Impacts Arising From the Application of the New IFRS16
It bears recalling that the Group adopted the new IFRS16 effective 1 January 2019, using the modified retrospective method (option B, without restating contracts already in place at 1 January 2019 and not applying the standard to low-value and short-term assets).
Data at 30 September 2019 include the following impacts due to the adoption of the new Standard:
• €17.3 million in reversal of rental costs;
• €14.8 million increase in depreciation and amortisation;
• €3.8 million increase in interest expense;
• €173.9 million increase in Net Invested Capital;
• €175.2 million increase in Net Financial Position.
Results for the period ended 30 September 2019
Brembo’s Board of Directors chaired by Alberto Bombassei met today and approved the Group’s results at 30 September 2019.
net consolidated revenues for the reporting period amounted to €1,971.0 million, down 1.4% compared to the same period of the previous year (-0.9% on a like-for-like consolidation basis).
It should be noted that, as of 30 June 2019, Brembo decided to discontinue its industrial operations at the Buenos Aires plant. As a result, Brembo Argentina S.A. will be placed in liquidation. Brembo took this decision as it was impossible to boost new projects because of the sharp downtrend experienced by the Argentinian automotive sector and its quite discouraging recovery prospects. Accordingly, all main local manufacturers decided not to proceed with industrial projects nor to launch new models.
Pursuant to IFRS5, revenues and costs related to the Argentinian company for the first nine months of 2019 were therefore reclassified. The negative result of the company’s ordinary operations for the period ended 30 September 2019, as well as the estimated costs associated with the discontinuation, were reclassified to the Statement of Income item “Result from discontinued operations” and amounted to €6.6 million.
With regard to the market segments in which the Group operates, car applications decreased by 4.2% due to the global automotive market’s severe downtrend. All other market segments grew: motorbike applications rose by +5.9%, applications for commercial vehicles by +9.3%, and racing applications by +7.3%.
At geographical level, compared to the same period of the previous year, sales for the first nine months of 2019 shrank by 2.5% in Italy and by 14.1% in Germany, whereas growth was reported by France (+5.5%) and a stable performance was recorded in the United Kingdom.
In Asia, India rose by 16.7% and China by 0.6%, whereas Japan declined by 10.2%.
Sales in North America (USA, Canada and Mexico) rose by 3.1%, whereas South America declined by 17.8% (+6.9% on a like-for-like consolidation basis).
In the period ended 30 September 2019, the cost of sales and other net operating costs amounted to €1,236.7 million, down 3.5% compared to €1,281.6 million for the same period of the previous year. In percentage terms, the ratio to sales of this item decreased to 62.7% from 64.1% for the same period of 2018.
Personnel expenses totalled €349.3 million, with a 17.7% ratio to sales, slightly increasing compared to the same period of the previous year. At 30 September 2019, workforce numbered 10,516 (10,595 at 30 September 2018 and 10,634 at 31 December 2018).
EBITDA for the period amounted to €394.0 million (EBITDA margin: 20.0%), up 3.7% compared to the same period of 2018. Net of the effect of IFRS16, EBITDA was €376.7 million (EBITDA margin: 19.1%).
Depreciation and amortisation amounted to €144.8 million (€130.0 million net of the effect of IFRS16).
EBIT amounted to €249.2 million (EBIT margin: 12.6%), down 6.6% compared to the same period of 2018. Net of the above-mentioned impact of IFRS16, EBIT was €246.7 million (EBIT margin: 12.5%).
In the reporting period, net interest expense totalled €12.3 million (€10.6 million in the same period of 2018). This item included interest expense amounting to €11.1 million (€7.1 million in the first nine months of 2018) and net exchange losses of €1.2 million (net exchange losses of €3.5 million in the same period of the previous year). Net of the above-mentioned impact of IFRS16 net interest expense was €8.5 million.
Pre-tax profit was €237.1 million (12.0% of sales) compared to €256.4 million for the same period of 2018.
Based on the tax rates applicable under current tax regulations, estimated taxes amounted to €53.3 million (€57.3 million in 2018), with a tax rate of 22.5%, in line with 22.3% for the same period of the previous year.
The period ended with a net profit of €176.1 million, down 10.7% compared to the same period of the previous year. Net of the above-mentioned impact of IFRS16 net profit was €177.4 million.
Net financial debt at 30 September 2019 was €414.5 million; on a like-for-like accounting standards basis, it was €239.3 million, down €1.4 million compared to 30 September 2018 (€240.7 million).
In light of the automotive sector’s ongoing uncertainties, Brembo expects to close the year with a slight decrease in volumes compared to the previous year and to be able to reach profitability in line with 2018.