Notes to the Condensed Interim Consolidated Financial Statements as of 30 June 2013

A) GENERAL ASPECTS

Piaggio & C. S.p.A. (the Company) is a joint-stock company established in Italy at the Register of Companies of Pisa. The addresses of the registered office and places where the Group conducts its main business operations are listed in the introduction to the financial statements. The main operations of the company and its subsidiaries (the Group) are described in the Report on Operations.
These Financial Statements are expressed in euros (€) since this is the currency in which most of the Group’s transactions take place. Foreign operations are included in the consolidated financial statements according to the standards indicated in the notes below.

SCOPE OF CONSOLIDATION

As of 30 June 2013, the structure of the Piaggio Group was as indicated in the Report on Operations and is the structure referred to herein.
The scope of consolidation has not changed compared to the Consolidated Financial Statements as of 31 December 2012.

1. Compliance with INTERNATIONAL ACCOUNTING STANDARDS

These Condensed Consolidated Interim Financial Statements have been prepared in compliance with the International Accounting Standards (IAS/IFRS) in force at that date, issued by the International Accounting Standards Board and approved by the European Commission, as well as in compliance with the provisions established in Article 9 of Legislative Decree no. 38/2005 (CONSOB Resolution no. 15519 dated 27 July 2006 containing the “Provisions for the presentation of financial statements", CONSOB Resolution no. 15520 dated 27 July 2006 containing the “Changes and additions to the Regulation on Issuers adopted by Resolution no. 11971/99”, CONSOB communication no. 6064293 dated 28 July 2006 containing the “Corporate reporting required in accordance with Article 114, paragraph 5 of Leg. Decree no. 58/98"). The interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), previously the Standing Interpretations Committee (“SIC”), were also taken into account.
During the drafting of these Condensed Consolidated Interim Financial statements, prepared in compliance with IAS 34 - Interim Financial Reporting, the same accounting standards adopted in the drafting of the Consolidated Financial Statements as of 31 December 2012 were applied, with the exception of paragraph "New accounting standards, amendments and interpretations applied as from 1 January 2013".

The preparation of the interim financial statements requires management to make estimates and assumptions which have an impact on the values of revenues, costs, consolidated balance sheet assets and liabilities and on the information regarding contingent assets and liabilities at the reporting date. If these management estimates and assumptions should, in future, differ from the actual situation, they will be changed as appropriate in the period in which the circumstances change.

It should also be noted that some assessment processes, in particular the most complex ones such as establishing any impairment of fixed assets, are generally undertaken in full only when preparing the annual financial statements, when all the potentially necessary information is available, except in cases where there are indications of impairment which require an immediate assessment of any impairment loss.

The Group’s activities, especially those regarding two-wheeler products, are subject to significant seasonal changes in sales during the year.

Income tax is recognised on the basis of the best estimate of the average weighted tax rate for the entire financial period.

These Condensed Consolidated Interim Financial Statements have been subject to a limited review by PricewaterhouseCoopers S.p.A..

OTHER INFORMATION

A specific paragraph in this Report provides information on any significant events occurring after the end of the period and on the expected operating outlook.
The exchange rates used to translate the financial statements of companies included in the scope of consolidation into euros are shown in the table below.

Currency Spot exchange rate 30 June 2013 Average exchange rate 1st half of 2013 Spot exchange rate 31 December 2012 Average exchange rate 1st half of 2012
US Dollar 1.3080 1.31346 1.3194 1.29678
Pounds Sterling 0.8572 0.85116 0.8161 0.82249
Indian Rupee 77.721 72.30697 72.560 67.61014
Singapore Dollars 1.6545 1.63315 1.6111 1.6391
Chinese Renminbi 8.0280 8.12938 8.2207 8.19181
Croatian Kuna 7.4495 7.56973 7.5575 7.54208
Japanese Yen 129.39 125.46589 113.61 103.3669
Vietnamese Dong 27,845.08 27,734.49370 27,776.32 27,293.80388
Canadian Dollars 1.3714 1.33454 1.3137 1.30409
Indonesian Rupiah 12,980.40 12,788.88530 12,714.00 11,919.67082
Brazilian Real 2.89 2.6688 2.7036 2.415096

2. Form and content of the financial statements

Form of the consolidated financial statements

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

Consolidated Income Statement

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

Consolidated Statement of Comprehensive Income

The Consolidated Statement of Comprehensive Income is presented in accordance with the provisions of IAS 1 revised. It reports the Net Profit attributable to shareholders of the parent company and tonon-controlling interests.

Consolidated Statement of Financial Position

The Consolidated Statement of Financial Position is presented in opposite sections with separate indication of assets, liabilities and shareholders’ equity.
In turn, assets and liabilities are reported in the Consolidated Financial Statements on the basis of their classification as current and non-current.

Consolidated Statement of Cash Flows

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

Consolidated net debt

The statement of consolidated net debt has been prepared pursuant to Consob Communication of 28 July 2006 and in compliance with the recommendation of the CESR of 10 February 2005 “Recommendation for the consistent implementation of the European Commission’s Regulation on Prospectuses”.

Statement of Changes in Consolidated Shareholders' Equity

The Statement of Changes in Consolidated Shareholders' Equity is presented as provided for in IAS 1 revised.
This includes the statement of comprehensive income, separately indicating amounts attributable to owners of the parent and non-controlling interests, amounts of transactions with owners and any effects of retrospective application or retrospective determination pursuant to IAS 8. Reconciliation between the opening and closing balance of each item for the period is presented.

2.1 New accounting standards, amendments and interpretations applied as from 1 January 2013

On 16 June 2011 IASB issued an amendment to IAS 1 – Presentation of financial statements to require entities to group all items presented in "Other comprehensive income" based on whether they are potentially reclassifiable to profit or loss subsequently. The amendment is applicable to financial years beginning on or after 1 July 2012.

On 12 May 2011 the IASB issued the standard IFRS 13 – Fair Value Measurement which explains how fair value is to be measured for financial statements and applied to all the standards which require it or allow fair value measurement or the disclosure of information based on fair value. The standard shall be applicable as of 1 January 2013. For more details on impacts, see attachment F.

It should be noted that the Group adopted IAS 19 revised in advance, as from 30 June 2012.

2.2 Amendments and interpretations applied as from 1 January 2013 and not relevant to the Group

The following amendments and interpretations, applicable as from 1 January 2013, regulate specific cases which are not present within the Group at the date of these Condensed Consolidated Interim Financial Statements:

  • On 20 December 2010 the IASB issued a minor amendment to IAS 12 – Income Taxes which requires entities to measure deferred tax assets and liabilities arising from an asset based on the manner in which the carrying amount of the asset will be recovered (through continual use or sale). Consequently SIC-21 Income taxes – Recovery of Revalued Non-Depreciable Assets – will no longer be applicable. The amendment is applicable in a retrospective manner from 1 January 2013.
  • On 16 December 2011, the IASB issued some amendments to IFRS 7 – Financial Instruments: Disclosures. The amendment requires information concerning the effects or potential effects of agreements offsetting financial assets and liabilities on financial position. Amendments are applicable for years commencing from or after 1 January 2013 and for interim periods subsequent to this date. Disclosure shall be provided in a retrospective manner.

2.3 Accounting standards, amendments and interpretations which are not yet applicable and not yet adopted in advance by the Group

The competent bodies of the European Union approved the following accounting standards and amendments:

  • On 12 May 2011 the IASB issued standard IFRS 10 - Consolidated Financial Statements which will replace SIC-12 Consolidation - Special Purpose Entities and parts of IAS 27 - Consolidated and Separate Financial Statements that will be renamed Separate Financial Statements and will regulate the accounting treatment of investments in separate financial statements. The new standard deviates from existing standards by identifying the concept of control, according to a new definition, as the determinant factor for the purposes of consolidation of a company in the consolidated financial statements of the parent company. It also provides a guide for determining the existence of control where this is difficult to establish (effective control, potential votes, specific-purpose company, etc.). The standard is applicable in a retrospective manner as from 1 January 2014.
  • On 12 May 2011 the IASB issued the standard IFRS 11 – Joint arrangements which will replace IAS 31 – Interests in Joint Ventures and SIC-13 – Jointly Controlled Entities - Non-Monetary Contributions by Venturers. The new standard provides methods for identifying joint arrangements based on the rights and obligations under such arrangements rather than their actual legal form and establishes the equity method as the only accounting treatment for jointly controlled entities in consolidated financial statements. The standard is applicable in a retrospective manner as from 1 January 2014. After its issue IAS 28 – Investments in Associates was amended to include jointly controlled entities within its scope of application, as of the date the standard became effective
  • On 12 May 2011 the IASB issued standard IFRS 12 – Disclosure on interests in other entities which is a new and complete standard on disclosures to provide on all types of investments including in subsidiaries, joint arrangements, associates, special purpose entities and unconsolidated structured entities. The standard is applicable in a retrospective manner as from 1 January 2014.
  • On 16 December 2011, the IASB issued some amendments to IAS 32 – Financial Instruments: presentation, to clarify the use of some criteria for offsetting financial assets and liabilities contained in IAS 32. The amendments are applicable in a retrospective manner for years commencing from or after 1 January 2014.

At the date of issue of these Condensed Consolidated Interim Financial Statements, competent bodies of the European Union had not completed the approval process necessary for the application of these amendments and standards.

  • On 12 November 2009, the IASB published IFRS 9 – Financial Instruments which was later amended on 28 October 2010. The standard, which is applicable from 1 January 2015, in a retrospective manner, represents the first part of a process to entirely phase out and replace IAS 39 with new criteria for classifying and recognising financial assets and liabilities and for eliminating financial assets (derecognition) from the financial statements. In particular the new standard adopts a single approach for financial assets, based on financial instrument management and the characteristics of contractual cash flows of financial assets, to determine measurement criteria, replacing the rules of IAS 39. For financial liabilities instead, the main change concerns the accounting treatment of fair value changes of a financial liability designated as a financial liability measured at fair value through profit or loss, in the case where changes are due to a change in the creditworthiness of the liability. According to this new standard, the changes will be recognised as "Other comprehensive income" and will no longer be recorded in the income statement.

B) SEGMENT REPORTING

3. Reporting by operating segments

Reporting by operating segments presented below reflects the internal reporting utilised by management for making strategic decisions. Since 24 January 2012, the Piaggio Group's organisation has been based on the geographic areas EMEA and Americas, India and Asia Pacific 2W.

As previously illustrated in comments on the Piaggio Group financial position and performance, consolidated EBITDA was defined as the "Operating Income" gross of amortisation of intangible assets and depreciation of plant, property and equipment, as reported within the consolidated income statement.

INCOME STATEMENT BY GEOGRAPHIC SEGMENT

    Emea and Americas India Asia Pacific 2W Total
   
Sales volumes
(units/000)
1st half of 2013 132.5 117.4 48.5 298.5
1st half of 2012 167.1 97.5 50.8 315.4
Change (34.5) 19.9 (2.3) (16.9)
Change % -20.7% 20.4% -4.6% -5.4%
 
Net turnover
(millions of Euro)
1st half of 2013 414.0 165.9 91.7 671.5
1st half of 2012 503.5 165.0 95.6 764.1
Change (89.5) 0.8 (3.9) (92.5)
Change % -17.8% 0.5% -4.0% -12.1%
 
Gross margin
(millions of Euro)
1st half of 2013 135.9 35.8 35.6 207.3
1st half of 2012 163.2 37.3 35.7 236.3
Change (27.3) (1.5) (0.1) (28.9)
Change % -16.7% -4.1% -0.4% -12.2%
 
EBITDA
(millions of Euro)
1st half of 2013 100.6
1st half of 2012 114.4
Change (13.8)
Change % -12.1%
 
EBIT
(millions of Euro)
1st half of 2013 57.6
1st half of 2012 71.7
Change (14.1)
Change % -19.7%

 

 

C) INFORMATION ON THE CONSOLIDATED INCOME STATEMENT

4. Net revenues €/000 671,549

Revenues are shown net of premiums recognised to customers (dealers).
This item does not include transport costs, which are recharged to customers (€/000 12,956) and invoiced advertising cost recoveries (€/000 2,878), which are posted under other operating income.
The revenues for disposals of Group core business assets essentially refer to the marketing of vehicles and spare parts on European and non-European markets.

Revenues by geographic segment

The breakdown of revenues by geographical segment is shown in the following table:

1st half of 2013 1st half of 2012 Changes
  Amount % Amount % Amount %
In thousands of euros
EMEA and Americas 413,967 61.6 503,477 65.9 (89,510) -17.8
India 165,851 24.7 165,013 21.6 838 0.5
Asia Pacific 2W 91,731 13.7 95,586 12.5 (3,855) -4.0
Total 671,549 100.0 764,076 100.0 (92,527) -12.1

In the first half of 2013, net sales revenues were down overall compared to figures for the same period of the previous year. Only India reported a growth trend, thanks to the Vespa.

5. Costs for materials €/000 386,266

The percentage accounting for net revenues decreased, from 58.0% in the first half of 2012 to 57.5% in the current period following the lower impact of purchases of scooters from the Chinese subsidiary Zongshen Piaggio Foshan, which are sold on European and Asian markets and whose value during the half year amounted to €/000 13,991 (€/000 19,626 in the first half of 2012). The following table details the content of this item:

1st half of 2013 1st half of 2012 Change
In thousands of euros  
Raw, ancillary materials, consumables and goods 423,049 490,608 (67,559)
Change in inventories of raw, ancillary materials, consumables and goods (28,817) (16,872) (11,945)
Change in work in progress of semifinished and finished products (7,966) (30,437) 22,471
Total costs for purchases 386,266 443,299 (57,033)

6. Costs for services, leases and rentals €/000 107,393

Below is a breakdown of this item:

  1st half of 2013 1st half of 2012 Change
In thousands of Euros
Employee costs 8,068 10,831 (2,763)
External maintenance and cleaning services 3,874 3,694 180
Energy. telephone and telex 10,927 10,797 130
Postal expenses 254 313 (59)
Commissions payables 446 465 (19)
Advertising and promotion 12,466 16,152 (3,686)
Technical. legal and tax consultancy and services 12,890 12,824 66
Company boards operating costs 1,247 1,201 46
Insurance 1,804 1,876 (72)
Outsourced manufacturing 8,551 10,804 (2,253)
Transport costs and spare parts 17,136 20,934 (3,798)
Sundry commercial expenses 5,214 8,086 (2,872)
Expenses for public relations 1,496 2,043 (547)
Product warranty costs 4,370 8,281 (3,911)
Quality-related events 1,312 1,312
Bank costs and factoring charges 2,696 2,942 (246)
Costs for leases and rentals 7,797 9,385 (1,588)
Other 4,825 8,741 (3,916)
Insurance from related parties 25 25 0
Services from related parties 1,115 1,035 80
Costs for leases and rentals of related parties 880 883 (3)
Total costs for services 107,393 131,312 (23,919)

The decrease was mainly due to the reduction in the volume of activities.
The saving of €/000 1,588 in costs for leases and rentals is due to the concentration of spare parts at the new warehouse, which made it possible to close other logistics warehouses rented in Italy and France. Costs for leases and rentals include lease rentals for business properties of €/000 3,594, as well as lease payments for car hire, computers and photocopiers.
The item “Other” includes costs for temporary work of €/000 695.

 

7. Employee costs €/000 116,202

Employee costs include €/000 6,625 mainly relating to costs for mobility plans for the Pontedera, Noale and Martorelles production sites.
The reduction during the year is due, among other things, to a considerable part of variable costs related to incentive systems for personnel at all levels, not being included, due to personnel failing to reach their objectives.

 1st half of 20131st half of 2012Change
In thousands of Euros  
Salaries and wages 89,620 91,730 (2,110)
Social security contributions 22,511 22,905 (394)
Post-employment benefits 3,776 4,187 (411)
Other costs 295 671 (376)
Total 116,202 119,493 (3,291)

Below is a breakdown of the head count by actual number and average number:

Average number
1st half of 2013 1st half of 2012 Change
Level
Senior Management 96 95 1
Middle Management 573 572 1
White collars 2,185 2,180 5
Manual labour 5,480 5,406 74
Total 8,334 8,253 81

Average employee numbers were affected by seasonal workers in the summer (on fixed-term and temporary employment contracts).

In fact the Group uses fixed-term employment contracts to handle typical peaks in demand in the summer months.

  Number as of
30 June 2013 31 December 2012 Change
Level
Senior Management 97 96 1
Middle Management 584 573 11
White collars 2,142 2,214 (72)
Manual labour 5,327 5,246 81
Total 8,150 8,129 21

Changes in employee numbers in the two periods are compared below:

As of 31/12/2012 Incoming Leavers Relocations As of 30/06/2013
Level
Senior Management 96 7 (8) 2 97
Middle Management 573 32 (42) 21 584
White collars 2,214 106 (161) (17) 2,142
Blue collars 5,246 1,737 (1,650) (6) 5,327
Total (*) 8,129 1,882 (1,861) 0 8,150
  (*) of which fixed-term contracts 2,031 1,753 (1,586) (223) 1,975

The increase in employee numbers is mainly attributable to the new two-wheeler plant in India, which offset the reductions in other geographic segments.

30 June 2013 31 December 2012 Change
Number as of
EMEA and Americas 4,179 4,318 (139)
India 3,037 2,814 223
Asia Pacific 2W 934 997 (63)
Total 8,150 8,129 21

8. Amortisation, depreciation and impairment costs €/000 43,029

Amortisation and depreciation for the period, divided by category, is shown below:

1st half of 2013 1st half of 2012 Change
In thousands of Euros
Property, plant and equipment:
Buildings 2,410 2,222 188
Plant and equipment 9,157 7,427 1,730
Industrial and commercial equipment 7,462 7,879 (417)
Other assets 916 916 0
Total depreciation of tangible fixed assets 19,945 18,444 1,501
1st half of 2013 1st half of 2012 Change
In thousands of Euros
Intangible assets
Development costs 12,311 11,152 1,159
Industrial patent rights and intellectual property rights 7,822 8,241 (419)
Concessions, licences, trademarks and similar rights 2,412 4,519 (2,107)
Other 539 380 159
Total amortisation of intangible fixed assets 23,084 24,292 (1,208)

The increase in depreciation of property, plant and equipment is due to the new Vespa production site in India and the engine production site in Vietnam, which went into operation in 2012.

The decrease in the amortisation of intangible assets, was due to the change in the useful life of the Aprilia and Moto Guzzi brands, as from 31 December 2012, which was offset by the transition in the period of development costs for some important new vehicles.
As set out in more detail in the paragraph on intangible assets, as from 1 January 2004, goodwill is no longer amortised, but tested annually for impairment.
As of 30 June 2013, the Group verified that EBIT indicated in the approved budget and in the impairment testing plan as of 31 December 2012 was reached for all CGUs, and the rates used are still valid. Therefore no impairment of goodwill occurred.

9. Other operating income €/000 49,385

This item consists of:

1st half of 2013 1st half of 2012 Change
In thousands of Euros
Operating grants 3,340 1,209 2,131
Increases in fixed assets from internal work 17,654 21,511 (3,857)
Sundry sales and income:
  - Rent receipts 151 69 82
  - Capital gains on assets and investments 15 9 6
  - Sale of miscellaneous materials 672 468 204
  - Recovery of transport costs 12,956 15,094 (2,138)
  - Recovery of advertising costs 2,878 2,455 423
  - Recovery of sundry costs 2,012 2,773 (761)
  - Compensation 1,532 1,647 (115)
  - Compensation for quality-related events 58 (58)
  - Contingent asse 763 15 748
  - Licence rights and know-how 911 1,118 (207)
  - Sponsorship 1,632 1,980 (348)
  - Other income 4,869 6,458 (1,589)
Total other operating income 49,385 54,864 (5,479)

The decrease in other operating income is mainly due to a reduction in assets.
Operating grants mainly refer to government and EU grants for research projects. The grants are recognised in profit or loss, with reference to the amortisation of capitalised costs for which the grants were received. This item also includes contributions for exports (€/000 565) received from the Indian subsidiary.
Contingent assets refer to the use of excess provisions for risks.

10. Other operating costs €/000 10,479

This item consists of:

1st half of 2013 1st half of 2012 Change
In thousands of Euros
Provision for future risks 505 241 264
Total provisions for risks 505 241 264
 
Provisions for product warranties 4,728 6,458 (1,730)
Total other provisions 4,728 6,458 (1,730)
 
Duties and taxes not on income 1,930 2,002 (72)
Various subscriptions 520 513 7
Capital losses from disposal of assets 32 6 26
Miscellaneous expenses 1,412 566 846
Total sundry operating costs 3,894 3,087 807
 
Impairment of current receivables 1,352 638 714
Total impairment 1,352 638 714
    
Total 10,479 10,424 55

Overall, this item is in line with the trend of the first half of 2012.

11. Income/(loss) from investments €/000 1,146

Net income from investments refer to €/000 1,000 related to the equity valuation of the investment in the Zongshen Piaggio Foshan joint venture and to €/000 146 for dividends from non-controlling interests.

12. Net financial income (borrowing costs) €/000 (17,111)

The balance of financial income (borrowing costs) for the first half of 2013 was negative by €/000 17,111, registering a decrease compared to the figure of €/000 17,900 for the same period of the previous year. This decrease was due to the capitalisation of € 2.4 million in application of IAS 23 and to the reduction in the cost of funding, which offset the negative effects arising from the increase in debt and currency management.

13. Taxes €/000 16,640

Taxes for the first half of 2013 were estimated assuming a profit before tax accounting for 40%, equal to the best estimate of the average weighted rate expected for the entire year.

14. Profit/(losses) from assets held for disposal or sale €/000 0

At the end of the reporting period, there were no gains or losses from assets held for disposal or sale.

15. Earnings per share

Earnings per share are calculated as follows:

1st half of 2013 11st half of 2012
    
Net profit €/000 24,960 33,792
Earnings attributable to ordinary shares €/000 24,960 33,792
Average number of ordinary shares in circulation 359,777,816 364,463,106
Earnings per ordinary share 0.069 0.093
Adjusted average number of ordinary shares 360,398,207 365,142,135
Diluted earnings per ordinary share 0.069 0.093

The potential effects deriving from stock option plans were considered when calculating diluted earnings per share.

D) INFORMATION ON THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION - ASSETS

16. Intangible assets €/000 657,028

The table below shows the breakdown of intangible assets as of 30 June 2013 and 30 June 2012, as well as changes during the period.


Development costs Patent rights Concessions, licenses and trademarks Goodwill Other Assets under developmnet and advances Total
In thousands of Euros              
Assets as of 01/01/2013 50,060 42,460 67,512 446,940 1,272 52,724 660,968
Investments 10,092 156 181 14,597 25,026
Transitions in the period 35,243 376 26 (35,645) 0
Amortisation (12,311) (7,822) (2,412) (539) (23,084)
Disposals 0 (11) 0 0 0 (11)
Write-downs 0
Exchange differences (2,340) (192) (15) (102) (2,649)
Other changes (3,170) (1,184) 680 452 (3,222)
 
Assets as of 30/06/2013 77,574 33,783 65,100 446,940 1,605 32,026 657,028
 
Assets as of 01/01/2012 45,397 39,509 72,335 446,940 1,436 43,803 649,420
 
Investments 11,911 1,074 169 18,299 31,453
Transitions in the period 11,001 1,813 0 (12,814) 0
Amortisation (11,152) (8,241) (4,519) (380) (24,292)
Disposals (890) (24) 0 0 0 (914)
Write-downs 0
Exchange differences (266) (58) 68 (334) (590)
Other changes (2,923) 68 0 80 (2,775)
 
Assets as of 30/06/2012 53,078 34,141 67,816 446,940 1,293 49,034 652,302

The breakdown of intangible assets for the period and under construction is as follows:

Value as of 30 June 2013 Value as of 31 December 2012 Change

For the period Under development and advances Total For the period Under development and advances Total For the period Under development and advances Total
In thousands of Euros
R&D costs 77,574 26,546 104,120 50,060 49,158 99,218 27,514 (22,612) 4,902
Patent rights 33,783 5,035 38,818 42,460 3,095 45,555 (8,677) 1,940 (6,737)
Concessions, licenses and trademarks 65,100 65,100 67,512 67,512 (2,412) 0 (2,412)
Goodwill 446,940 446,940 446,940 446,940 0 0 0
Other 1,605 445 2,050 1,272 471 1,743 333 (26) 307
Total 625,002 32,026 657,028 608,244 52,724 660,968 16,758 (20,698) (3,940)

Increases mainly refer to the capitalisation of development costs for new products and new engines, as well as the purchase of software.

Development costs include costs for products and engines in projects for which there is an expectation, for the period of the useful life of the asset, to see net sales at such a level in order to allow the recovery of the costs incurred. This item also includes assets under development for €/000 26,546 that represent costs for which the conditions for capitalisation exist, but in relation to products that will go into production in future years.
As regards development costs, new projects capitalised during the first half of 2013 mainly refer to the new Vespa 946 and Aprilia Caponord models.
Borrowing costs related to loans for long-term development products are capitalised as a part of the cost of the actual assets.
Development costs included under this item are amortised on a straight line basis over 5 years (founding products) or 3 years, in consideration of their remaining useful life.
During the first half of 2013, development costs of approximately € 9.0 million were charged directly to the consolidated income statement.

The item Industrial patents and intellectual property rights comprises software for €/000 12,833 and patents and know-how. It includes assets under development for €/000 5,035.
Patents and know-how mainly refer to the Vespa, GP 800, MP3, RSV4, MP3 hybrid, the 1200 cc engine and NT3 prototype.
Industrial patent and intellectual property rights costs are amortised over three years.

The item Concessions, Licences, Trademarks and similar rights, is broken down as follows:

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Guzzi trademark 21,937 22,750 (813)
Aprilia trademark 43,105 44,702 (1,597)
Minor brands 58 60 (2)
Total Trademarks 65,100 67,512 (2,412)

As of 31 December 2012, the residual useful life of the Moto Guzzi and Aprilia brands was revised, in compliance with IAS 38, section 104 (as of 31/12/2011, the residual useful life for both brands was 8 years). In particular, the revision of the residual useful life is based on the assumption related to the potential and future economic benefits arising from the considerable investments made in recent years by the Piaggio Group to renew the range of Moto Guzzi and Aprilia products that change the expectations and potential of future economic benefits related to the industrial and commercial use of both brands. As provided for by IAS/IFRS, the residual useful life of the Moto Guzzi and Aprilia brands was therefore extended to 2026, changing the annual amortisation quota calculated on the residual net book value. This change was applied on an annual and prospective basis starting from 2012, as provided for by IAS 8.
The accounting effects are as follows:

Aprilia trademark Moto Guzzi trademark
Expected useful life
Previous valuation Up to 2019 Up to 2019
New valuation Up to 2026 Up to 2026
Annual amortisation
€/000 Previous valuation 5,987 3,047
New valuation 3,193 1,625
Annual charge of deferred taxes
€/000 Previous valuation (794) (955)
New valuation (423) (509)
Annual net impact on the Income Statement
€/000 Previous valuation 5,193 2,092
New valuation 2,770 1,116
Difference 2,423 976

Goodwill derives from the greater value paid compared to the corresponding portion of the subsidiaries shareholders’ equity at the time of purchase, less the related accumulated amortisation until 31 December 2003. During first-time adoption of the IFRS, the Group opted not to retroactively apply IFRS 3 - Business Combinations to acquisitions of companies that took place before 1st January 2004. As a result, the goodwill generated on acquisitions prior to the date of transition to IFRSs was maintained at the previous value, determined according to Italian accounting standards, subject to assessment and recognition of any impairment losses.

Following the reorganisation by geographic segments, starting from 24 January 2012 goodwill is broken down as follows:

EMEA and AMERICAS INDIA ASIA PACIFIC 2W TOTAL
In thousands of Euros        
30 06 2013 305,311 109,695 31,934 446,940
31 12 2012 305,311 109,695 31,934 446,940

Goodwill cannot be amortised, but is tested for impairment annually or frequently, if specific events take place or changed circumstances indicate that the asset may have been affected by impairment, to identify impairment as provided for by IAS 36 - Impairment of Assets.
The possibility of reinstating booked values is verified by comparing the net book value of individual cash generating units with the recoverable value (value in use). This recoverable value is represented by the present value of future cash flows which, it is estimated, will be derived from the continual use of goods referring to cash generating units and by the final value attributable to these goods.
The recoverability of goodwill is verified at least once per year (as of 31 December), even in the absence of indicators of impairment losses.
As of 30 June 2013, the Group verified that EBIT indicated in the approved budget and in the impairment testing plan as of 31 December 2012 was reached for all CGUs, and the rates used are still valid. Therefore no impairment of goodwill occurred.

The item Other intangible assets totalled €/000 2,050 and mainly consist of charges sustained by Piaggio Vietnam.

17. Property, plant and equipment €/000 317,076

The table below shows the breakdown of tangible assets as of 30 June 2013 and 30 June 2012, as well as movements during the period.


Land Buildings Plant and equipment Equipment Other assets Assets under development and advances Total
In thousands of euros                 
Assets as of 01/01/2013 31,586 97,399 95,352 29,874 6,549 60,255 321,015
Investments 165 1,217 2,820 349 13,782 18,333
Transitions in the period 13,230 21,183 4,205 535 (39,153) 0
Depreciation (2,410) (9,157) (7,462) (916) (19,945)
Disposals 0 0 (13) (76) 0 (89)
Write-downs 0 0
Exchange differences (1,111) (3,493) (6) (170) (601) (5,381)
Other changes 0 3,163 (151) 131 0 3,143
 
Assets as of 30/06/2013 31,586 107,273 108,265 29,267 6,402 34,283 317,076
 
Assets as of 01/01/2012 31,586 84,810 69,589 31,140 6,230 51,516 274,871
 
Investments 158 1,466 3,997 370 31,202 37,193
Transitions in the period 7,988 21,562 2,102 813 (32,465) 0
Depreciation (2,222) (7,427) (7,879) (916) (18,444)
Disposals 0 (10) (40) (46) (34) (130)
Write-downs 0 0
Exchange differences (196) (779) (3) (13) 567 (424)
Other changes 1,363 6,436 1,023 151 0 8,973
 
Assets as of 30/06/2012 31,586 91,901 90,837 30,340 6,589 50,786 302,039

The breakdown of property, plant and equipment for the period and under construction is as follows:

Value as of 30 June 2013 Value as of 31 December 2012 Change

For the period Under developmnet and advances Total For the period Under developmnet and advances Total For the period Under developmnet and advances Total
In thousands of Euros         
Land 31,586 31,586 31,586 31,586 0 0 0
Buildings 107,273 2,282 109,555 97,399 14,806 112,205 9,874 (12,524) (2,650)
Plant and equipment 108,265 17,715 125,980 95,352 31,460 126,812 12,913 (13,745) (832)
Equipment 29,267 13,640 42,907 29,874 13,189 43,063 (607) 451 (156)
Other assets 6,402 646 7,048 6,549 800 7,349 (147) (154) (301)
Total 282,793 34,283 317,076 260,760 60,255 321,015 22,033 (25,972) (3,939)

Property, plant, and equipment mainly refer to Group production facilities in Pontedera (Pisa), Noale (Venice), Mandello del Lario (Lecco), Baramati (India) and Vinh Phuc (Vietnam), as well as to the Spanish site at Martorelles, which is no longer operating. The net book value of the latter site was confirmed by a specific appraisal conducted by an independent expert who, pursuant to IAS 36, made an evaluation of the "Fair Value less cost of disposal" based on a market approach (as provided for in IFRS 13). This analysis did not indicate any impairment.
The increases mainly relate to the construction of moulds for new vehicles launched during the period and to the logistic and industrial reorganisation of external local units. Borrowing costs relative to loans for the construction of assets that are long-term prior to being ready for use are capitalised as a part of the cost of the actual assets.

As of 30 June 2013, the net values of assets held under leases were as follows:

As of 30 June 2013
In thousands of Euros
Mandello del Lario site (land and building) 13,133
Total 13,133

Future lease rental commitments are detailed in note 30.

18. Investment Property €/000 0

As of 30 June 2013 no investment property was held.

19. Investments €/000 7,049

The Investments heading comprises:

  As of 30 June 2013As of 31 December 2012 Change
In thousands of Euros
Interests in joint ventures 6,838 5,838 1,000
Investments in affiliated companies 211 211
Total 7,049 6,049 1,000

The value of investments in joints ventures refers to the valuation of the portion of shareholders' equity in the Zongshen Piaggio Foshan joint venture held by the Group, adjusted to take account of the measurement criteria adopted by the Group, as well as the recoverable value determined during impairment testing carried out by the Parent Company.

20. Other non-current financial assets €/000 12,064

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Financial receivables due from third parties 30 (30)
Fair value of hedging derivatives 11,901 12,854 (953)
Investments in other companies 163 163 0
Total 12,064 13,047 (983)

The item "Fair value of hedging derivatives" refers for €/000 7,224 to the fair value of the cross currency swap related to a private debenture loan, for €/000 4,600 to the fair value of the cross currency swap related to a medium-term loan of the Indian subsidiary and for €/000 77 to the fair value of the cross currency swap related to a medium-term loan of the Vietnamese subsidiary. For further details, see attachment F – Information on financial instruments.

21. Current and non-current tax receivables €/000 27,840

Receivables due from tax authorities consist of:

  As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
VAT receivables 24,963 16,412 8,551
Income tax receivables 1,225 1,636 (411)
Other receivables due from the public authorities 1,652 1,739 (87)
Total tax receivables 27,840 19,787 8,053

Non-current tax receivables totalled €/000 5,648, compared to €/000 1,195 as of 31 December 2012, while current tax receivables totalled €/000 22,192 compared to €/000 18,592 as of 31 December 2012. The increase is due to higher VAT receivables of the Parent Company and Indian subsidiary. The item “other receivables due from the public administration" mainly includes the advance payment of regional production tax.

22. Deferred tax assets €/000 36,829

These totalled €/000 36,829 compared to €/000 36,714 as of 31 December 2012.

As part of measurements to define deferred tax assets, the Group mainly considered the following:

  1. tax regulations of countries where it operates, the impact of regulations in terms of temporary differences and any tax benefits arising from the use of previous tax losses;
  2. the taxable income expected for each company, in the mid term, and the economic and tax effects arising from implementation of the organisational structure.

In view of these considerations, and with a prudential approach, it was decided to not wholly recognise the tax benefits arising from losses that can be carried over and from temporary differences.

23. Trade receivables (current and non current) €/000 126,393

As of 30 June 2013 current trade receivables amounted to €/000 126,365 compared to €/000 63,079 as of 31 December 2012.
At the same date, non-current trade receivables amounted to €/000 28.

Their breakdown was as follows:

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Trade receivables 125,509 62,161 63,348
Receivables due from Group companies valued at equity 751 946 (195)
Receivables due from affiliated companies 133 - 133
Total 126,393 63,107 63,286

Receivables due from Group companies valued at equity comprise amounts due from Zongshen Piaggio Foshan Motorcycles.

The item "Trade receivables" comprises receivables referring to normal sale transactions, recorded net of the provision for bad debts of €/000 26,946.

The Group sells a large part of its trade receivables with and without recourse. Piaggio has signed contracts with some of the most important Italian and foreign factoring companies as a move to optimise the monitoring and the management of its trade receivables, besides offering its customers an instrument for funding their own inventories, for factoring classified as without the substantial transfer of risks and benefits. On the contrary, for factoring without recourse, contracts have been formalised for the substantial transfer of risks and benefits.
As of 30 June 2013, trade receivables still due sold without recourse totalled €/000 125,408.Of these amounts, Piaggio received payment prior to natural expiry, of €/000 106,484.

As of 30 June 2013, advance payments received from factoring companies and banks, for trade receivables sold with recourse totalled €/000 30,179 with a counter entry recorded in current liabilities.

24. Other current and non-current receivables €/000 40,792

Other receivables included in non-current assets totalled €/000 13,578 against €/000 13,781 as of 31 December 2012, whereas other receivables included in current assets totalled €/000 27,214 compared to €/000 37,301 as of 31 December 2012. They consist of:

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Other non-current receivables:
Receivables due from Group companies 138 (138)
Receivables due from affiliated companies 231 234 (3)
Prepaid expenses 10,267 10,643 (376)
Advances to employees 86 84 2
Security deposits 679 443 236
Receivables due from others 2,315 2,239 76
Total non-current portion 13,578 13,781 (203)

Receivables due from affiliated companies regard amounts due from the Fondazione Piaggio (Foundation).

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Other current receivables:
Receivables due from the Parent Company 6,544 6,359 185
Receivables due from Group companies valued at equity 303 194 109
Receivables due from affiliated companies 40 57 (17)
Accrued income 961 631 330
Prepaid expenses 4,968 8,162 (3,194)
Advance payments to suppliers 472 5,503 (5,031)
Advances to employees 542 2,136 (1,594)
Fair Value of hedging derivatives 326 326
Security deposits 214 263 (49)
Receivables due from others 12,844 13,996 (1,152)
Total current portion 27,214 37,301 (10,087)

Receivables due from the Parent Company regard the assignment of tax receivables that took place within the group consolidated tax procedure.
Receivables due from Group companies valued at equity comprise amounts due from Zongshen Piaggio Foshan.
Receivables due from affiliated companies are amounts due from the Fondazione Piaggio and Immsi Audit.
The item fair value of hedging derivatives mainly refers to hedging derivatives related to the exchange risk on forecast transactions recognised on a cash flow hedge basis.

25. Inventories €/000 256,992

This item comprises:

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Raw materials and consumables 119,883 97,750 22,133
Provisions for write-down (13,013) (13,352) 339
Net value 106,870 84,398 22,472
Work in progress and semifinished products 16,159 20,678 (4,519)
Provisions for write-down (852) (852) 0
Net value 15,307 19,826 (4,519)
Finished products and goods 154,472 143,049 11,423
Provisions for write-down (19,870) (26,264) 6,394
Net value 134,602 116,785 17,817
Advances 213 77 136
Total 256,992 221,086 35,906

The increase is related to the production peak during summer months.
The reduction in the provision for end products is mainly due to the scrapping of some obsolete spare parts.

26. Other current financial assets €/000 0

This item comprises:

  As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Time deposits 1,260 (1,260)
Total 1,260 (1,260)

The value as of 31 December 2012 referred to the sum collected from the sale of a licence in France, which according to local legislation, had been frozen in a bank deposit, until expiry of the three-year period granted by law for any claimants.

27. Cash and cash equivalents €/000 101,881

The item, which mainly includes short-term and on demand bank deposits, is broken down as follows:

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Bank and postal deposits 101,568 71,424 30,144
Cash on hand 52 59 (7)
Securities 261 14,627 (14,366)
Total 101,881 86,110 15,771

The item Securities refers to deposit agreements entered into by the Indian subsidiary to effectively use temporary liquidity.

28. Assets held for sale €/000 0

As of 30 June 2013, there were no assets held for sale.

INFORMATION ON THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION - LIABILITIES

29. Share capital and reserves €/000 429,164

Share capital 205,307

The change in share capital during the six-month period was as follows:

  
In thousands of Euros
Subscribed and paid up capital 205,941
Treasury shares purchased as of 31 December 2012 (6,437)
Share capital as of 1 January 2013 199,504
 
Exercise of stock options 11
Cancellation of treasury shares 6,066
Purchase of treasury shares (274)
 
Share capital as of 30 June 2013 205,307

On 15 April 2013 the General Shareholders’ Meeting of Piaggio & C, resolved to annul 11,049,021 treasury shares of the Company, subject to elimination of the nominal value of ordinary shares in circulation and without a reduction in the amount of share capital.
During the six-month period, 19,200 new ordinary shares were issued, offered to and subscribed by stock option plan beneficiaries.
Therefore, as of 30 June 2013, the nominal share capital of Piaggio & C., fully subscribed and paid up, was equal to € 205,952,233.02 divided into 360,764,080 ordinary shares.
During the six-month period, 491,156 ordinary shares were purchased. As of 30 June 2013, the Parent Company held 1,168,656 treasury shares, equal to 0.324% of the share capital.
In accordance with international accounting standards, the acquisitions were recognised as a decrease of shareholders' equity.

As of 30 June 2013, according to the shareholder ledger, notifications received pursuant to article 120 of Italian Legislative Decree no. 58/1998 and other information available, the following shareholders hold voting rights, either directly or indirectly, exceeding 2% of the share capital:

Declarer Direct shareholder % of ordinary share capital % of ordinary share rights
 
Omniaholding S.p.A. IMMSI S.p.A. 54.6697 54.6697
Omniaholding S.p.A. 0.03 0.03
Total 54.6997 54.6997
    
Diego della Valle Diego della Valle & C. S.a.p.a. 5.4491 5.4491
Total 5.4491 5.4491

Share premium reserve €/000 3,517

The share premium reserve as of 30 June 2013 had increased by €/000 24, following the subscription of 19,200 stock options.

Legal reserve €/000 16,902

The legal reserve increased by €/000 2,309 as a result of the allocation of earnings for the last period.

Other reserves €/000 (13,791)

This item consists of:


As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros   
Translation reserve (20,839) (16,902) (3,937)
Stock option reserve 13,385 13,385 0
Financial instruments’ fair value reserve (1,471) (3,269) 1,798
IFRS transition reserve (5,859) (5,859) 0
Total other reserves (14,784) (12,645) (2,139)
Consolidation reserve 993 993 0
Total (13,791) (11,652) (2,139)

The financial instruments fair value provision is negative and refers to the effects of cash flow hedge accounting in foreign currencies, interest and specific business transactions. These transactions are described in full in the note on financial instruments.
The consolidation reserve was generated after the acquisition - in the month of January 2003 - of the shareholding in Daihatsu Motor Co. Ltd in P&D S.p.A., equal to 49% of the share capital, by Piaggio & C. S.p.A.

Distributed dividends €/000 33,087

In May 2013, dividends totalling €/000 33,087 were paid. In May 2012, dividends totalling €/000 29,877 were paid.

Earnings reserve €/000 216,286

Share capital and reserves attributable to non-controlling interests €/000 943

The end of period figures refer to non-controlling interests in Piaggio Hrvatska Doo and Aprilia Brasil Industria de Motociclos S.A.

Other components of the Statement of Comprehensive Income €/000 (1,655)

The figure is broken down as follows:


1st half of 2013 1st half of 2012 Change
In thousands of euros   
Items that will not be reclassified in the income statement
Remeasurements of post employment benefit obligations 491 (2,101) 2,592
Total 491 (2,101) 2,592
Items that may be reclassified in the income statement
Total translation gains (losses) (3,944) (970) (2,974)
Total profits (losses) on cash flow hedge instruments 1,798 (703) 2,501
Total (2,146) (1,673) (473)
Other components of the Statement of Comprehensive Income (1,655) (3,774) 2,119

30. Current and non-current financial liabilities €/000 571,327

In the first half of 2013, the Group’s overall debt increased by €/000 79,711, from €/000 491,616 to €/000 571,327. Net of the fair value measurement of financial derivatives to hedge the exchange risk and interest rate risk, and the adjustment of relative hedged items, as of 30 June 2013 total financial debt of the Group increased by €/000 80,852.

Financial liabilities as of 30 June 2013 Financial liabilities as of 31 December 2012 Change
  Current Non Current Total Current Non Current Total Current Non Current Totale
In thousands of Euros         
Gross financial debt 146.948 413.114 560.062 115.042 364.168 479.210 31.906 48.946 80.852
Fair Value of hedging derivatives 11.265 11.265 12.406 12.406 (1.141) (1.141)
Total 146.948 424.379 571.327 115.042 376.574 491.616 31.906 47.805 79.711

The Group’s net debt amounted to €/000 458,181 as of 30 June 2013 compared to €/ 000 391,840 as of 31 December 2012, as can be seen in the table on Net Debt included in the financial statements. The increase in debt of €/000 66,341 is due to the investments programme, distribution of dividends and increase in working capital. Financial liabilities included in non-current liabilities totalled €/000 413,114 against €/000 364,168 as of 31 December 2012, whereas other financial liabilities included in current liabilities totalled €/000 146,948 compared to €/000 115,042 as of 31 December 2012.

The attached tables summarise the breakdown of financial debt as of 30 June 2013 and as of 31 December 2012, as well as changes for the period.

Accounting balance as of 31/12/2012 Repayments New issues    Reclassification to the current portion   Exchange delta    Other changes Accounting balance as of 30/06/2013
In thousands of Euros
Non-current portion:
Bank financing 160,277 66,452 (15,007) (1,910) 209,812
Bonds 193,550 863 194,413
Other medium-/long-term loans:
   - of which leases 5,809 (484) 5,325
  - of which amounts due to other lenders 4,532 (968) 3,564
Total other loans 10,341 0 0 (1,452) 0 0 8,889
Total 364,168 0 66,452 (16,459) 0 (1,047) 413,114
Accounting balance as of 31/12/2012 Repayments New issues    Reclassification to the current portion    Exchange delta    Other changes Accounting balance as of 30/06/2013
In thousands of Euros
Current portion:
Current account overdrafts 1,970 562 (6) 2,526
Current account payables 59,973 23,043 (511) 82,505
Bonds -
Payables due to factoring companies 19,179 11,000 30,179
Current portion of medium-/long-term loans:
  - of which leases 936 (463) 484 957
  - of which due to banks 31,363 (15,621) 15,007 (1,711) 116 29,154
  - of which amounts due to other lenders 1,621 (962) 968 1,627
Total other loans 33,920 (17,046) 0 16,459 (1,711) 116 31,738
Total 115,042 (17,046) 34,605 16,459 (2,228) 116 146,948

The breakdown of the debt is as follows:

  Accounting balance as of 30/06/2013 Accounting balance as of 31/12/2012 Nominal value as of 30/06/2013 Nominal value as of  31/12/2012
In thousands of Euros           
Bank financing 323,997 253,583 325,907 253,699
Debenture loan 194,413 193,550 201,799 201,799
Other medium-/long-term loans:
  - of which leasing 6,282 6,745 6,282 6,745
  - of which amounts due to other lenders 35,370 25,332 35,370 25,332
Total other loans 41,652 32,077 41,652 32,077
Total 560,062 479,210 569,358 487,575

The table below shows the debt servicing schedule as of 30 June 2013:

  Nominal value as of 30/06/2013 Amounts falling due within 12 months Amounts falling due after 12 months  Amounts falling due in
    2nd half of 2014 2015 2016 2017 Beyond
In thousands of Euros                 
Bank financing 325,907 114,185 211,722 20,283 107,414 31,266 20,256 32,503
 - including opening of credit lines and bank overdrafts 85,031 85,031 0
  - of which medium/long-term bank loans 240,876 29,154 211,722 20,283 107,414 31,266 20,256 32,503
Debenture loan 201,799 0 201,799 150,000 9,669 42,130
Other medium-/long-term loans:
  - of which leases 6,282 957 5,325 5,325
  - of which amounts due to other lenders 35,370 31,806 3,564 663 1,639 312 314 636
Total other loans 41,652 32,763 8,889 5,988 1,639 312 314 636
Total 569,358 146,948 422,410 26,271 109,053 181,578 30,239 75,269

The following table analyses financial debt by currency and interest rate.

  Accounting balance as of 31,12,2012  Accounting balance as of 30,06,2013  Notional value as of 30,06,2013  Applicable
interest rate
In thousands of Euros  
Euro 429,052 494,662 503,958 4.28%
     
Indian Rupee 25,291 25,644 25,644 10.30%
Indonesian Rupiah 2,989 2,234 2,234 8.00%
US Dollar 3,032 1,529 1,529 2.10%
Vietnamese Dong 14,894 32,554 32,554 11.71%
Japanese Yen 3,952 3,439 3,439 1.90%
     
Total currencies other than euro 50,158 65,400 65,400 10.29%
     
Total 479,210 560,062 569,358 4.97%

Medium and long-term bank debt amounts to €/000 238,966 (of which €/000 209,812 non-current and €/000 29,154 current) and consists of the following loans:

  • a €/000 64,286 medium-term loan from the European Investment Bank to finance Research & Development investments planned for the period 2009-2012. The loan will fall due in February 2016 and has an initial amortisation quota of 14 six-monthly instalments to be repaid at a variable rate equal to the six-month Euribor plus a spread of 1.323%. Contract terms provide for covenants (described in more detail in attachment F). An interest rate swap was taken out on the loan to hedge the interest rate risk (described in more detail in attachment F);
  • a €/000 60,000 medium-term loan from the European Investment Bank to finance Research & Development investments planned for the period 2013-2015. The loan will fall due in December 2019 and has an amortisation quota of 11 six-monthly instalments at a fixed rate of 2.723%. Contract terms provide for covenants (described in more detail in attachment F);
  • a medium-term revolving syndicated loan of €/000 63,090 (nominal value of €/000 65,000) granted in December 2011 and finalised in January 2012, as suspension conditions had been met. The loan, of a total value of €/000 200,000, has an irrevocable duration of 4 years and because of this commitment undertaken by the lenders, inter-annual use may be extended up to final maturity. Consequently, the loan is classified under non-current liabilities. Contract terms provide for covenants (described in more detail in attachment F);
  • a €/000 23,537 medium-term loan for USD/000 36,850 granted by International Finance Corporation (a World Bank member) to the subsidiary Piaggio Vehicles Private Limited with interest accruing at a variable rate. The loan will fall due on 15 July 2019 and has an amortisation quota of six-monthly instalments from January 2014. Contract terms provide for a guarantee from the Parent Company and compliance with some covenants (described in more detail in attachment F). Cross currency swaps were taken out on the loan to hedge the exchange risk and interest rate risk (for more details, see attachment F);
  • a €/000 14,857 medium-term loan for USD/000 19,680 granted by International Finance Corporation to the subsidiary Piaggio Vietnam with interest accruing at a variable rate. The loan will fall due on 15 July 2018 and has an amortisation quota of six-monthly instalments from July 2014. Contract terms provide for a guarantee from the Parent Company and compliance with some covenants (described in more detail in attachment F). Cross currency swaps were taken out on the loan to hedge the exchange risk and interest rate risk (for more details, see attachment F);
  • a €/000 3,125 five-year unsecured loan from GE Capital Interbanca stipulated in September 2008;
  • €/000 4,465 of loans from various banks pursuant to Italian Law no. 346/88 on subsidised applied research;
  • a €/000 4,556 loan from Banca Intesa granted pursuant to Italian Law no. 297/99 on subsidised applied research;
  • a €/000 1,050 eight-year subsidised loan from ICCREA in December 2008 granted under Italian Law 100/90.

All the above financial liabilities are unsecured.

The item Bonds for €/000 194,413 (nominal value of €/000 201,799) refers to:

  • €/000 142,938 (nominal value of €/000 150,000) related to a high-yield debenture loan issued on 4 December 2009 for a nominal amount of €/000 150,000, falling due on 1 December 2016 and with a semi-annual coupon with fixed annual nominal rate of 7%. Standard & Poor’s and Moody’s assigned a BB- and Ba3 rating respectively with a stable outlook;
  • €/000 51,475 (nominal value of €/000 51,799) related to a private debenture loan (US Private Placement) issued on 25 July 2011 for $/000 75,000 wholly subscribed by an American institutional investor, payable in 5 annual portions from July 2017, with a semi-annual coupon with fixed annual nominal rate of 6.50%. As of 30 June 2013, the fair value measurement of the debenture loan was equal to €/000 59,265 (the fair value is determined in accordance with IFRS related to the fair value hedge). Cross currency swaps were taken out on this loan to hedge the exchange risk and interest rate risk (for more details, see attachment F).

The items Medium-/long-term bank debt and Bonds include loans which, in accounting terms, have been recognised on an amortised cost basis (revolving loan, high-yield debenture loan and private debenture loan). According to this criterion, the nominal amount of the liability is decreased by the amount of relative costs of issue and/or stipulation, in addition to any costs relating to refinancing of previous liabilities. The amortisation of these costs is determined on an effective interest rate basis, and namely the rate which discounts the future flows of interest payable and reimbursements of capital at the net carrying amount of the financial liability. Some liabilities were recognised at fair value, with relative effects recognised in profit and loss.

Medium-/long-term payables due to other lenders equal to €/000 11,473 of which €/000 8,889 due after the year and €/000 2,584 as the current portion, detailed as follows:

  • a property lease for €/000 6,282 granted by Unicredit Leasing (non-current portion equal to €/000 5,325);
  • subsidised loans for a total of €/000 5,191 provided by the Italian Ministry of Economic Development and Italian Ministry of Education, University and Research using regulations to encourage exports and investment in research and development (non-current portion of €/000 3,564).

Financial advances received from factoring companies and banks, on the sale of trade receivables with recourse, total €/000 30,179.

31. Current and non-current trade payables €/000 425,225

As of 30 June 2013 trade payables included under non-current liabilities totalled €/000 268 compared to €/000 259 as of 31 December 2012. “Tax payables” included in current liabilities totalled €/000 424,957, against €/000 392,893 as of 31 December 2012.

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Amounts due to suppliers 409,372 375,770 33,602
Trade payables due to companies valued at equity 15,028 16,613 (1,585)
Amounts due to parent companies 771 769 2
Trade payables due to other related parties 54 - 54
Total 425,225 393,152 32,073

The growth is basically due to new business or supply chain financing agreements for trade payables.
Payables to companies valued at equity refer to the supply of vehicles from the Chinese subsidiary Zongshen Piaggio Foshan.

32. Current and non-current portions of provisions €/000 24,121

The breakdown and changes in provisions for risks during the period were as follows:

Balance as of 31 December 2012 Allocations Applications Reclassifications Delta exchange rate Balance as of 30 June 2013
In thousands of Euros
Provision for product warranties 14,836 4,728 (4,750) (32) 14,782
Provision for quality-related events 789 (789) 0
Provisions for risk on investments 247 247
Provisions for contractual risks 3,935 (19) 3,916
Provisions for guarantee risks 58 58
Provision for tax risks 17 17
Other provision for risks 5,513 505 (1,023) 92 14 5,101
Total 25,395 5,233 (6,581) 92 (18) 24,121

The breakdown between the current and non-current portion of long-term provisions is as follows:

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Non-current portion:      
Provision for product warranties 4,635 4,501 134
Provision for quality-related events 0
Provisions for risk on investments 247 247 0
Provision for contractual risks 3,916 3,935 (19)
Other provisions for risks and charges3,404 3,669 (265)
Total non-current portion 12,202 12,352 (150)
As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Current portion:      
Provision for product warranties 10,147 10,335 (188)
Provision for quality-related events 789 (789)
Provisions for risk on guarantees 58 58 0
Provision for tax risks 17 17 0
Other provisions for risks and charges 1,697 1,844 (147)
Total current portion 11,919 13,043 (1,124)

The product warranty provision relates to allocations for technical assistance on products covered by customer service which are estimated to be provided over the contractually envisaged warranty period. This period varies according to the type of goods sold and the sales market, and is also determined by customer take-up to commit to a scheduled maintenance plan.
The provision increased during the period by €/000 4,728 and was used for €/000 4,750 in relation to charges incurred during the period.
The provision for quality-related incidents, which covers possible costs that could arise from faulty components from suppliers, was used during the period, following the positive outcome of an ongoing dispute.
The provision for risks on investments was established for costs that may arise from any foreign companies which currently have a negative shareholders' equity.
The provision of contractual risks refers mainly to charges which may arise from the ongoing negotiation of a supply contract.
The provision for tax risks concerns council tax for the Scorzè site.
“Other provisions” include provisions for legal risks for €/000 3,195.

33. Deferred tax liabilities €/000 8,639

Deferred tax liabilities totalled €/000 8,639 compared to €/000 6,639 as of 31 December 2012. The change is mainly related to the recognition of deferred taxes on reserves of the Indian subsidiary which will be taxed when transferred to the Parent Company.

34. Retirement funds and employee benefits €/000 49,752

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Retirement funds 1,113 1,101 12
Post-employment benefits provision 48,639 49,369 (730)
Total 49,752 50,470 (718)

Retirement funds comprise provisions for employees allocated by foreign companies and additional customer indemnity provisions, which represent the compensation due to agents in the case of the agency contract being terminated for reasons beyond their control. Uses refer to the payment of benefits already accrued in previous years, while allocations refer to benefits accrued in the period.

The item “Post-employment benefits provision”, comprising severance pay of employees of Italian companies, includes post-employment benefits indicated in defined benefit plans.
As regards the discount rate, the iBoxx Corporates A rating with a 10+ duration as of 30 June 2013 was used as the valuation reference. If the iBoxx Corporates AA rating with a 10+ duration had been used, the value of actuarial losses and the provision would have been higher by € 1,434 thousand.

35. Current and non-current tax payables €/000 20,310

“Tax payables” included in current liabilities totalled €/000 20,078, against €/000 15,757 as of 31 December 2012. Non-current tax payables totalled €/000 232 compared to €/000 555 as of 31 December 2012.
Their breakdown was as follows:

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Due for income taxes 8,894 4,285 4,609
Due for non-income tax 39 65 (26)
Tax payables for::
  - VAT 5,930 3,076 2,854
  - withheld tax at source 3,295 5,079 (1,784)
  - other 2,152 3,807 (1,655)
Total 11,377 11,962 (585)
Total 20,310 16,312 3,998

The item includes tax payables recorded in the financial statements of individual consolidated companies, set aside in relation to tax charges for the individual companies on the basis of applicable national laws.
Payables for tax withholdings made refer mainly to withholdings on employees’ earnings, on employment termination payments and on self-employed earnings.

36. Other current and non-current payables €/000 55,406

As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Non-current portion:    
Payables to employees 1 19 (18)
Guarantee deposits 1,822 2,003 (181)
Deferred income 1,071 1,160 (89)
Fair Value of hedging derivatives 1,661 2,841 (1,180)
Other payables 200 400 (200)
Total non-current portion 4,755 6,423 (1,668)
  As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros
Current portion:
Payables to employees 25,751 19,133 6,618
Guarantee deposits 179 (179)
Accrued expenses 6,443 8,450 (2,007)
Deferred income 1,980 1,206 774
Amounts due to social security institutions 5,623 8,827 (3,204)
Fair Value of hedging derivatives 818 1,521 (703)
Sundry payables due to affiliated companies 32 33 (1)
Sundry payables due to parent companies 419 60 359
Payables due to other related parties 94 (94)
Other payables 9,585 10,842 (1,257)
Total 50,651 50,345 306

Other payables included in non-current liabilities totalled €/000 4,755 against €/000 6,423 as of 31 December 2012, whereas other payables included in current liabilities totalled €/000 50,651 compared to €/000 50,345 as of 31 December 2012.
Amounts due to employees include the amount for holidays accrued but not taken of €/000 14,036 and other payments to be made for €/000 11,715.
Payables due to affiliated companies refer to various amounts due to the Fondazione Piaggio.
Payables to parent companies consist of payables to Immsi.
The item Fair Value of hedging derivatives refers to the fair value (€/000 1,661 non-current portion and €/000 818 current portion) of an Interest Rate Swap for hedging, recognised on a cash flow hedge basis as provided for by IAS 39 (see attachment F).
The item Accrued liabilities includes €/000 3,205 for interest on hedging derivatives and relative hedged items measured at fair value.

E) TRANSACTIONS WITH RELATED PARTIES

The main business and financial relations of Group companies with related parties have already been described in the specific paragraph in the Report on Operations to which reference is made here. To supplement this information, the following table provides information by company of outstanding items as of 30 June 2013, as well as their contribution to the respective financial statement item.


Fondazione Piaggio Zongshen Piaggio Foshan IMMSI Audit Is Molas Studio D'Urso Omniaholding IMMSI Total % of accounting item
In thousands of Euros
Income statement
  revenue from sales 32 32 0.00%
  costs for materials 13,991 - 13,991 3.62%
  costs for services and leases and rentals 3 410 49 50 33 1,475 2,020 1.88%
  other operating income - 304 109 25 438 0.89%
  other operating costs 1 6 7 0.07%
  borrowing costs - 102 102 0.58%
 
Assets
  other non-current receivables 231 231 1.70%
  current trade receivables 1 751 132 - 884 0.70%
  other current receivables 34 303 6 - 6,544 6,887 25.31%
 
Liabilities
  financial liabilities falling due after one year 2,900 2,900 0.68%
  current trade payables - 15,028 - 54 - 20 751 15,853 3.73%
  other current payables 32 - - - - 419 451 0.89%

F) INFORMATION ABOUT FINANCIAL INSTRUMENTS

This attachment provides information about financial instruments, their risks, as well as the sensitivity analysis in accordance with the requirements of IFRS 7.

As of 30 June 2013 and as of 31 December 2012, the financial instruments in force were allocated as follows within the Piaggio Consolidated Group Financial Statements:

    As of 30 June 2013 As of 31 December 2012 Change
In thousands of Euros Notes
Assets
Non-current assets        
Other financial assets 20 12,064 13,047 (983)
of which financial receivables 30 (30)
of which from the measurement of derivatives 11,901 12,854 (953)
of which investments in other companies 163 163 0
 
Current assets    
Other financial assets 26 1,260 (1,260)
 
Liabilities
Non-current liabilities      
Financial liabilities falling due after one year 30 424,379 376,574 47,805
of which bonds 194,413 193,550 863
of which bank financing 209,812 160,277 49,535
of which leases 5,325 5,809 (484)
of which other lenders 3,564 4,532 (968)
of which the fair value of hedging derivatives 11,265 12,406 (1,141)
 
Current liabilities        
Financial liabilities falling due within one year 30 146,948 115,042 31,906
of which bank financing 114,185 93,306 20,879
of which leases 957 936 21
of which other lenders 31,806 20,800 11,006

Current and non-current liabilities

Current and non-current liabilities are covered in detail in the section on financial liabilities of the notes, where liabilities are divided by type and detailed by expiry date.

FAIR VALUE MEASUREMENT

IFRS 13 – Fair value measurement applies as from 1 January 2013. The Standard defines fair value on the basis of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In the absence of an active market or market that does not operate regularly, fair value is measured by valuation techniques. The standard defines a fair value hierarchy:

  • level 1 – quoted prices in active markets for assets or liabilities measured;
  • level 2 – inputs other than quoted prices included within Level 1 that are observable directly (prices) or indirectly (derived from prices) on the market;
  • level 3 – inputs not based on observable market data.

The valuation techniques referred to levels 2 and 3 must take into account adjustment factors that measure the risk of insolvency of both parties. To this end, the standard introduces the concepts of Credit Value Adjustment (CVA) and Debit Value Adjustment (DVA): CVA makes it possible to include the counterparty credit risk in the fair value measurement; DVA reflects the risk of insolvency of the Group.
IFRS 7 also requires the fair value of debts recognised on a amortised cost basis to be measured, for disclosure purposes only.
The table below indicates these values:

  Nominal value Carrying amount Fair Value*
High yield debenture loan 150,000 142,938 155,812
Private debenture loan 51,799 51,475 57,128
EIB (R&D loan 2009-2012)64,28664,28664,169
EIB (R&D loan 2013-2015)60,00060,00055,014
Revolving syndicated loan 65,000 63,090  64,960
*the value deducts DVA related to the issuer, i.e. it includes the risk of insolvency of Piaggio.

For payables due within 18 months, the carrying amount is basically considered the same as the fair value.

FAIR VALUE HIERARCHY

The table below shows the assets and liabilities measured and recognised at fair value as of 30 June 2013, by hierarchical level of fair value measurement.

Level 1 Level 2 Level 3
In thousands of euros
Financial assets
Hedging financial derivatives 11,824 77
Investments in other companies 163
Other assets 326
Total 12,150 240
 
Financial liabilities
Hedging financial derivatives
Financial liabilities at fair value recognised through profit or loss (101,458)
Other liabilities (2,479)
Total (103,937)

Hierarchical level 3 refers to the measurement of the existing cross currency swap with the Vietnamese subsidiary. This classification reflects the illiquidity of the local market, which does now allow for a valuation based on conventional criteria. If valuation techniques typical of liquid markets had been adopted, which is not the case for the Vietnamese financial market, derivatives would have had a negative fair value totalling €/000 3,000, rather than €/000 77 (included under financial hedging instruments - level 3) and accrued expenses on financial derivatives equal to €/000 1,016.

The following tables show Level 2 and Level 3 changes during the first half of 2013:

Level 2
In thousands of euros
Balance as of 31 December 2012 (95,622)
Gain (loss) recognised in the income statement
Increases/(Decreases) 3,835
Level 3 reclassification
Balance as of 30 June 2013 (91,787)
Level 3
In thousands of euros
Balance as of 31 December 2012 (33)
Gain (loss) recognised in the income statement 273
Increases/(Decreases)
Other changes
Level 2 reclassification
Balance as of 30 June 2013 240

FINANCIAL RISKS

The financial risks the Group is exposed to are liquidity risk, exchange risk, interest rate risk and credit risk.
The management of these risks is centralised and treasury operations take place in accordance with formal policies and guidelines which are applicable to all Group companies.

Liquidity risk and debt covenants

The liquidity risk arises from the possibility that available financial resources are not sufficient to cover, in due times and procedures, future payments arising from financial and/or commercial obligations. To deal with these risks, cash flows and the Group’s credit line needs are monitored or managed centrally under the control of the Group’s Treasury in order to guarantee an effective and efficient management of the financial resources as well as optimise the debt’s maturity standpoint.
In addition, the Parent Company finances the temporary cash requirements of Group companies by providing direct short-term loans regulated in market conditions or guarantees.
As of 30 June 2013 the most important credit lines irrevocable until maturity (including revolving credit facilities) granted to the Parent Company were as follows:

  • a debenture loan of €/000 150,000 maturing in December 2016;
  • a debenture loan of €/000 75,000 maturing in July 2021;
  • a revolving credit facility of €/000 200,000 maturing in December 2015;
  • a loan of €/000 75,000 maturing in February 2016;
  • a loan of €/000 60,000 maturing in December 2019;
  • a loan of €/000 6,250 maturing in September 2013.

Other Group companies also have the following irrevocable loans:

  • a loan of €/000 36,850 maturing in July 2019;
  • a loan of €/000 19,680 maturing in July 2018.

As of 30 June 2013, the Group had a liquidity of €/000 101,881, undrawn irrevocable credit lines of €/000 155,000 and revocable credit lines of €/000 145,594, as detailed below:

As of 30 June 2013 As of 31 December 2012
In thousands of euros
Variable rate with maturity within one year - irrevocable until maturity 20,000 59,000
Variable rate with maturity beyond one year - irrevocable until maturity 135,000 200,000
Variable rate with maturity within one year - cash revocable 111,594 140,198
Variable rate with maturity within one year - with revocation for self-liquidating typologies 34,000 34,000
Total undrawn credit lines 300,594 433,198

The main loan agreements, fully described in Note 30 on Financial Liabilities, require, in line with market practices for borrowers with a similar credit standing, compliance with:

  1. financial covenants, on the basis of which the company undertakes to comply with certain levels of contractually defined financial indices, with the most significant comprising the ratio of net financial debt/gross operating margin (EBITDA), measured on the consolidated perimeter of the Group, according to definitions agreed on with lenders;
  2. negative pledges according to which the company may not establish collaterals or other constraints on company assets;
  3. "paripassu" clauses, on the basis of which the loans will have the same repayment priority as other financial liabilities, and change of control clauses, which are effective if the majority shareholder loses control of the company;
  4. limitations on the extraordinary operations the company may carry out.

The measurement of financial covenants and other contract commitments is monitored by the Group on an ongoing basis. According to results as of 30 June 2013, all covenants had been fully met.
The debenture loan issued by the company in December 2009 requires compliance with typical covenants of international high-yield market practices. In particular, the company must observe the EBITDA/Net financial borrowing costs index, based on the threshold established in the Prospectus, to increase financial debt defined during issue. In addition, the Prospectus includes some obligations for the issuer, which limit, inter alia, the capacity to:

  1. pay dividends or distribute capital;
  2. make some payments;
  3. grant collaterals for loans;
  4. merge with or establish some companies;
  5. sell or transfer own assets.

Failure to comply with the covenants and other contract commitments of the loan and debenture loan, if not remedied in agreed times, may give rise to an obligation for the early repayment of the outstanding amount of the loan.

Exchange Risk

The Group operates in an international context where transactions are conducted in currencies different from euro. This exposes the Group to risks arising from exchange rates fluctuations. For this purpose, the Group has an exchange rate risk management policy which aims to neutralise the possible negative effects of the changes in exchange rates on company cash-flows.

This policy analyses:

  • The exchange risk: the policy wholly covers this risk which arises from differences between the recognition exchange rate of receivables or payables in foreign currency in the financial statements and the recognition exchange rate of actual collection or payment. To cover this type of exchange risk, the exposure is naturally offset in the first place (netting between sales and purchases in the same currency) and if necessary, by signing currency future derivatives, as well as advances of receivables denominated in currency.

As of 30 June 2013, Piaggio & C. S.p.A. have undertaken the following forward purchase contracts (recognised based on the settlement date):

  • for a value of CAD/000 1,780 corresponding to €/000 1,328 (valued at the forward exchange rate), with average maturity on 31 July 2013;
  • for a value of CNY/000 73,500 corresponding to €/000 9,176 (valued at the forward exchange rate), with average maturity on 3 July 2013;
  • for a value of GBP/000 350 corresponding to €/000 412 (valued at the forward exchange rate), with average maturity on 26 July 2013;
  • for a value of JPY/000 225,000 corresponding to €/000 1,740 (valued at the forward exchange rate), with average maturity on 6 July 2013;
  • for a value of USD/000 10,820 corresponding to €/000 8,318 (valued at the forward exchange rate), with average maturity on 3 July 2013;

and forward sales contracts:

  • for a value of CAD/000 2,420 corresponding to €/000 1,800 (valued at the forward exchange rate), with average maturity on 31 July 2013;
  • for a value of CNY/000 15,500 corresponding to €/000 1,900 (valued at the forward exchange rate), with average maturity on 3 July 2013;
  • for a value of GBP/000 550 corresponding to €/000 645 (valued at the forward exchange rate), with average maturity on 15 September 2013;
  • for a value of JPY/000 115,000 corresponding to €/000 891 (valued at the forward exchange rate), with average maturity on 10 August 2013;
  • for a value of SEK/000 5,300 corresponding to €/000 616 (valued at the forward exchange rate), with average maturity on 5 August 2013;
  • and for a value of USD/000 6,570 corresponding to €/000 5,020 (valued at the forward exchange rate), with average maturity on 30 July 2013.

Details of other operations ongoing at other Group companies are given below:

  • for Piaggio Vehicles Private Limited sales for USD/000 1,814 with average maturity on 25 August 2013 and purchases for €/000 6,000 with average maturity on 15 October 2013;
  • for PT Piaggio Indonesia purchases for €/000 1,000, with average maturity on 5 July 2013;
  • for Piaggio Vietnam purchases for €/000 3,000 with average maturity on 17 July 2013 and sales for €/000 3,000 with average maturity on 17 July 2013.
  • The settlement exchange risk: arises from the conversion into euro of the financial statements of subsidiaries prepared in currencies other than the euro during consolidation. The policy adopted by the Group does not require this type of exposure to be covered.
  • The business risk: arises from changes in company profitability in relation to annual figures planned in the economic budget on the basis of a reference change (the "budget change") and is covered by derivatives. The items of these hedging operations are therefore represented by foreign costs and revenues forecast by the sales and purchases budget. The total of forecast costs and revenues is processed monthly and relative hedging is positioned exactly on the average weighted date of the economic event, recalculated based on historical criteria. The economic occurrence of future receivables and payables will occur during the budget year.

As of 30 June 2013, the Group have undertaken the following hedging transactions on the exchange risk:

  • forward purchase contracts for a value of CNY/000 106,000 corresponding to €/000 12,763 (valued at the forward exchange rate), with average maturity on 13 September 2013.

To hedge the exchange risk alone, cash flow hedging is adopted with the effective portion of profits and losses recognised in a specific shareholders' equity reserve. Fair value is determined based on market quotations provided by main traders.
As of 30 June 2013 the total fair value of instruments to hedge the exchange risk accounted for on a hedge accounting basis was equal to €/000 326. During the period, profits under other components of the Statement of Comprehensive Income were recognised amounting to €/000 464 and profits from other components of the Statement of Comprehensive Income amounting to €/000 247 were reclassified to profits/losses for the period.

The net balance of cash flows during the first half of 2013 in main currencies is shown below:

  Cash flow for the 1st half of 2013
In millions of Euro
Pound Sterling 10.0
Indian Rupee (14.8)
Croatian Kuna 1.3
US Dollar 0.2
Canadian Dollar 5.9
Swiss Franc (1.1)
Vietnamese Dong 0.6
Chinese Yuan* (17.0)
Japanese Yen (5.1)
Total cash flow in foreign currency (20.0)

* cash flow partially in euro

In view of the above, an assumed appreciation/deprecation of 3% of the euro would have generated potential profits for €/000 583 and potential losses for €/000 619 respectively.

Interest rate risk

This risk arises from fluctuating interest rates and the impact this may have on future cash flows arising from financial assets and liabilities. The Group regularly measures and controls its exposure to interest rates changes and manages such risks also resorting to derivative instruments, mainly Interest Rate Swaps and Cross Currency Swaps, as established by its own management policies.

As of 30 June 2013, the following hedging derivatives were taken out:

  • Interest Rate Swap to hedge the variable rate loan for a nominal amount of €/000 117,857 (as of 30 June 2013 for €/000 64,286) granted by the European Investment Bank. The structure has fixed step-up rates, in order to stabilise financial flows associated with the loan; in accounting terms, the instrument is recognised on a cash flow hedge basis, with profits/losses arising from the fair value measurement allocated to a specific reserve in shareholders' equity; as of 30 June 2013, the fair value of the instrument was negative by €/000 2,479; sensitivity analysis of the instrument, assuming a 1% increase and decrease in the shift of the variable rates curve, shows a potential impact on Shareholders' Equity, net of the relative tax effect, equal to €/000 481 and €/000 -494 respectively;
  • a Cross Currency Swap to hedge the private debenture loan issued by the Parent Company for a nominal amount of $/000 75,000. The purpose of the instrument is to hedge both the exchange risk and interest rate risk, turning the loan from US dollars to euro, and from a fixed rate to a variable rate; the instrument is accounted for on a fair value hedge basis, with effects arising from the measurement recognised as profit and loss. As of 30 June 2013, the fair value of the instrument was €/000 7,224. The net economic effect arising from the measurement of the instrument and underlying private debenture loan was equal to €/000 -405; sensitivity analysis of the instrument and its underlying, assuming a 1% increase and decrease in the shift of the variable rates curve, showed a potential impact on the Income Statement, net of the related tax effect, of €/000 157 and €/000 -187 respectively, assuming constant exchange rates; whereas assuming a 1% reversal and write-down of exchange rates, sensitivity analysis identified a potential impact on the Income Statement, net of the relative tax effect, of a negligible amount;
  • a Cross Currency Swap to hedge a loan related to the Indian subsidiary for $/000 36,850 granted by International Finance Corporation. The purpose of the instrument is to hedge the exchange risk and interest rate risk, turning the loan from US dollars to Indian Rupees, and approximately a third of said loan from a variable rate to a fixed rate; As of 30 June 2013, the fair value of the instrument was €/000 4,560. Sensitivity analysis of the instrument and its underlying, assuming a 1% increase and decrease in the shift of the variable rates curve, showed a potential impact on the Income Statement, net of the relative tax effect, of €/000 68 and €/000 -70 respectively, assuming constant exchange rates; Assuming a 1% reversal and write-down of the exchange rate of the Indian Rupee, sensitivity analysis of the instrument and its underlying identified a potential impact on the Income Statement, net of the relative tax effect, of €/000 -15 and €/000 16 respectively;
  • a Cross Currency Swap to hedge a loan related to the Vietnamese subsidiary for $/000 19,680 granted by International Finance Corporation. The purpose of the instrument is to hedge the exchange risk and partially hedge the interest rate risk, turning the loan from US dollars at a variable rate into Vietnamese Dong at a fixed rate, except for a minor portion (24%) at a variable rate. As of 30 June 2013, the fair value of the instrument was equal to €/000 77. The sensitivity analysis of the instrument and its underlying, assuming a 1% increase and decrease in the shift of the variable rates curve, showed a potential impact on the Income Statement, net of the relative tax effect of €/000 162 and €/000 -166 respectively, assuming constant exchange rates. Assuming a 1% reversal and write-down of the exchange rate of the Vietnamese Dong, sensitivity analysis of the instrument and its underlying identified a potential impact on the Income Statement, net of the relative tax effect, of a negligible amount.
FAIR VALUE*
Piaggio & C. S.p.A.  
Interest Rate Swap (2,479)
Cross Currency Swap 7,224
Piaggio Vehicles Private Limited  
Cross Currency Swap 4,560
Piaggio Vietnam  
Cross Currency Swap 77

*the figures deduct CVA/DVA related to the counterparty or issuer.

As of 30 June 2013, variable rate debt, net of financial assets and considering hedging derivatives, was equal to €/000 126,233. Consequently a 1% increase or decrease in the Euribor above this net exposure would have generated higher or lower interest of €/000 1,262.

Credit risk

The Group considers that its exposure to credit risk is as follows:

As of 30 June 2013 As of 31 December 2012
In thousands of Euros
Liquid assets 101,568 71,424
Securities 261 14,627
Financial receivables 1,260
Trade receivables 126,393 63,107
Total 228,222 150,418

The Group monitors or manages credit centrally by using established policies and guidelines. The portfolio of trade receivables shows no signs of concentrated credit risk in light of the broad distribution of our licensee or distributor network. In addition, most trade receivables are short-term. In order to optimise credit management, the Company has established revolving programmes with some primary factoring companies for selling its trade receivables without recourse in Europe and the United States.

G) DISPUTES

Piaggio opposed the proceedings undertaken by the consumer association Altroconsumo, in accordance with article 140 of the Code of Consumers, opposing, also with the filing of a specific technical report written by an independent expert, the alleged existence of a design defect and hazardous nature of the Gilera Runner first series, which was manufactured and sold by Piaggio from 1997 to 2005. The trial judge rejected the claim, ordering Altroconsumo to pay Piaggio's legal fees. Following the appeal made by Altroconsumo, a technical appraisal was ordered to ascertain the existence of the design defect claimed by Altroconsumo. Following the results of the appraisal and hearing held on 18 December 2012, the Board informed the parties on 29 January 2013 that Altroconsumo's appeal had been upheld, ruling Piaggio to (i) inform owners of the hazardous nature of the product, (ii) publish the ruling of the Board in some newspapers and specialised magazines (iii) recall the product. The effects of the ruling were subsequently suspended by the Court of Pontedera with a ruling (“inauditaaltera parte”) of 28 March 2013, concerning the appeal made by Piaggio, in accordance with article 700 of the Italian Code of Civil Proceedings. Following the cross examination with Altroconsumo, the suspension ruling was confirmed by the Court of Pontedera on 3 June 2013. Altroconsumo appealed against the suspension ruling before the Board at the Court of Pisa. A hearing to discuss the claim has been set for 9 October 2013.
Piaggio has also taken action before the Court of Pontedera for a final dismissal of the ruling of the Court of Pisa of 29 January 2013. The first hearing, called for 12 July 2013, was not held because of a lawyer's strike and will take place on 30 July 2013.

Canadian Scooter Corp. (CSC), sole distributor of Piaggio for Canada, summoned Piaggio & C. S.p.A., Piaggio Group Americas Inc. and Nacional Motor S.A to appear before the Court of Toronto (Canada) in August 2009 to obtain compensation for damages sustained due to the alleged infringement of regulations established by Canadian law on franchising (the Arthur Wishart Act). Proceedings have been stopped while a settlement of the dispute is being defined.

By means of the deed of 3 June 2010, the Company took action to establish an arbitration board through the Arbitration Chamber of Milan, for a ruling against some companies of the Case New Holland Group (Italy, Holland and the US), to recover damages under contractual and non-contractual liability relating to the execution of a supply and development contract of a new family of utility vehicles (NUV). In the award notified to the parties on 3 August 2012, the Board rejected the claims made by the Company. The Company has appealed against this award to the Appeal Court of Milan, which has established the first hearing for 4 June 2013. The case has been adjourned to 12 January 2016 for specification of the pleadings.

Da Lio S.p.A., by means of a writ received on 15 April 2009, summoned the Company before the Court of Pisa to claim compensation for the alleged damages sustained for various reasons as a result of the termination of supply relationships. The Company appeared in court requesting the rejection of all opposing requests. Da Lio requested a joinder with the opposition concerning the injunction obtained by Piaggio to return the moulds retained by the supplier at the end of the supply agreement. Judgements were considered and a ruling issued pursuant to article 186ter of the Italian Code of Civil Proceedings, on 7 June 2011, ordering Piaggio to pay the sum of EUR 109,586.60, in addition to interest, relative to sums which were not disputed. During 2012, testimonial evidence was presented. The case will be ruled on by the Judge as concerns further petitions (accounting expert) requested by Da Lio.

In June 2011 Elma srl, a Piaggio dealer since 1995, started two separate proceedings against the Company, claiming the payment of approximately €2 million for alleged breach of the sole agency ensured by Piaggio for the Rome area and an additional €5 million as damages for alleged breach and abuse of economic dependence by the Company. Piaggio opposed the proceedings undertaken by Elma, fully disputing its claims and requesting a ruling for Elma to settle outstanding sums owing of approximately €966,000.
During the case, Piaggio requested the payment of bank guarantees that ensured against the risk of default by the dealer issued in its favour by three banks. Elma attempted to stop payment of the guarantees with preventive proceedings at the Court of Pisa (Pontedera section): the proceedings ended in favour of Piaggio that collected the amounts of the guarantees (over €400,000). Trial proceedings have begun and the hearing for the admission of evidence was held on 24 April 2013, with the Judge still to issue a judgement.
As regards the matter, Elma has also brought a case against a former senior manager of the Company with the Court of Rome, claiming compensation for damages: Piaggio appeared in the proceedings, requesting, among others, that the case be moved to the Court of Pisa. The next hearing will be held on 27 January 2014 for the admission of items of evidence.

In a writ received on 29 May 2007, Gammamoto S.r.l. in liquidation, a former Aprilia licensee in Rome, brought a case against the Company before the Court of Rome for contractual and non-contractual liability. The Company fully opposed the injunction disputing the validity of Gammamoto’s claims and objecting to the lack of jurisdiction of the Judge in charge. The Judge, accepting the petition formulated by the Company, declared its lack of jurisdiction with regards to the dispute. Gammamoto has continued proceedings through the Court of Venice. The Judge admitted testimonial evidence and evidence for examination requested by the parties, establishing the hearing for the preliminary investigation on 12 November 2012. After defining the conclusions of the hearing of 26 June 2013, the terms for final statements and relative replies were granted, and the case will be ruled on.

Leasys–Savarent S.p.A., summoned to appear before the Court of Monza by Europe Assistance in relation to the rental supply of Piaggio vehicles to the Italian Postal System, summoned the Company as a guarantee, also filing for damages against Piaggio for alleged breach of the supply agreement. The Court of Monza declared its lack of jurisdiction concerning the applications filed against Piaggio, and Leasys-Savarent therefore summoned Piaggio to appear before the Court of Pisa. The trial was suspended while awaiting the resolution of the dispute pending before the Court of Monza, which turned down the application of Leasys-Savarent. Leasys-Savarent continued proceedings through the Court of Pisa, applying only for damages against Piaggio. On the hearing of 5 October 2011, the parties requested the admission of preliminary briefs and the Judge deferred its decision. After making its decision, the Judge admitted some of the testimonial evidence requested and rejected the request for a Court-appointed expert. The next hearing, to complete testimonial evidence, will be held on 22 October 2013.

In August 2012, the Nigerian company Autobahn Techniques Ltd brought a case against Piaggio & C. S.p.a. and PVPL before the High Court of Lagos (Nigeria) claiming compensation for alleged damage, estimated as over 5 billion Naira (approximately €20 million), arising from the alleged breach by the Company of the exclusive distribution agreement signed between the parties in 2001. Piaggio appeared before the court, preliminarily claiming the lack of jurisdiction of the Nigerian Court to rule on the dispute due to the existence of an arbitration clause in the agreement. After several hearings, the next hearing, established for the final discussion and decision concerning the preliminary exceptions of Piaggio, will be held on 30 September 2013.

The amounts allocated by the Company for the potential risks deriving from the current dispute appear to be consistent with the predictable outcome of the disputes.

The main tax disputes of other Group companies concern Piaggio Vehicles PVT Ltd e Piaggio France S.A..

With reference to the Indian subsidiary, some disputes concerning different tax years from 1998 to 2011 are ongoing related to direct and indirect tax assessments and for a part of which, considering positive opinions expressed by consultants appointed as counsel, provisions have not been made in the financial statements. The Indian company has already partly paid the amounts contested, as required by local laws, that will be paid back when proceedings are successfully concluded in its favour.

As regards the French company, a favourable ruling was issued in December 2012 by the Commission Nationale des Impotsdirectes et des taxes sur le chiffred’affaires, the decision-making body ruling prior to legal proceedings in disputes with the French tax authorities concerning a general audit of the 2006 and 2007 periods. The French tax authorities however upheld its claims against the company, requesting payment of the amounts claimed. The company therefore filed an appeal against the claims of the local authorities and is waiting for a relative outcome. The Company has not considered allocating provisions necessary, in view of the positive opinions expressed by consultants appointed as counsel, as well as the opinion of the above Commission.

A tax assessment of Piaggio & C. is being conducted for the 2010 tax year.

H) SUBSEQUENT EVENTS

3 July 2013 The Group presented the new Ape Calessino 200, with new stylish shades and finishes, fitted with a new Piaggio 200cc, 4 stroke, single cylinder petrol engine, capable of 7.5 KW, with four gears (plus reverse), making the Ape Calessino possible to drive at 16 years with an A1 licence and at 18 years with a normal B licence.

15 July 2013 The fourth generation Piaggio Liberty made its début, with the new Piaggio 3V engine, available in 125 and 150cc versions. This 4-stroke, electronic injection engine, which is one of the most sophisticated of its kind worldwide, is air cooled and has a single overhead 3 valve cam (2 intake valves and 1 outlet valve); it was designed at the Piaggio Group's research and development centre. The 3 valve technology allows for even better torque and power values compared to previous generation engines and a drastic decrease in fuel consumption: the Liberty 3V 125 can travel at 59 km/l at a speed of 50 km/h, while the Liberty 3V 150 can reach 57 km/l in the same conditions. The seat is entirely new and riders of any height can rest both feet on the ground. The load capacity of the seat compartment has been increased by 23%, from 8.8 to 10.8 litres.

I) COMPANIES IN WHICH THE GROUP HAS EQUITY INVESTMENTS

37. Piaggio Group Companies

In accordance with Consob resolution no. 11971 dated 14 May 1999, and subsequent amendments (article 126 of the Regulation), the list of the Group’s companies and major investments is provided below. The list presents the companies divided by type of control and method of consolidation.
The following are also shown for each company: the company name, the registered office, the country of origin and the share capital in the original currency, in addition to the percentage held by Piaggio & C. S.p.A. or by other subsidiaries.
In a separate column there is an indication of the percentage of voting rights at the ordinary general meeting should it be different from the equity investment percentage in the share capital.

List of companies included in the scope of consolidation on a line-by-line basis as of 30 June 2013.

Company name Registered office Country Share capital Currency % Group ownership Held by % % votes
 
Parent company
Piaggio & C. S.P.A. Pontedera (Pisa) Italy 205,952,233.02 euro  
 
Subsidiaries
Aprilia Brasil Industria de Motociclos S.A. Manaus Brazil 2,020,000.00 reais 51% Aprilia World Service Holding do Brasil Ltda 51%  
Aprilia Racing s.r.l. Pontedera (Pisa) Italy 250,000.00 euro 100% Piaggio & C. S.P.A. 100%  
Aprilia World Service Holding do Brasil Ltda. São Paulo Brazil 2,028,780.00 reais 99.99995% Piaggio Group Americas Inc 99.99995%  
Atlantic 12- Property investment fund Milan Italy 11,491,958.00 euro 100% Piaggio & C. S.P.A. 100%
Derbi Racing S.L. Barcelona Spain 3,006.00 euro 100% Nacional Motor S.A. 100%  
Foshan Piaggio Vehicles Technology Research and Development Co Ltd Foshan City China 10,500,000.00 rmb 100% Piaggio Vespa B.V. 100%
Nacional Motor S.A. Barcelona Spain 1,588,422.00 euro 100% Piaggio & C. S.P.A. 100%  
Piaggio Advanced Design Center Corp. California USA 100,000.00 USD 100% Piaggio & C. S.P.A. 100%
Piaggio Asia Pacific PTE Ltd. Singapore Singapore 100,000.00 sin$  100% Piaggio Vespa B.V. 100%  
Piaggio China Co. LTD Hong Kong China 12,500,000 auth. capital (12,100,000 subscribed and paid up) USD 99.99999% Piaggio & C. S.P.A. 99.99999%  
Piaggio Deutschland GmbH Kerpen Germany 250,000.00 euro 100% Piaggio Vespa B.V. 100%  
Piaggio Espana S.L.U. Alcobendas Spain 426,642.00 euro 100% Piaggio & C. S.P.A. 100%
Piaggio France S.A.S. Clichy Cedex France 1,209,900.00 euro 100% Piaggio Vespa B.V. 100%
Company name Registered office Country Share capital Currency % Group ownership Held by % % votes
Piaggio Group Americas Inc New York USA 2,000.00 USD 100% Piaggio Vespa B.V. 100%
Piaggio Group Canada Inc. Toronto Canada 10,000.00 CAD 100% Piaggio Group Americas Inc 100%
Piaggio Group Japan Tokyo Japan 99,000,000.00 yen 100% Piaggio Vespa B.V 100%
Piaggio Hellas S.A. Athens Greece 2,704,040.00 euro 100% Piaggio Vespa B.V. 100%  
Piaggio Hrvatska D.o.o. Split Croatia 400,000.00 kuna 75% Piaggio Vespa B.V. 75%  
Piaggio Limited Bromley Kent United Kingdom 250,000.00 gbp 100% Piaggio Vespa B.V.
Piaggio & C. S.P.A. 
99.9996%
0.0004% 
 
Piaggio Vehicles Private Limited Maharashtra India 340,000,000.00 rupees 100% Piaggio & C. S.P.A.
Piaggio Vespa B.V. 
99.999997%
0.000003% 
 
Piaggio Vespa B.V. Breda Holland 91,000.00 euro 100% Piaggio & C. S.P.A. 100%  
Piaggio Vietnam Co Ltd Hanoi Vietnam 64,751,000,000.00 Dong 100% Piaggio & C. S.P.A.
Piaggio Vespa B.V. 
63.5%
36.5% 
PT Piaggio Indonesia Jakarta Indonesia 4,458,500,000.00 Rupiah 100% Piaggio & C. S.P.A.
Piaggio Vespa B.V. 
1%
99% 
 

List of companies included in the scope of consolidation with the equity method as of 30 June 2013

Company name Registered office Country Share capital Currency % Group ownership Held by % % votes
Zongshen Piaggio Foshan Motorcycle Co. LTD. Foshan City China 29,800,000.00 USD 45% Piaggio & C. S.P.A.
Piaggio China Co. LTD 
32.5%
12.5% 
 

List of investments in affiliated companies as of 30 June 2013

Company name Registered office Country Share capital Currency % Group ownership Held by % % votes
Depuradora D’Aigues de Martorelles Soc. Coop. Catalana Limitada Barcelona Spain 60,101.21 euro 22% Nacional Motor S.A. 22%  
Immsi Audit S.c.a.r.l. Mantua Italy 40,000.00 euro 25% Piaggio & C. S.p.A. 25%
Pont - Tech, Pontedera & Tecnologia S.c.r.l. Pontedera (Pisa) Italy 884,160.00 euro 20.44% Piaggio & C. S.p.A. 20.44%  
S.A.T. Societé d’Automobiles et Triporteurs S.A. Tunis Tunisia 210,000.00 TND  20% Piaggio Vespa B.V. 20%  

* * *

This document was published on 2 August 2013 and authorised by the Chairman and Chief Executive Officer.

Mantua, 26 July 2013
For the Board of Directors
/f/ Roberto Colaninno

Chairman and Chief Executive Officer

Roberto Colaninno