The most significant elements of the balance sheet and financial position, compared with December 31, 2004 are as follows:
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| (millions of euro) | 12.31.2005 | 12.31.2004 | Change |
|---|---|---|---|
| Working capital(A) | 688 | 711 | (23) |
| Assets held for sale | 8 | 8 | - |
| Property, plant and equipment and intangible assets(B) | 895 | 910 | (15) |
| Non-current financial assets(C) | 25 | 22 | 3 |
| Other assets/(liabilities)(D) | 10 | 3 | 7 |
| Capital employed | 1,626 | 1,654 | (28) |
| Net financial position(E) | 351 | 441 | (90) |
| Total shareholders’ equity | 1,275 | 1,213 | 62 |
| (A) | Working capital includes trade receivables net of allowances for doubtful accounts, inventories, trade payables, and other non-financial receivables and payables (i.e. VAT receivable and payable, other receivables and payables, Parent Company receivables and payables, taxes payable, deferred tax assets, accruals and prepayments, social security and employee payables, receivables and payables for the purchase of non-current assets, etc.). |
| (B) | Property, plant and equipment and intangibles include all categories of assets net of depreciation, amortization, and write-downs |
| (C) | Non-current financial assets include unconsolidated investments and security deposits paid and received. |
| (D) | Other assets/(liabilities) include provisions for risks, provisions for goodwill indemnities, other provisions, provisions for the risk of future taxes, provision for current and deferred taxes related to the 2003 corporate reorganization. |
| (E) | Net financial position includes cash and cash equivalents and all short and medium-term financial assets and liabilities, as detailed in the table included below. |
Despite the 3.6% increase in revenues, working capital fell by 23 million euro, due primarily to an increase in trade and other payables and a decrease in other receivables, which was offset by an increase in inventories. Assets held for sale for 2004 and 2005 refer to two facilities in the textile segment.
In addition to that which was already mentioned above, the change in capital employed is due to the joint effect of the following factors:- increase in property, plant and equipment and intangibles due to investments of 124 million euro;
- depreciation and amortization of 85 million, write-downs of 50 million, and disposals of 14 million euro;
- decrease in operating provisions of 5 million euro;
- increase in deferred tax assets of 7 million euro, essentially related to the corporate reorganization at the end of 2003, and the decline in taxes payable of 5 million euro;
- increase of 3 million euro in non-current financial assets.
The net financial position was 351 million euro, decreasing by 90 million euro compared with December 31, 2004, and is as follows:
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| (millions of euro) | 12.31.2005 | 12.31.2004 | Change |
|---|---|---|---|
| Financial assets | |||
| Non-current financial assets: | |||
| - medium-term financial receivables | 7 | 29 | (22) |
| Current financial assets: | |||
| - Italian government securities, monetary funds and bonds | - | 118 | (118) |
| - bank deposits | 79 | 141 | (62) |
| - other short-term financial receivables | 13 | 22 | (9) |
| Total current financial assets | 92 | 281 | (189) |
| Cash and ordinary current accounts | 117 | 119 | (2) |
| Total financial assets | 216 | 429 | (213) |
| Financial liabilities | |||
| Non-current financial liabilities: | |||
| - bond | - | - | - |
| - syndicated loan | (500) | (500) | - |
| - other medium-term loans | (3) | (4) | 1 |
| - lease financing | (10) | (18) | 8 |
| Total non-current financial liabilities | (513) | (522) | 9 |
| Current financial liabilities: | |||
| - bond | - | (300) | 300 |
| - financial payables | (48) | (41) | (7) |
| - current portion of medium-term loans | (1) | (1) | - |
| - current portion of lease financing | (5) | (6) | 1 |
| Total current financial liabilities | (54) | (348) | 294 |
| Total financial liabilities | (567) | (870) | 303 |
| Net financial position | (351) | (441) | 90 |
| Non-current net financial position | (506) | (493) | (13) |
| Current net financial position | 155 | 52 | 103 |
| Net financial position | (351) | (441) | 90 |
On June 10, 2005, in order to support the seasonal financial needs of the Group business and to meet future commitments, Benetton Group S.p.A. signed a revolving credit line of 500 million euro with a pool of ten banks, maturing in June 2010. This line may be drawn down in the form of one, three or six-month loans and the cost will be one/three/sixmonth Euribor plus a spread of between 27.5 and 60 basis points, depending on the ratio net debt on EBITDA.
This operation calls for compliance with three financial ratios (financial covenants) calculated every six months on the basis of the consolidated financial statements, namely:- minimum ratio of 4 between EBITDA and net financial expenses;
- maximum ratio of 1 between net debt and equity;
- maximum ratio of 3.5 between net debt and EBITDA.
As of December 31, 2005, this credit line was not being used.
The syndicated loan of 500 million euro, maturing in July 2007, calls for compliance with two financial ratios that have to be calculated every six months based on the consolidated financial statements, namely:- minimum ratio of 2.5 between EBITD (earnings before interest, tax and depreciation of property, plant and equipment) and net financial expenses;
- maximum ratio of 1 between net debt and equity.
Both the revolving credit line and the syndicated loan include covenants for Benetton Group S.p.A. and, in certain cases, for other Group companies, which are typical of international practice, such as:
- negative pledge clauses, which extend to the transactions above, to the same degree, any present or future collateral on assets in relation to loans, bonds, and other debt securities;
- pari passu clauses, based on which obligations that are senior to those of the two transactions mentioned above cannot be assumed;
- periodic reporting obligations;
- cross-default clauses, which entail the immediate payment of the transactions described above upon certain defaults related to other financial instruments issued by the Group;
- limits to significant sales of assets;
- other clauses generally accepted in transactions of this type.
However, these covenants are subject to various exceptions and limitations.
The bond of 300 million euro was repaid at maturity on July 26, 2005, primarily by using available liquidity, which resulted in part from the sale of the securities.
Cash flows during year 2005 are summarized below with comparative figures for last year:
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| (millions of euro) | 2005 | 2004 |
|---|---|---|
| Cash flow generated by operating activities | 285 | 140(B) |
| Cash flow provided/(used) by investing activities | (1)(A) | (125)(C) |
| Free cash flow | 284 | 16 |
| Cash flow provided/(used) by financing activities | ||
| - dividends paid | (62) | (69) |
| - net change in sources of finance | (288) | (11) |
| - net change in cash and cash equivalents | 66 | 64 |
| Cash flow provided/(used) by financing activities | (284) | (16) |
| (A) | Includes 118 million euro for the sale of financial assets. |
| (B) | Includes payment of substitute taxes of 124.5 million euro. |
| (C) | Includes 49 million euro relating to the sale of the sports equipment segment and the purchase of financial assets, in the amount of 90 million euro. |