2012 Half year financial report

Piaggio & C. S.p.A. (the Company) is a joint-stock company established in Italy at the Register of Companies of Pisa. The main operations of the company and its subsidiaries (the Group) are described in the Report on Operations.
The Condensed Interim Financial Statements are expressed in Euros (€) since this is the currency in which most of the Group’s transactions take place. Foreign assets are booked in accordance with currently effective international accounting standards.

Scope of consolidation

The scope of consolidation has changed since 30 June 2011, due to the establishment of a new company in China on 1 December 2011. As the change is of a limited extent, comparability with data from previous periods has not been affected.
The scope of consolidation has not changed compared to 31 December 2011.

1. Conformity to International Accounting Standards

These Condensed Interim Financial Statements have been drafted in compliance with the International Accounting Standards (IAS/IFRS) in force at that date, issued by the International Accounting Standards Board and approved by the European Commission, as well as in compliance with the provisions established in Article 9 of Legislative Decree no. 38/2005 (CONSOB Resolution no. 15519 dated 27 July 2006 containing the “Provisions for the presentation of financial statements", CONSOB Resolution no. 15520 dated 27 July 2006 containing the “Changes and additions to the Regulation on Issuers adopted by Resolution no. 11971/99”, CONSOB communication no. 6064293 dated 28 July 2006 containing the “Corporate reporting required in accordance with Article 114, paragraph 5 of Leg. Decree no. 58/98"). The interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), previously the Standing Interpretations Committee (“SIC”), were also taken into account.
In preparing these Condensed Interim Financial Statements, in accordance with IAS 34 – Interim Financial Reporting, the same accounting standards adopted in preparing the Consolidated Financial Statements as of 31 December 2011 were applied.

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

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

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

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

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

Other Information

A specific paragraph in this document provides information on any significant events occurring after the end of the first half of the year and on the foreseeable operating outlook."

The following exchange rates were used to translate the financial statements of companies included in the scope of consolidation into euros:

Currency Spot exchange rate
30 June 2012
Average exchange
rate
1-1/30-6-2012

Spot exchange rate
31 December 2011
Average exchange
rate
1-1/30-6-2011
US Dollar 1.259 1.29678 1.2939 1.40311
Pounds Sterling 0.8068 0.82249 0.8353 0.86799
Indian Rupee 70.120 67.61014 68.713 63.13153
Singapore Dollars 1.5974 1.63910 1.6819 1.76535
Chinese Renminbi 8.0011 8.19181 8.1588 9.17551
Croatian Kuna 7.5178 7.54208 7.537 7.39711
Japanese Yen 100.13 103.3669 100.20 115.02989
Vietnamese Dong 26,281.65 27,293.80388 27,699.67 29,418.38452
Canadian Dollars 1.2871 1.30409 1.3215 1.37026
Indonesian Rupiah 11,878.50 11,919.67082 11,731.50 12,269.57943

2. Form and content of the financial statements

Form of the consolidated financial statements

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

Consolidated Income Statement

The consolidated income statement is presented with the items classified by nature. The overall Operating Income is shown, which includes all income and cost items, irrespective of their repetition or fact of falling outside normal operations, except for the items of financial operations included under Operating Income and Earnings before tax. In addition, the income and cost items arising from assets that are held for disposal or sale, including any capital gains or losses net of the tax element, are recorded in a specific consolidated balance sheet item which precedes Group net income and minority interest.

Consolidated Statement of Comprehensive Income

The Consolidated Statement of Comprehensive Income is presented as provided for in IAS 1 revised. This amended version of the standard requires income attributable to parent company owners and to non-controlling interests to be recorded, net of relative tax effects.

Consolidated Statement of Financial Position

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

The Consolidated Cash Flow Statement 

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

Change in consolidated shareholders’ equity

The statement of changes in consolidated shareholders' equity includes the statement of comprehensive income, separately indicating amounts attributable to owners of the parent and non-controlling interests, amounts of owner-generated transactions and any effects of retrospective application or retrospective determination pursuant to IAS 8. Reconciliation between the opening and closing balance of each item for the period is presented.

2.1. Accounting standards, amendments and interpretations applied as from 1 January 2012

Since the 2012 Half-year Financial Statements, the Group has adopted IAS 19 revised, in advance (published in the Gazzetta Ufficiale of 6 June 2012).
The amendment to IAS 19 – Employee benefits which eliminates the option of deferring recognition of actuarial gains and losses with the corridor approach, requiring disclosure of the provision deficit or surplus in the statement of financial position, and separate recognition of cost items linked to employment and net borrowing costs in profit and loss, and recognition of actuarial gains and losses resulting from the remeasurement in each period of assets and liabilities in "Other comprehensive income”. In addition, the performance of assets included in net borrowing costs must be calculated based on the discount rate of liabilities and no longer on the expected return of assets. Lastly, the amendment introduces enhanced disclosures to provide in the notes.

In this regard:

  • during the first time adoption of international accounting standards, the Company had chosen, from possible options allowed by IAS 19, to systematically recognise actuarial components in the income statement as “Employee costs”; under the “revised” version of this standard, endorsed by the European Commission, and in order to provide information which is reliable and more relevant, these components are directly recognised as "Valuation reserves" in shareholders' equity, with the reserves being immediately recognised in the "Statement of Comprehensive Income", without being recorded in the income statement; IAS 19 “revised" therefore excludes the possibility of systematically recognising actuarial components in the income statement;
  • this amendment, considering the retrospective application required as of IAS 8, has given rise to the following effects on the financial statements:

    • the actuarial loss recognised in 2011, for adjustment to results of calculations made by the external actuary with reference to defined benefit obligations in relation to personnel, for an amount equal to 690 thousand Euro was not recorded in the income statement for the first half of 2011, with an increase in net profit for 2011 of 372 thousand Euro and a concurrent negative change, of the same amount, under the item “Valuation reserves" included in the statement of financial position and the item “Actuarial Gains (Losses) relative to defined benefit plans”, recorded in the “Statement of Comprehensive Income” for the first half of 2011;
    • the actuarial loss arising from the adjustment to results of calculations made by the external actuary with reference to defined benefit obligations in relation to personnel, for an amount equal to 2,361 thousand Euro was not recorded in the income statement for the first half of 2012, with an increase in net profit for 2012 equal to 2,101 thousand Euro and a concurrent negative change, of the same amount, under the item “Valuation reserves" included in the statement of financial position and the item “Actuarial Gains (Losses) relative to defined benefit plans”, recorded in the “Statement of Comprehensive Income” for the first half of 2012.
     

Technical valuations are based on the hypotheses outlined below:

Technical annual discount rate 4.10%
Annual rate of inflation 2.00%
Annual increase in termination benefits 3.00%

To value the discount rate, the iBoxx Eurozone Corporates A10+ index considered most significant in relation to the indicator used as of 31 December 2011, was adopted.

  • the change in accounting methodology above did not give rise to changes in initial or final shareholders' equity, but only resulted in a different quantification of the items “Valuation reserves" and “Profit (Loss) for the year”, recorded in the "Statement of changes in shareholders' equity" and in the statement of financial position.

2.2 Amendments and interpretations effective as from 1 January 2012 and not relevant for the Group

The following amendments and interpretations, applicable as from 1 January 2012, regulate specific cases and case histories which are not present within the Group at the date of these Condensed Interim Financial Statements:

  • On 20 December 2010 the IASB issued a minor amendment to IAS 12 – Income Taxes which requires businesses to measure deferred tax assets and liabilities arising from an asset based on the manner in which the carrying amount of the asset will be recovered (through continual use or sale). Consequently SIC-21 Income taxes – Recovery of Revalued Non-Depreciable Assets – will no longer be applicable. The amendment is applicable in a retrospective manner as of 1 January 2012.

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

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

On 12 May 2011 the IASB issued standard IFRS 10 - Consolidated Financial Statements which will replace SIC-12 Consolidation - Special Purpose Entities and parts of IAS 27 - Consolidated and Separate Financial Statements that will be renamed Separate Financial Statements and will regulate the accounting treatment of investments in separate financial statements. The new standard deviates from existing standards by identifying the concept of control, according to a new definition, as the determinant factor for the purposes of consolidation of a company in the consolidated financial statements of the parent company. It also provides a guide for determining the existence of control where this is difficult to establish (effective control, potential votes, specific-purpose company, etc.). The standard is applicable in a retrospective manner as of 1 January 2013.

On 12 May 2011 the IASB issued the standard IFRS 11 – Joint arrangements which will replace IAS 31 – Interests in Joint Ventures and SIC-13 – Jointly Controlled Entities - Non-Monetary Contributions by Venturers. The new standard provides methods for identifying joint arrangements based on the rights and obligations under such arrangements rather than their actual legal form and establishes the equity method as the only accounting treatment for jointly controlled entities in consolidated financial statements. The standard is applicable in a retrospective manner as of 1 January 2013. After the issue the standard IAS 28 – Investments in Associates was amended to include jointly controlled entities within its field of application, as of the date the standard became effective.

On 12 May 2011 the IASB issued standard IFRS 12 – Disclosure on interests in other entities which is a new and complete standard on disclosures to provide on all types of investments including in subsidiaries, joint arrangements, associates, special purpose entities and unconsolidated structured entities. The standard is applicable in a retrospective manner as of 1 January 2013.

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

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

On 16 December 2011, the IASB issued some amendments to IAS 32 – Financial Instruments: presentation, to clarify the use of some criteria for offsetting financial assets and liabilities contained in IAS 32. The amendments are applicable in a retrospective manner for years commencing from or after 1 January 2014.

On 16 December 2011, the IASB issued some amendments to IFRS 7 – Financial Instruments: Disclosures. The amendment requires information concerning the effects or potential effects of agreements offsetting financial assets and liabilities on balance sheet situation. Amendments are applicable for years commencing from or after 1 January 2013 and for interim periods subsequent to this date. Disclosure shall be provided in a retrospective manner.

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