CONSOLIDATED INTERIM FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 2017

Transcription

1 GVS SPA GROUP CONSOLIDATED INTERIM FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 2017 (un-audited) GVS SpA Headquarter in Via Roma, Zola Predosa (Bologna) - Italy Share capital Euro 1,646,834 fully paid-up - fiscal code No VAT No R.E.A /BO - registered with the companies register of Bologna under No

2 DIRECTOR S REPORT The Directors of GVS SpA (hereinafter also the Company or Parent Company ) present their Report together with the Consolidated Interim financial information of GVS SpA and its subsidiaries (together the Group ) for the six-month period ended June 30, 2017 (hereinafter also referred to as the Consolidated Interim Financial Information ). 1 Highlights Total Production value 72.5M ( 71,5 in 2016): 1,6% YTD growth on the previous year. 22% EBITDA Margin on Production value (21% EBITDA Margin on Production value in H1 2016) 9,9M of EBIT ( 9,3 M of EBIT in H1, 2016) 34,1 M as Net Financial Position: Gearing of 0,57 and NFP/EBITDA of 1,07. 2 Review of operations and financial results Net sales for the six months period ended June 30, 2017 increased by 2% when compared with the same period of prior year, in line with the beginning expectations. EBITDA is some 22% on total production value. The consolidation area has not changed compared to prior year. The net financial position as at June 30, 2017 is negative of some 34,1 million of Euro (39,2 million of Euro as at June 30, 2016) and the projection for the end of the year (without considering extraordinary transactions) shows an improvement thanks to cash will be generated from operating activity. For the cash flow movement of the period refer to consolidated cash flow statement. 2

3 CONSOLIDATED BALANCE SHEET 3

4 4

5 CONSOLIDATED INCOME STATEMENT 5

6 CONSOLIDATED CASH FLOW STATEMENT 6

7 3 General Information The Group's main business is the production and sale of filters for the medical, automotive, Life Science, Safety, Appliance and Commercial&Indutrials sectors. 4 Preamble The Consolidated Interim financial information of GVS SpA (hereinafter also the Company or Parent Company ) and its subsidiaries (together the Group ) for the six-month period ended June 30, 2017 (hereinafter also referred to as the Consolidated Interim Financial Information ) have been prepared on a voluntary basis in order to illustrate to all the GVS stakeholders the performance of its operations in the first six months of the 2017 financial year, accordingly, the information reported in the Interim Financial Information has the purpose indicated above. The Consolidated Interim Financial Information are made up of the Balance Sheet, the Income Statement, the Cash Flow Statements and these Notes to the financial statements, and were prepared in accordance with Accounting Standard no. 30 Interim Financial statements issued by the Organismo Italiano di Contabilità ( OIC, Italian Accounting Board), according to financial statement formats consistent with those making up the annual accounts. The comparative data reported in the Consolidated Interim Financial Information refer for the income statements to the six-month period ended June 30, 2016 and for the balance sheet to the data included in the consolidated financial statements as at December 31, The amounts in the Balance Sheet and the Income Statement are expressed in thousands of Euro as well as the amounts in the Notes are reported in thousands of Euro. The Balance Sheet and the Income Statement give a true and fair view of the Group s asset and liability and financial position, respectively, as well as of the economic result achieved in the period under consideration. The preparation of Consolidated Interim Financial Information in accordance with OIC 30 - Interim Financial Statements requires judgments, estimates and assumptions to be made that have an effect on assets, liabilities, costs and revenues. It should be noted that the final results calculated at the end of the financial year may prove to be partially different from those obtained through these estimates. The accounting schedules of Income Statement and Balance Sheet have been prepared in full form, and are the same as those adopted for the annual accounts ended December 31, The Notes to the financial statements reported below regard an interim report and do not therefore include all the information required for annual year-end accounts. It should be noted, however, that apart from compliance with the minimum disclosure requirements under OIC 30, additional information has been provided in relation to those Income Statement and Balance Sheet components whose composition or variation, whether in terms of amount, nature or because of its unusual character, are considered essential for the purposes of understanding the Group s economic, financial and asset and liability position for the six-month period ended June 30,

8 5 Summary of significant accounting policies To prepare these Consolidated Interim Financial information for the six-month period ended June , accounting standards and policies were adopted which are the same as those applied to the preparation of the financial statements for the year ended December 31, 2016.These standards are those laid down in Article 2423-bis of the Italian Civil Coded, as supplemented by the correct accounting standards issued by the Consigli Nazionali dei Ragionieri e dei Dottori Commercialisti (National Councils of Certified Public Accountants) and the Italian Accounting Board. Specifically, the financial statement items were measured on the basis of general principles of prudence and clarity, on a going-concern basis and taking account of the economic function of each of the elements in the assets and liabilities, in order to give a true and fair view of the Company s asset and liability and financial position, and the economic result for the period. The significant accounting policies applied in the preparation of these consolidated financial accounts and related notes are set out below. 5.1 Consolidation The consolidated financial figures reflect the accounts of GVS SpA and its subsidiaries ( Group ). Subsidiaries are those entities which the Company controls by having the power to govern the financial and operating policies. Subsidiaries are fully consolidated from the date of which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances, income and expenses on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with the policies adopted by the Group. 5.2 Consolidation Area The consolidated financial statements include the statements of the Parent company (GVS SpA) and of its (directly or indirectly owned) subsidiaries. The list of the operative consolidated companies, the names of their direct Shareholder and the percentage of shares directly or indirectly owned by GVS SpA is shown below: 8

9 The consolidation area has not changed compared to prior year. 5.3 Foreign currency translation Items included in the financial statements of each group s entities are measured using the currency of the primary environmental in which the entities operates (the functional currency ). The consolidated financial figures are presented in Euro, which is the Group s functional currency. Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gain and losses resulting from the settlement of such transactions and from the translation at year-end at the exchange rates of monetary assets and liabilities denominated in foreign currency are recognized in the income statement. The result and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the functional currency as follows: - Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; - Income and expenses for each income statements are translated at the average exchange rate; - All resulting exchange differences are recognized in equity in the line translation difference reserve. 5.4 Intangible assets Intangible assets mainly relate to goodwill and consolidation difference. Intangible assets, except for construction in progress, are amortized over their useful life based on the timing of benefits, as described below: 9

10 An intangible asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying value amount is greater than its estimated recoverable amount. Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful life of 3 to 5 years. 5.5 Tangible assets Property, plant and equipment are recognized at cost less accumulated depreciation. Historical cost includes ancillary costs directly attributable to the acquisition of the items. The depreciable amount of an asset, except for land or construction in progress, is calculated on a systematic basis over its expected useful life. The following table contains the depreciation rates considered representative of useful lives of the assets. - Land and construction in progress Not depreciated - Buildings 3% - Light buildings 10% - General plant and machinery 7.5% - Specific plant and machinery 12.5% - Molds and specific equipment 12.5% - Furniture and fittings 12% - Electronic office machinery 20% - Sundry equipment 40% - Internal transport machines and vehicles 20/25% The assets useful lives are reviewed, and adjusted if appropriate, at each year end. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying value amount is greater than its estimated recoverable amount. 10

11 5.6 Own shares Own treasury shares are entered at their purchase cost, possibly deducting any long-lasting decrease in value. Pursuant to Article 2357-ter of the Civil Code, treasury shares are no longer reported in the balance sheet assets (with counter-entry in a net equity unavailable reserve), though directly as a reduction of net equity through the reporting of a negative reserve. 5.7 Inventories Inventories are measured at the lower of cost and net realizable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labor, other direct cost and related production overheads. Net realizable value is the estimated selling price less the estimated costs of completion and the applicable variable selling expenses. 5.8 Receivables (included receivables accounted as financial fixed assets) Receivables are recorded in the accounts according to the amortized cost method, considering the time factor and the assumed realizable value. More specifically, the initial accounting value is given by the nominal value of the receivable, net of all premiums, discounts and rebates, including any costs directly attributable to the transaction that generated the receivable. Transaction costs, any commissions receivable and payable and any difference between the initial value and the nominal value at term are included in the amortized cost computation according to the effective interest method. A suitable provision for bad debts has been instituted due to possible insolvency issues; its consistency with doubtful positions is checked periodically and, in any case, at the end of every fiscal year, bearing in mind of all default situations already occurred or deemed likely and general economic conditions, either by sector or Country. 5.9 Payables Payables are recorded in the accounts according to the amortized cost method, considering the time factor. More specifically, the initial accounting value is given by the nominal value of the payable, net of all transaction costs and premiums, discounts and rebates directly attributable to the transaction that generated the payable. Transaction costs, any commissions receivable and payable and any difference between the initial value and the nominal value at term are included in the amortized cost computation according to the effective interest method Cash and cash equivalents Cash and cash equivalents comprise cash in hand, checks and cash at bank. Cash and cash equivalents are entered at their face value. 11

12 5.11 Provision for risks and charges Provisions for risks and charges are allocated to cover certain or probable losses or payables whose amount or timing was however uncertain at the end of the period. In measuring these provisions, the general principles of prudence and accruals have been complied with and no provisions for general risks devoid of any economic justification have been allocated. Potential liabilities are recognised in the accounts and entered in the provisions as they are deemed probable and when the amount of the related charge can be reasonably estimated Staff leaving indemnity (TFR) This represents the actual debt that has accrued towards the employees in accordance with law and the current labour contracts, considering all forms of remuneration of a continuing nature. The provision corresponds to the total of the individual indemnities accrued to the employees at the reporting date, net of advances paid out, and corresponds to the amount that would have to be paid to the employees in the event of the termination of their employment relationship on that date Income taxes Current taxes are determined by applying the current tax regulations, on the basis of an estimate of the taxable base for tax purposes. In particular, tax charges determined on the basis of the total taxable income for the period are classified under Taxes payable, while assets consisting of receivables from the Tax Authorities for tax refunds and/or tax to be offset in periods subsequent to the relevant period are classified under Tax receivables. Deferred tax assets and liabilities are also recognised on the basis of active or passive temporary differences arising or reversed in the period between the amounts of assets and liabilities resulting from the accounts and the corresponding values for tax purposes. Deferred tax assets are not recognised when there is no reasonable certainty of there being a taxable income in the periods in which the related temporary differences will be reversed that will be such as to make it possible to recover their amount Revenue and costs Revenues and costs are recognised in the Income Statement on an accruals basis at the time of performance, which, for services, is the time when they were provided or received and, for the sale or purchase of assets or goods, is the time of the transfer of ownership. Financial income and charges are recognised on an accruals basis. 12

13 5.15 Leases Leases in which a significant portion of risks and rewards of ownership are retained by the lessor are classified as operating leases. Payment made under operating leases are charged to the income statements on a straight-line basis over the period of the lease. Lease contracts in which the Group has substantially all the significant risk and rewards of ownership are classified as finance leases. Finance leases are capitalized at the leases commencement at the lower of the fair value of the leased property and the present value of the minimum of the leases payments. Lease payments are allocated between the liabilities and finance charges. The corresponding rental obligation, net of finance charges, are included in the other long term payables. The interest elements of the finance costs are charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liabilities for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease terms Derivatives contracts Derivative financial instruments are reported at fair value. Fair value changes are reported in the income statement or, if the instrument hedges the change in the financial flows expected for another financial instrument or a scheduled transaction, directly to a positive or negative net equity reserve; such reserve is recorded in the income statement to the extent and in the time corresponding to the occurrence or change of cash flows for the hedged instrument or at the occurrence of the transaction being hedged. In case the fair value at the reference date should be positive, it is therefore reported under derivative financial assets among financial fixed assets or among the financial assets not of a fixed nature. In case the fair value should be negative, it is reported under derivative financial liabilities among the provisions for risks and charges. Receivables and/or payables underlying the derivative contracts for currency hedging fall under the simple fair value hedging category, as they concern instruments whose characteristics are very similar to those of the hedged element; as such, they are adequate for the equal and opposite amount of the derivative financial instrument fair value. 13

14 6 Balance Sheet information 6.1 Intangible assets The change of the period is as follow: Start-up and expansion costs mainly refer to start-up costs for the Japanese subsidiaries which has been acquired in 2012 and to incorporation expenses of GVS North America Corporation, which have been amortized starting from Patent rights mainly refer to costs for the registration of new industrial applications or pre-existing applications in new countries. Concessions, licenses, trademarks and similar rights include trademarks and licenses for use mainly concerning GVS SpA. Consolidation differences and Goodwill have mainly changed in the first semester for the amortization cost posted for some 2,271 thousand Euros (Euro 2,193 thousand Euros in the first semester 2016). Other intangible assets mainly refer to leasehold improvements related to GVS Filter Technologies UK LTD and GVS North America Inc. building premises and to up-front fees and ancillary costs on bond procedures completed in January 2014 which will be amortized in 10 years. 6.2 Tangible assets The change of the period is as follow: 14

15 6.3 Long term Financial assets Other long- term receivables The item, amounting to 260 thousand Euros, mainly refers to guarantee deposits with third parties. 6.4 Derivatives The item, amounting to 4,606 thousand Euros, refers to the positive fair value balance for the current derivative contract as at 30 June Indeed, the Company entered into a CCS (Cross Currency Swap) derivative financial contract, whose purpose is to hedge the risk of fair value changes with specific regard to the bond (denominated in US Dollars) issued over the course of 2014 and described more in detail in the lines of these explanatory notes. 6.5 Inventory A summary of inventories at June 30, 2017 is presented below: 15

16 Inventory is not subjected to constraints or other restrictions of title. The amount of thousand Euros refers to order WIPs, concerning molds and equipment that will be sold to customers, mainly from the automotive sector. These are indicated separately from semi-finished goods as to give a better overview and ensure a more correct interpretation of data. The above-specified values are entered net of the relevant reserve for obsolescence, which, during the period, has changed as follows: 6.6 Receivables A summary of receivables at June 30, 2017 is presented below: 16

17 6.6.1 Trade receivables Trade receivables have increased mainly as a consequence of the raise in sales in the last period compared to prior year. The above-mentioned trade receivables are posted net of the provision for bad debts, which, during the period, has changed as follows: Receivables from Parent Companies Receivables from holding companies regard for the most part down payments paid to the holding GVS Group S.p.A for the supply of administrative services and software and Ires receivables due to the Holding company and transferred to GVS Corporate SpA for relying on tax consolidation Tax receivables Tax receivables mainly pertain to the Parent company and GVS Sud Srl. The balance is mainly made up of VAT receivables and tax receivables to be reimbursed or compensated in the next months Deferred tax assets Deferred tax assets mainly refer for 1,105 thousand Euros to the tax effect produced by the adjustment of the bond based on the fair value of the derivative instruments drawn up as hedging of exchange rate risk on the same security and for 182 thousand Euros (200 thousand Euros as at 31 December 2015) to subsidiary company GVS do Brasil Ltda for past losses Other receivables Other receivables includes receivables for about 231 thousand Euros concerning a syndicated loan for a potential enlargement of GVS Sud Srl premises, as well as advances to suppliers for an overall amount of 705 thousand Euros. 17

18 6.7 Financial assets not held as fixed assets The amount of 2,852 thousand Euros refers to GVS do Brasil Ltda. It is composed of short term securities and certificates of deposit purchased thanks to temporary liquidity surpluses. 6.8 Cash and Cash equivalent A summary of cash and cash equivalent at June 30, 2017 is presented below: The level of cash decreased during the first semester of 2017 as the company paid dividends to its parent company GVS Group SpA for a total amount of 7,490 thousand Euros. Refer to the cash flow statement. 6.9 Shareholder s equity A summary of the change in net equity during the period is presented below: The own shares negative reserve item refers to the purchase of 137,995 shares for a stock of 8.38% of the share capital of GVS SpA. Pursuant to Article 2357-ter of the Civil Code, treasury shares were reported as reduction of net equity through the reporting of the above negative reserve. No transactions involved the reserve during Provision for risk The provisions for risks and charges are detailed as follows: 18

19 The Retirement provision refers to the compensation to Parent Company's Directors in case of retirement. Deferred tax liabilities mainly includes the deferred taxes deriving from consolidation entries and the deferred taxes deriving from the temporary differences between the accounting value and the fiscal value of fixed assets of the American and British subsidiaries. The provision was increased last year also as a result of the audit carried out on GVS SpA by the Italian tax authorities and subsequently has been fully utilized in the first semester Deferred tax liabilities refers for 1,105 thousand Euros to the tax effect on the positive fair value of the derivative contract of 30 June 2017 and for the remaining part to deferred taxes deriving from consolidation entries and deferred taxes deriving from the temporary differences between the accounting value and the fiscal value of tangible assets of the American and British subsidiaries Staff leaving indemnity provision The amount the staff leaving indemnity provision is 1,799 thousand Euros, and represents the debt as at June 30, 2017 owed to the employees of the Italian companies belonging to GVS Group employed at that date, net of any advance paid and of the credit toward INPS treasury Payables A summary of payables at June 30, 2017 is presented below: 19

20 Description June 30,2017 Dec. 31,2016 Variation Bond short term long term (6.126) Amounts due to banks short term long term (2.063) Amounts due to other lenders short term (41) long term (77) Advances short term (157) long term - - Payables due to parent companies short term long term - - Accounts payables short term long term - - Tax payables short term long term - - Payables to Social Security Institutions short term (249) long term - - Other Payables short term long term - - Total Bonds On 10th January 2014 the Holding issued a bond, as indicated in the minutes of the shareholders' assembly dated 16th December 2013 rep. 8 Notary Camilla Chiusoli undersigned by The Prudential Insurance Company of America headquartered in Chicago, for a value of 35,000 thousand USD at a fixed interest rate of 6.50%. The length of the operation is 10 years, with a three-year grace period. The payment of the annual coupons regarding the capital will be a constant 5,000 thousand USD, starting 9 January The capital debt and the interest to be paid are entirely hedged against exchange risk for the full duration of the loan via a hedge derivative undersigned with Mediobanca SpA. The fair value of the derivative as of 30 June 2017 is positive at 4,606 thousand Euros, as reported in the balance sheet. Given the complete hedging of the bond in terms of fair value fluctuation risk as a consequence of a change in exchange rates, the resulting financial debt, expressed in USD, is consistent for an amount equal and opposite to the fair value of the derivative financial instrument (by simple hedging) Bank overdrafts, borrowings and loans Amount of bank overdrafts and loans due to banks in the short term is in total 19,655 thousand Euros: 17,350 thousand Euros of which pertaining to the Parent Company, 18 thousand Euros relating to GVS UK and 1,976 thousand Euros pertaining to the American company. Amounts due to banks over 12 months, equal to 18,826 thousand Euros, refer for 17,046 thousand Euros to the Parent company and for 1,078 thousand Euros to GVS NA Holdings, Inc. Therefore, the amounts due to banks are as follows: 20

21 Amounts due to other lenders consist of the following loans: Following is the detail of the Net Financial Position as at 30 June 2017 and the changes occurred in comparison with the previous fiscal year: 21

22 Maturities of long term debts outstanding at June 30, 2017 (including Bond and other financial debts) are as follows (in Euro thousand): and thereafter Advances The reduction in the item mainly refers to the Parent Company, following the completion of project for molds and equipment to external customers Accounts payables Trade payables, equal to 10,527 thousand Euros, refer to supplies of goods and services falling within the normal scope of business of the Group Payables to Parent Companies The item Due to Parent Companies mainly includes payables to GVS Group and to GVS Corporate for corporate income taxes for 2,717 thousand Euros, as a result of the tax consolidation. 22

23 Taxes Tax payables relate to income taxes payable and withholding taxes on employees Debts vs welfare institutes and social security Payables to these institutions (INPS, INAIL, INPDAI and more), equal to 1,046 thousand Euros, refer to the amounts due for social security contributions accrued as at June 30, 2017 and duly paid in next month as required by law, as well as the deferred contributions due on accrued but not taken holidays, of which 656 thousand Euros referred to Italian companies Other debts A summary of other current payables at June 30, 2017 is presented below: Payables to employees refer to wages of the month of June 2017 as well as deferred wages. 23

24 7 Income statement information The details of the main items of 2017 and 2016 income statements are listed below. 7.1 Value of Production This item breaks down as follows: Revenue from sales and services Revenue from sales and services, equal to 70,358 thousand Euros, can be split up by business as follows: Revenue from sales and services increased by 1,181 thousand Euros when compared to the same period of prior year. Percentage of increase by business units has been summarized in the table below. Revenue from sales and services, can be split up by geographical area as follows: 24

25 Other revenue Other revenue and income for 1,329 thousand Euros (886 thousand Euros in 2016), include government grants for 617 thousand Euros (64 thousand Euros), 290 thousand Euros (366 thousand Euros) for expense recoveries and recharges and 57 thousand Euros (80 thousand Euros) for resale of work waste. 7.2 Financial income and charges This item breaks down as follows: Exchange losses amounts to 1,093 thousand Euros and refer to Parent Company for 442 thousand Euros and to the American subsidiary for 625 thousand Euros. 7.3 Income Taxes Current taxes (for 2,911 thousand Euros) mainly consist of IRES and IRAP recorded by GVS SpA and GVS SUD Srl for 1,443 thousand Euros, corporate income taxes taxes of GVS do Brasil for 317 thousand Euros and of GVS UK Technology Ltd for 325 thousand Euros. Also for 2017, we agreed to rely on the Italian tax consolidation rule for the holdings GVS Corporate SpA and GVS Group S.p.A., as well as the subsidiaries GVS SpA and GVS Sud. 8 Financial risks During the first six months of 2017, the nature and the structure of exposures to risk listed below and the related policies adopted by the Company did not change substantially compared to the previous financial year. 25

26 The Group is exposed to financial risks connected with its operations, in particular referable to the following cases: - credit risks arising from normal commercial operations. Credit risk arises from the risk of default that the Group could incur as a result of any partial or total inability of a counterparty to meet its commitments. The Group manages business risks with regard to customers directly (there are no assignments of receivables to third parties); - liquidity risks arising from the availability of financial resources and access to the credit market. In order to support the growth of the relevant business, the Company has equipped itself with a series of instruments that are aimed at optimising the management of its financial resources. The Group assures itself of sufficient liquidity by paying constant attention to the shortening of the duration of the active cycle (invoicing/collection) and by means of financial planning tools. Its management considers that the funds and credit facilities available at present, in addition to those that will be generated by operating and financing activities, will allow the Group to meet its needs arising from its investment activities, the management of its working capital and the repayment of debts on their natural expiry dates; - market risks attached to the Group s exposure to interest-bearing financial instruments (interest rate risks). The Company is exposed to changes in interest rates on its variable-rate debt instruments referable to the Euro and GBP area. Any changes in interest rates could materially affect rises or falls in funding costs. The Group is also exposed to exchange risks. Since the Group operates on international markets, it is exposed to the risk of fluctuations in exchange rates. 10 Subsequent event The company is about to close an acquisition of a competitor in the automotive business. Such extraordinary transaction will impact materially the future Group s result of operations and its future net financial position. Zola Predosa, July 20, 2017 On behalf of the Board of Directors Mario Saccone 26