Values expressed in thousands of Euros
Source: Maflow S.p.A.’s 2005-2008 balance sheets
a) Production value.
The initial analysis regards the production value.
The following shows the production value trend for 2005-2008.
MAFLOW S.P.A.
PROFIT AND LOSS ACCOUNT 2005 % 2006 % 2007 % 2008 %
ADDED VALUE
Net revenue 69,803,652 98.56% 63,146,705 98.55% 64,646,410 88.78% 53,237,406 88.87%
(+) Other revenue 1,163,343 1.64% 320,172 0.50% 6,555,235 9.00% 5,803,794 9.69%
(+/-) variation in stock of finished products (143,315) -0.20% (818,207) -1.28% 410,191 0,56% (291,094) -0.49%
(+) Capitalized costs 0 0.00% 1,429,922 2.23% 1,201,978 1.65% 1,153,083 1.92%
A) Year’s production 70,823,680 10.,00% 64,078,592 100.00% 72,813,814 100.00% 59,903,189 100.00%
(-) Goods purchased (31,595,427) -44.61% (30,911,504) -48.24% (34,491,798) -47.37% (29,616,132) -49.44%
(-) Services purchased (14,295,668) -20.18% (13,049,831) -20.37% (16,643,258) -22.86% (18,051,156) -30.13%
(-) Enjoyment of third party assets (rents/leasing) (556,168) -0.79% (560,384) -0.87% (650,130) -0.89% (1,435,947) -2.40%
(-) Sundry management costs (639,711) -0.90% (475,211) -0.74% (768,114) -1.05% (405,039) -0.68%
(+/-) variation in stock of raw materials (226,326) -0.32% (81,463) -0.13% 543,709 0.75% (874,137) -1.46%
B) Production costs (47,313,300) -66.80% (45,078,393) -70.35% (52,009,591) -71.43% (50,382,411) -84.11%
ADDED VALUE (A+B) 23,510,380 33.20% 19,000,199 29.65% 20,804,223 28.57% 9,520,778 15.89%
(-) Salaries, wages and contributions (18,331,124) -25.88% (18,244,283) -28.47% (19,349,372) -26.57% (13,657,893) -22.80%
(-) Provision for severance pay (1,106,388) -1.56% (1,143,573) -1.78% (1,198,335) -1.65% (955,468) -1.60%
(-) other personnel costs 0 0.00% (256) 0.00% (400,881) -0.55% (324,889) -0.54%
C) Labour cost (19,437,512) -27.44% (19,388,112) -30.26% (20,948,588) -28.77% (14,938,250) -24.94%
GROSS OPERATING MARGIN (A+B+C) = EBITDA 4,072,868 5.75% (387,913) -0.61% (144,365) -0.20% (5,417,472) -9.04%
(-) Provision for severance pay 0 0.00% 0 0.00% 0 0.00% 0 0.00%
(-) Other reserves (315,327) -0.45% (380,000) -0.59% (1,331,983) -1.83% (490,000) -0.82%
(-) Depreciation tangible assets (3,189,517) -4.50% (1,367,719) -2.13% (1,355,089) -1.86% (1,318,750) -2.20%
(-) Depreciation intangible assets (6,870,263) -9.70% (6,853,593) -10.70% (6,583,494) -9.04% (6,579,325) -10.98%
D) Provisions and depreciation (10,375,107) -14.65% (8,601,312) -13.42% (9,270,566) -12.73% (8,388,075) -14.00%
NET OPERATING RESULT (A+B+C+D) = EBIT (6,302,239) -8.90% (8,989,225) -14.03% (9,414,931) -12.93% (13,805,547) -23.05%
(-) Financial charges (,.702,704) -5.23% (4,795,990) -7.48% (6,402,691) -8.79% (8,043,735) -13.43%
(+) Financial proceeds 18,495,873 26.12% 17,988,718 28.07% 1,088,326 1.49% 378,852 0.63%
(+/-) profits (losses) on exchanges 1,111 0.00% (2,306) 0.00% 283,044 0.39% 959.088 1.60%
E) Balance financial management 14,794,280 20.89% 13,190,422 20.58% (5,031,321) -6.91% (6,705,795) -11,19%
CURRENT INCOME 8,492,041 11.99% 4,201,197 6.56% (14,446,252) -19.84% (20,511,342) -34.24%
(-) Extraordinary charges (36,214,122) -51.13% (931,37) -1.45% (278,054) -0.38% (84,391,644) -140.88%
(+) Extraordinary proceeds 698,448 0,99% 691,393 1.08% 6,130,352 8.42% 881,330 1,47%
F)Balance extraordinary management (35,515,674) -5.,15% (240,144) -0.37% 5,852,298 8.04% (83,510,314) -139.41%
PRE-TAX RESULT (27,023,633) -38.16% 3,961,053 6.18% (8,593,954) -11.80% (104,021,656) -173.65%
(-) Current Ires and Irap (798,215) -1.13% (604,553) -0.94% (688,971) -0.95% 19,699 0.03%
(-) Deferred / advanced Ires and Irap (116,992) -0.17% (698,286) -1.09% (986,488) -1.35% 957,977 1.60%
G) Taxes (915,207) -1.29% (1,302,839) -2.03% (1,675,459) -2.30% 977,676 1.63%
Values expressed in Euros
Source: Maflow S.p.A’s. 2005-2008 balance sheets
The drop in 2008 turnover is due, according to the information provided by the company’s management, to the crisis in the global market and decline in the automotive sector as from the second half of the year. In particular, the sales revenue CAGR (annual growth rate) during the 2005-2008 period is negative, equal to around -8.64%. Moreover, the fall in revenue is evident in 2008, around 11.4 million Euros lower than 2007 (reduction that, in percentage terms, corresponds to a 18% reduction). The data from the previous three years 2005-2007 show a more limited reduction (2007 turnover: Euro 64.6 million; 2005: Euro 69.8 million).
From a geographical point of view, only 9% of the 2008 turnover is achieved in Italy whilst the rest in the European Union (82%) and non European countries (8%).
The following table shows the last two years’ figures in detail: the 2007 figure for sales to third parties is substantially higher than that for intergroup sales; the significant reduction (23%) on the previous year basically results in similar figures for both third party and intergroup revenue in 2008: in 2008 third party turnover is of around 53% whilst that for intergroup revenue is of around 46%.
Values expressed in Euros - 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 2005 2006 2007 2008 Production value 2007 % 2008 %
Revenue from sales and services 64,646,410 100% 53,237,406 100%
Intergroup sales 27,284,464 42% 24,483,329 46%
Third party sales 36,811,468 57% 28,396,178 53%
Equipment break-up 421,660 1% 119,447 0%
Source: Maflow S.p.A. 2008 balance sheet
b) Other revenue.
This item has a significant impact on Maflow S.p.A.’s production value as shown by the last four years’ figures summarised hereunder:
Source: Maflow S.p.A.’s 2005-2008 balance sheets
As can be seen from the balance sheet data, the “other revenue and proceeds” item represents in the last two years respectively 9.0% and 9.7% of the production value.
According to the information provided by directors in the supplementary note, in 2007 and 2008 this item is mainly characterised by headquarter services provided to subsidiaries (MAN Servizi S.r.l.), that in turn provides said centralised services to the companies of the Group (including Maflow S.p.A.) for an annual fee (8). Said services have been determined according to the “arm’s length” principle set up by the OCSE Directive governing transfer pricing.
c) Raw material purchasing costs.
The 2008 balance sheet shows that raw material costs have fallen significantly (equal to 5 million Euros) compared to 2007, whist in percentage terms the reduction is of over 14%. Despite this, their incidence on the production value has increased from the 47.4% in 2007 to the 49.4% in 2008; this highlights how the Company was unable to balance the reduction in production value in 2008 (around 18%) with that of the cost of raw materials (14%); the effect: increased incidence of raw material purchase costs and consequent reduction in margins.
d) Service costs.
(8) See point d) of this paragraph regarding service costs. Other revenue and proceeds €
2005 1,163,343 2006 320,172 2007 6,555,235 2008 5,803,794
This type of cost increased significantly in 2008 (around 8% on the previous year). Cost incidence on the production value has risen over the past three years, increasing from 20.4% in 2006 to 22.9% in 2007 and reaching 30.1% in 2008.
The increase in absolute cost value for services in 2008 is of around 1.4 million Euros: in particular, there is a significant increase in intergroup relationships, rising from 2.4 million Euros in 2007 to 6.1 million Euros in 2008. In fact the “intercompany services” item represents around 34% of the total service cost (15% in 2007).
The increase in service costs in absolute terms in 2008 combined with the reduction in turnover increases the incidence of said item on the production value: in fact the ratio of 22.9% in 2007 increases to 30.1% in 2008. However, as regards the main reductions, consultancies in 2008 fell from 2.7 million Euros to 1.9 million Euros and the cost of temporary staff from 1.9 million Euros to 1.1 million Euros.
The following data, taken from Maflow S.p.A.’s balance sheet as at 31/12/2008, shows (in percentage terms) the cost of services, highlighting how the majority relate to services provided by other companies of the Group.
Source: Maflow S.p.A.’s 2008 balance sheet.
Service costs 2007 2008
Intercompany services 15% 34%
Third party machining 7% 5%
Electric power 8% 9%
Industrial services 8% 8%
Maintenance 7% 5%
Consultancy 16% 11%
Payments to auditing companies 1% 1%
Transport on sales 10% 6%
Insurance 1% 1%
Travelling and accommodation costs 9% 8%
Commission 1% 1% Advertising 0% 0% Temporary staff 11% 6% Auditor pay 0% 0% Telephone expenses 2% 2% Other services 4% 3%
Intercompany service cost dynamics is greatly influenced by the operation that saw Maflow S.p.A. (sole partner) contribute Man Servizi s.r.l. the “headquarter” business in December 2007 with effect from 1st January 2008. In particular, the “corporate” services business, including some equipment, dedicated staff (including their Severance Pay Fund), as well as all related debit and credit items, was identified.
Said contribution came into force on 1 January 2008 and, following the aforesaid operation, MAN Servizi S.r.l., that already provided management services, including technical advice, to Maflow S.p.A.and some foreign companies of the Group, grew significantly as a result of gaining all functional areas (previously located in the parent Company Maflow S.p.A.) devoted to performing common Group services such as R&D, Human resources, Purchasing, Finance and Control, Legal Affairs, Logistics, IT etc. Therefore, the “management service” agreement, previously signed with other companies of the Group, was redefined to adapt it to the new functions and tasks, sharing group costs (increased by a spread) according to the added value of individual companies that benefit from these services. In particular, revenues from MAN Servizi S.r.l.‘s “management fees” (therefore, service costs for companies of the Group) recorded in 2008, taken from MAN Servizi S.r.l.’s approved balance sheet, are provided to help understand the economics behind the “management service” agreement:
Maflow S.p.A.: Euro 5,100 thousand;
Maflow France S.A.: Euro 1,550 thousand;
Maflow Polska Sp.zo.o.: Euro 8,075 thousand;
Maflow Iberica: Euro 678 thousand.
Lastly, it should be noted that an agreement was stipulated between the parent company Maflow S.p.A. and subsidiary MAN Servizi S.r.l. to provide specific services for certain research projects (B-Cool, SMA and LOW Emission), specifically charged to Maflow S.p.A. and amounting to Euro 995 thousand in 2008.
As regards the aforementioned intercompany “management service” relationships, MAN Servizi S.r.l.’s supplementary note and management report state that the business operations concluded during the year with companies of the group were conducted at terms and conditions basically in line with those of the market, bearing in mind the OCSE “guidelines” on transfer pricing.
The added value, representing that part of income available to the company after repaying operating costs, in order to fund internal production factors, fell significantly in 2008: in absolute terms to 9.5 million Euros in 2008 compared to the 20.8 million Euros in 2007 (in relative terms it fell from 28.6% to 15. 9% of the production value).
As already analysed, the reasons for this reduction in added value in absolute terms is mainly due to the fall in turnover, combined with just as significant a reduction in the cost of raw materials and increase in service costs. The reduction in added value in relative terms compared to the production value is mainly due to the increased incidence of costs to procure raw materials, increased service costs in 2008 (mainly due to intergroup services) and enjoyment of third party assets (9) as a result of selling off the Trezzano Sul Naviglio property in December 2007, subsequently leased by the Company. As a result of said operation, higher costs for enjoyment of third party assets, resulting from the rents paid (10), were entered in the profit and loss account, amounting overall to 795 thousand Euros plus VAT, in accordance with the lease stipulated on 10 December 2007 (11). It is noted that the aforementioned property is, in turn, partially sublet by Maflow S.p.A. to Man Servizi S.r.l., in accordance with “office” contract stipulated in January 2008 to use the office building in Trezzano Sul Naviglio (MI) and part of the premises in the Ascoli Piceno plant, together with the relative services (utilities, power, caretaking etc.). The rent agreed on is of 962 thousand Euros, of which 124 thousand Euros to sublet the spaces and 838 thousand Euros for additional services (caretaking, security, cleaning, warehousing, use of consumables, company cars, furniture and fittings, telephone lines and research and development equipment).
As regards personnel costs, they have fallen over the year both in absolute and percentage terms (incidence on production value). The labour cost, equal to around 20.9 million Euros in 2007, has fallen to around 13.7 million Euros in 2008: The incidence on production value has fallen from 28.8% to 24.9%.
(9) It is noted that the Company sustains “charges for enjoyment of third party assets” not only as a result of the divestment of the Trezzano property but also the seven year lease (as from 1st May 2001) renewable for a further seven years, signed in April 2001, between Manuli Rubber Industries S.p.A. (vendor) and Manuli Automotive S.p.A. (former Maflow S.p.A.) for Lire 678,000,000 (around 350 thousand Euro), for the Ascoli Piceno plant. (10) The reduction, resulting from the divestment of the property, and depreciation, that in 2007 amounted to 182 thousand Euro, was not sufficient to cover the rents.
(11) It is noted that as regards 2007, the lease was signed in December and the sum of Euro 47,917.80 plus VAT entered as rent.
This is due to a 17% reduction in staff on the previous year (the number of employees has fallen from 482 to 399), as a result of Maflow S.p.A. contributing “headquarter” activities to Man Servizi S.r.l. in December 2007 effective from 1st January 2008.
The graph also shows that the added value is not sufficient, except in 2005, to cover the labour cost.
Values expressed in Euros
Source: Maflow S.p.A.’s 2005-2008 balance sheets
f) Gross Operating Margin.
As a result of that shown in the previous table and an added value under the labour cost in the three year period 2006-2008, the gross operating margin is negative as from 2006, falling significantly in 2008.
In fact the reduction in the labour cost is not sufficient to make up for the fall in added value, mainly due to the reduction in turnover and, secondly, the increased incidence of costs for raw materials, service costs and those to enjoy third party assets.
In fact, as can be seen from the graph, the gross operating margin rises from a negative value of around 0.1 million Euros in 2007 to around 5.4 million Euros in 2008.
0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 2005 2006 2007 2008
Values expressed in Euros
Source: Maflow S.p.A.’s 2005-2008 balance sheets
g) EBIT.
Analysing the EBIT, the net operating is negative for all years considered as shown in the following graph.
Values expressed in Euros
Source: Maflow S.p.A.’s 2005-2008 balance sheets
The net operating result (EBIT) is the difference between the gross operating result (EBITDA) and some cost components not of a monetary nature (depreciation and provisions): these costs fell in 2008 by around 0.9 million Euros on 2007 due, in particular, to a reduction in the depreciation of tangible fixed assets, amounting to around 0.2 million Euros, as a result of selling the property in Trezzano sul Naviglio in December 2007 and other provisions item that fell from 1.3 million Euros in 2007 to 0.5 million Euros in 2008.
-6,000,000 -4,000,000 -2,000,000 - 2,000,000 4,000,000 6,000,000 2005 2006 2007 2008