PININFARINA S.p.A. ANNUAL FINANCIAL REPORT · ANNUAL FINANCIAL REPORT 31 DECEMBER 2016 ... lending...

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(Translation from the Italian original which remains the definitive version)

PININFARINA S.p.A.

ANNUAL FINANCIAL REPORT

31 DECEMBER 2016

Pininfarina S.p.A. - Share capital €30,166,652 fully paid-up - Registered office in Turin, Via Bruno Buozzi 6

Tax Code and Turin Company Registration no. 00489110015

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The Board of Director approved the separate financial statements of PININFARINA S.p.A., the

consolidated financial statements as at and for the year ended 31 December 2016 and the directors’

reports thereon on 21 March 2017.

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ORDINARY SHAREHOLDERS’ MEETING

12 MAY 2017

The shareholders are called for their ordinary meeting on first call at 11.30 am at the Sala “Mythos”

of Pininfarina S.p.A. in Via Nazionale 30 Cambiano (Turin) on 12 May 2017.

AGENDA

1) Approval of the separate financial statements as at and for the year ended 31 December

2016 and related resolutions.

2) Remuneration report and resolution pursuant to article 123-ter of Legislative decree no.

58/1998.

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Board of Directors

Chairman * Paolo Pininfarina (4)

Chief Executive Officer Silvio Pietro Angori (4)

Directors Manoj Bhat

Romina Guglielmetti (2) (3)

Chander Prakash Gurnani

Jay Itzkowitz (1) (2) (3)

Licia Mattioli (1) (2)

Sara Miglioli (3)

Antony Sheriff (1)

(1) Member of the Nomination and Remuneration Committee

(2) Member of the Control and Risk Committee

(3) Member of the Committee for Transactions with Related Parties

(4) Responsible for the Internal Control and Risk Management System

Board of Statutory Auditors

Chairman Nicola Treves

Standing Statutory Auditors Margherita Spaini

Giovanni Rayneri

Alternate Statutory Auditors Maria Luisa Fassero

Alberto Bertagnolio Licio

Secretary to the Board of Directors and Manager in charge of financial reporting Gianfranco Albertini

Independent Auditors KPMG S.p.A. *Powers Pursuant to article 22 of the bylaws, the Chairman is the parent’s legal representative vis-à-vis third parties and in court proceedings.

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CONTENTS

Directors’ report page 7

Going concern and outlook for 2017 page 21

Consolidated financial statements as at and for the year ended 31 December 2016

page 23

Notes to the consolidated financial statements page 30

Other information page 67

Disclosure required by article 149-duodecies of the Consob regulation page 70

Statement on the consolidated financial statements pursuant to article 154-bis of Legislative decree no. 58/98

page 73

Statutory Auditors’ report page 74

Independent Auditors’ report page 77

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DIRECTORS’ REPORT

General considerations

The Group

The Group recorded revenue of €68.9 million for the year, down 16.8% on 2015, mainly due to the smaller engineering services provided in Italy and Germany. The design and limited series cars activities also lost impetus, partly offset by the rise in royalties.

EBITDA (gross operating profit) at €1.5 million decreased by €0.9 million due to the aforesaid contraction in business volumes, the costs incurred for the debt restructuring agreement with the lending institutions and the sale of the majority investment in Pininfarina S.p.A. to the Mahindra Group during the year.

EBIT (operating loss) was a negative €2.9 million compared to a negative €12.4 million for the previous year, mainly a result of provisions and impairment losses on assets (the latter at the San Giorgio Canavese facility, which has been inactive since 2010 and not expected to be used for production in the future) of roughly €10.8 million.

The Group’s net financial expense for the year ended 31 December 2016 showed a marked improvement on the previous year, thanks, in particular, to the reduction in its interest expense calculated on a strongly reduced debt after the coming into force (on 30 May 2016) of the new Rescheduling Agreement with the lending institutions. Following this agreement, which entailed the settlement and extinguishment of roughly 58% of the parent’s debt and the rescheduling of the residual debt to 2025, Pininfarina S.p.A. recognised a gain of approximately €26.5 million on the extinguishment of financial liabilities.

The Group recognised an income tax benefit of €10 thousand for 2016 compared to a tax expense of €0.6 million for 2015, mainly due to the tax benefits availed of by Pininfarina Extra S.r.l. provided for by the Patent Box Decree.

As a result of the above, the Group recorded a profit for the year of €20.5 million compared to a loss of €18.2 million for the previous year.

Equity increased from €9.8 million to €30.5 million, mainly as a result of the profit for the year. Net financial debt decreased from €47.7 million at 31 December 2015 to €17.7 million at the reporting date. This improvement was achieved thanks to the new Rescheduling Agreement and the settlement and extinguishment of part of the debt which decreased more than proportionally compared to the cash used to pay it. Outstanding principal due by the parent to the lending institutions on its loans and borrowings decreased from €97.8 million at 31 December 2015 to €41.2 million at the reporting date. The workforce numbered 578 at the reporting date (31 December 2015: 621, -7%).

Pininfarina S.p.A.

The 2016 key events of Pininfarina S.p.A. are as follows:

- in accordance with the agreement signed on 14 December 2015 and disclosed to the

market on that date, on 30 May 2016, Pincar S.r.l. in liquidiation sold its entire investment in

Pininfarina S.p.A. (76.063% of its share capital) to PF Holding B.V., a company under Dutch

law owned by TechMahindra Limited and Mahindra & Mahindra Limited. Pursuant to the

relevant legislation, the Dutch company then launched a mandatory takeover bid for the rest

of Pininfarina S.p.A.’s share capital (7,205,128 shares or 23.88%) on 11 July 2016; Based

on the final outcome of the bid, during the Acceptance Period (11 July - 29 July 2016),

22,348 Pininfarina ordinary shares, equal to roughly 0.0741% of the share capital and

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0.3102% of the ordinary shares covered by the offer, were tendered, for a total amount of

€24,582.80. Considering the tendered Pininfarina ordinary shares, the 22,945,566

Pininfarina ordinary shares equal to 76.06% of Pininfarina’s share capital already directly

held by the Bidder before the Acceptance Period and the parent’s treasury shares in

portfolio (15,958, or 0.05% of its share capital), PF Holding B.V. holds 22,967,914 ordinary

shares of the parent, equal to 76.1368% of its share capital. Given the definitive outcome of

the takeover bid, Pininfarina S.p.A.’s float has remained substantially unchanged compared

to the period before the bid;

- again on 30 May 2016, once Pininfarina S.p.A.’s Rescheduling Agreement with its lending

institutions became effective, the parent settled and extinguished its debt with the banks

that chose this option (equal to approximately 58% of its €97.8 million nominal debt before

the transaction) and rescheduled to 2025 its approximate €41 million debt with the banks

that decided to remain its creditors. The rescheduled debt bears interest at 0.25% pa

(rising by the difference between the actual rate and 4% if the six-month Euribor exceeds

4%) and is secured by a first demand surety issued by the Mahindra Group. PF Holdings

B.V. granted an interest-bearing (annual 0.25% interest rate) loan of €16 million to

Pininfarina S.p.A., in order for the latter to be able to meet its payment obligations on the

same date on which it had to repay its debt (30 May 2016);

- on 21 November 2016, and as provided for in the Financial plan, Pininfarina’s shareholders

resolved to increase share capital against payment by a maximum of €26,532,528, to be

carried out by instalments before 31 July 2017. The majority shareholder has agreed to

subscribe €20,000,000 using (if necessary) the loan already granted to Pininfarina. The

parent will file the Prospectus, prepared using the 2016 consolidated figures approved by

the board of directors, with Consob (the Italian commission for listed companies and the

stock exchange), which is required to offer the new shares to its shareholders that have the

right of first refusal.

VAT dispute

No further progress has been made with respect to the VAT dispute originated in 2006 which, after

two levels of judgements, is pending before the Supreme Court of Cassation since Spring 2011.

Human resources and the environment

A breakdown of group employee at the reporting date by business and geographical segments is set

out below.

Business segment

Engineering Operations Design General Staff staff

TOTAL

2016 318 75 98 87 578

2015 373 76 86 86 621

The figures of the operations segment do not include 50 employees who were transferred to a third

party on 1 April 2011 by virtue of a business lease agreement that expired on 31 December 2013,

was extended until 31 December 2016 and has now been renewed until 31 December 2022.

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Geographical segment

Italy Germany China USA TOTAL

2016 305 238 23 12 578

2015 311 282 20 8 621

Research

Research in 2016 mainly continued to complete the project to enhance the Group’s skillset for analysis of super lightweight components and hybrid electric vehicles, including through the study of easy integration and dismantlement during a product’s life cycle. The project has included the building of physical demonstrators and prototypes and the subsequent assessment of the scientific results, which was completed in December, and was part of the European Union’s 7th Framework Programme. With respect to the EU’s Horizon 2020 Programme, in addition to the research started at the end of 2015 into innovative materials (high performance alloys at low cost), Pininfarina has commenced another research project into new production technologies using aluminium hybrid machines in the integrated production cycle to test parts and components. Research activities were worth approximately €0.5 million. Pininfarina S.p.A.

During the year, the parent made use of the ordinary government-sponsored lay-off scheme for a few periods, the last of which ended on 10 December 2016.

In 2016, there were no deaths or accidents at work causing serious or very serious injuries to registered employees, nor was the parent found liable for occupational diseases contracted by employees or former employees or mobbing. On the other hand, the parent reached out-of-court agreements covering remuneration issues with employees or former employees while no cases were brought against the parent for financial and/or physiological damage (e.g., personal injuries, moral damage, hedonic damage, etc.).

With reference to investments in safety in the workplace and the environment, the parent pays utmost attention to the continuous upgrading and/or improvement of operating layouts and machinery/equipment in line with relevant legislation. Expected investments for 2017 amount to roughly €700,000.

Further to the sale agreement (31 December 2009) for the Grugliasco facility, an environmental audit was carried out in 2011 that found that the hydrocarbons parameter in one small area exceeded the legal limit. The parent immediately commenced the reclamation procedures provided for by the environmental legislation. The authorities approved the characterisation plan (2012). The parent filed the risk analysis for the area involved in Summer 2013, showing the acceptability/absence of risk. A dispute commenced with the Grugliasco local authorities during their approval of the risk analysis, as they requested that the analysis be extended to the entire facility, which they erroneously believed to be “abandoned”. The parent appealed to the Piedmont regional administrative court against the request of the local authorities. With its ruling no. 382/2014, the regional administrative court rejected the appeal citing an unconvincing reason. Therefore, the parent filed an appeal with the Italian council of state against the ruling. On 18 June 2014 and 15 June 2015, it filed motions for urgency with the president of section V of the council of state in order to request that a date for the hearing for the merit be fixed. The date of the hearing is still pending.

During the year, Sviluppo Investimenti Territorio S.r.l. (S.I.T.) appealed with an application for an interim order to the Piedmont regional tax court against the extraordinary and urgent order adopted by the Grugliasco municipality, which alleged that SIT had left waste on its site (which belonged to Pininfarina up until December 2009). The appeal claimed that Pininfarina S.p.A. was partly liable. The parent appeared before the court after having been notified of the appeal. The regional tax court rejected the application for an interim order proposed by SIT with its ruling no. 53/2017, finding in Pininfarina S.p.A.’s favour and that, inter alia, the order to remove the abandoned waste was correctly addressed to the current owner SIT.

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The parent’s waste disposal and recycling environmental policies are available on its website.

Moreover, Pininfarina S.p.A. has a 2004 UNI EN ISO 14001-certified environmental management system. A notified body checked the system’s continued compliance in the Italian facilities during 2016, finding it compliant.

2016 performance by business segment

Operations

In addition to the revenue on the sale of spare parts for cars manufactured in previous years,

royalties for the use of the trademark in the automotive segment and business lease income, this

segment incurs the costs of the support and property management functions of the parent,

Pininfarina S.p.A.. It recognised revenue of €11.4 million (€7.2 million in 2015; +58%), accounting for

16.6% of consolidated revenue (8.7% in 2015). The increase is mainly due to the trademark licence

agreement signed by Pininfarina S.p.A. and Mahindra & Mahindra Limited. This segment’s EBIT

was a negative €4 million, compared to a negative €20.8 million in 2015 when it recorded

impairment losses on assets and accruals for a redundancy programme totalling roughly €10.8

million.

Services

This segment, comprising the design, industrial design and engineering businesses, recognised

revenue of €57.4 million (€75.6 million in 2015; -24%), making up 83.4% of the consolidated figure

(91.3% in 2015). The reduction was principally due to the smaller engineering activities carried out in

Italy and Germany. Segment EBIT amounted to €1.2 million, down on the €8.4 million operating

profit for 2015.

The main activities carried out in Italy by the services segment in 2016 were:

Design

Design services were principally provided to European and Chinese customers. The international

awards won by Pininfarina in 2016 include the “Concept of the Year”, assigned by the US magazine

Automobile to the H2 Speed car, which had already won the “Best concept” award at the Geneva

International Car Show. In the non-automotive means of transport business, the Group continued

the exterior design of agricultural vehicles.

Industrial design

In line with the past, the Group provided industrial design services to a plethora of customers and

sectors, obtaining great commercial and reputational success. In addition to the industrial industry,

the activities in this segment were directed at the architecture, aircraft interiors, luxury watches,

furniture, racing bikes, building, eyewear and other sectors. The many important events of 2016

comprise the Good Design Award “Beauty of Sound” award by The Chicago Athenaeum to the

Magnat LZR980 headphones and the IF Design Arward in Germany for the “Cyrela by Pininfarina”

tower in Sao Paulo, Brazil for the Architecture and Interior category. The Group also won the

“International Architecture Award 2016” from The Chicago Athenaeum for the control tower of the

new Istanbul Airport and four awards at the German Design Award 2017: the Gold Award for the

Pininfarina E-voluzione electrical bike; the Winner Award for the Ottantacinque super yacht and two

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Special Mentions for the Vitra Tower in Brazil and the De Rosa SK-Pininfarina bike. Finally, the

“Vento” hand basins collection, designed for the Californian company Ronbow, won the Good

Design Award 2016.

Engineering

The engineering activities with the main customers (BMW, Ferrari, Mahindra and Chinese

customers) continued during 2016. Wind tunnel services again recorded an outstanding

performance and rocketed for the third year in a row, not only terms of activities and profitability but

also thanks to the continued diversified top level customer portfolio, represented by leading

international manufacturers.

Information required by Consob (the Italian Commission for listed companies and the stock exchange) pursuant to article 114.5 of Legislative decree no. 58/98

1) The tables showing the Pininfarina Group’s financial debt, with separate classification of current and non-current items, are set out on page 19 hereof.

2) The Group has no past-due liabilities (of a commercial, financial, tax or social security nature). No actions against the Group have been filed by creditors.

3) The Group’s related party transactions are detailed on page 67 hereof.

4) Under the existing Rescheduling Agreement, there is just one financial covenant, to be checked quarterly beginning from 31 March 2018: consolidated equity at a minimum level of €30,000,000.

5) The parent’s debt restructuring plan is proceeding in accordance with the current agreements.

6) Implementation of the business plan approved by the board of directors on 27 November 2015 continues as forecast.

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Group companies

Pininfarina S.p.A.

€’million 31.12.2016 31.12.2015 Variation

Revenue 36.8 45.2 (8.4)

EBIT (2.3) (16.4) 14.1

Profit (loss) for the year 23.3 (20.3) 43.6

Net financial debt (22.7) (54.1) 31.4

Equity 32.0 8.6 23.4

Number of employees at the reporting date

278 289 (11)

Pininfarina Extra Group


Revenue 7.8 8.5 (0.7)

EBIT 1.0 2.2 (1.2)

Profit for the year 0.9 1.5 (0.6)

Net financial position 3.4 3.8 (0.4)

Equity 6.4 6.5 (0.1)


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Pininfarina Deutschland Group


Revenue 22.5 30.6 (8.1)

EBIT (2.0) 1.6 (3.6)

Profit (loss) for the year (2.0) 1.5 (3.5)

Net financial position 0.7 2.0 (1.3)

Equity 18.6 21.6 (3.0)


238 282 (44)

Pininfarina Automotive Engineering Shanghai Co Ltd


Revenue 2.9 3.3 (0.4)

EBIT 0.3 0.1 0.2

Profit for the year 0.3 0.1 0.2

Net financial position 1.0 0.7 0.3

Equity 0.7 0.4 0.3


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Other information

The only group company that has approved the distribution of dividends to Pininfarina S.p.A. after the reporting date is Pininfarina Extra S.r.l. (approximately €0.7 million).

Report on corporate governance and ownership structure

With reference to article 123-bis.3 of the Consolidated Finance Act, the information on the adoption

of the codes of conduct (Report on corporate governance and ownership structure) is available in

the “Finance” section of the parent’s website (www.pininfarina.com) as well as through the other

methods provided for by current legislation.

Remuneration report

With reference to article 84-quater of the Issuer Regulation, the 2016 remuneration report will be

available in the “Finance” section of the parent’s website (www.pininfarina.com) as well as through

the other methods provided for by current legislation.

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Financial performance and financial position of the Pininfarina Group

Financial performance

Revenue from sales and services decreased by €12.4 million to €62.7 million from €75.1 million in 2015. The change in finished goods and work in progress became a negative €4.0 million (positive €2.0 million in the previous year). Other revenue and income increased to €10.2 million from €5.6 million in the previous year and mainly comprise the business lease income and royalties earned by the parent.

2016 consolidated revenue decreased by 16.8% to €68.9 million from €82.8 million in 2015. The reduction is mainly due to the engineering activities performed in Italy and Germany. A breakdown of revenue by business segment is given on page 48. Net gains on the sale of non-current assets totalled €14.5 thousand compared to €50 thousand in 2015 (they referred to sales of machinery in both years).

Operating expense, including changes in inventories, came to €24.8 million (€33.7 million in 2015; +26.4%).

Value added fell by €5.1 million to €44.1 million from €49.2 million in the previous year.

Labour cost amounted to €43.2 million (€47.7 million in 2015).

EBITDA is a positive €0.9 million, down from the €1.5 million gross operating profit for 2015, mainly due to the smaller contribution of the Italian and German engineering businesses.

Amortisation and depreciation amounted to €3.1 million with a decrease of €0.3 million (€3.4 million for 2015). Additions to/utilisation of provisions and impairment losses came to a negative €0.6 million (compared to a negative €10.5 million for 2015). Specifically, additions (net of utilisation) were €0.6 million (€1 million for 2015), releases of provisions €3 thousand (€37 thousand for 2015) while impairment losses were not recognised in 2016 (€9.5 million on property, plant and equipment in 2015).

As a result, EBIT was a negative €2.9 million (operating loss of €12.4 million in 2015).

Net financial expense decreased to €3.1 million from €5.2 million in the previous year, mainly due to the reduction in the parent’s financial expense calculated on a much smaller debt as a result of the Rescheduling Agreement signed with its lending institutions which came into force on 30 May 2016. This also led to the recognition of a gain of €26.5 million on the extinguishment of financial liabilities. The profit before taxes came to €20.5 million, compared to a loss of €17.6 million for the previous year. The income tax benefit amounted to €10 thousand against an expense of €576 thousand for 2015.

The profit for 2016 came to €20.5 million compared to a loss of €18.2 million for 2015.

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Reclassified income statement

(€’000)

(*) Materials and services are net of utilisations of the provisions for product warranty and risks (€150 thousand and €62 thousand for 2015 and 2016, respectively). (**) Labour cost is net of utilisations of the restructuring provision (€403 thousand and €701 thousand for 2015 and 2016, respectively). As required by Consob resolution no. DEM/6064293 of 28 July 2006, a reconciliation of the data in the consolidated financial statements with those in the reclassified schedules is provided below: - Materials and services include raw materials and components, other variable production costs, external variable

engineering services, exchange rate gains and losses and other expenses. - Amortisation and depreciation comprise amortisation of intangible assets and depreciation of property, plant and

equipment and investment property. - (Additions to)/utilisation of provisions and impairment losses include additions to/utilisation of provisions, impairment

losses and inventory write-downs. - Net financial expense comprises net financial expense and dividends.

2016 % 2015 % Variation

Revenue from sales and services 62,660 90.98 75,126 90.73 (12,466)

Change in inventories and contract work in progress (4,018) (5.82) 2,045 2.47 (6,063)

Other revenue and income 10,227 14.84 5,635 6.80 4,592

Revenue 68,869 100.00 82,806 100.00 (13,937)

Net gains on the sale of non-current assets 14 0.02 50 0.06 (36)

Materials and services (*) (24,840) (36.07) (33,696) (40.69) 8,856

Change in raw materials 54 0.08 29 0.03 25

Value added 44,097 64.03 49,189 59.40 (5,092)

Labour cost (**) (43,231) (62.77) (47,689) (57.59) 4,458

EBITDA 866 1.26 1,500 1.81 (634)

Amortisation and depreciation (3,143) (4.56) (3,397) (4.10) 254

(Additions to)/utilisation of provisions and impairment losses (601) (0.87) (10,506) (12.69) 9,905

EBIT (2,878) (4.17) (12,403) (14.98) 9,525

Net financial expense (3,074) (4.46) (5,202) (6.28) 2,128

Gain on the extinguishment of financial liabilities 26,459 38.42 - - 26,459

Share of profit of equity-accounted investees 14 0.02 12 0.01 2

Profit (loss) before taxes 20,521 29.81 (17,593) (21.25) 38,114

Income taxes 10 0.01 (576) (0.69) 586

Profit (loss) for the year 20,531 29.82 (18,169) (21.94) 38,700

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Financial position

Net capital requirements at 31 December 2016 decreased by €9.4 million on the previous year end, mainly due to a reduction in net non-current assets and working capital requirements.

Specifically:

net non-current assets totalled €52.3 million (down by €1.7 million on 31 December 2015), comprising a decrease of €0.4 million in intangible assets and a reduction of €1.3 million in property, plant and equipment and equity investments;

working capital fell by €7.7 million to €0.8 million from €8.5 million at 31 December 2015;

post-employment benefits decreased to €4.9 million from €5 million at the previous year end, following the amounts paid to employees who left the Group.

Capital requirements were funded by:

- equity of €30.5 million, which rose by €20.6 million from €9.8 million at 31 December 2015. The increase is mainly attributable to comprehensive income;

- net financial debt, which decreased to €17.7 million from €47.7 million at 31 December 2015. The improvement is a result of the positive effects of the new Rescheduling Agreement that allowed a more than proportionate reduction in financial liabilities compared to the cash used to pay them.

Reconciliation between the parent’s profit and equity and consolidated profit and equity

The parent’s profit and equity as at and for the year ended 31 December 2016 are reconciled with the Group’s relevant figures below.

2016 2015 31.12.2016 31.12.2015

Pininfarina S.p.A.'s separate financial statements 23,267,243 (20,263,436) 32,006,165 8,618,864

- Subsidiaries' contribution (819,142) 3,083,910 4,149,250 6,904,529

- Goodwill of Pininfarina Extra S.r.l. - - 1,043,497 1,043,497

- Elimination of trademark licence in Germany - - (6,749,053) (6,749,053)

- Intragroup dividends (1,931,200) (1,001,040) - -

- Share of profit of equity-accounted investees 14,307 11,891 14,307 11,891

Consolidated financial statements 20,531,208 (18,168,675) 30,464,166 9,829,728

Profit (loss) for the year Equity

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Reclassified statement of financial position

(€’000)

(*) Other liabilities include the following items: deferred tax liabilities, other financial liabilities, current tax liabilities and other liabilities.

Net financial debt

(€’000)

31.12.2016 31.12.2015 Variation

Net non-current assets (A)

Net intangible assets 1,809 2,252 (443)

Net property, plant and equipment and investment property 50,111 51,383 (1,272)

Equity investments 337 323 14

Total A 52,257 53,958 (1,701)

Working capital (B)

Inventories 1,749 5,721 (3,972)

Net trade receivables and other assets 18,376 22,395 (4,019)

Deferred tax assets 1,002 926 76

Trade payables (12,925) (10,722) (2,203)

Provisions for risks and charges (421) (1,266) 845

Other liabilities (*) (6,981) (8,545) 1,564

Total B 800 8,509 (7,709)

Net invested capital (C=A+B) 53,057 62,467 (9,410)

Post-employment benefits (D) 4,927 4,980 (53)

Net capital requirements (E=C-D) 48,130 57,487 (9,357)

Equity (F) 30,464 9,830 20,634

Net financial debt (G)

Non-current loans and borrowings 25,997 66,122 (40,125)

Net current financial position (8,331) (18,465) 10,134

Total G 17,666 47,657 (29,991)

Total as in E (H=F+G) 48,130 57,487 (9,357)

31.12.2016 31.12.2015 Variation

Cash and cash equivalents 27,783 20,996 6,787

Current assets held for trading 0 16,359 (16,359)

Current finance lease liabilities - (11,654) 11,654

Loans and borrowings - related parties and joint ventures (16,024) 0 (16,024)

Current portion of bank loans and borrowings (3,428) (7,236) 3,808

Net current financial position 8,331 18,465 (10,134)

Non-current loans and receivables - related parties 134 269 (135)

Non-current finance lease liabilities - (40,774) 40,774

Non-current bank loans and borrowings (26,131) (25,617) (514)

Non-current loans and borrowings (25,997) (66,122) 40,125

NET FINANCIAL DEBT (17,666) (47,657) 29,991

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Net financial debt (Consob)

(CESR recommendations no. 05-04b – EU Regulation no. 809/2004)

(€’000)

The “Net financial debt” set out above is presented in accordance with the format recommended by the Consob in Communication DEM no. 6064293 of 28 July 2006, implementing CESR (now ESMA) recommendation no. 05-04b. Because the purpose of this table is to show “Net financial debt”, assets are shown with a minus sign and liabilities with a plus sign. On the contrary, in the “Net financial debt” table provided on the previous page, assets are shown with a plus sign and liabilities with a minus sign. The reason for the difference between the amount of the “Net financial debt” on the previous page and on this page is that the latter does not include non-current loan assets. The total amount of these differences at the relevant reporting dates is shown below:

- At 31 December 2015: €269 thousand - At 31 December 2016: €134 thousand

31.12.2016 31.12.2015 Variation

A. Cash (27,783) (20,996) (6,787)

B. Other cash equivalents - - -

C. Securities held for trading 0 (16,359) 16,359

D. Total cash and cash equivalents (A.)+(B.)+(C.) (27,783) (37,355) 9,572

E. Current loan assets - - -

F. Current bank loans and borrowings - - -

Current portion of secured bank loans 60 - 60

Current portion of unsecured bank loans 3,368 7,236 (3,868)

G. Current portion of non-current debt 3,428 7,236 (3,808)

H. Other current loans and borrowings 16,024 11,654 4,370

I. Current financial debt (F.)+(G.)+(H.) 19,452 18,890 562

J. Net current financial position (8,331) (18,465) 10,134

Non-current portion of secured bank loans 210 300 (90)

Non-current portion of unsecured bank loans 25,921 25,317 604

K. Non-current bank loans and borrowings 26,131 25,617 514

L. Bonds issued - - -

M. Other non-current loans and borrowings - 40,774 (40,774)

N. Net non-current financial debt (K.)+(L.)+(M.) 26,131 66,391 (40,260)

O. Net financial debt (J+N) 17,800 47,926 (30,126)

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GOING CONCERN AND OUTLOOK FOR 2017

Going concern

On 30 May 2016, the Investment Agreement for the acquisition of the majority investment in

Pininfarina S.p.A. (76.06% of its share capital, held by Pincar S.r.l. in liquidation) by TechMahindra

Limited and Mahindra & Mahindra Limited became effective, as well as a debt Rescheduling

Agreement between Pininfarina S.p.A. and its lending institutions.

The Dutch company PF Holdings B.V. (owned by TechMahindra Limited and Mahindra & Mahindra

Limited) executed the acquisition of the majority investment and, in accordance with the relevant

legislation, launched a mandatory takeover bid for all outstanding Pininfarina S.p.A. shares. The

bid period started on 11 July 2016 and ended on 29 July 2016.

Again on 30 May 2016, the parent settled and extinguished its debt with the banks that chose this

option (equal to approximately 58% of its €97.8 million nominal debt before the transaction) and

rescheduled to 2025 its approximate €41 million debt with the banks that decided to remain its

creditors. The rescheduled debt bears interest at 0.25% pa (rising by the difference between the

actual rate and 4% if the six-month Euribor exceeds 4%) and is secured by a first demand surety

issued by the Mahindra Group. PF Holdings B.V. granted an interest-bearing (annual 0.25%

interest rate) loan of €16 million to Pininfarina S.p.A., in order for the latter to be able to meet its

payment obligations on the same date on which it had to repay its debt (30 May 2016).

On 21 November 2016, as provided for in the Financial plan, Pininfarina’s shareholders resolved to

increase the share capital against payment by a maximum of €26,532,528, to be carried out before

31 July 2017. The majority shareholder has agreed to subscribe €20,000,000 using (if necessary)

the loan already granted to Pininfarina.

The coming into force of the Rescheduling Agreement had positive effects on profit or loss (gain on

the extinguishment of financial liabilities of €26.5 million) with the consequent recapitalisation of the

parent. Accordingly, the issues arising from the provisions of article 2446 of the Italian Civil Code

have been resolved. Moreover, the significant reduction in financial liabilities, thanks to their

settlement and extinguishment, enabled the Group to regain a balance between its ability to

generate cash flows and its outstanding debt.

Therefore, the first few conditions provided for in the new 2016-2025 business and financial plan,

approved on 27 November 2015, have been met.

Considering all the above, assessing the effects of the debt Rescheduling Agreement and the

proximity of the share capital increase envisaged by the Investment Agreement, the Board of

Directors no longer believes that there are any doubts as to the Pininfarina Group’s ability to

continue as a going concern, also thanks to the industrial, financial and capital stability of the

Mahindra Group.

22

Outlook for 2017

Consolidated revenue for 2017 is expected to be higher than the 2016 figure and the EBIT is

forecast to be positive.

Net financial debt at 31 December 2017 should improve thanks to completion of the capital increase

approved by the parent’s shareholders on 21 November 2016.

Chairman of the Board of Directors

(Paolo Pininfarina)

23

Pininfarina Group

Consolidated financial statements

as at and for the year ended 31 December 2016

24

Statement of financial position

Note 31.12.2016 31.12.2015

Land and buildings 1 35,965,549 36,956,009

Land 7,655,314 6,540,238

Buildings 28,310,235 22,594,368

Leased property - 7,821,403

Plant and machinery 1 3,739,856 3,609,377

Machinery 391,600 429,183

Plant 3,348,256 3,180,194

Leased machinery and equipment - -

Furniture, fixtures and other assets 1 2,289,483 2,336,661

Furniture and fixtures 941,196 828,120

Hardware and software 785,390 1,006,422

Other assets, including vehicles 562,897 502,119

Assets under construction 1 - -

Property, plant and equipment 41,994,888 42,902,047

Investment property 2 8,116,293 8,480,666

Goodwill 3 1,043,495 1,043,495

Licences and trademarks 3 675,921 1,126,210

Other 3 89,438 82,253

Intangible assets 1,808,854 2,251,958

Associates 4 84,922 70,615

Joint ventures - -

Other companies 5 252,017 252,017

Equity investments 336,939 322,632

Deferred tax assets 18 1,001,766 926,424

Held-to-maturity investments - -

Loans and receivables 6 133,997 269,390

Third parties - -

Related parties 133,997 269,390

Available-for-sale financial assets - -

Non-current financial assets 133,997 269,390

TOTAL NON-CURRENT ASSETS 53,392,737 55,153,117

Raw materials 116,011 61,887

Work in progress - -

Finished goods 214,377 302,907

Inventories 8 330,388 364,794

Contract work in progress 9 1,418,702 5,356,471

Assets held for trading 7 - 16,359,251

Loans and receivables - -

Third parties - -

Related parties - -

Available-for-sale financial assets - -

Current financial assets - 16,359,251

Derivatives - -

Trade receivables 10 12,803,047 17,706,296

Third parties 12,406,317 17,682,263


Other assets 11 5,572,480 4,688,847

Trade receivables and other assets 18,375,527 22,395,143

Cash in hand and cash equivalents 8,137 11,593

Short-term bank deposits 27,775,232 20,984,104

Cash and cash equivalents 12 27,783,369 20,995,697

TOTAL CURRENT ASSETS 47,907,986 65,471,356

Assets held for sale - -

TOTAL ASSETS 101,300,723 120,624,473

25

Statement of financial position

Pursuant to Consob resolution no. 15519 of 27 July 2006, an ad hoc statement of financial position showing related party transactions has not been prepared as these are already shown in the consolidated financial statements schedules. As for transactions with other related parties, such as directors and statutory auditors, “Trade payables - third parties” include accrued fees for the year of €106,501 and €51,750 relating to Pininfarina S.p.A. and Pininfarina Extra, respectively.

Note 31.12.2016 31.12.2015

Share capital 13 30,150,694 30,150,694

Share premium reserve - -

Reserve for treasury shares 13 175,697 175,697

Legal reserve 13 6,033,331 6,033,331

Stock option reserve 13 157,793 -

Translation reserve 13 124,112 115,171

Other reserves 13 2,646,208 2,646,208

Losses carried forward 13 (29,354,877) (11,122,698)

Profit (loss) for the year 13 20,531,208 (18,168,675)

EQUITY ATTRIBUTABLE TO THE OWNERS OF THE PARENT 30,464,166 9,829,728

Equity attributable to non-controlling interests - -

EQUITY 30,464,166 9,829,728

Finance lease liabilities - 40,774,347

Other loans and borrowings 26,130,952 25,616,838

Third parties 26,130,952 25,616,838

Related parties - -

Non-current loans and borrowings 14 26,130,952 66,391,185

Deferred tax liabilities 18 974 12,754

Italian post-employment benefits 15 4,926,779 4,979,678

Other - -

Post-employment benefits 4,926,779 4,979,678

TOTAL NON-CURRENT LIABILITIES 31,058,705 71,383,617

Bank overdrafts - -

Finance lease liabilities - 11,653,536

Other loans and borrowings 19,451,614 7,235,684

Third parties 3,427,614 7,235,684

Current loans and borrowings 14 19,451,614 18,889,220

Wages and salaries payable 2,228,912 2,536,661

Social security charges payable 1,341,011 1,284,921

Other 1,396,651 1,481,765

Other financial liabilities 16 4,966,574 5,303,347

Third parties 6,910,250 9,033,607

Related parties - 15,135

Advances for contract work in progress 6,014,357 1,672,812

Trade payables 16 12,924,607 10,721,554

Direct tax liabilities - -

Other tax liabilities 616,440 714,662

Current tax liabilities 18 616,440 714,662

Derivatives - -

Provision for product warranty 54,525 54,612

Restructuring provision 238,195 939,360

Other provisions 128,068 271,653

Provisions for risks and charges 17 420,788 1,265,625

Other liabilities 16 1,397,829 2,516,720

TOTAL CURRENT LIABILITIES 39,777,852 39,411,128

TOTAL LIABILITIES 70,836,557 110,794,745

TOTAL LIABILITIES AND EQUITY 101,300,723 120,624,473

26

Income statement

Note 2016

of which:

related

parties 2015

of which:

related

parties

Revenue from sales and services 19 62,659,520 1,336,146 75,126,294 2,500

Internal work capitalised - - -

Change in inventories and contract work in progress (4,017,609) 2,045,495

Change in contract work in progress (3,929,079) 2,027,644

Change in finished goods and work in progress (88,530) 17,851

Other revenue and income 20 10,226,750 5,032,000 5,634,513 70,170 - -

Revenue 68,868,661 6,368,146 82,806,302 72,670 -

Gains on sale of non-current assets and equity investments 14,454 - 50,174 - -

Gain on sale of equity investments - -

Raw materials and components 21 (4,752,143) (7,581,073)

Change in raw materials 54,124 29,465

Inventory write-downs - - - -

Raw materials and consumables (4,698,019) - (7,551,608) - - -

Consumables (765,332) (915,669)

External maintenance (1,346,690) (1,429,374) - -

Other variable production costs (2,112,022) - (2,345,043) -

External variable engineering services 22 (5,306,243) - (9,652,376) (44,629)

Blue collars, white collars and managers (42,013,601) (46,430,737)

Independent contractors and temporary workers - -

Social security contributions and other post-employment benefits (1,217,607) (1,258,295) - -

Wages, salaries and employee benefits 23 (43,231,208) - (47,689,032) - - -

Depreciation of property, plant and equipment and investment property (2,581,859) (2,709,060)

Amortisation of intangible assets (561,483) (688,379)

Losses on sale of non-current assets and equity investments - -

(Additions to)/utilisation of provisions and impairment losses 24 (600,526) (10,505,665) - -

Amortisation, depreciation and impairment losses (3,743,868) - (13,903,104) - -

Net exchange rate gains (losses) (26,622) 73,970

Other expenses 25 (12,642,937) (400,000) (14,191,135) -

Operating loss (2,877,804) 5,968,146 (12,401,852) 28,041

Net financial expense 26 (3,088,927) (15,391) (5,202,260) 66,620

Gain on the extinguishment of financial liabilities 27 26,458,885 - - - -

Dividends 14,561 - -

Share of profit of equity-accounted investees 14,307 11,892 -

Profit (loss) before taxes 20,521,022 5,952,755 (17,592,220) 94,661

Income taxes 18 10,186 (576,455) - -

Profit (loss) for the year 20,531,208 5,952,755 (18,168,675) 94,661

Of which:

- Profit (loss) for the year attributable to the owners of the parent 20,531,208 (18,168,675)

- Profit (loss) for the year attributable to non-controlling interests - -

Basic/diluted earnings (loss) per share:

- Profit (loss) for the year attributable to the owners of the parent 20,531,208 (18,168,675)

- Number of ordinary shares, net 30,150,694 30,150,694

- Basic/diluted earnings (loss) per share 0.68 (0.60)

27

Statement of comprehensive income

Pursuant to Consob resolution no. 15519 of 27 July 2006, the effects of related party transactions on the income statement of the Pininfarina Group are shown in the table provided above and in the “Other Information” section of the notes.

2016 2015

Profit (loss) for the year 20,531,208 (18,168,675)

Other comprehensive income (expense):

Items that will not be reclassified to profit or loss:

- Actuarial gains (losses) on defined benefit plans - IAS 19 (73,278) 38,096

- Income taxes 9,774 (6,858)

- Other - -

Total items of other comprehensive income (expense) that will not be

reclassified to profit or loss, net of tax effect:

Items that will or may be subsequently reclassified

to profit or loss:

- Gains from translation of financial statements of foreign operations - IAS 21 8,940 79,614

- Other - -

Total items of other comprehensive income (expense) that will be subsequently

reclassified to profit or loss, net of tax effect:

Total other comprehensive income (expense), net of tax effect (54,564) 110,852

Comprehensive income (expense) 20,476,645 (18,057,823)

Of which:

- Comprehensive income (expense) attributable to the owners of the parent 20,476,645 (18,057,823)

- Comprehensive income (expense) attributable to non-controlling interests - -

Of which:

- Comprehensive income (expense) from continuing operations 20,476,645 (18,057,823)

- Comprehensive income (expense) from discontinued operations - -

(63,504) 31,238

8,940 79,614

28

Statement of changes in equity

31.12.2014

Comprehensive

expense

Stock option

reserve

Allocation of

prior year loss 31.12.2015

Share capital 30,150,694 - - 30,150,694

Share premium reserve - - - -

Reserve for treasury shares 175,697 - - 175,697

Legal reserve 6,033,331 - - 6,033,331

Translation reserve 35,557 79,614 - 115,171

Other reserves 2,646,208 - - 2,646,208

Losses carried forward (9,891,053) 31,238 (1,262,883) (11,122,698)

Loss for the year (1,262,883) (18,168,675) 1,262,883 (18,168,675)

27,887,551 (18,057,823) - 9,829,728

Equity attributable to non-controlling interests - - - -

EQUITY 27,887,551 (18,057,823) - 9,829,728

31.12.2015

Comprehensive

income

Stock option

reserve

Allocation of

prior year loss 31.12.2016

Share capital 30,150,694 - - - 30,150,694

Share premium reserve - - - - -

Reserve for treasury shares 175,697 - - - 175,697

Legal reserve 6,033,331 - - - 6,033,331

Stock option reserve - - 157,793 - 157,793

Translation reserve 115,171 8,941 - - 124,112

Other reserves 2,646,208 - - - 2,646,208

Losses carried forward (11,122,698) (63,504) - (18,168,675) (29,354,877)

Profit (loss) for the year (18,168,675) 20,531,208 - 18,168,675 20,531,208

9,829,728 20,476,645 157,793 - 30,464,166

Equity attributable to non-controlling interests - - - -

EQUITY 9,829,728 20,476,645 157,793 - 30,464,166

EQUITY ATTRIBUTABLE TO THE OWNERS

OF THE PARENT

EQUITY ATTRIBUTABLE TO THE OWNERS

OF THE PARENT

29

Statement of cash flows

Pursuant to Consob resolution no. 15519 of 27 July 2006, the impact of transactions with related parties, which relates to transactions with the ultimate parent, PF Holding B.V., the Mahindra group companies and the associate Goodmind S.r.l., are disclosed in notes 6, 10 and 14 to the consolidated financial statements.

2016 2015

Profit (loss) for the year 20,531,208 (18,168,675)

Adjustments:

- Income taxes (10,186) 576,455

- Depreciation of property, plant and equipment and investment property 2,581,859 2,709,060

- Amortisation of intangible assets 561,483 688,379

- Impairment losses, provisions and change in accounting estimates (541,535) 8,892,773

- Gains on the sale of non-current assets (14,454) (50,174)

- Financial expense 3,250,706 5,600,949

- Financial income (161,779) (398,689)

- Dividends - -

- Share of profit of equity-accounted investees (14,307) (11,892)

- Profit (loss) from discontinued operations - -

- Other adjustments (26,386,800) 119,541

Total adjustments (20,735,013) 18,126,402

Change in work ing capital:

- Decrease in inventories 255,280 238,166

- (Increase)/decrease in contract work in progress 3,937,769 (2,027,644)

- Decrease in trade receivables and other assets 3,815,239 9,311,962

- Increase in receivables from related parties and joint ventures (372,697) (14,273)

- Increase/(decrease) in trade payables, other financial liabilities and other liabilities(3,579,021) 216,338

- Decrease in payables to related parties and joint ventures (15,135) (29,905)

- Increase/(decrease) in advances for contract work in progress and deferred income4,341,545 (1,604,974)

- Other changes 9,597 (117,394)

Total changes in working capital 8,392,577 5,972,276

Gross cash flows from operating activities 8,188,772 5,930,003

- Interest expense (336,248) (650,885)

- Income taxes (9,597) (582,687)

NET CASH FLOWS FROM OPERATING ACTIVITIES 7,842,927 4,696,431

- Purchases of non-current assets and equity investments (1,559,796) (3,013,527)

- Proceeds from the sale of non-current assets and equity investments 109,108 50,000

- Proceeds from the sale of discontinued operations, net of cash sold - -

- Increase in loans and receivables - third parties - -

- Increase in loans and receivables - related parties and joint ventures 16,000,000 -

- Repayment of loans and receivables - third parties - -

- Repayment of loans and receivables - related parties and joint ventures 144,002 1,567,000

- Proceeds from the sale of current assets held for trading 16,359,251 (736)

- Financial income 81,085 212,527

- Dividends collected - -

- Other changes (35,492) 82,115

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES 31,098,158 (1,102,621)

- Proceeds from the issue of shares - -

- Increase in finance lease liabilities and other loans and borrowings - third parties - -

- Increase in other loans and borrowings - related parties and joint ventures - -

- Repayment of finance lease liabilities and other loans and borrowings - third parties(32,153,413) (7,021,896)

- Repayment of other loans and borrowings - related parties and joint ventures - -

- Dividends paid - -

- Other changes/Other non-cash items - -

CASH FLOWS USED IN FINANCING ACTIVITIES (32,153,413) (7,021,896)

TOTAL CASH FLOWS 6,787,672 (3,428,086)

Opening net cash and cash equivalents 20,995,697 24,423,783

Closing net cash and cash equivalents 27,783,369 20,995,697

Of which:

- Cash and cash equivalents 27,783,369 20,995,697

- Bank overdrafts - -

30

Notes to the consolidated financial statements GENERAL INFORMATION Foreword The core business of the Pininfarina Group (the “Group”) is based on the establishment of comprehensive collaborative relationships with carmakers. Operating as a global partner enables it to work with customers through the entire process of developing new products, including design, planning, development, industrialisation and manufacturing, or to provide support separately during any one of these phases with the utmost flexibility. Pininfarina S.p.A., the Group’s parent, is listed on the Italian Stock Exchange. Its registered office is in Via Bruno Buozzi 6, Turin. Market investors own 22.58% of its share capital, with the remaining 77.42% held by the following shareholders:

• PF Holdings BV 76.14%;

• Segi S.r.l. 0.60%;

• Seglap S.s. 0.63%;

• treasury shares held by Pininfarina S.p.A. 0.05%.

A list of the group companies, with their complete name and address, is provided later on. The consolidated financial statements are presented in Euros, the functional and presentation currency of the parent, where most of the activities and consolidated revenue are concentrated, and its main subsidiaries. All amounts are presented in Euros, unless stated otherwise. The Board of Directors approved the publication of these consolidated financial statements on 21 March 2017. They were authorised for publication within the legal terms. The consolidated financial statements are audited by KPMG S.p.A.. Basis of presentation In accordance with IAS 1 - Presentation of Financial Statements, the consolidated financial statements formats are the same as those of the parent. They include the following schedules:

• statement of financial position, in which current and non-current assets and liabilities are classified separately;

• income statement and statement of comprehensive income, shown as two separate schedules in which costs are classified by nature;

• statement of cash flows, presented in accordance with the indirect method, as allowed by IAS 7 - Statement of cash flows;

• statement of changes in equity. These schedules present the corresponding prior year annual figures for comparative purposes. Moreover, as required by Consob resolution no. 15519 of 28 July 2006, the Group presents the following information in separate schedules:

• net financial debt, with a breakdown of the main components and balances with related parties, is provided on page 19 of the directors’ report;

• the effects of non-recurring events or transactions, i.e., those transactions or events that are not repeated frequently in the normal course of business (pages 68 and 69).

31

Related party transactions are not presented in separate schedules because they are listed as separate items in the statement of financial position, shown on pages 24 and 25. Following the coming into force of the December 2015 agreements, the related party transactions disclosed herein include the balances of transactions carried out with the Mahindra group companies.

Basis of preparation These consolidated financial statements are prepared on a going concern basis, which the directors deemed appropriate. Reference should be made to the “Going concern” section of the directors’ report. These consolidated financial statements at 31 December 2016 comply with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and endorsed by the European Union. They are also consistent with the regulations enacted to implement article 9 of Legislative decree no. 38/2005. The term IFRS includes the International Financial Reporting Standards, the International Accounting Standards (“IAS”) and all interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), previously called the Standing Interpretations Committee (“SIC”), endorsed by the European Commission as of the date of the Board of Directors’ meeting convened to approve the consolidated financial statements and listed in the applicable regulations published by the European Union as of the above-mentioned date. These consolidated financial statements are prepared in accordance with the general principle of historical cost, except for those items that, pursuant to the IFRS, shall be measured at fair value, as explained in the “Accounting policies” section. The accounting policies adopted to prepare these consolidated financial statements at 31 December 2016 are the same as those used in 2015, except as noted in the following section. New standards published but not yet adopted

• IFRS 9: This standard significantly amends the accounting treatment of financial instruments and, in its definitive version, will replace IAS 39. IFRS 9 currently includes revised guidance on the classification and measurement of financial instruments. The Group is currently assessing the impact of the adoption of the new standard on its consolidated financial statements. It will apply the new standard as from 1 January 2018.

• IFRS 15: This standard revised the methods to account for revenue, which is to be recognised when control over the goods or service is transferred to the customer and requires additional disclosures. The Group is currently assessing the impact of the adoption of the new standard on its consolidated financial statements. It will apply the new standard as from 1 January 2018.

Moreover, the IASB issued standards or amendments to existing standards and the International Financial Reporting Interpretations Committee (IFRIC) issued interpretations that are currently being revised and approved. They include IFRS 16 - Leases which considerably amends how lessors and lessees shall recognise leases in their financial statements. Standards, amendments and interpretations applicable from 1 January 2016. The Group adopted the following amendments on 1 January 2016, which did not significantly affect these consolidated financial statements:

• Annual improvements to IFRS - 2010-2012 and 2012-2014 cycles: they improved many standards (IFRS 2, IFRS 3, IFRS 8, IAS 16, IAS 24, IAS 38, IFRS 5, IFRS 7, IAS 19 and IAS 34).

• Amendments to IAS 16 and IAS 38: These amendments clarify that using revenue-based methods to calculate amortisation and depreciation is not appropriate.

32

• Amendments to IAS 1: These amendments mainly aim at improving the presentation of the statement of comprehensive income, by indicating an entity’s share of other comprehensive income of equity-accounted associates and joint ventures. .

ACCOUNTING POLICIES Consolidated financial statements The consolidated financial statements include the financial statements of all subsidiaries from the date the Group acquires control until such control ceases to exist. Joint ventures (if any) and associates are measured using the equity method. Intragroup expenses, revenue, receivables, payables, gains and losses are eliminated in the consolidation process. When necessary, the accounting policies of subsidiaries, associates and joint ventures are amended to make them consistent with those of the parent. (a) Subsidiaries and business combinations A list of the companies consolidated line by line is provided below:

The reporting date of the subsidiaries is the same as that of the parent, Pininfarina S.p.A..

(b) Acquisition/sale of investments subsequent to the acquisition of control

Acquisitions and sales of investments subsequent to the acquisition of control that do not result in a loss of control are accounted for as owner transactions.

In the case of acquisitions, the difference between the consideration paid and the pro rata interest in the carrying amount of the net assets acquired is recognised in equity. In the case of sales, the resulting gain or loss is also recognised directly in equity.

If the Group loses control or significant influence, the remaining non-controlling interest is remeasured at fair value and any positive or negative difference between its carrying amount and fair value is recognised in profit or loss.

(c) Associates

Associates are listed below:

Name Registered office

Investment

% Held by Currency

Share/quota

capital

Pininfarina Extra S.r.l. Via Bruno Buozzi 6, Turin, Italy 100% Pininfarina S.p.A. € 388,000

Pininfarina of America Corp. 501 Brickell Key Drive - Suite 200,

- Miami FL 33131 USA

100% Pininfarina Extra S.r.l. USD 10,000

Pininfarina Deutschland Holding GmbH Riedwiesenstr. 1, Leonberg,

Germany

100% Pininfarina S.p.A. € 3,100,000

Pininfarina Deutschland GmbH Frankfurter Ring 81, Munich,

Germany

100% Pininfarina Deutschland Holding GmbH € 25,000

Pininfarina Automotive Engineering

(Shanghai) Co Ltd

Unit 1, Building 3, Lane 56,

Antuo Road, Anting, 201805,

Jiading district, Shanghai, China

100% Pininfarina S.p.A. CNY 3,702,824

Name Registered office

Investment

% Held by Currency

Quota

capital

Goodmind S.r.l. Via Nazionale 30,

Cambiano, Italy

20% Pininfarina Extra S.r.l. € 20,000

33

(d) Other companies

Investments in other companies that are available-for-sale financial assets are measured at fair value, if feasible, and any resulting gains or losses are recognised in equity until the investments are sold. At that point, fair value gains or losses accumulated in equity are reclassified to the income statement for the year.

If the investments are not listed on a regulated market and their fair value cannot be reliably determined, they are measured at cost, adjusted for any impairment losses, which cannot be reversed.

Translation of foreign currency captions

(a) Presentation currency and translation of financial statements denominated in currencies other than the Euro

The Group’s presentation currency is the Euro.

The table below lists the exchange rates used to translate financial statements denominated in functional currencies different from the presentation currency:

(b) Foreign currency assets, liabilities and transactions

Transactions carried out in currencies other than the Euro are initially translated at the exchange rate in force on the date of the transaction.

At the reporting date, monetary assets and liabilities denominated in foreign currencies are retranslated into Euros at the closing rate. All resulting exchange rate gains and losses are recognised in profit or loss, except for those stemming from foreign currency loans that hedge investments in foreign operations. Any such gains or losses, net of the related tax effects, are recognised directly in equity. When the equity investment is sold, the accumulated translation differences are reclassified to profit or loss.

Non-monetary items that are carried at historical cost are translated into Euros at the exchange rate in force when the underlying transaction was initially recognised. Non-monetary items that are carried at fair value are translated into Euros at the exchange rate in force on the measurement date.

None of the group companies operate in a hyperinflationary economy.

Investment property

Property held to earn rentals or for capital appreciation are classified as investment property and measured at purchase or production cost, including any related costs and net of accumulated depreciation and impairment losses.

Property, plant and equipment

Property, plant and equipment comprise items used in production, including those held under finance lease. They are recognised at purchase or production cost, net of accumulated depreciation and impairment losses (if any), except for land, which is not depreciated.

The cost includes all purchase-related outlays, i.e., those incurred to bring the asset to the place and conditions necessary for its operation.

Euro vs currency 31.12.2016 2016 31.12.2015 2015

US dollar - USD 1.05 1.11 1.09 1.11

Chinese renminbi (yuan) - CNY 7.32 7.35 7.06 6.97

34

Depreciation of buildings and other generic assets is calculated on a straight-line basis, in order to allocate their residual carrying amount over their estimated useful life.

The depreciation rates applied to each asset category are set out below:

Land is recognised separately and is not depreciated but tested for impairment whenever the Group identifies indicators that the carrying amount exceeds the recoverable amount. Subsequent costs are capitalised only if it is probable that they will generate future economic benefits and their amount can be determined reliably. Should a portion be replaced, its carrying amount is derecognised. Costs that do not meet these requirements are immediately recognised in profit or loss. The carrying amount and useful life of property, plant and equipment are reviewed at each reporting date and adjusted, if necessary, prospectively pursuant to paragraphs from 32 to 38 of IAS 8 - Accounting policies, changes in accounting estimates and errors. Gains and losses on the sale, calculated as the difference between the asset’s carrying amount and sales price, are recognised in profit or loss. In these notes, impairment losses mean the losses recognised to adjust the assets’ carrying amounts to their recoverable amount.

Category

Bairo and San

Giorgio facilities Other facilities

Land Indefinite Indefinite

Buildings 50 33

Machinery 20 10

Plant 20 10

Machinery - 5

Furniture and fixtures 10 8

Hardware - 5

Other, including vehicles - 5

Useful life (years)

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Government grants

Government grants are recognised at fair value only if the Group is reasonably certain that they will be disbursed and has met all conditions for their collection. They are recognised as revenue in proportion to the costs incurred. As required by paragraph 17 of IAS 20 - Accounting for government grants and disclosure of government assistance, grants related to assets are recognised as deferred income and reclassified to profit or loss in line with the depreciation pattern of the related asset.

Intangible assets

Intangible assets are identifiable non-monetary assets without physical substance. They are controlled by the Group and generate measurable future economic benefits. They are recognised at cost, calculated using the same criteria as for property, plant and equipment.

(a) Goodwill

Goodwill is the excess of the purchase price with respect to the acquisition-date fair value of the net assets acquired. It is not amortised, but is tested for impairment at least annually. Impairment testing allocates goodwill to the related cash-generating units, which are the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. If the carrying amount of the net assets of a cash-generating unit, including allocated goodwill, exceeds their recoverable amount, the identified impairment loss is firstly allocated to goodwill, up to its entire carrying amount. Any remaining impairment loss is then allocated pro rata to the carrying amount of the assets making up the cash-generating unit. Impairment losses recognised on goodwill cannot be reversed. Any negative goodwill is recognised as income in profit or loss.

(b) Software and other licences

Software and other similar licences are recognised as assets at cost, including that incurred to use them. They are amortised over their estimated useful life, which ranges between three and five years. Costs incurred to maintain software programs are immediately recognised in profit or loss. Those incurred to develop identifiable software that is controlled by the Group, which are very likely to produce future economic benefits exceeding the costs incurred, if any, are recognised as intangible assets and amortised over their useful life, which does not exceed three years.

(c) Research and development expenditure

Research expenditure, as defined by IAS 38 - Intangible assets, is expensed when incurred in accordance with IAS 38.54. Development expenditure is recognised as an intangible asset only if it can be measured reliably and if it is probable that the related project is likely to be successful, with reference to its technical feasibility, the availability of financial resources to complete it and its commercial penetration. Development expenditure that does not meet these requirements is expensed when incurred. This expense is never reclassified as an asset in subsequent years, if the requirements for its recognition as an asset are met after it is recognised in profit or loss. Development expenditure is amortised from when the related output is marketed over the estimated period during which it will generate economic benefits, which can never exceed five years. It is tested for impairment when the Group identifies indicators that its carrying amount exceeds its recoverable amount. The Group carries out development projects on behalf of third parties as part of both styling, engineering and car manufacturing contracts and solely designing and engineering contracts. Development expenditure incurred as part of styling and engineering sold to third parties is classified as a contractual cost under IAS 11 - Construction contracts and, accordingly, no intangible asset is recognised. Development expenditure related to styling, engineering and manufacturing contracts which give the Group a total or partial guarantee that the investment made on behalf of a customer will be recovered is classified as a financial asset under IFRIC 4 - Determining whether an arrangement contains a lease, or, when the conditions for the application of this interpretation are not met, in the carrying amount of the specific equipment under property, plant and equipment.

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(d) Other intangible assets

Other intangible assets acquired separately are recognised at cost. Those acquired as a result of a business combination are recognised at their acquisition-date fair value. After initial recognition, those with a finite useful life are subsequently measured at cost, adjusted for accumulated amortisation and impairment losses, whereas those with an indefinite useful life are measured at cost but not amortised. They are tested for impairment at least annually. Where possible, any changes are made prospectively pursuant to paragraphs from 32 to 38 of IAS 8 - Accounting policies, changes in accounting estimates and errors.

Impairment of non-financial assets

Intangible assets with an indefinite useful life, including goodwill, are tested for impairment at least annually and whenever there are indicators of impairment. Property, plant and equipment, investment property and intangible assets with a finite useful life are tested for impairment only if the Group identifies indicators that their carrying amount may exceed their recoverable amount. The recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value less costs to sell and its value in use, which is calculated as the present value of the future cash flows expected to be derived from an asset, to be based on reasonable and supportable assumptions that represent management’s best estimate of the future economic conditions. The discount rate used reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted. This rate for the Group is the weighted average cost of capital (“WACC”).

When the carrying amount of an asset exceeds its recoverable amount, the Group recognises the difference as an impairment loss in profit or loss. If the reasons for the impairment loss no longer exist in future years, the impairment loss is reversed to the extent of the pre-impairment carrying amount, less amortisation/depreciation. Impairment losses on goodwill can never be reversed. Cash-generating units are identified in line with the Group’s organisational structure and business, by grouping those assets that are able to generate cash inflows independently, as required by IAS 36 - Impairment of assets; they are not larger than the two operating segments identified under IFRS 8 - Operating segments: 1) styling and engineering; 2) operations. In assessing the recoverable amount for impairment testing purposes, the Group makes reference to the fair value of owned real estate complexes, measured using the market valuations available at the Public Real Estate Registry Office and possibly appraisals prepared by independent experts.

Assets held for sale

Non-current assets, together with current and non-current assets included in disposal groups, whose carrying amount will be recovered through their sale rather than continuing use, are classified as held for sale. Assets held for sale and directly-associable liabilities are classified in the statement of financial position separately from the Group’s other assets and liabilities, in accordance with paragraphs from 38 to 40 of IFRS 5 - Non-current assets held for sale and discontinued operations. Assets held for sale are not amortised or depreciated and are measured at the lower of their carrying amount and fair value less costs to sell. Any difference between the carrying amount and fair value less costs to sell is recognised in profit or loss as an impairment loss. Any subsequent improvement in fair value less costs to sell is recognised as a reversal to the extent of the impairment losses previously recognised, including those recognised prior to the classification of the asset as held for sale.

Financial assets

Financial assets are recognised at the trade date, which is the date on which the Group assumes the obligation to acquire them.

In accordance with IAS 39 - Financial instruments: recognition and measurement, they are classified in the following four categories:

• financial assets at fair value through profit or loss;

• loans and receivables;

• held-to-maturity investments;

• available-for-sale financial assets.

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Financial assets are derecognised when the right to receive their cash flows ceases or is transferred or when the Group has substantially transferred all risks and rewards relating to the financial instrument, in addition to control thereover.

Financial assets and financial liabilities are not offset. They can be offset and the net balance is presented in the statement of financial position only when (i) the Group has a legally enforceable right to set off the recognised amounts and (ii) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

(a) Financial assets at fair value through profit or loss

This category includes:

• financial assets mainly acquired to be sold in the short term (financial assets held for trading);

• financial assets designated in this category on initial recognition, if the relevant requirements are met;

• derivatives, excluding hedges. They are measured at fair value with fair value gains or losses recognised in profit or loss. Financial instruments belonging to this category are classified as current assets if they are held for trading, or if they are expected to be sold within twelve months of the reporting date. The current or non-current classification depends on the Group’s strategic policies about how long it intends to hold the asset and the asset’s actual marketability.

(b) Loans and receivables

This category includes non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. It mainly comprises trade receivables, including those recognised in accordance with IFRIC 4 - Determining whether an arrangement contains a lease. Loans and receivables are classified as current assets, except for those due after more than twelve months of the reporting date, which are classified as non-current assets. They are measured at amortised cost, using the effective interest method. Should the Group identify objective evidence of impairment, their carrying amount is adjusted to the present value of their estimated cash flows, discounted using their original effective interest rate. Objective evidence that a financial asset is impaired includes: (i) significant financial difficulty of the issuer or obligor, (ii) it becoming probable that the borrower will enter bankruptcy or other financial reorganisation; (iii) adverse changes in the payment status of borrowers including delayed payments. Impairment losses are recognised in profit or loss. If the reason for the impairment loss no longer exists in future years, the impairment loss is reversed to the extent of the pre-impairment carrying amount measured at amortised cost.

(c) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity.

They are initially recognised at acquisition cost, including any transaction costs. They are subsequently measured at amortised cost, using the effective interest method, adjusted for any impairment losses. Should the Group identify evidence of impairment, it applies the same criteria described above for loans and receivables.

(d) Available-for-sale financial assets

These are non-derivative financial assets that are designated either as available for sale or cannot be classified in any of the other previous categories. Available-for-sale financial assets are measured at fair value, with fair value gains or losses recognised in equity and reclassified to profit or loss only when the financial asset is actually sold or when the accumulated fair value losses are deemed to no longer be recoverable. If the fair value cannot be measured reliably, these instruments are measured at cost, adjusted for impairment losses. Impairment losses recognised on equity instruments cannot be reversed. Fair value losses that are deemed to be irrecoverable, for example due to a prolonged decline in the fair value of the financial assets, are reclassified from equity to profit or loss.

Derivatives

The Group has no derivatives in place, either for trading or hedging purposes.

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Contract work in progress

The Group recognises styling and engineering contracts in accordance with IAS 11 - Construction contracts. Contract costs are recognised as incurred. Contract revenue is recognised as follows:

• if the performance of the contract cannot be estimated reliably, revenue is recognised to the extent of the incurred costs that are deemed to be recoverable;

• if the performance of the contract can be estimated reliably and a contract profit is probable, revenue is recognised over the term of the contract on an accruals basis;

• conversely, if a contract loss is probable, the loss is calculated as the difference between contract revenue and costs and is recognised in its entirety when identified.

The Group allocates contract revenue and costs to each year using the percentage of completion method set out in paragraph 25 of IAS 11 - Construction contracts. The percentage of completion is determined as the ratio of total costs incurred at the reporting date to the estimated total costs to complete the contract. Progress billings are included in contract work in progress to the extent of the costs incurred. If they exceed the stage of completion, the balance is recognised as a liability under the caption “Deferred income” classified in “Advances for contract work in progress”. If the stage of completion exceeds progress billings, the difference is recognised as an asset under contract work in progress.

Financial expense

In accordance with IAS 23 - Borrowing costs, borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Otherwise, they are recognised in profit or loss on an accruals basis.

Inventories

Inventories are recognised at the lower of cost and net realisable value, which is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. Under IAS 2 - Inventories, the cost is calculated using the FIFO (“first-in first-out”) method. The cost of finished goods and semi-finished products includes design, raw materials and direct labour costs, other direct costs and other indirect costs that can be directly allocated to the production activity based on normal production capacity. This cost does not include borrowing costs. Based on the assets’ expected future use and net realisable value, materials, finished goods, spare parts and other obsolete or slow-moving items are written down through an allowance account. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Trade receivables and other assets

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, net of impairment losses due to uncollectibility. Impairment losses are recognised if there is objective evidence that the Group is unable to collect all the amounts due at the due dates agreed with the customer. The impairment loss, calculated as the difference between the asset’s carrying amount and present value of future collections, discounted using the effective interest rate, is recognised in profit or loss.

Cash and cash equivalents

Net cash and cash equivalents include cash-in-hand, on-demand bank deposits, other investments that may be sold within three months and bank overdrafts, which are recognised in the relevant caption under current liabilities. In accordance with paragraph 8 of IAS 7 - Statement of cash flows, the cash flow for the year is equal to the change in net cash and cash equivalents.

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Share capital

Ordinary shares are classified in equity. There are no other share categories. Costs directly related to the issue of ordinary shares or options are recognised in equity. If a group company acquires the parent’s shares, or if the parent itself repurchases its own shares within the limits established by article 2357 of the Italian Civil Code, the consideration paid, net of any transaction cost, is deducted from equity attributable to the owners of the parent until the treasury shares are cancelled, possibly assigned to employees or resold. The parent’s share capital comprises 30,166,652 ordinary shares with a unit nominal amount of €1.

Loan and lease liabilities

Loan and lease liabilities are initially recognised at fair value, equivalent to the cash obtained, net of any transaction costs. In accordance with IAS 39 - Financial instruments: recognition and measurement, after initial recognition, they are measured at amortised cost. The difference between the amount collected, net of any transaction costs, and the amount repayable (principal and interest) is recognised in profit or loss on an accruals basis using the effective interest method. The portion of loan and lease liabilities due within one year is recognised under current liabilities. When the Group has an unconditional right to defer payment, the portion due after one year is recognised under non-current liabilities. In accordance with paragraph 74 of IAS 1 - Presentation of financial statements, if, at the reporting date, the Group has not complied with the loan and lease contractual provisions and the residual liability becomes fully due on demand (acceleration clause), the entire amount is reclassified to current liabilities, even when the Group has reached an agreement with its creditors for repayment at the original maturity before the publication date of the financial statements. This is because, at the reporting date, the Group does not have an unconditional right to defer payment of the liability to after twelve months.

Employee benefits

(a) Pension plans

The Pininfarina Group’s employees participate in defined contribution plans and defined benefit plans. The latter are a portion of the Italian post-employment benefits provided for by article 2120 of the Italian Civil Code and, therefore, do not comprise any plan assets. Defined contribution plans are formalised plans for post-employment benefits that require that the Group pay contributions to an insurance company or a pension fund. By doing this, the Group does not have any other legal or constructive obligation to pay additional contributions should the fund not have sufficient resources to pay all benefits accrued by employees over their current and past service periods when the benefits become due. These contributions paid in exchange for the service rendered by employees are recognised as an expense on an accruals basis. This category includes the payments made to the Cometa and Previp funds. Under defined benefit plans, the Group has a future obligation to pay the pension benefit to the employee upon termination of employment. The amount of the benefit depends on different factors, such as age, seniority and remuneration. The Group, therefore, takes on actuarial and investment risks arising from the plan. It calculates the present value of the plan liability and the service cost using the projected unit credit method, based on the actuarial calculation that uses demographic (mortality rate and turnover) and financial (discount rate and future salary and benefit increases) variables. The post-employment benefits of the Group’s Italian employees are classified as follows pursuant to IAS 19 - Employee Benefits:

• defined benefit plan for the portion vested prior to enactment of the Finance Act (Law no. 296 of 27 December 2006) and related implementing decrees;

• defined contribution plan for the portion accrued thereafter.

At the annual and half year reporting dates, the Group calculates the benefits using an actuarial valuation. The accumulated actuarial losses and gains arising from changes in estimates are recognised in a specific caption of comprehensive income. Any curtailment or extinguishment of a plan liability is immediately recognised in profit or loss.

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(b) Incentives, bonuses and profit-participation plans

The Group recognises a cost and a liability for its obligations for incentives, bonuses and profit-participation plans. The liability is recognised when the Group has a legal or constructive obligation and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

(c) Termination benefits

The Group recognises a liability and personnel expense when it is demonstrably committed to terminating the employment of an employee or group of employees before the normal retirement date or provide termination benefits as a result of an offer made in order to encourage voluntary redundancy. The Group is demonstrably committed to a termination when, and only when, it has a detailed formal plan for the termination and is without realistic possibility of withdrawal.

(d) Share-based payments

The Group has granted additional benefits to its key management personnel in the form of equity-settled share based plans (e.g., stock options). Under IFRS 2 - Share-based payment, the present value of the stock options calculated at the grant date using the Black & Scholes method is recognised as personnel expense in profit or loss on a straight-line basis over the vesting period, with a balancing entry recognised in equity. The effects of the non-market vesting conditions are not considered in the fair value measurement of the options granted, but are taken into account in measuring the number of expected exercisable options. The Group revises its estimates of expected exercisable options at each reporting date. The resulting effects are recognised in profit or loss over the vesting period with a balancing entry recognised in equity. When the options are exercised, the amounts received from employees, net of directly attributable transaction costs, increase the share capital to the extent of the nominal amount of the issued shares. The remainder increases the premium reserve. Provisions for risks and charges, contingent liabilities

The provisions for risks and charges include specific costs and losses whose existence is certain or probable but whose amount or due date is unknown at the reporting date. Provisions are recognised when all the following conditions are met: (i) the Group has a present obligation (legal or constructive) as a result of a past event; (ii) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; (iii) a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation or transfer it to third parties at the reporting date. Where the effect of the time value of money is material and the payment dates can be estimated reliably, the provision is discounted to present value. The Group recognises expected restructuring costs when a restructuring plan is formalised only if it has raised a valid expectation in those affected that it will carry out the restructuring. The liability accrued in the provisions for risks and charges are regularly adjusted for changes in estimated costs, expected timing and discount rates. Changes in estimates of provisions are recognised in the same income statement caption as the related addition. Disclosures about contingent liabilities, i.e.: (i) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group; (ii) a present obligation that arises from past events, whose amount cannot be measured reliably or whose settlement will probably not require an outflow of resources embodying economic benefits are provided in the notes.

Leases

(a) Finance leases

Under IAS 17 - Leases, a lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership from the lessor to the Group (lessee). They are accounted for as follows:

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(a1) Leases where the Group is the lessee

The Group enters into these leases to fund its investments in property, plant and equipment, as defined earlier. The leased asset is recognised as an item of property, plant and equipment and depreciated over the shorter of its useful life and the lease term. At the commencement of the lease term, the asset is recognised at the lower of its fair value and the present value of the minimum lease payments determined at the inception of the lease. The financial liability to the lessor is recognised as described earlier for loan and lease liabilities.

(a2) Leases where the Group is the lessor

The Group becomes a lessor when it applies IFRIC 4 - Determining whether an arrangement contains a lease, relating to IAS 17 - Leases, to certain specific plant and machinery in connection with certain design, engineering and car manufacturing contracts. IFRIC 4 applies to those arrangements that do not have the legal form of a lease, but that give the Group’s counterparty the right to use certain assets in exchange for a series of payments. This right implies that the arrangement is or contains a lease. The requirements for the application of this interpretation are as follows:

• fulfilment of the arrangement is dependent on the use of a specific asset;

• the arrangement conveys a right to use the asset;

• it is possible to assess whether an arrangement contains a lease at the inception of the arrangement;

• it is possible to separate payments for the lease from other payments. Briefly, under IFRIC 4, it is possible to identify and separate the lease from an arrangement and recognise it in accordance with IAS 17 - Leases. In this case, the Group recognises a financial asset equal to the present value of the lease payments. The difference between future collections and their present value is the interest income which is recognised in profit or loss over the lease term at a constant periodic rate of return.

(b) Operating leases

When a lease does not meet the requirements to be classified as a finance lease, it is classified as an operating lease. Lease payments, net of incentives received from the lessor, are recognised as an expense on a straight-line basis over the lease term.

Income taxes

(a) Current taxes

Current taxes are recognised by each group company on the basis of their estimated taxable profit using the tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date, taking into account any domestic tax consolidation arrangements, applicable exemptions and tax assets.

(b) Deferred taxes

Under IAS 12 - Income taxes, deferred taxes are calculated for all temporary differences between the assets’ and liabilities’ tax bases and carrying amounts, except in two cases: (i) goodwill arising from a business combination, (ii) the initial recognition of an asset or liability in a transaction which is not a business combination and affects neither accounting profit nor taxable profit (tax loss). Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are respectively classified as non-current assets and liabilities. They are offset at individual company level if related to taxes that can be legally offset. The resulting balance, if positive, is recognised as a deferred tax asset and, if negative, as a deferred tax liability. Current and deferred taxes related to transactions directly affecting equity are recognised in equity. The Group recognises deferred tax assets to the extent that it is probable that taxable profit will be available against which the temporary difference can be utilised. The carrying amount of a deferred tax asset is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilised. Deferred taxes on undistributed profits of the group companies are recognised only if the company

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really intends to distribute such profits and, in any case, if there are no tax consolidation arrangements cancelling their taxation.

Revenue recognition

As required by IAS 18 - Revenue, revenue is measured at the fair value of the consideration received or receivable from the sale of goods and services, net of VAT, returns, discounts and intragroup transactions. It is recognised as follows:

(a) Sale of goods

Revenue is recognised when all the following conditions have been satisfied:

• the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

• the Group retains neither effective nor continuing managerial involvement over the goods sold;

• the amount of revenue can be measured reliably;

• it is probable that the economic benefits will flow to the Group;

• the costs incurred or to be incurred in respect of the transaction can be measured reliably. (b) Rendering of services

Revenue from services is recognised by reference to the stage of completion of the transaction when the services are rendered. Revenue is recognised when all the following conditions are satisfied:

• the amount of revenue can be measured reliably;

• it is probable that the economic benefits will flow to the Group;

• the stage of completion of the transaction at the reporting date can be measured reliably;

• the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

Revenue from styling and engineering services on behalf of third parties are recognised based on the stage of completion.

(c) Interest, royalties and dividends

Revenue arising from the use by others of entity assets yielding interest, royalties and dividends is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of the revenue can be measured reliably. Interest is recognised using the effective interest method, which is the rate that exactly discounts estimated future cash flows through the expected life of the financial instrument. Royalties are recognised on an accruals basis in accordance with the substance of the relevant agreement. Dividends are recognised when the shareholder’s right to receive payment is established.

Dividend distribution

The Group recognises a liability for dividends to be distributed when the distribution has been approved by the shareholders.

Earnings or losses per share

Basic earnings or losses per share are calculated by dividing the profit or loss for the year attributable to the owners of the parent’s ordinary shares by the weighted average number of ordinary shares outstanding during the year. Diluted earnings or losses per share are derived by adjusting the weighted average number of outstanding shares for all potential ordinary shares with a dilutive effect.

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Events after the reporting date

The events after the reporting date are those events, favourable and unfavourable, that occur between the reporting date (31 December for the Group) and the date when the financial statements are authorised for issue. Two types of events can be identified: (i) those that provide evidence of conditions that existed at the reporting date and (ii) those that are indicative of conditions that arose after the reporting date.

In accordance with IAS 10 - Events after the reporting period, in the first case (i) the Group adjusts the carrying amounts for the events that occurred after the reporting date and in the second case (ii) the Group does not adjust the carrying amounts, but discloses the events held significant in the notes.

Reference should be made to the “Other information” section of the directors’ report for further details.

Statement of cash flows

The statement of cash flows is presented in accordance with the indirect method allowed by IAS 7 - Statement of cash flows.

Repayments of loans and receivables, recognised under IFRIC 4 - Determining whether an arrangement contains a lease, are recognised as cash flows from investing activities at the line “Repayment of loans and receivables - third parties”, in line with the definition of investment activities set out in IAS 7, with the Group’s financial position and net financial debt structures and in accordance with IAS 7.16-f.

ASSESSMENTS THAT AFFECT THE CONSOLIDATED FINANCIAL STATEMENTS

(a) Going concern

The going concern assumption is a key principle for the preparation of financial statements. When assessing whether the Group is able to continue as a going concern, the directors express their current opinion on the outcome of future events or circumstances which are, by their nature, uncertain. Any opinion about future events is based on information available when the opinion is expressed. Future events may contradict an opinion which, when it was expressed, was reasonable. Some of the elements that affect the opinion on the outcome of future events or circumstances include the size and complexity of an entity, the nature and circumstances of its business and its dependency on external factors.

(b) Additions to the provisions for risks and charges and contingent liabilities and contingent assets

Provisions are liabilities whose due date and amount are uncertain. The directors measure them based on the estimated costs to be incurred to extinguish the obligation at the reporting date.

Contingent liabilities and assets are presented in the financial statements in accordance with paragraphs 27 and 31, respectively, of IAS 37 - Provisions, contingent liabilities and contingent assets.

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group, or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group.

Where necessary, the directors make their estimate with the assistance of their legal advisors and experts.

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(c) Impairment

Investments in subsidiaries, associates and joint ventures are tested for impairment by estimating their value in use, which is usually calculated as the Group’s share of the investee’s equity derived from the consolidated financial statements plus the expected operating cash flows and the cash flow arising from its sale, net of selling costs, if it is material and can be determined reliably.

Cash flows are forecast by directors based on reasonable and supportable assumptions that represent their best estimate of the future economic conditions.

The discount rate used reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted.

Non-financial assets that are comprised in cash-generating units are tested for impairment on the basis of the expected future profits, whose estimate depends on a number of factors not wholly within the control of the Group.

Property is tested for impairment by comparing its carrying amount to its fair value, measured using the market valuations available at the Public Real Estate Registry Office and/or possibly appraisals prepared by independent experts engaged by the Board of Directors.

(d) Fair value measurement and hierarchy for financial instruments

Pursuant to IFRS 7 – Financial Instruments: Disclosures, the classification of financial instruments at fair value shall be based on the quality of the inputs used for measurement purposes. The IFRS 7 classification is based on the following fair value hierarchy:

• Level 1: fair value is determined based on prices quoted on an active market for identical assets or liabilities. This category includes financial assets classified as “held for trading”, which are mainly government bonds and high-rating bonds.

• Level 2: fair value is determined based on inputs that, while different from the quoted prices used in Level 1, can be observed either directly or indirectly. These consolidated financial statements do not present any financial instruments of this type.

• Level 3: fair value is determined based on valuation models, the input of which is not based on observable market data. These consolidated financial statements do not present any financial instruments of this type.

(e) Current and deferred taxes

Current taxes are calculated on the basis of a best estimate of the tax expense for the year, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are measured on the basis of the parent’s and Group’s expectations on how the carrying amount of their assets and liabilities will be recovered/extinguished, subject to the probability that they will earn future taxable profit. Deferred tax assets and liabilities are measured on the basis of tax rates that are expected to be applicable when the assets will be realised or the liabilities will be extinguished, therefore based on tax rates or changes to tax laws that have been enacted by the reporting date.

(f) Italian post-employment benefits

Following the supplementary pension reform, the portion of Italian post-employment benefits vested before 1 January 2007 is considered to be a defined benefit under IAS 19 - Employee Benefits. Under defined benefit plans, the amount of the benefit due to the employee upon termination of employment depends on different factors, such as age, seniority and remuneration. Despite being prudently estimated and based on internal historical figures, these estimated parameters may be subject to change.

The directors estimated the post-employment benefit obligation assisted by an independent expert included in the Italian Actuary Register.

(g) Stock option plans

The Group’s stock option plan is reserved for the parent’s key management personnel and is aimed at incentivising their achievement of the parent’s objectives and enhancing their loyalty to the parent.

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The options are measured using the Black-Scholes valuation approach.

The directors calculated the carrying amounts relating to the stock option plan with the assistance of an independent expert.

TYPES OF FINANCIAL INSTRUMENTS AND FAIR VALUE HIERARCHY The financial instruments held by the Group include:

• cash and cash equivalents;

• non-current loan liabilities;

• trade receivables and payables and loans and receivables - related parties. During the reporting period, the parent sold all current assets held for trading recognised at 31 December 2015. The parent’s finance lease liabilities at 31 December 2015 were all extinguished during the year. As required by IFRS 7, the table below lists the types of financial instruments included in the consolidated financial statements and shows the measurement criteria adopted:

In addition, net cash and cash equivalents are measured at fair value which usually equals their nominal amount.

FINANCIAL RISK MANAGEMENT Financial risk factors, as identified in IFRS 7 – Financial Instruments: Disclosures, are described below:

• Market risk: the risk that the fair value or the future cash flows of a financial instrument could fluctuate as a result of changes in market prices. Market risk includes the following other types of risk: currency risk, interest rate risk and price risk.

• Currency risk: the risk that the fair value or the future cash flows of a financial instrument could fluctuate as a result of changes in exchange rates.

• Interest rate risk: the risk that the fair value or the future cash flows of a financial instrument could fluctuate as a result of changes in interest rates.

• Price risk: the risk that the fair value or the future cash flows of a financial instrument could fluctuate as a result of changes in market prices (other than changes covered by the interest rate and currency risks), irrespective as to whether such fluctuations are determined by factors specific to the financial instrument or its issuer or by factors that affect all similar market-traded financial instruments.

Fair value

hierarchy

Financial

instruments

at amortised

cost

Equity

investments

measured at

cost

Carrying

amount at

31.12.2016

Carrying

amount at

31.12.2015

profit or

loss

equity

Assets:

Equity investments in other companies - - - 252,017 252,017 252,017

Loans and receivables - - 133,997 - 133,997 269,390

Assets held for trading - - Level 1 - - - 16,359,251

Trade receivables and other assets - - 18,375,527 - 18,375,527 22,395,143

Liabilities:

Finance lease liabilities - - - - - 52,427,883

Other loans and borrowings - - 45,582,566 - 45,582,566 32,852,522

Trade payables and other liabilities - - 14,321,258 - 14,321,258 12,203,319

Financial instruments

at fair value through:

46

• Credit risk: the risk that one of the parties causes the other party to incur a financial loss by failing to fulfil an obligation.

• Liquidity risk: the risk that an entity may be unable to fulfil obligations associated with financial liabilities.

(a) Currency risk The Group entered into most of its financial instruments in Euros, which is its functional and presentation currency. Although it operates in an international environment, it has a limited exposure to fluctuations in the exchange rates of the following currencies against the Euro: US dollar (USD), and Chinese Yuan (CNY). (b) Interest rate risk The Restructuring Agreement signed by Pininfarina S.p.A. with the lending institutions, effective from 31 May 2016 to 31 December 2025, defined a fixed contractual interest rate of 0.25% per annum, based on a year of 360 days. If the six-month Euribor exceeds 4% during an interest accruing period, the contractual interest rate will be increased by the difference between the actual six-month Euribor and 4%. The Group is exposed to interest rate risk in connection with the loan provided by Volksbank Region Leonberg to Pininfarina Deutschland GmbH, which accrues interest at the three-month Euribor plus a spread of 0.55%. Interest on the short-term operating lines is computed at a fixed rate ranging between 5.26% and 6.75%, with regular accrual and payment in arrears at the end of each utilisation period.

A breakdown of the Group’s financial debt by fixed and variable interest rates at the reporting date is as follows:

Due to the new structure of the interest rates on medium to long-term financing that, at variable rates, accounts for 0.9% of total indebtedness with third parties, the Group has not performed a sensitivity analysis. (c) Price risk Because the Group primarily operates within the Eurozone, its exposure to the risk of fluctuations in commodity prices is currently immaterial. Assets held for trading, which totalled €16.4 million at 31 December 2015, were all sold and, therefore, the Group is no longer exposed to the related price risk. (d) Credit risk

Styling and engineering contracts, which are the Group’s primary revenue source, are agreed with

highly rated customers located both inside and outside the European Union. In order to minimise the

credit risk from non-EU customers, the Group seeks to align both progress billings and their

collection with the relevant contract’s stage of completion. There is no significant credit

concentration with individual customers.

The Group did not carry out transactions involving the derecognition of financial assets, such as the factoring of trade receivables without recourse.

31.12.2016 % 31.12.2015 %

- Fixed rate 29,288,566 99.1% 84,980,405 99.6%

- Variable rate 270,000 0.9% 300,000 0.4%

Gross financial debt with third parties 29,558,566 100.00% 85,280,405 100.00%

47

(e) Liquidity risk In brief, the Rescheduling Agreement signed on 14 December 2015 and effective as of 30 May 2016 entailed:

- settlement and extinguishment of 56.74% of the nominal amount of the parent’s debt with the lending institutions that accepted this option, in addition to the interest accrued up to the effective date;

- the rescheduling of the nominal amount of the debt with the lending institutions that

accepted this option, totalling €41.5 million, from 2016 to 2025;

- the application of a fixed interest rate of 0.25% per annum, based on a year of 360 days, increased by the difference between this rate and the six-month Euribor, should the latter exceed 4%.

The cash flows of the above-mentioned agreement have been determined on the basis of the 2016-2025 business and financial plan that ensures the Group’s financial stability. Consequently, over the medium to long term, the liquidity risk is directly correlated to the achievement of the business plan targets. A breakdown of the contractual amount of the Group’s financial debt is set out below.

The Group holds net cash and cash equivalents totalling €27.8 million. Consequently, it is not exposed to liquidity risk in the foreseeable future. (f) Risk of default and debt covenants This risk relates to the possibility that the new Rescheduling Agreement between Pininfarina S.p.A. and the lending institutions that came into force on 30 May 2016 includes acceleration clauses that may give rise to liquidity risk. The Rescheduling Agreement includes a financial covenant requiring that the Group’s minimum equity amount to at least €30 million starting from the verification date of 31 March 2018. As of that date, the financial covenant will be checked at each verification date on the basis of the

Group’s quarterly report published by the parent.

The Mahindra Group granted a first demand surety to the lending institutions that is enforceable if Pininfarina S.p.A. fails to meet its obligations.

SEGMENT REPORTING

Operating segments are identified in accordance with paragraphs 5 to 10 of IFRS 8 – Operating

segments. In the Operations business segment, the operating segments coincide with a series of

activities mainly involving the supply of spare parts for cars manufactured by Pininfarina S.p.A., the

Carrying

amount

31.12.2016

Contractual

cash flows

Of which:

due within

one year

Of which:

due from one

to five years

Of which:

due after

five years

Term financing 29,558,566 41,446,787 3,427,614 14,438,166 23,581,007

48

lease of the business for the production of electric cars for the car sharing service and support

functions.

Financial income and expense and income taxes are not allocated to the reporting segments

because management makes the relevant decisions on an aggregate segment basis. Intra-segment

transactions are carried out at market conditions. In accordance with IFRS 8.4, the Group presents

segment reporting in its consolidated financial statements only.

The Group’s business segments are not affected by seasonal factors. Segment reporting as at and for the years ended 31 December 2016 and 2015 is set out below. Amounts are in thousands of Euros.

Reference should be made to the directors’ report for an analysis of the operating segments. A breakdown of assets and liabilities by business segment is set out below:

A breakdown of sales by geographical segment is provided below:

Operations

Design

&

engineering Total Operations

Design

&

engineering Total

A B A + B A B A + B

Revenue 11,865 58,212 70,077 7,660 79,872 87,532

(Intra-segment revenue) (436) (772) (1,208) (467) (4,259) (4,726)

Revenue - third parties 11,429 57,440 68,869 7,193 75,613 82,806

Operating profit (loss) (4,037) 1,159 (2,878) (20,791) 8,388 12,403

Net financial expense (3,074) (5,202)

Dividends - -

Share of profit of equity-accounted investees - 14 14 - 12 12

Profit (loss) before taxes - - 20,521 - - (17,593)

Income taxes - - 10 - - (576)

Profit (loss) from continuing operations - - 20,531 - - (18,169)

Profit (loss) from discontinued operations - - - - - -

Profit (loss) for the year - - 20,531 - - (18,169)

Other information required by IFRS 8:

- Amortisation and depreciation (1,586) (1,557) (3,143) (1,834) (1,563) (3,397)

- Impairment losses - (682) (682) (9,505) (29) (9,534)

- Provisions/change in accounting estimates - 82 82 (900) (72) (972)

- Net gains on the sale of non-current assets - 14 14 - 50 50

2016 2015

Operations

Design

&

engineering Unallocated Total

Production/

Operations

Design

&

engineering Unallocated Total

A B C A + B + C A B C A + B + C

Assets 23,937 47,208 30,156 101,301 27,503 58,003 35,119 120,624

Liabilities 2,821 18,440 49,575 70,837 57,300 16,609 36,886 110,795

Of which: other information required by IFRS 8:

- Equity-accounted investments - 85 - 85 - 71 - 71

- Intangible assets - 1,223 585 1,809 - 1,356 896 2,252

- Property, plant and equipment and investment property 23,201 25,915 996 50,111 23,866 26,526 990 51,383

- Employees 75 459 44 578 76 503 42 621

31 December 2016 31 December 2015

2016 2015

Italy 10,154 18,431

EU 32,841 36,291

Non-EU countries 19,665 20,404

Revenue from sales and services 62,660 75,126

49

NOTES TO THE CAPTIONS 1. Property, plant and equipment The carrying amount of property, plant and equipment at 31 December 2016 decreased to €42 million from €43 million at 31 December 2015. Changes in property, plant and equipment and an analysis of the items making up the captions are set out below.

Land and buildings include the carrying amounts of real estate complexes, comprising the production facilities located in Via Castellamonte 6, Bairo Canavese (TO) and Strada provinciale per Caluso, San Giorgio Canavese (TO), the styling and engineering sites in Via Nazionale 30, Cambiano (TO) and two properties in Turin and Beinasco (TO). Reclassifications from “Leased property” relate to the portion of the Cambiano real estate complex under finance lease, which was purchased by Pininfarina S.p.A. that exercised the related purchase option, as provided for by the Rescheduling Agreement. The Bairo Canavese industrial facility, which is owned by the parent, was leased to a third party in

2011 and the related lease was renewed until 2022, while the San Giorgio Canavese facility, which

is also owned by the parent and was previously used for the sale of spare parts (now carried out

from the Cambiano site), was discontinued at the end of 2015, in line with the provisions of the new

2016-2025 business plan approved in December 2015. The carrying amount is substantially in line

with the most recent appraisal available to the parent. Accordingly, there are no indicators of

impairment. All land and buildings located in Italy are owned by Pininfarina S.p.A.. Additions of the year relate to the renovation of Pininfarina of America Corp.’s offices and works carried out at the Cambiano facility.

Land Buildings

Leased

property Total

Historical cost 11,176,667 52,363,793 13,066,662 76,607,122

Accumulated depreciation and impairment losses (4,636,429) (29,769,425) (5,245,259) (39,651,113)

Carrying amount at 31 December 2015 6,540,238 22,594,368 7,821,403 36,956,009

Additions - 140,690 - 140,690

Disposals: Historical cost - - - -

Disposals: Acc. depreciation and imp. losses - - - -

Depreciation - (981,755) (149,395) (1,131,150)

Impairment losses - - - -

Reclassifications - - - -

Other changes - - - -

Carrying amount at 31 December 2016 7,655,314 28,310,235 - 35,965,549

Of which:

Historical cost 11,176,667 64,456,069 - 75,632,736

Accumulated depreciation and impairment losses (4,636,429) (36,145,834) - (40,782,263)

50

Plant and machinery at 31 December 2016 include generic production plant and machinery, mainly

based at the Bairo and Cambiano facilities.

Leased machinery and equipment at 31 December 2015, which showed a zero balance, related to production machinery and equipment purchased by Pininfarina S.p.A. that exercised the related purchase option, as provided for by the Rescheduling Agreement. The leased machinery and equipment related to production contracts and their carrying amount progressively zeroed due to depreciation and the impairment losses recognised following the parent’s discontinuance of production activities. They will be scrapped as they cannot be used for other purposes. Additions of the year are mainly due to plant installed at the Cambiano facility and at the wind tunnel.

Additions to furniture and fixtures and other assets made during the year relate to the German group’s and Pininfarina of America Corp.’s new offices. Additions to hardware and software for the year relate to the purchase of IT equipment for technological upgrading.

Machinery Plant

Leased

machinery and

equipment Total

Historical cost 5,381,890 82,760,316 122,353,360 210,495,566

Accumulated depreciation and impairment losses (4,952,707) (79,580,122) (122,353,360) (206,886,189)

Carrying amount at 31 December 2015 429,183 3,180,194 - 3,609,377

Additions 3,649 664,600 - 668,249

Disposals: Historical cost (12,223) (1,040) - (13,263)

Disposals: Acc. depreciation and imp. losses 12,223 433 - 12,656

Depreciation (41,232) (495,931) - (537,163)




Carrying amount at 31 December 2016 391,600 3,348,256 - 3,739,856

Of which:

Historical cost 5,373,316 83,423,876 - 88,797,192

Accumulated depreciation and impairment losses (4,981,716) (80,075,620) - (85,057,336)

Furniture and

fixtures

Hardware and

software

Other

assets Total

Historical cost 3,231,777 6,218,217 842,018 10,292,012

Accumulated depreciation and impairment losses (2,403,657) (5,211,795) (339,899) (7,955,351)

Carrying amount at 31 December 2015 828,120 1,006,422 502,119 2,336,661

Additions 299,535 113,895 210,179 623,609

Disposals: Historical cost (24,203) (3,405) (80,500) (108,108)

Disposals: Acc. depreciation and imp. losses - - - -

Depreciation (162,481) (322,846) (64,152) (549,478)


Reclassifications 86 (10,250) (4,891) (15,055)

Other changes 139 1,575 142 1,856

Carrying amount at 31 December 2016 941,196 785,390 562,897 2,289,483

Of which:

Historical cost 3,507,195 6,318,456 966,806 10,792,456

Accumulated depreciation and impairment losses (2,565,999) (5,533,066) (403,908) (8,502,973)

51

2. Investment property The Group’s investment property consists of buildings owned by Pininfarina Deutschland Holding GmbH in Renningen, near Stuttgart, Germany, which are leased to third parties. They are mortgaged to secure a loan received by the German subsidiary (€270,000).

3. Intangible assets The carrying amount of intangible assets at 31 December 2016 decreased to €1.8 million from €2.3 million at 31 December 2015.

The remaining goodwill of €1,043,495, which is the Group’s only intangible asset with an indefinite useful life, originates from the consolidation of Pininfarina Extra S.r.l.. The Pininfarina Extra subgroup, which is comprised of Pininfarina Extra S.r.l., Pininfarina of America Corp. and the

Land Buildings Total

Historical cost 5,807,378 12,226,555 18,033,933

Accumulated depreciation and impairment losses - (9,553,267) (9,553,267)

Carrying amount at 31 December 2015 5,807,378 2,673,288 8,480,666

Additions - - -

Disposals: Historical cost - - -

Disposals: Acc. depreciation and imp. losses - - -

Depreciation - (364,373) (364,373)

Impairment losses - - -

Reclassifications - - -

Other changes - - -

Carrying amount at 31 December 2016 5,807,378 2,308,915 8,116,293

Of which:

Historical cost 5,807,378 12,226,555 18,033,933

Accumulated depreciation and impairment losses - (9,917,640) (9,917,640)

Goodwill Licences

Other

assets Total

Historical cost 1,043,495 5,765,109 2,124,015 8,932,619

Accumulated amortisation and impairment losses - (4,638,899) (2,041,762) (6,680,661)

Carrying amount at 31 December 2015 1,043,495 1,126,210 82,253 2,251,958

Additions - 76,524 41,855 118,379

Disposals: Historical cost - - - -

Disposals: Acc. amortisation and imp. losses - - - -

Amortisation - (526,813) (34,670) (561,483)




Carrying amount at 31 December 2016 1,043,495 675,921 89,438 1,808,854

Of which:

Historical cost 1,043,495 5,841,633 2,165,870 9,050,998

Accumulated amortisation and impairment losses - (5,165,712) (2,076,432) (7,242,144)

52

associate Goodmind S.r.l., engages in styling activities that are not related to the automotive industry. Consequently, it constitutes a separate cash generating unit. The impairment test of the Pininfarina Extra subgroup’s net assets did not identify any impairment loss.

As detailed below, the test has been carried out using the Unlevered Discounted Cash Flow model:

• the subgroup’s operating cash flows from third parties have been discounted using a WACC rate of 8.58% (unchanged from the previous year end). The estimated future cash flows are those set out in the plans prepared by the directors based on reasonable and supportable assumptions that represent their best estimate of the future economic conditions;

• the Pininfarina Extra subgroup’s net financial debt with third parties and net assets have been deducted from the discounted cash flows; the resulting figure has been compared with the carrying amount of goodwill.

4. Investments in associates Goodmind S.r.l., incorporated in July 2012, provides communication services to companies and public sector entities. The Group’s share of its profit for the year is €14,307. The associate had eight employees at the reporting date. 5. Equity investments in other companies Equity investments in other companies did not change from the previous year end and are as follows:

6. Loans and receivables Changes in loans and receivables are set out below.

The amount due to Pincar S.r.l. in liquidation consisted of the accrued interest expense on the loan that was fully repaid in the previous year. It was repaid at the end of May 2016. The amount due from the associate Goodmind S.r.l. shows the loan provided by Pininfarina Extra S.r.l. to finance its activities. Loans to group companies are granted at market interest rates.

31.12.2016

Midi Plc 251,072

Idroenergia Soc. Cons. a.r.l. 516

Volksbank Region Leonberg 300

Unionfidi S.c.r.l.p.A. Turin 129

Equity investments in other companies 252,017

31.12.2015 Increase

Interest

income Collection 31.12.2016

Pincar S.r.l. in liquidation 135,393 - 4,612 (140,005) -

Goodmind S.r.l. 133,997 - 3,997 (3,997) 133,997

Loans and receivables - related parties 269,390 - 8,609 (144,002) 133,997

53

7. Assets held for trading The Group sold the current assets held for trading recognised at 31 December 2015 (€16.4 million). 8. Inventories Raw materials mainly consist of various materials used for the production of cars and prototypes at

the Cambiano facility. Finished goods mainly consist of car spare parts manufactured by the Group,

which are sold to carmakers.

The table below shows a breakdown of inventories and the allowance for inventory write-down:

The allowance for inventory write-down reflects the risk of obsolete and slow-moving items of

materials and spare parts.

9. Contract work in progress Contract work in progress shows the balance of gross contract work in progress less progress payments and advances. The change for the year is due to the completion of certain styling and engineering contracts from customers inside and outside the European Union.

31.12.2016 31.12.2015

Raw materials 493,965 582,942

Allowance for inventory write-down (377,954) (521,055)

Finished goods 214,377 380,680

Allowance for inventory write-down - (77,773)

Inventories 330,388 364,794

Allowance for

raw material

write-down

Allowance for

finished goods

write-down

Allowance for raw

material write-

down

Allowance for

finished goods

write-down

Opening balance 521,055 77,773 553,858 339,744

Additions - - - -

Utilisations (37,066) (183,808) (32,803) (261,971)

Other changes (106,035) 106,035 - -

Closing balance 377,954 - 521,055 77,773

2016 2015

54

10. Trade receivables - third and related parties The following table shows trade receivables at 31 December 2016 and 2015:

The Group’s main counterparties are top carmakers with a high credit rating. Since there are no

insurance contracts on receivables, the Group’s maximum exposure to credit risk is equal to the

carrying amount of the receivables less the allowance for impairment. The Group did not factor any

receivables. Trade receivables are mostly denominated in Euros. Changes in the allowance for impairment are set out below:

11. Other assets The following table shows other assets at 31 December 2016 and 2015:

31.12.2016 31.12.2015

Italy 2,713,055 5,031,681

EU 6,782,867 7,978,499

Non-EU countries 4,029,925 5,214,535

(Allowance for impairment) (1,119,529) (542,453)

Third parties 12,406,317 17,682,263

Goodmind S.r.l. - 24,033

Mahindra&Mahindra Group 361,500 -

Tech Mahindra Group 35,230 -


Trade receivables 12,803,047 17,706,296

31.12.2016 31.12.2015

Opening balance 542,453 949,773

Additions 681,917 28,809

Utilisations (115,863) (436,129)

Other changes 11,022 -

Closing balance 1,119,529 542,453

31.12.2016 31.12.2015

VAT 2,642,667 2,532,963

Withholding taxes 1,901,056 1,091,201

Prepayments and accrued income 609,589 722,524

Advances to suppliers 37,942 157,404

Amounts due from INAIL (the Italian Workers' Compensation Authority) and

INPS (the Italian social security institution) 166,461 10,834

Amounts due from employees 16,707 15,094

Other 198,059 158,826

Other assets 5,572,480 4,688,847

55

The VAT asset is mainly attributable to the parent and is mostly due to the invoices received for exercising the purchase options for leased assets, as provided for by the new Rescheduling Agreement. 12. Cash and cash equivalents The table below shows a breakdown of this caption and a comparison with the previous year-end corresponding figures:

Short-term bank deposits at 31 December 2015 included a restricted account of €5,000,000 in relation to a surety issued to the tax authorities securing the repayment of the 2012 VAT asset recovered by the parent. The restriction was removed on 27 December 2016, following the expiry of the surety. 13. Equity (a) Share capital

The parent’s share capital is comprised of 30,166,652 ordinary shares, with a unit nominal amount of €1. There are no other classes of shares. Treasury shares are held in accordance with the limits imposed by article 2357 of the Italian Civil Code. Detailed information about the parent’s shareholders is provided in the “General information” section of these notes. As a result of a deed signed on 30 May 2016, the shares previously held by Pincar S.r.l. in liquidation, equal to 76.06%, were released from the senior pledge granted in 2008. During their ordinary and extraordinary meeting of 21 November 2016, the shareholders approved the proposal for a capital increase against payment of a maximum amount of €26,532,528, including any share premium, to be carried out by instalments, by issuing ordinary shares with a nominal amount of €1 with the same characteristics as those outstanding and carrying regular dividend, to be offered to the parent’s shareholders that have right of first refusal pursuant to article 2441.1 of the Italian Civil Code. The capital increase shall be carried out before 31 July 2017, when the decisions, pursuant to article 2439.2 of the Italian Civil Code, that the capital increase, if not fully subscribed, shall be intended as limited to the amount subscribed before that term shall be made.

31.12.2016 31.12.2015

Cash in hand and cash equivalents 8,137 11,593

Short-term bank deposits 27,775,232 20,984,104

Cash and cash equivalents 27,783,369 20,995,697

(Bank overdrafts) - -

Net cash and cash equivalents 27,783,369 20,995,697

Nominal amount No. Nominal amount No.

Ordinary shares 30,166,652 30,166,652 30,166,652 30,166,652

(Treasury shares) (15,958) (15,958) (15,958) (15,958)

Share capital 30,150,694 30,150,694 30,150,694 30,150,694

31.12.2016 31.12.2015

56

Moreover, the shareholders gave the Board of Directors the powers, pursuant to article 2443 of the Italian Civil Code and for five years from 21 November 2016, to increase the share capital against payment and by instalments, for a maximum amount of €2,225,925, without excluding the right of first refusal pursuant to article 2441.8 of the Italian Civil Code, by issuing 2,225,925 ordinary shares with a nominal amount of €1, with the same characteristics as those outstanding at the issue date and carrying regular dividend rights. Subscription of the newly-issued shares will be reserved for the beneficiaries of the 2016-2023 stock option plan, in accordance with the provisions of the plan, for a unit price of €1.10. (b) Reserve for treasury shares This reserve of €175,697, unchanged from the previous year end, is recognised in accordance with the provisions of article 2357 of the Italian Civil Code. (c) Legal reserve The legal reserve of €6,033,331, which pursuant to the provisions of article 2430 of the Italian Civil Code is available to cover any losses, is unchanged from the previous year end. (d) Stock option reserve Pursuant to article 114-bis of the Consolidated Finance Act, on 21 November 2016, the shareholders approved a stock option plan that provides for the free assignment of options for the subscription of ordinary shares to the parent’s employees. The ratio is one share for each option. The plan aims at incentivising attainment of the parent’s objectives and retaining employees. The plan provides that the maximum number of shares to be assigned to the beneficiaries is 2,225,925 and that the option’s exercise price is €1.10 for each share. The plan term is seven years (2016-2023). The reserve includes the plan cost pertaining to the year. The options are measured using the Black-Scholes valuation approach, whose assumptions are as follows:

1. Volatility: 80% (three year average)

2. Risk-free rate: -0.41% (the average of the three instalments considered)

3. Dividends: no dividends are expected during the plan term

4. Average share price: €1.10

5. Vesting conditions: permanence of the employment agreement

6. Settlement method: equity instruments

7. Cost for the year and carrying amount at the reporting date: €157,793

(e) Translation reserve The translation reserve reflects the cumulative differences from the translation of financial statements of companies with functional currencies other than the Euro, which is the Group’s presentation currency. These companies are Pininfarina Automotive Engineering (Shanghai) Co Ltd. and Pininfarina of America Corp.. (f) Other reserves Other reserves are unchanged from the previous year end.

57

(g) Losses carried forward Losses carried forward totalled €29,354,877 at the reporting date, up by €18,232,179 from the 31 December 2015 figure. The increase includes the loss for 2015 of €18,168,675 and the effect for the year of the adoption of IAS 19 (revised), quantified at €63,504. The table reconciling the parent’s profit and equity as at and for the year ended 31 December 2016 with the Group’s relevant figures is provided in the directors’ report, to which reference is made. 14. Loans and borrowings

Rescheduling Agreement

(a) Rescheduling Agreement

The new Rescheduling Agreement (the “Agreement”) between Pininfarina S.p.A. and its lending

institutions became effective on 30 May 2016. Its effects are summarised below:

- settlement and extinguishment of 56.74% of the nominal amount of the parent’s debt with

the lending institutions that accepted this option, totalling €32.1 million;

- the rescheduling of the nominal amount of the debt with the lending institutions that accepted this option, totalling €41.5 million, from 2016 to 2025;

- the application of a fixed interest rate of 0.25% per annum, based on a year of 360 days, increased by the difference between this rate and the six-month Euribor, should the latter exceed 4%.

- exercising the purchase option for leased assets. (b) Substantial change to the financial liabilities’ terms pursuant to IAS 39 The above-mentioned changes introduced by the new Rescheduling Agreement entailed a substantial change to the terms of the financial liabilities with the lending institutions pursuant to IAS 39, which has been recognised by reinstating the debt’s pre-agreement carrying amount and posting a gain relating to the new financial liability, as shown in the table below.

(c) Fair value of restructured debt

The fair value of the restructured debt was determined by discounting the cash flows as per the

Rescheduling Agreement to their present value using a 6.5% rate, determined with the support of a

third-party financial advisor, as the sum of 1) the return on risk-free investments and 2) a credit

spread attributed to Pininfarina S.p.A..

58

The table below summarises the changes in loans and borrowings:

Other loans and borrowings include the amounts due to the parent’s lending institutions, parties to the Agreement, pursuant to the relevant loan and financing agreements. A breakdown of the contractual cash flows by maturity is provided in paragraph (e) of the “Financial

risk management” section. A breakdown of changes by lender is set out below:

Other information

The €270,000 loan is due to Volksbank Region Leonberg (GER) by Pininfarina Deutschland Holding GmbH, which is the only subsidiary with non-current debt.

Consequently, the Group’s loans and borrowings are not subject to currency risk.

Loans and borrowings - related parties and joint ventures

This caption shows the loan that PF Holdings B.V. granted to Pininfarina S.p.A., including interest accrued during the year.

The loan agreement provides for interest at 0.25% pa and expires on 31 July 2017.

31.12.2015

Accrued

figurative

interest at

30.05.2016

Current/non-

current

reclassification

Nominal

amount

reinstatement

Extinguish-

ment Repayment

Gain on

new

financial

liability

Reclassification

Figurative

interest

accrued

from 31.05

to 31.12 31.12.2016

Finance lease liabilities 40,774,347 1,168,381 11,653,536 6,751,862 (17,428,467) (22,859,253) (6,284,512) (13,775,894) - -

Other loans and borrow ings 25,616,838 725,450 7,235,684 4,192,231 (7,074,662) (9,309,160) (6,615,337) 10,348,280 1,011,628 26,130,952

Non-current portion 66,391,185 1,893,831 18,889,220 10,944,093 (24,503,129) (32,168,413) (12,899,849) (3,427,614) 1,011,628 26,130,952

Bank overdraf ts - -

Finance lease liabilities 11,653,536 (11,653,536) -

Other loans and borrow ings 7,235,684 (7,235,684) 3,427,614 3,427,614

Current portion 18,889,220 - (18,889,220) - - - - 3,427,614 - 3,427,614

Current and non-current portions 85,280,405 1,893,831 - 10,944,093 (24,503,129) (32,168,413) (12,899,849) - 1,011,628 29,558,566

31.12.2015

Accrued

figurative

interest at

30.05.2016

Nominal

amount

reinstatement

Extinguish-

ment Repayment

Gain on new

financial

liability

Figurative

interest

accrued from

31.05 to 31.12 Reclassification 31.12.2016

Mediocredito Italiano S.p.A. (formerly Leasint S.p.A.) 11,618,417 258,922 1,496,264 - - (4,189,674) - (9,183,929) -

MPS Leasing & Factoring S.p.A. 5,809,211 129,461 748,131 (2,892,711) (3,794,092) - - -

Selmabipiemme Leasing S.p.A. 5,809,211 129,461 748,131 - - (2,094,838) - (4,591,965) -

Release S.p.A. 15,614,955 347,987 2,010,954 (7,775,507) (10,198,389) - - - -

BNP Paribas Leasing Solutions S.p.A. 4,988,373 111,168 642,422 (2,483,973) (3,257,990) - - - -

UBI Leasing S.p.A. 2,494,186 55,585 321,211 (1,241,987) (1,628,995) - - - -

Unicredit Leasing S.p.A. 6,093,530 135,797 784,749 (3,034,289) (3,979,787) - - - -

Finance lease liabilities 52,427,883 1,168,381 6,751,862 (17,428,467) (22,859,253) (6,284,512) - (13,775,894) -

Intesa Sanpaolo S.p.A. (formerly Mediocredito Italiano S.p.A.) - - - - - - 328,562 9,183,929 9,512,491

Selmabipiemme Leasing S.p.A. - - - - - - 164,281 4,591,965 4,756,246

Intesa Sanpaolo S.p.A. 11,538,615 257,144 1,485,985 - - (4,160,896) 326,304 - 9,447,152

Banco Popolare Soc. Coop. (formerly Banca Italease) 674,734 15,037 86,894 (335,985) (440,680) - - - -

UniCredit S.p.A. 7,331,804 163,393 944,218 (3,650,891) (4,788,524) - - - -

Banca Nazionale del Lavoro S.p.A. 1,363,097 30,377 175,545 - - (491,542) 38,549 - 1,116,026

Ubi Banca SpA (formerly Banca Regionale Europea S.p.A.) 5,443,303 121,307 701,008 - - (1,962,899) 153,932 - 4,456,651

Banco Popolare Soc. Coop. 4,082,482 90,980 525,754 (2,032,880) (2,666,336) - - - -

Banca Monte dei Paschi di Siena S.p.A. 2,118,487 47,212 272,827 (1,054,906) (1,383,620) - - - -

Volksbank Region Leonberg (GER) 300,000 - - - (30,000) - - 270,000

Loans and borrowings 32,852,522 725,450 4,192,231 (7,074,662) (9,309,160) (6,615,337) 1,011,628 13,775,894 29,558,566

Leases and financing 85,280,405 1,893,831 10,944,093 (24,503,129) (32,168,413) (12,899,849) 1,011,628 - 29,558,566

59

15. Post-employment benefits Post-employment benefits show the present value of the obligation to employees under article 2120

of the Italian Civil Code. Following the changes introduced to Italian laws some years ago, benefits

vested before 1 January 2007 are classified as defined benefit plans pursuant to IAS 19 - Employee

Benefits, while those accrued thereafter are classified as defined contribution plans.

Changes for the year are provided below:

The business lease signed by the parent and Bluecar Italy S.r.l., a company of the Bolloré Group included the transfer of 50 employment contracts and related post-employment benefits up until when the lease expires (31 December 2022).

The main assumptions underlying the actuarial calculation of the liability in the current and previous

years are set out below:

The adopted discount rate refers to the market yield of AA-rated Euro securities. Moreover, the sensitivity analysis carried out increasing/decreasing the base rate by 50% did not show significant changes with respect to the current post-employment benefit obligation. 16. Trade payables, other financial liabilities and other liabilities

(a) Trade payables

The reporting-date balance comprises amounts that will be paid within twelve months of the reporting date.

31.12.2016 31.12.2015

Opening post-employment benefits 4,979,679 5,346,940

Interest cost recognised in profit or loss 66,487 59,456

Current service cost recognised in profit or loss 61,263 55,410

Actuarial (gains) losses recognised in other comprehensive income 73,278 (38,096)

Payments (253,928) (444,032)

Closing post-employment benefits 4,926,779 4,979,678

2016 2015

Annual inflation rate (2016) 1.5% 1.0%




Annual inflation rate (2020 and thereafter) 1.5% 2.0%

Benefit discount rate 0.8% 1.4%

Annual salary increase rate 0.5% - 3% 0.5% - 1.5%

31.12.2016 31.12.2015

Third parties 6,910,250 9,033,607

Related parties - 15,135

Advances for contract work in progress 6,014,357 1,672,812

Trade payables 12,924,607 10,721,554

60

(b) Other financial liabilities

(c) Other liabilities This caption comprises the parent’s deferred lease income on the business lease and deferred income of the subsidiaries. 17. Provisions for risks and charges, contingent liabilities and litigation (a) Provisions for risks and charges Changes in provisions for risks and charges are set out below, with a comment on the main changes:

The restructuring provision reflects the best estimate of the liability for restructuring at the reporting

date. Utilisations mainly relate to the amounts paid in January 2016 to employees who left the

parent under a redundancy programme in December 2015.

Other provisions reflect the estimated liabilities that may arise from losses to complete styling and

engineering contracts, potential disputes with former employees and environmental risks.

Utilisations and other changes mainly show the effects of the measurement of losses to complete

long-term contracts. (b) Contingent liabilities and litigation VAT

This dispute, which arose in 2007 regarding the allegation that VAT should have been levied on the

amounts invoiced in 2002 and 2003 by the parent to Peugeot Citroen Automobiles SA, is currently

pending before the Supreme Court of Cassation. There were no developments in this case as of the

approval date hereof.

31.12.2016 31.12.2015

Wages and salaries payable 2,228,912 2,536,661

Social security charges payable 1,341,011 1,284,921

Other 1,396,651 1,481,765

Other financial liabilities 4,966,574 5,303,347

31.12.2015 Additions Utilisations Other changes 31.12.2016

Provision for product warranty 54,612 - (87) - 54,525

Restructuring provision 939,360 - (701,165) - 238,195

Other provisions 271,653 168,014 (308,386) (3,213) 128,068

Provisions for risks and charges 1,265,625 168,014 (1,009,638) (3,213) 420,788

61

18. Current and deferred taxes (a) Deferred taxes The table below provides a breakdown of deferred tax assets and liabilities:

The net deferred tax assets shown in the consolidated financial statements mainly refer to the German companies. They reflect the recoverable portion of the tax loss carryforwards, determined based on forecast future taxable profit and taking into account the agreement for the filing of a national consolidated tax return signed by the German companies, headed by the subsidiary Pininfarina Extra S.r.l.. The decrease in deferred tax liabilities relates to temporary differences of the subsidiary Pininfarina of America Corp.. A breakdown of the temporary differences relating to unrecognised deferred tax assets and liabilities is set out below:

The balance is mainly attributable to Pininfarina S.p.A., the Pininfarina Deutschland GmbH subgroup and the subsidiary Pininfarina Automotive Engineering Shanghai Co Ltd.. The change in temporary differences is mainly due to the finance lease agreements. A breakdown of tax loss carryforwards by geographical segment is set out below:

The Group has not recognised the deferred tax assets resulting from the above table as the

generation of taxable profit in the short to medium-term enabling the full use of the tax losses and

deductible temporary differences is not probable.

31.12.2016 31.12.2015

Deferred tax assets 1,001,766 926,424

(Deferred tax liabilities) (974) (12,754)

Net deferred tax assets 1,000,792 913,670

31.12.2016 31.12.2015

Tax loss carryforwards 141,006,216 133,517,402

Deductible temporary differences 414,074 43,423,652

(Taxable temporary differences) (17,293,106) (14,091,230)

Total 124,127,184 162,849,825

31.12.2016 31.12.2015

Italy 97,979,500 94,765,696

Germany 42,829,400 38,589,000

China 197,316 162,706

Total tax loss carryforwards 141,006,216 133,517,402

62

(b) Current taxes Income taxes recognised in profit or loss are detailed below:

IRAP (Regional tax on production activities) relates to Pininfarina Extra S.r.l.. 19. Revenue from sales and services

Sales refer mainly to revenue from sales of spare parts, equipment and prototypes. Services show

amounts invoiced for styling and engineering services.

Segment reporting is provided on page 48.

2016 2015

Income taxes (11,674) (367,951)

IRAP (Regional tax on production activities) (54,861) (77,239)

Tax consolidation benefit - -

Adjustment to prior year tax consolidation benefit - -

Addition to prior year provision - (11,437)

Current taxes (66,535) (456,627)

Change in deferred tax assets 76,721 -

Change in deferred tax liabilities - (119,828)

Net deferred taxes 76,721 (119,828)

Income taxes 10,186 (576,455)

2016 2015

Sales - Italy 1,394,239 1,343,342

Sales - EU 1,392,274 1,327,020

Sales - Non-EU countries 4,298,651 813,864

Services - Italy 8,760,035 17,087,847

Services - EU 31,448,293 34,964,144

Services - Non-EU countries 15,366,028 19,590,077

Revenue from sales and services 62,659,520 75,126,294

63

20. Other revenue and income

Royalties mainly refer to fees for the licence to use the Pininfarina trademark granted to the Bolloré S.A. Group in connection with the electric cars manufactured at the Bairo Canavese facility and for the brand licence agreement signed with Mahindra & Mahindra Ltd. The increase for the year is due to the brand licence agreement. Lease income mainly refers to the business lease signed by Pininfarina S.p.A. and a third party and leases for the two buildings located in Renningen, near Stuttgart, in Germany, owned by the subsidiary Pininfarina Deutschland Holding GmbH. Prior year income refers to prior year income and estimation differences, other than errors, resulting from the regular updating of estimates made in previous years. 21. Raw materials and components Raw materials and components mainly include purchases of equipment and materials used for the styling and engineering contracts and spare parts resold by the parent. 22. External variable engineering services External variable engineering services mainly refer to design and technical services. 23. Wages, salaries and employee benefits

Utilisation of restructuring provision mainly relates to the amounts paid in January 2016 to

employees who left the parent under a redundancy programme in December 2015.

Post-employment benefits – defined contribution plan reflect the costs related to post-employment

benefits both for defined benefit and defined contribution plans.

2016 2015

Royalties 6,083,000 1,471,500

Lease income 3,592,634 3,555,237

Prior year income 212,913 70,831

Rebilling 171,397 260,099

Sundry 109,081 96,392

Insurance compensation 52,256 54,451

Grants relating to income 5,469 126,003

Other revenue and income 10,226,750 5,634,513

2016 2015

Wages and salaries (34,476,355) (37,483,045)

Social security contributions (8,238,411) (9,350,947)

Utilisation of restructuring provision 701,165 403,255

Blue collars, white collars and managers (42,013,601) (46,430,737)

Post-employment benefits - defined contribution plan (1,217,607) (1,258,295)

Wages, salaries and employee benefits (43,231,208) (47,689,032)

64

A breakdown of the actual number of employees at the reporting date and the average number for the year is set out below, as per article 2427 of the Italian Civil Code, calculated by adding the number of employees at the beginning and end of the reporting period and dividing the result by two:

The business lease currently in force involved the transfer of 50 employment contracts.

24. Additions to/utilisation of provisions and impairment losses

Utilisation and revised estimates of provisions for risks and charges include the utilisation and

revised estimates of the provision for losses to complete contracts.

Reference should be made to note 17 for details of additions to the provisions for risks and charges.

reporting date average reporting date average

Managers 22 23 25 25

White collars 532 539 567 601

Blue collars 24 28 29 31

Total 578 590 621 657

20152016

2016 2015

Net impairment losses on loans and receivables (682,334) (28,809)

Revised estimate of the allowance for impairment - -

Additions to provisions for risks and charges (168,014) (1,074,855)

Utilisation and revised estimates of provisions for risks and charges 249,822 102,995

Impairment losses on property, plant and equipment - (9,504,996)

Additions to/utilisation of provisions and impairment losses (600,526) (10,505,665)

65

25. Other expenses

Consulting and other services include legal expenses and IT consultancy fees. General services and other expenses include costs for general services, guarantees and

settlements in court.

Leases mainly refer to IT equipment, forklift trucks and cars used by employees. These are

operating leases pursuant to IAS 17 – Leases and do not entail special commitments for the group

companies.

26. Net financial expense

Interest and commission expense refer to interest paid on credit lines and bank fees.

Lease interest expense of €1,235,609 shows the effect of amortised-cost accounting (€1,168,381)

and interest paid under the existing Agreement (€67,228).

Interest expense on loans and financing of €1,835,791 comprises the effect of amortised-cost

accounting (€1,737,078) and interest accrued under the existing Agreement (€96,338). The

remainder relates to foreign companies.

2016 2015

Travel expenses (1,353,993) (2,162,432)

Leases (2,682,676) (2,409,943)

Directors' and statutory auditors' fees (898,756) (1,126,138)

Consulting and other services (3,591,999) (4,324,476)

Other personnel costs (749,021) (566,956)

Postal expenses (441,845) (409,620)

Cleaning and waste disposal services (305,383) (282,671)

Advertising (307,308) (562,308)

Indirect taxes (687,237) (692,902)

Insurance (585,881) (561,825)

Membership fees (102,061) (105,383)

Prior period expense (19,922) (12,614)

General services and other expenses (916,855) (973,866)

Other expenses (12,642,937) (14,191,135)

2016 2015

Interest and commission expense on credit facilities (155,306) (342,598)

Lease interest expense (1,235,609) (3,205,774)

Interest expense on loans and financing (1,835,791) (2,052,577)

Financial expense (3,250,706) (5,600,949)

Bank interest income 70,302 100,855

Gains on assets held for trading 72,085 119,541

Interest income on loans and receivables - third parties 10,783 111,673

Interest income on loans and receivables - related parties 8,609 66,620

Financial income 161,779 398,689

Net financial expense (3,088,927) (5,202,260)

66

Interest expense on loans from the ultimate parent refers to the loan granted by PF Holdings B.V. to

Pininfarina S.p.A..

Bank interest income accrued on the current account positive balances.

Gains on assets held for trading relate to the sale of the parent’s portfolio in March 2016.

Interest income on loans and receivables - third parties relates to the 2015 VAT and II quarter tax

assets recovered by the parent at the end of June 2016.

Interest income on loans and receivables - related parties of €6,605 accrued on the loans granted to

the former ultimate parent, Pincar S.r.l. in liquidation, by Pininfarina S.p.A. and to the associate

Goodmind S.r.l. by Pininfarina Extra S.r.l.. 27. Gain on the extinguishment of financial liabilities

The 2016 substantial modification of the terms of financial liabilities resulted in the extinguishment of

the carrying amount of the pre-Rescheduling Agreement obligation outstanding on the effective date

(30 May 2016) and the recognition of the restructured obligation at its fair value, in line with that

described in note 14. The gain on the extinguishment of financial liabilities is the difference between

the two amounts.

67

OTHER INFORMATION Events after the reporting date

On 27 February 2017, Pininfarina S.p.A. signed a trade agreement with Hybrid Kinetic Group

Limited, listed on the Hong Kong stock exchange and specialised in the business of electric cars.

The agreement covers the development of an electric vehicle from styling the concept to

development, engineering development, virtual and physical validation for series production. The

contact is worth €65 million and has a term of four years.

The agreement is expected to have a limited impact on the 2017 revenue of the parent and the

subsidiary Pininfarina Deutschland GmbH, but it will have a significant effect in the following three

years.

There are no other significant events that occurred after the reporting date.

Related party transactions The table below, which is presented pursuant to Consob communication no. DEM/6064293 of 28 July 2006, summarises related party transactions, including intragroup transactions. These transactions were carried out at market conditions, consistent with the nature of the goods exchanged or services provided. They were neither atypical nor unusual for the purposes of the above-mentioned communication.

The expense relating to Pincar S.r.l. in liquidation shows the liquidation costs incurred by Pininfarina S.p.A. in accordance with the investment agreement signed by the parties. The balances with the Mahindra group companies relate to transactions carried out after the acquisition of the investment. In addition to the above figures, Studio Professionale Pavesio e Associati, related to Carlo Pavesio (director of Pininfarina S.p.A. until 2 August 2016), provided legal assistance to the company and Pininfarina Extra S.r.l. for total fees of €54,193 and €2,033, respectively. Directors’ and statutory auditors’ fees (€’000)

Assets Liabilities Assets Liabilities Revenue Expense Income Expense

PF Holding BV - - - 16,024,000 - - - 24,000

Pincar S.r.l. in liquidation - - - - - 400,000 4,612 -

Goodmind S.r.l. - - 133,997 - 32,000 - 3,997 -

Mahindra&Mahindra Limited 361,500 - - - 6,287,008 - - -

Tech Mahindra (Americas) Inc. 2,317 - - - 19,412 - - -

Tech Mahindra Ltd (India) 32,913 - - - 29,726 - - -

Total 396,730 - 133,997 16,024,000 6,368,146 400,000 8,609 24,000

Commercial Financial Operating Financial

2016 2015

Directors 789 1,015

Statutory auditors 110 111

Total 899 1,126

68

Significant non-recurring transactions As required by Consob communication no. DEM/6064293 of 28 July 2006, the effects of non-recurring events or transactions, i.e., those events or transactions that do not occur frequently during the normal course of business, are shown in the next table:

31.12.2016

31.12.2016

net of significant

non-recurring

transactions

Property, plant and equipment 41,994,888 41,994,888

Investment property 8,116,293 8,116,293

Intangible assets 1,808,854 1,808,854

Equity investments 336,939 336,939

Deferred tax assets 1,001,766 1,001,766

Non-current financial assets 133,997 133,997

NON-CURRENT ASSETS 53,392,737 53,392,737

Inventories 330,388 330,388

Contract work in progress 1,418,702 1,418,702

Current financial assets - -

Derivatives - -

Trade receivables and other assets 18,375,527 18,375,527

Cash and cash equivalents 27,783,369 39,321,782

CURRENT ASSETS 47,907,986 59,446,339

TOTAL ASSETS 101,300,723 112,839,136

Share capital and reserves 9,932,958 9,932,958

Profit (loss) from continuing operations 20,531,208 (9,492,049)

EQUITY 30,464,166 440,909

Non-current loans and borrowings 26,130,952 64,827,402

Deferred tax liabilities 974 974

Post-employment benefits and other provisions 4,926,779 4,926,779

NON-CURRENT LIABILITIES 31,058,705 69,755,155

Current loans and borrowings 19,451,614 22,316,834

Other financial liabilities 4,966,574 4,966,574

Trade payables 12,924,607 12,924,607

Current tax liabilities 616,440 616,440

Provisions for risks and charges 420,788 420,788

Other liabilities 1,397,829 1,397,829

CURRENT LIABILITIES 39,777,852 42,643,072

TOTAL LIABILITIES 70,836,558 112,398,228

TOTAL LIABILITIES AND EQUITY 101,300,723 112,839,136

69

The transactions identified as significant and non-recurring are as follows: . the parent’s debt Rescheduling Agreement; . loan agreement between Pininfarina S.p.A. and PF Holdings BV; . brand licence agreement between Pininfarina S.p.A. and Mahindra & Mahindra; . Pincar S.r.l. in liquidation’s liquidation costs. Atypical and unusual transactions As required by Consob communication no. DEM/6064293 of 28 July 2006, the Pininfarina Group specifies that it did not carry out atypical or unusual transactions during the year, as defined in the above-mentioned Communication, according to which atypical and/or unusual transactions are transactions that, because of their significance/material amount, nature of the counterparty, subject, method used to determine the transfer price and timing of the event, could create doubts as to: the fairness/completeness of the disclosure provided in the financial statements, the existence of a conflict of interest, the safeguarding of corporate assets and the protection of non-controlling investors.

2016

2016

net of significant

non-recurring

transactions

Revenue from sales and services 62,659,520 62,659,520

Internal work capitalised -

Change in finished goods and contract work in progress (4,017,608) (4,017,608)

Other revenue and income 10,226,749 5,226,749

REVENUE 68,868,661 63,868,661

Net gains on sale of non-current assets and equity investments 14,454 14,454

Raw materials and consumables (4,698,019) (4,698,019)

Other variable production costs (2,112,022) (2,112,022)

External variable engineering services (5,306,243) (5,306,243)

Wages, salaries and employee benefits (43,231,208) (43,231,208)

Amortisation and depreciation, impairment losses and provisions (3,743,868) (3,743,868)

Net exchange rate gains (26,621) (26,621)

Other expenses (12,642,937) (12,242,937)

OPERATING LOSS (2,877,805) (7,477,805)

Net financial expense (3,088,927) (2,053,299)

Gain on the extinguishment of financial liabilities 26,458,885 -

Dividends 14,561 14,561

Share of profit of equity-accounted investees 14,307 14,307

PROFIT (LOSS) BEFORE TAXES 20,521,022 (9,502,235)

Income taxes 10,186 10,186

PROFIT (LOSS) FOR THE YEAR 20,531,208 (9,492,049)

70

Disclosure required by article 149-duodecies of the Issuer Regulation The 2016 fees for audit and non-audit services provided by KPMG and other entities of its network are detailed below, pursuant to article 149-duodecies of the Consob Issuer Regulation.

(1) Includes the following services for total fees of €130,000: - translation of financial documents prepared by Pininfarina S.p.A. - audit of the consolidated reporting package at 30 May 2016 for the consolidation purposes

of the Tech Mahindra Group - procedures performed in connection with the preparation of the prospectus for the parent’s

share capital increase

(2) Includes the fees for the audit of the reporting package at 30 May 2016 requested by the Tech Mahindra Group (€18,000).

Service provider Service recipient Fee

KPMG S.p.A. Pininfarina S.p.A. (1) 203,000

KPMG S.p.A. Pininfarina Extra S.r.l. 10,000

KPMG network Subsidiaries (2) 59,000

Total 272,000

71

LIST OF CONSOLIDATED COMPANIES

Registered office Country

Share/ quota

capital Currency

Consolidated

% Investor

Investment

%

Parent

Parent

Pininfarina S.p.A. Turin

Via Bruno Buozzi 6 Italy 30,166,652 € 100

Consolidated subsidiaries

Italian subsidiaries

Pininfarina Extra S.r.l. Turin

Via Bruno Buozzi 6 Italy 388,000 € 100 Pininfarina S.p.A. 100

Foreign subsidiaries

Pininfarina of America Corp.Miami FL

501 Brickell Key Drive - Suite 200 USA 10,000 USD 100 Pininfarina Extra S.r.l. 100

Pininfarina Deutschland Holding GmbH Leonberg

Riedw iesenstr. 1 Germany 3,100,000 € 100 Pininfarina S.p.A. 100

Pininfarina Deutschland GmbH Munchen

Frankfurter Ring 81 Germany 25,000 € 100 Pininfarina Deutschland GmbH 100

Pininfarina Automotive Engineering (Shanghai) Co Ltd

Shanghai

Jiading district, Unit 1, Building 3, Lane 56,

Antuo Road, Anting, 201805 China 3,702,824 CNY 100 Pininfarina S.p.A. 100

Equity-accounted investees

Goodmind S.r.l.Cambiano (TO)

Via Nazionale 30 Italy 20,000 € 20 Pininfarina Extra S.r.l. 20

72

Key figures of the main group companies

(IFRS figures)

Pininfarina Extra Group Registered office: Turin - I Quota capital €388,000 Investment percentage 100%

31.12.2016 31.12.2015 (€’million) Revenue 7.8 8.5 Profit for the year 0.9 1.5 Equity 6.4 6.5 Net financial position 3.4 3.8

Pininfarina Deutschland Group

Registered office: Leonberg - D Share capital €3,100,000 Investment percentage 100%

31.12.2016 31.12.2015 (€’million) Revenue 22.5 30.6 Profit for the year (2.0) 1.5 Equity 18.6 21.6 Net financial position 0.7 2.0

Pininfarina Automotive Engineering Co Ltd Registered office: Shanghai - PRC Share capital CNY3,702,824 Direct investment percentage 100%

31.12.2016 31.12.2015 (€’million) Revenue 2.9 3.3 Profit for the year 0.3 0.1 Equity 0.7 0.4 Net financial position 1.0 0.7

Chairman of the Board of Directors

Paolo Pininfarina

(signed on the original)

73

Statement on the consolidated financial statements

pursuant to article 154-bis of Legislative decree no. 58/98

◊ The undersigned Paolo Pininfarina, as chairman, and Gianfranco Albertini, as manager in

charge of financial reporting of Pininfarina S.p.A., also considering the provisions of article 154-

bis.3/4 of Legislative decree no. 58 of 24 February 1998, state that the administrative and

accounting policies adopted for the preparation of the consolidated financial statements:

- are adequate in relation to the Group’s characteristics and

- have been effectively applied during 2016.

◊ Moreover, they state that the consolidated financial statements as at and for the year ended 31

December 2016:

- have been prepared in accordance with the International Financial Reporting Standards

endorsed by the European Community pursuant to (EC) regulation no. 1606/2002 issued by

the European Parliament and Council on 19 July 2002;

- are consistent with the accounting ledgers and records;

- are suitable to give a true and fair view of the financial position, financial performance and

cash flows of the issuer and the group of companies included in the consolidation scope.

The directors’ report includes a reliable analysis of the Group’s performance and results of

operations and the issuer’s and consolidated companies’ financial position and performance, as well

as a description of the main risks and uncertainties to which they are exposed.

21 March 2017

Chairman

Paolo Pininfarina

Manager in charge of

financial reporting

Gianfranco Albertini

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Translation from the Italian original which remains the definitive version)

STATUTORY AUDITORS’ REPORT

ON THE CONSOLIDATED FINANCIAL STATEMENTS

AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2016

Dear shareholders,

The Board of Directors has presented the consolidated financial statements of the

Pininfarina Group as at and for the year ended 31 December 2016, comprising the statement

of financial position, income statement, statement of comprehensive income, statement of

changes in equity, statement of cash flows and related notes.

These consolidated financial statements show equity of €30,464,166, gross of the profit of

the year of €20,531,208.

The consolidated financial statements as at and for the year ended 31 December 2016 have

been prepared in accordance with the IFRS.

The consolidated financial statements have been made available to the Board of Statutory

Auditors within the legal terms, together with the separate financial statements and the

directors’ report.

The latter adequately describes the financial position, financial performance and cash flows,

including at consolidation level, of Pininfarina S.p.A. and its subsidiaries during the year

and after the reporting date. It also provides a breakdown of business volumes by the main

business segments and the consolidated results.

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The consolidation scope has been adequately defined. At 31 December 2016, it includes the

parent, five consolidated subsidiaries and one associate measured using the equity method.

Moreover, the subsidiary Matra Automobile Engineering SAS had already been

deconsolidated in 2012 due to the immateriality of its net assets.

Based on their checks, the independent auditors, KPMG S.p.A., confirmed that carrying

amounts in the 2016 consolidated financial statements are consistent with the parent’s

accounting records, the subsidiaries’ financial statements and relevant information

communicated by the latter.

The subsidiaries’ financial statements prepared by their relevant bodies and provided to the

parent for consolidation purposes were checked/audited by the individual companies’

relevant bodies and/or parties, in accordance with local legislation. The independent

auditors performed the procedures necessary for the audit of the consolidated financial

statements.

The checks of the Board of Statutory Auditors do not cover those financial statements, as

provided for by specific legal provisions (Consolidated Finance Act and article 41.3 of

Legislative decree no. 127 of 9 April 1991).

KPMG S.p.A., as the independent auditors engaged for the audit of the Pininfarina Group’s

consolidated financial statements, issued their unqualified audit report today, in which they

state that, in their opinion, the consolidated financial statements of the Pininfarina Group as

at and for the year ended 31 December 2016 comply with the IFRS endorsed by the

European Union and the Italian regulations implementing article 9 of Legislative decree no.

38/05.

Based on our checks and procedures, we state that:

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- the consolidation scope, consolidation policies and procedures comply with the IFRS

requirements. Accordingly, the structure of the consolidated financial statements is

technically correct and, as a whole, consistent with relevant legislation;

- our examination of the directors’ report did not identify any inconsistencies with the

figures and results presented in the consolidated financial statements;

- all information used for consolidation purposes relates to the entire reporting period,

which is the year ended 31 December 2016;

- the accounting policies are consistent with those used in the previous year, except

where stated otherwise.

Lastly, the chairman and the manager in charge of financial reporting issued a statement

pursuant to article 81-ter of Consob regulation no. 11971/1999, as subsequently amended,

and article 154-bis.3/4 of the Consolidated Finance Act (Legislative decree no. 58/1998).

Turin, 6 April 2017

STATUTORY AUDITORS

(Nicola Treves) (signed on the original)

(Giovanni Rayneri) (signed on the original)

(Margherita Spaini) (signed on the original)

PININFARINA S.p.A. ANNUAL FINANCIAL REPORT · ANNUAL FINANCIAL REPORT 31 DECEMBER 2016 ... lending...

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