Gruppo Piaggio & C. Annual Report 2003 PIAGGIO GROUP Financial Statements And Consolidated Financial Statements at 31-12-2003 Gruppo Piaggio & C Annual Report 2003 CONTENTS Financial Highlights Page 4 Company Boards Page 6 Group structure at 31.12.2003 Page 8 REPORT ON OPERATIONS Foreword Page 9 The market scenario Page 10 The legislative framework Page 14 The Piaggio Group Page 18 Quality and Safety Page 33 Personnel Page 34 Operations of the Piaggio Group Page 36 Operations of Piaggio & C. S.p.A. Page 45 Important events during the first months of 2004 Page 51 Operating trends Page 52 Relations between Group companies Page 53 Other information Page 53 • Changes in group structure • Disputes • Corporate Governance • Relations with related parties PROPOSED RESOLUTIONS Page 59 GRUPPO PIAGGIO & C. CONSOLIDATED FINANCIAL STATEMENTS 2 Gruppo Piaggio & C Annual Report 2003 PIAGGIO & C. S.p.A. STATUTORY FINANCIAL STATEMENTS Gruppo Piaggio & C. S.p.a. Consolidated Financial Statements Page 61 • Balance Sheet • Income Statement • Notes to Company Financial Statements Piaggio & C. S.p.A. Statutory Financial Statements at 31 December 2003 Page 164 • Balance Sheet • Income Statement • Notes to Company Financial Statements 3 Gruppo Piaggio & C Annual Report 2003 FINANCIAL HIGHLIGHTS (in millions of euro) Income Statement (reclassified) 2003 2003 2002 Statutory (1) (Proforma) (2) (3) Net Sales 921.7 987.2 945.8 Gross Industrial Margin 241.6 225.4 241.1 Operating Costs (219.2) (231.2) (234.8) Operating Result 22.4 24.2 6.3 Income before tax (124.8) (126.0) (118.7) Net Result (138.0) (139.5) (129.2) .Third parties 1.0 .Group (138.0) (139.5) (130.2) Gross Margin on Net Sales % 26.2 25.8 25.5 Operating Result on Net Sales % 2.4 2.4 0.6 Net Result on Net Sales % (15.0) (14.1) (13.6) EBITDA 87.2 93.6 77.6 EBITDA on Net Sales % 9.5 9.5 8.2 Balance Sheet Net Working Capital (42.6) (42.6) 55.8 Net Tangible Fixed Assets 182.2 182.2 196.3 Net Intangible Fixed Assets 421.4 421.4 503.7 Financial Fixed Assets 19.5 19.5 20.6 Funds (118.4) (118.4) (93.1) Net Invested Capital 462.1 462.1 683.3 Net Financial Position 281.9 281.9 577.1 Stockholders’ Equity 180.2 180.2 106.2 Sources of Finance 462.1 462.1 683.3 Minority Equity 1.0 1.0 15.9 Change in Net Financial Position Financial Position at Start of Year (577.1) (577.1) (568.7) Operating Cashflow (Result + Depreciation) (37.7) (39.2) (23.1) (Increase)/Reduction Working Capital 98.4 98.4 39.1 (Increase)/Reduction Fixed Assets (32.3) (32.3) (0.6) Change in Funds 25.3 25.3 (11.3) Change in Stockholders’ Equity 241.5 243.0 (12.5) Of which increase in Capital Stock 235.0 235.0 Total Change 295.2 295.2 (8.4) Financial Position at Year End (281.9) (281.9) (577.1) 4 Gruppo Piaggio & C Annual Report 2003 1. Statutory: 2003 consolidated financial data of the Piaggio Group reclassified from an operational standpoint. We remind you that, as envisaged by Accounting Principle no. 17 of the National Council “dei Dottori Commercialisti e dei Ragionieri” (Book-Accountants and Keepers), the 2003 consolidated financial statements include the Income Statement of the Nacional Motor Group only for the final two months of the year, because ownership of this Group was transferred at the end of October 2003. The Income Statement for the first ten months of the year has been booked as an adjustment of initial Stockholders Equity. 2. Pro forma: illustrate the Group’s performance with its current structure, for 12 months of 2003, reclassified for operational purposes. 3. 2002 Piaggio Holding consolidated financial statements with the company structure as it was at that date. Reclassification of the income statements for the two years from an operational standpoint envisages: 1. the adjustment of the revenues of some recovered costs (Euro/1000 3,000 for 2003 and Euro/1000 7,000 for 2002) 2. the inclusion under extraordinary charges of all adjustments in value and/or provisions to obsolescence risk fund and the provision of non-operating items (such as goodwill). 5 Gruppo Piaggio & C Annual Report 2003 COMPANY BOARDS - MEMBERS1 Board of Directors Chairman Roberto Colaninno Managing Director Rocco Sabelli Directors Luciano La Noce Giorgio Magnoni Matteo Colaninno Piero Faraoni Gaetano Micciché Graham Clempson Vincenzo De Bustis Figarola Board of Auditors Chairman Antonino Parisi Auditors Attilio Francesco Arietti Alessandro Lai Alternate Auditors Maurizio Maffeis Mauro Girelli 1 Appointed by the Stockholders’ Meeting on October 16, 2003 for the three year period 2003 - 2004 - 2005 and thus until approval of the financial statements at December 31, 2005. 6 Gruppo Piaggio & C Annual Report 2003 Secretary of the Board of Directors Alberto Casacchia External Auditors Deloitte & Touche S.p.A.2 2 Appointed by the Stockholders’ Meeting on January 26, 2004, for the three year period 2003, 2004 and 2005. 7 Gruppo Piaggio & C Annual Report 2003 GROUP STRUCTURE AT 31/12/2003 PIAGGIO & C. SpA Italia 100 % NACIONAL MOTOR SA Spagna 100 % MOT O S P ORT SA DERBI RETAIL DERBI ITALIA SRL DERBI RACING SL MA DRI D S L Spagna Spagna Italia Spagna 100 % 99,99% 100 % 99,9 % DERBI DEUTSCHLAND GMBH Germania 100% ALMEC SpA MI T S UB A F. N. MOT ORI DE S pA P&D SpA PIAGGIO VEHICLES PIAGGIO VESPA PIAGGIO CHINA PIAGGIO FOSHAN UNIVERSAL PONT-TECH SRL E UROPE SpA PVT. LTD B.V. CO. LTD MOT. COMP. LTD DYNAMIC INV. Italia Italia Italia Italia India Olanda Hong Kong Cina Hong Kong Italia 30% 20% 28,29% 100 % 91,18% 100 % 99,99% 25% 99,99% 20% 25 % 25 % CONSORZIO RICERCHE B E NE VE NT O Italia PIAGGIO USA INC. PIAGGIO PORTUGAL 33% PIAGGIO FRANCE SA PIAGGIO BENELUX BV LT DA USA Portogallo Francia Olanda 100 % 100 % 99,82 % 100 % PIAGGIO ASIA PIAGGIO LIMITED PIAGGIO ESPANA SA SAT SA PACIFIC LTD Tunisia Singapore Regno Unito Spagna 100 % 99,99 % 100 % 20% 30 % PIAGGIO INDOCHINA LTD PIAGGIO P I A GGI O DE UT SC H LA N D PIAGGIO HRVATSKA ARGENTINA SA GMBH DOO Singapore Argentina Germania Croazia 100 % 99,99 % 70 % 75 % società n on atti ve o i n liq uidazi on e PIAGGIO HELLAS EPE Grec ia 99,98 % 8 Gruppo Piaggio & C Annual Report 2003 FOREWORD On October 23, 2003, after the necessary formalities and corporate procedures had been completed, the closing pursuant to the contract signed on September 24, 2003 by Immsi S.p.A., the "Dep IV" Fund (managed by Morgan Grenfell Private Equity Ltd), Morgan Grenfell Development Capital Syndications Ltd (a member of the Deutsche Bank group of companies), Piaggio Holding S.p.A. and PB s.r.l., a company created by the banks financing the Piaggio Group, was carried out. As a result, control of Piaggio Group activities in Italy and abroad was transferred to Immsi. Under the Group’s new structure, Piaggio & C. S.p.A. is now controlled 100% by the newly incorporated Dutch company Piaggio Holding Netherlands B.V., which has fully subscribed a share capital increase in Piaggio & C. S.p.A. for a total of Euro 235 million following the restructuring of the debt with its banks. Piaggio Holding Netherlands B.V. has Stockholders’ Equity of Euro 320 million, consisting of ¤ 235 million of financial receivables (Euro 120 million of which contributed by PB s.r.l., Euro15 million by the company representing the previous controlling stockholders, and Euro 100 million by IMMSI S.p.A.) and Euro 85 million from the contribution of the equity participation in Piaggio & C. S.p.A., through the previous parent company Piaggio Holding S.p.A. by the previous stockholders. Piaggio Holding BV is owned 31.25% by Immsi S.p.A., 37.5% by PB s.r.l. and 31.25% by Scooter Holding 3 B.V., a company established by the former Piaggio Holding S.p.A. and the previous stockholders. Immsi holds the majority of voting rights at the Piaggio Holding Netherlands B.V. Stockholders’ meeting, as well as the majority among the members of the Supervisory Boards of both the latter company and Piaggio & C. S.p.A. Among the other formalities envisaged under the contract for the acquisition of 9 Gruppo Piaggio & C Annual Report 2003 the Piaggio Group, Piaggio & C. S.p.A. has acquired the Nacional Motor S.A. company, owner of the DERBI trademark, from the former Piaggio Holding S.p.A. as well as the company division of Piaggio Holding S.p.A. responsible for all the Group’s administration, finance and control activities. REPORT ON OPERATIONS 1. THE MARKET SCENARIO 1 . 1 TWO-WHEEL VEHICLE BUSINESS In 2003, the world market for motorised two-wheel vehicles expanded by about 11%, to almost 32 million vehicles. Asia remained the most important area: the Chinese People’s Republic grew in volume by about 14%, exceeding 14 million vehicles and confirming its position as the largest world market. India took second place, having grown by 7%, with sales of more than 5 million vehicles. Southeast Asia continued to grow strongly, accounting for 7 million vehicles; all the markets in the area expanded, except Vietnam. Indonesia (close to 3 million vehicles, +23%) and Thailand (over 1 million, +32%) both maintained strong growth rates, and even the minor markets recorded significant increases: they are led by Taiwan with over 700,000 units sold (+17%).