 thousand, equal to 11.2% of revenues, compared to € 45,612 thousand in the previous year, with an incidence on revenues of the 10.8%.
The operating result for 2018 amounted to € 33,976 thousand, with a margin on revenues of 7.5%, compared to € 29,977 thousand (7.1% of revenues) in 2017, up by 13.3%.
The figure "Amortization and depreciation" amount to € 15,473 thousand against € 13,955 thousand in the previous year.
The figure for the year 2018 includes the devaluation of the goodwill value of the company Geoline Electronic for a total of € 597 thousand (already subject to partial reduction of € 590 thousand in 2017).
The ratio of operating profit to net capital employed is 10.5% (10.9% excluding the above mentioned non ordinary charges) compared to 9.6% of 2017 (10.1% excluding the non-ordinary charges).
The net profit for the year is € 25,647 thousand against € 16,435 thousand for the previous financial year.
The item "Financial income" amounts to € 5,316 thousand, compared to € 1,807 thousand for the same period. The amount for the 2018 financial year benefited from the capital gain of € 2,472 thousand, realized for the sale of the subsidiary Raico Srl, and the income deriving from the recording of the adjustment of the estimate of the debt for the commitment to purchase the residual stake of Lemasa for a total of € 2,074 thousand (€ 281 thousand in 2017).
The item "Financial charges" amounts to € 4,784 thousand, in line with the 2017 figure of € 4,820 thousand.
The 2018 currency management is positive for 86 thousand of Euro against a negative value of 4,218 thousand of Euro of last year. The result is related to the trend of the currencies, mainly the US dollar, the Chinese Renmimbi and the Brazilian real, in which the relative flows are denominated.
The tax rate for the year is 26.4% compared to 29.0% in the previous year.
The tax effect is positively affected by the recognition of untaxed income deriving from the recognition of the capital gain from the deconsolidation of the company Raico S.r.l. and the adjustment of the estimate of commitments for the purchase of the remaining quota of Lemasa.
On the other hand, it was adversely affected by the failure by some Group companies to record deferred tax assets on tax losses for an amount of € 846 thousand.
| €/000 | 31.12.2018 | 31.12.2017 | |
|---|---|---|---|
| Net non-current assets (*) | 154,926 | 150,962 | |
| Net working capital (*) | 168,321 | 161,837 | |
| Total net capital employed (*) | 323,247 | 312,799 | |
| Equity attributable to the Group | 203,744 | 184,783 | |
| Equity attributable to non controlling interests | 2,076 | 2,722 | |
| Net debt | (117,427) | (125,294) | |
| (*) See section "Definitions of alternative performance indicators" | |||
| Net non-current assets | |||
| Net non-current assets at December 31, 2018 amount to € 154,926 thousand compared to € 150,962 thousand at December 31, 2017. |
Net non-current assets at December 31, 2018 amount to € 154,926 thousand compared to € 150,962 thousand
During 2018 Emak Group invested € 18,194 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 € 161,837 thousand at December 31, 2017 to € 168,321 thousand at December 31, 2018, an increase of € 6,484 thousand. The ratio of net working capital to turnover is 37.2% compared to 38.3% of last year.
The following table reports the change in net working capital in 2018 compared with the previous year:
| €/000 | Y 2018 | Y 2017 |
|---|---|---|
| Opening Net working capital | 161,837 | 145,623 |
| Increase/(decrease) in inventories | 4,501 | 10,264 |
| Increase/(decrease) in trade receivables | 1,053 | (6,323) |
| (Increase)/decrease in trade payables | 6,412 | (7,685) |
| Change in scope of consolidation (acquisition) | (4,016) | 16,829 |
| Other changes | (1,466) | 3,129 |
| Closing Net working capital | 168,321 | 161,837 |
The increase in net working capital is linked to the decrease in trade payables following the lower purchases of raw materials and components made by the group in the last part of the year compared to the same period.
Net financial position is € 117,427 thousand at December 31, 2018 against € 125,294 thousand at December 31, 2017.
The following table shows the movements in the net financial position of 2018:
| €/000 | 2018 | 2017 |
|---|---|---|
| Opening NFP | (125,294) | (80,083) |
| Ebitda | 49,449 | 43,932 |
| Financial income and expenses | (1,940) | (3,013) |
| Income from/(expenses on) equity investment | 266 | 389 |
| Exchange gains and losses | 86 | (4,218) |
| Income taxes | (9,213) | (6,700) |
| Cash flow from operations, excluding changes in operating assets and liabilities |
38,648 | 30,390 |
| Changes in operating assets and liabilities | (12,728) | (4,348) |
| Cash flow from operations | 25,920 | 26,042 |
| Changes in tangible and intangible assets | (18,058) | (16,308) |
| Dividends cash out | (5,942) | (5,815) |
| Other equity changes | (519) | (611) |
| Changes from exchange rates and translation reserve | 608 | 3,301 |
| Change in scope of consolidation | 5,858 | (51,820) |
| Closing NFP | (117,427) | (125,294) |
"Financial income and charges" do not include the capital gain realized on the sale of Raico S.r.l. which is included in the item "change in the scope of consolidation"
Operating cash flow, net of Raico capital gains, amounted to € 38,648 thousand compared to € 30,390 thousand in the previous year. Cash flow from operating activities, net of the change in the area, is in line with the result of the previous year, and was mainly influenced by the increase in net working capital.
Details of the net financial position is analyzed as follows:
| Thousand of Euro | 31/12/2018 | 31/12/2017 | |
|---|---|---|---|
| A. | Cash | 62,602 | 40,812 |
| B. | Other cash at bank and on hand (held-to-maturity investments) | - | - |
| C | Financial instruments held for trading | - | - |
| D. | Liquidity funds (A+B+C) | 62,602 | 40,812 |
| E. | Current financial receivables | 837 | 7,549 |
| F. | Current payables to banks | (18,086) | (36,570) |
| G. | Current portion of non current indebtedness | (46,152) | (31,956) |
| H | Other current financial debts | (5,764) | (10,151) |
| I. | Current financial indebtedness (F+G+H) | (70,002) | (78,677) |
| J | Current financial indebtedness, net (I+E+D) | (6,563) | (30,316) |
| K. | Non-current payables to banks | (99,817) | (80,084) |
| L | Bonds issued | - | - |
| M. | Other non-current financial debts | (13,511) | (15,646) |
| N. | Non-current financial indebtedness (K+L+M) | (113,328) | (95,730) |
| O. | Net indebtedness (ESMA) (J+N) | (119,891) | (126,046) |
| P. | Non current financial receivables | 2,464 | 752 |
| Q. | Net financial position (O+P) | (117,427) | (125,294) |
Short-term debt mainly includes:
The other net non-current payables include, for an amount of € 12,808 thousand, payables for the purchase of the remaining minority shares.
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 € 17,256 thousand related to the following companies:
Current and non-current financial receivables mainly include deposits guaranteeing potential liabilities, escrow accounts related to equity acquisition contracts and other forms of temporary liquidity investment.
Equity at December 31, 2018 is € 205.820 thousand against € 187,505 thousand at December 31, 2017.
| OUTDOOR POWER EQUIPMENT |
PUMPS AND HIGH PRESSURE WATER JETTING |
COMPONENTS AND ACCESSORIES |
Other not allocated / Netting |
Consolidated | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| €/000 | 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 | 31.12.2017 | ||||||||
| Sales to third parties | 165,770 | 168,402 | 183,111 | 138,770 | 103,944 | 114,983 | 452,825 | 422,155 | ||
| Intersegment sales | 1,694 | 1,851 | 1,649 | 1,456 | 7,988 | 7,767 | (11,331) | (11,074) | ||
| Revenues from sales | 167,464 | 170,253 | 184,760 | 140,226 | 111,932 | 122,750 | (11,331) | (11,074) | 452,825 | 422,155 |
| Ebitda | 11,859 | 9,400 | 25,356 | 19,546 | 13,550 | 17,372 | (1,316) | (2,386) | 49,449 | 43,932 |
| Ebitda/Total Revenues % | 7.1% | 5.5% | 13.7% | 13.9% | 12.1% | 14.2% | 10.9% | 10.4% | ||
| Ebitda before non ordinary expenses | 13,599 | 9,840 | 25,855 | 20,804 | 13,748 | 17,354 | (2,439) | (2,386) | 50,763 | 45,612 |
| Ebitda before non ordinary expenses/Total Revenues % | 8.2% | 5.8% | 14.1% | 15.0% | 13.2% | 15.1% | 11.2% | 10.8% | ||
| Operating result | 5,882 | 3,787 | 20,255 | 15,503 | 9,155 | 13,073 | (1,316) | (2,386) | 33,976 | 29,977 |
| Operating result/Total Revenues % | 3.5% | 2.2% | 11.0% | 11.1% | 8.2% | 10.7% | 7.5% | 7.1% | ||
| Net financial expenses (1) | 884 | (6,842) | ||||||||
| Profit befor taxes | 34,860 | 23,135 |
(1) Net financial expenses includes the amount of Financial income and expenses, Exchange gains and losses and the amount of the Income from equity investment
The table below shows the breakdown of "sales to third parties" in 2018 by business segment and geographic area, compared with the same period last year.
| OUTDOOR POWER EQUIPMENT |
PUMPS AND HIGH PRESSURE WATER JETTING |
COMPONENTS AND ACCESSORIES |
CONSOLIDATED | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| €/000 | Y 2018 | Y 2017 | Var. % | Y 2018 | Y 2017 | Var. % | Y 2018 | Y 2017 | Var. % | Y 2018 | Y 2017 | Var. % |
| Europe | 139,893 | 140,968 | (0.8) | 96,315 | 64,766 | 48.7 | 64,619 | 76,500 | (15.5) | 300,827 | 282,234 | 6.6 |
| Americas | 6,495 | 8,104 | (19.9) | 62,640 | 57,086 | 9.7 | 24,968 | 25,829 | (3.3) | 94,103 | 91,019 | 3.4 |
| Asia, Africa and Oceania | 19,382 | 19,330 | 0.3 | 24,156 | 16,918 | 42.8 | 14,357 | 12,654 | 13.5 | 57,895 | 48,902 | 18.4 |
| Total | 165,770 | 168,402 | (1.6) | 183,111 138,770 | 32.0 | 103,944 | 114,983 | (9.6) | 452,825 | 422,155 | 7.3 |
In 2018, sales of the Outdoor Power Equipment segment decreased by 1.6% compared to the previous year. The result on the European market was influenced by a negative season for gardening products due to unfavorable weather conditions. Sales in the Americas were affected by the decline recorded in some Latin American countries. Sales in the Asia, Africa and Oceania area were stable compared to last year, benefiting from the good results achieved in the Middle East markets in the first part of the year.
EBITDA of the segment benefited from a favorable product/market mix and the results obtained from the initiatives undertaken to reduce operating and personnel costs. During the period, non-ordinary costs were incurred for a total of € 1,740 thousand, of which € 1,299 thousand for reorganization costs.
Segment sales increased both due to the contribution of € 39,252 thousand linked to the consolidation area and to the organic growth of 3.7%.
Sales on the European market grew both due to the contribution of Lavorwash and the positive trend on a likefor-like basis, especially in the Italian and Western European markets. Sales in the Americas saw slight organic growth in the main markets, especially in Latin America, to which is added the effect of the consolidation area. The substantial growth in sales in the Asia, Africa and Oceania area was determined by a good organic performance, mainly in the Far East and Oceania markets, and by the expansion of the consolidation perimeter.
EBITDA benefited from the expansion of the consolidation perimeter for a total of € 7,425 thousand, against a negative effect deriving from the lower sales recorded in the last quarter.
The figure for the period includes non-ordinary charges amounting to € 1,372 thousand and non-ordinary revenues for € 873 thousand.
Segment revenues reported an overall decline of 9.6%. Excluding the turnover of the April-December 2017 period of Raico S.r.l. (€ 9,450 thousand concentrated in Europe), the decrease would have been 1.5%. It should be noted that during the fourth quarter the turnover on an equal consolidation basis increased by 6.9%. The decline on the European market is mainly due to the lack of contribution of Raico starting from the second quarter. At organic level, sales growth was recorded in Italy and Eastern European countries and a slowdown in those of Western Europe, due to the negative season for gardening products. In the Americas there was a significant increase in turnover in Latin American markets, thanks to the growth of the Chilean branch and the contribution of Spraycom company starting in August. The decline in the North American market is attributable in part to lower sales of gardening products and partly to the revision of the logistics model for distribution to some customers. Sales growth in the Asia, Africa and Oceania area benefited from the aforementioned new distribution model and the positive results achieved on the Far East markets.
Segment EBITDA was negatively impacted by lower sales volumes, an unfavourable product mix and higher raw material costs. The exit from the scope of consolidation of Raico S.r.l. impacted € 331 thousand. During the period, non-ordinary revenues were recorded for € 309 thousand and non-ordinary costs for € 507 thousand.
The Parent Company achieved net revenues of € 124,240 thousand against € 125,426 thousand in 2017, a decrease of 0.9%.
Sales were penalized mainly by lower sales in Central Europe and Latin America. The trend registered on the Italian and, overall, South European markets was positive.
Ebitda of the year amounts to € 5,787 thousand, compared to € 3,812 thousand of last year. The result benefited from the cost containment policy and the improvement in the contribution margin. The company incurred costs for a reorganization plan for € 1,134 thousand.
The operating result for the year is positive for € 629 thousand compared to a loss of €1,133 thousand in 2017. 2018 result includes the revaluation of the participation of the Ukrainian company Epicenter for a total of € 1,020 thousand and the allocation to the provision to cover future losses for the subsidiaries Emak do Brasil and Emak Deutschland for a total of € 1,620 thousand; 2017 figure included the impairment of the investment in the Brazilian company Emak do Brasil for € 780 thousand.
The company ended the year with a net profit of € 5,832 thousand compared to € 2,759 thousand in 2017. The result benefited from positive currency management for € 874 thousand, compared to a negative value of € 2,288 thousand in 2017.
The net negative financial position is in line with 31 December 2017, rising from € 18,689 thousand to € 18,967 thousand. The figure had a positive impact, in addition to the cash flow from operations, from the sale of the equity investment in the subsidiary Raico S.r.l. for € 5,500 thousand; negative impacts came from the change in tangible and intangible assets for € 7,259 thousand, the increase in net working capital (for € 3,330 thousand), the liquidation of employee reorganization plans for € 1,497 thousand.
At 31 December 2018 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:
| 31/12/2018 | 31/12/2017 | |||||
|---|---|---|---|---|---|---|
| Company | Head office | Net sales | Net profit | Net sales | Net profit | |
| Parent company | ||||||
| Emak S.p.A. | Bagnolo in Piano (Italy) | 124,240 | 5,832 | 125,426 | 2,759 | |
| Fully consolidated companies | ||||||
| Emak France Sas | Rixheim (France) | 25,363 | 108 | 27,712 | 55 | |
| Jiangmen Emak Outdoor Power Equipment Co. Ltd Jiangmen City (China) | 23,439 | 881 | 24,532 | 549 | ||
| Victus Emak Sp. Z o.o. | Poznam (Poland) | 13,561 | 381 | 14,248 | 388 | |
| Emak Deutschland GmbH | Fellbach-Oeffingen (Germany) | 9,108 | (802) | 10,340 | (711) | |
| Emak Suministros Espana SA | Madrid (Spain) | 8,947 | 636 | 8,532 | 558 | |
| Emak U.K. LTD | Burntwood (UK) | 3,624 | (118) | 3,828 | 4 | |
| Tailong (Zhuhai) Machinery Equipment Ltd. | Zhuhai (China) | 3,973 | 334 | 4,113 | 319 | |
| Epicenter LLC | Kiev (Ukraine) | 3,612 | 301 | 4,032 | 168 | |
| Emak Do Brasil Industria LTDA | Curitiba (Brazil) | 1,280 | (1,115) | 1,939 | (539) | |
| Tecomec Srl | Reggio Emilia (Italy) | 49,708 | 3,373 | 50,522 | 3,355 | |
| Speed France Sas | Arnax (France) | 16,998 | 1,560 | 20,833 | 2,557 | |
| Speed North America Inc. | Wooster, Ohio (USA) | 11,955 | 225 | 11,458 | 944 | |
| Speed Line South Africa (Pty) Ltd. | Pietermaritzburg (South Africa) | 1,421 | 148 | 1,481 | 233 | |
| Ningbo Tecomec Manufacturing Co. Ltd. | Ningbo City (China) | 10,838 | 113 | 11,628 | 434 | |
| Geoline Electronic S.r.l. | Poggio Rusco, Mantova (Italy) | 822 | (219) | 877 | (225) | |
| Speed Industrie Sarl | Mohammedia (Marocco) | 2,188 | (9) | 2,144 | 39 | |
| Speed Line South America | Providencia (RCH) | 2,224 | (64) | 1,506 | (146) | |
| Comet Spa | Reggio Emilia (Italy) | 63,010 | 6,871 | 60,220 | 2,709 | |
| Comet France Sas | Wolfisheim (France) | 6,206 | 307 | 5,723 | 229 | |
| Comet USA | Burnsville, Minnesota (USA) | 1,405 | 1,424 | 9,354 | 2,351 | * |
| Valley Industries LLP | Paynesville, Minnesota (USA) | 29,630 | 2,672 | 22,272 | 2,186 | * |
| Ptc Waterblasting | Burnsville - Minnesota (USA) | 612 | (40) | 53 | (217) | |
| PTC Srl | Rubiera, Reggio Emilia (Italy) | 10,669 | 337 | 10,660 | 408 | |
| S.I. Agro Mexico | Guadalajara (Mexico) | 5,481 | 34 | 5,230 | 453 | |
| Comet do Brasil Investimentos LTDA | Indaiatuba (Brazil) | - | 1,292 | (1,531) | ||
| Lemasa S.A. | Indaiatuba (Brazil) | 12,237 | 1,561 | 12,645 | 2,246 | |
| Sabart Srl | Reggio Emilia (Italy) | 24,505 | 1,919 | 22,879 | 1,673 | |
| Raico Srl | Reggio Emilia (Italy) | 3,111 | 102 | 12,798 | 226 | |
| Lavorwash S.p.a | Pegognaga, Mantova (Italy) | 56,867 | 7,743 | 24,085 | 3,681 | 1 |
| Lavorwash France S.a.r.l. | La Courneuve (France) | 8,221 | 263 | 1,316 | (140) | 2 |
| Lavorwash GB Ltd | St. Helens Merseyside (UK) | 908 | 1 | 372 | (0) | 2 |
| Lavorwash Iberica S.l. | Tarragona (Spain) | 1,750 | 220 | 710 | 75 | 2 |
| Lavorwash Polska SP ZOO | Bydgoszcz (Poland) | 3,741 | 315 | 946 | 4 | 2 |
| Lavorwash Brasil Ind. E Com. Ltda | Ribeirao Preto (Brazil) | 1,861 | (577) | 702 | (359) | 2 |
| Yong Kang Lavorwash Equipment Co. Ltd | Yongkang City (China) | 21,595 | 2,476 | 7,351 | 832 | 2 |
| Yongkang Lavor Trading Co. Ltd. | Yongkang City (China) | 1,631 | 85 | 637 | 51 | 2 |
| Spraycom S.A. | Catanduva, San Paolo (Brazil) | 989 | 150 | 3 | ||
1 On March 30, 2018, the parent company Emak S.p.A. concluded the total sale of the company Raico S.r.l.
2 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
3 On 20 July 2018 the subsidiary Tecomec S.r.l. has completed the acquisition of 51% of the Brazilian company Spraycom, consequently the income statement of the company has entered the area of consolidation starting from 1 August 2018.
* 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 profit of the individual companies includes any dividends received during each year, as well as any write-downs of intercompany investments.
The following elements are disclosed with reference to some companies in the Group.
The company Emak Deutschland has achieved a decrease in turnover compared to the previous year, also determined by the ongoing operational logistics reorganization process, which will presumably begin to give the first results starting from the 2019 financial year.
The company Emak do Brasil closed the year 2017 with a loss. It should be noted that the transfer of the registered office, the change in management and the result of currency management had a negative impact on the performance of 2018.
The company Emak UK achieved sales below the levels of last year, also due to the slowdown in the reference market, resulting in a negative result.
The company Geoline Electronic S.r.l. recorded a turnover and a negative net result substantially in line with last year.
The company Speed South America S.p.A. has developed sales higher than the previous year, achieving a positive result up to EBIT, losses are solely caused by exchange rate differences from valuations.
Comet do Brasil was incorporated as a financial holding company for the acquisition of the Lemasa company. The profit for the year was positively influenced by the recognition of financial income of 2,074 thousand euros following the adjustment of the debt for the purchase of the remaining shares of the company Lemasa (for more information, see note 15 of the explanatory notes).
The negative result of Ptc Waterblasting is related to its start-up phase.
Lavorwash Brasil records an increase in turnover compared to the previous year, but not yet sufficient to generate margins able to cover fixed structural costs.
In order to make the 2018 financial year comparable with the same period, a pro-forma consolidated report was prepared for 2017 that included the first six months of the Lavorwash group and excluded the last 9 months of the company Raico S.r.l.
In any case, it should be pointed out that if the profit and loss account of the acquired companies had been included within the Emak Group, in these periods, they would not necessarily have had the same economic results shown below.
| Thousand of Euro | Year 2018 | Year 2017 |
|---|---|---|
| Revenues from sales | 452,825 | 452,314 |
| Other operating incomes | 5,465 | 3,950 |
| Change in inventories | 4,621 | 14,320 |
| Raw materials, consumable and goods | (243,182) | (248,983) |
| Personnel expenses | (83,310) | (83,708) |
| Other operating costs | (86,970) | (87,822) |
| Ebitda (*) | 49,449 | 50,071 |
| Amortization, depreciation and impairment losses | (15,473) | (14,265) |
| Operating result | 33,976 | 35,806 |
| Financial income and expenses | 532 | (2,969) |
| Exchange gains and losses | 86 | (4,010) |
| Income from equity investments | 266 | 389 |
| Profit before taxes | 34,860 | 29,216 |
| Income taxes | (9,213) | (8,721) |
| Net Profit | 25,647 | 20,495 |
| Ebitda % (*) | 10.9% | 11.1% |
| EBITDA before non ordinary expenses (*) | 50,763 | 52,176 |
| EBITDA before non ordinary expenses % (*) | 11.2% | 11.5% |
(*) For more details, please refer to the "definitions of alternative performance indicators" paragraph.
Research and development is a fundamental activity underpinning the Group's strategy for continuous growth and success. The Group, in fact, considers that investing in research as a tool for obtaining a competitive advantage in national and international markets to be of strategic importance. Whenever possible, the Group covers its products with international patents.
The activity focuses on product innovation, understood as the development of new, more efficient technologies in terms of improved performance, lower energy consumption and environmental impact. In addition, the Group for some years has set up partnerships with the academic world with the objective of an exchange of knowhow with a view to continuous improvement of its products and performances.
In 2018 the Group allocated a total of 18.5 million Euros to Research and Development, of which 11.2 million in investments in tangible and intangible fixed assets and 7.3 million for research costs.
The main activities carried out by the Group companies in 2018, broken down by business lines, are described below.
2018 saw consolidation of the sales of the products launched in the second half of 2017; these products include a new professional 35 cc top handle chainsaw (developed for the precise pruning of olive and fruit trees and characterised by an excellent weight/power ratio), new 21 cc brush-cutters with the best weight/power ratio on the market, a 40 cc brush-cutter for the professional sector, and another 40 cc brush-cutter for private use. Over the year there was also (i) the launch of 35, 40 and 44 cc chainsaws which, compared to the previous models, besides a number of new features, have an improved weight/power ratio; (ii) a new hedge-cutter for professional use and (iii) the complete renewal of the range of metal lawnmowers. Significant efforts were dedicated to the renewal of the design of the new machines, making a break with the past, developing, through an external partnership, completely new and distinctive lines compared to what was currently available on the market. Specifically regarding the new battery-powered range, while composed of very different products, a common "line" was developed for all the machines, allowing for the creation of a strong brand identity.
The development of important technologies for the future continued during the year, such as:
RTS (Rotary Transfer Scavenge) is a new technology for two-stroke motors, for which the Group has filed a patent, aimed at reducing the polluting emissions of the motors through the introduction of fresh charge into the combustion chamber with suitably phased disc valves. This technology is currently in the experimental phase on a 45 cc motor in order to understand the level of emission reduction.
EGR (Exhaust Gas Recirculation) which, through the recirculation of exhaust gases, permits reductions in consumption and emissions. This technology, for which the Group has filed a patent, was launched on the market on a new 44 cc chainsaw. A 50 cc chainsaw and a 50 cc brush-cutter for professional use will be launched on the market in 2019 and will have this new technical solution. The Group has received a double recognition for the development and application of this technology from EIMA, the most important trade fair for the sector in Italy, for technology innovation and as a solution for reducing environmental impact.
data useful to the Group for the improvement and further future development of the products. It's a multiyear project, for which the Group has also obtained funding from the MISE (Ministry for Economic Development) which will lead to the introduction of the first products on the market in three years' time.
methodological activity (based on numerical simulations) with the aim of creating cutting-edge tools in research, design and product development. In 2018, a mono-dimensional code for the simulation of motors was carried together with the University of Bologna, and an optimisation methodology based on experimental calculations and measurements for reducing machine vibrations was implemented with the support of the University of Ferrara. This latter activity led to the development of an ant-vibration system for the new 25 cc blower and a new backpack for the 50 cc brush-cutter for professional use.
With regards to the range of products for agriculture, different versions, connections and accessories of membrane pumps and centrifuges have been developed. These developments have offered the customer improvements in the machine which is, therefore, able to work better and in a more efficient way in the field. In addition, two high pressure command units have been launched on the market, improved in terms of duration, precision and ergonomics. Their regulation is therefore further enhanced, reducing, therefore, the dispersion of the product into the environment to a minimum.
With regards to industrial products, the process of continuous improvement and optimisation of the pumps in the range continued, using the latest structural and fluid-dynamics simulation software. Two new pump models, one axial and one triplex, intended for the United States washing market, were also developed with the same tools. Besides the high level of performance, they are characterized by high efficiency and compactness. These results have been achieved thanks to an innovative heads and valves system, which is protected by an international industrial patent. A new robotised system has also been developed for the cleaning of industrial plant, which offers the operator the possibility of working away from the water jet and the high pressure tubes. This robot focuses on safety and ergonomics for the operator.
With regards to washing products, two new cold-water high pressure water jet machines have been developed for amateur use fitted with the WPS (washing program system), an electronic system to regulate the speed of the motor which, through a 3-position rotating selector, makes it possible to select the washing programme and, in this way, limit energy consumption and water wastage. A high pressure cold water jet machine with an innovative patented digital control system (DIGIT), a technical evolution of the WPS system, for complete control of the machine, was also launched on the market: the user accesses the washing program selection and the control function menu using the digital control keyboard. The system integrates, moreover, a series of safety measures to protect the machine and the consumer. Three new high pressure cold water jet machines in the professional range have been launched on the market, characterised by new solutions that improve the efficiency of the machine while ensuring the same performance levels as the previous models. A new 15l-capacity professional washer/dryer, ideal for small/medium areas, developed with the aim of extending the product range, was also launched on the market in the year. The development of a new range of nebulizers continued, planned for launch in 2019, designed to clean mould and mildew from roofs and the coverings of commercial and residential buildings. A partnership with a chemical company was set up to supply equipment that can apply a chemical compound to be sprayed on foundation walls (and in many other applications) to stop water penetration.
The development and implementation of cutting systems for brush-cutters, electric and battery trimmers continued during the year, in partnership with major world manufacturers. Efforts were mainly focused on the search for solutions for reducing energy consumption, noise and vibrations in the use of plastic wire-heads, blades and discs, as requested by new international standards. With regards to machines and accessories dedicated to the maintenance of chainsaws, the completion of new range of professional products renews and integrates the current offer for OEMs and distributors.
Research and development of the line of accessories intended for the agricultural sector was further directed towards projects to strengthen the offer of electronic control systems for spraying and weeding, besides the completion of the range of flowmeters and sensors. In addition, cooperation with specialised partners and universities for the development of IoT applications on cloud platforms continued. The range of the main plastic components (filters, covers and nozzle supports) was updated and revised.
With regards to the development of products for the industrial washing sector, further investments were made in research aimed at improving performances and at extending the range of pressure regulation valves. The activity was again this year carried out in cooperation with the University of Modena and Reggio Emilia, which
advised and supported internal technical staff in the study and experimentation phases. A number of the technical solutions identified have been registered with industrial patents. Moreover, activities for the implementation of the professional range continued in 2018 with the introduction of a catalogue of new products for high pressure and high capacity industrial uses; specifically, the new line of heads and rotating nozzles, regulation valves and pistols.
The breakdown of personnel by country as at 31 December 2018, compared with the previous year, is shown in the following table:
| Employees at | 31.12.2017 | Ch. in scope of consolidation |
Other movements |
31.12.2018 |
|---|---|---|---|---|
| Italy | 1,046 | (49) | (8) | 989 |
| France | 143 | - | (5) | 138 |
| UK | 16 | - | (3) | 13 |
| Spain | 24 | - | (1) | 23 |
| Germany | 25 | - | (6) | 19 |
| Poland | 35 | - | 0 | 35 |
| China | 401 | - | 14 | 415 |
| Usa | 100 | - | 18 | 118 |
| Ukraine | 33 | - | (3) | 30 |
| South Africa | 10 | - | 0 | 10 |
| Brasil | 134 | 8 | 4 | 146 |
| Mexico | 14 | - | 3 | 17 |
| Morocco | 32 | - | (1) | 31 |
| Chile | 16 | - | (1) | 15 |
| Total | 2,029 | (41) | 11 | 1,999 |
Further information on staff management policies and training can be found in the appropriate sections of the "Consolidated 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 Italian companies in the Emak Group, including Emak S.p.A., 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.
All 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/it-it/investorrelations/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 subsidiary companies is also regulated by suitable protection procedures that provide for the Parent Company to perform control and harmonization activities.
At December 31, 2018, the Company held 397,233 treasury shares in portfolio for an equivalent value of € 2,029 thousand.
On April 27, 2018, the Shareholders' Meeting renewed the authorization to purchase and dispose of treasury shares for the purposes laid down by it. During 2018 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 2018 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
The consolidated non-financial declaration of Emak S.p.A. for 2018, 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.
For 2019 the Group's prospects remain cautiously optimistic despite an external scenario characterized by persistent macroeconomic uncertainty. The Group will continue its policy of investment in innovation and product development and rationalization of its internal processes with the aim of generating value for all its stakeholders.
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 notes 7 and 8 of consolidated financial statements.
On January 25, 2019 the subsidiary Tecomec S.r.l. has completed the purchase of 30% of the share capital of Agres Sistemas Eletrônicos S.A. ("Agres"), a Brazilian company based in Pinais (Paranà) active in the development and supply, mainly on the local market, of electronic systems (software, hardware and related services) for agricultural machines, in particular spraying and weeding machines and seeders.
The transaction is part of the Group's external growth strategy through the expansion and completion of its product range. With the entry into the capital of Agres the Emak Group will expand its offer of agricultural products, in particular electronic ones, in the Components and Accessories segment, where it already boasts an important position.
In 2017 the company achieved revenues of 26.6 million Reais (approximately € 6.2 million, converted at the average 2018 exchange rate) and an EBITDA of approximately 6.2 million Reais (equal to about € 1.4 million). The value of the transaction was 11.7 million Reais (approximately € 2.8 million). The agreements governing the transaction also provide for Put & Call Option on a further 55% stake to be exercised in 2023.
In accordance with the CONSOB Communication dated July 28 2006, the following table provides a reconciliation between net income for 2018 and shareholders' equity at December 31, 2018 of the Group (Group share), with the corresponding values of the parent company Emak S.p.A.
| €/000 | Equity at 31.12.2018 |
Result for the year ending 31.12.2018 |
Equity at 31.12.2017 |
Result for the year ending 31.12.2017 |
|---|---|---|---|---|
| Equity and result of Emak S.p.A. | 150,639 | 5,832 | 150,487 | 2,759 |
| Equity and result of consolidated subsidiaries | 268,121 | 32,888 | 257,912 | 22,859 |
| Effect of the elimination of the accounting value of shareholdings |
(229,755) | (210) | (235,316) | 1,282 |
| Elimination of dividends | - | (17,516) | - | (10,600) |
| Elimination of other intergroup items and profits |
16,015 | 4,387 | 13,888 | (194) |
| Evaluation of equity investment in associated | 800 | 266 | 534 | 329 |
| Total consolidated amount | 205,820 | 25,647 | 187,505 | 16,435 |
| Non controlling interest | (2,076) | (250) | (2,722) | (270) |
| Equity and result attributable to the Group | 203,744 | 25,397 | 184,783 | 16,165 |
Shareholders,
We submit for your approval the financial statements at December 31, 2018, which reports a profit of € 5,832,406.00. We also propose the distribution of a dividend of € 0.045 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, 2018, showing a net profit of € 5,832,406.00;
with regard to point 1.2 to the agenda
Bagnolo in Piano (RE), 14 March 2019
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 2018
Thousand of Euro
| CONSOLIDATED INCOME STATEMENT | Notes | Year 2018 | of which to related parties |
Year 2017 | of which to related parties |
|---|---|---|---|---|---|
| Revenues from sales | 10 | 452,825 | 778 | 422,155 | 1,308 |
| Other operating incomes | 10 | 5,465 | 3,684 | ||
| Change in inventories | 4,621 | 14,168 | |||
| Raw materials, consumable and goods | 11 | (243,182) | (4,545) | (234,565) | (6,640) |
| Personnel expenses | 12 | (83,310) | (80,055) | ||
| Other operating costs and provisions | 13 | (86,970) | (2,361) | (81,455) | (2,531) |
| Amortization, depreciation and impairment losses | 14 | (15,473) | (13,955) | ||
| Operating result | 33,976 | 29,977 | |||
| Financial income | 15 | 5,316 | 2 | 1,807 | 8 |
| Financial expenses | 15 | (4,784) | (4,820) | ||
| Exchange gains and losses | 15 | 86 | (4,218) | ||
| Income from/(expenses on) equity investment | 21 | 266 | 389 | ||
| Profit befor taxes | 34,860 | 23,135 | |||
| Income taxes | 16 | (9,213) | (6,700) | ||
| Net profit (A) | 25,647 | 16,435 | |||
| (Profit)/loss attributable to non controlling interests | (250) | (270) | |||
| Net profit attributable to the Group | 25,397 | 16,165 | |||
| Basic earnings per share | 17 | 0.155 | 0.099 | ||
| Diluted earnings per share | 17 | 0.155 | 0.099 |
| CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME |
Notes Year 2018 |
Year 2017 | |
|---|---|---|---|
| Net profit (A) | 25,647 | 16,435 | |
| Profits/(losses) deriving from the conversion of foreign company accounts |
(1,041) | (5,330) | |
| Actuarial profits/(losses) deriving from defined benefit plans () Income taxes on OCI () |
45 (13) |
(470) 133 |
|
| Total other components to be included in the comprehensive income statement (B) |
(1,009) | (5,667) | |
| Total comprehensive income for the perdiod (A)+(B) | 24,638 | 10,768 | |
| Comprehensive net profit attributable to non controlling interests Comprehensive net profit attributable to the Group |
(205) 24,433 |
(166) 10,602 |
(*) 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 | 31.12.2018 | of which to related parties |
31.12.2017 | of which to related parties |
|---|---|---|---|---|---|
| Non-current assets | |||||
| Property, plant and equipment | 18 | 75,446 | 73,275 | ||
| Intangible assets | 19 | 20,195 | 20,327 | ||
| Goodwill | 20 | 65,773 | 14,646 | 67,112 | 14,670 |
| Equity investments in other companies | 21 | 230 | 230 | ||
| Equity investments in associates | 21 | 4,550 | 4,284 | ||
| Deferred tax assets | 30 | 8,480 | 9,068 | ||
| Other financial assets | 26 | 2,464 | 260 | 752 | 297 |
| Other assets | 23 | 65 | 65 | ||
| Total non-current assets | 177,203 | 14,906 | 175,113 | 14,967 | |
| Current assets | |||||
| Inventories | 24 | 156,678 | 155,727 | ||
| Trade and other receivables | 23 | 108,328 | 935 | 109,394 | 1,227 |
| Current tax receivables | 30 | 6,043 | 5,428 | ||
| Other financial assets | 26 | 554 | 37 | 7,348 | 449 |
| Derivative financial instruments | 22 | 283 | 201 | ||
| Cash and cash equivalents | 25 | 62,602 | 40,812 | ||
| Total current assets | 334,488 | 972 | 318,910 | 1,676 | |
| TOTAL ASSETS | 511,691 | 15,878 | 494,023 | 16,643 |
| SHAREHOLDERS' EQUITY AND LIABILITIES | Notes | 31.12.2018 | of which to related parties |
31.12.2017 | of which to related parties |
|---|---|---|---|---|---|
| Shareholders' Equity | |||||
| Shareholders' Equity of the Group | 27 | 203,744 | 184,783 | ||
| Non-controlling interest | 2,076 | 2,722 | |||
| Total Shareholders' Equity | 205,820 | 187,505 | |||
| Non-current liabilities | |||||
| Loans and borrowings due to banks and other lenders | 29 | 113,328 | 95,730 | ||
| Deferred tax liabilities | 30 | 8,355 | 9,622 | ||
| Employee benefits | 31 | 8,764 | 10,932 | ||
| Provisions for risks and charges | 32 | 2,173 | 2,265 | ||
| Other non-current liabilities | 33 | 520 | 579 | ||
| Total non-current liabilities | 133,140 | 119,128 | |||
| Current liabilities | |||||
| Trade and other payables | 28 | 95,938 | 3,623 | 101,515 | 3,444 |
| Current tax liabilities | 30 | 4,913 | 4,676 | ||
| Loans and borrowings due to banks and other lenders | 29 | 69,359 | 78,469 | ||
| Derivative financial instruments | 22 | 643 | 208 | ||
| Provisions for risks and charges | 32 | 1,878 | 2,522 | ||
| Total current liabilities | 172,731 | 3,623 | 187,390 | 3,444 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 511,691 | 3,623 | 494,023 | 3,444 |
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 31.12.2016 | 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 |
| Profit reclassification | 138 | 168 | 10,135 | (16,165) | (5,724) | (218) | (5,942) | |||||
| Other changes | (695) | 176 | 771 | 252 | (633) | (381) | ||||||
| Net profit for the period | (996) | 32 | 25,397 | 24,433 | 205 | 24,638 | ||||||
| Balance at 31.12.2018 | 42,519 | 40,529 | 3,197 | 1,138 | (225) | (1,097) | 31,068 | 61,218 | 25,397 | 203,744 | 2,076 | 205,820 |
| The share capital is show The share premium reserve is stated net of the premium value of treasury shares amounting to € 1,925 thousand |
n net of the nominal value of treasury shares in the portfolio amounted to € 104 thousand |
| ( €/000 ) | Notes | 31.12.2018 | 31.12.2017 |
|---|---|---|---|
| Cash flow from operations | |||
| Net profit for the period | 25,647 | 16,435 | |
| Amortization, depreciation and impairment losses | 14 | 15,473 | 13,955 |
| Financial expenses from discounting of debts | 15 | 1,194 | 1,691 |
| Income from equity investment | 21 | (266) | (389) |
| Capital (gains)/losses from change in scope of consolidation | 15 | (2,472) | - |
| Financial (income)/ Expenses from adjustment of estimated liabilities for outstanding commitment associates' shares |
15 | (2,074) | (281) |
| Capital (gains)/losses on disposal of property, plant and equipment | (140) | (184) | |
| Decreases/(increases) in trade and other receivables | (2,411) | 4,336 | |
| Decreases/(increases) in inventories | (5,411) | (13,713) | |
| (Decreases)/increases in trade and other payables | (3,714) | 5,269 | |
| Change in employee benefits | (905) | (44) | |
| (Decreases)/increases in provisions for risks and charges | (628) | (12) | |
| Change in derivative financial instruments | 360 | (297) | |
| Cash flow from operations | 24,653 | 26,766 | |
| Cash flow from investing activities | |||
| Change in property, plant and equipment and intangible assets | (18,157) | (16,164) | |
| (Increases) and decreases in financial assets | 4,342 | 1,257 | |
| Proceeds from disposal of property, plant and equipment | 140 | 184 | |
| Change in scope of consolidation | 5,484 | (40,905) | |
| Cash flow from investing activities | (8,191) | (55,628) | |
| Cash flow from financing activities Change in equity |
(349) | (612) | |
| Change in short and long-term loans and borrowings | 18,018 | 35,201 | |
| Dividends paid | (5,942) | (5,815) | |
| Cash flow from financing activities | 11,727 | 28,774 | |
| Total cash flow from operations, investing and financing activities | 28,189 | (88) | |
| Effect of changes from exchange rates and translation reserve | 149 | 836 | |
| INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 28,338 | 748 | |
| OPENING CASH AND CASH EQUIVALENTS | 27,768 | 27,020 | |
| CLOSING CASH AND CASH EQUIVALENTS | 56,106 | 27,768 | |
| ADDITIONAL INFORMATION ON THE CASH FLOW STATEMENT | |||
| ( €/000 ) | 31.12.2018 | 31.12.2017 | |
| RECONCILIATION OF CASH AND CASH EQUIVALENTS | |||
| Opening cash and cash equivalents, detailed as follows: | 25 | 27,768 | 27,020 |
| Cash and cash equivalents | 40,812 | 32,545 | |
| Overdrafts | (13,044) | (5,525) | |
| Closing cash and cash equivalents, detailed as follows: | 25 | 56,106 | 27,768 |
| Cash and cash equivalents | 62,602 | 40,812 | |
| Overdrafts | (6,496) | (13,044) | |
| Other information: Income taxes paid |
(7,674) | (11,419) | |
| Financial interest income | 471 | 304 | |
| Financial expenses paid | (2,039) | (1,802) | |
| Change in related party receivables and service transactions | 292 | 454 | |
| Change in related party payables and service transactions | 196 | 19 | |
| Change in trade and other receivables related to tax assets | (615) | (451) | |
| Change in trade payables and other liabilities related to tax liabilities | 407 | (920) | |
| Change in related party financial assets | 449 | 37 | |
| Change in related party financial loans and borrowings | - | - |
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 14, 2019 approved the Financial Report to December 31, 2018, 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 Group applied two new accounting standards with effect from 1 January 2018:
‐ IFRS 15 "Revenue from Contracts with Customers", replacing standards IAS 18 "Revenues" and IAS 11 "Construction contracts" and the relative interpretations;
‐ IFRS 9 "Financial Instruments", replacing standard IAS 39 "Financial Instruments ‐ Recognition and Measurement".
The IFRS 15 standard "Revenue from Contracts with Customers" introduces a unique general model for establishing if, when and to what extent to recognise revenues. In general terms, according to IFRS 15, revenues are recognised when the customer obtains control of the goods or services, and the determination of when moment transfer of control occurs (at a particular time or over time) requires an evaluation on the part of the company management.
For full details of the treatment reference should be made to paragraph 2.21 and 2.27.
The Group has not detected any effect on its financial statements as a result of the application of the new accounting standard.
The IFRS 9 standard "Financial instruments" introduces new requirements for the recognition and measurement of financial assets and liabilities and new rules for hedge accounting.
To add to what has already been reported in paragraph 2.27, more information is provided here regarding the choices made in applying (i) the classification of financial assets, (ii) the new methodology for the impairment of financial assets, including receivables and (iii) the new rules for hedge accounting.
a. Classification of financial assets: financial assets that come under IFRS 9 application are recognised at amortised cost or at fair value on the basis of the business model of the enterprise for the management of financial assets and the characteristics of the contractual cash flows of the financial asset;
b. Expected credit losses model: the methodology is based on a predictive approach, based on the prediction of the default of the counterparty (so-called probability of default) and on the possibility of collection in the event that default occurs (so-called loss given default);
c. Hedge accounting: the new provisions introduce modifications to the rules for the management of hedge accounting compared to the previous IAS 39 standard, applied until 31 December 2017, shifting the bases of recognition towards those used by the Group in relation to Risk Management. The new standard, in fact, permits the application of hedge accounting, from 1 January 2018, also to groups of non-financial elements and single components of elements, provided that the element covered can be reliability measured.
The Group has not detected any effect on its financial statements as a result of the application of the new accounting standard.
With reference, instead, to standard IFRS 16 "Leasing", published in the Official Gazette of the European Community on 9 November 2017, which will be applied prospectively in transition form from 1 January 2019, an impact of a first application on financial liabilities of around 28 million Euros is preliminarily estimated as reported in paragraph 2.27. With the full implementation of the new standard in 2019, account will be taken of the interpretations that will be issued by the IFRS Interpretations Committee (IFRIC), as well as the accounting practices to be followed.
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 2017, for the company Raico S.r.l. have been consolidated only the economic data of the first quarter, following its sold occurred on 30 March 2018.
Since 1st August 2018 the Brazilian company Spraycom S.A. is included in the scope of consolidation, following the subscription of 51% of the share capital by the subsidiary Tecomec S.r.l
It should be also noted the variation in the percentage of shareholding for Epicenter (from 61% to 100%) and Lavorwash S.p.A. (from 97.78% to 98.40% following the purchase of shares from minority).
The 2017 consolidated financial statements included only the second half of the Lavorwash Group's income statement, acquired on 3 July 2017.
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, 2018 following the acquisitions 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. | Rubiera - RE (I) | 55,556 | € | 100.00 Comet 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. (1) | Pegognaga - MN (I) | 3,186,161 | € | 98.40 Comet S.p.A. | 83.73 | |
| 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 Emak France SAS |
Fellbach - Oeffingen (D) Rixheim (F) |
553,218 2,000,000 |
€ € |
100.00 Emak S.p.A. 100.00 Emak S.p.A. |
100.00 100.00 |
|
| 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 | 100.00 Emak S.p.A. | 100.00 | |
| 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 S.p.A. | 99.98 | |||||
| Emak do Brasil Industria LTDA | Curitiba (BR) | 8,518,200 | BRL | 100.00 | Comet do Brasil LTDA | 0.02 |
| Lemasa industria e comércio de | Indaiatuba (BR) | 14,040,000 | BRL | 100.00 Comet do Brasil LTDA | 70.00 | |
| equipamentos de alta pressao S.A. (2) | ||||||
| PTC Waterblasting LLC | Burnsville - Minnesota (USA) | 285,000 | 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 Lavorwash S.p.A. |
100.00 99.99 |
|
| Lavorwash Brasil Ind. Ltda | Ribeirao Preto (BR) | 8,305,769 | BRL | 100.00 | ||
| Comet do Brasil LTDA | 0.01 | |||||
| Spraycom comercio de pecas para | Catanduva (BR) | 533,410 | BRL | 51.00 Tecomec S.r.l. | 51.00 | |
| agricoltura S.A. | ||||||
| Rest of the Word | ||||||
| Jiangmen Emak Outdoor Power | Jiangmen (RPC) | 25,532,493 | RMB | 100.00 Emak S.p.A. | 100.00 | |
| Equipment Co.Ltd | ||||||
| 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 Lavorwash Equipment Co. Ltd Yongkang City (RPC) | 63,016,019 | RMB | 100.00 Lavorwash S.p.A. | 100.00 | ||
| Yongkang Lavorwash Trading Co. Ltd | Yongkang City (RPC) | 3,930,579 | RMB | 100.00 Lavorwash S.p.A. | 100.00 |
(1) Lavorwash S.p.A. is consolidated at 98.40% as a result of the "Put & Call Option Agreement" which regulates the acquisition of the remaining 14.67%.
(2) Lemasa is consolidated at 100% as a result of the "Put & 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 & Call Option Agreement" which regulates the acquisition of the remaining 10%.
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 2018 | 31.12.2018 | Average 2017 | 31.12.2017 | ||
|---|---|---|---|---|---|---|
| GB Pounds (UK) | 0.88 | 0.89 | 0.88 | 0.89 | ||
| Renminbi (China) | 7.81 | 7.88 | 7.63 | 7.80 | ||
| Dollar (Usa) | 1.18 | 1.15 | 1.13 | 1.20 | ||
| Zloty (Poland) | 4.26 | 4.30 | 4.26 | 4.18 | ||
| Zar (South Africa) | 15.62 | 16.46 | 15.05 | 14.81 | ||
| Uah (Ukraine) | 32.11 | 31.74 | 30.02 | 33.73 | ||
| Real (Brazil) | 4.31 | 4.44 | 3.61 | 3.97 | ||
| Dirham (Morocco) | 11.08 | 10.94 | 10.95 | 11.24 | ||
| Peso Mexican (Mexico) | 22.71 | 22.49 | 21.33 | 23.66 | ||
| Peso Chilean (Chile) | 756.94 | 794.37 | 732.61 | 737.29 | ||
| 2.4 Property, plant and equipment 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 main exchange rates used for the translation in Euro of the financial statements expressed in foreign currencies are the following:
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.
(a) Development costs
These are intangible assets with a finite life. The development costs of new products are capitalized only if the following conditions are met:
An intangible asset, generated in the development phase of an internal project, is recorded as an asset if the Company is able to demonstrate:
The amortisation of development costs, classified under the "Development costs" heading, accrues from the end of the development phase and when the relevant asset begins to generate economic benefits.
In the period in which capitalisable internal development costs are incurred, they may be posted in the income statement as a reduction of the cost items affected and classified under intangible fixed assets.
Capitalised development costs are amortised on the basis of an estimate of the period in which it is expected that the assets in question will generate cash flows and, in any case, for periods of not more than 5 years starting from the start of production of the products pertaining to the development activities.
All other development costs which do not meet the requirements for being capitalised are recorded in the income statement when incurred.
(b) Concessions, licenses and trademarks
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 (cash-generating 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.
All recognised financial assets falling within the application of IFRS 9 are recognised at amortised cost or at fair value on the basis of the business model of the enterprise for the management of financial assets and the characteristics of the contractual cash flows of the financial asset.
Specifically, the Group has identified the following financial assets:
With reference to financial assets valued at amortised cost, when the contractual cash flows of the financial asset are renegotiated or otherwise modified and the renegotiation or modification does not produce derecognition, the gross accounting value of the financial asset is recalculated and the profit or loss deriving from the modification is recorded in the profit (loss) for the financial period.
Any cost or commission incurred adjust the accounting value of the modified financial asset and are amortised along the remaining term of the asset.
Financial assets are derecognised when the contractual rights on the cash flows expire or substantially all the risks and benefits connected with the holding of the asset are transferred (so-called Derecognition), or in the event that the item is considered as definitively unrecoverable after all the necessary recovery procedures have been completed.
Financial assets and liabilities are offset in the balance sheet when there is the legal right to offsetting in the period and when there is the intention to adjust the ratio on a net basis (or to realise the asset and simultaneously settle the liability).
Financial assets not carried at fair value through profit or loss for the period are initially valued at their fair value plus the operational costs directly attributable to the acquisition or issue of the asset.
With regards to the loss of value of financial assets, the Group applies a model based on expected losses on receivables at every balance sheet reference date in order to reflect the variations in credit risk occurring since the initial recognition of the financial asset.
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.
An associated company is a company over which the Group exercises significant influence. Significant influence is considered as the power to participate in the determination of the financial and operating policies of the associated company without having control or joint control.
Shareholdings of the Group in associated companies are valued with the equity method. With the equity method, the shareholding in an associated company is initially recognised at cost. The book value of the shareholding is increased or decreased to recognise the proportional share of the profits and losses of the associated company realised after the date of acquisition, taking into consideration any effect deriving from the elimination of non-realised intergroup margins.
The income statement reflects the share of the result for the financial period of the associated company pertaining to the Group.
The aggregate share of the result for the financial period of associated companies pertaining to the Group is recognised in the income statement and represents the result net of taxes and the share of results attributable to other shareholders of the associated company.
The financial statements of associated companies are drawn up at the same closing date as the financial statements of the Group. Where necessary, the financial statements are adjusted to be in line with the Group's accounting principles.
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.
Financial instruments are definable. Initial recognition is at fair value; for trade receivables without a significant financial component the initial recognised value is the transaction price. The assessment of the collectability of receivables is made on the basis of the so-called Expected Credit Losses model provided for by IFRS 9; reference can be made to paragraphs 1.1 and 2.27.
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.
Expected losses on trade receivables are estimated using a provision matrix with aging bands of receivables, making reference to past experience regarding losses on credits, an analysis of debtors' financial positions, corrected to take account of specific factors regarding the debtor, and an assessment of the current and expected evolution of such factors at the balance sheet reference date.
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.
In the event of non-substantial modifications in the terms of a financial instrument, the difference between the current value of cash flows as modified (determined using the effective interest rate of the instrument in force at the modification date) and the book value of the instrument is recorded in the income statement.
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.
Financial liabilities are removed from the balance sheet when the specific contractual obligation is discharged. Modification of the existing contractual terms is also treated as a discharge in the event the new conditions significantly change the original terms.
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:
Accounting for revenues involves following the passages provided for by IFRS 15:
Revenues are recognised upon the transfer of control of the goods to the customer, which coincides with the moment when the goods are delivered to the customer (at a point in time), in compliance with the specific contractual terms agreed with the customer.
The Group considers that the breakdown of revenues by operating segment is appropriate to meet required disclosure requirements since it is information regularly reviewed by management in order to assess the company's financial performance.
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 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, 2018:
IFRS 15 was applied from January 1st, 2018. The adoption had no impact on the consolidated financial statements of the Group.
Final version of IFRS 9 – Financial instruments (issued on 24 July 2014). The standard includes the results of IASB project, which replaced IAS 39 with effects for the financial years starting on or after January 1, 2018 with early application permitted.
The principle specifies how classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items. The new standard contains substantial changes from the current financial instruments standard (IAS 39) concerning the classification, measurement, impairment and hedge accounting requirements.
Under IFRS 9 new requirements are established for recognition and measurement, impairment derecognition and general hedge accounting of a financial assets. That standard uses a new approach to determine the criteria for the valuation of financial assets which consider and assess principally two characteristics, the objective of the entity's business model (to hold assets only to collect cash flows, or to collect cash flows and to sell), and the contractual cash flows of an asset give rise to payments on specified dates that are solely payments of principal and interest on the principal amount outstanding.
For financial liabilities the main change concerns the accounting treatment of financial liabilities designated as at FVTPL using the fair value option, IFRS 9 requires the amount of the change in the
liability's fair value attributable to changes in the credit risk to be recognized in OCI with the remaining amount of change in fair value recognized in profit or loss, unless this treatment of the credit risk component creates or enlarges a measurement mismatch.
According to the new standard, these changes must be shown in the "Other comprehensive income" statement and no longer in the income statement. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss.
Furthermore, in case of renegotiation or modifications of financial liabilities defined as non-substantial it is no longer permitted to spread the economic effects of those results on the residual duration of the debt by modifying the effective interest rate to that date, but it will be necessary to record the related effect in the income statement.
Referring to the impairment, IFRS 9 introduces a new impairment model based on expected losses, (rather than incurred loss as per IAS 39) using supportable information, available without unreasonable charges or efforts that include historical, current and prospective data.
The standard states that this impairment model applies to all financial instruments, ie financial assets measured at amortised cost, to those measured at fair value through other comprehensive income, to receivables deriving from rental contracts and trade receivables. It also requires the same measurement basis for impairment for all items in the scope of the impairment requirements. This differs from IAS 39, under which impairment is calculated differently for amortised cost assets and available-for-sale assets. Further, IFRS 9 applies the same measurement approach to certain loan commitments and financial guarantee contracts where previously these were measured with reference to IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Finally, the standard introduces a new hedge accounting model in order to adapt the requirements set by the current IAS 39, which have been considered too stringent and not suitable for reflecting the risk management policies of the companies.
The main focus points concern:
The greater flexibility given by the new accounting rules is counterbalanced by additional requests for information on the risk management activities of the company.
IFRS 9 was applied from January 1st, 2018. The adoption had no impact on the consolidated financial statements of the Group.
IAS 28 Investments in Associates and Joint Ventures – Measuring investees at fair value through profit or loss: an investment-by-investment choice or a consistent policy choice. The amendment clarifies that the option for a venture capital organization or other entity as well qualified (such as a mutual fund or similar entity) measuring investments in associates and joint ventures at fair value through profit or loss (rather than through the application of the equity method) is exercised for each individual investment at the time of initial recognition. The amendment applied from 1 January 2018.
IFRS 12 Disclosure of Interests in Other Entities – Clarification of the scope of the Standard) partially supplements existing standards. These standards were applied from January 1st, 2018. The adoption had no impact on the consolidated financial statements of the Group.
The amendment explain the scope of application of IFRS 12 specifying that the information required by the standard, with the exception for paragraphs B10-B16, applies to all the shares that are classified as held for sale, held for distribution to shareholders or discontinued operations in accordance with IFRS 5. This amendment applied from 1 January 2018.
The adoption of these amendments did not have any effects on the Group's consolidated financial statements.
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 from January 1st, 2019, though early adoption is allowed.
The Group has completed the preliminary assessment project of the impacts arising from the application of the new standard on the transition date (January 1st, 2019). This process has been declined in different phases, including the complete mapping and analysis of the contracts potentially suitable to contain a relevant lease for IFRS 16.
During the first application of the standard, the group will adopt the "modified retrospective (alternative 1)" approach, accounting the cumulative effect in equity at January 1st, 2019, in accordance with IFRS 16. In particular, the Group will account, concerning the leases previously classified as operating:
a) a financial liability, equal to the present value of future payments on transition data, discounted for each contract the incremental interest rate applied at the transition date;
b) a right of use equal to the net book value that is due to the initial data of the lease contract applying a discount rate defined at the transaction date.
The amount of the right of use was estimated at € 27,755 thousand against a financial liability of € 27,959 thousand.
The following table shows the estimated impacts by the adoption of IFRS 16 on the transition date:
Thousand of Euro
| Impacts on the transition | |
|---|---|
| date 01.01.2019 |
|
| ASSETS | |
| Non-current assets | |
| Right of use Buildings | 27,057 |
| Right of use Other assets | 698 |
| Deferred tax assets | 112 |
| Current assets | |
| Other current receivables | (244) |
| Total | 27,623 |
| SHAREHOLDERS' EQUITY AND LIABILITIES | |
| Non-current liabilities | |
| Financial loans and borrowings for Non-current lease |
23,192 |
| Deferred tax liabilities | (6) |
| Current liabilities | |
| Financial loans and borrowings for current lease |
4,767 |
| Other current liabilities | (9) |
| Total | 27,944 |
| Shareholders' Equity | (321) |
| Retained earnings | (321) |
With reference to the application, the Group intends to use the exemption granted by IFRS paragraph 16: 5 (a) in relation to short-term leases for the following asset classes: Buildings and Other assets. Likewise, the Group intends to use the exemption granted to IFRS 16 with regard to lease contracts for which the underlying asset is configured as a low-value asset. The contracts for which the exemption has been applied fall mainly in the following categories:
For these contracts, the introduction of IFRS 16 will not involve the recognition of the financial liability of the lease and the related right of use, but the lease installments will be recorded in the income statement on a linear basis for the duration of the respective contracts.
The Group intends to use the following practical expedients required by IFRS 16:
• Classification of contracts that expire within 12 months from the transition date as a short term lease. For these contracts the lease installments will be recorded in the income statement on a linear basis;
• Use of information present at the transition date for the determination of the lease term, with particular reference to the exercise of extension options and early closure.
2019, though early adoption is allowed. Directors do not expect a significant effect on consolidated financial statements by adopting of these interpretation.
At the date of this Financial Report, the competent bodies of European Union had not yet completed the approval process necessary for the adoption of amendments and the principles described below.
income tax consequences of dividends where the transactions or events that generated distributable profits are recognised) apply to all income tax consequences of dividends by moving the paragraph away from paragraph 52A that only deals with situations where there are different tax rates for distributed and undistributed profits.
IAS 23 Borrowing costs Disclosure of Interests in Other Entities – Borrowing costs eligible for capitalization), that implements the changes on some standards as part of the annual improvement process. These amendments apply as from 1 January 2019, though early adoption is allowed. The Directors are evaluating the effects on the Group's consolidated financial statements from the adoption of these amendments.
The amendments clarify the minimum requirements to be a business, remove the assessment of a market participant's ability to replace missing elements, and narrow the definition of outputs, replacing the term "ability to create output" with "ability to contribute to the creation of output" to clarify that a business can exist even without the presence of all the inputs and processes necessary to create an output.
The amendments introduce an optional concentration test to permit a simplified assessment of qualified business. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiableassets. If the test is met, the set of activities and assets is determined not to be a business and no further assessment is needed. If the test is not met, or if an entity elects not to apply the test, a detailed assessment must be performed applying the normal requirements in IFRS 3. As such, the concentration test never determines that a transaction is a business combination. The Board provided a series of illustrative examples to help constituents to apply the guidance in IFRS 3 on the definition of a business. Furthermore, any effects will be accounted in the consolidated financial statements for the year of the first time adoption.
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 Net financial position (NFP) / Equity ratio to a value not greater than 1 and a value in the long term, not exceeding 3 for the ratio Net financial position (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 2018 and 31 December 2017 are as follows:
| €/000 | 31 December 2018 |
31 December 2017 |
|---|---|---|
| Net financial position (Nfp) (note 9) | 117,427 | 125,294 |
| Total Equity | 205,820 | 187,505 |
| Ebitda before non ordinary expanses (1) | 50,763 | 45,612 |
| Nfp/Equity | 0.57 | 0.67 |
| Nfp/Ebitda before non ordinary expanses | 2.31 | 2.75 |
| (1) For more details please see the section "definitions of alternative performance indicators" in the Annual Report. | ||
| 4. Financial risk management | ||
| 4.1 Financial risk factors | ||
| The Group is exposed to a variety of financial risks associated with its business activities: | ||
| - market risks, with particular reference to exchange and interest rates and market price, since the Group operates at an international level in different currencies and uses financial instruments that generate interest; |
||
| - credit risk, regarding both normal commercial relations and to financing activities; - liquidity risk, with particular reference to the availability of financial resources and to access to the credit market. |
||
| 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. |
||
| 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. | ||
| (a) Market risk | ||
| (i) Interest rate risk 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. |
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.
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 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
At December 31 2018, 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
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 50 base points in annual interest rates in force at December 31 2018 applicable to financial liabilities at a variable interest rate would result in a greater net cost, on an annual basis, of around € 309 thousand (€ 506 thousand at December 31 2017). 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.
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 2018 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 | 14,519 thousand |
|---|---|
| Credit position in GB Pound | 664 thousand |
| Debt position in Renminbi | 63,818 thousand |
| Debt position in Euro | 17,505 thousand |
| Debt position in Yen | 12,306 thousand |
| Debt position in Swiss Francs | 142 thousand |
| Debt position in Brazilian Reais | 3 thousand |
| Debt position in Taiwanese Dollars | 543 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 2018 financial period, the overall amount of revenues directly exposed to exchange risk represented around 10.1% of the Group's aggregate turnover (9.4% in the 2017 financial period), while the amount of costs exposed to exchange risk is equal to 19.1% of aggregate Group turnover (20.2% in the 2017 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.
At the statement of financial position date there was no hedging in force with regards to these exposures for conversion exchange risk.
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 2018, as a result of a hypothetical unfavorable and immediate variation of 10% in all relevant single exchange rates of functional currencies with foreign ones, would amount to around € 2,258 thousand (€ 2,752 thousand at December 31 2017).
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 2018 as a result of a hypothetical unfavorable and immediate variation of 10% in underlying values would amount to around € 1,685 thousand (€ 70 thousand at December 31 2017).
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 are subject to risk hedging through leading insurance companies. The maximum theoretical exposure to credit risk for the Group at 31 December 2018 is the accounting value of financial assets shown in the financial statements.
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.
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 2018 Trade receivables, equal to € 108,953 thousand (€ 109,577 thousand at 31 December 2017), include € 13,626 thousand (€ 12,418 thousand at 31 December 2017) 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 2018 is € 24,158 thousand (€ 23,854 thousand at December 31 2017).
At December 31 2018 the first 10 customers account for 11.1% of total trade receivables (11.9% at December 31 2017), while the top customer represents 2.9% of the total (3.1% at December 31 2017).
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.
Prudent liquidity risk management implies maintaining sufficient financial availability of cash and marketable securities, funding through an adequate amount of bank credit.
Consequently, the Group's treasury sets up the following activities:
Counterparties to derivative contracts and operations performed on liquid funds are restricted to primary financial institutions.
The Group has maintained high reliability indices on the part of lenders.
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 € 130 million, more than cash flow 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.
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 IFRS 9, derivative financial instruments may qualify for special hedge accounting only when the condition established by principle are met.
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: 1. 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 of the financial instruments 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. Long-term 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, 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 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 segment in order to make decisions about resource allocation and performance verification.
The performance of the segment 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 | 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 | 31.12.2017 | ||||||||
| Sales to third parties | 165,770 | 168,402 | 183,111 | 138,770 | 103,944 | 114,983 | 452,825 | 422,155 | ||
| Intersegment sales | 1,694 | 1,851 | 1,649 | 1,456 | 7,988 | 7,767 | (11,331) | (11,074) | ||
| Revenues from sales | 167,464 | 170,253 | 184,760 | 140,226 | 111,932 | 122,750 | (11,331) | (11,074) | 452,825 | 422,155 |
| Ebitda | 11,859 | 9,400 | 25,356 | 19,546 | 13,550 | 17,372 | (1,316) | (2,386) | 49,449 | 43,932 |
| Ebitda/Total Revenues % | 7.1% | 5.5% | 13.7% | 13.9% | 12.1% | 14.2% | 10.9% | 10.4% | ||
| Ebitda before non ordinary expenses | 13,599 | 9,840 | 25,855 | 20,804 | 13,748 | 17,354 | (2,439) | (2,386) | 50,763 | 45,612 |
| Ebitda before non ordinary expenses/Total Revenues % | 8.2% | 5.8% | 14.1% | 15.0% | 13.2% | 15.1% | 11.2% | 10.8% | ||
| Operating result | 5,882 | 3,787 | 20,255 | 15,503 | 9,155 | 13,073 | (1,316) | (2,386) | 33,976 | 29,977 |
| Operating result/Total Revenues % | 3.5% | 2.2% | 11.0% | 11.1% | 8.2% | 10.7% | 7.5% | 7.1% | ||
| Net financial expenses (1) | 884 | (6,842) | ||||||||
| Profit befor taxes | 34,860 | 23,135 | ||||||||
| Income taxes | 9,213 | 6,700 | ||||||||
| Net profit | 25,647 | 16,435 | ||||||||
| Net profit/Total Revenues% | 5.7% | 3.9% | ||||||||
| (1) Net financial expenses includes the amount of Financial income and expenses, Exchange gains and losses and the amount of the Income from equity investment | ||||||||||
| STATEMENT OF FINANCIAL POSITION | 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 | 31.12.2017 |
| Net debt | 24,025 | 27,297 | 86,597 | 91,969 | 7,094 | 7,031 | (289) | (1,003) | 117,427 | 125,294 |
|---|---|---|---|---|---|---|---|---|---|---|
| Shareholders' Equity | 176,750 | 176,986 | 56,259 | 44,002 | 48,899 | 48,975 | (76,088) | (82,458) | 205,820 | 187,505 |
| Total Shareholders' Equity and Net debt | 200,775 | 204,283 | 142,856 | 135,971 | 55,993 | 56,006 | (76,377) | (83,461) | 323,247 | 312,799 |
| Net non-current assets (2) | 134,048 | 136,604 | 77,937 | 76,648 | 18,557 | 19,076 | (75,616) | (81,366) | 154,926 | 150,962 |
| Net working capital | 66,727 | 67,679 | 64,919 | 59,323 | 37,436 | 36,930 | (761) | (2,095) | 168,321 | 161,837 |
| Total net capital employed | 200,775 | 204,283 | 142,856 | 135,971 | 55,993 | 56,006 | (76,377) | (83,461) | 323,247 | 312,799 |
| (2) The net non-current assets of the Outdoor Power Equipment area includes the amount of Equity investments for 76,074 thousand Euro | ||||||||||
| OTHER STATISTICS | 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 | 31.12.2017 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Number of employees at period end | 764 | 801 | 736 | 704 | 490 | 516 | 9 | 8 | 1,999 | 2,029 |
| OTHER INFORMATIONS | 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018 | 31.12.2017 | ||||||||
| Amortization, depreciation and impairment losses | 5,977 | 5,613 | 5,101 | 4,043 | 4,395 | 4,299 | 15,473 | 13,955 | ||
| Investment in property, plant and equipment and in intangible assets |
8,100 | 8,346 | 5,997 | 3,767 | 4,097 | 5,315 | 18,194 | 17,428 |
For the comments of the economic part, reference should be made to chapter 3 of the Directors Report.
On January 29, 2018, the Parent Company Emak S.p.A acquired the remaining 39%, still owned by the founder, of the Ukrainian subsidiary Epicenter LLC, leading its shareholding to 100%. The price for the acquisition of this share 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 industrial pump business in order to maximize logistical, operational and management efficiencies. The new organization will also allow to focus the energies on future developments of the activities on the US territory. Following the reorganization, the Put & Call option outstanding with the minority shareholder of Valley, for the purchase of the remaining 10%, was extended indefinitely.
On March 6, 2018, the parent company Emak S.p.A. signed a binding agreement for transferring the 100% of the share capital of Raico S.r.l. This agreement was concluded on March 30th, with the total transfer to the company Kramp S.r.l. for an equivalent of € 5,500 thousand.
Raico, specialised in the distribution of components and accessories for farm tractors, industrial machines and earthmoving machinery, closed at 31 December 2017 with a turnover of about € 12.8 million, Gross Operating Margin equal to € 0.5 million and a passive Net Financial Position of € 0.7 million.
The economic effects of the first three months of 2018 are included in the scope of consolidation and the deconsolidation determined a total capital gain of € 2,472 thousand.
The fair value of assets and liabilities subject to disposal with effect as of 30 March 2018 and the price cashed are detailed below:
| €/000 | Book values |
|---|---|
| Non-current assets | |
| Property, plant and equipment | 254 |
| Intangible assets | 291 |
| Deferred tax assets | 230 |
| Other financial assets | 5 |
| Current assets | |
| Inventories | 4,369 |
| Trade and other receivables | 2,849 |
| Cash and cash equivalents | 16 |
| Non-current liabilities | |
| Employee benefits | (1,262) |
| Provisions for risks and charges | (88) |
| Current liabilities | |
| Trade and other payables | (2,550) |
| Current tax liabilities | (170) |
| Loans and borrowings | (915) |
| Provisions for risks and charges | (1) |
| Total net assets sold | 3,028 |
| % interest sold | 100.0% |
| Net equity sold | 3,028 |
| Sale price cashed | 5,500 |
| Cash and cash equivalent sold | (16) |
| Net cash flow | 5,484 |
| Capital Gain from the sale | 2,472 |
Personnel reorganization plan Emak S.p.A
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, 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 a plan to early retirement on voluntary basis referred to in articles 4, 5 and 24 of law n. 223/91, for 32 employees.
The non-ordinary charges related to the reorganization plan, equal to € 1,134 thousand, were accounted during 2018.
In December 2017, the company Comet S.p.A. has signed an agreement establishing the early exercise of the "Put and call Option Agreement" which regulates the purchase of the remaining 10% of the company P.T.C. S.r.l.
On 8 August 2018, the company Comet S.p.A. concluded the operation with purchase of the remaining 10% of P.T.C. S.r.l. at a price equal to € 178 thousand, as agreed previously.
The company P.T.C. S.r.l., based on 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, 2018, the portion of the investment already recorded under fixed assets amounted to approximately € 5,100 thousand, compared to a total estimated investment of about € 7,400 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 with the aim to get to "go live" within first months 2019. Overall forecasted investment for the ongoing projects will amount to € 2,790 thousand, of which € 1,750 thousand already accounted for as of 31 December 2018.
On 20 July 2018, the subsidiary Tecomec S.r.l. entered into the company structure of Spraycom, with a share of 51%, paying an amount of € 377 thousand in capital increase account (destined to share premium account).
Spraycom is a Brazilian company based in Catanduva (São Paulo), active in the distribution in Brazil of components and accessories for agriculture such as nozzles, valves, pumps, electronic components.
The transaction represents a strengthening of the commercial activity in the Components and Accessories segment of the Emak Group in Brazil, through the acquisition of a sales network already present and recognized on the market, with the aim of laying the foundations for future development of an important market like the Brazilian one.
The fair value of assets and liabilities subject to aggregation with effect as of 1st August 2018 and the subscribed capital are detailed below:
| €/000 | Book values | Fair Value adjustments |
Fair value of acquired assets and liabilities |
|---|---|---|---|
| Non-current assets | |||
| Property, plant and equipment | 24 | - | 24 |
| Intangible fixed assets | 1 | - | 1 |
| Current assets | |||
| Inventories | 819 | - | 819 |
| Trade and other receivables | 504 | - | 504 |
| Current tax assets | 148 | - | 148 |
| Cash and cash equivalents | 98 | - | 98 |
| Current liabilities | |||
| Trade and other payables | (987) | - | (987) |
| Current tax liabilities | (3) | - | (3) |
| Loans and borrowings due to banks and other lenders |
(257) | - | (257) |
| Total net assets | 347 | - | 347 |
| % interest held | 51% | ||
| Equity of the Group | 177 | ||
| Goodwill | 200 | ||
| Cash outflow for the subscription of 51% | 377 | ||
| of the share capital 8. Balances or transactions arising from atypical and unusual operations |
|||
| No events/operations as per Consob Communication DEM/6064293 of 28 July 2006 have been recorded during the financial period 2018. 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).
| Thousand of Euro | 31/12/2018 | 31/12/2017 | |
|---|---|---|---|
| A. | Cash | 62,602 | 40,812 |
| B. | Other cash at bank and on hand (held-to-maturity investments) | - | - |
| C | Financial instruments held for trading | - | - |
| D. | Liquidity funds (A+B+C) | 62,602 | 40,812 |
| E. | Current financial receivables | 837 | 7,549 |
| F. | Current payables to banks | (18,086) | (36,570) |
| G. | Current portion of non current indebtedness | (46,152) | (31,956) |
| H | Other current financial debts | (5,764) | (10,151) |
| I. | Current financial indebtedness (F+G+H) | (70,002) | (78,677) |
| J | Current financial indebtedness, net (I+E+D) | (6,563) | (30,316) |
| K. | Non-current payables to banks | (99,817) | (80,084) |
| L | Bonds issued | - | - |
| M. | Other non-current financial debts | (13,511) | (15,646) |
| N. | Non-current financial indebtedness (K+L+M) | (113,328) | (95,730) |
| O. | Net indebtedness (ESMA) (J+N) | (119,891) | (126,046) |
| P. | Non current financial receivables | 2,464 | 752 |
| Q. | Net financial position (O+P) | (117,427) | (125,294) |
The net financial position at December 31, 2018, includes € 17,256 thousand (€ 23,891 thousand at December 31, 2017), 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 debts refer to the purchase of investments in the following companies:
At December 31, 2017 financial receivables were recorded for € 6,887 thousand, referring to amounts deposited in Escrow Account to guarantee debts for the purchase of equity investments. At December 31, 2018, this credit amounted to € 351 thousand since the remaining part was released against payment of the deferred price for the purchase of 70% of the company Lemasa, in April 2018, for an amount of approximately 15,280 thousand of Reais equal to a value of about € 3,600 thousand.
At December 31, 2018, current and non-current financial receivables mainly include deposits guaranteeing potential liabilities, escrow accounts related to equity acquisition contracts and other forms of temporary liquidity investment.
At 31 December 2018, net financial debts include amounts receivable from related parties for the amount of € 297 thousand, of which € 37 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 € 452,825 thousand, compared to € 422,155 thousand of last year, and are recorded net of returns for € 1,807 thousand, against € 1,453 thousand of last year.
The increase in sales is attributable to the change in scope of consolidation, more accurately described in the Annual Report, for an amount of € 29,802 thousand.
Details of revenues from sales are as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Net sales revenues (net of discounts and rebates) | 450,063 | 419,467 |
| Revenues from recharged transport costs | 4,569 | 4,141 |
| Returns | (1,807) | (1,453) |
| Total | 452,825 | 422,155 |
Other operating income is analyzed as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Capital gains on property, plant and equipment | 146 | 237 |
| Recovery of warrants costs | 101 | 131 |
| Insurance refunds | 40 | 76 |
| Advertising reimbursement | 287 | 258 |
| Grants related to income and assets | 964 | 305 |
| Recovery of administrative costs | 251 | 242 |
| Recovery of costs canteen | 126 | 107 |
| Revenues for rents | 559 | 533 |
| Other operating income | 2,991 | 1,795 |
| Total | 5,465 | 3,684 |
The item "Grants related to income and assets" mainly refers to tax assets for research and development.
The item "Other operating income" includes € 873 thousand relating to the reversal of some trade payables that are no longer payable.
The change in the balance is also affected by the different scope of consolidation compared to 2017 which included only the second half of the Lavorwash Group, while the 2018 financial year includes only the first three months of the company Raico S.r.l.
The cost of raw materials, semi-finished products and goods is analyzed as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Raw materials, semi-finished products and goods | 238,984 | 231,447 |
| Other purchases | 4,198 | 3,118 |
| Total | 243,182 | 234,565 |
The change in the balance is also affected by the different scope of consolidation compared to 2017 which included only the second half of the Lavorwash Group, while the 2018 financial year includes only the first three months of the company Raico S.r.l.
Details of these costs are as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Wage and salaries | 57,690 | 54,600 |
| Social security charges | 16,509 | 15,810 |
| Employee termination indemnities | 2,689 | 2,664 |
| Other costs | 1,668 | 1,816 |
| R&D costs capitalized | (431) | - |
| Directors' emoluments | 1,884 | 1,507 |
| Temporary staff | 3,301 | 3,658 |
| Total | 83,310 | 80,055 |
The details of staff by country is shown in heading 6 of the Directors' Report.
The exit from the scope of consolidation of Raico has effected personnel costs by approximately € 1,900 thousand compared to the previous year.
The effect of the consolidation of the Lavorwash Group weighed on the personnel expenses for € 5,326 thousand compared to the six month of 2017.
The costs for the year include reorganization costs that mainly refer to the Parent Company for an amount of € 1,398 thousand.
During the 2018 financial year, personnel costs for € 431 thousand were capitalized under intangible fixed assets, referring to the costs for the development of new products in the context of a multi-year project subject to facilities by the Ministry of Economic Development.
Details of these costs are as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Subcontract work | 13,039 | 12,173 |
| Maintenance | 4,285 | 4,078 |
| Trasportation | 19,065 | 17,927 |
| Advertising and promotion | 3,717 | 3,639 |
| Commissions | 7,623 | 6,612 |
| Travel | 3,562 | 3,500 |
| Postals and telecommunications | 927 | 998 |
| Consulting fees | 5,930 | 5,822 |
| Driving force | 2,369 | 2,234 |
| Various utilities | 1,171 | 1,143 |
| Services and bank fees | 975 | 1,009 |
| Costs of after sales warranty | 1,513 | 1,396 |
| Insurances | 1,555 | 1,507 |
| Other services | 7,917 | 6,953 |
| R&D costs capitalized | (123) | - |
| Services | 73,525 | 68,991 |
| Rents, rentals and the enjoyment of third party assets | 8,533 | 7,970 |
| Increases in provisions (note 32) | 721 | 860 |
| Credit losses | 86 | 124 |
| Increases in provision for doubtful accounts (note 23) | 1,222 | 742 |
| Capital losses on property, plant and equipment | 6 | 53 |
| Other taxes (not on income) | 1,359 | 1,318 |
| Grants | 133 | 121 |
| Other costs | 1,385 | 1,276 |
| Other operating costs | 4,191 | 3,634 |
| Total | 86,970 | 81,455 |
The "consultinf fees" include € 387 thousand that refers to the costs incurred for the operations of M&A realized during the 2018 and to the costs incurred for the implementation of the new ERP Microsoft Dynamics 365 system in some Group's companies. At 31 december 2017 the item included € 1,264 thousand for the operations of M&A.
The change in the balance is also affected by the different scope of consolidation compared to 2017 which included only the second half of the Lavorwash Group, while the 2018 financial year includes only the first three months of the company Raico S.r.l.
Details of these amounts are as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Amortization of intangible assets (note 19) | 3,188 | 2,817 |
| Depreciaton of property, plant and equipment (note 18) | 11,688 | 10,548 |
| Impairment losses | 597 | 590 |
| Total | 15,473 | 13,955 |
The depreciation and amortization at December 31, 2018 amounted to € 15,473 thousand of which € 597 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 goodwill allocated to this CGU had already been partially reduced by € 590 thousand recorded in the previous year.
"Financial income" is analyzed as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Capital gains from change in scope of consolidation | 2,472 | - |
| Income from adjustment to fair value and fixing of derived instruments for hedging interest rate risk |
71 | 209 |
| Interest of trade receivables | 201 | 226 |
| Interest on bank and postal current accounts | 171 | 199 |
| Financial income of debt adjustment estimate for purchase commitment of remaining shares of subsidiaries |
2,074 | 281 |
| Other financial income | 327 | 892 |
| Financial income | 5,316 | 1,807 |
The "Capital gains from change in scope of consolidation" refers to the capital gain deriving from the deconsolidation of the company Raico S.r.l. (reference should be made to Note 7 for more details).
The "Financial income of debt adjustment estimate for purchase commitment of remaining shares of subsidiaries" refers to the adjustment of the debt, partly settled in 2018, for the purchase 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 and of the Put & Call option on the basis of the economic and financial results realized by the target company.
During the 2018 financial year, the Group entered under the Financial income:
In the previous year the item "Other financial income" included € 764 thousand as interest income accrued on the escrow account with the escrow account contract part of the acquisition of company Lemasa and released in April 2018 against payment of the price deferred of 70% of the company's shares
"Financial expenses" are analyzed as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Interest on medium-term bank loans and borrowings | 1,708 | 1,948 |
| Interest on short-term bank loans and borrowings | 378 | 311 |
| Costs from adjustment to fair value and fixing of derived instruments for hedging interest rate risk |
750 | 239 |
| Financial charges from valuing employee terminations indemnities (note 31) | 72 | 81 |
| Financial expenses from discounting debts | 1,194 | 1,691 |
| Other financial costs | 682 | 550 |
| Financial expenses | 4,784 | 4,820 |
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.
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 2018 | FY 2017 |
|---|---|---|
| Profit / (Loss) on exchange differences on trade transactions | (95) | (2,726) |
| Profit / (Loss) on exchange differences on financial assets | 181 | (1,492) |
| Exchange gains and losses | 86 | (4,218) |
The exchange rate management is positive for € 86 thousand against a negative value equal to € 4,218 thousand of the previous year. The result is related to the trend of the currencies, mainly the US dollar, the Chinese Renmimbi and the Brazilian real, in which the relative flows are denominated.
The tax charge in 2018 for current and deferred tax assets and liabilities amounts to € 9,213 thousand (€ 6,700 thousand in the previous year).
This amount is made up as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Current income taxes | 10,105 | 7,882 |
| Taxes from prior years | (171) | 243 |
| Deferred tax assets (note 30) | 363 | (438) |
| Deferred tax liabilities (note 30) | (1,084) | (987) |
| Total | 9,213 | 6,700 |
Current income taxes include the cost of IRAP (regional company tax) to € 1,089 thousand, compared to € 875 thousand in 2017.
The reconciliation of the theoretical taxes calculated using the rate in force in the country where the Parent Company is located and the effective taxation is illustrated below:
| €/000 | FY 2018 | % Rate | FY 2017 | % Rate |
|---|---|---|---|---|
| Profit before taxes | 34,860 | 23,135 | ||
| Theoretical tax charges | 9,726 | 27.9 | 6,455 | 27.9 |
| Effect of IRAP differences calculated on different tax base | 190 | 0.5 | 106 | 0.5 |
| Non-taxable income | (1,781) | (5.1) | (340) | (1.5) |
| Non-deductible costs | 677 | 1.9 | 494 | 2.1 |
| Differences in rates with other countries | (362) | (1.0) | (127) | (0.5) |
| Previous period taxes | (170) | (0.5) | 244 | 1.1 |
| Taxes on financial charges concerning the discounting of payables for equity investments |
395 | 1.1 | 546 | 2.4 |
| Other differences | 538 | 1.5 | (678) | (2.9) |
| Effective tax charge | 9,213 | 26.4 | 6,700 | 29.0 |
The effective tax rate is 26.4%, against 29.0% at 31 December 2017.
The tax rate of the year was positively affected by the recording of non-taxable income arising from the capital gain from the deconsolidation of the company Raico S.r.l. (with an effect of 2% on the tax rate) and the adjustment of the fair value of the debt for P&C option for the purchase (with a positive effect of 2% in the tax rate).
The tax rate of the year was negatively affected by the unrecorded deferred tax assets on tax losses for an amount of € 846 thousand, with a negative effect on the tax rate for 2.4%.
In the previous year, the income taxes included € 666 thousand of income accrued following the successful outcome of a ruling that allowed the recognition of ACE tax benefits related to previous tax years. The tax rate of the previous year also benefited from the adjustment of the deferred tax liabilities due to the change in the tax rate with a positive effect of € 500 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 2018 | FY 2017 | |
|---|---|---|
| Net profit attributable to ordinary shareholders in the parent company (€/000) | 25,397 | 16,165 |
| Weighted average number of ordinary shares outstanding | 163,537,602 | 163,537,602 |
| Basic earnings per share (€) | 0.155 | 0.099 |
Diluted earnings per share are the same as basic earnings per share.
Changes in property, plant and equipment are shown below:
| €/000 | 31.12.2017 | Change in scope of consolidation Increase |
Change in scope of consolidation Decrease |
Increases | Decreases | Exchange | differences Reclassification | 31.12.2018 |
|---|---|---|---|---|---|---|---|---|
| Lands and buildings | 53,430 | (15) | 125 | (1,666) | (142) | 1,837 | 53,569 | |
| Accumulated depreciation | (18,968) | 5 | (1,508) | 1,666 | 32 | 0 | (18,773) | |
| Lands and buildings | 34,462 | 0 | (10) | (1,383) | - | (110) | 1,837 | 34,796 |
| Plant and machinery | 94,404 | (311) | 4,897 | (1,513) | (350) | 3,594 | 100,721 | |
| Accumulated depreciation | (73,762) | 202 | (5,101) | 1,366 | 133 | 10 | (77,152) | |
| Plant and machinery | 20,642 | 0 | (109) | (204) | (147) | (217) | 3,604 | 23,569 |
| Other assets | 121,337 | 36 | (1,103) | 4,809 | (2,163) | (148) | 1,113 | 123,881 |
| Accumulated depreciation | (109,276) | (12) | 968 | (5,079) | 2,073 | 109 | 261 | (110,956) |
| Other assets | 12,061 | 24 | (135) | (270) | (90) | (39) | 1,374 | 12,925 |
| Advances and fixed assets in progress | 6,110 | 0 | 0 | 4,868 | (11) | 21 | (6,832) | 4,156 |
| Cost | 275,281 | 36 | (1,429) | 14,699 | (5,353) | (619) | (288) | 282,327 |
| Accumulated depreciation (note 14) | (202,006) | (12) | 1,175 | (11,688) | 5,105 | 274 | 271 | (206,881) |
| Net book value | 73,275 | 24 | (254) | 3,011 | (248) | (345) | (17) | 75,446 |
| €/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 | 0 | (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 |
During 2018, part of the new building that will occupy the new R&D center of the Parent Company was completed. € 1,794 thousand were therefore reclassified from the item "Advances and fixed assets in progress" to the item "Land and Buildings" and € 1,638 thousand to the item "Plant and machinery", relating to the plant already in use by the R&D department. The unfinished portion of this investment is recorded among the fixed assets in progress for a value of € 1,390 thousand.
The decreases mainly refer to the demolition of the pre-existing R&D building and to the sale of production equipment and plants disposed by the production process.
Increases refer mainly to investments:
The increases of changes in the scope of consolidation refer to the fair value of tangible fixed assets acquired as part of the acquisition of the Spraycom. The decreases of changes in the scope of consolidation refer to the net book value of the tangible assets of the company Raico S.r.l. sold during 2018.
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:
| Change in scope of consolidation Increase |
Change in scope of consolidation Decrease |
Increases | Amortizations | Exchange differences |
Reclassification | 31.12.2018 | ||
|---|---|---|---|---|---|---|---|---|
| Development costs | 561 | - | - | 729 | (303) | - | 481 | 1,468 |
| Patents | 2,660 | 1 | (174) | 1,038 | (1,040) | (12) | 253 | 2,726 |
| Concessions, licences and trademarks |
6,058 | - | - | 68 | (581) | (71) | (6) | 5,468 |
| Other intangible assets | 9,209 | - | (42) | 63 | (1,264) | (82) | - | 7,884 |
| Advanced payments and fixed assets in progress |
1,839 | (75) | 1,597 | - | (1) | (711) | 2,649 | |
| Net book value | 20,327 | 1 | (291) | 3,495 | (3,188) | (166) | 17 | 20,195 |
| €/000 | 31.12.2017 | of consolidation Increase |
of consolidation Decrease |
differences | Reclassification | 31.12.2018 | ||
|---|---|---|---|---|---|---|---|---|
| Development costs | 561 | - | - | 729 | (303) | - | 481 | 1,468 |
| Patents | 2,660 | 1 | (174) | 1,038 | (1,040) | (12) | 253 | 2,726 |
| Concessions, licences and trademarks |
6,058 | - | - | 68 | (581) | (71) | (6) | 5,468 |
| Other intangible assets | 9,209 | - | (42) | 63 | (1,264) | (82) | - | 7,884 |
| Advanced payments and fixed assets in progress |
1,839 | (75) | 1,597 | - | (1) | (711) | 2,649 | |
| Net book value | 20,327 | 1 | (291) | 3,495 | (3,188) | (166) | 17 | 20,195 |
| €/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 |
| The net book value of the intangible assets attributable to the company Raico S.r.l., exit from the scope of consolidation from 1° April 2018, total amount to € 291 thousand. |
||||||||
| Research costs directly recorded in the Group's income statement amount to € 7,284 thousand. The increase of the item "Development costs" mainly refer to the investment in a new development project started by the Parent Company in the context of a multi-year project subject to facilities by the Ministry of Economic Development. These costs include approximately € 431 thousand of personnel costs incurred internally and capitalized under this item. |
||||||||
| 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 and recorded for a value of 2,664 thousand Reais, equal to € 599 thousand as at 31 December 2018. |
Other intangible assets refer for € 6,558 thousand to the valuation of the "customer list" determined following the Purchase Price Allocation process of the consideration paid by the Group for the acquisition of the Lavorwash Group during 2017.The useful life of this asset has been estimated at 14 years.
The goodwill of € 65,773 thousand reported at December 31, 2018 is detailed below:
| Cash Generating Unit (CGU) |
Country | Description | 31.12.2017 | Change in scope of consolidation |
Impairment losses (Note 14) |
Exchange differences |
31.12.2018 |
|---|---|---|---|---|---|---|---|
| Victus | Poland | Goodwill from the acquisition of Victus-Emak Sp. z o.o. | 5,827 | - | - | (169) | 5,658 |
| Emak | Italy | Goodwill from the merger of Bertolini S.p.A. | 2,074 | - | - | - | 2,074 |
| Tailong | China | Goodwill from the acquisition of Tailong Machinery Ltd. | 2,682 | - | - | (24) | 2,658 |
| Tecomec | Italy | Goodwill from the acquisition of Gruppo Tecomec | 2,807 | - | - | - | 2,807 |
| Speed France | France | Goodwill from the acquisition of Speed France | 2,854 | - | - | - | 2,854 |
| Comet | Italy | Goodwill from the acquisition of Gruppo Comet and merger of HPP |
4,253 | - | - | - | 4,253 |
| PTC | Italy | Goodwill from transfer of the business PTC | 1,236 | - | - | - | 1,236 |
| Valley | USA | Goodwill from the acquisition of Valley LLP and A1 | 12,150 | - | - | 577 | 12,727 |
| Geoline | Italy | Goodwill from the acquisition of Geoline Electronic S.r.l. | 1,498 | - | (597) | - | 901 |
| S.I.Agro Mexico | Mexico | Goodwill from the acquisition of S.I.Agro Mexico | 634 | - | - | - | 634 |
| Lemasa | Brazil | Goodwill from the acquisition of Lemasa LTDA | 13,607 | - | - | (1,326) | 12,281 |
| Lavorwash | Italy | Goodwill from the acquisition of Lavorwash Group | 17,490 | - | - | - | 17,490 |
| Spraycom | Brazil | Goodwill from the acquisition of Spraycom | - | 200 | - | - | 200 |
| Total | 67,112 | 200 | (597) | (942) | 65,773 |
The difference, if compared to December 31, 2017, is mainly attributable to the change in consolidation exchange rates and to the partial reduction in goodwill attributable to the CGU Geoline Electronic S.r.I. 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 goodwill allocated to the CGU Comet, equal to € 4,253 thousand, includes the amount of € 1,974 thousand relates to the positive difference emerged following the acquisition and subsequent merger by incorporation of the company HPP in Comet S.p.A., finalized in 2010.
The amount of € 17,490 thousand includes the value of the goodwill acquired from the consolidation of the Lavorwash Group for € 253 thousand and, for € 17,237 thousand, the portion of the price allocated at goodwill, referred to the acquisition of the 97.78% of the same Group, of which 14.67% regulated by a Put &Call Option Agreement to be exercised in 2020 and to be valued on the basis of the results of the period 2018-2019. The goodwill was calculated as the difference between the fair value of the net assets and the acquisition price that, for the portion regulated by Put & Call option, will be valued according to the future economic and financial results, with the forecast of a cap value; the value of the goodwill was, therefore, accounted for using the best estimate of the current value of the price for the exercise of the options, determined on the basis of the related business plan.
The goodwill recorded for € 200 thousand in 2018, refers to the difference between the value of the capital increase subscribed by Tecomec S.r.l. for 51% of the company Spraycom and the pro-share equity acquired.
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 2018 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:
the CGU located in Brazil has been used a WACC that ranges from a minimum of 15.13% to a maximum of 15.38%.
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 8.68%, 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 € 597 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 longterm 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 recorded at the fair value for an amount 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 € 4,550 thousand (€ 4,284 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, 2018 for a value of € 266 thousand, recorded under the Income Statement "Income from equity investments".
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, 2018 is shown as follows:
| €/000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Positive fair value assessment exchange rate hedge | 278 | 189 |
| Positive fair value assessment exchange rate options | - | 12 |
| Positive fair value assessment IRS and interest rate options | 5 | - |
| Total derivative financial instrument assets | 283 | 201 |
| Negative fair value assessment exchange rate hedge | 30 | 51 |
| Negative fair value assessment IRS and interest rate options | 613 | 157 |
| Total derivative financial instrument liabilities | 643 | 208 |
At December 31, 2018 appear outstanding forward contracts of purchase in foreign currencies for:
| Company | Nominal value (€/000) |
Forward rate (average) |
Due to (*) | ||
|---|---|---|---|---|---|
| Forward contracts for foreign currencies purchases | |||||
| Cnh/Euro | Emak Spa | Cnh | 76,500 | 8.12 | 13/11/2019 |
| Cnh/Euro | Lavorwash Spa | Cnh | 21,000 | 8.062 | 25/06/2019 |
| Gbp/Euro | Lavorwash Spa | Gbp | 300 | 0.88 | 30/09/2019 |
| Usd/Euro | Lavorwash Spa | Usd | 1,000 | 1.15 | 22/04/2019 |
| Usd/Euro | Sabart Srl | Usd | 2,000 | 1.15 | 03/06/2019 |
| Usd/Euro | Emak France | Usd | 400 | 1.23 | 29/01/2019 |
| Euro/Pln | Victus | € | 950 | 4.33 | 18/04/2019 |
| Usd/Pln | Victus | Usd | 72 | 3.64 | 26/09/2019 |
| Cnh/Pln | Victus | Cnh | 800 | 1.18 | 02/04/2019 |
| Euro/Gbp | Emak UK Ltd. | € | 200 | 0.88 | 05/03/2019 |
| Euro/Mxn | SI Agro Mexico | € | 1,310 | 23.45 | 31/07/2019 |
| Usd/Mxn | SI Agro Mexico | Usd | 30 | 20.15 | 22/01/2019 |
| Euro/Usd | Valley | € | 400 | 1.15 | 28/02/2019 |
| Forward contracts for foreign currencies purchases with collar options | |||||
| Cnh/Euro | Emak Spa | Cnh | 37,500 | 8.055 | 29/11/2019 |
(*) The expiry date is indicative of the last contract
Finally, on December 31, 2018 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 € 102,585 thousand; the expiration of the instruments is so detailed:
| Bank | Company | Notional Euro (€/000) |
Date of the operation |
Due to |
|---|---|---|---|---|
| Ubi Banca | Emak S.p.A. | 1,000 | 30/06/2015 | 31/12/2019 |
| Carisbo | Emak S.p.A. | 833 | 24/09/2015 | 12/06/2020 |
| Mediobanca | Emak S.p.A. | 2,500 | 24/09/2015 | 31/12/2020 |
| MPS | Emak S.p.A. | 1,500 | 24/09/2015 | 31/12/2020 |
| Banca Nazionale del Lavoro | Emak S.p.A. | 3,000 | 29/09/2017 | 22/04/2020 |
| Credit Agricole Cariparma | Emak S.p.A. | 6,563 | 26/10/2017 | 11/05/2022 |
| Credit Agricole Cariparma | Emak S.p.A. | 4,000 | 24/05/2018 | 30/06/2023 |
| MPS | Emak S.p.A. | 9,000 | 14/06/2018 | 30/06/2023 |
| UniCredit | Emak S.p.A. | 9,000 | 14/06/2018 | 30/06/2023 |
| Banco BPM | Emak S.p.A. | 7,500 | 21/06/2018 | 31/03/2023 |
| Banca Nazionale del Lavoro | Emak S.p.A. | 7,500 | 06/07/2018 | 06/07/2023 |
| UniCredit | Comet S.p.A. | 2,267 | 06/08/2015 | 20/03/2020 |
| Banca Nazionale del Lavoro | Comet S.p.A. | 1,067 | 06/08/2015 | 20/03/2020 |
| Carisbo | Comet S.p.A. | 833 | 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 |
| UniCredit | Comet S.p.A. | 9,000 | 14/06/2018 | 30/06/2023 |
| Banca Nazionale del Lavoro | Comet S.p.A. | 7,500 | 06/07/2018 | 06/07/2023 |
| Bper | Comet S.p.A. | 3,750 | 15/11/2018 | 29/12/2023 |
| Ubi Banca | Comet S.p.A. | 1,875 | 15/11/2018 | 29/12/2023 |
| Carisbo | Tecomec S.r.l. | 833 | 24/09/2015 | 12/06/2020 |
| MPS | Tecomec S.r.l. | 1,000 | 24/09/2015 | 31/12/2020 |
| Credit Agricole Cariparma | Tecomec S.r.l. | 4,000 | 24/05/2018 | 30/06/2023 |
| Ubi Banca | Tecomec S.r.l. | 3,929 | 23/10/2018 | 31/07/2022 |
| Intesa San Paolo | Comet USA Inc | 635 | 27/02/2013 | 19/02/2019 |
| Total | 102,585 |
The average interest rate resulting from the instruments is equal to 0.22% at December 31, 2018.
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.
The value of all these contracts (relating to interest and exchange rates) at December 31, 2018 is an overall negative fair value of € 360 thousand.
Details of these amounts are as follows:
| €/000 | 31.12.2018 | 31.12.2017 | |
|---|---|---|---|
| Trade receivables | 108,953 | 109,577 | |
| Provision for doubtful accounts | (5,952) | (5,315) | |
| Net trade receivables | 103,001 | 104,262 | |
| Trade receivables from related parties (note 38) | 316 | 373 | |
| Prepaid expenses and accrued income | 1,747 | 1,570 | |
| Other receivables | 3,264 | 3,189 | |
| Total current portion | 108,328 | 109,394 | |
| Other non current receivables | 65 | 65 | |
| Total non current portion | 65 | 65 | |
| instance of reimbursement submitted in 2012 by the consolidating company in order to obtain the tax benefit associated with the deductibility of IRAP relating to personnel costs, for employees and other workers, from taxable IRES, as per Article 2, paragraph 1-c of the Decree-law no. 201/2011; an amount of approximately € 915 thousand as advances to suppliers for the supply of goods. |
|||
| - | 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 | 31.12.2018 | 31.12.2017 | |
| Opening balance | 5,315 | 4,676 | |
| Change in scope of consolidation | (124) | 708 | |
| Provisions (note 13) Decreases |
1,222 (395) |
742 (754) |
|
| Exchange differences | (66) | (57) | |
| Closing balance | 5,952 | 5,315 | |
| The book value reported in the statement of financial position corresponds to its fair value. 24. Inventories Inventories are detailed as follows: |
|||
| €/000 | 31.12.2018 | 31.12.2017 | |
| Raw, ancillary and consumable materials | 46,918 | 45,706 | |
| Work in progress and semi-finished products | 23,996 | 23,429 | |
| Finished products and goods | 85,764 | 86,592 |
All non-current receivables mature within five years. There are no trade receivables maturing beyond one year.
| €/000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Opening balance | 5,315 | 4,676 |
| Change in scope of consolidation | (124) | 708 |
| Provisions (note 13) | 1,222 | 742 |
| Decreases | (395) | (754) |
| Exchange differences | (66) | (57) |
| Closing balance | 5,952 | 5,315 |
| €/000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Raw, ancillary and consumable materials | 46,918 | 45,706 |
| Work in progress and semi-finished products | 23,996 | 23,429 |
| Finished products and goods | 85,764 | 86,592 |
| Total | 156,678 | 155,727 |
Inventories at December 31, 2018 are stated net of provisions amounting to € 9,946 thousand (€ 9,913 thousand at December 31 2017) intended to align the obsolete and slow moving items to their estimated
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 2018 | FY 2017 | |
|---|---|---|---|
| Opening balance | 9,913 | 6,578 | |
| Change in scope of consolidation | (565) | 2,687 | |
| Provisions | 1,589 | 1,130 | |
| Effect of exchange differences | (65) | (50) | |
| Usage | (926) | (432) | |
| Closing balance | 9,946 | 9,913 | |
| 25. Cash and cash equivalents | |||
| Cash and cash equivalents are detailed as follows: | |||
| €/000 | 31.12.2018 | 31.12.2017 | |
| Bank and post office deposits | 62,529 | 40,680 | |
| Cash | 73 | 132 | |
| Total | 62,602 | 40,812 | |
| For the purposes of the cash flow statement, closing cash and cash equivalents comprise: | |||
| €/000 | 31.12.2018 | 31.12.2017 | |
| Cash and cash equivalents | 62,602 | 40,812 | |
| Overdrafts (note 29) | (6,496) | (13,044) | |
| Total | 56,106 | 27,768 | |
| 26. Other financial assets Other financial instruments amount to € 2,464 thousand in current assets and € 554 thousand in fixed assets, and refer mainly to: |
|||
| - - - |
an amount of € 351 thousand, recorded under fixed assets, corresponding to the residual amount of the sum originally paid through an Escrow Account contract as part of the Lemasa operation, to cover the Group against any potential liabilities deriving from the acquisition of 70% of the subsidiary; an amount of € 1,350 thousand (corresponding to 5,998 thousand reais) as a monetary investment made by the company Comet Do Brasil LTDA, of which € 507 thousand are short-term and € 843 thousand are long-term; an amount of € 518 thousand recorded under fixed assets, paid by the company, S.I. Agro Mexico, by way of a guarantee in relation to a dispute arising on customs matters, in order to be able to proceed with the submission of the relative claim (see Note 32); |
||
| - | an overall amount of € 297 thousand, of which the fixed asset part is € 260 thousand and the current asset part € 37 thousand, corresponding to the receivable due from the parent company, Yama S.p.A. by way of a capital replenishment made to the Group for expenses incurred by a number of companies and relating to the period on which Yama S.p.A. exercised control over them. |
||
| price. | The difference compared to the previous year is mainly due to the reduction of the escrow account for the acquisition of 70% of the company, Lemasa, which was released in April 2018 with the payment of the deferred |
| €/000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Bank and post office deposits | 62,529 | 40,680 |
| Cash | 73 | 132 |
| Total | 62,602 | 40,812 |
| €/000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Cash and cash equivalents | 62,602 | 40,812 |
| Overdrafts (note 29) | (6,496) | (13,044) |
| Total | 56,106 | 27,768 |
Other financial instruments amount to € 2,464 thousand in current assets and € 554 thousand in fixed assets, and refer mainly to:
The difference compared to the previous year is mainly due to the reduction of the escrow account for the acquisition of 70% of the company, Lemasa, which was released in April 2018 with the payment of the deferred
Share capital is fully paid up at 31 December 2018 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. The share capital, shown net of the amount of the nominal value of the treasury shares in the portfolio, is equal to € 42,519 thousand.
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, 2018 (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 2018, 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, 2018 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 2018 of € 3,197 thousand (€ 3,059 thousand at December 31 2017).
At 31 December 2018 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 2018 the reserve for conversion differences for a negative amount of € 225 thousand is entirely attributable to the differences generated from the translation of balances into the Group's reporting currency.
The negative variation of € 1,691 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 € 3,463 thousand and to the Chinese area for € 434 thousand, partially offset by the currency revaluation generated from the translation of the financial statements of the companies belonging to the US currency area for € 3,072 thousand. The negative change in the reserve recorded for € 695 thousand, among other changes, refers to the minority portion of the translation difference of the financial statements of the company Epicenter acquired by the Group during 2018.
At 31 December 2018 the IAS 19 reserve is equal a negative amount of € 1,097 thousand, for the actuarial valuation difference of post-employment benefits to employees.
At 31 December 2018 Other reserves include:
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 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Trade payables | 73,710 | 80,229 |
| Payables due to related parties (note 38) | 1,828 | 2,632 |
| Payables due to staff and social security institutions | 10,427 | 11,339 |
| Advances from customers | 3,551 | 3,246 |
| Accrued expenses and deferred income | 998 | 466 |
| Other payables | 5,424 | 3,603 |
| Total | 95,938 | 101,515 |
The book value reported in the statement of financial position corresponds to fair value.
The item "Other payables" includes € 1,795 thousand, against € 812 thousand at 31 December 2017, 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 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Bank loans | 57,630 | 55,468 |
| Overdrafts (note 25) | 6,496 | 13,044 |
| Liabilities for purchase of equity investments | 4,448 | 9,304 |
| Financial accrued expenses and deferred income | 112 | 16 |
| Other loans | 673 | 637 |
| Total current portion | 69,359 | 78,469 |
The carrying amount of short-term loans and lease finance approximates their current value.
The item "Liabilities for purchase of equity investments" includes:
At 31 December 2017 the item "Liabilities for purchase of equity investments" included an amount of € 4,279 thousand, equivalent to approximately 17,000 thousand Reais, related to the deferred price for the purchase of 70% of the company Lemasa paid to the selling shareholder of Lemasa at April 2018 for an amount of approximately 15,280 thousand Reais, maintaining the residual amount in Escrow Account blocked to guarantee any future obligations.
The item "Other loans" includes:
| €/000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Bank loans | 99,817 | 80,084 |
| Liabilities for purchase of equity investments | 12,808 | 14,587 |
| Other loans | 703 | 1,059 |
| Total non current portion | 113,328 | 95,730 |
"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.
At December 31, 2018, the Management reviewed the long-term plans originally used to estimate the Put & Call option price by adjusting the value of the debt. In accordance with the provisions of IFRS 9 and IAS 32, following a IFRS 3 business combination, the changes in the debt, relating to the current value of the future disbursement due, were recognized in the income statement. This adjustment resulted in the recognition of financial income of € 1,880 thousand.
"Other loans" includes € 703 thousand as non-current portion of the loan from Simest S.p.A. illustrated previously.
The changes in medium and long term loans are reported below:
| €/000 | 31.12.2017 | Increases | Decreases | Exchange differences |
Other movements |
31.12.2018 |
|---|---|---|---|---|---|---|
| Bank loans | 80,084 | 58,680 | (38,886) | (61) | - | 99,817 |
| Liabilities for purchase of equity investments | 14,587 | - | (2,048) | (667) | 936 | 12,808 |
| Other loans | 1,059 | - | (4) | (352) | - | 703 |
| Total | 95,730 | 58,680 | (40,938) | (1,080) | 936 | 113,328 |
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, 2018 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 | 36,496 | 26,249 | 22,956 | 14,116 | 99,817 | - |
| Liabilities for purchase of equity investments | 12,808 | - | - | - | 12,808 | - |
| Other loans | 352 | 351 | - | - | 703 | - |
| Total | 49,656 | 26,600 | 22,956 | 14,116 | 113,328 | - |
The interest rates applied on short and medium-long term loans are as follows:
The book value of items in the financial statements does not differ from its fair value.
| €/000 | 31.12.2017 | Ch. in scope of consolidation |
Increases | Decreases | Other movements |
Exchange differences |
31.12.2018 |
|---|---|---|---|---|---|---|---|
| Deferred tax on impairment losses of assets | 427 | (8) | (59) | 2 | 362 | ||
| Deferred tax on reversal of unrealized intercompany gains | 2,492 | 53 | 2,545 | ||||
| Deferred tax on provision for inventory obsolescence | 2,013 | (157) | 559 | (475) | (2) | 1,938 | |
| Deferred tax on losses in past financial periods | 741 | 75 | (11) | (20) | 785 | ||
| Deferred tax on provisions for bad debts | 462 | 102 | (9) | 555 | |||
| Other deferred tax assets | 2,933 | (65) | 391 | (989) | 27 | (2) | 2,295 |
| Total (note 16) | 9,068 | (230) | 1,180 | (1,543) | 27 | (22) | 8,480 |
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 2018.
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 | 31.12.2017 | Increases | Decreases | Other movements |
Exchange differences |
31.12.2018 |
|---|---|---|---|---|---|---|
| Deferred tax on property IAS 17 | 1,171 | - | (33) | - | - | 1,138 |
| Deferred tax on depreciations | 6,632 | 169 | (538) | - | (80) | 6,183 |
| Other deferred tax liabilities | 1,819 | 297 | (979) | (118) | 15 | 1,034 |
| Total (note 16) | 9,622 | 466 | (1,550) | (118) | (65) | 8,355 |
Other deferred tax liabilities refers mainly to revenues that will be fiscally recognized in future financial periods.
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 2018.
At December 31, 2018, 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.
The tax credits amount at December 31 2018 to € 6,043 thousand, against € 5,428 thousand at December 31 2017, and refer to VAT credits, surplus payments on account of direct tax and other tax credits.
The tax debts amount to € 4,913 thousand at December 31 2018, compared with € 4,676 thousand a year earlier, and they refer to payables for direct tax for the period, VAT and withholding taxes.
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 2018 such benefits refer principally to the discounted liability for employment termination indemnity payable at the end of an employee's working life, amounting to € 8,180 thousand against € 10,288 thousand at December 31 2017. The valuation of the indemnity leaving fund (TFR), carried out according to the nominal debt method, in force at the closing date, would be € 7,634 thousand against € 9,469 at December 31 2017. The change in scope of consolidation refer to the deconsolidation of the company Raico S.r.l.
Movements in this liability are as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Opening balance | 10,932 | 9,137 |
| Current service cost and other provisions | 11 | 228 |
| Actuarial (gains)/losses | (45) | 470 |
| Interest cost on obligation (note 15) | 72 | 81 |
| Change in area of consolidation | (1,262) | 1,840 |
| Disbursements | (944) | (824) |
| Closing balance | 8,764 | 10,932 |
The principal economic and financial assumptions used, for the calculations of TFR, in accordance with IAS 19, are as follows:
| FY 2018 | FY 2017 | |
|---|---|---|
| Annual inflation rate | 1.5% | 1.5% |
| Discount rate | 1.1% | 0.9% |
| Rate of dismissal | 1.0% | 1.0% |
Demographic assumptions refer to the most recent statistics published by ISTAT.
In the 2019 financial year, payments are expected to be in line with 2018, 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 | 31.12.2017 | Change in scope of consolidation |
Increases | Decreases | Exchange differences |
Other movements |
31.12.2018 |
|---|---|---|---|---|---|---|---|
| Provisions for agents' termination indemnity | 2,097 | (89) | 212 | (140) | - | - | 2,080 |
| Other provisions | 168 | - | - | (63) | (12) | - | 93 |
| Total non current portion | 2,265 | (89) | 212 | (203) | (12) | - | 2,173 |
| Provisions for products warranties | 1,225 | 0 | 43 | (6) | (7) | (3) | 1,252 |
| Other provisions | 1,297 | (1) | 466 | (1,134) | (2) | - | 626 |
| Total current portion | 2,522 | (1) | 509 | (1,140) | (9) | (3) | 1,878 |
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 € 212 thousand, was recorded under the provisions in the item "Other operating expenses" in the income statement.
Other non-current provisions, equal to € 93 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 "Other provisions", for the current part, refers to the best possible estimate of probable liabilities, details of which are given below:
The decrease of the item "Other provisions" mainly refers to:
for € 150 thousand (including legal defense costs for € 32 thousand and legal interests for € 8 thousand), previously set aside for a tax audit, at the company Comet S.p.A., following comments on transfer prices applied to the sale of products to foreign subsidiaries Comet USA Inc. and Comet France S.A.S. On the basis of the opportunity to close a passive position, Comet S.p.A. has decided to proceed with the definition of the disputed annuities through the institution of assessment with acceptance and has proceeded to the payment of the sums requested within the limits of what has already been allocated;
for € 308 thousand previously set aside against a dispute arising in the labor law field of the subsidiary Speed France SAS; the dispute closed with a positive outcome during the second half of the year, generating a release of the previously allocated provision.
The entire amount of € 520 thousand (€ 579 thousand at 31 December 2017) 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 € 59 thousand.
The Group has not further outstanding disputes in addition to those already discussed in these notes.
The Group has commitments for purchases of fixed assets not accounted in the financial statements at December 31 2018 for an amount of € 3,830 thousand (€ 4,039 thousand at December 31 2017). 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.
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:
The group has € 3,357 thousand in guarantees granted to third parties at December 31 2018, 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.
Share capital is fully paid up at December 31 2018 and amounts to € 42,623 thousand and it consists of 163,934,835 ordinary shares of par value € 0.26 each.
| 31.12.2018 | 31.12.2017 | |
|---|---|---|
| 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 2017 approved by the shareholders on April 27 2018, totaling € 5,724 thousand, were paid during 2018.
At December 31 2017 the company held in portfolio 397,233 treasury shares for a value of € 2,029 thousand. During 2018 no treasury shares were purchased or sold.
Therefore, at December 31 2018 the company held 397,233 treasury shares in portfolio for a value of € 2,029 thousand.
In January and February 2019 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 2018.
The transactions entered into with related parties by the Emak Group in the year 2018 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 Lavorwash S.p.A. 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.
Sale of goods and services, trade and other receivables and financial asset:
| €/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. | 38 | 17 | - | 17 | - - |
- | |
| Euro Reflex D.o.o. | 596 | 278 | - | 278 | - - |
- | |
| Garmec S.r.l. | 117 | 17 | - | 17 | - - |
- | |
| Mac Sardegna S.r.l. | (33) | - | - | - | - - |
- | |
| Selettra S.r.l. | 2 | 1 | - | 1 | - - |
- | |
| Yama S.p.A. | - | - | 619 | 619 | 2 | 37 | 260 |
| Cifarelli S.p.A. | 58 | 3 | - | 3 | - - |
- | |
| Total (notes 23 - 26) | 778 | 316 | 619 | 935 | 2 | 37 | 260 |
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. | 20 | - | 3 | - | 3 |
| Cofima S.r.l. | 86 | - | - | - | - |
| Euro Reflex D.o.o. | 1,370 | 5 | 235 | - | 235 |
| Garmec S.r.l. | 33 | - | - | - | - |
| Selettra S.r.l. | 342 | 3 | 202 | - | 202 |
| Yama Immobiliare S.r.l. | - | 1,832 | 1 | - | 1 |
| Yama S.p.A. | - | - | - | 1,795 | 1,795 |
| Cifarelli S.p.A. | 2,694 | 2 | 1,157 | - | 1,157 |
| Other related parties | - | 519 | 230 | - | 230 |
| Total (note 28) | 4,545 | 2,361 | 1,828 | 1,795 | 3,623 |
The remunerations of the Directors and Auditors of the Parent company for the financial year 2018, 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 >Remuneration reports".
During the year there are no other significant intercompany transactions with related parties outside the Group, other than those described in these notes.
In compliance with the transparency obligations regarding public grants provided for by article 1, paragraphs 125-129 of Law no. 124/2017, subsequently integrated by the "security" Decree Law (no. 113/2018) and by the "Simplification" Decree Law (no. 135/2018), information relating to public grants received by the Group during the 2018 financial year is given below.
It should be noted that a cash-based reporting criterion has been adopted, reporting the grants collected during the period in question.
Disbursements received as consideration for supplies and services provided have not been taken into consideration.
| €/000 | |||||||
|---|---|---|---|---|---|---|---|
| Lender | Description | Emak S.p.A. Tecomec S.r.l. Comet S.p.A. Lavorwash S.p.A. P.T.C. S.r.l. Totale | |||||
| Emilia Romagna Region | Contribution for research and development projects (Invitation to tender POR FESR 2014-2020) |
- | 145 | - | - | - | 145 |
| Emilia Romagna Region | Contribution for research and development projects (DGR 773/2015) |
110 | - | - | - | - | 110 |
| Emilia Romagna Region | Contribution for Asbestos Invitation to tender 2015 |
19 | - | - | - | - | 19 |
| Lombardia Region | Contribution for Earthquake - Decree 207/2018 |
- | - | - | 171 | - | 171 |
| Ministry for the Environment, Land and Sea |
Tax credit for asbestos rehabilitation (L. 28 December 2015, n. 221) |
- | - | - | - | 5 | 5 |
| Fondimpresa | Contribution for training plans | 6 | 15 | - | 8 | - | 29 |
| Fondirigenti | Contribution for training plans | 27 | 2 | 19 | - | - | 48 |
| MEF | Tax credit under Law 190/2014 | 382 | 61 | - | - | - | 443 |
| MEF | Tax credit under Law 107/2015 | 2 | - | - | - | - | 2 |
| MEF | Tax credit under Law 106/2011 | - | - | 2 | - | - | 2 |
| Totale | 546 | 223 | 21 | 179 | 5 | 974 |
For the description of subsequent events please refer to the note 14 of the Directors' report.
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| 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. |
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| Audit procedures performed |
In the context of our audit work we performed the following procedures, among others, partly with assistance from experts: |
|---|---|
| examination of the approach adopted by Management to determine the ٠ value in use of the CGUs, and analysis of the methods and assumptions applied by management to carry out the impairment test; |
|
| understanding and testing the operating effectiveness of the relevant $\bullet$ controls implemented by the Emak Group over the impairment testing process; |
|
| analysis of the reasonableness of the principal assumptions made in order ٠ to forecast cash flows, partly by analysing external data and obtaining information from Management that we deemed to be significant; |
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| € | Notes | Year 2018 | of which to related parties |
Year 2017 | of which to related parties |
|---|---|---|---|---|---|
| Revenues from sales | 8 | 124,240,305 | 27,345,046 | 125,425,877 | 32,177,519 |
| Other operating incomes | 8 | 825,384 | 2,380 | 456,805 | 1,400 |
| Change in inventories | (1,744,433) | 3,434,425 | |||
| Raw materials, consumable and goods | 9 | (73,648,027) | (26,607,686) | (80,936,263) | (28,386,543) |
| Personnel expenses | 10 | (24,225,205) | (24,697,104) | ||
| Other operating costs and provisions | 11 | (19,661,085) | (610,493) | (19,872,125) | (896,187) |
| Impairment gains and losses, Amortization and depreciation | 12 | (5,158,035) | (4,944,401) | ||
| Operating result | 628,904 | - | (1,132,786) | - | |
| Financial income | 13 | 5,511,678 | 5,366,169 | 5,544,914 | 5,254,631 |
| Financial expenses | 13 | (862,095) | (2,146) | (692,222) | (8,943) |
| Exchange gains and losses | 13 | 873,670 | #RIF! | (2,288,067) | #RIF! |
| Profit befor taxes | 6,152,157 | - | 1,431,839 | - | |
| Income taxes | 14 | (319,751) | 1,327,595 | ||
| Net profit | 5,832,406 | 2,759,434 |
Statement of other comprehensive income
| 5,832,406 2,759,434 |
|---|
| 60,000 (207,000) |
| (17,000) 58,000 |
| 43,000 (149,000) |
| 5,875,406 2,610,434 |
(*) 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 | 31.12.2018 | of which to related parties |
31.12.2017 | of which to related parties |
|---|---|---|---|---|---|
| Non-current assets | |||||
| Property, plant and equipment | 16 | 30,113,313 | 29,415,087 | ||
| Intangible assets | 17 | 3,741,384 | 2,338,252 | ||
| Goodwill | 18 | 2,074,305 | 2,074,305 | 2,074,305 | 2,074,305 |
| Equity investments | 19 | 93,681,189 | 97,397,145 | ||
| Deferred tax assets | 28 | 1,853,733 | 2,215,690 | ||
| Other financial assets | 21 | 20,617,970 | 20,617,970 | 18,071,986 | 18,071,986 |
| Other assets | 22 | 3,350 | 3,350 | ||
| Total non-current assets | 152,085,244 | 22,692,275 | 151,515,815 | 20,146,291 | |
| Current assets | |||||
| Inventories | 23 | 35,063,752 | 36,808,185 | ||
| Trade and other receivables | 22 | 44,908,272 | 15,797,327 | 40,708,259 | 12,036,246 |
| Current tax assets | 28 | 1,434,597 | 1,154,694 | ||
| Other financial assets | 21 | 910,468 | 910,468 | 1,883,168 | 1,883,168 |
| Derivative financial instruments | 20 | 200,106 | 79,003 | ||
| Cash and cash equivalents | 24 | 31,086,293 | 8,337,136 | ||
| Total current assets | 113,603,488 | 16,707,795 | 88,970,445 | 13,919,414 | |
| TOTAL ASSETS | 265,688,732 | 39,400,070 | 240,486,260 | 34,065,705 |
| € | Notes | 31.12.2018 | of which to related parties |
31.12.2017 | 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 | 34,865,509 | 34,516,139 | |||
| Retained earnings | 32,724,349 | 32,922,131 | |||
| Total equity | 25 | 150,638,666 | 150,487,078 | ||
| Non-current liabilities | |||||
| Loans and borrowings due to banks and other landers | 27 | 46,762,042 | 259,742 | 29,854,300 | 296,848 |
| Deferred tax liabilities | 28 | 1,306,127 | 1,267,372 | ||
| Employee benefits | 29 | 3,124,136 | 3,768,874 | ||
| Provisions for risks and charges | 30 | 1,935,342 | 346,952 | ||
| Other non-current liabilities | 31 | 519,747 | 578,737 | ||
| Total non-current liailities | 53,647,394 | 259,742 | 35,816,235 | 296,848 | |
| Current liabilities | |||||
| Trade and other payables | 26 | 34,874,629 | 5,473,571 | 35,553,118 | 6,439,675 |
| Current tax liabilities | 28 | 1,042,986 | 975,589 | ||
| Loans and borrowings due to banks and other landers | 27 | 24,753,268 | 2,465,962 | 17,130,820 | 478,030 |
| Derivative financial instruments | 20 | 266,267 | 74,898 | ||
| Provisions for risks and charges | 30 | 465,522 | 448,522 | ||
| Total current liabilities | 61,402,672 | 7,939,533 | 54,182,947 | 6,917,705 | |
| TOTAL EQUITY AND LIABILITIES | 265,688,732 | 8,199,275 | 240,486,260 | 7,214,553 |
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
| €/000 | OTHER RESERVES | RETAINED EARNINGS | |||||||
|---|---|---|---|---|---|---|---|---|---|
| SHARE CAPITAL |
SHARE PREMIUM | Legal reserve |
Revaluation reserve |
Reserve IAS 1 9 |
Other reserves |
Retained earnings |
Net profit for the period |
TOTAL | |
| 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 | ||||||||
| Payment of dividends | (5,723) | (5,723) | |||||||
| Reclassification of 2016 net profit | 350 | 937 | (1,287) | 0 | |||||
| Other changes Net profit for 2017 |
(149) | 2,759 | 0 2,610 |
||||||
| Total at 31.12.2017 | 42,519 | 40,529 | 3,059 | 1,138 | (581) | 30,900 | 30,164 | 2,759 | 150,487 |
| Change in treasury shares | 0 | ||||||||
| Payments of dividends | (3,270) | (2,453) | (5,723) | ||||||
| Reclassification of 2017 net profit | 138 | 0 | (138) | 0 | |||||
| Other changes | 168 | (168) | 0 | ||||||
| Net profit for 2018 | 43 | 5,832 | 5,875 | ||||||
| Total at 31.12.2018 | 42,519 | 40,529 | 3,197 | 1,138 | (538) | 31,068 | 26,894 | 5,832 | 150,639 |
| €/000 | Notes | 2018 | 2017 |
|---|---|---|---|
| Cash flow from operations | |||
| Net profit for the period | 5,832 | 2,759 | |
| Impairment gains and losses, Amortization and depreciation | 12 | 5,158 | 4,944 |
| Capital (gains)/losses on disposal of property, plant and equipment | (14) | (4) | |
| Dividends income | (4,804) | (4,834) | |
| Decreases/(increases) in trade and other receivables | (4,118) | 5,778 | |
| Decreases/(increases) in inventories (Decreases)/increases in trade and other payables |
1,744 (631) |
(3,434) 2,004 |
|
| Change in employee benefits | 29 | (645) | (8) |
| Revaluation of equity investment | 19 | (1,020) | - |
| Increase of equity investment for conversion of financial receivables | 19 | (412) | - |
| (Decreases)/increases in provisions for risks and charges | 30 | 1,605 | (568) |
| Change in derivate financial instruments | 70 | (137) | |
| Cash flow from operations | 2,765 | 6,500 | |
| Cash flow from investing activities | |||
| Dividends income | 4,804 | 4,834 | |
| Change in property, plant and equipment and intangible assets | (7,259) | (7,084) | |
| (Increases) and decreases in financial assets | 3,575 | (12,825) | |
| Proceeds from disposal of property, plant and equipment | 14 | 4 | |
| Cash flow from investing activities | 1,134 | (15,071) | |
| Cash flow from financing activities | |||
| Dividends paid | (5,723) | (5,723) | |
| Change in short and long-term loans and borrowings | 27,135 | (1,515) | |
| Change in equity | 43 | (149) | |
| Cash flow from financing activities | 21,455 | (7,387) | |
| NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 25,354 | (15,958) | |
| OPENING CASH AND CASH EQUIVALENTS | 5,467 | 21,425 | |
| CLOSING CASH AND CASH EQUIVALENTS | 30,822 | 5,467 | |
| ADDITIONAL INFORMATION ON THE CASH FLOW STATEMENT | |||
| €/000 | 2018 | 2017 | |
| RECONCILIATION OF CASH AND CASH EQUIVALENTS | |||
| Opening cash and cash equivalents, detailed as follows: | 24 | 5,467 | 21,425 |
| Cash and cash equivalents | 8,337 | 21,425 | |
| Overdrafts | (2,870) | - | |
| Closing cash and cash equivalents, detailed as follows: | 24 | 30,822 | 5,467 |
| Cash and cash equivalents | 31,086 | 8,337 | |
| Overdrafts | (264) | (2,870) | |
| Other information: | |||
| Income taxes paid | (52) | (50) | |
| Interest paid | (518) | (595) | |
| Interest on financings to subsidiary companies | 539 | 352 | |
| Interest on financings to parent company | 2 | 8 | |
| Interest on financings from subsidiary companies | (2) | (9) | |
| Interest receivable on bank account | 50 | 114 | |
| Interest receivable on trade receivables | 74 | 69 | |
| Interest receivable on subsidiaries trade receivables | 21 | - | |
| Effects of exchange rate changes | (24) | 1,354 | |
| Change in related party financial assets transactions | (1,573) | (12,832) | |
| Change in related party financial liabilities transactions | 1,951 | (1,515) | |
| Change in trade receivables and others toward related parties | (3,761) | 53 | |
| Change in trade payables and others toward related parties | |||
| (965) | (2,388) | ||
| Change in trade receivables and others related to fiscal assets Change trade in payables and others related to fiscal liabilities |
107 149 |
547 (309) |
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 14, 2019 approved the Financial Statements for the year to December 31, 2018, 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 30 April 2019.
Emak S.p.A., as the parent company, has also prepared the consolidated financial statements of the Emak Group at 31 December 2018, also approved by the Board of Directors of Emak S.p.A. in the meeting of 14 March 2019; 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.
Emak S.p.A. applied two new accounting standards with effect from 1 January 2018:
‐ IFRS 15 "Revenue from Contracts with Customers", replacing standards IAS 18 "Revenues" and IAS 11 "Construction contracts" and the relative interpretations;
‐ IFRS 9 "Financial Instruments", replacing standard IAS 39 "Financial Instruments ‐ Recognition and Measurement".
The IFRS 15 standard "Revenue from Contracts with Customers" introduces a unique general model for establishing if, when and to what extent to recognise revenues. In general terms, according to IFRS 15, revenues are recognised when the customer obtains control of the goods or services, and the determination of when moment transfer of control occurs (at a particular time or over time) requires an evaluation on the part of the company management.
For full details of the treatment reference should be made to paragraph 2.21 and 2.27.
Emak S.p.A. has not detected any effect on its financial statements as a result of the application of the new accounting standard.
The IFRS 9 standard "Financial instruments" introduces new requirements for the recognition and measurement of financial assets and liabilities and new rules for hedge accounting.
To add to what has already been reported in paragraph 2.27, more information is provided here regarding the choices made in applying (i) the classification of financial assets, (ii) the new methodology for the impairment of financial assets, including receivables and (iii) the new rules for hedge accounting.
a. Classification of financial assets: financial assets that come under IFRS 9 application are recognised at amortised cost or at fair value on the basis of the business model of the enterprise for the management of financial assets and the characteristics of the contractual cash flows of the financial asset;
b. Expected credit losses model: the methodology is based on a predictive approach, based on the prediction of the default of the counterparty (so-called probability of default) and on the possibility of collection in the event that default occurs (so-called loss given default);
c. Hedge accounting: the new provisions introduce modifications to the rules for the management of hedge accounting compared to the previous IAS 39 standard, applied until 31 December 2017, shifting the bases of recognition towards those used by the Company in relation to Risk Management. The new standard, in fact, permits the application of hedge accounting, from 1 January 2018, also to groups of non-financial elements and single components of elements, provided that the element covered can be reliability measured. Emak S.p.A. has not detected any effect on its financial statements as a result of the application of the new accounting standard.
With reference, instead, to standard IFRS 16 "Leasing", published in the Official Gazette of the European Community on 9 November 2017, which will be applied prospectively in transition form from 1 January 2019, an impact of a first application on financial liabilities of around €160 thousand is preliminarily estimated as reported in paragraph 2.27. With the full implementation of the new standard in 2019, account will be taken of the interpretations that will be issued by the IFRS Interpretations Committee (IFRIC), as well as the accounting practices to be followed.
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:
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 4.
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.
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.
The development costs of new products are capitalized only if the following conditions are met:
An intangible asset, generated in the development phase of an internal project, is recorded as an asset if the Company is able to demonstrate:
The amortisation of development costs, classified under the "Development costs" heading, accrues from the end of the development phase and when the relevant asset begins to generate economic benefits.
In the period in which capitalisable internal development costs are incurred, they may be posted in the income statement as a reduction of the cost items affected and classified under intangible fixed assets.
Capitalised development costs are amortised on the basis of an estimate of the period in which it is expected that the assets in question will generate cash flows and, in any case, for periods of not more than 5 years starting from the start of production of the products pertaining to the development activities.
All other development costs which do not meet the requirements for being capitalised are recorded in the income statement when incurred.
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 recognized 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 recognized 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 and whenever there are indications of possible losses in value. 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 (cash-generating 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.
All recognised financial assets falling within the application of IFRS 9 are recognised at amortised cost or at fair value on the basis of the business model of the enterprise for the management of financial assets and the characteristics of the contractual cash flows of the financial asset.
Specifically, Emak S.p.A. has identified the following financial assets:
With reference to financial assets valued at amortised cost, when the contractual cash flows of the financial asset are renegotiated or otherwise modified and the renegotiation or modification does not produce derecognition, the gross accounting value of the financial asset is recalculated and the profit or loss deriving from the modification is recorded in the profit (loss) for the financial period.
Any cost or commission incurred adjust the accounting value of the modified financial asset and are amortised along the remaining term of the asset.
Financial assets are derecognised when the contractual rights on the cash flows expire or substantially all the risks and benefits connected with the holding of the asset are transferred (so-called Derecognition), or in the event that the item is considered as definitively unrecoverable after all the necessary recovery procedures have been completed.
Financial assets and liabilities are offset in the balance sheet when there is the legal right to offsetting in the period and when there is the intention to adjust the ratio on a net basis (or to realise the asset and simultaneously settle the liability).
Financial assets not carried at fair value through profit or loss for the period are initially valued at their fair value plus the operational costs directly attributable to the acquisition or issue of the asset.
With regards to the loss of value of financial assets, Emak S.p.A. applies a model based on expected losses on receivables expected at every balance sheet reference date in order to reflect the variations in credit risk occurring since the initial recognition of the financial asset.
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.
Emak S.p.A. controls a company when, during the exercise of the power it has over the company, it is exposed and entitled to its variable returns, through its involvement in its management and, at the same time, has the possibility of influencing the returns of the subsidiary.
Controlling interests are valued at cost, after initial recording at fair value, adjusted for any permanent losses emerging in subsequent financial periods.
An associated company is a company over which the Emak S.p.A. exercises significant influence. Significant influence is considered as the power to participate in the determination of the financial and operating policies of the associated company without having control or joint control.
Shareholdings of the Emak S.p.A. in associated companies are valued with the cost method.
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.
Financial instruments are definable. Initial recognition is at fair value; for trade receivables without a significant financial component the initial recognised value is the transaction price. The assessment of the collectability of receivables is made on the basis of the so-called Expected Credit Losses model provided for by IFRS9; reference can be made to paragraphs 1.1 and 2.27.
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. Expected losses on trade receivables are estimated using a provision matrix with aging bands of receivables, making reference to past experience regarding losses on credits, an analysis of debtors' financial positions, corrected to take account of specific factors regarding the debtor, and an assessment of the current and expected evolution of such factors at the balance sheet reference date. 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.
In the event of non-substantial modifications in the terms of a financial instrument, the difference between the current value of cash flows as modified (determined using the effective interest rate of the instrument in force at the modification date) and the book value of the instrument is recorded in the income statement.
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.
Financial liabilities are removed from the balance sheet when the specific contractual obligation is discharged. Modification of the existing contractual terms is also treated as a discharge in the event the new conditions significantly change the original terms.
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:
Accounting for revenues involves following the passages provided for by IFRS 15:
Revenues are recognised upon the transfer of control of the goods to the customer, which coincides with the moment when the goods are delivered to the customer (at a point in time), in compliance with the specific contractual terms agreed with the customer.
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. 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 Company starting January 1, 2018:
IFRS 15 was applied from January 1st, 2018. The adoption had no impact on the separate financial statements of the Company.
Final version of IFRS 9 – Financial instruments (issued on 24 July 2014). The standard includes the results of IASB project, which replaced IAS 39 with effects for the financial years starting on or after January 1, 2018 with early application permitted.
The principle specifies how classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items. The new standard contains substantial changes from the current financial instruments standard (IAS 39) concerning the classification, measurement, impairment and hedge accounting requirements.
Under IFRS 9 new requirements are established for recognition and measurement, impairment derecognition and general hedge accounting of a financial assets. That standard uses a new approach to determine the criteria for the valuation of financial assets which consider and assess principally two characteristics, the objective of the entity's business model (to hold assets only to collect cash flows, or to collect cash flows and to sell), and the contractual cash flows of an asset give rise to payments on specified dates that are solely payments of principal and interest on the principal amount outstanding.
For financial liabilities the main change concerns the accounting treatment of financial liabilities designated as at FVTPL using the fair value option, IFRS 9 requires the amount of the change in the liability's fair value attributable to changes in the credit risk to be recognized in OCI with the remaining
amount of change in fair value recognized in profit or loss, unless this treatment of the credit risk component creates or enlarges a measurement mismatch.
According to the new standard, these changes must be shown in the "Other comprehensive income" statement and no longer in the income statement. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss.
Furthermore, in case of renegotiation or modifications of financial liabilities defined as non-substantial it is no longer permitted to spread the economic effects of those results on the residual duration of the debt by modifying the effective interest rate to that date, but it will be necessary to record the related effect in the income statement.
Referring to the impairment, IFRS 9 introduces a new impairment model based on expected losses, (rather than incurred loss as per IAS 39) using supportable information, available without unreasonable charges or efforts that include historical, current and prospective data.
The standard states that this impairment model applies to all financial instruments, ie financial assets measured at amortised cost, to those measured at fair value through other comprehensive income, to receivables deriving from rental contracts and trade receivables. It also requires the same measurement basis for impairment for all items in the scope of the impairment requirements. This differs from IAS 39, under which impairment is calculated differently for amortised cost assets and available-for-sale assets. Further, IFRS 9 applies the same measurement approach to certain loan commitments and financial guarantee contracts where previously these were measured with reference to IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Finally, the standard introduces a new hedge accounting model in order to adapt the requirements set by the current IAS 39, which have been considered too stringent and not suitable for reflecting the risk management policies of the companies.
The main focus points concern:
The greater flexibility given by the new accounting rules is counterbalanced by additional requests for information on the risk management activities of the company.
IFRS 9 was applied from January 1st, 2018. The adoption had no impact on the separate financial statements of the Company.
IAS 28 Investments in Associates and Joint Ventures – Measuring investees at fair value through profit or loss: an investment-by-investment choice or a consistent policy choice. The amendment clarifies that the option for a venture capital organization or other entity as well qualified (such as a mutual fund or similar entity) measuring investments in associates and joint ventures at fair value through profit or loss (rather than through the application of the equity method) is exercised for each individual investment at the time of initial recognition. The amendment applied from 1 January 2018
IFRS 12 Disclosure of Interests in Other Entities – Clarification of the scope of the Standard) partially supplements existing standards. These standards were applied from January 1st, 2018. The adoption had no impact on the consolidated financial statements of the Company.
The amendment explain the scope of application of IFRS 12 specifying that the information required by the standard, with the exception for paragraphs B10-B16, applies to all the shares that are classified as held for sale, held for distribution to shareholders or discontinued operations in accordance with IFRS 5. This amendment applied from 1 January 2018.
The adoption of these amendments did not have any effects on the Company's separate financial statements.
Amendments to IAS 40 "Transfers of Investment Property" (issued on 8 December 2016). These amendments provide clarifications on the transfer of properties to, or from, investment properties. Specifically, an entity should only reclassify a property asset to or from investment property when there is evidence of a change in use of that asset. Such change in use must be supported by a specific event occurred in the past. A change in intention by the entity's management alone is not sufficient. IAS 40 was applied from January 1st, 2018. Adoption had no impact on the separate financial statements of the Company.
IFRIC 22 "Foreign Currency Transactions and Advance Consideration" (issued on 8 December 2016). This interpretation provides guidelines on foreign currency transactions when non-monetary advance consideration paid or received is recognized before recognition of the relating asset, expense or income. This document clarifies how an entity has to determine the date of the transaction and consequently the spot exchange rate to be used for foreign currency transactions whose consideration is paid or received in advance. IFRIC 22 was applied from January 1st, 2018. Adoption had no impact on the separate financial statements of the Company.
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 from January 1st, 2019, though early adoption is allowed.
The Company has completed the preliminary assessment project of the impacts arising from the application of the new standard on the transition date (January 1st, 2019). This process has been declined in different phases, including the complete mapping and analysis of the contracts potentially suitable to contain a relevant lease for IFRS 16.
During the first application of the standard, the company will adopt the "modified retrospective (alternative 1)" approach, accounting the cumulative effect in equity at January 1st, 2019, in accordance with IFRS 16. In particular, the Company will account, concerning the leases previously classified as operating:
a) a financial liability, equal to the present value of future payments on transition data, discounted for each contract the incremental interest rate applied at the transition date;
b) a right of use equal to the net book value that is due to the initial data of the lease contract applying a discount rate defined at the transaction date.
The amount of the right of use was estimated at € 155 thousand against a financial liability of € 160 thousand.
The following table shows the estimated impacts by the adoption of IFRS 16 on the transition date:
| Thousand of Euro | |||
|---|---|---|---|
| Impacts on the transition | |||
| date 01.01.2019 |
|||
| ASSETS | |||
| Non-current assets | |||
| Right of use Other assets | 155 | ||
| Total | 155 | ||
| SHAREHOLDERS' EQUITY AND LIABILITIES | |||
| Non-current liabilities | |||
| Financial loans and borrowings for Non-current lease |
89 | ||
| Current liabilities | |||
| Financial loans and borrowings for current | 71 | ||
| lease | |||
| Total | 160 | ||
| Shareholders' Equity | (5) | ||
| Retained earnings | (5) | ||
| • Printers; • Other electronic devices. |
With reference to the application, the Company intends to use the exemption granted by IFRS paragraph 16: 5 (a) in relation to short-term leases for the following asset class Other assets. Likewise, the Company intends to use the exemption granted to IFRS 16 with regard to lease contracts for which the underlying asset is configured as a low-value asset. The contracts for which the exemption has been applied fall mainly in the following categories: • Computers, phones and tablets; |
||
| For these contracts, the introduction of IFRS 16 will not involve the recognition of the financial liability of the lease and the related right of use, but the lease installments will be recorded in the income statement on a linear basis for the duration of the respective contracts. |
|||
| The Company intends to use the following practical expedients required by IFRS 16: | |||
| linear basis; | • Classification of contracts that expire within 12 months from the transition date as a short term lease. For these contracts the lease installments will be recorded in the income statement on a |
||
| • Use of information present at the transition date for the determination of the lease term, with particular reference to the exercise of extension options and early closure. |
|||
| Amendments to IFRS 9 "Prepayment Features with Negative Compensation" (issues on 12 October 2017). This document specifies the instruments that provide for early repayment may comply with the "SPPI" test even if the "reasonable additional compensation" to be paid in the event of early repayment is a "negative compensation" for the lender. These amendments 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 changes. |
|||
| IFRIC 23 "Uncertainty over Income Tax Treatments" (issued on 7 June 2017). This interpretation provides guidelines how to determine the accounting tax position when there is uncertainty over income tax treatments. The interpretation requires that the uncertainly on the determination of liabilities or asset 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 |
Other electronic devices.
Classification of contracts that expire within 12 months from the transition date as a short term lease. For these contracts the lease installments will be recorded in the income statement on a linear basis;
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.
At the date of this Financial Report, the competent bodies of European Union had not yet completed the approval process necessary for the adoption of amendments and the principles described below.
distributed and undistributed profits. IAS 23 Borrowing costs Disclosure of Interests in Other Entities – Borrowing costs eligible for capitalization), that implements the changes on some standards as part of the annual improvement process. These amendments apply as from 1 January 2019, though early adoption is allowed. The Directors are evaluating the effects on the Company's separate financial statements from the adoption of these amendments.
away from paragraph 52A that only deals with situations where there are different tax rates for
whether an acquisition is a business combination or an asset acquisition. The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020, with earlier adoption permitted.
The IASB issued narrow-scope amendments to IFRS 3 to help entities determine whether an acquired set of activities and assets is a business or not.
The amendments clarify the minimum requirements to be a business, remove the assessment of a market participant's ability to replace missing elements, and narrow the definition of outputs, replacing the term "ability to create output" with "ability to contribute to the creation of output" to clarify that a business can exist even without the presence of all the inputs and processes necessary to create an output.
The amendments introduce an optional concentration test to permit a simplified assessment of qualified business. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiableassets. If the test is met, the set of activities and assets is determined not to be a business and no further assessment is needed. If the test is not met, or if an entity elects not to apply the test, a detailed assessment must be performed applying the normal requirements in IFRS 3. As such, the concentration test never determines that a transaction is a business combination. The Board provided a series of illustrative examples to help constituents to apply the guidance in IFRS 3 on the definition of a business. Furthermore, any effects will be accounted in the separate financial statements for the year of the first time adoption.
The Company is exposed to a variety of financial risks associated with its business activities:
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 of the Group.
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.
(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, 2018, 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.
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 50 base points in annual interest rates in force at December 31 2018 applicable to financial liabilities at a variable interest rate would result in a greater net cost, on an annual basis, of around € 90 thousand (€ 117 thousand at December 31 2017). 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 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 2018 the overall amount of revenues directly exposed to exchange risk represented around 13.5% of the turnover (14.7% in 2017), while the amount of costs exposed to exchange risk is equal to 29.2% of turnover (31.7% in 2017).
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, 2018, as a result of a hypothetical unfavorable and immediate variation of 10% in all relevant single exchange rates, would amount to around € 723 thousand (€ 1,112 thousand at December 31, 2017).
The Company as of December 31, 2018 holds any derivative financial instruments to hedge exchange rate (operations of currency purchases).
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, 2018, as a result of an instant hypothetical and unfavourable 10% change in the underlying values, would be approximately € 1,408 thousand.
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.
The maximum theoretical exposure to credit risk for the Company at 31 December 2018 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, 2018, the provision for doubtful accounts refers to the constant analysis of past due loans on a collective basis, in addition to the analysis of individual positions.
At December 31, 2018 "Trade receivables" equal to € 30,904 thousand (€ 29,989 thousand at December 31, 2017), include € 5,939 thousand (€ 5,793 thousand at December 31, 2017) outstanding by more than 3 months. This value has been partially 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 | 2018 | 2017 |
|---|---|---|
| Trade receivables due from customers with SACE 1 rating | 23,825 | 22,488 |
| Trade receivables due from customers with SACE 2 e 3 rating | 4,087 | 4,526 |
| Trade receivables due from customers with non-insurable SACE |
2,992 | 2,975 |
| Total (Note 22) | 30,904 | 29,989 |
From 2018, for all countries, regardless of the rating, the insurance covers 90% of the amounts receivable while, 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, 2018 is € 9,370 thousand.
At December 31, 2018 the 10 most important customers (not including companies belonging to the Emak Group) account for 29.3% of total trade receivables, while the top customer represents 10.3% 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.
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.
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 € 51,873 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.
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 IFRS 9, derivative financial instruments may qualify for special hedge accounting only when the condition established by principle are met.
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.
On January 29, 2018, Emak S.p.A acquired the remaining 39%, still owned by the founder, of the Ukrainian subsidiary Epicenter LLC, leading its shareholding to 100%. The price for the acquisition of this share amounts to € 340 thousand.
On March 6, 2018, Emak S.p.A. signed a binding agreement for transferring the 100% of the share capital of Raico S.r.l., specialised in the distribution of components and accessories for farm tractors, industrial machines and earthmoving machinery.
This agreement was concluded on March 30th, with the total transfer to the company Kramp S.r.l. for an equivalent of € 5,500 thousand, that determined a total capital gain of € 12 thousand.
Emak S.p.A., following an assessment aimed at improving the organization at the Bagnolo in Piano (RE) headquarters, due to the logic of efficiency and renewal, 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 a plan to early retirement on voluntary basis referred to in articles 4, 5 and 24 of law n. 223/91, for 32 employees.
The non-ordinary charges related to the reorganization plan, equal to € 1,134 thousand, were accounted during 2018 financial year.
Works for the construction of the new R&D centre started in July 2016 go on, at the establishments of Emak S.p.A.
At December 31, 2018, the portion of the investment already recorded under fixed assets amounted to approximately € 5,100 thousand, compared to a total estimated investment of about € 7,400 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 with the aim to get to "go live" within first months 2019. Overall forecasted investment for the ongoing projects will amount to € 1,900 thousand, of which € 1,200 thousand already accounted for as of 31 December 2018.
No events/operations as per Consob Communication DEM/6064293 of 28 July 2006 have been recorded during the financial period 2018. 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 | 31/12/2018 31/12/2017 | |
|---|---|---|
| A. Cash | 31,086 | 8,337 |
| B. Other cash at bank and on hand (held-to-maturity investments) | - | - |
| C. Financial instruments held for trading | - | - |
| D. Liquidity funds (A+B+C) | 31,086 | 8,337 |
| E. Current financial receivables | 1,111 | 1,962 |
| F. Current payables to banks | (289) | (2,903) |
| G. Current portion of non current indebtedness | (21,645) | (13,396) |
| H. Other current financial debts | (3,086) | (907) |
| I . Current financial indebtedness (F+G+H) |
(25,020) | (17,206) |
| J. Current financial indebtedness, net (I+E+D) | 7,177 | (6,907) |
| K. Non-current payables to banks | (45,799) | (28,502) |
| L. Bonds issued | - | - |
| M. Other non-current financial debts | (963) | (1,352) |
| N. Non-current financial indebtedness (K+L+M) | (46,762) | (29,854) |
| O. Net indebtedness ESMA (J+N) | (39,585) | (36,761) |
| P. Non current financial receivables | 20,618 | 18,072 |
| Q. Net financial position (O+P) | (18,967) | (18,689) |
At December 31, 2018 the net financial position includes:
At December 31, 2017 the net financial position included:
the financial payable to the subsidiary Sabart S.r.l., for an overall amount of € 29 thousand and the financial payable for the equity reinstatement due to the subsidiary Tecomec S.r.l., for € 449 thousand, recorded under Other current financial payables.
Sales revenues amount to € 124,240 thousand, compared with € 125,426 thousand in the prior year. They are stated net of € 985 thousand in returns, compared with € 427 thousand in the prior year. The revenue was mainly penalized by lower sales realized in European markets and in America, counterbalanced positively by the trend registered in Italy and in Far East Countries.
The detail of the item is as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Net sales revenues (net of discounts and rebates) | 122,851 | 123,468 |
| Revenues from recharged transport costs | 2,374 | 2,385 |
| Returns | (985) | (427) |
| Total | 124,240 | 125,426 |
Other operating income is analysed as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Grants related to income | 687 | 194 |
| Capital gains on tangible fixed assets | 15 | 6 |
| Insurance refunds | 3 | 22 |
| Other operating incomes | 120 | 235 |
| Total | 825 | 457 |
The heading "Operating grants" refers mainly to:
Research and Development tax credit provided for by art. 1, paragraph 35, of Law 23 December 2014, no. 190, for € 382 thousand;
the contribution made by the Emilia Romagna Region referring to the first tranche of €110 thousand obtained as part of the Call for Tenders for research and development cooperation projects for Enterprises, as per DGR (Regional Executive Order) 773/2015 as amended;
the grant as per Law 488/92 for € 89 thousand;
the Training 4.0 tax credit as per Law 205/17 for € 48 thousand;
the Art Bonus tax credit as per Law 106/2014 for € 6 thousand;
the grant collected in the financial period referring to the Asbestos Call for Tenders 2015 - Incentives for asbestos removal issued by the Emilia Romagna Region - for €18 thousand;
the Executive training fund/Enterprise training fund grant, equal to € 34 thousand, granted to cover the costs incurred by the Company for staff training.
The heading is analyzed as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Raw materials | 44,955 | 51,148 |
| Finished products | 26,834 | 28,115 |
| Consumable materials | 226 | 293 |
| Other purchases | 1,633 | 1,380 |
| Total | 73,648 | 80,936 |
The decrease in purchases of raw materials and finished products is attributable to a decline in production volumes and a reduction in inventories. The increase in the item "Other purchases" is determined by higher expenses for advertising materials and for research and development.
Details of these costs are as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Wage and salaries | 16,718 | 16,347 |
| Social security charges | 5,107 | 5,186 |
| Employee termination indemnities | 1,133 | 1,201 |
| Other costs | 121 | 155 |
| Capitalized internal projects costs | (431) | - |
| Directors' emoluments | 793 | 550 |
| Temporary staff | 784 | 1,258 |
| Total | 24,225 | 24,697 |
Labor costs are in line with the previous year. During 2018, the company incurred expenses for reorganization charges for € 1,134 thousand. Net of these expenses, the cost of labor decreased due to a lower number of employees and the lesser use of temporary staff due to lower production volumes in the current year at the Bagnolo in Piano (RE) and Pozzilli (IS) plants.
Furthermore, this item recorded, compared to the previous year, an increase due to the wage dynamics measured by the remuneration merit policies.
During the 2018 financial year, personnel costs for € 431 thousand were capitalized under intangible assets, referring to costs for the development of new products in the context of a multi-year project subject to facilities by the Ministry of Economic Development.
The breakdown of employees by grade is the following:
| Average number of employees in year |
Number of employees at this date |
||||
|---|---|---|---|---|---|
| 2018 | 2017 | 2018 | 2017 | ||
| Executives | 15 | 16 | 14 | 16 | |
| Office staff | 181 | 190 | 175 | 187 | |
| Factory workers | 241 | 246 | 243 | 247 | |
| Total | 437 | 452 | 432 | 450 |
Details of these costs are as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Subcontract work | 1,638 | 1,683 |
| Transportation | 6,371 | 7,160 |
| Advertising and promotion | 574 | 1,001 |
| Maintenance | 1,854 | 1,657 |
| Commissions | 1,201 | 1,154 |
| Consulting fees | 2,025 | 1,626 |
| Costs of after sales warranty | 583 | 628 |
| Insurance | 342 | 359 |
| Travel | 366 | 368 |
| Postals and telecommunications | 188 | 218 |
| Other services | 2,509 | 2,227 |
| Capitalized internal projects costs | (123) | |
| Services | 17,528 | 18,081 |
| Rents, rentals and the enjoyment of third party assets | 765 | 769 |
| Increases in provisions | 55 | 37 |
| Increases in provision for doubtful accounts (note 22) | 446 | 194 |
| Other taxes (not on income) | 317 | 310 |
| Other operating costs | 550 | 481 |
| Other costs | 1,313 | 985 |
| Total other operating costs | 19,661 | 19,872 |
The decrease in transport costs, compared to the previous year, is related to the reduction in sales and purchasing volumes and to a more efficient logistic management of imports.
The decrease in Advertising and Promotion costs is related to the lower contributions granted.
Consulting fees include € 318 thousand for costs incurred for M&A transactions (sale of the investment in Raico Srl and acquisition of the remaining 39% of the share capital of the Ukrainian subsidiary Epicenter LLC) realized during the year and costs incurred for the implementation of the new information system.
Details of these amounts are as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Depreciation of property, plant and equipment (note 16) | 4,066 | 3,692 |
| Amortization of intangible assets (note 17) | 492 | 472 |
| Impairment losses and gains (note 19 and note 30) | 600 | 780 |
| Total | 5,158 | 4,944 |
The item "Impairment gains and losses" refers to the impairment of the investment in subsidiaries of the companies Emak Do Brasil Industria Ltda and Emak Deutschland, as described in note 30, for a total value of € 1,620 thousand.
In addition, it proceeded to the full revaluation of the carrying amount of the subsidiary Epicenter LLC, previously impaired in 2014, with a positive economic effect of € 1,020 thousand (note 19).
During the 2017 financial year, the figure included the amount of the impairment of the investment in the Brazilian company Emak Do Brasil Industria Ltda for € 780 thousand.
Financial income" is analyzed as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Dividends from subsidiaries | 4,804 | 4,834 |
| Dividends from associates | - | 61 |
| Interest on trade receivables | 74 | 69 |
| Interest on loans to subsidiaries and other financial income (note 36) | 560 | 352 |
| Interest on financial assets granted to parent company (note 36) | 2 | 9 |
| Interest on bank and post office accounts | 50 | 114 |
| Income from adjustment to fair value of derivates instruments for hedging interest rate risk |
9 | 65 |
| Other financial income | 13 | 41 |
| Financial income | 5,512 | 5,545 |
The heading "Dividends from 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. and Tailong (see note 36).
"Financial expenses" are analyzed as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Interest on long-term bank loans and borrowings | 487 | 425 |
| Interest on short-term bank loans and borrowings | 2 | 1 |
| Interest on loans to related parties (note 36) | 2 | 9 |
| Financial charges from valuing employee termination ind. (note 29) | 30 | 38 |
| Costs from adjustment to fair value and closure of derivates instruments for hedging interest rate risk |
334 | 89 |
| Other financial costs | 7 | 130 |
| Financial expenses | 862 | 692 |
The details of the "Exchange gains and losses" heading are as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Exchange rate gains | 1,276 | 1,871 |
| Unrealized gains/(losses) | 192 | (1,932) |
| Exchange rate losses | (594) | (2,227) |
| Exchange gains and losses | 874 | (2,288) |
The exchange rate management of the previous year was adversely affected by the performance of the US dollar which had led to the recognition of a loss due to the valuation at the year-end exchange rate of the related net assets.
This amount is made up as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Current income taxes | 19 | 325 |
| Taxes from prior years | 46 | 94 |
| Deferred tax liabilities (note 28) | (39) | 408 |
| Deferred tax assets (note 28) | (345) | 501 |
| Total | (319) | 1,328 |
"Current income taxes", for the year 2018, amount to a positive value of € 19 thousand and includes:
The value of the item "Income taxes for previous years" is given by a positive effect of € 45 thousand concerning the retrocession of greater facilitation "ACE" for the tax consolidation pertaining the fiscal year 2017, 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 2018 | % rate | FY 2017 | % rate |
|---|---|---|---|---|
| Profit before taxes | 6,152 | 1,432 | ||
| Theoretical tax charges | 1,716 | 27.9 | 400 | 27.9 |
| Effect of IRAP differences calculated on different tax base |
(102) | (1.7) | 13 | 0.9 |
| Dividends | (1,095) | (17.8) | (1,133) | (79.1) |
| Non-deductible costs | 330 | 5.4 | 318 | 22.2 |
| Current and advance taxes of previous years |
(45) | (0.7) | (622) | (43.4) |
| ACE facilitation | (163) | (2.6) | (140) | (9.8) |
| Other differences | (322) | (5.2) | (164) | (11.5) |
| Effective tax charge | 319 | 5.3 | (1,328) | (92.8) |
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 2018 Budget Law.
It should be noted that the fiscal management of 2017 for current taxes, deferred tax assets and liabilities amounted to a positive net value of € 1,328 thousand. This result was mainly due to a positive effect related to the retrocession from the tax consolidation to which the company participates pursuant to art. 117 TUIR against the contribution, by EMAK, of ACE and other deductible benefits, usable by the Group, totaling € 666 thousand.
"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 | 31.12.2017 | Increases | Decreases | Other movements |
31.12.2018 |
|---|---|---|---|---|---|
| Lands and buildings | 29,986 | 95 | (1,666) | 1,794 | 30,209 |
| Accumulated depreciation | (12,588) | (805) | 1,666 | - | (11,727) |
| Lands and buildings | 17,398 | (710) | - | 1,794 | 18,482 |
| Plant and machinery | 17,785 | 560 | (903) | 1,638 | 19,080 |
| Accumulated depreciation | (14,821) | (885) | 903 | - | (14,803) |
| Plant and machinery | 2,964 | (325) | - | 1,638 | 4,277 |
| Other assets | 60,758 | 2,214 | (987) | 249 | 62,234 |
| Accumulated depreciation | (55,685) | (2,376) | 986 | - | (57,075) |
| Other assets | 5,073 | (162) | (1) | 249 | 5,159 |
| Advances and fixed assets in progress |
3,980 | 1,896 | - | (3,681) | 2,195 |
| Cost | 112,509 | 4,765 | (3,556) | - | 113,718 |
| Accumulated depreciation (note 12) |
(83,094) | (4,066) | 3,555 | - | (83,605) |
| Net book value | 29,415 | 699 | (1) | - | 30,113 |
| €/000 | 31.12.2016 | Increases | Decreases | Other movements |
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 |
No evidence of impairment indicators has been reported for property, plant and equipment.
The increases relate to:
During 2018, part of the new building that will occupy the new R&D center was completed. € 1,794 thousand were therefore reclassified from the item "Advances and fixed assets in progress" to the item "Land and Buildings" and € 1,638 thousand to the item "Plant and machinery", relating to the plant already in use by the R&D department.
The item "Advances and fixed assets in progress" therefore refers to sums paid for € 1,390 thousand for the part still under construction of the new research and development center and the remaining € 506 thousand for advances for the construction of equipment and molds for production.
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 | 31.12.2017 | Increases | Decreases | Other movements |
31.12.2018 |
|---|---|---|---|---|---|
| Development costs | 1,988 | 708 | - | 220 | 2,916 |
| Accumulated amortization | (1,837) | (36) | - | - | (1,873) |
| Development costs | 151 | 672 | - | 220 | 1,043 |
| Patents and intellectual property rights | 8,244 | 396 | - | - | 8,640 |
| Accumulated amortization | (7,187) | (340) | - | - | (7,527) |
| Patents | 1,057 | 56 | - | - | 1,113 |
| Concessions, licences and trademarks | 130 | 30 | - | - | 160 |
| Accumulated amortization | (100) | (9) | - | - | (109) |
| Concessions, licences and trademarks | 30 | 21 | - | - | 51 |
| Other intangible assets | 1,220 | 38 | - | - | 1,258 |
| Accumulated amortization | (1,031) | (107) | - | - | (1,138) |
| Other intangible assets | 189 | (69) | - | - | 120 |
| Advanced payments | 911 | 723 | - | (220) | 1,414 |
| Cost | 12,493 | 1,895 | - | - | 14,388 |
| Accumulated depreciation (note 12) | (10,155) | (492) | - | - | (10,647) |
| Net book value | 2,338 | 1,403 | - | - | 3,741 |
| €/000 | 31.12.2016 | Increases | Decreases | Other movements |
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 | 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 |
The increase in "Development costs" mainly refers to investments in a new development activity started as part of a multi-year project subject to facilitation by the Ministry of Economic Development. These costs include approximately € 431 thousand of personnel costs incurred internally and capitalized under this item.
The increase in the item "Patents and intellectual property rights" refers to the purchase of licenses for the new treasury program of the Group and the start of the project to implement the product traceability at the production site in Pozzilli (IS).
The increase in the item "Other intangible assets" includes investments relating at the implementation of the web marketing projects for the e-commerce.
The increase in "Advanced payments" 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 € 4,727 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 and the five year plan relating to goodwill recorded at 31 December 2018 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 S.p.A., 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 | 31.12.2017 | Increases | Revaluation | Decreases | 31.12.2018 |
|---|---|---|---|---|---|
| Equity investments | |||||
| - in subsidiaries | 93,422 | 752 | 1,020 | (5,488) | 89,706 |
| - in associates | 3,750 | - | - | - | 3,750 |
| - in other companies | 225 | - | - | - | 225 |
| TOTAL | 97,397 | 752 | 1,020 | (5,488) | 93,681 |
Investments in subsidiaries amounted to € 89,706 thousand. The registered movements during the year is related to:
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 multiannual plans approved by the Board of Directors, with the opinion of the Risk Control Committee, 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, 2019.
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" ranging from 0%, for some companies whose plans show limited growth rates, to 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 2018, in order to obtain the economic value of the investments subject to assessment ("Equity Value").
The WACCs used for discounting future cash flows are determined based on the following assumptions:
The WACC used to discount cash flows were respectively 9% for Victus Sp Z.o.o. (Poland), 8.35% for Emak Deutschland Gmbh (Germany), 7.89% for Sabart S.r.l. (Italy), 18.63% for Epicenter Llc (Ukraine), while a WACC of 15.91% 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 2018 with the exception of the company Emak Do Brasil and Emak Deutschland Gmbh already completely written down in previous years. Future cash flows derive from plans drawn up taking into account the critical and macroeconomic risks that distinguish the scope in which the subsidiaries operates and the impairment test showed impairment losses of € 1,167 thousand and € 453 thousand respectively. Therefore, an allocation to the provision to cover future losses was made for a total of € 1,620 thousand (note 30).
Furthermore, based on the evidence of the impairment test of the subsidiary Epicenter Llc, the carrying amount previously written down in 2014 was fully revalued with a positive economic effect of € 1,020 thousand, in consideration of the results forecast in the plan confirmed by the trend in economic and financial results realized.
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 analyses do not show any losses in 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 in the 2016.
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.
December 31, 2018 appear outstanding forward contracts of purchase in foreign currencies for:
| Company | Nominal value (€/000) |
Forward Exchange (average) |
Due to (*) | ||
|---|---|---|---|---|---|
| Forward contracts for foreign currencies purchases | |||||
| Cnh/Euro | Emak Spa | Cnh | 76,500 | 8.12 | 13/11/2019 |
| Forward contracts for foreign currencies purchases with collar options | |||||
| Cnh/Euro | Emak Spa | Cnh | 37,500 | 8.055 | 29/11/2019 |
(*) 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 € 200 thousand. In accordance with the reference accounting standards, these effects have been recognized in the income statement in the current period.
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 € 52,396 thousand.
| Bank | Company | Notional Euro (€/000) |
Date of the operation |
Due to |
|---|---|---|---|---|
| Ubi Banca | Emak S.p.A. | 1,000 | 30/06/2015 | 31/12/2019 |
| Carisbo | Emak S.p.A. | 833 | 24/09/2015 | 12/06/2020 |
| Mediobanca | Emak S.p.A. | 2,500 | 24/09/2015 | 31/12/2020 |
| MPS | Emak S.p.A. | 1,500 | 24/09/2015 | 31/12/2020 |
| Banca Nazionale del Lavoro | Emak S.p.A. | 3,000 | 29/09/2017 | 22/04/2020 |
| Credit Agricole Cariparma | Emak S.p.A. | 6,563 | 26/10/2017 | 11/05/2022 |
| Credit Agricole Cariparma | Emak S.p.A. | 4,000 | 24/05/2018 | 30/06/2023 |
| MPS | Emak S.p.A. | 9,000 | 14/06/2018 | 30/06/2023 |
| UniCredit | Emak S.p.A. | 9,000 | 14/06/2018 | 30/06/2023 |
| Banco BPM | Emak S.p.A. | 7,500 | 21/06/2018 | 31/03/2023 |
| Banca Nazionale del Lavoro | Emak S.p.A. | 7,500 | 06/07/2018 | 06/07/2023 |
| Total | 52,396 |
The recorded value of these contracts at December 31, 2018 is a total negative fair value of € 266 thousand.
The average interest rate resulting from the instruments is equal to 0.15%.
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 € 20,618 thousand, against € 18,072 thousand in the previous year and refer to loans quoted in Euros and U.S. Dollars, granted to subsidiaries amounting to € 20,358 thousand, of which €14,800 thousand due to the subsidiary Comet S.p.A. and receivables from the parent company Yama S.p.A. for capital reinstatement for an amount of € 260 thousand.
"Other current financial assets" amounting to € 910 thousand refer to the U.S. Dollar loan granted to the controlled company Comet Usa for € 873 thousand (€ 834 thousand at December 31, 2017), and for the remaining € 37 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 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Trade receivables | 30,904 | 29,989 |
| Provision for doubtful accounts | (2,571) | (2,233) |
| Net trade receivables | 28,333 | 27,756 |
| Receivables from related parties (note 36) | 15,797 | 12,036 |
| Prepaid expenses and accrued income | 495 | 283 |
| Other receivables | 283 | 633 |
| Total current portion | 44,908 | 40,708 |
| Other non current receivables | 3 | 3 |
| Total non current portion | 3 | 3 |
The item "Receivables from related parties" increase mainly due to the purchase of the subsidiaries Tecomec S.r.l. and Comet S.p.A. of trade receivables from the subsidiary Emak Do Brasil Ltda.
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 2018, amounted to € 163 thousand (€ 398 thousand at 31 December 2017).
Trade receivables have an average maturity of 88 days and there are no trade receivables due after one year.
All non-current receivables mature within five years.
"Trade receivables" are analyzed by geographical area as follows:
| €/000 | Italy | Europe | Rest of the world |
Total |
|---|---|---|---|---|
| Trade receivables | 13,933 | 7,434 | 9,537 | 30,904 |
| Related parties receivables | 614 | 8,525 | 6,658 | 15,797 |
The movement in the provision for bad debts is as follows:
| €/000 | FY 2018 | FY 2017 |
|---|---|---|
| Opening balance | 2,233 | 2,146 |
| Provisions (note 11) | 446 | 194 |
| Usage | (108) | (107) |
| Closing balance | 2,571 | 2,233 |
The book value of this balance approximates its fair value.
Inventories are detailed as follows:
| €/000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Raw, ancillary and consumable materials | 18,678 | 17,873 |
| Work in progress and semi-finished products | 6,542 | 6,484 |
| Finished products and goods | 9,844 | 12,451 |
| Total | 35,064 | 36,808 |
Inventories are stated net of a provision of € 2,191 thousand at December 31, 2018 (€ 1,626 thousand at December 31, 2017) 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 2018 | FY 2017 |
|---|---|---|
| Opening balance | 1,626 | 1,723 |
| Provisions | 788 | 213 |
| Usage | (223) | (310) |
| Closing balance | 2,191 | 1,626 |
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, 2018 act as security against its liabilities.
Cash and cash equivalents are detailed as follows:
| Bank and post office deposits | 31,075 | 8,327 |
|---|---|---|
| Cash | 11 | 10 |
| Total | 31,086 | 8,337 |
| €/000 | 31.12.2018 | 31.12.2017 | |
|---|---|---|---|
| Bank and post office deposits | 31,075 | 8,327 | |
| Cash | 11 | 10 | |
| Total | 31,086 | 8,337 | |
| For the purposes of the cash flow statement, closing cash and cash equivalents comprise: | |||
| €/000 | 31.12.2018 | 31.12.2017 | |
| Cash and cash equivalents | 31,086 | 8,337 | |
| Overdrafts (note 27) | (264) | (2,870) | |
| Total | 30,822 | 5,467 | |
| 25. Equity Share capital |
Share capital is fully paid up at 31 December 2018 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. |
||
| thousand. | This amount is presented net of the nominal value of own shares owned at 31 December 2018, equal to € 104 | ||
| All shares have been fully paid. | |||
| Treasury shares Directors' Report. |
The total value of treasury shares held at 31 December 2018 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 |
||
| Share premium reserve At 31 December 2018, 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, 2018. 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. |
|||
| Legal reserve | The legal reserve at December 31, 2018 of € 3,197 thousand (€ 3,059 thousand at December 31 2017). | ||
| Revaluation reserve At 31 December 2018 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. |
|||
| Other reserves | The extraordinary reserve amounts to € 27,256 thousand at December 31 2018, inclusive of all allocations of earnings in prior years. |
||
| |
At 31 December 2018 other reserves also include: reserves qualifying for tax relief, referring to tax provisions for grants and donations for € 129 thousand; reserves for merger surpluses for € 3,562 thousand; |
Share capital is fully paid up at 31 December 2018 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 2018, equal to € 104 thousand.
The total value of treasury shares held at 31 December 2018 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 2018, 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, 2018. 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, 2018 of € 3,197 thousand (€ 3,059 thousand at December 31 2017).
At 31 December 2018 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 € 27,256 thousand at December 31 2018, inclusive of all allocations of earnings in prior years.
reserves from capital grants deriving from the merger of Bertolini S.p.A. for € 122 thousand.
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 | Distribution | ||
| (€/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 | 3,197 | B | - | - | - |
| Extraordinary reserve | 27,256 | A-B-C | 27,256 | - | - |
| Untaxed reserve (#) | 129 | A-B-C | 129 | - | - |
| Profits brought forward in FTA | 2,165 | A-B | 2,165 | - | - |
| Valutation reserve | (538) | (538) | - | - | |
| Retained earnings | 24,728 | A-B-C | 24,728 | - | 3,271 |
| Total | 102,288 | 99,091 | - | 3,271 | |
| Undistributable portion (*) | (8,244) | - | - | ||
| Distributable balance | 90,847 | - | - | ||
| Net profit for the period (**) | 5,832 | 5,540 | - | - | |
| Total equity | 150,639 |
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 (€ 2,165 thousand), the share of long-term costs not yet amortized (€ 1,043 thousand) in addition to the share of necessary future allocation to the legal reserve (€ 5,036 thousand). This bond bears specifically on the share premium reserve (§);
(**) Subject to obliged allocation to the legal reserve for € 292 thousand.
Details of these amounts are as follows:
| €/000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Trade payables | 22,219 | 22,993 |
| Payables due to related parties (note 36) | 5,474 | 6,440 |
| Payables due to staff and social security institution | 3,258 | 2,990 |
| Other payables | 3,924 | 3,130 |
| Total | 34,875 | 35,553 |
The heading "Other payables" includes a guarantee received from customers for € 2,267 thousand, amounts payable to Directors and employees for € 1,008 thousand, accrued due to the related variable reimbursements defined over a three-year time-frame, 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 74 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 | 16,410 | 1,784 | 4,025 | 22,219 |
| Related parties payables | 870 | 425 | 4,179 | 5,474 |
The book value reported in the statement of financial position corresponds to fair value.
Loans and borrowings at December 31, 2018 do not include any secured payables.
Details of current loans and borrowings are as follows:
| €/000 | 31.12.2018 | 31.12.2017 |
|---|---|---|
| Overdrafts (note 24) | 264 | 2,870 |
| Bank loans | 21,645 | 13,396 |
| Financial accrued expenses and deferred income | 26 | 35 |
| Financial debts from related parties (note 36) | 2,466 | 478 |
| Other current loans | 352 | 352 |
| Total current portion | 24,753 | 17,131 |
The heading "Financial debts from related parties" refers to the interest-bearing loan granted by the subsidiary, Sabart S.r.l., for € 2,017 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 | 10,039 | 11,606 | 21,645 |
| Financial debts from related parties (note 36) | 2,017 | 449 | 2,466 |
| Total | 12,056 | 12,055 | 24,111 |
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 | 31.12.2017 | Increases | Decreases | 31.12.2018 |
|---|---|---|---|---|
| Bank loans | 28,502 | 31,438 | (14,141) | 45,799 |
| Financial debts from related parties (note 36) | 297 | - | (37) | 260 |
| Other financial loans | 1,055 | - | (352) | 703 |
| Total non current portion | 29,854 | 31,438 | (14,530) | 46,762 |
The increase in the item "Bank loans" refers to the subscription of new medium / long-term loans activated to meet the Group's financial requirement forecasts.
The heading "Financial debts from related parties" of € 260 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 | 17,894 | 12,853 | 10,991 | 4,061 | 45,799 | - |
| Financial debts from related parties | 37 | 37 | 37 | 37 | 148 | 112 |
| Other financial loans | 352 | 351 | - | - | 703 | - |
| Total | 18,283 | 13,241 | 11,028 | 4,098 | 46,650 | 112 |
The interest rates refer to 3-6 months Euribor plus an average spread of 0.89 percentage points.
A number of medium-long-term loans are subject to finance covenants assessed on the basis of consolidated Net financial position/Ebitda and Net financial position/Equity ratios. At December 31, 2018 the Company complied with all the benchmarks set by contract.
| €/000 | 31.12.2017 | Increases | Decreases | Other movements |
31.12.2018 |
|---|---|---|---|---|---|
| Deferred-taxes on inventory write-downs | 386 | 140 | - | - | 526 |
| Deferred-taxes on bad debts | 128 | 56 | - | - | 184 |
| Other deferred tax assets | 1,702 | 232 | (773) | (17) | 1,144 |
| Total (note 14) | 2,216 | 428 | (773) | (17) | 1,854 |
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 2018.
a receivable of € 455 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 € 231 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 € 62 thousand;
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 | 31.12.2017 | Increases | Decreases | 31.12.2018 |
|---|---|---|---|---|
| Deferred taxes on capital gains on disposals of fixed assets |
5 | 5 | (5) | 5 |
| Deferred taxes on real estate IAS 17 | 1,165 | - | (28) | 1,137 |
| Other deferred tax liabilities | 97 | 183 | (116) | 164 |
| Total (note 14) | 1,267 | 188 | (149) | 1,306 |
The portion of the taxes which will reverse in the next 12 months amounted to about € 193 thousand.
The "Other deferred tax liabilities" heading refers to unrealized foreign exchange gains in 2018.
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, 2018 is € 340 thousand.
The current tax assets amount at December 31, 2018 to € 1,435 thousand, against € 1,155 thousand at December 31, 2017, and refer to:
Current tax liabilities amount to € 1,043 thousand at December 31, 2018 and mainly refer to withholding taxes to be paid and to the current IRAP tax payable of € 71 thousand. The corresponding amount at December 31, 2017 was equal to € 976 thousand.
The liability refers to the time-discounted debt for termination indemnity due at the end of an employee's working life, amounting to € 3,124 thousand. The amount of termination indemnity calculated according to the nominal debt method in force at the closing date would be € 2,904 thousand.
Movements in this liability are as follows:
| €/000 | 2018 | 2017 |
|---|---|---|
| Opening balance | 3,769 | 3,777 |
| Actuarial (gains)/losses | (60) | 207 |
| Interest cost on obligation (note 13) | 30 | 38 |
| Disbursements | (615) | (253) |
| Closing balance | 3,124 | 3,769 |
The principal economic and financial assumptions used are as follows:
| FY 2018 | FY 2017 | |
|---|---|---|
| Annual inflation rate | 1.5% | 1.5% |
| Discount rate | 1.1% | 0.9% |
| Dismissal rate | 1.0% | 1.0% |
Demographic assumptions refer to the most recent statistics published by ISTAT.
Payments in 2019 are expected to be in line with 2018, net of the payment attributable to the staff reorganization plan.
Movements in this balance are analyzed below:
| €/000 | 31.12.2017 | Increases | Decreases | 31.12.2018 |
|---|---|---|---|---|
| Provisions for agents' termination indemnity | 322 | 37 | (69) | 290 |
| Other provisions | 25 | 1,620 | - | 1,645 |
| Total non current portion | 347 | 1,657 | (69) | 1,935 |
| Provisions for products warranties | 431 | - | - | 431 |
| Other provisions | 18 | 17 | - | 35 |
| Total current portion | 449 | 17 | - | 466 |
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 refer to:
€ 25 thousand, for legal costs provisioned 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;
accruals for a total value of € 1,620 thousand to a provision to cover future losses relating to investments in subsidiaries Emak Deutschland Gmbh (€ 453 thousand) and Emak Do Brasil Industria Ltda (€ 1,167 thousand), see note 19.
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 current portion of item "Other provisions", amounting to € 35 thousand, refers to the best estimate of liabilities presently considered as probable, in the face of provisions equal to the value of the relief on claims for product civil liability (€18 thousand) and other liabilities of a minor nature due to probable disputes.
The total amount of € 520 thousand (€ 579 thousand at December 31, 2017) 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 € 59 thousand.
At the date of December 31, 2018 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.
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 & 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 2018 for the amount of € 3,454 thousand (€4,039 thousand at 31 December 2017). These commitments refer to the acquisition of equipment, plant and machinery for € 454 thousand, for € 2,300 thousand to the construction of the new building for the research and development center at its headquarters in Bagnolo in Piano and for € 700 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 € 2,235 thousand and are made up as follows:
These amount to € 101,166 thousand, and refer to the balance of credit line available or used as at December 31, 2018, broken down as follows:
| €/000 | Value of collateral | Amount guaranteed |
|---|---|---|
| Emak Deutschland GmbH | 2,718 | 2,718 |
| Emak U.K. Ltd. | 1,756 | 1,756 |
| Jiangmen Emak Outdoor Power Equipment Co. Ltd. |
173 | 173 |
| Epicenter Limited | 178 | 178 |
| Victus Emak SP. Z.O.O. | 673 | 673 |
| Tecomec S.r.l. | 12,067 | 12,067 |
| Comet S.p.A | 29,188 | 26,488 |
| Comet S.p.A. (operation Lemasa) | 13,913 | 7,729 |
| Comet S.p.A. (operation Lavorwash) | 40,500 | 27,000 |
| Total | 101,166 | 78,782 |
| Share capital is fully paid up at December 31, 2018 and amounts to € 42,623 thousand. It consists of 163,934,835 ordinary shares of par value € 0.26 each. |
||
| 31.12.2018 | 31.12.2017 | |
| 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 2017 approved by the shareholders on 27 April 2018, totaling € 5,724 thousand, were paid during 2018. At December 31, 2017 the Company held in portfolio 397,233 treasury shares for a value of € 2,029 thousand. During 2018 no treasury shares were purchased or sold by Emak S.p.A. |
||
| Therefore at December 31, 2018 the company held 397,233 treasury shares in portfolio for a value of € 2,029 thousand. |
||
| In January and February 2019 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, 2018. |
||
| 36. Related Party transactions | ||
| Related parties transactions not usual, neither the recurring, not coming under the ordinary scope of activity |
||
| 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 www.emakgroup.com, in the "Investor relations" - "Corporate governance" - "Other information" section. |
Share capital is fully paid up at December 31, 2018 and amounts to € 42,623 thousand. It consists of 163,934,835 ordinary shares of par value € 0.26 each.
| 31.12.2018 | 31.12.2017 | |
|---|---|---|
| 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 2017 approved by the shareholders on 27 April 2018, totaling € 5,724 thousand, were paid during 2018.
At December 31, 2017 the Company held in portfolio 397,233 treasury shares for a value of € 2,029 thousand. During 2018 no treasury shares were purchased or sold by Emak S.p.A.
Therefore at December 31, 2018 the company held 397,233 treasury shares in portfolio for a value of € 2,029 thousand.
In January and February 2019 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, 2018.
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 www.emakgroup.com, in the "Investor relations" - "Corporate
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 2018 in the group fall within ordinary business of Emak and have been adjusted based on market conditions (i.e. 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 2018 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.
| 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. | 448 | - | 17,800 |
| Comet USA Inc. | 62 | 873 | - |
| Raico S.r.l. | 2 | - | - |
| Epicenter Llc. | 10 | - | - |
| Total (note 13 and note 21) | 560 | 873 | 20,358 |
Receivables for loans and interest:
Payables for loans and interests:
| Companies belonging to Emak S.p.A. (€/000) |
Financial charges |
Current financial liabilities |
Non current financial liabilities |
|---|---|---|---|
| Sabart S.r.l. | - | 2,017 | - |
| Tecomec S.r.l. | 2 | 449 | 260 |
| Total (note 27) | 2 | 2,466 | 260 |
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 operating incomes |
Dividends | Total | Trade and other receivables |
|---|---|---|---|---|---|
| Emak Suministros Espana SA | 4,758 | - | 270 | 5,028 | 2,132 |
| Emak Deutschland Gmbh | 2,098 | - | - | 2,098 | 278 |
| Emak UK Ltd. | 1,675 | - | - | 1,675 | 1106 |
| Emak France SAS | 7,450 | - | - | 7,450 | 3,027 |
| Jiangmen Emak Outdoor Power Equipment Co. Ltd. |
1,152 | - | - | 1,152 | 372 |
| Victus Emak Sp. z.o.o. | 7,076 | - | 389 | 7,465 | 1539 |
| Tailong (Zhuhai) Machinery Manufacturing Equipment Ltd. |
4 | - | 513 | 517 | - |
| Epicenter Llc. | 911 | - | - | 911 | 164 |
| Emak Do Brasil Industria Ltda | 76 | - | - | 76 | 4,094 |
| Comet S.p.A. | 163 | 2 | - | 165 | 313 |
| Comet USA Inc. | 818 | - | - | 818 | 2,192 |
| PTC S.r.l. | 7 | - | - | 7 | 3 |
| Sabart S.r.l. | 304 | - | 1,632 | 1,936 | 126 |
| Raico S.r.l. | 9 | - | - | 9 | - |
| Tecomec S.r.l. | 253 | - | 2,000 | 2,253 | 153 |
| Geoline Elettronic S.r.l. | 3 | - | - | 3 | 1 |
| Lavorwash S.p.A. | 12 | - | - | 12 | 15 |
| Total (C) | 26,769 | 2 | 4,804 | 31,575 | 15,515 |
Purchase of goods and services and payables:
| Companies belonging to Emak S.p.A. (€/000) |
Purchases of raw and Other costs finished products |
Total costs | Trade and others payables |
|
|---|---|---|---|---|
| Emak Suministros Espana SA | 16 | 20 | 36 | 25 |
| Emak Deutschland Gmbh | 19 | 36 | 55 | 115 |
| Emak UK Ltd. | - | 18 | 18 | 12 |
| Emak France SAS | 9 | 74 | 83 | 34 |
| Jiangmen Emak Outdoor Power Equipment Co. Ltd. |
20,322 | 50 | 20,372 | 3,283 |
| Comet USA | - | 80 | 80 | 22 |
| Victus Emak Sp. z.o.o. | 1 | 26 | 27 | 9 |
| Tailong (Zhuhai) Machinery Manufacturing Equipment Ltd. |
1,236 | - | 1,236 | 255 |
| Epicenter Llc. | - | 4 | 4 | 1 |
| Emak Do Brasil Industria Ltda | - | 68 | 68 | 524 |
| Comet S.p.A. | 595 | - | 595 | 245 |
| Sabart S.r.l. | 11 | - | 11 | 3 |
| Tecomec S.r.l. | 407 | - | 407 | 68 |
| Ningbo Tecomec | 647 | - | 647 | 95 |
| Speed France SAS | 451 | 6 | 457 | 6 |
| Total (D) | 23,714 | 382 | 24,096 | 4,697 |
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 2018 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 2018 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 operating incomes |
Trade and other receivables |
|---|---|---|---|
| SG Agroo d.o.o. | (55) | - | - |
| Euro Reflex D.o.o. | 596 | - | 278 |
| Garmec S.r.l. | 8 | - | 2 |
| Mac Sardegna S.r.l. | (33) | - | - |
| Selettra S.r.l. | 2 | - | - |
| Cifarelli S.p.A. | 58 | - | 2 |
| Total (E) | 576 | - | 282 |
| Total C+E (note 22) | 27,345 | 2 | 15,797 |
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. | 87 | - | 87 | - |
| Euro Reflex D.o.o. | 1,294 | 1 | 1,295 | 223 |
| Selettra S.r.l. | 338 | 3 | 341 | 202 |
| Cifarelli S.p.A. | 1,175 | - | 1,175 | 220 |
| Total (F) | 2,894 | 4 | 2,898 | 645 |
| Other related parties (G) | - | 224 | 224 | 132 |
| Totals D+F+G (note 26) | 26,608 | 610 | 27,218 | 5,474 |
Relationships of financial nature and related income:
| Companies belonging to Yama Group (€/000) |
Financial income | Current financial assets |
Non current financial assets |
|---|---|---|---|
| Yama S.p.A. | 2 | 37 | 260 |
| Total (note 21) | 2 | 37 | 260 |
* * * * * * *
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 2018 | FY 2017 |
|---|---|---|
| Emoluments of directors and statutory auditors | 890 | 435 |
| Benefits in kind | 9 | 9 |
| Wage and salaries | 687 | 670 |
| Employee termination indemnities | 47 | 48 |
| Total | 1,633 | 1,162 |
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, 2018 amounted to € 1,081 thousand.
In the ending year no other relationships of significant amount of current nature with related parties occurred.
In compliance with the transparency obligations regarding public grants provided for by article 1, paragraphs 125-129 of Law no. 124/2017, subsequently integrated by the "security" Decree Law (no. 113/2018) and by the "Simplification" Decree Law (no. 135/2018), information relating to public grants received by the Group during the 2018 financial year is given below.
It should be noted that a cash-based reporting criterion has been adopted, reporting the grants collected during the period in question.
Disbursements received as consideration for supplies and services provided have not been taken into consideration.
| Lender | Description | Emak S.p.A. |
|---|---|---|
| Emilia Romagna Region | Contribution for research and development projects (DGR 773/2015) |
110 |
| Emilia Romagna Region | Contribution for Asbestos Invitation to tender 2015 |
19 |
| Fondimpresa | Contribution for training plans | 6 |
| Fondirigenti | Contribution for training plans | 27 |
| MEF | Tax credit under Law 190/2014 | 382 |
| MEF | Tax credit under Law 107/2015 | 2 |
| Total | 546 |
There are no noteworthy events.
For the proposal of allocation of the net profit for the year and distribution of dividends, please refer to note 16 of the Directors Report.
The following schedules, forming an integral part of the explanatory notes to the financial statements, are provided as appendices:
| 31.12.2017 | Changes | 31.12.2018 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of shares |
Values in the financial statements €/000 |
% total shareholding |
direct shareholding |
Subscriptions And acquisitions |
Other movements |
Sales | Revaluations (Depreciations) |
Number of shares |
Values in the financial statements €/000 |
% total shareholding |
direct shareholding |
|
| Italy | ||||||||||||
| Comet S.p.A. | 5,000,000 | 27,232 | 100 | 100 | 5,000,000 | 27,232 | 100 | 100 | ||||
| Raico S.r.l. (note 19) Sabart S.r.l. |
1 share 1 share |
5,488 21,011 |
100 100 |
100 100 |
(5,488) | - 1 share |
- 21,011 |
- 100 |
- 100 |
|||
| Tecomec S.r.l. (note 19) | 1 share | 27,418 | 100 | 100 | 412 | 1 share | 27,830 | 100 | 100 | |||
| Spain | ||||||||||||
| Emak Suministros Espana SA |
405 | 572 | 9 0 |
9 0 |
405 | 572 | 9 0 |
9 0 |
||||
| Germany | ||||||||||||
| Emak Deutschland Gmbh |
10,820 | - | 100 | 100 | 10,820 | - | 100 | 100 | ||||
| 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 Equipment Co. Ltd. |
- | 2,476 | 100 | 100 | - | 2,476 | 100 | 100 | ||||
| Tailong (Zhuhai) Machinery Manufacturing Equipment Ltd. |
- | 2,550 | 100 | 100 | - | 2,550 | 100 | 100 | ||||
| Poland | ||||||||||||
| Victus Emak Sp. z.o.o. | 32,800 | 3,605 | 100 | 100 | 32,800 | 3,605 | 100 | 100 | ||||
| Ukraine | ||||||||||||
| Epicenter LLC (note 19) | 1 share | 330 | 6 1 |
6 1 |
340 | 1,020 | 1 share | 1,690 | 100 | 100 | ||
| Brazil Emak do Brasil Industria |
8,516,200 | - | 99.9 | 99.9 | 8,516,200 | - | 99.9 | 99.9 | ||||
| Ltda | ||||||||||||
| Total investments in subsidiaries | 93,422 | 89,706 | ||||||||||
| 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 |
| Value in the | Equity (*) | Profit/(Loss) of | |||||
|---|---|---|---|---|---|---|---|
| €/000 | Registered office | financial statements |
% Share | Share Capital | Total | Attributable to Emak S.p.A. |
the year (*) |
| Emak Suministros Espana SA | Madrid | 572 | 90 | 270 | 3,948 | 3,553 | 636 |
| Emak Deutschland Gmbh | Fellbach Oeffingen |
0 | 100 | 553 | (2,017) | (2,017) | (802) |
| Emak UK Ltd | Burntwood | 691 | 100 | 468 | 758 | 758 | (118) |
| Emak France SAS | Rixheim | 2,049 | 100 | 2,000 | 7,498 | 7,498 | 108 |
| Jiangmen Emak Outdoor Power Equipment Co. Ltd. | Jiangmen | 2,476 | 100 | 3,616 | 16,438 | 16,438 | 881 |
| Tailong (Zhuhai) Machinery Manufacturing Equipment Ltd. | Zhuhai | 2,550 | 100 | 2,316 | 5,814 | 5,814 | 334 |
| Victus Emak Sp. z.o.o. | Poznan | 3,605 | 100 | 2,387 | 8,322 | 8,322 | 381 |
| Epicenter LLC. | Kiev | 1,690 | 100 | 727 | 1,629 | 1,629 | 301 |
| Emak do Brasil Industria Ltda | Curitiba | 0 | 99.9 | 1,976 | (2,616) | (2,590) | (1,115) |
| Tecomec S.r.l. | Reggio Emilia | 27,830 | 100 | 1,580 | 30,421 | 30,421 | 3,373 |
| Comet S.p.A. | Reggio Emilia | 27,232 | 100 | 2,600 | 38,369 | 38,369 | 6,871 |
| Sabart S.r.l. | Reggio Emilia | 21,011 | 100 | 1,900 | 7,936 | 7,936 | 1,919 |
| Total investments in subsidiaries | 89,706 | ||||||
| Cifarelli S.p.A. | Voghera (PV) | 3,750 | 30 | 374 | 8,963 | 2,689 | 1,021 |
| Total investments in associates | 3,750 |
(*) Amounts resulting from the reporting package of subsidiaries prepared in accordance with IAS / IFRS for the purpose of preparation of the consolidated financial statements.
In the face of the impairment test of the subsidiaries Emak Deutschland Gmbh and Emak do Brasil Industria Ltda a specific provision to cover future losses (Note 19 and 30) was set aside in the financial statements.
| (€/000) | ||
|---|---|---|
| FINANCIAL POSITION | 31.12.2017 | 31.12.2016 |
| Assets | ||
| A) Amounts receivable from shareholders for | - | - |
| outstanding payments | ||
| B) Fixed assets | 69,789 | 76,609 |
| C) Current assets | 21,438 | 8,085 |
| D) Prepayment and accrued income | 18 | 21 |
| Total assets | 91,245 | 84,715 |
| Liabilities | ||
| A) Equity: | ||
| Share capital | 16,858 | 16,858 |
| Reserves | 26,203 | 37,011 |
| Net profit | 21,245 | 501 |
| B) Provisions for risks and charges | 263 | 263 |
| C) Employment benefits | 6 | 2 |
| D) Amounts payable | 26,662 | 30,007 |
| E) Accruals and deferred income | 8 | 73 |
| Total liabilities | 91,245 | 84,715 |
| INCOME STATEMENT | 31.12.2017 | 31.12.2016 |
|---|---|---|
| A) Revenues from sales | 100 | 227 |
| B) Production costs | (1,771) | (1,575) |
| C) Financial income and expenses | 24,679 | 4,343 |
| D) Adjustments to the value of financial assets | (1,768) | (2,900) |
| E) Extraordinary income and expenses | - | - |
| Profit before taxes | 21,240 | 95 |
| Income taxes | 5 | 406 |
| Net profit | 21,245 | 501 |
Schedule of fees relating to the 2018 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. | 137 |
| Audit | Deloitte & Touche S.p.A. | Italian controlled companies | 138 |
| Audit | Deloitte & Touche S.p.A. Network | Foreign controlled companies | 55 |
| Other services | Deloitte & Touche S.p.A. Network | Emak S.p.A. | 23 |
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, 2018.
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: 14 March 2019
The executive in charge of preparing the accounting statements: Aimone Burani
The CEO: Fausto Bellamico
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| Impairment test of equity investments in subsidiaries and goodwill | ||
|---|---|---|
| Description of the key audit matter |
The separate financial statements of Emak S.p.A. as of 31 December 2018 report equity investments in subsidiaries of Euro 89,706 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. |
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| As a result of impairment tests, the Company has recorded an impairment loss of Euro 1,167 thousand in relation to the investment held in the subsidiary Emak Do Brasil Industria Ltda and an impairment loss of Euro 453 thousand in relation to the investment held in the subsidiary Emak Deutschland Gmbh; furthermore, the Company has recorded a reversal of impairment of Euro 1,020 thousand related to the subsidiary Epicenter Llc, of which the Company acquired the remaining 39% during the 2018 fiscal year. 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). The 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 2018. |
|
| The explanatory notes of separate financial statements in the paragraphs "2.5 Goodwill", "2.6 Impairment of assets", "2.10 Shareholdings in subsidiaries" 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. |
|
| Audit procedures performed |
In the context of our audit work we performed the following procedures, among others, partly with assistance from experts: |
| examination of the approach adopted by Management to assess the recoverability of the investments in subsidiaries and the goodwill, and analysis of the methods used and assumptions used to carry out the impairment tests; |
|
| understanding and testing the operating effectiveness of the relevant $\bullet$ controls implemented by the Company over the process of impairment testing and identifying the impairment indicators; |
|
| analysis of the reasonableness of the principal assumptions made in order ٠ to forecast cash flows, partly by analysing external data and obtaining information from Management that we deemed to be significant; |
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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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