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An Emerging Force in System Building for OEMs worldwide
Annual report 2007
Headquarters Transportstraat 1 3980 Tessenderlo Belgium Tel. : +32 13 67 07 80
Fax. : +32 13 67 21 34
e-mail : info@EPIQ.com web : www.EPIQ.com
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This document can only be used for translation purposes. Only the Dutch version is the official version. TABLE OF CONTENTS 2
GENERAL INFORMATION ...........................................................................................4
RISK FACTORS...............................................................................................................5
1. LETTER TO THE SHAREHOLDER ......................................................................9
2. FINANCIAL DATA ...........................................................................................10
2.1 Selected summary financial data.....................................................................10
2.2 Management’s discussion and analysis of financial condition and results of
operations ....................................................................................................................11
2.2.1 Overview.................................................................................................11
2.2.2 Results of operations ...............................................................................12
2.2.3 Liquidity, working capital and capital resources ....................................15
2.3 Detailed consolidated financial statements .....................................................15
2.3.1 Independent auditor’s report ...................................................................15
2.3.2 Detailed consolidated financial statements ....................................................17
2.4 Notes to the consolidated financial statements .....................................................21
2.4.1 General ...........................................................................................................21
2.4.2 Summary of Significant Accounting Policies ................................................21
2.4.3 Changes in Group’s organisation ...................................................................34
2.4.4 Notes to the consolidated financial statements ..............................................34
2.4.4.1 Cash and cash equivalents...................................................................34
2.4.4.2 Trade accounts receivable ...................................................................34
2.4.4.3 Inventories...........................................................................................34
2.4.4.4 Other current assets .............................................................................35
2.4.4.5 Other investments & Investment in associates ...................................35
2.4.4.6 Property, plant and equipment ............................................................36
2.4.4.7 Goodwill and badwill..........................................................................37
2.4.4.8 Intangible assets ..................................................................................37
2.4.4.9 Other current liabilities .......................................................................38
2.4.4.10 Bank loans and overdrafts...............................................................38
2.4.4.11 Long-term debts ..............................................................................38
2.4.4.12 Shareholders’ equity and rights attached to shares .........................39
2.4.4.13 Subordinated loan............................................................................40
2.4.4.14 Provisions........................................................................................41
2.4.4.15 Pension provisions ..........................................................................42
2.4.4.16 Cost of sales ....................................................................................43
2.4.4.17 General and administrative expenses ..............................................44
2.4.4.18 Other operating income / (expense) ................................................44
2.4.4.19 Selling expenses ..............................................................................44
2.4.4.20 Research and development expenses ..............................................44
2.4.4.21 Personnel expenses and average number of employees..................45
2.4.4.22 Depreciation and amortization expenses.........................................45
2.4.4.23 Financial income / expense - net .....................................................45
2.4.4.24 Income taxes....................................................................................46
2.4.4.25 Deferred taxes .................................................................................46
2.4.4.26 Earnings per share ...........................................................................47
2.4.4.27 Segment information.......................................................................47
2.4.4.28 Minority interest..............................................................................49
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2.4.4.29 Financial instruments ......................................................................50
2.4.4.30 Leasing ............................................................................................52
2.4.4.31 Operational leasing..........................................................................53
2.4.4.32 Related party ...................................................................................54
2.4.4.33 List of subsidiaries consolidated .....................................................57
2.4.4.34 Contingent liabilities .......................................................................58
2.4.4.35 Subsequent events ...........................................................................58
2.4.4.36 Going concern and bank covenants.................................................58
2.5. Short version of the statutory annual stand-alone accounts of EPIQ nv.........58
2.5.1 Balance sheet...........................................................................................59
2.5.2 Income statement ....................................................................................60
3. CORPORATE GOVERNANCE ........................................................................61
3.1 Board of Directors...........................................................................................61
3.2 Committees of the Board of Directors ............................................................62
3.3 Management....................................................................................................62
3.4 Dividend policy...............................................................................................63
3.5 Auditor ............................................................................................................63
3.6 Financial calendar ...........................................................................................64
3.7 Stock related information................................................................................65
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GENERAL INFORMATION
Board of Directors: R. Duchatelet Schlötzer Innovation, represented by E. Schlotzer Moova NV, represented by W. Vanden Poel F. Chombar G. Bernard J. Claes Registered offices Transportstraat 1 B-3980 Tessenderlo Group Sollicitors: Buntinx Berckmans Advocaten Jan van Rijswijcklaan 162 B-2020 Antwerp Represented by: Mr. P. Buntinx CLAESSENS & MINNEKEER Advocaten Bessemerstraat 16 / 1 B-3620 LANAKEN Represented by: Mr. J. Minnekeer
Group Auditors: BDO Atrio Bedrijfsrevisoren Burg. CVBA The Corporate Village Da Vincilaan 9 – Box E.6 Elsinore Building B-1935 Zaventem Represented by: Mr. Koen De Brabander and Mr. Gert Claes
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RISK FACTORS
Investors should carefully consider the following factors in addition to the other
information presented in this Annual Report, prior to investing in Shares of the
Company.
The Contract Electronic Manufacturing Market
The contract electronic manufacturing (‘CEM’) sector is highly dependent on the outsourcing of manufacturing activities of original equipment manufacturers (‘OEMs’) which in turn is dependent on demand for the electronic products manufactured by its customers. When demand for the products manufactured by customers falls, the CEM sector is particularly vulnerable as the customer will seek to cut back outsourced manufacturing. The CEM market in Europe is vulnerable to delocalization towards Asia and China in particular. Its success will depend on the willingness and ability of electronic manufacturers to continue to outsource their manufacturing activities to European companies in the future. Changing Technology
The market for the manufacturing services of the Company and its subsidiaries (together the ‘Group’) is characterized by rapidly changing technology and continuing process development. The Group is continually evaluating the advantages and feasibility of new manufacturing processes. The Company believes that the Group’s future success will depend upon its availability to develop and market manufacturing services that meet changing customer needs, maintain technological leadership and successfully anticipate or respond to technological changes in manufacturing processes on a cost-effective and timely basis. There can be no assurance that the Group’s process development efforts will be successful. Competition
The CEM sector is highly competitive and is expected to become increasingly competitive in the future. Increased competition could result in price reductions, reduced revenues and profit margins, inability to expand and potential loss of market share, any of which could have a material adverse effect on the Group. The Company believes that the principal factors affecting competition in the Group’s markets are: quality, price and the ability to meet specific customer needs. The Group’s principal competitors include Sanmina Inc., Flextronics, Jabil Circuit, Inc. and Videoton. Each of these companies and many of the Group’s other competitors have greater financial, technical, marketing, sales and customer support resources and greater name recognition than the Group. The Company believes that the ability of the Group to compete successfully in the future will depend, in part, upon its continued ability to use the synergies of the organisation and to expand its excellent relationships with its customers. There can be no assurance, however, that the Group will be able to achieve these objectives in order to compete successfully in the future. There can be no assurance that the Group will have the resources required to respond to changes, that the Group will be able to compete successfully with current or future competitors, or that
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competitive pressures faced by the Group will not have a material adverse effect on the Group. History of Losses and Fluctuation of Operating Results
The Company and its subsidiaries have a history of trading losses with a turnaround in 2004, 2005 and with 3 years of positive result. There can be no assurance that the Company will not fall back into losses in the future. In addition, the operating results of the Group fluctuate according to the season (the Group generally experiences increased orders in the second half of the year) and according to the loss or gain of major customers. Risks Associated with Currency Fluctuations
The Company conducts business in several currencies, which exposes it to fluctuations in the currency exchange rates between the reporting currency of the Company and the operating (functional) currencies of its subsidiaries and other currencies in which the Company conducts business. In particular, the Company is exposed to currencies such as the Mexican Peso, the United States Dollar and the Czech Krona. Management of Geographically Disparate Locations
The Group’s main research and development operations are located in Botevgrad, Bulgaria and the Group has operating facilities in France, Germany, Bulgaria, Mexico and the Czech Republic. In all of these countries, administrative personnel are employed. The Group is centralizing its business and administrative operations, such as purchasing operations, in order to benefit from synergies. However, there can be no assurance that the efforts will be successful. In addition, operating in diverse geographic locations imposes a number of risks and burdens on the Group, including the need to manage employees and contractors from diverse cultural backgrounds who speak different languages. Although the Company will use its best efforts to mitigate the difficulties associated with operating in diverse geographic locations, there can be no assurance that it will not encounter unforeseen difficulties or logistical barriers in operating in diverse locations. Ability to Manage Growth
The Company has recently been awarded with contracts from customers. The Company also continually evaluates growth and acquisition opportunities and may pursue additional opportunities over time. Future acquisitions by the Company may result in the use of significant amounts of cash, potentially dilutive issues of securities, incurrence of debt and amortization of expenses related to goodwill and other intangible assets, each of which could materially and adversely affect the Company’s business, results of operations or financial condition. There can be no assurance that the Company will successfully manage the growth related to new contracts and / or related to other business it may acquire in the future. As the Company manages its existing operations and expands geographically, it may experience certain inefficiencies as it integrates new operations and manages geographically dispersed operations. In addition, the Company’s results of operations could be adversely affected if its new facilities do not achieve growth sufficient to offset increased expenditures associated with geographic expansion. Should the Company increase its expenditures in anticipation of a future level of
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sales that does not materialise, its results of operations could be materially adversely affected. Financial controls and Management Information Systems
The Group’s ability to support any growth of its business will be dependent upon, among other things, the further implementation and development of financial controls and management information systems, including the hiring and training of new personnel. The Group continues to develop rigorous financial controls and management information systems. However, no assurance can be given that the Group will be able to successfully continue to develop the financial controls and management information systems necessary to support and control any rapid development of its business. International Operations
The Company intends to expand in other relatively low-cost markets as well as growth countries, including in China and Mexico, where certain of the Group’s principal customers have a presence, Manufacturing operations in these markets are accompanied by a number of added risks, including imposition of governmental controls, currency fluctuations, unexpected changes in trade regulations, including tariffs and import and export quotas, political and economic instability, general difficulties in administering a business in emerging markets, labour issues and potentially adverse tax consequences. Due to the increasing extent of the Group’s international operations, these issues can have a material adverse impact on the Group’s business, financial condition or results of operations. Variability of Customer Requirements
A part of the Group’s business is conducted for customers which have the desire to balance their inventories, changes in their manufacturing strategies and variations in end user demand for their products. This makes it difficult to schedule production and optimise use of the Group’s manufacturing capacity. There can be no assurance that anticipated orders from the Company’s customers will materialise. In addition, it is possible that delivery schedules may have to be deferred as a result of changes in the customer’s business needs. Any inability by the Group to reduce operating expenses and inventory quickly enough to compensate for any shortfall in net sales may magnify the adverse impact of such shortfall on the Group’s results of operations and financial condition. Dependence on Major Customers
Whilst the Group is not dependent on any one customer, the loss of one or more of its significant customers could have a material adverse effect on its business and prospects. The percentage of the Group’s sales to its major customers may fluctuate from period to period. Significant reductions in sales to any of these customers would have a material adverse effect on the Group’s results of operations. The Group has established few firm long-term relationships with its customers, but customer contracts can be cancelled and volume levels can be changed or delayed. The timely replacement of cancelled, delayed or reduced contracts with new business cannot be assured. These risks are increased because of majority of the Group’s sales are to customers in the automotive industry, which is subject to rapid
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technological change and product obsolescence. The factors affecting the automotive industry in general, or any of the Group’s major customers in particular, could have a material adverse effect on the Group’s results of operations. Control by existing Shareholders
The Company’s principal Shareholder, Elex nv, owns approximately 79 per cent of the Company’s outstanding Shares. As a result, Elex nv has the ability to control, or substantially influence, respectively, most matters requiring action at a meeting of shareholders, including the election and removal of Directors and approval of significant corporate transactions. Such control or influence by Elex nv could delay, defer or prevent a change in control of the Company, impede a merger, consolidation, takeover or other business combination involving the Company, or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company.
Dependence on Key Personnel
The Company’s success depends to a significant degree on the continued contributions of the Company’s top management including Gilles Bernard, Yves Duchatelet and other key management, development, marketing and sales personnel. The loss of any of such personnel could have a material adverse effect on the Company. In addition, the Company believes that its future success will depend on its availability to attract, integrate and retain highly skilled technical, managerial, marketing and sales personnel. The Company believes that the management team is able to manage the Group’s activities and the reporting requirements. Risks of Infringements of Intellectual Property Rights
Although the Company does not believe that the Group’s circuit designs or manufacturing processes infringe on the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Group in the future with respect to current or future designs or processes. Any such assertion may require the Group to enter into an expensive royalty arrangement or result in costly litigation.
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1. LETTER TO THE SHAREHOLDER
The annual revenue of EPIQ in 2007 increased from EUR 152,4 million in 2006 to
EUR 200,2 million, an increase of 31% over 2006.
Profit from operations (EBIT) increased from EUR 6,5 million in 2006 to 9,2 million
in 2007. The net result improved from EUR 2,7 million to EUR 4,6 million.
In 2007 EPIQ again executed a substantial growth in sales mainly within existing
capacity of buildings and machinery. In addition, the overhead costs have been
maintained. Therefore the gains in gross margin have been secured and were
translated into increased profits from operations.
Gilles Bernard, CEO/COO, says: “The continuous growth in sales has been
confirmed in 2007 and shows that EPIQ is recognized as a reliable and long term
partner on its core markets. A promising point for the future is that the majority of
the new projects awarded in 2007 have been realised with the help of our design
and development team. These projects will contribute to additional sales in the
coming years and will help EPIQ to improve its net margin or at least stabilize it in a
competitive automotive market.
With the opening of EPIQ China in Zhuhai in 2007, EPIQ extended its manufacturing
capabilities in Asia and is now capable to deliver a worldwide platform of
automotive products in Europe, North America and Asia."
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2. FINANCIAL DATA
2.1 Selected summary financial data
2.1.1 Introduction
EPIQ NV CONSOLIDATED INCOME STATEMENT 2007 2006 2005
ALL AMOUNTS ARE IN EURO
Sales 193.464.504 146.169.975 121.224.805
Other revenues 6.690.422 6.246.158 655.433
Cost of sales (see note 2.4.4.16) -182.844.095 -137.466.222 -111.251.401
Gross margin 17.310.831 14.949.911 10.628.837
Research and development expenses (see note 2.4.4.20) -2.161.955 -1.760.398 -2.069.034
Selling expenses (see note 2.4.4.19) -718.134 -754.745 -817.268
General and administrative expenses (see note 2.4.4.17) -6.104.391 -6.607.710 -6.019.035
Other operating income / (expense) (see note 2.4.4.18) 891.043 691.767 1.149.953
Profit/loss from operations 9.217.394 6.518.825 2.873.453
Financial income (see note 2.4.4.23) 108.696 57.052 1.840.316
Financial charges (see note 2.4.4.23) -3.768.645 -2.725.910 -2.812.525
Profit/loss before taxes 5.557.445 3.849.967 1.901.244
Income taxes (see note 2.4.4.24) -985.945 -1.117.851 -894.080
Minority Result (see note 2.4.4.28) -3.518 0 689.980
Net profit/loss 4.567.981 2.732.116 1.697.144
Profit/loss per share (see note 2.4.4.26) 0,19 0,11 0,07
YEARS ENDED 31ST DECEMBER
The selected financial data presented above have been extracted and derived from
the IFRS consolidated financial statements of EPIQ nv for the 3 years ending
December 31st, 2007, 2006 and 2005. These consolidated figures have been
audited by Ernst & Young for 2005 and by BDO Atrio Bedrijfsrevisoren Burg. CVBA
for 2006 and 2007.
The consolidated financial data are presented in EUR.
2.1.2 Exchange rates
Since January 1st, 1999, EPIQ keeps its books and prepares its statutory and
consolidated financial statements in EUR.
Assets and liabilities of group companies expressed in currencies other than the
EUR are translated at exchange rates in effect at the end of the reporting period,
and revenues and expenses are translated at the average exchange rate during the
period. Equity components have been translated at historical exchange rates. Gains
or losses resulting from this translation are reflected in the component ‘currency
translation adjustment’ in the balance sheet at December 31st, 2007.
The year-end exchange rates (used to translate assets and liabilities in the financial
statements) are as follows:
DATE CZK/EUR BGL/EUR MXP/EUR CNY/EUR GBP/EUR
COUNTRY: CZECH REP. BULGARIA MEXICO CHINA UK
December 31st, 2007 26.628 1.956 16.089 10.773 0.733
December 31st, 2006 27.485 1.956 14.285 0.672
December 31st, 2005 29.005 1.956 12.536 0.685
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The average rates (used to translate revenues and expenses in the financial
statements) are as follows:
DATE CZK/EUR BGL/EUR MXP/EUR CNY/EUR GBP/EUR
COUNTRY: CZECH REP. BULGARIA MEXICO CHINA UK
December 31st, 2007 27.755 1.956 14.989 10.435 0.685
December 31st, 2006 28.338 1.956 13.700 0.682
December 31st, 2005 29.785 1.956 13.566 0.684
2.2 Management’s discussion and analysis of financial condition and
results of operations
The following management’s discussion and analysis of financial condition and
results of operations should be read in conjunction with the company’s financial
statements for the years ending December 31st, 2007, 2006 and 2005.
2.2.1 Overview
EPIQ designs, produces and sells electronic and electro-mechanical systems and
sub-systems. These are drive- and/or control elements especially for supply in the
following markets: automotive equipment, household appliances, industrial market
and other applications with plastic parts and/or electronic components.
EPIQ provides a wide range of integrated services from product development up to
mass production. Production comprises the design of printed circuits and/or spray
casting of plastics up to and including the supply of assembled and tested systems
and sub-systems. In addition the Group provides all the required engineering,
research & development and logistic management.
EPIQ was incorporated in February 1989 and started business developing electronic
modules for the toy industry and small appliances market. Initially, EPIQ worked
with subcontractors from Taiwan, Thailand and Hong Kong to provide its
manufacturing services but in early 1993 the company started providing these
services from its newly established subsidiary, EPIQ Electronic Assembly EOOD in
Sofia, Bulgaria. In the period since early 1993, EPIQ also developed activities in
connection with testing of integrated circuits (‘IC’s’) and production of automation
equipment for IC manufacturers.
In December 1997, a decision was taken by EPIQ’s shareholders to focus EPIQ’s
business on the design, production and assembly of printed circuit boards and
electronic modules.
The EPIQ group went through a phase of acquisitions and went public in 1998 at
EASDAQ, which later changed its name into NASDAQ EUROPE.
In October 2003, EPIQ moved from NASDAQ EUROPE to EURONEXT.
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In October 2004, EPIQ sold the real estate property in Diepenbeek to Fremach
Plastics NV, being part of the demerger transaction in December 2002.
In November 2004, after a successful restructuring since the acquisition, EPIQ
divested EPIQ Sensor-Nite nv, Sensor-Nite Industrial EOOD and EPIQ USA Ltd.
EPIQ has been elected by the new shareholders as their main supplier. The
consolidated income statement of 2004 includes EPIQ Sensor-Nite nv, Sensor-Nite
Industrial EOOD and EPIQ USA Ltd, the consolidated balance sheet per December
31st 2004 excludes EPIQ Sensor-Nite nv, Sensor-Nite Industrial EOOD and EPIQ
USA Ltd.
In December 2004, EPIQ Personal Communication nv, bought the shares of the
Joint Venture Partner Yamashita in Yamaver S.A. de C.V. and Nipbelmex S.A. de
C.V. MIF (Multinational Industrial Fund) acquired 35% of the shares in EKER de
Saltillo S.A. de C.V.
In December 2004, EKER GmbH filed for liquidation. The company operated as a
real estate investment company only.
In December 2005, EPIQ nv reached an agreement with ELEX nv in the sale of the
operational activities of Structuplas-Riesselberg nv. The consolidated income
statement of 2005 includes Structuplas-Riesselberg nv, the consolidated balance
sheet per December 31st 2005 excludes Structuplas-Riesselberg nv.
In March 2007, Zuhai EPIQ Trading Co., LTD was established as a trading company
between Chinese subcontractors and EPIQ customers.
2.2.2 Results of operations
EPIQ NV RESULTS FROM OPERATIONS (% OF OPERATING INCOME) 2007 2006 2005
YEARS ENDED 31ST DECEMBER
Sales and other revenues 100.0% 100.0% 100.0%
Cost of sales -91.4% -90.2% -91.3%
Gross margin 8.6% 9.8% 8.7%
Amortisation of goodwill 0.0% 0.0% 0.0%
Impairment of goodwill 0.0% 0.0% 0.0%
Research and development expenses -1.1% -1.2% -1.7%
Selling expenses -0.4% -0.5% -0.7%
General and administrative expenses -3.0% -4.3% -4.9%
Other operating expenses 0.4% 0.5% 0.9%
Restructuring costs 0.0% 0.0% 0.0%
Profit/loss from operations 4.6% 4.3% 2.4%
Income from associates 0.0% 0.0% 0.0%
Financial income 0.1% 0.0% 1.5%
Financial charges -1.9% -1.8% -2.3%
Profit/loss before taxes 2.8% 2.5% 1.6%
Income taxes -0.5% -0.7% -0.7%
Net profit/loss 2.3% 1.8% 1.4%
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Revenues
For 2007, 2006 and 2005, sales and other revenues are spread over the group
companies as follows:
EPIQ NV REVENUES PER SITE 2007 2006 2005
ALL AMOUNTS ARE IN EURO
Epiq NV
Epiq sàrl 31,980,473 24,213,162 29,054,930
Epiq EA 132,053,711 97,717,352 61,038,056
Epiq GmbH 7,372,509 8,848,657 10,869,802
Epiq CZ 5,193,186 5,509,995 4,068,216
Epiq MX 16,864,625 9,880,809 3,193,434
Structuplas-Riesselberg 12,485,018
Epiq PC
Yamaver 515,348
Nipbelmex
Zuhai Trading
Microenergia
Total 193,464,504 146,169,975 121,224,804
YEARS ENDED 31ST DECEMBER
Cost of sales
Cost of sales consists of materials (raw materials and semi-finished parts),
subcontracting, labour, depreciation and other production expenses.
The relative importance of each component of cost of sales depends on whether the
Group operates as a payroll subcontractor (i.e. providing essentially labour only) or
as a full subcontractor. Cost of sales amounted to 91,4% in 2007 compared to
90,2% in 2006. For a large customer EPIQ has become a full subcontractor in 2007
which increased the material part in the total value.
Gross Margin
Gross margin increased from EUR 14.949.911 in 2006 to EUR 17.310.831 in 2007.
This can be attributed mainly to the increased sales.
Research and development expenses
Research and development expenses amounted to EUR 2.161.955 in 2007,
representing 1,1% of the total revenue, compared to EUR 1.760.398 in 2006. This
increase is due to increased travel and purchase of tools.
It is the strategy of EPIQ to invest in advanced research and development
activities. EPIQ has development centres located in France, Germany and Bulgaria.
The research and development activities are concentrating on advance
development and re-engineering of existing products for the automotive, household
and industrial market.
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Selling expenses
Selling expenses consist of salaries and salary related expenses and bad debts. In
total they amount to EUR 718.134 in 2007. This is a reduction of 4.9% compared to
2006.
General and administrative expenses
General and administrative expenses consist mainly of salaries and salary-related
expenses, office equipment and related expenses, travel and entertainment
expenses. In total they amount to EUR 6.104.391 in 2007 against EUR 6.607.710 in
2006, a decrease of 7,6%, mainly due to the favourable settlement of an old
quality claim towards a supplier.
Restructuring costs
No restructuring costs are reported for the accounting year 2007.
Other operating income and expenses
Other operating income and expenses for the year 2007 mainly relate to
adjustment of provisions for legal disputes.
For more details we refer to the note 2.4.4.18.
Financial result
In 2007 EPIQ’s net financial result amounted to EUR 3.659.949 which is EUR
991.091 higher than 2006 due to rising interest rates and higher working capital
needs in line with the growth of the sales. Additionally, costs related to the early
repayment of the IFC-loan have been booked.
Net profit
EPIQ generated a profit before taxes for 2007 of EUR 5.557.445. This represents
2,8% of turnover. The rise in profit is mainly related to the increased sales with
stable gross margin whereas overhead costs have been maintained.
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2.2.3 Liquidity, working capital and capital resources
The liquidity ratio of EPIQ remained stable at 1,7 in 2007. The increased
requirements in working capital have been secured by the cash flow from
operations.
The solvency ratio decreased towards 26,3% compared to 28,3% in 2006 and
29,4% in 2005 due to an increase in the balance sheet related to the growth in
activity.
The capital expenditure of over EUR 8 million is financed through own funds, long-
term loans and leasing. The most important investment was the new plant Epiq 3 in
Botevgrad.
2.3 Detailed consolidated financial statements
2.3.1 Independent auditor’s report
STATUTORY AUDITOR'S REPORT TO THE GENERAL SHAREHOLDERS’
MEETING OF THE COMPANY EPIQ NV ON THE CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007
In accordance with the applicable legal requirements, we are pleased to report on the
performance of the audit mandate which you have entrusted to us. Our report includes
our opinion on the fair view of the consolidated financial statements and the required
additional disclosures.
Unqualified audit opinion on the consolidated financial statements
We have audited the consolidated financial statements for the accounting year ended
December 31, 2007, prepared in accordance with International Financial Reporting
Standards as accepted in the European Union, which show a balance sheet total of
EUR 102.914.229 and a profit of EUR 4.567.981.
The consolidated financial statements for the accounting year ended December 31, 2007
include some foreign subsidiaries which have been audited by other auditors.
The preparation of the consolidated financial statements is the responsibility of the
board of directors. This includes, among other things, the implementation and
maintenance of internal control procedures related to the preparation and the fair
presentation of the financial statements free from material misstatement resulting from
fraud or error; the selection and application of adequate accounting principles and
reasonable accounting estimates.
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It is our responsibility to express an opinion on the consolidated financial statements
based on our audit.
We conducted our audit in accordance with Belgian legal requirements and auditing
standards, as issued by the Institut des Réviseurs d’Entreprises/Instituut der
Bedrijfsrevisoren. These standards require that we plan and perform our work so as to
obtain sufficient evidence to give reasonable assurance that the consolidated financial
statements are free from material misstatements as a result of fraud or error.
In accordance with those standards, we considered the company’s administrative and
accounting organization as well as its internal control procedures. Company officials
have clearly responded to our requests for explanations and information. An audit
includes examining, on a test basis, evidence supporting the amounts included in the
consolidated financial statements. We have assessed the accounting principles used and
significant accounting estimates made by management, as well as evaluated the overall
consolidated financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements give a true and fair view of the company’s
consolidated financial situation, consolidated financial results and the consolidated cash
flow statement, in accordance with International Financial Reporting Standards as
accepted in the European Union.
Additional disclosure
The preparation and the contents of the consolidated annual report are the responsibility
of the board of directors.
It is our responsibility to include in our report the following additional disclosure which
does not modify our audit opinion on the consolidated financial statements:
� The consolidated directors’ report includes the information required by law and is
consistent with the financial statements. We are, however, unable to comment on the
description of the principal risks and uncertainties which the company is facing, and
on its situation, its foreseeable evolution or the significant influence of certain facts
on its future development. We can nevertheless confirm that the matters disclosed
do not present any obvious inconsistencies with the information obtained during our
audit.
BDO Atrio Réviseurs d'Entreprises Soc. Civ. SCRL
Statutory Auditor
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2.3.2 Detailed consolidated financial statements
The enclosed consolidated financial statements and the related notes are in
compliance with the International Financial Reporting Standards as adopted for use
in the European Union.
DETAILED CONSOLIDATED BALANCE SHEET 2007 2006 2005
ALL AMOUNTS ARE IN EURO 31 DECEMBER 31 DECEMBER 31 DECEMBER
Current Assets:
Cash and cash equivalents (see note 2.4.4.1) 4.958.282 4.082.200 2.672.543
Accounts receivable from trade activities (see note 2.4.4.2) 24.392.288 17.312.217 12.924.849
Accounts receivable from related parties (see note 2.4.4.32) 9.237.207 7.586.646 8.510.567
Other current assets (see note 2.4.4.4) 1.967.614 2.079.570 2.808.664
Income tax receivable 1.997.096 2.038.168 1.216.464
Inventories (see note 2.4.4.3) 35.458.964 25.946.900 19.182.840
Total current assets 78.011.451 59.045.702 47.315.927
Non-current assets:
Other investments (see note 2.4.4.5) 0 15.000 15.000
Property, plant and equipment (see note 2.4.4.6) 24.384.024 20.003.230 21.090.621
Intangible assets (see note 2.4.4.8) 518.754 401.491 403.021
Goodwill (see note 2.4.4.7)
Total non-current assets 24.902.778 20.419.722 21.508.642
Total assets 102.914.229 79.465.424 68.824.569
Current liabilities:
Bank loans and overdrafts (see note 2.4.4.10) 11.815.247 5.052.311 7.158.565
Current portion of long-term debts (see note 2.4.4.11) 3.344.508 2.752.267 1.199.397
Accounts payable due to trade activities 22.719.983 18.858.808 12.667.377
Accounts payable due to related partie (see note 2.4.4.32) 1.061.029 2.191.687 1.728.462
Income tax liabilities 2.724.762 1.871.441 259.756
Provisions short-term (see note 2.4.4.14) 50.000 624.255 964.711
Other current liabilities (see note 2.4.4.9) 3.605.376 2.515.566 3.633.724
Total current liabilities 45.320.905 33.866.335 27.611.992
Non-current liabilities:
Long-term debt less current portion (see note 2.4.4.11) 9.754.933 14.314.814 10.435.391
Provisions long term (see note 2.4.4.14) 930.000 930.000 1.180.000
Pension provisions (see note 2.4.4.15) 1.291.077 1.146.151 1.224.487
Deferred tax liabilities (see note 2.4.4.25) 330.420 316.414 624.549
Subordinated loans (see note 2.4.4.13) 18.218.615 6.418.614 7.495.059
Total non-current liabilities 30.525.045 23.125.993 20.959.486
Shareholders' equity:
Share capital 37.054.000 37.054.000 37.054.000
Share premium 31.744.720 31.744.720 31.744.720
Reserves 1.876 1.876 1.876
Retained earnings -45.959.115 -48.691.374 -50.388.516
Result of the year 4.567.981 2.732.116 1.697.142
Cumulative translation adjustment -360.945 -368.242 143.867
Total shareholders' equity (see note 2.4.4.12) 27.048.517 22.473.096 20.253.089
Minority Interest 19.762 0 1
Total liabilities and shareholders' equity 102.914.229 79.465.424 68.824.569
18
Consolidated statement of changes in equity:
EPIQ NV NUMBER SHARE SHARE RESERVES RETAINED CUMULATIVE TOTAL
OF CAPITAL PREMIUM EARNINGS TRANSLATION EQUITY
DATE SHARES ADJUSTMENT
31st December 2002 23,786,590 37,054,000 31,744,720 1,876 -45,021,801 275,022 24,053,817
Net profit of the period -8,791,819 16 -8,791,803
Curr. translation adjust. -546,252 -546,252
31st December 2003 23,786,590 37,054,000 31,744,720 1,876 -53,813,620 -271,214 14,715,762
Net profit of the period 967,868 967,868
Curr. translation adjust. -26,019 -26,003
Restatement MIF acquisition 1,369,772 1,369,772
31st December 2004 23,786,590 37,054,000 31,744,720 1,876 -51,475,980 -297,233 17,027,383
Net profit of the period 1,697,145 1,697,145
Curr. translation adjust. 441,100 441,100
MIF capital payment 1,087,477 1,087,477
31st December 2005 23,786,590 37,054,000 31,744,720 1,876 -48,691,358 143,867 20,253,105
Net profit of the period 2,732,116 2,732,116
Curr. translation adjust. -512,110 -512,110
31st December 2006 23,786,590 37,054,000 31,744,720 1,876 -45,959,242 -368,243 22,473,111
Net profit of the period 4,568,108 4,568,108
Curr. translation adjust. 7,298 7,298
31st December 2007 23,786,590 37,054,000 31,744,720 1,876 -41,391,134 -360,945 27,048,517
Movement in minority interest:
The minority interest is related to the participation of third parties in the capital of
Microenergia EOOD for 30%. In 2007 Microenergia has been included in the
consolidated statements for the first time.
EPIQ NV SHARE RETAINED RESULT NET CAPITAL EARNINGS ALLOCATION MINORITY
DATE ALLOCATED INTEREST
Capital payment 1,474,180 1,474,180 Retained earnings allocation -1,369,772 -1,369,772
31st December 2004 1,474,180 -1,369,772 0 104,408
Capital payment 1,673,049 1,673,049 Retained earnings allocation -1,087,477 -1,087,477
Result allocation -689,980 -689,980
31st December 2005 3,147,229 -2,457,249 -689,980 0
Result allocation 0 0
31st December 2006 3,147,229 -2,457,249 -689,980 0
Microenergia 767 15,477 16,244 Result allocation 3,518 3,518
31st December 2007 3,147,996 -2,441,772 -686,462 19,762
19
Consolidated income statement:
EPIQ NV CONSOLIDATED INCOME STATEMENT 2007 2006 2005
ALL AMOUNTS ARE IN EURO
Sales 193,464,504 146,169,975 121,224,805
Other revenues 6,690,422 6,246,158 655,433
Cost of sales (see note 2.4.4.16) -182,844,095 -137,466,222 -111,251,401
Gross margin 17,310,831 14,949,911 10,628,837
Research and development expenses (see note 2.4.4.20) -2,161,955 -1,760,398 -2,069,034
Selling expenses (see note 2.4.4.19) -718,134 -754,745 -817,268
General and administrative expenses (see note 2.4.4.17) -6,104,391 -6,607,710 -6,019,035
Other operating income / (expense) (see note 2.4.4.18) 891,043 691,767 1,149,953
Profit/loss from operations 9,217,394 6,518,825 2,873,453
Financial income (see note 2.4.4.23) 108,696 57,052 1,840,316
Financial charges (see note 2.4.4.23) -3,768,645 -2,725,910 -2,812,525
Profit/loss before taxes 5,557,445 3,849,967 1,901,244
Income taxes (see note 2.4.4.24) -985,945 -1,117,851 -894,080
Minority Result (see note 2.4.4.28) -3,518 0 689,980
Net profit/loss 4,567,981 2,732,116 1,697,144
Earnings per share (see note 2.4.4.26) 0.19 0.11 0.07
YEARS ENDED 31ST DECEMBER
20
Consolidated cash flow statement:
CONSOLIDATED STATEMENT OF CASH FLOW 2007 2006 2005
ALL AMOUNTS ARE IN EURO YEARS ENDED 31ST DECEMBER
CASH FLOW USED IN OPERATING ACTIVITIES
Net result 4.567.981 2.732.116 1.697.144
Adjustment for:
Depreciation fixed assets 4.107.854 4.190.077 5.039.448
Reserve for uncollectable receivables -802.651 -240.287 -947.806
Deferred taxes 14.006 0 56.457
Provisions -429.329 590.456 -1.901.536
Financial result 3.659.949 2.668.858 972.209
Income taxes 41.072 0 894.080
Income taxes paid 853.321 0 0
Operating profit before working capital changes 12.012.203 9.941.220 5.809.996
Changes in operating assets and liabilities
Accounts receivable -6.277.420 -4.147.081 -1.849.517
Accounts receivable towards related parties -1.650.561 923.921 -5.812.996
Other current assets 111.956 -628.707
Inventories -9.512.064 -6.764.060 -3.866.002
Accounts payable 3.861.175 6.191.431 3.168.719
Trade positions towards related parties -1.130.658 463.224 -4.796.858
Accrued expenses 142.698
Other current liabilities 1.089.810 -1.118.158 594.515
Net cash used in operating activities -1.495.559 5.490.497 -7.238.153
CASH FLOW USED IN INVESTING ACTIVITIES
Deconsolidation of Structuplas 0 0 1.906.704
Financial fixed assets and investments in associates 15.000 0 -15.000
Additions to fixed assets (tangible and intangible) -8.605.911 -3.149.462 -10.033.790
Interest received 108.696 140.108 123.819
Loss/profit on current investments
Net cash used in investing activities -8.482.214 -3.009.355 -8.018.267
CASH FLOW USED IN FINANCING ACTIVITIES
Capital increase and share premium
Proceeds/(repayments) from bank loans and overdrafts short term 6.762.936 -2.106.254 3.354.708
Proceeds/(repayments) from bank loans and overdrafts long term -4.559.881 3.879.423 9.154.873
Proceeds/(repayments) from current portion of long-term debt 592.241 1.552.870 117.248
Proceeds/(repayments) from subordinated loan 11.800.001 -1.076.444 267.059
Investment from minority shareholder 19.762 0 -104.409
Interest paid -2.836.974 -2.528.587 -1.773.336
Translation exchange gain/(loss) -931.671 -280.379 677.308
Net cash provided by/used in financing activities 10.846.414 -559.371 11.693.450
Movement in cumulative translation adjustment 7.297 -512.106 441.098
Movement in retained earnings 144 0 1.087.461
Increase/(decrease) in cash and cash equivalents 876.082 1.409.665 -2.034.410
Cash at the beginning of the period 4.082.200 2.672.543 4.706.948
Exchange difference o/opening cash position 0 0 6
Cash at the end of the period 4.958.282 4.082.200 2.672.543
Movement 876.082 1.409.657 -2.034.411
21
2.4 Notes to the consolidated financial statements
2.4.1 General
EPIQ is a limited liability company incorporated under Belgian law, with production
facilities in France (EPIQ s.a.r.l.), Bulgaria (EPIQ Electronic Assembly EOOD),
Germany (EPIQ GmbH), the Czech Republic (EPIQ CZ Spol s.r.o. prior: Eker Spol
s.r.o.), Mexico (EPIQ Mexico) and China (Zhuhai Epiq Trading Co Ltd).
EPIQ is a European system builder that assembles and tests systems and sub-
systems for major original equipment manufacturers in, essentially, three fields:
● automotive & sensors
● household appliances
● industrial appliances
The EPIQ group employed on average 3.317 people in 2007, 3.006 people in 2006
and 2.248 people in 2005. The registered offices address of the Group is
Transportstraat 1, 3980 Tessenderlo, Belgium. The financial statements were
authorised for issue by the Board of Directors subsequent to the meeting held on
February 25, 2008 in Botevgrad.
2.4.2 Summary of Significant Accounting Policies
The principal accounting policies adopted in preparing the financial statements of
EPIQ nv are as follows:
Basis of preparation
The accompanying financial statements are prepared in accordance with the
International Financial Reporting Standards as published by the International
Accounting Standards Board. They have been prepared under the historical cost
convention.
Measurement currency
Based on the economic substance of the underlying events and circumstances
relevant to EPIQ, the measurement currency has been determined to be the EUR.
To consolidate EPIQ nv (measured in EUR) and each of its subsidiaries (each
measured in its own measurement currency) financial statements of foreign
22
consolidated subsidiaries are translated at year-end exchange rates with respect to
the balance sheet, and at the average exchange rate for the year with respect to
the income statements. All resulting translation differences are included in a
currency translation reserve in equity.
Principles of Consolidation
The consolidated financial statements of the EPIQ group include EPIQ nv and the
companies that it controls. This control is normally evidenced when EPIQ nv owns,
either directly or indirectly, more than 50% of the voting rights of a company’s
share capital and is able to govern the financial and operating policies of an
enterprise so as to benefit from its activities.
The purchase method of accounting is used for acquired businesses. Companies
acquired or disposed of during the year are included in the consolidated financial
statements from the date of acquisition or to the date of disposal.
Investments in associated companies (generally investments of 20% to 50% in a
company’s equity) where significant influence is exercised by EPIQ nv, are
accounted for using the equity method. An assessment of investments in associates
is performed when there is an indication that the assets have been impaired or the
impairment losses recognized in prior years no longer exist.
When EPIQ’s share of losses exceeds the carrying amount of the investment, the
investment is reported at nil value and recognition of losses is discontinued except
to the extent of EPIQ’s commitment.
Interests in joint ventures are recognized by including the accounts using the
proportionate consolidation basis, i.e. by including in the accounts under the
appropriate financial statement headings of the Company’s proportion of the joint
venture revenues, costs, assets and liabilities. An assessment of interests in joint
ventures and other ventures is made when there are indications that the assets
have been impaired or the impairment losses recognized in prior years no longer
exist. The adjusted shareholder structure in Mexico, which came into place in
December 2004, was applied as of January 1st, 2005. Until 2004, EPIQ has applied
the proportional method for consolidation purposes. As of 2005, the purchase
method was applied.
Intercompany balances and transactions, including intercompany profits and
unrealised profits and losses are eliminated. Unrealised gains arising from
transactions with associates are eliminated to the extent of the Group’s interest in
the associate, against the investment in the associate. Unrealised losses are
23
eliminated similarly but only to the extent that there is no evidence of impairment
of the assets transferred.
Consolidated financial statements are prepared using uniform accounting policies
for transactions and other events in similar circumstances.
For balance sheet purposes, the companies which entered into liquidation in 2004
are treated at year-end as third parties. The companies divested in 2004 are
treated as related parties.
Cash and Cash Equivalents
Cash includes cash on hand and cash with banks. Cash equivalents are short-term,
highly liquid investments that are readily convertible to known amounts of cash
with original maturities of three months or less and that are subject to an
insignificant risk of change in value.
Investments
Available-for-sale investments are classified as current assets if management
intends to realise them within 12 months of the balance sheet date. All purchases
and sales of investments are recognized on the trade date.
Investments are initially measured at fair value plus transaction costs that are
directly attributable to the acquisition.
Available-for-sale investments are subsequently carried at fair value without any
deduction for transaction costs by reference to their quoted market price at the
balance sheet date.
Gains or losses on measurement to fair value of available-for-sale investments are
recognized directly in equity, through the statement of changes in equity, except
for impairment losses and foreign exchange gains and losses, and interests
calculated using the effective interest method (i.e. monetary assets).
The financial assets have been measured as if they were classified as financial
assets at fair value through profit or loss.
Receivables
Receivables are stated at the fair value of the consideration given and are carried at
amortized cost, after provision for impairment.
24
Inventories
Inventories, including work-in-process, are valued at the lower of cost and net
realisable value. Net realisable value is the selling price in the ordinary course of
business, less the costs of completion, marketing and distribution. Cost is
determined primarily on the basis of FIFO method. For processed inventories, cost
includes the applicable allocation of fixed and variable overhead costs based on
normal operating capacity. Unrealisable inventory has been fully written off.
Investment Property
Investment properties are stated at cost less accumulated depreciation and
accumulated impairment loss. When assets are sold or retired, their cost,
accumulated depreciation and impairment are eliminated from the accounts and
any gain or loss resulting from their disposal is included in the income statement.
Depreciation is computed on a straight-line basis over the following estimated
useful lives:
● buildings: 2 - 5%
● furniture: 10 – 20%
The initial cost of Investment Property comprises its purchase price and directly
attributable costs of bringing the asset to its working condition and location for its
intended use. The accumulated depreciation and related impairment are accounted
in its respective periods.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and
accumulated impairment loss. When assets are sold or retired, their cost and
accumulated depreciation are eliminated from the accounts and any gain or loss
resulting from their disposal is included in the income statement.
The initial cost of property, plant and equipment comprises its purchase price,
including import duties and non-refundable purchase taxes and any directly
attributable costs of bringing the asset to its working condition and location for its
intended use. Expenditures incurred after the fixed assets have been put into
operation, such as repairs and maintenance and overhaul costs, are normally
charged to income in the period in which the costs are incurred. In situations where
it can be clearly demonstrated that the expenditures have resulted in an increase in
the future economic benefits expected to be obtained from the use of an item of
25
property, plant and equipment beyond its originally assessed standard of
performance, the expenditures are capitalised as an additional cost of property,
plant and equipment.
Depreciation is computed on a straight-line basis over the estimated useful lives,
resulting in following depreciation percentages:
● buildings: 2 - 5 – 7 – 10%
● plant, machinery and equipment: 10 – 20 – 25 – 33%
● furniture and vehicles: 10 – 20 – 25 – 33 – 50%
● computer equipment: 25 – 33%
The useful life and depreciation method are reviewed each year to ensure that the
method and period of depreciation are consistent with the expected pattern of
economic benefits from items of property, plant and equipment.
Construction-in-progress represents plant and properties under construction and is
stated at cost. This includes cost of construction, plant and equipment and other
direct costs. Construction-in-progress is not depreciated until such time as the
relevant assets are completed and put into operational use.
Impairment
At each balance sheet date, all assets are reviewed to look for any indication that
an asset may be impaired, based on internal and external indicators of impairment.
An impairment loss is recognized when the carrying amount of the asset is in
excess of the greater of its net selling price and its value in use.
The recoverable amounts of the following types of intangible assets should be
measured annually whether or not there is any indication that it may be impaired.
In some cases, the most recent detailed calculation of recoverable amount made in
a preceding period may be used in the impairment test for that asset in the current
period.
● an intangible asset with an indefinite useful life
● an intangible asset not yet available for use
● goodwill acquired in a business combination
For the reversal of impairment losses we use the same approach as for the
identification of impaired assets: assess at each balance sheet date whether there
is an indication that an impairment loss may have decreased. If so, calculate
recoverable amount. The increased carrying amount due to reversal should not be
26
more than what the depreciated historical cost would have been if the impairment
had not been recognized. Reversal of an impairment loss is recognized as income in
the income statement. Reversal of an impairment loss for goodwill is prohibited.
Financial Fixed Assets
A financial asset or financial liability is recognized by an entity on its balance sheet
when it becomes a party to the contractual provisions of the instrument.
If the company holds a non-current asset where a sale is highly probable and the
asset is available for immediate sale in its present condition, the asset is classified
as ‘held-for-sale’ and valued at the lower of its carrying amount and fair value less
costs to sell.
Finance lease
The Company recognizes finance leases as assets and liabilities in the balance
sheets at amounts equal at the inception of the lease to the fair value of the leased
property or, if lower, at the present value of the minimum lease payments. In
calculating the present value of the minimum lease payments the discount factor
used is the interest rate implicit in the lease, when it is practicable to determine.
Otherwise, the Company’s incremental borrowing rate is used. Initial direct costs
incurred are included as part of the asset. Lease payments are apportioned
between the finance charge and the reduction of the outstanding liability. The
finance charge is allocated to periods during the lease term so as to produce a
constant periodic rate of interest on the remaining balance of the liability for each
period.
A finance lease gives rise to depreciation expense for the asset as well as a finance
expense for each accounting period. The depreciation policy for leased assets is
consistent with that for depreciable assets that are owned. If there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term, the
asset is fully depreciated over the shorter of the lease term and its useful life.
Operating lease
Leases of assets under which substantially all the risks and rewards of ownership
are effectively retained by the lessor, are classified as operating leases. Lease
payments under an operating lease are recognized as an expense on a straight-line
basis over the lease term.
27
Intangible Assets
Intangible assets are measured initially at cost. Intangible assets are recognized if
it is probable that the future economic benefits that are attributable to the asset
will flow to the enterprise, and the cost of the asset can be measured reliably. After
initial recognition, intangible assets are measured at cost less accumulated
amortization and any accumulated impairment losses. Intangible assets are
amortized on a straight-line basis over the best estimate of their useful lives. The
amortization period and the amortization method are reviewed annually at each
financial year-end.
Amounts paid for patents, trademarks, licences are capitalised and then amortized
on a straight-line basis over the expected periods of benefit. The expected useful
lives of patents, trademarks and licences are 3 years.
The cost of acquisition of new software is capitalised and treated as an intangible
asset if these costs are not an integral part of the related hardware. Software is
amortized on a straight-line basis over 3 years.
Costs incurred in order to restore or maintain the future economic benefits that an
enterprise can expect from the originally assessed standard of performance of
existing software systems are recognized as an expense when the restoration or
maintenance work is carried out.
Goodwill
Goodwill is recognized by the acquirer as an asset from the acquisition date and is
initially measured as the excess of the cost of the business combination over the
acquirer's share of the net fair values of the acquirer’s identifiable assets, liabilities
and contingent liabilities.
IFRS 3 prohibits the amortization of goodwill as from the beginning of the first
annual period beginning on or after 31 March 2004. Instead, goodwill will be tested
for impairment at least annually in accordance with IAS 36 Impairment of Assets.
If the interest in the net fair value of the acquired identifiable net assets exceeds
the cost of the business combination, that excess (sometimes referred to as
negative goodwill) is recognized immediately in the income statement as a gain.
Before concluding that ‘negative goodwill’ has arisen, a reassessment is done: the
identification and measurement of the acquirer’s identifiable assets, liabilities, and
contingent liabilities and the measurement of the cost of the combination.
28
Research and development costs
Expenditure for research is recognized as an expense when incurred. Expenditure
on development is charged against income in the period incurred except for project
development costs which comply strictly with all of the following criteria.
● the product or process is clearly defined and costs are separately identified
and measured reliably;
● the technical feasibility of the product is demonstrated;
● the product will be sold or used in-house;
● the assets will generate future economic benefits (e.g. a potential market
exists for the product or its usefulness in case of internal use is
demonstrated); and
● adequate technical, financial and other resources required for completion
of the project are available.
Capitalization of costs starts when the above criteria are first met. Expenditure
recognized as an expense in previous accounting periods is not reinstated.
Capitalised development costs are amortized on a straight-line basis over their
expected useful lives. The period of amortization does not normally exceed five
years.
The recoverable amount of development costs is estimated whenever there is an
indication that the asset has been impaired or that the impairment losses
recognized in previous years no longer exist.
Long-term debts
The borrowings are valued at amortized cost using the effective interest rate
method.
Provisions
A provision is recognized when, and only when an enterprise has a present
obligation (legal or constructive) as a result of a past event and if it is probable (i.e.
more likely than not) that an outflow of resources embodying economic benefits will
be required to settle the obligation, and a reliable estimate can be made of the
amount of the obligation. Provisions are reviewed at each balance sheet date and
adjusted to reflect the current best estimate. Where the effect of the time value of
29
money is material, the amount of a provision is the present value of the
expenditures expected to be required to settle the obligation. When discounting is
used, the increase in provision reflecting the passage of time is recognized as
interest expense.
Gains from the expected disposal of assets are not taken into account in measuring
the provision. Property, plant and equipment that is retired from active use is
carried at the lower of the carrying amount or estimated net selling price less costs
of disposal.
When some or all of the expenditures required to settle a provision are expected to
be reimbursed by another party, the reimbursement is not recognized until it is
virtually certain that reimbursement will be received.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Revenue Recognition
EPIQ recognizes revenue from sales of products upon shipment or delivery,
depending on when title and risk of loss are transferred under the specific
contractual terms of each sale, which may vary from customer to customer.
Revenues from research projects are recognized upon meeting all contractual
conditions.
Interest is recognized on a time proportion basis that reflects the effective yield on
the asset. Dividends are recognized when the shareholder’s right to receive
payment is established.
Foreign Currency
Foreign currency transactions
Each entity within the Group translates its foreign currency transactions and
balances into its measurement currency by applying to the foreign currency amount
the exchange rate between the measurement currency and the foreign currency at
30
the date of transaction. Exchange rate differences arising on the settlement of
monetary items or on reporting monetary items at rates different from those at
which they were initially recorded during the period or reported in previous financial
statements are recognized in the income statement in the period in which they
arise.
Foreign currency translation
Since the introduction of the EUR on January 1st, 1999, and in accordance with
Belgian law, EPIQ keeps its books and prepares its consolidated financial
statements in EUR’s. The measurement currency of EPIQ nv and of its subsidiaries,
EPIQ s.a.r.l., EPIQ GmbH (prior: Frankonia GmbH), EPIQ Personal Communication
nv and EPIQ Personal Communication Holding nv is the EUR. The measurement
currency for EPIQ Electronic Assembly EOOD is the Bulgarian Leva (BGN), for EPIQ
CZ spol s.r.o. (prior: Eker spol s.r.o.) the Czech Koruna (CZK), for EPIQ MX S.A. de
C.V. (prior: Eker de Saltillo S.A. de C.V.), Yamaver S.A. de C.V. and Nipbelmex S.A.
de C.V. the Mexican Peso (MXN) and for Zhuhai Epiq Trading Co Ltd the Chinese
Yuan (CNY)
Assets and liabilities of EPIQ Electronic Assembly EOOD, EPIQ CZ Spol s.r.o., EPIQ
MX S.A. de C.V., Yamaver S.A. de C.V., Nipbelmex S.A. de C.V. and Zhuhai Epiq
Trading Co Ltd are translated at exchange rates in effect at the end of the reporting
period, and revenues and expenses are translated at the average exchange rate
during the period. Equity components have been translated at historical exchange
rates. Gains or losses resulting from this translation are reflected in the component
‘currency translation adjustment’ in the balance sheet.
Employee Benefits
Defined benefit plans
Certain group companies provide defined benefit plans for their employees. The
funds are valued every year by professionally qualified independent actuaries. The
obligation and costs of pension benefits are determined using a projected unit
credit method. The Projected Unit Credit Method considers each period of service as
giving rise to an additional unit of benefit entitlement and measures each unit
separately to build up the final obligation. Upon introduction of a new plan or
improvement of an existing plan, past service costs are recognized on a straight-
line basis over the average period until the amended benefits become vested. To
the extent that the benefits are already vested immediately, past service cost is
31
immediately expensed. Gains or losses on the curtailment or settlement of pension
benefits are recognized when the curtailment or settlement occurs. Actuarial gains
or losses, outside the corridor, are amortized based on the expected average
remaining working lives of the employees. The pension obligation is measured at
the present value of estimated future cash flows using a discount rate that is similar
to the interest rate on government bonds where the currency and terms of the
government bonds are consistent with the currency and estimated terms of the
defined benefit obligation.
Where the obligation of the company results in an asset (e.g. where a defined
benefit plan has been over-funded), EPIQ nv recognizes an asset only to the extent
that this does not exceed the net total of unrecognized actuarial losses and past
service cost not recognized and the present value of any economic benefits
available in the form of refunds from the plan or reductions in future contributions
to the plan.
Defined Contribution Plans
In addition to the defined benefit plans described above, certain companies sponsor
defined contribution plans based on local practices and regulations. The plans cover
full-time employees and provide for contributions ranging from 1% to 3% of salary.
The Group’s contributions relating to defined contribution plans are charged to
income in the year to which they relate.
Income taxes
The income tax charge is based on profit for the year and considers deferred
taxation. Deferred taxes are calculated using the balance sheet liability method.
Deferred income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Deferred tax assets and liabilities are
measured using the tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled, based
on tax rates enacted or substantially enacted at the balance sheet date.
The measurement of deferred tax liabilities and deferred tax assets reflects the tax
consequences that would follow from the manner in which the enterprise expects,
at the balance sheet date, to recover or settle the carrying amount of its assets and
liabilities.
32
Deferred tax assets and liabilities are recognized regardless of when the timing
difference is likely to reverse. Deferred tax assets and liabilities are not discounted
and are classified as non-current assets (liabilities) in the balance sheet.
A deferred tax liability is recognized for all taxable temporary differences, unless
the deferred tax liability arises from goodwill for which amortization is not
deductible for tax purposes.
As an exception, no deferred tax liability is recognized on taxable temporary
differences associated with investments in subsidiaries, associates and joint
ventures when the timing of the reversal of the temporary difference is controlled
by the Group and it is probable that the temporary difference will not reverse in the
foreseeable future.
Deferred tax assets are recognized when it is probable that sufficient taxable profits
will be available against which the deferred tax assets can be utilised. At each
balance sheet date, EPIQ re-assesses unrecognized deferred tax assets and the
carrying amount of deferred tax assets. EPIQ recognizes a previously unrecognized
deferred tax asset to the extent that it has become probable that future taxable
profit will allow the deferred tax asset to be recovered. The company conversely
reduces the carrying amount of a deferred tax asset to the extent that it is no
longer probable that sufficient taxable profit will be available to allow the benefit of
part or that entire deferred tax asset to be utilised.
Impairment of assets
Property, plant and equipment and intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Whenever the carrying amount of an asset
exceeds its recoverable amount, an impairment loss is recognized in income for
items of property, plant and equipment and intangibles carried at cost.
The recoverable amount is the higher of an asset’s net selling price and value in
use. The net selling price is the amount obtainable from the sale of an asset in an
arm’s length transaction less the costs of disposal, while value in use is the present
value of estimated future cash flows expected to arise from the continuing use of
an asset and from its disposal at the end of its useful life. Recoverable amounts are
estimated for individual assets or, if this is not possible, for the cash-generating
unit to which the asset belongs.
33
Minority Interest
Minority Interest is that part of the net results of operations and of net assets of a
subsidiary attributable to interests which are not owned, directly or indirectly
through subsidiaries, by the parent. From 2004 onwards the participation in Mexico
by MIF (‘Multinational Industrial Fund’) is identified as minority interest.
From 2007 onwards the participation of 30% in Microenergia EOOD by third parties
is identified as minority interest.
Dilutive effects on minority participation are recognized directly through equity.
Results of the year are allocated to the minority based on the share participation.
Losses are allocated to the minority until the minority interest reaches the balance
of zero. Losses in excess are allocated to the Group result.
Segments
Business segments: for management purposes EPIQ is organised on a worldwide
basis into three major operating businesses. The divisions are the basis upon which
EPIQ reports its primary segment information. Financial information on business
segments is presented in note 2.4.4.27.
Earnings per share
The earnings per share data for all periods mentioned are calculated by dividing the
net income for the period by the weighted average number of shares outstanding
during the period. (See also 2.4.4.26)
Contingencies
Contingent liabilities are disclosed in the financial statements, unless the possibility
of an outflow of resources embodying economic benefits is remote.
A contingent asset is not recognized in the financial statements, but disclosed when
an inflow of economic benefits is probable.
Subsequent events
Post-year-end events that provide additional information about the company’s
position at the balance sheet date (adjusting events) are reflected in the financial
34
statements. Post-year-end events that are non-adjusting events are disclosed in
the notes when material.
2.4.3 Changes in Group’s organisation
In 2007 there have been no significant changes in the group’s organisation.
2.4.4 Notes to the consolidated financial statements
All amounts are in EUR
2.4.4.1 Cash and cash equivalents
CASH AND CASH EQUIVALENTS
2007 2006 2005
31ST DECEMBER
Cash at bank and in hand 3.262.023 3.163.373 1.747.558
Short term deposits 1.696.259 918.827 924.985
Total 4.958.282 4.082.200 2.672.543
EPIQ nv has deposited EUR 900.000 in a frozen account with KBC Bank who has
given a bank warranty to OVAM for this amount (see also note 2.4.4.14 and
2.4.4.32).
2.4.4.2 Trade accounts receivable
TRADE ACCOUNTS RECEIVABLE
2007 2006 2005
31ST DECEMBER
Trade accounts receivable 24.646.536 18.369.116 14.222.035
Allowance for doubtfull accounts -254.248 -1.056.899 -1.297.186
Total 24.392.288 17.312.217 12.924.849
The allowance for doubtful accounts has been decreased thanks to the payment of
an old claim on quality towards a supplier which has been settled.
2.4.4.3 Inventories
INVENTORIES
2007 2006 2005
31ST DECEMBER
Raw materials and supplies at cost 24.666.800 19.013.570 14.183.523
Work in progress at cost 6.977.893 4.780.275 3.358.896
Finished goods at cost 5.314.931 3.706.011 3.373.757
Material Toolshop 524.865 140.052 129.683
Obsolescence reserve -2.025.525 -1.693.008 -1.863.019
Total 35.458.964 25.946.900 19.182.840
35
Inventories have grown in line with the business but also because of full
subcontracting for a large customer where now also the material is included in the
price.
2.4.4.4 Other current assets
OTHER CURRENT ASSETS
2007 2006 2005
31ST DECEMBER
Other receivables 1.418.275 1.483.959 2.284.079
Prepayment and accruals 549.339 595.611 524.585
Total 1.967.614 2.079.570 2.808.664
Other receivables mainly consist of tax accruals (VAT, etc.), current accounts,
receivables from insurance policies and non-income related tax accruals. An
amount of approx. EUR 200.000 included in other receivables relates to the pension
liability in EPIQ GmbH, and is restricted for this purpose.
2.4.4.5 Other investments & Investment in associates
Other investments
OTHER INVESTMENTS
COUNTRY OF PRINCIPAL OWNERSHIP GROUP'S SHARE
BUSINESS ACTIVITIES INTEREST OF INCOME
Global Purchasing Solution Limited Shanghai P.R.China purchasing 15% 0
In September 2005, EPIQ participated for 15% in the share capital in a limited
company Global Purchasing Solutions (G.P.S.L.), a Shanghai based purchasing
services company.
In 2007 the cooperation with G.P.S.L. has been stopped and the investment has
been impaired.
Investment in associates
INVESTMENTS IN ASSOCIATES
COUNTRY OF PRINCIPAL OWNERSHIP GROUP'S SHARE
BUSINESS ACTIVITIES INTEREST OF INCOME
Fremach EPIQ System Builders Belgium renting 40% 0
In 2007 the participation in Fremach EPIQ System Builders has been sold at book
value.
36
2.4.4.6 Property, plant and equipment
PROPERTY, PLANT AND EQUIPMENT
LAND FURNITURE MACHINERY CARS ASSETS
AND LEASEH. AND AND AND UNDER
31ST DECEMBER BUILDINGS IMPROVEM. FIXTURE EQUIPMENT VANS LEASING CONSTR. TOTAL
Cost:
1st January 2007 7.920.123 1.034.025 1.686.064 24.695.252 594.839 4.930.133 3.448.188 44.308.623
Additions of the year 0 38.963 136.903 2.615.721 186.984 1.057.815 4.167.551 8.203.937
Reclassifications 2.582.527 0 0 0 0 0 -2.582.527 0
31st December 2007 10.502.650 1.072.988 1.822.967 27.310.973 781.823 5.987.948 5.033.212 52.512.560
Accumulated depreciation
and impairment:
1st January 2007 2.313.786 496.120 1.320.495 14.746.951 286.193 2.931.550 2.210.299 24.305.393
Depreciation of the period 259.843 133.940 153.373 2.790.681 119.197 417.847 90.075 3.964.956
Reclassifications 346.559 0 0 0 0 0 -488.372 -141.813
31st December 2007 2.920.188 630.060 1.473.868 17.537.632 405.390 3.349.397 1.812.002 28.128.536
Net book value 7.582.462 442.928 349.099 9.773.341 376.433 2.638.551 3.221.210 24.384.024
In the framework of purchase accounting, buildings are stated at fair value based
on their market value, if this is substantially different from the book value.
An impairment has been recognized in previous years which resulted in a partial
write-off of the following assets:
● Building in EPIQ CZ spol s.r.o. (approx. EUR 1,6 million)
● Building in EPIQ MX S.A. de C.V. (approx. EUR 0,8 million)
EPIQ CZ spol s.r.o. has built in 2001 two buildings, of which building I has been
completed and is in use as production facility. Building II has been finished in 2007
and is currently in use as warehousing facility. An impairment has been recognized
for the difference between the book value and the value for the building as
warehouse.
EPIQ MX S.A. de C.V. was initially located in Saltillo, Mexico. All operations were
moved to Guadalajara, Mexico, where Yamaver S.A. de C.V. and Nipbelmex S.A. de
C.V. are located. Due to the incomplete stage of the building in Saltillo the book
value has been impaired to zero in 2002. In 2007 the building in Saltillo has been
sold for an amount of 1.100.000 USD, the gain on the transaction has been
recorded in 2007 under other operating income, see note 2.4.4.18 .
The building of Nipbelmex S.A. de C.V. in Mexico which has been sold to EPIQ
Mexico S.A. de C.V. has been recorded at a consolidated book value at December
31st 2007 of EUR 905.805 (MXP 14.573.229). Hence the original restatement of
EUR 1.250.000 made in 2001 has been preserved.
Apart from these adjustments, there were no material differences between the fair
value of the assets and liabilities and their book value as at the relevant acquisition
date.
37
2.4.4.7 Goodwill and badwill
GOODWILL
EPIQ SARL
AND EKER FMC
31ST DECEMBER SM2E GROUP Epiq GmbH (BADWILL) EPIQ PC TOTAL
Cost:
1st January 2007 1.457.129 1.540.073 1.141.850 -71.979 -697.156 3.369.917
Additions of the year 0
31st December 2007 1.457.129 1.540.073 1.141.850 -71.979 -697.156 3.369.917
Impairment:
1st January 2007 1.457.129 1.540.073 1.141.850 -71.979 -697.156 3.369.917
Impairment of the period
31st December 2007 1.457.129 1.540.073 1.141.850 -71.979 -697.156 3.369.917
Net book value 0 0 0 0 0 0
Goodwill is determined as the difference between the acquisition cost and the net
equity of these companies after fair value adjustments as of the acquisition date.
2.4.4.8 Intangible assets
INTANGIBLE FIXED ASSETS
Other Intangible
31ST DECEMBER SOFTWARE Assets TOTAL
Cost:
1st January 2007 1.251.953 799.217 2.051.170
Additions acquired from 3rd parties 250.987 0 250.987
Retirements and other -11.074 37.117 26.043
31st
December 2007 1.491.866 836.334 2.328.200
Accumulated depreciation:
1st January 2007 850.462 799.217 1.649.679
Depreciation of the period 138.763 4.135 142.898
Retirements and other -2.320 19.190 16.870
31st
December 2007 986.905 822.542 1.809.447
Net book value 504.961 13.793 518.754
Capitalised software costs are related to the implementation of ERP and production
software in the French, Bulgarian and Mexican subsidiaries.
38
2.4.4.9 Other current liabilities
OTHER CURRENT LIABILITIES
31ST DECEMBER 2007 2006 2005
Other amounts payable 385.862 738.203 133.764
Accrued charges 1.598.966 609.256 761.506
Vacation accruals 989.544 614.725 560.567
Other social accruals 631.004 553.382 371.212
Tax accruals 0 0 1.806.675
Total 3.605.376 2.515.566 3.633.724
Tax accruals include non-income tax related receivables such as VAT, wage tax and
local taxes.
2.4.4.10 Bank loans and overdrafts
BANK LOANS & OVERDRAFTS
31ST DECEMBER 2007 2006 2005
Overdrafts 11.815.247 3.252.311 7.158.565
Straight loans 1.800.000
Total 11.815.247 5.052.311 7.158.565
2.4.4.11 Long-term debts
Long-term debts consist of the following:
LONG-TERM DEBTS
31ST DECEMBER 2007 2006 2005
Long-term debts: with financial institutions 6.701.457 11.400.000 7.517.109
leasing 3.053.476 2.914.814 4.117.679
Current portion: with financial institutions 1.805.608 1.600.000
leasing 1.538.900 1.152.267 1.199.397
Total 13.099.441 17.067.081 10.435.391
In December 2005, EPIQ nv finalised a loan agreement with the International
Finance Corporation (IFC) for an amount of EUR 20 million. At year-end 2007 the
outstanding amount is EUR 5 million at EPIQ nv. This is the part of the loan that is
convertible against shares of EPIQ nv. All other balances of the IFC loan have been
repaid in 2007 prior to the maturity dates.
The leasing mainly relates to the financing of the building and machines in EPIQ
s.a.r.l. and the machines in EPIQ Electronic Assembly EOOD and EPIQ CZ spol s.r.o.
39
DETAIL OF LONG-TERM DEBTS (INCLUDING CURRENT PORTION)
INSTITUTION INTEREST RATE INITIAL AMOUNT OUTSTANDING
AMOUNT
Epiq sàrl
Société Générale (leasing) 4,88% 175.188 34.213
ING (leasing) 5,59% 1.645.000 1.019.922
ING (leasing) 5,50% 695.526 616.668
Société Générale (leasing) 4,59% 143.000 36.572
Société Générale (leasing) 3,58% 412.248 216.456
Crédit Agricole (leasing) 3,96% 268.856 151.516
Crédit Agricole (leasing) 4,60% 405.327 377.484
Anvar Septi + 170.000 170.000
Epiq EA
Bulbank (loan Epiq 3) 1 m. Euribor+2% 3.889.259 3.507.067
Unicredit (leasing) 6 m. Euribor+8.5% 43.458 15.217
Interlease (leasing) 3 m. Euribor+3.75% 1.755.069 1.430.431
Hebros Leasing 3 m. Euribor+3.75% 109.141 24.283
DSK Leasing 4 m. Euribor+3.75% 89.519 89.161
Other Leasings 317.830
Microenergia
Leasing 5.518 5.518
Epiq CZ
CAC Leasing 4,80% 102.971 12.161
Automat GEM OPAL XII SF 5,46% 105.033 74.945
Epiq NV IFC Loan C 5 mio EUR EURIBOR + 2% 5.000.000 5.000.000
Of which: Financial leasing 4.592.377 €
Financial debt 8.507.067 €
13.099.444
The repayment schedule of the long-term debts is as follows (excluding financial
leasing obligations):
The repayment schedule of long-term debts (excluding financial lease obligations)
2007 2006 2005
31ST DECEMBER
2004
2005
2006
2007 1,600,000 1,600,000
2008 1,805,608 2,850,000 1,600,000
2009 1,805,608 2,850,000 1,600,000
2010 1,805,608 2,850,000 1,600,000
2011 1,805,608 2,850,000 1,600,000
2012 555,608
Thereafter 729,025
Total 8,507,065 13,000,000 8,000,000
The nominal interest rate amounts to 6,35%.
2.4.4.12 Shareholders’ equity and rights attached to shares
As of 31 December 2007, the common stock consisted of 23.786.590 issued and
outstanding ordinary shares without face value.
40
Each holder of shares is entitled to one vote per share, without prejudice to specific
restrictions on the shareholders’ voting rights in the company’s Articles of
Association and Belgian Company Law, including restrictions for non-voting shares
and the suspension or cancellation of voting rights for shares which have not been
fully paid up at the request of the Board of Directors.
Under Belgian Company Law, the shareholders decide on the distribution of profits
at the annual shareholders’ meeting, based on the latest audited statutory accounts
of the Company. Dividends may be paid either in cash or in kind. However,
shareholders may not declare a dividend if the Company has not first reserved at
least 5% of its profits for the financial year until such reserve has reached an
amount equal to 10% of its share capital (the ‘legal reserve’) or if, following any
such dividend, the level of the net assets adjusted for the unamortized balance of
the incorporation costs and capitalized research and development costs of the
Company falls below the amount of the company’s paid-in capital and of its Non-
Distributable reserves. The Board of Directors may pay an interim dividend,
provided certain conditions set forth in Belgian Company Law are met.
In the event of a liquidation of the Company, the proceeds from the sale of assets
remaining after payment of all debts, liquidation expenses and taxes are to be
distributed proportionally to the shareholders, subject to liquidation preference
rights of shares having preferred dissolution rights. The Company currently has no
plans to issue any shares having such preferred dissolution rights.
2.4.4.13 Subordinated loan
EPIQ nv has entered into a subordinated loan agreement with ELEX nv for an
amount EUR 9.000.000. The original loan of EUR 7.000.000 given by International
Finance Corporation (IFC) to ELEX nv was completed by ELEX nv with EUR
2.000.000 and sub-loaned to EPIQ nv. EPIQ nv has used the loan to finance the
expansion of its subsidiary EPIQ Electronic Assembly EOOD in Bulgaria. In 2007
Elex nv has arranged a club deal with banks whereby EUR 10.000.000 was loaned
to EPIQ nv . Both loans between ELEX nv and EPIQ nv have been consolidated into
one. The interest percentage towards EPIQ nv amounts to euribor plus 1,4 %. At
the end of December 2007, the remaining balance of the IFC-loan is EUR 5.000.000
which therefore limits the subordinated part of the ELEX nv loan to that amount.
For the repayment of the IFC-loan itself we refer to note 2.4.4.11 Long-term debts.
41
2.4.4.14 Provisions
PROVISIONS
LEGAL DISPUTES OTHER OTHER
31ST
DECEMBER (SHORT TERM) (SHORT TERM) (LONG TERM) TOTAL
Balance at December 31st
, 2003 780.390 0 530.385 1.310.775
Provisions made during the year 732.903 1.500.000 930.000 3.163.503
Provisions reversed during the year 0 0 -280.385 -280.985
Release related to deconsolidation -250.000 0 0 -250.000
Balance at December 31st , 2004 1.263.293 1.500.000 1.180.000 3.943.293
Provisions made during the year 50.000 52.180 0 102.180
Provisions reversed during the year -50.762 0 0 -50.762
Provisions used during the year -350.000 0 0 -350.000
Release related to deconsolidation 0 -1.500.000 0 -1.500.000
Balance at December 31st , 2005 912.531 52.180 1.180.000 2.144.711
Provisions made during the year 0
Provisions reversed during the year -238.276 -52.180 -250.000 -540.456
Provisions used during the year -50.000 -50.000
Balance at December 31st , 2006 624.255 0 930.000 1.554.255
Provisions made during the year 0
Provisions reversed during the year -574.255 -574.255
Provisions used during the year 0
Balance at December 31st , 2007 50.000 0 930.000 980.000
The provisions consist of the following:
Warranty
No provisions for warranties are made. Some warranties are covered by insurance
policies, the remainder are considered at this point as not material.
Legal disputes
The company has closed some legal cases in 2007, the major one was related to
the building in Saltillo in Mexico. Therefore, provisions for an amount of EUR
574.255 were released.
The provision recorded for the remaining cases only relates to the legal fees. Given
the fact that the timing of the outcome of these legal disputes is sometimes difficult
to predict, this provision has been classified as short-term. The movements of the
provisions during the year are incorporated in the general and administrative
expenses (see note 2.4.4.17). In these legal cases no liability is accepted by EPIQ
nv.
Other long-term
In 2004 EPIQ nv sold the real estate property in Diepenbeek to Fremach Plastics
nv. A provision was already in place regarding the environmental pollution on the
site. The company is following the environmental rules in this matter. The initial
42
obligation to clean up the pollution is with EPIQ nv, however in the sale agreement
Fremach Plastics nv has taken on the obligation to pay for the total clean up costs,
which are currently estimated (still to be approved by OVAM) at EUR 930.000. This
amount is also provided for in the books per year-end. EPIQ nv has committed
itself to Fremach Plastics nv that if the costs would exceed EUR 1.0 million, 50% of
the costs will be paid by EPIQ nv, up to a maximum of EUR 250.000. Parties are in
discussion with the Belgian authorities (OVAM) to transfer all obligations in this
matter to Fremach Plastics nv. However, until today EPIQ nv is the first responsible
to pay. Total provision per December 31st, 2007 amounts to EUR 930.000 which is
unchanged compared to the end of 2006 because the latest information on pollution
shows that there is no deterioration and therefore the original estimated clean up
cost of EUR 930.000 will most probably not be exceeded. The engagement of
Fremach Plastics nv to pay for the pollution cost is recorded as a receivable.
EPIQ nv has deposited EUR 902.333 in a frozen account with KBC Bank who has
given a bank warranty to OVAM for this amount (see note 2.4.4.1).
2.4.4.15 Pension provisions
The pension provisions consist of a detailed benefit plan provision and a pre-
pension provision, and can be detailed as follows:
PENSION PROVISIONS
31ST DECEMBER
Balance at 31st December 2005 1.224.487
Provisions made during the year 7.358
Provisions reversed during the year -85.694
Balance at 31st December 2006 1.146.151
Provisions made during the year 194.926
Provisions reversed during the year -50.000
Balance at 31st December 2007 1.291.077
Defined contribution plan
EPIQ GmbH has recorded a liability of EUR 850.439 regarding early retirement. This
amount relates to the estimated total pension payments according the local practice
and in line with IFRS valuation principles. The (fixed) monthly payments to the
beneficiaries and the annual update of the above mentioned bridge pension
provision are incorporated in the general and administrative expenses (note
2.4.4.17). The company also recorded under other current assets the net present
value of the deposits made of EUR 228.086 and under cash and cash equivalents an
amount of EUR 76.126, which are both restricted to pay the liability (note 2.4.4.4).
43
Defined benefit plan
DEFINED BENEFIT PLAN
Pension expense is compromised as follows:
2007 2006 2005
Current service cost -13,624 -82,307
Interest expense on obligations 17,977 18,418 20,116
Net actuarial losses (gains) recognised 23,169 -14,598 42,943
Losses (gains) on curtailments and settlements
Total pension expense 41,146 -9,804 -19,248
The movements in the liability recognised in the balance sheet were as follows:
2007 2006 2005
Net liability at the beginning of the year 399,492 409,295 695,235
Net expense recognised in 41,146 -9,804 -19,248
Effect of business (de)combination 0 -266,692
Net liability at the end of the year 440,638 399,492 409,295
Principal actuarial assumptions used to determine pension obligations as of 31st December were:
2007 2006 2005
Discount rate 4.5% 4.5% 4.5%
Wage and salary increase above inflation 2% - 3% 2% - 3% 2% - 3%
Retirement benefit increases between 2% and 3% between 2% and 3% between 2% and 3%
Average employee turnover between 0% and 6% between 0% and 6% between 0% and 6%
EPIQ s.a.r.l. provides defined benefit pension plans for all employees. Provisions for
pension are established for benefits payable in the form of retirement, disability and
surviving dependent pensions. Benefits are dependent on years of services and the
respective employee’s compensation.
The obligation resulting from defined benefit pension plans is determined using the
projected unit credit method. Unrecognized gains and losses resulting from changes
in actuarial assumptions, outside the corridor, are recognized as income (expense)
over the expected remaining service life of the active employees.
2.4.4.16 Cost of sales
COST OF SALES
31ST DECEMBER 2007 2006 2005
Purchases 148.832.401 108.688.070 81.827.864
Transportation costs 1.707.287 2.044.357 2.050.040
Salaries 22.020.953 17.084.197 18.448.596
Depreciation and amortisation 3.692.386 3.855.040 4.533.663
Other (in)direct production costs 6.591.068 5.794.558 4.391.238
Total 182.844.095 137.466.222 111.251.401
The increase in cost of sales is in line with the growth of the business. Purchases
increased more rapidly due to the inclusion of the full material cost in the sales
price of a large customer.
44
2.4.4.17 General and administrative expenses
GENERAL AND ADMINISTRATIVE EXPENSES
31ST DECEMBER 2007 2006 2005
Salaries 2.388.856 2.232.060 2.752.807
Depreciation 415.468 335.037 368.765
Other 3.300.067 4.040.613 2.897.463
Total 6.104.391 6.607.710 6.019.035
2.4.4.18 Other operating income / (expense)
Under other operational income and expenses the company recorded the reversal of
some legal and other provisions. In 2007 a number of legal cases have been closed.
OTHER OPERATING INCOME / (EXPENSE)
DESCRIPTION AMOUNT TOTAL
Less value participation GPSL -15.000
Reversal less value Microenergia 3.059
Badwill Microenergia 34.843
Reversal impairment Begassa building 730.086
Profit on sale fixed assets 10.977
Release Provision Begassa 43.365
Impairment on Fixed Assets related to Genie & Environment business -492
Other 79.739
Movement in bad debt provision 4.466
TOTAL 891.043
On the other hand an impairment of EUR 15.000 was booked on GPSL because the
decision has been taken to perform central purchasing in-house so that this
company becomes almost inactive.
2.4.4.19 Selling expenses
SELLING EXPENSES
31ST DECEMBER 2007 2006 2005
Salaries 488.735 426.869 343.079
Other 229.399 327.876 474.189
Total 718.134 754.745 817.268
2.4.4.20 Research and development expenses
RESEARCH AND DEVELOPMENT EXPENSES
31ST DECEMBER 2007 2006 2005
Salaries 903.878 789.547 872.395
Depreciation 0 0 137.020
Other 1.258.077 970.851 1.059.619
Total 2.161.955 1.760.398 2.069.034
45
2.4.4.21 Personnel expenses and average number of employees
PERSONNEL EXPENSES AND AVERAGE NUMBER OF EMPLOYEES
31ST DECEMBER 2007 2006 2005
COS salaries 22.020.953 17.084.197 18.448.596
G&A salaries 2.388.856 2.232.060 2.752.807
Selling salaries 488.735 426.869 343.079
R&D salaries 903.878 789.547 872.395
Total 25.802.422 20.532.673 22.416.877
Number of employees 3.317 2.741 2.112
The increase in employees from 2005 to 2006, and from 2006 to 2007, mainly
relates to the continuously higher output in EPIQ Electronic Assembly EOOD and
EPIQ MX S.A. de C.V.
2.4.4.22 Depreciation and amortization expenses
DEPRECIATION AND AMORTISATION EXPENSES
31ST DECEMBER 2007 2006 2005
COS depreciation 3.692.386 3.855.040 4.533.663
G&A depreciation 415.468 335.037 368.765
R&D depreciation 0 0 137.020
Goodwill depreciation
Total 4.107.854 4.190.077 5.039.448
2.4.4.23 Financial income / expense - net
FINANCIAL EXPENSES - NET
31ST DECEMBER 2007 2006 2005
Interest income 108.696 140.108 97.954
Exchange difference 0 -83.056 1.716.497
Fair value adjustments on shares
Other 0 0 25.865
Total financial income 108.696 57.052 1.840.316
Interest expense 2.512.372 1.995.247 1.538.693
Bank charges 324.602 533.340 234.643
Exchange difference 931.671 197.323 1.039.189
Fair value adjustments on shares
Other
Total financial expense 3.768.645 2.725.910 2.812.525
The exchange rate difference in 2007 was negative EUR 931.671 on a net basis
compared to positive EUR 114.267 in 2006.
The main reason is the drop of the Mexican Peso, which is more or less linked to
the United States Dollar, against the Euro which resulted in a lower value of the
Mexican Peso nominated loans of EPIQ nv towards EPIQ MX S.A. de C.V.
46
2.4.4.24 Income taxes
INCOME TAXES
31ST DECEMBER 2007 2006 2005
Current tax expense 1.029.643 1.215.495 -953.467
Deferred tax (income)/expense -43.698 -97.644 59.387
Total income tax 985.945 1.117.851 -894.080
2007 2006 2005
Current year 1.029.643 1.239.895 -731.055
Over / (under) provided in prior years -24.400 -222.412
Total current tax expense 1.029.643 1.215.495 -953.467
2007 2006 2005
Organisation and reversal of temporary differences -43.698 -97.644 59.387
Changes in tax rates, impositions of new taxes
Write-down of deferred tax liabilities
Total deferred tax (income)/expense -43.698 -97.644 59.387
The reconciliation of the total income tax to the theoretical amount that would arise
using the tax rate of the home country of EPIQ is as follows:
31ST DECEMBER 2007 2006 2005
Accounting profit before tax 5,557,445 3,849,967 2,035,040
Tax at the applicable tax rate 985,945 1,117,851 -691,710
Amortisation of goodwill 0
Valuation allowance on temporary differences 0 0 -933,977
Other 0 0 731,607
Consolidated tax charge 985,945 1,117,851 -894,080
2.4.4.25 Deferred taxes
DEFERRED TAXES
31 DECEMBER MOVEMENT 31 DECEMBER
2006 2007
Deferred tax asset
Tax loss carry forward 10.360.506 3.886.494 14.247.000
Temporary differences 1.036.694 211.306 1.248.000
Valuation allowance -11.307.606 -4.040.097 -15.347.703
Total 89.594 57.703 147.297
Deferred tax liability
Temporary differences -316.414 182.414 -134.000
Valuation allowance 0 -196.420 -196.420
Total -316.414 -14.006 -330.420
47
Components of deferred taxes are as follows:
Deferred tax liability mainly relates to temporary differences with respect to fixed
assets valuation and provisions. Net deferred tax asset positions have not been
recognized.
EPIQ group has fiscal losses of EUR 34.568.268 for 2007, EUR 33.636.273 for 2006
and EUR 32.612.418 for 2005, for which no deferred tax asset has been
recognized. These fiscal losses have the following expiring dates:
2007 2006 2005
2007
2008
2009 1.236.171 287.243
2010 2.126.028 420.876
2011 461.996
Thereafter 11.531.258 14.991.943 15.214.601
No expiring date 19.212.815 17.936.211 17.397.817
Total 34.568.268 33.636.273 32.612.418
The increased unrecognized fiscal losses in 2007 mostly relate to the local non-
operational fiscal losses in EPIQ NV.
2.4.4.26 Earnings per share
EARNINGS PER SHARE
31ST DECEMBER 2007 2006 2005
Net result of the group 4.567.981 2.732.116 1.697.144
Weighted average
number of shares 23.786.590 23.786.590 23.786.590
Earnings per share 0,19 0,11 0,07
Basic earnings per share are calculated by dividing the net profit for the period
attributable to ordinary shareholders (net profit for the period less dividends on
preference shares) by the weighted average number of ordinary shares outstanding
during the period.
2.4.4.27 Segment information
A. Business segments
EPIQ has separated its activities in following business segments:
● automotive & sensors
48
● household appliances
● industrial
B. Geographical segments
The EPIQ group’s activities are conducted predominately in France, Germany,
Mexico, Benelux, Czech Republic and Bulgaria.
Intersegment transactions: segment revenue, segment expenses and segment
performance include transfers between business segments and between
geographical segments. Such transfers are accounted for at competitive market
prices charged to unaffiliated customers for similar services. Those transfers are
eliminated in consolidation.
Business segment data
For the year 2007:
BUSINESS SEGMENT DATA
YEAR TO DECEMBER 2007 AUTOMOTIVE HOUSEHOLD INDUSTRIAL OTHER TOTAL
APPLIANCES
External revenues 150.398.275 32.216.511 9.323.149 1.526.569 193.464.504
Operating profit 7.165.553 1.534.919 444.191 72.732 9.217.394
Financial result net -2.845.225 -609.470 -176.375 -28.880 -3.659.949
Income taxes 766.469 164.184 47.513 7.780 985.945
Net profit 3.551.124 760.679 220.133 36.045 4.567.981
Segment assets 80.004.973 17.137.704 4.959.487 812.065 102.914.228
Segment liabilities 58.962.233 12.630.181 3.655.053 598.477 75.845.944
Capital expenditure 10.270.161 2.199.950 636.645 104.244 13.211.000
Depreciation 3.193.424 684.057 197.959 32.414 4.107.854
For the year 2006:
YEAR TO DECEMBER 2006 AUTOMOTIVE HOUSEHOLD INDUSTRIAL OTHER TOTAL
APPLIANCES
External revenues 113,945,771 23,649,102 6,450,733 2,124,369 146,169,975
Operating profit 5,081,704 1,054,692 287,687 94,742 6,518,825
Financial result net -2,080,489 -431,799 -117,781 -38,788 -2,668,858
Income taxes 871,413 180,859 49,333 16,246 1,117,851
Net profit 2,129,802 442,034 120,573 39,707 2,732,116
Segment assets 40,317,183 7,240,556 1,201,590 30,706,095 79,465,424
Segment liabilities 29,265,330 6,084,966 1,169,786 20,472,239 56,992,321
Capital expenditure 1,874,188 822,719 393,184 59,371 3,149,462
Depreciation 2,907,005 608,008 270,141 404,923 4,190,077
49
The relative importance of the different business segments as a percentage (%) of
external revenues is shown as follows:
2007 2006 2005
Automotive 77,7% 78,0% 71,3%
Household appliances 16,7% 16,2% 22,8%
Industrial 4,8% 4,4% 2,0%
Other 0,8% 1,5% 3,9%
Geographical segment data
Geographical segment data for the year 2007 are as follows:
GEOGRAPHICAL SEGMENT DATA
BENELUX FRANCE GERMANY BULGARIA CZECH REP CHINA USA MEXICO ITALY OTHER TOTAL
YEAR TO DECEMBER 2007
External revenues
1. By destination 1.994.985 43.610.547 22.105.866 80.889.096 1.334.629 0 1.425.853 23.808.484 3.931.102 14.363.942 193.464.504
2. By geographical origin 0 31.980.473 7.372.509 132.053.711 5.193.186 16.864.625 193.464.504
Automotive 0 12.412.080 0 41.730.270 1.025.701 14.342.516 69.510.567
Household appliciances 0 16.380.690 7.372.509 4.460.152 1.615.229 2.387.931 32.216.511
Sensors 0 0 0 80.887.708 0 0 80.887.708
Industrial 0 2.268.252 0 4.379.611 2.552.256 123.030 9.323.149
Other 0 919.451 0 595.970 0 11.148 1.526.569
Segment assets 29.365.015 19.319.854 2.242.630 50.614.619 -461.730 76.038 1.757.802 102.914.228
Segment liabilities 23.905.713 13.861.737 2.168.320 31.642.008 1.083.363 28.825 3.155.978 75.845.944
Capital expenditure -2.417 766.473 8.206 7.579.746 70.401 2.695 4.785.896 13.211.000
Depreciation 78.932 764.479 44.218 2.247.611 336.565 0 636.049 4.107.854
Geographical segment data for the year 2006 are as follows:
BENELUX FRANCE GERMANY BULGARIA CZECH REP UK USA MEXICO ITALY OTHER TOTAL
YEAR TO DECEMBER 2006
External revenues
1. By destination 1,575,285 26,711,014 27,060,105 53,538,452 1,670,064 0 4,420,531 18,667,015 965,810 11,561,699 146,169,975
2. By geographical origin 0 24,213,162 8,848,657 97,717,352 5,509,995 9,880,809 146,169,975
Automotive 0 16,217,321 0 33,993,349 536,682 8,323,532 59,070,884
Household appliciances 0 5,847,590 8,848,657 5,414,748 2,215,980 1,322,127 23,649,102
Sensors 0 0 0 54,874,887 0 0 54,874,887
Industrial 0 441,358 0 3,016,892 2,757,333 235,150 6,450,733
Other 0 1,706,893 0 417,476 0 0 2,124,369
Segment assets 25,619,997 14,100,942 2,106,530 34,721,258 -216,045 3,132,742 79,465,424
Segment liabilities 19,056,751 9,022,760 2,023,990 22,328,151 469,359 4,091,310 56,992,321
Capital expenditure 26,461 441,326 5,437 1,040,234 279,108 1,356,896 3,149,462
Depreciation 75,525 952,113 69,571 2,133,526 356,906 602,436 4,190,077
2.4.4.28 Minority interest
The Multinational Industrial Fund (‘MIF’) acquired 35% of the shares in EPIQ MX
S.A. de C.V. in 2004 through a share capital increase, in which also EPIQ nv
participated.
50
MINORITY INTEREST
MINORITY GROUP'S SHARE
INTEREST OF INCOME
Epiq MX SA de CV 35,0% -543.072 -190.075 -352.997
Mexico
Mikro-Energia 30,0% 11.728 3.518 7.623
Reallocation minority result due to negative minority 190.075 -190.075
3.518 -535.449
MINORITY RESULTTOTAL RESULT
Because the minority interest has fallen to zero, the minority result of EPIQ Mexico
de C.V. has been recharged to the Group’s share of income in 2007.
In 2005 a shareholders agreement was closed between EPIQ nv and ‘MIF’ whereby
the decision making with regard to EPIQ MX S.A. de C.V. was agreed. In practice
this boils down to a veto-voting power of ‘MIF’ into the Board of directors of EPIQ
MX S.A. de C.V.
In 2007 there was no use of this veto-voting power by ‘MIF’ with regard to any of
the proposed decisions by the board members representing EPIQ nv in the board of
EPIQ MX S.A. de C.V.
In 2007 EPIQ also included the results of Microenergia EOOD which is owned for
30% by third parties.
2.4.4.29 Financial instruments
Financial risk management
EPIQ operates internationally, which could expose it to market risks associated with
changing interest and foreign exchange rates.
EPIQ does not use derivatives to manage these risks, mainly because all revenues
and nearly all costs are quoted in the two main currencies of the Group, the EUR
and the Dollar.
Risk management policies have been defined on group level, and are carried out by
the local companies of the Group.
(1) Credit Risks
The Group has no significant concentration of credit risk with any single
counterparty or group of counterparties having similar characteristics.
51
The Group has a policy on business unit level to ensure that sales are only made to
new and existing customers with an appropriate credit history.
The Group does not guarantee obligations of other parties, except for their pro-
rata-obligations towards their joint venture partner.
(2) Interest rate risk
It is the Group’s policy to finance up to a minimum of 50% of its fixed assets by
long-term financing. This long-term financing is done based on a fixed interest rate
basis.
Consequently, long-term bank financing of fixed assets is done at fixed interest
rates, which eliminates substantial interest rate risks.
All interest rates are in line with market interest rates.
At the end of 2007, Epiq nv closed a fixed against floating interest rate swap for an
amount of EUR 7.000.000 as a cover of the interest rate risk on floating debt.
The cover has been taken for a maturity of 5 years at a rate of 4,325%.
The schedule of long-term-debt repayments is disclosed in note 2.4.4.11 and
2.4.4.13. Finance lease debts (all at fixed interest rate) are shown in note 2.4.4.30.
The Group has no significant interest-bearing held-to-maturity financial assets.
(3) Liquidity risk
Liquidity risk arises from the possibility that customers may not be able to settle
obligations to the Company within the normal terms of trade. To manage this risk
the Company periodically assesses the financial viability of customers.
(4) Foreign exchange risk
The main currencies used within the Group are the Dollar and EUR.
It is the Group’s policy not to manage exchange risks with ‘other’ currencies in use.
These currencies are mainly the local currencies of the sites that are located in the
EUR or Dollar regions. This is relevant for Bulgaria and Czech Republic (these
currencies are situated in the EUR-region) and Mexico (of which the currency is
situated in the Dollar-region).
52
It is the Group’s policy to principally manage the EUR/Dollar exchange risk through
its commercial contracts and through the offsetting of payments and receipts.
Commercial contracts with a yearly or more frequent price negotiation include the
relevant exchange rate evolution in their price negotiations. Contracts with price
definition on a long-term basis always include the exchange risk in the formula of
price-determination.
Fair value of financial instruments
The fair value of securities included in available-for-sale investments is estimated
by reference to their quoted market price at balance sheet date. The principal
financial instruments of EPIQ are carried at fair value. Cash and cash equivalents,
trade receivables, other current assets, other non current assets, trade and other
payables and bank overdrafts are carried at nominal value, which represents the
fair value.
The following methods and assumptions are used to estimate the fair value of each
class of financial instruments.
The carrying amount of cash and cash equivalents and bank overdrafts
approximates their fair value due to the relatively short-term maturity of these
financial instruments.
Similarly, the historical cost carrying amounts of receivables and payables that are
all subject to normal credit terms approximates their fair values.
The fair value of the long-term borrowings is based on the current rates available
for debt with the same maturity profile and approximates their carrying amounts.
Management believes that there was minimum-exposure to interest rate risk of
financial assets and liabilities as per 31 December 2007, because their deviation
from their respective fair values was not significant.
2.4.4.30 Leasing
The split between financial debt and leasing debt is separated as follows:
FINANCIAL LEASING
TOTAL DEBT FINANCIAL LEASING
OUTSTANDING DEBT DEBT
Bank loans and overdrafts 11.815.247 11.815.247
Current portion of long-term debt 3.344.508 1.805.608 1.538.900
Long term debt 9.754.933 6.701.457 3.053.476
53
Property leased by EPIQ and its subsidiaries includes buildings, plants, machinery
and equipment. The most significant obligations assumed under the lease terms,
other than rental payments, are the maintenance of the facilities, insurance and
property taxes. Lease terms generally range from 5 to 10 years with options to
renew at varying terms.
The following is an analysis of assets under financial leases:
2007 2006 2005
Buildings 1.645.000 1.645.000 1.645.000
Machinery and equipment 4.342.948 3.285.133 3.424.910
Total 5.987.948 4.930.133 5.069.910
Accumulated depreciation -3.349.397 -2.931.550 -2.413.553
Net book value 2.638.551 1.998.583 2.656.357
The future minimum lease payments for the above leases are as follows:
Next 1 year 1,538,900
1 year though to 5 years 2,290,107
After 5 years 763,369
Total minimum lease obligations 4,592,376 0 0
2.4.4.31 Operational leasing
EPIQ and its subsidiaries have various operational lease agreements for machinery,
equipment and other facilities. Most leases contain renewal options.
OPERATIONAL LEASING
COST FOR RENTAL 2007 2006 2005
Rent 2.832.396 1.713.798 914.106
Commitment expense
less: received payments under non-cancellable subleases
Total 2.832.396 1.713.798 914.106
The increase in 2007 against previous years mainly relates to the leased machines
in EPIQ Electronic Assembly EOOD from Sensor-Nite Industrial EOOD for the
manufacturing of the sensors, which has grown further in 2007 compared to 2006.
FUTURE MINIMUM LEASE PAYMENTS UNDER NEXT 1 YEAR 1 - 5 YEARS
NON-CANCELLABLE OPERATING LEASES
Land, Leasehold right and buildings
Production, machinery and equipment 505,785 2,326,611
Furniture, fixtures and office equipment
Total 505,785 2,326,611
54
2.4.4.32 Related party
1. Shareholders and identification of major related parties
The shareholders of EPIQ nv are as follows:
Per December 31st, 2007, ELEX nv owns 79% of the outstanding shares of EPIQ nv.
The shares of ELEX nv are held directly and/or indirectly by Mr. R. Duchatelet which
is also director of MELEXIS nv. and of of EPIQ nv.
XTRION nv is a holding company which owns 50,05% of the outstanding shares of
MELEXIS nv. The remaining balance of the outstanding shares is publicly owned.
The shares of XTRION nv are held directly and/or indirectly by Mr. R. Duchatelet
and Mr. R. De Winter.
XTRION nv also owns 58,9% of X-FAB Silicon Foundries nv, which owns 97,15% of
X-FAB semiconductor foundries AG who owns 100% of X-FAB Texas Inc. and 100%
of X-FAB UK Ltd and 100% of X-FAB Dresden, all producers of wafers, which are
the main raw materials for integrated circuits.
Since September 1st 2006 X-FAB Silicon Foundries nv also owns 100% of XFAB
Sarawak in Malaysia, also a producer of wafers. Business transactions between X-
FAB and EPIQ are limited.
EPIQ nv purchases ASIC’s (Application Specific Integrated Circuits) from MELEXIS
nv for household appliances and for use in the automotive sector. These operations
resulted in a liability of EPIQ nv to MELEXIS nv for EUR 430.156 per December 31st,
2007 and a receivable from MELEXIS nv for EUR 95.049.
X-PEQT AG developes, produces and sells test systems for the semiconductor
industry. X-PEQT nv owns 100.0 % of the shares of X-PEQT AG. EPIQ purchases
toolshop and test equipment from X-PEQT.
Per December 31st, 2007 EPIQ has no receivable on X-PEQT and no payable to
X-PEQT.
The relations between EPIQ nv and XTRION nv are limited to the invoicing of IT
equipment and support. On December 31st, 2007 EPIQ nv has no receivable on
XTRION nv and no payable to XTRION nv.
The relations between EPIQ nv and ELEX nv consist of the invoicing of mutually
used assets, mainly relating to the building in Tessenderlo, owned by MELEXIS nv.
Additionally ELEX nv has arranged a clubdeal financing facility with three major
banks to provide financing to its subsidiaries.
55
Therefore, EPIQ nv has a payable to ELEX nv for EUR 18.558.912 per December
31st, 2007.
On the other hand, ELEX nv has guaranteed the loan of EPIQ nv with the IFC, see
note 2.4.4.11.
Since November 2004, ELEX nv owns 100% of the Sensor-Nite group. EPIQ has a
payable to the Sensor-Nite group for EUR 290.576 per December 31st, 2007 and a
receivable from the Sensor-Nite group for EUR 9.142.158.
As required by Belgian law (articles 523 and 524 of the Company law), the Board of
Directors investigates all transactions which could result in potential conflict of
interest. For all transactions which have not taken place in the ‘normal course of
business’, an independent expert is appointed to review these transactions as to
their fair nature and report to independent directors.
For 2007, the Board of Directors has not identified any transaction in this matter.
2. Outstanding balances at year-end
RELATED PARTY OUTSTANDING BALANCES
31ST DECEMBER 2007 2006 2005 2004 2003
Accounts receivable:
Elex 90.901 4.506.720
X-Peqt 15.756 83.619 10.016 27.116
X-FAB
Melexis 95.049 55.694 150.750 57.873 115.200
Structuplas 0 13.273
SensorNite 9.142.158 7.424.295 8.262.925 2.350.806
Yamashita 278.876 246.671
Total 9.237.207 7.586.646 8.510.567 2.697.571 4.895.707
Accounts payable:
Elex 18.558.912 213.350 134.396 3.303.854 3.279.866
X-Peqt 17.046 21.120 6.922 83.324
Melexis 430.156 1.704.950 1.202.971 2.254.523 3.400.727
Xtrion 15.593
Structuplas
SensorNite 290.576 256.341 369.975 393.157
Yamashita 566.864 299.782
Total 19.279.644 2.207.280 1.728.462 6.525.320 7.063.699
56
3. Transactions during the year
In the course of the year, the following transactions have taken place:
TRANSACTIONS DURING THE YEAR
31ST DECEMBER 2007 2006 2005
Sales to affiliated companies:
Elex 32.026
Xpeqt 28.317 35.101 94.183
X-FAB
Melexis 655.260 575.627 793.230
SensorNite 81.770.122 54.796.221 26.246.006
Structuplas 82.531
Total 82.453.699 55.489.480 27.165.445
Purchases from affiliated companies:
Elex 923.004 765.464 629.074
Xpeqt 30.595 16.228 96.756
Melexis 8.787.233 9.257.191 9.719.839
Xtrion 19.046
SensorNite 2.652.713 1.996.209 1.689.086
Total 12.393.545 12.054.138 12.134.755
The sales to the MELEXIS and X-PEQT companies mainly relate to respectively
services and R&D. The sales to Sensor-Nite are finished products under a five year
rolling forward manufacturing agreement. By the end of 2007 EPIQ EA EOOD has
finished the building of a factory in Botevgrad to be used for the manufacturing of
finished products for Sensor-Nite. The manufacturing agreement between Epiq EA
OOD and Sensor-Nite has been extended from a five year fixed period into a five
year rolling forward period.
The gross amount of purchases from MELEXIS nv are Integrated Circuitboards,
whereas the purchases from Sensor-Nite relates to rent for the machines which are
the property of Sensor-Nite .
The Board of Directors and the Audit Committee have reviewed and analysed all
major transactions and concluded that these transactions are within the normal
course of business and that there is sufficient reason to conclude that the
remuneration is based on arm’s length principles.
4. Remuneration of Board of Directors and non-audit fees
Directors’ total remuneration was approximately EUR 24.000 in 2007.
In 2007 audit related fees invoiced to the EPIQ group by BDO network amounted to
EUR 125.000, whereas non-audit related fees amounted to EUR 2.350.
57
2.4.4.33 List of subsidiaries consolidated
LIST OF SUBSIDIARIES CONSOLIDATED
ENTITY PLACE OF PRINCIPLE OWNERSHIP INCORPORATED IN INCORPORATED IN
INCORPORATION COUNTRY VAT numbre ACTIVITIES INTEREST CONSOLIDATED CONSOLIDATED
INCOME STATEMENT BALANCE SHEET
Epiq sàrl Dieppe France Production/Sale/R&D 100,0% x x
Epiq EA EOOD Botevgrad Bulgaria Production/Sale/R&D 100,0% x x
Epiq GmbH Adelsdorf Germany Production/Sale 100,0% x x
Epiq CZ Tremosna Czech Republic Production/Sale/R&D 100,0% x x
Epiq MX SA de CV Saltillo Mexico Production/Sale 65,0% x x
Epiq PC NV Izegem Belgium Sale 100,0% x x
Epiq PC Holdings NV Tessenderlo Belgium Holding 100,0% x x
Yamaver SA de CV Saltillo Mexico Production 100,0% x x
Nipbelmex SA de CV Saltillo Mexico Production 100,0% x x
Zuhai Trading Tessenderlo China Purchase 100,0% x x
Microenergia LTD Botevgrad Bulgaria Production/Sale 70,0% x x
France Czech Republic
Mexico plant Mexico production
Bulgaria
58
2.4.4.34 Contingent liabilities
There are no contingent liabilities to disclose.
2.4.4.35 Subsequent events
There are no subsequent events to disclose.
2.4.4.36 Going concern and bank covenants
Based on the results of 2007 and the business plan of 2008, there is no going
concern issue to report.
The company realized a consolidated profit before taxes after minorities of EUR 5,6
million, the solvency ratio of the company was stable at 26,3% in 2007 compared
to 28,3% in 2006.
Bank covenants:
All covenants regarding the IFC-loan have been met.
2.5. Short version of the statutory annual stand-alone accounts of EPIQ
nv
This represents an excerpt of the statutory financial statements of EPIQ nv, which
will be published on March 27th, 2008. The statutory auditors of EPIQ nv, Ernst &
Young for 2005 and BDO Atrio Bedrijfsrevisoren Burg. CVBA, represented by Gert
Claes and Koen De Brabander for 2006 and 2007 have issued an unqualified audit
opinion on the statutory financial statements of EPIQ nv.
59
2.5.1 Balance sheet
DETAILED BALANCE SHEET 2007 2006 2005
ALL AMOUNTS ARE IN EURO 31 DECEMBER 31 DECEMBER 31 DECEMBER
Current Assets:
Cash and cash equivalents 1,964,500 3,649,497 1,222,733
Current investments
Accounts receivable from trade activities 80,028 49,779
Accounts receivable from related parties 91,972 77,342
Other current assets 8,145,294 6,518,055 6,240,263
Income tax receivable
Inventories
Total current assets 10,189,822 10,259,524 7,590,117
Non-current assets:
Financial fixed assets 26,215,850 25,093,185 27,316,100
Investments in associates 1
Deferred tax assets
Other non-current assets
Investment property
Property, plant and equipment 20,049 25,187 2,357
Intangible assets 3,906 7,950 37,756
Goodwill
Total non-current assets 26,239,805 25,126,322 27,356,214
Total assets 36,429,627 35,385,846 34,946,331
Current liabilities:
Bank loans and overdrafts 0 1,800,000 0
Current portion of long-term debts 1,250,000 1,200,000
Accounts payable due to trade activities 275,853 55,788 107,380
Accounts payable due to related partie 687,652 198,655 194,530
Income tax liabilities 18,164 10,729 -296
Provisions short-term 50,000 300,000
Other current liabilities 327,925 1,045,549 228,594
Total current liabilities 2,559,594 4,360,721 830,208
Non-current liabilities:
Long-term debt less current portion 8,200,000 9,800,000 8,000,000
Provisions long term 980,000 930,000 1,180,000
Pension provisions
Deferred tax liabilities
Subordinated loans 18,218,614 6,418,614 7,495,059
Total non-current liabilities 27,398,614 17,148,614 16,675,059
Shareholders' equity:
Share capital 37,054,000 37,054,000 37,054,000
Share premium 17,660,229 17,660,229 17,660,229
Reserves 260,523 260,523 260,523
Retained earnings -41,098,241 -37,533,688 -35,370,036
Result of the year -7,405,093 -3,564,553 -2,163,652
Cumulative translation adjustment
Total shareholders' equity 6,471,419 13,876,511 17,441,064
Total liabilities and shareholders' equity 36,429,627 35,385,846 34,946,331
17.76% 39.21% 49.91%
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2.5.2 Income statement
EPIQ NV INCOME STATEMENT 2007 2006 2005
ALL AMOUNTS ARE IN EURO
Sales 2,818,630 2,022,484 1,078,208
Other revenues 168,954 112,744 59,857
Cost of sales 0 -211 -9,177
Gross margin 2,987,584 2,135,017 1,128,888
Depreciation and amortisation -11,003 -33,436 -29,543
Selling expenses -13,159 -23,433 -10,588
General and administrative expenses -1,550,953 -1,268,056 -394,850
Other operating income / (expense) -6,516,287 -3,743,340 -1,081,910
, , ,
Profit/loss from operations -5,103,818 -2,933,248 -388,003
Financial income / (expense) 713,679 899,277 529,725
Exceptional income / (expense) -2,939,912 -1,446,716 -2,297,523
Profit/loss before taxes -7,330,051 -3,480,687 -2,155,801
Income taxes -75,042 -83,866 -7,851
Net profit/loss -7,405,093 -3,564,553 -2,163,652
61
3. CORPORATE GOVERNANCE
Next to the General Shareholder’s Assembly, the main policy-making bodies of the
Group are the Board of Directors and the Board of Management.
3.1 Board of Directors
Composition of the Board of Directors
Name Age Position
Roland Duchatelet 61 Director (non-executive)
Moova NV, represented
by Willy Vanden Poel
61 Director (non-executive)
Eugen Schlötzer
Innovation, represented
by Eugen Schlötzer
65 Director (non-executive)
Jenny Claes 61 Director (non-executive)
Françoise Chombar 45 Director (non-executive)
Gilles Bernard 50 Director, Chief Executive Officer (CEO ) / Chief
Operating Officer (COO)
Moova NV, Eugen Schlötzer Innovation and Jenny Claes are independent directors.
According to the declaration of the members of the Board of Directors, none of
them has been convicted of fraud during the past five years.
Mr. Roland Duchatelet is 61 years old. He holds a degree as Electronics Engineer,
Applied Economics and an MBA from the University of Leuven. He is a director in
several companies and he takes part in the Belgian Senate.
Ms. Françoise Chombar holds a master’s degree as Interpreter in Dutch, English
and Spanish from the University of Gent. Ms. Chombar is also director/CEO of
Melexis nv and director of X-FAB nv.
Mr. Gilles Bernard has worked as Development Engineer from 1983 until 1988.
From 1988 until 1993 he was Technical Manager with Thomson. From 1993 to 1995
he was Quality Control Manager with SM2E SA and in September 1995 he has been
appointed as Plant Manager of EPIQ s.a.r.l. Since 1998 he has been Chief Executive
Officer.
62
Moova NV is duly represented by Mr. Willy Vanden Poel and is a non-executive
independent Director of EPIQ group.
Eugen Schlötzer Innovation is duly represented by Mr. Eugen Schlötzer and is a
non-executive independent Director of EPIQ group.
Mrs. Jenny Claes has a long career in three (3) different companies and was
mainly active in the field of Logistics. This included responsibilities for commercial
planning, production planning, warehousing, transport, international sales
administration, ICT and quality management. She participated in the start up of the
European Distribution Centre of SKF in Tongeren and holds now the position of
General Manager of SKF EDC. Mrs. Jenny Claes holds a Masters degree in
International Trade.
Directors remuneration
The overall amount paid to the Directors amounts to approx. EUR 24.000.
3.2 Committees of the Board of Directors
Audit Committee
The audit committee consists of three non-executive members, Moova NV,
Chairman, Jenny Claes, independent director and Eugen Schlötzer Innovation,
independent director.
The internal and external auditor is regularly invited to the meetings of the Audit
Committee.
The Audit Committee meets twice a year.
Remuneration Committee
The Remuneration Committee consists of three non-executive members, Roland
Duchatelet, Chairman, Eugen Schlötzer Innovation, independent director and Willy
Vanden Poel, independent director.
3.3 Management
The Board of Management consists of Gilles Bernard, Chief Executive Officer and
Chief Operating Officer and Yves Duchatelet, Chief Financial Officer.
63
Management’s remuneration
The overall gross payment paid to management in 2007 amounted to approx. EUR
240.000.
According to the declaration of the members of the Management, none of them has
been convicted of fraud during the past five years.
3.4 Dividend policy
Taking into account the current and future cash flow situation no (interim-)
dividend will be paid the shareholders.
Gross (interim-) dividend paid out per share in
2005: 0 EUR dividend payment
2006: 0 EUR dividend payment
2007: 0 EUR dividend payment
3.5 Auditor
At the General Shareholder’s Assembly on 30 March 2006, BDO Atrio
Bedrijfsrevisoren Burg. CVBA , represented by Gert Claes and Koen De Brabander,
was appointed for a period of 3 years.
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3.6 Financial calendar
2008
February 26th: Publication annual results 2007
March 27th: Annual General Shareholder’s Assembly
May 23rd: Publication quarter results Q1/2008
August 28th: Publication half-year results
November 21st: Publication quarter results Q3/2008
2009
February 27th: Publication annual results 2008
65
3.7 Stock related information
During 2007, 1.646.780 shares have been traded. The highest rate was EUR 3,23
per share, the lowest rate was EUR 2,25 per share.
EPIQ - Share evolution 2007
2
2,5
3
3,5
Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07
Roland Duchâtelet Gilles Bernard
Director Director
Françoise Chombar Eugen Schlotzer Innovation
Director Represented by Eugen Schlotzer
Director
Jenny Claes Moova nv
Director Represented by Willy Vanden Poel
Director