Upload
others
View
7
Download
0
Embed Size (px)
Citation preview
MARCOPOLO S/A CNPJ Nº 88.611.835/0001-29
CVM – 00845-1 / NIRE 43300007235
FINANCIAL STATEMENTS
2017
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
1
2017 RESULTS - Management Report
Dear Shareholders:
The Management of Marcopolo S.A. ("Marcopolo" or "Company") hereby submits
the Management Report and Financial Statements for the year closed on December 31st
2017, accompanied by the independent auditors' report, for your consideration.
The Financial Statements are presented according to the accounting policies
adopted in Brazil and the IFRS – International Financial Reporting Standards as
established by IASB - International Accounting Standards Board.
1. OPERATIONAL CONTEXT
Marcopolo is a publicly-held corporation with registered office in Caxias do Sul,
Rio Grande do Sul, founded on August 6th 1949 for the purpose of manufacturing buses,
bus bodies and components.
The product line encompasses a wide variety of models made up of intercity
vehicles, urban vehicles, micro and minibuses, apart from the Volare family (fully-
equipped bus with chassis and body).
The buses are manufactured in sixteen plants, five of them located in Brazil (three
plants in Caxias do Sul – RS, one in Duque de Caxias – RJ and one in São Mateus – ES)
and eleven in foreign countries, one in South Africa, three in Australia, one in China, one
in Mexico, two in Argentina, one in Colombia and two in India.
Marcopolo also has a 40% interest in the company SPHEROS (air-conditioning),
30% in WSUL (seat foam), 65% in Apolo (plastic), 20% in the bus body assembly facility
GB Polo and 10.5% in the Canadian company New Flyer Industries.
Marcopolo also has a controlling interest in Bank Moneo S.A., incorporated to
provide financial support to the Company products.
2. PERFORMANCE INDICATORS
The table below lists some of the relevant indicators for the management and
analysis of the Company performance in 2017.
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
2
For comparison purposes with the previous year, it is important to consider that
the 2016 results were positively affected by a non-recurring effect regarding the partial
sale of shares held by Marcopolo in New Flyer Industries, held in 3Q16.
CONSOLIDATED FIGURES
(BRL million and percentage variation, except where otherwise stated) Operational Performance 2017 2016 Var. %
Net Operating Revenue 2,876.0 2,574.1 11.7
Revenue in Brazil 1,086.5 788.3 37.8
Exportation revenue from Brazil 999.5 950.0 5.2
Revenue in foreign countries 790.0 835.8 (5.5)
Gross Profit 403.6 325.8 23.9
EBITDA(1) 119.7 353.6 (66.1)
Net Profit 82.1 222.5 (63.1)
Earnings per share in BRL 0.078 0.244 (68.0)
Return on Invested Capital – ROIC (2) 3.2% 11.9% (8.7)pp
Return on Equity – ROE (3) 4.5% 12.2% (7.7)pp
Investments 54.3 73.5 (26.1)
Shareholders' Equity 1,898.8 1,836.4 3.4
Financial Position: Industrial Segment
Cash, Cash Equivalents and Financial Investments(4) 1,148.6 1,414.0 (18.8)
Short Term Financial Liabilities 649.9 651.5 (0.3)
Long Term Financial Liabilities 795.5 994.9 (20.0)
Net Financial Liabilities 296.8 232.4 27.7
Financial Position: Industrial and Financial Segments
Cash, cash equivalents and financial investments 1,160.7 1,458.9 (20.4)
Short Term Financial Liabilities 833.9 925.6 (9.9)
Long Term Financial Liabilities 1,109.6 1,374.2 (19.3)
Net Financial Liabilities 782.8 840.8 (6.9)
Margins
Gross Margin 14.0% 12.7% 1.3pp
EBITDA Margin 4.2% 13.7% (9.5)pp
Net Margin 2.9% 8.6% (5.7)pp
Notes: (1) EBITDA = Earnings before interest, taxes, depreciation and amortization; (2) ROIC (Return on Invested
Capital) = EBIT/(inventories + customers + property, plant and equipment + intangible assets - suppliers); (3) ROE (Return
on Equity) = Net Profit/Beginning Shareholders' Equity; (4) The amount also includes the account "financial assets
measured at the fair price by means of the result"; pp = percentage points.
3. BUS INDUSTRY PERFORMANCE IN BRAZIL
The Brazilian production in reached 14,693 units in 2017, a volume which is 2.2%
greater than the 14,372 units produced in 2016. Since the bus is sold fully-equipped, the
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
3
Volare model is not computed in the Brazilian production of bodies. If the production of
this kind of vehicle were considered, the domestic production would be 16,474 units per
year, with a 5.5% increment compared to the 15,613 units produced in 2016.
The domestic market demand reached 9,804 units, a 0.7% drop compared to
2016, while the production to the foreign market was of 4,889 units, 8.6% higher than
exportation in the previous year.
The chart below shows the evolution of the Brazilian bus body production in the
last ten years:
BRAZILIAN BUS PRODUCTION – TOTAL (in units)
PRODUCTS (1) 2013 2014 2015 2016 2017
Intercity 10,216 7,977 5,679 4,185 4,768
Urbans 17,938 16,836 9,593 7,929 7,152
Micros 4,955 3,616 2,239 2,258 2,773
TOTAL 33,109 28,429 17,511 14,372 14,693
Sources: FABUS (National Bus Manufacturers Association) and SIMEFRE (Interstate Union of the Railroad and Road Material and Equipment Industry).
Notes: (1) Includes exported KD (knocked down) units.
BRAZILIAN BUS PRODUCTION – DOMESTIC MARKET (in units)
PRODUCTS (1) 2013 2014 2015 2016 2017
Intercity 7,666 5,644 3,382 1,654 2,116
Urbans 17,011 15,861 8,291 6,796 6,199
Micros 4,150 3,123 1,679 1,419 1,489
TOTAL 28,827 24,628 13,352 9,869 9,804
Note: (1) See notes on the table – Brazilian Bus Production – Total.
BRAZILIAN BUS PRODUCTION – FOREIGN MARKET (in units)
PRODUCTS (1) 2013 2014 2015 2016 2017
Intercity 2,550 2,333 2,297 2,531 2,652
Urbans 927 975 1,302 1,133 953
Export Market
Internal Market
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
4
Micros 805 493 560 839 1,284
TOTAL 4,282 3,801 4,159 4,503 4,889
Note: (1) See notes on the table – Brazilian Bus Production – Total.
4. MARCOPOLO'S PERFORMANCE
The results obtained by Marcopolo in 2017 demonstrated a gradual recovery of
the Brazilian demand for buses and reinforced the Company's leading position in this
market. While the domestic production grew 2.2% in 2017, breaking a three-year retreat
cycle, Marcopolo had a 17.3% increase in produced units, which marked the beginning
of the long-awaited recovery process.
The main highlights of the year supporting this positive view were the return of
volumes in the intercity bus segment in the domestic market, showing an express
increase of 93.7% in the net revenue compared to 2016; the performance of the micro
and Volare segments, whose revenue rose 155.5% and 27.0% respectively; and, finally,
the increment in the Company's total market share, which closed 2017 at 48.1% against
41.3% in 2016.
Simultaneously to the recovery in the domestic market, the Company continued
its hard work to increase efficiency, reduce costs and optimizing its plants, seeking
greater competitiveness. The results of the revitalization efforts of the Marcopolo
Solidarity Production System through the application of the LEAN concepts were visible
in the safety, quality and efficiency indicators. The adoption of the LEAN methodology
was also essential in the case of the fire that burned the plastic plan (Ana Rech unit),
enabling production to resume faster than initially predicted, with less cost and greater
efficiency. Additionally, the adjustment of the organizational structure and reduction of
fixed costs along the year contributed to the results.
In the Company performance analysis by segment, we note the performance of
intercity buses, which had a 77.7% increase in physical units produced in the domestic
market compared to 2016, thus breaking a negative sequence started in 2014. The main
growth drivers in this sector were (i) a more positive prospect regarding the economic
activity in Brazil, adding greater security and predictability to investment decisions, (ii)
interest tax reduction during 2017, (iii) the first signs of improvement in the labor
market, mainly affecting the freight market, (iv) the long duration of the crisis, with
resulting ageing of the fleet, (v) effects of the adjustment to the regulation of the
average age for interstate and international lines and (vi) requirement of installation of
elevators, postponed to July 2018.
In the urban bus market, even with a drop in the annual production, the trend
also moved upwards in the second half, especially because of a referral of export
opportunities from Brazil and a still modest recovery in the local demand, linked to the
process of economic growth, normalization and an increase in fares all over the country
and progress in the bidding process in the city of São Paulo, which should happen this
year. In May 2017, Marcopolo launched a new urban bus model named Torino S, which
combines greater operating efficiency, simplified and quicker maintenance with lower
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
5
costs, while maintaining the quality, comfort and safety features of the Torino model.
Also, a federal program named Refrota, which faced bureaucratic obstacles in early
2017, helped boost orders for this segment and now proves accessible to the customer.
The Volare business also benefitted from the beginning of the economic recovery,
with an increased confidence by small fleet owners. Thus, the segment closed the year
with a 43.5% growth in physical units produced, with 27.0% greater revenue than the
same period last year. Micro buses also had a positive year, with a 104.6% growth in
physical units. Marcopolo has consolidated its leadership after acquiring the remaining
interest in Neobus, a leading company in the segment. The industry was one of the first
to suffer with the Brazilian economic crisis, but showed an important recovery, including
in retail, for small and micro enterprises and city halls.
In foreign units, Polomex, located in Monterrey, Mexico, was the great positive
highlight in international operations. Its performance was marked by a 213.0% growth
in net profit, which resulted from a customer diversification effort based on the
possibility of assembling with other chassis brands and a better product mix, especially
for intercity buses. In April 2017, Marcopolo reported the purchase of the remaining
interest in the Australian company Volgren, headquartered in Melbourne, thus owning
100% of its capital. We further note that the TMML (India) operation had positive
results, with a balanced performance during the year, suffering fewer effects from the
Indian market's seasonality. The unit had a net profit of BRL 4.3 million, which is 51.6%
greater than the same period last year.
The exportation growth took place in alignment with the early 2017 forecast, with
volumes growing 5.1% and evolving 5.2% in the annual comparison. The project to
integrate the Commercial department – Foreign Market with the International Business
department with the opening of new offices in Kuala Lumpur and Dubai began to show
its first results, with important new deals being prospected for in the African continent.
Finally, we note the quick recovery of the Ana Rech unit, after the fire that burned
the plastic plant on September 3rd 2017 and affected the production in September and
October. The Company concentrated its efforts in the recovery of volumes and the Ana
Rech site normalized its production, manufacturing the same number of buses per day
as it did before the fire after only five weeks, having worked six Saturdays during 4Q17
to compensate for the idle days resulting from the fire.
4.1 Units Recorded in Net Revenue
In 2017, 10,591 units were recorded in net revenue, 5,587 of which were recorded
in Brazil (52.8% of the total), 2,975 units exported from Brazil (28.0% of the total) and
2,029 units (19.2% of the total) produced in foreign countries, as shown in the table
below:
OPERATIONS (in units) 2017 2016 Var. %
BRAZIL
- Domestic market 5,587 4,425 26.3
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
6
- Foreign market 3,311 2,929 13.0
SUBTOTAL 8,898 7,354 21.0
Exclusion exported KD’s (1) 336 176 90.9
TOTAL IN BRAZIL 8,562 7,178 19.3
FOREIGN
- South Africa 354 362 (2.2)
- Australia 403 471 (14.4)
- Mexico 1,272 1,201 5.9
TOTAL FOREIGN 2,029 2,034 (0.3)
GRAND TOTAL 10,591 9,212 15.0
Notes: (1) (Knock Down) = Partially or totally knocked down bodies.
4.2 Production
In 2017, the consolidated Marcopolo production amounted to 10.662 units,
21.0% higher the 8,810 manufactured in 2016. Out of these total figures, 81.0% have
been produced in Brazil and the remaining 19.0% in foreign countries. Marcopolo's
worldwide production figures are presented on the tables below:
MARCOPOLO – CONSOLIDATED WORLDWIDE PRODUCTION
OPERATIONS (in units) 2017 2016 Var. %
BRAZIL(1)
- Domestic market 5,581 4,070 37.1
- Foreign market 3,271 3,111 5.1
SUBTOTAL 8,852 7,181 23.3
Exclusion exported KD’s (2) 219 341 (35.8)
TOTAL IN BRAZIL 8,633 6,840 26.2
FOREIGN
- South Africa 354 298 18.8
- Australia 403 471 (14.4)
- Mexico 1,272 1,201 5.9
TOTAL FOREIGN 2,029 1,970 3.0
GRAND TOTAL 10,662 8,810 21.0
Notes: (1) Includes the production of the Volare model, as well as the production of Marcopolo Rio; (2) (Knock Down) =
Partially or totally knocked down bodies.
MARCOPOLO – CONSOLIDATED WORLDWIDE PRODUCTION BY MODEL
PRODUCTS/MARKETS (in units)
2017 2016
DM FM (1) TOTAL DM FM (2) TOTAL
Intercity 1,558 1,827 3,385 877 1,925 2,802
Urbans 1,713 2,148 3,861 1,963 2,005 3,968
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
7
Micros 891 744 1,635 415 384 799
SUBTOTAL 4,162 4,719 8,881 3,255 4,314 7,569
Volares(3) 1,419 362 1,781 815 426 1,241
TOTAL PRODUCTION 5,581 5,081 10,662 4,070 4,740 8,810
Notes: (1) DM = Domestic Market; FM = Foreign Market; (2) The total FM production includes exported KD units (partially
or totally knocked down bodies), which amounted to 219 units in 2017 against 341 units in 2016;(3) The
production of Volares is not a part of the SIMEFRE and FABUS figures or the industry production.
MARCOPOLO – PRODUCTION IN BRAZIL
PRODUCTS/MARKETS (1) (in units)
2017 2016
DM FM TOTAL DM FM TOTAL
Intercity 1,558 1,711 3,269 877 1,880 2,757
Urbans 1,713 464 2,177 1,963 423 2,386
Micros 891 734 1,625 415 382 797
SUBTOTAL 4,162 2,909 7,071 3,255 2,685 5,940
Volares(2) 1,419 362 1,781 815 426 1,241
TOTAL PRODUCTION 5,581 3,271 8,852 4,070 3,111 7,181
Notes: (1) The Neobus units are computed in the table above only from August 2016 on; (2) The production of Volares
is not a part of the SIMEFRE and FABUS figures or the industry production.
4.3 Market Share
Marcopolo regained market share in all segments, thus keeping its leading
position in the Brazilian market. The Company closed the year with a 48.1% share. Even
though the Brazilian bus production had a 2.2% growth in 2017, the Company's general
market share rose 6.8 percentage points compared to 2016.
The table below shows Marcopolo's market share in the Brazilian production by product line:
MARKET SHARE IN BRAZILIAN PRODUCTION (%)
PRODUCTS (1) 2013 2014 2015 2016 2017
Intercity 56.0 57.0 55.0 65.9 68.6
Urbans 34.7 34.0 35.1 30.1 30.4
Micros 24.9 27.4 28.3 35.3 58.6
TOTAL 39.8 39.6 40.7 41.3 48.1
Source: FABUS and SIMEFRE
Note: (1) Volare is not computed for market share purposes.
5. CONSOLIDATED NET REVENUE
The consolidated net revenue achieved BRL 2,876.0 million in 2017, 11.7% higher
than the BRL 2,574.1 million in 2016. The result is mainly an effect from the domestic
market income, which was 37.8% greater than 2016. A highlight under this title is the
intercity bus revenue for the domestic market, which rose 93.7% compared to the
previous year.
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
8
The domestic market sales yielded revenue of BRL 1,086.5 million or 37.8% of the
total net revenue (30.6% in 2016). Exportation, added to foreign transactions, reached
revenue of BRL 1,789.5 million or 62.2% of the total (69.4% in 2016).
Revenue by product and destination market is shown on the table below:
TOTAL CONSOLIDATED NET REVENUE BY PRODUCTS AND MARKETS (BRL million)
PRODUCTS/MARKETS (1) 2017 2016
DM FM TOTAL DM FM TOTAL
Intercity 461.1 934.0 1,395.1
238.0 938.1 1,176.1
Urbans 211.8 527.0 738.8 232.2 588.1 820.3
Micros 86.5 132.7 219.2 46.8 39.0 85.8
Bodies subtotal 759.4 1,593.7 2,353.
1 517.0
1,565.2
2,082.2
Volares(2) 256.5 65.3 321.8 178.1 75.3 253.4
Chassis 2.2 47.1 49.3 9.5 58.2 67.7
Bank Moneo, Parts and Others
68.4 83.4 151.8 83.7 87.1 170.8
GRAND TOTAL 1,086.5 1,789.5 2,876.0
788.3 1,785.8
2,574.1 Notes: (1) DM = Domestic Market; FM = Foreign Market; (2) The Volare revenue includes chassis.
Out of the total consolidated net revenue in 2017, 81.8% came from the sale of
bodies, 11.2% from the sale of Volares and 7.0% of the revenue from parts, Bank Moneo
and chassis.
The charts below show the source of the consolidated revenue in further detail
(in %):
2017 2016
6. GROSS INCOME AND MARGINS
In 2017, the gross profit totaled BRL 403.6 million, amounting to
14.0% of the net revenue. The 1.3 percentage-point improvement compared to 2016
results from greater intercity bus revenue, exportation of products with greater added
value and improved efficiency in all manufacturing plants, arising from the Company's
efforts to revitalize its production system by making use of the LEAN principles. The
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
9
year's gross result was affected by the non-recurring effect of terminations arising from
the Company's internal restructuring in the amount of BRL 9.2 million conducted in
1Q17.
7. SALE EXPENSES
Sale expenses totaled BRL 168.7 million in 2017 or 5.9% of the net income
against BRL 140.9 million, or 5.5% of the revenue in 2016. The increase in the absolute
amount is mostly explained by the Neobus consolidation, by a greater expense volume
with commissions as a result of a greater sales volume in the domestic market and by
the constitution of an additional provision for doubtful debtors.
In 2017, sale expenses were also affected by the non-recurring effect of
terminations conducted in 1Q17 arising from the Company's internal restructuring in
the amount of BRL 1.5 million.
8. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totaled BRL 167.1 million in 2017 and BRL
165.3 million in 2016, amounting to 5.8% and 6.4% of the net income respectively. The
reduction in the revenue value results from actions conducted by the Company seeking
to reduce indirect expenses and costs. The year's general and administrative expenses
were impacted by non-recurring provisions concerning the Company's internal
restructuring, in the amount of BRL 3.2 million, conducted in 1Q17.
9. OTHER OPERATING REVENUE/EXPENSES
In 2017, BRL 80.4 million was recorded as "Other Operating Expenses".
This amount is made up of non-recurring amounts totaling BRL 48.3 million,
including BRL 14.1 million for the Company's internal restructuring conducted in 1Q17;
BRL 17.7 million for fixed and extraordinary costs arising from the fire that burned the
Plastic plant; and BRL 16.5 due to the misapplication of funds found in Marcopolo China.
The remaining amount of BRL 32.1 million is made up of BRL 16.5 million
concerning employment claim payments; BRL 3.5 million for provision for loss of
obsolete inventory; BRL 3.2 million for tax provision expenses; BRL 1.0 million for
damages concerning contract termination with a commercial representative; BRL 0.8
million for consulting services, and; BRL 7.1 million in other expenses.
10. EQUITY METHOD RESULTS
The equity method result in 2017 was BRL 86.9 million positive against BRL 94.0
million also positive in 2016. The main contribution came from New Flyer Industries, in
the amount of BRL 53.7 million.
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
10
The equity method result is described in detail in Explanatory Note no. 12 to the
Financial Statements.
11. NET FINANCIAL INCOME
The 2017 net financial income was BRL 18.7 million positive against BRL 66.3
million also positive in 2016. The smaller financial result compared to the previous year
arises from a smaller change in exchange rate and smaller financial investment yield
through a reduced interest rate.
The financial income is described in detail in Explanatory Note no. 29 to the
Financial Statements.
12. EBITDA
EBITDA reached BRL 119.7 million in 2017, with a 4.2% margin against BRL 353.6
million and a 13.7% margin in 2016. For comparison purposes with the previous year, it
is important to consider that the 2016 results were positively affected in BRL 268.1
million, due to the partial sale of shares held by Marcopolo in New Flyer Industries.
The year's EBITDA was affected by non-recurring events concerning the
Company's internal restructuring conducted in 1Q17, which totaled BRL 28.0 million and
was recorded as follows:
- Gross Income and Margins: BRL 9.2 million;
- Sale Expenses: BRL 1.5 million;
- General and Administrative Expenses: BRL 3.2 million;
- Other Net Operating Expenses/Revenue: BRL 14.1 million.
Also in 2017, EBITDA was adversely affected by other non-recurring expenses,
namely, BRL 17.7 million for the fire that burned the Plastic plant and BRL 16.5 million
due to the misapplication of funds found in Marcopolo China. Thus, the adjusted EBITDA
for 2017, excluding the aforementioned non-recurring effects, would be BRL 181.9
million, with a 6.3% margin in the period.
The table below shows the accounts that make up the EBITDA:
(BRL million) 2017 2016
Result before Income Tax and Social Contribution 92.9 370.2
Financial Revenue (292.0) (577.5)
Financial expenses 273.3 511.2
Depreciation / Amortization 45.4 49.7
EBITDA 119.7 353.6
13. NET PROFIT The 2017 net profit reached BRL 82.1 million, with a 2.9% net margin. The result
was affected by "Other Operating Expenses", as already described.
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
11
14. FINANCIAL INDEBTEDNESS
The net financial indebtedness amounted to BRL 782.8 million on 12.31.2017 (BRL
840.8 million on 12.31.2016). Out of this total, BRL 486.0 million came from the financial
segment, while the industrial segment had net liabilities in the amount of BRL 296.8
million.
It should be noted that the financial segment indebtedness comes from the
consolidation of the Bank Moneo activities and must be analyzed separately, as it has
different characteristics from the indebtedness arising from the Company's
manufacturing activities. The financial liabilities of the Bank Moneo have a
corresponding entry in the "Customers" account in the Bank's Assets. The credit risk is
properly provisioned for. Since these are transfers from the FINAME, each disbursement
BNDES has a corresponding entry in the customer receivables account of the Bank
Moneo, both in term and fixed rate. See Explanatory Note 31 to the Financial
Statements.
On December 31st, the net financial indebtedness of the industrial segment
amounted to 2.3 times the EBITDA of the last 12 months, or 1.5 times the adjusted
EBITDA, excluding the non-recurring effects in the year.
15. CASH GENERATION
In 2017, the operating activities raised funds in the order of BRL 294.9 million. The
investment activities demanded BRL 47.0 million while the financing activities consumed
BRL 504.3 million, BRL 487.9 million net of loans and repayments, BRL 17,1 million
consumed in the payment on dividend and interest on the shareholders' equity and BRL
0.7 million for the sale of treasury shares. As a result, the beginning cash balance of BRL
1,458.9 million, considering the unavailable financial investments and reducing BRL 41.8
million equivalent to the difference between foreign exchange variation and variation
of unavailable financial investments rose to BRL 1,160.8 million at the end of the year.
The cash flow statement of the industrial and financial segments is presented in
detail in Explanatory Note 32 to the Financial Statements.
16. PERFORMANCE OF CONTROLLED AND ASSOCIATED COMPANIES
16.1 Controlled companies in foreign countries
In 2017, the controlled units in foreign countries produced 2,029 units. This
volume amounted to 19.0% of Marcopolo's consolidated production. We stress that the
Company remains engaged in expanding the application of the Lean principles in all its
international operations.
Below are some of the highlights of controlled companies in foreign countries:
MARCOPOLO SOUTH AFRICA (MASA) – In 2017, MASA, located in Johannesburg,
produced 354 units with an 18.8% growth compared to the 2016 production (298 units).
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
12
In that year, the unit began selling the Volare model imported from Brazil, but it also
suffered with the cancellation of important bidding process and operating efficiency
issues, which were corrected during 2017.
POLOMEX – Located in Monterrey, Mexico, Polomex produced 1,272 units in 2017
(1,201 units in 2016). Its performance was marked a customer diversification effort
based on the possibility of assembling with other chassis brands and a better product
mix, especially for intercity buses. The expectation for 2018 is for the growth of products
with a lighter profile, especially micro buses.
VOLGREN - Headquartered in Melbourne, Australia and produced 403 units in 2017 (417
units in 2016). Major municipal bids expected for 2017 were suspended and transferred
to 2018. The expectation is for such transactions to be completed in 2018, with an
important growth in volumes revenue and profitability.
MARCOPOLO CHINA (MAC) – MAC has an area for sourcing, production of parts,
components and knocked down bus bodies, as well as production of PKD buses for
exportation. MAC's result was adversely affected by a provision for the misapplication
of funds, as reported in 3Q17. The controlled company's strategy continues to be that
of serving as a basis for customer relationship in Asia and Oceania. The expectation for
2018 is to expand sales, reduce costs and improve operating efficiency.
16.2 Associated companies in foreign countries
GB POLO – On June 20th 2017, Marcopolo reported the reduction of its interest in GB
POLO's capital stock from 49% to 20%. From the beginning of the operation, Marcopolo
has unsuccessfully search for alternatives to improve the unit's performance, mostly
affected by foreign exchange, political and market factors.
METALPAR/METALSUR – The Argentinean operations of Metalpar and Metalsur
showed good performance in 2017, benefitting from the good economic prospects for
the country. In 2018, the urban bus segment, served by Metalpar, must continue to
show good performance, supported by the fleet renewal announced by the capital
Buenos Aires. Metalsur, in turn, must present a mix of lighter products in 2018 than the
one produced in 2017.
NEW FLYER INDUSTRIES – New Flyer Industries, a company in which Marcopolo has a
10.5% ownership interest, is the main manufacturer of urban buses in the United States
and Canada. Located in Winnipeg, Canada, the New Flyer Industries is a leading company
in technology and offers a wide range of products, including clean diesel, natural gas,
diesel-electricity and electricity-powered vehicles. In 2016 and 2017, the results of New
Flyer Industries were benefitted by the consolidation of Motor Coach Industries
International - MCI. On October 12th 2017, the company announced the opening of its
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
13
new research center, devoted to advanced bus technology. The expectations are still
positive for 2018, with New Flyer Industries having announced the purchase of ARBOC
Specialty Vehicles, targeted at the freight vehicle segment.
SUPERPOLO – Located in Colombia, Superpolo had a stable year in 2017. The company
began to adopt the Lean methodology, with the same index base as Marcopolo. The
expectation for 2018 is to maintain volumes and performance.
TATA MARCOPOLO MOTORS (TMML) – 2017 was a year of good performance of TMML
with stable results, suffering fewer effects from the Indian market's seasonality. The
unity shall keep growing through the introduction of new products with greater added
value.
16.3 Bank Moneo
Bank Moneo S.A. began operating in July 2005 for the purpose of financing
Marcopolo products. The Bank is authorized to operate in lease-purchase, credit,
financing and investment. The Bank's corporate profit in 2017 was BRL 2.8 million. The
credit and accommodation transactions totaled BRL 720.9 million on 12.31.2017 against
BRL 854.5 million on 12.31.2016. The Bank maintained a policy of prioritizing the quality
of its credit portfolio by means of a strict credit assessment and approval system.
17. CORPORATE GOVERNANCE
Marcopolo seeks to adopt best Corporate Governance practices, following the
principles of transparency, equity, accountability and corporate responsibility, and its
actions are listed on Level 2 of B3's Corporate Governance since 2002. The Company is
bound to the arbitration of the Market Arbitration Chamber, according to an Arbitration
Clause contained in its Articles of Incorporation.
Marcopolo's management is formalized on the basis of distinction between the
roles and responsibilities of the Board of Directors, the Executive Committee and the
Executive Board. The Board of Directors is made up of seven members, four of which
are external and independent, one elected by the minority shareholders, one by
shareholders holding preferred shares and the other two by controlling shareholders.
The Chairman of the Board of Directors does not take part in the Executive Board. The
Board of Directors has a consulting technical committee on a permanent basis,
established by its Articles of Incorporation, named Executive Committee, which assists
and provides opinion on the conduct of business. The competences of each of these
bodies are established by the Company's Articles of Incorporation. Furthermore, in
order to support, opine and support the conduct of business, the Board of Directors also
has the following Committees: (i) Audit and Risks; (ii) Human Resources and Ethics; and
(iii) Strategy and Innovation. The roles of each of these supporting Committees can be
found on the Company's website: http://ri.marcopolo.com.br, on the menu Corporate
Governance/Bylaws of the Committees.
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
14
The Company also has an Audit Committee made up of three members, one
appointed by the minority shareholders, one by shareholders holding preferred shares
and one by the controlling shareholders. The competences of each body are established
by the Company's Articles of Incorporation.
The Company gives fair and equal treatment to all minority shareholders, either
capital owners or other stakeholders. When reporting information, the company uses
high transparency standards in order to establish an atmosphere of reliability, both
internally and in the company relationship with third parties. In order to comply with
legal provisions and improve the information provided to the market in general and
foreign shareholders in particular, the Financial Statements are reported according to
the standards established by the IFRS - International Financial Reporting Standard. In
2017, the Company held meetings with the Stock Market Investment Analysts and
Professionals Association (APIMEC) in São Paulo and Porto Alegre and non-deal road
shows in Brazil and foreign countries. Marcopolo's relationship with its shareholders and
potential investors is conducted by the Investor Relations department. In 2017, analysts
from Brazil and foreign countries were received and several phone calls were made.
Marcopolo's Investor Relationship website (http://ri.marcopolo.com.br) has current
information for the investing audience.
18. COMPLIANCE PRACTICES
In order to supplement the good governance practices and risk management,
Marcopolo implemented a Compliance department in 2014, the structure of which
includes a Consulting Committee made up of the executive officers appointed by the
Articles of Incorporation, by the chairman of the Board of Directors, by the Compliance
Officer, a compliance analyst and internal agents. The Company revised its code of
conduct to include integrity provisions, trained all its employees and representatives,
enhances internal and external communication and report channels, created an
integrity policy, began to include compliance clauses in all the agreements executed by
the Company, performs due diligence of integrity in partners and third parties, among
other practices. Apart from that, the compliance team has taken place in outside training
and benchmarking events.
19. INDEPENDENT AUDITORS
19.1 Change of Independent Auditors
In 2017, the Company changed its auditors and engaged the services of
Pricewaterhouse Coopers Auditores Independentes, with registered office in Porto
Alegre, RS, Rua Mostardeiro, 800, 9º andar, replacing KPMG Auditores Independentes.
19.2 CVM Instruction 381/03
In compliance with the CVM Instruction 381/03, subdivisions I through IV of
Section 2, Marcopolo hereby declares that it has agreements with its Independent
Auditors other than for the auditing of the Company's Financial Statements. During
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
15
2017, a Pricewaterhouse Coopers Auditores Independentes was hired in May 2017 to
provide assistance services and compliance and the fees were equivalent to BRL
904,600. The responsibility for the definitions inherent to the executed procedures and
the application thereof are prerogatives of the Management, so both the Company and
its external auditors understand that such services do not affect professional
independence.
20. STOCK MARKET
20.1 Capital Stock
The Company's capital stock is BRL 1,264,622,468 divided into 925,196,009
shares, 341,625,744 of them being common shares (36.9%) and 583,570,265 being
preferred shares (63.1%), all of them registered, book-entry and without par value.
20.2 Performance of the Marcopolo Shares in B3
In 2017, 1,250.5 thousand transactions were conducted with Marcopolo shares
and 1,146.2 million shares were traded. Transactions with shares issued by Marcopolo
moved BRL 3.4 million in the year. The interest of foreign investors in Marcopolo's
capital stock amounted to 56.3% of the preferred shares and 36.7% of the total capital
stock on 12.31.2017.
The table below shows the evolution of the main stock market indicators:
INDICATORS 2017 2016
Number of transactions (thousands) 1,250.5 1,265.0
Traded Shares (million) 1,146.2 898.8
Traded amount (BRL million) 3,360.4 2,338.3
Market value (BRL million) (1)(2) 3,691.5 2,535.0
Book value per share (BRL) 2.05 1.98
POMO4 quotation (last business day) 3.99 2.74
Interest on Equity Capital and dividends per share (BRL/share) 0.0395 0.131
Notes: (1) Quotation of the last transaction of the period of the Preference Book-entry share (PE), multiplied by the total number of shares (OE+PE) in the same period.(2) Out of this total, 4,699,801 preferred shares were in treasury on 21.31.2017.
21. DIVIDENDS/INTEREST ON EQUITY CAPITAL
On December 21st, 2017, the Board of Directors approved the distribution of
interest on capital in the gross amount of BRL 17.1 million, equivalent to the BRL 0.0185
ratio for each share.
At a meeting held on February 21st, 2018, the Board of Directors approved the
distribution of dividends related to 2017, of which BRL 0.1 million as mandatory dividend
and BRL 19.2 million as complementary dividends, totaling the amount of BRL 19.3
million.
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
16
The total amount proposed for payment of interest on equity and dividend
payments for the year 2017 totaled BRL 36.4 million, of which BRL 17.1 million as
interest on shareholders' equity and BRL 19.3 million as dividends. The total amount
distributed equals 50.4% of the Company's adjusted net income in 2017 and represents
a yield of 1.0%.
22. INVESTMENT/NON-CURRENT ASSETS
In 2017, Marcopolo invested BRL 54.3 million, BRL 31.1 million of which was spent
in the parent company and applied towards: BRL 24.6 million in machines and
equipment, BRL 3.2 million in computer equipment and software and BRL 3.3 million in
other non-current assets. In the controlled companies, BRL 8.7 million was invested in
Neobus, BRL 7.0 million in Volare Espírito Santo, BRL 2.7 million in Polomex, BRL 2.5
million in Volgren, BRL 0.9 million in Marcopolo Rio and BRL 1.4 million in other units.
23. SOCIOENVIRONMENTAL RESPONSIBILITY
In a constant search for best practices, Marcopolo seeks economic development,
simultaneously improving the quality of life of its employees, their families and society
as a whole. The Marcopolo Solidarity Production system (SIMPS) promotes industrial
development for growth, market leadership, productivity, quality, workplace
improvement and profitability of products and services. The system provides conditions
for continuous improvement of the quality of its products, processes and services,
controlling the dangers to the environment and the health and safety of the workers,
eliminating waste wherever it is occurring and maintaining a fully integrated chain.
Marcopolo remains with international management certifications ISO 14001 -
Environment, ISO 9001 – Quality, and OHSAS 18001 – Health and Safety.
23.1 Social Responsibility
Marcopolo and its employees develop social responsibility by means of the
Marcopolo Foundation. The projects are targeted at children and adolescents of the
community in which we are present. The Schools Project is noteworthy for its purpose
to contribute to the development of the entire school community. The project provides
diversified opportunities of activities out of school hours such as music, choir, orchestra,
sports and refresher clinic. The Marcopolo Foundation also contributes on a monthly
basis to educational and healthcare charities.
Also with focus on education, all the employees' children get notebook kits
through the Everyone in School project, also coordinated by the Marcopolo Foundation.
The purpose is to help family economy and support in the education of their children.
The program is targeted at children and adolescents aged 5-18 taking elementary or
secondary school. Nearly 18,000 customized notebooks were delivered in 2017.
The Marcopolo Foundation encourages and facilitates the allotment of 6% of their
employees' Individual Income Tax to the Municipal Funds for the Rights of Children and
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
17
Adolescents in the cities of Caxias do Sul (RS) and Duque de Caxias (RJ) by means of the
Destine Você Também Project, creating benefits in professionalization actions for
adolescents and a children connection strengthening center, serving nearly 1.500 young
people in social and personal risk situation.
23.2 Satisfaction of Employees
The satisfaction of the Marcopolo's employees is measured by means of the
Internal Organizational Climate Survey that is conducted every two years, the last one
having been conducted in 2016. During 2017, the Action Plan that had been structured
by representatives from various departments was implemented. The next survey shall
take place in the third quarter of 2018, with the participation of all of Marcopolo's
associated companies. The company provides both internal and external channels for
employees to submit comments, criticism, ideas and suggestions about the several
topics involving their work or related to the Code of Conduct guidelines and the
Compliance rules, with specific segregation for reporting. The messages received are
treated and answered according to a specific policy. In the year that closed, a revision
was conducted in the ombudsman's office, which was widely disseminated to
employees of all the units, representatives and suppliers.
23.3 Education and Training
Marcopolo encourages the constant qualification of its employees. For this
purpose, raining is provided focused on the development of skills for all professional
levels, which results in an average of 25 hours of training for each employee.
The managers took part in actions related to the evolution of the LEAN thinking,
focused on communication among teams and problem solving. As a way to disseminate
the concepts of this product and process quality, 210 thousand hours of technical
training were provided to employees from all departments, including newly hired ones.
Marcopolo also provides customer training, both in the Training Center and in
clinics and facilities near the companies. The year 2017 contemplated 1,019 internal
market participants and 563 external market participants.
The Marcopolo Professional Education School (EFPM) maintained industrial
courses for young people in partnership with SENAI, University of Caxias do Sul and the
Social Assistance Foundation (FAS). One of EFPM's main purposes is to prepare
professionals for the labor market by means of the first paid job and access to the
Company's career plan. In 2017, 115 young people completed their education and 25
more joined the program. The term papers had as reference the LEAN principles and the
7 Wastes, focusing on improving the company's productive processes.
Marcopolo has had an Education Incentive Program since 1981, including
scholarships for high school, technical courses, graduate and postgraduate courses for
employees approved in a selection process. The company also provides for the
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
18
development of skills for communication in English and Spanish for workers who require
this skill in their position.
23.4 Quality of Life
The quality of life programs targeted at employees and their families are
coordinated by the Marcopolo Foundation, including educational, leisure, cultural and
sports activities. The Caxias do Sul and Duque de Caxias units feature their own facilities
with places for events, courts and kiosks.
23.5 Environment
Marcopolo's commitment is to protect the environment in a sustainable and
balanced manner, establishing rules to minimize the activities' impact in compliance
with the applicable law. In 2017, it obtained the renewal of all the Operating Licenses
from the environmental authority and migrated the ISO 14001 to the new version
published in 2015, NBR ISO 14001:2015. The certification audit took place in January
2018.
23.6 Compensation
The employees' compensation is made up of a fixed part, connected to their
competences and skills, and a variable part, contingent upon the attainment of the goals
of the Profit-sharing Program. Wage researches are conducted periodically in order to
assess whether the amounts paid to the employees are within the regional standards,
so that the company can remain competitive in the labor market.
23.7 Share Purchase Option Plan
The Regulation of the Share Purchase or Subscription Option Plan was approved
by shareholders in the Extraordinary General Meeting held on December 22nd 2005,
changed by the O/EGM dated March 23rd 2006 and by the Board of Directors in meetings
held in the years 2006, 2007, 2011, 2012 and 2013. The plan, whose participants are
executives of the Company and its controlled companies (except controlling officers) has
as main purposes: (i) Align the interests of participants and shareholders; (ii) Get the
participants committed to the company's short, mid and long term results; (iii)
Encourage a feeling of ownership; and (iv) Attract and retain talent. The Plan is
monitored by the HR and Ethics committee and approved by the Board of Directors.
The company also has a Long-Term Incentive Plan with Restricted Shares by
Performance, proposed by the Board of Directors on February 12th 2015 and approved
by the General Meeting on March 26th 2015. The plan has the purpose of composing the
compensation package of the main executives of the company, obtain the participants'
commitment to long-term results, maintain competitiveness within the market, attract
and retain the best professionals and align the interests of executives and shareholders.
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
19
24. MANAGERS' COMPENSATION
The aggregate amount of the fixed compensation is established by the General
Meeting and paid to the managers by the Board of Directors. The greatest annual
individual compensation of the Board of Directors/Executive Committee totaled BRL
1,963.2 thousand in 2017, the average compensation was BRL 790.0 thousand and the
smallest was BRL 446.0 thousand. Among executive officers, the greatest individual
compensation was BRL 4,034.1 thousand in 2017, the average was BRL 3,044.2 thousand
and the smallest was BRL 2,339.9 thousand. In the Audit Committee, the greatest
individual compensation was BRL 235.8 thousand in 2017, the average was BRL 203.0
thousand and the smallest was BRL 186.6 thousand.
25. PERSONNEL
NO. OF EMPLOYEES 2017 2016 2015 2014 2013
Controlling Company 6,255 6,125 6,236 7,883 8,158
Controlled Companies in Brazil 2,057 2,135 1,369 2,776 2,554
Controlled Companies in Abroad 1,645 1,921 1,666 1,889 2,105
Associated Companies 2,403 2,632 3,200 4,270 5,699
TOTAL (1) 12,360 12,813 12,471 16,818 18,516
GRAND TOTAL (2) 15,059 15,749 16,125 21,435 21,002
Notes: (1) Includes employees in the controlled/associated companies proportionally to their equity interest; (2) Refers
to the total participation in controlled/associated companies.
26. PROSPECTS FOR 2018
The year 2017 broke a three-year sequence of a drop in the production of Brazilian
buses. The year 2018 begins with even greater expectations for the domestic economy,
with a projected growth of 2.7% for the year, a basic interest rate at its lowest historical
level and a renewed confidence by customers and investors in general. For Marcopolo,
this vision is confirmed by a more robust order backlog compared to the same period in
the previous year, higher on-going business volume than in recent years and good
prospects for bids, especially within the scope of the School Way program and
exportation.
The domestic market demand must remain in its recovery path, with growing
volumes compared to 2017, notably intercity models for the freight and interstate
industries. The rule for renewal of the interstate and international road bus fleet is still
in force and in 2018 the mandatory average age is 6 years (5 years in 2019). As for
accessibility, a rule enters into force on July 1st 2018 requiring the installation of
elevators in all intercity buses. Such rule may positively affect the intercity bus market
in the first half of 2018.
As for urban buses, the partial settlement of the matter concerning municipal fare
adjustments, with major state capitals, including São Paulo, authorizing raises close to
the inflation rate, may point to a recovery also in this segment. Refrota, a credit facility
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
20
targeted at financing urban buses, after a slow beginning, became an alternative for
customers of the segment and has been fomenting sales.
Exportation has been in a positive course since 2016, pointing to an increase in
sales, especially in the urban bus segment markets traditionally served by the Company.
A positive highlight was business targeted at the African continents, with large batches
already confirmed for early 2018. With the beginning of the recovery process in the
domestic urban bus market and a good moment for exportation of these models, the
Marcopolo Rio unit maintains a healthy portfolio, especially compared to the last four
years. The prospects are also positive for international transactions. Volgren must show
good performance because of the transfer of bidding processes, which did not take place
in 2017, to 2018. For Polomex an increase is expected for lighter model units to the
detriment of intercity buses, with market share gains.
As for the micro bus and Volare market, Marcopolo completed in January 2018
the transfer of Volare production from the Planalto plant to Neobus. Marcopolo's
microbus production is still being performed in the Planalto unit because of the good
sales volume linked to the School Way program and the unit must remain active until
the end of 2018. Marcopolo, either directly or indirectly, by means of partnerships, has
won bids for the production and sale of 4,400 units in the School Way program. We note
that the actual sales of bid units are contingent upon the confirmation of the order by
the public authority.
We stress that the FINAME credit facility is still in force, having changed its index
from LTIR to LTR. In practice, LTIR and LTR shall remain at the same level in 2018,
allowing micro, small and medium enterprises to finance up to 100% of the asset as well
as the LTR cost plus 2.1% p.a. and the spread of the transferring bank. Large enterprises
may also finance up to 80% of the asset, 60.0% of this total amount via LTR plus 2.1%
p.a. and 20.0% linked to the SELIC rate plus 2.36% p.a. increased by the spread of the
transferring bank. In this context, the maintenance of the SELIC rate at a historically low
level may give the domestic demand a further boost.
In 2018, the Company will continue making efforts to recoup its historical
performance level, believing that the growing volumes combined with the initiatives and
improvements implemented since 2014, especially those concerning the increase of
operating efficiency, quality, stronger presence both in foreign and domestic markets,
search for synergy and optimization of its plant will allow for the achievement of new
excellence levels. We will remain attentive to new opportunities in the search for
constant improvement.
27. ACKNOWLEDGEMENTS
Marcopolo is honored to thank customers, suppliers, representatives,
shareholders, financial institutions, government bodies, the communities and especially
the employees for their effort, devotion and commitment.
CONSOLIDATED INFORMATION Caxias do Sul, February 21st 2018.
21
Marcopolo pays tribute to its President Emeritus. Mr. Paulo Pedro Bellini, who
died on June 15th 2017 at the age of 90. Apart from his outstanding entrepreneurial
vision, which turned Marcopolo into a transnational company, Mr. Bellini was
noteworthy for his constant breaking of paradigms, a strong determination for product
quality and appreciation for the human being. He soon noticed that bus production
demanded intensive, high-quality labor and that people were the soul of the business.
For this reason, he was devoted to creating a reliable environment in order to ensure
constant motivation of teams, which became one of Marcopolo's main competitive
advantages, which resulted in the motto "The most important thing are people."
Caxias do Sul, February 21st 2018.
The Management.
Marcopolo S.A. Financial statements
December 31, 2017 and 2016
Marcopolo S.A. and subsidiaries
PricewaterhouseCoopers, St Mostardeiro, 800 - 9º andar, Independência, Porto Alegre-RS, Brasil 90430-000
Phone: +55 (51) 3378-1700, Fax:+55 (51) 3328-1609, www.pwc.com/br
2
Independent auditor's report To the Board of Directors and Stockholders Marcopolo Opinion
We have audited the accompanying parent company financial statements of Marcopolo S.A. (the "Company" or “Parent company”), which comprise the balance sheet as at December 31, 2017 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. We have also audited the accompanying consolidated financial statements of Marcopolo S.A. and its subsidiaries (“Consolidated”), which comprise the consolidated balance sheet as at December 31, 2017 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Marcopolo S.A. and Marcopolo S.A. and its subsidiaries as at December 31, 2017, and its financial performance and cash flows for the year then ended, in accordance with accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Basis for opinion We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Parent Company and Consolidated Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the ethical requirements established in the Code of Professional Ethics and Professional Standards issued by the Brazilian Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the parent company and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Matters
Why it is a
Key Audit
Matter
How the matter was addressed
Marcopolo S.A. and subsidiaries
PricewaterhouseCoopers, St Mostardeiro, 800 - 9º andar, Independência, Porto Alegre-RS, Brasil 90430-000
Phone: +55 (51) 3378-1700, Fax:+55 (51) 3328-1609, www.pwc.com/br
3
Why it is a Key Audit Matter How the matter was addressed in the audit
Impairment of goodwill - Consolidated (Note 14)
On December 31, 2017, the Company presents in its consolidated financial statements goodwill on the expectation of future profitability, the amount of R$ 202,961 thousand, referring to acquisitions made in prior years. Management annually prepares a test to assess whether or not it is necessary to reduce goodwill to its recoverable value (impairment test). For this test, consider each of the acquired companies, located in Brazil, Australia, Canada and Argentina, as a separate Cash Generating Unit ("CGU"). This goodwill impairment test was considered as one of the main issues in our audit due to the relevance of the goodwill balance and to involve critical judgments on the part of the Company's management in relation to the projections of future cash flows. Changes in the main assumptions used, such as growth and discount rates, among others, may significantly impact the cash flows of CGUs and, consequently, the recoverable amounts of CGUs and the goodwill allocated to them. On December 31, 2017, the Company's management reviewed the recoverable amount of the CGUs and, for CGU Pologren, recorded a loss for impairment of goodwill of R$ 25,618 thousand.
Our auditing procedures included, among others, understanding and testing the methodology used by management to project discounted cash flows. With the support of our internal valuation experts, we discussed with the management the reasonableness of the significant assumptions used by the Company, in accordance with the approves budgets by the Board of Directors, including discount rates, sales growth and margins in the projected period and in perpetuity by comparing the calculations with the available market information with actual performance and historical data. Also, through sensitivity analyzes on the main assumptions used, we evaluated in which situations individual or cumulative variations would result in the need to record or complement the impairment recognized by the Company. As a result of the procedures described above, we believe that the judgments and assumptions used by management to assess the recoverability of goodwill are reasonable and the disclosures are consistent with the data and information obtained.
Marcopolo S.A. and subsidiaries
PricewaterhouseCoopers, St Mostardeiro, 800 - 9º andar, Independência, Porto Alegre-RS, Brasil 90430-000
Phone: +55 (51) 3378-1700, Fax:+55 (51) 3328-1609, www.pwc.com/br
4
Why it is a Key Audit Matter How the matter was addressed in the audit
Provisions and Contingent Liabilities - Parent Company and Consolidated (Note 17)
As of December 31, 2017, the Company has provisions in the amount of R$ 51,722 thousand in the parent company and R$ 64,770 thousand in the consolidated, related to lawsuits whose loss expectation was classified as probable, in addition to lawsuits classified as possible losses amount of R$ 344,850 thousand, in the parent company, and R$ 404,694 thousand in the consolidated. Contingent provisions and liabilities have inherent uncertainty in relation to their term and their settlement value. In addition, the determination of the likelihood of loss of the proceedings in progress involves critical judgments by Management, periodically reassessed according to the progress of the lawsuits, in the various judicial instances, and applicable case law.
In our audit strategy, we engaged our team of experts in the labor and tax areas, as appropriate, to read and discuss the main lawsuits, including the classification of the loss forecast assigned by internal and external legal counsel, as well as internal controls maintained in the area. We also evaluated the technical competence of the Company's internal and external legal advisors, carried out tests to recalculate the exposure value of the main judicial and administrative proceedings, the loss of which was classified as probable, a test for financial updating of these lawsuits, according to applicable legislation, as well as confirmation of the processes with the attorneys who sponsor the causes to obtain data related to evaluation of the prognosis, completeness of the information and adequacy of the value of the provision constituted or of the value disclosed. Additionally, we read the information disclosed in explanatory notes. We believe that the criteria and assumptions adopted by Management to determine the provision for lawsuits and contingencies, as well as the disclosures made on contingent liabilities, are consistent with the information of the internal and external legal counsel.
Marcopolo S.A. and subsidiaries
PricewaterhouseCoopers, St Mostardeiro, 800 - 9º andar, Independência, Porto Alegre-RS, Brasil 90430-000
Phone: +55 (51) 3378-1700, Fax:+55 (51) 3328-1609, www.pwc.com/br
5
Why it is a Key Audit Matter How the matter was addressed in the audit
Provision for doubtful accounts - Parent Company and Consolidated (Note 8)
The Company has trade accounts receivable balance mainly subject to credit risk. The determination of the allowance for doubtful accounts considers the existence of objective evidence of impairment of credit and the use of assumptions and factors, including, but not limited to, macroeconomic conditions, guarantees, default levels and renegotiation policies. As this is an accounting estimate prepared by Management and subject to the exercise of critical judgments, as described previously, we consider the subject as the focus area of our audit work.
Our audit procedures included, inter alia, the understanding of the relevant internal controls related to the credit analysis, as well as tests of controls on the information technology environment that support the Company's control structure. In addition, we obtained the understanding and revised the assumptions used to determine the allowance for doubtful accounts on accounts receivable, considering the levels of default, the existence of guarantees and possible renegotiations. We performed a retrospective analysis of the estimate recorded in the previous year, comparing it with the actual results incurred in the current year, and tested the mathematical calculations and models that support the Management's provision, identifying and reporting adjustments deemed not relevant by Management. As a result of these procedures, we believe that the judgments and assumptions used by Management to determine the allowance for doubtful accounts are reasonable and the disclosures are consistent with data and information obtained throughout our work.
Other matters
Statements of Value Added
The parent company and consolidated Statements of Value Added for the year ended December 31, 2017, prepared under the responsibility of the Company's management and presented as supplementary information for IFRS purposes, were submitted to audit procedures performed in conjunction with the audit of the Company’s financial statements. For the purposes of forming our opinion, we evaluated whether these statements are reconciled with the financial statements and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in Technical Pronouncement CPC 09 - "Statement of Value Added ". In our opinion, these Statements of Value Added have been properly prepared in all material respects, in accordance with the criteria established in the Technical Pronouncement, and are consistent with the parent company and consolidated financial statements taken as a whole.
Auditing the corresponding values
previous year
Marcopolo S.A. and subsidiaries
PricewaterhouseCoopers, St Mostardeiro, 800 - 9º andar, Independência, Porto Alegre-RS, Brasil 90430-000
Phone: +55 (51) 3378-1700, Fax:+55 (51) 3328-1609, www.pwc.com/br
6
The examination of the individual and consolidated financial statements for the year ended December 31, 2016 was conducted under the responsibility of other independent auditors who issued an audit report dated February 21, 2017 without qualification.
Other information accompanying the parent company and consolidated financial statements and the auditor's report
The Company’s management is responsible for the other information that comprises the Management Report.
Our opinion on the parent company and consolidated financial statements does not cover the Management Report, and we do not express any form of audit conclusion thereon.
In connection with the audit of the parent company and consolidated financial statements, our responsibility is to read the Management Report and, in doing so, consider whether this report is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement in the Management Report, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the parent company and consolidated financial statements
Management is responsible for the preparation and fair presentation of the parent company financial statements in accordance with accounting practices adopted in Brazil and the consolidated financial statements in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the parent company and consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and its subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the financial reporting process of the Company and its subsidiaries. Auditor’s responsibilities for the audit of the parent company and consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the parent company and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Marcopolo S.A. and subsidiaries
PricewaterhouseCoopers, St Mostardeiro, 800 - 9º andar, Independência, Porto Alegre-RS, Brasil 90430-000
Phone: +55 (51) 3378-1700, Fax:+55 (51) 3328-1609, www.pwc.com/br
7
As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the parent company and consolidated
financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Company and its subsidiaries.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Company to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the parent company and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the parent company and consolidated
financial statements, including the disclosures, and whether these financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the parent company and consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would
Marcopolo S.A. and subsidiaries
PricewaterhouseCoopers, St Mostardeiro, 800 - 9º andar, Independência, Porto Alegre-RS, Brasil 90430-000
Phone: +55 (51) 3378-1700, Fax:+55 (51) 3328-1609, www.pwc.com/br
8
reasonably be expected to outweigh the public interest benefits of such communication.5 Porto Alegre, February 21, 2018 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 “F” RS
Maurício Colombari CRC 195838/O-3 “S” RS
Marcopolo S.A.
Statements of financial position as of December 31, 2017 and 2016 In thousands of reais (A free translation of the original in Portuguese)
See the accompanying notes to the financial statements.
Parent Company Consolidated Parent Company Consolidated
Assets Note 2017 2016 2017 2016 Liabilities and shareholders’ equity Note 2017 2016 2017 2016
Current Current
Cash and cash equivalents 7 739,529 916,995 958,759 1,209,459 Trade accounts payable 212,993 173,278 366,399 251,454 Financial assets stated at fair value Loans and financing 16 445,258 397,447 831,071 925,062
through profit and loss 7 187,289 222,997 187,373 224,151 Derivative financial instruments 5 986 432 2,811 492
Derivative financial instruments 5 and 7 229 4,908 445 6,498 Salaries and vacation payable 69,769 96,152 103,304 127,534
Trade receivables 8 376,965 430,715 821,310 900,816 Taxes and contributions payable 43,685 22,099 88,159 105,275
Inventories 9 238,867 212,116 521,364 472,057 Customer advances 28,821 20,546 74,600 44,365
Taxes and contributions recoverable 10 113,597 86,262 228,274 164,033 Representatives on commission 21,243 28,181 25,757 33,249 Other accounts receivable 44,183 18,270 105,376 79,724 Management compensation 5,027 7,915 5,027 7,915
Provision for warranties 18,153 19,375 24,268 21,512
1,700,659 1,892,263 2,822,901 3,056,738 Other accounts payable 45,229 45,239 97,870 144,866
891,164 810,664 1,619,266 1,661,724
Non-current
Financial assets stated at fair value Non-current
through profit and loss 7 14,616 24,966 14,118 18,817 Loans and borrowings 16 569,100 734,178 1,109,595 1,374,172 Trade receivables 8 - - 428,773 481,643 Provision for losses on investments 11 12,510 - 7,636 -
Taxes and contributions recoverable 10 735 444 1,669 19,895 Provision for contingencies 17 51,722 30,294 64,770 35,345
Deferred income and social contribution taxes 19 49,183 51,577 92,185 69,779 Other accounts payable - - 2,373 28,511
Judicial deposits 17 18,365 8,764 34,151 19,585
Other accounts receivable 84 - 1,548 839 633,332 764,472 1,184,374 1,438,028
82,983 85,751 572,444 610,558 Total liabilities 1,524,496 1,575,136 2,803,640 3,099,752
Investments 11 1,439,932 1,219,929 377,003 309,074 Investment property 12 - - 50,708 48,941 Shareholders' equity attributable to controlling shareholders 20
Property, plant and equipment 13 196,317 209,571 688,355 708,269 Capital 1,264,622 1,264,622 1,264,622 1,264,622
Intangible assets 14 3,374 4,031 220,841 234,689 Capital reserves 6,487 6,982 6,487 6,982
Profit reserves 557,985 502,955 557,985 502,955
1,639,623 1,433,531 1,336,907 1,300,973 Equity appraisal adjustments 91,472 84,807 91,472 84,807
Treasury stock (21,797 ) (22,957 ) (21,797 ) (22,957 )
1,722,606 1,519,282 1,909,351 1,911,531
1,898,769 1,836,409 1,898,769 1,836,409
Minority interests - - 29,843 32,108
1,898,769 1,836,409 1,928,612 1,868,517
Total assets 3,423,265 3,411,545 4,732,252 4,968,269 Total liabilities and shareholders’ equity 3,423,265 3,411,545 4,732,252 4,968,269
Marcopolo S.A.
Statements of income Years ended December 31, 2017 and 2016 In thousands of Reais, unless stated otherwise (A free translation of the original in Portuguese)
See the accompanying notes to the financial statements.
Parent Company Consolidated
Note 2017 2016 2017 2016
Operations
Net revenue from sales and services 25 1,670,994 1,582,183 2,875,993 2,574,093
Cost of goods sold and services rendered 26 (1,407,393 ) (1,380,882 ) (2,472,347 ) (2,248,335 )
Gross profit 263,601 201,301 403,646 325,758
Sales expenses 26 (106,440 ) (87,214 ) (168,734 ) (140,920 )
Administrative expenses 26 (89,547 ) (94,894 ) (167,119 ) (165,262 ) Other net operating income (expenses) 27 (65,262 ) (65,417 ) (80,397 ) 190,356 )
Equity in income of associates 11 61,305 237,669 86,857 94,011
Operating income 63,657 191,445 74,253 303,943
Financial revenue 28 233,040 527,882 292,019 577,534
Finance costs 28 (213,568 ) (447,378 ) (273,299 ) (511,240 )
Finance income 19,472 80,504 18,720 66,294
Profit before income and social contribution taxes 83,129 271,949 92,973 370,237
Income and social contribution taxes 19 Current (8,565 ) (61,743 ) (33,267 ) (142,369 )
Deferred charges (2,394 ) 9,182 22,406 (5,322 )
Net income for the year 72,170 219,388 82,112 222,546
Attributable to: Controlling shareholders 72,170 219,388 72,170 219,388
Minority interests - - 9,942 3,158
72,170 219,388 82,112 222,546
Net income per share attributable to the controlling shareholder in the
year (stated in R$ per share)
Basic 29 0.0784 0.2445 0.0784 0.2445
Diluted 29 0.0780 0.2432 0.0780 0.2432
Marcopolo S.A.
Comprehensive statements of income Years ended December 31, 2017 and 2016 In thousands of reais (A free translation of the original in Portuguese)
See the accompanying notes to the financial statements.
Parent Company Consolidated
2017 2016 2017 2016
Net income for the year 72,170 219,388 82,112 222,546
Share of comprehensive income of subsidiary (5,036 ) - (5,036 ) - Foreign exchange differences on translation of offshore operations 11,701 (171,075 ) (506 ) (176,223 )
Total comprehensive income 78,835 48,313 76,570 46,323
Comprehensive income attributable to:
Controlling shareholders 78,835 48,313 78,835 48,313 Minority interests - - (2,265 ) (1,990 )
Total comprehensive income 78,835 48,313 76,570 46,323
Marcopolo S.A.
Statements of changes in shareholders’ equity Years ended December 31, 2017 and 2016 In thousands of reais (A free translation of the original in Portuguese)
See the accompanying notes to the financial statements.
Attributable to controlling interests
Capital reserves
Profit reserves
Capital
Gain(loss) on
sale of own
stock
Capital
transactions
reserve
Legal
reserve
For future
capital
increase
For payment of
interim
dividends
To
purchase
own stock
Equity
appraisal
adjustments
Treasury
shares Retained
losses
Total
shareholde
rs’ equity
Minority
interest
Total
shareholde
rs’ equity
December 31, 2015 1,200,000 (2,321 ) -
38,361 202,650 80,494 80,494 255,882 (27,475 ) - 1,828,085 34,098 1,862,183
Comprehensive income for the year
Net income for the year - - -
- - - - - - 219,388 219,388 3,158 222,546
Exchange variance on overseas investments - - -
- - - - (171,075 ) - - (171,075 ) (5,148 ) (176,223 )
Total comprehensive income - - -
- - - - (171,075 ) - 219,388 48,313 (1,990 ) 46,323
Contributions from shareholders and distribution to
shareholders
Share issuance 43,707 - - - - - - - - - 43,707 - 43,707
Share issuances relating to business combination 20,915 - 12,019 - - - - - - - 32,934 - 32,934
Sale of treasury shares - (2,716 ) -
- - - - - 4,518 - 1,802 - 1,802 Distributions
Legal reserve - - -
10,969 - - - - - (10,969 ) - - -
Minimum mandatory dividend - - -
- - - - - - (52,105 ) (52,105 ) - (52,105 )
Additional dividend proposed and paid - - - - - - - - - (66,327 ) (66,327 ) - (66,327 )
Transfer amongst reserves - - -
- 62,991 13,498 13,498 - - (89,987 ) - - -
Total contributions from shareholders and distribution to
shareholders 64,622
(2,716 ) 12,019
10,969 62,991 13,498
13,498 - 4,518 (219,388 ) (39,989 ) - (39,989 )
December 31, 2016 1,264,622 (5,037 ) 12,019
49,330 265,641 93,992 93,992 84,807 (22,957 ) - 1,836,409 32,108 1,868,517
Marcopolo S.A.
Statements of changes in shareholders’ equity Years ended December 31, 2017 and 2016 In thousands of reais (A free translation of the original in Portuguese)
See the accompanying notes to the financial statements.
Attributable to controlling interests
Capital reserves
Profit reserves
Capital
Gain(loss) on
sale of own
stock
Capital
transactions
reserve
Legal
reserve
For future
capital
increase
For payment of
interim
dividends
To
purchase
own stock
Equity
appraisal
adjustments
Treasury
shares Retained
losses
Total
shareholde
rs’ equity
Minority
interest
Total
shareholde
rs’ equity
December 31, 2016 1,264,622 (5,037 ) 12,019
49,330 265,641 93,992 93,992 84,807 (22,957 ) - 1,836,409 32,108 1,868,517
Comprehensive income for the year
Net income for the year - - -
- - - - - - 72,170 72,170 9,942 82,112
Share of comprehensive income of subsidiary - - - - - - - (5,036 ) - - (5,036 ) - (5,036 ) Exchange variance on overseas investments - - -
- - - - 11,701 - - 11,701 (12,207 ) (506 )
Total comprehensive income - - -
- - - - 6,665 - 72,170 78,835 (2,265 ) 76,570
Contributions from shareholders and distribution to
shareholders
Sale of treasury shares - (495 ) -
- - - - - 1,160 - 665 - 665
Distributions
Legal reserve - - -
3,609 - - - - - (3,609 ) - - -
Minimum mandatory dividend - - -
- - - - - - (17,140 ) (17,140 ) - (17,140 )
Transfer amongst reserves - - -
- 35,995 7,713 7,713 - - (51,421 ) - - -
Total contributions from shareholders and distribution to
shareholders -
(495 ) -
3,609 35,995 7,713
7,713 - 1,160 (72,170 ) (16,475 ) - (16,475 )
December 31, 2017 1,264,622 (5,532 ) 12,019
52,939 301,636 101,705 101,705 91,472 (21,797 ) - 1,898,769 29,843 1,928,612
Marcopolo S.A.
Statements of cash flows - indirect method Years ended December 31, 2017 and 2016 In thousands of reais (A free translation of the original in Portuguese)
See the accompanying notes to the financial statements.
Parent Company Consolidated
Note 2017 2016 2017 2016
Cash flows from operating activities Net income for the year 72,170 219,388 82,112 222,546
Reconciliation of income (loss) to cash provided by operating activities Depreciation and amortization 13 e 14 19,307 21,752 45,432 49,691 Gain (loss) on sale of investment assets, property, plant and equipment and intangible assets 14,867 6,812 33,359
(198,659 )
Write-off of property, plant and equipment by claim 13 24,485 - 24,485 - Equity in net income of subsidiaries 11 (61,305 ) (237,669 ) (86,857 ) (94,011 ) Allowance for doubtful accounts 8 10,040 (3,142 ) 32,127 22,629 Current and deferred income and social contribution taxes 10,959 52,561 10,860 147,691 Interest and exchange variance appropriated 72,191 (116,630 ) 120,100 (40,194 ) Minority interests - - 9,942 3,158 Changes in assets and liabilities Decrease in trade accounts receivable 43,710 123,659 108,090 252,309 Decrease (increase) in securities 51,291 47,460 49,849 (13,859 ) Inventory decrease (increase) (26,751 ) 14,416 (40,364 ) 1,399 Increase in other accounts receivable (73,340 ) (12,843 ) (109,024 ) (13,551 ) Increase (decrease) in trade payables 39,715 9,941 109,725 (29,480 ) Increase(decrease) in other accounts payable 23,964 23,661 (61,635 ) 3,687
Cash provided by operations 221,303 149,366 328,201 313,356
Taxes on profit paid (8,565 ) (61,743 ) (33,267 ) (142,369 )
Net cash provided by operating activities 212,738 87,623 294,934 170,987
Cash flows from investment activities Investments (204,585 ) (91,969 ) (10,369 ) 4,127 Dividends from subsidiaries, joint ventures and associated companies 50,751 351,170 16,366 19,559 Additions to property, plant and equipment 13 (30,418 ) (8,383 ) (52,465 ) (72,274 ) Acquisition of intangible assets 14 (691 ) (315 ) (1,827 ) (1,270 ) Receipt on sale of investments, property, plant and equipment and intangible assets 672 25 1,291 405,950
Net cash (used in) provided by investment activities (184,271 ) 250,528 (47,004 ) 356,092
Cash flows from financing activities Treasury shares 665 1,802 665 1,802 Share issuance - 43,707 - 43,707 Loans secured from unrelated parties 257,245 276,991 567,914 641,263 Payment of loans – principal (378,404 ) (471,435 ) (937,213 ) (878,397 ) Payment of loans – interest (68,299 ) (77,032 ) (118,600 ) (121,464 ) Payment of interest on shareholders’ equity and dividends (17,140 ) (118,432 ) (17,140 ) (118,432 )
Net cash used in financing activities (205,933 ) (344,399 ) (504,374 ) (431,521 )
Exchange variance on cash and cash equivalents - - 5,744 (17,261 )
(Decrease) increase in cash and cash equivalents (177,466 ) (6,248 ) (250,700 ) 78,297
Cash and cash equivalents at the beginning of the year 916,995 923,243 1,209,459 1,131,162
Cash and cash equivalents at the end of the year 739,529 916,995 958,759 1,209,459
Marcopolo S.A.
Statements of added value Years ended December 31, 2017 and 2016 In thousands of reais (A free translation of the original in Portuguese)
See the accompanying notes to the financial statements.
Parent Company Consolidated (* )
2017 2016 2017 2016
Statements of added balue Revenue 1,857,250 1,737,559 3,136,424 3,000,735 Sales of goods, products and services 1,864,800 1,731,039 3,161,015 2,760,232 Other revenue 2,490 3,378 7,536 263,132 Allowances for doubtful accounts (10,040 ) 3,142 (32,127 ) (22,629 )
Consumables acquired from third parties (including ICMS and IPI) (1,388,878 ) (1,359,232 ) (2,337,625 ) (2,094,842 ) Cost of goods sold and services provided (1,161,842 ) (1,147,429 ) (1,984,193 ) (1,809,401 ) Materials, energy, outsourced services and other (159,284 ) (143,008 ) (264,306 ) (212,665 ) Loss of asset values (67,752 ) (68,795 ) (89,126 ) (72,776 )
Gross added value 468,372 378,327 798,799 905,893 Depreciation and amortization (19,307 ) (21,752 ) (45,432 ) (49,691 )
Net added value produced by the Company 449,065 356,575 753,367 856,202 Transferred added value 294,345 765,551 378,876 671,545 Equity in income of associates 61,305 237,669 86,857 94,011 Financial revenue 233,040 527,882 292,019 577,534
Total added value to be distributed 743,410 1,122,126 1,132,243 1,527,747
Distribution of added value 743,410 1,122,126 1,132,243 1,527,747
Personnel 455,090 447,911 740,716 668,766
Direct compensation 349,706 352,886 590,446 544,375 Benefits 68,805 67,516 102,131 93,286 Government Severance Indemnity Fund for Employees (FGTS) 36,579 27,509 48,139 31,105 Taxes (1,422 ) 4,115 12,163 103,406
Federal 19,962 49,387 24,032 144,739 State (22,557 ) (46,340 ) (14,584 ) (43,231 ) Municipal 1,173 1,068 2,715 1,898 Interest expenses 217,572 450,712 297,252 533,029
Finance costs 213,568 447,378 273,299 511,240 Rent 4,004 3,334 23,953 21,789 Profits for the year, interest on shareholders’ equity and dividends 72,170 219,388 82,112 222,546
Interest on shareholders' equity 17,140 118,432 17,140 118,432 Retained earnings for the year 55,030 100,956 64,972 104,114 (*) The consolidated statement of added value is not required as part of the consolidated financial statements under IFRS.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
1 Reporting Entity
Marcopolo S.A. (“Marcopolo”) is a publicly held company, having its registered office in Caxias do
Sul, Rio Grande do Sul state. The Company's individual and consolidated financial statements for the
financial year ended December 31, 2017 embrace Marcopolo and its subsidiaries, joint ventures and
investments in associated companies (referred to as the “Company”).
Marcopolo's core activity is the manufacturing and sale of buses, automobiles, wagons, parts,
agricultural and industrial machinery, and imports and exports, and it may also acquire equity interests
in other companies.
Marcopolo's stock is traded under the symbols “POMO3” and “POMO4” on the São Paulo Stock
Exchange – BM&FBOVESPA.
2 Description of significant accounting practices
The main accounting policies used to prepare these financial statements are as follows. These
accounting policies were applied consistently to all the years presented in these individual and
consolidated financial statements.
2.1 Basis of preparation
(a) Statement of compliance
The Company's individual and consolidated financial statements have been prepared and are being presented in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil (BR GAAP), consisting of the pronouncements, guidelines and interpretations issued by the Accounting Pronouncements Committee (CPC), as approved by the Brazilian Securities Commission (CVM) and the provisions of Brazilian Corporation Law. Company Management affirms that all material information related to the financial statements and
that alone is being disclosed, which corresponds to that used by it in the management of its operations.
The Board of Directors approved the issuance of the individual and consolidated financial statements
on February 21, 2018.
(b) Reporting basis
The individual and consolidated financial statements have been prepared on a historical cost basis,
except for the following material items recognized in the balance sheets:
derivative financial instruments are measured at fair value;
non-derivative financial instruments stated at fair value through profit and loss are measured at
fair value;
available-for-sale financial assets are measured at their fair value;
the liabilities for share-based payments settled in cash are measured at fair value;
the benefit's net asset or liability is recognized as the fair value of the plans' assets, less the present
value of the defined-benefit obligation.
(c) Use of judgment and estimates
Preparing the individual and consolidated financial statements requires Management to make
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
judgments, estimates and assumptions that affect the application of the Company's accounting policies
and the reported values of assets, liabilities, revenue and expenses. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized prospectively.
Information about judgments in applying accounting policies and uncertainties in the assumptions and
estimates that pose a significant risk of an adjustment in the next financial year have been included in
the following notes:
Note 2.2 (a, ii) – Subsidiaries; Note 2.2 (a, iv) – Investments in joint ventures – Joint operations; Note 8 - Allowance for doubtful accounts; Note 14 (c) – Goodwill impairment test; Note 17 - Provision for civil, labor and tax contingencies; Note 19 – Deferred taxes.
(d) Statement of added value
The Company has prepared individual and consolidated statements of added value (DVA) in
accordance with technical pronouncement CPC 09 – Statement of Added Value, which are presented
as an integral part of the financial statements in BRGAAP applicable to publicly held companies,
while consisting of supplementary information under IFRS.
2.2 Basis of consolidation
(a) Consolidated financial statements
The following accounting policies are applied in the preparation of the consolidated financial
statements.
(i) Minority interest
The Company elected to measure the minority interest in the investee according to the proportional
interest in the net assets identifiable at the acquisition date.
Changes in the Company's ownership interest in a subsidiary that do not result in loss of control are
accounted for within equity.
(ii) Subsidiaries
Subsidiaries are all entities (including the specific purpose companies) over which the Company has
the power to determine the financial and operating policies, and in which it generally holds over half
the voting rights (voting stock). The existence and the effect of possible voting rights currently
exercisable or convertible are taken into account when evaluating whether the Company controls
another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the
Company. They are deconsolidated from the date that control ceases.
The Company uses the acquisition method to record business combinations. The amount transferred to
acquire a subsidiary is the fair value of the transferred assets, liabilities incurred and equity
instruments issued by the Company.
The amount transferred includes the fair value of a given asset or liability resulting from a contingent
payment contract when applicable. Acquisition costs are expensed in the income statement for the year
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
as and when incurred. The identifiable assets acquired and the liabilities and the contingent liabilities
undertaken in a business combination are initially measured at fair value as of the acquisition date. The
minority interest to be recognized is measured on the date of each acquisition.
Any excess amount transferred and the fair value at the acquisition date of any previous equity interest
in the acquired party in relation to the fair value of the Company's interest in net identifiable assets
acquired is recorded as goodwill. In acquisitions where the Company attributes fair value to minority
shareholders, the goodwill determined also includes the value of any minority interest in the acquired
party, and the goodwill is determined based on the Company and the minority interests. If the amount
transferred is lower than the fair value of the net assets of the subsidiary acquired, the difference is
recognized directly in the income statement for the year (Note 2.11).
(iii) Transactions eliminated on consolidation
Intra-company balances and transactions, and any unrealized income and expenses arising from intra-
company transactions, are eliminated. Unrealized gains arising from transactions with equity-
accounted investees are eliminated against the investment to the extent of the Company's interest in
the investee. Unrealized losses are eliminated the same way as unrealized gains, but only to the extent
to which there is no evidence of impairment losses.
(iv) Investments in joint ventures – Joint operations
Business combinations can be classified as a joint operation or a joint venture.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement
have rights to the assets, and obligations for the liabilities, relating to the arrangement, and
consequently account for the investment using the equity income method.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement
have rights to the net assets of the arrangement and account for the investment using the equity income
method.
(v) Loss of control
When control is lost, the Company derecognizes the subsidiary's assets and liabilities, any non-
controlling interest and other components recorded under shareholders' equity related to this
subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the
Company retained any interest in the former subsidiary, this interest is measured at fair value on the
date the control was lost. This interest is subsequently recorded using the equity method in associated
companies or at cost or fair value in an available-for-sale asset, depending on the level of influence
retained.
(vi) Associated companies
Associated companies are all the entities over which the Company exercises significant influence but
does not control financial or operational policies.
Investments in associated companies are recorded using the equity income method and recognized
initially at cost. The Company's investment in associated companies includes the goodwill identified in
the acquisition, net of any accumulated impairment loss. See Note 2.11 for more information about
impairment of non-financial assets, including goodwill.
The Company's interest in the profits or losses of its associated companies post-acquisition is
recognized in the income statement and its interest in the changes in post-acquisition reserves is
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
recognized in the reserves. Accrued changes post-acquisition are adjusted against the book value of the
investment. When the Company's interest in the losses of an associated company is equal to or greater
than its interest in that company, including any other receivables, the Company does not recognize
additional losses, unless it has incurred obligations or makes payments on behalf of the associated
company.
Unrealized gains on transactions between the Company and its associated companies are eliminated in
proportion to the Company's interest in the associated companies. Unrealized losses are also
eliminated, unless the transaction provides evidence of impairment of the asset transferred.
Accounting policies of associated companies have been changed where necessary to ensure
consistency with the policies adopted by the Company.
If the equity interest in the associated company diminishes but significant influence is maintained,
only a proportional part of the amount previously recognized in other comprehensive income shall be
reclassified in the income statement, where appropriate.
Gains and losses resulting from dilutions occurring in interests in associated companies are recognized
in the income statement.
2.3 Segment reporting
Operating segments are reported consistently with the internal reports provided to the main operating
decision takers. The main taker of operating decisions, responsible for allocating funds and evaluating
the performance of operating segments, is the Board of Directors, which is also responsible for taking
the Company's strategic decisions.
2.4 Functional currency and reporting currency
The consolidated financial statements are presented in reais (R$), which is Marcopolo's functional
currency and the Company's reporting currency. All balances have been rounded off to the nearest
thousand, except where specified otherwise.
The items included in each of the company's entities' financial information are measured by using the
currency of the main economy in which the company operates ("functional currency").
Each entity's functional currency can be seen below:
Subsidiary Denomination
Functional
currency Country
Apolo Soluções em Plásticos Ltda. Apolo Reais Brazil
Banco Moneo S.A. Banco Moneo Reais Brazil
Ciferal Indústria de Ônibus Ltda. Ciferal Reais Brazil
Ilmot International Corporation. Ilmot US Dollar Uruguay
Marcopolo Auto Components Co. MAC Renminbi China
Marcopolo Austrália Holdings Pty Ltd. MP Austrália Australian Dollar Australia
Pologren Austrália Pty Ltd. Pologren Australian Dollar Australia
Volgren Austrália Pty Ltd. Volgren Australian Dollar Australia
Marcopolo Canadá Holdings Corp. MP Canada Canadian Dollar Canada
Marcopolo International Corp. MIC US Dollar Virgin Islands
Marcopolo (Changzhou) Bus Manufacturing Co;Ltd. MBC Renminbi China
Marcopolo South África Pty Ltd. Masa Rand South Africa
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Marcopolo Trading S.A. Trading Reais Brazil
Moneo Investimentos S.A. Moneo Reais Brazil
Neobus Chile SPA. Neobus Chile Chilean Peso Chile
NewRoad México S.A. de C.V. NewRoad Mexican Peso Mexico
Rotas do Sul Logística Ltda. Rotas do Sul Reais Brazil
San Marino Bus de México S.A. de C.V. San Marino México Mexican Peso Mexico
San Marino Ônibus Ltda. San Marino Reais Brazil
Syncroparts Comércio e Distribuição de Peças Ltda. Syncroparts Reais Brazil
Polomex S.A. de C.V. Polomex US Dollar Mexico
Volare Veículos Ltda. Volare Veículos Reais Brazil
Volare Comércio e Distribuição de Veículos e Peças Ltda. Volare Comércio Reais Brazil
Volare Del Peru S.A.C. Volare Peru Novo Sol Peru
Joint subsidiaries Denomination
Functional
currency Country
Kamaz Marco LLC. Kamaz Rouble Russia
Loma Hermosa S.A. Loma Argentine Peso Argentina
Metalpar S.A. Metalpar Argentine Peso Argentina
Metalsur Carrocerias S.R.L. Metalsur Argentine Peso Argentina
Marcopolo Argentina S.A. Marsa Argentine Peso Argentina
Superpolo S.A. Superpolo Colombian Peso Colombia
Tata Marcopolo Motors Limited. TMML Rupee India
Associated companies Denomination
Functional
currency Country
GB Polo Bus Manufacturing S.A.E. GB Polo Libra Egípcia Egito
Mercobus S.A.C. Mercobus Novo Sol Peru
New Flyer Industries Inc. New Flyer Canadian Dollar Canada
Setbus Soluções Automotivas Ltda. Setbus Reais Brazil
Spheros Climatização do Brasil S.A. Spheros Reais Brazil
Spheros México S.A. de C.V. Spheros México Mexican Peso Mexico
Spheros Thermosystems Colômbia Ltda. Spheros Colômbia Colombian Peso Colombia
WSul Espumas Indústria e Comércio Ltda. WSul Reais Brazil
2.5 Foreign currency
(a) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the
Company's entities at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated and determined in foreign currencies at the reporting date
are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and
liabilities that are measured at fair value in a foreign currency are retranslated to the functional
currency at the exchange rate at the date that the fair value was determined. Non-monetary items that
are measured based on historical cost in a foreign currency are translated using the exchange rate at the
date of the transaction. Foreign currency differences arising on translation are generally recognized in
profit or loss.
However, foreign currency differences arising from the retranslation of the following items are
recognized in other comprehensive income:
available-for-sale equity investments (except on impairment in which case foreign currency
differences that have been recognized in other comprehensive income are reclassified to profit or
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
loss);
a financial liability designated as a hedge of the net investment in a foreign operation to the extent
that the hedge is effective; or
qualifying cash flow hedges to the extent the hedge is effective.
(b) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising
on acquisition, are translated to the Real at exchange rates at the reporting date. The income and
expenses of foreign operations are translated to the Real at exchange rates at the dates of the
transactions.
Foreign currency differences arising on translation to the reporting currency are recognized in other
comprehensive income and accrued in equity appraisal adjustments in shareholders' equity. However,
if the subsidiary is a non-wholly owned subsidiary, then the relevant proportion of the translation
difference is allocated to non-controlling interests.
When a foreign operation (subsidiary, associated company or joint subsidiary) is disposed the
cumulative amount in the equity appraisal adjustments is reclassified to profit or loss as part of the
gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that
includes a foreign operation while retaining control, the relevant proportion of the cumulative amount
is reattributed to non-controlling interests. In any other partial disposals overseas, the portion
corresponding to the sale is reclassified to profit and loss.
2.6 Financial instruments
The Company classifies non-derivative financial assets into the following categories: financial assets
measured at fair value through profit and loss, held-to-maturity investments, loans and receivables and
available-for-sale financial assets.
The Company classifies non-derivative financial liabilities into the following categories: financial
liabilities measured at fair value through profit or loss and other financial liabilities.
2.6.1 Non-derivative financial assets and financial liabilities - recognition and derecognition
The Company initially recognizes loans and receivables and debt instruments on the date they were
originated. All other financial assets and liabilities are recognized on the trade date, which is the date
that the entity becomes a party to the contractual provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the
asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest
in such transferred financial assets that is created or retained by the Company is recognized as a
separate asset or liability.
The Group derecognizes a financial liability when its contractual obligations are discharged, canceled
or expire.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Financial assets and liabilities are offset and the net amount presented in the statement of financial
position when, and only when, the Company has a legal right to offset the amounts and intends either
to settle them on a net basis or to realize the asset and settle the liability simultaneously
2.6.2 Non-derivative financial assets - measurement
(a) Financial assets at fair value through profit or loss
A financial asset is classified as at fair value through profit or loss if it is classified as held-for-trading
or is designated as such on initial recognition. Attributable transaction costs are recognized in profit or
loss as incurred. They are measured at fair value and changes therein, which takes into account any
dividend income, are recognized in profit or loss.
(b) Held-to-maturity financial assets
Such assets are recognized initially at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition held-to-maturity financial assets are measured at amortized cost using
the effective interest method.
(c) Loans and receivables
Such assets are recognized initially at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, loans and receivables are measured at amortized cost using the
effective interest method.
(d) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or
less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and
are used by the Company in the management of its short-term commitments.
(e) Available-for-sale financial assets
Available-for-sale financial assets are recognized initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, they are measured at fair value and changes in the
fair value of these assets, other than impairment losses and foreign currency differences on debt
instruments, are recognized in other comprehensive income and presented in the fair value reserve in
equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to
profit or loss.
2.6.3 Non-derivative financial liabilities - measurement
A financial liability is classified as at fair value through profit or loss if it is classified as held-for-
trading or is designated as such on initial recognition. Attributable transaction costs are recognized in
profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair
value and changes therein, which takes into account any dividend income, are recognized in profit or
loss.
Such non-derivative financial liabilities are recognized initially at fair value less any directly
attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured
at amortized cost using the effective interest method.
2.6.4 Repurchase and reissue of share capital (treasury shares)
When share capital recognized as equity is repurchased, the amount of the consideration paid, which
includes directly attributable costs, is recognized as a deduction from equity. Repurchased shares are
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
classified as treasury shares and are presented in the reserve for own shares. When treasury shares are
sold or reissued subsequently, the amount received is recognized as an increase in equity, and the
resulting surplus or deficit on the transaction is presented in share premium.
2.6.5 Impairment
(a) Non-derivative financial assets (including receivables)
A financial asset not classified as at fair value through profit or loss, including an interest in an equity-
accounted investee, is assessed at each reporting date to determine whether there is objective evidence
that it is impaired.
Objective evidence that financial assets are impaired includes:
default or delinquency by a debtor;
restructuring of an amount due to the Company on terms that the Company would not consider
otherwise;
indications that a debtor or issuer will enter bankruptcy/judicial reorganization;
adverse changes in the payment status of borrowers or issuers.;
the disappearance of an active market for that financial asset because of financial difficulties; or
observable data indicating a measurable decrease in the estimated future cash flows from a group of
financial assets.
(b) Financial assets measured at amortized cost
The Company considers evidence of impairment for financial assets measured at amortized cost at
both a specific asset and collective level. All individually significant assets are assessed for specific
impairment. Those found not to be specifically impaired are then collectively assessed for any
impairment that has been incurred but not yet identified. Assets that are not individually significant are
collectively assessed for impairment by grouping together assets with similar risk characteristics.
In assessing collective impairment, the Company uses historical trends of the timing of recoveries and
the amount of loss incurred, adjusted for Management’s judgment as to whether current economic and
credit conditions are such that the actual losses are likely to be greater or lesser than suggested by
historical trends.
An impairment loss is calculated as the difference between its carrying amount and the present value
of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are
recognized in profit or loss and reflected in an allowance account. The amounts are written off when
the Company believes there are no reasonable prospects of recovering them. When an event occurring
after the impairment was recognized causes the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through profit or loss.
(c) Assets classified as "available-for-sale"
Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses
accumulated in the fair value reserve in equity to profit or loss. The reclassified loss is the difference
between the acquisition cost, net of any principal repayment and amortization, and the current fair
value, less any impairment loss recognized previously in profit or loss. If the fair value of an impaired
available-for-sale debt security increases and the increase can be related objectively to an event
occurring after the impairment loss was recognized, then the impairment loss is reversed, with the
amount of the reversal recognized in profit or loss. Impairment losses recognized in profit or loss for
equity instruments classified as available-for-sale are not reversed.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(d) Investees recorded by the equity income method
Impairment of an investee valued by the equity method is measured by comparing the recoverable
value of the investment against its carrying amount. An impairment loss is recognized in net income
and reversed if there is a favorable change in the estimates used to determine the recoverable value.
(e) Non-financial assets
The carrying amounts of the Company's non-financial assets, other than inventory and deferred
income and social contribution taxes, are reviewed at each reporting date to determine whether there is
any indication of impairment. If any such indication exists, then the asset’s recoverable amount is
estimated. Goodwill and indefinite-lived intangible assets are tested annually for impairment.
Impairment losses are recognized in the income statement. Recognized losses on Cash Generating
Units (UGC) are initially allocated to reduce any goodwill allocated to this unit (or group of units),
and then to the reduction of the book value of other assets of this unit (or group of CGUs), on a pro
rata basis.
An impairment loss in respect of goodwill is not reversed. Impairment losses for other assets are only
reversed if the book value of the asset does not exceed the book value that would have been
determined, net of depreciation or amortization, had the impairment not been recognized.
2.7 Derivatives measured at fair value through profit or loss
Derivative instruments procured do not qualify for hedge accounting. The changes in the fair value of
any of the derivative instruments are immediately recognized in the income statement under "financial
revenue (expenses)".
2.8 Trade accounts receivable Trade receivables are amounts due from customers for property sold or services performed in the
ordinary course of the Company's business. If collection is expected in one year or less (or other term
compatible with the normal cycle of the Company's operations), they are classified as current assets. If
not, they are presented as non-current assets.
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost
using the effective interest method, less a provision for impairment.
2.9 Inventories
Inventories are measured at the lower of cost and net realizable value. Inventory is recorded at average
cost and includes expenses incurred on the acquisition of inventory, production and transformation
costs and other costs incurred to bring the inventories to their current status and location. In the case of
manufactured inventories and work in progress, cost includes an appropriate share of production
overheads based on normal operating capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and estimated costs necessary to make the sale.
2.10 Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at the historic cost of acquisition or construction,
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
less accumulated depreciation and impairment.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-
constructed assets includes the following:
The cost of materials and direct labor;
Any other costs to bring the asset to its location and condition necessary so it can be operated
as intended by Management;
The disassembly costs, and the restoration of the site where these assets are located; and
Loan costs on qualifying assets.
When parts of an item of property, plant and equipment have different useful lives, they are accounted
for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or
loss.
Subsequent costs
Subsequent expenditure is capitalized only when it is probable that the future economic benefits
associated with the expenditure will flow to the Company. Ongoing repairs and maintenance are
expensed as incurred.
Depreciation
Items of property, plant and equipment are depreciated by the straight-line method in the income
statement for the year, based on the estimated useful economic life of each component. Leased assets
are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain
that the Company will obtain ownership by the end of the lease term. Land is not depreciated.
Items of property, plant and equipment are depreciated from the date they are installed and are
available for use, or in the case of internally constructed assets, on the date construction is completed
and the asset is available for use.
The estimated useful lives for the current and comparative years are as follows:
Year
Buildings 40-60 Machinery 10-15 Vehicles 5 Furniture, fixtures and equipment 5-12
The depreciation methods, useful lives and residual values are reviewed at each reporting date and
adjusted when necessary.
Reclassification to investment property
When the owner ceases to occupy the property and begins using it for investment purposes, the
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
property is remeasured at fair value and reclassified as investment property. Any gain resulting from
this remeasurement is recognized in the income statement as and when the gain reverts to a previous
loss due to impairment of a specific property, with any remaining gain recognized in other
comprehensive income in the equity appraisal adjustments reserve. Any loss is immediately
recognized in the income statement.
2.11 Intangible assets and goodwill
(a) Goodwill
The goodwill consists of the positive difference between the amount paid or payable and the net
amount of the acquired entity's assets and liabilities at fair value. Goodwill resulting from the
acquisition of subsidiaries is recorded as intangible assets. If the acquirer determines goodwill, the
amount should be recorded as a gain in the net income for the period, on the acquisition date.
Goodwill is tested annually to check for probable impairment and recorded at cost value less
accumulated impairment losses, which are not reversed. The gains and losses from selling an entity
include the book value of the goodwill related to the sold entity.
The goodwill is allocated to the CGUs for impairment testing. This allocation is made to the CGUs or
groups of CGUs that should benefit from the business combination generating the goodwill, duly
segregated by operational segment.
(b) Registered trademarks and licenses
Registered trademarks and licenses acquired separately are stated at historic cost. Registered
trademarks and licenses acquired in a business combination are recognized at fair value on the
acquisition date, as they have a defined useful live and are recorded at cost value minus accumulated
amortization. Amortization is calculated using the straight-line method to allocate the cost of
registered trademarks and licenses over their estimated useful life of ten to 20 years.
(c) Software
Software licenses acquired are capitalized based on costs incurred to acquire the software and render it
ready for use. These costs are amortized during their estimated useful life of up to five years.
The costs associated with software maintenance are expensed when incurred. Development costs
directly related to the design and tests of identifiable and exclusive software products, controlled by
the Company, are recognized as intangible assets in the following situations:
. it is technically feasible to complete the software so it is available for use
. Management intends to conclude the software and use it or sell it
. the software can be sold or used
. the software will generate probable future economic rewards, which can be demonstrated
. technical and financial resources and other suitable resources are available to conclude the
development and use or sell the software, and
. the expense attributable to the software during development can be measured reliably.
Costs directly attributable, which are capitalized as part of the software product, include costs incurred
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
on employees allocated to software development and a suitable portion of the direct relevant expenses.
The costs also include financing costs related to the acquisition of the software.
Other development expenses that do not meet these criteria are expensed, as and when incurred.
Development costs previously recognized as expenses are not recognized as an asset in a subsequent
period.
Software development costs recognized as assets are amortized during the estimated useful life, not
exceeding five years.
(d) Research and development
Expenditure on research activities is recognized in profit or loss as incurred.
Development expenditure is capitalized only if development costs can be measured reliably, the
product or process is technically and commercially feasible, future economic benefits are probable,
and the Company intends to and has sufficient resources to complete development and to use or sell
the asset. The expenditure capitalized includes the cost of materials, direct labor, overhead costs that
are directly attributable to preparing the asset for its intended use, and capitalized borrowing costs.
Other development expenditure is recognized in profit or loss as incurred.
Subsequent to initial recognition, capitalized development expenditure is measured at cost less
accumulated amortization and accumulated impairment losses.
(e) Other intangible assets
Other intangible assets that are acquired by the Company and have finite useful lives are measured at
cost less accumulated amortization and any accumulated impairment losses.
(f) Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in
the specific asset to which it relates. All other expenses, including expenses on goodwill generated
internally and trademarks are recognized in the statement as and when they are incurred.
(g) Amortization
Except for goodwill, amortization is recognized in the income statement using the straight-line method
in relation to the estimated useful lives of intangible assets, as from the date they are available for use.
2.12 Investment property Investment property is stated at cost.
Any gain or loss on disposal of an investment property (calculated as the difference between the net
proceeds from disposal and the carrying amount of the item) is recognized in profit or loss.
When an investment property that was previously classified as property, plant and equipment is sold,
any related amount included in the revaluation reserve is transferred to retained earnings.
2.13 Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary
course of business from suppliers. Accounts payable are classified as current liabilities if payment is
due within one year or less. (or the normal business cycle, even if it is longer). If not, they are
presented as non-current liabilities.
Trade payables are recognized initially at fair value and subsequently measured at amortized cost
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
using the effective interest rate method. In practice, they are usually recognized at the amount of the
related invoice.
2.14 Loans and financing Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are
subsequently carried at amortized cost. Any difference between the proceeds (net of transaction costs)
and the redemption value is recognized in the statement of income during the period the loans and
financing are in progress, using the effective interest rate method.
Loans and financing are classified as current liabilities unless the Company has an unconditional right
to defer settlement of the liability for at least 12 months after the reporting period.
2.15 Determining the adjustment to present value
The items discounted to present value are:
Trade accounts receivable consisting of the credit sale to Company clients with low credit risk.
The discount rate used by Management to discount these items to present value is 100% of the
monthly CDI rate for domestic clients and the market rate for advances on export contracts for
offshore clients. The interest rate assigned to a sale transaction is determined upon the initial
registration of the transaction and is not subsequently adjusted.
Accounts payable to Company suppliers for credit purchases. The Company calculates the present
value the same way as it does for accounts receivable.
2.16 Provision A provision is recognized if, as a result of a past event, the Company has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provision is determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the liability. The unwinding of the discount is recognized as a finance cost.
2.17 Provision for warranties A provision for warranties is recognized when the underlying products or services are sold. The
provision is based on historical warranty data and weighed against all possible results in relation to the
associated probabilities.
2.18 Income and social contribution taxes
The income and social contribution taxes, both current and deferred, are calculated based on the rates
of 15% plus a surcharge of 10% on taxable income in excess of R$ 240 thousand for income tax and
9% on taxable income for social contribution on net income in the year, and consider the offsetting of
tax loss carry-forwards and the negative basis of social contribution limited to 30% of the taxable
income.
Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognized in
profit or loss except to the extent that it relates to a business combination, or items recognized directly
in equity or in other comprehensive income.
(a) Income tax and social contribution expenses - current
Current tax expense is the expected tax payable or receivable on the taxable income or loss for the
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
year and any adjustment to tax payable in respect of previous years. The amount of current tax payable
or receivable is recognized in the statement of financial position as tax assets or liabilities to better
estimate the expected value of taxes to be paid or received, reflecting the uncertainties inherent to their
calculation, if applicable. It is measured based on the rates that have been decreed by the reporting
date.
Deferred tax assets and liabilities are offset only if certain criteria have been met.
(b) Income tax and social contribution expenses - deferred
Deferred tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The
changes in deferred tax assets and liabilities in the year are recognized as a deferred income and social
contribution tax expense. Deferred tax is not recognized for:
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable profit or loss,
temporary differences related to investments in subsidiaries, associates and jointly controlled
entities to the extent that the Company is able to control the timing of the reversal of the temporary
differences and it is probable that they will not reverse in the foreseeable future, and
taxable temporary differences arising on the initial recognition of goodwill.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences to the extent that it is probable that future taxable profits will be available against
which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to
the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when
they reverse, using tax rates enacted at the reporting date.
The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow
the manner in which the Company expects to recover or settle its assets and liabilities.
Deferred tax assets and liabilities are offset only if certain criteria have been met.
2.19 Pension and post-employment benefits The Company recognizes its obligations related to employee benefit plans and related costs, net of plan assets, in accordance with the following practices:
(i) The cost of pension and other post-employment benefits provided to employees is actuarially determined using the projected unit credit method and Management's best estimate of expected investment performance for funded plans, salary increases, the retirement age of employees and expected healthcare costs. The discount rate used for determining future benefit obligations is an estimate of the interest rate in effect at the balance sheet date;
(ii) Pension plan assets are stated at market value;
(iii) Past service costs arising from plan adjustments are amortized on a straight-line basis over the
remaining service period of active employees at the date of the adjustment;
(iv) Actuarial gains and losses are immediately recognized in comprehensive income for the year;
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(v) A plan curtailment results from significant changes in the expected service period of active employees. A net curtailment loss is recognized when the event is probable and can be estimated, while a net curtailment gain is deferred until realized.
In accounting for pension and post-retirement benefits, several statistical and other factors that seek to anticipate future events are used to calculate plan expenses and liabilities. These factors include discount rate assumptions, expected return on plan assets, future increases in healthcare costs, and future salary increases. In addition, actuarial consultants also use subjective factors such as withdrawal, turnover, and mortality rates to estimate these factors. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, regulatory events, judicial rulings, higher or lower withdrawal rates, or longer or shorter participant life spans.
2.20 Capital
Common shares
Classified as shareholders' equity. Additional costs directly attributable to the issuance of shares and
options are recognized as a deduction from the shareholders' equity, net of tax.
Preference share capital
Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the
Company’s option, and any dividends are discretionary. Discretionary dividends thereon are
recognized as distributions within equity upon approval by the Company’s shareholders.
Minimum mandatory dividends and interest on shareholders’ equity paid to Marcopolo's stockholders
are recognized as a liability in the Company's financial statements at the end of the year, pursuant to
Marcopolo's bylaws. Any amount in excess of the mandatory minimum is only provisioned for on the
date they are approved by the shareholders at the annual general meeting.
2.21 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of products
and services in the ordinary course of the Company's activities. Operating revenue is recognized when:
(i) significant risks and rewards of ownership have been transferred to the customer, (ii) recovery of
the consideration is probable, (iii) the associated costs and possible return of goods can be reliably
estimated, (iv) there is no ongoing involvement with the goods sold and (v) and the amount of revenue
can be measured reliably. Revenue is stated net of returns, trade discounts and volume rebates and
after eliminating intercompany sales.
(a) Bus sales
Revenue is not recognized until: (i) the cars have been delivered to the client; (ii) the risks of
obsolescence and loss have been transferred to the client; (iii) the client has accepted the cars pursuant
to the sale contract; and (iv) the acceptance terms have been agreed, or the Company has objective
evidence that all acceptance criteria have been met.
Sales are recorded based on the price specified in the sale contract, and are discounted to present
value.
2.22 Finance income and finance costs
The Company's finance income and finance costs comprise:
interest revenue and expenses;
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
net gains/losses on the sale of available-for-sale financial assets;
net gains/losses on financial assets measured at fair value through profit or loss;
net foreign currency gains and losses on financial assets and financial liabilities;
fair value losses charged as contingent payment classified as a financial liability;
financial asset impairment (other than accounts receivable);
gains/losses on hedge instruments recognized in profit or loss; and
reclassifications of net gains previously recognized in other comprehensive income.
Interest income and expenses are recognized as they accrue in profit or loss, using the effective interest
method.
The Company classifies interest on shareholders' equity received as cash flows from investment
activities.
2.23. Standards, amendments and interpretations of standards
(a) Standards, amendments and interpretations of existing standards that are not yet effective:
A number of new standards, amendments to standards and interpretations are effective for annual
periods beginning after 1 January 2018, and have not been applied in preparing these financial
statements. The Company is not planning to implement these standards in advance.
IFRS 9 – Financial Instruments
Published in July 2014, IFRS 9 replaced the guidelines in IAS 39 Financial Instruments: Recognition
and Measurement. IFRS 9 includes a logical model for classification and measurement of financial
instruments, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed
approach to hedge accounting. The standard carries over from IAS 39 the requirements for recognition
and derecognition of financial assets and financial liabilities. IFRS 9 is effective for annual periods
beginning on or after January 1, 2018. The effective impact of the adoption of IFRS 9 in the
Company's individual and consolidated financial statements in 2018 cannot be estimated with
confidence, as it will depend on the existing financial instruments and the economic conditions in
2018, as well as on accounting decisions and judgments that the Company will make in future.
However, Management performed a preliminary assessment of the potential impact of adopting IFRS
9 based on its position as at December 31, 2017 and concluded that there will be no significant
impacts. Management also evaluated the new impairment model for financial assets and reached the
same conclusion that there will be no significant impacts, since the Company has already been
working with a hybrid model of expected and incurred losses.
IFRS 15 Revenue from Contracts with Customers IFRS 15 requires an entity to recognize revenue in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. The new standard will replace
most of the detailed guidelines about revenue recognition currently set out in IFRS and U.S. GAAP
when the new standard is adopted. The new standard is applicable on or after January 1, 2018. The
standard can be adopted retrospectively using a cumulative effects approach. The Company's
Management analyzed its operations based on the five-step model defined by this new standard,
namely: identification of the contract with the customer, identification of performance obligations,
determination of the transaction price, transaction price allocation and recognition of revenue. Based
on this analysis, Management concluded that there will be no significant impacts on the Company's
individual and consolidated financial statements.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
IFRS 16 - Leases (Leasing Operations)
This standard replaces the previous lease standard, IAS 17/CPC 06 (R1) - Leasing Operations, and
related interpretations, and establishes the principles for the recognition, measurement, presentation
and disclosure of leases for both parties to a contract , i.e. customers (lessees) and suppliers (lessors).
Tenants are required to recognize a lease liability reflecting future lease payments and a "right to use
an asset" for virtually all leases, with the exception of certain short-term leases and low value asset
leases. For landlords, the accounting treatment remains practically the same, with the classification of
leases as operating leases or financial leases, and accounting for these two types of lease differently.
The new standard is applicable as of January 1, 2019. The Company is evaluating the effects of the
standard on the financial statements and their disclosures.
The new standards or modifications are not expected to have a material impact on the Company's
consolidated financial statements.
Accounting for Acquisitions of Interests in Joint Operations (amendment of IFRS 11)
Acceptable Methods of Depreciation and Amortization (amendments of CPC 27/IAS 16 and
CPC 04/IAS 38)
Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture
(amendments of CPC 36/IFRS 10 and CPC 18/IAS 28)
Disclosure Initiative (Amendment of CPC 26/IAS 1).
The Accounting Pronouncements Committee has not yet issued an accounting pronouncement or
amended existing pronouncements related to all these new IFRS standards. Early adoption of these
IFRS is not therefore permitted for entities that disclose their financial statements in accordance with
the accounting practices adopted in Brazil.
3 Critical accounting estimates and judgments
Estimates and judgments are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Based on assumptions, the Company makes estimates concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next year are addressed in Note 2.1 (c).
4 Financial risk management
4.1 Risk factors
(a) Market risk
(i) Exchange rate risk
The Company's results are susceptible to currency effects as its assets and liabilities are subject to the
volatility of foreign exchange rates, mainly the U.S. Dollar.
As an exchange rate hedge strategy, Management uses natural hedges and maintains related assets also
susceptible to exchange variance.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
As at December 31, 2017 and 2016 the Company had assets, liabilities and forwards denominated in
foreign currency in the following amounts (thousands of reais):
Consolidated
2017
Trade
accounts
receivable
Trade accounts
payable Loans Forwards
Currency
US Dollars 339,614 41,172 332,336 334,117
Australian Dollars 33,936 32,372 90,527 26,146
Chilean Pesos - - 3,993 -
South African Rand 14,143 3,528 808 808
Chinese Renminbi 8,706 10,423 20,262 -
396,399 87,495 447,926 361,071
Consolidated
2016
Trade
accounts
receivable
Trade accounts
payable Loans Forwards
Currency
US Dollars 316,507 15,458 322,577 196,797
Australian Dollars 43,023 26,677 74,243 30,480
South African Rand 20,466 49 842 5,138
Chinese Renminbi 18,787 - 15,756 -
398,783 42,184 413,418 232,415
(ii) Interest rate risk The results of the Company are susceptible to losses arising from fluctuations in interest rates that lead to an increase in financial expenses related to loans and financing obtained in the market, or a decrease in financial income related to financial investments. The Company continuously monitors the market interest rates in order to assess any requirement to use derivatives to protect itself against the risk of variation to these rates.
(iii) Sales and purchases price risk Considering that exports are equivalent to 33.4% of the projected revenues for 2018, a possible volatility of foreign exchange rates represents, in fact, a price risk that may alter the results planned by Management. On the other hand, the purchases of raw materials considered as commodities represent approximately 27% of total purchases, and accordingly, the Company is subject to the effects of market price oscillations of these items. The Company constantly monitors the price trends to mitigate these risks.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(b) Credit risk The credit risk is administrated on a corporate basis. Credit risk arises from cash and cash equivalents, derivative financial instruments, deposits at banks and financial institutions, as well as credit exposure to customers, including outstanding receivables and repurchase transactions. If no independent classification exists, the credit ratings department evaluates the quality of the customer's credit, taking into account its financial position, past experience and other factors. The individual risk limits are determined based on internal or external classifications according to the limits established by the Board of Directors. The use of credit limits is monitored regularly. The Company also had an allowance for doubtful accounts of R$ 39,470 (Parent Company) and R$ 120,180 (consolidated) as at December 31, 2017 (December 31, 2016 - R$ 29,430 e R$ 87,893) representing 9.5% and 8.8% respectively, of the outstanding accounts receivable balance of the Parent Company and Consolidated (December 31, 2016 – 6.4% and 6.0%) which was recorded to cover credit risk.
(c) Liquidity risk This is a risk of the Company having insufficient liquid funds to meet its financial commitments, as a result of a time or volume mismatch between scheduled receipts and payments. Future receipt and payment premises are established to administrate cash liquidity in local and foreign currency, which are directly monitored by the Treasury Department.
Consolidated
2017
Contractual cash flow
Total Total
Carrying
amount
Contractual
cash flow
Carrying
amount
Contractual
cash flow
Carrying
amount
Non-derivative financial liabilities
Loans and borrowings 1,940,666 2,175,244 894,605 1,082,033 198,606
Trade accounts payable 366,399 366,399 366,399 - -
Derivative financial liabilities
Derivative financial instruments 2,811 2,811 2,811 - -
Consolidated
2016
Contractual cash flow
Carrying
amount
Total
Between one
and two
years
Between two
and five
years
Over five
years
Non-derivative financial liabilities
Loans and borrowings 2,299,234 2,616,781 978,687 1,395,853 242,241
Trade accounts payable 251,454 251,454 251,454 - -
Derivative financial liabilities
Derivative financial instruments 492 492 492 - -
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(d) Additional sensitivity analysis required by CVM
The table below denotes the sensitivity analysis of the financial instruments, which explains the risks
that could generate material changes for the Company, with the most probable scenario as evaluated
by Management, for a period of 12 months during which the next financial statements shall be
released. Two more scenarios are presented, which, if they occur, may generate adverse results for the
Company: scenario II, which considers a possible deterioration of 25%; and scenario III, an extreme
deterioration of 50%, in accordance with CVM Instruction 475/08.
Scenario
probable
Assumptions Effects on results (Scenario I ) (Scenario II ) (Scenario III )
CDI - % 6,50 8,13 9,75
TJLP - % 7,00 8,75 10,50 Exchange rate - USD 3,30 4,13 4,95
Exchange rate - Euro 3,90 4,88 5,85
LIBOR - % 1,75 2,19 2,63 Cost of advances on foreign
exchange contracts (ACC)
discount - %
4,04 5,05 6,06
Short-term investments 57,685 72,095 86,501
Interbank transactions 81,752 92,709 103,665
Loans and borrowings (111,976 ) (196,153 ) (280,967 ) Forwards 2,481 (58,031 ) (109,583 )
Receivables less payables (691 ) 76,362 153,416
Gain/(Loss) 29,251 (13,018 ) (46,968 )
4.2 Capital risk management
The Company's objectives when managing capital are to safeguard its operational continuity, in order
to provide returns to stockholders and to maintain an optimal capital structure to reduce the cost of
capital.
In order to preserve the sustainability and perpetuation of its business, in addition to social and
environmental concerns, the Company places emphasis on the economic and financial results, which
lead to the aggregation of value to the business and return to stockholders. As from 2001, the
methodology known as value added management was adopted to monitor the Company's performance.
This methodology focuses on operational actions which result in superior financial performance. The
staff received training under this program to develop and use measurement and control tools to
accomplish targets, thus enabling the simulation and analysis of the efficient management of working
capital and the effects of new investments on the Company's profitability. At the same time,
Marcopolo adopted the concept of Balanced Score Card (BSC) that translates each unit's strategy into
objectives, drivers, targets and action plans, which are frequently monitored and managed. The tools
related to objectives include: Weighted Average Cost Of Capital (WACC), Net Debt/Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA) and Ratio between Debt/Shareholders'
Equity. These key indicators were as follows in the past few years:
WACC - between 8% and 12% p.a.
Net Debt/EBITDA - between 1.50x and 2.50x
Debt/Equity ratio - between 25% and 80%
The financial leverage indexes as at December 31, 2017 and 2016 have been summarized below (Note
31):
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Consolidated Industrial Segment Financial Segment
2017 2016 2017 2016 2017 2016
Total loans 1,940,666 2,299,234 1,442,663 1,645,904 498,003 653,330
Derivative financial instruments 2,811 492 2,811 492 - -
Less: cash and cash equivalents (958,759 ) (1,209,459 ) (946,698 ) (1,164,763 ) (12,061 ) (44,909 )
Less: short-term investments (187,373 ) (224,151 ) (187,373 ) (224,151 ) - -
Less: derivative financial instruments (445 ) (6,498 ) (445 ) (6,498 ) - -
Net debt (A) 796,900 859,618 310,958 250,984 485,942 608,421
Total shareholders' equity (B) 1,928,612 1,868,517 1,694,943 1,636,984 233,669 231,533
Financial leverage index - % (A/B) 41 46 18 15 208 263
4.3 Fair value estimation
The carrying amounts less impairment provision of trade receivables and payables are assumed to
approximate their fair value. The fair value of financial liabilities for reporting purposes is estimated
by discounting the future contractual cash flows at the current market interest rate that is available to
the Company for similar financial instruments.
The Company adopted CPC 40/IFRS 7 for financial instruments that are measured in the balance sheet
at fair value; this requires disclosure of fair value measurements by level of the following fair value
hierarchy:
. Prices quoted (unadjusted) in active markets for identical assets and liabilities (level 1).
. Inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices) (level 2), and
. Inputs for the asset or liability that are not based on observable market data (i.e. unobservable
inputs) (level 3).
The following table presents the Company's assets and liabilities that are measured at fair value at
December 31, 2017 and 2016 which were fully classified in level 2:
Consolidated
2017 2016
Assets
Financial assets at fair value through profit or loss
- Trading derivatives 445 6,498
Available-for-sale assets
- Bank Deposit Certificates 187,373 224,151
187,818 230,649
Available-for-sale assets
- Related parties 14,118 18,817
Liabilities
Financial liabilities at fair value through profit or loss
- Trading derivatives 2,811 492
2,811 492
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
4.4 Other risk factors
At the initiative of the Board of Directors, the Company may conduct internal assessments whenever
external or internal factors indicate the possibility of distortions in the financial statements, financial
losses or damage to its repute have occurred. These procedures are carried out independently with or
without the support of external experts, and the findings are reported to the Board of Directors.
5 Financial instruments by category
(a) Financial assets stated at fair value through profit or loss
(i) Short-term investments are classified as held-for-trading. The market value is recognized in
the statements of financial position.
(ii) Derivatives - The derivative instruments contracted by the Company aim at protecting its
transactions against the risks of foreign exchange and interest rate fluctuations, and are not
used for speculative purposes.
(b) Loans and receivables
(i) Cash and cash equivalents - The market values of current account balances in banks are
similar to the recorded balances, considering their characteristics and maturities.
(ii) Trade accounts receivable - Accounts receivable on the sale of goods and services.
(iii) Related-party transactions - Loans.
(c) Available-for-sale
Short-term investments - Funds held in Bank Deposit Certificates.
(d) Financial liabilities stated at fair value through profit or loss
Derivatives - The derivative instruments contracted by the Company aim at protecting its
transactions against the risks of foreign exchange and interest rate fluctuations, and are not used for
speculative purposes
(e) Other financial liabilities
(i) Loans and financing - The loans and financing are registered according to interest incurred.
The difference between the book value and the market value, calculated in accordance with the
discounted cash flow method, may be summarized as follows:
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Consolidated Consolidated
2017 2016
Nature of assets
Carrying
amount Market value
Carrying
amount Market value
Loans and borrowings 1,940,666 1,927,858 2,299,234 2,273,390
(ii) Trade payables - Payables on the acquisition of goods and services.
(f) Derivative financial instruments
The table below presents an estimate of the market value of the positions of Non-Deliverable Forward
(NDF) and Forward contracts. Unrealized gains and losses on derivatives are recorded in "derivative
financial instruments" in assets or liabilities, with a corresponding entry to the results in the item
Finance income (or costs) from exchange variance respectively.
Assets
Notional
value
Fair value Amounts
receivable
Company Counterparty Status Initial Final 2017 2017 2016 2017 2016
Marcopolo USD k BRADESCO Sale 10.26.17 02.16.18 5,000 45 773 45 773 SANTANDER Sale 12.26.17 04.24.18 10,030 132 3,059 132 3,059 FIBRA Sale 12.11.17 04.17.18 5,306 52 1,076 52 1,076
229 4,908 229 4,908
Masa USD k STD Purchase - 54 - 54 ABSA Purchase - 45 - 45
- 99 - 99
MP Austrália USD k WESTERN UNION Purchase 10.16.17 12.06.18 3,800 69 472 69 472 CITIBANK Purchase - 17 - 17 CNY k CITIBANK Purchase 10.16.17 03.29.18 10,447 95 266 95 266 CHF k CITIBANK Purchase - 18 - 18 SGD kl CITIBANK Purchase 10.16.17 10.11.18 1,240 24 4 24 4
188 777 188 777
San Marino USD kl SANTANDER Sale 12.07.17 02.16.18 1,465 9 - 9 -
9 - 9 -
Ciferal USD k BRADESCO Sale 11.03.17 03.15.18 1,800 19 - 19 -
19 - 19 -
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Polomex USD k MONEX Purchase - 714 - 714
- 714 - 714
445 6,498 445 6,498
Liabilities
Notional
value
Fair value Amounts
payable
Company Counterparty Status Initial Final 2017 2017 2016 2017 2016
Marcopolo USD k BRADESCO Sale 10.23.17 02.20.18 5,500 (199 ) (182 ) (199 ) (182 ) SANTANDER Sale 10.25.17 04.26.18 19,035 (579 ) (250 ) (579 ) (250 ) FIBRA Sale 10.27.17 03.29.18 10,175 (203 ) - (203 ) - SAFRA Sale 12.07.17 03.22.18 1,425 (5 ) - (5 ) -
(986 ) (432 ) (986 ) (432 )
Ciferal USD k BRADESCO Sale 10.27.17 05.17.18 24,600 (553 ) (1 ) (553 ) (1 )
(553 ) (1 ) (553 ) (1 )
San Marino USD k SANTANDER Sale 11.28.17 02.20.18 4,605 (110 ) - (110 ) -
(110 ) - (110 ) -
MP Austrália USD k WESTERN UNION Purchase 10.16.17 10.16.18 296 (34 ) (10 ) (34 ) (10 ) SGD k CITIBANK Purchase 10.28.17 01.16.18 316 (1 ) (1 ) (1 ) (1 ) CHF k CITIBANK Purchase 10.16.17 06.12.18 1,013 (85 ) (11 ) (85 ) (11 )
(120 ) (22 ) (120 ) (22 )
Masa USD k STD Purchase 11.22.17 05.31.18 2,755 (864 ) - (864 ) - ABSA Purchase 11.22.17 05.31.18 518 (178 ) - (178 ) - (1,042 ) - (1,042 ) -
Polomex USD k MONEX Purchase 10,500 - (37 ) - (37 )
- (37 ) - (37 )
(2,811 ) (492 ) (2,811 ) (492 )
The Company had the following gains and losses from derivatives in the financial years ended December 31, 2017 and 2016: Realized gains/losses
Interest on derivatives Exchange variance on derivatives
2017 2016 2017 2016
Marcopolo 13,117 10,753 603 12,218 Ciferal - - (810 ) - Volare ES - (270 ) 10 (300 ) San Marino (49 ) - (4,202 ) - Masa - - - (299 ) Polomex - - 5,547 -
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
6 Consolidated financial statements
The consolidated financial information includes the financial statements of Marcopolo S.A. and its
subsidiaries, as listed below:
(a) Subsidiaries
Percentage interest
2017 2016
Direct Indirect
Minority
interest Direct
Indirect
Minority
interest
Apolo 65.00 - 35.00 65.00
-
35.00
Banco Moneo - 100.00 - -
100.00
- Ciferal 99.99 0.01 - 99.99
0.01
-
Ilmot 100.00 - - 100.00
-
- MAC 100.00 - - 100.00
-
-
MBC 100.00 - - - - - MIC 100.00 - - 100.00
-
-
Masa 100.00 - - 100.00
-
- Trading 99.99 - 0.01 99.99
-
0.01
Moneo 100.00 - - 100.00
-
- MP Austrália 100.00 - - 100.00
-
-
MP Canada 100.00 - - 100.00
-
- Pologren (1) - 100.00 - -
75.00
25.00
Volgren (1) - 100.00 - -
75.00
25.00 Polomex 3.61 70.39 26.00 3.61
70.39
26.00
San Marino 100.00 - - 100.00 - - Rotas do Sul (2) - 100.00 - - 100.00 - San Marino México (2) - 100.00 - - 100.00 - NewRoad (2) - 100.00 - - 100.00 - Neobus Chile (2) - 100.00 - - 100.00 - Syncroparts 99.99 0.01 - 99.99
0.01
-
Volare Veículos 99.90 0.10 - 99.90
0.10
- Volare Comércio 99.90 0.10 - 99.90
0.10
-
Volare Peru 99.90 0.10 - 99.90 0.10 -
(1) Consolidated in MP Australia; (2) Consolidated in San Marino.
The following main practices are adopted in the preparation of the consolidated financial statements:
(a) Elimination of intercompany asset and liability account balances;
(b) Elimination of investment in the capital, reserves and retained earnings of the subsidiaries;
(c) Elimination of intercompany income and expenses and unearned income arising from intercompany transactions. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment;
(d) Elimination of tax charges on unearned income and presented as deferred tax in the consolidated balance sheet; and
(e) Identification of minority interests in the consolidated financial statements.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(b) Joint arrangements (not consolidated)
Percentage interest
2017 2016
Direct Indirect
Direct
Indirect
GB Polo - -
49.00
-
Kamaz 50.00 -
50.00
-
Loma 50.00 -
50.00
-
Metalpar (1) 1.00 49.00
1.00
49.00
Metalsur (1) - 25.50
-
25.50
Marsa (1) - -
-
50.00
Superpolo 20.61 29.39
20.61
29.39
TMML 49.00 -
49.00
-
(1) Consolidated in joint arrangement (not consolidated) Loma;
(2) Consolidated in joint arrangement (not consolidated) at San Marino up to the business combination.
The main balances of the financial statements of the direct joint ventures can be summarized as
follows:
Assets Liabilities Net revenue Profit (loss )
2017 2016 2017 2016 2017 2016 2017 2016
Kamaz 1,249 5,473 1,709 10,577 73 2,315 (732 ) 570
Loma 256,199 227,120 193,291 159,214 471,143 371,993 16,800 15,588
Superpolo 228,628 216,494 140,986 137,731 172,209 249,748 18,016 14,794
TMML 197,134 188,822 143,614 147,791 268,086 244,842 8,729 4,547
(c) Associates (not consolidated)
Percentage interest
2017 2016
Direct Indirect
Direct
Indirect
GB Polo 20.00 - - -
Mercobus 40.00 -
40.00
-
New Flyer - 10.47 - 10.81
Setbus 25.10 21.96
25.10
21.96
Spheros 40.00 -
40.00
-
Spheros Colombia (1) - 40.00
-
40.00
Spheros Mexico (1) - 40.00
-
40.00
WSul 30.00 -
30.00
- (1) Consolidated in associate (not consolidated) Spheros
The main balances of the financial statements of the direct joint ventures can be summarized as
follows:
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Assets Liabilities Net revenue Profit (loss)
2016 2015 2016 2015 2016 2015 2016 2015
GB Polo 20,044 54,299 28,576 73,919 28,793 45,446 (4,529 ) (27,186 )
Mercobus 3,914 6,989 621 1,786 8,447 11,330 2,485 4,680
Setbus 13,605 11,349 26,454 24,978 17,150 2,460 781 (2,430 )
Spheros 125,776 82,207 48,651 31,274 166,813 159,558 25,648 18,503
WSul 11,170 12,475 1,253 1,852 24,661 23,750 3,293 4,360
The nature of the subsidiaries is presented below:
Apolo Soluções em Plásticos Ltda. - Located in Caxias do Sul, State of Rio Grande do Sul, Brazil, with a share
of 65% in the capital, Apolo carries out the plastic injection of parts, development, manufacture and sale of
products and plastics.
Moneo Investimentos S. A. – Wholly owned subsidiary located in Caxias do Sul, State of Rio Grande do Sul,
Brazil. Moneo was founded to acquire interests in other companies and exclusively those which are defined to
be financial institutions or other institutions authorized to operate by the Central Bank of Brazil and it has the
following subsidiary:
Banco Moneo S.A. – Located in Caxias do Sul, State of Rio Grande do Sul, Brazil, is engaged in the
banking business in general, in all financial operations Central Bank of Brazil has authorized it for in
the market of Brazil.
Ciferal Indústria de Ônibus Ltda. – A wholly owned subsidiary located in Duque de Caxias, State of Rio de
Janeiro, Brazil, engaged in manufacturing car bodies for buses and minibuses, besides their parts, components
and accessories.
San Marino Ônibus Ltda. – Wholly owned subsidiary located in Caxias do Sul, State of Rio Grande do Sul,
Brazil, San Marino is engaged in manufacturing bus and minibus bodies, in addition to their parts, components
and accessories and has an interest in other companies, with the following subsidiaries:
San Marino Bus de México S. A. de C.V. – A wholly owned subsidiary located in Toluca, State of
Mexico, Mexico, it is engaged in manufacturing bus bodies.
Rotas do Sul Logística Ltda. A wholly owned subsidiary located in Caxias do Sul, State of Rio Grande
do Sul, Brazil, it is engaged in providing transportation services.
NewRoad México S.A. de C.V. A wholly owned subsidiary located in Mexico, founded to couple
bodies and sell parts.
Neobus Chile SPA. - A wholly owned subsidiary located in Chile, founded to sell products and parts.
Ilmot International Corporation. - A wholly owned subsidiary, located in Uruguay. Ilmot was founded to acquire
interests in other companies and has the following subsidiaries/associated companies:
Polomex S.A. de C.V. - located in Monterrey, Nuevo León, Mexico, with a share of 70.39% in the
capital. Polomex is engaged in manufacturing bus bodies.
Superpolo S.A.S. located in Colombia, with a share of 29.39% in the capital. Superpolo is engaged in
manufacturing bus bodies.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Marcopolo Auto Componentes Co. A wholly owned subsidiary, located in Changzhou City, China. It is engaged
in developing and selling buses components.
Marcopolo Austrália Holdings Pty Ltd. A wholly owned subsidiary, located in Melbourne, Australia. MP
Australia was founded to acquire interests in other companies and has the following subsidiary:
Pologren Austrália Holdings Pty Ltd. - Subsidiary, located in Melbourne, Australia. Pologren was
founded to acquire interests in other companies and has the following subsidiary:
Volgren Austrália Pty Limited. - located in Melbourne, Australia, with a share of 75% in the
capital. Volgren is engaged in manufacturing bus bodies.
Marcopolo (Changzhou) Bus Manufacturing Co;Ltd - An integral subsidiary, located in ChangZhou City, China,
that aims to develop and manufacture bus bodies and components.
Marcopolo Canadá Holdings Corp. A wholly owned subsidiary, located in Canada. MP Canada was founded to
acquire interests in other companies and has the following associated company:
New Flyer Industries Inc. – located in Canada, with a share of 10.81% of the capital. New Flyer is
engaged in manufacturing buses.
Marcopolo International Corp. A wholly owned subsidiary, located in British Virgin Islands. Currently this
subsidiary is not operating.
Marcopolo South África Pty Ltd. A wholly owned subsidiary, located in Johannesburg, South Africa. Masa is
engaged in manufacturing bus bodies.
Marcopolo Trading S. A. – A wholly owned subsidiary located in Caxias do Sul, State of Rio Grande do Sul,
Brazil. It is engaged in provide technical services regarding foreign trade.
Superpolo S.A.S. located in Colombia, with a share of 20.61% in the capital. Superpolo is engaged in
manufacturing bus bodies.
Syncroparts Com e Distr. de Peças Ltda. – A wholly owned subsidiary located in Caxias do Sul, State of Rio
Grande do Sul, Brazil. It is engaged in trading and distribution of parts for vehicles and has interests in other
companies.
Volare Veículos Ltda. A wholly owned subsidiary located in São Matheus, State of Espírito Santo, Brazil, it is
engaged in manufacturing car bodies for buses and minibuses, besides their parts, components and accessories.
Volare Comércio e Distribuição de Veículos e Peças Ltda. – A wholly owned subsidiary, located in São Paulo,
State of São Paulo, Brazil, it is engaged in selling vehicle parts and accessories.
Volare Del Perú S.A.C. – A wholly owned subsidiary, located in Peru, engaged in the sale of vehicles and parts
and accessories.
GB Polo Bus Manufacturing S. A. E. – A subsidiary with a share of 49% in the capital, located in Suez, Egypt, it
is engaged in manufacturing bus bodies.
Kamaz Marco LLC. An associated company with a share of 50% of the capital, located in Moscow, Russia, it is
engaged in manufacturing bus bodies.
Loma Hermosa S. A. – An associated company with a share of 50% of the capital, located in Buenos Aires,
Argentina. Loma was founded to acquire interests in other companies and has the following subsidiaries
associated companies:
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Metalpar S.A. A subsidiary with a share of 98% of capital, located in Buenos Aires, Argentina.
Metalpar is engaged in manufacturing bus bodies.
Metalsur Carrocerias S.R.L. A subsidiary with a share of 51% of capital, located in Santa Fé, Argentina.
Metalsur is engaged in manufacturing bus bodies.
Marcopolo Argentina S.A. A joint subsidiary with a share of 50% of capital, located in Buenos Aires,
Argentina. A wholly owned subsidiary engaged in the sale of vehicle parts and accessories.
Tata Marcopolo Motors Limited. An associated company with a share of 49% in the capital, located in Dharwad,
India, it is engaged in manufacturing bus bodies.
Mercobus S.A.C. An associated company with a share of 40% in the capital, located in Peru, it is engaged in
commercial representation of bus bodies.
Setbus Soluções Automotivas Ltda. An associated company with a direct and indirect interest of 25.10% and
21.96%, respectively, of the capital, located in Caxias do Sul, State of Rio Grande do Sul, Brazil. Setbus is
engaged in automotive solutions.
Spheros Climatização do Brasil S. A. – An associated company with a share of 40% in the capital, located in
Caxias do Sul, State of Rio Grande do Sul, Brazil. Spheros is engaged in the assembly, sale, import and export of
refrigeration and air conditioning equipment and has interests in other companies, with the following
subsidiaries:
Spheros México S. A. de C. V. – A wholly owned subsidiary located in Mexico engaged in the
assembly, sale, import and export of refrigeration and air conditioning equipment.
Spheros Thermosystems Colômbia Ltda. - A wholly owned subsidiary located in Colombia engaged in
the assembly, sale, import and export of refrigeration and air conditioning equipment.
WSul Espumas Indústria e Comércio Ltda. An associated company with a share of 30% in the capital, located in
Caxias do Sul, State of Rio Grande do Sul, Brazil. WSul is engaged in the manufacturing and sale of molded
polyurethane foam and derivatives thereof.
7 Cash and cash equivalents, financial assets and derivatives
7.1 Cash and cash equivalents
Parent Company Consolidated
2017 2016 2017 2016
Cash and banks
Brazil 26,138 24,954 49,157 30,821
Foreign 190 138 99,805 118,441
Highly liquid marketable securities
In Brazil (*) 713,201 891,903 809,797 1,022,078
Foreign - - - 38,119
Total cash and cash equivalents 739,529 916,995 958,759 1,209,459
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(*) Substantially correspond to Bank Deposit Certificates (CDBs) remunerated at between 98.0% and
102.0% of the Interbank Deposit Certificate (CDI) rate, resulting in a weighted average of
approximately 100.1% of the CDI rate as at December 31, 2017.
7.2 Financial assets at fair value through profit or loss, available-for-sale assets and derivative
financial instruments
Parent Company Consolidated
2017 2016 2017 2016
Current
Held-for-trading
NDFs 229 4,908 445 6,498
Available-for-sale
Bank deposit certificates (*) 187.289 222,997 187,373 224,151
187,518 227,905 187,818 230,649
Non-current
Available-for-sale
Related-party transactions 14,616 24,966 14,118 18,817
14,616 24,966 14,118 18,817
(*) Substantially correspond to CDBs remunerated at between 100% and 100.25% of the ICDI rate,
resulting in a weighted average of approximately 100.05% of the CDI as at December 31, 2017.
8 Trade accounts receivable
Parent Company Consolidated
2017 2016 2017 2016
Current
Domestic customers 151,266 178,047 253,066 250,288
Foreign customers 227,575 226,943 390,600 408,433
Related parties 39,611 58,206 - -
Interbank transactions - - 267,862 315,934
Adjustment to present value (2,017 ) (3,051 ) (2,727 ) (4,599 )
Allowance for doubtful accounts (39,470 ) (29,430 ) (87,491 ) (69,240 )
376,965 430,715 821,310 900,816
Non-current
Foreign customers - - 15,673 -
Interbank transactions - - 445,789 500,296
Allowance for doubtful accounts - - (32,689 ) (18,653 )
- - 428,773 481,643
376,965 430,715 1,250,083 1,382,459
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Interbank accounts refer to the financing for the acquisition of buses granted by Banco Moneo through
the Government Agency for Machinery and Equipment Financing (FINAME) program.
Below is the aging list of trade accounts receivable:
Parent Company Consolidated
2017 2016 2017 2016
Amounts outstanding 310,603 310,137 1,155,439 1,242,492
Overdue:
Up to 30 days 30,214 31,841 53,185 47,912
31 to 60 days 5,663 5,461 14,304 12,075
61 to 90 days 2,348 3,433 15,350 7,560
91 to 180 days 5,639 13,123 27,662 40,169
Over 181 days 63,985 99,201 107,050 124,743
Adjustment to present value (2,017 ) (3,051 ) (2,727 ) (4,599 )
Allowance for doubtful accounts (39,470 ) (29,430 ) (120,180 ) (87,893 )
376,965 430,715 1,250,083 1,382,459
The changes in the allowance for doubtful accounts are as follows:
Parent Company Consolidated
Balance at January 1, 2016 (32,572 ) (77,588 )
Provision recorded in the year (2,056 ) (28,298 )
Reversal of provision for receivables (write-off) 6,063 16,951
Exchange variance (865 ) 1,042
Balance at December 31, 2016 (29,430 ) (87,893 )
Provision recorded in the year (10,040 ) (38,135 )
Reversal of provision for receivables (write-off) - (140 )
Exchange variance - 5,988
Balance at December 31, 2017 (39,470 ) (120,180 )
Accounts receivable are denominated in the following currencies:
Parent Company Consolidated
2017 2016 2017 2016
Reais 149,390 203,772 853,684 983,676
US Dollar 227,575 226,943 339,614 316,507
Australian Dollar - - 33,936 43,023
Rand - - 14,143 20,466
Renminbi - - 8,706 18,787
376,965 430,715 1,250,083 1,382,459
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
9 Inventories
Parent Company Consolidated
2017 2016 2017 2016
Finished goods 73,467 65,475 114,125 104,192
Goods in process 43,802 40,817 114,639 116,790
Raw materials and auxiliary materials 118,856 101,316 282,213 222,404
Advances to suppliers and other 4,990 7,821 18,421 35,647
Provision for inventory losses (2,248 ) (3,313 ) (8,034 ) (6,976 )
238,867 212,116 521,364 472,057
The changes in provision for losses on inventories are as follows: Parent Company Consolidated
Balance at January 1, 2016 (857 ) (7,328 ) Reversal of provision 741 7,247 Provision recorded in the year (3,197 ) (8,339 ) Exchange variance - 1,444 Balance at December 31, 2016 (3,313 ) (6,976 ) Reversal of provision 4,171 7,578 Provision recorded in the year (3,106 ) (8,409 ) Exchange variance - (227 )
Balance at December 31, 2017 (2,248 ) (8,034 )
10 Taxes and contributions recoverable
Parent Company Consolidated
2017 2016 2017 2016
Current Corporate Income Tax (IRPJ) 44,717 25,087 62,535 40,271 Social Contribution on Net Income (CSLL) 1,753 6,835 3,558 9,889 Excise Tax (IPI) 14,528 12,819 14,993 13,152 Value Added Tax on Sales and Services (ICMS) 30,983 25,073
51,403
36,904
Social Integration Program (PIS) 1,265 1,335 9,353 4,409 Contribution for Social Security Financing (COFINS) 5,185 3,419
42,135
19,863
National Social Security Institute (INSS) 362 7,780 986 8,431 Reintegra 14,804 3,849 17,107 4,807 Value added tax (IVA) - - 26,190 26,234 Other - 65 14 73
113,597 86,262 228,274 164,033
Non-current ICMS 735 444 1,661 5,584 COFINS - - - 11,231 PIS) - - - 2,878 IVA - - 8 202
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Parent Company Consolidated
2017 2016 2017 2016 735 444 1,669 19,895
114,332 86,706 229,943 183,928
11 Investments Parent Company Consolidated
2017 2016 2017 2016
Subsidiary 1,298,290 1,108,839 - - Joint subsidiaries 106,500 88,874 101,807 81,571 Associated companies 35,142 22,216 275,045 227,383 Other investments - - 151 120
1,439,932 1,219,929 377,003 309,074
(a) Investments in subsidiaries, joint ventures and associated companies
Investments in subsidiaries, joint ventures and associated companies are presented below:
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Subsidiary:
Subsidiary
Total
MP MP San Volare Volare Volare Apolo Ciferal llmot Mac MBC Australia Masa MIC Moneo Canada Polomex Marino Syncro Trading Vehicles Trade Peru 2017 2016
(1 ) (1 ) (1 ) (1 ) (1 ) (1 ) (1) (1 ) (2 ) (1 ) Investment data Capital 3,750 20,000 50,934 14,099 1,890 58,134 8,356 4,630 100,000 169,739 29,151 233,505 4,000 3,000 186,127 11,000 708 Adjusted shareholders’ equity 3,849 151,070 102,532 (4,874 ) 1,890 58,344 59,067 1,339 234,607 290,186 109,584 228,434 5,362 6,980 147,162 4,543 477 Shares or quotas held 3,250,000 499,953 50,000 1 1 100 100,000 1,400,000 100,000 4,925,530 3,011,659 7,478,482 1 3,450,103 19,980 999 999 % interest 65.00 99.99 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 3.61 100.00 99.99 99.99 99.90 99.90 99.90 Net income (loss) for the year (45 ) 3,406 32,075 (13,734 ) - 5,258 (138 ) (201 ) 2,847 56,850 38,310 (39,363 ) 291 411 (11,609 ) (240 ) (830 ) Changes in the investments Opening balances: At equity value 2,466 147,657 106,175 5,575 - 53,235 52,267 1,526 232,436 246,889 4,273 116,074 5,070 6,666 122,485 4,778 1,267 1,108,839 1,197,584 Advance for future capital increase - - - - - - - - - - - 152,505 - - 36,127 - - 188,632 90,000
Capital subscription 65 - - 3,629 1,890 - - - - - - - - - - - - 5,584 73,734 Acquisition via business combination - - - - - - - - - - - - - - - - - - 32,934
Dividends received - - (37,275 ) - - - - - (676 ) - (1,759 ) - - (98 ) - - - (39,808 ) (347,888 ) Equity in income of associates (29 ) 3,406 32,075 (13,734 ) - 5,258 (138 ) (201 ) 2,847 56,850 1,383 (39,363 ) 291 411 (11,597 ) (240 ) (829 ) 36,390 243,635 Cumulative translation adjustments - - 1,557 (344 ) - 4,887 6,938 14 - 758 59 (782 ) - - - - 39 13,126 (142,743 ) Impairment - - - - - - - - - - - - - - - - - - (6,027 )
Comprehensive income of subsidiary - - - - - (5,036 ) - - - - - - - - - - - (5,036 ) - Transfer of joint subsidiary to subsidiary - - - - - - - - - - - - - - - - - - 46,738
Exchange variance on capital decrease - - - - - - - - - - - - - - - - - - (7,363 ) Capital reduction - - - - - - - - - (14,311 ) - - - - - - - (14,311 ) (71,765 )
Closing balances: 2,502 151,063 102,532 (4,874 ) 1,890 58,344 59,067 1,339 234,607 290,186 3,956 228,434 5,361 6,979 147,015 4,538 477 1,293,416 1,108,839
Provision for loss of investment - - - 4,874 - - - - - - - - - - - - - 4,874 - At equity value 2,502 151,063 102,532 - 1,890 58,344 59,067 1,339 234,607 290,186 3,956 228,434 5,361 6,979 147,015 4,538 477 1,298,290 1,108,839
(1) Overseas ventures. (2) These balances consist of investments and goodwill.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Joint ventures:
Joint ventures
GBPolo Kamaz Loma Metalpar Superpolo TMML 2017 2016
(1 ) (1 ) (1),(2 ) (1 ) (1 ) (1 )
Investment data
Capital 7,465 8,840 17,261 9,841 14,314 88,032
Adjusted shareholders’ equity (8,533 ) (460 ) 62,908 30,700 87,642 53,520
Shares or quotas held 4,803,922 1 15,949,948 473,995 265,763 24,500
% interest 49.00 50.00 50.00 1.00 20.61 49.00
Net income (loss) for the year (4,529 ) (732 ) 16,800 5,400 18,016 8,729
Changes in the investments
Opening balances:
At equity value (9,614 ) (2,552 ) 64,404 298 16,233 20,105 88,874 172,395
Capital subscription 7,676 2,693 - - - - 10,369 -
Dividends received - - (5,770 ) - (2,291 ) - (8,061 ) (1,445 )
Equity in income of associates (3,600 ) (366 ) 8,400 54 3,713 4,277 12,478 (15,823 )
Cumulative translation adjustments 1,357 (5 ) (5,129 ) (45 ) 408 1,843 (1,571 ) (19,515 )
Transfer of joint subsidiary
to subsidiary 4,181 - - - - - 4,181 (46,738 )
Closing balances: - (230 ) 61,905 307 18,063 26,225 106,270 88,874
Provision for loss of investment - 230 - - - - 230 -
At equity value - - 61,905 307 18,063 26,225 106,500 88,874
Goodwill on investments - - (30,451 ) - - - (30,451 ) (30,451 )
Indirect interest - Superpolo - - - - 25,758 - 25,758 23,148
At consolidated equity value - - 31,454 307 43,821 26,225 101,807 81,571
(1) Overseas ventures. (2) These balances consist of investments and goodwill.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Associated companies:
Associated
companies
Total
GBPolo Mercobus Spheros Setbus WSul
New
Flyer
2017 2016
(1 ) (1 ) (1 )
Investment data
Capital 7,465 237 15,000 1,000 6,100 2,200,612
Adjusted shareholders’ equity (8,533 ) 3,293 77,125 (12,849 ) 9,917 2,291,337
Shares or quotas held 4,803,922 232 244,898 25,100 1,830,000 6,587,834
% interest 49.00 40.00 40.00 25.10 30.00 10.47
Net income (loss) for the year (4,529 ) 2,485 25,648 781 3,293 510,735
Changes in the investments
Opening balances:
At equity value - 2,077 20,373 (3,421 ) 3,187 - 22,216 15,650
Dividends received - (1,682 ) - - (1,200 ) - (2,882 ) (1,837 )
Equity in income of associates - 994 10,259 196 988 - 12,437 9,857
Cumulative translation
adjustments - (72 ) 218 - - -
146 (1,454 )
Transfer from joint venture
to associated companies (4,181 ) - - - - - (4,181 ) -
Closing balances: (4,181 ) 1,317 30,850 (3,225 ) 2,975 - 27,736 22,216
Provision for loss of investment 4,181 - - 3,225 - - 7,406 -
At equity value - 1,317 30,850 - 2,975 - 35,142 22,216
Indirect interest - New Flyer - - - - - 239,903 239,903 205,167
At equity value - 1,317 30,850 - 2,975 239,903 275,045 227,383
(1) Overseas venture.
12 Investment property
This comprises a plot of land of 140,000 m2 and constructed area of 20,378.87m2, located in Três
Rios, Rio de Janeiro, and stated at its carrying amount of R$ 50,708 thousand. The investment
property is not being used in the Company’s operations and is being held to earn rent or yield a capital
gain. During the 2017 financial year there was no income from the property, only expenses for
surveillance, insurance and energy. The fair value of this property was R$ 64,459 net of selling
expenses, as determined by a specialized appraiser. Consolidated
2017 2016
Balance on January 1 48,941 - Reclassification of property, plant and equipment 1,767 48,941
Balance on December 31 50,708 48,941
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
13 Property, plant and equipment
(a) Summary of changes in the Parent Company's property, plant and equipment
Land
Buildings and
constructions
Machinery and
equipment
Furniture and
fixtures
Computer
equipment Vehicles
Other PPE in
progress
Property, plant
and equipment
in progress
Total
Balances at January 1, 2016 18,071 108,360 75,976 3,809 5,906 3,004 175 6,591 221,892
Additions 4 408 4,093 198 888 69 - 2,723 8,383
Write-offs - (5 ) (613 ) (17 ) (22 ) (15 ) - (138 ) (810 )
Transfers (1 ) 3,527 (657 ) - - - - (2,869 ) -
Depreciation - (3,811 ) (12,808 ) (559 ) (2,133 ) (583 ) - - (19,894 )
Balances at December 31, 2016 18,074 108,479 65,991 3,431 4,639 2,475 175 6,307 209,571
Cost of property, plant and equipment 18,074 185,764 203,412 9,222 19,934 7,042 175 6,307 449,930
Accumulated depreciation - (77,285 ) (137,421 ) (5,791 ) (15,295 ) (4,567 ) - - (240,359 )
Residual value 18,074 108,479 65,991 3,431 4,639 2,475 175 6,307 209,571
Balances at December 31, 2016 18,074 108,479 65,991 3,431 4,639 2,475 175 6,307 209,571
Additions - 1,898 24,584 344 2,491 147 - 954 30,418
Write-offs - (17,352 ) (7,314 ) (390 ) (58 ) (596 ) - (3 ) (25,713 )
Transfers - 908 1,185 - - - - (2,093 ) -
Depreciation - (3,648 ) (11,167 ) (692 ) (2,044 ) (408 ) - - (17,959 )
Balances at December 31, 2017 18,074 90,285 73,279 2,693 5,028 1,618 175 5,165 196,317
Cost of property, plant and equipment 18,074 164,794 206,864 8,802 21,109 5,879 175 5,165 430,862
Accumulated depreciation - (74,509 ) (133,585 ) (6,109 ) (16,081 ) (4,261 ) - - (234,545 )
Residual value 18,074 90,285 73,279 2,693 5,028 1,618 175 5,165 196,317
Annual depreciation rates - % 2.0 10.9 11.0 16.6 19.2
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(b) Summary of changes in the Consolidated property, plant and equipment
Land
Buildings and
constructions
Machinery and
equipment
Furniture and
fixtures
Computer
equipment Vehicles
Other PPE in
progress
Property, plant
and equipment
in progress
Total
Balances at January 1, 2016 22,927 298,870 182,428 9,075 7,640 6,972 3,490 29,938 561,340
Foreign exchange variations (70 ) (386 ) (5,268 ) (196 ) - (524 ) (632 ) - (7,076 )
Acquisition of investment 154 17,654 45,425 593 1,081 1,056 541 5,770 72,274
Additions 40,997 59,627 41,987 1,650 - 3,946 785 3,373 152,365
Write-offs - - (2,443 ) (50 ) (42 ) (431 ) (337 ) (613 ) (3,916 )
Transfers 21,532 12,796 7,548 (185 ) (113 ) (9 ) 218 (17,374 ) 24,413
Reclassification to investment property (22,892 ) (23,958 ) (2,091
)
-
-
-
-
-
(48,941 )
Depreciation - (5,892 ) (29,638 ) (1,390 ) (2,510 ) (1,779 ) (981 ) - (42,190 )
Balances at December 31, 2016 62,648 358,711 237,948 9,497 6,056 9,231 3,084 21,094 708,269
Cost of property, plant and equipment 62,648 466,477 533,695 22,814 23,280 20,618 16,241 21,094 1,166,867
Accumulated depreciation - (107,766 ) (295,747 ) (13,317 ) (17,224 ) (11,387 ) (13,157 ) - (458,598 )
Residual value 62,648 358,711 237,948 9,497 6,056 9,231 3,084 21,094 708,269
Balances at December 31, 2016 62,648 358,711 237,948 9,497 6,056 9,231 3,084 21,094 708,269
Foreign exchange variations 139 937 1,647 159 - 120 69 - 3,071
Additions 4,068 3,963 35,195 720 2,542 1,304 637 4,036 52,465
Write-offs - (17,389 ) (9,706 ) (509 ) (62 ) (3,920 ) (164 ) - (31,750 )
Transfers (6,348 ) 11,173 4,342 (133 ) - (132 ) 20 (8,922 ) -
Reclassified to investment property - - (1,767
)
-
-
-
-
-
(1,767 )
Depreciation - (9,684 ) (25,862 ) (1,440 ) (2,371 ) (1,772 ) (804 ) - (41,933 )
Balances at December 31, 2017 60,507 347,711 241,797 8,294 6,165 4,831 2,842 16,208 688,355
Cost of property, plant and equipment 60,507 457,539 554,733 23,059 24,480 15,009 17,313 16,208 1,168,848
Accumulated depreciation - (109,828 ) (312,936 ) (14,765 ) (18,315 ) (10,178 ) (14,471 ) - (480,493 )
Residual value 60,507 347,711 241,797 8,294 6,165 4,831 2,842 16,208 688,355
Annual depreciation rates - % 2.0 10.9 11.0 16.6 19.2 13.0
Land and buildings mainly comprise plants and offices.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(c) Guarantees
As at December 31, 2017 properties with a residual book value of R$ 44,464 thousand (R$ 45,829
thousand as of December 31, 2016) were subject to a recorded guarantee for bank loans and financing.
(d) Plastic plan
As at September 03, 2017, a fire burned the plastic plan (Ana Rech unit). The residual book value of
write-down assets was R$ 24.485, amount covered by insurance.
14 Intangible assets
(a) Summary of changes in the Parent Company's intangible assets
Registered
trademarks
Software and licenses Total
Balances at January 1, 2016 5,538 36 5,574 Additions 315 - 315
Write-offs - - - Transfers - - -
Amortization (1,847 ) (11 ) (1,858 )
Balances at December 31, 2016 4,006 25 4,031
Cost of intangible assets 50,489 338 50,827 Accumulated amortization (46,483 ) (313 ) (46,796 )
Residual value 4,006 25 4,031
Balances at December 31, 2016 4,006 25 4,031 Additions 678 13 691
Write-offs - - - Transfers - - -
Amortization (1,341 ) (7 ) (1,348 )
Balances at December 31, 2017 3,343 31 3,374
Cost of intangible assets 50,896 351 51,247 Accumulated amortization (47,553 ) (320 ) (47,873 )
Residual value 3,343 31 3,374
Annual amortization rates - % 11.1 8.7
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(b) Summary of changes in goodwill and consolidated intangible assets
Registered Other
trademarks Client Intangible
Software
and
licenses portfolio assets Goodwill Total
Balances at January 1, 2016 9,869 36 3,073 11,033 286,586 310,597 Foreign exchange variations (586 ) - (196 ) (1,919 ) (34,712 ) (37,413 ) Additions 934 - 336 - 30,739 32,009
Acquisition of investments 1,760 945 - 1,363 - 4,068 Write-offs (11 ) - - (336 ) (66,724 ) (67,071 ) Transfers - - 8,775 (8,775 ) - - Amortization (3,127 ) (11 ) (4,240 ) (123 ) - (7,501 )
Balances at December 31, 2016 8,839 970 7,748 1,243 215,889 234,689
Cost of intangible assets 66,832 1,283 26,881 3,315 215,889 314,200 Accumulated amortization (57,993 ) (313 ) (19,133 ) (2,072 ) - (79,511 )
Residual value 8,839 970 7,748 1,243 215,889 234,689
Balances at December 31, 2016 8,839 970 7,748 1,243 215,889 234,689 Foreign exchange variations 38 - 721 - 12,690 13,449 Additions 1,290 33 118 379 - 1,820 Acquisition of investments - - - - - Write-offs - - - - (25,618 ) (25,618 ) Transfers 309 - - (309 ) - - Amortization (2,910 ) (7 ) (443 ) (139 ) - (3,499 )
Balances at December 31, 2017 7,566 996 8,144 1,174 202,961 220,841
Cost of intangible assets 68,141 1,316 29,556 1,939 202,961 303,913 Accumulated amortization (60,575 ) (320 ) (21,412 ) (765 ) - (83,072 )
Residual value 7,566 996 8,144 1,174 202,961 220,841
Annual amortization rates - % 13.6 8.7 25.0 20.0
Breakdown of goodwill: Goodwill
Loma San Marino New Flyer Pologren Total
Balances at December 31, 2016 30.451 30.739 45.504 109.195 215.889 Foreign exchange variations - - 3.912 8.778 12.690
Impairment - - - (25.618 ) (25.618 )
Balances at December 31, 2017 30.451 30.739 49.416 92.355 202.961
(c) Goodwill impairment test
(i) Goodwill on joint subsidiary – Loma
Composed of the goodwill generated on the acquisition of the investment in Loma in the amount of R$
30,451.
The projections for establishing the recoverable value were prepared according to the value in use,
considering the projection in the period of five years and in perpetuity. The main assumptions used as
at December 31, 2017 were as follows: (i) gross margin of 23.36%, (ii) growth rate of 16.97% per year
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
and (iii) a calculated after-tax discount rate of 16.89% per year (before tax of 25.26% per year), and
considered past management experience, as well as the growth expectations of the Company's
segment. The recoverable amount was compared to the accounting balance of the assets that make up
the CGU and, as a result of this analysis and application of the described assumptions about
discounted cash flows to determine the need to reduce the recoverable value of goodwill, Management
did not identify the need of recognition of impairment for this CGU. The Company projected the
following sensitivity scenarios: (i) 1% lower and higher gross margin, (ii) 1% lower and higher growth
rate, and (iii) 1% lower and higher discount rate. Alternative scenarios would not result in impairment.
(ii) Goodwill of the direct subsidiary – San Marino Composed of the goodwill generated in the acquisition of the investment in San Marino in the amount of R$ 30,739. The projections to establish the recoverable value were prepared according to the fair value (level 3), as it contemplates operational synergies with the assets of Marcopolo, which were considered at the acquisition date, and were carried out for a period of five years and in perpetuity. The main assumptions used as at December 31, 2017 were as follows: (i) gross margin of 18.79%, (ii) growth rate of 27.37% per year, and (iii) discount rate calculated after taxes at 9.28% per year (before tax of 12.71% per year), and considered past management experience, as well as the growth expectations of the Company's segment. The recoverable amount was compared to the accounting balance of the assets that make up the CGU and, as a result of this analysis and application of the described assumptions about discounted cash flows to determine the need to reduce the recoverable goodwill, Management did not identify the need of recognition of impairment for this CGU. The Company projected the following sensitivity scenarios: (i) 1% lower and higher gross margin, (ii) 1% lower and higher growth rate, and (iii) 1% lower and higher discount rate. Alternative scenarios would not result in impairment.
(iii) Goodwill of the indirect subsidiary – Pologren Composed of the goodwill generated on the acquisition of the investment in Volgren in the amount of R$ 92,355. The projections for establishing the recoverable value were prepared according to the value in use, considering the projection in the period of five years and in perpetuity. The main assumptions used as of December 31, 2017 were as follows: (i) gross margin of 17.06%, (ii) growth rate of 7.23% per year, and (iii) discount rate of 10.45% per year (before tax of 14.16% per year), and considered past management experience, as well as the growth expectations of the Company's segment. The recoverable amount was compared to the book value of the assets that make up the CGU and, as a result of this analysis and application of the described assumptions about the discounted cash flows to determine the need to reduce the goodwill impairment, the Management identified the need to recognize impairment in the amount of R$ 25,618 as at December 31, 2017, recognized under "Other operating expenses" (Note 27). The impairment takes into account the cash generation of the CGU below the projections prepared by Management, as well as a performance of its net income realized during the year ended December 31, 2017 lower than the budget prepared in the previous year (December 31 2016). This factor resulted in the need to revise projected revenues for the period included in the flow prepared for the assessment of the need for impairment on the goodwill of this CGU and contributed significantly to the result of this evaluation. The Company projected the following sensitivity scenarios for the assumptions adopted: (i) if the projected gross margin were 1% lower, the Company would have recognized impairment of R$ 61,689; (ii) if the growth rate were 1% lower, the Company would have recognized an impairment of R$ 68,738, and (iii) if the discount rate were 1% higher, the Company would have recognized an impairment of R $ 47,874. The scenarios projected with 1% higher gross margin and growth rate and 1% lower discount rate would not result in the need to recognize impairment.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(iv) Goodwill of the indirect subsidiary – New Flyer Composed of the goodwill generated on the acquisition of the investment in New Flyer in the amount of R$ 49,416. New Flyer is a public company with its shares (under the acronym NFI) traded on the Canadian stock exchange. The recoverable value was calculated at fair value (level 1), considering the share price of the indirect associate at December 31, 2017 (C$ 57.81), compared to the book value (which at the acquisition date was C$ 10.50). The recoverable amount was compared to the book value of the assets that make up the CGU and, as a result of this analysis, Management did not identify the need to recognize impairment for this CGU.
15 Related parties
(a) Related-party balances and transactions
The main asset and liability balances at December 31, 2017, as well as the transactions with related parties that influenced the statement of income in the year, are detailed below:
Related parties
Asset
balances
of loans
and
current
accounts
Liability
balances
of loans
and
current
accounts
Trade
accounts
receivable
Trade
payables
Sales of
goods/
services
Purchases
of goods/
services
Finance
income
Finance
costs
Apolo - - - 263 - - - - Ciferal - 16 9,928 193 32,487 1,497 1 1 GB Polo 11,860 - 11,965 - 3 - 1,333 - Kamaz 496 - - - - - - - Ilmot 498 - - - - - 28 - Loma - - 16,425 - 76,362 - - - Mac - - 3,081 79 1,775 6,503 - - Masa - - 6,995 63 25,631 - - - Moneo - 2 - - - - 1 1 Polomex - - 6,032 - 67,430 - - - San Marino - - 1,024 - 2,920 3,781 - - Setbus 1,762 - - 26 - 3,921 178 - Spheros - - - 8,791 - 95,333 - - Superpolo - - 3,087 - 11,913 - - - TMML - - 4,393 - 6,806 - - - Volare Veículos - - 7,355 11 11,611 1,724 50 - Volare Comércio - - 4,474 113 16,580 - 1 Volare Peru - - - - - - - - WSul - - - 4,652 - 28,163 - -
Balance in 2017 14,616 18 74,759 14,191 253,518 140,922 1,591 3
Balance in 2016 24,966 20 81,186 5,682 231,023 48,636 5,998 1
The loan and current account balances of companies headquartered in Brazil are subject to financial
charges at the CDI interest rate, and those of companies abroad to the semi-annual Libor rate plus 3%
p.a.
(b) Key management remuneration
Key management personnel include the directors, officers and members of the Executive Committee.
The remuneration paid or payable is shown below:
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
2017
Fixed Variable
Pension
plan
Share-
based
payments Total
Board of Directors and Executive Board 7,987 5,331 90 127 13,535
Non-executive officers 10,281 2,292 152 225 12,950
18,268 7,623 242 352 26,485
In the year ended December 31, 2017, the purchase options of 55,555 book-entry preferred shares
were exercised by the officers and employees of Marcopolo at a price of R $ 2.70 per share with a
discount of R$ 0.17 per share, of the shares in treasury, in accordance with the provisions of
Marcopolo's stock option plan. Also, the transfer of 129,129 shares to the amount of R $ 2.65 was
carried out according to the Long-Term Incentive Plan with Restricted Shares. 2016
Fixed Variable
Pension
plan
Share-based
payments Total
Board of Directors and Executive Board 8,457 8,079 102 82 16,720
Non-executive officers 7,516 7,264 237 47 15,064
15,973 15,343 339 129 31,784
In the year ended December 31, 2016, the options for the purchase of 682,989 book-entry preferred
shares were exercised by the officers and employees of Marcopolo at a price of R $ 1.85 per share
with a discount of R $ 0.19 per share, of the shares in treasury, in accordance with the provisions of
Marcopolo's stock option plan.
16 Loans and financing Average Parent Company Consolidated
weighted Year of
rate % p.a. maturity 2017 2016 2017 2016
Domestic currency FINAME 5.88 2017 to 2025 11,763 11,157 28,442 31,396 Bank loans 9.61 2018 to 2021 618 - 19,747 56,341 Interbank deposits 6.91 2021 - - 499 50,485 FINEP 5.07 2020 to 2025 238,653 203,881 303,009 275,826 FDE – Development funds 3.00 2025 - - 132,073 143,489 Fundepar - ES - 2026 - - 30,000 30,000 Exim 6.03 2017 - - - 31,887 Special pre-shipment financing (*) 12.16 2018 177,198 276,509 177,198 276,509 Export prepayments -Compulsory 8.72 2025 304,268 387,038 304,268 387,038 Foreign currency Advances on export contracts 3.96 2018 - - 48,011 59,333 Export prepayments in US Dollars 4.05 2018 to 2022 228,362 228,558 230,847 228,558 Export prepayments - USD 3.90 2018 to 2022 53,478 24,462 53,478 34,686 Financing in South African Rands 9.03 2019 to 2022 - - 808 842 Financing in Renminbi 6.55 2018 - - 20,262 15,756 Financing in Australian Dollars 3.54 2018 - - 90,527 74,243
Financing in Chilean Pesos 14.03 - - - 3,993 - Related parties CDI - 18 20 - -
Subtotal of local and foreign currency 1,014,358 1,131,625 1,443,162 1,696,389
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Average Parent Company Consolidated
weighted Year of
rate % p.a. maturity 2017 2016 2017 2016
Money market funding Domestic currency BNDES – Fixed-interest loans 2024 - - 240,876 429,156 BNDES – Floating interest loans 4.95 2021 to 2023 - - 227,752 143,389 BNDES – Floating interest loans TJLP + 1.79 BNDES – Floating interest loans 2021 to 2022 - - 28,876 30,300
Subtotal of money market funding - - 497,504 602,845
Subtotal of loans and financing 1,014,358 1,131,625 1,940,666 2,299,234
Derivative financial instruments 986 432 2,811 492 Total loans and financing 1,015,344 1,132,057 1,943,477 2,299,726
Current liabilities 446,244 397,879 833,882 925,554
Non-current liabilities 569,100 734,178 1,109,595 1,374,172
(*) BNDES credit facility used for producing goods for export, where the shipment must occur no later than three years after the initial contract. The long-term installments have the following payment schedule: Parent Company Consolidated
2017 2016 2017 2016
From 13 to 24 months 417,325 396,711 609,573 602,298 From 25 to 36 months 47,119 235,924 174,679 384,050 37 to 48 months 24,001 37,715 107,160 134,223 49 to 60 months 23,587 14,918 68,487 66,913 After 60 months 57,068 48,910 149,696 186,688
569,100 734,178 1,109,595 1,374,172
(a) Loans and financing The FINAME financing loans are secured by a statutory lien on the financed assets of R$ 44,464 as at December 31, 2017 (R$ 45,829 as at December 31, 2016).
The Company had secured bank loans amounting to R$ 37,795 thousand as at December 31, 2017 (R$
190,290 thousand as at December 31, 2016). Under the terms of the contract, these loans will be
settled in installments over the next three years. However, these contracts include covenants, which are
being fully performed and amongst other things trigger partial or full repayment if certain indices are
not achieved. These were complied with.
(b) Money market funding Funds obtained in the money market are received by Banco Moneo from the National Bank for Economic and Social Development (BNDES) to finance FINAME loans.
The face value and the fair value of installments of money market funds are as follows:
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Face value (future ) Fair value (present )
2017 2016 2017 2016
1 to 12 months 207,188 246,832 183,442 223,587
From 13 to 24 months 160,003 178,698 144,253 162,211
From 25 to 36 months 104,304 124,831 96,151 115,448
After 36 months 77,463 106,522 73,658 101,599
548,958 656,883 497,504 602,845
The face value of loans in current liabilities approximates the fair value.
(b) Debt conciliation
Consolidated
Bank loans Derivatives Open market
funding Total
Debt in December 31, 2016 1,645,904 492 653,330 2,299,726 Transactions that affected cash flow (295,430 ) 2,319 (192,469 ) (485,580 ) Transactions that did not affect cash flow Appropriate interest and exchange rate variations 92,189 - 37,142 129,331
Debt in December 31, 2017 1,442,663 2,811 498,003 1,943,477
17 Provision
(a) Contingent liabilities
The Company is a party to labor, civil, tax and other lawsuits in progress, and is disputing them at the
administrative and judicial levels, which, when applicable, are supported by judicial deposits. The
provision for any losses under these proceedings is estimated and restated by Management, relying on
the opinion of its independent and in-house legal advisers.
The contingencies as at December 31, 2017 and December 31, 2016, which are considered to be
probable and possible losses, according to the opinion of legal counsel, are shown below.
Contingencies involving probable risks of loss have been provisioned for.
Parent Company
2017 2016
Nature Probable Possible Probable Possible
Civil 964 20,978 964 18,881
Labor 28,949 47,791 14,357 28,452
Tax 21,809 276,081 14,973 211,156
51,722 344,850 30,294 258,489
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Consolidated
2017 2016
Nature Probable Possible Probable Possible
Civil 4,883 21,420 2,007 19,323
Labor 37,026 51,240 18,084 29,011
Tax 22,861 332,034 15,254 259,377
64,770 404,694 35,345 307,711
Parent Company Consolidated
Judicial deposits 2017 2016 2017 2016
Civil 1,102 980 4,762 3,753
Labor 14,948 5,652 18,318 7,665
Tax 2,315 2,132 11,071 8,167
18,365 8,764 34,151 19,585
(i) Civil and labor claims
The Company is party to civil and labor lawsuits, which include claims for indemnities for work
accidents and occupational diseases. None of these lawsuits involve individually significant amounts.
(ii) Tax contingencies
The Company and its subsidiaries are party to various tax lawsuits. The nature of the principal
lawsuits is detailed below:
. Probable losses - provisioned for
Parent Company Consolidated
2017 2016 2017 2016
REINTEGRA–credit appropriation (i) 592 545 592 545
Special Tax Arrangement – tax credit (ii) 12,757 11,435 12,757 11,435
IRPJ 2010, 2011 and 2012 (iii) 5,350 - 5,350 -
Other contingent liabilities of lesser amounts 3,110 2,993 4,162 3,274
21,809 14,973 22,861 15,254
(i) Contingency relating to the Reintegra credit - this contingency derives from the procedure discrepancy in the
application for Reintegra credits for the first and second quarters of 2012.
(ii) Contingency regarding the dispute over the procedures adopted to obtain tax incentives for product sales.
(iii) Contingency regarding the discussion of the procedures adopted to offset the income tax paid abroad.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
. Possible losses - not provisioned for
Parent Company Consolidated
2017 2016 2017 2016
PIS, COFINS and Social Security Fund (FINSOCIAL) - offset 7,317 6,962 7,317 6,962
COFINS – rebate application (i) 21,475 20,060 21,475 20,060
PIS, COFINS – credit 8,490 7,898 8,490 7,898
PIS – offsetting (ii) 14,264 13,074 14,264 13,074
IPI – credit 1,776 1,709 1,776 1,709
IRPJ – understated inflationary profit 2,881 2,763 2,881 2,763
IRPJ and CSLL - negative balance (iii) 16,970 15,877 16,970 15,877
IRPJ and CSLL – overseas profits (iv) 28,845 26,885 28,845 26,885
IRPJ and CSLL – IR paid overseas 1,015 3,303 1,015 3,303
IRPJ and CSLL – overseas profits (v) 90,230 36,169 90,230 36,169
DCP – Monetary restatement (vi) 26,669 24,422 26,669 24,422
REINTEGRA – offsetting (vii) 15,269 14,143 15,269 14,143
ICMS – shipment of goods with a reduced tax rate to non-
taxpayers (viii)
-
- 35,237 34,162
ICMS – disreputable documents (ix) 15,527 14,531 15,527 14,531
ISS – services received from third parties 5,852 5,389 5,852 5,389
INSS – services acquired from legal entities 4,504 6,422 4,504 6,422
Other contingent liabilities of lesser amounts 14,997 11,549 35,713 25,608
276,081 211,156 332,034 259,377
(i) Contingencies relating to procedures adopted by the tax inspectors for the COFINS
reimbursement applications. The administrative proceeding is in progress before the federal tax
authorities' judgment department.
(ii) Contingency relating to amounts recorded as federal overdue liabilities due to offsetting not
ratified for credits obtained in court proceedings. The process is taking place at the lower Federal
Court of Caxias do Sul.
(iii) Contingency relating to procedures contested by the tax inspectors regarding applications for
the rebate of the IRPJ and CSLL negative balance. The proceeding is in progress before the
Administrative Council for Tax Appeals.
(iv) Contingency relating to the dispute about the overseas consolidation of indirect subsidiaries'
earnings before paying tax thereon in Brazil. The proceeding is in progress before the federal tax
authorities' judgment department.
(v) Contingency related to the dispute about the disallowance of offsetting made against overseas
taxes. The proceeding is in progress before the Regional Judgments Department.
(vi) Contingency related to the dispute about DCP credits, relating to the disallowance of monetary
restatement and one-off fine imposed due to unratified tax returns. The proceeding is in progress
before the Regional Judgments Department.
(vii) Contingency relating to the dispute about the Reintegra credit, due to discrepancy in the
procedure applying for the credit. The proceeding is in progress before the Regional Judgments
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Department.
(viii) Contingency involving the subsidiary relating to ICMS disputes on sales with a reduced rate to
non-taxpayers located outside the state. The proceeding is in progress before the Taxpayers' Council of
Rio de Janeiro state.
(ix) Contingency relating to ICMS disputes, due to the alleged issuance of tax documents with
incorrect rates in sales to non-taxpayers located outside the state. The proceeding is in progress before
the Court of Appeal of São Paulo state.
(b) Contingent assets
The statement containing information about contingent assets has been detailed below, along with the
chances of success, according to the legal advisers’ opinion.
Consolidated
2017 2016
Nature Probable Possible Probable Possible
Contingency
Tax 14,376 13,546 13,283 12,515
Social security - 2,958 - 2,733
14,376 16,504 13,283 15,248
(i) Tax contingencies
The Company is the plaintiff in various lawsuits at the state and federal levels, in which the following
matters are being disputed:
• Excise Tax - IPI.
• Social Integration Program - PIS and Tax for Social Security Financing - COFINS.
• Corporate Income Tax - IRPJ and Social Contribution on Net Income - CSLL.
• Tax on Financial Transactions - IOF and Income Tax Withheld at Source - IRRF.
• Eletrobrás Compulsory Loan.
• ICMS on materials and consumables.
(ii) Social security contingencies • National Institute of Social Security - INSS contribution.
18 Pension plan and retirement benefits for employees
Marcopolo is the main sponsor of Marcoprev Sociedade de Previdência Privada, a non-profit pension
entity established in December 1995 with the main purpose of supplementing government social
security benefits to all employees of the sponsors: Marcopolo (principal), Syncroparts, Trading, Banco
Moneo and Fundação Marcopolo. The total consolidated contributions in FY 2017 were R$ 5,111 (R$
6,975 in 2016). The actuarial method for determining the plan's cost and contributions is the
capitalization method. This is a mixed plan, with features that are both defined benefit, where the
sponsor is solely responsible for the contributions, and defined contribution, where the sponsor and
participant are responsible for the contributions on an optional basis.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
As at December 31, 2017 and 2016, amounts related to post-employment benefits were determined in
the annual actuarial assessment carried out by independent actuaries and were recognized in the
financial statements as shown below.
The amounts recognized in the statement of financial position are as follows:
Parent Company Consolidated
2017 2016 2017 2016
Present value of actuarial obligations (249,931 ) (244,008 ) (252,744 ) (246,707 ) Fair value of the plan’s assets 283,394 256,669 286,575 259,524 Surplus not subject to refund or reduction in future contributions (33,463 ) (12,661 ) (33,831 ) (12,817 )
Liability to be recognized - - - -
According to the retirement plan statute and the installment recorded for the supplementary retirement
plan it is not possible to reimburse the amounts, increase the benefit or reduce future contributions.
Therefore, the asset originated from the plan surplus was not recorded as at December 31, 2017.
The changes in the benefit liability that occurred during the year are described as follows:
Parent Company Consolidated
2017 2016 2017 2016
January 1 - - - - Plan participant contributions 7,801 9,713 7,880 9,825 Actuarial losses (gains) (7,801 ) (9,713 ) (7,880 ) (9,825 ) Net annual (expenses)/revenue recognized - - - -
December 31 - - - -
Changes in the fair value of the employee benefits plan in the years are demonstrated below:
Parent Company Consolidated
2017 2016 2017 2016
January 1 256,669 219,711 259,524 222,042 Sponsor contributions 7,801 9,713 7,880 9,825 Employee contributions 175 260 175 261 Benefits paid (13,115 ) (11,900 ) (13,224 ) (11,984 ) Expected return on plan assets 31,864 38,885 32,220 39,380
December 31 283,394 256,669 286,575 259,524
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Changes in the actuarial obligation in the presented years is as follows:
Parent Company Consolidated
2017 2016 2017 2016
January 1 244,008 196,773 246,707 198,861
Actuarial (gains) losses 212 32,227 208 32,574
Cost of current services (7,033 ) 2,472 (7,093 ) 2,559
Financial cost 25,684 24,176 25,971 24,436
Employee contributions 175 260 175 261
Benefits paid (13,115 ) (11,900 ) (13,224 ) (11,984 )
December 31 249,931 244,008 252,744 246,707
The amounts recognized in the statement of income are:
Parent Company Consolidated
2017 2016 2017 2016
Cost of current services (7,033 ) 2,472 (6,949 ) 2,559
Financial cost (269 ) (426 ) (271 ) (431 )
Total included as personnel cost (7,302 ) 2,046 (7,220 ) 2,128
The main actuarial premises at the reporting date are:
. Economic hypotheses Percentage p.a.
Parent Company Consolidated
2017 2016 2017 2016
Discount rate (*) 9.93 10.86 9.93 10.86
Expected return on plan assets 9.93 10.86 9.93 10.86
Future salary increases 6.75 7.37 6.75 7.37
Inflation 4.25 4.85 4.25 4.85
(*) The discount rate is: inflation 4.25% p.a. plus interest of 5.45 p.a. for 2017 (inflation of 4.85% p.a. plus interest of 5.73% p.a. for 2016).
. Demographic hypotheses
Parent Company Consolidated
2016 2015 2016 2015
Mortality table AT 2000 (*) AT 2000 (*) AT 2000 (*) AT 2000 (*) Invalid and mortality table RRB 1983 RRB 1983 RRB 1983 RRB 1983 Disability rate table RRB 1944 RRB 1944 RRB 1944 RRB 1944
(*) Table segregated by sex, compiled based on the AT-2000 Basic, smoothed by 10%.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
. Actuarial hypotheses and sensitivity analyses
The sensitivity analysis table below for benefit plan obligations demonstrates the impact on actuarial
exposure (9.93% p.a.) by changing the premises on the discount rate by 1 p.p.:
(i) Present value of obligation at December 31, 2017.
- Total 249,931
(ii) Significant actuarial hypotheses at December 31, 2017.
Sensitivity Analysis Effect on PVO
Discount rate 10.93% 1% increase (27,678 ) Discount rate 8.93% 1% decrease 34,272
(iii) Methods and hypotheses used in sensitivity analyses. The results presented were prepared by modifying only the real hypotheses mentioned in each row.
19 Income and social contribution taxes
(a) Deferred income and social contribution taxes The basis for the calculation of the deferred taxes is as follows: Parent Company Consolidated
2017 2016 2017 2016
Assets (liabilities) Provision for technical assistance 17,161 19,375 19,150 21,512 Provision for commissions 21,298 28,414 23,047 30,163 Allowance for doubtful accounts 14,414 5,999 61,313 47,752 Provision for profit sharing 25,403 40,687 25,403 40,687 Provision for contingencies 51,722 30,293 86,278 52,846 Provision for sureties with third parties 2,249 3,313 7,125 6,256 Provision for inventory losses 11,300 10,190 11,300 10,190 Provision for outsourced services 15,366 28,823 15,366 28,823
Provision for contractual termination 4,639 9,392 4,679 9,392 Unrealized inventory 1,264 1,654 2,804 1,654
Adjustment to present value (Appreciation via business combination) - - - (24,413 )
(Fiscal depreciation) (28,983 ) (32,067 ) (28,983 ) (32,067 ) (Appropriation of gains/losses on derivatives) 758 (4,476 ) 758 (4,476 )
Special Tax Regularization Program - PERT - - 44,024 - Other provision 8,065 10,100 (1,132 ) 16,913
Calculation basis 144,656 151,697 271,132 205,232 Statutory rate - % 34 34 34 34
Deferred income and social contribution taxes 49,183 51,577 92,185 69,779
(b) Estimated realization of deferred tax assets The recovery of tax credits is based on estimates of taxable income, as well as on the realization of
temporary differences, in the following years:
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Parent Company Consolidated
2017 2016 2017 2016
13 months onwards 49,183 51,577 92,185 69,779
49,183 51,577 92,185 69,779
(c) Reconciliation between the current income and social contribution tax expense
Parent Company Consolidated
2017 2016 2017 2016
Reconciliation
Profit before income and social contribution taxes 83,129 271,949 92,973 370,237
Statutory rate - % 34 34 34 34
28,264 92,463 31,611 125,881
Permanent additions and exclusions
Equity in net income of subsidiaries (14,573 ) (2,032 ) - -
Interest on shareholders’ equity (5,790 ) (40,267 ) (5,790 ) (40,267 )
Reintegra 4,296 - 4,296 -
D&O profit shares (1,770 ) (2,691 ) (1,770 ) (2,691 )
Transfer pricing - 1,797 - 1,797
IR/CS over foreign income - - - 981
Tax loss of subsidiaries - - 9,013 55,307
Effect of adhesion to PERT (i) - - (22,818 ) -
Other additions (exclusions) 532 3,291 (3,681 ) 6,683
10,959 52,561 10,861 147,691
Income and social contribution taxes
Current (8,565 ) (61,743 ) (33,267 ) (142,369 )
Deferred charges (2,394 ) 9,182 22,406 (5,322 )
(10,959 ) (52,561 ) (10,861 ) (147,691 )
Effective rate - % 13 19 13 40
(i) The effects portrayed in this line arise from the accounting of deferred income tax on
accumulated tax losses that were used for the discharge of tax debts observing the precept
of the Special Tax Regularization Program (PERT), established by provisional measure nº
783/2017 and regulated by IN 1.748 and PGFN regulation 970/2017.
20 Shareholders’ equity
(a) Capital
The Parent Company’s authorized capital is 2,100,000,000 shares, consisting of 700,000,000 common
shares and 1,400,000,000 preferred shares, all nominative with no par value.
On December 31, 2017, the subscribed and paid-in capital consisted of 925,196,009 (925,196,009 as
of December 31, 2016) registered shares with no par value, of which 341,625,744 were common
shares and 586,570,265 were preferred shares.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Of the total subscribed capital, 328,387,006 (340,542,666 as at December 31, 2016) preferred shares
were held by stockholders abroad.
(b) Reserves
(i) Legal reserve
Constituted at the rate of 5% of the net income determined in each financial year pursuant to Article
193 of Law 6404/76 up to the limit of 20% of the share capital.
(ii) Statutory reserves
Marcopolo allocated at least 25% of the remaining balance of profit to the payment of a minimum
mandatory dividend on all Marcopolo shares. The remaining balance of profit is fully appropriated to
the following reserves: . Reserve for future capital increase - to be used for future capital increases and established at 70%
of the remaining balance of net income for each year, but the balance cannot exceed 60% of share
capital. . Reserve for payment of interim dividends - to be used for the payment of interim dividends in
accordance with Article 33 (1) of the Company's bylaws and established at 15% of the remaining
balance of net income for each year, but the balance cannot exceed 10% of share capital.
. Reserve for the purchase of own shares - to be used for the purchase of Marcopolo's own shares, to
be canceled, held in treasury and/or sold, and established at 15% of the remaining balance of net
income for each year, but the balance cannot exceed 10% of share capital.
(c) Treasury stock
Treasury stock comprises 4,699,801 preferred nominative shares, purchased at the average cost of R$
4.6379 (in reais) per share. In the year, 250,100 preferred nominative shares were sold, at an average
weight price of R$ 2.6589 per share, generating a negative balance of R$ 495. The market value of the
treasury stock as at December 31, 2017 was R$ 21,797. According to Article 168 (3) of Brazilian
Corporation Law and CVM Instruction No. 390/03, the shares will be utilized to grant Marcopolo
managers and employees share purchase options, pursuant to the stock option plan approved by the
Extraordinary General Meeting held on December 22, 2005.
22 Interest on shareholders’ equity – Law 9249/95 and dividends
As permitted by Law 9249/95, Marcopolo calculated interest on shareholders’ equity based on the
Long-Term Interest Rate (TJLP) of the current period amounting to R$ 17,028 (R$ 118,432 in 2016),
with payment commencing on December 15, 2017, at the rate of R$ 0.0185 per share, for common
shares and for preferred shares, which were recorded as a financial expense, as requested per local
applicable fiscal law. For the purposes of these financial statements, this interest was eliminated from
financial expenses for the year and was charged to retained earnings and credited to cash. Income and social contribution taxes for the year decreased by approximately R$ 5,790 (R$ 40,267 in
2016), as a result of the deduction of interest on shareholders' equity when calculating these taxes.
Minimum mandatory dividends calculation:
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
2017 2016
Net income for the year (Parent Company) 72,170 219,388 Legal reserve (5%) (3,609 ) (10,969 )
Dividend calculation basis 68,561 208,419 Value of minimum mandatory dividends (25%) 17,140 52,105 Additional dividends proposed - 66,327
Total dividends proposed per Management 17,140 118,432
Interim dividends paid - 52,105 Additional dividends proposed and paid - 66,327 Interest on shareholders' equity attributed to dividends and paid in advance Gross 17,028 118,432 Income tax withheld at source (15%) (2,554 ) (17,765 ) Income tax withheld at source suspended 535 3,672
Net value of credited interest 15,009 104,339 Net value of interest, credited dividends and proposed dividends 15,009 104,339
The amount of said interest was allocated to the minimum mandatory dividends declared in advance,
as the current year concurs with item V of CVM Resolution number 207/96.
22 Insurance coverage
As at December 31, 2017 the Company had insurance coverage against fire and other risks to the
property, plant and equipment and inventory at amounts deemed sufficient to cover any losses.
The main insurance policies cover:
Consolidated
Nature of assets Book value
2017 2017
Inventory, building and contents Fire and other risks 772,746 878,630 Vehicles Collision and civil liability 35,448 36,033
808,194 914,663
24 Guarantees
As at December 31, 2017, the Company had issued endorsements/sureties of R$ 10,493 (R$ 15,965 as
at December 31, 2016), in connection with the financing of customers by banks, which are secured by
the respective assets financed, and a residual value of financed goods amounting to R$ 44,464 (R$
45,829 as at December 31, 2016) submitted as collateral for bank loans and contingencies.
25 Employee profit sharing
In accordance to Law number 10101 of December 19, 2000, in 2017 Management opted to pay the
employee profit sharing semi-annually, paying a part in July 2017 and with the remainder to be paid in
February 2018.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
The employee profit sharing was calculated in accordance with the terms established in the Marcopolo
Targets/Efficiency Program Agreement (EFIMAR).
The amounts were classified in the statement of income as follows:
Parent Company Consolidated
2017 2016 2017 2016
Cost of goods sold and services rendered 15,488 25,825 17,243 26,922
Sales expenses 2,808 8,406 2,871 8,474
Management expenses 2,378 5,603 3,264 5,815
20,674 39,834 23,378 41,211
25 Revenue
The reconciliation between gross sales and net revenue is as follows:
Parent Company Consolidated
2017 2016 2017 2016
Gross sales of products and services 1,897,123 1,805,986 3,199,231 2,874,909
Sales taxes and returns (226,129 ) (223,803 ) (323,238 ) (300,816 )
Net revenue 1,670,994 1,582,183 2,875,993 2,574,093
26 Expenses by nature
Parent Company Consolidated
2017 2016 2017 2016
Raw materials and consumables 930,890 927,852 1,700,980 1,547,881
Outsourced services and other 129,854 143,008 265,615 212,665
Direct compensation 379,852 357,631 650,970 573,384
Management compensation 13,118 16,089 13,118 16,089
Employee profit shares 20,674 39,834 23,378 41,211
Depreciation and amortization charges 19,307 21,752 45,432 49,691
Private pension expenses 4,867 6,848 5,111 6,975
Other expenses 104,818 49,976 103,596 106,621
Total sales and distribution costs and expenses and
administrative expenses 1,603,380
1,562,990
2,808,200
2,554,517
27 Other operating income (expenses)
Parent Company Consolidated
2017 2016 2017 2016
Internal restructuring (11,557 ) - (14,136 ) -
Fixed costs arising from the fire event (17,742 ) - (17,742 ) -
Provision for diversion of resources at Marcopolo China (16,436 ) - (16,436 ) -
Sale of New Flyer shares - - - 268,133
Taxes on financial transactions (IOF) (694 ) (1,771 ) (866 ) (1,329 )
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Labor indemnities (14,561 ) (21,629 ) (16,512 ) (21,629 )
Restructuring of sales network - (25,908 ) - (32,705 )
Other expenses (4,272 ) (16,109 ) (14,705 ) (22,114 )
Total other operating revenue (expense) (65,262 ) (65,417 ) (80,397 ) 190,356
28 Finance income
Parent Company Consolidated
2017 2016 2017 2016
Finance income
Interest and monetary variance earnings 1,671 11,904 5,658 9,994
Interest on derivatives 13,420 12,500 14,317 12,500
Income on short-term investments 92,479 115,952 102,833 129,421
Exchange variance 87,346 327,359 112,792 358,541
Exchange variance on derivatives 16,715 39,968 26,098 40,578
Present value adjustment of accounts receivable 21,409 20,199 30,321 26,500
233,040 527,882 292,019 577,534
Finance costs
Interest on loans and financing (81,025 ) (77,760 ) (99,034 ) (94,967 )
Interest on derivatives (303 ) (1,747 ) (1,249 ) (2,017 )
Exchange variance (91,331 ) (305,077 ) (112,469 ) (342,415 )
Exchange variance on derivatives (16,112 ) (27,750 ) (24,950 ) (28,959 )
Bank expenses (8,518 ) (13,085 ) (13,490 ) (16,224 )
Present value adjustment of accounts payable (16,279 ) (21,959 ) (22,107 ) (26,658 )
(213,568 ) (447,378 ) (273,299 ) (511,240 )
Financial income, net 19,472 80,504 18,720 66,294
29 Earnings per share
(a) Basic
The Company calculates basic earnings per share by dividing the net income attributable to the
Company's shareholders by the weighted average number of shares issued in the year, excluding the
shares purchased by the Company and held as treasury stock.
2017 2016
Profit attributable to shareholders 72,170 219,388
Weighted average number of shares issued (in thousands) 920,496 897,143
Earnings per share 0.0784 0.2445
(b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of common and
preferred shares outstanding to assume conversion of all potential common shares with dilutive
effects. The Company considers as a dilution effect, of common and preferred shares, the exercise of
share options by employees and Management. The number of shares thus calculated is compared with
the number of shares issued assuming the exercise of the stock options.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
2017 2016
Profit attributable to shareholders 72,170 219,388
Weighted average number of shares issued (in thousands) 920,496 897,143
Adjustments:
Exercising of share call options 4,700 4,950
Earnings per share 0.0780 0.2432
30 Statements of financial position and segment reporting
The industrial segment produces bus bodies and spare parts. The financial segment is responsible for
financing transactions through Banco Moneo.
Statements of financial position
Consolidated Industrial Finance
2017 2016 2017 2016 2017 2016
Assets
Current
Cash and cash equivalents 958,759 1,209,459 946,698 1,164,550 12,061 44,909
Financial assets stated at
fair value through profit and loss 187,373 224,151 187,373 224,151 - -
Derivative financial instruments 445 6,498 445 6,498 - -
Trade receivables 821,310 900,816 558,154 587,635 263,156 313,181
Inventories 521,364 472,057 521,364 472,057 - -
Other accounts receivable 333,650 243,757 291,596 195,542 42,054 48,215
2,822,901 3,056,738 2,505,630 2,650,433 317,271 406,305
Non-current
Financial assets stated at
fair value through profit and loss 14,118 18,817 14,118 18,817 - -
Trade receivables 428,773 481,643 15,673 - 413,100 481,643
Other accounts receivable 129,553 110,098 118,560 101,874 10,993 8,224
Investments 377,003 309,074 377,003 309,074 - -
Investment property 50,708 48,941 50,708 48,941 - -
Property, plant and equipment 688,355 708,269 688,105 707,914 250 355
Goodwill and intangible assets 220,841 234,689 220,417 234,331 424 358
1,909,351 1,911,531 1,484,584 1,420,951 424,767 490,580
Total assets 4,732,252 4,968,269 3,990,214 4,071,384 742,038 896,885
Liabilities
Current
Trade accounts payable 366,399 251,454 366,399 251,454 - -
Loans and borrowings 831,071 925,062 647,130 650,990 183,941 274,072
Derivative financial instruments 2,811 492 2,811 492 - -
Other accounts payable 418,985 484,716 408,619 472,694 10,366 12,022
1,619,266 1,661,724 1,424,959 1,375,630 194,307 286,094
Non-current
Loans and borrowings 1,109,595 1,374,172 795,533 994,914 314,062 379,258
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Consolidated Industrial Finance
2017 2016 2017 2016 2017 2016
Other accounts payable 74,779 63,856 74,779 63,856 - -
1,184,374 1,438,028 870,312 1,058,770 314,062 379,258
Minority interests 29,843 32,108 29,843 32,108 - -
Shareholders' equity attributable to controlling
shareholders 1,898,769 1,836,409 1,665,100 1,604,876 233,669 231,533
Total liabilities 4,732,252 4,968,269 3,990,214 4,071,384 742,038 896,885
Statements of operations income
Consolidated Industrial Finance
2017 2016 2017 2016 2017 2016
Operations
Net revenue from sales and services 2,875,993 2,574,093 2,840,440 2,521,950 35,553 52,143
Cost of goods sold and services rendered (2,472,347 ) (2,248,335 ) (2,472,347 ) (2,248,335 ) - -
Gross profit 403,646 325,758 368,093 273,615 35,553 52,143 Operating revenue (expense) Sales expenses (168,734 ) (140,920 ) (154,905 ) (120,135 ) (13,829 ) (20,785 )
Administrative expenses (167,119 ) (165,262 ) (151,033 ) (149,064 ) (16,086 ) (16,198 )
Other net operating revenue (expenses) (80,397 ) 190,356 (80,014 ) 192,117 (383 ) (1,761 )
Equity in income of associates 86,857 94,011 86,857 94,011 - - Operating income 74,253 303,943 68,998 290,544 5,255 13,399 Finance income Finance revenue 292,019 577,534 292,019 577,534 - - Finance expenses (273,299 ) (511,240 ) (273,299 ) (511,240 ) - - Profit before income and social contribution
taxes 92,973 370,237 87,718 356,838 5,255 13,399 Income and social contribution taxes (10,861 ) (147,691 ) (8,407 ) (141,611 ) (2,454 ) (6,080 )
Net income for the year 82,112 222,546 79,311 215,227 2,801 7,319
31 Statements of cash flow by business segment – indirect method
Consolidated Industrial Segment Financial Segment
2017 2016 2017 2016 2017 2016
Cash flows from operating activities
Net income for the year 82,112 222,546 79,311 215,227 2,801 7,319 Reconciliation of income (loss) to cash provided by operating activities
Depreciation and amortization 45,432 49,691 45,166 49,431 266 260 Gain (loss) on sale of investment assets, property, plant and equipment and intangible assets 33,359 (198,659 ) 33,350 (198,662 ) 9 3
Write-off of property, plant and equipment by claim 24,485 - 24,485 - - -
Equity in net income of subsidiaries (86,857 ) (94,011 ) (86,857 ) (94,011 ) - -
Allowance for doubtful accounts 32,127 22,629 16,138 4,723 15,989 17,906 Current and deferred income and social contribution taxes 10,860 147,691 8,406 141,611 2,454 6,080
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
Consolidated Industrial Segment Financial Segment
2017 2016 2017 2016 2017 2016
Interest and exchange variance appropriated 120,100 (40,194 ) 82,958 (78,108 ) 37,142 37,914
Minority interests 9,942 3,158 9,942 3,158 - -
Changes in assets and liabilities
Decrease in trade accounts receivable 108,090 252,309 5,511 172,666 102,579 79,643
Decrease (increase) in securities 49,849 (13,859 ) 49,849 (13,859 ) - -
Inventory decrease (40,364 ) 1,399 (40,364 ) 1,399 - -
(Increase) in other accounts receivable (109,024 ) (13,551 ) (112,416 ) (4,752 ) 3,392 (8,799 )
Increase (decrease) in trade payables 109,725 (29,480 ) 109,725 (29,480 ) - -
Increase in other accounts payable (61,635 ) 3,687 (62,749 ) (6,905 ) 1,114 10,592
Cash provided by operations 328,201 313,356 162,455 162,438 165,746 150,918
Taxes on profit paid (33,267 ) (142,369 ) (28,043 ) (122,860 ) (5,224 ) (19,509 )
Net cash provided by operating activities 294,934 170,987 134,412 39,578 160,522 131,409
Cash flows from investment activities
Investments (10,369 ) 4,127 (10,369 ) 4,127 - - Dividends from subsidiaries, joint ventures and associated companies 16,366 19,559 16,366 19,559 - -
Additions to property, plant and equipment (52,465 ) (72,274 ) (52,435 ) (72,187 ) (30 ) (87 )
Acquisition of intangible assets (1,827 ) (1,270 ) (1,621 ) (1,215 ) (206 ) (55 ) Receipt on sale of investments, property, plant and equipment and intangible assets 1,291 405,950 1,291 405,950 - -
Net cash provided by (used in) investment activities (47,004) 356,092 (46,768) 356,234 (236 ) (142 )
Cash flows from financing activities
Treasury shares 665 1,802 665 1,802 - -
Share issuance - 43,707 - 43,707 - -
Loans secured from unrelated parties 567,914 641,263 425,699 425,650 142,215 215,613
Payment of loans – principal (937,213 ) (878,397 ) (638,035 ) (592,531 ) (299,178 ) (285,866 )
Payment of loans – interest (118,600 ) (121,464 ) (83,094 ) (87,934 ) (35,506 ) (33,530 ) Payment of interest in shareholders’ equity and dividends (17,140 ) (118,432 ) (16,475 ) (116,693 ) (665 ) (1,739 )
Net cash (used in) provided by financing activities (504,374 ) (431,521 ) (311,240 ) (325,999 ) (193,134 ) (105,522 )
Exchange variance on cash and cash equivalents 5,744 (17,261 ) 5,744 (17,261 ) - -
(Decrease) increase in cash and cash equivalents (250,700 ) 78,297 (217,852 ) 52,552 (32,848 ) 25,745
Cash and cash equivalents at the beginning of the year 1,209,459 1,131,162 1,164,550 1,111,998 44,909 19,164
Cash and cash equivalents at the end of the year 958,759 1,209,459 946,698 1,164,550 12,061 44,909
32 Additional information
The industrial business segment operates in the geographic areas listed below. The financial segment
operates exclusively in Brazil.
Marcopolo S.A.
Financial statements
December 31, 2017 and 2016
(A free translation of the original in Portuguese)
(a) Net revenue by geographic area
Consolidated
2017 2016
Brazil 2,086,033 1,738,293 Africa 87,967 92,889 Australia 325,078 367,251 China 65,909 63,432 Peru 1,029 4,783 Mexico 309,977 307,445
2,875,993 2,574,093
(b) Property, plant and equipment, goodwill and intangible assets by geographic area Consolidated
2017 2016
Brazil 713,282 735,523 Africa 13,920 12,203 Australia 112,321 128,340 Canada 49,416 45,504 China 3,675 4,111 Mexico 16,523 17,174 Uruguay 59 58 Peru - 45
909,196 942,958
33 Subsequent event
Pursuant to the Minutes of the Board of Directors Meeting held on February 21, 2018, the payment of
dividends for the year 2017 was approved, in the amount of R $ 19,330 to be paid at the rate of R $
0.021 per share as at March 29, 2018. Dividends will be deducted from the profit reserves destined for
2017.
* * *