Download highlights for 2003 - Amplifon Corporate

2003 Consolidated
Financial Statements
1
SUMMARY
Report and consolidated financial statements
of the Amplifon Group
Report on operations
Highlights for 2003
Principal economic and financial information
Letter to the Shareholders
Corporate bodies
Shareholder information
Company profile
Trade network and markets
Notes to the economic and financial results
Investments
Research and development
Other information
3
4
5
7
8
9
10
12
24
25
26
Consolidated financial statements
2
Balance sheet
Income statement
Notes to the financial statements
Attachments
41
45
47
83
Auditing Company report
Board of Auditor’s report
88
89
HIGHLIGHTS FOR 2003
• Increase in revenues
The revenues form consolidated sales and
services for 2003 (443.388 thousand Euro)
increased by 51.447 thousand Euro (+13,1%)
compared to the previous period. If the effect of
differences on the rate of exchange were
excluded (16.922 thousand Euro), revenues would
have amounted to 68.369 thousand Euro.
500.000
400.000
Ricavi
-
443.388
360.843
391.941
300.000
200.000
100.000
2001
2002
2003
Esercizio
• Improvement of economic operating income
the gross operating income (EBITDA) for 2003
(60.273 thousand Euro) increased by 11.008
thousand Euro (+22,3%) compared to the previous
year.
70.000
60.273
60.000
50.000
EBITDA
-
49.265
40.911
40.000
30.000
20.000
-
in 2003 the Group net income (12.667 thousand
Euro) decreased by 2.466 thousand Euro
compared to the previous year on account of
extraordinary charges connected to company restructuring and reorganization operations
concluded in 2003 and pertaining to the biomedical sector which the Group no longer deems to
be a core business.
10.000
-
2001
2002
2003
Esercizio
• Decrease in net financial borrowing and high cash generation from operating activities: the
net financial borrowing as of December 31, 2003 (95.349 thousand Euro) decreased by 6.674
thousand Euro compared to the previous year, notwithstanding the use of financial resources in
investing activities during the year, which amounted to 39.669 thousand Euro, and the distribution
of dividends for 2.943 thousand Euro, thanks to cash flows generated by operating activities which
amounted to 47.756 thousand Euro.
• Proposed dividend per share for 2003: Euro 0,18 (Euro 0,15 in 2002).
3
PRINCIPAL FINANCIAL AND ECONOMIC INFORMATION
(thousand Euro)
Year 2003
Y ear 2002
443.388
(404.595)
60.273
35.750
29.777
23.230
12.667
391.941
(359.342)
49.265
29.439
21.947
21.899
15.133
51.447
(45.253)
11.008
6.311
7.830
1.331
(2.466)
31/12/2003
31/12/2002
Change
168.279
232.930
95.349
47.756
168.061
239.374
102.023
21.269
218
(6.444)
(6.674)
26.487
Economic information:
Revenues from sales and services
Operating costs (a)
Gross operating income (EBITDA)
Operating results (EBIT)
Income before extraordinary items and taxes
Income before taxes
Net Group income
(thousand Euro)
Financial information:
Fixed assets
Net invested capital
Net financial borrowing
Cash flow generated from assets
(a) Costs for raw materials, other materials, consumables and goods, change in inventories, cost of external services, other operating costs and labor costs
4
Change Change %
13,1%
12,6%
22,3%
21,4%
35,7%
6,1%
(16,3%)
LETTER TO THE SHAREHOLDERS
Dear Shareholders,
2003 was a positive year: during the period the Group achieved the highest ever operating income
performance; the EBITDA amounted to 60.273 thousand Euro (49.265 thousand Euro in 2002 and
40.911 thousand Euro in 2001 ) with a 13,6% incidence on revenues (12,6% in 2002 and 11,3% in
2001). As a result, high cash flows, amounting to 47.756 thousand Euro, were generated from the
operating activities (21.269 thousand Euro in 2002 and negative for 2.127 thousand Euro in 2001).
The results for 2003 confirm the soundness of the strategies and actions implemented in order to
create value for the Stockholders. In view of the significant results achieved, the four guidelines
underpinning our performance during the year have become the foundations on which to build future
ventures; the guidelines are detailed below:
• the focalization on the core business of the distribution and fitting of hearing aids by way of the
Group network which currently includes approximately 2.000 outlets, 3.000 authorized distribution
centers and 1.800 licensed network affiliates;
• the ongoing improvement of operating and commercial efficiency;
• the continuance of an attractive dividends policy;
• the continuance of the Group policy of expansion and international development.
The choice to focus on the core business was based on the high profitability margins and on the
estimated market growth potential connected to factors including a longer average life expectancy,
cultural changes influencing the life-style of people over 60 and growing acoustic pollution.
Conversely, in the biomedical sector, both marginal and non-core for the Group, the persisting cyclical
malaise and internal crisis lead the management to implement a plan for the strategic redirection and
the radical restructuring of the business by way of operations including staff reduction and the
abandonment of a number of production lines which were no longer deemed to be strategic: the
economic effects of the above operations are included in the extraordinary charges for the period.
The measures aimed at reducing costs significantly enhanced efficiency that was mirrored in the
containment of operating costs, in the increase of profitability and the ensuing cash generation.
In the context of the Group expansion and international development process the company division of
National Hearing Center Inc. which was acquired in August 2003; the division deals in the retail of
hearing aids on the United States market and has a distribution network counting 54 direct outlets.
The acquisition, concluded for the total 15 million US Dollars which was paid at the time of purchase,
in addition to guaranteeing the further consolidation of the group position, is strategic since it will open
5
up new distribution channels which include outlets located in the largest chain stores in America,
WAL*MART, which counts 1.600 discount Stores and 1.300 super centers.
The Group international development process continued in 2004 with the acquisition of the 100%
equity stake in Horen Nederland, a Dutch company dealing in the retail of hearing aids, for 16.800
thousand Euro; 16.000 thousand Euro was paid at the time of purchase. The Group, which had
already acquired the leadership on the Dutch market with a 27% market share, has further
consolidated its position and completed the territorial coverage which is now deemed to be 35%.
Horen Nederland operates in Holland by way of a commercial network which counts 27 outlets located
in the north-west of the country.
The net financial borrowing decreased, dropping from 102.023 thousand Euro as of December 31,
2002, to 95.349 thousand Euro as of December 31, 2003, notwithstanding the use during the year of
financial resources for investing activities, which amounted to 39.669 thousand Euro, and the
distribution of dividends for 2.943 thousand Euro; this was made possible by high cash flows
generation from operating activities which amounted to 47.756 thousand Euro.
Moreover, during the year, Amplifon continued to put a large amount of effort into ensuring that the
debt structure was consistent with the asset structure, in order to reduce the risk of being exposed to
interest rates volatility and to increase the correlation of the cost of borrowings to the revenues
updating mechanism based on inflation. Such objectives were achieved by way of loans linked to the
Euribor index and hedging operations which are aimed at limiting the interest rate fluctuations band.
Ladies and Gentlemen, the economic and financial performance of your Company and the return
policy concerning the profits generated by foreign subsidiary companies implemented by the
management, has put us in the position to be able to propose a dividend on the net income for the
year of 0,18 Euro per share, for a total amount of 3.532 thousand Euro. We are likewise certain that
the other strategic courses outlined shall prove to be the source of further satisfaction in the future.
Finally, in the light of the positive results achieved which bear witness to the high level of
competences acquired, the whole Board of Directors wishes to thank all staff members who work in
the Amplifon Group companies.
For the Board of Directors
Giovanni Martino Rollier
6
CORPORATE BODIES
The Board of Directors
Chairman
Vice Chairman
Managing Director and CEO
Managing Director
Director
Director *
Director *
Anna Maria Formiggini
Susan Carol Holland
Alessandro Baldissera Pacchetti
Giovanni Martino Rollier
Vanni Emanuele Treves
Giuseppe Daveri
Piergaetano Marchetti
(*) “Independent” director in compliance with the Code of Self-Regulation for Listed Companies set up by the Corporate Governance Committee of
listed companies sponsored by the Borsa Italiana S.p.A. (the Italian Stock Exchange).
The Board of Auditors
Chairman
Auditor
Auditor
Alternate Auditor
Alternate Auditor
Gian Paolo Giannini
John Alexander Stewart
Cristina Seregni
Emanuele Borgonovo
Alessandra Cislaghi
The Internal Audit Committee
Chairman
Member
Member
Giuseppe Daveri
Piergaetano Marchetti
Susan Carol Holland
The Remunerations Committee
Chairman
Member
Member
Piergaetano Marchetti
Giuseppe Daveri
Anna Maria Formiggini
The Auditing Company
Reconta Ernst & Young S.p.A.
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INFORMATION TO THE SHAREHOLDERS
On June 4, 2001, the Borsa Italiana S.p.A., the Italian Stock Exchange, by way of order no. 1707
confirmed the admission of Amplifon S.p.A. ordinary shares to Stock Exchange listing; on June 7,
2001 CONSOB (Commissione Nazionale per la Società e la Borsa) the National Commission for
Listed Companies and the Stock Exchange, with order no. 1045709 authorized the listing on the Stock
Exchange.
The Amplifon S.p.A. shares were listed on the MTA segment of the Italian stock exchange as of June
27, 2001.
As of December 31, 2003, the Amplifon S.p.A. share capital is made up of 19.621.000 shares having
a nominal value of 0,20 Euro and divided as follows:
Socio
Ampliter N.V.
Market
Total
No of ordinary shares
13.685.000
5.936.000
19.621.000
% ownership
69,75%
30,25%
100,00%
Pursuant to article 2497 of the Italian Civil Code, please be advised that Amplifon S.p.A. is not subject
to the management and organization activities performed by Ampliter N.V..
The chart below shows the trend of Amplifon shares compared to the trend of the MiIBTEL and SXDE
Healthcare indexes during the period:
AMPLIFON - MIBTEL - SXDE Healthcare rebasing
150
05Gen04
Pmax € 23,52
140
130
AMPLIFON
120
27Feb04
P € 22,60
02Gen04
P € 16,54
MIBTEL
110
100
SXDE
Healthcare
90
80
70
20Feb03
Pmin € 13,80
Ja
nJa 03
nFe 03
bFe 03
bM 03
ar
M 03
ar
Ap 03
r-0
Ap 3
rM 03
ay
M -03
ay
Ju 03
nJu 03
n0
Ju 3
l-0
Ju 3
lAu 03
gA u 03
gS e 03
pS e 03
pO 03
ct
-0
O 3
ct
N 03
ov
-0
N 3
ov
D 03
ec
Ja 03
nJa 04
nFe 04
bFe 04
b04
60
AMPLIFON
MIBTEL
SXDE Healthcare
8
During 2003, Amplifon shares recorded a 33,6% increase compared to the closing price as of
December 31, 2002, a positive performance of 23,8% in relative terms regarding the MIBTEL index
and of 33,6% regarding the SXDE Healthcare segment index.
The treatment of Amplifon shares on the MTA (Mercato Telematico Azionario) segment reached an
average daily counter-value of 221.738 thousand Euro, and an average daily volume of 12.397 shares
and an overall exchange volume amounting to 15,9% of the total value of the shares making up the
Share capital.
Financial indicators (*)
Net income per share: Euro 0,65
Dividend per share for 2003: Euro 0,18
Group net equity per share: Euro 6,87
Financial flow generated by operating activities per share Euro 2,43
(*) The values refer to the number of shares existing as of December 31, 2003.
As of December 30, 2003 the last day of negotiations, the Stock Exchange capitalization amounted to
442,6 million Euro.
COMPANY PROFILE
The Amplifon Group is the world leader in the distribution and the customized fitting of hearing aids for
the solution of problems related to the loss of hearing and the supply of correlated services.
The key factors which have enabled the Amplifon Group to achieve market leadership are the Group’s
focus on customized solutions and services, on cutting edge technological innovations, on widely
recognized brand names in addition to a well-established position on international markets and an
efficient, widespread distribution network.
In the countries where the Amplifon Group operates, thanks to a network of retail outlets and network
affiliates, the Group has acquired a market share of approximately 15%; the network includes 2.000
outlets, 3.000 authorized distribution centers and about 1800 licensed network affiliates.
9
THE DISTRIBUTION NETWORK AND MARKETS
The Group currently operates in Italy, U.S.A.,
Canada, France, Holland, Switzerland, Spain,
Portugal, Hungary and Egypt.
The process of international expansion
implemented by the Group focused on the strategic integration of companies that share a similar
approach in terms of management values and customer service, in addition to being leaders in their
markets. In this sense, the Group’s mission is to become a “hub” for all those companies that want to
be part of an international development program and do away with the restrictions of a mere local
presence in order to take advantage of the economies of scale and potential synergies.
In 2003, the Amplifon Group continued its expansion strategy by increasing its level of penetration in
established markets and acquiring a number of minor companies and company divisions.
In this context, on August 28, 2003, National Hearing Center (NHC), which had been set up for that
very purpose, acquired the company division National Hearing Centers Inc. with head office in
Springfield (Missouri) operating in the hearing aid retail sector on the American market. The
acquisition, for a consideration of 15 million US Dollars, in addition to further consolidating the Group’s
position in the United States, is strategic to secure a new distribution channel based on the outlets,
including 1.600 discount Stores and 1.300 super centers, located in one of the largest chain stores in
the America, called WAL*MART. Currently NHC operates through a distribution network which counts
54 direct outlets.
Moreover, again in the Unites States, the group acquired minor equity stakes and company divisions
for a corresponding value of 550 thousand US Dollars.
In France, in 2003, in order to improve territorial coverage and consolidate the Group’s position in the
country, the Group acquired, a number of equity investments and company divisions for a total
consideration of approximately 3.000 thousand Euro.
In Spain, during 2003, the Group acquired two equity investments for a total consideration of
approximately 782 thousand Euro.
In Holland, as of March 1, 2003, Acousticon B.V. increased its stake in the capital of Electro Medical
Instruments B.V., from 65% to 100%, against a consideration of 353 thousand Euro. Moreover, the
Group acquired 100% equity stake in Pfennings Hoortoestellen B.V. for 900 thousand Euro and a
number of company divisions for a corresponding value of 100 thousand Euro.
In Italy, the Group acquired a company division comprising two outlets in the region of Liguria for a
consideration of 250 thousand Euro.
Moreover, following the acquisitions Sonus USA Inc. and Sonus Canada Ltd. which took place in
2002, on June 6, 2003, Amplifon underwrote a partnership agreement with Simest S.p.A. (Società
10
Italiana per le Imprese all’Estero, a company controlled by the Ministry of Foreign Trade) whereby,
among other things, the capital of Amplifon USA Inc. was increased from 10 million US Dollars to 52,5
million US Dollars; Amplifon underwrote 50,5 million US Dollars by converting previously paid interest
bearing loans and Simest underwrote 2 million US Dollars. The transaction included the majority
shareholder’s commitment to buy back 3,81% of the Simest equity investment; Simest, a subsidiary
company of the Ministry of Foreign Trade, (Ministero del Commercio Estero), shall pay grants-in-aid
on interest account in compliance with Law 100/1990, which shall decrease the burden of financial
charges.
11
NOTES TO THE ECONOMIC AND FINANCIAL RESULTS
Unless otherwise indicated, the values shown in the Report on Operations are in thousand Euros.
CONSOLIDATED INCOME STATEMENT
(thousand Euro)
Year 2003
%
Year 2002
%
Change
Change %
443.388
95,4%
391.941
95,9%
51.447
13,1%
21.480
4,6%
16.666
4,1%
4.814
28,9%
464.868
100,0%
408.607
100,0%
56.261
13,8%
Cost of raw materials, materials consumables and goods and
change in inventories of raw materials, consumables and
goods
(150.234)
(32,3%)
(137.342)
(33,6%)
(12.892)
9,4%
Costs for external services
(135.960)
(29,3%)
(122.624)
(30,0%)
(13.336)
10,9%
(8.770)
(1,9%)
(8.007)
(2,0%)
(763)
9,5%
Revenues from sales and services
Other revenues
Value of operations
Other operating costs
Added value
Labor costs
Gross operating income (EBITDA)
Depreciation and amortization
Other adjustments
169.904
36,5%
140.634
34,4%
29.270
20,8%
(109.631)
(23,6%)
(91.369)
(22,4%)
(18.262)
20,0%
60.273
12,9%
49.265
12,0%
11.008
22,3%
(21.328)
(4,6%)
(17.030)
(4,2%)
(4.298)
25,2%
(3.195)
(0,7%)
(2.796)
(0,7%)
(399)
14,3%
Operating results (EBIT)
35.750
7,6%
29.439
7,1%
6.311
21,4%
Net financial charges
(5.973)
(1,3%)
(7.563)
(1,9%)
1.590
(21,0%)
-
0,0%
71
0,0%
(71)
(100,0%)
Financial assets adjustments
Income before extraordinary items and taxes
29.777
6,3%
21.947
5,2%
7.830
35,7%
Net financial income (charges)
(6.547)
(1,4%)
(48)
0,0%
(6.499)
n.a.
Income before taxes
Income taxes for the period
Income before third party interests
Third party (income)
Group net income
23.230
4,9%
21.899
5,2%
1.331
6,1%
(10.350)
(2,2%)
(6.584)
(1,6%)
(3.766)
57,2%
12.880
2,7%
15.315
3,6%
(2.435)
(15,9%)
(213)
0,0%
(182)
0,0%
(31)
17,0%
12.667
2,7%
15.133
3,6%
(2.466)
(16,3%)
The consolidated financial statements for 2003 closed with a net income of 12.667 thousand Euro
after net financial charges amounting to 5.973 thousand Euro, net extraordinary charges for 6.547
thousand Euro and tax related costs for 10.350 thousand Euro.
The Group net income for 2003 decreased by 2.466 thousand Euro (-16,3%), compared to the
previous year; this was mainly due to the following factors: i) the increase in the gross operating
income (EBITDA), which rose form 49.265 thousand Euro in 2002 to 60.273 thousand Euro in 2003; ii)
the decrease in net financial charges which went from 7.563 thousand Euro in 2002 to 5.973 thousand
Euro in 2003; iii) the increase in net extraordinary charges which amounted to 48 thousand Euro in
2002 and to 6.547 thousand Euro in 2003; iv) the increase in income taxes for the period which rose
from 6.584 thousand Euro in 2002 to 10.350 thousand Euro in 2003.
12
REVENUES FROM SALES AND SERVICES
Year 2003
%
Year 2002
%
Italy
145.214
32,6%
138.535
35,3%
U.S.A. - Canada
(thousand Euro)
Change Change. %
Hearing aid sector:
6.679
4,8%
129.858
29,3%
103.161
26,3%
26.697
25,9%
France
59.708
13,5%
47.911
12,2%
11.797
24,6%
Holland
54.466
12,3%
46.358
11,8%
8.108
17,5%
Switzerland
13.568
3,1%
13.139
3,4%
429
3,3%
Spain and Portugal
12.644
2,9%
11.334
2,9%
1.310
11,6%
Austria
5.907
1,3%
6.248
1,6%
(341)
(5,5%)
Hungary
2.108
0,5%
1.919
0,5%
189
9,8%
423.473
95,5%
368.605
94,0%
54.868
14,9%
Italy
19.915
4,5%
23.336
6,0%
(3.421)
(14,7%)
Total biomedical equipment
19.915
4,5%
23.336
6,0%
(3.421)
(14,7%)
443.388
100,0%
391.941
100,0%
51.447
13,1%
Total hearing aids
Biomedical equipment sector:
Total
The consolidated revenues from sales and services, which amounted to 443.388 thousand Euro in
2003 and to 391.941 thousand Euro in 2002, showed a 51.447 thousand Euro (+13,1 %) increase that
was entirely due to Group core business activities: the revenues from the distribution and fitting of
hearing aids rose from 368.605 thousand Euro in 2002 to 423.473 thousand Euro in 2003 and
recorded a 54.868 thousand Euro(+14,9 %) increase even though, in terms of absolute value,
revenues recorded in 2003 were negatively influenced by the appreciation of the Euro regards the US
Dollar. If the fluctuations in exchange rates (16.922 thousand Euro) were excluded, the increase in
revenues from sales of hearing aids would have amounted to 71.790 thousand Euro (+17,0 %), which
would be correlated to the structural growth process of the Group, amounting to 24.380 thousand
Euro and to the expansion of external lines linked to the acquisitions of new companies and company
divisions.
Finally, in the wake of the international expansion strategy implemented by the management over the
last five years, the revenues from sales and services in the hearing aid sector generated abroad in
2003, which amounted to 278.259 thousand Euro, represented just under two thirds of the
consolidated revenues in the same sector.
13
The pie chart below shows the distribution of Group revenues by geographical during the year 2003:
1.3%
3.1% 2.9%
0.5%
4.5%
32,6%
Italy
U.S.A. - Canada
Holland
France
13.5%
Switzerland
Spain and Portugal
Austria
Hungary
12.3%
Biomedical
29.3%
Hearing aid sector
Italy
Given the substantially stable market, revenues form sales and services, which amounted to 145.214
thousand Euro in 2003 and to 138.535 thousand Euro in 2002, showed a 6.679 thousand Euro
increase (+4,8%); of this 4.325 thousand Euro was produced in the last quarter confirming the
successful marketing and customer satisfaction policies implemented by the management and also
increasing the level of penetration and facilitating the introduction of digital technology products on the
national health market.
Moreover, research activities geared towards new, exclusive fitting systems continued throughout
2003 focusing on digital technology products which are aimed at differentiating the products and
services offered by the Group from those offered by competitors.
U.S.A. - Canada
In a virtually flat market in terms of volumes, revenues from sales and services, which amounted to
129.858 thousand Euro in 2003 and to 103.161 thousand Euro in 2002, recorded a 26.697 thousand
Euro (25,9 %) increase even though the absolute value of revenues in 2003 was negatively affected
by the appreciation of the Euro regards the US Dollar: if the fluctuations in exchange rates (16.922
thousand Euro) were excluded, the increase in revenues from sales in the specific market would have
amounted to 43.619 thousand Euro (+42,28 %); this is entirely due to the change in the consolidation
area.
In fact, the Group further consolidated its leadership on the American market by way of the following
major transactions: the acquisition in October 2002 of Sonus U.S.A. Inc. and Sonus Canada Ltd.
followed by the acquisition in August 2003, by NHC which was set up for that very purpose, of the
company division National Hearing Centers Inc. .
14
With the acquisition of the above businesses the Group, which was already active in the United States
through the subsidiary company Miracle-Ear, having reached an 11% share of the market chose to
apply separate marketing strategies and policies; indeed, in the United States the Group has
implemented a strategy based on a triple distribution pattern, namely through company owned retail
stores, franchise retail locations and licensed network affiliates. In particular, the Miracle-Ear
distribution system is based on franchise retail locations sited in the SEARS chain of stores while the
Sonus distribution system mainly operates through company owned retail stores, and licensed
network affiliates which purchase products from Sonus at competitive prices. Finally NHC is present
on the market through company owned retail stores which are mainly located in the WAL*MART chain
of department stores.
The increase in revenues recorded in 2003 that were determined by Sonus U.S.A. and Sonus Canada
included only for two months in 2002, and by the entrance of NHC in the consolidation area,
amounted to overall 43.101 thousand Euro while the revenues from sales in currency generated by
Miracle-Ear during 2003 were in line with the previous period and amounted to 88.473 US Dollars in
2002 and to 87.334 US Dollars in 2003.
The management believes that integration process of Sonus U.S.A. and Sonus Canada into the
Group, which was accomplished in line with the forecasts, the development potential of the business
acquired by the newly established NHC and the anticipated market developments, will all contribute to
the progressive improvement of profitability margins.
France
In a growing market following the implementation of a number of amendments to current regulations,
revenues form sales and services, which amounted to 59.708 thousand Euro in 2003 and to 47.911
thousand Euro in 2002, showed a 11.797 thousand Euro increase (+24,6%); this was mainly due to
the expansion policy based on the acquisition of new companies or company divisions, which allowed
a better coverage of the territory; to a lesser extent the increase was also due to the structural growth
process of the Group which was achieved thanks to greater sales volumes. The results obtained
substantiate the Amplifon Group’s absolute leadership on this market in terms of revenues;
accordingly, the management deems it advisable to continue the aforementioned expansion strategy.
Holland
In a growing market, the revenues from sales and services, which amounted to 54.466 thousand Euro
in 2003 and to 46.358 thousand Euro in 2002, showed a 8.108 thousand Euro (+17,5%) increase
mainly due to effective marketing and image-enhancing strategies which lead to greater market
penetration. On account of the Group’s interest in this market, in 2004 Amplifon has acquired a 100%
stake in Horen Nederland for a consideration of 16.800 thousand Euro (further information is
contained in the Paragraph “Significant events occurring after the closure of the year”). Following the
above acquisition the Group, which was the absolute market leader with a share of 27%, consolidated
its position and on reaching a market share estimated in 35% has completed the coverage of the
territory.
Switzerland
Revenues from sales and services, which amounted to 13.568 thousand Euro in 2003 and to 13.139
thousand Euro in 2002, showed a 429 thousand Euro (3,3%) increase although a number of
15
amendments to the regulations in force were implemented in the third quarter of 2002 leading to
revenues form sales being concentrated in that period.
The new marketing strategies and sale procedures introduced by the current management and the
excellent position on the market make it more than likely that the positive trend will continue in the
future.
Spain and Portugal
Revenues from sales and services, which amounted to 12.644 thousand Euro in 2003 and to 11.334
thousand Euro in 2002, showed a 1.310 thousand Euro (11,6%) increase. The growth confirms the
successful reorganization strategy first adopted by management in 2001, which was put into practice,
on the one hand, by downsizing and updating the sales force and, on the other, by better product
positioning on the market. This strategy reversed the negative trend which had been recorded in the
Iberian market for the past corporate years. Currently the Group is aiming at consolidating its present
position on the market.
Austria
The revenues from sales and services, which amounted to 5.907 thousand Euro in 2003 and to 6.248
thousand Euro in 2002, showed a 341 thousand Euro (-5,5%) decrease; the decrease was linked to
the prevailing uncertainty on the Austrian market which began in late 2002 when, following a number
of modifications to regulations, the sales average dropped. These circumstances lead the Group to
pull out from the Austrian market, which was no longer deemed to be strategic by way of the transfer
of 100% of its equity stake in the Viennatone business (further information is contained in the
Paragraph “Significant events occurring after the closure of the year”).
Hungary
The acquisition of Viton, which was completed in April 2002, heralded the entrance of the Group into a
new geographical area and into a new market.
In 2003, revenues from sales and services amounted to 2.108 thousand Euro. The area will be
subject to intense management scrutiny during 2004 since it is not yet fully integrated into the Group.
16
Biomedical equipment sector
Italy
The revenues from sales and services, which amounted to 19.915 thousand Euro in 2003 and to
23.336 thousand Euro in 2002, showed a 3.421 thousand Euro (-14,7%) decrease. Indeed, the sector
has been negatively affected by the costs control policy in investments implemented by the Aziende
Sanitarie Locali, the Local Health Units, which was the main market outlet and by unprofitable
production lines.
The continuance of negative in-house and economic trend lead the management to develop a plan for
the strategic re-orientation of the business; in 2003 a radical plan aimed at restructuring the business
was implemented which involved the reduction of staff and the selling off of commercial lines which
were no longer deemed to be strategic: the relating economic effects are included in the extraordinary
charges for the period (further information is contained in the Report on Operations in the notes
pertaining to “Income before taxes”).
17
GROSS OPERATING INCOME (EBITDA)
(thousand Euro)
Gross operating income (EBITDA)
2003
%
2002
%
Change
Change %
60.273
12,9%
49.265
12,0%
11.008
22,3%
The gross operating income (EBITDA), which amounted to 60.273 thousand Euro in 2003 and to
49.265 thousand Euro in the previous year, showed an increase of 11.008 (+22,3%) and of 0,9% on
the incidence on the value of operations. If the effects due the fluctuations on exchange rates were
excluded, the gross operating income (EBITDA) would amount to 62.483 thousand Euro recording a
13.218 thousand Euro(+26,8%) increase.
In part, the result was due to the completion of the business optimization and integration process with
companies belonging to the Sonus U.S.A. Inc. and Sonus Canada Ltd. Group, and to the
consolidation of improved bargaining power with major suppliers and careful cost control which, in
particular, brought about the decrease in the incidence of costs for raw materials and goods on the
value of operations that dropped form 33,6% in 2002 to 32,3% in 2003, and of the costs for services
which fell from 30,0% in 2002 to 29,3% in 2003.
The increase in the incidence of labor costs on the value of operations, which rose form 22,4% in
2002 to 23,6% in 2003, was mainly due to two factors: the increase of the importance of company
owned outlets in the distribution network (following the entrance of Sonus U.S.A. into the Group) and
the development in several countries (namely Italy, France and Holland) where the percentage
incidence of labor costs are higher.
OPERATING INCOME (EBIT)
(thousand Euro)
Operating income (EBIT)
2003
%
2002
%
Change
Change %
35.750
7,6%
29.439
7,1%
6.311
21,4%
On account of the increase in the gross operating margin (EBITDA), the operating income (EBIT),
which amounted to 35.750 thousand Euro in 2003 and to 29.439 in the previous year, showed an
increase amounting to 6.311 thousand Euro (+21,4%) and to 0,5% on the incidence of the value of
operations.
Depreciation and amortization, which amounted to 21.328 thousand Euro in 2003 (4,6% on the value
of operations) and to 17.030 thousand Euro in 2002 (4,2% of the value of operations), showed an
increase of 4.298 thousand Euro(+25,2%) and of 0,4% on the incidence of the value of operations.
The rise was mainly due to the amortization increase on the difference in consolidation concerning the
acquisitions carried out during the latter part of 2002 and during 2003, in addition to the amortization
of the goodwill paid for the company divisions purchased in the same periods.
The operating income before amortization and difference on consolidation and goodwill devaluation
(EBITDA), which amounted to 43.521 thousand Euro in 2003 (9.4% on the value of operations) and to
18
34.833 thousand Euro in 2002 (8,5% on the value of operations) showed an increase of 8.688
thousand Euro(+24,9%), and a 0,9% increase on the incidence of the value of operations.
INCOME BEFORE TAXES
(thousand Euro)
Income before taxes
2003
%
2002
%
Change
Change %
23.230
4,9%
21.899
5,2%
1.331
6,1%
The income before taxes, which amounted to 23.230 thousand Euro in 2003 and to 21.899 thousand
Euro in 2002, showed an 1.331 thousand Euro increase (+6,1%); this was due to the combined
effects of:
• the decrease of net financial charges which dropped from 7.563 thousand Euro in 2002 to 5.973
thousand Euro in 2003, recording a reduction of 1.590 thousand Euro which, in addition to the positive
currency translation differences, was mainly due to the decrease in interest payable following the
redemption, on November 27, 2002, of the 100.000 thousand Euro bond issued by Amplux on
November 27, 2000 with an annual 7% interest rate.
• The increase of net extraordinary charges, which rose form 48 thousand Euro in 2002 to 6.547
thousand Euro in 2003. Indeed, in 2003, the item included extraordinary charges for 8.584 thousand
Euro which were due for restructuring and reorganization costs disbursed by Amplimedical following
the strategic choice implemented by the management, on account of the persisting cyclical malaise
and internal crisis in the biomedical sector, which entailed radically changing the commercial and
production strategy by way of company repositioning operations. The said operations, which brought
about significant changes in the subsidiary company structure, concern the eradication of
inefficiencies and the discarding of a number of production and marketing lines which were deemed to
be anti-economic and entailed shutting down some business units and reducing the level of
occupancy. The aforementioned measures involved the payment of extraordinary charges for i)
incentive for staff migration, ii) devaluation and scrapping of inventories, iii) the payment of penalties
on account of the early cancellation of supply, consulting and agency contracts, iv) devaluation of
tangible and intangible fixed assets. (Further information is contained in the Notes in the entry
“Extraordinary charges”).
19
GROUP NET INCOME
(thousand Euro)
Group net income
2003
%
2002
%
Change
Change %
12.667
2,7%
15.133
3,6%
(2.466)
(16,3%)
The Group net income, which amounted to 12.667 thousand Euro in 2003 and to 15.133 thousand
Euro in 2002, showed a 2.466 thousand Euro decrease (-16,3%), that in addition to the previously
described extraordinary charges for company restructuring booked in 2003, was mainly due to the
increase of the incidence of the fiscal burden on income before taxes which rose form 30,1% in 2002
to 44,6% in 2003. The increase is accounted for by the exceptionally low fiscal burden in 2002 which
was linked to the outright deductible devaluations of equity investments in consolidated subsidiary
companies.
20
CONSOLIDATED BALANCE SHEET
31/12/2003
31/12/2002
Change
134.556
30.693
3.030
168.279
39.109
115.182
34.224
188.515
356.794
52.480
51.068
11.659
115.207
73.308
8.657
232.930
134.868
2.713
137.581
137.362
28.680
2.019
168.061
48.544
115.745
32.444
196.733
364.794
54.708
51.809
10.400
116.917
79.816
8.503
239.374
136.477
874
137.351
(2.806)
2.013
1.011
218
(9.435)
(563)
1.780
(8.218)
(8.000)
(2.228)
(741)
1.259
(1.710)
(6.508)
154
(6.444)
(1.609)
1.839
230
Long / medium-term net financial borrowings
85.496
107.761
(22.265)
Short-term net financial borrowings (position)
Total net financial borrowings
9.853
95.349
(5.738)
102.023
15.591
(6.674)
232.930
239.374
(6.444)
5.171
3.097
2.074
(thousand Euro)
Intangible fixed assets
Tangible fixed assets
Financial fixed assets
Fixed assets
Inventories
Trade receivables
Other receivables
Short-term assets
Assets
Trade payables
Other payables
Reserves for risks and charges
Short-term liabilities
Net working capital
Staff leaving indemnity
NET INVESTED CAPITAL
Group net shareholder’s equity
Third party net shareholder’s equity
Total net shareholder’s equity
SHAREHOLDER’S EQUITY AND FINANCIAL DEBTS
Commitment and memorandum
The net invested capital, which amounted to 232.930 thousand Euro as of December 31, 2003, and
to 239.374 thousand Euro as of December 31, 2002, showed a 6.444 thousand Euro decrease on
account of the reduction in net working capital.
21
NET WORKING CAPITAL
(thousand Euro)
Inventories
Trade receivables
Other receivables
Short-term assets
Trade payables
Other payables
Reserves for risks and charges
Short-term liabilities
Net working capital
31/12/2003
31/12/2002
Change
39.109
115.182
34.224
188.515
52.480
51.068
11.659
115.207
48.544
115.745
32.444
196.733
54.708
51.809
10.400
116.917
(9.435)
(563)
1.780
(8.218)
(2.228)
(741)
1.259
(1.710)
73.308
79.816
(6.508)
The net working capital, which amounted to 73.308 thousand Euro as of December 31, 2003 and to
79.816 thousand Euro as of December 31, 2002, showed a 6.508 thousand Euro decrease which was
mainly due to the reduction in inventories, amounting to 9.435 thousand Euro, following the improved
rationalization of stock management in addition to the defeasance of a number of product lines in the
Biomedical sector (for further information compare the details included in the Report on Operations
with the notes concerning the item “Income before taxes”).
Further information is included in the Notes to the Financial Statements.
NET FINANCIAL BORROWINGS
31/12/2003
31/12/2002
Change
(31.292)
(42.735)
11.443
Financial assets not classified as long-term investments
Financial loans towards non-consolidated subsidiary companies
Short-term bank payables
Short-term payables towards other financing bodies
Short-term payables towards non- consolidated subsidiary companies
(2.318)
(476)
43.867
9
63
(205)
36.402
736
64
(2.113)
(476)
7.465
(727)
(1)
Short-term net financial debt (position)
Middle/long term bank payables
Middle/long term payables towards other financing bodies
9.853
85.131
365
(5.738)
107.698
63
15.591
(22.567)
302
Middle/long term net financial debt
85.496
107.761
(22.265)
Net financial debt
95.349
102.023
(6.674)
(thousand Euro)
Liquidity
The net financial borrowings, which amounted to 95.349 thousand Euro as of December 31, 2003 and
to 102.023 thousand Euro as of December 31, 2002, showed a 6.674 thousand Euro decrease
notwithstanding the use of financial resources during the year in relation to the acquisitions of
companies and company divisions and the distribution of dividends for 2.943 thousand Euro which
was possible thanks to the generation of high cash flows deriving from assets for the period
amounting to 47.756 thousand Euro.
The composition of the financial debt is consistent with the structure of the credit and planned so as to
reduce the risks connected to interest rates volatility and to increase the correlation of the borrowings
cost to the revenues updating mechanism based on inflation. Such objectives were achieved by way
22
of Euribor linked financing, partly covered interest rates hedging (farther information in included in the
Notes to the financial statements in the comment to the entry “Bank payables”).
The short-term net financial position which, as of 31 December 2002, was positive for 5.738 thousand
Euro and as of December 31, 2003 was negative for 9.853 thousand Euro, showed a 15.591
thousand Euro decrease mainly due to the net effect of the early redemption of a 20.000 thousand
Euro loan not backed up by any guarantee, with a Euribor-linked rate amounting to 1% and to the
conversion from long/medium-term to short-term of the loan quota falling due within 12 months which
amounted to 35.638 and included a line of credit for initial 30.000 thousand Euro raised from the
Banca Intesa BCI payable every quarter with a variable interest rate linked to the Euribor at three
months + 75%, falling due on May 17, 2004.
In addition, the short-term bank payables included current account overdrafts amounting to 7.898
thousand Euro.
As of December 31, 2003, the middle/long-term bank payables represented 89,7% of the overall net
financial borrowing and chiefly included:
i) loans raised as of June 30, 2003, for initial 45.000 thousand Euro not backed up by any guarantee,
falling due within 5 years; of the above loan 30.000 thousand Euro have a variable Euribor-linked rate
at 6 months + 0,95% and 15.000 thousand Euro have a variable Euribor-linked rate at 3 months +
0,95%
ii) a loan raised as of August 27, 2003, for initial 25.000 thousand Euro not backed up by any
guarantee, falling due within 5 years; the loan can be redeemed in six monthly part-payments as of
January 20, 2006, with a variable Euribor-linked rate at 6 months + 1%;
iii) a loan raised as of July 21, 2003, for initial 20.000 thousand Euro not backed up by any guarantee,
falling due within 5 years; the loan can be redeemed in six monthly part-payments as of January 01,
2004, with a variable Euribor-linked rate at 6 months + 1,1%.
As of December 31, 2003, the leverage, which in this case means the ratio between net financial
borrowings and net invested capital, amounted to 40,9% (42,6% as of December 31, 2002).
23
CASH
ASH FLOW ANALYSIS
(thousand Euro)
Monetary flow generated by operating activities
Monetary flow utilized in investing activities
Monetary flow utilized in financing activities
Net monetary flow for the period
2003
47.756
(39.669)
(18.079)
2002
21.269
(74.159)
(42.485)
Change
26.487
34.490
24.406
(9.991)
(95.375)
85.384
During 2003, the financial flow provided by operating activities, which amounted to 47.756 thousand
Euro, fully financed the liquidity utilizations in investment activities for the period, which amounted to
39.669 thousand Euro, and was used to repay a portion of the financial borrowings.
The financial flow utilized in investment activities, which amounted to 39.669 thousand Euro, was
mainly accounted for by, in addition to investments in intangible and tangible fixed assets, the
purchase of equity investments for 1.852 thousand Euro, and of company divisions for 21.957
thousand Euro. In this context noteworthy was the purchase carried out by NHC, which was set up for
this very purpose, of the company branch National Hearing Centers Inc., which operates in the
American hearing aids sales market, for a corresponding value of 15.000 US Dollars; 14.800 US
Dollars were paid at the time of purchase.
The financial flow for financing activities, which amounted to 18.079 thousand Euro, was mainly due to
net effect of opening middle/long-term loans, which amounted to 90.000 thousand Euro, of repaying
middle/long-term loans, which amounted to 75.116 thousand Euro, in addition to the decrease of
short-time bank payables, which amounted to 30.084 thousand Euro. Moreover, during the year
dividends amounting to 2.943 thousand Euro were distributed to Shareholders.
The net effect of the aforementioned financial flows, taking into account the change in the currency
translation difference caused the total liquidity to decrease from 42.735 thousand Euro as of January
1, 2003 to 31.292 thousand Euro as of December 31, 2003.
INVESTMENTS
The fixed assets, which amounted to 168.061 thousand Euro as of December 31, 2002, and to
168.279 thousand Euro as of December 31, 2003, notwithstanding depreciations and amortizations
for the period, which amounted to 21.328 thousand Euro, and the currency translation differences
connected to the appreciation of the Euro regards the US Dollar recorded in 2003 compared to 2002,
were substantially in line during the periods in question on account of the Group expansion process
following a number of acquisitions in equity investments and company divisions.
During 2003,
• the investments in intangible fixed assets, which amounted to 23.922 thousand Euro, were mainly
due to goodwill paid which overall amounted to 16.375 thousand Euro, in addition to a number of
minor acquisitions carried out by the French and Dutch Group subsidiary companies, relating to the
acquisition by NHC of the company branch National Hearing Center Inc. for a corresponding value of
24
15 million US Dollars; of this amount, 14.089 US Dollars (12.180 thousand Euro) were paid for
goodwill.
• the investments in tangible fixed assets, which amounted to 12.264 thousand Euro, were mainly
due to the purchase of equipment, personal computers, fittings and furnishings, as part of the
structural and technological update of the administrative and sales areas.
Further information on investments in tangible and intangible fixed assets is included in the relating
comments in the Notes.
RESEARCH AND DEVELOPMENT
During 2003, the Group continued to invest in the research and development of technologies applied
to hearing aids; the research focuses on activities geared to guarantee high standards of service in
terms of quality and on ever more advanced, efficient and satisfying fitting systems.
In particular, research in the field of fitting systems, which are increasingly effective in terms of patient
management and hearing aids fitting, has lead to the completion and implementation of new
proprietary software called “RealLife”. “RealLife” was developed as a tool for the United States, which
have a particularly complex marketing environment with numerous distribution channels. The
investment, which targets all American channels, especially benefits the Sonus network which
previously did not have a specific fitting system, and is proof of the Group’s determination to invest in
ever-expanding, dynamic channels.
RealLife, which incorporates a new, updated release of Amplifit, allows the client’s personal, clinical
and commercial data to be fully managed and constantly updated. Thanks to the most significant, new
Amplifit function, which has been integrated into RealLife, the best solution for each client can be
identified and presented on the basis of previously made assessments. This is the first time to the
concept of a solution-based approach is introduced to Group companies: on the basis of the real loss
of hearing, a solution geared to improve specific areas is offered, which includes a packet of
correlated services.
In relation to client data management, RealLife has made it possible to enter, file and visualize all
significant personal, clinical and product data, in addition to preparing and managing marketing
campaigns directed at clients. Moreover, the fitting systems can be integrated with the Amplifon client
“identity card”.
Always in the field of advanced fitting systems research for patient management, a software program
called “Amplinet” has been developed for the medical community; it allows fitting information to be
shared between Amplifon and specialists. Thanks to Amplinet, the Amplifon identity card which
contains the patient’s full personal and clinical data can be read thus ensuring more effective
cooperation with hearing aids fitting specialists.
Finally, the joint project with the Istituto Nazionale di Fisica della Materia (the National Institute of
Material Physics) is ongoing; the project concerns the mapping of the shape of the auditory canal
using exceptionally sophisticated technologies which derive from aerospace applications.
25
OTHER INFORMATION
CORPORATE GOVERNANCE
The Amplifon company systems and activities are based on the principles of good government in
order to maximize Shareholder value and guarantee the utmost transparency concerning the
Company management. The Corporate Government implemented in the Company is in line with the
Code of Self-Regulation for Listed Companies proposed by the Corporate Governance Committee of
Listed Companies including the relating recommendations issued by Consob (Commissione
Nazionale per la Società e la Borsa) the National Commission for Listed Companies and the Stock
Exchange,, and the “best practices” adopted domestically and internationally.
The General Meeting held on February 9, 2001, endorsed the “Code of Self-Regulation”:
subsequently, in July 2002, a number of amendments and integrations were approved and the
Company system was duly updated to provide for the integrations.
On March 28, 2001, the Amplifon Board of Directors, giving execution to the delegation conferred by
the Shareholder’s Meeting, appointed the Internal Auditong Committee and the Committee for the
Remuneration of Directors, respectively including Mr. Giuseppe Daveri (Chairman), Mr. Piergaetano
Marchetti and Ms. Susan Carol Holland, and Mr. Piergaetano Marchetti (Chairman), Mr. Giuseppe
Daveri and Ms. Anna Maria Formiggini. Moreover, the Amplifon Board of Directors, appointed Mr.
Paolo Mazza as Internal Audit Officer and Ms. Anjelika Chiltsyna as Investor Relator.
The Role of the Board of Directors
Pursuant to the recommendations included in Article 1 of the Code of Self-Regulation, the Board of
Directors plays a crucial role in the management of the Company by carrying out strategic planning
activities and, as far as the Group is concerned, the coordination of the organization.
The Board of Directors acts and resolves with full knowledge of the facts and in autonomously in the
interests of the Shareholders in order to maximize shareholder value, which is crucial to maintaining a
fruitful relationship with the financial market.
The Board of Directors is vested with the most ample powers for the ordinary and extraordinary
administration and the management of the Company and has the power to perform all such acts that
may be deemed necessary and useful in order to attain the corporate purpose, with the exception of
those powers, which in compliance with the regulations and the Articles of Association, are reserved
to the Shareholder’s meeting. In particular the Boards shall:
•
examine and approve the strategic, industrial and financial plans of the Company and the
Group corporate structure of which it is in charge;
•
grant and revoke powers to the Managing Directors and therein define the limitations, the
operating means and the frequency with which the delegated bodies shall report to the Board in
relation to the activities performed during the exercise of the powers granted;
•
determine, having examined the proposals made by the Remuneration Committee and having
heard the Board of Auditors, the remuneration of the Managing Directors and of those who hold
26
particular positions in addition to, unless the General Shareholder’s Meeting has already made the
required provisions, the apportionment of the all-inclusive fee to be paid to each individual member of
the Board;
•
monitor the general management performance, with special reference to conflict of interests,
with reference to the information received from the Managing Directors and the Internal Audit
Committee, and periodically compare the results obtained with the predicted results;
•
examine and approve the transactions which have special economic and financial relevance,
with special reference to related party transactions;
•
assess the adequacy of the general organization and administrative structure of the Company
and Group set up by the Managing Directors;
•
report to the General Shareholder’s Meeting.
The Board of Directors shall meet at least once every quarter, shall be organized and act so as to
ensure the effective and efficacious performance of its functions. During 2003, the Board of Directors
met six times; five meetings have been scheduled for the current corporate year.
The Board of Directors
In compliancy with the provisions of Article 2 of the Code of Self-Regulation, the Board of Directors
shall include two executive directors and five non-executive directors. The non-executive directors
must ensure, on account of both their number and authority, that their opinion has considerable weight
on the decision-making process which shall be in the interests of the company. The composition of the
Board of Directors, the appointments held by the single Directors in the company and in other
companies outside the Group is detailed below.
Name
Appointment held
Other appointments
Anna Maria Formiggini
Chairman
Susan Carol Holland
Vice Chairman
Alessandro Baldissera Pacchetti
Chief Executive Officer – Managing
Director
Giovanni Martino Rollier
Managing Director
Giuseppe Daveri
Independent non-executive director
Piergaetano Marchetti
Independent non-executive director
Vanni Emanuele Treves
Non-executive director
Chairman of Amplifin S.p.A.
Chairman of Ampliare S.r.l.
Sole administrator of Amplibrick 2 S.r.l.
Vice Chairman of Amplifin S.p.A.
Vice Chairman of Ampliare S.r.l.
Sole administrator of Amplibrick 1 S.r.l.
Chairman of Amplimedical S.p.A.
Chairman of Ampliclinical S.p.A. (merged with Amplifon
S.p.A. on 31/12/2003)
Sole administrator of Agea S.r.l.
Liquidator of Telemaco S.r.l.
Director of Ital TBS S.p.A.
Chief executive officer of Amplimedical S.p.A.
Managing director of Ampliclinical S.p.A. (merged with
Amplifon S.p.A. on 31/12/2003)
Managing director of Amplimedical S.p.a.
Managing director of Ampliclinical S.p.A. (merged with
Amplifon S.p.A. on 31/12/2003)
Managing director of SO.PA.F Società di Partecipazioni
Finanziarie S.p.A.
Managing director of SO.PA.F Corporate Finance S.p.A.
Director of Coronet S.p.A.
Director of Assicurazioni Generali S.p.A.
Director of RCS Editori S.p.A.
Chairman of Channel 4 Television
Chairman of Equitable Life Assurance Society
Chairman of Intertek Group PLC
Chairman of the London Business School
27
Director of Amplifin S.p.A.
The mandate shall last until the approval of the financial statements for the financial year closed on
December 31, 2003.
Independent Directors
The Board of Directors has ascertained that the non-executive Directors Mr. Giuseppe Daveri and Mr.
Piergaetano Marchetti continue to fulfill the requirements concerning independence pursuant to Article
3.1 of the Code of Self-Regulation, in so far that they do not have any economic or other type of
relations with the company or with any shareholders which might influence their independent status in
relation to their functions and judgment.
Chairman and Vice-Chairman of the Board of Directors
Pursuant to the resolution passed on March 28, 2002, the Board of Directors granted the Chairman,
Ms. Anna Maria Formiggini, the power to represent the company in court and to third parties. The
Chairman and Vice-Chairman, Ms. Susan Carol Holland, jointly and severally, have been granted all
powers of ordinary and extraordinary administration that, pursuant to the Articles of Association, are
reserved to the Board of Directors, including the most ample powers to dispose of the tangible fixed
assets of the Company, with the exception of those powers which by Law may not be delegated, and
powers concerning the approval of strategic industrial plans, the disposal of controlling stakes in
companies whose values is in excess of 10.000.000 Euro, and the determination of the powers of the
Managing Director and the assumption, extension or modification of long-term loans for amounts in
excess of 15.000.000 Euro.
Moreover, the Chairman shall:
- call the meetings of the Board of Directors by registered letter which must be sent to the domicile
of each Director or Auditor at least five days prior to the day fixed for the meeting; in cases of
urgencies, the meeting may be called by telex or telegram or fax or via electronic means with
confirmation of reception at least one day prior to the day fixed for the meeting so as to ensure that
the all documents and information reach the members of the Board of Directors with reasonable
advance regards the meeting so that the members may express themselves with due knowledge
about the issues on which they are called to examine and approve;
-
coordinate the activities of the Board of Directors and direct the progress of the meetings.
Reporting to the Board of Directors
With the resolution of March 28, 2002, in order to improve efficiency of the Company management,
the Board of Directors delegated part of the management and executive functions to the Directors Mr.
Giovanni Martino Rollier and Mr. Alessandro Baldissera Pacchetti. By way of the same resolution, the
Board of Directors appointed Mr. Alessandro Baldissera Pacchetti Chief Executive Officer in place of
Mr. Giovanni Martino Rollier who, on March 31, 2002, gave up his managerial office in the Company
having become eligible for pension rights. Mr. Giovanni Martino Rollier continues to hold his office as
Director.
The Managing Directors shall report to the Board of Directors and to the Board of Auditors at regular
intervals concerning the exercise of the powers with which they have been vested and provide
28
adequate information about any atypical, unusual or party related transactions that are not subject to
the examination or approval of the Board of Directors.
The Board of Directors, through the delegated organs, shall immediately report to the Board of
Auditors the most significant transactions in economic and financial terms, carried out by the
Company and by the subsidiary companies and in particular shall report those transactions which
might potentially cause a conflict of interests. The information shall be provided on a regular basis at
least once very quarter at the time of the Directors’ meetings by way of a written communication to the
Board of Auditors.
Appointment of Directors
The proposals for appointment to the office of Director, which must include exhaustive information
concerning the professional and personal profile of candidates, shall be filed at the head office at least
ten days prior the date when the Shareholder’s Meeting has been scheduled by any member and/or
group of members representing at least 5% of the share capital.
For the moment the Board of Directors does not deem it necessary to set up a committee for the
appointment of directors since to date no difficulty has arisen concerning appointments due to the
presence of a controlling shareholder by rights.
Remuneration of Directors
On March 28, 2002, the Board of Directors set up the Committee for the Remuneration of the
Directors made up by Mr. Piergaetano Marchetti (Chairman), Mr. Giuseppe Daveri and Ms. Anna
Maria Formiggini.
The Committee undertakes to make proposals regarding the remuneration policy of the Group, the
Board of Directors’ fees and the remuneration of the Top Management; such proposals shall focus on
criteria of internal balance, motivation and incentives and the competitiveness of the market. During
2003, the Committee for the Remuneration of the Directors held three meetings and two meetings
have been scheduled for the current year.
The fees of the Board of Directors
The overall fees to the Board of Directors are defined by the Shareholder’s Meeting on a yearly basis.
From the total figure the Board of Directors shall assign the Chairman, the Vice-Chairman and the
Directors a yearly fee that shall take into account the office and the commitments that the office
entails.
The fees of the Top Management
During the Meeting of March 17, 2003, the Board of Directors approved a strategic plan for the
remuneration of the Top Management. A large portion of the retribution of the Top Management
members is linked to the operating results of the entire Group and to individual function-related
targets.
The Top Management is involved in the Company stock-option plans. The stock-option plans include
a number of practices rewarding loyalty to the Company.
Internal Auditing
The Board of Directors and on behalf of the Board, the Chairman and the Managing Directors, by
availing themselves of support of the Internal Audit Committee set up by the Board to this end, shall
assure the functionality and the suitability of the system implemented under the provisions of subparagraph 9.1 of the Code of Self-Regulation as being “the sum of processes established to monitor
29
the efficiency of company transactions, the reliability of financial information, the compliancy with the
Law and regulations, and the safeguard of Company assets”. The structure of the Company
organization chart shall include an Internal Audit Officer who is hierarchically independent of any/all
operations managers and reports directly to the Chairman and the Managing Directors keeping them,
the Internal Audit Committee and the Auditors updated regards his/her activities. Mr. Paolo Mazza has
been appointed Internal Audit Officer.
On March 17, 2003, following the implementation of a more efficient and effective internal audit
system, the Board of Directors approved the Ethical Code that details the principles and standards
which must inspire the Group’s conduct regards the different stakeholders.
On September 10, 2003, in compliance with the provisions of Law Decree no. 231/2001, the Board of
Directors approved the internal organization model to be implemented and the relating procedures
manual is being drafted.
Moreover, on March 11, 2004, the Board of Directors approved the document of the security program
in compliance with article 34, letter g) of the Law Decree no. 196/2003.
Internal Audit Committee
On March 28, 2001, the Board of Directors set up the Internal Audit Committee and appointed the
independent non-executive Directors Mr. Giuseppe Daveri (Chairman) and Mr. Piergaetano Marchetti;
with resolution as of December 16, 2002, Ms. Susan Carol Holland was also appointed to the
Committee.
The Committee shall provide consulting and advisory functions to the Board of Directors and on its
behalf to the Chairman and the Managing Directors.
The Internal Audit Committee shall examine and approve the proposals put forward by the
Management; the Internal Auditing Service and the Auditing Company shall identify the most suitable
economic and financial communication structure necessary to monitor and represent the Company
appropriately, as follows:
The Committee has been assigned the following functions:
- to assist the Board in assessing the adequacy and efficiency of the company's internal control
system;
- to evaluate the business agenda prepared by the persons in charge of internal auditing and receive
periodical reports form the same;
- to evaluate the findings included in the periodical reports prepared by the persons in charge of
internal auditing, from the information received from Board of Auditors and from the individual
members of the Board;
- to report to the Board of Directors at least once every six months when the financial statements for
the year and the half-year report are approved regarding the activities carried out and the adequacy of
the company's internal control system;
- to evaluate the adequacy of the accounting principals and their congruency for drawing up the
consolidated financial statements;
- to assess the work carried out by the auditing company with reference to the independence of
opinion and to the agenda implemented for the audits of the results included in the report on
operations and in the advisory letter;
- to assess the proposals put forward by the auditing company in order to obtain the appointment;
30
- to carry out the other tasks assigned by the Board of Directors with special reference to the relations
with the Auditing Company.
During the year 2003, the Internal Audit Committee met five times. Six meetings have been scheduled
for the current period.
The Committee helped to draw up the Code of Ethics that was approved by the Board of Directors
with resolution as of March 17, 2003.
In 2003, KPMG was nominated to assess the system procedures for management control
implemented in the Italian and Dutch corporate structures. On account of the company circumstances
and the impact on the information systems, the internal auditing was executed by way of the
procedures revisions so the companies could benefit, as requested by the Chief Executive Officer,
from professional expertise in order to perfect the management control system. In order to optimize
the monitoring of the company business performance, KPMG shall provide an analyses and a list of
priorities concerning any crucial points highlighted by the management and detected with the help of
the KPMG systems.
The documents below, which had been previously approved by the Amplifon S.p.A. Board of
Directors, were translated and sent to all subsidiary and affiliated companies with the request that the
same be implemented by the management:
• Ethical Code;
• Procedures for communicating reserved documents and information concerning Group
activities to the market;
• Procedures for regulating Insider Dealing;
• Procedures for the management and protection of Company owned trade marks and patents.
On analyses, the insurance coverage provided for by the Group has proved to be adequate in relation
to the risks. An auditing program concerning organization procedures relating to the passive cycle is
underway. In concert with the CEO, the person in charge has drafted a detailed program for measures
to be implemented in 2004-2005.
Relations with institutional investors and other shareholders
At the time of listing, the Company adopted a communications policy aimed at establishing an open
channel of information with institutional investors, shareholders and the market, in order to ensure the
efficient spreading of comprehensive and timely information concerning its activities, the only
restrictions concerned the confidential nature of certain information. Accordingly, the information to
investors, the market and the press is made available by means of press releases, periodical
meetings with institutional investors and the financial community, and comprehensive documentation
released on the Amplifon web site subject to constant updates. In compliance with article 12 of the
Code, edition revised as of July 2002, the Board of Directors with resolution of May 30, 2001,
appointed Anjelika Chiltsyna in charge of the relations with investors.
Related party transactions
During the Meeting held on September 10, 2003, the Board of Directors approved the “Code of
Procedure for related party transactions”. The purpose of the Code is to provide interested parties with
the rules of conduct regulating communications of related party status to the Company during
transactions with Amplifon S.p.A. .
The Code, after identifying related parties, provides that the following be subject to the prior approval
of the Board of Directors: i) significant transactions, “defined as the related party transactions that, on
account of the object, manner or time of implementation may affect the safeguard of the business
31
property or the comprehensiveness or accuracy of the information, including accounting information,
concerning Amplifon S.p.A.; ii) transactions with companies whose financial statements are
consolidated in the Amplifon S.p.A. consolidated financial statements if, on an individual basis, their
overall value is in excess of 1,5 million Euro and the transaction is atypical, unusual or regulated by
non-standard conditions. The transactions with intra-group atypical, which are unusual or regulated by
non-standard conditions whose value is in excess of 2,5 million Euro shall, in all cases, be the object
of a special notice to the Board of Directors in the next scheduled Board Meeting; iii) transactions with
related parties different from “intra-group companies” whose value, on an individual basis, is in excess
of 1 million Euro, or of 500 thousand Euro in the case of transactions which are atypical, unusual or
regulated by non-standard conditions. The transactions with related parties including amounts in
excess of 500 thousand Euro, in addition to transactions which are atypical, unusual or regulated by
non-standard conditions whose overall value is, however, lower than 500 thousand Euro, shall in all
cases, be the object of a special notice to the Board of Directors in the next scheduled Board Meeting.
Intra-group transactions falling within the Amplifon S.p.A. core business and regulated by conditions,
terms and/or means which are substantially in line with the normal market practice concerning
relations with non party related transactions, are exempt from approval and communication to the
Board of Directors.
The Code entered into force on approval.
Treatment of reserved and “price sensitive” information
The Managing Directors have defined a procedure for disclosing reserved information to the market,
with special reference to price sensitive information; this procedure, in compliance with article 6 of the
Code, was approved by the Board of Directors on March 17, 2003.
Code of Conduct in relation to Internal Dealing
In conformity with the provisions issued by the Borsa Italiana, the Italian Stock Exchange, on
December 16, 2002, the Board of Directors approved a Code of Conduct concerning Internal Dealing;
the Code regulates the flow of information to the Company and to the market regarding transactions of
listed Group securities made by so called “relevant persons”.
The Code implemented by the Company is more stringent than the Regulations issued by the Italian
Stock Exchange, given the breadth of the definition of “correlated persons”, the cutback of the
relevancy thresholds in relation to disclosure obligations, the indication of periods when “relevant
persons” may not carry out transactions on Group securities and for the rigid system of sanctions
implemented.
The Code came into force as of January 1, 2003.
Shareholder’ Meetings
The Board of Directors shall:
- encourage and facilitate all Shareholders to take part in the meetings by carefully choosing the
location, the date and time when the shareholder’s meeting is called so the greater number of
members may take part;
- advise all component members to attend the meetings, unless unavoidably detained or prevented
form doing so and, in particular, those who due to the offices held are in a position to provide a
valuable contribution to the meetings’ discussions;
32
- deem that the Shareholder’s Meeting are a valuable opportunity to establish a fruitful dialogue
between the Directors and Shareholders in compliance with the regulations concerning “price
sensitive” information and the internal procedures concerning reserved information.
To date, the Board of Directors does not deem it necessary to implement a meetings regulation since
it believes that the powers vested by Law and by the Articles of Association in the Chairman of the
Shareholders’ Meeting are adequate to ensure that the meeting agenda is carried out with due order
and method so that each shareholder may participate in the debate on the list of business. However,
the Board of Directors reserves the right to introduce regulations in the future in order to better
coordinate the activities of the meetings.
The Board of Auditors
In compliance with art. 22 of the Articles of Association, the Board of Auditors shall include three
Regular Auditors and two Alternate members with prerequisites (including professional competence
and trustworthiness) and functions as required by the Law. In particular, concerning professional
competence, under the provisions of art. 1, sub-paragraph 3 of the Ministerial Decree n° 162 of March
30, 2000 with reference to sub-paragraph 2, letter b) and c) of the same article 1, the areas strictly
connected to the activities of the Company include commercial law, corporate law, business
economics and management, finance, statistics, the field of medicine and electronic engineering and
other branches of learning with similar or assimilated scope; the business units strictly connected to
the Company business include the production or wholesale or retail trade of instruments, equipment
or products as included in articled 2 of the Company Articles of Association.
The ordinary General Meeting of Shareholders shall elect the Board of Auditors and establish its
remuneration.
In addition to the tasks under the current regulations, the Board of Auditors has the right to express a
non-binding opinion concerning the information received form the Board of Directors regarding
economic and financial significant transactions carried out by the Company or by the subsidiary
companies, also with reference to related party transactions.
The Auditor’s domicile is fixed at the Company Head office for the entire duration of the mandate. The
minority interest shall appoint one Regular Auditor and one Alternate Auditor.
The election of the Board of Auditors, with the exception of the provisions pursuant to the last subparagraph of the present article, is carried out on the basis of lists submitted by the Shareholders
wherein candidates are listed using progressive numbers.
The number of candidates included in each list must not be greater than the number of members to be
elected. Those Shareholders who with other shareholders or individually want to submit a list must,
jointly or individually, represent at least 2% (two per cent) of the voting shares in the ordinary
shareholders’ meeting and be able to prove ownership by producing the relevant certifications in
compliance with the Law at least 10 (ten) days prior the call for the fist Meeting.
Each Shareholder or Shareholders belonging to the same one group as defined above, and namely
Shareholders that enter into agreements concerning the exercise of vote or the transfer of shares and,
however, into agreements or pacts, independent of their validity, recognized by the current legislation
in force, in order to ascertain the level of equity investment in listed companies which cannot be
surpassed unless by means of a public purchase offer, may not present either directly or through a
third party or a trust company, more than one list on pain of all the candidates included in any list
submitted by that Shareholder being barred form election.
In the context of the application of the preceding sub-paragraph, a person, also without company
status, and directly or indirectly exercising control over the Shareholder in question and over all the
companies directly or indirectly controlled by the aforementioned person, shall be deemed to belong
33
to the same group. The definition of “control” and “controlled companies” is included in art. 93 of the
Legislative Decree no. 58/1998.
The lists of candidates underwritten by the submitting person/s must be filed at the Head Office at
least ten days prior the date fixed for the first call of the Meeting.
A description of the professional curriculum of each candidates and the declaration wherein the
candidate accepts the candidature and attests under his/her own responsibility that no grounds exist
for ineligibility or incompatibility, and that he/she possess the prerequisites in compliance with the Law
or with the Article of Association for the office, shall be attached to the lists.
The lists that do not comply with the above provisions will be deemed not to have been submitted.
Each candidate may be included in one list only on pain of ineligibility.
The candidates who do not possess the prerequisites in complacence with the applicable regulations,
or who already act as Regular Auditors in more than five companies listed in regulated Italian markets,
may not be elected as Auditors and if elected will fall from office.
All those entitled to vote may vote for one list only. By the same token, the Shareholders who, in
compliance with sub-paragraphs five and six of the present article have submitted or been party to the
submission of a list, may only vote for one list. The members of the Board of Auditors must be elected
in compliance with the following procedure:
- following the progressive number order, two Regular members and one Alternate member shall be
taken form the list that has received the greatest number of votes.
- following the progressive number order, the remaining Regular member and Alternate member shall
be taken from the list that has received the second highest number of votes from the General Meeting.
- in the case that more than one list has obtained the same number of votes, a second ballot between
the lists shall be held by all shareholders attending the meeting: the candidates who obtain a simple
voting majority shall be duly elected.
The chairmanship of the Board of Auditors shall go to the Regular Auditor who appears first on the list
that has obtained the highest number of votes. The most senior candidate shall be elected Chairman
in case the number of votes is the same.
In case of decease, resignation or forfeiture of an Auditor, an Alternate member from the former
Auditor’s list shall fill the vacated place.
In the case the Chairman of the Board of Auditors must be replaced, the chairmanship shall be filled
by the other Regular Auditor form the former Chairman’s list; if, due to prior or concurrent terminations
of office, it is not possible to fill the vacated place in compliance with the procedure outlined, a
General Meeting shall be called to integrate the Board of Auditors.
When the General Meeting, under the above sub-paragraph and in conformity with the Law, elects
Regular and/or Alternate Auditors to integrate the Board of Auditors, the following procedure shall be
adopted: in the case an Auditor form the majority list must be replaced, the election shall take place by
voting with a relative majority a candidate form the list of the outgoing Auditor, if possible. If only one
list had been submitted, the General Meeting shall vote for the candidates on that list; if the list obtains
a relative majority, the first three candidates following the progressive numbering shall be elected
Regular Auditors and the fourth and fifth candidates shall be elected Alternate Auditors; the
Chairmanship of the Board shall go to the first candidate on the list. In case of decease, resignation or
forfeiture of an Auditor, or if the chairmanship of the Board is vacated, the Alternate Auditor and the
Regular Auditor selected following the progressive number order shown in the list shall fill the
respective offices.
If the lists are not available, the General Meeting shall elect Board of Auditors and the Chairman of the
Board with the legal majorities.
Outgoing auditors may be re-elected.
34
STOCK OPTION PLANS
With reference to the Consob (Commissione Nazionale per la Società e la Borsa) the National
Commission for Listed Companies and the Stock Exchange, recommendation n.11508 as of February
15, 2000, the information concerning the Stock Option Plan approved by the Amplifon S.p.A. Board of
Directors as of March 28, 2001 is reported below.
i) the purpose of the issue, and therefore of the assignment of the Rights of Option, is to offer the
possibility to participate in the share capital of Amplfon to 34 Beneficiaries (the number of
Beneficiaries has decreased from 38 to 34 pursuant to the resignation of the original participants),
who occupy particularly important positions within the Group, in order to align their interests with those
of the Shareholders and to cultivate their loyalty, given the significant strategic objectives to be
achieved within the 2001/2003 three year period;
ii) the recipients of the plan are the employees named by the meeting of the Board of Directors of
Amplifon S.p.A. as of March 28, 2001 who, as of April 2, 2001 to the time the shares were
underwritten, had continuously been in the employment of one of the Group companies and that, at
that time, had not given a period of notice for dismissal or discharge, or however for the termination of
employment;
iii) the assignment of the rights of option is unconditional. The price of the shares is deemed to
encompass the information concerning the company performance;
iv) the regulations of the Stock Option Plan exclude loans or other facilities in order to underwrite of
the shares in compliance with article 2358 of the Italian Civil Code sub-paragraph 3;
v) the plan approved by the Board of Directors of Amplifon S.p.A. as of March 28, 2001 is based on
the increase of the Amplifon S.p.A. share capital by no. 750.000 shares with nominal value of 0,20
Euro approved by the Shareholder’s Meeting of Amplfon S.p.A. as of February 19, 2001. The price
over par amounts to 19,80 Euro and was fixed by subtracting the nominal value of 0,20 Euro from the
placing price of 20,00 Euro following the Public Offer for Subscription and Sale (Offerta Pubblica di
Sottoscrizione e Vendita) and the admission to Stock Exchange listing of ordinary shares
(Ammissione a Quotazione di Azioni Ordinarie);
vi) the type of shares issued are ordinary, in compliance with article 2441 of the Italian Italian Civil
Code, sub-paragraphs 5 and 8, in favor of a Stock Option Plan. The exercise of the rights shall be in
compliance with the Regulations which have been filed at the Borsa Italiana S.p.a. (the Italian Stock
Exchange) and Consob; further information can be obtained from the aforementioned Borsa Italiana
S.p.a. and Consob. Please note that the Board of Directors on March 11, 2004, modified the manner
of exercise of the rights of option pertaining to the Stock Option Plan which had been approved on
March 28, 2001;
vii) the Board of Directors is entitled to draft regulations, choose the beneficiaries and establish the
quantity and values regards the execution of the Stock Option Plans. Moreover, Amplifon S.p.A
35
reserves the indisputable right to modify the Plan and the Regulations when so ever it is deemed
necessary or merely opportune, following any modification to the provisions of the laws in force, or for
any other objective reason that might make a modification advisable.
RELATED PARTY TRANSACTIONS
Amplifon S.p.A. is controlled by Amplifin S.p.A.. The transactions carried out by Amplifon S.p.A. and
by its subsidiary companies with related parties mainly concern the performance of services. All
transactions come within the ordinary management and are regulated by market conditions, that is to
say, by the conditions that would apply between two independent parties.
The table below details the trade and financial relations existing between related parties.
31/12/2003
Receivables
Payables
Trade Financial
2003
Revenues
Costs
Trade
Financial
8.746
-
132
-
125
92
2
1
30
-
75
-
2
1
68
268
97
3.037
2
100
330
45
-
3
15
62
-
6
-
3
390
-
-
10
-
-
10
Controlling companies:
Ampliter N.V. (direct)
Amplifin S.p.A. (indirect)
Amplifin Sp.A. subsidiary companies:
Amplibrick 1
Amplibrick 2
Ampliare S.p.A.
Non consolidated subsidiary companies:
Audioson
Audition Lillo
Espace Conseil de l’Audition
Acousoft Informatisering BV
Orium B.V.
Non consolidated affiliated companies:
Amplifon Hearing Middle East
The trade receivables towards the indirect controlling company, Amplifin S.p.A., amounted to 8.746
thousand Euro and refer for 8.660 thousand Euro to the transfer of VAT credits in compliance with art.
73 of the Presidential Decree no. 633/72 and the Minister’s Decree DM of 1312/79, whereby VAT
credits and debits can be transferred to the controlling company so a joint Group VAT returns
statement and the relating interests can be filed.
The trade payables towards the indirect controlling company Amplifin S.p.A. amounted to 132
thousand Euro and were mainly due to the transfer to Amplifin S.p.A. of Amplimedical VAT payables
amounting to 95 thousand Euro.
The costs charged to the Group by Amplibrick 1 and Amplibrick 2, which respectively amounted to
268 thousand Euro and 97 thousand Euro, are entirely referred to a number of lease contracts
underwritten with Amplifon S.p.A concerning premises used as sale outlets.
36
The Ampliare S.p.A., costs charged to the Group, which amounted to 3.037 thousand Euro, mainly
refer to:
• the rental for the lease contract drawn up for the building located in Milan (Italy) in Via Ripamonti
n° 133 which is the registered office and administrative headquarters of Amplifon S.p.A.. The
contractually agreed rental amounts to approximately 1,186 thousand Euro per year. The supply of
accessory services, including the ordinary maintenance of the building, the canteen, the cleaning
services, concierge and surveillance, is regulated by a separate agreement between the parties.
• the rental for the lease contract underwritten by Amplimedical for the building located in Assago
which is used as offices and as a warehouse. The contractually agreed yearly rental amounts to
approximately 328 thousand Euro.
• the rentals for a number of lease contracts for retail outlets used for trade purposes. The
contractually agreed yearly rental amounts to approximately 546 thousand Euro.
• The recharging to Amplifon S.p.A. of costs for general services, for the canteen services and the
technical office which amounted to 977 thousand Euro.
SIGNIFICANT EVENTS OCCURRING AFTER THE CLOSURE OF THE FINANCIAL YEAR
In January 2004, the Group completed the acquisition of 100% equity stake in Horen Nederland, a
Dutch company operating in the retail of hearing aids, for a corresponding value of 16.000 thousand
Euro, paid at the time of purchase. When the company was acquired the net financial borrowing
amounted to 1 million Euro. With this acquisition the Group, which was already the undisputed market
leader in Holland with a 27% market share, has further consolidated its position and completed the
coverage of the territory with a quota estimated at 35%. In fact, the annual revenues of Horen
Nederland amounted to 15,5 million Euro, with a 9% share of the market; the company operates in
Holland by way of a trade network counting 27 outlets located in the north west of the country.
Finally, during the first months of 2004, the Group continued its expansion strategy by increasing the
level of penetration in markets where it already operateed by way of the acquisition of three
companies and one company division counting nine retail stores in France, for a corresponding value
of approximately 2.000 thousand Euro and three companies counting seven retail stores in the United
States for a corresponding value of approximately 1.450 thousand US Dollars.
The management decided to exit from the unprofitable and, for the Group, no longer strategic Austrian
market by way of the disposal of 100% equity stake in Viennatone to Phonak for 4 million Euro. The
transaction further strengthens Phonak’s strategic position of the Austrian market where it already
operates through Hansanton, since it will be able to enhance the potential synergies between the two
companies.
Finally, in relation to the transition to the international accounting standards (IFRS), the Group has
implemented a plan in order to comply with new IFRS regulations. The plan is based on four key
points: i) training staff to draw up the consolidated financial statements and the single annual
accounts, ii) appraisal of the new accounting information iii) drafting the Group accounting manual, iv)
adoption of a new consolidated software package which implements the IFRS logic.
37
EXPECTED EVOLUTION OF OPERATIONS
In the light of the significant growth potential of the Group business, which has been shaped by a
number of factors including a longer average life expectancy, cultural changes influencing the life-style
of people over 60, growing acoustic pollution, the successful completion of the integration process of
the newly acquired companies, in addition to the current strategy of international expansion, which is
aimed at increasing the market share in the countries where the Group has traditionally been present,
with special reference to the French and American markets, the management expects a steady
increase in revenues from sales and in profitability margins, thereby continuing the positive trend that
has been recorded over the past five years.
The Group intends to further focus on its core business and to implement containment programs
relating to operating costs in order to increase profitability margins, cash generation and, by the same
token, the level of Stockholder satisfaction.
OWN SHARES
During the financial year and up to the reference date of the present Report, Amplifon S.p.A., has not
held own shares or controlling company shares, even through a trust company.
38
CONSOLIDATED FINANCIAL
STATEMENTS 2003
39
BALANCE SHEET
31/12/2003
(Euro)
31/12/2002
Change
ASSETS
Receivables form shareholders for payments due
Fixed assets
Intangible fixed assets
Note 1
Set-up and expansion costs
127.623
51.940
75.683
137.283
291.895
1.087.289
30.444.572
88.982.409
312.269
13.173.016
207.373
317.096
982.319
18.752.064
102.577.865
583.140
13.890.545
(70.090)
(25.201)
104.970
11.692.508
(13.595.456)
(270.871)
(717.529)
134.556.356
137.362.342
(2.805.986)
3.540.219
3.577.500
(37.281)
1.530.340
7.280.493
17.908.043
433.582
1.585.582
7.523.060
15.873.318
120.412
(55.242)
(242.567)
2.034.725
313.170
30.692.677
28.679.872
2.012.805
1.382.289
44.645
16.294
752.706
44.645
132.164
629.583
(115.870)
1.443.228
929.515
513.713
Receivables
From others
Within twelve months
Beyond twelve months
121.538
1.433.913
6.843
1.066.902
114.695
367.011
Other securities
1.555.451
152.901
1.073.745
22.560
481.706
130.341
3.151.580
2.025.820
1.125.760
168.400.613
168.068.034
332.579
331.267
635.337
38.140.552
1.394
606.949
289.035
47.578.479
69.405
(275.682)
346.302
(9.437.927)
(68.011)
39.108.550
48.543.868
(9.435.318)
Cost for research, development and advertising
Industrial patents and intellectual property rights
Concessions, licenses, trademarks and similar rights
Goodwill
Differences on consolidation
Fixed assets in progress and advance payments
Other intangible fixed assets
Tangible fixed assets
Note 2
Land and buildings
Plant and machinery
Production and commercial equipment
Other tangible fixed assets
Fixed assets in progress and advance payments
Financial fixed assets
Note 3
Equity investments in
Subsidiary companies
Affiliated companies
Other companies
Total fixed assets
Current assets
Inventories
Note 4
Raw materials, other materials and consumables
Work-in-progress and semi-finished products
Finished products and goods
Advances
40
Receivables
Note 5
From clients
Within twelve months
Beyond twelve months
From subsidiary companies
Within twelve months
From controlling companies
Within twelve months
From other companies
Within twelve months
Beyond twelve months
Total receivables
Financial assets not classified as long term investments
(939.623)
291.281
115.091.188
115.739.530
(648.342)
478.889
5.275
473.614
478.889
5.275
473.614
8.746.071
8.187.674
558.397
8.746.071
8.187.674
558.397
10.882.875
11.565.967
12.079.179
7.986.001
(1.196.304)
3.579.966
22.448.842
20.065.180
2.383.662
146.764.990
143.997.659
2.767.331
2.318.101
204.956
2.113.145
2.318.101
204.956
2.113.145
30.952.291
38.019.741
(7.067.450)
5.735
334.005
1.464
4.714.180
4.271
(4.380.175)
Note 7
Bank and post office deposits
Checks
Cash and cash equivalents
Total currents assets
Accrued income and prepaid expenses
115.689.218
50.312
Note 6
Other securities
Liquidity
114.749.595
341.593
Note 8
TOTAL ASSETS
41
31.292.031
42.735.385
(11.443.354)
219.483.672
235.481.868
(15.998.196)
2.994.910
4.184.911
(1.190.001)
390.879.195
407.734.813
(16.855.618)
(Euro)
31/12/2003
31/12/2002
Change
Share capital
Reserve from share price over par
Legal reserve
Other reserves:
Extraordinary reserve
3.924.200
105.163.259
593.760
3.924.200
106.734.600
593.760
0
(1.571.341)
0
2.766.528
2.575.924
190.604
Merger surplus
Accelerated depreciation reserve
Profits (losses) brought forward
Translation differences
Profits (losses) for the year
2.621.312
21.970.961
(14.839.642)
12.667.248
2.120.991
2.811.916
6.735.790
(4.153.177)
15.133.405
(2.120.991)
(190.604)
15.235.171
(10.686.465)
(2.466.157)
Group net shareholder’s equity
LIABILITIES AND SHAREHOLDER’S EQUITY:
Net shareholder’s equity
Note 9
134.867.626
136.477.409
(1.609.783)
Third party capital and reserves
Third party income
2.500.111
212.907
692.332
181.837
1.807.779
31.070
Third party net shareholder’s equity
2.713.018
874.169
1.838.849
137.580.644
137.351.578
229.066
Third party and Group shareholder’s equity
Reserves for risks and charges
Note 10
For social security and similar obligations
For taxes
Other reserves
Staff leaving indemnity
Note 11
Payables
Note 12
Bank payables
Within twelve months
Beyond twelve months
Payables towards other financing bodies
Within twelve months
Beyond twelve months
Advances
Within twelve months
Payables to suppliers
Within twelve months
Beyond twelve months
Payables to subsidiary companies
Within twelve months
42
709.682
642.549
67.133
1.361.848
9.587.230
9.757.660
1.361.848
(170.430)
11.658.760
10.400.209
1.258.551
8.656.698
8.502.823
153.875
43.867.075
85.130.741
36.402.324
107.697.664
7.464.751
(22.566.923)
128.997.816
144.099.988
(15.102.172)
9.193
365.602
736.025
63.382
(726.832)
302.220
374.795
799.407
(424.612)
2.773.380
2.570.922
202.458
2.773.380
2.570.922
202.458
49.547.274
51.744.224
3.764
(2.196.950)
(3.764)
49.547.274
51.747.988
(2.200.714)
79.699
64.000
15.699
79.699
64.000
15.699
Payables to affiliated companies
Within twelve months
Payables towards controlling companies
Within twelve months
Tax payables
Within twelve months
Payables towards providential and social security institutes
Within twelve months
Other payables
Within twelve months
Beyond twelve months
Accrued expenses and deferred income
Note 13
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY
Commitments and memorandum accounts
10.000
-
10.000
10.000
-
10.000
132.102
389.154
(257.052)
132.102
389.154
(257.052)
15.170.678
13.214.765
1.955.913
15.170.678
13.214.765
1.955.913
5.878.903
4.922.707
956.196
5.878.903
4.922.707
956.196
21.500.862
489.419
21.111.942
983.037
388.920
(493.618)
21.990.281
22.094.979
(104.698)
224.954.928
239.903.910
(14.948.982)
8.028.165
11.576.293
(3.548.128)
390.879.195
407.734.813
(16.855.618)
4.822.218
2.801.639
2.020.579
349.000
295.000
54.000
5.171.218
3.096.639
2.074.579
Note 14
Personal guarantees given
Third party surety ship given
Collateral guarantees given
Third party collateral guarantees
Total
43
INCOME STATEMENT
(Euro)
Value of operations
Revenues from sales and services
Change in inventories of work-in-progress, semi-finished and finished
products
Increase in fixed assets for internal work
Other revenues
- miscellaneous
Costs of operations
Year 2003
Year 2002
Change
443.388.322
391.941.264
51.447.058
330.365
(95.185)
425.550
1.024.840
965.076
59.764
20.125.035
15.795.959
4.329.076
Note 15
20.125.035
15.795.959
4.329.076
464.868.562
408.607.114
56.261.448
144.729.253
113.386.896
22.574.122
142.440.761
102.773.118
19.850.972
2.288.492
10.613.778
2.723.150
85.293.828
18.179.226
69.338.158
16.296.939
15.955.670
1.882.287
1.626.086
127.581
4.403.839
2.337.521
550.899
2.845.796
(711.435)
(423.318)
1.558.043
Note 16
For raw materials, other materials and consumables
For services
For rentals and leases
For labor:
Wages and salaries
Social security contributions
Staff leaving indemnities
For social security and similar costs
Other costs
109.630.560
91.369.313
18.261.247
Depreciation and amortization:
Amortization of intangible fixed assets
13.013.227
9.238.393
3.774.834
Depreciation of tangible fixed assets
Other fixed assets depreciation
8.315.261
357.336
7.791.841
906.532
523.420
(549.196)
Write down of receivables included in current assets and of liquidity
2.052.842
1.722.751
330.091
23.738.666
19.659.517
4.079.149
5.504.606
468.215
317.033
8.769.580
(5.098.877)
118.048
48.817
8.006.782
10.603.483
350.167
268.216
762.798
429.118.931
379.168.451
49.950.480
35.749.631
29.438.663
6.310.968
Change in inventories of work-in-progress, semi-finished and finished products
Provisions for risks
Other provisions
Other operating expenses
Difference between the value and costs of operations (A-B)
44
Financial income and charges
Note 17
Other financial income:
From receivables booked in fixed assets
- subsidiary companies
- third parties
From securities booked in fixed assets not classified as equity investments
From securities booked in current assets not classified as equity investments
Income different from previous:
92.191
8.919
14.467
2.637
100.037
34.488
537
(2.637)
(7.846)
(25.569)
13.930
38.170
4.070.034
76.295
7.843.995
(38.125)
(3.773.961)
4.223.781
8.057.989
(3.834.208)
2.991
-
2.991
10.193.819
15.620.859
(5.427.040)
10.196.810
15.620.859
(5.424.049)
(5.973.029)
(7.562.870)
1.589.841
-
79.644
(79.644)
-
79.644
(79.644)
-
8.491
(8.491)
from subsidiary companies
from affiliated companies
- from controlling companies
- others
Interests and other financial charges:
- from subsidiary companies
from affiliated companies
- others
Total financial income and charges
Financial assets adjustments
Note 18
Revaluations:
of equity investments
Devaluations:
of equity investments
Total financial assets adjustments
Extraordinary income and charges
-
8.491
(8.491)
-
71.153
(71.153)
28.938
4.329.131
304.020
28.938
4.025.111
Note 19
Income:
- gains from alienations
- miscellaneous
4.358.069
304.020
4.054.049
Charges:
- capital loss from alienations
- prior years income taxes
- miscellaneous
12.725
10.892.113
2.622
8.244
341.170
(2.622)
4.481
10.550.943
10.904.838
352.036
10.552.802
Total extraordinary income and charges
(6.546.769)
(48.016)
(6.498.753)
23.229.833
21.898.930
1.330.903
12.338.256
(1.988.578)
8.629.990
(2.046.302)
3.708.266
57.724
10.349.678
6.583.688
3.765.990
12.880.155
15.315.242
(2.435.087)
(212.907)
(181.837)
(31.070)
12.667.248
15.133.405
(2.466.157)
Income before taxes (A- B ± C ± D ± E)
Income taxes
Note 20
Current taxes
Deferred taxes (pre-paid)
Group and third party economic result
Third party (profit) loss
Group (profit) loss
45
46
NOTES TO THE FINANCIAL STATEMENTS
CONTENT AND STRUCTURE OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of December 31, 2003, were drafted in compliance with
provisions of the Law Decree of April 9,1991, no. 127, and with the applicable accounting standards
outlined by the Consiglio Nazionale dei Dottori Commercialisti e dei Ragionieri (C.N.D.C.R.)
(collectively, “Italian GAAP”).
The true and accurate representation of the financial position and financial status and of the
consolidated profit and loss result did not require any derogation pursuant to subparagraph 4, article
29 of the Law Decree 127/1991. The reference date of the consolidated financial statements coincides
with the closing of the Amplifon S.p.A. financial year.
The consolidated financial statements were drafted on the basis of the financial statements as of
December 31, 2003 drawn up by the Board of Directors or, if available, by the Shareholders’ Meetings
of the companies belonging to the Group, duly adjusted where necessary so as to ensure uniformity
with the Group classification criteria and accounting standards. The income statements of the
companies which were acquired or disposed of during the period are assumed on the basis of the
period when they were owned by the Group.
In order to provide more detailed information, the following have been prepared: the statement relating
to movements in net shareholder’s equity, the statement connecting the net shareholders’ equity and
the operating profit or loss of Amplifon S.p.A. to the consolidated balance sheet results, in addition to
the consolidated cash flow statement included in Attachment A to the present Notes.
Given the significance of the same, all values shown in the Notes are in thousand Euro unless
expressly indicated.
CONSOLIDATION AREA
The following have been included in the consolidation area and consolidated with the global
integration method: all companies operating in Italy and abroad in which the Parent Company holds
the direct or indirect majority of shares or share capital, with the exception of a number of minor
subsidiary companies.
The equity investments in subsidiary and affiliated companies not included in the consolidation area, if
significant, have been valued with the net equity method.
The subsidiary and affiliated companies which are not deemed significant have been excluded form
the consolidation area and valued at cost.
The most important changes which occurred in the consolidation area compared to the previous
financial year were due to:
47
•
•
•
•
the entrance of Instituto Espanol Auditivo (I.E.A.), acquired by Amplifon Iberica;
the entrance of Nogent Surditee, acquired by CCA IDF;
the entrance of Pfennings Hoortoestellen BV, acquired by Audire Holding;
the consolidation, for the first time in 2003, of 100% of Caducée Acoustique, acquired during
2002.
CONSOLIDATION PRINCIPLES
All the subsidiary companies included in the consolidation area have been consolidated in accordance
with the global integration method, which is summarized as follows:
• the assumption of the total assets, liabilities, costs and revenues irrespective of the amount of
net shareholders’ equity owned; in the appropriate entries the minority Shareholders, if any, are
assigned their portion of net shareholder’s equity and operating result;
• the difference, at the time of purchase resulting from the elision of the balance-sheet value of
the equity investment in a company included in the consolidation area, against the
corresponding net shareholder’s equity is recorded where possible in the assets and liabilities of
the said company. The residual amount, if any, is treated as follows:
- if positive, it is booked in the item difference on consolidation in intangible fixed assets and is
directly adjusted via depreciation, calculated on a straight-line basis over its useful live, taking
also into account the residual possibility of utilization.
- if negative, it is booked in a net assets item under consolidation reserve or, when an
unfavorable end-year result is expected, under consolidation reserve for future risks and
charges.
• the elimination of receivables and payables, as well as of costs and revenues between the
consolidated companies;
• the elimination of:
a) capital gains resulting from transfers of fixed assets between the consolidated companies;
b) profits, if substantial, resulting from operations between consolidated companies and
concerning the transfer of goods classified as inventories by the purchasing company;
c) value depreciations and reinstatements of fixed equity investments in consolidated
companies;
d) profits, if substantial, resulting from operations between consolidated companies and intercompany dividends.
The allocations and adjustments of values made by each individual consolidated company with the
sole purpose of obtaining any tax benefits as provided for by the laws in force have been eliminated
from the consolidated financial statements.
In addition, the accounting principles adopted by the companies belonging to the Group have been
standardized. The main adjustments to the Financial Statements concern:
48
• the inventories that have been assessed according to criteria of the weighted average cost,
which is deemed the most appropriate to represent the value of the final Group inventories;
• the financial leases, if significant, are recorded using the financial method which sets the
capitalization of the original value of the asset against the relating financial debt; depreciation is
charged to the income statement and calculated on the predicted economic-technical life of the
asset. The relating charges are recorded as follows: the portion of capital to the reduction of the
debt and the portion of interest to the income statement.
• the inclusion of the amortization of goodwill pertaining to the Financial Statements of the French
and American subsidiary companies which, pursuant the regulations in force in those countries
are non subject to systematic amortization.
In the case of changes to the consolidation area, the economic items of the companies involved are
recorded by date of acquisition.
In order to provide a true and accurate representation of the financial position and financial status of
the Group, the financial statements of affiliated companies held with a 50% stake, if significant, are
consolidated with the proportional integration method. Pursuant to this method, all budget items are
booked in the consolidated financial statements for the amount corresponding to the stake percentage
held by the Group, without recording third party profits and share capital.
The Financial Statements drafted in foreign currencies that do not belong to the Euro area, are
translated into Euro using the current exchange rate method; on this basis the items of the Income
Statement are translated using the average exchange rate for the period, while the items of the
Balance Sheet are translated using the year-end exchange rates, except for the items relating to the
net shareholder’s equity, which are translated at historical exchange rates. The differences resulting
from the translation of the initial net shareholder’s equity and the operating results to the year-end
exchange rate are recorded in an appropriate entry under consolidated net shareholder’s equity.
49
The exchange rates applied are listed below:
Amplifon U.S.A. Inc. – Miracle-Ear Inc.
Balance sheet
Income statement
Sonus U.S.A. Inc.
Balance sheet
Income statement
NHC
Balance sheet
Income statement
Sonus Canada Ltd.
Balance sheet
Income statement
Horen e controllate
Balance sheet
Income statement
Viton
Balance sheet
Income statement
31/12/2003
US$
1,26300
1,13088
31/12/2002
US$
1,04870
0,94491
31/12/2003
US$
1,26300
1,13088
31/12/2002
US$
1,04870
1,00981
31/12/2003
US$
1,26300
1,15686
31/12/2002
US$
-
31/12/2003
Can$
1,62340
1,58204
31/12/2002
Can$
1,6550
1,5803
31/12/2003
CHF
1,55790
1,52074
31/12/2002
CHF
1,4524
1,4671
31/12/2003
HUF
262,50000
253,52325
31/12/2002
HUF
236,2900
242,8938
EVALUATION CRITERIA AND ACCOUNTING PRINCIPLES
The accounting principles and evaluation criteria are based on the general principles of prudence,
accrual and on the prospect of continuing the business.
The evaluation criteria for the individual entries are compliant with the formal and substantial contents
of Law Decree of the 9th April 1991, no. 127 and with the Accounting Standards approved by the
Consigli Nazionali dei Dottori Commercialisti e Ragionieri (collectively, “Italian GAAP”).
The most significant standards and criteria are described below:
Use of estimates in the preparation of the Financial Statements
In order to draft the Financial Statements in compliance with the generally accepted accounting
principles, the management must make estimates and assumptions, which affect assets and liabilities
and potential assets and liabilities, and impact the costs and revenues for the year. The actual results
might differ from the estimated ones.
Foreign exchange transactions
The short-term receivables and payables in foreign currency, with falling due date within twelve
months, including the current portions of long/middle-term receivables and payables and liquidity in
50
foreign currency existing at the end of the year, are recorded in the Financial Statements at the year
end exchange rate.
The gains and losses from translation (translation differences) on individual short-term receivables
and payables at the year end exchange rate are respectively credited or debited to the income
statement as financial income.
In terms of income, the aforementioned treatment allows the booking of gains or losses in the period
of occurrence in compliance with the postulates of economic competence.
Intangible fixed assets
The intangible fixed assets are recorded at their purchase or production cost; their value is
systematically amortized taking into account the residual possibility of utilization. The appropriate
depreciation is carried out if a full recovery of the investment is not foreseen.
The fixed assets are stated net of depreciation, directly adjusted in relation to the residual possibility of
utilization.
The goodwill recorded in the assets of the individual consolidated companies, resulting from the
acquisitions of company divisions or retail outlets, is amortized over a period of ten to twenty years on
the basis of the anticipated future income flows against which the goodwill was paid.
The entry brand name is recorded at purchase price and amortized in fixed amounts over ten years.
The entry difference on consolidation is recorded in the Financial Statements and amortized in fixed
amounts over twenty years on the following basis: the anticipated future income flows from subsidiary
companies, the analysis of the economic sector in which the Group operates, and by taking into
account the market position of the Amplifon Group and the acquired companies.
Tangible fixed assets
Tangible fixed assets are recorded at their purchase or production cost, including direct accessory
charges, and are systematically amortized taking into account the residual possibility of utilization. In
some cases, this cost is adjusted in compliance with national laws allowing for revaluation.
The appropriate devaluations have been made for assets whose value is lastingly lower than the
historical cost and have already been fully amortized. The lower value is not recorded in the
subsequent financial statements if the causes that lead to the adjustment cease to exist.
Routine maintenance costs are integrally booked in the Income Statement. Incremental maintenance
costs are booked in the corresponding assets and amortized taking into account the residual
possibility of utilization.
The depreciation rates per annum are listed in the following table:
Description
Depreciation rate
3%
10%-15%
12,5% - 25%
Buildings
Plant and machinery
Production and commercial equipment
Other assets:
51
Electromechanical equipment
Electronic equipment
Furniture and office equipment
Vehicles
15%
18% - 20%
12%
20%-25%
In the year the assets become operational, the depreciation is computed by calculating 50% of the
above rates on the assumption that the purchase is distributed evenly throughout the financial year.
Equity investments
The equity investments, if enduring, are recorded as financial fixed assets or, if acquired for
subsequent resale, as current financial assets.
The equity investments in non-consolidated subsidiary companies shown under financial fixed assets
are valued with the net equity method. The positive differences occurring at the time of purchase
between the balance sheet value of the said equity investments in the subsidiary companies and the
corresponding current share of net shareholder’s equity are assimilated at the value of the same net
shareholder’s equity and amortized in fixed amounts taking into account the residual possibility of
utilization.
The above amortization amounts are entered in the Income Statement as “financial assets value
adjustments”.
Other equity investments shown under financial fixed assets are recorded at purchase and
subscription cost devaluated for enduring loss of value. If the said companies show a deficit trend, the
recorded value is adjusted by means of appropriate devaluation to the corresponding fraction of net
shareholder’s equity, if lower, resulting from the subsidiary companies’ most recent Financial
Statements. The losses in value exceeding the corresponding balance-sheet values are recorded
under provisions for risks and charges.
The lower value is not included in future Financial Statements if the reasons for the adjustments made
cease to exist.
Other securities [different from equity investments]
Securities are recorded as fixed financial assets if intended to stay in the portfolio for a long time or as
current financial assets if intended for negotiation.
Long-term securities are recorded at purchase cost, and written-down in case of a lasting reduction in
value.
Securities booked in current assets are recorded at the lower of the purchase cost and the assumed
return value depending on market trends.
The lower value is not included in future Financial Statements if the reasons for the write-down cease
to exist.
Inventories
52
Inventories are recorded at the lower between the purchase or manufacturing cost and the return
value, depending on the market trends. The cost is calculated according to the principle of the
weighted average cost.
Inventories of raw material, finished products and goods exceeding the expected manufacturing
requirements, subject to slow handling or obsolescence, are appropriately depreciated on the basis of
their assumed return value.
Receivables
Receivables are recorded at their assumed return value, obtained by reducing the nominal value of
the provisions for bad debts, depending whether they are deemed uncollectible.
Accrued, prepaid and deferred income and expenses
The share of costs and income common to two or more years is recorded under the above item on a
time accrual basis.
Provisions for risks and charges
The provisions for risks and charges are allocated to cover definite or probable losses and charges,
the exact amount or date of occurrence of which had not been determined at the end of the year. The
allocations reflect the best possible estimate made on the basis of the obligations incurred and the
information available.
In particular,
• The provision for supplementary customer indemnity include potential liabilities for
supplementary customer indemnity due to agents, on the basis of the total accrued
indemnities in compliance with the laws in force and on the basis of the historical data
concerning the payments made in the previous years;
• The provision for guarantees and repairs include charges connected with the risk for guarantee
works on sold products and is estimated on the basis of the historical data and the period of
guarantee;
• The provision for sales returns include the anticipated charges connected with the risk of sales
returns estimated on the basis of the historical data recorded in the current and previous
years;
• The provision for contractual controversies includes reserves different from severance
indemnity, such as pension reserves over and above social security contributions for the
employees provided for by the Law, additional pension reserves for employees resulting from
corporate agreements, inter-company or collective agreements, and severance reserves for
the termination of agency relationships;
• The provision for taxation includes deferred taxes and amounts prudentially set aside against
presumed fiscal charges, including possible additional taxes and interest on arrears and on
pending or disputed positions.
53
Staff leaving indemnity
The fund includes the indemnity to be paid to employees at the time of leaving, accrued up to the
balance-sheet date in compliance with the laws in force and with collective labor contracts, net of any
advances paid to employees.
Payables
Payables are recorded at their nominal value.
Taxation
Current taxes
Current taxes are calculated on the basis of a reasonable estimate of the taxable income of each
consolidated company in accordance with the local laws in force.
Deferred and advance taxes
Deferred and advance taxes are recorded on the amount of all the temporary differences between the
value assigned to assets and liabilities according to the Italian Civil Code, and the value assigned to
the same assets and liabilities for fiscal purposes, including any probable fiscal losses brought
forward. In calculating the deferred and advance taxes we have taken into account the tax rate in
force during the year affected by the temporary difference, as well as any possible tax relief and
benefits provided for by the tax laws in force.
Whenever the temporary differences result in tax advances, these are recorded only if there is a
reasonable certainty that the “credit” will be recovered on the basis of the future taxable income. If the
temporary differences result in deferred taxes, these are not recorded only if the probability that the
“debit” will arise is low.
Whenever possible, advance taxes and deferred taxes are compensated. Advance taxes are recorded
as receivables from others in current assets.
Deferred taxation on reserves and provisions of consolidated companies in suspension of taxation or
valued with the net equity method are recorded when these reserves are expected to be distributed,
or in any event utilized, and that the distribution or the utilization will result in a fiscal charge.
Recognition of revenues
Revenues from sales on products are recognized at the moment of passage of ownership which
usually coincides with the dispatch or delivery of the product, or at the end of the trial period; the
revenues from services are recognized when these services are provided, based on the accrual and
timing principle.
Interests receivable and payable, other costs and revenues
These are shown in the Financial Statements following the accrual and timing principle.
54
Assets held under financial leases
The financial leases, if significant, are recorded using the financial method which sets the
capitalization of the original value of the asset against the relating financial debt; depreciation is
charged to the income statement and calculated on the predicted economic-technical life of the asset.
The relating charges are recorded as follows: the portion of capital to the reduction of the debt and the
portion of interest to the income statement.
Forward contracts
Forward contracts to cover risks on exchange and interest rates are valued consistently with the
assets and liabilities covered; the paid or collected interest and exchange differentials are charged to
the Income Statement on an accrual basis for the duration of the contract. The interest and exchange
differentials accrued and not liquidated at the closure of the financial year or in advance regards
economic competence are recorded in “accrued income and prepaid expenses”, and” deferred income
and accrued expenses”.
Commitments and memorandum accounts
The memorandum accounts record the commitments assumed and the guarantees granted by the
Group companies to third parties.
55
NOTES TO THE BALANCE SHEET AND OTHER INFORMATION
Unless otherwise indicated, all values are in Euros.
1 Intangible fixed assets
The breakdown of the changes during the year are included in the table below:
Balance as
ofl 31/12/02
(thousand Euro)
Translat;
Change in
differences
the
and other
net Balance as
consolidation
Investim.
area Alienations Amortizat.Devaluation Reclassif. changes of 31/12/03
Set-up and expansion costs
Costs for research,
development and advertising
52
105
1
-
(43)
-
13
-
128
207
98
-
-
(1)
(167)
-
-
137
Industrial patents and
intellectual property rights
317
6
-
-
(36)
-
5
-
292
982
18.752
543
16.375
-
(5)
(278)
(447)
(2.084)
(2.171)
24
1.228
(10)
(1.377)
1.087
30.445
102.578
2.013
-
-
(5.498)
(1.190)
(1.952)
(6.969)
88.982
Concessions, licenses,
marks and similar rights
Goodwill
trade
Difference on consolidation
Fixed assets in progress and
advance payments
583
238
-
-
-
-
(509)
-
312
Other
13.891
4.544
47
(23)
(4.896)
(391)
242
(241)
13.173
Total
137.362
23.922
48
(306)
(13.005)
(3.919)
(949)
(8.597)
134.556
The increase in goodwill, which amounted to 16.375 thousand Euro, in addition to a number of minor
acquisitions of company divisions mainly carried out by the French and Dutch companies belonging to
the Group, is connected to the purchase of the company division National Hearing Center Inc for a
corresponding value of 15 million by NHC, which was established for this very purpose; goodwill
amounted to 14.089 thousand US Dollars (12.180 thousand Euro).
The devaluation for the period, which amounted to 2.171 thousand Euro, was mainly due to the
devaluation, carried out by the subsidiary company Amplimedical, of the residual value for goodwill
paid for the Cast Imaging S.r.l. company division for 2.079 thousand Euro, since it pertained to
business lines which the management deems to be no longer strategic following the reorientation
implemented during the company restructuring and reorganization process in the biomedical sector.
56
The breakdown of the difference on consolidation, which amounted to 88.982 thousand Euro, is
included in the table below:
Translat;
Amortiz. for the differences and
Devaluat..
period other changes.
Historical cost
Accumulated
amortization
Acquisitions
Sonus U.S.A.
Sonus Canada
Miracle Ear
CCA Groupe
38.943
1.927
1.414
18.254
(325)
(16)
(249)
(3.727)
-
-
(1.806)
(89)
(66)
(913)
(6.714)
(315)
(191)
-
30.098
1.507
908
13.614
Acquisite da CCA Groupe
Gruppo Acoudire
Gruppo Horen
Viennatone
Gruppo Amplifon Iberica
Viton
10.996
26.396
6.057
4.999
557
1.497
(1.081)
(2.095)
(554)
(500)
(36)
(19)
505
1.184
274
-
(1.000)
-
(511)
(1.447)
(299)
(250)
(42)
(75)
(1.243)
(94)
(359)
(5)
8.666
24.038
5.110
2.890
753
1.398
146
(7)
51
(190)
-
-
-
111.186
(8.609)
2.014
(1.190)
(5.498)
(8.921)
88.982
(thousand Euro)
MA.GE.
Total
Balance as ol
31/12/03
The increase in the consolidation difference on the companies acquired by CCA Groupe, which
amounted to 505 thousand Euro, was mainly due to the difference between the purchase cost of the
equity investments in and Caducée Acoustique (first consolidated in 2003) and Nogent Surditè
(acquired in 2003) and the corresponding quota of current value in net asserts acquired.
The increase in the consolidation difference of the Acoudire Group, which amounted to 1.184
thousand Euro, in addition to the increase in the Group equity stake in Electro Medical Instruments
B.V. from 65% to 100%, was mainly due to the to the difference, which amounted to 832 thousand
Euro, between the acquisition cost of the Pfennings Hoortoestellen BV equity stake and the
corresponding quota of current value in net assets acquired.
The increase in the consolidation difference in the companies acquired by the Amplifon Iberica Group,
which amounted to 274 thousand Euro, was mainly due to the difference, amounting to 241 thousand
Euro, between 100% of the equity investment in Instituto Espanol Auditivo (I.E.A.) and the
corresponding quota of current value in net assets acquired.
The devaluation of the consolidation difference in Viennatone was linked to the departure form the
Austrian market which the Group deemed to be unprofitable and no longer strategic; the pull out took
place in 2004 following the transfer of the equity stake in Phonak (further information in included in the
paragraph “Significant event occurring after the closure of the financial year” in the Report on
Operations”).
The currency translation differences and other net changes, which amounted to 8.921 thousand Euro,
were due to the differences on exchange rate translation following the appreciation of the Euro
regards the US Dollar recorded in 2003 compared to the previous financial year.
The investments in other intangible fixed assets amounted to 4.544 thousand Euro; 2.741 thousand
Euro were referred to the Parent Company for the renovation costs on retail outlets and leased
premises, amounting to 908 thousand Euro, and to expenses for the development of new programs
amounting to 1.833 thousand Euro.
57
2 Tangible fixed assets
The breakdown of tangible fixed assets and the relating accumulated depreciation as of December 31,
2003, is detailed in the table below:
(thousand Euro)
Changes in
Balance as of
the consoled.
31/12/02 Investments
area
Alienations.
Reclassif. Amortization
Other net Balance as of
31/12/03
changes
Land and building
3.578
515
140
(453)
71
(309)
(2)
3.540
Plant and machinery
1.586
407
15
(33)
(5)
(424)
(15)
1.531
Production and commercial
equipment
7.523
2.248
-
(108)
32
(2.105)
(310)
7.280
Other tangible fixed assets
15.873
8.692
103
(505)
141
(5.490)
(906)
17.908
120
402
-
(21)
(41)
-
(26)
434
28.680
12.264
258
(1.120)
198
(8.328)
(1.259)
30.693
Fixed assets in progress
and advance payments
Total
The investments for the period in other tangible fixed assets, which amounted to 8.692 thousand
Euro, were mainly referred to Group expansion for external lines following the acquisition of company
divisions as well as to the purchase of equipment and personal computers, furniture and fittings; the
purchases were part of the technological and structural update of the sales and administration areas.
The revaluations at the closure of the period effected by the Parent Company in compliance with Law
72/83 (the so-called Visentini bis) amounted to 255 thousand Euro. The amounts divided by
categories of fixed asset are detailed in the table below:
Revaluation
pursuant to Law
72/83
(thousand Euro)
Plant and machinery
Production and commercial equipment
73
Other tangible fixed assets:
Furniture and office equipment
Electronic office equipment
179
3
Total
255
58
3 Financial fixed assets
The breakdown of the item is as follows:
(thousand Euro)
Balance as 31/12/03 Balance as of 31/12/02
Equity investments in:
subsidiary companies
affiliated companies
Other companies
1.382
45
16
Receivables form others
Other securities
Total
Change
753
45
132
629
0
(116)
1.443
930
513
1.556
1.073
483
153
23
130
3.152
2.026
1.126
Equity investments
Subsidiary companies
The entry, which amounted to 1.382 thousand Euro, included the equity investments in Audioson,
totaling 325 thousand Euro, Audition Lillo, totaling 757 thousand Euro, and Espace Conseil de
l’Audition, totaling 300 thousand Euro; the investments were not consolidated and booked at cost
since they were not deemed significant.
Affiliated companies
The entry, which amounted to 45 thousand Euro, referred to the equity investment in Amplifon
Hearing Middle East with head office in the Egypt booked at cost since it was not deemed significant.
Other
The entry, which amounted to 16 thousand Euro, mainly referred to minor equity investments held by
the French subsidiaries belonging to the Group.
Receivables
Receivables from others, for the portion falling due beyond the next financial year, which amounted to
1.434 thousand Euro, referred to cautional deposits which amounted to 1.234 thousand Euro.
Other securities
Other securities; which amounted to 153 thousand Euro, increased compared to the previous year by
130 thousand Euro.
4 Inventories
The breakdown of the item is as follows:
59
(thousand Euro)
Raw materials, other materials and consumables
Balance as of
31/12/03
Balance as of
31/12/02
Change
392
607
(215)
Work-in-progress
Finished products and goods
Advances
Inventories bad debt fund
Total
685
289
396
44.662
52.335
(7.673)
1
69
(68)
(6.631)
(4.756)
(1.875)
39.109
48.544
(9.435)
The breakdown of the change in the inventories bad debt fund during the year is the following:
Balance as of 31/12/02
Provisions
4.756
2.414
Utilizations
(521)
Currency translation differences
(20)
Change in the consolidation area
2
Balance as of 31/12/03
6.631
5 Receivables
The breakdown of the item is as follows:
(thousand Euro)
Receivables from customers
Receivables from subsidiary companies
Balance as of 31/12/03 Balance as of 31/12/02
Receivables from controlling companies
Receivables from others
Total
Change
115.091
479
8.746
115.740
5
8.188
(649)
474
558
22.449
20.065
2.384
146.765
143.998
2.767
The division of receivables by type and falling due date is the following:
(thousand Euro)
Receivables from customers
Receivables from subsidiary companies
Receivables from controlling companies
Receivables from others
Total
Within 12 months
Beyond 12 months
Beyond 5 years
Total
114.749
479
8.746
342
-
-
115.091
10.883
11.566
-
22.449
134.857
11.908
-
146.765
60
479
8.746
Receivables from customers
The breakdown of the item is as follows:
(thousand Euro)
Receivables from clients
Receivables bad debt fund
Balance as of
31/12/03
Balance as of
31/12/02
Change
121.664
124.813
(3.149)
(6.573)
(9.073)
2.500
115.091
115.740
(649)
Total
The receivables form clients are substantially in line with the previous periods reported.
The change in the receivables bad debt fund during the financial year is the following:
Balance as of 31/12/02
Provisions
Utilizations
Change in consolidation area
9.073
2.053
(3.821)
-
Translation differences and other changes
(732)
Saldo al 31/12/03
6.573
Receivables from subsidiary companies
The item, which amounted to 479 thousand Euro, referred to receivables of mostly financial nature
from the non consolidated subsidiary companies Audioson, Audition Lillo and Espace Conseil de
l’Audition, in addition to Orium B.V.that was consolidated with the proportional method.
Receivables from controlling companies
The receivables form controlling companies amounted to 8.746 thousand Euro; 8.660 thousand Euro
was referred to the transfer of VAT credits and the relating interest, in compliance with article 73 of the
Presidential Decree no. 633/72 and of the Minister’s Decree 1312/79, which allows VAT payables
and receivables to be transferred to the controlling company and to file a joint Group VAT return
statement; the residual 86 thousand Euro referred to other trade receivables.
61
Other receivables
The breakdown of the item is as follows:
(thousand Euro)
Tax credits to Public Treasury
Credits to employees
Balance as of
31/12/03
Balance as of
31/12/02
Change
4.460
412
507
1.123
13.744
3.808
665
916
1.379
10.102
652
(253)
(409)
(256)
3.642
2.203
3.195
(992)
22.449
20.065
2.384
Advances to agents
Advances to suppliers other than goods
Credits for tax advances
Other receivables
Total
The item credits for tax advances includes assets on tax advances net of liabilities for deferred
taxation where the same can be off set for the single consolidated companies in addition to assets for
tax advances net of liabilities referring to deferred taxation which originated from consolidation
adjustments.
The breakdown of the item is as follows:
(thousand Euro)
Balance as of 31/12/03 Balance as of 31/12/02
Amplifon S.p.A.
Amplimedical S.p.A.
Acoudire B.V.
CCA Groupe
Amplitrade
Amplifon USA
Sonus U.S.A.
Miracle-Ear (U.S.A.)
Assets on tax advances – single consolidated companies
Assets on tax advances– consolidation adjustments
Total
Change
6.822
19
166
829
3.224
2.164
3.779
19
52
(92)
3.813
1.750
3.043
(52)
166
92
829
(589)
414
13.224
9.321
3.903
520
781
(261)
13.744
10.102
3.642
The receivables for tax advances amounted to 13.744 of Euro 10.214 thousand Euro fall due beyond
the following financial year.
As of December 31, 2003, the Parent Company receivables for tax advances amounted to 6.822
thousand Euro; 6.642 thousand Euro (3.699 thousand Euro of which falls due beyond the following
financial year) referred to IRPEG (Imposta sul Reddito delle Persone Giuridiche), the Corporate
Income Tax, and were posted net of deferred taxes which amounted to 473 thousand Euro.
The receivables for advance taxation referring to Sonus U.S.A. relate to temporary differences and repayment is scheduled beyond the next financial year.
The receivables for advance taxation pertaining to Miracle-Ear, which all fall due beyond the next
financial year, were computed on deductible temporary differences relating to the risk fund.
62
The receivables for advance taxation from the consolidation statements, which amounted to 520
thousand Euro, referred to the elimination effect of inter-Group transactions concerning the disposal of
assets included in inventories at the purchasing company at the date of closure of the Financial
Statements.
6 Financial assets not classified as long term investments
Other securities
The item, which amounted to 2.318 thousand Euro as of December 31, 2003, increased by 2.113
thousand Euro compared to the previous period and included short-term investments in investment
funds listed in France.
7 Liquidity
The breakdown of the item is the following:
(thousand Euro)
Bank and Post Office deposits
Checks
Balance as of 31/12/03 Balance as of 31/12/02
Cash and cash equivalent on hand
Total
Change
30.952
6
38.020
1
(7.068)
5
334
4.714
(4.380)
31.292
42.735
(11.443)
At the closure of every financial year, as a rule liquidity is employed on the short-term forward market
with primary bank dealers; interest rates are in line with prevalent market conditions.
63
8 Accrued income and deferred payments
The breakdown is as follows:
(thousand Euro)
Rentals paid
Business rentals
Balance as of 31/12/03 Balance as of 31/12/02
Change
491
120
669
152
214
522
95
1.860
27
143
(31)
25
(1.191)
125
71
Other
1.349
1.538
(189)
Totale
2.995
4.185
(1.190)
Advertising
Rentals on leasing, hiring and servicing
Insurance
LIABILITIES AND SHAREHOLDER’S EQUITY
9
SHAREHOLDER’S EQUITY
The changes to the shareholder’s equity accounts during the period are shown in the following table:
(thousand Euro)
Total third
party and
Reserve
Profit
Group
Reserve for
Group Third party
from share
(loss) of Difference Profit (loss)
for the shareholder’s shareholder’s shareholder’s
Share price over Legal Extraordinary accelerated Merger the prev. on currency
equity
equity
par reserve
equity
year.
transl.
period.
reserve depreciation. surplus
capital
Saldo 31/12/02
3.924
106.735
594
Allocation of results for
2002
-
-
-
Distribution of dividends
-
-
-
Entrance of third parties
-
-
-
2.576
2.812
2.121
6.736
(4.153)
15.133
136.478
874
137.352
- (2.121)
17.254
-
(15.133)
-
-
-
-
-
-
(2.943)
-
-
(2.943)
-
(2.943)
-
-
-
(647)
-
-
(647)
647
-
Currency translation
difference
-
-
-
-
-
-
(10.687)
-
(10.687)
(661)
(11.348)
Other changes
-
(1.571)
-
191
(191)
-
1.571
-
-
-
1.640
1.640
Profits for 2003
-
-
-
-
-
-
-
-
12.667
12.667
213
12.880
3.924
105.164
594
2.767
2.621
-
21.971
(14.840)
12.667
134.868
2.713
137.581
Balance
31/12/03
as
of
Share capital
As of December 31, 2003, the fully subscribed and paid up share capital was made up of no.
19.621.000 ordinary shares with a nominal value of 0,20 Euro each.
64
Reserves
In order to provide accurate information it must be noted that in compliance with article 2431 of the
Italian Civil Code, the reserve for share price over par may not be distributed until the legal reserve
amounts to one fifth of the share capital.
Statement relating the net shareholder’s equity and the net operating result for the year of the
Parent Company Amplifon S.p.A. to the consolidated net shareholder’s equity and the net
operating result for the year as of December 31, 2003.
2003
Net shareholder’s
equity
2002
Net shareholder’s
Income
equity
Income
Net shareholder’s equity and income for the period as reported in
the controlling company financial statements for the year
122.942
Elimination of the balance sheet value of consolidated equity
investments:
Difference between the balance sheet value and the pro-quota
value of the booked net shareholder’s equity of the subsidiary
companies
Pro-quota income realized by subsidiary companies
Difference on consolidation
Write down of devaluation in equity investments
Charge off of provisions for risks in equity investments
Elimination of the effect of transactions between consolidated
companies:
Intra-group profits included in the final value of inventories
Intra-group dividends
Other transactions:
Fiscal effect from French consolidation
Exchange differences and other changes
6.783
119.102
(3.692)
(77.279)
-
(88.008)
-
-
10.062
-
(2.433)
88.403
(6.611)
102.578
(4.467)
-
17.533
-
27.235
167
167
1.530
1.530
(2.082)
(786)
(1.296)
(400)
-
(14.209)
-
(2.811)
2.314
(112)
2.426
754
403
(160)
146
(583)
Group net shareholder’s equity and operating result for the period
134.868
12.667
136.478
15.133
Third party net shareholder’s equity and operating result for the
period
2.713
213
874
182
137.581
12.880
137.352
15.315
Net shareholder’s equity and operating result for the period as
reported in the financial statements
10 Reserves for risks and charges
As of December 31, 2003, the reserves for risks and charges amounted to 11.659 thousand Euro
recording a 1.259 thousand Euro decrease compared to the previous period.
65
The breakdown of the item is as follows:
For social security provisions and similar
The entry, which amounts to 710 thousand Euro, includes additional pension provisions for the
employees of Miracle-Ear, which amount to 200 thousand Euro, and for the employees of the French
Group, which amount to 483 thousand Euro.
For tax
The entry, which amounts to 1.362 thousand Euro, mainly refers to deferred taxation for 1.140
thousand Euro, which was computed on the difference occurring in the Dutch subsidiary companies
on account of the different taxable value of accrued expenses and deferred income relating to the
services in guarantee and after sales guarantees compared to the statutory value.
Other
The breakdown of the change which occurred in the entry other reserves for risks and charges is
detailed in the table below:
(thousand Euro)
Provisions for supplementary customer indemnity
Provisions for guarantees and repairs
Provisions for sales returns
Provisions for contractual controversies
Provisions for company renovation
Other provisions
Total
Acquisitions of
company
Utilization
divisions
Other net Balance as of
31/12/03
changes
Balance as of
31/12/02
Allocations.
3.797
32
(386)
-
(358)
3.085
881
137
(4)
-
-
1.014
1.049
375
(259)
-
269
1.434
771
1.276
(52)
-
2
1.997
2.956
-
(1.821)
402
(716)
821
303
1.192
(264)
-
5
1.236
9.757
3.012
(2.786)
402
(798)
9.587
The amounts were estimated by carrying out a realistic estimate of the potential charge.
The provisions for supplementary customer indemnity include potential liabilities for supplementary
customer indemnity due, with a reasonable degree of probability, to agents on the basis of a
prudential estimate.
The provisions for guarantees and repairs, which amounted to 1.014 thousand Euro, referred to the
controlling company and is deemed to be adequate to defray the anticipated charges connected with
the risk for guarantee works on sold products. To better evaluate the information, the opening value
was adjusted - compared to the financial statements as of December 31, 2002 – by applying different
accounting criteria in line with Group standards, regards booking on an accrual basis the services in
guarantee on products sold and after sales services performed by the Dutch subsidiary companies.
The different accounting criteria had entailed booking, as of December 31, 2002, 6.974 thousand Euro
as pre-paid expenses instead of provisions for guarantees and repairs.
The provisions for sales returns, determined on the income for the periods up to 2003, appears
adequate to defray the anticipated charges connected with the risk on sales returns.
66
The provision for contractual controversies implemented to defray the anticipated charges connected
to contractual controversies with employees and agents, in addition to risks resulting from the supply
of services, was determined following a prudential estimate of the charges involved.
The provisions for company renovation include the charges anticipated for implementing the company
renovation and reorganization plan for Sonus USA and Sonus Canada.
11
Staff leaving indemnity
The provision includes the allocations for staff leaving indemnity on the basis of the current laws in
force in each individual country and of the national and additional labor contracts, net of accounts
distributed and any sums that might have already been paid to the employees.
The changes in staff leaving indemnity during the period are the following:
Balance as of 31/12/02
8.503
Provisions
1.626
Utilizations
(1.469)
Currency translation differences
(3)
Change in the area of consolidation
-
Balance as of 31/12/03
12
8.657
PAYABLES
The breakdown of the item is as follows:
(thousand Euro)
Balance as of 31/12/03 Balance as of 31/12/02
Bank payables
Payables towards other financing bodies
Advances
Payables towards suppliers
Payables towards subsidiary companies
Payables towards affiliated companies
Payables towards controlling companies
Tax payables
Payables towards providential and social security institutes
128.998
375
2.773
49.547
80
10
132
15.171
5.879
Other payables
Total
Change
144.100
799
2.571
51.748
64
389
13.215
4.923
(15.102)
(424)
202
(2.201)
16
10
(257)
1.956
956
21.990
22.095
(105)
224.955
239.904
(14.949)
The division of the payables by type and falling due date is the following:
(thousand Euro)
Bank payables
Payables towards other financing bodies
Within 12 months
Beyond 12 months
Beyond 5 years
Total
43.867
9
85.131
366
-
128.998
375
67
Advances
Payables towards suppliers
Payables towards subsidiary companies
Payables towards affiliated companies
Payables towards controlling companies
Tax payables
Payables towards providential and social
security institutes
Other payables
Total
2.773
49.547
80
10
132
15.171
-
-
2.773
49.547
80
10
132
15.171
5.879
-
-
5.879
21.501
489
-
21.990
138.969
85.986
-
224.955
Bank payables
The breakdown of the entry is as follows:
(thousand Euro)
Within 12 months
Beyond 12 months
Beyond 5 years
7.898
331
14.844
21.550
(6.946)
(21.219)
35.630
Current accounts
Financial transactions
Medium/long term loans (quota falling due within 12 months)
35.638
8
Bank payables falling due within 12 months
43.867
36.402
7.465
Medium/long term loans (quota falling due beyond 12 months)
85.131
107.698
(22.567)
128.998
144.100
(15.102)
Total
As of December 31, 2003, short-term bank payables, which amounted to 43.867 thousand Euro, in
addition to current account overdrafts, included the opening of credit lines for a maximum of 30.000
thousand Euro; the credit line was granted by Banca Intesa BCI, and regulated on a quarterly basis
with a variable rate amounting to the Euribor at three months + 0,75% falling due on May 17, 2004.
As of December 31, 2003, the middle/long term financial borrowings mainly included the portion of the
the following loans falling due beyond the next period:
i) loans raised on June 30, 2003, initially of 45.000 thousand Euro, not backed by any guarantee and
falling due within five years; of this 30.000 thousand Euro at a variable rate amounting to the Euribor
at six months + 0,95% and 15.000 thousand Euro at a variable rate amounting to the Euribor at three
months + 0,95%;
ii) loans raised on August 27, 2003, initially of 25.000 thousand Euro, not backed by any guarantee
and falling due within five years; repayment in six semester installments falling due as of January 20,
2006, with a variable rate amounting to the Euribor at six months + 1,0%;
iii) loans raised on July 21, 2003, initially of 20.000 thousand Euro, not backed by any guarantee and
falling due within five years; repayment in ten semester installments falling due as of January 1, 2004,
with a variable rate amounting to the Euribor at six months + 1,1%; in relation to the said loan, Simest
paid a 2,16% contribution to the interest account.
In order to cover the interest-related risks the parent company arranged the following contracts:
• a Collar contract on 15.000 thousand Euro falling due in May 2004 with the reference rate
fluctuation band at Euroribor three months: floor 3,00% – cap 3,68%;
68
• a Collar contract on 30,000 thousand Euro falling due in June 2008 with the reference rate
fluctuation band Euroribor three months: floor 2,55% – cap 4,75%;
• IRS (Interest Swap Rate) contract on 20,000 thousand Euro falling due in June 2004 with a fixed
interest rate of 3.25%;
As of December 31, 2003 the Group credit lines amounted to approximately 216,000 million Euro; 129
million Euro have been utilized.
Payables towards other financing bodies
As of December 31, 2003, the entry, which amounted to 375 thousand Euro, was mainly due to the
residual debt of the subsidiary company Sonus U.S.A. for the purchase of lease-purchase assets.
Advances
As of December 31, 2003, the item, which amounted to 2.773 thousand Euro, includes advances
received from customers.
Payables towards suppliers
As of December 31, 2003, payables towards suppliers amounted to 49.547 thousand Euro decreased
by 2.201 thousand Euro compared to the previous financial year and included the payables to
suppliers for goods and services.
Payables towards subsidiary companies
As of December 31, 2003, the item, which amounted to 80 thousand Euro, referred to trade payables
for 18 thousand Euro, towards Orium B.V. ed Acousoft Informatisering B.V. - consolidated using the
proportional method - in addition to financial debt towards the above Acousoft Informatisering B.V.
which amounted to 62 thousand Euro.
Payables towards controlling companies
The payables towards controlling companies, which amounted to 132 thousand Euro, included trade
payables in addition to the transfer of the Amplimedical VAT debt to Amplifin S.p.A..
Tax payables
The breakdown is as follows:
(thousand Euro)
Within 12 months
Beyond 12 months
Beyond 5 years
2.448
6.841
5.376
1.099
4.871
6.532
1.349
1.970
(1.156)
506
713
(207)
Payables for deduction at source
Income tax payables
Payables for indirect taxation
Other payables
69
Total
15.171
13.215
1.956
The income tax payables represent the actual debt due computed on the basis of the current
legislation in force in the countries where the consolidated companies operate.
The payables for indirect taxation mainly include deferred VAT payments pertaining to Amplifon and
Amplimedical.
Payables towards providential and social security institutes
The payables towards providential and social security institutes, which amount to 5.879 thousand
Euro, mainly include payables towards the social security institute INPS (the Istituto Nazionale della
Previdenza Sociale) and the national insurance for industrial accidents INAIL (the Istituto Nazionale
per l’Assicurazione contro gli Infortuni sul Lavoro).
Other payables
The breakdown is as follows:
(thousand Euro)
Within 12 months
Beyond 12 months
Beyond 5 years
Payables towards employees
Payables towards agents
Payables for acquisitions
8.929
9.625
1.118
7.195
8.983
2.821
1.734
642
(1.703)
Other payables
2.318
3.096
(778)
21.990
22.095
(105)
Balance as of 31/12/03 Balance as of 31/12/02
Change
Total
13 Accrued expenses and deferred income
The breakdown of the entry is as follows
(thousand Euro)
Revenues from guarantees
Interest payable
6.106
387
8.234
619
(2.128)
(232)
Other
1.535
2.723
(1.188)
Total
8.028
11.576
(3.548)
As of December 31, 2003, the revenues form guarantees, which amounted to 6.106 thousand Euro,
referred to consecutive periods and concerned multi-year guarantee maintenance contracts on
products sold by Sonus U.S.A. and by the Dutch subsidiary companies. In order to compare the
information, in relation to the financial statements as of December 31, 2002, the opening value was
adjusted pursuant to the application of different accounting criteria in line with the standards adopted
by the Group for booking guarantee services on products sold and after sales services on an accrual
basis performed by the Dutch subsidiaries. As of December 31, 2002, the different accounting criteria
entailed booking 6.974 thousand Euro in accrued expenses and deferred income instead of in
provisions for guarantees and repairs. The item decrease recorded in that the period pertains to
recharging to the income statement under the entry “Extraordinary income” the excess, which
70
amounted to 2.953 thousand Euro, of provisions made in the previous financial years in relation to the
value of revenues from guarantees and after sales services referring to consecutive periods of the
Dutch subsidiary companies.
14
Commitment and memorandum accounts
The breakdown is as follows:
(thousand Euro)
Balance as of 31/12/03 Balance as of 31/12/02
Guaranties given:
Personal surety given
Collateral guarantees given
Total
Change
4.822
2.802
2.020
349
295
54
5.171
3.097
2.074
As of December 31, 2003 the personal surety, which amounted to 4.822 thousand Euro, included
surety ship given mainly referred to:
• surety ship given by the parent company to guarantee the commitment or contractual obligations
for overall 2.614; 1.915 thousand Euro refer to the surety ship given against the obligation to
repurchase from SIMEST the 3,81% of the equity investment in Amplifon USA (details are included in
the Report on Operations at the paragraph “The trade network and markets”);
• surety ship given to Public Bodies in order to take part in bids to tender for the supply of services
amounting to 523 thousand Euro;
• surety ship given to guarantee the payment in installments of the purchase price for the company
division Casti Imaging S.r.l. which amounted to 880 thousand Euro;
• surety ship for fiscal litigation issued to the financial administration and amounting to Euro 678
thousand.
71
INCOME STATEMENT
15 Value of operations
The breakdown of the item is the following:
(thousand Euro)
Income from sales and services
Change in inventories of work-in-progress, semi-finished and
finished products
Increase in fixed assets from internal work
Other revenue and income
Total
2003
2002
Change
443.388
391.941
51.447
331
1.025
(95)
965
426
60
20.125
15.796
4.329
464.869
408.607
56.262
Revenues from sales and services
The table shows the breakdown of revenues from sales and services divided by geographical areas
and type of business:
2003
%
2002
%
Italy
145.214
32,6%
138.535
35,3%
6.679
4,8%
U.S.A. - Canada
129.858
29,3%
103.161
26,3%
26.697
25,9%
France
59.708
13,5%
47.911
12,2%
11.797
24,6%
Holland
54.466
12,3%
46.358
11,8%
8.108
17,5%
Switzerland
13.568
3,1%
13.139
3,4%
429
3,3%
Spain and Portugal
12.644
2,9%
11.334
2,9%
1.310
11,6%
Austria
5.907
1,3%
6.248
1,6%
(341)
(5,5%)
Hungary
2.108
0,5%
1.919
0,5%
189
9,8%
423.473
95,5%
368.605
94,0%
54.868
14,9%
Italy
19.915
4,5%
23.336
6,0%
(3.421)
(14,7%)
Total biomedical equipment
19.915
4,5%
23.336
6,0%
(3.421)
(14,7%)
443.388
100,0%
391.941
100,0%
51.447
13,1%
(thousand Euro)
Change Change %
Hearing aid sector:
Total hearing aids
Biomedical equipment sector:
Total
The revenues form consolidated sales and services showed a 51.447 thousand Euro increase which
was entirely generated by the Group core business: the revenues from the distribution and fitting of
hearing aids increased form 368.605 thousand Euro in 2002 to 423.473 thousand Euro in 2003
recording a 54.868 thousand Euro increase although, in terms of absolute value, the revenues in 2003
were negatively affected by the appreciation of the Euro regards the US Dollar.
Further information regarding the trend of revenues by sector and geographical area is included in the
Report on Operations in the Notes to the entry “Revenues from sales and services”.
Increase in fixed assets for internal work
72
The item, which amounted to 1.025 thousand Euro, mainly referred to withdrawals from inventories of
electro medical equipment for diagnostic purposes (usually due to sale) and given to the commercial
staff and distribution centers as instrumental assets for the exercise of business activities in addition
to coclear hearing aids utilized for replacement services instead of service.
Other revenues and income
The other revenues and income, which amounted to 20.125 thousand Euro, mainly included revenues
from commissions amounting to 14.213 thousand Euro, the Parent Company recharge of the costs
pertaining to outlet rentals that were sustained on behalf of one-firm agents with business leases
amounting to 1.719 thousand Euro, contingent assets from management activities, which amounted to
1.114 thousand Euro, and revenues from the collection of down payments which amounted to 528
thousand Euro.
16
Costs of operations
The breakdown of the item is as follows:
(thousand Euro)
Costs for raw materials, other materials, consumables and
goods
Costs for external services
For lease expenses
Labor costs
Depreciation and amortization
Change in raw materials, other materials, consumables and
goods
Provisions for risks
Other provisions
Other operating costs
Total
2003
2002
Change
144.729
113.387
22.574
109.631
23.739
142.441
102.773
19.851
91.369
19.660
2.288
10.614
2.723
18.262
4.079
5.505
468
317
(5.099)
118
49
10.604
350
268
8.769
8.007
762
429.119
379.169
49.950
For raw materials, other materials, consumables and goods
The costs for purchasing raw material, other material, consumables and goods, which amounted to
144.729, increased by 2.288 thousand Euro compared to the previous period. The increase in the
entry is less than proportional to the revenues form sales following the improved contractual
bargaining power in relation to major suppliers.
73
For services
The breakdown of the entry is the following:
(thousand Euro)
2003
2002
Change
42.454
23.520
7.460
996
3.783
5.536
6.088
1.806
8.284
7.422
1.333
782
39.419
19.738
6.717
2.493
3.277
5.211
5.571
1.527
5.664
9.516
1.516
710
3.035
3.782
743
(1.497)
506
325
517
279
2.620
(2.094)
(183)
72
Other
3.923
1.414
2.509
Total
113.387
102.773
10.614
Agents’ commissions
Advertising
Consultancy and professional services
Outsourcing
Transport
Travel and business trips
Telephone and electricity
Insurance and surveillance
Cleaning and maintenance
Sales and distribution services
Meetings, conferences and courses
Director and Auditor remuneration
The costs for agents’ commissions for the year, which amounted to 42.454 thousand Euro, recorded a
3.035 thousand Euro increase compared to the previous period; the increase was correlated to the
increase in revenues from sales.
The costs for consultancy and professional services mainly refer to legal and administration
consulting, consulting for auditing the financial statements and fiscal, commercial, marketing and
scientific services.
The costs for travel and business trips include costs for work-related travel and accommodation and
the costs for running the company canteen.
For lease expenses
The costs for lease expenses, which amounted to 22.574 thousand Euro, were mainly referred to
rentals of company offices and outlets.
Labor costs
During the first half 2003, labor costs, which amounted to 109.631 thousand Euro, showed a 18.262
thousand Euro increase compared to the same period in the previous year; the increase was due to
Group-related growth for external lines following the acquisition of companies and company divisions.
74
Amortization and depreciation
The entry breakdown is as follows:
(thousand Euro)
Amortization of intangible fixed assets
Depreciation of tangible fixed assets
Other fixed assets depreciation
Devaluation of receivables included in current assets
Total
2003
2002
Change
13.013
8.315
358
9.238
7.792
907
3.775
523
(549)
2.053
1.723
330
23.739
19.660
4.079
The devaluation of fixed assets, which amounted to 358 thousand Euro, included the devaluation for
190 thousand Euro of the difference on consolidation for Ma.Ge. S.r.l..
The devaluation of receivables included in current assets, which amounted to 2.053 thousand Euro,
represent the actual risk connected to uncollectible receivables from clients for the period.
Other operating charges
The breakdown of the entry is as follows:
(thousand Euro)
2003
2002
Change
Membership fees
Entertainment expenses and gifts
Tax and duties
Non-operating loss
Loss on credits
Capital loss
538
1.124
2.195
1.444
125
271
357
964
1.479
3.137
131
86
181
160
716
(1.693)
(6)
185
Other
3.072
1.853
1.219
Total
8.769
8.007
762
The non–operating losses mainly refer to the sales adjustments pertaining to previous financial years.
75
17
Financial income and charges
Other financial income
The breakdown of the item is as follows
(thousand Euro)
2003
2002
Change
Credit interests on receivables booked in fixed assets
92
103
(11)
Credit interests from securities booked in fixed assets
9
34
(25)
Credit interests from securities booked in current assets
15
1
14
38
317
3.637
115
76
283
1.653
5.159
(38)
34
1.984
(5.044)
Other
1
749
(748)
Total
4.224
8.058
(3.834)
Credit interest form the controlling company Amplifin S.p.A.
Credit interests form customers
Credit on currency translation differences
Bank credit interests
The credit interest posted by the controlling company Amplifin, which amounted to 38 thousand Euro,
was mainly due to the interest accrued on VAT receivables (transferred to the controlling company
pursuant to article 73 of the Presidential Decree 633 of 26/10/72 and Minister’s Decree 13/12/79). The
interest rate applied is the rate prescribed by Law.
Interest and other financial charges
The breakdown of the item is as follows:
(thousand Euro)
2003
2002
Change
Interest on bank current accounts and short-term loans
Interest on bank current accounts and medium/long-term loans
Interest on bond issues
Allowed discounts and expenses
Currency translation differences
Interest on loans from non consolidated subsidiary companies
1.288
3.798
35
1.742
3.286
3
4.661
780
6.614
1.124
2.351
-
(3.373)
3.018
(6.579)
618
935
3
Other
45
91
(46)
Total
10.197
15.621
(5.424)
The decrease in the entry was mainly due to the reduction in interest payable following the repayment
on November 27, 2002, of the 100 million Euro bond issued by Amplux on November 27, 2002 with a
7% yearly interest rate.
Further information on the structure of the Group financial borrowing is included in the notes to the
entry “Bank payables”.
76
18
Extraordinary income and charges
Income
The breakdown of the entry is the following:
(thousand Euro)
2003
2002
Change
Capital gains form alienations
Income for product guarantees expired
Previous years taxation
29
2.953
1.331
-
2.953
1.331
Other
45
304
(259)
Total
4.358
304
4.025
The income for product guarantees expired, which amounted to 2.953 thousand Euro, in compliance
with the new accounting criteria adopted so as to ensure alignment with the Group standards, were
mainly due to recharging the excess provisions from the previous years to the income statement in
relation to the value of revenues from after sales guarantees and services which the Dutch subsidiary
companies had postponed to subsequent years.
The extraordinary income for previous years taxation amounted to 1.331 thousand Euro; 1.225
thousand Euro related to the Parent Company recharging of the excess provisions for taxation from
the previous years to the income statement, pursuant to a trend in jurisprudence adopted by the
Supreme Court which occurred after the date of approval of the Financial Statements for 2002.
Charges
The breakdown of the item is as follows:
(thousand Euro)
2003
2002
Change
Charges for restructuring and reorganizing Amplimedical
Devaluation on Viennatone consolidation differences
Charges for legal litigation
8.584
1.000
641
-
8.584
1.000
641
680
352
328
10.905
352
10.553
Other
Total
The charges for restructuring and reorganizing Amplimedical, which amounted to 8.584 thousand
Euro, include the extraordinary charges paid by the subsidiary company on account of the
management’s strategic choice, which was taken in consequence of the cyclical malaise and internal
difficulties of the biomedical sector - not a Group core business - to bring about a radical change in the
marketing and production strategy by way of company restructuring operations. The said operations,
which significantly altered the structure of the subsidiary company, concern the abolition of
inefficiencies and discarding a number of marketing and production lines which are believed to be
unprofitable; this entailed closing some business units and reducing occupancy. The aforementioned
measures lead to the payment of extraordinary charges for: i) incentives for staff migration, which
overall amounted to 861 thousand Euro; ii) devaluation and scrapping of inventories, for 3.802
thousand Euro; iii) the payment of penalties on account of the early cancellation of supply, consulting
77
and agency contracts, which amounted to 496 thousand Euro; iv) devaluation of goodwill paid for
business lines no longer deemed to be strategic, which overall amounted to 2.171 thousand Euro;
The devaluation of Viennatone consolidation differences, which amounted to 1.000 thousand Euro,
was connected to the departure from the Austrian market, the Group deemed to be unprofitable and
no longer strategic. The Group pulled out of Austria in 2004 after having transferred 100% of its equity
investment in Phonak (further information is available in the paragraph “Significant events occurring
after the closure of the financial year” in the Report on Operations). The devaluation represents the realignment of the difference on consolidation pertaining to the Austrian subsidiary company and
booked at transfer value that was determined on the basis of the transfer contract.
The charges for legal litigation, which amounted to 641 thousand Euro, were mainly due to the costs
for the settlement of a dispute concerning the sale of a company which occurred in the previous years.
20 Income tax for the year
The breakdown of the item is as follows
(thousand Euro)
2003
2002
Change
Income before taxes
Current taxes
Deferred taxes (advance)
23.230
12.338
(1.988)
21.899
8.630
(2.046)
1.331
3.708
58
Total
10.350
6.584
3.766
Tax rate
44,6%
30,1%
The taxes for the year represent the actual tax burden of the Group and were determined in
compliance with the tax laws in force in the countries where the consolidated companies operate.
The increase in the incidence of the fiscal burden on income before taxes, which increased form
30,1% in 2002 to 44,6% in 2003, was mainly due to the extremely low fiscal burden in the 2002
financial year, connected to the final equity investments devaluations in consolidated subsidiary
companies.
78
Fiscal position
Last period closed
It must be pointed out that Amplifon S.p.A. and the Italian subsidiary companies Amplimedical S.p.A.
and Ampliclinical S.r.l. (now merged with Amplifon S.p.A.) and MA.GE S.r.l. decided to make use of
the provisions pursuant to articles 8 and 9 of the Law no. 289 of December 27, 2002, and subsequent
modifications, concerning the adjustment of taxable income and the automatic definition of
adjustments relating to past years.
In particular, the automatic definition will apply only to the sector relating to income tax and
assimilated taxes in compliance with the provisions of art. 9 subparagraph 1 of the Law in question. In
relation to Valued Added Tax, integrations to the tax returns have been filed for all the years subject to
the settlement (from 1998 to 2001).
In 2004 the said companies decided to make use of the institutions in the same manner also for 2002.
The definition of the automatic adjustments entails, only for the years and taxes subject to the tax
amnesty, the preclusion of any tax assessment, the wiping-out of administrative and tax sanctions as
well as the preclusion of punishment for any tax-related or non tax-related infringement that might
have been committed (art. 9 sub-paragraph 10, Law n° 289/2002).
By adopting the automatic definition, companies as a result have defined all open tax periods
regarding the income tax and assimilated taxes (from 1997 to 2002).
Conversely, regarding Value Added Tax, the filing of an additional statement for all open tax periods
(from 1998 to 2002) entailed, for each year subject to the tax amnesty, the above mentioned
preclusions only, however, for the further additional tax increased by a 100% franchise.
As a result, in case of a Value Added Tax assessment pertaining to those years, the tax due will be
limited to the amount in excess of the adjusted tax, increased by the aforementioned franchise.
Fiscal litigation
There are no fiscal disputes in progress relating to the Italian companies of the Amplifon Group with
the exception of the subsidiary company Amplimedical S.p.A.. The most significant disputes currently
pending are described below.
The Direct Tax Office of Milan served Amplimedical S.p.A. with four notices of assessment relating to
the period from 1986 to 1989; moreover, each notice taxation was raised on the amortization of the
goodwill reported in the Financial Statements following the merger through incorporation of
Intermedical S.p.A..
In the notices relating to the years 1986, 1989 and 1990, the Direct Tax Office assessed a further
increase in taxation and imposed fines for the total amount of 999 thousand Euro. In 1994 the Tax
Commission of first instance admitted the Company’s cumulative appeal ruling the extinction of the
judgment for the year 1986, since the increased taxation was subject to an amnesty. The dispute
79
concerning that year can consequently be deemed closed. The Direct Tax Office appealed against
this judgment only disputing the deducibility of the amortization for the years 1989 and 1990. In 1998,
the Regional Tax Commission of Milan admitted the appeal of the Tax Office. The Company appealed
against the ruling to the Court of Cassation but the Solicitor General resisted the company’s appeal
and filed a counter-appeal.
In the notification concerning the corporate year 1987 the Direct Tax Office assessed a further
increase in taxation and imposed fines for the total of 185 thousand Euro. In 1996, the Regional Tax
Commission of first instance admitted the Company’s appeal ruling the legitimacy of a number of
recoveries of negligible entity. The Direct Tax Office appealed against this judgment only contesting
the recognized deducibility of the quotas of amortization, but not deducting anything regards the other
recoveries. In turn, the Company appealed incidentally against the ruling. In 1998, the Regional Tax
Commission of Milan admitted the appeal of the Direct Tax Office and threw out the Company
incidental appeal. The Company has appealed against the ruling to the Court of Cassation.
The notification pertaining to the financial year 1988 has been cancelled by the Regional Tax
Commission of Milan with a judgment that was not contested by the Tax Office, and became res
judicata. The controversy is therefore over.
In the year 2000, the Tax Office served Amplimedical S.p.A. with three separate tax assessment
notices; the Tax Office requested the payment for increased taxation and fines (including interest)
assessed for the years 1986, 1989 and 1990, for a total amount of 1,315 thousand Euro (327
thousand Euro 1986, 492 thousand Euro for 1989 and 497 thousand Euro for 1990).The Company
decided to file a cumulative appeal disputing the tax assessment notices. During the proceedings the
Office provided for the integral reduction of the tax assessment notice for 1986 and for the partial
reduction of the tax assessment notices for 1989 and 1990. The Company requested and was granted
to pay in installments (55 installments) the residual amounts still entered for trial for a total of 579
thousand Euro.
The Regional Tax Commission of Milan with ruling no. 163/34/02 filed on October 29, 2002, annulled
the tax notices.
The Company has already paid, on a provisional basis, 172 thousand Euro for taxation and pecuniary
penalties (in addition to the relating interests). The payment of the residual amounts has been
postponed. In 2001 the Regional Tax Commission served the Company with a notice for assessment
in which the same required the company to paid additional taxation and pecuniary penalties (in
addition to interest) amounting to 62 thousand Euro due pursuant to the ruling of the Regional Tax
Commission of Milan and pertaining to the 1987. The Company settled all amounts filed in the
assessment roll.
In the case that the judgment relating to the assessment notices (referring to the years 1987, 1989
and 1990) currently pending before the Court oft Cassation should have a favorable outcome for the
Company, the same shall be entitled to the repayment of the sum disbursed on a provisional basis on
the strength of the tax-assessment notice.
80
The Directors believe that no significant charges for the Company can emerge from the
aforementioned disputes and, consequently, they have not deemed it necessary to make any
provisions to cover the risk.
This decision was based on the following: (i) the jurisprudence relating to merit and legitimacy, which
now accepts the established trend and views as legitimate to report a merger loss and the relating
amortization under the entry goodwill in the Financial Statements (ii) the Circular n. 49 of 30th May
2001 from the Revenue Agency (Agenzia delle Entrate) that requests the periphery offices to take the
said trend into account and abandon any pending disputes, (iii) the ruling regarding the corporate year
1988.
OTHER INFORMATION
EARNINGS PER SHARE
The earnings per share for the 2003 financial year, determined by dividing the net Group income for
the period by the number of Amplifon S.p.A. shares in circulation at the closure of the year, amounted
to 0,65 Euro.
EMPLOYEES
The table below shows how the average number of employees and of staff employed, divided by
category, developed during the years in question:
2003
2002
31/12
average
31/12
average
429
419
349
319
White collar workers / blue collar workers
1.972
1.887
1.941
1.687
Total
2.401
2.306
2.290
2.006
Management / middle management
The table below shows the average number of employees as of December 31, 2003 divided by
geographical area:
Italy
Management / middle management
USA Holland
Spain
and
France Portugal Switzerland
Austria Hungary
Total
75
58
176
100
9
6
3
2
429
White collar workers / blue collar workers
484
681
207
320
92
106
60
22
1.972
Total
559
739
383
420
101
112
63
24
2.401
The table below shows the average number of employees during the 2003 financial year divided by
geographical area:
Italy
Management / middle management
USA Holland
Spain
and
France Portugal Switzerland
Austria Hungary
Total
84
52
167
96
9
7
3
1
419
White collar workers / blue collar workers
494
643
198
279
88
102
63
21
1.887
Total
578
695
365
375
97
109
66
22
2.306
81
REMUNERATION OF DIRECTORS AND AUDITORS
The information concerning the remuneration of Directors and Auditors is included in the Notes to the
Financial Statements of the Parent Company in the section “Other information”.
EVENTS FOLLOWING THE CLOSING OF THE YEAR AND THE EXPECTED EVOLUTION OF
OPERATIONS
The events following the closure of the 2003 financial year and the expected evolutions of operations
are described in the relating section in the Report on Operations.
RELATIONS WITH CONTROLLING, SUBSIDIARY AND AFFILIATED COMPANIES
The relations with the controlling, subsidiary and affiliated companies are described in the relevant
section in the Report on Operations.
for the Board of Directors
Giovanni Martino Rollier
82
Attachment 1)
CASH FLOW STATEMENT
(thousand Euro)
OPERATING ACTIVITIES
Group income
Third party income
2003
2002
12.667
213
12.880
15.133
182
15.315
Depreciation and amortization
- of intangible fixed assets
- of tangible fixed assets
- of differences on consolidation
- of goodwill
Allocations:
- to staff leaving indemnity
- to reserve for risks and charges
- to devaluation of fixed assets
- to inventory obsolescence provisions
- to bad debt reserve
Capital (gains) losses from fixed assets
Sub-total
Staff leaving indemnity liquidated
Utilization other reserves
(Increase) decrease in inventories
Increase in current receivables net of financial receivables
Decrease in financial activities not classified as long term investments
(Increase) decrease in accrued income and pre-paid expenses
Increase in payables towards suppliers
Decrease in other non financial debts
Increase of accrued expenses and deferred income
Change in current assets
5.432
8.315
5.498
2.084
4.751
7.792
3.670
818
1.626
5.394
3.718
1.891
2.053
213
49.103
(1.470)
(1.435)
7.447
(7.460)
(2.052)
1.002
299
5.445
(3.123)
(1.346)
2.338
1.180
907
626
1.723
17
39.136
(2.122)
(8.817)
(2.605)
(12.659)
509
(789)
(922)
2.073
7.465
(17.867)
Cash flow generated by assets
47.756
21.269
(continued)
83
(thousand Euro)
INVESTING ACTIVITIES:
Purchase of intangible fixed assets
Purchase of tangible fixed assets
Proceeds from the disposal of fixed assets
Purchase of equity investments in subsidiary companies (net of subsidiary
company liquidity):
Corresponding to investments in:
- intangible fixed assets
- tangible fixed assets
- financial fixed assets
-current assets
- accrued income and pre-paid expenses
-provisions for risks and charges
-staff leaving indemnity
-payables
- deferred income and accrued expenses
-difference on consolidation
Purchase of company divisions :
- goodwill
- tangible fixed assets
Increase (decrease) in debt for acquisitions
Increase (decrease) in restructuring fund
(Purchase) disposal of other equity investments and securities
Total
Cash flow employed in investments
FINANCING ACTIVITIES:
(Increase) decrease in financial receivables
(Increase) decrease in financial receivables booked in fixed assets
Repayment of bond issue
Opening medium/long-term bank loans
Repayment of medium/long-term bank loans
Increase (decrease) of short-term bank payables
Decrease in other financial debts
Distribution of dividends
Other changes in net shareholder’s equity
Other changes in third party net shareholder’s equity
Cash flow employed in financing activities
Cash flow for the period
Cash at the beginning of the period
Effect of currency rate changes on liquidity
Effect on the liquidity generated by currency rate changes during the period
Net cash flow during the period
Cash at the end of the period
84
2003
2002
(5.429)
(11.337)
906
(6.578)
(7.807)
685
(48)
(257)
748
(966)
(29)
696
17
(2.013)
(1.497)
(3.252)
(10)
(11.780)
(1.251)
686
21
15.461
2.673
(55.902)
(15.751)
(1.114)
(2.259)
(1.418)
(1.415)
(23.810)
(39.669)
(9.388)
(648)
1.949
2.956
(476)
(60.459)
(74.159)
(476)
(487)
90.000
(75.116)
(30.084)
(304)
(2.943)
1.174
158
38
1.664
(100.000)
105.203
(214)
(47.976)
(115)
(981)
(118)
14
(18.079)
(42.485)
(9.991)
42.735
(940)
(512)
(9.991)
31.292
(95.376)
138.609
29
(527)
(95.376)
42.735
Attachment 2)
Area of consolidation
In compliancy with the provisions of articles 38 and 39 of the Law Decree 127/91 and of article 126 of
Consob (Commissione Nazionale per le Società a la Borsa), the National Commission for Listed
Companies and the Stock Exchange, resolution no. 11971 of May 14, 1999, amended pursuant to
resolution no. 12475 of April 6, 2000, as of December 31, 2003, the list of companies controlled by
Amplifon S.p.A. is detailed below in compliance with article 2359 of the Italian Civil Code.
The companies included in the area of consolidation with the global integration method are the
following:
Parent Company:
Name
Amplifon S.p.A.
Head office
Milan (Italy)
Currency
EURO
Share capital
3.924.200
Subsidiary companies
The subsidiary companies included in the area of consolidation with the global integration method are
the following:
Share % stake as of
capital 31/12/2003
Direct/Indirect
investment
Currency
Barcelona (Spain)
D
EURO
5.160.159
Amplaid Iberica S.L.
Barcelona (Spain)
I
EURO
42.071
99,9
Decibel LTD
Porto (Portugal)
I
EURO
50.000
100,0
Otaustica LTD
Lisbon (Portugal)
I
EURO
80.000
100,0
I.E.A. (Instituto Español Auditivo)
Madrid (Spain)
I
EURO
12.621
100,0
CCA Groupe SA
Paris (France)
D
EURO
209.618
100,0
CCA IDF SA
Paris (France)
I
EURO
175.317
99,9
Name
Head office
Amplifon Iberica S.A.
100,0
C.C.A Troyes Sarl
Troyes (France)
I
EURO
7.622
99,6
CCA Paris SA
Paris (France)
I
EURO
312.521
99,9
C.C.A. Nimes SA
Langlade (France)
I
EURO
111.136
98,7
O.T.A.A. SA
Lyon (France)
I
EURO
40.960
99,9
Amplifon Cote d'Azur Sas
St Raphael (France)
I
EURO
37.000
100,0
Espace de l'Audition SAS
Limoges (France)
I
EURO
80.000
100,0
Lyon Surditè SA
Lyon (France)
I
EURO
40.000
99,8
SCI Eliot Leslie
Lyon (France)
I
EURO
610
99,8
Surditè Sanguy SA
Marseille (France)
I
EURO
38.875
98,4
Acoustique Médicale SA
Toulouse (France)
I
EURO
38.112
99,9
SCAM SARL
Mulhouse (France)
I
EURO
40.000
100,0
29 Audition SARL
Concarneau (France)
I
EURO
9.147
100,0
Centre Regional Audition Sas
Orange (France)
I
EURO
37.500
98,4
Laboratoire d'Audiologie SA
Toulon (France)
I
EURO
39.637
98,4
85
Direct/Indirect
investment Currency
Share % stake as of
capital 31/12/2003
Name
Head office
Laboratoire Nantes SAS
Nantes (France)
I
EURO
40.000
100,0
CCA Auvergne SAS
Clemont Ferrand (France)
I
EURO
37.500
100,0
Drome Audition SA
Romans (France)
I
EURO
37.000
99,8
Caducee Acoustique
Toulon (France)
I
EURO
38.000
98,4
Nogent Surdité
Nogent sur Marne (France)
I
EURO
Viton KFT
Budapest (Hungary)
I
HUF
7.622
99,9
3.000.000
100,0
Ampliholl NV
Amsterdam (Netherlands)
D
Amplux SA
Luxembourg (Luxembourg)
D
EURO
50.000
100,0
EURO
100.000
100,0
Amplinsure Re Corporation
Baar (Switzerland)
I
EURO
641.231
100,0
Hearing Supplies SA
Lugano (Switzerland)
D
CHF
100.000
100,0
Hoeren SA
Lugano (Switzerland)
D
CHF
5.800.000
99,9
Amplifon AG
Baar (Switzerland)
I
CHF
2.950.000
99,9
Amplibus AG
Baar (Switzerland)
I
CHF
50.000
99,9
Amplimedical Spa
Assago (Italy)
I
EURO
3.111.967
100,0
Actimed S.r.l.
Pioltello (Italy)
I
EURO
14.589
100,0
Clonital S.r.l.
Assago (Italy)
I
EURO
51.130
100,0
MA.GE.Srl
Genova (Italy)
D
EURO
200.000
100,0
Edizioni Tecniche Srl
Milano (Italy)
D
EURO
11.000
100,0
Viennatone Gmbh
Vienna (Austria)
D
EURO
6.552.858
100,0
Miracle Ear Inc.
St. Paul (USA)
I
USD
5
96,2
Miracle-Ear of Texas, Inc.
St. Paul (USA)
I
USD
1
96,2
Amplifon USA Inc.
Dover (USA)
D
USD
52.500.010
96,2
Sonus USA
Tumwater (USA)
I
USDS
10
96,2
Sonus-Texas, Inc.
St. Paul (USA)
I
USDS
10
96,2
Hear PO, Inc.
St. Paul (USA)
I
USDS
10
96,2
Sonus Canada
Vancouver (Canada)
I
CAD
200
96,2
National Hearing INC.
Dover (USA)
I
USDN
10
96,2
National Hearing Centers of Texas INC.
Dover (USA)
I
USDN
10
96,2
Acoudire B.V.
Doesburg (Holland)
D
EURO
2.287.052
100,0
Acousticon B.V.
Doesburg (Holland)
I
EURO
31.765
100,0
Acousticon Detailhandel B.V.
Doesburg (Holland)
I
EURO
38.572
100,0
Arcomvio B.V.
Doesburg (Holland)
I
EURO
18.151
100,0
Audire B.V.
Doesburg (Holland)
I
EURO
113.446
100,0
Audire Holding B.V.
Doesburg (Holland)
I
EURO
54.454
100,0
Auditech B.V.
Geldermalsen (Holland)
I
EURO
22.689
75,0
Acousticon Groothandel GH B.V.
Doesburg (Holland)
I
EURO
18.000
100,0
Emid B.V.
Doesburg (Holland)
I
EURO
15.882
100,0
Voets Hoortoestellen BV
Gravenhage (Holland)
I
EURO
18.151
100,0
Meinesz & Voets BV
Gravenhage (Holland)
I
EURO
20.420
100,0
Pfennings hoortoestellen BV
Doesburg (Holland)
I
EURO
18.151
100,0
86
The affiliated companies included the area of consolidation with the proportional method are the
following:
Direct/Indirect
investment Currency
Share % stake as of
capital 31/12/2003
Name
Head office
Orium B.V.
Doesburg (Holland)
I
EURO
18.151
50,0
Acousoft Informatisering B.V.
Doesburg (Holland)
I
EURO
18.197
50,0
The subsidiary companies excluded form the area of consolidation and booked at cost are the
following:
Direct/Indirect
investment Currency
Share % stake as of
capital 31/12/2003
Name
Head office
Audioson
Eaubonne (France)
I
EURO
23.000
100,0
Audition Lillo
Merignac (France)
I
EURO
320.000
100,0
Espace Conseil de l'Audition
Mont de Marsan (France)
I
EURO
34.650
100,0
The affiliated companies excluded form the area of consolidation and booked at cost are the following:
Name
Head office
Amplifon Hearing Middle East
Heliopolis-Cairo (Egypt)
Direct/Indirect
investment Currency
D
87
EGP
Share % stake as of
31/12/2003
capital
1.000.000
20,0
THE BOARD OF AUDITORS’ REPORT TO THE SHAREHOLDERS’ MEETING
PURSUANT TO ART. 153 OF THE LEGISLATIVE DECREE N° 58/98 AND ART.
2429, SUB-PARAGRAPH 3 OF THE ITALIAN CIVIL CODE, CONCERNING THE
AUDITING ACTIVITY CARRIED OUT DURING THE YEAR CLOSED AS OF
31.12.2003
Dear Shareholders,
in compliance with the current legislation in force for joint-stock companies with shares listed on the
regulated markets and pursuant to the statutory provisions, during the year closed as of 31.12.2003
we duly carried out the supervision duties pertaining to us in compliance with the principles of conduct
for the Board of Auditors recommended by the Consiglio Nazionale dei Dottori Commercialisti e dei
Ragionieri (collectively, “Italian GAAP”).
In particular, with reference to the supervision duties concerning compliancy to the Law and the
Articles of Association, we took part in the meetings of the Board of Directors and, on a quarterly
basis, obtained information from the Directors concerning the activities performed and the most
significant economic and financial transactions carried out by the Company and by the subsidiary
Companies. Moreover, we ascertained that the resolutions passed and the actions undertaken were in
accordance with the principles of good management, in compliance with the Law and the Articles of
Association also concerning the exclusion of potential conflicts of interest or contrast with resolutions
passed by the Board Meeting.
We hereby acknowledge that the Board of Directors, which duly convened whenever necessary to
discharge business administration requirements, was advised and updated concerning the
transactions undertaken or completed by the Directors during the exercise of the powers granted.
88
As stated in the Directors’ Report, the Company continued its policy of international expansion and,
among others, in line with the Group’s development strategy agenda completed the acquisition of the
company division National Hearing Center Inc. for 15 million US Dollars. Moreover, the Company also
paid 14 million Euro to the subsidiary company Acoudire NV to future capital increase account.
In addition, during 2003 the capital of Amplifon USA was increased for overall 52,2 million US Dollars.
Amplifon S.p.A. subscribed to the capital increase for 96,2% corresponding to 50,5 million US Dollars
which had already been paid up during 2002. The residual quota of 3,8%, corresponding to 2 million
US Dollars, was subscribed and paid up by SIMEST S.p.A., an Italian company for foreign enterprise,
in order to access state contributions on interest account pursuant to Law 100/90.
At the end of the financial year the Amplifon S.p.A. raised a number of medium/long-term and shortterm bank loans, as clearly explained in the Directors’ Report, amounting to overall 120 million Euro,
while the net financial borrowings amounted to 74 million Euro.
For the period of our supervision duties, we did not come across any atypical or unusual transactions
undertaken by your Company and third parties, related party transactions or intra-group transactions.
Regards the related party and intra-group transactions, the Directors’ Report includes comprehensive
information concerning the types of transactions carried out and the economic impact of the same.
The analysis did not reveal any criticalities regards adequacy or compliancy with Company interests.
In addition, on September 10, 2003, the Board of Directors approved the “Code of Procedure for
related party transactions”. The purpose of the Code is to provide interested parties with the rules of
conduct regulating related party communications during transactions with Amplifon S.p.A. .
Regards the organization structure of the company, during the year we proceeded, within the limits of
our mandate, to check the suitability and the functionality of the information and control systems in
relation to the ever increasing size of the Group.
89
To this end, we had frequent meetings with the officers in charge of the different functions, paying
special attention to the internal audit service, and with the officers in charge of the Auditing Company
Reconta Ernst & Young; no noteworthy elements came to light following these exchanges of
information. Moreover, we actively took part in the Internal Auditing Committee meetings; in 2003,
KPMG was nominated to assess the corporate management control systems in Italy and Holland with
the aim, among others, to implement procedures for determining company priorities.
Moreover, the following were approved and circulated: the “Ethical Code”, and the “Procedures for
communicating reserved documents and information concerning Group activities to the market”.
Furthermore, we checked, also by way of the information collected by the Auditing Company, that the
drawing up and the set up of the financial statements and consolidated accounts in addition to the
report on operations, were compliant with the provisions of the law.
The Board of Auditors carefully examined the evaluation criteria adopted to assess the equity
investments in subsidiary companies and we hereby acknowledge that it was necessary to book the
reduced value of equity investments, which had a heavy impact on the income statement, in order to
take into account the lasting loss in value of the subsidiary companies. In particular, the devaluation
for 13.796 thousand Euro of the equity investment in Amplimedical S.p.A. was effeted on account of
the losses, mainly extraordinary losses, which occurred in 2003 also following the restructuring
process described in the Director’s Report.
The Board of Auditors has not received any complaints under article 2408 of the Italian Civil Code or
reports from third parties.
The Board adopted the provisions of the Code of Self-Regulation implemented by the Committee of
corporate governance for listed companies. During the year, no opinion has been given pursuant to
the Law.
90
We hereby advise you that your Company must confer the mandate for auditing the financial
statements for the years 2004, 2005 and 2006 in compliance with article 150 of Law Decree 58/98 to
an auditing company enrolled in the special roll pursuant to article 161 of Law Decree 58/98 and that
the auditing company Reconta Ernst & Young SpA, has submitted a proposal.
Moreover, the following duties have been conferred on bodies “bound by ongoing relations” to the
auditing company: fiscal, legal, administrative consulting for approximately overall 315.000 thousand
Euro. The aforementioned duties concern both your company and Italian subsidiary companies.
In 2003, the supervision activities described previously were performed in the course of five meetings
of the Auditor’s Board and by taking part in six Board of Directors’ meetings.
As a result of our inspections and scrutiny of the areas pertaining to our supervision, we hereby
advise you that no significant events have emerged that might require to be mentioned in the present
report or be reported to the Supervisory bodies.
On April 7, 2004, the Auditing Company Reconta Ernst & Young SpA published its report in
compliance with article 156 of the Legislative Decree 58/98 attesting that the annual accounts and the
consolidated financial statements as of December 31, 2003, provide a true and accurate
representation of the financial situation and the economic results of the Company and the Group.
The financial statements of your Company as of December 31, 2002, closed with a 6.783.168 Euro
profit and the Board of Directors has proposed to allocate the profits as follows:
-
a quota amounting to 340.000 thousand Euro to the legal reserve,
-
a quota amounting to 47.511 thousand Euro to the accelerated amortization fund,
-
and 3.531.780 thousand Euro for the distribution of dividends at 0.15 Euro per share.
On the basis of what has been stated above we hereby endorse, within the limits of our mandate, the
financial statements for the year closed as of December 31, 2003, the Report on Operations as
drafted by the Board of Directors and the Board’s proposal to distribute dividends.
91
The Board of Auditors
Gian Paolo Giannini
(Chairman)
John Alexander Stewart
(Auditor)
Cristina Seregni
(Auditor)
92