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The Board of
Directors of Pininfarina S.p.A., meeting this week under the
chairmanship of Paolo Pininfarina, approved a draft of the
2008 Financial Statements of the Company and the Group and
the Annual Report on Corporate Governance, and agreed to
convene an Ordinary Shareholders’ Meeting.
The 2008 data of
the Pininfarina Group show that
value of production amounted to 535.7 million euros,
compared with 670.4 million euros at December 31, 2007
(-20.1%). The manufacturing operations accounted for 75% of
the total value of production (80% in 2007), with the design
and engineering operations contributing together for the
remaining 25% (20% in 2007).
While the
percentage contribution provided by the manufacturing
operations decreased, reflecting a 25.6% reduction in cars
manufactured (value of production of 403.1 million euros;
-24.8% compared with 2007), the service operations performed
roughly in line with the previous year (value of production
of 132.6 million euros; -1.3% compared with 2007).
Consistent with the
trend in the quarterly reports, EBITDA were positive, albeit
lower than in 2007, amounting to 6.9 million euros at
December 31, 2008 (1.3% of the value of production; +18.4
million euros equal to 2.7% of the value of production in
2007). EBIT were negative by 177.8 million euros (-33.2% of
the value of production), compared with negative EBIT of
103.3 million euros in 2007 (-15.4% of the value of
production). In order to understand more clearly the
significant deterioration in EBIT it is helpful to
differentiate between operating losses and extraordinary
write downs. Accordingly, the loss of 177.8 million euros
(103.3 million euros in 2007) can be broken down into
operating losses of 58.8 million euros (33.8 million euros
in 2007) and write downs required by the impairment test
totalling 119 million euros (69.5 million euros in 2007).
These write downs were recognised to reflect the fact that
the overall production volumes contractually scheduled over
the length of the existing production orders needed to be
lowered, based on the number of cars already produced and
the projections provided in the Industrial Plan approved by
the Board of Directors of Pininfarina S.p.A.
Consequently, the
carrying value of the assets earmarked for the fulfilment of
the production orders was written down to their recoverable
value, determined based on estimates of future car sales
volumes, as set forth in the Industrial Plan approved by the
Board of Directors on November 12, 2008. In addition to
these charges, the net assets of Matra Automobile
Engineering SAS were reclassified as held-for-sale assets
and written down accordingly.
The operating loss
was 25.0 million euros higher than the loss of 33.8 million
euros reported in 2007, due mainly to an increase of 20.2
million euros in the Provisions for risks. Net financial
expense totalled 21.6 million euros, up from 10.6 million
euros in 2007. The increase of 11 million euros reflects the
combined impact of a write down of financial receivables
owed by customers, a decrease of 3.2 million euros in
interest income caused by a reduction in sales volumes, the
late interest of 1 million euros paid to Fortis Bank to
settle a pending dispute with Pininfarina S.p.A., an
increase of 5.5 million euros in interest expense due to a
rise in average indebtedness and higher interest rates,
compared with 2007 and charges totalling 1.3 million euros
for sundry items.
The joint ventures
provided the following contributions to the consolidated
results: a positive value adjustment of 4.3 million euros,
compared with 3.3 million euros at December 31, 2007, by
Pininfarina Sverige A.B.; and a negative value adjustment of
6.4 million euros for Véhicules Electriques
Pininfarina-Bolloré S.A.S. (this company did not exist in
2007). This amount refers for the most part to the
derecognition of 50% of the intra-Group profit generated by
services provided by Pininfarina S.p.A. to the joint venture
in connection with the development of the electric car.
The net loss for
the period, after taxes of 2.6 million euros (3.8 million
euros in 2007), amounted to 204.1 million euros (-38.1% of
the value of production), compared with a loss of 114.5
million euros in 2007 (-17.1% of the value of production).
The net financial position, while still negative by 100.1
million euros, showed an improvement of 85.4 million euros
compared with December 31, 2007, when net indebtedness
totalled 185.5 million euros. It is worth noting that the
reduction of 180 million euros in medium- and long-term bank
borrowings shown at December 31, 2008 was offset by a
9-million-euro write down of financial receivables owed by
outsiders, unfavourable changes in working capital
requirements penalized by the performance of the industrial
operations, a sharp increase in interest expense paid to the
Lender Institutions and the cash outlays required for
additions to operating assets and equity investments.
Shareholders’
equity decreased by 29.0 million euros, falling from 39
million euros in 2007 to 10.0 million euros at December 31,
2008. Aside from some minor items, the decrease of 29.0
million euros is essentially the net result of the loss of
the year of 204.1 million euros and an increase in reserves
of 180 million euros that reflects the signing of the
Framework Agreement with the Lender Banks.
The performance of
the manufacturing operations was adversely affected by a
significant reduction in orders for the car manufactured
under current contracts and the end of production of the
Mitsubishi Colt CZC caused by litigation and the beginning
of arbitration proceedings. The low production volume
compared with the size of the existing operational
organisation caused major operating losses, the effect of
which was compounded by extraordinary write downs.
The value of
production of the manufacturing operations totalled 403.1
million euros (-24.8% compared 2007) accounting for 75% of
the consolidated value of production (80% the previous
year). The result from operations was negative by 60 million
euros, a significantly larger amount than the loss of 37.2
million euros reported at December 31, 2007. When 108.1
million euros in write downs on assets and financial
receivables (69.5 million euros in 2007) are added, the
manufacturing operations show negative EBIT of 168.1 million
euros, compared with negative EBIT of 106.7 million euros in
2007.
In 2008, the
Pininfarina Sverige joint venture continued to benefit from
the commercial success of the Volvo C70 in Europe. In the
United States, however, sales were severely penalised first
by the weakness of the U.S. dollar and, later, by an
across-the-board sudden decrease in demand, especially
during the second half of the year. The RHTU Sverige A.B.
subsidiary, which supplies the retractable top for the Volvo
convertible, ended the year with lower volume of production
and profitability than in 2007, due to the decrease in
production of the Volvo C70. In order to maximise the
synergies that exist between this company’s operations and
those of Pininfarina Sverige A.B., RHTU’s business
operations (personnel and contracts) were transferred to the
joint venture as of January 1, 2009. RHTU Sverige A.B. is
currently being liquidated.
The service
operations, which include design, industrial design and
engineering, reported value of production of 132.6 million
euros (134.3 million euros at December 31, 2007). They
accounted for 25% of the Group’s total value of production,
up from 20% a year earlier. EBIT were negative by 9.7
million euros, as against positive EBIT of 3.3 million euros
in 2007.
Starting in the
second half of 2008, conditions deteriorated rapidly in the
French market for engineering services. In order to avoid
large future losses, Pininfarina S.p.A. decided to sell its
investments in its French subsidiaries, which burdened the
reported EBIT of the service operations with a loss of 26.1
million euros (including 17.8 million euros for writedowns
of property, plant and equipment and intangibles and losses
on sales of equity investments). The positive performance of
the styling and engineering operations in Italy, Germany and
Morocco (total positive EBIT of 16.4 million euros) was not
sufficient to offset the impact of the losses recorded in
France.
Significant event
occurring after December 31, 2008
include the announcement that, on
February 26, 2009, the Turin Provincial Tax Commission
informed Pininfarina S.p.A. that it had handed down a
decision in the tax dispute that was pending before the
Commission. The focus of the dispute is the contention that
VAT should have been levied on the amounts invoiced in 2002
and 2003 by Industrie Pininfarina S.p.A. (merged into
Pininfarina S.p.A. in 2004) to Peugeot Citroen Automobiles,
whose tax representative in Italy was Gefco Italia S.p.A. By
this decision, the lower court magistrate upheld in part the
arguments of the Turin Internal Revenue Agency, finding that
the transactions in question were subject to VAT, but
ordered that, “in view of the complexity of the case at bar
and the difficulties in interpreting the statute in
question,” the penalties on the abovementioned disputed VAT
be cancelled. As a result, the amount owed by Pininfarina,
while the proceedings continue at the next jurisdictional
level, was reduced from about 69.5 million euros to about 30
million euros, plus interest. The Directors, comforted in
their belief by reports provided by authoritative experts in
this field, are confident that the decision handed down by
the Tax Commissions will be reversed on appeal, for which
the Company will be filing a motion in the coming weeks.
The agreement with
the Lender Institutions
executed with the signing of a Framework Agreement ad its
Annexes, which include a Debt Rescheduling Agreement,
consists of two phases: the first phase was carried out on
December 31, 2008, while the second phase must be completed
by June 30, 2009. During the first phase, the Lender
Institutions assigned without recourse to Pincar S.p.A.
financial receivables totaling 180 million euros.
Concurrently, Pincar S.p.A. forgave in their entirety the
receivables owed by Pininfarina S.p.A. that it acquired from
the Lender Institutions. Pincar further agreed to sell its
entire equity interest in Pininfarina and use the proceeds
from such sale to pay a supplement to the consideration on 1
euro originally paid to the Lender Institutions for the
abovementioned transfer of receivables.
The second phase
could be carried out in accordance with different methods,
which are currently being defined by the Lender Institutions
and will be disclosed in a timely fashion. The overall
effect of the Agreement on the gross indebtedness and
shareholders’ equity of Pininfarina S.p.A. will be a
reduction in the medium- and long-term bank borrowings
totalling 250 million euros, (180 million euros on December
31, 2008 and the remaining 70 million euros by June 30,
2009). The decrease in gross indebtedness that occurred on
December 31, 2008 was offset by an increase of equal amount
in shareholders’ equity. The same will occur when the second
phase is carried out, causing shareholders’ equity to
increase by a further 70 million euros.
As for the
activities required for the completion of the second phase,
the Company has been meeting all of its obligations in this
area, in accordance with the corresponding contractual
deadlines. Moreover, with regard to complying with the
requirements set forth in agreements with the Lender
Institutions, Pincar S.p.A., in its capacity as a Company
shareholder, announced that the Lender Institution chose
Leonardo & Co (Banca Leonardo S.p.A.) among the candidates
submitted by Pincar S.p.A. to serve as an advisor in the
sale of its interest in Pininfarina S.p.A. A formal
assignment will be given to Leonardo & Co in the coming
days.
With regard to the
outlook for 2009, any
assessment of the operating performance, financial
performance and financial position of the Company and the
Group must now take into account the following
considerations:
- The 2009
reporting year will end with negative EBITDA and EBIT.
Specifically, while at the operating level the manufacturing
operations are performing well in terms of quality and
efficiency, their projected results will be penalised by an
expected 50% reduction in car sales compared with 2008. The
reason for such a large shortfall in orders is the negative
performance of the global economy, which is proving to be
particularly burdensome for the automobile industry. Even
incisive cost reduction programs will not be sufficient to
compensate the effect of the reduction in value of
production, which will also occur in the styling and
engineering area. Consequently, the year will end with in
the red but, consistent with the projections of the
Industrial and Financial Plan, the loss will be much smaller
and not comparable with those reported in 2007 and 2008.
- On the balance
sheet side, the projected completion of the second phase of
the Framework Agreement with the Lender Institutions by June
30, 2009 will inject a further 70 million euros to the
Company’s shareholders’ equity, which was already boosted by
an addition of 180 million euros upon the completion of the
first phase on December 31, 2008. This new capital infusion
will enable the Company to absorb the 2009 loss without need
for additional transactions.
- The debt
rescheduling agreement executed with the Lender Institutions
and the resulting drastic reduction in medium- and long-term
debt that has already occurred and is planned for the near
future (for an aggregate amount of 250 million euros, out of
a total indebtedness of 558 million euros at November 30,
2008) resulted in a significant improvement of the Company’s
financial position. Specifically, the amortisation plans for
the remaining medium- and long-term debt, which amounted to
about 375 million euros at the end of 2008, run for 6 or 7
seven years, depending on the type of facility, and do not
require the Company to pay interest or repay principal from
2009 to 2011. In addition to the future reduction of 70
million euros in debt (Framework Agreement), the Industrial
Plan calls for the divestment of some non-strategic assets
to increase the financial resources available for debt
service (equal to about 36 million euros).
Based on the
foregoing considerations, even though the Company’s strictly
operating activities will not be cash flow positive in 2009,
it seems reasonable to project that the existing liquidity
will be sufficient to enable the Company to normally pursue
its business activities and punctually meet its financial
obligations toward all of its stakeholders. At the end of
2009, the net financial position is expected to show an
improvement compared with 2008.
After approving the
Annual Report on Corporate Governance, the Board of
Directors agreed to convene an Ordinary Shareholders’
Meeting, which will be held at
10:00 AM, on April 23, 2009, at the offices of Pininfarina
S.p.A. in Cambiano (TO), on the first calling, or on April
24, 2009, same time and place, on the second calling. The
Meeting’s Agenda, in addition to the approval of the 2008
annual financial statements, includes the election of a
Board of Directors and a Board of Statutory Auditors, as the
three-year term of office of the current Boards is expiring.
The Director
Elisabetta Carli submitted her resignation
in a letter received on March 21,
2009, due to the consolidation into Segi S.r.l. (a company
under the full control of the Pininfarina family) of 99.9%
of Pincar S.p.A. (a company formerly owned by the
Pininfarina, Carli and Piglia families), which owns 50.6% of
the Pininfarina S.p.A. shares. The Board of Directors was
informed of the resignation and thanked Elisabetta Carli for
her long service on the Company’s Board of Directors,
leaving all decisions regarding this matter to the
Shareholders’ Meeting convened for approve the financial
statements at December 31, 2008 and elect the Company’s new
governance bodies.
“In closing the
2008 financial statements,” said
Paolo
Pininfarina, Chairman of Pininfarina S.p.A. with authority
over the Group’s design operations and Pininfarina Extra,
“we
put behind us a very difficult year for Pininfarina, both at
the human level, for the loss on August 7 of my brother
Andrea, the Company’s Chairman and Chief Executive Officer,
and in terms of the challenges posed by its financial
position, which were exacerbated during the second half of
the year by a crisis of epochal proportions that engulfed
all sectors of the economy but was felt most dramatically by
the automobile industry. As a result of the important
Framework Agreement of December 31, 2008, which was achieved
thanks to the collaboration and support of the Lender
Institutions and their willingness to believe in the
Company’s future, we are now able to face with greater peace
of mind the crisis that is still unfolding in the global
markets and look forward with confidence to the Company’s
ability to continue functioning as a going concern, despite
the important challenges that lay ahead. Now, together with
my sister Lorenza and our managers, we shall move forward
according to plan, to reap fully the benefits of the
electric automobile business, which we placed at the centre
of our Industrial Plan. Together with the Bolloré Group in
France, we are are presenting a true cultural challenge in
favour of eco-sustainable mobility: at the recent Geneva
Motor Show, we received a positive response when we began to
take pre-orders to lease the Pininfarina BlueCar, the
electric car powered by Bolloré’s LMP batteries. The car is
designed by Pininfarina and production is expected to begin
in 2011 at our Italian factories. The Industrial Plan also
calls for a further strengthening of our styling and
engineering services. In this area, we are successfully
continuing our prestigious cooperation Ferrari (the
California, a model styled by Pininfarina and the first
coupé-cabriolet created at Ferrari’s Maranello home, was
unveiled at the Paris motor show), we have expanded our
design business in the Far East (an example is the BS4
station wagon designed for Brilliance, a Chinese car maker,
that made its European debut at the Geneva Motor Show) and
we are developing synergies with new partners such as
Tata, which at the Geneva Motor Show unveiled the Pr1ma, a
four-door sedan concept car that we designed on the Indigo
platform. The car was so well received that Ratan Tata
announced that he would start producing it in India, thereby
opening additional concrete opportunities for collaboration
with this Indian client in the areas of design and
engineering. At Pininfarina Extra, which I have been
personally managing for over 20 years, we will continue to
work in all areas of industrial design and architecture. An
example above all others in this area is the design of the
interiors of the new stadium for the Juventus soccer team,
which will open in 2011.”
“The data for
2008,” stated
Silvio Angori, a
Director and General Manager of Pininfarina S.p.A. with
authority over all operating activities, including the
implementation of the Industrial Plan, and oversight over
all Group companies with the exception of Pininfarina Extra
“show
that the Company was able to remain EBITDA positive also at
the Group level, despite a significant drop in the value of
production caused mainly by the contraction experienced by
the manufacturing operations, which were heavily penalised
by the global crisis of the automobile market. Reported EBIT
were heavily affected by nonrecurring write downs recognised
as a result of a decrease in current production levels and
in connection with the divestment of the French operations.
Management indicators are showing that the restructuring
programs launched during the second half of 2007 produced
the desired results: the impact of low production volumes
was mitigated by the flexibility of our fixed-cost
structure. The improvements achieved in this area are one
example of the results of a broader effort that enabled the
Company to react quickly to the global recession: in the
second half of 2008, Matra Automobile Engineering and its
subsidiaries were heavily penalised by a sharp and sudden
contraction of demand for engineering services in France.
However, the divestment of the French companies, which at
that point was the only logical option to shield the Group
from additional large operating losses, did not diminish our
engineering competencies. This was because we were prepared
to handle such an occurrence and remain competitive, for
example by significantly increasing the use the resources of
our Moroccan operations, which reported unexpectedly
positive results. Overall, net of the divestment of the
French businesses, the services operations (design,
industrial design and engineering) reported a substantial
increase in value of production and EBIT. Also in this area,
Pininfarina Deutschland turned in an excellent performance.
With regard to our manufacturing operations, which made use
of the Special Supplemental Unemployment Benefits Fund in
2008, we were highly appreciative of the unions’ willingness
to understand that the serious difficulties faced by our
customers were having an unavoidable negative effect on our
Company.”
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