marazzi 2007 third quarter report
TRANSCRIPT
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Marazzi Group Quarterly ReportThird Quarter 2007
Data not subject to a full or limited audit 1
QUARTERLY REPORTTHIRD QUARTER 2007
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Marazzi Group Quarterly ReportThird Quarter 2007
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Marazzi Group S.p.A.Registered office: Modena, Viale Virgilio, 30Share Capital Euro 102,232,000 fully paid-inModena Companies Register No. 49219 Fiscal Code 00611410374
Document not authorised for publication until the approval by the Board of Directors on November 13,
2007.The present document will be available on the website www.marazzigroup.com, investor relationssection.
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Marazzi Group Quarterly ReportThird Quarter 2007
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Registered office of the Parent Company
Marazzi Group S.p.A.Viale Virgilio, 3041100 Modena (MO) - ItalyRegistered at the Companys Register Office of Modena 00611410374
1.2 Company officers
BOARD OF DIRECTORS
Chairman Filippo MarazziChief Executive Officers Mauro Vandini
Emil SchneebergDirectors Roger Abravanel
1) 4)
Fabio Buttignon1) 3)
Paolo Colonna1) 4)
Giovanni Battista Graziosi3)
Gianni Lorenzoni
1) 2) 3)
Rosaria Marazzi
Fabio Lorenzo Sattin1) 4)
Gian Pietro Severi
1) Independent Directors
2) Lead Independent Director
3) Member of the Internal Control Committee
4) Member of the Remuneration Committee
BOARD OF STATUTORY AUDITORS
Chairman Gianfranco Tomassoli
Standing Auditors Giuseppe Farchione
Renato Santini
Alternate Auditors Paolo AzzoliniFrancesco Cortesi
SUPERVISORY BOARD
Fabio Buttignon
Alberto Schiavini
Gianfranco Tomassoli
INDEPENDENT AUDIT FIRM Reconta Ernst & Young S.p.A.
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Marazzi Group Quarterly ReportThird Quarter 2007
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Group consolidated results
Table 1.1
Q 3 2007 Q 3 2006 Q 3 07/069 months
2007
9 months
2006
9 months
07/06
Net sales 247,697 237,345 4.4% 756,170 727,812 3.9%
Ebitda 46,924 44,045 6.5% 138,813 135,299 2.6%
Ebit 33,747 30,487 10.7% 98,027 91,373 7.3%
Group net profit 16,945 16,144 5.0% 46,846 47,577 -1.5%
Ebitda/Sales 18.9% 18.6% 2.1% 18.4% 18.6% -1.3%
Table 1.2
30.09.2007 30.06.2007 31.12.2006
Net working capital 297,637 297,742 259,941
Fixed assets and other assets 593,553 589,480 585,269
Long-term liabilities (127,893) (128,802) (131,809)
Net financial debt 236,942 242,954 203,214
Group Net Equity 519,955 509,301 504,472
Net equity per share (Euro) 5,086 4,982 4,935
Number of shares 102,232,000 102,232,000 102,232,000
Net financial position/ Net equity 0.45 0.47 0.40
Table 1.3
9 months 2007 9 months 2006 9 months 07/06
Operating cash flow 44,413 58,232 -23.7%
Amortisation & depreciation 40,501 40,962 -1.1%
Cash flow for investments (54,628) (31,996) 70.7%
Number of shares (average) 102,232,000 101,021,846 1.2%
Earnings per Share (Euro) 0,450 0,461 -2.3%
Diluted earnings per Share (Euro) 0,438 0,458 -4.3%
Number of employees (average in period) 6,472 6,236 3.8%
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Marazzi Group Quarterly ReportThird Quarter 2007
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Report on operations and significant events in the period
Consolidation method and accounting principles
Pursuant to article 82 of the Issuers Regulations, the present quarterly report has been prepared inaccordance with international accounting standards (IFRS) and in accordance with Attachment 3D
of these Regulations.
There were no significant changes in the consolidation area.
Currency markets
In the first nine months of 2007, the average exchange rate of the Euro, utilised for the translation ofthe income statements in foreign currencies, appreciated by 8.06% on the US Dollar and 2.17% onthe Ruble compared to the same period in the previous year, limiting the comparisons between theperiods.The exchange rate at September 30, 2007 of the Euro was 1.418 against the US Dollar and 35.349against the Ruble; compared to December 31, 2006, there was a significant appreciation on theDollar (+7.66%) while the appreciation on the Ruble was more limited (+1.93%).
Summary of the consolidated results in the third quarter and first nine months
The third quarter of the year saw a marked deterioration in the economic climate, a consequence ofthe subprime mortgage crisis in the United States, whose effects rapidly spread to Europe; in theUnited States there was a further decline in the construction industry, while in Europe there weresigns of a slowdown in the real estate market with a possible impact on the level of consumption.
In this economic climate, the Group in fact accelerated the growth trends already seen in the firstquarter, consolidating the improvements in the financial indicators, despite the fact that the 8%depreciation of the US Dollar significantly reduces the direct comparison with the results in the sameperiod of the previous year.
In the third quarter, revenues from sales amounted to Euro 247.7 million, a growth of 4.4% (+6.2%excluding the exchange effect) compared to the same period of 2006.Sales in Europe recorded a strong increase in the Italian and Spanish Business Units (+2.2% and+9.8% respectively), with an increase in the penetration of both the domestic markets and of the mainCentral and Eastern European markets. In particular, the positive sales dynamics for ceramicproducts continues in the Italian BU (+5.4%), while sales of raw materials and semi-finished productsdecreased by 12.4%.The French BU registered sales in line with the same period of the previous year. The Russian BU continued with growth rates well ahead of the market. Sales in the third quarter of2007 grew by 23% (+25.9% on like-for-like exchange rates).Although the US real estate market does not show signs of improvement (the data of the US CensusBureau estimated a decrease in the consumption of tiles of 19% in the first 6 months of 2007, with atrend of a further slowdown in the following quarter), sales of the USA BU registered an increase of4.4% in USD (-3.2% in Euro), reversing the trend following three quarters in decline. Market share
growth in fact continued due to the greater competitiveness of domestic production compared toimports (which represents more than 75% of US consumption), also strengthened by the progressivedepreciation of the Dollar.
The results for the quarter therefore consolidated the growth trend already registered in the first 6months of the year: in the period January-September,consolidated sales grew by 3.9% amountingto Euro 756.2 million (+5.6% on like-for-like exchange rates). All the Business Units, with theexception of France, registered increases higher than their relative markets: in the first 9 months, theRussian BU grew by 29.7% (+32.6% on like-for-like exchange rate); revenues in Italy grew by 5.5%;the Spanish BU grew by 8.4%.
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Marazzi Group Quarterly ReportThird Quarter 2007
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In a market that has declined by approx. 20%, revenues in the United States in the first 9 months of2007 decreased by 4% in Dollars terms (-11.2% in Euro).The results in the first 9 months of the year strengthened market share both on the domestic marketsof the individual BUs, and in the international markets served by the Italian and Spanish BUs.
The Ebitda in the third quarteramounted to Euro 46.9 million, +6.5% compared to the same period
in 2006 (+8.8% excluding the exchange effect). The Ebitda sales margin was 18.9%, an increase of30bp compared to the same period in the previous year. Particularly good results were achieved bythe Italian, Russian and United States BUs.In the first nine months of the year, the Ebitda grew by 2.6% (+4.6% on like-for-like exchange rates),with a sales margin of 18.4%, in line with the same period of the previous year.
The quarterreports a more marked increase in the Ebit, amounting to Euro 33.7 million, an increaseof 10.7% (+13.1% on like-for-like exchange rates) on the same period in the previous year.The Ebit for the first nine months amounted to Euro 98 million, an increase of 7.3% (+9.5% on like-for-like exchange rates). The sales margin was 13%, an improvement of 40bp compared to the sameperiod of the previous year, which included Euro 3 million of restructuring charges.
The net financial charges for the first nine months amounted to Euro 16.2 million, an increase of9.2% compared to 2006; this increase is due to higher average debt, following greater investments
(+70.7% compared to the same period of the previous year), and higher interest rates in the principalcurrencies.The currency management in the first nine months generated net charges of Euro 3.3 million, anincrease of 30.8% compared to the same period of the previous year, due in particular to the strongrevaluation of the Euro, compared to the Dollar and the Ruble, especially in the last quarter.
The net profit in the third quarter, equal to Euro 16.9 million, grew by 5%, also thanks to lower fiscalcharges which benefited from the recording of Euro 1 million deferred tax income relating to theFrench BU, which generated assessable income in the quarter. In the period January-September,the net profit was Euro 46.8 million, substantially in line with the same period of the previous year,which had benefited by Euro 4 million from the realignment of fiscal and statutory values on fixedassets of the Italian companies.
At September 30, 2007 the net debt was Euro 236.9 million, an increase of Euro 33.7 million
compared to December 31, 2006 principally due to the higher levels of investment for expansion inRussia and USA. The reduction of Euro 6.1 million compared to June 30, 2007 is due to the normalseasonal movements in working capital. The gearing ratio between net borrowings andshareholders
equity at September 30, 2007 was 0.45 (0.40 at December 31, 2006).
The Group rescheduled its medium term credit lines in Euro in the quarter. The average expiry datehas changed from 2009 to 2014, while the total medium term credit lines increased by 20% to Euro310 million. At the same time, better economic conditions were negotiated; currently approx. 20% ofthe medium term debt is at fixed rates.
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Consolidated Income Statement
The Marazzi Group is organised into five independent Business Units. Each Unit is structuredaccording to the characteristics of its geographic area, and has its own staff functions (includingresearch and development and marketing), production plants and sales organisation. EachBusiness Unit is managed by a Country Manager who is responsible for the results of the BU. The
country manager reports to the Group management and liaises with the other BUs.
The table below shows the Income Statement for the period:
Table 1.4
(Euro thousands) Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Revenues 247,697 237,345 4.4% 756,170 727,812 3.9%
Cost of sales 168,599 160,663 4.9% 509,672 490,413 3.9%
Gross margin 79,098 76,682 3.2% 246,498 237,399 3.8%
Selling expenses 36,013 32,319 11.4% 109,446 104,286 4.9%
General and administrative expenses 13,023 13,430 -3.0% 42,660 39,300 8.5%
Restructuring charges and asset write-
downs35 99 -64.6% 285 2,964 -90.4%
Other income 4,970 148 n.r. 7,162 2,107 239.9%
Other operating costs 1,250 495 152.5% 3,242 1,583 104.8%
Ebit 33,747 30,487 10.7% 98,027 91,373 7.3%
Financial charges (income) 5,869 4,481 31.0% 16,214 14,847 9.2%
Currency management charges (income) 2,343 (204) n.r. 3,320 2,538 30.8%Share of expenses/(income) from equityvaluations
(91) (259) -64.9% (268) (89) 201.1%
Profit before taxes 25,626 26,469 -3.2% 78,761 74,077 6.3%
Income taxes for the period 8,681 10,325 -15.9% 31,915 26,500 20.4%
Net profit for the period 16,945 16,144 5.0% 46,846 47,577 -1.5%
Minority interest result 321 459 -30.1% 810 969 -16.4%
Group net profit 16,624 15,685 6.0% 46,036 46,608 -1.2%
The breakdown of revenues by Business Unit is shown below:
Table 1.5
Revenues by Business Unit Q3 2007 Q3 2006 %9 months
20079 months
2006%
Italy 122,518 119,858 2.2% 397,208 376,553 5.5%
USA 43,744 45,178 -3.2% 128,391 144,519 -11.2%
France 20,301 20,414 -0.6% 64,726 68,041 -4.9%
Spain 22,295 20,313 9.8% 71,773 66,188 8.4%
Russia 38,839 31,582 23.0% 94,072 72,511 29.7%
Total 247,697 237,345 4.4% 756,170 727,812 3.9%
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Ebitda
The composition of the EBITDA is presented below.
Table 1.6
(Euro thousands) Q3 2007 % Q3 2006 %9
months2007
%9
months2006
%
Ebit 33,747 13.6% 30,487 12.8% 98,027 13.0% 91,373 12.6%
Amortisation & depreciation 13,142 5.3% 13,459 5.7% 40,501 5.4% 40,962 5.6%
Restructuring charges and write-downs
35 0.0% 99 0.0% 285 0.0% 2,964 0.4%
EBITDA 46,924 18.9% 44,045 18.6% 138,813 18.4% 135,299 18.6%
Analysis on the balance sheet and financial position
This section presents a brief description of the trend of the main Group financial indicators atSeptember 30, 2007 compared to the same data at June 30, 2007 and December 31, 2006.
Table 1.7
(Euro thousands) 30.09.2007 % 30.06.2007 % 31.12.2006 %
Capital employed
Net working capital 297,637 39.0% 297,742 39.3% 259,941 36.4%
Fixed assets and other long-termassets
593,553 77.8% 589,480 77.7% 585,269 82.0%
Long-term liabilities (127,893) -16.8% (128,802) -17.0% (131,809) -18.5%
Net capital employed 763,297 100.0% 758,421 100.0% 713,401 100.0%
Sources
Net financial position 236,942 31.0% 242,954 32.0% 203,214 28.5%
Group shareholders' equity 519,955 68.1% 509,301 67.2% 504,472 70.7%
Shareholders equity - Minority interest 6,400 0.8% 6,166 0.8% 5,715 0.8%
Total sources of financing 763,297 100.0% 758,421 100.0% 713,401 100.0%
The net working capital increased by Euro 37.7 million compared to December 31, driven by growthin trade receivables.
The following table provides details of net financial debt:
Table 1.8
(Euro thousands) 30.09.2007 % 30.06.2007 % 31.12.2006 %
Cash and cash equivalents 45,340 -19.1% 48,341 -19.9% 49,382 -24.3%
Current financial assets 5,988 -2.5% 5,509 -2.3% 5,254 -2.6%
Current financial payables (including
current portion of LT payables)(54,889) 23.2% (76,472) 31.5% (64,877) 31.9%
Medium/long term financial payables (233,381) 98.5% (220,332) 90.7% (193,362) 95.2%
Net financial debt as per ConsobDEM/6064293/06
(236,942) (242,954) (203,603)
Other non-currentpayables/(receivables)
0 0.0% 0 0.0% 389 -0.2%
Net financial debt (236,942) 100.0% (242,954) 100.0% (203,214) 100.0%
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The increase compared to the debt at December 31, 2006 is due to the cash flow movements in theperiod summarised in the table below:
Table 1.9
(Euro thousands) 9 months 2007 9 months 2006Change
2007-2006
Net profit 46,846 47,577 -1.5%
Amortisation & depreciation 40,501 40,962 -1.1%
Other non-cash items 1,589 7,342 -78.4%
Cash flow from operations 88,936 95,881 -7.2%
Change in working capital (44,523) (37,649) 18.3%
Operating cash flow 44,413 58,232 -23.7%
Cash flow from investing activity (54,628) (31,996) 70.7%
Cash flow from financing activity (23,514) 42,801 -154.9%
Change in Net financial position (33,729) 69,037 -148.9%
Subsequent events to the end of the quarter
No events arose after September 30, 2007 which would impact on the income statement and balance
sheet as reported in the present quarterly report.
Outlook for the current year
The difficult market conditions stamming from the construction segment in the United States, whichalso affected the credit market, have led to worries of a slowdown in the global economy.
Despite the deterioration in the macro-economic prospects, it is considered that, in the absence of asignificant slowdown of the real economy, or a further strengthening of the Euro against the Dollarand the Ruble, further improvements to Group results can also be made in the final quarter of theyear.The performance of sales in the United States BU provides the foundations for the belief that, in theabsence of a deterioration in the construction sector, the variance compared to the results of the
previous year may be reduced.The European BUs should produce results in line with current trends.Further improvements within the French BU will also permit a more consistent utilisation of the lossescarried forward, contributing to a reduction in the level of taxes on the consolidated profit.
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FINANCIAL STATEMENTS AND NOTES
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Consolidated balance sheet as at September 30, 2007
The Group Consolidated Balance Sheet as at September 30, 2007 compared with June 30, 2007 andDecember 31, 2006 is shown below.
Table 2.1
(Euro thousands) 30.09.2007 30.06.2007 31.12.2006Changes
Sept 07- Dec06
Note
Assets
Current assets
Cash and cash equivalents 45,340 48,341 49,382 -8.2% 2.1
Accounts receivables 229,858 237,722 188,287 22.1% 2.2
Inventories 279,566 283,523 268,967 3.9% 2.3
Other current assets 40,606 40,292 39,499 2.8% 2.4Current financial assets 5,988 5,509 5,254 14.0% 2.5
Total current assets 601,358 615,387 551,389 9.1%
Non-current assetsProperty, plant and equipment 519,276 519,438 514,442 0.9% 2.6
Investment property 5,646 5,651 5,660 -0.2% 2.7Intangible assets 12,939 10,240 9,327 38.7% 2.8
Goodwill 7,380 7,380 7,349 0.4% 2.9
Non-current financial assets 0 0 389 -100.0% 2.10
Investments valued under the equity method 18,783 18,692 18,515 1.4% 2.11Other investments 2,584 2,576 2,423 6.6% 2.12
Deferred tax assets 23,153 21,780 23,186 -0.1% 2.35
Other non-current assets 3,792 3,723 4,367 -13.2% 2.13
Total non-current assets 593,553 589,480 585,658 1.3%
TOTAL ASSETS 1,194,911 1,204,867 1,137,047 5.1%
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Table 2.2
(Euro thousands) 30.09.2007 30.06.2007 31.12.2006Change
Sept 07-Dec 06Note
SHAREHOLDERS' EQUITY AND LIABILITIES
Current liabilities
Short-term loans 25,424 45,872 33,713 -24.6% 2.14
Current portion of long-term loans 29,416 30,571 31,143 -5.5% 2.20
Current financial liabilities 49 29 20 145.0% 2.15Trade payables 185,261 197,836 177,950 4.1% 2.16
Income tax payables 9,309 4,782 3,198 191.1% 2.17
Other current liabi lities 54,959 56,331 49,149 11.8% 2.18
Provisions for r isks and charges 2,864 4,846 6,516 -56.0% 2.19
Total current liabilities 307,282 340,267 301,689 1.9%
Non-current liabilities
Long-term loans 233,381 220,332 193,362 20.7% 2.20
Employee leaving indemnity and otherpersonnel related liabilities 28,944 29,437 32,794 -11.7% 2.21
Deferred tax liabi lit ies 89,891 90,634 89,096 0.9% 2.35
Other non-current l iabilit ies 3,327 2,905 4,361 -23.7% 2.22
Provision for r isks and charges 5,731 5,825 5,558 3.1% 2.23
Total non-current liabilities 361,274 349,133 325,171 11.1%
TOTAL LIABILITIES 668,556 689,400 626,860 6.7%
Group shareholders' equity
Share capi tal 102,232 102,232 102,232 0.0% 2.24
Retained earnings 227,422 210,798 204,900 11.0%
Foreign currency translation adjustment (6,932) (654) 2,005 -445.7%
Other reserves 197,233 196,925 195,335 1.0%
Total Group shareholders equity 519,955 509,301 504,472 3.1%
Shareholders equity minority interest 6,400 6,166 5,715 12.0%
TOTAL SHAREHOLDERS EQUITY 526,355 515,467 510,187 3.2%
TOTAL SHAREHOLDERS EQUITY ANDLIABILITIES
1,194,911 1,204,867 1,137,047 5.1%
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Consolidated Income Statement for the three months ended September 30, 2007
The Group consolidated income statement for the third quarter of 2007 compared to the third quarterof 2006 and for the first nine months of 2007 compared to the same period in 2006 is shown below.
Table 2.3 (3 months)
(Euro thousands) Q3 2007 % Q3 2006 % Change % Note
Revenues 247,697 100.0% 237,345 100.0% 4.4% 2.25
Cost of sales 168,599 68.1% 160,663 67.7% 4.9% 2.26
Gross Margin 79,098 31.9% 76,682 32.3% 3.2%
Selling expenses 38,588 15.6% 35,091 14.8% 10.0% 2.27
General and administrative expenses 13,023 5.3% 13,430 5.7% -3.0% 2.28
Restructuring charges and asset write-downs 35 0.0% 99 0.0% -64.6% 2.29
Other income 7,545 3.0% 2,920 1.2% 158.4% 2.30
Other operating expenses 1,250 0.5% 495 0.2% 152.5% 2.31
Ebit 33,747 13.6% 30,487 12.8% 10.7%
Financial charges (income) 5,869 2.4% 4,481 1.9% 31.0% 2.33
Currency management charges (income) 2,343 0.9% (204) -0.1% n.a. 2.33Share of expenses/(income) from equityinvestments
(91) 0.0% (259) -0.1% -64.9%2.34
Profit before taxes 25,626 10.3% 26,469 11.2% -3.2%
Income taxes 8,681 3.5% 10,325 4.4% -15.9% 2.35
Profit for the period 16,945 6.8% 16,144 6.8% 5.0%
Minority interest result 321 0.1% 459 0.2% -30.1%
Group net profit 16,624 6.7% 15,685 6.6% 6.0%
Earnings per Share - Euro 0.163 0.153 6.3%
Diluted earnings per Share - Euro 0.157 0.152 3.1%
Table 2.3 (9 months)
(Euro thousands)9 months
2007%
9 months2006
% Change % Note
Revenues 756,170 100.0% 727,812 100.0% 3.9% 2.25
Cost of sales 509,672 67.4% 490,413 67.4% 3.9% 2.26
Gross Margin 246,498 32.6% 237,399 32.6% 3.8%
Selling expenses 117,988 15.6% 113,529 15.6% 3.9% 2.27
General and administrative expenses 42,660 5.6% 39,300 5.4% 8.5% 2.28
Restructuring charges and asset write-downs 285 0.0% 2,964 0.4% -90.4% 2.29
Other income 15,704 2.1% 11,350 1.6% 38.4% 2.30
Other operating expenses 3,242 0.4% 1,583 0.2% 104.8% 2.31
Ebit 98,027 13.0% 91,373 12.6% 7.3%
Financial charges (income) 16,214 2.1% 14,847 2.0% 9.2% 2.33
Currency management charges (income) 3,320 0.4% 2,538 0.3% 30.8% 2.33
Share of expenses/(income) from equityinvestments
(268) 0.0% (89) 0.0% 201.1%2.34
Profit before taxes 78,761 10.4% 74,077 10.2% 6.3%
Income taxes 31,915 4.2% 26,500 3.6% 20.4% 2.35Profit for the period 46,846 6.2% 47,577 6.5% -1.5%
Minority interest result 810 0.1% 969 0.1% -16.4%
Group net profit 46,036 6.1% 46,608 6.4% -1.2%
Earnings per Share - Euro 0.450 0.461 -2.3%
Diluted earnings per Share - Euro 0.438 0.458 -4.3%
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Statement of changes in the consolidated shareholders equity as at September 30, 2007
The Group statement of changes in consolidated shareholders equity for the first nine months of2007 compared with the changes in the same period of the previous year is shown below.
Table 2.4
STATEMENT OF CHANGES INCONSOLIDATEDSHAREHOLDERS EQUITY
Share capital
Retainedearnings,including
profit forperiod
Currencytranslationadjustment
Otherreserves
Total
Shareholders equity
minorityinterest
Totalshareholders' equity
Balance at December 31, 2005 95,050 167,355 13,188 135,338 410,931 4,055 414,986
Net profit 46,608 46,608 969 47,577
Profits/(losses) recorded dir. inequity:
Effect of application of IAS 32-39 122 122 122
Effect of application of IFRS 2 387 387 387
Exchange effect on investmentsvalued at equity as per IAS 28
(60) (60) (60)
Share capital increase for sharelisting
7,182 60,200 67,382 67,382
Dividends distributed (20,447) (20,447) (150) (20,597)
Translation reserve (5,159) (5,159) (82) (5,241)
Change in consolidation scope 0 1,913 1,913
Balance at September 30, 2006 102,232 193,516 7,969 196,047 499,764 6,705 506,469
Balance at December 31, 2006 102,232 204,900 2,005 195,335 504,472 5,715 510,187
Profit for the period 46,036 46,036 810 46,846
Profits/(losses) recorded dir. inequity:
Effect of application of IAS 32-39 (11) (11) (11)
Effect of application of IAS 12-16 1,059 1,059 1,059
Effect of application of IFRS 2 850 850 850
Dividends distributed (23,514) (23,514) (23,514)Translation reserve (8,937) (8,937) (125) (9,062)
Balance at September 30, 2007 102,232 227,422 (6,932) 197,233 519,955 6,400 526,355
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Consolidated Cash Flow Statement
Table 2.5
(Euro thousands) 9 months 2007 9 months 2006
CASH FLOW FROM OPERATIONS:
NET PROFIT 46,846 47,577
Adjustments to reconcile the net profit with the cash flow generated / (used) fromoperations:
Amortisation & depreciation 40,501 40,962
Deferred taxes 2,224 (525)
Employee leaving indemnity provision 2,438 4,678
Inventory provision 1,023 1,679
Doubtful debt provision 407 990
Provision for restructuring costs and asset write-downs 0 2,680
Unrealised losses/(profits) on currency exchanges (7) 532
Losses (gains) on sale of tangible fixed assets and equity investments (97) (716)
Share of expenses/(income) from equity investments (257) (89)
Impairment of fixed assets 0 0
Employee leaving indemnity Curtailment (2,725) 0Other non-cash items 4,867 2,582
Payment of employee leaving indemnities (2,418) (4,469)
Changes in operating assets and liabilities:
Trade receivables (42,964) (30,105)
Inventory (15,695) (9,179)
Trade payables 6,456 8,883
Payment of restructuring charges (3,763) 0
Other - net 9,793 (7,248)
NET CASH FLOW FROM OPERATIONS 46,631 58,232
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of tangible fixed assets (50,298) (30,434)
Purchase of intangible fixed assets (4,601) (203)
Net change in financial fixed assets (2,593) (2,500)
Receipts from the sales of tangible fixed assets 2,864 1,515
Changes in net available funds due to change in consolidation area 0 (374)
NET CASH FLOW FROM INVESTING ACTIVITIES (54,628) (31,996)
CASH FLOW FROM FINANCING ACTIVITIES:
Provision of long-term loans 58,861 15,000
Repayment of long-term loans (23,333) (145,318)
Net change in short-term loans (8,849) 4,989
Increase in share capital and reserves from share listing 0 73,615
Payment of listing charges 0 (9,836)
Payment of dividends (23,514) (20,597)
Opening (repayment) of bank guarantee deposits 0 0
Net change in financial receivables 359 (262)
CASH FLOW GENERATED (USED) FROM FINANCING ACTIVITIES 3,523 (82,409)
EFFECT OF CURRENCY MOVEMENTS ON NET AVAILABLE FUNDS (226) (304)
INCREASE (DECREASE) IN NET LIQUIDITY (4,700) (56,477)
NET AVAILABLE FUNDS AT THE BEGINNING OF THE PERIOD 46,396 100,830
NET AVAILABLE FUNDS AT THE END OF THE PERIOD 41,696 44,353
ADDITIONAL INFORMATION:
Interest paid 8,026 10,477
Income taxes paid 18,007 24,814
Interest received 874 1,950
Dividends received 38 72
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Notes to the consolidated financial statements as at September 30, 2007
1. Form, content, accounting principles and valuation criteria
The accounts included in the financial statements and in these notes are presented in Eurothousands. The Euro is the currency in which the Group principally operates.
The contents of the quarterly report, in line with CONSOB Resolution No. 14990 of April 14, 2006,are in accordance with Attachment 3D to the Issuers Regulations (CONSOB Regulation No. 11971of May 14, 1999 and subsequent amendments).
The income statement information refers to the third quarter of 2007 and 2006 and to the first ninemonths of 2007 and 2006. The balance sheet information refers to September 30, 2007, June 30,2007 and December 31, 2006.
As for the consolidated financial statements as of December 31, 2006, the consolidated quarterlyreport as of September 30, 2007 has been drafted in compliance with the International Financial
Reporting Standards (hereinafter
IFRS or
international accounting standards
) issued by theInternational Accounting Standards Board (IASB
) and adopted by the European Commission under
the procedure as per art. 6 of (EC) Regulation no. 1606/2002 of the European Parliament andCouncil dated July 19, 2002, also for the preparation of comparative data for the third quarter of2006.
The preparation of the quarterly report requires that management make estimates and assumptionson the values of the revenues, costs, assets and liabilities in the financial statements and on theinformation disclosed relating to the assets and contingent liabilities at the balance sheet date.
Where future circumstances and events should differ from these estimates and assumptions, whichare based on the best valuations made by the Directors, they will be amended appropriately in theperiod in which these circumstances arise.
Some valuation processes, in particular the most complex, such as the determination of any loss invalue of fixed assets, are generally made on a complete basis on the preparation of the annualaccounts, except where there are specific indications of impairment which require an immediatevaluation of any loss in value.Similarly, the actuarial valuations necessary for the determination of the employee benefit provisionsare normally fully recalculated on the preparation of the annual accounts.However, following the amendments to legislation in Italy in the first half of 2007 in relation toemployee leaving indemnity (pension reform), it is necessary to evaluate the impact of this reform onthe provision made based on IAS 19. In fact, the complementary pension reform modified the natureof the leaving indemnity from a defined benefit plan to a defined contribution plan, transferring theemployee leaving indemnity matured to open pension funds or categories or, in any case, to theNational Social Pension Institute. This change resulted in a re-calculation of the employee leavingindemnity matured as at December 31, 2006 and generated a reduction of the provision (so-calledcurtailment) which was included in the provision for the first half-year.
Income taxes are recognised on the basis of the best estimate of the expected tax rates for the entireyear.
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Changes in the consolidation scope
Compared to the consolidated financial statements at December 31, 2006, the share capital inObediennie Keramicheskie Zavodi increased, equal to Rubles 949.47 million (Euro 27.3 million) fullypaid by the subsidiary Welor ZAO, the final part of the share capital increase following the resolutionof December 14, 2006, which provided for a total increase of Rubles 1,138 million (Euro 33 million).
This resolution obtained the necessary approval of the local Antitrust Committee on April 10, 2007.Therefore, at September 30, 2007, the percentage held by Welor ZAO and by the Parent Companywas respectively 61.27% and 38.73%. This change in the holding structure, which did not change thefull control of Ob'ediennie Keramicheskie Zavodi by the Group, was considered appropriate in orderto amend the Group structure in line with the management of the Russian companies of the groupunder the direction of a single management.
In September, a company was incorporated in China, MG Trading Shangai, wholly owned by theParent Company.
The formal procedures commenced for the merger of Marazzi Participations SA into CF Marazzi SA.The operation is in line with the Group rationalisation process.
There were no significant changes in the consolidation scope compared to the consolidated financial
statements at December 31, 2006.
Conversion of financial statements in foreign currencies
The exchange rates applied in the conversion of financial statements of companies prepared in acurrency other than the Euro were as follows:
Table 2.6
Exchange rates for the conversion of foreign financial statements
Period end rates (balance sheet accounts)
(currency/Euro) 30.09.2007 30.06.2007 31.12.2006
EuropeRussian Ruble 35.35 34.81 34.68
Ukrainian Uah 7.14 6.74 6.65
North America
US Dollar 1.42 1.35 1.32
Asia
Japanese Yen 163.55 166.63 156.93
Average rate for the period (income statement accounts)
(currency/Euro) Q3 2007 9 months 2007 Q3 2006 9 months 2006
Europe
Russian Ruble 35.04 34.79 34.16 34.05
Ukrainian Uah 6.91 6.77 6.40 6.36
North America
US Dollar 1.37 1.34 1.27 1.24
Asia
Japanese Yen 161.88 160.39 143.07 144.13
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2. Contents and principal changes
2.1 Cash and cash equivalents
The breakdown of this account is shown in the following table:
Table 2.7
Cash and cash equivalents 30.09.2007 30.06.2007 31.12.2006
Bank and postal accounts 39,395 32,129 47,501
Cash from other financial institutions 5,668 16,072 1,381
Cheques 180 42 430
Cash in hand and similar 97 98 70
Total 45,340 48,341 49,382
The changes in liquidity are illustrated in the Cash Flow Statement attached and to which referenceshould be made.
2.2 Trade receivables
The breakdown of this account is shown in the following table:
Table 2.8
Accounts receivables 30.09.2007 30.06.2007 31.12.2006
Trade receivables third parties 225,632 234,618 187,991
Trade receivables - related parties 13,952 13,346 11,436
Bad debt provision (9,726) (10,242) (11,140)
Total 229,858 237,722 188,287
The movements in the account are principally due to the seasonal sales impact and growth inrevenues in the period.
The receivables from related parties are principally from the associated companies Tempini S.p.A.and Tekma S.r.l. and relate to commercial transactions at market conditions.
2.3 Inventories
The final inventories include the following categories:
Table 2.9
Inventories 30.09.2007 30.06.2007 31.12.2006
Raw materials 61,306 58,482 56,645
Semi-finished 13,616 12,860 12,500
Finished products 204,644 212,181 199,822Total 279,566 283,523 268,967
These amounts are net of provisions for inventory write-downs, which total Euro 15,740 and Euro16,072 at September 30, 2007 and December 31, 2006 respectively.
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2.4 Other current assets
The breakdown of this account is shown in the following table:
Table 2.10Other current assets 30.09.2007 30.06.2007 31.12.2006
VAT and other tax receivables 22,031 19,736 27,743
Receivable from holding for fiscal consolidation 247 182 0
Other current receivables 9,840 10,839 5,855
Advances to suppliers 2,375 2,819 2,527
Other 6,113 6,716 3,374
Total 40,606 40,292 39,499
The decrease in the account VAT and other tax receivables is largely attributable to the partialutilisation of the tax credit for tax payments on account in the period.
2.5 Current financial assets
The breakdown of this account is shown in the following table:
Table 2.11
Current financial assets 30.09.2007 30.06.2007 31.12.2006
Securities and equity investments 0 0 294
Limited recourse junior notes 3,363 2,891 2,301
Financial trading instruments 0 0 52
Short-term financial receivables 2,625 2,618 2,607
Total 5,988 5,509 5,254
The limited recourse secured junior notes were issued in the securitisation operation in 2005.The financial receivables consist of loans granted by the Parent Company and by a subsidiary of theGroup to third parties.
2.6 Property, plant and equipment
The historic cost, accumulated depreciation and net book value of Property, plant and equipment asof September 30, 2007 and December 31, 2006 are detailed below:
Table 2.12
PROPERTY, PLANT &EQUIPMENT
Land
Buildingsand light
constructions
Plant andmachinery
Commercialand
industrialequipment
OtherTangibleassets
Assets inprogress
andadvances
TOTAL
Historic cost at 31/12/2006 143,165 243,692 697,107 38,055 6,465 18,121 1,146,605
Accumulated depreciation as of31/12/2006
(71,229) (528,467) (27,280) (5,187) (632,163)
Net value at 31/12/2006 143,165 172,463 168,640 10,775 1,278 18,121 514,442
Historic cost at 30.06.2007 144,170 246,218 707,355 38,963 6,442 27,390 1,170,538Accumulated depreciation as of30/06/2007
(75,314) (542,187) (28,448) (5,152) (651,101)
Net value at 30/06/2007 144,170 170,904 165,168 10,515 1,290 27,390 519,438
Historic cost at 30/09/2007 144,127 244,613 706,917 39,987 6,751 35,808 1,178,203
Accumulated depreciation as of30/09/2007
(76,836) (547,708) (29,148) (5,235) (658,927)
Net value at 30/09/2007 144,127 167,777 159,209 10,839 1,516 35,808 519,276
The principle capex investments, totalling Euro 54 million in the first nine months, related to thecompletion of the upgrading of the factory at Casiglie (MO) in Italy, the investment for the productionline at Orel in Russia, and the expansion of the plant at Dallas (USA).
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2.7 Investment property
The historic cost, accumulated depreciation and the net book value of investment property atSeptember 30, 2007, June 30, 2007 and December 31, 2006 are detailed in the following table:
Table 2.13
Investment property
Historic cost at 31/12/2006 5,700
Accumulated depreciation as of 31/12/2006 (40)
Net value at 31/12/2006 5,660
Historic cost at 30.06.2007 5,700
Accumulated depreciation as of 30/06/2007 (49)
Net value at 30.06.2007 5,651
Historic cost at 30/09/2007 5,700
Accumulated depreciation as of 30/09/2007 (54)
Net value at 30/09/2007 5,646
2.8 Other intangible assets
The historic cost, accumulated amortisation and the net value of Other intangible assets as atSeptember 30, 2007, June 30, 2007 and December 31, 2006 are detailed in the following table:
Table 2.14
OTHER INTANGIBLE ASSETS BrandsEDP andSoftware
programmesOther TOTAL
Historic cost at 31/12/2006 31,059 4,635 396 36,090
Accumulated depreciation as of 31/12/2006 (22,378) (4,011) (374) (26,763)
Net value at 31/12/2006 8,681 624 22 9,327
Historic cost at 30/06/2007 31,025 5,224 1,287 37,536
Accumulated depreciation as of 30/06/2007 (22,621) (4,248) (427) (27,296)
Net value at 30.06.2007 8,404 976 860 10,240
Historic cost at 30/09/2007 30,889 5,357 4,247 40,493
Accumulated depreciation as of 30/09/2007 (22,728) (4,393) (433) (27,554)
Net value at 30/09/2007 8,161 964 3,814 12,939
From 2007, the new Product Development Department of the Parent Company was significantlyupgraded, which undertakes service activities also on behalf of overseas subsidiaries. The activitiesof the new department are essential to the support of the Group strategies focused on the launch ofnew product series featuring innovative technological and design content. In 2007, in fact, 259 newproduct series were launched on the market: 36 in Italy, 8 in Spain (where studies are ongoing foranother 12 series to be launched in 2008), 136 in Russia, 51 in France and 28 in the United States.
In the first nine months of 2007, costs were capitalised of Euro 3,811 (in the account Other) relatedto specific projects and for which the technical and commercial feasibility was determined as well asthe economic return on the investment.
2.9 Goodwill
The account relates only to goodwill, amounting to Euro 7,380 at September 30, 2007 of which Euro5,210 relates to the gain attributed, on the acquisition of the 32% holding at the end of 2006, of theexcavation activities in a site with precious raw materials of the subsidiary DKPS, with a previousholding of 50%.Euro 2,170 derives from the higher value recognised on the acquisition (2000) of the company MixCeramiche S.p.A., based on the competitive advantage guaranteed by this acquisition. Following this
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acquisition, the Group was able to complete its product range with different formats, targeting a nichemarket.At September 30, 2007, no indications arose that the goodwill had incurred a loss in value.
2.10 Non-current financial assets
The non-current financial assets, equal to Euro 389 at December 31, 2006, refers to a loan grantedby the Parent Company to the associated company Sunflower Ceramics Ltd., totally repaid in theperiod.
2.11 Investments valued under the equity method
The changes in the investments accounted for under the equity method in the first nine months of2007 (compared to the first nine months of 2006) were as follows:
Table 2.15
Equity investments valued at equity
Net value at 31/12/2005 20,620
Change in consolidation scope (2,325)Share of profits/losses 89
Currency changes (60)
Net value at 30/09/2006 18,324
Net value at 31/12/2006 18,515
Share of profits/losses 177
Net value at 30.06.2007 18,692
Net value at 31/12/2006 18,515
Share of profits/losses 268
Net value at 30/09/2007 18,783
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2.12 Other investments
The changes in the Other investments in the first six and nine months of 2007 and in the first ninemonths 2006 were as follows:
Table 2.16Other investments
Net value at 31/12/2005 3,350
Change in consolidation scope 320
Revaluations (Write-downs) 212
Currency changes (12)
Net value at 30/09/2006 3,870
Net value at 31/12/2006 2,423
Purchases 160
Currency changes (7)
Net value at 30.06.2007 2,576
Net value at 31/12/2006 2,423
Purchases 193Revaluations (Write-downs) (11)
Currency changes (21)
Net value at 30/09/2007 2,584
2.13 Other non-current assets
The other non-current assets consist of:
Table 2.17
Other non-current assets 30.09.2007 30.06.2007 31.12.2006
Deposits and other assets 3,569 3,447 4,105
VAT and tax receivables 4 58 58
Non-current receivables 219 218 204
Total 3,792 3,723 4,367
2.14 Short-term loans
Short-term loans are analysed as follows:
Table 2.14
Short-term loans 30.09.2007 30.06.2007 31.12.2006
Payables to banks 25,424 45,829 30,966
Funding from other financial institutions 0 0 2,747
Other financial payables 0 43 0
Total 25,424 45,872 33,713
Amounts due to other financial institutions at December 31, 2006 relate to the payables with thesebanks for receivables transferred as part of the securitisation operation.
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2.15 Current financial liabilities
The composition of the current financial liabilities is shown below:
Table 2.19
Short term debt 30.09.2007 30.06.2007 31.12.2006
Foreign exchange hedging derivatives 49 29 20
Total 49 29 20
Foreign exchange hedging derivatives relate exclusively to the relative fair value of a purchase/salesoption of US Dollars at specified exchange rates at a pre-arranged date.
2.16 Short-term trade payables
Table 2.20
Trade payables 30.09.2007 30.06.2007 31.12.2006
Trade payables to associated companies and related parties 1,255 1,124 1,740
Trade payables third parties 184,006 196,712 176,210
Total 185,261 197,836 177,950
Trade payables to associated companies and related parties principally relate to Ceramiche BuranS.p.A. and Immobiliare Regina Pacis and relate to commercial transactions at market conditions.
2.17 Income tax payables
Table 2.21
Income taxes 30.09.2007 30.06.2007 31.12.2006
Income taxes 5,472 3,581 2,710
Due to holding company for income taxes 3,837 1,201 488
Total 9,309 4,782 3,198
The payable to the parent company Finceramica Spa relates to income tax of the Groups Italiancompanies following the decision to adhere to the national tax consolidation.
2.18 Other current liabilities
The breakdown of the account Other current liabilities is detailed below:
Table 2.22
Other current liabilities 30.09.2007 30.06.2007 31.12.2006
Other payables 6,868 7,819 5,388
Employee payables 33,208 33,818 26,484
Social security institutions 6,093 7,210 8,660
Current taxes (excluding corporation tax) 8,790 7,484 8,617
Total 54,959 56,331 49,149
The decrease in the payables to social security institutions derives from the provisions made on the13th month at December 31, 2006 and paid in 2007.
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2.19 Short-term provisions for risks and charges
Table 2.23
Provisions for risks and charges 30.09.2007 30.06.2007 31.12.2006
Provisions for risks and charges 2,864 4,846 6,516
Total 2,864 4,846 6,516
The short-term provision for risks and charges includes the charges, principally made in the previousyear, against the restructuring process of the French companies. The decrease in the period isprincipally due to the utilisations made against the costs in the first nine months in the year. The residual charges will, presumably, be incurred in the short-term period.Provisions include reserves made by some of the companies in the Group against existing litigationarising from disputes with clients for presumed damages caused by some products sold. Theseprovisions have been made in compliance with the ten-year constructors liability.
2.20 Long-term loans
The breakdown of the long-term loans are as follows:
Table 2.24
Long-term loans 30.09.2007 30.06.2007 31.12.2006
Loans in Euro:
Loans with variable and fixed interest rates 224,717 210,985 179,772
Lease payments for the acquisition of tangible fixed assets, withannual variable interest rates
675 906 1,372
Total 225,392 211,891 181,144
Loans in Yen:
Shareholder loans 24 7 12
Loans with fixed annual interest rates 20 21 26
Total 44 28 38Loans in US Dollars:
Loans of a revolving nature with annual variable interest rates 1,411 2,962 0
Total 1,411 2,962 0
Loans in Rubles:
Loans with annual variable interest rates 35,910 35,976 43,266
Total 35,910 35,976 43,266
Loans in Ukrainian Hryvnia:
Loans repayable from 2007 to 2010, with annual variable interest rates 40 47 57
Total 40 47 57
Total long-term payables 262,797 250,903 224,505
Less current portion (29,416) (30,571) (31,143)
Long-term portion 233,381 220,332 193,362
Among the largest loans at September 30, 2007 is a loan of the Parent Company with a leadingItalian bank, divided into two technical forms. a bullet credit line, of Euro 100,000, and a revolvingcredit line of Euro 100,000, which at September 30 was utilised for Euro 50,000.The expiry date of the loan was recently extended by 5 years from December 2009 to December2014. Interest matures semi-annually.An agreement was also signed in July 2007 by the Parent Company of a loan for a resolving stand-bycredit line of Euro 50,000, which at September 30 was utilised for Euro 30,000. This loan is for a
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duration of 60 months, with an extension on the request of the Parent Company for a further 24months.
The changes in the period are illustrated in the Cash Flow Statement attached.
The variable reference rate for financing in Euro is the EURIBOR and in the US Dollar is the LIBOR
USD.
2.21 Employee leaving indemnity and other employee liabilities
The table below shows the composition of the employee benefits at September 30, 2007, June 30,2007 and December 31, 2006.
Table 2.25
Employee leaving indemnity and other personnel relatedliabilities
30.09.2007 30.06.2007 31.12.2006
Employee leaving indemnity (Italy) 25,934 26,375 29,813
Pension and service bonus (France) 3,010 3,062 2,981
Total 28,944 29,437 32,794
The entry into force of Law No. 296/2006 determined changes in the regulations resulted invariations in the actuarial assumptions utilised for the valuation of the liability relating to the liabilitymatured up to December 31, 2006. These variations resulted in the recording of a benefit (so-calledcurtailment effect) amounting to Euro 2,725.No benefit was recorded for the third quarter 2007.
The average number of employees per category is shown in the following table:
Table 2.26
Category 9 months 2007 9 months 2006
Executives 101 93
Managers & white-collar 2,164 2,061
Blue-collar 4,207 4,082
Total 6,472 6,236
2.22 Other non-current liabilities
The breakdown of this account is shown in the following table:
Table 2.27
Other non-current liabilities 30.09.2007 30.06.2007 31.12.2006
Payables for asset purchases 3,061 2,604 4,009
Other liabilities 266 301 352
Total 3,327 2,905 4,361
Amounts due for asset purchases relate to capital expenditure made in 2004 by some Groupcompanies to increase production capacity, which involve an extended payment plan over 3 to 5years. The decrease in the period is due to the short-term reclassification and to the payments madein line with the plan. The repayment plan, based on the necessary installation time period, wasextended beyond June 30, 2007. Consequently the long-term portion of these payables werereclassified.
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The Group geographic sectors are defined by the geographic area in which products are produced andthrough exports broken down by country of origin.
The table below shows a geographic breakdown of Group sales for the third quarter of 2007compared to the third quarter of 2006 and for the first nine months of 2007 compared to the same
period in 2006.
Breakdown of sales by country of origin
Third quarter:
Table 2.30
Q3 2007 Italy Spain France RussiaUnitedStates
Eliminations
Consolidated
Net sales to third parties 122,519 22,295 20,301 38,838 43,744 0 247,697
Infragroup sales 12,466 3,217 134 55 1,694 (17,566) 0
Total net sales 134,985 25,512 20,435 38,893 45,438 (17,566) 247,697
Table 2.31
Q3 2006 Italy Spain France RussiaUnitedStates
Eliminations
Consolidated
Net sales to third parties 119,858 20,313 20,414 31,582 45,178 237,345
Infragroup sales 6,346 329 2,060 29 1,498 (10,262) 0
Total net sales 126,204 20,642 22,474 31,611 46,676 (10,262) 237,345
First nine months:
Table 2.32
9 months 2007 Italy Spain France RussiaUnitedStates
Eliminations
Consolidated
Net sales to third parties 397,208 71,773 64,726 94,072 128,391 756,170
Infragroup sales 28,339 5,237 2,762 155 4,574 (41,067) 0
Total net sales 425,547 77,010 67,488 94,227 132,965 (41,067) 756,170
Table 2.33
9 months 2006 Italy Spain France RussiaUnitedStates
Eliminations
Consolidated
Net sales to third parties 376,553 66,188 68,041 72,511 144,519 727,812
Infragroup sales 17,092 1,274 5,837 167 2,800 (27,170) 0
Total net sales 393,645 67,462 73,878 72,678 147,319 (27,170) 727,812
Breakdown of exports by country of origin
The table below shows the Group exports to third parties in the third quarter and in the first nine
months of 2007 and in the third quarter and in the first nine months of 2006.
Group exports in the third quarter of 2007 and in the third quarter of 2006:
Table 2.34
Europe
Germany France Others United States Others Total
Q3 2007 11,188 10,221 33,376 26 23,030 77,841
Q3 2006 8,744 9,988 32,200 308 20,451 71,691
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Exclusively from Italy:
Table 2.35
Europe
Germany France Others United States Others Total
Q3 2007 10,405 7,782 25,896 0 12,358 56,441Q3 2006 7,965 8,090 25,950 298 12,116 54,419
Exclusively from Spain:
Table 2.36
Europe
Germany France Others United States Others Total
Q3 2007 538 2.439 5.266 26 1.089 9.358
Q3 2006 384 1.878 4.466 4 974 7.706
Exclusively from France:
Table 2.37Europe
Germany France Others United States Others Total
Q3 2007 245 0 1,929 0 583 2,757
Q3 2006 370 1,689 1,937 3,996
Exclusively from Russia:
Table 2.38
Europe
Germany France Others United States Others Total
Q3 2007 0 0 7 0 6,305 6,312
Q3 2006 3,322 3,322
Exclusively from China:
Table 2.39
Europe
Germany France Others United States Others Total
Q3 2007 0 0 278 0 2,464 2,742
Q3 2006 25 20 95 6 1,936 2,082
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Exclusively from the United States:
Table 2.40
Europe
Germany France Others United States Others Total
Q3 2007 0 0 0 0 231 231Q3 2006 166 166
Group exports in the first nine months of 2007 and 2006:
Table 2.41
Europe
Germany France Others United States Others Total
9 months 2007 27,435 34,399 104,691 287 59,715 226,527
9 months 2006 24,132 35,690 98,787 1,079 56,976 216,664
Exclusively from Italy:
Table 2.42
Europe
Germany France Others United States Others Total
9 months 2007 24,801 26,207 81,065 200 35,601 167,874
9 months 2006 21,193 28,351 77,075 1,047 35,583 163,249
Exclusively from Spain:
Table 2.43
Europe
Germany France Others United States Others Total
9 months 2007 1,824 8,164 17,011 65 3,115 30,179
9 months 2006 1,277 7,319 15,211 26 2,993 26,826
Exclusively from France:
Table 2.44
Europe
Germany France Others United States Others Total
9 months 2007 790 5,960 1,510 8,260
9 months 2006 1,489 6,113 5,281 12,883
Exclusively from Russia:
Table 2.45
Europe
Germany France Others United States Others Total
9 months 2007 16 13,640 13,656
9 months 2006 8,396 8,396
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Exclusively from China:
Table 2.46
Europe
Germany France Others United States Others Total
9 months 2007 20 28 639 22 5,367 6,0769 months 2006 173 20 388 6 4,508 5,095
Exclusively from the United States:
Table 2.47
Europe
Germany France Others United States Others Total
9 months 2007 482 482
9 months 2006 215 215
2.26 Cost of sales
The composition of cost of sales is shown in the following table:
Table 2.48
Cost of sales Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Raw materials purchases 32,487 31,150 4.3% 111,858 104,242 7.3%
Parts and consumables 6,545 4,559 43.6% 18,938 14,811 27.9%
Packaging 7,904 7,284 8.5% 25,389 23,526 7.9%
Finished products purchases 18,641 14,976 24.5% 51,558 43,368 18.9%
Energy purchases 23,140 21,878 5.8% 77,815 75,307 3.3%
External processing and externalproduction services
12,019 11,002 9.2% 34,958 29,448 18.7%
Transport 13,650 16,124 -15.3% 37,958 43,377 -12.5%
Labour costs and related charges 32,132 32,228 -0.3% 103,305 102,850 0.4%
Amortisation/Depreciation 11,921 12,286 -3.0% 36,894 37,331 -1.2%Maintenance 3,893 3,214 21.1% 10,759 9,538 12.8%
(Increase) decrease of inventory 1,131 550 105.6% (14,613) (7,353) 98.7%
Rent and industrial equipmentleasing
669 505 32.5% 1,783 1,599 11.5%
Others 4,874 5,397 -9.7% 14,775 14,014 5.4%
Increases in fixed assetsconstructed internally
(407) (490) -16.9% (1,705) (1,645) 3.6%
Total 168,599 160,663 4.9% 509,672 490,413 3.9%
2.27 Selling expenses
The breakdown of this account is detailed in the following table:
Table 2.49
Selling expenses Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Labour costs and related charges 12,530 11,869 5.6% 38,828 38,205 1.6%
Promotions and advertising 12,433 11,088 12.1% 38,326 35,436 8.2%
Transport on sales 7,085 6,737 5.2% 20,098 19,913 0.9%
Amortisation & depreciation 630 611 3.1% 1,836 1,888 -2.8%
Losses on receivables 517 (143) -461.5% 1,460 1,876 -22.2%
Other selling costs 5,393 4,929 9.4% 17,440 16,211 7.6%
Total 38,588 35,091 10.0% 117,988 113,529 3.9%
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2.28 General and administrative expenses
The breakdown of this account is detailed in the following table:
Table 2.50
General and administrativeexpenses
Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Labour costs and related charges 6,236 6,384 -2.3% 19,725 17,222 14.5%
Duties and taxes (excludingcorporation tax)
1,470 1,525 -3.6% 4,563 4,819 -5.3%
Legal and administrative services 877 1,108 -20.8% 3,631 3,111 16.7%
Directors and auditors fees 643 727 -11.6% 2,815 2,379 18.3%
Amortisation/Depreciation 592 562 5.3% 1,771 1,743 1.6%
General and administrativeinsurances
496 430 15.3% 1,570 1,430 9.8%
IT Expenses 728 626 16.3% 2,080 2,043 1.8%
Telephone and postal expenses 481 497 -3.2% 1,512 1,465 3.2%
Other general and administrationcosts
1,500 1,571 -4.5% 4,993 5,088 -1.9%
Total 13,023 13,430 -3.0% 42,660 39,300 8.5%
The increase in personnel costs is principally due to the significant changes in the organisationalstructure of the Parent Company over the past two years..
2.29 Restructuring charges and asset write-downs
Table 2.51
Restructuring charges andasset write-downs
Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Restructuring charges and assetwrite-downs
35 99 -64.6% 285 2.964 -90.4%
Total 35 99 -64.6% 285 2.964 -90.4%
2.30 Other income
The breakdown of this account is detailed in the following table:
Table 2.52
Other income Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Revenues from recharge oftransport costs
2,415 2,506 -3.6% 7,721 7,970 -3.1%
Prior year income 1,440 124 1061.3% 2,570 1,162 121.2%
Revenues from samples anddisplays
160 266 -39.8% 821 1,273 -35.5%
Gains on sale of assets 33 13 153.8% 678 868 -21.9%
Others 3,497 11 31690.9% 3,914 77 4983%
Total 7,545 2,920 158.4% 15,704 11,350 38.4%
From 2007, the new Product Development Department of the Parent Company was significantlyupgraded, which undertakes service activities also on behalf of overseas subsidiaries. The activitiesof the new department are essential to the support of the Group strategies focused on the launch ofnew product series featuring innovative technological and design content. In 2007, in fact, 259 newproduct series were launched on the market: 36 in Italy, 8 in Spain where studies are ongoing foranother 12 series to be launched in 2008, 136 in Russia, 51 in France and 28 in the United States.
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In the first nine months of 2007 costs were capitalised of Euro 3,811 (in the account Other Income)related to specific projects and for which the technical and commercial feasibility was determined aswell as the economic return on the investment.
2.31 Other operating costs
The breakdown of this account is detailed in the following table:
Table 2.53
Other charges Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Provisions for various risks 108 234 -53.8% 712 317 124.6%
Prior period charges 886 106 735.8% 1.709 879 94.4%
Other non-recurring charges 160 142 12.7% 240 235 2.1%
Loss on sale of assets 96 13 638.5% 581 152 282.2%
Total 1,250 495 152.5% 3,242 1,583 104.8%
2.32 Expenses by nature
The composition of expenses by nature is detailed in the following table:
Table 2.54
Expenses by nature Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Amortisation/Depreciation 13,142 13,459 -2.4% 40,501 40,962 -1.1%
Personnel costs 50,898 50,482 0.8% 161,858 158,277 2.3%
Change in inventory 1,131 550 105.6% (14,613) (7,353) 98.7%
Purchases 88,309 79,452 11.1% 283,853 259,607 9.3%
Transport 18,620 18,009 3.4% 52,849 58,438 -9.6%
Promotional and advertising 6,189 5,168 19.8% 19,805 17,161 15.4%
Commissions 6,244 5,920 5.5% 18,521 18,275 1.3%
Other costs 36,927 36,639 0.8% 110,788 99,458 11.4%
Total 221,460 209,679 5.6% 673,562 644,825 4.5%
Classified as:
Table 2.55
Expense category Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Cost of sales 168,599 160,663 4.9% 509,672 490,413 3.9%
Selling expenses 38,588 35,091 10.0% 117,988 113,529 3.9%
General and administrativeexpenses
13,023 13,430 -3.0% 42,660 39,300 8.5%
Other charges 1,250 495 152.5% 3,242 1,583 104.8%
Total 221,460 209,679 5.6% 673,562 644,825 4.5%
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2.33 Financial charges (income)
The breakdown of this account is detailed in the following table:
Table 2.56
Financial charges (income) Q3 2007 Q3 2006 Cge %9 months
2007
9 months
2006
Cge %
Financial charges 6,132 4,810 27.5% 17,210 16,881 1.9%
Financial income (263) (329) -20.1% (996) (2,192) -54.6%
Notional stock options charges 0 0 0 158 -100.0%
Cost (income) from currencymanagement
2,343 (204) -1248.5% 3,320 2,538 30.8%
Total 8,212 4,277 92.0% 19,534 17,385 12.4%
The increase in the account financial charges (income) in the third quarter 2007 is principally due tothe result from currency management, in addition to an increase in interest rates applied to a higheraverage debt in the period.
2.34 Share of charges/(income) from equity investments
Table 2.57
Share of income and charges Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Share of income (157) (189) -16.9% (364) (331) 10.0%
Share of charges 66 (70) -194.3% 96 242 -60.3%
Total (91) (259) -64.9% (268) (89) 201.1%
2.35 Income taxes
Income taxes for the third quarter and for the first nine months of 2007 and for the same periods in2006 are summarised below:
Table 2.58
Income taxes Q3 2007 Q3 2006 Cge %9 months
20079 months
2006Cge %
Current taxes 10,539 8,941 17.9% 29,691 27,025 9.9%
Deferred tax charge (income) (1,858) 1,384 -234.2% 2,224 (525) -523.6%
Total 8,681 10,325 -15.9% 31,915 26,500 20.4%
Deferred tax assets and liabilities
The following table shows the deferred tax assets and liabilities at September 30, 2007, June 30,2007 and December 31, 2006:
Table 2.59
Deferred tax assets and liabilities 30.09.2007 30.06.2007 31.12.2006
Deferred tax assets 49,644 49,238 50,646
Write-down provision (26,491) (27,458) (27,460)
23,153 21,780 23,186
Deferred tax liabilities (89,891) (90,634) (89,096)
Total net deferred tax liabilities (66,738) (68,854) (65,910)
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The accounting of deferred taxes in the financial statements was made in consideration of thepossible recoverability of the deferred tax assets.
For the period ended September 30, 2007, the principal French companies of the Groupdemonstrated the ability to realise assessable income already from 2007. The structural changes inthe French BU will probably result in assessable income in the coming years for which the fiscal
losses carried forward can be utilised. Therefore, an estimate was made of the deferred taxes whichcan reasonably be recovered in the next year and a decrease of the write down provision of thedeferred tax assets by Euro 1 million. This amount may be reviewed in light of the full year results for2007 and on the basis of the forecasts for the 2008 results.
3. Earnings per share
The following table reports the result and the number of ordinary shares used for the calculation ofthe basic earnings per share, determined in accordance with IAS 33.
Table 2.60
Q3 2007 Q3 2006 9 months 2007 9 months 2006
Net profit attributed to the shareholders of theparent company
16,624,000 15,685,000 46,036,000 46,608,000
Weighted average number of ordinary shares tocalculate basic earnings per share
102,232,000 101,021,846 102,232,000 101,021,846
Weighted average number of ordinary shares tocalculate diluted earnings per share
106,074,600 101,679,148 105,061,841 101,679,148
Basic earnings per share Euro 0.163 0.153 0.450 0.461
Diluted earnings per Share Euro 0.157 0.152 0.438 0.458
Significant non-recurring events and operations
Although not of an extraordinary nature, in accordance with Consob Resolution No. 15519 of July 27,2006, a summary is provided below of non-recurring events and operations which the Group had
already undertaken in the period ending at June 30, 2007: recalculation of the employee leaving indemnity value as at December 31, 2006 on the basis of
the new provisions introduced by the pension reform (curtailment).
*** *** ***
The executive responsible for the preparation of the corporate accounting documents Mr. AlessandroPoletto declares in accordance with article 154 bis, paragraph 2, of the Consolidated Finance Act,that the accounting information contained in the present document corresponds to the underlyingaccounting documents, records and accounting entries.