Bonfiglioli Worldwide
Europe Albania, Austria, Belgium, Bielorussia, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Holland, Hungary, Germany, Great Britain, Greece, Ireland, Italy, Lettonia, Lituania, Luxemburg, Malta, Montenegro, Norway, Poland, Portugal, Romania, Russia, Slovakian Republic, Serbia, Slovenia, Spain, Switzerland, Turkey, Ucraina
Africa Algeria, Egypt, Kenya, Morocco, South Africa, Tunisia
Asia Bahrain, China, Emirates, Japan, Jordan, Hong Kong, India, Indonesia, Iran, Israel, Kuwait, Malaysia, Oman, Pakistan, Philippine, Qatar, Saudi Arabia, Singapore, South Korea, Syria, Thailand, Taiwan, Vietnam
North America Canada, United States
Latin America Argentine, Bolivia, Brasil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Perù, Uruguay, Venezuela
Oceania
Cod. 4000 - R3
Australia, New Zealand
Annual Report 2007
Bonfiglioli Worldwide
Europe Albania, Austria, Belgium, Bielorussia, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Holland, Hungary, Germany, Great Britain, Greece, Ireland, Italy, Lettonia, Lituania, Luxemburg, Malta, Montenegro, Norway, Poland, Portugal, Romania, Russia, Slovakian Republic, Serbia, Slovenia, Spain, Switzerland, Turkey, Ucraina
Africa
Annual Report 2007
Algeria, Egypt, Kenya, Morocco, South Africa, Tunisia
Asia Bahrain, China, Emirates, Japan, Jordan, Hong Kong, India, Indonesia, Iran, Israel, Kuwait, Malaysia, Oman, Pakistan, Philippine, Qatar, Saudi Arabia, Singapore, South Korea, Syria, Thailand, Taiwan, Vietnam
North America Canada, United States
Latin America Argentine, Bolivia, Brasil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Perù, Uruguay, Venezuela
Bonfiglioli Riduttori SpA Via Giovanni XXIII, 7/A 40012 Lippo di Calderara di Reno - Bologna - Italy Tel (+39) 051 6473111 - Fax (+39) 051 6473126 E-mail:
[email protected]
Cod. 4001 - R3
www.bonfiglioli.com
Oceania Australia, New Zealand
“
At times when I think back on how much
our Group has grown in fifty years,
I realise that our future goals will always be within reach as long as we continue to build on the same resources of hard work,
”
professional integrity and competence.
The Chairman, Clementino Bonfiglioli
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Contents
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Contents
5
Company Profile
23
Financial Highlights
31
Reclassified financial statements and consolidated cash flow statements
37
Management Report
61
Consolidated financial statements as of December 31, 2007
69
Notes to consolidated financial statements
105
Independent Auditors’ Report
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Company Profile
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We design and manufacture solutions and components for power transmission and control
The increase in production and the positive returns achieved over this last year are the result of Bonfiglioli’s penetration into new sectors, substantial investments and expansion into global markets. The challenges to be met and the corresponding choices to be made, today more than ever require the effort and support of a real team. Only a unified and motivated group of people can make the difference in implementing successful strategies for innovation and development.
Board of Directors
Statutory Auditors
Clementino Bonfiglioli (Chairman)
Giovanni Biagi
Sonia Bonfiglioli (Vice Chairman and CEO) Luisa Lusardi (CEO) Marino Battini (CEO) Luciano Bonfiglioli (Director)
Monica Marisaldi Giovanni Errico
Independent Auditors PricewaterhouseCoopers
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1956
Bonfiglioli is founded in Bologna by Clementino Bonfiglioli, the company’s current Chairman.
2001
Through the acquisition of Vectron, Bonfiglioli gains a foothold in the electronics sector for motion control systems.
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1964
The RAE series dual-stage planetary gear unit is designed and patented.
2002
Bonfiglioli sets up a network of qualified distributors in Italy and abroad with the Best brand.
1975
Acquisition of Trasmital, a manufacturer of planetary gear units for diggers, road pavers and wind turbines.
2003
Acquisition of Tecnoingranaggi, a manufacturer of low backlash gear units.
1982
Bonfiglioli starts its internationalisation strategy, leading to the opening of branch offices worldwide.
2004
Dun&Bradstreet award Rating 1 in recognition of the high level of reliability achieved by Bonfiglioli.
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The milestones that have marked the continous growth of Bonfiglioli
1993
Bonfiglioli obtains both DNV and TÜV Quality System Certification.
1995
The innovative modular C-A-F series are showcased at Hannover, which speeds up the program to decentralise production to local branches.
1999
The Bonfiglioli Transmission Pvt Ltd. factory is opened in Chennai, India.
2000
Launch of Mosaico, Bonfiglioli’s innovative e-commerce portal.
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2005
Construction of the first of three factories begins in the Slovak Republic.
2006
Bonfiglioli celebrates its 50th anniversary: confirmation of the company’s success.
2007
Bonfiglioli Italia SpA assumes direct control of the Italian market.
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Three distinct product lines to meet the challenges of global markets and specific applications
The Bonfiglioli Group offers the power transmission market three distinct brands:
The strength of these brands lies in the high technology content of each product and the careful integration of different technologies to provide an exclusive and synergic solution. Quite uniquely, Bonfiglioli has the core capabilities to develop systems which integrate electronic, hydraulic and mechanical engineering. These solutions represent choices of excellence for industrial systems and mobile machinery as well as innovative renewable energy applications in the wind turbine, solar panel and bio fuel sectors. Hi-tech industries and complex applications increasingly call for the ability to provide solutions and not just products. This can only be achieved with the appropriate expertise. And we are convinced that this is our unique selling point which we must foster and invest in our drive to promote innovation.
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Bonfiglioli Industrial Solutions
Main applications -
Air conditioning plants Aerospace plants Automation plants Bio fuel energy Bottling lines Ceramics industry Port machinery Conveyors Conveyor belts Chemical and Pharmaceutical Dosing systems Food industry Foundries and forgeries Packaging lines Painting plants Palletisers Plastic and rubber processing Printing industry Solar energy Textile industr y Treatment plants Wood processing
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Bonfiglioli Riduttori and Bonfiglioli Vectron create innovative solutions for the industrial sector
Bonfiglioli Riduttori today is one of the top brands in the power transmission industry. The company's success is the result of a business strategy that relies on three fundamental factors: know-how, innovation and quality. All the brand’s gearmotors offer excellent technical characteristics and guarantee the highest performance. Substantial investment and technical expertise have enabled the company to achieve an annual production output of 1600,000 units, using completely automated processes. Certification of the company’s Quality System by DNV and TÜV is proof of the high quality standards achieved. With the acquisition of the Vectron brand, Bonfiglioli is now established as leader of the industrial automation sector. Bonfiglioli Vectron delivers products and services for completely integrated inverter solutions. These solutions complement Bonfiglioli’s power transmission and control offering to the industrial sector. Bonfiglioli Riduttori and Bonfiglioli Vectron’s offering • Heavy duty gearboxes • Helical in-line gearboxes • Mechanical variators • Bevel gearmotors • Three phase asynchronous motors • Worm gears • Single phase motors • Shaft mounted gearmotors
• • • •
Open loop inverters Closed loop inverters Servo motors and drives Solar systems
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Bonfiglioli Mobile Solutions
Main applications -
Agricultural machinery Hydraulic winches Cement mixers Cement mixer trucks Construction cranes Drilling machinery Excavators Extractive industry Hydrostatic machinery Lifting platforms Mini excavators Mobile cranes Port equipment Tyred wheel loaders Wind turbines
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Bonfiglioli Trasmital: solutions and special products for the wind turbine and mobile machinery sector
Since 1976, Bonfiglioli Trasmital’s know-how in the power transmission industry has focused on special applications offering 100% reliability and in particular, on the manufacture of gearmotors for mobile machinery translation, slew and wheel drive applications, and gearboxes for wind turbine nacelle and blade rotation. Today Bonfiglioli Trasmital stands at the forefront of the industry as a key partner to top manufacturers worldwide. The 85,000 square metre production facility in Forlì accommodates product development and all phases of manufacture, including quality control and testing. An extensive sales network ensures prompt customer care and works closely with customers to develop tailored applications. Bonfiglioli Trasmital uses its flexibility in development and production to deliver competitive advantages and interacts with customers as a supplier of reliable, superior performance components and solutions.
Bonfiglioli Trasmital’s offering • General purpose gearboxes • Wheel hub gearboxes • Track drive gearboxes
• Slew gearboxes • Winch gearboxes • Gearboxes for cement mixer trucks
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Krefeld
Povazska Bystrica
Bonfiglioli Vectron GmbH Inverter plant Krefeld - Germany
Vignola Bologna
Bonfiglioli Slovakia Sro Large gearboxes manufacturing plant Povazska Bystrica - Slovak Republic
Forlì
Bonfiglioli Riduttori SpA Gearmotor assembly and shipment plant Lippo di Calderara - Bologna Italy
Bonfiglioli Riduttori SpA Electric motor plant Calderara d i Reno - Bologna - Italy
Bonfiglioli Riduttori SpA Planetary gearbox manufacturing and assembly plant Forlì - Italy
Bonfiglioli Transmission Pvt Ltd Gearmotor manufacturing and assembly plant Chennai - India
Bonfiglioli Riduttori SpA Casting and gear-cutting plant Calderara di Reno - Bologna - Italy
Tecnoingranaggi Riduttori Srl Precision gearbox manufacturing and assembly plant San Giovanni in Persiceto Bologna - Italy
Bonfiglioli Riduttori SpA Gearmotor assembly plant Vignola - Modena - Italy
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Production always looks to the future in all Bonfiglioli plants
The sustained growth achieved by Bonfiglioli in the past few years is the result of a strategic choice to self-finance major investments and initiatives aimed at expanding and building new production facilities and automating industrial processes. In particular, investments have focused on major structural improvements, the optimisation and rationalisation of production lines and the installation of next generation robot-operated machines, capable of accelerating output and working night and day without operator supervision. This strategy has enhanced the Group's reputation both at home and abroad, making Bonfiglioli an industry leader capable of adapting effectively to real market conditions and the growing demand for superior quality solutions and products. 16 17
Chennai
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Bonfiglioli Italia SpA Sole Shareholder company Carpiano - Milan - Italy
Bonfiglioli UK Ltd (Industrial equipment) Redditch - England
Bonfiglioli UK Ltd (Mobile equipment) Warrington - England
Bonfiglioli Transmissions SA Paris - France
Bonfiglioli Deutschland GmbH Neuss - Germany
Tecnotrans Bonfiglioli SA Barcelona - Spain
Bonfiglioli Skandinavien AB Malmö - Sweden
Bonfiglioli Power Transmissions & Automation Technologies Jsc Izmir -Turkey
Countries with Bonfiglioli branch offices
Bonfiglioli Canada Inc. Toronto - Canada
Bonfiglioli USA Inc. Hebron - USA
Bonfiglioli Transmission (Aust.) Pty Ltd Sidney - Australia
Bonfiglioli Drives (Shanghai) Co. Ltd Shanghai - China
Bonfiglioli Power Transmission Pty Ltd Bonfiglioli Transmission Pvt Ltd Chennai - India Johannesburg - South Africa
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Customers can count on the presence of Bonfiglioli subsidiaries all over the world
The globalisation of sales activities has without doubt been one of the key factors in determining Bonfiglioli's success. A sales strategy focused on customer satisfaction has led to major growth in market share through enhanced pre and post sales services and prompt deliveries guaranteed by local assembly and warehouses. Today Bonfiglioli sales branches operate in 13 countries outside Italy. Sales and assistance centres in other countries are managed through authorised resellers. All over the world, Bonfiglioli’s renowned know-how and customer care is a calling card for customers who demand reliability from their partner.
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Sustainable progress: the driving force behind company strategy
Vision We develop solutions, we disseminate knowledge, and share experience on the world stage.
Mission We focus our decision-making process on our customer’s requirements. We foster the awareness that every action reflects our collective effort and commitment. We always seek to play an active role in the development of our industrial environment, working in compliance with ethically sustainable values. In our work we transform the drive to build value into a diffused catalyst for wellbeing, with the company forming the hub around which families, communities, and industry can grow. We strive to ensure that each goal we achieve offers the opportunity for future development, leading to renewed excellence in all our results.
Value Consistency. Determination. Transparency. Team Spirit.
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Financial Highlights
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Financial Highlights
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Financial Highlights 650
610,8
+22,5%
600
550
498,6
500
+28,6%
450
387,8
400
+14,4%
338,9
350
+14,7% 300
295,3 +4,5%
250
Group sales (Euro/Million)
200
2003
2004
2005
2006
2007
54,0
54
48
42
37,8
37,3
2005
2006
36
30
24
24,7
18
12
11,2
6
Net investments (Euro/Million)
0
2003
2004
2007
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54
50,9 48
42
38,1 36
30
24,1
24
19,9 18
12
11,0
6
EBIT 0
(Euro/Million) 2003
2004
2005
2006
2007
24 25 180
177,1
170
160
153,7
150
140
138,5
130
128,3 123,9
120
110
100
Group share of shareholders’ equity
90
(Euro/Million) 2003
2004
2005
2006
2007
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0
18
36
-29,6 -36,1
54
72
-65,3
90
-95,0
108
126
144
-140,3
Net cash position (Euro/Million)
162
2003
2004
2005
2006
2007
270,0
270
240
229,0
210
175,3
180
175,3
165,5 150
153,3
142,4
120
145,2 124,4
120,3
114,0
106,3
92,2
90
Sales by geographical area (Euro/Million) Italy
71,6 60
46,6 30
Europe Overseas
0
2003
2004
2005
2006
2007
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2.530
2.501 1406
2.300
2.226 1366
2.070
1.919 1246
1.840
1.712 1.610
1112
1.606 1109
1.380
1095 1.150
860 920
Number of employees
690
673
600
Parent Company
497
460
2003
Subsidiaries 2004
2005
2006
2007
26
244 240
230
224 220
210
202
200
198
190
184 180
170
160
Sales per employee 150
(Euro/Thousands) 2003
2004
2005
2006
2007
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Bonfiglioli Group as of December 31, 2007
Bonfiglioli Riduttori SpA
Bonfiglioli Transmissions SA
100%
100%
Bonfiglioli UK Ltd
100%
100%
United Kingdom
Bonfiglioli Skandinavien AB
67%
75%
100%
100%
100%
100%
100%
67%
33,33%
Spain
Bonfiglioli Deutschland GmbH Germany
97% Bonfiglioli Vectron GmbH Germany
100%
Bonfiglioli Drives (Shanghai) Co. Ltd China
Turkey
Tecnotrans Bonfiglioli SA
Bonfiglioli Transmissions Pvt Ltd India
Sole Shareholder - Italy
Bonfiglioli Power Transmissions JSC
Bonfiglioli Transmission (Aust.) Pty Ltd Australia
Slovak Republic
Bonfiglioli Italia SpA
Bonfiglioli Power Transmissions Pty Ltd South Africa
Sole Shareholder - Italy
Bonfiglioli Slovakia Sro
Bonfiglioli USA Inc. United States
Sweden
Tecnoingranaggi Riduttori Srl
Bonfiglioli Canada Inc. Canada
France
100%
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Reclassified consolidated balance sheet Assets
(Euro Thousand)
2007
2006
2005
2004
2003
16,309
13,505
12,749
8,660
10,357
Inventory
173,065
154,505
122,669
96,388
82,655
Trade receivables
145,466
130,659
99,666
90,140
81,728
Receivables from associated companies
9,577
9,311
4,978
4,729
4,108
Deferred tax assets
7,105
6,433
4,616
3,057
3,073
Other current assets
16,804
11,054
5,939
5,970
6,181
Total current assets
368,326
325,467
250,617
208,944
188,102
Investments in associated and other companies
3,369
2,961
2,778
2,762
2,674
Intangible assets (net of cumulated depreciation)
7,602
9,340
10,465
9,612
11,955
Current assets Cash and Banks
Non current assets
146,605
110,631
89,248
67,896
70,981
Deferred tax assets
Tangible assets (net of cumulated depreciation)
5,513
3,970
2,941
3,036
2,217
Other long term assets
2,132
1,598
1,557
1,550
1,446
Total non current assets
165,221
128,500
106,989
84,856
89,273
Total assets
533,547
453,967
357,606
293,800
277,375
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Liabilities
(Euro Thousand)
2007
2006
2005
2004
2003
65,575
34,543
17,260
19,606
17,890
136,202
128,780
87,509
75,600
62,677
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29
20
24
4
Current liabilities Banks, other financial institutions and bonds Trade payables Payables to associated companies Other current liabilities
26,926
26,576
20,379
19,958
15,162
Total current liabilities
228,730
189,928
125,168
115,188
95,733
90,989
74,002
60,741
18,658
28,566
7,215
6,523
5,793
5,330
4,315
24,572
22,987
21,070
19,464
18,733
2,748
—
32
699
463
Total non current liabilities
125,524
103,512
87,636
44,151
52,077
Total liabilities
354,254
293,440
212,804
159,339
147,810
Non current liabilities Banks, other financial institutions and bonds Deferred taxes Severance indemnity, other reserves for risks Other long term liabilities
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Shareholders’ equity Share capital Revaluation reserves Other reserves Net income of the Group Group share of shareholders’ equity Minority interest
2007
2006
2005
2004
2003
30,000
15,000
15,000
15,000
15,000
20,847
35,847
35.914
35,914
35,847
100,566
85,702
77,962
71,285
71,206
25,645
17,193
9,649
6,145
1,876
177,058
153,742
138,525
128,344
123,929
2,235
6,785
6,277
6,117
5,636
Consolidated shareholders’ equity
179,293
160,527
144,802
134,461
129,565
Total liabilities and shareholders’ equity
533,547
453,967
357,606
293,800
277,375
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Reclassified consolidated income statement (Euro Thousand)
Sales Other operating income Consumption of materials and external operations
2007
2006
2005
2004
2003
610,772
498,635
387,799
338,913
295,284
5,629
3,900
2,796
2,188
2,061
(374,372)
(298,209)
(223,312)
(191,152)
(158,510)
Personnel costs
(91,898)
(83,596)
(72,231)
(64,846)
(56,904)
Services and use of third party assets
(71,482)
(59,845)
(50,905)
(42,838)
(47,255)
Other operating expenses
(6,423)
(4,738)
(4,125)
(5,735)
(6,842)
EBITDA
72,226
56,147
40,022
36,530
27,834
(21,321)
(18,032)
(15,891)
(16,615)
(16,841)
50,905
38,115
24,131
19,915
10,993
Depreciation, amortisation and write-downs EBIT Depreciation on revalued assets ex L. 342/2000 Financial income and (expenses) Exchange gains and (losses) Share of results of associated companies Extraordinary items
(311)
(777)
(925)
(2,378)
(7,348)
—
(4,224)
(2,060)
(1,550)
(1,408)
(194)
(318)
(103)
(202)
257
540
277
155
225
252
218
9
EBT
45,656
33,255
21,564
17,472
7,136
Current taxes
(20,827)
(17,178)
(12,050)
(10,150)
(4,667)
Deferred taxes
1,513
2,156
996
26,342
18,233
10,510
Consolidated net income Minority interest income Net income of the Group
1,753
(697) 25,645
(284)
(1,040) 17,193
(861) 9,649
(167) 7,155 (1,010) 6,145
(580)
171 2,640 (764) 1,876
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Statement of consolidated cash flow (Euro Thousand)
2007 A. Opening Net Cash Position
2006
2005
2004
2003
(95,040)
(65,252)
(29,604)
(36,099)
(25,364)
25,645
17,193
9,649
6,145
1,876
B. OPERATING ACTIVITIES Net income of the group Minority interest income Depreciation and write-downs Provisions for employee indemnity and other reserves Share of results of associated companies
697
1,040
861
1,010
764
21,321
18,343
16,668
17,540
19,219
3,605
5,207
4,470
3,905
3,961
(540)
(277)
(155)
(225)
(252)
50,728
41,506
31,493
28,375
25,568
Decrease (Increase) in trade receivables
(16,600)
(36,596)
(10,832)
(9,927)
(2,404)
Decrease (Increase) in inventory
(18,560)
(31,836)
(26,281)
(13,733)
(6,334)
(8,499)
(8,002)
(1,440)
(696)
(1,806)
(Decrease) Increase in trade payables
7,420
41,280
11,905
12,943
361
(Decrease) Increase in other liabilities
232
6,795
217
6,047
2,881
First Level Cash Flow
Decrease (Increase) in other assets
(Payments) of employee indemnity and other reserves
B. Cash flow from (for) operating activities
(2,020)
(3,190)
(2,864)
(3,174)
(1,613)
12,701
9,957
2,198
19,835
16,653
(54,030)
(37,331)
(37,816)
(11,152)
C. INVESTING ACTIVITIES Net investments in tangible and intangible assets Decrease (Increase) in other long term assets
C. Cash flow from (for) investing activities
132
(53,898)
94
(37,237)
139
138
(24,704) 120
(37,677)
(11,014)
(24,584)
(1,500)
(1,500)
(1,500)
D. FINANCING ACTIVITIES Dividends Net effect of exchange rate change Change in minority interests
D. Cash flow from (for) financing activities E. CASH FLOW FOR THE YEAR (B+C+D) F. Closing Net Cash Position (A+E)
(1,500)
—
(829)
(1,976)
(297)
(779)
(1,689)
(532)
2,032 (701)
(529)
(525)
(4,018)
(2,508)
(169)
(2,326)
(2,804)
(45,215)
(29,788)
(35,648)
6,495
(10,735)
(140,255)
(95,040)
(65,252)
(29,604)
(36,099)
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Management Report
Foreword This management report, drawn up in compliance with the provisions of Legislative Decree 127/1991, integrated and interpreted on the basis of CNDC (Italian National Councils of Certified Public Accountants) and OIC (Italian Accounting Authority) accounting principles, is submitted as a comment on the results recorded in the consolidated financial statement of the Bonfiglioli Group. Unless otherwise indicated, data are shown in Euro/millions.
Reference economic situation During 2007, the world economy, while still expanding as a whole at a rapid pace (4.9% compared to 5.1% in 2006), nevertheless felt the effects of the US sub-prime mortgage crisis which started last summer and the implications this slump is having on financial markets and economic growth. These financial upheavals made themselves felt in a generally positive worldwide economic climate. In the first half of 2007, expansion in fact proceeded at a steady rate in all the major economies, recording a further acceleration in emerging nations. The fact that 2007 saw the world’s economic engine slow down from the rate it had reached in the recent past was no surprise to many: the signs of a slowdown were fairly evident, not least of all the fact that the expansion stage – the strongest and longest lasting recorded over the last thirty years – in actual fact, brought with it a series of imbalances capable of compromising stability. What no one expected was that the crisis would come with such lightening speed and hit the financial system as hard as it did. Uncertainty surrounding the scope and distribution of individual broker’s exposure to credit products linked, even indirectly, to United States mortgages has influenced market trends and there is still a very real risk that the losses incurred by bank brokers could result in a significant reduction in credit offered to families and businesses. The sharp increase in the price of raw energy materials and foodstuffs represents another key element in the international scenario. As regards the oil market, the price of crude oil in 2007 recorded considerably higher average values than in 2006, rising from 64.3 to 71.1 Dollars a barrel (+11%), reaching a peak of 92.5 Dollars per barrel in November 2007, only to rise even further, well exceeding 130 Dollars a barrel, in recent weeks. The cause of these price rises, whose effects have been offset in the Euro nations by
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the corresponding devaluation of the US Dollar, is linked to the considerable growth in world demand for oil, which in 2007 exceeded supply, thereby significantly reducing the private reserves of major nations (primarily the United States). Factors contributing to this growth in demand consisted, firstly, in the role played by emerging economies whose energy demand far exceeds that of more developed nations. A further cause of tension is the limited flexibility characterising supply, caused, on the one hand, by the production policies and objectives set by OPEC and, on the other, by the difficulties experienced by non-cartel producers in increasing output, when faced with extremely high research and development costs and lengthy periods of time involved in constructing new plants. The rise in international prices of raw foodstuffs (+14% since 2006), another important economic factor affecting inflationary dynamics, started at the beginning of this decade and is the result of structural factors such as growing consumption in emerging nations and the incentive to produce biofuels to counter increases in the price of oil. An analysis based on individual geographical areas reveals that growth in the United States’ GDP almost came to a halt in the fourth quarter of 2007 (0.6% compared to 4.9% in the third quarter), reflecting a drastic fall in housing investments, a drop in reserves and a fall in family consumption and non-housing investments. The crisis in the sub-prime lending sector and the subsequent impoverishment of bank assets and liquidity have further contributed to the slowdown. In order to combat the increased risk of recession, the Federal Reserve reacted by making further cuts in interest rates. At the end of 2007, Fed Fund rates were recorded at 4.25%, falling by one percentage point from 2006. The continuing depreciation of the Dollar compared to the Euro has facilitated exports, allowing the United States to reduce the balance of payments, although the deficit remains high. The year 2007 closed with an average USA GDP expansion rate of 2.2%. In the United Kingdom, economic business continued to grow at a fairly consistent rate, propelled by strong growth in consumption and investments made by businesses. Despite the first signs of a slowdown in the last quarter of the year, the GDP growth rate was 3.1% at the end of 2007 (2.9% at the end of 2006). In Japan economic activities were characterised by an unexpected acceleration in the fourth quarter of 2007, upheld by exports, particularly towards other Asian economies, leading to a growth rate of 2.1% by the end of 2007 (2.4% at the end of 2006). 2007 also witnessed steady growth in emerging markets. The Chinese economy grew by 11.4% (11.1% in 2006), India confirmed a positive trend with an expansion rate of 9.2% (9.8% in 2006), while Brazil and Russia improved on 2006, recording growth rates of 5.4% and 8.1% respectively. Within the Euro zone, the fear of a slowdown caused by high oil prices, apprecia-
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tion of the Euro and the difficulties experienced by the United States’ economy, did not materialise, probably in part due to the strength of the world cycle. Driving factors in growth were investments, strong employment recovery over the previous two years, greater trust shown by families and further positive growth in financial and real estate markets. Net exports made a positive contribution, notwithstanding the strengthening of the Euro. Total growth for the year 2007 was 2.6%, dropping slightly from the 2.8% recorded in 2006. Employment grew by around 1.5% (0.2% in 2006) and the unemployment rate for 2007 fell to 7.4% (8.3% in 2006), the lowest rate recorded over the last fifteen years. Economic activities in Italy grew by approximately 1.5% (1.8% in 2006). Expansion was sustained by domestic consumption and exports. Family consumption rates rose notably, by approximately 2.5%. The growth of investments, on the other hand, fell in line with the GDP. Employment resumed an upward trend and the unemployment rate fell to 6.0%, as opposed to 6.8% in 2006. The increase in the number of jobs affected mainly the Centre/North of the country where the employment rate dropped to very low levels. Price dynamics in 2007 remained at around 2%, limited by restricted developments in internal costs, by weak pressure from the demand side and by the appreciation of the Euro. During the first few months of 2008 tension in the financial market sharpened and the worldwide economic situation worsened as a whole. In the United States economic growth slowed down considerably: the effects of the housing market crisis have been accompanied by those stemming from the increasingly restrictive financial conditions in which families and business now find themselves. Share quotations in the leading world markets fell by between 7% and 15%, and generally were felt most strongly in the banking and finance sectors. Energy and foodstuff prices recorded new, significant increases. These increases fuelled inflation in importing nations, adversely affecting available income and consumption and determined the direction of monetary policies. World trade is in any event growing at a steady rate thanks to the continuous robust expansion of emerging economies. In terms of the energy market, an increase in the worldwide consumption of oil is also expected in 2008, at a rate of around 2 per cent, which can almost entirely be attributed to emerging economies, whilst an increase in supply depends entirely on the non-OPEC producers. This situation has left the oil market even more vulnerable to geopolitical tension and the risk of temporary interruptions in supplies, thus encouraging price fluctuations. Since the beginning of 2008 markets have posted record figures, reaching 137 Dollars a barrel over the last few days. Estimates from the International Monetary Fund offer some hope however of a moderate drop in prices during the course of the year, with the average price set to fall to 100 Dollars a barrel in 2008.
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Taking raw foodstuffs, the price of cereals has continued to rise over the last few months, a result of high demand and dwindling reserves. At the end of the first quarter, wheat and rice prices were around double the figures recorded the previous year, whilst maize prices had increased by more than a third. Uncertainty surrounding the ability to increase worldwide supply in order to satisfy growing demand in developing nations could contribute to the continuing tension felt in the market and force up inflation rates. In the exchange markets, the economic indications and consensus indices relating to the American economy have worsened. In a particularly hostile climate the Dollar continued to weaken reaching an all-time low of 1.59 to the Euro. The expected improvement in the balance of trade, the moderate fall in the price of crude oil and the results of the presidential elections should help the US economy to recover and the Dollar to gain ground, estimated to reach 1.40 to the Euro by the end of the year. Against the background described above, the International Monetary Fund recently estimated expansion to fall in 2008, setting the growth target for the world economy at 3.7%. The emerging nations continue to make their contribution towards world growth: the Chinese GDP should record an increase of 9.3%, with India’s GDP estimated at around 7.9%, whilst Russia and Brazil should record levels of growth of 6.8% and 4.8% respectively. Concern regarding recession in the USA is demonstrated by the approach taken by the Federal Reserve, which since the beginning of the year has lowered Fed Fund rates by two percentage points, bringing them down to the current 2.25%. Analysts and international organisations have cut back growth forecasts for the US economy, estimating expansion to barely 0.4% for 2008. Economic indicators also point to a downturn for Japan and the United Kingdom at the beginning of the year. Consequently, growth estimates have been revised downwards to 1.4% and 1.6% respectively. The economy in the Euro zone is starting to suffer, as a result both of the slowdown in overseas demand, heightened by the strong Euro exchange rate, and the repercussions on domestic demand resulting from a rise in interest rates. Estimates indicate growth for 2008 at 1.4%. As regards estimates for Italy, analysts generally share the fear that 2008 will witness almost zero growth (IMF estimate 0.17%). A number of factors contribute to the deceleration of our economy, such as the trend characterising international demand, weighed down by the sudden American standstill, the appreciation of the Euro over the Dollar which has a major effect on the capacity of businesses to export and the rise in inflation, caused by increases in the prices of energy and foodstuffs.
Consolidation area We point out, first of all, that in 2007 the Group transferred a majority holding in
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the company “Bonfiglioli Hellas S.A.” retaining a 10% minority interest. Following the transfer, the company changed its business name to “BEST Hellas S.A.” continuing nevertheless to distribute the Group’s products in its area. Furthermore, in 2007 the Group completed the acquisition of a further 50% holding in the share capital of the subsidiary “Bonfiglioli Transmission France S.A.” and as at December 31, 2007, possesses a 100% stake. It is also pointed out that a new company was incorporated in South Africa named “Bonfiglioli South Africa Pty Ltd” whose object is to develop business in this nation with the inclusion of new local black partners in line with regulations regarding the “Black Empowerment Equity Program” (BEE). At the end of 2007 the company “Bonfiglioli South Africa Pty Ltd” was not in operation and has therefore been excluded from the consolidation area. In relation to consolidation area, at December 31, 2007 Group had a total of fifteen subsidiaries: • four manufacturing companies (located in Italy, India, Germany and Slovakia), which handle the various products in Bonfiglioli's extensive range; • eleven commercial subsidiaries, engaged in promotion, sales, pre and after-sales service, logistics, customisation and final assembly of Group products. The only associated company of the Bonfiglioli Group is a commercial branch that has been operating on the Spanish market for almost 40 years, Tecnotrans Bonfiglioli S.A., in which the Group holds a 33.33% stake. We also point out that, with effect from September 1st, 2007, the parent company assigned to the subsidiary Bonfiglioli Italia SpA business branches set up to deal with the “marketing of Bonfiglioli products on the Italian market” and “storage, logistics and programming relating to sales in Italy”. This transaction, though not influencing the consolidated profit/loss figure, is nevertheless important to the Group from a strategic/managerial point of view, representing the conclusion of an initiative to improve the service offered to the Italian market started at the end of 2005.
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Analysis of 2007 results Economic results A summary of the economic results recorded over the last five years is set out below. 2007
2006
2005
2004
2003
Turnover
610.8
498.6
387.8
338.9
295.3
EBITDA
72.2
56.1
40.0
36.5
27.8
EBIT
50.9
38.1
24.1
19.9
11.0
Group Net Income
25.6
17.2
9.6
6.1
1.9
11.8%
11.3%
10.3%
10.8%
9.4%
EBIT
8.3%
7.6%
6.0%
5.6%
2.9%
Group Net Income
4.2%
3.4%
2.5%
1.8%
0.6%
Turnover
+22.5%
+28.6%
+14.4%
+14.8%
+4.5%
EBITDA
+28.7%
+40.3%
+9.6%
+31.3%
-20.2%
Values
% of turnover EBITDA
Changes %
EBIT
+33.6%
+58.1%
+21.1%
+80.9%
-46.3%
Group Net Income
+48.8%
+79.2%
+57.4%
+221.1%
-66.1%
2007
2006
2005
2004
2003
Italy
165.5
145.2
120.3
114.0
106.3
Europe
270.0
229.0
175.3
153.3
142.4
Overseas
175.3
124.4
92.2
71.6
46.6
Total
610.8
498.6
387.8
338.9
295.3
Italy
27.1%
29.1%
31.0%
33.7%
36.0%
Europe
44.2%
45.9%
45.2%
45.2%
48.2%
Overseas
28.7%
25.0%
23.8%
21.1%
15.8%
Italy
+14.0%
+20.7%
+5.5%
+7.2%
-1.4%
Europe
+17.9%
+30.6%
+14.3%
+7.6%
+8.4%
Overseas
+40.9%
+34.9%
+28.8%
+53.6%
+7.6%
Sales’ breakdown by geographical area:
Values
% of total turnover
Changes %
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The consolidated turnover figure increased by 22.5% from the previous year, confirming the positive trend characterising the last five years, with sales more than doubling since 2003. Analysing the results according to geographical area, group sales continue to record significant growth in overseas markets whose incidence on overall turnover rose from 15.7% in 2003 to 28.7% in 2007, evidence of the effort made by the Group over the last few years to penetrate overseas markets. Growth on the Asian markets where the Group is taking more far-reaching action to tackle the enormous potential for development in the local catchment area, was significant, as well as in North America and Australia. Growth in the domestic and European markets was also confirmed, with improved figures compared to those recorded the previous year. Turning to an analysis of the main figures in the Income Statement, on the consolidated level, group EBITDA stood at 72.2 million Euro, amounting to 11.8% of sales, with an absolute increase exceeding 28.7%. More precisely, we point out the following: • the consumption area (including costs of external operations) recorded an increase of 1.5 percentage points, rising from 59.8% to 61.3% in terms of incidence on overall turnover. The higher incidence, though falling compared to 2006 when the impact on turnover recorded an increase of 2.2 percentage points, continues to be linked to the dynamics connected with the change in the mix of articles sold, with increasing emphasis on the “Mobile” sector, on the one hand, and the negative trend characterising the principal foreign invoicing currencies, led by the US Dollar, which continue to depreciate with respect to the Euro, on the other. The tensions felt on the raw materials and oil markets also had considerable impact on consumption figures, partly eased by the Group’s continuing efforts to cut costs; • costs for services and leased assets, after removing costs relating to external works, maintained their incidence on turnover at almost the same level (11.7% compared with 12.0% in 2006); • payroll costs increased by 9.9%, rising from 83.6 to 91.9 million Euro; • the overall incidence of depreciation, amortisation and provision for bad debts remained almost constant (3.5% compared with 3.7% in 2006), even though in absolute terms the figure rose by approximately 3.3 million Euro; • the incidence of other operating costs and provisions to various funds, totalling 6.4 million Euro, remained fairly constant at around 1.0% of turnover; • financial expenses and income increased in terms of incidence on turnover, rising from 0.9% in 2006 to 1.2% in 2007, following the rise in group net indebtedness required to sustain growth in Net Working Capital and the significant volume of investments made over the last few years; • extraordinary income and charges recorded a positive figure for 2007, with an
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incidence of 0.3% on turnover, thanks to the extraordinary capital gains recorded following the transfer of a 60% stake in Bonfiglioli Hellas and the sale of an Italian factory premises, which permitted extraordinary charges linked to the change of registered office of the German and American subsidiaries to be off set, as discussed in further detail below. Assets/liabilities and investments A summary of the last five years is given in the table below. 2007
2006
2005
2004
2003
157.6
122.9
102.5
80.3
85.7
Values Fixed assets Net Working Capital
193.8
162.1
134.5
108.5
102.9
Severance indemnity and others
(31.8)
(29.5)
(26.9)
(24.8)
(23.0)
Minority interests
(2.2)
(6.8)
(6.3)
(6.1)
(5.6)
Capital employed
317.4
248.7
203.8
157.9
160.0
Group shareholders' equity
177.1
153.7
138.5
128.3
123.9
Net Cash Position
140.3
95.0
65.3
29.6
36.1
Funds
317.4
248.7
203.8
157.9
160.0
Fixed assets
+28.2%
+19.9%
+27.6%
-6.3%
+8.4%
Working capital
+19.6%
+20.5%
+23.9%
+5.4%
+11.4%
+7.8%
+9.7%
+8.5%
+7.8%
+40.4%
-67.6%
+7.9%
+3.2%
+8.9%
+3.7%
Changes %
Severance indemnity and others Minority interests Capital employed
+27.6%
+22.0%
+29.1%
-1.3%
+6.9%
Group shareholders' equity
+15.2%
+10.9%
+7.9%
+3.5%
-0.3%
Net Cash Position
+47.7%
+45.5%
+120.6%
-18.0%
+42.6%
Funds
+27.6%
+22.0%
+29.1%
-1.3%
+6.9%
93
89
95
85
104
Working capital
114
117
125
115
125
Severance indemnity and others
-19
-21
-25
-26
-28
Rotation (days average) Fixed assets
Minority interests
-1
-5
-6
-6
-7
Capital employed
187
180
189
168
195
Group shareholders' equity
104
111
129
136
151
83
69
61
31
44
187
180
189
168
195
Net Cash Position Funds
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The asset and liability structure of the Group, in terms of both absolute and percentage values also records in 2007, an increase in capital used to tackle the extensive investments made in Italy and abroad, as evidenced below in this report, and the increase in Net Working Capital (NWC) required to support the growth in sales. NWC weighs less heavily however compared with 2006, both in terms of incidence on turnover and on total lending, as demonstrated also by the improvement noted in the average number of days’ rotation (dropping from 117 in 2006 to 114), and thereby confirming the trend that started last year in response to efforts made to reduce stock and Working Capital in general. The efforts made by the Group to maintain investments also contributed to further absorption of financial resources with the relative effect on the net cash position, with a net consolidated debt of 95.0 million Euro in 2006 rising to the figure of 140.3 million Euro in December 2007. A breakdown of the Group’s net investments over the last five years is given below (figures expressed in thousands of Euros): Values in €/000
2007
2006
2005
2004
2003
Land and buildings
16,296
11,726
13,696
991
3,102
Plant and machinery
22,299
17,753
8,892
3,857
5,267
Trade and industrial fixtures
7,733
5,461
2,978
2,920
3,323
Other tangible assets
1,994
995
1,852
1,191
864
Construction in progress/advances
3,733
(471)
6,991
1,066
534
52,055
35,464
34,409
10,025
13,090
1,864
1,538
1,161
1,076
635
103
97
1,779
—
10,952
8
231
467
51
27
1,975
1,867
3,407
1,127
11,614
54,030
37,331
37,816
11,152
24,704
Tangible assets Software, trademarks, patents Consolidation differences Other intangible assets Intangible assets Total Net Investments
As shown in the table above, the Group has concentrated its efforts continuously on investment over the last five years resulting in a total outlay of 164.8 million Euro. Most of the capital invested related to plants, machinery and equipment for production, even though major investments were also made in land and buildings in Italy and abroad, which were necessary to ensure that the companies in the Group benefit from the most suitable structures for production and sales activities and confirmed the Group’s commitment to obtain a firm foothold in the areas in which it operates.
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With reference to the year 2007, the principle investments made by the Group are set out below, involving an overall outlay of 54 million Euro: • investments in intangible fixed assets were largely referred to the purchase and implementation of application software in relation to the development of the SAP project in Italy and in the main overseas sites; • the sum of K€ 103, relating to the increase in goodwill arising upon consolidation, stems from the acquisition of a further 50% stake in the company “Bonfiglioli Transmission France S.A”; • the investments in land and buildings relate mainly to the purchase of premises under lease by the parent company intended as an extension of the factory in Vignola for the total sum of 3.8 million Euro, the extension of the factory in Forlì by the parent company for a total of 3.9 million Euro, the purchase of a new head office for the subsidiary Bonfiglioli Deutschland GmbH in Neuss (8,500 square metres) for a total of 6.4 million Euro, completion of the new head office by the American subsidiary for the total sum of 2.6 million Euro and the purchase of a parcel of land adjacent to the factory premises owned by the Indian company for a total of 1.2 million Euro. As regards disinvestments, we draw attention to the disposal of the factory owned by the parent company situated in San Lazzaro, whose net book value at the date of sale was 1.5 million Euro and which produced a capital gain totalling 2.1 million Euro; • the investments in plants, machinery and equipment related mainly to the production companies; only the parent company strengthened production with purchases amounting to 16.1 million Euro to which 6.4 million Euro of leasing investments must be added; there were also considerable increases to the machine inventory at the factories situated in Slovakia (2.0 M€), India (3.0 M€) and Italy (Tecnoingranaggi 0.8 M€). Together with concluded investments, a number of investments underway as at December 31, 2007 should also be considered, making a total of 11.7 million Euro and relating mainly to the completion of the second factory in Slovakia, a further extension to the factory in Forlì, as well as down payments for the purchase of new machinery by the parent company.
Human resources 2007 was characterised by a further substantial increase in the headcount at Group level with the influx of 275 new employees (overall number including interim and temporary staff), up from 2226 in December 2006 to 2501 at the end of 2007. This increase was necessary to meet growing, challenging market demands, particularly in the “Mobile Solutions” area and to cover consignments of orders already acquired up to March 2009. Development also continued at an international level with increases in the employed work force at the factories in Slovakia and India, as well as at the
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main sales branches which continued to expand their management structure in order to penetrate overseas markets and tackle rising turnover volumes (USA, China and Germany amongst others). With regard more specifically to the parent company, the transfer to Bonfiglioli Italia SpA of the sales structure covering the Italian market was completed during the year. Since September 1st, 2007, as already mentioned, Bonfiglioli Italia has been fully responsible for the Italian market from every point of view, with a sales, logistics and assembly structure capable of performing this important function on the main historical market, that is Italy. Considerable emphasis on the central production structures led to the implementation of an improvement project and lean manufacturing practices with the assistance of external consultants with whom a great number of training schemes were put into effect, including that relating to the role of “kaizen engineer” Investments in training in the sales area continued, an area in which the company now operates using a “permanent training” method in order to guarantee a sales structure that is capable of adapting to changing market demands. The participation of Managers in a Business Administration Masters was also intensified as a means of developing young Managers with high potential. In order to guarantee training schemes geared to the structures it operates directly and indirectly throughout the world, Bonfiglioli set up a Tele-Training initiative via an Internet e-learning portal which, by definition, grants controlled access to student users, free of all geographical and time constraints. A number of on-line study paths have been created, varying according to the training objectives identified. Some of these courses include online intermediate and final examinations, specially designed to more accurately map the levels of knowledge reached and identify any necessary corrective measures. Turning to the Italian factories, it is pointed out that the use of overtime played an important role up to July 2007. In the second half of the year negotiations for the renewal of the National Collective Labour Agreement did not allow the same levels of overtime to be used and this unfortunately slowed down the company’s production growth. The particularly complex nature of the agreement renewal also weighed heavily in terms of strike hours, which accounted for an average of 44 hours for each factory. Commencing from the first quarter of 2008, following the renewal of the National Collective Labour Agreement, the use of overtime was resumed and this is proving a considerable help to the company in reducing some of the delivery delays that have accumulated in previous months.
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Research and development Research and development activities are performed for “Bonfiglioli Riduttori” brand gearboxes and electric motors at the Lippo di Calderara (BO) site, for “Trasmital” planetary gearboxes at the Forlì site and for “Vectron” electronic converters at the Krefeld site in Düsseldorf of the subsidiary Bonfiglioli Vectron GmbH. As confirmation of the importance assumed by R&D we draw your attention to the fact that overall R&D expenditure in 2007 was in excess of 9 million Euro for the Bonfiglioli Group. The following section contains an overview of the main development projects in relation to the three product brands (Bonfiglioli Riduttori, Bonfiglioli Trasmital and Bonfiglioli Vectron).
Bonfiglioli Riduttori Series A upgrade (New sizes and variants for existing size range) Work on the design of the Series A right angle shaft units Series A proceeded in 2007, with the duel aim of completing the new larger sizes requested (sizes 05-35-55) and introducing new variants and options to the existing size range (10-20-20-41-50-60). The new sizes have been studied to guarantee the attainment of the design specifications but without losing the product’s modularity. The variants added to the existing sizes also required a great deal of effort in terms of design, given the need to respect the overall dimensions already established and also being designed for use in the parallel shaft series (Series C, F and S). Production of the pre-series was started in 2007, with the Design workgroup directly involved in the technical support process for the resolution of initial problems (approval of models, new tools, dies and samples). At the same time, technical data were released for the catalogues, as well as the product designation control rules required for management of the Series utilising the Product Configurator. At this time we also started processing the product configuration matrices needed to generate the assembly bill of materials automatically (these operations will continue into 2008). Operations relating to the three-dimensional drawings simplified for downloading via the Internet, with overall dimension parameters and completion of the databases to check the working life of the new gearboxes, will continue in 2008. Development of HDP heavy-duty range (Completion of range segment – development of extruder models) Operations to complete the HDP-HDO Series continued in 2007, proceeding with the development of all the variants to accompany the basic models, in both the HDP and
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the HDO series. Parallel with this, a number of important personalised features were added to the product in order to meet certain specific applications requested by the market. The basic development of the range proceeded, involving the processing of feasibility studies on the extruder model which was applied to all existing sizes. Prototypes of a number of the sizes with extruder output were prototyped and tested in the “Experience room” Electric motors During the year we continued to develop several special products for dedicated applications, in particular the wind turbine and goods handling sectors. Existing solutions were optimised and new projects developed to adapt products to new specifications (brakes with extensive voltage range, bus DC power supply, PWM modulation, etc.). With a view to improving decentralised assemblies, various initiatives aimed at optimising the management of configurable products and defining the rules for transformation units were re-examined. Several schemes for the management of products by means of multi-level configuration bills of materials were also developed. A design research programme was initiated in collaboration with an important designer with the aim of renovating the motor range. Various concepts have been developed, product specifications defined and pre-feasibility studies completed. With the aim of producing the entire range of basic components directly (laminations, die-castings, windings, etc.) drawings were issued for the construction of all the dies, models and tools for the construction of parts and components currently purchased to a large extent externally. Tecnoingranaggi low backlash high-precision gearboxes The development of Tecnoingranaggi products during 2007 completed the integration of the range with the larger sizes requested and all the documents containing technical data for the catalogues. Particular attention and emphasis were placed on development and validation, through targeted testing, of a new range of low backlash right-angle shaft units (KR series) developed both as an independent series and as an angular transmission applied to the input in the LC range, already featured in the Tecnoingranaggi Catalogue. All the new development operations were carried out jointly with the subsidiary Bonfiglioli Vectron GmbH. In view of the launch of the new ranges estimated for 2008, extensive prototyping and experimental procedures have been put into operation at a preliminary stage. Testing carried out relate to technical solutions and innovative technological processes, which are to be applied to the new low backlash gearbox models
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Bonfiglioli Trasmital Gearboxes and gear motor range for crawler and wheel drives Operations involving redesigning medium sizes in the range continued through to the final stages, on the basis of the goals initially set to improve the competitiveness of the products while maintaining performance and reliability at their current levels. The design initiatives involved the larger sizes in the product category under examination. As well as design aspects, operations also included the development of prototypes as part of a new project, with various tests carried out in the Experience Department. Tests were carried out to check reliability with reference to the same established performance standards already applying to the corresponding products in the current range, which are to be gradually phased out by the newly designed models. Tests were also carried out for the same reasons to provide a direct comparison between the current products and the new models. Tests and experiments took more than 8,000 hours of bench testing and involved around 300 units covering both prototypes and standard gearboxes. Within the sphere of gearboxes for crawlers and wheel drives, other versions for specific applications and for large machine manufacturers were also developed including: compact crawler blades and forage and sugar beet harvesters for North and South American manufacturers. A new wheel gearbox was designed and developed for 1.5-2.0 ton electric lift truck wheel drives. Project for development of gearbox for offshore platform lift drive A gearbox for this type of application was designed for an industry leader. The gearbox with high transmission torque capacity and reducing ratio, is fitted, in output integral to the shaft, with a pinion that is coupled directly to the rack mounted on the leg structure of the platform. Due to the special nature of the application sector, the project was tested and certified by the supervisory body monitoring the safety of marine vessels, the American Shipping Bureau. Development of gear units for wind turbines The wind turbine sector has always been of vital importance, both in terms of the number of units produced and their technical advancement. In order to keep up with this development and tackle increasing competition, new gear unit models have been developed to satisfy new requirements for new generator models, as well as for new manufacturers, some operating in emerging markets (India and China) and therefore offering new commercial openings. Particular emphasis was placed during the design stage on the technical specifications regulating the definition of the gear units, such as
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compliance with the standards laid down by quality certification bodies and guaranteeing the fitness of the units for use in environments characterised by low temperatures: - 30/- 40 °C. Development of products and components to meet new, changing demands created by industrialisation of production and external purchasing sources Work focused on modifying and developing products to meet new production needs proved demanding yet has continued uninterruptedly. Examples of these new requirements is the need to adapt products for semi-automatic mounting on robotoperated plants, or the need to standardise and unify gear teeth in the planetary stages, basic elements characterising our products, in order to produce an increasing number of toothed ring gears, by means of broaching rather than the traditional method using a gear-cutting machine. In addition to these operations, experiments have been carried out to standardise components purchased from new suppliers and constructed with new materials. The aim is to expand the supply base and thereby tackle increasing production volumes and maintain and improve the competitive content of our products.
Bonfiglioli Vectron Active Cube During the first half of 2007, the R&D department at Bonfiglioli Vectron concentrated on the definition and subsequent development of a new series of drives known as: Active Cube. Active Cube, which was launched on the market in November 2007, extends Bonfiglioli’s “technology” drives portfolio with its high functional content and superior performance levels exceeding those of other products in the range. Efforts focused, in particular, on improving the control unit’s response times (through the design of a new control hardware platform) and on implementing software dedicated to “servo” applications, such as the built-in positioner or homing procedure control. With Active Cube, Bonfiglioli has set itself the objective of expanding Active’s application range to satisfy the requirements of the most sophisticated plants and at the same time exploring the “Motion Control” segment. BTD/BCR Servomotors Coinciding with the launch of Active Cube, Vectron made available two series of permanent magnet synchronous servomotors: BTD and BCR. The new servomotors include 43 models with stall torque of between 0.2 Nm and 115 Nm, overload up to 400% of the rated torque and speed range from 3000 to 4500 rpm. Research and Development at Vectron has worked on defining and implementing
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the measures necessary to guarantee compatibility and harmonisation between the Active Cube drive and the servomotors. The combination of the two series produce a “servo package” comprising the BTD/BCR servomotor and Active Cube servo drive. Expansion of the “Active 401" and "Active 201" series The Active power range was increased further through two operations. The first, carried out halfway through 2007, allowed 4 new power sizes to be introduced to the Active 201 series: 4 kW, 5.5 kW, 7.5 kW and 9.2 kW. These are available with a 230 V three-phase power supply and guarantee the normal 150% overload in rated operating conditions. The second operation carried out on the range was the subsequent launch of 4 additional Active 401 models in a new size (“Size 7”). With the new power rates 75 kW, 90 kW, 110 kW and 132 kW, the 400 V three-phase Active series offers, amongst other things, good cover and synergy with the Bonfiglioli gearboxes in the HDP and HDO series for use in high torque applications. Braking Resistors Once analysis and selection operations had been completed by the DSC team at Bonfiglioli Vectron, the new series of BR braking resistors was launched in June 2007. The BR resistors are compatible with the most important drive series produced by Bonfiglioli Vectron: Active, VCB, Synplus thereby simplifying and rationalising the range of accessories available: the large number of braking resistors (each dedicated to a single converter series) was replaced by 11 BR codes, applying to all the series mentioned. The analysis also produced a number of tables illustrating drive-resistor combinations, which are included in the catalogue and are of assistance when selecting the correct resistor size for most applications. Product personalisation initiatives Extensive research and development activities also focused on the customisation of products in 2007, with the completion of around ten projects made to customer specifications. Amongst these, the diameter “servo” function for wrapping devices on packaging machines is worthy of mention, as is the development of “Motion” control blocks with position synchronisation, for the plastics industry. Renewable energy A special mention must go to activities focused on the configuration of products for renewable energy plants, an area of business of particular interest, both in terms of the excellent growth rates recorded and the strong position held by Bonfiglioli and Vectron in this market. In 2007 various customisation initiatives were completed, focused on the effective application of regeneration units in the VER series to convert
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electrical energy from photovoltaic panels for a power network. Research was also carried out on systemic aspects, which produced an electrical panel with MPP Tracker control suitable for modular photovoltaic plants. In the wind turbine sector, the Active series was used to control the rotation of the nacelle (combined with planetary drives from the 300 Series). Biofuels The biofuel industry is increasingly becoming an important sector for planetary drives in the 300 Series, which are used to transform primary or waste materials into fuels for the production of energy in conjunction with converters from the Active series. In particular, Active constantly controls the mass mixing process, to optimize the energy balance between what is used for the transformation process and what is generated in terms of energy-based power. Training activities The development of the drive and motor range into products and applications of higher technological content, combined with the growth of the Drive Service Center (DSC) at branch offices and BEST distributors, has led to an increasing need for training of resources responsible for providing local technical support for electronic products. In response to these needs, the DSC at the Competence Centre has intensified the standard product course programme and introduced a number of specialisation courses, aimed at an in-depth analysis of important topics common to several products (e.g. field bus communication).
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Quality (UNI EN ISO standards) With reference to the Quality area, certification to UNI EN ISO 9001:2000 continues to constitute one of the most important standard references for the Bonfiglioli organisation. The Quality Control system is applied at all the Bonfiglioli factories with the aim of maintaining and implementing the quality standard improvement process in order to rationalise and integrate internal processes continuously, thereby satisfying the demands of both internal and external customers. This continuous improvement process is supported by constant analysis of a series of KPI’s, which are fundamental to maintaining set standards at high levels, in accordance with the strategic and market requirements defined by top management. Constantly committed to the maintenance of these quality standards, the company has set itself the task of safeguarding the environment and obtained the environmental certification UNI EN ISO 14001:2004, an important starting point for maximising use of existing resources and minimising their impact on the environment. As part of this process dedicated to safeguarding the environment, in 2007 Bonfiglioli chose to comply with the “RoHS” EC Directive 2002/95 for the restrictionelimination of hazardous substances contained in its products, which marked another step towards better environmental quality standards. Sustaining the results achieved in previous years and much to the company’s satisfaction, in 2007 the three-year certification of our 94/9/EC (“ATEX”) system was renewed. It was also decided, during the first few months of 2008, to take steps towards the adoption of the new Machine Directive 2006/42 in order to be ready in advance, by the beginning of 2009, for the coming into force of this Directive, envisaged for December 2009.
Significant events after year end As already mentioned in the section relating to the consolidation area, during the first few months of 2008, the Group transferred business from the subsidiary “Bonfiglioli Power Transmission Pty Ltd” to the indirect subsidiary “Bonfiglioli South Africa Pty Ltd.” incorporated at the end of 2007 in order to comply with regulations laid down by the “Black Empowerment Equity Program” (BEE). Agreements with our black partners were formalised a few days ago, with the taking-up on their part of a 25% stake in the share capital of the newly incorporated company. It is also pointed out that, on January 3, 2008 the incorporation of the company “Bonfiglioli Vietnam LLC” was completed, with an initial share capital of 10 million USD and registered office in the province of Binh Duong (industrial area of Ho Chi Minh). This investment, whereby the institutional partner SIMEST SpA gained a 20% stake, is aimed at setting up a new factory premises. On the date on which this report was drawn up, construction works on the factory had already commenced, on a site
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covering 94,000 square metres let for a 49-year term to the company by the Vietnamese government. The first stage involves the construction of a factory covering 18,000 square metres with annexed offices and common parts occupying 1,400 square metres. The go-ahead has also been given for a feasibility study to be carried out to assess the scope for expanding the Group’s business to South America through the creation of a direct presence set to commence at the end of 2008.
Business outlook Consolidated turnover as at April 2008 was around 20% higher than that recorded in the previous period, rising from 199 to approximately 240 million Euros. The strong growth of the planetary drive market for the "mobile" sector (+32.6%) shows no signs of letting up and the growth characterising the “industrial” sector (+21.9%) also appears to be a continuing trend. 2008 will see the Group committed, as in the past, to consolidating investments it has already made and expanding business. The completion of the second Povaska Bystrica factory in Slovakia will allow production to expand and provide scope for the direct handling of deliveries to the final customer, thereby improving current logistics management. Investments in the Forlì factory will also be completed, further strengthening the overall production output of planetary gearboxes for excavators and road pavers, gearboxes for wind turbines and aerial platforms. The new automation plant for the assembly of gearboxes in the C – A – F – S series also started up at the factory in Vignola (MO). This major investment will allow daily production output for these gearboxes to far exceed that recorded in 2007, at the same time providing high production flexibility and anticipated reduction in production costs. 2008 will also represent an important year for the production and sale of the heavy-duty HDP – HDO ranges, as testified by the start-up phase for assembly machines at the branches in South Africa and Australia and a new factory in Italy dedicated to these products, which will go into operation next September. Work is as intense as ever in the information technology area with a number of projects being implemented, the most important of which relating to: the creation of new support structure for worldwide projects based in India (Business Process Service – BPS) and the development of SAP implementation in all the foreign companies according to a new standard model, in which various Bonfiglioli work groups have been involved through the mixed participation of staff from various parts of the world. An important new strategic planning initiative has been set up in response to the robust development and growth in turnover recorded by the Group over the last few years. Under this initiative, the first task will be to review and implement a new organ-
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isational model more in keeping with the size of the business, followed by the establishment of guidelines and strategic plans for the next 3-5 years.
Further information Equity shares The parent company does not hold and has never held equity shares, nor does it hold stakes or shares in controlling companies inasmuch as there is no legal entity that holds a controlling stake in Bonfiglioli Riduttori SpA stock. Financial risk management The following information is provided pursuant to the provisions of art. 40, paragraph 2, letter d-bis of Legislative Decree 127/91 concerning the financial risk faced by the Group with reference to the particular sector in which it operates and to the specific procedures it adopts to conduct its business activities. Magnitude of financial risk The Group is not unduly exposed to the financial risk that is present in all industrial and commercial activities under the following captions of the financial statements: a) Trade receivables Appropriate internal control procedures for the management of bad debt risks have been implemented. Amounts due in foreign currency are normally hedged utilising adequate non-speculative hedging policies. As specified in the Explanatory Notes, risks of insolvency are fully covered by the doubtful receivables provisions. b) Trade payables denominated in currencies other than the Euro Also for this type of risk the considerations of the previous heading are applicable because the company and group apply systematic exchange risk hedging policies on balance sheet items with matching offset entries without the use of speculative instruments. c) Loans obtained in Euro and/or other currencies The parent company has no outstanding medium-/long-term loans in currencies other than the Euro. Temporary export advances may be made against exchange hedging operations managed in accordance with the hedging policies indicated in the above points. Loans and indebtedness of foreign subsidiaries are normally denominated in the local currency and/or anyway in the currency in which the main sales flows are generated in such a way as to minimise the risks associated with fluctuation of the cur-
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rencies in question. A change in interest rates leads to an economic effect that is proportional to the level of group indebtedness, which is still lower overall than own equity and is well below average levels in the sector. Financial risk management The parent company normally draws up monthly treasury forecasts in order to ensure constant monitoring of the level of utilisation of financial instruments, financial exposure, and the short-term capacity to meet its commitments and make the most appropriate decisions on that basis. The company also engages in exchange risk hedging operations in relation to both sales and purchases made in foreign currencies. Full disclosure of the foregoing operations is provided in the Explanatory Notes to the financial statements, which we invite you to consult for further details.
May 28, 2008 Board of Directors’ Chairman Clementino Bonfiglioli 58
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Consolidated financial statements as of December 31, 2007
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Consolidated financial statements as of December 31, 2007 (The consolidated financial statements have been translated into the English language solely for the convenience of international readers)
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Consolidated financial statements as of December 31, 2007 Consolidated balance sheet Assets
(Euro Thousand)
2007
2006
46
6
1,179
1,281
78
106
5,842
7,329
55
361
402
257
7,602
9,340
1) Land and buildings
69,126
54,833
2) Plant and machinery
48,796
35,475
3) Trade and industrial fixtures
12,651
8,854
4) Other tangible fixed assets
4,266
3,436
11,766
8,033
146,605
110,631
3,341
2,951
28
10
3,369
2,961
3,369
2,961
157,576
122,932
1) Raw materials, supplies and consumables
32,543
27,654
2) Work in progress and semifinished goods
73,624
61,914
4) Finished goods and goods for resale
66,749
64,633
B) Fixed assets (net of cumulated depreciation) I. Intangible fixed assets 1) Start up costs 3) Patents and rights for the use of intellectual properties 4) Concession, licenses, trademarks and similar rights 5) Goodwill 5b) Consolidation differences 6) Assets in progress and advances 7) Other intangible fixed assets Total Intangible fixed assets II. Tangible fixed assets
5) Construction in progress and advances Total Tangible fixed assets III. Financial fixed assets 1) Investments b) associated companies d) other companies sub total Total Financial fixed assets B) TOTAL FIXED ASSETS (NET OF CUMULATED DEPRECIATION) C) Current assets I. Inventory
5) Advances Total Inventory
149
304
173,065
154,505
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Consolidated financial statements as of December 31, 2007
I
(Euro Thousand)
2007
2006
145,466
130,659
9,577
9,311
12,419
8,725
488
337
12,907
9,062
- due within 12 months
7,105
6,433
- due after 12 months
5,513
3,970
12,618
10,403
- due within 12 months
3,744
1,809
- due after 12 months
1,644
1,261
5,388
3,070
185,956
162,505
II. Receivables 1) Trade receivables - due within 12 months 3) Receivables from associated companies - due within 12 months 4bis) Tax receivables - due within 12 months - due after 12 months sub total 4ter) Deferred tax assets
sub total 5) Other receivables
sub total Total Receivables IV. Cash at bank and on hand
16,262
13,445
2) Cheques
1) Banks
—
14
3) Cash on hand
47
46
16,309
13,505
375,330
330,515
641
520
641
520
533,547
453,967
Total Cash at bank and on hand C) CASH AT BANK AND ON HAND D) Prepaid expenses and accrued income - Other prepaid expenses and accrued income
D) TOTAL PREPAID EXPENSES AND ACCRUED INCOME TOTAL ASSETS
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Liabilities and shareholders’ equity
(Euro Thousand)
2007
2006
30,000
15,000
20,847
35,847
3,000
3,000
-) Extraordinary reserve
66,112
52,425
-) Consolidation reserve
16,263
16,395
-) Foreign exchange currency conversion reserve
(4,087)
(3,314)
A) Shareholders' equity I. Share capital III. Revaluation reserves IV. Legal reserve VII. Other reserves
-) Other reserves sub total
VIII. Retained earnings (losses) carried forward IX. Net income (loss) of the Group
5,451
5,451
83,739
70,957
13,827
11,745
25,645
17,193
177,058
153,742
1,538
5,745
697
1,040
2,235
6,785
179,293
160,527
1) Termination indemnity and similar liabilities
1,787
1,563
2) Taxes and deferred taxes liabilities
7,215
6,523
3) Other reserves
5,594
3,390
B) TOTAL RESERVES FOR RISKS AND CHARGES
14,596
11,476
C) EMPLOYEE SEVERANCE INDEMNITY RESERVE
17,191
18,034
440
459
6,020
6,837
6,460
7,296
61,839
31,806
65,878
54,152
127,717
85,958
Group share of shareholders' equity Minority interests share capital and reserves Minority interests net income (loss) Minority interests A) CONSOLIDATED SHAREHOLDERS' EQUITY B) Reserves for risks and charges
D) Payables 1) Bonds - due within 12 months - due after 12 months sub total 4) Banks - due within 12 months - due after 12 months sub total
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Consolidated financial statements as of December 31, 2007
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(Euro Thousand)
2007
2006
3,296
2,278
19,091
13,013
22,387
15,291
2,526
798
136,202
128,780
27
29
5,696
9,785
5,323
4,408
12,406
11,057
2,748
—
15,154
11,057
321,492
263,402
975
528
975
528
533,547
453,967
Guarantees given from third parties in own favour
6,168
4,652
TOTAL MEMORANDUM ACCOUNTS
6,168
4,652
5) Other financial institutions - due within 12 months - due after 12 months sub total 6) Advances - due within 12 months 7) Trade payables - due within 12 months 10) Payables to associated companies - due within 12 months 12) Tax payables - due within 12 months 13) Social security - due within 12 months 14) Other payables - due within 12 months - due after 12 months sub total
D) TOTAL PAYABLES E) Accrued expenses and deferred income - Other accrued expenses and deferred income
E) TOTAL ACCRUED EXPENSES AND DEFERRED INCOME TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Memorandum accounts
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Consolidated statement of income (Euro Thousand)
2007
2006
610,772
498,635
16,228
27,998
5,629
3,900
632,629
530,533
6) Raw materials, supplies, consumables & goods for resale
326,302
270,809
7) Services
137,667
117,751
4,052
3,893
a) Wages and salaries
69,208
63,387
b) Social contributions
18,474
16,652
c) Severance indemnity
4,135
3,431
A) Production value 1) Net revenue from sales and services 2) Change in work in progress, semi-finished and finished goods 5) Other revenues and incomes - others
A) TOTAL PRODUCTION VALUE B) Production costs
8) Use of third party assets 9) Personnel
e) Other costs sub total
81
126
91,898
83,596
3,713
2,992
16,081
14,081
1,527
1,270
21,321
18,343
(5,939)
(6,401)
10) Depreciation, amortization and write-downs a) Amortization of intangible fixed assets b) Depreciation of tangible fixed assets d) Bad debt provision sub total
11) Change in raw materials, supplies, consumables & goods for resale 13) Other provisions
2,041
649
14) Other operating expenses
4,382
4,089
581,724
492,729
50,905
37,804
453
296
B) TOTAL PRODUCTION COSTS DIFFERENCE BETWEEN PRODUCTION VALUE AND COSTS (A–B) C) Financial income and expenses 16) Other financial income - other
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(Euro Thousand)
2007
2006
(7,801)
(4,520)
(194)
(318)
(7,542)
(4,542)
540
277
540
277
2,450
—
737
619
3,187
619
- other
(1,434)
(903)
E) TOTAL EXTRAORDINARY ITEMS
1,753
(284)
17) Interest expenses and other financial charges - other 17bis) Exchange rate gains and losses, net
C) TOTAL FINANCIAL INCOME AND EXPENSES D) Adjustments to financial assets 18) Revaluations a) investments
D) TOTAL ADJUSTMENTS TO FINANCIAL ASSETS E) Extraordinary income and expenses 20) Income - gains on disposal - other sub total 21) Expenses
INCOME BEFORE TAXES (A–B±C±D±E)
45,656
33,255
- current
(20,827)
(17,178)
- deferred
1,513
2,156
(19,314)
(15,022)
26,342
18,233
22) Income taxes
TOTAL INCOME TAXES 23) NET INCOME (LOSS) INCLUDING MINORITY INTEREST Minority interest income
NET INCOME (LOSS) OF THE GROUP
(697)
25,645
(1,040)
17,193
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Notes to consolidated financial statements
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Notes to consolidated financial statements (The notes to the consolidated financial statements have been translated into the English language solely for the convenience of international readers)
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Notes to consolidated financial statements
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Notes to consolidated financial statements
Foreword The consolidated financial statement was drafted in compliance with Legislative Decree no.127/1991. The Notes include the reconciliation statement between shareholders' equity and the net income of the Parent company and the same items in the consolidated financial statements. In addition, the consolidated cash-flow statement has been annexed to the Notes. All figures in this financial statement and the relative Notes are expressed in thousands of euro (K€). Form and contents of the consolidated financial statements The consolidated financial statement includes the financial statements of companies within the Bonfiglioli Group, namely the parent company Bonfiglioli Riduttori Spa and the Italian and foreign subsidiaries in which the company holds more than 50% of the capital, either directly or indirectly, or exercises management control in relation to specific agreements to this effect. The financial statements of the Group Companies utilised for the integral consolidation were approved by the shareholders' meetings of the individual companies concerned, suitably modified wherever necessary to unify them with the accounting principles adopted by the Group, which comply with the financial principles imposed by law. If the relative financial statements had not yet been approved by the respective shareholders' meetings at the time of preparation of the consolidated financial statements, the draft financial statements prepared for approval by the respective Boards of Directors were utilised. If the financial year of companies closes on a date other than December 31, interim financial statements were drawn up at December 31 utilising the Group accounting principles. The Group companies operate exclusively in the industrial production and sale of gearmotors, speed variators, and drive transmission components in general.
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The subsidiary companies included in the consolidation area at December 31, 2007 are as follows: Denomination
Country
Currency
Share Capital
Shareholding
Italy
€
30,000,000
Canada
CAD
4,000,000
100%
100%
USA
USD
4,000,000
100%
100%
2007 Bonfiglioli Riduttori SpA Bonfiglioli Canada Inc. Bonfiglioli USA Inc. Bonfiglioli Deutschland GmbH
2006
Parent Company
Germany
€
3,000,000
100%
100%
Bonfiglioli Skandinavien AB
Sweden
SEK
2,985,000
67%
67%
Bonfiglioli Transmissions Sa
France
€
1,900,000
100%
50%
Australia
AUD
7,500,004
100%
100%
Bonfiglioli UK Ltd
Great Britain
GBP
200,000
100%
100%
Bonfiglioli Power Transmission Pty Ltd
South Africa
ZAR
64,000
75%
75%
India
INR
400,000,000
100%
100%
China
USD
1,000,000
100%
100%
Bonfiglioli Transmission (Aust) Pty Ltd
Bonfiglioli Transmission Pvt Ltd Bonfiglioli Drives (Shanghai) Co. Ltd Bonfiglioli Vectron GmbH
Germany
€
500,000
97%
97%
Tecnoingranaggi Riduttori Srl (Sole Shareholder)
Italy
€
96,900
100%
100%
Bonfiglioli Italia Spa (Sole Shareholder)
Italy
€
16,000,000
100%
100%
Slovakia
SKK
350,000,000
100%
100%
Turkey
TRY
500,000
67%
67%
Bonfiglioli Slovakia Sro Bonfiglioli Power Trasmission Jsc
With reference to the parent company “Bonfiglioli Riduttori SpA” it is pointed out that on August 28, 2007, by operation of a deed drawn up by Notary Public Palmeri Roll no. 4132/860, the company passed a resolution in a general meeting to increase the share capital without consideration from 15.0 M€ to 30.0 M€ paid up by transferring part of revaluation reserves recorded under shareholders equity to capital. With reference to the area of consolidation and changes made from previous year, we draw your attention to the following matters: • in March, an agreement was entered into for the transfer of 60% of the share capital of the subsidiary “Bonfiglioli Hellas SA” to the minority. The transaction took the company out of the consolidation area. The effects of this deconsolidation are recorded under extraordinary income. The Group retained a 10% minority holding in the company, which became the Group’s distributor for the area and changed its name to “BEST Hellas SA; • in May the purchase of the remaining 50% of the share capital of the French subsidiary “Bonfiglioli Transmission France Sa” was completed by paying the outgoing Members the sum of 4.9 M€; • in May the share capital of the Slovakian subsidiary “Bonfiglioli Slovakia S.r.o.” was increased against payment from 150.0 MSKK to 350.0 MSKK, paid up by
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•
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means of cash payments by the parent company; on August 28, 2007, by operation of a deed drawn up by Notary Public Palmeri Roll no. 4130/858 with effect from 1st September 2007, the parent company completed a transaction increasing the share capital of the subsidiary “Bonfiglioli Italia S.r.l.” from 0.1 M€ to 16.0 M€, paid up by means of conferments in kind of business branches set up to deal with the “marketing of Bonfiglioli products on the Italian market” and “storage, logistics and programming relating to sales in Italy”. On September 3, 2007, by operation of a deed drawn up by Notary Public Palmeri Roll no. 4138/866 the company was transformed into a company limited by shares (SpA); in October the share capital of the Canadian subsidiary “Bonfiglioli Canada Inc.” was increased against payment from 2.3 MCAD to 4.0 MCAD, paid up by transferring payables due to the parent company to capital.
It is also pointed out that, following approval in South Africa of the law known as the “Black Empowerment Equity Program” (BEE), the company “Bonfiglioli South Africa Pty Ltd” (a 100% subsidiary of the South African branch) was incorporated with a view to initiating negotiations with a number of important partners belonging to the BEE categories and to helping them participate in business activities, as laid down by local legislation. At the end of 2007 the company “Bonfiglioli South Africa Pty Ltd.” was no longer in operation and was therefore excluded from the consolidation area. Drafting principles The structure of the balance sheet and the income statement are as required by Italian Legislative Decree 127/91. Items preceded by Arabic numerals having zero contents have been omitted both in the current and in the previous financial statements. The balance sheet provides separate indication of shareholders' equity and the minority interests share of profits. No items of assets and liabilities are recorded under more than one caption of the tables. Consolidation principles A. Consolidation is carried out on a line-by-line basis, consisting in recording all the captions under assets and liabilities and in the income statement in their entirety. B. The book value of consolidated equity investments was written off against the related equity at the time of first consolidation and the resulting differences, if negative, were recognised under a specific item of consolidated equity denominated "Consolidation Reserve". Any positive differences existing at the time of first consolidation were recorded in the consolidated financial statements, where
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possible, under the items of assets of the companies included in the consolidation area, or under the assets caption "Consolidation differences" for differences that, despite their characteristics of deferment affecting more than one year, could not be allocated to specific items under assets. In contrast, if these items were not considered to be deferred to more than one year, they were deducted from the consolidation reserve. For companies that were already controlled at January 1st, 1994 this date was considered as the moment of initial consolidation, since 1994 was the year in which it became mandatory to draw up consolidated financial statements. C. The positive differences recorded were amortised in accordance with the rates utilised for the assets to which they refer; the consolidation difference is amortised throughout the estimated future working life of the assets in question. D. The results achieved, following initial consolidation, were subsequently entered under a specific caption of consolidated equity denominated "Retained earnings and losses carried forward". E. Any profits and losses that have yet to be realised in relation to third parties deriving from transactions between Group companies were eliminated, as were the items that give rise to payables, receivables, costs and revenues. F. The dividends distributed by consolidated Companies within the Group were properly eliminated. G. The portions of shareholders' equity and profit due to minority shareholders of the consolidated subsidiaries were deducted from the Group portions and recorded separately under specific captions of consolidated equity and income statement. H. The financial statements of foreign companies were converted to euro, applying the year-end exchange rate for all assets and liabilities and the average exchange rate calculated over the full twelve months for captions in the income statement. The items of equity, existing at the date of initial consolidation, are converted at the exchange rates in force on said date, while subsequent changes are converted at the historic exchange rates in force on the date of the relative transactions. Conversion differences arising both from the conversion of equity captions to the year-end rates with respect to the historic rates, and existing between the average exchange rates and year-end exchange rates for the income statement, were recorded under a specific caption of consolidated equity denominated "Currency conversion reserve”. The exchange rates utilised for companies operating outside the euro area are as follows:
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Notes to consolidated financial statements
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Company
Currency
B.S. exchange rate 2007
P.L. exchange B.S. exchange rate 2007 rate 2006
P.L. exchange rate 2006
Bonfiglioli UK Ltd
Pound Sterling
0,733
0,684
0,672
0,682
Bonfiglioli Canada Inc.
Canadian Dollar
1,445
1,468
1,528
1,424
Bonfiglioli Skandinavien Ab
Swedish Kroner
9,441
9,250
9,040
9,254
Bonfiglioli USA Inc.
US Dollar
1,472
1,370
1,317
1,256
Bonfiglioli Transmission (Aust) Pty Ltd
Australian Dollar
1,676
1,635
1,669
1,667
Bonfiglioli Power Transmissions Pty Ltd
South African Rand
10,030
9,660
9,212
8,531
Bonfiglioli Transmissions Pvt Ltd
Indian Rupee
58,021
56,572
58,297
56,910
Bonfiglioli Drives (Shanghai) Co. Ltd
Chinese Yuan
10,752
10,418
10,279
10,010
Bonfiglioli Slovakia Sro
Slovakian Koruna
33,583
33,774
34,435
37,234
Bonfiglioli Power Transmissions Jsc
Turkish Lira
1,7107
1,786
1,864
1,809
I. The following company is consolidated with the net equity method: Denomination
Location
Tecnotrans Bonfiglioli Sa
Barcelona (Spain)
Share Capital
% Stake
€ 2,175,000
33.33%
Valuation criteria The accounting principles and valuation criteria adopted in drafting the financial statement are in compliance with the principles of the Italian Civil Code and the accounting standards prescribed by the National Council of Chartered Accountants (OIC). Where such principles are lacking or insufficient, the point of reference is provided by international accounting standards (IAS/IFRS) where these latter are in compliance with Italian legal requirements. The annual financial statement was prepared in accordance with the general principles of clarity, truthfulness and fairness; specifically: • items in the financial statement were valued in accordance with the general principle of prudence and on an accrual basis, applied in expectation that activities will continue; • account is taken of the risks and losses relating to the year, even when such risks and losses became known after the end of that year; • the statements refer exclusively to profits realised at the closing date of the financial year; • income and expenses are considered to be relative to the year irrespective of the effective collection or payment dates; • dissimilar components covered by single captions have been valued separately;
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•
the valuation principles are unchanged with respect to those utilised in the previous year, unless specified below; • no exceptional cases occurred the justified a departure from the provisions of legislative enactments. During the year dealt with in these Notes the cost of inventory is calculated adopting the FIFO method and not with reference to the mean weighted cost figure. In keeping with principle no. 29 laid down by the National Council of Chartered Accountants (OIC), it is pointed out that the effects of the alteration of the accounting principle may be considered as insignificant, given the size of the Group, and it is not therefore considered necessary to record in the accounts the effects referred to in the aforementioned principle no. 29. Specifically, the valuation criteria adopted in drawing up the financial statement are as specified below. Intangible fixed assets Intangible fixed assets are recorded at purchase cost increased by ancillary expenses or, if the assets were internally constructed, on the basis of the costs sustained directly or indirectly, entered in respect of the attributable portion. The cost, calculated as illustrated above, may be written back in certain cases if this action is permitted by the relative laws. Intangible fixed assets were systematically amortised on the basis of the following rates: Start-up and expansion costs Patent rights and utilisation of intellectual property rights Concessions, licences, trademarks and similar rights Consolidation differences Other
20% 33.33% - 50% 33.33% 10 – 20% 20%
Tangible fixed assets Plant and equipment are recorded in the financial statements at purchase cost or construction cost, inclusive of all directly connected ancillary expenses and adjusted in the event that specific laws allow the write-back of assets in order to adjust them, even only partially, to the changed purchasing power of the currency. Assets acquired by means of leasing contracts are recorded in accordance with the requirements of international accounting standard IAS no. 17 which is, in turn, implemented by the accounting principle set down by the Italian Consiglio Nazionale dei Dottori e dei Ragionieri Commercialisti (National Council of Chartered Accountants) with reference to the consolidated financial statements. The financial method is therefore applied, involving the attribution of the historic
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Notes to consolidated financial statements
I
cost of the relative goods under assets, recording of the debt under liabilities, and entry of the relative financial expenses and depreciation amounts in the income statement. Provisions made in lieu of depreciation are systematically allocated by the application of rates that are considered to accurately reflect the residual useful working life of the assets to which they refer. Maintenance and repair costs of an ordinary nature are directly attributed to operating costs, while extraordinary costs that increase the useful life or production capacity of the relative asset are added to the value of the asset. The ordinary annual rates utilised for the depreciation of tangible assets are as follows: Land and buildings
2% to 10%
Plant and machinery
10% to 25%
Industrial / trade fixtures
10% to 30%
Other
10% to 30%
Equity investments held as fixed assets The equity investment in the associated company “Tecnotrans Bonfiglioli SA” is entered on the basis of the net equity criterion, i.e. for an amount equivalent to the corresponding portion of shareholders' equity resulting from the latest financial statements of the company after deducting dividends and after recording any further consolidation adjustments having a significant impact. The other investments are recorded at their purchase cost. Inventories Inventories are valued in accordance with the general principle of the lower of purchase cost and market cost: • raw materials are valued adopting the FIFO method; • work in progress is valued according to the stage of completion reached on the basis of the cost of materials, labour, industrial depreciation and indirect production costs; • semi-finished and finished products are valued adopting the FIFO method, taking the cost of materials, labour, industrial depreciation and other production costs; • obsolete or slow-moving materials and products are valued according to their estimated useful life or future market value, by means of an entry under writedown provisions. Infra-group profits present within the inventories of the consolidated companies are eliminated.
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Receivables Receivables are entered at their presumed realisation value through direct provision for bad debts and entry of a provision for bad debts. Cash at banks and on hand Cash at banks and on hand is entered at nominal value, considered to represent the presumed realisation value. Accruals and deferments Accruals and deferments are calculated in such a way as to attribute during the year the competent portions of costs and revenues relative to two or more years, in accordance with the pro tempore competence of the relative transactions. Specifically, accrued income and accrued expenses refer to revenues and costs relative to the year, although formally recorded in the following year; prepaid expenses and deferred income concern costs and revenues arising during the year despite the fact that they relate to future years. Reserves for risks and charges Reserves for risks and charges consider the provisions allocated to cover losses, or debts of a given nature and certain or probable existence, for which the exact amount or contingency date was not known at year-end. The allocations reflect the best possible estimate of the relative amounts on the basis of the information available. Risks for which a liability is only possible and not certain are illustrated in the Notes to the financial statements, without allocating a specific risks and charges provision. Employees severance indemnity The severance indemnity reserve is commensurate with the amounts payable to the employees in the workforce at the closing date of the year, in compliance with statutory legislation and applicable collective labour contracts. Payables Payables are entered at their nominal value with regard to the principal, while interest is entered under payables if already due, and under accruals, according to the accrual principle if not yet due. Recognition of costs and revenues Sales revenues and purchase costs are recognised at the time of transfer of ownership, which generally occurs respectively at the time of shipment or at the time of
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Notes to consolidated financial statements
I
reception, net of returns, discounts, allowances and premiums; the other revenues and costs (supplies of services, financial, etc.) are recorded in accordance with the accrual principle. Costs and revenues arising between Group companies and infra-group dividends are eliminated. Taxes Income taxes are recorded on the basis of a forecast of the tax burden for the year with reference to statutory tax regulations and taking account of the applicable exemptions and facilitations. Deferred and pre-paid taxes are recorded to take account of the fiscal effects both in relation to items of income or costs that concur in forming the profit for the year other than the year in which they contribute to forming the taxable income and in order to reflect the deferred fiscal effects relative to the consolidation adjustments. Foreign currency Transactions in foreign currency are converted into euro at the historic exchange rates on the transaction dates. Exchange rate gains and losses incurred at the time of collection of receivables and settlement of payables in foreign currency are recorded in the income statement under financial income and expenses. Receivables and payables existing at year-end expressed in the currency of non-euro countries were converted at the exchange rates in force at year-end, taking account of the existing hedging contracts. The difference arising from this operation (gain or loss) was verified and reflected in the income statement for the year, with a matching entry of the relative receivable or payable. Specifically, with regard to captions in foreign currency for which forward contracts in foreign currency were taken out to hedge against the relative exchange risk, the following valuation principle was adopted: • the difference generated between the value in euro determined by the adoption of the historic exchange rate at the time of registration of the transaction and the amount in euro determined on the basis of the contractual spot exchange rate established was entered into the income statement with a matching entry of the relative trade receivable or payable; • the discount or premium of the transaction was recorded by competence with respect to the relative duration. Derivatives Contracts taken out to hedge exchange risks are measured in relation to the receivable or payable to which they refer.
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Exchange rate or interest rate swap contracts that are not correlated to the receivables and/or payables entered at the reference date of the financial statements are valued separately. If, in relation to the separate valuation, losses are predicted, these are recognised in the income statement and reflected in a specific risks reserve; if the valuation points to the likelihood of profits, these are deferred to the moment of their effective realisation. Derivative contracts are valued in the same manner as the hedged asset or liability or as the contractual undertaking assumed at the date of the financial statements. If the existence of a hedging relationship with the underlying financial transactions is not proven or insufficiently documented, a fair value assessment is made of said financial instruments and, also on the basis of this latter valuation, any possible latent losses are estimated, making a commensurate allocation to the risks and charges reserve. Commitments and guarantees Contractual commitments and guarantees are entered under commitments at the value resulting from the contractual undertaking after deducting any liabilities that have already been recorded.
Comments on the individual captions of the financial statement In the following tables the "consolidation area changes" heading reflects the balances as at December 31, 2006 of the Greek company leaving the consolidation area following the transfer of the majority shareholding.
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Notes to consolidated financial statements
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Balance sheet Fixed assets Intangible fixed assets Description
Opening balance
Increases
Decreases Consolidation area changes
Other changes
Closing balance
HISTORICAL COST - Start-up and expansion costs
10
52
—
—
—
62
- Patent rights and intellect. property rights utilis.
13,213
1,542
—
—
270
15,025
- Concessions, licences, trademarks, similar rights
1,283
48
(34)
(19)
1
1,279
19,718
103
—
—
—
19,821
- Consolidation differences - Assets under construction and advances
361
55
(92)
—
(269)
55
- Other
719
273
(82)
—
(71)
839
35,304
2,073
(208)
(19)
(69)
37,081
4
12
—
—
—
16
- Patent rights and intellect. property rights utilis.
11,932
1,917
—
—
(3)
13,846
- Concessions, licences, trademarks, similar rights
1,177
77
(34)
(19)
—
1,201
12,389
1,590
—
—
—
13,979
462
117
(49)
—
(93)
437
25,964
3,713
(83)
(19)
(96)
29,479
6
40
—
—
—
46
- Patent rights and intellect. property rights utilis.
1,281
(375)
—
—
273
1,179
- Concessions, licences, trademarks, similar rights
106
(29)
—
—
1
78
Total (A) CUMULATED AMORTISATION - Start-up and expansion costs
- Consolidation differences - Other Total (B) NET VALUES - Start-up and expansion costs
7,329
(1,487)
—
—
—
5,842
- Assets under construction and advances
- Consolidation differences
361
55
(92)
—
(269)
55
- Other
257
156
(33)
—
22
402
9,340
(1,640)
(125)
—
27
7,602
Total (A-B)
The "other changes" column includes cancellations of the fully amortised items and the effect of the exchange rate fluctuation. Start-up and expansion costs This caption refers to start-up costs and costs associated with amendments to the
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articles of association of the company Bonfiglioli Italia SPA, which increased during the year as a result of expenses incurred by the company in transferring business branches and the subsequent transformation of the company into a company limited by shares (SpA), entered in the accounts with the approval of the Statutory Auditors. Industrial patent rights and utilisation of intellectual property rights This caption includes deferred expenses sustained for the registration of industrial patents and the costs sustained for application software purchased outright and/or with open-term license. The increase in the year is mainly due to the purchase and implementation of software for IT resource planning of the companies. Certain patent rights were revalued in compliance with L.342/00. Pursuant to the provisions of art. 10 of L. 72/83 the value of the monetary revaluations applied is indicated below: Description
Original cost
Revaluation L. 342/2000
Net book value
62
—
62
Patent rights and intellectual property rights utilisation
9,478
5,547
15,025
Concessions, licences, trademarks and similar rights
1,279
—
1,279
19,821
—
19,821
55
—
55
Start-up and expansion costs
Consolidation differences Assets under construction and advances Other Total (A)
839
—
839
31,534
5,547
37,081
This revaluation had no effect on the income statement for the year since it had already been fully amortised. Concessions, licences, trademarks and similar rights In the most part these costs are constituted by trademark registration charges. Good will and consolidation differences The value recorded arises from consolidation differences in the form of goodwill, specifically: • K€ 711 referred to the acquisition of the equity investments in Bonfiglioli Vectron GmbH; • K€ 4,990 referred to the acquisition of the equity investment in Tecnoingranaggi Riduttori Srl Sole Shareholder; • K€ 59 referred to the acquisition of the equity investment in the Turkish company “Bonfiglioli Power Transmission and Automation Technologies Industry and
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Notes to consolidated financial statements
I
Commerce JSC”; • K€ 82 referred to the acquisition of the equity investment in the company “Bonfiglioli Transmission France SA”. The consolidation difference relative to the foregoing investment was recognised for an original value of K€ 103. Amortisation is executed, with the approval of the Statutory Auditors, in accordance with a five-year plan for Bonfiglioli Vectron GmbH, Bonfiglioli Power Trasmission & Automation Jsc and Bonfiglioli Transmission France SA and in accordance with a ten-year plan for Tecnoingranaggi Riduttori Srl, in consideration of the medium/long-term return on the investment plan.
Tangible fixed assets Description
Opening balance
Increases
75,788
17,230
Decreases Consolidation area change
Other changes
Closing balance
(639)
1,985
89,285
HISTORICAL COST - Land and buildings - Plant and machinery
(5,079)
152,701
20,193
(5,558)
(3)
2,433
169,766
- Trade and industrial fixtures
47,489
8,422
(3,640)
(7)
39
52,303
- Other tangible assets
12,375
2,034
(662)
(220)
86
13,613
8,033
8,362
(5)
(5)
(4,619)
11,766
296,386
56,241
(14,944)
(874)
(76)
336,733
20,955
2,003
(2,767)
88
20,159
- Assets under construction and advances Total (A) CUMULATED DEPRECIATION - Land and buildings - Plant and machinery
(120)
117,226
8,978
(5,198)
(3)
(33)
120,970
38,635
3,936
(2,886)
(7)
(26)
39,652
8,939
1,164
(547)
(201)
(8)
9,347
185,755
16,081
(11,398)
(331)
21
190,128
- Land and buildings
54,833
15,227
(2,312)
(519)
1,897
69,126
- Plant and machinery
35,475
11,215
(360)
—
2,466
48,796
- Trade and industrial fixtures - Other tangible assets Total (B) NET VALUES
- Trade and industrial fixtures
8,854
4,486
(754)
—
65
12,651
- Other tangible assets
3,436
870
(115)
(19)
94
4,266
- Assets under construction and advances
8,033
8,362
(5)
(5)
(4,619)
11,766
110,631
40,160
(3,546)
(543)
(97)
146,605
Total (A-B)
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The "other changes" column includes exchange rate differences and reclassifications of the individual items. For an analysis of the investments in the year we refer you to the Management report. Within the meaning and for the purposes envisaged in article 10 of Law 72/1983 and subsequent amendments and additions thereto, an indication is provided of assets still recognised in equity for which monetary revaluation has been carried out, specifying the relative amounts: Description
Original cost
Rev. L. 72/83
Rev. L. 413/91
Rev. L. 342/2000
Other Rev.
Net book
85,929
406
2,264
—
686
89,285
144,039
357
—
25,061
309
169,766
Trade and industrial fixtures
51,895
408
—
—
—
52,303
Other tangible assets
13,580
33
—
—
—
13,613
Assets under construction and advances
11,766
—
—
—
—
11,766
307,209
1,204
2,264
25,061
995
336,733
Land and buildings Plant and machinery
Total
The revaluations indicated in the table above had no effect on the income statement for the year since they had already been fully amortised.
Financial fixed assets Investments The following table provides a breakdown of the "Equity investments" item and the changes that occurred during the year: Description
Opening balance
Increases
Decreases
Other changes
Closing balance
2,951
—
—
390
3,341
10
19
(1)
—
28
2,961
19
(1)
390
3,369
INVESTMENTS - in associated companies - in other companies Total
The increases for the year refer to the 10% minority stake in the company “BEST Hellas SA”, as referred to above. The decreases refer to shares in consortia no longer held by the Group. The "other changes" entry refers to the portion of profit for the year attributable to the associated company Tecnotrans Bonfiglioli SA (K€ 540), net of dividends received (K€ 150). The following table gives details of the associated company:
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Annual Report 2007
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Notes to consolidated financial statements
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Company
Tecnotrans Bonfiglioli SA
Location
Barcelona (Spain)
Share Capital
2,175 K€
Share held
33.33%
Shareholders' equity at December 31, 2007
10,023 K€
Net Income at December 31, 2007
1,621 K€
Book value
3,341 K€
Current assets Inventory 2007
2006
Changes
Raw materials, supplies and consumables
32,543
27,654
4,889
Work in progress and semi-finished goods
73,624
61,914
11,710
Finished goods and goods for resale
66,749
64,633
2,116
149
304
173,065
154,505
Advances Total
(155) 18,560 84
The foregoing amounts are net of obsolescence reserve, made up as follows: 2007
2006
Changes
Raw materials and consumables
2,679
1,700
979
Semi-finished products
6,201
3,500
2,701
Finished goods
4,458
3,880
578
13,338
9,080
4,258
2007
2006
Opening value
9,080
7,233
Increases
4,527
2,190
Decreases
(125)
(111)
Other changes
(144)
(232)
Total
Changes in the provision are shown below:
Closing value
13,338
9,080
The increase in stock on hand is associated with the higher sales volumes and sales forecasts for the first months of 2008.
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Receivables Trade receivables
Trade receivables from customers
2007
2006
Changes
150,978
134,971
16,007
9,577
9,311
266
(5,512)
(4,312)
Receivables from associated companies (minus) Bad debt reserve Total
155,043
139,970
(1,200) 15,073
The increase in receivables is mainly due to the increase in sales volumes, up by 22.5% with respect to the previous year. Receivables from the associated company Tecnotrans Bonfiglioli SA are relative to amounts due for the sale of goods and services, which was conducted at arm's length conditions. Receivables from customers are recorded net of the bad debt reserve, a breakdown of which is given below: 2007
2006
Opening value
4,312
3,566
Provisions
1,527
1,270
Utilizations
(278)
(458)
Change in consolidation area
(34)
21
Other changes
(15)
(87)
Closing value
5,512
4,312
2007
2006
Italy
65,924
60,193
European Union
53,635
55,465
Other
35,484
24,312
Total
155,043
139,970
2006
Changes
Breakdown of trade receivables by geographical area:
Other receivables 2007 Tax receivables
12,907
9,062
3,845
Deferred tax assets
12,618
10,403
2,215
5,388
3,070
2,318
30,913
22,535
8,378
Receivables from others Total
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Annual Report 2007
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Notes to consolidated financial statements
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Tax receivables can be broken down as follows:
Inland Revenue for VAT Inland revenue for direct taxation
2007
2006
12,404
8,449
—
276
488
297
Other short-term receivables
15
—
Other long-term receivables
—
40
12,907
9,062
Inland revenue for taxation subject to long-term refund
Total
Changes in deferred tax assets were as follows:
Opening balance Provisions
2007
2006
10,403
7,557
3,331
3,668
Utilizations
(610)
Change in consolidation area
(463)
—
(43)
(5)
Other changes Closing balance
12,618
(817)
10,403 86
Other receivables can be broken down as follows: 2007
2006
114
56
Advances to suppliers
1,068
676
Deposits
1,102
37
Receivables for pensions fund insurance
1,419
1,106
334
587
Receivables from employees
Receivables for customs duties Short-term receivables from social security institutions
106
42
Currency exchange gains
366
—
Guarantee deposits
193
152
Other short-term receivables
654
411
Other long-term receivables
32
3
5,388
3,070
2007
2006
Changes
16,262
13,445
2,817
Cheques
—
14
(14)
Cash and cash equivalents
47
46
1
16,309
13,505
2,804
Total
No receivables having a term exceeding five years were recorded.
Cash at banks and on hand Bank and post office deposits
Total
87
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For a comprehensive appraisal of the change in the Group net cash position we invite you to refer to the section in which amounts due to banks are analysed, and to the cash-flow statement.
Accrued income and prepaid expenses Total
2007
2006
Changes
641
520
121
2007
2006
Breakdown:
Advertising
71
52
Insurance policies
66
106
Hire charges and rentals
294
171
Other
210
191
Total
641
520
Shareholders’ equity At December 31, 2007 the overall share capital of € 30,000,000,00 was represented by 30,000,000 ordinary shares with par value of € 1 each. Reconciliation statement between net equity and income for the year at December 31, 2007 of Parent Company Bonfiglioli Riduttori SpA Net income Shareholders' equity Bonfiglioli Riduttori SpA statutory accounts
17,825
164,263
Accounting of the shareholders' equity and results of consolidated equity investments and associated companies instead of the book value in the financial statements of the Parent company, net of infra-group dividends
16,090
30,544
Bonfiglioli Hellas SA deconsolidation
(301)
Shareholders' equity and profit attributable to minority interests
(697)
(2,235)
Elimination of infra group transactions
(4,493)
(15,543)
Reversal of infra group contribution
(3,459)
(3,459)
Leasing agreement with financial method Other minor items
Consolidated financial statements
671 9
25,645
—
3,518 (30)
177,058
— —
Currency conversion differences
Net income for 2005
—
— —
Currency conversion differences
Net income for 2007
(*) transfer to share capital
—
3,000
—
—
—
—
—
—
3,000
—
—
— — — (132)
— (15,000) — —
16,263
16,395
35,847
20,847
—
—
—
—
—
—
(3,314)
—
— (67)
—
(1,976)
—
—
—
—
16,395
35,914
(4,087)
—
(829)
56
—
—
—
—
(1,338)
—
2,032
— —
—
—
—
—
—
—
—
—
(3,370)
The change in the currency conversion provision is due mainly to the devaluation of the US Dollar, Pound Sterling, South African Rand and Chinese Yuan with respect to the Euro.
30,000
—
Deconsolidation Bonfiglioli Hellas SA
Balance at December 31, 2007
—
15,000
Parent company dividends
Parent Company share capital increase
2006 Net Income allocation
15,000
—
Net income for 2006
Balance at December 31, 2006
— —
Bonfiglioli Hellas SA revaluation reserve *
—
3,000
—
—
—
—
16,395
35,914
Currency conversion reserve
71,563
—
—
—
(1,500)
—
15,187
57,876
—
—
—
9,303
48,573
—
—
(1,500)
5,779
44,294
Other reserve
13,827
—
—
76
—
—
2,006
11,745
—
67
—
346
11,332
—
—
—
366
10,966
Retained earning carried fw.
25,645
—
—
—
—
—
(17,193)
17,193
17,193
—
—
(9,649)
9,649
9,649
—
—
(6,145)
6,145
Net income
177,058
25,645
(829)
—
(1,500)
—
—
153,742
17,193
—
(1,976)
—
138,525
9,649
2,032
(1,500)
—
128,344
Total
Notes to consolidated financial statements
Currency conversion differences
—
2005 Net Income allocation
15,000
—
Parent company dividends
Balance at December 31, 2005
—
2004 Net Income allocation
3,000
Revaluation Consolidation reserve reserve
I
15,000
Legal reserve
Annual Report 2007
Balance at December 31, 2004
Share Capital
I
Statement of changes of consolidated equity at December 31, 2007
Bonfiglioli
I
88 89
Bonfiglioli
I
Annual Report 2007
I
Minority interests
Balance at December 31, 2006 2006 Net Income allocation
Minority profit/loss
Minority capital and reserves
Minority interests
1,040
5,745
6,785
(1,040)
1,040
—
Dividends’ distribution
—
(676)
(676)
Currency conversion differences
—
(80)
(80)
Acquisition of 50% in Bonfiglioli Transm. France SA
—
(4,336)
(4,336)
—
(155)
(155)
Deconsolidation of Bonfiglioli Hellas SA Net income 2007 to minority interests
697
—
697
Balance at December 31, 2007
697
1,538
2,235
The caption originates from the attribution to minority shareholders of the portion of shareholders' equity and net income deriving from the full consolidation of the following companies:
Company
2007
2006
Income
Capital and reserves
Total
Income
Capital and reserves
Total
Bonfiglioli Vectron GmbH
39
133
172
36
97
133
Bonfiglioli Hellas SA
—
—
—
27
128
155
Bonfiglioli Power Transmission Pty Ltd
584
998
1,582
399
874
1,273
Bonfiglioli Transmissions SA
—
—
—
591
4,245
4,836
Bonfiglioli Skandinavien AB
(1)
127
126
(7)
140
133
Bonfiglioli Power Transmission JSC
75
280
355
(6)
261
255
697
1,538
2,235
5,745
6,785
Total
1,040
Reserves for risks and charges Pensions and similar liabilities
Total
2007
2006
Change
1,787
1,563
224
This item shows the sales agents' indemnity reserve, which saw the following changes:
Bonfiglioli
I
Annual Report 2007
I
Notes to consolidated financial statements
I
2007
2006
1,563
1,289
Provisions
269
441
Applications for payments to agents terminated during the year
(45)
(159)
Opening value
Other changes
—
Closing value
(8)
1,787
1,563
2007
2006
Changes
7,215
6,523
692
Description
2007
2006
Changes
Deferred tax provision
7,115
6,423
692
Taxes and deferred taxes
Total
This caption can be broken down as follows:
Inland Revenue assessment risks provision Total
100
100
—
7.215
6,523
692
With reference to the deferred taxation provision, changes in the year are broken down as follows:
Opening value Provisions for deferred taxation Utilizations Change in mean share Change in consolidation area Other changes Closing value
2007
2006
6,423
5,793
2,483
1,708
(1,100)
(885)
(638)
—
(47)
—
(6) 7,115
(193) 6,423
The Inland Revenue assessment risks provision refers to the potential risk stemming from a tax assessment of the parent company carried out at the end of 2006.
90
91
Bonfiglioli
I
Annual Report 2007
I
Other reserves for risks and charges 2007
2006
Changes
5,594
3,390
2,204
Utilizations
Other changes
Total
This caption can be broken down as follows: Description
Opening balance
Provisions
2,323
1,661
Legal risks
200
373
Other
867
576
(291)
14
1,166
3,390
2,610
(386)
(20)
5,594
Product warranties
Total
Closing balance
(95)
(29)
3,860
—
(5)
568
The "Other" caption includes a "Company restructuring provision" allocated in the amount of K€ 750 by the Parent Company at the end of 2007.
Employees severance indemnity reserve Total
2007
2006
17,191
18,034
Changes (843)
Changes in the severance indemnity fund in 2007 were as follows:
Opening balance Provisions Applications Other changes Closing balance
2007
2006
18,034
16,864
725
3,431
(1,555)
(2,235)
(13)
(26)
17,191
18,034
With reference to the parent company, in keeping with the provisions of Italian legislation relating to companies with an employed work force exceeding fifty, with effect from January 1st, 2007, sums allocated to the severance indemnity reserve are paid by the company into the individual pension funds held by the organisations indicated by each employee or by welfare bodies; the provisions caption therefore reflects increases in the severance indemnity reserve relating to members of the group for which a reserve of this kind is still held by the company. The number of employees in the workforce during the year was as follows (spot
Bonfiglioli
I
Annual Report 2007
I
Notes to consolidated financial statements
I
and average data): 2007
2006
2007 average
2006 average
Executives and managers
93
100
97
92
White collar and middle
948
722
835
701
1,358
1,253
1,306
1,136
Direct and indirect blue collar Temporary staff Total
102
151
127
154
2,501
2,226
2,364
2,083
2007
2006
Changes
6,460
7,296
835
Payables Bonds
Bonds
This item shows the following payables: • bond issued by the Parent Company on September 8, 2005 maturing on December 31, 2020, which is liable to interest at an annual rate of 3.2%. The foregoing loan, issued for a total of K€ 3,750, is recorded in the financial statements at December 2007 for K€ 3,250 of which K€ 250 matures next year; the portion of the debt maturing beyond the next year although within a period of five years totals K€ 1,000, while the portion beyond five years totals K€ 2,000; • bond issued by the subsidiary “Bonfiglioli USA Inc.” for a total of KUSD 5,000 to back up the investment made in the construction of the new factory premises completed during the year. At the end of 2007 the residual value recorded for the loan is KUSD 4,725. The amount due next year totals KUSD 280 (K€ 109), the debt falling due beyond next year but within a period of 5 years is KUSD 1,180 (K€ 802) while the portion due beyond five years totals KUSD 3,265 (K€ 2,218). It is pointed out that the loan issued by “Bonfiglioli USA Inc.” is secured by the company’s real estate.
92
93
Bonfiglioli
I
Annual Report 2007
I
Borrowings 2007
2006
Amounts due to banks - current account overdrafts and advances subject to collection
28,614
21,830
6,784
Amounts due to banks - loans
99,103
64,128
34,975
127,717
85,958
41,759
22,387
15,291
7,096
Total
150,104
101,249
48,855
(minus) Cash at banks and on hand
(16,309)
(13,505)
(2,804)
6,460
7,296
140,255
95,040
Total amounts due to banks Due to other financial institutions
Bonds Net Cash Position
Changes
(836) 45,215
As shown also by the cash-flow statement, to which we invite you to refer, the increase in short-term borrowings (Net Cash Position) is mainly attributable to the liquidity absorbed by the significant investments made during the year (M€ 54) and the increase in net working capital, both caused by the major increase in sales recorded in recent years. Amounts due to banks include openings of credit regulated by current account relationships, advances subject to collection, and import-export financing. The caption Due to other financial institutions includes both the medium/longterm loans received from institutions other than banks (Ministry of Industry pursuant to Law 46 – SIMEST Law 394) and also the residual portions of capital of leasing contracts recorded in accordance with IAS no. 17. The figure is recorded at face value with regard to the principal, whilst the interest due at the end of the year is recorded on an accrual basis. Changes occurring during the year with reference to bank loans and amounts due to other financial institutions are detailed in the following table:
1,250
Bonfiglioli Deutschland GmbH
30
(*) Parent Company guarantees
TOTAL
Total due to other financial institutions 101,249
15,291
186
Bonfiglioli Trans. (Aust.) Pty Ltd
Bonfiglioli Transmission SA
1,677
—
13,398
85,958
Bonfiglioli Transmission Pvt Ltd
Bonfiglioli Italia Spa
Bonfiglioli Riduttori Spa
DUE TO OTHER FINANCIAL INSTITUTIONS
Total due to banks
1,738
Bonfiglioli Power Transmission JSC
460 2,510
Bonfiglioli Slovakia Sro
Bonfiglioli Drives (Shanghai) Co. Ltd
2,754
84,834
11,752
—
—
664
1,333
9,755
73,082
996
3,705
219
2,615
—
5,800
—
—
790
32,000
25,957
4,267 2,004
— — (17) (235) — — 11
(9,166) (107) (210) — (42) (140) (686)
8 47
(4,664) (36,026)
9
8
—
—
—
(143)
—
—
(4,314)
(21)
39
(31,362)
(186)
2,349
92
(668)
206
150,104
22,387
—
1,190
18,839
127,717
2,158
5,706
— 49
(473) (558)
4,694
35
7,008
748
72,277
28,614
139
(19,312)
65,135
3,296
—
9
—
347
2,940
61,839
639
501
206
2,590
35
1,489
2,004
1,910
86
23,765
28,614
Within 12 months
68,639
13,889
—
—
575
843
12,471
54,750
1,519
4,772
—
2,104
—
1,531
—
2,357
385
42,082
—
Beyond 12 months
16,330
5,202
—
—
1,774
—
3,428
11,128
—
433
—
—
—
3,988
—
—
277
6,430
—
Beyond 5 months
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
Guarantees
Notes to consolidated financial statements
Bonfiglioli Transmission Pvt Ltd
175
2,239
Bonfiglioli USA Inc.
Bonfiglioli Vectron GmbH
4,494
Bonfiglioli Trans. (Aust.) Pty Ltd
65
48,443
Tecnoingranaggi Riduttori Srl
21,830
Bonfiglioli Riduttori SpA
Closing balance
Exchange rate delta
Repayments
I
Current accounts/advances
Disbursal
Annual Report 2007
DUE TO BANKS
Opening balance
I
Company
Bonfiglioli
I
94 95
Bonfiglioli
I
Annual Report 2007
I
Trade payables
Advances Trade payables due to suppliers Amounts due to associated companies Total
2007
2006
Changes
2,526
798
1,728
136,202
128,780
7,422
27
29
138,755
129,607
9,148
2007
2006
115,525
103,379
14,173
14,320
9,057
11,908
138,755
129,607
2007
2006
Changes
5,696
9,785
(2)
Breakdown of trade payables by geographical area:
Italy European Union Other Total
Other payables
Tax payables Amounts due to welfare and social security
(4,089)
5,323
4,408
915
Other payables
15,154
11,057
4,097
Total
26,173
25,250
923
2007
2006
Direct taxes
3,291
6,244
Withholding tax and other
2,405
3,541
Total
5,696
9,785
2007
2006
10,693
9,372
—
500
Tax payables include the following items:
"Other payables" can be broken down as follows:
Amounts due to employees Deposits Payables from acquisition shareholding France Other Total
3,559
—
902
1,185
15,154
11,057
Bonfiglioli
I
Annual Report 2007
I
Notes to consolidated financial statements
I
Deferred income and accrued liabilities Total
2007
2006
Changes
975
528
447
2007
2006
This item can be broken down as follows:
782
225
Insurance policies
Interest payable on loans
64
128
Exchange rate fluctuations
83
73
Other
46
102
Total
975
528
Memorandum accounts The following memorandum accounts of the consolidated companies are included at the foot of the balance sheet:
Total
2007
2006
Changes
6,168
4,652
1,516
Guarantees granted by third parties refer to sureties issued on behalf of the Group by banks for tax rebate applications, medium-/long-term guarantees in favour of banks for the concession of loans, and in favour of third parties in relation to contractual undertakings or debts.
96
97
Bonfiglioli
I
Annual Report 2007
I
Income statement Net revenues from sales and services Total
2007
2006
Changes
610,772
498,635
112,137
Sales, which were up by 22.5% compared to the previous year, were made in the following geographical areas: 2007
%
2006
%
Italy
165,583
27.11
144,893
29.06
Europe
253,486
41.50
213,788
42.88
Overseas
191,703
31.39
139,954
28.06
Total
610,772
100.00
498,635
100.00
2007
2006
Changes
5,629
3,900
1,729
2007
2006
Other revenues and income Total
This item can be broken down as follows::
2,249
1,798
Refunds for defective processing/material
Refund for packing and transport costs
894
62
Capital gains
470
213
1,321
790
695
1,037
5,629
3,900
Sale of machining swarf and scrap Other Total
Raw materials, supplies, consumables and goods for resale Total
2007
2006
Changes
326,302
270,809
55,493
The increase in costs for purchases, when considered alongside the change in inventories and the increase in outsourced processes, reflects the normal increase in consumption associated with the significant rise in sales and changes in the mix of products sold.
Bonfiglioli
I
Annual Report 2007
I
Notes to consolidated financial statements
I
Services Total
2007
2006
Changes
137,667
117,751
19,916
This caption includes outsourced processes in the amount of K€ 70,237 (K€ 61,799 in 2006), costs for commission, transport, advertising and other commercial services, remuneration of the Board of Directors and auditing bodies, insurance policies, consultancy, bank charges, electrical power, external labour, logistics and security services, travel expenses and other minor items.
Use of third party assets Total
2007
2006
Changes
4,052
3,893
159
This item mainly concerns the lease of IT systems and motor vehicles, rentals for the lease of industrial plants and external depots, and royalties paid to third parties. 98
Personnel Personnel costs can be broken down as follows: 2007
2006
Changes
Salaries and wages
69,208
63,387
5,821
Social security contributions
18,474
16,652
1,822
4,135
3,431
704
81
126
91,898
83,596
Employees severance indemnity Other costs Total
(45) 8,302
The increase in personnel costs is linked both to the strengthening of the workforce, with an increase of more than 300 staff during the year, and increases in the cost of labour recorded following contractual renewals and the normal dynamics of company salaries.
99
Bonfiglioli
I
Annual Report 2007
I
Depreciation, amortisation and write-downs Amortisation of intangible fixed assets Depreciation of tangible fixed assets Provision for bad debts Total
2007
2006
Changes
3,713
2,992
721
16,081
14,081
2,000
1,527
1,270
257
21,321
18,343
2,978
2007
2006
Changes
2,041
649
1,392
Other provisions Total
Mainly reflects allocations made in the year to product warranty and legal risk provisions.
Other operating expenses Total
2007
2006
Changes
4,382
4,089
293
This caption is a residual item and it includes expenses and charges that cannot be classified under the previous headings. It relates to general production, commercial, and minor administrative expenses, capital losses of an ordinary nature, and other minor items.
Financial income Total
2007
2006
Changes
453
296
157
2007
2006
435
287
18
9
453
296
2007
2006
Changes
7,801
4,520
3,281
This caption can be broken down as follows:
Bank interest receivable Commercial and other interest receivable Total
Interest payable and financial expenses Total
Bonfiglioli
I
Annual Report 2007
I
Notes to consolidated financial statements
I
This caption can be broken down as follows: 2007
2006
Interest on amounts due to banks
1,741
684
Interest payable on loans
4,518
2,885
Interest payable on leasing contracts
665
377
Interest payable on bonds
189
118
Discounts, premiums & expenses on derivatives (IRS & forward contracts)
527
444
Other Total
161
12
7,801
4,520
The increase recorded during the year is mainly attributable to the following reasons: • negative trend of market interest rates: 3M Euribor rate up from 3.7% in January 2007 to 4.8% in December 2007 (+29%); • increase in average indebtedness (in terms of Net Financial Position).
Exchange rate gains/losses Total
2007
2006
Changes
(194)
(318)
124
2007
2006
This amount can be broken down as follows:
Currency exchange gains
2,174
2,650
Currency exchange losses
(2,368)
(2,968)
(194)
(318)
Total
Adjustments of financial assets Total
2007
2006
Changes
540
277
264
This caption concerns the portion of profit for the year attributable to the associated company "Tecnotrans Bonfiglioli SA".
100 101
Bonfiglioli
I
Annual Report 2007
I
Extraordinary income and expenses Net Total
2007
2006
1,753
(284)
Changes 2,037
Extraordinary income and expenses includes, in particular, the following items: 2007 Capital gains Contingent assets Contingent liabilities Taxes from past years Provision for tax risks Provision to funds
2,450
—
737
619
(872)
(394)
—
(9)
—
(100)
(562)
Total
2006
1,753
(400) (284)
The extraordinary capital gains relate to the sale by the parent company of the factory premises situated in San Lazzaro (BO) for 2.1 M€ and the sale of the shareholding in the Greek company that left the consolidation area for 0.3 M€. Contingent assets mainly concern insurance refunds and tax rebates.
Current, deferred and prepaid taxes 2007 Current taxes Deferred taxes Prepaid taxes Total
2006
Changes
(20,827)
(17,178)
(5,128)
(745)
(684)
(280)
2,258
2,840
1,440
(19,314)
(15,022)
(3,968)
Further information Before closing this report, in completion of the information required by article 38 of Legislative Decree 127/1991 and other provisions of the Italian Civil Code, we hereby provide the following further information: Remuneration paid to Directors and Statutory Auditors During the year the following amounts were disbursed by way of remuneration for the Group Directors and Statutory Auditors:
Bonfiglioli
I
Annual Report 2007
I
Notes to consolidated financial statements
I
Directors Statutory Auditors Total
2007
2006
1,586
1,596
355
263
1,941
1,859
Derivative financial instruments In the drive to hedge financial risks the Group has entered into the following derivative contracts: Underlying Type of transaction
Interest rates and debt securities Notional value /000
Fair value
Exchange rates Notional value /000
Pos. Neg.
Fair value Pos. Neg.
Unlisted financial derivatives Forward contracts Sale of USD
21,000
n/a
n/a
Sale of GBP
2,000
n/a
n/a
Sale of AUD
3,250
n/a
n/a
500,000
n/a
n/a
n/a
n/a
Purchase of Yen Interest rates swap (Euro) Total
26,000
63 63
Exchange risk hedging operations are exclusively related to ordinary non-speculative hedge management in relation to receivables and payables stated in foreign currency, as described in the specific section of the Management Report to which we invite you to refer for more information. Likewise, interest rate swaps were performed in relation to medium-/long-term floating rate loans in order to hedge partly against predicted increases in the market lending interest rate. May 28, 2008 Board of Directors’ Chairman Clementino Bonfiglioli
102 103
Bonfiglioli
I
Annual Report 2007
I
Bonfiglioli
I
Annual Report 2007
I
Independent Auditors’ Report
I
Independent Auditors’ Report
104 105
Bonfiglioli
I
Annual Report 2007
I
Bonfiglioli
I
Annual Report 2007
I
Independent Auditors’ Report
I
106 107
Bonfiglioli
I
Annual Report 2007
I
Bonfiglioli Worldwide
Europe Albania, Austria, Belgium, Bielorussia, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Holland, Hungary, Germany, Great Britain, Greece, Ireland, Italy, Lettonia, Lituania, Luxemburg, Malta, Montenegro, Norway, Poland, Portugal, Romania, Russia, Slovakian Republic, Serbia, Slovenia, Spain, Switzerland, Turkey, Ucraina
Africa Algeria, Egypt, Kenya, Morocco, South Africa, Tunisia
Asia Bahrain, China, Emirates, Japan, Jordan, Hong Kong, India, Indonesia, Iran, Israel, Kuwait, Malaysia, Oman, Pakistan, Philippine, Qatar, Saudi Arabia, Singapore, South Korea, Syria, Thailand, Taiwan, Vietnam
North America Canada, United States
Latin America Argentine, Bolivia, Brasil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Perù, Uruguay, Venezuela
Oceania
Cod. 4000 - R3
Australia, New Zealand
Annual Report 2007
Bonfiglioli Worldwide
Europe Albania, Austria, Belgium, Bielorussia, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Holland, Hungary, Germany, Great Britain, Greece, Ireland, Italy, Lettonia, Lituania, Luxemburg, Malta, Montenegro, Norway, Poland, Portugal, Romania, Russia, Slovakian Republic, Serbia, Slovenia, Spain, Switzerland, Turkey, Ucraina
Africa
Annual Report 2007
Algeria, Egypt, Kenya, Morocco, South Africa, Tunisia
Asia Bahrain, China, Emirates, Japan, Jordan, Hong Kong, India, Indonesia, Iran, Israel, Kuwait, Malaysia, Oman, Pakistan, Philippine, Qatar, Saudi Arabia, Singapore, South Korea, Syria, Thailand, Taiwan, Vietnam
North America Canada, United States
Latin America Argentine, Bolivia, Brasil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Perù, Uruguay, Venezuela
Bonfiglioli Riduttori SpA Via Giovanni XXIII, 7/A 40012 Lippo di Calderara di Reno - Bologna - Italy Tel (+39) 051 6473111 - Fax (+39) 051 6473126 E-mail:
[email protected]
Cod. 4001 - R3
www.bonfiglioli.com
Oceania Australia, New Zealand
